Smt. Sonal D.Vora, Ahmedabad V. The ACIT.,(OSD) Circle-10, Ahmedabad

CO 110/AHD/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7909 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: S N SAPORKAR
• Keywords: Capital asset; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD A BENCH BEFORE: SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 568/AHD/2010, A. Y. 2005-06 WITH C.O.NO.110/AHD/2010 (IN ITA NO.568/AHD/2010) ASST. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-10, AHMEDABAD (REVENUE) V. SMT. SONAL D. VORA 304, ANAND CHAMBERS HIGH COURT RLY CROSSING, NAVRANGPURA, AHMEDABAD PAN-AAOPV7209G (ASSESSEE) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07 WITH C.O.NO.111/AHD/2010 (IN ITA NO.676/AHD/2010) THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-10 AHMEDABAD (REVENUE) V. SHRI DHIRENBHAI HASMUKHLAL VORA 2 ND FLOOR, H.N. HOUSE, NR. HIGH COURT RAILWAY CROSSING, NAVRANGPURA, AHMEDABAD PAN- AAWPV2756N (ASSESSEE) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07 WITH C.O.NO.112/AHD/2010 (IN ITA NO.702/AHD/2010) ASST. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-10, AHMEDABAD (REVENUE) V. SHRI UDAY H. VORA 304, ANAND CHAMBERS, HIGH COURT RLY. CROSSING, NAVRANGPURA, AHMEDABAD (ASSESSEE) WITH I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 2 I.T.A. NO.703/AHD/2010, A. Y. 2006-07 WITH C.O.NO.113/AHD/2010 (IN ITA NO.703/AHD/2010) ASST. COMMISSIONER OF INCOME TAX (OSD), CIRCLE-10, AHMEDABAD (REVENUE) V. SMT. SONAL D. VORA 304, ANAND CHAMBERS HIGH COURT RLY CROSSING, NAVRANGPURA, AHMEDABAD PAN-AAWPV2754Q (ASSESSEE) DEPARTMENT BY : SHRI RAHUL KUMAR, SR. D.R. ASSESSEE BY : SHRI S.N. SAPORKAR, A.R. DATE OF HEARING : 19.09.2012 DATE OF PRONOUNCEMENT : 12.10.2012 / ORDER PER : A.K. GARODIA, ACCOUNTANT MEMBER OUT OF THIS BUNCHES OF EIGHT APPEALS AND CROSS OBJE CTIONS, THERE ARE FOUR APPEALS OF THE REVENUE IN FOUR DIFFERENT CASES AND CORRESPONDING CROSS OBJECTIONS ARE FILED BY THE RESPECTIVE ASSESSEES. ALL THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. IT WAS SUBMITTED BY LD. A.R. OF THE ASSESSEE THA T THE C.O. FILED BY ALL THESE ASSESSEES ARE NOT PRESSED AND ACCORDINGLY, ALL THES E FOUR CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. 3. IT WAS ALSO ARGUED BY BOTH THE SIDES THAT THE IS SUE INVOLVED AND FACTS IN ALL THESE FOUR CASES ARE SIMILAR AND HENCE, THE SAME MA Y BE DECIDED ON THE BASIS OF I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 3 FACTS OF ANY ONE ASSESSEE AND HENCE, WE DECIDE ON THE BASIS OF FACTS IN THE CASE OF SMT. SONAL D. VORA I.E. I.T.A. NO.568/AHD/2010. 4. BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA NO.2 TO 3.5 OF HIS ORDER AND THE SAME ARE REPRODUCED BELOW: - 2. THE EFFECTIVE GROUND OF APPEAL IS THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN TAXING THE INCOME OF RS.1,31,18,755/- AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL| GAIN CLAIMED, BY THE APPELLANT. WITHOUT PREJUDICE THE ASSESSING OFFICER ERRED IN NOT ALLOWI NG CREDIT OF SIT OF RS.74,547/- ADMISSIBLE UNDER THE PROVISIONS OF SEC. 88E. 3. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT F ILED HER RETURN OF INCOME FOR A Y 2005-06 DECLARING TOTAL INCOME AT RS .1,33,15,780/- INCLUDING SHORT TERM CAPITAL GAIN OF RS.1,31,18,755 /- ON SALE OF SHARES & INCOME FROM OTHER SOURCES RS.1,97,298/-. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE AS TO WHY THE INCOME CLAIMED ON SHORT TERM C APITAL GAIN OF RS.1,31,18,755/- SHOULD NOT BE TREATED AS BUSINESS INCOME OF THE APPELLANT AS SHE WAS ENGAGED IN REGULAR BUSINESS OF PURCHASE & SALE OF SHARES & SECURITIES. BEFORE THE ASSESSING OFFICE R THE APPELLANT CONTENDED THAT DURING THE YEAR THE APPELLANT HAD PU RCHASED SHARES PARTLY IN IPO AND PARTLY FROM SECONDARY MARKET AND THAT ALL THE SHARES WERE ACQUIRED, BY THE APPELLANT FOR PURPOSE OF INVE STMENT ONLY. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE PL EA OF-THE APPELLANT ON THE GROUND THAT IN EARLIER YEAR ALSO THE APPELLA TE AUTHORITIES HAVE HELD THAT THE APPELLANT IS IN THE BUSINESS OF PURCH ASE AND SALE OF SHARES, HE THEREFORE ASSESSED THE AMOUNT OF RS.1,31 ,18,755/- UNDER THE HEAD OF BUSINESS INCOME AS AGAINST STCG CLAIMED BY THE APPELLANT. AGAINST THIS ACTION OF THE AO THIS APPEA L IS FILED BY THE APPELLANT BEFORE ME. SHRI ROHIT CHOKSI, CA & SHRI NITIN PARIKH, CA ATTENDED FROM TIME TO TIME AND ALSO FILED WRITTEN S UBMISSIONS. 3.1 THE ASSESSING OFFICER DISCUSSED THE -ISSUE IN D ETAIL IN THE ASSESSMENT ORDER. HE REFERRED TO THE EARLIER ASSESS MENT AND APPELLATE ORDER FROM A Y 2001-02 TO A Y 2004-05. THE APPELLAN T HERSELF HAS STATED IN AY 2001-02 BEFORE THE ASSESSING OFFICER T HAT SHE IS IN THE BUSINESS OF SHARES & SECURITIES AND THE ENTIRE TRAN SACTION WAS CARRIED OUT AS A PART OF HER ROUTINE TRADING ACTIVITY WITH AN INTENTION TO EARN INCOME. SIMILAR ARGUMENT & SUBMISSIONS WERE GIVEN B Y THE APPELLANT BEFORE THE CIT(A). IN THE ASSESSEE'S OWN CASE AND A LSO IN THE CASE OF I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 4 ASSESSEE'S GROUP CASE, BY PASSING A COMMON ORDER, H ON'BLE ITAT DISMISSED THE APPEAL OF THE DEPARTMENT FOR AY 2003- 04 BY OBSERVING AS UNDER :- ONE OF THE ACTIVITIES OUT OF WHICH THE ASSESSEE HA S EARNED INCOME IS SALE AND PURCHASE OF SHARES. THE LOANS HAVE BEEN TA KEN FOR INVESTMENT IN SHARES WHICH HAVE BEEN PURCHASED AND SOLD IN WHICH INCOME HAS BEEN EARNED BY THE ASSESSES WHICH HAS B EEN ASSESSED TO TAX. THE SHARES WHICH HAVE BEEN TRADED IN WERE EITH ER PURCHASED BY THE ASSESSEE FROM THE MARKET OR OBTAINED IN PUBLIC OFFER. FOR PURCHASING THE SHARES AS WELL AS MAKING APPLICATION IN PUBLIC OFFER, THE ASSESSEE HAD OBTAINED LOANS ON WHICH FINANCIAL CHAR GES AND INTEREST HAS BEEN PAID. THE MAIN DISALLOWANCE WHICH IS TER MED AS FINANCIAL CHARGES IS IN RESPECT OF SHARES APPLIED BY THE ASSE SSEE IN PUBLIC OFFER OF SHARES OF UNION BANK OF INDIA. THE OFFER MONEY WAS PAID BY THE ASSESSEES IN AN ARRANGEMENT ENTERED INTO BY HIM WIT H ONE OF THE FINANCIAL CONCERN NAMELY BIRLA GLOBAL FINANCE LTD. HUGE QUANTITY OF SHARES OF UNION BUNK OF INDIA WERE APPLIED BY THE A SSESSEE WITH THE ASSISTANCE OF FUNDS OBTAINED BY HIM FROM THE SAID C OMPANY. THE SHARES APPLIED BY THE ASSESSES WERE TO THE TUNE OF 37 LACS OUT OF WHICH 4,25,500 SHARES WERE ALLOTTED. THE SARES WER E ALLOTTED TO THE ASSESSEE FOR A SUM OF RS.68,08,000/-. THESE SHARES WERE ALLOTTED IN THE MONTH OF SEPTEMBER, 2002. THESE SHARES WERE SOL D IN THE 'LAST WEEK OF DECEMBER, 2002 FOR A SUM OF RS.82,05,581/-, THEREBY RESULTING IN PROFIT OF RS.13,97,581/- WHICH HAS BEE N ASSESSED BY THE A.O IN THE ASSESSMENT ORDER. IN RESPECT OF SUCH FI NANCIAL ARRANGEMENTS ENTERED INTO BY THE ASSESSES WITH BIRL A GLOBAL FINANCE LTD., THE ASSESSEE HAS PAID A SUM OF RS.5,06,238/- OUT OF TOTAL EXPENSES CLAIMED OF RS.5,27,545/-. FOR INVESTING A SUM- OF RS.592/- LACS IN THE SHARE APPLICATION FOR 37 LACS SHARES OF UNION BANK OF INDIA THE ASSESSEE HAS PAID A SUM OF RS.1,48,00,000/- TO SAID BIRLA GLOBAL FINANCE LTD AS 25% AS MARGIN MONEY OF TOTAL APPLICA TION OF RS.592 LACS AND AFTER ADJUSTING THE INTEREST PAYABLE, ON M ARGIN MONEY NET FINANCIAL CHARGES OF RS.5,06,238/- WERE INCURRED. T HE A.O DISALLOWED A SUM OF RS.5,27,545/- ON THE GROUND THAT THE INVESTM ENT OF BORROWED FUNDS WAS MADE BY ASSESSES IN THE SHARES LO EARN DI VIDEND INCOME WHICH WAS EXEMPTED FROM FAX. THEREFORE, IN VIEW OF PROVISIONS OF SECTION I4A, THE DISALLOWANCE WAS MADE. ........... AIL SHE ASSESSEE HAVE OBTAINED FINANCIA L ASSISTANCE FROM SAID BIRLA GLOBAL FINANCE LTD-. FOR MAKING APPLICATION FOR PURCHASE OF SHORES OF UNION BANK OF INDIA AND ON WHICH FINANCIA L CHARGES WERE PAID. THEREFORE, THE DECISION GIVEN IN ITA NO.1806/ AHD/2006, WILL BE APPLICABLE TO ALL OTHER CASES AND FOR THE REASONS D ISCUSSED ABOVE ON THE FACTS IN THE APPEAL IN ITA NO.1806/AHD/2006, IN ALL OTHER CASES THE ORDERS OF CIT(A) ARE UPHELD. I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 5 IN VIEW OF THE ABOVE DISCUSSION, ALL THE APPEAL FIL ED BY REVENUE ARE DISMISSED.' 3.2 SIMILARLY THE AO REFERRED TO THE A Y 2004-05. T HE ACCOUNTS WERE AUDITED U/S. 44AB BECAUSE THE APPELLANT TREATED THE PURCHASE AND SALE OF SHARES AS BUSINESS ACTIVITY. THE METHOD OF VALUATION EMPLOYED BY THE APPELLANT AS PER THE AUDITOR IS 'AT COST OR MARKET VALUER WHICHEVER IS LOWER.' FOR A Y 2004-05 THE APPELLANT FILED THE RETURN TREATING THE INCOME FROM SHARES UNDER BUSINESS HEAD WHICH IS ACCEPTED BY THE DEPARTMENT. IT MAY BE MENTIONED THA T IN OTHER YEARS I.E. A Y 2001-02 TO A Y 2003-04, THOUGH THE APPELLA NT HAS CLAIMED THE INCOME FROM PURCHASE AND SALE OF SHARES UNDER BUSIN ESS INCOME, THE AO TAXED THE SAME UNDER THE HEAD OF CAPITA! GAIN AN D ON APPEAL THE APPELLATE AUTHORITIES ALSO UPHELD THE VIEW OF THE A PPELLANT. 3.3 THE AO FURTHER OBSERVED THAT THERE IS A D IRECT NEXUS BETWEEN THE BORROWED FUNDS AND ITS UTILISATION IN MAKING PA YMENT AS MARGIN MONEY. THE APPELLANT HAS BEEN CARRYING OUT IN A PLA NNED SYSTEMATIC AND AN ORGANIZED MANNER, THE ACTIVITIES OF SALE & P URCHASE OF SHARES. THE OBJECTS OF PURCHASING SHARES WAS TO EARN PROFIT AND NOT TO HOLD THE SHARES AS INVESTMENT. HE FURTHER OBSERVED AS UN DER :- IN THE CASE OF THE ASSESSES, SINCE MANY YEARS, SHE HAS ENGAGED IN BUYING AND SELLING OF SHARES / UNITS. ALSO, IT HA S BEEN VERIFIED FROM THE EARLIER RECORDS THAT THE ASSESSEE HAS SINCE MAN Y YEARS MADE INVESTMENTS FROM BORROWED FUNDS AND THE INTEREST IS PAID ON THESE BORROWINGS WHICH WERE EITHER DEBITED TO THE PROFIT & LOSS ACCOUNT OR CAPITALIZED WITH THE COST OF THE SHARES. TO EVIDENCE THE SAME, A TABLE IS PRODUCED BELOW WHEREIN A DETAILED ANALYSIS OF TH E ASSESSEE'S OWN FUNDS, LOANS TAKEN, INVESTMENTS AND LOANS & ADVANCE S GIVEN IS MADE: A,Y. OPENING CAPITAL LOANS TAKEN INVESTMENT LOANS & ADVANCES 2000-01 5,93,093 89,22,500 18,41,622 43,07,000 2001-02 15,53,212 2,43,73,527 10,95,937 5,32,507 2002-03 11,44,642 37,23,021 11,60,340 36, 13,000 2003-04 11,28, 152 3,45, 12,098 20,85,322 18, 11,000 I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 6 2004-05 44,33,214 3,01,40,000 28,23,364 1, 80,000 2005-06 1,41,85,170 13,06,94,558 1,78,49,614 3,40,20,000 FROM THE ABOVE TABLE, IT IS NOTED THAT SINCE MANY Y EARS, THE TOTAL INVESTMENTS AND LOANS & ADVANCES GIVEN BY THE ASSES SES HAS ALWAYS BEEN IN EXCESS OF ITS OWN FUNDS. ALSO, SINCE THE SA ME PERIOD, THE ASSESSEE HAS BEEN REGULARLY PAYING LARGE SUMS OF IN TEREST AND DEBITING THE SAME TO ITS PROFIT & LOSS ACCOUNT OR C APITALIZING WITH THE COST OF THE SHARES. IT IS ALSO IMPORTANT TO NOTE IN MANY YEARS, THE INTEREST PAID DURING YEARS EXCEEDS THE TOTAL LOAN O UTSTANDING FROM THE LAST DAY OF THE FINANCIAL YEAR THIS CLEARLY INDICAT ES THAT THE INTEREST BEARING LOAN WAS USED BY THE ASSESSES DURING THE YE AR, WAS FAR GREATER THAN WHAT HAS BEEN SHOWN AS OUTSTANDING ON THE LAST DAY OF THE FINANCIAL YEAR. SAME HAS ALSO BEEN MENTIONED BY OF TWO EXAMPLES GIVEN IN PARA 3 ABOVE AND ALSO ACCEPTED BY THE ASSE SSEE HERSELF DURING VARIOUS ASSESSMENT PROCEEDINGS.' 3.4 THE AO THEREFORE HELD THAT THE SHARES ARE HELD AS TRADING ASSETS, THE DOMINANT INTENTION AT THE TIME OF THEIR PURCHAS E IS EFFECTED OUT OF BORROWED FUNDS AND THE MOTIVE IS TO EARN PROFIT. FU RTHER AT PARA 4.13 OF THE ASSTT ORDER HE CONCLUDED AS UNDER:- 'IN THE LIGHT OF THE ABOVE DISCUSSIONS, CASE LAWS, FACTS AND CIRCUMSTANCES, NO OTHER CONCLUSION EXCEPT THAT THES E SHARES WERE PURCHASED AND SOLD BY THE ASSESSEE WITH THE MOTIVE OF EARNING OF PROFIT BY SUCH PURCHASE AND SALES AND NOT WITH THE OBJECT OF INVESTING ITS CAPITAL IN THESE SHARES IN ORDER TO DERIVE INCO ME FROM THAT INVESTMENT, FURTHER, THE VOLUME OF TRANSACTIONS, TH E FREQUENCY OF TRANSACTIONS, THE SYSTEMATIC AND ORGANIZED MANNER O F THE TRANSACTIONS AND THE FACT THAT THE INITIAL INVESTMENTS WERE MADE FROM BORROWED FUNDS-STRONGLY POINT TO THE CONCLUSION THAT THE SHA RES COULD NOT HAVE BEEN PURCHASED AS AN INVESTMENT TO EARN INCOME FROM DIVIDENDS AND THAT THE PURCHASE OF THESE SHARES WERE WITH THE OBJ ECT OF SELLING THEM SUBSEQUENTLY AT A PROFIT. THE SHARES WERE IN FACT S OLD AT CONSIDERABLE PROFITS SUBSEQUENTLY. ALL THESE FACTS LEAD TO THE I NFERENCE THAT THE ASSESSEE'S TRANSACTIONS IN BUYING AND SELLING UNITS /SHARES AMOUNT TO BUSINESS ACTIVITIES WITH THE MOTIVE BEHIND THE TRAN SACTIONS BEING TO EARN PROFITS. THIS CONCLUSION IS ALSO STRONGLY SUPP ORTED BY THE SUPREME COURT IN THE CASE OF DALHOUSIE INVESTMENT T RUST CO. LID. VS. COMMISSIONER OF INCOME-TAX [68 ITR 486] AND STRONG RELIANCE IS PLACED ON THIS DECISION. I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 7 3.5 HE THEREFORE HELD THAT THE APPELLANT IS INTO TH E BUSINESS OF TRADING IN SHARES/UNITS AND HENCE THE PROFIT OF SPECIAL RAT E OF TAXATION @ 10% IS NOT ALLOWED TO THE APPELLANT. THE ENTIRE TRANSA CTION WAS TREATED BY HIM AS BUSINESS INCOME. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO HAS DECIDED THAT TO THE EXTENT, THE SHAR ES WERE PURCHASED BY THE ASSESSEE OUT OF INTEREST BEARING FUNDS, THE SAME SH ALL BE TREATED AS BUSINESS BUT IF THE SHARES ARE PURCHASED OUT OF NON-INTEREST BEA RING FUNDS, THEN AS PER DECISION OF ITAT, MUMBAI AS REPORTED IN 62 ITD 39, THE INCOME IS TAXABLE UNDER THE HEAD CAPITAL GAINS. NOW THE REVENUE IS IN APPE AL BEFORE US. 6. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT IN A.Y. 2003-04, IN ALL THESE VERY C ASES, IT WAS HELD BY THE TRIBUNAL THAT PROFIT ARISING OF PURCHASE AND SALE O F SHARES IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. HE SUBMITTED A COPY OF T HE TRIBUNALS DECISION IN ITA NO.1799, 1800, 1805 & 1806/AHD/2006 DATED 15.07.200 7. LD. D.R. OF THE REVENUE ALSO PLACED RELIANCE ON THE DECISION RENDER ED IN THE CASE OF NAROTTAM SOMANI (HUF) VS. J.C.I.T. 47 SOT 37 (IND). AS AGAIN ST THIS, LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). HE ALS O PLACED RELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. VAIBHAV J SHAH (HUF) IN TAX APPEAL NO.77 & 78 OF 2010 DATED 2 7.06.2012. OUR ATTENTION WAS DRAWN TO PARA 9 OF THE JUDGMENT OF HONBLE GUJA RAT HIGH COURT AND IT WAS POINTED OUT THAT IN THAT CASE, IT IS OBSERVED BY HO NBLE GUJARAT HIGH COURT THAT LD. COUNSEL FOR THE REVENUE, FROM THE RECORDS, COUL D NOT DEMONSTRATE THAT THERE WERE LARGE NUMBER OF TRANSACTIONS WHICH HAVE FREQUE NCY, VOLUME, CONTINUITY AND I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 8 REGULARITY AND FELL WITHIN THE TESTS LAID DOWN BY T HE DIVISION BENCH OF THIS COURT. HE SUBMITTED THAT IN THE PRESENT CASE ALSO, LD. D.R . OF THE REVENUE COULD NOT DEMONSTRATE ANY OF THESE ATTRIBUTES I.E. LARGE NUMB ER OF FREQUENCY, VOLUME, CONTINUITY AND REGULARITY ETC. AND THEREFORE, THE O RDER OF LD. CIT(A) SHOULD BE CONFIRMED. 7. IN THE REJOINDER, LD. D.R. OF THE REVENUE PLACED RELIANCE ON THE DECISION OF TRIBUNAL RENDERED IN THE CASE OF RAKESH J. SANGHVI AS REORTED IN 7 TAXMANN 40 (MUM). HE ALSO SUBMITTED A COPY OF THE BOARD CIRCU LAR NO.4 OF 2007 DATED 15 TH JUNE, 2007 AND PLACED RELIANCE ON THE SAME. HE ALS O PLACED RELIANCE ON THE TRIBUNALS DECISION RENDERED IN THE CASE OF SMT. HA RSHA N. MEHTA VS. D.C.I.T. REPORTED IN 43 SOT 332 (MUMBAI). HE ALSO PLACED RE LIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MNAGALDAS GIRDHARDAS VS. CIT REPORTED IN 197 CTR (GUJ.) 647. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND GONE THROUGH THE ORDER OF AUTHORITIES BELOW AND THE JUDGMENTS CITED BY BOTH SIDES. WE FIND THAT LD. CIT(A) HAS DULY CONSIDERED THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MNA GALDAS GIRDHARDAS (SUPRA) ON WHICH RELIANCE IS PLACED BY LD. D.R. OF THE REVENUE . AFTER CONSIDERING THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, LD. CIT(A) HAS ALSO CONSIDERED THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT RENDERED I N THE CASE OF KUNJILAL GUPTA VS. CIT 52 ITR 27 AND THEREAFTER, THE ISSUE IS DECI DED BY HIM AT PARA 7.4.3 AND 7.4.4 OF HIS ORDER AND FOR THE SAKE OF REFERENCE, T HESE PARAS OF HIS ORDER ARE REPRODUCED BELOW:- I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 9 7.4.3 IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR THAT WHERE THE APPELLANT AND THE DEPARTMENT HAVE TAKEN DIFFERENT S TAND IN DIFFERENT ASSESSMENT YEAR, IT IS THE DUTY OF THE APPELLATE AU THORITIES TO SEE THE REASONS FOR CHANGE IN STAND. MERELY BECAUSE IN EAR LIER YEARS, THE APPELLANT HAS SHOWN INCOME FROM SALE OF SHARES UNDE R THE HEAD OF BUSINESS INCOME DOES NOT NECESSARILY MEANS THAT IN SUBSEQUENT YEAR ALSO THE INCOME ARISING FROM SALE OF SHARES HAS TO BE TAXED UNDER THE SAME HEAD. 7.4.4 IN OTHER WORDS, THE APPELLANT WOULD BE LIABLE TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME IN RESPECT OF THE SH ARES PURCHASED OUT OF INTEREST BEARING FUNDS & IF THE SHARES ARE P URCHASED OUT OF NON INTEREST BEARING FUNDS THEN AS PER THE DECISION OF ITAT, MUMBAI 62 ITD 39 THE INCOME IS TAXABLE UNDER CAPITAL GAINS. IN THE CASE OF THE APPELLANT NUMBER OF SCRIPTS PURCHASED AND SOLD IS O NLY 6 AS MENTIONED ABOVE. THESE SHARES ARE SHOWN IN THE BOOKS AS INVE STMENT AND THE FREQUENCY OF TRANSACTIONS IS VERY LESS. THE APPELL ANT PURCHASED SUCH SHARES WITH THE INTENTION OF INVESTMENT. THE INCOM E ARISING FROM SUCH INVESTMENT IS THEREFORE TO BE TAXED AS INCOME FROM CAPITAL GAINS AND NOT AS BUSINESS INCOME AS HELD BY THE ASSESSING OFF ICER. 9. FROM THE ABOVE PARAS OF THE ORDER OF LD. CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY LD. CIT(A) THAT IN THE PRESENT CASE, NU MBER OF SHARES PURCHASED AND SOLD IS ONLY SIX. WE ALSO FIND THAT THE JUDGMENT O F HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MNAGALDAS GIRDHARDAS ( SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY LD. D.R. OF THE REVENUE HAS ALREADY BEEN CONSIDERED BY LD. CIT(A). NOW, IN VIEW OF THIS FINDING OF LD. CIT(A) THAT THE NUMBER OF SHARES PURCHASED AND SOLD IS ONLY SIX, IN THE PRESENT CASE , WE EXAMINE THE APPLICABILITY OF RECENT JUDGMENT OF HONBLE GUJARAT HIGH COURT RE NDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA) ON WHICH RELIANCE IS PLACED BY LD. A.R. OF THE ASSE SSEE. THE RELEVANT PARA OF THIS JUDGMENT BEING PARA NO.9 IS R EPRODUCED BELOW:- IN VIEW OF THE AFORESAID DECISIONS OF THE APEX COU RT AS WELL AS OF THIS COURT, IT IS CLEAR THAT WHERE NUMBER OF TRANSACTION S OF SALE AND PURCHASE OF SHARES TAKES PLACE, THE MOST IMPORTANT TEST IS THE VOLUME, I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 10 FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE OF THE SHARES. HOWEVER, WHERE THERE IS REPETI TION AND CONTINUITY, COUPLED WITH MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, THEN AN INFE RENCE CAN BE DRAWN THAT ACTIVITY IS IN THE NATURE OF BUSINESS. LEARNE D COUNSEL FOR THE REVENUE FROM THE RECORDS COULD NOT DEMONSTRATE THAT THERE WERE LARGE NUMBER OF TRANSACTIONS WHICH HAD FREQUENCY, VOLUME, CONTINUITY AND REGULARITY AND FELL WITHIN THE TESTS LAID DOWN BY T HE DIVISION BENCH OF THIS COURT. 10. FROM THE ABOVE PARA OF THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, WE FIND THAT HONBLE GUJARAT HIGH COURT HAS DULY CONSI DERED VARIOUS JUDGMENTS OF HONBLE APEX COURT AND OF HONBLE GUJARAT HIGH COUR T AND THEREAFTER, IT WAS HELD THAT WHERE NUMBER OF TRANSACTIONS OF SALE AND PURCH ASE OF SHARES TAKES PLACE, THE MOST IMPORTANT TEST IS THE VOLUME, FREQUENCY, C ONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND IF IT IS FOUND THAT THERE IS REPETITION AND CONTINUITY COUPLED WITH MAGNITUDE OF THE TRANSACTIONS BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, T HEN AN INFERENCE CAN BE DRAWN THAT ACTIVITY IS IN THE NATURE OF BUSINESS. IN THE PRESENT CASE, IT IS NOTED BY LD. CIT(A) ON PAGE NO.10 OF HIS ORDER THAT NUMBER OF TR ANSACTIONS CARRIED BY THE ASSESSEE IN A.Y. 2003-04, 2004-05 AND 2005-06 WERE 9, 5 AND 9 RESPECTIVELY. THIS FACTOR ALONE GOES TO SHOW THAT AS PER RECENT J UDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA), IT CANNOT BE SAID THAT THERE IS REPETITION AND CONTINUITY COUPLED WIT H MAGNITUDE OF TRANSACTIONS, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HO LDING BECAUSE THE NUMBER OF TRANSACTION CARRIED OUT IN THE PRESENT YEAR IS ONLY 9 AND THEREFORE, AS PER THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, THIS INFERE NCE CANNOT BE DRAWN THAT I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 11 ACTIVITY IS IN THE NATURE OF BUSINESS. THEREFORE, AS PER THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, IT HAS TO BE ACCEPTED THAT THE PROFIT ARISING OF PURCHASE AND SALE OF SHARES IN THE PRESENT CASE IS ASSESSABLE UN DER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD INCOME FROM BUSINESS. 11. SINCE, WE ARE FOLLOWING THE RECENT JUDGMENT OF HONBLE GUJARAT HIGH COURT, IN DECIDING THE ISSUE, VARIOUS TRIBUNALS DECISION CITED BY LD. D.R. OF THE REVENUE ARE NOT RELEVANT AND ONLY JUDGMENT OF HONBLE GUJAR AT HIGH COURT CITED BY LD. D.R. OF THE REVENUE WAS DULY CONSIDERED BY LD. CIT( A) AND THIS JUDGMENT IS ALSO OF NO HELP TO THE REVENUE IN THE PRESENT CASE IN VI EW OF SMALL NUMBER OF TRANSACTIONS BEING 9 ONLY IN THE PRESENT CASE. 12. REGARDING THE TRIBUNALS DECISION IN ASSESSEES OWN CASE IN A.Y. 2003-04, WE FIND THAT IN THAT YEAR IT WAS HELD BY THE TRIBUN AL THAT A CONSIDERABLE QUANTITY OF THE SHARES HAVE BEEN PURCHASED AND SOLD AND TOTA L PROFIT EARNED BY THE ASSESSEE BY SALE AND PUPRCHASE OF SHARES WAS AROUND RS.30 LACS AND THE GAIN OF THE ASSESSEE HAS BEEN ASSESSED BY THE A.O. UNDER TH E HEAD INCOME FROM BUSINESS AND THEREFORE, THE INTEREST PAID ON THE AM OUNT BORROWED FOR PURCHASING SHARES HAS TO BE ALLOWED AS INTEREST EXPENDITURE U/ S 36(1)(III). HENCE, IT IS SEEN THAT THE ISSUE IN DISPUTE IN A.Y. 2003-04 WAS REGAR DING ALLOWABILITY OF INTEREST EXPENDITURE U/S 36(1)(III) AND THIS WAS NOT THE DIS PUTE BEFORE THE TRIBUNAL AS TO WHETHER THE PURCHASE AND SALE OF SHARES WAS IN COUR SE OF BUSINESS OR IN COURSE OF INVESTMENT. MOREOVER, THIS CANNOT BE SAID THAT IF AN ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, IT CANNOT HOLD SHARES AS INVESTMENT. WE ALL KNOW THAT A JEWELLER WHO IS DEALING IN JEWEL LERY CAN ALSO HELD JEWELLERY AS I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 12 CAPITAL ASSET AND SIMILARLY A PERSON WHO IS DEALING IN REAL ESTATE CAN ALSO HELD CERTAIN PROPERTY AS INVESTMENT AND THEREFORE, SIMPL Y ON THIS BASIS THAT IN AN EARLIER YEAR OR EVEN IN THE PRESENT YEAR, THE ASSES SEE WAS ENGAGED IN PURCHASE AND SALE OF SHARES, THE ASSESSEE CANNOT HOLD ANY SH ARE AS INVESTMENT. AS PER THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDS (SUPRA) ALSO, THE QUESTION WAS NOT ANSWERED BY HONBLE GUJARAT HIGH COURT AND THE MATTER WAS RESTORED BACK TO THE FILE OF THE TRIBUNAL FOR AFRESH DECISION IN THE LIGHT OF THE OBSERVATION S MADE IN THIS JUDGMENT AND IT WAS ALSO MADE CLEAR THAT THE COURT HAS NOT EXPRESSE D ANY OPINION ON THE MAIN CONTROVERSY BETWEEN THE PARTIES AND IT WOULD BE FOR THE TRIBUNAL TO ADJUDGE ITS DECISION ON THE POINT. HENCE, IT IS SEEN THAT THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT HAD MERELY SUGGESTED CERTAIN TESTS WHICH INCLUDES VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHAS E AND SALES IN THE CASE OF GOODS CONCERNED. HENCE, THESE TESTS ARE IN LINE WI TH THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA) AND SINCE, WE HAVE DECIDED THE ISSUE BY FOLLOWING THIS JUDGMENT O F HONBLE GUJARAT HIGH COURT, THIS EARLIER JUDGMENT OF HONBLE GUJARAT HIGH COURT DOES NOT COME IN WAY OF OUR DECISION BECAUSE THE SAME IS ALSO IN LINE WITH THE SUBSEQUENT DECISION OF HONBLE GUJARAT HIGH COURT. 13. AS PER OUR ABOVE DISCUSSION, BY RESPECTFULLY FO LLOWING THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DEC LINE TO INTERFERE IN THE ORDER OF LD. CIT(A). I.T.A. NO. 568/AHD/2010, A. Y. 2005-06, WITH C.O.NO .110/AHD/2010 (IN ITA NO.568/AHD/2010) WITH I.T.A. NO. 676/AHD/2010, A. Y. 2006-07, WITH C.O.NO .111/AHD/2010 (IN ITA NO.676/AHD/2010) WITH I.T.A. NO.702/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 112/AHD/2010 (IN ITA NO.702/AHD/2010) WITH I.T.A. NO.703/AHD/2010, A. Y. 2006-07, WITH C.O.NO. 113/AHD/2010 (IN ITA NO.703/AHD/2010) 13 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 15. IT WAS AGREED BY BOTH SIDES THAT THE FACTS AND ARGUMENTS IN THE REMAINING THREE APPEALS ARE IDENTICAL AND THE SAME CAN BE DEC IDED ON SIMILAR LINE. SINCE THE APPEAL IN THE CASE OF SMT. SONAL D. VORA HAVE BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE, OTHER THREE APPEALS ARE ALSO DECIDED ON THE SIMILAR LINE I.E. IN FAVOUR OF THE ASSESSEE. 16. IN THE RESULT, ALL THE FOUR APPEALS OF THE REVE NUE AS WELL AS ALL THE FOUR C.O. OF THE ASSESSEES ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 12.10.2012 SD/- SD/- (KUL BHARAT) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *