SUBHKAM MONETARY SERVICES P. LTD), MUMBAI v. ADDL CIT 2(3), MUMBAI

ITA 5902/MUM/2009 | 2006-2007
Pronouncement Date: 30-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 590219914 RSA 2009
Assessee PAN AABCS3565L
Bench Mumbai
Appeal Number ITA 5902/MUM/2009
Duration Of Justice 2 year(s) 24 day(s)
Appellant SUBHKAM MONETARY SERVICES P. LTD), MUMBAI
Respondent ADDL CIT 2(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 30-11-2011
Date Of Final Hearing 16-09-2011
Next Hearing Date 16-09-2011
Assessment Year 2006-2007
Appeal Filed On 05-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI BEFORE SHIRI N.V. VASUDEVAN JM AND SHRI R.K. PANDA AM ITA NO. : 6018/MUM/2009 ASSESSMENT YEAR : 2006-07 DCIT-2(3) R.NO.555 AAYAKAR BHAVAN MUMBAI M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 15 ONLOOKER BUILDING 2 ND FLOOR 14 SIR P.M. ROAD FORT MUMBAI-400 001 PAN NO: AABCS 3565 L (APPELLANT) VS. (RESPONDENT) ITA NO. : 5902/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 15 ONLOOKER BUILDING 2 ND FLOOR 14 SIR P.M. ROAD FORT MUMBAI-400 001 PAN NO: AABCS 3565 L ADIT-2(3) MUMBAI (APPELLANT) VS. (RESPONDENT) DEPARTMENT BY : SHRI B. JAYA KUMAR ASSESSEE BY : SHRI ARVIND V. SONDE DATE OF HEARING : 16.09.2011 DATE OF PRONOUNCEMENT : 30.11.2011 ORDER PER R. K. PANDA (AM) : THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDER DATED 28.08.2009 PASSED BY THE LD. CIT(A) XXX MUMBAI REL ATING TO ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 2 ASSESSMENT YEAR 2006-07. FOR THE SAKE OF CONVENIENC E THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. ITA NO. 6018/MUM/2009 (BY THE REVENUE) 2. THE GROUNDS OF APPEAL NO. 1 & 5 BY THE REVENUE B EING GENERAL IN NATURE ARE DISMISSED. 3. IN GROUNDS OF APPEAL NO.2 (I) (II) AND (III) TH E REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE AO TO TREAT THE PROFITS OF `. 64 62 293/- ARISING OUT OF THE SALE OF SHARES DURIN G THE YEAR AS SHORT TERM CAPITAL GAIN. SIMILARLY IN GROUNDS O F APPEAL NO.3 (I) (II) AND (III) THE REVENUE HAS CHALLENGED THE ORDER OF T HE LD. CIT(A) IN DIRECTING THE AO TO TREAT THE PROFIT OF `. 2 59 57 750/- ARISING OUT OF THE SALE OF SHARES PURCHASED DURING THE YEAR AS SHORT TERM CAPI TAL GAIN. FOR THE SAKE OF CONVENIENCE BOTH THESE GROUNDS ARE CONSIDE RED TOGETHER. 3.1 THE BRIEF FACTS LEADING TO THE ABOVE GROUNDS AR E AS UNDER :- THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SECURITIES. IT FILED ITS R ETURN OF INCOME ON 28.11.2006 DECLARING TOTAL INCOME OF `. 3 75 31 627/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASS ESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF `. 4 04 31 925/- WHICH WAS ADJUSTED AGAINST THE BROUGHT FORWARD UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEAR 2001-02 OF `. 1 07 826/- FOR THE ASSESSMENT YEAR 2002-03 OF `. 16 26 261/- AND FOR THE ASSESSMENT YEAR 2003-04 OF `. 11 66 211/-. THIS RESULTED INTO SHORT TERM CAPITAL GAIN OF `. 3 75 31 627/-. BESIDES THIS THE ASSESSEE TREATED THIS SHORT TERM CAPITAL GAIN SUBJECT TO RATE OF TAXATION AT 10% ONLY. THE ASSESSEE HAS ALSO SHOWN L ONG TERM CAPITAL ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 3 GAIN OF `. 10 14 72 450/- AND CLAIMED THE SAME AS EXEMPT U/S.1 0(38) OF THE I.T. ACT. 3.2 THE A.O. NOTED THAT THE ASSESSEE WAS DOING TRAD ING SPECULATION INVESTMENT AND ALSO TRANSACTIONS FROM THE DERIVATIV E MARKET IN SHARES AND SECURITIES. THE TAX AUDIT REPORT DTD. 28.8.2006 SHOWS ASSESSEES BUSINESS AS DEALING IN SHARES AND SECURITIES. THE TAX AUDIT REPORT AS WELL AS ANNUAL REPORT SHOW DETAIL ABOUT QUANTITATIV E DETAILS OF ITEMS TRADED DURING THE YEAR I.E. SHARES AND SECURITIES W HICH THE A.O. REPRODUCED IN THE BODY OF THE ORDER AND WHICH IS AS UNDER:- NARRATION QUANTITY (NOS.) AMOUNT OPENING STOCK 890954 (623222) 67052027 (38535456) PURCHASES INCLUDING BONUS 38179 (14423435) NIL (988334131) SALES 819133 (14155703) 87378384 982342958) CLOSING STOCK 110000 (890954) 385000 (67082227) 3.3 FROM THE ABOVE DETAILS THE A.O. NOTED THAT THE ASSESSEE HAS NOT MADE ANY PURCHASES DURING THE PREVIOUS YEAR IN RESP ECT OF TRADING.HE NOTED THAT DURING THE PREVIOUS YEAR RELEVANT TO ASS ESSMENT YEAR 2005-06 THE SCRIP-WISE LIST SHOWING STOCK IN TRADE HAS SHAR ES OF THE VARIOUS LISTED COMPANIES WHICH IS ALSO THERE IN A HUGE LIST SHOWN AS INVESTMENT. THE DETAIL OF SUCH INVESTMENT THROUGH COMPUTER ITSELF S HOWS THAT ASSESSEE SMARTLY BUT INTENTIONALLY SWITCHED OVER ITS TRADING BUSINESS TO THE INVESTMENT BUSINESS TO HAVE UNDUE ADVANTAGE OF LOWE R TAX RATE PROVIDED FOR SHORT TERM CAPITAL GAIN. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 4 4. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESS EE THE AO NOTED THAT THE ASSESSEE HAS UTILISED BORROWED MONEY FOR T HE HUGE INVESTMENTS MADE DURING THE YEAR. HE NOTED THAT THE ASSESSEE HA S MADE AN APPLICATION IN THE INITIAL PUBLIC OFFER OF M/S. SHO PPER SHOP LTD. AMOUNTING TO `. 20 CRORE BY A SINGLE APPLICATION UTILIZING THE FINA NCIAL FACILITIES FROM IL & FS LTD. AND PAID AN INTEREST O F `. 10 56 000/-. SIMILARLY THE ASSESSEE MADE AN APPLICATION FOR SYN DICATE BANK IPO FOR `. 20 CRORE BY OBTAINING FINANCE FROM IL & FS LTD. AND PAID INTEREST OF `. 11 20 000/-. WHATEVER SHARES ACQUIRED BY THE ASSESS EE THROUGH THESE TWO IPOS WERE SOLD AS SHORT TERM INVESTMENT AND THE INTEREST SO PAID WAS REDUCED FROM THE WORKING OF SUCH GAIN. ACCORDING TO THE AO THE APPLICATION IN THE IPO FOR SUCH A HUGE AMOUNT INCUR RING HUGE INTEREST COST CANNOT BE TREATED AS SHORT TERM INVESTMENT BY ANY PRUDENT BUSINESSMAN. THIS CLEARLY SHOWS THE ASSESSEES INTE NTION OF DOING BUSINESS WITH A CAMOUFLAGE OF SHOWING THE SAME AS I NVESTMENT ACTIVITY. 4.1 THE AO FURTHER NOTED THAT THE ASSESSEE IS MAINT AINING A RUNNING LEDGER WITH THE SHARE BROKER THROUGH WHOM SUCH INVE STMENTS ARE ARRANGED. THE ASSESSEE IS HAVING RUNNING LEDGER ACC OUNT IN REFERENCE TO LOANS AND ADVANCES TO VARIOUS ASSOCIATES AND GROUP CONCERNS WHICH SHOWS HUGE AMOUNT OF LOAN HAS BEEN TAKEN AND REPAID FOR THE SO CALLED ACTIVITY OF INVESTMENT WITHOUT ANY INTEREST HAVING BEEN PAID. THESE ACCOUNTS ARE GENERALLY SQUARED UP AT THE END OF THE YEAR SO AS TO AVOID THE REFLECTION IN THE BALANCE SHEET AS BORROWED LOA NS. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE HE NOTED THAT THE ASSESSEES ACCOUNT WITH M/S. SUBHKAM STOCKS AND SHARES UNDER THE HEAD ADVANCES SHOWS VARIOUS ENTRIES FOR SUCH KIND OF AMOUNT BEING TAKEN AND GIVEN BACK ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 5 TOTALLING TO `. 8 29 98 509/- BUT ULTIMATELY SHOWING NIL BALANCE D UE TO SQUARED UP OF THE AMOUNT. 4.2 SIMILARLY IN THE CASE OF M/S. FORTIES INVESTMEN T LTD. THE AMOUNT INVOLVED WAS `. 5 93 76 419/- AND IN THE CASE OF SWEET SOLUTIONS LT D. THE AMOUNT INVOLVED WAS RS. 6 69 50 000/-. ACCORDING TO THE AO THE FREQUENCY AND THE AMOUNT OF SUCH BORROWING ITSELF S HOWS THE INTENTION OF THE ASSESSEE THAT PRIMARILY ASSESSEE WAS DOING A BU SINESS IN THE TRADING OF SHARES AND SECURITIES ON DAY TO DAY BASIS. 4.3 FROM THE SCRIP-WISE SUMMARIES FILED BY THE ASSE SSEE IN RESPONSE TO THE QUERY THE AO NOTED THAT THE SAME SHOW THE SPEC ULATIVE TRANSACTION RESULTING INTO SPECULATION LOSS/SPECULATION GAIN. T HE DISTINCTION BETWEEN THE TWO TYPES OF TRANSACTION IS ONLY RELATED TO PHY SICAL DELIVERY OF THE SHARES. HE NOTED THAT THE ASSESSEE ENTERS ON DAY TO DAY BASIS IN THE TRANSACTION OF PURCHASE AND SALE OF SHARES AND THE TRANSACTIONS IN WHICH THE CONTRACT FOR PURCHASE IS SQUARED UP ON THE SAME DAY WITHOUT TAKING DELIVERY IS CONSIDERED AUTOMATICALLY THROUGH THE SO FTWARE USED BY THE COMPUTER OF ASSESSEE AS SPECULATION TRANSACTION WHI LE IN THE SAME SCRIPS IF THE CONTRACT FOR PURCHASE IS SQUARED UP AFTER TA KING DELIVERY IN FEW DAYS THEN THE SAME IS TREATED AS SHORT TERM CAPITA L GAIN. THE SCRIP-WISE ANALYSIS FOR EVERY LISTED COMPANY SHARE ON DAY TO D AY BASIS SHOWS THAT ONLY IN FEW CASES THE ASSESSEE HAS SQUARED UP THE C ONTRACT OF PURCHASE AND SALE FOR MORE THAN ONE MONTH. THIS INTER-ALIA I NDICATES THE FREQUENCY BY WHICH THE ASSESSEE IS ENTERING IN THE PURCHASE A ND SALE OF SECURITY. THIS ALSO INDICATES THAT ASSESSEE HAS NO OTHER BASI S TO SUPPORT ITS GENUINE INTENTION FOR INVESTMENT OTHER THAN TRADING . A NORMAL TRADING OPERATIONS ARE BEING CARRIED OUT ON DAY TO DAY BASI S AND IT IS THE END OF THE DAY AS PER THE SOFTWARE SO UTILIZED BY THE ASSE SSEE BIFURCATION IS ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 6 MADE IN BETWEEN SPECULATION ACTIVITY AND INVESTMENT ACTIVITY. THESE SUMMARIES ALSO SHOW THE QUANTITATIVE AND AMOUNT WIS E DETAIL ABOUT PURCHASE AND SALE OF THE SHARES AND SECURITY WHICH THE A.O. SUMMARISED IN THE ASSESSMENT ORDER AT PARA 4.1.7 WHICH IS AS U NDER:- DURING THE PREVIOUS YEAR THE ASSESSEE PURCHASED 365 9926 NOS. OF SHARES AND SOLD THE SAME NUMBER OF SHARES WITH A PRICE CONSIDERATION UNDER INVESTMENT AT `. 37 12 93 513/- AND SALE OF `. 41 42 14 152/- RESULTING INTO PROFIT OF `. 5 09 23 323/- AND LOSS OF `. 80 02 685/- THEREBY THE NET PROFIT IS OF `. 4 29 20 638/- . AFTER TAKING INTO CONSIDERATION THE MISCELLANEOUS EXPENSES IN RESPECT OF MISTAKE IN THE CALLS TO THE BROKERS AND ROUNDING OFF FIGURE THE SHORT TERM CAPITAL GAIN IS SHOWN AT `. 4 26 07 925/-. THE ASSESSEE REDUCED THE INTEREST PAID ON TWO IPO A S DISCUSSED IN PREVIOUS PARA OF `. 21 76 000/- TO ARRIVE AT THE SHORT TERM CAPITAL GAIN OF `. 4 04 3L 925/-. IT HAS BEEN CLARIFIED THAT THE NUMBER OF QUANTITY SHOWN UNDER THE HEAD PURCHASE AL SO INCLUDES THE OPENING BALANCE IN RESPECT OF INVESTME NT. IN RESPECT OF TRADING SUMMARY OUT OF TOTAL OPENING AND FURTHE R PURCHASES OF SHARES IN 929133 NOS. VALUED AT `. 6 70 52 030/- THE SHARES IN 818533 NOS. VALUED AT `. 8 73 95 478/- WERE SOLD RESULTING INTO PROFIT OF `. 2 23 99 855/- AND LOSS OF `. 13 49 819/- THEREBY THE NET PROFIT OF TRADING AT `. 2 10 50 036/-. THE SAME DETAIL ALSO HAS SPECULATION INCOME DETAIL WHICH SHOWS THAT FOR 606387 NOS. OF SHARE FOR THE PURCHASE CONSIDERATION OF `. 12 90 6L 372/- THE ASSESSEE SQUARED UP AND SOLD THE SAME AT `. 12 08 84 560/- WHICH HAS RESULTED INTO PROFIT OF `. 2 63 277/- AND LOSS OF `. 84 40 090/- ULTIMATELY RESULTING INTO LOSS OF `. 81 76 812/-. TWO IMPORTANT ASPECT REQUIRED CONSIDERATION HERE. A. VARIOUS SCRIP IN WHICH ASSESSEE IS TRADING AND A LSO DOING SPECULATION ACTIVITY ARE FEATURING IN THE LIS T OF INVESTMENT ALSO. B. THE VOLUME OF SPECULATION ACTIVITY WITH HUGE AMO UNT CLEARLY SHOWS THAT ASSESSEE IS DOING TRADING ACTIVI TY INCLUDING SPECULATION AND WHATEVER RESIDUAL REMAINS IS SHIFTED TO INVESTMENT ACTIVITY. ANY PRUDENT PERS ON DOING SUCH ACTIVITY ON SUCH A SCALE WITH VOLUME CAN NOT JUSTIFY TAKING A DECISION AFTER THE COMPLETION OF TRANSACTION THAT OUT OF SUCH TRANSACTION A PART IS INVESTMENT ACTIVITY AND ANOTHER PART IS TRADING AND SPECULATION ACTIVITY. THIS VIEW WILL BE FURTHER SUPPORTED BY THE FACT THAT THE ASSESSEE ALSO DOING ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 7 TRADING IN DERIVATIVE MARKET WITH A-HUGE VOLUME ON ALMOST DAY TO DAY BASIS. 4.4 IN VIEW OF THE ABOVE FINDINGS/OBSERVATIONS THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE TRANSACTION IN R ESPECT OF SHORT TERM INVESTMENT AND THE GAIN DERIVED FROM THEM SHOULD NO T BE TREATED AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GA IN SHOWN BY IT. 4.5 IT WAS EXPLAINED BY THE ASSESSEE THAT WHETHER A N ASSESSEE IS A TRADER OR INVESTOR THE INTENTION AT THE TIME OF MAK ING AN INVESTMENT IS TO BE SEEN. IN THIS CASE THE SHARES WERE PURCHASED WI TH THE INTENTION OF HOLDING THEM AS INVESTMENT AND NOT TO DEAL IN THEM. FURTHER THE SHARES HAVE BEEN HELD TO GAIN ADVANTAGE OF APPRECIATION AN D TO VARY THE INVESTMENTS SO AS TO OBTAIN MAXIMUM SURPLUS ON ACCO UNT OF APPRECIATION IN THE SHARE PRICES AS INVESTOR. IT WAS SUBMITTED T HAT THE ASSESSEE CAN ALWAYS BE AN INVESTOR AS WELL AS TRADER BEING OPERA TING IN THE FIELD OF SHARES AND SECURITIES MAKING SOUND INVESTMENT DECI SIONS WILL BE EASY AND WOULD BE COMFORTABLE TO MAKE INVESTMENTS ALSO I N THE AREA OF ITS COMPETENCE. IN THE BOOKS OF ACCOUNT ALSO THE ASSESS EE HAS TREATED THE TRANSACTIONS AS INVESTMENT. REFERRING TO THE VARI OUS TESTS LAID DOWN BY THE APEX COURT AND OTHER HIGH COURTS DEPENDING ON T HE FACTS OF THE CASE IT WAS SUBMITTED THAT THE ASSESSEE FULFILS ALL THE CONDITIONS SO AS TO BE TREATED AS AN INVESTOR. 4.6 IT WAS SUBMITTED THAT DURING THE YEAR THE ASSES SEE HAS TOTALLY BEEN AN INVESTOR AND THERE IS NOT EVEN A SINGLE TRANSACT ION OF TRADING ENTERED INTO. THE TRADING PROFIT HAS ARISEN DURING THE YEAR ONLY OUT OF SALE MADE FROM THE OPENING STOCK OF EARLIER YEAR. FROM THESE IT CAN BE INFERRED THAT THE ASSESSEE HAD A CONSCIOUS DECISION TO BE AN INVE STOR. REFERRING TO ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 8 VARIOUS DECISIONS IT WAS SUBMITTED THAT ON IDENTICA L FACTS AND CIRCUMSTANCES THE PROFIT FROM PURCHASE AND SALE OF SHARES HAS BEEN ACCEPTED AS SHORT TERM CAPITAL GAIN AS AGAINST B USINESS INCOME TREATED BY THE LOWER AUTHORITIES. IT WAS ACCORDINGLY SUBMI TTED THAT IN THE TOTALITY OF THE CASE THE ASSESSEE SHOULD NOT BE TREATED AS T RADER IN SHARES. 5 HOWEVER THE AO WAS NOT SATISFIED WITH THE EXPLAN ATION GIVEN BY THE ASSESSEE FOR THE FOLLOWING REASONS WHICH HE HAS SUM MARISED AT PARA 4.1.9 AND WHICH ARE AS UNDER :- 1. THE INVESTMENT ACTIVITY OF THE ASSESSEE IS NOT AN INCIDENTAL OR OCCASIONAL ACTIVITY BUT A SIMULTANEOUS AND CONTINUO US ACTIVITY. 2. THE INTENTION OF THE INVESTMENT BY THE ASSESSEE IS NOT TO HOLD THEM FOR A LONG TERM APPRECIATION BUT TO SELL THEM AT A PROFIT AS EVIDENT FROM THE TRANSACTIONS OF M/S. SYNDICATE BANK AND M/S. SHOPPERS STOP SHARES SHOWN AS INVESTMENT ACTIV ITY. 3. THE ASSESSEE IS OPERATING ON A BIG SCALE IN THE ACTIVITY OF TRADING INVESTMENT SPECULATION. 4. ASSESSEES TRANSACTIONS ARE CONTINUOUS AND REGUL AR THROUGHOUT THE PREVIOUS YEAR. EVEN RS.6 35 715/- THE PURCHASES IN THE SAME SCRIP ON THE SAME DAY IS DIVI DED INTO SPECULATION AND INVESTMENT. 5. THE ASSESSEE IS MAKING PURCHASES OUT OF BORROWIN G. 6. THE ASSESSEES HOLDING PERIOD IN RESPECT OF CURR ENT INVESTMENT IS NOT SUBSTANTIAL. 7. IF THE RATIO IS DERIVED BETWEEN THE SALES OR PU RCHASES AND ALSO TO HAVE A PERCENTAGE NUMBER OF SHARES KEPT AS HOLDING THEN IT IS EVIDENT THAT THE ASSESSEE IS SELLING ITS CURRENT INVESTMENT ALMOST LIKE TRADING. 5.1 RELYING ON THE DECISIONS OF HON'BLE SUPREME COU RT IN THE CASE OF G. VENKATSWAMI NAIDU & CO. VS. CIT REPORTED IN 35 I TR 594 AND IN THE CASE OF SARDAR INDRA SINGH AND SONS LTD. REPORTED I N 24 ITR 415 THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF H. MOHAMED & CO. VS. CIT REPORTED IN 107 ITR 637 AND VARIOUS OTHER D ECISIONS AS PER PAGE 11 AND 12 OF THE ASSESSMENT ORDER AND FOLLOWING THE TESTS LAID DOWN BY THE CBDT INSTRUCTION NO.1827 DATED 31.08.1989 THE A O CAME TO THE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 9 CONCLUSION THAT THE ASSESSEES TRANSACTIONS SHOWN A S INVESTMENT AND CONSIDERED UNDER THE HEAD SHORT TERM CAPITAL GAIN CANNOT BE ACCEPTED AS INVESTMENT TRANSACTIONS. HE TREATED THE SAME A S TRADING TRANSACTIONS AND TREATED THE INCOME DERIVED FROM THESE TRANSACTI ONS AS BUSINESS INCOME OF THE ASSESSEE. 6. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT IN T HE SCRUTINY ASSESSMENT FOR THE ASSESSMENT YEARS 2004-05 AND 200 5-06 THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN DECLAR ED BY THE ASSESSEE HAS BEEN ACCEPTED. IT WAS SUBMITTED THAT THE NET WORTH OF THE COMPANY AS ON 31.03.2005 WAS 20.28 CRORES AS AGAINST INVESTMENT I N SHARES AT `. 11.07 CRORES. THE NET WORTH OF THE COMPANY AS ON 31.03.20 04 WAS `. 20.31 CRORES AND THE INVESTMENT IN SHARES WERE `. 12.64 CRORES. SIMILARLY AS AGAINST NET WORTH OF `. 34.24 CRORES AS ON 31.03.2006 THE INVESTMENTS MADE IN SHARES WERE `. 23.71 CRORES. ALL THESE FACTS EMANATE FROM THE BALANCE SHEETS WHICH WERE ON THE RECORDS OF THE INC OME TAX DEPARTMENT. IT WAS ACCORDINGLY SUBMITTED THAT THE ASSESSEE COMP ANY HAD SUFFICIENT FUNDS IN ALL THE YEARS AND INVESTMENTS IN SHARES HA VE BEEN MADE OUT OF OWN FUNDS. 7. THE ASSESSEE SUBMITTED COMPLETE DETAILS OF STCG WHICH ACCORDING TO HIM IS OUT OF THREE CATEGORIES OF THE DETAILS WH ICH ARE AS UNDER : 1. STCG ON SHARES ALLOTTED IN IPO `. 80 11 882/- 2. STCG OUT OF SHARES HELD AS INVESTMENT AS ON 31.03.05 `. 64 62 293/- 3. STCG ON SHARES PURCHASED & SOLD DURING THE YEAR `. 2 59 57 750/- TOTAL STCG `. `.`. `. 4 04 31 925/- ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 10 8. ATTENTION OF THE LD. CIT(A) WAS INVITED TO THE BOARD RESOLUTION PASSED ON 25.03.2005 WHEREIN IT WAS UNANIMOUSLY DE CIDED THAT DELIVERY OF SHARES TAKEN ONLY IN RESPECT OF SHARES TO BE HEL D AS INVESTMENT AND NOT IN RESPECT OF TRADING IN SHARES. TRADING IN SHA RES IF AT ALL TO BE DONE IS DONE IN FUTURES & OPTIONS SEGMENT OF NSE AND ALSO B Y WAY OF DAY TRADING WHERE PURCHASE AND SALE IS CARRIED OUT ON T HE SAME DAY AND NO DELIVERY IS EFFECTED. IT WAS SUBMITTED THAT AS ON 3 1.03.2006 THE UNSECURED LOAN AT NIL AND AGAINST THE NET WORTH OF THE COMPAN Y AT RS. 34.24 CRORES THE INVESTMENT IN SHARES WERE AT RS. 23.71. THIS PR OVES BEYOND DOUBT THAT THE ENTIRE INVESTMENT WAS MADE OUT OF OWN FUND S AND NO BORROWING HAS BEEN DONE. 8.1 IT WAS CLAIMED THAT THE AO HIMSELF WAS CONFUSED ABOUT THE TREATMENT OF DELIVERY BASED SHARE TRANSACTION AS A T ONE PLACE HE HAS ACCEPTED THE CONTENTION OF THE ASSESSEE WHEREBY SHA RES HELD FOR MORE THAN A YEAR IS TREATED AS LTCG AND THOSE HELD FOR L ESS THAN A YEAR WAS TAXED AS BUSINESS. IT WAS FURTHER ARGUED THAT IF THE SAME SCRIP IS HELD FOR 90 DAYS IT IS TAXED AS BUSINESS WHEREAS IF I TS IS HELD FOR 380 DAYS THE SAME IS ACCEPTED AS CAPITAL GAIN. THE ASSESSEE SUBMITTED THAT IN ORDER TO DECIDE WHETHER A TRANSACTION IS CAPITAL GA IN OR BUSINESS WHAT IS RELEVANT IS INTENTION AT THE TIME OF PURCHASE. IT W AS SUBMITTED THAT THE ONLY INTENTION AT THE TIME OF PURCHASE OF SHARES WH ERE DELIVERY HAS BEEN TAKEN WAS TO HOLD THE SAME AS INVESTMENT. THE INTEN TION IS PROVED BEYOND DOUBT IN THE BOARD RESOLUTION DATED 25 TH MARCH 2005. 8.2 RELYING ON A COUPLE OF DECISIONS INCLUDING THE CBDT CIRCULAR NO.4 OF 2007 DATED 15.06.2007 IT WAS ARGUED THAT THE PRO FIT FROM SALE OF SHARES HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN AS AGA INST BUSINESS INCOME TREATED BY THE AO. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 11 8.3 IN APPEAL THE LD. CIT(A) TREATED THE SHORT TERM CAPITAL GAIN ON SHARES ALLOTTED IN IPO AMOUNTING TO RS. 80 11 882/- AS BUSINESS INCOME. THE ASSESSEE IS NOT IN APPEAL AGAINST THE ABOVE FIN DING OF THE LD. CIT(A). THEREFORE THE FINDING OF THE LD. CIT(A) ON THIS ISS UE IS NOT CONSIDERED. 8.4 SO FAR AS THE STCG OUT OF SHARES HELD AS INVEST MENT AS ON 31.03.05 OF RS.64 62 293/- IS CONCERNED HE NOTED THAT THE SA ME IS ON ACCOUNT OF SALE OF SHARES OF SPANCO TELESYSTEMS & SOLUTIONS LT D. WHICH WERE ACQUIRED BY THE ASSESSEE IN F.Y. 2004-05. THE ASSES SMENT FOR A.Y. 2005- 06 WAS COMPLETED UNDER SECTION 143(3) AS PER ORDER DATED 05.12.07. IN THE BALANCE SHEET AS ON 31.03.2005 THE INVESTMENT M ADE IN SHARES HAS BEEN DISCLOSED AS INVESTMENT AND ACCEPTED AS SUCH AND THERE IS NO CONTRARY FINDING IN THE ASSESSMENT. HE NOTED THAT T HE SHARES WERE ACQUIRED BY THE ASSESSEE OUT OF ITS OWN FUNDS AS NO LOAN WAS OUTSTANDING AS ON 31 .03.06. FURTHER THE NET WORTH OF THE ASSES SEE IS ALSO SUBSTANTIAL ENOUGH TO COVER THE INVESTMENT. THE BOARD OF DIRECT ORS IN THE RESOLUTION PASSED ON 25.03.2005 HAVE DECIDED THAT ALL THE TRAN SACTIONS RELATING TO DELIVERY BASED SHARES SHALL BE CARRIED OUT ONLY ON INVESTMENT ACCOUNT. 8.5 THE LD. CIT(A) WAS OF THE OPINION THAT IN VIEW OF CBDT CIRCULAR NO. 4 OF 2007 DATED 15.06.07 THERE CAN BE TWO PORTFOLIOS I.E. ONE AS INVESTMENT PORTFOLIO AND THE OTHER AS TRADING POR TFOLIO. THEREFORE THERE CAN BE TWO TYPES OF INCOME I.E. INVESTMENT INCOME WHICH IS TO BE TAXED AS CAPITAL GAIN AND THE OTHER ONE IS TRADING INCOM E WHICH IS TO BE TAXED AS BUSINESS INCOME. SINCE IN THE PRESENT CASE TH E BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.03.05 WAS ACCEPTED IN THE SCRUTINY ASSESSMENT AND THERE WAS NO ADVERSE FINDING HE HEL D THAT THE STCG EARNED ON SHARES AMOUNTING TO RS. 64 62 293/- CANNO T BE TAXED AS ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 12 BUSINESS. HE ACCORDINGLY DIRECTED THE A.O. TO TAX THE INCOME OF RS.64 62 293/- AS INCOME FROM SHORT TERM CAPITAL GAIN ONLY AND SUBJECT TO TAX THE SAME AT 10% UNDER SECTION 111A O F THE INCOME TAX ACT 1961. 8.6 AS REGARDS THE STCG ON SHARES PURCHASED & SOLD DURING THE YEAR OF RS. 2 59 57 750/- HE NOTED THAT THE ASSESSEE HAS CA RRIED OUT TRANSACTIONS IN 35 SCRIPS. HE ACCEPTED THE CLAIM OF THE ASSESSEE THAT AT THE TIME OF PURCHASE THE ONLY INTENTION WAS TO MAKE INVESTMENT WHICH IS EVIDENT FROM THE BOARD RESOLUTION DATED 25.03.2005. FURTHER THE ENTIRE INVESTMENT HAS BEEN MADE OUT OF OWN FUNDS AND NO IN TEREST BEARING FUND HAS BEEN UTILIZED BY THE ASSESSEE. HE NOTED THAT TH E A.O. HIMSELF HAS PARTIALLY AGREED WITH THE ASSESSEE THAT PROFIT EARN ED ON SHARES HELD FOR MORE THAN A YEAR HAS TO BE TAXED AS LONG TERM CAPIT AL GAIN. ACCORDING TO HIM ONCE THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE IS ACCEPTED AS THAT OF INVESTMENT IT IS IMMATERIAL WH ETHER THE ASSESSEE HOLDS THE SAME FOR 90 DAYS OR 380 DAYS AND IT CANNO T ALTER THE NATURE OF TRANSACTION. RELYING ON VARIOUS DECISIONS THE LD. CIT(A) DIRECTED THE A.O. TO TREAT THE PROFIT OF RS. 2 59 57 750/- AS SHORT T ERM CAPITAL GAIN. 9. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. AT THE TIME OF HEARING BOTH THE SIDES FAIRLY AGREED TH AT THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO THE FACTS OF ANOTHER GROUP CONCERN NAMELY SWEET SOLUTIONS LTD. VIDE ITA NO. 6019/MUM/2009 FOR THE A.Y. 2006-07 WHICH WAS HEARD BEFORE US AND THE SAME ARGUMENTS AR E APPLICABLE TO THE PRESENT CASE. WE FIND VIDE OUR ORDER OF EVEN DATE WE HAVE DECIDED THE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 13 ISSUE AND ALLOWED THE GROUNDS RAISED BY THE REVENUE BY HOLDING AS UNDER:- 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE SERIES O F DECISION RELIED ON BY BOTH THE PARTIES. THERE IS NO DISPUTE TO THE FACT T HAT THE ASSESSEE DURING THE YEAR HAS CLAIMED SHORT TERM CAPITAL GAIN OF RS.4 04 31 925/-.OUT OF THE ABOVE SHORT TERM CAPITAL GAIN PROFIT ON SALE OF SH ARES ALLOTTED IN IPO AMOUNTING TO RS. 80 11 882/- HAS BEEN HELD AS BUSIN ESS INCOME BY THE LD. CIT(A) FOR WHICH THE ASSESSEE IS NOT IN APPEAL. TH EREFORE THE ISSUE TO BE DECIDED BY US IS REGARDING THE TREATMENT OF THE PRO FIT OF RS. 64 62 293/- ON SALE OF SHARES WHICH WERE HELD AS ON 31.3.2005 AND PROFIT OF RS. 2 59 57 750/- ON SHARES PURCHASED AND SOLD DURING T HE YEAR AS BUSINESS INCOME AS HELD BY THE A.O. OR SHORT TERM CAPITAL GA IN AS TREATED BY THE ASSESSEE AND UPHELD BY THE CIT(A). 11.1 ACCORDING TO THE A.O. THE NATURE OF ACTIVITY FREQUENCY AND MAGNITUDE SUGGEST THAT THE PROFIT DECLARED BY THE A SSESSEE ON ACCOUNT OF TRANSACTIONS IN PURCHASE AND SALE OF SHA RES HAS TO BE TREATED AS BUSINESS INCOME. ACCORDING TO THE ASSES SEE THE SHARES WHICH WERE SOLD ARE TREATED AS INVESTMENT IN THE BO OKS OF THE ASSESSEE SUPPORTED BY THE BOARD RESOLUTION AND THE REFORE HAS TO BE TREATED AS SALE OF INVESTMENT AND THE PROFIT OF THE SAME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN WHICH HAS BEEN U PHELD BY THE CIT(A). WE FIND THE CBDT VIDE CIRCULAR NO. 4/2007 D T. 15.6.2007 HAS ACCEPTED THE PRINCIPLES LAID DOWN BY THE HON'BL E SUPREME COURT IN THE CASES OF CIT (CENTRAL) CALCUTTA V/S. ASSOCI ATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. 82 ITR 586 AS WELL AS IN CIT V/S. H HOLSCK LARZEN 160 ITR 67 (SC). IN THE ABOVE REFERRED CIRC ULAR THE BOARD HAS ISSUED CERTAIN GUIDELINES TO THE A.O. THE BOARD HAS ACCEPTED THAT THE ASSESSEE CAN HAVE TWO PORTFOLIOS SIMULTANE OUSLY- (1) AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET AND (2) TRADING PORTFOLIO COMPRISI NG OF STOCK AND TRADE WHICH ARE TO BE TREATED AS TRADING ASSET. 11.2 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 BROU GHT TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) A ND SHARES HELD AS STOCK-IN-TRADE (TRADING ASSET). IN THE LIGH T OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 14 INSTRUCTIONS IT IS PROPOSED TO UPDATE THE ABOVE IN STRUCTIONS FOR THE INFORMATION OF ASSESSEES AS WELL AS FOR GUI DANCE OF THE ASSESSING OFFICERS. 5. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTR AL) CALCUTTA VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMP ANY (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 WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO H OLDS THE SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES BE I N A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH 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 OBSERV ED : THE HIGH COURT IN OUR OPINION MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OR WHETHER THESE WERE IN THE N ATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS WAS A MIXED QUESTION OF LAW AND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASS ESSING 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 THA T EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NA TURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS THE MA NNER OF MAINTAINING BOOKS OF ACCOUNTS THE MAGNITUDE OF PUR CHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 15 (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT WOULD RESULT IN THE TRANSACTIO N BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; B UT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROF ITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY SALE OF S HARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSIB LE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTME NT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK- IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS THE ASSESSEE MAY HAVE INCOME UN DER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOM E. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER IN A GIVE N CASE THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT ( AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK -IN-TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFITS). THE ASS ESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIP LE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER IN A GIVEN CASE T HE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN- TRADE. 11.3 WE FIND THE LEGAL PRINCIPLES AS LAID DOWN BY V ARIOUS COURTS ON ACCOUNT OF TREATMENT OF AN INCOME AS BUS INESS INCOME OR CAPITAL GAIN CAN BE SUMMARISED AS UNDE R: (A) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVEST OR AS WELL AS DEALER IN SHARES. (B) WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHARE S IS A TRADING OR INVESTMENT TRANSACTION IS A MIXED QUESTI ON OF LAW AND FACT. (C) WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMEN T OR OF STOCK IN TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVID ENCE FROM THE RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINC TION BETWEEN SHARES HELD AS INVESTMENTS AND THOSE HELD A S STOCK IN TRADE. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 16 (D) THE TREATMENT IN THE BOOKS OF AN ASSESSEE IS NOT CO NCLUSIVE AND IF THE VOLUME FREQUENCY AND REGULARITY AT WHIC H TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANIZED ACTIVITY WITH PROFIT MOTIVE THEN IT BECO MES BUSINESS PROFIT AND NOT CAPITAL GAIN. (E) PURCHASE WITH INTENTION TO RESELL CAN CONSTITUTE CA PITAL GAIN OR BUSINESS PROFIT DEPENDING ON CIRCUMSTANCES LIKE QUA NTITY OF PURCHASE AND NATURE OF ACTIVITY. (F) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND TH E QUESTION MUST BE ANSWERED DEPENDING UPON SELECTIVE EFFECT OF ALL RELEVANT MATERIALS BROUGHT ON RECORD. 11.4 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE IN THE PAPER BOOK FILED WE FIND THE SHARES ARE HELD FOR A FEW DAYS AND IN A VERY FEW CASES FOR A FEW WEEKS OR FEW MONTHS. IN O UR OPINION PURCHASE OF SHARES DURING THE YEAR AND SELLING THEM FREQUENTLY IN SHORT PERIOD DO INDICATE THAT THE ASSESSEE HAS PURC HASED THE SHARES WITH A MOTIVE TO EARN PROFIT IN A SHORT PERIOD. TH EREFORE THE FACTS OF THE INSTANT CASE DO NOT PERSUADE US TO HOLD THAT TH E SHARES WERE HELD AS INVESTMENT SINCE THESE ARE NOT HELD FOR SUC H A LONGER PERIOD SO AS TO TREAT THE SAME AS INVESTMENT. THE FREQUEN CY AND VOLUME OF THE TRANSACTIONS IN THE INSTANT CASE GIVE AN IMPRES SION THAT THE ASSESSEE DO NO INTEND TO ACQUIRE THE SHARES WITH IN VESTMENT MOTIVE. IN THE CASE OF AN INVESTMENT A PERSON USUALLY WATCH ES THE MARKET OVER A LONGER PERIOD OF TIME BEFORE SELLING OF THE SHARES. THE EARNING OF DIVIDEND AND THE APPRECIATION OF THE SHARES IS T HE PRIMARY CONSIDERATION. IT IS ONLY A TRADER WHO WOULD LOOK FOR SHORT-TERM GAINS FROM PURCHASE AND SALE OF SHARES. THEREFORE THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAID TRANSACTIONS IN T HE BOOKS OF ACCOUNT IN OUR OPINION CANNOT BE THE ONLY DETERMI NATIVE FACTOR ABOUT THE NATURE OF THE TRANSACTIONS. THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SHARES WERE DISCL OSED AS INVESTMENT IN THE BALANCE SHEET WAS CERTAINLY A FAC TOR TO BE RECKONED WITH BUT WHEN THERE WERE OTHER FACTORS OR CIRCUMSTANCES WHICH THROW SOME DOUBT ON THE MOTIVE OF THE ASSESSE E IN ACQUIRING THE SHARES AS IN THE INSTANT CASE THE ENTRIES IN THE BOOKS OF ACCOUNT OR BALANCE SHEET CANNOT OVERRIDE THEM AND BE TAKEN AS DECISIVE OF THE INTENTION OF THE ASSESSEE. FURTHER THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE PRECEDING TWO ASSESSMENT YEARS THE SHORT TERM CAPITAL GAIN HAS BEEN ACCEPTED BY TH E REVENUE IN SCRUTINY/SUMMARY ASSESSMENT AND THEREFORE THE SAME SHOULD BE FOLLOWED IN THIS YEAR IN OUR OPINION IS WITHOUT M UCH FORCE SINCE IT IS THE SETTLED PROPOSITION OF LAW THAT PRINCIPLES OF R ES JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS AND EVERY ASSESSMEN T IS INDEPENDENT AND SEPARATE. FURTHER IN THE PRECEDING A.Y. THE ASSESSEE WAS TRADING IN SHARES AND ONLY TOWARDS THE END OF THE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 17 FINANCIAL YEAR (25.3.2005) THE ASSESSEE PASSED A RE SOLUTION TO TREAT THE DELIVERY BASED SHARES AS INVESTMENT. IN OUR OP INION THE ENTIRE EXERCISE DONE BY THE ASSESSEE WAS WITH A MOTIVE TO REDUCE THE TAX LIABILITY WHICH IS 10% FOR STCG AND 30% FOR BUSINES S INCOME. THEREFORE NOT WITHSTANDING THE FACT THAT THE SHARES WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET AS ON 31.3.2005 WHI CH WERE EARLIER A PART OF STOCK IN TRADE SALE OF THE SAME IN OUR OPINION CANNOT BE CONSIDERED AS SALE OF INVESTMENT AND CONSEQUENTLY T HE PROFIT HAS TO BE TREATED AS BUSINESS INCOME. 11.5 FROM THE VARIOUS DETAILS FURNISHED BY THE ASSE SSEE WE FIND IT IS THE COMPUTER WHICH DECIDES WHETHER THE SHARE IS DELIVERY BASED OR NON-DELIVERY BASED AND WHETHER IT IS FOR TRADING OR INVESTMENT. THEREFORE THE BOARD RESOLUTION IN OUR OPINION LOO SES ITS SIGNIFICANCE. THE OTHER SUBMISSION OF THE LD. COUN SEL FOR THE ASSESSEE THAT NO BORROWED FUNDS HAVE BEEN UTILIZED AND THE ENTIRE INVESTMENT IS OUT OF OWN FUNDS IS ALSO WITHOUT MUCH FORCE SINCE THE A.O. HAS GIVEN A CATEGORICAL FINDING THAT THE ASSES SEE USED BORROWED MONEY FROM GROUP CONCERNS AND ASSOCIATES A ND TOWARDS THE END OF THE YEAR THE SAME WERE SQUARED UP SO AS TO GIVE AN IMPRESSION THAT NO BORROWED FUNDS HAVE BEEN UTILIZE D FOR THE PURPOSE OF INVESTMENT IN SHARES. 11.6 THE VARIOUS DECISIONS RELIED ON BY THE LD. COU NSEL FOR THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRE SENT CASE. IT MAY BE MENTIONED HERE THAT EVERY CASE DEPENDS ON ITS OW N SETS OF FACTS. THE DECISION IN ONE PARTICULAR CASE CANNOT BE APPLI ED TO THE FACTS OF ANOTHER CASE. IT DEPENDS ON A COMBINATION OF FACTO RS. THERE IS NO DISPUTE TO THE LEGAL PROPOSITION THAT THE ASSESSEE CAN HAVE TWO PORTFOLIOS I.E ONE FOR INVESTMENT AND ONE FOR TRADI NG. THERE IS ALSO NO DISPUTE TO THE LEGAL PROPOSITION THAT MERE VOLUME O F TRANSACTION DOES NOT MEAN THAT ASSESSEE IS A TRADER. IT IS THE INTE NTION WITH WHICH PURCHASE HAS BEEN MADE HAS TO BE SEEN. HOWEVER IN THE INSTANT CASE THE INTENTION OF THE ASSESSEE APPEARS TO BE W HIMSICAL. PURCHASES IN THE SAME SCRIP ON THE SAME DAY HAS BEE N DIVIDED INTO SPECULATION AND INVESTMENT. ALTHOUGH THE LD. COUNSE L FOR THE ASSESSEE FILED A SERIES OF DECISIONS IN ITS FAVOUR WE FIND THERE ARE EQUAL NUMBER OF DECISIONS AGAINST THE ASSESSEE. THE REFORE THE RATIO OF ONE DECISION CANNOT BE APPLIED TO THE FACTS OF T HE CASE OF THE ASSESSEE. IT HAS BE DECIDED ON THE BASIS OF ITS OW N SET OF FACTS AND CIRCUMSTANCES. AS HAS BEEN MENTIONED EARLIER WE FI ND THE ONLY INTENTION OF THE ASSESSEE IN THE IMPUGNED CASE IS J UST TO REDUCE THE TAX LIABILITY BY TREATING A PART OF THE PROFIT AS S HORT TERM CAPITAL GAIN. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 18 11.7 AS REGARDS THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA) WHICH HAS SINCE BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT AND AS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE WE FIND THE SAME IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT CASE THE TRIBUNAL HAS GIVEN A FINDING THAT THE ASSESSEE WAS CONSISTENTLY INVESTING IN SHARES AND THE RATIO OF S ALES TO INVESTMENT WAS VERY LESS. THE ASSESSEE WAS INVESTING FOR A LO NG PERIOD AND OFFERING THE LONG TERM CAPITAL GAIN WHICH IS MORE T HAN SHORT TERM CAPITAL GAIN AND THE PERIOD OF HOLDING OF THE SHARE S VARIED FROM ONE YEAR TO FIVE YEARS. HOWEVER NO SUCH FACTS EXIST IN THE PRESENT CASE. THE HOLDINGS OF SHARES VARY BETWEEN ONE DAY TO FEW WEEKS ONLY. THEREFORE THE DECISION IN THE CASE OF GOPAL PUROHI T (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE VA RIOUS OTHER DECISIONS RELIED ON BY THE ASSESSEE IN OUR OPINIO N ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MATTER WE HOLD THAT THE PROFIT ON ACCOUNT OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IN THE INSTANT CASE HAS TO BE TREATED AS INCOME FROM BUSINESS AS HELD BY TH E A.O. WE THEREFORE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE ORDER OF A.O. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDI NGLY ALLOWED. SINCE THE FACTS IN THE IMPUGNED GROUNDS ARE IDENTIC AL TO THE FACTS IN THE CASE OF SWEET SOLUTIONS LTD. THEREFORE FOLLOWING OUR OWN ORDER THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED. 11. GROUNDS OF APPEAL NO. 4(I) (II) & (III) BY THE REVENUE ARE AS UNDER:- 4.(I) THE CIT(A) ERRED IN DELETING THE ADDITION OF AN AMO UNT OF RS. 34 08 608/- RECEIVED AS ADVANCES FROM M/S SUBHK AM STOCKS AND SHARES LTD. AND AN AMOUNT OF RS. 6 69 5 0 000/- RECEIVED AS LOAN FROM M/S SWEET SOLUTIONS LTD. BY W AY OF DEEMED DIVIDEND U/S 2(22)(E) OF THE I.T. ACT THE F IRST AMOUNT BEING THE AMOUNT OF ACCUMULATED PROFITS OUTSTANDING UNDER THE HEAD RESERVES AND SURPLUS IN THE BALANCE SHEET OF M /S SUBHKAM STOCKS & SHARES PVT. LTD. AS ON 31.03.2005 AND THE SECOND AMOUNT BEING THE AMOUNT OF ACCUMULATED PROFI TS OUTSTANDING UNDER THE HEAD RESERVES AND SURPLUS IN THE BALANCE SHEET OF M/S SWEET SOLUTIONS LTD. AS ON31.0 3.2005 (INCLUDED IN THE TOTAL OUTSTANDING BALANCE OF RS. 3 6 05 69 568/- UNDER THE HEAD RESERVES AND SURPLUS AS ON 31.03.200 5 IN THE CASE OF M/S SWEET SOLUTIONS LTD.) WITHOUT APPRECIAT ING THE FACT THAT THE MAIN DIRECTOR OF THE ASSESSEE COMPANY SHRI RAKESH S. KATHODIA WAS HOLDING 49.73 % OF SHARES IN THE CASE OF THE M/S SUBHKAM STOCKS AND SHARES LTD. AND 46.34% OF SHARES IN THE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 19 CASE OF M/S SWEET SOLUTIONS LTD. AND HENCE THE AFOR ESAID AMOUNTS FEEL WITHIN THE DEFINITION OF DEEMED DIVIDE ND U/S 2(22)(E) OF THE I.T. ACT. (II) THE CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAS ERRONEOUSLY TERMED THE AFORESAID TRANSACTIONS AS IN TER-CORPORATE DEPOSITS WHICH IN FACT WERE LOANS AND ADVANCES RECE IVED BY THE ASSESSEE FOR ACQUIRING THE SHARES IN THE COMPANY M/ S MSK PROJECTS (INDIA) LTD. (III) THE CIT(A) OUGHT TO HAVE NOTED THAT THE DEPAR TMENT HAS NOT ACCEPTED THE DECISION OF THE SPECIAL BENCH OF T HE ITAT IN THE CASE OF M/S BOMBAY OIL INDUSTRIES LTD. VS. ACIT CEN TRAL CIRCLE MUMBAI (28 SOT 383 (MUM) 2009] AND THAT THE CIT(C)- III MUMBAI HAS FILED APPEAL U/S 260A BEFORE THE BOMBAY HIGH COURT ON 30.03.2009 VIDE APPEAL NO. 1630 OF 2009 AG AINST THE SAID ORDER OF THE ITAT. 11.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. H ELD THAT SHRI RAKESH KATHODIA IS ONE OF THE COMMON SHAREHOLDERS IN ALL T HE COMPANIES AS HE IS HOLDING 51.33% IN SSSL AND 49.73% IN THE ASSESSEE C OMPANY. HE IS ALSO HOLDING 46.34% IN SWEET SOLUTIONS LIMITED (SSL). O N OBSERVING THAT ONE OF THE SHAREHOLDER MR. RAKESH KATHODIA IS HOLDING M ORE THAN 20% SHARE IN EACH OF THE THREE COMPANIES THE A.O. HELD THAT AMOUNT RECEIVED FROM SSSL AND SSL DURING THE YEAR AND SQUARED UP NEEDS T O BE TAXED AS DEEMED DIVIDEND U/S 2(22)(E) OF THE I. T. ACT 1961 . HOLDING SO THE AMOUNT RECEIVED FROM SSSL OF RS. 34 08 608/- AND AM OUNT RECEIVED FROM SSL OF RS. 6 69 50 000/- WAS TAXED AS DEEMED DIVIDE ND U/S 2(22)(E) OF THE I.T. ACT 1961. 11.2 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT TH E ASSESSEE HAS ENTERED INTO AN INTER CORPORATE DEPOSIT (ICD) AGREEMENT DTD . 15.03.2005 WITH SSL AND SSSL (PAGE 53-56 OF THE COMPILATION). THE ASSESSEE PROPOSED TO ACQUIRE MANAGEMENT CONTROL OF A LISTED COMPANY IN I NFRASTRUCTURE SECTOR ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 20 FOR WHICH APPROXIMATE FUND REQUIREMENT IS OF RS. 30 CRORES. SINCE THE ASSESSEE WAS HAVING FUNDS TO THE EXTENT OF RS. 10 C RORES IT HAS ENTERED INTO AN ICD AGREEMENT WITH SSL FOR AN AMOUNT OF RS. 15 CRORES AND WITH THAT OF SSL OF RS. 5 CRORES. SSSL AND SSL HAS AGRE ED TO GIVE ICD OF RS. 5 CRORES AND RS. 15 CRORRES RESPECTIVELY FOR A PERIOD OF FIVE YEARS ON THE TERMS AND CONDITIONS MENTIONED THEREIN. ON THE STRE NGTH OF FUNDS COMMITMENT BY SSL AND SSL THE ASSESSEE ACQUIRED 9. 58% STAKE IN M/S MSK PROJECTS INDIA LTD. FOR RS. 9.80 CRORES ON 29.0 8.2005. HOWEVER THE ASSESSEE COULD NOT ACQUIRE MANAGEMENT CONTROL OF M/ S MSK PROJECTS INDIA LTD. SINCE THE AGREED AMOUNT COULD NOT BE INV ESTED AND THE ASSESSEE COULD NOT ACQUIRE THE MANAGEMENT CONTROL SSL AND SSSL HAS OPTED TO CALL ITS ICDS BACK AND THE ASSESSEE REMAIN ED WITH NO OPTION BUT TO RETURN THE SAME. IT WAS SUBMITTED THAT TRANSACT ION WITH SSL AND SSSL IS THAT OF INTER CORPORATE DEPOSIT (ICD) AND NOT TH E TRANSACTION OF LOANS AND ADVANCES. SINCE THE TRANSACTION IN QUESTION IS NOT THAT OF LOANS AND ADVANCES THE PROVISION OF DEEMED DIVIDEND U/S 2(22 )(E) IS NOT APPLICABLE. THE DECISION OF THE TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. VS. DCIT REPORTED IN 28 SOT 383 WAS RELIED UPON. 11.3 IN APPEAL THE LD. CIT(A) FOLLOWING THE DECISI ON IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. (SUPRA) HELD THAT PROVIS IONS OF SECTION 2(22)(E) DO NOT APPLY TO ICDS AND THEREFORE NO ADDITION CAN BE MADE U/S 2(22)(E) OF THE I.T. ACT. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 11.4 AFTER HEARING BOTH THE SIDES WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LD. CIT(A). FIRST OF ALL HE HAS FOLLO WED THE DECISION OF THE ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 21 TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES LTD. (SUPRA) TO THE PROPOSITION THAT PROVISIONS OF SECTION 2(22)(E) DO NOT APPLY TO ICDS. MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE DEC ISION OF THE TRIBUNAL AND FILED APPEAL BEFORE THE HONBLE HIGH COURT THE SAME CANNOT BE A GROUND FOR TAKING A CONTRARY DECISION. SECONDLY I T IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS A SHAREHOLDER OF THE T WO COMPANIES NAMELY SUBHKAM STOCKS AND SHARES LTD. AND SWEET SOLUTIONS LTD. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF BHAUMIK COLOUR PRIVATE LTD. REPORTED IN 313 ITR 147 (AT) HAS HELD THAT DEEMED DIVIDEND C AN BE ASSESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF TH E LENDER COMPANY AND NOT IN THE HANDS OF A PERSON OTHER THAN A SHAREHOLD ER. WE FIND THE ABOVE VIEW OF THE TRIBUNAL HAS BEEN APPROVED BY THE HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. UNIVERSAL MEDICAP (P.) LTD. REPORTED IN 324 ITR 263. IN THIS VIEW OF THE MATTER THE ORDER OF T HE LD. CIT(A) IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ITA NO. : 5902/MUM/2009 (BY THE ASSESSEE) 13. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALL ENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE A.O. IN DISALLOWING AN AMOUNT OF RS. 13 42 846/- U/S 14A OF THE ACT. 13.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE COMPANY HAS RECEIVED DIVIDEND OF RS. 3 80 137/- WHICH IT CLAIME D TO BE EXEMPT U/S 10(34) OF THE I.T. ACT. SIMILARLY IT HAS ALSO CLAI MED LONG TERM CAPITAL GAIN OF RS. 10 14 72 450/- AS EXEMPT U/S 10(38) OF THE A CT. THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE AGAINST THE EARNING O F THE EXEMPT INCOME. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 22 THE A.O. FOLLOWING THE DECISION OF THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. HELD THAT THE PROVISIONS OF RULE 8D ARE RETROSPECTIVE IN NATURE AND THE DISALLO WANCE NEEDS TO BE MADE AS PER FORMULA SPECIFIED IN THE SAID RULE. ON BEING QUESTIONED BY THE A.O. THE ASSESSEE WORKED OUT THE DISALLOWANCE A T RS. 8 69 486/-. HOWEVER THE A.O. DETERMINED SUCH DISALLOWANCE AT R S. 35 11 555/-. 13.2 IN APPEAL THE LD. CIT)(A) RESTRICTED THE DISA LLOWANCE TO RS. 13 42 846/-. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 14. AFTER HEARING BOTH THE SIDES WE FIND THE ASSESS MENT YEAR INVOLVED IN THE INSTANT CASE IS 2006-07. THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING COMPANY LTD. VS. DCIT REPORTED IN 328 ITR 81 HAS HELD THAT RULE 8D IS NOT RETROSPECTI VE IN NATURE AND ARE APPLICABLE FROM A.Y. 2008-09 ONWARDS. HOWEVER IN T HE SAID DECISION IT HAS ALSO BEEN HELD THAT SOME REASONABLE DISALLOWANC E HAS TO BE MADE FOR YEARS PRIOR TO 2008-09. WE THEREFORE DEEM IT PRO PER TO RESTORE THE MATTER BACK TO A.O. WITH THE DIRECTION TO COMPUTE R EASONABLE DISALLOWANCE U/S 14A IN THE LIGHT OF THE DECISION O F HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING COMPANY LTD. (SUPRA). THE GROUND RAISED BY THE ASSESSEE IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 6018/M/2009 & 5902/M/2009 M/S. SUBHKAM MONETARY SERVICES PVT. LTD. (NOW KNOWN AS SUBHKAM HOLDINGS PVT. LTD.) 23 15. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSE. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER 2011. SD/- SD/- ( N.V. VASUDEVAN ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 30.11.2011. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T.-2 MUMBAI 4. CIT (A)- XXX MUMBAI 5. THE DR E - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI/RK