ITO Ward-8 (1), New Delhi V. Sentinel Financial Services Pvt. Ltd, New Delhi

ITA 2762/DEL/2008

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7476 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 03-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 25-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Keywords: Capital asset; Business income; Business expenditure; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G , NEW DELHI) BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER I.T.A. NO. 2762/DEL/2008 ASSESSMENT YEAR : 2005-06 ITO, WARD 8(1), VS. M/S. SENTINEL FINANCIAL NEW DELHI SERVICES PVT. LTD., R-75, GRATER KAILASH I, NEW DELHI. GIR / PAN:AABCS5576P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BRR KUMAR, SR. DR RESPONDENT BY : SHRI AJAY VOHRA, SR. ADV., SHRI GAURAV JAIN ADV. AND MS. SHIKHA SHARMA, CA ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST ORDER O F LD. CIT(A) DATED 30.06.2008. THE ONLY GROUND TAKEN BY REVENUE IS AG AINST ACTION OF LD. CIT(A) BY WHICH HE HAD ALLOWED RELIEF TO ASSESSEE B Y TREATING THE INCOME EARNED BY IT AS LONG TERM CAPITAL GAIN INSTEAD OF I NCOME FROM BUSINESS OR PROFESSION AS HELD BY A.O. 2. THE FACTS OF THE CASE ARE THAT DURING ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT ASSESSEE HAD PURCHASED 226271 EQUITY SHARES OF A COMPANY NAMELY JUBILIANT ORGANOSYS LTD. IN THE MONTH OF JAN UARY 2004. HE FURTHER NOTED THAT IN THE MONTH OF APRIL 2004, ASSESSEE WAS ALLOTTED 135762 EQUITY SHARES OF THE ABOVE MENTIONED COMPANY AS BONUS SHAR ES. THE ASSESSEE HAD ITA NO.2762/DEL/2008 2 SOLD 169000 SHARES OUT OF ABOVE SHARES IN FEB., 200 5 AND HAD DECLARED THE INCOME AS LONG TERM CAPITAL GAIN. THE A.O. HELD TH AT ASSESSEE WAS NOT ABLE TO SUBSTANTIATE AS TO OUT OF WHICH LOT THE SHARES W ERE SOLD. HE HELD THAT THE ASSESSEE MIGHT HAVE SOLD SHARES OUT OF BONUS SHARES INSTEAD OF ORIGINAL PURCHASE AND MOREOVER, HE HELD THAT ASSESSEE HAD EA RNED SMALL DIVIDEND OF RS.4,52,541/- ON A HUGE INVESTMENT OF RS.10 CRORES AND HAS FURTHER PAID INTEREST AMOUNTING TO RS.1,09,49,709/- ON SUCH LOAN AND, THEREFORE, HE TREATED THE INCOME AS BUSINESS INCOME INSTEAD OF CA PITAL GAIN. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND MAD E VARIOUS SUBMISSIONS. LD, CIT(A) ON THE BASIS OF SUBMISSIONS OF THE LD. A .R., REMAND REPORT AND REJOINDER, ARRIVED AT THE CONCLUSION THAT THE ASSES SEE WAS ENTITLED TO THE BENEFIT OF LONG TERM CAPITAL GAIN AND ALLOWED RELIE F BY HOLDING AS UNDER: 4.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E ON BEHALF OF APPELLANT. I HAVE SEEN THE DISCUSSION IN THE ASSESS MENT ORDER & THE AO'S REPORT DTD 18/6/08. I HAVE ALSO CALLED AND EXA MINE THE ASSESSMENT RECORDS. THE BRIEF FACTS OF THE ISSUE UN DER CONSIDERATION ARE THAT THE APPELLANT COMPANY PURCHASED 226271 SHA RES OF THE COMPANY JOL BY WAY OF TWO TRANSACTIONS ON 14/1/04 A ND 16/1/04. THE RATE OF PURCHASE WAS ALMOST THE SAME AT RS 445 PER SHARE. THE INVESTMENT IN THESE SHARES WAS AUTHORIZED BY THE BO ARD OF DIRECTORS BY WAY OF SPECIFIC RESOLUTION PASSED IN ITS MEETING ON 17/12/03. THE INVESTMENT INVOLVED TOTAL FUNDS OF ABOUT RS 10 CROR ES WHICH WAS BORROWED BY THE APPELLANT FROM THREE COMPANIES NAME LY GREEN TEA INDUSTRIES PVT LTD, INDEMSAT PVT LTD AND SCINDIA IN VESTMENT PVT LTD. THE SHARES ORIGINALLY PURCHASED AS WELL AS THOSE RE CEIVED BY WAY OF BONUS WERE HELD BY THE APPELLANT COMPANY IN ITS DEM AT ACCOUNT. OUT OF TOTAL HOLDING OF 362033 SHARES THE APPELLANT COM PANY SOLD 169000 SHARES IN FEB, 05 AT THE RATE OF RS 801 PER SHARE. OUT OF THE SALE PROCEEDS OF ABOUT RS 13.54 CRORES THE LOAN RECEIVED FROM THE THREE COMPANIES WAS REPAID ALONGWITH INTEREST. THE TOTAL INTEREST OF ABOUT RS 1.09 CRORES WAS PAID TO THESE COMPANIES WHICH WA S DEBITED TO P&L ACCOUNT BUT WAS DISALLOWED IN THE STATEMENT OF INCOME FILED WITH THE RETURN. THE DISPUTE IS THAT WHETHER THE PROFIT ON SALE OF SHARES ITA NO.2762/DEL/2008 3 SHOULD BE ASSESSED UNDER THE HEAD 'CAPITAL GAINS' A S DONE BY THE APPELLANT OR AS BUSINESS PROFIT AS HELD BY THE AO. THE MAIN REASONS WHICH THE AO HAS DISCUSSED IN ASSESSMENT ORDER AND REITERATED IN HIS REPORT DATED 18/6/08 TO REJECT THE APPELLANTS CLAI M CAN BE SUMMARIZED AS UNDER:- I) IT CANNOT BE PROVED THAT 169000 SHARES SOLD IN F EB 05 WERE OUT OF 226271 SHARES ORIGINALLY PURCHASED OR OUT OF BON US SHARE BECAUSE THERE WAS NO DISTINCTION BETWEEN THE SHARES IN DEMA T ACCOUNT. II) THE APPELLANT COMPANY CARRIED OUT FREQUENT TRAN SACTIONS IN PURCHASE AND SALE OF SHARES. III) IT WAS NOT SPECIFIED BY THE APPELLANT AS TO WH AT BASIS THE SHARES WERE CATEGORIZED AS INVESTMENT. WHETHER SUCH HOLDIN GS COULD HAVE RESULTED IN CONTROLLING INTEREST OR STRATEGICALLY R ELATION WITH THE COMPANY JOL. IV) HUGE BORROWED FUNDS WERE UTILIZED FOR THE INVE STMENT AND INTEREST OF RS 1.09 CRORES WAS PAID. SUCH INVESTMEN T COULD NOT HAVE BEEN MADE MERELY TO EARN DIVIDEND INCOME OF RS 4,52 ,441. V) THE ENTRIES MADE BY AN ASSESSEE IN BOOKS OF ACCO UNT CANNOT BE HELD CONCLUSIVE TO ASCERTAIN THE TRUE AND CORRECT N ATURE OF TRANSACTION. FOR THIS THE AO RELIED ON TWO DECISION S. 4.2 THESE ISSUES RAISED BY THE AO CAN BE DISCUSSED IN THE LIGHT OF SUBMISSIONS MADE BY THE APPELLANT AS FOLLOWS:- I) IN DEMAT SYSTEM THE SHARES OF A COMPANY ARE HELD IS SHOWN IN THE FORM OF CREDIT ENTRY IN THE DEMAT ACCOUNT. ANY SHARES ACQUIRED ARE ADDED TO IT AND THOSE SOLD ARE DEDUCTED. ON A PARTI CULAR DATE THE SHARES CANNOT BE IDENTIFIED OR LINKED TO THE SPECIF IC PURCHASE TRANSACTION CARRIED OUT EARLIER. THEREFORE IN SUCH SYSTEM, FIFO THEORY HAS TO BE APPLIED. THIS MEANS THAT ANY SALE OF SHARES IS TO BE LINKED TO THE PURCHASES IN CHRONOLOGICAL ORDER. IN OTHER WORDS THE SHARES PURCHASED FIRST HAVE TO BE TREATED AS SOLD F IRST. APPLYING THIS PRINCIPLE IT MAY BE CONCLUDED THAT THE 169000 SHARE S SOLD IN FEB 05 CONSISTED OF 1472712 PURCHASED ON 14/1/04 AND 21727 SHARES OUT OF 79000 SHARES PURCHASED ON 16/1/04. ONLY IF THE NUMB ER OF SHARES SOLD EXCEEDED THE QUANTITY ORIGINALLY ACQUIRED BY PURCHA SE IT CAN BE SAID THAT SOME SHARES OUT OF BONUS ALLOTTED IN APRIL, 04 WERE SOLD. EVEN OTHERWISE FOR THE SAKE OF ARGUMENT (THOUGH NOT PROV ABLE ON FACTS) THE SHARES ARE SAID TO BE SOLD OUT OF BONUS SHARES, THE NATURE OF TRANSACTION DOES NOT CHANGE TO BUSINESS. HENCE HIS CONTENTION OF THE AO IS NOT VALID TO TREAT THE GAIN AS BUSINESS PROFI T. ITA NO.2762/DEL/2008 4 II) AS DISCUSSED EARLIER THE APPELLANT PURCHASED T HE ORIGINAL SHARES IN ONLY TWO TRANSACTIONS ON 14/1/04 AND 16/1 /04. THEREAFTER NO PURCHASE OR SALE WAS CARRIED OUT IN THE SHARES TILL FEB, 05. ONLY THE BONUS SHARES ALLOTTED TO THE APPELLANT WERE ADDED I N THE DEMAT ACCOUNT. THEREFORE THERE IS IN FACT NO TRANSACTION IN THESE SHARES EXCEPT FOR THE SALE WHICH IS UNDER CONSIDERATION. THEREFORE, AO'S ALLEGATION THAT THERE WERE FREQUENT TRANSACTIONS IN SHARES IS NOT SUPPORTED BY FACTS. THE AO HAD ALSO R EFERRED TO TRANSACTION IN SOME SHARES OTHER THAN JOL. IT IS NO TED THAT THE APPELLANT COMPANY CARRIED OUT SOME TRANSACTIONS IN SHARES OF HINDUJA TMT AND UNITS OF KOTAK FLOATER. THESE TRANS ACTIONS WERE HOWEVER DONE IN THE MONTH OF FEB & MARCH, 05 AND RE SULTED IN SMALL SHORT TERM CAPITAL GAIN/LOSS. 150000 SHARES OF HIND UJA TMT WERE PURCHASED ON VARIOUS DATES AND SOLD ON THREE DATES RESULTING IN LOSS OF RS 56,833. FURTHER 1,10,16,008 UNITS OF KOTAK FLO ATER WERE ACQUIRED IN FEB & MAR 05. THE MAIN TRANSACTION WAS ON 17/2/0 5 AND THEN THERE WERE SOME SMALL PURCHASES. OUT OF THAT 89,91,508 UN ITS WERE SOLD IN THREE TRANSACTION. RESULTING IN GAIN OF RS 15,680. BLANCE UNITS WERE SHOWN IN THE BALANCE SHEET AS ON 31/3/05 UNDER THE HEAD INVESTMENT. IT MAY BE NOTED THAT WHEN SOME FUNDS ARE TO BE INVE STED IN SHARES, ENTIRE PURCHASES IS NOT MADE IN ONE DAY BUT IT IS S PLIT ON VARIOUS DATES SO AS TO TAKE ADVANTAGE TO PRICE FLUCTUATION. FURTH ER AT TIMES THERE IS NO OFFER FOR SALE AND THEREFORE EVEN IF A BID IS MA DE TO ACQUIRE THE SHARES, THEY MAY NOT BE AVAILABLE ON A PARTICULAR D ATE. THEREFORE IT CANNOT BE SAID THAT THE APPELLANT WAS DOING ANY FRE QUENT TRANSACTION IN PURCHASE AND SALE OF OTHER SHARES/UNITS. IN ANY CASE SINCE THERE WAS NO TRANSACTION OF PURCHASE AND SALE ONLY SHARES OF JOL IT CANNOT BE CONSIDERED AS BUSINESS TRANSACTION. III) THE CONCEPT OF ACQUIRING CONTROLLING INTEREST AND STRATEGIC RELATIONSHIP ARE IRRELEVANT FOR DETERMINING THE NAT URE OF INVESTMENT. THERE ARE A NUMBER OF COMPANIES LISTED ON THE STOCK EXCHANGE AND LACS OF INVESTORS DAILY PURCHASE MILLIONS OF SHARES OF DIFFERENT COMPANIES. WHETHER SUCH INVESTMENT IS MADE FOR ACQU IRING CONTROLLING INTEREST? IN FACT IF A INVESTMENT IS MA DE TO ACQUIRE CONTROLLING INTEREST, THE NATURE OF SUCH TRANSACTIO N IS ALTOGETHER DIFFERENT AND A NUMBER OF LEGAL FORMALITIES LIKE IN FORMATION TO SEBI, STOCK EXCHANGER' COMPANY LAW BOARD ETC HAVE TO BE C OMPLETED. AS ABOUT THE BASIS TO CATEGORIZE THE PURCHASE AS INVES TMENT IT IS EXPLAINED BY THE APPELLANT THAT THE INVESTMENT WAS SPECIFICALLY ITA NO.2762/DEL/2008 5 AUTHORIZED BY THE RESOLUTION OF BOARD OF DIRECTORS. THERE IS NO NEED FOR SPECIFIC RESOLUTION TO CARRY OUT DAY TO DAY BUS INESS TRANSACTIONS. SINCE THE SHARES WERE ACQUIRED IN PURSUANCE TO SPEC IFIC RESOLUTION OF THE BOARD WHEREBY IT WAS TO BE HELD AS LONG TERM IN VESTMENT THE SHARES WERE CATEGORIZED AND REFLECTED UNDER THE HEA D INVESTMENT RIGHT FROM THE BEGINNING OF THE TRANSACTION IN THE BALANC E SHEETS AS ON 31/3/04 AND 31/3/05. IV THE COMPANIES WHICH ARE LISTED IN THE STOCK EXCH ANGE ARE SUPPOSED TO DISCLOSE NOT ONLY THEIR ANNUAL FINANCIAL RESULTS BUT ALSO A NUMBER OF OTHER PRICE SENSITIVE INFORMATION & DECISIONS WHICH MAY AFFECT THE MARKET PRICE OF THE SHARES. THE FINANCIAL STRENGTH/ WEAKNESSES OF THESE COMPANIES ARE WELL KNOWN TO MEMBERS OF PUBLIC. THE FINANCIAL STATEMENTS/BALANCE SHEET OF THE COMPANIES ARE ANALY ZED AND ASSESSED BY FINANCIAL INVESTMENTS EXPERTS WHO GIVE RECOMMEND ATIONS FOR PURCHASE/ SALE OF SHARES OF PARTICULAR COMPANIES AF TER CONSIDERING A LARGE NUMBER OF FACTORS WHICH MAY BE AFFECTING THE FUTURE PROSPECTS OF THE COMPANY. IN SUCH ANALYSIS OF PROFIT EARNING CAP ACITY OF A COMPANY, DIVIDEND TRACK RECORDS ETC ARE STUDIED. TH E PROSPECTUS OF DECLARATION OF BONUS SHARES IS ALSO ANALYZED CONSID ERING THE QUANTUM OF RESERVES AND SURPLUS AND OLD HISTORY. INVESTMENT IN ANY SHARES MAY NOT BE MADE BY AN INVESTOR ONLY FOR THE PURPOSE OF EARNING DIVIDEND INCOME. OTHER FACTORS LIKE GROWTH OF THE COMPANY RE SULTING IN HIGHER PROFITABILITY & INCREASE OF MARKET PRICE AS WELL AS POSSIBILITY OF BONUS ISSUE ARE ALSO CONSIDERED. BASICALLY AN INVESTOR IS CONCERNED WITH THE OVERALL RETURN ON THE FUNDS HE PROPOSES TO INVEST. IN THE CASE OF APPELLANT, THOUGH THE DIVIDEND RECEIVED APPEAR TO B E A MEAGER AMOUNT OF 4.5 LACS ON INVESTMENT OF RS 10 CRORES, B UT THE BONUS SHARES (MORE THAN 50% OF THE ORIGINAL HOLDING) RECEIVED IS ALSO TO BE TREATED AS RETURN ON THE FUNDS INVESTED. IT MAY BE NOTED TH AT NORMALLY AFTER DECLARATION OF BONUS, THE MARKET PRICE GETS PROPORT IONATELY ADJUSTED (REDUCED). HOWEVER IN THE SHARES OF JOL THE PRICE A GAIN ROSE AND EVEN EX- BONUS PRICE WAS MUCH HIGHER THAN THE ORIGI NAL PURCHASE PRICE OF THE SHARES. THE APPELLANT COMPANY MIGHT HA VE MADE A DECISION TO INVEST IN THE SHARE JOL ON THE BASIS OF SOME STUDY OR RECOMMENDATIONS IN THE HOPE TO EARN HANDSOME RETURN OF INVESTMENT WHICH ACTUALLY IT RECEIVED. THEREFORE THE DECISION CANNOT BE VIEWED FROM THE POINT OF VIEW OF MEAGER QUANTUM OF DIVIDEN D INCOME COMPARED TO THE INTEREST COST ON BORROWED FUNDS TO TREAT IT AS BUSINESS ITA NO.2762/DEL/2008 6 TRANSACTION. EVEN ON PARTIAL SALE OF SHARES THE APP ELLANT EARNED MUCH HIGHER RETURN ON THE INVESTMENT MADE THAN THE COST BY WAY OF INTEREST. THEORETICALLY WHAT THE AO SAYS MAY BE CORRECT THAT MERELY ON THE BASIS OF ENTRIES OF BOOKS OF ACCOUNT THE NATURE OF PARTICULAR SHARE/SECURITY CANNOT BE DETERMINE. IN FACT THIS ISSUE HAS BEEN CLARIFIED IN THE CIRCULAR NO 4/2007 15/6/2007 ISSUE D BY CBDT. IN THAT CIRCULAR AS WELL AS THE INSTRUCTION NO 1827 (WHICH HAS ALSO BEEN REFERRED TO IN THE ABOVE CIRCULAR NO 4) THE GENERAL PRINCIPLES ON THE BASIS OF VARIOUS DECISIONS TO DECIDE AS TO WHETHER A PARTICULAR SHARE/UNIT WAS HELD AS STOCK-IN-TRADE OR INVESTMENT S HAVE BEEN DISCUSSED. THESE INCLUDE THE NATURE OF NORMAL BUSIN ESS ACTIVITIES, QUANTITY OF ITEM PURCHASED, REPETITION (FREQUENCY) OF TRANSACTION ETC. I HAVE SEEN THE TWO DECISIONS RELIED UPON BY THE AO A ND IT IS FOUND THAT THEY ARE ON DIFFERENT FACTS. IN FIRST CASE THE FREQ UENT TRADING WAS DONE IN SHARES OF SOME 30 COMPANIES WHICH WAS TREATED IN THE NATURE OF BUSINESS TRANSACTION. IN THE CASE BEFORE SUPREME CO URT, THE FACTS WERE ENTIRELY DIFFERENT. THEREFORE THEY ARE NOT APPLICAB LE. 4.3 IN THE JUDGEMENTS OF SUPREME COURT ON THIS SUBJ ECT THE TEST OF INTENTION IS ALSO DISCUSSED. IT HELD THAT IN CASE W HERE THE PURCHASE WAS MADE SOLELY WITH THE INTENTION OF RESALE AT A P ROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING IT OR USING IT, IT WAS A RELEVAN T FACTOR AND WOULD GIVE RISE TO STRONG PRESUMPTION THAT A TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE. IN CIRCULAR NO 4 SOME OTHER DE CISIONS WERE DISCUSSED IN WHICH FOLLOWING PRINCIPLES WERE CURLED OUT AFTER REFERRING TO SEVERAL DECISIONS ON THE SUBJECT. (I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXIS TENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF AS SOCIATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNT, THE MAGNITUDE OF PURCHASES AND SA LES AND THE RATIO BETWEEN PURCHASES AND SALES &: THE HOLDING WOULD FU RNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION B EING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE BUT WHERE TH E OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE- INC OME BY WAY OF ITA NO.2762/DEL/2008 7 DIVIDEND ETC THEN THE PROFITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY SALE OF SHARES} WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT. 4.4 IN THE CIRCULAR NO.4 AS ABOVE, IT WAS MENTIONED BY CBDT- THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SING LE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIP LES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, T HE SHARES ARE HELD BY THE ASSESSEE IS INVESTMENT OR STOCK-IN-TRADE. THEREFORE, THE DECISION ABOUT NATURE OF SHARES/SECURITIES HELD BY AN ASSESSEE IS NOT TO BE MADE ONLY ON THE BASIS OF SOME SINGLE PRINCIPLE OR REASON. THE TOTALITY OF FACTS AND CIRCUMSTANCES HAS TO BE CONSI DERED. IN THE CASE OF APPELLANT, IT IS QUITE CLEAR THAT FREQUENCY OF T RANSACTION WAS ALMOST MISSING. IN FACT IT WAS A SOLITARY TRANSACTION. THE INTENTION AT THE TIME OF INVESTMENT WAS ALSO CLEAR AS PER THE BOARD'S RES OLUTION. THE ENTRY IN BOOKS OF ACCOUNTS IS ALSO UNDER THE HEAD INVESTM ENT. THE APPELLANT HAD NOT CARRIED OUT ANY BUSINESS IN SHARE TRADING. MOREOVER EVEN IF SUCH BUSINESS WAS DONE AND SOME SHARES WERE HELD AS STOCK- IN-TRADE, STILL THERE IS NO BAR ON HOLDING SOME OTHER SHARES AS INVESTMENT. IN THIS REGARD WE MAY REFER TO PARA 10 OF THE CIRCULAR NO 4 REPRODUCED AS UNDER:- 10. THE CENTRAL BOARD OF DIRECT TAXES ALSO WISHES T O EMPHASISE THAT IT IS POSSIBLE FOR A TAX PAYER TO HA VE TWO PORTFOLIOS, IE, AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRA DING PORTFOLIO COMPRISING OF STOCK-IN- TRADE WHICH ARE TO BE TREAT ED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE A SSESSEE MAY HAVE INCOME UNDER BOTH HEADS IE, CAPITAL GAINS AS W ELL AS BUSINESS INCOME. FROM THE ABOVE IT IS QUITE CLEAR THAT IN THE CASE O F APPELLANT, THE ACQUISITION OF SHARES OF JOL HAS TO BE TREATED AS I NVESTMENT AND CANNOT BE SAID TO BE BUSINESS TRANSACTION. THE PROF IT ON PART SALE OF SUCH INVESTMENT HAS TO BE COMPUTED UNDER THE HEAD ' CAPITAL GAINS' AND NOT BUSINESS. THEREFORE ACTION OF THE AO IN TRE ATING SUCH PROFIT AS BUSINESS INCOME IS REVERSED. THE AO IS DIRECTED TO GRANT BENEFIT OF LTCG TO THE APPELLANT. 3. AT THE OUTSET, LD. D.R. SUBMITTED THAT THE ASSES SEE HAD UTILIZED BORROWED FUNDS AND THEREFORE, THE PURPOSE OR PURCHA SING SHARES CANNOT BE SAID TO BE APPRECIATION AS NO PRUDENT BUSINESSMAN W OULD INCUR A HUGE COST ITA NO.2762/DEL/2008 8 ON ACCOUNT OF INTEREST JUST IN ANTICIPATION OF APPR ECIATION. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS NBFC AND IT WAS ENT ITLED TO ENTER INTO BUSINESS TRANSACTION ON ACCOUNT OF SALE AND PURCHAS E OF SHARES AND MERELY REFLECTING THE PURCHASE UNDER THE HEAD INVESTMENT I S NOT SUFFICIENT AND CONCLUSIVE EVIDENCE THAT ASSESSEE WAS INTO INVESTME NT ACTIVITIES. 4. LD. SENIOR COUNSEL. ON THE OTHER HAND INVITED OU R ATTENTION TO PAPER BOOK PAGES 53-66 WHERE COPIES OF AUDITED ACCOUNTS W ERE PLACED. OUR SPECIFIC ATTENTION WAS INVITED TO PAPER BOOK PAGE 6 2 WHERE SIGNIFICANT ACCOUNTING POLICIES WERE MENTIONED AND IT WAS SUBMI TTED THAT IN THIS ACCOUNTING POLICY ALSO, IT WAS MENTIONED THAT INVES TMENT OF ASSESSEE WERE MEANT TO BE HELD FOR LONG TERM PERIOD. HE FURTHER SUBMITTED THAT THE PURCHASE WAS CLASSIFIED AS INVESTMENT AND WAS VALUE D AT COST PRICE. REGARDING INTEREST EXPENDITURE INCURRED BY ASSESSEE , IT WAS SUBMITTED THAT THE SAME WAS NOT CLAIMED AS BUSINESS EXPENDITURE. OUR ATTENTION WAS ALSO INVITED TO THE FACT THAT THE ASSESSEE HAD PASSED A BOARD RESOLUTION ON 17.12.2003 FOR MAKING INVESTMENT IN THE SAID COMPAN Y. AS REGARDS THE ARGUMENTS OF LD. D.R. THAT ASSESSEE HAD INCURRED HU GE INTEREST COST, LD. SENIOR COUNSEL SUBMITTED THAT EVEN AFTER PAYING INT EREST, THE ASSESSEE HAD EARNED SIGNIFICANT CAPITAL GAIN. OUR ATTENTION W AS ALSO INVITED TO PAPER BOOK PAGES 131A TO 131M WHERE COPIES OF TRIBUNAL OR DER IN THE CASE OF CIT VS JUBILANT SECURITIES PVT. LTD. IN I.T.A. NO. 3337 /DEL/2008 WAS PLACED. LD. SENIOR COUNSEL SUBMITTED THAT IN SIMILAR CIRCUMSTAN CES, THE TRIBUNAL IN THE CASE OF SAID GROUP COMPANIES HAD HELD SIMILAR PROFI T AS LONG TERM CAPITAL GAIN. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND FROM THE FINDINGS OF LD. CIT(A) AND FROM THE ITA NO.2762/DEL/2008 9 ARGUMENTS OF SR. COUNSEL FOR THE ASSESSEE THAT ASSE SSEE HAS BEEN RIGHTLY ALLOWED THE RELIEF. LD. CIT(A) HAS PASSED A WELL R EASONED AND SPEAKING ORDER IN WHICH WE DO NOT FIND ANY INFIRMITY. 6. IN VIEW OF ABOVE, APPEAL FILED BY THE REVENUE IS DISMISSED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DEC., 2014. SD./- SD./- (A. T. VARKEY ) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 19 TH DEC., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRA FT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER