RACHANA SANJAY GOENKA, MUMBAI V. ADDL CIT RG 16(1), MUMBAI

ITA 181/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56042 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR SR
• Assessee Lawyers: R MURLIDHAR
• Keywords: Business income; Search and seizure; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER I.T.A.NO.181/MUM/2009 A.Y 2005-06 MRS. RACHANA SANJAY GOENKA, 131-C, GRAND PARADI APARTMENTS, AUGUST KRANTI MARG, MUMBAI 400 036. PAN: AAFPG OO65 N VS. ADDL. COMMISSIONER OF I.T., RANGE 16(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. MURLIDHAR. RESPONDENT BY : SHRI C.G.K.NAIR. SR. AR DATE OF HEARING: 24-10-2011 DATE OF PRONOUNCEMENT: 18-11-2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWIN G TWO GROUNDS: 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE AO OF TREATING THE INCOME OF RS. 7712025/- FROM SALE OF INVESTMENTS IN SHARES AS PROFITS OF THE BUSINESS INSTEAD OF SHORT TERM CA PITAL GAINS. 2. THE CIT (A) ERRED IN OBSERVING THAT THE APPELL ANT HAS PURCHASED AND SOLD SHARES TO REALIZE THE PROFIT BAS ED ON SHARE PRICE MOVEMENTS. NORMALLY, THIS IS DONE BY SOME ONE WHO IS THE ACTIVITY OF SHARE TRADING. HE FAILED TO APPRECIATE THAT SEIZING AN OPPORTUNITY IS A WELL DESIRED QUALITY OF AN INVESTO R AND THIS ALONE COULD NOT BE A REASON TO HOLD THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAINS FROM SALE OF SHARES AT RS.77,12, 025/-. IT WAS FURTHER ITA NO.181 OF 2009 2 NOTICED THAT ASSESSEE HAD SHOWN SOME PROFIT FROM SP ECULATED TRANSACTIONS ALSO. SINCE THERE WAS HIGH FREQUENCY O F TRANSACTIONS, A SHOW BECAUSE NOTICE WAS ISSUED AS TO WHY SHORT TERM CAPITAL GAINS SHOULD NOT BE ASSESSED AS BUSINESS INCOME. IN RESPO NSE, IT WAS STATED THAT ASSESSEE WAS A HOUSE-WIFE AND WAS INVESTING IN SHARES AND UNITS BY SUBSCRIBING TO GOOD IPOS. SOMETIMES SOME SHARES HAVE BEEN PURCHASED FROM THE MARKET ALSO. THE ASSESSEE HAS NO T BORROWED ANY FUNDS AND ONLY SURPLUS FUNDS HAVE BEEN INVESTED IN THE SHARES. IT WAS ALSO STATED THAT IN THE BALANCE-SHEET ASSESSEE HAS TREATED ALL THE SHARES AS INVESTMENTS. DURING THE YEAR THERE WERE O NLY 33 TRANSACTIONS AND AVERAGE NUMBER OF TRANSACTIONS EVERY MONTH WORK ED OUT TO ONE IN ELEVEN DAYS AND, THEREFORE, SAME COULD NOT BE TREAT ED AS BUSINESS OF DEALING IN SHARES. IT WAS ALSO POINTED OUT THAT IN MOST OF THE CASES SHARES HAVE BEEN HELD FOR MORE THAN ABOUT 4 MONTHS AND, THEREFORE, SAME SHOULD BE ASSESSED AS GAINS FROM SHORT TERM CA PITAL GAINS. 3. THE AO AFTER EXAMINING THE ABOVE SUBMISSIONS OBS ERVED THAT ASSESSEE HAS ALSO SHOWN LONG TERM CAPITAL GAINS OF RS.1,63,30,916/- FROM SALE OF ONE SCRIP I.E. WYETH LTD. THE OTHER TR ANSACTIONS ARE SHORT TERM CAPITAL GAINS. HE FURTHER OBSERVED THAT THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES. THE AS SESSEE HAS ALSO SOME DEALINGS IN FUTURES AND OPTIONS. IT WAS OBSERV ED THAT CAPITAL ACCOUNT OF THE ASSESSEE AS ON 31-3-2004 SHOWS TOTAL CAPITAL BALANCE OF RS. 79,78,229/- OF WHICH RS. 44,07,097/- IS THE INV ESTMENT IN THE SHARES. WITH THIS CAPITAL AVAILABLE, THE ASSESSEE H AD MADE A TOTAL ITA NO.181 OF 2009 3 TURNOVER OF RS. 6,48,10,946/- PLUS HE IS HAVING A C LOSE STOCK OF RS. 2,43,03,686/- IN SHARES. THIS IS MORE THAN TEN TIME S OF THE CAPITAL AVAILABLE AS ON 01.04.2004. HENCE, ONE CAN DISCERN A CLEAR AND SYSTEMATIC PATTERN OF TURNING OVER THE INITIAL CAPI TAL MANIFOLD TO MAKE GAINS. IT WAS ALSO NOTICED THAT EXCEPT FOR FOUR SMA LL TRANSACTIONS, IN ALL OTHER CASES SHARES WERE PURCHASED DURING THE YEAR W HICH MEANS SHARES WERE PURCHASED WITH THE SOLE INTENTION OF SE LLING AT PROFIT. THE TRANSACTIONS ARE VERY FREQUENT AND IN SOME CASES SH ARES HAVE BEEN SOLD EVEN BEFORE TAKING THE DELIVERY. AO HAS GIVEN CERTAIN INSTANCES WHERE ON A PARTICULAR DATE NUMBERS OF TRANSACTIONS WERE VERY HIGH. FOR EXAMPLE, ON 22-2-2005 THERE WERE 33 TRANSACTIONS WH EREAS ON 28-2- 2005 THERE WERE 10 TRANSACTIONS AND ON 2-3-2005 THE RE WERE 14 TRANSACTIONS. VIDE PARA-9, WHICH HAS BEEN STRONGLY RELIED ON BY THE LD. DR, THE AO OBSERVED AS UNDER: 9. ON EXAMINATION OF THE CONTRACT CUM BILL OF THE BROKER GUPTA EQUITIES PVT. LTD., DATED 03.02.2005 IT IS NOTICED THAT THE ASSESSEE HAS SOLD SHARES IN ISPAT INDUSTRIES AT TRADE TIME 12.15 TO 12.20 AND SOLD 1,00,000 SHARES OF ISPAT INDUSTRIES AND PURCHASED T HE SAME AT TRADE TIME 2.30 TO 2.40 WHICH MEANS ASSESSEE HAS GONE SHO RT I.E., SOLD WITHOUT HAVING SHARES. THE ASSESSEE HAS INDULGED IN SAME PRACTICE OF SELLING SHARES IN 1349 OF SELAN EXPLORATION AT TRAD E TIME 9.58 TO 9.59 AND THEN SQUARED IT OF BY PURCHASING THE SAME SHARE S (66349) AT TRADE TIME 10.10 TO 11.46. THE BALANCE 65,000 IS DE LIVERY. THESE 65,000 SHARES OF SELAN EXPLORATION ARE SOLD ON 17.0 3.2005. THE ASSESSEE HAS SHOWN THE GAINS MADE ON 25.02.2005 AS SPECULATION INCOME AND GAIN/LOSS MADE ON 17.03.2005 AS SHORT TE RM CAPITAL GAIN! LOSS. IN VIEW OF THE ABOVE FACTS, AO FURTHER REFERRED TO THE CIRCULAR ISSUED BY THE BOARD FOR DETERMINING WHETHER THE TRANSACTIONS INVOLVED IN THIS ACTIVITY WERE IN THE NATURE OF BUSINESS AND AFTER R EFERRING TO FEW ITA NO.181 OF 2009 4 DECISIONS, HE HELD THAT THESE TRANSACTIONS WERE IN THE NATURE OF BUSINESS AND ACCORDINGLY INCOME FROM SALE AND PURCH ASE OF SHARES WAS ASSESSED AS INCOME FROM BUSINESS. 4. BEFORE THE LD. CIT(A) VARIOUS SUBMISSIONS WERE M ADE WHICH HAVE BEEN SUMMARISED BY HIM AT PARA-7 OF HIS ORDER WHICH READS AS UNDER: 7. THE APPELLANT IS AGGRIEVED BY THE STAND TAKEN BY THE A.O. SHE STATES SHE IS A HOUSEWIFE. SHE WAS NOT INVOLVED IN ANY BUSINESS OR IS A PARTNER OR DIRECTOR IN ANY OF THE FAMILY COMPANIES. SHE USED TO INVEST HER CAPITAL AND SAVIN GS IN VARIOUS INVESTMENT INSTRUMENTS AVAILABLE. THE BALANCE SHEET FURNISHED WITH THE RETURN SHOWS THAT SHE HAD INVESTED HER ENT IRE CAPITAL IN SHARES, DEBENTURES, PUBLIC PROVIDENT FUND, JEWELLER Y AND BANK DEPOSITS. THE APPELLANT EARNED SHORT TERM CAPITAL G AINS OF RS. 77,12,025/- DURING THE YEAR AND OFFERED THE SAME FO R TAX U/S. 111-A. SHE HAS STATED THAT THE OBSERVATION OF THE A .O. IN PARAGRAPH 6 OF THE ASSESSMENT, WHICH FORMED THE BAS IS FOR HIS CONCLUSION THAT SHE TRADED IN SHARES, ARE NOT CORRE CT. SHE HAS STATED THAT SHE HELD THE SHARES OF WYETH LIMITED FO R A LONG TIME. SUBSTANTIAL PART OF THESE SHARES WAS SOLD BY THE APPELLANT IN THE MONTH OF OCTOBER 2004 AND THE APPELLANT REAL IZED RS. 1.22 CRORES AS A RESULT. SHE THEN SOLD ANOTHER LOT OF WYETH LIMITED IN FEBRUARY AND MARCH AND REALILSED RS. 42. 48 LAKHS. APPELLANT REINVESTED THE ENTIRE AMOUNT OF RS. 1.22 CRORES AND BOUGHT 665000 SHARES OF ISPAT INDUSTRIES LIMITED ON 27.11.2004. IT IS EVIDENT FROM THE FACT OF INVESTME NT OF ENTIRE SALE CONSIDERATION OF WYETH LIMITED INTO ONE COMPAN Y I.E.,ISPAT INDUSTRIES LIMITED THAT THE APPELLANT HAD ALWAYS IN TENDED TO INVEST HER CAPITAL FOR A LONG TERM PURPOSE OF SECUR ING INCOME IN THE FORM OF DIVIDENDS AND FOR CAPITAL APPRECIATION. SIMILARLY THE MONEY REALIZED IN THE MONTHS OF FEBRUARY AND MARCH WAS REINVESTED FOR PURCHASE OF SHARES OF VAKRANGEE SOFT WARES AND ESSAR STEELS. THE LIST OF INVESTMENT IN SHARES FIL ED WITH THE RETURN OF INCOME SHOWS THE APPELLANT HAD STILL WITH HER 100162 SHARES OF VAKRAGSEE SOFTWARES AND 153091 SHARES OF ESSAR AS ON 31.3.2005 EVEN AFTER SELLING SMALL PART OUT OF T OTAL PURCHASE. IN FACT EXCEPT THESE 3 TRANSACTIONS OF LARGE QUANTI TY, THE APPELLANT HAD TRANSACTIONS OF ONLY ONE SALE OF SHAR ES ALLOTTED IN IPOS LIKE DREDGING CORPORATION, GAIL, IPCL, PETRONE T LNG ETC. IT SHOULD BE APPRECIATED BUYING SHARES/UNITS BY MAKING APPLICATION IN LPOS AND MUTUAL FUNDS AND SECURING GAINS BY SELL ING THE ITA NO.181 OF 2009 5 SHARES/UNITS ALLOTTED COULD IN NO CIRCUMSTANCES BE REGARDED AS CARRYING OF ANY BUSINESS. AS REGARDS THE OBSERVATIO NS OF THE A.O. THAT ON 3.2.2005, THE TOTAL NO. OF TRANSACTION S ARE 140 OF PURCHASE AND SALE OF ISPAT INDUSTRIES, THE APPELLAN T STATES THAT SHE PLACED ONE SINGLE ORDER FOR BUYING 665000 SHARE S OF LSPAT INDUSTRIES AND SIMILARLY OF SALE. THE NUMBERS REPOR TED IN CONTRACT NOTE IS NOT INDICATIVE OF VOLUME OF BUYING OR SELLING AND OBSERVATIONS OF THE A.O. IN THIS REGARD ARE NOT COR RECT BUT BASED ON MISUNDERSTANDING OF THE CONTRACT NOTE. THE APPEL LANT NEITHER INTENDED TO INDULGE IN BUSINESS OF SHARE TRADING NO R COULD THIS INFERENCE BE DRAWN ON GIVEN FACTS. IT IS THEREFORE REQUESTED THAT INCOME RETURNED AS SHORT TERM CAPITAL GAINS BE TREA TED AS SUCH. AFTER EXAMINING THESE SUBMISSIONS, LD. CIT(A) DID N OT ACCEPT THE SAME VIDE PARA-8 WHICH READS AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF TH E APPELLANT. I HAVE ALSO PERUSED THE RECORDS. IT IS NOTED THAT THE APPELLANT HAD REGULARLY PURCHASED AND SOLD SHARES THROUGHOUT THE YEAR. SHE HAD DEALT IN SHARES OF 3 COMPANIES THROUGHOUT THE Y EAR. SOME OF THESE MAY BE SALE OF SHARES OBTAINED BY IPOS AS NOTED BY THE APPELLANT. BUT EVEN OTHERWISE THERE ARE PURCHASE OF OTHER ENTITIES LIKE SESA GOA, SELAN EXPLORATION, ZENITH P APER PRODUCTS, GLAXO ETC. IT MAY BE TRUE THAT THE MAJOR PORTION OF THE TRANSACTIONS RELATED TO SALE OF SHARES OF WYETH LTD AND THEN PURCHASE OF SHARES OF ISPAT INDUSTRIES AND VAKRANGE E SOFTWARE. EVEN THEN, IF ONE LOOKS AT THE PICTURE DISPASSIONAT ELY, ONE GETS AN IMPRESSION THAT THERE WAS PURCHASE AND SALE OF S HARES ON A REGULAR BASIS AND THAT THE NATURE OF TRANSACTIONS I S INDICATIVE OF MORE OF TRADING THAN INVESTMENT. THE APPELLANT WAS QUITE SENSITIVE TO THE MARKET TRENDS AND WHENEVER AN OPPO RTUNITY UP, SHE HAS SEIZED THE OPPORTUNITY AND HAS PURCHASED OR SOLD SHARES TO MAKING PROFITS. THIS WOULD MEAN THAT THE APPELLANT WAS NOT SATISFIED WITH INVESTING AND WAITING FOR DI VIDEND INCOME FROM HER INVESTMENT IN SHARES OF MUTUAL FUNDS. ANOT HER POINT WHICH HAS BEEN NOTED BY THE APPELLANT IN HER RESPON SE TO THE A.O. IS THAT THE AVERAGE NUMBER OF TRANSACTIONS EVE RY MONTH WORKS OUT TO ONE IS 11 DAYS AND SUCH A THIN VOLUME WOULD NOT SUGGEST THAT SHE HAS STARTED TRADING IN SHARES. BUT I AM OF THE VIEW THAT VOLUME BY ITSELF WOULD NOT BE DECISIVE OF THE NATURE OF THE TRANSACTIONS. IN THIS CASE, A PATTERN CAN BE OB SERVED WHICH SHOWS THAT THE APPELLANT HAS PURCHASED AND SOLD SHA RES TO REALIZE THE PROFIT BASED ON SHARE PRICE MOVEMENTS. NORMALLY THIS IS DONE BY SOMEONE WHO IS INTO THE ACTIVITY OF SHAR E TRADING. SHE HAS STATED IN HER RESPONSE TO THE ASSESSING OFF ICER THAT SHE DID NOT HAVE ANY STAFF TO HELP HER IN THESE ACTIVIT IES WHICH ITA NO.181 OF 2009 6 MEANS IT WAS NOT AN ORGANIZED ACTIVITY. I AM AFRAID , WHETHER THAT CAN BE TAKEN AS AN INDICATION OF THE NATURE OF ACTIVITY BEING TRADING ONLY OR INVESTMENT. WHEN ALL ASPECTS ARE CO NSIDERED, I COME TO THE CONCLUSION THAT THE APPELLANT WAS TRADI NG IN SHARES DURING THE YEAR. THEREFORE, THE STAND TAKEN BY THE ASSESSING OFFICER IS CORRECT. AS A RESULT, THE APPEAL FILED B Y THE APPELLANT ON THIS GROUND IS DISMISSED. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE AO AND THE LD.CIT[A]. H E FURTHER SUBMITTED THAT AO IS NOT CORRECT IN OBSERVING THAT ASSESSEE HAD CARRIED OUT 114 TRANSACTIONS PARTICULARLY BY REFERRING TO A CONTRACT NOTE WHICH RUNS INTO SEVEN PAGES. HE POINTED OUT THAT, IN FACT , ASSESSEE HAS PLACED ONLY ONE ORDER FOR PURCHASE OF 665000 SHARES OF ISPAT INDS., BUT ORDER WAS SPLIT BY ELECTRONIC SYSTEM. HE ALSO R EFERRED TO THE OBSERVATIONS MADE BY THE AO IN PARA-9 AND SUBMITTED THAT ALL THESE TRANSACTIONS WERE DONE BY MISTAKE BY THE BROKER OF THE ASSESSEE AND PURCHASE ORDER WAS INITIALLY EXECUTED AS SALE ORDER BUT THE SAME WAS LATER ON REVERSED. IN ANY CASE, SOME PROFIT WAS GEN ERATED IN THIS TRANSACTION WHICH BECAUSE OF THE MISTAKE BECAME SPE CULATED TRANSACTION. BUT SUCH SPECULATED PROFIT HAS BEEN SH OWN BY THE ASSESSEE SEPARATELY. HE ALSO MENTIONED THAT BASICAL LY ASSESSEE HAS SOLD LARGE NUMBER OF SHARES OF WYETH LTD. WHICH WER E ACQUIRED MANY YEARS AGO AND THE FUNDS WERE INVESTED IN PURCHASE O F SHARES OF ISPAT LTD., AND VAKRANGEE SOFTWARE. THE OTHER TRANSACTION S BASICALLY RELATED TO SOME OF THE SHARES ALLOTTED THROUGH IPOS. ALL TH ESE FACTORS CLEARLY SHOW THAT ASSESSEE NEVER HAD ANY INTENTION TO TRADE IN SHARES AND IT WAS ONLY AN INVESTMENT. HE ALSO REFERRED TO THE ASS ESSMENT ORDERS FOR ITA NO.181 OF 2009 7 ASSESSMENT YEARS 2003-04 TO 2007-08 WHEREIN SOME SH ORT TERM CAPITAL GAIN WAS EARNED BY THE ASSESSEE AND WAS ACCEPTED AC CORDINGLY. THEREFORE, ATLEAST ON THE PRINCIPLE OF CONSISTENCY THE GAIN FROM SHORT TERM INVESTMENT SHOULD BE TREATED ONLY AS SHORT TER M CAPITAL GAIN. 6. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND THE LD.CIT[A]. HE PARTICULARLY INVITED OUR A TTENTION TO PARA-9 OF THE ASSESSMENT ORDER AND POINTED OUT THAT THE AO HA S CLEARLY DEMONSTRATED AS HOW THE ASSESSEE HAS ENTERED INTO S PECULATION TRANSACTIONS. THEREFORE, THE INTENTION OF THE ASSES SEE WAS TO DEAL IN SHARES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THOUGH AO HAS MENTIONED IN PARA-9 REGARDING A TRANSACTION OF 1,00,000 SHARES OF ISPAT INDS., WHICH HAVE BEEN FIRST SOLD IN THE MORN ING BETWEEN 9.58 AND 11.46 AM AND THE SAME HAVE BEEN PURCHASED LATER ON THE SAME DAY BETWEEN 12.15 TO 2.40 P.M. SIMILAR IS THE POSIT ION IN RESPECT OF 65000 SHARES OF SELAN EXPLORATION. THOUGH PRINCIPAL LY IT DOES NOT SEEMS TO BE A CASE OF MISTAKE BECAUSE IF IT WAS REA LLY A MISTAKE THEN THE BROKER WOULD NOT HAVE GIVEN THE PROFIT TO THE A SSESSEE BECAUSE IN THE REVERSE SITUATION I.E. IF IT WAS A CASE OF LOSS ASSESSEE WOULD NOT HAVE MADE PAYMENT OF LOSS TO THE BROKER. MOREOVER, THERE IS NO EVIDENCE TO SHOW THAT THE BROKER HAS ACCEPTED THAT IT WAS A CASE OF MISTAKE BY HIM. HOWEVER, STILL THE SITUATION WILL N OT CHANGE MUCH BECAUSE ASSESSEE HAS DONE ONLY FEW SPECULATED TRANS ACTIONS AND SUCH PROFITS HAVE BEEN DETERMINED SEPARATELY BY SHOWING THE INCOME FROM ITA NO.181 OF 2009 8 SPECULATION BUSINESS AT RS.1,03,550/- WHICH HAS BEE N ACCEPTED BY THE AO. THE ASSESSEE GAS MAINLY EARNED INCOME FROM LONG TERM CAPITAL GAIN BY SELLING SHARES OF WYETH LTD. THESE SHARES W ERE PURCHASED FROM 1988 TO 1993 AND HAVE BEEN SOLD DURING THE YEAR AND GENERATED IN GAINS OF ABOUT RS.1.62 CRORES. THIS FACT ITSELF SHO WS THAT ASSESSEE IS AN INVESTOR AND NOT A TRADER. THE OTHER MAJOR TRANSACT ION IS IN RESPECT OF PURCHASE OF 665000 SHARES OF ISPAT INDS., PURCHASED ON 24-11-04 AND SAME HAVE BEEN OLD ON 23-2-05, 25-2-05 AND 4-03-200 5, WHICH GENERATED GAINS OF RS.57,58,228/-. THE SECOND TRANS ACTION IS IN RESPECT OF VAKRANGEE SOFTWARE. 355162 SHARES WHICH WERE PUR CHASED ON 3-3- 05, 4-3-05 AND 8-3-05 AND OUT OF THIS 2,65,000 SHAR ES WERE SOLD ON 17-3-2005. THE BALANCE HAS BEEN CARRIED TO STOCK. T HIS TRANSACTION GENERATED A PROFIT OF RS.19,36,428/-. THE THIRD MAJ OR TRANSACTION IS PURCHASE OF 253091 SHARES OF ESSAR STEELS WHICH WER E PURCHASED ON 17-3-05. OUT OF THIS 1,00,000 SHARES HAVE BEEN SOLD ON 21-3-05 WHICH GENERATED A LOSS OF RS.2,75,431/-. THUS A SUM OF RS .74,19,225/- [I.E. RS.57,58,228 + RS.16,36,428 RS.2,75,431] OUT OF T HE TOTAL SHORT TERM CAPITAL GAINS OF RS.77,12,025/- HAS BEEN EARED IN T HESE THREE TRANSACTIONS. A PERUSAL OF THE DETAILS OF OTHER SHA RES FILED AT PAGES 16 TO 19 OF THE PAPER BOOK CLEARLY SHOWS THAT SOME GAI NS HAVE BEEN MADE OUT OF THE SOME SHARES ALLOTTED IN ISPAT INDS. , FOR EXAMPLE THE FOLLOWING COMPANIES SHARES HAVE BEEN ALLOTTED THROU GH IPOS AND HAVE BEEN SOLD AND GENERATED THE CAPITAL GAINS, ARE AS UNDER: ITA NO.181 OF 2009 9 DATE OF PARTLCULARS/ DESCRIPTION OF ASSETS QUANTITY PURCHASE SALES DREDGING CORPORATION (IPO) GAIL INDIA LTD. (IPO) IPCL (IPO) PETRONET LNG (IPO) BANK OF MAHARASHTRA (IPO) POWER TRADING CORPORATION (IPO) NGC (IPO) 12.000 144.000 259.000 800.000 200.000 100.000 70.000 18-03-04 25-03-94 11-03-04 24-03-04 02-04-04 23-03-04 05-04-04 13-04-04 13-04-04 14-04-04 15-04-04 03-05-04 07-06-04 APART FROM THIS, SOME MUTUAL FUNDS HAVE BEEN PURCHA SED. OTHERWISE, THERE IS HARDLY ANY OTHER TRANSACTION. THIS CLEARLY SHOWS THAT VERY FEW TRANSACTIONS HAVE BEEN CARRIED ON BY THE ASSESSEE. THE OBSERVATION OF THE AO REGARDING PURCHASE OF ISPAT SHARES CONTRACT NOTE WHICH RUNS INTO 7 PAGES WOULD NOT AMOUNT TO MANY TRANSACTIONS. IN FACT, ASSESSEE HAS PLACED ONLY ONE ORDER. IT IS A COMMON KNOWLEDGE THAT ONCE AN ORDER IS PLACED AND THAT TOO FOR A LARGE QUANTITY, IT WILL NOT BE EXECUTED IMMEDIATELY BY THE ELECTRONIC SYSTEM OF THE STOCK E XCHANGE. THE EXECUTION IS DEPENDENT ON THE CORRESPONDING SALES B Y THE SELLERS AT SIMILAR PRICE WHICH HAVE PUT THEIR BIDS ON THE SYST EM. THE STOCK EXCHANGE EXECUTES THE TRADE WHEN THE PRICE OF BUYER AND SELLER MATCHES. FOR THE SAME TRANSACTION THERE CAN BE EITH ER MANY BUYERS OR MANY SELLERS AND IF SOME CUSTOMER WANTS TO BUY A LA RGE QUANTITY OF SHARES, SUCH ORDERS MAY BE EXECUTED IN FEW MINUTES OR SOMETIMES WITHIN A FEW HOURS. PERUSAL OF THE CONTRACT NOTE FI LED BEFORE US SHOWS THAT THE ORDER REGARDING PURCHASE OF 665000 SHARES OF ISPAT INDS., HAS ITA NO.181 OF 2009 10 BEEN EXECUTED FROM 12;30.58 ON 12;32.55 [AS DATE & TIME GIVEN IN THE CONTRACT NOTE 1 ST PAGE]. WE ARE EXTRACTING THE FIRST PAGE OF THE CON TRACT NOTE WHICH IS AS UNDER: SECURITIES BOUGHT FOR YOU FOR DELIVERY/CLEARING ORDER NO. TRADE NO. TRADE TIME QUA NT- TIDY KIND OF SECURITY PURC- HASE RATE BROK- ERAGE RATE PLUS BROKERAGE NET RATE AMOUNT RS. 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 200502034240062 3756377 3756430 3756651 3756608 3756653 3756936 3756988 3759789 3759799 3759791 3759792 3759793 3159794 3759295 3759796 3759797 3159798 3759799 12:30.58 12:30,50 12:31.05 12:31.07 12:31.08 12:31.17 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 12.32.55 5229 2500 500 1000 100 671 1218 1000 0 1 1 100 200 1 1 1 1 1 1 ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS ISPAT INDS 24. 90 24.90 24. 90 24 90 24.90 24.90 24.90 24. 95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24.95 24 95 0. 0I 0.01 0.01 0.01 0,01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 24.91 24.91. 24.91 24.91 24.91 24.91 24.96 24.96 24.96 24.96 24.96 24.96 24.96 24.96 24.96 24.96 24.96 24.96 130254.39 622775.00 12455.00 24910.00 2491.00 16714.61 31898.88 249600.00 24.96 24.96 2496.00 4992.00 24.96 24.96 24.96 24.96 24.96 24.96 THE ABOVE CLEARLY SHOWS THAT PART OF THE PURCHASE O RDER HAS BEEN EXECUTED IN VARIOUS TRADES. THUS, IT HAS TO BE CONS TRUED THAT ONLY ONE TRANSACTION AND SPLITTING OF THE TRANSACTION BY THE ELECTRONIC SYSTEM OF THE STOCK EXCHANGE WILL NOT MEAN THAT THIS IS A CAS E OF MANY TRANSACTIONS. THESE FACTS VERY CLEARLY SHOW THAT AS SESSEE HAS DONE ONLY 33 TRANSACTIONS AS CLAIMED BEFORE THE AO AND, IN FACT, PARTS OF THESE TRANSACTIONS ARE ALSO ON ACCOUNT OF ALLOTMENT OF SHARES THROUGH IPOS. IF IPOS TRANSACTIONS ARE REMOVED THE TOTAL TR ANSACTIONS WOULD BE EVEN LESS THAN 25. WE ARE OF THE OPINION THAT AO WA S WRONG IN CONCLUDING THAT FREQUENCY OF TRANSACTIONS WAS VERY HIGH. WHEN THESE FEW TRANSACTIONS ARE CONSIDERED WITH THE TRANSACTIO NS REGARDING SALE OF ITA NO.181 OF 2009 11 SHARES OF WYETH LTD., WHICH WERE HELD FOR ALMOST 10 YEARS, IT BECOMES CLEAR THAT ASSESSEE IS ONLY AN INVESTOR AND CANNOT BE CALLED A TRADER. WE FURTHER APPRECIATE THAT NO OFFICE INFRASTRUCTURE WAS CREATED BY THE ASSESSEE. EVEN THE FUNDS WERE HER OWN FUNDS AND NO BORROWINGS HAVE BEEN MADE FOR SUCH INVESTMENTS. THESE FACTORS ONLY CONTRIBUTE TO SHOW THAT ASSESSEE IS ONLY AN INVESTOR. IN THESE CI RCUMSTANCES, WE ARE OF THE OPINION, THAT TRANSACTIONS OF SALE AND PURCH ASE OF SHARES HAVE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS ONLY. AC CORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT[A] AND DIRECT THE AO TO ASSESS THE TRANSACTIONS OF SALE AND PURCHASES OF SHARES AND MU TUAL FUNDS UNDER THE HEAD CAPITAL GAINS 8. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 18-11-2011. SD/- SD/- (R.S.PADVEKAR) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18-11-2011. P/-*