The ACIT, Circle-9, Surat V. Smt. Rajeshwari Homi Mehta, Surat

ITA 1639/AHD/2011

• Counselvise Citation: 163920514 RSA 2011
• Duration Of Justice: 4 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: HARDIK V VORA
• Keywords: Capital asset; Business income
• Section: 143(3); 142(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT AND SHR I RAJPAL YADAV , JUDICIAL MEMBER DY. COMMISSIONER OF INCOME - TAX, CIRCLE - 8, ROOM NO. 414, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) VS SMT. RAJESHWARI MEHTA, 18, MATRUPITRUCHHAYA, LAXMI KRUPA SOCIETY, S U R AT PAN: AERPB8806Z (RESPONDENT) REVENUE BY: SMT. SONIA KUMAR, SR. D.R. ASSESSEE BY: S HRI HARDIK V . VORA , A.R. DATE OF HEARING : 16 - 06 - 2 015 DATE OF PRONOUNCEMENT : 24 - 07 - 2 015 / ORDER P ER : RAJPAL YADAV , JUDICIAL MEMBER : - REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 28 TH FEBRUARY, 2011 PASSED FOR ASSESSMENT YEAR 2008 - 09. I T A NO . 163 9 / A HD/20 11 A SSESSMENT YEAR 200 8 - 09 I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 2 2. IN THE FIRST GROUND OF APPEAL, REVENUE HAS PLEADED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 61,64,711/ - OUT OF RS. 61,97,756/ - TREATED BY ASSESSING OFFICER AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESS EE. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FILED HER RETURN OF INCOME ON 31 ST JULY, 2008 DECLARING AN INCOME OF RS. 3,78,81,150/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE U/S. 143(2) WAS ISSUED ON 26 TH AUGUST, 2009. THE ASSESSI NG OFFICER THEREAFTER ISSUED A QUESTIONNAIRE U/S. 142(1) ON 6 TH JANUARY, 2010. IN RESPONSE TO THE NOTICE, SHRI CHETAN DESAI, CHARTERED ACCOUNTANT APPEARED ON BEHALF OF THE ASSESSEE FROM TIME TO TIME AND SUBMITTED THE REQUISITE DETAILS. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE LD. ASSESSING OFFICER THAT ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN OF RS. 61,97,756/ - AND PAID TAXES ON IT U/S. 111(A) OF THE INCOME TAX ACT. THE LD. ASSESSING OFFICER ON AN ANALYSIS OF THE DETAILS OF SHARES PURCHASED A ND SOLD , FORMED AN OPINION THAT SOME OF THE S H ARES WERE SOLD WITHIN A WEEK OF THEIR PURCHASES . THUS, ACCORDING TO THE ASSESSING OFFICER THE HOLDING PERIOD IN RESPECT OF FEW SHARES WAS VERY LESS. THE FREQUENCY OF TRANSACTION DURING THE YEAR W A S VERY HIGH AND , THEREFORE, HE HARBOURED A BELIEF THAT ASSESSEE WAS INDULGING IN THE S H ARE TRADING BUSINESS. HE ISSUED A SHOW CAUSE NOTICE INVITING THE EXPLANATION OF ASSESSSEE AS TO WHY THE SHORT TERM CAPITAL GAIN DISCLOSED BY HER BE NOT TREATED AS A BUSINESS INCOME . THE LD. ASSESSING OFFICER HAS REPRODUCED THE DETAILS OF SHARES PURCHASES AND THEIR SALE S ON PAGE NO. 3 OF THE ASSESSMENT OR D ER. HE FURTHER OBSERVED THAT IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE WAS REQUIRED TO SUBMIT HE R REPLY BY 4 TH DECEMBER , 20 10 BUT S HE FAILED TO RESPOND. THUS, I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 3 THE ASSESSING OFFICER TREATED THE SHORT TERM CAPITAL GAIN OF RS. 61,97,756/ - DISCLOSED BY ASSESSEE AS BUSINESS INCOME. 4. ON APPEAL, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED THE STAND OF THE ASSESSEE AN D DIRECTED THE ASSESSING OFFICER TO ACCEPT THE CLAIM OF ASSESSEE EXCEPT FOR A SUM OF RS. 33,045/ - . THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) READS AS UNDER: - 4.4 I HAVE CONSIDERED THE FACTS OF THE CASE, THE ORDER OF THE AO AND THE SUBM ISSIONS OF THE APPELLANT. IT IS A FACT THAT THE APPELLANT IS A FULL TIME EMPLOYEE IN SARIN TECHNOLOGIES INDIA PVT. LTD. DRAWING A SALARY OF MORE THAN RS. 3.05 CRORES PER ANNUM AND FOR THE SAID JOB, SHE HAS TO ALSO FREQUENTLY MAKE VISITS OUT OF INDIA. THE L EARNED AR FURTHER EXPLAINED THAT THE APPELLANT IS THE VICE - PRESIDENT OF THE COMPANY HANDLING THE OPERATION OF SURAT AND MUMBAI OFFICE AND MARKETING THE PRODUCTS OF THE COMPANY THROUGH OUT THE COUNTRY AND FOR WHICH SHE HAS EVEN BEEN ALLOTTED A RESIDENTIAL A CCOMMODATION AT MUMBAI IN ADDITION TO HER OWN RESIDENCE AT SURAT AND THUS, LEAVING NO TIME FOR HER TO INDULGE IN ANY OTHER BUSINESS ACTIVITY. THUS, THE QUANTUM OF SALARY AND THE SCOPE OF THE JOB PRIME - FACIE SUGGESTS THAT THE APPELLANT IS FULLY ENGAGED IN H ER JOB AND HAS NO TIME TO INDULGE IN BUSINESS ACTIVITY. IT IS ALSO SEEN THAT THE APPELLANT HAS INVESTED ONLY HER SURPLUS FUNDS IN SHARES AND MUTUAL FUNDS AND THERE IS NO BORROWINGS WHATSOEVER. FURTHER, THE PURCHASE AND SALES OF SHARES IS THROUGH DEMAT ACC OUNT. THE APPELLANT HAS NO INFRASTRUCTURE FACILITY IN THE FORM OF BOLT OR ONLINE TRADING SYSTEM TO DEAL IN SHARES. THE APPELLANT HAS ALSO CONSISTENTLY SHOWN THE SHARES IN HER BALANCE SHEET AS INVESTMENTS AND NOT AS STOCK IN TRADE AND THEREBY ALSO NOT CLAIM ED THE BENEFIT OF DIMINUTION IN THE MARKET VALUE OF THE SHARES SINCE IN CASE OF STOCK IN TRADE, THE VALUATION THEREOF HAS TO BE DONE AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE APPELLANT HAS ALSO SHOWN THAT IF THE SHARES HELD BY HER AT THE YEAR END ARE VALUED AT COST OF MARKET VALUE WHICHEVER IS LOWER, THEN THE INCOME ON THE SALE OF SHARES DURING THE YEAR WOULD WORK OUT TO RS. 44,74,8137 - AS AGAINST THE SHORT TERM CAPITAL GAIN INCOME OF RS. 58,25,265/ - IN RESPECT OF SHARES DULY OFFERED BY HER. THE APPEL LANT HAS ALSO EARNED I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 4 DIVIDEND INCOME OF RS. 1,88,130/ - DURING THE YEAR SHOWING THE INTENTION AS INVESTOR. NOW, AS REGARDS THE VOLUME AND FREQUENCY OF TRANSACTIONS, IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS DEALT IN ONLY 15 SCR IPTS AND TRANSACTED ON ONLY 56 DAYS THROUGH OUT THE YEAR AND THE AVERAGE HOLDING PERIOD IN CASE OF SHARES SOLD DURING THE YEAR ALSO WORKS OUT TO 69 DAYS I.E. A PERIOD OF MORE THAN 2 MONTHS. THUS, THE VOLUME AND FREQUENCY IN THE CASE OF THE APPELLANT SUGGES TS THE ACT AS AN INVESTOR AND NOT AS A BUSINESS - MAN SINCE A BUSINESS - MAN WOULD GENERALLY NOT CARRY OUT HIS BUSINESS FOR ONLY 56 DAYS OUT OF 365 DAYS IN A YEAR. MOREOVER, THE BOARD CIRCULAR NO - 4 DATED 15 - 06 - 2007, LAYS DOWN VARIOUS PRINCIPLES FOR DISTINCT ION BETWEEN SHARES HELD AS INVESTMENT AND SHARES HELD AS STOCK IN TRADE SUCH AS WHETHER THE SHARES ARE HELD BY THE ASSESSEE AS A CAPITAL ASSET OR A STOCK IN TRADE, THE OBJECT AND THE MOTIVE FOR ACQUIRING THE SAME, THE VOLUME AND FREQUENCY OF TRANSACTION, T HE MANNER OF MAINTAINING THE BOOKS, THE INFRASTRUCTURE EMPLOYED AND THE DEPLOYMENT OF BORROWED FUNDS OF OWNED FUNDS AND THE SAID CIRCULAR IN PARA 11 CLEARLY ADVICES THE AO THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE IN DETERMINING WHETHER IN A GIVEN CASE, T HE SHARES ARE HELD BY THE ASSESSEE; AS INVESTMENT OR STOCK IN TRADE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO ARRIVE AT A FINAL CONCLUSION. HENCE, IN THE PRESENT CASE, THE AO IS NOT CORRECT TO CORRECT TO A CONCLUSION THAT THE SHARE S ARE HELD BY THE APPELLANT AS STOCK IN TRADE ONLY ON THE PRINCIPLE OF FREQUENCY OF TRANSACTIONS WITHOUT CONSIDERING ALL THE OTHER PRINCIPLES IS LAID DOWN IN THE SAID CIRCULAR AS DISCUSSED EARLIER. FURTHER, THE AO'S OBSERVATION THAT THE PURCHASE AND SALE OF SHARES ON THE SAME DAY, IN DIFFERENT LOTS, OF THE SAME COMPANY, VIDE A SINGLE CONTRACT NOTE, IS VERY HIGH AND THUS, THE VOLUME AND FREQUENCY OF TRANSACTIONS IN THE CASE OF THE APPELLANT IS VERY HIGH AND IN SOME CASES, THERE ARE EVEN 50 TO 100 TRANSACTIO NS IN A DAY IS ALSO NOT CORRECT, SINCE THE PURCHASE AND SALE OF SHARES ON THE SAME DAY, IN DIFFERENT LOTS OF THE SAME COMPANY CANNOT BE TREATED AS SEPARATE TRANSACTION IN ORDER TO JUDGE THE FREQUENCY OF TRANSACTION BUT IN FACT IT IS A SINGLE TRANSACTION AS THE BROKER EXECUTES THE PURCHASE OR SALE OF THE ORDERED QUANTITY IN DIFFERENT LOTS DURING THE MARKET HOURS ON THE SAME DAY SO AS TO FETCH A BEST PRICE FOR HIS CLIENT INSTEAD OF BUYING OR SELLING ON A SINGLE TIME AND MOREOVER, I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 5 SOMETIMES, EVEN THE ENTIRE LO T AS ORDERED BY THE BUYER FOR PURCHASE OF SALE MAY NOT BE AVAILABLE IN ONE GO. THE SAID VIEW EVEN STANDS AFFIRMED BY THE MUMBAI BENCH OF THE ITAT IN THE CASE OF MR. NEHAL V. SHAH VS. ACIT 21(1) IN ITA NO. 2733/MUMBAI/2009 VIDE ORDER DATED 15 - 12 - 2010 WHEREI N ALSO IT HAS BEEN HELD THAT THE SALES ON THE SAME DAY BUT IN DIFFERENT LOTS OF THE SHARES OF THE SAME COMPANY CANNOT BE TREATED AS SEPARATE TRANSACTION TO JUDGE THE FREQUENCY. AS REGARDS, THE CHART PRODUCED BY THE AO IN THE ASSESSMENT ORDER SHOWING THE P URCHASE AND SALE WITHIN A GAP OF 1 TO 2 DAYS, IT IS SEEN THAT OUT OF THE TOTAL SHORT TERM CAPITAL GAIN OF RS. 61,97,756/ - EARNED BY THE APPELLANT ON SALE OF LISTED SHARES AND LISTED MUTUAL FUNDS, ONLY AN AMOUNT OF RS, 33,045/ - IS IN RESPECT OF PURCHASE AND SALE OF SHARES ON THE SAME DAY, WHICH IS NOT THROUGH HER DEMAT ACCOUNT AND THUS, AS PER THE PROVISIONS OF SECTION 43(5), I HOLD THAT ONLY THE SAID AMOUNT OF RS. 33,0457 - OUT OF THE SHORT TERM CAPITAL GAIN OF RS. 61,97,756/ - , NEEDS TO BE TREATED AS B USINESS INCOME AND THE BALANCE AMOUNT OF RS. 61,64,711/ - NEEDS TO BE TREATED AS SHORT TERM CAPITAL GAIN INCOME. IN RESULT THE GROUND OF APPEAL NO. 1 AS RAISED BY THE APPELLANT STANDS PARTLY ALLOWED. 5 . WE HAVE DULY CONSIDERED RIVAL CONTENT IONS AND GONE THROUGH THE RECORD CAREFULLY. THE ISSUE, WHETHER GAIN FROM SALE OF SHARES IS TO BE ASSESSED AS A BUSINESS INCOME OR SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN, IS A HIGHLY DEBATABLE ISSUE. IT ALWAYS PUZZLED THE ADJUDICATOR EVEN AFTER AV AILABILITY OF LARGE NUMBERS OF AUTHORITATIVE PRONOUNCEMENTS BY THE HON BLE SUPR EME COURT/HON BLE HIGH COURT. THE REASON FOR THE PUZZLE IS, ONE HAS TO GATHER THE INTENTION OF AN ASSESSEE WHILE HE ENTERED INTO THE TRANSACTION. THE EXPRESSION INTENTION AS DEFINED IN MERIAM WEBSTER DICTIONARY MEANS, WHAT ONE INTENDS TO ACCOMPLISH OR ATTAIN, IT IMPLIES LITTLE MORE THAN WHAT ONE HAS IN MIND TO DO OR BRING OUT. IT SUGGESTS CLEAR FORMULATION OR DELIBERATION. THUS, IT IS ALWAYS DIFFICULT TO ENTER INTO THE RECE SS OF THE MIND OF AN ASSESSEE TO FIND OUT THE OPERATIVE FORCES EXHIBITING THE INTENTION FOR ENTERING INTO THE TRANSACTION. THIS WOULD GIVE I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 6 RISE A DEBATE. NEVERTHELESS, WE HAVE TO LOOK INTO THE CURIOUS FEATURES OF THIS CASE WHICH WILL GOAD US ON JUST CONCL USION. 6 . BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS OF PRESENT CASE SO AS TO FIND OUT, WHETHER ASSESSEE IS TO BE TERMED AS INVOLVING IN THE TRADING OF SHARES OR IS TO BE TREATED AS A SIMPLISITOR INVESTOR. WE WOULD LIKE TO REFER CERTAIN BROAD PRINCI PLE CULLED OUT BY ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. REPORTED IN 120 TTJ 216. THESE TESTS READ AS UNDER: - 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE T O FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT I T GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED 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 P AID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQU ENT, OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 7 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). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VAL UE? FORMER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTMENT. IN THE 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 THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WIL L INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK - IN - TRADE. (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 VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECO RDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 8 FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK - IN - TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT I S NOT REAL. 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT I S VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER 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 CBD T S CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 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 FEATURES FOR BOTH AND THERE IS NO INTERMINGLI NG 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. I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 9 7. I T IS PERTINENT TO OBSERVE THAT EXPRESSION BUSINESS IS BEING DEFINED IN SUB - SECTION 13 OF SECTION 2. IT INCLUDES ANY TRADES, COMMERCE, OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. THIS EXPRESSION HAS BEEN CONSTRUED TO MEAN THAT IT IS USED IN THE TAXING STATU TE IN A SENSE OF AN OCCUPATION OR PROFESSION WHICH OCCUPIES THE TIME ATTENTION AND LABOUR OF A PERSON WITH AN OBJECT OF MAKING PROFIT. HON BLE MADRA S HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. AMALGAMATION PVT. LT REPORTED IN 108 ITR PAGE 855 HAS OBSERVED THAT, REQUIREMENT OF BUSINESS IS THAT THERE MUST BE REAL, SUBSTANTIAL AND SYSTEMATIC, ORGANIZED COURSE OF ACTIVITY OR CONDUCT WITH THE SET PURPOSE OF EARNING PROFIT IS TO BE TERMED BUSINESS. 8 . THE HON BLE GUJARAT HIGH COURT HAD ALSO AN OCCASION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HON BLE COURT HAS MADE REFERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDA S VS. CIT REPORTED IN 1977 CTR 647. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COURT, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION OF THE SUBJECT - MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCI AL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 10 (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT - MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STOCK - IN - TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS INQUIRY, THOU GH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR, THOUGH NOT C ONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNERSHIP FIRMS AND C OMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTANT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSAC TION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 11 9. I N THE CASE OF SAR NATH INFRASTRUCTURE PVT. LTD, AFTER A DETAILED EVALUATION OF A LARGE NUMBER OF DECISIONS, THE ITAT HAD CULLED OUT THE BROAD TEST TO BE APPLIED ON FACTS OF ANY GIVEN CASE. HON BLE JURISDICTIONAL HIGH COURT HAS ALSO PROPOUNDED CERTAIN BROAD TEST UNDER WHICH THE TRANSACTION OF A N ASSESSEE TO BE EXAMINED. 10 . IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE FACTS OF THE PRESENT CASE, THE STAND OF THE ASSESSEE IS THAT SHE IS A FULL TIME EMPLOYEE IN SA RIN TECHNOLOGY (INDIA) PVT. LTD DRAWING YEARLY SALARY OF MORE THAN 3.05 CRORE. HE HAD SURPLUS FUNDS WITH HER WHICH HAVE BEEN INVESTED IN SHARES AND MUTUAL FUNDS . IN OTHER WORDS, SHE HAS NOT BORROWED ANY MONEY ON INTEREST FOR MAKING INVESTMENT. SHE EXPLA INED THAT FREQUENCY OF TRANSACTIONS NOTICED BY THE ASSESSING OFFICER IS MISCONSTRUCTION OF THE FACTS AND CIRCUMSTANCES . ACCORDING TO THE ASSESSEE, IF, ON 2 ND OF APRIL, 2007 SHE HAD PLACED AN ORDER FOR PURCHASE OF PETRONET LNG LTD , WHICH, THE BROKER ACQUIR ED ON THE SAME DAY IN 15 DIFFERENT LOTS AS DETAILED IN THE SINGLE CONTRACT DATED 2 ND APRIL, 2007. ACCORDING TO THE ASSESSEE, IT WAS A SINGLE TRANSACTION OF 10,200 OF SHARES AND NOT 15 TRANSACTIONS AS MIS - UNDERSTOOD BY THE ASSESSING OFFICER. THE ASSSESSEE ALSO HIGHLIGHTED THAT IN THE PAST AND SUBSEQUENT YEAR, SHE H AS ALWAYS TREATED HER SHARES AS INVESTMENT IN THE BALANCE SHEET AND NOT STOCK IN TRADE , BECAUSE THE SHARES WERE VALUED AT COST AND NOT ON MARKET VALUE ON THE CLOS ING DAY OF THE YEAR. SH E HAD NO INFRASTRUCTURE I.E. OFFICE OR SUPPORTING EMPLOYEES FOR LOOKING AFTER INVESTMENT. SHE HAD MADE THE ENTIRE TR ANSACTION THROUGH DEMAT ACCOUNT, AND H AS ALSO EARNED DIVIDEND INCOME. IT IS ALSO PERTINENT TO MENTION HERE THAT SIMILAR INVESTMENT HAS BEEN MADE IN ASSESSMENT YEAR 2009 - 10 I.E. IMMEDIATELY IN SUBSEQUENT YEARS . THE LD. ASSESSING OFFICER DID NOT DISPUTE THE TREATMENT OF SHARES AS INVESTMENT. THE ORDER PASSED U/S. I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 12 143(3) DAT ED 30 - 11 - 2011 HAS BEEN PLACED ON RECORD. THUS, IN THE IMMEDIATELY SUBSEQUENT YEAR, LD. ASSESSING OFFICER HAS TREATED THE ASSSESSEE AS AN INVESTOR. SIMILARLY, IN ASSESSMENT YEAR 2010 - 11 AGAIN, LD. ASSESSING OFFICER HAS ACCEPTED THE ASSESSEE AS INVESTOR VIDE ASSESSMENT ORDER DATED 28 - 01 - 2013 PASSED U/S. 143. ACCORDING TO THE ASSES SEE, IN EARLIER YEARS ALSO , HER STATUS WAS NEVER CHANGED BY THE ASSESSING OFFICER. ON DUE CONSIDERATION OF THESE FACTS, WE ARE OF THE VIEW THAT LD. ASSESSING OFFICER WAS SIMPLY INFLUENCED BY MAGNITUDE OF TRA NSACTIONS. TO OUR MIND, MAGNITUDE OF TRANSACTIO N IS ONE OF OTHE R FACTOR AMONGST OTHER S FOR DECIDING THE NATURE OF INVESTMENT , WHETHER IT W AS A TRADING IN SHARES OR SIMPLIC ITOR INVESTMENT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES AND THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 11 . IN THE NEXT GROUND OF APPEAL, REVENUE HAS PLEADED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS. 1,51 ,00 0 / - . 12 . BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS MADE FIXED DEPOSITS WITH THE BANK OF BARODA AND AXIS BANK. SHE HAS EARNED THE INTEREST INCOME. T HESE FIXED DEPOSITS ARE OF RS. 13,21,967/ - . THE INCOME HAS BEEN ACCOUNTED BY THE ASSESSEE AS UND ER: - SR. NO. NAME OF THE BANK AMOUNT (RS.) AMOUNT (RS.) 1 2. AXIS BANK LTD. BANK OF BARODA LESS: INTEREST SHOWN IN EARLIER YEAR 1,35,552 22,804 12,09,219/ - 1,12,748/ - I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 13 TOTAL BANK INTEREST ON FD FOR THE CURRENT YEA R 13,21,967/ - 13 . THE LD. ASSESSING OFFICER WHILE APPRECIATING THE FACTS WITH REGARD TO INTEREST INCOME FROM B ANK OF BAR ODA HAD ADOPTED THE FIGURE OF RS . 2,63,748/ - (I.E. RS. 1,30,154/ - + RS. 1,33,594/ - ). THIS AMOUNT HAS BEEN TAKEN BY THE ASSESSING OFF ICER ON THE BASIS OF FD CERTIFICATE OF BANK OF BARODA WHICH SHOWS TOTAL INTEREST UP TO THE MATURITY DATE. WITHOUT APPRECIATING THE FACT THAT FD S HAVE NO T MATURED AT THE END OF THE YEAR AND , HENCE, THE SAID INT EREST FIGURE CANNOT BE ADOPTED, T HE LD. ASSES SING OFFICER HAS ERRED IN TAKING THE FIGURE OF RS. 2,63,748/ - AGAINST THE FIGURE OF RS. 1,12,748/ - . THE ASSESSEE HAS PRODUCED TDS CERTIFICAT E F R O M THE BANK FOR THE PERIOD FROM 01 - 04 - 2007 TO 31 ST MARCH, 2008 SHOWING THE BANK INTEREST INCOME ON FD AT RS. 1, 35,552/ - . THIS INCOME HAS BEEN OFFERED BY THE ASSESSEE FOR TAXATION. 14 . ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY DELETED THE ADDITION BECAUSE THAT INCOME HAS NOT AC CRUED TO THE ASSESSEE. LD. ASSESSING OFFICER HAS ERRONEOUSLY ADOPTED THE HIGHER FIGURE, THEREFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL ALSO. IT IS REJECTED. 15 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER P R ONOUNCED IN THE OPEN COURT ON 24 - 07 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 24 /07 /2015 I.T.A NO. 163 9 /AHD/20 11 A.Y. 2008 - 09 PAGE NO DCIT VS. SMT. RAJESHWARI MEHTA 14 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,