The ACIT, Circle-3,, Surat v. Shri Mulchandbhai S.Amin, Surat

ITA 2218/AHD/2009 | 2006-2007
Pronouncement Date: 09-09-2011 | Result: Dismissed

Appeal Details

RSA Number 221820514 RSA 2009
Assessee PAN ABWPA7967M
Bench Ahmedabad
Appeal Number ITA 2218/AHD/2009
Duration Of Justice 2 year(s) 1 month(s) 23 day(s)
Appellant The ACIT, Circle-3,, Surat
Respondent Shri Mulchandbhai S.Amin, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 09-09-2011
Date Of Final Hearing 08-09-2011
Next Hearing Date 08-09-2011
Assessment Year 2006-2007
Appeal Filed On 16-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' BEFORE SHRI MUKUL SHRAWAT JUDICIAL MEMBER AND SHRI A N PAHUJA ACCOUNTANT MEMBER ITA NO.2076/AHD/2009 (ASSESSMENT YEAR:-2006-07) SHRI MULCHANDBHAI S AMIN 17 MIRA NAGAR SOCIETY GHOD DOD ROAD SURAT V/S ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-3 ROOM NO. 213 2 ND FLOOR AAYKAR BHAVAN MAJURA GATE SURAT PAN: ABWPA 7967 M [APPELLANT] [RESPONDENT] ITA NO.2218/AHD/2009 (ASSESSMENT YEAR:-2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-3 SURAT V/S SHRI MULCHANDBHAI S AMIN 17 MIRA NAGAR SOCIETY GHOD DOD ROAD SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI HARDIK VORA AR REVENUE BY:- SHRI SAMIR TEKRIWAL DR DATE OF HEARING:- 08-09-2011 DATE OF PRONOUNCEMENT:- 09-09-2011 O R D E R A N PAHUJA: THESE CROSS APPEALS-ONE FILED BY THE ASSESSEE ON 30.6.2009 AND THE OTHER BY THE REVENUE ON 16.7.2009 AGAINST AN ORDER DATED 30-04-2009 OF THE LD. CIT(APPEALS)-II SURAT FOR THE ASSESSMENT YEAR 2006-07 RAISES THE FOLLOWING GROUN DS:- ITA NO.2076/AHD/2009[ASSESSEE] [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS L AW ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS.62 67 735/- BY TREATING SHORT-TERM CAPITAL GAIN AS BUSINESS INCOME. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LA W ON THE SUBJECT THE LEARNED CIT (APPEALS) HAS ERRED IN PARTLY D ISALLOWING 2 ITA NOS.2076 & 2218/AHD/2009 RS.8 939/- OUT OF TOTAL DISALLOWANCE OF RS.9 580/-MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VARIOUS EXPENSES OF RS.47 903/- . [3] IT IS THEREFORE PRAYED THAT ABOVE TREATMENT / DISAL LOWANCE GIVEN BY ASSESSING OFFICER AND CONFIRMED BY CIT (APPEALS) MAY PLEASE B E REVERSED. [4] APPELLANT CRAVES LEAVE TO ADD ALTER OR DELETE AN Y GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE APPEAL. ITA NO.2218/AHD/2009[REVENUE] [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN TREATING THE PROFIT AND GAIN OF RS.18 40 348/- AS LONG TERM CAPITAL GAIN AS AGAINST TREATED BY THE AO A S BUSINESS INCOME. [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [3] IT IS THEREFORE PRAYED THAT THE ORDER OF THE CI T(A) MAY BE SET-ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 2 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF T HE ASSESSEE AND GROUND NO.1 IN THE APPEAL OF THE REVENUE FACT S IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.84 03 080/- FILED ON 28-12-2006 BY THE ASSESSEE ENGAGED IN C. I. CASTING AND ITS JOB WORK AFTER BEING PROCESSED U/S 143(1) OF T HE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS SE LECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 23-08- 2007.DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE REF LECTED SHORT TERM CAPITAL GAIN OF RS.62 67 735/- AND LONG TERM CAPITA L GAIN OF RS.18 40 348/- ON SALE OF SHARES. SINCE THE ASSESSE E WAS TRADING IN THE SHARES AT A LARGE SCALE AND MOTIVE BEHIND THE T RADING WAS PROFIT ONLY THE AO SHOWCAUSED THE ASSESSEE AS TO WHY SHORT TERM CAPITAL GAIN OF RS.62 67 735/- AND LONG TERM CAPITAL GAIN OF RS.18 40 348/- BE NOT TAXED AS BUSINESS INCOME .IN RESPONSE THE ASSESSEE SUBMITTED THAT THE AO 3 ITA NOS.2076 & 2218/AHD/2009 HAVING ACCEPTED THEIR CLAIM OF LONG TERM GAIN INCOME IN THE IMMEDIATELY PRECEDING YEAR IN THE SCRUTINY ASSESSMENT NO COMMENTS WERE NECESSARY. AS REGARDS SHORT TERM CAPITAL GAIN OF RS.62 67 735 THE A SSESSEE SUBMITTED THAT HE WAS DOING INVESTMENT IN SHARES WITH HIS OWN FUNDS AND NO T TRADING AS WAS EVIDENT FROM THE FACT THAT HE SOLD VARIOUS SCRIPS WHICH W ERE HELD FOR A SUBSTANTIAL PERIOD OF TIME AND EARNED DIVIDEND INCOME OF RS.4 55 053/- .THE INTENTION AT THE TIME OF PURCHASE OF SHARES WAS CERTAINLY NOT TO RESELL T HE SAME IN SHORT PERIOD OTHERWISE ASSESSEE WOULD NOT HAVE WAITED FOR YEARS BEFORE SELLING SUCH SCRIPS. IN THE BOOKS OF ACCOUNTS ALSO THESE SHARES AND SECURITIES WER E SHOWN UNDER THE HEAD OF 'INVESTMENTS' & NOT AS 'STOCK IN TRADE' & THE SA ME HAS BEEN ACCEPTED BY DEPARTMENT AND IN THE EARLIER ASSESSMENT YEARS THE TRANSACTIONS OF SHARES AND SECURITIES HAVE BEEN RECOGNIZED AS INCOME FROM CAPI TAL GAINS ONLY. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE DID NOT CONVERT INVEST MENTS INTO STOCK IN TRADE & THEREFORE THERE WAS NO SCOPE FOR TREATING IN COME FROM CAPITAL GAINS AS BUSINESS INCOME. OUT OF SHORT TERM CAPITAL GAINS OF RS.62 67 735 THE GAIN OF RS.26 93 899 PERTAINED TO SHARES & SECURITIES OF LAST YEA R WHICH HAS BEEN ACCEPTED AS INVESTMENT BY REVENUE AND INVENTORY OF SHAR ES LYING AT THE END OF YEAR HAS NEVER BEEN VALUED AT MARKET PRICE OR COST WHICH EVER IS LOWER BUT HAS BEEN CONSISTENTLY SHOWN AT COST INDICATING THAT THERE HA D NEVER BEEN ANY INTENTION ON PART OF ASSESSEE TO CARRY ON TRADE OR ADVE NTURE IN THE NATURE OF TRADE. INTER ALIA THE ASSESSEE REFERRED TO DECISIONS IN KARAM CHAND THAPAR AND BROTHERS (P) LTD VS. CIT 83 ITR 899(SC);AND ARJUN K APUR V. DCIT 70 ITD 161. IN JANAK RANGWALLA VS. ACIT (2007) 11 SOT 627(BOM.) IT WAS HELD THAT MERE VOLUME OF TRANSACTION TRANSACTED BY ASSESSEE WOULD NOT ALTE R THE NATURE OF TRANSACTION. THOUGH PRINCIPLE OF RES JUDICATA DID NOT AP PLY TO INCOME TAX PROCEEDINGS AS EACH YEAR IS INDEPENDENT YEAR OF ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY THE SAME VIEW SHOULD BE ADOPTED FO R THE SUBSEQUENT YEAR UNLESS THERE WAS MATERIAL CHANGE IN THE FACTS. IN THIS CONT EXT THE ASSESSEE POINTED OUT THAT THE ITAT ALSO REFERRED TO DECISIONS IN RADHASOAMI SATSANG V. CIT -193 ITR 321(SC) & CIT V. NEO POLY PACK (P) LTD. 245 ITR 492(DELHI). HOWEVER THE AO DID NOT ACCEPT THESE SUBMISSIONS AN D TREATED SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INCOME ON THE GROUND THAT THE MOTIVE OF THE ASSESSEE BEHIND THE TRANSACTIONS WAS TO EARN PROFIT ONLY THE PROFIT 4 ITA NOS.2076 & 2218/AHD/2009 EARNED FROM THE BUSINESS OF CI CASTING BEING MERE RS.10 26 424/- WHILE PROFIT FROM SHARE TRADING WAS RS.62 67 735/- AND THE ASSESSEE HA VING ENTERED INTO MORE THAN 1000 TRANSACTIONS IN SHARES OF 255 SCRIPS. BESID ES THE ASSESSEE UTILISED LOANS OF RS.16 77 256/- FOR TRADING IN THE SHA RES AND SECURITIES. INTER ALIA THE AO REFERRED TO CIRCULAR NO. 4/2007 DATED 15 .06.2007 ISSUED BY THE CBDT AND DECISION OF AUTHORITY FOR ADVANCE RULING (AAR) 288 -ITR-641 BESIDES DECISIONS IN COMMISSIONER OF INCOME-TAX (CENTRAL) CALCUT TA V/S. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY PVT. LTD. 82 ITR 586 (SC) COMMISSIONER OF INCOME-TAX BOMBAY V/S. H. HOLCK LARSEN 160 ITR 67(SC). 2.1 THE AO ALSO BROUGHT TO TAX LONG TERM CAPITAL GAIN OF RS.18 40 348/- ON SALE OF 54 SCRIPS AS BUSINESS INCOME ON THE GROUND THAT 31 SCRIPS WERE PURCHASED IN THE IMMEDIATELY PRECEDING YEAR WHERE IN STCG WAS CONSIDERED AS BUSINESS INCOME. 3. ON APPEAL THE LEARNED CIT(A) UPHELD THE FINDIN GS OF THE AO IN RESPECT OF SHORT TERM CAPITAL GAIN IN THE FOLLOW ING TERMS:- 3.1 THE ASSESSEE HAD SHOWN STCG ON TRANSACTION IN SHARES T O THE EXTENT OF RS.62 67 735 AND LTCG OF RS.18 40 348. THE A O TREATED THESE TWO SUMS AS INCOME FROM BUSINESS. WHILE DOING SO HE BASICALL Y FOLLOWED THE VIEW TAKEN BY HIM IN THE IMMEDIATELY PRECEDING YEAR I.E. AY 2005-06 IN THE ASSESSEE'S OWN CASE. FROM A PERUSAL OF THE ASSESSMENT OR DER I FIND THAT IT IS ALMOST IDENTICAL TO THE ASSESSMENT ORDER FOR THE AY 2005-06. IN FACT THE SUBMISSIONS OF THE ASSESSEE MADE BEFORE THE AO WERE ALSO IDENTICAL IN BOTH THE YEARS. SIMILARLY THE SUBMISSIONS MA DE BY THE AR IN APPELLATE PROCEEDINGS HAVE ALSO REMAINED THE SAME INCLU DING THE CASE- LAWS RELIED UPON. SINCE NOTHING HAS CHANGED AS FAR AS THE FACTS AND CIRCUMSTANCES ARE CONCERNED BETWEEN WHAT THEY WERE IN THE IMMEDIATELY PRECEDING YEAR AND IN THE SUBSEQUENT YEAR WHICH IS UNDER CONSIDERATION AND SINCE THE FINDINGS AND CONCLUSIONS OF THE AO AS ALSO T HE SUBMISSIONS OF THE ASSESSEE AND THE AR HAVE REMAINED THE SAME IT BECO MES NECESSARY TO REFER TO THE FINDING GIVEN AND THE DECISION TAKEN BY ME IN THE AY 2005-06 VIDE MY ORDER DATED 07-11-2008 IN CAS/II/ 447/07-08. THE OPERATIVE PORTIONS OF MY ORDER ARE REPRODUCED HEREUNDE R: '6. I HAVE CAREFULLY CONSIDERED THE DETAILED FINDIN GS AND CONCLUSION OF THE AO ON ONE HAND AND THE EQUALLY DETAILED SUBMISSIONS O F THE ASSESSEE/AR BOTH IN COURSE OF THE ASSESSMENT PROCEEDINGS AS ALSO IN THE APPELLATE PROCEEDINGS. WHAT WE ARE DEALING HERE IS A TOTAL ADDITION OF RS. 68 87 173 THERE ARE TWO ISSUES HERE. FIRSTLY AS THE AO HAS CLEARLY POINTED OUT THE ASSESSEE HAD 5 ITA NOS.2076 & 2218/AHD/2009 TRANSACTED ON AN AVERAGE AT/EAST IN TWO SCRIPS IN M ORE THAN TWO TRANSACTIONS ON THE SAME WORKING DAY THE TOTAL NUMBER OF TRANSACTIO NS BEING 533 DURING THE YEAR. SECONDLY THE MOTIVE BEHIND THE TRANSACTION IS NOT FOR THE ASSESSEE OR THE AR TO DECLARE AND THE DEPARTMENT IS NOT BOUND TO A CCEPT SUCH A DECLARATION. AS CLEARLY LAID DOWN IN CIRCULAR NO. 4 ISSUED BY THE C BDT THERE ARE SEVERAL FACTORS OR PARAMETERS WHICH HAVE TO BE EXAMINED FOR THE PURPOS E OF DECIDING AS TO WHETHER A SET OF TRANSACTIONS IS IN THE NATURE OF B USINESS TRANSACTIONS OR MERE INVESTMENTS. 6.1 BOTH THE A.O. AND THE ASSESSEE HAVE REFERRED T O AND RELIED EXTENSIVELY ON CBDT'S CIR. NO. 4 OF 2007 DATED 15.6.2007 WHICH EXH AUSTIVELY LAYS DOWN THE PARAMETERS FOR DETERMINING AS TO WHETHER A SET OF T RANSACTIONS IS IN THE NATURE OF BUSINESS TRANSACTIONS OR MERE INVESTMENTS. THE AO H AS REFERRED TO AND PLACED RELIANCE UPON THE DECISION OF THE HON'BLE SUPREME I N THE CASE OF H. HOLCK LARSEN (1986) 160 ITR 67 ON WHICH ALSO WAS THE CIRCULAR N O. 4 BASED. IN THIS CASE THE HONBLE SUPREME COURT OBSERVED THAT THE QUESTION WH ETHER THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES ARE TRADING TRANSACTION S OR ARE IN THE NATURE OF INVESTMENTS IS A MIXED QUESTION OF LAW AND FACT. HO WEVER THE REAL QUESTION IS NOT 'WHETHER THE TRANSACTION OF BUYING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING BUT WHETHER THE LATER STAGES OF THE WHOL E OPERATION SHOW THAT THE FIRST STEP - THE PURCHASE OF THE SHARES - WAS NOT T AKEN AS OR IN THE COURSE OF A TRADING TRANSACTION'. IN THE CASE OF THE ASSESSES C ASE THE LARGE NUMBER OF TRANSACTIONS I.E. 533 DURING THE YEAR IN 275 SCRIPS WITH AVERAGE HOLDING TIME OF LESS THAN 45 DAYS IN MAJORITY CASES CLEARLY SHOWED THAT THE FIRST STEP I.E. THE PURCHASE OF THE SHARES WAS TAKEN AS A TRADING TRANS ACTION. IN OTHER WORDS THE INTENT AND PURPOSE OF PURCHASING THE SHARES WAS CLE ARLY TO EARN PROFITS AS AND WHEN THE OPPORTUNITY AROSE. IT IS SEEN THAT THE ASS ESSEE PURCHASED THE SHARES WHEN THE PRICES WERE LOW AND SOLD THE SHARES WHEN THE PRICES WERE HIGH ENOUGH TO EARN .A PROFIT. DEPENDING ON THE MOVEMENT IN THE PRICES OF SHARES OF DIFFERENT COMPANIES THE ASSESSEE INDULGED IN BUYING AND SELLI NG WHICH CLEARLY INDICATED THAT THE ACTIVITY ENGAGED IN BY THE ASSESSEE WAS PU RELY A BUSINESS ACTIVITY. THERE WAS A SYSTEM AND A CONSISTENCY IN EARNING PROFITS. 6.2 ON HIS PART THE AO VERY CLEARLY LAID DOWN THE V ARIOUS PARAMETERS WHICH HE CULLED OUT FROM DIFFERENT CASE-LAWS INCLUDING TH E DECISION OF THE AUTHORITY FOR ADVANCED RULINGS (AAR) IN THE CASE OF FIDELITY NORT H STAR FUND AND ORS. (2007) 288 ITR 641. THUS APART FROM THE MOTIVE I.E. THE FIRST STEP TAKEN IN THE PURCHASE OF SHARES AND THE FREQUENCY OF THE TRANSACTIONS THE MAGNITUDE OF THE SALE AND PURCHASE OF SHARES AS ALSO THE SHORT HOLDING PERIOD S CLEARLY SHOWED THAT THE PROFITS EARNED FROM THE SALE OF SHARES WAS IN THE N ATURE OF BUSINESS INCOME. THE AO ALSO PLACED STRONG RELIANCE ON CIRCULAR NO.4 OF 2007 WHERE IT HAS BEEN STATED THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO P ORTFOLIOS ONE COMPRISING OF SECURITIES AND CAPITAL ASSETS AND THE OTHER BEING A TRADING PORTFOLIO COMPRISING OF TRADING ASSETS. THERE IS NO RIGHT VESTED ON AN Y ASSESSEE TO 'TREAT' THE TRANSACTIONS IN SHARES IN A PARTICULAR MANNER. THE NATURE OF THE TWO PORTFOLIOS HAVE TO BE DISTINGUISHED AND DECIDED ON THE BASIS O F THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE AND NOT WHAT THE ASSESSEE DECIDES IT SHOULD BE. IN THE CASE OF THE ASSESSEE THE FACTS AND CIRCUMSTANCES AN D HENCE ALL THE RELEVANT PARAMETERS CLEARLY SHOWED THAT THE ACTIVITY OF THE ASSESSEE OF PURCHASING AND SELLING SHARES DURING THE YEAR WAS CLEARLY A BUSINE SS ACTIVITY. 6 ITA NOS.2076 & 2218/AHD/2009 6.3 THE MOST SIGNIFICANT FACT BOUGHT OUT BY THE AO WAS THAT THE ASSESSEE WAS TRANSACTING THROUGH A RENOWNED SHARE BROKING FI RM. IF HE WAS INDEED AN ORDINARY INVESTOR HE WOULD NOT HAVE ENGAGED SUCH A MAJOR SHARE-BROKING FIRM FOR TRANSACTING IN SHARES. FURTHER HE MAINTAINED FI VE ACCOUNTS IN FOUR DIFFERENT BANKS FOR THE PURPOSE OF HIS SHARE DEALINGS. THESE FACTS CLEARLY SHOWED THAT THE ASSESSEE WAS NOT AN ORDINARY 'INVESTOR' BUT WAS RUN NING A REGULAR BUSINESS ESTABLISHMENT AND HIS MAIN BUSINESS ACTIVITY WAS TR ANSACTING IN SHARES. 6.4 THE AO OBSERVED THAT THE SHARE TRADING ACTIVITY WAS THE MAIN ACTIVITY ENGAGED IN BY HIM. INSPITE OF SUCH LARGE SCALE 'INV ESTMENTS' THE ASSESSEE HAD EARNED DIVIDEND OF ONLY RS.2 93 491 WHEREAS THE PRO FIT/GAIN ON THE SALE OF SHARES WAS RS.68 87 173 THE RATIO OF DIVIDEND TO PR OFIT WAS THUS ONLY 1:24. THIS WAS INSPITE OF THE FACT THAT IT WAS ONLY THE PROFIT AND NOT THE TOTAL SALE CONSIDERATION SUCH PROFIT HAVING BEEN COMPUTED AFTE R ADJUSTING FOR LOSSES INCURRED FROM SUCH TRANSACTIONS. THE AR HAS NOT BEE N ABLE TO REBUT SUCH FINDINGS OF THE A.O. IF THE ASSESSEE WAS INDEED AN INVESTOR AS CLAIMED THEN IT DOES NOT NEED ROCKET SCIENCE TO APPRECIATE THAT HIS EARNINGS FROM DIVIDEND WOULD BE SUBSTANTIAL IF NOT MORE THAN THE GAIN EARNED FROM A PPRECIATION ESPECIALLY IN CASES WHERE THE HOLDING PERIOD WAS LONGER. 6.5 I FIND THAT THE AR HAS MADE VERY BASIC SUBMISSI ONS WHICH ARE ESSENTIALLY REPETITIONS OF WHAT HAD BEEN STATED BEFORE THE AO. IT HAS BEEN SUBMITTED BY THE AR THAT THE STCG OF RS.68 87 173 EARNED BY THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION INCLUDED A GAIN OF RS.30 59 947 WHICH P ERTAINED TO SHARES AND SECURITIES PURCHASED IN THE PRECEDING YEAR WHEN THE SAME HAD BEEN ACCEPTED AS INVESTMENTS. THIS POINT IS NOT AT ALL RELEVANT SINC E SUCH SHARES WERE ALSO SOLD WITHIN A SPAN OF ONE YEAR AND THE PROCEEDS THERE FR OM CONSTITUTED BUSINESS INCOME DURING THIS YEAR. IT IS WELL KNOWN TO THE AR THAT THE PRINCIPAL OF RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS A ND EVEN THOUGH THE PURCHASES HAD BEEN ACCEPTED AS 'INVESTMENTS' LAST Y EAR NOTHING PREVENTED THE AO FORM TREATING THE SALE OF THE SAME SHARES AND SE CURITIES AS CONSTITUTING BUSINESS INCOME DURING THE YEAR UNDER CONSIDERATION . THE AR HAS NOT BEEN ABLE TO REBUT THE DETAILED FINDINGS AND SPECIFIC OBSERVA TIONS OF THE AO ON VARIOUS POINTS. IT HAS THUS BEEN POINTED OUT THE AO THAT TH E ASSESSEE HAD DEALT IN 275 SCRIPS AND HAD ENGAGED IN MORE THAN 533 TRANSACTION S DURING THE YEAR WHICH AVERAGED ABOUT 2 TRANSACTIONS PER WORKING DAY IN MO RE THAN 2 SCRIPS RESULTING IN EACH SCRIP BEING BOUGHT AND SOLD SEVERAL TIMES IN A DAY. THIS ISSUE HAS NOT BEEN ADDRESSED BY THE AR. AS ALREADY POINTED OUT ABOVE I N THE WORDS OF THE ASSESSEE AND THE AR THEMSELVES SUCH TRANSACTIONS WOULD CLEAR LY BE IN THE NATURE OF BUSINESS. DEALING IN THE SAME SHARES OR PURCHASING AND SELLING THE SAME SHARES MORE THAN ONCE ON THE SAME DAY MEANS THAT THE OWNER OF THE SHARES HAD BEEN ATTEMPTING TO RIDE THE VOLATILITY IN THE MARKET SI NCE MULTIPLE TRANSACTIONS WOULD MEAN BUYING THE SHARES WHEN THE PRICE IS LOW AND SE LLING WHEN THE PRICE IS HIGH. THIS COULD BE DONE ONLY WHEN THE MARKET GOES UP AND DOWN SEVERAL TIMES ON THE SAME DAY. WHAT IS FREQUENTLY STATED BY INVESTMENT G URUS IS THAT WHEN THE MARKET IS VOLATILE ANY RETAIL OR SMALL TIME INVESTO R SHOULD STAY AWAY FROM THE MARKET AND HOLD ON TO THE INVESTMENTS UNTIL THE MAR KET STABILISES. A PERSON WHO TRANSACTS IN TIMES OF MARKET VOLATILITY IS A HIGH-R ISK TAKER WHO SEEKS TO REAP PROFITS FROM SUCH TURBULENCE. A NORMAL HOUSEHOLD IN VESTOR CANNOT BE EXPECTED TO 7 ITA NOS.2076 & 2218/AHD/2009 RIDE SUCH A VOLATILE MARKET. THUS THE VOLUME OF THE TRANSACTIONS THE FREQUENCY AS ALSO THE MAGNITUDE OF THE TRANSACTIONS CLEARLY I NDICATE AND POINT TO THE FACT THAT THE ASSESSEE WAS NOT A SMALL TIME HOUSEHOLD IN VESTOR BUT A PERSON WHO WAS INVOLVED IN THE BIG TIME BUSINESS OF SHARE TRAD ING. 6.6 IT WAS ALSO CLEARLY BROUGHT OUT BY THE AO THAT THE ASSESSEE HAD TAKEN UNSECURED LOANS FROM VARIOUS PARTIES TOTALING RS.37 43 772 FOR THE PURPOSE OF TRADING IN THE SHARES. THE AR HAS HOWEVER STATED TH AT THE ASSESSEE HAD TRANSACTED IN SHARES WITH HIS OWN FUNDS. BUT HE HAS NOT FURNISHED ANY DETAIL OR EVIDENCE TO SUPPORT SUCH A CLAIM. THIS IMPORTANT FI NDING OF THE AO DEARLY CONTRADICTS THE ASSESSEE'S AND THE AR'S CLAIM THAT HE HAD INVESTED HIS OWN FUNDS. THE FACT THAT THE /ASSESSEE HAD TAKEN SUCH SUBSTANT IAL LOANS TO BUY THE SHARES CLEARLY SHOWS THAT IT WAS ESSENTIALLY A BUSINESS AC TIVITY THAT HE WAS ENGAGED IN. NO PRUDENT PERSON WOULD TAKE LOANS FROM THE MARKET OR EVEN FROM KNOWN PERSONS AND RELATIVES WHERE INTEREST RATES ARE 15% AND UPWARDS TO EARN SIMPLE APPRECIATION ON INVESTMENTS WHICH IN PERCENTAGE TER MS WOULD ALWAYS BE BELOW THE COST OF SUCH BORROWINGS UNLESS OF COURSE SUCH B ORROWINGS ARE MADE FOR THE PURPOSE OF EARNING PROFITS FROM A VOLATILE MARKET F ACT OF THE BORROWINGS BY THE ASSESSEE ALONG WITH THE OTHER FACTS SUCH AS THE ELA BORATE ESTABLISHMENT MAINTAINED BY THE ASSESSEE THE ENGAGEMENT OF A RENO WNED BROKER AND THE MAINTENANCE OF FIVE DIFFERENT BANK ACCOUNTS WITH FO UR DIFFERENT BANKS AND THE OTHER FACTS PERTAINING TO THE LARGE NUMBER OF TRANS ACTIONS INVOLVING A LARGE NUMBER OF SCRIPS WITH AVERAGE HOLDING PERIOD OF LES S THAN 45 DAYS AS ALSO THE TOTAL TURNOVER OF THE TRANSACTIONS CLEARLY LEAD TO THE IRREFUTABLE CONCLUSION THAT THE STCG THAT THE ASSESSEE HAD CLAIMED OF RS.68 87 173 WAS ESSENTIALLY THE ASSESSEE'S INCOME FROM THE BUSINESS OF SHARE DEALIN GS/TRANSACTIONS. THE AO'S ACTION IN TREATING THE SUM OF RS.68 87 173 AS INCOME FROM BUSINESS IS THEREFORE SUSTAINED. THE EXPENSES CLAIMED WILL NOT BE ALLOWED SINCE AS MENTIONED BY THE A.O. THE SAME HAD BEEN CLAIMED AND ALLOWED AGAINST SPECULATION INCOME .' 3.2 SINCE THE FACTS OF THE CASE PERTAINING TO THE CLAIM OF STCG HAVE REMAINED THE SAME THIS YEAR AS IN THE IMMEDIATELY PRECEDI NG YEAR I HAVE NO HESITATION IN FOLLOWING THE VIEW TAKEN BY ME IN PRECE DING YEAR I.E. THE AY 2005-06 AS ABOVE AND SUSTAIN THE ACTION OF THE AO IN TREATING THE ALLEGED STCG RS.62 67 735 AS THE ASSESSEE'S INCOME FROM B USINESS. 3.1 AS REGARDS INCOME ON ACCOUNT OF LONG TERM CAPITAL GAINS THE LD. CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE IN THE FOLLOWING TERMS: 3.3 AS FAR AS THE LTCG IS CONCERNED I FIND THAT THE AO IGNORED THE FACT THAT THE RELEVANT SHARES HAD BEEN HELD BY THE ASSESSEE FOR A SUBSTANTIALLY LONGER PERIOD. THE AR HAS POINTED OUT THAT THE ENTIR E DISCUSSION IN THE ASSESSMENT ORDER PERTAINED ONLY TO STCG AND THE GROUNDS TAKEN BY THE AO IN TREATING THE STCG AS BUSINESS INCOME WERE ALSO USED TO TREAT THE LTCG IN THE SAME MANNER. I AM OF THE VIEW THAT THE VA RIOUS CRITERIA WHICH THE AO APPLIED THROUGHOUT THE ASSESSMENT ORDER IN TREAT ING THE SHARE TRANSACTIONS ALLEGEDLY GIVING RISE TO STCG AS INCOME FROM BUSINESS COULD NOT HOWEVER BE APPLIED TO THE TRANSACTION IN SHARES WH ICH HAD BEEN HELD 8 ITA NOS.2076 & 2218/AHD/2009 FOR MUCH LONGER DURATIONS. THUS WHEN SHARES ARE HELD F OR LONG TERM THE MOTIVE IS OBVIOUSLY TO INVEST AND NOT TO DEAL AS IN A BUSIN ESS. THE FREQUENCY OF THE TRANSACTION ARE ALSO MORE INFREQUENT AN D SPACED OUT. CONSEQUENTLY THE LENGTH OF PERIOD OF HOLDING OR OWNE RSHIP IS MUCH LONGER THAN THE SHARES WHICH ARE DEALT IN MORE FREQUENTLY GI VING RISE TO THE INFERENCE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSACTING IN SHARES. FURTHER SHARES WHICH ARE HELD FOR INVESTMENT PU RPOSES FOR LONG TERM WOULD NOT REQUIRE INFRASTRUCTURE FOR TRANSACTING IN SHARES. THUS THE CRITERIA APPLIED BY THE AO TO TREAT THE STCG AS BUSINE SS INCOME COULD NOT BE APPLIED TO TREAT THE SHARE TRANSACTIONS GIVING RISE TO THE LTCG AND CONSEQUENTLY THE LTCG CLAIMED BY THE ASSESSEE COULD NOT IN ANYWAY BE TREATED AS INCOME FROM BUSINESS. THE AO IS DIRECTED TO DE LETE THE ADDITION OF THE SUM OF RS.18 40 348 AND ALLOW THE ASSESSEES CLAIM OF LTCG. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN SUSTAINING THE AC TION OF THE AO IN TREATING THE STCG OF RS.62 67 735/- AS BUSINESS INC OME WHILE REVENUE IS IN APPEAL IN RESPECT OF HIS FINDINGS IN RELATION TO LONG TERM CAPITAL GAINS . THE LEARNED AR ON BEHALF OF TH E ASSESSEE WHILE REFERRING TO THE DECISION DATED 13-05-2011 OF TH E ITAT IN THE ASSESSEES OWN CASE IN ITA NO.127/AHD/2009 FOR THE AY 2005-06 CONTENDED THAT THEIR CLAIM FOR SHORT TERM CAPITAL G AIN HAVING BEEN ACCEPTED IN THE PRECEDING YEAR WHILE THE LD. CIT(A) IN THE IMPUGNED ORDER FOUND THAT FACTS AND CIRCUMSTANCES REMAIN T HE SAME AS WERE IN THE PRECEDING YEAR THEIR CLAIM SHOULD BE ACCEP TED IN THE YEAR UNDER CONSIDERATION ALSO. INTER ALIA THE LD. AR RE LIED UPON DECISIONS IN CIT VS. GOPAL PUROHIT (2010) 228 CTR (BOM) 582; CIT VS. NIRAJ AMIDHAR (2011) 238 CTR (GUJ) 294 AS ALSO DECISION D ATED 18.5.2011 IN SHRI MAHENDRA C SHAH VS. ADDL. CIT IN ITA NO.62 89/MUM/2008 FOR AY 2005-06 AND ITA NO.4932/MUM/2009 FOR AY 20 06-07 AND DECISION DATED 15.6.2011 IN HITESH SATISHCHANDRA DO SHI VS. JT. CIT IN ITA NO.6497/MUM/2009 AND OTHERS. THE LD. AR WHIL E POINTING OUT THE PRINCIPLES OF CONSISTENCY SUBMITTED THAT THE IR CLAIM SHOULD BE ALLOWED IN THE YEAR UNDER CONSIDERATION ALSO. AS RE GARDS LONG TERM CAPITAL GAINS THE LD. AR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 9 ITA NOS.2076 & 2218/AHD/2009 4.1 THE LEARNED DR ON THE OTHER HAND SUPPORTED T HE FINDINGS OF THE AO AND THE LD. CIT(A) IN RESPECT OF SHORT TERM CAPITAL GAIN. IN HIS WRITTEN SUBMISSIONS THE LD. DR POINTED OUT TH AT THE RELIANCE PLACED BY ITAT ON THE DECISIONS IN CIT VS. GOPAL PUROH IT - (2010) 228 CTR (BOM.) 582 AND CIT VS. NIRAJ AMIDHAR (2011) 238 CTR (GUJ) 294 IN THEIR ORDER FOR THE A.Y. 2005-06 IS MISPLACED AS THE ENTIRE FACTS OF THE PRESENT CASE WERE NOT BROUGHT BEFORE THE HON'BLE MEMBERS. WHIL E REFERRING TO THESE DECISIONS THE LD. DR POINTED OUT THE FOLLOWING DISTING UISHING FEATURES: ISSUES NIRAJ AMIDHAR SURTI SHRI MULCHAND S AMIN AY 2001-02 2006-07 CBDT CIRCULAR NO.4/2007 DATED 15-06-2007 NOT CONSIDERED CONSIDERED AOS DECISION LONG TERM CAPITAL GAIN (LTCG) CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE SHORT TERM CAPITAL GAIN (STCG) CONSIDERED AS BUSINESS THE ASSESSEE HAD PURCHASED SHARES OF VARIOUS COMPANIES HOWEVER THE AO HAD TREATED THE SOLITARY TRANSACTION IN THE SHARES OF M/S HT LTD. AS ADVENTURE IN THE NATURE OF TRADE. THE AO HAD CONSIDERED THE ENTIRE PURCHASE AND SALE OF SHARE OF THE ASSESSEE AS BUSINESS INCOME. NUMBER OF SCRIPS 1 255 FREQUENCY OF TRANSACTION 1 (THE ASSESSEE PURCHASE AND SOLD ENTIRE HOLDING IN ONE LOT) 1000 HOLDING PERIOD 14 MONTHS AVERAGE HOLDING TIME LESS THAN 45 DAYS DID ASSESSEE DEALT IN THE SAME SHARES MORE THAN ONCE NO (THE ASSESSEE HAD NOT REPEATED THE TRANSACTION OF PURCHASE AND SALE OF SHARES OF H T LTD.) YES (THE ASSESSEE HAS FREQUENTLY DEALT IN PURCHASE AND SALE OF SAME SHARES.) INVESTMENT IN THE SHARES WAS NOT VERY HIGH VERY HIGH UTILIZATION OF THE SALE PROCEEDS OF SHARE TRANSACTION THE ASSESSEE MADE INVESTMENT U/S 54EC IN THE BONDS OF NABARD THE ASSESSEE UTILIZED SALE PROCEEDS OF SHARE TRANSACTION AGAIN INTO PURCHASE OF SHARES. 10 ITA NOS.2076 & 2218/AHD/2009 4.11. ACCORDINGLY IT WAS PLEADED THAT THE DECISION OF THE ITAT IN THE PRECEDING YEAR SHOULD NOT BE FOLLOWED. IN THIS CONNECTION THE LD . DR REFERRED TO DECISIONS IN THE MAHARASTRA STATE CO. OPERATIVE BANK LTD. VS. ACIT -(2010) 129 TTJ 521 (MUM.) (SB) (TRIB.) AND DIT (E) VS. SHIA DAWOODI BOH RA JAMAT -(2010) 40 DTR 31 (GUJ.) AS REGARDS LONG TERM CAPITAL GAINS THE LD. D R MERELY SUPPORTED THE FINDINGS OF THE AO. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. THE ISSUE BEFORE US IS AS TO WHETHER SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCOME FROM CAPIT AL GAIN. THE AO TREATED BOTH LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAIN S AS BUSINESS INCOME WHILE THE LD. CIT(A) FOLLOWING HIS OWN ORDER FOR THE PRECEDING YE AR TREATED ONLY SHORT TERM GAINS AS BUSINESS INCOME. HOWEVER THE ITAT IN THEIR AFORESA ID ORDER DATED 13-05-2011 IN THE ASSESSEES OWN CASE IN ITA NO.127/AHD/2009 FOR THE AY 2005-06 TREATED THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. THE LD. AR R ELIED UPON THIS ORDER OF THE ITAT FACTS AND CIRCUMSTANCES BEING SAME IN THE YEAR UNDE R CONSIDERATION AS WERE OBTAINING IN THE PRECEDING YEAR WHILE THE LD. DR PO INTED OUT THAT THE DECISIONS RELIED UPON BY THE ITAT IN THE PRECEDING YEAR WERE DISTING UISHABLE. TO DETERMINE AS TO WHETHER SALE OF SHARES IS TO BE ASSESSED AS BUSINES S INCOME OR AS INCOME FROM CAPITAL GAIN THE MOST IMPORTANT TEST IS WHETHER T HE INITIAL ACQUISITION OF THE SHARES WAS WITH THE INTENTION OF DEALING IN THE SHARES OR IT WAS MADE AS AN INVESTMENT. THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM AND THE DISPUTE COMES TO THE APPELLATE AUTHORITIES ONLY WHEN THE REVENUE AUTHORITIES DO NO T ACCEPT THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITIES HAVE LAID DOWN CERTAIN GUIDELINES ON THE BASIS OF WHICH THE INTENTION OF THE ASSESSEE CAN BE INFERRED . IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. 122 TTJ 216 THE LUCKNOW B ENCH OF THE ITAT HAS LAID VARIOUS PRINCIPLES WHICH MAY BE APPLIED TO DETERMINE WHETHE R THE TRANSACTION OF PURCHASE AND SALE OF SHARE IS IN THE NATURE OF TRADE OR INVE STMENT. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: THE FOLLOWING PRINCIPLES CAN BE APPLIED ON THE FAC TS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: 11 ITA NOS.2076 & 2218/AHD/2009 (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNTWHETHER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT; WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHA SE AND PAID INTEREST THEREON. NORMALLY MONEY IS BORROWED TO PURCHASE GOO DS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINI NG. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSA L IN THAT PARTICULAR ITEM ? IF PURCHASES AND SALES ARE FREQUENT OR THERE ARE SU BSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALING IN T HAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING O R INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREA S LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE ARE FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WIL L INDICATE INTENTION OF TRADE AND LATTER AN INVESTMENT. IN THE CASE OF SHARES WHE THER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PUR CHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BA LANCE SHEET ? IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE T HAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NE T REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDICATE THAT ITEMS IN QUESTION AR E TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORAN DUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT ? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE ARE SE PARATE 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 SHOW T HAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE H AS KEPT TO THE RECORDS OR OTHERWISE BETWEEN TWO TYPES OF HOLDINGS: IF THE ASS ESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTIC ULAR ITEM IS HELD AS INVESTMENT (OR SAY STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. 12 ITA NOS.2076 & 2218/AHD/2009 (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES F OR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPL YING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATIN G THOSE LEGAL REQUIREMENTS IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT I TEM ? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITE M) SINCE BEGINNING OR WHEN PURCHASES WERE MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2 007 OF 15-6-2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING A ND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EAC H TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SE VERAL FACTORS HAS TO BE SEEN. THE ASSESSEE-COMPANY WAS DEALING IN SHARES AND IT H AD DEALT IN SHARES BOTH AS STOCK-IN-TRADE AS WELL AS INVESTMENT. IT SOLD SHARE S FROM THE INVESTMENT PORTFOLIO AND CLAIMED THAT THE PROFIT ARISING THEREFROM WAS C APITAL GAIN. THE ASSESSING OFFICER HELD THAT MAIN BUSINESS OF THE ASSESSEE WAS PURCHASE AND SALE IN SHARES. IT WAS NEITHER A SHARE DEALER NOR A SHARE BROKER. T HE DETAILS FOR PURCHASE AND SALES AFFECTED BY THE ASSESSEE COMPANY REVEALED THA T SALES AND PURCHASES WERE QUITE SUBSTANTIAL AND WOULD NOT BE MADE BY A PERSON WHO INVESTED IN SHARES. FURTHER THE ASSESSEE DID NOT HAVE SUFFICIENT FUNDS TO MAKE SUCH INVESTMENTS AND THE ASSESSEE WAS CLAIMING TO HAVE MADE INVESTMENT O UT OF BORROWED CAPITAL. HE THEREFORE HELD THAT THE PROFIT IN QUESTION WAS ASSE SSABLE AS BUSINESS INCOME. HELD THAT THE UNDISPUTED FACT WAS THAT THE ASSESSEE WAS DEALING IN SHARES BOTH AS BUSINESS AS WELL AS INVESTMENT. IT HAD KEPT SEPA RATE ACCOUNTS IN RESPECT OF TWO PORTFOLIOS. NO MATERIAL WAS BROUGHT ON RECORD T O SHOW THAT DEMARCATION LINE BETWEEN BUSINESS AND INVESTMENT WAS HAZY OR THAT TH E ASSESSEE HAD NOT MAINTAINED AN INVESTMENT PORTFOLIO AND IT WAS DEALI NG IN SHARES ONLY LIKE A TRADER. THUS ON APPRECIATION OF CUMULATIVE EFFECT O F SEVERAL FACTORS PRESENT IT WAS TO BE HELD THAT THE SURPLUS WAS CHARGEABLE TO C APITAL GAINS ONLY AND THE ASSESSEE WAS NOT TO BE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF 13 ITA NOS.2076 & 2218/AHD/2009 SHARES IN THE INVESTMENT PORTFOLIO. 5.1 THE ITAT MUMBAI BENCH IN THE CASE OF JANAK S . RANGWALA 11 SOT 627 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 NOR AFTER 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 MAINTAIN CONSISTENCY IT IS A JUDICIALLY ACCEPTED PRINCIPLE 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 SEERS 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 FRONT CA PITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. TIRE TRANSACTION IN THE YEAR UNDE R CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE PRECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES WHEN HIS INTENTION WAS TO HOLD SH ARES ITS THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRADE. THE MERE MAGN ITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION WHICH ARE BEI NG ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS: 5.2 SIMILARLY THE ITAT MUMBAI BENCH IN THE C ASE OF GOPAL PUROHIT V. JCIT [(2009) 29 SOT 117 (MUM)] FOLLOWED THE DECISION OF THE ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. (SUPRA) AN D HELD AS UNDER: FURTHER ON THE BASIS OF MERITS ALSO IN VIEW OF T HE 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 TR ANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LON G TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IN ADDITION TO THE ABOVE THE ITAT MUMBAI BENCH AL SO ACCEPTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IN THE PRECEDING YEAR SIMILAR CLAIM WAS ACCEPTED BY THE REVENUE. THE RELEVANT FINDINGS OF THE ITAT ARE AS UNDER: 14 ITA NOS.2076 & 2218/AHD/2009 THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF THE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS IN VESTMENT AT THE YEAR END WERE SAME IN ALL THE YEARS AND HENCE AP PARENTLY THERE APPEARED NO REASON AS TO WHY 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 H OLDING THAT PRINCIPLE OF RES JUDICATA WAS NOT APPLICABLE TO THE ASSESSMEN T PROCEEDINGS. THERE COULD NOT BE ANY DISPUTE ON THIS ASPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS AS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDE NTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVENUE AUT HORITIES.: 5.21 THE REVENUE FILED AN APPEAL BEFORE THE HONB LE BOMBAY HIGH COURT AGAINST THE DECISION OF THE ITAT IN THE CASE OF GOPAL PUROH IT (SUPRA) AND A SPECIFIC QUESTION WAS RAISED AGAINST THE RULE OF CONSISTENCY APPLIED BY THE ITAT. THE HONBLE HIGH COURT VIDE ORDER DATED 6-1-2010 228 CTR 582 (BOM) UPHELD THE ORDER OF THE ITAT AND HELD AS UNDER: 3. IN SO FAR AS QUESTION (B) IS CONCERNED THE TRI BUNAL HAS OBSERVED IN PARE 8. OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CO NSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR IN A LL THE YEAR THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICAB LE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE P RINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSI STENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTICULARLY IN THE CAS E OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REV ENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B) THEREFORE DOES NOT ALSO RAIS E ANY SUBSTANTIAL QUESTION. 5.22. ON MERIT ALSO THEIR LORDSHIPS UPHELD THE FIN DINGS OF THE ITAT HOLDING THE SAME TO BE PURE FINDING OF THE FACT. THE HONBLE SUPREME COURT VIDE THEIR ORDER DATED 15.11.2010 HAVE DISMISSED SLP FILED BY THE RE VENUE AGAINST THE AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT. 5.3. SIMILAR VIEW IS TAKEN BY THE OTHER BENCHES OF THE ITAT IN THEIR DECISION DATED 18.5.2011 IN SHRI MAHENDRA C SHAH VS. ADDL. CIT IN ITA NO.6289/MUM/2008 FOR AY 15 ITA NOS.2076 & 2218/AHD/2009 2005-06 AND ITA NO.4932/MUM/2009 FOR AY 2006-07 A S ALSO DECISION DATED 15.6.2011 IN HITESH SATISHCHANDRA DOSHI VS. JT. CIT IN ITA NO.6497/MUM/2009 AND OTHERS. 5.4 IN THE INSTANT CASE NUMBER OF TRANSACTIONS IS STATED TO BE 1000 IN 255 SCRIPS WHILE IN THE PRECEDING YEAR THEIR NUMBER WAS 533 IN 275 SCRIPS. THE LD. CIT(A) CONCLUDED THAT FACTS AND CIRCUMSTANCES IN THE INSTA NT CASE REMAINED THE SAME AS WERE OBTAINING IN THE PRECEDING YEAR. WHETHER THE T RANSACTIONS WERE 533 OR 1 000 THE FACTS REMAIN THAT THERE WERE FREQUENT TRANSACTI ONS OF PURCHASE AND SALE OF SHARES. HOWEVER EXCEPT THE PARAMETER OF FREQUENCY IN PURCH ASE/SALE OF SHARES ALL OTHER PARAMETERS INDICATE THAT THE TRANSACTIONS WERE IN T HE NATURE OF INVESTMENT AND NOT THE TRADE TRANSACTIONS. EVEN FOR FREQUENCY IT WAS EXP LAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS MOSTLY MAKING THE INVESTMENT IN B- GROUP SCRIPS AND TO AVOID RISK HE MADE INVESTMENT IN SEVERAL SCRIPS INSTEAD OF INV ESTING IN ONE SCRIP. HE ALSO STATED THAT SHARES WERE KEPT FOR LONG PERIOD AND THERE IS NO FREQUENT PURCHASE/SALE OF SAME SCRIPS. THE LD. DR APPEARING BEFORE US DID NOT CONT ROVERT THESE CONTENTIONS. IT IS WELL SETTLED THAT TO DETERMINE WHETHER THE ASSESSE E IS A TRADER OR INVESTOR IN SHARES NO SINGLE TEST IS CONCLUSIVE BUT CUMULATIVE EFFECT OF ALL THE FACTS ARE TO BE SEEN. IN THE CASE OF THE ASSESSEE ONE FACT I.E. FREQUENT PURCHA SE/SALE OF SHARES CAN NOT BE SAID TO BE AGAINST THE ASSESSEE ESPECIALLY WHEN IN THE P RECEDING YEARS ALL ALONG THE ASSESSEE HAS BEEN TREATED AS INVESTOR. THE PLEA OF THE LD. DR THAT IN THE AY 2003-04 THERE WAS NO DIFFERENCE IN TAX RATES ON SHORT TERM CAPITAL GAINS AND BUSINESS INCOME AND THEREFORE THE ISSUE DID NOT ASSUME SIGNIFICANC E IS NOT RELEVANT ESPECIALLY WHEN THE AO ACCEPTED THE CLAIM THAT THE ASSESSEE HAD MA DE ONLY INVESTMENT IN SHARES AND WAS NOT A TRADER. EVEN IN SUBSEQUENT YEARS UNTI L AY 2005-06 CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED. 5.5 WE FIND THAT IN THE CASE OF CIT (CENTRAL) CA LCUTTA VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. (82-ITR-586) THE HON' BLE SUPREME COURT HELD AS UNDER: WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD IN NORMAL CIRCUMSTAN CES BE IN A POSITION TO 16 ITA NOS.2076 & 2218/AHD/2009 PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE HIS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . 5.6 IN THE CASE OF CIT BOMBAY VS H HOLCK LARSEN (160-ITR-6 7) THE HON'BLE SUPREME COURT HAS HELD AS UNDER : IN ORDER TO DETERMINE WHETHER ONE WAS A DEALER IN SHARES OR AN INVESTOR THE REAL QUESTION WAS NOT WHETHER THE TRANSACTION OF BU YING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING BUT WHETHER THE LATER STAGES OF THE WHOLE OPERATION SHOW THAT THE FIRST STEP THE PURCHASE OF THE SHARES WAS NOT TAKEN AS OR IN THE COURSE OF A TRADING TRANSACTION. THE TOTALITY OF ALL THE FACTS WILL HAVE TO BE BORNE IN MIND AND THE CORRECT LEGAL PRINC IPLES APPLIED TO THESE. IF ALL THE RELEVANT FACTORS HAVE BEEN TAKEN INTO CONSIDERA TION AND THERE HAS BEEN NO MISAPPLICATION OF THE PRINCIPLES OF LAW THEN THE C ONCLUSION ARRIVED AT BY THE TRIBUNAL CANNOT BE INTERFERED WITH BECAUSE THE INFE RENCE IS A QUESTION OF LAW IF SUCH AN INFERENCE WAS A POSSIBLE ONE SUBJECT HOWE VER THAT ALL THE RELEVANT FACTORS HAVE BEEN DULY WEIGHED AND CONSIDERED BY TH E TRIBUNAL THE INFERENCE REACHED BY THE TRIBUNAL SHOULD NOT BE INTERFERED WI TH. 5.7. EVEN CBDT IN CIRCULAR NO.4/2007 DT.15.6.2007 HAS LAID DOWN THE PRINCIPLES FOR HOLDING AS TO WHEN PROFITS EARNED FROM T RANSACTIONS IN SHARE SHOULD BE HELD AS BUSINESS OR SHOULD BE TREATED AS INVESTMENT. T HE RELEVANT CIRCULAR READS AS UNDER: CIRCULAR NO. 4/2007 DATED JUNE 15 2007 SUB : DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-TRADE AND SHARES HELD AS INVESTMENTTESTS FOR SUCH A DISTINCTION. THE INCOME-TAX ACT 1961 MAKES A DISTINCTION BETWEEN 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 UNDE R 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 I NSTRUCTION NO. 1827 DATED AUGUST 31 1989 HAD BROUGHT TO THE NOTICE OF T HE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVE STMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING ASSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE O F THE ABOVE 17 ITA NOS.2076 & 2218/AHD/2009 INSTRUCTIONS IT IS PROPOSED TO UPDATE THE ABOVE INSTRUCTI ONS FOR THE INFORMATION OF THE ASSESSEES AS WELL AS FOR GUIDANCE OF TH E ASSESSING OFFICERS. 5. IN THE CASE OF CIT V. ASSOCIATED INDUSTRIAL DEVELOPMEN T COMPANY (P) LTD. [1971] 82 ITR 586 THE SUPREME COURT OBSERVED T HAT (HEADNOTE) : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INV ESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN TH E KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD IN NORMAL CIRCUM STANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH A RE 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 OBS ERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TRADING TR ANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A Q UESTION 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] 288 ITR 641 REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES H AS CULLED OUT THE FOLLOWING PRINCIPLES (PAGE 651) : (I) WHERE A COMPANY PURCHASES AND SELLS SHARES IT MUST B E SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION ; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS THE MANNER OF MAINTAINING BOOKS OF ACCOUNT THE MAGNITUDE OF PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS ; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WITH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTION BEI NG IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE ; BUT WHE RE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOM E BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN A ND NOT REVENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES THE AAR H AS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER (PAGE 661) : 18 ITA NOS.2076 & 2218/AHD/2009 WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. THE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SHARES B Y A FII IN EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIATION/T RUST DEED WAS AS STOCK-IN-TRADE AS THE MERE EXISTENCE OF THE POWER TO PU RCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF T RANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE B OOKS OF ACCOUNT I.E. WHETHER THEY WERE VALUED AS STOCK-IN-TRADE AT THE END O F THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR HELD AS INVESTMENT IN CAPITAL ASSETS. THE SECOND PRINCIPLE FURNISHES A GUIDE FOR DETERMINING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THERE ARE SUBSTANTIAL TRANSACTIONS THEIR MAGNITUDE ETC. MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN PURCHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS E NJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TRUE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENTS AND ACCOUNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN INDIA AND REALIZING CAPITAL GAINS ON INV ESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDINARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PROFIT WOU LD 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 OF DIVI DENDS ETC. THE TRANSACTIONS OF PURCHASES AND SALES OF SHARES WOULD YIELD CAPI TAL GAINS AND NOT BUSINESS PROFITS. 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES TO EMP HASISE 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 CAPITA L ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH AR E TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS THE A SSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WEL L AS BUSINESS INCOME. 11. THE ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRIN CIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER IN A GIVEN CASE T HE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CA PITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINESS P ROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCI PLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOUL D 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 EARLIER INSTRUCTION NO. 1827 DATED AUGUST 31 1989. [ F. NO. 149/287/2005-TPL ] 19 ITA NOS.2076 & 2218/AHD/2009 5.8. WE MAY POINT OUT THAT THE HONBLE JURISDI CTIONAL HIGH COURT IN CIT VS. REVA SHANKER A. KOTHARI 283 ITR 338 (GUJARAT ) LAID DOWN THE FOLLOWING GUIDELINES IN ORDER TO DETERMINE WHETHER PROFITS ARISI NG ON SALE IS BUSINESS INCOME:- THE TESTS LAID DOWN BY VARIOUS DECISIONS OF THE A PEX COURT INDICATE THAT IN EACH CASE IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTOR S AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. EACH CASE HA S TO BE DETERMINED ON THE TOTAL IMPRESSION CREATED ON THE MIND OF THE COURT B Y ALL THE FACTS AND CIRCUMSTANCES DISCLOSED IN A PARTICULAR CASE. ONE OF THE PRINCI PAL 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 RELEVANT FA CTOR. IT IS EQUALLY WELL SETTLED THAT MERELY BECAUSE THE ORIGINAL PURCHASE WAS MA DE WITH THE INTENTION TO RESELL IF AN ENHANCED PRICE COULD BE OBTAINED THAT BY ITSELF IS NOT ENOUGH TO INFER THAT AN ASSESSEE IS CARRYING ON BUSINESS. HOWEVER THOUGH P ROFIT 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 STRONG F ACTOR FOR INFERRING THAT THE TRANSACTION WAS IN THE NATURE OF BUSINESS. IN THE CASE OF PARI MANGALDAS GIRDHARDAS V. CIT [1977] 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 ACQUISITION OF THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE I TEM OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION SINCE THE INCEPTION A PPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCIAL TRANSACTION ENTERED IN TO WITH A VIEW TO EARN PROFIT IT WOULD FURNISH A VALUABLE GUIDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AN D 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 THE A SSET WAS WITH THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN-TRADE OR HAS IT BEEN SHOW N IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS INQUIRY THOUGH RELEVANT IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF HA S RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WIT H THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR TH OUGH NOT CONCLUSIVE CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSI DERED IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST NORMALLY APPLIED IN CASES OF PARTNER SHIP FIRMS AND COMPANIES IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM OF ASSOCIATION AS THE CASE MAY BE AUTHORISES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST RATHER THE MOST IMPORT ANT TEST IS AS TO THE VOLUME FREQUENCY CONTINUITY AND REGULARITY OF TRANSACTIONS OF PU RCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITION AND CONTINUITY COUPLED WITH 20 ITA NOS.2076 & 2218/AHD/2009 THE MAGNITUDE OF THE TRANSACTION BEARING REASONABLE P ROPORTION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT T HE ACTIVITY IS IN THE NATURE OF BUSINESS. 5.9 IN THE PRECEDING YEAR THE ITAT VIDE THEIR ORD ER DATED 13-05-2011 IN THE ASSESSEES OWN CASE IN ITA NO.127/AHD/2009 CONCLUDED ON SIMIL AR FACTS AND CIRCUMSTANCES AS UNDER:- 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE LATEST DE CISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRAJ AMIDHAR SURTI (SUPRA) RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. ADMITTEDLY IN THE PAST THE ASSESSEE WAS DECLARING SHORT-TERM/LONG-TERM CAPITAL GAINS IN SALE AN D PURCHASE OF SHARES WHICH HAS BEEN ACCEPTED BY THE AO. EVEN IN THE ASSESSMEN T ORDER UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2003-04 THE AO HAS ACCEPTED THE INCOME DECLARED UNDER THE HEAD CAPITAL GA INS ON SALE AND PURCHASE OF SHARES. THE FACTS AND CIRCUMSTANCES OF THIS YEAR AR E THE SAME AS IN THE EARLIER YEAR. THEREFORE THE RATIO OF JUDGM ENT OF HONBLE BOMBAY HIGH COURT IN THE CASE CIT-VS- GOPAL PUROHIT (SUPRA) AS WELL AS THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRAJ AMID HAR SURTI (SUPRA) ARE SQUARELY APPLICABLE TO THE FACTS OF ASSESSEES CASE. WE THERE FORE FOLLOWING THE AFORESAID DECISIONS DIRECT THE AO TO ACCE PT THE SHORT-TERM CAPITAL GAIN AMOUNTING TO RS.68 87 173/- DECLARED BY T HE ASSESSEE IN THE RETURN OF INCOME. THIS GROUND OF APPEAL TAKEN BY THE ASS ESSEE IS ALLOWED. 5.10 IN NUTSHELL THE CLAIM OF THE ASSESSEE REGAR DING INCOME FROM SALE OF SHARES HAS ALL ALONG BEEN ACCEPTED UNDER THE HEAD SHORT -TERM/LONG-TERM CAPITAL GAINS . THE LD. CIT(A) AS ALSO THE LD. DR APPEARING BE FORE US IN HIS WRITTEN SUBMISSIONS HAVE OBSERVED THAT THE FACTS OF THE CASE PERT AINING TO THE CLAIM OF STCG REMAIN THE SAME THIS YEAR AS WERE OBTAINING IN THE IMMEDIATELY PRECEDING YEAR . IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS WE ARE OF THE OPINION THAT THE MERE VOLUME OF TRANSACTIONS TRANSACTED BY TH E ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEA R OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. IN THE FACTS OF THE INSTANT CASE THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTEN TION OF THE ASSESSEE WHICH WAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSAC TION CONDUCTED BY THE 21 ITA NOS.2076 & 2218/AHD/2009 ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE M AGNITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMI LAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HEL D TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. TH E TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SH ARES WAS SAME AS IN THE PRECEDING YEARS . THERE WAS NO BASIS FOR TREATING T HE ASSESSEE AS A TRADER IN SHARES WHEN HIS INTENTION WAS TO HOLD SHARES IN THE INDI AN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTIONS WHICH ARE B EING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. 5.11 THE PLEA OF THE LD. DR THAT THE FACTS AND CIR CUMSTANCES IN THE DECISION RELIED UPON IN THE CASE OF GOPAL PUROHIT (SUPRA) BY THE ITAT IN THE PRECEDING YEAR WERE DIFFERENT IS NOT TENABLE AS OBSERVED BY U S ALREADY ABOVE FIRSTLY THE RATIO OF THE SAID DECISION HAS BEEN FOLLOWED IN A NUMB ER OF DECISIONS REFERRED TO ABOVE AND SECONDLY THE LD. DR DID NOT DEMONSTRATE BE FORE US AS TO HOW THE SAID DECISIONS IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTAN CES OF THE INSTANT CASE BEFORE US. TO A QUERY BY THE BENCH THE LD. DR ADMITT ED THAT HE WAS NOT AWARE AS TO WHETHER OR NOT THE DECISION OF THE ITAT FOR THE PRECEDING YEAR HAS BEEN CHALLENGED BEFORE THE HONBLE HIGH COURT. 5.12 IN VIEW OF THE FOREGOING FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISIONS IF WE ANALYSE THE TRANSACTIONS IN THE INSTANT CA SE WE FIND THAT THE ASSESSEE DISCLOSED INCOME FROM CAPITAL GAINS / DIVIDENDS IN EA RLIER YEARS AND THE SHARES HAVE ALL ALONG BEEN TREATED AS INVESTMENTS IN TH E BOOKS OF ACCOUNT/BALANCE SHEETS. IN THESE CIRCUMSTANCES WE THEREFOR E DIRECT THE AO TO ACCEPT THE SHORT-TERM CAPITAL GAIN AMOUNTING TO RS. 62 6 7 735/- DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME. THEREFORE GROUND NO .1 IN THE APPEAL IS ALLOWED. 6. AS REGARDS GROUND NO.1 IN THE APPEAL OF THE R EVENUE THE LD. CIT(A) POINTED OUT IN THE IMPUGNED ORDER THAT THE AO IGNO RED THE FACT THAT THE RELEVANT SHARES HAD BEEN HELD BY THE ASSESSEE FOR A SUBSTANTIALLY LO NGER PERIOD AND THE 22 ITA NOS.2076 & 2218/AHD/2009 VARIOUS CRITERIA WHICH THE AO APPLIED THROUGHOUT THE A SSESSMENT ORDER IN TREATING THE SHARE TRANSACTIONS ALLEGEDLY GIVING RISE TO STCG AS I NCOME FROM BUSINESS COULD NOT BE APPLIED TO THE TRANSACTION IN SHARES WHICH HAD BEEN HELD FOR MUCH LONGER DURATIONS. IT WAS FURTHER OBSERVED BY THE LD. CIT(A) WHEN SHARES ARE HELD FOR LONG TERM THE MOTIVE IS OBVIOUSLY TO INVEST AND NOT TO DEAL AS IN A BUSINESS WHILE THE FREQUENCY OF THE TRANSACTIONS WAS ALSO MORE I NFREQUENT AND SPACED OUT. ACCORDINGLY THE LD. CIT(A) WHILE OBSERVING THAT THE SAID SHARES WHICH ARE HELD FOR INVESTMENT PURPOSES FOR LONG TERM WOULD NOT REQUI RE INFRASTRUCTURE FOR TRANSACTING IN SHARES CONCLUDED THAT THE LTCG CLAIMED BY THE ASSESSEE COULD NOT IN ANYWAY BE TREATED AS INCOME FROM BUSINESS. THE LD. DR APPEARING BEFORE US DID NOT CONTROVERT THESE FINDINGS OF THE LD. CIT(A ). IN THESE CIRCUMSTANCES ESPECIALLY WHEN THE REVENUE HAVE NOT BROUGHT TO OUR N OTICE ANY MATERIAL OR CONTRARY DECISION IN ORDER TO ENABLE US TO TAKE A DIFFE RENT VIEW IN THE MATTER WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF TH E LD. CIT(A). THEREFORE GROUND NO.1 IN THE APPEAL OF THE REVENUE IS DISMISSED. 7. GROUND NO.2 IN THE APPEAL OF THE ASSESSEE RELAT ES TO DISALLOWANCE OF RS.8 939/- . DURING THE COURSE OF A SSESSMENT PROCEEDINGS ON VERIFICATION OF THE SCHEDULE-I TO T HE P&L ACCOUNT AND DEPRECIATION STATEMENT IT WAS NOTICED BY THE A O THAT THE ASSESSEE INTER-ALIA CLAIMED THE FOLLOWING EXPENS ES:- SR. NO. PARTICULARS AMOUNT (RS.) --------- ---------------------------- --------- --------- 1. DIWALI POOJA & BONI EXPENSES 3 204 2. TELEPHONE EXPENSES 30 121 3. VEHICLE EXPENSES 14 578 ----------------- TOTAL 47 903 7.1 SINCE SOME OF THE PAYMENTS WERE MADE IN CASH AND CERTAIN BILLS / VOUCHERS WERE NOT AVAILABLE WITH THE ASSESS EE WHILE THE ASSESSEE DID NOT MAINTAIN SEPARATE RECORDS FOR PERS ONAL USE OF 23 ITA NOS.2076 & 2218/AHD/2009 ABOVE TELEPHONES OR VEHICLES THE AO DISALLOWED 20% OF THE AFOREMENTIONED EXPENSES RESULTING IN DISALLOWANCE OF RS.9 580. 8. ON APPEAL THE LEARNED CIT(A) REDUCED THE DISALL OWANCE AS UNDER:- 9. I AM OF THE VIEW THAT NO DISALLOWANCE COULD BE MADE OUT OF DIWALI PUJA EXPENSES ESPECIALLY SINCE SUCH EXPENSES HAVE TO BE NECESSA RILY INCURRED FOR THE PURPOSE OF BUSINESS. THE ITEMS OF EXPENDI TURE ARE SO SMALL THAT IT BECOMES IMPOSSIBLE TO MAINTAIN A RECORD. MO ST OF THE PAYEES ARE NOT ABLE TO RAISE ANY BILL. THE AO IS DIRECTED TO D ELETE THE 20% DISALLOWANCE OUT OF DIWALI PUJA EXPENSES AMOUNTING TO R S.641. 9.1 AS REGARDS THE DISALLOWANCE OUT OF TELEPHONE(S) AND VEHICLE(S) EXPENSES I AM OF THE VIEW THAT HOWEVER MUCH IT MAY BE CL AIMED THAT ASSETS SUCH AS VEHICLES AND TELEPHONES ARE PROCURED AND UTILIZ ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS YET THE ELEMEN T OF PERSONAL USE OF SUCH ASSETS CANNOT BE ENTIRELY RULED OUT ESPECIALLY WHEN NO RECORD OF THEIR USAGE IS MAINTAINED. THEREFORE I HOLD THAT THE AO WAS FULLY JUSTIFIED IN DISALLOWING 20% OF THE EXPENSES CLAIMED ON TELEPHONES AND VEHICLES. THE ADDITION OF 8 939 IS CONFIRMED. 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A) IN UPHOLDING THE ADD ITION OF RS.8939/- THE LEARNED AR ON BEHALF OF THE ASSESSEE DID NOT MA KE ANY SUBMISSIONS ON THIS GROUND WHILE THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDINGS OF THE LEARNED CIT(A). 10. AFTER HEARING BOTH THE PARTIES AND CONSIDE RING THE FACTS OF THE CASE WE FIND THAT THE LD. AR HAS NOT REFERRED US TO ANY MATERIAL WARRANTING INTERFERENCE WITH THE FINDINGS OF THE LD . CIT(A). SINCE PERSONAL USE OF TELEPHONES & VEHICLES BY THE ASSES SEE AND HIS FAMILY MEMBERS OR STAFF HAS NOT BEEN DENIED NOR I T WAS CLAIMED THAT THE ASSESSEE OR HIS FAMILY MEMBERS HAD ANY I NDEPENDENT TELEPHONES AND VEHICLES FOR PERSONAL USE IN OUR O PINION DISALLOWANCE OF 20% OF THE EXPENSES ON TELEPHONES & VEHICLES IN THE LIGHT OF PROVISIONS OF SEC. 38(2) OF THE ACT IS REASONABLE . THEREFORE GROUND NO. 2 IN THE APPEAL OF THE ASSESS EE IS REJECTED. 24 ITA NOS.2076 & 2218/AHD/2009 11. GROUND NO.3 IN THE APPEAL OF THE ASSESSEE AND GROUND NOS.2 & 3 IN THE APPEAL OF THE REVENUE BEING MERE PRAYERS NOR ANY SUBMISSIONS HAVING BEEN MADE ON THESE GROUNDS DO N OT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HA VING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 4 IN THE APPEAL OF THE ASSESSEE ALL THESE GROUNDS ARE THEREFORE DISMISS ED. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE US. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED WHILE THAT THE OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 9 -09-2011 SD/- SD/- ( MUKUL SHRAWAT ) JUDICIAL MEMBER ( A N PAHUJA ) ACCOUNTANT MEMBER DATED : 9-09-2011 COPY OF THE ORDER FORWARDED TO: 1. SHRI MULCHANDBHAI S AMIN 17 MIRA NAGAR SOCIETY GHOD DOD ROAD SURAT 2. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-3 SURAT 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. DR ITAT AHMEDABAD BENCH-B AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD