The ACIT, Circle-14, Ahmedabad V. Shri Umesh R.Shah, Ahmedabad

ITA 1686/AHD/2009

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6020 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 22-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: S N DIVATIA
• Keywords: Capital asset; Business income; Salary income; Retrospective amendment; Cost of acquisition; Revised return

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , ! ' #$ #$ #$ #$ %, ' BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER 1. $./ I.TA. NO.1686/AHD/2009 A.Y. 2006-07 2. $./ I.TA. NO.1255/AHD/2010 A.Y. 2007-08 ASSISTANT CIT CIRCLE-14 AHMEDABAD / DCIT CIRCLE-14 AHMEDABAD / VS. SHRI UMESH R.SHAH 2-B, PANAMA SOCIETY, VIBHAG-2 NARAYAN NAGAR ROAD NR.CHANDRANAGAR, PALDI AHMEDABAD 400 020 '( ! $./)* $./ PAN/GIR NO. : AMHPS 8368 Q ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI P.L. KUREEL, SR.DR ,-(+ / . / RESPONDENT BY : SHRI S.N. DIVATIA, A.R. 0 / ! / / / / DATE OF HEARING 03/07/2014 123 / ! / DATE OF PRONOUNCEMENT 25/07/2014 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGA INST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS )-XXI, AHMEDABAD (CIT(A) IN SHORT) DATED 18/03/2009 AND 03/02/201 0 FOR ASSESSMENT YEARS (AYS) 2006-07 & 2007-08 RESPECTIVE LY. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WA Y OF A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 2 - 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN I TA NO.1686/AHD/2009 FOR AY 2006-07. THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIRECTING TO TREAT THE INCOME OF RS.16,76,516/- AS LONG TERM CAP ITAL GAIN WHICH WAS ASSESSED BY THE AO AS BUSINESS INCOME. 2. THE LEARNED CIT(A) HAS ALSO ERRED IN LAW AND ON FACTS IN DIRECTING TO TREAT THE SURPLUS INCOME OUT OF SALE OF SHARES O F RS.19,69,948/- AS SHORT TERM CAPITAL GAIN WHICH WAS TREATED BY THE AO AS BUSINESS INCOME. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE CANCELLED AND THAT THE ORDER OF THE ASSESSING OFFIC ER BE RESTORED. 2.1. GROUND NOS.1 & 2 ARE DECIDED TOGETHER, FOR THE SAKE OF CONVENIENCE, SINCE THE COMMON ISSUE IS INVOLVED. 2.2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 30/12/2008, THEREBY THE ASSESSING OFFICER (AO IN SHORT) TREATED THE LONG-TERM CAPITAL GAIN (LTCG) AND SHORT-TERM CAPITA L GAIN (STCG) CLAIMED BY THE ASSESSEE AS THE INCOME FROM BUSINESS . AGAINST THIS, ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THE APPEAL, TH EREBY TREATED THE BUSINESS INCOME AS LONG-TERM CAPITAL GAIN AND SHORT -TERM CAPITAL GAIN. NOW, THE REVENUE IS IN APPEAL BEFORE US. ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 3 - 3. AT THE OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE IS NOW COVERED BY THE JUDGEMENT OF HONBLE HIGH COURT OF DELHI RENDERED IN THE CASE OF RADIALS INTERNATIONAL VS. ACIT REPO RTED AT (2014) 103 DTR (DEL) 316. 3.1. THE LD.SR.DR SUPPORTED THE ORDER OF THE AO AND SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED. HE SUBMITTED THAT LD.CIT (A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE THROUGH PORTF OLIO MANAGER ENTERED INTO VARIOUS TRANSACTIONS. 3.2. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS HAVING SALARY INCOME AND IS NOT ENGAGED INTO THE BU SINESS OF TRADING OF SHARES. HE HAD ENTERED INTO VARIOUS TRANSACTIONS T HROUGH PORTFOLIO INVESTMENT MANAGER AND EXECUTED A PORTFOLIO MANAGE MENT AGREEMENT, DATED 19/05/2003, THEREBY THE PORTFOLIO MANAGER WAS GIVEN DISCRETION TO ENTER INTO TRANSACTION ON BEHALF OF THE ASSESSEE. HE DREW OUR ATTENTION TO VARIOUS TERMS OF THE PORTFOLIO INVESTMENT MANAGEME NT AGREEMENT DATED 19/05/2003. LD.COUNSEL FOR THE ASSESSEE ALSO RELIE D UPON VARIOUS CASE- LAWS TO BUTTRESS HIS CONTENTION THAT UNDER THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE, THE AO WAS NOT JUSTIFIED IN TREAT ING THE LTCG AND STCG AS INCOME FROM BUSINESS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE LD.COUNSEL FOR THE ASSESSEE RELIED ON THE FOLLO WING VARIOUS DECISIONS OF THE COORDINATE BENCHES: 1. ITO VS. RADHA BIRJU PATEL (ITA NO.5382/MUM/09) D ATED 30/11/2010. 2. AMIT LALIT HIRANI VS. DY.CIT (ITA NO.6308/MUM./ 10) DATED 27/04/2012. ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 4 - 3. ARA TRADING & INVESTMENTS PVT.LTD. VS.DY.CIT (IT A NO.499/PN/08) DATED 31/8/2009 4. APOORVA PATNI VS. ADDL.CIT (ITA NO.192/PN/11 DTD . 21/6/2012. 5. MANAN NALIN SHAH VS. ITO (ITA NO.6166/MUM/08) DA TED 6.7.2012. 4.1. IN VIEW OF THE ABOVE DECISIONS, THE LD.CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRANSACTIONS AFFECTED THROUGH PO RTFOLIO MANAGER CANNOT BE TERMED AS TRADING INTO SHARES. WE FIND THAT T HE LD.CIT(A) HAS GIVEN A DETAILED FINDING IN PARA-4 TO 4.6 OF HIS ORDER BY O BSERVING AS UNDER:- '4. THE EFFECTIVE GROUND OF APPEAL RELATES T O THE SURPLUS ARISING ON SALE OF SHARES AND MUTUAL FUNDS BY WAY OF SHORT TERM CAPIT AL GAIN OF RS.19,69,948/- AND LONG TERM CAPITAL GAIN OF RS.16,75,516/- TREATI NG AS BUSINESS INCOME BY A.O. 4.1. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE APPELLANT IS SERVING WITH UNILIVER LTD., AS VICE PRESIDENT AND HAD ENTRUSTED HIS EXISTING SHARE PORT- FOLIO TO ASK RAYMOND JAMES SECURITIES INDIA PVT. LT D., A REGISTERED PORT-FOLIO MANAGEMENT SERVICES UNDER SEBI TO MANAGE HIS INVEST MENT AT THEIR SOLE DISCRETION AS WOULD OPTIMIZE THE RETURN THEREON. IT IS REFERRED TO AS PM HEREINAFTER IN THIS ORDER. THE APPELLANT HAD ENTER ED INTO AN AGREEMENT ON 19.5.2003 CALLED 'PORTFOLIO INVESTMENT MANAGEMENT A GREEMENT' ACCORDINGLY, ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND MUTUAL FUNDS WERE CARRIED OUT BY SAID PM AT ITS SOLE DISCRETION. THE APPELLANT FILED HIS RETURN OF INCOME FOR A.Y. 2006-07 ON 25.08.2006 DECLARING TOT AL INCOME OF RS.75,24,420/- WHICH WAS LATER ON REVISED ON 10.3.2 008 FOR RS.74,46,240/-. 4.2. DURING THE ASSESSMENT PROCEEDINGS THE ASSE SSING OFFICER TREATED BOTH AND LTCG AS BUSINESS INCOME MAINLY FOR THE FOLLOWIN G REASONS: - (A) THE SHARES HAVE BEEN SOLD IMMEDIATELY UPON ALLOTMENT (B) THE APPELLANT HAS INDULGED INTO SIMILAR TR ANSACTIONS VERY FREQUENTLY. (C) THE MOTIVE WAS TO EARN MAXIMUM PROFIT AND N OT TO HOLD SHARES FOR A LONGER PERIOD. (D) HE HAD OBTAINED A LOAN OF RS.18.75 LAKHS ON 3.7.2005 FROM HIS FATHER AND APPLIED FOR IPO APPLICATIONS. ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 5 - ON THE OTHER HAND, THE APPELLANT BY HIS REPLY DATED 18.12.2008 AS WELL AS BY VIRTUE OF THE TERMS AND CONDITIONS AS WELL AS NATUR E OF SERVICES RENDERED BY PM, CONTENDED THAT THE SURPLUS ON SALE OF SHARES WA S ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 4.3. DURING THE APPELLATE PROCEEDINGS, SHRI DIVATIA CONTENDED THAT THE TEST APPLIED BY A.O. TO DETERMINE THE CHARACTER OF TRANS ACTION WERE NOT AT ALT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT'S CASE ESPECIALLY IN VIEW OF THE ENTIRE 'PORTFOLIO MANAGED AND HANDLED B Y PM WHEREIN THE APPELLANT HAD NO DISCRETION AT ALL IN DECIDING ANYT HING RELATING TO THE NATURE OF SCRIPT, TIMING OF THE PURCHASE OF SALE, QUANTITY ETC. THE CONTENTIONS RAISED BY THE APPELLANT IN HIS WRITTEN SUBMISSION DATED 16 .3.2009 ARE REPRODUCED HERE AS UNDER:- '...3.1 THE FIRST EFFECTIVE GROUND OF APPEAL RELATE S TO THE CAPITAL GAIN ON SALE OF SHARES, BOTH SHORT TERM AND LONG TERM, TREATED AS B USINESS INCOME BY AO. THE APPELLANT SUBMITS THAT THE ACTION ON PART OF AO IS WHOLLY UNJUSTIFIED BOTH ON FACTS AND IN LAW. (A) LENGTH OF THE PERIOD OF OWNERSHIP IT IS OBSERVED BY AO THAT THE APPELLANT HAD SOLD THE SHARES IMMEDIATELY UPON THE ALLOTMENT OF SHARES. THE APPELLANT SUBMITS THAT THIS CONCLUSION REACHED BY THE AO IS FACTUALLY INCORRECT IN AS MUCH AS THE HOLDING PERIOD RANGES F ROM 3 MONTHS TO 3 YEARS AND THE SHARES HAVE NOT BEEN SOLD IMMEDIATELY UP ON ALLOTMENT. THE APPELLANT HAD FURNISHED DETAILS FROM TRADE REGISTER TO AO DURING THE COURSE OF ASSTT. PROCEEDINGS WHEREFROM IT IS CLEARLY EVIDENT THAT NOT A SINGLE SHARE HAS BEEN SOLD UPON ALLOTMENT AND THE PERIOD OF HOLDING RANGES FROM 3 MONTHS TO 3 YEARS. THE TEST OF PERIOD OF HOLDING APPLIED BY AO IS INCORRECT BECAUSE THE APPELLANT HAD AVAILED THE SERVICES OF P.M. AND HENC E IT WOULD BE THE DECISION OF P.M. EITHER TO HOLD THE SHARES OR DISPOSE OFF. S ECONDLY, IT WILL ALSO BE APPRECIATED THAT IN CASE OF IPO THE SHARE PREMIUM I S HIGH WHENEVER THE SHARES ARE LISTED AND IT NORMALLY REDUCES THEREAFTE R AND HENCE IT WAS A PRUDENT DECISION ON PART OF P.M. TO DISPOSE OFF THE SHARES AS EARLY AS POSSIBLE AND EARN THE APPRECIATION AT AN EARLY DATE. THIS TE ST DOES NOT HOLD GOOD IN THE PRESENT SCENARIO OF SHARE MARKET ESPECIALLY WHEN IN CASE OF MID CAP /SMALL CAP SCRIPTS, THE PREMIUM ALMOST VANISHES AFTER A FE W DAYS OF THE ALLOTMENT. IT WILL ALSO BE APPRECIATED THAT THE ONLY GOAL OF P.M. IS TO SEE THAT THE CAPITAL OF HIS CLIENT APPRECIATE AND GET A HANDSOME RETURN ON THE FUNDS GIVEN FOR PORTFOLIO MANAGEMENT. (B) FREQUENCY OF TRANSACTION : ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 6 - IT IS OBSERVED BY AO THAT THE APPELLANT HAD INDULGE D INTO SIMILAR TRANSACTIONS VERY FREQUENTLY SO THAT THE MULTIPLICITY OF THE TRA NSACTIONS OCCURRING OVER THE YEARS SUPPORTED DEPARTMENTAL STAND THAT THE APPELLA NT WAS A DEALER. THE APPELLANT SUBMITS THAT WHEN THE FUNDS ARE ENTRU STED TO P.M., IT IS QUITE NATURAL THAT P.M. WILL INDULGE INTO A NUMBER OF TRA NSACTIONS WITH A VIEW TO ACHIEVING THE GOAL OF CAPITAL APPRECIATION AND HAND SOME RETURN PROMISED TO THE CLIENT. IT APPEARS THAT AO HAS FAILED TO APPREC IATE THE DISTINCTION BETWEEN THE FUND MANAGEMENT GIVEN TO P.M. AND THE SHARE TRA NSACTIONS CARRIED OUT BY THE ASSESSEE HIMSELF. IN CASE OF THE FORMER, THE UL TIMATE GOAL IS TO GIVE HANDSOME RETURNS TO THE CLIENT WHEREAS IN CASE OF L ATER THE ASSESSEE HIMSELF DECIDES EITHER TO RETAIN OR DISPOSE OFF THE SHARES ON THE BASIS OF TARGET FIXED BY HIM OR THE MARKET TREND UNDERSTOOD BY HIM. THEREFOR E, THIS TEST CANNOT BE SAID TO BE IN FAVOUR OF THE DEPARTMENT. (C) SUPPLEMENTARY WORK AS REGARDS THIS TEST THE AO HIMSELF ADMITS THAT NO SUPPLEMENTARY WORK HAS BEEN CARRIED OUT BY THE APPELLANT. THEREFORE, WHEN THE APPELLANT HAS NOT MAINTAINED ANY INFRASTRUCTURE BY WAY OF OFFICE, STA FF AND OTHER RELATED EXPENSES, IT CANNOT BE CONCLUDED THAT AN ACTIVITY I N A SYSTEMATIC AND ORGANIZED MANNER IS CARRIED OUT BY THE APPELLANT. I T CANNOT BE DISPUTED THAT A TRADER, EITHER IN SHARES OR OTHERWISE, WOULD ALWAYS MAINTAIN AN INFRASTRUCTURE AND CARRY OUT THE ACTIVITY IN A SYSTEMATIC AND ORGA NIZED WAY WHICH WOULD BE CONSIDERED AS A BUSINESS, APPELLANT. THEREFORE, EVEN THIS TEST IS IN FAVOUR OF THE APPELLANT. (D) CIRCUMSTANCES FOR REALIZATION IT IS OBSERVED BY AO THAT THERE WAS NO EMERGENCY CA LLING FOR READY MONEY. THE APPELLANT SUBMITS THAT AO HAS WRONGLY AP PRECIATED THIS TEST. IT IS NOT ALWAYS A CASE THAT A TRADER WOULD SELL HIS GOOD S IN EMERGENCY OR FOR READY MONEY. NORMALLY, A TRADER WOULD LIKE TO ROTAT E HIS STOCK IN TRADE AS MANY TIMES AS POSSIBLE AND HE WOULD INDULGE INTO DI STRESS SALE ONLY IN CASE OF HUGE LOSSES OR SHARP DECLINE IN PRICES. NOW IN THE PRESENT CASE, THE ONLY OBJECT WITH WHICH THE SHARES HAVE BEEN SOLD BY P.M. IS WITH A VIEW TO MAXIMIZE THE NET WORTH OF THE APPELLANT AND TO GIVE A HANDSOME RETURN. THIS IS IN CONSONANCE WITH THE BUSINESS OF P.M. THEREFOR E, THE REALIZATION OF SHARES WOULD BE GOVERNED BY THE AFORESAID OBJECTIVE APART FROM MARKET CURRENTS. (E) MOTIVE IT IS OBSERVED BY AO THAT THE MOTIVE OF THE APPELLA NT WAS ONLY TO EARN MAXIMUM PROFIT AND NOT INVESTMENT. IT IS FURTHER OB SERVED THAT IT WAS NOT THE INTENTION OF THE APPELLANT TO HOLD SHARES FOR A LON GER PERIOD AND ENJOY THE ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 7 - BENEFIT OF OWNERSHIP. THE AO HAS RELIED UPON THE DE CISION IN CASE OF &. VENKATASWAMY NAIDU & CO. VS. CIT [35 ITR 594] (SC). THE APPELLANT SUBMITS THAT THE AO HAS WRONGLY APPL IED THIS TEST WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AO HAS RELIED UPON THE ABSTRACT PRINCIPLES RATHER THAN CON SIDERING THE IMPORTANT FACTUAL ASPECT OF PORTFOLIO MANAGEMENT HANDLING THE ENTIRE AFFAIRS OF THE APPELLANT'S SHARE PORTFOLIO. SECONDLY, THE AO HAS A LSO FAILED TO APPRECIATE THAT EVERY ECONOMIC ACTIVITY IS AIMED AT EARNING MA XIMUM PROFIT AND NOT INCURRING LOSSES. IT IS MORE SO WHEN THE SHARE PORT FOLIO IS MANAGED BY PORTFOLIO MANAGERS. THE AO HAS ALSO FAILED TO APPRE CIATE THAT SINCE THE APPELLANT IS NOT COMPETENT ENOUGH TO MANAGE HIS POR TFOLIO AS WOULD GIVE MAXIMUM BENEFIT, HE AVAILED OFF THE EXPERTISE. EVEN THE INVESTOR WOULD LIKE TO SEE THAT HIS INVESTMENT APPRECIATES AND YIELD A HAN DSOME RETURN. THUS, THE CONTENTION RAISED BY AO IS TOTALLY CONTRARY TO THE GROUND REALITIES OF THE LIFE IN AS MUCH AS THERE WOULD NOT BE A SINGLE PERSON WHO W OULD NOT INVEST WITH A VIEW TO EARNING MORE PROFIT OR INCREASE HIS NET WOR TH. LASTLY, THE CASE THE DECISION OF SUPREME COURT RELIED UPON BY AO RELATES TO THE IMMOVABLE PROPERTY AND IT WAS HELD THAT IN DECIDING THE CHARA CTER OF SUCH TRANSACTION, SEVERAL FACTORS WERE RELEVANT, E.G., (A) WHETHER TH E PURCHASER WAS A TRADER AND THE PURCHASE OF THE COMMODITY AND ITS RESALE WA S ALLIED TO HIS USUAL BUSINESS, (B) THE NATURE AND QUANTITY OF COMMODITY PURCHASED AND RESOLD (C) REPETITION OF THE TRANSACTION. THE DECISION OF THE APEX COURT [35 ITR 594] RELIED UPON BY THE AO RELATES TO THE IMMOVABLE PROP ERTY AND GIVES EMPHASIS ON THE INTENTION OF HOLDING THE PROPERTY WHICH CANN OT BE DISPUTED. IT IS ALSO OBSERVED BY THE APEX COURT THAT THE PRESENCE OF ALL THE FACTORS MAY BE HELD TO DRAW AN INFERENCE THAT THE TRANSACTION IS IN NATURE OF TRADE BUT IT IS NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND C IRCUMSTANCES PRO AND CON. IN EACH CASE IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION. (F) UTILIZATION OF BORROWED FUNDS IT IS OBSERVED BY THE AO THAT THE APPELLANT HAD OBT AINED A LOAN OF RS.18,75,000/- ON 3.7.2005 FROM HIS FATHER AND AGAI NST WHICH RS.5 LACS WERE DEBITED ON 9.7.2005 TOWARDS IPO APPLICATIONS. THERE FORE, ACCORDING TO AO, THE PURCHASE OF SHARES WAS FOR THE PURPOSE OF EARNI NG PROFIT ON THEIR SALE. THE APPELLANT BEGS TO SUBMIT THAT THE OBSERVATIONS MADE BY AO ARE FACTUALLY INCORRECT IN AS MUCH AS RS.18.75 LACS REFERRED TO B Y AO WAS THE REPAYMENT OF LOAN FROM APPELLANT'S FATHER WHICH WAS ADVANCED BY THE APPELLANT'S WIFE IN AY:2003-04. THE APPELLANT HAS ENCLOSED COPY OF COMP UTATION OF INCOME FOR AY:2003-04 IN CASE OF HIS FATHER SHRI RAMESHCHANDRA J. SHAH WHEREIN HE HAS CLEARLY STATED BY WAY OF NOTE OF HAVING TAKEN A LOA N OF RS,17 LACS FROM APPELLANT'S WIFE - SMT. DIPTIBEN U. SHAH. THE REPAY MENT OF THE SAID LOAN HAS ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 8 - BEEN CREDITED IN THE JOINT ACCOUNT HELD BY APPELLA NT AND HIS WIFE WITH ICICI BANK. THE APPELLANT FURTHER SUBMITS THAT THE OBSERVATIONS MADE BY AO THAT THE APPELLANT HAS INDULGED INTO MULTIPLE APPLICATIO NS IN IPOS AND USED BORROWED FUNDS FOR ACQUIRING MAXIMUM NUMBER OF SHAR ES IS FACTUALLY INCORRECT. THE APPELLANT STATES THAT HE HAS NOT MAD E MULTIPLE APPLICATIONS IN IPOS NOR HAS USED BORROWED FUNDS FOR ACQUIRING SHAR ES. THE AO HAS NOT POINTED OUT A SINGLE INSTANCE TO PROVE THAT THE APP ELLANT HAD USED BORROWED FUNDS FOR ACQUIRING SHARES OR MADE MULTIPLE APPLICA TION. IT APPEARS THAT THE AO HAS TREATED THE REPAYMENT OF LOAN RECEIVED FROM HIS FATHER AS BORROWING OF FUNDS AND ITS UTILIZATION BY WAY OF MAKING APPL ICATION IN TWO DIFFERENCE IPOS AS MULTIPLE APPLICATION OUT OF BORROWED FUNDS. BUT THE AO HAS FAILED TO APPRECIATE THAT THE REMAINING AMOUNT HAS BEEN TRANS FERRED BY WAY OF AUTO SWEEP AS EVIDENT FROM THE COPY OF BANK STATEMENT EN CLOSED. THE APPELLANT WOULD ALSO LIKE TO POINT OUT AT THE ICICI BANK A/C IS HANDLED BY THE-APPELLANT HIMSELF WHEREIN SALARY ETC. IS CREDITED AND FUNDS A RE UTILIZED FOR THE PURPOSES AS MAY BE DECIDED BY THE APPELLANT (EXCEPT FOR THE AFORESAID TWO SHARE APPLICATION). ON THE OTHER HAND PMS IS OPERATING TH ROUGH HDFC BANK A/C WHEREIN THERE ARE NO SUCH TRANSACTION OF BORROWING AND UTILIZATION FOR ACQUIRING SHARES. IT MAY BE NOTED THAT PMS IS NOT A UTHORIZE TO BORROW FUNDS FOR SHARE PORTFOLIO MANAGEMENT IN VIEW OF A CLEAR C OVENANT IN THE AFORESAID AGREEMENT. IN SHORT, THE CONTENTION RAISED BY AO OF UTILIZATION OF BORROWED FUNDS IS FACTUALLY INCORRECT AND DESERVES TO BE IGN ORED. TO CONCLUDE, IN VIEW OF THE AFORESAID FACTS AND CIR CUMSTANCES OF THE CASE AS WELL AS LEGAL POSITION, THE CONTENTION RAIS ED AND THE TESTS APPLIED BY AO CLEARLY PROVES THAT THE APPELLANT IS NOT A DEALE R IN SHARES. 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT B EGS TO SUBMIT THAT THE AO HAS FAILED TO APPRECIATE THE FACTS OF THE APPELLANT 'S CASE AND PROCEEDED TO MAKE ASSESSMENT OF TREATING THE APPELLANT AS DEALER IN SHARES WITHOUT TAKING INTO CONSIDERATION THE SPECIAL FEATURES OF THE APPE LLANT'S CASE. THE APPELLANT WOULD LIKE TO POINT OUT THAT, HE BEING A VICE PRESI DENT OF MNC AND REMAINING OUTSIDE INDIA FOR MOST OF THE PERIOD OF THE YEAR, H E IS NOT IN POSITION TO LOOK AFTER HIS INVESTMENT PORTFOLIO. THEREFORE, AS A P RUDENT INVESTOR HE ENTRUSTED THE MANAGEMENT OF HIS FUNDS TO ASK RAYMOND GEMS SEC URITIES INDIA PVT. LTD. TO PROVIDE SERVICES AS INVESTMENT ADVISOR OR A PORT FOLIO MANAGER. EVEN AN AGREEMENT WAS ENTERED INTO ON 19.5.2003 WITH THE SA ID PMS. THEREFORE, THE TRANSACTIONS IN SHARES AND SECURITIES CARRIED OUT B Y PMS SHOULD BE VIEWED KEEPING IN MIND THE FACT THAT THE APPELLANT IS NOT LOOKING AFTER HIS INVESTMENT PORTFOLIO AND THE SAME IS ENTRUSTED TO THE SPECIALI ZED AGENCY. NOW THE NATURE OF AFORESAID AGREEMENT IS DISCRETIONARY PORTFOL IO MANAGEMENT SERVICES AS EVIDENT FROM CLAUSE 1(X) AND CLAUSE-3 ETC. OF THE S AID AGREEMENT. IN OTHER ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 9 - WORDS, THE APPELLANT HAS ENTRUSTED HIS MONEY TO PMS WITH THE SOLE DISCRETION TO MAKE INVESTMENT IN A MANNER AS IT MAY DEEMED FIT BUT AT THE SAME TIME IT WOULD EARN CAPITAL APPRECIATION. ANOTHER IMPORTAN T ASPECT OF THIS AGREEMENT IS THAT PMS IS NOT AUTHORIZED TO BORROW FUNDS OR SE CURITIES ON BEHALF OF THE APPELLANT WHICH CLEARLY INDICATES THAT THE INVESTME NT IN SHARES WAS TO BE MADE ONLY OUT OF FREE FUNDS OF THE APPELLANT AND NOT OUT OF THE BORROWED FUNDS. PMS IS ALSO NOT AUTHORIZED TO ENGAGE IN S PECULATIVE AND SHORT SELLING TRANSACTIONS WHICH ALSO SHOW THAT THE APPELLANT HAD NOT ANY INTENTION TO TRADE IN SHARES. THE APPELLANT WOULD ALSO LIKE TO POINT OUT THAT THE ARRANGEMENT WITH PMS ALSO PROVES THAT THE APPELLANT IS NOT PARTICIPATING IN THE INVESTMENT DECISIONS OR EVEN INFRASTRUCTURE SET UP OF PMS. IN SHORT, THE ARRANGEMENT WITH PMS IS AKIN TO INVESTMENT IN MU TUAL FUND. THE INTENTION OF THE INVESTOR INVESTING IN MUTUAL FUND AND PMS IN VESTMENT BOTH IS THE SAME I.E. TO EARN CAPITAL APPRECIATION OVER A PERIOD OF TIME BY HANDING OVER THE MONIES TO A PROFESSIONAL MANAGER. THE TRANSACTION S MADE UNDER AN ARRANGEMENT OF PMS ARE IN NATURE OF INVESTMENT AND NOT THAT OF THE BUSINESS IN VIEW OF THE FOLLOWING FACTORS : * ABSENCE OF ANY BORROWING AND INVESTMENT M ADE ONLY FROM OWN FUNDS. * NO PAST HISTORY OF DOING BUSINESS IN SHARES AN D SECURITIES. THE APPELLANT BEING IN SERVICE AND REMAINING OUT OF IND IA FOR MOST OF THE PERIOD DOES NOT ALLOW HIM TO INDULGE INTO MANAGING HIS INVESTMENT PORTFOLIO. * THE INVESTMENT FORMS A SMALL PORTION OF W EALTH OWNED BY THE APPELLANT. * CORRESPONDENCE WITH PMS INDICATES THAT THE APPE LLANT WAS LOOKING FOR STEADY RETURNS AND CAPITAL APPRECIATION. THE IN VESTMENT AND THE TRANSACTIONS IN SHARES WERE MADE AT THE ABSOLUTE DI SCRETION OF PMS WITHOUT ANY PARTICIPATION OF THE APPELLANT. * THE ARRANGEMENT WITH PMS SHOWS THAT THE APPELLANT HAD NOT APPOINTED ANY AGENT TO CARRY ON HIS BUSINESS IN SHA RES BUT EXECUTED AUTHORITY IN FAVOUR OF PMS TO MAKE INVESTMENT OF HI S SURPLUS FUNDS SO AS TO GET GOOD RETURNS. IN VIEW OF THE ABOVE BACKGROUND, THE APPELLANT SUBM ITS THAT THE PROFIT ON SALE OF SHARES EARNED THROUGH PMS WAS CAPITAL GAINS AND NOT THE BUSINESS INCOME. 3.3 THE APPELLANT RELIES UPON THE DECISION IN CASE OF JANAK S. RANGWALA [11 SOT 627] (MUM) WHEREIN IT WAS HELD THAT MERE VOLUME OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE WOULD NOT ALTER THE NA TURE OF TRANSACTION. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE B UT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. THIS DECISION HAS BEEN FOLLOWED BY ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 10 - AHMEDABAD BENCH IN CASE OF SANJAY PANDYA [ITA NLO. 2124/A/2008 FOR AY:2005-06 DECIDED ON 12.09.2008 ]. 4.1 LONG TERM CAPITAL GAIN THE AO HAS TREATED LTCG ON SALE OF SHARES OF RS.16, 75,516/- AS BUSINESS INCOME MERELY ON THE GROUND THAT THE DATE OF ACQUIS ITION WAS NOT DISCLOSED. THIS IS OBSERVED IN PARA 7 OF THE ORDER. THE APPELLANT SUBMITS THAT THE DATE OF ACQUISITION IN RESPECT OF SHARE AS LONG TERM WAS ALREADY FURNISHED ALONG WITH THE COMPUTATION OF TOTAL INCOME ANNEXED TO THE RETURN OF INCOME WHICH IS ENC LOSED IN THE PAPER BOOK IN PAGE 4. THE SAME DETAILS WERE ALSO GIVEN IN THE REVISE RETURN FILED ON 10.03.2008 WHICH IS AT PAGE 11. THE RELEVANT BOUGHT NOTES OF THE SHARE BROKER ARE ALSO ENCLOSED IN PAPER BOOK ON PAGE 50 TO 73. S ECONDLY, THE AO HAD NEVER ASKED THE APPELLANT TO GIVE FURTHER DETAILS IN RESP ECT OF LTCG, THOUGH SUCH DETAILS IN RESPECT OF STCG WERE ASKED DURING THE CO URSE OF ASSTT. PROCEEDINGS. IN VIEW OF ABOVE FACTS AND CIRCUMSTANCES OF THE CAS E, THE APPELLANT SUBMITS THAT THE AO WAS NOT JUSTIFIED IN TREATING L TCG AS BUSINESS INCOME. FOR THE SAKE OF REPETITION, IT IS SUBMITTED THAT TH E AO HAS NOT ADVANCED ANY OTHER REASON EXCEPT THE FAILURE TO PROVIDE DATE OF ACQUISITION OF THE SHARES WHICH IN THE FACT OF THE PRESENT CASE IS INCORRECT AND HENCE THE PROFIT ON SALE OF SHARES SHOULD BE TREATED AS LTCG... 4.4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A.R. AS WELL AS GONE THROUGH THE ORDER OF THE ASSESSMENT CAREFUL LY. THE GROUND RAISED BY THE APPELLANT CONSISTS OF TWO PARTS (A) SHORT TERM CAPITAL GAIN OF RS.19,69,948/- AND (B) LONG TERM CAPITAL GAIN OF RS .16,75,516/-. (A) SO FAR AS THE LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.16,75,516 TREATED AS BUSINESS INCOME BY A.O. IS CONCERNED IT IS FOUND FROM PARA-7 OF THE ORDER THAT A.O. HAS TREATED THE, SAME AS BUSINESS I NCOME MERELY ON THE GROUND OF FAILURE TO DISCLOSE DATE OF ACQUISITION B Y THE APPELLANT. HOWEVER, ON GOING THROUGH THE COPY OF STATEMENT OF INCOME, BOTH ORIGINAL AND REVISED RETURNS, IT IS NOTICED THAT THE APPELLANT HAS GIVEN COMPLETE DETAILS BY WAY OF NAME OF THE SCRIPT, PURCHASE/SALE DATE, SALE PRICE, PURCHASE COST AND GAIN. THEY ARE AT PAGE-4 & 11 OF THE PAPER BOOK. THE APPE LLANT HAS ALSO PLACED ON RECORDS BOUGHT NOTES OF THE SHARE BROKER TO PROVE T HE DATE OF PURCHASE AND QUANTITY OF SCRIPT TREATED IN LTCG. THE A.O. HAS NOT ADVANCED ANY OTHER REASON FOR TREATING LTCG FOR THE SALE OF SHARES AS BUSINESS INCOME. HENCE, IN VIEW OF THE AFORESAID FACTS, IT IS HELD THAT THE PROFIT OF RS.16,76, 516 ON SALE OF SHARES HELD AS LONG TERM CAPITAL ASSET CANNOT BE TREATED AS BUSINESS INCOME AND A.O. IS DIRECTED TO ASSESS THE SAME AS LTCG. ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 11 - (B) AS REGARDS, THE STCG OF RS. 19,69,948/- ON SAL E OF SHARES TREATED AS BUSINESS INCOME BY A.O. IS CONCERNED, IT WOULD BE USEFUL TO FIRST TAKE INTO CONSIDERATION THE NATURE OF ACTIVITIES CARRIED OUT AND SERVICES PROVIDED BY PORTFOLIO MANAGEMENT SERVICES (PMS). IT IS A CO MMON PRACTICE AMONGST NOT ONLY CORPORATE BUT ALSO HIGH NET-WO RTH INDIVIDUALS (HNIS) LIKE THE PRESENT APPELLANT TO ENTRUST THE SURPLUS MONEY OR T HE ENTIRE EXISTING PORTFOLIO TO PMS IN VIEW OF THE EXPERTISE AND SPECIAL SKILL P OSSESSED BY THEM AS WELL AS HNI NOT IN POSITION TO DEVOTE ANY TIME FOR MANAGING HIS INVESTMENTS DUE TO VARIOUS REASONS SUCH AS LACK OF TIME OR CONSTANT ST AY ABROAD ETC. PMS IS USUALLY AN INVESTMENT MANAGEMENT CONCERN DULY REGISTERED WITH SEBI AND ENTERED INTO AGREEMENT WITH THE CLIENT IN ACCOR DANCE WITH THE RULES AND REGULATIONS OF SEBI, CALLED PORTFOLIO MANAGERS' REG ULATIONS UNDER WHICH THE MONEYS/EXISTING PORTFOLIO ARE ENTRUSTED BY CLIENTS TO THE DISCRETIONARY PORTFOLIO MANAGERS FOR INVESTMENT. EVEN THE PRES ENT APPELLANT HAD ENTERED INTO SUCH AGREEMENT ON 19.5.2003 WITH ASK RAYMOND J AMES SECURITIES INDIA PVT. LTD. AND IMPORTANT TERMS AND CONDITIONS RELEVA NT FOR THE PURPOSES OF THIS APPEAL ARE BRIEFLY STATED AS FOLLOWS:- (1) PM CANNOT BORROW FUNDS OR SECURITIES ON B EHALF OF HIS CLIENTS AS PER CLAUSE 3.7. (2) PM CANNOT ENGAGE IN SPECULATIVE AND SHORT SELLING TRANSACTIONS AS PER CLAUSE 3.7. (3) ALL TRANSACTIONS TO BE SETTLED BY DELIVERY . (4) PM HAS TO MAINTAIN ALL RECORDS INCOMPLIANCE WIT H PMS REGULATIONS WHICH ARE SUBJECT TO REGULAR EXTERNAL AUDIT AND SEBI INSP ECTION. (5) THE PERUSAL OF CLAUSE 3 OF THE SAID AGREEMENT I NDICATES THAT THE PM WOULD INVEST THE ASSET AS IT MAY CONSIDER APPROPRIATE IN ITS ABSOLUTE DISCRETION AND IT WILL BE FREE TO SUBSTITUTE OR CHANGE AT ANY TIME AL L OR ANY OF THE SECURITIES AT ITS SOLE DISCRETION. THEREFORE, IN ORDER TO DETERMINE THE NATURE OF INCO ME IN THE HANDS OF THE DISCRETIONARY PMS INVESTOR, THE AFORESAID PECULIAR CHARACTERISTICS WHICH REFLECTS THE INTENTION OF THE INVESTOR HAVE TO BE T AKEN INTO ACCOUNT RATHER THAN THE GENERAL TEST OF DETERMINING THE CHARACTER OF PR OFIT ON SALE OF SHARES BY THE INVESTOR INDULGING INTO THE TRANSACTIONS BY HIMSELF . THE SAID TEST CANNOT BE APPLIED IN A BLANKET MANNER TO THE DISCRETIONARY PM S INVESTOR. THIS IS BECAUSE SUCH AN INVESTOR HAS NO DISCRETION WHATSOEV ER IN THE DECISION MAKING PROCESS OR PARTICIPATION IN EXERCISING THE DISCRETI ON. THE DIRECT INVESTOR DECIDES BY HIMSELF ALL THE TRANSACTIONS OF PURCHASE AND SALE OR SHARES AND MUTUAL FUNDS. SECONDLY, THE ENTIRE INFRASTRUCTURE L IKE OFFICE, STAFF, INVESTMENT ANALYSIS ETC ARE SET UP BY PMS WHEREAS SUCH AN INVE STOR HAS GOT NO SUCH INFRASTRUCTURE OF HIS OWN. IN VIEW OF ACTIVITIES NO T TO BE CARRIED ON BY HIM. THIRDLY, THERE IS CLOSE SIMILARITY BETWEEN THE INTE NT OF THE INVESTOR INVESTING FUNDS IN DISCRETIONARY PMS AND THE INVESTOR INVESTI NG FUNDS IN MUTUAL FUNDS. JUST AS IN CASE OF INVESTMENT IN MUTUAL FUNDS, THE UNIT HOLDER EXPECTS RETURN BY ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 12 - WAY OF DIVIDEND AND CAPITAL APPRECIATION IN FORM OF HIGH NAV, THE INVESTOR ENTRUSTING THE FUNDS TO PMS ALSO IS CONCERNED WITH CAPITAL APPRECIATION AND GOOD RETURNS. IN BOTH THE CASES, THE INVESTOR HAS N O CONTROL ON THE METHODOLOGY USED BY PMS OR MUTUAL FUND TO EARN GOOD RETURN I.E. BY SALE OF INVESTMENT OR IN INVESTING IN SHARES OF HIGH EPS FO R CAPITAL APPRECIATION ETC. TO CONCLUDE, KEEPING IN VIEW THE AFORESAID PECULIAR ITIES OF PMS WHICH THE APPELLANT HAS AVAILED OF, IT CAN BE SAID THAT THE T RANSACTIONS BY WAY OF SALE AND PURCHASE OF SHARES ARE IN NATURE OF INVESTMENT AN NOT THAT OF BUSINESS IS FURTHER NOTICED FROM THE FACTS ON RECORD THAT THE A PPELLANT HAD HANDED OVER HIS EXISTING PORTFOLIO TO PMS BECAUSE IT DID NOT YI ELD GOOD DIVIDEND INCOME OR CAPITAL APPRECIATION. HENCE, PMS HAD STARTED WITH T HE EXISTING PORTFOLIO OF THE APPELLANT AND ROTATED IT IN SUCH A WAY THAT IT WOULD GIVE EXPECTED RETURN AS WELL AS CAPITAL APPRECIATION TO THE APPELLANT WH O HAD NEITHER ANY EXPERTISE OR SPECIAL KNOWLEDGE OR ANY SPARE TIME TO DEVOTE TO THESE ACTIVITIES. THE ADDITIONAL FACTORS IN CASE OF THE APPELLANT ARE - ABSENCE OF ANY BORROWINGS AND INVESTMENT MADE O UT OF OWN FUNDS - NO PAST HISTORY OF DOING BUSINESS IN SHARES AND ON THE CONTRARY FULL TIME SERVICE AS VICE PRESIDENT IN MNC WHICH CAN BE SAID TO BE THE SOLE AND FULL TIME ACTIVITY OF EARNING INCOME. - THE INVESTMENT IN SHARES FORMS A SMALL PORTION OF WEALTH OF THE APPELLANT WHEN HE HAS CONTRIBUTED RS.18.83 LAKHS IN PF AND RS . 23.35 LAKHS IN VPF IN THE YEAR UNDER APPEAL AS PER RETURN OF INCOME. 4.5. EVEN IF THE CONTENTIONS RAISED BY A.O. FOR TRE ATING STCG AS BUSINESS INCOME ARE EXAMINED AGAINST BACKGROUND OF AFORESAID FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, IT IS NOTICE D THAT THE SAME DOES NOT LEAD TO THE CONCLUSION THAT THE TRANSACTIONS UNDER TAKEN WERE IN NATURE OF BUSINESS : (A) THE APPELLANT HAS CONTENDED THAT THE HOLDING PE RIOD OF SHARES AS STATED BY A.O. THAT THEY WERE SOLD IMMEDIATELY UPON ALLOTMENT IS FACTUALLY INCORRECT IN AS MUCH AS INITIALLY THE SHARES WERE AN OLD INVESTM ENT AND LATER ON ROTATED WITH A HOLDING PERIOD RANGING FROM 3 MONTHS TO 3 YE ARS. THIS WAS EVIDENT FROM THE DETAILS GIVEN FROM THE SHARE REGISTER WHIC H IS AT PAGE-40 TO 42 AND 74 TO 80 MAINTAINED BY PMS. THE TEST OF LENGTH OF P ERIOD OF OWNERSHIP AS APPLIED BY A.O. IS ALSO NOT APPLICABLE INCASE OF SE RVICES OF PMS AVAILED BY THE INVESTOR BECAUSE THE SAME WOULD BE GOVERNED AT THE DISCRETION OF PM WHO WOULD LIKE TO HOLD SHARES KEEPING IN VIEW THE TARGE TED RETURNS. (B) THE A.O. HAS ALSO OBSERVED THAT THE APPELLANT H AD INDULGED INTO SIMILAR TRANSACTIONS VERY FREQUENTLY SO THAT THE MULTIPLICI TY OF THE TRANSACTIONS MAKE THE APPELLANT AS A DEALER. ON THE OTHER HAND THE AP PELLANT HAS SUBMITTED THAT THE TRANSACTIONS ARE IN SMALL QUANTITY EXCEPT FOR A FEW SCRIPTS LIKE ALLAHABAD BANK, KARNATAKA BANK ETC. IT IS ALSO NOTICED FROM T HE PERUSAL OF THE DETAILS OF ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 13 - SHARE TRANSACTIONS CLAIMED IN STCG (PAGE 38 TO 40) THAT A PARTICULAR SCRIPT HAS BEEN PURCHASED OVER A PERIOD AND SOLD THEREAFTE R FOR E.G. SHARES OF J5W STEEL HAVE BEEN PURCHASED IN JULY, AUGUST AND NOVEM BER,2004 WHEREAS SOLD IN APRIL-MAY 2005. IT IS ALSO NOTICED FROM THE CHAR T GIVEN WITH THE RETURN OF INCOME THAT THERE ARE IN ALL 18 SCRIPTS AND REMAINI NG TWO ARE MUTUAL FUNDS INVESTMENTS. THEREFORE, CONSIDERING THE NUMBER OF S CRIPTS AND THE TOTAL TRANSACTIONS IN A WORKING CYCLE OF 250 DAYS ON BSE IT CANNOT BE SAID THAT THE TRANSACTIONS WERE SUCH FREQUENT SO AS TO MAKE THE A PPELLANT AS A DEALER IN SHARES. ON THE CONTRARY, THE TOTAL PURCHASE COST S HOWN IN STCG CHART BY THE APPELLANT IS MERELY RS.95.21 WHICH IS A SMALL PORTI ON CONSIDERING THE APPELLANT AS HNI. (C ) AS REGARDS THE TEST OF SUPPLEMENTARY WORK, THE A.O. HIMSELF HAS STATED THAT NO SUPPLEMENTARY WORK WAS CARRIED OUT BY THE A PPELLANT AND THEREFORE, THIS TEST WOULD GO IN FAVOUR OF THE APPELLANT AS IN VESTOR. (D) THE AO. HAS ALSO OBSERVED THAT THERE WAS NO EMERGEN CY CALLING FOR READY MONEY TO THE APPELLANT AND HENCE IT WOULD MAKE A TR ADER. ON THE OTHER HAND, IT IS CONTENDED BY THE APPELLANT THAT HE HAS SIMPLY INDULGED INTO CHANGING HIS PORTFOLIO WITH THE HELP OF EXPERT SO AS TO MAKE IT MORE REMUNERATIVE AND CAPITAL APPRECIATION. IT WAS THUS CONTENDED THAT TH ERE WAS MERE A CONVERSION OF SHARE PORTFOLIO OUT OF OLD INVESTMENT AND SALE P ROCEEDS OF THE SAME. THERE IS CONSIDERABLE FORCE IN THE CONTENTION OF THE APPE LLANT THAT NO INVESTOR WOULD LIKE TO LOCK UP HIS INVESTMENT IN PARTICULAR SCRIPT FOR YEARS TO COME THOUGH THE CIRCUMSTANCES INDICATE THAT THERE ARE NO RETURNS OR APPRECIATION IN SUCH SHARES. AFTER ALL, WHETHER IT IS INVESTMENT OR STOC K IN TRADE, EVERY ECONOMIC ACTIVITY OF THE HUMAN BEING IS AIMED AT OPTIMIZING THE RETURN FROM THEM. THE INTENTION OF THE APPELLANT IS GATHERED FROM THE VER Y AGREEMENT EXECUTED WITH PMS. (E) IT IS CONTENDED BY THE APPELLANT THAT THE OBSER VATIONS MADE BY THE A.O. AS TO THE UTILIZATION OF BORROWED FUNDS ARE FACTUALLY INCORRECT BECAUSE HE HAS NOT OBTAINED ANY SUCH LOAN OF RS.18.75 LAKHS ON 3.7.05 FROM HIS FATHER AS STATED BY A.O. AS CONTENDED BY THE APPELLANT THE FACT OF T HE MATTER IS THAT THE ENTRY REFERRED IN THE ICICI BANK ACCOUNT STATEMENT IS THE REPAYMENT OF LOAN FROM APPELLANTS FATHER WHICH WAS ADVANCED IN A.Y. 2003- 04 BY APPELLANT'S WIFE. THE APPELLANT HAS PRODUCED COPY OF COMPUTATION OF I NCOME FOR A.Y. 2003-04 IN CASE OF HIS FATHER - SHRI R.J. SHAH WHEREIN A NO TE HAS BEEN APPENDED OF HAVING TAKEN LOAN OF RS.17 LAKHS FROM APPELLANT'S W IFE - SMT. DIPTIBEN SHAH. AS REGARDS THE OBSERVATIONS BY A.O. AS TO THE MULTI PLE SHARE APPLICATION, IT WAS CONTENDED BY THE APPELLANT THAT HE HAS NOT MADE SHARE APPLICATION FROM SAID ICICI BANK ACCOUNT EXCEPT FOR TWO APPLICATIONS MADE ON 9.7.2005 AND THE OTHER TRANSACTIONS RELATES TO S ALARY ETC. CREDITED AND ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 14 - FUNDS UTILIZED FOR PERSONAL PURPOSES. HE HAS ALSO S TATED THAT PMS HAS OPERATED THROUGH HDFC BANK WHEREIN THERE ARE NO TRA NSACTIONS OF BORROWING IN VIEW OF A BAN UNDER THE AFORESAID AGRE EMENT. EVEN THE LIST OF SHARES GIVEN IN THE PAPER BOOK ALSO INDICATE THAT M OST OF THE SCRIPTS DEALT WITH ARE NOT IPOS, THEREFORE, THE OBSERVATIONS MADE BY T HE A.O. ARE DEVOID OF FACTS AND VAGUE. 4.6. IN VIEW OF THE AFORESAID FACTS AND CIRCUMST ANCES OF HE CASE, I HOLD THAT THE APPELLANT HAD NOT INDULGED INTO THE SHARE TRANS ACTIONS AS DEALER AND HENCE THE SURPLUS OF RS.19,69,948/- ARISING ON SALE OF SHARES SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS RATHER THAN BUS INESS INCOME. 4.2. THE HONBLE DELHI HIGH COURT IN THE CASE OF RA DIALS INTERNATIONAL VS. ACIT REPORTED AT (2014) 103 DTR (DEL) 316 :: IT APPEAL NO.485 OF 2012 HAS HELD AS UNDER:- 17. THIS COURT THUS CONCLUDES THAT: A. THE PMS AGREEMENT IN THIS CASE WAS A MERE AGREEMENT OR AGENCY AND CANNOT BE USED TO INFER ANY INTENTION TO MAKE P ROFIT. B. THE INTENTION OF AN ASSESSEE MUST BE INFERRED HOLIS TICALLY, FROM THE CONDUCT OF THE ASSESSEE, THE CIRCUMSTANCES OF THE T RANSACTIONS AND NOT JUST FROM THE SEEMING MOTIVE AT THE TIME OF DEP OSITING THE MONEY C. ALONG WITH THE INTENTION OF THE ASSESSEE, OTHER CRU CIAL FACTORS LIKE THE SUBSTANTIAL NATURE OF THE TRANSACTIONS, FREQUEN CY, VOLUME ETC. MUST BE TAKEN INTO ACCOUNT TO EVALUATE WHETHER THE TRANSACTIONS ARE ADVENTURE IN THE NATURE OF TRADE. 5. IN THE INSTANT CASE, THE LD.CIT(A) HAS GIVEN A F INDING ON FACT THAT ON GOING THROUGH THE COPY OF STATEMENT OF INCOME BO TH ORIGINAL AND REVISED RETURNS, IT IS NOTICED HAT THE ASSESSEE HAS GIVEN COMPLETE DETAILS BY WAY OF NAME OF THE SCRIPT, PURCHASE/SALE DATE, S ALE PRICE, PURCHASE COST AND GAIN. THEY ARE AT PAGE-4 & 11 OF THE PAPER BOO K. THE ASSESSEE HAS ALSO PLACED ON RECORDS BOUGHT NOTES OF THE SHARE BR OKER TO PROVE THE DATE OF PURCHASE AND QUANTITY OF SCRIPT TREATED IN LTCG. THE AO HAS NOT ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 15 - ADVANCED ANY OTHER REASON FOR TREATING LTCG FOR SAL E OF SHARES AS BUSINESS INCOME. THE REVENUE HAS NOT CONTROVERTE D THE FINDING OF THE LD.CIT(A) BY PLACING ANY CONTRARY MATERIAL ON RECOR D. MOREOVER, THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS IN THE CASE OF RADIALS INTERNATIONAL VS. ACIT(SUPRA), AS IN THIS CASE ALSO THE ASSESSEE ENTERED INTO DISCRETIONARY PORTFOLIO MANAGEMENT AGREEMENT. THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE H ONBLE DELHI HIGH COURT IN THE CASE OF RADIALS INTERNATIONAL VS. ACIT (SUPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), S AME IS HEREBY UPHELD. 5.1. THE LD.CIT(A) HAS FURTHER GIVEN A FINDING THAT IN RESPECT OF STCG, IT WAS EVIDENT FROM THE DETAILS GIVEN FROM THE SHAR E REGISTER MAINTAINED BY PORTFOLIO MANAGER THAT INITIALLY THE SHARES WERE AN OLD INVESTMENT AND LATER ON ROTATED WITH A HOLDING PERIOD RANGING FROM 3 MONTHS TO 3 YEARS. THE FINDING OF LD.CIT(A) REMAINS UNREBUTTED IN VIEW OF THE FACT THAT THE REVENUE HAS NOT PLACED ANY MATERIAL CONTRARY TO THE FINDING OF LD.CIT(A) PROVING THE FINDING AS INCORRECT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A), SAME IS HEREBY UPHEL D. THUS, GROUND NOS.1 & 2 OF REVENUES APPEAL ARE REJECTED. 6. GROUND NO.3 & 4 ARE GENERAL IN NATURE REQUIRE NO INDEPENDENT ADJUDICATION. 7. NOW, WE TAKE UP THE SECOND APPEAL OF THE REVENUE IN ITA NO.1255/AHD/2010 FOR AY 2007-08. THE REVENUE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 16 - 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO TREAT THE INCOME OF RS.8,85,505/- AS SHORT TERM CA PITAL GAIN WHICH WAS ASSESSED BY THE A.O. AS BUSINESS INCOME. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO ASSESS THE SALARY INCOME AS DI SCLOSED IN THE SECOND REVISED RETURN OF RS.88,86,665/- INSTEAD OF RS.92,69,190/- DECLARED IN ORIGINAL RETURN. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE CANCELLED AND THAT THE ORDER OF THE ASSESSING OFFIC ER BE RESTORED. 8. SO FAR AS GROUND NO.1 IS CONCERNED, FACTS ARE ID ENTICAL TO THE FACTS AS WERE IN ITA NO.1686/AHD/2009 IN REVENUES APPEAL FOR AY 2006- 07(SUPRA). WE HAVE DECIDED THE ISSUE IN FAVOUR OF ASSESSEE IN THE AY 2006-07. IN THIS YEAR ALSO, THE REVENUE HAS NOT PO INTED ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE, TAKING A CONSISTENT VIEW, THIS GROUND OF REVENUES APPEAL IS REJECTED. 9. GROUND NO.2 IS AGAINST THE DIRECTION BY THE LD.C IT(A) TO ASSESS THE SALARY INCOME AS DISCLOSED IN THE SECOND REVISED RE TURN OF RS.88,86,665/- INSTEAD OF RS.92,69,190/- DECLARED IN ORIGINAL RETU RN. THE LD.SR.DR SUBMITTED THAT THE ORIGINAL RETURN FILED BY THE ASS ESSEE WAS A BELATED RETURN AND THE AO HAS RIGHTLY TERMED THE REVISED RE TURN AS NON EST . HE SUBMITTED THAT, HOWEVER, THE LD.CIT(A) MISCONSTRUED THE JUDGEMENT OF HONBLE SUPREME COURT RENDERED IN THE CASE OF GOETZ E (INDIA) LTD. VS. CIT REPORTED AT (2006) 284 ITR 323 (SC) AND DIRECTE D THE AO TO ACCEPT THE REVISED RETURN. 9.1. ON THE CONTRARY, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT IN VIEW OF THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF GOETZE ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 17 - (INDIA) LTD. VS. CIT (SUPRA), THE LD.CIT(A) WAS JUS TIFIED IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE BY ACCEPTING THE REVISED RETURN. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACTS REMAINS THAT THE ORIGINAL RETU RN WAS FILED BY THE ASSESSEE WAS LATE, THEREFORE, THE AO TREATED THE RE VISED RETURN AS NON EST . HOWEVER, LD.CIT(A) FOLLOWING THE JUDGEMENT OF THE H ONBLE APEX COURT RENDERED IN THE CASE OF GOETZE (INDIA) LTD. VS. CI T (SUPRA), ALLOWED THE CLAIM OF THE ASSESSEE. WE FIND THAT THE FACTS BEFO RE THE HONBLE APEX COURT GOETZE (INDIA) LTD. VS. CIT (SUPRA) WERE DIFF ERENT AS IN THAT CASE THE ASSESSEE MADE A CLAIM DURING THE ASSESSMENT PRO CEEDINGS BY WAY OF A LETTER AND THE AO REJECTED THE CLAIM. THE HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA) HAS HELD AS UNDER:- 4. THE DECISION IN QUESTION IS THAT THE POWER OF THE TRIBUNAL UNDER SECTION 254 OF THE INCOME-TAX ACT, 1961, IS TO ENTE RTAIN FOR THE FIRST TIME A POINT OF AW PROVIDED THE FACT ON THE BASIS OF WHI CH THE ISSUE OF LAW CAN BE RAISED BEFORE THE TRIBUNAL. THE DECISION DO ES NOT IN ANY WAY RELATE TO THE POWER OF THE ASSESSING OFFICER TO ENT ERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RETURN . IN THE CIRCUMSTANCES OF THE CASE, WE DISMISS THE CIVIL APP EAL. HOWEVER, WE MAKE IT CLEAR THAT THE ISSUE IN THIS CASE IS LIMITE D TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POW ER OF THE INCOME- TAX APPELLATE TRIBUNAL UNDER SECTION 254 OF THE INC OME-TAX ACT, 1961. THERE SHALL BE NO ORDER AS TO COSTS. 10.1. THE CASE IN HAND, THE LD.CIT(A) HAS REPRODUCE D THE SUBMISSIONS OF THE ASSESSEE, WHEREIN THE ASSESSEE HAD SUBMITTED THAT IN THE ORIGINAL RETURN HE DECLARED THE PERQUISITE U/S.17(2) OF THE ACT OF RS.16,21,188/-, WHEREAS IN THE REVISED RETURN, THE VALUE OF PERQUIS ITE WAS TAKEN AT ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 18 - RS.11,47,575/- AND HRA OF RS.15,30,100/- WAS CLAIME D EXEMPT THEREFORE THE SALARY INCOME REDUCED FROM RS.92,69,190/- TO 88 ,86,665/-. THE REVISED WORKING OF PERQUISITE WAS MADE ON ACCOUNT O F RETROSPECTIVE AMENDMENT VIDE INCOME TAX (4 TH AMENDMENT) RULE 2007 WHICH REVISED THE RULES RELATING TO VALUATION OF RENT FREE ACCOMM ODATION W.E.F. AY 2007-08. THIS OBSERVATION OF LD.CIT(A) IS NOT CON TROVERTED BY THE REVENUE. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD.CIT(A) AS THE CLAI M OF THE ASSESSEE WAS MADE DUE TO AMENDMENT IN THE LAW. THEREFORE, THE R ATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GOETZE (INDIA) LT D. VS. CIT (SUPRA) WOULD BE APPLICABLE ON THE PRESENT FACTS OF THE CAS E. GROUND NO.2 OF REVENUES APPEAL IS THEREFORE REJECTED. 11. GROUND NOS.3 & 4 ARE GENERAL IN NATURE REQUIRE NO INDEPENDENT ADJUDICATION. 12. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( %) ! ' ' ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/ 07/2014 ITA NOS.1686/AH D/2009 & 1255/AHD/2010 ACIT VS. SHRI UMESH R.SHAH ASST.YEARS 2006-07 & 2007-08 - 19 - 7.., .../ T.C. NAIR, SR. PS 4 / ,8 9 83 4 / ,8 9 83 4 / ,8 9 83 4 / ,8 9 83/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. $$ : / CONCERNED CIT 4. :() / THE CIT(A)-XXI, AHMEDABAD 5. 8%; , , , / DR, ITAT, AHMEDABAD 6. ;<= >0 / GUARD FILE. 4 4 4 4 / BY ORDER, -8 , //TRUE COPY// ? ?? ?/ // / $) $) $) $) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 17.7.14(DICTATION-PAD 17-PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.7.14 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFO RE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.25.7.14 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.7.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER