Shri Sureshkumar Malpani, Surat V. The Dy.CIT.,Circle-2, Surat

CO 224/AHD/2012

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9016 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 06-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K MAL
• Assessee Lawyers: P L KUREEL
• Keywords: Business income; Earning of tax free income; Benefit of exemption
• Section: 143(3); 14A

Judgement Text

ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 2158 /AHD/2012 & CO. NO. 224/ AHD/2012 (ASSESSMENT YEAR: 2008-09) THE DCIT CIRCLE-2, SURAT V/S SHRI SURESHKUMAR MALPANI 131, 451 TEXTILE MARKET, RING ROAD, SURAT (APPELLANT) (RESPONDENT) SHRI SURESHKUMAR MALPANI 131, 451 TEXTILE MARKET, RING ROAD, SURAT V/S THE DCIT CIRCLE-2, SURAT (APPELLANT) (RESPONDENT) PAN: AAYPM1856A APPELLANT BY : SHRI P.L. KUREEL, SR. D.R. RESPONDENT BY : SHRI R. K. MALPANI ( )/ ORDER DATE OF HEARING : 30-10-2013 DATE OF PRONOUNCEMENT : 29 -11-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF CIT(A)-II, SURAT DATED 31.07.2012 FOR A.Y. 2008-09 AND ASSESSEE HAS ALSO FILED A CO. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER:- ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 2 3. ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS OF S HARE TRADING. ASSESSEE FILED HIS RETURN OF INCOME FOR AY 2008-09 ON 21.7.2 008 DECLARING TOTAL INCOME OF RS 56,235/-. THE CASE WAS SELECTED FOR SC RUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DAT ED 24.12.2010 AND THE TOTAL INCOME WAS ASSESSED AT RS 22,67,321. AGGR IEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFO RE CIT(A). CIT(A) VIDE ORDER DATED 31.7.2012 PARTLY ALLOWED THE APPEA L OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS NO W IN APPEAL BEFORE US AND THE ASSESSEE HAS ALSO FILED A CO. THE GROUND S RAISED BY THE REVENUE READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE U/S 14A OF THE IT ACT RECOMPUTED AFTER EXCLUDING THE INTEREST PAID TO THOSE PARTIES WHEREIN THE STCG AND LTCG CLAIMED BY THE ASSESSEE T REATED AS BUSINESS INCOME BY THE A.O. IN SPITE OF THE FACT THAT THE ASSESSEE HAS USED BORROWED FUN DS ON WHICH INTEREST WAS PAID FOR BOTH SHARE TRANSACTION AND INVESTMENT IN MUTUAL FUND IN ACCORD ANCE WITH RULE 8D(II). 4. IN THE CO, THE GROUND RAISED BY ASSESSEE READS AS U NDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF ID. AO IN ASSESSING THE LONG TERM CAPITAL GAIN OF RS. 5,36,125/- FROM TRANSFER OF UNITS OF MUTUAL FUND (RELIANCE EQUITY FUND) AS BUSINESS I NCOME OF THE APPELLANT AND THEREBY DENYING THE BENEFIT OF EXEMPTION U/S 10(38) OF THE ACT. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF ID. AO IN ASSESSING THE SHORT TERM CA PITAL GAIN OF RS. 8,12,954/- FROM TRANSFER OF UNITS OF MUTUAL FUND (J M CONTRA FUND) AS BUSINESS INCOME OF THE APPELLANT. SINCE THE GROUNDS RAISED BY THE REVENUE AND ASSES SEE ARE INTER- RELATED BOTH ARE CONSIDERED TOGETHER. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT THE TOTAL INCOME INCLUDED LONG TERM CAPITAL GAINS FROM SHARES AND MUTUAL FUNDS ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 3 OF RS 34,25,826/- AND SHORT TERM CAPITAL GAINS FROM MUTUAL FUND OF RS 10,23,848/-. HE ALSO NOTICED THAT THE AFORESAID CAP ITAL GAINS INCLUDED LONG TERM CAPITAL GAINS EARNED FROM SALE OF UNITS OF REL IANCE EQUITY FUND OF RS 536125/- AND SHORT TERM CAPITAL GAINS OF RS 812954/ -EARNED ON SALE OF UNITS OF JM CONTRA FUND. HE FURTHER NOTICED THAT AS SESSEE HAD BORROWED FUNDS FROM FINANCE COMPANIES FOR MAKING THE AFORESA ID INVESTMENTS, HAD PAID INTEREST ON THE BORROWED FUNDS. HE ALSO NOTICE D THAT THE UNITS OF RELIANCE MUTUAL FUNDS WERE SOLD AFTER 1 YEAR AND 12 DAYS AND OF JM MUTUAL FUND WAS SOLD SHORTLY AFTER ITS ACQUISITION AND THE SALE PROCEEDS OF THE UNITS WERE DIRECTLY USED TO LIQUIDATE THE BORRO WINGS TAKEN FOR INVESTMENTS. IN VIEW OF THE AFORESAID FACTS, AO WAS OF THE VIEW THAT THE MODUS OPERANDI OF THE TRANSACTION SHOWED THAT THE A CTIVITY OF THE ASSESSEE CANNOT BE CONSIDERED TO BE AN INVESTMENT ACTIVITY B UT WAS IN THE NATURE OF BUSINESS ACTIVITY. HE ACCORDINGLY CONSIDERED THE PR OFITS EARNED ON SALE OF UNITS OF MUTUAL FUNDS AS BUSINESS INCOME AS AGAINST THE CAPITAL GAINS CONSIDERED BY THE ASSESSEE. 6. AO ALSO NOTICED THAT FOR THE PURPOSE OF WORKING DIS ALLOWANCE U/S 14A, AND FOR WORKING OUT THE AVERAGE INVESTMENTS AT THE END OF THE YEAR, ASSESSEE HAS WORKED OUT THE DISALLOWANCE ON THE BAS IS OF INCORRECT BALANCES OF INVESTMENTS. AO WAS OF THE VIEW THAT OU T OF TOTAL INVESTMENTS ONLY FIXED DEPOSITS WITH BANK AND GOLD COMMODITY AC COUNT HAS TO BE EXCLUDED AS THE INCOME FROM IT WAS NOT TAX FREE. HE ACCORDINGLY WORKED OUT THE OPENING INVESTMENTS AT RS 2.74 CRORE AND CL OSING INVESTMENTS AT RS 3.57 CRORE AND ACCORDINGLY THE AVERAGE INVESTMEN TS WAS WORKED OUT AT RS 3.08 CRORES. HE ALSO NOTICED THAT AMOUNTS BORROW ED BY THE ASSESSEE ON WHICH HE HAS PAID INTEREST HAS BEEN USED FOR THE PURPOSE OF MAKING ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 4 INVESTMENTS IN SHARES AND MUTUAL FUNDS. HE WAS THER EFORE OF THE VIEW THAT SUCH INTEREST ALSO NEEDS TO BE DISALLOWED. HE ACCORDINGLY WORKED OUT THE DISALLOWANCE U/S 14A AT RS 32,50,678/- AND AFTE R GIVING THE CREDIT OF DISALLOWANCE OF RS 10,39,592/- WHICH WAS SUOMOTO MA DE BY THE ASSESSEE IN THE RETURN MADE A DISALLOWANCE OF DIFFERENTIAL A MOUNT RS 22,11,086/- U/S 14A. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CAR RIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF AO IN CON SIDERING THE PROFITS EARNED ON CAPITAL GAINS AS BUSINESS INCOME BUT DIRE CTED THE AO TO WORK OUT THE DISALLOWANCE U/S 14A BY EXCLUDING THE INVES TMENTS FROM WHICH THE ASSESSEE EARNS TAXABLE INCOME FOR THE PURPOSE O F COMPUTATION OF AVERAGE INVESTMENTS. WITH RESPECT TO PROFITS OF SAL E OF MUTUAL FUNDS AS BUSINESS INCOME. THE RELEVANT FINDING OF CIT(A) IS AS UNDER:- 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE, BASIS GIVE N BY ASSESSING OFFICER AND SUBMISSIONS OF APPELLANT. AS PER THE DETAILS DISCUSSED BY A.O., IN VESTMENTS BY APPELLANT IN BOTH THE TRANSACTIONS HAVE BEEN MADE FROM THE BORROWED FUNDS ON WHICH INT EREST HAS BEEN PAID. IN CASE OF FIRST SECURITY I.E. RELIANCE EQ. FUNDS, LOANS HAVE BEEN TAKEN FROM ILFS BEARING LOAN NO.256 AND IN CASE OF JM CONTRA FUND, LOANS HAVE BEEN TAKEN FROM JM FINAN CIAL PRODUCT PVT. LTD. THE FUNDS BORROWED FOR THE PURPOSE OF PURCHASING THE SECURITI ES HAVE BEEN REPAID AFTER RECEIVING THE SALE CONSIDERATION ON SAME SECURITIES. IN ADDITION TO TH IS MAJOR FACT, AO HAS GIVEN OTHER REASONS ALSO SUCH AS THE INTENTION OF APPELLANT WAS TO EARN SHOR T TERM PROFIT. AND MODUS OPERANDI ADOPTED BY HIM REFLECTS THAT TRANSACTIONS IN THESE SECURITIES WERE NOT INVESTMENT BUT BUSINESS TRANSACTIONS. HOWEVER, THE APPELLANT CONTESTED THIS CONCLUSION OF AO WITH THE SUBMISSIONS THAT MERELY BECAUSE THE UNITS OF RELIANCE EQ. FUNDS AND JM CONTRA FUND WERE ACQUIRED OUT OF BORROWED FUNDS, IT CANNOT BE SAID THAT THIS WAS THE BUSINESS VENTURE. THE APPELLANT HAS RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. NIRAJ AMIDHAR SURTI REPORTED IN (238 CTR 294) WHICH, AS PER APPELLANT, SUPPORTS HIS CASE. IT HAS BEEN FURTHER SUBMITTED THAT AS HELD BY BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT REP ORTED IN (228 CTR 582), APPELLANT CAN MAINTAIN TWO DIFFERENT PORTFOLIOS, ONE FOR INVESTME NT PURPOSES AND OTHER FOR TRADING PURPOSES AND ONCE THIS PRACTICE ADOPTED BY THE ASSESSEE HAS BEEN ACCEPTED IN EARLIER YEARS THEN THE SAME CANNOT BE DEVIATED IN SUBSEQUENT YEAR. IT HAS ALSO BEEN SUBMITTED THAT IN CASE THE PROFITS FROM ABOVE MUTUAL FUND UNITS ARE ASSESSED AS BUSINESS IN COME THEN THE SAME MUST BE EXCLUDED FROM THE FIGURE OF INVESTMENTS WHILE CALCULATING THE DIS ALLOWANCE U/S.14A OF I. T. ACT, AS PLEADED IN OTHER GROUNDS OF APPEAL. ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 5 FROM THE ABOVE, THIS ASPECT IS CLEAR THAT THE UNITS OF BOTH THE SECURITIES HAVE BEEN PURCHASED BY APPELLANT FROM BORROWED FUNDS AND INTEREST HAS BEEN PAID ON IT. THIS FACT IS ADMITTED BY APPELLANT ALSO. A.O. AS WELL AS APPELLANT, BOTH HAVE CONCENTR ATED ON THIS MAJOR FACT TO GIVE REASONS IN THEIR FAVOURS TO TREAT THE ABOVE TRANSACTIONS AS CAPITAL GAINS OR BUSINESS TRANSACTIONS. APPELLANT HAS RELIED ON THE CASE OF JURISDICTIONAL HIGH COURT, BU T, IN MY OPINION, THE MAJOR ISSUE TO DECIDE IN THAT CASE WAS THE PERIOD OF HOLDING THE SHARES TO TREAT THEM AS I NVESTMENT OR STOCK IN TRADE, NOT THE SOURCE OF INVESTMENT IN SHARES. THE COMMENTS GIVEN BY HON'BLE HIGH COURT IN RESPECT OF BORROWED FUNDS AND INTEREST PAID WERE JUST IN PASSING REFERE NCE. THIS WAS ACTUALLY OBITER DICTA WHILE DECIDING THE NATURE OF TRANSACTIONS OF PURCHASE AND SALES OF SHARES IN THAT CASE. SIMILARLY, IN THE OTHER CASE, RELIED UPON BY APPELLANT, ALS O THE ISSUE DECIDED BY HON'BLE BOMBAY HIGH COURT IS MAINTAINING THE DIFFERENT PORTFOLI OS BY ASSESSEE AND UNIFORMITY IN TREATMENT AND CONSISTENCY IN VARIOUS YEARS WHEN THE FACTS AND CIR CUMSTANCES ARE IDENTICAL. IN THIS CASE ALSO THE ISSUE OF BORROWED FUNDS UTILIZED FOR PURCHASING THE SHARE AND PAYING INTEREST ON IT WAS NOT DISCUSSED OR DECIDED. HOWEVER, THIS QUESTION HAS BEEN ANSWERED BY HON'BLE SUPREME COURT IN THE CASE JUGGILAL KAMLAPAT VS. CIT R EPORTED IN 75 ITR 186, WHEREIN IT HAS BEEN HELD THAT THE SHARES PURCHASED WITH BORROWED MONEY AND S OLD AT PROFIT TO STRANGERS HAVE THEIR CHARACTER OF COMMERCIAL TRANSACTIONS ENTERED INTO W ITH A PROFIT MOTIVE, NOT THE TRANSACTIONS IN THE NATURE OF CAPITAL INVESTMENT. SIMILARLY, RELYING ON THE OTHER CASE OF HON'BLE SUPREME COURT NAMELY CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LT D. (100 ITR 706), HON'BLE ITAT MUMBAI, A BENCH IN THE CASE SMT. NEERJA BIRLA VS. ACIT (66 IT D 148) HAS CONCLUDED THAT WHEN A BIG BLOCK OF SHARES WAS PURCHASED WITH BORROWED FUNDS ON WHICH S UBSTANTIAL INTEREST LIABILITY WAS INCURRED, IT WAS INDICATIVE OF A TRADING TRANSACTIONS AND PROF ITS WERE TAXABLE AS BUSINESS INCOME, NOT AS CAPITA! GAINS. IN THE APPELLANT'S CASE, FACTS OF BO TH THE DECISIONS SQUARELY APPLY. FUNDS HAVE BEEN BORROWED BY APPELLANT TO PURCHASE THE UNITS AND SUB STANTIAL AMOUNT OF INTEREST IS PAID ON IT. THE RE-PAYMENT OF LOAN HAS BEEN MADE FROM THE FUNDS REC EIVED ON SALE OF THE SAME UNITS WHICH HAVE BEEN PURCHASED FROM BORROWED FUNDS. THUS, THE INTEN TION OF APPELLANT AS ALSO TO EARN PROFIT FROM THE TRANSACTIONS IN UNITS FOR WHICH BORROWED FUNDS WERE UTILIZED. IN VIEW OF THESE FACTS AND LEGAL POSITION, IT IS HELD THAT A.O. HAS RIGHTLY DECIDED THE ISSUE BY CONSIDERING THE AFORESAID TRANSACTIONS AS BUSINESS TRANSACTIONS. THIS GROUND OF APPELLANT FAILS. WITH RESPECT TO DISALLOWANCE U/S 14A, THE RELEVANT FINDINGS OF CIT(A) IS AS UNDER:- 4.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND FO UND THAT ASSESSING OFFICER HAS INCLUDED THOSE AMOUNTS ALSO FOR COMPUTING DISALLOWANCE U/S. 14A WH ICH DO NOT YIELD ANY EXEMPT INCOME. AS MENTIONED BY APPELLANT IN THE CHART GIVEN IN THE SU BMISSIONS THERE ARE MANY FUNDS AND UNITS WHICH YIELD TAXABLE INCOME BUT THE A.O. HAS TREATED THEM GENERATING THE EXEMPT INCOME. FURTHER, THE BORROWED FUNDS UTILIZED FOR PURCHASING THE UNITS, A S DECIDED IN THE THIRD GROUND OF APPEAL, ARE ALSO TO BE TAKEN INTO CONSIDERATION BY A.O. WHILE C OMPUTING THE SAID DISALLOWANCE. IN VIEW OF THESE FACTS, ASSESSING OFFICER IS DIRECTED TO RE-CO MPUTE THE DISALLOWANCE U/S. 14A OF THE ACT BY ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 6 EXCLUDING THE FUNDS/INVESTMENT WHICH YIELD TAXABLE INCOME AND INCLUDING THOSE WHICH YIELD EXEMPT INCOME, AFTER EXAMINING THE FACTS ON RECORD. THIS G ROUND IS ALLOWED FOR STATISTICAL PURPOSE. 7. BEFORE US, THE LD.A.R. REITERATED THE SUBMISSIONS M ADE BEFORE CIT(A). HE FURTHER POINTED TO PAGE 3 OF THE PAPER BOOK WHIC H IS A STATEMENT OF EXEMPT LONG TERM CAPITAL GAINS. FROM THE STATEMENT, HE POINTED OUT THAT ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS FROM SA LE OF VARIOUS OTHER MUTUAL FUNDS ALSO AND THE SAME HAS BEEN ACCEPTED BY THE AO AS LONG TERM CAPITAL GAINS EXCEPT FOR THE CAPITAL GAINS FRO M RELIANCE EQUITY FUND. HE THEREFORE SUBMITTED THAT THE AO HAS CONSIDERED O NLY ONE CASE TO BE NOT OF A LONG TERM CAPITAL GAINS. HE FURTHER PLACED RELIANCE ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT V S NIRAJ AMIDHAR SURTI (2012) 347 ITR 149 (GUJ). THE LD. D.R. ON THE OTHER POINTED TO THE FINDINGS OF AO AND STRONGLY SUPPORTED THE ORDER OF AO AND C1T(A) ON THE POINT OF CONSIDERING THE INCOME FROM PROFIT OF UNITS AS BUSINESS INCOME. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS DISCLOSE D PROFIT FROM SALE OF MUTUAL FUNDS AS CAPITAL GAINS BUT THE AO HAS ACCEPT ED THE SAME AS CAPITAL GAINS EXCEPT IN 2 CASES (PROFIT ON SALE OF RELIANCE EQUITY FUND AND JM CONTRA FUND) FOR THE REASON THAT THE ASSESSEE HAS B ORROWED FUNDS FOR MAKING INVESTMENTS, HAS PAID INTEREST AND ALSO THE LOAN WAS LIQUIDATED OUT OF THE SALE PROCEEDS AND THUS THE TRANSACTION A ND THE MODUS OPERANDI OF THE ASSESSEE WAS IN THE NATURE OF BUSINESS ACTIV ITY. IT IS ALSO A FACT THAT AO MADE DISALLOWANCE ON ACCOUNT OF INTEREST U/S 14A FOR THE REASON THAT THE BORROWED FUNDS HAVE BEEN USED FOR MAKING THE IN VESTMENTS. CIT(A) ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 7 HAS UPHELD THE ORDER OF AO OF TREATING THE INCOME A S BUSINESS FOR THE REASON THAT ACCORDING TO HIM THE OBSERVATION OF THE HONOURABLE HIGH COURT IN THE CASE OF NIRAJ SURTI (SUPRA) WAS IN THE NATURE OF OBITER DICTA. 9. FOR READY REFERENCE THE RELEVANT OBSERVATION OF HO N. HIGH COURT IN THE CASE OF CIT VS NIRAJ A SURTI (SUPRA) IS AS UNDER:- 14. HOWEVER, THE REASONING ADOPTED BY THE AO LOSES SIGHT OF THE FACT THAT MERELY BECAUSE THE SHARES HAD BEEN PURCHASED FROM BORROWED FUNDS OBTAINED ON HIGH RATE OF INTEREST WOULD NOT CHANGE THE NATURE OF THE TRANSACTION FROM INVESTMENT TO ONE IN THE NATURE OF AN 'ADVENTURE IN THE NATURE OF TRADE '. MOREOVER, IN THE LIGHT OF THE FINDINGS RECORDED BY CIT(A) THAT THE ASSESSEE HAD HELD THE SHARES IN QUESTION FOR FOURTEEN MONTHS, WHICH IS A LONG PERIO D FOR THE PURPOSE OF LONG-TERM CAPITAL GAIN, THE INTENTION OF THE ASSESSEE HAD ALWAYS BEEN THAT OF M AKING INVESTMENT IN SHARES AND NOT DEALING IN SHARES, WHICH WAS ALSO APPARENT FROM THE FACT THAT THE SHARES HAD NOT BEEN TREATED AS STOCK IN TRADE B Y THE ASSESSEE; EVEN AFTER THE SALE, THE ASSESSEE HAD MADE INVESTMENT IN BONDS OF NABARD, INDICATING THAT HE HAD TREATED THE SAME AS LONG-TERM CAPITAL G AIN; AS WELL AS THE FACT THAT THE ASSESSEE HAD NOT SPLIT THE SHARES IN LOTS BUT HAD SOLD THE SAME IN O NE LOT; IT IS NOT POSSIBLE TO AGREE WITH THE CONTEN TION RAISED ON BEHALF OF THE REVENUE THAT THE TRANSACTIO N IN QUESTION IS AN 'ADVENTURE IN THE NATURE OF TRA DE' AND THEREFORE, THE INCOME DERIVED BY THE ASSESSEE F ROM THE SAID TRANSACTION IS A BUSINESS INCOME AND CANNOT BE TREATED AS CAPITAL GAIN. INSOFAR AS THE S ECOND GROUND FOR HOLDING THE TRANSACTION IN QUESTIO N TO BE AN ADVENTURE IN THE NATURE OF TRADE, VIZ., TH AT THE ASSESSEE WAS NOT THE LEGAL OWNER OF THE SHAR ES AND WAS NOT HAVING PHYSICAL POSSESSION THEREOF, IS CONCERNED, IF THE SAID GROUND WERE TO BE ACCEPTED, THEN, AS HAD BEEN RIGHTLY CONTENDED ON BEHALF OF TH E ASSESSEE, THERE WAS NO TRANSACTION IN THE HANDS O F THE ASSESSEE AND AS SUCH, THERE WAS NO QUESTION OF TAXING THE SAID TRANSACTION MERELY ON THE GROUND THAT THE ASSESSEE HAD OFFERED THE SAME AS CAPITAL G AIN. IT IS NOBODY'S CASE THAT DELIVERY OF SHARES ALLOTTED WAS NOT TAKEN AT ALL. THE SHARES WERE HELD BY MANIRAM CONSULTANTS AS SECURITY TOWARDS LOAN ADVANCED TO THE ASSESSEE INDICATING THAT THE ASSESS EE WAS THE OWNER OF SHARES WHICH WERE OFFERED AND HELD AS SECURITY. 10. WITH RESPECT TO AS TO WHETHER THE DECISION OF HON. COURT IS BINDING ON THE TRIBUNAL, THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF ACIT VS. SREEJA HOSIERIES (2009) 122 TTJ (CHENNAI) 849, HAS NOTED AS UNDER:- '17. THERE IS NO DOUBT THAT A DECISION WHICH IS BAS ED ON NON-CONSIDERATION OF THE MATERIAL PROVISIONS OF LAW CANNOT BE SAID TO BE A BINDING PRECEDENT, BE CAUSE OF THE DOCTRINES OF SUB SILENTIO AND PER INCURIAM. BUT THE QUESTION IS, WHETHER A TRIBUNAL H AS JURISDICTION TO HOLD THAT A PARTICULAR DECISION OF THE JURISDICTIONAL HIGH COURT WAS RENDERED PER INCU RIAM OR SUB SILENTIO, AND THAT IT DID NOT CREATE AN Y ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 8 BINDING PRECEDENT. THE ANSWER TO THIS QUESTION, AS GIVEN BY THE MADHYA PRADESH HIGH COURT, IN THE CASE OF NATIONAL TEXTILE CORPORATION LTD. (M.P.) (S UPRA), WAS IN THE 'NEGATIVE'.' 11. IT IS A SETTLED LAW, THAT DECISIONS OF THE HIGH COU RT ARE BINDING ON THE SUBORDINATE COURTS, AUTHORITIES AND TRIBUNAL SITUAT ED WITHIN ITS JURISDICTIONAL TERRITORY AND ITS POWER OF SUPERINTE NDENCE EXTENDS THROUGHOUT THE TERRITORY IN RELATION TO WHICH IT EX ERCISES JURISDICTION. 12. BEFORE US, WE FIND THAT THE JURISDICTIONAL HIGH COU RT IN THE DECISION CITED HEREIN ABOVE HAS HELD THAT MERELY BECAUSE THE SHARE S HAVE BEEN PURCHASED FROM BORROWED FUNDS OBTAINED AT HIGHER RA TE OF INTEREST WOULD NOT CHANGE THE NATURE OF TRANSACTION FROM INVESTMEN T TO ONE IN THE NATURE OF AN ADVENTURE IN THE NATURE OF TRADE. IN THE C ASE BEFORE US ALSO, THE A.O. HAS CONSIDERED THE PROFIT ON SALE OF MUTUAL FU NDS AS BUSINESS INCOME MAINLY FOR THE REASON THAT ASSESSEE HAS BORR OWED INTEREST BEARING FUNDS FOR ITS INVESTMENTS AND THE LOANS WERE LIQUID ATED DIRECTLY OUT OF THE SALE PROCEEDS. SINCE THE HON. HIGH COURT HAS IN THE DECISION CITED HEREINABOVE HAS HELD THE TRANSACTION TO BE INVESTME NT,RESPECTFULLY FOLLOWING THE DECISION OF HON. HIGH COURT AND IN VI EW OF THE AFORESAID FACTS, WE ARE OF THE VIEW, THAT THE TRANSACTIONS IN CASE OF SALE OF TWO MUTUAL FUND UNITS CANNOT BE CONSIDERED AS BUSINESS INCOME AS CONSIDERED BY THE ASSESSING OFFICER BUT HAS TO CONSIDERED AS C APITAL GAINS. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE CO OF ASSESSEE IS ALLOWED. 14. WITH RESPECT TO DISALLOWANCE U/S 14A, WE FIND THAT CIT(A) HAS HELD THAT THE INVESTMENTS YIELDING EXEMPT INCOME ONLY SHOULD BE CONSIDERED FOR ITA NO. 2158/A/2012 & CO. NO. 224/A/2012 . A.Y. 2008- 09 9 WORKING OUT THE DISALLOWANCE. LD.D.R. COULD NOT BRI NG ANY CONTRARY MATERIAL ON RECORD TO CONTRADICT THE FINDINGS OF CI T(A) AND IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED AND THE CO OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 -11 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD