The ACIT, Circle-1,, Bhavnagar v. Shri Jayantkumar N.Patel(HUF), Bhavnagar

ITA 380/AHD/2009 | 2005-2006
Pronouncement Date: 31-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 38020514 RSA 2009
Assessee PAN AACHJ3084R
Bench Ahmedabad
Appeal Number ITA 380/AHD/2009
Duration Of Justice 2 year(s) 1 month(s) 24 day(s)
Appellant The ACIT, Circle-1,, Bhavnagar
Respondent Shri Jayantkumar N.Patel(HUF), Bhavnagar
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 31-03-2011
Date Of Final Hearing 18-03-2011
Next Hearing Date 18-03-2011
Assessment Year 2005-2006
Appeal Filed On 06-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI D.C. AGRAWAL ACCOUNTANT MEMBER ITA NO.380 383-385/AHD/2009 ASSESSMENT YEAR :2005-06 DATE OF HEARING:18.3.11 DRAFTED: 24.3.11 ACIT CIRCLE-1 JASHONATH CHOWK BHAVNAGAR 364 001 ACIT CIRCLE-1 JASHONATH CHOWK BHAVNAGAR -364 001 ACIT CIRCLE-1 JASHONATH CHOWK BHAVNAGAR -364 001 ACIT CIRCLE-1 JASHNATH CHOWK BHAVNAGAR -363 001 V/S . V/S . V/S. V/S. JAYANTKUMAR N PATEL (HUF) PLOT NO.2214/B/C/1 MANAN HILL DRIVE BHAVNAGAR PAN NO.AACHJ3084R DEVYANIBEN HASMUKHRAI PATEL PLOT NO.2214/B/C/1 MANAN HILL DRIVE BHAVNAGAR PAN NO.AAOPP4644H JAYANTKUMAR N PATEL PLOT NO.2214/B/C/1 MANAN HILL DRIVE BHAVNAGAR PAN NO.AAOPP4655Q KEVAT JAYANTKUMAR VANANI PLOT NO.2214/B/C/1 MANAN HILL DRIVE BHAVNAGAR PAN NO.AACCPV5148C (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI B.R. POPAT AR REVENUE BY:- SHRI MUDIT NAGPAL SR-DR O R D E R PER D.C. AGRAWAL ACCOUNTANT MEMBER:- THESE ARE THE FOUR APPEALS FILED BY REVENUE AGAINS T THE ORDER OF LD. COMMISSIONER OF INCOME-TAX(APPEALS)-XX AHMEDABAD WHEREIN HE HAS HELD THAT PROFIT ARISING ON SALE OF SHARES AND SECURITIES IS SHORT TERM CAPITAL GAINS (STCG FOR ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 2 SHORT) AND NOT BUSINESS INCOME WHEREAS THE ASSESSI NG OFFICER HAS TREATED SUCH PROFIT ON SALE OF SHARES AND SECURITIES WITHIN 30 D AYS OF THEIR PURCHASES AS BUSINESS INCOME. EXCEPT THE QUANTUM OF THE ADDITION THE GRO UNDS RAISED BY THE REVENUE ARE COMMON IN ALL THE FOUR CASES. FOR THE SAKE OF CONVE NIENCE WE REPRODUCE SUCH COMMON GROUND AS UNDER:- ITA NO.380/AHD/2009 FOR A.Y. 2005-06 1. THE LD. CIT(A)-XX AHMEDABAD HAS ERRED IN LAW A ND ON FACTS IN HOLDING THAT THE PROFIT ON SALE OF SHARES AMOUNTING TO RS.1 7 80 557/- WHICH WERE HELD FOR LESS THAN 30 DAYS BY THE ASSESSEE IS TO BE TREA TED AS SHORT TERM CAPITAL GAINS AS AGAINST THE BUSINESS INCOME TREATED BY THE AO WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER. 1.2 IN DOING SO THE LD. CIT(A)-XX AHMEDABAD HAS E RRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT TAKING INTO CONSIDERATION THE REGULARITY FREQUENCY OF PURCHASE AND SALES AS WELL AS THE TRADING PATTERN IT WAS CLEAR THAT THE ASSESSEE WAS DEALING IN SHARES NOT AS AN INVESTOR B UT AS A TRADER. 1.3 IN DOING SO THE LD. CIT(A)-XX AHMEDABAD HAS E RRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT CONSIDERING THE SMALL PER IOD (LESS THAN 30 DAYS) FOR WHICH THE SAID SHARES WERE HELD BY THE ASSESSEE IT WAS CLEAR THAT THE UNDERLYING INTENTION OF THE ASSESSEE WAS NOT TO PUR CHASE THE SAID SHARES AS AN INVESTMENT FOR THE PURPOSE OF DERIVING ANY DIVID END INCOME FROM THE SAME BUT THE SAME WERE ACQUIRED AS STOCK IN TRADE WITH T HE INTENTION OF CARRYING OUT REGULAR BUSINESS IN SALE AND PURCHASE OF SHARES. IN THE FOUR CASES THE PROFIT ON SALE OF SHARES WHI CH WERE HELD FOR LESS THAN 30 DAYS AND WERE TREATED BY ASSESSING OFFICER AS BUSINESS I NCOME THE STCG BY THE ASSESSEE ARE AS UNDER:- ASSESSEE AMT. IN RS. PORTION TREATED AS BUSINESS INCOME BY AO J.N. PATEL (HUF) PARTNER IN DEVI IMPEX & KEVAT BUILDERS RS. 17 80 557/- DEVYANIBEN HASMUKHRAI PATEL RS. 10 58 339/- JAYANTKUMAR N PATEL RS. 26 79 360/- KEVAT JAYANTKUMAR VANANI RS. 24 98 015/- THE LEAD CASE WHICH WE WILL TAKE UP FOR DISCUSSION IS OF SHRI JAYANTKUMAR N PATEL (HUF0. THE ASSESSEE IS GENERAL ENGAGED IN THE DIAMO ND BUSINESS AS A PARTNER IN HUF CAPACITY. THE ASSESSING OFFICER NOTED THAT ASSE SSEE APART FROM DIRECT PURCHASE AND SALE OF SHARE IS ALSO ENGAGED IN F & O TRADING WHERE IT SUFFERED LOSSES AMOUNTING TO RS.9 90 541/-. THE ASSESSEE HAD FURTHE R SHOWN STCG OF ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 3 RS.59 90 872/- PROFIT FROM UNITS OF MUTUAL FUNDS A T RS.2 20 117/- AND LOSS ON SPECULATIVE BUSINESS AT RS.9 90 541/-. AFTER ANALYZ ING THE TRADING PATTERN THE ASSESSING OFFICER INFERRED THAT ASSESSEE IS A REGUL AR DEALER IN SHARES SECURITIES AND DERIVES INCOME FROM SALE AND PURCHASE OF MUTUAL FU NDS. CONSIDERING THE REGULARITY AND FREQUENCY OF PURCHASE AND SALE THE AO INFERRED THAT ASSESSEE IS A REGULAR DEALER IN SHARES. SINCE HE IS ALSO INDULGING IN SAL E AND PURCHASE OF DERIVATIVE PRODUCTS HE IS AN EXPERT IN SHARE TRADING. BESIDES THE ASSESSEE HAS BEEN INVESTING HEAVILY IN IPOS AND ON ALLOTMENT IN IPO SALES THEM EITHER IMMEDIATELY OR WITHIN SHORT PERIOD OF 21 DAYS WHICH SHOWS THAT ASSESSEE I S NOT ACTING INVESTOR BUT ONLY AS A TRADER. CONSIDERING THESE FACTS THE TRANSACTION OF SALE AND PURCHASE WITHIN 30 DAYS ARE TREATED AS BUSINESS TRANSACTION. THE SALE AND PURCHASE FOR MORE THAN 30 DAYS WERE TREATED AS STCG. ACCORDING TO AO MOST OF THE ALLOTMENT OF SHARES IN IPO WAS SOLD WITHIN 30 DAYS. WITH THESE OBSERVATIONS THE AO TREATED THE PROFIT ON SALE OF SHARES FOR LESS THAN 30 DAYS AS BUSINESS PROFIT AND OTHERS WHEN SOLD WITHIN ONE YEAR OF PURCHASE AS STCG AS DECLARED BY ASSESSEE. 2. AGAINST THIS LD. CIT(APPEALS) REFERRED TO THE INSTRUCTION FROM CBDT NO.1827 ISSUED ON 30-08-1989 AND HELD THAT ASSESSEE IS ONLY INVESTOR AND NOT A DEALER IN THIS REGARD. WE REFERRED TO PARA-3 TO 3.4 :- 3. I HAVE CAREFULLY CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE APPELLANT. DURING THE YEAR THE ASSESSEE ALSO SOLD SHARES WHICH HE HAD BEEN HOLDING FOR MORE THAN A YEAR. THE GAIN EARNED FROM SUCH SHARES WAS EXEMPT FROM TAX AS PER THE PROVISIONS OF SEC.10(38) OF THE IT ACT 1961. DURING THE YEAR THE APPELLANT HAD SOLD S HARES WHICH HE HAD BEEN HOLDING FOR LESS THAN 1 YEAR AND HENCE THE GAIN WAS OFFERED AS SHORT TERM CAPITAL GAIN AND TAX WAS PAID AS PER THE PROVISIONS OF SEC. 111A OF THE INCOME-TAX ACT 1961. THE ASSESSING OFFICER TREATED THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES WHICH WERE HELD FOR LE SS THAN 30 DAYS AS ADVENTURE IN NATURE OF TRADE AND THEREBY THE PROFI T EARNED ON SUCH TRANSACTIONS WAS TREATED AS BUSINESS PROFIT AS AGAI NST SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. 3.1 THE ASSESSING OFFICER HAS NOT PROPERTY CONSIDER ED THE CBDTS INSTRUCTION NO. 1827 DT. 31.08.1989 DRAFT INSTRUCTION DT. 16-0 5-2006. THE CBDT HAS SET SOME CRITERIA TO MAKE DISTINCTION BETWEEN THE SHARE HELD AS STOCK-IN-TRADE AND INVESTMENT. THE CBDT HAS ALSO MENTIONED THAT NO SI NGLE PRINCIPLE WOULD BE DECISIVE AND TOTAL EFFECT OF ALL THE PRINCIPLES HAS TO BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE THE SHARES ARE HELD BY TH E ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. THE YARDSTICK FOR 30 DAYS APPLIE D BY THE ASSESSING OFFICER IS UNCALLED FOR. ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 4 3.2 UPON EXAMINATION OF THE FACTS OF THE CASE I HA VE COME TO FOLLOWING FINDINGS: (I) THAT THE ASSESSEE WAS PARTNER IN A DIAMOND TRAD ING FIRM. HE HAS EARNED SUBSTANTIAL AMOUNT OF PROFIT FROM THESE ACTI VITIES AND PURCHASE AND SALE OF SECURITIES WAS NOT ALLIED TO HIS USUAL TRADE OR BUSINESS BUT INDEPENDENT OCCASIONAL ACTIVITY. (II) THE ASSESSEE HAS NOT DONE ANY INTRA-DAY TRANSA CTIONS. (III) THE ASSESSEE HAS INVESTED IN THE EQUITY MARKE T THROUGH THE IPO AND SECONDARY MARKET. (IV) THE ASSESSEE HAS NOT DEALT IN ANY EQUITY REPEA TEDLY ONCE SOLD. (V) THAT MERELY BECAUSE THE SALE HAD RESULTED IN A PROFIT DID NOT MEAN THAT WHEN THE ASSESSEE PURCHASED THE SHARES IT WAS WITH AN INTENTION TO SELL THEM AT A PROFIT. (VI) THAT AN INVESTOR MAY SELL THE SHARES WHEN HE G ETS A GOOD PRICE FOR THE SHARES. (VII) THAT THE ASSESSEE HAD TAKEN TEMPORARY LOANS F ROM RELATIVES OR SISTER CONCERNS. AT THE SAME TIME ASSESSEE HAD GIVEN LOAN S TO ITS FAMILY MEMBERS AND SISTER CONCERNS. THE INTEREST PAYMENT T HOUGH NOT CLAIMED BY THE APPELLANT IS VERY MEAGER AMOUNT WHEN COMPARED TO THE INTEREST HE HAD EARNED. THE ASSESSEE HAS EARNED SUB STANTIAL AMOUNT OF INTEREST FROM INTEREST AND DEPOSITS MADE WITH OT HER PARTIES. (VIII) THAT THE NUMBERS OF TRANSACTIONS ARE NOT MAN Y EVERY YEAR AND THE ASSESSEE COULD NOT BE SAID TO INDULGE IN SEVERAL TR ANSACTIONS OF PURCHASE AND SALE VERY YEAR. (IX) THAT ALL THE SECURITIES PURCHASED OR SOLD WERE LISTED. (X) THE ASSESSING OFFICER HAS ACCEPTED THE DECLARAT ION BY THE ASSESSEE REGARDING GAINS DERIVED FROM SHARES HELD FOR MORE T HAN 1 YEAR AS LONG TERM CAPITAL GAIN. (XI) A TRADER NORMALLY TRADES IN EQUITY SHARES ON D AILY BASIS. HE ALSO DEALS IN THE SAME SCRIP REPEATEDLY. 3.3 THE TESTS LAID DOWN IN VARIOUS DECISIONS OF TH E APEX COURT INDICATE THAT IN EACH CASE IT IS THE TOTAL EFFECT OF ALL RELEVANT F ACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. EACH C ASE HAS TO BE DETERMINED ON THE TOTAL IMPRESSION CREATED ON THE MIND OF THE COURT BY ALL THE FACTS AND CIRCUMSTANCES DISCLOSED IN A PARTICULAR CASE. ONE O F THE PRINCIPAL TESTS IS WHETHER THE TRANSACTION IS RELATED TO THE BUSINESS NORMALLY CARRIED ON BY AN ASSESSEE. THE NATURE OF THE COMMODITY WOULD ALSO BE A RELEVANT FACTOR. IT IS EQUALLY WELL SETTLED THAT MERELY BECAUSE THE ORIGI NAL PURCHASE WAS MADE WITH ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 5 THE INTENTION TO RESELL IF AN ENHANCED PRICE COULD BE OBTAINED THAT BY ITSELF IS NOT ENOUGH TO INFER THAT AN ASSESSEE IS CARRYING ON BUSINESS. THIS VIEW IS FURTHER STRENGTHENED BY THE DECISION O F HONNBLE THE GUJARAT IN THE CASE OF COMMISSIONSER OF INCOME-TAX V. REWASHANKER A. KOTHARI (2006) 283 ITR 0338 (GUJ). 3.4 3.2 CONSIDERING ALL THE CRITERIA LAID DOWN BY THE CBDT REFLECTION OF INVESTMENTS IN BOOKS JUDICIAL PRONOUNCEMENTS AND TO TALITY OF THE FACTS I AM OF THE VIEW THAT THE INCOME DECLARED BY THE ASSESSEE O N ACCOUNT OF SHORT TERM CAPITAL GAINS FROM SHARES WHICH WERE HELD FOR LESS THAN 30 DAYS DESERVES TO BE TREATED AS SHORT TERM CAPITAL GAIN AS AGAINST BU SINESS INCOME TREATED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IS THE REFORE DIRECTED TO TREAT THE PROFIT EARNED FROM ABOVE DISCUSSED SHARE TRANSACTIO NS AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. 3. AGAINST THIS LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT WHAT IS IMPORTANT FOR DECIDING WHETHER IT IS BUSINESS INCOME OR STCG IS THE INTENTION OF THE ASSESSEE AS TO HOW HE IS INVOLVING HIMSELF IN THE VENTURE. T HE LARGE FREQUENCY OF TRANSACTION CARRIED ON BY ASSESSEE SHORT PERIOD OF HOLDING FR EQUENT APPLICATION MADE IN IPO AND SELLING THEM IMMEDIATELY ON ALLOTMENT DEPLOYME NT OF LARGE FUNDS FREQUENTLY SELLING THE SAME AND PURCHASING OR INVESTING IN TH E NEW SCRIP ARE SOME OF THE CLEAR INDICATIONS THAT ASSESSEE IS ACTIVELY INVOLVED IN T RADING IN SHARES. THOUGH FOR THE PURPOSES OF NOMENCLATURE IT HAS BEEN SHOWN AS INVES TMENT. IF SOME PERSON MAKES LARGE NUMBER OF INVESTMENTS AND FREQUENTLY DEALS WI TH THEM THEN HE WOULD BE CLEAR IN DEALER IN INVESTMENTS AND SUCH INVESTMENTS WOULD BECOME HIS STOCK-IN-TRADE. LD. DR REFERRED TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF SHRI SUGAMCHAND C SHAH V. ACIT CIRCLE-3 SURAT IN ITA NO.3554 & 4024/AHD/2008 AND 2219 & 1932/AHD/2009 DATED 29-01-2010 WHEREIN IT IS HELD THAT IF ASSES SEE FREQUENTLY MAKES TRANSACTION IN SALE AND PURCHASE OF SHARES C ARRIES ON LARGE VOLUME HOLDING PERIOD IS LOW THEN SUCH PROFIT EARNED ON SALE OF S HARES HELD FOR LESS THAN 30 DAYS SHOULD BE TREATED AS BUSINESS INCOME. 4. ON THE OTHER HAND LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND EXPORT OF DIAMOND. THE TRANSACTIONS IN SHARE IS NOT HIS MAIN BUSINESS ACTI VITY. HE IS NOT A BROKER IN SHARES. THE ASSESSEE HAS HUGE CAPITAL BASE OF RS.4.59 CRORE S. AS PER BALANCE-SHEET ONLY A SUM OF RS.1.38 CRORES APPROXIMATELY IS INVESTED IN SHARES OF VARIOUS COMPANIES. THIS CONSTITUTED JUST 30% OF THE CAPITAL BASE. THE INVESTMENT WAS MADE PRIMARILY TO ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 6 EARN DIVIDEND. ASSESSEE HAS CARRIED OUT LIMITED TRA NSACTION. ASSESSEE HAS RECEIVED SUBSTANTIAL DIVIDEND. ASSESSEE HAS TAKEN DELIVERY O F SHARES WHICH ARE CREDITED IN HIS DEMAT ACCOUNT. EVEN ON SALE OF SHARES TRANSFER IS MADE FROM DEMAT ACCOUNT ONLY. ON SHORT TERM BASIS ASSESSEE HAS AVAILED FINA NCE FROM FAMILY MEMBERS AND NOT BORROWED FUNDS FROM OUTSIDE. ENTIRE INVESTMENT IN SHARES IS OUT OF OWN FUNDS. HE IS NOT TAKING ANY PROFESSIONAL HELP. ASSESSEE HAS R EFLECTED SHAREHOLDINGS UNDER THE HEAD INVESTMENT AND SAME IS VALUED AT COST AND AS COST OR MARKET PRICE WHICHEVER IS LOW WHICH IS REQUIRED IF SHARES ARE HIS STOCK IN TRADE. THE ASSESSEE HAS INCURRED SUBSTANTIAL EXPENSE OF RS.45 510/- UND ER THE HEAD ADMINISTRATIVE EXPENSES AND OF RS.21 840/- AS FURNITURE EXPENSES W HICH HAVE NOT BEEN CLAIMED AS EXPANSES. 5. IN THE ALTERNATIVE LD. AR SUBMITTED THAT IN CAS E THE PROFIT ON SALE OF SHARES WITHIN 30 DAYS IS TREATED AS BUSINESS INCOME THEN C ORRESPONDING EXPENSES INCURRED SHOULD BE ALLOWED AGAINST PROFITS. 6. LD. DEPARTMENTAL REPRESENTATIVE FURTHER RELIED O N THE DECISION OF THE TRIBUNAL IN GOPAL PUROHIT V. JCIT (2009) 20 SOT 117 (BOM) WHICH IS CONFIRMED BY HON BLE BOMBAY HIGH COURT. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT ASSESSEE HAS CARRIED OUT MORE THAN2 00 TRANSACTIONS IN THE YEAR OUT OF WHICH ABOUT 25 TRANSACTIONS ON SALE AND PURCHAS E WERE SUCH THAT WHICH WERE DONE WITHIN 30 DAYS ON WHICH ASSESSING OFFICER HAD TREATED THE PROFIT AS THAT FROM BUSINESS. THE DETAILS FILED BY ASSESSEE AS PER PAGE S NO.9-12 OF HIS PAPER BOOK CLEARLY SHOW THAT THERE IS LARGE FREQUENCY OF TRANS ACTIONS NUMBER OF SHARES ARE PURCHASED ARE ALSO SUBSTANTIAL FOR EXAMPLE 15 OF SHARES OF BANK OF RAJASTHAN WERE PURCHASED ON 06-01-2005 BUT SOLD ON 07-01-2005 12 SHARES OF BHARAT EARTH MOVERS PURCHASED ON 08-09-2007 21-09-2005 11 292 SHARES OF BHARAT SHARES LTD. PURCHASED ON 23-12-2007 WERE SOLD BY 03-01-2005 AND SO ON. THUS THE FREQUENCY AND VOLUME OF TRANSACTION IS SUBSTANTIAL. IT IS NOT MATERIAL WHETHER THE ASSESSEE IS A BROKER OR NOT WHAT IS RELEVANT IS INTENTION. IN OUR VIEW ASSESSEE IS CLEARLY DEALING IN SHARE LIKE A TRADER. THEREFORE PROFIT THEREON SHOU LD BE CONSIDERED UNDER THE HEAD BUSINESS. ASSESSING OFFICER HAS BEEN RIGHT IN TRE ATING SUCH PROFITS ON HOLDING OF ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 7 SHARES FOR 30 DAYS AS BUSINESS INCOME. SIMILAR ISSU E HAS BEEN CONSIDERED IN A DETAILS IN THE CASE OF SHRI SUGAAMCHAND C SHAH (SUPRA) PRONOUNCED ON 29-01-2010. THE DECISION OF THE TRIBUNAL IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (2009) 120 TTJ 216 (LUCKNOW) AND ITAT MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT V. JCIT (2009) 20 SOT 117 (BOM) HAVE BEEN CONSIDERED IN DE TAILS IN THAT ORDER. FOR THE SAKE OF CONVENIENCE WE REPRODUCE PARA-9 TO 19 FROM THE ORDER IN SUGAMCHANDS CASE AS UNDER:- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE TRIBUNAL IN THE CASES OF GOPAL PUROHI VS. JT. CIT(S UPRA) AND OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT.CIT(SUPRA) LAID D OWN CRITERIA FOR HOLDING AS TO WHEN TRANSACTION IN SHARES BE TREATED AS TRADING AN D WHEN THEY SHOULD BE TREATED AS INVESTMENT. 10. FOR THE SAKE OF CONVENIENCE WE REPRODUCE HEREU NDER THE RELEVANT PORTION OF THE ORDER OF ITAT BOMBAY BENCH IN THE CASE OF GO PAL PUROHIT VS. JT.CIT [2009] 29 SOT 117 (MUM.). IF THESE FACTS ARE TAKEN INTO CONSIDERATION THEN FOLLOWING CONCLUSIONS EMERGE : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGARD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND THE TRANSACTIO NS ARE SAME IN ALL THESE YEARS EXCEPT TRANSACTIONS IN F&O SEGMENT IN S OME OF THE YEARS WHEREIN THIS KIND OF ACTIVITY WAS STARTED BY THE ST OCK EXCHANGE. (II) INTEREST ON BORROWED CAPITAL HAS BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIE S SHOWN BY THE ASSESSEE AS BUSINESS PROFIT. (III) THE ASSESSEE HAS SHOWN SHARES PURCHASED ON DE LIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-IN-T RADE EXIST ON THAT DATE AND THE ASSESSEE HAS EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANS THE ASSESSEE HAS ALSO HEL D SHARES FOR A PERIOD OF MORE THAN 12 MONTHS. 8.1 THUS THE NATURE OF ACTIVITIES MODUS OPERANDI OF T HE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVES TMENT AT THE YEAR END IS SAME IN ALL THE YEARS HENCE; APPARENTLY THERE APP EARS NO REASON AS TO WHY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEP TED. HOWEVER THE REVENUE AUTHORITIES HAVE TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RES JUDI CATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE CANNOT BE IN OUR VIE W ANY DISPUTE ON THIS ASPECT BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE S AME FACTS AND CIRCUMSTANCES AND WE HAVE ALREADY FOUND THAT FACTS AND CIRCUMSTANCES ARE IDENTICAL EVEN THOUGH A DIFFERENT STAND HAS BEEN T AKEN BY THE REVENUE AUTHORITIES. THIS ACTION OF THE REVENUE AUTHORITIES HAS LED US TO ASK OURSELVES ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 8 THAT IN THIS YEAR WHY IT HAS BEEN DONE SO. IN THE P ROCESS TO FIND THE ANSWER WE NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF T AXATION RELATING TO SHORT- TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS. THR OUGH THE FINANCE ACT 2004 THE LEGISLATURE IMPOSED SECURITIES TRANSACTIO N TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTION S AND SIMULTANEOUSLY THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER S ECTION 10(38) OF THE ACT FROM THE LEVY OF TAX AND ON SHORT-TERM CAPITAL GAIN A CONCESSIONAL RATE OF TAX I.E. 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CO NDITION THAT TRANSACTIONS RESULTING INTO THIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX. THIS IS THE FIRST YEAR OF SUCH CHANGE AND HAVING R EGARD TO THE QUANTUM OF GAINS THIS SCHEME OF TAXATION ONLY IN OUR VIEW H AS PROMPTED THE REVENUE AUTHORITIES TO TAKE A DIFFERENT VIEW ON THE SAME TY PES OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN EARLIER YEARS. AT THIS STAG E WE CONSIDER IT FIT TO STATE THAT THERE IS NO DISPUTE BEFORE US THAT ASSESSEE HA S CLAIMED EXEMPTION UNDER SECTION 10(38) AND/OR HAS PAID TAX UNDER SECTION 11 1A AT CONCESSIONAL RATE ON THE TRANSACTIONS WHERE SECURITIES TRANSACTION TAX HAS NOT BEEN. IT IS ALSO NOTED THAT THE ASSESSEE HAS PAID TAX ON SHORT-TERM CAPITAL GAINS AT NORMAL RATES ON SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSITION OF SECURITIES TRANSACTIONS TAX. IN OUR VIEW THE LEGIS LATIVE CHANGE OF THIS NATURE WHEREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATUR E AND MODUS OPERANDI OF SUCH SHARE TRANSACTIONS RESULTING INTO ANY ADVA NTAGE CANNOT BE TAKEN AWAY BY THE REVENUE AUTHORITIES IN THIS MANNER AND IN THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT PRINCIPLE OF CONSISTENCY THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY I.E. WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LOSS AND BY IM POSITION OF SUCH TAX THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BENEFIT TO IN DIVIDUAL(S) ENTERING INTO THOSE TRANSACTIONS. THUS IN OUR VIEW IN THE FACTS AND CIRCUMSTANCES OF THE CASE ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALON E THE ACTION OF THE REVENUE AUTHORITIES IS LIABLE TO BE QUASHED. WE ORDER ACCOR DINGLY AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN. 10.1. IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD . VS. ASSTT.CIT(SUPRA) THE TRIBUNAL CONSIDERED THE CIRCULAR NO.4 OF CBDT(2007) DATED 15/06/2007 VARIOUS OTHER DECISIONS SUCH AS CIT VS. ASSOCIATE D INDUSTRIAL CO.LTD. (1971) 82 ITR 586 (SC) CIT VS. H. HOLCK LARSEN (H) (1986) 160 ITR 67 (SC) FIDELITY NORTHSTAR FUND IN RE(2007) 207 CTR (AAR) 297; (2007 ) 288 ITR 641 (AAR) FIDELITY ADVISOR SER SERIES VIII IN RE (2004) 271 I TR 1 (AAR) JP HARRISON (WATFORD) LTD. VS. GRIFFITH (H.M. INSPECTOR OF TAXE S) (1962) 40 TAX CASES 281 (HL) RAJA VISHEWARA SINGH (DECEASED) VS. CIT (1961 ) 41 ITR 685 (SC) CENTRAL INDIA AGENCIES PVT. LTD. V S. CIT (1970) 77 ITR 959 (ALL.) MRS. SAROJANI RAJAH VS. CIT (1969) 79 ITR 504 (MAD.) DA LHOUSIE INVESTMENT CO. LTD. VS. CIT (1968) 68 ITR 486(SC) CIT VS. ASSOCIA TED INDUSTRIAL DEVELOPMENT CO. LTD. (1971) 82 ITR 586 (SC) CIT VS . SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. (1975) 100 ITR 706 (SC) AND CULL ED OUT FOLLOWING PRINCIPLES WHICH ARE DESCRIBED IN PARA NO.13 OF THA T ORDER:- ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 9 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWI NG PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES : (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPEN ING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON ? NORMALLY MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN A SSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM ? PURCHASE AND SALE ARE FREQUENT OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT 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 MER ELY 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 OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHET HER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SH OW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN 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 STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 10 (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT 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 AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CAR RY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEP ARATE ACCOUNT FOR EACH TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 11. WHEN WE EXAMINE THE FACTS OF THE CASE WE FIND ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT IN RESPECT OF DEALING IN SHARE S AND ASSESSEE HAS SHOWN THE TRANSACTIONS IN SHARES AS INVESTMENT AND NOT AS STOCK-IN-TRADE. IT HAS BEEN SHOWN CONSISTENTLY FOR SEVERAL YEARS IN THE PA ST AND DEPARTMENT HAS NOT CHALLENGED THE BOOK KEEPING OR ACCOUNTING OF SHARES AS INVESTMENT. NO CONTRARY MATERIAL OR FACTS HAVE BEEN POINTED OUT BY THE REVENUE TO SHOW THAT FACTS IN THE CURRENT YEAR ARE DIFFERENT THAN THE FA CTS IN EARLIER YEARS. IT IS ALSO NOT POINTED OUT BY THE REVENUE THAT FREQUENCY AND N UMBER OF TRANSACTIONS ARE ABNORMALLY HIGH IN THE CURRENT YEAR AS COMPARED TO WHAT WAS DONE IN EARLIER YEARS. 12. THERE IS ALSO NO MATERIAL TO COME TO THE CONCLU SION THAT THE VALUATION OF INVESTMENT HAS BEEN DONE ON COST OR NET RELIABLE VA LUE WHICHEVER IS LOW. THE ASSERTION OF THE ASSESSEE IS THAT ENTIRE PORT-FOLIO HAS BEEN VALUED AT COST AS AT THE END OF ACCOUNTING YEAR WHICH REMAINED UNCHALLEN GED. 13. THE SHARES WHICH ARE SOLD OUT OF SUCH INVESTMEN T THIS YEAR WERE MOSTLY PURCHASED A YEAR OR EARLIER SHOWING THAT THE ASSESS EE HAD INTENTION WHILE PURCHASING THEM TO HOLD THEM AND THEY WERE REFLECTE D IN THAT BALANCE-SHEET AS INVESTMENT. THE ASSESSEE HAS ENJOYED DIVIDEND IN COME AND DECLARED THE SAME IN THE RETURN OF INCOME TRADING THE TRANSACTIO NS AS INVESTMENT EVEN IF FREQUENCY OF SELLING OF SHARES MAY BE MORE BUT IN R ESPECT OF SHARES HELD FOR A CONSIDERABLE LONGER PERIOD (FOR MORE THAN 366 DAYS) AS PER FINDING GIVEN BY THE LEARNED CIT(APPEALS). THIS FINDING REMAINED UNC ONTROVERTED. THE ASSESSEE HAS EARNED GAIN OF RS.37 52 281/- ON SALE OF THOSE SHARES WHICH WERE HELD FOR MORE THAN 366 DAYS AND UPTO 6832 DAYS . IN ANY CASE WHEN THOSE SHARES WERE PURCHASED IT COULD NOT BE SAID TH AT INTENTION OF THE ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 11 ASSESSEE WAS TO DEAL IN THEM AND NOT TO HOLD THEM A S INVESTMENT. EVEN IN THE CASE OF INVESTMENT IT IS FOR THE ASSESSEE TO DECIDE WHEN TO DISPOSE THEM OFF SO THAT TO GIVE MAXIMUM RETURN OUT OF THEM. THERE I S NO THEORY THAT ASSET HELD ON LONG-TERM BASIS SHOULD BE SOLD ONLY AT THE TIME OF NEED OR IN EMERGENCY. HE CAN VERY WELL SALE THE INVESTMENTS TO REAP THE B ENEFIT WHEN PRICES OF SHARES ARE HIGH SO AS TO EARN BETTER GAINS AND MAKE INVESTMENT ELSEWHERE. IN OUR CONSIDERED VIEW IT IS THE DECISION OF THE ASSE SSEE TO DISPOSE OF AN INVESTMENT IF ACCORDING TO HIM MARKET VALUE THERE OF HAVE REACHED A PLATEAU SO AS TO MAKE INVESTMENT IN OTHER ASSETS WHICH HAVE POTENTIAL OF APPRECIATION IN MARKET VALUE. THIS DECISION TO SALE HIS INVESTME NT AT HIGH MARKET PRICE CANNOT CONVERT AN OTHERWISE INVESTMENT INTO TRADING . IF IN THE PAST THE DEPARTMENT HAS ACCEPTED THE SALE OF SHARES OF HOLDI NGS OF MORE THAN A YEAR AS INVESTMENT AND PROFITS THEREON HAS BEEN ASSESSED UNDER THE HEAD CAPITAL GAIN THEN THERE IS NO REASON TO HOLD DIFFERENTLY THIS YEAR. WE ACCORDINGLY CONFIRM THE ORDER OF THE LEARNED CIT(APPEALS) IN RE SPECT OF HOLDING THAT PROFIT OF RS.37 52 281/- SHOULD BE ASSESSED AS 'LONG-TERM CAPITAL GAIN'. 15. IN RESPECT OF PROFIT OF RS.55 40 679/- BEING 'S HORT-TERM CAPITAL GAIN' AS CLAIMED BY THE ASSESSEE AND HELD AS PROFITS ASSESSE D UNDER THAT BUSINESS BY TWO AUTHORITIES WE FIND THAT IN MANY CASES THERE I S DELIVERY OF SHARES AND SHARE WERE REGISTERED IN THE NAME OF THE ASSESSEE. THE HOLDING PERIOD OF THE SHARES IS FROM 0 DAYS TO 366 DAYS. IN SOME CASE S THE FREQUENCY OF TRANSACTIONS ARE APPARENTLY SUBSTANTIAL AS ON ONE D AY THE ASSESSEE HAS PURCHASED SEVERAL SCRIPTS AND SOLD SEVERAL OF THEM ON THE SAME DAY. 16. THE QUESTION IS WHETHER THEREFORE MERELY FROM FREQUENCY OF THE TRANSACTIONS CARRIED ON BY THE ASSESSEE HE IS TREA TED AS DEALER IN SHARES OR STILL HE IS HELD AS INVESTOR. AS FOUND IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. VS. ASSTT.CIT(SUPRA) ALSO ASSESSEE ADDUCED EV IDENCE TO SHOW THAT HIS HOLDINGS ARE FOR INVESTMENT AS RECORDED IN THE BOOK S OF ACCOUNT. THE HOLDINGS ARE VALUED AT COST AND SUCH ACCOUNTING HAS BEEN AC CEPTED BY THE REVENUE IN EARLIER YEARS. THERE IS NO MATERIAL TO SHOW THAT ASSESSEE HAS DECLARED HIMSELF AS A TRADER IN SHARES AND LEGAL REQUIREMENT S THEREFORE HAVE BEEN COMPLIED WITH. IT IS ALSO A FACT THAT HE HAS NOT BO RROWED ANY MONEY FOR INVESTING IN SHARES. MERELY BECAUSE ASSESSEE HAD S OME BORROWED FUNDS IT WOULD NOT BY ITSELF SHOW THAT THEY WERE DEPLOYED IN INVESTMENT. NOTWITHSTANDING EVEN BORROWING ARE REQUIRED TO SET TLE PAYMENTS OBLIGATIONS IN RESPECT OF INVESTMENTS LIKE ONE TAKES LOAN FOR PURCHASING A HOUSE. IN ANY CASE HIGH FREQUENCY TRANSACTIONS AND LOW PERIOD HO LDINGS INDICATE TRADE WHEREAS LOW FREQUENCY TRANSACTIONS AND HIGH PERIOD HOLDINGS INDICATE INVESTMENT. 17. IN THIS CASE THE ASSESSEE HAS DISCHARGED THE O NUS OF SHOWING THAT IT IS MAKING INVESTMENT BUT REVENUE IS ABLE TO SHOW THAT THERE ARE HIGH FREQUENCIES AND LOW HOLDINGS IN MANY TRANSACTIONS O F SHARES INDICATING THAT ASSESSEE HAS SOME INTENTION OF PURCHASING AND SELLI NG SHARES AS A TRADER. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE FACT T HAT IT HAS ENTERED THE PURCHASES IN THE BOOKS AS INVESTMENT SHARES ARE VA LUED AT COST AND REVENUE IS HOLDING SUCH ACCOUNTING TREATMENT AS INV ESTMENT IN THE PAST. THUS THERE CANNOT BE A FIXED CRITERIA TO DECIDE AS IN THE PRESENT CASE WHETHER ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 12 ASSESSEE HAS TRADED IN SHARES EVEN THOUGH ASSESSEE HELD THEM AS INVESTMENT. 18. THOUGH IT HAS BEEN HELD IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD.(SUPRA) THAT DELIVERY OF SHARES IS AN IMPORTANT CRITERIA FOR HOLDING THAT ASSESSEE IS INVESTING IN THEM BUT AFTER DEMATIZATIO N WHERE SHARES ARE DELIVERED IN THE DEMAT ACCOUNT THE NEXT DAY IT CAN NOT BE HELD THAT IN ALL SUCH CASES IT WOULD BE INVESTMENT AND NOT TRADING. IF THAT IS SO HELD THEN ALL THOSE TRADERS IN SHARES IN WHOSE DEMAT ACCOUNTS SHA RES ARE DELIVERED CAN BE SAID TO HAVE EARNED CAPITAL GAINS AND NOT PROFIT S. THEREFORE ONLY ONE CRITERIA I.E. DELIVERY OF SHARES ALONE WILL NOT BE SUFFICIENT TO DECIDE THE ISSUE. EVEN OTHERWISE IN SARNATH INFRASTRUCTURE (P) LTD.(S UPRA) ITSELF IT HAS BEEN HELD THAT CUMULATIVE EFFECT OF SEVERAL FACTORS WILL DECI DE THE ISSUE. 19. CONSIDERING THE TOTALITY AND PECULIARITY OF THE FACTS OF THIS CASE WE FIND THAT ASSESSEE IS NEITHER FULLY ACTING AS A TRADER N OR AS FULLY INVESTOR. DEMARCATION IS QUITE HAZY; THOUGH IN THE BOOKS HE I S SHOWING ALL THE PURCHASES AS INVESTMENT BUT FREQUENCY OF TRANSACTIO N IN SEVERAL CASES IS SO LARGE AND HOLDING PERIOD IN MANY CASES IS SO SMALL FROM 0 TO A WEEK OR SO THAT ASSESSEE IS DE FACTO SELLING AND PURCHASING SH ARES AS TRADER. HE IS ALSO HOLDING SHARES FOR LONG PERIOD INDICATING THAT TH EY ARE HELD AS INVESTMENT. THEREFORE A CRITERIA HAS TO BE FIXED FOR DETERMINI NG AS TO WHEN HE IS ACTING AS TRADER AND WHEN AS INVESTOR. ACCORDINGLY WE DECIDE FOLLOWING CRITERIA TO HOLD WHEN GAINS ARE TO BE TAXED AS PROFIT TO BE EARNED U NDER THE BUSINESS OR TO BE TAXED AS SHORT TERM CAPITAL GAIN WE HOLD THAT IF S HARES ARE NOT HELD EVEN SAY FOR A MONTH THEN THE INTENTION IS CLEARLY TO REAP PROFIT BY ACTING AS A TRADER AND HE DID NOT INTEND TO HOLD THEM IN INVESTMENT PO RT-FOLIO. WE BELIEVE THAT IF A PERSON INTENDS TO HOLD HIS PURCHASES OF SHARES AS I NVESTMENT HE WOULD WATCH THE FLUCTUATION OF RATES IN THE MARKET FOR WHICH A MINIMUM TIME IS NECESSARY WHICH WE ESTIMATE AT ONE MONTH. WHERE SHARES ARE HE LD FOR MORE THAN A MONTH THEY SHOULD BE TREATED AS INVESTMENT AND ON THEIR SALE SHORT TERM CAPITAL GAIN SHOULD BE CHARGED. WHEN SHARES ARE HEL D FOR LESS THAN A MONTH GAIN ON THEM SHOULD BE TREATED AS PROFIT FROM BUSIN ESS. SINCE ALL THE AUTHORITIES REFERRED BY LD. CIT(A) AN D BY THE PARTIES BEFORE US ARE CONSIDERED BY THE TRIBUNAL IN THESE ORDERS REFERR ED ABOVE WE ARE OF THE THE ASEESEE IS PARTLY DEALING IN INVESTMENTS AS TRADER . THEREFORE IN OUR VIEW CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND FRE QUENCY AND VOLUME AND HOLDING PERIOD OF THE SHARES ASSESSING OFFICER WAS JUSTIFI ED IN TREATING THE PROFIT ON SALE OF SHARE HELD FOR LESS THAN 30 DAYS AS BUSINESS INCOME . 8. HOWEVER WE ARE ALSO INCLINED TO ALLOW THE ALTER NATIVE ARGUMENT OF THE ASSESSEE THAT REASONABLE AMOUNT OF EXPENDITURE AGAI NST SUCH BUSINESS INCOME SHOULD BE ALLOWED. LET ASSESSING OFFICER GIVE THE O PPORTUNITY TO ASSESSEE TO GIVE THE ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 13 DETAILS OF EXPENDITURE INCURRED AND ALLOW PRO RATA EXPENDITURE AGAINST SUCH BUSINESS INCOME. AS A RESULT APPEAL FILED BY REVENUE IS PAR TLY ALLOWED. 9. THE FACTS IN THE CASE OF DEVYANIBEN HASMUKHRAI P ATEL JAYANTKUMAR N PATEL AND KEVAT JAYANKUMAR VANANI ARE SIMILAR AS IN THE C ASE OF JAYANTKUMAR N PATEL (HUF) EXCEPT THE DIFFERENCE IN FIGURE OF PROFIT ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS WHICH HAVE ALREADY BEEN REFERRED TO ABOVE. FOL LOWING OUR ORDER IN THE CASE OF SHRI JAYANTKUMAR N PATEL (HUF) WE UPHOLD THE ORDERS OF ASSESSING OFFICER IN TREATING SUCH PROFIT ARISING ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS AS BUSINESS INCOME WITH A RIDER THAT HE WILL ALLOW REASONABLE A MOUNT OF EXPENSES ON PRO RATA BASIS AGAINST SUCH BUSINESS INCOME. HE WILL GIVE OP PORTUNITY TO ASSESSEE TO GIVE THE FIGURES OF TOTAL EXPENDITURE AGAINST EARNING OF SUC H CAPITAL GAINS AND THEN HE WILL WORK OUT A REASONABLE BASIS OR PRO RATA DISTRIBUTIO N OF EXPENDITURE AGAINST SUCH BUSINESS INCOME. 10. IN THE RESULT ALL THE APPEALS FILED BY REVENUE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31/03/2011 SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD DATED : 31/03/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XX AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ITA NO.380 383-85/AHD/2009 A.Y. 2005-06 ACIT CIR-1 BNG V. PATEL & VANANI GROUP PAGE 14