Shibir India Limited, Kolkata V. DCIT, Circle-1, Kolkata, Kolkata

ITA 1688/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1379 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR CIT SR D R DE
• Keywords: Capital asset; Business income; Sham transactions

Judgement Text

I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY , JUDICIAL MEMBER I.T.A. NO. 1 6 88 / KOL / 20 1 6 ASSESSMENT Y EAR : 20 0 7 - 20 0 8 SHIBIR INDIA LIMITED,............................... ..... ... ... ...... . ........ . .APPELLANT 25, PRINCEP STREET, KOLKATA - 700 072 [PAN: AAHCS 5421 K] - VS. - DEPUTY COMMISSIONER OF INCOME TAX,.......... .... .. .......... .....RESPONDENT CIRCLE - 1, KOLKATA, P - 7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA - 700 069 A PPEARANCES BY: SHRI SUBASH AGARWAL, ADVOCATE , FOR THE ASSESSEE SHRI SAURABH KUMAR, ADDL. CIT, SR. D.R. . , FOR THE DEPARTMENT D ATE OF CONCLUDING THE HEARING : MARCH 05 , 2 01 8 DATE OF PRONOUNCING THE ORDER : MARCH 14 , 201 8 O R D E R PER SHRI P.M. JAGTAP, A .M. .: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF ID. COMMISSIONER OF INCOME TAX (APPEALS) 17, KOLKATA DATED 12.05.2016, WHEREBY HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SHORT TERM CAPITAL GAIN OF RS.35,37,966 / AS BUSINESS INCOME OF THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS A NON BANKING FINANCE COMPANY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31.10.2007 DECLARING ITS TOTAL INCOME AT 'NIL'. THE ASSESSEE COMPANY H AD MAINTAINED TWO SEPARATE PORTFOLIOS FOR THE SHARES HELD AS STOCK IN TRADE AND SHARES HELD AS INVESTMENT. IN THE RETURN OF INCOME, THE ASSESSEE COMPANY HAD DECLARED ITS INCOME UNDER THE HEAD 'LONG TERM CAPITAL GAIN', 'SHORT TERM CAPITAL GAIN' AND 'BUSINES S'. ON EXAMINATION OF THE RELEVANT DETAILS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEECOMPANY HAD TRANSFERRED CERTAIN SHARES I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 2 OF 8 HELD EARLIER AS STOCK IN TRADE TO INVESTMENT ACCOUNT AS ON 01.04.2006 AND 01.07.2006 AND THE SAME WERE MOSTLY SOLD WITHIN A PER IOD OF THREE MONTHS TO EARN PROFIT WHICH WAS DECLARED AS SHORT TERM CAPITAL GAIN. THE DETAILS OF SUCH SHARES GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WERE AS UNDER: NAME OF SCRIP AS ON 31.03.2006 TRANSFERRED TO INVESTMENT SOLD ON PROFIT SI EMENS INDIA LTD. TRADING STOCK(1041) 01.04.2006 18.05.2006 (500) 1057020 COLOUR CHEM LIMITED TRADING STOCK(1000) 01.07.2006 29.09.2006 (1000) 178380 TRENT LIMITED TRADING STOCK(1297) 01.07.2006 17.07.2006 (761) 269824 ALSTHOM INDIA LTD. TRADING STOCK(40 00) 01.07.2006 29.09.2006 (4000) 950473 BANK OF INDIA TRADING STOCK(195232) 01.04.2006 18.04.2006 (30000) 18.05.2006 (110000 597125 THERMAX LIMITED TRADING STOCK(3000) 01.04.2006 24.05.2006 (2000) 485144 TOTAL 205570 RS.3537966/ 3. ACCORDING TO TH E ASSESSING OFFICER, THE PROFIT EARNED BY THE ASSESSEE COMPANY FROM THE SALE OF SHARES ORIGINALLY PURCHASED WITH THE INTENTION OF TRADING WAS ASSESSED TO TAX AS BUSINESS INCOME AND THE CONVERSION OF THE SAID SHARES FROM STOCK IN TRADE TO INVESTMENT BEFORE SALE WAS MADE BY THE ASSESSEE COMPANY TO DECLARE THE SAID PROFIT AS SHORT TERM CAPITAL GAIN. HE, THEREFORE, REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION IN THE MATTER. IN REPLY, THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE: ' .................. ..... (A) THE ASSESSEE COMPANY HOLDS SHARES UNDER TWO PORT FOLIOS ONE UNDER INVESTMENTS' AND OTHER 'STOCK IN TRADE'. THE VALUE OF SHARES UNDER THE HEAD 'INVESTMENT' AMOUNTED TO RS.6,11,54,528/ AND UNDER THE HEAD 'STOCK IN TRADE' RS.14,11,58,385/ AS ON 31.03.06. THIS DECISION OF BIFURCATION OF SHARES UNDER THE TWO PORTFOLIOS IS MADE SOLELY BY THE BOARD OF DIRECTORS CONSIDERING VARIOUS FACTORS. IT MAY BE NOTED THAT THE ASSESSEE IS I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 3 OF 8 MAINTAINING REGULAR BOOKS OF ACCOUNTS, WHICH ARE BEING PRODUCED HEREWITH FO R YOUR GOODSEL F 'S EXAMINATION. THE BOARD OF DIRECTORS DURING THE YEAR IN QUESTION PASSED RESOLUTIONS TO TRANSFER CERTAIN SHARES (AS SPECIFIED THEREIN) HELD AS STOCK IN TRADE TO THE INVESTMENT ACCOUNT. THE MANAGEMENT THOUGHT, AS MENTIONED IN THE AFOREMENTI ONED RESOLUTIONS, THAT CONSIDERING THE FUNDAMENTALS AND DIVIDEND PAYING TRACK RECORD OF THESE COMPANIES, IT WAS PRUDENT NOT TO TRADE IN THESE SHARES BUT TO HOLD THESE SHARES AS INVESTMENTS. THE SHARES WERE TRA NS FERRED AT THE CLOSING BOOK VALUE AS PER THE A CCOUNTS OF LAST FINANCIAL YEAR I.E. THE VALUE AT WHICH THEY WERE CARRIED IN THE BALANCE SHEET AS ON 31. 03. 06. A DETAILED LIST OF THESE SHARES SHOWING THEREIN THE TRANSFER VALUE, SALE VALUE AND DOSING BALANCE HAS ALREADY BEEN FILED WITH YOUR GOODSELF . ( B) FROM THE ENCLOSED LIST, IT CAN BE SEEN THAT PART OF THESE SHARES WERE SOLD WITHIN ONE OR TWO MONTHS OF TRANSFER TO THE 'INVESTMENT PORTFOLIO'. IN THIS REGARD, IT IS SUBMITTED THAT THOUGH THE INTENTION WAS TO HOLD THESE SHARES LONG TERM AND NOT TO SELL T HEM IN THE SHORT PERIOD, EXIGENCIES OF THE SITUATION FORCED THE ASSESSEE COMPANY TO SELL PART OF THE INVESTMENT PORTFOLIO. (C) IT IS PERTINENT TO [LATE HERE THAT CBDT VIDE CIRCULAR NO. 412007 DT.15. 06.2007 HAS C L ARIFIED THAT A TAX PAYER HAS A LIBERTY TO DECIDE IN THIS REGARD AND MAY ALSO HAVE TWO TYPES OF PORTFOLIOS INVESTMENT PORTFOLIO AND TRADING PORTFOLIO. PARA 10 O F THE SAID CIRCULAR IS QUOTED AS UNDER FOR THE SAKE OF CONVENIENCE. 'THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E. AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN AS SESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME'. THE AFORESAID CIRCULAR HAS ALSO REFERRED TO A SUPREME COURT JUDGMENT AT PARA 5 WHICH GIVEN PREROGATIVE TO THE TAXPAYER TO DECIDE ON WHI CH AMOUNT ACCOUNT HE WISHES TO HOLD THE SHARES. PARA 5 OF THE CIRCULAR IS QUOTED AS UNDER 'IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL COMPANY (P) LIMITED (1971) 82 ITR 586, THE SUPREME COURT OBSERVED THAT (HEAD NOTE) : WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF 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 HE SHOULD IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE HIS STOCK IN TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. IN OUR CASE WE CERTAINLY HAVE PRE DECIDED TO HOLD ALL THE SHARES BY WAY OF INVESTMENTS. IT CAN FURTHER BE SEEN FROM THE BOOKS O F ACCOUNTS PRODUCED I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 4 OF 8 THAT SEPARATE ACCOUNTS ARE BEING MAINTAINED FOR THE TWO TYPES OF PORTFOLIOS. THIS COMPLIES WITH THE REQUIREMENT OF MAINTAINING A CLEAR CUT DISTINCTION BETWEEN THE NATURE OF HOLDINGS'. 4. THE ASSESSING OFFICER DID NOT FIND MERIT IN TH E ABOVE SUBMISSION MADE BY THE ASSESSEE AND PROCEEDED TO TREAT THE SHORT TERM CAPITAL GAIN OF RS.35,37,966/ SHOWN BY THE ASSESSEE COMPANY AS ITS BUSINESS INCOME MAINLY FOR THE FOLLOWING REASONS GIVEN IN THE ASSESSMENT ORDER: 'ASSSSEEE'S INTENTION WAS TR ADING AT THE TIME OF PURCHASE OF SHARES. SHARES WERE HELD AS TRADING STOCK UPTO 31.03.2006. SHARES WERE SOLD WITHIN A VERY SHORT TIME AFTER TRANSFER FROM TRADING TO INVESTMENT ON 01.04.06/01.07.06. FREQUENT AND SUBSTANTIAL NATURE OF TRANSACTIONS INDICAT E TRADING. ASSESSEE COMPANY'S PRIMARY INTENTION WAS TO MAKE PROFIT FROM SHORT TERM TRANSACTIONS WHICH IS MORE OF TRADING THAN INVESTMENT. IT IS PROVED THAT DISCLOSURE OF STCG BY TRANSFERRING SHARES FROM TRADING TO INVESTMENT IS NOT BONAFIDE BUT TO REDUCE TAX L IABI L ITY. DIVIDEND S FROM THESE SHARES ARE RECEIVED FROM HOLDING AS STOCK IN TRADE. DIVIDEND IS LESS THAN 0 .5 % OF THE PROFIT ON SALE. THUS THE TEST OF PROFIT/DIVIDEND RATIO FAILS TO PROVE INVESTMENT IN JUSTIFYING STCG. ARGUMENTS ARE NOT SUPPORTING THE FACTS OF THE CASE'. 5. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SHORT TERM CAPITAL GAIN AS ITS BUSINESS INCOME WAS CHALLENGED BY THE ASSESSEE COMPANY IN THE APPEAL FILED BEFORE THE ID. CIT(APPEALS) AND THE SUBMISSIONS MADE BEFORE THE ASS ESSING OFFICER IN SUPPORT OF ITS CASE ON THE ISSUE WERE REITERATED ON BEHALF OF THE ASSESSEE COMPANY BEFORE THE ID. CJT(APPEALS). THE ID. CIT(APPEALS), HOWEVER, FOUND NO MERIT IN THE SAME AND PROCEEDED TO CONFIRM THE ACTION OF THE ASSESSING OFFICER IN TREA TING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE COMPANY FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER: I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 5 OF 8 'THE SHORT POINT FOR DISCUSSION ON THIS ISSUE IS WHETHER STOCK IN TRADE CAN BE CONVERTED INTO CAPITAL ASSET OR NOT. IT IS THE CONTENTION OF THE A / R OF THE ASSESSEE THAT THERE IS NO BARON CONVERSION OF STOCK IN TRADE INTO CAPITAL ASSET. THE ASSESSEE HAS AR G UED THAT AS THE CONVERSION OF STOCK IN TRADE INTO CAPITAL ASSET HAS BEEN DULLY AUTHORISED BY THE BOARD THE AD SHOULD HAV E ASSESSED THE INCOME ARISING THEREFROM AS CAPITAL GAINS. THE QUESTION NOW ARISES WHETHER THE INCOME FROM THE SALE OF THOSE SHARES, WHICH WERE EARLIER HELD AS STOCK IN TRADE AND NOW ALLEGEDLY HAVE BEEN TRANSFERRED TO THE INVESTMENT ACCOUNT, WOULD GIVE RISE TO BUSINESS INCOME OR CAPITAL GAIN. THE ASSESSEE HAS ARGUED THAT THE ACT DOES NOT PROHIBIT TRANSFER OF SHARES HELD AS STOCK IN TRADE TO THE INVESTMENT ACCOUNT. THE OBVIOUS INTERPRETATION THAT FOLLOWS IS THAT CAPITAL GAIN CAN ONLY ARISE ON SALE OF A CAPITA L ASSET. THE QUESTION WHETHER STOCK IN TRADE CAN BE CONVERTED INTO CAPITAL ASSET HAS TO BE ANSWERED WITH REFERENCE TO THE DEFINITION OF A CAPITAL ASSET. THE TERM CAPITAL ASSET HAS BEEN DEFINED IN SECTION 2 (14) OF THE ACT AS FO LLO WS: CAPITAL ASSET MEANS (A) PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION; BUT DOES NOT INCLUDE ANY STOCK IN TRADE, CONSUMABLE STORES OR RAW MATERIALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION; THEREFORE, IT IS OBSERVED THAT IN THE ACT THE DEFINITION OF CAPITAL ASSET SPECIFICALLY EXCLUDES STOCK IN TRADE. HENCE, STOCK IN TRADE CANNOT BE CONVERTED INTO A CAPITAL ASSET. THEREFORE, THE SALE OF SHARES HELD AS STOCK IN TRADE HAS TO BE ASSESSED AS BUSINESS INCOME. THE HON 'BLE SUPREME COURT IN THE CASE OF BRITANNIA INDUSTRIES [2005J 148 TAXMAN 468 (SC) HAS OBSERVED THAT WHEN THE LANGUAGE OF A STATUTE IS CLEAR AND UNAMBIGUOUS, THE COURTS ARE TO INTERPRET THE SAME IN ITS LITERAL SENSE AND NOT TO GIVE IT A MEANING WHICH WO ULD CAUSE VIOLENCE TO THE PROVISIONS OF THE STATUTE. IN THIS CASE BY ADOPTING A LITERAL INTERPRETATION OF THE DEFINITION OF CAPITAL ASSET THE INEVITABLE CONCLUSION FOLLOWS THAT SHARES HELD AS STOCK IN TRADE CANNOT BE CONVERTED INTO A CAPITAL ASSET AS THE ACT SPECIFICALLY EXCLUDES ANY SUCH CONVERSION. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS THEREFORE DISMISSED'. AGGRIEVED BY THE ORDER OF THE ID. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE CONVERSION OF THE RELEVANT SHARES FROM STOCK IN TRADE TO INVESTMENT BEFORE THEIR SALE BY THE ASSESSEE COMPANY WAS HELD TO BE NOT BONAFIDE BY THE ASSESSIN G OFFICER MAINLY ON THE GROUND THAT IT WAS DONE BY THE I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 6 OF 8 ASSESSEE COMPANY TO REDUCE ITS TAX LIABILITY. AS POINTED OUT BY THE ID. COUNSEL FOR THE ASSESSEE FROM THE COMPUTATION OF TOTAL INCOME, THERE WAS A SUBSTANTIAL L O SS INCURRED BY THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION TO THE TUNE OF RS.1.78 CRORES AND THE SHORT TERM CAPITAL GAIN OF RS.40.76 LAKHS WAS ENTIRELY ADJUSTED BY THE ASSESESE COMPANY AGAINST THE SAID BUSINESS LOSS. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SAID SHORT TERM C APITAL GAIN TO THE EXTENT OF RS.35,37,966/ AS BUSINESS INCOME OF THE ASSESS E E COMPANY THUS HAD NO TAX IMPLICATION AND IT CANNOT BE SAID THAT THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAID PROFIT AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME WAS T O REDUCE ITS TAX LIABILITY. MOREOVER, THE DECISION TO CONVERT THE RELEVANT SHARES FROM STOCK IN TRADE TO INVESTMENT WAS TAKEN IN THE BOARD'S MEETING OF THE ASSESSEE COMPANY AND AS POINTED OUT BY THE ID. COUNSEL FOR THE ASSESSEE FROM THE COPIES OF THE RELEV ANT BOARD'S RESOLUTION PLACED AT PAGES NO. 29 & 30 OF THE PAPER BOOK, REASONS FOR SUCH CONVERSION WERE DULY GIVEN TO JUSTIFY THE CONVERSION. EVEN THE FACT OF SUCH CONVERSION FOUND SPECIFIC MENTION IN THE NOTES TO THE ACCOUNTS OF THE ASSESSEE COMPANY CLARIF YING THAT SUCH CONVERSION WAS MADE AT BOOK VALUE. AS FURTHER POINTED OUT BY THE ID. COUNSEL FOR THE ASSESSEE, OUT OF THE TOTAL 2,05,570 SHARES CONVERTED FROM STOCK IN TRADE TO INVESTMENT, 1,48,261 SHARES WERE SOLD BY THE ASSESSEE AND THE BALANCE QUANTITY W AS CONTINUED TO BE HELD AS INVESTMENT TILL THE END OF THE YEAR UNDER CONSIDERATION. HAVING REGARD TO ALL THESE RELEVANT FACTS AND FIGURES, WE FIND IT DIFFICULT TO AGREE WITH THE CONCLUSION DRAWN BY THE AUTHORITIES BELOW THAT THE CONVERSION OF THE RELEVANT SHARES BY THE ASSESSEE COMPANY FROM STOCK IN TRADE TO INVESTMENT WAS NOT BONAFIDE A ND THAT IT WAS DONE TO REDUCE THE TAX LIABILITY. 7. IN THE CASE OF ACIT VS. SUPERIOR FINANCIAL CONSULTANCY SERVICES PVT. LIMITED (ITA NO. 4208/MUM./2007 DATED 06.03.201 3) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE MUMBAI BENCH OF THIS TRIBUNAL INVOLVING ALMOST IDENTICAL CIRCUMSTANCES AND THE SAME WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWI NG REASONS GIVEN IN PARAGRAPH NO. 6 TO 6.4 OF ITS ORDER: '6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS RELEVANT TO STATE THAT THE LD. CIT ( A), FOR THE PURPOSE OF DECIDING THE CASE HAS ELABORATELY DISCUSSED THREE MAIN ISSUES, NAM ELY (I) WHETHER THE ASSESSEE CAN LEGALLY CONVERT ITS STOCK - IN TRADE INTO I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 7 OF 8 INVESTMENTS, (II) IF YES, WHETHER THE CONVERSION IS MOTIVATED BY TAX AVOIDANCE AND (III) IF NOT, WHETHER THE ASSESSEE CAN CLAIM TO BE AN INVESTOR IN SOME SHARES WHILE DOING SPECULATIO N IN OTHER SHARES. 6.1 . AS REGARDS THE LEGALITY OF CONVERSION OF STOCK - IN TRADE INTO INVESTMENTS, THE LD.CIT HAS CORRECTLY HELD THAT THERE IS NO SPECIFIC BAR FOR THE SAID CONVERSION AND VICE VERSA IN VIEW OF THE DECISION OF THE HON 'BL E SUPREME COURT IN THE CASE OF SIR KIKABHAI PREMCHAND (24 ITR 506) (SC) WHEREIN IT HAS BEEN HELD THAT SUCH CONVERSION IS NOT SOMETHING NOT KNOWN TO THE COMMERCIAL WORLD AND THERE IS NO LEGAL BAR ON THE SAME. 6.2. ON THE SECOND ISSUE AS TO WHETHER THE CONVERSION IS MOTIVAT ED BY TAX AVOIDANCE, SHORN OFF EXTRACTING THE ENTIRE DISCUSSION, READING OF PARAS 14.3 TO 14.7 OF THE ORDER OF THE LD. CIT ( A) CLEARLY ESTABLISHES THAT THE LD.CIT ( A) HAS WELL APPRECIATED THE FACTS AND THEREBY ARRIVED AT A CORRECT CONCLUSION THAT IT IS NOT T HE CASE THAT THE ASSESSEE HAS ENTERED INTO ANY SHAM TRANSACTIONS FOR AVOIDING TAX AND THE CONVERSION OF STOCK INTO INVESTMENT IS TRANSPARENT FROM THE AUDITED ACCOUNTS OF THE ASSESSEE WITH C1ARIFICATORY NOTE APPENDED IN THE NO.TES TO ACCOUNTS FOR THE FY 200 2 - 03. AS REGARDS THE ARGUMENT THE LD. DR THAT SUCH CONVERSION IS TO BE TREATED AS A SHAM TRANSACTION BASED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF TWIN STAR HOLDINGS LTD VS ANAND KEDIA (260 ITR 6 BOM ) , WE ARE OF THE VIEW THAT THE RA TIO OF THE SAID DECISION IS NOT APPLICABLE TO THE FACTS IN THE PRESENT CASE AS THE FORMER RELATES TO SUCH CONVERSION BY THREE INVESTMENT COMPANIES AND TRANSMISSION OF SHARES THEREON. 6.3 . REGARDING THE THIRD ISSUE WHETHER THE ASSESSEE CAN BE AN INVESTOR AS WELL AS A SPECULATOR IN SHARES SIMULTANEOUSLY, THE LD. CIT{A) HAS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF VESTA INVESTMENTS &TRADING CO.{P) LTD (70 ITD 200)(CHD) WHEREIN IT HAS BEEN HELD THAT IN THE CASE OF ASSESSEE HOLDING BOTH SHARES AS WELL AS INVESTMENTS FOR WHICH SEPARATE ACCOUNTS ARE KEPT AND IF THE DEPARTMENT IN THE PAST HAS ACCEPTED THE SALE OF SHARES HELD AS INVESTMENTS WOULD GIVE RISE TO CAPITAL GAINS AND NOT BUSINESS. SINCE THE SAID DECISION IS SQUARELY APPLICABLE IN THE CASE OF THE ASSESSEE IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE LD. CIT ( A) HAS RIG HTLY ANSWERED THIS ISSUE AFFIRMATIVELY . 6.4. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT{A) DIRECTING THE AO TO A SSESS THE PROFITS ON SALE OF SHARE UNDER THE HEAD 'CAPITAL GAINS' AND NOT AS BUSINESS INCOME. THUS, THE ORDER OF THE LD. CIT IS HEREBY UPHELD. SINCE ALL THE SUB - GROUNDS IN THIS APPEAL ARE PERTAINING TO THE SAME ISSUE IN RELATION TO THE ASSESSMENT OF LONG T ERM CAPITAL GAINS, WE DO NOT ADJUDICATE THE SUB - GROUNDS SEPARATELY'. 8. KEEPING IN VIEW THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF SUPERIOR FINANCIAL CONSULTANCY SERVICES PVT. LIMITED (SUPRA) AND HAVING REGARD TO ALL THE RELEVANT FACTS AND FIGURES OF THE CASE AS DISCUSSED A BOVE, WE ARE OF THE VIEW THAT THE CONVERSION OF RELEVANT SHARES BY THE ASSESSEE COMPANY FROM STOCK IN TRADE TO INVESTMENT WAS BONAFIDE AND THE PROFIT ARISING FROM SALE OF SUCH SHARES AFTER CONVERSION I.T.A. NO . 1688 / KOL ./20 1 6 ASSESSMENT YEAR: 20 0 7 20 0 8 PAGE 8 OF 8 IS CHARGEABLE TO TAX AS SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. IN THAT VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER OF THE ID. CIT(APPEALS) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO TREAT THE AMOUNT IN QUESTION AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH D AY OF MARCH , 201 8 . SD/ - SD/ - ( A.T. VARKEY ) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA , THE 14 TH D AY OF MARCH , 201 8 COPIES TO : (1) SHIBIR INDIA LIMITED, 25, PRINCEP STREET, KOLKATA - 700 072 (2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1, KOLKATA, P - 7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA - 700 069 (3) COMMISSIONER OF INCOME TA X (APPEALS ) 17 , KOLKATA ; ( 4 ) COMMISSIONER OF INCOME TAX , ( 5 ) THE DEPARTMENTAL REPRESENTATIVE ( 6 ) GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY , HE AD OF OFFICE/DDO, INCOME TAX APPELLATE TRIBUNAL , KOLKATA B ENCHES, KOLKATA LAHA/SR. P.S .