The DCIT, Indore v. M/s Arihant Capital Markets Ltd, Indore

ITA 287/IND/2010 | 2006-2007
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 28722714 RSA 2010
Assessee PAN AABCA6832G
Bench Indore
Appeal Number ITA 287/IND/2010
Duration Of Justice 1 year(s) 4 month(s) 19 day(s)
Appellant The DCIT, Indore
Respondent M/s Arihant Capital Markets Ltd, Indore
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 16-08-2011
Next Hearing Date 16-08-2011
Assessment Year 2006-2007
Appeal Filed On 11-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH J.M. AND SHRI R.C.SHARM A A.M. PAN NO. : PAN AABCA 6832 G ITA NOS.286 & 287/IND/2010 AYS: 2005-06 & 2006-07 DCIT-1(1) INDORE M/S. ARIHANT CAPITAL MARKETS LTD. INDORE VS APPELLANT RESPONDENT APPELLANT BY : SHRI ARUN DEWAN SR. DR RESPONDENT BY : SHRI AJAY TULSIYAN & SHRI RANJAN AGRAWAL CAS DATE OF HEARING : 13.09.2011 DATE OF PRONOUNCEMENT : 30.09.2011 O R D E R PER R. C. SHARMA A.M. BOTH THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDERS OF LD. CIT(A)-II INDORE DATED 4.2.2010 FOR THE AYS 2005-06 & 2006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) -: 2: - 2 OF THE I.T. ACT 1961 ON THE FOLLOWING COMMON GROU NDS OF APPEALS: 1. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT THE INCOME AS SHORT TERM CAPITAL GAIN WHICH WAS ASSESSED BY THE AO AS INCOME FROM BUSINESS WITHOUT APPRECIATING THAT THE ITEMS AGAINST WHICH THE SAID INCOME SHOWN HAD THE CHARACTERISTICS OF STOCK-IN- TRADE. 2. LD. CIT(A) DID NOT APPRECIATE THAT PART OF GOODS PURCHASED BY A COMBINED SETTLEMENT HAS BEEN ACCOUNTED FOR AS STOCK-IN-TRADE AND REMAINING PART AS INVESTMENT. 3. LD. CIT(A) ERRED IN FOLLOWING THE DECISION OF TH E HONBLE BOMBAY HIGH COURT (228 CTR 582) WITHOUT APPRECIATING THAT THE ASSESSEES CASE IS CLEARLY DISTINGUISHABLE ON FACTS FROM THE CITED CASE. 2. THE ABOVE GROUNDS PERTAIN TO THE ISSUE OF TREATI NG THE SHORT TERM CAPITAL GAIN TRANSACTION AS BUSINESS TRA NSACTION BY THE LD. AO WHICH WAS ACCEPTED BY THE LD. CIT(A) AS SHORT TERM CAPITAL GAIN TRANSACTION. IT WAS STATED THAT FACTS OF THE ISSUE FOR BOTH THE AYS ARE IDENTICAL THEREFORE THE APPE AL FOR AY 2006-07 MAY BE DISCUSSED AT FIRST AND THE DECISION FOR AY 2006-07 MAY BE FOLLOWED IN THE APPEAL FOR AY 2005-0 6 -: 3: - 3 BECAUSE THE LD. CIT(A) ALSO DISCUSSED THE MATTER IN DETAIL FOR THE AY 2006-07 AND FOR AY 2005-06 THE LD. CIT(A) F OLLOWED THE DECISION TAKEN FOR AY 2006-07. WE THEREFORE DISCU SS THE FACTS OF THE APPEAL FOR AY 2006-07 AND THE OUTCOME WILL A PPLY TO BOTH THE AYS UNDER CONSIDERATION. FACTS OF THE ONLY ISSUE ARE THAT THE LD. AO NOTED THAT THE ASSESSEE IS A LISTED COMPANY WHICH IS ENGAGED IN THE BUSINESS OF SHARE BROKING INVESTMENT AND OTHER RELATED ACTIVITY OF CAPITAL MARKET. THE A SSESSEE ALSO RUNS A DEPOSITORY SERVICE OF NSDL. THE ASSESSEE DUR ING THE YEAR HAD SHOWN INCOME FROM BROKERAGE SHARE TRADING COMMISSION AND PROFIT FROM INVESTMENT ACTIVITY. THE ASSESSEE HAD SHOWN PROFIT FROM SHORT TERM CAPITAL GAINS CHAR GEABLE @10% BEING STT PAID. IT HAD ALSO SHOWN SHARE TRADIN G PROFIT. THE LD. AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SHORT TERM CAPITAL GAIN MAY NOT BE TREATED AS TRADING PRO FIT. THE ASSESSEE COMPANY RELIED UPON THE CIRCULAR NO. 4 OF 2007 DATED 15.6.2007 ISSUED BY THE CBDT. THE ASSESSEE CLAIMED THAT IT HAS MAINTAINED TWO PORTFOLIOS FOR TRADING AND INVES TMENTS ACTIVITY AS VISIBLE FROM THE BALANCE-SHEET. HOWEVER THE LD. AO DISALLOWED THE CLAIM OBSERVING THAT THE ASSESSEE HA S SHOWN -: 4: - 4 TRADING PROFIT AND SHORT TERM CAPITAL GAIN FROM DEA LINGS IN SAME SHARES AND FURTHER OBSERVED THAT TREATMENT OF PART OF SUCH PROFIT AS SHORT TERM CAPITAL GAIN WAS MERELY A N AFTERTHOUGHT. HE HAS ALSO OBSERVED THAT EXCEPT TWO SECURITIES NAMELY M/S. BANSWARA SYNTHETICS AND IDBI LTD. WHE RE THE ASSESSEE EARNED SHORT TERM CAPITAL GAIN OF NEARLY R S.27.77 LACS THE ASSESSEE HAD NO OPENING INVESTMENT IN THE BALANCE- SHEET. HE HAS ALSO OBSERVED THAT THE MAJORITY DIVID END WAS EARNED IN RESPECT OF TRADING PORTFOLIO AND HENCE TH ERE WAS NO INTENTION TO EARN DIVIDEND INCOME. 3. AGGRIEVED WITH THE ORDER OF THE AO THE ASSESSE E PREFERRED AN APPEAL BEFORE THE LD. CIT(A). BEFORE LD. CIT(A) THE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE IS A PUBLI C LIMITED COMPANY WHOSE SHARES ARE TRADED ON BSE REGULARLY AN D IS NOT A CLOSELY HELD COMPANY. THE ACCOUNTS OF THE COMPANY ARE REQUIRED TO BE STATUTORILY AUDITED AND PRESENTED TO THE SHAREHOLDERS IN ANNUAL GENERAL MEETINGS AND ACTION HAVING MAJOR IMPACT ON THE FINANCIALS OF THE COMPANY HAVE TO BE ARRIVED AFTER THE APPROVAL OF THE BOARD OF DIRECTOR S. THE COMPANY IN ITS PUBLISHED ACCOUNTS HAS CLEARLY SHOWN IN -: 5: - 5 SCHEDULE IV THEREOF THE INVESTMENT IN SHARES OF BO TH CATEGORIES OF COMPANIES I.E. WHICH ARE LISTED ON T HE FACT THAT THE ASSESSEE WAS EARNING INCOME FROM INVESTMENT BES IDES SHARE TRADING AS NOTED IN THE NATURE OF BUSINESS. I N SUCH PUBLISHED ACCOUNTS STOCK-IN-TRADE IN SHARES HAVE B EEN SEPARATELY RECORDED IN SCHEDULE V GIVING THE NAMES OF VARIOUS COMPANIES INDEPENDENTLY AS IS GIVEN IN RESPECT OF I NVESTMENT PORTFOLIO. THE ASSESSEE HAS MADE INVESTMENT IN SHAR ES FROM AS EARLY AS AY 1996-97 AND IN FACT THE CLAIM OF BUSINE SS LOSS FOR AY 1996-97 WAS HELD TO BE CAPITAL LOSS AFTER ALLOWI NG THE BENEFIT OF INVESTMENT FOR AY 1996-97 IN REGULAR ASS ESSMENT PROCEEDINGS U/S 143(3). SIMILAR POSITION PREVAILED IN REGULAR ASSESSMENT PROCEEDINGS FOR AY 1997-98. IT WAS ALSO SUBMITTED THAT THE POSITION OF BROUGHT FORWARD CAPITAL LOSS F ROM AY 1998- 99 HAS BEEN DULY CLAIMED IN THE COMPUTATION OF INCO ME FILED FOR THE YEAR UNDER CONSIDERATION AND IS DULY CERTIF IED IN TAX AUDIT REPORT THEREFORE THE FACT THAT THE ASSESSEE WAS MAINTAINING TWO SEPARATE PORTFOLIOS ONE ON INVESTM ENT ACCOUNT AND OTHER ON TRADING ACCOUNT CANNOT BE DENI ED. THE OBSERVATION OF THE LD. AO THAT TREATMENT OF PART OF SUCH -: 6: - 6 TRANSACTION AS SHORT TERM CAPITAL GAIN WAS AN AFTER THOUGHT WAS WITHOUT THERE BEING ANY MATERIAL TO SUPPORT SUC H CONTENTION IN THE CASE OF THE PUBLIC LIMITED COMPAN Y. IN THE CASE OF A COMPANY THE EFFECT OF TRANSACTION HAS TO BE NECESSARILY GIVEN ON DAY-TO-DAY BASIS AND IF THE AO S OBSERVATION HAS TO BE TAKEN SERIOUSLY THAT WILL HAV E SERIOUS REPERCUSSION TO THE EFFECT THAT THE ACCOUNTS ARE BE ING MANIPULATED BUT SUCH A FINDING CANNOT BE RECORDED WITHOUT THERE BEING DEFINITE MATERIAL TO SUPPORT SUCH OBSER VATIONS. IT WAS ALSO SUBMITTED THAT MERELY BECAUSE THE ASSESSEE COMPANYS MANAGEMENT IN ITS WISDOM HAS CHOSEN TO DE AL IN SOME SECURITIES BOTH ON TRADING & INVESTMENT PURPOS ES SIMULTANEOUSLY WHICH HAVE BEEN SO SEPARATELY RECOR DED NO ADVERSE INFERENCE ON THAT ACCOUNT CAN BE TAKEN. THE REFORE ADDITION IS NOT PERMISSIBLE. 4. THE LD. CIT(A) CONSIDERING THE FACTS & CIRCUMS TANCES OF THE CASE IN THE LIGHT OF THE SUBMISSIONS NARRATED B EFORE HIM DELETED THE ADDITION HOLDING THAT THERE WAS NO VALI D AND TANGIBLE BASIS BEFORE THE AO TO REJECT THE CLAIM OF THE ASSESSEE ABOUT SHORT TERM CAPITAL GAIN WHICH WAS DULY BASED ON PROPER -: 7: - 7 ACCOUNTS AND RECORD MAINTAINED IN REGULAR COURSE OF BUSINESS AS PER DETAILS AND DOCUMENTS FILED IN COMPILATION O N DAY-TO- DAY BASIS. THE FINDINGS OF THE LD. CIT(A) ARE REPRO DUCED HEREUNDER: NOW IN THIS FACTUAL BACKDROP THE BROAD PRINCIPLES LAID DOWN BY CBDT IN CIRCULAR NO.4 OF 2007 DATED 15.6.07 AND THE GUIDING PRINCIPLES LAID DOWN IN VARIOUS JUDICIAL DECISIONS ARE TO BE APPLIED. COMING TO THE OBSERVATION OF THE AO THAT EXCEPT IN TWO SCRIPS THERE WAS NO OPENING BALANCE OF SECURITIES IT HAS TO BE OBSERVED THAT THIS FACT THOUGH NOTICED BY THE AO HAS NOT BEEN GIVEN ANY CONSIDERATION CONSIDERATION/WEIGHTAGE HE HAS TREATED THE ENTIRE STCG AS TRADING PROFIT AND FURTHER AS RIGHTLY EMPHASIZED BY THE AR THAT THERE HAS TO BE ALWAYS A BEGINNING AND WHERE NEW INVESTMENTS ARE MADE AND THE APPELLANT WAS UNDER NO OBLIGATION TO KEEP ANY INVESTMENT FOR ANY DEFINITE PERIOD OF TIME BEFORE REALIZING PROFITS. IT WAS ALSO RIGHTLY EMPHASIZED THAT THE APPELLANT IN ANY CASE HAS NOT CLAIMED THE BENEFIT OF LTCG ON DEALINGS IN SHARES -: 8: - 8 WHICH HAVE NOT BEEN HELD FOR A PERIOD OF MORE THAN ONE YEAR. FURTHER A MERE LOOK AT THE SHARE TRANSACTIONS ON WHICH STCG HAVE BEEN CLAIMED AS INCLUDED IN COMPILATION FROM PAGE 188 TO 190 IN RESPECT OF SECURITIES WHICH HAVE BEEN COMING AS OPENING BALANCE IT IS SEEN THAT IN CASE OF JAYSHREE TEA LTD. SHARES WERE PURCHASED FROM 1.6 ONWARDS TILL 25.8 AND THE SALES HAVE BEEN EFFECTED FOR ALL THE HOLDINGS TOGETHER ON 15.2.06 AFTER A PERIOD OF NEARLY SIX MONTHS FROM THE DATE OF LAST PURCHASE AS AFORESAID. FURTHER IN RESPECT OF BOC LTD. 15000 SHARES WERE PURCHASED IN JULY AND BEGINNING OF AUGUST WHICH WERE SOLD ON 26.9 AND 3.10 AND EVEN IN CASE OF SUTLEJ LTD. THOUGH A NUMBER OF PURCHASE AND SALES TRANSACTION ARE NUMEROUS BROADLY THE SHARES PURCHASED IN AUGUST SEPTEMBER HAVE BEEN SOLD PARTLY IN JANUARY THERE BEING SUBSEQUENT PURCHASE IN JAB-FEB AND SALES LATER IN THE MONTH OF MARCH06. THE OVERALL NUMBER OF SCRIPS CLAIMED IN INVESTMENT PORTFOLIO ARE 5 IN CASE OF COMPANIES BESIDES INVESTMENT IN RELIANCE -: 9: - 9 MF AND PORTFOLIO MANAGEMENT INVESTMENT WHICH GAVE AN INCOME OF NEARLY RS.6.91 LAKHS APART FROM STCG ON SALE OF SCRIPS IN 5 COMPANIES. IT HAS TO BE NECESSARILY CONCLUDED THAT THERE WAS NO VALID AND TANGIBLE BASIS BEFORE THE AO TO REJECT THE CLAIM OF THE ASSESSEE ABOUT STCG WHICH WAS DULY BASED ON PROPER ACCOUNTS AND RECORD MAINTAINED IN REGULAR COURSE OF BUSINESS AS PER DETAILS AND DOCUMENTS FILED IN COMPILATION ON DAY-TO-DAY BASIS. THE APPELLANTS CASE IS SQUARELY SUPPORTED BY THE DECISION OF HONBLE ITAT IN THE CASE OF GOPAL PUROHIT V. JCIT 122 TTJ (MUM) 87 WHICH HAS SINCE BEEN APPROVED BY HONBLE BOMBAY HIGH COURT AND IS REPORTED AT 228 CTR 582 (BOM.). 5. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. BEFORE US THE LD. SR. DR MERELY BANKED UPON THE ORDER OF THE AO. ON THE OTHER HAND LD. COUNSEL FOR THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN REGULARLY INVOLVED IN INVESTMENT ACTIVITY AND HAS B EEN SHOWING -: 10: - 10 INVESTMENT AND GAIN ON INVESTMENT SINCE AY 1995-96 TO AS ON DATE. THE ACTIVITY HAS BEEN ACCEPTED BY THE REVENUE AS EVIDENT FROM THE ASSESSMENT ORDERS PASSED FOR THE AY 1996-9 7 & 1997-98 (PAPER BOOK PAGES 187 TO 199). INVESTMENT A CTIVITY OF THE ASSESSEE WAS CHALLENGED ONLY FROM AY 2005-06 WH EREIN THE FINANCE ACT HAS REDUCED THE TAX RATE ON CAPITAL GAIN. THE ASSESSEE HAS SHOWN INVESTMENT IN 7 SCRIPTS AS AGAIN ST OVER 187 SCRIPTS IN TRADING PORTFOLIO. FURTHER THE NUMBE R OF TRANSACTION WAS LESS THAN 65 IN INVESTMENT AS AGAIN ST OVER 2900 IN TRADING. THE COMPANY DOES NOT HAVE ANY BORR OWED FUNDS. THE ASSESSEE HAS VALUED ITS INVESTMENT AT CO ST WHEREAS STOCK-IN-TRADE HAS BEEN VALUED AT LOWER OF COST OR MARKET PRICE. NO ATTEMPT WAS MADE BY THE AO TO DETERMINE W HAT WOULD BE VALUATION OF INVESTMENT IF THE SAME IS TRE ATED AS STOCK IN TRADE. THE ASSESSEE HAS MAINTAINED TWO POR TFOLIOS VIZ. TRADING PORTFOLIO AND INVESTMENT PORTFOLIO WHICH HA VE BEEN PERMITTED BY THE CBDT VIDE CIRCULAR DATED 15.6.07 ( SUPRA). THE ASSESSEE HAS NOT CLAIMED ANY CREDIT FOR SECURIT IES TRANSACTION TAX. LONG TERM CAPITAL GAIN TRANSACTION S HAVE BEEN ACCEPTED. THE AO MADE THE ADDITION ON PRESUMPT ION -: 11: - 11 BASIS AS THE OBSERVATIONS OF THE AO ARE GENERAL IN NATURE AND NO SPECIFIC INSTANCE FOR ANY OF THE OBSERVATIONS HA S BEEN POINTED OUT. THE AO COULD NOT POINT OUT AS TO WHERE PART OF SHARES PURCHASED IN COMBINED SETTLEMENT HAS BEEN AC COUNTED FOR AS STOCK-IN-TRADE AND REMAINING PART AS INVESTM ENT. IT WAS ALSO SUBMITTED THAT ONLY THE ASSESSEE CAN DETERMINE THE NUMBER OF SHARES AND ITS QUANTITY WHICH IT NEEDS TO RECOGNIZE AS INVESTMENT. IF THE INTENTION OF THE ASSESSEE WOU LD BE FOR LOWERING TAX BURDEN THEN IT WOULD HAVE RECOGNIZED T HE TOTAL TRANSACTIONS AS INVESTMENT ACTIVITY. IN SUPPORT TH E LD. COUNSEL FOR THE ASSESSEE ALSO FILED THE SUMMARY OF SHORT TERM CAPITAL GAIN FOR THE AY 2005-06 & 2006-07 SHOWING T HE PERIOD OF HOLDING OF SHARES. THE FOLLOWING DECISIONS (COPY FILED) WERE ALSO RELIED UPON BY THE ASSESSEE: ACIT V. BULLS & BEARS PORTFOLIOS LTD. (2011) 53 DTR (DEL) (TRIB) 97; CIT V. GOPAL PUROHIT 228 CTR 582 (MUM); GOPAL PUROHIT V. JCIT (ITA NO.4854/MUM/2008); CIT V. PNB FINANCE & INDUSTRIES LTD. (ITA NO.306/20 10) (DELHI HIGH COURT); VINOD K NEATIA V. ACIT (ITA NO.6556/MUM/2009); DCIT V. SMK SHARES & STOCK BROKING P. LTD. (ITA NO. 799/MUM/2009); -: 12: - 12 J.M. SHARE & STOCK BROKERS LTD. V. JCIT (ITA NO.280 1/MUM/2000); ACIT V. OM PRAKASH SURI (2010) 16 ITJ 185 (INDORE T RIBUNAL); MAHENDRA C. SHAH V. ADDL. CIT (2011) 58 DTR (MUM. T RIBUNAL) 242; AND HITESH SATISHCHANDRA DOSHI V. JCIT (2011) 58 DTR (M UM. TRIBUNAL) 258. 7. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PE RUSED. WE HAD ALSO DELIBERATED ON VARIOUS CASE LAWS CITED BY LD. AUTHORIZED REPRESENTATIVE AND LD. SENIOR D.R. DURIN G THE COURSE OF HEARING BEFORE US AS WELL AS DECISIONS RE LIED UPON BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. F ROM THE RECORD WE FOUND THAT THE ASSESSEE WAS ENGAGED IN B OTH THE ACTIVITIES OF INVESTMENT IN SHARES AND ALSO TRADING IN SHARES SINCE ASSESSMENT YEAR 1995-96. SEPARATE ACCOUNT WAS MAINTAINED BOTH IN RESPECT OF SHARES ACQUIRED WITH INTENTION OF INVESTMENT VIS--VIS SHARES ACQUIRED FOR TRADING THEREIN. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE H AS NOT ONLY OFFERED SHORT TERM CAPITAL GAIN ON SALE OF SHA RES BUT ALSO LONG TERM CAPITAL GAIN. THE AO HAS ACCEPTED THE ASS ESSEES CONTENTION FOR HOLDING THE SHARES AS INVESTMENT IN SO FAR AS HE HAS ACCEPTED THE LONG TERM CAPITAL GAIN OFFERED BY THE -: 13: - 13 ASSESSEE ONLY IN RESPECT OF THE SHARES HELD AS INV ESTMENT FOR LESS THAN ONE YEAR IN RESPECT OF WHICH ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN THE AO DID NOT ACCEPT THE SAME. THE AOS ACTION FOR NOT ACCEPTING ASSESSEES CLAIM AS S HORT TERM CAPITAL GAIN IS BASICALLY INFLUENCED BY CHANGE IN S CHEME OF TAXATION IN RESPECT OF CAPITAL GAINS BY AMENDMENT A CT 2004 WHEREIN SECURITY TRANSACTION TAX WAS LEVIED ON SALE AND PURCHASE OF SECURITIES AND LEGISLATURE HAS EXEMPTED LONG TERM CAPITAL GAIN U/S 10(28) AND ALSO REDUCED RATE OF TA X IN RESPECT OF SHORT TERM CAPITAL GAINS TO THE EXTENT OF 10 % U /S 111A. THIS BENEFIT IS AVAILABLE TO THE ASSESSEE ONLY IN R ESPECT OF TRANSACTIONS ON WHICH SECURITY TRANSACTION TAX HAS BEEN PAID. AFTER THIS AMENDMENT WAS BROUGHT IN THE DEPARTMENT HAS CHANGED ITS TREATMENT OF PROFIT OFFERED AS CAPITAL GAINS AND TREATED THE SAME AS BUSINESS PROFIT INSPITE OF THE FACT THAT THE ASSESSEE HAS ACQUIRED THE SHARES AS INVESTMENT AND TREATED THE SAME IN ITS BOOKS OF ACCOUNT ACCORDINGLY AND AL SO PAID 10 % SECURITY TRANSACTION TAX THEREON. THE PROPOSITION THAT THE ASSESSEE CAN HAVE BOTH PORTFOLIO I.E. TRADING AS WE LL AS INVESTMENT PORTFOLIO WHICH HAS BEEN WELL ACCEPTED BY THE -: 14: - 14 C.B.D.T. VIDE ITS CIRCULAR NO.4 OF 2007 DATED 15.6. 2007. THE QUESTION WHETHER SURPLUS ARISING OUT OF SALE OF SHA RES IS TO BE ASSESSED AS CAPITAL GAINS OR AS BUSINESS INCOME IS A QUESTION OF FACT TO BE DECIDED ACCORDING TO CUMULATIVE EFFEC T OF SEVERAL FACTS AND CIRCUMSTANCES OF THE CASE WHICH INTER A LIA INCLUDES INTENTION OF THE ASSESSEE THE NATURE OF COMMODITY SOLD WHETHER THE ASSESSEE HAS USED HIS OWN FUNDS OR INTE REST BEARING BORROWED FUNDS THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IN RESPECT OF THE SHARES SO HELD THE CONSISTENT STAND TAKEN BY THE DEPARTMENTAL AUTHORIT IES IN RESPECT OF SALE PROCEEDS OF SHARES IN EARLIER YEARS . THE FREQUENCY AND VOLUME OF TRANSACTION PERIOD OF HOLD ING OF SHARES MODE OF TRANSACTION AS TO WHETHER IT IS DEL IVERY BASED OR NOT ALL THESE QUESTIONS HAVE TO BE CONSIDERED B EFORE ARRIVING AT THE DECISION AS TO WHETHER ASSESSEE HEL D THE SHARES AS INVESTMENT (CAPITAL ASSETS) OR AS STOCK IN TRADE . AS ALREADY DISCUSSED THE ASSESSEE IS HOLDING SHARES IN TWO DI FFERENT PORTFOLIOS ONE PORTFOLIO FOR STOCK IN TRADE AND AN OTHER PORTFOLIO AS INVESTMENT. AFTER APPLYING ALL THE PRINCIPLES FO R TESTING THE NATURE OF TRANSACTION IN THE INSTANT CASE WE FOUN D THAT THE -: 15: - 15 ASSESSEE WAS CONSISTENTLY HOLDING THE SHARES BOTH A S INVESTMENT AS WELL AS STOCK IN TRADE. ASSESSEES DE CLARATION OF CAPITAL GAINS IN EARLIER YEARS WERE ACCEPTED BY THE DEPARTMENT U/S 143(3) ASSESSMENT. THE ASSESSEE HAS NOT BORROWE D ANY INTEREST BEARING FUNDS FOR ACQUIRING THE SHARES. TH E SHARES WERE SOLD AFTER RETAINING THE SAME FOR CONSIDERABLE TIME RANGING UP MORE THAN ONE YEAR. THE GAINS IN RESPECT OF SHARES HELD FOR MORE THAN ONE YEAR WAS DECLARED AS LONG TE RM CAPITAL GAINS AND GAIN IN RESPECT OF SHARES HELD FOR LESS T HAN ONE YEAR WAS DECLARED AS A SHORT TERM CAPITAL GAINS. EVEN SO ME OF THE SHARES SOLD DURING THE YEAR WAS OUT OF THE OPENING BALANCE OF SHARES HELD IN INVESTMENT PORTFOLIO. DETAILED FINDI NG HAS BEEN RECORDED BY THE LD. CIT(A) AT PAGE 6 7 8 & 9 OF H IS APPELLATE ORDER WHICH HAS NOT BEEN CONTROVERTED BY THE DEPAR TMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDING LY WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE CIT(A). 8. ON CONSIDERATION OF ABOVE IN THE LIGHT OF THE FA CTS & CIRCUMSTANCES SUBMISSIONS AND JUDICIAL PRONOUNCEME NTS (SUPRA) WE FIND THAT THE ASSESSEE HAD SUCCESSFULLY EXPLAINED EACH AND EVERY GENERAL DEFECT POINTED OUT BY THE AO AS ALSO -: 16: - 16 RECORDED BY THE LD. CIT(A) ABOVE. THE ASSESSEE HAD ALREADY FURNISHED THE COMPLETE DESIRED DETAILS REGARDING TH E CLAIM WHICH WERE NOT CONTROVERTED BY THE REVENUE THROUGH ANY EVIDENCE. FURTHER THE ASSESSEE WAS ASKED BY THIS B ENCH TO FILE THE SUMMARY OF SHORT TERM CAPITAL GAIN FOR THE AY 2 005-06 & 2006-07 SHOWING THE PERIOD OF HOLDING OF SHARES. TH E SAME WAS FILED BY THE ASSESSEE AS UNDER: SUMMARY OF SHORT TERM CAPITAL GAIN FOR THE AY 2005- 06 PROFIT FROM HOLDING SCRIPT < 15 DAYS < 1 MONTH < 3 MONTHS <6 MONTHS < 1 YEAR TOTAL LIC HOUSING FINANCE 75 752 24 937 100 689 TAMIL NADU NEWSPRINT 148 786 148 786 BANSWARA SYNTHETICS (4 211) (2 289) 23 634 17 134 BOMBAY DYEING 302 063 302 063 GUJRAT ALAKAI 195 142 195 142 TCS 302 947 302 947 TATA INVESTMENT CORP. 591 827 591 827 BANK OF MAHARASHTRA 583 197 583 197 LDBI BANK 2 626 119 2 626 119 CHAMBEL FRETILIZERS - 542 675 542 675 NTPC 1 710 495 1 710 495 LESS: EXPENSES INCURRED (3 995) TOTAL 522 390 192 852 1 526 542 4 879 289 0 7 117 079 SUMMARY OF SHORT TERM CAPITAL GAIN FOR THE AY 2006- 07 PROFIT FROM H OLDING SCRIPT < 15 DAYS < 1 MONTH < 3 MONTHS < 6 MONTHS < 1 YEAR TOTAL -: 17: - 17 BANSWARA SYNTHETICS 0 0 79 376 87 018 681 395 847 789 LDBI BANK 228 393 1 685 340 15 840 1 929 574 BOC 0 844 117 844 117 JAYSNREE TEA 0 778 241 981 386 1 759 627 SUTLEJ 0 585 470 585 470 RELIANCE MUTUAL FUND 0 324 976 PORTFOLIO MANAGEMENT SERVICE 0 356 612 TOTAL 0 0 1 151 886 3 136 069 1 678 621 6 648 164 '' 9. FROM THE ABOVE IT IS CLEAR THAT SHARES HAVE BEEN H ELD FOR A CONSIDERABLE PERIOD BEFORE SELLING. MOST OF S HORT TERM CAPITAL GAINS HAVE BEEN EARNED ON SHARES WHICH HAV E BEEN HELD FOR MORE THAN ONE MONTH IT CLEARLY ESTABLISHE S THE FACT THAT THESE SHARES WERE HELD AS INVESTMENT AND NOT F OR TRADING OR BUSINESS. HOWEVER THE AO HAD MADE THE ADDITION ON PRESUMPTION BASIS WITHOUT POINTING OUT ANY SPECIFIC DEFECTS. THE AO DID NOT BRING ON RECORD ANY SINGLE IOTA OF E VIDENCE IN SUPPORT OF DISALLOWANCE WHEREAS THE ASSESSEE HAS SU CCESSFULLY MET OUT WITH THE GENERAL DEFECTS POINTED OUT BY THE LD. AO. 10. IN VIEW OF THE FACTS & CIRCUMSTANCES AS DISCUSSED ABOVE AND JUDICIAL PRONOUNCEMENTS WE ARE OF THE CO NSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITI ON IN BOTH THE AYS. WE CONFIRM THE ORDERS OF THE LD. CIT(A) FOR BO TH THE AYS UNDER CONSIDERATION. -: 18: - 18 11. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.09.2011 CPU*