Ramesh G Porwal, Pune V. Assistant Commissioner of Income-tax,

ITA 1727/PUN/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9111 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-12-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 16-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Assessee Lawyers: R G NAHAR
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Business expenditure; Revenue expenditure
• Section: 45(2); 143(3); 14A; 11

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1727/PUN/2014 / ASSESSMENT YEAR : 2005-06 MR. RAMESH G. PORWAL, F-213, PARMAR TRADE CENTRE NEAR SADHU VASWANI CHOWK, PUNE 411 001. PAN : ACMPP8685N. . / APPELLANT V/S ASST.COMMISSIONER OF INCOME TAX, RANGE 5, PUNE. . / RESPONDENT ASSESSEE BY : SHRI R.G. NAHAR. REVENUE BY : SHRI DR. VIVEK AGGARWAL. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE ASSESSEE IS EMANATING OUT OF THE ORDER OF COMMISSIONER OF INCOME TAX (A) III, PUNE, DT.0 6.06.2014 FOR THE ASSESSMENT YEAR 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS AN INDIVIDUAL STATED TO BE TRADING IN SHARES, H IRE PURCHASE AND LEASING OF AUTOMOBILES AND HAVING INCOME FROM BUSINESS, CAPITAL GAINS AND OTHER SOURCES. ASSESSEE FILED HIS RETURN / DATE OF HEARING : 28.12.2017 / DATE OF PRONOUNCEMENT: 16.03.2018 2 OF INCOME FOR A.Y. 2005-06 ON 31.10.2005 DECLARING TOTAL INCOM E OF RS.55,07,620/-. THE CASE WAS SELECTED FOR SCRUTINY AND T HEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE AC T VIDE ORDER DATED 14.12.2007 AND THE TOTAL TAXABLE INCOME WAS DETERMINED AT RS.77,84,720/-. AGGRIEVED BY THE ORDER OF A O, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE OR DER DATED 06.06.2014 (IN APPEAL NO.PN/CIT(A)-III/RG-5/624/2009-10) GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CA SE AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT A SU M OF RS.12,31,771/- BE TREATED AS INCOME DERIVED FROM SH ORT TERM CAPITAL GAIN IN PLACE OF INCOME COMPUTED UNDER HEAD ' BUSINESS & PROFESSION' BY ASSESSING OFFICER & CONSEQUENTIAL RE LIEFS MAY PLEASE BE GRANTED TO THE APPELLANT. 2. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT, IT BE HELD THAT PRO FIT &. LOSS ASSESSED IN THE HANDS OF APPELLANT ON ACCOUNT OF SA LE OF SHARES OF PUNJAB NATIONAL BANK & BHARATISHIP YARD AS ITS BUSI NESS INCOME, IS NOT IN ACCORDANCE WITH PROVISIONS OF THE ACT. TH E INCOME SO ASSESSED BE COMPUTED UNDER THE HEAD SHORT TERM CAPI TAL GAIN. 3. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT THAT DIRECTION GIVEN BY CIT APPEALS (III) TO THE EFFECT THAT INTEREST PA ID OF RS.1,72,172/- BY THE APPELLANT FOR ACQUIRING SHARES OF PUNJAB NAT IONAL BANK & BHARATISHIP YARD BE CALCULATED FOR THE PURPOSE OF D ISALLOWANCE UNDER SECTION 14A IS NOT IN ACCORDANCE WITH THE PRO VISIONS OF THE ACT. IT FURTHER BE HELD THAT NO DISALLOWANCE UNDER SECTION 14A IS WARRANTED ON FACTS & CIRCUMSTANCES OF THE ACT. THIS DISALLOWANCE SO DIRECTED TO BE MADE BE DELETED. JUST AND PROPER RELIEF BE GRANTED TO THE APPELLANT ON THIS SCORE. 4. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT IT BE HELD THAT A SU M OF RS. 22,36,567/- BE ASSESSED AS INCOME ARISING FROM SHORT TERM CAPITAL GAIN IN PLACE OF INCOME COMPUTED UNDER HEAD ' INCOME FROM BUSINESS & PROFESSION'. JUST IN PROPER RELIEF BE GR ANTED TO THE APPELLANT ON THIS SCORE. 5. ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CAS E AND AS PER PROVISIONS & SCHEME OF THE ACT TO BE HELD THAT A DI SALLOWANCE OF RS.09,00,526/- OUT OF INTEREST EXPENSES IS NOT IN A CCORDANCE WITH THE PROVISIONS OF THE ACT. THE DISALLOWANCE SO MADE BE DELETED. JUST IN PROPER RELIEF BE GRANTED TO THE APPELLANT O N THIS SCORE. 3 3. BEFORE US, LD. AR SUBMITTED THAT THE ASSESSEE DOES N OT WISH TO PRESS GROUND NO.5 AND THEREFORE THE GROUND NO.5 IS DISMISSED AS NOT PRESSED. 4. 1 ST GROUND IS WITH RESPECT TO TREATING THE INCOME AS BUSINE SS INCOME AS AGAINST IT TREATMENT BY ASSESSEE AS SHORT T ERM CAPITAL GAINS. 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD DISCLOSED SHORT TERM CAPITAL GAINS OF RS.38,23,839/- WHICH WERE SPLIT INTO 2 CATEGORIES NAMELY, SHORT TERM CAPITAL LOSS (--RS.10918/-), THE TRANSACTIONS OF WHICH WERE CONDUCTED BEFORE 01.10.2004 AND SHORT TERM CAPITAL GAINS , THE TRANSACTIONS WHICH WERE CONDUCTED AFTER 01.10.2004 AND O FFERED TO TAX @ 10% (RS. 38,34,755/-). HE ALSO NOTICED THAT ASSESS EE HAD SUO MOTO CONVERTED MUTUAL FUNDS AMOUNTING TO RS.50,76,00 7/- FROM STOCK IN TRADE TO CAPITAL ASSET ON 01.04.2004. HE FUR THER NOTICED THAT TILL EARLIER YEAR, ASSESSEE HAD BEEN TREATIN G THE AFORESAID MUTUAL FUNDS AS STOCK IN TRADE, VALUING IT AT LOWE R OF COST OR MARKET VALUE, DIMINUTION IN VALUE OF STOCK WAS CLAIMED AS BUSINESS LOSS AND ASSESSEE WAS ENJOYING THE ADVANTAGE OF DEBITING BUSINESS EXPENSES AGAINST THE PROFITS MADE FROM SALE OF MU TUAL FUNDS. THE ASSESSEE WAS THEREFORE ASKED TO SHOW CAUSE THE CHANGE FOR TREATING THE STOCK OF MUTUAL FUNDS FROM STOCK IN TRADE TO INVESTMENTS. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOU ND ACCEPTABLE TO THE AO. AO CONCLUDED THAT THE CHANGE IN T REATMENT WAS TO TAKE THE ADVANTAGE OF 10% TAX RATE ON SHORT T ERM CAPITAL GAINS INTRODUCED FROM THE YEAR UNDER CONSIDERATION. AO TH EREAFTER, 4 ON THE BASIS OF WORKING SOUGHT FROM ASSESSEE, CONSIDERED THE AMOUNT OF PROFITS OF RS.12,31,771/- AS BUSINESS INCOME INST EAD OF CAPITAL GAINS OFFERED BY THE ASSESSEE. AGGRIEVED BY THE OR DER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 4.2. I HAVE GIVEN CAREFUL CONSIDERATION TO THE SUB MISSIONS MADE. THE FACTS ARE UNDISPUTED THAT THE APPELLANT WAS CON SISTENTLY HOLDING THE MUTUAL FUND PORTFOLIO AS A BUSINESS STO CK INCLUDING AND UPTO A.Y. 2004-05. THE TOTAL VALUE OF SUCH BUSI NESS AND CURRENT ASSETS AS ON 31.03.2004 WAS RS.1,53,98,504/ -, WHICH WAS INCLUSIVE OF STOCK-IN-TRADE OF RS.1,02,45,799/- . THE APPELLANT CONTINUED TO TRADE IN SHARES AND TO HOLD THE SAME AS BUSINESS ASSETS DURING THIS YEAR. IN THE CIRCUMSTAN CES, THE DECISION ON THE PART OF THE APPELLANT TO CONVERT ON LY THE MUTUAL FUND PORTFOLIO AS A INVESTMENT OR CAPITAL ASSET CAN NOT BE TERMED AS LEGITIMATE AND GENUINE. THE PRINCIPLE OF CONSIST ENCY WHICH WAS ADOPTED BY THE APPELLANT IN THE EARLIER YEARS C ANNOT BE REVERSED WITHOUT PROVIDING GENUINE REASONS WHY SUCH CONVERSION WAS NECESSITATED. IN THIS REGARD THE REV ERSE LOGIC OF THE BOMBAY HIGH COURT CITED BY THE APPELLANT IN THE CASE OF CIT VS. GOPAL PUROHIT (228 CTR 522) COULD BE WELL APPLI ED IN THE BACKGROUND OF FACT THAT THE APPELLANT HAD FOLLOWED CONSISTENT PRACTICE WITH REGARD TO THE NATURE OF ACTIVITIES RE LATING TO THE TRADING OF SHARES AND MUTUAL FUNDS AND A VERY HEAVY ONUS WAS CAST UPON HIM TO SHOW THAT THE INTENTION BEHIND THE CONVERSION OF STOCK IN TRADE INTO INVESTMENT WAS BONA-FIDE. HE APPELLANT HAS RELIED UPON THE DECISION OF THE MUMBAI ITAT IN THE CASE OF CIT VS. BRIGHT STAR INVESTMENT PVT. LTD. (120 TTJ 498) FOR THE PROPOSITION THAT IN THE ABSENCE OF SPECIFIC PROVISI ON IN SECTION 45(2) TO DEAL WITH A SITUATION WHERE STOCK IN TRADE IS CONVERTED INTO INVESTMENT AND LATER ON SUCH INVESTMENT WERE S OLD AT A PROFIT, THE FORMULA WHICH IS FAVOURABLE TO THE ASSE SSEE SHOULD BE ACCEPTED. HOWEVER THIS DECISION WAS RENDERED FOR A. YS 2000-01 & 2001-02 WHEREIN THERE WAS NO DIFFERENTIATION IN T HE TAX RATE BETWEEN LONG TERM CAPITAL GAIN (AS SHOWN BY THE APP ELLANT IN THAT CASE) AND BUSINESS PROFIT WHERE AS IN THE PRES ENT CASE THE APPELLANT HAS ATTEMPTED TO DISGUISE THE BUSINESS PR OFITS AS SHORT TERM CAPITAL GAINS FOR TAKING ADVANTAGE OF THE LOWE R RATE OF TAXATION OF 10% AS INTRODUCED BY SECTION 111A FOR T RANSACTIONS ENTERED INTO AFTER 01.10.2004 I.E. THE DATE ON WHIC H CHAPTER VII OF THE FINANCE ACT 2004 CAME INTO FORCE. THERE ARE CERTAIN OTHER ISSUES, AS POINTED OUT BY THE ASSESSING OFFICER, WH ICH SHOULD NOT BE LOST SIGHT OF AND ARE RELEVANT FOR DECIDING THE ISSUE. THE APPELLANT HAS TAKEN FULL ADVANTAGE OF BUSINESS LOSS ES IN THE PRECEDING YEARS BY WAY OF VALUATION OF THE CLOSING STOCK AT COST OR MARKET PRICE. HE HAS ALSO HAD THE BENEFIT OF CLA IMING BUSINESS EXPENDITURE AGAINST THE MUTUAL FUND TRANSACTIONS IN THE EARLIER YEARS. TAKING INTO ACCOUNT ALL THE ABOVE FACTORS, T HE ACTION OF THE ASSESSING OFFICER IN BRINGING INTO TAX RS.12,31,771 /- AS BUSINESS PROFIT AS AGAINST SHORT TERM CAPITAL IS AF FIRMED. GROUND NO.1 IS DISMISSED. 5 AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN AP PEAL BEFORE US. 5. BEFORE US. LD AR REITERATED THE SUBMISSIONS MADE BEFO RE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT THERE IS NO BAR ON CONVERSION OF STOCK IN TRADE INTO INVESTMENTS AND THEREFO RE THE ACT OF ASSESSEE OF TRANSFERRING STOCK IN TRADE TO INVESTMENTS WAS A PERMISSIBLE ACT. HE FURTHER RELIED ON THE DECISION OF MUMBAI I TAT IN THE CASE OF ACIT VS. BRIGHTSTAR INVESTMENT PVT. LTD., REPORTED IN 120 TTJ 498. LD DR ON THE OTHER HAND TOOK US THROUG H THE ORDER OF AO AND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE INVE STMENTS IN MUTUAL FUNDS WERE HITHERTO CLASSIFIED BY THE ASSESSEE AS STOCK IN TRADE BUT DURING THE YEAR (AS ON 01.04.2004) THE ASSES SEE CONVERTED THE STOCK IN TRADE TO INVESTMENTS AND THERE AFTER SOME OF THE MUTUAL FUND UNITS WERE SOLD AND THE PROFIT EARNED WAS TREATED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS, WHEREAS IN THE OPINION OF AO, THE PROFIT HAD TO BE TREATED AS INCOME FROM BUSINESS AND THE ACT OF CONVERSION OF STOCK TO INVESTMENTS WAS FOR THE PU RPOSE OF TAX EVASION. WE FIND THAT THE STATUTE DOES NOT REJECT CON VERSION OF STOCK IN TRADE INTO INVESTMENT AND THE CONVERSION FROM S TOCK IN TRADE TO INVESTMENT IS PERMISSIBLE. THE MERE FACT THAT D UE TO THE AMENDMENT INTRODUCED IN THE STATUTE DUE TO WHICH WITH E FFECT FROM 1 ST APRIL, 2004, THE TAX RATE APPLICABLE TO SHORT TERM CAPITA L GAINS AT10% DOES NOT MEAN THAT THE SAID CONVERSION WAS IMPRO PER OR ILLEGAL. FURTHER, NO MATERIAL HAS BEEN BROUGHT ON RECORD BY REVENUE 6 TO DEMONSTRATE THAT THE ASSESSEE SUBSEQUENTLY CONTIN UED TO TREAT AND REGARD THE MUTUAL FUNDS AS STOCK IN TRADE AND NO T INVESTMENT OR THE TRANSACTION WAS A SHAM TRANSACTION. WE FURTHER FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF LD.CIT VS. EXPRESS SECURITIES PVT. LTD., (ITA NO.406/2013 ORDER DT.22.10.2013) HA S NOTED THAT AFTER THE INTRODUCTION OF SEC.10(38) BY FINANCE ACT 2004 W.E.F. 01.04.2005, THE ASSESSEE ON NOTICING THE TAX BENEFIT WA S ENTITLED TO CONVERT AND CHANGE HIS HOLDING FROM STOCK IN TRADE TO INVESTMENT AND THAT SUCH CONVERSION CANNOT BE REJECTE D ON THE GROUND THAT SEC.10(38) OF THE ACT WAS INTRODUCED W.E.F. THE SAID DATE. IT HAS FURTHER NOTED THAT CONVERSION MAY BE RE JECTED FOR OTHER REASONS AND GROUNDS LIKE THE INTENTION WAS NOT TO CONVERT A ND THE ASSESSEE HAD CONTINUED TO TREAT AND REGARD THE S HARES AS STOCK IN HAND AND NOT INVESTMENTS. CONSIDERING THE TOTALITY OF AFORESAID FACTS AND IN THE LIGHT OF AFORESAID DECISION OF HONBLE DELHI HIG H COURT, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE ACTION OF AO IN TREATING THE PROFITS ON SALE OF MUTUAL FUNDS AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAINS AS OFFERED BY AO AND U PHELD BY LD.CIT(A), CANNOT BE UPHELD. WE THEREFORE SET ASIDE THE ORDER OF LD.CIT(A) AND THUS THE GROUND OF ASSESSEE IS ALLOWED. 7. GROUND NOS.2 AND 3 ARE INTERCONNECTED AND THEREFORE CONSIDERED TOGETHER: 7.1. AO ON PERUSING THE SHORT TERM CAPITAL GAINS NOTICED THAT ASSESSEE HAD CLAIMED LOSS OF RS.6,38,912/- ON ACCOUNT O F SALE OF SHARES OF PUNJAB NATIONAL BANK AND BHARATI SHIPYARD LTD. HE NOTICED THAT THE SALE OF SHARES WAS TO ITS SISTER CONCE RN (PHOENIX 7 WAREHOUSING PVT LTD), THE TRANSACTION WAS NOT THROUGH R ECOGNISED STOCK EXCHANGE BUT AN OFF MARKET TRANSACTION AND THE T RANSACTION WAS EFFECTED JUST BEFORE THE CLOSURE OF THE FINANCIAL YEAR. H E ALSO OBSERVED THAT THE SHARES OF PUNJAB NATIONAL BANK WERE SOLD AT RS. 386.18 PER SHARE AS COMPARED TO THE OPENING AND CLOSING PRICE OF THOSE SHARES OF RS.405/- AND RS.387.90 RESPECTIVELY PR EVAILING ON THE DATE OF SALE. IN CASE OF SALE OF SHARES OF BHARATI SHIP YARD IT WAS AOS OBSERVATION THAT THE SALE WAS AFFECTED AT RS.122.18 PER SHARE WHEREAS THE LOWEST PRICE AT BOMBAY STOCK EXCHANGE ON THAT DAY WAS RS.131.40 PER SHARE. HE FURTHER OBSERVED THAT PHOE NIX WAREHOUSING HAD IN TURN SOLD THE SHARES BETWEEN APRIL 20 05 AND AUGUST 2005 AT A PRICE MUCH HIGHER THAN THE PRICE AT W HICH THE ASSESSEE SOLD THE SHARES AND HAS MADE A PROFIT OF RS.7,5 9,120/- WHICH WERE OFFERED TO TAX AT 10% BY IT. HE ALSO NOTICED T HAT THESE SHARES WERE ACQUIRED BY THE ASSESSEE BY OBTAINING LOAN FROM J.M. FINANCIAL PRODUCTS LTD., AND HAD PAID INTEREST OF RS.11,72,17 2/- AND SINCE SUCH INTEREST WAS FOR ACQUIRING THE SHARES, TH E DIVIDEND INCOME FROM WHICH WILL BE EXEMPT U/S 10(38) OF THE ACT, THE EXPENSES WERE NOT ALLOWABLE U/S 14A OF THE ACT AND IT CA NNOT BE CONSIDERED TO BE TOWARDS ACQUISITION OF ASSETS. HE THEREFO RE HELD THAT THE TRANSACTION HAS BEEN EFFECTED BY THE ASSESSEE TO INCUR ARTIFICIAL LOSS (WHERE ASSESSEE IS TAXABLE AT 30%) AND TO BO OK CAPITAL GAINS IN THE HANDS OF SISTER CONCERN WHERE IT WAS OFFERED TO TAX AT 10%. HE THEREAFTER WORKED OUT THE GAINS (BEING THE DIFFERE NCE BETWEEN THE FINAL SALE PRICE BY SISTER CONCERN AND THE CO ST OF ACQUISITION OF SHARES (EXCLUDING INTEREST) AT RS.13,09,460/- A ND HELD IT TO BE ADDITIONAL BUSINESS INCOME OF THE ASSESSEE. AG GRIEVED 8 BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFOR E LD.CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER: 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE ISSUES TO BE DECIDED WITH REGARD TO THESE GROUNDS A RE THREE-FOLD, NAMELY: (A) WHETHER THE INTEREST BORROWED FOR INVES TMENT IN THE SHARES IN QUESTION CAN FORM PART OF THE COST OF ACQ UISITION PARTICULARLY IN THE BACKGROUND THAT THERE IS TRANSF ER OF THE ASSET (B) WHETHER THE TRANSACTION IS CAPITAL IN NATURE OR IS A BUSINESS VENTURE AND (C) WHETHER THE FINAL SALE PRICE IN THE HANDS OF SISTER CONCERN CAN BE ADOPTED FOR CALCULATION OF BUSINESS PROFITS. 5.2.1 TO TAKE UP THE SECOND ISSUE FIRST, AS IT IS G ERMANE TO NOT ONLY THIS GROUND OF APPEAL BUT ALSO GROUND NO. 6, W HAT NEED TO BE DETERMINED IS WHETHER THE TWO SHARE TRANSACTIONS IN QUESTION, AND INDEED THE OTHER TRANSACTIONS UNDERTAKEN DURING THE YEAR ARE CAPITAL GAINS OR ARE BUSINESS TRANSACTIONS. 'BU SINESS' IS A TERM OF WIDE IMPORT, AND WOULD INCLUDE ANY ACTIVITY THAT ENGAGES THE TIME, ATTENTION, EFFORT OR EVEN ONE'S RESOURCES ON A REGULAR BASIS IN PURSUIT OF ECONOMIC GAIN. THE LEGAL POSITI ON, WITH REGARD TO THE DISTINGUISHING FEATURES OF BUSINESS INCOME, WITH REFERENCE TO A NUMBER OF DECISIONS BY THE APEX COURT, AS UNDE R, HAS NEITHER BEEN DISPUTED NOR IS DISPUTABLE: (A) RAJA BAHADUR VISHESHWARA SINGH V. CIT (1961) 41 ITR 685(SC); (B) DALHOUSIE INVESTMENT TRUST CO. LTD. V. CIT [1968] 68 ITR 486 (SC); (C) CIT V. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. [1975] 100 ITR 706 (SC); (D) A.V. THOMAS & CO. LTD. V. CIT [1963] 48 ITR 67 (SC); (E) CIT V. P.K.N. CO. LTD. [1966] 60 ITR 65 (SC); AND (F) CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P.) LTD.[1971] 82 ITR 586 (SC). 5.2.1.1. THE ASSESSING OFFICER EXAMINED THE DETAILS OF THE TRANSACTIONS WHICH TOTALED 198 FOR THE WHOLE YEAR, INCLUDING MULTIPLE TRANSACTIONS THAT HAD BEEN CLUBBED TOGETHER ON ONE SINGLE DATE. A PERUSAL OF THE RELEVANT TRANSACTIONS, DETAILED AT P GS.12 TO 17 OF THE ASSESSMENT ORDER, REVEALS A HOLDING PERIOD OF LESS THAN 90 DAYS GENERALLY, AND IN FACT LESS THAN 10 DAYS IN AT LEAS T 35 TRANSACTIONS. THE FREQUENCY AND REGULARITY OF THE TRANSACTIONS EX HIBIT A SYSTEMATIC ACTIVITY. IN FACT, ONLY ONE WHO IS WELL VERSED WITH THE MARKET WOULD UNDERTAKE TRANSACTIONS IN SUCH VOLUME, FREQUENCY, R EGULARITY, ALSO ASSUMING FINANCIAL RISK BY INCURRING INTEREST-BEARI NG DEBT. THE AO ALSO FOUND THAT THOUGH THE APPELLANT HAD ASSERTED T HAT PHYSICAL DELIVERY OF THE SHARES HAD BEEN TAKEN AND REFLECTED IN THE DEMAT ACCOUNT, THE DETAILED CHART AS PER ANNEXURE 9 TO TH E SUBMISSIONS DATED 12.11.2007 SHOWED THAT OUT OF 123 TOTAL CAPIT AL GAINS 9 TRANSACTIONS, THE DELIVERY OF ONLY 25 SHARES HAD BE EN GIVEN THROUGH THE APPELLANT'S OWN DEMAT ACCOUNT AND THE REMAINING DELIVERIES HAD BEEN GIVEN THROUGH THE DEMAT ACCOUNT OF THE BROKER. I AM INCLINED TO AGREE WITH THE AO'S CONCLUSION THAT THE UNWILLINGNE SS TO TAKE DELIVERY OF SHARES INDICATES THAT THE APPELLANT INT ENDED TO INDULGE IN FURTHER TRADING OF THE SHARES THROUGH THE BROKER'S POOL ACCOUNT AND DOES NOT REVEAL AN INTENTION TO KEEP THE SHARES AS AN INVESTMENT. IT IS FOUND THAT A LARGE MAJORITY (57%) OF THE SHARES PURCHASED THROUGH THE IPO (RS.1,86,84,441/-) HAVE BEEN SOLD DURING TH E YEAR (RS.1,07,82,255/-). IN THE SAME WAY, THE APPELLANT HAS SOLD 56% OF THE SHARES (RS.2,61,01,072/-) OF THE TOTAL SHARES P URCHASED DURING YEAR (RS.4,59,73,546/-). THE AO ALSO FOUND THAT DES PITE THE ASSERTION THAT NO BORROWED FUNDS HAD BEEN UTILIZED FOR PURPOSES OF MAKING THE INVESTMENTS, THERE HAD BEEN BORROWINGS O F ALMOST RS. 1 CRORE FOR DEPLOYMENT IN THE ACTIVITY OF INVESTMENT IN SHARES AND MUTUAL FUNDS. HE HAS CORROBORATED THIS BY DRAWING A TTENTION TO THE SUBSTANTIAL INTEREST COST INCURRED ON THE TWO TRANS ACTIONS RELATING TO BHARATI SHIP YARD AND PUNJAB NATIONAL BANK. 5.2.1.2 DURING THE YEAR UNDER CONSIDERATION, THE A PPELLANT OFFERED SUBSTANTIAL SHORT TERM GAINS IN BOTH 10% AN D 30% CATEGORIES WHICH AROSE OUT OF TRADING IN SHARES AND MUTUAL FUNDS IN THE SAME WAY AS THE BUSINESS PROFITS OFFERED TO TAX IN EARLIER YEARS AND SUCH TRADING CONTINUED DURING THE IMPUGNE D YEAR ALSO. AS ALREADY DISCUSSED ABOVE, IN THE PRECEDING YEARS, THE ENTIRE INCOME FROM SUCH TRADING WAS BEING SHOWN AS BUSINES S INCOME. HOWEVER THE APPELLANT HAS RELATIVELY LARGE AMOUNT O F BORROWED FUNDS ON WHICH NET INTEREST PAYMENT AMOUNTING TO RS . 12,47,266/- HAS BEEN MADE DURING THE YEAR, INDICATI NG THAT FOR SUCH TRADING ACTIVITY, BORROWED FUNDS WERE SYSTEMAT ICALLY ARRANGED AND LEAVING NO ROOM FOR DOUBT THAT IT WAS NOT A CASE OF GENUINE INVESTMENT. THE PAPERS FILED BEFORE ME INDI CATE THAT THE APPELLANT APPLIED FOR 24,00,000 SHARES OF BHARTI SH IPYARD LTD, FUNDS OF RS. 15,04,80,000/- FOR WHICH WERE PROVIDED BY J.M. FINANCIALS. SIMILARLY, 1,99,995 SHARES OF PUNJAB NA TIONAL BANK LTD. WERE APPLIED BY AVAILING FUNDS OF RS. 7,01,98, 245/- FROM THE SAME CONCERN. THE VOLUME OF SHARES APPLIED FOR IN T HESE TWO IPOS AND THE MANNER OF THEIR FUNDING LEAVE NO ROOM FOR D OUBT THAT THE APPELLANT WAS NO MERE INVESTOR. HE CONTINUED TO SYS TEMATICALLY ENGAGE IN THE BUSINESS OF SHARE TRADING. 5.2.1.3. IT HAS ALSO BEEN FOUND THAT THOUGH THE APP ELLANT CLAIMS TO HAVE MAINTAINED SEPARATE PORTFOLIOS FOR THE PURP OSES OF TRADING AS WELL AS FOR INVESTMENT, THE ASSESSING OFFICER HA S BROUGHT ON RECORD THE FACT THAT THERE IS NO CLEAR CUT DEMARCAT ION AND THAT THE SAME DEMAT ACCOUNT SHOWS CREDIT OF THE INVESTMENTS AS WELL AS STOCK IN TRADE. UNDOUBTEDLY THE SUPREME COURT IN TH E CASE OF CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (82 IT R 586) HELD THAT THE ISSUE IN PARTICULAR HOLDING A SHARE I S BY WAY OF INVESTMENT OR FORMS PART OF STOCK IN TRADE IS A MAT TER WHICH IS WITHIN THE KNOWLEDGE OF ASSESSEE, BUT IT ALSO LAID DOWN THE THUMB RULE THAT THE ASSESSEE SHOULD BE IN A POSITIO N TO PRODUCE EVIDENCE FROM ITS RECORD AS TO WHETHER IT HAS MAINT AINED ANY DISTINCTION BETWEEN THOSE SHARES HELD AS ITS STOCK- IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. IT IS VERY APPARENT THAT SINCE BOTH THE PORTFOLIOS ARE MAINTAINED IN TH E DEMAT ACCOUNT, NO SUCH DISTINCTION IS MAINTAINED. UNDOUBT EDLY IT IS THE APPELLANT'S PREROGATIVE TO MANAGE THE AFFAIRS OF HI S BUSINESS. HOWEVER THE APPELLANT HAS TO FOLLOW CONSISTENT METH OD IN ACCOUNTING POLICIES AND IN THE TREATMENT OF ITS ASS ETS. IT MAY ALSO BE EMPHASIZED THAT THE APPELLANT IS MAINTAINING THE SAME SET OF 10 BOOKS OF ACCOUNT FOR BOTH HIS BUSINESS TRANSACTIONS (SPECULATIVE SHARE TRADING, OTHERS) AND THE PURPORTED INVESTMENT ACTIVITY OUT OF THE SAME COMMON POOL OF FUNDS. THE DISTINCTION D RAWN BETWEEN THE INVESTMENT AND BUSINESS (TRADING) ACTIV ITY BY THE APPELLANT IS HYPOTHETICAL AND HIS RECORDS ARE INCAP ABLE OF LEADING TO THE SAID DISTINCTION, THE ONUS FOR WHICH IS ONLY ON HIM. ALL HIS TRANSACTIONS ARE IMBIBED WITH SAME PROFIT MOTIVE, WHICH CONTINUED NOT ONLY THROUGHOUT THE YEAR, BUT ALSO FR OM YEAR TO YEAR. THE APPELLANT HAS TAKEN THE PLEA THAT THE INC OME TAX ACT RECOGNIZES THE CONCEPT OF SHORT TERM CAPITAL ASSETS WITH REGARD TO SECURITIES LISTED IN RECOGNIZED IN STOCK EXCHANGE U /S.2(42A) OF THE INCOME TAX ACT, SIMILARLY, THE SPECIFIC PROVISION O F SECTION 111A WOULD APPLY WITH REGARD TO THE SHARES PURCHASED AFT ER 01.04.2004. UNDOUBTEDLY THIS IS CORRECT, BUT AS THE ASSESSING OFFICER HAS MENTIONED, THE CONDUCT OF THE APPELLANT 'IN UNILATERALLY CONVERTING A PART OF ITS STOCK-IN-TRAD E INTO INVESTMENTS DOES NOT APPEAR TO BE BONA-FIDE. THE REASONS FOR TH E SAME HAVE ALREADY BEEN DISCUSSED ABOVE. THE PURCHASE OF SHARE S OF BHARTI SHIP YARD AND PUNJAB NATIONAL BANK ARE REFLECTIVE O F THE MANIPULATION UNDERTAKEN BY THE APPELLANT THROUGH OF F-MARKET DEALING TO PURCHASE LOSSES, PARTICULARLY WHEN THE A PPELLANT HAS PAID HEAVY INTEREST ON FUNDING OF THESE SHARES. THE FACTS ARE SELF- SPEAKING, AND LEAVE ME IN NO MANNER OF ANY DOUBT OF THE APPELLANT BEING ENGAGED IN TRADE IN SHARES AND SECU RITIES - IN ALL ITS VARIOUS ASPECTS. CONSEQUENTLY THE ASSESSING OFF ICER'S FINDINGS THAT THE APPELLANT HAS ARRANGED LOSSES TO OFFSET TH E SHORT TERM CAPITAL GAINS, SOLELY WITH THE OBJECT OF TAX AVOIDA NCE ARE AFFIRMED AND IT IS HELD THAT THE 2 TRANSACTIONS IN QUESTION ARE PURELY BUSINESS TRANSACTIONS. IN THE CHART FURNISHED BY TH E APPELLANT AT PARA 5.1 SUPRA, IT APPEARS VERY OBVIOUS THAT THE PR ICES OF THE SHARES THAT WERE SOLD TO M/S. PHOENIX WAREHOUSING PVT. LTD. WERE IN FACT, MUCH BELOW THE MARKET PRICE PREVAILIN G ON THE DATE OF SALE AND NOT LITTLE LESS THAN THE MARKET PRICE . FOR EXAMPLE, THE 11703 SHARES OF BHARTI SHIP YARD HAVE BEEN SOLD AT RS.122.18 PER SHARES WHICH ARE MUCH BELOW THE OPENING PRICE O F RS. 141 AND CLOSING PRICE OF RS. 132.50 PER SHARE. 5.2.2. COMING TO THE FIRST ISSUE AS TO WHETHER THE INTEREST COMPONENT CAN BE CLAIMED AS THE PART OF ACQUISITION , THE APPELLANT HAS SOUGHT TO PLACE RELIANCE ON THE PUNE ITAT DECISION IN THE CASE OF S. BALAN VS. DCIT REPORTED IN 120 TT J 397 BY STATING THAT THE INTEREST WAS PAID ON AMOUNT BORROW ED FOR INVESTMENTS IN SHARES AND SUCH INTEREST WAS NOT CLA IMED AS REVENUE EXPENDITURE BUT WAS CAPITALIZED. AND THAT T HEREFORE ONCE IT IS ESTABLISHED THAT THE APPELLANT HAD BORRO WED FUNDS FOR ACQUISITION OF SHARES AND THE INTEREST THEREON WAS CAPITALIZED, THE INTEREST COMPONENT CANNOT BE SEGREGATED FROM TH E AMOUNT OF INVESTMENT. HOWEVER, IN THE PRESENT CASE, THE FACTS ARE SUBSTANTIALLY DIFFERENT AS ALL ALONG TILL THE PREVI OUS YEAR PRECEDING THE YEAR UNDER APPEAL, THE APPELLANT WAS A TRADER IN SHARES AND THE INTEREST ON BORROWED CAPITAL WAS BEI NG CLAIMED' AS A REVENUE EXPENDITURE. AS ON 1.4.2004, THE APPEL LANT HAS APPARENTLY CONVERTED MOST OF HIS STOCKS AS INVESTME NTS AND HAS WORTH OF SHARES LEFT IN THE STOCK-IN-TRADE THEN, AN INTEREST EXPENDITURE OF RS.12,47,266/- HAS BEEN CLAIMED DURI NG THE YEAR UNDER APPEAL. ADDITIONALLY, THE APPELLANT CLAIMS TO HAVE PAID INTEREST OF RS.11,72,172/-TO M/S. J.M. FINANCIAL ON ACCOUNT OF THESE TWO TRANSACTIONS. UNDOUBTEDLY, THE DIVIDEND R ECEIVED ON SHARES AND MUTUAL FUNDS IS EXEMPT FROM TAX BY VIRTU E OF SECTION 10(34) AND THE APPELLANT RECEIVES SUBSTANTIAL INCOM E BY WAY OF DIVIDENDS THAT ARE EXEMPT FROM TAX. APPLYING THE SA ME ANALOGY 11 TO MY FINDING THAT THE TRANSACTIONS IN QUESTION WER E BUSINESS TRANSACTIONS, THE APPELLANT IS HELD TO BE ENTITLED TO THE INTEREST COMPONENT AS BUSINESS EXPENDITURE, BUT THE SAME CAN NOT BE ALLOWED TO BE CAPITALIZED AS HAS BEEN DONE BY THE A PPELLANT. COMING TO THE ASSESSING OFFICER'S RELIANCE ON SECTI ON 14A AS AN ADDITIONAL REASON FOR DISALLOWING THE INTEREST ON T HE TRANSACTION' HE HAS NOT QUESTIONED THE FACT THAT SUCH INTEREST' EXPENDITURE OF RS.11,72,172/- HAS INDEED BEEN INCURRED IN THE PROC ESS OF ACQUIRING THE SHARES. HOWEVER, HE WAS PERHAPS NOT J USTIFIED IN DISALLOWING THE ENTIRE QUANTUM OF THE INTEREST EXPE NDITURE U/S.14A. SECTION 14A PRESCRIBES THAT 'NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME'. THE ASSESSING OFFICER HAS WORKED OUT THE QUANTUM OF INTEREST THAT IS DISALLOWABLE IN TERMS OF SECTION14A AT PARA 8 OF THE ASSESSMENT ORDER. FOR THE REASONS MENTIONED IN THE SUBSEQUENT PART OF THIS ORDER, HE IS DIRECTED TO INCLUDE THE I NTEREST OF RS.11,72,172/- AND REWORK THE DISALLOWANCE U/S.14A. 5.2.3. FINALLY IT NEEDS TO BE DECIDED WHETHER THE A O HAS RIGHTLY COMPUTED THE BUSINESS PROFITS RELATING TO THE SALE OF SCRIPS OF BHARTI SHIP YARD AND PUNJAB NATIONAL BANK, BY TAKIN G THE SALE CONSIDERATION ARISING IN THE HANDS OF THE SISTER CO NCERN. THE APPELLANT ADMITTEDLY SOLD THE SHARES TO M/S. PHOENI X WAREHOUSING PVT. LTD. ON 28 TH AND 29 TH OF MARCH 2005. AS HAS BEEN ARGUED BY THE APPELLANT THE PROVISIONS OF SECT ION 40A(2)(B) DO NOT HAVE ANY BEARING ON THE ISSUE AS THEY DO NOT RELATE TO EXPENDITURE INCURRED. ALTHOUGH THE TRANSACTIONS ARE INDEED SUSPICIOUS, IN THE ABSENCE OF PROOF BEING BROUGHT O N RECORD THAT THE TRANSACTION IN QUESTION WERE FICTITIOUS OR THAT THE APPELLANT WAS THE ACTUAL SELLER OF SHARES IN THE SUBSEQUENT A SSESSMENT YEAR, THERE DOES NOT APPEAR ANY JUSTIFICATION ON TH E PART OF THE ASSESSING OFFICER TO COMPUTE THE BUSINESS PROFIT/IN COME BY TAKING INTO ACCOUNT THE SALE PRICE AT WHICH THE SCR IPS WERE SUBSEQUENTLY SOLD BY M/S. PHOENIX WAREHOUSING PVT. LTD. AND THAT TOO FOR A TRANSACTION THAT TOOK PLACE IN SUBSE QUENT ASSESSMENT YEAR. 5.2.4. IN THE LIGHT OF THE AFORESAID OBSERVATIONS T HE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE BUSINESS LOSS IN THE HANDS OF THE APPELLANT BY TAKING INTO ACCOUNT THE SALE CONSI DERATION OF RS.23,73,260/- AND ALLOWING THE COST OF THE SHARES ALONG WITH THE INTEREST THEREON. HE IS ALSO DIRECTED TO TAKE I NTO ACCOUNT THE INTEREST PAID OF RS.11,72,172/- FOR THE PURPOSE OF CALCULATING DISALLOWANCE U/S.14A. GROUNDS 2 TO 4 STAND ALLOWED SUBJECT TO THESE DIRECTIONS. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN A PPEAL BEFORE US. 8. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MADE BEFOR E LOWER AUTHORITIES AND FURTHER SUBMITTED THAT ASSESSEE HAD BORR OWED FUNDS FOR THE PURPOSE OF PURCHASE OF SHARES AND THE INTE REST PAID TO JM FINANCIAL SERVICES WAS FOR THE PURPOSE OF ACQUISITION OF S HARES 12 OF PUNJAB NATIONAL BANK AND BHARATI SHIPYARD AND THEREFOR E THE INTEREST FORMS PART OF THE COST OF SHARES AND THEREFORE IT CANNOT BE CONSIDERED FOR DISALLOWANCES U/S 14A OF THE ACT. LD DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESP ECT TO TREATMENT OF PROFITS EARNED FROM SALE OF SHARE OF BHA RATI SHIP YARD AND PUNJAB NATIONAL BANK AND DISALLOWANCE U/S 14A OF THE ACT. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD SOLD TH E AFORESAID LISTED SHARES TO ITS SISTER CONCERN THROUGH OFF MARKET TRANSACTION AND THE PROFITS WERE TREATED AS CAPITAL GAINS BY ASSESSE E. AO HAS NOTED THAT THE SALE PRICE OF THE SHARES TO SISTER CONCE RN WAS LOWER THAN THE LOWEST PREVAILING PRICE FOR THE SALE OF SHARES ON THAT PARTICULAR DAY FOR SALE OF SHARES OF BHARATI SHIPYARD LIMITED AND IN CASE OF SALE OF SHARES OF PUNJAB NATIONAL BANK, IT WAS SOLD AT THE PRICE WHICH WAS LOWER THAN THE OPENING AND CLOSING PRICE OF THE SHARES ON THAT DAY. AO HELD THE INCOME TO BE BUSINESS INCOME. WE FIND THAT LD.CIT(A) WHILE UPHOLDING THE ACTION OF AO HAS GRANT ED PARTIAL RELIEF IN THE SENSE THAT HE HAS HELD THAT THE PROFIT IS TO BE COMPUTED ON THE BASIS OF SALE PRICE REALIZED BY ASSESSEE AND NOT ON THE BASIS OF SALE PRICE OF SHARES SUBSEQUENTLY SOLD BY T HE SISTER CONCERN. IN ARRIVING AT THIS CONCLUSION, WE FIND THAT LD.CIT (A) HAS NOTED THAT THOUGH THE ASSESSEE HAS MENTIONED THAT HE HAS MAINTAINED SEPARATE PORTFOLIOS FOR THE PURPOSE OF TRADING A ND INVESTMENT BUT THERE IS NO CLEAR CUT DEMARCATION AND TH AT THE SAME DEMAT ACCOUNT HAS BEEN USED FOR PURPOSE OF TRADING AN D INVESTMENTS. THE AFORESAID FINDINGS OF LOWER AUTHORITIES HAVE NOT 13 BEEN CONTROVERTED BY ASSESSEE BY PLACING ANY MATERIAL ON RECORD AND THEREFORE WE FIND NO REASON TO INTERFERE WITH THE OR DER OF LD.CIT(A). AS FAR AS THE DISALLOWANCE U/S 14A IS CONCERNED, IT IS ASSESSEES CONTENTION THAT THE INTEREST WAS PAID FOR BO RROWINGS MADE FOR ACQUISITION OF THE AFORESAID SHARES. WHEN THE INTE REST HAS BEEN PAID FOR BORROWINGS THE SHARES AND ONCE THEY ARE INCLUDED FOR DETERMINING THE COST OF SHARES, WE ARE OF THE VIEW THAT N O DISALLOWANCE U/S 14A OF THE SAME INTEREST IS CALLED FOR MORE SO BECAUSE THE AFORESAID INTEREST IS NOT CLAIMED AS EXPENSE S BUT IS CAPITALIZED TO COST OF INVESTMENTS AND IT FORMS PART OF COS T OF INVESTMENT. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT NO DISALLOWANCE U/S 14A IS CALLED FOR AND TO THIS EXTENT WE S ET ASIDE THE ORDER OF LD.CIT(A). THUS, THE GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 10. GROUND NO 4 IS WITH RESPECT TO TREATING RS.22,36,567/ - AS INCOME FROM BUSINESS INSTEAD OF CAPITAL GAINS. 10.1. AO, ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE NOTICED THAT ASSESSEE HAD EARNED GAINS ON SALE OF SHARES/MUTUA L FUNDS. ACCORDING TO AO, THE FREQUENCY OF TRANSACTIONS WERE HIGH, ASSESSEE HAD BORROWED FUNDS FOR MAKING THE INVESTMENTS. HE ACCOR DINGLY TREATED THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS AN ORGANIZED ACTIVITY OF BUSINESS ACTIVITY AND THEREFORE TREAT ED THE INCOME OF RS.22,36,567/- AS BUSINESS INCOME AS AGAINST THE CLAIM OF THE ASSESSEE AS CAPITAL GAINS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO CONFIRM ED THE ORDER OF AO. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESS EE IS NOW BEFORE US. 14 11. BEFORE US. LD AR REITERATED THE SUBMISSIONS MADE BE FORE AO AND LD.CIT(A) AND FURTHER RELIED ON THE CBDT CIRCULAR NO 6/2016 DATED 29.02.2016. HE ALSO RELIED ON THE DECISION OF BOMBA Y HIGH COURT IN THE CASE OF GOPAL PUROHIT REPORTED IN 336 ITR 287. LD DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS TH E TREATMENT TO PROFITS EARNED ON SALE OF SHARES I.E. WHETHER IT IS TO BE CONSIDERED AS BUSINESS INCOME AS HELD BY THE AO OR TO B E TREATED AS CAPITAL GAINS AS HELD BY ASSESSEE. WE FIND THAT THE CB DT IN THE RECENT CIRCULAR ISSUED BY IT (SUPRA) HAS HELD THAT TREATME NT GIVEN BY THE ASSESSEE TO THE SHARES AS STOCK IN TRADE OR INVES TMENTS WILL NOT BE PUT TO DISPUTE BY AO BUT HOWEVER THE STAND ONCE T AKEN SHALL REMAIN APPLICABLE FOR SUBSEQUENT YEARS. IN THE LIGHT OF THE AFORESAID CIRCULAR, WE HOLD THAT THE TREATMENT GIVEN TO THE PROFIT E ARNED BY THE ASSESSEE AS CAPITAL GAINS CANNOT BE DISTURBED IN THE PRESENT CASE. THUS, THE GROUND OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 16 TH DAY OF MARCH, 2018. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER PUNE; DATED : 16 TH MARCH, 2018. YAMINI 15 '#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-III, PUNE. CIT-III, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER , // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.