A.P.Holdings Pvt.Ltd., Pune V. ACIT, Cir.(1), Pune, Pune

ITA 1178/PUN/2010

• Counselvise Citation: 117824514 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Business income; Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 1178/PN/2010 (F.Y.: 2006-07) A.P. HOLDINGS PVT. LTD. ... APPELLANT OFFICE NO. 9 & 10 FIFTH FLOOR AKSHAY COMPLEX I.T.I. ROAD, AUNDH, PUNE 411007 PAN : NOT AVAILABLE V. A.C.I.T. CIRCLE 1[1], RESPONDENT PUNE APPELLANT BY : SHRI. SUNIL GANOO RESPONDENT BY : SHRI S.K. SINGH DATE OF HEARING : 16.8.11 DATE OF PRONOUNCEMENT: .10.11 ORDER PER I.C. SUDHIR, JM THE APPELLANT HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C.I.T.[A] HAS ERRED IN HOLDING THAT THE LONG TERM C APITAL GAINS RS.5,60,35,771.00 ARISING ON SALE OF SHARES OF NAG ARJUNA CONSTRUCTIONS LTD, CONSTITUTES AS BUSINESS INCOME OF THE APPELLANT ASS ESSEE ON THE ALLEGED GROUND THAT TRADING IN SHARES AND SECURITIES IS A REGULAR TRADE / BUSINESS OF THE APPELLANT. THE AFORESAID FINDING BEING PATENTL Y ILLEGAL, ARBITRARY, DEVOID OF MERITS AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEAS E BE VACATED AND THE AFORESAID AMOUNT OF RS.5,60,35,771.00 MAY PLEASE BE TAXED AS LONG TERM CAPITAL GAINS WITH ALL CONSEQUENTIAL RELIEFS AS CLA IMED BY THE APPELLANT ASSESSEE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED C.I.T[A] HAS ERRED IN HOLDING THAT THE SHORT TERM C APITAL GAINS OF RS.1,10,42,690.00 ARISING ON SALE OF SHARES OF COM PANIES, CONSTITUTES AS BUSINESS INCOME OF THE APPELLANT ASSESSEE ON THE A LLEGED GROUND THAT TRADING IN SHARES AND SECURITIES IS A REGULAR TRADE / BUSINESS OF THE APPELLANT. ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 2 THE AFORESAID FINDING BEING PATENTLY ILLEGAL, ARB ITRARY, DEVOID OF MERITS AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE VACAT ED AND THE AFORESAID AMOUNT OF RS. 1,10,42,690.00 MAY PLEASE BE TAXED AS SHORT TERM CAPITA GAINS WITH ALL CONSEQUENTIAL RELIEFS AS CLAIMED BY THE APPELLANT ASSESSEE. 3. IT MAY PLEASE BE HELD THAT THE APPELLANT ASSES SEE IS NOT ENGAGED IN THE BUSINESS OF TRADING / DEALING IN SHARES AND SEC URITIES AND THE PROFITS EARNED BY THE APPELLANT ON SALE OF SHARES AND SECUR ITIES MAY PLEASE BE DIRECTED TO BE TAXED AS CAPITAL GAINS AS CLAIMED BY THE APPELLANT ASSESSEE. ALL THE CONCLUSIONS / FINDINGS / OBSERVATIONS OF TH E LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED C.I.T.[A] ALLEGING THAT THE APPELLANT IS CARRYING ON THE BUSINESS AS A TRADER / DEALER IN SHARES AND SECURI TIES OF THE COMPANIES BEING ARBITRARY, LEGALLY UNSUSTAINABLE AND DEVOID OF MERI TS THE SAME MAY BE VACATED. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3. THE APPELLANT COMPANY IS STATED TO BE AN INVESTM ENT COMPANY AND COMMISSION AGENT. DURING THE ASSESSMENT PROCEEDING S, THE A.O OBSERVED THAT OUT OF TOTAL INCOME RETURNED BY THE ASSESSEE AT RS.8,80 ,15,001/-, 77% OF THE INCOME RELATES TO INCOME FROM CAPITAL GAINS. THE A.O OBSE RVED FURTHER THAT THE ASSESSEE HAD CONDUCTED NUMEROUS TRANSACTIONS IN SHARES DURIN G THE RELEVANT YEAR, INCOME FROM WHICH WAS OFFERED UNDER THE HEAD 'CAPITAL GAIN S. THE A.O WAS NOT SATISFIED WITH THE CAUSE SHOWN BY THE ASSESSEE THAT THE TRAN SACTIONS WERE INVESTMENT IN NATURE AND CONSEQUENTLY TREATED THE INCOME DERIVED THERE-FROM AS INCOME FROM BUSINESS. THE LD CIT(A) HAS ALSO UPHELD THE SAME, AGAINST WHICH, ASSESSEE IS IN APPEAL BEFORE US ON THE ABOVE GROUNDS. 4. THE EXPLANATION OF THE ASSESSEE BEFORE THE A.O R EMAINED THAT IT WAS AN INVESTMENT COMPANY DULY REGISTERED WITH THE RBI AS NON-BANKING FINANCE ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 3 COMPANY, ESTABLISHED FOR THE OBJECTIVE OF DEALING IN SHARES, SCRIPT AND TO INVEST IN SHARES, SCRIPT AND BONDS ETC., AMONGST OTHER OBJECT IVES. IT WAS SUBMITTED THAT DURING THE RELEVANT YEAR, THE ASSESSEE HAD MADE INV ESTMENT IN EQUITY SHARES OF NAGARJUNA CONSTRUCTIONS LTD., SHARES OF WHICH WERE ALLOTTED TO THE ASSESSEE WITH A LOCK IN PERIOD OF ONE YEAR SUGGESTING THE MOTIVE O F THE ASSESSEE COMPANY AS INVESTMENT. IT WAS ALSO EXPLAINED THAT THE OTHER S HARES PURCHASED AND SOLD DURING THE YEAR WERE ACQUIRED AS INVESTMENTS ONLY AND THE SAME WERE REFLECTED IN THE BOOKS OF ASSESSEE AS SUCH. IT WAS SUBMITTED THAT DU RING THE YEAR, THE ASSESSEE HAD CARRIED OUT TRANSACTIONS IN SHARES ONLY ON 55 DAYS . IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE ALL THE INVESTMENTS OUT OF ITS OW N FUNDS AND IT NEVER CARRIED ON ANY ACTIVITY OF BUYING AND SELLING SHARES IN A CONT INUOUS AND SYSTEMATIC MANNER WITH A VIEW TO EARN PROFIT. IT WAS ALSO POINTED OUT TH AT THE GAINS DERIVED OUT OF SALE OF SHARES WERE ALSO UTILIZED FOR OTHER BUSINESS ACTIVI TY OF THE ASSESSEE. ANALYZING THE ACTIVITIES CARRIED OUT BY THE ASSESSEE, THE A.O CAM E TO THE CONCLUSION THAT THE NATURE OF THE ACTIVITIES CARRIED ON BY THE ASSESSEE IS BUSINESS. 5. BEFORE THE LD CIT(A), THE ASSESSEE TRIED TO MEE T OUT THE OBJECTIONS RAISED BY THE A.O, WHICH HAS BEEN DISCUSSED BY THE LD CIT(A) IN DETAIL AT PAGE NOS. 8 TO 20 OF THE FIRST APPELLATE ORDER. 6. THE ASSESSEE MADE FURTHER CONTENTIONS BEFORE THE LD CIT(A) WHICH HAVE BEEN DISCUSSED IN DETAIL BY HIM AT PAGE NOS. 26 TO 34 OF THE FIRST APPELLATE ORDER. THE CONTENTIONS OF THE ASSESSEE IN BRIEF REMAINED AS UNDER : (A) ON THE INVESTMENT IN SHARES AND SECURITIES ARE ALW AYS SHOWN AS INVESTMENTS IN ITS FINANCIAL STATEMENTS AND AT COS T NOT AS STOCK-IN-TRADE. (B) THE INVESTMENT WAS MADE IN 50,000 SHARES OF NAGARJU NA CONSTRUCTION LTD. (NCC LTD.) HAVING LOCK IN PERIOD OF 1 YEAR WHI CH FULLY DEMONSTRATES ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 4 THE INTENTION OF THE ASSESSEE THAT THESE WERE ACQUI RED AS A LONG TERM INVESTMENT. (C) THE ASSESSEE DID NOT HAVE ANY PARAPHERNALIA, QUALIF IED STAFF, REQUISITE KNOWLEDGE AND EXPERTISE FOR PURCHASE AND SALE OF SH ARES. (D) THE SHARES WERE NOT PURCHASED OUT OF BORROWED FUNDS AS IT IS GENERALLY DONE IN THE CASE OF TRADER AND IN THE REGULAR BUSI NESS ACTIVITY. (E) THERE IS NO CONCEPT THAT ONLY SHARES WHICH ARE HEL D FOR A LONG PERIOD ARE TO BE CONSIDERED AS AN INVESTMENT AND IF THIS OBSERVATION IS CONSIDERED VALID, THEN THE VERY CONCEPT OF SHORT TE RM CAPITAL GAINS IS REDUNDANT. FOR THE A.Y. 2005-06, THE GAINS FROM TH E SALE OF SHARES WAS ACCEPTED AS CAPITAL GAINS BY THE DEPARTMENT. BESIDES, THE ASSESSEE ALSO REFERRED TO THE CBDT CIR CULAR OF 2007 DATED 15.6.2007 WHEREIN CERTAIN GUIDELINES ARE PRESCRIBED TO DETERM INE WHETHER IN A GIVEN CASE, THE SHARES WERE HELD BY THE ASSESSEE AS INVESTMENT AND THEREFORE, GIVING RISE TO CAPITAL GAINS OR AS STOCK-IN-TRADE AND THEREFORE, GIVING RI SE TO BUSINESS PROFITS. SEVERAL DECISIONS WERE ALSO CITED ON BEHALF OF ASSESSEE. 7. AFTER DISCUSSING THE CASE OF THE ASSESSEE IN DET AIL, THE LD CIT(A) HAS COME TO THE FOLLOWING CONCLUSION VIDE PARA NO. 6.13 OF THE FIRST APPELLATE ORDER : 6.13 IN THE LIGHT OF THE AFORESAID FACTS AND CIRC UMSTANCES OF CASE, LEGAL POSITION, AND HAVING REGARD TO THE FACT THAT (I) THE APPELLANT IS ENGAGED ITSELF IN SYSTEMATIC AND CONTINUOUS ACTIVITY OF PUR CHASE AND SALE OF SHARES (II) THE OBJECT OF PURCHASING SHARES BEING NOT OF EARNI NG DIVIDENDS AND MAXIMIZATION OF INVESTMENTS BUT AS A BUSINESS ACTIV ITY OF TRADING IN SHARES (III) HAVING SUBSTANTIAL NATURE OF TRANSACTIONS OF PURCHASE AND SALE OF SHARES EVERY YEAR AND CONSIDERING CONDUCT AND INTENTION OF THE APPELLANT ALL ALONG IN DABBLE IN SHARES AND SECURITIES, IT IS CONCLUDED THAT THE APPELLANT DEALT IN SHARES AS AN ADVENTURE IN THE NATURE OF TRADE AND T HE PROFITS FROM THE PURCHASES AND SALES OF SHARES, THOUGH SHOWN AS INVE STMENTS IN THE STATEMENT OF ACCOUNTS OF THE APPELLANT, ARE IN THE NATURE OF BUSINESS INCOME ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS. THE CONDUCT AND ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 5 INTENTION OF THE APPELLANT OVER A PERIOD OF TIME CLEARLY SHOWS THAT THIS IS NOT THE CASE WHERE THE APPELLANT HAS SIMPLY ACTED TO M AXIMIZE THE VALUE OF ITS WEALTH HOLDING IN THE SHAPE OF SHARES BUT INVOLVED IN A SYSTEMATIC AND REGULAR BUSINESS ACTIVITY. 8. BEFORE THE TRIBUNAL, THE LD. A.R WHILE REITERAT ING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES HAVE REFERRED COPIES O F STATEMENT OF INCOME FOR A.Y. 2006-07 FILED BY THE ASSESSEE ALONG WITH THE COPY O F ANNUAL ACCOUNTS FOR THE YEAR ENDED ON 31 ST MARCH 2006 (PAGE NOS. 1 TO 30 OF THE PAPER BOOK ( ASSESSEE); WRITTEN SUBMISSIONS FILED BEFORE THE A.O. ALONG WITH DETAI LS OF LONG TERM AND SHORT TERM CAPITAL GAINS EARNED ON SALE OF SHARES OF COMPANIE S DURING THE YEAR, DETAILS AND SALE AND PURCHASE OF SHARES EFFECTED DURING THE YEA R, RESOLUTION OF BOARD OF DIRECTORS PASSED IN MEETING HELD ON 22.11.2004, LET TER DATED 5.2.2005 OF NAGARJUNA CONSTRUCTION LTD., DEMAT ACCOUNTS SHOWING THE TRANS ACTIONS OF PURCHASE OF SHARES OF NAGARJUNA CONSTRUCTION CO.LTD., (PAGE NOS. 31 TO 5 5 OF THE PAPER BOOK); MEMORANDUM AND ARTICLES OF ASSOCIATION OF ASSESSEE COMPANY (PAGE NOS. 56 TO 95 OF THE PAPER BOOK); WRITTEN SUBMISSIONS FILED BEFOR E THE LD CIT(A) ALONG WITH BOARD RESOLUTION OF DATE 10.4.2004 (PAGE NOS. 96 TO 109 OF PAPER BOOK); LETTER DATED 1.12.2004 WRITTEN BY NAGARJUNA CONSTRUCTION CO. LTD . (PAGE NO. 110); STATEMENT OF INCOME FOR A.Y. 2005-06 FILED BY THE ASSESSEE ALONG WITH COPY OF ANNUAL ACCOUNTS FOR THE YEAR ENDED ON 31 ST MARCH 2005 ALONG WITH COPY OF INTIMATION U/S. 143( 1) FOR A.Y. 2005-06 (PAGE NOS. 111 TO 138 OF THE PAPER BOO K); STATEMENT OF INCOME FOR A.Y. 2007-08 FILED BY THE ASSESSEE ALONG WITH THE COPY OF ANNUAL ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2007 ALONG WITH COPY OF INTIMATION U/S. 143( 1) (PAGE NOS. 139 TO 167 OF THE PAPER BOOK); AND COMPARATIVE STAT EMENTS SHOWING INCOME OFFERED BY ASSESSEE UNDER VARIOUS HEADS OF INCOME FOR THE A .YS. 2005-06, 2006-07 AND 2007-08 (PAGE NOS. 168 OF THE PAPER BOOK). THE LD. A.R. ALSO FILED A SUMMARIZED CHART OF THE TRANSACTIONS WITH SUBMISSIONS THAT DU RING THE YEAR, THE ASSESSEE HAS DEALT WITH SHARES OF ONLY 10 COMPANIES WHEREIN SHO RT TERM CAPITAL GAIN HAS BEEN CLAIMED. THE LD. A.R. ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS : ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 6 1) CIT VS. GOPAL PUROHIT, 228 CTR (BOM ) 582 2) GOPAL PUROHIT VS. JCIT, 122 TTJ (MUM) 127 3) ITO VS. ROHIT ANAND, 127 TTJ (DEL.) (U.O) 122 4) BHARAT KUNVERJI KENIA VS. ACIT, 130 TTJ (MUM) U .O. 86 5) MR. NIHAL V. SHAH VS. ACIT, ITA NO. 2733/MUM/20 09 (A.Y. 2005-06), ORDER DATED 15 TH DECEMBER 2010 6) NAGINDAS P. SHETH (HUF) VS. ACIT, ITA NOS. 961 & 1836/MUM/2010 (A.Y. 2006-07), ORDER DATED 5 TH APRIL 2011 7) SUGANCHAND C. SHAH VS. ACIT (2010), 37 DTR (AHD. ) (TRIB.) 345 8) ITO VS. SHRI PANCHGANGA AGRO IMPEX PVT. LTD., I TA NO. 956/PN/2009, A.Y. 2005-06, ORDER DATED 31 ST MAY 2011. 9. THE LD. A.R. ALSO POINTED OUT THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (SUPRA) HAS BE EN UPHELD BY THE HONBLE SUPREME COURT VIDE ITS ORDER DATED 15.11.2010, A C OPY WHEREOF HAS BEEN FILED. 10. THE LD. D.R., ON THE OTHER HAND, TRIED TO JUSTI FY THE ORDERS OF THE AUTHORITIES BELOW. THE LD. D.R. POINTED OUT THAT 77% OF THE I NCOME OF THE ASSESSEE RELATES TO INCOME FROM CAPITAL GAINS. HE REFERRED CONTENTS OF PARA NO. 4.6 OF THE ASSESSMENT ORDER AND THE OBSERVATION OF THE A.O MADE IN PARA N O. 6.7.1 OF THE ASSESSMENT ORDER THAT THE AVERAGE HOLDING PERIOD IS ONLY 33.77 DAYS FOR ALL THE SHARES IF THE SHARES OF NAGARJUNA CONSTRUCTION LTD. ARE EXCLUDED. 11. THE LD. A.R. IN REJOINDER PUT EMPHASIS ON HIS CONTENTION THAT DURING THE A.Y. 2008-09, UNDER SIMILAR FACTS, THE A.O IN THE A SSESSMENT FRAMED U/S.143(3) HAS ACCEPTED THE CLAIMED TRANSACTION IN SHARES AS INVES TMENT WHILE ALLOWING THE CAPITAL GAINS. THE LD. A.R. HAS FURNISHED A COPY OF THE SA ID ASSESSMENT ORDER. HE ALSO REFERRED PAGE NO. 109 OF THE PAPER BOOK I.E. RESOLU TION OF THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY DATED 10.4.2004 WHEREBY IT WAS RESOLVED THAT IN VIEW OF ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 7 VOLATILITY OF MARKET AND FOR WANT OF ADEQUATE EXPOS URE, THE BOARD APPROVED AND CONFIRMED THAT COMPANY SHOULD DISCONTINUE IN TRADIN G IN SHARES AND SECURITIES WITH IMMEDIATE EFFECT, HOWEVER, INVESTMENTS IN SHARES AN D SECURITIES SHALL CONTINUE. 12. CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT IN THE PRESENT CASE CERTAIN MATERIAL FACTS WHICH ARE DECISIVE FOR DETERMINING T HE NATURE OF TRANSACTIONS IN SHARES AS INVESTMENT OR BUSINESS HAVE NOT BEEN DISPUTED BY THE REVENUE. THESE MATERIAL FACTS ARE AS UNDER : 1. THE INVESTMENT IN SHARES OF THE COMPANY HAS BEEN CLASSIFIED IN THE BALANCE SHEET AS AN INVESTMENT AND NOT STOCK-IN-TR ADE; AND THE ASSESSEE HAS ALSO RECEIVED DIVIDEND OF RS.3,00,000/- ON SHARES D URING THE YEAR. 2. DURING THE YEAR THE ASSESSEE HAS DEALT IN SCRIPT S ONLY AND HAS INDULGED IN SHARE TRANSACTIONS FOR 33 DAYS ONLY 3. IN THE A.YS. 2005-06, 2007-08 AND 2008-09 THE A. O. HAS ACCEPTED THE NATURE OF SIMILAR TRANSACTION AS INVESTMENT. WE FIND THAT THE OVERALL INVESTMENT IN SHARES OF CO MPANIES AS ON 31 ST MARCH 2006 AMOUNTING TO RS.6,17,26,045/- WAS SHOWN UNDER THE H EAD INVESTMENT VIDE SCHEDULE E AND THE SAME ARE VALUED AT COST. 13. HAVING GONE THROUGH THE DECISIONS RELIED UPON B Y THE LD. A.R, AS WELL AS THE CBDT CIRCULAR NO. 4 OF 2007, WE ARE OF THE VIEW THA T NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES HELD BY THE AS SESSEE IS INVESTMENT OR STOCK-IN- TRADE. AS TO WHETHER THE INTENTION OF THE ASSESSEE IN A TRANSACTION OF SHARES REMAINED AS INVESTMENT IS TO BE INFERRED BY SEVER AL GUIDING FACTORS LIKE SUBSTANTIAL ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 8 NATURE OF TRANSACTIONS, MANNER OF MAINTENANCE OF BO OKS OF ACCOUNT, MAGNITUDE OF PURCHASE AND SALES ETC., 14. THERE IS NO DISPUTE IN THE PRESENT CASE THAT IN THE BALANCE SHEET, THE SHARES HAVE BEEN SHOWN AS INVESTMENT AND NOT AS A STOCK-IN -TRADE. THIS MATERIAL FACT HAS NOT BEEN DENIED BY THE REVENUE. THIS POSITION HAS BEEN ACCEPTED BY THE A.O IN THE A.YS. 2005-06, 2007-08 AND IN THE SUBSEQUENT A. Y. 2008-09. AS IT IS EVIDENT FROM THE RESOLUTION PASSED BY THE BOARD OF DIRECTO RS OF THE ASSESSEE COMPANY ON 10.4.2004, A COPY WHEREOF HAS BEEN MADE AVAILABLE A T PAGE NO. 109 OF THE PAPER BOOK THAT IT WAS RESOLVED THAT IN VIEW OF VOLATILI TY OF MARKET AND FOR WANT OF ADEQUATE EXPOSURE AT DISPOSAL OF THE COMPANY, THE B OARD APPROVES AND CONFIRMS THAT COMPANY SHOULD DISCONTINUE IN TRADING IN SHARE S AND SECURITIES WITH IMMEDIATE EFFECT OVER THE INVESTMENT IN SHARES AND SECURITIES SHALL CONTINUE. IT ALSO REFLECTS THE INTENTION OF THE ASSESSEE IN INVESTMENT OF SHAR ES. THE BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (SUP RA), UPHELD BY THE BOMBAY HIGH COURT AND NOW UPHELD BY THE HONBLE SUPREME COURT, HAS HELD THAT WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES (OR ANY OTHER ITEM) CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PU RCHASE IN THE BOOKS OF ACCOUNT AS TO WHETHER IT HAS TREATED IT AS STOCK-IN-TRADE O R INVESTMENT. THERE IS NO DISPUTE THAT THE INTENTION OF THE ASSESSEE CANNOT BE READ F ROM HIS MIND, BUT IT REFLECTS IN HIS CONDUCT AND THE WAY HE TREATS THE TRANSACTIONS. 15. THE LD CIT(A) WHILE UPHOLDING THE ACTION OF T HE A.O. ON THE ISSUE HAS OBSERVED THAT THOUGH THE SHARES IN QUESTION WERE D ESCRIBED AS INVESTMENTS IN THE STATEMENTS OF ACCOUNT, THE SHARES WERE ACQUIRED AND SOLD IN A SHORT SPAN OF TIME ON A REGULAR AND CONTINUOUS BASIS, YEAR AFTER YEAR, W HICH CLEARLY SHOWS THAT ACQUIRING SHARES IN VARIOUS COMPANIES IS BEING CARRIED ON AS A BUSINESS PROPOSITION BY THE ASSESSEE. HE OBSERVED FURTHER THAT MERE DESCRIPTIO N OF TRANSACTIONS AS INVESTMENTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY ITSELF , IS NOT DECISIVE AND DOES NOT ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 9 CONVERT A REVENUE RECEIPT INTO A CAPITAL RECEIPT. WE FULLY AGREE WITH SUCH OBSERVATIONS OF THE LD CIT(A) THAT MERE DESCRIPTIO NS OF TRANSACTIONS AS INVESTMENTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY ITSELF IS NOT DECISIVE BUT UNDISPUTEDLY, IT IS AN IMPORTANT ASPECT TO EXAMINE THE VERY NATURE O F THE TRANSACTIONS. 16. THE NEXT CONTENTION OF THE ASSESSEE REMAINED TH AT THE INVESTMENT WAS MADE IN 50000 SHARES OF NAGARJUNA CONSTRUCTION CO. LTD. (NCCL) HAVING LOCK IN PERIOD OF 1 YEAR, WHICH FULLY DEMONSTRATES THE INTENTION OF T HE ASSESSEE THAT THE SAID SHARES WERE ACQUIRED AS A LONG TERM INVESTMENTS WITH THE A NTICIPATION THAT ITS PRICE MIGHT RISE IN FUTURE AND THEREFORE, IT CANNOT BE SAID THA T THE SHARES OF THIS COMPANY WERE ACQUIRED AS STOCK-IN-TRADE. THESE SHARES OF NCCL W ERE CREDITED TO THE DEMAT ACCOUNT MAINTAINED WITH COSMOS CO-OPERATIVE BANK L TD. ON 5.2.2005 AS PER LETTER OF NCCL DATED 5 TH FEBRUARY 2005 AND THE STATEMENT OF HOLDINGS DATED 5.2.2005 ISSUED BY COSMOS CO-OPERATIVE BANK LTD. SUBSEQUENT LY, FACE VALUE OF THE EQUITY SHARES WAS REDUCED BY NCCL TO RS. 2/- FROM RS. 10/- PER SHARE ON 17 TH SEPTEMBER 2005 AS A RESULT, 50000 SHARES WERE CONVERTED INTO 250000 SHARES. THESE 250000 SHARES WERE SOLD BY THE ASSESSEE BETWEEN 1.12.2005 AND 22.3.2006 AND THE PROFIT OF SALES OF THESE SHARES WAS CLAIMED AS LONG TERM C APITAL GAINS BY THE ASSESSEE. THESE SHARES HAVE BEEN SOLD ON 7 DATES FROM 01 DEC 2005 TO 22 ND MARCH 2006. THE ASSESSEE HAS ALSO RECEIVED DIVIDEND OF RS. 300000/- ON THESE SHARES DURING THE YEAR. TOTAL NUMBER OF SHARES SOLD DURING THE YEAR A RE 4,79,898 OUT OF WHICH, SHARES OF NCCL WERE 250000 IN NUMBER. THE TOTAL SCRIPTS S OLD IS 11, OUT OF WHICH, LONG TERM CAPITAL GAINS ARE IN RESPECT OF ONLY ONE SCRIP T. IN OUR VIEW, THIS CANNOT BE CONSIDERED AS VOLUMINOUS TRANSACTION. FREQUENCY H AS TO BE SCRIPT HEAD-WISE AND NOT ON THE BASIS OF SHARES OF VARIOUS COMPANIES, TO BE TREATED A SINGLE COMMODITY AND ON THESE BASIS, THERE WAS LITTLE FREQUENCY IN T HE TRANSACTIONS OF PURCHASE AND SALES OF SHARES BY THE ASSESSEE. IT IS ALSO WORTH NOTING THAT DURING THE YEAR, THE ASSESSEE HAS INDULGED IN SHARE TRANSACTIONS ONLY ON 33 DAYS. CONSIDERING THESE MATERIAL FACTS, WE DRAW AN INFERENCE THAT THESE TRA NSACTIONS IN SHARES CANNOT BE ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 10 SAID TO BE WITH INTENTION TO DEAL IN SUCH SHARES. ASCERTAINING THE REAL NATURE OF THE TRANSACTIONS, THE HOLDING OF INDIVIDUAL SCRIPTS IS ALSO REQUIRED TO BE CONSIDERED BUT THE PERIOD OF HOLDING ALONE IS NOT DECISIVE IN THE MATTER AND WITHOUT REFERENCE TO OTHER RELEVANT COGENT FACTS. 17. ONE OF THE ARGUMENTS ADVANCED BY THE LD. A.R. REMAINED THAT THE ASSESSEE DID NOT HAVE ANY PARAPHERNALIA ALONG WITH STAFF, R EQUISITE KNOWLEDGE AND EXPERTISE FOR PURCHASE AND SALE OF SHARES AND IF THE ASSESSEE WAS A TRADER IN SHARES, HE WOULD HAVE HAD NECESSARY INFRASTRUCTURE FOR CARING ON SUC H TRADING BUSINESS. THE AUTHORITIES BELOW HAVE DISPUTED IT. 18. THE BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (SUPRA) NOW FINALLY APPROVED BY THE HONBLE SUPREME COURT, HAS HELD THAT THE STAKES BEING HIGH THESE DAYS, DEALING IN SHARE TRAN SACTIONS NECESSITATES VARIOUS PARAPHERNALIA IN ORDER TO MINIMIZE RISK AND THEREFO RE, EMPLOYMENT OF NECESSARY INFRASTRUCTURE BY ITSELF CANNOT CONVERSE AN INVES TMENT ACTIVITY INTO BUSINESS ACTIVITY. IN VIEW OF THE DECISION IN THE CASE OF G OPAL PUROHIT VS. JCIT (SUPRA), WE DO NOT FIND SUBSTANCE EVEN IN THIS PLEA THAT EMPLOYME NT OF NECESSARY INFRASTRUCTURE BY ITSELF CAN CONVERSE AN INVESTMENT ACTIVITY INTO BUS INESS ACTIVITY. 19. THE CONTENTION OF THE ASSESSEE THAT SHARES WE RE NOT PURCHASED OUT OF BORROWED FUNDS AS IT IS GENERALLY DONE IN THE CASE OF A TRADER AND IN THE REGULAR BUSINESS ACTIVITY HAS BEEN DENIED BY THE LD CIT(A) WITH CERTAIN OBSERVATION THAT SECURED LOANS ARE TO THE EXTENT OF RS.1,53,01,044/- AND UNSECURED LOANS ARE TO THE EXTENT OF RS.94,25,000/-, THE TOTAL INCOME OF THE A SSESSEE INCLUDES TAXABLE INCOME FROM VARIOUS ACTIVITIES I.E. PROFIT ON SALES OF SHA RES, BROKERAGE INCOME, SERVICE CHARGES, TRADING COMMISSION, WAREHOUSING CHARGES, L EASE RENT, INTEREST, USER FEES, OFFICE RENT ETC., AND ONE COMMON PROFIT & LOSS ACCO UNT WAS PREPARED, AND FURTHER NOTICED THAT THERE WAS INTER TRANSFER OF FUNDS FROM ONE BANK ACCOUNT TO ANOTHER ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 11 BANK ACCOUNT. THE LD CIT(A) FURTHER HELD IN CONCLU SION THAT EVEN OTHERWISE, THE SOURCES OF FUNDS MAY BE ONE OF THE CRITERIA BUT NOT A SOLE CRITERIA TO DISTINGUISH INVESTMENTS AND TRADING ACTIVITIES. THE LD CIT(A) OBSERVED FURTHER THAT IF THE CLAIM OF THE ASSESSEE IS TO BE ACCEPTED, EVEN A SHARE BRO KER CARRYING ON THE BUSINESS WITH HIS OWN FUNDS AND CAPITAL, IS TO BE TREATED AS AN I NVESTOR IN RESPECT OF THE TRANSACTIONS INCLUDING THE SPECULATIVE TRANSACTIONS CARRIED OUT BY HIM AND ANY PROFIT AND GAINS ON SALE OF SHARES AND SECURITIES IS TO BE TREATED AS CAPITAL GAINS. WE AGREE WITH THIS OBSERVATION OF THE LD CIT(A), BUT, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE, AN INFE RENCE CAN BE DRAWN THAT SINCE THE BEGINNING I.E. AT THE TIME OF PURCHASE OF SHARE S AS REFLECTED IN THE BOOKS OF ACCOUNT, THE VERY INTENTION OF THE ASSESSEE REMAIN ED INVESTMENT BY IT IN THE SHARES. HOLDING PERIOD OF MAJORITY OF SHARES AND THE NUMBER OF TRANSACTIONS IN THE SCRIPTS OF SHARES DURING THE YEAR, AS DISCUSSED HEREINABOVE, S UGGEST THAT THE NATURE OF TRANSACTION IN QUESTION IN SHARES REMAINED INVESTME NT AND NOT TRADING AS HELD BY THE AUTHORITIES BELOW. BESIDES, THE A.O IN THE A.Y S. 2005-06, 2007-08 AND 2008- 09, ITSELF HAS ACCEPTED THE SIMILAR TYPE OF TRANSAC TION IN SHARES AS INVESTMENT. WE, THUS, WHILE SETTING ASIDE THE ORDERS OF THE AUTHORI TIES BELOW, DIRECT THE A.O TO ACCEPT THE CLAIM OF INVESTMENT IN SHARE TRANSACTIONS IN QU ESTION AND ALLOW THE CAPITAL GAIN ACCORDINGLY. IN RESULT, THE GROUNDS ARE ALLOWED. 20. CONSEQUENTLY, APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14TH O CTOBER, 2011 SD/- SD/- ( G.S. PANNU ) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE, DATED THE 14TH OCTOBER, 2011 US COPY OF THE ORDER IS FORWARDED TO : ITA. NO 1178/PN/2010 A.P. HOLDINGS PVT LTD. A.Y. 2006-07 PAGE OF 12 12 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- I, PUNE 4. THE CIT(A)- I, PUNE 4. THE D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE