NEHAL V SHAH, MUMBAI V. ADDL CIT RG 16(1), MUMBAI

ITA 2733/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3631 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 29-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Keywords: Business income; Rule of consistency; Futures and options; Capital Gains
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA. NO. 2733/MUM/2009 ASSESSMENT YEAR 2005-2006 MR. NEHAL V. SHAH MUMBAI 400 034 PAN AAIPS-5670A VS. ACIT 21 (1) MUMBAI. (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI PARESH SHAPARIA FOR RESPONDENT : MS. ASHIMA GUPTA (DR) ORDER PER T.R. SOOD, A.M. 1. IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED . BUT ONLY DISPUTE BEFORE US RAISED BY THE ASSESSEE IS THAT LE ARNED CIT(A) ERRED IN CONFIRMING THE SHORT TERM CAPITAL GAIN OF RS.1,07,7 0,524/-. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GARM ENTS MANUFACTURING AND EXPORTING GARMENTS AND WAS ALSO M AKING INVESTMENTS IN SHARES. DURING THE ASSESSMENT PROCEE DINGS IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HA D SHOWN SHORT TERM CAPITAL GAIN OF RS.1,07,70,524/-. ON ENQUIRY, IT WAS STATED BEFORE HIM THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND EXPORTING OF GARMENTS THROUGH A FIRM VIZ., M/S. ZEN CLOTHING CO. WHERE ASSESSEE WAS A WORKING PARTNER. ASSESSEE WAS ALSO A DIRECTOR IN A COMPANY KNOWN AS CHANAKYA INTERNATIONAL (P) LT D. WHICH WAS ALSO ENGAGED IN THE BUSINESS OF EXPORT OF GARMENTS. IT WAS STATED THAT ASSESSEE IS ONLY AN INVESTOR AND HAS NOT BORROWED A NY MONEY FOR INVESTING SHARES. FURTHER ASSESSEE WAS NOT VERY MUC H EXPERIENCED IN THE SHARE LINE. THEREFORE, ASSESSEE WAS ALSO TAKING SERVICES OF PORTFOLIO MANAGEMENT SERVICE PROVIDER. MOST OF THE INVESTMENT S WERE HAD FOR MORE THAN ONE YEAR AND ASSESSEE HAD EARNED DIVIDEND INCOME ALSO. 2 THE ASSESSING OFFICER DID NOT FIND FORCE IN THE SUB MISSIONS AND OBSERVED THAT ASSESSEE HAD ENTERED INTO TOTAL 127 P URCHASE TRANSACTIONS AND 83 SALE TRANSACTIONS WHICH IS A VE RY HIGH FREQUENCY. NO INVESTOR INDULGED IN SUCH HIGH FREQUENCY OF TRAN SACTIONS. IT WAS FURTHER OBSERVED THAT IN THE FOLLOWING TRANSACTIONS ASSESSEE HAS NOT TAKEN EVEN THE DELIVERY AND THE SHARES WAS SOLD IMM EDIATELY. SL NO NAME OF COMPANY NO. OF SHARES/ UNITS PURCHAS E DATE PURCHASE VALUE SALE DATE SALE VALUE SPECULATIVE GAIN/LOSS ON SHARE TRADING NO. OF DAY S 1 TCS LTD. 10000 17/1/05 13012300.00 17/1/05 128971 38.48 -115161.52 0 2 ACC 30000 27/1/05 10354800.00 27/1/05 10357459.00 2659.00 0 23367100.00 23254597.48 -112502.52 2.1. IN FEW MORE CASES THE SHARES HAVE BEEN SOLD W ITHIN A VERY SHORT SPAN OF TIME AND FOLLOWING TRANSACTIONS WERE NOTED WHERE SHARES WERE SOLD IN A SHORT SPAN OF TIME. PRIOR TO 01-10-2004 SL NO NAME OF COMPANY NO. OF SHARES. PURCHAS E DATE PURCHASE VALUE SALE DATE SALE VALUE SHORT TERM GAIN/LOSS ON NO. OF DAY S 1 MTNL 21000 18/5/04 2439150.00 20/5/04 2390850 -48 300 2 2. MTNL 17000 06/8/04 2216626.30 10/8/04 2177822.68 -38803.62 4 3. GUJURAT AMBUJA 21200 13/4/04 6647491.00 26/4/04 7031408.6 383917.6 13 4. ONGC 6323 05/4/04 4742250.00 20/4/04 5452259.67 710009.67 15 5. IPCL 18000 20/5/04 2402390.45 04/6/04 2690820 28 8429.55 15 6. DIC 596 18/3/04 238400.00 13/4/04 301510.44 6311 0.44 26 18686307.75 20044671.39 1358363.6 4 AFTER 1.10.2004 SL NO NAME OF COMPANY NO. OF SHARES. PURCHASE DATE PURCHASE VALUE SALE DATE SALE VALUE SHORT TERM GAIN/LOSS ON NO. OF DAY S 1 TELCO (TATA MOTORS) 35000 4/11/04 14949874.20 11/11/04 14726497.7 -2233 76.50 7 2. TELCO (TATA MOTORS) 5000 28/10/04 1993264.24 11/11/04 2103785.39 110521 .15 14 3. JINAL IRON 3500 18/11/04 1036966.86 03/-NOT 9817 76.76 -55190.10 15 3 & STEEL CO. CLEAR 4. TELCO (TATA MOTORS) 15000 26/10/04 6250509.02 11/11/04 6311356.16 60847 .14 16 5. TCS 1500 14/10/04 1647214.85 04/11/04 1727016.55 79801.80 21 6. JINAL IRON & STEEL CO. 15000 11/11/04 4425387.29 3/12/04 4207614.71 -21827 2.58 22 7. TCS LTD. 7500 13/1/05 10010698.05 04/2/05 977216 1.3 -238536.75 22 8. TCS 7000 11/10/04 7724603.31 04/11/04 8059411.04 334807.73 24 9. RELIANCE INDUSTRIE S 10000 03/12/04 5350146.08 29/12/04 5223729.65 -1264 16.43 26 10. TCS 2000 8/10/04 2189124.80 4/11/04 2302688.86 113564.06 27 11. TCS 3000 7/10/04 3295778.13 4/11/04 3454033.3 1 58255.17 28 69079297.49 68877234.44 -202063.05 2.3. IT WAS ALSO NOTED THAT IN ALMOST 88% SALES OF SHARES, THE SAME WERE PURCHASED DURING THE YEAR ONLY. THIS HIGH RATIO OF SALES WITHIN A YEAR INDICATES THAT ASSESSEE WAS ONLY A TR ADER IN THE SHARES. IT WAS ALSO OBSERVED THAT CAPITAL ACCOUNT OF THE AS SESSEE AS ON 31-3- 2004 SHOWS THAT THE ASSESSEE HAS SHARES WORTH RS.59 ,98,0717/- AND CASH AT BANK RS.30,00,000/-. OUT OF THE ABOVE SHARE HOLDINGS THE ASSESSEE HAD SOLD SHARES WORTH RS.2,45,48,256/- FOR RS.4,02,20,902. THE SALE PROCEEDS SO RECEIVED CAN BE DEEMED TO BE U TILISED TO BUY THE SHARES AT COST OF RS.80,23,25,869/- WHICH HE CONTIN UES TO HOLD AS ON 31-3-2005. THAT LEAVES THE INITIAL CASH AVAILABLE O F RS.30,00,000 FOR TRADING IN SHARE. THE ASSESSEE UTILISED THIS AMOUNT BY WAY OF TURNING OVER AND CIRCULATING IN SUCH A PATTERN TO MAKE TOTA L PURCHASES OF RS.23,33,93,616/- IN THE YEAR AND TO MAKE SALE OF R S.296532998 OF SHARES PURCHASED DURING THE YEAR. THIS IS ALMOST 85 TIMES THE CAPITAL AVAILABLE. THIS SHOWS THAT ASSESSEE WAS FREQUENTLY TURNING OVER HIS CAPITAL AND CIRCULATING STOCK-IN-TRADE TO MAXIMISE THE TURNOVER AND PROFIT. IN THIS BACK GROUND, ASSESSING OFFICER AFTE R DISCUSSING THE SUBMISSIONS IN DETAIL, REJECTED THE CLAIM OF ASSESS EE AND HELD THAT IN RESPECT OF THESE SHARES ASSESSEE WAS ONLY A TRADER AND THEREFORE, THE SHORT TERM CAPITAL GAIN DECLARED BY THE ASSESSEE, W AS TREATED AS BUSINESS INCOME. ON AN APPEAL, THE LEARNED CIT(A) C ONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER A ND CIT(A) AND EMPHASISED THAT ASSESSEE WAS HARDLY ENGAGED IN THE BUSINESS OF GARMENT EXPORTS THROUGH M/S. ZEN CLOTHING CO. WHERE IN MORE THAN 100 WORKERS WERE EMPLOYED. THEREFORE, ASSESSEE WAS FULLY BUSY IN HIS GARMENTS BUSINESS. HE FURTHER SUBMITTED THAT ASSESS EE WAS INVESTING IN SHARES FROM A LONG TIME AND IN EARLIER YEARS SUC H TRANSACTIONS WERE ACCEPTED BY THE DEPARTMENT. ASSESSEE HAD NOT MADE A NY BORROWINGS. ASSESSEE HAD NEVER ENTERED INTO THE DERIVATIVE TRAN SACTIONS. TWO TRANSACTIONS QUOTED BY THE ASSESSING OFFICER HAPPEN ED BECAUSE OF THE MISTAKE OF BROKER AND ASSESSEE HAD SUFFERED LOSS IN BOTH THE TRANSACTIONS WHICH ASSESSEE HAD NOT CONTESTED IN AN Y CASE. HE ARGUED THAT IN THIS YEAR, GOVERNMENT HAD ALREADY INTRODUCE D THE SECURITY TRANSACTION TAX AND THE IDEA WAS THAT NO SHARE TRAN SACTION SHOULD GO WITHOUT TAX. HE THEREFORE, REFERRED TO PAGES 18 OF THE PAPER BOOK WHICH IS COPY OF THE LIST OF THE SHARES HELD AS ON 31 ST MARCH, 2005 AND POINTED OUT THAT ASSESSEE WAS HOLDING SHARES IN ONL Y 15 COMPANIES COST OF WHICH WAS RS.11,56,65,048/- WHEREAS THE MAR KET VALUE OF THE SAME WAS RS.17,69,58,313/-. THIS CLEARLY SHOWS THAT DESPITE OF GAIN OF ALMOST RS. 6 CRORES IN THE SHARES WHICH WERE CA RRIED ON FOR NEXT YEAR BY THE ASSESSEE, ASSESSEE PREFERRED TO HOLD TH ESE SHARES THAN TO SELL THE SHARES. THIS CLEARLY SHOWS THAT ASSESSEE W AS AN INVESTOR. THEN HE REFERRED TO PAGE 19 OF THE PAPER BOOK AND P OINTED OUT THAT TOTAL PURCHASE TRANSACTIONS IN THE YEAR WAS ONLY 31 AND TOTAL SALE TRANSACTIONS WERE 25. THEREFORE, IT IS NOT CORRECT TO STATE THAT ASSESSEE HAD A VERY HIGH VOLUME OF CONNECTIONS. IN FACT, HE EXPLAINED THAT WHAT HAPPENED SOME TIME THAT WHEN HE MADE AN ORDER SAY 1 000 SHARES OF X COMPANY, IT IS NOT NECESSARY THAT WHOLE LOT OF 1000 SHARES WOULD BE TRANSACTED IN ONE TRANSACTION. THE TRANSACTION I N STOCK EXCHANGE HAPPENED THROUGH COMPUTER TRADING AND THE COMPUTER WOULD MATCH THE TRADES AND THEN EXECUTE THE SAME, WHICH MEANS T HAT TRANSACTION FOR 1000 SHARES MAY CONSIST OF MANY SMALLER LOTS. T HEN HE REFERRED TO THE ORDER OF THE TRIBUNAL IN THE CASE OF MR. VINEET M. SHAH VS. ADDL. 5 CIT ITA. NO. 2731/MUM/2009 (COPY OF WHICH IS PLACED AT PAGES 126 TO 136 OF PAPER BOOK) WHICH THE CASE OF THE ASSESSE ES FATHER WHEREIN UNDER SIMILAR CIRCUMSTANCES, THE TRANSACTIONS WERE HELD TO BE IN THE NATURE OF INVESTMENT. SIMILARLY IN THE CASE OF ASSE SSEES SISTER MS. KARISHMA SHAH VS. ADDL. CIT ITA. NO. 2735/MUM/2009 (COPY OF WHICH IS PLACED AT PAGES 136A TO 136-V OF THE PAPER BOOK) WHEREIN AGAIN THE TRANSACTIONS WERE HELD TO BE INVESTMENT I N NATURE. THEN HE REFERRED TO PAGES 157 TO 159 OF THE BOOK WHICH IS T HE CHART SHOWING COMPARISON OF ASSESSEES CASE WITH THAT OF HIS FATH ER AND SISTER AND HE POINTED OUT HOW THE FACTS ARE ALMOST SIMILAR. HE AL SO RELIED ON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT 29 SOT 117 WHEREIN IT WAS HELD THAT SUCH SHARE TRANSACTIONS WILL NOT BE HELD TO BE BUSINESS TRANSACTIONS WHEN I N THE EARLIER YEARS SAME WERE ACCEPTED AS INVESTMENT TRANSACTIONS ON TH E PRINCIPLE OF CONSISTENCY. 4. ON THE OTHER HAND, LEARNED DR STRONGLY SUPPORTE D THE ORDERS OF THE ASSESSING OFFICER AND LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY PERUSED THE RECORD AND FIND FORCE IN THE SUBMISSION S OF THE LEARNED COUNSEL FOR THE ASSESSEE. IT SEEMS THAT NUMBER OF T RANSACTIONS HAVE NOT BEEN CALCULATED PROPERLY BY THE ASSESSING OFFIC ER BECAUSE IT MAY HAPPEN SOME TIME THAT A SINGLE TRANSACTION WOULD BE SPLIT BY THE COMPUTERS TRADING OF THE STOCK EXCHANGES INTO MANY SMALLER TRANSACTIONS, BUT, THAT DOES NOT MEAN THAT ASSESSEE HAS CARRIED SO MANY TRANSACTIONS. LET US SAY, IF SOME ONE PLACES A N ORDER FOR PURCHASE OF 1000 SHARES OF X COMPANY AND THE SAME IS EXECUTED BY THE ELECTRONIC TRADING SYSTEM OF STOCK EXCHANGE INT O 100 SMALLER TRANSACTIONS, IT DOES NOT MEAN THAT THIS PERSON HAS ENTERED INTO 100 TRANSACTIONS. ASSESSEE HAS CARRIED OUT ONLY 31 PURC HASE TRANSACTIONS AND 25 SALE TRANSACTIONS WHICH CANNOT BE SAID TO BE A GREAT VOLUME OF TRANSACTIONS. FURTHER, ASSESSEE WAS HOLDING SHARES WORTH RS. 11.56 CRORES AT THE END OF THE YEAR AND MARKET VALUE OF T HE SAME WAS ABOUT 6 RS.17.69 CRORES. IF ASSESSEE WAS A TRADER, HE WOULD HAVE DEFINITELY REALISED THIS HUGE PROFIT OF ALMOST RS. 6 CRORES IM MEDIATELY AND NOT CARRIED OUT THE STOCK TO THE NEXT YEAR. AS FAR AS T HE TWO TRANSACTIONS NARRATED BY THE ASSESSING OFFICER IN WHICH NO DELIV ERY WAS TAKEN AND TRANSACTION WAS SETTLED IN THE SAME DAY WE AGREE WI TH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT PERHAP S THESE PARTICULARS WERE WRONGLY CARRIED OUT ON BEHALF OF THE ASSESSEE BY THE BROKER THATS WHY ASSESSEE GOT THEM SETTLED ON THE SAME DAY AND H AS NOT CONTESTED THESE TWO TRANSACTIONS. ASSESSEE HAS ALSO NOT BORRO WED ANY MONEY AND HE ALREADY OCCUPIED FULL TIME BUSINESS FOR GARM ENTS THROUGH THE FIRM M/S. ZEN CLOTYHING. HE FURTHER FIND THAT IN ID ENTICAL CIRCUMSTANCES IN THE CASE OF SISTER, THE TRIBUNAL H AD HELD AS UNDER : 11. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. IT SEEMS TO US THAT ON THE FACTS OF T HE CASE IT IS DIFFICULT TO HOLD THAT THE ASSESSEE WAS CARRYING ON A BUSINESS IN SHARES, WITH THE SHARES AS HER STOCK-IN -TRADE. AS ALREADY NOTED, THE ASSESSEES BACKGROUND DOES NO T INDICATE THAT SHE WAS FAMILIAR WITH THE SHARE BUSIN ESS. SHE WAS A WORKING PARTNER IN A PARTNERSHIP FIRM WHICH W AS ENGAGED IN THE GARMENT BUSINESS AND WAS A DIRECTOR IN A COMPANY WHICH WAS ALSO ENGAGED IN A SIMILAR BUSINES S. IT WOULD APPEAR THEREFORE THAT SHE HARDLY HAD ANY KNOW LEDGE ABOUT THE NUANCES OF SHARE TRADING. SHE ALSO DID N OT BORROW ANY MONIES FOR THE PURPOSE OF ACQUIRING THE SHARES AND THIS FACT IS NOT DISPUTED ON BEHALF OF THE REVE NUE. THE SHARES HAVE BEEN ACQUIRED OUT OF THE SURPLUS FUNDS LEFT WITH THE ASSESSEE. SHE HAS DISCLOSED THE SHARES IN THE BALANCE SHEET AS SHARES ONLY AND NOT AS STOCK-IN-TR ADE. 7 THIS FACT HAS ALSO BEEN RECOGNIZED BY THE DEPARTMEN TAL AUTHORITIES. IN PARAGRAPH 15 OF HIS ORDER THE CIT( A) HAS OBSERVED THAT THE ASSESSEE HAS CONSIDERED ALL THE PURCHASE OF SHARES ONLY AS INVESTMENTS AND THAT THE Y WERE CLASSIFIED AS SUCH IN THE BALANCE SHEET. HE HAS AL SO GONE ON TO OBSERVE THAT THE ASSESSEE HAD TWO PORTFOLIOS, A TRADE PORTFOLIO AND AN INVESTMENT PORTFOLIO. FROM THE BA LANCE SHEET AS ON 31.03.2005 IT IS DIFFICULT TO FIND ANY SHARES HELD IN THE TRADE PORTFOLIO AND TO THIS EXTENT THE CIT(A ) APPEARS TO BE WRONG I.E., IN SAYING THAT THE ASSESSEE HAD TWO PORTFOLIOS. ACCORDING TO THE BALANCE SHEET AS ON 31.03.2005 THE SHARES COSTING RS.12,59,85,603/- WER E SHOWN AS SHARES AND THE BALANCE SHEET ALSO CONTAINE D THE LIST OF THE SHARES OF THE 26 COMPANIES HELD BY THE ASSESSEE. THE BALANCE SHEET ALSO DISCLOSED RS.3,79,80,707/- AS OTHER INVESTMENTS WHICH CONSI STED MAINLY OF BONDS AND MUTUAL FUNDS. THERE WERE NO SH ARES WHICH WERE SHOWN IN THE BALANCE SHEET OR THE PROFIT AND LOSS ACCOUNT AS STOCK-IN-TRADE. SURPLUS RECEIVED O N THE SHARES SOLD DURING THE YEAR WERE SHOWN AS EITHER SH ORT TERM CAPITAL GAINS OR AS LONG TERM CAPITAL GAINS. SO FAR AS THE LONG TERM CAPITAL GAINS IS CONCERNED, WE HAVE A LREADY SEEN THAT THE AO DID NOT DISPUTE THE NATURE OF THE GAINS AND MADE NO ATTEMPT TO TREAT THEM AS BUSINESS PROFI TS. IT IS ONLY WITH REGARD TO THE SHORT TERM CAPITAL GAINS THAT HE 8 HAS TAKEN A VIEW THAT THEY REPRESENT BUSINESS PROFI TS APPARENTLY BECAUSE OF THE PERIOD OF HOLDING. IF TH E AVERAGE INVESTMENT MADE BY THE ASSESSEE IN ONE SCRIP IS TAK EN, IT COMES TO AROUND RS.45.00 LAKHS AS POINTED OUT BY TH E ASSESSEE, WHICH APPEARS TO BE TOO HIGH FOR AN INDIV IDUAL TO HOLD AS STOCK-IN-TRADE. THE PORTFOLIO OF THE SHARE S SHOWS THAT MANY OF THE SCRIPS ARE OF BLUE CHIP COMPANIES, THEIR SHARES IN WHICH ARE NORMALLY CONSIDERED TO BE SAFE AND SOUND INVESTMENTS. THE LIST IS ATTACHED TO THE BAL ANCE SHEET AS ON 31.03.2005 AND IT INCLUDES THE SHARES O F MADRAS CEMENTS LTD., COLGATE LTD., LUMAX INDUSTRIES , BHARAT ELECTRONICS, RELIANCE INDUSTRIES, FINOLEX, M AHINDRA & MAHINDRA, APPOLO TYRE, TCS LTD., NTPC, TISCO, POLARIS, ETC. THE DETAILS OF THE SHORT TERM CAPITA L GAINS ALSO ATTACHED TO THE BALANCE SHEET SHOWS SALE OF SHARES OF SEVERAL BLUE CHIP COMPANIES BESIDES THE AFORESAID COMPANIES. THE ASSESSEE HAS NOT INDULGED IN ANY DEALINGS IN FUTURES AND OPTIONS AND THE INSTANCES O F SHARE TRANSACTIONS INVOLVING NO DELIVERY ARE ONLY TWO AND THE LOSS THEREIN WAS ONLY RS.474/-. THE AO APPEARS TO HAVE BEEN INFLUENCED MORE BY THE FREQUENCY OF THE TRANSACTION S AND HE HAS CITED THE BROKERS CONTRACT NOTES WHICH SHOW A NUMBER OF ORDERS PLACED FOR PURCHASE OF THE SHARES ON THE SAME DAY AT DIFFERENT RATES. WE HAVE ALREADY REFER RED TO THE ARGUMENT OF THE LEARNED REPRESENTATIVE FOR THE 9 ASSESSEE AS TO HOW THE CONTRACT NOTES ARE ISSUED BY THE SHARE BROKER. HE HAS ALSO REFERRED TO PAGES 74 TO 79 OF THE PAPER BOOK WHICH CONTAINS THE CONTRACT NOTES IS SUED BY FALCON BROKERAGE PVT. LTD. ON 1 ST FEBRUARY 2005. THOUGH THERE ARE SEVERAL ORDERS FOR PURCHASE OF THE SHARES OF MAN INDUSTRIES LTD. ON THE SAME DAY, THE ASSESSE E APPEARS TO HAVE INTENDED TO ACQUIRE 25000 SHARES IN THIS COMPANY AND THE CONTRACT NOTE MERELY EXHIBITED THE DIFFERENT TIMES ON THE SAME DAY AT WHICH THE BROKER ACQUIRED THE SHARES IN THE STOCK EXCHANGE AT DIFFER ENT RATES. ULTIMATELY THE BROKER HAD ACQUIRED 25000 SH ARES OF THE COMPANY ON BEHALF OF THE ASSESSEE FOR A TOTAL P RICE OF RS.26,80,890/-. THUS IT IS ACTUALLY A SINGLE TRANS ACTION FOR ACQUIRING 25000 SHARES IN A COMPANY AND NOT SEVERAL TRANSACTIONS OF ACQUIRING THE SAME COMPANYS SHARES ON A SINGLE DAY AS ASSUMED BY THE AO. THE ASSESSEE HAS ALSO EXPLAINED IN SIMILAR FASHION THE DETAILS OF THE SHO RT TERM CAPITAL GAINS FURNISHED IN PAGES 17 TO 19 OF THE PA PER BOOK, WHICH HAS BEEN EXPLAINED ALONG WITH THE DETAI LS CONTAINED AT PAGE 30 OF THE PAPER BOOK. THESE DETA ILS SHOW THAT THE ASSESSEE SOLD 30 SCRIPS DURING THE YE AR, WHICH GAVE RISE TO THE SHORT TERM CAPITAL GAINS OF RS.2,25,47,992/-. THE SALES ON THE SAME DAY BUT IN DIFFERENT LOTS OF THE SHARES OF THE SAME COMPANY CA NNOT BE TREATED, IN OUR OPINION, AS SEPARATE TRANSACTIONS O F SALE IN 10 ORDER TO JUDGE THE FREQUENCY OF THE SALES. WE HAVE ALREADY REFERRED TO THE ARGUMENT OF THE LEARNED REPRESENTAT IVE FOR THE ASSESSEE THAT WHEN THE SHARES OF AUTOMO COR WER E PURCHASED ON 25.11.2004 IN THREE LOTS, THEY HAVE TO BE TREATED AS A SINGLE PURCHASE TRANSACTION AND SIMILA RLY WHEN THE SHARES OF THE SAID COMPANY WERE SOLD ON 29.11.2 004 IN THREE SEPARATE LOTS, THEY HAVE TO BE TAKEN AS A SIN GLE SALE. IT SEEMS TO US THAT THIS IS A REASONABLE WAY OF ASC ERTAINING THE FREQUENCY OF THE TRANSACTIONS. THIS IS THE WAY IN WHICH THE STATEMENT AT PAGE 30 OF THE PAPER BOOK HAS BEEN PREPARED FROM WHICH IT IS SEEN THAT THE TRANSACTION S OF PURCHASES, COUNTED MONTH-WISE, CAME TO 49 IN NUMBER DURING THE YEAR AND TRANSACTIONS OF SALES RECKONED IN A SIMILAR MANNER CAME TO 43 IN NUMBER DURING THE YEAR . 12. IT SEEMS TO US FROM THE FACTS NOTED ABOVE THAT IT IS DIFFICULT TO UPHOLD THE CONCLUSION OF THE DEPARTMENTAL AUTHOR ITIES THAT THE ASSESSEE HELD THE SHARES AS HER STOCK-IN-T RADE. IN THE ASSESSMENT YEAR 2004-05 THE ASSESSEE SOLD 30 SC RIPS AND EARNED CAPITAL GAINS OF RS.1.05 CRORES, WHICH W AS ACCEPTED BY THE AO AS SHORT TERM CAPITAL GAINS UNDE R SECTION 143(3) OF THE ACT. SIMILARLY IN THE ASSESS MENT YEAR 2007-08 ALSO THE CAPITAL GAINS OF RS.0.08 CRORES ON SALE OF 24 SCRIPS WAS TREATED AS SHORT TERM CAPITAL GAINS B Y THE AO IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT. THE CONDUCT OF THE AO ATTRACTS THE RULE OF CO NSISTENCY 11 AND THIS PRINCIPLE CONSIDERED ALONG WITH THE OTHER FACTS FOUND IN THE PRECEDING PARAGRAPH, PERSUADE US TO HO LD THAT THE SURPLUS ON THE SALE OF SHARES WAS RIGHTLY DECLA RED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS. IN ADDIT ION TO THE SAME WE FIND THAT THE ATTEMPT OF THE CIT TO ASSESS THE LONG TERM CAPITAL GAINS FOR THE SAME YEAR AS BUSINESS PR OFITS UNDER SECTION 263 OF THE ACT, ON THE FOOTING THAT T HE ASSESSEE IS A REGULAR TRADER IN SHARES AND SECURITI ES WAS ULTIMATELY DROPPED BY ORDER DATED 19.03.2010. IN T HE NOTICE ISSUED ON 26.11.2009, THE CIT EXPRESSED THE VIEW THAT IF THE ASSESSEE IS TO BE TREATED AS A REGULAR TRADER IN SHARES AND SECURITIES, THE HOLDING PERIOD OF THE SH ARES DOES NOT ALTER THE CHARACTER OF THE INCOME. IN OUR OPINION, THE APPROACH OF THE CIT, WITH RESPECT, REFLECTS THE CORRECT APPROACH TO BE ADOPTED IN SUCH CASES AND IT IS OF FUNDAMENTAL IMPORTANCE TO FIRST ASCERTAIN WHETHER T HE ASSESSEE IS A DEALER IN SHARES OR INVESTOR IN SHARE S. THE CHARACTER OR THE HEAD OF INCOME UNDER WHICH THE SUR PLUS IS TO BE ASSESSED FOR PURPOSES OF THE INCOME TAX ACT G ETS DETERMINED BY THE ANSWER TO THIS FUNDAMENTAL QUESTI ON. AS WE HAVE ALREADY NOTED THERE ARE NO STRONG MATERI ALS TO HOLD THAT THE ASSESSEE TRADED IN SHARES, WHEREAS TH ERE IS SUFFICIENT MATERIAL TO HOLD THAT SHE INVESTED IN SH ARES AS INVESTOR AND NEVER INTENDED TO CARRY ON A BUSINESS IN SHARES. 12 13. FOR THE ABOVE REASONS WE ACCEPT THE CONTENTIONS OF THE ASSESSEE AND HOLD ON THE FACTS OF THE PRESENT CASE THAT THE SHORT TERM CAPITAL GAINS OF RS.2,25,47,992/- ON THE SALE OF SHARES AND MUTUAL FUND UNITS SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAINS AS DECLARED BY THE ASSESSEE. TH E APPEAL OF THE ASSESSEE IS ALLOWED WITH NO ORDER AS TO COSTS. 6. IN VIEW OF THE ABOVE DISCUSSION AND THE DECISIO N OF THE COORDINATE BENCH IN THE CASE OF FATHER OF THE ASSES SEE AND SISTER OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE TRANSACTION D ISCLOSED BY THE ASSESSEE HAS TO BE TREATED AS INVESTMENT TRANSACTIO N AND NOT AS BUSINESS TRANSACTION. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 15 TH DAY OF DECEMBER, 2010. SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (T.R. SOOD) ACCOUNTANT MEMBER DATED : 15 TH DECEMBER, 2010 VBP/- COPY TO : 1. MR. NEHAL V. SHAH, CHANAKYA INTERNATIONAL PVT. LTD. 218/220, JAYWANT INDUSTRIAL ESTATE, 63, TARDEO ROAD, MUM BAI 400 034 PAN AAIPS-5670A. 2. ADDL. CIT, RANGE 16 (1), MATRU MANDIR, MUMBAI. 3. CIT(A)-XVI, MUMBAI 4. CIT, CITY-XVI, MUMBAI 5. DR B BENCH 6. GUARD FILE TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI