Shri Rashmibhai Chhaganbhai Patel, Dharmaj V. The Jt.CIT.,Range-3, Baroda

ITA 2131/AHD/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1711 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 18-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR SR DR
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Business expenditure; Rule of consistency; Transactions in derivatives; Fair market value; Benefit of exemption
• Section: 45(2); 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD !'#!$%& ' ( )' BEFORE SHRI SHAILENDRA K. YADAV, JUDICIAL MEMBER AN D SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER #/ ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 / ASSESSMENT YEAR: 2006-07 & 2008-09 RESPECTIVELY SHRI RASHMIKANT CHHAGANBHAI PATEL, C/O. PRANNATH PETROLEUM, NR. JALARAM MANDIR, DHARMAJ CHOKDI, DHARMAJ 388 430 .. APPELLANT PAN : AETPP 5363 E VS ADDL. CIT, RANGE-3, BARODA .. RESPONDENT ASSESSEE(S) BY : SHRI S.N. SOPARKAR, AR REVENUE BY : SMT. SONIA KUMAR, SR-DR / DATE OF HEARING 22.03.2016 /DATE OF PRONOUNCEMENT 13.05.2016 / O R D E R PER SHAILENDRA K. YADAV, JUDICIAL MEMBER: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDERS OF THE CIT(A) FOR ASSESSMENT YEARS 2008- 09 AND 2006-07. BOTH THESE APPEALS INVOLVE COMMON ISSUES, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 2 2. THE GROUNDS RAISED BY THE ASSESSEE IN HIS APPEAL FOR ASSESSMENT YEAR 2006-07 READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT INCOME OF RS.2,00,41,4 53/- EARNED BY WAY OF SHORT TERM CAPITAL GAIN AND RS.70,64,982/- EARNED BY WAY OF LONG TERM CAPITAL G AIN IS TO BE TAXED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEF ORE OR AT THE TIME OF HEARING OF THE APPEAL. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL FOR ASSESSMENT YEAR 2008-09:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OF FICERS FINDING THAT THE ASSESSEE EARNED BUSINESS INCOME FR OM SALE OF SHARES AT RS.65,61,832/- AS AGAINST THE CLA IM OF THE ASSESSEE THAT THE AFORESAID INCOME WAS IN THE N ATURE OF SHORT TERM CAPITAL GAIN. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEF ORE OR AT THE TIME OF HEARING OF THE APPEAL. 4. WE TAKE THE LEAD CASE AS ITA NO.2131/AHD/2014 FO R ASSESSMENT YEAR 2006-07. THE BRIEF FACTS OF THE C ASE ARE THAT, DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD INCOME BY WAY OF PROFIT FROM PARTNERSHIP FIRM, CAPITAL GAI N ON SALE OF SHARES AND INCOME FROM OTHER SOURCES. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE RETURNED SHORT TERM CAP ITAL GAINS (STCG) OF RS.2,00,41,453/- AND LONG TERM CAPITAL GA INS (LTCG) OF RS. 70,64,982/-, INCOME FROM OTHER SOURC ES OF ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 3 RS.36,63,405/- AND TAX FREE DIVIDEND OF RS.6,63,686 /-. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DID SU BSTANTIAL AND CONTINUOUS DEALINGS IN SHARES AND SECURITIES DU RING THE YEAR AND DEALT IN NOT LESS THAN 167 DIFFERENT SCRIP TS WHILE CARRYING OUT MULTIPLE TRADES OF BUYING/SELLING SHAR ES EVERY DAY. THE SHARES WERE PRIMARILY BOUGHT ON BORROWED FUNDS. IN RESPONSE TO THE ASSESSING OFFICER'S SHOW-CAUSE NOTI CE TO TREAT THE INCOME FROM REGULAR DEALINGS IN MULTIPLE SHARES ON BORROWED FUNDS AS BUSINESS INCOME, THE ASSESSEE SUB MITTED THAT ONLY TRANSACTIONS IN FUTURE & OPTION SEGMENT W ERE BUSINESS TRANSACTIONS AND TRANSACTIONS IN CASH SYST EM WERE DONE ONLY WITH THE INTENTION OF INVESTMENT. THE STA ND OF THE ASSESSEE HAS BEEN THAT THE ASSESSEE MAINTAINED LARG E PORTFOLIO OF SHARES OVER THE YEARS, COULD IN NO WAY CHANGE TH E REAL CHARACTER OF HOLDING OF SHARES HELD AS INVESTMENT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY INVESTMENT SHOULD NOT BE TAKEN AS CONVERTED INTO ST OCK-IN- TRADE AT THE BEGINNING OF PREVIOUS YEAR RELEVANT TO A.Y.2006-07 AND PROVISIONS OF SECTION 45(2) BE NOT APPLIED, I.E . DIFFERENCE BETWEEN FAIR MARKET VALUE AT THE BEGINNING OF PREVI OUS YEAR AND ORIGINAL COST BE TAXED IN THE YEAR OF SALE OF SHARE S AS LONG TERM CAPITAL GAINS AND DIFFERENCE BETWEEN SALE PROCEEDS AND FAIR MARKET VALUE BE TAXED AS BUSINESS INCOME. IN RESPON SE TO SHOW CAUSE NOTICE, THE ASSESSEE REITERATED EARLIER SUBMI SSIONS. IN THIS BACKGROUND, THE OFFICER OBSERVED FROM THE PERU SAL OF TRADING ACCOUNT OF THE ASSESSEE THAT MAIN INTENTION OF TRANSACTIONS IN SHARES WAS NOT TO HOLD THEM AS INVE STMENT SINCE SHARES WERE INVARIABLY DISPOSED OF WITHOUT WA ITING FOR THE RECORD DATE FOR DISTRIBUTION OF DIVIDENDS. FURTHER OBSERVATION OF ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 4 THE ASSESSING OFFICER WAS THAT ON TOTAL SHARES PURC HASED OF RS.38.66 CRORE DURING THE YEAR AND OPENING STOCK OF SHARES OF RS.2.81 CRORE, THE ASSESSEE EARNED DIVIDEND INCOME OF RS.6.63 LAKH, WHICH WAS ONLY 0.16% OF THE SHARES HELD. THE ASSESSING OFFICER OBSERVED THAT SHARE TRANSACTIONS DONE BY TH E ASSESSEE DURING THE YEAR RAN INTO THOUSANDS AND PROPORTION O F STCG (RS. 2 CRORE) TO LTCG (RS.70.64 LAKH), I.E., 3:1 AL SO INDICATED THIS. THE ASSESSING OFFICER ALSO MADE A BACKWARD CA LCULATION FROM THE INTEREST ON BORROWINGS OF RS.22,81,644/- T O ARRIVE AT AN ESTIMATE OF BORROWING OF RS.2.8 CRORE. THE ASSES SING OFFICER HELD THAT THERE WAS A PARADIGM SHIFT IN HOW THE ASS ESSEE PLAYED IN THE STOCK MARKET IN THE RELEVANT YEAR BY PLEDGIN G HIS ENTIRE SHARE PORTFOLIO TO BORROW EQUIVALENT FUNDS. THE ASS ESSING OFFICER ALSO OBSERVED FROM THE RATIO OF PURCHASES ( RS.38.66 CRORE) TO OPENING STOCK (RS.2.81 CRORE) THAT THE IN COME EARNED FROM SHARE TRANSACTIONS WAS NOTHING BUT INCOME FROM BUSINESS AS PRIMARY AIM WAS TO ROLL OVER THE SHARES NUMBER O F TIMES LIKE ANY OTHER STOCK-IN-TRADE AND TO EARN BUSINESS INCOM E FROM SUCH ROLL OVER. THE ASSESSING OFFICER ALSO NOTED IN CREASE IN CLOSING STOCK (RS.9.98 CRORE) FROM THE OPENING STOC K (RS.2.81 CRORE), I.E., RATIO OF 4:1 TO INFER THAT DURING THE YEAR, THE ASSESSEE REINVESTED INCOME DERIVED FROM DEALING IN SHARES TO INCREASE HIS STOCK-IN-TRADE. FURTHER, THE ASSESSING OFFICER NOTED THAT RATIO OF SALE/PURCHASE WAS 0.85, WHICH ALSO IN DICATED THAT MAIN INTENTION OF BUYING OF SHARES WAS TO ROLL THEM OVER LIKE OTHER STOCK-IN-TRADE AND EARN BUSINESS INCOME. THE ASSESSING OFFICER ALSO OBSERVED THAT AGAINST INCOME OF RS.2.7 7 CRORE FROM DEALING IN SHARES, OTHER INCOME OF THE ASSESSEE WAS RS.1,07,676/- EARNED AS PARTNER FROM M/S. URVAKUNJ NICOTINE ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 5 INDUSTRIES, THEREBY INDICATING THAT BUSINESS OF DEA LING IN SHARES WAS MEANS OF LIVELIHOOD OF THE ASSESSEE WHERE HE DE VOTED MOST OF HIS WORKING TIME. IN THIS REGARD, THE ASSESSIN G OFFICER HELD THAT THE SHARES HELD AS INVESTMENT ON 01.04.2005 WE RE CONVERTED INTO STOCK-IN-TRADE AT THE BEGINNING OF P REVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND PROVISIONS OF SECTION 45(2) WERE ACCORDINGLY APPLIED. THE ASSESSING OFFIC ER DID NOT GRANT BENEFIT OF EXEMPTION U/S 10(38) ON THE GROUND THAT TRANSFER GIVING RISE TO LTCG WAS NOT SUBJECT TO SEC URITIES TRANSACTION TAX (STT). ACCORDINGLY, THE ASSESSING OFFICER TAXED THE DIFFERENCE BETWEEN SALE PRICE AND FAIR MA RKET VALUE AS ON 01.04.2005 AS BUSINESS INCOME. SIMILAR ISSUE AR OSE IN A.Y. 2008-09. 5. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY WHEREIN VARIOUS CONTENTIONS WERE MADE ON BEHALF OF THE ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE, W HEREBY THE INCOME OF RS.2,00,41,453/- SHOWN AS SHORT TERM CAPI TAL GAINS AS WELL AS INCOME OF RS.70,64,982/- SHOWN AS LONG T ERM CAPITAL GAINS WAS TAXED UNDER THE HEAD INCOME FROM BUSINESS. AGAINST THE AFORESAID ORDER OF THE CIT( A), THE ASSESSEE IS IN APPEAL BEFORE US INTER ALIA SUBMITTING THAT THE CIT(A) ERRED IN HOLDING THAT THE INCOME OF RS.2,00, 41,453/- EARNED BY WAY OF SHORT TERM CAPITAL GAINS AND RS.70 ,64,982/- EARNED BY WAY OF LONG TERM CAPITAL GAINS TO BE TAXE D UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFE SSION. ON THE CONTRARY, LD. DEPARTMENTAL REPRESENTATIVE SUPPO RTED THE ORDERS OF THE LOWER AUTHORITIES. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 6 6. AFTER GOING THROUGH THE RIVAL CONTENTIONS AND MA TERIAL ON RECORD, WE FIND THAT THE MAIN ISSUE BEFORE US IS WI TH REGARD TO THE ADDITION OF RS.2,00,41,453/- ON ACCOUNT OF STCG AND RS.70,64,982/- ON ACCOUNT OF LTCG. IN THIS REGARD , THE ASSESSEE DREW OUR ATTENTION TO THE CBDT CIRCULAR N O.6/2016 DATED 29.02.2016, WHICH IS PLACED AT PAGE NOS.52-53 OF THE COMPILATION OF ORDERS AND STATED THAT IN VIEW OF TH E SAID CIRCULAR, THE SHARES AND SECURITIES HELD FOR A PERI OD OF MORE THAN 12 MONTHS AS REFERRED TO IN PARAGRAPH 3(B) OF THE SAID CIRCULAR, THEREFORE, THE LTCG OF RS.70,64,982/- CLA IMED BY THE ASSESSEE TREATED AS BUSINESS INCOME BY ASSESSING OF FICER IS REQUIRED TO BE TREATED AS LTCG. NOTHING CONTRARY W AS BROUGHT TO OUR KNOWLEDGE IN THIS REGARD, SO CONCURRING THE CONTENTIONS OF THE ASSESSEE, WE HOLD THAT THE LTCG OF RS.70,64, 982/- CLAIMED BY THE ASSESSEE IS REQUIRED TO BE TREATED A S LTCG. ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 6.1 WITH REGARD TO STCG OF RS.2,00,41,453/- CLAIMED BY THE ASSESSEE AND TREATED THE SAME AS BUSINESS INCOME BY THE ASSESSING OFFICER, THE STAND OF THE ASSESSEE HAS BE EN THAT FACTS OF THE ASSESSEE ARE IDENTICAL TO THE FACTS OF THE A SSESSEES WIFE SMT. CHANDRIKABEN RASHMIKANT PATEL FOR AYS 2006-07 & 2007- 08, FOR WHICH THE ASSESSEE DREW OUR ATTENTION TO MA IN FINDING OF THE ITATS ORDER DATED 31.12.2013 IN ITA NOS. 3006 & 3007/AHD/2010, WHICH READS AS UNDER :- ..................... THEREFORE, IN LIGHT OF VARIOUS CASE LAWS REFERRED TO HEREINABOVE, BOTH THE CRITERIA I.E. H OLDING PERIOD AS WELL AS FREQUENCY OF THE TRANSACTIONS, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE TO BE ADOPTED . FOR ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 7 DETERMINING THE CRITERIA ADOPTED, DEPENDING UPON TH E FREQUENCY OF CERTAIN TRANSACTIONS, IT IS OBSERVED THAT PURCHA SING OF PARTICULAR SCRIPT AND SELLING THE WHOLE QUANTITY WO ULD COMPRISE A CYCLE, IF SUCH CYCLE IS REPEATED FOR MORE THAN FO UR TIMES, THEN THE SCRIPT WOULD BE AS STOCK-IN-TRADE. IN SUCH A SI TUATION, THE INTENTION OF THE ASSESSEE CANNOT BE HELD THAT THE S HARES AS INVESTMENT. IN CASE, WHERE HOLDING PERIOD IS MORE T HAN A MONTH, THE SAME TO BE TREATED AS INVESTMENT AND WHE RE HOLDING HELD IS LESS THAN 30 DAYS, AND ASSESSEE HAS TRANSAC TED MORE THAN 4 TIMES, THE GAIN ARISING FROM SUCH WOULD BE T REATED AS BUSINESS PROFIT. THEREFORE, THE A.O. SHALL TREAT PR OFIT ON SALE OF SHARES SHOWN AS LONG TERM CAPITAL GAIN AMOUNTING TO RS. 85,36,4556. THE A.O. WAS NOT JUSTIFIED IN INVOKING THE PROVISION OF SECTION 45[2] OF THE ACT, WHEN THE REVENUE ITSEL F HAS BEEN TREATING OPENING STOCK OF SHARES AS INVESTMENT AND HENCE, THE PROFIT ARISING OUT OF SALE OF OPENING STOCK, NEEDS TO BE TAXED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN, DEPENDING UPON THE HOLDING PERIOD AND ASSESSEE SHALL BE ENTIT LED TO BENEFIT OF SECTION 10[381 OF THE ACT AS PER LAW'. 6.2 IN THIS BACKGROUND, THE LD. COUNSEL OF THE ASSE SSEE SUBMITTED THE ABOVE REFERRED DECISION OF THE HON'BL E ITAT IN CASE OF ASSESSEE'S WIFE SMT. CHANDRIKABEN R PATEL W AS DATED 31-12-2013. THEREAFTER, THE ENTIRE TREND OF THE HON 'BLE TRIBUNAL AS WELL AS THE HON'BLE HIGH COURTS HAS CHANGED AND IN THE RECENT DECISIONS, FOR WHICH THE LD. COUNSEL SUBMITT ED THE PAPER BOOK IN FORM OF A COMPILATION OF ORDERS CONTAINING PAGES 1 TO 53 AND POINTED OUT THAT THE DIRECTION GIVEN IN THE CAS E OF ASSESSEE'S WIFE IN THE ORDER OF ITAT IN THE NAME OF SMT. CHANDRIKABEN R PATEL, IS REQUIRED NOT TO BE FOLLOWE D, AS THE CRITERIA OF CYCLE AND ITS REPETITION FOR MORE THAN FOUR TIMES AS WELL AS THE PERIOD OF HOLDING FOR 30 DAYS OR MORE T O BE CONSIDERED AS SALE OF SHARES, EITHER INVESTMENT OR BUSINESS PROFIT. FOR THE SAID PURPOSE, HE RELIED UPON THE FO LLOWING DECISIONS COMPILED IN THE COMPILATION OF ORDERS. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 8 A) ORDER OF HON'BLE ITAT, AHMEDABAD IN CASE OF SMRU TI SHREYANS SHAH ITA NO. 3214, 3180, 3295 AND 3296/A/2009 AND C.O # 3/A/2010 [A.Y. 2004-05 TO 2006-07) DECISION DT 26-6-2016 B) ORDER OF HON'BLE ITAT, AHMEDABAD IN CASE OF SHAH INVESTOR'S HOME LTD. ITA NO. 1424/A/2010 [A. Y. 2004-05 TO 2006-07) DECISION DT 16-10-2015 C) JUDGEMENT OF THE HON'BLE HIGH COURT OF GUJARAT I N CASE OF NITA M PATEL 42 TAXMANN.COM 125 D) ORDER OF HON'BLE ITAT, AHMEDABAD IN CASE OF SMRU TI SHREYANS SHAH ITA NO. 170&2692/A/2011 AND C.O #43/A/2011 [A.Y. 2007-08 & 2008-09) DECISION DT 30- 9- 2015 E) JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN CASE O F SMT. DATTA MAHENDRA SHAH 378 ITR 304 - DECISION DATED 9- 9- 2015 F) CBDT CIRCULAR NO. 6/20 16 DT 29-2-20 16 6.3 WE FIND THAT HON'BLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. SMT. DATTA MAHENDRA SHAH [2015] 378 ITR 304 (BO M.) DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE. IN SAID DECISION OF BOMBAY HIGH COURT, THE CIT(A) HAD LAID DOWN CERTAIN PARAMETERS FOR TRADING IN SALE OF SHARES AS CAPITAL GAIN WHICH HAS BEEN CONFIRMED BY ITAT AND ULTIMATELY, BY THE B OMBAY HIGH COURT. 6.4 WE FIND THAT THE LD. CIT(A) CONFIRMED THE FINDING OF THE ASSESSING OFFICER IGNORING IMPORTANT RELEVANT FACTO RS WHICH GOES TO THE ROOT OF THE QUESTION RAISED BEFORE US A ND HENCE, WE REPRODUCE THE SAME AS UNDER:- ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 9 (A) THE APPELLANT HAS ALWAYS BEEN AN INVESTOR IN SHARES AND DURING THE PRECEDING SEVERAL ASSESSMENT YEARS INCOME ON SALE OF SHARES WAS DISCLOSED IN THE RETUR NS OF INCOME AS SHORT TERM CAPITAL GAINS OR LONG TERM CAP ITAL GAINS DEPENDING UPON THE PERIOD OF HOLDING. THESE R ETURNS OF INCOME WERE ACCEPTED BY THE DEPARTMENT EITHER U/ S. 143(1) OR U/S. 143(3) OF THE INCOME-TAX ACT THE LEA RNED CIT(A) FAILED TO APPRECIATE THAT DURING THE PRESENT ASSESSMENT YEAR THE FACTS AND CIRCUMSTANCES HAVE NO T UNDERGONE ANY MATERIAL CHANGE. (B) THE APPELLANT HAS MAINTAINED SEPARATE BOOKS O F ACCOUNT IN RESPECT OF BUSINESS INCOME DERIVED FROM TRADING OF SHARES. IN F&O SHARE TRANSACTIONS SUCH S HARES WERE SHOWN AS STOCK IN TRADE IN THE BOOKS OF ACCOUN T AND IN THE BALANCE SHEET. ON THE OTHER HAND, THE INVEST MENT SHARES WERE SEPARATELY ACCOUNTED IN THE BOOKS OF AC COUNT AS INVESTMENTS AND WERE ALSO REFLECTED IN THE BALAN CE SHEET AS SUCH. (C) IN THE CASE OF JANAK S.RANGAWALA VS. ACIT, 11 SOT 627 THE HON'BLE TRIBUNAL HAS HELD THAT THE MERE VOL UME TRANSACTIONS BY THE ASSESSEE WOULD NOT ALTER THE NA TURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT IN COME IS TO BE COMPUTED WITH REGARD TO TRANSACTION. THE TRANSAC TION AS A WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND T HE MAGNITUDE DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS AS EACH YEAR IS A INDEPENDEN T YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTE NCY, IT IS JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHO ULD BE ADOPTED FOR SUBSEQUENT YEARS, UNLESS THERE IS A MAT ERIAL CHANGE IN FACTS. 6.5 IN THE BOOKS OF ACCOUNT THE SHARES HAVE BEEN TR EATED AS INVESTMENT AND ARE REFLECTED IN THE BALANCE SHEET A S INVESTMENT AND VALUED AT COST. THE APPELLANT DURING THE YEAR UNDER CONSIDERATION HAS ALSO DERIVED INCOME FROM F& O SHARE TRANSACTIONS FOR WHICH SEPARATE BOOKS OF ACCOUNT HA VE BEEN ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 10 MAINTAINED. INCOME DERIVED FROM SUCH TRANSACTIONS H AVE BEEN OFFERED TO TAX UNDER THE HEAD 'PROFITS AND GAINS FR OM BUSINESS AND PROFESSION'. THIS INDICATES THAT THE INTENTION OF THE APPELLANT WAS VERY CLEAR FROM THE INCEPTION THAT F& O TRANSACTIONS SHALL BE ENTERED INTO IN THE COURSE OF ITS BUSINESS WHEREAS, IT SHALL INVEST IN SHARES OF VARIOUS COMPA NIES WITH A VIEW TO EARN DIVIDEND AND CAPITAL APPRECIATION ON T HE AMOUNT INVESTED. 6.6 THE APPELLANT DURING THE PRECEDING SEVERAL YEAR S HAS BEEN AN INVESTOR IN SHARES AND THE INCOME DERIVED ON TRA NSFER OF SHARES WAS ALWAYS OFFERED AS EITHER LONG TERM CAPIT AL GAIN OR SHORT TERM CAPITAL GAIN WHICH WAS ACCEPTED BY THE D EPARTMENT. EVEN THOUGH THE PRINCIPLE OF RES JUDICATA MAY NOT B E STRICTLY APPLICABLE TO INCOME-TAX PROCEEDINGS BUT, AT THE SA ME TIME, CONSISTENCY IN APPROACH IN SIMILAR FACTS AND CIRCUM STANCES, IS VERY IMPORTANT FOR THE LEGAL SYSTEM AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA PROMOTERS DEVELOPERS P. LTD. 281 ITR 346 (DEL). IN THIS CASE, INTEREST I NCOME WAS ASSESSED AS BUSINESS INCOME FOR EARLIER YEARS AND T HERE WAS NO MATERIAL CHANGE IN THE FACTS IN SUBSEQUENT YEARS. I T WAS HELD BY THE HON'BLE HIGH COURT THAT THE VIEW TAKEN BY THE D EPARTMENT FOR EARLIER YEARS SHOULD CONTINUE ON PRINCIPLES OF CONSISTENCY. SIMILAR VIEW HAS BEEN REITERATED BY THE HON'BLE DEL HI HIGH COURT IN THE CASE OF CIT VS. ALLIED FINANCE PVT. LT D. 289 ITR 318. WHEREIN IT WAS OBSERVED THAT EVEN THOUGH THE D OCTRINE OF RES JUDICATA IS NOT APPLICABLE TO TAX PROCEEDINGS, WHERE AN ISSUE HAS BEEN CONSIDERED AND DECIDED CONSISTENTLY IN A N UMBER OF EARLIER ASSESSMENT YEARS IN A PARTICULAR MANNER, TH EN FOR THE ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 11 SAKE OF CONSISTENCY, THE SAME VIEW SHOULD CONTINUE TO PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS SOME MATERIAL CHAN GE IN THE FACTS. SAME VIEW HAS BEEN CORROBORATED BY THE HON' BLE KERALA HIGH COURT IN THE CASE OF CIT VS. N. P. MATHEW (DEE D.) 280 ITR 44. THE RELEVANT PART OF THE RATIO IS REPRODUCED FR OM THE HEAD NOTE: 'HELD, DISMISSING THE APPEAL, THAT WITH REGARD TO A NOTHER ASSESSEE, THE SAME VIEW WAS TAKEN BY THE TRIBUNAL A ND THE DEPARTMENT ACCEPTED IT FOR EARLIER YEARS IN THE ASSESSEE'S CASE ALSO. THOSE ORDERS WERE ALLOWED TO BECOME FINAL. THE DEPARTMENT SHOULD BE CONSISTENT AT LEAST IN RESPECT OF THE SAME ASSESSEE AND IT CANNOT ALSO DIFFERENTIATE BETWEEN DIFFERENT ASSESSEES. THE ASSE SSEE WAS ENTITLED TO THE CONCESSIONAL RATE OF TAXATION U NDER SECTION 115H FOR THE ASSESSMENT YEAR 1991-92. IT SHOWS THAT PRINCIPLE OF RES JUDICATA MAY NOT BE APPLICABLE TO TAX PROCEEDINGS BUT CONSISTENCY IN APPROACH IS VERY IMPORTANT FOR LEGAL SYSTEM. 6.7 THE APPELLANT WAS A DIRECTOR IN SHRI DINESH REMEDIES LTD. AND OM SHRI GURUKRUPA PROPERTIES AND DEVELOPERS PVT . LTD. DURING THE YEAR UNDER CONSIDERATION. IN ADDITION HE WAS A KARTA OF RASHMIKANT C. PATEL HUF. HE WAS ALSO A PARTNER I N M/S. UNIPLAST NICOTINE IND. IT IS EVIDENT THAT WHEN THE APPELLANT IS ASSOCIATED WITH MULTIPLE ENTITIES, IT IS IMPOSSIBLE FOR HIM TO EVEN SPEND TIME IN SHARE TRADING. MOREOVER, THERE I S NO INFRASTRUCTURE AS WELL AS EMPLOYEES WHICH THE APPEL LANT ENGAGED TO FACILITATE HIS INVESTMENT IN SHARES. 6.8 THE APPELLANT HAS TAKEN DELIVERY OF SHARES AND THERE IS NO MATERIAL PLACED ON RECORD SUGGESTING THAT THE SH ARES WERE SOLD BY THE APPELLANT WITHOUT TAKING DELIVERY AND E ARNED PROFIT. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 12 THEREFORE, THE APPELLANT IS AN INVESTOR AND NOT A T RADER IN SHARES. ONE OF THE MAJOR CHARACTERISTICS THAT SHARE TRADER'S EXHIBIT IS THAT AS THEY ARE INVOLVED IN TRADING MOS TLY THEY ENGAGE IN SELLING SHARES WITHOUT TRADING AS THE SHA RE MARKET RUNS ON SPECULATION. THIS HAS NOT TAKEN PLACE IN CA SE OF APPELLANT. THUS, ASSESSEE HAS MAINLY INVOLVED IN D ELIVERY BASED TRANSACTIONS. 6.9 FOR DETERMINATION AS TO WHETHER ANY PARTICULAR INCOME ARISING ON SALE OF SHARES IS TO BE TREATED AS BUSIN ESS INCOME OR CAPITAL GAIN, ALL THE RELEVANT FACTS AND CIRCUMSTAN CES HAVE TO BE CONSIDERED. THIS QUESTION CAME UP BEFORE THE HON'BL E GUJARAT HIGH COURT IN THE CASE OF CIT VS. REWASHANKER A. KO THARI (2006) 283 ITR 338 (GUJ.), WHEREIN CERTAIN GUIDELIN ES WERE LAID DOWN. IN ORDER TO DETERMINE WHETHER PROFITS ARISIN G ON SALE IS BUSINESS INCOME, THE FOLLOWING TESTS CAN BE APPLIED : (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITI ON OF THE SUBJECT MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEA LING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF T HE TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH T HE CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIE W TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE ; (B) THE SECOND TEST IS WHY AND HOW AND FOR WHAT PUR POSE THE SALE WAS EFFECTED SUBSEQUENTLY ; (C) THE THIRD TEST IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS WITH THE ASSESSEE, WHETHER IT HAS BEEN TREATED AS STOCK-IN-T RADE, OR BEEN ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 13 SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT C ONCLUSIVE ; (D) THE FOURTH TEST IS HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEE DING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, CA N AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF TRA NSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDER ED IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION ; (E) THE FIFTH TEST, NORMALLY APPLIED IN CASES OF FI RMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTH ORISES SUCH AN ACTIVITY ; (F) THE MOST IMPORTANT TEST IS AS TO THE VOLUME, FR EQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHA SE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS RE PETITION AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANS ACTION, BEARING REASONABLE PROPORTION TO THE STRENGTH OF HO LDING, AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS.' 6.10 THE HON'BLE ITAT MUMBAI IN THE CASE OF JANAK S . RANGWALLA VS. ACIT (2007)11 SOT 627 (MUM.)HELD THAT THE QUESTION CANNOT BE DETERMINED MERELY ON THE BASIS O F VOLUME / MAGNITUDE OF TRANSACTIONS. IT WAS ALSO HELD THAT TH E VIEW ADOPTED BY THE DEPARTMENT IN THE PRECEDING YEARS CA NNOT BE ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 14 CHANGED IN THE ABSENCE OF ANY MATERIAL CHANGE IN TH E FACTS AND CIRCUMSTANCES. 6.11 THE HON'BLE ITAT MUMBAI DECISION IN THE CASE O F GOPAL PUROHIT VS. JCIT (2009) 29 SOT 117 (MUM.) OBSERVED THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF SALE AND PU RCHASE OF SHARES FOR A QUITE LONG PERIOD. IT WAS ALSO NOTED T HAT NON- DELIVERY BASED TRANSACTIONS HAD BEEN TREATED BY THE ASSESSEE AS BUSINESS ACTIVITY AND DELIVERY BASED TRANSACTIONS H AD BEEN TREATED AS AN INVESTMENT ACTIVITY AND. ACCORDINGLY, THE ASSESSEE HAD CLAIMED HIMSELF BOTH DEALER AS WELL AS INVESTOR AND HAD OFFERED INCOME FOR TAXATION ACCORDINGLY WHICH HAD B EEN CLAIMED TO HAVE BEEN ACCEPTED BY THE REVENUE AUTHORITIES IN EARLIER YEARS AND, HENCE, IT BECAME IMPORTANT TO ANALYZE TH E FACTS OF FEW EARLIER YEARS. ON CONSIDERING THE FACTS OF THE EARLIER YEARS, THE FOLLOWING CONCLUSIONS EMERGED : (I) THE FACTS OF THE YEAR UNDER CONSIDERATION WITH REGA RD TO NATURE OF INCOME(S) EARNED BY THE ASSESSEE AND THE TRANSACTIONS WERE SAME IN ALL THOSE YEARS, EXCE PT TRANSACTIONS IN F&O SEGMENT IN SOME OF THE YEARS WHEREIN THIS KIND OF ACTIVITY WAS STARTED BY THE ST OCK EXCHANGE. (II) INTEREST ON BORROWED CAPITAL HAD BEEN ALLOWED AS BUSINESS EXPENDITURE AGAINST THE PROFIT ON JOBBING ACTIVITIES SHOWN BY THE ASSESSEE AS BUSINESS PROFIT . (III) THE ASSESSEE HAD SHOWN SHARES PURCHASED ON DELIVERY BASIS AS INVESTMENT AT THE END OF THE YEAR AND NO STOCK-IN-TRADE EXISTED ON THAT DATE AND THE ASSESSEE HAD EARNED BOTH LONG-TERM AND SHORT-TERM CAPITAL GAINS WHICH MEANT THE ASSESSEE HAD ALSO HEL D SHARES FOR THE PERIOD OF MORE THAN 12 MONTHS. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 15 THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF T HE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARE S AS INVESTMENT AT THE YEAR END WERE SAME IN ALL THE YEA RS, AND, HENCE, APPARENTLY, THERE APPEARED NO REASON AS TO W HY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER, THE REVENUE AUTHORITIES HAD TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY HOLDING THAT PRINCIPLE OF RE S JUDICATA WAS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. T HERE COULD NOT BE ANY DISPUTE ON THIS ASPECT, BUT THERE IS ALS O ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTAN CES AND IT WAS ALREADY FOUND THAT FACTS AND CIRCUMSTANCES WERE IDENTICAL, EVEN THOUGH A DIFFERENT STAND HAD BEEN TAKEN BY THE REVENUE AUTHORITIES. IN THAT VIEW OF THE MATTER, THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSE E IN THE RELEVANT YEAR NEEDED VERIFICATION. IN THE PROCESS T O FIND THE ANSWER, IT WAS NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT-TERM CAPITAL GAINS AND L ONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT, 2004, THE L EGISLATURE IMPOSED SECURITIES TRANSACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND, SIMUL TANEOUSLY, THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UND ER SECTION 10(38) FROM THE LEVY OF TAX AND ON SHORT-TERM CAPIT AL GAIN, A CONCESSIONAL RATE OF TAX I.E., 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS RESULTING INTO T HIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX. THAT WAS THE FIRST YEAR OF SUCH CHANGE AND, HAVING REGARD TO THE QUANTUM OF GAINS, THIS SCHEME OF TAXATION ONLY MUST HAVE PROMPTED THE REVENUE AUTHORITIES TO TAKE A DIFFEREN T VIEW ON THE ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 16 SAME TYPES OF TRANSACTIONS ENTERED INTO BY THE ASSE SSEE IN EARLIER YEARS. THERE WAS NO DISPUTE THAT THE ASSESS EE HAD CLAIMED EXEMPTION UNDER SECTION 10(38) AND/OR HAD P AID TAX UNDER SECTION 111A AT CONCESSIONAL RATE ON THE TRAN SACTIONS, WHERE SECURITIES TRANSACTION TAX HAD NOT BEEN PAID. IT WAS ALSO NOTED THAT THE ASSESSEE HAD PAID TAX ON SHORT-TERM CAPITAL GAINS AT NORMAL RATES ON SHARE TRANSACTIONS EXECUTE D IN THE PERIOD PRIOR TO IMPOSITION OF SECURITIES TRANSACTIO NS TAX. THE LEGISLATIVE CHANGE OF THIS NATURE, WHEREBY NO CHANG E HAD BEEN MADE IN RESPECT OF NATURE AND MODUS OPERANDI OF SUC H SHARE TRANSACTIONS, RESULTING INTO ANY ADVANTAGE COULD NO T BE TAKEN AWAY BY THE REVENUE AUTHORITIES IN THAT MANNER AND IN THOSE CIRCUMSTANCES, PRINCIPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDATORY, I.E.. WHETHER AN ASSESSEE EARNS T HE PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX , THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BE NEFIT TO INDIVIDUAL(S) ENTERING INTO THOSE TRANSACTIONS. THU S, IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUT HORITIES WAS LIABLE TO BE QUASHED. IT WAS ORDERED ACCORDINGLY AN D THE ASSESSING OFFICER WAS DIRECTED TO ACCEPT THE CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN. THE RATIO LAID DOWN IN GOPAL PUROHIT VS. JCIT(SUPRA ) SUPPORTS THE CASE OF ASSESSEE BEFORE US. ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 17 6.12 THE HON'BLE AHMEDABAD ITAT IN CASE OF ACIT VS. GARGI SHITALKUMAR PATEL ITA 1911/AHD/2009 WHEREIN THE ASS ESSEE WAS INVOLVED IN TRANSACTIONS OF MULTIPLE SCRIPS WHI CH WERE SUBSTANTIALLY HIGH IN NUMBER STILL THE TRIBUNAL STA TED THAT INCOME DERIVED FROM SALE OF SHARES SHALL BE TREATED AS CAPITAL GAIN AS THE SAME TREATMENT HAD BEEN ACCEPTED IN THE PRECEDING YEAR. 6.13 WE FIND THAT THE ASSESSEE IS ONLY AN INVESTOR IN SHARES. MERELY BECAUSE THE VOLUME OF TRANSACTIONS HAD GONE UP, THE CHARACTER OF THE ASSESSEE AS AN INVESTOR DOES NOT C HANGE. THUS, ADDITION MADE BY THE ASSESSING OFFICER TREATI NG THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IS NOT JUSTIFI ED AND ASSESSEE'S CLAIM TO TREAT THE PROFIT ON SALE OF SHA RES AS SHORT TERM CAPITAL GAIN, IS REQUIRED TO BE ACCEPTED. ASS ESSING OFFICER IS DIRECTED ACCORDINGLY. 6.14 SIMILAR ISSUE OF STCG AROSE IN A.Y. 2008-09. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, ASSESSING OFF ICER IS DIRECTED TO GREAT PROFIT ON SALE OF SHARE AT RS.65, 61,832/- IS AS SHORT TERM CAPITAL GAIN. 7. AS A RESULT, BOTH THE APPEALS OF ASSESSEE ARE AL LOWED AS INDICATED ABOVE. // ORDER PRONOUNCED IN THE COURT ON 13/05/2016 AT AHMEDABAD. SD/- SD/- SD/- SD/- ANIL CHATURVEDI SHAILEND RA K. YADAV (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD; DATED 13/05/2016 BIJU T., PS ITA NOS. 2131/AHD/2014 & 2484/AHD/2011 RASHMIKANT CHHAGANBHAI PATEL VS. ACIT AY : 2006-07 & 2008-09 18 +,!&-./.0& / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ' ' # / CONCERNED CIT 4. ' ' #$% / THE CIT(A) 5. &'( !) ' ! ) *+, , / DR, ITAT, AHMEDABAD 6. (- . / GUARD FILE . $ ' / BY ORDER, TRUE COPY //TRUE COPY// /# ( DY./ASSTT.REGISTRAR) / ITAT, AHMEDABAD