DCIT 4(1), MUMBAI v. H.J. SECURITIES P. LTD, MUMBAI

ITA 2457/MUM/2009 | 2006-2007
Pronouncement Date: 28-09-2011 | Result: Dismissed

Appeal Details

RSA Number 245719914 RSA 2009
Assessee PAN AAACH5600H
Bench Mumbai
Appeal Number ITA 2457/MUM/2009
Duration Of Justice 2 year(s) 5 month(s) 11 day(s)
Appellant DCIT 4(1), MUMBAI
Respondent H.J. SECURITIES P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 28-09-2011
Date Of Final Hearing 09-08-2011
Next Hearing Date 09-08-2011
Assessment Year 2006-2007
Appeal Filed On 16-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.260 AND 2457/MUM/2009 (ASSESSMENT YEARS: 2005-06 AND 2006-07) DCIT -4(1) 6TH FLOOR R.NO.640 AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 020 ....... APPELLANT VS M/S. H.J. SECURITIES PVT. LTD. 24-26 GR. FLOOR CAMA BLDG. DALAL STREET FORT MUMBAI -400 001 ..... RESPONDENT PAN: AAACH 5600 H APPELLANT BY: SHRI PAVAN VED RESPONDENT BY: SHRI S.C. TIWARI DATE OF HEARING: DATE OF PRONOUNCEMENT: 09.08.2011 28.09.2011 O R D E R PER R.S. PADVEKAR JM: BOTH THESE APPEALS ARE FILED BY THE REVENUE CHALLEN GING THE RESPECTIVE IMPUGNED ORDERS OF THE LD. CIT (A) MUMBA I FOR THE A.YS. 2005-06 & 2006-07. THE COMMON ISSUES ARE INVOLVED IN BOTH THESE APPEALS AND HENCE BOTH THESE APPEALS ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. THE FIRST ISSUE IS DISALLOWANCE MADE TO THE JOB BERS INVOKING SEC. 40(A)(IA) OF THE ACT. ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 2 3. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE-COMPANY IS A MEMBER OF BOMBAY STOCK EXCHANGE (BSE) AND IS IN T HE BUSINESS OF SHARE BROKING AND TRADING IN SHARES AND SECURITIES. THE ASSESSEE ALSO MADE THE INVESTMENTS IN THE SHARES. IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE JOBBING IN S HARES. THE ASSESSEE HAS CREDITED THE PROFIT FROM THE JOBBING A CTIVITY TO ITS PROFIT AND LOSS ACCOUNT. THE A.O. WAS OF THE OPINION THAT THE PAYMENT MADE TO THE JOBBERS IS SUBJECTED TO THE TDS PROVISION AN D THE ASSESSEE SHOULD HAVE DEDUCTED THE TDS ON THE PAYMENTS MADE T O THE JOBBERS. SINCE NO TAX HAS BEEN DEDUCTED AT SOURCE (TDS) ON T HE PAYMENTS MADE TO THE JOBBERS HENCE THE PROVISIONS OF SEC. 40 (A)(IA) OF THE ACT ARE APPLICABLE. THE A.O THEREFORE MADE THE ADDITIONS OF ` 3 81 26 746/- IN THE A.Y. 2005-06 AND ` 3 44 51 182/- IN THE A.Y. 2006-07. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT (A) IN BOTH THE ASSESSMENT YEARS AND THE LD. CIT (A) DELETED THE AD DITION. THE OPERATIVE PART OF THE DECISION OF THE LD. CIT (A) MORE PARTICULARLY IN THE A.Y. 2005-06 IS AS UNDER:- THE ROLE OF JOBBERS AS SUMMARIZED IN ENCYCLOPEDIA OF BRITANNICA VOLUME 23 PAGES 517 & 518 IS THAT A JOB BER TRANSACTS BUSINESS ON THE FLOOR OF THE EXCHANGE BUT DOES NOT DEAL WITH THE PUBLIC AND THE JOBBER SERVES ONLY IN THE CAPACITY OF A PRINCIPAL BUYING AND SELLING FOR HIS OWN ACCOUNT AND DEALING ONLY WITH BROKERS AND OTHER JOB BERS. THUS IN EFFECT THE TRANSACTIONS ARE ON PRINCIPAL T O PRINCIPAL BASIS. THE JOBBER SEEKS TO MAXIMIZE HIS PROFITS BY ADJUSTING HIS BUYING AND SELLING PRICES AND THE JOB BERS TRADE ON THEIR OWN ACCOUNT AND IN VIEW OF GROWING V OLUME OF TRANSACTIONS THE JOBBERS ENTER INTO AGREEMENT F OR FELICITATION OF THEIR TRADE AND MINIMIZATION OF MAR KET RISKS. THE JOBBERS ARE IN FACT CLIENTS ACTING ON THEIR OWN ACCOUNT AND THE JOBBERS DEAL IN SHARES AND SECURITIES ON PR OFIT / LOSS SHARING BASIS AS DECIDED MUTUALLY AND PERIODIC ALLY THE ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 3 PROFIT / LOSS INCURRED BY A JOBBER IS ASCERTAINED A ND SHARED BETWEEN THE APPELLANT AND THE JOBBER AFTER DEDUCTIN G THE COST. THE RELATIONSHIP BETWEEN THE JOBBER AND THE APPELLANT COMPANY IS THAT OF CO-SHARER OF PROFIT / LOSS THEREFORE PROVISIONS OF SECTION 194C ARE NOT ATTRA CTED. AS PROVISIONS OF SECTION 194C ARE NOT ATTRACTED THE DISALLOWANCE U/S.40(A)(IA) IS HELD TO BE NOT PROPER . 4. NOW THE REVENUE IS IN APPEAL BEFORE US FOR THE IMPUGNED ASSESSMENT YEARS. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL SUBMITS THAT THE ARRANGEMENT BETWEEN THE AS SESSEE AS A BROKER AND THE JOBBER IS ON THE PRINCIPAL TO PRINCI PAL BASIS AND JOBBER TAKES AWAY THE SHARE OF PROFIT IN THE BUSINESS DONE BY USING THE INFRASTRUCTURE OF THE ASSESSEE. HE SUBMITS THAT TH IS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE ITAT MUMBAI BENCH IN THE CASE OF DY. CIT VS. M/S. ASSET ALLIANC E SECURITIES P. LTD. IN ITA NO.1488/MUM/2009 DATED 18.07.2010 (2010) TIO L-460-ITAT- MUM. WE HAVE ALSO HEARD THE LD. D.R. 6. WE FIND THAT THE NATURE OF THE PAYMENTS MADE BY THE SHARE BROKERS TO THE JOBBERS HAS BEEN CONSIDERED BY THE I TAT MUMBAI BENCH IN THE CASE OF M/S. ASSET ALLIANCE SECURITIES PVT. LTD. (SUPRA) AND IT IS HELD AS UNDER:- THE FACTS SHOW THAT THERE WERE SEPARATE JOINT VENTU RES ENTERED INTO BY THE ASSESSEE WITH SEVERAL JOBBERS/ARBITRAGE RS AND PAYMENTS HAVE BEEN MADE TO THEM UNDER SUCH AGREEMEN TS AND THE ASSESSEES SHARE IN THE PROFITS HAS BEEN TAKEN TO THE PROFIT AND LOSS ACCOUNT. IN THESE CIRCUMSTANCES THE PROVIS IONS OF SECTION 194C ARE NOT ATTRACTED BECAUSE IN ESSENCE A ND SUBSTANCE THE AMOUNTS PAID TO THE JOBBERS OR ARBITRAGERS DID NOT IN REALITY ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 4 REPRESENT THE EXPENSE OF THE ASSESSEE COMPANY BUT R EPRESENTED PAYMENT OF THE SHARE OF THE JOBBERS/ARBITRAGERS UND ER THE AGREEMENT ENTERED INTO WITH THEM. IN SUCH A CASE T HE ASSESSEE IS RIGHT IN SAYING THAT THERE WAS NO QUESTION OF DEDUC TING ANY TAX AT SOURCE. THE ABOVE FACTS ALSO ESTABLISH THAT THE REL ATIONSHIP BETWEEN THE ASSESSEE AND THE JOBBERS/ARBITRAGERS WA S NOT OF PRINCIPAL AND AGENT BUT WAS THAT OF PRINCIPAL TO PR INCIPAL. BOTH HAD AGREED TO EMBARK UPON A JOINT VENTURE TO TRADE IN SHARES AND SECURITIES IN THE STOCK EXCHANGE AND TO SHARE THE P ROFIT / LOSS EQUALLY. WE DO NOT SEE HOW SUCH PAYMENTS CAN BE TER MED AS PAYMENTS TO CONTRACTORS FOR ANY WORK TO BE CARRIED OUT BY THEM. WE THEREFORE UPHOLD THE FINDING OF THE CIT (A) THAT THESE PAYMENTS DO NOT ATTRACT SECTION 194C AND THE ASSESS EE WAS NOT LIABLE TO DEDUCT TAX THEREFROM. ACCORDINGLY SECTION 40(A)(IA) IS ALSO NOT APPLICABLE. THE PAYMENTS IN OUR VIEW WERE RIG HTLY ALLOWED AS DEDUCTION BY THE CIT (A). THE GROUNDS 7 TO 10 AR E DISMISSED. 7. WE THEREFORE FOLLOWING THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF M/S. ASSET ALLIANCE SECURITIES PVT. LTD . (SUPRA) CONFIRM THE ORDER OF THE LD. CIT (A) IN BOTH THE ASSESSMENT YEA RS AND THE RESPECTIVE I.E. NOS. 1 2 & 3 TAKEN BY THE REVENUE IN THE A.Y. 2005-06 AND GROUNDS 1 & 2 IN THE A.Y. 2005-06 ARE DISMISSED . 8. THE NEXT ISSUE IS DISALLOWANCE U/S.40(A)(IA) OF THE I.T. ACT IN RESPECT OF PAYMENT TO THE NSE & BSE TOWARDS LEASE L INE AND TRANSACTION AND OTHER CHARGES. 9. THE ASSESSEE IS A SHARE BROKER AND ALSO A MEMBER OF BSE & NSE. IN THE ASSESSMENT YEAR 2005-06 IT WAS NOTICE D BY THE A.O. THAT THE ASSESSEE HAS DEBITED ` 67 61 831/- TOWARDS VSAT CHARGES AND TRANSACTION PROCESSING CHARGES WHICH WERE PAID TO T HE NSE/BSE. IN THE OPINION OF THE A.O. THE SAID CHARGES ARE PAID F OR UTILIZING TECHNICAL SERVICES AND HENCE THE ASSESSEE WAS REQUIRED TO MA KE THE TDS AT THE ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 5 TIME OF PAYMENT TO THE NSE/BSE. THE A.O. WAS OF TH E FURTHER OPINION THAT AS THE ASSESSEE FAILED TO MAKE THE TDS ON THE SAID PAYMENTS AND HENCE IN VIEW OF THE PROVISION OF SEC.40(A)(IA) OF THE ACT THE ENTIRE PAYMENT IS TO BE DISALLOWED. HE ACCORDINGLY DISA LLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE TOWARDS THE PAY MENT OF VSAT LEASE LINE CHARGES AND TRANSACTION CHARGES. SAME W AY IN THE A.Y. 2006-07 ON THE SAME REASONING HE MADE THE DISALLOW ANCE OF ` 37 47 375/-. THE ASSESSEE CHALLENGED BOTH THE ADDI TIONS BEFORE THE LD. CIT (A) AND LD. CIT (A) FOLLOWING THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF KOTAK SECURITIES LTD. VS. ADDL . CIT -4(3) MUMBAI 124 TTJ (MUMBAI) 241/24 DTR 121 (MUM) ALLOWED THE C LAIM OF THE ASSESSEE. NOW THE REVENUE HAS CHALLENGED THE DECISI ON OF THE LD. CIT (A). 10. WE HAVE HEARD THE PARTIES PERUSED THE RECORDS A ND GONE THROUGH THE DECISIONS RELIED UPON BY THE PARTIES. WE FIND THAT THIS ISSUE STANDS FAIRLY COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE ITAT MUMBAI A BENCH IN THE CASE OF KOTAK SECU RITIES LTD. (SUPRA). THE OPERATIVE PART OF THE SAID DECISION I S AS UNDER:- 28. TO CALL A PAYMENT AS FEES FOR TECHNICAL SERVIC ES IT SHOULD HAVE BEEN PAID IN CONSIDERATION FOR RENDERING BY TH E RECIPIENT OF PAYMENT OF ANY (A) MANAGERIAL SERVICE (B) TECHNICA L OR CONSULTANCY SERVICES; STOCK EXCHANGES MERELY PROVID E FACILITY FOR ITS MEMBERS TO PURCHASE AND SELL SHARES SECURITIES ETC. WITHIN THE FRAMEWORK OF ITS BYE LAWS. IN THE EVENT OF DIS PUTE IT PROVIDES MECHANISM FOR SETTLEMENT OF DISPUTES. IT REGULATES CONDITIONS SUBJECT TO WHICH A PERSON CAN BE A MEMBER AND WHEN AND IN WHAT CIRCUMSTANCES MEMBERSHIP CAN BE TRANSFERRED C ANCELLED SUSPENDED ETC. THE EXCHANGE PROVIDES A PLACE WHER E THE MEMBERS MEET AND TRANSACT BUSINESS. THE TRANSACTIO N FEE PAID IS ON THE BASIS OF VOLUME OF TRANSACTION EFFECTED B Y A MEMBER. THE STOCK EXCHANGES DO NOT RENDER ANY MANAGERIAL SE RVICE NOR DO ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 6 THEY RENDER ANY TECHNICAL CONSULTANCY SERVICE. THE TRANSACTION FEE IS NOT PAID IN CONSIDERATION OF ANY SERVICE PRO VIDED BY THE STOCK EXCHANGE. IT IS A PAYMENT FOR USE OF FACILIT IES PROVIDED BY THE STOCK EXCHANGE AND SUCH FACILITIES ARE AVAILABL E FOR USE BY ANY MEMBER. THE PROVISIONS OF S. 194J WHICH CASTS A BURDEN ON A PERSON TO DEDUCT AT SOURCE AND TREAT HIM A DEFAUL TER ON FAILURE TO DEDUCT TAX AT SOURCE NEEDS TO BE INTERPRETED ST RICTLY AND IN THE ABSENCE OF A CLEAR OBLIGATION ON THE PART OF A PERS ON SPELT OUT IN UNAMBIGUOUS TERMS BY THE PROVISIONS OF S. 194J/ R/W EXPLN. 2 TO S. 9(1)(VII) OF THE ACT SUCH OBLIGATION CANNOT BE IMPLIED OR LEFT TO THE IPSI DIXIT OF THE REVENUE AUTHORITIES. WE THER EFORE HOLD THAT TRANSACTION FEE PAID CANNOT BE SAID TO BE A FEE PAI D IN CONSIDERATION OF THE STOCK EXCHANGE RENDERING ANY T ECHNICAL SERVICES TO THE ASSESSEE. THE PROVISIONS OF S. 194 J ARE THEREFORE NOT ATTRACTED. THEREFORE THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. CONSEQUENTLY THE PROVISIONS OF S. 40(A)(IA) WERE ALSO NOT ATTRACTED AND THEREFORE THE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. 11. WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT (A) IN BOTH THE ASSESSMENT YEARS ON THIS ISSUE. WE ACCOR DINGLY CONFIRM THE SAME AND DISMISS RESPECTIVE GROUNDS TAKEN BY THE RE VENUE IN BOTH THE APPEALS. 12. THE NEXT ISSUE IS TREATMENT OF THE SHARE TRANSA CTIONS WHETHER THE LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT THE A SSESSEE DID THE TRANSACTION AS AN INVESTOR AND NOT AS A BUSINESS AN D THE INCOME GAIN ON THE SHARE TRANSACTIONS CANNOT BE BROUGHT TO TAX AS A BUSINESS INCOME AND THIS ISSUE IS ARISING IN THE REVENUES A PPEAL IN THE A.Y. 2005-06 MORE PARTICULARLY GROUND NOS.11 12 & 13. 13. BRIEFLY STATED THE FACTS ARE AS UNDER. THE AS SESSEE IS A MEMBER OF BSE /NSE AND ALSO ENGAGED IN THE TRADING OF THE SHARES. AS NOTED ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 7 BY THE A.O. THE MAIN BUSINESS OF THE ASSESSEE IS SH ARE TRADING AND JOBBING AS MORE THAN 96.3% OF THE REVENUE IS GENERA TED FROM THE SAID ACTIVITY APART FROM THE BUSINESS INCOME IN THE SHAR E TRANSACTIONS THE ASSESSEE IS ALSO DECLARED INCOME FROM THE INVESTMEN T UNDER THE HEAD CAPITAL-GAINS. THE A.O. HAS NOTED THAT THE ASSES SEE HAS CARRIED HUGE TRANSACTIONS IN SHARES DURING THE YEAR. THE A SSESSEE HAS DECLARED CAPITAL-GAIN AT ` 1 95 78 768/-. THE A.O. WAS OF THE OPINION THAT THE SAID INCOME IS GENERATED FROM THE SHARE TR ANSACTIONS AND IT IS NOTHING BUT THE BUSINESS INCOME OF THE ASSESSEE. T HE A.O. ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF VEKANT SWAMY NAIDU & CO. VS. CIT 35 ITR 194. THE A .O. TREATED THE ENTIRE CAPITAL GAIN DECLARED BY THE ASSESSEE AS BUS INESS INCOME BY GIVING THE FOLLOWING REASONS:- 1) DURING THE YEAR THE ASSESSEE COMPANY HAS EARNED INCOME FROM SHARE TRADING AND SHARE BROKING. THERE IS NO OTHER BUSINESS ACTIVITY. HENCE WHATEVER NOMENCLATURE OF INCOME I S OFFERED IT IS OF SHARES TRADING ONLY. WHETHER THE INCOME WAS OFF ERED AS DIVIDEND OR INCOME FROM INVESTMENT OR INCOME FROM S ALE OF SHARES. IN ALL CASES INCOME DERIVED IS FROM PURCH ASE AND SALES OF SECURITIES. 2) IT IS ALSO OBSERVED THAT THE ASSESSEE HAS CARRIE D OUT HUGE TRANSACTIONS IN SHARES ON DAILY BASIS TURNOVER OF WHICH RUNS IN CRORES OF RUPEES. THE ASSESSEE ALSO CARRIES OUT TR ANSACTION IN DELIVERY AND NON-DELIVERY OF ALL TYPE OF MARKET TRA NSACTIONS. HENCE THE MAIN BUSINESS OF THE ASSESSEE IS TO TRAD E IN SHARES PURCHASE AND SALES OF SHARES. 3) SINCE THE MAIN BUSINESS OF THE ASSESSEE IS OF PU RCHASE AND SALE OF SECURITIES IT CANNOT BE SAID THAT THE ASSE SSEE HAS CARRIED OUT INVESTMENT ACTIVITY IN SHARES WHICH IS BENEFIC IAL TO THE ASSESSEE JUST FOR THE TAX PURPOSES. IN FACT AND IN SUBSTANCE THE ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 8 ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADIN G ONLY. THE ENTIRE FUND OF THE ASSESSEE ARE UTILIZED FOR THE PU RPOSE OF MAKING INVESTMENT IN SHARES ONLY. THERE IS NO OTHER BUSIN ESS ACTIVITY. 4. THE MAIN INTENTION OF THE ASSESSEE AT THE TIME O F PURCHASE WAS TO SELL SUBSEQUENTLY AT A PROFIT. THERE IS NO MOTIVE OTHER THAN THAT AS THERE WAS NO INTENTION OF THE ASSESSEE TO HOLD THE SHARES FOR LONG TIME AND EARN DIVIDEND INCOME. 5. THE SCALE OF THE ACTIVITY IS SUBSTANTIAL AND TRA NSACTIONS ARE CARRIED OUT IN LARGE SCALE WHICH MAY BE ESTIMATED F ROM THE FACTS THAT THERE IS STT PAYMENT OF ` 70 LAKHS HENCE TURNOVER IS THOUSANDS OF CRORES. 6. THE TRANSACTIONS ARE CARRIED OUT CONTINUOUSLY AN D REGULARLY AS THE ONLY ACTIVITY CARRIED OUT BY THE ASSESSEE IS SHARE TRADING. THE ENTIRE BUSINESS SET UP IS FOR THAT ON LY AND THE ASSESSEE CARRIES TRANSACTIONS THROUGH-OUT THE DAY I N FRONT OF TRADING TERMINALS ONLY. 7. WHATEVER FUNDS ARE AVAILABLE WITH THE ASSESSEE H AS BEEN UTILIZED ONLY FOR MAKING PURCHASE OF SHARES WHETHER IT IS BORROWED OR WHETHER IT IS OWNED FUNDS. THE ENTIRE FUNDS ARE USED FOR BY THE ASSESSEE FOR THE PURPOSE OF MAKING PURCHASES OF SHARES ONLY. 8. NORMALLY THE SHARES OF ASSESSEE ARE NOT HELD FOR A SUBSTANTIAL PERIOD. FOR FEW SCRIPS WHICH IS HOLD FOR SUBSTANTIAL PERIOD IS FOR REASON THAT THE SCRIPS CAN BE UTILIZE D IN THE MARGIN OR CAN BE GIVEN AS COLLATERAL TO GET LOANS OR AGAINST THESE SCRIPS TRANSACTIONS ARE CARRIED-OUT IN FUTURES AND OPTION. OTHERWISE NORMALLY SHARES ARE NOT HELD FOR A SUBSTANTIAL PERI OD RATHER THE MAJORITY OF TRANSACTIONS ARE SQUARED UP FOR LESS TH AN 1-3 MONTHS. ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 9 9. THE RATIO OF SALE TO PURCHASE IS QUITE HIGH ALMO ST ALL THE SCRIPS WHICH HAVE BEEN PURCHASED ARE SOLD WITHIN 3 MONTHS HENCE HOLDING PERIOD IS QUITE LESSER. 10. THE ASSESSEE HAS SHOWN SOME OF THE SCRIPS ARE H ELD AS STOCK-IN-TRADE WHEREAS FEW SHARES ARE HELD AS INVES TMENT. THE CLASSIFICATION IS NOT DONE ON ANY SCIENTIFIC BASIS BUT CARRIED OUT ON THE BASIS OF TAX BENEFITS AT THE TIME OF FINALIZATI ON OF BALANCE SHEET AS TO WHICH WAY IT WOULD BE BENEFICIAL. THER E IS NO SEPARATE CLIENT CODE FOR INVESTMENT ACTIVITY. THER E WAS NO INTENTION AT THE TIME OF PURCHASE TO MAKE ANY INVES TMENT WHATSOEVER. THE SHARES ARE CLASSIFIED IN INVESTMEN T ONLY WHEN BOOKS ARE FINALIZED AND IT IS SEEN THAT SUBSTANTIAL PROFITS ARE EARNED. 14. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT (A) AND LD. CIT (A) ACCEPTED THE PLEA OF THE AS SESSEE AND DIRECTED THE A.O. TO ACCEPT THE CAPITAL-GAIN DECLARED BY THE ASSESSEE AS LONG- TERM AS WELL AS SHORT-TERM-CAPITAL-GAINS. THE OPER ATIVE PART OF THE FINDINGS OF THE LD. CIT (A) IS AS UNDER:- (I) THE APPELLANT IS IN THE BUSINESS OF SHARE BROK ERAGE AND ITS INCOME FROM BROKERAGE BUSINESS AS PER RETURN OF INC OME IS AT ` 23.77 CRORES AND THE APPELLANT HAS DISCLOSED INCOME FROM INVESTMENT AT ` 1.95 CRORES. THE APPELLANT WAS ASKED TO FURNISH DETAILS OF INVESTMENT VIS--VIS OWN FUNDS DETAILS OF DIVIDEND EARNED TURNOVER OF TRADING ARBITRATE AND INVESTMEN TS TO HAVE A CORRECT PICTURE OF THE NATURE OF TRANSACTION UNDERT AKEN BY THE APPELLANT. (II) IT IS SEEN THAT THE INVESTMENT IN SHARE AS ON 31ST MARCH OF A.Y. 03-04 TO 07-08 IS MUCH LESS THAN THE APPELLANT S OWN FUNDS ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 10 FOR A.Y. 05-06 THE APPELLANTS OWN FUND AS PER BAL ANCE SHEET IS AT ` 12.56 CRORES WHEREAS THE INVESTMENT IN SHARES IS A T ` 8.39 CRORES THE DIVIDEND RECEIVED BY THE APPELLANT IN 0 5-06 IS AT ` 28.92 LAKHS. THE APPELLANT IS MAINTAINING AN INVES TMENT PORTFOLIO AND HAS NOT TREATED THE SHARES AS STOCK IN TRADE T HEREFORE THE SHARES HAVE HELD AS INVESTMENT AND NOT AS STOCK IN TRADE. THE SHARES THEREFORE ARE CAPITAL ASSETS AS DEFINED IN SECTION 2(14) OF THE I.T. ACT AND TRANSFER OF THE CAPITAL ASSETS ARE ASSESSED AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN U/S.229B AND 242B RESPECTIVELY. THE A.O. IS THEREFORE DIR ECTED NOT TO TREAT ` 1 95 78 968/- AS BUSINESS INCOME BUT AS LONG TERM AND SHORT TERM CAPITAL GAIN. GROUND C IS ALLOWED. 15. NOW THE REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE RECORDS. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT IN THE A.YS. 2003-04 2004-05 AND 2006-07 THE ASSESSMENT W ERE COMPLETED U/S.143(3) OF THE ACT AND IN ALL THE ASSESSMENT ORD ERS THE A.O. HAS ACCEPTED THAT THE ASSESSEE IS MAINTAINING TWO PORTF OLIOS; ONE PORTFOLIO REFERRED TO AS STOCK IN TRADE AND ANOTHER AS INV ESTMENTS AND SAID IS ALSO PERMISSIBLE. IT IS FURTHER SUBMITTED THAT IN A . YRS. 2003-04 2004- 05 AND 2006-07 ALSO THE ASSESSEE HAS DONE HUGE TRAD ING TRANSACTIONS IN THE SHARES AND ALSO THE INVESTMENT TRANSACTIONS AND AS SHORT-TERM AND LONG-TERM CAPITAL GAINS DECLARED BY THE ASSESSE HAS BEEN ACCEPTED BY THE A.O. (COPIES OF THE ASSESSMENT ORDE R FOR THE A.YS. 2003-04 2004-05 AND 2006-07 (PAGES 31 TO 48) OF TH E PAPER-BOOK VOLUME-II). THE LD. COUNSEL RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GOPAL PUROHIT AND SU BMITS THAT IT IS CERTAINLY SURPRISING WHY THE DIFFERENT APPROACH IS ADOPTED BY THE A.O. ONLY IN THIS YEAR WHEN THERE IS NO CHANGE OF THE FA CTS AS WELL AS THE NATURE OF TRANSACTIONS. HE THEREFORE PLEADED FOR CONFIRMING THE ORDER OF THE LD. CIT (A) ON THE RULE OF CONSISTENCY. PER CONTRA THE LD. D.R. ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 11 ARGUES THAT THE ASSESSEES 92% INCOME IS FROM THE T RADING TRANSACTIONS OF THE SHARES AND JUST TO GET BENEFIT OF CAPITAL GAIN FOR SAVING THE TAX THE ASSESSEE HAS CLASSIFIED THE PORT FOLIOS. 17. WE FIND NO MERITS IN THE ARGUMENTS OF THE LD. D .R. WE FIND THAT SO FAR AS THE NATURE AND VOLUME OF THE TRANSACTIONS ARE CONCERNED THOSE WERE ALSO SAME IN THE A.YS. 2003-04 AND 2004- 05. IN BOTH THOSE YEARS THE ASSESSEE HAS DECLARED TWO PORTFOLI OS IN RESPECT OF THE SHARE TRANSACTIONS I.E. STOCK-IN-TRADE AND INVESTME NT. THE ASSESSEE ALSO DECLARED THE BUSINESS INCOME FROM THE TRADING OF THE SHARES AS WELL AS CAPITAL-GAINS FROM THE INVESTMENTS. WE F URTHER FIND THAT IN THE SUBSEQUENT YEAR I.E. A.Y. 2006-07 AGAIN THE A. O. HAS ACCEPTED THE PORTFOLIOS AS WELL AS THE HEAD OF INCOMES DECLA RED BY THE ASSESSEE I.E. BUSINESS INCOME FROM SHARE TRADING AS WELL AS CAPITAL-GAINS FROM THE INVESTMENTS. 18. IN THE CASE OF CIT VS. GOPAL PUROHIT 228 CTR (B OM) 582 IN THE IDENTICAL SITUATION THEIR LORDSHIPS HAVE HELD THAT THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE TAX AUTHORITY/A. O. WHEN THERE IS NO CHANGE IN THE NATURE OF TRANSACTIONS OF THE ASSE SSEE. IN THE SAID CASE THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW HA VE BEEN FRAMED:- (A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN TREATING THE INCOME FROM SALE OF 7 59 003 SHARES OF RS 5 00 12 8 79 AS AN INCOME FROM SHORT-TERM CAPITAL GAIN AND SALE OF 3 88 797 SHARES OF RS 6 65 02 340 AS LONG-TERM CAPI TAL GAIN AS AGAINST THE INCOME FROM BUSINESS ASSESSED BY THE AO ? (B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT PRINCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS AU THORITIES ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 12 DID NOT TREAT THE ASSESSEE AS A SHARE TRADER IN PRE CEDING YEAR IN SPITE OF EXISTENCE OF SIMILAR TRANSACTION WHICH CANNOT IN ANY WAY OPERATE AS RES JUDICATA TO PRECLU DE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS BUSIN ESS ACTIVITIES IN CURRENT YEAR ? (C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT PRESENTATION IN THE BOOKS OF ACCOUNT IS THE MOST CR UCIAL SOURCE OF GATHERING INTENTION OF THE ASSESSEE AS REGARDS T OT HE NATURE OF TRANSACTION WITHOUT APPRECIATING THAT THE ENTRIE S IN THE BOOKS OF ACCOUNTS ALONE ARE CONCLUSIVE PROOF TO DEC IDE THE INCOME ? ON THE PRINCIPLES OF THE CONSISTENCY THE HONBLE H IGH COURT HAS HELD AS UNDER:- 3. INSOFAR AS QUESTION (B) IS CONCERNED THE TRIBU NAL HAS OBSERVED IN PARA 8.1 OF ITS JUDGMENT THAT THE ASSES SEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NAT URE OF THE ACTIVITIES THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIF FERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATI ON SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICAB LE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACC EPTED THE POSITION THAT THE PRINCIPLE 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 CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES AR E IDENTICAL PARTICULARLY IN THE CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE RE VENUE ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 13 DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DI VERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUES TION (B) THEREFORE DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 19. IN THE PRESENT CASE IN OUR OPINION THE RULE O F CONSISTENCY MUST BE ADOPTED AND WE FAIL TO UNDERSTAND WHEN THE NATUR E OF THE TRANSACTIONS ARE THE SAME THEN WHY THE DIFFERENT AP PROACH IS ADOPTED BY THE A.O.? ON THE PRINCIPLES OF CONSISTENCY WE UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS THE RELEVANT GROUNDS TA KEN BY THE REVENUE IN THE A.Y. 2005-06. 20. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH SEPTEMBER 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATED : 28TH SEPTEMBER 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) IV MUMBAI. 4) THE CIT-4 MUMBAI. 5) THE D.R. H BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITAS 260 AND 2457/MUM/2009 M/S. H.J. SECURITIES PVT. LTD. 14 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 14/15.09.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 15.09.2011 SR.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 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER