DCIT, New Delhi V. M/s. R.K. & Sons (HUF), New Delhi

ITA 174/DEL/2012

• Counselvise Citation: 17420114 RSA 2012
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 14-03-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Advance ruling
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI F NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMEBR I.T.A NO. 174/DEL/2012 ASSTT. YEAR 2008-09 DCIT, CIRCLE 21 (1), F-2, VIKAS BHAWAN NEW DELHI. VS. R.K. & SONS (HUF) F-67, INDRAPRASHTA, SECTOR 14, ROHINI, NEW DELHI 110 085. AAAHR5911F (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP KUMAR, CIT DR RESPONDENT BY: SHRI SALIL AGGARWAL, ADVOCATE & SHRI SHAILESH GUPTA, AR ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 18.10.2011 PASSED FOR ASSTT. YEAR 2008-09. TH E REVENUE HAS TAKEN FOUR GROUNDS OF APPEAL. HOWEVER ITS GRIEVANCE REVOL VES AROUND A SINGLE SUBSTANTIAL ISSUE VIDE WHICH IT HAS CHALLENGED THAT LD. CIT(A) HAS ERRED IN TREATING THE SUM OF ` 4,89,64,389/- AS A SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME TREATED BY THE AO. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 1 ST JULY, 2008 DECLARING AN INCOME OF ` 4,91,39,431/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE U/S 143(2) WAS ISSUED ON 3 RD AUGUST, 2009. IT WAS DULY SERVED UPON THE ASSESSEE. THE LD. AO HAS PASSED THE ASSTT. ORDER U/ S 143(3) ON 27.12.2010. HE TREATED THE RECEIPTS RECEIVED ON SAL E OF SHARES AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. IT EMERGES OUT FROM THE RECORD THAT ASSESSEE HAS DECLA RED SHORT TERM CAPITAL GAIN OF ` 4,89,64,389/- AND INCOME UNDER TH E HEAD OTHER SOURCES AT ` 3,11,416/-. IT HAS ALSO DECLARED DIVIDEND INCO ME OF ` 18,138/- AND LONG TERM CAPITAL GAIN ON SALE OF THE SHARES AT ` 68,786 /-. ON AN ANALYSIS OF THE SHORT TERM CAPITAL GAIN COMPUTATION LD. AO FORMED A N OPINION THAT ASSESSEE BOUGHT LARGE QUANTITIES AND SOLD LARGE QUA NTITIES OF SHARES OF 12 COMPANIES DURING THE YEAR. THESE TRANSACTIONS WERE MADE IN A VERY SHORT SPAN OF TIME. IN HIS OPINION THIS FREQUENCY OF SALE AND PURCHASE DESERVES TO BE TREATED AS BUSINESS ACTIVITY OR AN ADVENTURE IN THE NATURE OF BUSINESS. THEREFORE HE ISSUED A SHOW CAUSE NOTICE, AS TO WHY THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE SHOULD NOT BE TREATED AS A TRADING RECEIPT. THE ASSESSEE HAS MADE ELABORATE SU BMISSIONS. LD. AO HAS OBSERVED THAT BOARD HAS ISSUED A CIRCULAR BEARING N O. 4/2007 DATED 15.6.2007 WHEREIN THE BOARD APPRISED THE INCOME TAX AUTHORITIES TO FIND OUT DISTINCTIONS BETWEEN SHARES HELD AS STOCK IN TR ADE AND SHARES HELD AS INVESTMENT. THE BOARD HAS PROPOUNDED CERTAIN TESTS BASED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. ASSOCIATED ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 3 INDUSTRIAL DEVELOPMENT CO. PVT. LTD. REPORTED IN 82 ITR 586 WHEREIN HONBLE SUPREME COURT HAS OBSERVED THAT WHETHER A P ARTICULAR HOLDING OF SHARE IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSE E WHO HOLDS THE SHARES AND HE SHOULD, IN NORMAL CIRCUMSTANCES, BE I N A POSITION TO PRODUCE EVIDENCE FROM HIS RECORD AS TO WHETHER HE H AS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE HIS STOC K IN TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. LD. AO THEREAF TER REFERRED THE DECISION OF HONBLE SUPREME COURT POINTED OUT IN TH E CBDT CIRCULAR IN THE CASE OF CIT VS. H.HOLCK LARSEN REPORTED IN 160 ITR 67. THE AO HAD CONSIDERED THE DETAILS SUBMITTED BY THE ASSESSEE AN D ITS EXPLANATION. BROADLY HE FORMULATED 13 REASONS WHICH GOAD HIM TO TREAT THE INVESTMENT MADE BY THE ASSESSEE IN SHARES AS A TRADING ACTIVIT Y. THESE POINTS HAVE BEEN NOTICED BY THE LD. FIRST APPELLATE AUTHORITY O N PAGE 17 TO 19 OF THE IMPUGNED ORDER. THEY READ AS UNDER :- A. THAT THE ASSESSEES CONTENTION IS DIFFICULT TO ACC EPT TO THE EFFECT THAT THE INVESTMENTS WERE MADE TO EARN DIVID END AS MEAGER DIVIDEND OF ` 18,138/- EARNED DURING ENTIRE YEAR. (PARA 6.1 OF IMPUGNED ORDER) B. THE ASSESSEE HAS CLAIMED THAT SINCE SHARES ARE H ELD AS INVESTMENT IN THE BOOKS OF ACCOUNTS, IT IS BEYOND D OUBT OR DISPUTE THAT THE SHARES ARE NOT HELD AS STOCK IN TR ADE. THE ACCOUNTING TREATMENT IS IN IMPORTANT FACTOR BUT THI S FACTOR PER SE CANNOT BE DECISIVE OF THE QUESTION WHETHER SHARE S ARE HELD AS STOCK IN TRADE OR INVESTMENT (PARA 6.2 OF IMPUGN ED ORDER) C. A PERUSAL OF THE COMPUTATION OF SHORT TERM CAPIT AL GAINS REVEALS THAT THERE ARE SEVERAL TRANSACTIONS OF SALE AND PURCHASE IN RESPECT OF THE SAME SCRIP, WHICH REFLEC TS THE ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 4 SYSTEMATIC ACTIVITY OF SALE AND PURCHASE FOR THE PU RPOSE OF REALIZING GAINS ON PROFITS. (PARA 6.3 OF IMPUGNED O RDER) D. THAT THE HOLDING PERIOD OF SOME OF THE SHARES IN RESPECT OF WHICH SUBSTANTIAL SHORT TERM GAIN HAS BEEN CLAIMED IS JUST AS FEW DAYS (SUCH AS 1,2,3,9,11, AND 14 DAYS). IN FACT , A PERUSAL OF THE TABLE ATTACHED AS ANNEXURE ANNEXURE ANNEXURE ANNEXURE 1, 1, 1, 1, WOULD REVEAL THAT EXCEPT SHARES OF BINDAL AGRO (ITEM 12 IN THE TABLE) , WHEREFROM STCG OF ` 36,375/- HAS BEEN CLAIMED, ALL THE SHARES IN RESPECT OF WHICH STCG HAS BEEN CLAIMED HAVE BEEN HELD FOR A PERIOD LESS THAN 100 DAYS, WITH MAJORITY OF CASES FALLING BETWEEN 30- 45 DAYS. THERE CANNOT BE ANY INVESTMENT FOR SUCH SH ORT PERIOD, AND THESE TRANSACTIONS CAN ONLY BE IN THE N ATURE OF SHARE TRADING TRANSACTIONS. (PARA 6.4 OF IMPUGNED O RDER). E. THE ASSESSEE HAS NOT USED ITS OWN CAPITAL BUT TH E INVESTMENT IN SHARES HAS BEEN FINANCED THROUGH PLEDGING OF THE SE SHARES WITH BROKERS. (PARA 6.5 OF IMPUGNED ORDER) F. THAT THE ASSESSEE HAS DONE REPEATED AND FREQUENT TRANSACTIONS IN ALL THE ABOVE SHARES. A PERUSAL OF THE ACCOUNT STATEMENT WITH THE BROKERS / DEPOSITORY AS PLACED O N RECORD VIDE LETTER DATED 11.11.2010 REVEALS THAT THE SAID STATEMENT IS RUNNING IN TO HUNDREDS OF PAGES AND ON EACH DAY INNUMERABLE TRANSACTIONS HAVE BEEN CARRIED OUT. INF ACT SUCH IS THE MAGNITUDE OF THE ACCOUNT STATEMENT THAT THE SAM E HAS TO BE KEPT IN A SEPARATE FOLDER. (PARA 6.6. OF IMPUGNE D ORDER) G. THAT APART FROM TRADING IN SHARES, THERE IS NO O THER SOURCE OF INCOME OF THE ASSESSEE. IT IS THEREFORE JUST UNIMAG INABLE AS TO HOW THE SAME CAN BE INVESTMENT MORESO, WHEN TRANSAC TIONS ARE DONE IN HUGE QUANTITIES AND IN HIGH FREQUENCIES . (PARA 6.7 OF IMPUGNED ORDER) H. THAT THE AGGREGATE COST OF PURCHASE OF SHARES FO R THE CAPTIONED ASSESSMENT YEAR IS ` 21,92,85,014/- AS TH E TOTAL SALE VALUE IS ` 28,60,55,888/-. THUS PURCHASE AS A PERCENTAGE TO SALES IS ALMOST 80%. (PARA 6.8 OF IMPUGNED ORDER ) I. THAT ALL THE SHARES IN RESPECT OF WHICH SHORT TE RM CAPITAL GAINS HAVE BEEN CLAIMED ARE BOUGHT AND SOLD DURING THE CA PTIONED ASSESSMENT YEAR ITSELF. THE ASSESSEE HAS NOT EARNED OR REALIZED ANY DIVIDEND ON SUCH SHARES, THUS EARNING OF DIVIDEND IS NOT THE INTENTION RATHER EARNING OF PROFIT IS TH E INTENTION OF THE ASSESSEE.(PARA 6.9 OF IMPUGNED ORDER) ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 5 J. THAT THE CONTINUITY IN THE NATURE OF SIMILAR TRA NSACTION IS DEFINITELY INDICATIVE OF THE ASSESSEES INTENT I.E. TO TRADE. (PARA 6.10 OF IMPUGNED ORDER) K. THAT THE ASSESSEE HAD DEALT WITH NOT JUST ONE BR OKER BUT WITH THREE STOCK BROKERS / DEPOSITORIES INDICATING HIS H IGH FREQUENCY OF TRANSACTION. (PARA 6.11 OF IMPUGNED OR DER) L. THAT OUT OF THE TOTAL SHORT TERM CAPITAL GAIN CL AIMED OF ` 4,89,64,389/- A MEAGER AMOUNT OF ` 36,375/- HAS BEE N EARNED IN RESPECT OF SHARE HELD FOR MORE THAN 100 DAYS. TH US APPROXIMATELY 99.99% OF THE STCG HAVE ARISEN FROM S ALE OF SHARES HELD FOR LESS THAN 100 DAYS. (PARA 6.12 OF I MPUGNED ORDER) M. THE CLAIM OF THE ASSESSEE THAT THE SHARES HAVE B EEN REFLECTED AS INVESTMENT IN THE BOOKS IS UNACCEPTABLE SINCE IT IS A WELL SETTLED PRINCIPLE OF LAW THAT EVEN A SINGLE TRANSAC TION CAN BE IN THE NATURE OF TRADE. IN THIS CASE THE ASSESSEE HAS UNDERTAKEN NUMEROUS TRANSACTIONS. IN VIEW OF THE MULTIPLICITY OF TRANSACTIONS THE ASSESSEE IS TREATED AS A TRADER. ( PARA 6.13 OF IMPUGNED ORDER) 3. ON THE STRENGTH OF THE ABOVE REASONS LD. AO HAS TREATED THE INVESTMENT MADE BY THE ASSESSEE AS A TRADE ACTIVITY AND ASSESSED THE SHORT TERM CAPITAL GAIN DISCLOSED BY THE ASSESSEE A S A BUSINESS INCOME. 4. DISSATISFIED WITH THE ASSTT. ORDER ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE LD. CIT(A). IT HAS FILED DETAILED WR ITTEN SUBMISSIONS WHEREIN IT HAS REFERRED FIFTY DECISIONS. LD. FIRST APPELLAT E AUTHORITY HAS REPRODUCED THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSEE SUBMI TTED BEFORE THE LD. FIRST APPELLATE AUTHORITY THAT FIRST REASON ASSIGNE D BY THE AO IS THAT ASSESSEE HAS SHOWN A DIVIDEND OF ` 18,138/- ON AN I NVESTMENT OF ` 2,96,70,497. THIS WORKS OUT TO LESS THAN 0.01% YIE LD ON INVESTMENTS. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 6 ACCORDING TO THE ASSESSEE THE INVESTMENTS WERE MADE FOR EARNING FROM CAPITAL APPRECIATION AND DIVIDEND, THUS YIELD OF DI VIDEND CANNOT BE A CRITERIA FOR CATEGORIZATION THE INVESTMENT MADE BY THE ASSESSEE AS A BUSINESS ACTIVITY. THE ASSESSEE FURTHER POINTED OUT THAT IF AN INVESTOR RECEIVED A MEAGER DIVIDEND ON THE INVESTMENT THEN T HAT CANNOT BE A YARDSTICK TO DETERMINE THAT INVESTMENT WAS MADE FOR BUSINESS PURPOSE, BECAUSE RECEIPT OF DIVIDEND IS COMPLETELY BEYOND TH E CONTROL OF INVESTOR AND DEPEND COMPLETELY ON PERFORMANCE OF THE COMPANY . THE DECLARATION OF THE DIVIDEND IS IN THE DISCRETION OF THE SAID CO MPANY. THE ASSESSEE ALSO POINTED OUT THAT RECEIPT OF DIVIDEND IS ALSO DEPEND S ON THE FACTS THAT WHETHER INVESTOR HOLDS THE SHARES ON THE APPOINTED DATE WHEN DIVIDEND WAS ANNOUNCED. IF AN INVESTOR KEPT THE INVESTMENT F OR 364 DAYS, BUT NOT HOLDING SHARE ON RECORDED DATE, HE WILL NOT BE ENT ITLED TO RECEIVE DIVIDEND. THUS ACCORDING TO THE ASSESSEE THERE ARE SO MANY ASPECTS WHICH DESERVES TO BE LOOKED INTO. THE ASSESSEE HAS MADE DETAILED SUBMISSIONS ON EACH OF THE REASONS ASSIGNED BY THE AO WHICH HAS BEEN NOTICED BY THE LD. CIT(A) ON PAGES NO. 19 TO 31. LD . FIRST APPELLATE AUTHORITY ON AN ANALYSIS OF THE SUBMISSIONS AS WELL AS THE FINDING RECORDED BY THE AO OBSERVED THAT FOLLOWING ESSENTIAL CONCLUS IONS EMERGES OUT FROM THE FACTS AS WELL AS POSITION OF THE LAW :- (A) SHARES OF ONLY 12 COMPANIES HAD BEEN BOUGHT AND SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE APPELLAN T DID NOT CARRY OUT TRANSACTIONS REPEATEDLY AND FREQUENTL Y IN THE SHARES AND CARRIED OUT TRANSACTION OF PURCHASE ONLY ONCE IN CASE OF 7 SCRIPS OUT OF 12 SCRIPS DEALT DURING THE FINANCIAL YEAR. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 7 (B) THE PURCHASE AND SALE OF SHARES WAS THE ONLY AC TIVITY OF THE ASSESSEE BECAUSE THE KARTA OF THE HUF WAS IN FU LL TIME EMPLOYMENT AS DIRECTOR OF NUMEROUS REAL ESTATE DEVELOPMENT COMPANIES. (C) THE PERIOD OF HOLDING WAS NOT VERY SHORT AND IT WAS REASONABLE TO PRESUME THAT THE PURCHASE WAS MADE WI TH AN INTENTION TO MAKE INVESTMENT. THE AVERAGE HOLDIN G PERIOD OF SHARES ON WHICH SHORT TERM CAPITAL GAIN A RISES WAS MORE THAN 50 DAYS. (D) THE SCALE OF ACTIVITY WAS NOT SUBSTANTIAL. (E) THE TRANSACTIONS WERE NOT CONTINUOUS AND REGULA R BUT WERE SPORADIC. (F) BORROWED FUNDS HAD NOT BEEN USED FOR PURCHASE O F SHARES, BUT THE ALLEGED BORROWED FUND IS MERELY CREDIT BALA NCE OF BROKER ACCOUNT. THE APPLICANT HAS NOT PAID ANY INTE REST TO ANY ONE ON ACCOUNT OF INVESTMENT MADE IN SHARES. (G) COMPOSITION OF LONG-TERM CAPITAL GAIN ARISES AF TER SUBSTANTIALLY LONG HOLDING PERIOD. (H) THE ASSESSEE HAD TREATED THE SHARES AS INVESTME NTS IN ITS STATEMENT OF AFFAIRS. THE ASSESSEE HAS NOT CLAIMED ANY STT PAID ON SHARE TRANSACTIONS AS EXPENSES IN COMPUTATI ON OF TAXABLE INCOME. (I) THE REVENUE HAD DISPUTED THE CLAIM OF THE ASSES SEE ONLY IN RELEVANT THE ASSESSMENT YEAR IN THE PAST ASSESSMENT YEARS AND THE CLAIM OF THE ASSESSEE HAD BEEN ACCEPTED AND INCOME FROM SALE OF SHARES WAS TREATED AS CAPITAL G AIN. (J) ALL TRANSACTIONS WERE DELIVERY BASED TRANSACTIO NS AND THE ASSESSEE DID NOT INDULGE IN TRANSACTIONS WITHOUT AC TUAL DELIVERY. THE APPELLANT WAS NOT ENGAGED IN F & O A ND SPECULATIVE DEALING. (K) THE APPELLANT HAS CARRIED OUT TRANSACTION OF SALE IN ONLY IN 12 SHARES DURING THE ENTIRE FINANCIAL YEAR AND ENTE RED INTO TRANSACTION ONLY 45 DAYS OUT OF 250 DAYS APPROXIMAT ELY OF TRADING SESSIONS IN THE STOCK EXCHANGE. HENCE, THE APPELLANT HAS CARRIED OUT TRANSACTIONS ONLY 3 4 D AYS A MONTH, SO THE APPELLANT CAN NOT BE TREATED AS TRADE R OF SHARES. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 8 5. LD. DR RELIED UPON THE ORDER OF AO. HE POINTED O UT THAT ASSESSEE RETAINED THE SHARE FOR A VERY SHORT PERIOD. AO HAS HIGHLIGHTED VARIOUS ASPECTS WHICH INDICATE THAT THE ASSESSEE WAS INVOLV ED IN TRADING ACTIVITIES. ON THE OTHER HAND LD. COUNSEL FOR THE A SSESSEE TOOK US THROUGH THE EXPLANATION OF ASSESSEE GIVEN ON EACH POINTS RA ISED BY THE AO. HE ALSO SUBMITTED THAT LD. FIRST APPELLATE AUTHORITY O N AN ANALYSIS OF THE ASSESSEES SUBMISSION RIGHTLY FORMULATED 12 POINTS (EXTRACTED SUPRA) WHICH CAN GOAD AN AUTHORITY TO SAY THAT THERE WAS N OT TRADING IN SHARES. HE ALSO POINTED OUT THAT THIS CONTROVERSY AROSE IN NUMBER OF CASES AND ASSESSEE PLACED ON RECORD A LIST OF 50 CASES BEFORE THE LD. FIRST APPELLATE AUTHORITY. LD. FIRST APPELLATE AUTHORITY HAS NOTICE D THE CITATION ON PAGES NO. 28 TO 31. HE POINTED OUT THAT IN THE CASE OF RA MESH BABU RAO NOTICED BY THE LD. CIT(A) AT S. NO. UU. PAGE 30 OF THE ORDE R, THE ASSESSEE HAS CARRIED OUT TRANSACTION IN 54 SCRIPS HIS SALES WERE MORE THAN 24 CRORES AND ON AN ANALYSIS OF THE RECORD TRIBUNAL HAS HELD HIM AS INVESTOR. HE HEAVILY RELIED UPON THE ORDER OF LD. CIT(A). 6. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES WE ARE OF THE OPINION THAT IT IS ALWAYS DIFFICULT TO CLEARLY DRAW A LINE, WHETHER AN ASSESSEE MADE INVESTMENT IN SHARES OR HE VENTURED I N THE BUSINESS. DIFFICULTY ARISES BECAUSE TO ARRIVE AT PROPER CONCL USION ONE HAS TO EVALUATE THE EVIDENCE AND GATHERED THE INTENTION OF AN ASSESSEE. INTENTION, AS DESCRIBED BY THE WEBSTER COMPREHENSIV E DICTIONARY IS ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 9 SETTLED DIRECTION OF THE MIND TOWARDS DOING OF CERT AIN ACTS. MORE OFTEN THEN NOT, THE MATERIAL ON RECORD AND THE CIRCUMSTAN CES DO NOT REFLECT THE TRUE INTENTION AND IT IS NOT POSSIBLE TO ENTER INTO THE RECESSES OF THE MIND OF AN ASSESSEE TO KNOW THE TRUE INTENTION, HENCE TH E PUZZLE. THE ASSESSEE HAS CITED MORE THAN 50 DECISIONS BEFORE THE LD. CIT (A). LD. AO HAS ALSO PUT IN SERVICE THE BOARD CIRCULAR, ORDER OF THE LD. AUTHORITY FOR ADVANCE RULING AND THE DECISIONS OF THE HONBLE SUPREME COU RT. WE FIND THAT IN THESE DECISIONS THE AUTHORITIES HAVE CONSIDERED BRO ADER TEST FOR APPLYING ON THE FACTS IN ORDER TO ASCERTAIN THE INTENTION OF THE ASSESSEE. ONE OF THE DECISION REFERRED BY THE ASSESSEE AT SL. NO. X ON P AGE 29 OF THE LD. CITS ORDER IS THE DECISION OF ITAT LUCKNOW IN THE CASE O F SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT REPORTED IN 120 TTJ PAGE 216. ON AN ANALYSIS OF THIS DECISION WE FIND THAT TRIBUNAL HAS APPRECIATED ALMO ST ALL THE DECISIONS REFEREED BY THE ASSESSEE BEFORE LD. FIRST APPELLATE AUTHORITY AND ON AN ANALYSIS OF THE CASE LAW TRIBUNAL HAS CULLED OUT BR OAD PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF THE CASE TO FIND OUT WHE THER TRANSACTIONS OF AN ASSESSEE CLAIMED TO BE OF AN INVESTMENT IS A REALLY AN INVESTMENT OR A BUSINESS TRANSACTIONS. IN OUR UNDERSTANDING INSTEAD OF RECITING AND DISCUSSING OF THE CASE LAW REFERRED BY THE PARTIES, IT IS BETTER TO TAKE NOTE THE BROAD TESTS PROPOUNDED BY THE ITAT. THEY READ A S UNDER :- (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 10 STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPEN ING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET . (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHAS E AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE . SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW W HETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PRO FIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE ? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSEN TIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN T HE BALANCE SHEET ? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION ? WHETHER FOR T RADE OR FOR INVESTMENT ? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 11 THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY ? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO S HOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SH ARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QU ESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISI TES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE TH AT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEA LING AS A TRADER IN THAT ITEM ? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILL EGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE ? (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 12 7. LET US EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THESE TESTS. THE FIRST TEST IS HOW ASSESSEE CHARACTERIZE THE INVESTMENT IN THE BOOKS OF ACCOUNTS. WE FIND THAT ASSESSEE HAS SHOWN THE INVESTMENT IN THE SHARES AND DID NOT EVALUATE THE SHARES AS PER THE P RINCIPLE OF EVALUATING CLOSING STOCK I.E. ON MARKET PRICE OR ON COST WHICH IS LOWER. THE ASSESSEE HAS SHOWN THE VALUE AT COST AS INFORMED BY THE LD. REPRESENTATIVE. ASSESSEE HAS NOT USED BORROWED FUNDS IN THE PURCHAS E OF SHARES. THE KARTA OF THE HUF WAS IN FULL TIME EMPLOYMENT AS DI RECTOR OF NUMEROUS REAL ESTATE DEVELOPMENT COMPANIES. THE HOLDING PERI OD WAS NOT VERY SHORT, IN ANY CASE SHARES WERE SOLD WITHIN ONE YEAR I.E. WHY ASSESSEE IS SHOWING AS A SHORT TERM CAPITAL GAIN BUT LD. FIRST APPELLATE AUTHORITY OBSERVED THAT AVERAGE HOLDING PERIOD WAS MORE THAN 50 DAYS. THE ASSESSEE HAS NOT INDULGE IN SALE AND PURCHASE OF LA RGE NUMBER OF COMPANIES. IT MADE INVESTMENT ONLY ON 12 COMPANIES. THUS IT INDICATE THAT SCRIP HANDLED BY THE ASSESSEE IS OF ONLY 12 CO MPANIES. THE TRANSACTIONS WERE NOT CONTINUOUS AND REGULAR BUT WE RE SPORADIC. ALL TRANSACTIONS WERE DELIVERY BASED TRANSACTIONS AND T HE ASSESSEE DID NOT INDULGE IN TRANSACTION WITHOUT ACTUAL DELIVERY. IN THE LAST ASSTT. YEAR THE STAND OF ASSESSEE OF AN INVESTOR WAS NOT DISTURBED BY THE REVENUE. WE FIND THAT LD. FIRST APPELLATE AUTHORITY HAS EXAMINE D THE ISSUE FROM ALL POSSIBLE ANGLES IN ITS LUCID AND WELL REASONED ORDE R. IT DOES NOT CALL FOR ANY INTERFERENCE AT OUR END. ITA NO. 174/DEL/2012 ASSTT. YEAR 2008-09 13 8. THE NEXT OF THE GRIEVANCE RAISED BY THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DROPPING THE PROCEEDING U/S 271A AND 2 71B OF THE ACT. THESE ARE THE CONSEQUENTIAL ISSUES WITH THE MAIN ISSUE BE CAUSE IF ASSESSEE IS NOT TRADING IN SHARES THEN IT IS NOT SUPPOSED TO M AINTAIN BOOKS OF ACCOUNTS AND FOR THAT PENALTY WILL NOT BE IMPOSABLE UPON THE ASSESSEE. AS SUCH LD. FIRST APPELLATE AUTHORITY HAS RIGHTLY HELD THAT SINCE ASSESSEE IS AN INVESTOR IT IS NOT MANDATORY FOR THE ASSESSEE TO MA INTAIN BOOKS OF ACCOUNTS, THEREFORE, PENALTY U/S 271A AND 271B IS N OT IMPOSABLE. AFTER CONSIDERING THE ORDER OF LD. CIT(A) WE DO NOT FIND ANY ERROR IN IT ON THIS ISSUE ALSO. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23.3.2012. SD/- SD/- [T.S. KAPOOR ] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23.3.2012 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT