CRYSTAL IMPEX LTD, MUMBAI v. DCIT 5(1), MUMBAI

ITA 237/MUM/2010 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 23719914 RSA 2010
Assessee PAN AAACC4475C
Bench Mumbai
Appeal Number ITA 237/MUM/2010
Duration Of Justice 1 year(s) 6 month(s) 3 day(s)
Appellant CRYSTAL IMPEX LTD, MUMBAI
Respondent DCIT 5(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 15-07-2011
Date Of Final Hearing 02-05-2011
Next Hearing Date 02-05-2011
Assessment Year 2006-2007
Appeal Filed On 11-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI J.SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 237/MUM/2010 ASSESSMENT YEAR-2006-07 M/S. CRYSTAL IMPEX LTD. MY HOME APARTMENT LOWER BASEMENT NO.1 V.N. NAIL CROAD GOWALIA TANK ROAD MUMBAI-400 036 PAN-AAACC4475C VS. THE DCIT 5(1) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI KETAN L. VAJANI RESPONDENT BY: SHRI R.K. GUPTA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 20.11.2009 PASSED BY THE LD. CIT(A)-9 FOR THE ASSES SMENT YEAR 2006-07. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A CO MPANY AND IS IN THE BUSINESS OF IMPORT OF CDRS COMPUTER FLOPPY ETC AND SALE THEREOF. DURING THE CURRENT YEAR THE ASSESSEE ALSO INDULGED IN THE PURC HASE AND SALE OF SHARES OF OTHER COMPANIES AND PROFITS FROM THESE ACTIVITIES W ERE OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS. THE ASSESSING OFFICER FOUND T HAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE QUITE FREQUENT ARE ON A LARGE SCALE AND ARE INVOLVING HUGE INVESTMENT ON THE PART OF THE ASSESS EE. THE AO FURTHER OBSERVED ITA NO. 237/M/2010 2 THAT THE ASSESSEE HAS DEALT IN 115 SCRIPTS. ALSO TH AT THE ASSESSEE HAS USED BORROWED FUNDS FOR THE PURPOSE OF PURCHASE AND SALE OF SHARES. IN ADDITION TO THIS HE HELD THAT THE ASSESSEE ALSO DEALT WITH FUTU RES AND OPTIONS AND HAS INCURRED LOSS OF RS.17 15 444/- WHICH HAS BEEN OFF ERED TO TAX UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE EXPLAINED TO THE AS SESSING OFFICER THAT IT HAS PURCHASED AND SOLD SHARES AS A PART OF ITS INVESTME NT AND ACCORDINGLY IT HAS CORRECTLY OFFERED TO TAX PROFITS UNDER THE HEAD CA PITAL GAIN. HOWEVER ASSESSING OFFICER HELD THAT PROFITS ARE LIABLE TO BE TAXED UN DER THE PROFITS AND GAINS OF BUSINESS AND PROFESSION FOR FOLLOWING REASONS : I. THE APPELLANT HAS PURCHASED AND SOLD SHARES WITH A VIEW TO EARN PROFIT AND NOT TO HOLD THE SAME FOR EARNING INCOME. II. THE APPELLANT HAS ENTERED INTO PURCHASE AND SALE OF SHARES ON A LARGE SCALE AND HAS REPEATEDLY INDULGED THE IN THE PURCHA SE AND SALE OF SHARES. III. THE FREQUENCY AND VOLUME OF TRANSACTIONS IS QUITE H IGH. IV. THE APPELLANT HAS BORROWED MONEY FOR PURCHASE SALE AND SHARES. V. THE PERIOD OF HOLDING OF SHARES IS SHORT. THE ASSESSING OFFICER RELIED ON FOLLOWING IN CASE L AWS. I. RAJPUTANA TEXTILES (AGENCIES) LIMITED VS. CIT(1961) 42 ITR 742 (SC) II. RAJABAHADUR VISHWESHWARASINGH VS. CIT (1961) 41 ITR 685 (SC) III. ECLAT CONSTRUCTION (P) LIMITED VS. CIT (1988) 172 IT R 84 IV. CIT VS. GODAVARI CORPN. LIMITED 156 ITR 835 (MP) 3. IN THE APPELLATE PROCEEDING BEFORE THE LD. CIT(A ) THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE FILED WRITTEN SUBMIS SIONS ON THIS ISSUE ON 19.11.2009. THE ASSESSEE HAS TAKEN MANY CONTENTIONS TO ARGUE THAT ITS TRANSACTIONS OF PURCHASE AND SALE OF SHARES CANNOT BE TREATED AS BUSINESS TRANSACTIONS. THE ASSESSEE SUBMITTED THAT MEMORANDU M OF ASSOCIATIONS OF THE ASSESSEE COMPANY AND POINTED OUT THAT THE MEMORANDU M DOES NOT HAVE OBJECTS OF DOING TRADE IN SECURITIES. THESE SECURIT IES WERE SHOWN AS INVESTMENTS ITA NO. 237/M/2010 3 IN THE BALANCE SHEET OF THE ASSESSEE. IN ALL CASES THE ASSESSEE HAS TAKEN DELIVERY OF SHARES AND IN SOME CASES PERIOD OF HOLD ING OF A PARTICULAR SCRIPT IS MORE THAN 12 MONTHS. THE TRANSACTIONS OF PURCHASE A ND SALE OF SHARES ARE NOT ALLIED TO THE MAIN BUSINESS OF THE ASSESSEE. IT MAD E INVESTMENT WITH THE INTENTION TO HOLD THE SHARES FOR LONG PERIOD IN ORD ER TO EARN DIVIDENDS AND TAKE BENEFITS OF APPRECIATIONS IN THEIR VALUE. THE ASSES SEE FURTHER SUBMITTED THAT IT HAS DECLARED TRANSACTIONS OF FUTURES AND OPTIONS AS BUSINESS INCOME BECAUSE THESE WERE NOT DELIVERY BASED. THE ASSESSEE CLAIMED THAT IT HAS NOT USED BORROWED FUNDS FOR PURCHASE AND SALE OF SHARES AS I T HAS SHOWN NET INTEREST INCOME OF RS.1 15 056/-. THE ASSESSEE FURTHER SUBMI TTED THAT DECISION TO INVEST IN 115 SCRIPTS WAS TAKEN LOOKING INTO THE AMOUNT OF INVESTMENT AND REDUCING EXPOSER TO A PARTICULAR SCRIPT. THE ASSESSEE RELIED ON FOLLOWING CASE LAWS TO ARGUE THAT THESE TRANSACTIONS OF PURCHASE AND SALE OF SHARES CANNOT BE TREATED AS BUSINESS TRANSACTIONS. I. GOPAL PUROHIT V JT. CIT 25(3) MUMBAI IT APPEAL NO. 4854 (MUM) OF 2008. (2009) 29 SOT 117 (MUM) ASST. YEAR : 2005-06. II. SARNATH INFRASTRUCTURE PVT. LIMITEDS CASE (SUPRA) III. J. M. SHARE & STOCK BROKERS VS. JCIT (ITAT MUM). 4. THE LD. CIT(A) HELD AS FOLLOWS: IN THE FACTS OF THE PRESENT CASE IT IS NOTICED THA T THE ASSESSEE HAS FREQUENTLY INDULGED IN PURCHASE OF SALE AND SHARES. AS POINTED OUT BY THE ASSESSING OFFICER THE ASSESSEE PURCHASED AND SOLD SHARES OF 115 SCRIPTS. THE TRANSACTIONS OF THE ASSESSEE ARE QUITE FREQUENT . THE ASSESSEE HAS SOLD SHARES 341 OCCASIONS. SIMILARLY THE ASSESSEE A S ENTERED INTO PURCHASE TRANSACTIONS WHICH ARE MUCH MORE THAN THE SCRIPTS I N WHICH ASSESSEE DEALT. THUS THE ASSESSEE HAS PURCHASED AND SOLD SHA RES IN LOTS. FOR EXAMPLE SHARES OF M/S. ANDHRA SUGAR WAS PURCHASED O N 4 OCCASIONS AND SOLD ON 4 OCCASIONS. SIMILARLY SHARES OF M/S. ATUL LIMITED WERE PURCHASED ON 7 OCCASIONS AND SOLD ON 13 OCCASIONS. THESE EXAM PLES ARE ONLY ILLUSTRATIVE. THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE SUBSTANTIAL CARRIED ON CONTINUOUS BASIS AND HAVE B EEN CARRIED OUT THROUGHOUT THE YEARS. FURTHER THE ASSESSEE HAS REPE ATEDLY PURCHASED AND ITA NO. 237/M/2010 4 SOLD SHARES OF A PARTICULAR SCRIPT. FOR EXAMPLE SHA RES OF M/S. ATUL LIMITED WERE SOLD IN THE MONTH OF MAY 2005. THESE SHARES W AS AGAIN PURCHASED IN THE MONTH OF JUNE 2005 AND SOLD ON JULY 2005. S IMILARLY THE ASSESSEE HAS ENTERED INTO REPEATED TRANSACTIONS OF PURCHASE AND SALE IN SHARES OF M/S. FINOLEX CABLES LIMITED. IT IS FURTHER SEEN THA T THE ASSESSEE HAS DEPLOYED BORROWED FUND FOR THE PURPOSE OF PURCHASE OF SHARES EVEN THOUGH IT HAS EARNED NET INTEREST IN THE CURRENT YE AR. THE ASSESSEE EARNED NET INTEREST INCOME BECAUSE IT HAS NOT PAID INTERES T ON UNSECURED LOANS AND AS A RESULT OF THIS ITS INTEREST INCOME IS MORE THAN THE INTEREST EXPENDITURE. HOWEVER FACT IS THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR PURCHASE SALE AND SHARES. ALL THESE FACTS OF TH IS CASE SHOW THAT INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE O F SHARE IS NOT TO HOLD THE SHARES TO EARN DIVIDEND. THIS IS EVIDENT FROM T HE FACT THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.3 94 654/- WH EREAS IT GAINS FROM PURCHASE AND SALE OF SHARES IS RS.94 66 785/-. THE ASSESSEE CANNOT RELY ON THE FACT THAT THERE IS NO PROVISION IN THE MEMOR ANDUM OF ASSOCIATION TO TRADE IN SHARES WHEN THE ASSESSEE HAS IN FACT TRADE D IN SHARES. RELIANCE IS PLACED ON THE DECISION OF THE ADVANCE RULING AUTHOR ITY IN THE CASE OF FIDELTY NORTHSTAR FUND AND OTHERS 288 ITR 641 WHERE IT WAS HELD THAT EXISTENCE OF POWER TO PURCHASE AND SELL SHARES IN T HE MEMORANDUM OF ASSOCIATIONS IS NOT DECISIVE OF NATURE OF TRANSACTI ONS. AS PER ASSESSEE OWN ARGUMENT IT HAS PASSED A BOARD RESOLUTION AUTHORIZI NG IT TO DEAL IN SHARES. IT MAY BE MENTIONED THAT TREATMENT GIVEN TO TRANSAC TIONS IN ITS BOOKS OF ACCOUNT ARE NOT THE DETERMINATIVE FACTOR ABOUT DECI DING THE NATURE OF TRANSACTIONS AS HELD IN THE CASE OF ARJUN KAPUR 70 ITD 161. IN THE PRESENT CASE AS EXPLAINED ALL THE FACTS SHOWS THE ASSESSE E HAS TRADED IN SHARES AND THE ASSESSING OFFICER HAS RIGHTLY BROUGHT THE P ROFITS OF THE ASSESSEE AMOUNT TO RS.94 66 785/- AS INCOME OF THE ASSESSEE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS AND PROFESSION. THIS GROUND OF THE ASSESSEE IS NOT ALLOWED. 5. THE LD. COUNSEL FOR THE ASSESSEE CHALLENGED THE ORD ER OF THE AO ON VARIOUS ISSUES. WITH RESPECT TO THE AOS OBSERVATI ON THAT THE ASSESSEE FROM THE VERY BEGINNING MADE PURCHASE OF SHARES WITH THE INT ENTION OF SELLING THEM AT A PROFIT AND HENCE IT IS AN ADVENTURE IN THE NATURE O F TRADE RELYING ON THE DECISION TO RAJPUTANA TEXTILE AGENCIES LTD. 42 ITR 743(SC). THE ASSESSEE REPLIED AS FOLLOWS: THE COMPANY WAS INCORPORATED ON 6 TH MAY 1943. THE PAID CAPITAL WAS RS. 20 LAKHS. BEFORE THE INCORPORATION OF THE ASSESSEE COMPANY ITS PROMOTERS HAD ENTERED INTO AN AGREEMEN T DT. 27 TH ITA NO. 237/M/2010 5 APRIL 1943 TO ACQUIRE THE MANAGING AGENCY OF ANOTH ER COMPANY. AS PER THE AGREEMENT THE ASSESSEE COMPANY WAS TO AC QUIRE 19 76 000 SHARES OF THE COMPANY @ RS. 4-4-0 TOTALIN G TO RS. 83 98 000/- (MUCH MORE THAN THE PAID CAPITAL OF THE ASSESSEE COMPANY) EVEN BEFORE THIS AGREEMENT DT. 27.4.1993 THE PROMOT ERS HAD ENTERED INTO AN ARRANGEMENT WITH SOME SHARE BROKERS FOR THE SALE OF LARGE PORTION OF TOTAL HOLDING OF 19 76 000 SHAR ES OF THE MILL COMPANY WHICH WAS TO BE ACQUIRED BY THE ASSESSEE. THE SALE PRICE OF THE SHARES WAS FIXED IN THE RANGE OF RS. 5-8-0 T O RS. 5-13-0. ON THE BASIS OF THE ABOVE FACTS IT WAS HELD THAT T HE ASSESSED NEVER WANTED TO ACQUIRE THE SHARES. THE SHARES WERE ACQU IRED AND SOLD MERELY TO FINANCE THE ACQUISITION OF THE MANAGING A GENCY. 6. SECONDLY FOR THE PROPOSITION OF THE AO THAT PURC HASE AND SALE OF SHARES OF SUBSTANTIAL AMOUNTS AT FREQUENT INTERVALS CANNOT BE TREATED AS INVESTMENT IN SHARES BUT TREATED AS DEALINGS IN SHARES RELYING ON THE DECISION IN THE CASE OF RAJA BAHADUL VISHESHWARA SINGH 41 ITR 685 (SC) TH E COUNSEL SUBMITTED THAT THE DECISION IS NOT RELEVANT TO THE FACTS OF THE P RESENT CASE IN AS MUCH AS THE ACCOUNTING TREATMENT IN THE CASE OF THE ASSESSEE IS UNIFORM AND THERE IS NO BORROWINGS USED FOR THE PURCHASE OF SHARES. AS REG ARDS THE OBJECTION OF THE AO THAT EVEN A SINGLE TRANSACTION MAY BE CONSIDERED A S ADVENTURE IN NATURE OF TRADE IT WAS SUBMITTED IN THE CASE OF THE ASSESSEE THE MEMORANDUM NOWHERE PROVIDES FOR SHARE TRADING AND ALSO WHETHER A PARTI CULAR TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT MUST BE DE CIDED ON THE CIRCUMSTANCES OF EACH CASE. IN RESPECT OF THE OBSERVATION OF THE AO THAT BORROWAL OF MONEY FOR PURCHASE OF SHARES WOULD BE A STRONG EVIDENCE TO PO INT OUT DEALING IN SHARES AS ELEMENT OF TRADE OR COMMERCE RELYING ON THE DECISIO N IN THE CASE OF CIT VS GODAVARI CORPN. LTD. 156 ITR 835 (MP). THE ASSESSE E SUBMITTED AS FOLLOWS: THE ASSESSEE COMPANY INVESTED IN PREFERENCE SHARES OF ANOTHER COMPANY (HINDUSTAN MOTORS LTD.). THE PREFERENCE SH ARES WERE CONVERTIBLE IN EQUITY SHARES AT FACE VALUE. AT THE TIME OF MAKING THE INVESTMENT THE PREVALENT MARKET PRICE OF THE E QUITY SHARES OF ITA NO. 237/M/2010 6 HINDUSTAN MOTORS WAS MUCH HIGHER THAN THE FACE VALU E. THE ASSESSEE BORROWED MONIES FOR MAKING THE INVESTMENT IN THE PREFERENCE SHARES. ON THE BASIS OF THE ABOVE FACTS IT WAS HELD THAT T HE INTENTION OF THE ASSESSEE RIGHT AT THE TIME OF MAKING INVESTMENT WAS NOT TO HOLD THE SHARES BUT TO GET THE ADVANTAGE OF FAVOURA BLE PRICE FOR PREFERENCE SHARES. THERE ARE NO SUCH PECULIAR FACTS PRESENT IN THE CAS E OF THE APPELLANT. BORROWINGS ARE NOT PROVED AND HENCE THE DECISION IS NOT APPLICABLE. 7. IN REPLY TO THE AO THAT THE TREATMENT GIVEN TO T RANSACTION IN ITS BOOKS OF ACCOUNT ARE NOT DETERMINATIVE FACTOR FOR DECIDING THE NATURE OF TRANSACTION THE LD. COUNSEL OBSERVED THAT THE BUSINESS OF THE ASSES SEE IS TOTALLY DISTINCT FROM THE SHARE TRANSACTIONS AND HENCE THE DECISION RELIED BY THE AO IS NOT RELEVANT. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED AS FO LLOWS: THE FACT THAT THE APPELLANT HAS EARNED A SUBSTANTIA L AMOUNT OF LONG TERM CAPITAL GAINS OF RS.89 92 786/- FOR THE F INANCIAL YEAR 2007-08 SUPPORTS THE CASE OF THE APPELLANT THAT THE APPELLA NT IS AN INVESTOR IN SHARES AND ALSO HOLDING THE SHARES FOR A LONGER PER IOD OF TIME. 9. THE LD. COUNSEL FOR THE ASSESSEE FURTHER EXPLAIN ED AS FOLLOWS: THE FACT THAT THE APPELLANT IS HAVING LONG TERM CAP ITAL GAINS OF RS.89 92 786/- ON SALE OF SHARES DURING FINANCIAL Y EAR 2007-08 GOES TO ESTABLISH THAT THESE SHARES WERE HELD BY THE APPELL ANT FOR A PERIOD OF MORE THAN 12 MONTHS. THIS PLEA IS TAKEN WITH A VIEW TO EXPLAINING THE ALLEGED SHORTER PERIOD OF HOLDING IN THE ASSESSMENT ORDER AND THE ORDER OF THE HON. CIT(A). HE POINTED OUT THAT THESE FIGURES ARE EVIDENT FROM ITA NO. 237/M/2010 7 THE AUDITED ACCOUNTS OF THE APPELLANT FOR THE FINAN CIAL YEAR 2007-08. KINDLY REFER TO PAGE NO.140 OF THE PAPER BOOK WHERE SCHEDULE-12 OTHER INCOME IS APPEARING FOR READY REFERENCE. 10. THE LD. COUNSEL FURTHER REFERRED TO PAGE NO.79 AND ALSO PAGE NOS. 80 TO 88 OF THE PAPER BOOK TO EXPLAIN THE FACT THAT APPRO XIMATELY 78.55% OF THE TOTAL SHORT TERM CAPITAL GAINS ARE ARISING DUE TO TRANSAC TIONS WHICH HAVE HOLDING PERIOD OF MORE THAN 60 DAYS. ACCORDINGLY IT WAS SU BMITTED THAT THE OBSERVATION OF THE ASSESSING OFFICER AND THE CIT(A) THAT THE PE RIOD OF HOLDING IN THE CASE OF THE APPELLANT IS SHORT IS NOT CORRECT. 11. THE LD. COUNSEL FURTHER POINTED OUT AT PAGE 48 OF THE PAPER BOOK WHERE THE NATURE OF BUSINESS OF THE ASSESSEE IS DEALER IN COMPUTER PERIPHERALS. AT PAGE 4 OF THE ADDITIONAL PAPER BOOK THE ASSESSEE H AS GIVEN THE CHART SHOWING NUMBER OF TRANSACTIONS PER SCRIPT THE BOOKS OF ACCO UNTS WERE PRODUCED AND THE BALANCE SHEET AT PAGE 97 AND 101 FROM WHERE THE ASS ESSEE POINTED OUT THAT THE SHARES WERE SHOWN AS INVESTMENT CONSISTENTLY FOR ALL THE YEARS. AT PAGE 77 THE CHART SHOWING THE PERIOD-WISE BREAKUP OF CAPITA L GAIN ON SALE OF SHARES AND SUBMITTED THAT THE INVESTOR HAS ALSO TO TAKE CARE O F THE PERCENTAGE OF TOTAL CAPITAL GAIN. IN THE DEFINITION OF SHORT TERM GAIN ONLY THE OUTER LIMIT OF HOLDING PERIOD IS PRESCRIBED AND NOT THE MINIMUM LIMIT FOR HOLDING AND THEREFORE THE HOLDING PERIOD MAY NOT BE THE DECIDING FACTOR. T HE LD. COUNSEL FURTHER SUBMITTED THAT COMMON INTEREST FREE FUNDS BY WAY O F EQUITY CAPITAL RESERVE AND SHARE APPLICATION ARE MORE THAN THE INVESTMENTS. T HERE IS AN INCREASE IN RESERVE AND SURPLUS AND THE LOANS WERE REPAID DURING THE YE AR AND LOANS OUTSTANDING WERE LESS AT THE END OF THE YEAR. THEREFORE RELYING ON THE DECISION IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 304 THE COUNSEL STATED THAT THE DEPARTMENT HAS NOT MADE OUT A CASE THAT BORROWED FU NDS ARE NOT UTILIZED FOR THE PURPOSE OF BUSINESS. ITA NO. 237/M/2010 8 12. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND ALSO RELIED ON T HE DECISION IN THE CASE OF SHRI RAKESH J. SANGHVI VS DCIT IN ITA NO. 4607/M/08 AND IN THE CASE OF SADHANA NABERA VS ACIT IN ITA NO. 2586/M/2009. 13. WE HEARD BOTH THE PARTIES. WE FIND THAT THE MA IN OBJECTS IN THE MEMORANDUM OF THE ASSESSEE COMPANY DOES NOT PERMIT TRADING IN SECURITIES. HENCE THE MAIN BUSINESS OF THE ASSESSEE CANNOT CONS IST OF TRANSACTION OF PURCHASE AND SALE OF SHARES. 14. THE SECURITIES WERE SHOWN AS INVESTMENT IN THE BALANCESHEET. 15. THE ASSESSEE WAS ABLE TO DEMONSTRATE THAT THE A SSESSEE HAS NOT USED THE BORROWED FUNDS TO PURCHASE SHARES. THE ASSESSEE H AS INVESTED IN NUMBER OF SHARES IN ORDER TO SAFEGUARD HIMSELF FROM THE SUDDE N FALL IN ANY ONE PARTICULAR SCRIP HENCE IT IS NOT NECESSARY THAT AN INVESTOR SH OULD ACQUIRE ONLY FEW SCRIP. IN THE CASE OF MAHENDRA C SHAH VS IN ITA NOS. 6289 & 4932/MUM/2008 WHEREIN IT HAS BEEN HELD THAT DESPITE BORROWING SHARES GAI N CAN BE STCG AND NOT BUSINESS PROFITS. IN THIS CASE THE BENCH HAS FOLLO WED THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF B. BALAN ALIAS SHANM UGAM BALAKRISHNAN CHETTIAR VS DCIT 120 ITD 469 WHEREIN IT HAS BEEN HELD THAT THER E CAN BE NO THUMB RULE THAT A PERSON CANNOT BORROW MONIES FOR THE PURPOSE OF MA KING INVESTMENTS. 16. FURTHER WE FIND THAT FOR THE EARLIER ASSESSME NT YEAR 2005-06 THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT ACC EPTING THE TRANSACTIONS AS CAPITAL GAINS. FOR THE SUBSEQUENT YEAR 2007-08 TH E RETURN WAS ACCEPTED U/S. 143(1) OF THE ACT I.E. CLAIM OF THE ASSESSEE WAS AC CEPTED. FOR THE ASSESSMENT ITA NO. 237/M/2010 9 YEAR 2008-09 NO NOTICE RECEIVED FROM THE DEPARTMENT FOR THE SCRUTINY ASSESSMENT AND NEITHER THE INTIMATION RECEIVED U/S. 143(1). 17. RECENTLY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. DARIUS PANDOLE (2011) 330 ITR 485 HAS HELD THAT ONCE INCOME FROM S ALE OF SHARES HAS BEEN TREATED AS BUSINESS INCOME IN AN EARLIER YEAR BY WA Y OF ASSESSMENT UNDER SECTION 143(3) IN THE NEXT YEAR IT CANNOT BE TAKEN AS CAPITAL GAIN. THE FACTS OF OUR CASE ARE IN CONVERSE POSITION IN AS MUCH AS THE INCOME FROM SALE AND PURCHASE OF SHARES WAS ALWAYS DECLARED AND ACCEPTED BY THE ASSESSEE IN THE PAST AS WELL AS FUTURE AS RESULTING INTO `CAPITAL G AINS WHICH FACT HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES. ALL OF A SUDDE N IN THIS YEAR ALONE IT CANNOT BE HELD THAT ASSESSEE WAS TRADER IN SHARES. TAKING THE ENTIRE FACTUAL SITUATION UNDER CONSIDERATION WE FIND THAT THE LEARNED CIT(A ) WAS RIGHT IN HOLDING THAT THE INCOME FROM SALE OF SHARES IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS INCOME. 18. UNDER THE CIRCUMSTANCES AND IN VIEW OF THE ABO VE WE HOLD THAT THE ASSESSEES HOLDINGS OF SHARES IS TO BE TREATED AS THEIR INVESTMENTS AND PROFIT ON SALE OF SHARE SHOULD BE TREATED AS CAPITAL GAINS. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA V IJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI DATED 15 TH JULY 2011 RJ ITA NO. 237/M/2010 10 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 237/M/2010 11 DATE INITIALS 1 DRAFT DICTATED ON: 27 .0 6 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 29 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______