ITO 3(2)(4), MUMBAI v. PARGRO INVESTMENTS P. LTD, MUMBAI

ITA 829/MUM/2010 | 2004-2005
Pronouncement Date: 07-09-2011 | Result: Dismissed

Appeal Details

RSA Number 82919914 RSA 2010
Assessee PAN AACCP3120B
Bench Mumbai
Appeal Number ITA 829/MUM/2010
Duration Of Justice 1 year(s) 7 month(s) 3 day(s)
Appellant ITO 3(2)(4), MUMBAI
Respondent PARGRO INVESTMENTS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 07-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 07-09-2011
Date Of Final Hearing 17-08-2011
Next Hearing Date 17-08-2011
Assessment Year 2004-2005
Appeal Filed On 03-02-2010
Judgment Text
1 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. `IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C BEFORE SHRI R.K. PANDA A.M. AND SHRI V.D. RAO J.M . ITA NO. 829/MUM/2010 ASSESSMENT YEARS 2004-05 INCOME TAX OFFICER 3(2)(4) R. NO. 673 6 TH FLOOR AAYAKAR BHAWAN MUMBAI 400 020. VS. M/S PARGRO INVESTMENTS PVT. LTD. REGENT CHAMBERS 7 TH FLOOR JAMNALAL BAJAJ MARG 208 NARIMAN POINT MUMBAI 21. PAN AACCP 3120B APPLICANT RESPONDENT ITA NO. 637/MUM/2010 ASSESSMENT YEARS 2004-05 M/S PARGRO INVESTMENTS PVT. LTD. REGENT CHAMBERS 7 TH FLOOR JAMNALAL BAJAJ MARG 208 NARIMAN POINT MUMBAI 21. PAN AACCP 3120B VS. INCOME TAX OFFICER 3(2)(4) R. NO. 673 6 TH FLOOR AAYAKAR BHAWAN MUMBAI 400 020. APPLICANT RESPONDENT ASSESSEE BY SHRI YOGESH THAR RESPONDENT BY SHRI M.R. KUBAL DATE OF HEARING : 03.08.2011 DATE OF PRONOUNCEMENT : ORDER PER R.K. PANDA A.M. THESE ARE CROSS APPEALS THE FIRST ONE FILED BY THE ASSESSEE AND THE SECOND ONE FILED BY THE REVENUE AND ARE DIRECTED AGAINST T HE ORDER DT. 19.11.2009 OF 2 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. THE CIT(A)- 7 MUMBAI RELATING TO A.Y. 2004-05. THE SE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE AND THE ONLY GROUND BY THE REVENUE RELATE TO THE ORDER OF LD. CIT(A) IN TREATI NG THE AMOUNT OF ` 1 13 59 032/- AS INCOME FROM BUSINESS & PROFESSION AS AGAINST STCG DECLARED BY THE ASSESSEE AND AN AMOUNT OF ` 17 81 955/- AS LONG TERM CAPITAL GAIN AS AGAINST THE TOTAL PROFIT EARNED IN PURCHASE AND SAL E OF SHARES OF ` 1 33 48 296/- TREATED BY THE A.O. AS BUSINESS INCOM E. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF ` 1 13 59 032/- AND LONG TERM CAPITAL GAIN OF ` 17 81 955/-. ON BEING QUESTIONED BY THE A.O. TO JUSTIFY ITS CLAIM THE AS SESSEE SUBMITTED THAT ITS ACTIVITY MAINLY CONSISTS OF INVESTMENT IN SHARES U NITS AND SECURITIES FOR LONG TERM APPRECIATION AND EARNING DIVIDEND INCOME AND T HEY DO NOT DO BUSINESS OF PURCHASE AND SALE OF SHARES AND SECURITIES. IT WAS SUBMITTED THAT SINCE INCEPTION THE ASSESSEE HAS NOT DONE ANY BUSINESS O F FINANCING OR HAVE NOT DEALT IN SHARES SECURITIES AND DEBENTURES. THEY ME RELY INVESTED THEIR OWN FUNDS TO EARN DIVIDENDS AND FOR LONG TERM APPRECIAT ION. ALL THE DIRECTORS OF THE COMPANY ARE EMPLOYED IN BUSINESS ELSEWHERE WITH SUB STANTIAL INCOME AND THEY HAVE NO TIME NOR ANY EXPERIENCE TO DO THE AFORESAID BUSINESS OF FINANCING OR DEALING IN SHARES AND SECURITIES. THE ASSESSEE FIL ED STATEMENTS OF PURCHASE OF SHARES MADE DURING THE A.Y. 2003-04 AND 2004-05 AL ONG WITH DETAILS OF SALE OF SAID SHARES DURING THE A.Y. 2003-04 TO 2005-06. IT WAS SUBMITTED THAT DURING THE A.Y. 2003-04 THE COMPANY HAS DONE 75 TRANSACTI ONS OF PURCHASE OF SHARES AND THE SAID SHARES WERE SOLD IN VARIOUS YEARS IE. 17 TRANSACTIONS IN THE SAME ASSESSMENT YEAR I.E. 2003-04 39 TRANSACTIONS IN T HE ASSESSMENT YEAR 2004-05 AND TWO TRANSACTIONS IN THE ASSESSMENT YEAR 2005-06 . SIMILARLY DURING THE 3 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. ASSESSMENT YEAR 2004-05 THE COMPANY HAS DONE 79 TR ANSACTIONS OF PURCHASE OF SHARES AND THE SAID SHARES WERE SOLD IN VARIOUS YEARS I.E. 40 TRANSACTIONS IN THE SAME ASSESSMENT YEAR I.E. 2004-05 21 TRANSACTI ONS IN THE ASSESSMENT YEAR 2005-06 AND 5 TRANSACTIONS IN THE ASSESSMENT YEAR 2 006-07. IT WAS SUBMITTED THAT THE HOLDING PERIOD FOR MAJORITY OF SHARES PURC HASED VARY FROM TWO MONTHS TO MORE THAN TWO YEARS. IT WAS SUBMITTED THAT THE A SSESSEE HAS EARNED DIVIDEND INCOME OF ` 7 33 183/- DURING A.Y. 2004-05 AND ` 8 12 257 DURING A.Y. 2003-04. THE ASSESSEE EARNED LONG TERM CAPITAL GAIN OF ` 17 87 443/- ON SALE OF SHARES OF VARIOUS COMPANIES WHICH WERE PURC HASED IN THE FINANCIAL YEAR 2002-03. THE ACCOUNTS OF THE COMPANY ARE MAINTAINED AND THE BALANCE SHEET IS PREPARED ON THE BASIS OF AN INVESTMENT COMPANY A ND NOT AS A DEALER IN SHARES OR A TRADING COMPANY. THE INVESTMENTS IN THE SE SHARES WERE SHOWN AS INVESTMENTS IN THE BALANCE SHEET. THE CLOSING STOC KS ARE VALUED AT COST AS IN AN INVESTMENT COMPANY AND NOT AT COST OR AT MARKET VALUE WHICHEVER IS LOWER AS IN THE CASE OF A TRADING CONCERN. THE AUDITORS HAVE AUDITED AND APPROVED THE ACCOUNTS ON THE BASIS OF AN INVESTMENT COMPANY. IT WAS SUBMITTED THAT FROM A.Y. 2005-06 ONWARDS TRADING COMPANIES CAN CLA IM REBATE OF SECURITY TRANSACTION TAX PAID WHILE INVESTMENT COMPANIES CAN NOT CLAIM SUCH REBATE. THE ASSESSEE HAS NOT CLAIMED SUCH REBATE OF SECURIT Y TRANSACTION TAX. IT WAS ALSO BROUGHT TO THE NOTICE OF THE A.O. THAT THE INC OME OF THE ASSESSEE HAS BEEN ACCEPTED AND ASSESSED AS INCOME OF THE COMPANY AS A N INVESTMENT COMPANY AND NOT AS A TRADING COMPANY FOR THE A.YRS. 2001-02 TO 2003-04. SINCE THERE IS NO CHANGE DURING A.Y. 2004-05 IN THE INVESTMENT BUSINESS IT WAS SUBMITTED THAT THE COMPANY SHOULD NOT BE TREATED AS A TRADING COMPANY. 3.1 HOWEVER THE A.O. WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT MAJOR PART OF THE PURCHASE AND SALE OF SHARES I.E. 86% ARE ON SHORT TERM BASIS AND ONLY 14% PURCHASE AND S ALE OF SECURITIES ARE ON LONG TERM BASIS. ACCORDING TO THE A.O. THE DEFINIT ION OF THE WORD BUSINESS IN SECTION 2(13) IS AN INCLUSIVE DEFINITION. LOOKING AT THE FREQUENCY OF TRANSACTION 4 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. OF PURCHASE AND SALE OF SHARES THE SAME IS CONSTIT UTED AS TRADING ACTIVITY RATHER THAN INVESTMENT ACTIVITY. HE ALSO NOTED THA T THE CLAIM OF THE ASSESSEE THAT THE DIRECTOR HAS NO KNOWLEDGE AND EXPERIENCE I N SHARE TRADING IS FOUND CORRECT SINCE THE ASSESSEE HAS TO HIRE CONSULTANTS FOR THESE ACTIVITIES. FURTHER THE MAJOR TRANSACTIONS ARE MADE WITH THE INTENTION OF RESALE AT PROFIT AND NOT FOR LONG TERM APPRECIATION OR FOR EARNING DIVIDEND. THE TRANSACTIONS OF PURCHASE AND SALE WERE ENTERED INTO CONTINUOUSLY AN D REGULARLY DURING THE YEAR. THE HOLDING PERIOD OF THE SECURITIES IS BETWE EN 1 TO 9 MONTHS IN MAJOR TRANSACTIONS. THE ASSESSEE HAS DEVOTED HIS FULL TI ME FOR PURCHASE AND SALES ACTIVITIES. RELYING ON A COUPLE OF DECISIONS HE WA S OF THE OPINION THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES MADE BY THE COMPANY HAS TO BE TREATED AS TRADING ACTIVITY. HE ACCORDINGLY TREATED THE AMOUNT OF ` 1 24 56 585/- AS BUSINESS INCOME AFTER DEDUCTING AN AMOUNT OF ` 1 43 720/- FROM THE GROSS PROFIT OF ` 1 26 00 305/-DETERMINED BY HIM. 3.2 BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE A.O. HOWEVER THE LD. CIT(A) WAS A LSO NOT CONVINCED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND TREATED ONLY AN AMOUNT OF ` 17 81 955/- AS LONG TERM CAPITAL GAIN AND TREATED T HE BALANCE AMOUNT OF ` 1 13 59 032/- AS BUSINESS INCOME. THE OPERATIVE PO RTION OF THE ORDER OF THE LD. CIT(A) READS AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FINDINGS OF THE ASSESSING OFFICER AND OBSERVE ON GOING THROUGH THE DETAILS FILED BY THE APPELLANT THAT THE HOLDING PERIOD OF MAJORIT Y OF SHARES AND SECURITIES AS NOTED BY THE A.O. IS BETWEEN 2 MONTHS TO 9 MONTHS. AS ADMITTED BY THE APPELLANT THAT THE COMPANY HAD CARR IED OUT 79 TRANSACTIONS OF PURCHASE OF SHARES IN THE CURRENT Y EAR AND GOOD PART OF IT WAS SOLD OFF IN 40 TRANSACTIONS DURING THE CU RRENT YEAR ITSELF. ALL THIS SHOW THAT THE COMPANYS FREQUENCY OF TRANSACTI ON IN SALE AND PURCHASE OF SHARES AND SECURITIES IS SIGNIFICANTLY HIGH. THE APPELLANT HAS ALSO ADMITTED THAT ONE OF THE OBJECTIVE OF THE COMPANY IS TO TRADE IN SHARES SECURITIES AND DEBENTURES. EVEN THE AUD IT REPORT ATTACHED TO INCOME-TAX RETURN CONFIRMS THE SAME. SINCE 86% OF THE TRANSACTIONS IN SALE PURCHASE OF SHARES AND SECURI TIES PERTAIN TO SHORT TERM AND ONLY 14% PERTAIN TO LONG TERM TRANSA CTIONS I HAVE NO 5 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. HESITATION IN HOLDING THAT BUSINESS OF THE ASSESSEE IS TO TRADE IN SHARES AND SECURITIES. ACCORDINGLY PROFITS REAPED BY THE APPELLANT OR SHORT TERM TRANSACTIONS AMOUNTING TO ` 1 13 59 032/- WILL FALL UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION. HOWEVER THE SURPLUS OF ` 17 81 955/- GENERATED OUT OF LONG TERM TRANSACTION S WILL FALL UNDER THE HEAD LONG TERM CAPITAL GAINS. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON VARIOUS APEX COURT JUDG MENTS IS VERY MUCH ON THE ISSUE AND IS ACCORDINGLY JUSTIFIED. 3.3 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE AS SESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E MEMORANDUM OF ASSOCIATION PLACED AT PAPER BOOK PAGE NO. 26 SUBMIT TED THAT THE MAIN OBJECT OF THE COMPANY TO BE PURSUED ON ITS INCORPORATION IS T O CARRY ON THE BUSINESS AS AN INVESTMENT COMPANY AND ALSO TO HOLD SELL BUY O R OTHERWISE DEAL IN SHARES DEBENTURES DEBENTURE-STOCKS BONDS UNITS ETC. TH EREFORE THE REVENUE AUTHORITIES ARE NOT JUSTIFIED IN GIVING EMPHASIS ON LY TO DEALING IN SHARES AND IGNORING THE INVESTMENT ACTIVITIES OF THE COMPANY. REFERRING TO CL. 8(A) OF THE TAX AUDIT REPORT IN FORM 3CD PLACED AT PAPER BOOK P AGE 15 TO 24 HE SUBMITTED THAT THE AUDITORS HAVE MENTIONED TO CARR Y ON BUSINESS OF FINANCING AND TO INVEST AND DEAL IN SHARES SECURITIES AND DE BENTURES. REFERRING TO CLAUSE 28(A) OF FORM 3CD OF THE TAX AUDIT REPORT T HE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH WHEREIN TH E AUDITORS HAVE MENTIONED THE WORDS NOT APPLICABLE AGAINST IN THE CASE OF TRADING CONCERNS FOR GIVING QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF GOODS TR ADED. REFERRING TO CLAUSE 32 OF FORM 3CD OF THE TAX AUDIT REPORT HE DREW THE ATTEN TION OF THE BENCH TO THE WORDS NOT APPLICABLE AGAINST ACCOUNTING RATIOS WI TH CALCULATIONS. HE THUS SUBMITTED THAT WHEN THE AUDITORS HAVE ALSO TREATED THE ASSESSEE COMPANY AS AN INVESTMENT COMPANY AND NOT AS A TRADING COMPA NY AND THE MOA SHOWS THAT THE ASSESSEE IS AN INVESTMENT COMPANY ALTHOUGH IT CAN DEAL IN SHARES SECURITIES AND DEBENTURES THE REVENUE AUTHORITIES SHOULD NOT HAVE PICKED UP 6 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. A SINGLE WORD WHICH GOES AGAINST THE ASSESSEE WITHO UT CONSIDERING THE FACTS IN ITS ENTIRETY. 4.1 REFERRING TO THE CERTIFICATE OF INCORPORATION O F THE COMPANY PLACED AT PAPER BOOK PAGE 25 HE SUBMITTED THAT THE COMPANY W AS INCORPORATED ON 11 TH SEPTEMBER 2000 AND THE FIRST ASSESSMENT YEAR IS ASS ESSMENT YEAR 2001-02. DURING THAT YEAR THERE WAS NOT MUCH TRANSACTION. DURING A.Y. 2002-03 THE EQUITY SHARES OF THE COMPANY WENT UPTO ` 2 14 81 211/- AS AGAINST ` 3 50 060/- IN THE PRECEDING YEAR AND THE COMPANY HA S INVESTED ` 2 10 07 925/- IN MUTUAL FUNDS. DURING A.Y. 2003-04 THE TOTAL VALUE OF INVESTMENT IS OF ` 21 930 688/- WHICH INCLUDES INVESTMENT IN EQUITY S HARES AS WELL AS MUTUAL FUNDS. REFERRING TO THE SAME SCHEDU LE HE SUBMITTED THAT THE AGGREGATE VALUE OF THE QUOTED INVESTMENTS IS SHOWN AT ` 1 91 13 546/- WHEREAS THE MARKET VALUE OF QUOTED INVESTMENTS ARE SHOWN AT ` 1 70 50 445/-. THUS EVEN THOUGH THERE IS DECREASE IN THE VALUE OF THE C LOSING STOCK ASSESSEE HAS SHOWN THE INVESTMENTS AT COST WHICH SHOWS THE INT ENTION OF THE ASSESSEE AS AN INVESTOR AND NOT A TRADER. REFERRING TO THE NOTES TO ACCOUNTS IN THE AUDITED ACCOUNTS FOR THE YEAR ENDED ON 31.3.2003 T HE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO SCHEDUL E 2 WHEREIN IT HAS BEEN MENTIONED THAT THE INVESTMENTS ARE STATED AT COST . 4.2 HE SUBMITTED THAT DURING THE 4 TH YEAR DUE TO SOME APPRECIATION OF THE SHARES THE ASSESSEE AS A PRUDENT INVESTOR SOLD T HE INVESTMENTS. HE SUBMITTED THAT THE ASSESSEE HAS NOT APPOINTED ANY M ANAGERIAL PERSONNEL TO LOOK AFTER THE PURCHASE AND SALE OF SHARES. THE VAR IOUS OTHER EXPENDITURE DEBITED TO THE P&L ACCOUNT ALSO DO NOT SHOW THAT TH E ASSESSEE IS RUNNING ITS ACTIVITIES IN A SYSTEMATIC AND ORGANIZED MANNER. TH E INTEREST DEBITED TO THE P&L ACCOUNT INCLUDES INTEREST PAID TO THE INCOME TA X DEPARTMENT. THUS NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE O F THE SHARE TRANSACTION WHICH ALSO INDICATES THAT THE INTENTION OF THE ASSE SSEE IS NOT THAT OF A TRADER. 7 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. REFERRING TO THE COPY OF BOARD RESOLUTION WHICH HAS BEEN FILED IN THE PAPER BOOK AS AN ADDITIONAL EVIDENCE THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE MINUTES OF THE MEETIN G OF THE BOARD OF DIRECTORS HELD ON 3 RD OCTOBER 2001 ACCORDING TO WHICH THE DIRECTORS OF T HE COMPANY HAVE BEEN AUTHORIZED TO INVEST THE FUNDS OF THE COMPANY IN SHARES DEBENTURES AND SECURITIES ETC. AND ALSO INVEST IN IMMOVABLE PROPE RTIES SUBJECT TO THE LIMIT PRESCRIBED THEREIN. HE SUBMITTED THAT DURING A.Y. 2 003-04 2005-06 2007-08 AND 2008-09 THE RETURNED INCOME OF THE ASSESSEE HA S BEEN ACCEPTED U/S 143(1) OF THE ACT ALTHOUGH THE ASSESSEE HAS DECLARE D CERTAIN CAPITAL GAIN. ONLY IN THE A.Y. 2004-05 I.E. FOR THE IMPUGNED A.Y. AND FOR A.Y. 06-07 THE A.O. HAS TAKEN A CONTRARY VIEW DISREGARDING THE CLAIM OF THE ASSESSEE. HE SUBMITTED THAT ALL THE TRANSACTIONS ARE DELIVERY BASED AND THERE A RE NEITHER SPECULATIVE NOR SQUARED OFF TRANSACTIONS. THESE ALSO INDICATE THAT THE ASSESSEE IS NOT A TRADER BUT IS AN INVESTMENT COMPANY. REFERRING TO A NUMBE R OF DECISIONS HE SUBMITTED THAT MERELY BECAUSE THE NUMBER OF TRANSAC TIONS APPEARED TO BE HIGH IT IS NOT CONCLUSIVE THAT THE ASSESSEE IS A T RADER. APART FROM RELYING ON CBDT CIRCULAR NO. 407 DT. 15 TH JUNE 2007 THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS:- 1. GOPAL PUROHIT V. JCIT 29 SOT 117 (MUM) 2. ACIT V. NAISHADH V. VACHHARAGANI (IT NO. 6429/M/09) PAGE 4 PARA 7 3. RAMESH BABU RAO V. ACIT (ITA NO. 3719/M/09) PAG E 6 PARA 6 4. NAGINDAS P. SHETH V. ACIT (ITA NO. 691/M/10) PA GE 4 PARA 7 5. M/S S.K. FINANCE V. DCIT(ITA NO. 6190/M/08) PA GE 7 PARA 9 6. ACIT V. KETHAN KUMAR A. SHAH(108 TAXMAN 23)(KER) PA GE 25 PARA 4 7. SMK SHARES & STOCK BROKING (ITA NO. 799/M/09)-P ARA 13 8. JANAK S. RANGWALA V. ACIT (11 SOT 626)(MUM) PAG E 630 PARA 6 4.3 REFERRING TO THE CHART COMPARING THE FACTS OF T HE CASE OF THE ASSESSEE WITH OTHER DECIDED CASES BY THE TRIBUNAL THE LD. C OUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING TABLE A ND SUBMITTED THAT THE 8 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. ASSESSEES CASE IS IN A MUCH BETTER FOOTING THAN TH E VARIOUS OTHER CASES DECIDED BY THE TRIBUNAL. CHART COMPARING VOLUMES WITH OTHER DECIDED CASES CRITERIA PARGO INVESTMENT P. LTD. S.K. FINANCE LAXMICHAN D KENIA RAMJI KENIA DHIRAJ KENIA BHARAT KENIA KUVERJI KENIA (ASSESSEE) PERIOD OF HOLDING 1 TO 9 MONTHS 106 DAYS 134 DAYS 86 DAYS 107 DAYS 116 DAYS 124 DAYS NO. OF SCRIPS PURCHASED 79 51 106 144 129 142 213 NO. OF SCRIPTS SOLD 79 49 104 129 105 168 173 VALUE OF PURCHASES 36823916 7915605 26581691 24503380 15370408 2729442 3 200845292 VALUE OF SHARES 48793770 7935156 23820271 20627334 13147240 3698312 8 105995053 NO. OF PURCHASE DAYS 56 DAYS 315 DAYS 268 DAYS 234 DAYS 261 DAYS 236 DAY S 177 DAYS NO. SALE DAYS 45 DAYS 312 DAYS 195 DAYS 214 DAYS 240 DAYS 202 DAY S 162 DAYS HE ACCORDINGLY SUBMITTED THAT THE INCOME OF THE ASS ESSEE SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN AS DECLARED BY THE ASSESSEE AS AGAINST BUSINESS INCOME TREATED BY THE A.O. AND UPHELD BY THE LD. CIT(A). AS REGARDS THE LONG TERM CAPITAL GAIN WHICH HAS BEEN ACCEPTED BY THE LD. CI T(A) HE SUPPORTED THE ORDER OF THE LD. CIT(A). 5. THE LD. D.R. ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE A.O. AND LD. CIT(A). REFERRING TO PAGE 33 TO 36 OF THE PAPER BOOK WHICH CONTAINS YEAR-WISE PURCHASE AND SALE OF EQUITY SHARES THE L D. D.R. SUBMITTED THAT IN THE CASE OF PURCHASE OF SHARES OF GLAXO THERE IS REPET ITION OF TRANSACTIONS. SINCE THE ASSESSEE IS BOOKING THE PROFIT AT THE RIGHT TIM E IT CAN HAPPEN ONLY IN THE CASE OF A TRADER AND NOT IN THE CASE OF AN INVESTOR . HE ALSO RELIED ON THE DECISION IN THE CASE OF SMT. SADHANA NABERA VS. ACI T (ITA NO. 2586/M/UM/2009 FOR A.Y. 2005-05 ORDER DT. 26.3.2011 AND SMT. REKHA 9 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. KHANDELWAL VS. ACIT (ITA NO. 785/MUM/2009 FOR A.Y. 2005-06 ORDER DT. 17.3.2010). 6. THE LD. COUNSEL FOR THE ASSESSEE IN THE REJOINDE R REFERRING TO PAPER BOOK PAGE 33 TO 37 SUBMITTED THAT THE SHARES OF GLAXO WE RE PURCHASED ON 29.4.2002 2.6.2002 5.12.2002 13.3.2003 & 7.5.200 3. HOWEVER ALL THE SHARES WERE SOLD IN THE MONTH OF AUGUST 2003. THER EFORE THAT CANNOT BE AN INDICATOR TO TREAT THE ASSESSEE AS A TRADER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF A.O. AND THE LD. CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. IN THE CASE OF NAGINDAS P. SHETH (HUF) (SUPRA) THE CO-ORDINATE BENCH OF THE TRIBUNAL (IN WHICH ONE OF US (AM) IS A PARTY) WHIL E CONSIDERING AN IDENTICAL ISSUE OF TRANSACTION OF PURCHASE AND SALE OF SHARES HAD TREATED THE SAME AS INVESTMENT. THE PROFIT THEREON WAS HELD TO BE ASSE SSED UNDER THE HEAD CAPITAL GAIN. THE RELEVANT PORTION OF THE ORDER OF THE TR IBUNAL READS AS UNDER:- WE HAVE HEARD THE LEARNED COUNSEL APPEARING ON BE HALF OF THE ASSESSEE AS WELL AS LEARNED DR IN THIS REGARD AND C AREFULLY PERUSED THE RECORD. THE ISSUE AS TO WHETHER PROFIT ARISING OUT OF PURCHASE AND SALE OF SHARES IS ASSESSABLE TO TAX UNDER THE HEAD CAPITAL GAINS OR BUSINESS INCOME IS A VEXED QUESTION DEPENDING ON FACTS AND CIRCUMSTANCES OF EACH CASE BASED UPON THE PRINCIPLE S SET OUT BY VARIOUS JUDICIAL PRECEDENTS. IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS HOLDING THE SHARES IN ITS BOO KS AS AN INVESTOR. LEARNED CIT(A) OBSERVED THAT THE ASSESSEE DID NOT H AVE ANY OFFICE OR ADMINISTRATION SET UP AND THE SOURCE OF ACQUISITION OF SHARES WAS OUT OF OWN FUNDS AND FAMILY FUNDS. HE FURTHER NOTICED THAT THERE WAS NOT A SINGLE INSTANCE WHERE THE ASSESSEE HAD SQUARED UP TRANSACTIONS ON THE SAME DAY WITHOUT TAKING DELIVERY OF THE SHARES. LEARNED COUNSEL APPEARING ON BEHALF OF THE ASSESSEE PLACED BEFORE US A COPY OF THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF THE AS SESSMENT ORDER 2007- 08 TO SUBMIT THAT SUBSEQUENT TO THE PASSING OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASS ESSING OFFICER ACCEPTED THE NATURE OF TRANSACTIONS AS INVESTMENT I N THE SUBSEQUENT YEAR IN HIS ORDER DATED 20.10.2009. IN OTHER WORDS BOTH FOR THE EARLIER YEAR AND SUBSEQUENT YEAR ASSESSING OFFICER ACCEPTED IN THE SCRUTINY ASSESSMENT PROCEEDINGS THAT THE ASSESSEE IS AN INVESTOR. 10 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. SUCH BEING THE CASE MERELY BECAUSE ASSESSEE TRANSA CTED IN 158 SHARES THAT SHOULD NOT BE TAKEN AS A SOLE CRITERION TO COME TO THE CONCLUSION THAT ASSESSEE IS A TRADER IN SHARES. IT IS NOT IN DISPUTE THAT IN THE BOOKS OF ACCOUNTS ASSESSEE HAS DECLARED THE SHARES AS AN INVESTMENT AN THE FINDING OF THE LEARNED CIT(A) THA T ONLY OWN FUNDS WERE UTILISED FOR PURCHASE OF SHARES WAS NOT CONTRA DICTED BY THE LEARNED D.R. IT WAS ALSO HIGHLIGHTED BY THE LEARNE D CIT(A) THAT ASSESSEE HAD NOT INDULGED IN ANY SQUARING UP OF THE TRANSACTIONS ON THE SAME DAY. ON A CONSPECTUS OF THE MATTER WE AR E OF THE VIEW THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES IN THE INSTANT CASE DESERVES TO BE CONSIDERED AS INVESTMENT AND PROFIT THEREON HAS TO BE ASSESSED TO TAD UNDER THE HEAD CAPITAL GAINS. WE DIRECT THE ASSESSING OFFICER ACCORDINGLY. 7.1 NOW COMING TO THE FACTS OF THE IMPUGNED CASE W E FIND THE ASSESSEE IN ITS BOOKS OF ACCOUNT HAS SHOWN THE SHARES AS INVESTMENT . THERE IS NO SYSTEMATIC AND ORGANIZED ACTIVITY OR OFFICE OR ADMINISTRATIVE SET UP FOR DOING THE SHARE TRADING BUSINESS. THE SUBMISSION OF THE ASSESSEE BE FORE THE LOWER AUTHORITIES THAT THE INVESTMENTS ARE OUT OF OWN CAPITAL AND FRE E RESERVES OF THE COMPANY AND NOT OUT OF BORROWED FUNDS HAS NOT BEEN CONTROVE RTED BY THE REVENUE. NOT A SINGLE INSTANCE HAS BEEN BROUGHT ON RECORD BY THE REVENUE ACCORDING TO WHICH THE ASSESSEE HAS SQUARED OFF TRANSACTIONS ON THE SAME DAY WITHOUT TAKING DELIVERY OF THE SHARES. FURTHER FROM THE T ABLE FURNISHED BY THE ASSESSEE COMPARING ITS CASE WITH OTHER DECIDED CASES OF THE TRIBUNAL WE FIND THE ASSESSEES CASE IS IN A VERY STRONG FOOTING. THE PE RIOD OF HOLDING OF THE SHARES IN THE INSTANT CASE RANGES FROM 1 MONTH TO 9 MONTHS IN THE CASE OF SHORT TERM CAPITAL GAIN AND MORE THAN ONE YEAR FOR LONG TERM C APITAL GAIN. 7.2 IT HAS BEEN HELD BY THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P). LTD. 82 ITR 586 THAT WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMEN T OR FORMS PART OF THE STOCK- IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND HE SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAIN TAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE HIS STOCK-IN-TRADE A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. IN THE INSTANT CASE WE FIND THE ASSESSEE ADDUCED SUFFICIENT 11 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. MATERIAL TO SHOW THAT IT IS AN INVESTOR AND NOT A T RADER. THE CASE OF THE ASSESSEE IS STRENGTHENED BY ITS CONDUCT IN A.Y. 200 3-04 WHEREIN THE INVESTMENT IN SHARES ARE SHOWN AT COST AND NOT A T COST OR MARKET PRICE WHICHEVER IS LESS ALTHOUGH THE MARKET PRICE WAS MU CH LESS THAN THE COST PRICE WHICH IS AS PER THE NOTES TO ACCOUNTS IN THE AUDIT REPORT. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE VARIOUS CASES DECIDED BY THE CO-ORDINATE BENCHES OF THE TRIBUNAL AS PER PARA 4.2 OF THIS ORDER WE HAVE NO HESITATION IN ACCEPTING THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS AN INVESTOR AND NOT A TRADER AND THEREFORE THE INCOM E HAS TO BE TREATED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 7.3 THE VARIOUS DECISIONS CITED BY THE LD. D.R. ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE CASE OF SMT. SADHANA NA BERA (SUPRA) THE SHARES WERE HELD FOR VERY FEW DAYS IN MOST OF THE CASE RAN GING FROM 1 TO 15 DAYS AND THERE WAS HUGE VOLUME AND FREQUENCY OF TRANSACTIONS WHEREAS IN THE INSTANT CASE THE HOLDING PERIOD IS FAIRLY LARGE AND THE VOL UME AND FREQUENCY OF TRANSACTIONS ARE ALSO MUCH LESS. SIMILARLY IN THE CASE OF SMT. REKHA KHANDELWAL (SUPRA) THE PERIOD OF HOLDING IN MOST OF THE SCRIPS WERE FEW DAYS ONLY WHEREAS IN THE INSTANT CASE THE PERIOD OF HOLD ING VARIES FROM 1 MONTH TO 9 MONTHS. THEREFORE THE DECISIONS CITED BY THE LD. D .R. ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THIS VIEW OF THE MAT TER AND IN VIEW OF THE DETAILED DISCUSSIONS MADE ABOVE WE ARE OF THE CONSIDERED OP INION THAT THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE HAS TO BE ACCEPTED. THE GROUNDS OF APPEAL NO. 1 BY THE ASSES SEE IS ACCORDINGLY ALLOWED AND GROUNDS OF APPEAL NO. 1 BY THE REVENUE IS DISMI SSED. 8. IN GROUND NO. 2 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DIRECTING THE A.O. TO DISALLOW THE EXPENSES OF ` 1 45 164/- U/S 14A OF THE ACT. 12 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. 8.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. DISALLOWED AN AMOUNT OF ` 7460/- U/S 14A OF THE ACT AS HAVING BEEN INCURRED I N RELATION TO EARNING OF EXEMPT INCOME. IN APPEAL THE LD. CIT(A) DIRECTED THE A.O. TO APPLY RULE 8D AND DISALLOW THE ENTIRE ADMINISTRATIVE AND OTHER EX PENSES OF ` 1 45 164/- CLAIMED BY THE ASSESSEE COMPANY. IT IS THE SUBMISSI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT PROVISIONS OF RULE 8D CANNOT BE A PPLIED RETROSPECTIVELY AND ARE APPLICABLE PROSPECTIVELY I.E. W.E.F. A.Y. 2008 -09 IN THE LIGHT OF THE LATEST DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT REPORTED IN 328 ITR 81. THE ASSESSMENT YEAR INVOLVED IN THE INSTANT CASE BEING 2004-05 RULE 8D IS NOT A PPLICABLE. HE SUBMITTED THAT ONLY TO THE EXTENT OF EXPENDITURE DEBITED TO THE P& L ACCOUNT CAN BE DISALLOWED WHICH IN THE INSTANT CASE IS ` 145164/-. 9. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE O RDER OF THE LD. CIT(A). 10. AFTER HEARING BOTH THE SIDES AND ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW WE FIND THE A.Y. INVOLVED IN THE INSTANT CASE IS 2004-05. THEREFORE IN VIEW OF THE DECISION OF THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SUPRA) RULE 8D IS NOT APPLICABLE FOR THIS ASSESSMENT YEAR. IN THE SAID DECISION THE HONBLE HIGH COURT HAS ALSO HELD THAT THE AMOUNT OF DISALLOWANCE U/S 14A FOR THE YEA RS EARLIER TO A.Y. 2008-09 HAS TO BE WORKED OUT BY ADOPTING SOME REASONABLE ME THOD. SINCE THE ASSESSEE IN THE P&L ACCOUNT HAS DEBITED AN AMOUNT OF ` 145164/- AND SINCE THE LD. A.R. HAS NO OBJECTION FOR THE DISALLOWANCE OF THE ENTIRE AMOUNT DEBITED THEREFORE WE FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE EXPENDITURE DEBITED TO THE P&L ACCOUNT ONLY SHOULD BE DISALLOWED AND THE MATTER NEED NOT BE REMANDED TO THE A.O. WE THEREFO RE DIRECT THE A.O. TO DISALLOW THE EXPENDITURE OF ` 145164/- DEBITED TO THE P&L ACCOUNT U/S 14A. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DI SMISSED. 13 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. 11. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 7.9.2011. SD/- SD/- (V. DURGA RAO) (R.K. PANDA) JUDICIAL MEMBER ACCOUN TANT MEMBER MUMBAI DATED 7 TH E SEPTEMBER 2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 7 MUMBAI 4. THE CIT- 3 MUMBAI 5. THE DR BENCH C 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 14 ITA 829/M/2010 & 637/M/2010 M/S PARGRO INVESTMENT S P. LTD. DATE INITIALS 1 DRAFT DICTATED ON 2.8.2011 5.9.11 6.9.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 5.8.2011 6.9.11 S R. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER