ACIT 12(3), MUMBAI v. DINESH K. MEHTA (HUF), MUMBAI

ITA 976/MUM/2009 | 2005-2006
Pronouncement Date: 30-04-2010

Appeal Details

RSA Number 97619914 RSA 2009
Assessee PAN AACHD8075J
Bench Mumbai
Appeal Number ITA 976/MUM/2009
Duration Of Justice 1 year(s) 2 month(s) 17 day(s)
Appellant ACIT 12(3), MUMBAI
Respondent DINESH K. MEHTA (HUF), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Department
Bench Allotted D
Date Of Final Hearing 04-03-2010
Next Hearing Date 04-03-2010
Assessment Year 2005-2006
Appeal Filed On 12-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE SHRI N.V. VASUDEVAN (JM) & B. RAMAKOTAIAH (A M) I.T.A.NO. 976/MUM/2009 (ASSESSMENT YEAR : 2005-06 ) ACIT 12(3) ROOM NO. 121 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. SHRI DINESH K. MEHTA HUF 905 DALAMAL TOWERS NARIMAN POINT MUMBAI-400 021. APPELLANT RESPONDENT PAN/GIR NO. : AACHD8075J ASSESSEE BY : SHRI ANANT N.PAI DEPARTMENT BY : SHRI S.K. SINGH ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 28.11.2008 OF LEARNED CIT(A)-XII MUMBAI FOR A.Y. 2 005-06. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLO WS :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A) WAS JUSTIFIED IN TREATING THE TRANSACTIONS I N DERIVATIVES AND FUTURES AS BUSINESS (HEDGING) TRANSACTIONS AND NOT SPECULATIVE TRANSACTIONS AND THEREBY ALLOWING THE LOSS ON ACCOU NT OF THE TRANSACTION IN DERIVATIVES AS BUSINESS LOSS INSTEAD OF SPECULATION LOSS. 3. THE ASSESSEE IS A HUF. IT IS ENGAGED IN THE BUSI NESS OF DEALING IN SHARES AND SECURITIES. IN THE PROFIT AND LOSS ACCOU NT THE ASSESSEE HAD DEBITED LOSS ON ACCOUNT OF NIFTY HEDGING TRANSACTIO NS OF RS. 1 30 41 270/-. GENERALLY IN TRANSACTION OF PURCHA SES IN NIFTY FUTURES WHICH IS A DERIVATIVE INSTRUMENT THERE IS NO ACTUA L DELIVERY OF SHARES. THE TRANSACTION OF PURCHASE AT A PARTICULAR PRICE O N A FUTURE DATE IS ENTERED INTO. ON THE SPECIFIED DATE THE DIFFERENCE BETWEEN THE AGREED PRICE AND PRICE PREVAILING ON THE SPECIFIED DATE IS SETTLED AND THERE IS NO SHRI DINESH K. MEHTA HUF 2 ACTUAL TRANSACTION OF PURCHASE OF THE SECURITY. ON SUCH SETTLEMENT THERE COULD BE A LOSS OR PROFIT. THE ASSESSEE EXPLAINED T HAT THE LOSS HAD OCCURRED ON ACCOUNT OF PURCHASE OF NIFTY FUTURES AN D THESE TRANSACTIONS WERE PURELY HEDGING TRANSACTIONS MEANT TO MINIMIZE THE LOSS DUE TO FLUCTUATION OF PRICE OF SHARES WHICH THE ASSESSEE D OES ON DELIVERY BASIS IN THE USUAL COURSE OF BUSINESS AND HELD BY HIM AS STO CK-IN-TRADE OF HIS BUSINESS. THEY ARE PRIMARILY TO BE REGARDED AS SPEC ULATIVE TRANSACTIONS. LOSS ARISING ON ACCOUNT OF SPECULATIVE TRANSACTIONS CANNOT BE SET OFF AGAINST INCOME FROM REGULAR BUSINESS. SPECULATIVE T RANSACTIONS HAVE BEEN DEFINED IN SECTION 43(5) OF THE ACT TO MEAN TR ANSACTIONS IN WHICH CONTRACT FOR PURCHASE AND SALE OF ANY COMMODITY IN CLUDING STOCKS AND SHARES IS PERIODICALLY OR ULTIMATELY SETTLED OTHER WISE THAN BY ACTUAL DELIVERY OR TRANSFER OF COMMODITY OR SCRIPT. THERE ARE CERTAIN EXCEPTIONS TO THE ABOVE DEFINITION. UNDER CLAUSE (B) OF SECTI ON 43(5) OF THE ACT A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED IN TO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDI NGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS SHALL NOT BE DEEM ED TO BE SPECULATIVE TRANSACTIONS. 4. ACCORDING TO THE ASSESSING OFFICER TRANSACTION OF DERIVATIVES TRADING IN THE FORM OF PURCHASE OF NIFTY FUTURES WAS IN THE NATURE OF SPECULATIVE TRANSACTION. IN THIS REGARD THE ASSESSING OFFICER C ALLED FOR THE DETAILS OF TRANSACTIONS OF PURCHASE OF NIFTY FUTURES WHICH RE SULTED IN THE LOSS DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDING T O THE ASSESSING OFFICER TO FALL UNDER EXCEPTION UNDER SECTION 43(5)(B) OF T HE ACT HEDGING TRANSACTIONS SHOULD BE EQUAL TO THE INVENTORY OF TH E SHARES HELD BY THE ASSESSEE IN ITS BUSINESS OF DEALING IN SHARES AND S ECURITIES AND ONLY TO THIS EXTENT TRANSACTIONS CAN BE SAID TO BE HEDGING TRANSACTION WHICH FALL WITHIN EXCEPTION. THE ASSESSING OFFICER NOTICED THA T ON THE DATE ON WHICH THE ASSESSEE ENTERED INTO TRANSACTIONS OF PURCHASE OF NIFTY FUTURES POSITION OF INVENTORY OF SHARES HELD BY THE ASSESSE E ON THAT PARTICULAR DAY WAS LESS THAN THE VALUE OF PURCHASE OF NIFTY FU TURES. IN THIS REGARD ASSESSING OFFICER HAS ANALYZED 38 TRANSACTIONS GIVE N BY THE ASSESSEE. SHRI DINESH K. MEHTA HUF 3 THE ASSESSING OFFICER THEREAFTER REFERRED TO CIRCUL AR NO. 23 DATED 12.9.1960; WHEREIN CBDT HAD CLARIFIED AS FOLLOWS :- HEDGING SALES CAN BE TAKEN TO BE GENUINE ONLY TO T HE EXTENT THE TOTAL OF SUCH TRANSACTIONS DOES NOT EXCEED THE READ Y STOCK. HEDGING CONTRACT IS A CONTRACT WHERE THE PERSON DEA LING WITH THE ACTUAL COMMODITY ENSURES HIMSELF AGAINST THE ADVERS E PRICE FLUCTUATIONS IN THAT COMMODITY IN FUTURE. THE TRANS ACTION IN THE FUTURE MARKET CORRESPONDS TO AN EARLIER TRANSACTION IN THE READY MARKET. THE FUTURE TRANSACTION IS BASICALLY TO OFF- SET ANY LOSS THAT MAY ARISE ON THE EARLIER TRANSACTION. THE ASSESSING OFFICER THEREAFTER REFERRED TO CERTAI N JUDICIAL PRONOUNCEMENTS IN THE CASE OF M.G. BROTHERS VS. CIT 154 ITR 695 (AP); PANKAJ OIL MILLS VS. CIT 115 ITR 824 (GUJ). THE AS SESSING OFFICER THEREAFTER CULLED OUT FOLLOWING PRINCIPLES :- THUS THE BASIC PRINCIPLES WHICH EMERGE FROM THE AB OVE CASE LAWS ARE FOLLOWS :- (I) THE TEST OF WHETHER A FUTURES TRANSACTION IS FOR HE DGING OR FOR SPECULATION HINGES ON WHETHER THERE ALREADY EXI STS A RELATED COMMERCIAL POSITION WHICH IS EXPOSED TO RIS K OF LOSS DUE TO PRICE FLUCTUATION. HEDGING CAN BE TAKEN TO B E GENUINE ONLY TO THE EXTENT THE TOTAL OF SUCH TRANSA CTIONS DOES NOT EXCEED THE READY STOCK. (II) IN THE CASE OF PURE SPECULATOR AS DISTINGUISHED FR OM A HEDGER FUTURES TRANSACTION IS A BUSINESS BY ITSELF AS HE HAS NO OFF-SETTING COMMERCIAL POSITION. THE ASSESSE E WOULD BEAR THE ONUS TO PROVE THAT THE FORWARD CONTRACT OF PURCHASE ENTERED INTO BY IT WAS TO SAFEGUARD IT AGA INST THE LOSS THROUGH FUTURE PRICE FLUCTUATIONS IN RESPECT O F ANY SPECIFIC CONTRACTS OF SALE FOR ACTUAL DELIVERY OF S HARES. (III) THE BASIC MATERIAL REQUIRED TO IDENTIFY HEDGE WOULD BE AS UNDER :- (A) DETAILS OF ORIGINAL POSITION AND DETAILS OF DELIVER Y AND PAYMENT FOR ORIGINAL POSITION. (B) DETAILS OF THE HEDGING TRANSACTION (C) DETAILS OF THE FINAL SETTLEMENT OF THE TRANSACTION. ANALYSIS OF ASSESSEES ARGUMENTS AND CONCLUSION : IN VIEW OF THE PRINCIPLES WHICH EMERGE FROM DISCUSS ION OF THE ABOVE JUDICIAL PRECEDENTS IT IS CLEAR THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE TRANSACTION IS NOT SPECU LATIVE AND IT IS SHRI DINESH K. MEHTA HUF 4 A HEDGING TRANSACTION. IN DISCHARGE OF THIS ONUS T HE ASSESSEE HAS ALSO TO PROVE THAT HE HAS IN HIS STOCK IN TRADE SHA RES WHICH REQUIRED TO BE HEDGED BY TAKING POSITION IN THE FUT URES MARKET. TO DO THIS THE ASSESSEE HAS TO PROVE AT LEAST THAT TH E TOTAL VALUE OF HIS STOCK EXCEEDS THE MONEY INVESTED IN PURCHASE OF NIFTY FUTURES. HOWEVER IN THE CASE OF THE ASSESSEE AS CAN BE SEE N FROM THE TABLE ON PAGE NO. 2 TO 4 OF THIS ORDER THE POSITIO N OF INVENTORY AND THE AMOUNT OF MONEY INVESTED IN PURCHASE OF NIF TY FUTURES ON THAT PARTICULAR DAY DO NOT BEAR REQUIRED RELATION. 5. THE ASSESSING OFFICER THEREAFTER EXAMINED THE I NVENTORY POSITION OF THE ASSESSEE ON VARIOUS DATES ON WHICH THE ASSESSEE ENTERED INTO TRANSACTION OF PURCHASE OF NIFTY FUTURES. WHEREVER THE VALUE OF PURCHASES OF NIFTY FUTURES WERE MORE THAN THE VALUE OF INVENTORY THEY WERE TREATED AS SPECULATIVE TRANSACTIONS. FOR EXAMP LE ON 17.6.2004 THE VALUE OF INVENTORY WAS RS. 38.18 LAKHS. THE VALUE O F NIFTY PURCHASES WERE RS. 1.49 CRORES. THE LOSS ON THIS TRANSACTION OF PURCHASE OF NIFTY FUTURES ON SETTLEMENT WAS TREATED AS SPECULATION LO SS BY THE ASSESSING OFFICER AND DISALLOWED. ON THE ABOVE BASIS AND ANAL YSIS OF TRANSACTIONS THE ASSESSING OFFICER ARRIVED AT A SUM OF RS. 98 66 738/- AS THE LOSS ON ACCOUNT OF SPECULATIVE TRANSACTIONS AND THIS LOSS W AS NOT ALLOWED AS A DEDUCTION. IN RESPECT OF THE REMAINING LOSS THE ASS ESSING OFFICER FOUND THAT THE VALUE OF STOCK WAS MORE THAN THE VALUE OF PURCHASE OF NIFTY FUTURES AND THESE TRANSACTIONS WERE ACCEPTED BY THE ASSESSING OFFICER AS HEDGING TRANSACTIONS AND LOSS TO THAT EXTENT WAS AL LOWED AS DEDUCTION. 6. BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESS EE SUBMITTED THAT UNDER THE ASSESSEE SUBMITTED THAT UNDER SECTION 43( 5) CLAUSE (D) WHICH WAS INTRODUCED W.E.F. 1.4.2006 IT HAS BEEN SPECIFI CALLY LAID DOWN THAT ELIGIBLE TRANSACTION IN RESPECT OF TRADING IN DERIV ATIVES ARE NOT TO BE REGARDED AS SPECULATIVE TRANSACTION. THE ASSESSEE F URTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CIT VS. SSKI INVESTORS PVT. LTD. HAD TAKEN THE VIEW THAT THE AFORESAID AME NDMENT WAS CLARIFICATORY AND WAS THEREFORE APPLICABLE RETROSPE CTIVELY. THE ASSESSEE SUBMITTED BEFORE LEARNED CIT(A) THAT IN VIEW OF THE AFORESAID DECISION LOSS IN QUESTION CANNOT BE CONSIDERED AS SPECULATIV E LOSS AND THEREFORE SHRI DINESH K. MEHTA HUF 5 ASSESSEE SHOULD BE ALLOWED TO SET OFF THE SAID LOSS AGAINST BUSINESS INCOME. LEARNED CIT(A) ACCEPTED THIS SUBMISSION OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO TREAT THE LOSS IN QUESTION AS BUSINESS LOSS AND NOT SPECULATIVE LOSS. AGGRIEVED BY THE A FORESAID ORDER OF LEARNED CIT(A) THE REVENUE HAS RAISED GROUND NO. 1 BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BR OUGHT TO OUR NOTICE THAT SPECIAL BENCH KOLKATA IN THE CASE OF SHREE CAP ITAL SERVICES LTD. 121 ITD 498 (KOL) HELD THAT AMENDMENT REFERRED TO I N THE EARLIER PARA TO SECTION 43(5) IS NOT CLARIFICATORY AND THEREFORE NO T RETROSPECTIVE IN OPERATION. IN VIEW OF THE AFORESAID DECISION THE V ERY SAME BASIS ON WHICH LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSE SSEE DOES NOT SURVIVE. LEARNED COUNSEL FOR THE ASSESSEE HOWEVER SUBMITTE D UNDER CLAUSE (B) TO SECTION 43(5) ASSESSEES TRANSACTION OUGHT TO BE CONSIDERED AS A HEDGING TRANSACTIONS. IN THIS REGARD IT WAS SUBMIT TED BY LEARNED COUNSEL FOR THE ASSESSEE THAT CLAUSE (B) TO SECTION 43(5) D OES NOT LAY DOWN THAT THE HEDGING TRANSACTION SHOULD BE IN THE VERY SAME STOCK AND SHARES HELD BY THE ASSESSEE AS INVENTORY OR THAT THE VALUE OF HEDGING TRANSACTIONS SHOULD BE EQUAL TO OR LESS THAN THE VA LUE OF INVENTORY HELD BY THE ASSESSEE AS A DEALER IN SHARES. IT WAS FURTH ER SUBMITTED BY HIM THAT IN PURCHASE OF NIFTY FUTURES OR FOR THAT MATT ER ANY FORM OF DERIVATIVE TRADING IT IS NOT POSSIBLE TO LINK DERIVATIVES WI TH ANY PARTICULAR SCRIPT AS THE UNDERLYING ASSET IS BASKET OF SHARES COMPRISING OF SEVERAL COMPANIES. IT WAS FURTHER SUBMITTED THAT CIRCULAR OF CBDT REFE RRED TO BY THE ASSESSING OFFICER IS APPLICABLE ONLY IN THE CONTEXT OF COMMODITIES AND NOT SHARES. 8. WE HAVE CONSIDERED HIS SUBMISSIONS. CIRCULAR OF CBDT DATED 12.9.1960 GIVES A GENERAL GUIDELINE WITH REGARD TO DIFFERENT KIND OF SPECULATIVE TRANSACTIONS. POINT NO. 4 OF THE AFORE SAID CIRCULAR DEALS WITH HEDGING TRANSACTION IN THE CASE OF DEALER OR INVEST OR IN SHARES. THE SAME IS AS FOLLOWS :- (IT IS IN THE FORM OF QUESTION AND ANSWER) SHRI DINESH K. MEHTA HUF 6 POINT NO. (IV) : BONAFIDE HEDGING TRANSACTIONS BY A DEALER OR INVESTOR IN SHARES SHOULD BE ALLOWED PROVIDED THAT THE HEDGING TRANSACTIONS ARE UP TO THE AMOUNT OF HIS HOLDINGS E VEN THOUGH THESE TRANSACTIONS MAY EXTEND TO OTHER TYPES OF SHA RES NOT HELD BY HIM. BOARDS DECISION : THE BOARD ARE UNABLE TO ACCEPT T HIS SUGGESTION. IT CANNOT BE ACCEPTED THAT A DEALER OR INVESTOR IN STOCKS OR SHARES CAN ENTER INTO HEDGING TRANSACTIONS IN SCRIPT OUTSI DE HIS HOLDINGS. THE MATERIAL WORDS IN CLAUSE (C) OF THE PROVISO TO EXPLANATION 2 TO SECTION 24(1) ARE TO GUARD AGAINST LESS IN HIS HOL DINGS OF STOCK AND SHARES THROUGH PRICE FLUCTUATIONS. THEREFORE HEDG ING TRANSACTIONS HAVING REASONABLE RELATIONS TO THE VAL UE AND VOLUME OF THE DEALERS OR THE INVESTORS HOLDINGS ARE EXCE PTED FROM THE AMBIT OF SPECULATIVE TRANSACTIONS BUT TRANSACTIONS IN SCRIPT OUTSIDE HIS HOLDINGS ARE NOT. IT IS THUS CLEAR THAT THE VALUE AND VOLUME OF A DEA LER OR INVESTOR HOLDING HEDGING TRANSACTIONS SHOULD BE IN EQUAL PROPORTION AND HEDGING TRANSACTIONS CAN NEVER BE IN EXCESS. IT IS FURTHER A CONDITION THAT HEDGING TRANSACTION SHOULD BE IN RESPECT OF VERY SAME SCRIP T HELD BY AN ASSESSEE AS INVENTORY IN THE BUSINESS OF STOCKS AND SHARES. IN THE PRESENT CASE THE ASSESSING OFFICER HAS NOT GONE BY SCRIPT-WISE T ALLY BUT HAS GONE BY VALUE OF OVERALL INVENTORY. TO THIS EXTENT THE ASS ESSING OFFICER HAS BEEN VERY REASONABLE. WE THEREFORE HOLD THAT CIRCULAR W AS VERY MUCH RELEVANT AND APPLICABLE IN THE CASE OF THE ASSESSEE. 9. WE ARE ALSO OF THE VIEW THAT UNDER CLAUSE (B) O F SECTION 43(5) THE ASSESSEE IN THE GARB OF ENTERING HEDGING TRANSACTIO N CANNOT SEEK TO ENTER INTO SPECULATIVE TRANSACTION IN ANY STOCKS OR SHARE S OTHER THAN BY ONE HELD BY HIM AS INVENTORY IN THE BUSINESS OF DEALING IN STOCKS AND SHARES. VALUE OF HEDGING TRANSACTIONS CANNOT ALSO BE MORE T HAN SUCH INVENTORY. IF ARGUMENTS SOUGHT TO BE CANVASSED BY THE ASSESSEE IS ACCEPTED THEN IT WILL LEAD TO A SITUATION WHERE ALL SPECULATIVE TRAN SACTIONS WILL BE CLAIMED AS HEDGING TRANSACTIONS AND VERY PURPOSE BEHIND THE PROVISIONS OF SECTION 73 OF THE ACT NOT PERMITTING SET OFF OF SPE CULATIVE LOSS AGAINST BUSINESS INCOME WILL BECOME REDUNDANT. THERE IS NO DOUBT TRUTH IN THE PLEA OF THE ASSESSEE THAT NIFTY FUTURES AND INDEX F UTURES ARE THE ONLY SHRI DINESH K. MEHTA HUF 7 AVAILABLE FORM OF DERIVATIVES TRADING THROUGH WHICH THE ASSESSEE COULD HEDGE THE VALUE OF INVENTORY HELD BY HIM. IN SUCH T RADING THERE CANNOT BE ANY IDENTIFICATION OF SHARES AND TALLY THE SAME WITH THE INVENTORY OF SHARES HELD. THIS ASPECT HAS BEEN TAKEN CARE BY TH E INTRODUCTION OF CLAUSE (D) OF SECTION 43(5) OF THE ACT; THEREFORE FROM A.Y. 2006-07 THE ASSESSEE MAY NOT FACE THIS DIFFICULTY. BUT IN A.Y. 2005-06 AS PER THE LAW AS IT STANDS THE CLAIM OF THE ASSESSEE CANNOT BE A CCEPTED. WE THEREFORE REVERSE THE ORDER OF CIT(A) AND RESTORE THE ORDER O F THE ASSESSING OFFICER ON THIS ISSUE. 10. LEARNED COUNSEL FOR THE ASSESSEE HOWEVER SUBM ITTED THAT THE BOARD CIRCULAR ITSELF SAYS THAT ONLY EXCESS OF THE ASSESSEES POSITION IN FORWARD MARKET OVER ACTUAL STOCK HELD IN READY MARK ET SHOULD BE CONSIDERED AS SPECULATIVE. FOR E.G. ON 17.6.2004 T HE INVENTORY OF STOCK HELD BY THE ASSESSEE WAS RS. 36.18 LAKHS AND PURCHA SES IN NIFTY FUTURES WAS RS. 1.49 CRORES. IN NIFTY FUTURES PURCHASE IF T HE ASSESSEE INCURS LOSS ON THE SETTLEMENT DAY THE LOSS PROPORTIONATE TO TH E VALUE OF INVENTORY I.E. RS. 36.18 LAKHS SHOULD NOT BE CONSIDERED AS SPECULA TIVE LOSS. TO THAT EXTENT THE LOSS SHOULD BE CONSIDERED AS HEDGING TR ANSACTION. WE HAVE ALREADY OBSERVED THAT THE SHARES HELD AS INVENTORY AND THE SHARES IN WHICH HEDGING TRANSACTIONS ARE ENTERED INTO SHOULD BE THE SAME. THE ASSESSING OFFICER HAS HOWEVER GONE BY OVERALL VALUE OF INVENTORY WITHOUT INDIVIDUAL SCRIPT WISE TALLY. THE PLEA OF THE ASSES SEE THAT TO THE EXTENT OF THE VALUE OF INVENTORY HELD BY THE ASSESSEE ON A PA RTICULAR DAY THE LOSS IN PURCHASE OF NIFTY FUTURES SHOULD NOT BE CONSIDER ED AS SPECULATIVE WHILE WORKING OUT THE LOSS IS AN ACCEPTABLE PLEA. T O THIS EXTENT PLEA OF THE ASSESSEE IS ACCEPTED AND THE ASSESSING OFFICER IS DIRECTED TO WORK OUT SPECULATION LOSS BY TAKING EXCESS OF THE ASSESSEES POSITION IN FORWARD MARKET OVER ACTUAL STOCK IN READY MARKET AND WORK O UT THE SPECULATIVE LOSS PROPORTIONATELY. THUS GROUND NO. 1 OF THE REV ENUE IS PARTLY ALLOWED. 11. GROUND NO. 2 RAISED BY THE REVENUE READS AS FOL LOWS :- SHRI DINESH K. MEHTA HUF 8 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW LEARNED CIT(A) WAS JUSTIFIED IN REVERSING THE ACTION OF THE ASSESSING OFFICER OF TREATMENT OF THE SHORT TERM CAPITAL GAINS OF RS. 16 02 739/- AS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSIN ESS AND PROFESSION. 12. THE ASSESSEE DECLARED SHORT TERM CAPITAL GAINS OF RS. 16 02 739/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE T HE ASSESSEE WAS DEALER IN SHARES AND WAS HAVING HUGE VOLUME OF SHARE TRANS ACTIONS IN SUCH BUSINESS IT WAS HARD TO BELIEVE THAT THE ASSESSEE HELD SHARES AS INVESTMENT ALSO THE ASSESSING OFFICER THEREFORE TR EATED THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE ALSO AS INCOM E FROM BUSINESS. 13. ON APPEAL BY THE ASSESSEE LEARNED CIT(A) HELD THAT GAIN IN QUESTION WAS CAPITAL GAIN AND NOT BUSINESS INCOME F OR THE FOLLOWING REASONS :- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE F OR THE APPELLANT AND THE ASSESSMENT ORDER. IT IS TRUE THAT WHEN A DEALER IN SHARES HOLDS SHARES THE FIRST PRESUMPTION WOULD BE THAT THE SHARES HELD BY HIM CONSTITUTE STOCK IN TRADE. BUT AT THE SAME TIME IT IS NOT IMPOSSIBLE THAT THERE CANNOT BE A S ITUATION IN WHICH THE ASSESSEE WHO IS DEALER IN SHARES ALSO HOLD SOM E SHARES AS INVESTMENT. THIS PROPOSITION IS SUPPORTED BY THE DE CISION OF MUMBAI TRIBUNAL IN THE CASE OF J.M. SHARE AND STOCK BROKERS LTD. RELIED BY THE APPELLANT. AS SUCH I AM NOT I NCLINED TO ACCEPT THE ASSESSING OFFICERS LINE OF REASONING THAT A DE ALER IN SHARES CANNOT HOLD SHARES AS INVESTMENTS. IN FACT THE VER Y DECISION RELIED BY THE ASSESSING OFFICER IN MOTILAL OSWAL HAS BEEN REVERSED BY THE SAME TRIBUNAL ON REHEARING. THE FRESH DECISION ON R EHEARING SUPPORTS THE APPELLANTS CASE. AN ASSESSEE WHO IS A DEALER IN SHARES CAN ALSO HOLD SHARES IN INVESTMENT PORTFOLIO BY DEMARCATING THE SAME IN HIS BOOKS OF ACCOUNTS HAS A LSO BEEN UPHELD BY THE DELHI TRIBUNAL IN THE CASE OF ARJUN K APUR VS. DCIT 70 ITD 161 (DEL) AND THE CHANDIGARH TRIBUNAL IN VES TA INVESTMENTS & TRADING CO. P. LTD. VS. CIT 70 ITD 2 00 (CHD). THE ONUS WILL BE OF COURSE ON THE ASSESSEE TO SHOW THAT THE SHARES HAVE BEEN CORRECTLY SO HELD AS INVESTMENTS NOTWITHS TANDING THE FACT THAT HE IS A TRADER IN SHARES. IN MY VIEW THE MANNER IN WHICH THE ASSESSEE HOLDS THE SHARES WILL DETERMINE WHETHE R THE SHARES ARE INVESTMENT OR STOCK IN TRADE. GENERALLY IF THE VOLUME AND FREQUENCY IN DEALING IN SHARES IS LARGE THE PERIOD OF HOLDING IS LOW THE CONDUCT OF THE ASSESSEE SHOULD POINT TOWAR DS THAT OF A TRADER. IF THIS ALSO COUPLED WITH THE USE OF BORROW ED CAPITAL THE SHRI DINESH K. MEHTA HUF 9 PRESUMPTION IN FAVOUR OF TRADING WOULD BE STRENGTHE NED. THE MANNER IN WHICH THE TRANSACTIONS ARE ACCOUNTED WHET HER A TRADING TRANSACTION OR AS INVESTMENT WOULD ALSO BE A RELEVANT INDICATOR AS THIS WOULD MANIFEST THE INTENTION OF T HE ASSESSEE IN DEALING WITH THE SHARES. THE ROLE OF THE ASSESSEE A S AN INVESTOR SHOULD BE MORE PASSIVE IN COMPARISON TO THAT OF A D EALER WHOSE ROLE WOULD BE AGGRESSIVE. THE WORDS PASSIVE MEANS THAT THE ROLE OF THE INVESTOR WOULD BE LESS IN FREQUENCY AND VOLU ME MORE USE OF OWN CAPITAL AND LARGER PERIOD OF HOLDING. IN SHORT IT IS THE CONDUCT OF THE ASSESSEE THAT SHOULD BE THE DETERMINING FACT OR. IN THE ASSESSEES CASE ITS ALLOCATION OF SHARES AS STOCK IN TRADE AND INVESTMENT APPEARS TO BE JUSTIFIED BY ITS MANNER IN DEALING WITH THE SHARES. WHEREAS THE SHARES INVOLVED IN HIGH FRE QUENCY IN DEALING LARGE VOLUMES ETC. HAVE BEEN TREATED AS STO CK IN TRADE THE ONES IN WHICH THE PERIOD OF HOLDING IS LARGER AND V OLUME OF HOLDING IS SMALL HAS BEEN DEMARCATED AS INVESTMENTS. THIS M ETHOD OF ACCOUNTING HAS BEEN FOLLOWED CONSISTENTLY BY THE AS SESSEE AND THIS LENDS CREDIBILITY TO THE ASSESSEES ALLOCATION OF SHARES AS INVESTMENTS AND STOCK IN TRADE. THE SUPREME COURT I N ITS DECISION IN THE CASE OF KARAM CHAND THAPAR BROS. P. LTD. VS. CIT 82 ITR 899 (SC) HAS OBSERVED THAT THE CIRCUMSTANCES THAT T HE ASSESSEE HAS SHOWN PARTICULAR SHARES IN ITS BOOKS AS WELL AS BALANCE SHEET AS INVESTMENTS IS A RELEVANT FACTOR IN DECIDING WHE THER THE SHARES ARE INVESTMENT OR STOCK IN TRADE. THE ASSESSEE HAS REASONABLY DISCHARGED ITS ONUS OF SHOWING THAT IT IS IN DUAL R OLE OF BOTH INVESTOR AND DEALERS OF SHARES BY COGENT EVIDENCE A ND REASONING. THE ASSESSING OFFICER IS THEREFORE DIRECTED TO TREA T THE INCOME OF RS. 16 02 739/- AS INCOME FROM SHORT TERM CAPITAL G AINS AND NOT AS BUSINESS INCOME. THIS GROUND OF APPEAL IS ALLOWE D. 14. BEFORE US LEARNED DR RELIED ON THE ORDER OF TH E ASSESSING OFFICER. 15. WE ARE OF THE VIEW THAT THE ORDER OF LEARNED CI T(A) DOES NOT CALL FOR ANY INTERFERENCE. ADMITTEDLY THE ASSESSEE HAD TRE ATED THE SHARES IN QUESTION AS INVESTMENT IN HIS BOOKS OF ACCOUNTS. I N FACT IN A.Y. 2004- 05 THE ASSESSEE HAD DECLARED SHORT TERM CAPITAL GA IN ON SALE OF INVESTMENTS (SHARES HELD AS INVESTMENT) THE SAME WA S ACCEPTED BY THE ASSESSING OFFICER IN ASSESSMENT U/S. 143(3) OF THE ACT. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PURO HIT ITA NO. 1121 OF 2009 DATED 6.1.2010 HAS HELD THAT RULING OF CONSIST ENCY SHOULD APPLY WHEN THE FACTS ARE IDENTICAL. IN VIEW OF THE ACCEPT ANCE OF THE ASSESSEES STAND BY THE REVENUE IN THE PAST AND OTHER CIRCUMST ANCES CONSIDERED BY THE LEARNED CIT(A) WE SEE NO REASON WHY A DIFFEREN T TREATMENT SHOULD BE SHRI DINESH K. MEHTA HUF 10 GIVEN IN THE PRESENT ASSESSMENT YEAR. FOR THE REASO NS GIVEN ABOVE WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS GROU ND NO. 2 RAISED BY THE REVENUE. 16. IN THE RESULT APPEAL BY THE REVENUE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 30 TH DAY OF APRIL 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 30 TH APRIL 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS