Shri Jawaharlal P. Mehta, Nashik V. DCIT, Cir.-3, Malegaon

ITA 1463/PUN/2008

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72408 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 27-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 12-11-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Business income; Transactions in derivatives; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 1463/PN/2008 (ASSTT.YEAR : 2005-06) JAWAHARLAL P. MEHTA, BHAMRE BUILDING, CAMP ROAD, MALEGAON CAMP-423105 .. APPELLANT PAN NO.ABFPM6605H VS. DCIT, CIRCLE-3, MALEGAON .. RESPONDENT APPELLANT BY : SHRI SUNIL PATHAK RESPONDENT BY : SHRI P.L. PATHADE DATE OF HEARING : 27-11-2013 DATE OF PRONOUNCEMENT : 29-11-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29-08-2008 OF THE CIT(A)-II, NASHIK RELATING TO ASS ESSMENT YEAR 2005-06. 2. THIS APPEAL WAS EARLIER DISMISSED BY THE TRIBUNA L FOR NON- APPEARANCE. SUBSEQUENTLY, THE TRIBUNAL VIDE M.A. N O.114/PN/2010 ORDER DATED 28-07-2010 RECALLED ITS EARLIER ORDER. HENCE , THIS IS A RECALLED MATTER. 3. ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE THEY ALL RELATE TO THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN TREATING THE SHORT TERM CAPITA L GAIN OF RS.43,42,526/- AND LONG TERM CAPITAL GAIN OF RS.1,28,855/- AS INCO ME FROM BUSINESS. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND FILED HIS RETURN OF INCOME ON 09-08-2005 DECLARING TOTAL INCOME AT RS.32,90,859/-. THE INCOME OF THE ASSESSEE CONSIST ED OF INCOME FROM LONG 2 TERM CAPITAL GAIN ON SALE OF SHARES APART FROM DECL ARING INCOME FROM BROKERAGE AND COMMISSION AND INCOME FROM OTHER SOUR CES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER NOTED THAT THE ASSESSEE HAS TRANSACTED IN SHARES OF SEVERAL COMPAN IES DURING THE IMPUGNED ASSESSMENT YEAR. CONSIDERING THE FREQUENCY AND MAG NITUDE OF THE SHARE TRANSACTIONS THE ASSESSING OFFICER ASKED THE ASSESS EE TO EXPLAIN AS TO WHY THE INCOME DECLARED ON ACCOUNT OF SHORT TERM CAPITA L GAIN AND LONG TERM CAPITAL GAIN SHOULD NOT BE TREATED AS BUSINESS INCO ME. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SHARES WERE HELD AS INVESTMEN T AND NOT AS STOCK IN TRADE. IT WAS NOT THE INTENTION OF THE ASSESSEE TO DEAL IN SHARES AND THERE WAS NO PROFIT EARNING MOTIVE. VARIOUS DECISIONS WE RE CITED BY THE ASSESSEE TO THE PROPOSITION THAT THE INCOME FROM PURCHASE AN D SALE OF SHARES WAS NOT BUSINESS INCOME AND HAS TO BE TREATED AS LONG T ERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN AS THE CASE MAY BE. 5. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE DISTINGUISHE D THE VARIOUS DECISIONS CITED BY THE ASSESSEE. RELYING ON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. H HOLCK LARSEN REPORTED IN 1 60 ITR 67 AND THE DECISION IN THE CASE OF G. VENKATASWAMI NAIDU AND C OMPANY VS. CIT REPORTED IN 35 ITR 594 THE ASSESSING OFFICER TREATE D THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN DECLARED BY THE ASS ESSEE AS BUSINESS INCOME. 6. BEFORE THE CIT(A) IT WAS ARGUED THAT THE ASSESSE E IS AN INVESTOR IN SHARES AND SECURITIES FOR LAST SEVERAL YEARS AND AL L THE INVESTMENTS WERE STRICTLY DELIVERY BASED AND THE ASSESSEE NEVER INDU LGED IN TRADING IN F&O 3 SEGMENT. MOST OF THE SHARES WERE ACQUIRED IN THE E ARLIER YEARS AS INVESTMENT AND THE SAME WERE ACCEPTED BY THE DEPART MENT AND THE GAINS ON ACCOUNT OF SHARES SHOULD BE ASSESSED AS CAPITAL GAI NS. IT WAS SUBMITTED THAT THE EARNING OF HUGE DIVIDEND BY THE ASSESSEE CLEARL Y PROVES THAT THE INTENTION WAS TO INVEST IN SHARES AND THE SHARES WE RE TREATED AS ASSETS AND NOT AS STOCK IN TRADE. REFERRING TO CIRCULAR NO.4/ 2007 DATED 15-06-2007, IT WAS SUBMITTED THAT THE FREQUENCY OF TRANSACTIONS CA NNOT BE THE ONLY CRITERIA FOR DETERMINING THE NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE. IT WAS SUBMITTED THAT THE ASSESSEE IS A RETIRED PERSON AND HAS NO PROFIT MOTIVE WHILE MANAGING THE INVESTMENT PORTFOLIO. HE DOES N OT HAVE ANY INFRASTRUCTURE FOR DOING BUSINESS. THE VALUATION O F THE SHARES WAS ALSO DONE AT COST AS PER ACCOUNTING STANDARD ISSUED BY I CAI. THE SAME METHOD OF ACCOUNTING EVEN BEFORE INTRODUCTION OF SECURITIE S TRANSACTION TAX WAS BEING FOLLOWED. IT WAS SUBMITTED THAT THE ASSESSEE HAS SPREAD THE RISK OVER A NUMBER OF STOCKS INSTEAD OF FEW SCRIPS AND DID NO T INDULGE IN ANY ADVENTURE IN THE NATURE OF TRADE OR TAKE ANY UNNECE SSARY RISK. FINALLY, IT WAS ARGUED THAT NO SINGLE PRINCIPLE SHOULD BE APPLI ED WHICH WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE TRANSACTIO NS SHOULD BE TAKEN INTO CONSIDERATION TO DETERMINE WHETHER IN A GIVEN CASE THE SHARES WERE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. VARI OUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE CIT(A) TO THE PROPOSIT ION THAT THE INCOME DECLARED BY THE ASSESSEE CANNOT BE TREATED AS BUSIN ESS INCOME. 6.1 ON THE BASIS OF THE VARIOUS ARGUMENTS ADVANCED BEFORE HIM THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSES SING OFFICER. AFTER CONSIDERING THE REMAND REPORT AND THE OBJECTIONS OF THE ASSESSEE TO SUCH REMAND REPORT THE LD.CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER IN 4 TREATING THE INCOME FROM PURCHASE AND SALE OF SHAR ES AS BUSINESS INCOME AS AGAINST LONG TERM AND SHORT TERM CAPITAL GAIN DECLA RED BY THE ASSESSEE. 6.2 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO PA GE 6 OF THE PAPER BOOK DREW THE ATTENTION OF THE BENCH TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31-03-2005 AND THE BALANCE SHEET AS ON 31-03-2005. REFERRING TO THE SAME HE SUBMITTED THAT THE ASSESSEE HAS A CA PITAL OF RS.1.47 CRORES AND HAS A MEAGRE BANK LOAN OF RS.19.93 LAKHS. AS A GAINST THIS, THE ASSESSEE HAS SHOWN SHARES TO THE TUNE OF RS.1.83 CRORES. TH US, THE LOAN OBTAINED BY THE ASSESSEE IS LESS THAN 15% OF THE TOTAL CAPITAL. REFERRING TO THE SAID PAGE HE SUBMITTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.5,30,980/- WHICH IS MORE THAN 10% OF THE NET PROFIT DECLARED A T RS.42,40,838/-. HE SUBMITTED THAT FROM 1981 ONWARDS THE ASSESSEE IS IN VESTING IN SHARES AND THE DEPARTMENT HAS NEVER DISPUTED THE FACT THAT THE ASSESSEE IS AN INVESTOR AND NOT A TRADER. HE SUBMITTED THAT WHEN THE TAX R ATE WAS HIGHER THE ASSESSEE USED TO PAY TAX AT THE HIGHER RATE AND ONL Y DURING THE YEAR BECAUSE OF THE CHANGE IN LAW THE TAX RATE IS LOWER IN CASE OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. REFERRING TO THE SUBMI SSION FILED BEFORE THE CIT(A) ON 10-04-2007 (A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 30 TO 43) THE LD. COUNSEL FOR THE ASSESSEE DREW THE AT TENTION OF THE BENCH TO PARA 13, 14 AND 17 OF THE SAID LETTER WHICH READ AS UNDER : 13. THE ASSESSEE HAS BEEN DOING THE INVESTMENT ACTIVITIE S SINCE 1981 AND DISCLOSED THE SHARES, DEBENTURES AS INVESTMENT IN THE BALANCE SHEET CONSISTENTLY SINCE THEN. THE VALUATION OF THE SHARES IS ALSO DONE AT COST WHICH IS APPROPRIATE AS PER ACCOUNTING STANDARD-2 ISSUE D BY ICAI. IN CASE OF STOCK IN TRADE THE VALUATION IS DONE AT COST OR MAR KET VALUE WHICHEVER IS LESS. THIS STYLE OF VALUATION IS NOT DONE IN CASE OF ASSESSE E. HE HAS 5 CONSISTENTLY FOLLOWED THE SAME METHOD OF VALUATION OVE R A PERIOD AND THERE IS NO CHANGE IN THE VALUATION. 14. THE ASSESSEE IS A RETIRED SENIOR PERSON AND DOES EVERYT HING TO MAINTAIN AND PROTECT THE INVESTMENT FROM THE VOLATIL ITY IN THE MARKET. IN MANY TIMES DUE TO FEAR OF LOSS, HE WAS COMPELLED TO SEL L THE SHARES IN A SHORT PERIOD THOUGH THE INTENTION WAS ALWAYS TO KEEP THE SHA RES FOR A LONG TERM BASIS. 17. IN OCTOBER, 2004, THE SECURITY TRANSACTION TAX ( STT) WAS INTRODUCED BY THE MINISTRY OF FINANCE ON THE SALE AND PURCHASE OF STOCKS THROUGH STOCK EXCHANGE AND THE SHORT TERM CAPITAL GAIN TAX WAS REDU CED FROM 30% TO 10%. THE ASSESSEE HAS SHOWN THE TRANSACTIONS AS EITHER LON G TERM OR SHORT TERM CAPITAL GAIN IN THE PERIOD WHEN THE TAX ON SHOR T TERM CAPITAL GAIN WAS 30%. HE HAS NOT CHANGED ANY METHOD OF CALCULATION O F TAX EVEN IN CASE OF HIGH TAX ON CAPITAL GAIN IN EARLIER YEARS BEFORE OCT .2004. THIS HAS BEEN ACCEPTED IN EARLIER YEARS. REFERRING TO PAGES 58 TO 83 OF THE PAPER BOOK THE L D. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE DET AILS OF SALE AND PURCHASE OF SHARES GIVING THE DETAILS OF SHARES PURCHASED AN D SOLD WITHIN 30 DAYS, PURCHASED AND SOLD WITH HOLDING PERIOD OF LESS THAN 2 MONTHS, SHARES PURCHASED AND SOLD WITH HOLDING PERIOD OF MORE THAN 60 DAYS AND LESS THAN 365 DAYS. 7.1 REFERRING TO THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. GOPAL PUROHIT REPORTED IN 336 ITR 287 HE SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMSTANCES THE HONBLE HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL IN TREATING THE INCOME FRO M PURCHASE AND SALE OF SHARES AS LONG TERM CAPITAL GAIN AND SHORT TERM CAP ITAL GAIN AND NOT AS BUSINESS INCOME. REFERRING TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MANAGEMENT STRUCTURE AND SY STEMS PVT. LTD. VS. ITO VIDE ITA NO.6966/MUM/2007 ORDER DATED 30-04-201 0 HE SUBMITTED THAT THE TRIBUNAL AFTER FOLLOWING THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF CIT VS. H HOLCK LARSEN HAS HELD THAT WH ETHER THE ACTIVITY OF BUYING AND SELLING OF SHARES IS IN NATURE OF TRADE OR INVESTMENT IS A MIXED 6 QUESTION OF LAW AND FACT. AFTER CONSIDERING THE FA CTS IN THAT CASE THAT THE ASSESSEE HAS TREATED THE ENTIRE INVESTMENT IN SHARE S AS INVESTMENT AND NOT AS STOCK IN TRADE AND CONSIDERING THE FACT THAT THE AS SESSEE WAS NOT A SHARE BROKER AND THAT THE ASSESSEE HAS RECEIVED SUBSTANTI AL DIVIDEND THE PROFIT FROM TRANSACTION OF SALE AND PURCHASE OF SHARES WAS HELD AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. 7.2 REFERRING TO THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. CHHATARMAL GOKULCHAND CHHAJER VIDE ITA NO.699/PN/2012 ORDER DATED 28-10-2013 HE SUBMITTED THAT AFTER CONS IDERING THE VOLUME OF TRANSACTION OF SHARES, PERIOD OF HOLDING, INTENTION OF ASSESSEE, USE OF BORROWED FUNDS, MAGNITUDE OF PURCHASE AND SALE OF S HARES, TREATMENT OF THE SHARES IN THE BALANCE SHEET AS INVESTMENT AND THE M ETHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE THE TRIBUNAL UPHELD THE AC TION OF THE CIT(A) IN TREATING THE PROFIT FROM PURCHASE AND SALE OF SHARE S AS CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY THE ASSESSING OF FICER. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF BALDEVSING SANTSINGH WAHI (HUF) VS. DCIT AND OTHER CONNECTED A PPEALS VIDE ITA NOS.80 & 1331/PN/2011 ORDER DATED 22-03-2013 THE LD . COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PARA 11 OF THE SAID ORDER AND SUBMITTED THAT UNDER IDENTICAL FACTS AND CIRCUMSTAN CES THE TRIBUNAL HAS TREATED THE PROFIT FROM PURCHASE AND SALE OF SHARES AS CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY THE ASSESSING OFFICER. 7.3 REFERRING TO THE DECISION OF THE MUMBAI BENCH O F THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA VS. ACIT REPORTED IN 11 SOT 627 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THA T THE MERE MAGNITUDE OF 7 THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANS ACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST S EVERAL YEARS. HE SUBMITTED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE M UMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. SMK SHARES & STOCK BROKING PVT. LTD. VIDE ITA NO.799/MUM/2009 ORDER DATED 24-11-2010 FOR A.Y. 2005-06. THE LD. COUNSEL FOR THE ASSESSEE HOWEVER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAS EXPRESSE D HIS NO OBJECTION TO CONSIDER THE SHARE TRANSACTIONS OF THE SHORTEST PER IOD TO BE INCOME FROM BUSINESS INCOME, THEREFORE, HE HAS NO OBJECTION IF PROFIT TO THE TUNE OF RS.4,22,935.76 EARNED BY THE ASSESSEE FROM PURCHASE AND SALE AND SHARES WITH HOLDING PERIOD OF LESS THAN 1 MONTH IS TREATED AS BUSINESS INCOME. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO PA RA 4.4. OF THE ORDER OF THE CIT(A) HE SUBMITTED THAT THE LD.CIT(A) HAS THOROUGH LY DISCUSSED THE ISSUE AND FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G. VENKATASWAMI NAIDU & CO. (SUPRA) HAS UPHELD THE ACT ION OF THE ASSESSING OFFICER. HE ACCORDINGLY SUBMITTED THAT THE ORDER O F THE CIT(A) BE UPHELD AND THE GROUNDS RAISED BY THE ASSESSEE BE DISMISSED . 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE WHO IS A RETIRED EMPLOYEE, HAS INDULGED IN PURCHASE AND SALE OF SHARES OF A NUMBER OF SCRIPS OF VARIOUS COMPANIES. DUE TO THE VOLUME, FREQUENCY, REPETITIVENESS AND UTILISATION OF BORROWED FUNDS FO R PURCHASE OF SHARES THE 8 ASSESSING OFFICER CONSIDERED THE INCOME FROM PURCHA SE AND SALE OF SHARES AS BUSINESS INCOME AS AGAINST LONG TERM AND SHORT T ERM CAPITAL GAIN DECLARED BY THE ASSESSEE WHICH HAS BEEN UPHELD BY T HE CIT(A). 9.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS SHOWING THE SHARES AS INVESTMENT IN THE BALANCE SHEET, HE IS NOT A TRADER IN SHARES, HE WAS PAYING HIGHER TAX ON CAP ITAL GAIN ON ACCOUNT OF PURCHASE AND SALE OF SHARES IN THE PAST AND THE DEP ARTMENT HAS NEVER TREATED THE ASSESSEE AS A TRADER. IT IS ALSO THE SUBMISSIO N OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DIVIDEND INCOME OF RS.5,30,980/- OUT OF THE TOTAL INCOME OF RS.42,40,838/- WHICH IS MORE THAN 10% OF THE TOT AL INCOME SHOWS THAT THE ASSESSEE IS BASICALLY AN INVESTOR AND NOT A TRA DER. 9.2 WE FIND SOME FORCE IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. IT IS NOW THE SETTLED PROPOSITION OF LAW THAT WHETHER THE ACTIVITY OF BUYING AND SELLING OF SHARES IS IN THE NATURE OF TRADE OR INVESTMENT IS A MIXED QUESTION OF LAW AND FACT AND EVERY CASE DEPEN DS ON ITS OWN SETS OF FACTS. IN THE INSTANT CASE, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS SHOWN LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN ON ACCOUNT OF PURCHASE AND SALE OF SHARES SINCE LAST SO MANY YEAR S WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THE SUBMISSION OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE SHARES HAVE BEEN VALUED AT COST AND NOT AT COST OR MARKET VALUE, WHICHEVER IS LESS HAS NOT BEEN CONTRO VERTED BY THE REVENUE. IN OUR OPINION, MERE MAGNITUDE OF THE TRANSACTION D OES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. 9 9.3 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MANAGEMENT STRUCTURE AND SYSTEMS PVT. LTD. (SUPRA) HAS HELD AS UNDER : 15. WE HAVE GIVEN OUR SERIOUS CONSIDERATIONS TO T HE DIFFERENT PRECEDENTS RELIED ON BY THE A.O IN THE ASSESSMENT ORDER, BUT IN OU R OPINION, THE PRINCIPLES LAID DOWN IN THOSE DECISIONS CANNOT BE APP LIED TO THE ASSESSEE'S CASE TO SAY THAT THE ACTIVITY OF THE ASSESSEE BUYIN G AND SELLING OF THE SHARES AMOUNT TO TRADING ACTIVITY. IT IS WELL SETTLED PRI NCIPLE AS HAS HELD IN THE CASE OF H. HOLSCK LARZEN (SUPRA) THAT WHETHER THE ACTIVITY OF BUYING AND SELLING OF THE SHARES IS IN THE NATURE OF TRADE AND INVESTMENT. I T IS A MIXED QUESTION OF LAW AND FACT. IN THIS CASE, WE HAVE PERUSED THE BALANCE SH EET FILED BY THE ASSESSEE AND AS PER THE BOOKS OF ACCOUNT, THE ASSESSEE HAS TREATED THE ENTIRE INVESTMENT IN THE SHARES AS AN INVESTMENT ONLY AND NOT AS A STOCK IN TRADE. ANOTHER IMPORTANT ASPECT TO BE CONSIDERED HERE IS THE ASSESSEE IS NOT A SHARE BROKER NOR HE IS HAVING A REGISTRATION WITH ANY STOCK EXCHANGE. MOR EOVER, SOME SCRIPTS ARE HELD FOR MORE THAN FIVE YEARS AND IT IS NOT A CASE OF TH E A.O THAT THERE WERE ANY DERIVATIVE TRANSACTIONS BY THE ASSESSEE NOR IS IT A CASE OF THE A.O THAT THERE WERE TRANSACTIONS WITHOUT ANY DELIVERY. IN THE PRESENT C ASE, BOTH THE AUTHORITIES HAVE NOT DISPUTED THAT THE TRANSACTIONS ARE COMPLET ED WITH THE DELIVERY. THE INTENTION OF THE ASSESSEE CANNOT BE READ FROM HIS M IND BUT IT REFLECTS IN ITS CONDUCT, THE WAY HE TREATS THE TRANSACTIONS. THE AS SESSEE HAS NOT BORROWED ANY MONEY FOR INVESTING IN SHARES AND USED HIS OWN SURP LUS FUNDS AND THESE FACTS HAVE NOT BEEN DISPUTED BY THE A.O. THE PROPOSITION HAS B EEN ACCEPTED BY THE BOARD ALSO IN CIRCULAR NO. 4/ 2007 THAT THE ASSESSEE IS ENTITL ED TO MAINTAIN TWO PORTFOLIOS. IN THE CASE OF THE ASSESSEE, IN THE PRECEDING YEARS, THE ASSESSEE IS CONSISTENTLY DECLARING THE GAIN/PROFIT ON THE SALE OF THE SHARES UNDER THE HEAD 'CAPITAL GAIN' EITHER LONG TERM AND SHORT TERM AND THE SAME HAS BEEN ACCEPTED BY THE A.O. IT IS TRUE THAT THE RULE OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS, BUT AT THE SAME TIME, IT IS ALSO W ELL SETTLED PRINCIPLES THAT IF THERE IS NO CHANGE IN THE FACTS, THEN, THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE REVENUE AUTHORITIES WHILE DECIDING THE TAX LIABILITY OF THE ASSESSEE. 16. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT T HE ASSESSEE HAS RECEIVED THE SUBSTANTIAL DIVIDEND AND THAT IS ALSO DISCLOSED . AFTER CONSIDERING THE TOTALITY OF THE FACTS, WE ARE OF THE OPINION THAT THE TRANSA CTIONS OF SALE AND PURCHASE OF THE SHARES BY THE ASSESSEE CANNOT BE TREATED IN THE LIN E OF TRADING IN THE SHARES NOR IT CAN BE TREATED AS AN ADVENTURE IN THE NATURE OF THE TRADE. FOR THE REASONS GIVEN HEREIN-ABOVE, WE HOLD THAT THE ENTIRE INCOME FROM T HE SALE AND PURCHASE OF THE SHARES IS TO BE ASSESSED UNDER THE HEAD 'CAPITAL GA IN' AS RIGHTLY DECLARED BY THE ASSESSEE EITHER LONG TERM CAPITAL GAIN (LTCG) OR SH ORT TERM CAPITAL GAIN (STCG) DEPENDING UPON THE PERIOD OF HOLDING, WE, TH EREFORE, DIRECT THE A.O TO ACCEPT THE CAPITAL GAINS DECLARED BY THE ASSESSEE FROM T HE SALE OF THE SHARES AND ACCORDINGLY, SET ASIDE THE ORDER OF THE LD CIT( A). 9.4 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA (SUPRA) AT PARA 7 OF THE ORDER HAS OBSER VED AS UNDER : 7. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTE D BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIO NS OF SALE AND 10 PURCHASE OF SHARES IN THE PROCEEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASIS. T HE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERITS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOL D THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRAD E. 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 AO IS DIRECTED TO SET OFF THE LONG-TE RM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAIN OF THE YEAR UNDER CONSID ERATION. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 9.5 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GOPAL PUROHIT (SUPRA) HAS HELD AS UNDER : 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSAC TIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS (DESCRIBED I N PARA 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SH ARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARE S. THE TRIBUNAL HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED EITHER AS SHORT-TERM OR, AS THE CASE MAY BE, LONG-TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF TH E HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARD S THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE O THER HAND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 3. INSOFAR AS QUESTION (B) IS CONCERNED, THE TRIBUNA L HAS OBSERVED IN PARA 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLO WED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER O F KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHO ULD BE TAKEN ,FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES J UDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CO RRECTLY ACCEPTED THE POSITION THAT THE PRINCIPLE OF RES JUDICATA IS NOT AT TRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HE LD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FAC TS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE O F THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVE NUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION. 9.6 SINCE THE FACTS OF THE INSTANT CASE ARE IDENTIC AL TO THE FACTS OF THE CASES CITED ABOVE, THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISIONS CITED (SUPRA) AND CONSIDERING THE TOTALITY OF THE FACTS O F THE CASE, WE ARE OF THE 11 CONSIDERED OPINION THAT THE INCOME FROM PURCHASE AN D SALE OF SHARES BY THE ASSESSEE HAS TO BE TREATED AS INCOME FROM SHORT TER M CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE AS AGAINST BUS INESS INCOME TREATED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A). HO WEVER, SINCE THE ASSESSEE HAS AVAILED SOME BORROWED FUNDS AND HAS SU BMITTED BEFORE THE ASSESSING OFFICER THAT HE HAS NO OBJECTION TO CONSI DER THE PROFITS FROM SHARE TRANSACTION OF THE SHORTEST PERIOD TO BE INCO ME FROM BUSINESS, THEREFORE, WE HOLD THAT THE INCOME FROM PURCHASE AN D SALE OF SHARES WITH HOLDING PERIOD OF LESS THAN 30 DAYS AT RS.4,22,935. 76 (THE DETAILS OF WHICH ARE FILED AT PAPER BOOK 58 TO 62) SHOULD BE TREATED AS BUSINESS INCOME. THE REMAINING AMOUNT HAS TO BE TREATED AS LONG TERM CAP ITAL GAIN OR SHORT TERM CAPITAL GAIN AS THE CASE MAY BE. THE ORDER OF THE CIT(A) IS MODIFIED TO THIS EXTENT AND THE GROUNDS RAISED BY THE ASSESSEE ARE P ARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29-11-2013. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 29 TH NOVEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-II, NASHIK 4. THE CIT-II, NASHIK 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE