The ITO, Ward-14(3),, Ahmedabad v. Shri Rashmikant Kishori Mankodi, Ahmedabad

ITA 2016/AHD/2009 | 2006-2007
Pronouncement Date: 10-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 201620514 RSA 2009
Assessee PAN ABAPM7214P
Bench Ahmedabad
Appeal Number ITA 2016/AHD/2009
Duration Of Justice 1 year(s) 8 month(s) 18 day(s)
Appellant The ITO, Ward-14(3),, Ahmedabad
Respondent Shri Rashmikant Kishori Mankodi, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 10-03-2011
Date Of Final Hearing 08-03-2011
Next Hearing Date 08-03-2011
Assessment Year 2006-2007
Appeal Filed On 22-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI JM & SHRI A N PAHUJA AM ITA NO.2016/AHD/2009 WITH C O NO.170/AHD/2009 (ASSESSMENT YEAR:-2006-07) INCOME-TAX OFFICER WARD- 14(3) AHMEDABAD V/S SHRI RASHMIKANT KISHORI MANKODI 3 MANDEEP APARTMENT NR. AMRUT JYOTI SCHOOL AMBAWADI AHMEDABAD PAN: ABAPM 7214 P [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AND CORRESPONDING CROSS OBJECTION[CO] BY THE ASSESSEE DIRECTED AGAINST AN ORDER DATED 16- 04-2009 OF THE LD. CIT(APPEALS)-XXI AHMEDABAD FOR THE ASSESSMENT YEAR (AY) 2006-07 RAISE THE FOLLOWING G ROUNDS:- ITA NO.2016/AHD/2009 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION MADE AT RS.31 46 539/- ON ACCOUNT OF UNEXP LAINED INVESTMENT IN SHARES. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ENTERTAINING ADDITIONAL EVIDENCE REGARDING SOURCES OF INVESTMENT WITHOUT GIVING OPPORTUNITY TO THE ASSESSING OFFICER THUS VIOLATING RULE 46A OF I.T. RULES. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO TREAT PROFIT ON PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS INCOME AS HELD BY ASSESSING OFF ICER. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.37 000/- MADE ON ACCOUNT OF INADEQUA TE HOUSEHOLD EXPENSES. ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 2 5. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEA RNED CIT(A) MAY BE CANCELLED AND THAT THE ORDER OF THE ASSESSING OFFIC ER BE RESTORED . CO NO.170/AHD/2009 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF TRAVEL CONCESSION ALLOWANCE IN A SUM OF RS.87 968/-. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF A SUM OF RS.20 731 /- OF HOUSE RENT ALLOWANCE. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2 05 000/- FOR CAS H BY TREATING IT AS UNEXPLAINED. 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.71 000/- FOR A BAN K DEPOSIT. 5 THE RESPONDENT CRAVES LEAVE TO ADD ALTER AMEND AND / OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE SAME. 2. ADVERTING FIRST TO GROUND NOS.1 AND 2 IN THE APP EAL OF THE REVENUE FACTS IN BRIEF AS PER RELEVANT ORDERS AR E THAT RETURN DECLARING INCOME OF RS.2 64 932/- FILED ON 05-09-20 06 BY THE ASSESSEE AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS S ELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE ACT ON 10-09-2007.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE MADE INVESTMENT OF RS.4 00 000/- IN SHARES OF SASKEN COMMUNICATION TECHNOLOGIES LTD. TO A QUERY BY THE AO SEEKING THE DETAILS OF INVESTMENTS IN SHARE S THE LD. AR OF THE ASSESSEE REPLIED THAT THE ASSESSEE DID NOT MAKE ANY INVESTMENT IN THE YEAR UNDER CONSIDERATION. TO A FURTHER QUERY BY THE AO THE ASSESSEE FURNISHED A COPY OF BANK STATEMENT AND DEM AT ACCOUNT. THE ASSESSEE POINTED OUT THAT HIS TOTAL SHARE HOLDI NG AMOUNTED TO RS.31 46 537/- AS ON 31-3-2006. THE DETAILS OF THES E SHARE HOLDING ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 3 ARE GIVEN ON PAGE 2 TO 4 OF THE ASSESSMENT ORDER. S INCE THE ASSESSEE WAS HAVING SALARY INCOME OF ONLY RS.3 15 6 87/- THE AO ASKED THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF INVESTMENT IN THE AFORESAID SHARES. HOWEVER THE ASSESSEE DID NOT EXPLAIN THE SOURCE(S) OF INVESTMENT IN THE AFORESAID SHARES NOR EVEN SPECIFIED THE DATE OF PURCHASE OF SHARES. IN THE ABSENCE OF T HESE DETAILS AND SINCE THE ASSESSEE ENTERED IN TO A NUMBER OF TRANSA CTIONS IN THE YEAR UNDER CONSIDERATION THE AO ADDED THE ENTIRE A MOUNT OF RS.31 46 539/- ON ACCOUNT OF UNACCOUNTED INVESTMEN T IN SHARES AND SECURITIES. 3. ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- 4.1 DURING THE COURSE OF HEARING THE LEARNED COUNS EL FOR THE APPELLANT MADE SUBMISSION IN RESPECT OF GROUNDS TAKEN. THE SA ID SUBMISSIONS ARE REPRODUCED HEREINUNDER:- 'IN THIS CONNECTION THE APPELLANT SUBMITS THAT UPT O AY 2006-2007 HE HAS BEEN WORKING WITH CADILA PHARMACEUTICALS LIMITED A HMEDABAD AS SECRETARY AND HAS EARNED GROSS SALARY DURING THE LA ST THREE ASSESSMENT YEARS AS UNDER: ASSESSMENT YEAR AMOUNT RS. 2004-2005 8 43 768 2005-2006 9.02.004 2006-2007 (INCLUDING GRATUITY OF 2 07 692) 7 45 118 LOOKING TO THE FINANCIAL STATUS OF APPELLANT INVES TMENTS OF APPROXIMATELY RS.31 LACS IS REASONABLE AND SUCH INVESTMENTS CAN N EVER BE TREATED AS UNEXPLAINED INVESTMENTS IN THE HANDS OF APPELLANT O N PRESUMPTION 2.3 APART FROM ABOVE APPELLANT FURTHER STATES THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS HE HAS SUBMITTED THE COPY O F BANK STATEMENTS AND IT CAN BE SEEN FROM DETAILS SUBMITTED BY HIM TH AT ENTIRE PAYMENTS HAVE BEEN MADE THROUGH BANKING CHANNELS. THE DEPOSI TS IN THE BANKS ARE THROUGH BANKING CHANNELS FROM WHICH APPELLANT HAS M ADE PAYMENT FOR ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 4 PURCHASE OF SHARES HENCE SUCH INVESTMENTS CANNOT BE TREATED AS UNEXPLAINED INVESTMENTS.. 2.4 WITHOUT PREJUDICE TO WHAT IS STATED HEREIN ABOV E APPELLANT SUBMITS THE MAJOR SOURCES OF SUCH INVESTMENTS AS ON 31/03/2 006 AS UNDER: PARTICULARS / SOURCE OF FUNDS AMOUNT AMOUNT LOAN FROM BHAVNABEN MANKODI NEW FUNDS RECEIVED LESS: REPAYMENT MADE 11 63 014 70 000 10 93 014 LOAN FROM KUNAL MANKODI ADD: NEW FUNDS RECEIVED LESS: REPAYMENT MADE 4 91 400 2 36 745 2 54 655 PROFIT FOR THE FINANCIAL YEAR 2005- 2006 INCLUDING SALARY INCOME GRATUITY OF RS. 2 07 692 DIVIDEND INCOME SHORT TERM CAPITAL GAIN LESS : EXPENSES OF PROVIDENT FUND INCOME TAX ETC 5 3 7 426 2 07 692 74 693 4 55 544 1 06 24 11 69 140 APPELLANT WAS HAVING OPENING INVESTMENTS AND OUT OF SUCH INVESTMENTS CERTAIN SHARES WERE SOLD WHICH WAS REINVESTED IN INVESTMENTS MADE DURING THE YEAR AND BALANCE WAS PART OF INVESTMENTS AS ON 31/03/2006 9 23 494 TOTAL 34 40 303 WITH REGARDS TO AFORESAID SOURCES OF INVESTMENTS A PPELLANT STATES AS UNDER: (A) WITH REGARDS TO AMOUNT RECEIVED FROM BHAVNABEN MANKODI APPELLANT STATED THAT IN EARLIER YEARS APPELLANT HAD GRANTED ADVANCE TO AFORESAID PERSON WHICH HAS BEEN RECEIVED BACK BY THE ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 5 APPELLANT DURING THE CURRENT YEAR. THE APPELLANT SU BMITS HEREWITH THE CONFIRMATION RECEIVED FROM AFORESAID PERSON ALO NG WITH A COPY OF LEDGER ACCOUNT OF APPELLANT IN THE BOOKS OF AFOR ESAID PERSON ALONG WITH AN EXPLANATION WITH REGARD TO THE SOURCE OF THE SAID LOAN MADE TO THE APPELLANT AND BANK STATEMENTS OF BHAVNA BEN MANKODI AS ANNEXURE - A. FURTHER IT IS STATED THAT AS APPA RENT FROM THE COPY OF THE LEDGER ACCOUNT OF APPELLANT IN THE BOOKS OF BHAVNABEN MANKODI AND HER BANK STATEMENTS SHE HAD SUFFICIENT FUNDS AVAILABLE IN THE FORM OF OPENING BANK BALANCES IN T HE BANK ACCOUNTS MAINTAINED WITH ICICI BANK AND BANK OF MAHARASHTRA AS WELL AS IN THE FORM OF REDEMPTION MONEY OF BANK FD FROM WHICH THE AFORESAID LOAN IS GIVEN TO THE APPELLANT. (B) DURING THE YEAR APPELLANT HAS RECEIVED NET AMOUNT OF RS.2 54 655/- AS LOAN FROM KRUNAL MANKODI. ENTIRE AMOUNT RECEIVED FROM SUCH PERSON IS THROUGH BANKING CHANNELS AND CONFIRMATION OF SAME ALONG WITH A COPY OF LEDGER ACCOUNT OF APPELLANT IN THE B OOKS OF AFORESAID PERSON ALONG WITH AN EXPLANATION WITH REGARD TO THE SOURCE OF THE SAID LOAN MADE TO THE APPELLANT AND BANK STATEMENTS OF KUNAL MANKODI IS ENCLOSED AS ANNEXURE B. FURTHER IT IS ST ATED THAT AS APPARENT FROM THE COPY OF THE LEDGER ACCOUNT OF APP ELLANT IN THE BOOKS OF KUNAL MANKODI HE HAD SUFFICIENT FUNDS AVA ILABLE IN THE FORM OF INCOME EARNED DURING THE YEAR OPENING CASH BALANCE FDR REDEMPTION REPAYMENT OF LOAN OF RASHMI MANKODI AS WELL AS OTHER LOANS FROM WHICH THE SAID LOAN IS MADE TO THE APPEL LANT. (C) IT CAN BE SEEN FROM AFORESAID CHART THAT APPELL ANT HAS EARNED INCOME OF RS.11 69 140/- BEING SALARY INCOME DIVID END INCOME AND SHORT TERM CAPITAL GAIN IN SHARES WHICH HAVE BEE N UTILIZED TOWARDS MAKING INVESTMENTS IN SHARES. (COPY OF FORM NO. 16 RECEIVED FOR CURRENT ASSESSMENT YEAR IS ENCLOSED AS ANNEXURE C) (D) THE APPELLANT STATES THAT HE HELD INVESTMENT AS ON 1/04/2005 AMOUNTING TO RS.9 23 494/-. THE APPELLANT IS SUBMIT TING HEREWITH A STATEMENT SHOWING THE VALUE OF THE OPENING BALANCE OF INVESTMENTS AS HELD BY THE APPELLANT AS WELL AS DEMAT STATEMENT S VIDE ANNEXURE-D. IT IS FURTHER STATED THAT CERTAIN SHARE S WERE SOLD DURING THE YEAR AND AMOUNT RECEIVED TOWARDS SALE WAS UTILI ZED FOR MAKING NEW INVESTMENTS. EVEN APPELLANT HAS BEEN HOLDING CE RTAIN INVESTMENTS MADE IN EARLIER YEAR AS CLOSING INVESTM ENTS AS ON 31/03/2006. (E) THE APPELLANT HAS ALSO UTILIZED HIS PAST SAVING KEPT WITH HIM AND OPENING BANK BALANCES APPROXIMATELY RS.12.29 LACS T OWARDS MAKING INVESTMENTS IN SOURCES. 2.5 IN VIEW OF WHAT IS STATED HEREIN ABOVE THE APPE LLANT SUBMITS THAT THE SOURCE OF INVESTMENTS IN SHARES MADE BY THE APPELLA NT IS FULLY EXPLAINED ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 6 HENCE NO ADDITION ON ACCOUNT OF UNEXPLAINED INVESTM ENTS SHOULD BE MADE IN HIS CASE AND THE SAME MAY DIRECTED TO BE DELETED . 2.6 WITHOUT PREJUDICE TO WHAT IS STATED HEREIN ABOV E THE APPELLANT STATES THAT DURING THE YEAR UNDER CONSIDERATION HE HAS OFFERED NET INCOME OF RS.11 69 140/- FOR TAXATION PURPOSE. FURTHER THE APPELLANT STATES THAT AS MENTIONED IN EARLIER PARA THE APPELLANT HAS UTILIZ ED THE SAME INCOME FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARES. IN THI S REGARD IT IS SUBMITTED THAT IT IS WELL ESTABLISHED RULE THAT ONCE THE SO URCE OR INCOME IS TAXED IN THE HANDS OF THE ASSESSEE THE APPLICATION OF THE S AID INCOME SHOULD NOT BE TAXED AS THE SAME WOULD AMOUNT TO DOUBLE TAXATI ON. ACCORDINGLY IN CASE OF APPELLANT ALSO IT IS STATED THAT AS THE IN COME OF RS.11 69 140/- IS ALREADY TAXED IN THE HANDS OF THE APPELLANT ITS AP PLICATION SHOULD NOT BE TAXED IN THE HANDS OF THE APPELLANT. HENCE ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENTS IF ANY MADE IN CASE OF TH E APPELLANT THAN THE SAME SHOULD BE REDUCED BY RS.11 69 140/-. 2.7 WITHOUT PREJUDICE TO WHAT IS STATED HEREIN ABOV E THE APPELLANT STATES THAT SOME OF THE INVESTMENT IN THE SAID SHAR ES ARE MADE BY THE APPELLANT ON BEHALF OF BHAVNABEN MANKODI AS PAYMENT S FOR THE ACQUISITION OF SHARES IN THE FORM OF SHARE APPLICATION MONEY IN CASE OF INVESTMENTS MADE IN THE IPOS AS WELL AS PAYMENTS TO BROKERS HA VE NOT BEEN MADE BY THE APPELLANT BUT THE PAYMENTS ARE MADE BY BHAVNABE N MANKODI DIRECTLY FROM HER BANK ACCOUNTS. IN SUPPORT OF THIS A COPY OF THE BANK STATEMENTS OF BHAVNABEN MANKODI WHICH IS FORMING PART OF ANNEX URE A IS SUBMITTED FOR YOUR KIND PERUSAL. THUS LOOKING TO THE ESSENCE OF THE SAID FACTS IT IS SUBMITTED THAT AS THE APPELLANT HAS NOT PAID ANY CO NSIDERATION FOR THE PURPOSE OF MAKING THE INVESTMENTS AMOUNT RECEIVED TO THE EXTENT OF BHAVNABEN CANNOT BE TAXED AS UNEXPLAINED INVESTMENT S IN THE HANDS OF THE APPELLANT.' 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT AND I HAVE ALSO PERUSED THE ORDER THE A.O. THE A.O. HAS O BSERVED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAIL REGARDING INV ESTMENTS IN SHARES FOR RS.31 46 537/-. HOWEVER IN DOING SO HE HAS IGNORE D THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS SUBMITTED DETAILS OF BANK STATEMENT WHEREIN TRANSACTIONS OF SHARES/SE CURITIES ARE RECORDED. EVEN AT PARA 3.1 OF ASSESSMENT ORDER THE A.O. HIMS ELF HAS OBSERVED THAT ASSESSEE HAS SUBMITTED BANK ACCOUNTS STATEMENT. EVE N THE APPELLANT HAS BEEN EARNING HANDSOME SALARY FROM M/S. CADILA PHARM ACEUTICALS LTD. AND DETAILS OF SUCH INCOME WERE AVAILABLE WITH THE A.O. THE ASSESSEE HAS SUBMITTED THAT ENTIRE INVESTMENTS HAVE BEEN MADE FR OM FOLLOWING SOURCES OF FUNDS: A) PROFIT FOR THE CURRENT A.Y. INCLUDING SALARY INC OME SHORT TERM CAPITAL GAIN AND OTHER EXEMPT INCOME FOR RS.11 69 140/- WHI CH HAS ALREADY BEEN CONSIDERED BY THE A.O. IN HIS ORDER. ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 7 B) THE ASSESSEE WAS HAVING OPENING INVESTMENT OF RS .9 23 494/-. OUT OF SUCH INVESTMENT CERTAIN SHARES WERE SOLD AND SA ME WERE RE- INVESTED AND REMAINING BALANCE SHARES WERE ALREADY INCLUDED AS PART OF CLOSING INVESTMENT. C) THE ASSESSEE HAS ALSO RECEIVED NEW FUNDS FROM HI S WIFE AND HIS SON AMOUNTING TO RS.13 47 669/- AND SUCH RECEIPTS W ERE THROUGH BANKING CHANNEL AND BOTH THE PERSONS HAD SUFFICIEN T FUNDS AVAILABLE WITH THEIR BANK ACCOUNT AS ON 1/4/2005 AS WELL AS THEY HAVE SOURCE OF FDR REDEMPTION AND OTHER INCOME. IT IS ESTABLISHED THAT ASSESSEE HAS MADE INVESTMENT THROUGH BANKING CHANNEL AND HAVE SUFFICIENT SOURCES OF FUNDS AS ENU MERATED HEREIN ABOVE WHICH IS SUPPORTED BY EVIDENCES. HENCE IT CANNOT BE STATED THAT APPELLANT HAS MADE UNACCOUNTED INVESTMENT OUT OF UN DISCLOSED SOURCES OF FUND MORE PARTICULARLY WHEN ENTIRE TRANSACTION S ARE THROUGH BANKING CHANNEL AND HAS KNOWN SOURCES. THE ADDITION MADE BY A.O. IS ON ASSUMPTION AND WITHOUT APPRECIATING THE FACTS OF AP PELLANT'S CASE. HENCE ADDITION MADE BY A.O. IS DELETED. THIS GROUND OF A PPEAL IS ALLOWED . 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). NONE APPEARED ON BE HALF OF THE ASSESSEE AT THE TIME OF HEARING DESPITE SERVICE OF NOTICE. THE LEARNED DR WHILE CARRYING US THROUGH THE IMPUGNED O RDER CONTENDED THAT THE ASSESSEE DID NOT FURNISH ANY DETAILS EITHE R REGARDING THE DATE OF PURCHASE OF AFORESAID SHARES NOR EXPLAINED THE SOURCE OF INVESTMENT THEREIN BEFORE THE AO. THE LEARNED CIT(A ) WHILE ADMITTING THE ADDITIONAL EVIDENCE IN CONTRAVENTION OF RULE 46A OF THE ITAT RULES 1962 DELETED THE ADDITION WITHOUT GIVI NG ANY OPPORTUNITY TO THE AO. TO A QUERY BY THE BENCH THE LEARNED DR STATED THAT THE DOCUMENTS RELATING TO LOANS FROM SM T. BHAVNABEN MANKODI AND SHRI KRUNAL MANKODI AS ALSO THE EVIDENC E IN SUPPORT OF EXPLANATION REGARDING THE SOURCE OF INVESTMENT IN T HE AFORESAID SHARES WERE ADMITTED IN EVIDENCE BY THE LEARNED CIT (A) IN CONTRAVENTION OF RULE 46A OF THE IT RULES 1962. AND WITHOUT ALLOWING ANY OPPORTUNITY TO THE AO. ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 8 5. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH TH E FACTS OF THE CASE. WE FIND THAT THE ASSESSEE DID NOT FURNISH ANY DETAILS EITHER REGARDING THE DATE OF PURCHASE OF SHARES WORTH RS. 31 46 539/- OR THE SOURCE(S) OF INVESTMENT THEREIN. THE LEARNED CI T(A) SIMPLY ON THE BASIS OF SUBMISSIONS OF THE ASSESSEE DELETED T HE ADDITION WITHOUT CONFRONTING EITHER THE SUBMISSIONS FILED BY THE ASSESSEE OR THE DOCUMENTS SUBMITTED BEFORE HIM. THOUGH THE LD. CIT(A) RELIED UPON THESE DOCUMENTS THE IMPUGNED ORDER DOES NOT REVEAL ANY REASONS FOR ADMITTING THE ADDITIONAL EVIDENCE. UNDI SPUTEDLY THE LD. CIT(A) DELETED THE ADDITION RELYING INTER ALIA ON THE AFORESAID D OCUMENTS EVEN WHEN HE WAS FULLY AWARE THAT ASSESSMENT HAD BE EN COMPLETED IN AN EXPARTE MANNER AND THE ASSESSEE DID NOT SUBMIT THE NECESSARY DETAILS/DOCUMENTS BEFORE THE AO. IN NUTSHELL THE L D. CIT(A) DELETED THE ADDITIONS ON THE BASIS OF ADDITIONAL EVIDENCE SUBMITTED BEFOR E HIM WITHOUT FOLLOWING THE PROCEDURE LAID DOWN UNDER RULE 46A OF THE IT RULES 1962. AS IS APPARENT FROM THE FACTS OF THE CASE THE LD. CIT(A) ARRIVED AT TH E CONCLUSIONS WITHOUT ASCERTAINING AS TO WHETHER OR NOT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM SUBMITTING THE AFORESAID ADDITIONAL DOCUMENTS/ INFORMATION BEFORE THE AO AS PER PROVISIONS OF RULE 46A OF THE IT RULES 1962 N OR THE LD. CIT(A) SEEMS TO HAVE RECORDED ANY REASONS BEFORE ADMITTING THE AFOR ESAID DOCUMENTS IN EVIDENCE. HERE WE MAY HAVE A LOOK AT THE RELEVANT PROVISIONS OF RULE 46A OF THE IT RULES 1962 WHICH READS AS UNDER: (1) THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE COMMISSIONER (APPEALS) ANY EVIDENCE WHETHER ORAL OR DOCUMENTARY OTHER TH AN THE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE ASS ESSING OFFICER EXCEPT IN THE FOLLOWING CIRCUMSTANCES NAMELY:-- (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMI T EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED;OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE ASSESSING OFFICER; OR (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE ASSESSING OFFICER ANY EVIDENCE WHICH IS RELEVAN T TO ANY GROUND OF APPEAL; OR ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 9 (D) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO A DDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE C OMMISSIONER (APPEALS) RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. (3)THE DEPUTY COMMISSIONER(APPEALS) OR AS THE CA SE MAY BE THE COMMISSIONER (APPEALS) SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE INCOME-TAX OFFICER HA S BEEN ALLOWED A REASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS-EXAMINE THE WITNESS PRODUCED BY THE APPELLANT OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE DEPUTY COMMISSIONER (APPEALS) OR AS THE CASE MAY BE THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUCTION OF ANY DOCUMENT OR THE EXAMI NATION OF ANY WITNESS TO ENABLE HIM TO DISPOSE OF THE APPEAL OR FOR ANY OTH ER SUBSTANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETH ER ON HIS OWN MOTION OR ON THE REQUEST OF THE ASSESSING OFFICER) UNDER CLAUSE (A) OF SUB SECTION (1) OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER SECT ION 271..' 5.1 IT IS EVIDENT FROM THE AFORESAID PROVISIONS THAT THE LD. CIT(A) CAN TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-R. (1)(B) & (C) OF RULE 46A OF THE IT RULES 1962 IF THE ASSESSEE WAS PREVENTED BY SUFF ICIENT CAUSE .IN THE CASE UNDER CONSIDERATION THE ASSESSEE PLACED BEFORE THE LD. CIT(A) CERTAIN DOCUMENTS AND THE SAID DETAILS/DOCUMENTS WERE NEVER SUBMITTED BEFORE THE AO. MOREOVER THERE IS NOTHING TO SUGGEST AS TO WHETHER OR NOT THE LD. CIT(A) RECORDED ANY REASONS BEFORE ADMITTING THE AFORESAI D DOCUMENTS BY WAY OF ADDITIONAL EVIDENCE. IN THIS CONNECTION HONBLE JU RISDICTIONAL HIGH COURT IN THEIR DECISION IN THE CASE OF CIT VS. VALIMOHMED AHMEDBHA I 134 ITR 214(GUJ) WHILE REFERRING TO PROVISIONS OF SEC. 46A OF THE IT RULES 1962 OBSERVED THAT NOTICE OF APPEAL ISSUED BY AN AAC CANNOT BE EQUATED WITH NOT ICE OF A FUTURE APPLICATION TO LEAD ADDITIONAL EVIDENCE WHICH NO ONE COULD HAVE AN TICIPATED OR REASONABLY FORESEEN. HONBLE HIGH COURT HELD THAT ORDINARILY THE APPEAL WOULD BE DECIDED ON THE EVIDENCE RECORDED IN THE COURSE OF ASSESSMEN T PROCEEDINGS. SINCE IN THE CASE UNDER CONSIDERATION THE ADDITIONAL EVIDENCE/D OCUMENTS FILED BEFORE THE ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 10 LEARNED CIT(A) HAVE BEEN ADMITTED WITHOUT RECORD ING ANY FINDINGS AS TO WHETHER OR NOT THE ASSESSEE WAS PREVENTED BY SUFFIC IENT CAUSE FROM PRODUCING THE SAID EVIDENCE/DOCUMENTS BEFORE THE AO AND WITHO UT RECORDING ANY REASONS IN TERMS OF RULE 46A(2) OF THE IT RULES 1962 WE FIND MERIT IN THE UNDISPUTED CONTENTIONS OF THE LEARNED DR AND THEREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY VACATE THE FINDINGS OF THE LD. CIT(A) AND RES TORE THE ISSUES RAISED IN GROUND NOS.1 TO 2 IN THE APPEAL OF THE REVENUE TO HIS FILE WITH THE DIRECTIONS TO FOLLOW THE MANDATE IN TERMS OF RULE 46A OF THE IT RULES 1962 AS ALSO PRINCIPLES OF NATURAL JUSTICE AND THEREAFTER DISPOSE OF THE MATTER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . WITH THESE DIRECTIONS GROUND NOS. 1 & 2 RAISED IN THE APPEAL ARE DISPOSED OF AS INDICATED HEREINBEFORE. 6. GROUND NO.3 RELATES TO TAXATION OF PROFIT ON SAL E AND PURCHASE OF SHARES. TO A QUERY BY THE AO THE ASSESSEE STATE D VIDE LETTER DATED 10-11-2008 THAT HE ARNED SHORT TERM CAPITAL G AINS OF RS.4 55 544/-.SINCE THE ASSESSEE HAD ENTERED INTO A NUMBER OF TRANSACTIONS AS EVIDENT FROM HIS DEMAT ACCOUNT - TH E ASSESSEE ENTERED IN TO 125 TRANSACTIONS IN SHARES OF THE VA LUE OF RS.26 000 88/- WHICH WERE SOLD WITHIN THREE MONTHS AND IN OTHER 78 TRANSACTIONS THE ASSESSEE EARNED PROFIT OF RS.2 08 801/- WITH INVESTMENT OF RS.14 36 839/-. ACCORDINGLY IN THE L IGHT OF CIRCULAR NO.4 OF 2007 DATED 15-06-2007 OF THE CBDT AND THE D ECISION OF THE AUTHORITY FOR ADVANCE RULINGS IN FIDELTY NORTH STA R FUND & OTHERS IN RE 288 ITR 641 AND KEEPING IN VIEW THE NUMBER A ND NATURE OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE THE AO T REATED THE AMOUNT OF RS.4 55 544/- AS INCOME FROM BUSINESS R ELYING INTER ALIA UPON THE DECISION IN THE CASE OF NEERJA BIRLA VS. ACIT 66 ITD 148 AND CIT VS. SUGAR DEALERS (1975) 100 ITR 424 (A LL). 7. ON APPEAL THE LEARNED CIT(A) DIRECTED THE AO TO TAX THE AFORESAID AMOUNT AS SHORT TERM CAPITAL GAINS IN THE FOLLOWING TERMS:- ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 11 5.1 DURING THE COURSE OF HEARING THE LEARNED COUNS EL FOR THE APPELLANT MADE SUBMISSION IN RESPECT OF GROUNDS TAKEN. THE RE LEVANT SUBMISSIONS ARE REPRODUCED HEREINUNDER. 3.2 IN THIS CONNECTION THE APPELLANT STATES THAT H E IS A SALARIED PERSON AND THE ACTIVITIES OF PURCHASE AND SALE OF SECURITI ES ALLEGED TO BE BUSINESS ACTIVITIES ARE INVESTMENTS MADE BY THE APP ELLANT WITH A VIEW TO EARN DIVIDEND INCOME<& WEALTH MAXIMIZATION AND NOT FOR CARRYING OUT ANY TRADING ACTIVITY. HIS INCOME FROM THE CADILA PHARMACEUTICALS LIMITED AS COMPANY SECRETARY CONSTI TUTES THE SOURCE OF LIVELIHOOD FOR THE APPELLANT AND HIS FAMI LY. ON THE BASIS OF AFORESAID FACTUAL FACTS INCOME EARNED FROM SALE OF INVESTMENTS CANNOT BE TREATED AS BUSINESS INCOME AS SAME IS NOT THE ONLY SOURCE OF INCOME. 3.3 THE APPELLANT FURTHER SUBMITS THAT ALL THE TRAN SACTIONS ENTERED INTO BY THE APPELLANT DURING THE PERIOD UNDER CONSIDERAT ION WERE MADE WITH AN INTENTION OF INVESTMENT. MERELY THE FACT TH AT THE APPELLANT HAS BEEN ABLE TO SELL ITS INVESTMENTS AT AN AMOUNT HIGHER THAN THE COST OF ACQUISITION RESULTING IN TO GAINS DOES NOT RENDER THE SAME AS OF A TRADING NATURE BUT REAL INTENTION OF APPELLANT BEHIND THE EXECUTION OF SUCH TRANSACTIONS WAS TO MAKE INVESTME NT. IT IS FURTHER STATED THAT DURING THE PERIOD UNDER C ONSIDERATION THE STOCK MARKETS SHOWED A SUSTAINED UPSWING AND THEREF ORE IT IS ONLY JUSTIFIABLE BEHAVIOR ON THE PART OF THE APPELLANT WHO IS ACTING AS A PRUDENT INVESTOR TO LIQUIDATE HIS HOLDING AND MAXIM IZE HIS WEALTH AS IT IS NOT CERTAIN WHETHER THIS UPSWING WILL CONTINU E AND IF IT WAS SO UP TO WHAT PERIOD. HENCE LOOKING INTO THE FACTS IN TOTALITY IT IS AMPLE CLEAR THAT THE APPELLANT HAS RIGHTLY TREATED THE SU RPLUS UNDER THE HEAD CAPITAL GAIN. 3.4 THE APPELLANT ALSO SUBMITS DETAILS OF CAPITAL G AIN EARNED DURING THE YEAR AS ANNEXURE E AND STATES AS UNDER AS TO WHY OB SERVATION OF AO CANNOT BE APPLIED IN CASE OF IT. THE APPELLANT A LSO STATES AS UNDER WHY INCOME EARNED FROM SALE OF SHARES SHOULD BE TREATED AS CAPITAL GAIN IN CASE OF HIM. (A) WITH REGARDS TO OBSERVATION OF AO THAT APPELLAN T HAS NOT MAINTAINED BOOKS OF ACCOUNT HENCE IT CANNOT BE DETERMINED WHET HER APPELLANT IS TRADER OR INVESTOR APPELLANT STATES THAT AS HE IS NOT BEEN EARNING ANY INCOME FROM BUSINESS OR PROFESSION HE IS NOT R EQUIRED TO MAINTAIN BOOKS OF ACCOUNTS AS PER PROVISIONS OF SEC TION 44AA OF THE ACT. HOWEVER LOOKING TO THE INCOME EARNED BY THE A PPELLANT AND LOOKING TO THE TRANSACTIONS CARRIED OUT FOR EARNING GAIN OF ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 12 RS.4 55 544 AS OBSERVED BY AO IT CAN BE ESTABLISHE D THAT HE IS INVESTOR NOT TRADER. (B) WITH REGARD TO THE OBSERVATION OF THE ASSESSING OFFICER THAT THE APPELLANT HAS ENTERED INTO MORE THAN 200 NUMBER OF TRANSACTIONS WHICH LEADS TO MAKE HIM AS TRADER APPELLANT STATES THAT A REFERENCE MAY ALSO BE MADE TO THE HON'BLE ITAT MUMBAI BENCH DECISION IN THE CASE OF JANAK S. RANGWALLA (11 SOT 627). IN THI S CASE THE ASSESSEE WAS HOLDING LARGE MAGNITUDE OF SHARES AS I NVESTMENTS SINCE PAST SEVERAL YEARS AND THE ASSESSEE EARNED SH ORT TERM AND LONG TERM CAPITAL GAINS ON PURCHASE AND SALE OF SHA RES. THE REVENUE AUTHORITIES HAVING REGARD TO THE MAGNITUDE OF TRANSACTIONS HELD THAT THE ASSESSEE WAS A TRADER IN SHARES. THE HON'BLE ITAT HELD THAT INVESTMENT IN SHARES ON A LARGE MAGNITUDE WOULD NOT DECIDE THE NATURE OF TRANSACTIONS AND THEREFORE T HE ASSESSEE COULD NOT BE TREATED AS TRADER IN SHARES. (C) THE APPELLANT STATES THAT IT CAN BE SEEN FROM S TATEMENT OF PROFIT EARNED BY HIM DURING THE FINANCIAL YEAR UNDER CONSI DERATION IN CASE OF MAJORITY OF THE SCRIPTS THE APPELLANT HAS MADE I NVESTMENTS ON A SINGLE DATE AND THEREAFTER HAS SOLD THEM ON DIFFERE NT DATES IN ORDER TO MAXIMIZE HIS WEALTH. THUS IT IS SUBMITTED THAT T HE APPELLANT HAS MADE ONE TIME INVESTMENTS IN THE STOCKS AND HAS NOT ENTERED INTO FREQUENT PURCHASE AND SALE TRANSACTIONS IN SAME SCR IPTS. IT IS STATED THAT HAD HE BEEN TRADER HE WOULD HAVE CARRIED OUT TRANSACTION AGAIN AND AGAIN MEANING THEREBY PURCHASING AND SELL ING SAME SHARES FREQUENTLY. (D) WITH REGARD TO THE OBSERVATION OF THE ASSESSING OFFICER THAT SHARES HAVE BEEN HELD FOR THE PERIODS RANGING FROM THREE D AYS TO TWO TO WEEKS APPELLANT STATES THAT IT IS EVID ENT FROM DETAILS SUBMITTED HEREWITH THAT IN MANY CASES THERE IS A SU BSTANTIAL PERIOD OF HOLDING OF MORE THAT 3 MONTHS WHICH MAKES IT CLE AR THAT THE INTENTION OF THE APPELLANT WAS THAT OF THE INVESTME NT AND NOT OF TRADING. THE APPELLANT FURTHER STATES THAT ASSESSING OFFICER HAS FAILED TO APPRECIATE EVEN AS THE LEGISLATURE HAS PROVIDED THA T A SHORT-TERM CAPITAL ASSET MEANS A CAPITAL ASSET HELD FOR A PERI OD NOT EXCEEDING 36 MONTHS IMMEDIATELY PRECEDING ITS TRANSFER IT HA S ALSO PROVIDED BY MEANS OF THE PROVISO IN SECTION 2(42A) THAT INS OFAR AS SHARES IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNI ZED STOCK EXCHANGE OR UNITS OF MUTUAL FUNDS ETC. ARE CONCERNE D THE PRESCRIBED HOLDING PERIOD IS UPTO 12 MONTHS. IN OTH ER WORDS THE LEGISLATURE HAS EXPRESSLY PROVIDED THAT EVEN AS THE HOLDING PERIOD FOR A LONG-TERM CAPITAL ASSET IN GENERAL IS 'MORE T HAN 36 MONTHS' ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 13 THE HOLDING PERIOD FOR SHARES AND OTHER LISTED SECU RITIES OR UNITS OF MUTUAL FUNDS ETC. IN ORDER THAT THEY MAY QUALIFY T O BE LONG-TERM CAPITAL ASSETS IS ONLY L/3RD THEREOF VIZ. MORE TH AN 12 MONTHS. IT ALSO MEANS THAT EVEN AS CAPITAL ASSETS IN GENERAL WOULD BE REGARDED AS SHORT-TERM CAPITAL ASSETS THOUGH THEY MAY HAVE BEEN HELD FOR AS LONG AS UPTO 36 MONTHS THE CORRESPONDING REQUIREME NT IN THE CASE OF SHARES ETC. IS ONLY UPTO 12 MONTHS. ACCORDINGLY A CAPITAL ASSET IN GENERAL WOULD HAVE TO BE REGARDED AS A SHORT-TERM C APITAL ASSET IF HELD FOR ANY DURATION FROM 1 DAY TO 36 MONTHS WHERE AS IN THE CASE OF SHARES ETC. THE DURATION IS FROM 1 DAY TO JUST 12 MONTHS. COUPLED WITH THE FACT THAT SECTION 111A INSERTED WITH EFFEC T FROM 1-4-2005 PROVIDES FOR A CONCESSIONAL TREATMENT OF LEVYING TA X ON SHORT TERM CAPITAL GAINS FROM THE TRANSFER OF SHARES OR UNITS OF EQUITY ORIENTED MUTUAL FUNDS WHICH HAVE BEEN SUBJECTED TO THE LEVY OF SECURITIES TRANSACTION TAX (WHICH TOO WAS INSERTED SIMULTANEOU SLY WITH THE INSERTION OF SECTION 111A) AT ONLY 10% (WHICH IS L/ 3RD OF THE MAXIMUM MARGINAL TAX APPLICABLE TO TOTAL INCOME OTH ER THAN SUCH SHORT TERM CAPITAL GAINS) THE LEGISLATIVE INTENTIO N OF GIVING CONSIDERABLY FAVOURABLE TAX TREATMENT TO SUCH SHORT TERM CAPITAL GAINS IS SO EXPLICIT THAT IT RENDERS MOST OF THE PR INCIPLES/CRITERIA REFERRED IN ITS INSTRUCTION NO. 1827 DATED 31.8.198 9 AND IN CIRCULAR NO.4 DATED 15.6.2007 (WHICH HAVE BEEN CULLED OUT FR OM JUDICIAL DECISIONS RENDERED UNDER THE OLD LAW) REDUNDANT. WH EN THE LEGISLATURE HAS MADE SUCH EXPRESS PROVISIONS REQUIR ING A FAR SHORTER HOLDING PERIOD FOR SHARES ETC. TO BE TREATE D AS SHORT-TERM CAPITAL ASSETS THAN THE PERIOD REQUIRED IN THE CASE OF OTHER CAPITAL ASSETS AND FURTHER WHEN THOSE PROVISIONS CATEGORIC ALLY RECOGNIZE THAT SHARES ETC. MAY BE CAPITAL ASSETS THOUGH SHOR T-TERM CAPITAL ASSETS EVEN IF HELD FOR A DURATION OF BETWEEN 1 DA Y AND 12 MONTHS IT CLEARLY MEANS THAT THE PRINCIPLES AND CRITERIA R EFERRED TO IN THE CBDT INSTRUCTION NO. 1827 DATED 31.8.1989 AND SUBSE QUENT CIRCULAR NO.4 DATED 15.6.2007 CANNOT BE RELEVANT FO R DECIDING AS TO WHETHER THE PROFIT/LOSS RESULTING FROM A SALE OF SH ARES ETC. BY AN ASSESSEE IS A CAPITAL GAIN/LOSS OR BUSINESS PROFIT/ LOSS WHERE THE ASSESSEE CANNOT BE SHOWN TO BE DIRECTLY ENGAGED IN THE BUSINESS OF DEALING IN SECURITIES AS SUCH OR WHERE THOUGH T HE ASSESSEE MAY NOT BE ENGAGED DIRECTLY IN THE BUSINESS OF DEALING IN SECURITIES THE NATURE OF HIS BUSINESS (LIKE IN THE CASE OF BANKING BUSINESS) IS SUCH THAT THE TRANSACTIONS IN SECURITIES MAY HAVE TO BE TREATED AS PART OF HIS BUSINESS. THIS IS FOR THE SIMPLE REASON THAT MO ST OF THESE PRINCIPLES/CRITERIA ARE REPUGNANT TO THE VERY IDEA OF TREATING SHARES ETC. SOLD BY AN ASSESSEE WITHIN A SHORT PERIOD OF S AY 12 MONTHS OR LESS AS CAPITAL ASSETS. EVEN ASSESSING OFFICER HIMSELF AT PARA 4 OF HIS ORD ER HAS OBSERVED THAT OUT OF TOTAL CAPITAL GAIN OF RS. 4.55 LACS CA PITAL GAIN OF RS. 2.08 ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 14 LACS HAS BEEN EARNED WHEREIN SHARES HAVE BEEN HELD FOR MORE THAN 3 MONTHS. THE RATIO OF SUCH GAIN IS MORE THAN 45% O F TOTAL GAIN. (E) APART FROM ABOVE APPELLANT STATES THAT HE HAS NOT CARRIED OUT TRANSACTIONS ON DAY TO DAY BASIS WHICH CAN TREAT IT AS TRADER AND HAD IT BEEN TRADER IN SHARES AS ENVISAGED BY ASSESS ING OFFICER SUCH TRANSACTIONS WOULD HAVE BEEN AT EACH DAY WHICH IS N OT THE CASE OF APPELLANT. 5.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE APPELLANT AND I HAVE ALSO PERUSED THE ORDER THE A.O. THE APPELLANT WAS NOT SOLELY OCCUPIED WITH SHARES BUT HAD SUBSTANTIAL INCOME AS SALARY FROM CADILA PHARMACEUTICALS LIMITED WHICH IS HIS SOURCE OF LIVE LIHOOD. THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE ON DELIVERY BASIS A ND WERE NOT REPETITIVE ENOUGH TO WARRANT CONCLUSION OF THE APPELLANT AS BE ING A TRADER. THE APPELLANT HAS NOT EVEN CARRIED OUT TRANSACTIONS ON DAILY BASIS. THE ASSESSING OFFICER HAS OBSERVED THAT PERIOD OF HOLDI NG OF SHARES RANGES FROM THREE DAYS TO TWO TO THREE WEAK BUT HAS FAILED TO APPRECIATE OUT OF TOTAL CAPITAL GAIN OF RS.4.55 LACS CAPITAL GAIN OF RS.2.08 LACS HAS BEEN EARNED WHEREIN SHARES HAVE BEEN HOLD FOR MORE THAN 3 MONTHS WHICH ARE SUBSTANTIAL HOLDING 'AND SUCH FACTS IS ALSO ACCEPTE D BY AO AT PARA 4 OF HIS ORDER. I FIND THAT JUST BECAUSE APPELLANT HAD MADE 200 TRANSACTIONS BECAUSE OF RISING SHARE PRICES TRANSACTIONS CANNOT BE CLASSIFIED AS BUSINESS TRANSACTIONS. THE ASSESSING OFFICER HAS FA ILED TO APPRECIATE THE FACT THAT EVEN LEGISLATURE IN SECTION 2(42A) HAS TR EATED SHARES MAY BE TREATED AS SHORT TERM CAPITAL ASSETS IF HELD FOR A DURATION BETWEEN 1 DAYS AND 12 MONTHS AND EVEN LEGISLATURE HAS SPECIFIED RA TE OF TAX @ 10% AS PER PROVISIONS OF SECTION 111A OF THE ACT HENCE TRA NSACTIONS CARRIED OUT BY ASSESSEE CANNOT BE EQUATED WITH BUSINESS TRANSACTIO NS. THUS ON CONSIDERATION OF THE DETAILS ON RECORDS FACTS AND CIRCUMSTANCES OF THE APPELLANT THE ACTION OF AO IN TREATING THE INCOME AS BUSINESS INCOME CANNOT BE UPHELD. CONSEQUENTLY THE ADDITIONS SO MA DE BY AO IS DELETED AND RELATED GROUND OF APPEAL IS ALLOWED. 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT THE LEARN ED CIT(A) DID NOT RECORD ANY FINDINGS ON THE FACTS POINTED OUT BY THE AO IN HIS ASSESSMENT ORDER IN THE LIGHT OF CIRCULAR NO.4 OF 2 007 DATED 15-06- 2007 AND THE DECISIONS RELIED UPON BY HIM. SINCE TH E ORDER OF THE LD. CIT(A) IS NON-SPEAKING AND HAS BEEN PASSED WITHOUT ALLOWING ANY ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 15 OPPORTUNITY TO THE AO THE ISSUE IS REQUIRED TO BE RESTORED TO HIS FILE FOR RECONSIDERATION THE LD. DR VEHEMENTLY ARGUED. 9. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH TH E FACTS OF THE CASE. THE ISSUE WHETHER TRANSACTION IN SHARES S HOULD BE TREATED AS INVESTMENT OR TREATED AS BUSINESS AND IN WHAT CIRCU MSTANCES HOLDINGS SHOULD BE TREATED AS INVESTMENT OR AS STOCK IN TRADE HAS BE EN DISCUSSED IN DETAIL BY THE TRIBUNAL LUCKNOW BENCH IN SARNATH INFRASTRUCTURE ( P) LTD V. ACIT. IN THAT DECISION TRIBUNAL WHILE REFERRING TO A NUMBER OF JU DGMENTS IN FIDELITY NORTHSTAR FUND IN RE (2007) 288 ITR 641 (AAR) RAJA BAHADUR VISHESHWAR SINGH VS. COMMISSIONER OF INCOME-TAX (1961) 41 ITR 685 (SC) . CENTRAL INDIA AGENCIES (P.) LTD. VS. COMMISSIONER OF INCOME-TAX (1970) 77 ITR 959 (ALL) SAROJINI RAJAH (MRS.) VS. COMMISSIONER OF INCOME-TAX(1969) 7 1 ITR 504 (MAD) DALHOUSIE INVESTMENT TRUST CO. LTD. VS. COMMISSIONE R OF INCOME-TAX (1968) 68 ITR 486 (SC) COMMISSIONER OF INCOME-TAX VS. ASSOCI ATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. (1971) 82 ITR 586 (SC) . COMMISSIONER OF INCOME-TAX VS. HOLCK LARSEN (H.) (1986) 160 ITR 067 (SC) AND COMMISSIONER OF INCOME-TAX VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. (1975) 1 00 ITR 706 (SC) CULLED OUT THE FOLLOWING PRINCIPLES: 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT W HETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPEN ING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET . (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHAS E AND PAID INTEREST THEREON ? NORMALLY MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN A SSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DI SPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT OR THERE ARE ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 16 SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDI NGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AN D HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE BALANCE SHEET ? IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO S HOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SH ARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISI TES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 17 THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEP ARATE ACCOUNT FOR EACH TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND T HERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WIL L BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. 9.1. THE AFORESAID DECISION HAS BEEN FOLLOWED BY TH E MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT V. JCIT [(2009) 29 SOT 11 7 (MUM)] WHEREIN IT WAS HELD : IT WAS NOTED THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR A QUITE LONG PERIOD . IT WAS ALSO NOTED THAT NON-DELIVERY BASED TRANSACTIONS HAD BEEN TREATED BY THE ASSESSEE AS BUSINESS ACTIVITY AND DELIVERY BASE D TRANSACTIONS HAD BEEN TREATED AS AN INVESTMENT ACTIVITY AND ACC ORDINGLY THE ASSESSEE HAD CLAIMED HIMSELF BOTH DEALER AS WELL AS INVESTOR AND HAD OFFERED INCOME FOR TAXATION ACCORDINGLY WHICH HAD BEEN CLAIMED TO HAVE BEEN ACCEPTED BY THE REVENUE AUTHOR ITIES IN EARLIER YEARS AND HENCE IT BECAME IMPORTANT TO AN ALYSE THE FACTS OF FEW EARLIER YEARS. ON CONSIDERING THE FACT S OF THE EARLIER YEARS THE FOLLOWING CONCLUSIONS EMERGED : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGARD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND T HE TRANSACTIONS WERE SAME IN ALL THOSE YEARS EXCEPT TRANSACTIONS IN F&O SEGMENT IN SOME OF THE YEARS WH EREIN THIS KIND OF ACTIVITY WAS STARTED BY THE STOCK EXCH ANGE. (II) INTEREST ON BORROWED CAPITAL HAD BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIES SHOWN BY THE ASSESSEE AS BUSINESS PROFIT. (III) THE ASSESSEE HAD SHOWN SHARES PURCHASED ON DELIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-IN-TRADE EXISTED ON THAT DATE AND THE ASSESSE E HAD EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANT THE ASSESSEE HAD ALSO HELD SHARES FOR THE PER IOD OF MORE THAN 12 MONTHS. [PARA 8] ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 18 THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF T HE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARE S AS INVESTMENT AT THE YEAR END WERE SAME IN ALL THE YEA RS AND HENCE APPARENTLY THERE APPEARED NO REASON AS TO W HY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RE S JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISPUTE ON THIS ASPECT BUT THERE IS ALSO ANOTH ER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMEN T AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDE NTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVE NUE AUTHORITIES. IN THAT VIEW OF THE MATTER THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSE E IN THE RELEVANT YEAR NEEDED VERIFICATION. IN THE PROCESS T O FIND THE ANSWER IT WAS NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT-TERM CAPITAL GAINS AND L ONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT 2004 THE L EGISLATURE IMPOSED SECURITIES TRANSACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND SIMUL TANEOUSLY THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER S ECTION 10(38) FROM THE LEVY OF TAX AND ON SHORT-TERM CAPIT AL GAIN A CONCESSIONAL RATE OF TAX I.E. 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS RESULTING INTO T HIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX. THAT WAS THE FIRST YEAR OF SUCH CHANGE AND HAVING REGARD TO THE QUANT UM OF GAINS THIS SCHEME OF TAXATION ONLY MUST HAVE PROMPTED THE REVENUE AUTHORITIES TO TAKE A DIFFERENT VIEW ON THE SAME TY PES OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN EARLIE R YEARS. THERE WAS NO DISPUTE THAT THE ASSESSEE HAD CLAIMED EXEMPT ION UNDER SECTION 10(38) AND/OR HAD PAID TAX UNDER SECTION 11 1A AT CONCESSIONAL RATE ON THE TRANSACTIONS WHERE SECURI TIES TRANSACTION TAX HAD NOT BEEN PAID. IT WAS ALSO NOTE D THAT THE ASSESSEE HAD PAID TAX ON SHORT-TERM CAPITAL GAINS A T NORMAL RATES ON SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSITION OF SECURITIES TRANSACTIONS TAX. THE LEGI SLATIVE CHANGE OF THIS NATURE WHEREBY NO CHANGE HAD BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTION S RESULTING INTO ANY ADVANTAGE COULD NOT BE TAKEN AWAY BY THE R EVENUE AUTHORITIES IN THAT MANNER AND IN THOSE CIRCUMSTANC ES PRINCIPLE OF CONSISTENCY THOUGH IT IS AN EXCEPTION TO THE PR INCIPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BEC AUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 19 AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LO SS AND BY IMPOSITION OF SUCH TAX THE LEGISLATURE HAS NOT GIV EN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO THO SE TRANSACTIONS. THUS IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE THE ACTION OF THE REVENUE AUTHORITIES WAS LIABLE TO BE QUASHED. IT WAS ORDERE D ACCORDINGLY AND THE ASSESSING OFFICER WAS DIRECTED TO ACCEPT TH E CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND L ONG-TERM CAPITAL GAIN. [PARA 8.1] FURTHER ON THE BASIS OF MERITS ALSO IN VIEW OF TH E RATIO OF THE DECISION OF SARNATH INFRASTRUCTURE (P.) LTD.S CASE (SUPRA) IT WAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT TH EREFROM SHOULD BE TREATED AS SHORT-TERM CAPITAL GAIN OR LON G TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. [PARA 8. 3] THE REVENUE HAD ALSO HELD THAT PRESENTATION IN THE BOOKS OF ACCOUNT WAS NOT CONCLUSIVE WHICH MAY BE TRUE TO SOM E EXTENT BUT IT IS THE MOST CRUCIAL SOURCE OF GATHERING INTE NTION OF THE ASSESSEE AS REGARDS THE NATURE OF TRANSACTION AND IN LAW IT IS ALSO SO I.E. SUCH PRESENTATION REFLECTS PRIMA FA CIE A VIEW OF THE ASSESSEE ON A PARTICULAR SUBJECT AND THIS PRINCIPLE WAS EFFECTIVELY APPLICABLE IN A SITUATION LIKE THAT AS COMPARED TO A SITUATION WHERE NATURE OF EXPENDITURE OR INCOME IS DIFFERENT IN THE BOOKS OF ACCOUNT AND IN THE RETURN OF INCOME FILED BY THE ASSESSEE WHEREIN THE SPECIFIC PROVISIONS OF THE ACT HAVE TO BE CONSIDERED OVER SUCH PRESENTATION AND IF THERE EXIST NO SPECIF IC PROVISIONS THEY ARE THE COMMERCIAL PROFITS WHICH HAVE TO BE TA XED AND EVEN IN THAT SITUATION THE ASSESSEE MAY BE FOUND TO BE JUSTIFIED IN GIVING DIFFERENT TREATMENT IN THE BOOKS OF ACCOUNT AS COMPARED TO RETURN OF INCOME BECAUSE OF COMMERCIAL CONSIDERA TIONS OR ACCOUNTING REQUIREMENTS. HENCE THERE WAS NO SUBSTA NCE IN THE FINDING OF THE REVENUE AUTHORITIES IN THE FACTS OF THE INSTANT CASE. THE REVENUE AUTHORITIES HAD ALSO HELD THAT BORROWED FUNDS WERE UTILIZED FOR MAKING SUCH INVESTMENTS WHEREAS IN EAR LIER YEARS INTEREST ON SUCH LOANS HAD BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST PROFIT ON SHARE TRADING TRANSACTIONS SHOWN AS BUSINESS INCOME AND IN THE YEAR UNDER CONSIDERATION ALSO NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INVESTMENT H AD BEEN ESTABLISHED AND HENCE FOR THIS REASON ALSO THERE WAS NO MERIT IN TREATING THE LONG-TERM CAPITAL GAIN AND SHORT-TE RM CAPITAL GAIN AS BUSINESS PROFITS. [PARA 8.4] ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 20 IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE THE ASSESSEES CLAIM OF SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPI TAL ON SHARE TRANSACTIONS WHERE THE DELIVERY HAD BEEN TAKEN OR G IVEN AND SECURITIES TRANSACTION TAX HAD BEEN PAID WAS LIABL E TO BE ACCEPTED. ACCORDINGLY THE ORDERS OF REVENUE AUTHOR ITIES WERE TO BE REVERSED. [PARA 9] 9.2 EVEN CBDT IN CIRCULAR NO.4/2007 DT.15.6.2007 HAS LAID DOWN THE PRINCIPLES FOR HOLDING AS TO WHEN PROFITS EARNED FR OM TRANSACTIONS IN SHARES SHOULD BE HELD AS BUSINESS OR SHOULD BE TREATED AS INVESTMENT. THE CIRCULAR READS AS UNDER: CIRCULAR NO. 4/2007 DATED JUNE 15 2007 SUB : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-T RADE AND SHARES HELD AS INVESTMENTTESTS FOR SUCH A DISTINCTION. THE INCOME-TAX ACT 1961 MAKES A DISTINCTION BETWEE N A CAPITAL ASSET AND A TRADING ASSET. 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A ) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(42A) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH INSTRUCTION NO. 1827 DATED AUGUST 31 1989 HAD BROUGHT TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING A SSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE I SSUE OF THE ABOVE INSTRUCTIONS IT IS PROPOSED TO UPDATE THE ABOVE IN STRUCTIONS FOR THE INFORMATION OF THE ASSESSEES AS WELL AS FOR GUIDANC E OF THE ASSESSING OFFICERS. 5. IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVE LOPMENT COMPANY (P) LTD. [1971] 82 ITR 586 THE SUPREME COURT OBSERVED THAT (HEADNOTE) : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD IN NOR MAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECOR DS AS TO WHETHER HE HAS ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 21 MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE HIS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . 6. IN THE CASE OF CIT V. H. HOLCK LARSEN [1986] 160 ITR 67 THE SUPREME COURT OBSERVED (PAGE 87) : THE HIGH COURT IN OUR OPINION MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS IS A MIXED QUESTION OF LAW AND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) [2007] 2 88 ITR 641 REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CA SES HAS CULLED OUT THE FOLLOWING PRINCIPLES (PAGE 651) : (I) WHERE A COMPANY PURCHASES AND SELLS SHARES IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXIS TENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSA CTION ; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS THE MA NNER OF MAINTAINING BOOKS OF ACCOUNT THE MAGNITUDE OF PURCHASES AND SA LES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING W OULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS ; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTION B EING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCO ME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE I N SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES THE AAR HAS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER (PAGE 661) : WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. T HE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SH ARES BY A FII IN EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIAT ION/TRUST DEED WAS AS STOCK-IN-TRADE AS THE MERE EXISTENCE OF THE POWE R TO PURCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E. WHETHER THEY WERE VALUED AS STOCK-IN-TRADE AT THE E ND OF THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR H ELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PRINCIPLE FURNISHES A GU IDE FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THERE AR E SUBSTANTIAL ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 22 TRANSACTIONS THEIR MAGNITUDE ETC. MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT W ILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS ENJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TR UE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENTS AND ACCOUNTS OF REMITT ANCE TO INDIA FOR INVESTMENT IN INDIA AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDI NARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY O F DIVIDENDS ETC. THE TRANSACTIONS OF PURCHASES AND SALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS PROFITS. 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES T O EMPHASISE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I. E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHIC H ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIO S THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. 11. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABO VE PRINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER IN A GIVEN CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RI SE TO CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUS INESS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SING LE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLI ER INSTRUCTION NO. 1827 DATED AUGUST 31 1989. [ F. NO. 149/287/2005-TPL ] 9.3. IN ANOTHER CASE JANAK S. RANGWALLA V. ASSISTANT COM MISSIONER OF INCOME- TAX RANGE-12(2) 11 SOT 627 THE TRIBUNAL HAS SIMIL ARLY HELD AS UNDER : THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE A SSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIP LE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA D OES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 23 MAINTAIN CONSISTENCY IT IS A JUDICIALLY ACCEPTED P RINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. [PARA 6] IN THE FACTS OF THE INSTANT CASE THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSE SSEE WHICH WAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY TH E ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT T HE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FROM CAP ITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. THE TRANSACTION IN THE YEAR U NDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE P RECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THE RE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES WHEN HIS INTENTION WAS TO HOLD SHARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRAD E. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTI ON WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS . THE ASSESSING OFFICER WAS TO BE DIRECTED TO SET OFF THE LONG-TERM CAPITAL LOSS A GAINST THE SHORT-TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION. [PARA 7] IN THE RESULT THE APPEAL FILED BY THE ASSESSEE WAS ALLOWED. [PARA 9] 12. WHEN WE APPLY THE PRINCIPLES LAID DOWN IN THE A BOVE JUDGMENTS WE FIND IN THE PRESENT CASE THAT (1) THE ASSESSEES DID NOT HAVE DEALINGS IN LARGE N UMBER OF SCRIPS OR LARGE FREQUENCY OF TRANSACTIONS WHICH WOULD WARRANT INTER FERENCE THAT THEY ARE TRADERS; (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEES HAVE NEV ER TREATED THE SHARES AS STOCK IN TRADE AND RETURNS OF INCOME HAVE BEEN FILED PRIO R TO THE SEARCH SHOWING THEM AS INVESTMENTS AND PROFIT THERE FROM AS CAPITAL GAINS; (3) EVEN THOUGH MONEY HAS BEEN BORROWED TO INVEST IN SHARES NEITHER THE INTEREST PAID ON BORROWED MONEY OR SECURITY TRANSAC TION TAX HAS BEEN CLAIMED WHILE COMPUTING CAPITAL GAINS; (4) THE ASSESSEES HAVE RETAINED THE SHARES FOR ENJO YING APPRECIATION IN VALUE AND NOT FOR THE PURPOSE OF REALIZATION OF PROFIT. T HERE IS APPARENTLY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIENT TO BE A TRA DER. IT IS CLEARLY SHOWN BY THEM ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 24 IN THE RETURNS OF INCOME FILED THAT THEY ARE ENJOYI NG DIVIDEND INCOME FROM HOLDING SHARES AS INVESTMENT; (5) IT IS NOT SHOWN BY THE REVENUE THAT STOCK OF SH ARES HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOW BUT THEY HAVE VALUED AT COST WHILE COMPUTING THE CAPITAL GAINS; (6) THE ASSESSEES HAVE APPARENTLY DISCHARGED THE PR IMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWING HOLDINGS ONLY AS INVES TMENT AND NOT STOCK IN TRADE. THE PRIMARY ONUS HAS NOT BEEN REBUTTED BY THE REVEN UE. THE CASE OF THE REVENUE IS THUS BASED MERELY ON SUSPICION AND ON NUMBER OF TRANSACTIONS CARRIED IN ONE OR TWO YEARS THOUGH WHICH ARE NOT FREQUENT IF WE SPREA D THEM ON MONTHLY BASIS AS OBSERVED BY US ABOVE; (7) ASSESSEES HAVE ALWAYS TAKEN THE DELIVERY OF SHA RES AND MADE THEM REGISTERED. IT HAS BEEN HELD IN SARNATH INFRASTRUCT URE (P) LTD V. ACIT (122 TTJ 216) THAT ONCE SHARES ARE REGISTERED IN THE NAME OF THE ASSESSEE INTENTION IS CLEAR THAT IT IS AN INVESTMENT AND NOT A TRADE; (8) THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FOR DEALING AS A TRADER IN SHARES . 13. IN OUR CONSIDERED VIEW THE SUSPICION OF THE REV ENUE TO HOLD THE TRANSACTIONS MADE BY THE ASSESSEES AS IN THE NATURE OF TRADE IS BASED ON THE PREMISE THAT THE ASSESSEES ARE FREQUENTLY RESHU FFLING ITS PORTFOLIO AND MERELY BECAUSE SHARES ARE REGISTERED/TRANSFERRED IN THE NAMES OF THE ASSESSEES WOULD NOT BE SUFFICIENT TO HOLD THAT THE TRANSACTIONS ARE INVESTMENT. BUT WE ARE OF THE CONSIDERED VIEW THAT THE PERCEPTION OF THE DEPARTMENTAL AUTHORITIES IS LEGALLY MISPLACED. THOU GH APPARENTLY IT MAY APPEAR THAT MERELY BECAUSE SHARES ARE REGISTERED/TR ANSFERRED IN THE NAME OF THE ASSESSEE HE MAY NOT GO OUT OF AMBIT OF A TRA DER BUT THE FACT IS THAT THE ASSESSEES HAVE DISCHARGED THEIR ONUS BY GETTING THE SHARES REGISTERED IN THEIR NAMES. NOW ONUS SHIFTS TO THE REVENUE TO S HOW THAT INSPITE OF SHARES BEING TRANSFERRED/REGISTERED IN THE NAME OF THE ASSESSEES THE ASSESSEE ARE STILL DEALING IN SHARES AS A TRADER. T HIS CAN BE DONE BY THEM BY SHOWING THAT ASSESSEES ARE CARRYING OUT LARGE FR EQUENCY OF TRANSACTIONS CREATING AN OFFICE CARRYING OUT RELA TED ORGANIZED ACTIVITIES AND COMPLYING WITH OTHER LEGAL REQUIREMENT OF BEING A TRADER. IN THE PRESENT CASE THE FREQUENCY OF TRANSACTIONS ARE NOT SO MUCH TO HOLD THAT THE ASSESSEES ARE STILL TRADERS EVEN THOUGH SHARES ARE REGISTERED IN THEIR ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 25 NAMES. IN THE ABOVE TWO JUDGMENTS NAMELY SARNATH IN FRASTRUCTURE (P) LTD V. ACIT (122 TTJ 216) AND GOPAL PUROHIT V. JCIT [(2 009) 29 SOT 117 (MUM)] IT HAS BEEN HELD THAT ASSESSEE WOULD BE INV ESTOR PRIMARILY IF SHARES ARE REGISTERED BY IT IN ITS NAME. ONCE THERE IS NO CONTRARY MATERIAL TO HOLD OTHERWISE WE WOULD RESPECTFULLY FOLLOW THE SE DECISIONS AND HOLD THAT THE ASSESSEES IN THE INSTANT CASES ON HAND HAV E DISCHARGED THE PRIMARY ONUS BY GETTING THE SHARES REGISTERED IN TH EIR NAMES AND THEREFORE THEY CAN VERY WELL CLAIM AS INVESTORS. SINCE THE CA SE OF THE REVENUE IS BASED MERELY ON SUSPICION AND NOT ON ADEQUATE MATER IAL TO SHOW THAT THE ASSESSEE IS ACTING AS A TRADER WE ARE UNABLE TO IN TERFERE WITH THE ORDER PASSED BY THE LEARNED CIT(A) WHICH IS QUITE ELABORA TE REASONED AND BASED ON JUDGMENTS OF COURTS. 9.4 WE MAY POINT OUT THAT THE HONBLE JURISDICTIONAL HI GH COURT IN CIT VS. REVA SHANKER A. KOTHARI 283 ITR 338 (GUJARAT ) LAID DOWN THE FOLLOWING GUIDELINES IN ORDER TO DETERMINE WHETHER PROFITS AR ISING ON SALE OF GOODS IS BUSINESS INCOME:- THE TESTS LAID DOWN BY VARIOUS DECISIONS OF THE APEX COURT INDICATE THAT IN EACH CASE IT IS THE TOTAL EFFECT OF ALL RELEVANT F ACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. EACH C ASE HAS TO BE DETERMINED ON THE TOTAL IMPRESSION CREATED ON THE MIND OF THE COU RT BY ALL THE FACTS AND CIRCUMSTANCES DISCLOSED IN A PARTICULAR CASE. ONE O F THE PRINCIPAL TESTS IS WHETHER THE TRANSACTION IS RELATED TO THE BUSINESS NORMALLY CARRIED ON BY AN ASSESSEE. THE NATURE OF THE COMMODITY WOULD ALSO BE A RELEVAN T FACTOR. IT IS EQUALLY WELL SETTLED THAT MERELY BECAUSE THE ORIGINAL PURCHASE WAS MADE WITH THE INTENTION TO RESELL IF AN ENHANCED PRICE COULD BE OBTAINED THA T BY ITSELF IS NOT ENOUGH TO INFER THAT AN ASSESSEE IS CARRYING ON BUSINESS. HOWEVER THOUGH PROFIT MOTIVE IN ENTERING INTO A TRANSACTION IS NOT DECISIVE IF THE FACTS AND CIRCUMSTANCES INDICATE THAT THE PURCHASE OF THE ASSET WAS MADE SOLELY AND EXCLUSIVELY WITH AN INTENTION TO RESELL THE ASSET AT A PROFIT IT WOULD BE A STRO NG FACTOR FOR INFERRING THAT THE TRANSACTION WAS IN THE NATURE OF BUSINESS. IN THE CASE OF PARI MANGALDAS GIRDHARDAS V. CIT [19 77] CTR 647 (GUJ) AFTER ANALYSING VARIOUS DECISIONS OF THE APEX COURT THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITI ON OF THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION SINCE THE INCEPT ION APPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCIAL TRANSACTION ENTE RED INTO WITH A VIEW TO EARN PROFIT IT WOULD FURNISH A VALUABLE GUIDELINE. ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 26 (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST WHICH IS FREQUENTLY APPLIED IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME T HE ASSET WAS WITH THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN-TRADE OR HAS IT BE EN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS IN QUIRY THOUGH RELEVANT IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSE LF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEA LT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THI S FACTOR THOUGH NOT CONCLUSIVE CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST NORMALLY APPLIED IN CASES OF PA RTNERSHIP FIRMS AND COMPANIES IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM O F ASSOCIATION AS THE CASE MAY BE AUTHORISES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST RATHER THE MOST IMP ORTANT TEST IS AS TO THE VOLUME FREQUENCY CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITIO N AND CONTINUITY COUPLED WITH THE MAGNITUDE OF THE TRANSACTION BEARING REASONABL E PROPORTION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THA T THE ACTIVITY IS IN THE NATURE OF BUSINESS. 9.5 IN THE INSTANT CASE WE FIND THAT THE LD. CIT(A) DID NOT ANALYSE THE ISSUE IN THE LIGHT OF AFORESAID JUDICIAL VIEW AND THE G UIDELINES LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR AFORESAID DECIS ION NOR CONSIDERED THE CBDT CIRCULAR AND NOR EVEN RECORDED HIS SPECIFIC FINDING S ON THE FACTS POINTED OUT BY THE AO OR DECISIONS REFERRED TO BY HIM. A MERE GLAN CE AT THE IMPUGNED ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT( A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATU RAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS RE ASONED ORDER WHICH SHOULD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHOR ITY TO THE ISSUES/POINTS RAISED BEFORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT 1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WRITING AND SHALL STATE THE POINTS FOR DETERMINATION THE DECIS ION THEREON AND THE REASON FOR ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 27 THE DECISION. THE REQUIREMENT OF RECORDING OF REAS ONS AND COMMUNICATION THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CO NCEPT OF FAIR PROCEDURE. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JU DICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RUL E OF LAW. IT INTRODUCES CLARITY CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MA Y REITERATE THAT A DECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS . STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMPUGNED ORDER SUFFER S FROM LACK OF REASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FOREGOING ESPECIALLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE ISSUES RAIS ED IN THIS APPEAL NOR ANALYSED THE FACTS OF THE CASE ON THE TOUCHSTONE OF THE AFORESAID PRINCIPLES LAID DOWN IN VARIOUS JUDICIAL PRONOUNCEMENTS WE CONSIDE R IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HE MATTER TO HIS FILE FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW IN THE LIG HT OF PRINCIPLES LAID DOWN IN THE AFORESAID JUDICIAL PRONOUNCEMENTS AND OF COURSE AF TER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY TH AT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEE PING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT . W ITH THESE OBSERVATIONS GROUND NO. 3 IN THE APPEAL IS DISPOSED OF. 10. GROUND NO.4 IN THE APPEAL RELATES TO ADDITION O F RS.37 000/- ON ACCOUNT OF INADEQUATE WITHDRAWALS FOR HOUSEHOLD EXP ENSES. TO QUERY BY THE AO THE ASSESSEE SUBMITTED VIDE LETTER DATED 07-02- 2008 FOLLOWING DETAILS OF WITHDRAWALS FOR MEETING THE HOUSEHOLD EXPENSES:- DATE WITHDRAWAL AMOUNT IN RS. 2-4-2005 WITHDRAWAL 20000/- 5-5-2005 WITHDRAWAL 15000/- 2-6-2005 WITHDRAWAL 20000/- 2-8-2005 WITHDRAWAL 40000/- 18-10-2005 WITHDRAWAL 48000/- --------------- ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 28 TOTAL 1 43 000/- SINCE THE ASSESSEE DID NOT MAKE ANY WITHDRAWAL FOR HOUSEHOLD EXPENSES DURING THE MONTH OF JULY 2005 SEPTEMBER 2005 AND IN NOVEMBER 2005 TO MARCH 2006 NOR EXPLAINED THE SO URCE OF PAYMENTS FOR MEETING THE EXPENDITURE TOWARDS ELECTR ICITY MUNICIPAL TAXES PETROL TELEPHONE S AND OTHER HOUSEHOLD IT EMS CONSIDERING THE STATUS OF THE ASSESSEE THE AO ESTIMATED AN EXP ENDITURE OF RS.15 000/- PER MONTH TOWARDS HOUSEHOLD EXPENSES RE SULTING IN AN ADDITION OF RS.37 000/-[1 80 000-1 43 000] .INTER A LIA THE AO RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF BRIJ BHUSHAN LAL PARDKUMAN KUMAR VS. CIT (1978) 115 ITR 524 (SC) AND THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAMNIWAS BANSAL (AGARWAL) VS. DCIT (2004) 26 SITC 3 39 (RAJ). 11 ON APPEAL THE LEARNED CIT(A) DELETED THE ADDITI ON MERELY ON THE GROUND THAT THE HOUSEHOLD WITHDRAWALS SHOWN BY THE ASSESSEE WERE SUFFICIENT AND NO FURTHER ESTIMATE MADE BY THE AO WAS CALLED FOR. 12 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT THE LEAR NED CIT(A)DID NOT RECORD HIS SPECIFIC FINDINGS ON THE FACTS POI NTED OUT BY THE AO THAT THE ASSESSEE DID NOT EXPLAIN SOURCES OF MEETIN G THE HOUSEHOLD EXPENSES DURING THE MONTHS OF JULY 2005 SEPTEMBER 2005 AND IN NOVEMBER 2005 TO MARCH 2006 NOR EXPLAINED THE SOU RCE OF MEETING THE EXPENDITURE ON ACCOUNT OF ELECTRICITY TELEPHON ES PETOL ETC. 13. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE. AS POINTED OUT BY THE LD. DR AND AS IS A PPARENT FROM THE FACTS OF THE CASE THE ASSESSEE DID NOT EXPLAIN AT ALL THE SOURCES OF ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 29 MEETING HOUSEHOLD EXPENSES DURING THE MONTH OF JULY 2005 SEPTEMBER 2005 AND IN NOVEMBER 2005 TO MARCH 200 6 NOR EXPLAINED THE SOURCE OF MEETING THE EXPENDITURE TOW ARDS ELECTRICITY TELPHONES PETOL ETC. THERE BEING NO WITHDRAWALS IN THE AFORESAID MONTHS. THOUGH THE ASSESSEE PLEADED BEFORE THE LD. CIT(A) THAT CERTAIN PAYMENTS WERE MADE THROUGH CHEQUES THERE IS NO MATERIAL BEFORE US AS TO HOW THE ASSESSEE HAD BEEN MEETING H IS HOUSEHOLD EXPENSES IN JULY 2005 SEPTEMBER 2005 AND IN NOVE MBER 2005 TO MARCH 2006. IN THE ABSENCE OF ANY EVIDENCE ESPECI ALLY WHEN THE LD. CIT(A) DID NOT CONTROVERT THE FINDING OF FACTS RECORDED OF THE AO ON THIS ASPECT WE HAVE NO HESITATION IN VACATING THE CONCLUSION OF THE LD. CIT(A).SINCE THE ESTIMATE OF EXPENDITURE OF RS. 15 000/- PM HAS BEEN MADE BY THE AO CONSIDERING STATUS OF THE ASSESSEE AND TOTALITY OF FACTS AND CIRCUMSTANCES AND THE SAID E STIMATE HAS NOT BEEN FOUND UNREASONABLE BY THE LD. CIT(A) WHILE NOT AN IOTA OF EVIDENCE IS BEFORE US REGARDING SOURCES OF MEETING HOUSEHOLD EXPENSES IN THE AFORESAID MONTHS WE ARE OF THE OPI NION THAT ADDITION MADE BY THE AO IS JUSTIFIED. CONSEQUENTLY FINDINGS OF THE AO ARE UPHELD AND GROUND NO.4 IN THE APPEAL IS ALLO WED. 14. NOW COMING TO GROUND NOS.1 AND 2 IN THE CO FILE D BY THE ASSESSEE REGARDING THE DISALLOWANCE ON ACCOUNT OF L TC AMOUNT OF RS.87 968/- AND HRA THE AO NOTICED THAT AN AMOUNT OF RS.87 968/- WAS SHOWN EXEMPT BY THE EMPLOYER IN FORM NO.16. TO A QUERY BY THE AO SEEKING THE DETAILS OF JOURNEY AND EXPENSES INC URRED DURING TRAVEL THE ASSESSEE DID NOT FURNISH ANY DETAILS OR EVIDENCE OF INCURRING OF ACTUAL EXPENSES. IN RESPONSE TO A NOTI CE U/S 133(6) OF THE ACT M/S CADILA PHARMACEUTICALS LTD. THE ERSTW HILE EMPLOYER INFORMED VIDE LETTER DATED 8-12-2008 THAT THE ASSES SEE ALONE CLAIMED THE AMOUNT EXEMPT AND NO DETAILS OF JOURNEY AND EXPENSES INCURRED DURING HIS VISIT TO ANYPLACE IN INDIA WE RE SUBMITTED. IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE ASSESSEE D ID NOT FURNISH ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 30 THE RELEVANT DETAILS OF JOURNEY AND EXPENSES INCURR ED RELYING UPON THE DECISION IN THE CASE OF DR. REDDY LABORATORY LT D. VS. ITO (1996) 58 ITD 104 (HYD) THE AO DISALLOWED THE CLAIM FOR E XEMPTION OF RS.87 968/-. 14.1 LIKEWISE THE ASSESSEE DID NOT FURNISH ANY DET AILS IN RESPECT OF AN AN AMOUNT OF RS.20 371/- SHOWN EXEMPT IN FORM NO .16 ON ACCOUNT OF HRA. TO A QUERY BY THE AO THE ASSESSEE DID NOT FURNISH ANY DETAILS WHILE IN RESPONSE TO THE NOTICE U/S 133(6) DATED 16-12-2008 TO SMT. ADRISUTA S MUNSHI TO WHOM RENT IS STATED TO HAVE BEEN PAID IT TRANSPIRED THAT THE SAID PERSON WAS CLOSE RELATI VE OF THE ASSESSEE AND SHE HAD ALREADY EXPIRED ON 16-07-2003. APPARE NTLY THE RENT RECEIPT SUBMITTED BY THE ASSESSEE WAS FOUND TO BE B OGUS. SINCE THE ASSESSEE DID NOT ESTABLISH THE MONTHLY PAYMENT OF R S.9000/- TOWARDS RENT THE AO DISALLOWED THE CLAIM FOR EXEMP TION U/S 10(13A) TO THE EXTENT OF RS.20 731/-. 15. ON APPEAL THE LEARNED CIT(A) UPHELD BOTH THE A FORESAID DISALLOWANCES IN THE ABSENCE OF ANY EVIDENCE REGARD ING THE PAYMENT OF HOUSE RENT TO LANDLORD OR INCURRING EXPENDITURE IN RESPECT OF LTC AMOUNT. 16 THE ASSESSEE IS IN APPEAL BEFORE US THROUGH THE CROSS OBJECTION AGAINST THE AFORESAID FINDINGS OF THE LEA RNED CIT(A). 17. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH THE FACTS OF THE CASE. SINCE NEITHER BEFORE THE LOWER AUTHORITIE S NOR EVEN BEFORE US THE ASSESSEE SUBMITTED ANY EVIDENCE IN S UPPORT OF HIS CLAIM FOR EXEMPTION OF LTC AMOUNT AND HRA WE HAV E NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LEARN ED CIT(A) DENYING EXEMPTION OF THE AFORESAID TWO AMOUNTS. THEREFORE GROUND NOS.1 AND 2 IN THE CO ARE DISMISSED. ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 31 18. GROUND NOS.3 AND 4 RELATE TO ADDITION OF RS.2 0 5 000/- BY WAY OF CASH CREDITS AND RS.71 000/- IN RESPECT OF DEPOS IT IN BANK. THE AO ADDED THESE AMOUNTS SINCE THE ASSESSEE DID NOT E XPLAIN THE SOURCES OF FOLLOWING AMOUNT OF CASH DEPOSITED IN TH E BANK ACCOUNT NO.3729 OF BANK OF MAHARASHTRA AMBAWADI AHMEDABAD :- DATE OF ENTRIES AMOUNT OF CASH IN RS. 04-04-2005 25 000/- 08-12-2005 40 000/- 09-12-2005 40 000/- 13-12-2005 25 000/- 20-12-2005 25 000/- 27-01-2006 50 000/- -------------- TOTAL 2 05 000/- BESIDES THE ASSESSEE EXPLAINED BEFORE THE AO THAT HE RECEIVED AN AMOUNT RS.71 000/- FROM SHRI BP DESAI. HOWEVER TH E ASSESSEE DID NOT FURNISH EITHER ADDRESS OF THE AFORESAID PERSON NOR ESTABLISHED HIS CREDITWORTHINESS OR GENUINENESS OF THE TRANSACT IONS. IN THE ABSENCE OF ANY EVIDENCE OF SOURCE OF CASH DEPOSITED IN THE BANK AND DUE TO HIS FAILURE TO ESTABLISH THE GENUINENES S OF TRANSACTION WITH SHRI BP DESAI THE AO ADDED THE AMOUNTS OF RS. 2 05 000/- AND RS.71 000/- RELYING INTER ALIA UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M SUNDARAM VS. ACI T 287 ITR 145. 19. ON APPEAL THE LEARNED CIT(A) UPHELD FINDINGS O F THE AO WITH THE FOLLOWING OBSERVATIONS:- 6.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER THE A.O. THE APPELLANT HAS CONTENDED THAT HE HAS MADE WITHDRAWALS FROM PUNJAB NATIONAL BANK WHIC H HAS BEEN UTILIZED FOR MAKING DEPOSIT IN BANK OF MAHARASHTRA TO THE EX TENT OF RS.1 55 000/-. HOWEVER ASSESSEE HAS NOT ESTABLISHED ANY NEXUS BET WEEN WITHDRAWAL ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 32 MADE FROM ONE BANK WITH DEPOSIT MADE IN ANOTHER BAN K AND FOR WANT OF ANY EVIDENCES THIS PLEA OF ASSESSEE IS NOT ACCEPTE D. WITH REGARDS TO CASH DEPOSIT OF RS.50 000/- APPELLANT HAS CONTENDED THA T DEPOSIT IS OUT OF CASH GIFT OF RS.50 000/- RECEIVED FROM BHALCHANDRA B MAN KAD. HOWEVER ASSESSEE HAS NOT SUBMITTED ANY IDENTITY OF DONOR S OURCE OF DONOR FOR GIVING SUCH CASH GIFT WHETHER DONOR IS ASSESSED TO TAX OR NOT. THE APPELLANT HAS FAILED TO SUBMIT IDENTITY OF DONOR C REDITWORTHINESS OF DONOR AND GENUINENESS OF TRANSACTION IS NOT PROVED. HENCE RELATED GROUND OF APPEAL IS DISMISSED. .. 7.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER OF THE AO. THE APPELLAN T HAS SUBMITTED THE COPY OF BANK STATEMENT SUBMITTED TO AO WHEREIN ENTR IES RELATING TO ADVANCE GIVEN IN EARLIER YEAR TO B P DESAI AS WELL AMOUNT RECEIVED FROM SAID PARTY IS REFLECTED. HOWEVER IN EARLIER YEAR ASSESSEE HAS ADVANCED RS.71 000/- AND IN CURRENT YEAR RS.70 000/- HAS BEE N RECEIVED BACK. NO NAME HAS BEEN REFLECTED IN CURRENT YEAR BANK STATEM ENT AGAINST DEPOSIT OF RS.71 000/-. HENCE APPELLANTS SUBMISSION THAT AMOU NT RECEIVED FOR RS.71 000/- PERTAINS TO LOAN GIVEN TO B P DESAI IN EARLIER YEAR CANNOT BE ACCEPTED. THE APPELLANT HAS NOT SUBMITTED CONFIRMAT ION OF B P DESAI TO PROVE GENUINENESS OF DEPOSIT. HENCE ADDITION MADE B Y THE AO IS CONFIRMED AND APPELLANTS GROUND IS REJECTED. 20. THE ASSESSEE IS IN APPEAL BEFORE US THROUGH THI S CO AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). 21. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE. WE FIND THAT THE LEARNED CIT(A) UPHELD T HE ADDITION SINCE THE ASSESSEE DID NOT ESTABLISH ANY NEXUS BETWEEN TH E WITHDRAWALS FROM THE BANK STATED TO HAVE BEEN UTILISED FOR MAK ING CASH DEPOSITS IN THE BANK NOR ESTABLISHED THE GENUINENESS OF SOU RCE OF AMOUNT OF RS.50 000/- STATED TO HAVE BEEN RECEIVED FROM BHAL CHANDRA B MANKAD BY WAY OF GIFT OR EVEN FROM SHRI B P DESAI TO WHOM THE AMOUNT OF RS.71 000/- IS STATED TO HAVE BEEN ADVANC ED EARLIER. IN THE ABSENCE OF ANY EVIDENCE ESTABLISHING THE IDENTI TY AND CREDITWORTHINESS OF SHRI B P DESAI AND SHRI BHALCHA NDRA B MANKAD NOR THE ASSESSEE ESTABLISHED EVEN GENUINENESS OF THE TRANSACTIONS WITH THESE PERSONS ESPECIALLY WHEN THERE IS NO MAT ERIAL BEFORE US REGARDING SOURCE OF CASH DEPOSITED IN THE BANK OR T HAT THE AMOUNT ITA NO.2016/AHD/2009 & C O N O.170/AHD/2009 33 OF RS. 71 000/- HAD INDEED BEEN RECEIVED FROM SHRI BP DESAI WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LEARNED CIT(A). THEREFORE GROUND NOS.3 AND 4 IN THE CROSS OBJECTIO N ARE DISMISSED. 22 GROUND NO.5 IN THE APPEAL OF THE REVENUE BEING G ENERAL IN NATURE DOES NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN T ERMS OF RESIDUARY GROUND NO.5 IN THE CO BOTH THESE GROUNDS ARE DISM ISSED. 23. IN THE RESULT APPEAL FILED BY THE REVENUE IS A LLOWED BUT PARTLY FOR STATISTICAL PURPOSES WHILE THE CO FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 10-03-2011 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 10-03-2011 COPY OF THE ORDER FORWARDED TO: 1. SHRI RASHMIKANT KISHORI MANKODI 3 MANDEEP APAR TMENT NR. AMRUT JYOTI SCHOOL AMBAWADI AHMEDABAD 2. THE ITO WARD-14(3) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XXI AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-C AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD