Shri Subhash Chand Agarwal, JODHPUR V. ACIT, PALI

ITA 263/JODH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59565 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: U C JAIN; GAUTAM BAID
• Keywords: Rejection of books of accounts; Capital asset; Business income; Rule of consistency; Advance ruling
• Section: 143(3); 80IB; 263; 63; 139

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH , JODHPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 263/ JU/2010 ASSESSMENT YEAR : 2006-07 PAN: AAVPA 4441 N SHRI SUBHASH CHAND AGARWAL VS. THE ACIT PROP. M/S. GOVIND AGENCIES CIRCLE- PALI SUMERPURA (APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN AND SHRI GAUTAM BAID DEPARTMENT BY : SHRI SUBHASH CHANDRA DATE OF HEARING: 15-12-2011 DATE OF PRONOUNCEMENT: 19-01-2012 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED AN APPEAL AGAINST ORDER O F THE LD. CIT, JODHPUR PASSED U/S 263 ON 24-03-2010 FOR THE ASSESSMENT YEAR 2006 -07. 2.1 THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. C IT(A) HAS ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS AS W ELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREBY SET ASIDE THE ORDER BY INVO KING THE PROVISIONS OF SECTION 263 OF THE ACT. 2.2 THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN EDIBLE OILS, PURE GHEE, GUAR SEEDS, GUAR GUM, CUMMI NS SEEDS ETC. UNDER THE NAME AND STYLE OF M/S GOVIND AGENCIES. IN ADDITION TO THE RE GULAR BUSINESS THE APPELLANT IS ALSO AN INVESTOR IN SHARES FOR LAST SEVERAL YEARS IN HIS OW N NAME AND IS SHOWING INVESTMENT IN 2 SHARES IN THE BALANCE SHEET OF PROPRIETARY CONCERN M/S GOVIND AGENCIES IN SHARE INVESTMENT ACCOUNT AND THE SAME WAS NEVER TREATED A S STOCK IN TRADE. THE INVESTMENT IN SHARES WAS ALWAYS CARRIED AT THE COST PRICE IN THE BALANCE SHEET AND NOT ON THE BASIS OF COST OR MARKET PRICE WHICH EVER IS LESS. THE STOCK OF EDIBLE OILS, PURE GHEE, GUAR SEEDS, GUAR GUM, CUMMINS SEEDS ETC INCOME OF WHICH ARE DEC LARED AS BUSINESS INCOME ARE VALUED ON THE BASIS OF COST OR NET REALIZABLE VALUE WHICH EVER IS LESS . THE ASSESSEE IS DISCLOSING GAIN/ LOSS ON SHARES UNDER THE CAPITAL G AIN HEAD EVEN PRIOR TO THE INTRODUCTION OF SECTION 10(38) AND 111A BY FINANCE ACT, (NO. 2) OF 2004, W.E.F. 01/04/2005. DETAILS OF THE INCOME DECLARED BY THE ASSESSEE UNDER THE CAPIT AL GAIN HEAD, TOTAL INCOME AND DIVIDEND RECEIVED SINCE AY 2003-04 TO AY 2008-09 IS GIVEN IN THE FOLLOWING TABLE: (ALL FIGURE IN RS.) S. NO PARTICULARS AY 2003-04 AY 2004-05 AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 1 TOTAL INCOME 993721 1020050 1774420 3198451 6258930 9832190 2 STCG 56678 189863 351107 - - - 3 STCG U/S 111A - - 668337 2354094 307597 577533 4 LTCG - - - 1279017 1356112 2475690 5 DIVIDEND INCOME 8500 214097 219247 574323 205174 343054 THE ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04 AND 2005-06 WERE COMPLETED U/S 143(3) AND THE CAPITAL GAIN ON REALIZATION OF SHARES SHOWN BY THE ASSESSEE ACCEPTED WHILE FRAMING THE ASSESSMENT. THE ASSESSEE DISCLOSES THE GAIN ARISES ON REALIZATION OF INVESTMENT IN SHARES AS CAPITAL GAIN EVEN IN THE YE ARS WHERE THERE WAS NO TAX IMPLICATION BY DISCLOSING THE INCOME AS SHORT TERM CAPITAL GAIN OR INCOME FROM BUSINESS. THE RETURN 3 OF INCOME WAS FILED FOR THE ASSESSMENT YEAR UNDER C ONSIDERATION ON 30/10/2006 DECLARING TOTAL TAXABLE INCOME AT RS. 31,98,450/- WHICH INCLU DES RS. 23,54,094/- BEING SHORT TERM CAPITAL GAIN ON REALIZATION OF CAPITAL INVESTMENT I N SHARES. IN ADDITION TO ABOVE THE APPELLANT EARNED LONG TERM CAPITAL GAIN AMOUNTING T O RS 12,79,017/- ON REALIZATION OF CAPITAL INVESTMENT IN SHARES AND CLAIMED THE SAME A S EXEMPT U/S 10(38). THE NATURE OF ACTIVITIES, MODUS OPERANDI OF THE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVESTMENT AT THE YEAR UNDER CONSIDERATIO N AND PRIOR YEARS ARE SAME, HENCE, THERE APPEARS NO REASON AS TO WHY THE CLAIMS MADE B Y THE ASSESSEE SHOULD NOT BE ACCEPTED AND THEREFORE LD. AO WHILE PASSING THE ASSESSMENT O RDER U/S 143(3) ACCEPTED THE CLAIM OF THE ASSESSEE THAT HE IS INVESTOR IN SHARES AND ASSE SSED THE INCOME ACCORDINGLY. ON 31/03/2008 THE LD. AO PASSED THE ASSESSMENT ORDER U NDER SECTION 143(3) AT RS. 32,34,245/-. THE CLAIM OF EXEMPTION OF LONG TERM CA PITAL GAIN ON INVESTMENT OF SHARES WAS ACCEPTED BY THE LD. AO. THE LD. AO ALSO IMPOSED TAX ON SHORT TERM CAPITAL GAIN @ 10% U/S 111A AS THE TRANSACTIONS WERE DELIVERY BA SED AND CARRIED OUT THROUGH RECOGNIZED STOCK EXCHANGED AND WERE SUBJECT TO STT. ALL THE TRANSACTIONS OF SHARES ARE SUBJECT TO STT. NO EXPENDITURE ON S.T.T., BROKERAGE OR LATE PAYMENT CHARGES WERE CLAIMED IN P&L A/C. ALL SUCH EXPENDITURES WERE CAPI TALIZED TO SHARE INVESTMENT ACCOUNT. 2.3 THE LD. CIT IGNORING THE PAST HISTORY OF THE CA SE AND PRINCIPLES OF CONSISTENCY ISSUED THE SHOW CAUSE NOTICE U/S 263 TO EXPLAIN THE ASSESSEE AS TO WHY THE ASSESSMENT DONE BY THE AO BE NOT REVISED U/S 263 OF THE ACT. T HE ASSESSEE FILED THE REPLY TO THE LD. CIT I.E. AVAILABLE AT PAGES 35 TO 41 OF THE PAPER B OOK. THE LD. CIT(A) AFTER CONSIDERING THE REPLY RECORDED HIS FINDINGS AS UNDER:- 4 4. I HAVE GIVEN A CAREFUL CONSIDERATION TO THE MAT ERIAL FACTS ON RECORD. THE AO HAS FAILED TO CONSIDER THE VOLUMINOUS AND FREQUENT TRANSACTIONS IN SHARES TO DECIDE WHETH ER THESE TRANSACTIONS ARE HAVING CHARACTER OF REGULAR BUSINE SS INCOME OR SHORT TERM / LONG TERM CAPITAL GAIN / LOSS. THE DET AILS SUBMITTED BY THE ASSESSEE REVEALS THAT THE ASSESSEE HAS DONE VOLUMINOUS TRANSACTIONS IN SHARES. NOT ONLY THE TRANSACTIONS A RE SO FREQUENT, BUT AMOUNT INVOLVED IS ALSO VERY LARGE. THE PERUSAL OF THE RECORDS FOR AY 2006-07 REVEALS THAT NO FINDING, IN THIS REGARD, HAS BEEN GIVEN IN THE ASSESSMENT ORDER, NOR ANY MAT ERIAL FACT HAS BEEN KEPT ON RECORD AND THE ASSESSMENT WAS FINA LIZED WITHOUT DISCUSSING THE ISSUE WHETHER THE ASSESSEE I S A TRADER OR INVESTOR EITHER IN THE BODY OF THE ORDER OR IN THE ORDER SHEET OR IN THE OFFICE NOTE. THE ASSESSEE HAS NOT REPLIED ON FACTUAL ASPECTS OF THE ISSUES AND INSTEAD HAS PLACED RELIAN CE ON VARIOUS DECISIONS OF HONBLE SUPREME COURT OF INDIA / VARIO US HONBLE HIGH COURTS, IN SUPPORT OF HIS CONTENTION THAT HE S HOULD NOT BE TREATED AS A TRADER IN SHARES. THE CASE LAWS CITED BY THE ASSESSEE HAVE BEEN GONE THROUGH AND IT IS OBSERVED THAT THE FACTS OF THE INSTANT CASE ARE ENTIRELY DIFFERENT FROM THOSE IN T HE CASE LAWS CITED AND ARE EASILY DISTINGUISHABLE ON THE BASIS O F THE FACTS ELABORATED IN THIS OFFICE SHOW CAUSE U/S 263 OF THE ACT DATED 23.02.2010. ADMITTEDLY, THE ORDER SO PASSED BY THE AO IS ERRONEOUS AS ALSO PREJUDICIAL TO THE INTEREST OF RE VENUE. THE 5 ASSESSMENT ORDER ON THIS ISSUE REQUIRES TO BE SET A SIDE SO THAT THE AO CAN LOOK INTO THE ENTIRE FACTS AFRESH. 4.1 IN ORDER TO FURTHER ESTABLISH THAT THE ASSESSEE WAS BASICALLY A TRADER OF SHARES, RELIANCE IS PLACED ON THE CBDT CIRCULAR NO. 4 DATED 15.06.2007. IN THE SAID CIRCUL AR, DBDT HAS REFERRED CERTAIN TESTS LAID DOWN IN THE VARIOUS JUD GMENTS AND ACCORDINGLY ADVISED THE ASSESSING OFFICER TO DECIDE THE CASE BY CASE AS TO WHETHER THE SHARES HELD BY THE ASSESSEE ARE AN INVESTMENT OR STOCK IN TRADE. ONE OF THE MAJOR TEST SUGGESTED IN THE AFORESAID CIRCULAR REFERS THE MAGNITUDE OF THE PURCHASE OR SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND HOLDING AS A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTION A ND THE SAME ARE ELABORATELY DISCUSSED IN THIS OFFICE SHOW CAUSE NOTICE U/S 263 OF THE ACT DATED 23.02.2010, LEADING ONLY TO TH E CONCLUSION THAT THEY SHOULD BE TREATED AS TRADING IN SHARES AN D STOCKS AND CONSEQUENTLY THE INCOME BE TREATED AS BUSINESS INCO ME. ACCORDING TO NONE OF THE TEST, AS SUGGESTED IN THE AFORESAID CIRCULAR, PROVES IN THE CASE OF SAID ASSESSEE THAT PROFIT ON SALE OF SHARES IN THE YEAR BE TREATED AS SHORT TERM CAPITAL GAIN. 4.2 IN THE CASE OF INVESTOR, THE SHARES ARE HELD PRIMARILY FOR THE GROWTH IN THE CAPITAL INVESTMENT OR FOR EARNING OF DIVIDEND. IN THE CASE OF THE ASSESSEE, HE WAS AP PARENTLY INTERESTED IN MAKING QUICK PROFITS LIKE A TRADER. I T IS FURTHER RELEVANT TO MENTION THAT IN THE CASE OF INVESTOR, T HERE IS A 6 COMMON PRACTICE TO INVEST IN HIGHER DIVIDEND EARNIN G SHARES. IN THE CASE OF THE ASSESSEE THIS ASPECT IS COMPLETELY MISSING. 4.3 IN THIS CASE, NOT ONLY THE NUMBER AND VOLUME OF TRANSACTIONS IS VERY HIGH, BUT THERE IS REGULARITY AND CONSISTENCY IN TRANSACTIONS. THE SALES AND PURCHASES OF DIFFERE NT COMPANIES HAVE BEEN MADE ON REGULAR BASIS, WHICH IS NOT POSSI BLE FOR AN INVESTOR. 4.4 IN THE CASE OF M/S RAMNARAIN SONS PVT. LTD. TH E HONBLE SUPREME COURT HAS HELD THAT THE PROBLEM MUS T BE APPROACHED IN THE LIGHT OF THE INTENTION OF THE ASS ESSEE. THE FACTS MENTIONED ABOVE MAKE IT VERY CLEAR THAT THE I NTENTION OF THE ASSESSEE WAS TO DO BUSINESS IN SHARES. THE SUPR EME COURT IN THIS CASE ALSO DISCUSSED THE TEST OF INTENTION. IT HAS HELD THAT IN CASES WERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION OF RESALE AT A PROFI T AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING IT OR USING IT, THE PRESENCE OF SUCH INTENTION IS A RELEVANT FACTOR AND UNLESS IT IS OFF -SET BY THE PRESENCE OF OTHER FACTORS, IT WOULD RAISE A STRONG PRESUMPTION THAT A TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. IN THIS CASE, THE SUBSTANTIAL PART OF THE INCOME (R S. 3518799/-) WAS RECEIVED FROM SALE OF SHARES, THEREF ORE, THIS BUSINESS IS THE MAIN BUSINESS OF THE ASSESSEE ALTHO UGH HE HAS RECEIVED PROFIT OF RS. 941162/- FROM TRADING BUSINE SS OF DESHI 7 GHEE, EDIBLE OIL ETC. THE QUANTUM OF PURCHASE AND S ALE OF SHARES ELIMINATE THE POSSIBILITY OF INVESTMENT FOR THE PER SONAL USE, POSSESSION OR ENJOYMENT. 4.5 THE AUTHORITY FOR ADVANCE RULING (AAR) (228 ITR 641), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HAS CULLED OUT THE FOLLOWING PRINCIP LES:- *WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUS T BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THA T EXISTENCE OF THE POWER TO PURCHASES AND SELL-SHARES IN THE ME MORANDUM OF ASSOCIATION IS NOT DECISIVE OF THE NATURE OF TRA NSACTION. *THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MANNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PUR CHASES AND SALES AND THE RATING BETWEEN PURCHASES AND SALES AN D THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS. *ORDINARILY THE PURCHASE AND SALE OF SHARES WITH TH E MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRA NSACTION BEING IN THE NATURE OF TRADE/ ADVENTURE IN THE NATURE OF TRADE: BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A C OMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROF ITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY SALE OF SHARES) WI LL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. DEALING WITH THE ABOVE THREE PRINCIPLES, THE AAR HA S OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER: - 8 *WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. THE FIRST PRINCIPAL REQUIRES US TO AS CERTAIN WHETHER T HE PURCHASE OF SHARES BY A FII ON EXERCISE OF THE POWER IN THE MEM ORANDUM OF ASSOCIATION / TRUST DEED WAS AS STOCK-IN-TRADE AS T HE MERE EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE TO VERIFY AS TO HOW THE SHARES WERE VALUED / HELD IN THE BOOK S OF ACCOUNT I.E. WHETHER THEY WERE VALUED AS STOCK-IN TRADE AT THE END OF THE FINANCIAL YEAR FOR THE PURPOSE OF AIRING AT BUSINES S INCOME OR HELD AS IN INVESTMENT IN CAPITAL ASSETS. *THE SECOND PRINCIPAL FURNISHES A GUIDE FOR DETERMI NING THE NATURE OF TRANSACTION BY VERIFYING WHETHER THER E ARE SUBSTANTIAL TRANSACTIONS, THEIR MAGNITUDE, ETC. MAI NTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIOS BETWEEN PUR CHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 OF THE SEBI REGULATIONS ENJOIN UPON EVERY FII TO KEEP AND MAINTAIN BOOKS OF ACCOUNT CONTAINING TRUE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REM ITTANCES. * THE THIRD PRINCIPAL SUGGESTS THAT ORDINARILY PURC HASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PR OFIT WOULD LEAD TO INFERENCE OF TRADE / ADVENTURE IN THE NATUR E OF TRADE : WHERE THE OBJECT TO THE INVESTMENT IN SHARES OF COM PANIES IS TO DERIVE INCOME BY WAY OF DIVIDENDS ETC., THE TRANSAC TIONS OF 9 PURCHASES AND SALES OR SHARES WOULD YIELD CAPITAL G AINS AND NOT BUSINESS PROFITS. *CBDT ALSO WISHES TO EMPHASIZE THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E. AN INVESTMEN T PORTFOLIO COMPRISING OF SECURITIES OF STOCK-IN TRADE WHICH AR E TO BE TREATED AS TRADING ASSETS. WHERE THE ASSESSEE HAS T WO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINC IPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVE N CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GAINS) OR AS STOCK IN TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFITS). THE ASSESSING OFF ICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE D ECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CO NSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. IN THE CASE OF INVESTOR, THE SHARES ARE HELD PRIMAR ILY FOR THE GROWTH IN THE CAPITAL INVESTMENT OR FOR EARNING OF DIVIDEND. IN THE CASE OF THE ASSESSEE, HE WAS APPARENTLY INTE RESTED IN MAKING QUICK PROFITS LIKE A TRADER. IT IS FURTHER R ELEVANT TO MENTION THAT IN THE CASE OF INVESTOR, THERE IS A CO MMON PRACTICE TO INVEST IN HIGHER DIVIDEND EARNING SHARES. IN THE CASE OF THE ASSESSEE THIS ASPECT IS COMPLETELY MISSING. 10 4.6 IT IS FOUND THAT THE AO ACCEPTED THE CLAIM OF T HE ASSESSEE OF SHORT TERM CAPITAL GAINS WITHOUT GOING THROUGH THE FACTS OF THE CASE AND MAKING INVESTIGATIONS. THE AO TOTALLY FAILED TO OBTAIN THE COPY OF DEMAT ACCOUNTS OF THE ASSESSEE TO FIND OUT THE EXTENT OF TRADING IN SHARES AS ALSO PE RIOD OF HOLDING OF SHARES. THE AO WAS REQUIRED TO OBTAIN COPY OF DE MAT ACCOUNTS AND ANALYSE THE ISSUE AT LENGTH WHICH HE F AILED TO DO. IT IS NOT UNDERSTOOD AS TO HOW WITHOUT EVEN CALLING FO R THE COPY OF DEMAT ACCOUNT, THE AO ACCEPTED THE CLAIM OF SHORT T ERM CAPITAL GAIN ON SALE OF SHARES. ADMITTEDLY, IT IS A CASE WHERE THE AO COMPLETED THE ASSESSMENT IN UNDUE HURRY AND HAST E AND WITHOUT MAKING REQUIRED INQUIRIES WHICH ON THE FACE WERE VERY MUCH REQUIRED TO BE MADE. IT IS FURTHER FOUND THAT THE ASSESSEE MADE SHARE TRANSACTIONS WITH TWO SHARE BROKERS NAME LY M/S VASANTI SHARE BROKERS LTD., MUMBAI AND M/S. G.R. PA NDYA SHARE BROKERS LTD. THE AO FAILED TO OBTAIN THE DETA ILS OF TRANSACTIONS OF THE ASSESSEE WITH ABOVE STATED TWO SHARE BROKERS AND WITHOUT OBTAINING THE SAME PROCEEDED TO ACCEPT THE CLAIM OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES. IT WO ULD NOT BE OUT OF PLACE TO MENTION THAT THE ASSESSEE FAILED TO PRO DUCE BEFORE ME DETAILS OF TRANSACTIONS WITH M/S. G.R. PANDYA SH ARE BROKERS LTD. ALONG WITH RELEVANT DP STATEMENT. THE ENTIRE F ACTS AS ABOVE CLEARLY SHOWS THAT THE ASSESSMENT WAS MADE AND CLAI M OF THE ASSESSEE WAS ACCEPTED WITHOUT CALLING DETAILS LEAVE ASIDE MAKING ANY INVESTIGATIONS IN THE MATTER. 11 4.7 IT IS FOUND THAT THE FUNDS FOR MAKING TRANSACT IONS IN SHARES WERE INTERTWINED WITH OTHER BUSINESS OF THE ASSESSEE. IN OTHER WORDS, THE BANK ACCOUNTS OF THE ASSESSEE REVE ALS BOTH THE TRANSACTIONS I.E., SHARE DEALING AND TRADING OF DES HI GHEE, EDIBLE OIL, ETC. THIS ALSO SUPPORTS THE FACT THAT TRANSACT IONS IN SHARES WERE BUSINESS TRANSACTIONS AND NOT INVESTMENTS. 4.8 ALL THE ABOVE FACTS PROVE THAT THE PURCHASE OF SHARES WAS MADE EXCLUSIVELY AND SOLELY WITH THE INT ENTION TO RESELL AT PROFIT. THE FREQUENCY OF PURCHASE AND SAL E OF SHARES AND UNITS IN LARGE NUMBERS IN QUICK SUCCESSION WITH OTHER FACTS MENTIONED ABOVE AND WITH THE INTENTION TO EARN PROF IT LEADS TO THE ONLY CONCLUSION THAT SHARES AND UNITS WERE THE STOCK-IN-TRADE OF THE ASSESSEE AND ANY PROFIT ON THEIR SALE IS TO BE CONSIDERED AS INCOME FROM BUSINESS AND PROFESSION. THE AO HAS FAI LED TO VERIFY THESE ASPECTS. THE ORDER SO PASSED BY THE AO IS ERRONEOUS AS ALSO PREJUDICIAL TO THE INTEREST OF RE VENUE. ACCORDINGLY, SAME IS SET ASIDE WITH THE DIRECTIONS TO VERIFY THE ABOVE FACTS AND GIVE A CLEAR-CUT FINDING IN THE MAT TER. 4.9 THE HONBLE ITAT JODHPUR BENCH VIDE ORDER DATED 06/07/2009 IN THE CASE OF ANIL KANKARIA V/S A CIT CIRCLE 3, JODHPUR IN ITA NO. 402/JU/2008 HELD THAT SUBST ANTIAL ACTIVITIES OF TRADING AND SHARES AMOUNTS TO BUSINES S AND SUCH INCOME REQUIRES TO BE TREATED AS BUSINESS INCOME AN D NOT AS 12 CAPITAL GAINS. THE OPERATIVE PORTION OF THE APPELLA TE ORDER OF THE BENCH IS REPRODUCED BELOW. 8. ON CAREFUL ANALYSIS OF THE ORDER OF DEPARTMENT AUTHORITIES IN THE LIGHT OF SUBMISSION MADE BY THE LD DR, IT IS FOUND THAT THE ASSESSEE HAS NOT DISPUTED THE ACTIVITY MENTIONED AT CO. 9 OF THE ASSESSMENT ORDER I.E . TR ADING IN CLOTH AND SHARES. FURTHER, AS PER THE MATERIAL PROD UCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, IT IS FO UND THAT HE HAS TRANSACTED ABOUT 4500 SHARES OF TATA TEA AND 9600 SHARES OF MAHINDRA & MAHINDRA. IN VIEW OF SO MUCH TRANSACTION CARRIED OUT BY THE ASSESSEE DURING ONE YEAR, IT IMPLIES THAT HE IS TRADING IN SHARE BUT NOT INVESTI NG IN SHARE TO EARN DIVIDEND INCOME ONLY. THEREFORE, WE A RE OF THE CONSIDERED VIEW THAT CONCLUSION REACHED BY THE DEPARTMENTAL AUTHORITIES THAT THE INCOME SHOWN BY T HE ASSESSEE AS CAPITAL GAIN, SHOULD BE TREATED ONLY AS BUSINESS INCOME IS VERY MUCH IN ACCORDANCE WITH LAW . ACCORDINGLY, WE FIND THE ISSUE RAISED BY THE ASSESSEE AS DEVOID OF MERITS AND DISMISS THE SAME IN VIEW OF THE DECISION OF THE HONBLE ITAT, JODHPU R BENCH, JODHPUR, THE PROFIT ON SHARE TRANSACTIONS WA S REQUIRED TO BE TREATED AS BUSINESS INCOME AND NOT SHORT TERM CA PITAL GAIN / LONG TERM CAPITAL. 13 5. TO SUM UP, I HOLD THAT THE ASSESSMENT ORDER UNDE R REFERENCE IS ERRONEOUS AS ALSO PREJUDICIAL TO THE I NTEREST OF REVENUE TO THE EXTENT AS STATED ABOVE IN THE PRECED ING PARAGRAPHS. THE ASSESSMENT ORDER IS ACCORDINGLY SET ASIDE WITH THE DIRECTION TO THE AO TO EXAMINE THE ISSUES AS ME NTIONED ABOVE AFRESH AND PASS A WELL REASONED FRESH ORDER D EPENDING UPON THE FACTS, INQUIRIES, INVESTIGATIONS AND LEGAL ASPECTS OF THE CASE. 2.4 BEFORE US, THE LD. AR HAS FILED THE WRITTEN SUB MISSION AS UNDER:- 1. THAT, AS BORNE OUT FROM THE SHOW CAUSE NOTICE THE A SSESSMENT ORDER PASSED BY LD ASSTT. COMMISSIONER OF INCOME TAX, CIR CLE PALI DATED 31-03- 2008 HAS BEEN CONSIDERED BY YOUR GOOD SELF AS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE FOLLOWING REASONS: (A) THE ASSESSEE CARRIED OUT 843 TRANSACTIONS OF PU RCHASE AND SALES OF SHARES DURING THE YEAR UNDER CONSIDERATION AND AS S UCH THE SCALE OF ACTIVITIES IN PURCHASING / SELLING OF SHARES IS QUI TE SUBSTANTIAL. (B) THE INVESTMENT IN SHARES AS ON 31/03/2005 WAS O F RS. 1,71,31,956/- WHEREAS THE CAPITAL AS ON SUCH DATE W AS ONLY OF RS. 1,37,38,495/- AND THUS INVESTMENT IN SHARES EXCEED THE CAPITAL AND WERE MET OUT FROM BORROWED FUNDS AND THE INTEREST THEREO N HAS BEEN CLAIMED AS EXPENSES IN THE PROFIT AND LOSS ACCOUNT. 14 ( C) BECAUSE OF REASONS AS SET OUT ABOVE THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN HAS TO BE TREATED AS BUSINES S INCOME AND TO BE TAXED @ 30%. (D) THE AO HAS NOT EXAMINED THE ISSUE AND THEREFORE THE ORDER PASSED BY HIM IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2. THAT IGNORING THE PAST HISTORY AND THE PRINCIPAL OF CONSISTENCY THE ACTION OF THE CIT I, JODHPUR CONS IDERING THE ASSESSMENT ORDER AS ERRONEOUS POSES A QUESTION AS TO WHY AT TH IS POINT OF TIME IT HAS BEEN DONE SO. IN THE PROCESS TO FIND THE ANSWER, IT IS NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT- TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT, 2 004, THE LEGISLATURE IMPOSED SECURITIES TRANSACTIONS TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND, SIMULTANEOUSLY, THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER S. 10(38) FROM THE LEV Y OF TAX AND ON SHORT- TERM CAPITAL GAIN, A CONCESSIONAL RATE OF TAX I.E., 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS R ESULTING INTO THIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTIONS TAX . THIS SCHEME OF TAXATION ONLY HAS PROMPTED THE CIT I, JODHPUR TO TREAT THE ASSESSMENT ORDER AS ERRONEOUS ON THE SAME TYPES OF TRANSACTION S ENTERED INTO BY THE ASSESSEE IN EARLIER YEARS. THE ASSESSEE HAS PAID TA X UNDER S. 111A AT CONCESSIONAL RATE ON STORT TERM CAPITAL GAIN AND CL AIMED EXEMPTION U/S 10(38) IN RESPECT OF LONG TERM CAPITAL GAIN. THE LE GISLATIVE CHANGE OF THIS NATURE, WHEREBY NO CHANGE HAS BEEN MADE IN RES PECT OF NATURE AND MODUS OPERANDI OF SUCH SHARE TRANSACTIONS, RESULTIN G INTO ANY ADVANTAGE CANNOT BE TAKEN AWAY BY THE REVENUE AUTHORITIES IN ARBITRARY MANNER AND IN THESE CIRCUMSTANCES, PRINCIPLE OF CONSISTENCY, T HOUGH IT IS AN EXCEPTION TO THE PRINCIPLE OF RES JUDICATA, MUST BE APPLIED T O THE CASE OF THE APPELLANT. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTIONS TAX IS 15 MANDATORY I.E., WHETHER AN ASSESSEE EARNS THE PROFI T OR NOT OR SUFFERS A LOSS AND BY IMPOSITION OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RE SULT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO THOSE TRANSA CTIONS. THUS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRIN CIPLE OF CONSISTENCY ALONE, THE ACTION OF THE CIT I, JODHPUR IS LIABLE TO BE QUASHED. 3. THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ESCORTS LTD. REPORTED IN 338 ITR AT PAGE 435 HELD T HAT GIVEN THE FACT THAT THE ASSESSEE HAD BEEN ENGAGED IN THESE TRANSACTIONS IN THE PRECEDING ASSESSMENT YEARS, THE COMMISSIONER COULD HAVE HAD NO OCCASION TO HAVE RECOURSE TO THE REVISIONAL POWER U/S 263 OF THE ACT ON THE FUNDAMENTAL ASPECTS OF THE TRANSACTIONS IN ISSUE ON WHICH A VIEW HAD BEEN TAKE N AND NOT SHOWN TO HAVE BEEN CHALLENGED. 4. THAT THE ASSESSEE SUBMITTED DETAILED REPLY TO TH E CIT I, JODHPUR IN REPLY TO SHOW CAUSE NOTICE U/S 263. LD. CIT I, JODHPUR REPRODUCED THE REPLY OF ASSESSEE IN THE ORDER U/S 2 63 BUT ASSESSMENT WAS SET ASIDE TO AO WITHOUT CONSIDERED THE REPLY. REPRO DUCTION OF THE SUBMISSION OF THE ASSESSEE IN NO WAY EQUATED TO TAK EN INTO CONSIDERATION UNLESS THE LD. CIT I, JODHPUR ASSIGN ANY REASON F OR NOT ACCEPTING THE SUBMISSION OF THE ASSESSEE. LEGAL AND FACTUAL SUBMI SSIONS OF THE ASSESSEE WERE TOTALLY IGNORED BY THE LD. CIT I, JODHPUR AN D REJECTED VARIOUS JUDICIAL DECISIONS CITED BEFORE HIM ON THE FINDING THAT IT IS OBSERVED THAT THE FACTS OF THE INSTANT CASE ARE ENTIRELY DIFFEREN T FROM THOSE IN THE CASE LAWS CITED AND ARE EASILY DISTINGUISHABLE ON THE BA SIS OF FACTS OF THE CASE UNDER CONSIDERATION. THE JUDICIAL DECISION CITED BY THE ASSESSEE APPLICABLE TO THE CASE UNDER CONSIDERATION AND DENY TO APPLY T HE RATIO WITHOUT DISTINGUISH THE SAME IS INJUSTICE TO THE ASSESSEE. 16 5. THAT IN THE CASE OF DHRUV N. SHAH V/S DCIT 88 I TD 118 MUMBAI IT WAS HELD THAT: THE ASSESSEE, AT THE TIME OF FILING THE RETURN, CL AIMED THAT THE LIQUIDATED DAMAGES RECEIVED FROM MBPL TOWARDS S ETTLEMENT OF THE DISPUTE ARE NOT CHARGEABLE TO TAX IN VIEW OF HI S SUBMISSIONS AND VARIOUS DECISIONS MENTIONED IN HIS DETAILED LETTER DT. 29TH SEPT., 1997. AFTER PERUSING THE DETAILED REPLY, THE AO PAS SED ORDER UNDER WHICH HE ACCEPTED THE CLAIM OF THE ASSESSEE THAT LI QUIDATED DAMAGES ARE NOT TAXABLE. THE ORDER OF THE AO DID NO T MAKE AN ELABORATE DISCUSSION IN THIS REGARD. NOW, THE QUEST ION ARISES WHETHER THE CIT CAN EXERCISE JURISDICTION UNDER S. 263 IN SUCH A CASE WHERE THE ASSESSEE HAD OFFERED A DETAILED EXPL ANATION CONSEQUENT UPON THE ENQUIRIES CAST BY THE AO AND AL LOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF TH E ASSESSEE. IF AN ITO ACTING IN ACCORDANCE WITH LAW, MAKES A CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDED AS 'ERRONEOUS' BY THE CIT SI MPLY BECAUSE ACCORDING TO HIM, THE ORDER SHOULD HAVE BEEN WRITTE N MORE ELABORATELY. THIS SECTION DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF CIT FOR THAT OF AN ITO, WHO PASSED THE ORDER, UNLESS, THE DECISION IS HELD TO BE 'ERRONEOUS'. IN THE CASE UNDER CONSIDERATION THE ASSESSEE CLAIME D INCOME ON REALIZATION OF INVESTMENT IN SHARES AS CAPITAL GAIN. SUCH TRANS ACTIONS WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS OF ASSESSEE. DURI NG THE ASSESSMENT PROCEEDING THE ASSESSEE PRODUCED ITS COMPLETE BOOKS OF ACCOUNTS BEFORE THE ASSESSING OFFICER AND THE SAME WERE EXAMINED BY THE AO. THE ASSESSEE ALSO SUBMITTED DETAILS OF TRANSACTION OF SHARES. LD . AO CONSIDERING THE FACTS OF THE CASE, DETAILS SUBMITTED DURING THE ASS ESSMENT PROCEEDING AND CONSIDERING PAST HISTORY THAT THE GAIN ON REALIZATI ON OF INVESTMENT IN SHARES 17 WERE CONSISTENTLY ASSESSED AS CAPITAL GAIN AND THER EFORE ASSESSED THE INCOME ON REALIZATION OF INVESTMENT IN SHARES AS CA PITAL GAIN AND TAXED ACCORDINGLY. IN SUCH CASE MERELY BECAUSE THE LD. AO DID NOT MAKE AN ELABORATE DISCUSSION IN THIS REGARD CANNOT LEAD THE ASSESSMENT ORDER AS ERRONEOUS SO AS TO PREJUDICIAL TO THE INTEREST TO R EVENUE, PARTICULARLY WHEN WHILE COMPUTING THE TAX ON TOTAL INCOME AO CALCULAT ED TAX ON SHORT TERM CAPITAL GAIN @ 10% WHICH ESTABLISH THAT THE AO CONS IDERED THE ISSUE OF CAPITAL GAIN IN THE ASSESSMENT ORDER ITSELF AS THE COMPUTATION OF TAX ON TOTAL INCOME IS PART OF ASSESSMENT ORDER. IN LIGHT OF ABOVE RATIO OF DECISION IN THE CASE OF DHRUV N. SHAH (SUPRA) FULLY APPLICABLE IN THE CASE UNDER CONSIDERATION AN D LD. CIT(A) ARBITRARY REJECTED TO APPLY THE RATIO OF DECISION. 6. SIMILARLY HONBLE JURISDICTIONAL HIGH COURT OF R AJASTHAN IN THE CASE CIT V/S GIRDHARI LAL 258 ITR 331 (RAJ) HEL D THAT: WHEN THE AO AFTER GOING THROUGH THE MATERIAL ON REC ORD AND AFTER CONSIDERING THE EXPLANATION OF THE ASSESS EE, MADE SOME ADDITIONS AND REJECTED THE BOOKS OF ACCOUNTS, IT CA NNOT BE SAID THAT HE HAS NOT APPLIED HIS MIND. SIMILARLY IN THE CASE UNDER CONSIDERATION FACTS AND DOCUMENTS AVAILABLE WITH HIM AND CONSIDERING PAST HISTORY OF THE CASE A FTER APPLYING HIS MIND CALCULATED TAX @ 10% ON SHORT TERM CAPITAL GAIN WHI CH IS PART OF ASSESSMENT ORDER AND THEREFORE IT CANNOT BE SAID TH AT THE LD. AO DID NOT APPLIED HIS MIND WHILE PASSING THE ASSESSMENT ORDER AND THE ASSESSMENT ORDER WAS PASSED IN HAST. 7. THAT HONBLE SUPREME COURT IN THE CASE OF KALYAN KUMAR RAY VS. CIT 191 ITR 634 HELD THAT 18 ASSESSMENT' IS ONE INTEGRATED PROCESS INVOLVING N OT ONLY THE ASSESSMENT OF THE TOTAL INCOME BUT ALSO THE DET ERMINATION OF THE TAX. THE LATTER IS AS CRUCIAL FOR THE ASSESSEE AS T HE FORMER. IN THE CASE UNDER CONSIDERATION THE ASSESSING OFFIC ER WHILE COMPUTING TAX ON TOTAL INCOME CALCULATE TAX @ 10% ON SHORT TERM C APITAL GAIN AND THEREFORE IT CANNOT BE CONSIDERED THAT THE MATTER W AS NOT CONSIDERED BY THE AO AT ALL SO AS TO LEAD THE ASSESSMENT ORDER AS ERR ONEOUS. RATHER THE LD AO CALCULATED THE TAX @ 10% ON SHORT TERM CAPITAL G AIN CONSIDERING THE FACTS OF THE CASE AND DETAILS AVAILABLE ON RECORD A ND WHICH STOOD VERIFIED FROM BOOKS OF ACCOUNTS. FURTHER LD. AO DID FIND IT NECESSARY TO RECORD THE DETAILED FINDING ON THE MATTER AS THE INCOME FROM S HARES TRANSACTION CONSISTENTLY HELD AS CAPITAL GAIN IN THE PREVIOUS Y EAR. 8. THAT IN THE CASE OF CIT VS. HONDA SIEL POWER PRO DUCTS LTD. 333 ITR 547 (DEL) HONBLE DELHI HIGH COURT HELD THA T: WHILE PASSING AN ORDER UNDER S. 263, THE CIT HAS TO EXAMINE NOT ONLY THE ASSESSMENT ORDER, BUT THE ENTI RE RECORD OF THE PROFITS. SINCE THE ASSESSEE HAS NO CONTROL OVER THE WAY AN ASSESSMENT ORDER IS DRAFTED AND SINCE, GENERALLY, T HE ISSUES WHICH ARE ACCEPTED BY THE AO DO NOT FIND MENTION IN THE A SSESSMENT ORDER AND ONLY THOSE POINTS ARE TAKEN NOTE OF ON WH ICH THE ASSESSEES EXPLANATIONS ARE REJECTED AND ADDITIONS/ DISALLOWANCES ARE MADE, THE MERE ABSENCE OF THE DISCUSSION OF THE PROVISIONS OF S. 80-IB(13) R/W S. 80-IA(9) WOULD NOT MEAN THAT THE A O HAD NOT APPLIED HIS MIND TO THE SAID PROVISIONS. IT WAS FURTHER HELD THAT IN CASES WHERE THE AO ADOPTS ONE OF THE COURSES PERMISSIBLE IN LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS 19 TAKEN ONE VIEW, THE CIT CANNOT EXERCISE HIS POWERS UNDER S. 263 TO DIFFER WITH THE VIEW OF THE AO EVEN IF THERE HAS BE EN A LOSS OF REVENUE. OF COURSE, IF THE AO TAKES A VIEW, WHICH I S PATENTLY UNSUSTAINABLE IN LAW, THE CIT CAN EXERCISE HIS POWE RS UNDER S. 263 WHERE A LOSS OF REVENUE RESULTS AS A CONSEQUENCE OF THE VIEW ADOPTED BY THE AO. 9. THAT IT IS INCORRECT TO HELD THAT THE ASSESSING OFFICER FAILED TO HOLD ANY ENQUIRY PARTICULARLY WHEN THE NECESSARY DETAILS AVAILABLE ON RECORD, MERELY BECAUSE DMAT ACCOUNT COPY WAS AVAILA BLE ON RECORD COULD NOT BE CONSIDERED AS NO ENQUIRY MADE BY THE A SSESSING OFFICER, PARTICULARLY WHEN THE ALL THE TRANSACTION RECORDED IN THE BOOKS OF ACCOUNT WHICH WERE VERIFIED FROM THE SUPPORTING VOUCHERS AN D NOTHING WAS CONSIDERED SUSPICIOUS WHICH LEAD TO FURTHER EVIDENC E FOR SUCH TRANSACTIONS. THEREFORE ONLY ON THE ABSENCE OF DMAT STATEMENT COU LD NOT LEAD TO A CONCLUSION THAT THE ASSESSING OFFICER DID NOT UNDER TOOK ANY ENQUIRY IN THE MATTER. RATHER THE ASSESSING OFFICER HOLD PROPER EN QUIRY AND AFTER CONSIDERING THE FACT OF THE CASE AND CONSISTENT PAS T HISTORY OF THE ASSESSEE WHICH WERE ACCEPTED BY THE DEPARTMENT IN THE PAST A CCEPTED THE INCOME AS CAPITAL GAIN. 10. THAT IN THE CASE OF CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) HONBLE SUPREME COURT HELD THAT: EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR EXAMPLE, WHEN THE ITO ADOPTED ONE OF THE COURSE S PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR W HERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WH ICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER 20 PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. 11. THAT IN THE CASE OF ZYMA LABORATORIES LTD. VS. ADDL CIT 7 SOT 164 (MUM) IS WAS HELD THAT: THE POWER OF SUO MOTU REVISION UNDER S. 263 IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES PRESCRIBED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE CIT TO EXERC ISE THE POWER OF REVISION UNDER S. 263, VIZ., (I) THE ORDER IS ER RONEOUS AND (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS B EEN CAUSED TO THE INTEREST OF THE REVENUE. THE SCOPE OF INFERENCE UNDER S. 263 IS NOT TO SET ASIDE MERELY UNFAVOURABLE ORDERS AND BRI NG TO TAX SOME MORE MONEY TO THE TREASURY NOR IS THE SECTION MEANT TO GET AT SHEER ESCAPEMENT OF REVENUE WHICH IS TAKEN CARE OF BY OTH ER PROVISIONS IN THE ACT. THE PREJUDICE THAT IS CONTEMPLATED UNDE R S. 263 IS PREJUDICE TO THE INCOME-TAX ADMINISTRATION AS A WHO LE. SEC. 263 IS TO BE INVOKED NOT AS A JURISDICTIONAL CORRECTIVE OR AS A REVIEW OF A SUBORDINATE ORDER IS EXERCISE OF THE SUPERVISORY PO WER BUT IT IS TO BE INVOKED AND EMPLOYED ONLY FOR THE PURPOSE OF SET TING RIGHT DISTORTIONS AND PREJUDICES TO THE REVENUE, WHICH IS A UNIQUE CONCEPTION WHICH HAS TO BE UNDERSTOOD IN THE CONTEX T OF AND IN THE INTEREST OF REVENUE ADMINISTRATION. SUCH A POWER CA NNOT IN ANY MANNER BE EQUATED TO OR REGARDED AS APPROACHING IN ANY WAY IN APPELLATE JURISDICTION OR EVEN THE ORDINARY REVISIO NAL JURISDICTION CONFERRED ON THE CIT UNDER S. 264. IF THE AO ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT, THE SAME CANNO T BE BRANDED AS ERRONEOUS BY THE CIT SIMPLY BECAUSE, ACCORDING T O HIM, THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. SE C. 263 DOES NOT 21 VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE CIT FOR THAT OF THE AO, WHO PASSED THE ORDER, UNLESS THE DECISIO N IS HELD TO BE ERRONEOUS. 12. THAT LD. CIT I, JODHPUR AT PAGE 14 IN PARA 4. 7 RECORDED THE FINDING THAT IT IS FOUND THAT THE FUNDS FOR MA KING TRANSACTIONS IN SHARES WERE INTERTWINED WITH OTHER BUSINESS OF THE ASSESSEE. IN OTHER WORDS, THE BANK ACCOUNTS OF THE ASSESSEE REVEALS BO TH THE TRANSACTIONS I.E., SHARE DEALING AND TRADING OF DESHI GHEE, EDIBLE OIL , ETC. THIS ALSO SUPPORTS THE FACT THAT TRANSACTIONS IN SHARES WERE BUSINESS TRANSACTIONS AND NOT INVESTMENTS. IS ERRONEOUS AND PERVERSE. HOW THE INTENTION OF THE AS SESSEE CAN BE ESTABLISHED BY THE FACT THAT A PARTICULAR TR ANSACTION IS RECORDED IN THE BUSINESS BOOK OR IN THE PERSONAL BOOK? RIGHT FR OM BEGINNING THE ASSESSEE IS MAINTAINING ONE SET OF BOOKS OF ACCOUNT FOR ALL THE TRANSACTIONS CARRIED BY HIM I.E. WHETHER THE BUSINESS TRANSACTIO N OR TRANSACTION RELATING TO INVESTMENT IN SHARES. LD. CIT I, JODHPUR OVERS IGHT THE FACT THAT THE INVESTMENT IN SHARES MADE IN THE NAME OF SUBHASH CH AND AGARWAL AND NOT IN THE NAME OF M/S GOVIND AGENGIES WHILE THE BUSINE SS TRANSACTIONS OF GHEE ETC. ARE MADE IN THE NAME OF M/S GOVIND AGENCI ES. THAT IF THE TRANSACTION OF CAPITAL ASSETS ARE RECORDED IN THE B USINESS BOOK HOW SUCH AN TRANSACTIONS CAN BE CONSIDERED AS BUSINESS TRANSACT ION, SUCH CONCLUSION WITHOUT ASSIGNING ANY REASON FOR THE SAME IS ARBITR ARY. IF THE LOGIC OF THE AO IS UPHELD THEN ALL THE TRANSACTION ENTERED IN TH E BUSINESS BOOKS OF THE ASSESSEE HAS TO BE TREATED AS BUSINESS TRANSACTION AND NOT OTHERWISE AND VARIOUS DISPUTES FOR THE DEDUCTION UNDER SECTION 80 HHC, 80IB ETC. WHEREIN THE RECEIPT FROM INTEREST ON FDR ARE TO BE CONSIDERED AS BUSINESS INCOME AND NOT FROM OTHER SOURCES. FURTHER THE CAPI TAL ASSETS LIKE OFFICE BUILDING, FACTORY ETC. HAS TO BE CONSIDERED AS TRAD ING ASSETS AND ON ITS SALE THE SAME WILL BECOME BUSINESS INCOME? 22 13. THAT THE CIT- 1, JODHPUR AT PAGE 11 IN PARA 4.1 REFERRED THE CIRCULAR NO 4 DATED 15/06/2007 ISSUED BY CBDT AND I T FINDING RECORDED AS UNDER: ONE OF THE MAJOR TEST SUGGESTED IN THE AFORESAID C IRCULAR REFERS THE MAGNITUDE OF THE PURCHASE OR SALES AND T HE RATIO BETWEEN PURCHASES AND SALES AND HOLDING AS A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTION THE COMPLETE PARA 8(II) OF THE CIRCULAR WHEREIN MAG NITUDE OF THE PURCHASE AND SALE DISCUSSED READS AS UNDER: 8(II). THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MANNER OF MAINTAINING BOOKS OF ACCOUNTS , THE MAGNITUDE OF PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDI NG WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; THE CIT I, JODHPUR WISH TO TAKE SUPPORT THE CIRCU LAR OF THE CBDT FOR THE NAME SACK AND PICK A PART OF SENTENCE AND SET ASIDE THE ASSESSMENT IN ARBITRARY MANNER BY OVERLOOKING THE M ANNER OF MAINTAINING BOOKS OF ACCOUNT REGULARLY AND PAST HISTORY. IN PAR A 1 TO 9 OF THE CIRCULAR NO. 4 DATED 15/06/2007, EARLIER CIRCULAR ON THE ISS UE AND JUDICIAL DECISIONS ARE DISCUSSED. IN PARA 10 AND 11 CONTAINED INSTRUCT ION OF THE CBDT WHICH READS AS UNDER: 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSI BLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT P ORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET S AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUS INESS INCOME. 23 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVE N CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE G IVING RISE TO CAPITAL GAINS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING R ISE TO BUSINESS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIP LES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. IN LIGHT OF ABOVE NO NEGATIVE INFERENCE CAN BE CALL ED FROM THE SAID CIRCULAR OF CBDT. 12. THAT THE GAIN ON REALIZATION OF INVESTMENT IN S HARES CAN NOT BE CONSIDERED AS BUSINESS TRANSACTION AND SAME WERE RI GHTLY DECLARED BY THE ASSESSEE AS CAPITAL GAIN. IN THE ASSESSMENT COMPLET ED U/S 143(3) FOR EARLIER YEARS AND FOR THE YEAR UNDER CONSIDERATION SAME WERE ASSESSED AS CAPITAL GAIN AND AS SUCH NO NEGATIVE INFERENCE CAN BE DRAWN FOR THE YEAR UNDER CONSIDERATION THAT THE TRANSACTION FOR THE YE AR UNDER CONSIDERATION ARE BUSINESS TRANSACTION. RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENT:- A. GOPAL PUROHIT VS. JOINT CIT 122 TTJ (MUMBAI) 87 STOOD CONFIRMED BY HONBLE BOMBAY HIGH COURT IN 34 DTR 52 AND SLP REJECTED BY THE HONBLE SUPREME COURT B. ACIT, CIRCLE -2 V/S MADAN LAL PALIWAL IN ITA NO. 435/JU/09 DATED 31-08-2010, ITAT JODHPUR BENCH C. ACIT, CIRCLE -2, VS. SHRI SANJEEV GORWARA IN ITA NO. 334/JU/2009 DATED 31/08/2010, ITAT JODHPUR BENCH 24 D. SHANTILAL M JAIN VS. ACIT CIR 12(3), MUMBAI IN I TA NO. 2690/MUM/2010 DATED 27/04/2011, ITAT MUMBAI E BEN CH E. NAGINDAS P. SHETH (HUF) VS. ACIT 21(3) MUMBAI IN ITA NO. 961/MUM/2010 DATED 05/04/2011, ITAT MUMBAI G BENCH F. ASST. CIT VS. NAISHADH V. VACHHARAJANI, MUMBAI I N ITA NO 6429/MUM/2009 DATED 25/02/2011, ITAT MUMBAI B BENCH 2.5 ON THE OTHER HAND, THE LD. DR REFERRED TO THE N UMBER OF THE TRANSACTIONS EXECUTED BY THE ASSESSEE. OUR ATTENTION WAS DRAWN TOWARDS TH E BALANCE SHEET AVAILABLE AT PAGE 6 OF THE PAPER BOOK. IT WAS STATED THAT THE CAPITAL OF T HE ASSESSEE IS ONLY TO THE EXTENT OF RS. 1.79 CRORES AND THAT STANDS INVESTED IN THE BUSINES S. MERE ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT SUFFICIENT TO HOLD THAT SHARES PURCHASES WE RE INVESTMENT. LOOKING TO THE QUANTUM OF THE TRANSACTION RECORDED, THE LD. DR SUBMITT4D T HAT THE ASSESSEE IS INDULGING IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE LD. DR FURTHER SUBMITTED THAT THE AO HAS NOT MADE ANY ENQUIRY TO ASCERTAIN AS TO WHETHER PRO FIT FROM THE PURCHASE AND SALE OF SHARES IS TO BE TAXED UNDER THE HEAD BUSINESS OR CAPITAL GAIN. THE AO IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HENCE, IT IS A CASE WHERE THE AO HAS NOT MADE ANY ENQUIRY. 2.6 WE HAVE HEARD BOTH THE PARTIES. THE REVENUE HAS TAXED THE PROFIT ARISING FROM THE SALE OF SHARES AS CAPITAL GAIN FOR THE ASSESSMENT Y EAR 2003-04 AND 2005-06. THE ASSESSEE HAS SHOWN THE SHARES AS INVESTMENT IN THE BALANCE S HEET. IF THE INTENTION OF THE ASSESSEE IS TO PURCHASE THE SHARES AS INVESTMENT THEN THE PROF IT ARISING FROM THE SALE OF SUCH SHARES WILL BE CAPITAL GAIN. THE ASSESSEE IN HIS COMPUTATI ON OF INCOME HAS SHOWN LONG TERM CAPITAL GAIN TO THE EXTENT OF RS. 12,79,01/-. THUS THE PROFIT ARISING FROM SUCH SALE OF 25 SHARES IS DEFINITELY TO BE TAXED UNDER THE HEAD CA PITAL GAIN. UNDER SIMILAR CIRCUMSTANCES, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT VS. JCIT, 34 DTR 52 UPHELD THE ORDER OF THE TRIBUNAL. IN THIS CASE, THE TRIBUNAL OBSERVED THE ONLY REASON THAT PROMPTED THE REVENUE AUTHORITY FOR TAKI NG THE DIFFERENT STAND IN THE YEAR UNDER CONSIDERATION WAS IMPOSITION OF SECURITY TRANSACTIO N TAX BY FINANCE ACT 2004, EXEMPTION OF LONG TERM CAPITAL GAIN U/S 10(38) AND CONCESSIONAL RATE OF TAX AT 10% ON SHORT TERM CAPITAL GAIN. THERE BEING NO CHANGE IN T HE MODUS OPERANDI OF ASSESSEE. BENEFIT CONFERRED BY LEGISLATIVE CHANGES COULD NOT BE TAKEN AWAY IN THIS MANNER. THE TRIBUNAL THEREFORE, HELD THAT PROFIT ARISING FROM P URCHASE AND SALE SHARES IS TO BE TAXED UNDER THE HEAD CAPITAL GAIN. THE HON'BLE BOMBAY HI GH COURT HELD THAT THOUGH THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EA CH ASSESSMENT YEAR IS SEPARATE ITSELF , THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSI STENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. THERE IS NO JUSTIFICAT ION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. THE SLP AGAINS T THE DECISION OF THE HON'BLE BOMBAY HIGH COURT HAS BEEN DISMISSED. THE ABOVE DECISION H AS BEEN FOLLOWED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ACIT, VS. NAISHAD H VS. VACHHARAJANI (ITA NO.6429/MUM/2009 DATED 25-022011 AND SHANTI LAL M J AIN VS. ACIT (ITA NO. 2690/MUM/2010 DATED 27-04-2011). IN THIS CASE, ITAT MUMBAI BENCH HELD THAT THE PROFIT ARISING FROM SALE OF SHARE IS TO BE TAXED UN DER THE HEAD CAPITAL GAIN BECAUSE THE REVENUE HAS ALREADY ACCEPTED SUCH PROFIT UNDER THE HEAD CAPITAL GAIN FOR THE ASSESSMENT YEARS 2003-04 TO 2008-09. IT WAS HELD THAT PRINCIPL E OF CONSISTENCY IS TO BE FOLLOWED. WHILE DECIDING THIS APPEAL, THE TRIBUNAL HAS REFERR ED TO CBDT INSTRUCTION NO. 1827 DATED 26 31-08-1989. IT IS THEREFORE, CLEAR THAT THE AO HAS ADOPTED ONE OF THE POSSIBLE VIEW AND ON THE BASIS OF THAT POSSIBLE VIEW, THE ORDER CANNOT B E HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. RELIANCE IS PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 24 3 ITR 83 (SC). 2.7 THE NEXT OBJECTION OF THE REVENUE IS THAT THE A O HAS NOT MADE ANY ENQUIRY. THE LD. CIT IN THE SHOW CAUSE NOTICE HAS MENTIONED THAT THE ASSESSEE HAS CARRIED OUT 843 TRANSACTIONS OF PURCHASES AND SALES OF SHARES. THE LD. CIT HAS ALSO REFERRED TO THE INVESTMENTS MADE IN THE SHARES. IT IS NOTICED THAT THE ASSESSEE FILED THE DETAILS IN RESPECT OF SHARES IN RESPONSE TO NOTICE U/S 139 (9). THOUG H NOTICE MAY NOT BE VALID IN THE EYE OF LAW BUT THE DETAILS STANDS FILED ARE PART OF THE RE CORD.. THE AO WAS FULLY AWARE OF THE TRANSACTIONS IN SHARES. ONCE AN ISSUE HAS BEEN RAIS ED BY ASKING FOR THE DETAILS THEN IT MEANS THAT THE AO IS PRESUMED TO HAVE CONSIDERED TH IS ISSUE AND IT CANNOT BE SAID THAT THERE WAS NO ENQUIRY. THERE IS DIFFERENCE BETWEEN L ACK OF ENQUIRY AND INSUFFICIENT ENQUIRY. THE ORDER CANNOT BE CONSIDERED AS ERRONEOU S BECAUSE THE LD. CIT IS OF THE OPINION THAT THE AO HAS NOT MADE IN-DEPTH ENQUIRY. REFERENCE IS MADE TO THE ORDER OF ITAT JODHPUR BENCH IN THE CASE OF AMRITLAL KHATRI V S. DCIT (ITA NO. 233/JU/2009 DATED 19-07-2010 FOR THE ASSESSMENT YEAR 2006-07) WHEREIN THE BENCH AT PARA 11 HAS OBSERVED AS UNDER:- 11. FOR EFFECTIVE ADJUDICATION OF THIS APPEAL, TH E PROVISION CONTAINED IN SECTION 263 IS MOST RELEVANT. AS CAN B E SEEN FROM THE SAID PROVISION, IT IS FOUND THAT THE POWER OF SUO MOTTO REVISION UNDER SUB- SECTION 1 OF SECTION 263 OF INCOME TAX ACT IS IN TH E NATURE OF SUPERVISORY JURISDICTION WHICH CAN BE EXERCISED ONLY IF THE ORD ER OF THE ASSESSING 27 OFFICER IS FOUND ERRONEOUS AND IS ALSO RESULTING I N PREJUDICE TO THE INTEREST OF REVENUE. THESE TWO CIRCUMSTANCES MUST NECESSARIL Y EXIST TO EMPOWER THE COMMISSIONER TO EXERCISE THE POWER OF REVISION UNDER THIS SECTION. ANY ORDER OF THE ASSESSING OFFICER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IT NECESSARILY IMPLI ES THAT IF THE ORDER PASSED BY THE ASSESSING OFFICER IS IN ACCORDANCE WI TH LAW APPLICABLE THERETO, THE SAME CANNOT BE BRANDED AS ERRONEOUS. O N PERUSAL OF THE RECORDS OF THE CIT MAY BE OF THE OPINION THAT THE E STIMATE BY THE OFFICER CONCERNED IS ON THE LOWER SIDE AND LEFT TO THE COMM ISSIONER TO ESTIMATE THE INCOME AT HIGHER FIGURE THAN DETERMINED BY THE ITO. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINED THE INCOME HIMSELF AT HIGHER FIGURE. THI S IS BECAUSE THE ITO IS EXERCISING THE QUASI JUDICIAL POWER RESTED WITH HIM IN ACCORDANCE WITH LAW AND ARRIVING AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATI SFIED WITH THE CONCLUSION REACHED BY THE ITO. IN SUCH A CASE IN TH E OPINION OF THE COMMISSIONER, THE ORDER IS PREJUDICIAL TO THE INTER EST OF REVENUE BUT THAT BY ITSELF WOULD NOT BE ENOUGH TO VEST THE COMMISSIO NER WITH THE POWER OF SUO-MOTTO REVISION BECAUSE THE FIRST REQUIREMENT NA MELY THAT THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY IF THE ORDER IS ERR ONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF REVENUE, THEN THE POWER OF THE S UO-MOTTO REVISION CANNOT BE EXERCISED. THEREFORE, THE TWIN INGREDIENTS OF 1) ORDER BEING ERRONEOUS AND 2) PREJUDICIAL TO THE INTEREST OF REVENUE MUST NECESSARILY EXIST FOR EMPOWERING THE CIT TO INVOKE PROVISIONS U/S 263(1). FURTHER MORE THE CIT IS NOT HAVING ANY POWER U/S 263 TO DIRECT THE ASSESSING OFFICER TO MAKE A FISHING AND ROVING INQUIRIES. IT WAS SO HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIA IN DIA LTD., REPORTED IN 203 ITR 108 AND OF THE PRESENT IMPUGNED ORDER IS AN ALYZED IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT STAT ED (SUPRA), IT IS FOND 28 THAT THE CIT HAS NOWHERE OBSERVED THAT THE ORDER PA SSED BY THE ASSESSING OFFICER IS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE AND HE SIMPLY DIRECTED THE ASSESSING OFFICER TO MAKE DETAILED INQUIRIES AN D INVESTIGATIONS AND PASSED CONSEQUENTIAL ORDERS AS PER LAW. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ORDER PASSED BY T HE CIT IS NOT SUSTAINABLE FOR LEGAL SCRUTINY AND ACCORDINGLY THE SAME IS HEREBY SET ASIDE BY ALLOWING THE ISSUES RAISED BY THE ASSESSEE IN TH IS APPEAL . 2.8 IT IS NOTICED THAT THE AO WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2007-08 HAS CONSIDERED THE ISSUE IN RESPECT OF THE PROFIT OR GAIN ARISING FROM THE SALE OF SHARES. IN PARA 3 OF THE ORDER DATED 15-12-2009, TH E AO HAS MENTIONED THAT NECESSARY DETAILS IN THIS REGARD HAVE BEEN OBTAINED AND KEPT ON RECORD. THE AO HAS ALSO CONSIDERED THE APPLICABILITY OF SECTION 14A. BEFORE THE AO, IT WAS SUBMITTED THAT ALL DIRECT EXPENSES IN RESPECT OF LONG TERM CAPITAL GAIN STANDS ALREAD Y DEDUCTED. BEFORE THE AO, IT WAS CONTENDED THAT RULE 8D WILL NOT BE APPLICABLE. THE AO AFTER CONSIDERING THE EXPLANATION FILED BEFORE HIM TAXED THE PROFIT ARISING FROM SALE OF SHARES TO BE TAXED UNDER THE HEAD CAPITAL GAIN. ONLY A SUM OF RS. 33,658/- WAS DISALL OWED OUT OF INTEREST EXPENSES. WE WERE INFORMED THAT NO ACTION U/S 263 HAS BEEN DONE IN RESPECT OF 2007-08. IT THEREFORE, MEANS THAT REVENUE AUTHORITY ITSELF ACCEPTED THAT O NE OF THE POSSIBLE VIEW TO TAX THE PROFIT ARISING FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAIN. THE BALANCE SHEET SHOWS THE INVESTMENT TO THE EXTENT OF RS. 79,82,114/-. THE CA PITAL OF THE ASSESSEE IS TO THE EXTENT OF RS. 1,79,65,986/-. THUS THE AMOUNT STANDS INVESTED IN THE SHARES IS LESS THAN THE CAPITAL. THE TAX AUDIT REPORT SHOWS THAT THE ASSESSEE IS VAL UING THE INVENTORIES AT COST OR NOT ON REALIZABLE VALUE. IN CASE THE ASSESSEE WAS CONSIDER ING THE SHARES AS STOCK IN TRADE THEN 29 THESE COULD HAVE BEEN VALUED EITHER AT COST OR MARK ET PRICE WHICHEVER IS LOWER. NET REALIZABLE VALUE MEANS THE AMOUNT WHICH CAN BE REAL IZED AND THAT MEANS THE MARKET PRICE. HOWEVER, SHARES HAVE BEEN VALUED AT THE PRIC E AT WHICH THEY HAVE BEEN PURCHASED I.E. AT THE COST VALUE. THE ASSESSEE IS NOT CLAIMIN G THE NOTIONAL LOSS IN CASE THE MARKET VALUE OF THE SHARES IS LESS THEN THE COST. AS PER A CCOUNTING STANDARD ISSUED BY INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE INVENTORIES REL ATING TO BUSINESS ARE TO BE VALUED AT THE COST OR MARKET PRICE WHICHEVER IS LOW. THIS ALS O SHOWS THAT THE ASSESSEE WAS TREATING THE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE. HENCE, THE PROFIT ARISING FROM SALE OF SHARES CAN BE CONSIDERED TO BE TAXED UNDER THE HEAD CAPITAL GAIN. 2.9 LOOKING TO THE ABOVE DISCUSSION, WE HOLD THAT T HE LD. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ORDER U 263 OF THE ACT. THUS THE ORDER OF THE LD. CIT IS CANCELLED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER IS PRONOUNCED ON 19-01-2012. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 19 /01/2012 *MISHRA COPY FORWARDED TO :- 1. SHRI SUBHASH CHAND AGARWAL, SUMERPUR 2. THE ACIT, CIRCLE- PALI 3. THE LD. CIT BY ORDER 4. THE LD. CIT (A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.263/JU /10) A.R, ITAT, JODHPUR 30 31 32 33