DATTA MAHENDRA SHAH, MUMBAI V. ACIT 16(3), MUMBAI

CO 155/MUM/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8388 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 20-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS RUPINDER BRAR
• Keywords: Business income; Speculation loss; Speculative transactions
• Section: 45(2); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 6094/MUM/2011 (ASSESSMENT YEAR: 2008-09) A C I T 16(3) VS. SMT. DATTA MAHENDRA SHAH MATRU MANDIR, 2 ND FLOOR 303, SHIRIN APARTMENT, 3 RD FLOOR ROOM NO. 206, TARDEO ROAD OPP. GANGA JAMUNA CINEMA MUMBAI 400007 211-219 TARDEO ROAD MUMBAI 400007 PAN AAQPS 4007 F APPELLANT RESPONDENT CO NO. 155/M/2012 (ASSESSMENT YEAR: 2008-09) SMT. DATTA MAHENDRA SHAH VS. A C I T 16(3) 303, SHIRIN APARTMENT, 3 RD FLOOR MATRU MANDIR, 2 ND FLOOR OPP. GANGA JAMUNA CINEMA ROOM NO. 206, TARDEO ROAD 211-219 TARDEO ROAD MUMBAI 400007 MUMBAI 400007 PAN AAQPS 4007 F CROSS OBJECTOR APPELLANT IN APPEAL REVENUE BY: MRS. RUPINDER BRAR ASSESSEE BY: SHRI PRADIP KAPASI DATE OF HEARING: 20.02.2013 DATE OF PRONOUNCEMENT: 27.02.2013 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF T HE CIT(A)-27, MUMBAI DATED 27.05.2011 ON THE ISSUE WHETHER GAINS SHOWN BY THE ASSESSEE UNDER THE SHORT TERM CAPITAL GAINS CAN BE TREATED UNDER THE HEAD BUSINESS INCOME. THE CROSS OBJECTION IS ON ALTERN ATE CONTENTION BY THE ASSESSEE THAT IN CASE THE INCOME TO BE CONSIDERED A S BUSINESS INCOME, THERE SHOULD BE A P & L ACCOUNT, ALLOWANCE OF FALL IN MAR KET VALUE OF SHARES AS DEDUCTION AND CLAIM OF S.T.T. WHICH MAY ARISE IF TH E INCOMES ARE CONSIDERED ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 2 AS BUSINESS INCOME. THE CROSS OBJECTION WAS FILED W ITH A DELAY OF SIX DAYS AND CONSIDERING THE PRAYER, THE DELAY IS CONDONED A ND THE CROSS OBJECTION IS ADMITTED. 2. BRIEFLY STATED, THE ASSESSEE IS A SENIOR CITIZEN IN DIVIDUAL HAVING COME MAINLY FROM CAPITAL GAINS, SMALL AMOUNT OF BUSINESS INCOME AND INCOME FROM OTHER SOURCES. THE INCOME FROM CAPITAL GAIN EA RNED BY THE ASSESSEE CONSISTS OF LONG TERM CAPITAL GAIN AS WELL THE SHOR T TERM CAPITAL GAINS ON SALE OF SHARES AS UNDER: - I. LONG TERM CAPITAL GAIN ` 1,73,43,980/- (EXEMPT U/S. 10(38) OF INCOME TAX ACT) II. SHORT TERM CAPITAL GAIN ` 9,24,38,619/- THE AO HAS TAXED SHORT TERM CAPITA GAIN OF ` 9,24,38,619/- AS BUSINESS INCOME AND ACCORDINGLY LEVIED TAX ON THE SAME AT NO RMAL RATE. 3. THE REASONS FOR CONSIDERING THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME BY THE AO ARE AS UNDER: - A) THE ASSESSEE DEALT WITH MORE THAN 60 COMPANIES DURI NG THE YEAR. B) HOLDING PERIOD OF SHARES IS LESS THAN 30 DAYS IN MO RE THAN 30% CASES. C) OF THE TRANSACTIONS INVOLVING 1 / 5 TH OF THE TURNOVER WAS DONE IN ONE MONTH ONLY. D) THERE ARE FIVE SPECULATIVE TRANSACTIONS AND THE ASS ESSEE FILED 3CD REPORT ACCEPTING THE NATURE OF TRANSACTIONS AS TRA DING IN SHARES. E) THE ASSESSEE IS A DIRECTOR IN M/S. JAYANAND SECURIT IES LTD. WHICH IS ENGAGED IN SHARE BUSINESS. F) DIVIDEND INCOME IS VERY SMALL COMPARED TO GAINS EAR NED. THE AO HELD THAT ASSESSEE IS A DEALER IN S HARES AND IS ENGAGED IN THE SAID ACTIVITY ON CONTINUOUS AND REGULAR BASIS IN A SYSTEMATIC MANNER AND SHE IS SATISFYING ALL INGREDIENTS OF CARRYING OUT B USINESS ACTIVITY. 4. THE ASSESSEE FILED DETAILED NOTES ON EACH OF THE IS SUE RAISED BY THE AO AND ALSO HOW SHE IS COVERED BY THE BOARD CIRCULAR B Y FURNISHING THE DETAILS AND PAST RECORDS AND MAKING DETAILED SUBMISSIONS OF THE ISSUE. ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 3 5. THE CIT(A) AFTER CONSIDERING THE FACTS AND LAW ON T HE ISSUE HELD AS UNDER ON FACTS: - 7.1. THE APPELLANT HAS BEEN AN INVESTOR IN SHARES ALL ALONG. OVER THE YEARS SHE HAS CONSISTENTLY TREATED THE ENTIRE I NVESTMENT IN SHARES AS AN INVESTMENT AND NOT AS STOCKIN-TRADE. THE INCOME FROM TRANSFER OF SHARES WAS ALWAYS OFFERED TO TAX AS CAP ITAL GAIN. SHARES HELD AS INVESTMENTS WERE VALUED AT COST AND NO MARK TO MARKET LOSS WAS PROVIDED FOR. THE PORTFOLIO HELD BY THE APPELLA NT OVER THE YEARS WHEN CONSIDERED IN THE LIGHT OF NO. OF SCRIPTS HELD /PURCHASED/SOLD AND THE CORRESPONDING NO. OF TRANSACTIONS, INVESTME NT BEING MADE FROM OWN FUNDS AND THE FACT OF RECEIVING DIVIDEND O VER THE YEARS AS CAN BE SEEN FROM TABLE NO. 1 ABOVE WOULD UNDOUBTEDL Y ESTABLISH THE APPELLANT AS AN INVESTOR AND NOT A TRADER. IT IS WO RTHWHILE TO NOTE THAT EVEN IN THE SUBSEQUENT YEARS DESPITE REGISTERI NG LOSSES FROM SALE OF SHARES, THE APPELLANT HAS CONSISTENTLY FOLLOWED THE PRACTICE OF TREATING THEM AS CAPITAL GAINS. 7.2 COMING TO THE YEAR UNDER CONSIDERATION, AT THE OUTSET, APPARENTLY THE A.O. HA ARRIVED AT A CONCLUSION OF H IGH VOLUME AND FREQUENCY OF TRANSACTIONS BY RELYING ON THE NUMBER OF 60 SCRIPS (I.E., OPENING INVESTMENT + PURCHASES + SALES + CLOSING IN VESTMENTS) AS AGAINST 35 SCRIPS ACTUALLY SOLD WHERE STCG HAS BEEN EARNED DURING THE YEAR. BY NO STRETCH OF IMAGINATION, DEALING IN 35 SCRIPS, INVOLVING 59 TRANSACTIONS FOR THE ENTIRE YEAR CAN BE CONSIDER ED AS HIGH VOLUME WHEN VIEWED IN THE BACKGROUND OF THE DAILY TRANSACT IONS CARRIED OUT IN BSE/NSE. 7.3 A CAN BE SEEN FROM THE DATA AT TABLES 4 & 5 ABO VE, TRANSACTIONS WERE NOT ENTERED INTO CONTINUOUSLY AND REGULARLY THROUGHOUT THE YEAR. THE APPELLANT HAS NOT TRANSACT ED AT ALL DURING 188 DAYS OUT OF 250 WORKING DAYS DURING THE YEAR. T HIS SUGGESTS THAT THE APPELLANT HAS NOT TRANSACTED DURING 75% OF THE TOTAL WORKING DAYS DURING THE YEAR. THERE WERE VERY FEW TRANSACTI ONS IN THE 1 ST FOUR MONTHS OF THE YEAR WITH THE APPELLANT HAVING SALE T RANSACTIONS FOR ONLY 3 DAYS IN THE FIRST FOUR MONTH. FURTHER, DURIN G THE PERIOD OF EIGHT MONTHS, THERE WERE TRANSFER TRANSACTIONS ON ONLY 15 DAYS. THE ABSENCE OF REGULAR TRANSACTIONS IN SHARES FOR EIGHT MONTHS IN THE YEAR CLEARLY HIGHLIGHTS THAT THE TRANSACTIONS WERE NOT E NTERED INTO FREQUENTLY, CONTINUOUSLY AND REGULARLY BY THE APPEL LANT. 7.4 THE APPELLANT HAS EARNED 75% OF THE TOTAL SHORT TERM CAPITAL GAINS WITH A HOLDING PERIOD MORE THAN 9 MONTHS. IN OTHER WORD, ONLY 25% OF THE OVERALL CAPITAL GAIN FOR THE APPELLANT H AS ACCRUED FROM STOCKS WHERE THE WEIGHTED AVERAGE HOLDING DURATION FOR SCRIPTS WAS UP TO 9 MONTHS. IN RESPECT OF SALE OF SHARES WITHIN A MONTH OF HOLDING IT WAS EXPLAINED TO BE TRIGGERED BY AN UNPRECEDENTE D VOLATILITY IN THE MARKET BETWEEN NOV07 TO JAN08, THAT THE APPELLANT SOLD OFF SHARES WITHIN A SHORT PERIOD OF HOLDING AT LOSS IN FEAR OF FURTHER LARGE FALL IN MARKET. ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 4 7.5 THE WEIGHTED AVERAGE HOLDING DURATION OF ALL TH E STOCKS (SHORT TERM & LONG TERM) SOLD UNDER CAPITAL GAINS DURING T HE YEAR AMOUNTED TO 182 DAYS OR 6 MONTHS. FOR THE STOCKS RESULTING I N SHORT TERM CAPITAL GAINS THE WEIGHTED AVERAGE HOLDING IS FOR 140 DAYS AND FOR THE STOCKS EARNING STCG OUT OF OPENING INVESTMENTS THE WEIGHTED AVERAGE HOLDING PERIOD STANDS AT 329 DAYS. THIS SUG GESTED THAT THE AVERAGE HOLDING PERIOD OF STOCKS SOLD BY THE APPELL ANT DURING THE YEAR WAS REASONABLY LONG. 7.6 56% OF STCG DURING THE YEAR RESULTED FROM SHARE S HELD IN OPENING INVESTMENT ON 1 ST APRIL 07. THE APPELLANT REGISTERED STCG OF RS.514.62 LACS FROM SHARES BOUGHT IN THE EARLIER YE ARS THAT WERE TREATED AS INVESTMENTS AS ON MARCH 31, 2007. CONSEQ UENTLY, GAINS ARISING FROM SHARES PURCHASED IN EARLIER YEARS AND TREATED AS INVESTMENTS CANNOT BE SUDDENLY CONSIDERED AS BUSINE SS INCOME IN THE YEAR OF SALE. 7.6 THE APPELLANT WAS NOT TRANSACTING FREQUENTLY FO R SMALLER GAINS AS WAS REFLECTED FROM TOTAL CAPITAL GAINS ON COST O F INVESTMENT SOLD BEING MORE THAN 50% DURING THE YEAR AS CAN BE SEEN FROM TABLE NO. 3. 7.7 THE AVERAGE CAPITAL APPRECIATION WAS A HUGE FOR THE TOP FOUR SCRIPS (JAI CORP, SAHARA HOUSING, FLAT PRODUCT & ES SAR OIL), WHICH TOGETHER ACCOUNTED FOR 110% OF THE TOTAL CAPITAL GA INS. THIS CLEARLY REFLECTS THAT THE INTENTION WAS CLEARLY NOT TO FREQ UENTLY TRADE OR CHURN FOR SMALLER RETURNS THAT ARE NORMALLY TRAITS OF TRA DERS IN BUSINESS. 7.8 THE SHARES OF JAI CORP LTD., WHICH ACCOUNTED FO R 75% OF THE ENTIRE SHORT TERM CAPITAL GAINS, WERE HELD FOR DURA TION OF AROUND 10 MONTHS MOST OF THE SHARES WERE BROUGHT IN DEC06 AND SOLD IN END OCT-NOV07. NOTABLY, THE APPELLANT HELD THESE SHARE S DURING THE ENTIRE PROCESS WHEN THE COMPANY UNDERTOOK ISSUE OF BONUS SHARES AND SPLIT THE SHARES. FURTHER, 45,407 SHARES OF JAI CORP LTD. WHICH WERE PURCHASED IN JULY 2007 WERE NOT SOLD DURING TH E YEAR AND FORMED PART OF THE CLOSING BALANCE OF INVESTMENTS A S ON MAR08. THIS REFLECTS THE ORIENTATION OF THE APPELLANT TOWARDS H OLDING INVESTMENTS FOR LONGER PERIOD. 7.9 THE APPELLANT HAS NOT RESORTED TO CHURNING OF S HARES OF REPETITIVE TRANSACTIONS OF THE SAME COMPANY THAT CO ULD HAVE OTHERWISE RESULTED IN INCREASED TRANSACTIONS. 7.10 OUT OF THE TOTAL LONG TERM CAPITAL GAINS OF RS .73 LACS, THE SHARES OF ONE COMPANY VIZ. FLAT PRODUCTS EQUIPMENT LTD. CONTRIBUTED TO RS.167 LACS WHERE THE APPELLANTS AVERAGE HOLDIN G DURATION HAS BEEN FOR 764 DAYS OR 25 MONTHS WITH SOME PART OF HO LDING FOR A PERIOD OF MORE THAN 3 YEARS AND THERE WAS AN OVERAL L APPRECIATION OF 250% IN THE STOCK. FURTHER, THE APPELLANT HAD SIGNI FICANT UNBOOKED AND UNREALIZED CAPITAL GAIN OF RS.356 LAKHS IN THE SCRIPS OF FLAT PRODUCTS EQUIPMENTS AND JAI CORP AS ON MARCH 31, 20 08 HAVING AN AVERAGE HOLDING PERIOD OF 13 MONTHS. A TRADER WOULD HAVE DEFINITELY REALIZED THE HUGE PROFIT IMMEDIATELY AND NOT CARRIE D OUT PROFITS TO THE NEXT YEAR. BESIDES, THERE WAS A SUBSTANTIAL LONG TE RM CAPITAL GAIN OF ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 5 RS.1.34 CR IN A.Y. 2009-10 APART FROM A HUGE QUANTU M OF UNREALIZED LONG TERM CAPITLA GAINS LYING IN THE CLOSING INVEST MENT FOR A.Y. 2010-11. PRESENCE OF SUCH HUGE UNREALISED CAPITAL G AINS HAVING LONGER HOLDING PERIOD CLEARLY INDICATES INTENTION O F THE APPELLANT OF TRYING TO SEEK LONGER TERM CAPITAL APPRECIATION. TH AT APART, THE QUANTUM AND VALUE OF TRANSACTIONS OF THE APPELLANT IN THE SUBSEQUENT YEARS WERE SIGNIFICANTLY LOWER COMPARED TO ASSESSMENT YEAR 2008-09. HAD THE APPELLANT BEEN A TRADER IN SH ARES, TRANSACTIONS IN SHARES WOULD HAVE INCREASED FURTHER IN THE SUBSEQUENT YEARS INSTEAD OF WITNESSING A SHARP CONT RACTION. 7.11 THE APPELLANT HAS DERIVED SIGNIFICANT LONG TER M CAPITAL GAINS OVER THE YEARS. IN A.Y. 2005-06 AND 2006-07, LONG T ERM CAPITAL GAINS AMOUNTED TO 93% AND 63% RESPECTIVELY OF THE TOTAL C APITAL GAINS EARNED DURING THE SAID YEARS. THE STAND OF THE APPE LLANT AS AN INVESTOR HAS BEEN ACCEPTED BY THE A.O. IN THE EARLI ER YEAR UNDER SECTION 143(3). THE ASSESSMENT FOR A.Y. 2007-08 WAS COMPLETED U/S. 143(3) BY DCIT-16(3) AND THE CAPITAL GAINS ON SALE OF SHARES AND SECURITIES WERE ACCEPTED AND TAXED AS SHORT TERM AT RS.3,65,04,660/- AND LONG TERM CAPITAL LOSS (AFTER INDEXATION) ASSES SED AT RS.31,966/-. BESIDES, SHARES WERE ACCEPTED AS INVESTMENTS IN THE BALANCE SHEET. APPARENTLY THE FACTS OF THE CASE ARE SIMILAR IN A.Y . 2007-08 & 2008- 09 AND NO FRESH MATERIAL HAS BEEN BROUGHT ON RECORD BY THE A.O. AT PRESENT. FURTHER, APPELLANTS CLAIM REGARDING LONG TERM CAPITAL GAINS HAS NOT BEEN DISTRIBUTED BY THE A.O. FOR THE YEAR U NDER CONSIDERATION AND THUS, THE A.O. HIMSELF HAS ACCEPTED THAT THE AP PELLANT WAS INVESTOR IN SHARES ALSO. IN SUCH CIRCUMSTANCES, THE RE IS NO REASON FOR THE A.O. TO TREAT THE INVESTMENT IN SHARES BY THE A PPELLANT AS TRADING IN SHARES FOR A.Y. 2008-09. THE UNIFORMITY IN TREAT MENT AND CONSISTENCY UNDER THE SAME FACT AND CIRCUMSTANCES I S ONE OF THE FUNDAMENTALS OF THE JUDICIAL PRINCIPLES WHICH CANNO T BE BRUSHED ASIDE WITHOUT PROPER REASON. 7.12 THE APPELLANT USED HER OWN SURPLUS FUNDS FOR I NVESTING IN SHARES. SHE HAS NEITHER BORROWED ANY MONEY FROM EXT ERNAL SOURCES NOR PAID INTEREST THEREON. THE LOANS APPEARING IN T HE BALANCE SHEET OF THE APPELLANT AS ON MARCH 2004, 2005 AND 2006 AR E EXPLAINED TO BE IN THE NATURE OF TEMPORARY PERSONAL FAMILY TRANS FERS FROM HER SONS AND DO NOT CARRY ANY INTEREST. THERE ARE NO OUTSTAN DING LOANS INCLUDING FROM ANY FAMILY MEMBERS AS ON MARCH 2007 AND 2008. 7.13 THE APPELLANT EARNED RS.8,54,790/- BY WAY OF D IVIDEND WHICH GIVES A YIELD OF 1.4$ ON AVERAGE HOLDING OF HER INV ESTMENT AS AT MARCH 2007. THE RATIO OF DIVIDEND NEEDS TO BE SEEN ONLY AS A% OF INVESTMENT AND NOT AS A % TO TOTAL CAPITAL GAINS RE FERRED BY THE AO. THAT APART INCOME FROM OTHER SOURCES CONSISTING OF BANK INTEREST, INTEREST FROM RECURRING DEPOSITS WITH POSTAL AUTHOR ITIES, KVP INTEREST ETC., AS NOTED AT TABLE NO. 8 WOULD GO TO SHOW THAT THE APPELLANT IS ACTING AS A PURE INVESTOR IN VIEW OF HER ADVANCED A GE AND THERE BEING A NEED FOR FINANCIAL SECURITY AT THAT AGE. ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 6 7.14 THERE WERE NO DERIVATIVE TRANSACTIONS UNDERTAK EN BY THE APPELLANT DURING THE ASSESSMENT YEAR AS WELL AS IN ANY OF THE PAST YEARS. FURTHER, THERE WERE NO TRANSACTIONS WITHOUT DELIVERY DURING ANY OF THE PAST YEARS. THE APPELLANT HAS SUFFICIENT LY EXPLAINED THE BACK GROUND OF THE SPECULATION LOSS REPORTED DURING THE YEAR AND ITS PRESENTATION IN THE ACCOUNTS, SUPPORTED BY THE AUDI TED ACCOUNTS. THERE IS NO OTHER CONTRARY MATERIAL BROUGHT ON RECO RD TO DISPUTE THE APPELLANTS CLAIM IN THIS REGARD. 7.15 THE APPELLANT HAS SUFFICIENTLY EXPLAINED THE N ATURE OF WORK CARRIED ON BY HER, RESULTING IN THE PROCESSIONAL CO ME OFFERED TO TAX, AND THEREFORE, THE APPELLANTS SUBSTANTIVE ACTIVITY CANNOT BE HELD TO BE THAT OF SHARE TRADING IN THE SENSE THAT THE INVE STMENT ACTIVITY CAN BE REGARDED AS ANCILLARY TO SUCH SHARE TRADING. 6. ON CONSIDERING THE LEGAL ASPECTS OF THE CASE THE CI T(A) HELD IN PARAS 8.3, 9 AND 10 AS UNDER: - 8.3 FURTHER, HAVING REGARD TO THE FACTS NOTED AT P ARAS 7 TO 7.16 ABOVE, THERE IS A SUBSTANTIAL COMPLIANCE ON THE PAR T OF THE APPELLANT IN TERMS OF INSTRUCTION NO. 1827 DATED 31 ST AUGUST 1989 AND DRAFT INSTRUCTION DATED 16 TH MAY 2006 OF THE CENTRAL BOARD OF DIRECT TAXES IN RESPECT OF TESTS LAID DOWN THEREIN TO DISTINGUIS H BETWEEN SHARES HELD AS STOCK-IN-TRADE AND SHARES HELD AS INVESTMEN T THAT THE APPELLANTS CASE FALLS IN THE CATEGORY OF INVESTOR. 9. THAT APART THERE ARE A PLETHORA OF DECISIONS BY THE VARIOUS BENCHES OF HON. HIGH COURTS AND ITAT HOLDING THE IS SUE IN FAVOUR OF APPELLANT INVOLVING SIMILAR FACTS, AND FOR THE SAKE OF BREVITY, EVEN IF THEY ARE TAKEN INTO CONSIDERATION FOR ARRIVING AT T HE CONCLUSION THAT THE APPELLANT IS AN INVESTOR THE SAME ARE NOT REPRO DUCED. HOWEVER, TO NAME A FEW JANAK S. RANGWALLA VS. ACIT (11 SOT 627) , CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM.) (2010), CIT VS. RO HIT ANAND (2010) 327 ITR 445 (DEL), DCIT VS. SMK SHARES & STOCK BROK ING PVT. LTD. ITA NO. 799/MUM/2009, VINOD K. NEVATIA ITA NO. 6556 /MUM/2009 & 181/MUM/2010 AND NAISHADH V. VACHHARAJANI ITA NO. 6429/MUM/2009. 10. IN VIEW OF THE DETAILED DISCUSSION OF THE FACTS AND THE LEGAL POSITION AND THE BACK GROUND OF THE AMENDED PROVISI ONS OF TAXATION OF CAPITAL GAINS ON SALE OF SHARES, I HAVE NO HESITATI ON TO HOLD THAT THE INCOME FROM SHORT TERM CAPITAL GAINS OFFERED TO TAX REQUIRE NO DISTURBANCE AND CANNOT BE TREATED AS BUSINESS INCOM E. ACCORDINGLY, THE APPEAL IS ALLOWED IN FAVOUR OF THE APPELLANT ON THIS ISSUE. 7. THE LEARNED D.R. RELIED ON THE OBSERVATIONS OF THE AO WHEREAS THE LEARNED COUNSEL RELIED ON THE ORDER OF THE CIT(A) A ND ALSO FURNISHED THE FACT SHEET AND SUBMISSIONS MADE TO THE CIT(A). THE LEARN ED COUNSEL ALSO PLACED ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 7 ON RECORD THE COORDINATE BENCH DECISION IN SRI JAI MAHENDRA SHAH IN ITA NO. 6093/MUM/2011 DATED 31.08.12 ON SIMILAR FACTS IN TH E CASE OF ASSESSEES SON. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE RECORD AND ORDERS OF AUTHORITIES, WE AGREE WITH THE FINDINGS O F THE LEARNED CIT(A) WHO DEALT WITH THE FACTS AND LAW VERY CLEARLY. WE DO NOT HAVE TO REPEAT THE SAME FINDINGS HERE AS THE SAME FACT SHEET WAS PLACED BEFORE US AL SO. SUFFICE TO SAY THAT ARGUMENTS OF THE LEARNED AO WERE COUNTERED ON FACTS BY THE ASSESSEE AND CONSIDERING THE PAST RECORD AND ACTION OF THE AO IN LATER YEARS AND ALSO THE FACT THAT NO BENEFIT OF REDUCTION IN VALUE OF STOCK AND PAYMENT OF STT WAS OBTAINED BY THE ASSESSEE IN ANY OF THE YEARS INDICATE THAT T HE ASSESSEE IS ONLY AN INVESTOR AND NOT A TRADER. THE REASON FOR OFFERING THE FIVE TRANSACTIONS AS BUSINESS INCOME WAS ALSO PROPERLY EXPLAINED AS PUNC HING ERRORS BY BROKER AND SALE DURING NON-DELIVERY PERIOD OF STOCK EXCHANGE W HICH HAVE BEEN CONSIDERED AS SPECULATIVE IN NATURE. 9. COORDINATE BENCH IN THE CASE OF JAY MAHENDERA SHAH IN ITA NO. 6093/MUM/2011 & CO NO. 156/2012 DATED 31-08-12 CONS IDERED SIMILAR FACTS AND DISMISSED REVENUE APPEAL BY HOLDING AS UN DER: - 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL AVAILABLE ON RECORD. THE FINDING OF THE AO BASED B ROADLY ON THE OBSERVATIONS VIZ., (I) HUGE TURNOVER WITH LARGE NUM BER OF TRANSACTIONS (II) SHORT PERIOD OF HOLDING IN RESPECT OF THREE SC RIPS (III) SPECULATIVE TRANSACTIONS ON THREE OCCASIONS AND (IV) BORROWED F UNDS. THE VOLUME OF TRANSACTION ITSELF CANNOT BE A SOLE CRITERIA WHE N THE FREQUENCY OF THE TRANSACTIONS WERE NOT SO HIGH. IN THE CASE IN HAND, THE NUMBER OF DAYS DURING WHICH EITHER THE PURCHASE OR SALE TRANS ACTIONS CARRIED OUT WERE 64 DAYS IN THE ENTIRE YEAR WHICH SHOWS THA T THE FREQUENCY IS NOT HIGH IN COMPARISON TO THE VOLUME OF TRANSACT ION. FURTHER, THE TOTAL NUMBER OF SCRIPS IN WHICH THE SALE AND PURCHA SE DONE GIVING RAISE TO SHORT TERM CAPITAL GAIN AND LONG TERM CAPI TAL GAIN ARE ONLY 27. THEREFORE, THIS FACT SUPPORTS THE CASE OF THE A SSESSEE. AS REGARDS THE HOLDING PERIOD, THE WEIGHTED AVERAGE PERIOD OF SHARES OF 27 SCRIPS WAS 113 DAYS. THEREFORE, SELECTING ONLY THREE SCRI PS BY THE AO IS NOT JUSTIFIED WHEN THE OVERALL TRANSACTIONS AND HOLDING PERIOD IS TAKEN INTO CONSIDERATION. MOREOVER, IT WAS EXPLAINED BY T HE ASSESSEE THAT DUE TO THE WRONG PUNCHING AND IN CASE OF M/S. VIDEO CON INDUSTRIES ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 8 ONLY ONE SHARE WAS TRANSACTED FOR A SHORT PERIOD OF THREE DAYS, IN CASE OF M/S. DEEP INDUSTRIES, BECAUSE OF THE EROSIO N IN THE VALUE OF THE SHARE, THE LOSS WAS BOOKED WITH 7 DAYS. SO FAR AS THE SPECULATION TRANSACTIONS IN THREE SCRIPS ARE CONCERNED, THE ASS ESSEE HAS EXPLAINED THAT THIS HAPPENED BECAUSE OF WRONG PUNCH ING ON THE PART OF THE STOCK BROKER AND, THEREFORE, THESE WERE IMME DIATELY SCORED OFF BY SELLING BY THE BROKER. THE ASSESSEE FILED THE C ONFIRMATION OF THE BROKER IN THIS RESPECT. THE CIT (A) HAS CONSIDERED THE ISSUE IN PARA 7.7 AS UNDER: 7.7. THERE WAS NO TRANSACTIONS WITHOUT DELIVERY EX CEPT FOR THREE ODD TRANSACTIONS DURING THE ENTIRE YEAR, WHICH WERE PRIMARILY DUE TO ERRORS OR CONFUSION WITH THE BROKER RELATING TO PUNCHING ERRORS BY BROKER RELATI NG TO CODE OF CLIENTS, NO-DELIVERY PERIOD, ETC. WHICH ARE SUFFICIENTLY EXPLAINED AT TA BLE NO.3. SIMILARLY, THE VOLUME OF TRANSACTIONS CLASSIFIED AS SPECULATION AMOUNTED TO ONLY 0.07% OF THE OVERALL SHARE SALE VOLUMES INDICATING NEGLIGIBILITY OF SUCH TRANS ACTIONS THAT RESULTED BY DEFAULT DUE TO THE ERRORS OF THE BROKER AS EXPLAINED AT TAB LE NO.8, AND NOT DUE TO ANY ORGANIZED OR SYSTEMATIC ACTIVITY OF THE APPELLANT R EQUIRING TIME AND EFFORTS. NOTING HAS BEEN BROUGHT BEFORE US TO CONTROVERT THE FINDING OF THE CIT (A) ON THIS POINT. IN VIEW OF THE FACT THAT THE BR OKER HAS CONFIRMED THE PUNCHING ERROR FOR THESE THREE TRANSACTIONS AND WER E SCORED OFF AND REVERSED IMMEDIATELY ON THE SAME DAY, IT CANNOT BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE SPECULATIVE TRANSACTION S. TURNING TO THE NEXT OBJECTION OF THE ASSESSING OFFICER REGARDING B ORROWED FUNDS, IT HAS BEEN EXPLAINED BY THE ASSESSEE THAT THE FUNDS W ERE TAKEN FROM THE ASSESSEES HUF WHICH ARE NON-INTEREST BEARING F UNDS. THIS FACT HAS BEEN DULY CONSIDERED BY THE CIT (A) IN PARA 7.8 OF THE IMPUGNED ORDER AND THE AO HAS NOT CONTRADICTED THE SAME. AC CORDINGLY, WHEN THE FUNDS ARRANGED BY THE ASSESSEE WERE NOT FROM OU TSIDE BUT WITHIN THE FAMILY AND THAT TOO WITHOUT ANY INTEREST, THEN IT CANNOT BE TAKEN AS A FACTOR AGAINST THE ASSESSEE WHILE DETERMINING THE NATURE OF TRANSACTIONS AS INVESTMENT OR TRADING IN SHARES. 7. IT IS PERTINENT TO NOTE THAT IN THE EARLIER YEAR S AS WELL AS IN THE SUBSEQUENT YEARS, THE AO HAS ACCEPTED THE CAPITAL G AIN OFFERED BY THE ASSESSEE. WHEN THE ASSESSEE HAS TREATED THE SHA RES AS INVESTMENT IN THE BOOKS OF ACCOUNT AND VALUED AT CO ST, THEN THE EXPLANATION OF THE ASSESSEE IS CLEAR THAT THE SHARE S WERE RETAINED AS INVESTMENT. FURTHER 99% OF THE SHORT TERM CAPITAL GAIN IS FROM THE SALE OF SHARES WHICH WERE PURCHASED IN THE EARLIER YEAR AND ACCEPTED BY THE AO IN THE SAID YEAR AS INVESTMENT. THEREFORE , THESE TRANSACTIONS CANNOT BE TREATED DIFFERENTLY IN THE Y EAR UNDER CONSIDERATION. EVEN OTHERWISE, IF THE INVESTMENT I N THE EARLIER YEAR IS TREATED AS STOCK IN TRADE IN THIS YEAR THEN IN VIEW OF THE PROVISIONS OF SECTION 45(2), THE DIFFERENCE IN THE MARKET PRICE A ND THE COST AS SHOWN IN THE BOOKS OF ACCOUNT WOULD BE TREATED AS C APITAL GAIN. 8. THUS, THE FACTS AND CIRCUMSTANCES OF THE CASE CL EARLY DEMONSTRATE THAT THE INTENTION OF THE ASSESSEE TO H OLD THE SHARES AS INVESTMENT AND NOT STOCK IN TRADE. THE MOTIVE OF T HE TRANSACTION OF ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 9 SALE AND PURCHASE WAS NOT TO REALIZE THE PROFIT AT THE EARLIEST POSSIBLE OCCASION BUT TO RETAIN SHARE FOR APPRECIATION OF TH E VALUE. IT IS EVIDENT FROM THE FACT THAT THE UNREALIZED GAIN IN RESPECT O F SHARES WHICH ARE HELD BY THE ASSESSEE AT THE END OF THE FINANCIAL YE AR IS MORE THAN THE CAPITAL GAIN OFFERED BY THE ASSESSEE. IF THE MOTIV E OF THE ASSESSEE WAS TO REALIZE THE PROFIT IN THE VOLATILE CONDITION S OF THE MARKET, THEN THE ASSESSEE WOULD HAVE SOLD THE SHARES INSTEAD OF RETAINING THE SAME AT THE END OF THE YEAR . 10. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A) IN HOLDING THE GAINS AR ISING FROM SALE AND PURCHASE OF SHARES AS CAPITAL GAIN. IT IS ALSO TO B E NOTED THAT THE AO TREATED ONLY SHORT TERM CAPITAL GAINS AS BUSINESS INCOME WH ERE AS LONG TERM CAPITAL GAINS ON THE SAME PORTFOLIO WAS ACCEPTED AS SUCH. T HERE IS NO MERIT IN REVENUE GROUNDS. ACCORDINGLY, THEY ARE DISMISSED. 11. IN THE CROSS OBJECTION, ASSESSEE HAS RAISED THE FOL LOWING GROUNDS:- 1. THE LD. AO AND THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT APPLYING THE PROVISIONS OF SECTION 45(2) FOR COMPUT ING THE CAPITAL GAINS IN RESPECT OF THE SHARES HELD AS CAPI TAL ASSET WHICH BY THE ACTION OF THE LD. AO WERE TREATED AS S TOCK IN TRADE AND FURTHER ERRED IN LAW AND ON FACTS IN TAXING SUC H INCOME AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS. YOUR APP ELLANT PRAYS THAT FULL EFFECT BE GIVEN TO THE PROVISIONS OF SECT ION 45(2) IN ASSESSING THE TOTAL INCOME. 2. THE LD. AO AND THE LD. CIT (A) ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE BUSINESS LOSS THAT AROSE ON VALUATION OF SHARES HELD AT THE YEAREND BY APPLYING THE PRINCIPLE OF L OWER OF THE COST OR MARKET VALUE IN AS MUCH AS THE TRANSACTION S IN SHARES WERE HELD TO BE BUSINESS TRANSACTIONS BY THE LD. AO AND AS A CONSEQUENCE THEREOF SUCH SHARES WERE REQUIRED TO BE TREATED AS STOCK IN TRADE AND BE VALUED AS PER THE ACCOUNTING PRACTICES AND PRINCIPLES THAT ARE ACCEPTED IN TAX LAWS. YOUR APPELLANT PRAYS THAT THE BUSINESS LOSS REPRESENTING THE VALUA TION OF SHARES HELD AS STOCK IN TRADE BE ALLOWED IN ASSESSI NG THE TOTAL INCOME. 12. THESE ARE ALTERNATE CONTENTIONS BY ASSESSEES IN CASE INCOMES WERE TO BE TREATED AS BUSINESS INCOME. IN VIEW OF OUR FIND ING IN THE ABOVE APPEAL OF ITA NO. 6094/M/2011 & CO 155/M/2011 SMT. DATTA MAHENDRA SHAH 10 THE REVENUE, THE CROSS OBJECTION BECOMES INFRUCTUOU S AND ACCORDINGLY DISMISSED. 13. IN THE RESULT, APPEALS FILED BY REVENUE AND CROSS OBJECTION BY ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUARY, 2013. SD/- SD/- (SANJAY GARG) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH FEBRUARY, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 27, MUMBAI 4. THE CIT IX, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.