Shri Dushyant K.Shah, Baroda V. The Income tax Officer, Ward-5(4), Baroda

ITA 1338/AHD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6690 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 25-05-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Gift; Business income; Income from undisclosed sources; Salary income; Opportunity of being heard; Rule of consistency; Earning of tax free income; Proportionate interest; Additional evidence; Question of law; Cost of acquisition; Difference of opinion; Corroborative evidences; Revised return
• Section: 153A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.1338/AHD/2006 A. Y.: 2002-03 SHRI DUSHYANT K. SHAH, 22, SAMRATH SOCIETY, HARNI ROAD, BARODA VS THE INCOME TAX OFFICER, WARD 5 (4), AAYAKAR BHAVAN, BARODA PA NO. AGTPS 9437 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. N. SOPARKAR, AR RESPONDENT BY SHRI H. P. MEENA, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-V, BARODA DATED 17-03-2006 FOR ASSESSMENT YEAR 2002-03. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. GROUNDS NO.1, 2 AND 3 OF THE APPEAL OF THE ASSES SEE READ AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF AO IN ASSESSING SHORT TE RM CAPITAL GAINS OF RS.1,75,832/- AS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 2 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING THE LONG TERM CAPITAL LOSS OF RS.1,04,025/- ON THE SALE OF SHARES OF VIRTUAL DYNAMICS. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ENHANCING THE INCOME OF THE APPELLANT BY RS.28,875/ - BEING THE SALE PROCEEDINGS OF SHARES OF VIRTUAL DYN AMICS BY TREATING THE SAME AS ALLEGED UNEXPLAINED CASH RE CEIPT ON ALL TOGETHER DIFFERENT GROUNDS AND REASONING. TH IS ACTION OF LD. CIT(A) HAS RESULTED INTO ENHANCEMENT OF INCOME OF THE APPELLANT ON ENTIRELY DIFFERENT GROUN DS WHICH WERE NOT THE BASIS FOR MAKING THE ADDITIONS I N THE ASSESSMENT ORDER AND WHICH ARE FAR FROM THE FACTS A ND EVIDENCES ON RECORDS AND BASED ON CONJECTURES AND SURMISES. THUS, THIS ACTION OF LD. CIT(A) HAS RESUL TED INTO ASSESSING AN ALTOGETHER NEW SOURCE OF INCOME IN THE HANDS OF THE APPELLANT WHICH IS NOT PERMISSIBLE UND ER THE LAW AND THEREFORE DESERVES TO BE QUASHED. 3. IT IS STATED THAT ALL THE 3 GROUNDS ARE INTER-LI NKED. THEREFORE, THESE GROUNDS ARE TAKEN UP TOGETHER. THE ASSESSEE I S ENGAGED IN SHARE TRADING BUSINESS. THE ASSESSEE HAS DIVIDED HI S SHARE TRANSACTION INTO TWO PARTS. HE HAS SHOWN CERTAIN SH ARES FOR TRADING PURPOSES AND CERTAIN SHARES AS INVESTMENT. AS SUCH HE HAS SHOWN PROFIT ON SALE OF SHARES IN TWO PARTS VIZ (I) TRADI NG PROFIT ARISING OUT OF TRADING OF SHARES AND (II) CAPITAL GAINS/LOSS (SHOR T TERM AND LONG TERM) ARISING OUT OF SALE OF SHARES CLAIMED TO BE INVESTM ENT IN NATURE. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAINS OF RS.1,75,832/- AGAINST WHICH HE CLAIMED LON G TERM CAPITAL LOSS OF RS.1,04,025/- AND OFFERED CAPITAL GAIN OF R S.71,807/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED T HE ASSESSEE TO EXPLAIN THE NATURE OF BUSINESS AND TO DIFFERENTIATE THE INVESTMENT IN ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 3 SHARES AND TRADING IN SHARES WITH SUPPORTING DOCUME NTARY EVIDENCE. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT HE IS TRADING IN SHARES IN FUTURES AND OPTIONS AND THE PROFIT/LOSS I S CONSIDERED AS TRADING PROFIT WHEREAS INVESTMENT IN SHARES IS ON T HE BASIS OF DELIVERY OF SHARES. THE AO ASKED THE ASSESSEE TO FURNISH THE WORKING OF LONG TERM CAPITAL LOSS OF RS.1,04,025/-. THE ASSESSEE WA S ALSO ASKED TO EXPLAIN WHY THE SHARE TRANSACTIONS SHOULD NOT BE TR EATED AS BUSINESS TRANSACTION CONSIDERING THE FREQUENCY, VOLUME AND T HE FACT THAT THE ASSESSEE IS DEALING ONLY IN SHARES. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE THAT HE IS NOT DEALING IN SHARES AND S ECURITIES BUT IS AN INVESTOR IN SHARES, THEREFORE, THE CAPITAL GAINS IN COME CANNOT BE TREATED AS BUSINESS INCOME. IT WAS ALSO STATED THAT THE CAPITAL GAINS AS DECLARED IN THE RETURN HAD BEEN ACCEPTED IN THE PAST ALONG WITH THE INVESTMENT IN SHARES WHICH ARE NOT TREATED AS S TOCK-IN-TRADE BY THE ASSESSEE. IT WAS STATED THAT THERE IS NO RESTRI CTION TO TREAT THE SHARES AND SECURITIES AS INVESTMENT EVEN IN THE CAS E OF AN ASSESSEE WHO IS A DEALER IN SHARES. IN SUPPORT, THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF BHIKAM CHAND BARGI VS CIT 4 4 ITR 746. IT WAS ALSO STATED THAT IN RESPECT OF FOLLOWING ONE TR ANSACTION REPRESENTING LONG TERM INVESTMENT THERE IS NO JUSTI FICATION FOR TREATING THE SAME AS SHARE TRADING. NAME OF SHARES: VIRTUAL DYNAMICS DATE OF PURCHASE QTY PURCHASE AMOUNT (RS.) DATE OF SALES QTY SALES AMOUNT (RS.) PROFIT (RS.) 1.7.2000 1200 12000 10.12.01 1200 4200 (7800) 1.7.2000 9500 152830 10.12.01 4000 13000 (51320) 10.12.01 3500 11375 (44905) ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 4 IT WAS STATED THAT NOT ONLY AT THE TIME OF PURCHASE OF THE SAID SHARES BUT THE SUBSEQUENT CONDUCT OF THE ASSESSEE SHOW THA T THE TRANSACTIONS WERE IN THE NATURE OF INVESTMENT AND N OT IN THE NATURE OF TRADE. IT WAS THEREFORE STATED THAT THE ABOVE TRANS ACTION SHOULD NOT BE TREATED AS TRANSACTION IN THE NATURE OF TRADING. IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS A HAB ITUAL DEALER IN SHARES AND DERIVES INCOME FROM THIS BUSINESS. HE IS NOT A PASSIVE INVESTOR. THE FREQUENCY AND VOLUME OF SHARE TRANSAC TION IS OF LARGE MAGNITUDE WHICH INDICATES THE ASSESSEE'S INTENTION OF EARNING PROFIT BY ENTERING INTO THE BUSINESS OF SHARES. IT HAS BEE N STATED THAT THE TERM 'BUSINESS' AS DEFINED IN SECTION 2(13) INCLUDE S 'ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE'. THE UNDERLINE I DEA OF THESE WORDS IS OF A CONTINUOUS EXERCISE OF AN ACTIVITY. T HE ASSESSEE IS CONTINUOUSLY ENGAGED IN THE ACTIVITY OF BUYING AND SELLING OF SHARES. DURING THE YEAR UNDER SHARE TRADING CATEGORY, THE A SSESSEE HAS DEALT WITH SHARES OF ALMOST 50 COMPANIES. IT HAS BEEN OBS ERVED BY THE AO THAT THE SHARES ON WHICH CAPITAL LOSS/GAINS HAVE BE EN CLAIMED WERE PURCHASED AT THE TIME WHEN THE PRICES WERE LOW. THE RE IS NO EVIDENCE TO PROVE THAT THE ASSESSEE HAD PURCHASED T HESE SHARES TO EARN THE DIVIDEND INCOME. ALL THESE SHARES WERE SOL D WITHIN A SHORT SPAN AT A PREMIUM. THEREFORE THE NATURAL CONCLUSION WHICH EMERGES IS THAT THESE SHARES WERE NOT PURCHASED AS AN INVES TMENT BUT WITH THE OBJECTIVE OF SELLING THEM AT A PROFIT. IT WAS A LSO FOUND BY THE AO THAT THE SHARES OF VIRTUAL DYNAMICS ON WHICH LONG T ERM CAPITAL LOSS HAS BEEN CLAIMED WERE PURCHASED BY THE ASSESSEE THR OUGH IPO ON 01.07.2000 WITH A VIEW TO EARN PROFIT WHEN IT WAS L ISTED IN THE STOCK ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 5 EXCHANGE. THE ASSESSEE MADE FURTHER PURCHASES OF 50 00 SHARES ON 07.11.2001. THERE IS NO EVIDENCE TO PROVE THAT THE ASSESSEE HAD PURCHASED THESE SHARES TO EARN DIVIDEND INCOME. IT WAS CLAIMED BY THE ASSESSEE THAT HE HAD SOLD 3500 SHARES TO NEHA B IHARI SHAH AND 5200 SHARES TO BIHARI MANILAL SHAH ON 10.12.2001. I T HAS BEEN OBSERVED BY THE AO THAT THE BILL SUBMITTED BY THE A SSESSEE SHOWING TRANSFER OF THESE SHARES IS A SELF MADE DOCUMENT MA DE ON A PLAIN PAPER. THEREFORE THE SAME HAS NO EVIDENTIARY VALUE. IN THE AFFIDAVITS SUBMITTED BY THE ASSESSEE IT HAS BEEN STATED BY THE SE PURCHASERS THAT THE SHARES ARE STILL LYING WITH SHRI DUSHYANT K SHAH. IT HAS BEEN STATED BY THE AO THAT EVEN AS ON DATE I.E. AFTER AL MOST 3 YEARS OF THE SO CALLED TRANSACTION THE AFORESAID SHARES ARE IN THE NAME OF THE ASSESSEE. IT HAS BEEN OBSERVED BY THE AO THAT IT IS HARD TO BELIEVE THAT SOMEBODY WILL PURCHASE A SHARE THE VALUE OF WH ICH IS DECLINING, OFF THE MARKET AND KEEP THE SAME IN THE ACCOUNT/NAM E OF THE SELLER. IF THE PURCHASERS WERE GENUINE INVESTORS THEY WOULD HAVE T RANSFERRED THE AFORESAID SHARES IN THEIR NAMES. IT HAS BEEN OB SERVED BY THE AO THAT THE SALE CONSIDERATION OF THESE SHARES WERE CL AIMED TO HAVE BEEN RECEIVED IN CASH ON 31.12.2001 I.E. AFTER 21 D AYS OF THE SELLING DATE. IN VIEW OF THE ABOVE, IT HAS BEEN STATED BY T HE AO THAT THE ASSESSEE HAD DONE A WILLFUL EXERCISE TO CLAIM LONG TERM CAPITAL LOSS TO SUBSEQUENTLY SET OFF AGAINST CAPITAL GAINS EARNED D URING THE YEAR AND THEREBY REDUCE THE TAX LIABILITY. IN VIEW OF THE AB OVE, THE AO DISALLOWED THE ASSESSEE'S CLAIM OF LOSS ON ACCOUNT OF THE SHARE TRANSACTION OF VIRTUAL ORGANICS. IT HAS BEEN STATED BY THE AO THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE SHARES SOLD A S INVESTMENT DURING THE YEAR WERE PLACED IN THE INVESTMENT PORTF OLIO IN THE YEAR OF ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 6 PURCHASE ITSELF. MOST OF THE SHARES CATEGORIZED AS INVESTMENT BY THE ASSESSEE WERE PURCHASED AND SOLD WITHIN A SHORT TIM E. THE ASSESSEE HAS NOT SHOWN ANY OPENING STOCK OR CLOSING STOCK DE SPITE TRADE TRANSACTIONS IN SHARES OF NUMBER OF COMPANIES. IT HAS BEEN STATED BY THE AO THAT AS PER THE RATIO LAID DOWN IN HONBL E SUPREME COURT'S DECISION IN THE CASE OF CIT VS ASSOCIATED INDU STRIAL DEVELOPMENT COMPANY 82 ITR 486, THE ONUS LIES ON THE ASSESSEE T O PRODUCE EVIDENCE AS TO WHETHER HE HAS MAINTAINED ANY DISTIN CTION BETWEEN THE SHARES HELD AS STOCK-IN-TRADE AND AS INVESTMENT . THE AO ALSO RELIED ON THE DECISIONS OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. 100 I TR 706 AND NEW ERA AGENCIES P LTD. VS CIT 68 ITR 582. IT HAS BEEN STATED THAT IN THE CASE OF DALHOUSIE INVESTMENT TRUST CO. VS CIT 68 IT R 486, THE HON'BLE SUPREME COURT HAS TREATED THE PURCHASE OF S HARES MADE AT A TIME WHEN THEY WERE NOT EXPECTED TO YIELD GOOD RE TURN AS INVESTMENT BUT SOLD AT A VERY GOOD PROFIT AS AN ADV ENTURE IN THE NATURE OF TRADE. CONSIDERING THE FACTS AND CIRCUMST ANCES OF THE CASE, THE AO HELD THE ENTIRE SHARE TRANSACTION INCOME AS INCOME FROM BUSINESS. ACCORDINGLY, THE AO TREATED THE SHORT TER M CAPITAL GAINS OF RS.1,75,832/- AS INCOME FROM BUSINESS AND TAXED ACC ORDINGLY. AS MENTIONED ABOVE, THE AO HAS DISALLOWED THE ASSESSEE 'S CLAIM FOR LONG TERM CAPITAL LOSS AMOUNTING TO RS.1,04,025/-. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED BY THE APPELLANT'S REPRESENTATIVE THAT THE ASSESSEE IS IN FACT NOT ENG AGED IN THE BUSINESS OF DELIVERY BASED TRADING IN SHARES BUT HE IS ENGAGED IN SPECULATIVE TRADING OF SHARES. IN ADDITION, THE APP ELLANT IS ALSO AN ORDINARY INVESTOR IN SHARES. THE SHARES IN RESPECT OF WHICH HE MAKES ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 7 INVESTMENT, HE NOT ONLY TAKES THE DELIVERY OF SHARE S BUT ALSO GETS THE SAID SHARES TRANSFERRED IN HIS NAME. IT HAS BEEN ST ATED THAT THE FACTS OF THE APPELLANT ARE TOTALLY DIFFERENT FROM THE FAC TS OF THE CASE IN DALHOUSIE INVESTMENT TRUST CO VS CIT 68 ITR 486 (SC ) RELIED UPON BY THE AO. IN THIS CONNECTION, IT HAS BEEN STATED A S UNDER: 1. IN THIS CASE, THE ASSESSEE HAD PURCHASED LARGE QUANTITY OF SHARES WHEREAS, IN THE CASE OF THE APPELLANT THE QUANTITIES INVOLVED ARE NOT SO LARGE. THE INVESTMENT MADE BY THE APPELLANT ACCOUNTS FOR LESS THAN 1% OF THE TOTAL PAID UP CAPITAL OF THE COMPANY. 2. IN THE ABOVE MENTIONED CASE, THE SHARES WERE PURCHASED WITH BORROWED MONEY WHEREAS, IN THE CASE OF THE APPELLANT, THE ENTIRE INVESTMENT WAS MADE OUT OF THE SURPLUS FUNDS. 3. IN THE ABOVE MENTIONED CASE, IN THE SUBSEQUENT YEARS, THE ASSESSEE HAD AGAIN PURCHASED A LARGE NUMBER OF SHARES OF THE SAME COMPANY. AS AGAINST THIS, IN THE CASE OF THE APPELLANT, THE SHARES OF T HE SAME COMPANY HAD NOT BEEN PURCHASED AGAIN IN THE SUBSEQUENT YEARS. 4. IN THE CASE OF THE APPELLANT, THERE ARE NO FACTS AND CIRCUMSTANCES WHICH CAN LEAD TO THE CONCLUSION THAT THE SHARES WERE PURCHASED AND SOLD WITH A MOTIVE OF EARNING THE PROFIT BY SUCH PURCHASE AND SALE AND NOT WITH THE OBJECT OF INVESTING ITS CAPITAL IN THE SE SHARES IN ORDER TO DERIVE INCOME. IT HAS BEEN STATED THAT FOR THE A.Y. 2001-02 AN IDE NTICAL ISSUE HAD ARISEN IN THE CASE OF THE ASSESSEE. THE LD. CIT(A)- V, BARODA HAD DECIDED THE CASE IN FAVOUR OF THE APPELLANT. WITHOU T PREJUDICE TO THE ABOVE AND ASSUMING BUT WITHOUT ADMITTING THAT THE A SSESSEE IS ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 8 ENGAGED IN THE BUSINESS OF DEALING IN SHARES, IT HA S BEEN STATED THAT IN RESPECT OF THE FOLLOWING TRANSACTIONS REPRESENTI NG LONG TERM INVESTMENT THERE IS NO JUSTIFICATION FOR TREATING T HE SAME AS SHARE TRADING. NAME OF SHARES: VIRTUAL DYNAMICS DATE OF PURCHASE QTY (NOS.) COST OF ACQUISITION DATE OF SALE QTY SOLD AMOUNT (RS.) LONG TERM CAPITAL LOSS (RS.) 01.07.2000 10700 164830 10.12.01 8700 28875 104025 IT HAS BEEN STATED THAT A PERSON MAY PURCHASE THE S HARES EITHER BY WAY OF INVESTMENT OR FOR BUSINESS PURPOSE AND THE F ACT THAT THE OTHER SHARES PURCHASED AT OR ABOUT THE TIME OF ACQUISITIO N OF A CERTAIN LOT OF SHARES WERE TREATED IN THE TRADING PORTFOLIO IS NO JUSTIFICATION TO HOLD THAT THE SHARES IN QUESTION CONSTITUTED THE STOCK-I N-TRADE. IN SUPPORT OF HIS CONTENTIONS THE ASSESSEES COUNSEL HAS RELIE D ON THE FOLLOWING DECISIONS:- 1. V.S.R.M FIRM VS. OT (1963) 47 ITR 720 (MAD ) 2. BHIKAM CHAND BAGRI VS. CIT (1962) 44 ITR 7 46 (CAT). IT HAS BEEN POINTED OUT THAT WHETHER A GIVEN TRANSA CTION IS A TRADING ACTIVITY OR IS BY WAY OF INVESTMENT DEPENDS UPON TH E TOTALITY OF FACTS AND CIRCUMSTANCES OF AN INDIVIDUAL CASE. IT HAS BEE N STATED THAT THE SHARES WHICH HAVE BEEN TREATED AS LONG TERM INVESTM ENT REPRESENTS ONLY ONE SCRIPT INVOLVING THE AGGREGATE QUANTITY OF 15700 SHARES. FOR SELLING THE SAME, NO ORGANIZATION IS NECESSARY. THE SAID INVESTMENT WAS MADE OUT OF SURPLUS FUNDS. THE ASSESSEE HAS GOT ALL THE SHARES ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 9 TRANSFERRED IN HIS OWN NAME AND HELD THE INVESTMENT FOR MORE THAN ONE YEAR. IT HAS BEEN STATED THAT THE SHARES IN RES PECT OF WHICH LONG TERM CAPITAL GAINS HAVE BEEN EARNED WERE PURCHASED BY THE APPELLANT IN AN EARLIER YEAR AND IN THAT YEAR THE S AID PURCHASES WERE TREATED AS AN INVESTMENT AND HAS BEEN CARRIED FORWA RD IN THE ASSESSMENT YEAR UNDER APPEAL AS AN OPENING INVESTME NT AND NOT AS STOCK-IN-TRADE. THE DEPARTMENT HAS ACCEPTED THE SAI D HOLDING AS AN INVESTMENT IN THE PAST YEAR AS SHOWN BY THE ASSESSE E. REGARDING THE SALE OF 8700 EQUITY SHARES OF VIRTUAL DYNAMICS BY T HE ASSESSEE TO NEHA BIHARI AND BIHARI MANILAL SHAH, IT HAS BEEN SU BMITTED THAT THE SAID SALE IS SUPPORTED BY THE INVOICE RAISED BY THE SELLER, I.E. THE ASSESSEE ON BUYERS AND THE SAID INVOICE HAS BEEN AC KNOWLEDGED BY THE BUYERS. THE ASSESSEE HAS FULLY RECEIVED THE CON SIDERATION AGAINST THE SAID SHARES. HOWEVER, SUBSEQUENT TO THE SALE OF SAID SHARES, THESE SHARES HAVE BEEN DELISTED ON STOCK EXCHANGES. THEREFORE THE BUYERS MUST HAVE THOUGHT IT PRUDENT TO CONTINUE TO KEEP THE SHARES WITH THE APPELLANT AND THEREBY AVOID THE ADDITIONAL LOSS ON ACCOUNT OF TRANSFER CHARGES. THE SAID TRANSACTION IS SUPPORTED BY THE AFFIDAVIT OF THE BUYERS WHICH ESTABLISHES THAT IT IS A GENUINE T RANSACTION. IT HAS THEREFORE BEEN STATED THAT THE LOSS ON ACCOUNT OF S ALE OF SHARES OF VIRTUAL DYNAMICS SHOULD BE ALLOWED AS LONG TERM CAP ITAL LOSS. WITHOUT PREJUDICE TO THE ABOVE, IT HAS BEEN STATED THAT THE AO HAS TREATED THE ENTIRE SHARE TRANSACTION AS INCOME FROM BUSINESS. H OWEVER, HE HAS NOT GIVEN FULL EFFECT OF HIS ASSESSMENT IN AS MUCH AS HE HAS NOT RECOGNIZED THE SALE OF SHARES OF VIRTUAL DYNAMICS. THEREFORE HE SHOULD HAVE TREATED THE SHARES AS HAVING CONTINUED IN STOCK-IN-HAND WHICH SHOULD HAVE BEEN VALUED AT COST ON MARKET VAL UE WHICHEVER IS ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 10 LOWER AND THE PROFIT/LOSS SHOULD HAVE BEEN CALCULAT ED ACCORDINGLY. IT HAS BEEN STATED THAT WHATEVER MAY BE THE METHOD OF ACCOUNTING, THE STOCK-IN-HAND SHOULD BE ENTERED IN THE COMPUTATION. IN SUPPORT OF HIS CONTENTIONS, THE ASSESSEE'S COUNSEL HAS RELIED ON V ARIOUS DECISIONS. IN RESPECT OF THE SUBMISSIONS MADE BY THE ASSESSEE, THE AO VIDE HIS LETTER DATED 02.12.2005 HAS SUBMITTED HIS REPORT AS UNDER:- '4. THE SECOND ISSUE IS WITH REGARD TO TAXING OF IN COME FROM SHARE & SECURITIES TRANSACTIONS AS BUSINESS INCOME AND NOT AS CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. IN THIS REGARD, IT IS SUBMITTED THAT THE ASSESSEE HAS SHOWN INCOME FROM SHARE TRANSACTIONS IN TWO PARTS. HE HAS SHOWN CERTAIN SHARE TRANSACTIONS FOR TRADING PURPOS ES AND CERTAIN SHARES FOR INVESTMENTS. AS SUCH, HE HAS SHOWN PROFITS/LOSS ON SALE OF SHARES IN TWO PARTS V IZ. TRADING PROFIT ARISING OUT OF TRADING OF SHARES AND CAPITAL GAIN/LOSS ARISING OUT OF SALE OF SHARES CLAIMED TO BE INVESTMENT IN NATURE. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.1,75,832/- AND LONG TERM CAPITAL LOSS OF RS.1,04 ,025/-. IT WAS NOTICED THAT THE ASSESSEE IS A HABITUAL DEAL ER IN SHARES AND DERIVE INCOME MAINLY FROM THIS BUSINESS ONLY. HE WAS NOT A MERE PASSIVE INVESTOR. FURTHER, THE FREQUENCY AND VOLUME OF THE SHARE TRANSACTION WAS O F LARGE MAGNITUDE. LOOKING TO THESE FACTS, ASSESSEE'S INCOME FROM SHARE TRANSACTIONS WAS HELD AS BUSINESS INCOME. THE AO HAD RELIED ON THE FOLLOWING COURT DECISIONS: (I) DALHOUSIE INVESTMENT TRUST COMPANY VS. CIT (1968) 68 ITR 486,490,491 (II) COMMISSIONER OF INCOME-TAX, BOMBAY VS. HOLCK LARSEN (SC) 160ITR67 (III) CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. 82 ITR 586, 590 ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 11 (IV) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. 100 ITR 706 (V) NEW ERA AGENCIES PVT. LTD. VS. CIT 68 ITR 585 (SC) HERE IT MAY BE MENTIONED THAT ON THE SIMILAR FACTS IN THE A.Y.2000-01, THE A.O. HAS HELD THE ASSESSEE'S ENTIR E SHARE TRANSACTIONS INCOME AS BUSINESS INCOME AND IN APPEAL, THE HON'BLE CIT(A)-V, BARODA HAS UPHELD THE ORDER OF THE A.O. AND DECIDED THE SAID ISSUE IN FAV OUR OF THE REVENUE. IN HIS SUBMISSION DATED 24.11.2005, TH E ASSESSEE HAS ONCE AGAIN PUT FORWARD THE SAME SET OF ARGUMENTS AND CLAIMED THAT CERTAIN SHARE TRANSACTIO NS ARE IN THE NATURE OF INVESTMENT. HOWEVER, THESE ARGUMENTS HAVE ALREADY BEEN CONSIDERED IN THE ASSESSMENT ORDER. LOOKING TO THE FACTS OF THE CASE AND LEGAL POSITION ON THE MATTER, ASSESSEE'S APPEAL ON THIS ISSUE ALSO DESERVES TO BE REJECTED. 5. WITH REGARD TO ISSUE OF DISALLOWANCE OF ASSESSEE 'S CLAIM FOR LONG TERM CAPITAL LOSS OF RS.1,04,025/- O N SO CALLED SALE OF SHARES OF VIRTUAL DYNAMICS IS CONCER NED, IT IS SUBMITTED THAT THE ASSESSEE HAS NOT SUBMITTED AN Y FRESH EVIDENCES. A DETAILED DISCUSSION HAS BEEN MAD E IN PARA 4.5, 4.6 & 4.8 OF THE ASSESSMENT ORDER FOR DISALLOWING ASSESSEE'S CLAIM OF LOSS ON THE SO CALLED SHARE TRANSACTIONS OF VIRTUAL DYNAMICS. IT WAS NOTI CED THAT SALE OF SHARES OF VIRTUAL DYNAMIC TO NEHA BIHARI SH AH AND BIHARI MANILAL SHAH ARE NOT SUPPORTED BY ANY SATISFACTORY EVIDENCES. THE BILL SUBMITTED BY THE ASSESSEE WAS NOTHING BUT SELF MADE DOCUMENT (MADE O N A PLAIN PAPER) HAVING NO EVIDENTIAL VALUE. FURTHER, THE DELIVERY OF THE SHARES CLAIMED TO HAVE BEEN SOLD, W ERE LYING WITH THE ASSESSEE HIMSELF EVEN AT THE TIME OF PASSING ASSESSMENT ORDER I.E. AFTER ALMOST 3 } /2 YEARS OF THE SO CALLED SHARE TRANSACTIONS. IT IS HARD TO BEL IEVE THAT SOMEBODY WILL PURCHASE A SHARE, VALUE OF WHICH IS DECLINING MARGINALLY, OFF THE MARKET AND KEEP THE S AME IN THE ACCOUNT/NAME OF THE SELLER. IF THE PURCHASERS A RE GENUINE INVESTORS, THEY WOULD HAVE TRANSFERRED THE ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 12 AFORESAID SHARES IN THEIR NAMES. FURTHER, SALES CONSIDERATION IN RESPECT OF THE SO CALLED SHARE TRANSACTIONS WERE CLAIMED TO HAVE BEEN RECEIVED IN CASH ON 31.12.2001 I.E. AFTER 21 DAYS OF SO CALLED SELLI NG DATE. THESE ALL SHOWS THAT THE ASSESSEE HAS DONE A WILLFU L EXERCISE TO CLAIM LONG TERM CAPITAL LOSS SUBSEQUENT LY TO BE CLAIMED AGAINST ANY CAPITAL GAIN EARNED DURING T HE YEAR AND THEREBY TO REDUCE HIS TAX LIABILITY. LOOKI NG TO THE ABOVE MENTIONED FACTS AND DISCUSSION MADE IN THE ASSESSMENT ORDER, ORDER OF THE AO ON THE ISSUE MAY BE UPHELD. FURTHER, SO CALLED SALE PROCEED OF RS.28,87 5/- CLAIMED TO HAVE BEEN RECEIVED FROM THESE SHARE TRANSACTIONS WERE INTRODUCED IN THE CASH BOOK IS REMAINED UNEXPLAINED. HENCE, TOTAL INCOME TO THAT E XTENT MAY BE ENHANCED.' IN RESPECT OF THE ABOVE SUBMISSION, THE LEARNED COU NSEL FOR THE ASSESSEE HAS REITERATED HIS EARLIER SUBMISSION AS D ISCUSSED ABOVE. THEREFORE THE APPELLANT'S REPRESENTATIVE HAS NOT MA DE ANY SUBMISSION WITH REGARD TO THE PROPOSAL FOR ENHANCEM ENT OF INCOME BY RS.28,875/- AS MENTIONED BY THE AO IN HIS REPORT. V IDE HIS LETTER DATED 22.02.2006, HE REQUESTED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SALE PROCEEDS OF RS.28,875/- CLAIMED TO HAV E BEEN RECEIVED FROM THE SHARE TRANSACTION AND INTRODUCED IN THE CA SH BOOK BE NOT TREATED AS UNEXPLAINED INTRODUCTION OF CASH AND BE NOT ADDED TO THE TOTAL INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, IT HAS BEEN STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAD INVESTED IN THE SHARES OF VIRTUAL DYNAMICS LTD. THE COMPANY COULD NOT SUCCEED IN THE MARKET; THEREFORE ITS SHAR ES WERE NOT QUOTED AND TRADED IN THE MARKET. THE SAID INVESTORS SHRI B IHARI SHAH AND SMT. NEHA SHAH WERE INTERESTED IN THE SAID SHARES. THEY CAME TO KNOW THAT THE ASSESSEE IS HOLDING THE SAID SHARES A ND APPROACHED ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 13 THE ASSESSEE FOR PURCHASE OF SHARES OF THIS COMPANY . SINCE THE SHARES WERE NOT QUOTED AND TRADED IN THE MARKET THE ASSESSEE HAD SOLD THE SHARES OFF MARKET AND RECEIVED CASH FROM T HE SAID INVESTORS. THESE INVESTORS DID NOT TRANSFER THE SHARES IN THEI R NAMES TO AVOID STAMP DUTY. HOWEVER THE MARKET CONDITION WORSENED S UBSEQUENTLY AND THE INVESTORS WERE UNABLE TO SELL THE SHARES. T HEREFORE THESE REMAINED IN THE DEMAT ACCOUNT OF THE ASSESSEE. IT H AS BEEN STATED THAT THE ASSESSEE HAD SUBMITTED THE COMPLETE NAMES AND ADDRESSES OF THE INVESTORS AND THEIR AFFIDAVITS TO PROVE THAT THE TRANSACTION IS GENUINE. IT HAS BEEN STATED THAT THE ASSESSEE HAD S UFFICIENT CASH BALANCE TO MEET HIS NEEDS; THEREFORE THERE WAS NO R EASON TO INTRODUCE THE SO-CALLED UNDISCLOSED INCOME IN THE B OOKS OF ACCOUNT. IT HAS THEREFORE BEEN STATED THAT THERE IS NO JUSTIFIC ATION TO ADD THE CASH RECEIVED FROM THE INVESTOR AS UNDISCLOSED INCOME OF THE ASSESSEE. 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE NOTED THAT DURING THE YEAR THE ASSESSEE IN THE COMP UTATION OF INCOME HAS SHOWN INCOME FROM BUSINESS, CAPITAL GAINS, INCO ME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE ASSESS EE HAS DIVIDED HIS SHARE TRANSACTION INTO TWO PARTS I.E. TRADING O F SHARES AND CAPITAL GAINS/LOSS ARISING OUT OF SALE OF SHARES CLAIMED TO BE INVESTMENT IN NATURE. IT WAS OBSERVED THAT THE ASSESSEE IS INVOLV ED IN FREQUENCY AND VOLUME OF SHARE TRANSACTION WHICH SHOWS THE INT ENTION OF THE ASSESSEE TO EARN PROFIT FROM BUSINESS, BECAUSE THE ASSESSEE CONTINUOUSLY IS BUYING AND SELLING THE SHARES. IT W AS ALSO OBSERVED THAT THERE IS NO EVIDENCE TO PROVE THAT THESE SHARE S WERE PURCHASED TO EARN DIVIDEND INCOME. THE LEARNED CIT(A) ALSO RE JECTED THE ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 14 CONTENTION OF THE ASSESSEE THAT IN THE ASSESSMENT Y EAR 2001-02 THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BE CAUSE THE LEARNED CIT(A) VIDE ORDER DATED 29-11-2005 HAD TAKE N A DIFFERENT VIEW AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2000-0 1 AND DIFFERED FROM HIS EARLIER DECISION IN ASSESSMENT YEAR 2001-0 2. THE LEARNED CIT(A), THEREFORE, CONFIRMED THE ORDER OF THE AO IN TREATING THE SHORT TERM CAPITAL GAINS OF RS.1,75,832/- AS BUSINESS INC OME. AS REGARDS THE ASSESSEES CLAIM FOR SELLING THE SHARES TOO NEH A BIHARI SHAH AND BIHARI MANILAL SHAH, THE LEARNED CIT(A) NOTED THAT THE SAID TRANSACTIONS ARE NOT SUPPORTED BY PROPER EVIDENCES. THE BILLS ARE PREPARED ON BLANK PAPERS. SHARES ARE NOT DELIVERED TO THE PURCHASERS AND STILL LYING WITH THE ASSESSEE. PAYMENTS IN CASH ARE MADE AFTER 21 DAYS OF THE SELLING DATE. IT WAS ALSO NOTED THAT SH ARES UNDER SALE HAVE ALREADY BEEN DELISTED FROM THE STOCK EXCHANGE, THEREFORE, PURCHASE OF SHARES WERE CONSIDERED TO BE UNJUSTIFIE D. THE LEARNED CIT(A), THEREFORE, HELD THAT SINCE THE SHARES HAVE NOT BEEN SOLD AND THE ASSESSEE HAS SHOWN RECEIPT OF CASH OF RS.28,875 /-, THEREFORE, IT WAS TREATED AS UNEXPLAINED SALE PROCEEDS/CASH RECEI PT AND ADDITION WAS ENHANCED TO RS.28,875/-. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE THE AUTHORITIES BELOW AND SUBMIT TED THAT IN ASSESSMENT YEAR 2000-01, ITAT AHMEDABAD BENCH DECID ED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO.129/AHD/2 006 VIDE ORDER DATED 18-8-2009 IN WHICH IN PARA 7 THE AO WAS DIREC TED TO ASSESS THE PROFIT EARNED ON SHARES UNDER THE HEAD LONG TE RM CAPITAL GAINS. HE HAS SUBMITTED THAT PROPER DETAILS ARE MAINTAINED ON THE SAME ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 15 COPIES OF WHICH ARE FILED AT PB-93 TO 100 AND SUBMI TTED THAT THE ASSESSEE HAS SUFFICIENT CAPITAL BALANCE AND NO BORR OWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT IN SHARES AND THE F REQUENCY OF THE SHARES WOULD NOT PROVED THAT THE ASSESSEE HAS INTEN TION TO EARN PROFIT. AS REGARDS LONG TERM CAPITAL LOSS, HE HAS R EFERRED TO PB-77 TO 98 TO SHOW THAT GENUINE TRANSACTIONS WERE ENTERED I N TO BY THE ASSESSEE. HE HAS ALSO REFERRED TO PB-98 TO 101 TO S HOW THAT THE ISSUE WAS COMPLETELY EXPLAINED BEFORE THE AO AND TH E LEARNED CIT(A). HE HAS SUBMITTED THAT ADDITION IS ENHANCED BY TREATING THE AMOUNT OF RS.28,875/- BEING SALE PROCEEDS AS UNEXP LAINED CASH RECEIPT WHICH ADDITION IS WHOLLY UNJUSTIFIED. HE HA S SUBMITTED THAT MERELY BECAUSE LONG TERM CAPITAL LOSS IS HELD TO BE NOT GENUINE IS NO GROUND TO MAKE OR ENHANCE THE ADDITION. ON THE OTHE R HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIE S BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT IN ASSESSMENT YEAR 2001-02 THE ISSUE HAS BEEN DECIDED IN FAVOUR O F THE ASSESSEE. THE LEARNED CIT(A) HOWEVER, DID NOT AGREE THAT THE DECISION ARRIVED AT BY THE LEARNED CIT(A) IN ASSESSMENT YEAR 2001-02 BECAUSE OF THE APPELLATE ORDER PASSED ON 29-11-2005 FOR ASSESSMENT YEAR 2000-01 ON IDENTICAL ISSUE. THE LEARNED COUNSEL FOR THE ASS ESSEE HOWEVER, FILED COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2000-01 IN ITA NO.129/ AHD/2006 DATED 18-09-2009 WHEREBY THE CLAIM OF THE ASSESSEE WAS ACCEPTED FOR LONG TERM CAPITAL GAINS AND THE AO WAS DIRECTED TO ASSESS PROFIT EARNED ON SHARES UNDER THE HEAD LONG TERM CAPITAL GAINS. FURTHER ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 16 DETAILS FILED ON RECORD HAVE NOT BEEN APPRECIATED B Y THE AUTHORITIES BELOW. FURTHER, WE MAY NOTE THAT RECENTLY ITAT AHME DABAD BENCH IN THE CASE OF RAVINDRA M. AGRAWAL AND OTHERS IN ITA NO.1725/AHD/2008 VIDE ORDER DATED 28-01-2011 DECIDE D IDENTICAL/SIMILAR ISSUE CONSIDERING SEVERAL DECISIO NS AND THE GUIDELINES ISSUED THEREON BY CONSIDERING CBDT CIRCU LAR. THE FINDINGS OF THE TRIBUNAL IN PARA 9 TO 14 ARE REPRODUCED AS U NDER: 9. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IT WAS ADMITTED BY BOTH THE PARTIES THAT THE FACTS IN THE CASES OF ALL THE ASSESSEES IN ALL THE YEARS ARE MORE OR LESS SIMILAR THEREFORE, THE FACTS IN ANY YEAR CAN BE CONSIDERED WHICH WOULD BE APPLICABLE IN OTHER YEARS ALSO. THEREFORE, THE ASSESSEE WAS DIRECTED TO FURNISH COPY OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION OF ONE YEAR IN THE CASE OF SHRI RAVINDRA M. AGARWAL. HE HAS FURNISHED THE COPY OF RETURN FOR ASSESSMENT YEAR 2001-2002, THEREFORE, WE SHALL DEAL HEREINBELOW THE FACTS FOR ASSESSMENT YEAR 2001- 2002. 10. THE ONLY DISPUTE IN THIS APPEAL BY THE REVENUE IS WHETHER THE PROFIT FROM SALE OF SHARES IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCOME FROM CAPITAL GAIN. TO DETERMINE THIS, THE MOST IMPORTANT TEST IS WHETHER THE INITIAL ACQUISITION OF THE SHAR ES WAS WITH THE INTENTION OF DEALING IN THE SHARES OR IT WAS MADE AS AN INVESTMENT. THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM AND THE DISPUTE COMES TO THE APPELLATE AUTHORITIES ONLY WHEN THE REVENUE AUTHORITIES DO NOT ACCEPT THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITIES HAVE LAID DOWN CERTAIN GUIDELINES ON THE BASIS OF WHICH THE INTENT ION OF THE ASSESSEE CAN BE INFERRED. IN THE CASE OF ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 17 SARNATH INFRASTRUCTURE PVT. LTD. (SUPRA), THE LUCKNOW BENCH OF THE ITAT HAS LAID VARIOUS PRINCIPLES WHICH MAY BE APPLIED TO DETERMINE WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARE IS IN THE NATURE OF TRADE OR INVESTMENT. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: THE FOLLOWING PRINCIPLES CAN BE APPLIED ON THE FAC TS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY F OR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNTWHETHER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT; WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASES AND SALES ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICAT IVE OF INTENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 18 (4) WHETHER PURCHASE AND SALE ARE FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS O R WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NE T REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRAD E. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRAD ING AND WHAT DISTINCTION HE HAS KEPT TO THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS: IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTI ON) IN A PARTICULAR ACCOUNT OR MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE NOT BE SUFFICIENT TO SAY T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 19 (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AN D WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIME D THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHE R IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15-6-2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATUR ES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN . THE ASSESSEE-COMPANY WAS DEALING IN SHARES AND IT HAD DEALT IN SHARES BOTH AS STOCK-IN-TRADE AS WE LL AS INVESTMENT. IT SOLD SHARES FROM THE INVESTMENT PORTFOLIO AND CLAIMED THAT THE PROFIT ARISING THERE FROM WAS CAPITAL GAIN. THE ASSESSING OFFICER HELD THAT MAIN BUSINESS OF THE ASSESSEE WAS PURCHASE AND SALE IN SHARES. IT WAS NEITHER A SHARE DEALER NOR A SHARE BROKER. THE DETAILS FOR PURCHASE AND SALES AFFECTED BY THE ASSESSEE COMPANY REVEALED THAT SALES AND PURCHASES WERE QUITE SUBSTANTIAL AND WOULD NOT BE MADE BY A PERSON WHO INVESTED IN SHARES. FURTHER, THE ASSESSEE DID NOT HAVE SUFFICIENT FUNDS TO MAKE SUCH INVESTMENTS AND THE ASSESSEE WAS CLAIMING TO HAVE MADE INVESTMENT OUT OF BORROWED CAPITAL. HE, THEREFORE, HELD THAT T HE PROFIT IN QUESTION WAS ASSESSABLE AS BUSINESS INCOME. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 20 HELD THAT THE UNDISPUTED FACT WAS THAT THE ASSESSEE WAS DEALING IN SHARES BOTH AS BUSINESS AS WELL AS INVESTMENT. IT HAD KEPT SEPARATE ACCOUNTS IN RESPEC T OF TWO PORTFOLIOS. NO MATERIAL WAS BROUGHT ON RECOR D TO SHOW THAT DEMARCATION LINE BETWEEN BUSINESS AND INVESTMENT WAS HAZY OR THAT THE ASSESSEE HAD NOT MAINTAINED AN INVESTMENT PORTFOLIO AND IT WAS DEALING IN SHARES ONLY LIKE A TRADER. THUS, ON APPRECIATION OF CUMULATIVE EFFECT OF SEVERAL FACTOR S PRESENT IT WAS TO BE HELD THAT THE SURPLUS WAS CHARGEABLE TO CAPITAL GAINS ONLY AND THE ASSESSEE WAS NOT TO HE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN THE INVESTMENT PORTFOLIO. THE ITAT, MUMBAI BENCH IN THE CASE OF JANAK S. RANGWALA (SUPRA) HELD AS UNDER: THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOR AFTER THE NATURE OF TRANSACTION. THOUGH TH E PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. (PARA 6] IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO B E SEERS TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 21 TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FRONT CAPITAL GAINS BOTH ON LONG-TERN AND SHORT TERM BASI S. TIRE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES WAS SAME AS IN THE PRECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD SHARES ITS T HE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS: THE ITAT, MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT (SUPRA) FOLLOWED THE DECISION OF THE ITAT, LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. (SU PRA) AND HELD AS UNDER: FURTHER, ON THE BASIS OF MERITS ALSO, IN VIEW OF T HE RATIO OF THE DECISION OF SARNATH INFRASTRUCTURE P. LTD.S CASE (SUPRA), IT WAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATUR E OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LON G TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IN ADDITION TO THE ABOVE, THE ITAT, MUMBAI BENCH AL SO ACCEPTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT IN THE PRECEDING YEAR, SIMILAR CLAIM WAS ACCEPTED BY T HE REVENUE. THE RELEVANT FINDINGS OF THE ITAT ARE AS U NDER: THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF THE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVESTMENT AT THE YEAR END WERE SAME IN ALL THE YEARS, AND, HENCE, APPARENTLY, THERE APPEARED NO REASON AS TO WHY THE ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 22 CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER, THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RES JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISPUTE ON THIS ASPECT, BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS AS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDENTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVENUE AUTHORITIES.: THE REVENUE FILED THE APPEAL BEFORE THE HONBLE BOM BAY HIGH COURT AGAINST THE DECISION OF THE ITAT IN THE CASE OF GOPAL PUROHIT (SUPRA) AND A SPECIFIC QUESTION WAS R AISED AGAINST THE RULE OF CONSISTENCY APPLIED BY THE ITAT . THE HONBLE HIGH COURT VIDE ORDER DATED 6-1-2010, 228 C TR 582 (BOM) UPHELD THE ORDER OF THE ITAT AND HELD AS UNDER: 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL HAS OBSERVED IN PARE 8. OF ITS JUDGMENT TH AT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEAR THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE 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 CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 23 THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 11. ON MERIT ALSO, THEIR LORDSHIPS UPHELD THE FINDI NGS OF THE ITAT HOLDING THE SAME TO BE PURE FINDING OF THE FACT. 12. SIMILAR VIEW IS TAKEN BY THE OTHER BENCHES OF T HE ITAT IN VARIOUS DECISIONS RELIED UPON BY THE LEARNED COU NSEL. HOWEVER, FOR THE SAKE OF BREVITY, THE SAME ARE NOT DISCUSSED HERE IN DETAIL. 13. THE LEARNED DR HAD CONTENDED THAT THE ABOVE DECISIONS OF THE ITAT WOULD NOT BE APPLICABLE TO TH E CASE UNDER APPEAL BEFORE US, BECAUSE, IN THESE CASES THE TRANSACTIONS OF THE PURCHASE AND SALE OF SHARES WER E DISCLOSED TO THE DEPARTMENT, WHILE IN THE CASE OF T HE ASSESSEE, THESE WERE UNDISCLOSED TRANSACTIONS DETEC TED BY THE REVENUE ONLY AS A RESULT OF SEARCH. TO VERIF Y FACTUAL CORRECTNESS OF THE CONTENTION OF THE REVENU E, THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION IN THE C ASE OF RAVINDRA AGRAWAL FOR ANY ONE ASSESSMENT YEAR. THE ASSESSEE FURNISHED THE DETAIL FOR A.Y.2000-2001 FRO M WHICH WE FIND THAT THE ORIGINAL RETURN WAS FURNISHE D BY THE ASSESSEE ON 7-11-2001 WHEREAS THE SEARCH HAS TAKEN PLACE AT THE ASSESSEES PREMISES ON 29-10-2004. IN THIS ORIGINAL RETURN LONG TERM CAPITAL GAIN OF RS.10,02, 774/- WAS DISCLOSED. IN RESPONSE TO THE NOTICE UNDER SECT ION 153A, THE ASSESSEE FURNISHED RETURN DISCLOSING CAPI TAL GAIN OF RS.7,31,096/- WHICH WAS FILED ON 30-11-206. THIS RETURN WAS AGAIN REVISED ON 24-4-2007 IN WHICH THE CAPITAL GAIN OF RS.7,33,450/- WAS DISCLOSED. THE FA CT REMAINS THAT THE CAPITAL GAIN WAS DISCLOSED BY THE ASSESSEE IN THE ORIGINAL RETURN AS WELL. OF COURSE THERE IS SOME VARIATION IN THE AMOUNT OF CAPITAL GAIN DISCLO SED. IN THE ORDER UNDER SECTION 153A ALSO THERE IS NO FINDI NG BY THE AO THAT THE TRANSACTION OF PURCHASE AND SALE OF ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 24 SHARES WERE NOT DISCLOSED BY THE ASSESSEE. THE SAME IS NOT ASSESSED AS INCOME FROM UNDISCLOSED SOURCES, BU T ASSESSED AS BUSINESS INCOME. THEREFORE, THE CONTENT ION OF THE LEARNED DR THAT THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS NOT DISCLOSED TO THE DEPARTMENT IS FACTUALLY NOT CORRECT. MOREOVER, WHETHER THE TRANSA CTION OF PURCHASE AND SALE OF SHARES WAS DISCLOSED BEFORE TH E DATE OF SEARCH OR NOT WOULD NOT BE RELEVANT FOR DETERMINING WHETHER THE TRANSACTION WAS IN THE NATU RE OF TRADING TRANSACTION OR IN THE NATURE OF INVESTMENT. THEREFORE, WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS A TRADING TRANSACTION OR INVESTMENT W ILL HAVE TO BE EXAMINED CONSIDERING THE TOTALITY OF THE FACTS OF THE ASSESSEES CASE. WE FIND THAT SHRI RAVINDRA M. AGARWAL IS A CHARTERED ACCOUNTANT, COST ACCOUNTANT AS WELL AS COMPANY SECRETARY BY EDUCATION. HE WAS AN EXECUTIVE DIRECTOR IN SAURAHSTRA CHEMICALS LTD., PORBANDAR AT THE RELEVANT TIME. HE WAS NOT IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. IN THE ORI GINAL RETURN OF INCOME FURNISHED PRIOR TO THE SEARCH, THE PROFIT FROM SALE OF SHARES WAS OFFERED TO TAX AS CAPITAL G AIN AND THE SAME WAS ACCEPTED BY THE REVENUE UNDER SECTION 143(1). NO MONEY WAS BORROWED BY THE ASSESSEE FOR T HE ACQUISITION OF THE SHARES. ALL SHARES WERE ACQUIRED BY UTILISING OWN FUND. NEITHER ANY OFFICE NOR ANY STAF F WAS KEPT AND MAINTAINED FOR THE PURPOSE OF SALE OF PURCHASE/SHARES. HOWEVER, THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES. THERE IS DISPUTE WITH REGARD TO TOTAL NUMBER OF SHARE TRANSA CTIONS OF PURCHASE AND SALE OF SHARES BY VARIOUS ASSESSES. AS PER THE REVENUE THE TOTAL NUMBER OF TRANSACTION BY ALL THE ASSESSEES DURING THE VARIOUS ASSESSMENT YEARS UNDER APPEAL WAS TOTALING TO 36,000 (APPROX.). AS PER THE ASSESSEE THE NUMBER OF TRANSACTIONS WERE 4611. THE REVENUE HAS NOT GIVEN ANY BASIS FOR THE FIGURE OF 3 6,000 MENTIONED IN THE ASSESSMENT ORDER WHILE THE ASSESSE E HAS GIVEN WORKING HOW THERE WERE 4,611 TRANSACTIONS BY VARIOUS ASSESSEES IN SEVERAL YEARS. WHETHER THE TRANSACTIONS WERE 4,611 OR 36,000, THE FACTS REMAIN THAT THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SA LE OF ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 25 SHARES. HOWEVER, EXCEPT THE PARAMETER OF FREQUENCY IN PURCHASE/SALE OF SHARES ALL OTHER PARAMETERS INDICA TE THAT THE TRANSACTIONS WERE IN THE NATURE OF INVESTMENT A ND NOT THE TRADE TRANSACTIONS. EVEN FOR FREQUENCY, IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS MOSTLY MAKING THE INVESTMENT IN B-GROUP SCRIPTS AND TO AVOID RISK HE MADE INVESTMENT IN SEVERAL SCRIPTS IN STEAD OF INVESTING IN ONE SCRIPT. FOR EXAMPLE, IF THE ASS ESSEE HAD TO INVEST RS.10 LAKHS INSTEAD OF INVESTMENT IN ONE SCRIPT, HE USED TO INVESTMENT IN TEN DIFFERENT SCRI PTS. HE MADE A STATEMENT THAT THE ASSESSEE NEVER PURCHASED AND SOLD THE SAME SCRIPTS FREQUENTLY. HE ALSO STATE D THAT SHARES WERE KEPT FOR LONG PERIOD AND THERE IS NO FR EQUENT PURCHASE/SALE OF SAME SCRIPTS. THIS CONTENTION OF T HE LEARNED COUNSEL APPEARS REASONABLE AND HAS NOT BEEN FACTUALLY CONTROVERTED BY THE REVENUE. THERE IS A S AYING THAT NEVER PUT ALL YOUR EGGS IN ONE BASKET AND IF THE ASSESSEE AS A PRUDENT PERSON MADE INVESTMENT IN NUMBER OF SCRIPTS INSTEAD OF ONE SCRIPTS, IT CANNOT BE SAID THAT HE WAS CARRYING ON THE BUSINESS OF PURCHASE AN D SALE OF SHARES. THERE WERE SUBSTANTIAL INCOME FROM THE DIVIDEND. IN THE CASE OF SHRI RAVINDRA M. AGARWAL F OR A.Y.2001-2002, AS PER THE REVISED RETURN, THE DIVID END INCOME WAS AS HIGH AS RS.19,33,425/-. IT IS A SETTL ED LAW THAT, TO DETERMINE WHETHER THE ASSESSEE IS A TRADER OR INVESTOR IN SHARES, NO SINGLE TEST IS CONCLUSIVE BU T CUMULATIVE EFFECT OF ALL THE FACTS ARE TO BE SEEN. IN THE CASE OF THE ASSESSEE, ONE FACT I.E. FREQUENT PURCHA SE/SALE OF SHARES CAN BE SAID TO BE AGAINST THE ASSESSEE BU T ALL OTHER FACTS WHICH CAN BE SUMMARISED AS UNDER ARE IN FAVOUR OF THE ASSESSEE: I) SHRI RAVINDRA AGRAWAL IS A QUALIFIED PROFESSIONA L BEING CHARTERED ACCOUNTANT, COMPANY SECRETARY AND COST ACCOUNTANT; II) SHRI AGRAWAL WAS FULL TIME DIRECTOR OF A PUBLIC LIMITED COMPANYAT THE RELEVANT TIME, POSTED AT PORBANDER; ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 26 III) SHARES WERE ACQUIRED WITH OWN MONEY AND THERE WAS NO BORROWING BY SHRI RAVINDRA AGRAWAL OR ANY OTHER FAMILY MEMBER; IV) NO OFFICE OR ANY STAFF WAS MAINTAINED FOR LOOKI NG AFTER PURCHASE AND SALE OF SHARES; V) THERE WAS SUBSTANTIAL DIVIDEND INCOME; VI) HIS SOURCE OF INCOME WAS INCOME FROM SALARY, CA PITAL GAIN, DIVIDEND AND INTEREST AND HE WAS NOT HAVING A NY BUSINESS INCOME; VII) IN THE ORIGINAL RETURN OF INCOME FURNISHED FRO M TIME TO TIME, INCOME FROM SALE OF SHARES WAS DISCLOSED UNDE R THE HEAD CAPITAL GAIN AND WAS ACCEPTED BY REVENUE AS SUCH UNDER SECTION 143(1). WHEN TOTALITY OF ALL THE ABOVE FACTS ARE CONSIDERED , THE INFERENCE DRAWN BY THE CIT(A) THAT THE ASSESSEE IS AN INVESTOR IN SHARES, APPEARS TO BE CORRECT. APART FR OM THE ABOVE, ON THE PRINCIPLE OF CONSISTENCY ALSO ORDER O F THE CIT(A) ON THIS POINT DESERVES TO BE UPHELD BECAUSE IN THE ORIGINAL RETURNS INCOME FROM SALE OF SHARES WAS DIS CLOSED UNDER THE HEAD CAPITAL GAIN AND THE SAME WAS ACCE PTED BY THE REVENUE. ITAT, MUMBAI BENCH IN THE CASE OF GOPTAL PURROHIT (SUPRA) HELD THAT THOUGH IN INCOME TAX PROCEEDINGS THE RULE OF RES JUDICATA DOES NOT APPLY BUT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSIST ENCY UNDER THE SAME FACTS AND CIRCUMSTANCES. THIS DECISI ON IS UPHELD BY THE HONBLE MUMBAI HIGH COURT IN CIT VS. GOPTAL PUROHIT, 228 CTR 582 (BOM). THESE DECISIONS WOULD BE SQUARELY APPLICABLE TO THE CASES OF THE ASSESSEE UNDER APPEAL BECAUSE IN THESE CASES NOT ON LY IN EARLIER YEAR BUT IN THE YEARS UNDER APPEAL ALSO IN ORIGINAL PROCEEDINGS TRANSACTION OF PURCHASE AND SA LE OF SHARES SHOWN AS CAPITAL GAIN WAS ACCEPTED BY THE REVENUE. MERELY BECAUSE, THERE WAS SEARCH AT THE ASSESSEES PREMISES, THE NATURE OF TRANSACTION WOUL D NOT CHANGE. IN VIEW OF THE ABOVE, AFTER CONSIDERING THE TOTALITY ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 27 OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND VARI OUS JUDICIAL PRONOUNCEMENT REFERRED ABOVE, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CI T(A) ON THIS POINT. THE SAME IS UPHELD AND THE REVENUES APPEALS ARE DISMISSED. 14. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. 7. SINCE THE ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2000-01 AND THE DETAILED GUIDELINES HAVE BEEN ISSUED IN THE CASE OF RAVINDRA M. AGRAWAL, THEREFOR E, THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. AC CORDINGLY, THE FINDINGS OF THE AUTHORITIES BELOW ON GROUND NO.1 AR E SET ASIDE AND GROUND NO.1 IS RESTORED TO THE FILE OF THE AO WITH DIRECTION TO RE- DECIDE THE ISSUE IN THE LIGHT OF THE DECISION IN TH E CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEAR 2000-01 AND IN THE LIG HT OF THE GUIDELINES ISSUED IN THE CASE OF RAVINDRA M. AGRAWA L (SUPRA). THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THE ASSESSEE IS AT LIBERTY TO PRODUCE SUFFICIENT MATERIALS BEFORE THE AO IN THIS REGARD. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7.1 AS REGARDS GROUNDS NO.2 AND 3 ARE CONCERNED, TH E LEARNED CIT(A) SPECIFICALLY NOTED THAT THE ASSESSEES CLAIM OF SELLING OF SHARES TO NEHA BIHARI SHAH AND BIHARI MANILAL SHAH IS NOT SUPPORTED BY PROPER EVIDENCES. IT WAS FOUND THAT BILLS RELATI NG TO TRANSFER OF THE SHARES WERE MADE ON PLAIN PAPERS. IT WAS FURTHER FO UND THAT THESE SHARES HAVE NOT BEEN DELIVERED TO THE PURCHASERS AN D ARE STILL LYING WITH THE ASSESSEE. IT WAS ALSO FOUND THAT EVEN AFTE R ALMOST 3 YEARS ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 28 OF THE SO-CALLED TRANSACTION, THE AFORESAID SHARES ARE STILL IN THE NAME OF THE ASSESSEE. THE PAYMENTS IN CASH WERE STATED T O BE MADE AFTER 21 DAYS OF THE SELLING DATE. IT WAS, THEREFORE, RIG HTLY HELD THAT IT WAS NOT GENUINE TRANSACTION OF SALE AND PURCHASE. IT WA S ALSO FACT THESE SHARES HAVE ALSO BEEN DELISTED FROM THE STOCK EXCHA NGE; THEREFORE, THERE WAS NO REASON TO TAKE A CONTRARY VIEW IN THE ABSENCE OF FURTHER EVIDENCE ON RECORD. THE LEARNED CIT(A) ON FINDING O F FACT HAS CORRECTLY HELD THAT THE TRANSACTION IS NOT GENUINE AND THAT RECEIPT OF CASH OF RS.28,875/- REMAINED UNEXPLAINED. WE, THERE FORE, DO NOT FIND ANY MERIT IN GROUNDS NO.2 AND 3 OF THE APPEAL OF TH E ASSESSEE. THE SAME ARE ACCORDINGLY DISMISSED. 8. ON GROUND NO.4, THE ASSESSEE CHALLENGED THE CONF IRMATION OF ADDITION OF RS.4,39,773/-. THE AO HAS HELD THAT THE ABOVE LOSS FROM SPECULATION BUSINESS WILL BE ALLOWED TO BE CARRIED FORWARD TO BE SET OFF AGAINST SPECULATION INCOME. IT WAS SUBMITTED BE FORE THE LEARNED CIT(A) THAT THE ASSESSEE INCURRED LOSS IN PURCHASE AND SALE OF FUTURES AND OPTIONS. THE LEARNED CIT(A) HOWEVER, DI D NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE CONFIRMING THE ORDER OF THE AO IN TREATING THE LOSS IN PURCHASE AND SALE OF FUTURES AND OPTIONS AS SPECULATIVE TRANSACT IONS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE I S SQUARELY COVERED AGAINST THE ASSESSEE BY THE ORDER OF ITAT K OLKATA SPECIAL BENCH REPORTED 124 TTJ 740. ACCORDINGLY, THIS GROUN D OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 29 9. ON GROUND NO.5, THE ASSESSEE CHALLENGED THE ADDI TION OF RS.28,313/- ON ACCOUNT OF EXPENDITURE WHICH HAVE BE EN INCURRED TO EARN TAX FREE INCOME. THE ASSESSEE HAS CLAIMED TOTA L EXPENSES OF RS.70,318/-. AFTER EXCLUDING THE EXPENSES CLAIMED T O BE INCURRED ON SPECULATION SHARE TRANSACTION OF RS.13,892/-, THE N ET EXPENSES CLAIMED ARE OF RS.56,426/-. THE AO MENTIONED DESPIT E TRADING IN SHARES, THE ASSESSEE HAS MADE INVESTMENT IN LONG TA X FREE SCHEMES. THE ASSESSEE HAS SHOWN THE INCOME FROM HOUSE PROPER TY ETC IN RESPECT OF WHICH NO EXPENSES ARE ALLOWABLE EXCEPT D EDUCTION ALLOWED U/S 23 AND 24 OF THE IT ACT. THESE EXPENSES CLAIMED WERE ALSO PERTAINING TO ALL THESE ACTIVITIES. SINCE THE INCOM E EARNED FROM SAME INVESTMENTS ARE NOT LIABLE TO TAX, THE EXPENDITURE CLAIMED AGAINST THE SAME ARE NOT ALLOWABLE. THE AO ESTIMATED THE QUANTU M OF EXPENSES ATTRIBUTABLE TO EARNING OF TAX FREE INCOME AT 50% A ND DISALLOWED THE SAME. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) TH AT NO PART OF THE EXPENSES ARE ATTRIBUTABLE TO EARNING OF TAX FREE IN COME AND INCOME FROM HOUSE PROPERTY. THE LEARNED CIT(A) HOWEVER, CO NFIRMED THE ADDITION BECAUSE THE ASSESSEE CLAIMED THESE EXPENSE S UNDER VARIOUS HEADS. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AD HOC ADDITION HAS BEEN MADE. 10. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW NO INTERFERENCE IS CALLED FOR IN THE MATTER. THE AUTHO RITIES BELOW HAVE GIVEN A SPECIFIC FINDING AGAINST THE ASSESSEE WHICH HAVE NOT BEEN REBUTTED THROUGH ANY SPECIFIC MATERIAL ON RECORD, O NLY PB-93 IS REFERRED TO WHICH WOULD NOT SUPPORT THE CLAIM OF TH E ASSESSEE. ONCE A FINDING OF FACT HAS BEEN GIVEN AGAINST THE ASSESS EE, IT IS FOR THE ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 30 ASSESSEE TO PROVE THAT ADDITIONS ARE UNJUSTIFIED. I N THE ABSENCE OF ANY SPECIFIC BIFURCATED MATERIAL IN FAVOUR OF THE A SSESSEE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. THIS GROUND OF APPEAL OF THE ASSESSEE IS ACC ORDINGLY DISMISSED. 11. ON GROUND NO.6, THE ASSESSEE CHALLENGED THE ADD ITION OF RS.1,69,680/- ON ACCOUNT OF UNEXPLAINED GIFT/CASH C REDIT U/S 68 OF THE IT ACT. DURING THE YEAR THE ASSESSEE HAS INTRODUCED RS.1,69,680/- IN HIS CAPITAL ACCOUNT UNDER THE HEAD GIFT. THE AO ASK ED THE ASSESSEE TO FURNISH CONFIRMATION AND SOURCE OF THE GIFT SUPP ORTED BY BANK ACCOUNT AND PROOF OF CAPACITY OF THE DONOR ETC. IT WAS SUBMITTED BEFORE THE AO THAT DURING THE YEAR THE ASSESSEE HAD RECEIVED GIFT OF RS.1,69,680/- IN THE FORM OF US DOLLAR 3500 FROM SH RI K. C. JAIN VIDE CHEQUE NO.687550 DATED 7-2-2002 DRAWN ON TCF NATION AL BANK IL60521 USA. COPY OF THE CHEQUE AND BANK STATEMENT WAS SUBMITTED. IT WAS STATED THAT CONFIRMATION AND SOUR CE OF THE GIFT CANNOT BE PRODUCED AT THIS MOMENT BECAUSE IT WILL T AKE SOMETIME TO OBTAIN FROM USA. THE AO, THEREFORE, OBSERVED THAT T HE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT ANY DOCUMENTARY EVIDENCE IN THE FORM OF CONFIRMATION LETTER, SOURCE OF THE GIFT DULY SUPPOR TED BY COPY OF THE BANK ACCOUNT, PROOF OF CAPACITY OF THE DONOR ETC. T HUS, THE ASSESSEE FAILED TO PROVE GENUINENESS OF THE GIFT IN THE MATT ER. THE ASSESSEE ALSO FAILED TO EXPLAIN RELATIONSHIP WITH THE DONOR AND TO ESTABLISH THAT THE GIFT WAS GIVEN OUT OF NATURAL LOVE AND AFFECTIO N. NO OCCASION OF THE GIFT WAS ALSO PROVED AND FURTHER NO GIFT DEED WAS E XECUTED. THE AO, THEREFORE, NOTED THAT THE ASSESSEE FAILED TO PROVE THE IDENTITY AND ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 31 CAPACITY OF THE DONOR. IT WAS ALSO FOUND THAT THERE IS A DIFFERENCE IN THE CHEQUE NUMBER. GIFT WAS, THEREFORE, HELD TO BE BOGUS AND UNEXPLAINED CASH CREDIT. ADDITION WAS ACCORDINGLY M ADE. THE ASSESSEE REITERATED SAME SUBMISSION BEFORE THE LEAR NED CIT(A) AND FURTHER SUBMITTED THAT THE GIFT IS GIVEN BY FRIEND. THE CONFIRMATION COULD NOT BE FILED AT THE ASSESSMENT STAGE BUT AT T HE APPELLATE STAGE COPY OF THE DECLARATION OF GIFT DATED 5-10-2005 WAS FILED ALONG WITH BANK CERTIFICATE ISSUED BY IDBI BANK DATED 10-10-20 05. THE LEARNED CIT(A) CALLED FOR REMAND REPORT FROM THE AO IN WHIC H IT WAS EXPLAINED THAT THE SAME ARE ADDITIONAL EVIDENCES IN NATURE AN D SHOULD NOT BE ADMITTED. THE SAME ARE FILED IN VIOLATION OF RULE 4 6A OF THE IT RULES. THE ASSESSEES COUNSEL REITERATED THE SAME SUBMISSI ONS BEFORE THE LEARNED CIT(A). HOWEVER, THE LEARNED CIT(A) DISMISS ED THE APPEAL OF THE ASSESSEE ON THIS GROUND. HIS FINDINGS IN PARA 5 .3 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 5.3 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSE SSING OFFICER AND THE CONTENTIONS OF THE APPELLANT. DURIN G THE YEAR, THE APPELLANT HAS INTRODUCED 169680 IN HIS CA PITAL ACCOUNT WITH THE NARRATION GIFT RECEIVED. IT HAS BEEN CLAIMED BY THE APPELLANTS REPRESENTATIVE THAT THE APPELLANT HAS RECEIVED A GIFT OF RS.169680 (US $ 35 00) FROM SHRI K. C. JAIN, A GOOD FRIEND OF THE APPELLAN T VIDE CHEQUE NO.687550 DATED 07.02.2002 DRAWN ON TCF NATIONAL BANK. IN SUPPORT OF HIS CONTENTIONS, THE APPELLANTS REPRESENTATIVE HAD SUBMITTED A PHOTOCOP Y OF CHEQUE DATED 07.02.2002. IT HAS BEEN STATED THAT ON THE FACE OF THE CHEQUE, IT HAS BEEN CLEARLY MENTIONED T HAT THE PURPOSE OF THE PAYMENT IS GIFT TO A FRIEND. IN SU PPORT OF HIS CONTENTIONS, THE APPELLANTS REPRESENTATIVE HAS ALSO SUBMITTED A COPY OF THE DECLARATION OF GIFT DATED 05.10.2002 MADE BY SHRI K. C. JAIN AND A CERTIFICAT E OF ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 32 FOREIGN INWARD REMITTANCE DATED 10.10.2005 ISSUED B Y IDBI BANK. THE APPELLANT HAS HOWEVER FAILED TO SUBM IT ANY DOCUMENTARY EVIDENCE WHICH PROVE THE CAPACITY O F SHRI K. C. JAIN TO MAKE THE GIFT. THE APPELLANT HAS NOT SUBMITTED THE COPY OF BANK ACCOUNT OF SHRI JAIN OR ANY OTHER DOCUMENT TO EXPLAIN THE SOURCE OF THE ABOVE G IFT. IN THE DECLARATION OF THE GIFT SHRI K. C. JAIN HAS NOT MENTIONED THE OCCASION ON WHICH THE ABOVE GIFT HAS BEEN MADE. IT HAS ONLY CLAIMED THAT THE APPELLANT IS A C LOSE FRIEND OF SHRI JAIN AND IS KNOWN TO HIM SINCE SEVER AL YEARS. IN THE CASE OF SANJEEV BATRA VS ACIT (1999) 69 ITD 23, THE HONBLE ITAT, DELHI BENCH HAS HELD THAT FOR ESTABLISHING THE GENUINENESS OF THE GIFTS RECEIVED FROM NRI THROUGH PROPER BANKING CHANNELS, THE FINANCIAL CAPACITY OF THE DONOR HAS TO BE ESTABLISHED BY THE APPELLANT. IN VIEW OF THE ABOVE FACTS, THE ASSESSIN G OFFICER WAS JUSTIFIED IN TREATING THE GIFT OF RS.16 9680 AS UNEXPLAINED. ACCORDINGLY THE ADDITION MADE OF RS.16 9680 U/S. 68 OF THE IT ACT, 1961 IS CONFIRMED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND F ILED APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE WITH THE PRAYE R TO ADMIT ADDITIONAL EVIDENCES I.E. COPY OF US TAX RETURN FOR 2002-03 OF SHRI KISHORE JAIN TO PROVE CAPACITY OF THE DONOR. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIE S BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE RECE IVED GIFT FROM THE DONOR AND THE AO WANTED TO VERIFY THE GENUINENESS O F THE GIFT IN THE MATTER AND ACCORDINGLY DIRECTED THE ASSESSEE TO FIL E CONFIRMATION AND SUPPORTING EVIDENCES TO PROVE THE GENUINENESS OF TH E GIFT. THE ASSESSEE FAILED TO EXPLAIN THE NATURE AND PURPOSE OF THE GIFT. NO RELATIONSHIP AND LOVE AND AFFECTION ARE PROVED. IN THE ABSENCE OF ANY ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 33 EVIDENCE OR MATERIAL ON RECORD THE AO WAS JUSTIFIED IN TREATING THE GIFT TO BE NON-GENUINE. THUS, THE ASSESSEE FAILED TO PRO VE THE IDENTITY OF THE DONOR, HIS CREDITWORTHINESS AND SOURCE OF THE G IFT IN THE MATTER. AT THE APPELLATE STAGE, THE ASSESSEE FILED COPY OF THE GIFT DECLARATION DATED 5.10.2005 WHICH WAS EXECUTED LATER ON AND THU S, COULD NOT PROVE THAT GENUINE GIFT WAS MADE IN THE MATTER AT T HE RELEVANT TIME. THE CERTIFICATE FROM IDBI BANK WAS ALSO FILED WHICH WOULD NOT SUPPORT THE CASE OF THE ASSESSEE AND WOULD NOT PROVE CREDIT WORTHINESS OF THE DONOR AND THE GENUINENESS OF THE GIFT IN THE MATTER . MERE FILING OF COPY OF THE GIFT DECLARATION LATER ON WOULD NOT PRO VE THE IDENTITY OF THE DONOR, HIS CREDITWORTHINESS AND SOURCE OF MAKING TH E GIFT. AT THE SECOND APPELLATE STAGE BEFORE THE TRIBUNAL, THE ASS ESSEE SOUGHT ADMISSION OF THE ADDITIONAL EVIDENCE I.E. COPY OF T HE US INCOME TAX RETURN FOR ASSESSMENT YEAR 2002 AND 2003 OF SHRI KI SHORE C. JAIN. NOTHING IS EXPLAINED AS TO WHY THIS ADDITIONAL EVID ENCE WAS NOT FILED BEFORE THE AUTHORITIES BELOW AND WHAT WAS THE CAUSE WHICH PREVENTED THE ASSESSEE FROM PRODUCING SUCH PAPER BEFORE THE A UTHORITIES BELOW. NO REASONS ARE EXPLAINED FOR INTRODUCTION OF THE US INCOME TAX RETURN AT THIS STAGE. FURTHER, THE RETURN WOULD SHOW THAT IT IS FILED JOINTLY BY SHRI KISHORE C. JAIN AND LINA JAIN AND N OTHING IS EXPLAINED AS TO WHO HAS SOURCE OF INCOME. THEREFORE, COPY OF THE RETURN JOINTLY FILED BY TWO PERSONS WOULD NOT PROVE CREDITWORTHINE SS AND SOURCE OF THE GIFT IN THE MATTER. IN THE ABSENCE OF ANY EXPLA NATION ON THE SAME, THE REQUEST FOR ADMISSION OF EVIDENCE CANNOT BE ACC EPTED. THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE IS ACCORDINGLY REJECTED. NO REASON OR OCCASION OF THE GIFT HAS BEE N FILED ON RECORD. MERELY BECAUSE GIFT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE WOULD ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 34 NOT PROVE GENUINENESS OF THE GIFT IN THE MATTER. TH US, THE ASSESSEE FAILED TO PROVE ALL THE BASIC INGREDIENTS OF GENUIN E GIFT IN THE MATTER. EVEN, NO COPY OF THE BANK ACCOUNT OF THE DONOR HAS BEEN FILED. SINCE NO SUFFICIENT EVIDENCE HAS BEEN FILED BEFORE THE AU THORITIES BELOW TO PROVE GENUINENESS OF THE GIFT IN THE MATTER, THEREF ORE, IT IS CLEAR THAT THE GIFT IN THE MATTER IS NOT GENUINE GIFT AND IS A RRANGED AFFAIRS OF THE ASSESSEE. HONBLE DELHI HIGH COURT IN THE CASE OF C IT VS ANIL KUMAR 292 ITR 552 HELD IN THE CASE OF GIFTS MERE IDENTIFICATION OF THE DONOR AND SHOWING THE MOVEMENT OF THE GIFT AMOUNT T HROUGH BANKING CHANNELS IS NOT SUFFICIENT TO PROVE THE GEN UINENESS OF THE GIFT. SINCE THE CLAIM OF GIFT IS MADE BY THE AS SESSEE, THE ONUS LIES ON HIM NOT ONLY TO ESTABLISH THE IDENTITY OF THE PERSON MAKING THE GIFT BUT ALSO HIS CAPACITY TO MAKE SUCH A GIFT. IN ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 1995 -96 THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD RE CEIVED TWO GIFTS OF RS.10 LAKHS EACH FROM N. R. E. ACCOUNTS OF TWO DONORS, NAMELY V AND D. THE ASSESSING OFFICER FOUND THAT TH E ASSESSEE COULD NOT DISCHARGE HIS ONUS OF PROVING THE CREDIT- WORTHINESS OF THE DONORS AND HELD THAT THE AMOUNT OF RS.20 LAKHS WHICH HAD BEEN DECLARED BY THE ASSESSEE AS GIFT, WAS IN FACT HIS INCOME AND ADDED TO HIS TOTAL INCOME UNDER SECTION 68. THE ADDITION WAS DELETED BY THE COMMISSIONER (APPEALS) AND THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD THAT THERE WAS NOTHING ON RECORD TO SHOW AS TO WHAT WAS THE FINANC IAL CAPACITY OF THE DONORS, WHAT WAS THE CREDIT-WORTHINESS OF TH E DONORS, WHAT KIND OF RELATIONSHIP THE DONORS HAD WITH THE A SSESSEE, WHAT WERE THE SOURCES OF FUNDS GIFTED TO THE ASSESS EE AND ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 35 WHETHER THEY HAD THE CAPACITY OF GIVING LARGE AMOUN TS OF GIFT TO THE ASSESSEE. FURTHER, THE ASSESSEE WAS ASKED TO AP PEAR IN PERSON BEFORE THE ASSESSING OFFICER, BUT NEVER APPE ARED. THE ADDITION OF RS.20 LAKHS WAS JUSTIFIED. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS P. MOHANKALA 291 ITR 278 HELD THE ASSESSEE RECEIVED FOREIGN GIFTS FROM ONE COMMON DONOR. THE P AYMENTS WERE MADE TO THEM BY INSTRUMENTS ISSUED BY FOREIGN BANKS AND CREDITED TO THE RESPECTIVE ACCOUNT OF THE ASSESSEES BY NEGOTIATION THROUGH A BANK IN INDIA. MOST OF THE CH EQUES SENT FROM ABOARD WERE DRAWN ON THE CITIBANK, N. A. SINGA PORE. THE EVIDENCE INDICATED THAT THE DONOR WAS TO RECEIVE SU ITABLE COMPENSATION FROM THE ASSESSEES. ON THIS MATERIAL T HE ASSESSING OFFICER HELD THAT THE GIFTS THOUGH APPARE NT WERE NOT REAL AND ACCORDINGLY TREATED ALL THOSE AMOUNTS WHIC H WERE CREDITED IN THE ACCOUNT BOOKS OF THE ASSESSEES AS T HEIR INCOME APPLYING SECTION 68 OF THE INCOME-TAX ACT, 1961. TH E ASSESSEES DID NOT CONTEND THAT EVEN IF THEIR EXPLANATION WAS NOT SATISFACTORY THE AMOUNTS WERE NOT OF THE NATURE OF INCOME. THE COMMISSIONER (APPEALS) CONFIRMED THE ASSESSMENT. ON FURTHER APPEAL, THERE WAS A DIFFERENCE OF OPINION BETWEEN T HE TWO MEMBERS OF THE APPELLATE TRIBUNAL AND THE MATER WAS REFERRED TO THE VICE PRESIDENT WHO CONCURRED WITH THE FINDINGS AND CONCLUSION OF THE ASSESSING OFFICER AND THE COMMISS IONER (APPEALS). ON APPEAL THE HIGH COURT RE-APPRECIATED THE EVIDENCE AND SUBSTITUTED ITS OWN FINDINGS AND CAME TO THE CO NCLUSION THAT THE REASONS ASSIGNED BY THE TRIBUNAL WERE IN T HE REALM OF SURMISES, CONJECTURE AND SUSPICION. ON APPEAL TO TH E SUPREME ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 36 COURT: HELD, REVERSING THE DECISION OF HIGH COURT, THAT FINDINGS OF THE ASSESSING OFFICER, THE COMMISSIONER (APPEALS ) AND THE TRIBUNAL WERE BASED ON THE MATERIAL ON RECORD AND N OT ON ANY CONJECTURES AND SURMISES. THAT THE MONEY CAME BY WA Y OF BANK CHEQUES AND WAS PAID THROUGH THE PROCESS OF BANKING TRANSACTION WAS NOT BY ITSELF OF ANY CONSEQUENCE. T HE HIGH COURT MISDIRECTED ITSELF AND ERRED IN DISTURBING TH E CONCURRENT FINDINGS OF FACT. HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF YASH PAL GOEL VS CIT 310 ITR 75 HELD THAT HELD, DISMISSING THE APPEAL THAT THE FINANCIAL POSITION O F M. SUGGESTED THAT HE NEITHER HAD THE CAPACITY TO MAKE THE GIFT N OR THE SOURCE FROM WHERE THE GIFT WAS MADE. NO REASON WHATSOEVER HAD BEEN ASSIGNED FOR GIFTING SUCH A HUGE AMOUNT BY M TO THE ASSESSEE. M NEVER VISITED THE HOME OF THE ASSESSEE AND HENCE THERE WAS NO LOVE AND AFFECTION. IT WAS NOTHING BUT A SUBTERF UGE TO AVOID INCOME-TAX. THE TRANSACTIONS WERE NOT GENUINE ONES . 14. CONSIDERING THE ABOVE DISCUSSIONS, IT IS CLEAR THAT THE ASSESSEE FAILED TO PROVE ANY RELATION WITH THE DONOR AND HIS CREDITWORTHINESS. NO SUFFICIENT EVIDENCE OR MATERIAL IS FILED ON RECO RD TO PROVE THE GENUINENESS OF THE GIFTS IN THE MATTER. THE HONBLE SUPREME COURT IN THE CASE OF DURGA PRASAD MORE 82 ITR 540 AND IN THE CASE OF SUMATI DAYAL 214 ITR 801 HELD THAT COURTS OF TRIBUNALS HAVE TO JUDGE THE EVIDENCE BEFORE THEM BY APPLYING THE TEST OF HU MAN PROBABILITIES. IF THE SAID TEST IS APPLIED TO THIS ISSUE, IT IS CL EARLY ESTABLISHED THAT THE ASSESSEE HAS FAILED TO PROVE G ENUINE GIFTS IN THE ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 37 MATTER. WE ACCORDINGLY, DO NOT FIND ANY MERIT IN TH E APPEAL OF THE ASSESSEE. THE SAME IS ACCORDINGLY DISMISSED. 15. ON GROUND NO.7, THE ASSESSEE CHALLENGED THE ORD ER OF THE LEARNED CIT(A) IN CONFIRMING THE ACTION OF THE AO I N DISALLOWING RS.84,514/- OUT OF INTEREST EXPENDITURE. THE ASSESS EE HAS CLAIMED DEDUCTION OF INTEREST OF RS.89,132/- AGAINST INTERE ST INCOME SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES. DURING THE YEAR THE ASSESSEE HAS EARNED TAX FREE DIVIDEND OF RS.1,30,96 0/- OF UTI MIP 99 AND HDFC BOND AGAINST INVESTMENT OF RS.13,00,000 /- IN THESE TWO SCHEMES. THE ASSESSEE HAS ALSO GIVEN INTEREST F REE ADVANCES TO FAMILY MEMBERS. THE AO FOUND THAT ON 31-03-2002, TH ERE WAS A DEBIT BALANCE OF RS.7,78,093/- IN THE ACCOUNT OF SMT. BEL ABEN B. SHAH, WIFE OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ASS ESSEE HAS NOT ADVANCED ANY MONEY TO THE FAMILY MEMBERS. IT WAS EX PLAINED THAT INVESTMENT IN THE TAX FREE BONDS WERE MADE OUT OF P ERSONAL SAVINGS. IT WAS ALSO EXPLAINED THAT INVESTMENTS WERE MADE IN THE YEARS 1999 AND 2000. THE AO FURTHER NOTED THAT THERE WAS A DEB IT BALANCE AGAINST HUF FOR WHICH NO INTEREST HAS BEEN CHARGED. THE AO ALSO NOTED THAT INVESTMENT IN THE TWO SCHEMES OUT OF PER SONAL SAVINGS IS NOT SUPPORTED BY ANY EVIDENCE. DISALLOWANCE WAS ACC ORDINGLY MADE U/S 14 A OF THE IT ACT. SAME SUBMISSIONS WERE REITE RATED BEFORE THE LEARNED CIT(A). IT WAS ALSO EXPLAINED THAT THE ASSE SSEE HAS HIS OWN CAPITAL OF RS.127.07 LACS. THE ASSESSEE HAD BORROWE D A SUM OF RS.25.26 LACS AS AGAINST THIS ON 31-03-2002, THE DE BIT BALANCE IN THE ACCOUNT OF HIS WIFE STOOD AT RS.7.78 LACS AND THERE WAS TAX FREE INVESTMENT OF RS.13.00 LACS. IT WAS, THEREFORE, EXP LAINED THAT INTEREST ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 38 FREE FUNDS IN THE FORM OF CAPITAL ARE SUBSTANTIALLY HIGHER THAN THE LOANS ADVANCED TO THE WIFE AND TAX FREE INVESTMENT. THE L EARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSES SEE AND NOTED HAT PROPORTIONATE INTEREST IN RESPECT OF BANK DEPOSIT I S ALLOWABLE AS DEDUCTION AND ACCORDINGLY HE REDUCED THE ADDITION T O RS.84,514/-. 16. THE LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UT ILITIES AND POWER LTD. 313 ITR 340 AND THE DECISION OF THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLE S 323 ITR 518 AND ALSO UNREPORTED DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT POWER CORPORATION LTD. IN TA X APPEAL NO.1587/2009 DATED 28-03-2011. HE HAS SUBMITTED THA T NO BORROWING HAS BEEN USED AND SUFFICIENT CAPITAL BALANCE WAS WI TH THE ASSESSEE, THEREFORE, ADDITION U/S 14A OF THE IT ACT IS CLEARL Y UNJUSTIFIED. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 34 0 HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FU NDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR L OANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION WAS ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 39 ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. 17.1 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES 323 ITR 518 HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTERE ST AND THE INVESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF T HIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, WAS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTL8Y OR INDIRECTLY SOME EXPENDITURE WAS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLI FY THE MANDATE OF SECTION 14A, COULD NOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THA T FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. 17.2 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT POWER CORPORATION LTD. (SUPRA) HELD AS UNDER: HAVING THUS HEARD LEARNED COUNSEL FOR BOTH SIDES AND HAVING PERUSED THE ORDERS ON RECORD, WE FIND TH AT IN THE PRESENT CASE ASSESSEE HAD SUFFICIENTLY EXPLAINED ITS INVESTMENT FOR BORROWED FUNDS POINTIN G OUT THAT LOAN WAS OBTAINED IN ASSESSMENT YEAR 1997- 1998 AND ITS MAJORITY OF THE INVESTMENT FOR TAX FRE E SECURITY WERE MADE BEFORE THE SAID PERIOD. ONLY A ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 40 SMALL PORTION OF INVESTMENT WAS MADE SUBSEQUENTLY. ASSESSEE HAD DEMONSTRATED THAT IT HAD OTHER SOURCES OF INVESTMENT AND THAT THEREFORE, ACCORDING TO THE ASSESSEE NO PART OF THE BORROWED FUND COULD BE STATED TO HAVE BEEN DIVERTED TO EARN TAX FREE INCOM E. WHEN CIT(APPEALS) AND TRIBUNAL BOTH ON FACTS IN THE PRESENT CASE FOUND THAT ASSESSEE DID NOT INVEST BORROWED FUND FOR EARNING INTEREST FREE INCOME, WE ARE OF THE VIEW THAT NOT APPLYING PROVISION OF SECT ION 14A OF THE ACT FOR TAXING SUCH INTEREST WAS JUSTIFI ED. NO QUESTION OF LAW THEREFORE, IS ARISING FOR OUR CONSIDERATION. THE ASSESSEE EXPLAINED BEFORE THE AUTHORITIES BELOW THAT THE ASSESSEE HAD SUFFICIENT BALANCES WITH HIM AND INVES TMENTS IN TAX FREE SECURITIES WERE MADE IN EARLIER YEARS. IT WAS ALSO EXPLAINED THAT NO PART OF THE BORROWED FUNDS HAVE BEEN USED TO EARN T AX FREE INCOME. THE AUTHORITIES BELOW INSTEAD OF EXAMINING THE ISSU E IN PROPER PERSPECTIVE HAVE MERELY CONFIRMED THE DISALLOWANCE U/S 14A OF THE IT ACT. THEREFORE, THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUT HORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIREC TION TO RE-DECIDE THIS ISSUE CONSIDERING THE FACTS OF THE CASE IN THE LIGH T OF THE ABOVE DECISIONS. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, THIS GR OUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. ON GROUND NO.8, THE ASSESSEE CHALLENGED THE ORD ERS OF THE AUTHORITIES BELOW IN NOT ALLOWING THE ENTIRE CLAIM OF DEDUCTION U/S 80L OF THE IT ACT. IT HAS BEEN STATED BY THE AO THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS SHOWN NEGATIVE INCOME FROM INTEREST ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 41 UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO ACCORDINGLY DISALLOWED DEDUCTION U/S 80L OF THE IT ACT. HOWEVER , SINCE INTEREST CLAIMED OF RS.89,132/- HAD BEEN DISALLOWED BY THE A O, THE RESULTANT INCOME HAS BECOME POSITIVE, THE AO, THEREFORE, ALLO WED DEDUCTION U/S 80L OF THE IT ACT OF RS.9,000/-. THE LEARNED CI T(A) RESTRICTED THE DISALLOWANCE OF INTEREST TO RS.84,514/-. RESULTANTL Y, INTEREST INCOME IS, THEREFORE, POSITIVE; THEREFORE, APPEAL OF THE A SSESSEE WAS DISMISSED. SINCE, THE FINDINGS ON THIS ISSUE ARE BA SED ON THE FINDINGS TO BE GIVEN ON GROUND NO.7 ABOVE ON WHICH THE MATTE R HAS BEEN RESTORED TO THE FILE OF THE AO, WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE ALSO T O HIS FILE WITH DIRECTION TO RE-DECIDE THE SAME AFRESH BY GIVING RE ASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICA L PURPOSES. 19. GROUND NO.9 OF THE APPEAL OF THE ASSESSEE IS GE NERAL IN NATURE AND IS REJECTED. GROUND NO.10 OF THE APPEAL OF THE ASSESSEE IS FOR CHARGING OF INTEREST WHICH IS MANDATORY AND CONSEQU ENTIAL IN NATURE AND IS REJECTED. GROUND NO.11 OF THE APPEAL OF THE ASSESSEE IS FOR INITIATION OF PROCEEDINGS U/S 271 (1) (C) OF THE IT ACT WHICH IS SEPARATE PROCEEDINGS. THE SAME IS PREMATURE AND IS REJECTED. IN THE RESULT, THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISS ED. ITA NO.1338/AHD/2006 SHRI DUSHYANT K. SHAH VS ITO, WARD 5(4), BARODA 42 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29-04-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29-04-2011 LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD