N.B.T. EXPORTS P. LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 1070/MUM/2010

• Counselvise Citation: 107019914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: N S PORWAL
• Keywords: Business income; Search and seizure; Earning of tax free income; Question of law; Speculation loss
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1070/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. NBT EXPORTS PVT. LTD. DCIT 1(2) C/O. PORWAL & PORWAL, CAS AAYAKAR BHAVAN, M.K. ROAD 625, LAXMI PLAZA, 6 TH FLOOR VS. MUMBAI 400020 ANDHERI (W), MUMBAI 400053 PAN - AAACA 5574 A APPELLANT RESPONDENT APPELLANT BY: SHRI N.S. PORWAL RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- II, MUMBAI DATED 30.11.2009 FOR A.Y. 2006-07. 2. ASSESSEE HAS RAISED 3 GROUNDS. GROUND NO. 1 BEING T REATMENT OF VARIOUS SHORT TERM CAPITAL GAINS AS INCOME FROM BUS INESS, GROUND NO. 2 BEING DISALLOWANCE UNDER SECTION 14A AND GROUND NO. 3 REGARDING DOUBLE ADDITION MADE IN THE ASSESSMENT ORDER WHICH THE CIT (A) HAS NOT CONSIDERED. GROUND NO. 3 REGARDING DOUBLE ADDITION HAS BEEN WIT HDRAWN AS THE ORDER ITSELF HAS BEEN RECTIFIED SUBSEQUENTLY BY THE A.O. 3. WITH REFERENCE TO THE DISALLOWANCE UNDER SECTION 14 A THE CIT(A) INVOKED RULE 8D AND RESTRICTED THE DISALLOWANCE UND ER SECTION 14A TO ` 56,480/- AS AGAINST ` 75,000/- MADE BY THE A.O. IT WAS THE SUBMISSION THA T CONSEQUENT TO THE DECISION OF THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. IN WRIT PETITION NO. 7 58 OF 2010 DATED 12.08.2010 THE ISSUE HAS TO GO BACK TO THE A.O. FOR REDETERMINATION OF THE AMOUNT UNDER SECTION 14A AT A REASONABLE AMOUNT ON THE EXEMPT INCOME EARNED. IN VIEW OF THIS, THE ISSUE IN GROUND NO. 2 REGARDING DISALLOWANCE UNDER SECTION 14A IS RESTORED TO THE FILE OF THE A. O. FOR FRESH CONSIDERATION AS PER APPLICABLE LAW AND FACTS OF THE CASE. THAT LEAV ES US WITH THE MAIN ISSUE OF TREATING PART OF SHORT TERM CAPITAL GAINS AS INC OME FROM BUSINESS. ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 2 4. ASSESSEE IS A PRIVATE LIMITED COMPANY IN THE BUSINE SS OF MANUFACTURE OF NETS AND ROPES. DURING THE YEAR ASSESSEE APART F ROM BUSINESS INCOME HAD SHORT TERM CAPITAL GAINS OF ` 51,94,126/- AND INCURRED LOSS OF ` 8,15,842/- IN FUTURE AND OPTION TRADING. THE A.O. NOTICED THAT TH E ASSESSEES TURNOVER IN PURCHASES AND SALES WERE ALMOST TO THE EXTENT OF ` 5.19 CRORES AS AGAINST `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` 16,01,002/- AND TREATED THE BALANCE OF ` 40,61,005/- AS BUSINESS INCOME. ACCORDINGLY HE COMP UTED THE TOTAL INCOME TREATING THE SHORT TERM CAPITAL GAINS DISCLOSED AS BUSINESS INCOME. 5. THE MATTER WAS CARRIED TO THE CIT(A) AND ON THE OBS ERVATIONS MADE BY THE A.O., HE AGREED WITH THE A.O. THAT THE INCOME I S BUSINESS IN NATURE. THE ORDER IN PARA 5, 6 & 7 ARE AS UNDER: - 5. I HAVE PERUSED THE FACTS OF THE CASE AND HAVE A LSO LOOKED INTO THE DETAILS OF THE SHARE TRANSACTIONS FILED BEFORE ME. TO MY MIND THE STARTING POINT OF THE WHOLE ISSUE IS THE STATUS OF APPELLANT AS A CORPORATE ENTITY. A COMPANY IS FORMED FOR DOING BUSINESS. THI S IS THE ONLY PURPOSE FOR WHICH A CORPORATE ENTITY CAN BE CREATED EXCEPT IF IT IS A COMPANY FORMED U/S. 25 OF THE COMPANIES ACT. WHEN THE ONLY PURPOSE OF CREATION OF A CORPORATE ENTITY IS BUSINESS, THE PRIMARY PRES UMPTION FOR ANY ACTIVITY UNDERTAKEN BY CORPORATE ENTITY IS THAT IT IS A BUSINESS ACTIVITY. IF THE CLAIM IS OTHERWISE, THE ONUS IS SQUARELY UPON T HE CORPORATE ASSESSEE TO ESTABLISH THAT THE ACTIVITY BEING UNDERTAKEN IS NOT A BUSINESS ACTIVITY. THE COROLLARY OF THIS LEGAL SITUATION WOULD BE THAT THE ACTIVITY OF TRANSACTIONS IN SHARES WILL HAVE TO BE PRESUMED TO BE A BUSINESS ACTIVITY UNLESS ESTABLISHED OTHER WAY ROUND. AND, I F THE CORPORATE ENTITY IS TAKING A CONSCIOUS DECISION OF INVESTING IN SHAR ES, OTHER THAN BEING A BUSINESS IN SHARES, THERE HAS TO BE A BOARD RESOLUT ION TO THIS EFFECT. BECAUSE, IN THE ABSENCE OF THAT BOARD RESOLUTION IT HAS TO BE PRESUMED ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 3 THAT THE ACTIVITY IS ONE OF BUSINESS. IN THE COURSE OF APPELLATE PROCEEDINGS LD. COUNSEL OF APPELLANT WAS ASKED TO C LARIFY WHETHER SUCH A BOARD RESOLUTION DECIDING THE COMPANY TO INVEST I N SHARES EXISTS, LD. COUNSEL OF APPELLANT HAS KEPT QUITE AND HAS NOT RES PONDED TO THE REQUIREMENT. IT IS THEREFORE PRESUMED THAT NO SUCH RESOLUTION EXISTS AND CONSEQUENTLY THE TRANSACTIONS IN SHARES ARE REQUIRE D TO BE TREATED AS A BUSINESS ACTIVITY. 6. I ALSO FIND THAT ASSESSING OFFICER HAS ANALYSED THE ISSUE IN GREAT DETAILS. HE HAS ARGUED THAT BOTH THE VOLUME OF TRAN SACTIONS AND THE FREQUENCY OF TRANSACTIONS IS SUBSTANTIALLY HIGH IN SHARE TRANSACTIONS OF APPELLANT. DURING THE YEAR UNDER CONSIDERATION A PPELLANT HAS SOLD MORE THAN NINE LAKH NUMBER OF SHARES. THE AMOUNT IN VOLVED IS MORE THAN RS.5 CRORES WHICH IS IN CONTRAST TO OTHERWISE VOLUME OF SALE OF TRADED GOODS OF APPELLANT AT JUST ABOUT RS.75 LAKHS . I ALSO FIND THAT THE AVERAGE PERIOD OF HOLDING OF THE SHARES IS JUST ABOUT 4 TO 5 MONTHS AND FREQUENTLY SHARES ARE BEING SOLD WITHIN 3 TO 4 DAYS OF BEING PURCHASED. THE QUANTUM OF DIVIDEND RECEIVED B Y APPELLANT IS RELATIVELY SMALL AND JUST ABOUT 1.94 LACS. WHAT IS EXTREMELY CRUCIAL TO NOTE IS THAT APPELLANT IS OPERATING IN A BIG WAY IN FUTURE AND OPTIONS SEGMENT. THE SEGMENT REQUIRES NOT ONLY A DAY TODAY WATCH ON THE MARKET MOVEMENT AND THE ACTIVITIES, IT REQUIRES ANA LYSIS AND THE STUDY OF THE ENTIRE ECONOMIC ACTIVITY INCLUDING WHA T IS HAPPENING IN VARIOUS INDUSTRIES AND TO VARIOUS COMMODITIES. ANYO NE WHO IS OPERATING IN THIS SEGMENT OF THE MARKET HAS TO BE U P-TO-DATE ON ALL THESE FACTORS AND CONSEQUENTLY HAVE TO DEVOTE A LOT OF TIME ENERGY ACTIVITY ON A DAY-TO-DAY BASIS. IN EFFECT, IT BECOM ES A FULL-TIME ACTIVITY OF APPELLANT. AND, THE TWO SETS OF TRANSACTIONS, ON E IN CASH SEGMENT ON SALE OF SHARES AND THE OTHER IN FUTURE OPTIONS S EGMENT ARE NOT INDEPENDENT OF EACH OTHER. IN TODAYS MARKET WHAT I S HAPPENING IN ONE SEGMENT IS CRUCIALLY AFFECTING THE OTHER SEGMEN T. THEREFORE THE MANNER IN WHICH APPELLANT IS DOING ITS ACTIVITY IS CLEARLY A BUSINESS ACTIVITY. THE FACT THAT IN THE BALANCE SHEET SHARES ARE BEING LISTED AS INVESTMENT IS NOT OF MUCH SIGNIFICANCE. THIS IS PAR TICULARLY SO IN THE ABSENCE OF ANY CONSCIOUS DECISION TAKEN BY COMPANY TO EFFECT INVESTMENT IN SHARES. THAT MEANS THAT THIS CATEGORI ZATION IS ONLY AN ADHOC CATEGORIZATION WITHOUT ANY BEARING UPON THE R EAL NATURE OF ACTIVITY. FOR ALL THE REASONS DETAILED ABOVE IN MY VIEW, THE ACTIVITY OF APPELLANT OF TRANSACTIONS IN SHARES IS DEFINITELY A BUSINESS ACTIVITY AND CONSEQUENTLY THE DECISION OF ASSESSING OFFICER IS FULLY JUSTIFIED. 7. AS FAR AS THE CONTENTION OF APPELLANT THAT AD-HO C BIFURCATION OF THE ACTIVITY INTO TWO PARTS, ONE LEADING TO BUSINES S INCOME AND THE OTHER LEADING TO SHORT TERM CAPITAL GAIN IS NOT JUS TIFIED AT ALL IS CONCERNED, I AM OF THE VIEW THAT ASSESSING OFFICER HAS PROCEEDED ON A VERY SOUND BASIS. HE HAS ANALYSED THE TRANSACTION S IN SHARES IN GREAT DETAILS AND HAS SEGREGATED THOSE SHARES WHICH ARE PURCHASED BY APPELLANT PRIOR TO APRIL 2004 AND HAS HELD THAT IN RESPECT OF ALL THE SHARES, GAIN TO APPELLANT ON SALE IS CAPITAL GAIN. THIS IS A LOGICAL CONCLUSION SINCE IT IS EVIDENT THAT THE SHARES ARE BEING HELD FOR A LONG TIME AND CONSEQUENTLY, DO NOT APPEAR TO BE AN INTEG RAL PART OF TRADING ACTIVITY OF APPELLANT RESULTING INTO BUSINESS INCOM E. HE HAS ONLY ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 4 PICKED UP THOSE SHARES WHICH HAD BEEN HELD BY APPEL LANT FOR SHORT DURATION AS RESULTING INTO BUSINESS PROFITS. THIS A PPEARS TO BE SOUND THINKING AND, TO MY MIND IS GIVING REASONABLE BENEF IT TO APPELLANT IN TERMS OF PART OF THE GAIN BEING TREATED AS CAPITAL GAINS. 6. LEARNED A R, RELYING ON THE PAPER BOOK PLACED CONTA INING PAGES 1 TO 143 INCLUDING VARIOUS ORDERS OF THE ITAT AND HIGH C OURTS, SUBMITTED THAT ASSESSEE WAS HAVING BOTH TRADING ACTIVITY AND INVES TMENT ACTIVITY. AS STATED EARLIER ASSESSEE WAS SHOWING INCOMES BOTH UNDER BUS INESS AS WELL AS CAPITAL GAINS. MOST OF THE INCOMES EARNED ON FUTURES AND OP TIONS ARE CONSIDERED AS BUSINESS INCOMES WHEREAS THE INVESTMENT IN SHARES A RE CONSIDERED AS SHORT TERM CAPITAL GAINS AND THE SAID INVESTMENTS ARE REF LECTED IN THE BALANCE SHEET AS INVESTMENTS ONLY. IT WAS HIS SUBMISSION TH AT ASSESSEE IS REGULARLY INVESTING SURPLUS FUNDS FOR SHORT TERM CAPITAL GAIN S AND THIS CANNOT BE TREATED AS BUSINESS ACTIVITY. HE ALSO PLACED ON REC ORD COPIES OF THE ASSESSMENT ORDER UNDER SECTION 143(3) FOR A.Y. 2007 -08 AND 2008-09 WHEREIN ASSESSEES SHORT TERM CAPITAL GAINS OFFERED WERE ACCEPTED IN THE SCRUTINY ASSESSMENT AS SUCH WITHOUT ANY MODIFICATIO N. IT WAS HIS SUBMISSION THAT ASSESSEE WAS CONSISTENTLY SHOWING T HE INVESTMENT IN SHARES AND NOT AS BUSINESS INCOME AND THEREFORE THE INCOMES ARE TO BE TREATED AS SHORT TERM CAPITAL GAINS ONLY AND A.O. W AS NOT CORRECT IN TREATING IT AS BUSINESS INCOME. 7. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDER OF T HE A.O. AND ANALYSED THE FACTS. 8. BOTH THE PARTIES HAVE PLACED RELIANCE ON VARIOUS OR DERS OF THE ITAT GIVEN IN THIS REGARD. ASSESSEE RELIED ON THE FOLLOW ING ORDERS: - I) GOPAL PUROHIT VS. JCIT 122 TTJ (MUM) 87 II) MANAGEMENT STRUCTURE & SYSTEMS PVT. LTD. VS. ITO IT A NO. 6966/MUM/2007 III) J.K. SHARE & STOCK BROKERS LTD. VS. JCIT ITA NO. 51 55/MUM/2001 IV) GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 (M UM) THE LEARNED D.R. RELIED ON THE FOLLOWING ORDERS: - I) MR. RAKESH J. SANGHVI VS. ADDL. CIT ITA NO. 4607/ MUM/2007 & ITA NO. 5710/MUM/2009 II) SMT. SADHANA NABERA VS. ACIT ITA NO. 2586/MUM/200 9 III) SHAILESH L. SHAH, HUF VS. DCIT ITA NOS. 3991 & 3992/MUM/2008 IV) ACIT VS. MR. V. NAGESH ITA NO. 5410/MUM/2008 ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 5 9. IN THE CASE OF SMT. SADHANA NABERA IN ITA NO. 2586/ MUM/2009 THE ITAT HAS CONSIDERED THE EXITING PRINCIPLES ON THE T RANSACTIONS AS UNDER: - 12. BEFORE ANALYSING THE FACTS OF THE CASE IT IS NE CESSARY TO NARRATE THE PRINCIPLES APPLICABLE IN DECIDING THE ISSUE AS LAID DOWN IN SEVERAL JUDICIAL PRONOUNCEMENTS RELIED UPON BY BOTH THE A.O . AND THE CIT(A) AND ASSESSEE. THE A.O. HAS RELIED UPON THE PRINCIPL ES THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERMINING FACTOR TO DECIDE THE REAL NATURE OF TRANSACTIONS TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SC) 227 ITR 172. IF A RECEIPT IS TRAD ING RECEIPT THE FACT THAT IT IS NOT SHOWN IN THE ACCOUNT OF THE ASSESSEE DOES NOT PREVENT THE A.O. IN TREATING IT AS TRADING RECEIPT CHOWRI NGHEE SALES BUREAU P. LTD. 87 ITR 548 (SC) & PUNJAB DISTILLING INDUSTR IES LTD. 35 ITR 523 (SC). NAME OF LABEL GIVEN BY A PARTY TO A PARTICULA R AMOUNT IS NOT CONCLUSIVE - CIT VS. J.D. ITALIA 141 ITR 953 (AP). & CIT VS. BAZPUR CO- OP SUGAR FACTORY LTD. 172 ITR 330 (SC). THE QUESTIO N WHETHER IT AMOUNT TO BUSINESS ACTIVITY WILL DEPEND ON THE PECU LIAR FACTS OF THE CASE G. VENKATASWAMI NAIDU & CO. VS. CIT 35 ITR 5 94. WITH REFERENCE TO THE BUSINESS ACTIVITY THE A.O. HELD TH AT THE VOLUME, FREQUENCY AND REGULARITY OF SHARE TRANSACTIONS DONE IN ORGANIZED MANNER INDICATE BUSINESS ACTIVITY CIT VS. MOTILAL HIRABHAI SPG. & SVG. CO. LTD. 13 ITR 173 (GJU), RAJA BAHADUR VISHES HWARA SINGH VS. CIT 41 ITR 685 (SC), PUNJAB CO-OPERATIVE BANK LTD. VS. CIT 8 ITR 635, ETC. 13. IT IS HELD THAT WHETHER A TRANSACTION OF SALE A ND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR THEY WERE IN TH E NATURE OF INVESTMENT IS A MIXED QUESTION OF LAW AND FACTS AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. H. HOLCK LARSE N 160 ITR 67. IT IS FURTHER HELD IN THE CASE OF CIT VS. ASSOCIATED INDU STRIAL DEVELOPMENT CO. P. LTD. 82 ITR 586 THAT IT IS POSSIBLE THAT THE ASSESSEE TO BE BOTH AN INVESTOR AS WELL AS DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR FORM PART OF STOCK-IN-TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASS ESSEE TO PRODUCE EVIDENCE FROM THE RECORDS AS TO WHETHER HE MAINTAIN ED ANY DISTINCTION BETWEEN SHARES WHICH ARE HELD AS INVESTMENT AND THO SE HELD AS STOCK- IN-TRADE. IT IS ALSO HELD IN THE CASE OF MOTILAL HI RABHAI SPG. & SVG. CO. LTD. 113 ITR 173 (GUJ) AND RAJA BAHADUR VISHESHWARA SING 41 ITR 685 (SC) THAT TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE CONCLUSIVE AND IF THE VOLUME, FREQUENCY AND REGULAR ITY AT WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANISED ACTIVITY WITH PROFIT MOTIVE THEN IT BECOMES BUSINESS PROFIT NOT CAPITAL GAIN. IN THE CASE OF CIT VS. PKN CO LTD.60 ITR 65 IT WAS HEL D THAT PURCHASE WITH AN INTENTION TO RESALE WILL ALSO, UNDER THE CH ANGED CIRCUMSTANCE, WOULD BE CAPITAL GAINS. IT IS ALSO HELD IN THE CASE OF SAROJ KUMAR MAZUMDAR VS. CIT 37 ITR 242 BY THE HON'BLE SUPREME COURT THAT PURCHASE WITH AN INTENTION TO RESALE IN ORDER TO GA IN PROFIT WILL BE BUSINESS PROFIT DEPENDING ON THE CIRCUMSTANCES OF T HE CASE LIKE NATURE QUANTITY OF PURCHASE AND NATURE OPERATION INVOLVED. IT WAS ALSO HELD IN THE CASE OF JANKI RAM BAHADUR RAM VS. CIT 57 ITR 21 (SC) THAT NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND THE Q UESTION MUST BE ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 6 ANSWERED DEPENDING ON THE COLLECTIVE EFFECT OF ALL RELEVANT MATERIAL BROUGHT ON RECORD. KEEPING IN VIEW THE ABOVE PRINCIPLES THE FACTS IN T HE PRESENT CASE ARE EXAMINED. A.O. HIMSELF ACCEPTS THAT ASSESSEE IS HAV ING AN INVESTMENT ACCOUNT AS WELL AS TRADING ACCOUNT. HE ALSO BIFURCA TED THE SHORT TERM CAPITAL GAINS AND PART OF IT IS TREATED AS BUSINESS INCOME. HOWEVER, WE ARE NOT SURE ON WHAT BASIS THE INCOMES ARE BIFURCATED AS NO BASI S WAS GIVEN EXCEPT STATING THAT THE SHARES PURCHASED IN EARLIER YEAR A RE TO BE TREATED AS INVESTMENT. WE ARE AFRAID THAT THIS CLASSIFICATION IS NOT CORRECT. AS PER THE BOARDS CIRCULAR ASSESSEE CAN HAVE TRADING AS WELL INVESTMENT ACTIVITY SEPARATELY. IF THERE ARE FREQUENT PURCHASE AND SALE OF SHARES REPEATEDLY THIS TRANSACTION IN SUCH SHARES CAN BE CONSIDERED AS TRA DING. IF ASSESSEE PURCHASES A SET OF SHARES OF A PARTICULAR COMPANY I N A LOT AND SELLS THEM, SOME OF THEM WITHOUT DELIVERY, AND SOME IN SHORT PE RIOD OF TIME AFTER TAKING DELIVERY THEN THE INTENTION CAN BE CONSIDERED AS TR ADING. IF ASSESSEE IS HAVING SOME SHARES AND ALSO TAKES POSITIONS IN FUT URES AND OPTIONS IN THE SAME SHARES, THEN THE INTENTION CAN BE CONSIDERED A S EITHER ONE OF TRADING OR INVESTMENT DEPENDING ON THE PERIOD OF HOLDING OF THE SHARES AVAILABLE WITH HIM, AS HEDGING IS PERMITTED FOR PROTECTION OF INVESTMENT IN SHARES AS PER THE EXISTING RULES. ASSESSEE HAS PLACED THE DET AILS OF SHORT TERM/ LONG TERM CAPITAL GAINS EARNED AND THE DETAILS RUNS INTO LARGE NUMBER OF TRANSACTIONS. THE ARTIFICIAL BIFURCATION MADE BY T HE A.O. CANNOT BE SUSTAINED UNLESS THE FACTS ARE EXAMINED. JUST BECAU SE THE ASSESSEE HAS LARGE AMOUNT OF TRANSACTIONS IT ALONE CANNOT DECIDE THE ISSUE UNLESS THE FREQUENCY OF TRANSACTION IN THE SAME SHARE IS ANALY SED. ON THE ANALYSIS OF THE DETAILS FILED IT SEEMS THAT ASSESSEE WAS HOLDIN G SOME SHARES FROM 3 DAYS - 5 DAYS TO A MAXIMUM OF 5 MONTHS -10 MONTHS AND SH OWN THAT IT IS FOR INVESTMENT PURPOSE. THE DETAILS OF TRANSACTIONS IN FUTURES AND OPTIONS ARE NOT PLACED ON RECORD TO ANALYSE WHETHER TRANSACTION S UNDERTAKEN ARE HEDGING OR TRADING TRANSACTIONS SEPARATELY. IT IS T RUE THAT ASSESSEE IS SHOWING THE TRANSACTIONS AS INVESTMENT BUT IT IS AL READY SETTLED LAW THAT THE TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT CA N NOT BE A CRITERIA FOR ANALYSING THE NATURE OF TRANSACTION. IT IS ALSO SEE N THAT THE ASSESSEE HAS INCURRED LOSS IN THE EARLIER PREVIOUS YEARS IN FUTU RES AND OPTIONS WHICH IS TREATED AS SPECULATIVE IN NATURE AND WAS ALLOWED TO BE CARRIED FORWARD. THIS ITA NO. 1070/MUM/2010 M/S. NBT EXPORTS PVT. LTD. 7 YEAR ALSO, AS SEEN FROM THE ASSESSMENT ORDER, THE A SSESSEE HAS INCURRED A LOSS IN FUTURES AND OPTIONS OF ` 8,15,842/- BUT THIS LOSS WAS NOT TREATED AS SPECULATIVE LOSS AND NO MENTION WAS MADE IN THE ASS ESSMENT ORDER. WE ARE NOT SURE WHETHER THIS ASPECT IS EXAMINED AT ALL BY THE A.O. IT CAN BE SEEN IN THE ABSENCE OF FULL DETAILS AND ALSO CONSIDERING TH E ARTIFICIAL BIFURCATION BY THE A.O. BETWEEN THE SHORT TERM CAPITAL GAINS AND B USINESS TRANSACTIONS, WE ARE OF THE OPINION THAT THE ISSUE REQUIRES RE-EXAMI NATION BY THE A.O. KEEPING IN MIND THE FREQUENCY OF TRANSACTIONS AND THE RELAT IONSHIP BETWEEN FUTURES AND OPTIONS AND INVESTMENT AND ALSO THE EXISTING PR INCIPLES OF LAW ON THE ISSUE. SINCE GROUND NO. 2 IS RESTORED TO THE FILE O F THE A.O. FOR DETERMINING OF DISALLOWANCE UNDER SECTION 14A IT ALSO HAS A BEARIN G ON THE FINDINGS OF THIS ISSUE WHETHER THE INVESTMENTS ARE TO BE CONSIDERED AS INVESTMENTS OR TRADING, THE ISSUE IN GROUND NO. 1 IS ALSO RESTORED TO THE FILE OF THE A.O. TO EXAMINE THE TRANSACTIONS IN DETAIL AND ARRIVE AT TH E NATURE OF TRANSACTIONS WHETHER THE SAME IS INVESTMENT OR TRADING. THE A.O. IS ALSO DIRECTED TO KEEP IN MIND THE LATTER YEAR ORDERS WHICH HELD THAT THE ASSESSEE IS IN INVESTMENT ONLY AND NOT IN TRADING. WITH THESE DIRECTIONS THE ISSUE IN GROUND NO. 1 IS ALSO RESTORED TO THE FILE OF THE A.O. 10. IN THE RESULT, APPEAL IS CONSIDERED ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 20 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) II, MUMBAI 4. THE CIT I, MUMBAI CITY 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.