The DCIT, Circle-10, Ahmedabad V. Shri Dhiren Hasmukhlal Vora, Ahmedabad

ITA 1705/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67992 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 26-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 20-05-2010
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1705/AHD/2010 A.Y. 2007-08 THE INCOME TAX OFFICER, WARD-8(4), AHMEDABAD. VS SH. DHIREN HASMUKHLAL VORA, AHMEDABAD. PAN: AAWPV2756N (APPELLANT) (RESPONDENT) REVENUE BY : SH. O.P. BATHEJA, SR.D.R., ASSESSEE(S) BY : SH. S.N. SOPARKAR, AR / // / DATE OF HEARING : 26/11/2013 / DATE OF PRONOUNCEMENT : 29/11/2013 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER OF THE LEARNED CIT(A)-XVI, AHMEDABAD, DATED 17.03.2010. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE REVEN UE IS THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SHARE SHOU LD BE TREATED AS CAPITAL ASSES ON THE GROUND THAT THESE WERE PURC HASED OUT OF NON-INTEREST BEARING FUNDS AND THAT THEY WERE SOLD AFTER HOLDING THEM FOR MORE THAN 30 DAYS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS UNDERTAKEN HUGE TRADE IN VARIOUS SCRIPTS VALUED AT RS ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 2 - 24,14,50,211/- WHICH BY NO MEANS CAN BE TREATED AS OCCASIONAL ACTIVITY. THE SCRIPTS HAVE NOT BEEN PURCHASED WITH AN INTENTION FOR LONG TERM APPRECIATION. IN A NUMBER OF INSTANC ES, THEY HAVE BEEN SOLD ON THE DATE OF PURCHASE BRINGING IN THE E LEMENT OF SPECULATION IN THE TRANSACTION. IN SUCH CASES, DEL IVERY OF SCRIPTS IS NOT REALIZED AND THE POSSESSION IS SQUARED UP BE FORE THE SETTLEMENT DATE. IN OTHER INSTANCES ALSO, THE PERI OD OF HOLDING IS FOR A FEW DAYS AND THE SCRIPTS ARE RE-SOLD IMMEDIAT ELY ON PROFITS AND THAT THE TRANSACTIONS ENTAILS HUGE PROFIT FROM THE PURCHASE AND SALE OF SHARES DIVIDEND INCOME EARNED IS RS 1,5 7,949/- THE BREAK-UP OF WHICH IS AS FOLLOWS: DIVIDEND RECEIVED DURING THE YEAR ON THE SHARES SOL D SR. NO. COMPANY NAME QTY. GROSS DIVIDEND TDS NET DIVIDEND 1 TATA STEEL LTD. 2 26.0 0 26.0 2 SHREYAS SHIPPING & LOGISTICS LTD. 300 360.00 0 360.00 3 KALE CONSULTANTS LTD. 50 63.00 0 63.00 TOTAL 389.00 389.00 DIVIDEND RECEIVED DURING THE YEAR ON THE SHARES SOL D SR. NO. COMPANY NAME QTY. GROSS DIVIDEND TDS NET DIVIDEND 1 NANDAN EXIM 2100000 157500.00 0 157500.00 TOTAL 157500.00 0 157500.00 TOTAL DIVIDEND RECEIVED = 389.00 + 157500.00 = 157949.00 ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 3 - OBVIOUSLY, THE SCRIPTS TRADED DURING THE COURSE OF THE YEAR WERE NOT ACQUIRED WITH AN INTENTION OF EARNING DIVIDEND OR LONG TERM APPRECIATION. CLEARLY, THE ASSESSEE EXHIBITS TYPICA L BEHAVIOUR OF SHARE TRADER WHERE PURCHASE AND SALE ARE DONE WITH HIGH FREQUENCY AND EVERY PURCHASE IS BEING MADE WITH THE INTENTION OF QUICK RE-SALE ON PROFIT. HE FURTHER OBSERVED TH AT THE TOTAL TURNOVER REALIZED FROM THE SALE OF SCRIPTS WAS OF T HE VALUE OF RS 5,32,10,163/- WHICH BY ALL MEANS IS SUBSTANTIAL. T HE ACTIVITY IS CARRIED OUT CONTINUOUSLY THROUGHOUT THE YEAR. THER EFORE, THE ASSESSING OFFICER ASSESSED THE PROFIT FROM PURCHASE AND SALE OF SHARES OF RS 57,89,782/- AS BUSINESS INCOME OF THE ASSESSEE IN PLACE OF SHORT TERM CAPITAL GAINS SHOWN BY THE ASSE SSEE. 4. ON APPEAL, THE LEARNED CIT(A) ALLOWING THE APPEAL O F THE ASSESSEE OBSERVED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT . SIMILAR ISSUE HAS BEEN DECIDED BY ME IN THE CASE OF THE APP ELLANT IN AY 2006-07 DATED 22.12.2009 IN APPEAL NO CIT(A)XVI/ACIT.CIR.10/179/2008-09. PARA 9 OF THE S AID ORDER, IS REPRODUCED FOR THE SAKE OF CONVENIENCE. 9. IN VIEW OF THE FOREGOING DISCUSSION AND AFTER GOING THROUGH THE DETAILS AND SUBMISSION OF THE APPELLANT AND AFTER FOLLOWING THE ORDER IN THE CASE OF SONAL D VORA FOR AY 2005-06 PASSED BY ME ON 10.12.2009, MY DECISION IN THE CASE OF THE APPELLANT IS AS UNDER: (I) ALL THE SHARES WHERE HOLDING PERIOD IS LESS THAN 30 DAYS THE SHARES ARE TO BE TREATED AS STOCK-IN-TRADE. ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 4 - (II) PURCHASING OF A CERTAIN QUANTITY OF SCRIPT AND SELL ING THAT WHOLE QUANTITY WOULD COMPRISE OF A CYCLE. IF SUCH A CYCLE IS REPEATED FOR MORE THAN 3 TIMES, THEN THE S CRIPT IS TO BE TREATED AS STOCK-IN-TRADE. IN THAT CASE, THE INTENTION OF THE APPELLANT CANNOT BE STATED TO HOLD THE SHARE S AS INVESTMENT. (III) ALL THE SHARES PURCHASED OUT OF INTEREST BEARING FU NDS ARE TO BE TREATED AS STOCK-IN-TRADE. (IV) IF THE APPELLANT HAS ACQUIRED SHARES OUT OF INTERES T BEARING FUNDS AND SOME EXEMPTED INCOME IS RECEIVED BY THE APPELLANT THEN THE EXPENSES INCLUDING INTEREST EXPENSES RELATING TO THE EXEMPTED INCOME ARE TO BE DISALLOWED AS PER RULE 8D OF THE IT RULES. TO THIS EXTENT, THERE WOULD BE ENHANCEMENT OF INCOME FOR WHICH A NOTICE WAS GIVEN TO THE AR ON 11.12.2009. THE ASSE SSING OFFICER WILL HAVE TO WORK OUT SUCH DISALLOWANCE. (V) IF THE SHARES ARE PURCHASED IN THIS YEAR UNDER APPE AL OUT OF INTEREST BEARING FUNDS THEN THEY ARE TO BE TREAT ED AS STOCK-IN-TRADE. IN OTHER WORDS, THE SALE THEREOF I N THE YEAR OF ITS PURCHASE OR IN SUBSEQUENT YEARS WOULD B E LIABLE TO BE TREATED AS BUSINESS INCOME. (VI) ALL OTHER SHARES ARE TO BE TREATED AS INVESTMENT, T HE INCOME ARISING FROM SALE OF SUCH SHARES IS TO BE TA XED UNDER THE HEAD OF CAPITAL GAINS. (VII) THE ASSESSING OFFICER WILL THEN ALLOW THE CREDIT U/ S 88E OF THE ACT OF STT PAID ON THE SHARES TREATED AS STO CK-IN- TRADE. ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 5 - SUBJECT TO THE ABOVE DIRECTION THE AO WILL VERIFY T HE CONTENTS OF ANNEXURE 1 (ENCLOSED TO THIS ORDER) AND WORK OUT TH E BUSINESS INCOME AND CAPITAL GAINS SEPARATELY. 4.1 FROM THE ANNEXURE ENCLOSED, IT IS SEEN THAT THE RE ARE ONLY THREE SCRIPTS NAMELY AARVEE DENIK, ATLANTA & VIDEOC ON INDUSTRIES WHICH ARE SOLD BY THE APPELLANT WITHIN ONE MONTH OF ITS PURCHASE DURING THE YEAR. THERE ARE ONLY 3 SCRIPTS NAMELY I NTERFACE FINANCE, ROYAL MANOR & SONA KOYO WHICH ARE SOLD AFT ER ONE MONTH OF ITS PURCHASE DURING THE YEAR. FURTHER 3 S CRIPTS NAMELY MULTI ARC, SHRI ADHIKARI BROTHERS & VISHAL EXPORTS ARE SOLD OUT OF THE OPENING STOCK OF SHARES. IN OTHER WORDS, THE A PPELLANT ONLY PURCHASED 6 SCRIPTS AND SOLD 8 SCRIPTS DURING THE W HOLE YEAR. NORMALLY PURCHASING OF 6 SCRIPTS AND SELLING OF 8 S CRIPTS IN A PARTICULAR YEAR SHOULD NOT BE CONSIDERED AS BUSINES S ACTIVITY. IN IMMEDIATELY PREVIOUS YEAR I.E. AY 2006-07, I HAVE D IRECTED THE ASSESSING OFFICER TO TREAT THE SHARE AS INVESTMENT OR STOCK IN TRADE (WHERE THE NUMBER OF SCRIPTS TRANSACTED ARE RELATIV ELY HIGHER I.E. MORE THAN 30) AS MENTIONED ABOVE. BUT SINCE IN THE YEAR UNDER APPEAL THE NUMBER OF SCRIPTS TRANSACTED IS NOT MORE THAN 8 (I.E. PURCHASED 6 & SOLD 8), I HOLD THAT THE SHARES WERE NOT HELD AS STOCK-IN-TRADE. 5. THE LEARNED DEPARTMENT REPRESENTATIVE VEHEMENTLY AR GUED AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE F ILED BEFORE US A COPY OF THE FOLLOWING DECISIONS OF THE TRIBUNAL/H IGH COURT: SR. NO. CASE 1 ACIT VS. STARLITE SECURITIES ITA NO. 1113/AHD/2010, ITAT, AHMEDABAD D.O.J. 22.11.2013 ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 6 - 2 ACIT VS. MANOJ KUMAR SAMDARIA. (2012) 27 TAXMANN.COM 102 (DELHI ITAT) D.O.J. 05.10.2012 3 SMT. HARSHA N. MEHTA VS. DCIT (2011) 43 SOT 332 (MUM. ITAT) D.O.J. 16.07.21010 4 SMT. SADHANA NABERA VS. ACIT ITA NO. 2586/MUM/2009, ITAT, MUMBAI. D.O.J. 26.03.2010 5 DCIT VS. MUKESHBHAI BABULAL SHAH. (2013) 32 TAXMANN.COM 6 (RAJKOT-ITAT) D.O.J. 08.02.2013 6 DCIT VS. SMT. DEEPABEN AMITBHAI SHAH. (2006) 99 ITD 219 (AHM.-ITAT) D.O.J. 25.07.2005 7 PVS RAJU VS. ADDL. CIT (2012) 18 TAXMANN.COM 3 (A.P. HIGH COURT) D.O.J. 27.07.2011 HE SUBMITTED THAT IN ALL THESE DECISIONS, THE TRIBU NAL HAS HELD THAT CONSIDERING THE VOLUME, FREQUENCY CONTINUITY A ND THE REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE, US E OF BORROWED FUNDS IN ACQUISITION OF SHARES, IT CAN BE ASCERTAIN ED WHETHER THE MOTIVE OF THE ASSESSEE WAS TO DO THE BUSINESS IN SH ARES AND NOT TO BE AN INVESTOR IN SHARES. IF THESE DECISIONS AR E CONSIDERED, THEN THE CASE OF THE ASSESSEE WILL BE THAT OF TRADI NG IN SHARES AND NOT AN INVESTOR. 6. ON THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE S UBMITTED THAT IN THE ASSESSEES OWN CASE IN THE ASSESSMENT Y EAR 2006-07 IN ITA NO. 676/AD/2010 ORDER DATED 12.10.2012, THE TRIBUNAL IN THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE HAS HELD THAT PROFITS FROM PURCHASE AND SALE OF SHARES WAS TO BE ASSESSED AS ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 7 - CAPITAL GAINS AND NOT AS BUSINESS INCOME. HE FURTH ER ARGUED THAT WHEN IN THE ASSESSEES OWN CASE IN THE IMMEDIA TELY PRECEDING YEAR IT HAS BEEN HELD ON THE SIMILAR FACT S AND CIRCUMSTANCES OF THE CASE THAT PROFIT FROM PURCHASE AND SALE OF SHARES IS TO BE TREATED AS CAPITAL GAINS AND NOT BU SINESS INCOME, THE LEARNED DR CANNOT RELY ON OTHER DECISIONS OF TH E TRIBUNAL TO SAY THAT THE PROFIT EARNED WAS BUSINESS PROFIT AND NOT CAPITAL GAINS. THE DR HAS NOT POINTED OUT ANY DISTINGUISHI NG FEATURES IN THE ORDER OF THE TRIBUNAL FOR THE EARLIER ASSESS MENT YEAR 2006- 07. THEREFORE HE SUBMITTED THAT FOLLOWING THE ORDE R OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006- 07, THE APPEAL OF THE ASSESSEE SHOULD BE ALLOWED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE IN THE RETURN OF INCOME FILED SHOWED INCOME OF RS 57,89,782/- EARNED FROM PURCHASE AND S ALE OF SHARES AS SHORT TERM CAPITAL GAINS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD UNDERTAKEN HUGE TRAD E IN VARIOUS SCRIPTS, HAD EARNED ONLY DIVIDEND INCOME OF RS 1,57 ,949/- AND ON THE BASIS OF TOTAL TURNOVER OF RS 5,32,10,949/- FROM THE SALE OF SCRIPTS HELD THAT THE INTENTION OF THE ASSESSEE WAS NOT TO HOLD THE INVESTMENTS FOR EARNING DIVIDEND INCOME FOR LON G TERM APPRECIATION BUT WAS TO MAKE PROFIT ON QUICK RE-SAL E OF THE SHARES. ON APPEAL, THE CIT(A) FOLLOWING HIS ORDER IN THE EARLIER ASSESSMENT YEAR 2006-07 HAS ALLOWED THE APPEAL OF T HE ASSESSEE HOLDING THAT THE PROFITS EARNED FROM PURCHASE AND S ALE OF SHARES WAS THE SHORT TERM CAPITAL GAINS OF THE ASSESSEE AN D NOT BUSINESS ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 8 - INCOME. WE FIND THAT THE ORDER OF THE LEARNED CIT( A) IN ASSESSMENT YEAR 2006-07 WAS CONFIRMED IN APPEAL BY THE TRIBUNAL. FURTHER WE FIND THAT THE LEARNED AR OF T HE ASSESSEE HAS RELIED ON THE DECISIONS OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. VAIBHAV J. SHAH(HUF) IN THE ASSESSMENT YEAR 2005-06 AND 2006-07 WHEREIN THE ASSESSEE HAD 6 4 NOS. OF SALE TRANSACTIONS IN 27 SCRIPTS IN ASSESSMENT YEAR 2005-06 AND 17 SALE TRANSACTIONS IN 11 NOS. OF SCRIPTS IN THE A SSESSMENT YEAR 2006-07, HELD THAT THE TRANSACTIONS OF SALE OF SHAR ES AND VOLUME WERE NOT SUBSTANTIAL AND THEREFORE THERE WAS NO ERR OR OR IRREGULARITY IN THE ORDER OF THE TRIBUNAL. SIMILAR LY, IN THE CASE OF THE ASSESSEE ALSO THE LEARNED DR HAS NOT DISPUTED T HE FINDING OF THE LEARNED CIT(A) THAT THERE MAY BE ONLY 3 SCRIPTS NAMELY INTERFACE FINANCE, ROYAL MANOR & SONA KOYO WHICH WE RE SOLD AFTER ONE MONTH OF DATE OF PURCHASE DURING THE YEAR AND THAT THE ASSESSEE ONLY PURCHASED 6 SCRIPTS AND SOLD 8 SCRIPT S DURING THE TOTAL YEAR. THEREFORE, THE CASE OF THE ASSESSEE WA S COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. VAIBHAV J. SHAH (SUPRA). FURTHER, IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07 THIS BENCH OF THE TRIBUNAL AFTER CONSIDERING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT ALLOWED THE APPEAL OF THE ASSESSEE AND H ELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDER O F THE AUTHORITIES BELOW AND THE JUDGMENTS CITED BY BO TH SIDES. WE FIND THAT ID. CIT(A) HAS DULY CONSIDERED THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 9 - THE CASE OF PARI MANGALDAS GIRDHARDAS (SUPRA) ON WHICH RELIANCE IS PLACED BY ID. D.R. OF THE REVENUE . AFTER CONSIDERING THE JUDGMENT OF HOBLE GUJARAT HIGH COURT, ID. CIT(A) HAS ALSO CONSIDERED THE JUDGMENT OF HONBLE ALLAHABD HIGH COURT RENDERED IN THE CASE OF KUNJILAL GUPTA VS. CIT 52 ITR 27 AND THEREAFTER, THE ISSUE IS DECIDED BY HIM AT PARA 7.4 .3 AND 7.4.4 OF HIS ORDER AND FOR THE SAKE OF REFERENC E, THESE PARAS OF HIS ORDER ARE REPRODUCED BELOW: 7.4.3 IN VIEW OF THE ABOVE DECISIONS, IT IS CLEAR THAT WHERE THE APPELLANT AND THE DEPARTMENT HAVE TAKEN DIFFERE NT STAND IN DIFFERENT ASSESSMENT YEAR, IT IS THE DUTY OF THE APPELLATE AUTHORITIES TO SEE THE REASONS FOR CHANGE IN STAND. MERELY BECAUSE IN EARLY YEARS, THE APPELLAN T HAS SHOWN INCOME FROM SALE OF SHARES UNDER THE HEAD OF BUSINESS INCOME DOES NOT NECESSARILY MEAN THAT I N SUBSEQUENT YEAR ALSO THE INCOME ARISING FROM SALE O F SHARES HAS TO BE TAXED UNDER THE SAME HEAD. 7.4.4 IN OTHER WORDS, THE APPELLANT WOULD BE LIABLE TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME IN RESPECT OF THE SHARES PURCHASED OUT OF INTEREST BEARING FUNDS & IF THE SHARES ARE PURCHASED OUT OF NON INTEREST BEA RING FUNDS THEN AS PER THE DECISION OF ITT, MUMBAI 62 IT D 39 THE INCOME IS TAXABLE UNDER CAPITAL GAINS. IN T HE CASE OF THE APPELLANT NUMBER OF SCRIPTS PURCHASED A ND SOLD IS ONLY 6 AS MENTIONED ABOVE. THESE SHARES AR E SHOWN IN THE BOOKS AS INVESTMENT AND THE FREQUENCY OF TRANSACTIONS IS VERY LESS. THE APPELLANT PURCHASED ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 10 - SUCH SHARES WITH THE INTENTION OF INVESTMENT. THE INCOME ARISING FROM SUCH INVESTMENT IS THEREFORE TO BE TAXED AS INCOME FROM CAPITAL GAINS AND NOT A BUSINE SS INCOME AS HELD BY THE ASSESSING OFFICER. 9. FROM THE ABOVE PARAS OF THE ORDER OF ID. CIT(A), WE FIND THAT A CLEAR FINDING IS GIVEN BY ID. CIT(A) TH AT IN THE PRESENT CASE, NUMBER OF SHARES PURCHASED AND SOLD IS ONLY SIX. WE ALSO FIND THAT THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDAS (SUPR) ON WHICH RELIANCE HAS BEEN PLACED BY ID. D.R. OF THE REVENUE HAS ALREADY BEEN CONSIDERED BY ID. CIT(A). NOW, IN VIE W OF THIS FINDING OF ID. CIT(A) THAT THE NUMBER OF SH ARES PURCHASED AND SOLD IS ONLY SIX, IN THE PRESENT CASE , WE EXAMINE THE APPLICABILITY OF RECENT JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA) ON WHICH RELIANCE IS PLACED BY ID. A.R. OF THE ASSESSEE. THE RELEVANT PARA OF THIS JUDGMENT BEING PARA NO. 9 IS REPRODUCED BELOW: IN VIEW OF THE AFORESAID DECISIONS OF THE APEX COU RT AS WELL AS OF THIS COURT, IT IS CLEAR THAT WHERE NU MBER OF TRANSACTIONS OF SALE AND PURCHASE OF SHARES TAKE S PLACE, THE MOST IMPORTANT TEST IS THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE OF THE SHARES. HOWEVER, WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH MAGNITUDE OF THE TRANSACTION, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, THEN AN ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 11 - INFERENCE CAN BE DRAWN THAT ACTIVITY IS IN THE NATU RE OF BUSINESS. LEARNED COUNSEL FOR THE REVENUE FROM THE RECORDS COULD NOT DEMONSTRATE THAT THERE WERE LARGE NUMBER OF TRANSACTIONS WHICH HAD FREQUENCY, VOLUME, CONTINUITY AND REGULARITY AND FELL WITHIN THE TESTS LAID DOWN BY THE DIVISION BENCH OF THIS COURT. 10. FROM THE ABOVE PARA OF THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, WE FIND THAT HONBLE GUJARAT HIGH COURT HAS DULY CONSIDERED VARIOUS JUDGMENTS OF HONBLE APEX COURT AND OF HONBLE GUJARAT HIGH COURT AND THEREAFTER, IT WAS HELD THAT WHERE NUMBER OF TRANSACTIONS OF SALE AND PURCHASE OF SHARES TAKE S PLACE, THE MOST IMPORTANT TEST IS THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE OF SHARES AND IF IT IS FOUND THAT THERE IS REPETITION AND CONTINUITY COUPLED WITH MAGNITUDE OF THE TRANSACTIONS BEARING REASONABLE PROPORTION TO THE STRENGTH OF HOLDING, THEN AN INFERENCE CAN BE DRAWN THAT ACTIVITY IS IN THE NATU RE OF BUSINESS. IN THE PRESENT CASE, IT IS NOTED BY ID. CIT(A) ON PAGE NO. 10 OF HIS ORDER THAT NUMBER OF TRANSACTIONS CARRIED BY THE ASSESSEE IN A.Y. 2003-0 4, 2004-05, 2005-06 WERE 9,5 & 9 RESPECTIVELY. THIS FACTOR ALONE GOES TO SHOW THAT AS PER RECENT JUDGME NT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA), IT CANNOT BE SAID THAT THERE IS REPETITION AND CONTINUITY COUPLED WITH MAGNITUDE OF TRANSACTIONS, BEARING REASONABLE ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 12 - PROPORTION TO THE STRENGTH OF HOLDING BECAUSE THE NUMBER OF TRANSACTIONS CARRIED OUT IN THE PRESENT Y EAR IS ONLY 9 AND THEREFORE, AS PER THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, THIS INFERENCE CANNOT B E DRAWN THAT ACTIVITY IS IN THE NATURE OF BUSINESS. THEREFORE, AS PER THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, IT HAS TO BE ACCEPTED THAT THE PROFIT ARISING OF PURCHASE AND SALE OF SHARES IN THE PRESE NT CASE IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD INCOME FROM BUSINESS. 11. SINCE, WE ARE FOLLOWING THE RECENT JUDGMENT OF HONBLE GUJARAT HIGH COURT, IN DECIDING THE ISSUE, VARIOUS TRIBUNALS DECISION CITED BY ID. D.R. OF TH E REVENUE ARE NOT RELEVANT AND NOT ONLY JUDGMENT OF HONBLE GUJARAT HIGH COURT BY ID. D.R. OF THE REVENUE WAS DULY CONSIDERED BY ID. CIT(A) AND THIS JUDGMENT IS ALSO OF NO HELP THE REVENUE IN THE PRES ENT CASE IN VIEW OF SMALL NUMBER OF TRANSACTIONS BEING 9 ONLY IN THE PRESENT CASE. 12. REGARDING THE TRIBUNALS DECISION IN ASSESSEES OWN CASE IN A.Y. 2003-04, WE FIND THAT IN THAT YEAR IT WAS HELD BY THE TRIBUNAL THAT A CONSIDERABLE QUANTITY O F THE SHARES HAVE BEEN PURCHASED AND SOLD AND TOTAL PROFIT EARNED BY THE ASSESSEE BY SALE AND PURCHASE OF SHARES WAS AROUND RS 30 LACS AND THE GAIN OF THE ASSESSEE HAS BEEN ASSESSED BY THE A.O. UNDER THE HE D INCOME FROM BUSINESS AND THEREFORE, THE INTEREST PA ID ON THE AMOUNT BORROWED FOR PURCHASING SHARES HAS TO ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 13 - BE ALLOWED AS INTEREST EXPENDITURE U/S 36(1)(III). HENCE, IT IS SEEN THAT THE ISSUE IN DISPUTE IN A.Y. 2003- 04 WAS REGARDING THE ALLOWABILITY OF INTEREST EXPENDITURE U/S 36(1)(III) AND THIS WAS NOT THE DIS PUTE BEFORE THE TRIBUNAL AS TO WHETHER THE PURCHASE AND SALE OF SHARES WAS IN COURSE OF BUSINESS OR IN THE COURSE OF INVESTMENT. MOREOVER, THIS CANNOT BE SAI D THAT IF AN ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, IT CANNOT HOLD SHARES AS INVESTMENT. WE ALL KNOW THAT A JEWELLER WHO IS DEALING IN JEWELLERY CAN ALSO HELD JEWELLERY AS CAP ITAL ASSET AND SIMILARLY A PERSON WHO IS DEALING IN REAL ESTATE CAN ALSO HOLD CERTAIN PROPERTY AS INVESTMENT AND THEREFORE, SIMPLY ON THIS BASIS THAT IN AN EARL IER YEAR OR EVEN IN THE PRESENT YEAR, THE ASSESSEE WAS ENGAGED IN PURCHASE AND SALE OF SHARES, THE ASSESSE E CANNOT HOLD ANY SHARE AS INVESTMENT. AS PER THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDAS (SUPRA) ALSO, THE QUESTION WAS NOT ANSWERED BY HONBLE GUJARAT HIGH COURT AND MATTER WAS RESTORED BACK TO THE FILE OF THE TRIBUNAL FOR AFRESH DECISION IN THE LIGHT OF TH E OBSERVATIONS MADE IN THIS JUDGMENT AND IT WAS ALSO MADE CLEAR THAT THE COURT HAS NOT EXPRESSED ANY OPINION ON THE MAIN CONTROVERSY BETWEEN THE PARTIES AND IT WOULD BE FOR THE TRIBUNAL TO ADJUDGE ITS DECISION ON THE POINT. HENCE, IT I SEEN THAT THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT HAD MERELY ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 14 - SUGGESTED CERTAIN TESTS WHICH INCLUDE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHASE AND SALE IN THE CASE OF GOODS CONCERNED. HENCE, THESE TESTS ARE IN LINE WITH THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA) AND SINCE, WE HAVE DECIDED THE ISSUE BY FOLLOWING THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT, THIS EARLIER JUDGMENT OF HONBL E HIGH COURT DOES NOT COME IN WAY OF OUR DECISION BECAUSE THE SAME IS ALSO IN LINE WITH THE SUBSEQUEN T DECISION OF HONBLE GUJARAT HIGH COURT. 13. AS PER OUR ABOVE DISCUSSION, BY RESPECTFULLY FO LLOWING THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VAIBHAV J. SHAH (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DEC LINE TO INTERFERE IN THE ORDER OF ID. CIT(A). 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. 15. IT WAS AGREED BY BOTH SIDES THAT THE FACTS AND ARGUMENTS IN THE REMAINING THREE APPEALS ARE IDENTICAL AND THE SAME CAN BE DECIDED ON SIMILAR LI NE. SINCE THE APPEAL IN THE CASE OF SMT. SONAL D. VORA HAVE BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE, OTHER THREE APPEALS ARE ALSO DECIDED ON THE SIMILAR LINE I.E. IN FAVOUR OF THE ASSESSEE. 8. THE LEARNED AR OF THE ASSESSEE HAS POINTED OUT FROM PAGE NO. 48 OF THE PAPER WORK WHICH IS AN ANNEXURE TO THE ST ATEMENT OF TOTAL INCOME THAT DURING THE ENTIRE YEAR, THE ASSES SEE HAD ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 15 - PURCHASED 6 SHARES SCRIPTS AND SOLD 8 SHARES SCRIPT S FROM WHICH IT EARNED PROFIT FROM SHARES OF RS 57,89,780/-. HE SUBMITTED THAT THIS HAS NOT BEEN CONTROVERTED BY THE LEARNED DR WHOSE ONLY SUBMISSION IS THAT THE VALUE OF TRANSACTIONS W AS VERY LARGE. ACCORDING TO HIM, THE ASSESSEE HAD OPENING BALANCE OF SHARES OF RS 1,40,79,741/-, THE PURCHASE MADE DURING THE Y EAR WAS RS 3,84,67,356/- AND SALES MADE DURING THE YEAR WAS RS 5,32,10,164/- AND THE CLOSING BALANCE OF SHARES WAS RS 51,58,561/- AND THEREFORE THE TRANSACTIONS IN PU RCHASE AND SALE OF SHARES ARE BUSINESS TRANSACTIONS OF THE ASS ESSEE AND NOT ITS INVESTMENT. HE SUBMITTED THAT THE ONLY OTHER A RGUMENT OF THE LEARNED DR IS THAT DURING THE YEAR, THE ASSESSE E HAD EARNED MEAGRE AMOUNT OF DIVIDEND OF INCOME OF RS 1,57,949/ -. FOR THIS, HE SUBMITTED THAT THE ASSESSEE INVESTS IN SHA RES NOT ONLY TO EARN DIVIDEND INCOME THEREFROM BUT ALSO FOR APPRECI ATION IN THE VALUE OF SHARES. 9. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. REWASHANKER A. KOTHARI (2006) 283 ITR 338(GUJ.) AND IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT, (197 7) CTR 647 HAS HELD THAT THERE ARE VARIOUS TESTS TO FIND O UT WHETHER THE ASSESSEE IS AN INVESTOR IN SHARE OR TRADER IN SHARE AND THE MOST IMPORTANT TEST SUGGESTED IS REGARDING VOLUME, FREQU ENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF SHARES . 10. IN THE INSTANT CASE, THE ASSESSEE IN THE ENTIRE YEA R MADE 33 TRANSACTIONS WHICH INCLUDED PURCHASE TRANSACTIONS I N 6 SCRIPTS AND SALE TRANSACTIONS IN 8 SCRIPTS, FROM WHICH IN O UR CONSIDERED ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 16 - OPINION, IT CANNOT BE HELD THAT THE ASSESSEE WAS SO REGULARLY ENGAGED IN THE TRANSACTIONS OF SHARES SO AS TO INFE R THAT THE ASSESSEE WAS TRADING IN SHARES. FURTHER, THE SECON D TEST WHICH HAS BEEN LAID DOWN IS WHETHER THE INITIAL ACQUISITI ON OF THIS SUBJECT MATTER OF THE TRANSACTION WAS WITH AN INTEN TION OF DEALING IN THE ITEM OR WITH A VIEW TO MAKING AN INV ESTMENT. IT WAS ALSO STATED BY THE HONBLE HIGH COURT THAT IF T HE TRANSACTION, SINCE ITS INCEPTION, APPEARS TO BE IMP RESSED WITH THE CHARACTER OF THE COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARNING PROFIT, IT WOULD FURNISH EVALUABLE GUIDELINE. WE FIND THAT IN THE PRESENT CASE, THE ASSESSING OFF ICER HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE INIT IAL INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES W AS NOT TO MAKE INVESTMENT IN SHARES AND EARN DIVIDEND INCOME THEREFROM BUT WAS ENTERED INTO WITH THE INTENTION TO EARN PRO FIT BY SELLING SHARES. IN RESPECT OF VOLUME TEST, WE FIND THAT TH E AO INFERRED THE INCOME IN QUESTION AS BUSINESS INCOME BECAUSE T HE VALUE OF OPENING INVESTMENT IN SHARES WAS RS 1,40,79,741/-, PURCHASES DURING THE YEAR WERE OF RS 3,84,67,356/- AND SALES DURING THE YEAR WERE OF RS 5,32,10,164/-. THUS, IT IS OBSERVED THAT INSTEAD OF LOOKING AT THE VOLUME, FREQUENCY AND REGULARITY OF THE TRANSACTION, THE AO WAS INFLUENCED BY THE VALUE AND NOT THE VOLUME OF TRANSACTION WHICH CANNOT BE SUSTAINED. O NE OTHER TEST SUGGESTED BY THE HONBLE GUJARAT HIGH COURT IS THE TREATMENT GIVEN BY THE ASSESSEE IN RESPECT OF SIMIL AR ACTIVITIES IN THE PRECEDING AND SUCCEEDING ASSESSMENT YEARS. THE RESULT OF THE SIMILAR TRANSACTIONS WAS DECLARED BY THE ASSESS EE AS INCOME FROM CAPITAL GAINS IN THE PRECEDING YEAR WHICH WAS CONFIRMED ITA NO.1705/AHD/2010 SH. HASMUKHLAL VORA VS. DY. CIT, CIRCLE-10, AHMEDAB AD. FOR A.Y. 2007-08 - 17 - BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 2006-07 VIDE ORDER DATED 12.10.2012. PASSED IN ITA NO. 676/AHD/2010. 11. BEFORE PARTING WITH THIS ORDER, WE PLACE ON RECORD THAT THE LEARNED DR ALSO RELIED UPON SEVERAL DECISIONS OF TH E TRIBUNAL AND ONE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT. BUT HOWEVER, SINCE THE DECISION OF THE HONBLE JURI SDICTIONAL HIGH COURT HAS BEEN FOLLOWED BY US, WE NEED NOT BUR DEN THIS ORDER WITH THOSE DECISIONS. THUS, THE GROUNDS OF A PPEAL OF THE REVENUE ARE DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 29 TH OF NOVEMBER, 2013 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 29/11/2013 GHANSHYAM MAURYA, SR. P.S. TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. #$#% ' '& / CONCERNED CIT 4. ' '&() / THE CIT(A)-III, AHMEDABAD 5. )*' %, ' ' % , ,-$ / DR, ITAT, AHMEDABAD 6. *./ 0 / GUARD FILE. / BY ORDER, 1 11 1/ // /,' #2 ,' #2 ,' #2 ,' #2 ( DY./ASSTT.REGISTRAR) ' ' % ' ' % ' ' % ' ' % , , , , ,-$ ,-$ ,-$ ,-$ / ITAT, AHMEDABAD