ADDL CIT RG 24(2), MUMBAI v. TEJAS B. TRIVEDI, MUMBAI

ITA 5412/MUM/2009 | 2006-2007
Pronouncement Date: 09-07-2010 | Result: Dismissed

Appeal Details

RSA Number 541219914 RSA 2009
Assessee PAN AANPT5683R
Bench Mumbai
Appeal Number ITA 5412/MUM/2009
Duration Of Justice 9 month(s) 10 day(s)
Appellant ADDL CIT RG 24(2), MUMBAI
Respondent TEJAS B. TRIVEDI, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 09-07-2010
Assessment Year 2006-2007
Appeal Filed On 29-09-2009
Judgment Text
THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.V. EASWAR ( PRESIDENT) & SHRI R.K. PANDA (ACCOUNTANT MEMBER) I.T.A. NO. 5412/MUM/2009 (ASSESSMENT YEAR : 2006-07) ADDL. CIT- RG. 24(2) R. NO. 601 6 TH FLOOR PRATYAKSHKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-400 051 VS. MR. TEJAS B. TRIVEDI R8 ANAND NIWAS KASTURBA CROSS ROAD NR. RUIA HALL MALAD (W) MUMBAI-400 064 PAN:AANPT5683R APPELLANT RESPONDENT APPELLANT BY : SHRI HEMANT J. LAL RESPONDENT BY : SHRI K. SHIVARAM ORDER DATE OF HEARING: 26.04.2010 DATE OF ORDER: 22.03.2010 PER R.K.PANDA AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 21 ST JULY 2009 OF THE CIT(A)-XXIV MUMBAI RELATING TO A SSESSMENT YEAR 2006-07. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE DECLARED TOTAL INCOME OF RS.54 04 402 IN HIS RETURN OF INCOME. HE HAD SHOWN INCOME FROM PROFESSION AT RS.2 39 214 SHORT TERM CAPITAL GAIN AT RS.50 47 90 2 LONG TERM CAPITAL GAIN AT RS.6 05 87 969 DIVIDEND ON SHARES AT RS.21 57 286 APART FROM SOME OTHER TAXABLE AND EXEMPT INCOME. THE SHORT TERM CAPITAL GAIN OF RS.50 47 902 COMPRISED OF THE GAIN OF RS.50 09 895 ON SALE OF SH ARES AND THAT OF RS.38 007 ON SALE OF UNITS OF MUTUAL FUNDS. ENTIRE LONG TERM CA PITAL GAIN WAS SHOWN ON SALE OF SHARES. AS THE QUANTUM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN WERE VERY HIGH THE ASSESSING OFFICER ASKED THE ASS ESSEE TO EXPLAIN WHY SUCH INCOMES SHOULD NOT BE TREATED AS BUSINESS INCOME IN VIEW OF CBDT CIRCULAR NO. 4/2007. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 2 2.1 IN REPLY THE ASSESSEE SUBMITTED BEFORE HIM TH AT HE WAS AN INVESTOR HIS INTENTION AT THE TIME OF PURCHASE OF SHARES AND SEC URITIES WAS TO HOLD THEM FOR LONG PERIOD AND TO ENJOY THE RETURNS IN THE FORM OF DIVIDEND AND CAPITAL APPRECIATION. HE FURTHER SUBMITTED THAT THE PURCHA SE OF SHARES AND SECURITIES WAS ALWAYS SHOWN AS INVESTMENT IN BOOKS AND BALANCE SHEET HE EMPLOYED HIS OWN FUNDS TO ACQUIRE THE SHARES HE SOLD SHARES OF 9 COMPANIES AND PURCHASED SHARES OF ONLY 6 COMPANIES DURING PREVIOUS YEAR HE PURCHASED SHARES ONLY ON 12 DAYS AND SOLD SHARES ONLY ON 22 DAYS DURING THE WHO LE PREVIOUS YEAR HE HELD THE SHARES FOR A VERY LONG PERIOD AND HE DID NOT C LAIM ANY TAX REBATE U/S. 88E OF THE INCOME-TAX ACT. HE THEREFORE REQUESTED THE A SSESSING OFFICER TO TREAT THE INCOME ON SALE OF SHARES AND SECURITIES AS SHORT TE RM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS CLAIMED AND NOT AS BUSINESS INCOME AS PROPOSED. 3. ALTHOUGH THE ASSESSING OFFICER OBSERVED IN PARA 2 OF THE ASSESSMENT ORDER THAT THE SUBMISSIONS OF THE ASSESSEE APPEARED QUITE CONVINCING HE HOWEVER ASSESSED THE ABOVE INCOMES SHOWN AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME FOR THE FOLLOW ING REASONS: (I) IT IS SETTLED THAT MERE ENTRIES IN THE BOOKS OF ACCOUNT SHOWING SHARES AS INVESTMENT IS NOT ONLY DETERMINAT IVE FACTOR TO DECIDE REAL NATURE OF TRANSACTIONS. HE R ELIED ON SEVERAL JUDGEMENTS IN SUPPORT OF THE ABOVE PROPOSIT ION. (II) HE REPRODUCED CBDT CIRCULAR NO. 4/2007 DATED 15/06/2007 IN THE ASSESSMENT ORDER. ACCORDING TO HIM THOUGH THE NUMBER OF SCRIPS AND NUMBER OF OCCASIONS OF TRADE WERE ON LOWER SIDE THE VALUE OF TRANSACTIONS WAS SUBSTANTIAL. (III) MOTIVE OF THE ASSESSEE WAS TO EARN PROFIT AS THERE WAS CONTINUOUS TRADING OF BUYING AND SELLING IN SHARES. (IV) ASSESSEE WAS A YOUNG QUALIFIED C.A. DREW PROF ESSIONAL FEE FROM SHARE BROKER AND WAS FULLY RELATED TO SHARE MA RKET. (V) SHARE TRADING ACTIVITY WAS THE MAJOR ACTIVITY O F THE ASSESSEE AND IT WAS MORE OR LESS HIS WHOLE TIME OCCUPATION. THE PROFESSIONAL INCOME WAS VERY LOW IN COMPARISON TO I NCOME FROM SALE OF SHARES. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 3 (VI) DIVIDEND INCOME OF RS.21.57 LAKHS WAS MUCH SMA LLER THAN PROFIT ON SALE OF SHARES & SECURITIES AT ABOUT RS.6 .50 CRORES. (VII) NO DOUBT THE ASSESSEE HAS BEEN TREATED AS A N INVESTOR IN THE PRECEDING YEAR BUT THE PRINCIPLE OF RES-JUDICAT A DOES NOT APPLY TO INCOME-TAX PROCEEDING. 3.1 HE ALSO RELIED ON THE FOLLOWING DECISIONS FOR T HE ABOVE PROPOSITIONS: 1. TUTICORIN ALKANI CHEMICALS & FERTILIZERS LTD. VS . CIT (SC) 227 ITR 172. 2. CHOWRINGHEE SALES BUSREAU P.LD. (SC) 87 ITR 54 8. 3. PUNJAB DISTILLING INDUSTRIES LTD. (SC) 35 ITR 5 23. 4. CIT VS. PROVINCIAL FARMERS (P) LTD. (CAL.) 35 ITR 223. 5. CIT VS. J.D. ITALIA (AP) 141 ITR 953. 6. CIT VS. BAZPUR CO-OP. SUGAR FACTORY LTD. (SC) 1 72 ITR 330. 7. G. VENKATASWAMI NAIDU & CO. VS. CIT (SC) 35 ITR 594. 4. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AND FURTHER SUBMITTED THE DATEWISE DETAILS OF PURCHASES AND SALES MADE DURING THE RELEVANT PREVI OUS YEAR. IT WAS SUBMITTED THAT THE ASSESSEE IS A C.A. BY PROFESSION AND DERIV ES CONSULTANCY INCOME. HE MADE INVESTMENT IN SHARES OUT OF WHICH SOME SHARES WERE SOLD DURING THE YEAR ON WHICH HE EARNED SHORT-TERM CAPITAL GAIN AND LON G-TERM CAPITAL GAIN. IT WAS SUBMITTED THAT SHORT-TERM CAPITAL GAIN WAS ON ACCOU NT OF SALE OF TWO SCRIPTS ONLY I.E. M/S. TCS AND M/S. BHARAT BIJLEE. HE SOLD 406 S HARES OF M/S. TCS AFTER 322 DAYS OF THEIR PURCHASE. SIMILARLY THE AVERAGE HOLD ING PERIOD OF THE SHARES OF M/S. BHARAT BIJLEE WAS 269 DAYS.IT WAS SUBMITTED THAT T HE ASSESSEE DERIVED LONG-TERM CAPITAL GAIN ON SALE OF 8 SCRIPTS. THE AVERAGE HOLD ING PERIODS OF THE SHARES OF M/S. DYNAMEDIA TECH M/S.BHARAT BIJLEE M/S. ELPRO INTER NATIONAL M/S. ONGC M/S. ASTRAZEN IDL M/S. MOTHER SUMI SYSTEMS M/S. VISION LTD. AND M/S. SOUND IND. LTD. WERE 645 418 4854 449 861 445 4122 AND 41 22 DAYS RESPECTIVELY. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT BORROWE D FOR THE PURPOSE OF INVESTMENT IN SHARES. FURTHER THE ASSESSING OFFICE R IN THE ORDER PASSED U/S. 143(3) FOR THE ASST. YEARS 2004-05 AND 2005-06 HAS ACCEPTED THAT THE ASSESSEE ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 4 WAS AN INVESTOR IN SHARES AND ACCORDINGLY ASSESSED LONG-TERM CAPITAL GAIN AND SHORT-TERM CAPITAL GAIN ON ACCOUNT OF SALE OF THE S HARES. THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT WAS RELIED UP ON. THE ASSESSEE ALSO DERIVED SUPPORT FROM CBDT CIRCULAR NO.4/2007 AND VARIOUS O THER CASE LAWS. IT WAS ACCORDINGLY SUBMITTED THAT THE CLAIM OF SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN SHOULD BE ALLOWED. 5. BASED ON THE VARIOUS ARGUMENTS ADVANCED BY THE ASS ESSEE THE CIT(A) DIRECTED THE ASSESSING OFFICER TO ASSESS THE INCOME FROM SALE OF SHARES AS LONG- TERM CAPITAL GAIN AND SHORT-TERM CAPITAL GAIN AS CL AIMED BY THE ASSESSEE. WHILE HOLDING SO HE NOTED THAT CBDT CIRCULAR NO.4/2007 D ATED 15-06-2007 DEALT WITH THIS ISSUE IN DETAIL. FURTHER THIS ISSUE HAS ALSO BEEN ADJUDICATED IN SEVERAL OTHER JUDGEMENTS BY THE VARIOUS HIGH COURTS AS WELL AS BY THE TRIBUNAL. HE NOTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY ACCOUNTING THE SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT AND BALANCE-SHEET AND NEVER ACCOUN TED AS STOCK IN TRADE. THE SHARES HAVE BEEN VALUED AT THEIR COST PRICE. FURTHE R THE ASSESSEE PURCHASED SHARES OF ONLY 6 COMPANIES DURING THE YEAR. SIMILAR LY PURCHASES WERE MADE ONLY ON 12 DAYS AND SALES WERE MADE ONLY ON 22 DAYS. THE RE WAS NO CONTINUITY AND REGULARITY IN TRANSACTION. HE NOTED THAT THE FACTS OF THE CASE DO NOT SHOW THAT THE ASSESSEE HAS GOT THE SHARES WITH AN INTENTION TO TR ADE IN THEM. THE ASSESSEE HAS NOT UTILIZED ANY BORROWED FUNDS FOR PURCHASE AND SA LE OF THE SHARES. SIMILARLY ALTHOUGH THE PRINCIPLES OF RES JUDICATA DO NOT APPL Y TO INCOME-TAX PROCEEDINGS STILL IN ABSENCE OF ANY NEW FACTS OR IN ABSENCE OF POINTING OUT ANY WRONG DECISION IN THE PAST ASSESSMENTS THE ASSESSING OFFICER CANN OT REJECT THE ARGUMENT OF RULE OF CONSISTENCY. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVEN UE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WHETHER THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE INCOME FROM SALE OF SHARES AS SHORT TERM CAPITAL GA IN AND LONG TERM CAPITAL GAIN AS WAS DISCLOSED BY THE ASSESSEE AND N OT AS BUSINESS INCOME AS ASSESSED BY THE ASSESSING OFFICER. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER RESTORED. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 5 THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. 6.1 THE LD. D.R. WHILE SUPPORTING THE ORDER OF AO SUBMITTED THAT THE ASSESSEE HAS PURCHASED AND SOLD THE SHARES WITH A PROFIT MOTIVE AND THEREFORE THE PROFIT ARISING OUT OF SALE AND PURCHASE OF THE SHARES HAS TO BE TREATED AS BUSINESS INCOME. HE SUBMITTED THAT COURTS HAVE DEC IDED THAT A SINGLE TRANSACTION OUTSIDE THE BOOKS OF ACCOUNT MAY CONSTI TUTE ADVENTURE IN THE NATURE OF TRADE. SINCE IN THE INSTANT CASE THE ASSESSEE HA S REGULARLY TRANSACTED IN PURCHASE AND SALE OF SHARES AND SINCE THE VOLUME OF PROFIT FROM SHARE TRADING IS MORE THAN RS.6.5 CRORES AS AGAINST THE PROFESSIONAL INCOME OF RS.2.39 LAKHS THEREFORE THE MOTIVE IS TO EARN PROFIT BY BUYING A ND SELLING OF SHARES. HE ALSO RELIED ON VARIOUS DECISIONS WHICH ARE RELIED ON B Y THE ASSESSING OFFICER AND APPEARING IN THE BODY OF THE ASSESSMENT ORDER. 6.2 THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THE ASSESSEE HA S BEEN HOLDING MOST OF THE SHARES AS AN INVESTOR SINCE THE FINANCIAL YEAR 1992 -93. THE VALUATION OF SHARES IS ALWAYS DONE AT COST AND NO BORROWED FUNDS WERE UTIL IZED FOR PURCHASE OF SHARES. HE SUBMITTED THAT ALL THE INVESTMENTS ARE STRICTLY ON DELIVERY BASIS AND THEREFORE THERE WAS NO INTENTION TO TRADE IN THEM. HE SUBMITT ED THAT THE INTENTION OF THE ASSESSEE HAS TO BE SEEN FROM THE DATE OF PURCHASE. RIGHT FROM THE BEGINNING THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENT AND N OT AS STOCK IN TRADE. REFERRING TO PAGES 66 AND 67 OF THE PAPER BOOK HE SUBMITTED THAT THERE WERE ONLY 9 SCRIPTS IN WHICH SHARE TRANSACTIONS HAVE TAKEN PLACE IN THE ENTIRE YEAR. HE SUBMITTED THAT THE ASSESSING OFFICER WITHOUT ANY COGENT REASO N CANNOT CHANGE THE VIEW WHICH HAS BEEN CONSISTENTLY ACCEPTED IN THE PAST. H E SUBMITTED THAT IN THE YEAR OF ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 6 PURCHASE THE DEPARTMENT HAS ACCEPTED THE PURCHASE A S INVESTMENT. THEREFORE WHEN THE SAME INVESTMENTS ARE SOLD THE SAME CANNOT BE ASSESSED AS BUSINESS INCOME. HE SUBMITTED THAT THE DEPARTMENT IN THE ASS ESSMENT COMPLETED U/S.143(3) FOR THE ASST. YEARS 2004-05 AND 2005-06 HAS ACCEPTED THE LONG-TERM CAPITAL GAIN AND SHORT-TERM CAPITAL GAIN DECLARED B Y THE ASSESSEE THEREBY TREATING THE ASSESSEE AS AN INVESTOR. REFERRING TO THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF RADHASWAMI SATSANG VS. CIT ( 193 ITR 321) HE SUBMITTED THAT PRINCIPLES OF CONSISTENCY AND FINALITY SHOULD BE APPLIED. HE SUBMITTED THAT WITH THE INTRODUCTION OF SECURITY TRANSACTION TAX ON SALE AND PURCHASE OF STOCKS THROUGH STOCK EXCHANGE SHORT-TERM CAPITAL GAIN WAS REDUCED FROM 30% TO 10%. THE ASSESSEE HAS SHOWN THE TRANSACTIONS AS EITHER L ONG-TERM OR SHORT-TERM CAPITAL GAIN IN THE PERIOD WHEN THE TAX ON SHORT-T ERM CAPITAL GAIN WAS 30%. HE HAS NOT CHANGED THE METHOD OF CALCULATION OF TAX EV EN IN THE CASE OF HIGH TAX ON CAPITAL GAIN IN EARLIER YEARS BEFORE OCTOBER 2004. HE SUBMITTED THAT ALTHOUGH THE TAX ON SHORT TERM CAPITAL GAIN IS REDUCED TO 10% T HE EFFECT OF SECURITY TRANSACTION TAX IS MUCH HIGHER SINCE THE SECURITY T RANSACTION TAX IS ON THE TURNOVER I.E. FOR BOTH PURCHASE AND SALE OF SHARES. SINCE THE ASSESSEE HAS MADE PAYMENTS TOWARDS INCOME-TAX AND SECURITY TRANSACTIO N TAX THERE IS NO REVENUE LOSS TO THE GOVT. OF INDIA BY SHOWING THE SHARE TRA NSACTIONS AS SHORT TERM CAPITAL GAINS. HE SUBMITTED THAT WHEN THE LEGISLATURE PROVI DED THAT SHORT TERM CAPITAL GAIN WILL BE TAXED @ 10% U/S.111A THE ASSESSING O FFICER CANNOT CHARGE TAX @ 30%ONLY ON THE PRESUMPTION THAT SHORT TERM CAPITAL GAIN IS BUSINESS INCOME. REFERRING TO THE CBDT CIRCULAR NO. 4/2007 DATED 15- 06-2007 HE SUBMITTED THAT FREQUENCY AND VOLUME OF TRANSACTIONS CANNOT BE THE ONLY CRITERIA FOR DETERMINING ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 7 THE NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE . HE SUBMITTED THAT THE STATUTE ITSELF HAS DIVIDED CAPITAL GAIN INTO SHORT-TERM AN D LONG-TERM CAPITAL GAIN AND THE BENEFIT OF INDEXATION IS GIVEN TO LONG-TERM CAPITAL GAIN CONSIDERING THE SAME TO BE INVESTMENT. RELYING ON A COUPLE OF DECISIONS INC LUDING THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT WHICH HAS BE EN UPHELD BY THE JURISDICTIONAL HIGH COURT REPORTED IN 228 ITR 582 HE SUBMITTED TH AT THE CIT(A) HAS CORRECTLY APPLIED THE LAW AND CONSIDERED THE INCOME AS SHORT- TERM CAPITAL GAIN AND LONG- TERM CAPITAL GAIN. HE ACCORDINGLY SUBMITTED THAT TH E GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSI DERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMPUGNED A PPEAL IS AS TO WHETHER THE INCOME FROM SALE OF SHARES HAS TO BE TREATED AS SHO RT-TERM CAPITAL GAIN AND LONG- TERM CAPITAL AS DECLARED BY THE ASSESSEE AND UPHELD BY THE CIT(A) OR TO BE TREATED AS BUSINESS INCOME AS HELD BY THE ASSESSING OFFICER. 7.1 WE FIND THE LEGAL PRINCIPLE AS LAID DOWN IN VA RIOUS DECISIONS AND AS RELIED ON BY THE ASSESSING OFFICER AS WELL AS THE ASSESSEE CAN BE SUMMARIZED AS UNDER : (1) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN I NVESTOR AS WELL AS DEALER IN SHARES. (2) WHETHER A TRANSACTION OF SALE AND PURCHASE OF S HARES IS A TRADING OR INVESTMENT TRANSACTION IS A MIXED QUESTI ON OF LAW AND FACT. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 8 (3) WHETHER A PARTICULAR HOLDING IS BY WAY OF INVES TMENT OR OF STOCK IN TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM THE RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARE S HELD AS INVESTMENTS AND THOSE HELD AS STOCK IN TRADE. (4) THE TREATMENT IN THE BOOKS OF AN ASSESSEE IS NO T CONCLUSIVE AND IF THE VOLUME FREQUENCY AND REGULARITY AT WHICH TR ANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIV ITY WITH PROFIT MOTIVE THEN IT BECOMES BUSINESS PROFIT AND NOT CAP ITAL GAIN. (5) PURCHASE WITH INTENTION TO RESELL CAN CONSTITUT E CAPITAL GAIN OR BUSINESS PROFIT DEPENDING ON CIRCUMSTANCES LIKE QUA NTITY OF PURCHASE AND NATURE OF ACTIVITY. (6) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST BE ANSWERED DEPENDING UPON SELECTIVE EFFECT O F ALL RELEVANT MATERIALS BROUGHT ON RECORD. 7.2 WE FIND THERE IS NO DISPUTE TO THE FACT THAT T HAT THE ASSESSEE IS A CA BY PROFESSION AND AS AGAINST HIS PROFESSIONAL INCOME O F RS.2 31 214/- THE SHORT- TERM CAPITAL GAIN HAS BEEN DECLARED AT RS.50 47 902 /- AND LONG-TERM CAPITAL GAIN HAS BEEN DECLARED AT RS.6 05 87 969/-. THERE IS ALS O NO DISPUTE TO THE FACT THAT THE SHORT-TERM CAPITAL GAIN WAS ON ACCOUNT OF SALE OF 2 SCRIPS ONLY NAMELY M/S. TCS AND M/S. BHARAT BIJLEE. THERE IS ALSO NO DISPUT E TO THE FACT THAT 406 SHARES OF M/S. TCS WERE SOLD AFTER 322 DAYS OF THEIR PURCHASE . SIMILARLY THERE IS NO DISPUTE TO THE FACT THAT OUT OF PURCHASE OF 1872 SH ARES OF M/S. BHARAT BIJLEE ON 4 DIFFERENT DATES THE ASSESSEE HAS SOLD ALL THE SHAR ES ON 4 DIFFERENT DATES. WE FIND ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 9 ON 22-07-2004 THE ASSESSEE PURCHASED 72 SHARES OF B HARAT BIJLEE WHICH WERE SOLD AFTER HOLDING THEM FOR 340 DAYS. SIMILARLY TH E SECOND LOT OF SHARES (869) WERE SOLD ON 27-07-2004 AFTER HOLDING THEM FOR 343 DAYS. WE FIND 865 SHARES PURCHASED ON 06-12-2004 WERE SOLD ON 04-07-2005 AFT ER HOLDING THEM FOR 209 DAYS. ONLY 66 SHARES PURCHASED ON 01-07-2005S WERE SOLD ON 04-07-2005 I.E. AFTER HOLDING THEM FOR 4 DAYS. THUS THE AVERAGE HO LDING PERIOD FOR THE SHARES OF M/S. BHARAT BIJLEE COMES TO APPROXIMATELY 224 DAYS. 7.3 SIMILARLY WE FIND THE HOLDING PERIOD OF THE SH ARES ON ACCOUNT OF LONG-TERM CAPITAL GAIN ARE AS UNDER : NAME OF SCRIPS NUMBER OF DAYS OF HOLDING THE SHARES M/S. DYNAMEDIA TECH. 645 M/S. BHARAT BIJLEE 418 M/S. ELPRO INTERNATIONAL 485 4 M/S. ONGC 449 M/S. ASTRAZEN IDL 861 M/S. MOTHER SUMI SYSTEMS 44 5 M/S. VISION LTD. 4122 M/S. SOUND IND. LTD. 4122 FROM THE ABOVE WE FIND ALTHOUGH THE SALE PROCEEDS OF THE SHARES ARE VERY HIGH THE VOLUME OF TRANSACTION IS NOT VERY HIGH. EVEN TH E ASSESSING OFFICER IN HIS ASSESSMENT ORDER AT PARA 2 OF THE ORDER HAS MENTION ED THAT IT IS NO DOUBT THAT THE SUBMISSIONS MADE APPEAR QUITE CONVINCING. SIMI LARLY THE ASSESSING OFFICER IN PARA 5 OF HIS ORDER HAS OBSERVED THAT THE NUMBE R OF SCRIPS AND THE TOTAL NUMBER OF TRADES CARRIED OUT BY THE ASSESSEE IS NOT VERY LARGE. FURTHER THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS R ECEIVED DIVIDEND INCOME OF RS.21 47 286/-. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 10 7.4 WE FIND THE ASSESSEE WAS CONSISTENTLY SHOWING T HE SHARES AS INVESTMENT AND VALUED THEM AT COST. THE DEPARTMENT IN THE PAS T IN ORDERS PASSED U/S.143(3) FOR THE ASST. YEARS 2004-05 AND 2005-06 HAS ACCEPTED THE SHORT-TERM AND LONG-TERM CAPITAL GAIN DECLARED BY THE ASSESSEE THEREBY TREATING THE ASSESSEE AS AN INVESTOR. THE SUBMISSION OF THE LD. COUNSEL F OR THE ASSESSEE THAT ALL THE INVESTMENTS ARE STRICTLY DELIVERY BASED WAS NOT CON TROVERTED BY THE LD. D.R. FURTHER THE SUBMISSION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT NO BORROWED FUNDS WERE USED FOR PURCHASE OF SHARES AN D THAT THE INVESTMENTS ARE OUT OF OWN SURPLUS FUNDS HAS NOT BEEN CONTROVERTED BY THE REVENUE. 7.5 WE FIND THE CBDT VIDE CIRCULAR NO. 4/2007 DT. 15.6.2007 H AS ACCEPTED THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COU RT IN THE CASES OF CIT (CENTRAL) CALCUTTA V/S. ASSOCIATED INDUSTRIAL DEVE LOPMENT CO. (P.) LTD. 82 ITR 586 AS WELL AS IN CIT V/S. H HOLSCK LARZEN 160 ITR 67 (SC). IN THE ABOVE REFERRED CIRCULAR THE BOARD HAS ISSUED CERTAIN GUI DELINES TO THE A.O. THE BOARD HAS ACCEPTED THAT THE ASSESSEE CAN HAVE TWO P ORTFOLIOS SIMULTANEOUSLY- (1) AN INVESTMENT PORTFOLIO COMPRIS ING OF SECURITIES WHICH ARE TO BE TREATED AS A CAPITAL ASSET AND (2) TRADING PO RTFOLIO COMPRISING OF STOCK AND TRADE WHICH ARE TO BE TREATED AS TRADING ASSET. 7.6 WE FIND THE OPERATIVE PART OF THE CIRCULAR NO. 4/2007 DT. 15.6.2007 READS AS UNDER : 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUG H INSTRUCTION NO. 1827 DATED AUGUST 31 1989 HAD BROUGHT TO THE NOTIC E OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE ( TRADING ASSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTIONS IT IS PROPOSED TO UPDATE THE AB OVE INSTRUCTIONS FOR THE INFORMATION OF ASSESSEES AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 11 5. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTR AL) CALCUTTA VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD ( 82 ITR 586) THE SUPREME COURT OBSERVED THAT: WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD IN NOR MAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . 6. IN THE CASE OF COMMISSIONER OF INCOME TAX BOMBA Y VS. H. HOLCK LARSEN (160 ITR 67) THE SUPREME COURT OBSERVED : THE HIGH COURT IN OUR OPINION MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS WAS A MIXED QUESTION OF LAW A ND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 641) REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES HAS CULLED OUT THE FOLLOWING PRINCIPLES :- (I) WHERE A COMPANY PURCHASES AND SELLS SHARES IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOC IATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS THE MA NNER OF MAINTAINING BOOKS OF ACCOUNTS THE MAGNITUDE OF PURCHASES AND S ALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD F URNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; BUT WHERE T HE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCO ME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH IN VESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE REC EIPT. 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSIB LE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRA DING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUS INESS INCOME. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER IN A GIVEN CASE THE S HARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE T O CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINE SS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SING LE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 12 7.7 WE FIND THE DECISION OF THE TRIBUNAL IN THE C ASE OF GOPAL PUROHIT (SUPRA) HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT OF BOMB AY IN CIT V/S. GOPAL PUROHIT-ITA NO. 1121/09 DT. 6/01/10 AND THE OPERAT IVE PART OF THE JUDGMENT READS AS UNDE R: 3. IN SO FAR AS QUESTION (B) IS CONCERNED THE TR IBUNAL HAS OBSERVED IN PARAGRAPH 8.1 OF ITS JUDGMENT THAT 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 INVESTMEN T AT THE END OF THE YEAR IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION SINCE TH E PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDING S. 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 PARTICUL ARLY IN THE CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE F AULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DI VERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B) THEREFOR E DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 7.8 CONSIDERING THE TOTALITY OF THE FACTS OF THE CA SE AND CONSIDERING THE FACT THAT THERE IS NO SYSTEMATIC AND ORGANIZED ACTIVITY BY THE ASSESSEE FOR FREQUENT BUYING AND SELLING OF SHARES AND FURTHER CONSIDERIN G THE FACT THAT THE REVENUE IN THE PAST IN ORDERS PASSED U/S.143(3) HAS TREATED TH E ASSESSEE AS AN INVESTOR BY ACCEPTING THE SHORT- TERM & LONG-TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE WE ARE OF THE OPINION THAT THE PROFIT ON ACCOUNT OF TRANSACTION OF PURCHASE & SALE OF SHARES BY THE ASSESSEE DURING THE IMPUGNED ASSES SMENT YEAR CANNOT BE TREATED AS BUSINESS INCOME AND HAS TO BE TREATED AS INCOME FROM LONG-TERM & SHORT-TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE . IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED DISCUSSION BY THE CIT(A ) HOLDING THE PROFIT AS LONG- TERM & SHORT-TERM CAPITAL GAIN WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE CIT(A) AND ACCORDINGLY UPHOLD THE SAME. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 13 8. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED ON 09TH JULY 2010. SD/- SD/- SD/-SD/- (R.V. EASWAR) PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED: 09TH JULY 2010. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XXIV MUMBAI 4. THE CIT-24 MUMBAI 5. THE DR E BENCH. 6. MASTER FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR I.T.A.T MUMBAI BENCHES MUMBAI TPRAO/NG ITA NO. 5412/MUM/2009 MR. TEJAS B. TRIVEDI =================== 14 DATE INITIALS DRAFT DICTATED ON 27.04.2010 SR. P.S. DRAFT PLACED BEFORE THE AUTHOR 27.04.2010 SR. P.S. DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER AM/JM DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM APPROVED DRAFT COMES TO THE SR. PS SR. P.S. KEPT FOR PRONOUNCEMENT ON SR. P.S. FILE SENT TO THE BENCH CLERK SR. P.S. DATE ON WHICH FILE GOES TO THE HEAD CLERK DATE OF DISPATCH