MAFATLAL FABRICS P. LTD, MUMBAI v. DCIT CIR 1(2), MUMBAI

ITA 903/MUM/2010 | 2006-2007
Pronouncement Date: 02-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 90319914 RSA 2010
Assessee PAN AAACP4133C
Bench Mumbai
Appeal Number ITA 903/MUM/2010
Duration Of Justice 1 year(s) 8 month(s) 28 day(s)
Appellant MAFATLAL FABRICS P. LTD, MUMBAI
Respondent DCIT CIR 1(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 02-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 02-11-2011
Date Of Final Hearing 13-10-2011
Next Hearing Date 13-10-2011
Assessment Year 2006-2007
Appeal Filed On 04-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI B. R. MITTAL JM AND SHRI R. K. PANDA AM ITA NO. : 903/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. MAFATLAL FABRICS PVT. LTD. 4 TH FLOOR MAFATLAL HOUSE BACKBAY RECLAMATION MUMBAI-400 020 PAN NO: AAACP 4133 C VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 1(2) M.K. ROAD AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH SARDA RESPONDENT BY : SHRI G. P. TRIVEDI DATE OF HEARING : 19.10.2 011 DATE OF PRONOUNCEMENT : 02.11.2011 ORDER PER R. K. PANDA (AM) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 26.11.2009 PASSED BY THE LD. CIT(A)-2 MUMBAI RELAT ING TO THE ASSESSMENT YEAR 2006-07. 2. IN GROUNDS OF APPEAL NO. 1 2 AND 3 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TREATING THE SHORT CAPITAL GAIN OF `. 96 06 116/- ON SALE OF SHARES AS BUSINESS INCOME AS AGAINST CAPITAL GAIN DECLARED BY THE ASSESSEE. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORTS OF F ABRICS. DURING THE ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 2 COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRANSACTION AND HA S EARNED AN AMOUNT OF `. 1 09 46 154/- WHICH WAS SHOWN AS SHORT TERM CAPITA L GAIN. ON BEING QUESTIONED BY THE AO TO EXPLAIN AS TO WHY THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSES SHOULD NOT BE TREATED AS BUSINESS INCOME THE ASSESSEE SUBMITTED ITS REPLY THE GIST OF WHICH IS REPRODUCED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER AND WHICH RE ADS AS UNDER :- ALL THE INVESTMENTS IN THE SHARES MADE BY THE CO MPANY IN THE NAME OF THE COMPANY ARE HELD AS INVESTMENTS AND NOT AS A STOCK IN TRADE. ALL THE INVESTMENTS HAVE BEEN VALUE D AT COST. WHEREAS THE STOCK IN TRADE HAS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER WHICH IS NOT SO IN THE CAS E OF COMPANY. MOST OF INVESTMENTS ARE LONG TERM. THE COM PANY HAS BEEN CONSISTENTLY FOLLOWING THE PRACTICE OF TREATIN G ALL THE INVESTMENT IN SHARES AS INVESTMENTS AND NOT AS STOC K IN TRADE. THEY HAVE NOT CONVERTED ANY OF THE INVESTMEN TS INTO STOCK IN TRADE ANY TIME SO FAR. IN VIEW OF CBDT CIR CULAR NO. 4/2007 DATED 15.06.2007 THE SHARES TRANSACTIONS MA DE AND SHORT TERM GAIN DERIVED FROM SUCH TRANSACTION IS R EQUIRED TO BE TREATED AS STCG ONLY AND NOT AS A BUSINESS INCOME. 4. HOWEVER THE AO WAS NOT CONVINCED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. HE NOTED THAT WHETHER AN INDIVIDUAL I S A TRADER OR AN INVESTOR IS A MIXED QUESTION OF LAW AND FACTS AND H AS TO BE DECIDED ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE. HE NOT ED THAT THE ASSESSEE IS ACTIVELY ENGAGED IN THE SHARE TRADING ON DAY TO DAY BASIS. THE ASSESSEE IS HOLDING MORE THAN ONE DEMAT A/C WITH DIFFERENT DEPO SITORY SERVICES. THEREFORE IT IS CLEAR THAT THE ASSESSEE WAS NOT A MERE INVESTOR WHICH WAS INVESTING IN SHARES AND SECURITIES FOR THE PURPOSE OF EARNING DIVIDENDS AND ANY WINDFALL. FROM THE VARIOUS DETAILS FURNISHE D BEFORE HIM BY THE ASSESSEE HE NOTED THAT THE MAJORITY OF THE TRANSAC TIONS ARE CARRIED OUT WITHIN A SPAN OF 10-15 DAYS OR LESS THAN 6 MONTHS. CONSIDERING THE FACTS ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 3 OF THE CASE HE CAME TO THE CONCLUSION THAT THE SHA RE TRANSACTIONS MADE BY THE ASSESSEE ARE ADVENTURE IN NATURE OF TRADE RA THER THAN INVESTMENT. 5. HE NOTED THAT ALTHOUGH THE ASSESSEE IS MAINLY EN GAGED IN THE BUSINESS OF TRADING IN FABRICS IT HAD CONSIDERABLE AMOUNT OF DAY TO DAY TRANSACTIONS IN SECURITIES. FROM THE DETAILS FURNIS HED BY THE ASSESSEE HE NOTED THAT THE TRANSACTIONS ARE VOLUMINOUS. THE RAT IO OF HOLDING AND SALE/PURCHASE IS VERY LESS. THE ASSESSEE COMPANY WA S PRIMARILY PURCHASING SHARES FOR VERY LIMITED TIME. THE ASSESS EE COMPANY WAS PURCHASING SHARES FOR NOT ENJOYING DIVIDEND INCOME BUT TO HOLD IT FOR FEW DAYS TO GAIN HANDSOME PROFIT DUE TO UPS AND DOWNS I N THE SHARE MARKET. THE TOTAL DIVIDEND INCOME RECEIVED DURING THE YEAR IS `. 27 53 500/- WHEREAS THE PROFIT FROM SHARE TRADING ACTIVITIES IS OF `. 96 36 116/-. THEREFORE THE MOTIVE OF THE ASSESSEE WAS TO EARN M ORE PROFIT BY INVOLVING IN ADVENTURE IN NATURE OF TRADE. 6. RELYING ON A COUPLE OF DECISIONS AND THE CBDT CI RCULAR NO.4 OF 2007 DATED 15.06.2007 HE TREATED THE AMOUNT OF `. 96 36 116/- AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GA IN DECLARED BY THE ASSESSEE. 7. BEFORE THE LD. CIT(A) THE ASSESSEE FILED DETAILE D WRITTEN SUBMISSIONS AND LIST OF SHARES AND SECURITIES TRADED. VARIOUS D ECISIONS WERE ALSO CITED BEFORE THE LD. CIT(A) TO THE PROPOSITION THAT THE A SSESSEE IS NOT ENGAGED IN THE BUSINESS ACTIVITY AS FAR AS ITS SHARE TRANSA CTIONS ARE CONCERNED. THE CBDT CIRCULAR NO.4 OF 2007 DATED 15.06.2007 WAS ALSO BROUGHT TO HIS NOTICE. 8. DURING THE COURSE OF HEARING THE LD. CIT(A) ASKE D THE ASSESSEE TO FILE COPY OF BOARD RESOLUTION AUTHORIZING THE COMPA NY TO UNDERTAKE THE ACTIVITY AND AUTHORIZING THE DIRECTORS TO OPEN DEMA T A/C AND OPERATE THE ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 4 SAME. THE ASSESSEE FILED THE COPIES OF THESE RESOLU TIONS WHICH ARE AS UNDER :- 1. RESOLUTION DATED MARCH 22 2004 WHICH READS AS UNDER : RESOLVED THAT THE COMPANY DO HEREBY OPEN AN ACCOUN T WITH THE DEPOSITORY PARTICIPANT VIZ. MAFATLAL SECURITIES LTD. FOR TRADING IN SHARES OF VARIOUS COMPANIES UNDER DEMAT SEGMENT. 2. RESOLUTION DATED JUNE 20 2004 WHICH READS AS U NDER : RESOLVED THAT THE COMPANY DO APPROVE AND AUTHORISE ANY OF THE FOLLOWING DIRECTORRS VIZ. SHRI VISHAD P MAFATLA L SHRI BIPIN K GHIYA OR MR. NIRAJ B. MANKAD TO DEAL IN PURCHASE / SALE OF SHARES/SECURITIES THROUGH DSP MERRILL LYNCH LTD. NO T EXCEEDING THE VALUE OF `. 100.00 LACS. 3. RESOLUTION DATED DECEMBER 16 2004 WHICH READS AS UNDER : RESOLVED THAT THE COMPANY APPOINT HDC ASSET MANAGE MENT COMPANY LTD. MUMBAI AS ITS PORTFOLIO MANAGER TO PR OVIDE PORTFOLIO MANAGEMENT AND OTHER SERVICES OF THE FUND S / VALUE OF THE FUNDS TO BE DEPLOYED BY THE COMPANY. 9. ON THE BASIS OF VARIOUS ARGUMENTS ADVANCED BEFOR E HIM AND AFTER CONSIDERING THE RESOLUTIONS MADE BY THE ASSESSEE CO MPANY THE LD. CIT(A) OBSERVED THAT THE FIRST RESOLUTION MADE BY THE COMP ANY MAKES IT VERY CLEAR THAT THE INTENTION OF THE BOARD OF DIRECTORS OF THE COMPANY IS ONE OF TRADING IN SHARES IN CONTRAST TO INVESTMENT IN SHAR ES. ACCORDING TO HIM TRADING IN SHARES CAN NEVER BE EQUATED TO INVESTMEN T IN SHARES. IN VIEW OF THE RESOLUTION OF BOARD OF DIRECTORS THE INTENTION WAS ONE OF DOING BUSINESS IN SHARES AND SECURITIES AND IT WAS NEVER THE INTENTION OF THE ASSESSEE COMPANY TO MAKE INVESTMENTS IN SHARES AND SECURITIES. THE SUBSEQUENT RESOLUTIONS ALSO INDICATE THE INTENTION OF THE ASSESSEE. ACCORDING TO HIM THE DOCUMENTS OF THE ASSESSEE COM PANY ITS MINUTE BOOK AND RESOLUTIONS CONTAINED THEREIN THEMSELVES C ONVEY THE INTENTION BEHIND THE ACTIVITY OF PURCHASE AND SALE OF SHARES AND SECURITIES AND ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 5 THERE IS NOTHING LEFT TO BE DECIDED. HE ACCORDINGLY UPHELD THE ACTION OF THE AO. 10. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO P AGE NO. 85 OF THE PAPER BOOK SUBMITTED THAT THE TURNOVER OF FABRICS I S `. 48.87 CRORES AS AGAINST `. 36.23 CRORES IN THE PRECEDING YEAR. REFERRING TO PA GE NO. 97 OF THE PAPER BOOK HE DREW THE ATTENTION OF THE BENCH T O THE QUANTITATIVE DETAILS OF GOODS TRADED IN CLOTH AND THE CLOSING ST OCK OF SUCH CLOTH. REFERRING TO THE PAPER BOOK PAGE NO. 84 THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE QUOTED SHARES AS WELL AS UNQ UOTED SHARES IN LONG TERM AND SHORT TERM INVESTMENTS HAVE BEEN DISCLOSED UNDER THE HEAD INVESTMENTS IN THE BALANCE SHEET. REFERRING TO PAGE NO. 85 OF THE PAPER BOOK HE SUBMITTED THAT THE GAIN ON SALE OF LONG TER M AND CURRENT INVESTMENTS ARE TREATED AS OTHER INCOME. THE TRAN SACTIONS OF PURCHASE AND SALE OF INVESTMENTS ARE NOT ROUTED THROUGH THE TRADING ACCOUNT AND OPENING AND CLOSING STOCK OF SHARES ARE NOT SHOWN A S STOCK OF TRADING ITEMS. HE SUBMITTED THAT THE INVESTMENTS IN SHARES ARE CONSISTENTLY SHOWN BY THE ASSESSEE IN THE BALANCE SHEET UNDER TH E HEAD INVESTMENT. THE AO IN THE ASSESSMENT ORDER PASSED U/S.143(3) FO R THE ASSESSMENT YEAR 2004-05 HAS ACCEPTED THE SAME AS INVESTMENT AND GAIN ON SALE OF INVESTMENT WAS TREATED AS SHORT TERM CAPITAL GAIN . SUBSEQUENT TO THE ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 200 6-07 THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06 HAS NOT BEEN DISTURBED EITHER BY RE-OPENING OF THE ASSESSMENT OR NOTICE U/S.263. REF ERRING TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL P UROHIT REPORTED IN 188 TAXMAN 140 IN WHICH THE INCOME FROM PURCHASE AN D SALE HAS BEEN HELD AS SHORT TERM/LONG TERM CAPITAL GAIN HE SUBMI TTED THAT THE APPEAL ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 6 FILED BY THE DEPARTMENT HAS BEEN DISMISSED BY THE H ON'BLE SUPREME COURT IN 334 ITR 308. REFERRING TO PAGE NO. 84 OF T HE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE FINANCIAL POSITION OF THE ASSESSEE COMPANY ACCORDING TO WHIC H THE ENTIRE INVESTMENT IS OUT OF OWN FUNDS AND NOT OUT OF ANY B ORROWED FUNDS. REFERRING TO THE VARIOUS PAGES OF THE PAPER BOOK AN D THE DETAILS OF PURCHASE AND SALE OF SHARES HE SUBMITTED THAT THER E ARE NO INTRA-DAY TRANSACTIONS ALL THE TRANSACTIONS ARE DELIVERY BAS ED AND NONE OF THE TRANSACTION HAS BEEN UNDERTAKEN IN FUTURES AND OPTI ONS SEGMENTS. HE SUBMITTED THAT THE PRIMARY OBJECTIVE OF THE ASSESSE E COMPANY IS TO INVEST ITS SURPLUS FUNDS FOR PRESERVING THE INTRINSIC VALU E OF FUNDS AVAILABLE WITH THE COMPANY. THE TRADING OBJECTIVE SO PERCEIVED BY THE AO HAS NOT BEEN ESTABLISHED. 11.1. REFERRING TO THE FOLLOWING DECISIONS HE SUBMI TTED THAT THE TRIBUNAL IN SOME WHAT SIMILAR FACTS AND CIRCUMSTANCES HAS AL LOWED THE CLAIM OF THE RESPECTIVE ASSESSES IN TREATING THE PROFIT FROM PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN AS AGAINST BUS INESS INCOME TREATED BY THE REVENUE AUTHORITIES. 1. MUMBAI BENCH DECISION IN CASE OF NAISHADH V. VACHHA RAJANI (ITA NO.6429/M/009) 2. KOLKATA BENCH DECISION IN CASE OF VEER ENTERPRISES LIMITED (ITA NO.1544/KOL/2009) 3. MUMBAI BENCH DECISION IN THE CASE OF SHANTILAL M. J AIN (ITA NO.2690/MUM/2010) 4. MUMBAI BENCH DECISION IN THE CASE OF NAGINDAS P. SH ETH (HUF) (ITA NO.961//2010) HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THE GROUNDS RAISED BY THE ASSESSEE BE ALLOWED. ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 7 12. THE LD. DR ON THE OTHER HAND RELIED ON THE DEC ISION OF THE TRIBUNAL IN THE CASE OF MR. RAKESH J. SANGHVI VS. DCIT REPOR TED IN ITA NO.4607/MUM/2008 AND ITA NO.5710/MUM/2009 VIDE ORDE R DATED 31.08.2010 FOR THE ASSESSMENT YEAR 2005-06 AND 2006 -07 IN WHICH THE PROFIT FROM PURCHASE AND SALE OF SHARES HAS BEEN TR EATED AS BUSINESS INCOME. REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF SMT. SADHANA NABERA VS. ACIT IN ITA NO.2586/MUM/2009 VI DE ORDER DATED 26.03.2010 FOR THE ASSESSMENT YEAR 2005-06 AND THE DECISION IN THE CASE OF SMT. REKHA KHANDELWAL VS. ACIT REPORTED IN ITA N O.785/MUM/2009 VIDE ORDER DATED 17.03.2010 FOR THE ASSESSMENT YEAR 2005-06 HE SUBMITTED THAT THE TRIBUNAL IN THESE CASES AFTER CO NSIDERING THE VARIOUS DECISIONS HAS TREATED SUCH PROFIT FROM SALE OF SHAR ES AS BUSINESS INCOME. 12.1 REFERRING TO THE ORDER OF THE LD. CIT(A) HE S UBMITTED THAT WHEN THE BOARD OF DIRECTORS HAS PASSED THE RESOLUTION AUTHOR ISING THE COMPANY FOR TRADING IN SHARES OF VARIOUS COMPANIES UNDER DEMAT SEGMENTS NOTHING MORE IS REQUIRED FOR ESTABLISHING THE INTENTION OF THE ASSESSEE. IN VIEW OF THE DECISIONS DISCUSSED BY THE AO AS WELL AS THE LD . CIT(A) AND IN VIEW OF THE VARIOUS DECISIONS RELIED ON BY HIM HE SUBMITTE D THAT THE PROFIT FROM SALE OF SHARES SHOULD BE TREATED AS BUSINESS INCOM E AS AGAINST SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSE. HE ACCO RDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD. 12.2 THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIN DER SUBMITTED THAT THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS IS BADL Y WORDED. MERELY BECAUSE OF THE RESOLUTION AUTHORISING THE COMPANY T O TRADE IN SHARES THE CHARACTER OF THE PROFIT ON SALE OF SHARES WILL NOT CHANGE FROM SHORT TERM CAPITAL GAIN TO BUSINESS INCOME. ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 8 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY QUESTION THAT HAS TO BE A NSWERED IN THESE GROUNDS OF APPEAL FILED BY THE ASSESSEE IS AS TO WH ETHER THE PROFIT ON SALES OF SHARES HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN OR BUSINESS INCOME. IT IS THE SUBMISSION OF THE LD. COUNSEL FO R THE ASSESSEE THAT THE SHARES PURCHASED BY THE ASSESSEE HAVING BEEN DISCLO SED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENT AND SHORT TERM CA PITAL GAIN ON SALE OF SHARES HAVING BEEN ACCEPTED IN THE SCRUTINY ASSESSM ENT IN THE PRECEDING YEAR THEREFORE THE REVENUE AUTHORITIES ARE NOT JU STIFIED IN TREATING THE PROFIT ON SALE OF SHARES AS BUSINESS INCOME. IT IS THE SUBMISSION OF THE LD. DR THAT SINCE THE ASSESSEE BEING A PRIVATE LIMI TED COMPANY HAS PASSED A RESOLUTION FOR TRADING IN SHARES IN VARIOU S COMPANIES THEREFORE IRRESPECTIVE OF SHARES BEING SHOWN UNDER THE HEAD INVESTMENT IN THE BALANCE SHEET THE PROFIT ON SALE OF SUCH SHARES HA S TO BE TREATED AS BUSINESS INCOME. 13.1 IN OUR OPINION WHETHER THE PROFIT ON PURCHASE AND SALE OF SHARES IS BUSINESS INCOME OR CAPITAL GAIN IS A MIXED QUES TION OF LAW AND FACTS. IT DEPENDS ON THE FACTS AND CIRCUMSTANCES OF EACH CASE . THE LEGAL PRINCIPLES AS LAID DOWN BY COURTS ON ACCOUNT OF TREATMENT OF T HE INCOME AS BUSINESS INCOME OR CAPITAL GAIN CAN BE SUMMARIS ED AS UNDER :- A. IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN INVEST OR AS WELL AS DEALER IN SHARES. B. WHETHER A TRANSACTION OF SALE AND PURCHASE OF SHARE S IS A TRADING OR INVESTMENT TRANSACTION IS A MIXED QUESTI ON OF LAW AND FACT. ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 9 C. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMEN T OR OF STOCK IN TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVID ENCE FROM THE RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES HELD AS INVESTMENTS AND THOSE HELD AS STOCK IN TRADE. D. THE TREATMENT IN THE BOOKS OF AN ASSESSEE IS NOT CO NCLUSIVE AND IF THE VOLUME FREQUENCY AND REGULARITY AT WHIC H TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANIZED ACTIVITY WITH PROFIT MOTIVE THEN IT BECO MES BUSINESS PROFIT AND NOT CAPITAL GAIN. E. PURCHASE WITH INTENTION TO RESELL CAN CONSTITUTE CA PITAL GAIN OR BUSINESS PROFIT DEPENDING ON CIRCUMSTANCES LIKE QUANTITY OF PURCHASE ETC. F. NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND THE QUESTION MUST BE ANSWERED DEPENDING UPON SELECTIVE EFFECT O F ALL RELEVANT MATERIALS BROUGHT ON RECORD. 14. IN THE INSTANT CASE WE FIND FROM THE COPY OF TH E RESOLUTIONS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT IT HAD PASS ED A RESOLUTION ON 22.03.2004 TO OPEN THE ACCOUNT WITH THE DEPOSITORY PARTICIPANT FOR TRADING IN SHARES OF VARIOUS COMPANIES UNDER DEMAT SEGMENT. AGAIN ON 20.06.2004 THE COMPANY VIDE ITS RESOLUTION AUTHORI ZED THREE OF ITS DIRECTORS TO DEAL IN PURCHASE AND SALE OF SHARES AN D SECURITIES THROUGH DSP MERRILL LYNCH LTD. NOT EXCEEDING THE VALUE OF `. 100.00 CRORE. SIMILARLY ON 16.12.2004 THE COMPANY PASSED ANOTHER RESOLUTION FOR APPOINTING HDFC ASSET MANAGEMENT COMPANY LTD. MUMB AI AS ITS PORTFOLIO MANAGER TO PROVIDE PORTFOLIO MANAGEMENT A ND OTHER SERVICES. THE ABOVE RESOLUTIONS PASSED BY THE COMPANY INDICAT E THAT THE COMPANY HAD THE INTENTION TO DO TRADING IN SHARES WITH A PR OFIT MOTIVE. MERELY BECAUSE THE SHARES WERE SHOWN UNDER THE HEAD INVES TMENT CANNOT ALTER THE SITUATION. IT IS THE SETTLED PROPOSITION OF LAW THAT ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT CONCLUSIVE. THE CONDUCT AND INT ENTION OF THE ASSESSEE ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 10 HAS TO BE CONSIDERED BEFORE DECIDING THE ISSUE AS T O WHETHER THE PROFIT FROM PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME. THE CONDUCT OF THE ASSESSEE IN T HE INSTANT CASE BY PASSING THE BOARD RESOLUTION TO DO TRADING IN SHARE S OF VARIOUS COMPANIES INDICATES CLEARLY THE INTENTION OF THE ASSESSEE TO DO BUSINESS IN SHARES. FURTHER MERELY BECAUSE THE PROFIT ON SALE OF SHARE S WAS ACCEPTED AS CAPITAL GAIN IN THE PRECEDING YEAR WILL NOT ENTIT LE THE ASSESSEE TO CLAIM IT AS SHORT TERM CAPITAL GAIN DURING THE IMPUGNED AS SESSMENT YEAR. IT IS THE SETTLED PROPOSITION OF LAW THAT PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS AND EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT. FURTHER THE AO IN THE ASSESSMENT YEAR 20 05-06 HAS NOT GONE THROUGH THE BOARD RESOLUTION OF THE COMPANY AUTHORI SING IT TO TRADE IN SHARES. IT WAS ONLY DURING THE APPEAL PROCEEDINGS F OR THE ASSESSMENT YEAR 2006-07 THAT THE LD. CIT(A) CALLED FOR THE COP Y OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS AND THE RESOLUTIO NS CAME TO LIGHT. THEREFORE THE ORDER OF THE ASSESSMENT YEAR 2005-06 CANNOT APPLY TO THE ASSESSMENT YEAR 2006-07. THE VARIOUS DECISIONS RELI ED ON BY THE LD. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. AS HAS ALREADY BEEN POIN TED OUT EARLIER WHETHER THE PROFIT ON SALE OF SHARES IS TO BE TREATED AS B USINESS INCOME OR SHORT TERM CAPITAL GAIN DEPENDS ON THE FACTS AND CIRCUMS TANCES OF EACH CASE. IN NONE OF THE CASES CITED BY THE LD. COUNSEL FOR T HE ASSESSEE PROFIT ON SALE AND PURCHASE OF SHARES HAS BEEN TREATED AS SH ORT TERM CAPITAL GAIN DESPITE A RESOLUTION AUTHORISING THE COMPANY TO TRA DE IN SHARES HAS BEEN PASSED. THEREFORE THE DECISIONS RELIED ON BY THE L D. COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE BEING A PRIVATE LIMITED COMPANY HAVING PASSED A RESOLUTION AUTHORISING IT TO TRADE IN SHARES THE P ROFIT ON SUCH PURCHASE AND SALE OF SHARES IN OUR OPINION HAS TO BE TREAT ED AS BUSINESS INCOME. NOTHING MORE IN OUR OPINION IS REQUIRED TO JUSTIF Y THE SAME. IN THIS VIEW ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 11 OF THE MATTER WE UPHOLD THE ORDER OF THE LD. CIT(A) . THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY DISMISSED. 15. THE GROUNDS OF APPEAL NO.4 5 6 AND 7 ARE AS U NDER:- 4. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CON FIRMING THE DISALLOWANCE UNDER SECTION 14A OF `. 4 81 400/- COMPUTED AS PER RULE 8D IN RESPECT OF DIVIDEND INCOME RECEIV ED OF `. 27 53 500/- WHICH WAS EXEMPT UNDER SECTION 10(34) O F THE INCOME-TAX ACT. 5. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THERE WAS NO NEXUS BETWEEN THE EXP ENDITURE DEBITED TO THE P & L ACCOUNT AND THE EXEMPT INCOME. 6. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WERE DAY TO DAY EXPENSES. 7. THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT PROVISIONS OF SECTION 14A (2) AND 14A(3) WERE INSERTED W.E.F. FROM ASSESSMENT YEAR 2007-08AND TH EREFORE WERE NOT APPLICABLE FOR ASSESSMENT YEAR 2006-07. 16. BOTH THE PARTIES FAIRLY AGREED THAT THE ISSUE H AS TO GO BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN THE LIGHT OF T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING COMPANY LTD. VS. DCIT REPORTED IN 328 ITR 81. WE T HEREFORE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE AO F OR FRESH ADJUDICATION AND IN THE LIGHT OF THE DECISIONS OF THE JURISDICTIONAL HIGH COURT CITED (SUPRA). THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO : 903/MUM/2010 M/S. MAFATLAL FABRICS PVT. LTD. 12 17. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 02 ND DAY OF NOVEMBER 2011. SD/ - SD/ - - ( B. R. MITTAL ) ( R. K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DT: 02.11.2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR B - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI