DCIT CIR 3(3), MUMBAI v. TRANSPACIFIC BUSINESS SERVICES P.LTD, MUMBAI

ITA 3727/MUM/2012 | 2008-2009
Pronouncement Date: 31-07-2015

Appeal Details

RSA Number 372719914 RSA 2012
Assessee PAN AADCA2085M
Bench Mumbai
Appeal Number ITA 3727/MUM/2012
Duration Of Justice 3 year(s) 2 month(s) 6 day(s)
Appellant DCIT CIR 3(3), MUMBAI
Respondent TRANSPACIFIC BUSINESS SERVICES P.LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Department
Bench Allotted E
Tribunal Order Date 31-07-2015
Date Of Final Hearing 23-06-2015
Next Hearing Date 23-06-2015
Assessment Year 2008-2009
Appeal Filed On 25-05-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI . . BEFORE SHRI R.C.SHARMA A M & SHRI SANJAY GARG J M ./ ITA NO . 3 727 / MUM/20 1 2 ( / ASSESSMENT YEAR : 2008 - 09 ) ACIT CIRCLE - 3(3) MUMBAI VS. M/S TRANSPACIFIC BUSINESS SERVICES PVT. LTD. 1005 MAKER CHAMBERS V 10 TH FLOOR 221 NARIMAN POINT MUMBAI - 400021 ./ ./ PAN/GIR NO. : A A DCA 2085 M ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI VIJAY KUMAR BORA /ASSESSEE BY : SHRI VIJAY MEHTA / DATE OF HEARING : 2 3 /0 6 / 2015 / DATE OF PRONOU NCEMENT 31/ 07 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 19 MUMBAI DATED 2 - 3 - 2012 FOR THE ASSESSMENT YEAR 2008 - 09 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT WH EREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE : - 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN TREATING THE INCOME FROM SALE OF SHARES AS AN INCOME FROM SHORT TERM CAPITAL GAIN AS AGAINST THE 'INCOME FROM BUSINESS' ASSESSEE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT THE PURCHASE AND SALE TRANSACTION OF SHARES IS FREQUENT FOR SHORTER PERIOD OF TIME AND IT IS NOT AN UNRELATED ACTIVITY BUT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. FURTHER THE ASSESSEE HAS DONE TRADING IN SHARES ITA NO. 3727 / 1 2 2 WITH A MOTIVE TO EARN PROFIT IN A SHORT PERIOD AS THE SHARES WERE NOT HELD FOR A LONG PERIOD TO BE TREATED AS INVESTMENT.' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALL OWING THE ASSESSEE'S APPEAL BY PLACING RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (336 ITR 287) WITHOUT APPRECIATING THE FACT THAT THE FACTS OF THE CASE RELIED UPON ARE DISTINGUISHABLE FROM THE FACTS OF THE ASSE SSEE'S CASE. IN THE CASE OF GOPAL PUROHIT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR A LONG PERIOD AND HAS TREATED NON DELIVERY BASED TRANSACTION AS BUSINESS ACTIVITY AND DELIVERY BASED TRANSACTION AS INVESTMENT ACTIVITY. HOWEVER IN THE PRESENT CASE INCOME FROM SALE OF SHARES IS LIABLE TO BE TREATED AS BUSINESS INCOME IN VIEW OF THE DECISION OF THE HON'BLE ITAT INDORE BENCH IN THE CASE OF SHRI NAROTTAM SOMANI (HUF) VS. JT. CIT (2011) 12 TAXMAN.COM 292 & HON'BLE ITAT MUMBA I 'E' BENCH IN THE CASE OF ACIT VS. TRIPURAPRASAD N. PANDYA (2011) 10 TAXMANN.COM 77 AND HON'BLE ITAT MUMBAI 'H' BENCH IN THE CASE OF SMT. HARSHA N. MEHTA VS. DC IT (2011) 43 SOT 332.' 3. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.' 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THE ASSESSEE IS DERIVING INCOME FROM SHARE - TRADING BACK OFFICE PROCESSING AND LEASING OF PROPERTY. DURING THE COURSE OF SCRUTIN Y ASSESSMENT THE AO FOUND THAT ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS. 5 00 79 890/ - . AFTER PREPARING THE CHART INDICATING HUGE NUMBER OF SHARES PURCHASE D AND SOLD THE AO INFERRED THAT THE ASSESSEE HAS NO INTENTION TO HOLD THE SHARES AS I NVESTMENT INSOFAR AS NO DIVIDEND INCOME WAS EARNED ON SUCH SHARES . HE FURTHER OBSERVED THAT PURCHASE AND SALE OF SHARES AT FREQUENT INTERVALS ARE NOT THE INCLINATION OF THE TRUE INVESTORS. THE AO OBSERVED THAT NOT EVEN SINGLE SHARE WAS HELD FOR MORE THAN 1 2 MONTHS. THE AO FOUND THAT ASSESSEE HAS BORROWED TO THE TUNE OF RS. 27.89 CRORES FOR PURCHASE OF SHARES INTEREST ON WHICH WAS CLAIMED AS ITA NO. 3727 / 1 2 3 DEDUCTION OUT OF CAPITAL GAIN SO OFFERED. TO SUM UP THE ASSES SE E WA S TREATED AS TRADER IN SHARES ON FOLLOWING GROUNDS: - (I) THE PURCHASE AND SALE OF SHARES IS NOT AN UNRELATED ACTIVITY BUT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. (II) IT IS A WELL SETTLED LAW THAT EVEN A SINGULAR TRANSACTION OF PURCHASE AND SALE COULD BE IN THE NATURE OF TRADE. BUT HERE THE ASSESSEE HAS CONTINUOUSLY AND SYSTEMATICALLY CARRIED OUT THE ACTIVITY OF TRADING IN SHARES OVER THE PERIOD OF ONE YEAR. ' (III) THE ASSESSEE HAS BORROWED FUNDS TO FUND HIS ACTIVITY FOR PURCHASE AND SALE OF SHARES. THE PRESENCE OF BORROWED FUNDS IMPARTS THE ACTIVIT Y THE COLOUR OF TRADE RATHER THAN INVESTMENT. (IV) THE ASSESSEE HAS NOT FURNISHED ANY REASON FOR PURCHASE NEITHER HAS HE FURNISHED THE REASON FOR SALE. IN THE ABSENCE OF A DEFINITIVE REASON ON THE PART OF ASSESSEE WHAT CAN BE GAUGED FROM THE FACTS IS THAT THE ASSES SE HAS BOUGHT AND SOLD DEPENDING ON THE VOLATILITY OF THE MARKET. THIS BEHAVIOUR RESEMBLES THAT OF THE TRADER. (V) COMMODITIES AND SCRIPS AS HELD BY ROYAL COMMISSION OF ENGLAND ARE NORMALLY THE SUBJECT MATTER OF TRADING AND VERY EXCEPTIONALLY THE SUBJECT OF INVESTMENT. (VI) USUALLY THE PROFITS ON THIS PROPERTY HAVE BEEN REALIZED IN A VERY SHORT DURATION. FROM THE ABOVE THE AO OBSERVED THAT THE ASSES SE E HAS SHOWN ALL THE CHARACTERISTICS OF A TRADER RATHER THAN AN INVESTOR. THEREFORE THE AO T REATED THE PROFIT EARNED ON SALE OF SHARES AMOUNTING TO RS 5 00 79 890/ - AS BUSINESS INCOME OF THE ASSESSEE AFTER GIVING DEDUCTION OF INTEREST PAID ON BORROWED FUNDS AMOUNTING TO RS.40 43 336/ - . 3 . BY THE IMPUGNED ORDER THE CIT(A) ACCEPTED ASSESSEES CONT ENTION REGARDING SHORT TERM CAPITAL GAIN EARNED ON SALE OF SHARES AFTER HAVING THE FOLLOWING OBSERVATIONS : - 4.3 I HAVE CONSIDERED THE A.O.'S ORDER AS WELL AS APPELLANT AR'S SUBMISSION. HAVING CONSIDERED BOTH I FIND THAT THE APPELLANT COMPANY HAS MADE IN VESTMENT IN PURCHASE OF SHARES FOR THE FIRST TIME AND THE SAME WAS SUBSEQUENTLY SOLD ON THE BASIS OF APPELLANT'S DECISION TAKING NOTE OF THE PROFIT ARISING OUT OF SUCH INVESTMENT WITHIN A SHORT PERIOD. THE APPELLANT STATED THAT THE APPELLANT COMPANY HAD IT S OWN RESERVE OF MORE THAN RS.16 CRORES WHICH IS EVIDENT FROM THE APPELLANT'S SUBMISSION ITSELF. FURTHER TO THAT THE APPELLANT'S AR ALSO SUBMITTED THAT THE APPELLANT COMPANY' HAS NEVER TRADED OR DID ANY BUSINESS TRANSACTION OF DEALING IN ITA NO. 3727 / 1 2 4 SHARES IN EARLIER YEARS EITHER IN THE PAST NOR WAS LIKELY TO DO IN THE FUTURE IN SUBSEQUENT YEAR. BESIDES THIS HE ALSO EMPHASIZED THE FACT THAT THE SECURITY TRANSACTION TAX HAS BEEN PAID BY THE APPELLANT COMPANY ON THE AFORESAID TRANSFER OF SHARE AS ENVISAGED U/S.111 A OF THE INCOME - TAX ACT 1961. ON THIS BASIS ITSELF HE ARGUED THAT THE INTENT OF THE LEGISLATION WAS VERY CLEAR THAT ONCE THE SECURITY TRANSACTION TAX IS PAID THEN SUCH SHARES IF THEY ARE SOLD EVEN IN LESS THAN ONE YEAR IT WILL RESULT TO SHORT TERM CAPITAL GA IN ON SUCH TRANSFER . HENCE THE SAME SHOULD BE NECESSARILY TAXED UNDER THE HEAD 'CAPITAL GAIN'. TO THIS EFFECT HE BROUGHT MY ATTENTIO N 'TO THE JURISDICTIONAL ITAT DECISION IN THE CASE OF SMK SHARES & STOCK BRAKING PVT. LTD. (ITA NO.799/MUM/2 0 09) WHEREIN T HE CBD T CIRCULAR DATED 15.06.2007 HAS BEEN REFERRED AND IN PARA 13 OF THE SAID ORDER THE HON'BLE MEMBERS HAVE OBSERVED AS UNDER: - IT IS TRUE THAT VOLUME OF TRANSACTION IS AN IMPORTANT INDICATOR OF THE INTENTION OF THE ASSESSEE WHETHER TO DEAL IN SHARES AS TRADING ASSET OR TO HOLD THE SHARES AS INVESTOR BUT CERTAINLY NOT THE SOLE CRITERION. IN OUR CONSIDERED OPINION THE ASSESSING OFFICER'S CONCLUSION THAT SINCE SALE AND PURCHASE HAD BEEN DETERMINED BY THE VOLATILITY IN THE MARKET THE SAME IS AGAINST TH E BASIC FEATURE OF INVESTOR IS NOT BASED ON SOUND RATIONAL MARKET THE SAME IS AGAINST THE BASIC FEATURE OF INVESTOR IS NOT F OUND ON SOUND RATIONAL REASONING. A PRUDENT INVESTOR ALWAYS KEEPS A WATCH ON THE MARKET TRENDS AND THEREFORE IS NOT BARRED UNDER LAW FROM LIQUIDATING HIS INVESTMENTS IN SHARES. THE LAW ITSELF HAS RECOGNISED FACT BY TAXING THESE TRANSACTIONS UNDER THE HEAD 'SHORT TERM CAPITAL GAINS'. IF THE ASSESSING OFFICER'S REASONING IS ACCEPTED THEN IT WOULD BE AGAINST THE LEGISLATIVE INTENT IT SELF. ' 4.4 FURTHER TO THAT THE APPELLANT'S AR ALSO EMPHASIZED THAT THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF HITESH SATISHCHANDRA DOSHI REPORTED IN 46 SOT PAGE 336 IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT'S CASE. FURTHER HE ALSO BROUG H T MY ATTENTION TO THE OTHER DECISIONS CITED BY HIM IN HIS SUBMISSION AS DEPICTED ABOVE WHICH SUPPORT THE APPELLANT'S CONTENTION ESPECIALLY THE DECISION OF GOPAL PUROHIT VS. JCIT REPORTED IN 29 SOT PAGE 117 WHEREI N THE SLP FILED BY THE DEPARTMEN T WAS DIS M I SSED BY THE HON'BLE APEX COURT. TAKING NOTE OF THE JUDGEMENT OF JURISDICTIONAL HIGH COURT ON T HE ISSUE INVOLVED I EVEN FIND THAT THE ARGUMENT OF THE AO THAT THE APPELLANT INCURRED INTEREST EXPENSE WHICH LEADS TO HOLD THAT THE APP ELL ANT INDULGED IN BUSINES S ACTIVITY WILL NOT HAVE ANY FORCE IN VIEW OF THE DECISION OF KARNATAKA HIGH C OURT DECISI ON IN THE C A SE OF MAITHREYI PAI REPORTED IN 152 ITR PAGE 247 (KA R) WHEREIN THE HON'BLE HIGH COURT MADE THE OBSERVATION THAT THE INTEREST PAID ON BORROWING FOR THE ACQU ISITI ON CAPITAL ASSET MUST FALL FOR DEDUCTION U/S.48 AS COST OF ACQUISITION OF THE SAID SHARES WHICH RESULTED INTO CAPITAL GAIN ON SUCH TRANSFER. TAKING NOTE OF THE AFORE - STATED FA CTS BROUGHT TO MY NOTICE AND ALSO AFTER TAKING NOTE OF THE APPELLANT'S SUBMI SSION AS WELL AS THE JUDICIAL PRONOUNCEMENTS OF THE VARIOUS COURTS AND TRIBUNALS AS DETAILED ABOVE I AM OF THE CONSIDERED VIEW THAT THE AO. WAS NOT JUSTIFIED IN HIS ACTION IN TAXING ITA NO. 3727 / 1 2 5 THE APPELLANT'S INCOME AS A RESULT OF TRANSFER OF SHARES UND ER THE HEAD ' BUSINESS INCOME'. ACCORDINGLY I DIRECT THE AO. TO TAX THE SAME UNDE R THE HEAD 'SHORT TERM CAPITAL AS RETURNED BY THE APPELLANT. THUS APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED . 4 . AGAINST THE ABOVE ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 5 . LD. DR SHRI VIJAY KUMAR BORA APPEARING ON BEHALF OF THE REVENUE CONTENDED THAT ASSESSEE HAS NO INTENTION OF PURCHASING SHARES FOR THE PURPOSE OF INVESTMENT WHICH IS CLEAR FROM THE FACT THAT NO DIVIDEND INCOME WAS EARNED BY THE ASSESSEE DURING THE YEA R . HE INVITED OUR ATTENTION TO THE FACT THAT FOR ACQUIRING SHARES THE ASSESSEE HAS BORROWED HUGE FUNDS ON INTEREST. OUR ATTENTION WAS ALSO INVITED TO THE ASSESSEES OWN CAPITAL AS WELL AS FUNDS BORROWED ON INTEREST FOR ACQUIRING SHARES. LD. DR CONTENDED T HAT ASSESSEE HAS PURCHASED SHARES OF MORE THAN RS. 47 CRORES. OUR ATTENTION WAS SPECIFICALLY INVITED TO THE LIQUID FUNDS IN THE FORM OF BANK AND CASH BALANCE AVAILABLE WITH THE ASSESSEE AS ON 1 - 4 - 2007 AT RS. 6.04 CRORES AGAINST WHICH THE ASSESSEE HAS PURCHA SED HUGE SHARES OF RS .30.01 CRORES FROM 1 - 4 - 2007 TO 11 - 4 - 2007. AS PER LD. DR. THE ASSESSEE HAD BORROWED HUGE FUNDS ON INTEREST FOR TRADING IN SHARES. HE FURTHER CONTENDED THAT FOR TREATING THE ASSESSEE AS INVESTOR IN SHARES THE CIT(A) HAD RELIED ON THE D ECISION OF THE TRIBUNAL IN THE CASE OF SMK SHARES AND STOCK BROKING PVT. LTD. ITA NO. 799/MUM/2009) WHICH ARE DISTINGUISHABLE ON FACTS INSOFAR AS IN CASE OF SMK SHARES & STOCK BROKING PVT. LTD. THE ASSESSEE WAS CONSISTENTLY INVESTING IN SHARES AND ALSO D ECLARING HUGE LONG TERM CAPITAL GAINS ALONG WITH SHORT TERM CAPITAL GAINS. AS PER LD. DR IN THAT CASE THE ASSESSEE HAS S H OWN SHORT TERM CAPITAL GAINS OF RS. 42.34 LAK HS AND ALSO LONG TERM CAPITAL G A I NS OF ITA NO. 3727 / 1 2 6 RS. 60.95 LAKHS. OUR ATTENTION WAS ALSO INVITED TO TH E FACT THAT NOT ONLY DURING THE YEAR BUT ALSO IN EARLIER AND SUBSEQUENT YEARS THE ASSESSEES CLAIM OF SHORT TERM AND LONG TERM CAPITAL GAINS WAS ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT ORDERS . OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT NO B ORROWED FUNDS WERE RAISED FOR MAKING INVESTMENT IN SHARES AND SECURITIES IN CASE OF SMK SHARES & STOCK BROKING PVT. LTD. (SUPRA) WHEREAS IN THE INSTANT CASE ASSESSEE HAS BORROWED HUGE FUNDS O N INTEREST FOR THE PURPOSE OF PURCHASING THE SHARES FROM MARKET. AS PER LD. DR IN CASE OF SMK SHARES & STOCK BROKING PVT. LT (SUPRA) THE ASSESSEE WAS EARNING HUGE DIVIDEND INCOME WHEREAS IN THE INSTANT CASE NO DIVIDEND INCOME WAS EARNED BY THE ASSESSEE WHICH CLEARLY INDICAT E THE INTENTION OF ASSESSEE NOT TO HOLD THE SHARES AS INVESTOR FOR EARNING DIVIDEND INCOME BUT TO TRADE IN SHARES. AS PER LD. DR THE CIT(A) HAS WRONGLY PLACED RELIANCE ON THIS DECISION WHICH IS HAVING QUITE DISTINCT FACTS. 6 . THE DECISION IN THE CASE OF HITESH SATISHCHANDRA DOSHI 46 SOT 336 RELIE D ON BY THE CIT(A) FOR TREATING THE INSTANT ASSESSEE AS INVESTOR IN SHARES WAS ALSO ARGUED BY LD. DR TO BE DISTINGUISHABLE ON FACTS INSOFAR AS IN CASE OF HITESH SATISHCHANDRA DOSHI (SUPRA) THE ASSESSEE WAS EARNING DIVIDEND INCOME ALSO AND ALSO EARNING LO NG TERM CAPITAL GAINS IN ADDITION TO THE SHORT TERM CAPITAL GAINS. SIMILARLY THE FACTS OF M/S GOPAL PUROHIT 29 SOT 117 WAS ALSO DISTINGUISHED BY LD. DR BY STATING THAT ASSESSEE WAS CONSISTENTLY INVESTING IN SHARES AND THIS FACT WAS ACCEPTED BY THE DEPARTM ENT IN EARLIER YEARS. HOWEVER IN THE INSTANT CASE THE ITA NO. 3727 / 1 2 7 ASSESSEE NEITHER IN THE EARLIER YEAR NOR IN THE SUBSEQUEN T YEARS HAVE INVESTED IN SHARES. LD. DR INVITED ALSO OUR ATTENTION TO THE VOLUME AND FREQUENCY OF THE TRANSACTIONS TO INDICATE THAT ASSESSEE HA S ALL THE INTENTION TO EARN PROFIT ON I MMEDIATE SALE OF SHARES. NO SHARES WERE HELD EVEN AT THE END OF THE YEAR NOR THERE WAS ANY OPENING INVESTMENT IN SHARES AT THE BEGINNING OF THE YEAR. CONTENTION OF LD. DR WAS THAT THE CIT(A) HAS WRONGLY ACCEPTED ASSES SEES CONTENTION REGARDING INVESTOR IN SHARES BY RELYING ON THE JUDICIAL PRONOUNCEMENTS HAVING ENTIRELY DIFFERENT FACTS. IN VIEW OF THE ABOVE LD. DR CONTENDED THAT THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THAT OF THE AO BE UPHELD. 7 . ON THE OTHER HAND MR. VIJAY MEHTA LD. AR APPEARING ON BEHALF OF THE ASSESSEE CONTENDED THAT THERE WERE ONLY 11 TRANSACTIONS IN RESPECT OF SHARES OF FOUR COMPANIES WHICH HAS BEEN STATED BY THE AO AS 60 TRANSACTIONS. AS PER LD. AR ALL TRANSACTIONS WERE CARRIED OUT THR OUGH LEADING STOCK BROKER. LD. AR ALSO INVITED OUR ATTENTION TO THE FACT THAT INTEREST OF RS. 1.91 CRORES WAS IN RESPECT OF SECURED LOANS FOR PURCHASE OF PROPERTIES GIVEN ON RENT AND IS NOT FOR PURCHASE OF SHARES. IT WAS ARGUED BY LD. AR THAT INTEREST WAS P AID ON FUNDS BORROWED FOR PURPOSE OF INVESTMENT HAD BEEN TREATED AS COST OF ACQUISITION AS PER THE ACCEPTED PRINCIPLES OF ACCOUNTING AND THE SAME IS JUDICIOUSLY PROVIDED. HE FURTHER CONTENDED THAT MERELY BECAUSE BORROWED FUNDS HAVE BEEN USED FOR PURPOSE OF INVESTMENT IN SHARES AND NO DIVIDEND INCOME HAS BEEN EARNED THEREON BY ITSELF WOULD NOT BE A GROUND TO TREAT THE TRANSACTION IN SHARES AS BUSINESS INCOME. AS PER LD. AR THERE WAS NO REPETITIVE TRANSACTIONS ITA NO. 3727 / 1 2 8 ENTERED BY ASSESSEE DURING THE YEAR AND THE SHARE S HAVE BEEN SHOWN AS (INVESTMENT IN THE FINANCIAL STATEMENT). THESE SHARES WERE PURCHASED WITH THE INTENTION TO HOLD FOR INVESTMENT HOWEVER THE SAME WERE SOLD WITHIN A SHORT PERIOD BECAUSE OF UNACCEPTED SIGNIFICANT RISE. HE FURTHER CONTENDED THAT ASSESS EE HAS VALUED SHARES AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LESS. LD. AR REITERATED THE DECISION RELIED ON BY THE CIT(A) FOR REACHING TO THE CONCLUSION THAT ASSESSEE WAS INVESTOR IN SHARES. IT WAS FURTHER CONTENDED THAT FREQUENCY IN PURCHASE AND SALES OF SHARES IN CASE OF TR A N S ACTION THROUGH THE ELECTRONIC SYSTEM OF STOCK EXCHANGE SPLIT A SINGLE ORDER INTO NUMEROUS TRANSACTIONS WHICH GIVES AN UNREALISTIC FIGURE OF THE NUMBER OF TRANSACTIONS. HE CONTENDED THAT AN INVESTOR CAN RESHUFFLE HIS PORTFOLIO IN A SHORT PERIOD TO REDUCE THE RISK OF LOSS OF CAPITAL OR INCOME. FURTHER RELIANCE WAS PLACED ON THE DECISION OF PUNE BENCH IN THE CASE OF ARA TRADING & INVESTMENT (P) LTD. 13 TAXMANN.COM 20(PUNE) WHEREIN THE CBDT CIRCULAR DATED 15 - 6 - 2007 WAS DISCUSSED WHEREIN IT HAS BEEN HELD THAT WHERE A SPECIFIC HEAD IS PROVIDED IN RESPECT OF A PARTICULAR INCOME THEN SUCH INCOME MUST BE COMPUTED UNDER THAT VERY HEAD AND IN A CASE THE INVESTMENT IN SHARES IS DISPOSED OF THEN INCOME THEREFROM HAS TO BE COMPUT ED ONLY UNDER THE SPECIFIC HEAD I.E. CAPITAL GAIN. 8 . WE HAVE CONSIDERED RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES AND DELIBERATED ON THE JUDICIAL PRONOUNCEMENT REFERRED BY THE LOWER AUTHORITIES IN THEIR ORDERS AS WELL AS C ITED BY LD. DR AND A.R. DURING THE COURSE OF HEARING BEFORE US IN THE CONTEXT OF FACTUAL ITA NO. 3727 / 1 2 9 MATRIX OF THE CASE. F ROM THE RECORD WE FOUND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING BACK OFFICE PROCESSING AND LEASING PROPERTY. DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE HAS EARNED A PROFIT OF RS. 5 .01 CRORE ON SALE OF SHARES WHICH WAS DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS. BY OBSERVING THE HEAVY VOLUME OF SHARES AT 9.70 LACS HAVING BEEN PURCHASE D AT COST OF RS.47.46 CRORES A ND SALE VALUE OF RS.52.87 CRORE RESULTING INTO NET GAIN OF RS.5.41 LACS AND THE FACT THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME ON SALE OF SHARES SO PURCHASED AND THE FACT THAT ASSESSEE HAS BORROWED HUGE FUNDS FOR FINANCING THE PURCHASE OF SHARES TH E AO CONCLUDED THAT PROFIT OF RS. 5. 01 CRORES EARNED ON SALE OF SHARES IS LIABLE TO BE TAXED AS BUSINESS INCOME. THE AO HAS PREPARED CHART OF QUANTITY OF SHARES PURCHASE D AND S O L D INDICATING THE DATE OF PURCHASE AND SALE VOLUME OF SHARES TRANSACTED A ND THE PROFIT EARNED ON ITS SALE CONCLUDED THAT PROFIT EARNED ON SALE OF SHARES IS LIABLE TO TAX AS BUSINESS INCOME RATHER THAN CAPITAL GAINS AS OFFERED BY ASSESSEE . THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSITION THAT FOR DECIDING AS TO WHETHER ASSESSEE IS AN INVESTOR IN SHARE OR TRADER IN SHARE SO MANY FACTORS ARE RELEVANT WHICH COMPRISES OF VOLUME AND FREQUENCY OF TRANSACTION INTENTION OF ASSESSEE WHILE ACQUIRING THE SHARES WHICH RESULTS INTO EARNING THE DIVIDEND INCOME OWNED/BORROWED FUNDS USED FOR PU RCHASE PERIOD OF HOLDING ETC. ONE OF THE IMPORTANT FACT OR FOR DECIDING THE TRUE INTENTION OF THE ASSESSEE IS TO FIND OUT WHETHER THE ASSESSEE HAD INTENTION TO EARN DIVIDEND BY HOLDING THE SHARES AS INVESTOR OR TO EARN PROFIT BY TRADING IN THE SAME. IT IS ALSO TRUE THAT VOLUME AND ITA NO. 3727 / 1 2 10 FREQUENCY OF TRANSACTIONS IS AN IMPORTANT INDICATOR OF THE INTENTION OF THE ASSESSEE WHETHER TO DEAL IN THE SHARES AS BUSINESSMAN OR TO HOLD THE SHARES AS A N INVESTOR BUT CERTAINLY NOT THE SOLE CRITERIA. IN THE INSTANT CASE THE RE IS NO DISPUTE TO THE FACT THAT INTENTION OF THE ASSESSEE WAS NOT PROVED TO BE INVESTOR INSOFAR AS NO DIVIDEND INCOME WAS EARNED BY THE ASSESSEE IN RESPECT OF SHARES PURCHASED BECAUSE THE SHARES SO PURCHASED WERE SOLD IMMEDIATELY TO EARN PROFIT THEREON. IT IS ALSO A FACT THAT NEITHER IN THE PRECEDING ASSESSMENT YEAR NOR IN THE SUBSEQUENT YEARS T HE ASSESSEE HAS INVESTED ANY FUNDS IN THE SHARES NOR SHOWN ANY CAPITAL GAINS SHORT TERM OR LONG TERM . THEREFORE PRINCIPLE OF CONSISTENCY WILL NOT HELP THE ASSESS EE. THE CASE LAWS RELIED ON BY THE CIT(A) FOR ACCEPTING ASSESSEES CONTENTION OF INVESTOR IN SHARES IS MISPLACED. IN THE CASE OF SMK SHARES & STOCK BROKING PVT. LTD. RELIED ON BY THE CIT(A) (SUPRA) IS DISTINGUISHABLE ON FACTS INSOFAR AS IN THAT CASE ASSES SEE WAS CONSISTENTLY INVESTING IN SHARES AND THIS FACT WAS ALSO ACCEPTED BY THE DEPARTMENT IN THE SCRUTINY ASSESSMENT. FURTHERMORE NOT ONLY THE SHORT TERM BUT ALSO THE LONG TERM CAPITAL GAINS WAS EARNED BY THE ASSESSEE IN RESPECT OF SHARES HELD AS INVESTM ENT. I N CASE OF SMK SHARES & STOCK BROKING PVT. LTD. (SUPRA) THE ASSESSEE HAS OFFERED SHORT TERM CAPITAL GAINS OF RS. 42.34 LAKHS AND ALSO LONG TERM CAPITAL GAINS OF RS. 60.95 LAKHS. THUS THE INTENTION OF THE ASSESSEE TO ACQUIRE AND HOLD SHARES IS CLEARLY I NDICATED INSOFAR AS LONG TERM CAPITAL GAINS SO EARNED WAS MUCH MORE THAN THE SHORT TERM CAPITAL GAINS EARNED ON SHARES HELD FOR LESS THAN ONE YEAR WHICH RESULTED INTO EARNING OF DIVIDEND INCOME . IT IS ALSO A FACT THAT ITA NO. 3727 / 1 2 11 NO BORROWED FUNDS WERE USED F OR MAKIN G INVESTMENT IN SHARES AND SECURITIES AS PER THE FINDINGS RECORDED BY THE TRIBUNAL . IN THAT CASE THE TRIBUNAL OBSERVED THAT IT IS PRIMARILY MOTIVE OF THE ASSESSEE WHICH IS TO BE EXAMINED AND AFTER EXAMINING THE SAME FINDING WAS RECORDED TO THE EFFECT THAT THE ASSESSEE WAS CONSISTENTLY HOLDING THE SHARES AS INVESTOR IN WHICH NOT ONLY SHORT TERM BUT LONG TERM CAPITAL GAINS WAS EARNED ALONG WITH DIVIDEND INCOME. HOWEVER IN THE INSTANT CASE BEFORE US NEITHER THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS NO R CONSISTENTLY DECLARED SHORT TERM OR LONG TERM CAPITAL GAINS IN PRECEDING OR SUCCEEDING YEAR NOR ANY DIVIDEND INCOME EARNED NOR WAS INVESTMENT IN SHARES OUT OF OWN FUNDS. THUS THE CIT(A) HAS WRONGLY PLACED RELIANCE ON THE CASE LAW HAVING ENTIRELY DIFFER ENT FACTS. SIMILARLY IN THE CASE OF HITESH SATISHCHANDRA DOSHI RELIED ON BY THE CIT(A) THE ASSESSEE WAS FOUND TO BE CONSISTENTLY INVESTING IN SHARES FROM WHERE HE WAS EARNING LONG TERM AS WELL AS SHORT TERM C APITAL GAINS MEANING THEREBY INDICATING THAT A SSESSEE WAS HOLDING THE SHARES AS INVESTMENT ON WHICH DIVIDEND INCOME WAS ALSO EARNED. THE TRIBUNAL OBSERVED THAT IN THE ASSESSMENT YEAR 2004 - 05 THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS OF RS. 2.11 CRORES AND ALSO SHORT TERM CAPITAL GAINS OF RS. 4.28 CRORES IN THE ASSESSMENT YEAR 2006 - 07 THE LONG TERM CAPITAL GAINS WAS OF RS. 13.54 CRORES AND SHORT TERM CAPITAL GAINS OF RS. 18.60 CRORES. THE FACT OF ASSESSEE EARNING DIVIDEND ON THE SHARES WAS ALSO RECORDED BY THE TRIBUNAL. HOWEVER IN THE INSTANT CASE B EFORE US THE ASSESSEE HAS NEITHER EARNED ANY LONG TERM CAPITAL GAINS NOR EARNED ANY DIVIDEND ITA NO. 3727 / 1 2 12 INCOME ON THE SHARES ALLEGED TO BE BOUGHT WITH INTENTION TO HOLD AS INVESTMENT. EVEN THE FACTS OF THE CASE OF GOPAL PUROHIT (SUPRA) RELIED ON BY THE CIT(A) ARE AL SO DISTINGUISHABLE . I NSOFAR AS ASSESSEE WAS CONSISTENTLY INVESTING IN SHARES AND ITS CLAIM WAS ALSO ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT IN EARLIER YEARS THEREFORE IT WAS HELD THAT ON THE VERY SAME FACTS THE AO CANNOT TAKE DIFFERENT VIEW FO R COMING TO THE CONCLUSION THAT ASSESSEE WAS NOT INVESTOR BUT ONLY A TRADER IN SHARES. 9 . THE ITAT COORDINATE BENCH IN THE CASE OF NAROTTAM SOMANI (HUF) 12 TAXMANN.COM 282(INDORE) AFTER TAKING INTO ACCOUNT THE FREQUENCY OF TRANSACTION PERIOD OF HOLDING AND INTENTION OF THE ASSESSEE TO EARN PROFIT BY SELLING SHARES WITHIN THE SHORT PERIOD AND WITHIN YEAR ITSELF WITHOUT EARNING ANY DIVIDEND INCOME THEREON HELD THAT PROFIT SO EARNED WAS IN NATURE OF BUSINESS INCOME RATHER THAN SHORT TERM CAPITAL GAINS. I T WAS FURTHER OBSERVED THAT THOUGH ASSESSEE HAD TRADED IN ONE SCRIPT ONLY BUT FREQUENCY OF TRANSACTION WAS VERY HIGH AND SHARES HAD BEEN HELD FOR VERY SHORT TIME AND SAME HAD BEEN SOLD IMMEDIATELY AFT ER A SHORT PERIOD OF PURCHASES WAS CLEARLY INDICATIVE OF ASSESSEES INTENTION OF TRADING IN SHARES. IT WAS FURTHER OBSERVED THAT ORDINARILY THE PURCHASE AND SALE OF SHARES WITH THE INTENTION OF EARNING PROFIT WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE BUT W HERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROFIT ACCRUING O N SUCH INVESTMENT WILL YIELD CAPITAL GAINS AND NOT REVENUE RECEIPT. IT WAS ALSO OBSERVED THAT WHETHER ITA NO. 3727 / 1 2 13 PURCHASES AND SALES IS FOR REALIZING PROFIT OR PURCHASE ARE MADE FOR RETENTION AND APPRECIATION OF ITS VALUE AND EARNING DIVIDEND INCOME IS ALSO A GUIDING FACTOR. FORMER WILL INDICATE INTENTION OF TRADE AND LATER AN INVESTMENT. FACTS OF THE INSTANT CASE IS MORE NEARER TO THE FAC TS OF NAROTTAM SOMANI (SUPRA). 1 0 . IT IS CLEAR FROM THE ORDER OF CIT(A) THAT FOR AGREEING WITH THE ASSESSEES CONTENTION OF INVESTOR HE HAS WRONGLY PLACED RELIANCE ON THE JUDICIAL PRONOUNCEMENT HAVING DIFFERENT FACTS. ACCORDINGLY WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO HIM FOR DECIDING AFRESH IN TERMS OF OUR ABOVE DISCUSSION. 1 1 . IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 31 /07 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 31 /0 7 /201 5 . . /PKM . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER / ( ASSTT. REGISTRAR) / ITAT MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) MUMBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE. //TRUE COPY//