The DCIT, Circle-14, Ahmedabad V. Shri Mehul Damodardas Zaveri, Ahmedabad

ITA 2192/AHD/2009

• Counselvise Citation: 219220514 RSA 2009
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Keywords: Unexplained cash credit; Business income; Salary income; Condonation of delay
• Section: 68

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. DY. CIT, CIRCLE-14, AHMEDABAD. VS. SHRI MEHUL DAMODARDAS ZAVERI, F-101, ASHAVARI TOWER, B/H FUN REPUBLIC CINEMA, SATELLITE, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI A. K. PATEL, SR.DR RESPONDENT BY:- SHRI TUSHAR HEMANI, AR DATE OF HEARING :23/11/2011 DATE OF PRONOUNCEMENT : 30/11/11. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 18.02.2009 WHEREIN FOLLOWING GROUNDS H AVE BEEN RAISED :- 1) THE APPELLANT RESPECTFULLY AND MOST OBEDIENTLY SUBM ITS THAT THE DUE DATE OF FILING OF THE PRESENT APPEAL WAS 21/05/ 2009. THUS DELAY OF ABOUT ONE & HALF MONTHS IN FILING THE APPE AL HAS OCCURRED DUE TO CLERICAL MISTAKE. IT IS, THEREFORE, RESPECTFULLY PRAYED THAT THE DELAY MAY KINDLY BE CONDONED. ITA NO.2192/AHD/2009 ASST. YEAR :2006-07 ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 2 2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TRE ATING THE INCOME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 3) THE LD. CIT(A) HAS ALSO ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.25,00,000/- AS UNEXPLAINED CASH CRED IT U/S 68 THOUGH THE ASSESSEE FAILED TO DISCHARGE HIS ONUS U/ S 68 OF THE INCOME-TAX ACT. 2. THE APPEAL BY THE REVENUE HAS BEEN FILED LATE BY ONE AND HALF MONTHS. IN THIS CONNECTION THE DEPARTMENT HAS FILED AN APPLICATION FOR CONDONATION OF DELAY ALONG WITH A NOTARIZED AFFIDAV IT DATED 26 TH JULY, 2011. AFTER HEARING BOTH THE PARTIES AND GOING THRO UGH THE AFFIDAVIT, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. 3. THE SECOND GROUND OF THE APPEAL RELATES TO TREAT ING THE INCOME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE AO HAS DISCUSSED THIS ISSUE ON PAGES 1 TO 6 OF THE ASSESSMENT ORDER. THE OBSERVATION OF THE AO ARE AS UNDER :- THE RETURN OF INCOME WAS FILED ON 28.06.2006 DECLA RING TOTAL INCOME OF RS.5,73,170/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE IT ACT. ON THE BASIS OF AIR INFORMATION, THE CASE HAS BEEN SELECTE D FOR SCRUTINY UNDER CASS. NOTICE U/S 143(2) OF THE IT ACT DATED 19.06.2 007 HAS BEEN ISSUED AND SERVED WITHIN THE PRESCRIBED TIME LIMIT. THEREA FTER DUE TO CHANGE OF INCUMBENT ANOTHER NOTICE U/S 143(2) OF THE IT ACT I SSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THE SAID NOTICE, SHRI S. K. DALAL, C.A. ATTENDED FROM TIME TO TIME AND FILED THE DETAILS AS CALLED FOR. THE ASSESSEE HAS DECLARED INCOME FROM SALARY, CAPITAL GAIN ON SA LE OF SHARES AND SECURITIES AND INCOME FROM OTHER SOURCES. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DISCLOSED SHORT TER M CAPITAL GAIN OF RS.4,28,134/- ON SALE OF SHARES OF INDIAN COMPANIES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE PAID TAX @ 10% ON THE SAID SHOR T TERM CAPITAL GAIN. THE ASSESSEE HAS OBTAINED OVERDRAFT FACILITY IN HIS BANK A/C MAINTAINING WITH HDFC BANK LTD., AHMEDABAD. IN VIEW OF THESE FA CTS, A SHOW CAUSE ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 3 NOTICE DATED 01.12.2008 HAS BEEN ISSUED AND SERVED UPON THE ASSESSEE REQUESTING HIM TO SHOW CAUSE AS TO WHY THE SHORT TE RM CAPITAL GAIN ARISING OUT OF PURCHASE AND SALE OF SHARES SHOULD N OT BE TAXED AS BUSINESS INCOME. THE RELEVANT PORTION OF SHOW CAUSE NOTICE I S REPRODUCED AS UNDER:- ON GOING THROUGH THE RETURN OF INCOME FILED AND D ETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTED THAT SHORT TERM CAPITAL GAIN OF RS.430149/- AND LONG TERM CAPI TAL GAIN OF RS.2300011/- HAS BEEN DECLARED ON ACCOUNT OF SALE O F SHARES AND UNITS OF MUTUAL FUND. ON GOING THROUGH THE BALANCE SHEET FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTED THAT YOU HAVE OBTAINED LOAN FROM HDFC BANK AGAINST MORTGAGE OF SHARES. THE LOAN AMOUNT IF RS.2001726/-. THUS, THE SHARES H AVE BEEN TREATED AS TRADING ASSET. IN VIEW OF THIS FACT, IT IS CLEAR THAT THE SURPLUS ARISING OUT OF PURCHASE AND SALE OF SHARES IS YOUR BUSINESS INCOME FROM TRADING ACTIVITY AND NOT CAPITAL GAIN ARISING OUT OF INVEST MENT. IT IS, THEREFORE, PROPOSED TO TAX THE SURPLUS ARISING OUT OF TRANSACTIONS IN SHARES AND UNITS OF MUTUAL FUND AS A BUSINESS INCOM E. IN THE BALANCE SHEET THERE ARE CASH CREDITS IN THE NAME OF ALKA M ZAVERI, JITENDRA B RAM, MD. ZAVERI, HUF, RITA J RAM AND ROSEVIN PHARMACEUTICAL PVT. LTD. YOU ARE REQUESTED TO DISCHARGE YOUR ONUS U/S 68 OF THE IT ACT. PLEASE NOTE THAT IN CASE OF FAILURE, THE CASH CREDIT APPEARING IN THE BOOKS OF ACCOUNTS SHALL BE ADDED IN THE RETURN OF INCOME. THE REPLY IS EXPECTED BY 0 5.12.2008. THE ASSESSEE VIDE LETTER DTD.05.12.2008 SUBMITTED T HAT THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ARISE BEFORE JANUARY, 2006 I.E. BEFORE THE AVAILABILITY OF LOAN FROM HDFC BANK . THE ISSUE OF TAXING THE SURPLUS ARISING OUT OF A T RANSACTION TREATING IT AS A TRADING TRANSACTION OR CAPITAL GAIN HAS BEE N CONSIDERED BY VARIOUS COURTS. HOWEVER, THE HONBLE SUPREME COURT IN THE C ASE OF COMMISSIONER OF INCOME-TAX, BOMBAY VS. H. HOLCK LAR SON 160 ITR 67 HAS DISCUSSED THIS ISSUE IN DETAIL. THOUGH ON THE F ACTS OF THE CASE, THE HONBLE SC HAS DECIDED THE ISSUE IN FAVOUR OF THE A SSESSEE BUT LAID DOWN CERTAIN TESTS TO BE APPLIED TO THE FACTS OF EACH CA SE FOR DETERMINING THE NATURE OF TRANSACTION.. ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 4 .THE CBDT VIDE CIRCULAR-4 OF 2007 DTD.15.06.2007 HAS ISSUED THE GUIDELINES ON THIS SUBJECT. THE CBDT HAS ALSO A DVISED THE AO THAT THE PRINCIPLE LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF H. HOLCK LARSON 160 ITR 67 (SC) AND CIT VS. ASSOCIATED INDUSTRIAL CO. (P) LTD. 82 ITR 586 SHOULD GUIDANCE FOR DETERMINING WHE THER IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT O R STOCK-IN-TRADE 4. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE SUBMISSIONS OF ASSESSEE WERE AS UNDER : - THE APPELLANT IS A SALARIED PERSON. HE IS A DIREC TOR OF KADAM EXPORTS (P) LTD. HIS GROSS SALARY WAS RS.3,00,000/- FOR THE RELEVANT PREVIOUS YEAR I.E. FOR FY 2005-06. THE APPELLANT HAS SIDE BY SIDE EARNED SHORT TERM C APITAL GAIN OF RS.4,28,134/-. THE APPELLANT HAS MADE INVESTMENT IN SHARES AND UNITS OF MUTUAL FUNDS. THE APPELLANT HAD MADE ONLY 3 TRANSACTIONS TO PURCHASE AND SALE OF SHARES DURING THE YEAR. ALL OTHER 8 TRANSACTIONS WERE RELATED TO PURCHASE & SALE OF UNI TS OF MUTUAL FUNDS. THE APPELLANT HAS EARNED TOTAL SHORT TERM CA PITAL GAIN TO THE TUNE OF RS.4,28,134/-. WHILE THE APPELLANT HAS EARN ED LONG TERM CAPITAL GAIN OUT OF INVESTMENT IN SHARES AND UNITS OF MUTUAL FUNDS TO THE EXTENT OF RS.23,00,011/-. THE LD. AO HIMSELF HAS CONSIDERED THE AMOUNT OF RS.23,00,011/- AS LONG TERM CAPITAL G AIN. HOWEVER, THE LD. AO HAS NOT BEEN AGREED WITH THE APPELLANT A ND HE HAS TREATED THE SHORT TERM CAPITAL GAIN OF RS.4,28,134/ - AS BUSINESS INCOME AND TAXED ACCORDINGLY. HE HAS DISCUSSED THE FOLLOWING POINTS, WHILE TREATING THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME, IN NUT SHELL : (A) (I) THE SUBJECT MATTER OF REALIZATION (II) THE LENGTH OF PERIOD OF OWNERSHIP (III) THE FREQUENCY OR NUMBER OF TRANSACTIONS. (IV) SUPPLEMENTARY WORK ON OR IN CONNECTION WITH THE PROPERTY REALIZED. (V) THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALIZATION (VI) MOTIVE (VII) UTILIZATION OF BORROWED FUNDS FOR PURCHASE OF SHARE S & UNITS OF MUTUAL FUNDS. ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 5 THE LD. AO HAS TAKEN THE SUPPORT OF THE HONBLE SUP REME COURTS DECISION IN THE CASE OF CIT, BOMBAY VS. H. HOLCK LA RSON 160 ITR 67, WITH DUE RESPECT, IT IS SUBMITTED THAT THE HON BLE SUPREME COURT HAS GIVEN THE DECISION IN FAVOUR OF THE ASSES SEE IN THE ABOVE SAID CASE. HOWEVER, THE APPELLANT HAS TO SUBMIT AS UNDER :- (B) (I) THE APPELLANT HAS NOT REALIZED THE MONE Y OUT OF THE SHARES AND UNITS OF MUTUAL FUNDS OFTENLY. DURING TH E YEAR UNDER CONSIDERATION, THE APPELLANT HAS DONE ON LY 11 TRANSACTIONS TO EARN SHORT TERM CAPITAL GAIN. OU T OF THIS ONLY 3 TRANSACTIONS WERE RELATED TO SHARES AND REMAINING PERTAINED TO UNITS. THE IT ACT PROVIDES T HAT TO EARN SHORT TERM CAPITAL GAIN ONE HAS TO DEPOSED OF HIS SHARES/UNITS WITHIN 12 MONTH. (II) THE APPELLANT IS A SALARIED PERSON WITH HANDSOME SALARY AND SO HE HAS NO TIME TO DO THE BUSINESS IN SHARES/UNITS. ONLY THREE TRANSACTIONS WERE PERTAINE D TO SHARES. THE APPELLANT HAS NO BUSINESS OF SHARES AND SECURITIES AND SO HE HAS NOT HELD SHARES/UNITS AS S TOCK IN TRADE. (III) THE APPELLANT HAS MADE THE INVESTMENTS IN SHARES/UNITS FOR LONGER TIME AND SO EARNED RS.23,00,011/- AS LONG TERM CAPITAL GAIN AND THE SA ME HAS BEEN ACCEPTED BY THE LD. AO ALSO. (IV) THE APPELLANT HAS NOT UTILIZED THE BORROWED FUNDS F OR PURCHASE OF SHARES AND UNITS OF MUTUAL FUNDS. THE L D. AO HAS ALSO ERRED IN CONSIDERING THAT THE APPELLANT HAS OBTAINED LOAN FROM HDFC BANK AGAINST MORTGAGE OF SHARES TO PURCHASE SHARES/UNITS. THE INVESTMENTS WERE MADE PRIOR TO OBTAIN THE LOAN. THE LOAN WAS OBTAINED ON 28 TH MARCH, 2006 FROM HDFC BANK. THE LOAN MONEY WAS NOT UTILIZED TO PURCHASE THE SHARES/UNITS. THE APPELLANT HAD SUFFICIENT CAPITAL AS WELL AS FUNDS TO PURCHASE THE SHARES/UNITS (THE COP Y OF CAPITAL A/C AND THE COPY OF BALANCE SHEET FOR TH E LAST THREE YEARS ARE THE PROOF REGARDING AVAILABILI TY OF THE FUNDS, THESE ARE ON RECORDS). MOREOVER, THE HONBLE ITAT, RAJKOT BENCH, RAJKOT HAS HELD IN THE CASE OF SMT. PUSHPABEN H. KOTECHA & ORS. VS. THE DY.CIT, SPL.RANGE, RAJKOT THAT THE BORROWING ITSELF ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 6 MAY NOT BE A TRUE TEST FOR DETERMINING THE PARTICUL AR HEAD OF INCOME AND INDIVIDUAL FACTS ARE IMPORTANT. THE OVERALL CONDUCT OF THE ASSESSEE SHOULD BE SEEN (ITA NO.651/AHD/1997) (THE COPY OF THE DECISION IS ENCLOSED HEREWITH FOR YOUR KIND REFERENCE. THE HONBLE GUJARAT HIGH COURT HAS HELD IN THE CASE OF CIT VS. REVASHANKAR A. KOTHARI 286 ITR; 193 TAXATION 581 TO DETERMINE THE TESTS TO TREAT THE PR OFIT ON SALE OF SHARES AS BUSINESS INCOME OR CAPITAL GAI N AND IT IS OBSERVED THAT IT IS DEFINITELY A SOURCE O F SHORT TERM CAPITAL GAIN. THE TESTS ARE LAID DOWN BY THE HONBLE CBDTS CIRCULAR NO.4 OF 2007 DATED 15.06.2007 (271 ITR 384; STATUTE) AND BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT (1977) 77 CTR (GUJ) 647 ARE ALSO MATCHED WITH THE CASE OF THE APPELLANT. (V) THE APPELLANT HAVE ONLY INVESTMENT PORT-FOLIO COMPRISING OF SECURITIES WHICH IS TREATED AS CAPITA L ASSETS. (VI) THE LD. AO HAS NEVER TREATED THE APPELLANT AS TRADE R IN SHARES/UNITS IN PAST. FROM THE ABOVE IT IS VERY CLEAR THAT THERE WAS NOTH ING TO SHOW THAT SHARES WERE PURCHASED WITH INTENTION T O SELL IT AT A PROFIT, OR WITH REQUISITE INTENTION TO BRING IT WITHIN THE PARAMETERS OF STOCK-IN-TRADE. IT IS ALSO CLEAR THAT THE APPELLANT IS NOT A REGULAR DEALER IN SHARES/UNITS. THEREFORE THE INCOME OF RS.4,28,134/- IS LIABLE TO BE TAXED ONLY AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE LD. CIT(A) DIRECTED THE AO TO TREAT THE INCOME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME BY OBSERVING AS UNDER:- AFTER A CAREFUL STUDY OF THE ASSESSMENT ORDER AND THE PAPER BOOK AND THE VARIOUS JUDICIAL PRONOUNCEMENTS MENTIONED A BOVE, I AM INCLINED TO AGREE WITH THE OPINION OF BOTH THE LD. COUNSELS FOR THE ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 7 APPELLANT. THEREFORE, THE AO IS DIRECTED TO TREAT T HE INCOME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. DR RELYING ON THE ORDER OF AO SUBMITTED THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT SHORT TERM CAPITAL GAIN OF RS.430149/- AND LONG TERM CAPITAL GAIN OF RS.230001 1/- HAD BEEN DECLARED ON ACCOUNT OF SALE OF SHARES AND UNITS OF MUTUAL FUND. ON GOING THROUGH THE BALANCE SHEET FILED DURING THE COURSE O F ASSESSMENT PROCEEDINGS IT WAS NOTED THAT THE ASSESSEE HAD OBTA INED LOAN FROM HDFC BANK AGAINST MORTGAGE OF SHARES. THE LOAN AMOUNT IS RS.2001726/-. THUS THE SHARES WERE TREATED AS TRADING ASSET. THE SURPL US ARISING OUT OF PURCHASE AND SALE OF SHARES WAS ASSESSEES BUSINESS INCOME FROM TRADING ACTIVITY AND NOT CAPITAL GAIN ARISING OUT OF INVEST MENT. THEREFORE, THE AO PROPOSED TO TAX THE SURPLUS ARISING OUT OF TRANSACT IONS IN SHARES AND UNITS OF MUTUAL FUND AS BUSINESS INCOME. THE LD. CIT(A) H AS NOT PROPERLY APPRECIATED THE FACTS AND DIRECTED TO TREAT THE INC OME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE ORDER OF LD. CIT(A) MAY KINDLY BE SET ASIDE AND THAT OF THE AO B E RESTORED. 6. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT THE ASSESSEE IS A DIRECTOR OF KADAM EXPORTS (P) LTD. AN D WAS PAID SALARY OF RS.3,00,000/- P.A. FOR ASST. YEAR 2005-06. FOR THE YEAR UNDER ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 8 CONSIDERATION THE ASSESSEE HAS ALSO EARNED INCOME O F RS.4,28,134/- AS THE SHORT TERM CAPITAL GAIN BY MAKING INVESTMENTS IN SH ARES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE HAS ENTERED INTO ONLY 11 TRANSACTIONS TO EARN THIS SHORT TERM CAPITAL GAIN. OUT OF THE TOTAL 11 T RANSACTION, 3 TRANSACTIONS ARE IN SHARES AND REMAINING 8 ARE IN THE UNITS OF M UTUAL FUND. THE ASSESSEE HAS EARNED MONEY BY WAY OF LONG TERM CAPIT AL GAIN AND THE SAME HAS BEEN ACCEPTED BY THE AO. IN EARNING THE INCOME AS SHORT TERM CAPITAL GAIN, THE ASSESSEE HAS NOT BORROWED ANY FUNDS WHATS OEVER. THE AO HAS WRONGLY POINTED OUT THAT THE LOAN OF RS.20,00,000/- FROM HDFC BANK HAS BEEN OBTAINED ON THE MORTGAGE OF SHARES FOR THE PUR POSE OF MAKING INVESTMENTS. IN FACT THE LOAN WAS OBTAINED FROM HDF C BANK ON 28/03/2006. WHEREAS THE TRANSACTIONS IN SHARES AND MUTUAL FUNDS FOR EARNING SHORT TERM CAPITAL GAIN WERE CARRIED OUT PR IOR TO THE OBTAINING THE LOAN. THE SAME CAN BE VERIFIED FROM THE DATE OF THE TRANSACTIONS IN SHARES AND MUTUAL FUNDS. THE LOAN OF RS.20,00,000/- OBTAI NED FROM THE HDFC BANK AGAINST THE MORTGAGE OF SHARES WAS NOT OBTAINE D TO PURCHASE THE SHARES BUT WAS EXCLUSIVELY PURCHASED FOR THE PURPOS E OF BUSINESS. MOREOVER, THE ASSESSEE DURING THE YEAR UNDER CONSID ERATION WAS HAVING SUFFICIENT FUNDS SO AS TO PURCHASE THE SHARES AND U NITS OF MUTUAL FUNDS TO EARN SHORT TERM CAPITAL GAIN. THE ASSESSEE FOR THIS PURPOSE WAS NOT REQUIRED TO OBTAIN LOAN FROM BANK. THE AO HAS ERRED IN HOLDING THAT THE MONEY EARNED BY THE ASSESSEE FROM THE SALE OF SHARE S AND SECURITIES IS ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 9 BUSINESS INCOME. THE ASSESSEE INVESTS IN SHARES AS INVESTOR AND IS NOT AN ADVENTURE CARRIED ON BY THE ASSESSEE SO AS TO TERM IT AS BUSINESS. THE ASSESSEE FOR F.Y. 2005-06 HAS ENTERED IN TOTAL 11 T RANSACTIONS OF SHARES AND MUTUAL FUNDS. THE FREQUENCY OF TRANSACTION CARR IED ON BY THE ASSESSEE IS HARDLY 1 TRANSACTION PER MONTH. THE SAME THEREFO RE CANNOT BE REGARDED AS BUSINESS OF THE ASSESSEE. FURTHER, THE ASSESSEE ALL THROUGH THESE YEARS HAS BEEN SHOWING THE INVESTMENTS IN SHARES AND MUTU AL FUNDS IN THE BALANCE SHEET UNDER THE HEAD INVESTMENTS. THE SAME CLEARLY EXHIBITS THE INTENTION AND/OR MOTIVE OF THE ASSESSEE TO PURCHASE THE SHARES FOR THE PURPOSE OF INVESTMENTS AND THE SAME CANNOT BE TREAT ED AS BUSINESS INCOME. THE ASSESSEE IN THIS REGARD RELIED ON THE D ECISION IN THE CASE OF ITO VS. SMT. SHYAMA GAUTAM SARABHAI IN ITA NO.1324/ A/2009 AND IN THE CASE ITO VS. DR. NIRANJAN RAMANLAL IN ITA NO.30 82/A/2009. ALTERNATIVELY, THE ASSESSEE AFTER PURCHASING THE SH ARES HAS HELD IT FOR MORE THAN 30 DAYS AND THEREFORE ALSO THE SAME CANNOT BE TERMED AS BUSINESS INCOME. THE ASSESSEE IN THIS CASE RELIES ON THE DEC ISION IN THE CASE OF SMT. RHUTA K. PATEL VS. ACIT IN ITA NO.3231/AHD/2009. IN VIEW OF ABOVE SUBMISSIONS, THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO TREAT THE INCOME OF RS.4 ,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE ORDER OF LD. CIT(A) MAY KINDLY BE UPHELD. ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 10 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH THE MATERIAL ON RECORD WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT A SIMILAR ISSUE CAME UP BEFORE TH E TRIBUNAL IN ITA NO.1324/AHD/2009 WITH CO 128/AHD/2009 IN THE CASE O F ITO, WARD 8(2), AHMEDABAD VS. SMT. SHYAMA GAUTAM SARABHAI WHEREIN T HE TRIBUNAL HAS DECIDED THE ISSUE VIDE ITS ORDER DATED 10.06.2011 B Y OBSERVING AS UNDER :- THE AVERMENTS MADE BY THE LEARNED COUNSEL IN THE S TATEMENT OF FACT HAVE NOT BEEN CONTROVERTED BY THE REVENUE. THE CIT( A) AFTER ONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO ARGUMENTS OF BOTH THE SIDES HELD AS UNDER: 3.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS ALONG WITH THE JUDICIAL PRONOUNCEMENTS AS WELL AS T HE CIRCULAR ISSUED BY THE CBDT, SUPRA, AS RELIED UPON FROM THE DETAILS FURNIS HED BY THE A.R. IT IS SEEN THAT THOUGH THERE ARE TRANSACTIONS OF PURCHASES AND SALES DURING THE YEAR, MAJORITY OF SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN HAS RESULTED FROM SALE OF UNITS OF MUTUAL FUNDS, WHICH CAN NOT BE TRADED IN THE MARKET . IT IS ALSO A FACT THAT THE APPELLANT HAS I N FACT ACQUIRED MOST OF THE SHARES BY SUBSCRIBING TO THE PUBLIC ISSUES MADE BY THE ABOVE COMPANIES AND HENCE, THERE IS FORCE IN THE APPELLANT'S ARGUMENT T HAT THIS FACTOR IS A STRONG INDICATOR OF ITS INTENTION TO MAKE INVESTMENT THERE IN AND THE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT WAS TRADING IN SHARES, JUST BECAUSE IT CHOSE TO SELL THE SHARES AT APPROPRIATE TIME WITH A VIEW TO AUGMENT HER WEALTH. THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AMOUN TING TO RS.19,13,201/- IS, THEREFORE, LIABLE TO BE TAXED U/S. 111A @ 10% AND T HE SAME SHOULD NOT BE TREATED AS BUSINESS INCOME AND TAXED ACCORDINGLY. I ALSO AGREE WITH THE CONTENTION OF THE A.R. THAT THE LONG TERM CAPITAL G AIN OF RS.17,25,799/- WAS EXEMPT AND HENCE THE SAME COULD NOT BE TREATED AS B USINESS INCOME AND TAXED. BY FOLLOWING SEVERAL CASE LAWS AND THE CBDT'S CIRCU LAR RELIED UPON BY THE A.R. OF THE APPELLANT. I AM OF THE VIEW THAT A CONC LUSION THAT THE APPELLANT WAS DEALING IN SHARES MERELY ON THE BASIS OF NUMBER OF TRANSACTIONS MADE, COULD NOT BE ARRIVED AT. I FIND THAT THE INTENTION OF THE APPELLANT WAS TO ONLY MAKE INVESTMENT IN SHARES WITH A VIEW TO EARN DIVIDEND I NCOME. THE A.O. IS, THEREFORE, DIRECTED NOT TO TREAT BOTH SHORT TERM CA PITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN AS BUSINESS INCOME OF THE APPELLA NT. 3. AT THE TIME OF HEARING BEFORE US, THE LEARNED D R COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE LEARNED CIT(A) . IT IS NOT DISPUTE THAT OUT OF TOTAL CAPITAL GAIN OF RS.79,26,501/-, THE AO HIMSELF HAS ACCEPTED THE ASSESSEES CONTENTION WITH REGARD TO THE CAPIT AL GAIN OF ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 11 RS.42,87,501/- .ONLY IN RESPECT OF OTHER ITEMS, HE HELD IT TO BE BUSINESS INCOME. THE INVESTMENT WAS BY ASSESSEES OWN FUND A ND NO BORROWED MONEY WAS INVOLVED AND IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, YEAR AFTER YEAR, IT WAS SHOWN AS INVESTMENT AND NOT AS S TOCK-IN-TRADE. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO I NTERFERE WITH THE ORDER OF THE CIT(A), THE SAME IS SUSTAINED AND THE REVENUES APPEAL IS DISMISSED. IN THE CASE BEFORE US ALSO THE INVESTMENT WAS BY AS SESSEES OWN FUND AND NO BORROWED MONEY WAS INVOLVED. THE LOAN OF RS.20,0 0,000/- TAKEN FROM HDFC BANK ON 28.03.2006 WAS NOT UTILIZED FOR PURCHA SE OF SHARE AS THE TRANSACTIONS IN SHARES AND MUTUAL FUNDS FOR EARNING SHORT TERM CAPITAL GAIN ARE PRIOR TO 28.03.2006. IN THE BALANCE SHEET INVES TMENT IN SHARES AND MUTUAL FUND HAS BEEN SHOWN BY THE ASSESSEE AS INVES TMENT AND NOT AS STOCK-IN-TRADE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY DIRECTED THE AO TO TREAT THE INC OME OF RS.4,28,134/- AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCO ME. THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). WE CONFIRM TH E SAME. THIS GROUND OF REVENUE IS DISMISSED. 8. THE NEXT GROUND RELATES TO DELETION OF ADDITION OF RS.25,00,000/- AS UNEXPLAINED CASH CREDIT U/S 68. IN THE ASSESSMENT O RDER THE AO HAS OBSERVED AS UNDER :- DURING THE YEAR THE ASSESSEE HAS RECEIVED CASH CRE DIT FROM RITA J RAM AND ROSEVIN PHARMACEUTICAL (P) LTD. VIDE SHOW C AUSE NOTICE DTD.01.12.2008. THE ASSESSEE WAS ASKED TO DISCHARGE HIS ONUS U/S 68 OF THE IT ACT. THE ASSESSEE DID NOT RESPOND THE SHOW CAUSE NOTICE TILL DATE. THE DETAILS FILED DURING THE ASSE SSMENT PROCEEDINGS SHOWS THAT ON 07.06.2005 RS.25 LACS HAS BEEN RECEIV ED FROM ROSEVIN PHARMACEUTICAL (P) LTD. IN RESPECT OF CASH CREDIT IN THE NAME OF RITA J RAM THE AMOUNT OF RS.9,20,000/- IS S HOWN TO BE OPENING BALANCE AS ON 01.04.2005 AS THE ASSESSEE FA ILS TO ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 12 DISCHARGE HIS ONUS U/S 68 OF THE IT ACT. IN RESPECT OF CASH CREDIT OF RS.25 LACS RECEIVED FROM ROSEVIN PHARMACEUTICAL (P) LTD. THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BEING UNEXPLAINED CASH CREDIT. 9. IN APPEAL BEFORE LD. CIT(A) THE ASSESSEE SUBMITT ED AS UNDER :- THE APPELLANT HAS RECEIVED THE EARNEST MONEY (ADVA NCE PURCHASE PRICE) OF RS.25,00,000/- FROM ROSSWIN PHARMACEUTICALS (P) LTD. AS PER AGREEMENT DATED 6 TH JUNE, 2005. THE ROSSWIN PHARMACEUTICALS (P) LTD., BOMBAY WAS AGREED TO TAKE OVER THE KADAM EXPORTS (P ) LTD. BUT ANY WAY THE DEAL WAS FAILED AND SO THE APPELLANT HAD GIVEN BACK RS.10,00,000/- TO ROSSWIN COMPANY AND KEPT RS.15,00,000/- FOR EXPENS ES AND CARRIED OUT THE SOLUTION. THE ROSSWIN PHARMACEUTICALS (P) LTD. HAS FILED THE SUIT NO.2216 OF 2005 BEFORE THE HONBLE BOMBAY HIGH COUR T. THE COPY OF THE LEDGER A/C AND ALL THE DETAILS WERE AVAILABLE WITH THE APPELLANT. THE ROSSWIN PHARMACEUTICALS COMPANY HAD ALSO GIVEN THE PUBLIC NOTICE IN THE FREE PRESS JOURNAL ON TUESDAY JUNE 27, 2006. IN SHORT- (I) RS.25,00,000/- WAS GIVEN BY THE ROSSWIN PHARMACEUTI CALS COMPANY TO THE APPELLANT AS ADVANCE PURCHASE PRICE TO TAKE OVER THE BUSINESS. (II) THE DEAL WAS FAILED. (III) RS.10,00,000/- HAS BEEN GIVEN BACK TO ROSSWIN PHARMACEUTICALS (P) LTD. THROUGH BANK CHANNEL. (IV) RS.15,00,000/- HAS BEEN KEPT WITH THE APPELLANT FOR EXPENSES WHICH WILL BE INCURRED FOR FIGHTING SUT BEFORE THE HONBLE BOMBAY HIGH COURT. (V) THE COPY OF LEDGER A/C IS AVAILABLE. (VI) THE ROSSWIN PHARMACEUTICALS (P) LTD. HAS GIVEN PUBL IC NOTICE IN THE FREE PRESS JOURNAL FOR WHICH PAPER CUTTING I S AVAILABLE. HOWEVER, THE APPELLANT HAD INFORMED THE LD. AO THAT ALL THE ABOVE DETAILS WERE LYING WITH THE APPELLANT (MOST OF THEM HAVE BE EN SUBMITTED BEFORE THE LD. AO) IN THE BONA FIDE BELIEF THAT AS AND WHE N THE CONFIRMATIONS WOULD BE RECEIVED FROM ROSSWIN COMPANY, BOMBAY, THR OUGH COURIER, THE SAME WILL BE HANDED OVER TO THE CHARTERED ACCOUNT, SO HE COULD SUBMIT BEFORE THE LD. AO SOON. THE APPELLANT HAD DONE COURIER ON 09.12.2008 TO ROS SWIN COMPANY, BOMBAY BUT THE COMPLIANCE WAS NOT MADE AND MEANTIME , THE LD. AO HAS PASSED THE ASSESSMENT ORDER ON 23.12.2008 BY MAKING ADDITION OF ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 13 RS.25,00,000/- AS ALLEGED CASH CREDIT U/S 68 IN THE TOTAL INCOME. THE COPY OF LEDGER A/C OF ROSSWIN COMPANY IN THE BOOKS OF A/ C OF THE APPELLANT HAD ALSO BEEN FILED BEFORE THE LD. AO ALONG WITH FORWAR DING LETTER DATED 12.12.2008 I.E. PRIOR TO THE DATE OF ASSESSMENT. TH E CONFIRMATION HAS NOT BEEN RECEIVED FROM ROSSWIN PHARMACEUTICALS COMPANY TILL DATE BECAUSE OF BAD RELATION WITH COMPANY. THUS THE APPELLANT WA S PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BEFORE THE LD. AO. NO DOUBT, THE CHEQUE DET AILS, NAME AND ADDRESS OF THE PERSON WHO HAS GIVEN ADVANCE PRICE T O THE APPELLANT, THE COMPANY IS IDENTIFIABLE, ITS CREDIT WORTHINESS IS N OT DOUBTED AND THE COPY OF LEDGER A/C HAS ALSO BEEN SUBMITTED BEFORE THE LD . AO AS STATED SUPRA AND HENCE THE ADDITION AS CASH CREDIT WAS NOT REQUI RED AS PER HONBLE SUPREME COURTS DECISION IN THE CASH OF CIT VS. ORI SSA CORPORATION (P) LTD. (1986) 159 ITR 78. IN THE CIRCUMSTANCES, YOUR APPELLANT PRAYS FOR DELE TION OF BOTH THE ADDITIONS. THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER :- AFTER A CAREFUL STUDY OF THE ASSESSMENT ORDER AND THE PAPER BOOK, I AM INCLINED TO AGREE WITH THE OPINION OF BOTH THE LD. COUNSELS FOR THE APPELLANT. THEREFORE, THE ADDITION OF RS.25,00,000/ - IS ACCORDINGLY DIRECTED TO BE DELETED. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 10. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO AND SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTED THA T ASSESSEE HAD RECEIVED CASH CREDIT FROM RITA J RAM AND ROSEVIN PH ARMACEUTICAL (P) LTD. THE ASSESSEE WAS ASKED TO DISCHARGE HIS ONUS U /S 68 OF THE IT ACT VIDE SHOW CAUSE NOTICE DATED 01.12.2008 BUT THE ASS ESSEE DID NOT RESPOND. THE AO NOTED THAT ON 07.06.2005 ASSESSEE R ECEIVED RS.25 FROM ROSEVIN PHARMACEUTICAL (P) LTD. IN RESPECT OF CASH CREDIT IN THE NAME OF ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 14 RITA J RAM, THE AMOUNT OF RS.9,20,000/- IS SHOWN TO BE OPENING BALANCE AS ON 01.04.2005. AS THE ASSESSEE FAILED TO DISCHAR GE HIS ONUS U/S 68 THE CASE CREDIT OF RS.25 LACS RECEIVED FROM ROSEVIN PHA RMACEUTICAL (P) LTD. WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS UN EXPLAINED CASH CREDIT. THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITION REL YING ON THE SUBMISSIONS OF THE ASSESSEE. HE PRAYED THAT THE ORD ER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 11. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ASSESSEE DURING THE COURSE OF THE BUSINESS HAS RECE IVED RS.25,00,000/- FROM ROSSWIN PHARMACEUTICALS (P) LTD. THE SAID MONE Y WAS RECEIVED AS ADVANCE FROM ROSSWIN PHARMA AS IT HAS AGREED TO TAK E OVER THE KADAM EXPORTS (P) LTD. BOTH THE PARTIES ENTERED INTO AN A GREEMENT FOR CARRYING OUT THE PROCESS. HOWEVER, THE DEAL COULD NOT MATERI ALIZE AND FINALLY IT WAS CANCELLED. THE ASSESSEE AS PER THE TERMS OF AGREEME NT WAS REQUIRED TO RETURN THE AMOUNT TO ROSSWIN PHARMA. THE ASSESSEE D ID RETURN THE AMOUNT OF RS.10,00,000/- OUT OF THE TOTAL RS.25,00,000/- T O ROSSWIN PHARMA THROUGH BANKING CHALLE. THE REMAINING AMOUNT OF RS. 15,00,000/- WERE WITHHELD BY THE ASSESSEE FOR THE EXPENSES INCURRED BY THE ASSESSEE IN THE PROCESS OF TAKING OVER KADAM EXPORTS. THE ROSSWIN P HARMA TO RECOVER THE AMOUNT OF RS.15,00,000/- FILED THE SUIT IN THE BOMBAY HIGH COURT BEING SUIT NO.2216 OF 2006. A COPY OF THE CAUSE TIT LE OF THE SUIT IS ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 15 ANNEXED. THE ROSSWIN PHARMA HAS ALSO GIVEN A PUBLIC NOTICE IN FREE PRESS JOURNAL IN THIS REGARD. ALL THESE FACTS COME TO THE CONCLUSION THAT RS.15,00,000/- SHOWN IN THE BALANCE SHEET ARE IN FA CT GIVEN BY ROSSWIN PHARMA TO THE ASSESSEE FOR TAKING OVER THE KADAM EX PORTS. THE DEAL HOWEVER, COULD NOT MATERIALIZE AND THE AMOUNT OF RS .15,00,000/- IS UNDER LITIGATION. THE SAID AMOUNT IS THUS EXPLAINED AND N O ADDITION U/S 68 OF THE ACT IS REQUIRED TO BE MADE ON THIS COUNT. THE LD. C IT(A) HAS RIGHTLY DELETED THE ADDITION. THERE IS NO INFIRMITY IN HIS ORDER. THE SAME MAY KINDLY BE UPHELD. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RECORD, WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE U/S 68. THE ASSESSEE HAS CLEARLY EXPLAINED THAT RS.25 L ACS WAS RECEIVED FROM ROSSWIN PHARMACEUTICALS (P) LTD. AS ADVANCE AS IT A GREED TO TAKE OVER THE KADAM EXPORTS (P) LTD. BY ENTERING INTO AN AGREEME NT. BUT ULTIMATELY THE TAKE OVER COULD NOT MATERIALIZE AND THE ASSESSE E RETURNED AN AMOUNT OF RS.10,00,000/- OUT OF TOTAL RS.25,00,000/- AND T HE REMAINING AMOUNT OF RS.15,00,000/- WAS WITHHELD BY THE ASSESSEE FOR THE EXPENSES INCURRED BY THE ASSESSEE IN THE PROCESS OF TAKING OVER KADAM EX PORTS. THERE IS NO AMBIGUITY IN THE EXPLANATION GIVEN BY THE ASSESSEE. THE AO HAD WRONGLY MADE THE ADDITION OF RS.25,00,000/- AS UNEXPLAINED CASH CREDIT AND THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCE S OF THE CASE HAS ITA NO.2192/AHD/2009 ASST. YEAR 2006-07 16 DELETED THE IMPUGNED ADDITION. THERE IS NO INFIRMIT Y IN HIS ORDER. THEREFORE, WE ARE INCLINED TO UPHOLD THE SAME. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 30/11/11. SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 28/11/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 29/11/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..