DCIT CIR 7(1), MUMBAI v. PINKHEM INVESTMENT P. LTD, MUMBAI

ITA 3044/MUM/2010 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Dismissed

Appeal Details

RSA Number 304419914 RSA 2010
Assessee PAN AAACP8438N
Bench Mumbai
Appeal Number ITA 3044/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 29 day(s)
Appellant DCIT CIR 7(1), MUMBAI
Respondent PINKHEM INVESTMENT P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 15-07-2011
Date Of Final Hearing 04-05-2011
Next Hearing Date 04-05-2011
Assessment Year 2006-2007
Appeal Filed On 16-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) & SMT. ASHA VIJAYARAGHAVAN (JM) I.T.A.NOS2237 & 6734/MUM/2010 (A.YS. 2006-07 & 2007-08 ) M/S.PINKHEM INVESTMENT P.LTD. BOMBAY COTTON MILL COMPOUND DATTARAM LAD PATH MUMBAI-400 033. PAN: AAACP8438N VS. DY.COMMR. OF INCOME-TAX-7(1) MUMBAI. APPELLANT RESPONDENT ITA NO. 3044/MUM/2010 ASSESSMENT YEAR 2006-07 DY.COMMR. OF INCOME-TAX-7(1) MUMBAI. VS. M/S.PINKHEM INVESTMENT P.LTD. BOMBAY COTTON MILL COMPOUND DATTARAM LAD PATH MUMBAI-400 033. PAN: AAACP8438N APPELLANT RESPONDENT A SSESSEE BY SHRI N.R. AGAWAL. DEPARTMENT BY SHRI S .S. RANE. O R D E R PER SMT. ASHA VIJAYARAGHAVAN AM: THESE THREE APPEALS - TWO BY THE ASSESSEE AND ONE BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE CIT(A) D ATED 02-12-2009 AND 29-05- 2010 RESPECTIVELY FOR THE ASSTT. YEARS 2006-07 AND 2007-08. A.Y. 2006-07: 2. THE FIRST GROUND OF APPEAL IS THAT THE LD. CIT(A ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES U/S.14A AT RS.13 75 965/- AS AGAINST THE ASSESSEES DISALLOWANCE OF RS.50 000/-. WE FIND THAT THIS ISSU E IS NOW COVERED BY THE DECISION IN THE CASE OF GODREJ & BOYCE MFG. LTD. ( 2010) 328 ITR 81(BOM). PINKHEM INVESTMENT P. LTD.. 2 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ISSUE RAISED IN THIS AP PEAL IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) IN WHIC H IT HAS BEEN HELD THAT DISALLOWANCE IS CALLED FOR U/S.14A IN SUCH CIRCUMST ANCES. HOWEVER THE MANNER OF COMPUTATION OF SUCH DISALLOWANCE HAS BEEN RESTORED TO THE FILE OF AO FOR MAKING ON SOME REASONABLE BASIS. IT HAS FURTHER BEEN HELD IN THIS CASE THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE AS THESE ARE PROSPECTIVE . RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASIDE THE IMPUGNED ORDER AND DIRE CT THE AO TO COMPUTE DISALLOWANCE U/S.14A IN ACCORDANCE WITH THE RATIO L AID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORENOTED CASE OF GODREJ & BOYCE LTD. 4. THE SECOND GROUND OF APPEAL IS THAT THE LD. CIT( A) ERRED IN TREATING THE SHORT-TERM CAPITAL GAIN AS BUSINESS INCOME. THE FAC TS OF THE CASE ARE THAT THE AO WHILE COMPLETING THE ASSESSMENT U/S.143(3) REQUIRE D THE ASSESSEE TO SHOW CAUSE WHY THE SHORT-TERM CAPITAL GAINS ACCRUED TO T HE ASSESSEE CANNOT BE HELD AS BUSINESS INCOME. THE ASSESSEES REPRESENTATIVE VIDE THEIR LETTER DATED 05-10- 2008 MADE SUBMISSIONS TO THE FOLLOWING EFFECT : DURING AY 2005-06 AO HAD TREATED ASSESSEE AS TRADER. HOWEVER CIT(A) HAD TREATED ASSESSEE AS A INVESTOR. DURING THE YEAR FACTS ARE EXACTLY SIMILAR TO THAT OF AY 2005-06. ALSO WE ARE PRODUCING THE BOOKS OF ACCOUNTS FOR THE YEAR 2004-05 & 2005-06 WHICH CLEARLY REFLECTS THAT ASSESSEE IS TREATING THE PURCHASES AS INVESTMENT THAT TOO AT THE TIME OF PURCHASE. THE LEARNED ADD. CIT WHILE COMPLETING THE ASSESSMENT FOR 2005-06 HAD OBSERVED THAT THERE IS NO DISTINCTION BETWEEN SHARES PURCHASED FOR TRADING AND THOSE FOR INVESTMENT. THIS ASPECT OF A.OS OBSERVATION WAS NEVER CONFRONTED TO ASSESSEE DURING LAST YEARS ASSESSMENT. HENCE THIS YEAR WE ARE PRODUCING BOOKS OF ACCOUNTS TO PROVE DISTINCTION SO THAT NO UNWARRANTED ADDITION IS MADE. IN FACT DURIN G AY 2005-06 & 2006-07 NO SHARES ARE PURCHASED FOR TRADING ACTIVITY ONLY OPENING STOCK OF AY 2004-05 IS PINKHEM INVESTMENT P. LTD.. 3 SOLD AS & WHEN OPPORTUNITY ARISES. AS ALL THE SHARE S DURING LAST TWO YEARS ARE PURCHASED FOR LONG TERM INVESTMENTS ONLY QUESTION OF DISTINCTION DO NOT AR ISE. THERE IS NO TRANSACTION OF SALE AND PURCHASE ON HE SAME DAY. ALL THE INVESTMENT ARE KEPT IN A DEMAT ACCOUNT WHICH IS OPENED FOR INVESTMENT ONLY AS NO SHARES ARE PURCHASED FOR TRADING. ASSESSEE HAS SOLD SOME SHARES WITHIN A SPAN OF THREE MONTHS FROM THE DATE OF ITS PURCHASE ONLY BECAUSE OF ADVERSE NEWS ABOUT THE COMPANY OR PARTICULAR SEGMENT OR CHANGES IN INTERNATIONAL MARKET OF THE PRODUCT OF SUCH COMPANIES. ASSESSEE HAD SOLD THESE SHARES IN SHORT SPAN TO PROTECT ITS CAPITAL. WE WISH TO PROVE THAT ASSESSEE IS AN INVESTOR SINCE BEGINNING AS PER THE FOLLOWING FACTS. 1. THERE ONLY OF 110 TRANSACTIONS IN SHORT TERM I.E . AVERAGE OF 9 TRANSACTIONS PER MONTH INCLUDING SALE OUT OF OPENING BALANCE OF INVESTMENT. THE ABOVE FIGURES INCLUDES SHORT TERM GAIN OF RS.1632535/- ARISES OUT OF PORTFOLIO MANAGEMENT SCHEME WITH RAJAN EQUITY ADVISORY & KOTAK PMS WHERE THERE IS NO SAY FOR THE ASSESSEE & A DIFFERENT DEMAT ACCOUNT IS OPENED WITH THEM IN THE NAME OF ASSESSEE BUT OPERATED BY THEM UNDER POWER OF ATTORNEY. THIS SUPPORTS THE ASSESSEES CONTENTION THAT HES NOT IN TO THE BUSINESS OF TRADING SHARES. 2. ASSESSEE HAS ALSO EARNED DIVIDEND INCOME OF RS.22406553 WHICH PROVES THAT HE IS A INVESTOR. 3. SINCE BEGINNING ASSESSEE HAS SHOWN PURCHASES UNDER THE HEAD INVESTMENT AND ACCEPTED BY THE DEPARTMENT EVEN IN LAST YEARS SCRUTINY ASSESSMENT (EXCEPT IN 2005-06 WHICH IS ALSO DECIDED BY CIT(A)I N OUR FAVOUR). A.O. CANNOT CHANGE THE STATUS ONCE IT IS ACCEPTED AS A INVESTMENT AS HELD IN BOMBAY GYMKHANA LTD..115 TTJ 639 (MUM). 4. THE ASSESSEE HAS TREATED ALL THE INVESTMENT IN H IS BOOKS OF ACCOUNTS UNDER THE HEAD INVESTMENT ACCOUNT ONLY. ALL INVESTMENTS ARE ACCOUNTED AT COST AS ON 31/03/2005 & 31/03/2006. IF ASSESSEE IS TREATED AS TRADER THEN SHE WILL LIKE TO VALUE THE SHARES AT COST OR MARKET VALUE WHICHEVER IS LESS AN D RESULTANT LOSS WOULD HAVE BENEFITED ASSESSEE WHICH IS NOT DONE SO WHICH PROVES THAT HE IS INVESTOR. BO OKS OF ACCOUNTS FOR 2004-05 & 2005-06 ARE PRODUCED HEREWITH TO CHECK THE PRIMARY ENTRIES. THERE ARE LE SS VALUES IN SOME SHARES THAN ITS COST AT THE END OF T HE YEAR WHICH SHOULD BE ALLOWED AS LOSS IF ASSESSEE IS TREATED AS TRADER. PINKHEM INVESTMENT P. LTD.. 4 5. IN THE CASE OF THE ASSESSEE ALL THE SHARE TRANSACTIONS ARE DELIVERY BASED & DELIVERIES ARE CREDITED IN DEMAT ACCOUNT THEN HE IS NOT A TRADER AS DECIDED BY BHARKHA INVESTMENT & TRADING CO. V. CIT 281 ITR 316 (GUJ). 6. A GENUINE TRADER OF MARKET AT THE END OF YEAR MAKES HIS TURNOVER AT LEAST 6 TIMES OVER HIS CAPITA L INVESTED BY BORROWING FROM THE BANK AGAINST SHARE SECURITY. ASSESSEE HAS CAPITAL BASE INCLUDING RESER VE OF RS.4709 LACS AGAINST WHICH INVESTMENT IN SHARES IS ONLY RS.1150 LACS WHICH IS ONLY 24.42 % OF CAPITAL. WHILE TRADER WILL MAKE PURCHASE WORTH 6 TIMES OF CAPITAL NEARLY RS.190 CRORES WITH CAPITAL BASE OF 4 7 CRORES. 7. THERE IS NO BORROWING FROM MARKET OR BANKS FOR TRADING ACTIVITIES IN SHARES. IN THE FOLLOWING CASE HON. BOMBAY TRIBUNAL HAS HELD THAT IF SHARES ARE PURCHASED WITH OWN FUNDS & NOT BORROWED FUNDS THEN TRANSACTION IS OF CAPITAL NATURE & NOT REVENUE. ATLAS CORPORATION V. ITO 57 ITD 139 (BOM) CITADEL AGENCY P.LTD. V. ACIT 11 SOT 273(MUM) 8. THE ASSESSEE HAS ALSO EARNED LONG TERM GAIN & RS.61174608/- ON COMPARISON TO SHORT TERM GAIN RS.5081674/- WHICH SUPPORTS THE STAND THAT ASSESSEE IS A INVESTOR. 9. THE ASSESSEE IS INVESTOR SINCE 1988 AND HAS BEEN TAXED UNDER THE HEAD OF CAPITAL GAINS. THE HON. HIG H COURTS & TRIBUNALS HAVE HELD THAT IF ASSESSEE HAS BEEN TREATED AS A INVESTOR IN EARLIER YEARS THEN TH IS FACTOR IS REQUIRED TO BE TAKEN INTO CONSIDERATION I N CONJUNCTION WITH OTHER FACTOR. POONJABHAI VANMALI & SONS V. ITO 33 TTJ 588 (CAL) THE AO HOWEVER AT PARA-7 OF HIS ORDER HELD AS FOLLOWS : 7. IN VIEW OF THE ABOVE DISCUSSION AND SUBSCRIBING TO THE LONG DRAWN ANALYSIS DONE BY THE PREDECESSOR AO IN A.Y. 2005-06 THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AND THE INCOME TERMED AS SHORT TERM CAPITAL GAIN IS TREATED AS INCOME FROM BUSINESS AND TAXED ACCORDINGLY. THE DECISION OF THE CIT(A) IN T HE ASSESSEES CASE HAS BEEN HONOURED BUT IT IS TO BE PINKHEM INVESTMENT P. LTD.. 5 STATED THAT THE SAME HAVING NOT BEEN ACCEPTED IS STILL SUB JUDICE BEFORE THE HIGHER APPELLATE AUTHOR ITY. 5. HOWEVER THE AO REJECTED THE CONTENTION OF THE AS SESSEE AND ASSESSED PROFIT ON SALE OF SHARES AS BUSINESS INCOME. ON FUR THER APPEAL BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SUBMISSIONS MAD E BEFORE THE AO. THE LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL. AGGRIE VED THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF THE MUMBAI D BENCH 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. 7. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR ASSTT. YEAR 2005-06 IN I TA NO.5365/MUM/2008 AND SUBMITTED THAT THE AO HAS HIMSELF ACCEPTED THE CLAI M OF THE ASSESSEE AS FOLLOWS: IN VIEW OF THE ABOVE DISCUSSION AND SUBSCRIBING TO THE LONG DRAWN ANALYSIS DONE BY THE PREDECESSOR AO IN A.Y. 2 005-06 THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE AND TH E INCOME TERMED AS SHORT TERM CAPITAL GAIN IS TREATED AS INCOME FROM B USINESS AND TAXED ACCORDINGLY. THE DECISION OF THE CIT(A) IN THE ASS ESSEES CASE HAS BEEN HONOURED BUT IT IS TO BE STATED THAT THE SAME HAVI NG NOT BEEN ACCEPTED IS STILL SUBJUDICE BEFORE THE HIGHER APPE LLATE AUTHORITY. 8. THE LD. COUNSEL FOR THE ASSESSEE SHRI N.R. AGARW AL CONTENDED THAT THE FACTS IN THE PRESENT APPEAL ARE SIMILAR THAT OF A.Y . 2005-06 IN WHICH YEAR THE AO HAS ACCEPTED THE ORDER OF THE CIT(A) IN TREATING THE ASSESSEE AS AN INVESTOR. HOWEVER SINCE AT THAT POINT OF TIME WHEN AO PASSED THE ORDER FOR THE YEAR UNDER APPEAL BEFORE US THE MATTER WAS STILL PENDING BEFORE THE TRIBUNAL THE AO IN THOSE CIRCUMSTANCES OBSERVED THA T THE ISSUE IS SUBJUDICE BEFORE THE HIGHER APPELLATE AUTHORITY. NOW THAT TH E ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL BY ORDER IN ITA NO. 53 65/M/08 THE SAME IS TO BE PINKHEM INVESTMENT P. LTD.. 6 FOLLOWED IN THE PRESENT APPEAL BEFORE US. IN SHORT THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT FOR A.Y. 2005-06. 9. WE HEARD BOTH THE PARTIES. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. THE TRIBUNAL AT PARA 10 O F THE SAID ORDER FOR THE ASSTT. YEAR 2005-06 HAS HELD AS UNDER : 10. THE MUMBAI TRIBUNAL IN THE CASE OF GOPAL PUROH T VS. JT. CIT HAS HELD AS UNDER : THE ASSESSEE HAD CLAIMED HIMSELF BOTH AS A DEALER AS WELL AS AN INVESTOR AND OFFERED INCOME FOR TAXATION ACCO RDINGLY AND HE CLAIMED HAT SUCH INCOME HAD BEEN ACCEPTED BY THE RE VENUE AUTHORITIES IN EARLIER YEARS. HENCE IT BECOMES IMP ORTANT TO ANALYZE THE FACTS OF EARLIER YEARS. ON CONSIDERING THE FACTS OF THE EARLIER YEARS THE FOLLOWING CONCLUSIONS EMERGED. (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGARD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND THE TRANSACTIONS WERE SAME IN ALL THOSE YEAS EXCEPT TRANSACTIONS IN F&O SEGMENT IN SOME OF THE YEARS W HEREIN THIS KIND OF ACTIVITY WAS STARTED BY THE STOCK EXCH ANGE. (II) INTEREST ON BORROWED CAPITAL HAD BEEN ALLOWE D AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIES SHOWN BY THE ASSESSEE AS PROFIT. (III) THE ASSESSEE HAD SHOWN SHARES PURCHASED ON DELIVERY BASIS AS INVESTMENTS AT THE END OF THE YEAR AND NO STOCK-IN-TRADE EXISTED ON THAT DATE AND THE ASSESSEE HAD EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANT THAT THE ASSESSEE HAD ALSO HELD SHARES FOR THE PERIOD OF MORE THAN 12 MONTHS. THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF T HE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATIO N OF SHARES AS INVESTMENTS AT THE YEAR END WERE THE SAME IN ALL THE YEARS AND HENCE APPARENTLY THERE APPEARED NO REASON TO WHY THE CLAIM MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT THE PRINCIPLE OF RES JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISP UTE ON THIS ASPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT PINKHEM INVESTMENT P. LTD.. 7 THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES W ERE IDENTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN T AKEN BY THE REVENUE AUTHORITIES. ON THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE THE AC TION OF THE REVENUE AUTHORITIES WAS LIABLE TO BE QUASHED. 11. THE FACTUAL MATRIX AND THE LEGAL ISSUES IN THE PRESENT CASE IS PARA MATERIAL WITH THOSE IN THE CAS E OF GOPAL PUROHIT REFERRED TO THE ABOVE. IN THE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF GOPAL PUROHIT V. J T. CIT (2009) 29 SOT 117 WE UPHOLD THE DECISION OF CIT(A) THAT THE SUM OF RS.1 33 62 828 BEING THE PROFIT ARI SEN FROM SALE OF SHARES WHICH WERE PART OF INVESTMENT O F THE ASSESSEE SHOULD BE ASSESSED AS SHORT TERM CAPITAL G AINS AND NOT BUSINESS INCOME AS A HELD BY THE AO. 10. RECENTLY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. DARIUS PANDOLE (2011) 304 ITR 485 HAS HELD THAT ONCE INCOME FROM S ALE OF SHARES HAS BEEN TREATED AS BUSINESS INCOME IN AN EARLIER YEAR BY W AY OF ASSESSMENT U/S.143(3) IN THE NEXT YEAR IT CANNOT BE TAKEN AS CAPITAL GAIN. THE FACTS OF OUR CASE ARE IN CONVERSE POSITION INASMUCH AS THE I NCOME FROM SALE AND PURCHASE OF SHARES WAS ALWAYS DECLARED BY THE ASSES SEE AND ACCEPTED BY THE DEPARTMENT IN THE PAST AS WELL AS IN SUBSEQUENT YEA RS AS RESULTING INTO CAPITAL GAINS. ALL OF A SUDDEN IN THIS YEAR ALONE IT CANNOT BE HELD THAT THE ASSESSEE WAS TRADER IN SHARES. TAKING THE ENTIRE FA CTUAL SITUATION UNDER CONSIDERATION AND RESPECTFULLY FOLLOWING THE DECISI ON OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005-06 (SUPRA) WE HOLD THAT INCOME FROM SALE OF SHARES IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT BUSINESS INCOME. THEREFORE WE ALLOW THE GROUND OF THE ASSESSEE. PINKHEM INVESTMENT P. LTD.. 8 11. THE LAST GROUND OF APPEAL IS THAT THE CIT(A) ER RED IN CONFIRMING THE TREATMENT OF SHORT-TERM CAPITAL GAIN OUT OF SALE OF SHARES FROM OPENING BALANCE AMOUNTING TO RS11 23 360. THE ASSESSEE STAT ES THAT THE SALE OF SHARES FROM OPENING BALANCE AMOUNTS TO RS. 11 23 36 0/- SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS. WE PRESUME THAT THIS QUESTION WAS RAISED AS AN ALTERNATIVE GROUND IN THE CONTEXT OF TREATMENT OF PROFIT ON SALE OF SHARES AS BUSINESS INCOME BY LOWER AUTHORITIES. WE HOWEVER H AVE HELD THAT FOR THE ASSESSMENT YEARS ON APPEAL PROFIT ON SALE OF SHARES WILL BE ASSESSED AS CAPITAL GAIN ONLY WHETHER THEY ARE ON OPENING STOCK OR OTHE RWISE. IN OUR OPINION THIS QUESTION DOES NOT SURVIVE. WE DIRECT THE AO TO VER IFY THE HOLDING PERIOD OF THE SHARES TO ASCERTAIN WHETHER THE PROFIT ON SALE OF SHARES MADE BY THE ASSESSEE WOULD HAVE TO BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GAIN. A.Y. 2007-08: 12. FOR THE ASST. YEAR 2007-08 THE GROUNDS OF APP EAL INVOLVED ARE SIMILAR TO THOSE OF ASSTT. YEAR 2006-07 AND THE FACTS INVOL VED ARE ALSO SIMILAR. HENCE OUR FINDINGS ON ALL THE GROUNDS FOR THE ASSTT. YEAR 2006-07 SHALL ALSO GOVERN THE ASSTT. YEAR 2007-08 VIZ. PROFIT ON SALE OF SHAR ES SHALL BE ASSESSED AS CAPITAL GAINS AND NOT BUSINESS INCOME. 13. IN THE RESULT BOTH THE APPEALS ARE PARTLY ALLO WED. ITA NO. 3044/M/2010 DEPARTMENTAL APPEAL 14. THE GROUNDS RAISED BY THE REVENUE READ AS FOLLO WS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN SUMMARILY TREATING THE INC OME OF RS.13 77 510/- AS SHORT TERM CAPITAL GAINS DEPENDIN G ON HIS OPINION THAT GENERALLY THE TRANSACTION IN EQUITY RE LATED MUTUAL FUNDS ARE GENERALLY BY WAY OF INVESTMENTS WITHOUT L OOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE. PINKHEM INVESTMENT P. LTD.. 9 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN NOT APPLYING THE REASONING GIVEN FOR TREATMENT OF INCOME IN TRANSACTIONS IN SHARES TO TH E TRANSACTION IN MUTUAL FUND MADE BY THE ASSESSEE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN ISSUING DIRECTIONS TO THE AO THAT THE INCOME ARISING OUT OF THE TRANSACTIONS IN SALE AND PURCHASE OF MUTUAL FUNDS SHOULD BE TREATED AS EITHER UNDER THE HEAD OF SHORT TERM CAPITAL GAIN OR OF BUSINESS INCOME AFTER CARRY ING OUT THE VERIFICATION OF THE GENUINENESS OF THE FACTS AND FI GURES SINCE SUCH DIRECTIONS AMOUNTS TO SETTING ASIDE THE ASSESS MENT WHICH POWER IS NOT BESTOWED UPON HIM UNDER THE ACT. 15. THE LD. CIT(A) HELD AS FOLLOWS: HOWEVER IN THE FOLLOWING CASES IT IS SEEN THAT INV ESTMENTS IN THE EQUITY RELATED MUTUAL FUND ARE GENERALLY BY WAY OF INVESTMENTS AND TO EARN DIVIDEND. THEREFORE IN THE FOLLOWING CASES INCOME FROM PURCHASES/SALE OF UNITS IN EQUITY RELATED MUTU AL FUND SHALL BE TREATED AS SHORT TERM CAPITAL GAIN. SR. NO. NAME OF THE COMPANY YEAR OF PURCHASE DATE OF SALE STCG 1 IL&FS GROWTH VALUE FUND 7.2.2006 7.2.06 2 14 6 89 2 IL&FS GROWTH VALUE (SEMI ANNUAL) 21.2.06 17.3.06 42 684 3. IL&FS 7.2.06 7.2.06 11 20 137 HOWEVER THE AO WILL VERIFY THE GENUINENESS OF THE FACTS AND FIGURES GIVEN IN THIS RESPECT BEFORE GIVING RELIEF. IF IT IS RELATED TO PURCHASE/SALE OF UNITS IN EQUITY RELATED MUTUAL FUN D IT WILL BE TREATED AS STCG. OTHERWISE IT WILL BE TREATED AS B USINESS INCOME. 16. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. THE MAIN GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) HAS NOT APPLIED THE REAS ONING GIVEN FOR TREATMENT OF INCOME IN TRANSACTIONS IN SHARES TO THE TRANSACT ION IN MUTUAL FUND MADE BY THE ASSESSEE. WE HAVE FOUND THAT PROFIT ON SALE OF SHARES SHOULD BE ASSESSED AS CAPITAL GAINS AND HENCE ON THE SAME REASONING TH E PROFIT ON SALE OF MUTUAL FUND UNITS SHOULD ALSO BE ASSESSED AS CAPITAL GAINS . THE REVENUE ALSO OBJECTS TO THE CIT(A) SETTING ASIDE THE ISSUE TO AO ON THE GROUND THAT THE CIT(A) DOES NOT HAVE THAT POWER. THE CIT(A) HAS NOT COMPLETELY SET ASIDE THIS ISSUE. HE HAS CONCLUDED THAT THE PROFIT ON SALE OF MF UNITS S HOULD BE ASSESSED AS CAPITAL GAINS AND HAS DIRECTED THE AO TO VERIFY THE CORRECT NESS. THIS IS WELL WITHIN THE PINKHEM INVESTMENT P. LTD.. 10 POWER OF THE CIT(A). IN ANY EVENT WE HAVE TO CONFI RM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 17. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 15 TH DAY OF JULY 2011. SD/- SD/- (J. SUDHAKAR REDDY) (SMT. ASHA VIJAYARAG HAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 15TH JULY 2011. RJ COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-13 MUMBAI. 4 CIT-7 MUMBAI. 5.DR C BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. PINKHEM INVESTMENT P. LTD.. 11 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 24-06-11 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 25-06-11 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/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER