ACIT, New Delhi v. Sh. Om Prakash Arora, New Delhi

ITA 3154/DEL/2010 | 2007-2008
Pronouncement Date: 18-11-2011 | Result: Dismissed

Appeal Details

RSA Number 315420114 RSA 2010
Assessee PAN ACCPA9774F
Bench Delhi
Appeal Number ITA 3154/DEL/2010
Duration Of Justice 1 year(s) 4 month(s) 24 day(s)
Appellant ACIT, New Delhi
Respondent Sh. Om Prakash Arora, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 18-11-2011
Date Of Final Hearing 13-10-2011
Next Hearing Date 13-10-2011
Assessment Year 2007-2008
Appeal Filed On 24-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 3154(DEL)/2010 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME SHR I OM PRAKASH ARORA TAX CIRCLE 32(1) NEW DELHI. VS. D-3 92 DEFENCE COLONY NEW DELHI. PAN: ACCPA 9774F (APPELLANT) (RESPON DENT) APPELLANT BY : SHRI RAJ TANDON CIT DR RESPONDENT BY: SH RI SANJEEV JAIN C.A. DATE OF HEARING : 13.10.2011 DATE OF PRONOUNCEMENT: 18 .11.2011. ORDER PER K.G. BANSAL : AM THE ONLY GROUND TAKEN IN THIS APPEAL BY THE REV ENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD . CIT(APPEALS) ERRED IN DIRECTING THE AO TO TREAT THE PROFIT OF RS. 8 78 16 545/- AS SHORT-TERM CAPITAL GAIN (STCG FOR SHORT) AND NOT THE BUSINE SS INCOME AS HELD BY THE AO. IN THIS CONNECTION BOARD CIRCULAR NO. 4/200 7 HAS ALSO BEEN MENTIONED. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN ON 02.11.2007 DISCLOSING TOTAL INCOME OF RS. 9 34 8 0 539/-. THE RETURN WAS ITA 3154(DEL)/2010 2 PROCESSED U/S 143(1) OF THE INCOME-TAX ACT 1961 ( THE ACT FOR SHORT) AND THEREAFTER IT WAS TAKEN UP FOR SCRUTINY BY SE RVING NOTICE U/S 143(2) ON THE ASSESSEE ON 25.07.2008. IN THE COURSE OF A SSESSMENT IT WAS INTER-ALIA FOUND THAT THE ASSESSEE HAD UNDERTAKEN A LARGE NUMBER OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES WHICH HAVE BEEN LI STED IN A TABULAR FORM ON PAGE NO. 5 OF THE ASSESSMENT ORDER. THE TABLE SHO WS THAT THE ASSESSEE UNDERTOOK TRANSACTIONS IN SHARES OF 19 COMPANIE S. IN EACH SCRIP THERE WERE A NUMBER OF TRANSACTIONS. THE SUMMARY OF T HE NUMBER OF TRANSACTIONS IN SIX SCRIPS HAS BEEN FURNISHED ON PAGE 6 OF THE ASSESSMENT ORDER. AFTER CONSIDERING VARIOUS SUBMISSIONS IT HAS BEEN HELD THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS. TH E BUSINESS INCOME FROM THE TRANSACTIONS HAS BEEN ESTIMATED AT RS. 7 90 34 8 91/-. 2.1 AGGRIEVED BY THIS ORDER THE ASSESSEE MOVED AN APPEAL BEFORE THE LD. CIT(APPEALS). AFTER CONSIDERING THE ASSESSMENT OR DER AND THE SUBMISSIONS MADE BEFORE HIM IT HAS BEEN HELD THAT THE TRANSA CTIONS RESULTED IN STCG AND NOT BUSINESS PROFITS. ACCORDINGLY THE ORDER OF THE AO HAS BEEN REVERSED. ITA 3154(DEL)/2010 3 3. BEFORE US THE LD. CIT DR REFERRED TO PAGE NO. 4 OF THE ASSESSMENT ORDER WHEREIN THE BROAD PROPOSITIONS LAID DOWN IN BOARD CIRCULAR NO. 4/2007 HAVE BEEN SUMMARIZED. THE GIST IS THAT THE NATURE OF THE INCOME HAS TO BE DECIDED BY EXAMINING THE FOLLOWING F ACTORS:- (I) SUBSTANTIAL NATURE OF THE TRANSACTIONS; (II) MAGNITUDE OF PURCHASES AND SALES; (III) RATIO BETWEEN PURCHASES AND SALES AND HOLDINGS; (IV) WHETHER PURCHASE AND SALE OF SHARES IS WITH THE MO TIVE OF EARNING PROFIT OR EARNING DIVIDEND; (V) MANNER OF MAINTENANCE OF BOOKS OF ACCOUNT; AND (VI) TREATMENT OF SHARE-HOLDING AS STOCK-IN-TRADE OR O THERWISE. 3.1 THEREAFTER HE REFERRED TO PAGE NO. 17 OF TH E IMPUGNED ORDER WHERE IT IS MENTIONED THAT DURING THE YEAR THE ASSESS EE HAD DEALT IN 47 SCRIPS. THE BULK OF PROFIT OF RS. 7 31 57 694/- ACCRUED O N ACCOUNT OF SALE OF BONUS SHARES OF UNITECH LTD. WHICH WERE ALLOTTED IN THE CURRENT YEAR ON THE BASIS OF INVESTMENT MADE IN AN EARLIER YEAR. THE ASSE SSEE HAD PURCHASED 5000 EQUITY SHARES OF THIS COMPANY ON 06.09.2005. OUT OF THIS LOT THE ASSESSEE SOLD 2000 EQUITY SHARES IN DECEMBER 2005. THE RESULTING CAPITAL GAIN WAS ASSESSED AS STCG. IN LIEU OF BALANCE 3000 EQUITY SHARES OF FACE ITA 3154(DEL)/2010 4 VALUE OF RS. 10/- EACH THE ASSESSEE WAS ALLOTTED 15000 EQUITY SHARES OF THE FACE VALUE OF RS. 2/- EACH. UNITECH LTD. ALSO ALLOTTED 1 80 000 BONUS SHARES ON 15 000 EQUITY SHARES. FINALLY A FINDI NG IS RECORDED THAT THE AO COULD NOT HAVE TREATED GAIN ON SALE OF BONUS SH ARES AS BUSINESS INCOME IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MADAN GOPAL RADHY SHYAM 73 ITR 652. IT IS ARGUED BY THE LD. DR THAT THE RELIANCE PLACED ON THE AFORESAID DECISION IS MISPL ACED. 3.2 OUR ATTENTION HAS ALSO BEEN DRAWN TO PAGE NO. 27 OF THE PAPER BOOK BEING COMPUTATION OF TOTAL INCOME FOR THIS YEAR. THE COMPUTATION SHOWS THE GROSS TOTAL INCOME OF RS. 9 35 80 539/- WH ICH CONSISTS OF STCG OF RS. 8 78 16 545/-. IT IS ARGUED THAT TRANSACTION S IN SHARES DO NOT CONSTITUTE PERIPHERAL ACTIVITY BUT THE MAIN ACTIVITY OF THE ASSESSEE. HE IS CARRYING ON THE BUSINESS AS PROPRIETOR OF M/S VARIETY BOOK DEPOT THE PROFIT FROM WHICH IS ONLY RS. 39 34 648/-. THIS AMOUNT IS LE SS THAN 20% OF THE STCG. OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS PAGE NO. 40 OF THE PAPER BOOK BEING COMPUTATION OF TOTAL INCOME FOR ASSESSMENT YEAR 2005- 06. THE COMPUTATION SHOWS GROSS TOTAL INCOME OF RS. 2 17 26 901/- AND THIS AMOUNT INTER-ALIA INCLUDES PROFIT FROM M/S VARIETY BOOK DEPOT OF RS. 3 42 146/- AND STCG OF RS. 2 01 51 090/-. THUS IN THAT YEAR ALSO THE ITA 3154(DEL)/2010 5 SUBSTANTIAL ACTIVITY OF THE ASSESSEE WAS IN RESPE CT OF SHARE-TRANSACTIONS. SIMILAR POSITION OBTAINED IN ASSESSMENT YEAR 200 6-07 IN WHICH BUSINESS PROFITS FROM M/S VARIETY BOOK DEPOT AMOUNTED TO R S. 4 03 907/- AND STCG AMOUNTED TO RS. 2 32 33 691/-. THUS THE AS SESSEE HAS BEEN SYSTEMATICALLY INDULGING IN SHARE TRANSACTIONS L EADING TO SUBSTANTIAL PROFITS YEAR AFTER YEAR. 3.3 OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS T HE BALANCE-SHEET OF THIS YEAR WHICH SHOWS DEBIT OF RS. 90 68 293/- IN THE CAPITAL ACCOUNT OF M/S VARIETY BOOK DEPOT AND SUNDRY CREDITORS OF ABOUT RS. 21.22 CRORE. ON THE BASIS OF THESE FACTS THE ARGUMENT IS THAT EVEN WITHDRAWALS HAVE BEEN MADE FROM THE BUSINESS ACCOUNTS OF M/S VARIETY B OOK DEPOT FOR INVESTMENT IN SHARES. ACCORDINGLY IT IS ARGUED THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS AND THEREFORE THE PROF IT OF RS. 8 78 16 545/- IS TAXABLE AS BUSINESS INCOME. 4. IN REPLY THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAS BEEN CONDUCTING THE BUSINESS AS PROPRIETOR OF M/S VARIETY BOOK DEPOT. THE TURNOVER IN THIS BUSINESS AMOUNTED TO ABOUT RS . 20.13 CRORE IN THIS YEAR. THE ASSESSEE HAS ALSO BEEN INVESTING SMALL AMOUNTS IN SHARES. ITA 3154(DEL)/2010 6 THE SHARES ARE HELD AS INVESTMENTS. THE ASS ESSEE EARNED PROFIT OF ABOUT RS. 8.00 CRORE ON SALE OF SHARES IN THIS YEAR. AFTER ALLOWING DEDUCTION OF CERTAIN AMOUNT AS EXPENDITURE THE AO HAS CALCULATED PROFIT ON THE TRANSACTION AT RS. 7 31 57 694/-. THIS AM OUNT HAS BEEN TAXED AS BUSINESS INCOME. THE BULK OF PROFIT IS ON SALE O F BONUS SHARES OF UNITECH LTD. THE ASSESSEE HAD BEEN HOLDING 15000 SHAR ES IN THIS COMPANY IN RESPECT OF WHICH 1 80 000 BONUS SHARES WERE AL LOTTED IN THIS YEAR. ALL THE SHARES WERE SOLD IN THIS VERY YEAR. THE AO ACCEPTED THAT GAIN ON ORIGINAL HOLDING OF 15000 SHARES AMOUNTED TO LTC G. HOWEVER PROFIT ON SALE OF 1 80 000 BONUS SHARES HAS BEEN HELD AS BUSI NESS INCOME. THE CONDUCT OF THE ASSESSEE WILL SHOW THAT SHARES HAD BEEN HELD AS INVESTMENT. 4.1 IT IS FURTHER SUBMITTED THAT THE ASSESSEE EMPLOYED HIS OWN FUNDS IN ACQUISITION OF THE SHARES WHICH WILL BE SEEN FRO M THE BALANCE-SHEET AS ON 31.03.2006 PLACED ON PAGE NO. 45 OF THE PAPER BOO K. THIS IS ALSO CLEAR FROM THE BALANCE-SHEET AS ON 31.03.2007 PLACED ON PAGE NO. 46 OF THE PAPER BOOK. BOTH THE BALANCE-SHEETS SHOW SHARES AS INVESTMENTS AT RS. 8 96 21 300/- AND RS. 8 64 36 906/- RESPECTIVELY. ITA 3154(DEL)/2010 7 4.2 IT IS ALSO SUBMITTED THAT NEITHER THE ASSES SEE NOR THE REVENUE TREATED THE TRANSACTIONS IN SHARES AS BUSINESS TRANSACTIONS IN PAST. IN THIS CONNECTION OUR ATTENTION HAS BEEN DRAWN TOWARDS THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1999-00 PASSED U/S 153A READ WITH SECTION 143(3) PASSED ON 30.03.2006 A COPY OF WHICH HAS BEEN PLA CED IN THE PAPER BOOK AT PAGE NOS. 51 TO 68. IN THIS ORDER SHORT-TER M AND LONG-TERM CAPITAL GAINS HAVE BEEN WORKED OUT AT RS. 33 334/- AND R S. 16 320/- RESPECTIVELY AS DECLARED BY THE ASSESSEE. IT WILL BE ALSO OF INTEREST TO REFER TO PARAGRAPH NO. 13.4 OF THE ORDER WHICH DEALS WITH RECEIPTS OF FOUR SUMS AGGREGATING TO RS. 76 04 946/- FROM QUANTUM SEC URITIES (P) LTD. STATED TO BE THE SALE PROCEEDS OF THE SHARES IN RESPECT OF WHICH SHORT-TERM AND LONG-TERM CAPITAL GAINS WERE COMPUTED. THESE AM OUNTS COULD NOT BE RELATED TO THE SALE OF SHARES AND THEREFORE THE SAME WERE ADDED TO THE TOTAL INCOME U/S 69A OF THE ACT. OUR ATTENTION H AS ALSO BEEN DRAWN TOWARDS ASSESSMENT ORDER FOR ASSESSMENT YEAR 20 05-06 IN WHICH THE RETURNED INCOME OF RS. 2 17 14 901/- WAS ACCEPTE D. THE LD. COUNSEL HAS ALSO FILED A COPY OF THE ORDER FOR ASSESSMENT YE AR 2008-09 DATED 27.12.2010 IN WHICH INCOME OF RS. 8 32 10 320/- H AS BEEN TAXED AS STCG. ITA 3154(DEL)/2010 8 4.3 IT IS ALSO SUBMITTED THAT ALL THE TRANSACTIO NS ARE DELIVERY BASED. 4.4 IN THE LIGHT OF THE AFORESAID FACTS IT IS ARGUED THAT THE SURPLUS FROM TRANSACTIONS OF THIS YEAR CAN BE TAXED ONLY AS STCG. 5. IN THE REJOINDER THE LD. CIT DR AGAIN REFER RED TO THE DETAILS OF THE TRANSACTIONS PLACED IN THE PAPER BOOK FROM PAGE N OS. 30 TO 32. THE DETAILS SHOW SCRIP-WISE PROFIT OR LOSS AND THE DETAILS OF TRANSACTIONS. IT IS ARGUED THAT LOOKING TO A HUGE NUMBER OF TRANSAC TIONS UNDERTAKEN BY THE ASSESSEE THE ACTIVITY ONLY CAN BE SAID TO BE IN THE NATURE OF BUSINESS. 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND ADMITTEDLY HE IS CARRYING ON THE BUSINESS OF MARK ETING AND DISTRIBUTION OF BOOKS AND MAGAZINES. HE HAS ALSO BEEN DERIVING INCOME FROM PURCHASE AND SALE OF SHARES. THE SURPLUS REALIZED FROM SUCH TRANSACTIONS HAS BEEN SHOWN AND TAXED ON CAPITAL ACCOUNT IN EARLIER Y EARS. IN ASSESSMENT YEAR 1999-00 THE ASSESSEE WAS NOT ABLE TO PROVE THA T THE TRANSACTIONS WERE OF SALE OF SHARES UNDERTAKEN THROUGH QUANTUM SECURIT IES (P) LTD. AND THEREFORE THE AMOUNT OF RS. 76 04 946/- WAS BROU GHT TO TAX U/S 69A. ITA 3154(DEL)/2010 9 HOWEVER THE FATE OF THIS ADDITION IS NOT KNOWN . FURTHER ADMITTEDLY THE MANAGEMENT PROFILE OF QUANTUM SECURITIES (P) LTD . SHOWS TWO NAMES THOSE OF THE ASSESSEE AND MR. NEERAJ DHAWAN. TH E ASSESSEE HAS BEEN DESCRIBED AS AN ACTIVE INVESTOR IN STOCK MARKET FOR OVER 30 YEARS AND POSSESSING ADEQUATE KNOWLEDGE OF STOCK MARKET O PERATIONS. HE IS HAVING MAJOR SHARE HOLDING IN THIS COMPANY. THEREFORE TH E ASSESSEE HAS SUBSTANTIAL EXPERIENCE AND KNOWLEDGE OF STOCK M ARKET OPERATIONS. ALL HIS TRANSACTIONS ARE CARRIED OUT THROUGH THE A FORESAID COMPANY FOR WHICH A RUNNING ACCOUNT IS MAINTAINED WITH IT. IN THIS YEAR THE ASSESSEE HAS SHOWN 48 TRANSACTIONS OF SALE OF SHARES OF VARIO US COMPANIES LEADING TO TAXABLE PROFIT OF RS. 8 78 16 545/-. THE MAJOR P ROFIT IS IN RESPECT OF THE SHARES OF UNITECH LIMITED. THE ASSESSEE HAD INI TIALLY PURCHASED 5000 SHARES ON 06.09.2005 OUT OF WHICH 2000 SHARES WERE SOLD IN DECEMBER 2005. THE BALANCE 3000 SHARES WERE SUB-DIVIDED INTO 15000 SHARES OF THE FACE VALUE OF RS. 2/- EACH. ON THESE SHA RES 1 80 000 BONUS SHARES WERE ALLOTTED. ALL THESE SHARES AGGREGATING TO 1 95 000 IN NUMBER WERE SOLD IN THIS YEAR. THE STCG HAS BEEN SHOWN AT RS. 7 31 57 694/- BUT LTCG HAS NOT BEEN SHOWN AS IT IS CLAIMED TO BE NO T TAXABLE. THE AO CONSIDERED THE TRANSACTION TO BE ON BUSINESS ACC OUNT AND COMPUTED PROFIT OF RS. 7 90 34 891/- AFTER ALLOWING THE DEDUCTIO N REPRESENTING 10% FROM ITA 3154(DEL)/2010 10 THE GROSS PROFIT OF RS. 8 78 16 545/- IN RESPECT OF PROBABLE EXPENDITURE ON ESTIMATED BASIS. THIS FINDING HAS BEEN REVERSED BY THE LD. CIT(APPEALS). THE QUESTION IS WHETHER SHARE TRANSACTIONS ARE O N CAPITAL ACCOUNT OR BUSINESS ACCOUNT? 6.1 WE MAY NOW EXAMINE THE CASES RELIED UPON BY THE RIVAL PARTIES. THE LD. DR RELIED ON THE DECISION OF LUCKNOW B ENCH OF THE TRIBUNAL IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT (2010) 124 ITD 71. AFTER CONSIDERING VARIOUS DECISIONS AND B OARD CIRCULAR IN THE MATTER THE FOLLOWING PRINCIPLES IN SO FAR AS WE ARE CO NCERNED HAVE BEEN CULLED OUT WHICH ARE NECESSARY TO ASCERTAIN WHETHER THE TRANSACTION IS ON CAPITAL OR BUSINESS ACCOUNT:- (I) THE INTENTION AT THE TIME OF PURCHASE HAS TO BE ASCERTAINED WHICH CAN BE GATHERED FROM TREATMENT GIVEN IN THE BOOK S OF ACCOUNT I.E. WHETHER THEY ARE SHOWN AS INVESTMENTS OR STOCK-IN-TRADE; (II) IT MAY BE EXAMINED WHETHER INVESTMENT IS MADE OU T OF BORROWED FUNDS AND INTEREST IS PAID THEREON; ITA 3154(DEL)/2010 11 (III) THE FREQUENCY OF PURCHASE AND SALE MAY BE EXAM INED AS HABITUAL DEALING WILL INDICATE INTENTION OF TR ADE. THE RATIO BETWEEN PURCHASE AND SALE AND THE HOLDINGS MAY ALSO FURNISH AN INDICATOR AS TO WHETHER THE ASSET IS HELD ON CAPITAL ACCOUNT OR STOCK-IN-TRADE; (IV) THE DURATION OF HOLDING MAY BE ASCERTAINED SO A S TO EXAMINE WHETHER THE INTENTION WAS TO HOLD ON TO THE ASS ETS FOR ENJOYING DIVIDEND AND APPRECIATION OR IT WAS TO EARN PRO FIT; (V) THE METHOD OF VALUATION IS ALSO AN INDICATOR. IF THE SHARES ARE VALUED AT COST THE INDICATION WOULD BE THAT T HEY ARE ON INVESTMENT ACCOUNT BUT IF THEY ARE VALUED ON CO ST OR MARKET PRICE WHICHEVER IS LESS IT WILL INDICATE THAT TH EY ARE HELD AS STOCK-IN-TRADE; (VI) THE CREDIT OF SALE PROCEEDS TO A PARTICULAR AC COUNT MAY NOT BE SUFFICIENT TO ARRIVE AT THE CONCLUSION WHETHER TH E SHARES WERE HELD ON INVESTMENT ACCOUNT OR AS STOCK-IN-TRADE AND ITA 3154(DEL)/2010 12 (VII) THE BOARD CIRCULAR NO. 4 OF 2007 DATED 15.06.2007 STATES THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADI NG AND OTHER FOR INVESTMENT PROVIDED SEPARATE ACCOUNTS ARE MAINT AINED HAVING DISTINCTIVE FEATURES AND NO INTERMINGLING TAKES PLACE BETWEEN THE TWO PORTFOLIOS. 6.2 FURTHER RELIANCE HAS BEEN PLACED ON THE DE CISION IN THE CASE OF HARSH & MEHTA VS. DY. CIT (2011) 43 SOT 322 (MUM .). THE ASSESSEE ADMITTEDLY DID NOT HAVE INFRASTRUCTURE TO CARRY ON SHARE TRADING ACTIVITY. HOWEVER SHE MADE INVESTMENTS OUT OF HER OWN FUND S. THE SHARES WERE HELD FOR A FEW DAYS ONLY FOR A FEW MONTHS IN SOME CASES BUT NOT EXCEEDING 200 DAYS IN ANY CASE. THE TRANSACTIONS WERE UNDERTAKEN THROUGH M/S T. LIMITED A RECOGNIZED STOCK BROKING CO MPANY AND A MEMBER OF BOMBAY STOCK EXCHANGE IN WHICH HER HUSBAND WAS A DIRECTOR. THE SUBMISSION OF THE ASSESSEE WAS THAT SHE HAS BEE N TREATED AS AN INVESTOR IN THE PRECEDING YEAR. THEREFORE SHE SHOULD BE TREATED AS AN INVESTOR IN THIS YEAR ALSO. THE TRIBUNAL MENTIONED THAT THE P RINCIPLE OF RES-JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS AND THE MATTER HAS TO BE EXAMINED INDEPENDENTLY IN EACH YEAR. THE FACT THAT SHARES WERE HELD FOR A SHORT PERIOD GAVE A CLEAR IMPRESSION THA T THERE WAS NO INVESTMENT ITA 3154(DEL)/2010 13 MOTIVE AND SHARES WERE PURCHASED FOR EARNING PRO FIT THEREFORE THE INCOME WAS TREATED AS BUSINESS INCOME. 6.3 RELIANCE HAS ALSO BEEN PLACED ON THE DECISIO N IN THE CASE OF SYNTHETIC FIBRE TRADING COMPANY VS. ACIT 2011-T IOL-179-ITAT- MUM. THE ASSESSEE WAS A PARTNERSHIP FIRM DEALI NG IN NYLON AND YARN. IT ENTERED INTO TRANSACTIONS OF PURCHASE AND SA LE OF SHARES ALONG WITH TRANSACTIONS IN FUTURES AND OPTIONS. MEAGER AMOU NT OF DIVIDEND WAS EARNED. THEREFORE THE AO HELD THAT SURPLUS REA LIZED ON SHARES HELD FOR LESS THAN 30 DAYS IS TO BE ASSESSED AS BUSINESS INCOME AND SURPLUS ON OTHER SHARES AS STCG. THE ASSESSEE PLEADED T HE RULE OF CONSISTENCY AS HE WAS TREATED AS AN INVESTOR IN THE EARLIER YEARS. THE TRIBUNAL HOWEVER HELD THAT THAT WOULD NOT STOP THE AO FROM EXAMI NING THE ISSUE AFRESH. THE PERIOD OF HOLDING WAS SHORT. THE ASSESSEE HA D ALSO ENTERED INTO FUTURES AND OPTIONS TRANSACTIONS SIMULTANEOUSLY. THERE WAS NO OTHER ACTIVITY CARRIED ON BY THE ASSESSEE. ALL THE RE CEIPTS WERE CREDITED TO PROFIT AND LOSS ACCOUNT IN WHICH OTHER EXPENSES WERE ALSO DEBITED. IT WAS HELD THAT THE ACTIVITY IN SHARE TRANSACTIONS W AS NOT OCCASIONAL AND IT WAS A REGULAR AND SYSTEMATIC ACTIVITY. THEREFORE THE SURPLUS REALIZED FROM IT WAS LIABLE TO BE TAXED AS BUSINESS PROFIT. WE MAY MENTION HERE THAT ITA 3154(DEL)/2010 14 FUTURE AND OPTION TRANSACTIONS WERE ALSO UNDERTA KEN WHICH IS NOT THE CASE HERE. 6.4 IN THE CASE OF SADHNA NABERA VS. ACIT 2010-T IOL-251-ITAT- MUM THE ASSESSEE WAS AN INDIVIDUAL AND SHE W AS A DIRECTOR IN A FEW COMPANIES. ALL THE COMPANIES WERE INVOLVED IN BUS INESS OF TRADING OF SHARES. THE ASSESSEE SHOWED SURPLUS REALIZED F ROM TRANSACTIONS IN SHARES AS STCG. THE AO TOOK THE VIEW THAT LOOKING T O FREQUENCY OF TRANSACTIONS THE SURPLUS IS ASSESSABLE AS BUSINE SS INCOME. THIS VIEW WAS AFFIRMED BY THE CIT(APPEALS). IT WAS PLEADED B EFORE THE TRIBUNAL THAT THE ASSESSEE IS A HIGH NET WORTH INDIVIDUAL AND SHE HAS UNDERTAKEN ONLY DELIVERY BASED TRANSACTIONS. IT WAS FOUND THAT MOST OF THE SHARES WERE HELD FOR A PERIOD RANGING BETWEEN 31 TO 90 DA YS IN RESPECT OF WHICH SURPLUS WAS REALIZED. THERE WAS NO SHARE HOLDING FOR MORE THAN SIX MONTHS IN WHICH GAINS WERE EARNED. THE MINIMUM PERIOD OF HOLDING WAS ONE DAY AND MAXIMUM WAS 180 DAYS. THEREFORE IT WAS HELD THAT PURCHASE OF SHARES AND SALE THEREOF AFTER A S HORT PERIOD DOES INDICATE THAT THERE WAS A MOTIVE TO EARN PROFIT IN A SHORT PERIOD. ITA 3154(DEL)/2010 15 6.5 THE CASE OF MADAN GOPAL RADHEY LAL (SUPRA) W AS ALSO DISTINGUISHED. IN THAT CASE BONUS SHARES WERE HELD AS STOCK-IN-TRADE WHICH WERE ALLOTTED TO THE ASSESSEE ON ORIGINAL H OLDING FROM TIME TO TIME. THESE BONUS SHARES WERE SOLD FROM TIME TO TIM E. THE TRIBUNAL HELD THAT THE TRANSACTIONS ARE IN THE NATURE OF BUSINESS. T HE HONBLE HIGH COURT HELD IN FAVOUR OF THE ASSESSEE. THE HONBLE SUPR EME COURT HELD THAT UNDER THE 1922 ACT ISSUE OF BONUS SHARES BY CA PITALIZATION OF ACCUMULATED PROFITS WAS NOT TREATED AS DISTRI BUTION OF DIVIDEND. IT IS SETTLED THAT BONUS SHARES ISSUED IN PROPORTION OF EQUITY SHARE HELD IN ABSENCE OF ANY EXPRESS PROVISION TO THE CONTRARY WERE LIABLE TO BE TREATED AS CAPITAL RECEIPT AND NOT INCOME. THE SHARES W ERE OBTAINED IN RESPECT OF STOCK-IN-TRADE. THE ACCRETION THERETO DID NOT BEC OME STOCK-IN-TRADE AS THE SHARES WERE RECEIVED AS CAPITAL. THUS ACCORDI NG TO THE LD. CIT DR A TRADER MAY ACQUIRE COMMODITY IN WHICH HE IS DE ALING AND THERE IS NO PRESUMPTION THAT EVERY ACQUISITION BY A DEALER IN A PARTICULAR COMMODITY IS ACQUISITION FOR THE PURPOSE OF BUSINESS. IN EACH CASE THE QUESTION IS TO BE DECIDED ON THE BASIS OF FACTS ON RECORD BY WA Y OF CONDUCT OF THE ACQUIRER AND HIS DEALING WITH THE COMMODITY. 7. AS AGAINST THE AFORESAID THE LD. COUNSEL REL IED ON THE DECISION OF CIT VS. ROHIT ANAND (2010) 235 CTR (DEL) 594. IN THIS CASE THE ITA 3154(DEL)/2010 16 HONBLE HIGH COURT APPROVED THE FINDING OF THE TR IBUNAL REPRODUCED BELOW:- 9. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND THE FINDINGS OF BOTH THE AUTHORITIES BELOW. THE ASSESSEE IN HIS INDIVIDUAL CARRIES ON BUSINESS OF JEWELLERY. APART FROM SAID BUSINESS THE ASSESSEE INVESTED IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT. THIS ITSELF MANIFEST THE INTENTION OF THE ASSESSEE AS TO WHETHER HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AND PROFIT OUT OF SUCH INVESTMENT. THE ASSESSING OFFICE R WAS GUIDED MORE BECAUSE OF THE TOTAL AMOUNT INVOLVED RATHER TH AN THE ACTUAL INTENTION AND THE WAY OF CARRYING ON SHARE TRANSACT ION. THERE IS NO DOUBT THAT EVEN A SINGLE TRANSACTION CAN BE IN THE NATURE OF TRADE BUT THE ASSESSEE HAS DEMONSTRATED THAT HIS INTENTION WA S NEVER TO TRADE IN SHARES. THE INTENTION IS MANIFESTED BY TREATMENT GIVEN TO SUCH INVESTMENT THAT THE INVESTMENT IS OUT OF OWN FUND A ND NOT BORROWED THAT THE INVESTMENT IS NOT ROTATED FREQUENTLY THAT THE TOTAL NUMBER OF TRANSACTIONS ARE VERY FEW THAT ALL THE SHARES PURC HASED ARE NOT SOLD AND RATHER HELD FOR QUITE NUMBER OF DAYS. IT IS TO BE NOTED THE INCOME TAX ACT ITSELF HAS PROVIDED THAT WHEN THE SHARES AR E HELD FOR A PERIOD OF ONE YEAR OR MORE WILL BE TREATED AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE THE HOLDING PERIOD T O TREAT SUCH ASSET A LONG TERM IS MORE THAN 36 MONTHS THUS EVEN AFTER HOLDING THE SHARES FOR MORE THAN 12 MONTHS AND SHOWING SUCH INT ENTION FROM THE CONDUCT THE ASSESSING OFFICER CANNOT REPLACE HIS O PINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK IN TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BUSINESS INC OME. IN ALL SUCH CASES THE INTENTION IS MANIFESTED BY THE ASSESSEE H IMSELF BY HIS CONDUCT AND OTHER RELEVANT FACTORS AS CONSIDERED BY THE LEARNED CIT(A). IT IS ALSO SEEN THAT THE SHARES WERE TREATE D AS INVESTMENT IN EARLIER YEAR AND WHICH FACT HAS BEEN ACCEPTED BY TH E ASSESSING OFFICER. THE ASSESSEE HAS ALSO EARNED HUGE DIVIDEND INCOME FROM SUCH SHARES. THE ASSESSING OFFICER MERELY BECAUSE O F THE TOTAL VOLUME OF TRANSACTION IS SUBSTANTIAL IS GUIDED TO HOLD THE INCOME AS BUSINESS INCOME. HOWEVER HE FAILED TO RECOGNIZE TH AT THE VOLUME OF TRANSACTION INCLUDES THE APPRECIATION IN SHARES ALS O AND SUCH APPRECIATION HAS BEEN OFFERED FOR TAX. IF VOLUME OF TRANSACTION IS THE CRITERIA WHAT IS TO BE EXAMINED IS HOW FREQUENTLY THE TRANSACTION IS DONE WHETHER THE TRANSACTION IS SETTLED IN THE COU RSE OF THE DAY OF TRADING ITSELF OR IN THE SETTLEMENT PERIOD ITSELF S O AS TO AVOID PAYMENT OF FULL PURCHASE PRICE. HERE THE ASSESSEE HAS BEEN HOLDING THE SHARES BY TAKING DELIVERY AND MAKING FULL PAYMENT FOR SUCH INVESTMENT. IN ITA 3154(DEL)/2010 17 SUCH CIRCUMSTANCES THE TRANSACTIONS ARE TO BE TREA TED AS GIVING RISE TO THE CAPITAL GAIN AND CANNOT BE BRANDED AS TRADIN G OF MAKING INVESTMENT SO AS TO DETERMINE WHETHER THE TRANSACTI ON WAS FOR DEALING IN SHARES OR MAKING INVESTMENT FOR EARNING DIVIDEND AND APPRECIATION FROM SUCH INVESTMENT. THE TOTAL NUMBER OF SHARES DEALT IN RESPECT OF LONG TERM PORTFOLIO IS ONLY 5. THIS C ANNOT BE CONSIDERED AS VOLUME TRANSACTION. THEREFORE THIS TRANSACTION IN SHARES CANNOT BE SAID TO BE WITH INTENTION TO DEAL IN SUCH SHARES . RATHER THE TRANSACTION WERE WITH INTENTION OF EARNING APPRECIA TION FROM SUCH SHARES. THEREFORE THE SAME ARE ASSESSABLE AS CAPIT AL GAIN AND NOT AS PROFITS AND GAINS OF BUSINESS. WE THEREFORE UP HOLD THE ORDERS OF THE LEARNED CIT(A). 7.1 FURTHER RELIANCE HAS BEEN PLACED ON THE DECI SION IN THE CASE OF JANAK S. RANGWALLA VS. ACIT (2007) 11 SOT 627 (MUM.). THE TRIBUNAL HELD THAT IT IS AN ESTABLISHED PRINCI PLE THAT THE INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE T RANSACTION AS A WHOLE HAS TO BE TAKEN INTO ACCOUNT AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. ALTHOUGH THE PRINCIP LE OF RES-JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS BUT IT IS ALSO JUDICIALLY ACCEPTED THAT UNLESS THERE IS A MATERIAL CHANGE IN FACT THE D ECISION EARLIER TAKEN SHOULD NOT BE UNSETTLED. COMING TO THE FACTS OF THE CASE IT WAS FOUND THAT THE ASSESSEE WAS HOLDING SHARES AS INVESTMENT F ROM YEAR TO YEAR. THE INVESTMENT WAS OF A LARGE MAGNITUDE. THE TRANSA CTIONS OF SALE AND PURCHASE WERE CONSIDERED AS STCG OR LTCG. THE RE WAS NO BASIS TO TREAT THE ASSESSEE AS A TRADER. ACCORDINGLY I T WAS HELD THAT THE SURPLUS HAS TO BE TAXED ON CAPITAL ACCOUNT. ITA 3154(DEL)/2010 18 7.2 IN THE CASE OF KUNVARJI NANJI KENIA VS. ADDIT IONAL CIT (2011) 43 SOT 35 (MUM.) THE FACTS ARE THAT THE AO NOTE D THAT THERE WERE NUMEROUS TRANSACTIONS ON A DAILY BASIS IN LARGE QUANTITY OF SHARES. THE PROFIT WAS SHOWN AS STCG. THE ASSESSEE HAD ALS O SHOWN LTCG OF RS. 36.79 LAKH. THE AO DID NOT DISPUTE THE COMPUTA TION OF INCOME AS LTCG. HOWEVER HE WAS OF THE VIEW THAT STCG HA S BEEN SHOWN UNDER THE WRONG HEAD. IT WAS SUBMITTED THAT HE HAD BEEN AN INVESTOR OVER A PERIOD OF 50 YEARS AND PROFITS ON SALE OF SHARES WERE OFFERED FOR TAXATION ON CAPITAL ACCOUNT. THE ASSESSEE HAD ALSO EARN ED SUBSTANTIAL DIVIDEND OVER A PERIOD OF TIME. THE INVESTMENT WAS MADE OUT OF OWN FUNDS. THE SHORT-TERM CAPITAL ASSET WAS ALSO HELD FOR 122 DAYS. THE TRIBUNAL HELD THAT THE OVERWHELMING POSITION WAS IN FAVOUR OF THE ASSESSEE ESPECIALLY BECAUSE HE HAD BEEN TAXED AS AN INVESTOR IN EARL IER YEARS. 7.3 IN THE CASE OF BOTHARA PEMRAJ MANAKCHAND VS. DY. CIT (2001) 13 TAXMAN.COM 177 (PUNE) THE ASSESSEE HAD SHOWN IN COME FROM PURCHASE AND SALE OF SHARES AS LTCG AND STCG. THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAD UNDERTAKEN THE ACTIVITY OF PURCHASE AND SALE IN A SYSTEMATIC MANNER AND THEREFORE THE PROFIT WA S BUSINESS INCOME. THE ITA 3154(DEL)/2010 19 TRIBUNAL OBSERVED THAT THE AO WAS MAINLY GUIDE D BY FREQUENCY OF TRANSACTIONS AND THAT THE ASSESSEE WAS RIDING HIGH IN THE BOOM PERIOD AND WANTED TO MAKE QUICK BUCKS. WHAT IS TO BE SEEN IS NOT THE MAGNITUDE OF THE TRANSACTIONS BUT THE INTENTION BEHIND THE TRANSACTIONS. THE ASSESSEE HAD BEEN HOLDING SHARES AS INVESTMENTS FROM YEAR TO YEAR. THE INVESTMENTS HAD BEEN MADE FROM OWN FUNDS. GENERALLY THE ASSE SSEE HELD SHARES FOR MORE THAN ONE YEAR. THEREFORE MERELY BECAUSE CERTAIN SHARES WERE HELD FOR LESS THAN ONE YEAR THAT WOULD NOT BE I NDICATIVE OF BUSINESS TRANSACTION. 8. AT THIS STAGE WE MAY EXAMINE THE FACTORS W HICH ARE IN FAVOUR OF THE ASSESSEE: (I) THE ASSESSEE HAS BEEN ASSESSED ALL THROUGH EXC EPT IN THIS YEAR IN THE CAPACITY OF INVESTOR IN SHARES; (II) INVESTMENT HAS BEEN MADE FROM OWN FUNDS; (III) THE ASSESSEE DOES NOT HAVE A SET UP TO DEAL IN SHARES; ITA 3154(DEL)/2010 20 (IV) THE TRANSACTIONS IN SHARES ARE NOT IN THE LINE O F BUSINESS OF MARKETING AND DISTRIBUTION OF BOOKS AND MAGAZINES AND (V) THE ASSESSEE HAS BEEN DESCRIBED AS AN ACTIVE I NVESTOR IN THE MARKET FOR OVER 30 YEARS IN HIS PROFILE AVAILAB LE ON WEBSITE OF QUANTUM SECURITIES (P) LTD. 8.1 WE MAY ALSO NOTE DOWN THE POINTS WHICH GO AG AINST THE CASE OF THE ASSESSEE: (I) THE ASSESSEE IS INTIMATELY CONNECTED WITH QUANT UM SECURITIES (P) LTD. A COMPANY DEALING IN STOCKS AND SHARES . HE HAS UNDERTAKEN ALL HIS TRANSACTIONS THROUGH THIS COMPA NY FOR WHICH A RUNNING ACCOUNT IS MAINTAINED AND THE WEBSITE O F THE COMPANY DESCRIBES HIM AS A MANAGERIAL PERSONNEL. THIS MEANS THAT THE ASSESSEE HAS EASY ACCESS TO THE NECESSARY INFRAST RUCTURE AVAILABLE WITH QUANTUM SECURITIES (P) LTD. FOR UNDERTAKING TRANSACTIONS IN SHARES; (II) THE BOOKS OF VARIETY BOOK DEPOT SHOW THE DEBIT B ALANCE OF ABOUT RS. 19.68 LAKH IN HIS ACCOUNT WHICH INDICATES TH AT BUSINESS FUNDS ITA 3154(DEL)/2010 21 OF THIS PROPRIETARY CONCERN HAVE BEEN USED FOR UN DERTAKING TRANSACTIONS IN SHARES; (III) ADMITTEDLY THE ASSESSEE HAS A LONG EXPERIENCE AND KNOWLEDGE OF EQUITY MARKET OPERATIONS A FACT EXPLOITED EVEN BY QUANTUM SECURITIES (P) LTD. IN ITS WEBSITE; (IV) THE ASSESSEE HAS UNDERTAKEN A LARGE NUMBER OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES WHICH SHOW THAT T HE TRANSACTIONS ARE UNDERTAKEN SYSTEMATICALLY WITH A VIEW TO EARN PROFIT; AND (V) EVEN THE BONUS SHARES OF UNITECH LTD. RECEIVED IN THIS YEAR WERE SOLD IN THIS VERY YEAR SHOWING THAT THE RE WAS NO INTENTION TO HOLD ON THEM AS INVESTMENT FOR ANY LENGTH OF TIME. 9. AS MENTIONED EARLIER THE BULK OF PROFIT IS O N SALE OF 15000 EQUITY SHARES AND 1 80 000 BONUS SHARES OF UNITECH LTD. THEREFORE IT BECOMES NECESSARY TO EXAMINE THE NATURE OF THESE HOLDING S. AS MENTIONED EARLIER THE ASSESSEE HAD PURCHASED 5000 SHARES OUT OF WHI CH 2000 SHARES WERE SOLD IN THE EARLIER YEAR. THE AO HAD ACCEPTED THAT THE SHARES WERE HELD ITA 3154(DEL)/2010 22 ON INVESTMENT ACCOUNT AS THE GAIN FROM SALE OF 2000 SHARES WAS TAXED UNDER THE HEAD CAPITAL GAINS. REMAINING 3000 SHARES WERE SUB-DIVIDED IN 15000 SHARES IN THIS YEAR. THE INFERENCE W OULD BE THAT 3000 SHARES SUB-DIVIDED INTO 15000 SHARES WERE ALSO HELD ON INVESTMENT ACCOUNT. IN RESPECT OF 15000 SUB-DIVIDED SHARES THE ASSESS EE RECEIVED 1 80 000 BONUS SHARES. BONUS SHARES CAN BE ISSUED ONLY O UT OF ACCUMULATED PROFIT IN THE FORM OF GENERAL RESERVE AVAILABLE WITH T HE ISSUING COMPANY. ISSUANCE OF SUCH SHARES DOES NOT ENHANCE THE V ALUE AS THE RESERVES OF THE ISSUING COMPANY GET REDUCED ON ISSUANCE OF BO NUS SHARES. THEREFORE THE NATURE OF BONUS SHARES HAS TO BE TAKEN AS SAME AS THE ORIGINAL SHARES. THIS VIEW FINDS SUPPORT FROM THE DECISION IN TH E CASE OF MADAN GOPAL RADHEY LAL (SUPRA). ACCORDINGLY IT HAS TO BE HE LD THAT THE ORIGINAL EQUITY SHARES AND THE BONUS SHARES WERE HELD ON INVE STMENT ACCOUNT. 10. THIS BRINGS US TO THE FINAL DETERMINATION OF T HE QUESTION. WE FIND THAT THE SHARES WERE TREATED AS INVESTMENTS INVESTM ENTS WERE MADE FROM OWN FUNDS A LARGE NUMBER OF TRANSACTIONS HAVE BEEN UNDERTAKEN BUT THE ASSESSEE DOES NOT HAVE HIS OWN INFRASTRUCTURE TO CARRY ON THE BUSINESS AND TRANSACTIONS ARE NOT IN THE LINE OF MARKETIN G AND DISTRIBUTION OF BOOKS AND MAGAZINES. IN SUCH A SITUATION EASY ACCESS TO THE INFRASTRUCTURE OF ITA 3154(DEL)/2010 23 QUANTUM SECURITIES (P) LTD. SHORT PERIOD OF HOL DING AVAILABILITY OF EXPERIENCE AND KNOWLEDGE AND UNDERTAKING LARGE NUMBER OF TRANSACTIONS DO NOT OVERRIDE THE ORIGINAL INTENTION OF INVESTM ENT IN SHARES. WE MAY MENTION HERE THAT NO SINGLE FACTOR IS DECISIVE IN COMING TO A CONCLUSION IN THE MATTER. SIMILARLY THE NUMBER OF POINTS FOR AND AGAINST ALSO CANNOT BY THEMSELVES CAN LEAD TO A PROPER INFERENCE. WHAT ONE HAS TO DO IS TO WEIGH EACH FACTOR VIS--VIS THE WEIGHT OF OTHER FACTORS. WE FIND THAT PRIOR AND SUBSEQUENT ACCEPTANCE OF THE ASSESSEE AS INVESTOR IN SHARES COUPLED WITH THE FACT THAT BULK OF PROFIT HAS BE EN EARNED FROM SALE OF BONUS SHARES OF UNITECH LTD. WHICH ARE TAKEN AS INVESTMENT BECAUSE OF THE HISTORY OF THE CASE OUT WEIGH OTHER FACTORS. A CCORDINGLY IT IS HELD THAT THE LD. CIT(A) WAS RIGHT IN HOLDING THAT SURPLUS REA LIZED ON SALE OF SHARES IS TAXABLE UNDER THE HEAD CAPITAL GAINS. 11. IN THE RESULT THE APPEAL IS DISMISSED. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA 18/11/2011. COPY OF THE ORDER FORWARDED TO:- 1. SHRI OM PRAKASH ARORA NEW DELHI. 2. ACIT CIRCLE 32(1) NEW DELHI. 3. CIT 4. CIT(A) 5. THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.