M/s.Equity Intelligence(India) PvtLtd, Cochin V. The ACIT, Cochin

ITA 240/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81302 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2014
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Business income; Depreciation; Rule of consistency; Retrospective amendment; Tangible material; Difference of opinion; Capital receipt; Reason to believe; Change of opinion
• Section: 143(3); 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NOS. 240,241&242/COCH/2014 ASSESSMENT YEARS : 2006-07, 2008-09 & 2010-11 M/S. EQUITY INTELLIGENCE (INDIA) P. LTD., 147, PENTA MENAKA, 4 TH FLOOR, MARINE DRIVE, KOCHI-31. [PAN: AABCE 2101N] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) S.P. NOS.36-38/COCH/2014 (ARSG. OUT OF I.T.A. NOS. 240-242/COCH/2014 ASSESSMENT YEARS : 2006-07, 2008-09 & 2010-11 M/S. EQUITY INTELLIGENCE (INDIA) P. LTD., 147, PENTA MENAKA, 4 TH FLOOR, MARINE DRIVE, KOCHI-31. [PAN: AABCE 2101N] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI V. SATHYANARAYANAN, CA REVENUE BY SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 17/07/2014 DATE OF PRONOUNCEMENT 08/08/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE ORDERS OF THE LD. CIT(A)-II, KOCHI DATED 03-03-2014 FOR TH E ASSESSMENT YEARS 2006-07, 2008-09 AND 2010-11. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 2 2. THE GRIEVANCE OF THE ASSESSEE IN ALL THESE APPEA LS IS WITH REGARD TO TREATING THE SALE OF SHARES AS BUSINESS INCOME AS A GAINST TREATING THE SAME AS CAPITAL GAINS. 3. SINCE THE ISSUE IS COMMON IN ALL THE APPEALS, TH E FACTS OF THE CASE AS NARRATED BY THE CIT(A) FOR THE ASSESSMENT YEAR 2006 -07ARE THAT THE ASSESSEE IS ENGAGED IN PORTFOLIO MANAGEMENT SERVICE. THE RETUR N OF INCOME FOR THE ASSESSMENT YEAR 2006-07 WAS FILED ON 23-11-2006 DEC LARING INCOME UNDER THE HEAD BUSINESS AT RS.5,17,12,928/-. THE ASSESSING O FFICER COMPLETED THE ASSESSMENT ON 23-12-2008 AT THE TOTAL INCOME OF RS. 5,17,12,928/-. SUBSEQUENTLY, THE ASSESSING OFFICER RE-OPENED THE A SSESSMENT AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S 147 ON 15 -12-2011 AT A TOTAL INCOME OF RS. 5,17,12,928/- MAKING VARIOUS ADDITIONS AND D ISALLOWANCES. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 4. THE ASSESSEE ALSO CHALLENGED THE RE-OPENING OF T HE ASSESSMENT FOR A.Y. 2006-07 ON THE REASON THAT THERE EXISTED NO NEW MAT ERIAL FACTS WHICH CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER SO AS TO RE- OPEN THE ASSESSMENT AS THERE IS NO REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. 4.1 THE LD. DR RELIED ON THE ORDER OF THE CIT(A). THE LD. DR SUBMITTED THAT THE REASON TO BELIEVE HAS BEEN THE MATTER OF JUDIC IAL SCRUTINY BY THE APEX COURT I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 3 IN SEVERAL CASES. IN THE CASE OF CALCUTTA DISCOUNT CO. LT. VS. ITO (41 ITR 191) (SC), IT WAS OBSERVED THAT IT IS THE DUTY OF THE AS SESSEE TO DISCLOSE ALL THE PRIMARY FACTS WHICH HAVE A BEARING ON THE LIABILITY OF THE INCOME EARNED BY THE ASSESSEE BEING SUBJECTED TO TAX. IT IS FOR THE ASS ESSING OFFICER TO DRAW INFERENCES FROM THE FACTS AND APPLY THE LAW DETERMI NING THE LIABILITY OF THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSING OFFI CER HAD REOPENED THE CASE AS THERE WAS UNDER ASSESSMENT OF INCOME U/S. 143(3) WI TH REFERENCE TO THE INTIMATION U/S. 143(1), IN THE LIGHT OF ASSESSMENT MADE FOR A.Y. 2008-09, THE PATTERN OF PURCHASES OF SHARES AND THEIR HIGH FREQU ENCY WAS NOTICED, DEPRECIATION SEEMED TO HAVE BEEN WRONGLY ALLOWED AN D SHORT DEDUCTION OF TDS HAD COME TO THE KNOWLEDGE OF THE ASSESSING OFFICER. THUS, ACCORDING TO THE LD. DR, THERE EXISTED NEW MATERIAL FACTS THAT CAME TO T HE NOTICE OF ASSESSING OFFICER. IN LIGHT OF THESE TANGIBLE MATERIAL FACTS THAT CAME TO THE KNOWLEDGE OF ASSESSING OFFICER, THE LD. DR SUBMITTED THAT THE ASSESSING OF FICER POSSESSED THE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND HEN CE WAS JUSTIFIED IN REOPENING THE CASE. ACCORDINGLY, THE RE-OPENING OF THE CASE DONE BY THE ASSESSING OFFICER WAS HELD VALID. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORD. IN THIS CASE, THE ASSESSMENT WAS RE-OPENED BY RECORDING THE REASONS A S BELOW: 1) UNDER ASSESSMENT OF INCOME U/S. 143(3) WITH REF ERENCE TO THE INTIMATION U/S. 143(1). 2) TREATING BUSINESS INCOME AS SHORT-TERM CAPITAL GAINS. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 4 3) CLAIMED DEPRECIATION ON ASSETS NOT OWNED BY THE COMPANY. 4) SHORT DEDUCTION OF TDS ON EXPENSES LIKE PROFESS IONAL CHARGES, ADVERTISEMENTS AND PRINTING CHARGES. 5) EXCESS DEPRECIATION CLAIM ON COMPUTER ACCESSORIE S. BEING SO, THERE EXISTED REASONS FOR ISSUE OF NOTICE U/S. 148 FOR RE-OPENING OF ASSESSMENT. IN OUR OPINION, THE ASSESSEE MAY HAVE D ISCLOSED THE ABOVE PARTICULARS AT THE TIME OF ORIGINAL ASSESSMENT AND IF THEY ARE FOUND TO BE UNTRUE ON THE BASIS OF MATERIAL GATHERED AT A LATER DATE B Y THE ASSESSING OFFICER, THE ASSESSMENT WOULD BE VALIDLY RE-OPENED. IN SUCH A C ASE, THE ASSESSEE WOULD HAVE FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIA L FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT AND IT CANNOT BE SAID THAT THERE IS A MERE CHANGE OF OPINION. THE ASSESSMENT WOULD BE VALIDLY RE-OPENED U/S. 147(A) O F THE ACT BECAUSE IN SUCH A CASE, THE ASSESSEE WOULD HAVE FAILED TO DISCLOSE TR ULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AND IT WOULD NOT BE A CASE OF MERE CHANGE OF OPINION. A MERE PRODUCTION OF THE BOOKS OF ACCOUNT OR DOCUMENTS OR OTHER EVIDENCES IS NOT SUFFICIENT FOR MAKING ASSESSMENT. IF THE ASSESSING OFFICER IS UNABLE TO EXAMINE THOSE DOCUMENTS AND TO DISCOVER T HE UNDERSTATEMENT OF INCOME BY RELYING ON THE SAME DOCUMENTS, THE ASSESS ING OFFICER COULD RE-OPEN THE ASSESSMENT ON THE BASIS OF FRESH MATERIAL WHICH CAME TO THE KNOWLEDGE OF THE ASSESSING OFFICER THAT THE INCOME HAS ESCAPED A SSESSMENT. THEREFORE, MERELY BECAUSE MATERIAL LIES EMBEDDED IN THE MATERI AL OR EVIDENCE PRODUCED BY THE ASSESSEE, WHICH THE ASSESSING OFFICER COULD HAV E UNCOVERED BUT DID NOT I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 5 UNCOVER IS NOT A GOOD GROUND TO CANCEL THE RE-ASSES SMENT PROCEEDINGS. THE ASSESSING OFFICER COULD HAVE FOUND THE TRUTH, BUT H E DID NOT, DOES NOT PRECLUDE THE ASSESSING OFFICER FROM EXERCISING THE POWER OF RE-ASSESSMENT TO BRING TO TAX THE ESCAPED INCOME. IN THE PRESENT CASE, AS SEEN FR OM THE REASONS RECORDED, THERE IS PRIMA FACIE ESCAPEMENT OF INCOME. HENCE, THE ASSESSING OFFICER AFTER RECORDING THE REASONS, ISSUED NOTICE TO THE ASSESSE E U/S. 148 OF THE ACT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AU THORITIES TO RE-OPEN THE ASSESSMENT. THIS VIEW OF OURS IS FORTIFIED BY THE FOLLOWING JUDGMENTS: I) ESS ESS KAY ENGG. CO. (P) LTD. VS. CIT (124 TAXMAN 491 (SC). II) HONDA SEIL POWER PRODUCTS LTD. VS. DCI T (340 ITR 64) (SC). III) CONSOLIDATED PHOTO & FINVEST LTD. VS. CIT (281 ITR 394) (DEL). ACCORDINGLY, THIS GROUND IS REJECTED. 6. THE NEXT GROUND WHICH IS COMMON IN ALL THESE APP EALS IS WITH REGARD TO TREATMENT OF INCOME FROM PURCHASE AND SALE OF SHARE S AS INCOME FROM BUSINESS AS AGAINST CAPITAL GAIN. 7. REGARDING THE TREATMENT OF INCOME FROM SALE OF S HARES AS BUSINESS INCOME, THE CIT(A) OBSERVED THAT THE ASSESSEE PURCH ASED SHARES FREQUENTLY MORE THAN ONE TIME IN A DAY IN RESPECT OF SAME SCRI P AND SALE OF SCRIP WITHIN A COUPLE OF DAYS TO ENSURE THAT THE PURCHASE OF SHARE S IS NOT FOR MAKING I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 6 INVESTMENT BUT TO MAKE PROFITS OUT OF THESE TRANSAC TIONS THE LD. CIT(A) ALSO OBSERVED THAT THE TRANSACTIONS WERE COMMERCIALLY MO TIVATED PURCHASES BASED ON THE IN DEPTH RESEARCH KNOWLEDGE OF THE ASSESSEE. 8. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A SEBI REGISTERED PORTFOLIO MANAGER SINCE MARCH 2003. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RENDERING PORTFOLIO MANAGEMENT SERVICES TO ITS CUST OMERS IN ACCORDANCE WITH THE GUIDELINES AND REGULATIONS ISSUED BY SEBI FROM TIME TO TIME. ACCORDING TO THE LD. AR PART OF THE EQUITY SHARE CAPITAL OF THE COMP ANY AND SURPLUS GENERATED FROM ITS BUSINESS OPERATIONS WERE INVESTED IN THE S HARES OF LISTED INDIAN COMPANIES. SUCH INVESTMENTS WERE MADE WITH THE INT ENTION TO EARN CAPITAL APPRECIATION BY HOLDING THESE SHARES AND ALSO TO EA RN DIVIDEND FROM INVESTMENTS. THE TRANSACTIONS WERE NOT UNDERTAKEN WITH AN OBJECT IVE OF ADVENTURE IN THE NATURE OF TRADE. THERE WERE NO SYSTEMATIC BUSINESS OPERATION. THE ACTIVITIES WERE CONFINED TO INVESTING. THE INVESTMENTS WERE M ADE NOT OF BORROWED FUNDS BUT OUT OF OWN FUNDS WHICH IS A MAJOR FACTOR TO DET ERMINE WHETHER THE OBJECTIVE HAS BEEN BUSINESS OR NOT. THE LD. AR SUBMITTED THA T IT IS A NORMAL BUSINESS PRACTICE TO BORROW FOR ITS BUSINESS PURPOSES. THE INVESTMENTS IN SHARES ARE SHOWN UNDER THE HEAD INVESTMENT IN THE BALANCE SHEE T FOR THE RESPECTIVE FINANCIAL YEARS. THESE INVESTMENTS WERE VALUED AND ACCOUNTED IN ACCORDANCE WITH THE ACCOUNTING STANDARD 13 ON ACCOUNTING FOR INVESTMENTS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE I NTENTION OF THE ASSESSEE TO I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 7 HOLD THESE ASSETS AS INVESTMENTS IS VERY CLEARLY ME NTIONED AND DISCLOSED IN THE ACCOUNTS AND AUDITED FINANCIAL STATEMENTS FILED WIT H THE REGISTRAR OF COMPANIES AND OTHER REGULATORS. 9. THE LD. AR SUBMITTED THAT THE ASSESSEE INVESTED IN INDIAN EQUITIES AND ALL TRANSACTIONS WERE SETTLED THROUGH ACTUAL DELIVERY. THE SHARES ON BEING PURCHASED WERE CREDITED TO THE DEMAT ACCOUNT OF THE COMPANY. THE SALE TRANSACTIONS ARE SETTLED BY ACTUAL DELIVERY OF SHAR ES FROM THE DEMAT ACCOUNT. THIS IS THE METHOD OF SETTLEMENT OF ALL INVESTMENT BASED TRANSACTIONS. THE LD. AR PLACED RELIANCE ON THE DECISION OF THE DELHI HIG H COURT IN THE CASE OF RADIALS INTERNATIONAL IN 485/2012 DATED 25-04-2014. 10. THE LD. AR SUBMITTED THAT THE NUMBER OF TRANSAC TIONS IN EACH COMPANY WAS VERY SMALL CONSIDERING THE AMOUNT OF FUNDS INVE STED IN THE SAID ASSETS AND THE TOTAL GAINS EARNED. THE LD. AR FURTHER SUBMITTE D THAT THE ASSESSEE HAS BEEN REGULARLY TREATING THE SHARES AS INVESTMENT SINCE B EGINNING AND HAD ALWAYS OFFERED THE PROFIT/LOSS ON SALE OF SUCH INVESTMENTS RIGHTLY UNDER THE HEAD CAPITAL GAINS ONLY. THE LD. AR CONTENDED THAT THE DEPARTME NT HAD FOR ALL PAST YEARS ACCEPTED THE TREATMENT SO GIVEN BY THE ASSESSEE. TH E LD. AR SUBMITTED THAT IN THE ASSESSMENT COMPLETED U/S. 143(3) OF THE I.T. AC T ON 23-12-2008, AFTER FULL VERIFICATION OF THE FACTS, THE ASSESSING OFFICER HA D ACCEPTED THE PROFIT ON SALE OF SHARES HELD AS INVESTMENT UNDER CAPITAL GAINS AND T HE ASSESSEE HAS BEEN I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 8 CONSISTENTLY DECLARING THE INCOME FROM INVESTMENTS AS CAPITAL GAINS SINCE FY 2003-04. 11. THE LD. AR SUBMITTED THAT THE ASSESSEE BEING A CORPORATE ENTITY, THE BOARD OF DIRECTORS TAKES ALL MAJOR DECISIONS. ALL THE TRANSACTIONS OF INVESTMENTS IN THE EQUITY SHARES AND THEIR SALE ARE APPROVED BY THE DIRECTORS PERIODICALLY. IN ALL ITS DECISIONS, THE BOARD HAD SPECIFICALLY MENTI ONED THAT THE PURCHASE AND SALE OF SHARES ARE AS INVESTMENT AND NOT AS BUSINESS ASS ETS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE WAS A FOCUSED SEBI REGIS TERED PORTFOLIO MANAGER, NOT INVOLVED IN ANY OTHER ACTIVITIES AND HENCE FOLL OWED A STRICT DISCIPLINE OF INVESTING SURPLUS FUNDS IN EQUITIES FOR CAPITAL GAI NS OR KEEP THE MONEY IN BANK ACCOUNT. 12. THE LD. AR RELIED ON THE CIRCULAR NO. 4/2007 DA TED 15-06-2007 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES WHEREIN THE CBDT HAS DIRECTED THE ASSESSING OFFICER TO FORM AN OPINION WHETHER TRANSACTION IS I N THE NATURE OF BUSINESS OF CAPITAL GAIN BY FOLLOWING CERTAIN GUIDELINES. THERE FORE, FOLLOWING THE MANDATED REQUIREMENT OF CBDT, THE TRANSACTIONS OUGHT TO HAVE BEEN ACCEPTED UNDER THE HEAD CAPITAL GAINS. 13. IT WAS SUBMITTED BY THE LD. AR THAT WHEN THE AS SESSEE TOOK A DECISION TO SELL A SCRIP, THE ENTIRE SHARES WERE SOLD, THOUGH I T MAY HAVE BEEN SOLD OVER A I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 9 PERIOD OF 3 TO 4 DAYS. EVEN IN FEW CASES OF RE-ENTR Y, THESE ARE DRIVEN BY SPECIFIC REASONS. 14. THE LD. AR SUBMITTED THAT IN THE ASSESSMENT YEA RS 2007-08 AND 2009-10, THE ASSESSEE HAD INCURRED LOSS ON SALE OF SHARES. SUCH LOSS WAS NOT SET OFF AGAINST INCOME FROM OTHER SOURCES. HENCE, IT WAS CL EAR THAT THE ASSESSEE HAD ALWAYS THE INTENTION TO TREAT IT AS A CAPITAL INVES TMENT. 15. THE LD. AR SUBMITTED THAT THE DEPARTMENT HAD SE LECTED FOR SCRUTINY ONLY THOSE YEARS WHERE THE ASSESSEE HAD EARNED PROFIT. IN THOSE YEARS WHERE THE SALE HAD RESULTED IN LOSS, THERE WAS NO SCRUTINY AS SESSMENT AND HENCE THE LOSS INCURRED IN THOSE YEARS WAS COMPUTED UNDER THE HEAD CAPITAL GAINS. HENCE, THE LD. AR CONTENDED THAT SUCH LOSS IS NOT ALLOWED TO B E SET OFF AGAINST THE BUSINESS INCOME OF THOSE YEARS. 16. THE LD. AR SUBMITTED THAT IT IS NOW WELL SETTLE D THAT ON THE SAME SET OF FACTS AND LAW THE DEPARTMENT CANNOT ADOPT A PICK AN D CHOSE. 17. THE LD. AR RELIED ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT, 336 ITR 287 WHEREIN IT WA S HELD THAT ON AN IDENTICAL SITUATION, RULE OF CONSISTENCY HAS TO BE APPLIED. ACCORDING TO THE LD. AR SLP FILED BY THE DEPARTMENT BEFORE THE HON. SUPREME COURT AGA INST THIS DECISION HAS BEEN I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 10 DISMISSED AND THIS DECISION IS A LANDMARK DECISION WHICH APPLIES TO THE FACTS OF THE CASE. 18. ACCORDING TO THE LD. AR SOME OF THE COMPANIES I N WHICH THE ASSESSEE HAVE INVESTED ARE OF DEEP VALUE THOUGH LIQUID IN TH E STOCKS MARKET. ONLY LONG TERM INVESTORS CAN BUY THESE STOCKS THAT TOO IN SMA LL QUANTITIES OVER A PERIOD OF TIME. TRADERS WILL NEVER TOUCH THE SHARES OF SUCH COMPANIES. A CASE IN POINT IS THE INVESTMENT IN THE SHARES OF JK INVESTO TRADE LT D. THE AVERAGE DAILY VOLUME OF THIS SHARE IN THE STOCK EXCHANGE IS ONLY 5930 WH EREAS THE AVERAGE DAILY VOLUME OF THE SHARES OF RELIANCE INDUSTRIES LTD. IS MORE THAN 10 LAKHS. THE INVESTMENT IN THE SHARES OF JK INVESTO TRADE WAS MA DE BY THE ASSESSEE DURING DEC. 2005 TO NOV. 2006 AND DURING THIS PERIOD THE A SSESSEE HAD NOT SOLD ANY SHARES OF THIS COMPANY. THESE SHARES WERE SOLD AFT ER HOLDING FOR 18 TO 24 MONTHS. 19. FURTHER HE RELIED ON THE FOLLOWING JUDGMENTS: 1. CIT VS. KELVINATOR OF INDIA (228 CTR 488) (SC) 2. CIT VS. GOPAL PUROHIT (336 ITR 287) (BOM.) 3.ACIT VS. DEEPAK ISWARLAL (I.T.A. NOS. 614/COCH/ 2004 (ITAT, COCHIN & 524& 525/COCH/2005 ) BENCH). 4. CIT VS. DEEPAK ISWARLAL (I.T.A. NO. 10767 OF 20 09) (KER.) 5. GOPAL PUROHIT VS. JCIT (122 TTJ 87) (M UM.) 6.SPECTRA SHARES & SCRIPS P. LTD. VS. CIT (354 ITR 35) (AP) 7.CIT VS. ESS JAY ENTERPRISES P. LTD. (173 TAXMAN 1) (DELHI) 8.CIT VS. AVINASH JAIN (214 TAXMAN 260) (DELHI) 9.CIT VS. NIRAJ AMIDHAR SURTI (347 ITR 149) (GUJ.) 10.CIT VS. JUBILANT SECURITIES P.LTD. (333 ITR 445 ) (DELHI) 11.ACIT VS. KETHAN KUMAR A SHAH (242 ITR 83) (KER. ) I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 11 12.RADIALS INTL. VS. ACIT (I.T.A. 485/2012) (DELHI ) 13.ACIT VS. SRI ASL FINVEST LTD. (41 TAXMAN.COM 46 0 (HYD) 14.HITESH SATHISHCHANDRA VS. JCIT (140 TTJ (MUMBAI ) 32 15.CIT VS. PNB FINANCE & INDUSTRIES LTD. (198 TAXM AN.COM 297) (DELHI) 16.SUGAMCHAND C SHAH VS. ACIT (139 TTJ (AHD.) 610 17.VINOD M. SHAH VS. ADDL. CIT (38 SOT 503 (MUM) 18.CIT VS.MAHINDRA LIFESPACE DEVELOPERS LTD. (218 TAXMAN 317/34) (BOM.) 19.CIT VS. ROHIT ANAND (327 ITR 445 (DEL) 20.A.TUSHAR TANNA & OTHERS VS. CIT (284 ITR 453)(B OM) 21.CIT VS. GIRISHMOHAN GANERIWALA (417 ITR 2003) ( P&H) 22.NARENDRA GEHLAUT VS. JCIT (I.T.A. 1648/DEL/2010 ) (DEL) 23.ACIT VS. BULLS & BEARS PORTFOLIOS LTD. (137 TTJ (DEL) 741 24.CIT VS. RAMAAMIRTHAM (306 ITR 239 (MAD) 25.TRINETHRAM CONSULTANTS P. LTD. VS. DCIT (143 IT D 634) (MUM) 26.JCIT VS. SRI MUKESH D. AMBANI (I.T.A. NO. 7604/ MUM/2007 (MUM) 27.BHARAT KUNVERJI KENIA VS.ACIT (130 TTJ (MUMBAI) (UO) 86. 28.ACIT VS. CHETAN K MEHTA (46 SOT 25) (MUM) 29.SHRI JAGRUT P. GANDHI (I.T.A. NO. 5291/MUM/2008 ) (MUM) 30.ACIT VS. JAGDISH MASTER, HUF (47 SOT 54) (MUM) 31.ACIT VS. SMT. KAVITHA DEVI AGARWAL (48 SOT 191) (JAIPUR) 32.DCIT VS. S.K. TEKRIWAL (48 SOT 515) (KOL) 33.BHARATI SHIPYARD LTD. VS. DCIT (132 ITD 53) (MU M)(SB) 34.APOLLO TYRES LTD. VS. DCIT (155 TTJ 470) (COCHI N) 35.CIT VS. VARANASI AUTO SALES P. LTD. (326 ITR 1 82) (ALL.) . 20. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE CIT(A). THE LD. DR SUBMITTED THAT CONSIDERING THE VOLUME OF TURNOVE R AND INTENTION OF THE ASSESSEE, IT IS TO BE CONSIDERED THAT THE ASSESSEE CARRIED ON THE BUSINESS OF DEALING IN SHARES TO EARN INCOME OUT OF THE SALE OF SHARES RATHER THAN TO EARN DIVIDEND FROM THE SALES. BEING SO, THE INCOME EARNE D FROM THE SALE OF SHARES HAS TO BE TREATED UNDER THE HEAD INCOME FROM BUSINESS. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 12 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WHILE DECIDING WHETHER THE SALE OF SHARES IS INCOME FROM BUSINESS OR INCOME FROM CAPITAL GAIN, ONE HAS TO GO BY THE FOLL OWING CRITERIA, AS HELD BY THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF P. V.S.RAJU AND ANR. VS. ADDL. COMMISSIONER OF INCOME-TAX (340 ITR 75) (AP): (A) THE FREQUENCY OF BUYING AND SELLING OF SHARES BY THE APPELLANTS WERE HIGH; (B) THE PERIOD OF HOLDING WAS LESS; (C) THE QUANTUM OF TURNOVER WAS ON ACCOUNT OF FREQ UENCY OF TRANSACTIONS, AND NOT BECAUSE OF HUGE INVESTMENT; (D) THE INTENTION OF THE ASSESSEE TO MAKE QUICK PR OFITS ON A HUGE TURUNOVER; (E) NO. OF SCRIPS SHARES HELD FOR FEWER DAYS; (F) WHETHER ENGAGED IN DEALING IN THE SAME SCRIPT S FREQUENTLY; (G) INTENTION OF THE ASSESSEE IN BUYING SHARES IS NOT TO DERIVE INCOME BY WAY OF DIVIDEND ON SUCH SHARES, BUT TO EARN PROFIT S ON THE SALE OF THE SHARES; (H) WHETHER THE ASSESSEE HAD INDULGED IN MULTIPLE TRANSACTIONS OF LARGE QUANTITIES WITH HIGH PERIODICITY. THESE PERIODIC TRANSACTIONS SELECTING THE I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 13 TIME OF ENTRY AND EXIT IN EACH SCRIP, CALLED FOR R EGULAR DIRECTION AND MANAGEMENT WHICH WOULD INDICATE THAT IT WAS IN THE NATURE OF TRADE; (I) REPEATED TRANSACTIONS, COUPLED WITH THE SUBSEQ UENT CONDUCT OF THE ASSESSEE TO RE-ENTER THE SAME SCRIP, IN ORDER TO T AKE ADVANTAGE OF MARKET FLUCTUATIONS LENT THE FLAVOUR OF TRADE TO SUCH TRA NSACTIONS; (J) THE ASSESSEE WAS PURCHASING AND SELLING THE S AME SCRIPS REPEATEDLY, AND WERE SWITCHING FROM ONE SCRIP TO ANOTHER; (K) MERE CLASSIFICATION OF THESE SHARE TRANSACTION S AS INVESTMENT IN THE ASSESSEES BOOKS OF ACCOUNTS WAS NOT CONCLUSIVE; (L) THE INTENTION OF THE ASSESSEE AT THE TIME OF P URCHASE WAS ONLY TO SELL THE SHARES IMMEDIATELY AFTER PURCHASE; (M) FREQUENCY OF PURCHASE AND SALE OF SHARES SHOWE D THAT THE ASSESSEE NEVER INTENDED TO KEEP THESE SHARES AS INVESTMENT; AND (O) IT IS ONLY FOR THE PURPOSE OF CLAIMING BENEFIT OF LOWER RATE OF TAX, U/S. 111A OF THE ACT, THAT THEY HAD CLAIMED CERTAIN SHA RES TO BE INVESTMENT, THOUGH THESE TRANSACTIONS WERE ONLY IN THE NATURE OF TRADE. 22. THE LD. AR PLACED MUCH RELIANCE ON THE JUDGMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF SPECTRA SHARES & SCRIPS PVT. LTD. VS. CIT, 354 ITR 35 (AP), THE JUDGMENT TO BE APPLIED. WE HAVE G ONE THROUGH THE ABOVE I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 14 JUDGMENT OF HONBLE HIGH COURT OF ANDHRA PRADESH. WE FIND THAT JUDGMENT WAS DELIVERED IN THE CONTEXT OF THE ORDER U/S. 263 OF T HE I.T. ACT WHEREIN THE HONBLE HIGH COURT OF ANDHRA PRADESH HELD THAT THE ASSESSIN G OFFICER HAS TAKEN ONE POSSIBLE VIEW. AS SUCH, REVISION UNDER SECTION 263 IS NOT POSSIBLE. HOWEVER, IN THE PRESENT CASE, THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT. BEING SO, THE RATIO LAID DOWN BY THE HONBLE HIGH COURT O F ANDHRA PRADESH CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. 23. NOW THE QUESTION BEFORE US IS WHETHER THE AS SESSEES HAVE CARRIED ON THE INVESTMENT ACTIVITY OR BUSINESS ACTIVITY. IN OTHER WORDS, THE QUESTION IS WHEN THE ASSESSEES CLASSIFIED THE SHARES IN THE BOOKS AS INV ESTMENTS, WHETHER REALLY THEY ARE 'INVESTMENT' OR 'STOCK IN TRADE'. ONE OF THE RE LEVANT TESTS FOR DETERMINING WHETHER IT IS IN THE NATURE OF FIXED ASSET OR CONST ITUTES STOCK IN TRADE OF THE ASSESSEE'S BUSINESS. FIXED ASSET IS WHAT THE OWNER TURNS TO PROFIT KEEPING THE ASSET IN HIS OWN POSSESSION, STOCK IN TRADE IS WHAT HE MAKES PROFIT OF BY PARTING WITH IT AND LETTING IT CHANGE MASTERS. IF THE EXPEN DITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR T HE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL. IF , ON THE OTHER HAND, IT IS MADE NOT FOR RUNNING THE BUSINESS OF WORKING IT WITH A VIEW TO PRODUCE PROFITS IT IS RELATABLE TO STOCK IN TRADE. IN DETERMINING THE QUE STION WHETHER AFTER ACQUIRING THE SHARES, THE ASSESSEE DEALT WITH IT AS AN INVEST OR OR CARRIED ON BUSINESS WITH IT TREATING IT AS ITS STOCK-IN TRADE OR AS A TRADING A SSET, WHAT IS RELEVANT IS THAT, IF I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 15 THE CASE FALLS WITHIN THE FORMER CATEGORY, RECEIPTS BY WAY OF SALE OF SUCH SHARES WILL BE CAPITAL RECEIPTS BUT IF IT FALLS WITHIN THE LATTER THE RECEIPTS WILL BE TRADING RECEIPTS AND PROFITS THEREFROM BUSINESS INCOME. THE INTENTION WITH WHICH SUCH OPERATION IS CARRIED ON IS RELEVANT. IF A OWNER OF AN INVESTMENT REALIZES IT AND OBTAINED A GREATER PRICE FOR IT THAN THE PRICE AT W HICH HE ORIGINALLY ACQUIRED, IF THE ENHANCED VALUE OBTAINED FROM THE REALISATION OR CONVERSION OF SECURITIES MAY BE PROFIT FROM BUSINESS. THE DISTINCTION WHETHER TH E INVESTMENT TRANSACTION IS A MERE REALIZATION OF THE INVESTMENT OR AN ACT DONE F OR MAKING PROFIT DEPENDS ON THE QUESTION WHETHER EXCESS WAS AN ENHANCEMENT OF T HE VALUE FOR REALISING THE SHARES BY A GAIN IN AN OPERATION OF MAKING PROFIT. IF THE TRANSACTION IS IN THE ORDINARILY LIEN OF THE ASSESSEE'S BUSINESS, THERE W OULD HARDLY BE ANY DIFFICULTY IN CONCLUDING IT TO BE A TRADING TRANSACTION, BUT WHER E IT IS NOT, THE FACT MUST BE PROPERLY ASSESSED TO DETERMINE WHETHER IT IS IN THE NATURE OF TRADE. THE SURPLUS REALIZED ON THE SALE OF SHARE WOULD BE CAPITAL, IF THE ASSESSEE IS AN ORDINARY INVESTOR REALISING HIS HOLDING, BUT IT WOULD BE REV ENUE IF HE DEALS WITH THEM AS A TRADER. IF THE ASSESSEE IS AN ORDINARY INVESTOR, TH E INCOME ARISING OUT OF SALE OF SHARES IS CAPITAL GAIN. ON THE OTHER HAND, IF HE TR ADES IN SHARES IN REGULAR MANNER, IT IS INCOME FROM BUSINESS. IF AN INDIVIDUA L INVESTS IN SHARES FOR THE PURPOSES OF EARNING DIVIDEND, HE IS NOT CARRYING ON A BUSINESS. IF THE ASSESSEE IS HOLDING SHARES AS INVESTMENT AND SOLD IT DUE TO CHA NGE OF CIRCUMSTANCES AND EARNS PROFITS, THAT PROFIT IS NOTHING BUT CAPITAL G AIN. WHETHER A PURCHASE IS MADE I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 16 WITH AN INTENTION OF RESALE AND GAIN TO EARN PROFIT , SUCH INCOME HAS TO BE TREATED AS INCOME FROM BUSINESS. 24. THUS, IN OUR OPINION, THE ISSUE AS TO WHETHE R THE ASSESSEE HAS CARRIED OUT TRANSACTIONS IN SHARES AS TRADER OR INVESTOR MA INLY DEPENDS ON THE INTENTION OF THE ASSESSEE TO PURCHASE AND HOLD THE SHARES AND SUCH INTENTION HAS TO BE GATHERED FROM THE FACTS AND CIRCUMSTANCES INVOLVED IN EACH CASE. THERE ARE SEVERAL ASPECTS WHICH NEEDS TO BE TAKEN INTO CONSID ERATION COLLECTIVELY IN ORDER TO ASCERTAIN THE INTENTION OF THE ASSESSEE. IN THE VARIOUS JUDICIAL PRONOUNCEMENTS CERTAIN GUIDELINES HAVE BEEN LAID DO WN WHICH COULD BE APPLIED TO THE FACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER THE TRANSACTIONS IN SHARES ARE IN THE NATURE OF TRADE OR INVESTMENT. THE CBDT HAS ALSO ISSUED CERTAIN GUIDELINES ON THE SIMILAR LINES WHICH ARE HELPFUL T O DECIDE THE ISSUE AS TO WHETHER THE SHARES ARE HELD BY THE ASSESSEE AS STOCK-IN-TRA DE OR INVESTMENT. A PERUSAL OF THE DETAILS OF SHARE HOLDINGS SHOW THE AVERAGE H OLDING PERIOD FOR THE ASSESSMENT YEAR 2008-09 AS FOLLOWS: SL. NO. SCRIP QTY. WEIGHTED HOLDING PERIOD AVERAGE HOLDING PERIOD FREQUENCY 1. JK INVESTO TRADE 219,641 114,585,379 522 1 2. SAMTEL COLOUR 167,943 67,061,465 400 1 3. MUNJAL 132,400 36,506,949 276 1 4. SALORA INTL. 23,714 5,751,828 243 1 5. TATA COFFEE 22,714 4,047,000 184 2 6. VENKEYS 17,117 3,133,371 183 2 7. RAMCO SYSTEMS LTD. 21,909 3,648,452 167 1 8. TATA COFFEE 5,000 820,000 164 1 I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 17 PCD 9. GALADA POWER 14,000 1,271,846 91 1 10. ALUMECO INDIA 41,050 3,524,200 86 1 11. AMRUTHANJAN 2,200 179,900 82 1 12. AVENTIS 3,000 208,000 69 1 13. RAIN COMMODITIES 38,603 2,578,548 67 2 14. ATUL LTD. 47,599 3,108,737 65 2 15. WESTERN INDIA SHIPYARD 100,000 5,666,936 57 1 16. BALMER LAWRIE 5,000 245,000 49 1 17. TVS ELECTRONICS 20,271 977,878 48 1 18. W.S. INDUSTRIES 5,100 280,400 46 1 19. ANSAL HOUSING 8,921 397,524 45 1 20. SELAN 35,155 1,541,045 44 3 21. GRANULES 15,000 650,000 48 2 22. NAVIN FLUOURINE 7,000 294,836 42 1 23. JET AIRWAYS 3,975 150,000 38 2 24. NETWORK 18 21,000 801,000 38 2 25. SICAL 34,000 1,278,253 38 2 26. LOK HOUSING 85,000 2,869,570 34 2 27. SHREYUS SHIPPING 30,329 1,008,225 33 1 28. NECTAR LIFE SCIENCE 4,000 124,000 31 1 29. SUBEX 14,132 426,320 30 1 30. PATEL ENG. 5,000 138,000 28 1 31. GAIL 500 12,000 24 1 32. SHASUN CHEMICALS 55,000 1,230,000 22 2 33. ITC LTD. 35,000 665,000 19 2 34. JB CHEMICAL 20,000 340,000 17 1 35. VIP INDUSTRIES 15,000 258,000 17 1 36 RANBAXY 10,000 160,000 16 1 37. FUTURA POLYSTER 25,000 350,000 14 1 38. VIDEOCON IND 51,000 650,000 13 4 39. CITY UNION BANK 5,000 50,000 10 1 40. IFCI LTD. 20,000 200,000 10 1 I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 18 41. RCOM 10,000 100,000 10 1 42. HIND OIL EXPLORATION 10,000 70,000 7 1 43. TV TODAY 10,000 70,000 7 1 44. GEOJIT FINANCIAL 55,000 340,000 6 1 45. KITEX GARMENTS 30,000 87,425 3 1 24. AS SEEN FROM THE ABOVE TABLE, MAJORITY OF SHARE HOLDINGS ARE HELD FOR A SHORT PERIOD. HOWEVER, THE ASSESSEE HAS STATED THA T THE AVERAGE HOLDING PERIOD OF THE SHARES IS 500 DAYS FOR THE A.Y. 2008-09. (PB PG. NO. 26). HOWEVER, WE FIND THAT THIS IS NOT BORNE OUT OF RECORDS. FOR TH E ASSESSMENT YEAR 2010-11, THE AVERAGE HOLDING PERIOD OF THE SHARES IS 99 DAYS. H ENCE, THIS CONTENTION CANNOT BE ACCEPTED BY US. SAME IS THE POSITION FOR OTHER A.YS. FOR A.Y. 2006-07, THIS IS 69 DAYS. 25. ANOTHER CONTENTION RAISED THE LD. COUNSEL IS TH AT THE ASSESSEE HAS NOT BORROWED FUNDS FOR BUYING THE SHARES. IN OUR OPINI ON, THE BORROWING IS NOT NECESSARY AS THE FUNDS ARE GENERATED INTERNALLY, AN D ALSO BY CONTINUOUS SALE OF SHARES AND OUT OF WHICH THE ASSESSEE MADE PURCHASE OF THE SHARES. ACCORDINGLY, THIS CONTENTION OF THE ASSESSEE WILL NOT COME TO TH E ASSISTANCE OF THE ASSESSEE. 26. WE HAVE ALSO GONE THROUGH THE FREQUENCY OF PURC HASE AND SALE WHICH IS AS FOLLOWS: A.Y. 2006-07 62 COMPANIES I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 19 A.Y. 2008-09 53 A.Y. 2010-11 78 27. THE DETAILS OF SCRIP WISE PURCHASE TO SALES IS AS FOLLOWS: NO. OF C OMPANIES P URCHASES SALES A.Y. 2006-07 55 57 A.Y. 2008-09 51 45 A.Y. 2010-11 67 72 THE ABOVE TABLE SHOWS THAT THE ASSESSEE IS REGULA RLY INVOLVED IN BUYING AND SELLING OF SHARES. 28. THE ASSESSEE HAS STATED BEFORE US THAT THE OBJE CTS OF THE COMPANY CONTAINS THE OBJECT OF RENDERING PORTFOLIO MANAGEME NT SERVICES. BEING SO, THE INCOME OF THE ASSESSEE FROM DEALING IN SHARES CANNO T BE CONSIDERED AS INCOME FROM BUSINESS. 29. WE HAVE GONE THROUGH THE MEMORANDUM OF ASSOCIAT ION. THERE IS A SPECIFIC CLAUSE IN THE MEMORANDUM OF ASSOCIATION TO USE THE SURPLUS FUNDS WHICH IS GIVEN AS FOLLOWS: I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 20 23. TO TAKE OR OTHERWISE ACQUIRE AND HOLD SHARE I N ANY OTHER COMPANY HAVING OBJECTS ALTOGETHER OR IN PART SIMILAR TO TH OSE OF THIS COMPANY OR CARRYING ON ANY BUSINESS CAPABLE OF BEING CONDUCTE D SO AS DIRECTLY OR INDIRECTLY TO BENEFIT THIS COMPANY. 24. TO INVEST AND DEAL WITH THE MONEYS OF THE COMP ANY NOT IMMEDIATELY REQUIRED IN SUCH MANNER AS MAY FRO TIME TO TIE BE DETERMINED BY THE DIRECTORS. 30. FURTHER, IT WAS STATED BY THE LD. AR THAT THE B OARD OF DIRECTORS HAS TAKEN A DECISION TO PURCHASE AND SELL SHARES. ACCORDING TO THE LD. AR IT SHOULD BE TREATED AS INVESTMENT AS THE BOARD OF DIRECTORS HAS TAKEN THIS DECISION. THE DIRECTORS ARE ACTUALLY INVOLVED IN THE DAY TO DAY M ANAGEMENT OF THE ASSESSEE- COMPANY AND THEY HAVE TAKEN THE DECISION AND IT CAN NOT BE REASON TO SAY THAT THE DECISION IS ONLY TO MAKE INVESTMENT. FURTHER , THE ASSESSEE-COMPANY HAS ALL THE INFRASTRUCTURE FOR BUYING AND SELLING SHARES AN D THE ASSESSEE HAS INCURRED ESTABLISHMENT EXPENSES AND VARIOUS ESTABLISHMENT EX PENSES HAVE BEEN CHARGED TO P&L ACCOUNT WHICH INDICATE THAT AN ORGAN IZED AND SYSTEMATIC ACTIVITY WAS BEING CARRIED ON BY THE ASSESSEE. INCOME IN THE FORM OF DIVIDEND WAS EARNED BY THE ASSESSEE ONLY IN RESPECT OF FEW SCRIP S WHICH GAVE A VERY LOW RATE OF RETURN AS COMPARED TO THE VALUE OF SHARES HELD B Y THE ASSESSEE-COMPANY WHICH CANNOT BE SAID TO BE TRANSACTION IN SHARES AS AN INVESTMENT ACTIVITY. THE ASSESSEE DID NOT HOLD THE SHARES FOR A LONG TIME. THE ASSESSEE HAS ALSO BEEN CONSISTENTLY BUYING AND SELLING SHARES WHICH SHOWS THAT THE MOTIVE WAS TO MAXIMIZE THE PROFIT FROM THE SALE OF SHARES AND NOT TO REMAIN INVESTED FOR A I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 21 LONGER TIME. THE INVOLVEMENT OF THE ASSESSEE IN SHA RE TRANSACTIONS WAS NOT AN OCCASIONAL ONE BUT IT WAS ONLY THE ACTIVITY OF THE ASSESSEE WHICH WAS CARRIED ON REGULARLY IN A SYSTEMATIC AND ORGANIZED MANNER. THE SHORT PERIOD OF HOLDING OF SHARES CLEARLY REVEALED THAT THERE WAS NO INTENTION OF THE ASSESSEE TO HOLD THE SHARES FOR LONGER TERM TO EARN DIVIDEND INCOME. FU RTHER, THE LD. COUNSEL FOR THE ASSESSEE MADE A PLEA BEFORE US THAT IN CERTAIN ASSE SSMENT YEARS THE DEPARTMENT ACCEPTED THE INCOME FROM SALE OF SHARES AS CAPITAL GAIN. FOR THE SAKE OF CLARITY, WE REPRODUCE BELOW THE TREATMENT GIVEN BY THE DEPAR TMENT IN VARIOUS ASSESSMENT YEARS: A.Y. NET GAIN NET LOSS COMMENTS 2004-05 1,54,559 INTIMATION RECD. U/S. 143(1) ACCEPTING THE CAPITAL GAIN 2005-06 1,46,24,392 INTIMATION RECD. U/S. 143(1) ACCEPTING THE CAPITAL GAIN 2006-07 1,82,75,110 ORIGINALLY ASSESSED U/S. 143(3 ) AS CAPITAL GAINS AND THEN ASSESSED U/S. 147, 148 AS BUSINESS INCOME 2007-08 -2,46,378 INTIMATION RECD. U/S. 143(1) ACCEPTING THE CAPITA LOSS. THE CARRIED FORWARD LOSS HAS NOT BEEN ALLOWED TO BE SET OFF IN A.Y. 2008-09 2008-09 2,55,25,873 ASSESSED U/S. 143(3) AS BUSINESS INCOME 2009-10 -2,19,29,404 INTIMATION RECD. U/S. 143(1) ACCEPTING THE CAPITAL LOSS. THE CARRIED FORWARD LOSS HAS NOT BEEN ALLOWED TO BE SET O IN A.Y. 2010-11 2010-11 2,82,97,770 ASSESSED U/S. 143(3) AS BUSINESS INCOME, SET OFF OF BROUGHT FORWARD LOSS HAS NOT BEEN ALLOWED. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 22 31. AS SEEN FROM THE TABLE, WHENEVER THERE IS REGUL AR ASSESSMENT U/S. 143(3) OF THE ACT, THE DEPARTMENT HAS NOT ACCEPTED THE TRE ATMENT GIVEN BY THE ASSESSEE AND IT WAS TREATED AS INCOME FROM BUSINESS . AT THE OUTSET, WE ARE OF THE VIEW THAT WE ARE NOT AGREEABLE WITH THE CONTENT ION OF THE LEARNED COUNSEL. AT THE SAME TIME, RES JUDICATA IS NOT APPLICABLE IN INCOME-TAX PROCEEDINGS. WE DO NOT WANT TO COMMENT AS TO WHY AND HOW THE RETURN WAS ACCEPTED BY THE AUTHORITIES AS THE SAME IS NOT PENDING BEFORE US FO R ADJUDICATION. RELIANCE CAN BE PLACED UPON THE DECISION PRONOUNCED BY THE HON'B LE APEX COURT IN THE CASE OF DISTRIBUTORS (BARODA) (P) LTD. V. UNION OF INDIA AND ORS. (155 ITR 120) (SC) WHEREIN THE HON'BLE APEX COURT HELD THAT 'IT IS ALM OST AS IMPORTANT THAT THE LAW SHOULD BE SETTLED PERMANENTLY AS THAT IT SHOULD BE SETTLED CORRECTLY BUT THERE MAY BE CIRCUMSTANCES WHERE PUBLIC INTEREST DEMANDS THAT THE PREVIOUS DECISION BE REVIEWED AND RECONSIDERED. THE DOCTRINE OF STARE DECISES SHOULD NOT DETER THE COURT FROM OVERRULING AN EARLIER DECISION, IF IT IS SATISFIED THAT SUCH DECISION IS MANIFESTLY WRONG OR PRECEDES UPON A MISTAKEN ASSUMP TION IN REGARD TO THE EXISTENCE OR CONTINUATION OF A STATUTORY PROVISION OR IS CONTRARY TO ANOTHER DECISION OF THE COURT.' HOWEVER, TWO VIEWS REASONAB LY MAY BE POSSIBLE. PERPETUATION OF ERROR IS NOT A HEROISM. HOWEVER, WE MAKE IT CLEAR THAT THIS OBSERVATION OF OURS SHOULD NOT BE TREATED TO BEAR A NY EFFECT IN THE CASE OF OTHER ASSESSEES. AT THE SAME TIME, ORDER PASSED BY A LOW ER AUTHORITY IS NOT BINDING ON THE TRIBUNAL. HOWEVER, IT MAY BE A GOOD ARGUABLE PO INT BY THE PARTIES. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 23 32. ANOTHER ARGUMENT OF THE LD. COUNSEL FOR THE ASS ESSEE IS THAT THE ASSESSEE HAS TREATED THE TRANSACTION IN SHARES IN HIS BOOKS OF ACCOUNTS AS INVESTMENT. IN OUR OPINION, THE TREATMENT GIVEN IN THE BOOKS OF AC COUNTS IS NOT CONCLUSIVE OR DECISIVE AND DEDUCTION DEPENDS UPON THE PROVISIONS OF LAW AS HELD BY THE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO . LTD. VS. CIT (82 ITR 363) (SC) 32.1 IN THE LIGHT OF THE ABOVE PARAMETERS AND THE D ECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF P.V.S. RAJU & ANR . VS. ADDL. CIT (340 ITR 75) (AP) AND ON PERUSAL OF THE STATEMENTS INCORPORATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, WE FIND THAT THE ASSESSEES HA VE MADE SEVERAL TRANSACTIONS OF PURCHASE OF SHARES DURING THE RELEV ANT YEAR UNDER CONSIDERATION, AND IF THERE HIGH VOLUME, FREQUENCY AND REGULARITY OF THE ACTIVITY CARRIED ON BY THE ASSESSEES IN A SYSTEMATIC MANNER, IT WOULD PART AKE THE CHARACTER OF BUSINESS ACTIVITIES CARRIED ON BY THE ASSESSEE IN SHARES, AN D IT CANNOT BE SAID THAT THE ASSESSEES HAVE MERELY MADE INVESTMENTS IN SHARES. I N OUR OPINION THE FINDINGS OF THE CIT(A) IS TO BE CONFIRMED. 33. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE RELIE D ON VARIOUS JUDGMENTS WHICH ARE LISTED IN THE EARLIER PARAS OF THIS ORDER . IN OUR OPINION, EACH JUDGMENT IS DELIVERED ON ITS OWN FACTS AND THE JUDGMENT IS T O BE READ IN THE CONTEXT IN WHICH IT WAS DELIVERED. IT IS NEITHER DESIRABLE NO R PERMISSIBLE TO PICK OUT A WORD OR A SENTENCE FROM THE JUDGMENT OF THE COURT, DIVOR CED FROM THE CONTEXT OF THE I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 24 QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THE COURT. THE JUDGMENT MUST BE READ AS A WHOLE AN D THE OBSERVATIONS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT. A DECISION OF THE COURT TAKES ITS COLOU R FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WHILE APPLYING THE DECISION TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THE COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CO NSIDERATION BY THE COURT, TO SUPPORT THEIR REASONINGS. BEING SO, THE VARIOUS JU DGMENTS RELIED UPON BY THE ASSESSEES COUNSEL CANNOT COME TO THE ASSISTANCE OF THE ASSESSEE. 34. THE NEXT COMMON GROUND IN ALL THESE THREE APPEA LS IS WITH REGARD TO DIMINUTION IN THE VALUE OF SHARES. THE ASSESSEE MA DE A ALTERNATIVE CLAIM THAT IN THE EVENT OF THE TRIBUNAL CONFIRMING THE ACTION OF THE ASSESSING OFFICER, REDUCTION IN MARKET VALUE OF SHARES HAS TO BE ALLOWED AS DEDU CTION. ACCORDING TO THE LD. AR, IN THE ASSESSEES RETURN FILED, DIMINUTION WAS NOT CLAIMED SINCE THE COMPUTATION WAS UNDER THE HEAD CAPITAL GAINS. 35. THE LD. AR SUBMITTED THAT THE LOWER AUTHORITIES TREATED THE INCOME FROM THE SHARE TRANSACTIONS AS INCOME FROM BUSINESS. CO NSEQUENTLY, THE DIMINUTION IN VALUE OF SHARES IS TO BE ALLOWED. WE FIND THE CLAIM OF THE ASSESSEE IS APPROPRIATE. HOWEVER, WE MAKE IT CLEAR THAT THE SHA RES ARE TO BE VALUED AT MARKET PRICE OR COST, WHICHEVER IS LESS. ACCORDINGL Y, WHILE PASSING A I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 25 CONSEQUENTIAL ORDER, THE ASSESSING OFFICER SHALL CO NSIDER THE SAME AND DECIDE THE ISSUE ACCORDINGLY. THIS GROUND IN ALL THE THREE YEA RS IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 36. THE NEXT COMMON GROUND IN ALL THE THREE YEARS I S WITH REGARD TO THE EXPENSES TO BE ALLOWED UNDER BUSINESS. AS DISCUSSE D EARLIER, THE ASSESSING OFFICER IS REQUIRED TO CONSIDER WHAT ARE THE EXPENS ES RELATING TO THE SALE TRANSACTIONS TO BE ALLOWED WHILE COMPUTING THE INCO ME OF THE ASSESSEE, IF IT IS NOT ALLOWED ALREADY. ACCORDINGLY, THIS GROUND IN A LL THE THREE YEARS IS ALLOWED FOR STATISTICAL PURPOSES. 37. THE NEXT COMMON GROUND IS RELATED TO THE DISALL OWANCE U/S. 40(A)(IA) OF THE ACT IN ALL THE THREE YEARS. THE LD. AR SUBMITT ED THAT THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT FOR THE REASON THAT THERE IS SHORTFALL IN DEDUCTION OF TAX AT SOURCE. HOWEVER, THE ASSESS EE SUBMITTED THAT THERE WAS NO SHORTFALL IN DEDUCTION OF TAX AT SOURCE AS THE A SSESSEE HAD DEDUCTED TAX AT SOURCE AT THE THEN APPLICABLE RATE. THE LD. AR SUB MITTED THAT SUBSEQUENT TO THE DEDUCTION OF TAX AT SOURCE, THE FINANCE ACT WAS AME NDED RETROSPECTIVELY BY INCLUDING SURCHARGE. FOR THIS PROPOSITION, THE LD. AR RELIED ON THE JUDGMENT OF THE SPECIAL BENCH IN THE CASE OF BHARATI SHIPYARD L TD. VS. DCIT (132 ITD 53) (MUMBAI) (SB) WHEREIN IT WAS HELD THAT DISALLOWANCE U/S. 40(A)(IA) CANNOT BE MADE BY INVOKING RETROSPECTIVE AMENDMENT. 38. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE LOWER AUTHORITIES. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 26 39. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE SPECI AL BENCH OF THE TRIBUNAL, MUMBAI IN THE CASE OF BHARATI SHIPYARD LTD. VS. DCI T (132 ITD 53) (MUMBAI) (SB). ACCORDINGLY, WE ARE IN AGREEMENT WITH THE ASS ESSEE THAT THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT CANNOT BE MADE BY INVOKIN G RETROSPECTIVE AMENDMENT. THIS GROUND OF THE ASSESSEE IN AL THE THREE YEARS I S ALLOWED. 40. SINCE WE HAVE DISPOSED OF THE APPEALS ITSELF FO R ALL THE THREE ASSESSMENT YEARS, THE STAY PETITIONS RELATING TO THESE THREE Y EARS FILED BY THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. 41. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND ALL THE THREE STAY PETITIO NS FILED BY THE ASSESSEE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 8-08-2014 . SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH AUGUST, 2014 GJ COPY TO: 1. M/S. EQUITY INTELLIGENCE (INDIA) P. LTD., 147, PE NTA MENAKA, 4 TH FLOOR, MARINE DRIVE, KOCHI-31. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. I.T.A. NOS.240,241&242/COCH/2014 & S.P. NOS. 36-38 /COCH/2014 27 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN