Smt. Hemlata S.Behki, Baroda V. The ACIT.,Circle-3, Baroda

ITA 1280/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9161 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DEEPAK R SHAH
• Keywords: Capital asset; Business income; Depreciation; Advance ruling; Question of law
• Section: 80C; 2(14); 28; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1280/AHD/2011 / ASSTT. YEAR: 2007-2008 HEMLATA S. BEHKI 13, MEET BUNGALOWS NR. AKIN PARTY PLOT HIGH TENSION ROAD BARODA 390 023. PAN : AFOPB 1770 P VS. ACIT, CIR.3 BARODA. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI DEEPAK R. SHAH, AR REVENUE BY : SHRI JAMES KURIAN, SR.DR / DATE OF HEARING : 10/02/2017 / DATE OF PRONOUNCEMENT: 16/02/2017 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-II, BARODA DATED 19.11.2010 PASSED FOR TH E ASSTT.YEAR 2007-08. 2. REGISTRY HAS POINTED OUT THAT THE APPEAL IS TIME BARRED BY 111 DAYS. IN ORDER TO EXPLAIN THE DELAY THE ASSESSEE HAS FILED A PPLICATION FOR CONDONATION OF DELAY. IN THE APPLICATION, THE ASSESSEE HAS CONTEN DED THAT ORDER OF THE CIT(A) WAS SERVED UPON HER AND IT WAS HANDED OVER TO HER C OUNSEL, M/S.AMBALAL M. SHAH & CO., CHARTERED ACCOUNTANTS ON OR AROUND 20.1 .2011. AFTER PERUSAL OF THE ORDER, IT WAS DECIDED THAT AN APPLICATION UNDER SECTION 154 OF THE INCOME ITA NO.1280/AHD/2011 2 TAX ACT, 1961 SHOULD BE FILED BEFORE THE CIT(A). T HE APPEAL COULD NOT BE FILED BEFORE THE TRIBUNAL BECAUSE THE ASSESSEE REMA INED UNDER IMPRESSION THAT A JOINT-APPEAL WILL BE FILED AGAINST THE FINAL ORDE R OF THE CIT(A) I.E. THE ORDER IMPUGNED HEREIN AS WELL ANY ORDER PASSED UNDER SECT ION 154 OF THE ACT. UNDER THIS MISCONCEPTION OF LAW, THE APPEAL WAS NOT FILED WITHIN THE TIME. ON THE STRENGTH OF THIS EXPLANATION, THE DELAY IN FILI NG OF APPEAL HAS BEEN PRAYED TO BE CONDONED. 3. THE LD.DR ON THE OTHER HAND, CONTENDED THAT THE ASSESSEE DID NOT GIVE ANY PLAUSIBLE EXPLANATION FOR CONDONATION OF DELAY, AND THEREFORE, DELAY IN FILING THE APPEAL BE NOT CONDONED. 4. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. SUB-SECTION 5 OF SECTION 253 CONTEMPLATES THAT THE TRIBUNAL MAY ADMIT AN APPEAL OR PERMIT FILING OF MEMORANDUM OF C ROSS-OBJECTIONS AFTER EXPIRY OF RELEVANT PERIOD, IF IT IS SATISFIED THAT THERE WAS A SUFFICIENT CAUSE FOR NOT PRESENTING IT WITHIN THAT PERIOD. THIS EXPRESS ION SUFFICIENT CAUSE EMPLOYED IN THE SECTION HAS ALSO BEEN USED IDENTICA LLY IN SUB-SECTION 3 OF SECTION 249 OF INCOME TAX ACT, WHICH PROVIDES POWER S TO THE LD.COMMISSIONER TO CONDONE THE DELAY IN FILING THE APPEAL BEFORE THE COMMISSIONER. SIMILARLY, IT HAS BEEN USED IN SECT ION 5 OF INDIAN LIMITATION ACT, 1963. WHENEVER INTERPRETATION AND CONSTRUCTIO N OF THIS EXPRESSION HAS FALLEN FOR CONSIDERATION BEFORE HONBLE HIGH COURT AS WELL AS BEFORE THE HONBLE SUPREME COURT, THEN, HONBLE COURT WERE UNA NIMOUS IN THEIR CONCLUSION THAT THIS EXPRESSION IS TO BE USED LIBER ALLY. WE MAY MAKE REFERENCE TO THE FOLLOWING OBSERVATIONS OF THE HON BLE SUPREME COURT FROM THE DECISION IN THE CASE OF COLLECTOR LAND ACQUISIT ION VS. MST. KATIJI & OTHERS, 1987 AIR 1353: ITA NO.1280/AHD/2011 3 1. ORDINARILY A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 2. REFUSING TO CONDONE DELAY CAN RESULT IN A MERITO RIOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND CAUSE OF JUSTI CE BEING DEFEATED. AS AGAINST THIS WHEN DELAY IS CONDONED THE HIGHEST THA T CAN HAPPEN IS THAT A CAUSE WOULD BE DECIDED ON MERITS AFTER HEARING TH E PARTIES. 3. 'EVERY DAY'S DELAY MUST BE EXPLAINED' DOES NOT M EAN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EVERY HOUR'S DELAY , EVERY SECOND'S DELAY? THE DOCTRINE MUST BE APPLIED IN A RATIONAL C OMMON SENSE PRAGMATIC MANNER. 4. WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERA TIONS ARE PITTED AGAINST EACH OTHER, CAUSE OF SUBSTANTIAL JUSTICE DE SERVES TO BE PREFERRED FOR THE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGH T IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DELAY. 5. THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MA LA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT HE RUNS A SERIOUS RISK. 6. IT MUST BE GRASPED THAT JUDICIARY IS RESPECTED N OT ON ACCOUNT OF ITS POWER TO LEGALIZE INJUSTICE ON TECHNICAL GROUNDS BU T BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND IS EXPECTED TO DO SO. 5. SIMILARLY, WE WOULD LIKE TO MAKE REFERENCE TO AU THORITATIVE PRONOUNCEMENT OF HONBLE SUPREME COURT IN THE CASE OF N.BALAKRISHNAN VS. M. KRISHNAMURTHY (SUPRA). IT READS AS UNDER: RULE OF LIMITATION ARE NOT MEANT TO DESTROY THE RI GHT OF PARTIES. THEY ARE MEANT TO SEE THAT PARTIES DO NOT RESORT TO DILA TORY TACTICS, BUT SEEK THEIR REMEDY PROMPTLY. THE OBJECT OF PROVIDING A LE GAL REMEDY IS TO REPAIR THE DAMAGE CAUSED BY REASON OF LEGAL INJURY. LAW OF LIMITATION FIXES A LIFE-SPAN FOR SUCH LEGAL REMEDY FOR THE RED RESS OF THE LEGAL INJURY SO SUFFERED. TIME IS PRECIOUS AND THE WASTED TIME W OULD NEVER REVISIT. DURING EFFLUX OF TIME NEWER CAUSES WOULD SPROUT UP NECESSITATING NEWER PERSONS TO SEEK LEGAL REMEDY BY APPROACHING T HE COURTS. SO A LIFE SPAN MUST BE FIXED FOR EACH REMEDY. UNENDING PERIOD FOR LAUNCHING THE ITA NO.1280/AHD/2011 4 REMEDY MAY LEAD TO UNENDING UNCERTAINTY AND CONSEQU ENTIAL ANARCHY. LAW OF LIMITATION IS THUS FOUNDED ON PUBLIC POLICY. IT IS ENSHRINED IN THE MAXIM INTEREST REIPUBLICAE UP SIT FINIS LITIUM (IT IS FOR THE GENERAL WELFARE THAT A PERIOD BE PUTT TO LITIGATION). RULES OF LIMITATION ARE NOT MEANT TO DESTROY THE RIGHT OF THE PARTIES. THEY ARE MEANT TO SEE THAT PARTIES DO NOT RESORT TO DILATORY TACTICS BUT SEEK THEIR REMEDY PROMPTLY. THE IDEA IS THAT EVERY LEGAL REMEDY MUST BE KEPT AL IVE FOR A LEGISLATIVELY FIXED PERIOD OF TIME. A COURT KNOWS THAT REFUSAL TO CONDONE DELAY WOULD R ESULT FORECLOSING A SUITOR FROM PUTTING FORTH HIS CAUSE. THERE IS NO PR ESUMPTION THAT DELAY IN APPROACHING THE COURT IS ALWAYS DELIBERATE. THIS COURT HAS HELD THAT THE WORDS 'SUFFICIENT CAUSE' UNDER SECTION 5 OF THE LIMITATION ACT SHOULD RECEIVE A LIBERAL CONSTRUCTION SO AS TO ADVA NCE SUBSTANTIAL JUSTICE VIDE SHAKUNTALA DEVI LAIN VS. KUNTAL KUMARI [AIR 1969 SC 575] AND STATE OF WEST BENGAL VS. THE ADMINISTRATOR , HOWRAH MUNICIPALITY [AIR 1972 SC 749]. IT MUST BE REMEMBER ED THAT IN EVERY CASE OF DELAY THERE CAN BE SOME LAPSE ON THE PART O F THE LITIGANT CONCERNED. THAT ALONE IS NOT ENOUGH TO TURN DOWN HI S PLEA AND TO SHUT THE DOOR AGAINST HIM. IF THE EXPLANATION DOES NOT S MACK OF MALA FIDES OR IT IS NOT PUT FORTH AS PART OF A DILATORY STRATEGY THE COURT MUST SHOW UTMOST CONSIDERATION TO THE SUITOR. BUT WHEN THERE IS REASONABLE GROUND TO THINK THAT THE DELAY WAS OCCASIONED BY THE PARTY DELIBERATELY TO GAIN TIME THEN THE COURT SHOULD LEAN AGAINST ACCEPTANCE OF THE EXPLANATION. WHILE CONDONING DELAY THE COULD SHOULD NOT FORGET T HE OPPOSITE PARTY ALTOGETHER. IT MUST BE BORNE IN MIND THAT HE IS A L OOSER AND HE TOO WOULD HAVE INCURRED QUIET A LARGE LITIGATION EXPENS ES. IT WOULD BE A SALUTARY GUIDELINE THAT WHEN COURTS CONDONE THE DEL AY DUE TO LACHES ON THE PART OF THE APPLICANT THE COURT SHALL COMPENSAT E THE OPPOSITE PARTY FOR HIS LOSS. 6. WE DO NOT DEEM IT NECESSARY TO RE-CITE OR RECAPI TULATE THE PROPOSITION LAID DOWN IN OTHER DECISIONS. IT IS SUFFICE TO SAY THAT THE HONBLE COURTS ARE UNANIMOUS IN THEIR APPROACH TO PROPOUND THAT WHENEV ER THE REASONS ASSIGNED BY AN APPLICANT FOR EXPLAINING THE DELAY, THEN SUCH REASONS ARE TO BE CONSTRUED WITH A JUSTICE ORIENTED APPROACH. ITA NO.1280/AHD/2011 5 7. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE THE EXP LANATION OF THE ASSESSEE, THEN IT WOULD REVEAL THAT THE DELAY IN FILING THE A PPEAL WAS CAUSED ON ACCOUNT OF MISCONCEPTION OF THE PROCEDURE FOR FILING THE AP PEAL BEFORE THE TRIBUNAL. THE ASSESSEE REMAINED UNDER THE IMPRESSION THAT APP EAL AGAINST ORDER ON AN APPLICATION UNDER SECTION 154 PURPORTED TO BE FILED BEFORE THE LD.CIT(A) AS WELL AS IMPUGNED ORDER COULD BE FILED TOGETHER. IN OUR OPINION, IT IS A BONA FIDE ERROR AND NOT ADOPTED AS A DILATORY STRATEGY, THER EFORE, WE CONDONE THE DELAY IN FILING THE APPEAL AND PROCEED TO DECIDE TH E APPEAL ON MERIT. 8. IN GROUND NO.1 GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ASSESSMENT OF 56,52,395/- AS A BU SINESS INCOME AS AGAINST INCOME FROM SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. 9. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HER RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME AT RS.5 4,16,980/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT A ND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THOUGH THE ASSESSEE IS A SALARIED EMPLOYEE BUT MADE HUGE INVESTMENT IN SHARES. ACCORDING TO THE AO, SH E HAD A STARTING CAPITAL OF RS.11 LAKHS AND FROM THAT CAPITAL, SHE EARNED A PRO FIT OF RS.13 LAKHS THEREBY REPORTING CAPITAL TO TURNOVER RATIO OF 218%. THE L D.AO HAS MADE REFERENCE TO CBDT CIRCULAR NO.1827 AND OTHER FACTORS I.E. FREQUE NCY OF TRANSACTION AND VOLUME OF THE TRANSACTION AND TREATED THE ASSESSEE AS A TRADER. WE ARE NOT DEVOTING OUR ENERGY FOR HIGHLIGHTING THE FINDING OF THE AO, BECAUSE THE LD.CIT(A) HAS ACCEPTED THE ASSESSEE AS AN INVESTOR PARTLY, AND THAT FINDING OF THE LD.CIT(A) HAS NOT BEEN CHALLENGED. IN BRIEF, T HE LD.AO HAS TREATED THE ASSESSEE AS A TRADER. HE ASSESSED THE INCOME SHOWN BY THE ASSESSEE AS A SHORT ITA NO.1280/AHD/2011 6 TERM CAPITAL GAIN AS BUSINESS INCOME. HE DISALLOWE D THE EXPENSES PAID ON STT. 10. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) AND FILED WRITTEN SUBMI SSIONS. THE LD.CIT(A) HAS REPRODUCED WRITTEN SUBMISSION AND THEREBY CONCURRED WITH THE ASSESSEE IN PRINCIPLE. THE LD.CIT(A) HAS FOLLOWED THE ORDER OF THE ITAT IN THE CASE OF SUGAMCHAND C. SHAH (HUF) VS. DCIT, (2016) 75 TAXMAN N.COM 105 AND OBSERVED THAT TRANSACTIONS WHERE SHARES WERE HELD B Y THE ASSESSEE FOR LESS THAN 30 DAYS SHOULD BE CONSIDERED AS BUSINESS TRANS ACTION, AND ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE PARTLY. SUBMISS IONS MADE BY THE ASSESSEE AND NOTICED BY THE CIT(A) AS WELL AS FINDING OF THE CIT(A) ARE WORTH TO NOTE. THEY READ AS UNDER: 2.2. IN APPEAL THE LEARNED AUTHORIZED REPRESENTATI VE ATTENDED AND SUBMITTED THAT - 'THE APPELLANT IS NOT A DEALER IN SHARES HOLDING ST OCK IN TRADE IN TRADE OF SHARES AND SECURITIES AND HIS PRINCIPLE SOURCE OF I NCOME IS-ALSO NOT SHARE BROKING OR DEALING. THE APPELLANT ALSO CONTENDED TH AT CLASSIFICATION IN THE ACCOUNTS IS 'INVESTMENTS' AND NOT AS 'STOCK-IN-TRAD E'. THIS CAN BE VERIFIED FROM AUDIT REPORTS. THE APPELLANT ALSO SUBMITTED DE TAILS OF INVESTMENT OF LAST THREE YEARS BY SUBMITTING COPIES OF AUDITED ACCOUNT S. IT IS ALSO CONTENDED THAT SHE HAD NEVER VALUED INVESTMENT PORTFOLIO IN T HE MANNER IN WHICH A TRADER OF SHARES VALUES HIS STOCK-IN-TRADE. FOR HOL DING STOCK-IN-TRADE, THERE IS NO NEED TO GET THE ASSET REGISTERED IN THE NAME OF OWNER RUNNING THE BUSINESS WHEREAS IN THE CASE OF CAPITAL ASSET IDENT IFICATION OF OWNER OF CAPITAL ASSET IS MUST IN ORDER TO DETERMINE THE PER IOD OF HOLDING AS WELL AS THE QUANTUM OF CAPITAL GAINS TO BE TAXED IN THE HAN DS OF RESPECTIVE OWNERS. IT IS FURTHER CONTENDED THAT IF THE SHARES ARE HELD AS STOCK-IN-TRADE THEN THE VALUATION WOULD BE AT COST OR MARKET PRICE WHICHEVER IS /ESS WHICH MEANS THAT THE APPELLANT HAD VALUED THE SHARES AT C OST WHICH ALSO PROVES THAT SHARES ARE HELD AS INVESTMENT AND NOT AS STOCK -IN-TRADE. APPELLANT RELIED UPON THE RECENT DECISION OF IT AT, 3 BENCH M UMBAI IN THE CASE OFJ.M. SHARES & STOCK BROKERS LTD., IT A NO.2801/MU M/2000 DATED 30.11.2007. IT IS ALSO CONTENDED THAT YOUR APPELLANT HEREWITH W ISH TO BRING TO YOUR KIND ATTENTION THAT, YOUR APPELLANT HAD MADE INVESTMENTS IN VARIOUS SHARES AS REFLECTED IN BALANCE SHEET AS ON 31-03-2007, INVEST MENTS SHOWN IN THESE ITA NO.1280/AHD/2011 7 DATED AS PER AUDITED ACCOUNTS FILED ARE RS.21,13,28 2/-, APPELLANT DID NOT HAVE ANY AMOUNT OF SHARES AS STOCK-IN-TRADE IN ANY OF THE PRECEDING YEARS WHICH MEANS APPELLANT WAS NOT TREATING SHARE TRANSA CTIONS AS TRADING BUT THE SAME WERE KEPT AS INVESTMENT. ACCORDINGLY PURCH ASE AND SALE OF SHARE AND STOCK THEREOF WERE NOT TAKEN TO PROFIT & LOSS A CCOUNT. ONLY PROFIT ON SHORT TERM INVESTMENT HAVE BEEN TAKEN TO P&L ACCOUN T. THEREFORE THE TREATMENT GIVEN BY THE APPELLANT, MUCH BEFORE THE S ALE OF THESE SHARES, IS CLEARLY AS CAPITAL ASSETS AS AGAINST STOCK-IN-TRADE . CONSIDERING ALL THESE FACTS, ONLY NUMBER OF TRANSAC TIONS CANNOT DETERMINE THE NATURE OF APPELLANT'S INCOME FROM SHARE TRANSAC TION. WITH THE ABOVE FINDINGS TRIBUNAL HELD THAT THESE PR OVED THE REAL INTENTION TO HOLD THESE SHARES AS INVESTMENTS AND FOR THESE REAS ONS THE ASSESSEE HAD NOT CLAIMED ANY LOSS ON ACCOUNT OF DEPRECIATION IN VALUE OF SHARES ON THE BALANCE SHEET DATE. TRIBUNAL FURTHER NOTED THAT APA RT FROM THE FACT THAT THE ASSESSEE WAS A SHARE BROKER AND HAVING GOOD KNOWLED GE OF SHARE MARKET, THE REVENUE WAS NOT ABLE TO BRING ON RECORD ANY OTH ER FACT TO PROVE THAT THE IMPUGNED SHARES WAS HELD BY THE ASSESSEE WAS 'STOCK-IN-TRADE'. TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE. IN THE CASE OF APPELLANT ALSO THE SHARE TRANSACTIONS WERE KEPT AS 'INVESTMENT' ON THE BALANCE SHEET AND THE SAME WERE NOT ROUTED FROM ' PROFIT & LOSS ACCOUNT' AND THE INVESTMENT WAS NOT VALUED AS ON BALANCE SHEET DATE TAKING INTO CONSIDERATION THE DEPRECIATI ON IN THE COST OF THE SHARES HELD AS INVESTMENT ON THE DATE OF BALANCE SH EET. : 'APPELLANT IS ALSO AN INVESTOR. FACTS OF THE APPELL ANT'S CASE ARE IDENTICAL WITH THAT OF IN THE CASE OF GOPAL PUROHIT V/S. JCIT IN ITA NO.4854/MUM/2O08 AND THEREFORE THE DECISION OF HON. MUMBAI IT AT IS APPLICABLE. APPELLANT NEVER KEPT ANY PORTFOLIO AS S TOCK-IN-TRADE AND HENCE IN THE CASE OF THE APPELLANT THERE IS NO CONF USION ABOUT THE INTENTION OF THE APPELLANT WHILE PURCHASING THE SHA RES. HON. MADRAS HIGH COURT'S DECISION IN THE CASE OF CIT VS. NSS IN VESTMENT PVT. LTD. IS ALSO APPLICABLE ON THE FACTS OF THE APPELLANT'S CASE. CO NSIDERING THESE, THE TRANSACTIONS IN THE SHARE IN CASE OF APPELLANT HAS TO BE TREATED AS CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY THE ASSE SSING OFFICER. I THEREFORE ALLOW THESE GROUNDS AND DIRECT THE ASSESS ING OFFICER TO TREAT THE SHARE TRANSACTIONS AS SHORT TERM CAPITAL GAIN AS AG AINST BUSINESS INCOME. IN THE LIGHT OF ABOVE IT CAN RIGHTLY BE HELD THAT T HE MAIN BUSINESS ACTIVITY OF YOUR APPELLANT IS AN INVESTOR, AND NOT A TRADER OR DEALER IN SHARES AND SECURITIES. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE TAKEN IN TO CONSIDERATION THE CIRCULAR NO. 4/2007 DATED 15.06.2 007 ISSUED BY C.B.D.T. GIVING GUIDELINES IN RESPECT OF CAPITAL ASSET AND T RADING ASSET. THE AFORESAID CIRCULAR STATES: ITA NO.1280/AHD/2011 8 CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE AC T. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH U NDER SECTION 2(29A) AND SECTION 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(42A) AND SECTION 2(42B). TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH IN STRUCTION NO. 1827 DATED AUGUST 31, 1989 HAD BROUGHT TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING ASSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE I SSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE ABOVE IN STRUCTIONS FOR THE INFORMATION OF ASSESSEE AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTRAL) , CALCUTTA VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD ( 82 ITR 586), THE SUPREME COURT OBSERVED THAT: WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN T HE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . IN THE CASE OF COMMISSIONER OF INCOME TAX, BOMBAY V S H, HOLCK LARSEN (160 ITR 67), THE SUPREME COURT OBSERVED: THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS WAS A MIXED QUESTION OF LAW AND FACT. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN TH E ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. THE AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 64 1), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HA S CULLED OUT THE FOLLOWING PRINCIPLES:- (I) WHERE A COMPANY PURCHASES AND SELLS SHARES , IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOC IATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND S ALES AND THE RATIO ITA NO.1280/AHD/2011 9 BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD F URNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; BUT WHERE T HE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCO ME BY WAY OF DIVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH IN VESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE REC EIPT. 'CBDT ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E. AN INVESTMENT PORTFOLIO COMPRI SING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTF OLIO COMPRISING OF STOCK-IN- TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WH ERE AN ASSESSES HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME.' 'ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRIN CIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE T O CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINE SS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIP LE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CO NSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY TH E ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE.' 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EAR LIER INSTRUCTION NO. 1827 DATED AUGUST 31, 1989. FROM THE ABOVE, YOUR HONOUR WILL APPRECIATE THE FAC T THAT INTENTION OF YOUR APPELLANT WAS TO MAKE INVESTMENT IN THE SHARES AND NOT TO TRADE IN THE SAME WHICH IS EVIDENT FROM THE BOOKS OF ACCOUNTS. FURTHER TO THE ABOVE, IN ITA NO. 2801/MUM./2000 (BC AJ), IN THE CASE OF J. M. SHARE & STOCK BROKERS LTD. VS. JT. CIT, BASED ON THE SAME FACTS THE TRIBUNAL HAS HELD AS UNDER: THE ASSESSES WAS CONSISTENTLY FOLLOWING THE PRACTICE OF HOLDING SOME SHARES AS 'STOCK-IN TRADE' AND OTHER SHARES AS 'INV ESTMENTS'. INCOME FROM THE SHARES HELD AS STOCK-IN-TRADE W AS OFFERED TO TAX AS 'BUSINESS. INCOME' AND FROM THOSE HELD AS INVESTMEN T, WAS OFFERED TO TAX AS 'CAPITAL GAINS'. BALANCE SHEET OF THE ASSESSEE ALSO SHOWED THAT SHARES/DEBENTURES, ETC. HELD FOR BUSINESS AS UNDER THE HEAD 'STOCK-IN-TRADE ' AND OTHERS AS 'INVESTMENTS'. ITA NO.1280/AHD/2011 10 SHARES HELD AS 'STOCK-IN-TRADE' WERE BEING VALU ED BY THE ASSESSEE AT LOWER OF COST OR MARKET PRICE; WHEREAS, THE SHARES HELD AS INVESTMENT WERE VALUED AT COST. IN VIEW OF THE ABOVE, YOUR APPELLANT, IN THE INTERE ST OF JUSTICE, PRAYS HEREBY THAT THE A.O. BE DIRECTED TO ASSESS THE SHORT TERM CAPITAL GAIN AND LEVY TAX AS PER THE PROVISIONS OF SECTION 111 A OF THE I.T. ACT. 1961. RELIANCE WAS PLACED ON- THE DECISIONS OF THE HON'BL E: 1. J M SHARE & STOCK BROKERS LTD VS. JT. CIT (2008) 2. ACIT V/S. MOTILAL OSWAL IN ITA NO.3860/MUM/2001 FOR A.Y. 1993-94. 3. GOPAL PUROHIT V/S. JCIT - ITA. NO. 4854 / MUM/20 08 4. CIRCULAR NO. 4/2007 DATED 15/06/2007 ISSUED BY C BDT'. 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. IT IS TO BE NOTED THAT FREQUENCY AND VOLUME OF TRANSACTION IS QUITE S UBSTANTIAL AND IT CANNOT BE COMPLETELY IGNORED. THERE ARE VERY FREQUE NT INTRA-DAY TRANSACTIONS AND SOMETIMES SHARES ARE HELD FOR LONG ISH PERIOD. THE VOLUME OF TRANSACTION WHICH IS MORE THAN 100 CRORES ON A CAPITAL BASE OF 20 LAKHS CANNOT BE PURELY ON INVESTMENT ACCOUNT. IT IS APPARENT THAT THE APPELLANT IS MAINTAINING TWO PORTFOLIOS WHICH ARE N OT CLEARLY IDENTIFIABLE AND TOTALLY MIXED UP. ON THE FACTS OF THE CASE RATIO OF THE HON'BLE IT AT IN THE CASE OF SUGAMCHAND C. SHAH (2010 TIOL 336) ITAT (AHD) IS FU LLY APPLICABLE WHEREIN IT HAS BEEN HELD THAT IN CASES W HERE TRANSACTIONS ARE MIXED IT WOULD BE PROPER TO TREAT SHARE HELD FOR 30 DAYS OR LESS AS BUSINESS TRANSACTION. ACCORDINGLY THE ASSESSING OFFICER IS D IRECTED TO TREAT ALL TRANSACTION WHEREIN SHARES HAVE BEEN HELD FOR 30 DA YS AS LESS AS TRADING TRANSACTION WHILE SHARE HELD FOR MORE THEN 30 DAYS WOULD BE CONSIDERED AS SHORT TERM CAPITAL GAINS. THE APPELLANT MAY FURNISH REQUIRED INFORMATION FOR WORKING OUT THE ABOVE BEFORE THE ASSESSING OFFICER. 3. GROUND NO. 3 IS NOT PRESSED AND THEREFORE THE SA ME IS TREATED TO HAVE BEEN WITHDRAWN. 4. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 11. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT CBDT HAD ISSUED CIRCULAR NO.6/2016 ON 29.2.2016. ACCORDING TO THIS CIRCULAR, IF AN ASSESSEE HAS BEEN SHOWING HOLDING OF LISTED SHARES IRRESPECTIVE OF PERIOD AS AN INVESTMENT IN DIFFERENT ASSESSMENT YEARS, THEN THE ASSESSEE SHOULD BE TREATED AS AN INVESTOR. ACCRDING TO THE LD.COUNSEL FOR THE ASSESSEE, THIS CIRCULAR HAS ITA NO.1280/AHD/2011 11 BEEN RELIED UPON BY THE ITAT, PUNE BENCH IN THE CAS E OF SURESH BABULAL SHAH (HUF) VS. DCIT, (2016) 75 TAXMANN.COM 105. TRIBUNA L WHILE CONSIDERING THE CIRCULAR HAS OBSERVED THAT THIS CIRCULAR CLARIF IES THAT ONCE A PARTICULAR STAND HAS BEEN TAKEN BY ASSESSEE TO SUCH PURCHASES IN A P ARTICULAR ASSESSMENT YEAR, IT SHALL BE APPLICABLE IN SUBSEQUENT ASSESSMENT YEA RS ALSO, AND TAX PAYER SHALL NOT BE ALLOWED TO ADOPT A DIVERGENT STAND IN DIFFER ENT ASSESSMENT YEARS. SIMILARLY, HE MADE REFERENCE TO THE DECISION OF ITA T, JAIPUR IN THE CASE OF DCIT VS. SHRI MAHENDER KUMAR BADER. HE PLACED ON R ECORD COPY OF THE TRIBUNALS ORDER IN ITA NO.605/JP/2013. THE LD.DR ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 12. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THE LD.CIT(A) HAS OBSERVED THAT THE ASS ESSEE HAS BEEN MAINTAINING TWO PORTFOLIOS WHICH ACCORDING TO THE LD.CIT(A) COU LD NOT BE IDENTIFIED. THEREFORE, TRANSACTIONS WHEREIN SHARES WERE HELD FO R LESS THAN 30 DAYS SHOULD BE TREATED AS BUSINESS TRANSACTION. THE LD.CIT(A) HAS MADE REFERENCE TO THE DECISION OF THE ITAT IN THE CASE OF SUGAMCHAND C. S HAH. ON DUE CONSIDERATION OF THIS FINDING, WE ARE OF THE VIEW T HAT IN PRINCIPLE LD.CIT(A) HAS ACCEPTED STATUS OF THE ASSESSEE AS INVESTOR ALS O. IT HAS ALSO BEEN EXPLAINED THAT THE ASSESSEE WAS MAINTAINING TWO PORTFOLIOS. THERE IS NO PROVISION IN THE INCOME TAX ACT WHICH CAN AUTHORIZE THE AUTHORITY TO DRAW A LINE I.E. SHARES HELD LESS THAN 30 DAYS WOULD BE TREATED AS A BUSINE SS TRANSACTION. AN ASSESSEE IS EITHER AN INVESTOR OR TRADER. HIS STATUS CANNOT BE CHANGED ON THE BASIS OF THE TRANSACTIONS WHERE SHARES WERE HELD BELOW A PAR TICULAR NUMBER OF DAYS. THERE IS NO SUCH PROVISION IN THE ACT. THUS, THE L D.CIT(A) HAS ERRED IN CREATING AN ARTIFICIAL LINE BETWEEN TRANSACTIONS. THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE LD.CIT(A) QUA TREATING THE ASSESSEE AS AN INVESTOR. THEREFORE, WE PARTLY ALLOW THE APPEAL OF THE ASSESSEE AND MODIFY ITA NO.1280/AHD/2011 12 THE ORDER OF THE CIT(A). THE TRANSACTIONS IN RESPE CT OF SHARES HELD BY THE ASSESSEE LESS THAN 30 DAYS SHOULD ALSO BE TREATED A S A TRANSACTION OF INVESTMENT. IN OTHER WORDS, SHORT TERM CAPITAL GAI N SHOWN BY THE ASSESSEE IS TO BE ACCEPTED. 13. IN GROUND NO.2, THE ASSESSEE HAS PLEADED THAT T HE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCES OF RS.4,14,273/- IN RESPEC T OF EXPENDITURE RELEVANT TO THE ACTIVITY OF SHARES AND SECURITIES. ALTERNAT IVELY, IT HAS BEEN CONTENDED THAT THE AO BE DIRECTED TO DELETE THE DISALLOWANCE OR HE MAY BE DIRECTED TO GRANT REBATE UNDER SECTION 88E OF THE ACT. A PERUS AL OF THE RECORD SHOWS THAT AN APPLICATION UNDER SECTION 154 OF THE ACT WAS FIL ED BEFORE THE LD.CIT(A) AND THE LD.CIT(A) HAS DECIDED THIS APPLICATION VIDE ORD ER DATED 31.3.2011. RELEVANT PART OF THE ORDER OF THE LD.CIT(A) ON THIS APPLICATION READS AS UNDER: 2. THE APPELLANT VIDE HIS APPLICATION HAS POINTED OUT THAT AN APPARENT MISTAKE HAS OCCURRED WHILE DISPOSING OFF THE GROUND OF APPEAL. THE GROUND NO. 4 IS REMAINING TO DISPOSE OFF. GROUND NO. 4 AS PER GROUNDS OF APPEAL IS AS FOLLOWED:- 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER ERRED IN NOT ALLOWING DEDUCTION UNDER CHAPT ER VI-A OF THE ACT.' 'THE APPELLANT THEREFORE IN THE INTEREST OF JUSTICE HEREBY PRAYS THAT THE ASSESSING OFFICER BE DIRECTED TO GRANT DEDUCTIONS U /S. 80C AND 88E AS PER THE PROVISIONS OF THE ACT.' 3. FROM THE ORDER DATED 19.11.2010 IT IS NOTICED TH AT THIS GROUND WAS REMAINED TO BE ADJUDICATED. SINCE THE CLAIM UNDER C HAPTER VI-A IS A LEGAL CLAIM, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE CLAIM AND PASS A SPEAKING ORDER AS PER LAW. 4. IN THE RESULT, THE RECTIFICATION APPLICATION FIL ED BY THE APPELLANT ON 17 TH FEBRUARY, 2011 STANDS DISPOSED OFF IN THE ABOVE MAN NER. 14. SINCE THIS ISSUE HAS ALREADY BEEN RELEGATED TO THE AO FOR RE- ADJUDICATION AND THERE IS NO SPECIFIC FINDING AT TH E END OF THE AO ON THIS ISSUE. ITA NO.1280/AHD/2011 13 MOREOVER, THE ORDER OF THE LD.CIT(A) BASED ON AN AP PLICATION UNDER SECTION 154 OF THE ACT HAS NOT BEEN CHALLENGED BEFORE THE T RIBUNAL, IT BECAME FINAL. IN VIEW OF THIS DEVELOPMENT, WE ARE OF THE VIEW THA T ENDS OF JUSTICE WOULD MEET IF WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION IN ACCORDANCE WITH LAW. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 16 TH FEBRUARY, 2017 AT AHMEDABAD. SD/- SD/- ( MANISH BORAD ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 16/02/2017