NALIN PRAVIN SHAH, MUMBAI V. ADDL CIT CIR 14(1), MUMBAI

ITA 1575/MUM/2012

• Counselvise Citation: 157519914 RSA 2012
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH BARE
• Assessee Lawyers: S C TIWARI; NATASHA MANGAT
• Keywords: Capital asset; Business income; Transactions in derivatives; Question of law
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND RAJENDRA (AM) . . , , I.T.A.NOS.1575/MUM/2012 ( / ASSESSMENT YEAR:2007-08) SHRI NALIN PRAVIN SHAH. 95/B, MEGHDOOT, NS ROAD, MARINE DRIVE, MUMBAI 400 002 / VS. A DDL. COMMISSIONER OF INCOME TAX CIRCLE-14(1), 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI- 400021 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. : AAHPS3860K I.T.A.NOS.1594/MUM/2012 ( / ASSESSMENT YEARS:2007-08) SHRI MANAN NALIN SHAH. 95/B, MEGHDOOT, NS ROAD, MARINE DRIVE, MUMBAI 400 002 / VS. A DDL. COMMISSIONER OF INCOME TAX CIRCLE-14(1), 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI- 400021 ( & / APPELLANT) .. ( ' & / RESPONDENT) ./ ./PAN/GIR NO. ABOPS2030F & / APPELLANT BY SHRI S.C. TIWARI & NATASHA MANGAT ' & * /RESPONDENT BY SHRI GANESH BARE (DR) * - / DATE OF HEARING : 10.12.2013 * - / DATE OF PRONOUNCEMENT : 10.01.2014 ITA. NOS.1575&1594/MUM/2012 2 / O R D E R PER B.R.MITTAL, JM: THESE APPEALS ARE FILED BY TWO ABOVE NAMED ASSESSE ES AGAINST SEPARATE ORDERS OF LD. CIT(A), BOTH DATED 31.01.2012 RELATI NG TO ASSESSMENT YEAR 2007-08. SINCE FACTS AND ISSUES INVOLVED IN THESE APPEALS ARE COM MON, WE HAVE HEARD THESE APPEALS TOGETHER AND ARE BEING DECIDED BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1575/M/2012 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER : 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS)} HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN ASSESSI NG SHORT TERM CAPITAL GAINS OF RS.83,14,515/- & LONG TERM CAPITAL GAIN OF RS.70,39 ,652/- EARNED BY THE APPELLANT ON SALE OF SHARES AND SECURITIES THROUGH PORTFOLIO MANAGEMENT SERVICES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION . ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE AFORESAID SUM OUGHT TO BE ASSESSED AS CAPITAL GAINS. 2. LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTIO N OF THE AO IN ASSESSING SHORT TERM CAPITAL GAINS OF RS.36,08,276/- & LONG T ERM CAPITAL GAIN OF RS.2,98,36,506/- EARNED BY THE APPELLANT ON SALE OF SHARES AND SECURITIES CARRIED OUT INDEPENDENTLY UNDER THE HEAD INCOME FROM BUSIN ESS OR PROFESSION. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AFO RESAID SUM OUGHT TO BE ASSESSED AS CAPITAL GAINS. 3. WHILE CONFIRMING THE ACTION OF THE AO IN TREATIN G THE INCOME IN RESPECT OF AMOUNT INVESTED UNDER THE PMS SCHEME AS BUSINESS IN COME, LEARNED CIT(A) HAS ERRED IN HOLDING/OBSERVING THAT: A. THE PORTFOLIO MANAGER IS KEEPING THE RECORD OF T HE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS STOCK IN TRADE. B. TRANSACTION IN F&O SCHEME IS SHOWN BY THE ASSESS EE AS INVESTMENT. C. INVESTMENT IN SURPLUS FUNDS BY PMS MANAGER IN LI QUID FUND RESULTS IN ACTIVITY OF PMS BEING TREATED AS BUSINESS ACTIVITY CONFIRMATION OF THE ACTION OF THE AO ON THE BASIS O F ABOVE OBSERVATION BEING CONTRARY TO FACTS OF THE CASE OUGHT TO BE DELETED. 4. WHILE CONFIRMING THE ACTION OF THE AO IN TREATIN G THE INCOME IN RESPECT OF AMOUNT INVESTED DIRECTLY THE ASSESSEE AS BUSINESS I NCOME, LEARNED CIT(A) HAS ERRED IN HOLDING/OBSERVING THAT: A. THE APPELLANT HAS CONVERTED SHARES OF FINANCIAL TECHNOLOGIES AND HENKEL SPIC FROM INVESTMENTS TO STOCK IN TRADE ITA. NOS.1575&1594/MUM/2012 3 CONFIRMATION OF THE ACTION OF THE AO ON THE BASIS O F ABOVE OBSERVATION BEING CONTRARY TO FACTS OF THE CASE OUGHT TO BE DELETED ITA NO.1594/M/2012 GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE AS UN DER : 1. LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN ASSESSING SHORT TERM CAPITAL GAINS OF RS.72,37,836/ - & LONG TERM CAPITAL GAIN OF RS.66,22,923/- EARNED BY THE APPELLANT ON SALE OF S HARES AND SECURITIES THROUGH PORTFOLIO MANAGEMENT SERVICES(PMS SCHEME) UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. ON THE FACTS AND IN CIRCUM STANCES OF THE CASE, THE AFORESAID SUM OUGHT TO BE ASSESSED AS CAPITAL GAIN S. 2. LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTIO N OF THE AO IN ASSESSING SHORT TERM CAPITAL GAINS OF RS.54,22,834/- & LONG T ERM CAPITAL GAIN OF RS.1,04,97,199/- EARNED BY THE APPELLANT ON SALE OF SHARES AND SECURITIES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE AFORESAID SUM OUGHT TO BE ASSESSED AS CAPITAL GAINS. 3. WHILE CONFIRMING THE ACTION OF THE AO IN TREATIN G THE INCOME IN RESPECT OF AMOUNT INVESTED UNDER THE PMS SCHEME AS BUSINESS IN COME, LEARNED CIT(A) HAS ERRED IN HOLDING/OBSERVING THAT: A. THE PORTFOLIO MANAGER IS KEEPING THE RECORDS OF THE ASSESSEE IN HIS BOOKS OF ACCOUNTS AS STOCK IN TRADE. B. TRANSACTION IN F&O SCHEME IS SHOWN BY THE ASSESS EE AS INVESTMENT. C. INVESTMENT IN SURPLUS FUNDS BY PMS MANAGER IN LI QUID FUND RESULTS IN ACTIVITY OF PMS BEING TREATED AS BUSINESS ACTIVITY CONFIRMATION OF THE ACTION OF THE AO ON THE BASIS O F ABOVE OBSERVATION BEING CONTRARY TO FACTS OF THE CASE OUGHT TO BE DELETED. 4. WHILE CONFIRMING THE ACTION OF THE AO IN TREATIN G THE INCOME IN RESPECT OF AMOUNT INVESTED DIRECTLY THE ASSESSEE AS BUSINESS I NCOME, LEARNED CIT(A) HAS ERRED IN HOLDING/OBSERVING THAT: A. THE APPELLANT HAS CONVERTED SHARES OF FINANCIAL TECHNOLOGIES AND HENKEL SPIC FROM INVESTMENTS TO STOCK IN TRADE CONFIRMATION OF THE ACTION OF THE AO ON THE BASIS O F ABOVE OBSERVATION BEING CONTRARY TO FACTS OF THE CASE OUGHT TO BE DELETED 3. AT THE TIME OF HEARING, LD. REPRESENTATIVES OF T HE PARTIES SUBMITTED THAT THE FACTS AND ISSUES INVOLVED IN BOTH THESE APPEALS OF ABOV E NAMED ASSESSEES ARE COMMON; SAVE AND EXCEPT THE AMOUNT INVOLVED; AND ACCORDING LY THE DETAILED SUBMISSIONS WERE MADE BY REPRESENTATIVES OF BOTH THE PARTIES IN I TA NO. 1575/M/2012 IN THE CASE OF SHRI NALIN PRAVIN SHAH. IT WAS SUBMITTED THAT WHAT EVER VIEW IS TAKEN IN THIS APPEAL WILL ITA. NOS.1575&1594/MUM/2012 4 IPSO FACT APPLY TO THE CASE OF OTHER ASSESSEE VIZ S HRI MANAN NALIN SHAH IN ITA NO.1594/MUM/2012. 4. IN VIEW OF ABOVE, WE DISCUSS THE FACTS IN DETAIL RELATING TO ITA NO.1575/MUM/2012. 5. THE ASSESSEE IS A PARTNER IN FIRM OF INDENTING A GENT AND DIRECTOR IN PHARMACEUTICAL COMPANIES AND IS ALSO DERIVING INCOM E FROM DEALING IN SHARES AND MUTUAL FUNDS. THE ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS.1,50,04,404/-. THE ASSESSEE HAS SHOWN BUSINESS INCOME, INCOME FROM OTHER SOURCES, LONG TERM CAPITAL GAINS (LTCG) AND SHORT TERM CAPITAL GAINS (STCG) ON SHARES AND SECURITIES BOTH THROUGH PORTFOLIO MANAGEMENT SERVICES (HEREINAFTER REFERRE D TO AS PMS) AND THROUGH TRANSACTIONS DONE HIMSELF. THE ASSESSEE DECLARED T HE FOLLOWING INCOMES UNDER THE HEAD CAPITAL GAINS : A (I) LTCG } RS.2,98,36,506/- } ON DIRECT SALE (II) STCG } RS.36,08,276/- B THROUGH PMS (I) LTCG RS.70,39,652/- (II) STCG RS. 83,14,515/- IN ADDITION TO ABOVE, THE ASSESSEE ALSO DECLARED IN COME FROM SPECULATION ON SHARES AT RS.5,65,178/- AS HIS BUSINESS INCOME. 6. AO COMPLETED THE ASSESSMENT ON 29.12.2009 U/S 1 43(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AND ASSESSED THE ENTIRE INCOME DECLA RED BY THE ASSESSEE UNDER THE HEAD CAPITAL GAINS AS INCOME UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION AND THUS, ASSESSED THE INCOME OF THE ASSESSEE AT RS .5,18,80,560/- (ROUNDED OFF). BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY BY THE IMPUGNED ORDER DATED 31 .1.2012 HAS CONFIRMED THE ACTION OF THE AO. HENCE THE ASSESSEE IS IN FURTHER APPEAL BEF ORE THE TRIBUNAL. 7. IN RESPECT OF GROUND NOS.1 AND 3 OF THE APPEAL, THE ISSUE IS AS TO WHETHER THE INCOME EARNED BY ASSESSEE FROM PURCHASE AND SALES OF SHARES THROUGH PMS OPERATION IS TO BE ASSESSED AS BUSINESS INCOME OR AS CAPITAL GAINS. ITA. NOS.1575&1594/MUM/2012 5 7.1 AT THE TIME OF HEARING, THE LD. AR SUBMITTED TH AT THE SAME VERY ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES CASE IN I TA NO.5635/MUM/2009 AND ITA NO. 5642/MUM/2009 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, VIDE ORDER DATED 23.1.2013 AND THE TRIBUNAL BY RELYING ON ITS OWN D ECISION IN THE CASE OF MANAN NALIN SHAH V/S DCIT IN ITA NO.6166/MUM/2008 FOR ASSESSM ENT YEAR 2003-04, ITA NO.2125/MUM/2008 FOR ASSESSMENT YEAR 2004-05 AND I TA NO.4126/MUM/2008 FOR ASSESSMENT YEAR 2005-06 VIDE COMMON ORDER DATED 6.7 .2012 ALLOWED THE CLAIM OF THE ASSESSEE STATING THAT THE VERY NATURE OF PMS IS SUCH THAT INVESTMENTS MADE BY ASSESSEE CANNOT BE SAID TO BE SCHEME OF TRADING OF SHARES AND STOCKS AND THEREFORE, THE PROFIT IS TO BE ASSESSED UNDER THE HEAD CAPITAL GA INS. LD. AR FURNISHED A COPY OF THE SAID ORDERS OF THE TRIBUNAL DATED 6.7.2012 (SUPRA) AND ORDER DATED 23.1.2013 TO SUBSTANTIATE HIS SUBMISSIONS. LD. DR, HOWEVER, SU PPORTED THE ORDERS OF AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE HAD TAKEN D ERIVATIVES/FUTURE AND OPTIONS TRANSACTIONS. THEREFORE, THE ASSESSEE IS NOT AN IN VESTOR AND IS A TRADER IN SHARES BY DOING THE TRADING IN SHARES DIRECTLY AS WELL AS THR OUGH PMS. HE SUBMITTED THAT THE ASSESSEE HAS ALSO SHOWN PROFIT FROM SPECULATION AC TIVITY, THEREFORE, ACTIVITY OF THE ASSESSEE ARE CONSIDERED AS A WHOLE. HENCE, THE ASSE SSEE IS A TRADER AND NOT AN INVESTOR. HE SUBMITTED THAT THE ORDER OF THE LD. C IT(A) BE CONFIRMED. 8. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF AUTHORITIES BELOW AS WELL AS EARLIER ORDERS OF THE TRIBUNAL DATED 6.7.2012 (SUPRA) AND THE ORDER DATED 23.1.2013 (SUP RA). WE CONSIDER IT PRUDENT TO REPRODUCE PARA 5 OF THE ORDER OF TRIBUNAL DATED 23 .1.2013 WHICH READS AS UNDER : 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED TH E MATTER CAREFULLY. THE IDENTICAL DISPUTE RAISED IN THESE APPEALS IS REGARD ING THE NATURE OF INCOME EARNED BY THE ASSESSEES FROM PURCHASE AND SALE OF S HARES THROUGH PMS . ALL THESE ASSESSEES HAVE BEEN MAKING INVESTMENTS IN SHA RES AND UNITS OF MUTUAL FUNDS FOR THE LAST SEVERAL YEARS WHICH HAD BEEN DEC LARED AS INVESTMENT IN THE BOOKS AND INCOME FROM WHICH WAS BEING DECLARED AS C APITAL GAIN AND WAS ALSO BEING ACCEPTED BY THE DEPARTMENT. FROM ASSESSMENT Y EAR 2003-04 ALL THESE ASSESSEES STARTED MAKING INVESTMENT THROUGH PMS BY PLACING CERTAIN FUNDS WITH THE PMS MANAGERS. IN ASSESSMENT YEAR 2003-04, THE A O HAD ASSESSED THE INCOME AS BUSINESS INCOME WHICH HAD BEEN UPHELD BY THE CIT(A). IN FURTHER APPEAL, THE TRIBUNAL IN CASE OF MANAN NALIN SHAH IN ITA NO.6166/MUM/2008 FOR ASSESSMENT YEAR 2003-04 NOTED ON EXAMINATION OF PMS THAT PMS MANAGER WAS AUTHORIZED TO PURCHASE, ACQUIRE, OBTAIN, TAKE, HOLD , SELL, TRANSFER, SUBSTITUTE OR CHANGE ALL OR ANY OF THE INVESTMENTS MADE ON BEHALF OF THE ASSESSEE. PMS MANAGER WAS ALSO AUTHORIZED TO HOLD ALL OR ANY OF S UCH INVESTMENT IN HIS NAME OR AT HIS DISCRETION ON BEHALF OF THE ASSESSEE AND MAK E EVERY EFFORT TO MAXIMIZE THE VALUE OF INVESTMENT. THE PMS MANAGER WAS REQUIRED T O PROVIDE THE ASSESSEE WITH QUARTERLY STATEMENT OFINVESTMENT. THE TRIBUNAL NOTED THAT THE PMS ITA. NOS.1575&1594/MUM/2012 6 MANAGER HAD SOLE AND ABSOLUTE DISCRETION TO MAKE IN VESTMENT FOR AND ON BEHALF OF THE ASSESSEE AND THE ASSESSEE HAD NO ROLE TO PLA Y. THE ASSESSEE HAD NOT TAKEN ANY BORROWED FUNDS FOR PLACING MONEY WITH THE PMS MANAGER. IT WAS ALSO NOTED BY THE TRIBUNAL THAT THE AVERAGE HOLDING PERI OD OF THE SHARES WAS MORE THAN TWO MONTHS. THE TRIBUNAL ACCORDINGLY CONCLUDED THAT THE INCOME EARNED FROM PMS HAS TO BE ASSESSED AS CAPITAL GAIN. THE DE CISION OF THE TRIBUNAL IN CASE OF MANAN NALIN SHAH IN ASSESSMENT YEAR 2003-04 WAS FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YEARS 2004-05 & 2005-06 IN ITA NOS.2125/ M/2008 AND 4126/MUM/2008.THE SAID DECISION WAS AGAIN FOLLOWED BY THE TRIBUNAL IN CASE OF NALIN P. SHAH IN ASSESSMENT YEAR 2004-05 IN ITA NO. 2122/MUM/2008. SIMILARLY THE SAME ISSUE WAS DECIDED BY THE TRIBUNAL IN CASE OF NALIN P. SHAH (HUF) IN ASSESSMENT YEAR 2004-05 AND 2005-06 IN ITA NOS.2126 /MUM/2008 AND 4125/MUM/2008 IN WHICH THE DECISION IN CASE OF MANA N NALIN SHAH (SUPRA), WAS FOLLOWED. THUS, ISSUE RAISED IN THESE APPEALS IS CO VERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEAR S. NO DISTINGUISHING FEATURE HAVE BEEN BROUGHT TO OUR NOTICE BY THE LD. DR IN TH ESE YEARS WITH RESPECT TO FACTUAL POSITION IN THE EARLIER YEARS DECIDED BY TH E TRIBUNAL. WE, THEREFORE, AGREE WITH THE LD. AR THAT THE ISSUE RAISED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN EARLIER YEARS. WE, THER EFORE, RESPECTFULLY FOLLOWING THE DECISION IN EARLIER YEARS SET ASIDE THE ORDER OF CI T(A) AND ALLOW THE APPEALS OF THE ASSESSEE. SINCE THE TRIBUNAL HAS CONSIDERED THE SIMILAR ISSU E ON IDENTICAL FACTS IN THE CASE OF ASSESSEE AND THE EARLIER DECISIONS HAVE ALSO BEEN D ECIDED BY A BENCH OF THE TRIBUNAL TO WHICH BOTH OF US WERE PARTIES, AND IN THE ABSENC E OF ANY DISTINGUISHING FEATURES BROUGHT OUT TO OUR NOTICE BY LD. DR IN RESPECT OF A SSESSMENT YEAR UNDER CONSIDERATION, WE AGREE WITH THE LD. AR THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE EARLIER ORDERS. RESPECTFULLY FOLLO WING THE ORDERS OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEARS (SUPRA), WE HOLD THAT STC G RS.83,14,515/- EARNED BY ASSESSEE AND LTCG OF RS.70,39,652/- EARNED BY ASSE SSEE ON SALE/PURCHASE OF SHARES AND SECURITIES THROUGH PMS IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME OF THE ASSESSEE. HENCE, WE ALLOW G ROUND NOS.1 AND 3 OF THE APPEAL TAKEN BY THE ASSESSEE BY REVERSING THE ORDERS OF AU THORITIES BELOW. 9. IN RESPECT OF GROUND NOS.2 AND 4 OF THE APPEAL THE ISSUE IS AS TO WHETHER STCG OF RS.36,08,276/- AND LTCG OF RS.2,98,36,506/- IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS OR UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. 9.1 FACTS RELATING TO GROUND NO.2 AND 4 ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME SHOWING INTERALIA THE INCOME UNDER THE HEAD CAPITAL GAIN ON ACCOUNT OF SHARES TRANSACTION OF RS.2,98,36,506/- AS LTCG AND RS.36,08,276/- AS STCG. THE AO CONSIDERED THE SAID DEALINGS OF THE ASSESSEE IN SHA RES IN THE NATURE OF BUSINESS AND CONSIDERED THE PROFIT AND GAINS ARISING THERE FROM UNDER THE HEAD PROFITS FROM ITA. NOS.1575&1594/MUM/2012 7 BUSINESS INSTEAD OF TREATING THE SAME AS CAPITAL GAINS. IN THIS REGARD, THE AO REFERRED THE BOARD INSTRUCTION NO.1827 DATED 31.8 .1989 AND STATED THAT ASSESSEE HAS ALSO SHOWN INCOME FROM SPECULATION ON SHARES AT RS.5,65,178/- AS HIS BUSINESS INCOME. THE AO IN PARA 18 HAS STATED THAT THE ASSE SSEE HAS FREQUENTLY INDULGED IN DEALING IN SHARES AND THEREFORE, INTENTION OF THE A SSESSEE IS TO MAKE PROFIT. HE HAS STATED THAT ASSESSEE HAS UTILIZED CONSIDERABLE AMO UNT OF TIME AND ALSO HAS SHOWN PROPER APPLICATION OF MIND, COLLECTION OF INFORMAT IONS AND UTILIZING THE SAME IN DECISION MAKING IN RESPECT OF PURCHASE AND SALE OF SHARES AN D SECURITIES. HE HAS FURTHER STATED THAT THE TOTAL PURCHASES ARE 289 AND SALES ARE 3 29 IN THE YEAR. THEREFORE, THE PERSONS MAKING SO MANY FREQUENT TRANSACTIONS CANNOT CLAIM THAT HE HAS NOT APPLIED MIND OR DO NOT HAVE KNOWLEDGE ETC. THIS ALSO SHOW S THAT THE ASSESSEE IS HAVING INTENTION AND CAPACITY TO INCUR RISK TO MAKE PROFI T. HE HAS FURTHER STATED THAT HOLDING PERIOD RANGES FROM 1 DAY TO 3 MONTHS. AO FURTHER REFERRED CBDT CIRCULAR NO.4 OF 2007 DATED 15.6.2007. HE HAS STATED THAT THE SAI D CIRCULAR LAY DOWN THE GUIDELINES TO DISTINGUISH BETWEEN THE SHARE HOLDING AS STOCK-IN- TRADE AND SHARES HELD AS INVESTMENT. THE AO HAS CONCLUDED THAT THE PRINCIPLES AND RATIOS LAID DOWN IN THE CBDT CIRCULAR AND ALSO CASES, WHICH HE HAS STATED AT PAGE 14 AND 15 OF THE ASSESSMENT ORDER, STATED THAT THE SAME SQUARELY APPLY TO THE CASE OF THE ASS ESSEE. THUS, AO CONCLUDED THAT ENTIRE GAMUT OF THE TRANSACTIONS BY ASSESSEE IN SH ARES AND MUTUAL FUNDS ARE BUSINESS TRANSACTIONS AND ARE NOT HIS INVESTMENTS. BEING A GGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 10. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO. HE HAS STATED THAT THE ASSESSEE HAS DISCLOSED PROFIT OF RS.5,65,178/- AS INCOME FROM SPECULATION FROM DERIVATIVE TRANSACTIONS. IT PROVES THAT THE ASSESS EE WAS NOT AN INVESTOR. THE LD. CIT(A) HAS STATED THAT MAXIMUM LTCG IS SHOWN BY THE ASSESS EE ON ACCOUNT OF SALE OF SHARES OF FINANCIAL TECH AND HENKEL SPIC WHICH WERE ACQUIRED IN 2003. HE HAS STATED THAT DURING THE YEAR THE ENTIRE SHARES WERE NOT SOLD IN ONE GO BUT HAD BEEN SOLD IN LOTS DURING THE YEAR RELEVANT TO ASSESSMENT YEAR UNDER C ONSIDERATION AS WELL AS IN THE NEXT YEAR. HE HAS STATED THAT THE SHARES OF THESE COMPA NIES WERE CAPITAL ASSETS IN PAST BUT DURING THE YEAR THE SAME GOT CONVERTED INTO STOCK- IN-TRADE. HE HAS FURTHER STATED THAT DIVIDEND EARNED BY ASSESSEE IS OF RS.2,22,897/- W HICH GIVES A YIELD OF 0.8% PER ANNUM ON THE AMOUNT INVOLVED OF RS.2.25 CRORES. THE LD. CIT(A) HAS STATED THAT IT IS A FACT THAT THE ASSESSEE HAS NOT BORROWED FUNDS FOR DEALING IN SHARES, BUT THAT BY ITSELF WILL NOT CHANGE THE INFERENCE THAT THE ASSE SSEE WAS IN THE BUSINESS OF DEALING IN SHARES AND MUTUAL FUNDS. THE LD. CIT(A) HAS STATE D THAT CONSIDERING THE FACT THAT THERE ITA. NOS.1575&1594/MUM/2012 8 WERE HIGH FREQUENCY OF TRANSACTION OF BUYING AND SE LLING, PURCHASE-SALE TURNOVER RATIO AND THE VALUE OF THE VOLUMES TRANSACTED SHOWED TH AT THE ASSESSEE DID NOT INTEND TO ACQUIRE SHARES TO KEEP AS INVESTMENTS FOR THE PURPO SE OF EARNING DIVIDEND AND APPRECIATION IN VALUE OF SHARES. THE ASSESSEE WAS CARRYING ON ACTIVITY IN A SYSTEMATIC MANNER OF PURCHASE AND SALE OF SHARES AND MUTUAL FUND WHICH PARTAKE THE CHARACTER OF BUSINESS. THE LD. CIT(A) HAS ALSO REFERRED THE D ECISIONS OF SMT.HARSHA N MEHTA V/S DCIT (2011) 43 SOT 332 (MUM), SADHANA NABERA (2010 ) 41 DTR 393, IMMORTAL FINANCIAL SERVICES (P) LTD V/S DCIT (2011) 44 SOT 88 (MUM), WALLFORT FINANCIAL SERVICES V/S ACIT 134 TTJ 656 AND HAS CONCLUDED TH AT THE AO HAS RIGHTLY TREATED LTCG AS WELL AS STCG ARISING FROM DEALING IN SHARES AND MUTUAL FUND AS BUSINESS INCOME OF THE ASSESSEE. HENCE, THE ASSESSEE IS IN FURTHER AP PEAL BEFORE THE TRIBUNAL. 11. THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF PHARMACEUTICAL RELATED ACTIVITIES AND HAS MADE INVE STMENT OF HIS SPARE FUNDS IN SHARES AND SECURITIES. THE ASSESSEE IS NOT A SHARE-BROKER OR OTHERWISE MAINTAINING HIS PRESENCE IN SHARE MARKET. LD. AR SUBMITTED THAT THE AO AS WELL AS CIT(A) HAVE LAID EMPHASIS ON THE FACTS THAT THE ASSESSEE HAS DISCLOS ED INCOME OF RS.5,65,178/- FROM DERIVATIVES WHICH HAS BEEN OFFERED TO TAX BY ASSES SEE AS BUSINESS INCOME. HE FURTHER REFERRED THE ORDER OF LD. CIT(A) AND STATED THAT T HE LD. CIT(A) WAS INFLUENCED AND ASSUMED THAT THE ASSESSEE MUST BE DEVOTING CONSIDE RABLE AMOUNT OF TIME IN THE PROCESS OF DECISION MAKING REGARDING PURCHASES AND SALE OF SHARES AND THE ASSESSEE MUST HAVE GONE THROUGH RESEARCH AND HOLDING MEETIN GS WITH EXPERTS AND HAD BEEN BUYING AND SELLING SHARES FOR LAST SEVERAL YEARS. THEREFORE, IT COULD BE STATED THAT THE ASSESSEE WAS CARRYING ON HIS ACTIVITY IN AN ORGANI ZED AND SYSTEMATIC WAY WHICH PARTOOK THE CHARACTER OF BUSINESS. THE LD. AR SUB MITTED THAT THE ABOVE OBSERVATIONS OF LD. CIT(A) ARE WRONG ASSUMPTION OF LAW. LD. AR SU BMITTED THAT THE ASSESSEE CAN BE A DEALER IN SHARES AS WELL AS INVESTOR IN SHARES. TO SUBSTANTIATE HIS SUBMISSIONS, LD. AR RELIED ON THE DECISION OF RAMANARAIN SONS LTD V. CI T(41 ITR 534) (SC), DWARKADAS KESARDEO MORARKA. V/S CIT [1962] 44 ITR 529 (SC). HE FURTHER SUBMITTED THAT THE SAME VIEW IS REITERATED BY THE HONBLE APEX COURT IN THE CASE OF CIT V/S ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD. [1971] 82 ITR 586 (SC) AND THE SAID JUDGMENT HAS BEEN HELD TO BE ONE OF THE TWO MOST IMPORTANT JUD GMENTS IN CBDT CIRCULAR NO.4 OF 2007. 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSI BLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT PORTFOLIO COMPR ISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLI O COMPRISING OF STOCK-IN-TRADE ITA. NOS.1575&1594/MUM/2012 9 WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME. 12. LD. AR FURTHER REFERRED THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT V/S HOLCK LARSEN (160 ITR 67) (SC) AND SUBMIT TED THAT ACCRETION TO CAPITAL DID NOT BECOME INCOME MERELY BECAUSE THE ORIGINAL CAPITAL W AS INVESTED IN THE HOPE AND EXPECTATIONS THAT IT WOULD RISE IN VALUE. LD. AR S UBMITTED THAT LD. CIT(A) HAS ONLY REFERRED THE CASES IN HIS ORDER AND THE RATIO LAID DOWN THEREIN BUT HAS NOT STATED AS TO HOW THOSE CASES ARE RELEVANT TO THE CASE OF THE ASS ESSEE. HE SUBMITTED THAT THE LD. CIT(A) HAS NOT CONSIDERED THE PERIOD OF HOLDING A ND MERELY STATED VOLUME AND HIGH FREQUENCY OF SALE AND PURCHASE OF SHARES BECAUSE HE KNEW THAT THE HOLDING PERIOD SUPPORTS THE CASE OF THE ASSESSEE. 13. LD. AR SUBMITTED THAT THE DISTINCTION BETWEEN T HE TRADE AND INVESTMENT IS NOT PROFIT MOTIVE. WHAT DISTINGUISHES THE ACQUISITION OF STOCK- IN- TRADE FROM THE ACQUISITION OF A CAPITAL ASSET IS WHETHER AN ASSET IS ACQUIRED WITH AN INTENTION OF BEING TURNED INTO PROFIT OR WITH AN INTENTION TO HOLD IT AND NURSE I T TILL SUCH TIME TARGETED PROFIT IS REACHED OR OTHERWISE IT BECOMES PRUDENT TO LIQUIDATE IT. HE SUBMITTED THAT THE AO QUOTES ONLY PARA 8 OF CBDT CIRCULAR NO.4 OF 2007 AND THE LD. C IT(A) HAS BASED HIS DECISION ON DRAFT GUIDELINES DATED 16.5.2006 BUT THE SAME WERE DROPPED IN MOST PART IN THE FORMAL CIRCULAR NO.4 OF 2007. THE LD. AR SUBMITTED THA T THE AO HAS RELIED UPON THE JUDGMENT WHICH HAVE FOUND PLACE IN CBDT CIRCULAR NO.4 OF 2 007. THE AO HAS ENUMERATED THE CASE LAW IN ABSTRACT WITHOUT MATCHING THE FACTS O F THE CASE WITH THE FACTS OF THE CASE OF THE ASSESSEE. HE SUBMITTED THAT THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT (2011) 3 36 ITR 287 (BOM) SQUARELY APPLY TO THE CASE OF THE ASSESSEE BUT THE LD. CIT(A) DID NO T CONSIDER THE SAME AND HE PREFERRED SOME OTHER JUDGMENTS WITHOUT MAKING ANY ATTEMPT TO MATCH THE FACTS OF THE CASE OF ASSESSEE WITH THE FACTS OF THOSE CASES. THE LD. AR REFERRED THE DECISION OF ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD (SUPRA) AND STA TED THAT HONBLE SUPREME COURT HAS HELD AS UNDER : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTA NCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. HE SUBMITTED THAT THE ASSESSEE HAS NOT DONE ANY T RADING IN SHARES; THAT THE TRADING ACTIVITY OF THE ASSESSEE IS IN DERIVATIVE ONLY; THA T THE ASSESSEE KEPT SEPARATE ACCOUNT TO ITA. NOS.1575&1594/MUM/2012 10 RECORD THE TRANSACTIONS OF EACH CATEGORY. THUS, THE ASSESSEE SATISFY THE REQUIREMENT LAID DOWN IN THE JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD (SUPRA). HE SU BMITTED THAT THE MOTIVE TO EARN PROFIT ON ENHANCED VALUE AT A FUTURE DATE WILL NOT RENDER AN INVESTMENT IN SHARES INTO A TRANSACTION IN THE NATURE OF TRADE. HE SUBMITTED THAT THAT THE ALLEGATION THAT THERE IS HIGH FREQUENCY OF PURCHASE AND SALE OF SHARES IS NOT FACTUALLY CORRECT. THE LD. AR FILED A WRITTEN SUBMISSIONS AND AT PAGE 25 OF THE S AID WRITTEN SUBMISSIONS HAS GIVEN THE ANALYSIS OF LTCG AND STCG AS UNDER : ANALYSIS OF LTCG RANGE (MONTHS) VALUE OF SHARES PURCHASED % TO TOTAL PURCHASED VALUE OF SHARES SOLD % TO TOTAL SALES CAPITAL GAIN/ (LOSS) % TO TOTAL GAINS 12 - 18 2,570,229 37% 2,553,488 7% (16,741) 0% 18 - 24 557,456 8% 89,511 0% (467,945) - 2% MORE THAN 24 3,863,3 03 55% 34,184,494 93% 30,321,191 102% TOTAL 6,990,987 100% 36,827,493 100% 29,836,506 100% ANALYSIS OF STCG RANGE (DAYS) VALUE OF SHARES PURCHASED % TO TOTAL PURCHASED VALUE OF SHARES SOLD % TO TOTAL SALES CAPITAL GAIN/ (LOSS) % TO TOTAL GAINS 0 - 14 - - - 0% - 0% 15 - 30 635,206 1% 679,639 1% 44,433 1% 31 - 60 4,049,155 6% 4,772,522 6% 723,367 20% 61 - 90 4,063,252 6% 4,247,181 6% 183,928 5% 91 - 180 8,366.831 12% 10,364,193 14% 1,997,362 55% 181 - 365 54,772,037 76% 55,431,222 73% 659,185 18% TOT AL 71,886,481 100% 75,494,757 100% 3,608,276 100% THE LD. AR SUBMITTED THAT THE STOCK TURNOVER RATIO OF THE ASSESSEE WAS 0.92 % AND TO SUBSTANTIATE HIS SUBMISSIONS FURNISHED FOLLO WING DETAILS : PARTICULARS AMOUNT (RS.) TURNOVER ON THE SALE OF SHARE S (BOTH LTCG & STCG) 26,28,65,169 OPENING STOCK AS ON 01.04.2006 (A) 28,53,44,851 CLOSING STOCK AS ON 31.03.2007 (B) 28,80,84,012 AVERAGE STOCK (A+B)/2 28,67,14,432 STOCK TURNOVER RATIO 0.92 ITA. NOS.1575&1594/MUM/2012 11 CAPITAL - TURNOVER RATIO OWN CAPITAL AS ON 31 .03.2006 373,215,421 OWN CAPITAL AS ON 31.03.2007 421,424,696 MEAN CAPITAL AS ON 200607 397,320,058 TOTAL TURNOVER 262,865, 169 CAPITAL TURNOVER RATIO 0.66 14. LD. AR SUBMITTED THAT THE ASSESSEE HAS BEEN CAR RYING OUT INVESTMENT ACTIVITIES IN SHARES FOR LAST SEVERAL YEARS. HE SUBMITTED T HAT FOR ALL THE ASSESSMENT YEARS THE TREATMENT GIVEN BY ASSESSEE IN THE BOOKS OF ACCOUNT AND RETURN OF INCOME TO DECLARE LTCG AND STCG IN RESPECT OF SALES AND PURCHASES MAD E BY ASSESSEE HIMSELF HAD BEEN ACCEPTED BY THE DEPARTMENT FOR ASSESSMENT YEARS 200 3-04, 2004-05, 2005-06 AND 2006-07 IN THE ASSESSMENT ORDER PASSED U/S 143(3) O F THE ACT. LD. AR SUBMITTED THAT THE COPY OF ASSESSMENT ORDERS FOR THE EARLIER ASSES SMENT YEARS ARE PLACED IN THE PAPER BOOK AT PAGES 78 TO 79 FOR ASSESSMENT YEAR 2003-04 AT PAGES 80 TO 94 FOR ASSESSMENT YEAR 2004-05 AT PAGES 95 TO 104 FOR ASSESSMENT YEAR 2005-06 AND AT PAGES 105 TO 114 FOR ASSESSMENT YEAR 2006-07. HE SUBMITTED THAT TH E FACTS IN THE ASSESSMENT YEAR UNDER CONSIDER ARE SIMILAR BUT THE AO TOOK CONTRAR Y VIEW IGNORING THE INFORMATION AND FACTS OF THE CASE OF THE ASSESSEE ARBITRARILY. HE SUBMITTED THAT THERE IS NEITHER FRESH MATERIAL IN POSSESSION OF AO NOR THERE IS ANY CHA NGE IN THE LAW OR FACTS. THEREFORE IT WAS INCUMBENT UPON THE AO TO RESPECT WISDOM OF IT S PREDECESSOR WHO MADE ASSESSMENTS OF EARLIER YEARS. LD. AR SUBMITTED TH AT THE LTCG AND STCG SHOWN BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED. ON THE OTHER H AND, LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ACT IVITIES OF THE ASSESSEE ARE NOT FOR INVESTMENT IN PURCHASE AND SALES AND SHARES. THAT PREDOMINANT MOTIVE OF THE ASSESSEE IS TO EARN PROFIT BY CARRYING OUT ITS ACT IVITY IN A SYSTEMATIC WAY. THEREFORE, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE AO. 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW. W E HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY ASSESSEE AND HAVE PERUSED REL EVANT PAGES OF THE PAPER BOOK. WE HAVE ALSO CONSIDERED THE ASSESSMENT ORDERS OF EARL IER ASSESSMENT YEARS, COPIES PLACED AT PAGES 78 TO 114 OF THE PAPER BOOK (SUPRA). 16. THE DISPUTE IS REGARDING THE NATURE OF INCOME F ROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE. THE ISSUE IS AS TO WHETHER SHARES TRANSACTIONS IN A PARTICULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TR ADING ACTIVITY HAS BEEN HIGHLY DEBATABLE ISSUE. THERE ARE DECISIONS OF TRIBUNAL ON BOTH SIDES. EACH CASE DEPENDS ITA. NOS.1575&1594/MUM/2012 12 ON ITS OWN FACTS. THERE ARE VARIOUS FACTORS SUCH F REQUENCY, VOLUME, AND ENTRIES IN THE BOOKS OF ACCOUNT, NATURE OF FUND USED, HOLDING PERI OD ETC WHICH ARE RELEVANT IN DECIDING TRUE NATURE OF TRANSACTION AND NO SINGLE FACTOR IS CONCLUSIVE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S MOTILAL HIRABHAI SP G. & WVG. CO. LTD.. [1978] 113 ITR 173 (GUJ.) AND THE HONBLE APEX COURT IN THE CASE OF. RAJA BAHADUR VISHESHWARA SINGH. V/S CIT [1961] 41 ITR 685 (SC) HAVE HELD THAT THE TREATMENT IN THE BOOKS OF AN ASSESSEE WILL NOT BE CONCLUSIVE AND IF THE VOLUME, FREQUENCY AND REGULARITY AT WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANIZED ACTIVITY WITH PROFIT MOTIVE THEN IT BECOMES BUSINESS PROFIT AND NOT CAPITAL GAI NS. THE HON'BLE APEX COURT IN THE CASE OF CIT VS. HOLCK LARSEN (SUPRA) HELD THAT WHE THER A TRANSACTION OF SALE AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR THE Y WERE IN THE NATURE OF INVESTMENT IS A MIXED QUESTION OF LAW AND FACTS. IT IS FURTHER HE LD IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. P. LTD (SUPRA) THAT IT I S POSSIBLE THAT THE ASSESSEE TO BE BOTH AN INVESTOR AS WELL AS DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTMENT OR FORM PART OF STOCK-IN- TRADE IS A MAT TER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVID ENCE FROM THE RECORDS AS TO WHETHER HE MAINTAINED ANY DISTINCTION BETWEEN SHARES WHICH ARE HELD AS INVESTMENT AND THOSE HELD AS STOCK-IN-TRADE. THEREFORE, THE IMPORTANT FA CTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE, WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALING WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCOUNT. IN THIS VIEW, WE ARE SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADANGOPAL RADHEY LAL, 73 ITR 652(SC). THEREFORE, TO DECIDE THE NATURE OF TRANSACTION AS TO WHETHER IT I S IN THE NATURE OF TRADE OR AN INVESTMENT, NO SINGLE FACT HAS ANY DECISIVE SIGNIFI CANCE AND THE QUESTION HAS TO BE ANSWERED DEPENDING ON THE COLLECTIVE EFFECT OF ALL RELEVANT MATERIAL BROUGHT ON RECORD AS HELD BY HONBLE APEX COURT IN THE CASE OF JANKI RAM BAHADUR RAM V/S CIT, 57 ITR 21 (SC). 17. WE ARE ALSO CONSCIOUS OF THE FACT THAT AN INVES TOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCOME FROM THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY RISE AND FALL IN THE MARKET WHICH A RE THE ATTRIBUTES OF A TRADER. THERE MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL T HE SHARES AFTER SHORT HOLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR T O ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME OTHER PERSONAL EXIGENC IES. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS ITA. NOS.1575&1594/MUM/2012 13 EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. T HEREFORE, EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. 18. IN THE LIGHT OF ABOVE PROPOSITION, WE HAVE CONS IDERED THE FACTS OF THE CASE OF THE ASSESSEE BEFORE US. WE OBSERVE THAT THE ASSESSEE I N THE EARLIER ASSESSMENT YEARS HAD ALSO CARRIED OUT THE TRANSACTIONS OF PURCHASE AND S ALES OF SHARES DIRECTLY AS WELL AS THROUGH PMS. WE OBSERVE THAT THE DEPARTMENT ACCEPT ED THE TRANSACTIONS MADE BY ASSESSEE OF HIS OWN FOR PURCHASE AND SALE OF SHARE S AS INVESTMENT I.E. FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07 IN TH E ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT AS IS EVIDENT FROM THE COPIES OF THE ASSESSMENT ORDER PLACED AT PAGES 78 TO 114 OF THE PAPER BOOK. HOWEVER, IN THE ASSES SMENT YEAR UNDER CONSIDERATION THE AO HAS TAKEN A CONTRARY VIEW TO THE EARLIER ASSES SMENT YEARS STATING THAT THE ASSESSEE IS CARRYING ON OF HIS OWN PURCHASE AND SALE OF SH ARES ACTIVITIES IN A SYSTEMATIC AND ORGANIZED WAY WHICH PARTAKE THE CHARACTER OF BUSIN ESS. WE OBSERVE THAT THE AO AS WELL AS LD. CIT(A) HAVE MENTIONED CBDT CIRCULAR A ND THE CASES BUT HAVE NOT DISCUSSED AS TO HOW THOSE CASES ARE RELEVANT TO THE FACTS OF THE CASE OF THE ASSESSEE BEFORE US. AS MENTIONED HEREINABOVE THAT THE HONBLE APEX COUR T HAS HELD IN THE CASE OF HOLCK LARSEN (SUPRA) THAT WHETHER THE TRANSACTIONS OF SAL E AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR WERE IN THE NATURE OF INVES TMENT IS A MIXED QUESTION OF LAW AND FACTS AND THEREFORE, EACH CASE IS REQUIRED TO BE E XAMINED TO ASCERTAIN THE TRUE NATURE ON THE BASIS OF THE FACTS. WE OBSERVE THAT THE ASS ESSEE HAS NOT BORROWED ANY FUNDS TO UNDERTAKE THE ACTIVITIES OF PURCHASE AND SALE OF SH ARES. THAT THE ASSESSEE HAS USED HIS OWN FUNDS IN THE SAID TRANSACTIONS OF PURCHASE AND SALE OF SHARES. WE OBSERVE THAT THE AO HAS STATED THAT THE ASSESSEE HAS FREQUENTLY I NDULGED IN DEALING IN SHARES AND THE PERIOD OF HOLDING IS ALSO SHORT. HOWEVER, WE OBS ERVE THAT IN RESPECT OF LTCG CLAIMED BY ASSESSEE, THE MAXIMUM AMOUNT OF LTCG, IS ON AC COUNT OF SALE OF SHARES OF FINANCIAL TECHNOLOGIES AND HENKEL SPIC WHICH WERE ACQUIRED IN 2003. WE OBSERVE FROM PARA 6.1 OF THE ORDER OF LD. CIT(A) THAT HE HAS DO UBTED THE LTCG AND CONSIDERED IT AS BUSINESS INCOME ON THE GROUND THAT THE ASSESSEE HA D SOLD THE SHARES OF SAID COMPANY ON A NUMBER OF DATES. WE ARE OF THE CONSIDERED VIE W THAT THE FINDING OF THE LD. CIT(A) HAS NO MERITS AND PARTICULARLY WHEN WE OBSERVE FROM THE PERIOD OF HOLDING OF SHARES, WHICH WE HAVE MENTIONED HEREINABOVE IN PARA 13 OF T HIS ORDER. THE LTCG HAD ACCRUED TO THE ASSESSEE, WHERE THE PERIOD OF HOLDING IS MO RE THAN 24 MONTHS AND THEREFORE, THE ORDER OF LD. CIT(A) TO TREAT THE SAID LTCG ACCR UED TO THE ASSESSEE AS BUSINESS INCOME IS NOT SUPPORTED BY FACTS PARTICULARLY WHEN THERE IS NO PURCHASE OF SHARES BY ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND SAID SHARES WERE HELD BY ITA. NOS.1575&1594/MUM/2012 14 ASSESSEE FOR A PERIOD OF MORE THAN 24 MONTHS AND H AD ALREADY BEEN CONSIDERED IN THE PRECEDING ASSESSMENT YEAR AS INVESTMENT IN THE ASS ESSMENT COMPLETED U/S 143(3) OF THE ACT. HENCE, THE ORDER OF LD. CIT(A) TO CONSIDE R THE GAIN OF RS.2,98,36,506/- AS BUSINESS INCOME IS NOT BASED ON FACTS. THEREFORE, WE REVERSE THE ORDER OF LD CIT(A) AND DIRECT THAT THE SAME SHOULD BE CONSIDERED AS LTCG. 19. NOW COMING TO THE ISSUE AS TO WHETHER THE AMOUN T OF RS.36,08,276/- AS CLAIMED BY THE ASSESSEE TO BE STCG OR IS TO BE CON SIDERED AS BUSINESS INCOME OF THE ASSESSEE AS CONSIDERED BY THE AUTHORITIES BELOW, W E OBSERVE THAT THE AMOUNT OF RS.26,56,537/- IS THE PROFIT SHOWN BY THE ASSESSEE FROM SHARE TRANSACTIONS WHERE HOLDING IS MORE THAN 91 DAYS OUT OF THE TOTAL PROFI T OF RS.36,08,276/- SHOWN BY THE ASSESSEE. FURTHER, THERE IS NO TRANSACTION OF PURC HASE AND SALE OF SHARES WHERE THE HOLDING PERIOD IS LESS THAN 15 DAYS. WE ALSO OBSER VE ON PERUSAL OF THE DETAILS THAT THERE IS NO REPEATED SALES AND PURCHASES OF SHARES IN RES PECT OF THE SAME SCRIPT. CONSIDERING THE ABOVE FACTS AND THE FACTS THAT IN THE PRECEDING ASSESSMENT YEARS THE SIMILAR KIND OF TRANSACTIONS HAVE BEEN CONSIDERED BY THE AO AS AN INVESTMENT ACTIVITY OF THE ASSESSEE AND THE PROFIT HAS BEEN CONSIDERED AS STCG. WE ARE OF THE CONSIDERED VIEW THAT THE SAID SHARES HAVE BEEN PURCHASED BY THE ASSESSEE FOR THE PURPOSE OF INVESTMENT AND A DIFFERENT VIEW CANNOT BE TAKEN IN THE ABSENCE OF A NY FRESH MATERIAL ON RECORD. 20. HENCE, WE HOLD THAT ON THE FACTS AND IN THE CI RCUMSTANCES THE SUM OF RS.36,08,276/- IS THE STCG TO THE ASSESSEE. THERE FORE, WE ALLOW GROUND NOS.2 AND 4 OF THE APPEAL BY REVERSING THE ORDERS OF AUTHORITIE S BELOW THAT THE PROFIT SHOWN BY ASSESSEE IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN I.E. RS.2,98,36,506/- AS LTCG AND RS.36,08,276/- AS STCG. IN VIEW OF ABOVE, THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE ALLOWED. ITA. NO.1594/MUM/2012 21. COMING TO THE APPEAL IN THE CASE OF SHRI M ANAN NALIN SHAH, THE LD. REPRESENTATIVE OF BOTH THE PARTIES SUBMITTED THAT FACTS ARE IDENTICAL TO THAT OF ITA NO.1575/MUM/2012 AND WHATEVER DECISION IS TAKEN THE REIN, THE SAME WILL IPSO FACTO APPLY TO THIS APPEAL. 22. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LD. R EPRESENTATIVES OF THE PARTIES AND FOR THE REASONS STATED HEREINABOVE IN PARAGRAPHS 7 AND 8 OF THIS ORDER, WE ALLOW GROUND ITA. NOS.1575&1594/MUM/2012 15 NOS.1 AND 3 OF THE APPEAL IN FAVOUR OF THE ASSESSEE THAT THE STCG AND LTCG ON SALE AND PURCHASE OF SHARES THROUGH PMS IS IN THE NATURE OF INVESTMENT AND ACCORDINGLY THE PROFIT IS TO BE ASSESSED UNDER THE HEAD CAPITAL GA INS. GROUND NOS. 1 AND 3 OF THE APPEAL TAKEN BY ASSESSEE ARE ALLOWED. 23. IN RESPECT OF GROUNDS NO.2 AND 4 OF THE APPEAL , CONSIDERING THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND FOR THE REASONS MENTIONED IN ABOVE IN PARAS 16 TO 19 , WE HOLD THAT THE PROFIT OF RS.1,04,97,1 99/- IS TO BE ASSESSED AS LTCG AND WHEREAS THE PROFIT OF RS.54,22,834/- IS TO BE CONS IDERED AS STCG, INSTEAD OF CONSIDERING THE SAID PROFIT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS CONFIRMED BY LD. CIT(A). HENCE GROUND NOS.2 AND 4 OF THE APPEAL TAKEN BY ASSESSEE ARE ALLOWED BY REVERSING THE ORDERS OF AUTHORITIE S BELOW. 24. IN THE RESULT, BOTH THE APPEALS OF THE ABOVE N AMED ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10T H JANUARY, 2014 . 2 3 10 TH JAN 2014 * SD SD ( / RAJENDRA) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: 10/01/2014 . ./ SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. & / THE APPELLANT 2. ' & / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- CONCERNED 4. 7 / CIT CONCERNED 5. 8 ': , - : , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - : , /ITAT, MUMBAI