Shri Arunbhai J.Patwa, Baroda v. The Income tax Officer,Ward-2(2),, Baroda

ITA 3191/AHD/2008 | 2004-2005
Pronouncement Date: 10-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 319120514 RSA 2008
Assessee PAN ACWPP0831G
Bench Ahmedabad
Appeal Number ITA 3191/AHD/2008
Duration Of Justice 2 year(s) 6 month(s)
Appellant Shri Arunbhai J.Patwa, Baroda
Respondent The Income tax Officer,Ward-2(2),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 10-03-2011
Date Of Final Hearing 04-03-2011
Next Hearing Date 04-03-2011
Assessment Year 2004-2005
Appeal Filed On 10-09-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.3191/AHD/2008 A. Y.: 2004-05 SHRI ARUNBHAI J. PATWA TRIPTI NR. MILAN SOCIETY B/H BOMBAY SHOPPING CENTRE RACE COURSE BARODA VS THE INCOME TAX OFFICER WARD- 2(2) G. F. B. BUILDING RACE COURSE BARODA PA NO. ACWPP 0831 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. DIVETIA AR RESPONDENT BY SHRI R.K. DHANISTA DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-II BA RODA DATED 16 TH JUNE 2008 FOR ASSESSMENT YEAR 2004-05. 2. ACCORDING TO OFFICE THE APPEAL IS TIME BARRED BY TWO DAYS. THE ASSESSEE FILED AFFIDAVIT EXPLAINING THE REASONS FOR NOMINAL DELAY. THE LEARNED DR HAS NO OBJECTION IF THE DELAY IS CONDONE D. CONSIDERING THE EXPLANATION OF THE ASSESSEE THAT THERE IS A NOM INAL DELAY ONLY IN PREFERRING THE APPEAL AND FURTHER THE LEARNED DR HA S NO OBJECTION IF THE DELAY IS CONDONED THE DELAY WAS CONDONED VIDE ORDER DATED 07- 01-2011. ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 2 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIALS AVAILABLE ON RECORD. 4. ON GROUND NO.1 THE ASSESSEE CHALLENGED THE ADD ITION OF RS.4 15 000/- BEING CASH DEPOSITS WITH BANK ACCOUNT . 5. BRIEFLY THE FACTS OF THE CASE ON THIS GROUND AR E THAT THE AO MADE ADDITION OF RS.4 15 000/- BEING UNEXPLAINED CA SH DEPOSITS IN THE BANK ACCOUNT OF THE ASSESSEE MADE FROM 1-1-2004 TO 4-2-2004 ON DIFFERENT DATES AS NOTED IN THE ASSESSMENT ORDER AT PAGE 2. THE ISSUE HAS BEEN DEALT IN DETAILS IN THE ASSESSMENT O RDER FROM PAGE 2 TO 6. THE AO AFTER ANALYZING THE DETAILS ASKED FROM THE ASSESSEE TO GIVE COMPLETE DETAILS AND TO CLARIFY THE POSITION F OR CONTINUOUS WITHDRAWAL ONLY OF CASH WITHOUT MAKING ANY CASH DEP OSITS. SUBSEQUENTLY THE ASSESSEE DEPOSITED ONLY CASH WITH OUT MAKING ANY WITHDRAWALS. THE AO ALSO ASKED THE ASSESSEE TO GIVE PURPOSE AND REASON FOR MAKING TRANSACTIONS IN THIS MANNER. THE AO AFTER ANALYZING VARIOUS DETAILS AND STATEMENT OF THE ASSE SSEE CONCLUDED THAT THE ASSESSEES CLAIM HAS NOT BEEN SUBSTANTIATE D BY ANY DOCUMENTARY EVIDENCES. THE AO STATED THAT ON VERIFI CATION OF BANK ACCOUNTS IT IS SEEN THAT ON VARIOUS DATES FROM APR IL 2003 TO DECEMBER 2003 AND IN MARCH 2004 THE ASSESSEE HAS C ONTINUOUSLY WITHDRAWN HUGE AMOUNT IN CASH. NO DEPOSITS WERE MAD E DURING THIS PERIOD. THE AO FURTHER FOUND THAT ON VARIOUS DATES FROM JANUARY 2004 TO FEBRUARY 2004 THE ASSESSEE HAS CONTINUOUSL Y MADE CASH DEPOSITS IN HIS ACCOUNT AND DURING THIS PERIOD THE ASSESSEE HAS NOT ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 3 WITHDRAWN ANY AMOUNT. THE AO STATED THAT THE PURPO SE OR REASON FOR WITHDRAWING AND DEPOSITING SUCH HUGE CASH WAS NOT E XPLAINED BY THE ASSESSEE. AS PER ASSESSEES OWN ADMISSION THE WITHD RAWAL WAS MADE FOR EXPENDITURE ON HIS SISTERS VISIT TO INDIA AND MAJOR REPAIRS OF HIS HOUSE. THE AO STATED THAT THIS IS COMMON FACT T HAT THIS TYPE OF HUGE WITHDRAWAL FROM BANK ACCOUNT IS MADE FOR SPECI FIC PURPOSE AND REASON WHICH ACCORDING TO THE ASSESSEE WERE VISIT O F HIS SISTER AND MAJOR REPAIRS OF HIS HOUSE. WHEN THE CASH WITHDRAWA L IS UTILIZED FOR THE PURPOSE IT WAS WITHDRAWN THAN THERE IS NO QUEST ION OF ANY CASH BALANCE REMAINING WITH THE ASSESSEE. THE AO FURTHER STATED ON VERIFICATION OF BANK THAT CASH DEPOSITS WERE MADE O N THE SAME DAY WHEN THERE WERE CLEARING CHEQUES TO BE DEBITED. THE AO STATED THAT CLAIM OF THE ASSESSEE THAT HE HAS DEPOSITED RS.4 15 000/- ON VARIOUS DATES IN HIS BANK ACCOUNT OUT OF WITHDRAWALS MADE I N THE MONTH OF OCTOBER 2003 TO DECEMBER 2003 IS NOT FOUND TO BE CO RRECT. THE AO HELD THAT CASH DEPOSIT OF RS.4 15 000/- AS UNEXPLAI NED AND UNACCOUNTED INCOME OF THE ASSESSEE AND THE SAME HAS BEEN TO BE RETURNED TO INCOME U/S 68 OF THE IT ACT. 6. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND IT WAS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESS EE THAT ASSESSEES SISTER AND OTHER RELATIVES WERE USUALLY VISITING INDIA AND AS PER TRADITION ASSESSEE ALWAYS KEEP MONEY WITH H IM JUST TO ACCOMMODATE THEM AND TO HELP THEM FOR THEIR EXPENSE S. AS THEY DID NOT REQUIRE THE MONEY THE AMOUNT WAS LYING WITH THE ASSESSEE AND WAS RE-DEPOSITED IN THE BANK. THE ASSESSEE HAS WITH DRAWN ABOUT RS.7 85 000/- FROM HIS BANK ACCOUNT AS CASH WITHDRA WAL AGAINST ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 4 WHICH HE HAS DEPOSITED RS.4 15 000/- ONLY TO HIS BA NK ACCOUNT. THE BALANCE AMOUNT I.E. OF RS.3 70 000/- WAS SPENT BY H IM FOR THE PURPOSE OF HOUSE REPAIRING AND FOR HIS REGULAR HOUS EHOLD EXPENSES. THERE ARE FOUR MEMBERS IN THE FAMILY AND HIS DAUGHT ER-IN-LAW SMT. KAMLABEN HAD ALSO WITHDRAWN FOR HOUSEHOLD EXPENSES OF RS.2 90 000/-. THUS THERE WAS SUFFICIENT WITHDRAWA L FOR HOUSEHOLD. THE ASSESSEE IS A RETIRED PERSON AND HAVING NO OTHE R SOURCES OF INCOME FROM WHICH HE COULD MAKE SUCH HUGE AMOUNT WI TH HIS BANK ACCOUNT. THE LEARNED CIT(A) CONSIDERING THE EXPLANA TION OF THE ASSESSEE CONFIRMED THE ADDITION AND DISMISSED THE A PPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 2.3 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. THE DETAILED FACTS MENTIONED BY THE ASSESSING OFFICER CLEARLY POINT TO ONE QUESTION AS TO WHY APPELLANT WITHDREW CASH ON CONTINUOUS BASIS WHEN HE DID NOT USE THE FUND? OBVIOUSLY THE FUNDS WERE WITHDRAW N FROM THE BANK FOR THE SPECIFIC USE AS MENTIONED BY THE APPELLANT. HAVING USED THOSE FUNDS FOR THE PURPOSE FOR WHICH WITHDRAWALS WAS MADE THE SAME CANNOT BE USED IN MAKING DEPOSITS AFTER FEW MONTHS. APPELLANT COUL D NOT FURNISH ANY EVIDENCE OR MATERIAL OR DOCUMENT TO PRO VE THAT THE AMOUNT WITHDRAWN FOR SPECIFIC PURPOSES WER E NOT REQUIRED OR NOT USED WITH COGENT REASONS. ANOTHER IMPORTANT ASPECT IS THAT CASH DEPOSIT IS MADE ONLY ON THE DATES WHEN THE CHEQUES WERE TO BE CLEARED. I FULLY AGREE WITH THE ASSESSING OFFICER THAT APPELLANT WITHDREW CASH FROM APRIL 2003 TO DECEMBER 2003 FOR SOME PURPOSE. WHEN APPELLANT WAS ALREADY HAVING MORE THAN RS.5 LA CS CASH UP TO OCTOBER 2003 AND THE SAME WAS NOT SPENT THAN WHAT WAS THE NECESSITY FOR WITHDRAWING CASH IN DECEMBER 2003 IN VARIOUS INSTALLMENTS. THE LOGICAL CONCLUSION IS THAT APPELLANT HAD ALREADY USED THE C ASH ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 5 WITHDRAWAL EARLIER AND THEREFORE FURTHER WITHDRAWA LS WERE MADE. IF THE CASH WAS ALREADY USED THE SAME CANNOT BE SHOWN TO HAVE BEEN USED FOR CASH DEPOSITS. ACCORDIN GLY I AGREE WITH THE ASSESSING OFFICER THAT SOURCE OF C ASH DEPOSIT IS NOT EXPLAINED BY THE APPELLANT AND HENCE THE ADDITION MADE BY HIM IS CONFIRMED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE DEPOSITS HAVE BEEN MADE OUT OF THE WITHDRAWALS MADE FROM THE BANK ACCOUNT. HE HAS SUBMITTED THAT EVEN FOR SOME O F THE WITHDRAWALS OF THE CASH THERE IS PROXIMITY FOR RE-D EPOSITS. THEREFORE ADDITION IS UNJUSTIFIED. THE LEARNED COUNSEL FOR TH E ASSESSEE FILED COPY OF THE BANK ACCOUNT AND TRIED TO DEMONSTRATE T HAT THE FINDINGS OF THE AUTHORITIES BELOW ARE INCORRECT THAT CASH DEPOS ITS WERE MADE ON THE SAME DAY AND THERE WAS CLEARING CHEQUES TO BE D EBITED. HE HAS SUBMITTED THAT WHENEVER CHEQUES HAVE BEEN CLEARED T HERE WAS SUFFICIENT CASH BALANCE AVAILABLE IN THE BANK ACCOU NT AND REFERRED TO THE ENTRIES OF THE CLEARING OF THE CHEQUES FROM THE BANK ACCOUNT DATED 29-11-2003 12-01-2004 AND 31-01-2004. 8. ON THE OTHER HAND THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE FACTS NOTED HAVE NOT BEEN DISPUTED BY THE PARTIES. THE ENTRIES IN THE BANK ACCOUNT HAVE BEEN CONSIDERED BY THE AO FOR THE PURPOSE OF MAKING THE ADDITION ARE REPRO DUCED AT PAGE 2 OF THE ASSESSMENT ORDER. THE AO NOTED THAT THE ASSE SSEE HAS MADE WITHDRAWALS FROM THE BANK ACCOUNT FROM 17-4-2003 TO 29-12-2003 IN ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 6 A SUM OF RS.7 85 000/- (ACTUAL RS.7 15 000/-) AND T HEREAFTER THE ASSESSEE MADE CASH DEPOSITS CONTINUOUSLY IN THE BAN K ACCOUNT OF RS.4 15 000/- ON DIFFERENT DATES FROM 1-1-2004 TO 4 -2-2004. NO DEPOSIT HAS BEEN MADE WHEN THE CASH WAS WITHDRAWN. THE STATEMENT OF THE ASSESSEE WAS RECORDED U/S 131 OF T HE IT ACT ON 14-12-2006 COPY OF WHICH IS FILED AT PAGE 8 TO 11 O F THE PAPER BOOK AND EXPLANATION OF THE ASSESSEE WAS SOUGHT WITH REG ARD TO THE WITHDRAWALS AND CASH DEPOSITS IN QUESTION. THE AO A SKED SPECIFIC QUESTION WITH REGARD TO WITHDRAWAL MADE ON 17-4-200 3 AND THE PURPOSE FOR THE WITHDRAWAL OR WHETHER THE AMOUNT WA S KEPT OR MADE EXPENDITURE BUT IN REPLY THE ASSESSEE WAS NOT KNOW ING ANYTHING ABOUT THAT EVENT. THE ASSESSEE WAS FURTHER ASKED SP ECIFIC QUESTION IN HIS STATEMENT WHETHER HE AGREED THAT ANY PERSON WIT HDRAWS CASH FROM BANK ACCOUNT WHENEVER IT IS REQUIRED FOR SOME PURPOSE TO WHICH THE ASSESSEE AGREED TO THE QUESTION OF THE AO. FURT HER EXPLANATION WAS ASKED FOR ABOUT THE WITHDRAWAL OF THE MONEY ON 23-4-2003 12-9-2003 22-9-2003 AND 25-9-2003 AND THE ASSESSEE EXPLAINED THE PURPOSE OF THE WITHDRAWALS FROM THE BANK THAT HIS T WO SISTERS LIVING ABROAD CAME TO INDIA THEREFORE FOR THEIR EXPENSES AMOUNTS WERE WITHDRAWN. IT WAS ALSO EXPLAINED THAT AMOUNTS WERE WITHDRAWN FOR REPAIR OF HIS HOUSE AS WELL. THE AO THEREAFTER ASKE D SPECIFIC QUESTION FOR THE PURPOSE OF WITHDRAWAL IN THE MONTH OF OCTOB ER 2003 IN A SUM OF RS.2 75 000/- ON DIFFERENT DATES AND THE ASSESSE E EXPLAINED THAT AMOUNTS WERE WITHDRAWN FOR EXPENDITURE TOWARDS HIS SISTERS AND FOR MAJOR REPAIR WORK CARRIED OUT IN HIS HOUSE. FURTHER QUESTION WAS ASKED ABOUT THE WITHDRAWAL MADE ON VARIOUS DATES IN THE MONTH OF DECEMBER 2003 IN A SUM OF RS.2 20 000/- AND THE AS SESSEE GAVE ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 7 THE SAME REPLY. THUS IT IS ADMISSION OF THE ASSESS EE IN HIS STATEMENT RECORDED ON OATH THAT ALL THE AMOUNTS WITHDRAWN FRO M APRIL 2003 TO DECEMBER 2003 ON VARIOUS DATES WERE WITHDRAWN FOR THE PURPOSE OF MEETING OUT EXPENDITURE OF HIS SISTERS WHO CAME TO INDIA AND MAJOR REPAIRING WORK CARRIED OUT IN THE HOUSE OF THE ASSE SSEE. THE ASSESSEE ALSO AGREED THAT WHENEVER A PERSON IS IN N EED OF MONEY AS PER HIS REQUIREMENT THE WITHDRAWALS ARE MADE FROM THE BANK ACCOUNT. THE ABOVE FACTS WOULD SHOW THAT THE AMOUNT S WERE WITHDRAWN IN CASH ON DIFFERENT DATES FROM THE BANK ACCOUNT OF THE ASSESSEE FOR SPECIFIC PURPOSES FOR MEETING OUT THE EXPENDITURE OF HIS SISTERS AND MAJOR REPAIR WORK CARRIED OUT IN THE HO USE OF THE ASSESSEE. THEREFORE IT IS CLEAR THAT THE CASH WITH DRAWN WAS UTILIZED FOR THAT PURPOSE AND THERE WAS NO QUESTION OF REMAI NING ANY CASH WITH THE ASSESSEE THEREAFTER. THE STATEMENT OF THE ASSESSEE FURTHER SHOWS THAT THE AO CALLED FOR THE EXPLANATION OF THE ASSESSEE WITH REGARD TO THE DEPOSITS MADE IN THE SAME BANK ACCOUN T ON DIFFERENT DATES FROM 1-1-2004 TO 4-2-2004 IN A SUM OF RS.4 15 000/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCES OF THE DE POSIT OF RS.4 15 000/- ON 9 DATES BUT THE ASSESSEE WAS UNABL E TO GIVE ANY SPECIFIC REPLY AND THE ASSESSEE MERELY STATED THAT THERE MIGHT HAVE BEEN SOME BALANCE WITH HIM FOR MAKING THE DEPOSIT. THE ASSESSEE FURTHER CHANGED HIS STATEMENT WHEN THE AO ASKED AS TO WHEN BALANCE WAS THERE WHY IT WAS NOT DEPOSITED THAT TI ME ITSELF TO WHICH THE ASSESSEE EXPLAINED THAT I MIGHT HAVE GIVEN THE AMOUNT TO MY SISTERS. WITH REGARD TO THE DEPOSITS MADE FROM 17- 1-2004 TO 4-2-2004 IN SUM OF RS.2 90 000/- ON DIFFERENT DATES AND THE SOURCES OF THE DEPOSIT THE ASSESSEE EXPLAINED THAT HE ACCE PTED CASH FROM ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 8 HIS SISTERS. THE ASSESSEE ADMITTED THAT THERE IS NO DOCUMENTARY EVIDENCE WITH HIM TO SUPPORT THE ABOVE CONTENTION A ND THE REPLY. THE STATEMENT OF THE ASSESSEE THUS CLEARLY SUPPORTS THE FINDING OF THE AO THAT THE ASSESSEE HAS NO EXPLANATION ABOUT ANY SOUR CE OF THE DEPOSITS MADE ON DIFFERENT DATES WHICH ARE UNDER CO NSIDERATION. NO EVIDENCE HAS BEEN PRODUCED ON RECORD TO SUPPORT THE CONTENTION. NOTHING WAS WITH THE ASSESSEE TO MAKE RE-DEPOSIT AS IS ADMITTED BY HIM. THE FACTS AND CIRCUMSTANCES NARRATED BY THE AO AND IN THE APPELLATE ORDER CLEARLY SUPPORT THE FINDINGS OF THE AUTHORITIES BELOW THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE SOURC E OF THE DEPOSIT OF RS.4 15 000/-. THUS THE LOGICAL CONCLUSION WOULD B E THAT THE ASSESSEE HAS ALREADY USED THE CASH WITHDRAWN EARLIE R AND MADE FURTHER WITHDRAWAL AND WHEN SUCH AMOUNTS HAVE BEEN USED FOR PERSONAL USE THERE IS NO QUESTION FOR GIVING ANY C ASH TO HIS SISTERS FOR THE PURPOSE OF RE-DEPOSIT. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE BANK ACCOUNT TO SHOW THAT FINDINGS OF THE AO ARE INCORRECT THAT CASH HAS BEEN DEPOSITED WHEN THERE W AS CLEARING OF CHEQUES. THE LEARNED COUNSEL FOR THE ASSESSEE REFER RED TO THE ENTRIES IN THE BANK ACCOUNT TO SHOW THAT SUCH FINDI NGS OF THE AO ARE INCORRECT BUT WE DO NOT FIND ANYTHING IN THE BANK A CCOUNT TO DISPUTE THE FINDINGS OF THE AO. THE CASH DEPOSITS HAVE BEEN MADE ON VARIOUS DATES FROM 1-1-2004 TO 4-2-2004 IN A SUM OF RS.4 15 000/- AND WHEN SUCH DATES ARE CONSIDERED FROM THE BANK AC COUNT IT IS CLEAR THAT WHENEVER THERE IS CLEARING OF CHEQUES SUCH CA SH HAVE BEEN DEPOSITED ON DIFFERENT DATES. THUS THE AUTHORITIES BELOW WERE JUSTIFIED IN HOLDING THAT WHENEVER THERE WAS CLEARI NG OF THE CHEQUES CASH HAVE BEEN DEPOSITED. THE REPLY OF THE ASSESSEE WAS NOT RIGHTLY ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 9 FOUND CONVINCING. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS DURGA PRASAD MORE 82 ITR 540 AND IN THE CASE OF SUM ATI DAYAL VS CIT 214 ITR 801 HAS HELD THAT THE COURTS AND TRIBUNAL SHALL HAVE TO JUDGE THE EVIDENCES BEFORE THEM BY CONSIDERING T HE SURROUNDING CIRCUMSTANCES BY APPLYING THE TEST OF H UMAN PROBABILITIES. WHEN THE ABOVE PRINCIPLE IS APPLIED TO THE FACTS OF THE CASE IT IS CLEAR THAT THE ASSESSEE FAILED TO E XPLAIN THE SOURCES OF THE CASH DEPOSITS ON VARIOUS DATES IN A SUM OF RS.4 15 000/-. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDE RS OF THE AUTHORITIES BELOW IN MAKING AND CONFIRMING THE ADDITION. THERE IS NO MERIT IN THIS GROUND OF APPEAL OF THE ASSESSEE. SAME IS ACCORDING LY DISMISSED. 10. ON GROUND NO.2 THE ASSESSEE CHALLENGED THE ORD ER OF THE LEARNED CIT(A) IN CONFIRMING THE TREATMENT OF SHORT TERM CAPITAL GAIN OF RS.4 38 204/- AS INCOME FROM BUSINESS AND PROFES SION. THE AO TREATED THE SHORT TERM CAPITAL GAIN AND LONG TERM C APITAL LOSS AS BUSINESS INCOME AND DISCUSSED THIS ISSUE IN PARA 8 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS DECLARED INCOME FROM SHORT TERM CAPITAL GAIN OF RS.4 38 204/- AND LONG TERM CA PITAL LOSS OF RS.5 659/-. THE AO OBSERVED FROM THE TRANSACTION TH AT THE ASSESSEE IS REGULARLY DOING THE BUSINESS OF SALE OF SHARES MUTUAL FUNDS ON LARGE SCALE. THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY THE ASSESSEE SHOULD NOT BE TREATED AS TRADER INSTEAD OF INVESTOR AND INCOME SHOULD NOT BE TREATED AS BUSINESS INCOME. TH E ASSESSEE RELIED ON HIS SHARE TRANSACTIONS AND STATED THAT HE IS NOT A REGULAR DEALER IN SHARES. TRADING ACTIVITY CAN BE SAID ONLY WHEN THE ASSESSEE REGULARLY MAKES TRADING OF SHARES AS IF OTHER BUSIN ESSMAN CARRYING ON ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 10 THE BUSINESS. THE ASSESSEE ALSO STATED THAT THERE I S A BIG SPAN IN PURCHASE AND SALES OF SHARES ALSO. THE AO STATED TH AT IT IS A REGULAR ACTIVITY OF THE ASSESSEE WHICH IS SUPPORTED BY SALE AND PURCHASE OF SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. DUR ING THE YEAR SALE CONSIDERATION OF SHARES OR SECURITIES IS SHOWN AT R S.35 33 297/-. THE AO HAS RELIED ON BOARD CIRCULAR NO.1827 AND HELD TH AT SALE PROCEEDS IN RESPECT OF ALL THE SHARE TRANSACTIONS RECEIVED B Y THE ASSESSEE IN THE YEAR UNDER CONSIDERATION IS TREATED AS BUSINESS INCOME AND NOT AS LONG TERM CAPITAL LOSS OR SHORT TERM CAPITAL GAIN. THE AO ALSO HELD THAT INSTEAD OF LONG TERM CAPITAL LOSS OF RS.5 659/ - THE LOSS FROM SALE OF SHARES WILL BE AT RS.2 398/-. INSTEAD OF SHORT T ERM CAPITAL GAIN PROFIT ON SALE OF SHARES AT RS.4 38 204/-. THEREFOR E TOTAL PROFIT FROM SALE OF SHARES DURING THE YEAR WAS WORKED OUT AT RS .4 35 806/-. IT WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT THERE WERE A FEW TRANSACTIONS IN THE MONTH OF APRIL 2003. THERE WER E NO SALE FROM SECOND WEEK OF APRIL TO JULY 2003. IN THE MONTH OF AUGUST 2003 THERE WERE HARDLY TWO TRANSACTIONS OF SHARES AND TH ERE WAS ONLY ONE TRANSACTION IN THE MONTH OF SEPTEMBER AND DECEMBER 2003. SIMILARLY THREE WAS NO TRANSACTION IN THE MONTH OF JANUARY AND FEBRUARY 2004. FROM THE SEQUENCE OF THE TRANSACTIO NS IT CAN BE SEEN THAT THE ASSESSEE IS NOT A REGULAR DEALER IN S HARES. THE ASSESSEE PURCHASED SHARES IN CERTAIN PERIOD AND WHE N THERE IS APPRECIATION SAME WERE SOLD. THERE WAS A BIG SPAN BETWEEN PURCHASE AND SALES OF THE SHARES AND THE ASSESSEE H AS ALSO SHOWN DIVIDEND INCOME. THE ASSESSEE HAS MADE INVESTMENT I N SHARES WITH CLEAR INTENTION TO GET APPRECIATION AND EARN DIVIDE ND. THE LEARNED CIT(A) NOTED THAT THE ASSESSEE IS ENGAGED IN NUMBER OF TRANSACTIONS ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 11 AND FREQUENCY AND OTHER ENTRIES MENTIONED BY THE AO LEADS TO BELIEVE THAT THE ASSESSEE WAS INVOLVED IN REGULAR A CTIVITY OF PURCHASE AND SALE OF SHARES HOWEVER THE TAX RATE FOR SHORT TERM CAPITAL GAIN AS WELL AS INCOME FOR THE YEAR UNDER APPEAL IS SAME AND WOULD NOT MAKE ANY DIFFERENCE WHETHER IT IS TREATED AS BUSINE SS INCOME OR SHORT TERM CAPITAL GAIN. THE LEARNED CIT(A) CONSIDERING T HE FINDINGS OF THE AO CONFIRMED THE ORDER OF THE AO TREATING THE SHARE TRANSACTIONS SHOWN BY THE ASSESSEE AS BUSINESS AS IS HELD BY THE AO AND DISMISSED THE APPEAL OF THE ASSESSEE ON THIS COUNT. 11. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R EFERRED TO PB 16 WHICH IS THE BILLS/STATEMENT OF SHORT TERM CAPITAL GAIN. HE HAS REFERRED TO PARA 2 OF THE STATEMENT OF FACT IN WHICH IT IS E XPLAINED THAT THE ASSESSEE IS A RETIRED PERSON AND DERIVES HIS INCOME FROM SALE AND PURCHASE OF SHARES AND INCOME FROM OTHER SOURCES. IT CAN BE SEEN FROM THE STATEMENT OF SHORT TERM CAPITAL GAIN THAT A FEW TRANSACTIONS WERE MADE IN THE MONTH OF APRIL 2003 AND THERE IS NO SALE OF SHARES FROM SECOND WEEK OF APRIL 2003 TO JULY 2003. IN T HE MONTH OF AUGUST 2003 THERE ARE HARDLY TWO TRANSACTIONS OF SALE OF SHARES AND THERE IS ONLY ONE TRANSACTION IN THE MONTH OF SEPTE MBER 2003 AND DECEMBER 2003. IT IS SUBMITTED THAT THE ASSESSEE I S NOT REGULAR DEALER IN SHARES AND THAT IN THE ENTIRE YEAR DEALIN G HAS BEEN MADE IN FIVE MONTHS ONLY. SINCE THERE IS NO REGULAR SALE AN D PURCHASE AND THE ASSESSEE RECEIVED INCOME OF DIVIDEND AND HAS NOT SH OWN THE SHARES IN THE STOCK-IN-TRADE THEREFORE THERE IS NO BUSIN ESS ACTIVITY CARRIED OUT BY THE ASSESSEE. HE HAS SUBMITTED THAT THE ASSE SSEE MADE ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 12 INVESTMENT IN SHARES ONLY AND INTENTION AND CONDUCT OF THE ASSESSEE SHALL HAVE TO BE SEEN. NO BORROWED FUNDS HAVE BEEN USED. NO INTEREST IS PAID. IN THE EARLIER AND SUBSEQUENT YEA R INCOME ON THE SAME ISSUE HAS BEEN SHOWN AS INCOME UNDER SHORT TER M CAPITAL GAIN THOUGH NO SCRUTINY ASSESSMENTS HAVE BEEN MADE. HE H AS SUBMITTED THAT IN THIS YEAR THERE IS NO DIFFERENCE OF TAX EI THER IT IS SHOWN AS BUSINESS INCOME OR INCOME FROM SHORT TERM CAPITAL G AIN. 12. ON THE OTHER HAND THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT NO SCRUTINY AS SESSMENT HAS BEEN MADE U/S 143(3) OF THE IT ACT IN THE EARLIER A ND SUBSEQUENT YEAR THEREFORE NO RELIANCE CAN BE PLACED ON THE T REATMENT GIVEN IN SUCH YEARS. THE LEARNED DR RELIED UPON PARA 8.1 OF THE FINDINGS OF THE AO. 13. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO. THE LEGAL PROPOSITION ON THE MATTER IN ISSUE HAS BE EN CONSIDERED IN DETAIL BY REFERRING TO OTHER RELEVANT DECISIONS BY ITAT AHMEDABAD A BENCH IN THE GROUP CASES OF SHRI RAVINDRA M. AGRAWA L IN ITA NO.1725/AHD/2008 ETC. VIDE ORDER DATED 28-1-201 WH EREBY THE GROUP CASES HAVE BEEN DECIDED. THE FINDINGS IN THIS CASE IN PARA 9 TO 14 ARE REPRODUCED AS UNDER: 9. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US . IT WAS ADMITTED BY BOTH THE PARTIES THAT THE FACTS IN THE CASES OF ALL THE ASSESSEES IN ALL THE YEARS ARE MOR E OR LESS SIMILAR THEREFORE THE FACTS IN ANY YEAR CAN B E CONSIDERED WHICH WOULD BE APPLICABLE IN OTHER YEARS ALSO. ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 13 THEREFORE THE ASSESSEE WAS DIRECTED TO FURNISH COP Y OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION OF ONE YEAR IN THE CASE OF SHRI RAVINDRA M. AGARWAL. H E HAS FURNISHED THE COPY OF RETURN FOR ASSESSMENT YEAR 20 01- 2002 THEREFORE WE SHALL DEAL HEREINBELOW THE FACT S FOR ASSESSMENT YEAR 2001-2002. 10. THE ONLY DISPUTE IN THIS APPEAL BY THE REVENUE IS WHETHER THE PROFIT FROM SALE OF SHARES IS TO BE ASS ESSED AS BUSINESS INCOME OR AS INCOME FROM CAPITAL GAIN. TO DETERMINE THIS THE MOST IMPORTANT TEST IS WHETHER THE INITIAL ACQUISITION OF THE SHARES WAS WITH THE INTE NTION OF DEALING IN THE SHARES OR IT WAS MADE AS AN INVESTME NT. THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM AND THE DISPUTE COMES TO THE APPELLATE AUTHORITIES ONLY WHEN THE REVENUE AUTHORITIES DO NOT ACCEPT THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITIES HAVE LAID DOWN CERTAIN GUIDELINES ON THE BASIS OF WHICH THE INTENT ION OF THE ASSESSEE CAN BE INFERRED. IN THE CASE OF SARNAT H INFRASTRUCTURE PVT. LTD. (SUPRA) THE LUCKNOW BENCH OF THE ITAT HAS LAID VARIOUS PRINCIPLES WHICH MAY BE APPLI ED TO DETERMINE WHETHER THE TRANSACTION OF PURCHASE AND S ALE OF SHARE IS IN THE NATURE OF TRADE OR INVESTMENT. T HE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: THE FOLLOWING PRINCIPLES CAN BE APPLIED ON THE FAC TS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNTWHETHER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT; WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 14 (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. NORMALLY MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASES AND SALES ARE FREQUENT OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICAT IVE OF INTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE ARE FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENTS O R WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NE T REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRAD E. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE ARE SEPARATE ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 15 RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRAD ING AND WHAT DISTINCTION HE HAS KEPT TO THE RECORDS OR OTHERWISE BETWEEN TWO TYPES OF HOLDINGS: IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTI ON) IN A PARTICULAR ACCOUNT OR MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE NOT BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AN D WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS IF IT IS CLAIME D THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHE R IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15-6-2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE THERE ARE DISTINCTIVE FEATUR ES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 16 (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN . THE ASSESSEE-COMPANY WAS DEALING IN SHARES AND IT HAD DEALT IN SHARES BOTH AS STOCK-IN-TRADE AS WE LL AS INVESTMENT. IT SOLD SHARES FROM THE INVESTMENT PORTFOLIO AND CLAIMED THAT THE PROFIT ARISING THERE FROM WAS CAPITAL GAIN. THE ASSESSING OFFICER HELD THAT MAIN BUSINESS OF THE ASSESSEE WAS PURCHASE AND SALE IN SHARES. IT WAS NEITHER A SHARE DEALER NOR A SHARE BROKER. THE DETAILS FOR PURCHASE AND SALES AFFECTED BY THE ASSESSEE COMPANY REVEALED THAT SALES AND PURCHASES WERE QUITE SUBSTANTIAL AND WOULD NOT BE MADE BY A PERSON WHO INVESTED IN SHARES. FURTHER THE ASSESSEE DID NOT HAVE SUFFICIENT FUNDS TO MAKE SUCH INVESTMENTS AND THE ASSESSEE WAS CLAIMING TO HAVE MADE INVESTMENT OUT OF BORROWED CAPITAL. HE THEREFORE HELD THAT T HE PROFIT IN QUESTION WAS ASSESSABLE AS BUSINESS INCOME. HELD THAT THE UNDISPUTED FACT WAS THAT THE ASSESSEE WAS DEALING IN SHARES BOTH AS BUSINESS AS WELL AS INVESTMENT. IT HAD KEPT SEPARATE ACCOUNTS IN RESPEC T OF TWO PORTFOLIOS. NO MATERIAL WAS BROUGHT ON RECOR D TO SHOW THAT DEMARCATION LINE BETWEEN BUSINESS AND INVESTMENT WAS HAZY OR THAT THE ASSESSEE HAD NOT MAINTAINED AN INVESTMENT PORTFOLIO AND IT WAS DEALING IN SHARES ONLY LIKE A TRADER. THUS ON APPRECIATION OF CUMULATIVE EFFECT OF SEVERAL FACTOR S PRESENT IT WAS TO BE HELD THAT THE SURPLUS WAS CHARGEABLE TO CAPITAL GAINS ONLY AND THE ASSESSEE WAS NOT TO HE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN THE INVESTMENT PORTFOLIO. THE ITAT MUMBAI BENCH IN THE CASE OF JANAK S. RANGWALA (SUPRA) HELD AS UNDER: ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 17 THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOR AFTER THE NATURE OF TRANSACTION. THOUGH TH E PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. (PARA 6] IN THE FACTS OF THE INSTANT CASE THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO B E SEERS TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FRONT CAPITAL GAINS BOTH ON LONG-TERN AND SHORT TERM BASI S. TIRE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE PRECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES WHEN HIS INTENTION WAS TO HOLD SHARES ITS T HE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS: THE ITAT MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT (SUPRA) FOLLOWED THE DECISION OF THE ITAT LUCKNOW BENCH ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 18 IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. (SU PRA) AND HELD AS UNDER: FURTHER ON THE BASIS OF MERITS ALSO IN VIEW OF T HE RATIO OF THE DECISION OF SARNATH INFRASTRUCTURE P. LTD.S CASE (SUPRA) IT WAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATUR E OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LON G TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IN ADDITION TO THE ABOVE THE ITAT MUMBAI BENCH AL SO ACCEPTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT IN THE PRECEDING YEAR SIMILAR CLAIM WAS ACCEPTED BY T HE REVENUE. THE RELEVANT FINDINGS OF THE ITAT ARE AS U NDER: THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF THE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVESTMENT AT THE YEAR END WERE SAME IN ALL THE YEARS AND HENCE APPARENTLY THERE APPEARED NO REASON AS TO WHY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RES JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISPUTE ON THIS ASPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS AS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDENTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVENUE AUTHORITIES.: THE REVENUE FILED THE APPEAL BEFORE THE HONBLE BOM BAY HIGH COURT AGAINST THE DECISION OF THE ITAT IN THE CASE OF GOPAL PUROHIT (SUPRA) AND A SPECIFIC QUESTION WAS R AISED ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 19 AGAINST THE RULE OF CONSISTENCY APPLIED BY THE ITAT . THE HONBLE HIGH COURT VIDE ORDER DATED 6-1-2010 228 C TR 582 (BOM) UPHELD THE ORDER OF THE ITAT AND HELD AS UNDER: 3. IN SO FAR AS QUESTION (B) IS CONCERNED THE TRIBUNAL HAS OBSERVED IN PARE 8. OF ITS JUDGMENT TH AT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR IN ALL THE YEAR THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED 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 ARE IDENTICAL PARTICULARLY IN THE CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B) THEREFORE DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 11. ON MERIT ALSO THEIR LORDSHIPS UPHELD THE FINDI NGS OF THE ITAT HOLDING THE SAME TO BE PURE FINDING OF THE FACT. 12. SIMILAR VIEW IS TAKEN BY THE OTHER BENCHES OF T HE ITAT IN VARIOUS DECISIONS RELIED UPON BY THE LEARNED COU NSEL. HOWEVER FOR THE SAKE OF BREVITY THE SAME ARE NOT DISCUSSED HERE IN DETAIL. 13. THE LEARNED DR HAD CONTENDED THAT THE ABOVE DECISIONS OF THE ITAT WOULD NOT BE APPLICABLE TO TH E CASE UNDER APPEAL BEFORE US BECAUSE IN THESE CASES THE TRANSACTIONS OF THE PURCHASE AND SALE OF SHARES WER E ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 20 DISCLOSED TO THE DEPARTMENT WHILE IN THE CASE OF T HE ASSESSEE THESE WERE UNDISCLOSED TRANSACTIONS DETEC TED BY THE REVENUE ONLY AS A RESULT OF SEARCH. TO VERIF Y FACTUAL CORRECTNESS OF THE CONTENTION OF THE REVENU E THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION IN THE C ASE OF RAVINDRA AGRAWAL FOR ANY ONE ASSESSMENT YEAR. THE ASSESSEE FURNISHED THE DETAIL FOR A.Y.2000-2001 FRO M WHICH WE FIND THAT THE ORIGINAL RETURN WAS FURNISHE D BY THE ASSESSEE ON 7-11-2001 WHEREAS THE SEARCH HAS TAKEN PLACE AT THE ASSESSEES PREMISES ON 29-10-2004. IN THIS ORIGINAL RETURN LONG TERM CAPITAL GAIN OF RS.10 02 774/- WAS DISCLOSED. IN RESPONSE TO THE NOTICE UNDER SECT ION 153A THE ASSESSEE FURNISHED RETURN DISCLOSING CAPI TAL GAIN OF RS.7 31 096/- WHICH WAS FILED ON 30-11-206. THIS RETURN WAS AGAIN REVISED ON 24-4-2007 IN WHICH THE CAPITAL GAIN OF RS.7 33 450/- WAS DISCLOSED. THE FA CT REMAINS THAT THE CAPITAL GAIN WAS DISCLOSED BY THE ASSESSEE IN THE ORIGINAL RETURN AS WELL. OF COURSE THERE IS SOME VARIATION IN THE AMOUNT OF CAPITAL GAIN DISCLO SED. IN THE ORDER UNDER SECTION 153A ALSO THERE IS NO FINDI NG BY THE AO THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES WERE NOT DISCLOSED BY THE ASSESSEE. THE SAME IS NOT ASSESSED AS INCOME FROM UNDISCLOSED SOURCES BU T ASSESSED AS BUSINESS INCOME. THEREFORE THE CONTENT ION OF THE LEARNED DR THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS NOT DISCLOSED TO THE DEPARTMENT IS FACTUALLY NOT CORRECT. MOREOVER WHETHER THE TRANSA CTION OF PURCHASE AND SALE OF SHARES WAS DISCLOSED BEFORE TH E DATE OF SEARCH OR NOT WOULD NOT BE RELEVANT FOR DETERMINING WHETHER THE TRANSACTION WAS IN THE NATU RE OF TRADING TRANSACTION OR IN THE NATURE OF INVESTMENT. THEREFORE WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS A TRADING TRANSACTION OR INVESTMENT W ILL HAVE TO BE EXAMINED CONSIDERING THE TOTALITY OF THE FACTS OF THE ASSESSEES CASE. WE FIND THAT SHRI RAVINDRA M. AGARWAL IS A CHARTERED ACCOUNTANT COST ACCOUNTANT AS WELL AS COMPANY SECRETARY BY EDUCATION. HE WAS AN EXECUTIVE DIRECTOR IN SAURAHSTRA CHEMICALS LTD. PORBANDAR AT THE RELEVANT TIME. HE WAS NOT IN THE ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 21 BUSINESS OF PURCHASE AND SALE OF SHARES. IN THE ORI GINAL RETURN OF INCOME FURNISHED PRIOR TO THE SEARCH THE PROFIT FROM SALE OF SHARES WAS OFFERED TO TAX AS CAPITAL G AIN AND THE SAME WAS ACCEPTED BY THE REVENUE UNDER SECTION 143(1). NO MONEY WAS BORROWED BY THE ASSESSEE FOR T HE ACQUISITION OF THE SHARES. ALL SHARES WERE ACQUIRED BY UTILISING OWN FUND. NEITHER ANY OFFICE NOR ANY STAF F WAS KEPT AND MAINTAINED FOR THE PURPOSE OF SALE OF PURCHASE/SHARES. HOWEVER THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES. THERE IS DISPUTE WITH REGARD TO TOTAL NUMBER OF SHARE TRANSA CTIONS OF PURCHASE AND SALE OF SHARES BY VARIOUS ASSESSES. AS PER THE REVENUE THE TOTAL NUMBER OF TRANSACTION BY ALL THE ASSESSEES DURING THE VARIOUS ASSESSMENT YEARS UNDER APPEAL WAS TOTALING TO 36 000 (APPROX.). AS PER THE ASSESSEE THE NUMBER OF TRANSACTIONS WERE 4611. THE REVENUE HAS NOT GIVEN ANY BASIS FOR THE FIGURE OF 3 6 000 MENTIONED IN THE ASSESSMENT ORDER WHILE THE ASSESSE E HAS GIVEN WORKING HOW THERE WERE 4 611 TRANSACTIONS BY VARIOUS ASSESSEES IN SEVERAL YEARS. WHETHER THE TRANSACTIONS WERE 4 611 OR 36 000 THE FACTS REMAIN THAT THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SA LE OF SHARES. HOWEVER EXCEPT THE PARAMETER OF FREQUENCY IN PURCHASE/SALE OF SHARES ALL OTHER PARAMETERS INDICA TE THAT THE TRANSACTIONS WERE IN THE NATURE OF INVESTMENT A ND NOT THE TRADE TRANSACTIONS. EVEN FOR FREQUENCY IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS MOSTLY MAKING THE INVESTMENT IN B-GROUP SCRIPTS AND TO AVOID RISK HE MADE INVESTMENT IN SEVERAL SCRIPTS IN STEAD OF INVESTING IN ONE SCRIPT. FOR EXAMPLE IF THE ASS ESSEE HAD TO INVEST RS.10 LAKHS INSTEAD OF INVESTMENT IN ONE SCRIPT HE USED TO INVESTMENT IN TEN DIFFERENT SCRI PTS. HE MADE A STATEMENT THAT THE ASSESSEE NEVER PURCHASED AND SOLD THE SAME SCRIPTS FREQUENTLY. HE ALSO STATE D THAT SHARES WERE KEPT FOR LONG PERIOD AND THERE IS NO FR EQUENT PURCHASE/SALE OF SAME SCRIPTS. THIS CONTENTION OF T HE LEARNED COUNSEL APPEARS REASONABLE AND HAS NOT BEEN FACTUALLY CONTROVERTED BY THE REVENUE. THERE IS A S AYING THAT NEVER PUT ALL YOUR EGGS IN ONE BASKET AND IF THE ASSESSEE AS A PRUDENT PERSON MADE INVESTMENT IN ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 22 NUMBER OF SCRIPTS INSTEAD OF ONE SCRIPTS IT CANNOT BE SAID THAT HE WAS CARRYING ON THE BUSINESS OF PURCHASE AN D SALE OF SHARES. THERE WERE SUBSTANTIAL INCOME FROM THE DIVIDEND. IN THE CASE OF SHRI RAVINDRA M. AGARWAL F OR A.Y.2001-2002 AS PER THE REVISED RETURN THE DIVID END INCOME WAS AS HIGH AS RS.19 33 425/-. IT IS A SETTL ED LAW THAT TO DETERMINE WHETHER THE ASSESSEE IS A TRADER OR INVESTOR IN SHARES NO SINGLE TEST IS CONCLUSIVE BU T CUMULATIVE EFFECT OF ALL THE FACTS ARE TO BE SEEN. IN THE CASE OF THE ASSESSEE ONE FACT I.E. FREQUENT PURCHA SE/SALE OF SHARES CAN BE SAID TO BE AGAINST THE ASSESSEE BU T ALL OTHER FACTS WHICH CAN BE SUMMARISED AS UNDER ARE IN FAVOUR OF THE ASSESSEE: I) SHRI RAVINDRA AGRAWAL IS A QUALIFIED PROFESSIONA L BEING CHARTERED ACCOUNTANT COMPANY SECRETARY AND COST ACCOUNTANT; II) SHRI AGRAWAL WAS FULL TIME DIRECTOR OF A PUBLIC LIMITED COMPANYAT THE RELEVANT TIME POSTED AT PORBANDER; III) SHARES WERE ACQUIRED WITH OWN MONEY AND THERE WAS NO BORROWING BY SHRI RAVINDRA AGRAWAL OR ANY OTHER FAMILY MEMBER; IV) NO OFFICE OR ANY STAFF WAS MAINTAINED FOR LOOKI NG AFTER PURCHASE AND SALE OF SHARES; V) THERE WAS SUBSTANTIAL DIVIDEND INCOME; VI) HIS SOURCE OF INCOME WAS INCOME FROM SALARY CA PITAL GAIN DIVIDEND AND INTEREST AND HE WAS NOT HAVING A NY BUSINESS INCOME; VII) IN THE ORIGINAL RETURN OF INCOME FURNISHED FRO M TIME TO TIME INCOME FROM SALE OF SHARES WAS DISCLOSED UNDE R THE HEAD CAPITAL GAIN AND WAS ACCEPTED BY REVENUE AS SUCH UNDER SECTION 143(1). ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 23 WHEN TOTALITY OF ALL THE ABOVE FACTS ARE CONSIDERED THE INFERENCE DRAWN BY THE CIT(A) THAT THE ASSESSEE IS AN INVESTOR IN SHARES APPEARS TO BE CORRECT. APART FR OM THE ABOVE ON THE PRINCIPLE OF CONSISTENCY ALSO ORDER O F THE CIT(A) ON THIS POINT DESERVES TO BE UPHELD BECAUSE IN THE ORIGINAL RETURNS INCOME FROM SALE OF SHARES WAS DIS CLOSED UNDER THE HEAD CAPITAL GAIN AND THE SAME WAS ACCE PTED BY THE REVENUE. ITAT MUMBAI BENCH IN THE CASE OF GOPTAL PURROHIT (SUPRA) HELD THAT THOUGH IN INCOME TAX PROCEEDINGS THE RULE OF RES JUDICATA DOES NOT APPLY BUT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSIST ENCY UNDER THE SAME FACTS AND CIRCUMSTANCES. THIS DECISI ON IS UPHELD BY THE HONBLE MUMBAI HIGH COURT IN CIT VS. GOPTAL PUROHIT 228 CTR 582 (BOM). THESE DECISIONS WOULD BE SQUARELY APPLICABLE TO THE CASES OF THE ASSESSEE UNDER APPEAL BECAUSE IN THESE CASES NOT ON LY IN EARLIER YEAR BUT IN THE YEARS UNDER APPEAL ALSO IN ORIGINAL PROCEEDINGS TRANSACTION OF PURCHASE AND SA LE OF SHARES SHOWN AS CAPITAL GAIN WAS ACCEPTED BY THE REVENUE. MERELY BECAUSE THERE WAS SEARCH AT THE ASSESSEES PREMISES THE NATURE OF TRANSACTION WOUL D NOT CHANGE. IN VIEW OF THE ABOVE AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND VARI OUS JUDICIAL PRONOUNCEMENT REFERRED ABOVE WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CI T(A) ON THIS POINT. THE SAME IS UPHELD AND THE REVENUES APPEALS ARE DISMISSED. 14. IN THE RESULT ALL THE APPEALS OF THE REVENUE A RE DISMISSED. 14. WHEN THE FACTS OF THE CASE OF THE ASSESSEE ARE CONSIDERED IN THE LIGHT OF PARAMETERS PROVIDED IN THE AFORESAID D ECISION IT WOULD BE CLEAR THAT THE ASSESSEE WAS NOT DOING SYSTEMATIC AC TIVITY OF DEALING IN SHARES. FEW TRANSACTIONS WERE CONDUCTED IN CERTAIN MONTH IN THE ENTIRE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS N OT SHOWN ANY STOCK-IN-TRADE. THE ASSESSEE MADE ONLY INVESTMENT I N THE SHARES. NO ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 24 BORROWED FUND HAS BEEN USED AND NO INTEREST HAS BEE N PAID. THE INTENTION OF THE ASSESSEE SHALL HAVE TO BE SEEN CON SIDERING THE FACTS OF THE CASE. FREQUENCY OF THE TRANSACTIONS MAY NOT BE RELEVANT IN THAT SITUATION. NO COMMERCIAL MOTIVE APPEARS TO HAVE BEE N THERE IN DEALING WITH THE SHARES. THE ASSESSEE IS A RETIRED PERSON AND NO PARTICULAR OFFICE IS MAINTAINED. THE ASSESSEE HAS S HOWN DIVIDEND INCOME. EVEN IN EARLIER YEAR AND SUBSEQUENT YEAR N O SCRUTINY ASSESSMENT HAS BEEN MADE BUT THE ASSESSEE HAS GIVEN TREATMENT OF SUCH TRANSACTION AS SHORT TERM CAPITAL GAIN WHICH HAS BEEN ACCEPTED BY THE AUTHORITIES BELOW. THE ASSESSE E IN HIS STATEMENT MAINTAINED THAT HE HAS MADE INVESTMENT IN MONEY IN SHARES WHENEVER FUNDS ARE AVAILABLE WITH HIM AND SE LLS THE SHARES WHENEVER THERE IS A PROFIT. HOWEVER HE HAS ALSO ST ATED THAT HE WAS DOING TRADING IN SHARES THROUGH MR. PRAVDEV. HE HAS ALSO STATED THAT HIS BANK WORK IS CONDUCTED BY HIS ACCOUNTANT WHO IS HANDLING THE SAME. THEREFORE THE AO NOTED IN PARA 8.1 OF THE AS SESSMENT ORDER THAT THE ASSESSEE ADMITTED ABOUT HIS INTENTION FOR EARNING PROFIT FROM SUCH ACTIVITIES BUT THE STATEMENT OF THE ASSESSEE S HOWS THAT HE WAS ALSO MAKING INVESTMENT IN THE SHARES AFTER DISCONTI NUING THE CONSTRUCTION BUSINESS. NO SPECIFIC DETAIL WAS COMIN G OUT FROM HIS STATEMENT AND WHEN THE AO ASKED ABOUT THE SOURCES O F INCOME THE ASSESSEE EXPLAINED THAT HIS INCOME IS FROM TRADING OF SHARES AND THE INVESTMENT IN SHARES. THEREFORE THE BIFURCATION SH OULD HAVE BEEN MADE AS TO IN WHICH SHARES THE ASSESSEE WAS TRADING AND IN WHICH SHARES THE ASSESSEE WAS MAKING INVESTMENT. THE LEAR NED CIT(A) INSTEAD OF PASSING THE REASONED ORDER ON THE MATTER IN ISSUE MERELY GONE BY THE FACT THAT THE TAX FOR SHORT TERM CAPITA L GAIN AS WELL AS ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 25 BUSINESS INCOME FOR THE YEAR UNDER APPEAL WAS SAME AND AS SUCH DID NOT PASS THE REASONED ORDER. THE LEARNED CIT(A) IS BOUND TO PASS REASONED ORDER ON EACH AND EVERY SUBMISSIONS OF THE ASSESSEE CONSIDERING THE FACTS AND MATERIAL ON RECORD. THE L EARNED CIT(A) SHALL HAVE TO DISCUSS THE EVIDENCE IN THE APPELLATE ORDER IN THE LIGHT OF THE RELEVANT PARAMETERS DECIDING THE TRANSACTIONS T O BE BUSINESS INCOME OR SHORT TERM CAPITAL GAIN. WE HAVE QUOTED O NE OF THE DECISIONS ABOVE IN WHICH SEVERAL FACTORS SHALL HAVE TO BE CONSIDERED BEFORE CONSIDERING THE TRANSACTIONS OF SHARES AS BU SINESS INCOME OR CAPITAL GAIN. IN THE ABSENCE OF ANY SPEAKING ORDER ON THE MATTER IN ISSUE AS PER GUIDELINES NOTED ABOVE ON IMPUGNED ISS UE AND IN THE ABSENCE OF ANY DISCUSSION ON THE EVIDENCES IN THE O RDERS WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTO RE THIS ISSUE TO THE FILE OF THE AO TO RE-DECIDE THIS ISSUE BY PASSING R EASONED ORDER IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE EVIDENCE ON RECORD AND DISCUSSING THE RELEVANT DECISIONS ON THE MATTER IN ISSUE. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. IN THE RESULT THIS GROUND OF APPEAL OF THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES. 15. ON GROUND NO.3 THE ASSESSEE CHALLENGED THE ORD ER OF THE LEARNED CIT(A) IN CONFIRMING THE TREATMENT OF LONG TERM CAPITAL LOSS AS INCOME FROM BUSINESS AND PROFESSION. BOTH THE PARTI ES STATED THAT THIS GROUND IS CONSEQUENTIAL TO THE FINDINGS GIVEN ON GROUND NO.2 ABOVE. SINCE GROUND NO.2 IS RESTORED TO THE FILE OF THE AO WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS GROUND AS WELL AND RESTORE THIS ISSUE TO AOS FILE WITH DI RECTION TO RE- ITA NO.3191/AHD/2008 SHRI ARUNBHAI J. PATWA VS ITO W-2(2) BARODA 26 DECIDE THE SAME ON GIVING FINDINGS ON GROUND NO.2 A BOVE BY GIVING REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT GROUND NO.3 OF THE APPEAL OF THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10-03-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 10-03-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD