Smt. Seema Ranka, Baroda V. The ACIT.,Range-2, Baroda

ITA 2638/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1646 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 21-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Capital asset; Business income
• Section: 234B

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA.NO.2514/AHD/2011 [ASSTT.YEAR 2008-09] ACIT, CIR.2(1) BARODA. VS SMT.SEEMA A. RANKA ZYDEX INDUSTRIES 25, GANDHI OIL MILL COMPOUND BIDC, GORWA, BARODA 390 016. PAN : ABLPR 6874 K. ./ ITA.NO.2638/AHD/2011 [ASSTT.YEAR 2008-09] SMT.SEEMA A. RANKA ZYDEX INDUSTRIES 25, GANDHI OIL MILL COMPOUND BIDC, GORWA, BARODA 390 016. PAN : ABLPR 6874 K. VS ACIT, CIR.2(1) BARODA. ./ ITA.NO.2515/AHD/2011 [ASSTT.YEAR 2008-09] ACIT, CIR.2(1) BARODA. VS DR. AJAY I. RANKA ZYDEX INDUSTRIES 10, GANDHI OIL MILL COMPOUND BIDC, GORWA, BARODA 390 016. PAN : ABWPR 8235 R ./ ITA.NO.2637/AHD/2011 [ASSTT.YEAR 2008-09] ITA NO.2514/AHD/2011 & 3 OTHERS 2 DR. AJAY I. RANKA ZYDEX INDUSTRIES 10, GANDHI OIL MILL COMPOUND BIDC, GORWA, BARODA 390 016. VS ACIT, CIR.2(1) BARODA. )* / (APPELLANT) +, )* / (RESPONDENT) REVENUE BY : SHRI NARENDRA SINGH, SR.DR ASSESSEE BY : SHRI BHAVIN MARFATIA, AR / DATE OF HEARING : 19/04/2016 / DATE OF PRONOUNCEMENT: 11/05/2016 -./ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEES AND THE REVENUE ARE IN CROSS-APPEALS AGAINST THE ORDERS OF THE LD.CIT(A) DATED 11.7.2011 PASSED ON T HE RESPECTIVE APPEALS OF THE ASSESSEES IN THE ASSTT.YEAR 2008-09. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN B OTH THE APPEALS ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIV E IN NATURE. IN BRIEF THE GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN HOLDING BOTH THE ASSESSEES AS INVESTORS IN SHARES AND MUTUAL FUNDS, INSTEAD OF TRADERS TREATED BY THE AO, AND THEREBY DIRECTING THE AO TO ASSESS THE INCOME ON SALE OF SHARES UNDER THE HEAD LONG TERM CAPITAL GAIN/SHORT TERM C APITAL GAIN INSTEAD OF BUSINESS INCOME HELD BY THE AO. THE ASSESSEE IN THEIR APPEALS HAVE CHALLENGED THE ASSESSMENT OF RS.2,19,245/- (IN THE CASE OF DR.AJAY RANKA) AND RS.3,64,389/- (IN THE CASE OF SMT.SEEMA AJAY RA NKA) AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAIN SHOWN BY THE ASS ESSEE. SMT.SEEMA AJAY RANKA HAS RAISED ONE MORE GROUNDS OF APPEAL, WHEREB Y SHE HAS CHALLENGED THE ITA NO.2514/AHD/2011 & 3 OTHERS 3 DISALLOWANCE OF 10% OUT OF TRAVELLING EXPENSES. BO TH THE ASSESSEES HAVE CHALLENGED CHARGING OF INTEREST UNDER SECTION 234B OF THE INCOME TAX ACT. THE FACTS ON VITAL POINTS ARE COMMON IN ALL THESE A PPEALS. 3. BRIEF FACTS OF THE CASE ARE THAT SMT.SEEMA AJAY RANKA, PROPRIETOR OF ZYDEX INDUSTRIES HAS FILED HER RETURN OF INCOME ELE CTRONICALLY ON 24.9.2008 DECLARING TOTAL INCOME AT RS.3,94,88,957/-,. THIS RETURN WAS REVISED ON 25.9.2008 AND AN INCOME OF RS.3,95,69,429/- WAS DEC LARED. SIMILARLY, DR.AJAY RANKA HAS FILED ITS RETURN OF INCOME ON 30. 7.2008. HE DECLARED AN INCOME OF RS.1,14,07,470/-. BOTH THE ASSESSMENTS W ERE SELECTED FOR SCRUTINY ASSESSMENT AND NOTICES UNDER SECTION 143(2) WERE IS SUED AND SERVED UPON THE ASSESSEES. THE LD.AO HAS OBSERVED THAT THE ALLEGE D INVESTMENT IN THE SHARES HAS BEEN DONE BY DR.AJAY RANKA. HE HAS RECEIVED GI FT FROM HIS WIFE WHICH WERE USED FOR THE ALLEGED INVESTMENT. THE INCOME H AS BEEN BIFURCATED IN PROPORTION TO THE INVESTMENT. THE FOLLOWING DETAIL S WERE NOTICED BY THE AO IN THE ASSESSMENTS OF BOTH THE ASSESSEES: PARTICULARS NO. OF TRANSA CTIONS GAIN / LOSS (RS.) BIFURCATED TO SEEMA RANKA (RS.) AJAY RANKA (RS.) MUTUAL FUNDS - NIL NIL NIL DIRECT EQUITY SHARES 5 6,16,876 3,64,389 2,52,487 PMM / PMG - NIL NIL NIL SHORT TERM TOTAL 6,16,876 3,64,389 2,19,245 LONG TERM GAINS ON SHARES 14 7,86,083 4,64,339 3,21,744 MUTUAL FUND 9 2,13,83,175 1,26,31,042 87,52,133 LONG TERM TOTAL 2,21,69,258 1,30,95,381 90,73,877 ITA NO.2514/AHD/2011 & 3 OTHERS 4 4. THE LD.AO HAS CONFRONTED THE ASSESSEE TO SHOW AS TO WHY THE INCOME FROM SALE OF SHARES BE NOT TREATED AS BUSINESS INCO ME. IN RESPONSE TO THE QUERY OF THE AO, DR.AJAY RANKA HAS FILED DETAILED R EPLY WHICH HAS BEEN NOTICED BY THE AO ON PAGE NO.3 OF THE ASSESSMENT OR DER PASSED IN THE CASE OF SMT.SEEMA AJAY RANKA. WE WOULD REFER THIS REPLY IN SUBSEQUENT PART OF THIS ORDER. THE LD.AO HAS TREATED BOTH THE ASSESSEES AS TRADERS IN SHARES. HE HAS ASSESSED THE INCOME ON SALE OF SHARES AS BUSINESS INCOME. 5. ON APPEAL, THE LD.CIT(A) HAS OBSERVED THAT IN EA RLIER ASSESSMENT YEARS, SIMILAR ISSUE HAS ARISEN WHEREBY THE ASSESSEES WERE TREATED AS TRADER IN SHARES. THE DISPUTE TRAVELLED UPTO THE ITAT, AND THE ITAT H AS HELD THAT BOTH THE ASSESSEES SHOULD BE TREATED AS INVESTORS IN SHARES. THE LD.CIT(A) HAS MADE REFERENCE TO THE ORDER OF THE ITAT PASSED IN THE AS SESSEES CASE FOR THE ASSTT.YEAR 2004-05. ACCORDINGLY, THE LD.CIT(A) HAS ALLOWED THE APPEAL OF BOTH THE ASSESSEE, AND DIRECTED THE AO TO TREAT BOT H THE ASSESSEES AS INVESTORS IN SHARES. 6. BEFORE US, THE LD.DR RELIED UPON THE ORDER OF TH E LD.AO, WHEREAS, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDERS OF THE ITAT IN ITA NO.2533/AHD/2010 AND 2549/AHD/2010 IN THE ASSTT.YED AR 007-08. THESE APPEALS WERE DIRECTED AT THE INSTANCE OF THE ASSESS EE. 7. BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS OF PRESENT CASE SO AS TO FIND OUT, WHETHER ASSESSEE ARE TO BE TERMED AS INVO LVING IN THE TRADING OF SHARES OR TO BE TREATED AS A SIMPLICITOR INVESTORS. WE WOULD LIKE TO REFER CERTAIN BROAD PRINCIPLE CULLED OUT BY ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. REPORTED IN 120 TT J 216. THESE TESTS READ AS UNDER:- ITA NO.2514/AHD/2011 & 3 OTHERS 5 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED STOCK-IN-TRADE OR INVESTMENT. WHETHE R SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON- TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISP OSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDI CATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTI NG (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREA S LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTM ENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIA L MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST , IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHE THER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT D ISTINCTION HE HAS ITA NO.2514/AHD/2011 & 3 OTHERS 6 KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPA RENT IS NOT REAL. 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHAR ES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITE S FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE A SSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN I NTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE? 10. IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11. NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 8 . THE HONBLE GUJARAT HIGH COURT HAD ALSO AN OCCASI ON TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HONBLE COURT HAS MADE RE FERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 647. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A ITA NO.2514/AHD/2011 & 3 OTHERS 7 VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN- TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEE T AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSEN CE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRA NSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CAS E WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. ITA NO.2514/AHD/2011 & 3 OTHERS 8 8. NOW LET US CONSIDER THE REPLY OF THE ASSESSEE RE PRODUCED BY THE AO IN THE ASSESSMENT ORDER OF SMT.SEEMA AJAY RANKA. IT R EADS AS UNDER: A) DR AJAY RANKA IS A RESEARCH SCIENTIST IN THE FIELD OF CHEMICAL ENGINEERING AND HE HAS DONE PH.D. FROM LEHIGH UNIVE RSITY, USA ON THE SUBJECT OF POLYMERS SCIENCE & ENGINEERING IN TH E YEAR 1984. AFTER COMPLETION OF HIS STUDIES HE HAS BEEN ENGAGED ONLY IN THE ACTIVITY OF MANUFACTURING AND DEALING IN SPECIALITY CHEMICALS AND HAVE NOT ENGAGED IN ANY OTHER BUSINESS. PRESENTLY H E IS FULL TIME ENGAGED IN AS CEO OF ZYDEX INDUSTRIES, HAVING A BUS INESS OF MORE THAN RS. 42.00 CRORES, WITH EXPORTS TO SEVERAL COUN TRIES. YOU WOULD APPRECIATE THAT HIS FULL TIME AND ATTENTION IS IN M ANAGING THE SAID BUSINESS AND IT IS NOT POSSIBLE FOR HIM TO CARRY ON ANY OTHER BUSINESS OR ANY OTHER SYSTEMATIC ACTIVITY OF PROFIT EARNING. FURTHER HE WAS PAID A SALARY OF RS. 720, OOO/- FOR THE YEAR. THIS SALARY IS PAID TO HIM FOR GIVING HIS FULL TIME AND ATTENTION TO THE S AID BUSINESS AND NOT FOR CARRYING OUT MULTIPLE BUSINESSES. B) YOU WOULD APPRECIATE THAT ENTIRE CAPITAL GAI NS (LONG TERM AND SHORT TERM) IS EARNED OUT OF THE INVESTMENT ACTIVIT IES CARRIED OUT BY HIM OUT OF HIS OWN FUNDS AND NOT OUT OF ANY BORROWI NGS MADE BY HIM. YOU WOULD APPRECIATE THAT HE HAD SURPLUS FUNDS AVAILABLE WITH HIM AND LIKE ANY OTHER PERSON WOULD DO, HE HAS ALSO PUT HIS SURPLUS MONEY FOR PRODUCTIVE PURPOSES AND ACCORDINGLY, THE SAID MONIES HAVE BEEN INVESTED IN MUTUAL FUNDS AND IN SOME CASE S SHARES OF THE COMPANIES. C) HIS INTENTION FOR MAKING INVESTMENTS WAS NOT FOR TRADING IN THE SAID SHARES AND / OR SECURITIES, BUT IS OF INVESTME NT. THIS IS APPARENT FROM THE FACT THAT HE HAS DONE ONLY 19 TRANSACTIONS OF SALE AND PURCHASE IN THE SHARES DURING THE ENTIRE YEAR. FURT HER, ONLY 9 TRANSACTIONS ARE DONE FOR THE SALE & PURCHASES OF T HE UNITS OF MUTUAL FUNDS INCLUDING SWITCHOVER TRANSACTIONS. THI S, BY NO STRETCH OF IMAGINATION COULD NOT BE CONSIDERED TO BE HIGH N UMBER OF TRANSACTIONS GIVING RISE TO ASSUMING THE CHARACTERI STICS OF BUSINESS INCOME, ESPECIALLY WHEN HE IS QUALIFIED AS FINANCIA L CONSULTANT NOR DO HE DEALS WITH THE SHARE / SECURITY TRANSACTIONS AS HIS NORMAL LINE OF ACTIVITY. IN THE ABOVE BACKGROUND, IT MAY BE RELEVANT TO NOTE THE FINDINGS AND OBSERVATIONS OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. HOICK LARSEN 160 ITR 67 (SC), W HILE ITA NO.2514/AHD/2011 & 3 OTHERS 9 DISMISSING THE CONTENTION OF THE DEPARTMENT THAT TH E TRANSACTION OF MR. LARSEN WERE TRADING TRANSACTIONS : THE SUPREME COURT REJECTED THE CONTENTION THAT EVERY INVESTMENT MADE WITH AN INTENTION THAT IT WOULD GRO W IN ITS VALUE WOULD CONSTITUTE A BUSINESS INCOME. THE SC (R ELYING ON THE OBSERVATION OF THE ROYAL COMMISSION ON TAXAT ION OF PROFITS AND INCOME IN ENGLAND) THE PROPERTY SHOULD BE SUCH WHICH IS CAPABLE OF EARNING INCOME BY MERELY HOLDING IT AND IT SHOULD NOT BE NE CESSARY THAT THE BENEFIT OF THE PROPERTY CAN BE HAD ONLY BY SELLING IT. THE SC MADE ACCORDINGLY DISTINGUISHED BETWEEN T HE COMMODITIES AND OTHER REAL PROPERTIES AND SHARES. I N OUR CASE, THE SHARES AND SECURITIES ARE CAPABLE OF PROD UCING INCOME IN THE FORM OF DIVIDENDS AND INTEREST WHILE YOU HOLD IT. ANOTHER CONSIDERATION IS THE LENGTH OF OWNERSHI P, WHEREIN IT CLEARLY OBSERVED THAT MERELY BECAUSE A PROPER TY IS HELD FOR SHORTER\DURATION; IT WOULD NOT MAKE THE TRANSACTION TO BE TRADING NATURE. THE NUMBER OF TRANSACTIONS CARRIED OUT COULD A FACT OR FOR CONSIDERATION. YOU WOULD APPRECIATE THAT THE NUMBER OF TRANSACTIONS IN SHARES CARRIED OUT BY HIM ARE VERY SMALL I.E. JUST 23 TRANSACTION SO AROUND 2 TRANSACTION PE R MONTH. THIS FACTOR ALSO ACTUALLY FAVOURS ASSESSEE CIRCUMST ANCES. IF THE PERSON HAS CARRIED OUT SUPPLEMENTARY WORK ON THE PROPERTY FOR INCREASING ITS VALUE OR HAS CARRIED OU T MARKETING ACTIVITY FOR THE SAME, IT WOULD GIVE COLO UR OF THE TRADING NATURE. YOU WOULD APPRECIATE THAT THERE IS COMPLETE ABSENCE OF THESE ACTIVITIES AND THE INVEST MENTS HAVE BEEN ACQUIRED AND THEN SOLD LATER ON. MOTIVE AND SURROUNDING CIRCUMSTANCES WOULD ALSO GO TO ESTABLISH THE NATURE OF TRANSACTIONS. IN THIS YOU W OULD APPRECIATE THAT HE IS A CHEMICAL ENGINEER, DEVOTING HIS FULL TIME AND ATTENTION TO MANAGING A SPECIALITY CHEMICA L BUSINESS. HE DOES NOT HAVE SKILLS FOR MANAGING THE FUNDS AND HE DO NOT DEVOTE HIS MAJOR TIME AND ATTENTION T O THESE ACTIVITIES. THESE FACTORS CLEARLY POINT OUT THAT TH ERE IS ITA NO.2514/AHD/2011 & 3 OTHERS 10 NOTHING WHICH WOULD SHOW THAT HIS MOTIVE IS TO DO B USINESS IN SHARES OR SECURITIES. YOU WILL FURTHER APPRECIATE THAT THE BALANCE IN VESTMENTS LYING WITH HIM AT THE YEAR END HAVE BEEN CONSISTENT LY SHOWN AS INVESTMENT AND THEY ARE VALUED AT THE COST AND NOT AT COST OR MARKET VALUE WHICHEVER IS LOWER AS I S APPLICABLE IN THE CASE OF STOCK IN TRADE. THIS ALSO CLEARLY SHOWS THAT HE HOLDS IT AS INVESTMENT AND NOT AS STO CK IN TRADE. IN VIEW OF THE ABOVE, WE REQUEST YOU THAT ASSESSEE' S TRANSACTIONS IN THE SHARES AND SECURITIES BE CONSIDERED AS TRANS ACTIONS OF CAPITAL ASSETS AND NOT TRADING ASSETS. 10. ON AN ANALYSIS OF REPLY OF THE ASSESSEE AND THE FINDING OF THE AO, WE FIND THAT THE AO BASICALLY NOWHERE POINTED OUT ANY SPECIFIC REASON FOR HOLDING THE ASSESSEES AS TRADER IN THE SHARES. HIS REASONING ARE GENERAL IN NATURE, VIZ. QUA THE CONTENTIONS OF THE ASSESSEE THAT HE WAS PRE-OC CUPIED ON WHOLE TIME BASIS IN THE BUSINESS OF ZYDEX INDUSTRIE S, WHICH HAS BUSINESS OF MORE THAN RS.42 CORRES. THE LD.AO IN A SWEEPING MA NNER HAS OBSERVED THAT FOR CARRYING OUT BUSINESS, ONE IS NOT REQUIRED TO E MPLOYEE HIMSELF FOR FULL TIME, THAT THIS IS A GENERAL OBSERVATION. WHAT WAS THE SPECIFIC FOR THE ASSESSEE? THERE CANNOT BE ANY DISPUTE WITH REGARD TO PERCEPTION THAT ONE MAY CARRY OUT BOTH THE ACTIVITIES I.E. FULL TIME PROFES SION TO A PARTICULAR BUSINESS AS WELL AS TRADER, BUT WHAT PERSUADED THE AO IN THE PR ESENT CASE TO ASSUME THAT THE ASSESSEE WAS TRADING IN SHARES, HE HAS NOWHERE POINTED OUT. SIMILARLY, HE HAS OBSERVED THAT THE ASSESSEE HAS BEEN REGULARLY T RADING IN SHARES/SECURITIES/ MUTUAL FUNDS. THAT IS THE TREATMENT GIVEN BY THE A O WHICH COULD NOT MEET APPROVAL OF HIGHER APPELLATE AUTHORITY. HE HAS NOT POINTED OUT ANYTHING FROM THE CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. SIM ILARLY, WE HAVE GONE THROUGH OTHER REASONS ASSIGNED BY THE AO. THESE WE RE GENERAL OBSERVATIONS, ABOUT THE NATURE OF ANY BUSINESS, HOW IT HAS BEEN P ARTICULARLY CARRIED OUT BY THE ASSESSEE HAS NOT BEEN PIN-POINTED OUT BY THE AO . THEREFORE, IN OUR ITA NO.2514/AHD/2011 & 3 OTHERS 11 OPINION, THE LD.CIT(A) HAS RIGHTLY HELD THAT THE AS SESSEES WERE NOT TRADING IN SHARES. THE INCOME RESULTED TO THEM ON SALE OF SHA RES IS TO BE ASSESSED UNDER THE HEAD LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN. 11. AS FAR AS THE GROUND OF APPEAL RAISED BY BOTH T HE ASSESSEE IN THEIR APPEALS THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING T REATMENT OF SHORT TERM CAPITAL GAIN AMOUNTING TO RS.3,64,389/- IN THE CASE OF SMT.SEEMA AJAY RANKA AND RS.2,52,487/- IN THE CASE OF DR.AJAY RANKA AS A BUSIENESS INCOME IS CONCERNED, WE FIND THAT THERE IS NO DISCUSSION ON T HIS ASPECT IN THE IMPUGNED ORDER. IMPLIEDLY, THESE ITEMS ARE ALSO ASSOCIATED WITH ULTIMATE NATURE OF ACTIVITY CARRIED OUT BY THE ASSESSEE. ONCE WE HAVE HELD THAT THE ASSESSEES ARE TREATED AS INVESTOR IN SHARES, THEN, ON SALE OF SHA RES, INCOME RESULTED INTO BOTH THE ASSESSEE IS TO BE ASSESSED AS LONG TERM CAPITAL GAINS/SHORT TERM CAPITAL GAIN. THEREFORE, THESE TWO GROUNDS OF APPEALS OF T HE ASSESSEE ARE ALLOWED, WHEREAS, SOLITARY GROUND RAISED BY THE REVENUE IS R EJECTED. 12. IN THE APPEAL OF SMT.SEEMA AJAY RANKA, SHE HAS CLAIMED TRAVELLING EXPENSES OF RS.79,07,443/-. THE LD.AO HAS FOUND TH AT DR.AJAY RANKA HAD MADE NUMBER OF VISITS TO USA, VIETNAM ETC. THE ASS ESSEE HAS FAILED TO SUBMIT VARIOUS EXPENDITURE VOUCHERS, AND HOW ALL TH E VISITS WERE FOR THE PURPOSE OF BUSINESS. THE AO OBSERVED THAT FAMILY A LSO WENT FOR FOREIGN TOURS, AND THEREFORE, ELEMENT OF PERSONAL NATURE IS ALSO INVOLVED. THE LD.AO DISALLOWED 10% OF THE TOTAL EXPENDITURE. 13. ON APPEAL, THE LD.CIT(A) CONFIRMED THE DISALLOW ANCE. BEFORE US ALSO NO NEW EVIDENCE WAS BROUGHT BY THE ASSESSEE. THE A SSESSEE HAS FAILED TO DEMONSTRATE AS TO HOW THE EXPENDITURE INCURRED ON W AS EXCLUSIVELY MEANT FOR BUSINESS. ON AN ESTIMATE BASIS, THE LD.AO HAS DISA LLOWED 10% OF THE EXPENDITURE ON THE GROUND THAT ELEMENT OF PERSONAL NATURE OF EXPENDITURE ITA NO.2514/AHD/2011 & 3 OTHERS 12 CANNOT BE RULED OUT OF THE TOTAL EXPENDITURE CLAIME D. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CI T(A) ON THIS ISSUE. 14. BOTH THE ASSESSEES HAVE CHALLENGED THE CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT. IT IS CONSEQUENTIAL IN NA TURE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE, IN BOTH THE CASE ARE REJ ECTED. 15. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED, WHEREAS, THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11 TH MAY, 2016 AT AHMEDABAD. SD/- SD/- ( N.K. BILLAIYA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER