ACIT, Jaipur V. SMT KAVITA DEVI AGARWAL, Jaipur

ITA 1103/JPR/2010

• Counselvise Citation: 110323114 RSA 2010
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 02-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Keywords: Rejection of books of accounts; Business income; Earning of tax free income; Additional evidence; Question of law; Cost of acquisition
• Section: 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 1103/ JP/2010 ASSESSMENT YEAR 2003-04 PAN: AIMPA 7840 C THE ACIT VS. SMT. KAVITA DEVI AGARWAL CIRCLE- 6 A-682, SHIV MARG JAIPUR MALVIYA NAGAR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO. 1104/ JP/2010 ASSESSMENT YEAR 2004-05 PAN: AIMPA 7840 C THE ACIT VS. SMT. KAVITA DEVI AGARWAL CIRCLE- 6 A-682, SHIV MARG JAIPUR MALVIYA NAGAR JAIPUR (APPELLANT ) (RESPONDENT) C.O. NO.100/JP/2010 (ARISING OUT OF ITA NO. 1104/ JP/2010) ASSESSMENT YEAR 2004-05 PAN: AIMPA 7840 C SMT. KAVITA DEVI AGARWAL VS. THE DCIT A-682, SHIV MARG CIRCLE- 6 MALVIYA NAGAR JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO. 1105/ JP/2010 ASSESSMENT YEAR 2005-06 PAN: AIMPA 7840 C THE ACIT VS. SMT. KAVITA DEVI AGARWAL CIRCLE- 6 A-682, SHIV MARG JAIPUR MALVIYA NAGAR JAIPUR (APPELLANT ) (RESPONDENT) 2 C.O. NO.101/JP/2010 (ARISING OUT OF ITA NO. 1105/ JP/2010) ASSESSMENT YEAR 2005-06 PAN: AIMPA 7840 C SMT. KAVITA DEVI AGARWAL VS. THE DCIT A-682, SHIV MARG CIRCLE- 6 MALVIYA NAGAR JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY :SHRI VINOD JOHRI ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 16-08-2011 DATE OF PRONOUNCEMENT:23-09-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE FILED THE APPEALS WHILE THE ASSESSEE F ILED THE CROSS OBJECTIONS. 2.1 THE FIRST GRIEVANCE OF THE REVENUE IN ALL THE A SSESSMENT YEARS IS THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO NOT TO TREAT THE INCOME FROM SHARE DEALING AS BUSINESS INCOME. 2.2 THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003- 04 ON 01-09-2006 VIDE WHICH INCOME OF RS.3,18,699 W AS RETURNED. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 W AS FILED ON 20-08-06 VIDE WHICH INCOME OF RS.5,68,238/- WAS DISCLOSED AN D THE RETURN OF INCOME 3 FOR THE ASSESSMENT YEAR 2005-06 WAS FILED ON 24-08- 2006 VIDE WHICH INCOME OF RS. 9,56,781/- WAS DISCLOSED. THE RETURNS FOR TH E ASSESSMENT YEARS 2003- 04 AND 2004-05 WERE FILED BEYOND THE PERIOD ALLOWA BLE UNDER INCOME TAX ACT, 1961, HENCE, THE AO ISSUED NOTICE U/S 148 OF T HE ACT FOR BOTH THE ASSESSMENT YEARS AND THE ASSESSEE VIDE LETTER DATED 12TH DEC 2006 SUBMITTED THAT THE RETURN FILED EARLIER YEAR BE TREATED AS RE TURN IN COMPLIANCE TO NOTICE U/S 148 OF THE ACT. THE RETURN FOR THE ASSESSMENT Y EAR 2005-06 WAS FILED WITHIN THE TIME LIMIT PROVIDED UNDER THE ACT AND TH E CASE WAS SELECTED FOR SCRUTINY. SINCE NOTICES U/S 148 WERE ISSUED FOR ASS ESSMENT YEARS 2003-04 AND 2004-05, THEREFORE, THE NOTICES U/S 143(2) WERE ALSO ISSUED FOR THESE TWO ASSESSMENT YEARS ALSO. 2.3 THE AO RECEIVED THE REPORT FROM DDIT (INV.)-II , JAIPUR IN WHICH IT WAS STATED THAT THE TAX EVASION PETITION (TEP) WAS RECEIVED IN WHICH IT WAS ALLEGED THAT THE ASSESSEE HAS EARNED LOT OF UNACCOU NTED MONEY FROM THE BUSINESS OF SHARE DEALING IN MULTIPLE D-MAT ACCOUNT , FROM THE RENTAL INCOME, FROM INTEREST INCOME ETC. THE ENQUIRIES REV EALED THAT THE ASSESSEE WAS NOT FILING THE RETURN OF INCOME AND THE ASSESSE E WAS NOT HAVING A PAN. IT WAS ALSO FOUND BY THE INVESTIGATION WING THAT TH E ASSESSEE HAS MAINTAINED VARIOUS D-MAT ACCOUNTS AND TRADING ACCOUNT IN HER N AME AND IN THE NAME 4 OF HER FAMILY MEMBERS I.E. KIRAN DEVI AGRWAL (MOTHE R- IN- LAW) SHRI VISHAL AGARWAL (SON) AND SHRI VIMAL PRAKASH AGARWAL (HUSBA ND). THE ASSESSEE HAS TRANSACTED SHARE TRANSACTIONS THROUGH VARIOUS BROKE RS AND IS HOLDING HUGE SHARES HOLDINGS. DETAILS OF 12 D-MAT ACCOUNTS ARE A VAILABLE AT PAGE 3 AND 4 OF THE ASSESSMENT ORDER. THE ASSESSEE FILED THE INC OME TAX RETURN FOR THE ASSESSMENT YEAR 1976-77. THEREAFTER NO RETURN WAS F ILED. IN JULY, 2006, SHE MADE AN APPLICATION FOR ALLOTMENT OF PAN. THE ASSES SEE HAS BEEN INVESTING IN SHARE MARKET SINCE 1974. IN THE RETURN OF INCOME FURNISHED FOR ASSESSMENT YEAR 2003-04, THE ASSESSEE APPENDED LIST OF HOLDING OF SHARES AS ON 31-03-03 .(IN THE ACCOUNT OF M/S. INTEGRATED ENTERPRISES IND IA LTD.)THE SHARES WERE STATED TO BE ACQUIRED THROUGH PUBLIC ISSUE / RIGHTS / BONDS/ DEBENTURES/ MERGERS/ D-MERGERS/ CONVERSIONS/ AMALGAMATION ETC. AT VARIOUS OCCASIONS. 2.4 DURING THE COURSE OF ASSESSMENT PROCEEDING, THE AO REQUIRED THE ASSESSEE TO FURNISH THE EVIDENCE FOR YEAR OF ACQUIS ITION, DATE OF ACQUISITION AND SOURCE OF ACQUISITION OF EACH SHARE. HOWEVER, T HE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE IN THIS REGARD. THE AO ALSO MA DE AN EFFORT TO GET THE DETAILS FROM THE STOCK BROKERS BUT THESE DETAILS WE RE NOT RECEIVED FROM THE BROKERS. THE AO PERUSED THE D-MAT ACCOUNT, COPY OF PURCHASE AND SALE TRANSACTION ETC. ON THE OPENING DAY OF THE YEAR UND ER CONSIDERATION I.E. 1-04- 5 02, THE ASSESSEE WAS HAVING 983 SCRIPTS IN HER D-MA T ACCOUNT AND THE ACTUAL COST OF SUCH SHARES WAS STATED TO BE 32,66,8 07. DURING THE YEAR, THE ASSESSEE PURCHASED SHARES OF RS. 50,76,185/- AND SO LD SHARES OF RS. 51,62,797/-. THE VALUE OF THE SHARES LYING IN THE D -MAT ACCOUNT OF THE ASSESSEE ON 31-03-03 WAS AT RS. 34,72,240/- AND THE NUMBER OF SCRIPTS WAS 809 SHARES. DURING THE YEAR, THE ASSESSEE EARNED A DIVIDEND OF RS. 2,05,240/- 2.5 THE AO VIDE LETTER NO. 1142 DATED 16-1-07 REQU IRED THE ASSESSEE TO EXPLAIN THE FOLLOWING ISSUES. 1. LOOKING TO THE FACT THAT THE TRANSACTION IN THE SHARES BEING DONE ON DAILY BASIS AND CONSIDERING THE VOLUM E OF NATURE OF THE TRANSACTION, IT IS PROPOSED TO HOLD THAT YO U HAD DONE SUCH TRANSACTIONS AS A TRADER AND NOT AS AN INVESTOR. 2. WHY SQUARE UP / NON-DELIVERY BASED TRANSACTION B E NOT TREATED AS SPECULATIVE BUSINESS. 2.6 THE ASSESSEE VIDE LETTER DATED 7 TH DEC. 2007 REPLIED THAT THE ASSESSEE IS NOT A TRADER. THE ASSESSEE IS INVESTING HER OWN SAV INGS AND FAMILY CORPUS SINCE 1974. THE ALLOTMENTS HAVE BEEN MADE IN THE NA ME OF VARIOUS MEMBERS OF THE FAMILY. THE ASSESSEE GOT BONUS SHARES AND AL SO GOT OPPORTUNITIES FOR OBTAINING RIGHT ISSUE. THE ASSESSEE IS NOT MAINTAIN ING ANY BOOKS OF ACCOUNTS. THE INCOME TAX RETURN HAS BEEN FILED ON THE BASIS O F THE STATEMENT RECEIVED 6 FROM THE BROKER AND OTHER INFORMATION AVAILABLE IN THE BANK STATEMENTS. THE SURPLUS/ LOSS GENERATED ON THE SHORT TERM DELIVERY OR NON-DELIVERY TRANSACTIONS DURING THE YEAR UNDER REFERENCE ARE BA SED ON THE INFORMATION FURNISHED BY THE CONCERNED STOCK BROKER. ALONGWITH LETTER, THE ASSESSEE'S FILED THE TRADING ACCOUNT FOR DELIVERY BASED TRANSA CTIONS FOR THE HELP OF THE AO THOUGH IT WAS SUBMITTED THAT THE ASSESSEE HAS NO T DONE ANY TRANSACTION AS A TRADER. 2.7 THE AO ISSUED ANOTHER SHOW CAUSE NOTICE AND IN RESPONSE TO WHICH THE ASSESSEE FILED REPLY VIDE LETTER DATED 13-12-20 07. IN THE LETTER, THE ASSESSEE GAVE THE COST PRICE OF SHARE HOLDING AS ON 31-03-04 AT RS. 46,24,055/-. WHENEVER LONG TERM HOLDING HAS BEEN OF FERED FOR SALE, THE REASON IS ONLY FOR BLOCKING OF GROWTH OF THAT COMPA NY OR DEAD LOCK IN THE MANAGEMENT. ON 11-03-2003, THE ASSESSEE HAS GIVEN T HE VOLUME OF TRANSACTION OCCURRED ON THAT DAY. ON THAT DAY, THE ASSESSEE HAS DEALT WITH THREE SCRIPTS 2.8 THE AO IN HIS ORDER AT PAGES 13 HAS MENTIONED T HAT THE ASSESSEE HAS REPORTED TRANSACTIONS IN RESPECT OF SHORT TERM SAL ES FROM 3-7-02 AND 4-07-02. THE AO NOTICED FROM STATEMENT OF BROKERAGE OF M/S. INTEGRATED ENTERPRISES INDIA LTD. THAT VARIOUS TRANSACTIONS OF SHARES HAV E BEEN MADE FOR THE 7 ASSESSEE AND HER FAMILY MEMBER FROM 8-04-02 TO 17-0 4-02. SUCH FIGURES HAVE NOT BEEN REPORTED BY THE ASSESSEE. 2.9 THE AO AFTER CONSIDERING THE SUBMISSIONS AND FA CTS NOTICED BY HIM HELD THAT INCOME FROM TRANSACTION IN PURCHASE AND S ALE OF SHARES IS TO BE TAXED AS BUSINESS AND FOR PURPOSE, THE AO HAS GIVEN FOLLOWING FACTORS. 1 THE ASSESSEE WAS HAVING THE SHARE HOLDING OF MORE THAN 800 SCRIPTS AS ON 01-04-02. 2. THE ASSESSEE IS ACTIVELY AND CONSTANTLY ENGAGED IN THE BUSINESS AND SALES OF SHARES AS CAN BE SEEN FROM TH E BROKERAGE STATEMENT OF THE BROKER. 3. THE ASSESSEE HAS DONE VOLUMINOUS TRANSACTIONS IN SHARES. THE TRANSACTIONS ARE FREQUENT AND ALSO AMOUNT INVOL VED IS VERY SUBSTANTIAL. THE ASSESSEE HAS DONE THOUSANDS OF TRA NSACTIONS OF SALE AND PURCHASE OF SHARES. 4. THE ASSESSEE PURCHASED SHARES WORTH RS. 50,766,1 85/- AND SOLD SHARES OF RS. 51,62,797/- IN THE DELIVERY SEGMENT AND PURCHASED SHARES OF RS. 60,68,865/- AND SOLD SHARES OF RS. 60,47,172/- IN THE NON-DELIVERY SEGMENT. THESE DET AILS ARE FOR ASSESSMENT YEAR 2003-04. 5. THERE IS REGULARITY OF TRANSACTION. SALES AND PU RCHASE HAS BEEN MADE ON ALMOST EVERY WORKING DAY. THE AO HAS REPRODUCED THE TRANSACTIONS DONE ON 11-03-03 IN THE ASSESSMENT ORDER AND NOTICED THAT SUCH TYPE OF TRANSACTIONS AR E OCCURRING ON EACH DAY. 8 6. IF THE PURCHASES IS MADE FOR THE PURPOSE OF INVE STMENT THEN THERE SHOULD BE TIME LAG BETWEEN PURCHASE AND SALE. IF A PARTICULAR SHARE IS PURCHASED ON A DAY, IT IS SOLD AND AGAIN PURCHASED WITHIN A VERY SHORT SPAN THEN IT IS IN TH E NATURE OF BUSINESS. COMING TO THE CONCLUSION THAT SUCH TRANSACTIONS ARE TO BE CONSIDERED AS BUSINESS, THE AO RELIED UPON THE FOLLOWING DECISION S. 1. NALINKANT AMBALAL MODY VS. SAL NARAYN ROW, 61 IT R 428 2. CIT VS. NATIONAL STORAGE (P) LTD. , 66 ITR 596 3. CIT VS. COCANADA RADHASWAMI BANK LTD. 57 ITR 3 06 4. G. VENKATA SWAMINAIDU & CO. VS. CIT 35 ITR 594 THE AO ACCORDINGLY ESTIMATED THE INCOME FROM BUSINE SS ON ACCOUNT OF SALE AND PURCHASE OF SHARES AT RS. 25.00 LACS FOR THE AS SESSMENT YEAR 2003-04. 2.10 BEFORE THE LD. CIT(A), ASSESSEE FURNISHED THE ADDITIONAL EVIDENCE IN THE SHAPE STATEMENT OF SHAREHOLDING, COPIES OF BIL LING STATEMENT OF DEPOSITORS , COPIES OF STATEMENT OF SHAREHOLDING WI TH THE DEPOSITORS AND OTHER DOCUMENTS TO ESTABLISH HIS CLAIM OF AN INVEST OR . THE ASSESSEE ALSO FILED THE REVISED COMPUTATION OF HER INCOME BEFORE THE LD. CIT(A) AS UNDER:- A Y 2003-04 A Y 2004-05 A Y 2005-06 PARTICULARS INCOME AS PER RETURN INCOME AFTER INCOME AS PER INCOME AFTER INCOME AS PER INCOME AFTER 9 FILED U/S 148 CONSIDERING ADDITIONAL EVIDENCE RETURN FILED U/S 148 CONSIDERING ADDITIONAL EVIDENCE ORIGINAL RETURN CONSIDERING ADDITIONAL EVIDENCE INCOME FROM HOUSE PROPERTY 59,500/- 59,500/- 98,000/- 98,000/- 1,26,000/- 1,26,000/- SHORT TERM CAPITAL GAIN 64,919/- 37,439/- 2,30,134/- 8,53,491/- 4,50,859/- 1,42,429/- LONG TERM CAPITAL GAIN NIL (16,77,477/-) 1,53,164/- (22,96,747/-) 3,69,072/- (1,29,846/-) BUSINESS INCOME NIL NIL NIL 1,58,885/- NIL 86,638/- INCOME FROM OTHER SOURCES -FOR A.Y. 03-04 INCLUDES DIVIDEND INCOME2,05,240/- 2,06,280/- 2,07,106/- 96,756/- 96,756/- 10,850/- 10,850/- DEDUCTION UNDER CHAPTER VIA 12,000/- 12,000/- 9,816/- 9,816/- 10,850/- 10,850/- TOTAL INCOME (LTCL) 3,18,700/- 2,92,050/- (16,77,477/-) 5,68,240/- 11,97,320/- (22,96,747/-) 9,56,780/- 9,15,783/- (1,29,846/-) EXEMPT INCOME (DIVIDEND) NIL NIL NIL 6,01,725/- NIL 7,78,654/- 1. THE CIT (A) CALLED A REMAND REPORT FROM AO WHICH IS REPRODUCED ON PAGE 11 TO 14 OF THE ORDER. IN REMAND REPORT, A O OBJECTED TO THE MANNER IN WHICH DATE AND COST OF ACQUISITION OF SHARES AND SALE OF SHARES HAS BEEN T AKEN BY THE ASSESSEE IN COMPUTING THE CAPITAL GAIN. HE FURTHER OBSERVED THAT IN A Y 2 004-05 AND 2005-06, THE ASSESSEE HIMSELF HAS ACCEPTED THE SQUARED UP TRANSACTIONS AS BUSINESS INCOME AND THEREFORE JUSTIFIED HIS ORDER ASSESSING THE INCOME AS BUSINES S INCOME. THE ASSESSEE FILED COUNTER COMMENT ON THE REMAND REPORT OF THE AO WHIC H IS REPRODUCED AT PAGE 15 OF THE ORDER. THESE COUNTER COMMENTS WERE SENT TO THE AO FOR HIS COMMENTS BUT HE RELIED ON HIS EARLIER REPORT. THEREAFTER ASSESSEE A GAIN MADE DETAILED SUBMISSION COUNTERING THE VARIOUS OBJECTIONS OF THE A O WHICH IS REPRODUCED ON PAGE 17 TO 21 OF THE ORDER. CONSIDERING THE ENTIRE FACTS AND CIRCUMS TANCES OF THE CASE, THE LD. CIT (A) ON PAGE 21 TO 28 OF HIS ORDER HELD THAT ASSESSEE IS AN INVESTOR IN SHARES AND ACCORDINGLY DIRECTED TO COMPUTE THE CAPITAL GAIN. T HE SUMMARY OF HIS FINDINGS ARE AS UNDER: - IT IS A FACT THAT THE APPELLANT DID NOT MAINTAIN AN Y BOOKS OF ACCOUNTS IN RESPECT OF THESE TRANSACTIONS AND THEREFORE, IT CANNOT BE HELD THAT APPELLANT WAS MAINTAINING BOOKS OF ACCOUNTS FOR ANY OF THE A Y AND UNDER THES E CIRCUMSTANCES THERE IS NO 10 QUESTION OF ANY REJECTION OF BOOKS OF ACCOUNTS BY I NVOKING PROVISIONS OF SECTION 145(3) [CIT (A) PAGE 22]. - IT CAN BE SEEN THAT THE APPELLANT RIGHT FROM THE VE RY BEGINNING AND TILL 1999 WAS PURCHASING / INVESTING IN THE SHARES WITH AN INTENT ION TO EARN DIVIDEND / LONG TERM CAPITAL GAIN. IT IS FURTHER SEEN THAT EVEN AFTER 19 99 WHEN THE APPELLANT SOLD CERTAIN SHARES SELECTIVELY THERE WERE NO SALES IN MOST OF T HE SHARES FOR A Y 2003-04 TO 2005-06 [CIT (A) PAGE 24]. - ACCORDING TO THE ADDITIONAL EVIDENCES FURNISHED, IT IS SEEN THAT IN A Y 2004-05 AND 2005-06 THE APPELLANT EARNED PROFIT OF RS. 1,58 ,885/- AND RS. 86,638/- RESPECTIVELY WHERE THERE WAS NO DELIVERY PURCHASE A ND SALE AND IT WAS THE PROFIT ON ACCOUNT OF SQUARED UP TRANSACTION ON THE SAME DA Y WHICH WAS IN THE NATURE OF SPECULATIVE BUSINESS PROFIT [CIT (A) PAGE 25]. - THE APPELLANT HAS EARNED DIVIDEND INCOME OF RS. 2,0 5,240/- FOR A Y 2003-04, OF RS. 6,01,725/- FOR A Y 2004-05 AND OF RS. 7,78,754/ - FOR A Y 2005-06 WHICH SHOWS PRIMA FACIE THE OBJECT IN THE INVESTMENT IN S HARES TO DERIVE INCOME BY WAY OF DIVIDEND AND AS PER CBDT CIRCULAR NO. 4/2007 DAT ED 15.6.2007 THE PROFIT ACCRUING BY CHANGE IN SUCH INVESTMENT BY SALE OF SH ARES WILL RESULT INTO CAPITAL GAIN AND NOT INTO REVENUE RECEIPT [CIT (A) PAGE 25] . - FOR A Y 2003-04 THERE WAS TRANSFER FROM THE DP ACCO UNT OF ONE FAMILY MEMBER TO THE OTHER FAMILY MEMBER AND ADMITTEDLY THE TRANS ACTIONS AND RESULTANT GAIN IN ACCOUNTS OF ALL THE FAMILY MEMBERS HAVE BEEN CONSID ERED AND TAXED IN THE HANDS OF ASSESSEE THEREFORE, SUCH INTER DEPOSIT TRANSFER CANNOT BE CONSIDERED AS VOLUME OF TRANSACTIONS BY THE APPELLANT BECAUSE ONE CANNOT TRANSACT WITH HIMSELF AND IT IS FURTHER NOTICED THAT OUT OF TOTAL TRANSACTIONS SHOW N IN THE ABOVE BILLING STATEMENT OF 1134 TRANSACTIONS SUCH TRANSACTIONS WERE 926 AND THEREFORE, THE INFERENCE DRAWN BY AO THAT THERE WERE SUCH VOLUMINOUS TRANSAC TIONS IS NOT CORRECT [CIT (A) PAGE 26]. - APPELLANT IS NOT MAINTAINING ANY OFFICE, STAFF, TEL EPHONE AND OTHER AMENITIES WHICH IS REQUIRED BY THE TRADER. SHE HAS NEVER USED ANY BORROWED FUNDS TO INVEST IN THE SHARES. SHE WAS ACQUIRING SHARES SINCE YEAR 1974, SHE NEVER DEALT IN FUTURE OR OPTION. THESE FACTS SHOW THAT SHAREHOLDING BY TH E APPELLANT FOR ALL THE THREE YEARS UNDER CONSIDERATION WAS INVESTMENT IN THE SHA RES OF DIFFERENT COMPANIES [CIT (A) PAGE 26]. 11 - ACCORDINGLY IT IS HELD THAT FOR ALL THE 3 YEARS UND ER CONSIDERATION THE APPELLANT WAS NOT ENGAGED IN THE TRADING ACTIVITY OF THE SHAR ES EXCEPT THE PROFIT ARISEN ON SQUARED UP TRANSACTIONS WHICH IS ALREADY UPHELD AS SPECULATIVE BUSINESS PROFIT AND RESULTANT INCOME ON SALE OF THE OTHER SHARES HAS TO BE ASSESSED AS CAPITAL GAINS [CIT (A) PAGE 26]. 2.11 BEFORE US, THE LD. AR SUBMITTED THAT THE ASSE SSEE AND HER FAMILY MEMBERS WERE HOLDING SHARE OF MORE THAN 500 COMPANI ES. THE TOTAL NUMBER OF TRANSACTIONS CARRIED OUT WERE HARDLY 325 (APPROX .) AND THAT TOO IN THE FAMILY OF 05 MEMBERS INCLUDING THE ASSESSEE . THERE WERE 30 SQUARED UP TRANSACTIONS. IN ASSESSMENT YEAR 2004-05 AND 2005-0 6, THERE WERE ONLY 700 TRANSACTIONS IN A YEAR. IT WAS STATED THAT THERE MA Y BE TRANSACTION ON EACH AND EVERY DAY BUT TO JUDGE THE FREQUENCY/ REGULARITY AN D LONG HOLDING, IT HAS TO BE SEEN WITH RESPECT TO A PARTICULAR COMPANY. THE A SSESSEE HAS NOT MAINTAINED ANY BOOKS AND THE ASSESSEE IS NOT HAVING ANY INFRASTRUCTURE. THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 2,05,240/-, RS. 6,01,725/- AND RS. 7,78,754/- FOR THE ASSESSMENT YEAR 203-04, 2004-05 AND 2005-06 RESPECTIVELY. THE LD. AR HAS RELIED UPON THE FOLLOW ING DECISIONS. SURESH KUMAR SEKSARIA/ SMT. URMILA SEKSARIA VS. ACI T 001 ITR 783 (TRIB) (MUM.) CIT VS. ROHIT ANAND 327 ITR 0445 (HC) (DEL.) CIT VS. NIRAJ AMIDHAR SURTI 48 DTR 33 (GUJ.) (HC) 12 SUGAM CHAND C SHAH VS. ACIT 37 DTR 345 (TRIB.) (AHM .) CIT VS. S. RAMAAMIRTHAM 217 CTR 206 (MAD.) SHAH-LA INVESTMENTS & FINANCIAL CONSULTANTS (P) LTD . V/S. DCIT ITAT, HYDERABAD 2 SOT 371 (2005) 2.12 DURING THE COURSE OF PROCEEDINGS BEFORE US, TH E LD. DR DREW OUR ATTENTION TO NUMBER OF TRANSACTIONS DONE BY THE ASS ESSEE. OUR ATTENTION WAS ALSO DRAWN TOWARDS THE DECISION OF AUTHORITY FOR A DVANCE RULING IN THE CASE OF FIDELITY ADVISOR SERIES VIII, IN RE [2004] 271 ITR 0001. IF THERE ARE ENORMOUS AND FREQUENT SALES OF PORTFOLIO INVESTMENT S THEN GAINS ARE FOR BUSINESS PROFIT. THE LD. DR ALSO RELIED UPON THE CI RCULAR NO. 4/2007 DATED 15- 06-2007 ISSUED BY THE CBDT. IF THE PURCHASES AND SA LE OF SHARES IS WITH A MOTIVE OF EARNING A PROFIT THEN SUCH TRANSACTIONS S HOULD BE CONSIDERED AS A TRADING TRANSACTIONS.. 2.13 WE HAVE HEARD BOTH THE PARTIES. WHEN SHARES AR E PURCHASED THEN ONE HAS TO SEE INTENTION OF THE ASSESSEE FOR THE PURPOS E OF PURCHASING THE SHARES. IF THE OBJECT OF INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE THE INCOME BY WAY OF DIVIDEND THEN SUCH INVESTMENT IS TO BE CONSI DERED AS CAPITAL. A PERSON CAN BE AN INVESTOR AS WELL AS TRADER IN SHAR ES. IN THE PAPER BOOK FILED BEFORE US, WE HAVE NOTICED THAT ASSESSEE HAS SOLD T HE SHARES DURING THE 13 ASSESSMENT YEAR 2003-04 OUT OF SHARES WHICH HAS BEE N ACQUIRED IN THE YEARS 1988 ONWARDS. WE HAD ALREADY MENTIONED THE QUANTUM OF DIVIDEND WHICH THE ASSESSEE HAS EARNED DURING ALL THE THREE YEARS. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS BEEN PURCHASING SHARES OR GETTING THE SHARES AS BONUS SHARES OR RIGHT SHARES. THE CAPITAL GAIN WILL DEPEND UPON MODE OF ACQUISITION. IN CASE SHARE IS BONUS SHARE THEN THE COST WILL HAVE T O BE TAKEN AS NIL OR COST OF ORIGINAL SHARES BE SPREAD ON ORIGINAL SHARES AND BO NUS SHARES. IN THE CASE OF RIGHT SHARES, THE COST IS TO BE TAKEN AT WHICH SUCH RIGHT SHARES WERE OFFERED BY THE COMPANY. IF THE SHARES HAVE BEEN RECEIVED ON ALLOTMENT THEN COST WILL BE THE COST AT WHICH SHARES HAVE BEEN ALLOTTED. IN THE YEARS OF 1980 AND 1990, THE SHARES IN PUBLIC ISSUE WERE BEING GENERAL LY ALLOTTED ON FACE VALUE OR AT NOMINAL PREMIUM. THE ITAT MUMBAI BENCH IN THE CASE OF JAY SHREE PRADIP SHAH VS. ACIT, 137 TTJ 173 HAS BRIEFLY NARRA TED THE PRINCIPLES APPLICABLE IN DECIDING THE ISSUE AS TO WHETHER THE PROFIT ARISING FROM PURCHASE AND SALE OF TRANSACTION IS TO BE CONSIDERE D AS BUSINESS OR CAPITAL GAIN. THE PRINCIPLES AS LAID DOWN AND CONSIDERED BY THE MUMBAI TRIBUNAL ARE AS UNDER:- (A) WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR WHETHER THEY WE RE IN THE NATURE OF INVESTMENTS ARE MIXED QUESTION OF LAW AND FACT [CIT 14 VS. H HOLCK LARSEN (1986), 58 CTR (SC) 53: (1986) 1 60 ITR 67 (SC)] (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN IN VESTOR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND I T IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH WER E HOLD BY HIM AS INVESTMENTS AND THOSE AS STOCK IN TRADE [CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD. 1972 CTR (SC) : (1971) 82 ITR 586 (SC) ( C ) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NO T BE CONCLUSIVE. IF THE VOLUME, FREQUENCY AND REGULARITY WITH WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANIZED ACTIVITY WITH PROFIT MOTIVE, THEN IT WOULD BE A CAS E OF BUSINESS PROFIT AND NOT CAPITAL GAIN. [CIT VS. MOTILAL HIRAB HAI & WVG. CO. LTD. 1977 CTR (HON'BLE GUJARAT HIGH COURT IN TH E CASE OF .) 674 : (1978) 113 ITR 173 (HON'BLE GUJARAT HIGH C OURT IN THE CASE OF .), RAJA BAHADUR VISHESHWARA SINGH (DECD.) & ORS VS. CIT (1961), 41 ITR 685 (SC)]. (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE T HEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPIT AL GAINS. CIT VS. PKN CO. LTD. (1966) 60 ITR 65 (SC). PURPOSE WITH AN INTENTION TO RESELL WOULD RENDER THE GAIN /PROFIT O N SALE AS BUSINESS. PROFIT DEPENDS ON THE CIRCUMSTANCES OF TH E CASE LIKE 15 NATURE AND QUANTITY OF ARTICLE PURCHASED, NATURE OF THE OPERATION INVOLVED [SAROJ KUMAR MAZUMDAR VS. CIT (1959) 37 I TR 242 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST DEPEND UPON THE COLLECTIVE EFFORT OF ALL THE RELEVANT MATERIALS BROUGHT ON RECORD. [JANKI RAM BA HADUR RAM VS. CIT (1965) 57 ITR 21 (SC)]. 2.14 WE HAVE ALSO CONSIDERED THE CASE LAWS ON WHICH ASSESSEE'S LD. AR HAS PLACED RELIANCE. WE ARE NOT HAVING BENEFIT OF THE D -MAT ACCOUNT OR THE BILLS OF THE BROKERS. AFTER CONSIDERING THE ENTIRE FACTS, WE HOLD AS UNDER:- (I) THE SHARES WHICH HAVE BEEN HELD FOR MORE THAN A YEAR SHOULD BE TREATED AS SHARES HELD AS INVESTMENT. THE PROFIT ARISING FROM SALE OF SUCH SHARES IS TO BE CONSIDERED AS CAPITAL GAIN. IT MEANS THAT LONG TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS TO BE ACCEPTED. (II) IN RESPECT OF PURCHASE AND SALE OF THE TRANSA CTIONS ON THE SAME DAY, THE PROFIT AND GAINS ARISING FROM SUCH TR ANSACTIONS IS TO BE CONSIDERED AS PROFIT OR LOSS FROM SPECULATIVE BUSIN ESS. (III) IN CASE THE SHARES HAVE BEEN HELD FOR MORE TH AN 30 DAYS THEN THE PROFIT AND LOSS ARISING FROM SALE OF SUCH SHARES IS TO BE CONSIDERED AS SHORT CAPITAL GAIN OR LOSS. HOWEVER, IN CASE THE SHARES HAVE BEEN PURCHASED OR SOLD WITHIN 30 DAYS THEN THE PROFIT OR LOSS ARISING FROM SUCH PURCHASE AND SALES OF SHARES IS T O BE CONSIDERED AS BUSINESS INCOME. 16 (IV) THE SHARES WHICH ARE BEING SOLD ARE TO BE ASCE RTAINED AS TO WHETHER SUCH SHARES WERE PURCHASED OR ALLOTTED I N PUBLIC ISSUE OR RECEIVED AS BONUS SHARES OR RECEIVED SHARES ON ACCO UNT OF AMALGAMATION / MERGER SO THAT COST PRICE CAN BE ASC ERTAINED. 2.15 AT PRESENT ALL THE INFORMATIONS IN RESPECT OF ISSUE OF BONUS OR RIGHT SHARES ARE AVAILABLE AT DIFFERENT WEBSITES OR AT T HE WEBSITES OF THE COMPANY WHOSE SHARES HAVE BEEN PURCHASED OR SOLD. THUS THE CAPITAL GAIN OR PROFIT FROM SHARES CAN BE ASCERTAINED IF ONE ASCERTAINS TH E COST. THE AO HAS ESTIMATED THE INCOME FOR ALL THREE ASSESSMENT YEARS . THE AO WILL MAKE AN EXERCISE TO ASCERTAIN THE INCOME WHICH IS TO BE TAX ED UNDER THE HEAD CAPITAL GAIN , PROFIT OR LOSS OR SPECULATIVE BUSINESS OR PR OFIT FROM SHARES. THE SECOND GRIEVANCE OF THE REVENUE THAT THE LD. CIT(A) HAS DE LETED THE ADDITION ON ACCOUNT OF ESTIMATED INCOME IS ALSO RESTORED BACK ON THE FILE OF THE AO 3.1 IN THE CROSS OBJECTIONS, THE ASSESSEE IS AGGRIE VED IN NOT ACCEPTING THE REVISED COMPUTATION OF INCOME BY THE LD. CIT(A) ON ACCOUNT OF DECISION OF THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF G OETEZ INDIA LTD., 284 ITR 323. 3.2 THE AO HAS NO POWER TO ALLOW THE DEDUCTION UNLE SS THE SAME IS CLAIMED IN THE RETURN OF INCOME OR IN THE REVISED R ETURN OF INCOME. HOWEVER, THE ASSESSEE CAN CLAIM DEDUCTION BEFORE THE APPELLA TE AUTHORITIES BY FILING AN 17 ADDITIONAL GROUND. THUS THE APPELLATE AUTHORITIES C AN CONSIDER SUCH DEDUCTION. SINCE THE CLAIM HAS BEEN MADE BEFORE THE LD. CIT(A), THEREFORE, THIS CLAIM WILL BE CONSIDERED BY THE AO AS WE HAD A LREADY RESTORED THE COMPUTATION OF INCOME BEFORE THE AO. WE THEREFORE, ALLOW THE APPEALS OF THE REVENUE AND CROSS OBJECTIONS OF THE ASSESSEE FO R STATISTICAL PURPOSES 4. IN THE RESULT, THE APPEALS OF THE REVENUE AS WEL L AS CROSS OBJECTIONS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23-09 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 23/09/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, / DCIT, CIRCLE- 6, JAIPUR 2. SMT. KAVITA DEVI AGARWAL, JAIPUR ` 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1103/JP /10) A.R, ITAT, JAIPUR 18 19 20