ITO, Ward - 12(1), Kolkata, Kolkata V. M/s. Lyons & Roses Pvt. Ltd., Kolkata

ITA 1148/KOL/2009

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3346 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 01-05-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2009
• Court: TRIBUNAL
• Department Lawyers: SANJAY M UKHERJEE JCITLD
• Assessee Lawyers: R N BAJORIA
• Keywords: Capital asset; Business income; Rule of consistency; Earning of tax free income; Retrospective amendment; Question of law; Futures and options
• Section: 143(3); 14A; 145

Judgement Text

ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 1148 & 1437/KOL/09 A.YS: 2005-06 & 2006-07 I. T. O, WARD 12(1), KOLKATA VS. M/S. LYONS & ROSES PVT. LTD PAN: AAACL4728N (APPELLANT) (RESPONDENT) C.O NO. 52/KOL/09 [ ARISING OUT OF ITA NO.1148/KOL/09 A,Y 2005-06] M/S. LYONS & ROSES PVT. LTD VS. I. T. O, WARD 12(1), KOLKATA (ASSESSEE/CROSS OBJECTOR) (RESPONDENT) FOR THE APPELLANT: SHRI SANJAY MUKHERJEE, J CIT, LD. SR.DR FOR THE RESPONDENT: SHRI R.N BAJ ORIA, SR. ADVOCATE & SHRI A.K. GUPTA, FCA, LD.ARS DATE OF HEARING: 15-12--2015 DATE OF PRONOUNCEMENT: 20 -01-2 016 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARISE OUT OF THE ORDERS OF THE LEARNED CIT (A)-XII, KOLKATA IN A PPEAL NO. 729/XII/CIR-12/07-08 DATED 31.3.2009 FOR ASST YEAR 2005-06 AND APPEAL NO . 310/XII/CIR-12/08-09 DATED 28.5.2009 FOR THE ASST YEAR 2006-07 AGAINST THE ORD ERS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT). 2. THE RESPONDENT HEREIN IS M/S MADHUTING TEA P RIVATE LIMITED (MTPL) PURSUANT TO THE MERGER OF M/S LYONS & ROSES P LTD WITH M/S MTPL VIDE ORDER OF THE HONBLE CALCUTTA HIGH COURT DATED 15.7.2011. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 2 3. THE ISSUES INVOLVED IN REVENUES APPEAL IN ASS T YEARS 2005-06 AND 2006-07 AND CROSS OBJECTION OF THE ASSESSEE FOR ASST YEAR 2005- 06 ARE IDENTICAL AND HENCE THEY ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 4. THE FIRST ISSUE TO BE DECIDED IN REVENUES APP EAL IN ASST YEAR 2005-06 AND CROSS OBJECTION OF THE ASSESSEE FOR ASST YEAR 2005-06 IS AS TO WHETHER DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) AND (III) OF TH E RULES COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE IS AN INVESTMENT COMPANY ENGAGED IN THE BUSINESS OF DEALING, TRADING AND INVESTING I N SHARES AND SECURITIES INCLUDING UNITS OF MUTUAL FUNDS. THE ASSESSEE DERIVED A DIVIDEND INCOME OF RS. 4,63,906/- FOR THE ASST YEAR 2005-06. THE LEARNED AO CALLED FOR INFOR MATION REGARDING THE INCURRENCE OF EXPENDITURE BY THE ASSESSEE FOR THE PURPOSE OF E ARNING THIS DIVIDEND INCOME. IN RESPONSE TO THIS, THE ASSESSEE REPLIED THAT NO EXPE NSES WERE INCURRED FOR THE PURPOSE OF DERIVING THE DIVIDEND INCOME. THE LEARNED AO NOT S ATISFIED WITH THE REPLY SOUGHT TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT AND DISALLOWED 5% OF RS. 4,63,906/- AMOUNTING TO RS. 23,125/- FOR THE ASST YEAR 2005-06 . ON FIRST APPEAL, THE LEARNED CIT(A) DIRECTED THE LEARNED AO TO ADOPT THE PROVISI ONS OF RULE 8D(2)(III) OF THE RULES TO MAKE DISALLOWANCE U/S 14A OF THE ACT FOR T HE ASST YEAR 2005-06. AGGRIEVED, THE REVENUE IS IN APPEAL AND ASSESSEE HAS PREFERRED CROSS OBJECTIONS BEFORE US ON THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO FOLLOW THE METH OD AS PROVIDED IN RULE 8D(2)(III) ONLY OF I.T RULES FOR DETERMININ G THE DISALLOWANCE PERTAINING TO EXEMPT DIVIDEND WHEREAS RULE 8D(2)(II) IS ALSO APPLICABLE IN THE INSTANT CASE SINCE THE AS SESSEE HAS INCURRED INTEREST AND OTHER EXPENSES DIRECTLY OR IN DIRECTLY TO EARN THE SAID INCOME NOT FORMING PART OF TOTAL INCOME. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 3 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) WAS CORRECT IN HOLDING THAT THE TRANSACTI ONS OF FREQUENT PURCHASE AND SALE OF SHARES/UNITS IN A SYSTEMATIC A ND ORGANIZED MANNER GIVE RISE TO CAPITAL GAIN AND NOT THE BUSINE SS INCOME. CO NO. 52/2009 [ITA NO.1149/KOL/09 A.Y 2005-06] 1 A) FOR THAT, THE APPLICATION OF RULE 80 OF THE I NCOME TAX RULES IN THE CASE OF THE ASSESSEE IS BAD IN LAW AND, THER EFORE, CANNOT BE SUSTAINED. B) FOR THAT, IN THE ORIGINAL ASSESSMENT ORDER, DIS ALLOWANCE U/S 14A WAS MADE ON ESTIMATE AT RS. 23,125/- AND THE SA ID DISALLOWANCE OF RS.23,125/- CANNOT BE INCREASED UND ER ANY CIRCUMSTANCES WHILE GIVING EFFECT TO THE APPELLATE ORDER. C) FOR THAT, THE APPLICATION OF RULE 8D(2)(III) RE SULTS IN ENHANCEMENT OF DISALLOWANCE OF EXPENDITURE, INCREAS E IN THE TAXABLE INCOME, AND THE LEARNED CIT(A) IS NOT EMPOW ERED TO ENHANCE THE LIABILITY WITHOUT PROPER HEARING AND NO TICE TO THE ASSESSEE. 2) FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN THE HOLDING THAT RULE 80 OF THE INCOME TAX RULES 19 62 WHICH WAS INTRODUCED IN THE STATUTE ONLY ON 24 MARCH 2008 WAS APPLICABLE IN RESPECT OF ASSESSMENT YEAR 2005-06. THE COMMISSIONE R OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE FACT THAT EV EN SUB-SECTION (2) OF SECTION 14A OF THE ACT IN WHICH THE SAID RULE WA S INSERTED WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 1 A PRIL 2007 AND WAS ADMITTEDLY APPLICABLE ONLY FROM ASSESSMENT YEAR 2007-08 AS STATED IN THE MEMO EXPLAINING THE FINANCE BILL 2006 . 3) FOR THAT NO EXPENSES WERE INCURRED BY THE APPEL LANT FOR EARNING DIVIDEND INCOME. FURTHER AND IN ANY EVENT T HE ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF INCOME TAX ( APPEALS) COULD NOT POINT OUT ANY EXPENDITURE WHICH WAS DIRECTLY RE LATABLE TO EXEMPT INCOME AND AS SUCH DISALLOWANCE ON PROPORTIO NATE BASIS EVEN UNDER RULE 80 OF THE RULES WAS ERRONEOUS. 4.2. THE LEARNED AR ARGUED THAT THE PROVISIONS OF RULE 8D OF THE IT RULES COULD BE MADE APPLICABLE ONLY FROM ASST YEAR 2008-09 AS HAS BEEN HELD BY THE HONBLE ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 4 BOMBAY HIGH COURT IN THE CASE OF GODREJ& BOYCE MANU FACTURING CASE REPORTED IN 328 ITR 81 (BOM) AND FAIRLY PLEADED THAT SINCE PROVISIONS OF SECTION 14A OF THE ACT HAS GOT RETROSPECTIVE APPLICATION IN THE STATUT E, DISALLOWANCE THEREON COULD BE RESTRICTED TO 1% OF EXEMPT INCOME AS HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS R.R.SEN & BROTHERS P LTD IN G .A.NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4.1.2013. IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED TO THE SUBMISSION OF THE LEARNED AR. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE RE LEVANT ASSESSMENT YEAR UNDER APPEAL IS 2005-06 AT WHICH POINT OF TIME , THE PROVISIONS OF RULE 8D WAS NOT IN FORCE AND THE SAME WAS MADE APPLICABLE ONLY FROM ASST YEAR 2008-0 9 AS DECIDED IN THE DECISION OF GODREJ & BOYCE MANUFACTURING. HOWEVER, IT IS NOT I N DISPUTE THAT THE ASSESSEE HAD DERIVED TAXABLE INCOME AS WELL AS TAX FREE INCOME A ND INCURRED EXPENDITURE FOR DERIVING BOTH THE INCOMES AND HENCE DISALLOWANCE IS DEFINITELY WARRANTED IN TERMS OF SECTION 14A WHICH IS BROUGHT IN THE STATUTE BOOK WI TH RETROSPECTIVE EFFECT FROM 1.4.1962. THE DISALLOWANCE HAD TO BE MADE ONLY ON AN ESTIMATED BASIS WITH REGARD TO THE EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS P LTD IN GA NO. 3019 OF 2012 IN ITAT NO. 243 OF 2012 DATED 4 .1.2013 HAD HELD AS UNDER:- THE ASSESSEE DID NOT SHOW ANY EXPENDITURE INCURRE D BY HIM FOR THE PURPOSE OF EARNING THE MONEY WHICH IS EXEMPTED UNDE R INCOME TAX. THE TRIBUNAL HAS COMPUTED EXPENDITURE AT 1% OF SUCH DIV IDEND INCOME, WHICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. THE APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT, WE D IRECT THE LEARNED AO TO DISALLOW 1% OF EXEMPT INCOME UNDER THIS ISSUE AND ACCORDINGL Y, THE GROUND NO.1 RAISED BY THE REVENUE FOR ASST YEAR 2005-06 IN ITA NO. 1148/K OL/2009 AND CROSS OBJECTIONS OF THE ASSESSEE IN CO NO. 52 /KOL/2009 ARE PARTLY A LLOWED. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 5 5. THE NEXT ISSUE TO BE DECIDED IN THE APPEALS OF THE REVENUE FOR ASST YEARS 2005-06 AND 2006-07 ARE AS TO WHETHER THE LEARNED CITA WAS JUSTIFIED IN HOLDING THAT THE TRANSACTIONS OF FREQUENT PURCHASE AND SALE OF SHARE S IN A SYSTEMATIC AND ORGANIZED MANNER WOULD HAVE TO BE ASSESSED ONLY AS CAPITAL GA INS INSTEAD OF BUSINESS INCOME. THE REVENUE HAD RAISED THE SAME GROUND FOR BOTH THE ASST YEARS AS BELOW:- 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) WAS CORRECT IN HOLDING THAT THE TRANSACTI ONS OF FREQUENT PURCHASE AND SALE OF SHARES/UNITS IN A SYSTEMATIC A ND ORGANIZED MANNER GIVE RISE TO CAPITAL GAIN AND NOT THE BUSINE SS INCOME. 5.1. SINCE THE FACTS FOR BOTH THE ASSESSMENT YEARS ARE SIMILAR EXCEPT CHANGE IN FIGURES, WE DECIDE THESE APPEALS BASED ON THE FACTS OF ASST YEAR 2005-06. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LEARNED AO NOTICED THAT THE ASSESSEE HAS SHOWN INCOME FROM PURCHASE AND SALE OF SHARES UNDER TWO HEADS VIZ CA PITAL GAINS FROM INVESTMENTS AND BUSINESS INCOME FROM TRADING IN SHARES FOR THE AS ST YEAR 2005-06. UNDER THE INVESTMENT HEAD, THE LEARNED AO OBSERVED THAT THE A SSESSEE HAD DISCLOSED LONG TERM CAPITAL GAINS OF RS. 50,10,740/- AFTER INDEXATION A ND CLAIMED EXEMPTION FOR THE SAME ; AND DISCLOSED RS. 71,90,242/- AS SHORT TERM CAPITAL GAINS AFTER SETTING OFF CARRIED FORWARD LOSSES OF RS. 10,06,203/-. UNDER THE HEAD BUSINESS INCOME, THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD DISCLOSED RS. 3,09,9 88/- AS PROFIT FROM TRADING IN SHARES. THE ASSESSEE WAS CARRYING ON BOTH TRADING AND INVES TMENT ACTIVITY IN PURCHASE AND SALE OF SHARES / UNITS. THE LEARNED AO FELT THAT THE PR OFIT ON SALE OF INVESTMENTS CREDITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS. 1,35,8 6,013/- SHOULD ALSO BE CONSIDERED AS BUSINESS INCOME AS AGAINST CLAIM OF CAPITAL GAIN S MADE BY THE ASSESSEE. IN RESPONSE TO THIS, THE ASSESSEE REPLIED THAT ALL THE SHARES WERE HELD FOR THE PURPOSE OF LONG TERM INVESTMENTS AND EARNED SUBSTANTIAL DIVIDE NDS AND THERE WAS NO MOTIVE TO USE THE SHARES FOR THE PURPOSE OF TRADING AND THAT THE INTENTION WAS TO INVEST IN SHARES AND THAT THE SHARES WERE HELD AS LONG TERM INVESTMENT O NLY IN EARLIER YEARS AND GAINS FROM SALE OF INVESTMENTS ALWAYS ASSESSED UNDER THE HEAD CAPITAL GAINS. HOWEVER, AS PER THE ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 6 MEMORANDUM OF ASSOCIATION OF THE COMPANY, THE LEAR NED AO OBSERVED THAT THE MAIN BUSINESS OF THE ASSESSEE IS TO ACQUIRE, SUBSCRIBE T O , HOLD, DISPOSE OFF AND DEAL IN SHARES/UNITS. THE LEARNED AO ALSO FELT THAT THE AS SESSEE HAD CARRIED ON IN A SYSTEMATIC AND AN ORGANIZED MANNER, NUMEROUS TRANSACTIONS OF B UYING AND SELLING OF SHARES / UNITS WHICH IN THE OPINION OF THE LD AO CONSTITUTED ITS B USINESS ACTIVITIES. THE LEARNED AO ALSO OBSERVED THAT SOME OF THE TRANSACTIONS ARE COM PLETED IN A VERY SHORT PERIOD WHICH INDICATES THE MOTIVE OF THE ASSESSEE OF EARNING PRO FITS OUT OF BUYING AND SELLING THESE SHARES. HENCE THE LD. AO CONCLUDED THAT THE FREQ UENT TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE IN THE NATURE OF BUSINESS ACTIVITIES A ND NOT CAPITAL INVESTMENT AS CLAIMED. ON FIRST APPEAL, THE LEARNED CIT(A) APPRECIATED THE CONTENTIONS OF THE ASSESSEE AND TREATED THE SAID GAINS AS CAPITAL GAINS AND NOT BUS INESS INCOME. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5.2. THE LEARNED DR ARGUED THE HOLDING PERIOD OF M OST OF THE SHARES WERE LESS THAN 30 DAYS AND HENCE THE INTENTION OF THE ASSESSEE WAS ONLY TO EARN PROFITS OUT OF BUYING AND SELLING OF SHARES AND NOT TO HOLD THE SAME AS I NVESTMENT FOR LONG TERM PURPOSES. IN RESPONSE TO THIS, THE LEARNED AR ARGUED THAT THE ASSESSEE HAS GOT TWO SEPARATE PORTFOLIOS I.E ONE FOR INVESTMENT AND OTHER FOR BUS INESS. THE PROFIT DERIVED FROM INVESTMENT ACTIVITIES ARE OFFERED TO TAX AS SHORT T ERM AND LONG TERM CAPITAL GAINS DEPENDING UPON THE PERIOD OF HOLDING THE SHARES AND THE PROFIT DERIVED FROM THE BUSINESS ACTIVITY OF TRADING IN SHARES WERE OFFERED AS INCOME FROM BUSINESS. THE LD.SENIOR ADVOCATE FURTHER ARGUED THAT THIS PRACTIC E HAS BEEN FOLLOWED BY THE ASSESSEE CONSISTENTLY AND THE REVENUE HAD ACCEPTED THE SAME IN THE SCRUTINY ASSESSMENT PROCEEDINGS FOR THE EARLIER YEARS AND IN SUBSEQUENT ASSESSMENT YEARS IN THE SCRUTINY ASSESSMENT PROCEEDINGS, WHEREVER APPLICABLE. IN RE SPONSE TO THE ARGUMENT OF THE LEARNED DR THAT PRINCIPLE OF RESJUDICATA DOES NOT A PPLY TO INCOME TAX PROCEEDINGS, THE LEARNED AR ARGUED THAT THE PRINCIPLE OF CONSISTENCY CANNOT BE GIVEN A GO BYE AND FOR WHICH HE PLACED RELIANCE ON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF RADHASAOMI SATSANG REPORTED IN 193 ITR 321(SC). TH E LEARNED AR FURTHER ARGUED ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 7 THAT EVEN THE INVESTMENT ACTIVITIES WERE CARRIED OU T BY THE ASSESSEE ONLY WITH AN INTENTION TO MAKE PROFITS OUT OF SUCH INVESTMENTS W HICH ARE DULY OFFERED TO TAX AS CAPITAL GAINS BY THE ASSESSEE. HENCE THE REASONING OF THE LEARNED AO THAT THE ASSESSEE HAD MADE PROFITS WOULD NOT VITIATE THE INTENTION OF CARRYING ON THE INVESTMENT ACTIVITIES OF THE ASSESSEE. THE LEARNED AR EXPLA INED THE ENTIRE TRANSACTIONS FROM THE DETAILS FILED IN THE PAPER BOOK STATING THAT MOST O F THE SHARES WERE HELD FOR MORE THAN ONE YEAR ALSO FOR WHICH LONG TERM CAPITAL GAINS WER E REPORTED BY THE ASSESSEE AND IT IS FOR THE ASSESSEE TO DECIDE WHEN TO EXIT FROM THE RE LEVANT INVESTMENT DEPENDING UPON THE FAVOURABLE MARKET CONDITIONS. HE FURTHER PLAC ED ON RECORD THE COPY OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE , AMONG OTHER DECISION S, FOR THE ASST YEAR 1992-93, WHEREIN THIS TRIBUNAL HAD ACCEPTED THE PLEA OF THE ASSESSEE THAT THE GAINS DERIVED FROM INVESTMENT ACTIVITIES OF ASSESSEE WERE ACCEPTED AS CAPITAL GAINS. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK FILED BY THE ASSE SSEE CONTAINING THE SCRUTINY ASSESSMENT ORDERS OF THE ASSESSEE FOR THE ASST YEAR S 2002-03 , 2004-05 , 2008-09 & 2010-11 ; STATEMENT OF TOTAL INCOME FOR THE ASST YE AR 2010-11 ; AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31.3.2004 & 31.3.200 5 ; DETAILS OF PROFIT ON SALE OF INVESTMENTS ; DETAILS OF INVESTMENTS AND STOCK IN TRADE FOR FIVE YEARS AND COMPILATION OF VARIOUS CASE LAWS ON THE IMPUGNED ISSUE. WE F IND THAT THE ASSESSEE IS ENGAGED IN INVESTMENT ACTIVITY AND BUSINESS ACTIVITY FOR YEARS TOGETHER. WE ALSO FIND THAT THE CO- ORDINATE BENCH DECISION OF THIS TRIBUNAL FOR THE AS ST YEAR 1992-93 IN ASSESSEES OWN CASE IN ITA NO. 2943/CAL/1996 DATED 28.9.2001 HAD ACCEPTED THE PLEA OF THE ASSESSEE THAT THE GAINS ARISING OUT OF INVESTMENT ACTIVITIES OF THE ASSESSEE HAD TO BE ASSESSED ONLY AS CAPITAL GAINS AND NOT BUSINESS INCOME. IT IS ALSO NOT IN DISPUTE THAT THE REVENUE HAS BEEN ACCEPTING THE DUAL PORTFOLIO MAINTAINED BY THE ASSESSEEE FOR YEARS TO GETHER WHICH IS QUITE EVIDENT FROM THE SCRUTINY ASSESSMENT ORDERS PASSED BY THE LEARNED AO FOR THE ASST YEARS 2002-03, 2004-05 , 2008-09 AND 2 010-11, WHEREIN THE STAND OF THE ASSESSEE REPORTING BOTH CAPITAL GAINS AND BUSINESS INCOME ARISING OUT OF PURCHASE AND ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 8 SALE OF SHARES HAVE BEEN ACCEPTED. HENCE WE FIND L OT OF FORCE IN THE DECISION OF THE HONBLE APEX COURT RELIED ON BY THE LEARNED AR IN T HE CASE OF RADHASAOMI SATSANG REPORTED IN 193 ITR 321 (SC) ON THE PRINCIPLE OF CONSISTENCY. WE ARE ALSO IN AGREEMENT WITH THE ARGUMENTS OF THE LEARNED AR THAT JUST BECAUSE THE ASSESSEE HAD MADE PROFITS OUT OF ITS INVESTMENT ACTIVITIES, THE SAME CANNOT BE CONCLUDED THAT THE ASSESSEEE HAD CARRIED ON WITH AN INTENTION TO DO BU SINESS. FOR THAT MATTER, EVERY ASSESSEE WOULD ONLY TRY TO MAKE PROFITS OUT OF THEI R ACTIVITIES BE IT INVESTMENT OR BUSINESS . WHAT IS TO BE SEEN IS WHETHER THE ASSES SEE INTENDED TO MAKE ONLY PROFITS FROM DEALING IN SHARES OR WHETHER THE SHARES WERE P URCHASED WITH A VIEW TO EARN DIVIDEND INCOME WHICH IS ALSO PROFIT. THE GAINS A RISING IN THE FORMER CASE WOULD BE IN THE NATURE OF TRADE AND HENCE BUSINESS INCOME AN D THE LATTER WOULD BE FOR THE PURPOSE OF INVESTMENT AND HENCE RESULTANT GAIN WOUL D BE CAPITAL GAINS. IN THE INSTANT CASE, THE ASSESSEE HAD REPORTED BOTH DIVIDEND INCOM E AND OFFERED SHORT TERM AND LONG TERM CAPITAL GAINS ON THE INVESTMENT ACTIVITIES AND BUSINESS INCOME FOR TRADING ACTIVITIES. 5.3.1. WHETHER INTRODUCTION OF CONCESSIONAL RATE O F TAX ON SHORT TERM CAPITAL GAINS AND EXEMPTION OF LONG TERM CAPITAL GAINS PURSUANT TO IN TRODUCTION OF SECURITIES TRANSACTION TAX (STT) WOULD CHANGE THE CHARACTER OF THE TRANSAC TION WE FIND THAT THE ENTIRE GAMUT OF TRANSACTIONS ARE T O BE VIEWED IN THE CONTEXT OF DOMINANT INTENTION OF THE ASSESSEE WHETHER TO HOLD A PARTICULAR SCRIP IN INVESTMENT PORTFOLIO OR IN TRADING PORTFOLIO. WE FIND THAT THE LEVY OF SECURITIES TRANSACTION TAX HAS BEEN INTRODUCED IN THE STATUTE WITH EFFECT FROM 1 ST OCTOBER 2004 RELEVANT TO ASST YEAR 2005-06, WHEREIN IF A SALE OF SHARES TRANSACTI ON IS ROUTED THROUGH A RECOGNIZED STOCK EXCHANGE AND SECURITIES TRANSACTION TAX IS SU FFERED BY THE ASSESSEE, THEN THE LONG TERM CAPITAL GAINS ARISING ON SUCH SALE WOULD BE EX EMPT U/S 10(38) OF THE ACT. SIMILARLY WITH EFFECT FROM 1.4.2005, THE SHORT TERM CAPITAL GAINS , IF SUBJECTED TO LEVY OF SECURITIES TRANSACTION TAX, WOULD BE LIABLE FOR CONCESSIONAL RATE OF TAX AS AGAINST THE NORMAL RATE OF TAX @ 30%. WE ALSO FIND THAT THE L EARNED AO HAD NOT BROUGHT ANY ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 9 EVIDENCE ON RECORD THAT THE ASSESSEE WAS TRYING TO SHIFT ANY OF ITS TRADING ASSETS FROM THE TRADING PORTFOLIO OF SHARES & UNITS TO THE INVE STMENT PORTFOLIO TO TAKE ADVANTAGE OF LOWER TAX RATES UNDER THE HEAD CAPITAL GAINS AND VI CE VERSA WHEREVER LOSSES WERE INCURRED ON SALE OF INVESTMENTS. IT IS NOT IN DIS PUTE THAT THE ASSESSEE HAD NOT CONVERTED ANY OF THE SHARES UNDER INVESTMENT CATEGO RY INTO STOCK IN TRADE. 5.3.1.1. AS STATED SUPRA WE FIND THAT CERTAIN SHARE S UNDER INVESTMENT PORTFOLIO WERE HELD BY THE ASSESSEE FROM THE YEAR 1995 ONWARDS. JUST BECAUSE IF DURING THE MID OF THE RELEVANT FINANCIAL YEAR, CERTAIN TAX BENEFITS H AVE BEEN GIVEN IN RESPECT OF CAPITAL GAINS, THAT CANNOT, IN ANY WAY, LEAD TO AN ASSUMPTI ON OR PRESUMPTION THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES W AS THAT OF A TRADER AND NOT OF AN INVESTOR. THE TREATMENT OF THE INVESTMENT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS ALSO A RELEVANT GUIDING FACTOR. THE ISSUE OF TREA TMENT OF INCOME FROM SHARE TRANSACTION AS SHORT TERM CAPITAL GAINS OR BUSINESS INCOME HAS IN FACT ARISEN AFTER THE AMENDMENT BROUGHT WITH FINANCE ACT 2004 WITH EFFECT FROM 1.10.2004. IT IS AN ADMITTED FACT ON RECORD THAT PRIOR TO AMENDMENT WHE N THE TAX ON SHORT TERM CAPITAL GAINS WAS AT PAR WITH BUSINESS INCOME, THE DEPARTME NT HAS BEEN CONSISTENTLY ACCEPTING THE TREATMENT OF INCOME BY THE ASSESSEE AS CAPITAL GAINS. MERELY BECAUSE THE RATE OF TAX HAS BEEN REDUCED IN RESPECT OF SHORT TERM CAPIT AL GAINS AND LONG TERM CAPITAL GAINS HAVE BEEN MADE EXEMPT DURING THE YEAR BY WAY OF AN AMENDMENT TO THE PROVISIONS , THAT ITSELF, CANNOT BE A GROUND FOR THE LEARNED AO TO DEPART FROM ITS CONSISTENT STAND OF TREATING THE ASSESSEE AS AN INVESTOR AND THEREBY TO CHARGE THE INCOME EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS BUSINESS INCOME . FROM THE RECORDS, IT IS FOUND THAT AT THE TIME OF PURCHASE AND SALES EVEN DURING THE PERIOD PRIOR TO 1.10.2004, THE ASSESSEE WAS NOT GUIDED OR INFLUENCED BY LOWER TAX RATE IN CASE OF SHORT TERM CAPITAL GAINS AS THE RATE FOR BUSINESS INCOME AND SHORT TER M CAPITAL GAINS WAS AT PAR. THE ASSESSEE, HOWEVER, WAS TREATING HIMSELF AS AN INVES TOR AND KEEPING THE DELIVERY BASED SHARES AS INVESTMENTS IN HIS ACCOUNT IRRESPECTIVE O F THE PROBABLE TAX IMPLICATION AS THERE WERE NO SUCH TAX IMPLICATIONS AS DISCUSSED AB OVE. THUS, THE INTENTION OF THE ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 10 ASSESSEE, WHILE PURCHASING THE SHARE, IS THE IMPORT ANT AND GUIDING FACTOR AS TO WHETHER THE SAME WAS PURCHASED WITH AN INTENTION OF INVESTM ENT OR TRADING. 5.3.2. DUAL PORTFOLIO WHETHER PERMITTED WE ALSO FIND THAT NOTHING PROHIBITS AN ASSESSEE FRO M HOLDING DUAL PORTFOLIOS I.E (1) SHARES / UNITS HELD FOR INVESTMENT AND (2) SHARES / UNITS HELD FOR TRADING PURPOSES. IT IS NOT IN DISPUTE THAT IN THE INSTANT CASE, THE ASSESS EE HAD MAINTAINED DUAL PORTFOLIOS IN ITS BOOKS OF ACCOUNTS AND HAD REPORTED CAPITAL GAINS AN D BUSINESS INCOME SEPARATELY AS PER THE CONSISTENT PRACTICE FOLLOWED BY THE ASSESSE E OVER THE YEARS AND ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. IT IS WELL SETTLED THAT IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TW O TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRI MA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT OR STOCK IN TRADE, THEN ONUS WOU LD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. IN THE INSTANT CASE, WE FIND FROM THE DETAILS IN THE PAPER BOOK THAT THE ASSESSEE HAD DULY DISCHARGED ITS PRIMARY ONUS O F DEMARCATING THE SCRIPTS HELD FOR INVESTMENT AND FOR TRADING AND THE RESULTANT GAINS DERIVED THEREFROM. EVEN THE CBDT CIRCULAR NO. 4 OF 2007 DATED 15.6.2007 ENVISAGES TH E PRACTICE OF ASSESSEES MAINTAINING DUAL PORTFOLIOS. WE ALSO FIND THAT THE DECISION WAS RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOP AL PUROHIT REPORTED IN 228 CTR 582 (BOM) WHEREIN THE ASSESSEE HAD MAINTAINED DUAL PORTFOLIOS AND ULTIMATELY THE COURT HELD THAT THE RESULTANT GAINS FROM INVEST MENT ACTIVITY WOULD BE ASSESSABLE AS CAPITAL GAINS AND NOT BUSINESS INCOME. WE ALSO F IND THAT THE VALUATION OF INVESTMENTS HAS BEEN DONE BY THE ASSESSEE AT COST AS COULD BE E VIDENT FROM THE ACCOUNTING POLICIES FORMING PART OF THE AUDITED FINANCIAL STATEMENTS. 5.3.2.1. WE ALSO FIND THAT THE CBDT IN ITS INSTRUCTION NO. 1827 DATED 31.8.1989 HAS LAID DOWN CERTAIN CRITERIA TO DETERMINE WHETHER AN ACTIVITY OF PURCHASE AND SALE OF ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 11 SHARES IS IN THE NATURE OF TRADING ACTIVITY OR INVE STMENT ACTIVITY. ONE OF THE CRITERIA LAID DOWN IS THE TREATMENT GIVEN IN THE BOOKS IS INDICAT IVE OF ASSESSEES INTENTION WHETHER TO HOLD THE SHARES WITH A VIEW TO EARN DIVIDEND AND LONG TERM APPRECIATION OR WITH A VIEW TO CARRYING ON AS BUSINESS. 5.3.3. INTENTION OF THE ASSESSEE WE FIND THE INTENTION OF THE ASSESSEE TO MAINTAIN T WO INDEPENDENT PORTFOLIOS I.E ONE FOR INVESTMENT PURPOSES AND ONE FOR TRADING PURPOSES FR OM THE VERY BEGINNING IS QUITE EVIDENT FROM THE BOOKS OF ACCOUNTS WHEREIN ASSESSEE HAD SEPARATE ENTRIES IN ITS LEDGER ACCOUNTS AT THE TIME OF EACH TRANSACTION I.E AT THE TIME OF PURCHASE ITSELF. THIS PRACTICE HAS NOT BEEN FOUND FAULT BY THE REVENUE IN THE EARL IER ASSESSMENT YEARS EVEN IN SCRUTINY PROCEEDINGS. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS S.RAMAMRITHAN REPORTED IN (2008) 217 CTR 206 (MAD) WHILE DISTINGUISHING TRADING AND INVESTMENT, OBSERVED THAT THE INTENTION OF THE ASSESSEE IS RELE VANT TO DETERMINE WHETHER AN ASSESSEE IS CARRYING ON THE BUSINESS IN SHARES OR I NVESTMENTS . THE INITIAL INTENTION OF THE ASSESSEE IN THE INSTANT CASE IS PROVED BEYOND D OUBT FROM THE MANNER OF MAINTAINING TWO SEPARATE PORTFOLIOS I.E (1) FOR INVESTMENT PURP OSES AND (2) FOR TRADING PURPOSES. THE LEARNED AR ARGUED THAT IN RESPECT OF SHARES RE TAINED UNDER INVESTMENT CATEGORY THE ASSESSEE HAD TAKEN DUE DELIVERY OF SHARES ON IT S PURCHASE AND GIVEN DUE DELIVERY OF SHARES ON ITS SALE. THE LEARNED AR FURTHER INFORM ED THAT THE ASSESSEE HAD ALSO KEPT SEPARATE RECORDS TO RECORD THE TRANSACTIONS OF EACH CATEGORY I.E DELIVERY BASED AND NON- DELIVERY BASED. IT IS SETTLED LAW THAT A PARTICU LAR INCOME IS FROM BUSINESS OR FROM INVESTMENT MUST BE DECIDED ACCORDING TO THE GENERAL COMMON SENSE VIEW OF THOSE WHO DEAL WITH THOSE MATTERS IN THE PARTICULAR CIRCUMSTA NCES. THE MOST EXCRUCIATING FACTOR TO BE LOOKED INTO AT THIS JUNCTURE IS THE CONDUCT O F THE ASSESSEE. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 12 5.3.4. FREQUENCY OF TRANSACTIONS THE NEXT POINT TO BE ADDRESSED IN THIS ISSUE IS WHE THER THE FREQUENCY OF TRANSACTIONS WOULD ALONE INDICATE THE TRADING ACTIVITY. IN THIS REGARD, WE FIND THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL HAD AN OCCASION TO CONSIDER THE SAME IN THE CASE OF JANAK S. RANGAWALLA VS ACIT REPORTED IN (2007) 11 SOT 627 (M UM), WHEREIN IT WAS HELD THAT : IT IS THE INTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. T HOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL N OT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURC HASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CA PITAL GAINS BOTH ON LONG TERM AND SHORT TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SH ARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION TO HOLD THE SHAES IN INDIAN COMP ANIES AS AN INVESTMENT AND NOT AS STOCK IN TRADE. THE MERE MAGNITUDE OF T HE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING A SSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. THE ASSES SING OFFICER IS DIRECTED TO SET OFF THE LONG TERM CAPITAL LOSS AGAINST THE SHOR T TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION. THE GROUNDS OF APPEA L RAISED BY THE ASSESSEE ARE ALLOWED. 5.3.4.1. WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS MERLIN HOLDING P LTD REPORTED IN (2015) 375 ITR 118 (CAL) FOR THE ASST YEARS 2005- 06 AND 2006-07 HAD HELD AS BELOW:- THE FREQUENCY OF TRANSACTIONS IN SHARES ALONE CAN NOT SHOW THAT THE INTEN- TION OF THE INVESTOR WAS NOT TO MAKE AN INVESTMENT. THE LEGISLATURE HAS NOT MADE ANY DISTINCTION ON THE BASIS-OF FREQUENCY OF T RANSACTIONS. THE BENEFIT OF SHORT -TERM CAPITAL GAINS CAN BE AVAILED OF FOR ANY PERIOD OF RETENTION OF SHARES UP TO 12 MONTHS. ALTHOUGH A CEILING HAS BEEN PROVIDED, THERE IS NO INDICATION AS REGARDS THE FLOOR, WHICH CAN BE AS LI TTLE AS ONE DAY. THE QUESTION ESSENTIALLY IS A QUESTION OF FACT. THE ASSESSEE WAS A CERTIFIED NON-BANKING FINANCIAL CONCERN. ITS MAIN ACTIV- ITIES WERE GIVING LOANS AND TAKING LOANS AND-INVEST ING IN SHARES AND SECURI- ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 13 TIES. THE ASSESSING OFFICER, FOR THE ASSESSMENT YEA RS 2005-06 AND 2006-07, OPINED THAT THE ACTIVITY WHICH, ACCORDING TO THE AS SESSEE, WAS ON INVESTMENT ACCOUNT AMOUNTED TO BUSINESS ACTIVITY AND, THEREFOR E, HE TREATED THE SHORT- TERM CAPITAL GAINS OF RS. 1,01,00,000 AS BUSINESS I NCOME. THE COMMISSIONER (APPEALS) HELD THAT THE REFUSAL ON THE PART OF THE ASSESSING OFFICER TO ACCEPT THE SHORT-TERM CAPITAL GAINS WAS INCORRECT. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL : HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD ADDUCED PROOF TO SHOW THAT SOME TRANSACTIONS WERE INTENDED TO BE BUS INESS TRANSACTIONS, SOME TRANSACTIONS WERE INTENDED TO BE BY WAY OF INV ESTMENT AND SOME TRANSACTIONS WERE BY WAY OF SPECULATION. THE REVENU E HAD NOT BEEN ABLE TO FIND FAULT FROM THE EVIDENCE ADDUCED. THE MERE FACT THAT THERE WERE 1,000 TRANSACTIONS IN A YEAR OR THE MERE FACT THAT THE M AJORITY OF THE INCOME WAS FROM THE SHARE DEALING OR THAT THE MANAGING DIRECTO R OF THE ASSESSEE WAS ALSO A MANAGING DIRECTOR OF A FIRM OF SHARE BROKERS COULD NOT HAVE ANY DECISIVE VALUE. THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAD CONCURRENTLY HELD AGAINST THE VIEWS OF THE ASSESSIN G OFFICER. ON THE BASIS OF THE SUBMISSIONS MADE ON BEHALF OF THE REVENUE, IT WAS NOT POSSIBLE TO SAY THAT THE VIEW ENTERTAINED BY THE COMMISSIONER (APPE ALS) OR THE TRIBUNAL WAS NOT A POSSIBLE VIEW. THEREFORE, THE DECISION OF THE TRIBUNAL COULD NOT BE SAID TO BE PERVERSE. NO FRUITFUL PURPOSE WAS LIK ELY TO BE SERVED BY REMANDING THE MATTER . 5.3.4.2. WE ALSO FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS H K FINANCIERS (P) LTD REPORTED IN (2015) 61 TAXMANN.CO M 175 (CAL) FOR THE ASST YEAR 2007-08 HAD HELD AS BELOW:- 3. THE ASSESSING OFFICER HAS LAID STRESS ON MOTIVE . TO BEGIN WITH MOTIVE IS SOMETHING, WHICH IS LOCKED IN THE MIND OF THE PE RSON. NO DIRECT EVIDENCE AS REGARDS MOTIVE IS POSSIBLE. MOTIVE CAN BE INFERR ED FROM THE CONDUCT OF THE PERSON CONCERNED BUT THAT IS BOUND TO REMAIN AN INFERENCE, WHICH MAY OR MAY NOT BE CORRECT. WE HAVE TODAY DICTATED A JUD GMENT IN THE CASE OF CIT V. MERLIN HOLDING (P.) LTD [IT APPEAL NO. 101 O F 2011, DATED 12-5- 2015] WHEREIN THE FOLLOWING VIEWS HAVE BEEN EXPRESS ED BY US: 'FROM THE TENOR OF THE SUBMISSIONS MADE BY MR. SARA F NOTED ABOVE, IT APPEARS THAT THE CASE OF THE REVENUE IS THAT IN THE FACTS OF THE CASE THE FINDING THAT THE INCOME WAS EARNED FROM INVESTM ENT COULD NOT HAVE BEEN RECORDED. IF THAT IS THE PROPOSITION THE N IT IS FOR THE REVENUE TO SHOW THAT SUCH A FINDING IS NOT POSSIBLE IN LAW. THAT WAS NOT EVEN SUGGESTED. WHAT REMAINS THEN IS A QUESTION OF ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 14 APPRECIATION OF EVIDENCE, WHICH HAS ALREADY BEEN DO NE. NO FRUITFUL PURPOSE IS LIKELY TO BE SERVED BY REMANDING THE MAT TER. WE DO NOT FIND ANY ISSUE, WHICH HAS REMAINED UNATTENDED. FOR THE AFORESAID REASONS, WE HOLD THAT THE JUDGMEN T UNDER CHALLENGE IS NOT PERVERSE.' 4. THE JUDGMENT IN THE CASE OF DALHOUSIE INVESTME NT TRUST CO. LTD. V. CIT[ 1968] 68 ITR 486 (SE) REFERRED BY THE ASSESSING OFF ICER DOES NOT ASSIST THE REVENUE BECAUSE IN THAT ON APPRECIATION OF FACTS IT WAS FOUND AS FOLLOWS:- 'ON THE FACTS, THAT THE APPELLANT DEALT WITH THE SH ARES OF MCLEOD AND CO. AND THE ALLIED COMPANIES AS STOCK-IN-TRADE, THAT THEY WERE IN FACT PURCHASED EVEN INITIALLY NOT AS INVESTMENTS BUT FOR THE PURPOSE OF SALE AT A PROFIT AND THEREFORE THE TRANS ACTIONS AMOUNTED TO AN ADVENTURE IN THE NATURE OF TRADE. THE PROFIT DERIVED BY THE APPELLANT FROM THE SALE OF SHARES WAS THEREFORE A R EVENUE RECEIPT AND AS SUCH LIABLE TO INCOME-TAX.' 5. THE FACTS OF THE CASE ARE NOT SHOWN TO BE SIMI LAR WITH THOSE IN THE CASE OF DALHOUSIE INVESTMENT. 6. FOR THE AFORESAID REASONS, WE ARE OF THE OPINIO N THAT THE VIEWS EXPRESSED BOTH BY THE CIT AND THE TRIBUNAL FOR REAS ONS EXPRESSED THEREIN ARE A POSSIBLE VIEW. IT IS, THEREFORE, NOT OPEN TO THE REVENUE TO CONTEND THAT THE VIEW TAKEN BY THE TRIBUNAL IS PERVERSE. QU ESTION FORM ULATED AT THE TIME OF ADMISSION OF THE APPEAL DOES NOT APPEAR TO HAVE BEEN CORRECTLY FORMULATED. THE QUESTION COULD ONLY BE, WHETHER THE VIEWS EXPRESSED UPON APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E WERE PERVERSE. THE QUESTION IS NOW FORMULATED AND IS ANSWERED IN THE N EGATIVE. THE APPEAL IS THUS DISMISSED. 5.3.5. EXISTENCE OF BORROWED FUNDS THE NEXT POINT TO BE ADDRESSED IN THIS ISSUE IS THE EXISTENCE OF BORROWED FUNDS AND PAYMENT OF INTEREST THEREON BY THE ASSESSEE. THE L EARNED CIT(A) HAD GIVEN A FACTUAL FINDING THAT NO NEXUS HAS BEEN BROUGHT ON RECORD BE TWEEN THE BORROWED FUNDS AND THE INVESTMENTS MADE. THE LEARNED CIT(A) FOUND THAT F OR THE ASST YEAR 2005-06, THE ASSESSEE HAD MADE SHORT TERM BORROWINGS FROM ITS DI RECTOR FOR A PERIOD OF SEVEN MONTHS ONLY IN ORDER TO MEET ITS WORKING CAPITAL RE QUIREMENTS AND THE SAID LOAN WAS ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 15 ALSO SQUARED UP DURING THE YEAR. SIMILARLY IN ASST YEAR 2006-07, THE ASSESSEE HAD MADE BORROWINGS OF RS. 3 CRORES AND UTILIZED THE SA ME FOR INVESTMENT AS WELL AS FOR TRADING ACTIVITY. THE LEARNED CIT(A) ALSO FOUND T HAT THE ASSESSEE HAS GOT A SHARE CAPITAL OF RS. 10,00,000/- AND RESERVES AND SURPLUS AS ON 31.3.2005 AT RS. 1,73,98,009/- IN ADDITION TO GENERATION OF OWN FUND S IN THE FORM OF SALE OF SHARES HELD AS INVESTMENTS. THIS GOES TO PROVE THAT THE OWN FU NDS ALONG WITH BORROWED FUNDS HAVE BEEN UTILISED FOR BOTH INVESTMENT AND TRADING ACTIV ITIES OF THE ASSESSEE. HE ACCORDINGLY HELD THAT THE FINDING OF THE LEARNED AO THAT BORROW ED FUNDS WERE UTILIZED FOR INVESTMENTS TO BE FACTUALLY INCORRECT. THIS FINDIN G GIVEN BY THE LEARNED CIT(A) IS NOT REFUTED BY THE LEARNED DR BEFORE US FOR BOTH THE AS ST YEARS UNDER APPEAL. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF JCIT VS BAJRANGLAL CHOWDHURY REPORTED IN (2015) 58 TAXMANN.COM 204 (CA L) HAD HELD AS BELOW:- L. THE APPEAL IS DIRECTED AGAINST A JUDGMENT AND OR DER DATED MARCH 13, 2014, BY WHICH THE LEARNED INCOME-TAX APPELLATE TRI BUNAL DISMISSED AN APPEAL PREFERRED BY THE REVENUE. 2. THE ASSESSING OFFICER HELD THAT THE TRANSACTION IN SHARES UNDERTAKEN BY THE ASSESSEE WAS IN THE NATURE OF A BUSINESS TRANSA CTION AND NOT INVESTMENT. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, AN APPEAL WAS PREFERRED BY THE ASSESSEE WHICH WAS ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) HOLDING THAT THE TRANSACTION WAS REALLY I N THE NATURE OF AN INVESTMENT. THE APPELLATE AUTHORITY DISCUSSED REASO NS AS TO WHY WAS THE TRANSACTION IN THE NATURE OF AN INVESTMENT. THE REV ENUE PREFERRED AN APPEAL. THE LEARNED TRIBUNAL AGREEING WITH THE APPE LLATE AUTHORITY DISMISSED THE APPEAL. THE REVENUE HAS ONCE AGAIN CO ME UP IN APPEAL BEFORE US. 3. MR. SARAF, LEARNED ADVOCATE APPEARING FOR THE RE VENUE, STRENUOUSLY SUBMITTED THAT THE FINDING OF THE LEARNED TRIBUNAL IS PERVERSE. THE TRIBUNAL IGNORED THE FACT THAT THE SHARES ALLEGEDLY PURCHASE D IN JULY WERE NOT TAKEN DELIVERY OF TILL DECEMBER NOR WAS ANY PAYMENT MADE WHEN THE PURCHASE WAS ALLEGEDLY MADE IN THE MONTH OF JULY. THIS SUBMI SSION OF MR. SARAF EVIDENTLY IS BASED ON MISREADING OF THE EVIDENCE. I T WOULD APPEAR FROM THE ASSESSMENT ORDER THAT PAYMENT WAS MADE FOR THE SHAR ES IN THE MONTH OF JULY ITSELF THROUGH BILL ACCOMMODATION FACILITY. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 16 4. MR. SARAF RELIED UPON A JUDGMENT IN THE CASE OF CFT V. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. [1975] 100 ITR 706 (SC). H E DREW OUR ATTENTION TO THE FOLLOWING FINDING RECORDED BY THE APEX COURT (PAGE 713) : 'THE FINDING OF THE HIGH COURT THAT THE CLAUSES OF THE MEMORANDUM OF ASSOCIATION, VIZ., CLAUSES 10, 12, L3, 28 AND 29 DO NOT AUTHORISE THE COMPANY TO ACQUIRE AND SELL SHARES AS BUSINESS HAS NO RELEVANCE IN VIEW OF THE AFORESAID RESOLUTION OF THE ASSESSEE AND OF THE FACT THAT IT HAD BEEN DEALING IN SHARES IN A COMMERCIAL SPIRIT AS IS EVID ENT FROM ITS CLAIM FOR LOSS IN DEALINGS IN THE SHARES OF M/S. TITAGHUR PAPER MI LLS LTD. AND DEVALUATION OF SHARES OF M/S. PILANI INVESTMENT CORPORATION ON THE BASIS THAT THEY HAD FALLEN IN VALUE. SECONDLY, THE TRIBUNAL SAID THAT FROM 1947 TO 1956, NO DIVIDEND HAD BEEN DECLARED BY THE RAYON COMPANY AND THAT THE MONEY WH ICH WENT INTO THE PURCHASE OF THESE SHARES WAS BORROWED BY THE ASSESS EE. IN OTHER WORDS, THE VIEW OF THE TRIBUNAL WAS, IT WAS WITH BORROWED FUND S THAT THE ASSESSEE PURCHASED THE SHARES. IT IS NO DOUBT TRUE THAT THER E WAS NO EVIDENCE TO SHOW THAT THE MONEY WAS SPECIFICALLY BORROWED FOR THE PU RPOSE OF BUYING SHARES. BUT THERE WAS EVIDENCE BEFORE THE TRIBUNAL FOR ITS FINDING THAT THE LIABILITIES OF THE ASSESSEE EXCEEDED ITS ASSETS. THE FINDING, T HEREFORE, THAT THE SHARES WERE PURCHASED WITH THE BORROWED FUNDS ON WHICH THE ASSESSEE WAS PAYING INTEREST, WAS A FINDING SUPPORTED BY EVIDENCE. THE REASONING OF THE TRIBUNAL THAT IT IS MOST IMPROBABLE THAT THE ASSESS EE WOULD BE INVESTING BORROWED MONEY ON WHICH INTEREST WOULD HAVE TO BE P AID IN SHARES WHICH YIELDED NO DIVIDEND WAS CORRECT. WE CANNOT SAY THAT THIS WAS NOT A RELEVANT CIRCUMSTANCES FOR THE TRIBUNAL TO TAKE INTO CONSIDE RATION FOR COMING TO THE CONCLUSION THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF BUSINESS.' 5. IT WOULD APPEAR FROM THE AFORESAID FINDING THAT THE APEX COURT WAS OF THE OPINION THAT THE VIEW FORMED BY THE TRIBUNAL WAS A POSSIBLE VIEW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE JUDGMENT I S NOT, HOWEVER, AN AUTHORITY FOR THE PROPOSITION THAT SINCE PURCHASE W AS MADE BY BORROWED FUNDS, IT IS BOUND TO BECOME A BUSINESS TRANSACTION . THE TRIBUNAL IN THAT CASE HAD TAKEN A POSSIBLE VIEW. THEREFORE, THE APEX COURT DID NOT INTERFERE. 6. NO OTHER SUBMISSION WAS MADE. WE ARE OF THE OPI NION THAT THE VIEW TAKEN BY THE LEARNED TRIBUNAL IN THIS CASE IS ALSO BASED ON EVIDENCE AND IS A POSSIBLE VIEW. THERE IS, AS SUCH, NO REASON WHY THE HIGH COURT SHOULD INTERFERE. ) ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 17 7. FOR THE AFORESAID REASONS, WE REFUSE TO ADMIT TH E APPEAL, WHICH IS, ACCORDINGLY, DISMISSED. 5.3.6. PERIOD OF HOLDING OF SHARES WE FIND THAT ONE OF THE MAIN ARGUMENTS OF THE REVEN UE SEEMS TO BE THE SHORTER DURATION FOR WHICH THE SHARES WERE HELD BY THE ASSESSEE. IN THIS REGARD, WE HAD GONE THROUGH THE ENTIRE DETAILS OF PROFIT ON SALE OF INVESTMENT SCRIP WISE CONTAINING THE DATE OF PURCHASE, NUMBER OF SHARES PURCHASED, PURCHASE PRIC E, DATE OF SALE, SALE PRICE AND RESULTANT BOOK PROFIT OR LOSS WHICH FORMS PART OF T HE PAPER BOOK FILED BY THE ASSESSEE. WE FIND FROM THE SAID WORKINGS OF PROFIT ON SALE O F INVESTMENTS , NONE OF THE SCRIPTS HAD BEEN SOLD BY THE ASSESSEE WITHIN A PERIOD OF 30 DAYS AS STATED BY THE LEARNED DR, EXCEPT KOTAK MAHINDRA MUTUAL FUND SHORT TERM PLAN W HICH WAS PURCHASED IN MARCH 2004 AND REDEEMED IN APRIL 2004. OTHER THAN THIS, ALL OTHER SCRIPTS AND MUTUAL FUNDS WERE HELD FOR A MINIMUM PERIOD OF TWO MONTHS FROM T HE DATE OF PURCHASE BEFORE ITS TRANSFER. WE ALSO FIND THAT CERTAIN SHARES WERE H ELD BY THE ASSESSEE FROM MARCH 1995 , OCTOBER 1996, DECEMBER 1998, MAY 2003, JUNE 2003, JULY 2003, AUGUST 2003, SEPTEMBER 2003, OCTOBER 2003 ETC ONWARDS WHICH WERE ULTIMATELY SOLD BY THE ASSESSEE IN ASST YEAR 2005-06. SIMILARLY IN ASST Y EAR 2006-07, FROM THE WORKINGS OF SHORT TERM CAPITAL GAINS FILED IN THE PAPER BOOK, W E FIND THAT ONLY THE PART OF THE SHARES OF DSP MERRILL LYNCH LTD AND GRAPHITE INDIA LTD WE RE SOLD WITHIN A MONTH. OTHER THAN THESE TWO SHARES, THE AVERAGE PERIOD OF 4 MONT HS HAS BEEN MAINTAINED BY THE ASSESSEE FROM THE DATE OF PURCHASE. WE ALSO FIND F ROM THE WORKINGS OF LONG TERM CAPITAL GAINS FOR ASST YEAR 2006-07, THE SHARES WER E HELD FOR A PERIOD OF 13 MONTHS. THIS SHOWS THAT THE ASSESSEE ALWAYS INTENDED THESE SHARES TO BE RETAINED ONLY UNDER THE INVESTMENT CATEGORY AND IT WILL BE HIGHLY IMPROPER TO STATE THAT THESE SHARES / UNITS WERE HELD AS STOCK IN TRADE BY THE ASSESSEE. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 18 WE FIND THAT THIS ASPECT HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS RELIANCE TRADING ENTERPRISES LTD IN ITA NO. 944/KOL/2008 DATED 3.1.2008 WHEREIN IT WAS HELD THAT : WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE REC ORDS AS WELL AS THE DOCUMENTS CONTAINED IN THE PAPER BOOK FILED BEFORE US. THERE IS NO DENYING THE FACT THAT AS PER THE ACCOUNT MAINTAINED THE ASS SESSEE HAD ACTED BOTH AS A TRADER AS WELL AS INVESTOR IN SHARES AS PER THE M EMORANDUM AND ARTICLES OF ASSOCIATION. ACCOUNTS WERE MAINTAINED FOR TRADI NG / BUSINESS SHARES WHICH ARE HELD AS STOCK IN TRADE AND SEPARATELY FOR INVESTMENT SHARES WHICH ARE HELD AND SHOWN IN BALANCE SHEET UNDER THE HEAD INVESTMENT REPRESENTING CAPITAL ASSETS. THE DECISIONS USED TO BE TAKEN BY THE ASSESSEE AT THE TIME OF PURCHASE ITSELF BASED ON DIFFERENT F ACTORS WHETHER ANY SHARE AND SECURITY WAS TO BE HELD AS INVESTMENT OR TRADIN G. WHEN THE SHARES ARE ACCOUNTED FOR IN THE BOOKS AS INVESTMENT SHARES, TH E VOLUME OF TRANSACTION OF SUCH SHARES CANNOT ALTER ITS STATUS FROM INVESTM ENT TO TRADING . PROFIT ON SALE OF SUCH INVESTMENT SHARES HELD, AS CAPITAL ASS ETS ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN. PERIOD OF HOLDING OF SUCH A SSETS CANNOT DETERMINE ITS STATUS OR CHANGE IT FROM INVESTMENT (CAPITAL) TO TR ADING (STOCK IN TRADE) . THE AUDITED ACCOUNTS FOR THE ASSESSMENT YEAR 04-05 AND THE EARLIER YEARS PLACED IN THE PAPER BOOK MADE IT CLEAR THAT EVERY Y EAR THE ASSESSEE HAD ACQUIRED SHARES FOR TRADING PURPOSE AND SEPARATELY ALSO FOR INVESTMENT PURPOSE WITH AN INTENTION TO EARN DIVIDEND INCOME I N ADDITION TO THE PROSPECT OF MAKING PROFIT ON SALE OF SUCH INVESTMEN T SHARES AT AN APPROPRIATE OPPORTUNE MOMENT WITHOUT MAKING ANY HUR RY FOR SELF IGNORING DIVIDEND. THE INVESTMENT SHARES AND SECURITIES PU RCHASED AND HELD TILL THEIR SALE HAD DUAL PURPOSE I.E. FOR EARNING DIVIDEND AS AN INCIDENTAL INCOME AS WELL AS TO MAKE PROFIT ON SHARES AT APPRO PRIATE TIME . THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER BY TREAT ING THE INVESTMENT SHARES AS TRADING SHARES WAS BASED PURELY ON ASSUMP TIONS AND PRESUMPTIONS WITHOUT BRINGING ANY RECORD ANY MATERI AL OR EVIDENCE IN SUPPORT THEREOF. THE ASSESSING OFFICER DID NOT REJ ECT THE BOOKS OF ACCOUNTS VIS A VIS THE AUDITED ACCOUNTS U/S 145 OF THE IT AC T BEFORE ARRIVING AT SUCH A CONCLUSION. THE ASSESSING OFFICERS FINDING CANNOT THEREFORE BE ACCEPTED. 5.3.7. WE FIND THAT THE ASSESSEE HAD EARNED DIVIDE ND INCOME ALSO WHICH IS QUITE REFLECTIVE OF THE INTENTION OF INVESTMENT AND NOT F OR PROFIT MOTIVE THOUGH AN INVESTOR IS NOT PRECLUDED FROM REALIZING ITS INVEST MENT WHICH MAY RESULT INTO PROFIT IN FAVOURABLE CIRCUMSTANCES. ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 19 5.3.8. WE ALSO FIND THAT THE PRACTICE FOLLOWED BY THE ASSESSEE BY OFFERING CAPITAL GAINS FOR INVESTMENT ACTIVITIES AND BUSINESS INCOME FOR T RADING ACTIVITIES IN THE EARLIER YEARS HAVE BEEN CONSISTENTLY ACCEPTED BY THE REVENUE IN S ECTION 143(3) PROCEEDINGS FOR THE ASST YEARS 2002-03 ; 2004-05 ; 2008-09 AND 2010-11 , COPY OF WHICH ORDERS ARE PLACED ON RECORD BEFORE US. THE ASSESSMENT YEARS UNDER APPEAL BEFORE US ARE ASST YEARS 2005-06 AND 2006-07. WE DO NOT FIND ANY LOGI CAL REASON FOR THE REVENUE TO DEVIATE FROM ITS CONSISTENT STAND TAKEN IN THE EARL IER YEARS. IT IS ALSO EVIDENT FROM THE SCRUTINY ASSESSMENT ORDERS FOR ASST YEARS 2008-09 A ND 2010-11 , THE REVENUE HAD ACCEPTED THE STAND OF THE ASSESSEE HAVING DUAL PORT FOLIO AND OFFERING INCOME UNDER CAPITAL GAINS AND BUSINESS INCOME IN SUBSEQUENT YEA RS. 5.3.9. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT REPORTED IN (2011) 336 ITR 287 (BOM) AND 22 8 CTR 582 (BOM) HAD CONSIDERED THE ISSUE UNDER CONSIDERATION AND HELD A S UNDER:- 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE LEARNED AR BEFORE US. WE FIND THAT THE ASSESSEE HAS BEEN ENGAG ING HIMSELF IN THE SHARE TRANSACTIONS BOTH AS AN INVESTOR AND AS WELL AS TRA DER. IT IS SEEN THAT THE ASSESSEE HAD CLEARLY BIFURCATED THE INVESTMENT AND TRADING TRANSACTIONS INCLUDING SPECULATIVE SHARE TRANSACTIONS IN HIS BOO KS OF ACCOUNTS AND IT IS ALSO SEEN THAT THE AVERAGE PERIOD OF HOLDING OF SHA RES RANGE FROM ONE MONTH TO MORE THAN ONE YEAR AND ACCORDINGLY SHORT T ERM OR LONG TERM CAPITAL GAINS ARE DULY OFFERED TO TAX BY THE ASSESS EE DEPENDING UPON THE PERIOD OF HOLDING THE SHARES. IT IS ALSO SEEN THAT THE LEARNED AO HAD ALSO ACCEPTED THE STAND OF THE ASSESSEE IN THE IMMEDIATE LY SUCCEEDING ASSESSMENT YEAR AS INVESTMENT TRANSACTIONS UNDER SC RUTINY PROCEEDINGS VIDE 143(3) ORDER DATED 12.10.2009. WE FIND THAT THE FRE QUENCY OF TRANSACTIONS DOES NOT REALLY MATTER AND WHAT IS TO BE SEEN IS TH E INTENTION OF THE ASSESSEE WHETHER HE WANTS TO PENETRATE INTO THE CAPITAL MARK ET FOR THE PURPOSE OF INVESTMENT OR FOR MAKING SPECULATIVE GAINS BY DOING DAY TRADING AND DEALING IN FUTURES AND OPTIONS. IT IS ALSO SEEN THA T THE LEARNED AO HAD CLEARLY STATED IN HIS ASSESSMENT ORDER THAT THE INT EREST ON BORROWINGS WERE PAID BY THE ASSESSEE ONLY FOR TRADING IN SHARES AND THIS ITSELF GOES TO PROVE THAT THE ASSESSEE HAD CLEARLY BIFURCATED HIS ACTIVI TIES INTO TWO PARTS - ONE ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 20 TOWARDS INVESTMENT IN SHARES OUT OF OWN FUNDS OF TH E ASSESSEE AND OTHER TOWARDS TRADING IN SHARES OUT OF OWN AND BORROWED F UNDS OF THE ASSESSEE. IT IS ALSO SEEN THAT THE ASSESSEE HAS BEEN DOING THIS ACTIVITY CONSISTENTLY. IT IS ALSO SEEN FROM THE BALANCE SHEET FILED BY THE ASSES SEE THAT THE ASSESSEE HAD CLEARLY CLASSIFIED THE SHARE TRANSACTIONS UNDER THE HEAD INVESTMENTS. THIS ITSELF CLEARLY PROVES THE INTENTION OF THE ASSESSEE THAT HE IS ONLY INTERESTED IN SHARE MARKET ONLY AS AN INVESTOR AND NOT OTHERWISE. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY DEALT WITH BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GO PAL PUROHIT REPORTED IN 228 CTR 582 (BOM), WHEREIN THE QUESTIONS RAISED BEFORE THE BOMBAY HIGH COURT AND DECISION RENDERED THEREON ARE AS BE LOW:- '(A) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN TREATING THE INC OME FROM SALE OF 7,59,003 SHARES FOR RS.5,00,12,879/- AS AN INCOME FROM SHORT TERM CAPITAL GAIN AND SALE OF 3,88,797 SHARES FOR RS.6,65,02,340/- AS LON G TERM CAPITAL GAIN AS AGAINST THE 'INCOME FROM BUSINESS' ASSESSED BY THE A. O. ? (B) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON 'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRI NCIPLE OF CONSISTENCY MUST BE APPLIED HERE AS AUTHORITIES DID NOT TREAT T HE ASSESSEE AS A SHARE TRADER IN PRECEDING YEAR, IN SPITE OF EXISTENCE OF SIMILAR TRANSACTION, WHICH CANNOT IN ANY WAY OPERATE AS RES JUDICATA TO PRECLU DE THE AUTHORITIES FROM HOLDING SUCH TRANSACTIONS AS BUSINESS ACTIVITIES IN CURRENT YEAR? (C) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW., THE HON 'BLE ITAT WAS JUSTIFIED IN HOLDING THAT PRE SENTATION IN THE BOOKS OF ACCOUNT IS THE MOST CRUCIAL SOURCE OF GATHERING INT ENTION OF THE ASSESSEE AS REGARDS TO THE NATURE OF TRANSACTION WITHOUT APPREC IATING THAT THE ENTRIES IN THE BOOKS OF ACCOUNTS ALONE ARE NOT CONCLUSIVE PROO F TO DECIDE THE INCOME? THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TR ANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DES CRIBED IN PARAGRAPH 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PUR ELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE P RINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESS EE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING I N SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PR ESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSA CTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED EITHER AS SHO RT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOS E BY WAY OF INVESTMENT ON ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 21 ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNA L HAS OBSERVED IN PARAGRAPH 8.1. OF ITS JUDGMENT THAT THE ASSESSEE HA S FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMEN T AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFF ERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIP LE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED THE REVE NUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RA ISE ANY SUBSTANTIAL QUESTION. IN SO FAR AS QUESTION (C) IS CONCERNED, AGAIN THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPOSITION THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME. THE TRIBUNAL HAS APPLIED THE CORRECT PRINCIPLE IN ARRIVING AT TH E DECISION IN THE FACTS OF THE PRESENT CASE. THE FINDING OF FACT DOES NOT CALL FOR INTERFERENCE IN AN APPEAL UNDER SECTION 260A. NO SUBSTANTIAL QUESTION OF LAW IS RAISED. THE APPEAL IS ACCORDINGLY DISMISSED. IT IS PERTINENT TO NOTE THAT THE DECISION OF BOMBAY HIGH COURT WAS SUBJECTED TO FURTHER APPEAL BY THE REVENUE BEFORE THE HONBLE APEX COURT AND THE SPECIAL LEAVE PETITION (SLP) WAS DISMISSED BY THE SUPREME COURT. 5.3.10. WE ALSO FIND THAT THERE IS NO MATERIAL BRO UGHT IN BY THE REVENUE TO SHOW THAT SEPARATE ACCOUNTS OF TWO PORTFOLIOS ARE ONLY A SMO KESCREEN AND THERE IS NO REAL DISTINCTION BETWEEN TWO TYPES OF HOLDINGS. THIS CO ULD HAVE BEEN DONE BY SHOWING THAT THERE IS INTERMINGLING OF SHARES AND TRANSACTIONS A ND THE DISTINCTION SOUGHT TO BE CREATED BETWEEN TWO TYPES OF PORTFOLIOS IS NOT REAL BUT ONLY ARTIFICIAL AND ARBITRARY. THEREFORE, IN ABSENCE OF ANY MATERIAL TO THE CONTRA RY, AND ON APPRECIATION OF CUMULATIVE EFFECT OF SEVERAL FACTORS PRESENT AS CUL LED OUT ABOVE , WE HOLD THAT THE ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 22 SURPLUS IS CHARGEABLE TO CAPITAL GAINS ONLY AND ASS ESSEE IS NOT TO BE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN INVESTMEN T PORTFOLIO. ACCORDINGLY, THE GROUND NO. 2 IN ITA NO. 1148/KOL/2009 FOR ASST YEAR 2005-06 AND GROUND NO. 1 IN ITA NO. 1437/KOL/2009 FOR ASST YEAR 2006-07 RAISED BY THE REVENUE ARE DISMISSED. 6. THE LAST GROUND TO BE DECIDED IN THE APPEAL FO R THE ASST YEAR 2006-07 IN ITA NO. 1437/KOL/2009 IS AS TO WHETHER THE LEARNED CITA IS JUSTIFIED IN DELETING THE DISALLOWANCE OF LOSSES TO THE EXTENT OF RS. 18,385/ - ON WRONG APPRECIATION OF FACTS. 6.1. DURING THE COURSE OF HEARING, THE LEARNED AR S TATED THAT IN VIEW OF THE SMALLNESS OF THE AMOUNT, HE IS NOT WILLING TO PRESS THE GROUN D. THIS IS TAKEN AS A STATEMENT FROM THE BAR. HENCE THIS GROUND NO.2 RAISED BY THE REVENUE IN IT A NO. 1437/KOL/2009 IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. 1148/KOL/2009 IS PARTLY ALLOWED FOR ASST YEAR 2005-06 ; CO NO. 52/KOL/2009 FOR ASST YEAR 2005-06 IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 1437/K OL/ 2009 FOR ASST YEAR 2006-07 IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 20 -01-2016 SD/- ( MAHAVIR SINGH JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 20 -01/2016 ITA NOS. 1148/K09, CO NO. 52/K/09 & 1437/K/09C-AM M/S. LYPONS & ROSES PVT. LTD 23 1.. THE APPELLANT: INCOME TAX OFFICER, WARD 12(1) , 3 GOVT PL (W), KOL-1 2 THE RESPONDENT: M/S. LYONS & ROSES PVT. LTD B-10 3 RAI ENCLAVE 7/1 SUNNY PARK, KOL-19. SHALIMAR, HOWRAH-711103. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS COPY OF THE ORDER FORWARDED TO: -