ACIT 20(1), MUMBAI v. GEETA BHATIA, MUMBAI

ITA 6117/MUM/2009 | 2006-2007
Pronouncement Date: 28-11-2014 | Result: Dismissed

Appeal Details

RSA Number 611719914 RSA 2009
Assessee PAN AAGPB8685G
Bench Mumbai
Appeal Number ITA 6117/MUM/2009
Duration Of Justice 5 year(s) 7 day(s)
Appellant ACIT 20(1), MUMBAI
Respondent GEETA BHATIA, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 28-11-2014
Date Of Final Hearing 18-11-2014
Next Hearing Date 18-11-2014
Assessment Year 2006-2007
Appeal Filed On 20-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH MUMBAI BEFORE SHRI R.C.SHARMA A M & VIVEK VARMA J M ITA NO. 6117 / MUM/20 09 ( ASSESSMENT YEAR : 200 6 - 0 7 ) ACIT - 20(1) MUMBAI - 400012 VS. MS.GEETA BHATIA 203 - 206 SHALIMAR MORYA PARK 2 ND FLOOR OFF. ANDHERI OSHIWARA NEW LINK ROAD ANDHERI(E) MUMBAI - 400 053 PAN/GIR NO. : A A GP B 8685 G ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : SHRI PAVAN KUMAR BEERLA /ASSESSEE BY : SHRI RASHMIKANT D. KUNDALIA DATE OF HEARING : 1 8 TH NOVEMBER 201 4 DATE OF PRONOUNCEMENT 28 TH NOVEMBER 201 4 O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER CIT(A) DATED 12 - 8 - 2009 IN THE MATTER OF ORDER PASSED U/S. 143 ( 3 ) OF THE I.T. ACT FOR THE ASSESSMENT YEAR 200 6 - 07 WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE : - I. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF INTEREST PAID OF RS. 9 66 115/ - AND AD DITION ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES OF RS.1 95 654. II. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME FROM SHARE TRANSACTION AS SHORT TERM CAPITAL GAIN INSTEAD OF INCOME FROM SHARE TRANSACTION AS BUSINESS INCOME ADOPTED BY THE A.O. ITA NO.6117/09 2 III. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS OF THE CASE THAT THE ASSESSEE HAD TAKEN TERM LOAN FOR PURCHASE OF IMMOVEABLE PROPERTY AND THE SAME IS N OT RELATED TO THE BUSINESS OF THE ASSESSEE AND NOT ALLOWABLE U / SEC. 36(III) OF THE ACT AND ASSESSEE HAS DELIBERATELY DEBITED TO P & L ACCOUNT KNOWING WELL THAT THE INTEREST EXPENDITURE IS NOT RELATED TO THE BUSINESS. IV. THE LEARNED CIT(A) HAS ERRED I N NOT APPRECIATING THE FACTS THAT THE ASSESSEE WAS NOT PRODUCED ANY EVIDENCES TO ESTABLISH THAT THE FOREIGN VISIT W AS UNDERTAKEN FOR ASSESSEE BUSI NESS AND ON THE CONTRARY IT WAS PLEASURE TRIP OF THE ASSESSEE ONLY AND NOT A BUSINESS TRIP V. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE HAS DURING THE YEAR REPEATEDLY BROUGHT AND SOLD SHARES A FTER HOLDING THEM FOR A SHORT D URAT ION ONLY WITH AN INTENTION I.E. PROFIT MAKING. THERE IS NO INTENTION OR HOLDING THE SHARE FOR PURPOS E OF INVESTMENT AND EARN DIVIDEND INCOME. VI. THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE RECENT DECISION OF AHMEDABAD ITAT IN THE CA SC OF DC IT VS. D EEPA SHAH (99 ITD 219) IN WHICH IT IS HELD THAT VOLUME FREQUENCY CONTINUITY AND REGULARITY OF TRANSACTION IN SHARES MAKES IT BUSINESS OF SHARES AND IT CANNOT BE ASSESSED UNDER THE HEAD 'CAPITAL GAIN'. VII. THE LEARNED C IT(A) HAS ERRED IN NOT APPRECIA TI N G THE DECISION IN THE CASE OF CL T VS. GODAVARI CORPORATION LTD. 1984 (156 ITR 835) (MP) THE HON'BLE HIGH COURT HELD T HAT IN A GIVEN SET OF CIRCUMSTANCES THE BORROWAL OF MONEY FOR PURCHASE OF SHARES WOULD BE A STRONG EVIDENCE THAT DEALING IN SHARES WAS IN A COMMERCIAL SPRIT. VIII. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AU BE RESTORED. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING OF PRE - SCHOOLS COMMISSION AND BROKERAGE TRADING IN SHARES E TC FOR THE RELEVANT ASSESSMENT YEAR. SHE HAS ALSO DERIVED INCOME FROM CAPITAL GAINS DIVIDEND INTEREST ETC. THE RET URN OF INCOME WAS FILED ON 30.1 0.2006 DECLARING TOTAL INCOME OF RS.5 63 88 581 / - WHICH INCLUDED SHORT TERM CAPITAL GAINS OF RS.5 57 85 718 / - ON PURCHASE AND SALE OF SHARES AND ITA NO.6117/09 3 RS.9 70 050/ - ON SALE OF IMMOVABLE PROPERTY. DURING THE COURSE OF ASSESSMENT U/S.143(3) THE AO HAS DISALLOWED INTEREST EXPENDITURE OF RS. 9 66 115/ - PAID TO BANK ON TERM LOAN TAKEN FOR ACQUISITION OF IMMOVABLE PROPERTI ES ON THE PLEA THAT THE SAME IS NOT RELATED TO THE BUSINESS AND THEREFORE NOT ALLOWABLE U/S.36(1)(III). 3 . BY THE IMPUGNED ORDER THE CIT(A) ALLOWED ASSESSEES CLAIM AFTER HAVING THE FOLLOWING OBSERVATION : - 4.2 I HAVE CAREFULLY CONSIDERED THE ASSESSME NT ORDER WRITTEN SUBMISSIONS AND ARGUMENTS MADE BY THE AR AS DISCUSSED ABOVE FOR DECIDING THIS ISSUE . IN APPEAL THE AR WAS ASKED TO FURNISH THE COMPLETE DETAILS OF LOANS TAKEN AND ITS UTILIZATION. AS A RESULT T HEREOF AS PER THE DETAILS FILED BY THE AR I NTEREST OF RS.9 56 593/ - IS INCURRED FOR THE ACQUISITION OF IMMOVABLE PROPERTIES WHEREAS INTEREST OF RS.9 522/ - PERTAINS TO INTEREST RELATING TO BROKERS. THE APPELLANT FURNISHED COMPLETE DETAILS OF PROPERTIES ACQUIRED LOAN RAISED FROM BANKS AGAINST THE M ORTGAGE OF THESE PROPERTIES USE OF THESE PROPERTIES AND THE DETAILS OF INTEREST PAID ON SUCH LOANS RAISED. ALL THESE PROPERTIES ARE USED BY THE APPELLANT FOR HER PRE - SCHOOLING BUSINESS AND THE LOANS RAISED AGAINST THE MORTGAGE THEREOF WAS UTILIZED FOR BOT H SHARE TRADING AND PRE - SCHOOLING BUSINESS OF THE APPELLANT. THE DISALLOWANCE WAS MADE BY THE AO CONTENDING THAT THE TERM LOAN WAS UTILIZED FOR THE PURCHASE OF IMMOVABLE PROPERTIES WHICH ARE NOT USED FOR HER BUSINESS PURPOSES. 4.2.1 AS PER SECTION 36(1)(II I) OF THE ACT INTEREST PAID ON LOAN TAKEN FOR THE PURPOSE OF BUSINESS OR PROFESSION IS AN ALLOWABLE DEDUCTION. HOWEVER IF LOANS ARE TAKEN FOR ACQUIRING OF A NEW ASSET WITH EFFECT FROM 0 1.04.04 THE INTEREST FOR THE PERIOD COMMENCING FROM THE DATE OF BOR ROWING TO THE DATE OF SUCH ASSET BEING FIRST PUT TO USE SHALL NOT BE ALLOWED AS A DEDUCTION BUT THE SAME SHALL BE CAPITALIZED TO THE COST OF ACQUISITION OF THE SAID ASSET. H OWEVER IN THE CASE OF THE APPELLANT IT IS ARGUED BASED ON THE DETAILS AND EVIDEN CES PRO DUCED THAT THE IMMOVABLE PROPERTIES ACQUIRED BY THE APPELLANT ARE ALREADY PUT TO USE FOR THE RUNNING OF HER PRE - SCHOOLING BUSINESS BY THE APPELLANT. T HE AR HAS RELIED ON THE DECISIONS OF DCIT VS. CORE HEALTH CARE LTD. (298 ITR 194) GSFL VS. A.C.LT. (313 ITR 244) BORROWED WAS USED FOR THE PURPOSE OF THE BUSINESS THE INTEREST ON THE BORROWED CAPITAL WAS DEDUCTIBLE UNDER SECTION 36(1 )(III) OF THE ACT HOWEVER I FIND THAT THESE CASE LAWS ARE NOT RELEVANT IN THE CASE OF THE APPELLANT DUE TO CHANGE IN LAW AS A RESULT OF AMENDMENT TAKEN PLACE WITH EFFECT FROM 01.04.2004. AT THE SAME TIME FROM THE FACTS AS FOUND AVAILABLE IN THE CASE OF THE APPELLANT IT IS NOTICED THAT THE TERM - LOAN WAS TAKEN AGAINST MORTGAGE OF IMMOVABLE PROPERTIES THESE PROPERTIES WERE USED BY THE APPELLANT FOR THE PURPOSE OF HER PRE - SCHOOLING BUSINESS. SINCE THESE PROPERTIES W E RE NOT UNDER C O N STRUCTION AND THE BUILDINGS ACQUIRED OUT OF THE FUNDS BORROWED ITA NO.6117/09 4 WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANT'S BUSINESS OF PRE - SCHOOLING I FIND THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION OF THE SAID INTEREST U/S36( 1) (III) OF THE ACT. THEREFORE CONSIDERING THESE FACTS AS DISCUSSED ABOVE I FIND THAT THE APPELLANT'S CLAIM FOR DEDUCTION OF INTEREST AMOUNTING TO RS.9 56 593/ - IS A LLOWABLE S.36(1)(III) OF THE ACT HOWEVER THE BALANCE INTEREST DISALLOWED AMOUNTING TO S.9 522/ - IS SEPARATELY DECIDED IN THE FOLLOWING PARA 9.3.25 OF THIS ORDER. T HEREFORE ON ACCOUNT OF THE AFORESAID DISCUSSION THE - ENTIRE ADDITION OF RS.9 66 115/ - ON A CCOUNT OF DISALLOWANCE OF INTEREST IS HERBY DIRECTED TO BE DELETED. ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED . 4. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM RECORD THAT INTEREST WAS PAID BY ASSESSEE IN RESPECT OF TERM LOAN TAKEN FOR PURCHASE OF IMMOVABLE PROPERTIES WHICH WAS UTILIZED FOR THE PURPOSE OF BUSINESS. WE FOUND THAT THE PROPERTY WAS USED FOR RUNNING OF PRE - SCHOOLING BUSINESS BY THE ASSESSEE. AS PER THE FINDING RECORDED BY THE CIT(A) THE TERM LOAN WAS TAKEN AGAINST MORTGAGE OF IMM OVABLE PROPERTIES WHICH ARE USED BY ASSESSEE FOR THE PURPOSE OF PRE - SCHOOLING BUSINESS ASSESSEE WAS ELIGIBLE FOR DEDUCTION OF INTEREST U/S. 36(1)(III) . THE FINDINGS RECORDED BY CIT(A) HAVE NOT BEEN CONTROVERTED. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF INTEREST. 5 . THE AO HAS ALSO DISALLOWED FOREIGN TRAVELLING EXPENSES OF RS.1 95 654/ - . AS PER AO THE EXPENDITURE WAS RELATED TO PLEASURE TRIP OF THE ASSESSEE. SINCE THE ASSESSEE HAS NOT PRODUCED EVIDEN CE ABOUT THE BUSINESS TRANSACTED AT SINGAPORE. BY THE IMPUGNED ORDER THE CIT(A) DELETED THE DISALLOWANCE AFTER HAVING THE FOLLOWING OBSERVATION : - 6.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER WRITTEN SUBMISSIONS AND THE DETAILS FILED BY THE AR AN D HIS ARGUMENTS MADE IN THE COURSE OF APPELLATE PROCEEDINGS. FROM THE FACTS IT EMERGES THAT THE APPELLANT UNDERTOOK A VISIT TO HONGKONG AND SINGAPORE DURING THE RELEVANT ASSESSMENT YEAR WHICH AS PER THE APPELLANT WAS FOR MEETING NRIS IN CONNECTION WITH H ER SHARE TRADING BUSINESS AND VISITING VARIOUS LOCAL SCHOOLS SITUATED IN THESE COUNTRIES IN CONNECTION WITH HER SETTING UP OF PRE - SCHOOLING BUSINESS. THE AO TREATED THE ENTIRE EXPENDITURE INCURRED ON THIS ACCOUNT AS A PLEASURE ITA NO.6117/09 5 TRIP BY REJECTING HER EXPLANA TION AND DISALLOWED THE ENTIRE DEDUCTION ON THIS ACCOUNT. DURING APPELLATE PROCEEDINGS THE APPELLANT REITERATED MORE OR LESS THE SAME SUBMISSIONS AND ARGUMENTS WHICH WERE ALREADY PUT FORTH BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE AR HAS FILED DETAILS OF VARIOUS SCHOOLS WHICH WERE VISITED BY THE APPELLANT IN CONNECTION WITH THE SETTING UP OF PRE - SCHOOLING BUSINESS BY HER DURING HER FOREIGN TRAVELLING AS PART OF HIS WRITTEN SUBMISSIONS WHICH IS PLACED ON RECORD. IT IS THE CASE OF THE APPELLANT T HAT SHE HAD TO DO AN IN DEPTH STUDY OF THE PATTERN COURSE CURRICULUM AND OTHER PARTICULARS OF SUCH PRE - SCHOOLING ACTIVITY WIDELY PREVALENT IN THOSE COUNTRIES. IT WAS SUBMITTED THAT THE APPELLANT HAS FOLLOWED THE SAID PATTERN OF PRE - SCHOOLING ACTIVITY PREV ALENT IN SINGAPORE AND HONGKONG AND AS A RESULT OF HER VISIT STUDY OF THEIR PATTERN AND COURSE CURRICULUM HER NEW BUSINESS NAMED TREE HOUSE AT PRESENT HAS BECOME A HOUSEHOLD NAME IN MUMBAI; HAVING MORE THAN 80 BRANCHES 4000 STUDENTS IN ITS ROLL AND G ENERATING AN INCOME OF MORE THAN 5 CRORES A YEAR. 6.2.1 FROM THE FACTS PLACED ON RECORD AS MENTIONED ABOVE IT IS EVIDENT THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF PRE - SCHOOLING CARRIED OUT IN THE NAME OF THE TREE HOUSE. SHE IS ALSO CARRYING ON THE BUSINESS OF TRADING IN SHARES AND INVESTMENT IN SHARES AND CONSULTANCY ON WHICH COMMISSION INCOME IS GENERATED. DURING THE APPELLATE PROCEEDINGS THE LEARNED AR OF THE APPELLANT SUBMITTED THAT HER PRE - SCHOOLING BUSINESS HAS REGISTERED SIGNIFICANT GROW TH AND ITS BRANCHES HAVE BEEN OPENED IN ALMOST ALL THE SUBURBS OF MUMBAI CITY. THE PRESENT STRENGTH OF STUDENTS IS CLAIMED TO BE APPROXIMATELY ABOUT 4000. THE IMMENSE EXPERIENCE RELATING TO COURSE CURRICULUM TEACHING AIDS MAINTENANCE OF SCHOOLS ETC IS A RGUED TO BE GAINED DURING HER VISIT TO VARIOUS SCHOOLS SITUATED IN THESE COUNTRIES WHICH ENABLED HER TO DEVISE HER OWN METHODOLOGY AND EXPANSION OF THE BUSINESS MORE RAPIDLY. SHE COULD ATTRACT PRIVATE EQUITY IN THE SUCCEEDING YEARS IN HER PRE - SCHOOLING BU SINESS BY MEETINGS VARIOUS NRIS AND OTHER FOREIGN NATIONALS OF THESE COUNTRIES. THE SUBSEQUENT GROWTH OF HER PRE - SCHOOLING BUSINESS STOOD TESTIMONY OF THE FACT THAT HER FOREIGN TRAVELLING WAS NOT A PLEASURE TRIP BUT A BUSINESS TRAVEL PROVIDING HER WITH IMM ENSE EXPERIENCE AND EXPOSURE OF INTERNATIONAL PRE - SCHOOLING BUSINESS. AS AGAINST THE JUSTIFICATION AND DETAILS PROVIDED BY THE APPELLANT THE ASSESSING OFFICER COULD NOT BRING ANY MATERIAL ON RECORD TO TREAT THE FOREIGN TRAVEL OF THE APPELLANT AS PLEASURE TRIP. IT IS A SETTLED POSITION OF LAW THAT A BUSINESS EXPENDITURE CANNOT BE DISALLOWED IN AN AD - HOC MANNER AND ON THE BASIS OF MERE CONJECTURES AND SURMISES WITHOUT BRINGING ON RECORD ANY SUPPORTING MATERIAL OR EVIDENCE. BEFORE DISALLOWANCE THEREOF THE A O IS REQUIRED TO SHOW WITH EVIDENCE THAT EITHER THE EXPENDITURE WAS PERSONAL IN NATURE OR NOT INCURRED FOR THE PURPOSE OF BUSINESS OR NOT GENUINE. IN THE APPELLANTS CASE NOTHING OF THAT SORT HAS BEEN BROUGHT ON RECORD TO SUPPORT THE INFERENCE OF FOREIGN TRAVEL BEING A PLEASURE TRIP. THE SUBSEQUENT GROWTH OF APPELLANTS BUSINESS AND INTRODUCTION OF PRIVATE EQUITY SHOWS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.6117/09 6 6.2.2 THEREFORE CONSIDERING THE VARIOUS FACTS LIKE VISIT TO VARIOUS SCHOOLS IN CONNECTION WITH PRE - SCHOOLING BUSINESS SIGNIFICANT EXPANSION OF THE APPELLANTS PRE - SCHOOLING BUSINESS INTRODUCTION OF PRIVATE EQUITY THEREIN DETAILS AND EXPLANATION FILED DURING APPELLATE PROCEEDINGS ETC. PLACED ON RECORD I N PROPER PERSPECTIVE I HOLD THAT THE FOREIGN TRAVELLING EXPENSES OF RS. 1 95 654/ - WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF APPELLANTS BUSINESS AND THE SAME IS AN ALLOWABLE EXPENDITURE. THEREFORE THE ADDITION OF RS. 1 95 654/ - ON ACCOUNT OF DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES IS HEREBY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLOWED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT FOREIGN TRAVELLING UNDERTAKEN BY ASSESSEE TO VARIOUS SCHOOLS WAS IN CONNECTI ON WITH PRE - SCHOOLING BUSINESS SIGNIFICANT EXPANSION OF THE ASSESSEES PRE - SCHOOLING BUSINESS INTRODUCTION OF PRIVATE EQUITY THEREIN . A CATEGORICAL FINDING RECORDED BY CIT(A) TO THE EFFECT THAT FOREIGN TRAVELLING EXPENSES WERE INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF ASSESSEE S BUSINESS AT PARA 6.2 WHICH HAS NOT BEEN CONTROVERTED BY LEARNED DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF TRAVELLING EXPENSES. 7 . THE AO HAS ALSO DISALLOWED RS. 5 57 85 718/ - ON ACCOUNT OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES TREATED AS BUSINESS INCOME BY THE AO. AS PER THE BRIEF FACTS RELATING TO THIS GROUND THE GAIN ON PURCHASE AND SALE OF SHARES OF RS. 5 57 85 71 8/ - EARNED BY THE ASSESSEE IS DISCLOSED AS STCG IN HER RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR. THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR HAS EARNED INCOME ON PURCHASE AND SALE OF SHARES BOTH ON ACCOUNT OF DELIVERY BASED TRANSACTIONS AS WELL AS ON ACCOUNT OF NON - DELIVERY BASED TRANSACTIONS INCLUDING FUTURES & OPTIONS AND OTHER DERIVATIVE TRANSACTIONS. BESIDES THE APPELLANT HAS HER REGULAR INCOME FROM PRE - SCHOOLING BUSINESS ITA NO.6117/09 7 COMMISSION AND BROKERAGE INCOME DIVIDEND ON SHARES AND INCOME F ROM OTHER SOURCES. THE ENTIRE INCOME EARNED DURING THE YEAR ON PURCHASE AND SALE OF SHARES WITHOUT OBTAINING DELIVERY I.E. ON ACCOUNT OF INTRA - DAY SHARE TRADING FUTURES AND OPTIONS AND OTHER DERIVATIVES IS SHOWN AS HER BUSINESS INCOME AND THE INCOME ON P URCHASE AND SALE OF SHARES; WHERE DELIVERY IS TAKEN IS SHOWN AS STCG OR LTCG DEPENDING UPON THE PERIOD OF HOLDING. SHE HAS ALSO SHOWN A PART OF INCOME ON ACCOUNT OF SALE OF SHARES HELD AS STOCK - IN - TRADE IN EARLIER YEARS AS HER BUSINESS INCOME. THE ASSESS EE IN HER BOOKS OF ACCOUNT REGULARLY MAINTAINED HAS SHOWN SEPARATE ACCOUNTS; WHEREBY SHE HAS DISCLOSED HER INCOME ON ACCOUNT OF SALE OF SHARES AS CAPITAL GAINS IN ALL SCRIPTS IN WHICH DELIVERY IS TAKEN EXCEPT IN THOSE SCRIPTS WHICH ARE SHOWN AS PART OF HER STOCK - IN - TRADE IN THE EARLIER YEARS AND IN CASE OF OTHER SCRIPTS IN WHICH DELIVERY IS NOT TAKEN THE I NCOME OR LOSS ARISING THEREON I S SHOWN AS HER BUSINESS INCOME/LOSS. 8 . IN THE ASSESSMENT THE AO HAS OBSERVED THAT THE GAIN ON PURCHASE AND SALE OF SHAR ES DISCLOSED BY THE ASSESSEE AS STCG WAS PART AND PARCEL OF THE ASSESSEE S BUSINESS OF SHARE TRADING BUSINESS AND ACCORDINGLY THE SAME IS ASSESSED AS HER BUSINESS INCOME. THE REASONING GIVEN BY THE AO WHILE ASSESSING SHORT TERM CAPITAL GAIN ON SALE AND P URCHASE OF SHARES AS BUSINESS INCOME AS PER PARAGRAPHS 4.2 TO 4.11 ARE THAT THE ASSESSEE CANNOT DEVISE HER OWN CRITERION FOR BIFURCATING THE TRANSACTIONS RELATING TO PURCHASE AND SALE OF SHARES INTO CAPITAL GAINS AND BUSINESS INCOME. ITA NO.6117/09 8 9 . THE AO OBSERVED THAT THE ANALYSIS OF STATEMENT OF CAPITAL GAIN FILED BY THE ASSESSEE SHOWS THAT THE MOST OF THE SCRIPTS TRANSACTED BY THE ASSESSEE WERE FOR SMALL PERIOD OF HOLDING MAKING THE ASSESSEE A TRADER IN SHARES. ACCORDING TO THE AO THE TAXABILITY OF TRANSACTION S WILL NOT DEPEND ON PRESENTATION OF ACCOUNTS OR BY SHOWING THE SHARES AS INVESTMENT BUT IT WILL DEPEND ON THE FACTS OF THE CASE IN HAND. RELYING ON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MOTILAL HIRABHAI SPG. & WVG. CO.LTD. (1978) 113 ITR 173(GUJ.) THE AO HAS HELD THAT THE VOLUME FREQUENCY AND REGULARITY OF SHARE TRANSACTIONS UNDERTAKEN IN ORGANIZED MANNER INDICATE THAT THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING ACTIVITY FOR THE RELEVANT ASSESSMENT YEAR AND NOT AN INV ESTOR. 10 . BY THE IMPUGNED ORDER THE CIT(A) BIFURCATED THE INCOME SHOWN BY THE ASSESSEE UNDER CAPITAL HEAD UNDER DIFFERENT HEADS AND DIRECTED THE AO TO LEVY TAXES ACCORDINGLY AFTER HAVING FOLLOWING OBSERVATIONS : - 9.3 I HAVE CAREFULLY CONSIDERED THE ASSE SSMENT ORDER AS WELL AS THE ABOVE NOTED SUBMISSIONS AND ARGUMENTS OF THE AR FOR DECIDING THIS GROUND OF APPEAL. I HAVE ALSO GONE THROUGH THE VARIOUS JUDGMENTS RELIED UPON BY THE AO IN THE ASSESSMENT ORDER AND BY THE A R IN APPEAL FROM THE FACTS PLACED ON RECORD AND AFTER CAREFUL ANALYSIS THEREOF AS NOTED ABOVE I FIND MYSELF INCLINED TO AGREE WITH THE VIEWS OF THE AR TO THE EXTENT THAT THE APPELLANT'S INCOME ON SALE OF SHARES ON DELIVERY BASED TRANSACTIONS ARE IN THE NATURE OF CAPITAL GAINS EXCEPT INCOM E ARISING OUT OF HER SPECIFIC SHARES HELD UNDER BUSINESS PORTFOLIO DISCLOSED AS PER HER CONSISTENTLY FOLLOWED METHOD OF ACCOUNTING; WHEREAS HER INCOME ON ACCOUNT OF SALE OF SHARES WITHOUT OBTAINING DELIVERY ARE FOUND TO BE IN THE NATURE OF BUSINESS. AS D ISCUSSED ABOVE AND FORCIBLY ARGUED BY THE AR THE APPELLANT HAS CONSISTENTLY VALUE? HER OPENING AND CLOSING STOCK OF THESE SHARES HELD IN HER TRADING PORTFOLIO ON COST OR MARKET PRICE WHICHEVER IS LOWER; WHEREAS THE VALUE OF SHARES HELD IN HER INVESTMENT P ORTFOLIO IS ADOPTED ON COST PRICE THE INCOME OR LOSS ACCRUED THEREON IS FOUND TO BE IN THE NATURE OF HER BUSINESS INCOME. THE SAID CONSISTENT METHOD OF ACCOUNTING AND VALUATION FOLLOWED BY THE APPELLANT IS DULY CERTIFIED BY THE TAX AUDITORS IN THEIR TAX A UDIT REPORT SUBMITTED IN FORM NO.3CD FILED ALONGWITH HER RETURN OF INCOME. IT IS OBSERVED FROM THE FACTS AVAILABLE ON RECORD THAT FOR THE RELEVANT ASSESSMENT YEAR THE APPELLANT WAS ENGAGED IN THE SHARE TRADING BUSINESS AS AN TRADER AS WELL AS AS ITA NO.6117/09 9 AN INVES TOR BESIDES HAVING INCOME FROM COMMISSION AND BROKERAGE AND PRE - SCHOOLING BUSINESS. THE DETAILS THEREOF AS PER HER RETURN OF INCOME FILED IS AS UNDER : - SL.NO. HEAD OF INCOME AMOUNT (RS.) 1. SALARY INCOME 60 000 2. INCOME FROM HOUSE PROPERTY ( - )1 50 000 3. STCG ON TRANSFER OF IMMOVABLE PROPERTY 9 70 050 4. STCG ON TRANSFER OF SHARES 5 57 85 719 5. BUSINESS INCOME FROM SHARE TRADING 44 46 316 6. BUSINESS INCOME FROM RUNNING OF PRE - SCHOOLING BUSINESS ( - )46 86 766 7. INCOME FROM OTHER SOURCES BEIN G INTEREST AND DIVIDEND 3 38 306 9.3.1 IT IS ALSO NOTED THAT THE APPELLANT IS MAINLY ENGAGED IN HER PRE - SCHOOLING BUSINESS WHICH IS CARRIED OUT IN THE NAME AND STYLE OF THE TREE HOUSE BESIDES AS DISCUSSED ABOVE OF HER BEING ENGAGED IN SHARE TRADING B USINESS ON WHICH SHE HAS EARNED PROFITS/LOSSES AND INVESTMENTS IN SHARES ON WHICH SHE HAS DERIVED DIVIDEND INCOME AS WELL AS CAPITAL APPRECIATION OR GAINS . THE PROFIT/LOSS FROM DELIVERY BASED TRANSACTIONS RELATED TO INVESTMENT ACTIVITY ARE SHOWN UNDER THE HEAD CAPITAL GA INS AS SHORT TERM CAPITAL GAIN/LOSS AND LONG TERM CAPITAL GAIN/LOSS DEPENDING UPON THE PERIOD OF HOLDING. THE PROFIT AND/OR LOSS FROM INTRA - DAY TRANSACTIONS. SPECULATIVE TRANSACTIONS I.E. NON - DELIVERY BASED TRANSACTIONS FUTURES. & OPTIONS DERIVATIVE TRANSACTIONS AND OTHER SHARE TRADING TRANSACTIONS AS DISCUSSED ABOVE ARE SHOWN AS HER BUSINESS INCOME. THE AO HAS OVERLOOKED A VITAL FACT AVAILABLE IN THE CASE OF THE APPELLANT THAT HER M AIN BUSINESS IS RUNNING OF PRE- SCHOOLING AND NOT SHARE TRADING. HE HAS NOT CONSIDERED THE FACT THAT THE APPELLANT DEVOTED MAJOR PART OR HER TIME ON RUNNING OF HER PRE - SCHOOLING BUSINESS DUE TO WHICH HER PRE - SCHOOLING BUSINESS AS POINTED OUT BY THE AR HAS GROWN QUITE S UBSTANTIALLY BOTH IN SIZE AND REVENUE WISE. IT IS STATED THAT TOTAL NUMBER OF BRANCHES HAVE INCREASED MANIFOLD WITH TOTAL STRENGTH OF STUDENTS ON ROLL MOVING TO APPROXIMATELY 4000 AT PRESENT. IT IS ALSO NOTICED THAT AGAINST THE BOOK LOSS OF RS.49 07 897/ - SHOWN AS ON 31.03.2006 THE APPELLANT HAS SHOWN NET PROFIT OF RS.5154 891 / - AS ON 31.03.2007 AND FURTHER A NET PROFIT OF RS.5 40 28 665/ - AS ON 31.03.2008 IN RESPECT O F THIS BUSINESS. IT IS ALSO NOTICED THAT THE S T CG SHOWN BY THE APPELLANT UNDER SAME FACTS AND CIRCUMSTANCES SHOWN IN THE IMMEDIA TELY PRECEDING ASSESSMENT YEAR I.E. FOR THE A.Y.2005 - 06 IS ACCEPTED AND COMPLETED U/S.143(3) OF THE ACT AS ON 29.03.2007. SINCE ALL THE MATERIAL FACTS REMAINING THE SAME IT IS NOTED THAT THERE ARE NO REASONABLE BASIS AND JUSTIFICATION THAT THE AO SHOULD CHANGE THE CONSISTENTLY FOLLOWED AND ACCEPTED ACCOUNTING METHOD AND ACCORDINGLY ASSESS THE STCG AS HER BUSINESS INCOME WITHOUT BRINGING ON RECORD ANY NEW FACT OR MATERIAL FOR THIS PURPOSE. 9.3.2 IT IS ALSO NOTED AS DISCUSSED ABOVE THAT FOR THE RELEVANT A SSESSMENT YEAR THE APPELLANT WAS AN INVESTOR AS WELL AS A TRADER IN SHARES. GENERALLY THE SHARES FOR INVESTMENT AND TRADING BUSINESS ARE KEPT SEPARATELY FOR WHICH SEPARATE ACCOUNTS ARE MAINTAINED BY THE APPELLANT IN HER BOOKS OF ACCOUNT. WHILE THE SHARES FOR INVESTMENT ARE VALUED AT COST THE SHARES OF TRADING ARE VALUED AT LOWER OF THE COST OR MARKET VALUE OF THE PARTICULAR SHARE AT THE END OF THE YEAR. ALTHOUGH THE SHARES IN HER INVESTMENT PORTFOLIO WERE ACQUIRED WITH A LONG - TERM PERSPECTIVE THEY WERE PURCHASED AND SOLD AT REGULAR INTERVALS FOR PROTECTING HER INVESTMENT REDUCING BORROWINGS MAINLY OBTAINED FOR HER ITA NO.6117/09 10 SHARE TRADING AND PURCHASING OF IMMOVABLE PROPERTIES USED FOR HER PRE - SCHOOLING BUSINESS. IN OTHER WORDS IN VIEW OF THESE FACTS IT APPEARS T HAT THE OBJECT OF HER INVESTMENT IN SHARES WAS TO REALIZE CAPITAL APPRECIATION AT REGULAR INTERVALS AND UTILIZE THE SAME FOR REDUCING HER BUSINESS DEBTS ACQUIRING IMMOVEABLE PROPERTIES AND DIVERSIFYING HER RISKS/ INTERESTS AS A MODERN PRUDENT INVESTOR IN SHARES. AS A TRADER IN SHARES THE APPELLANT WAS ENGAGED IN SHARE TRADING OPERATIONS SPECULATIVE TRADING I.E. INTRA - DAY OPERATIONS WITHOUT OBTAINING ACTUAL DELIVERY AND TRANSACTIONS RELATED TO FUTURES & OPTIONS ( I.E. DERIVATIVES) AS WELL AS TRADING IN CER TAIN SPECIFIC SHARES HELD IN HER TRADING PORTFOLIO AS DISCLOSED IN HER REGULAR RETURNS OF INCOME FILED AND DULY ACCEPTED AND ASSESSED ACCORDINGLY BY THE AO. THE AR HAS EXPLAINED THAT AS HER CAPITAL BASE WAS NOT ADEQUATE TO FUND MARGIN MONEY REQUIRED IN FUT URES & OPTIONS AND DERIVATIVE TRANSACTIONS SHE HAD UTILIZED BORROWED FUNDS/ LOANS MAINLY FROM HER BROKERS VIZ. M/ S PRANAV SECURITIES P VT . LTD. M/S PRANAV FINANCIAL SERVICES PVT. LTD. M/ S INNANI COMMODITIES & FINANCE LTD. AND M/S KOTAK MAHINDRA PRIMUS LT D. THROUGH WHOM THESE BUSINESS TRANSACTIONS WERE CARRIED OUT FOR HER SHARE TRADING ACTIVITIES. IT WA S ALSO SUBMITTED THAT THE APPELLANT HAS UTILIZED HUGE BORROWINGS FROM HER HUSBAND FOR FINANCING HER INVESTMENT IN SHARES ON WHICH NO INTEREST IS PAID. THER EFORE ON ACCOUNT OF THESE FACTS IT IS NOTICED THAT HER CLASSIFICATION OR CATEGORIZATION OF SHARES EITHER AS INVESTMENT OR STOCK - IN - TRADE IS MAINLY DEPENDENT UPON HER INTENTION TO EARN QUICK PROFITS TAKING HIGHER RISK ON SPECULATIVE TRANSACTIONS OR TO EAR N STEADY PROFITS OR APPRECIATION OR HER INVESTMENTS BY HOLDING THESE SHARES FOR A LONGER PERIOD BASED ON MARKET CONDITIONS FUNDAMENTALS OF THE SHARES PURCHASED AND THE PERFORMANCE OF THE PARTICULAR COMPANY OR THE SECTOR IT REP RESENTS ETC. 9.3.3 WHILE HO LDING THE 'PROFIT FROM PURCHASE AND SALE OF SHARES' SHOWN BY THE APPELLANT UNDER THE HEAD 'CAPITAL GAINS' AS 'BUSINESS INCOME' THE AO CONSIDERED THE FACTS OR THE APPELLANT'S CASE ON THE BASIS OF CIRCULAR ISSUED BY THE CENTRAL BOARD OR DIRECT TAXES IN THE CIRCULAR NO.1827 DATED 31.08.1989 AND CIRCULAR NO.4/2007 DATED 15.06.2007. THE FIRST ISSUE CONSIDERED BY THE AO IS THE HIGH TURNOVER OR VOLUME OR TRANSACTIONS UNDERTAKEN BY THE APPELLANT. THE APPELLANT AS DISCUSSED ABOVE DURING THE RELEVANT ASSESSMENT YEAR PURCHASED SHARES WORTH RS.41 68 41 203/ - AND SOLD SHARES OF RS.47 26 26 922/ - AND EARNED GAIN THEREOF OF RS.5 57 85 718/ - . ACCORDING TO THE AO THE SUBSTANTIAL TURNOVER OF SHARES INDICATED THAT THE REAL PURPOSE OF APPELLANT WAS TO MAKE PROFIT ON SHORT - TE RM BASIS AND NOT TO HOLD INVESTMENT ON LONG - TERM BASIS CONSIDERING THE LOW CAPITAL BASE' 'OF THE APPELLANT. THEREFORE THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES IS ASSESSED AS HER BUSINESS INCOME. ON CAREFUL ANALYSIS OF FACTS BROUGHT ON RECORD IN THE A PPELLANT'S CASE I FIND THAT IN THE BEGINNING OF THE YEAR SHE HAD A CAPITAL BASE OF RS.46 28 518/ - [OPENING BALANC E IN CAPITAL A/C . : RS.33 62 225/ - PLUS PROFIT AND LOSS A/C : RS.12 66 293/ - ]. SHE HAS IN ADDITION UTILIZED INTEREST FREE LOAN OF RS.1 20 00 500 / - OF HER HUSBAND SH.RAJESH BHATIA. IN ADDITION TO HER OWN CAPITAL INTEREST FREE LOAN AND FREE RESERVES THE APPELLANT HAD ALSO REDEPLOYED FUNDS AVAILABLE IN THE FORM OF SALE PROCEEDS OF SHARES SHOWN AS BUSINESS INCOME CAPITAL GAINS ON PURCHASE AND SA LE OF SHARES CURRENT YEAR'S RECEIPTS FROM OTHER BUSINESS LIKE COMMISSION AND BROKERAGE FEE FROM PRE - SCHOOLING BUSINESS' ETC. IT IS ALSO OBSERVED THAT IN HER SHARE TRADING BUSINESS THE PURCHASE AND. SALES AMOUNTED TO RS.1726 60 CRORES AND RS.1725.27 CRO RES RESPECTI VELY WHICH WAS ABOUT 37 TIMES HIGHER COMPARED TO PURCHASE AND SALE MADE IN HER INVESTMENT ACTIVITY. MOREOVER SO FAR AS PURCHASE ITA NO.6117/09 11 OF SH ARES IN VALUE TERMS I.E. RS.41 68 41 203/ - IS CONCERNED IT IS NOT THE ONLY RELEVANT FACTOR BECAUSE ONE HAS TO CONSIDER THE NUMBER OF SCRIPTS DEALT IN AND PER UNIT VALUE OF EACH SCRIPT. FOR EXAMPLE THE SHARES OF MMTC WERE QUOTED AT RS.25 000/ - PER SHARE (FACE VALUE RS.10/ - ) . SIMILARLY SHARES OF TCS LTD. WERE QUOTED AT RS.1300/ - (FACE VALUE RS.1/ - ). THUS IF ON E BUY 100 SHARES OF MMTC THE VALUE THEREOF WOULD BE RS.25 00 000/ - . IT IS FURTHER NOTED THAT APPEL LANT IN HER INVESTMENT ACTIVITY FOR THE RELEVANT ASSESSMENT YEAR HAS DEALT IN ONLY 39 SCRIPTS WHICH IS NOT AT ALL VERY HIGH CONSIDERING THE LARGE NUMBER OF LISTED COMPANIES AVAILABLE IN MARKET TO AN INVESTOR/TRADER . MOREOVER THE VALUE OF SHARES OF MANY COMPANIES RELEVANT IN THE APPELLANT'S CASE WAS VERY HIGH I.E. RANGING FROM RS.100/ - PER SHARES TO RS.600/ - PER SHARE (FACE VALUE RANGING FROM RS. 1/ - TO RS. 1 0 / - ). FURTHER FROM THE MATERIAL BROUGHT ON RECORD IT IS OBSERVED THAT THE APPELLANT ENTERED INTO 181 TRANSACTIONS OF PURCHASE AND SALES DURING THE RELEVANT ASSESSMENT I.E. 77 TRANSACTIONS OF PURCHASE AND 104 TRANSACTIONS OF ALES WHICH WORKED OUT TO ONL Y ONE TRANSACTION IN TWO DAYS. BESIDES AS SUBMITTED BY THE AR THE NUMBER OF DAYS DEVOTED BY THE APPELLANT FOR THE PURCHASE AND SALE OF SHARES IN HER INVESTMENT ACTIVITY WAS ONLY FOR 123 DAYS OUT OF 365 DAYS IN THE ENTIRE ASSESSMENT YEAR. THEREFORE IF O VERALL FACTS OF THE CASE IN HAND ARE TAKEN INTO CONSIDERATION AS STATED ABOVE THE CONTENTION OF THE AO ABOUT SUBSTANTIAL PURCHASE AND SALE IN THE APPELLANT'S CASE IS HELD TO BE NOT OF MUCH RELEVANCE TO DECIDE THAT THE APPELLANT WAS ENGAGED IN THE SHARE TR ADING BUSINESS FOR THE RELEVANT ASSESSMENT YEAR IN RESPECT TO HER STCG. 9.3.4 THE NEXT ISSUE CONSIDERED BY THE AO IS THE PERIOD OF HOLDING OF THE SHARES TRANSACTIONS UNDERTAKEN BY THE APPELLANT IN WHICH SHE HAS CLAIMED STCG. ACCORDING TO THE AO THE PERI OD OF HOLDING IN THE APPELLANT'S CASE RANGED FROM 1 DAY TO 112 DAYS AND AVERAGE HOLDING PERIOD WAS HELD TO BE MERELY 15 DAYS. THEREFORE ACCORDING TO THE AO THIS SMALL HOLDING PERIOD COULD NOT BE TERMED AS REASONABLE PERIOD OF HOLDING TO QUALIFY FOR INVE STMENT ACTIVITY. ACCORDING TO THE AO IF HOLDING PERIOD IS LESS IT IS AUTOMATICALLY A CASE OF TRADING IN SHARES AND NOT THAT OF INVESTMENT. HOWEVER AS PER THE JUDICIAL AUTHORITIES REFERRED ABOVE INCLUDING THE BOARD CIRCULAR IT CLEARLY EXPLAIN THAT THER E CAN NOT BE A' SINGLE CRITERIA/ GUIDELINE TO HOLD WHETHER A PARTICULAR TRANSACTION IS OF A TRADING OR AN INVESTMENT IN NATURE. I N FACT IT IS SPECIFICALL Y MADE OUT CLEAR THAT THERE CAN NOT BE A SINGLE CRITERIA TO DECIDE THIS ISSUE RATHER THE OVERALL FACT S AVAILABLE IN EACH CASE WHICH BROADLY INCLUDE; INTENTION OF THE APPELLANT AT THE TIME OF PURCHASE OF SCRIPT THE SUBSTANTIAL TIME DEVOTED FOR THIS ACTIVITY BY THE APPELLANT WHETHER THIS IS THE SOLE BUSINESS OR ACTIVITY OF THE APPELLANT OR SHE HAS SOME O THER BUSINESS OR ACTIVITY FREQUENCY AND OF TRANSACTIONS UNDERTAKEN PAST HISTORY OF APPELLANTS SUCH BUSINESS AND THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT ARE TO BE TAKEN INTO CONSIDERATION TOGETHER. IF THE APPELLANT PURCHASED AND SOLD SHARES FREQUENT LY AS PER HER INTENDED EXPECTATION OF GAIN IN THE SCRIPT AND BOOKED PROFITS ACCORDINGLY IT CAN NOT BE HELD THAT SHE IS IN SHARE TRADING BUSINESS. HOWEVER IF SHE DEALS IN SAME SCRIPTS OR IN A NUMBER OR SCRIPTS ON DAY TO DAY BASIS REPEATEDLY DEVOTING HER F ULL 'TIME WITH FULL FLEDGED ESTABLISHMENT STAFF TECHNICAL EXP ERTS ENJOYING WORKING CAPITAL FACILITY FROM FINANCIAL INSTITUTIONS OR FROM OTHER SOURCES CONSISTENTLY IT CAN BE A CASE OF SHARE TRADING BUSINESS. HOWEVER AS SEEN ABOVE THAT IS NOT THE CASE SPECIFIC FACTS AVAILABLE IN THE PRESENT ITA NO.6117/09 12 CASE OF THE APPELLANT. MOREOVER I ALSO FIND CONSIDERABLE MERITS IN THE ARGUMENTS OF THE AR THAT THE HOLDING PERIOD IN THE CASE OF THE APPELLANT IN RESPECT OF HER STCG IS VARYING FROM ONE DAY TO 306 DAYS THEREF ORE IT IS NOT REASONABLE AND JUSTIFIED TO CONCLUDE OR GENERALIZE THAT THE APPELLANT IS A TRADER IN THESE SHARES IGNORING THE MATERIAL FACTS AVAILABLE IN THE CASE OF THE APPELLANT. 9.3.5 IN THIS REGARD IT MAY FURTHER BE NOTED THAT IN. THE PRESENT WORL D OF GLOBALIZATION AND RAPID CHANGES TAKING PLACE ON ECONOMIC FRONT THE OLD GOLDEN RULES OF INVESTMENT HAVE BECOME ALMOST OBSOLETE AND MORE OR LESS AS REDUNDANT. THEY HAVE BEEN FAST REPLACED BY THE MODERN CONCEPTS OF CAPITAL APPRECIATION AND ITS TIMELY RE ALIZATION. TO - DAY AN INVESTOR IS AN INFORMED AND KNOWLEDGEABLE INVESTOR. HE IS CONSTANTLY UPDATED ABOUT THE FAST CHANGING ECONOMIC AND POLITICAL EVENTS ALL OVER THE GLOBE DUE TO CONSTANT MEDIA COVERAGE AND MULTIPLICITY OF NEWS CHANNELS NEWSPAPERS MARKET ORIENTED MAGAZINES JOURNALS AND EASY AND WIDE ACCESS OR INTERNET ETC. TODAY AN INVESTOR PRIMARILY MAKES INVESTMENT OF HIS VALUABLE MONEY/FUND IN SHARES FOR APPRECIATION AND GAINS AND NOT FOR PALTRY DIVIDEND YIELD AND SENSE OF PRIDE BECAUSE QUE TO HIGH V ALUE OF SHARES THE DIVIDEND YIELD IS NEGLIGIBLE AND SOMETIMES EVEN LOWER THAN THE INTEREST AVAILABLE ON SAVING BANK ACCOUNT IN A BANK. THEREFORE DUE TO HIS HIGH RISK PRONE INVESTMENT VENTURE HE OR SHE HAS TO CONSTANTLY KEEP ON CHURNING HIS /HER INVESTME NT PORTFOLIO AND REALIZING HIS/HER GAINS ON THE BASIS OF HIS/HER UNDERSTANDING OF ECONOMIC METERS PERFORMANCE OF COMPANIES FUNDAMENTALS OF THE SCRIPT AND SECTOR MARKET RUMORS/INFORMATION POLITICAL EVENTS OTHER MAJOR EVENTS INCLUDING NATURAL OR MAN MA DE CATASTROPHES TAKING PLACE ALL OVER THE WORLD WHICH HAS DIRECT BEARING ON THE INVESTMENT PORTFOLIO OF SUCH AN INV ESTOR . WI TH FAST CHANGING TECHNOLOGY THE FORTUNE OF COMPANIES ALSO CHANGES FREQUENTLY. IF AN INVESTOR DOES NOT TAKE TIMELY DECISION AND HOL DS INVESTMENT FOR INDEFINITE PERIOD OR DOES NOT KEEP ON SHIFTING IT ON TIME AND IN ACCORDANCE TO THE MARKET FORCES HE MAY LAND UP LOSING HIS VALUABLE CAPITAL AND LIFETIME SAVINGS. THEREFORE THE CONTENTION OF THE AR THAT IN CASE OF DELIVERY BASED TRANSACT IONS THE APPELLANT HOLDS SHARES PURCHASED AS LONG AS IT IS PRUDENT TO HOLD THEM HAS SUBSTANTIAL FORCE BECAUSE IF THE INVESTMENT IS NOT REALIZED IN TIME AND THE INVESTMENT PORTFOLIO IS NOT CHURNED SUITABLY TO KEEP PACE WITH EVER CHANGING ECONOMIC/ MARKET EVENTS WHICH HAS DIRECT IMPACT ON THE INDUSTRY PERTAINING TO THE INVESTMENT PORTFOLIO OF THE APPELLANT THE APPELLANT MAY EVEN END UP LOOSING HER ENTIRE CAPITAL. THEREFORE IN THE PRESENT MARKET CONTEXT WHEN AN INVESTOR IS REQUIRED TO FREQUENTLY CHURN H IS PORTFOLIO TO ELIMINATE OR MINIMIZE THE RISK THE PERIOD OF HOLDING IS NOT A VERY VITAL FACTOR TO DETERMINE WHETHER THE GAIN ON PURCHASE AND SALE OF SHARES ARE TO BE ASSESSED AS BUSINESS INCOME OR SHORT TERM CAPITAL GAINS. THE HON 'BLE SUPREME COURT HEL D IN THE CASE OF C. I T. VS. H. HOLCK LARSEN 160 ITR 67 HAS HELD THAT FREQUENT CHURNING OF INVESTMENT PORTFOLIO DOES NOT RENDER AN INVESTMENT ACTIVITY INTO A BUSINESS ACTIVITY PARTICULARLY WHEN SUCH MOVEMENT IN STOCK WAS ESSENTIAL TO PROT ECTS ONE'S CAPITAL AND REALIZE GAINS PRUDENTLY. MOREOVER THE STATUTE PERMITS ALL SUCH SHARE TRANSACTIONS ON WHICH STCG AR E SHOWN TO BE ASSESSED AS HER STCG AND THERE IS NO BAR OR PROHIBITION ON IT AND THEREFORE I FIND THAT THE AO IS NOT REASONABLE IN REJECTING THE SAID LAWFUL CLAIM OF THE APPELLANT. 9.3.6 ACCORDING TO THE AO THE APPELLANT WAS ENGAGED IN TO THE SUBSTANTIAL SCALE OF SHARE TRADING ACTIVITY THEREFORE SHE IS HELD TO BE AN ITA NO.6117/09 13 TRADER IN SHARES AND NOT AN INVESTOR IN SHARES. IT WAS POINTED OUT THAT THE APPELLA NT SOLD 36 10 968 SHARES OF 38 COMPANIES FOR A CONSIDERATION OF RS.47 26 26 922/ - . THE AO HAS ALSO OBSERVED THAT ON CERTAIN DAYS A SINGLE PURCHASE OF SHARES OF A PARTICULAR COMPANY RANGED FROM RS.25 00 000/ - (ANSAL INDUSTRIES : 15000 SHARES) TO RS.5 00 00 0001 - (ALA ENGINEERING LTD. : 122500 SHARES) ETC. SUCH HUGE TRANSACTIONS IN SHARES ACCORDING TO THE AO INDICATED THAT THE APPELLANT WAS ENGAGED IN TRADING IN SHARES AND WAS NOT AN INVESTOR IN SHARES. FROM THE FACTS BROUGHT ON RECORD AND ON ANALYSIS THER EOF IN THE CASE OF THE APPELLANT IT EMERGES THAT THE APPELLANT HAS ENTERED INTO A TOTAL OF 181 TRANSACTIONS OF PURCHASE AND SALE OF SHARES ON WHICH SHE HAS SHOWN STCG I.E. PRECISELY 77 ASSESSMENT YEAR WHICH WORKS OUT TO ALMOST ONE TRANSACTION IN TWO DAY S. THEREFO RE IT CAN NEVER BE CONSTRUED THAT THE APPELLANT HAS T RANSACTED FREQUENTLY IN THE SHARES ON WHICH SHE HAS CLAIMED STCG. THIS FEATURE COULD BE FOUND WITH ANY BUSINESSMAN OF SUFFICIENT MEANS AND HAVING INTEREST IN SHARE MARKET; WHEREBY HE PLACES 2 - 4 ORDERS OF PURCHASE OR SALE OF SHARES IN AN AVERAGE PER DAY TO HIS BROKER IN A BOOM PERIOD. MOREOVER AS ARGUED BY THE AR THE NUMBER OF DAYS INVOLVED IN PURCHASE AND SALE OF SHARES WAS ONLY 123 DAYS IN THE ENTIRE YEAR WHICH GOES ON TO ESTABLISH THAT THE APPELLANT WAS NOT FREQUENTLY AND CONTINUOUSLY ENGAGED IN THE SHARE TRANSACTIONS ON WHICH STCG IS SHOWN. ALSO AS DISCUSSED ABOVE IT IS SEEN T H AT THE APPELLANT HAD TRANSACTED IN ONLY 39 SHARES IN HER INVESTMENT PORTFOLIO DURING THE RELEVANT ASSESSMENT YEAR. THE AO HAS OBSERVED THAT THE APPELLANT HAS UNDERTAKEN NUMEROUS TRANSACTIONS OF SALES AND PURCHASES IN SHARES IN HER INVESTMENT PORTFOLIO THE DETAILS THEREOF HE HAS DISCUSSED AS PER PARA NO.3.5 AND AT PAGES NOS.8 TO 21 OF THE ASSESSMENT ORDER. HOWEV ER I FIND THAT THE AO HAS CONSIDERED THE NUMEROUS TRANSACTIONS OF. BUY ORDER AND SELL ORDER OF A PARTICULAR DATE AS SEPARATE TRANSACTION. THE SAID INFERENCE DRAWN BY THE AO DOES NOT SEEM TO BE CORRECT; PARTI CULARLY CONSIDERING THE ARGUME NTS OF THE AR THA T ON A GIVEN DATE OF A SELL OR PURCHASE ORDER DUE TO MARKET CONSTRAINTS THE APPELLANT WOULD NEVER BE ABLE TO SELL OR PURCHASE THE ENTIRE LOT OF HER SELL AND PURCHASE ORDER IN A SINGLE LOT. UNDER THE GIVEN CIRCUMSTANCES THE BROKER HAD TO EXECUTE THE INSTR UCTIONS OF THE APPELLANT IN SMALL LOTS AS AVAILABLE IN OR FEASIBLE IN THE .MARKET WITH MINOR; ADJUSTMENT IN THE PRICE DUE TO MARKET CONDITIONS. HOWEVER IT MAY BE NOTED THAT IN CASE OF BULK OR BIGGER ORDERS OF SELL OR PURCHASE AS FOUND IN THE CASE OF THE A PPELLANT DUE TO DEMAND AND SUPPLY CONSTRAINTS IN THE MARKET THE SHARES CAN NEVER BE PURCHASED OR SOLD IN A SINGLE LOT. FROM THE DETAILS FILED IT IS NOTICED THAT IN MAJORITY OF THE TRANSACTIONS THE APPELLANT HAS PURCHASED A PARTICULAR SHARE ON A GIVEN DA TE AND SOLD THE ENTIRE LOT OF SUCH SHARE IN ANOTHER DATE WHICH SHOWS THAT APPELLANT AT A PARTICULAR POINT OF TIME IS DEALING IN ONE SHARE ONLY. BESIDES IT IS ALSO NOTICED THAT THE APPELLANT INSTEAD OF ENTERING IN TO NUMEROUS TRANSACTIONS OF PURCHASE AND SALES OF DIFFERENT SCRIPTS HAD MOSTLY TRANSACTED IN BIGGER LOTS AND OF A PARTICULAR SHARE WHICH IS EVIDENT FROM THE PATTERN OF SHARE TRANSACTIONS UNDERTAKEN BY THE APPELLANT AS RECORDED BY THE AO AT PAGES NOS. 8 TO 21 OF THE ASSESSMENT ORDER. THIS TREND N OTICED IN THE CASE OF THE APPELLANT AS I FIND HAS A STRONG CASE OF AN INVESTOR IN SHARES AS AGAINST A TRADER IN SHARES. THEREFORE THE SCALE OF OPERATIONS IN SHARE TRADING AS NOTED ABOVE CANNOT BE CALLED AS THAT OF SUBSTANTIAL SCALE OF ENTITIES. FURTHER AS DISCUSSED ABOVE THE VALUE OF SHARES IS NOT A VITAL FACTOR TO DETERMINE THE APPELLANT AS TRADER OR INVESTOR IN SHARES BECAUSE IT ITA NO.6117/09 14 DEPENDS UPON PER UNIT MARKET VALUE OF EACH SCRIPT. ON THE OTHER HAND AS HELD BY THE VARIOUS LEGAL AUTHORITIES AND BY THE BOARD IN ITS CIRCULAR DISCUSSED ABOVE THE ENTIRE FACTS OF THE CASE AND PREVAILING CIRCUMSTANCES IN A PARTICULAR CASE IS TO BE CONSIDERED INDEPENDENTLY FROM THE POINT OF VIEW OF AN INVESTOR WHO IS ENGAGED IN SUBSTANTIAL INVESTMENT ACTIVITIES IN THE STOCK MARKET WHICH HAVE DEVELOPED SUBSTANTIALLY OVER A PERIOD OF TIME WITH TRANSPARENT TRANSACTIONS IN PURCHASE AND SALES. THEREFORE IF THE CONTENTION OF THE AO IS ACCEPTED ALMOST ALL THE INVESTORS PARTICULARLY THE HIGH NET WORTH INDIVIDUALS WILL FALL UNDER THE CATEGORY OF SHARE TRADING BUSINESS WHICH IS NOT INTENDED BY THE CBDT CIRCULAR RELIED ON BY THE AO. 9.3.7 REGARDING THE FREQUENCY REGULARITY AND CONTINUITY OF TRANSACTIONS IN PURCHASE AND SALE OF SHARES THE AO HAS SPECIFICALLY POINTED OUT THAT THE APPELLANT WAS CONTINUOUSLY BUYING AND SELLING SHARES IN LARGE NUMBERS. ACCORDING TO THE AO AS PER THE DETAILS NOTED IN PARA 3.4 OF THE ASSESSMENT ORDER THE APPELLANT HAS TRANSACTED IN 36 I 0 968 SCRIPTS OF 38' COMPANIES HAVING A TURNOVER OF RS.47.26 CRO RES. THEREFORE THE AO' HAS INFERRED THAT HUGE VOLUME OF SHARES IN EACH SCRIPT WAS PURCHASED IN ONE SINGLE BATCH AND SOLD OVER A SHORT PERIOD OF TIME IN SMALLER BATCHES WHICH ACCORDING TO THE AO INDICATED THAT THE APPELLANT WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. ACCORDING TO THE AO HAD THE APPELLANT MADE A WRONG INVESTMENT DECISION SHE WOULD HAVE SOLD THE ENTIRE LOT OF SHARES IMMEDIATELY AND NOT WAITED TO SELL THEM IN SMALLER LOTS. ON ANALYSIS OF FACTS IN THE APPELLANT'S CASE AS DISCUSSED AB OVE I FIND THAT THE AO SEEMS TO HAVE ERRONEOUSLY INFERRED FREQUENCY REGULARITY AND CONTINUITY OF TRANSACTIONS OF THE APPELLANT ON THE BASIS OF SHARES PURCHASED OR SOLD ON THE SAME DAY AT DIFFERENT RATES. IN FACT THESE TRANSACTIONS REPRESENTED ONLY ONE T RANSACTION OF PURCHASE OR SALE BUT TRANSACTED AT DIFFERENT PRICE BECAUSE FIRSTLY THE SHARES COULD BE PURCHASED OR SOLD ONLY ON ITS AVAILABILITY BASED ON ITS DEMAND AND SUPPLY IN A PARTICULAR STOCK EXCHANGE AND SECONDLY AS I FIND IT WAS AN INTELLIGENT A ND A PRUDENT DECISION ON THE PART OF THE APPELLANT TO TAKE ADVANTAGE OF PRICE FLUCTUATIONS SO AS TO MAXIMIZE HER RETURN ON INVESTMENT. IN PRESENT TIMES BECAUSE OF SIGNIFICANT DEVELOPMENT OF STOCK MARKET INCREASING TRANSPARENCY IN TRADING OPERATIONS AND E VER - INCREASING PARTICIPATION OF GENERAL PUBLIC IN SHARE TRANSACTIONS THERE ARE WIDE INTRA - DAY FLUCTUATIONS IN MARKET RATE OF SHARES. THEREFORE A PRUDENT INVESTOR WILL NOT PURCHASE AND SELL THE SHARES IN ONE BATCH RATHER HE WOULD ALWAYS PREFER TO PURCHAS E AND SELL IN PARTS TO GAIN ADVANTAGE OF PRICE FLUCTUATIONS. AS DISCUSSED ABOVE THE TOTAL NUMBER OF SALE AND PURCHASE TRANSACTIONS IN THE APPELLANTS CASE WERE 181 I.E. ONE TRANSACTION OF EITHER PURCHASE OR SALE IN 2 DAYS AND NUMBER OF COMPANIES CONSIDER ED FOR INVESTMENT WAS MERELY 39. IT IS ALSO A FACT AGAIN AS NOTED ABOVE THAT DESIRED QUANTITY OF SHARES CANNOT BE PURCHASED OR SOLD AT ONE GO BECAUSE OF MARKET CONSTRAINTS RELATED TO DEMAND AND SUPPLY OF A PARTICULAR SCRIPT AT THE GIVEN POINT OF TIME. THER EFORE IF OVER ALL FACTS AND CIRCUMSTANCES AVAILABLE IN THE CASE OF THE APPELLANTS ARE TAKEN INTO CONSIDERATION THE TRANSACTIONS IN APPELLANTS CASE RELATED TO INVESTMENT ACTIVITY CANNOT BE CONSIDERED AS VERY HIGH OR REGULAR OR FREQUENT BY ANY STRETCH OF I MAGINATION. 9.3.8 REGARDING THE TIME DEVOTED TO INVESTMENT ACTIVITY AND WHETHER IT IS THE MAIN SOURCE OF LIVELIHOOD OF THE APPELLANT THE AO OBSERVED THAT THE APPELLANT MAINTAINED AN OFFICE IN MUMBAI AND CARRIED OUT HER BUSINESS IN AN ORGANIZED AND SYSTEM ATIC MANNER IN' RESPECT OF HER SHARES TRADING ITA NO.6117/09 15 BUSINESS. ACCORDING TO THE AO THE MAJORITY OF THE INCOME OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR WAS DERIVED FROM HER SHARE TRADING BUSINESS. MOREOVER IT WAS ALSO NOTED THAT WHILE THE APPELLANT MADE HANDSOME PROFIT IN THE TRANSACTIONS RELATED TO SHORT - TERM CAPITAL GAIN SHE INCURRED LOSS OF RS.42.27 LACS. IN HER SHARE TRADING BUSINESS ON DELIVERY BASED TRANSACTIONS. A LOSS OF RS.59 62 028/ - WAS CLAIMED ON ACCOUNT OF DIMINUTION OF VALUE OF SHARES OF SI YARAM SILK MILLS SYNERGY LOGIN WIMPLAST LTD. AND SAKSOFT LTD AT THE YEAR ALTHOUGH THESE SHARES ARE PART OF HER DELIVERY BASED SHARE TRADING BUSINESS. THIS ESTABLISHED THAT THE APPELLANT SHIFTED LOSS MAKING TRANSACTIONS TO HER SHARE TRADING ACTIVITY AND P ROFIT MAKING TRANSACTIONS TO INVESTMENT ACTIVITY. MOREOVER; THE APPELLANT DID NOT MAINTAIN SEPARATE DE - MAT ACCOUNT FOR SHARE TRADING ACTIVITY AND INVESTMENT ACTIVITY. ALL THESE FINDINGS OF THE AO ARE FOUND TO BE ABSOLUTELY CORRECT WHICH IS SEPARATELY DIS CUSSED IN PARA 9.3.26 OF THIS ORDER. THEREFORE ADDITION MADE TO THIS EXTENT IS HELD TO BE ABSOLUTELY CORRECT AND JUSTIFIED AND THEREFORE CONFIRMED. HOWEVER BASED ON THE VARIOUS JUDICIAL AUTHORITIES INCLUDING THE RECENT DECISION OF THE HON BLE JURISDICTI ONAL ITAT IN THE CASE OR SH.GOPAL PUROHIT (SUPRA) THE APPELLANT IS HELD TO BE ENGAGED IN THE BUSINESS OR SHARE TRADING RELATING TO HER NON DELIVERY BASED SHARE TRANSACTIONS AND HER INCOME ON ACCOUNT OF DELIVERY BASED TRANSACTIONS ARE HELD TO BE IN THE NA TURE OF STCG OR LTCG DEPENDING UPON THE PERIOD OF HOLDING EXCEPT OF CERTAIN SHARE TRADING BUSINESS CONSISTENTLY CARRIED OUT BY THE APPELLANT ON CERTAIN SHARES WHICH ARE SEPARATELY RECORDED IN HER BOOKS OF ACCOUNT AND THIS METHOD OF ACCOUNTING IN HER EARL IER ASSESSMENT YEARS. HOWEVER AT THE SAME TIME IT IS COMPLETELY UNREASONABLE ON THE PART OF THE APPELLANT TO SHOW THE STCG IN RESPECT TO CERTAIN SHARES AND SIMULTANEOUSLY ALSO VALUING THE CLOSING STOCK THEREOF AT THE YEAR END ON MARKET VALUE WHICH IS FOUN D TO BE LESSER THAN THE COST PRICE OF THESE SHARES AS ON THE CLOSING DATE OF THE FINANCIAL YEAR. THIS DELIBERATE ATTEMPT TO REDUCE HER TAX LIABILITY BY RECORDING INCORRECT ENTRIES IN HER FINAL ACCOUNT AND ACCORDINGLY REDUCING HER BUSINESS INCOME ON ACCOUNT OF BOGUS LOSS IS UNREASONABLE UNJUSTIFIED AND NOT ALLOWABLE AS PER THE VARIOUS PROVISIONS OF THE ACT. 9.3.9 ACCORDING TO THE AO THE APPELLANT HAS NOT MAINTAINED SEPARATE DE - MAT ACCOUNTS FOR HER SHARE TRADING ACTIVITY AND INVESTMENT ACTIVITY THEREFORE IT IS DIFFICULT TO ACCEPT THE APPELLANT'S CLAIM THAT THE APPELLANT IS MAINTAIN SEPARATE PORTFOLIO OF SHARE TRADING AND INVESTMENT IN SHARES SEPARATELY. HOWEVER ACCORDING TO THE AR THERE IS NOTHING IN THE LAW WHICH REQUIRES THE APPELLANT TO MAINTAIN SEPARA TE DE - MAT ACCOUNTS AS HELD BY THE AO. IT WAS FURTHER ARGUED THAT AS PER PREVALENT SEBI RULES SEPARATE DE - MAT ACCOUNTS ARE NOT PERMISSIBLE AGAINST ONE PERMANENT ACCOUNT NUMBER (PAN). IN THE ABSENCE OF ANY LEGAL REQUIREMENT IN HIS REGARD THE AR ARGUED THAT THE MAINTENANCE OF SEPARATE ACCOUNTS FOR PURCHASE HAVE MAINTAINED SEPARATE DE - MAT ACCOUNTS FOR HER SHARE TRADING PORTFOLIO AND INVESTMENT PORTFOLIO. AS I FIND THERE IS NO SUCH LEGAL REQUIREMENT THAT THE APPELLANT SHOULD MAINTAIN SEPARATE DE - MAT ACCOUNTS FOR HER SHARE TRADING BUSINESS AND SHARES HELD AS INVESTMENT AND THEREFORE THE SEPARATE ACCOUNT OF SUCH SHARES AS PER HER BOOKS OR ACCOUNT REGULARLY MAINTAINED AND ACCEPTED IN PAST ASSESSMENT YEARS SHOULD BE SUFFICIENT. BESIDES I AM OF THE CONSIDERED OPI NION AS DISCUSSED ABOVE THAT WHETHER AN ASSESSEE IS A DEALER IN SHARES OR AN INVESTOR IN SHARES SHALL DEPEND ON ALL THE FACTORS TAKEN COMBINED TOGETHER AND NOT BASED ON A SINGLE CRITERIA AS PER CBDT CIRCULAR AND VARIOUS CASE LAWS AVAILABLE ON THIS ISSUE. A FTER CAREFULLY CONSIDERING THE ITA NO.6117/09 16 SAME AND AS APPLIED TO THE FACTS AVAILABLE IN THE CASE OF THE APPELLANT AS NOTED ABOVE I FIND THAT THE APPELLANT IS A TRADER OF SHARES SO FOR AS HER TRANSACTIONS RELATING TO NON - DELIVERY BASED TRANSACTIONS ARE CONCERNED AND INVESTOR OF SHARES IN RESPECT TO HER DELIVERY BASED SHARE TRANSACTIONS EXCEPT IN RESPECT TO HER CERTAIN DELIVERY BASED SHARE TRANSACTIONS ON CERTAIN SPECIFIC SHARES CONSISTENTLY SHOWN AND ASSESSED ACCORDINGLY AS DISCUSSED ABOVE. 9.3.10 THE AO HAS ALSO O BSERVED THAT APPELLANT INDULGED IN THE SHARE TRADING ACTIVITY AS A TRADER IS FURTHER EVIDENCED BY THE APPELLANT S CLAIM OF REBATE U/S.88E OF THE ACT IN RESPECT OF SIT PAID AS PER HER COMPUTATION OF INCOME ATTACHED TO HER RETURN OF INCOME FILED FOR THE RELE VANT ASSESSMENT YEAR. ACCORDING TO THE AO A REBATE U/S.SSE OF THE ACT CAN ONLY BE CLAIMED BY A TRADER ENGAGED IN SALE AND PURCHASE OF SHARES ON THE STT PAID BY HIM/HER DURING THE YEAR. SINCE THE APPELLANT CLAIMED THE SAID REBATE U/S 88E OF THE ACT HERSEL F PROVES THAT THE APPELLANT IS A TRADER IN SHARES. ON THE OTHER HAND AS PER THE AR ADMITTED THE FACT REGARDING THE CLAIM OF SAID DEDUCTION AS PER HER RETURN OF INCOME FILED BUT STRONGLY CONTESTED THAT THE WRONG CLAIM MADE IN HER RETURN OF INCOME WILL NOT END UP HOLDING THAT THE APPELLANT IS ENGAGED IN SHARE TRADING INSTEAD OF ITS INVESTMENT. THEREFORE ACCORDING TO THE AR THE CONCLUSION DRAWN BY THE AR ON THIS GIVEN FACTS OF THE CASE ARE INCORRECT AND NOT JUSTIFIED. FOR THIS PROPOSITION AS NOTED ABOVE HE RELIED ON THE ORDER OR JURISDICTIONAL ITAT IN THE CASE OF MS.AAISHWARYA K. RAI VS. J.C.I.T. 2009 - TLOL - 175 - ITAT - MUMBAI. AFTER CAREFULLY CONSIDERING THE SAID FACTS OF THE CASE I FIND THAT MERELY BECAUSE THE APPELLANT CLAIMED WRONG REBATE U/ S.88E OF THE A CT IN RESPECT OF STT PAID BY HER IT CANNOT BE SAID THAT THE TRANSACTIONS UNDER SHORT - TERM CAPITAL GAINS FORMED PART 'OF APPELLANT'S BUSINESS INCOME . FROM THE FACTS AND THE PROVISION OF LAW AS APPLICABLE ON THIS ISSUE I AM OF THE CONSIDERED OPINION THAT IF THE REBATE CLAIMED BY THE APPELLANT IS WRONG OR NOT PERMISSIBLE UNDER THE LAW THE SAME SHOULD BE DISALLOWED OR REJECTED RATHER THAN DETERMINING ON THE BASIS OF THE SAME THE FATE OF THE APPELLANT'S INVESTMENT ACTIVITY INTO BUSINESS ACTIVITY. IN THE CAS E LAW RELIED ON BY THE AR IN THE CASE OF MS. AAISHWARYA K. RAI VS. J.C.I.T. (SUPRA) THE MUMBAI BENCH OF HON'BLE ITAT HAS RECENTLY HELD THAT THE REVENUE AUTHORITIES CANNOT TAKE ADVANTAGE OF ASSESSEE'S IGNORANCE AND IT IS THEIR SOLEMN DUTY TO GUIDE AN ASSE SSEE ABOUT HIS/HER RIGHTS UNDER THE ACT PARTICULARLY WITH REGARDS TO DEDUCTIONS. THEREFORE ON ACCOUNT OF THE SAME I FIND THAT THE AO IS NOT JUSTIFIED TO CONSIDER THE APPELLANT AS TRADER IN SHARES IN RESPECT TO THE VARIOUS DEL IV E RY BASED SHARE TRANSACTION S; THE INCOME THEREOF IS SHOWN AS HER STCG FOR THE RELEVANT ASSESSMENT YEAR. HOWEVER AT THE SAME TIME THE DEDUCTION OF STT ON SUCH INCOME IN VIEW OF THE SPECIFIC PROVISIONS OF THE ACT IS NOT ALLOW ABLE A ND ACCORDINGLY THE SAME IS DIRECTED TO BE DISALLOW E D. 9.3.11 THE NEXT ASPECT CONSIDERED BY THE AO IS ABOUT THE APPELLANT BEING ENGAGED IN VARIOUS ACTIVITIES RELATING TO SHARE MARKET HER BEING WELL - VERSED WITH THE SHARE MARKET OPERATIONS CONTINUING SHARE TRADING ACTIVITIES FOR LAST SEVERAL YEARS HER INV EST MENT IN SHARES BEING RS. 7 45 200/ - AS AGAINST STOCK - IN - TRADE OF RS. 65 29 677/ - IN SHARES TRADING BUSINESS IN THE ASSESSMENT YEAR 2005 - 06 SALE AND PU RCHASE OF SHARES SHOWN UNDER INV ESTMENT ACTIVITY BEING ALLIED TO HER SHARE TRADING BUSINESS ETC. WHICH SHOWED THAT HER MAJOR THRUST WAS TOWARDS SHARE TRADING AND NOT TOWARDS INVESTMENT. FOR PROPER APPRECIATION OF THE AO'S CONTENTION IT IS PERTINENT TO CONSIDER THE JUDGMENT OF HON'BLE SUPREME ITA NO.6117/09 17 COURT IN THE CASE OF C.L.T. VS. ASSOCIATED DEVELOPMENT COMPANY LT D. 82 ITR 586 WHEREIN THE HON 'BLE APEX COURT HAS - HELD THAT THERE IS NO BAR TO A DEALER INVESTING IN SHARES. THE SAME IS FURTHER CONFIRMED OR ENDORSED BY THE CBDT CIRCULAR WHICH IS HEAVILY RELIED ON BY THE AO AS DISCUSSED ABOVE. THE HON'BLE APEX COURT IN THE. ABOVE REFERRED CASE HAS HELD THAT WHETHER A PARTICULAR HOLDING OF SHARES WAS BY WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE WAS A MATTER WHICH WAS WITHIN THE KNOWLEDGE OF ASSESSEE WHO HELD THE SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE THE EVIDENCE FROM ITS RECORD AS TO WHETHER IT HAD MAINTAINED ANY DISTINCTION TO THOSE SHARES WHICH WERE ITS STOCK IN TRADE AND THOSE WHICH WERE HELD BY WAY OF INVESTMENT. SIMILAR PROPOSITION WAS LAID DOWN IN THE ENUMERABLE CASES O F 1. M. SHARE & STOCK BROKERS LTD. VS. JT. C. I T. I T.A.T. 'J' BENCH MUMBAI IN ITA NO. 2801/MUM/2000) VESTA INVESTMENTS & TRADING CO. (P) LTD. REPORTED IN 70 ITD 200 (CHD.) A.C.LT. VS. KETHAN KUMAR A SHAH REPORTED IN 24'2 ITR 83 (KER.) JANAK S. RANGWA LLA REPORTED IN I T.A. NO.1163/MUM/2004 DATED 19.12.2006 C.LT. VS. N.S.S. INVESTMENTS PVT. LTD. REPORTED IN '227 ITR 149 (MAD) ASSTT. C.I.T. VS. KRISHNA KUMAR BANGUR REPORTED IN 1 SOT 189 (JODH.) AND RECENTLY AGAIN BY THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF SH.GOPAL PUROHIT VS. J.C.I.T IN LT.A. NO.48541MUM.L2008 DATED 10.02.2009 ETC. 9.3.12 IT IS NOW A LEGALLY SETTLED POSITION THAT A PERSON CAN BE A DEALER AS WELL A AN INVESTOR IN SHARES AT THE SAME POINT OF TIME. OR IN OTHER WORDS A DEALER IN SHARE CAN BE AN INVESTOR OR VICE VERSA. THE HON 'ABLE SUPREME COURT IN THE CASE OF CIT VS. AS SOCIATED DEVELOPMENT COMPANY LTD. (82 ITR 586) HAS HELD 'THAT THERE IS NO BAR TO A DEALER INVESTING IN SHARES. HOWEVER WHETHER A PARTICULAR HOLDING OF SHARES WAS BY WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE WAS A MATTER WHICH WAS WITHIN THE KNOWLEDGE OF ASSESSEE WHO HELD THE SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE THE EVIDENCE FROM ITS RECORD AS TO WHETHER IT HAD MAINT AINED ANY DISTINCTION TO THOSE SHARES WHICH WERE ITS STOCK IN TRADE AND THOSE WHICH WERE HELD BY WAY OF INVESTMENT. FROM THE FACTS AVAILABLE IN THE APPELLANT'S CASE IT IS CLEAR THAT THE APPELLANT HAS MAINTAINED SEPARATE ACCOUNTS FOR HER PURCHASE AND SALE S OF SHARES HELD AS INVESTMENT AND SHARES HELD AS STOCK - IN - TRADE. ALTHOUGH THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT OF THE APPELLANT IS NOT A CONCLUSIVE EVIDENCE NONETHELESS IT IS A RELEVANT FACTOR IN DECIDING THE ISSUE; WHETHER THE SHARES WERE HELD AS INVESTMENT OR AS STOCK - IN - TRADE. 9.3.13 REGARD ING THE ACQUISITION OF SHARES OUT OF BORROWED FUNDS THE AO HAS OBSERVED THE APPELLANT HAS DEBITED INTEREST OF RS.62 56 6301 - TO HER P& L ACCOUNT AND AS AGAINST THE SAME HER INCOME FROM SHARE TRADING OPERA TIONS WAS SHOWN ONLY FOR RS.66 89 884/ - AND BROKERAGE AND COMMISSION INCOME OF RS.54 66 534/ - . ACCORDING TO THE AO THE COMMISSION AND BROKERAGE INCOME DID NOT REQUIRE ANY SIGNI FICANT AMOUNT OF FUNDS. NO INTEREST EXPENDITURE IS DEDUCTED BY THE APPELLANT IN HER RETURN OR INCOME WHILE COMPUTING HER STCG. THE AO HAS FURTHER NOTED THAT THE APPELLANT IN ASSESSMENT HAS ADMITTED THAT THE MAJOR PART OF INTEREST EXPENSES PERTAINED TO SHARE TRANSACTIONS ON WHICH SHORT TERM CAPITAL GAIN WAS CLAIMED. AS AGAINST THE SAM E IN APPEAL THE AR HAS ARGUED THAT THE APPELLANT HAS OBTAINED LOAN FROM VARIOUS BROKERS WHICH WAS USED FOR HER SHARE TRADING BUSINESS; MAINLY FOR FUNDING MARGIN MONEY REQUIRED IN F&O BUSINESS. IT WAS ALSO ARGUED THAT IN VIEW OF THESE FACTS IT WAS ADMITTED IN ASSESSMENT THAT THE LOAN RAISED ON WHICH ITA NO.6117/09 18 INTEREST IS CLAIMED AS HER BUSINESS EXPENDITURE WAS MAINLY USED FOR HER BUSINESS PURPOSES AND NOT USED FOR HER INVESTMENT PURPOSES. HOWEVER THE APPELLANT HAS FAILED TO CORRELATE HER CLAIM BY PROVING THE NEXUS OF UTILIZATION OF LOANS RAISED ONLY FOR HER TRADING IN SHARES NEITHER DURING THE ASSESSMENT PROCEEDING NOR IN APPEAL. THEREFORE ON ACCOUNT OF THE SAME THE AO INFERRED THAT OUT OF THE TOTAL INTEREST PAID A SUM OR RS 9 66 115/ - WAS RELATED TO INVESTMENT IN IMMOVABLE PROPERTIES AND RS.53 00 038/ - WHICH WAS PAID TO BROKERS AND OTHERS WAS PRIMARILY RELATED TO HER INVESTMENT ACTIVITIES. THEREFORE THE INTEREST EXPENDITURE WAS RELATED TO HER OVERALL SHARE TRANSACTION INCLUDING SHORT TERM CAPITAL GAINS. I HAVE PERUSED THE OVERALL FACTS OF THE CASE IN HAND AS DISCUSSED ABOV E AND ACCORDINGLY FIND CONSIDERABLE FORCE IN THE FINDINGS OF THE AO. ON PERUSAL OF EXPLANATION SUBMITTED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS IT IS ASCERTAINED THAT THE APPELLANT A LTHOUGH CLAIMED THAT THE LOANS TAKEN FROM HER BROKERS VIZ.PRANAV SECURITIES PVT. LTD. PRANAV FINANCIAL SERVICES PVT. LTD. INNANI COMMODITIES & FINANCE LTD. AND KOTAK MAHINDRA PRIMUS LTD. WERE PRIMARILY USED FOR DERIVATIVE TRANSACTIONS HOWEVER THE AR E VEN AFTER ASKING TO ESTABLISH THE NEXUS THEREOF REPEATEDLY IN ASSESSMENT. ULTIMATELY IN APPEAL THE AR HAS FAIRLY CONCEDED THAT DUE TO HER CONSOLIDATED BANK ACCOUNT IN WHICH ALL THE LOANS RAISED ARE CREDITED AND ALSO DUE TO HOTCH - POTCH OF ALL THE RECEIPTS A ND PAYMENTS RELATED TO DELIVERY BASED TRANSACTIONS AND NON - DELIVERY BASED TRANSACTIONS DEBITED AND CREDITED IN THE SAME BANK ACCOUNT IT IS NOT POSSIBLE TO SEPARATE AND IDENTIFY THESE TRANSACTIONS AND THEREFORE TO PROVE THE DIRECT NEXUS THAT THE ENTIRE LO ANS RAISED ARE UTILIZED ONLY FOR SHARE TRADING AND OTHER BUSINESS IS NOT POSSIBLE. THEREFORE CONSIDERING THE OVERALL FACTS OF THE CASE AS DISCUSSED ABOVE I FIND THAT ALTHOUGH THE AO IS NOT REASONABLE IN TREATING THE ENTIRE STCG OF THE APPELLANT AS HER BUSINESS INCOME HOWEVER AT THE SAME TIME I FIND CONSIDERATION FORCE IN THE FINDINGS OF THE AO THAT THE ENTIRE INTEREST EXPENDITURE CANNOT BE CLAIMED AS HER BUSINESS EXPENDITURE SINCE AS DISCUSSED ABOVE THE LOANS RAISED IS UTILIZED FOR EARNING HER BUSI NESS INCOME AS WELL AS HER INCOME FROM STCG. 9.3.14 AS REGARDS THE RELIANCE PLACED BY THE AO ON VARIOUS CASES I.E. C.LT. VS. MOTILAL HIRABHAI SPG. AND WVG. CO. LTD. 113 ITR 73 (GUJ) LAXMINARAYAN RAM GOPAL VS. GOVT. OF HYDERABAD 25 ITR 449 (SC) WERIE ~ CO. VS.COLQUHOUN (1888 TC 4(2) RAJA BAHADUR VISHESHWARA SINGH VS. C.LT. 41 ITR 645 (SC) BHARAT DEVELOPMENT (P) LTD. VS. C.L.T. 4 TAXMAN 58 (DEL) PUN)AB CO.OP.BANK LTD. VS. C.LT. 8 ITR 635 (PC) D.C.I.T. VS. DEEPA SHAH 99 ITD '219 (AHD) NEW JHANGI VAKI L MILLS VS. C.I.T. 49 ITR 685 (SC)' DALHOUSIE INVESTMENT TRUST CO. LTD. VS. C.LT. 68 ITR 486 (SC) AS DISCUSSED ABOVE IT IS HELD IN NUMEROUS DECISIONS OF THE HON 'BLE APEX COURT HIGH COURTS AS WELL AS IN THE BOARDS CIRCULAR THAT NO UNIVERSAL CRITERIA CAN BE LAID DOWN IN THE CONTROVERSY OF CAPITAL GAINS VS. BUSINESS INCOME. THERE ARE SEVERAL JUDGMENTS FOR AND AGAINST THE ASSESSEES. EACH OF THESE JUDGMENTS HAVE BEEN DECIDED ON THE INDEPENDENT SET OF FACTS AVAILABLE IN EACH CASE SUCH CASE REPORTED. THESE JUD GMENTS MERELY LAYS DOWN SEVERAL BROAD AND GENERAL GUIDELINES ON THE BASIS OF WHICH THE ONE HAS TO DECIDE IF THE GAIN SHOULD BE TAXED AS CAPITAL GAINS OR BUSINESS INCOME. THE RATIO LAID DOWN IN THESE JUDGMENTS INCORPORATED IN THE CIRCULAR ISSUED BY THE CEN TRAL BOARD OF DIRECT TAXES HAS BEEN DISCUSSED IN DETAILS IN FOREGOING PARAGRAPHS OF THIS ORDER. THE HONBLE ITAT MUMBAI IN THE CASE OF J.M.SHARE & STOCK B R O KERS LTD. VS. JCIT (ITA NO.2801/MUM/2000) HAS HELD THAT AN ASSESSEE CAN BE INVESTOR AS WELL AS A BR OKER ONLY A SHARE ITA NO.6117/09 19 TRADER. SO LONG AS THE RECORDS OF SHARES HELD AS STOCK - IN - TRADE AND SHARES HELD AS INVESTMENT ARE RECORDED SEPARATELY PROFIT/LOSS THERE FROM IS CLEARLY AND DISTINCTLY IDENTIFIABLE AND THE PRACTICE OF HOLDING SOME SHARES AS STOCK - IN - TRADE AND SOME SHARES AS INVESTMENT IS CONSISTENTLY FOLLOWED THE PROFIT FROM SHARES TRADING AND SHARE BROKERAGE SHALL BE ASSESSED AS BUSINESS INCOME AND GAINS FROM SHARES HELD AS INVESTMENT SHALL BE BROUGHT TO TAX UNDER THE HEAD CAPITAL GAINS. AS DISCUSSED A BOVE ELABORATELY IN THE CASE OF THE APPELLANT IT IS NOTICED THAT SHE HAS KEPT SEPARATE ACCOUNTS OF HER DIFFERENT PORTFOLIOS MAINTAINED FOR INVESTMENT PURPOSES AND TRADING PURPOSES IN HER BOOKS OF ACCOUNT BUT AT THE SAME TIME WHILE COMPILING HER FINAL AC COUNT AND RETURN OF INCOME CLANDESTINELY DISCLOSED MOST OF THE TRANSACTIONS WHICH ARE APPARENTLY FOUND TO BE IN THE NATURE OF TRADING PORTFOLIO AS PART OF HER INVESTMENT PORTFOLIO WITH A CLEAR CUT INTENTION TO REDUCE HER TAX LIABILITY DUE TO DIFFERENTIAL RATE OF TAXATION. THE HON'BLE ITAT CHANDIGARH IN THE CASE OR VESTA INVESTMENT & TRADING CO. PVT. LTD. (70 ITD 200) HAS HELD THAT COMPANY CAN BE ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND ALSO PURCHASE AND SALES OR SHARES PREDOMINANTLY FOR THE PURPO SE OF INVESTMENT. THE HORI'BLE ITAT MU M BAI AND IN THE CASE OF JANAK S.RANGWALA (LT.A. NO.1 1 63/MUM12004 DATED 9.12.2006) HAS HELD THAT MERE LARGE VOLUME OF SHARES CANNOT BE THE SOLE CRITERION FOR DECIDING IF THE GAINS SHOULD BE ASSESSED AS BUSINESS INC OME OR CAPITAL GAINS: THE HONBLE SUPREME COURT IN THE CASE OF C.LT. VS. H HOLCK LARSEN (160 ITR 67) HAS HELD THAT THERE IS NOTHING IN AN INVESTOR FREQUEN TLY CHURNING HIS PORTFOLIO TO PROTECT HIS INVESTMENT AND REALIZE APPRECIATION. SIMILARLY IN THE CASE OF BHARAT KUNVERJI KENIA VS. ADD / CIT IN ITA N O .6544/MUM/2008 DATED 15.5.2009 THE HON 'BLE JURISDICTIONAL ITAT HAS HELD THAT MERELY ON THE BASIS OF VOLUME AND FREQUENCY: THERE IS NO JUSTIFICATION FOR TREATING THE ACTIVITY AS BUSINESS. LIKEWISE IN THE CASE OF RADHASWAMI SATSANG 193 ITR 321 (SC) THE HON'BLE APEX COURT HAS HELD THAT AS A STRICT SENSE WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT FOR PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAVE BEEN FOUND AS A MATTER OF FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED SUCH POSITION TO BE SUSTAINED THEN THAT POSITION SHOULD NOT BE ALLOWED TO CHANGE IN THE SUBSEQUENT YEAR MERELY BECAUSE ON THE SAME SET OR FACTS DIFFERENT VIEW IS POSSIBLE.' THE SAM E VIEW IS HELD BY THE HONBLE ITAT MUMBAI IN THE CASES OF MRS. AMITA A. KAPADIA VS. ITO IN ITA NO. 7054 /M UM/07 DATED 03.02.2009 AND IN THE CASE OF SHRI KUNVARJI N. KENIA VS. ADDL.CIT IN ITA NO.6545/MUM/2008 DATED 28.4.2009 FOR THE A.Y.2005 - 06. THE HONBLE I TAT MUMBAI IN THE CASE OF SH.GOPAL PUROHIT VS. JCIT IN ITA NO. 4854/MUM/2008 DATED 10.02.2009 HAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT AND PROFIT THERE FROM SHOULD BE TREATED AS SHORT - TERM CAPITAL GAIN OR LONG TERM CAPITAL GAINS DEPENDING UPON PERIOD OF HOLDING. IT WAS CATEGORICALLY HELD THAT CONSIDERING PAST HISTORY OF THE CASE AND THE UNDISPUTED FACT THAT THE AO HAS ASSESSED THE SAME INCOME AS STCG UNDER SCRUTINY WILL MAKE THE AO UNREASONABLE TO CONSI DER THE SAME INCOME OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR AS BUSINESS ON THE PRETEXT THAT THE PRINCIPLE OF RES - JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS BY COMPLETELY IGNORING THE PRINCIPLE OF CONSISTENCY PARTICULARLY WHEN NO NEW FACT S WERE BROUGHT ON RECORD BY THE AO. THE DEPLOYMENT OF INFRASTRUCTURE OR FREQUENT CHURNING OF INVESTMENT AND INTEREST PAID ON BORROWED FUNDS CANNOT TURN GAINS FROM INVESTMENT INTO BUSINESS INCOME. IN THE APPELLANT'S CASE THE PAST HISTORY ALSO SHOWED THAT S HE HAD BEEN ENGAGED IN SHARE TRADING AS WELL AS SHARES ITA NO.6117/09 20 INVESTMENT WHICH AS NOTED ABOVE IS DULY ADMITTED UNDER SCRUTINY BY THE AO IN HER IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE SPECIFIC FINDINGS OF THE HON'BLE IT AT AS RECORDED IN PARAS 8.3 TO 9 RELEVANT FOR THIS PURPOSE ARE REPRODUCED AS UNDER : - 8.3. W HEN WE COMPARE THE FACTS OF THIS CASE WITH THAT CASE WE FIND THAT FACTS OF BOTH ARE ALMOST IDENTICAL. IN THE PRESENT CASE TILE ASSESSEE IS ALSO MAINTAINING SEPARATE RECORD FOR BOTH TYPES OF TRANSACTION S. FURTHER IN THE PRESENT CASE IT IS IMPORTANT TO NOTICE THAT THE ASSESSEE HAS ENTERED INTO TWO DIFFERENT TYPES OF TRANSACTIONS WHERE BOTH ACTIVITIES ARE ENTIRE DIFFERENT IN NATURE I.E. ONE ACTIVITY IS .OF INVESTMENT IN NATURE ON THE BASIS ( O F DELIVERY A ND SECOND ACTIVITY IS PURELY OF JOBBING ( WITHOUT DELIVERY) WHICH PUTS THE ASSESSEE'S CASE ON A - MORE STRONG FOOTING. HENCE IN OUR VIEW THE RATIO OF THIS DECISION IS SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY WE HOLD THAT THE DELIV ERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTION AND PROFIT THERE FROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. 8 .4. THE REVENUE HAS ALSO HELD THAT PRES ENTATION IN THE BOOKS OF ACCOUNT WAS NOT CONCLUSIVE WHICH MAY BE TRUE TO SOME EXTENT BUT IT IS THE MOST CRUCIAL SOURCE OF GATHERING INTENTION OF THE ASSESSEE AS REGARD TO THE NATURE OF TRANSACTION AND IN LAW IT IS ALSO SO I.E. SUCH PRESENTATION REFLECTS PRIMA FACIE A VIEW OF THE ASSESSE ON A PARTICULAR SUBJECT AND THIS PRINCIPLE IS EFFECTIVELY APPLICABLE IN A SITUATION LIKE THIS AS COMPARED TO AS SITUATION WHERE NATURE OF EXPENDITURE OR INCOME IS DIFFERENT IN THE HOOKS OF ACCOUNT AND IN TILE RETURN OF I NCOME FILED BY TILE ASSESSEE WHEREIN THE SPECIFIC PROVISIONS OF I.T. ACT HAVE TO BE CONSIDERED OVER SUCH PRESENTATION AND IF THERE EXISTS NO SPECIFIC PROVISIONS IT IS THE COMMERCIAL PROFITS WHICH HAVE TO BE TAXED AND EVEN IN THAT SITUATION THE ASSESSEE M AY BE FOUND TO BE JUSTIFIED IN GIVING DIFFERENT TREATMENT IN THE BOOKS OF ACCOUNT AS COMPARED TO RETURN OF INCOME BECAUSE OF COMMERCIAL CONSIDERATIONS OR ACCOUNTING REQUIREMENTS. IN THE CASE OF KARAM CHAND THAPAR & BROS (P) LTD. VS. CIT(1971) 82 ITR 899 (S C) THE HONBLE SUPREME COURT HAS HELD THAT CIRCUMSTANCES THAT THE ASSESSEE HAD SHOWN CERTAIN SHARES AS INVESTMENT IN ITS BOOKS AS WELL AS ITS BALANCE SHEET WAS BY ITSELF MIGHT NOT BE A CONCLUSIVE CIRCUMSTANCE BUT IT WAS IRRELEVANT CIRCUMSTANCE. HENCE E DO NOT FIND MUCH SUBSTANCE IN THIS FINDINGS OF THE REVENUE AUTHORITIES IN THE FACTS OF THE PRESENT CASE. THE REVENUE AUTHORITIES HAVE ALSO HELD THAT BORROWED FUNDS WERE UTILIZED FOR MAKING SUCH INVESTMENTS WHEREAS ILL EARLIER YEARS INTEREST ON SUCH - LOANS HAS BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST PROFIT ON SHORES TRADING TRANSACTIONS SHOWN AS BUSINESS INCOME AND IN THE YEAR UNDER CONSIDERATION ALSO NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND INVESTMENT HAS BEEN ESTABLISHED HENCE FOR THIS REASO N ALSO WE FIND NO MERIT ILL TREATING THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AS BUSINESS PROFITS. 8.5 T HE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO CONTENDED THAT INVESTMENT COULD BE ALL ORGANIZED ACTIVITY ALSO AND WE FIND SOME SUBSTANCE IN THIS CONTENTION BECAUSE NOW THE STAKES ARE HIGH AND NO BODY WANTS TO LOOSE MONEY AS TH ERE ARE GREAT CHANCES OF CAPITAL LOSS IN RESPECT ( O R SHARES AS COMPARED TO FIXED INTEREST EARNINGS SECURITIES WHERE THE PRINCIPLE MONEY REMAIN SECURED AND ALSO EVERYONE WANTS TO MAXIMIZE WEALTH AND MINIMIZE RISK LIENEE A PERSON INVESTING ILL SHARES IS BOUND TO STUDY THE NEWSPAPERS BUSINESS MAGAZINES WATCH THE BUSINESS CHANNELS AND USE WEBSI TES AND OTHER TOOLS TO KEEP A TRACT OF THE DEVELOPMENTS WHICH ARE HAPPENING ON DAY TO DAY BASIS AND WHICH ITA NO.6117/09 21 MAY H APPEN IN THE NEAR FUTURE AND FOR THIS HE MAY HAVE ASSISTANCE OF THE FINANCIAL PLANNER OR INVESTMENT CONSULTANT OR MAY BY HIS OWN EXPERTISE AND CAPABILITIES TO DO IT ON HIS OWN HENCE IN OUR VIEW EMPLOYMENT OF SUCH INFRA STRUCTURE CANNOT TURN AN INVESTMENT ACTIVITY INTO A BUSINESS ACTIVITY. WE MAY ALSO ADD THAT ASSESSEE HAS ALSO RAISED VARIOUS OTHER CONTENTIONS WHICH IN OUR OPINION NEED NOT BE ADJUDICATED AT THIS STAGE IN VIEW OF OUR DECISION FOR THE ABOVE REASONS HENC E WE REFRAIN OURSELVES FROM DELIBERATING 011 THOSE CONTENTIONS. 9. TO CONCLUDE WE HOLD THAT ILL THE FACTS AND CIRCUMST ANCES OF THE PRESENT CASE THE ASSESSEE'S CLAIM OF SHORT TERM CAPITAL AND LONG TERM CAPITAL GAIN ON SHARE TRANSACTIONS WHERE THE DELI VERY HAS BEEN TAKEN OR GIVEN AND SECURITIES TRANSACTIONS TAX HAS BEEN PAID IS LIABLE TO BE ACCEPTED. ACCORDINGLY WE REVERSE THE ORDERS OF REVENUE AUTH ORITIES. ' 9.2.15 SIMILARLY IN THE CASE OF ADDL.CIT VS. SHRI. SUNDER IYER IN ITA NO.295 (MUM.) OF200T THE HON'BLE JURISDICTIONAL ITAT HAS HELD UNDER SIMILAR FACTS AND CIRCUMSTANCES AS UNDER : - THE ASSESSEE MIGHT HAVE GOOD PREVENTS THE SHARE BROKER BUT IN OUR OPINION THIS DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE WOULD ONLY BE PURCHASING SHARES AS STOCK IN TRADE FOR THE PURPOSE OF CARRYING ON BUSINESS. THERE IS NO LAW WHICH PREVENTS THE SHARE BROKER FROM MAKING INVESTMENTS IN SHARES. WE HOLD THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUBSTANTIATE HIS FINDING THAT THE ASSESSEE HAD BEEN TRADING IN SHARES IN HIS INDIVIDUAL CAPACITY. THE ASSESSING OFFICER HAS ALSO FAILED TO SPECIFICALLY POINT OUT THAT THE BORROWING S WERE UTLLISED FOR MAKING INVESTMENTS ILL SHARES. THE ASSESSEE HAD ENOUGH CAPITAL OF HIS OWN TO ENABLE HIM TO MAKE THE INVESTMENTS IN SHARES. ' 9.3.16 IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY ( P) LTD. 82 ITR 586 THE HONBLE SUPREME COURT HAS OBSERVED ON THIS ISSUE AS UNDER ; - 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTM ENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINC TION BETWEEN THOSE SHARES W HICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. '(EMPHASIS SUPPLIED') 9.3.17 LIKEWISE AGAIN THE HON 'BLE JURISDICTIONAL ITAT ON .IDENTICAL FACTS IN THE CASE OR SHRI. JANAK S. RANGWALA VS. ACIT HAS HELD IN THIS REGARD AS UNDER : - ' IN THE FACTS OF THE PRESENT CASE THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION COL1DUCTRD BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARE ILL THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH 011 LONG TERM AN D SHORT TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE IS NO BASIS FOR TREATING THE ASSESSES AS A TRADER ILL SHARES WHEN HIS INTENTION ITA NO.6117/09 22 WAS TO HOLD THE SHARES LIT INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK IN TRADE. THE MORE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. THE ASSESSING OFFICER IS DIRECTED TO SET OFF THE LONG TERM CAPITAL LOSS AGAINST THE SHORT TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION.' 9.3.18 THE HON 'BLE S.C IN THE CASE OF H. HOLCK LARSEN 160 ITR 67 (SC) AFTER TAK ING INTO CONSIDERATION VARIOUS ENGLISH AND INDIAN JUDGEMENTS ON THE SUBJECT HAS HELD THAT FOR DETERMINING WHETHER THE PERSON WAS A DEALER OR INVESTOR IN SHARES THE REAL QUESTION WAS WHETHER THE FIRST STEP I.E. PURCHASE OF SHARES WAS TAKEN AS IN THE COST O F A TRADING TRANSACTION. IF THAT BE SO THE PROFIT THERE FROM WOULD BE OF THE NATURE OF BUSINESS PROFIT AND IF NOT SO THE PROFIT THERE FROM WOULD NOT BE TREATED AS EARNED BY THE TRADER. THEREFORE ACCORDING TO THE HONBLE SUPREME COURT THE BASIC INTENTIO N OF THE APPELLANT AT THE TIME OF PURCHASE OF THE SHARE IS THE GUIDING FACTOR FOR DECIDING WHETHER THE TRANSACTION UNDERTAKEN IS IN THE NATURE OF A TRADING TRANSACTION OR AN INVESTMENT TRANSACTION. 9.3.19 IT IS FURTHER NOTED THAT THE SCHEME OF TAXATION OF CAPITAL GAINS RELATED TO SHARES HAS UNDERGONE SUBSTANTIAL CHANGES BY FINANCE ACT 2004. FROM THE ASSESSMENT YEAR 2005 - 06 (W.E.F. 01.10.2004) SECURITY TRANSACTION TAX (STT) IS IMPOSED ON SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS BUT AT THE SAME TIME LONG TERM CAPITAL GAINS ON SALE OF SHARES IS EXEMPTED FROM TAX U/S.1 0( 38) OF THE INCOME - TAX ACT 1961 AND SHORT TERM CAPITAL GAIN ON SALE OF SHARES IS SUBJECTED TO A CONCESSIONAL RATE OF TAX I.E.@L 0%. THE PAYMENT OF SECURITY TRANSACTION TA X IS MADE MANDATORY IRRESPECTIVE OF THE PROFIT OF THE ASSESSEE OR LOSS SUFFERED BY THE APPELLANT. TO APPRECIATE 'THE NEW CONCEPT OF SIT AND CONSEQUENT CHANGES BROUGHT IN TAXATION OF CAPITAL GAINS IT WOULD BE PERTINENT TO REPRODUCE THE SPEECH OF THE HON'BL E FINANCE MINISTER MADE IN THE PARLIAMENT WHILE INTRODUCING THE NEW PROVISIONS WHICH READ AS UNDER: EXTRACT O F FINA NCE MINISTER SPEECH WHILE INTRODUCIN G NEW CAPITAL GAIN TAX REGIME: CAPITAL GAINS TAX IS ANOTHER VEXED ISSUE. WHEN APPLIED TO CAPITAL MAR KET TRANSACTIONS THE ISSUE BECOMES MORE COMPLEX. QUESTIONS HAVE BEEN RAISED ABOUT THE DEFINITIONS OF LONG-TERM AND SHORT - TE RM AND THE DIFFERENTIAL TAX TREATMENT METED TO THE TWO KINDS OF GAINS. THERE ARE NO EASY ANSWERS BUT I HAVE DECIDED TO MAKE A BEGINN ING BY REVAMPING TAXES ON SECURITIES TRANSACT IONS. OUR FOUNDING FATHERS HAD WISELY INCLUDED ENTRY 90 IN THE UNION LIST IN THE SEVENTH SCHEDULE OF CONSTITUTION OF INDIA. TAKING A CUE FROM THAT ENTRY I PROPOSE 10 ABOLISH THE TAX ON LONG - TERM CAPITAL GAINS FROM SECURITIES TRANSACTIONS ALTOGETHER. INSTEAD I PROPOSE TO LEVY A SMALL TAX OIL TRANSACTIONS IN SECURITIES ON STOCK EXCHANGES. T HE RATE WILL BE 0.15 PER CENT OF THE VALUE OF SECURITY. THUS A TRANSACTION INVOLVING SECURITIES VALUED AT SAY RS. 1 00 000 / - WILL NOW BEAR A SMALL TAX OF RS.150. THE TA X WILL BE LEVIED ON THE BUYER . IN THE CASE OF SHORT - TERM CAPITAL GAINS FROM SECURITIES I PROPOSE TO REDUCE TIRE RATE OF TAX TO A FLAT RATE OF 1 0 PER CENT. MY CALCULATION SHOWS THAT THE NEW TAX REGIME WILL BE A WIN - WIN SITUATION FOR ALL CONCERNED. 9.3.20 THE ABOVE BUDGET SPEECH OF THE HON 'BLE FM CLEARLY BRINGS OUT THE OF THE GOVERNMENT. THE TAXATION OF CAPITAL GAINS RELATED TO SHARES ITA NO.6117/09 23 WAS REVAMPED BY IMPOSING STT ON V ALUE OF SHARE TRANSACTION EXEMPTING LONG TERM CAPITAL GAINS AND IMPOSING FLAT TAX RATE OF 10% ON SHORT TERM CAPITAL GAINS. THE REVENUE LOST BY EXEMPTION OF LONG - TERM CAPITAL GAINS AND CONCESSIONAL TAXATION OF SHORT - TERM CAPITAL GAINS WAS MORE THAN MADE UP BY LEVY OF STT. THEREFORE BY IMPOSITION OF SUCH TAX THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTION AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BENEFIT TO INDIVIDUALS DERIVING LONG - TERM OR SHORT TERM CAPITAL GAINS. IT IS WORTHWHILE TO MENTION THAT PRIOR TO THE AMENDMENT IN TAXATION OF CAPITAL GAINS AND IMPOSITION OF SECURITY TRANSACTION TAX THE AO DID NOT QUESTION THE TAXABILITY OF SHORT TERM 'CAPITAL GAINS AND THE ISSUE OF 'BUSINESS INCOME VS. SHORT TERM CAPITAL GAINS' WAS NOT OF MUCH RELEVANCE BECAUSE THERE WAS NO CON CESSIONAL TAXATION IN CASE OF SHORT TERM CAPITAL GAINS. THE HON'BLE JURISDICTIONAL IT AT IN THE CASE OF SH.GOPAL PUROHIT (SUPRA) HAS FURTHER OBSERVED THAT AS PER THE IDENTICAL FACTS REPORTED IN THE SAID CASE IT IS APPARENT THAT THE AO HAS TAKEN A DIFFEREN T STAND MERELY BECAUSE THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO STCG AND LTCG MADE EFFECTIVE THROUGH THE FINANCE ACT 2004 THE LEGISLATURE HAS IMPOSED SECURITY TRANSACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSAC TIONS AND SIMULTANEOUSLY THE LEGISLATURE EXEMPTED LTCG UNDER SECTION 10(38) OF THE ACT FROM THE LEVY OF TAXATION AND ON STCG A CONCESSIONAL RATE OF TAX AT THE RATE OF 10% WAS INTRODUCED SUBJECT TO THE CONDITION THAT THE TRANSACTIONS RESULTING INTO THESE TYPE OF GAIN MUST HAVE SUFFERED THE BURDEN OF SECURITIES TRANSACTIONS TAX. THIS ACCORDING TO THE HON 'BLE IT AT HAS PROMPTED THE AO TO TAKE A DIFFERENT VIEW ON THE SAME SET OF FACTS AND TYPES OF TRANSACTIONS ENTERED INTO BY THE APPELLANT IN THE RELEVANT A SSESSMENT YEAR AND AS FOUND IN THE ITS EARLIER ASSESSMENT YEARS. THEREFORE ON ACCOUNT OF THESE FACTS THE HON'BLE ITA T HAS CONCLUDED THAT ON THE GIVEN SET OF FACTS AND IDENTICAL TRANSACTIONS MERELY ON ACCOUNT OF CHANGE IN LAW THE ADVANTAGE PROVIDED TO T HE APPELLANT CANNOT BE TAKEN AWAY BY THE AO IN THE MANNER AND IN THE CIRCUMSTANCES AS HELD IN THE ASSESSMENT ORDER. 9.3.21 THEREFORE ON ACCOUNT OF THE ABOVE I FIND THAT THE AO IS NOT REASONABLE IN TREATING THE ENTIRE STCG OF THE APPELLANT AS HER INCOME FROM BUSINESS FOR THE RELEVANT 'ASSESSMENT YEAR. AFTER DULY TAKING INTO CONSIDERATION THE FACTS AVAILABLE IN THE CASE OF THE APPELLANT AS DISCUSSED ABOVE AND FURTHER RELYING ON THE VARIOUS JUDICIAL AUTHORITIES AS DISCUSSED ABOVE PARTICULARLY AS HELD IN T HE RECENT ORDER OF HON 'BLE JURISDICTIONAL ITAT IN THE CASE GOPAL PUROHIT (SUPRA) THE ENTIRE INCOME OR LOSS ON ACCOUNT OF DELIVERY BASED TRANSACTIONS ARE TREATED AS HER STCG OR LTCG DEPENDING ON THE PERIOD OF HOLDING EXCEPT IN CASE OF THO0SE SHARES WHICH ARE CONSISTENTLY DISCLOSED BY THE APPELLANT AS PART OF HER 'STOCK IN TRADE' IN THE PRECEDING ASSESSMENT YEARS. THE TRANSACTIONS RELATING TO HER STCG HAVE A HOLDING PERIOD OF MINIMUM OF ONE DAY AND MAXIMUM OF 306 DAYS. THE PROPER DELIVERY IS TAKEN AND GIVE N IN ALL THESE CASES OF SHARE TRANSACTIONS. THE SIMILAR INCOME SHOWN ON IDENTICAL FACTS AND METHOD OF ACCOUNTING IS ALREADY ACCEPTED BY THE AO IN SCRUTINY IN HER PRECEDING ASSESSMENT YEARS. MOST OF THE PARAMETERS OF THE CBDT GUIDELINES AS DISCUSSED ABOVE ARE NOT SATISFIED IN THE CASE OF THE APPELLANT. THE BOARD AS WELL AS THE VARIOUS JUDICIAL AUTHORITIES CATEGORICALLY HELD IN NUMBER OF CASES THAT NO SINGLE CRITERIA SHALL DECIDE THIS ISSUE BUT OVERALL RATIO THEREOF VIZ - A - VIZ THE FACTS AVAILABLE IN A PARTIC ULAR CASE WILL DECIDE WHETHER IT IS A CASE BUSINESS OR INVESTMENT.. THEREFORE ON ACCOUNT OF THE SAME AND AS PER THE FACTS THE ITA NO.6117/09 24 CASE AND THE LEGAL POSITION I AM OF THE CONSIDERED OPINION THAT THE AO IS NO JUSTIFIED IN TREATING THE ENTIRE STCG ON HIS DELIV ERY BASED SHARE TRANSACTIONS AS HE R BUSINESS INCOME. HOWEVER AT THE SAME TIME AS PER THE FACTS NOTED ABOVE IN THE CASE OR THE APPELLANT AND AS DISCUSSED BY THE AO IN PARA 3.10 OF THE ASSESSMEN T ORDER I DO FIND THAT THE APPELLANT IS INCORRECT IN DISCLOSIN G A LOSS OF RS. 1 01 89 494/ - AS HER BUSINESS LOSS ON ACCOUNT OF SHARE TRANSACTIONS UNDERTAKE ON DELIVERY BASED SCRIPTS ON ACCOUNT OF THE REASONS DISCUSSED HEREUNDER.' ACCORDING TO THE AR THE APPELLANT HAS CONSISTENTLY VALUED HER CLOSING STOCK IN RESPECT O F TRADING SHARES ON COST OR MARKET VALUE WHICHEVER IS LOWER AND IN RESPECT OF INVESTMENT SHARES ON COST PRICE. HOWEVER I DO FIND CERTAIN ABERRATIONS ON THIS ACCOUNT IN RESPECT TO FOUR SCRIPTS AS DISCUSSED BY THE AO IN PARA 3.10 (II) OF THE ASSESSMENT OR DER VIZ. SIYARAM SILK MILLS LTD. SYNERGY LOGIN WIMPLAST LTD. AND SAKSOFT LTD THE GAIN THEREON IS SHOWN BY THE APPELLANT IN HER INVESTMENT PORTFOLIO BUT THE CLOSING STOCK IN RESPECT TO THESE SHARES ARE VALUED ON THE BASIS OF LOWER OF COST OR MARKET VAL U E AS IF THESE SHARES ARE PART OF HE R TRADING PORTFOLIO. SIMILARLY AFTER GOING THROUGH THE DETAILS BROUGHT ON RECORD IN APPEAL (FIND THAT BESIDES THESE FOUR SCRIPTS THE APPELLANT HAS ALSO RESORTED THE SAME MODUS OPERANDI IN RESPECT TO FURTHER TWO MORE S HARES OF LIBERTY SHOES LTD AND MIRZA TANNER THE NET EFFEC T THEREOF IS TO THE TUNE OF RS.2 080/ - .THEREFORE THE NET VALUATION LOSS IN THIS CLANDESTINE ARRANGEMENT OF THE APPELLANT IN THE PRESENTATION OF HIS AFFAIRS IN HIS FINAL ACCOUNTS AND THE RETURN OF I NCOME FILED HAS DIRECTLY RESULTED INTO REDUCTION OF HER BUSINES S INCOME BY A SUM OF RS.59 64 1 09/ - ACCORDINGLY BY VALUING THESE SHARES ON MARKET PRICE WHICH IS FOUND TO BE LESSER T HAN THE COST PRICE AS ON THE END OF THE RELEVANT PREVIOUS YEAR THE APPELL ANT HAS REDUCED HER SHARE TRADING INCOME TO THIS EXTENT. OR IN OTHER WORDS THE APPELLANT HAS DELIBERATEL Y REDUCED HER BUSINESS PROFIT ON SHARE TRADING BY A SUM OF RS.59 6 4 109/ - FOR TH E RELEVANT ASSESSMENT YEAR. THE DETAILS THERE OF IS ENCLOSED AS ANNEXUR E - A TO THIS ORDER. AS DISCUSSED ABOVE THE APPELLANT IS A TRADER AS WELL AS AN INVESTOR IN SHARES. SHE HAS ALSO SHOWN CERTAIN SHARES WHICH ARE REGULARLY TRADED AND PROFIT OR LOSS EARNED THEREON IS SHOWN AS HER BUSINESS INCOME AND THE SAME IS REGULARLY ACC EPTED AND ASSESSED BY THE DEPARTMENT. FOR THE RELEVANT ASSESSMENT YEAR AS PER THE TRADING ACCOUNT OF THE APPELLANT THE PROFIT THEREON IS FOR RS. 80 51 168/ - . HOWEVER IN ADDITION TO THE SAID TRADING RESULTS FOR THE RELEVANT ASSESSMENT YEAR THE APPELLANT HAS CLANDESTINELY MANIPULATED HER TRADING ACCOUNT; WHEREBY SHE HAS DELIBERATELY SHOWN THE CLOSING STOCK OF THESE SIX SHARES AS PART OF HER TRADING PORTFOLIO AND FURTHER ADJUSTED OR REDUCED HER BUSINESS INCOME BY SHOWING LESSER VALUE OF THE CLOSING STOCK O F THESE FOUR SHARES TO THE EXTENT OF RS.59 64 109/ - . THE MARKET VALUE OF THESE SHARES AS ON THE END OF THE PREVIOUS YEAR ARE LESSER BY A SUM OF RS.59 64 109/ - TO ITS COST PRICE. OR IN OTHER WORDS BY MANIPULATING HER FINAL ACCOUNTS THE APPELLANT HAS DELIBE RATELY REDUCED HER BUSINESS INCOME AND PROPORTIONATELY INCREASED HER SHORT TERM CAPITAL GAINS TO THIS EXTENT WITH THE SOLE MOTIVE OF ENJOYING THE DIFFERENTIAL RATE OF TAXATION BETWEEN THESE TWO HEADS OF INCOME. A CAREFUL CONSIDERATION OF THE FACTS AND DETA ILS BROUGHT ON RECORD I FIND THAT THE AO IS ABSOLUTELY CORRECT TO HOLD THAT ALL THESE FOUR SCRIPTS ARE PART OF HER INVESTMENT PORTFOLIO AND THE GAIN OR LOSS REALIZED - THEREON ARE DISCLOSED AS PART OF HER STCG FOR' THE RELEVANT ASSESSMENT YEAR. THEREFORE IN VIEW OF THESE SPECIFIC FACTS AND FINDINGS OF THE AO I AM OF THE CONSIDERED VIEW THAT THE APPELLANT HAS INTENTIONALLY RECORDED VALUE OF THESE SIX SHARES; WHICH ARE FOUND TO BE PART OF HER INVESTMENT PORTFOLIO AT THE END OF THE RELEVANT YEAR AS PART OF ITA NO.6117/09 25 HER CLOSING STOCK OF TRADING PORTFOLIO AND ACCORDINGLY REDUCED HER PROFITS BY A SUM OF RS.59 64 109/ - WHICH IS NOT ALLOWABLE. THIS UNDER STATEMENT OF HER INCOME IS NOT FOUND TO BE IN ACCORDANCE TO THE VARIOUS PROVISIONS OF LAW WHICH IS DULY ADMITTED BY THE AR IN APPEAL. ACCORDINGLY ON ACCOUNT OF THE ABOVE I FIND THAT THE APPELLANT HAS WRONGLY CLAIMED A LOSS /DEDUCTION OF RS.59 64 109/ - BY MANIPULATING THE VALUE OF HER UNSOLD STOCK OF SHARES WHICH ARE PRIMA - FACIE FOUND TO BE PART OF HER INVESTMENT POR TFOLIO AS PART OF HER STOCK IN TRADE AT THE END OF THE RELEVANT PREVIOUS YEAR. THEREFORE ON ACCOUNT OF THESE FACTS AND FINDINGS THE AO IS DIRECTED TO REDUCE THE LOSS SHOWN ON ACCOUNT OF TRADING IN DELIVERY BASED SHARES TO THIS EXTENT AND FURTHER NO EFFE CT SHALL BE GIVEN TO HER STCG SHOWN FOR THE RELEVANT ASSESSMENT YEAR SINCE IT WILL NOT MAKE ANY CHANGE IN HER WORKING OF THE STCG DUE TO THE FACT THAT THE VALUE OF UNSOLD STOCK AS PART OF HER INVESTMENT PORTFOLIO SHALL REMAIN UNCHANGED. 9.3.22 SIMILARLY AFTER GOING THROUGH THE FACTS BROUGHT ON RECORD AND DETAILS FILED BY THE AR I FIND CONSIDERABLE FORCE IN THE FINDINGS OF THE AO AS NOTED IN PARA 3.10 OF THE ASSESSMENT ORDER THAT THE APPELLANT WHILE COMPILING HER FINAL ACCOUNTS HAS DELIBERATELY ACCOUNTED FOR ALL THE POSITIVE SHARE TRANSACTIONS IN WHICH SHE HAS REALIZED PROFIT AS PART OF HER STCG WHEREAS ALL SUCH ENTRIES IN WHICH SHE SUFFERED LOSSES AS SHOWN AS PART OF HER DELIVERY BASED SHARE TRADING BUSINESS. ACCORDING TO THE APPELLANT AS NOTED ABOVE SHE IS MAINTAINING SEPARATE PORTFOLIO FOR SHARES HELD IN INVESTMENT AND TRADING OF SHARES. IT WAS ARGUED THAT THE SHARES HELD' IN HER PORTFOLIO OF INVESTMENT AND PORTFOLIO OF TRADING ARE DIFFERENT AND DISTINCT AND FURTHER THE SAME IS CONSISTENTLY SHOWN AC CORDINGLY IN HER RETURNS OF INCOME FILED FOR THE LAST NUMBER OF ASSESSMENT YEARS WHICH IS DULY ACCEPTED BY THE AO. HOWEVER A PERUSAL OF THE DETAILS AND FACTS BROUGHT ON RECORD I FIND THAT THE APPELLANT IN THE RELEVANT ASSESSMENT YEAR IN ADDITION TO HER REGULAR PORTFOLIO OF SHARES HELD FOR TRADING PURPOSES AS SHOWN IN HER OPENING STOCK AS ON 31.03.2005 HAS ALSO SHOWN A NUMBER OF SHARE TRANSACTIONS AS PART OF HER DELIVERY BASED SHARE TRADING ON WHICH SHE HAS INCURRED A LOSS OF RS.1 22 76 554/ - . THE DETAI LS THERE OF IS ENCLOSED AS ANNEXURE - B TO THIS ORDER. THIS LOSS OF RS.1 22 76 554/ - IS FURTHER FOUND TO BE CLANDESTINELY ADJUSTED AGAINST HER BUSINESS INCOME WITH' A SOLE MOTIVE OF SAVING HER TAX LIABILITY DUE THE DIFFERENTIAL RATE OF TAXATION. ALL THESE SH ARES ON WHICH THE APPELLANT HAS CLAIMED LOSS AS DISCUSSED ABOVE ARE FOUND TO BE THE SAME SHARES ON WHICH SHE HAS SHOWN SUBSTANTIAL STCG FOR THE RELEVANT ASSESSMENT YEAR. NONE OF THESE SHARES ARE PART OF HER OPENING STOCK IN TRADE AND ACCORDINGLY THE SAME CAN NOT BE CONSIDERED AS PART OF HER DELIVERY BASED SHARE TRADING PORTFOLIO DUE TO THE REASONS THAT THE APPELLANT HERSELF AS DISCUSSED ABOVE HAS ADMITTED THAT SHE IS CONSISTENTLY MAINTAINING HER SEPARATE PORTFOLIO OF SHARES HELD IN HER INVESTMENT AND SHAR E TRADING BUSINESS. THE AO HAS WORKED OUT THE COMPLETE DETAILS OF THESE SHARE TRAN SACTIONS UN DERTAKEN BY THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR IN PARAS 3.1 O(I) AND (II) OF THE ASSESSMENT ORDER. A PERUSAL THEREOF I FIND THAT THE APPELLANT HAS SHO WN A LOSS OF RS .1 01 89 0291 - (I.E. RS.42 27 465/ - AS TRADING LOSS AND RS. 5 9 62 029/ - AS VALUATION LOSS) 111 HER DELIVERY BASED SHARE TRADING BUSINESS FOR THE RELEVANT ASSESSMENT YEAR AS AGAINST A NET INCOME OF RS.80 SI 168/ - WORKED OUT AS NOTED ABOVE IN APPEAL ON VERIFICATION OF THE DETAILS FILED. THE DETAILS THERE OF IS ENCLOSED AS ANNEXURE - C TO THIS ORDER. ITA NO.6117/09 26 9.3.23 HOWEVER AS DISCUSSED ABOVE ON FURTHER PERUSAL OF THE CHART REPRODUCED AT PAGE NO.27 OF THE ASSESSMENT ORDER IT IS OBSERVED THAT THE SAI D LOSS IS WORKED OUT AS A RESULT OF THE ADJUSTMENT OF A LOSS OF RS.1 22 76 554/ - INCURRED ON THE SHARES WHICH ARE PRIMA - FACIE FOUND TO BE PART OF HER INVESTMENT PORTFOLIO AND SIMILAR VALUATION LOSS OF RS. 59 64 109/ - ON CLOSING STOCK OF SHARES HELD UNDER HER INVESTMENT PORTFOLIO BUT CLANDESTINELY TAKEN AS PART OF HER STOCK IN TRADE OF DELIVERY BASED SHARE TRADING BUSINESS AS ON 31.03.2006. THEREFORE IT IS NOTICED A THE APPELLANT HAS SHOWN A LOSS OF RS.1 01 89 029/ - AS AGAINST. A PROFIT OF RS.80 51 168/ - REALIZED IN RESPECT OF PURCHASE AND SALE OF THESE SHARES HELD AS PART OF HER REGULAR DELIVERY BASED SHARE TRADING BUSINESS. THESE SHARES ARE DIFFERENT AND DISTINCT TO HER PORTFOLIO OF SHARES HELD IN HER INVESTMENT PORTFOLIO BUT FOUND TO BE PART OF HER OP ENING STOCK IN TRADE AS ON 31.03.2005 PERTAINING TO HER DELIVERY BASED SHARE TRADING BUSINESS. OR IN OTHER WORDS THE APPELLANT VERY CLANDESTINELY AT THE TIME OF FILING HER RETURN OF INCOME; (I) SEGREGATED ALL LOSS MAKING SHARE TRANSACTIONS OUT OF HER INV ESTMENT PORTFOLIO AND ADJUSTED THE SAID LOSS AGAINST HER DELIVERY BASED SHARE TRADING INCOME AND (II) ALSO ADJUSTED VALUATION LOSS OF CERTAIN SHARES HELD AS PART OR HER INVESTMENT PORTFOLIO AS DISCUSSED ABOVE AGAINST HER SHARE TRADING BUSINESS; TO REAP THE BENEFIT OF DIFFERENTIAL TAX RATE INVOLVED THEREIN. THIS CLANDESTINE MODUS OPERANDI OF THE APPELLANT IS NOT FOUND TO BE WITHIN THE FOUR CORNERS OF LAW AND ACCORDINGLY NOT ALLOWABLE WHICH IS DULY ADMITTED. BY THE AR IN APPEAL. THEREFORE ON ACCOUNT OF T HE ABOVE THE AO IS DIRECTED TO ASSESS THE 'ENTIRE ADJUSTMENT MADE ON ACCOUNT OF HER TRANSFER OR SHIFTING OF STCL AND VALUATION LOSS AS HER BUSINESS INCOME FROM HER DELIVERY BASED SHARE TRADING BUSINESS. HOWEVER AT THE SAME TIME HER STCG' MAY BE REWORK ED OUT TAKING INTO CONSIDERATION THE RELATED PROVISIONS OF THE ACT. THE ADDITION MADE TO THIS EXTENT BY TREATING HER STCG AS HER BUSINESS INCOME IS THEREFORE CONFIRMED. 9.3.24 THEREFORE ON ACCOUNT OF THE ABOVE IT IS DULY ESTABLISHED THAT THE APPELLANT HAS DELIBERATELY REDUCED HER BUSINESS INCOME ON ACCOUNT OF HER SHARE TRADING BUSINESS OF DELIVERY BASED SHARE TRANSACTIONS BY DELIBERATELY ADJUSTING AGAINST THE LOSS INCURRED ON ACCOUNT OF SHARES SHARE TRANSACTIONS WHICH .AS DISCUSSED ABOVE ARE FOUND TO BE PART OF HER INVESTMENT PORTFOLIO AND THE SAID LOSS REALIZED AS PER LAW IS TO BE ADJUSTED AGAINST HER STCG AND NOT AGAINST HER SHARE TRADING BUSINESS. IN THIS PROCESS THE APPELLANT AS NOTED ABOVE HAS DISCLOSED A NET LOSS ON TRADING BUSINESS OF DELIVERY BASED SHARE TRANSACTIONS OF RS. 1 01 89 029/ - INSTEAD OF A NET SUCH SHARE TRADING BUSINESS INCOME OF RS. 80 51 168/ - THEREFORE AS DISCUSSED ABOVE NO ADJUSTMENT OF THE SAID LOSS OF RS.1 22 76 554/ - IS ALLOWED AGAINST HER SHARE TRADING BUSINESS SINCE THE S AID LOSS IS FOUND TO BE IN THE NATURE OF HER STCL AND ACCORDINGLY ALLOWED TO BE ADJUSTED AGAINST HER STCG FOR THE RELEVANT ASSESSMENT YEAR. THEREFORE IN VIEW OF THE ABOVE THE AO IS FURTHER DIRECTED TO REDUCE HER STCG BY RS. 1 22 76 554/ - AND CORRESPONDING LY HER SHARE TRADING INCOME ON DELIVERY BASED SHARE TRANSACTIONS SHALL BE TAKEN AT RS. 80 50 866/ - . THEREFORE TO THIS EXTENT I FIND THAT THE APPELLANT HAS UNDERSTATED HER BUSINESS INCOME AS A RESULT OF HER CLANDESTINE PRESENTATION OF SHARE TRADING INCOME BY WAY OF CLEVER BUT INTENTIONAL ADJUSTMENTS MADE IN HER SHARE TRADING BUSINESS AS NOTED IN HER FINAL ACCOUNTS SOLELY TO REAP THE BENEFITS OF DIFFERENTIAL RATE OF TAXATION IS NOT ALLOWABLE AS PER THE PROVISIONS OF THE ACT AND THEREFORE THE ADDITION M ADE TO THIS EXTENT IS CONFIRMED. ITA NO.6117/09 27 9.3.25 AS DISCUSSED ABOVE THE AO HAS HELD THAT THE APPELLANT UTILIZED BORROWED FUNDS FOR CARRYING OUT HER INVESTMENT IN SHARE ON WHICH SHE HAS SHOWN STCG AND THEREFORE IT IS HELD THAT THE APPELLANT IS TRADING IN SHARES AND THE INCOME SO SHOWN IS HER BUSINESS INCOME. HOWEVER AS DISCUSSED ABOVE (IN PARA 9.3.13 OF THIS ORDER) THE VARIOUS JUDICIAL AUTHORITIES INCLUDING THE BOARD CIRCULAR MAKE IT EVIDENT THAT NOT A SINGLE CRITERIA WILL DECIDE THIS ISSUE BUT THE OVERALL FACT S OF THE CASE AND ALL THE GUIDELINES MENTIONED THEREIN WILL DECIDE THE ISSUE IN CONJUNCTION. THE AO HAS NOT DISPROVED THE CLAIM OF THE APPELLANT THAT THE LOANS RAISED WERE NOT UTILIZED FOR FINANCING THE ACQUISITION OF THE SHARES IN WHICH STCG IS SHOWN BY T HE APPELLANT. THEREFORE RELYING UPON THE RECENT DECISION OF THE I - ION 'BLE IT AT IN THE CASE OF SH.GOPAL PUROHIT (SUPRA) DULLY APPLICABLE ON THIS ISSUE I FIND THAT ONLY ON THE BASIS OF SINGLE GUIDELINE THAT TOO NOT FULLY ESTABLISHED IT CAN NOT BE HELD T HAT THE APPELLANT IS A TRADER IN SHARES ON WHICH SHE HAS SHOWN STCG IN HER RETURN OF INCOME. HOWEVER AT THE SAME TIME I ALSO FIND CONSIDERABLE FORCE IN THE FINDINGS OF THE AO THAT THE APPELLANT HAS ALSO FAI LED TO ESTABLISH THAT SHE HAS NOT UTILIZED HER B ORROWED MONEY (ON WHICH INTEREST IS CLAIMED) IS UTILIZED ONLY FOR HER SHARE TRADING BUSINESS ON WHICH BUSINESS INCOME IS RETURNED AND NOT ON ACQUISITION OF SHARES ON 'WHICH STCG IS RETURNED. FURTHER AS PER THE PROVISIONS OF THE ACT NO DEDUCTION OF EXPENS ES INCURRED FOR FINANCING THE SHARES SOLD ON WHICH STCG ARE TO BE ALLOWED. THEREFORE ON ACCOUNT OF THE SAME AND PARTICULARLY SINCE THE APPELLANT HAS UTILIZED HER BANK ACCOUNT FOR ALL HER TRANSACTIONS RELATING TO INVESTMENT AS WELL AS SHARE TRADING AND OTH ER BUSINESS I FIND IT APPROPRIATE TO DISALLOW PROPORTIONATE INTEREST EXPENSES PERTAINING TO THE REALIZATION OF STCG ON THE BASIS OF HER INCOME SHOWN UNDER THE DIFFERENT HEADS OF INCOME. 9.3.26 THEREFORE ON ACCOUNT OF THE AFORESAID DISCUSSION THE AO IS DIRECTED TO REWORK OUT THE BUSINESS INCOME AND THE STCG OF THE APPELLANT BY ADDING PROPORTIONATE INTEREST EXPENSE SINCE THE SAME PERTAINS TO HER STCG AND AS PER THE PREVAILING PROVISIONS OF THE LAW THE' DEDUCTION THEREOF IS NOT ALLOWABLE. THE INTEREST O F RS. 9 552/ - AS DISCUSSED IN PARA 4.2.1 ABOVE AMOUNTING IS ALSO DIRECTED TO BE BIFURCATED IN THE RATIO OF INCOME SHOWN UNDER THESE HEADS OF INCOME AND ACCORDINGLY THE BUSINESS INCOME AND STCG IS COMPUTED FOR THE RELEVANT ASSESSMENT YEAR. ACCORDINGLY THE AO IS DIRECTED TO COMPUTE THE BUSINESS INCOME OF THE APPELLANT ON NON - DELIVERY BASED SHARE TRANSACTIONS AND OTHER SHARE TRADING BUSINESS AFTER ALLOCATION OF INTEREST AND EXPENDITURE ON THE PROPORTION OF INCOME SHOWN AS DISCUSSED ABOVE. 9.3.27 AFTER CON SIDERING THE OVERALL FACTS OF THE CASE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WRITTEN AND ORAL SUBMISSION MADE DURING ASSESSMENT PROCEEDINGS AND VARIOUS CASES RELIED UPON BY THE ASSESSING OFFICER AS WELL AS THE APPELLANT AS DISCUSSED ABOVE IN DETAIL I HOLD THAT: (A) LOSS OF RS.5 9 64 109/ - RESULTING FROM VALUATION OF SHARES OF SIYARAM SILK MILLS LTD. SYNERGY LOGIN WIMPLAST LTD. AND SAKSOFT LTD LIBERTY SHOES LTD AND MIRZA TANNERSLTD. AS SHOWN AND CLAIMED BY THE APPELLANT UNDER HER SHARE TRA DING BUSINESS FROM DELIVERY BASED TRANSACTIONS AS DISCUSSED ABOVE IS DISALLOWED AND THE ADDITION MADE TO HER BUSINESS INCOME TO THIS EXTENT IS CON F I RMED ITA NO.6117/09 28 (B) THE INCOME ON ACCOUNT OF SHARE TRADING IN DELIVERY BASED TRANSACTION IS TO BE ADOPTED AT RS.8 0 51 168/ - INSTEAD OF A LOSS OF RS. 1 01 89 029 / - SHOWN BY THE APPELLANT IN HER RETURN OF INCOME DUE TO THE REASONS AS DISCUSSED ABOVE (C) THE STCL LOSS OF RS.1 22 76 554/ - CLANDESTINELY ADJUSTED AGAINST THE SHARE TRADING BUSINESS INCOME OF THE APPELLAN T IS NOT ALLOWED DUE TO MY DECISION MENTIONED ABOVE HOWEVER THE SAME IS TO BE ADJUSTED AGAINST HER STCG AND IT WILL RESULT INTO INCREASE IN HER BUSINESS INCOME AND CORRESPONDING REDUCTION OF HER STCG TO THIS EXTENT. THEREFORE THE ADDITION MADE ON THIS ACCOUNT TO HER BUSINESS INCOME IS CONFIRMED (D) THE PROPORTIONATE EFFECT OF INTEREST PERTAINING TO THE EARNING OF S'TC G AS CLAIMED IN HER P&L ALE IS TO BE DISALLOWED WHILE WORKING OUT OF THE BUSINESS INCOME AS DIRECTED ABOVE DUE TO THE REASONS NOTED THEREIN AT THE TIME OF GIVING EFFECT TO THIS ORDER (E) NO DEDUCTION OF STT PAID ON SHARE TRANSACTIONS RESULTING INTO HER STCG AS DIRECTED ABOVE BE ALLOWED. (F) THE SHORT TERM CAPITAL GAINS RESULTING FROM PURCHASE AND SALE OF SHARES HELD AS INVESTMENT BY THE APPELLANT TAXABLE AT CONCESSIONAL RATE OF TAXATION AS PER SECTION 111A OF THE ACT SHALL ACCORDINGLY BE WORKED OUT BY THE AO KEEPING IN VIEW MY ABOVE DIRECTIONS ON THIS ISSUE AND THE RELATED PROVISIONS OF THE ACT .AND (G) THE BUSINESS INCOME OF R S.1 12 79 891/ - FROM DER IVATIVE TRANSACTIONS AND RS.80 10 911/ - SHALL BE SEPARATELY ASSESSED IN ADDITION TO THE BUSINESS INCOME FROM DELIVERY BASED SHARE TRANSACTIONS AS DISCUSSED ABOVE. 9.3.28 ACCORDINGLY THE AO IS DIRECTED TO RE - WORK OUT THE SHORT TER M CAPITAL GAINS ON SALE OF SHARES HELD AS INVESTMENT BY THE APPELLANT UNDER THE HEAD 'SHORT - TERM DIRECTED ABOVE IS THEREFORE CONFIRMED AND THE BALANCE ADDITION MADE AS BUSINESS INCOME IS DIRECTED TO BE DELETED WHICH SHALL BE ASSESSED AS HER STCG AS PER THE VARIOUS PROVISIONS OF THE ACT. THE ADDITIONAL GROUND RAISED BY THE APPELLANT AS MENTIONED ABOVE IS NOT ADJUDICATED SEPARATELY SINCE DUE CONSIDERATION THEREOF IS ALREADY GIVEN WHILE DECIDING HIS MAIN GROUND OF APPEAL AS DISCUSSED IN THE PRECEDING PAR AGRAPHS OF THIS ORDER. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 11 . WE HAVE CONSIDERED RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND ALSO STATEMENT OF INVESTMENT AND OWN FUNDS VIS - - VIS STATEMENT OF SOURCES OF FUNDS FOR INVESTMENT DURING THE YEAR UNDER CONSIDERATION. WE HAVE ALSO DELIBERATED UPON VARIOUS CASE LAWS CITED BY THE LD. AUTHORIZED REPRESENTATIVE AND LD. DR AND IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. WE HAD ALSO DELIBERATED ON THE CASE ITA NO.6117/09 29 LAWS R EFERRED TO BY LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS. THE QUESTION AS TO WHETHER THE ASSESSEE HAS EARNED CAPITAL GAIN OR BUSINESS PROFITS ON THE SHARES SOLD BY HIM DEPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. SUCH DECISION IS TO BE ARRIVED AT BY TAKING INTO ACCOUNT THE INTENTION OF THE ASSESSEE WHILE PURCHASING THE SHARES AS TO WHETHER THE SAME WAS ACQUIRED FOR HOLDING AS INVESTMENT OR FOR DOING BUSINESS THEREIN. THE TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS ALSO ONE OF THE DE CISIVE FACTORS TO FIND OUT WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRADE. IF THE SHARES ARE BOUGHT WITH THE INTENTION OF EARNING CAPITAL GAINS THEREON AND ALSO DIVIDEND INCOME BY KEEPING THE SAME AS INVESTMENT THE GAIN ARISING THERE FROM IS REQUIRED TO BE TREATED AS CAPITAL GAINS. ON THE OTHER HAND IF THE SHARES ARE PURCHASED WITH THE INTENTION TO EARN PROFIT THEREON AND THE SAME IS TREATED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNT THE PROFIT ARISING OUT OF SALE OF SUCH SHARES ARE LIABLE T O BE TREATED AS BUSINESS INCOME. VOLUME AND FREQUENCY OF TRANSACTION IS ALSO ONE OF THE GUIDING FACTORS TO FIND OUT WHETHER THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES OR MAKING INVESTMENT TO HAVE CAPITAL GAINS THEREON. IN THE IN STANT CASES BEFORE US THE FACT OF THE ASSESSEE INVESTING IN SHARES FOR THE LAST SEVERAL YEARS IS NOT IN DISPUTE. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS TREATED THE EQUITY SHARES OF INDIAN COMPANIES AS INVESTMENT I.E. CAPITAL ASSET ALL ALONG. THE ASSESSEE HAS ALSO VALUED THE SHARES AT COST THUS GIVEN A PARTICULAR TREATMENT TO THE SHARES HELD AS INVESTMENT THEREFORE WITHOUT BRINING ON RECORD CONTRARY MATERIAL THE AO CANNOT CHANGE THE INTENTION AND MANNER OF INVESTMENT BEING MADE BY T HE ITA NO.6117/09 30 ASSESSEE. HAD THE ASSESSEE VALUED THE SHARES AT COST OR MARKET PRICE WHICHEVER IS LOWER THE GAIN ARISING OUT OF SALE OF SHARES COULD EASILY BE TREATED AS BUSINESS INCOME. ASSESSEE HAD NOT VALUED THE SHARES AS STOCK BUT VALUED THE SAME AS INVESTMENT. TH US WHAT WAS A CAPITAL ASSET WILL REMAIN A CAPITAL ASSET UNLESS A PERSON HOLDING THE ASSET HIMSELF CHANGES THE NATURE BY A SPECIFIC ACTION LIKE CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. IN THE INSTANT CASES BEFORE US THE ASSESSEE HAS NOT TREATED TH E INVESTMENT IN EQUITY SHARES OF INDIAN COMPANIES AS STOCK IN TRADE. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RAM KUMAR AGARWAL & BROTHERS 205 ITR 251 THE AO WAS NOT JUSTIFIED IN TREATING THE CAPITAL GAIN EARNED FROM SALE OF THESE SHARES AS BUSINESS PROFITS WHICH WERE ENTERED BY THE ASSESSEE AS INVESTMENT IN BOOKS OF ACCOUNT. THERE IS ALSO NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT RES JUDICATA DO NOT STRICTLY APPLY TO THE INCOME TAX PROCEEDINGS BUT AT THE VERY SAME TI ME IT IS WELL SETTLED THAT PRINCIPLE OF CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES IS THE FUNDAMENTAL OF JUDICIAL PRINCIPLE WHICH CANNOT BE BRUSHED ASIDE WITHOUT PROPER REASONING. 12 . MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVESTMENT WITHIN A SHORT SPAN OF TIME WHICH HAD GIVEN BETTER OVERALL EARNING TO THE ASSESSEE WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD NO INTENTION TO KEEP ON THE FUNDS AS INVESTOR IN EQUITY SHARES BUT WAS ACTUALLY INTENDED TO TRADE IN SHARES. 13 . HERE IT IS PERTINENT TO MENTION THE INTENTION OF GOVERNMENT FOR INTRODUCING THE SECURITY TRANSACTION TAX AND EXEMPT THE LONG TERM CAPITAL GAIN EARNED FROM SALE OF SHARES AND LEVYING 10 % TAX ON SHORT TERM ITA NO.6117/09 31 CAPITAL GAIN EARNED ON SALE OF SHARES. IT IS NOTED THAT UND ER THE OLD PROVISIONS OF THE INCOME - TAX ACT PROFITS OR GAINS ARISING TO AN INVESTOR FROM THE TRANSFER OF SECURITIES WERE CHARGED TO TAX EITHER AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAID SECURITIES ; SHORT - TERM CAPITAL GAINS ARISING FROM TRANSFER OF SECURITIES WERE TAXED AT THE APPLICABLE RATES (NORMAL RATE) AND LONG - TERM CAPITAL GAINS WERE TAXED @ 20% AFTER ADJUSTING FOR INFLATION BY INDEXING THE COST OF ACQUISITION. FOR LISTED SECURITIES THE TAXP AYER HAD AN OPTION TO PAY TAX ON LONG - TERM CAPITAL GAINS @ 10% BUT WITHOUT INDEXATION. FOR FOREIGN INSTITUTIONAL INVESTORS (FIIS) THE LONG - TERM CAPITAL GAINS AND SHORT - TERM CAPITAL GAINS WERE TAXED AT THE RATE OF 10% (WITHOUT INDEXATION) AND 30% RESPECTIV ELY. IN CASE OF A TRADER IN SECURITIES HOWEVER THE GAINS WERE TAXED AS ANY OTHER NORMAL BUSINESS INCOME. THUS TAX LIABILITY ON THE INCOME FROM PURCHASE & SALE OF SHARES AS REGARDS TO THE STCG & BUSINESS INCOME WAS AT PAR. HOWEVER THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS CAPITAL GAIN OR BUSINESS INCOME HAS IN - FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT - 2004 BY INSERTION OF PROVISIONS OF SECTION 111A AND 10(38) AS REGARDS TO LEVY OF TRANSACTION TAX AND EXEMPTION / CONCESSIO N ON CAPITAL GAIN ARISING FROM SECURITIES ENTERED IN A RECOGNIZED STOCK EXCHANGE. WITH A VIEW TO SIMPLIFY THE TAX REGIME ON SECURITIES TRANSACTIONS A TAX AT THE RATE OF 0.015 PER CENT. (SEE: CHANGE IN RATES ON SECURITIES TRANSACTIONS BY FINANCE ACTS AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE PLACE IN A RECOGNIZED STOCK EXCHANGE IN INDIA. THIS TAX IS COLLECTED BY THE STOCK EXCHANGE FROM ITA NO.6117/09 32 THE PURCHASER OF SUCH SECURITIES AND PAID TO THE EXCHEQUER. THE PROVISIONS RELATING TO THE SECURITIES TRANSACTIONS TAX ARE CONTAINED IN CHAPTER VII OF THE FINANCE (NO.2) BILL 2004 AND CAME INTO EFFECT FROM 01.10.2004. FURTHER CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 OF THE INCOME - TAX ACT SO AS TO PROVIDE EX EMPTION FROM LONG - TERM CAPITAL GAINS ARISING OUT OF SECURITIES SOLD ON THE STOCK EXCHANGE. A NEW SECTION 111A HAS ALSO BEEN INSERTED AND SECTION L15AD IS AMENDED SO AS TO PROVIDE THAT SHORT - TERM CAPITAL GAINS ARISING FROM SALE OF SUCH SECURITIES TO AN INV ESTOR INCLUDING FIIS SHALL BE CHARGED AT THE RATE OF TEN PER CENT. THESE AMENDMENTS APPLY TO ASSESSMENT YEAR 2005 - 2006 AND SUBSEQUENT YEARS. THROUGH FINANCE ACT 2008 SECTIONS 111A AND 115AD HAVE FURTHER BEEN AMENDED WHEREBY THE RATE OF TAX ON SUCH SHORT - TERM CAPITAL GAIN HAS BEEN RAISED TO FIFTEEN PERCENT. THUS W.E.F. 01.10.2004; ON THE SHARE TRANSACTIONS SUBJECTED TO STT; CONCESSIONAL TAX RATE OF 10% (WHICH HAS BEEN INCREASED TO 15% FROM AY 2009 - 10) ARE APPLICABLE IN RESPECT OF STCG WHEREAS NO TAX IS C HARGEABLE IN RESPECT OF LTCG. IT IS ALSO NOTED THAT THE CBDT VIDE ITS CIRCULAR NO.4/2007 DATED 15.06.2007 HAS ALSO RECOGNIZED POSSIBILITY OF TWO PORTFOLIOS I.E. ONE 'INVESTMENT PORTFOLIO' COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE OTHER 'TRADING PORTFOLIO' COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. IN VIEW OF THESE FACTS PROFIT AROSE ON SHARES IN RESPECT OF DELIVERY BASED TRANSACTION ARE LIABLE TO BE TAXED AS CAPITAL GAIN AND NOT AS BUSINESS IN COME. ITA NO.6117/09 33 14 . EVEN THE HON'BLE APEX COURT IN THE CASE OF K.P. VERGHESE VS TO 131 ITR 597 (SC) OBSERVED AS UNDER: - THE TASK OF INTERPRET ATION OF A STATUTORY ENACTMENT IS NOT MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE BECAUSE FEW WORD POSSESSES THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATTEMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE U SED BY IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND AS POINTED OUT BY LORD DENNING IT WOULD BE IDLE TO EXPECT EVERY STATUTORY PROVISIONS TO BE DRAFTED WITH DIVINE PRESCIENCE AND PERFECT CLARITY. 1 5 . THE ABOVE OBSERVATIONS OF HON'BLE JUDGES OF THE APEX COURT WAS REITERATED BY HON'BLE APEX COURT IN THE CASE OF KERALA STATE INDUSTRIAL CORPORATION 259 ITR 51 (SC) HOLDING AS UNDER: - THAT THE FINANCE MINISTERS SPEECH CAN BE RELIED UPON TO THROW LIGHT ON THE OBJECT AND PURPOSE OF THE PARTICULAR PROVISIONS INTRODUCTION BY THE FINANCE BILL HAS BEEN RECOGNIZED BY THIS COURT IN K.P. VERGHESE VS ITO 1981) 131 ITR 597 (SC) AT 609. AGAIN IN THE CASE OF R & B FALCON (A) PVT. LTD V S CIT (2008) 301 ITR 309 (SC) IT WAS HELD THAT (PAGE 323): - RULES OF EXECUTIVE CONSTRUCTION IN A SITUATION OF THIS NATURE MAY ALSO BE APPLIED. WHERE A REPRESENTATION IS MADE BY THE MAKERS OF LEGISLATION AT THE TIME OF INTRODUCTION OF BILL OR CONSTRUCTIO N THEREUPON IS PUT BY THE EXECUTIVE UPON ITS COMING INTO FORCE THE CARRIES GREAT WEIGHT. 1 6 . THE HON'BLE DELHI HIGH COURT IN ARJ SECURITY PRINTERS 264 ITR 276 AND NEO POLLYPACK PVT LTD. 245 ITR 492 (DEL.) HELD THAT EVEN WHEN THE DOCTRINE OF RES JUDICA TA DOES NOT APPLY TO INCOME TAX PROCEEDINGS WHERE A ISSUE HAS BEEN DECIDED CONSISTENTLY IN EARLIER ASSESSMENT YEARS IN PARTICULAR MANNER THE SAME VIEW SHOULD PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN FACTS MEANING THEREBY THERE MUST BE MATERIAL CHANGE IN THE FACTS. ITA NO.6117/09 34 1 7 . THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SHANTILAL M JAIN VS ACIT VIDE ORDER DATED 27 - 04 - 2011 (ITA NO. 269/MUM/2010) HELD THAT DESPITE LARGE VOLUME OF SHARES TRANSACTIONS THE ASSESSING OFFICER CANNOT IGNO RE THE RULE OF CONSISTENCY TO TREAT THE GAINS ON SALE OF SHARES AS STCG. IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF INVESTMENT IN SHARES AND SECURITIES OFFERED RS. 1.54 CRORES AS SHORT TERM CAPITAL GAIN AND RS. 2.91 CRORES FROM LO NG TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN WAS ACCEPTED WHEREAS SHORT TERM CAPITAL GAIN WAS HELD TO BE BUSINESS PROFIT. SINCE IN EARLIER ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS CONSISTENTLY ACCEPTED AS SHORT TERM CAPITAL GAIN IT WAS HELD THAT THE RULE OF CONSISTENCY AS PROPOUNDED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) IT IS FAIRLY APPLICABLE AND THE INCOME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IDENTICALLY IN THE CASE OF NAGINDAS P SETH (ITA NO.961/MUM/20 10) IT WAS HELD THAT DESPITE LARGE NUMBER OF TRANSACTIONS IN SHARES THE PROFIT CAN BE ASSESSED AS CAPITAL GAINS UNDER THE FACTS OF THE CASE. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THESE DECISIONS MORE SPECIFICALLY WHEN THE ASSESSEE WAS HOLD THE SHARES IN HIS BOOKS AS INVESTOR AS WELL AS TOCK - IN - TRADE SEPARATELY. THE DECISION IN THE CASE OF JANAK S RANAWALA 11 SOT 627 (MUM.) FURTHER SUPPORTS THE CASE OF THE ASSESSEE. LIKEWISE THE DECISION FROM HON'BLE MADRAS HIGH COURT IN CIT VS N.S.S. INVESTM ENT PVT LTD. 227 ITR 149 (MAD) CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY 82 ITR 526 (SC) SUPPORTS THE CASE OF THE ASSESSEE. IN THE PRESENT APPEAL WE NOTE THAT THE ASSESSEE MADE INVESTMENT IN SHARES WITH INTENTION TO ITA NO.6117/09 35 EARN DIVIDEND INCOME ON APPRE CIATION OF PRICE OF SHARES. THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS. 18. IN THE INSTANT CASE GAIN ON PURCHASE AND SALE OF SHARES SUCH GAIN WAS BOTH IN RESPECT OF DELIVERY BASED TRANSACTION AS WELL AS NON - DELIVERY BASED TRANSAC TION. IN RESPECT OF DELIVERY BASED TRANSACTIONS OF SHARES WHICH WERE HELD AS INVESTMENT THE CIT(A) AFTER RECORDING DETAILED FINDING AND APPLYING THE VARIOUS PROPOSITION OF LAW DISCUSSED IN HIS ORDER HELD THAT THE GAINS SO AROSE ON SALE OF SHARES WAS LIAB LE TO BE TAXED AS CAPITAL GAIN TAX. THE CIT(A) HAS ALSO CONFIRMED AOS ACTION WITH REGARD TO LO SS OF RS. 59 64 109/ - AND TREATED THE SAME AS BUSINESS LOSS INSTEAD OF CAPITAL LOSS . AFTER ANALYZING THE ENTIRE SET OF TRANSACTIONS THE CIT(A) RECORD ED DETAILED F INDING AND REACHED TO THE CONCLUSION THAT OUT OF RS. 1 01 89 029/ - THE ASSESSEES PROFIT OF RS. 80 51 168/ - WAS LIABLE TO BE TAXED AS CAPITAL GAIN AND BALANCE AS BUSINESS INCOME. THE SHORT TERM CAPITAL LOSS OF RS. 1 22 76 554/ - WAS NOT ACCEPTED BY THE CIT(A) AND HE CONFIRMED THE ACTION OF THE AO FOR TREATING THE SAME AS BUSINESS LOSS. THE CIT(A) HAS ALSO DIRECTED THE PROPORTIONATE EFFECT OF INTEREST PERTAINING TO EARNING OF SHORT TERM CAPITAL GAIN AS CLAIMED IN THE PROFIT AND LOSS ACCOUNT IS TO BE DISALLOWED W HILE WORKING OUT THE BUSINESS INCOME. AFTER ANALYZING THE SERIES OF TRANSACTION THE CIT(A) HELD THAT BUSINESS INCOME OF RS.1 12 79 891/ - FROM DERIVATIVE TRANSACTIONS AND RS.80 10 911/ - SHALL BE SEPARATELY ASSESSED IN ADDITION TO THE BUSINESS INCOME FROM DELIVERY BASED SHARE TRANSACTION. THUS THE CIT(A) HAS DIRECTED THE AO TO REWORK SALE OF SHARES HELD AS INVESTMENT BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN AND BALANCE WAS DIRECTED TO BE ASSESSED AS BUSINESS ITA NO.6117/09 36 INCOME. THE DETAILED FINDINGS RECO RDED BY THE CIT(A) AT PARA 9 ARE AS PER MATERIALS ON RECORD HAS NOT BEEN CONTROVERTED BY DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON RECORD . ACCORDINGLY WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 19 . IN THE RESULT APPEAL FILED B Y THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 /11/ 201 4 . 2 8 /11/ 2014 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBA I ; DATED 28 / 11 /2014 /PKM PS COPY OF THE ORDER FORWARDED TO : / BY ORDER ( ASSTT. REGISTRAR) / ITAT MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) MUMBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. GUARD FILE. //TRUE COPY//