Sudhadevi Anil Roongta, Surat V. The ACIT.,Circle-3, Surat

ITA 2697/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9925 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 31-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: RASESH SHAH
• Keywords: Capital asset; Business income; Question of law; Speculative transactions; Set aside; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A.N. PAHUJA, AM) ITA NO.2697/AHD/2008 A. Y: 2005-06 SUDHADEVI ANIL ROONGTA, E-610, SURYA COMPLEX, CITY LIGHT, MAIN ROAD, SURAT VS THE A. C. I. T., CIRCLE-3, AAYAKAR BHAVAN, MAJURA GATE, SURAT PA NO. AAQPR 4466F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RASESH SHAH, AR RESPONDENT BY SHRI K. M. MAHESH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II, SURAT D ATED 17-06-2008 FOR ASSESSMENT YEAR 2005-06. 2. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUNDS NO.2 AND 3 OF THE APPEAL, THE SAME ARE DISMISSED AS WITH DRAWN. 3. GROUND NO.1 OF THE APPEAL READS AS UNDER 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE SUM OF RS.15,14,8 32/- SHOWN UNDER THE HEAD SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 4. BRIEFLY, THE FACTS OF THE CASE ON THIS GROUND AR E THAT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAD CLAIMED SHORT TERM CAPITAL GAIN FROM THE ;SALE OF S HARES AMOUNTING TO RS.15,14,832/-. THE AO ISSUED SHOW CAUSE NOTICE ASK ING THE ASSESSEE TO EXPLAIN WHY THE SAME SHOULD NOT BE TREATED AS INCOM E FROM BUSINESS. THE ASSESSEE SUBMITTED THAT DURING THE YEAR SHE HAD INVESTED HER FUNDS ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 2 IN SHARES AND SECURITIES AND DERIVED PROFITS FROM I NTRA-DAY TRANSACTIONS WHICH SHE HAD DISCLOSED AS INCOME FROM SPECULATIVE TRANSACTIONS. THE INCOME DERIVED FROM THE SALE OF INVESTMENTS WAS SHO WN AS CAPITAL GAIN. IN ORDER TO CARRY OUT A BUSINESS, A PERSON REQUIRES AN OFFICE, MANPOWER AND FUNDS ETC., WHICH THE ASSESSEE DID NOT HAVE. TH E ASSESSEE HAD ALSO NOT TAKEN ANY INTEREST BEARING LOAN TO CARRY OUT HE R INVESTMENTS. THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE FOR EARNIN G THE INCOME FROM SALE OF SHARES AND SECURITIES AND IT WAS NOT A CONT INUOUS ACTIVITY OF THE ASSESSEE. THE ASSESSEE HAD ONLY BOOKED PROFIT WHEN THERE WAS AN APPRECIATION IN THE INVESTMENT. THE ASSESSEE ALSO P LACED RELIANCE ON CBDT CIRCULAR NO.4/2007 AND ALSO ON THE DECISION I N THE CASE OF TUSHAR TANNA VS CIT 153 TAXMAN 345 INCLUDING THE CA SES CITED IN 284 ITR 453 AND 203 ITR 426 TO CONTEND THAT THE INCOME OF RS.15,14,382/- SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN AND NO T AS INCOME FROM BUSINESS. THE AO REJECTED THE SUBMISSIONS OF THE AS SESSEE. HIS FIRST GROUND WAS THE MOTIVE OF THE ASSESSEE BEHIND THE INVESTMENTS/PURCHASES. DURING THE YEAR, THE ASSESSE E HAD EARNED DIVIDEND OF RS.2,668/- WHEREAS THE PROFIT FROM THE SALE OF SHARES WAS RS.15,14,832/- WHICH SHOWS THAT THE MAIN PURPOSE OF THE INVESTMENTS WAS TO EARN PROFIT FROM TRANSACTING IN THE SHARES. THE RATIO OF DIVIDEND TO PROFIT WAS 17: 10,000. THE MOTIVE OF THE ASSESSEE W AS, THEREFORE, CLEARLY TO EARN PROFITS FROM SUCH TRANSACTIONS IN A REGULAR AND SYSTEMATIC MANNER. THE AO FURTHER NOTED THAT THE ASSESSEE HELD MAJORITY OF THE SCRIPTS I.E. 27 OUT OF 32 FOR LESS THAN 4 DAYS AND HAD TRANSACTED AS AND WHEN THERE WAS SCOPE TO EARN PROFIT. THE AO, THEREF ORE, TOOK THE VIEW THAT IF THE INTENTION OF THE ASSESSEE WAS TO HOLD T HE SHARES AS INVESTMENT, SHE WOULD HAVE RETAINED THE SAME FOR A LONGER PERIO D. DURING THE YEAR, THE ASSESSEE CARRIED OUT TRANSACTIONS ONLY IN SHARE S AND THEREFORE, THE ONLY SOURCE OF INCOME WAS THE PROFIT EARNED FROM SU CH TRANSACTIONS. THIS WAS THE NORMAL AND REGULAR BUSINESS OF THE ASSESSEE . DURING THE YEAR, THE ASSESSEE SOLD SHARES WROTH RS.2,95,05,587/-. TH E RATIO OF PURCHASES ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 3 TO SALES WAS 1:1. THE AO OBSERVED THAT THE ASSESSEE MAINTAINED ACCOUNT WITH THREE DIFFERENT STOCK BROKERS WHICH SHOWED THA T SHE HAD A VERY WELL ORGANIZED AND ESTABLISHED INFRASTRUCTURE AND SYSTEM FOR ENGAGING IN SHARE TRANSACTIONS. THE ASSESSEE HAD TAKEN UNSECURE D LOAN OF RS.1,87,750/- DURING THE YEAR WHICH SHE HAD UTILIZE D IN PURCHASING SHARES. THE AO, THEREFORE, TREATED THE ACTIVITY OF THE ASSESSEE TO BE IN THE NATURE OF BUSINESS OR PROFESSION AND THAT THE MOTIV E OF THE ASSESSEE BEHIND SUCH INVESTMENTS WAS PROFIT MOTIVE, FREQUENC Y OF THE TRANSACTIONS WAS AS IN A BUSINESS ACTIVITY, THE MAGNITUDE OF PUR CHASE AND SALE WAS SUBSTANTIAL, BOOKS OF ACCOUNT SHOWED THE DIFFERENCE BETWEEN SALES AND PURCHASE AS PROFIT AND THE HOLDING PERIOD WAS LESS THAN 45 DAYS AND THAT THE INFRASTRUCTURE EMPLOYED WAS ON A BUSINESS SCALE AND NORMAL BUSINESS OF THE ASSESSEE INVOLVED SHARE TRANSACTION S. THE AO, THEREFORE, TREATED THE SUM OF RS.15,14,832/- AS INCOME FROM BU SINESS. 5. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED C IT(A) AND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AO AND IT WAS SUBMITTED THAT THE ASSESSEE HAD E NTERED INTO A TOTAL OF ONLY 32 TRANSACTIONS OF PURCHASES AND SALES DURING THE ENTIRE YEAR DURING THE MONTHS OF DECEMBER, 2004 AND MARCH, 2005 AND THAT THE AO HAD FAILED TO CONSIDERED THAT THE ACTIVITY OF THE A SSESSEE WAS NOT SUBSTANTIAL OR SYSTEMATIC AND WAS NOT CARRIED OUT I N AN ORGANIZED MANNER. THE AO WAS ALSO NOT JUSTIFIED IN COMPARING THE DIVIDEND EARNED ON SUCH SHARES WITH THE PROFIT EARNED FROM THE SALE S. THE ASSESSEE SOLD THE SHARES AS AND WHEN SHE FOUND AN OPPORTUNITY TO TAKE BENEFIT OF APPRECIATION. IT WAS CONTENDED THAT THE AO HAD ERRE D IN NOT FOLLOWING THE INSTRUCTIONS CONTAINED IN CBDT CIRCULAR NO.4/2007 D ATED 15.-06-2007 WHICH CLEARLY STATED THAT THERE COULD BE NO SINGLE CRITERIA WHICH COULD BE DECISIVE AND THAT THE TOTAL EFFECT OF ALL THE PARAM ETERS LAID DOWN THEREIN SHOULD BE CONSIDERED TO DETERMINE AS TO WHETHER OR NOT THE ACTIVITIES WERE IN THE NATURE OF BUSINESS. THE LEARNED CIT(A) CONSIDERING THE ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 4 SUBMISSIONS OF THE ASSESSEE AND THE FACTS OF THE CA SE DISMISSED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 6 TO 6 .6 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 6. FROM THE SUBMISSIONS OF THE AR, I FIND THAT APA RT FROM PROVIDING THE PERSONAL AND INDIVIDUAL PERSPECTIVE O F THE ASSESSEE AS A DECLARED INVESTOR, HE HAS NOT BEEN AB LE TO COUNTER THE LARGE NUMBER OF SIGNIFICANT FACTS BROUG HT ON RECORD BY THE AO. IN THE CASE OF CIT VS. H. HOLCK LARSEN ( 1986) 160 ITR 67, THE HON. SUPREME COURT OBSERVED THAT THE QU ESTION WHETHER THE TRANSACTIONS OF SALE AND PURCHASE OF SH ARES ARE TRADING TRANSACTIONS OR ARE IN THE NATURE OF INVEST MENTS, IS A MIXED QUESTION OF LAW AND FACT. HOWEVER, THE REAL Q UESTION IS NOT WHETHER THE TRANSACTION OF BUYING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING, BUT WHETHER THE LATER STAGES OF THE WHOLE OPERATION SHOW THAT THE FIRST STEP THE PURCHASE OF THE SHARES WAS NOT TAKEN AS, OR IN THE COURSE OF, A TRADING TRANSACTIONS. IN THE CASE OF THE ASSESSEE, THIS PA RTICULAR CASE, THE LATER STAGE OF TRANSACTION I.E. THE SALE OF 27 SCRIPTS OUT OF THE 32 SCRIPTS WITHIN LESS THAN 4 DAYS, CLEARLY SHO WED THAT THE FIRST STEP I.E. THE PURCHASE OF SHARES WAS TAKE N AS A TRADING TRANSACTIONS. IN OTHER WORDS, THE INTENT AN D PURPOSE OF PURCHASING THE SHARES WAS CLEARLY TO EARN PROFIT AS AND WHEN THE OPPORTUNITY AROSE. FROM THE DETAILS IF THE TRAN SACTIONS, IT IS SEEN THAT THE ASSESSEE PURCHASED THE SHARES WHEN TH E PRICES WERE LOW, AND SOLD THE SHARES WHEN THE PRICES WERE HIGH ENOUGH TO EARN A PROFIT. DEPENDING ON THE MOVEMENT IN THE PRICES OF SHARES OF DIFFERENT COMPANIES, THE ASSESS EE INDULGED IN BUYING AND SELLING, WHICH CLEARLY INDICATED THAT THE ACTIVITY ENGAGED IN BY THE ASSESSEE WAS PURELY A BUSINESS AC TIVITY. THERE WAS A SYSTEM AND CONSISTENCY IN EARNING PROFI TS. 6.2 THE AO VERY CLEARLY LAID DOWN THE VARIOUS PARAM ETERS WHICH HE CULLED OUT FROM DIFFERENT CASE-LAWS INCLUD ING THE DECISION OF THE AUTHORITY OF ADVANCED RULINGS (AAR) IN THE CASE OF FIDELITY NORTH STAR FUND AND ORS., (2007) 2 88 ITR 641. THUS, APART FROM THE MOTIVE I.E. THE FIRST STEP TAK EN IN THE PURCHASE OF SHARES, AND THE FREQUENCY OF THE TRANSA CTIONS, THE MAGNITUDE OF THE SALE AND PURCHASE OF SHARES AS ALS O THE SHORT HOLDING PERIODS, CLEARLY SHOWED THAT THE PROF ITS EARNED FROM THE SALE OF SHARES WAS IN THE NATURE OF BUSINE SS INCOME. 6.3 THE AO PLACED STRONG RELIANCE ON CIRCULAR NO.4 OF 2007, WHERE IT HAS BEEN STATED THAT IT IS POSSIBLE FOR A TAX PAYER TO ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 5 HAVE TWO PORTFOLIOS, ONE COMPRISING OF SECURITIES A ND CAPITAL ASSETS, AND THE OTHER BEING A TRADING PORTFOLIO COM PRISING OF TRADING ASSETS. THE ASSESSEE HAD EXERCISED THE RIGH T TO TREAT THE PURCHASE AND SALE OF SHARES AS CAPITAL ASSET AN D NOT STOCK-IN-TRADE. WHAT HAS BEEN COMPLETELY MISSED IS THAT, THERE IS NO RIGHT VESTED ON ANY ASSESSEE TO TREAT THE T RANSACTIONS IN SHARES IN A PARTICULAR MANNER. THE NATURE OF THE TWO PORTFOLIOS HAVE TO BE DISTINGUISHED AND DECIDED ON THE BASIS OF THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE , AND NOT WHAT THE ASSESSEE DECIDES IT SHOULD BE. IN THE CASE OF THE ASSESSEE, THE FACTS AND CIRCUMSTANCES, AND HENCE, A LL THE RELEVANT PARAMETERS CLEARLY SHOWED THAT THE ACTIVIT Y OF THE ASSESSEE OF PURCHASING AND SELLING SHARES DURING TH E YEAR, WAS CLEARLY A BUSINESS ACTIVITY. 6.4 THE MOST SIGNIFICANT FACT BROUGHT OUT BY THE AO WAS THAT THE ASSESSEE WAS TRANSACTING THROUGH 3 DIFFERE NT SHARE BROKERS. IF SHE WAS INDEED AN ORDINARY INVESTOR WHO HAD ONLY INHERITED SHARES FROM HER FATHER AND WAS ONLY A HOU SEWIFE, SHE WOULD NOT HAVE ENGAGED 3 DIFFERENT SHARE-BROKIN G FIRMS FOR TRANSACTING IN SHARES. ALSO OF CONSIDERABLE SIG NIFICANCE WAS THE FACT THAT THE ASSESSEE HAS SOLD DURING THE YEAR ALL THE SHARES THAT SHE HAD PURCHASED DURING THE YEAR AND T HE TOTAL VALUE OF THE SALES WAS RS.2,95,05,587. THE RATIO OF PURCHASES TO SALES WAS THUS 1:1 (PAGE 4 OF THE ASSESSMENT ORD ER). 6.5 THESE FACTS CLEARLY SHOWED THAT SHE WAS NOT MER ELY A HOUSEWIFE CONFINED TO THE KITCHEN BUT WAS RUNNING A REGULAR BUSINESS ESTABLISHMENT, AND HER ONLY BUSINESS ACTIV ITY WAS TRANSACTING IN SHARES. 6.6 IN VIEW OF SUCH INCONTROVERTIBLE FACTS AS BROUG HT OUT BY THE AO AND AS DISCUSSED ABOVE IN SOME DETAIL, IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN TREATING THE SUM OF R S.15,14,832 AS THE ASSESSEES INCOME FROM BUSINESS FOR THE YEAR . 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIALS AVAILABLE ON RECORD. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO P B 22 WHICH ARE DETAILS OF THE TRANSACTIONS CARRIED OUT IN THE YEAR UNDER CONSIDERATION. ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 6 HE HAS SUBMITTED THAT IN THE EARLIER YEAR THE ASSES SEE HAS NOT ENTERED INTO ANY TRANSACTION IN SHARES. ALL TRANSACTIONS WE RE DELIVERY BASED TRANSACTIONS. IN THE BOOKS INVESTMENT IN SHARES HAS BEEN SHOWN. THE ASSESSEE IS NOT DEALING IN TRADING OF THE SHARES ON DAY TO DAY BASIS AND THE ASSESSEE HAS NOT ENTERED INTO CONTINUOUS OR REG ULAR TRANSACTIONS IN SHARES, THEREFORE, THE ASSESSEE IS NOT TRADING IN S HARES. THE ASSESSEE DID NOT MAINTAIN ANY OFFICE AND HAS NOT SPENT ANY EXPEN DITURE IN EARNING THE INCOME FROM SALE OF SHARES AND SECURITIES. THE ASSE SSEE HAD ONLY BOOKED THE PROFIT WHEN THERE WAS AN APPRECIATION IN THE IN VESTMENTS. THE TRANSACTIONS WERE MAINLY CARRIED OUT IN THE MONTHS OF DECEMBER, 2004 AND MARCH, 2005. HE HAS SUBMITTED THAT THE ACTIVITI ES CONDUCTED BY THE ASSESSEE WERE NOT SUBSTANTIAL, NOT IN ORGANIZED OR SYSTEMATIC WAY. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT MOTIVE OF THE ASSESSEE TO ENTER INTO TRANSACTIONS WAS FOR INVESTM ENT PURPOSE ONLY AND THEREFORE, IT COULD NOT BE TREATED AS NORMAL BUSINE SS CARRIED OUT BY THE ASSESSEE. THE ASSESSEE HAS NO OTHER BUSINESS. HER I NCOME IS SHOWN AS INCOME FROM OTHER SOURCES ONLY. NO BORROWED FUNDS H AVE BEEN USED IN THE TRANSACTIONS OF INVESTMENT. THEREFORE, THE ASSE SSEE DID NOT CONDUCT ANY BUSINESS ACTIVITY. PB-21 IS A COPY OF THE CAPIT AL ACCOUNT TO SHOW DIFFERENT TREATMENT TO THE TRANSACTIONS WHICH ARE F OR CAPITAL GAINS AND FOR SPECULATIVE PROFIT ON SALE OF SHARES. THE LEARNED C OUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE ITAT AHMEDABAD B BEN CH IN THE CASE OF ACIT VS BANKIM JAYANTILAL SHAH IN ITA NO.2866 TO 28 72/AHD/2008 DATED 07-07-2010 IN WHICH ON IDENTICAL ISSUE, THE C LAIM OF THE ASSESSEE HAS BEEN ACCEPTED BY FOLLOWING THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT VS JCIT 29 SOT 117 CONFIR MED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROH IT 228 CTR (BOM.) 582. COPIES OF THE ORDERS ARE FILED ON RECORD. 8. ON THE OTHER HAND, THE LEARNED DR RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE U SED SERVICES OF 3 ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 7 BROKERS AND THE TRANSACTIONS WERE ONLY INVESTMENT R ETURN TRANSACTIONS AND THE ASSESSEE HAS CARRIED OUT TRANSACTIONS IN A SUM OF RS.2 CRORES AND THAT SOME OF THE TRANSACTIONS WERE HELD FOR LES S THAN 45 DAYS. THEREFORE, IT IS CLEAR CASE OF INCOME FROM BUSINESS AND AS SUCH THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL GAIN WAS RIG HTLY DISALLOWED BY THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HEAVILY RELIED UP ON THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS BANKIM JAYANTILAL SHAH (SUPRA) ION WHICH DECISION IN T HE CASE OF GOPAL PU ROHIT (SUPRA) AND OTHERS WERE RELIED UPON BY THE TRIBUNAL. THE OBSERV ATIONS AND FINDINGS AT PAGES 16 TO 18 ARE REPRODUCED AS UNDER: 12. WHEN WE APPLY THE PRINCIPLES LAID DOWN IN THE ABOVE JUDGMENTS, WE FIND IN THE PRESENT CASE THAT - (1) THE ASSESSEE DID NOT HAVE DEALINGS IN LARGE NUMBER OF SCRIPTS OR LARGE FREQUENCY OF TRANSACTION S WHICH WOULD WARRANT INTERFERENCE THAT THEY ARE TRAD ERS; (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEES HAVE NEVER TREATED THE SHARES AS STOCK IN TRADE AND RETU RNS OF INCOME HAVE BEEN FILED PRIOR TO THE SEARCH SHOWI NG THEM AS INVESTMENTS AND PROFIT THERE FROM AS CAPITA L GAINS; (3) EVEN THOUGH MONEY HAS BEEN BORROWED TO INVEST IN SHARES, NEITHER THE INTEREST PAID ON BORROWED MO NEY OR SECURITY TRANSACTION TAX HAS BEEN CLAIMED WHILE COMPUTING CAPITAL GAINS; (4) THE ASSESSEES HAVE RETAINED THE SHARES FOR ENJOYING APPRECIATION IN VALUE AND NOT FOR THE PURP OSE OF REALIZATION OF PROFIT. THERE IS APPARENTLY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIENT TO BE A TRADER. IT IS CLEARLY SHOWN BY THEM IN THE RETURN S OF INCOME FILED THAT THEY ARE ENJOYING DIVIDEND INCOME FROM HOLDING SHARES AS INVESTMENT; ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 8 (5) IT IS NOT SHOWN BY THE REVENUE THAT STOCK OF SHARES HAVE BEEN VALUED AT COST OR MARKET PRICE WHICHEVER IS LOW BUT THEY HAVE VALUED AT COST WHILE COMPUTING THE CAPITAL GAINS; (6) THE ASSESSEES HAVE APPARENTLY DISCHARGED THE PRIMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWIN G HOLDINGS ONLY AS INVESTMENT AND NOT STOCK IN TRADE. THE PRIMARY ONUS HAS NOT BEEN REBUTTED BY THE REVENUE. THE CASE OF THE REVENUE IS THUS BASED MERELY ON SUSPICION AND ON NUMBER OF TRANSACTIONS CARRIED IN ONE OR TWO YEARS THOUGH WHICH ARE NOT FREQUENT IF WE SP READ THEM ON MONTHLY BASIS AS OBSERVED BY US ABOVE; (7) THE ASSESSEES HAVE ALWAYS TAKEN THE DELIVERY OF SHARES AND MADE THEM REGISTERED. IT HAS BEEN HELD I N SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (122 TTJ 21 6) THAT ONCE SHARES ARE REGISTERED IN THE NAME OF TH4E ASSESSEE, INTENTION IS CLEAR THAT IT IS AN INVESTME NT AND NOT A TRADE; (8) THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FOR DE ALING AS A TRADER IN SHARES. 13. IN OUR CONSIDERED VIEW THE SUSPICION OF THE REVENUE TO HOLD THE TRANSACTIONS MADE BY THE ASSESSEES AS IN THE NATURE OF TRADE IS BASED ON THE PREMISE THAT THE ASSESSEES ARE FREQUENTLY RESHUFFLI NG ITS PORTFOLIO AND MERELY BECAUSE SHARES ARE REGISTERED/TRANSFERRED IN THE NAMES OF THE ASSESSEE S WOULD NOT BE SUFFICIENT TO HOLD THAT THE TRANSACTIO NS ARE INVESTMENT. BUT WE ARE OF THE CONSIDERED VIEW THAT THE PERCEPTION OF THE DEPARTMENTAL AUTHORITIES IS LEGAL LY MISPLACED. THOUGH APPARENTLY IT MAY APPEAR THAT MERELY BECAUSE SHARES ARE REGISTERED/TRANSFERRED IN THE NAME OF THE ASSESSEE HE MAY NOT GO OUT OF AMBIT OF A TRADER BUT THE FACT IS THAT THE ASSESSEES HAVE DISCHARGED THEIR ONUS BY GETTING THE SHARES REGISTE RED IN THEIR NAMES. NOW ONUS SHIFTS TO THE REVENUE TO S HOW THAT INSPITE OF SHARES BEING TRANSFERRED/REGISTERED IN THE NAME OF THE ASSESSEES, THE ASSESSEES ARE STILL DEALING IN SHARES AS A TRADER. THIS CAN BE DONE BY THEM BY SHOWING THAT ASSESSEES ARE CARRYING OUT LARGE ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 9 FREQUENCY OF TRANSACTIONS, CREATING AN OFFICE, CARR YING OUT RELATED ORGANIZED ACTIVITIES AND COMPLYING WITH OTHER LEGAL REQUIREMENT OF BEING A TRADER. IN THE P RESENT CASE THE FREQUENCY OF TRANSACTIONS ARE NOT SO MUCH TO HOLD THAT THE ASSESSEES ARE STILL TRADERS EVEN THOU GH SHARES ARE REGISTERED IN THEIR NAMES. IN THE ABOVE TWO JUDGMENTS NAMELY SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (122 TTJ 216) AND GOPAL PUROHIT V. JCIT (2009) 29 SOT 117 (MUM), IT HAS BEEN HELD THAT ASSESSEE WOULD BE INVESTOR PRIMARILY IF SHARES ARE REGISTERED BY I T IN ITS NAME. ONCE THERE IS NO CONTRARY MATERIAL TO HOLD OTHERWISE, WE WOULD RESPECTFULLY FOLLOW THESE DECIS IONS AND HOLD THAT THE ASSESSEES IN THE INSTANT CASES ON HAND HAVE DISCHARGED THE PRIMARY ONUS BY GETTING TH E SHARES REGISTERED IN THEIR NAMES AND THEREFORE, THE Y CAN VERY WELL CLAIM AS INVESTORS. SINCE THE CASE OF THE REVENUE IS BASED MERELY ON SUSPICION AND NOT ON ADEQUATE MATERIAL TO SHOW THAT THE ASSESSEE IS FACI NG AS A TRADER, WE ARE UNABLE TO INTERFERE WITH THE OR DER PASSED BY THE LEARNED CIT(A) WHICH IS QUITE ELABORA TE, REASONED AND BASED ON JUDGMENTS OF COURTS. 9. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE TRIBUNA LS DECISION IN OTHER ASSESSEES OF GROUP CASES (SUPRA). WE FURTHER FIND THAT IN THIS CASE ALSO, ASSESSEES HAVE TAKEN D ELIVERY OF SHARE AND THERE IS NO MATERIAL TO SHOW THAT SHARES WERE SOLD WITHOUT TAKING DELIVERY AND EARNED PROFIT ON SPECUL ATION BASIS. WE FURTHER FIND THAT THE ASSESSEE HAS BORROW ED FUNDS FOR INVESTMENT IN THE SHARES BUT INTEREST PAID HAS NOT BEEN CLAIMED AS DEDUCTION. THIS CLEARLY ESTABLISHES THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE INVESTMENT AN D NOT TO DEAL AS TRADER. ONCE MORE FACT WAS POINTED OUT BY L D. COUNSEL FOR THE ASSESSEE THAT EVEN THE STT HAS NOT BEEN CLA IMED IN THE COMPUTATION OF CAPITAL GAINS. WE AGAIN FURTHER FIND THAT THE NUMBER OF TRANSACTIONS AND NUMBER OF SCRIPTS ENTERE D INTO BY THE ASSESSEE ARE NOT MUCH ENOUGH AND NOT REPETITIVE . ACCORDINGLY, RELYING ON THE TRIBUNALS DECISION IN OTHER ASSESSEES OF GROUP CASES (SUPRA), WE DISMISS THESE APPEALS OF THE REVENUE. 10. IN THE ABOVE CASE, THE TRIBUNAL NOTED THE NUMBE R OF TRANSACTIONS HELD DURING THE RELEVANT ASSESSMENT YEARS WHICH WER E MORE THAN THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. IN THIS C ASE IN EARLIER YEAR AND ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 10 SUBSEQUENT YEAR NUMBERS OF SALE TRANSACTIONS WERE C ARRIED OUT STILL IT WAS CONSIDERED AS A CASE OF SHORT TERM CAPITAL GAIN BUT IN THE CASE OF THE ASSESSEE ONLY TRANSACTIONS ARE IN TWO MONTHS. THE P ARAMETERS FOR CONSIDERING THE TRANSACTIONS TO BE OF SHORT TERM CA PITAL GAIN ARE NOTED IN THE ORDER. IN THE CASE OF THE ASSESSEE, THE ASSESSE E HAS NEVER TREATED THE PURCHASE OF SHARES AS STOCK IN TRADE. THE ASSESSEE HAS HER OWN FUNDS IN HER HANDS AND OPTED TO INVEST IN SHARES AND SECURIT IES. THE ASSESSEE TREATED THE INVESTMENT IN SHARES IN BOOKS AND NEVER TREATED AS STOCK IN TRADE. THE ASSESSEE HAS NOT USED ANY BORROWED FUNDS TO PURCHASE THE SHARES AND HAS NOT CLAIMED ANY EXPENDITURE FOR PAYM ENT OF INTEREST. ALL TRANSACTIONS WERE CARRIED OUT WHICH WERE DELIVERY B ASED TRANSACTIONS. THERE WAS NO INTENTION OR MOTIVE ON THE PART OF THE ASSESSEE TO TREAT THE SAID TRANSACTIONS AS BUSINESS TRANSACTIONS. THE MOT IVE OF THE ASSESSEE WAS TO MAKE INVESTMENT IN SHARES. THE INCOME DERIVE D FROM SALE OF INVESTMENT WAS SHOWN AS CAPITAL GAIN. THE ASSESSEE DID NOT MAINTAIN ANY OFFICE FOR CARRYING OUT ANY BUSINESS ACTIVITY A ND NO EXPENDITURE HAS BEEN CLAIMED FOR EARNING THE INCOME FROM THE SALE O F SHARES AND SECURITIES. IN THE EARLIER YEAR THE ASSESSEE HAS NO T CONDUCTED ANY DEALINGS IN SHARES. THE ASSESSEE HAS NOT ENTERED IN TO CONTINUOUS OR REGULAR TRANSACTIONS OF SHARES AND THAT NUMBERS OF TRANSACTIONS CONDUCTED BY THE ASSESSEE ARE MAINLY IN THE MONTHS OF DECEMBER, 2004 AND MARCH, 2005 AND THE ASSESSEE HAS ENTERED INTO J UST 32 TRANSACTIONS DURING WHOLE OF THE YEAR. NO OTHER TRANSACTION IS C ARRIED OUT BY THE ASSESSEE. THE TRANSACTIONS CONDUCTED BY THE ASSESSE E ARE NOT SUBSTANTIAL OR IN ORGANIZED MANNER, THEREFORE, COULD NOT BE TRE ATED AS REGULAR BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN SHARES . THE ASSESSEES EXPLANATION THAT THE ASSESSEE HAS MADE THE INVESTME NT IN SHARES TO UTILIZE HER SURPLUS FUNDS AND THAT NO REGULAR INCOM E IS GENERATED AND THAT WHEN THERE IS A RISK OF REDUCTION IN THE MARKE T PRICES, THE ASSESSEE OPTED TO SELL THE INVESTMENTS AND EARNED SHORT TERM CAPITAL GAIN IS ACCEPTABLE. THUS, THE MOTIVE OF THE ASSESSEE WAS FO R INVESTMENT IN ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 11 SHARES ONLY. THE ASSESSEE HAS NO OTHER BUSINESS INC OME. THE AO NOTED THAT SINCE THE TRANSACTIONS WERE CARRIED OUT FOR HO LDING THE SHARES FOR LESS THAN 45 DAYS, THEREFORE, INCOME SHOULD BE TREA TED AS BUSINESS INCOME. HOWEVER, THE AO HAS FAILED TO NOTE THE FACT THAT THE LAW ITSELF PROVIDE FOR THE PERIOD OF HOLDING FOR LESS THAN ONE YEAR FOR THE PURPOSE OF CHARGING TAX. IF THE INVESTMENT IS HELD FOR A PERIO D OF MORE THAN ONE YEAR, THEN PROFIT ARISING OUT OF SUCH SHARES MAY BE OUTSI DE THE PURVIEW OF THE PROVISIONS. FOR HOLDING SHARES FOR LESS THAN 45 DAY S ITSELF WOULD PROVE THAT IT WAS A TRANSACTION OF SHORT TERM CAPITAL GAI N. THE ABOVE FACTS WOULD PROVE THAT THE ASSESSEE DID NOT HAVE DEALING IN SHARES IN LARGE SCALE OR LARGE FREQUENCY OF TRANSACTION WHICH WOULD WARRANT INFERENCE THAT THE ASSESSEE IS TRADING IN SHARES. THE ASSESSE E HAS RETAINED THE SHARES FOR APPRECIATION IN VALUE ONLY AND NOT FOR T HE PURPOSE OF REALIZATION OF THE PROFIT FOR COMMERCIAL MOTIVE. CO NSIDERING THE ABOVE DISCUSSIONS, WE ARE OF THE VIEW THAT THE CASE OF TH E ASSESSEE WOULD BE CLEARLY COVERED BY THE DECISION OF THE ITAT AHMEDAB AD BENCH IN THE CASE OF ACIT VS BANKIM JAYANTILAL SHAH (SUPRA). IN VIEW OF THE ABOVE DISCUSSION; WE SET ASIDE THE ORDERS OF THE AUTHORIT IES BELOW AND DIRECT THE AO TO TREAT THE INCOME OF THE ASSESSEE SO DISCL OSED UNDER THE HEAD SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. IN THE RESULT, THE APPEAL OF THE ASSESSEE ON GROUND NO.1 IS ALLOWED. 11. NO OTHER POINT IS ARGUED OR PRESSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09-09-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 09- 09-2010 LAKSHMIKANT/- ITA NO.2697/AHD/2008 SUDHADEBI ANIL ROONGTA VS ACIT, CIR 3, SURAT 12 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DISPATCH OF THE ORDER: