The ITO, Ward-4(1), Ahmedabad V. Manusi Securities Pvt.Ltd., Ahmedabad

ITA 2338/AHD/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6281 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 15-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Source of fund; Question of law
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, A M. ITA NOS.2338 & 2339/AHD/2011 ASST. YEARS: 2007-08 & 2008-09 INCOME-TAX OFFICER, WARD 4(4), 1 ST FLOOR, NAVJIVAN TRUST BUILDING, B/H GUJARAT VIDHYAPITH, AHMEDABAD VS MANUSI SECURITIES PVT. LTD., 401, SURGICARE, SARDAR PATEL BAWLA, NARANPURA, AHMEDABAD 380013 (APPELLANT) (RESPONDENT) PA NO. AAACM7948J APPELLANT BY MR. PRASOON KABRA, SR.DR RESPONDENT BY NONE DATE OF HEARING: 06.04.2017 DATE OF PRONOUNCEMENT: 10/04/2017 O R D E R PER: MANISH BORAD, ACCOUNTANT MEMBER THESE TWO APPEALS OF REVENUE FOR A.YS. 2007-08 & 20 08-09 ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF CIT(A)-V III, AHMEDABAD, DATED 07.07.2011VIDE APPEAL NOS.CIT(A)-VIII/ADDL.CIT.R.4/ 682/09-10 & CIT(A)- VIII/ITO.WD.4(4)/557/10-11, ARISING OUT OF THE SEPA RATE ORDERS U/S. 143(3) OF THE ACT 22.12.2009 FRAMED BY ACIT, RANGE-4, AHMEDAB AD AND ITO, WARD 4(4), AHMEDABAD; RESPECTIVELY. DURING COURSE OF HE ARING NONE APPEARED ON BEHALF OF ASSESSEE. FROM THE PERUSAL OF THE ORDER SHEET, WE OBSERVE THAT ON VARIOUS DATES FIXED FOR HEARING SINCE 10 TH MARCH, 2015 NEITHER ASSESSEE NOR ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 2 ANY COUNSEL AUTHORIZED ON BEHALF OF THE ASSESSEE HA S EVER APPEARED IN THESE CASES. ON 09.02.2016, LEARNED DEPARTMENTAL REPRESE NTATIVE WAS INSTRUCTED TO SERVE THE NOTICE TO ASSESSEE. IN COMPLIANCE TH ERETO NOTICE WAS SERVED THROUGH INCOME TAX DEPARTMENT TO ASSESSEE ON 09.02. 2016. EVEN THEREAFTER NONE APPEARED ON BEHALF OF ASSESSEE. IN THESE CIRC UMSTANCES, WE HAVE NO OPTION OTHER THAN TO PROCEED AHEAD TO ADJUDICATE TH E ISSUES IN THIS APPEAL WITH THE ASSISTANCE OF LEARNED DEPARTMENTAL REPRESENTATI VE AND THE RECORDS AVAILABLE. 2. COMMON ISSUE RAISED BY REVENUE IN BOTH THE YEARS IS AGAINST THE ORDER OF LD. CIT(A) DIRECTING THE ASSESSING OFFICER TO TR EAT THE MAJOR PART OF ITS INCOME FROM TRANSACTIONS IN SECURITIES UNDER THE HE AD OF CAPITAL GAINS WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE WAS ENGAGED IN TRADING OF SHARES AND SECURITIES. AS THE ISSUES ARE COMMON, W E WILL TAKE UP ITA NO.2338/AHD/2011 FOR A.Y.2007-08 AS THE LEAD CASE T O ADJUDICATE THE ISSUE. 3. BRIEFLY STATED FACTS AS CULLED OUT FROM THE RECORD S ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN TRADING IN SECURITI ES. IT FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING INCOME AT RS.1,05,89 ,629/- WHICH INTER ALIA INCLUDES SHORT TERM CAPITAL GAIN FROM SALE OF EQUIT Y SHARES AT RS. 1,13,05,165/-. CASE WAS PICKED UP FOR SCRUTINY ASS ESSMENT AND NOTICE U/S.143(2) OF THE ACT AND 142(1) OF THE ACT WERE IS SUED ALONGWITH QUESTIONNAIRE. LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD NO INVESTMENT IN EQUITY SHARES AS ON 31.03.2006 AS WEL L AS 31.03.2007 EXCEPT AN UNQUOTED INVESTMENT OF RS.35,15,954/- AS ON 31.03.2 007. IT WAS ALSO OBSERVED THAT ASSESSEE HAS ENTERED INTO MORE THAN 7 000 TRANSACTIONS OF PURCHASE AND SALE OF AROUND 4LACS EQUITY SHARES OF SURAJ STAINLESS STEEL LTD. ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 3 THESE TRANSACTIONS WERE CARRIED OUT REGULARLY ROUND THE YEAR. ASSESSEE HAS SHOWN THE RESULT OF THESE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAIN WHEREAS LD. ASSESSING OFFICER WAS OF THE VIEW THAT SUCH PATTERN OF TRANSACTIONS BY NO STRETCH OF IMAGINATIO N CAN BE DESCRIBED AS AN INVESTMENT ACTIVITY AND IT SURELY COMES UNDER THE T RADING ACTIVITIES LIABLE TO BE ASSESSED AS BUSINESS INCOME. LD. ASSESSING OFFI CER ALSO OBSERVED THAT FUNDS WERE BORROWED DURING THE YEAR FOR THE PURPOSE OF PURCHASE OF SHARES OF SURAJ STAINLESS STEEL LTD. HE ACCORDINGLY HELD THA T THE ALLEGED PROFIT OF RS.1,13,05,165/- SHOWN AS SHORT TERM CAPITAL GAIN S HOULD BE TREATED AS INCOME FROM SHARE TRADING TAXABLE AS BUSINESS INCOM E BY OBSERVING AS FOLLOWS: 3.6.8 IN ORDER TO ANALYSE THE TRANSACTION OF THE A SSESSEE IN LIGHT OF THE ABOVE OBSERVATION, THE FOLLOWING TREND IS FOUND IN RESPEC T OF TRANSACTIONS OF SURAJ STAINLESS SCRIPT. I. THE SHARES HAD BEEN HELD AS STOCK IN TRADE AS ON THE DAY OF OPENING I.E, 1/4/2006. IT WAS ONLY WHEN IT BECAME APPARENT THAT THIS SCRIPT HAD YIELDED SUBSTANTIAL PROFITS THAT THE ASSESSEE T HOUGHT OF CONVERTING THE SAME INTO INVESTMENT. NO DOCUMENTARY EVIDENCE RELATING TO SUCH A CONVERSION AND VALUATION OF THES E SHARES AS ON THE DAY OF CONVERSION HAVE BEEN SUBMITTED. II. THE VOLUME OF TRANSACTION IN RESPECT OF THESE S HARES IS HUGE. WHILE IN THE PRECEDING YEAR, THE TRANSACTIONS HAVE BEEN T REATED AS BUSINESS TRANSACTIONS, IN THE CURRENT YEAR, THEY HA VE BEEN TREATED AS INVESTMENT. THE ASSESSEE CAN NOT BE ALLOWED TO SWIT CH BETWEEN STOCK IN TRADE AND INVESTMENT AS PER HIS CONVENIENC E. III. THERE ARE MULTIPLE TRADES IN A DAY. IN FACT, O N MANY OF THESE DAYS, HUNDREDS OF SALE AND PURCHASE TRANSACTIONS IN THE S AME SCRIPT HAVE BEEN NOTED CLEARLY EVIDENCING A BUSINESS ACTIVITY A ND NOT INVESTMENT FOR THE PURPOSE OF EARNING DIVIDEND / LO NG TERM APPRECIATION / GAIN. IV. BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE O F TRADING. THE ASSESSEE'S CLAIM THAT SUCH FUNDS, BEING INTEREST FR EE, CAN BE TREATED AS QUASI-CAPITAL DOES NOT HOLD WATER AND CAN NOT BE ACCEPTED. THERE IS NO DIFFERENCE BETWEEN THE SHARES TRADED AN D THE SO CALLED ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 4 INVESTMENT SHARES AS FAR AS SOURCE OF FUNDS ARE CON CERNED. SAME SOURCE HAS BEEN USED FOR ALL THE TRADING ACTIVITIES . MOST OF THESE FUNDS ARE BORROWED AS THE SHARE CAPITAL IS MERELY R S 2.42 LAKH. V. NO SEPARATE ACCOUNTS HAVE BEEN MAINTAINED IN RES PECT OF THE INVESTMENT PORTFOLIO. PROCEEDS FROM SALE AND SOURCE OF FUNDS FOR PURCHASE ARE MIXED. VI. THE ASSESSEE HAS WRONGLY PRESUMED THA T THE REFERENCE TO 'SUBSTANTIAL' REFERS TO MAINTENANCE OF A LARGE PORT FOLIO. THE ASSESSEE HAS PICKED UP A SHARE IN WHICH IT HAS TRAD ED HEAVILY AND ON IT YIELDING HIGH PROFITS, HAS ATTEMPTED TO GIVE IT A COLOUR OF INVESTMENT SO AS TO BENEFIT FROM THE LOWER RATE OF TAX. HENCE, THE ASSESSEE'S CASE MISEARABLY FAILS THE TES T LAID DOWN IN THE BOARD'S INSTRUCTIONS /CIRCULAR REFERRED ABOVE. IN F ACT, PUTTING THE ASSESSEE'S TRANSACTIONS TO THE TEST OF THE ABOVE RATIO, IT IS CLEAR THAT THE ASSESSEE'S TRANSACTION VIS-A-VIS SURAJ STAINLESS STEEL CAN NOT BE HELD TO BE INVESTMENT AND IT IS OUTRIGHT TRADING ACTIVITY. 3.6.9 THE ASSESSEE HAS TOTALLY MISQUOTED SECTION 111A BY STATING THAT FOR THE PURPOSE OF A TRANSACTION TO FALL WITHIN THE PROVIS IONS OF THAT SECTION, ONLY TWO THINGS ARE REQUIRED I.E. (I) THE TRANSACTION OF SAL E IS ENTERED AFTER 1/10/2004 AND (II) THE TRANSACTION IS CHARGEABLE TO STT. SECTION 111 A STARTS AS; '111A. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS', A RISING FROM THE TRANSFER OF A SHORT-TERM CAPITAL ASSET, BEING AN EQ UITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND AND (A) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR UNIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF T HE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND (B) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSACTION TAX UNDER THAT CHAPTER, THE TAX PAYABLE BY THE ASSESSEE ON THE TOTAL INCOME SHALL BE THE AGGREGATE OF .. HENCE, THE SECTION IS APPLICABLE ONLY IF THE ASSET UNDER TRANSFER IS A SHORT TERM CAPITAL ASSET. HENCE IT IS MANDATORY TO FIRST DETERMINE THE CHARACTER OF THE ASSET WHICH IS UNDER TRANSFER. IF IT IS STOCK IN TR ADE, THE PROVISIONS OF SECTION 111A ARE NOT APPLICABLE. IN THE CURRENT CASE, IT HAS BEE N PROVED BEYOND DOUBT THAT THE SHARES OF SURAJ STAINLESS STEEL TRADED BY THE ASSES SEE ARE STOCK IN TRADE AND THE ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 5 ACTIVITY ENGAGED INTO BY THE ASSESSEE IS TRADING AC TIVITY AND' NOT INVESTMENT ACTIVITY. 3.6.10 THE ASSESSEE'S CLAIM THAT IT HAS EARNED DIVI DEND OF RS 1,38,166/- WHICH HAS BEEN SHOWN IN THE P&L ACCOUNT DOES NOT, IN ANY WAY, STRENGTHEN THE CLAIM OF THE ASSESSEE. THE EXTENT OF TRADING INCOME OF MORE THAN RS 1.13 CRORE ON THE TRANSACTIONS OF THE SURAJ STAINLESS STEEL AS AGAINS T THE DIVIDEND INCOME OF RS 1,38,166/- RECEIVED FROM VARIOUS SHARES HELD, WHETH ER AS STOCK IN TRADE OR INVESTMENT, CLEARLY SHOWS THE INTENTION OF THE ASSE SSEE WAS TO EARN INCOME FROM TRADING ACTIVITY RATHER THAN HOLD IT AS INVESTMENT FOR EARNING DIVIDEND. 3.6.10 OTHER RELEVANT PARAMETERS IN LIGHT OF THE VARIOUS JUDICIAL PRONOUNCEMENTS AND REASONED LOGIC, OTHER TESTS THROUGH WHICH THE ASSESSEE'S TRANSACTIONS CAN BE PUT THROUGH FOR DETERMINING WHETHER THEY ARE TRADING OR INVESTMENT IN SECURITIE S ARE: A. WHETHER THE PURCHASE AND SALE OF SECURITIES WAS ALL IED TO HIS USUAL TRADE OR BUSINESS/ WAS INCIDENTAL TO IT OR WAS AN O CCASIONAL INDEPENDENT ACTIVITY - IT IS CLEAR THAT THE TRANSACTION IN THE SECURITY WA S ALLIED TO HIS USUAL TRADE AND IT WAS NOT AN INDEPENDENT ACTIVITY. B. WHETHER THE SCALE OF ACTIVITY WAS SUBSTANTIAL - AS THE PRINTOUT OF A PORTION OF THE TRADING ACTIVITY IN THIS SCRIPT WOUL D INDICATE, THE SCALE OF ACTIVITY WAS SUBSTANTIAL. C. WHETHER THE TRANSACTIONS WERE ENTERED INTO CONTINUO USLY AND REGULARLY DURING THE ASSESSMENT YEAR - AS EVIDENT FROM THE TRADING LOG, THE TRANSACTION S WERE CARRIED OUT REGULARLY AND CONTINUOUSLY DURING THE YEAR, IN FACT A NUMBER OF SALE AND PURCHASE TRANSACTIONS WERE BEING DONE ON A DAILY BASIS. D. WHETHER THE PURCHASES WERE MADE OUT OF OWN FUNDS OR BORROWINGS - AS BROUGHT OUT EARLIER, THE PURCHASES WERE OUT OF BORR OWINGS AS THE ASSESSEE'S FUNDS IN THE BUSINESS WERE EXTREMELY LOW. E. TYPICAL HOLDING PERIOD FOR SECURITIES BOUGHT AND SO LD - IN THE CASE OF THE ASSESSEE, THE PERIOD CAN HARDLY BE SPECIFIED SI NCE THERE WAS A REGULAR BUYING AND SELLING ON A DAILY BASIS. F. TIME DEVOTED TO THE ACTIVITY - THE TRADING LOG OF THE ASSESSEE REVEALS THAT SUBSTANTIAL TIME WAS SPENT ON THIS ACTIVITY ON A DA ILY BASIS, THE TRADING LOG SHOWS TRANSACTIONS THROUGHOUT THE DAY. 3.6.10 IN LIGHT OF THE ABOVE DISCUSSION, THE CLAIM OF THE ASSESSEE THAT ITS TRANSACTIONS VIS-A-VIS SURAJ STAINLESS STEEL ARE IN VESTMENT TRANSACTIONS, IS FOUND TO BE FALSE AND UNACCEPTABLE. HENCE, THE ACTIVITY I S HELD AS TRADING ACTIVITY AND THE GAIN IS TREATED AS BUSINESS INCOME AND NOT SHOR T TERM CAPITAL GAIN LIABLE TO CONCESSIONAL RATE OF TAX AS PER SECTION 111 A. 4. AGGRIEVED ASSESSEE WENT IN APPEAL BEFORE THE CIT (A) WHO AFTER ADJUDICATION DIRECTED THE ASSESSING OFFICER TO VERI FY EACH TRANSACTIONS ON THE ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 6 BASIS OF PERIOD OF HOLDING THE EQUITY SHARES SOLD B Y FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT [2010] 37 DTR (AHD) (TRIB) 345 WHEREIN IT WAS HELD THAT GAIN FROM SALE OF EQUITY SHARES HELD FOR 30 DAYS OR LESS THAN A MONTH ARE TO BE TREATED AS BUSINESS INCOME AND THE OTHERS AS SHORT TERM CAPITAL GAIN. IN DECIDING SO, LD. CIT(A) OBSERVED AS FOLLOWS: 2.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE SUBMISSIONS OF THE A.R ALONGWITH LEGAL CITATIONS CAREFULLY. DURING ASSESS MENT PROCEEDINGS THE A.O OBSERVED THAT THE DETAILS OF SHARES BOUGHT AND SOLD BY THE APPELLANT OF SURAJ STAINLESS STEEL LIMITED (SSSL) SHOW THAT THE APPELL ANT HAS PURCHASED AND SOLD A LARGE NUMBER OF SHARES DURING THE RELEVANT PREVIOUS YEAR, WHICH INDICATES THAT THE APPELLANT IS NOT BUYING AND SELLING THESE SHARES WI TH THE MOTIVE OF INVESTMENT BUT ARE IN THE NATURE OF ADVENTURE OF TRADE. THE A.O FU RTHER OBSERVED THAT LOOKING AT THE NATURE AND VOLUME OF TRANSACTION S IT BECOMES A PPARENT THAT THE MOTIVE OF THE APPELLANT IS TRADING IN SHARES AND NOT INVESTMENT. IT IS ALSO OBSERVED BY THE A.O THAT THE SHARES HAVE BEEN PURCHASED ONLY A FEW DAYS PRIOR TO THE DATE OF SALE. THE APPELLANT HAS ALSO PURCHASED THE SAME SHARES AFTER HAVING SOLD THE SAME ITEM. IT CLEARLY INDICATES THAT THE APPELLANT IS NOT MAKING INVESTMENT IN SHARES BUT TRADING IN SHARES. 2.3.1 ON THE OTHER HAND, LD. A.R. SUBMITTED THAT TH E APPELLANT HAS ALWAYS TAKEN DELIVERY OF SHARES AND HAS NOT MADE ANY TRANSACTION WITHOUT DELIVERY. IT IS ALSO ARGUED THAT THE APPELLANT HAS SUFFICIENT FUNDS WITH HIM TO MAKE INVESTMENT. THE APPELLANT HAS SHOWN THE SHARES HELD AT THE END OF T HE YEAR AS INVESTMENT AND VALUED AT 'COST' IN ITS BOOKS OF ACCOUNT. IT IS ONL Y IN A FEW CASES; THAT THE SHARES HAVE BEEN HELD FOR THE PERIOD OF LESS THAN 30 DAYS. REGARDING FREQUENCY OF TRANSACTION THE LD. A.R. SUBMITTED THAT FLOATING ST OCK OF (SSSL) IS VERY LIMITED. FOR FEW MONTHS THE APPELLANT KEPT ON BUYING THE SCRIPT SINCE IT WAS AVAILABLE IN VERY SMALL LOTS. LIKE WISE FOR SOME PERIOD THE APPELLANT KEPT ON SELLING THE SCRIPT IN SMALL LOTS, BECAUSE AN OFFER IN BIGGER LOT MAY BRIN G DOWN THE PRICES OR VICE VERSA. HE FURTHER SUBMITTED THAT 'SIR, NUMBER OF INSTANCES OF TRANSACTION IS NOT FUL LY CONTROLLABLE IN THE HANDS OF PARTY INVESTING. SUPPOSE AN INVESTOR WISH TO INVEST IN 10,000 EQUITY SHARES OF 'X' LIMITED AT MARKET RATE AND HE ORDER THE BROKER ACCORDINGLY. IF THE SCRIPT LIKE RELIANCE INDUSTRIES / TISCO ETC. THIS TRANSACTION CAN BE DONE INFRACTION OF MINUTE AND AT ONE INSTANCE ONLY. HOWEVER, IN CASE OF SCRIPT LIKE 'SSSL' THIS IS NOT POSSIBLE TO GET THE SHARES AT ONE TO FIVE INSTANCES AND IN DESIRED QUAN TITY. LT MAY TAKE 100 TO 150 INSTANCES BECAUSE OF SO MANY FACTORS LIKE FLOAT ING STOCK., TOTAL ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 7 NUMBER OF SHARES OF THE COMPANY, WILLINGNESS OF EXI STING SHAREHOLDERS WITH SHARES ETC. THUS IN OUR VIEW INSTANCES OF TRANSACTION CAN NOT D ECIDE THAT THE TRANSACTION IS TRADING ACTIVITY OR INVESTMENT ACTIV ITY'. 2.3.2 IT IS ALSO NOTICED THAT ALL THE OBSERVATIONS OF THE A.O MADE IN THIS REGARD IN THE ASSESSMENT ORDER HAS BEEN SATISFACTORILY REPLIE D BY THE LD. A.R. THROUGH VARIOUS SUBMISSIONS REPRODUCED SUPRA. THE ABOVE FACTS INDICATE THAT THE APPELLANT APPEARS TO BE INVESTOR IN SHARES AND THE SALE AND PURCHASE OF SHARES WAS ONLY TO PRO TECT THE VALUE OF INVESTMENT. THE ISSUE REGARDING THE FACT WHETHER THE ASSESSEE S HOULD BE CONSIDERED AS INVESTOR OR A TRADER IN SHARES HAS BEEN THE SUBJECT MATTER O F DEBATE. 2.3.3 SEVERAL COURTS HAVE TAKEN DIVERGENT VIEWS O N THE MATTER. 1. IN THE CASE OF RAJA BAHADUR VISHESHWARA SINGH V , CIT REPORTED IN 41 ITR 685 (SC) HON'BLE SUPREME COURT HAS HELD THAT WHEN A N OWNER OF AN ORDINARY INVESTMENT CHOOSES TO REALIZE IT AND OBTAI NED A HIGHER PRICE FOR IT THAN HE ORIGINALLY ACQUIRED IT THE ENHANCED PRICE I S NOT THE PROFIT ASSESSABLE TO INCOME TAX, BUT WHERE WHAT IS DONE IS NOT MERELY AN EXERCISE IN ORDER TO 'EFFECT CHANGE OF INVESTMENT BUT AN ACT DONE IN WHAT IS TRULY THE CARRYING ON BUSINESS, THE AMOUNT RECOVERED AS APPRE CIATION WILL BE ASSESSABLE AS BUSINESS PROFITS. 2. IN THE CASE OF DALHUSIE INVESTMENT TRUST CO. V. CIT REPORTED IN (1968) 68 ITR 486 (SC) HAS HELD THAT THE FACT AND THE CIRCUMS TANCE THAT THE SHARES WERE PURCHASED AT THE TIME WHEN THE PRICES WERE FAL LING AND THE RETURN ON INVESTMENT WAS NOT AT ALL SUBSTANTIAL AND LOAN HAD BEEN TAKEN FOR PURCHASE THE SHARES STRONGLY POINTS TO A CONCLUSION THAT THE SHARES COULD NOT HAVE BEEN PURCHASED AS AN INVESTMENT TO EARN IN COME FROM DIVIDENDS. 3. HON'BLE SUPREME COURT HAS HELD THAT THOUGHT TH E CIRCUMSTANCE MAY BE THAT THE ASSESSEE HAS SHOWN PARTICULAR SHARES AS INVESTM ENT IN ITS BOOKS AS WELL AS IN ITS BALANCE SHEET, BUT IT IS BY ITSELF NOT A CONCLUSIVE CIRCUMSTANCE, IT IS THE RELEVANT CIRCUMSTANCE ON WHICH THE TRIBUNAL CAN RELY FOR DRAWING AN INFERENCE THAT THE SHARES RELATE INVESTMENT PORTFOL IO [ KARAM CHAN THAPAR AND BROTHERS PRIVATE TD V. CIT (1971) 82 ITR 899 (S C) IN THE CASE OF ASHOKA VINIYOUG LTD V. CIT REPORTED IN 84 ITR 264 ( SC). 4. IN THE CASE OF CIT V JAGDISH PRATAP SAHI REPORTE D IN 79 ITR 235 (ALL) THE HONORABLE ALLAHABAD HIGH COURT HELD THAT THE ASSESS EE HAD INVESTED FUNDS IN GOVT. SECURITIES AND DEBENTURES BUT LATER ON CHANGED TH E TRANSACTION OF THE SECURITIES AND DEBENTURES ETC. TO PURCHASES TATA ORDINARY SHAR ES THE PURPOSE OF THE ASSESSEE TO SELL THE SECURITIES ETC. WAS TO CHANGE HIS INVES TMENT AND THE RESULTING SURPLUS WAS OF CAPITAL NATURE. ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 8 5. IN THE CASE OF SARNATH INFRASTRUCTURE PVT LTD VS . ACIT REPORTED IN 313 ITR (AT) 13 DECIDED BY THE HON'BLE ITAT LUCKNOW WHEREIN IT WAS HELD THAT IF THE SHARES ARE TRANSFERRED AND REGISTERED IN THE NAME O F THE ASSESSEE, THE PRESUMPTION IS THAT THE ASSESSEE HAS NO INTENTION TO DEAL IN SH ARES. ONLY WHEN THE TRANSACTIONS ARE SETTLED WITHOUT DELIVERY, IT CAN BE SAID TO BE A BUSINESS ACTIVITY OF TRADING IN SHARES. IN THIS CASE, THE HON'BLE TRIBUNAL LUCKNOW BENCH REFERRED TO A NUMBER OF JUDICIAL PRONOUNCEMENTS AS UNDER: - 1. FIDELITY ADVISOR SERIES VIII, IN (2004) 271 ITR 1(AAR) 2. RAJA BAHADUR VISHESWARE SINGH V. CIT (1961) 41 I TR 685 (SC) 3. CENTRAL INDIA AGENCIES PVT LTD VS. CIT( 1970) 77 ITR 959 (ALL). 4. MRS. SAROJINI RAJAH VS. CIT( 1969) 71 ITR 504. 5. DALHOUSIE INVESTMENT TRUST CO. LTD VS. CIT( 1968 ) 68 ITR 486 (SC) 6. CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. PV T LTD (1971) 82 586(SC) 7. CIT VS. H. HOICK LARSEN ( 1986 160 ITR 67(SC) 8. CIT VS. SULATEJ COTTON MILLS SUPPLY AGENCY LTD ( 1975) 100 ITR 706 (SC). 6. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM.) HELD AS UNDER:- 'THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT TH AT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TR ANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSE OF BUSINESS. THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSIT ION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE R ELATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVERY BASED T RANSACTIONS IN PRESENT CASE, SHOULD BE TREATED AS THOSE IN NATURE OF INVES TMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREFROM SHOULD BE TREATED AS EITHER AS SHORT TERM OR, AS THE CASE MAY BE, LONG TERM CAPITAL GAIN, DEPENDI NG UPON THE PERIOD OF HOLDING. THE TRIBUNAL HAS OBSERVED IN ITS JUDGEMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NAT URE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORD AND THE PRESENTATION OF SH ARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEAN. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE PRINCIPLE OF RES JUDICATA IS NET ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THE APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REV ENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPOSITION THAT THE ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT C ONCLUSIVE IN DETERMINING THE INCOME. THE TRIBUNAL HAS APPLIED THE CORRECT PR INCIPLE IN ARRIVING AT THE DECISION IN THE FACTS OF THE PRESENT CASE. THE FINDING OF FACT DOES NOT ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 9 CALL FOR INTERFERENCE IN AN APPEAL U/S 260A. NO SUB STANTIAL QUESTION OF LAW IS RAISED. 2.3.4 HOWEVER, THE CONTROVERSY RELATING TO THE TAXA BILITY OF THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND SECURITIES AND THE TREATMENT TO BE GIVEN TO SUCH TRANSACTIONS HAS BEEN RESOLVED AND SET AT REST BY T HE HON'BLE AHMEDABAD TRIBUNAL IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT 37 DTR ( AHD.)(TRIB.) 345. THE HON'BLE AHMEDABAD TRIBUNAL HAS HELD IN THE AFORESAI D CASE THAT: 'CONSIDERING THE TOTALITY AND PECULIARITY OF THE FA CTS OF THIS CASE, WE FIND THAT ASSESSEE IS NEITHER FULLY ACTING AS A TRADER N OR AS FULLY INVESTOR. DEMARCATION IS QUITE HAZY; THOUGH IN THE BOOKS HE I S SHOWING ALL THE PURCHASES AS INVESTMENT BUT FREQUENCY OF TRANSACTIO N IN SEVERAL CASES IS SO LARGE AND HOLDING PERIOD IN MANY CASES IS SO SMA LL -FORM 0 TO A WEEK OR SO THAT ASSESSEE IS DE FACTO SELLING AND PURCHAS ING SHARES AS TRADER. HE IS ALSO HOLDING SHARES FOR LONG PERIOD INDICATING T HAT THEY ARE HELD AS INVESTMENT. THEREFORE, A CRITERIA HAS TO BE FIXED F OR DETERMINING AS TO WHEN HE IS ACTING AS TRADER AND WHEN AS INVESTOR. ACCORDINGLY, WE DECIDE FOLLOWING CRITERIA TO HOLD WHEN GAINS ARE TO BE TAX ED AS PROFIT TO BE EARNED UNDER BUSINESS OR TO BE TREATED AS SHORT TER M CAPITAL GAIN, WE HELD THAT IF SHARES ARE NOT HELD EVEN SAY FOR A MONTH, T HEN THE INTENTION IS CLEARLY TO REAP PROFIT BY ACTING AS TRADER AND HE D ID NOT INTEND TO HOLD THEM IN INVESTMENT PORTFOLIO. WE BELIEVE THAT IF A PERSON INTENDS TO HOLD HIS PURCHASES OF SHARES AS INVESTMENT, HE WOULD WAT CH THE FLUCTUATION OF RATES IN THE MARKET FOR WHICH A MINIMUM TIME IS NEC ESSARY, WHICH WE ESTIMATE AT ONE MONTH. WHERE SHARES ARE HELD FOR MO RE THAN A MONTH, THEY SHOULD BE TREATED AS INVESTMENTS AND ON THEIR SALE SHORT TERM CAPITAL GAIN SHOULD BE CHARGED. WHEN SHARES ARE HELD FOR LE SS THAN A MONTH, GAIN ON THEM SHOULD BE TREATED AS PROFIT FROM BUSIN ESS.' 2.3.5 THE FACTS OF THE CASE UNDER CONSIDERATION IS ALMOST SIMILAR TO THE CASE DECIDED BY JURISDICTIONAL TRIBUNAL, REPRODUCED SUPR A. CONSIDERING THE DISCUSSION HELD ABOVE AND SPECIFICALLY FOLLOWING THE AFORESAID BINDING DECISION OF THE HON'BLE AHMEDABAD TRIBUNAL HI THE CASE OF SUGAMCHAND C. SHA H, IT IS HELD THAT WHERE THE HOLDING OF THE SHARES IS FOR A PERIOD OF LESS THAN ONE MONTH I.E. 30 DAYS THE PURCHASE AND SALE OF SHARES IS TO BE TREATED AS BUS INESS OF THE ASSESSEE AND THE RESULTANT PROFIT/LOSS IS SUBJECT TO TAX AS BUSINESS INCOME/LOSS. HOWEVER, WHERE THE PERIOD OF HOLDING OF THE SHARES IS MORE THAN ONE MO NTH, THE TRANSACTION OF SHARES IS TO BE TREATED AS INVESTMENT AND THE ASSESSEE WILL B E SUBJECTED TO TAX ON SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN ON THE SALES THEREOF ACCORDING TO THE PERIOD OF HOLDING OF SUCH SHARES. DURING APPELLATE PROCEEDINGS THE LD. A.R SUBMITTED THAT BY APPLYING THE FIRST IN FIRST OUT (FIFO), METHOD, THE WORKING OF B USINESS PROFIT AND CAPITAL GAIN, AS PER THE RATIO OF IT AT AHMEDABAD DECISION IS AS UNDER:- A.Y. 2007-08 ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 10 I) STCG RS.1,12,77,837/- II) BUSINESS LOSS RS. 1,10,838/- A.Y. 2008-09 I) STCG RS.1,10,81,494/- II) BUSINESS PROFIT RS. 6,40,598/- HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO VERIF Y THE BUSINESS INCOME OR THE SHORT TERM CAPITAL GAINS AS THE CASE MAY BE FOR THE A.Y. 2007-08, AS WELL AS FOR A.Y. 2008-09 (BOTH THE YEARS) ON THE BASIS OF PERIO D OF HOLDING OF SHARE AS HELD BY THE HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF SUGAMCHAND C. SHAH (SUPRA). THE GROUNDS OF THE APPEAL FOR A.Y. 2007-08 AND 2008 -09 ARE ACCORDINGLY PARTLY ALLOWED. 5. AGGRIEVED REVENUE IS NOW IN APPEAL AGAINST THE O RDER OF CIT(A) BEFORE THE TRIBUNAL. LEARNED DEPARTMENTAL REPRESEN TATIVE VEHEMENTLY ARGUED SUPPORTING THE ORDER OF LD. ASSESSING OFFICE R AND FURTHER ADDED THAT ASSESSEE COMPANY HAS BEEN REGULARLY ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND SECURITIES SINCE LAST MANY YEARS. NO IN VESTMENTS IN EQUITY SHARES STOOD AS ON 31.03.2006. TOTAL PROFIT FROM ALLEGED SHARE TRANSACTIONS ARE FROM PURCHASE AND SALE OF SINGLE SCRIP AND IT SEEMS THAT ASSESSEE ENTERED INTO THESE TRANSACTIONS AS BUSINESS DEALINGS ONLY BUT WHEN THE PROFIT REACHED TO A FIGURE OF RS.1,13,05,165/-, IN ORDER TO SAVE TAX, IT WAS D ECIDED TO SHOW THE GAIN AS SHORT TERM CAPITAL GAIN. LEARNED DEPARTMENTAL REPR ESENTATIVE ALSO SUBMITTED THAT ASSESSEE TOOK UNSECURED LOANS FOR THE PURPOSE OF INVESTMENT WHICH IS PROVED BY THE FACT THAT THE EQUITY SHARE CAPITAL OF THE COMPANY WAS RS.2,45,000/- WHEREAS UNSECURED LOAN TAKEN WERE AT RS.45LACS. 6. WE HAVE HEARD THE CONTENTION OF LEARNED DEPARTME NTAL REPRESENTATIVE AND GONE THROUGH THE ORDERS OF BOTH THE LOWER AUTHO RITIES. REVENUE IS AGGRIEVED BY LD. CIT(A)S ORDER DIRECTING THE ASSES SING OFFICER TO BIFURCATE THE TRANSACTIONS IN SECURITIES IN THE CATEGORY OF H OLDING PERIOD OF THE SCRIPS SOLD IN THE CATEGORY OF LESS THAN 30DAYS AND MORE T HAN 30 DAYS WITHOUT ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 11 APPRECIATING THE FACT THAT ASSESSEE WAS ENGAGED IN TRADING OF SHARES AND SECURITIES REGULARLY. 7. ON PERUSAL OF THE ASSESSMENT ORDER, WE NOTICE TH AT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SECURITIES. DURING THE YEAR ASSESSEE HAS SHOWN THE SALE OF SECURITIES AS BUSINESS RECEIPTS A T RS.73,91,026/-. WE ALSO OBSERVE THAT ASSESSEE HAS ENTERED INTO AS MANY AS 7 000 TRANSACTIONS OF PURCHASE AND SALE OF AROUND 4LACS EQUITY SHARES OF A SINGLE COMPANY NAMELY SURAJ STAINLESS STEEL LTD. AND THE TOTAL VALUE OF S HARES SOLD IS RS.8,58,03,298/-. WE ALSO FIND FROM THE PERUSAL OF PAGE 9 OF ASSESSMENT ORDER DEPICTING THE TRANSACTIONS OF PURCHASE AND SA LE CARRIED ON BY THE ASSESSEE IN WHICH EVEN ON A SINGLE DAY I.E. 14.11.2 006 ALMOST 63 TRANSACTIONS HAVE BEEN ENTERED INTO OF THE SAME SCRIP. WE ALSO OBSERVE THAT THE TOTAL SHARE CAPITAL OF THE COMPANY WAS RS.2,42,000/- AND THE UN SECURED LOAN STOOD AT RS.45LACS WHICH PROVES THE FACT THAT ASSESSEE HAS B ORROWED FUNDS FOR ENTERING INTO THE SHARE TRANSACTIONS. WE ALSO FIND THAT ASS ESSEE HAS NOT CONTROVERTED THE FACT DURING THE ASSESSMENT PROCEEDINGS THAT THE PURCHASE AND SALE TRANSACTIONS OF THE VERY SAME SCRIP I.E. SURAJ STAI NLESS STEEL LTD. WAS ENTERED INTO IN PRECEDING FINANCIAL YEAR ALSO AND SALE VALU E WAS TREATED AS BUSINESS TURNOVER AND UNSOLD SHARES WERE SHOWN AS STOCK IN T RADE. WE THEREFORE FIND THAT ASSESSEE IS REGULARLY IN THE BUSINESS OF PURCH ASE-SALE OF EQUITY SHARES, SHARE TRANSACTIONS ENTERED DURING THE YEAR WERE IN LARGE NUMBER, FUNDS WERE BORROWED FOR THE PURPOSE OF TRADING, NO SEPARATE AC COUNT HAS BEEN MAINTAINED FOR THE INVESTMENT PORTFOLIO AND ALL THE TRANSACTIO NS OF PURCHASE SALE RAISED ARE ONLY FOR ONE SCRIP NAMELY SURAJ STAINLESS STEEL LTD. IN THESE FACTS AND CIRCUMSTANCES, ASSESSEE CANNOT TAKE SHELTER OF THE CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007. AS FAR AS THE DECISION OF CO-ORD INATE BENCH IN THE CASE OF ITA NOS. 2338 & 2339/AHD/2011 (ITO VS. MANUSI SECUR ITIES PVT. LTD.) 12 SUGAMCHAND C. SHAH VS. ACIT (SUPRA) IS CONCERNED TH ERE HAVE BEEN VARIOUS DECISIONS THEREAFTER BY THE JURISDICTIONAL HIGH COU RT WHEREIN IT HAS BEEN HELD THAT TRANSACTIONS CANNOT BE BIFURCATED BY THE PERIO D OF HOLDING AND ACTUAL NATURE OF TRANSACTIONS WITH SURROUNDING CIRCUMSTANC ES ARE TO BE SEEN AND THEREFORE THE DIRECTIONS OF LD. CIT(A) GIVEN TO ASS ESSING OFFICER WILL NOT STAND FOR. 8. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES AND O UR DISCUSSIONS ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ALLEGED S HORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE FOR A.Y. 2007-08 & 2008-09 AT RS.1,13,05,165/- AND RS.1,17,22,092/- SHOULD BE TREATED AS BUSINESS INCO ME. 9. IN THE RESULT, APPEAL OF REVENUE FOR BOTH ASSESS MENT YEARS 2007-08 AND 2008-09 ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 10 TH APRIL, 2017 SD/- SD/- ( RAJPAL YADAV) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 10/04/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. !' / GUARD FILE. BY ORDER/ , / ,