NATWRLAL AMBALAL SHAH(HUF), MUMBAI v. DCIT RG 12(3), MUMBAI

ITA 5140/MUM/2012 | 2008-2009
Pronouncement Date: 04-04-2014 | Result: Allowed

Appeal Details

RSA Number 514019914 RSA 2012
Assessee PAN AAAHN1496F
Bench Mumbai
Appeal Number ITA 5140/MUM/2012
Duration Of Justice 1 year(s) 7 month(s) 22 day(s)
Appellant NATWRLAL AMBALAL SHAH(HUF), MUMBAI
Respondent DCIT RG 12(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 04-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 04-04-2014
Assessment Year 2008-2009
Appeal Filed On 13-08-2012
Judgment Text
B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH MUMBAI .. ; BEFORE SHRI P.M. JAGTAP AM AND SHRI VIVEK VARMA J M ./ I.T.A. NO.5140 /MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 NATWARLAL AMBALAL SHAH (HUF) B/41 45 4 TH FLOOR PARAGON CENTRE PANDURANG BUDHKAR MARG WORLI MUMBAI 400 013. / VS. DY. COMMISSIONER OF INCOME TAX 12(3) AAYAKAR BHAVAN M.K. MARG MUMBAI - 400020. ./ PAN : AAAHN1496F ( # / APPELLANT ) .. ( $%# / RESPONDENT ) A PPELLANT BY SHRI NITESH JOSHI R E SPONDENT BY : SHRI V. SAXENA ) * / DATE OF HEARING : 03-03-2014 ) * / DATE OF PRONOUNCEMENT :04-04-2014 [ / O R D E R PER P.M. JAGTAP A.M . : .. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) 23 MUMBAI DATED 11-5-2012 WHEREBY HE UPHELD THE ACTION OF THE A.O. IN TREATING THE SHORT TERM CAPITAL GAIN OF RS. 96 1 3 281/-DECLARED BY THE ASSESSEE ARISING FROM SALE OF SHARES AND SECURITIES AS BUSINESS INCOME OF THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS AN HUF WHICH DERIVES INCOME FROM HOUSE PROPERTY BUSINESS CAPITAL GAIN AND OTHER SO URCES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 29-09-2008 ITA 5140/M/12 2 DECLARING TOTAL INCOME OF RS. 97 41 170/-. IN THE SAID RETURN PROFIT ARISING FROM SALE OF SHARES AND SECURITIES HELD FOR A PERIO D OF LESS THAN ONE YEAR WAS DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN . DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE WAS CALLED UPON BY THE A.O. TO EXPLAIN AS TO WHY THE SAID SHORT TERM CAPITAL GAIN SHOULD N OT BE TREATED AS ITS BUSINESS INCOME. IN REPLY IT WAS SUBMITTED ON BEH ALF OF THE ASSESSEE THAT IT WAS SHOWING INVESTMENT IN SHARES FOR THE LAST FEW Y EARS AND WAS ALSO OFFERING PROFIT ON SALE THEREOF AS CAPITAL GAIN. IT WAS ALSO BROUGHT TO THE NOTICE OF THE A.O. THAT THE ASSESSEE HAD EARNED SUBSTANTIAL DIVID END INCOME. A COPY OF D- MAT STATEMENT WAS ALSO PRODUCED BY THE ASSESSEE BEF ORE THE A.O. TO SHOW THAT THE ACTUAL DELIVERY OF SHARES AND SECURITIES W AS TAKEN AND GIVEN. IT WAS ALSO BROUGHT TO THE NOTICE OF THE A.O. THAT THE SHA RES AND SECURITIES WERE SHOWN IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASS ESSEE AS INVESTMENT. IN VIEW OF THIS SUBMISSION IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE PROFIT ARISING FROM THE SALE OF SHARES AND SECURITI ES HELD FOR A PERIOD LESS THAN ONE YEAR WAS RIGHTLY OFFERED TO TAX AS SHORT TERM C APITAL GAIN. 2. THE SUBMISSION MADE BY THE ASSESSEE WAS NOT FOUN D ACCEPTABLE BY THE A.O. FOR THE FOLLOWING REASONS GIVEN IN PARA 3 TO 5 OF HIS IMPUGNED ORDER:- A) THE ASSESSEE HERSELF IS ENGAGED IN THE BUSINESS IN SHARES WHICH IS ALREADY SHOWN UNDER THE HEAD INCOME FROM BUSINES S. THEREFORE THIS TREATMENT CLEARLY SHOWS THAT THE ASSESSEE HAS CHOSE N THE HEAD OF INCOME AS PER THE CONVENIENCE AND NOT AS PER THE CO RRECT TAXABILITY OR OTHERWISE. B) AS REGARDS THE INCOME FROM SPECULATIVE BUSINESS IT IS FURTHER SEEN THAT THE ASSESSEE HAS SHOWN INCOME FROM CERTAI N SHARE TRANSACTION AS INCOME FROM SPECULATIVE BUSINESS. TH EREFORE THE INTENTION OF THE ASSESSEE IS CLEAR THAT WHEREVER NO DELIVERY IS TAKEN OR GIVEN THE SAME IS TREATED AS INCOME FROM SPECULATIV E BUSINESS. THIS TREND OF THE ASSESSEE ITSELF PROVES THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF CARRYING ON SHARE TRADING ACTIVITIES. H OWEVER JUST BECAUSE DELIVERY IS TAKEN AND GIVEN IN CERTAIN OTHER CASES THE SAME CANNOT PARTAKE THE CHARACTER OF CAPITAL GAINS BY ITSELF. T HIS CLEARLY PROVES THAT THE ASSESSEE IS ACTIVELY IN BUSINESS OF SHARE TRADI NG. THIS SHOWS THAT THE ASSESSEE IS ACTIVELY ENGAGED IN THE BUSINESS. ITA 5140/M/12 3 C) THE ASSESSEE SUBMITTED LIST OF STCG RUNNING INTO 15 PAGES AND HAVING 200 ENTRIES APPROXIMATELY. THIS SHOWS THAT T HE ASSESSEE IS ACTIVE IN FREQUENT TRADING IN SHARES ON DAY TO DAY BASIS. D) IT IS FURTHER SEEN THAT THE ASSESSEE HAS SQUARED UP SEVERAL TRANSACTIONS WITHIN A SHORT PERIOD ONE DAY TO 365 D AYS. IT CLEARLY SHOWS THAT THE ASSESSEE IS DOING TRANSACTIONS IN SHARES F OR BUSINESS PROFIT AND QUICK GAINS. THE SAME CANNOT BE TREATED AS CAPITAL GAINS AS PER THE RATIO OF THE JUDGMENTS IN THE FOLLOWING CASES: I) SADANA NABERA VS. ACIT (ITA NO.2586/M/2009) II) HARSHA MEHTA VS. DCIT (ITA NO.1859/M/2009 & 2259/M/2009). III) SUGAMCHAND SHAH (37 DTR 346) (AHD.) IV) SHAILESH SHAH (HUF) ITA NO.3991 & 399 2/M/2008. V) V. NAGESH ITA NO. 5410/M/2008. VI) WALLFORT FINANCIAL SERVICES LTD. 6 TAXMAN.COM 66 (M UM) 2010 CONFIRMING THE ORDER OF JAYSHREE PRADEEP SHAH. FROM THE RATIO OF THE ABOVE SAID ORDERS & JUDGMENT IT IS CLEAR THAT THE ASSESSEE IS ALSO CARRYING OUT TRANSACTIONS IN SHARE S FREQUENTLY WITHIN A PERIOD OF ONE DAY TO 365 DAYS. THEREFORE THE CONTE NTION OF THE ASSESSEE THAT SHE IS A INVESTOR IS DISPROVED BY THE ABOVE SA ID JUDGMENT. ACCORDINGLY THE SAME CANNOT BE GIVEN CONCESSIONAL TREATMENT OF STCG. E) THE ASSESSEE HAS CONTENTED THAT THE DEMAT ACCOUN T PROVED THE DELIVERY OF SHARES TAKEN AND GIVEN BY HER. THIS CON TENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE JUDGMENT CIT ED ABOVE CLEARLY SHOW THAT EVEN IF THE SHARES ARE SOLD WITHIN THE SA ID PERIOD OF FEW DAYS THE SAME PARTAKES THE CHARACTER OF SHARE TRADING. F) IT IS ALSO SEEN FROM THE DETAILS FILED THAT THE ASSESSEE HAS BORROWED MONEYS WITH / WITHOUT INTEREST FROM DIFFER ENT PARTIES AS PER THE BALANCE SHEET. IN THIS REGARD THE ASSESSEE DID NOT SUBMIT ANY FURTHER EXPLANATION AS TO WHY THE BORROWINGS ARE NO T ATTRIBUTABLE TO THE CARRYING ON OF THE SHARE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. IT IS THEREFORE CLEAR THE ASSESSEE IS CARRYING ON BUSINES S OF SHARE TRADING AND NOT INVESTMENT IN SHARES AS CLAIMED IN THE RETU RN OF INCOME AND THE RELEVANT RECORD BECAUSE AS PER THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF DALHOUSIE INVESTMENT LTD. (68 ITR 486)(SC) THE BORROWING CLEARLY SHOWS THE NATURE OF ACTIVITY AS B USINESS. THE ASSESSEE HAVING BORROWED RS.2 09 91 746/- FROM 6 PA RTIES THEREFORE ITA 5140/M/12 4 THE SAME PARTAKES THE CHARACTER OF BUSINESS INCOME AS AGAINST CAPITAL GAIN. G) THE ASSESSEE HAS GOT MEAGRE CAPITAL OF RS.8 19 9 79/- AND THEREFORE THE QUESTION OF INVESTING THE SURPLUS FUN D OUT OF THE CAPITAL DOES NOT ARISE. CAPITAL GAIN MAINLY CONNOTES INVEST MENT OF SURPLUS FUND WHEREAS THE ASSESSEE DOES NOT POSSESS THE FUND S IN THE CAPITAL ACCOUNT COMMENSURATE WITH THE INVESTMENT MADE BY TH E ASSESSEE FROM TIME TO TIME. THIS ALSO GOES TO PROVE THAT THE ASSE SSEE HAVING NO SURPLUS INVESTIBLE FUND CANNOT BE ELIGIBLE FOR CLAI MING THE INCOME FROM SHARE TRANSACTIONS AS STCG / LTCG. THEREFORE THE S AME IS IN THE NATURE OF BUSINESS OF SHARE TRADING. H) THE ASSESSEE HAS ENTERED INTO HUGE NUMBER OF TRA NSACTIONS WITHIN A SHORT PERIOD OF TIME AND WITH FREQUENCY OF VARIOUS SCRIPS. THIS ALL GO TO PROVE THAT THE ASSESSEE IS OF WELL V ERSED TRADER AND NOT A INVESTOR AS CLAIMED IN THE RETURN OF INCOME. I) BEFORE THE AMENDMENT OF THE ACT IN CASE OF SECT ION 111A THE ASSESSEE WAS OFFERING SHARE TRADING INCOME UNDER TH E HEAD INCOME FROM BUSINESS. WHEREAS AFTER THE INTRODUCTION OF CO NCESSIONAL RATE OF TAX FOR STCG THE ASSESSEE HAS OFFERED THE SAME UNDE R THE HEAD INCOME FROM CAPITAL GAIN. THIS IS ALSO AGAINST THE CLAIM OF THE ASSESSEE THAT HE IS REGULARLY MAKING THE INVESTMENT IN THE SHARES AS AN INVESTOR. J) THE ASSESSEE HAS SOLD CERTAIN SHARES BEFORE THEY ARE BOUGHT. THIS SHOWS THAT ASSESSEE IS A INTRA-DAY TRADER DOIN G HARDCORE SPECULATION WHICH IS NORMALLY UNDERTAKEN ONLY BY A SHARE TRADER AND NOT BY A INVESTOR. THIS IS PARTICULARLY SO BECAUSE SHORT SELLING AND ARBITRAGE IN SHARES IS NOT UNDERTAKEN BY ANY INVEST OR NOR IS IT PERMITTED TO THE INVESTOR. NO INVESTOR CAN INDULGE IN SHORT SELLING. THE INVESTOR HAS TO DELIVER THE SHARES AS PER THE NORMS . 3. FOR THE REASONS GIVEN ABOVE THE A.O. HELD THAT THE ASSESSEE WAS ACTUALLY ENGAGED IN THE BUSINESS OF SHARE TRADING A ND THE PROFIT ARISING FROM THE SALE OF SHARES WAS CHARGEABLE TO TAX IN ITS HAN DS AS BUSINESS INCOME. ACCORDINGLY THE SHORT TERM CAPITAL GAIN OF RS. 96 13 281/- WAS TREATED BY THE A.O. AS BUSINESS INCOME OF THE ASSESSEE IN THE ASSE SSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 VIDE AN ORDER DA TED 16.12.2010. 4. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DISPUTING THE ACTION OF THE A.O. IN TREATING THE SHORT TERM CAPITAL GAIN ARISIN G ON SALE OF SHARES AND ITA 5140/M/12 5 SECURITIES AS ITS BUSINESS INCOME. IT WAS SUBMITTE D ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE ASSESSEE IS A HUF CO NSISTING OF MR. ASHOK SHAH AS KARTA WITH MR. JAYENDRA SHAH MR. SANDEEP SHAH A ND THEIR MOTHER SHARDA SHAH AS OTHER MEMBERS. IT WAS SUBMITTED THA T ALL THE THREE MALE MEMBERS ARE CHARTERED ACCOUNTANTS PRACTICING THEIR PROFESSION FULL TIME WHILE MRS. SHARDA SHAH 80 YEARS OF AGE IS A HOUSE WIFE. IT WAS SUBMITTED THAT NONE OF THE MEMBERS OF THE ASSESSEE HUF WERE I NVOLVED IN THE BUSINESS OF SHARE TRADING AND THE ALLEGATION OF THE A.O. THA T THE ASSESSEE HAD GIVEN DIFFERENT TREATMENT TO INCOME FROM SHARE TRANSACTIO NS WAS WITHOUT ANY BASIS AND CONTRARY TO THE FACTS ON RECORD. IT WAS POINTE D OUT THAT THE ASSESSEE HAD CONSISTENTLY OFFERED GAIN FROM SALE OF SHARES HELD FOR MORE THAN ONE YEAR AS LONG TERM CAPITAL GAIN AND FOR LESS THAN ONE YEAR A S SHORT TERM CAPITAL GAIN AND WITHOUT TAKING DELIVERY AS SPECULATION INCOME A ND THIS TREATMENT WAS ACCEPTED BY THE A.O. IN THE EARLIER YEARS INCLUDING A.Y. 2006-07 FOR WHICH ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. IT WAS CONTENDED THAT THAT THE TREATMENT GIVEN BY THE ASSESSEE BY OFFERING SPE CULATION INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND SHORT /LONG TERM CAPITAL GAIN UNDER THE HEAD CAPITAL GAIN WAS CONSISTENT WITH P ROVISIONS OF LAW AND IN ACCORDANCE WITH PAST PRACTICE FOLLOWED BY THE ASSES SEE AND ACCEPTED BY THE DEPARTMENT. IT WAS ALSO POINTED OUT THAT THE ASSES SEE HAD CLASSIFIED SHARES AND SECURITIES AS INVESTMENT AND NOT AS STOCK-IN -TRADE IN ITS BOOKS OF ACCOUNT. IT WAS CONTENDED THAT EVEN THOUGH THE PRI NCIPLE OF RES-JUDICATA DOES NOT STRICTLY APPLY TO INCOME TAX PROCEEDINGS IT IS WELL SETTLED LAW THAT THE PRINCIPLES OF CONSISTENCY SHOULD NOT BE IGNORED. I T WAS SUBMITTED THAT A VERY SIGNIFICANT PORTION OF GAIN I.E. 89.54% HAD COME FR OM THE SHARES HELD BY THE ASSESSEE FOR MORE THAN 30 DAYS AND MERELY BECAUSE S OME SHARES FORMING A VERY MARGINAL PORTION OF THE OVERALL TRANSACTIONS HAD TO BE SOLD AT A SHORT DURATION THE ENTIRE ACTIVITY OF INVESTMENT IN SHAR ES BY THE ASSESSEE COULD NOT BE REGARDED AS TRADING ACTIVITY. IT WAS POINTED OU T THAT THE HOLDING PERIOD OF OVER 90% OF THE STOCK WAS MORE THAN 90 DAYS AND MOR E THAN 77% OF THE STOCK ITA 5140/M/12 6 WAS HELD FOR OVER ONE YEAR. IT WAS ALSO POINTED OU T THAT EVEN IN RESPECT OF SHARES HELD FOR MORE THAN ONE YEAR SHARES OF BOOK VALUE OF RS. 15.53 LACS WERE HELD FOR MORE THAN FIVE YEARS. IT WAS SUBMITT ED THAT THE ASSESSEE HAD NOT BORROWED ANY INTEREST BEARING FUNDS FROM OUTSID E PARTIES DURING THE YEAR UNDER CONSIDERATION AND FUNDS TAKEN ONLY FROM THE M EMBERS OF THE HUF WERE UTILIZED FOR MAKING INVESTMENT IN SHARES. IT WAS S UBMITTED THAT THE ALLEGATION OF THE A.O. THAT THE ASSESSEE HAD GIVEN DIFFERENT T REATMENT TO GAIN FROM SALE OF SHARES TO TAKE BENEFIT OF CONCESSIONAL RATE OF TAX U/S 111A IS CONTRARY TO THE FACTS ON RECORD. IT WAS ALSO BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE A.O. HIMSELF IN A.Y. 2009-10 HAS ACCEPTED THE ASSES SEES RETURN SHOWING LOSS ARISING FROM SHARES AND SECURITIES AS SHORT TERM CA PITAL LOSS. 5. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE W ERE CONSIDERED BY THE LD. CIT(A) IN THE LIGHT OF CIRCULAR NO. 4/2007 DATE D 15.6.2007 ISSUED BY THE CBDT AS WELL AS THE PRINCIPLES LAID DOWN IN THE REL EVANT JUDICIAL PRONOUNCEMENTS. ON SUCH CONSIDERATION HE FOUND TH AT THE ASSESSEE HAD CARRIED OUT REPETITIVE TRANSACTIONS IN THE SAME SCR IPS WHICH ACCORDING TO HIM WAS SUFFICIENT TO SHOW THAT THERE WAS NO INTENTION TO HOLD THE SCRIP AS INVESTMENT BUT THE MOTIVE WAS TO TAKE ADVANTAGE OF THE MARKET CONDITIONS TO MAKE PROFIT. HE HELD THAT ALTHOUGH THE VOLUME AND FREQUENCY OF TRANSACTIONS WOULD NOT BY THEMSELVES BE DECISIVE BUT THEY HAVE WEIGHTAGE IN THE SURROUNDING CIRCUMSTANCES. HE HELD THAT SIMILARLY THE FACT THAT THE ASSESSEE HAD USED HIS OWN FUNDS FOR MAKING INVESTMENT IN SHA RES WOULD BY ITSELF NOT BE ENOUGH TO INDICATE THAT THE TRANSACTIONS ARE IN THE NATURE OF INVESTMENT. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT SIMI LAR TREATMENT GIVEN BY IT TO THE PROFIT ARISING FROM SALE OF SHARES AND SECURITI ES AS SHORT TERM CAPITAL GAIN WAS ACCEPTED BY THE A.O. IN THE IMMEDIATELY PRECEDI NG YEAR THE LD. CIT(A) HELD THAT THE PRINCIPLE OF RES JUDICATA IS NOT APPL ICABLE TO INCOME TAX PROCEEDINGS AND THE A.O. THEREFORE WAS NOT DEBARRED IN TAKING A DIFFERENT VIEW IF THE EARLIER VIEW WAS NOT IN ACCORDANCE WITH LAW. HE OBSERVED THAT MERELY ITA 5140/M/12 7 TREATING THE SHARE IN THE BALANCE SHEET AS INVESTME NT WOULD NOT ITSELF BE PROOF THAT THE SHARES WERE HELD AS INVESTMENT. HE HELD TH AT THE ASSESSEES INTENTION WAS MADE CLEAR BY THE PURCHASE AND SALE OF SHARES T HAT WERE ALREADY TRANSACTED EARLIER THE FACT OF LOW CAPITAL BASE AN D FUNDING OF PURCHASES BY BORROWINGS AND/OR ROTATION OF SALE PROCEEDS THE LA RGE MAGNITUDE AND FREQUENCY OF TRANSACTIONS AND ALL THESE FACTS TOGET HER WERE SUFFICIENT TO SHOW THAT THE ASSESSEE HAD ENTERED INTO THE TRANSACTIONS OF SHARES AS TRADER AND NOT INVESTOR. HE ACCORDINGLY UPHELD THE ACTION OF THE A.O. IN TREATING THE PROFIT ARISING FROM SALE OF SHARES/SECURITIES AS BU SINESS INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED BEFO RE US THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) IN SUPPORT OF THE ASSESS EES CASE THAT THE PROFIT ARISING FROM SALE OF SHARES/SECURITIES IS CHARGEABL E TO TAX AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. HE POINTED O UT THAT IN THE IMMEDIATELY PRECEDING TWO YEARS I.E. 2006-07 & 2007-08 AS WELL IN THE IMMEDIATELY SUCCEEDING YEAR I.E A.Y. 2009-10 THE TREATMENT GIV EN BY THE ASSESSEE TO THE PROFIT ARISING FROM SALE OF SHARES/SECURITIES AS SH ORT TERM CAPITAL GAIN HAS BEEN ACCEPTED BY THE A.O. IN THE SCRUTINY ASSESSMEN T MADE U/S 143(3) OF THE ACT. HE ALSO TOOK US THROUGH THE RELEVANT BALANCE SHEET OF THE ASSESSEE TO SHOW THAT THE SHARES AND SECURITIES WERE REFLECTED THEREIN AS INVESTMENT AND NOT AS STOCK-IN-TRADE. HE ALSO POINTED OUT THAT EVE N THOUGH THE CAPITAL ACCOUNTS OF THE MEMBERS OF THE HUF WERE SHOWING BAL ANCE OF RS. 18.19 LASC ONLY THE ACCUMULATED PROFITS SHOWN IN THE BALANCE SHEET AS ON 31 ST MARCH 2008 WERE TO THE TUNE OF RS. 2.95 CRORES. HE SUBMI TTED THAT EVEN THE ENTIRE LOAN AMOUNT OF RS. 2.09 CRORES WAS BELONGING TO THE FAMILY MEMBERS OF THE ASSESSEE HUF ON WHICH NO INTEREST WAS PAID. HE POI NTED OUT THAT SUBSTANTIAL DIVIDEND INCOME OF RS. 4.67 LACS WAS ALSO EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HE CONTENDED THAT ALL TH E TESTS LAID DOWN IN THE ITA 5140/M/12 8 CBDT CIRCULAR AS WELL AS IN THE RELEVANT JUDICIAL P RONOUNCEMENTS THUS WERE SATISFIED IN ORDER TO ESTABLISH THAT THE ASSESSEE W AS INVESTOR IN SHARES AND NOT TRADER. HE CONTENDED THAT ALL THE OBJECTIONS R AISED BY THE A.O. TO TREAT THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BU SINESS INCOME WERE PROPERLY MET BY THE ASSESSEE BEFORE THE LD. CIT(A) BUT HE STILL UPHELD THE ACTION OF THE A.O. MAINLY RELYING ON SOME REPETITIV E TRANSACTIONS MADE BY THE ASSESSEE IN THE SAME SCRIPS. HE CONTENDED THAT THE SE REPETITIVE TRANSACTIONS WERE MADE BY THE ASSESSEE IN ORDER TO AVOID FURTHER EROSION OF CAPITAL AND THE LD. CIT(A) WAS WRONG IN TAKING THIS ASPECT AS THE B ASIS TO UPHOLD THE ACTION OF THE A.O. RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 336 ITR 287 (BOM) HE CONTEND ED THAT ALL THE FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION BEING SIMI LAR TO THE EARLIER YEARS THE A.O. AND THE LD. CIT(A) OUGHT TO HAVE FOLLOWED THE RULE OF CONSISTENCY AND TREAT THE PROFIT ARISING FROM THE SALE OF SHARES/SE CURITIES AS SHORT TERM CAPITAL GAIN AS DONE IN THE EARLIER YEAR. HE ALSO POINTED OUT THAT THE SLP FILED BY THE REVENUE AGAINST THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT HAS ALREADY BEEN DISMISSED. 7. THE LD. D.R. ON THE OTHER HAND STRONGLY SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW TREATING THE SHORT TERM CAPITAL G AIN SHOWN BY THE ASSESSEE FROM SALE OF SHARES AS ITS BUSINESS INCOME. HE SUB MITTED THAT ALTHOUGH THE SIMILAR SHORT TERM CAPITAL GAIN DECLARED BY THE ASS ESSEE WAS ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS IT IS NOT CLEAR TH AT THE FACTS INVOLVED IN THE EARLIER YEARS ARE SIMILAR TO THAT OF THE YEAR UNDER CONSIDERATION. HE INVITED OUR ATTENTION TO THE FINDINGS GIVEN BY THE LD. CIT( A) IN PARA 2.3 OF HIS IMPUGNED ORDER AND SUBMITTED THAT THE SAME ARE SUFF ICIENT TO SHOW THAT THE ASSESSEE WAS DEALING IN SHARES AS A TRADER AND NOT INVESTOR. HE CONTENDED THAT THE REPETITIVE TRANSACTIONS FOR THE SAME SCRIP BY THE ASSESSEE CLEARLY SHOW THE ATTRIBUTES OF TRADING AND EVEN THE FREQUEN CY AND VOLUME OF TRANSACTIONS IN SHARES FURTHER ESTABLISHED THAT THE ASSESSEE WAS A TRADER IN ITA 5140/M/12 9 SHARES AND NOT INVESTOR. HE CONTENDED THAT THE SUB STANTIAL AMOUNT OF BORROWINGS BY THE ASSESSEE FURTHER SUPPORTS THE CAS E OF THE REVENUE THAT IT WAS A CASE OF TRADING IN SHARES AND THE MOTIVE OF T HE ASSESSEE WAS NOT THAT OF INVESTMENT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ISSUE AS TO WHET HER THE PROFIT ON SALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE ASSESSEE OR CAPITAL GAINS DEPENDS ON WHETHER THE SAID SHARES WERE PURCHASED AND HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASED BY THE ASSESSEE AS INVESTMENT OR STO CK IN TRADE THE MOST RELEVANT ASPECT THAT IS TO BE SEEN IS THE INTENTION OF THE ASSESSEE BEHIND PURCHASE OF SHARES AND SUCH INTENTION HAS TO BE GAT HERED FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE. IN THE CASE OF SARNATH INFRASTRUCTURE (P). LTD. VS. ACIT REPORTED IN 120 T TJ (LUCKNOW) 216 THE COORDINATE BENCH OF THIS TRIBUNAL AFTER TAKING INT O CONSIDERATION THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE AS WELL AS TH E RELEVANT CIRCULAR ISSUED BY THE BOARD HAS LAID DOWN CERTAIN PRINCIPLES/CRIT ERIAS WHICH CAN BE APPLIED TO THE FACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER THE TRANSACTIONS IN SHARES ARE IN THE NATURE OF TRADE OR ARE MERELY FOR THE IN VESTMENT PURPOSES. THE GUIDELINES/PRINCIPLES LAID DOWN BY THE TRIBUNAL ARE ENUMERATED BELOW : (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 OPE NING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET? (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID IN TEREST THEREON. NORMALLY MONEY IS BORROWED TO PURCHASE GOODS FOR T HE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINI NG. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PA RTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT OR THERE ARE SUBSTA NTIAL TRANSACTIONS IN ITA 5140/M/12 10 THAT ITEM IT WOULD INDICATE TRADE. HABITUAL DEALIN G IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETH ER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS IN DICATE INVESTMENT): (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE. F ORMER 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 THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY AR E VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS) IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRAD E. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLE OF ASSOCIATION? WHETHER FOR TRA DE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUC E EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WH AT 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 FOR SAY STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPA RENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (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 FOR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LE GAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WH ETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS IF IT IS CLA IMED THAT IT IS DEALING AS ITA 5140/M/12 11 A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTEN TION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM SINCE BEGINNING OR WH EN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDT CIRCULAR N O. 4 OF 2007 OF 15TH JUNE 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT MAINTAINING SE PARATE ACCOUNT FOR EACH TYPE THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (1 1) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO CO ME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FAC TORS HAS TO BE SEEN. 9. IF THE ABOVE PRINCIPLES/GUIDELINES ARE APPLIED T O THE FACTS OF THE PRESENT CASE WE FIND THAT THE TRANSACTIONS IN SHARES WERE CARRIED OUT BY THE ASSESSEE AS AN INVESTOR AND NOT AS A TRADER AND THE PROFIT E ARNED FROM SUCH TRANSACTIONS WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS. FOR INSTANCE ONLY ONE PORTFO LIO I.E. INVESTMENT WAS MAINTAINED BY THE ASSESSEE IN RESPECT OF SHARES IN ITS BOOKS OF ACCOUNT RIGHT FROM THE BEGINNING AND ALL THE SHARES PURCHASED AND SOLD WERE TREATED IN THE BOOKS OF ACCOUNT AS INVESTMENT. THIS TREATMENT GIVE N BY THE ASSESSEE IN THE EARLIER YEAR WAS NEVER QUESTIONED BY THE DEPARTMENT AND EVEN THE PROFIT FROM THE SHARE TRANSACTIONS DECLARED BY THE ASSESSEE AS CAPITAL GAINS WAS ACCEPTED BY THE A.O. EVEN IN THE ASSESSMENTS COMPLETED U/S 1 43(3) OF THE ACT. THE SHARES HELD BY THE ASSESSEE AS INVESTMENT WERE ALWA YS VALUED AS COST AND ABOUT 90% OF THE GAIN WAS EARNED BY THE ASSESSEE FR OM THE SALE OF SHARES HELD FOR MORE THAN 30 DAYS. THE HOLDING PERIOD OF OVER 90% OF THE STOCK WAS MORE THAN 90 DAYS AND IN RESPECT OF SHARES HELD FOR MORE THAN ONE YEAR SHARES OF BOOK VALUE OF RS. 15.53 LACS WERE HELD FO R A PERIOD OF 4 TO 5 FIVE YEARS. THE PROFIT ARISING FROM SALE OF SHARES HELD FOR MORE THAN ONE YEAR WAS DECLARED BY THE ASSESSEE AS LONG TERM CAPITAL GAIN AND THE SAME WAS ACCEPTED BY THE A.O. HIMSELF. THERE WERE NO FUNDS BORROWED B Y THE ASSESSEE ON INTEREST FROM THE THIRD PARTIES FOR MAKING INVESTME NT IN SHARES AND THE ENTIRE INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE OUT O F ITS OWN FUNDS AS WELL ITA 5140/M/12 12 AS INTEREST FREE FUNDS TAKEN FROM ITS OWN MEMBERS. THERE WAS NEITHER ANY INTRA-DAY TRANSACTION MADE BY THE ASSESSEE NOR THER E WAS TRADING IN SHARES IN FUTURE AND OPTIONS BASIS. EVEN THE TURNOVER TO INV ESTMENT RATIO IN SHARES WAS LOW. IN OUR OPINION IF ALL THESE RELEVANT FAC TS OF THE ASSESSEES CASE ARE TAKEN INTO CONSIDERATION IN TOTALITY IT BECOME ABU NDANTLY CLEAR THAT THE TRANSACTIONS IN SHARES WERE MADE BY THE ASSESSEE AS AN INVESTOR AND NOT AS TRADER AND THE PROFIT EARNED BY IT FROM THE SAID TR ANSACTIONS WAS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AND NOT AS B USINESS INCOME. 10. IT IS OBSERVED THAT THE LD. CIT(A) IN HIS IMPUG NED ORDER HAS LAID A GREAT EMPHASIS ON THE REPETITIVE TRANSACTIONS MADE BY THE ASSESSEE IN THE SAME SCRIP TO ARRIVE AT A CONCLUSION THAT THE ASSESSEE W AS A TRADER IN SHARES AND NOT INVESTOR. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US THESE REPETITIVE TRANSACTIONS WERE MADE BY THE ASSESSEE I N ORDER TO AVOID THE EROSION OF CAPITAL. EVEN OTHERWISE THE RELEVANT DE TAILS PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE SHOW THAT SIMILAR REPE TITIVE TRANSACTIONS IN SOME SCRIPS WERE MADE BY THE ASSESSEE IN THE EARLIER YEA RS AND STILL THE ASSESSEE WAS TREATED AS INVESTOR BY THE A.O. HIMSELF IN THE SAID YEARS. THESE DETAILS PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSE E ALSO SHOW THAT THE FACTS INVOLVED IN THE YEAR UNDER CONSIDERATION ARE SIMILA R TO THAT A.Y. 2006-07 AND 2007-08 WHEREIN THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN WAS ACCEPTED BY THE A.O. IN THE SCRUTINY ASSESSMENTS CO MPLETED U/S 14393) OF THE ACT. AS FURTHER POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT FOR A.Y. 2009-10 A SIMILAR CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL LOSS H AS BEEN ACCEPTED BY THE A.O. EVEN IN THE IMMEDIATELY SUCCEEDING YEAR. AS H ELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUP RA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE THERE HAS TO BE UNIFORMIT Y IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL AND THE ONUS IS ON THE REVENUE TO FURNISH JUSTIFICATION FOR ADOPTIN G A DIVERGENT APPROACH. IN ITA 5140/M/12 13 THE PRESENT CASE NO SUCH JUSTIFICATION HAS BEEN FU RNISHED BY THE REVENUE WHILE TAKING A DIFFERENT VIEW WHILE TREATING THE AS SESSEE AS TRADER IN SHARES FROM THE ONE TAKEN IN EARLIER YEARS WHILE TREATING THE ASSESSEE AS INVESTOR IN SHARES. AS SUCH CONSIDERING ALL THE FACTS OF THE C ASE WE ARE OF THE VIEW THAT THE PROFIT ARISING FROM SALE OF SHARES/SECURITIES I S CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAIN AS DECLARED IN THE RETURN AND THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE A.O. IN TREATING THE SAME AS BUSINESS INCOME OF THE ASSES SEE. WE THEREFORE REVERSE THE IMPUGNED ORDER OF THE LD. CIT(A) ON THI S ISSUE AND DIRECT THE A.O. TO ACCEPT THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN. 11. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH APRIL 2014. . ) 0 1 04-04-2014 ) SD/- SD/- (VIVEK VARMA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 0460462014 [ .../ RK SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. 9 () / THE CIT(A)23 MUMBAI. 4. 9 / CIT 12 MUMBAI 5. $= * = / DR ITAT MUMBAI B BENCH 6. / GUARD FILE. / BY ORDER % $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) / ITAT MUMBAI