The ACIT, Circle-2, Surat V. Shri Shyam Babubhai Shah, Surat

ITA 2891/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60270 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 19-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH SRAR
• Keywords: Capital asset; Business income; Depreciation; Principle of natural justice; Advance ruling; Question of law
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.2891/AHD/2009 ASSESSMENT YEAR :2006-07 ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE-2, SURAT V/S . SHRI SHYAM BALUBHAI SHAH, PROP. OF M/S. AVANTI CHEM, PLOT NO.982, ROAD NO.58, GIDC, SACHIN,L SURAT PAN NO.ADSPS0734R (APPELLANT) .. (RESPONDENT) /BY APPELLANT SHRI VINOD TANWANI, SR-DR /BY RESPONDENT SHRI J.P. SHAH, SR-AR /DATE OF HEARING 29-02-2012 /DATE OF PRONOUNCEMENT 20-04-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THE PRESENT APPEAL OF THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 15-07-2009 OF THE LD. COMMISSIONER OF INCOME-TAX (A PPEALS)-II, SURAT FOR THE ASSESSMENT YEAR 2006-07. 2. FACTS IN BRIEF ARE THAT THE CASE WAS PICKED UP F OR SCRUTINY UNDER SECTION 143 (1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER RE FER TO AS THE ACT IN SHORT). THE ASSESSEE IS RUNNING TWO PROPRIETARY CONCERNS OF A TEXTILE UNIT AND A GUM UNIT UNDER A COMMON NAME M/S AVANTI CHEM. DURING TH E YEAR UNDER CONSIDERATION THE GROSS PROFIT RATIO IN THE TEXTILE UNIT IS REFLECTED AT 9.40% ON TURNOVER AT RS.66,03,667/- AND THE GUM UNITS GROSS PROFIT AT 13.05% ON ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 2 TURNOVER OF RS.2,66,221/-. AFTER DEPRECIATION THE N ET BUSINESS INCOME IS REFLECTED AT RS.32,680/- BUT THE RETURN OF INCOME W AS COMPRISED OF SHORT TERM CAPITAL GAINS (STCGS FOR SHORT) OFFERED U/S.111A TA XABLE AT 10% AND LONG TERM CAPITAL GAINS (LTCGS FOR SHORT) OF RS.1,98,024 /- CLAIMED EXEMPT AND LOSS ON SALE OF DERIVATIVES AND F & O OF RS.23,872/ -. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO FR OM THE DETAILS FILED IN RESPECT OF SHARE TRANSACTIONS THAT THE ASSESSEE HAS TRANSACTED SHARES AND SECURITIES TOTALING TO RS.1,79,50,052/- OUT OF WHIC H INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION AT RS.1,56,71,782/- AP ART FROM OPENING BALANCE OF RS.22,78,270/- AND DIVIDEND INCOME ON THE ENTIR E VOLUME OF SHARES TRANSACTED AT RS.1,34,773/- FROM SUCH COMPANIES. AC CORDINGLY, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROFIT ON SHARES SHOULD NOT BE TREATED AS BUSINESS INCOME INSTEAD OF CAPITA L GAINS. IN RESPONSE THERETO THE ASSESSEE FILED A LETTER DATED 12-12-200 8. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION AS OFFERED B Y ASSESSEE AND PROCEEDED TO TREAT THE CAPITAL GAINS AS INCOME FROM BUSINESS. THUS THE ASSESSMENT ORDER DATED 16.12.2008 UNDER SECTION 143(3) OF THE ACT WA S PASSED. 3. THE ASSESSEE FEELING AGGRIEVED BY THE ASSESSMENT ORDER PREFERRED AN APPEAL BEFORE LD. CIT(A) CHALLENGING THE TREATMENT OF LTCGS OF RS.1,98,025/- AND STCGS OF RS.16,19,870/- AS INCOME FROM BUSINESS . THE LD CIT(A) AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND SU BMISSIONS MADE BY THE ASSESSEE ALLOWED THE APPEAL.. 4. NOW THE REVENUE FEELING AGGRIEVED BY THE ORDER O F LD. CIT(A) IS PREFERRING THE PRESENT APPEAL RAISING FOLLOWING GRO UND OF APPEAL:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO TREAT THE A MOUNT OF RS.16,19,876 AND RS.1,98,025 AS SHORT TERM CAPITAL GAIN & LONG TERM CAPITAL GAIN RESPECTIVELY AS AGAINST TREATED BY TH E AO THE SAID INCOME BUSINESS INCOME. ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 3 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 5. BOTH THE GROUNDS AS RAISED BY REVENUE ARE INTER- CONNECTED GROUND THEREFORE ARE BEING DISPOSED OF TOGETHER FOR CONVEN IENCE. 6. LD. DR STRONGLY CONTENDED THAT THE LD. CIT(A) OU GHT NOT TO HAVE INTERFERED IN THE ORDER PASSED BY ASSESSING OFFICER AS THE AO HAS RIGHTLY TREATED THE STCGS AND LTCGS RECEIVED FROM THE TRANS ACTIONS OF SHARE AS INCOME FROM BUSINESS. LD. DR ARGUED THAT FROM THE F ACTS OF THE PRESENT CASE, IT IS EVIDENT THAT THE TRANSACTIONS AS CARRIED OUT BY THE ASSESSEE IN SALE AND PURCHASE OF SHARES IS MORE THAN THE GROSS TURNOVER OF HIS REGULAR BUSINESS. LD. DR VEHEMENTLY ARGUED THAT THE AO RIGHTLY ARRIVE D AT THE CONCLUSION THAT THE DIVIDEND INCOME EARNED OF RS.1,34,773/- AND THE SURPLUS ON SALE OF SHARE AMOUNTS TO RS.18,26,706/- CLEARLY INDICATES THAT T HE SHARE AND SECURITIES WERE ACQUIRED NOT AS AN INVESTMENT FOR THE PURPOSE OF EARNING OF DIVIDEND INCOME BUT THEY WERE ACQUIRED WITH THE INTENTION TO EARN PROFIT BY DISPOSING THEM OF AT OPPORTUNE TIME. THE LD. DR SUBMITTED THA T THE AO HAS GIVEN A SOUND REASONING FOR TREATING THE CAPITAL GAIN AS BU SINESS INCOME AND ALSO DESCRIPTION OF THE TRANSACTION MADE BY THE ASSESSEE IN HIS ASSESSMENT ORDER. LD. LEARNED DEPARTMENTAL REPRESENTATIVE HAS TAKEN U S THROUGH THE FINDINGS OF THE AO THAT ARE REPRODUCED AS UNDER:- 4. IN RESPONSE THE ASSESSEE VIDE LETTER DATED NIL RECEIVED ON 12.12.08 HAS SATED THAT THE SHORT TERM CAPITAL GAIN WAS REAL IZED THAT: IN RESPECT OF THE SHORT TERM CAPITAL GAIN OF RS.16 28684/- I HAVE TO STATE THAT THE SAID GAIN WAS REALIZED ON SALE OF IN VESTMENT MADE IN SHARES. PLEASE NOTE THAT THE INVESTMENT MADE IN THESE SHARES ARE WITH THE INTENTION TO KEEP THEM FOR A LONG PERI OD. HOWEVER, CONSIDERING THE UPWARD MARKET TREND IT WAS THOUGHT BY ME THAT THIS IS THE RIGHT TIME TO SELLOUT CERTAIN SHARES IN ORDER TO MAKE SOME GAIN ON INVESTMENT. IT WAS ALSO FELLED BY ME A T THAT TIME THAT SUCH A UPWARD TREND OF RISING PRICING WILL NOT CONTINUE FOR LONG TIME. ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 4 I WOULD LIKE TO DRAW YOUR GOOD SELFS ATTENTION TOW ARDS THE FACT THAT IN THE BEGINNING OF THE YEAR, MY INVESTMENTS IN SHA RES WAS AMOUNTING TO RS.3191667/- AND THE TOTAL VALUE OF MY INVESTMENT AS ON 31.3.06 WAS AMOUNTING TO RS.5098070/-. THIS A LSO SHOWS MY INTENSION THAT I HAVE MADE THE INVESTMENT IN SHA RES FOR LONG TERM DURATION. IT IS FURTHER SUBMITTED THAT, I HAVE BEEN MAKING THE INVESTMENT IN SHARES FOR LAST SEVERAL YEARS AND SOM E OF THE INVESTMENTS IN SHARES ARE VERY OLD. I WOULD LIKE TO FURTHER DRAW YOUR GOODSELF KIND ATTENTION TOWARDS THE FACT THAT MY MAIN BUSINESS ACTIVITY IS MANUFACTURING OF GREY CLOTH. P LEASE NOTE THAT TOTAL INVESTMENT OF RS.9379707/- WAS MADE IN PLANT AND MACHINERY AND FACTORY BUILDING. THIS WILL ALSO PROV E THAT MY MAIN BUSINESS ACTIVITY IS MANUFACTURING OF GREY CLOTH AN D NOT DEALING IN SHARES. 5. I HAVE CAREFULLY PERUSED THE SUBMISSIONS OF THE ASSESSEE, HOWEVER THE SAME IS NOT FOUND TENABLE IN VIEW OF THE FOLLOW ING REASONS: (I) FROM THE FACTS OF THE CASE, IT IS SEEN THAT TH E INVESTMENTS IN SHARES A AND SECURITIES WERE MADE BY THE ASSESSEE WITH THE M OTIVE OF EARNING PROFIT FROM SALE OF SHARES AND SECURITIES AT PROFIT ABLE TIME AND NOT FOR THE PURPOSE OF EARNING REGULAR DIVIDEND INCOME THERE FR OM WHICH IS VERY MUCH APPARENT FROM THE FACT THAT THE ASSESSEE HAS E ARNED A MEAGER DIVIDEND INCOME OF RS.134773/-. THE LATER STAGE OF TRANSACTIONS, I.E. THE SELLING OF SHARES AND SECURITIES AT PROFITABLE TIME S TO EARN THE PROFITS ON SALES CLEARLY INDICATES THE INTENTION OF TRADING IN SHARES AND SECURITIES. THE FACT THAT AS AGAINST THE DIVIDEND INCOME EARNED OF RS.134773/- THE SURPLUS ON SALE OF SHARES AMOUNTS TO RS.18,26,708/- CLEARLY INDICATES THAT THE SHARES AND SECURITIES WERE ACQUIRED NOT AS AN INVESTMENT FOR THE PURPOSE OF EARNING STEADY DIVIDEND INCOME BUT T HEY WERE ACQUIRED WITH THE INTENTION TO EARN PROFIT BY DISPOSING THEM OFF AT APPROPRIATE PROFITABLE TIME. THE SURPLUS EARNED ON SALE OF SHAR ES AND SECURITIES THEREFORE IS IN THE NATURE OF BUSINESS PROFIT AND N OT CAPITAL GAIN. (II) IT IS CONTENDED THAT THE INVESTMENT IN SHARES HAS BEEN MADE FOR THE LAST SEVERAL YEARS AND THE INTENTION OF THE ASSESSE E HAS BEEN TO INVEST IN SHARES FOR LONG TERM DURATION. THE TOTAL VALUE O F INVESTMENT OF THE ASSESSEE AS ON 31.3.06 IS CLAIMED TO BE AT5098070/- WHICH ITSELF IS SUBSTANTIAL CONSIDERING THE NOMINAL TURNOVER OF 66 LAKHS IN THE TEXTILE UNIT AND ONLY RS.2.66 LACS IN THE GUM UNIT. FURTHER , THE LEDGER COPY OF THE SCRIP-WISE TRANSACTIONS GIVEN BY THE ASSESSEE A LONG WITH DATE OF PURCHASE AND SALE, PURCHASE AMOUNT, SALE AMOUNT AND THE INVESTMENT MADE DURING THE YEAR CLEARLY REFLECTS TOTAL PURCHAS E OF SHARES OF RS.1,79,50,052/- AND SALES AMOUNTING TO RS.1,95,78, 373/-. THE NET PROFIT EARNED BY THE ASSESSEE IN SUCH SCRIPS WITHIN THE YEAR STANDS AT 1628684/-. AS REGARDS THE CONTENTION WITH RESPECT T O LONG TERM HOLDING IT ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 5 IS SEEN THAT THE LONG TERM PROFIT REFLECTS AT RS.19 8024/- ONLY. HENCE, THE ARGUMENT THAT THE INVESTMENT IN SHARES HAVE BEEN MA DE FOR LONG TERM DURATION IS TOTALLY ILLOGICAL, INCORRECT AND IRRATI ONAL. III) THE ASSESSEES CASE IS ALSO COVERED BY THE DEC ISION OF THE AUTHORITY FOR ADVANCE RULING (AAR) IN THE CASE OF FIDELITY NO RTH STAR FUND AND OTHERS (2007) 288 ITR 641 WHEREBY IT IS LAID DOWN T HAT THE PARAMETERS VIZ. MAGNITUDE OF TRANSACTIONS, FREQUENCY OF PURCHA SE AND SALE OF SCRIP, AVERAGE HOLDING PERIOD ETC., ARE THE IMPORTANT PARA METERS TO DECIDE WHETHER A PARTICULAR ASSESSEE HAS DONE THE BUSINESS OF TRADING IN SHARES OR IS AN INVESTOR ONLY. THE INFRASTRUCTURE U SED BY THE ASSESSEE FOR MAKING SHARE TRANSACTIONS IS ALSO A DECIDING FA CTOR TO ESTABLISH THE NATURE OF TRANSACTION. THE ASSESSEE HAS MAINTAINED ACCOUNTS WITH RENOWNED SHARE BROKERS SO AS TO AVAIL OF THEIR EXPE RT ADVICE IN REGARD TO THE TIMINGS FOR MAKING PURCHASE AND SALE O SHARES. THE DEMAT ACCOUNTS REFLECT HIGH VOLUME OF FREQUENCY AND MAGNI TUDE OF SHARE TRANSACTIONS WHEREIN THE AVERAGE PERIOD OF HOLDING IS LESS THAN A WEEK IN MAJORITY OF THE CASES. IT IS ALSO NOTICED THAT I N THE CASE OF SOME OF THE SCRIPS, THE PURCHASE AND SALE TRANSACTIONS HAVE TAK EN PLACE ON THE SAME DAY. SIMILARLY, THE DETAILS AVAILABLE ON RECOR D ALSO SHOW SHARE TRANSACTIONS WITHIN A PERIOD OF 4 TO 5 DAYS WHICH C LEARLY SHOW THAT THE ASSESSEE HAS PURCHASED THE SHARES AND SECURITIES WH EN THE PRICES WERE LOW AND SOLD THE SAME WHEN THE PRICES WERE HIG H ENOUGH TO EARN A PROFIT. FOR EXAMPLE, SCRIPS OF ORIENTAL BANK OF COMMERCE (2 4.6.05 AND 4.7.05), WOCHARDT LTD. (2.5.05) WIMPLAST (13.5.05), RELIANCE CAPITAL (26.7.05), RELIANCE IND.(27.1.05), LUPIN CHEMICALS (2.6.05, 3.6.05 & 13.6.05), EMPHASISI BFL LTD. (12.5.05, 12.4.05, 14 .6.05, 25.7.05, 12.8.05, 4.10.05, 18.10.05, 18.11.05 & 23.12.05) DA MPUR SUGAR MILLS (19.4.05), UNION BANK (25.5.05, 2.6.05), RUCHI SOYA (26.5.05), HCL TECHNOLOGY (13.6.05 & 14.6.05), TITAN INDUSTRY (8.6 .05) SUPREME INDUSTRIES (15.6.05), S.KUMARS (18.7.05, 19.7.05), MAHANAGAR TELEPHONE (14.7.05), BHARTI TELEVENTURES (4.7.050, TATA IRON & STEEL (9.8.05), IDFC (5.9.05), SCI (26.7.05), VARUN SHIPP ING (4.4.05), T.V. TODAY (12.7.05), STERLITE (3.8.05, 5.8.05), INDOCO (20.7.05, 3.8.05), LIC HOUSING (4.6.05), IN THE CASE OF ROLTA INDIA, N TPC SHARE, INDIA INFOLINE LTD. HIMACHAL FUTURISTIC LTD, TATA MOTOR A ND MANY OTHER SCRIPS, IT IS NOTICED THAT THE ASSESSEE HAS TRADED THE SHAR ES OF THESE COMPANIES VERY FREQUENTLY INVOLVING HIGHER MAGNITUD E OF MONEY AND RISK AND HAS RELATIVELY EARNED GOOD PROFITS IN A SH ORT SPAN OF TIME. HENCE IN A NUTSHELL IT CAN BE CONCLUDED THAT SUCH P URCHASE AND SALE OF SHARES ARE CARRIED ON BY A PERSON DOING BUSINESS OF PURCHASE AND SALE OF SHARE AND NOT BY AN INVESTOR. ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 6 IV) A SHARP BUSINESS ACUMEN IS NOTICED IN THE ASSES SEE BY DEALING IN CERTAIN SCRIPS SEVERAL TIMES WITH A VIEW TO MAKING PROFIT FROM THESE SHARE TRANSACTIONS. IT IS AN UNDISPUTED FACT THAT I F AN AS HAS AN INTENTION OF MAKING STEADY INVESTMENT IN SHARES AND SECURITIE S FOR THE PURPOSE OF EARNING REGULAR DIVIDEND INCOME, THE ASSESSEE WOULD NOT INDULGE IN SUCH FREQUENT PURCHASE AND SALE TRANSACTIONS OF SAM E SCRIP. ON THE CONTRARY, THE CONCERNED ASSESSEE WOULD ALLOW THE IN VESTMENT TO BE HELD FOR A PRETTY LONGER PERIOD SO AS TO EARN DIVIDEND I NCOME FROM YEAR TO YEAR. THE FREQUENCY OF TRANSACTIONS THUS CLEARLY IN DICATES YOUR INTENTION OF DEALING IN SHARES AND SECURITIES. V) IT IS INTERESTING TO NOTE THAT THE ASSESSEE HAS SHOWN TO HAVE INCURRED LOSS IN DERIVATIVE TRADING, WHICH IS COMPUTED UNDER THE HEAD BUSINESS, WHILE THE PROFIT ON SPECULATIVE TRANSACTION HAS BEE N SHOWN AS SHORT TERM CAPITAL GAIN INSTEAD OF SHOWING THE SAME AS IN COME FROM SPECULATION BUSINESS. SUCH FACTS CLEARLY INDICATES THE INTENTION TO AVOID THE BURDEN OF TAXATION INSPITE OF THE FACT THAT THE ASSESSEE INTENDED TO CARRY ON THE BUSINESS OF TRADING IN SHARES AND SECU RITIES. SUCH FACT ALSO ESTABLISHES THE CHARACTER AS TRADER IN SHARES AND S ECURITIES. VI) THE ASSESSEES CONTENTIONS ARE FURTHER REBUTTED BY PLACING RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S. H. HOLCK LARSEN (1966) 160 ITR 67 (SC) WHEREIN THE HONBLE SUPREME COURT OBSERVED THAT THE QUESTION WHETHER THE TRANSA CTION\S OF SALE AND PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR WER E IN NATURE OF INVESTMENTS WAS MIXED QUESTION OF LAW AND FACT. THE HONBLE COURT FURTHER OBSERVED THAT THE REAL QUESTION WAS NOT WHE THER THE TRANSACTIONS OF BUYING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING BUT WHETHER THE LATER STAGE OF THE WHOLE OPERATION SHO W THAT THE FIRST STEP THE PURCHASE OF THE SHARES WAS NOT TAKEN AS OR IN THE COURSE OF A TRADING TRANSACTION. VII) AS REGARDS THE ARGUMENT WITH RESPECT TO LONG T ERM HOLDINGS, THE ASSESSEES PLEA DOES NOT HOLD ANY GROUND IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF CIT (CENTRAL) CALCUTTA V/S. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY PVT. LTD.(82 ITR 586 ) WHEREIN THE HONBLE SUPREME COURT HAS OBSERVED THAT: WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES BE IN A POSITION TO PRODUCE EV IDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DIS TINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 7 VIII) THE FACT THAT A PARTICULAR SCRIP IS HELD FOR A PERIOD OF 12 MONTHS WOULD NOT BY ITSELF MAKE THE SURPLUS EARNED ON SALE THEREOF LONG TERM CAPITAL GAIN. AN ASSESSEE CAN BE SAID TO HAVE EARNE D A LONG TEM CAPITAL GAIN ONLY FROM SALE OF A CAPITAL ASSET AND NOT A BUSINESS ASSET. IN OTHER WORDS, IF A PARTICULAR BUSINESS ASSET IS H ELD FOR LONGER PERIOD FOR WANT OF OPPORTUNE TIME MERELY BECAUSE THE PERIOD OF HOLDING IS LONGER, THE CONCERNED BUSINESS ASSET / STOCK INIT RD WOULD NOT GET CONVERTED INTO CAPITAL ASSET. FOR EXAMPLE IF A BUILDER HOLDS UNSOL D FLATS FOR A PERIOD OF MORE THAN 3 YEARS, SUCH FLATS WOULD NOT BECOME CAPI TAL ASSETS IN THE CASE OF BUILDER. THE FACT THAT SOME OF THE SHARES A ND SECURITIES WERE DISPOSED OFF AFTER A PERIOD OF 12 MONTHS ONLY SUGGE STS THAT FOR SUCH SHARES AND SECURITIES, IT WAS NOT FOUND PROFITABLE TO DISPOSE THEM OFF BEFORE THE PERIOD OF 12 MONTHS AND AS SUCH, THEY WE RE HELD FOR A PERIOD OF MORE THAN 12 MONTHS. AS STATED ABOVE THE ACTION OF DISPOSING OFF THE SHARES AND SECURITIES AT PROFITABLE TIMES CLEARLY E STABLISH THAT ALL THE SHARES AND SECURITIES WERE PURCHASED/ACQUIRED BY TH E ASSESSEE AS BUSINESS ASSET I.E. STOCK IN TRADE. LD. DR FURTHER SUBMITTED THAT THE ASSESSING OFFICER WAS RIGHT IN VIEW OF THE FACT THAT THE VOLUMINOUS TRANSACTIONS HAS BEEN CARR IED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TERMING THE ASS ESSEE AS A PRUDENT BUSINESSMAN AND THERE WAS CLEAR PROFIT MOTIVE AS CA N BE INFERRED FROM THE EXPLANATION OF THE ASSESSEE. LEARNED DEPARTMENTAL R EPRESENTATIVE RELIED UPON THE FOLLOWING JUDGEMENTS I] RAJESH J. SANGHVI V. DEPUTY COMMISSIONER OF INCO ME TAX, 13(2) MUMBAI (2010) 7 TAXMAN 40(MUM) 2) M/S NBT EXPORTS VS DCIT 1(2) ITA NO. 1070/MUM/2 010 3) SMT SADHANA NABERA VS ACIT RANGE 25(3) ITA NO. 2 586/MUM/2009 7. ON THE CONTRARY, LD. AUTHORIZED REPRESENTATIVE O F THE ASSESSEE CONTENDED THAT THE ORDER PASSED BY THE ASSESSING OF FICER IS PATENTLY ERRONEOUS IN VIEW OF THE FACT THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF TRADING OF SHARE ETC. AND THE REGULAR BUSINESS O F THE ASSESSEE IS TEXTILE AND HE HAS APPLIED HUGE CAPITAL ON MACHINERY AND OTHER INFRASTRUCTURE OF ITS BUSINESS. LD. AR ALSO RELIED UPON VARIOUS JUDGMENTS IN SUPPORT OF HIS CONTENTION THAT THE SHARE TRANSACTIONS AS CARRIED O UT BY THE ASSESSEE ARE FOR THE PURPOSE OF INVESTMENT. ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 8 LD. AR CONTENDED THAT THE TRANSACTION AS MADE BY TH E ASSESSEE DOES NOT QUALIFY THE TEST AS PRESCRIBED UNDER CBDT CIRCULAR LD. CIT(A) HAS RIGHTLY ACCEPTED ASSESSEES CLAIM OF STCG OF RS.16,98,876/- AND LTCG OF RS.1,98,025/-. LD. AR SUPPORTED THE ORDER PASSED BY LD. CIT(A) AND SUBMITTED THAT LD. CIT(A) HAS EXAMINED THE ISSUE TH OROUGHLY AND RIGHTLY TREATED THE TRANSACTION IN SHARES AND SECURITIES AS CAPITAL GAIN THEREFORE NO INTERFERENCE IS CALLED. LEARNED AUTHORIZED REPRESE NTATIVE ALSO FILED WRITTEN SUBMISSIONS HE SUBMITTED MERE VOLUME IN TRANSACTION CAN NOT CHANGE THE NATURE OF TRANSACTION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AT BAR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND ORDERS PASSED BY THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS MATTER IS WITH REGARD TO THE TREATMENT OF THE SHARE TRANSACTIONS AS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND THE INCOME DERIVED THERE FR OM WHETHER SAME IS BUSINESS INCOME OR LONG TERM/ SHORT TERM CAPITAL GA IN AS CLAIMED BY THE ASSESSEE. WE FIND THAT THE IMPUGNED ORDER AS PASSED BY THE LD. CIT(APPEAL) IS CRYPTIC AS HE HAS NOT CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER AND THE CASE LAWS AS RELIED BY HIM. THE OPERATING P ART OF THE ORDER OF LEARNED CIT(APPEALS) IS REPRODUCED HEREIN BELOW:- IN VIEW OF THE FACTS OF THE CASE, THE PARAMETERS LAID DOWN IN CIRCULAR NO. 4 OF 2007 DTD. 15.06.2007 AND VARIOUS JUDICIAL PRONOUNCEMENTS WHICH HAVE BEEN DISCUSSED ABOVE IN C ONSIDERABLE DETAIL. IT IS HELD THAT THERE WAS SIMPLY NO BASIS F OR THE ASSESSING OFFICER TO TREAT THE SHORT TERM AND LONG TERM CAPITAL GAINS TOTALLING RS. 18,17,907/- AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE ASSESSEES CLAIM OF STCG OF RS.16,19,876/- AND LTCG OF RS. 1,98,025/-. LD. CIT(APPEALS) HAS NOT ADVERTED ANY THING ON THE CASE LAWS AS RELIED UPON BY THE ASSESSING OFFICER AS TO WHY THEY ARE NOT APP LICABLE UNDER THE FACTS AND ITA NO.2891/AHD/2009 A.Y. 2006-07 ACIT CIR-2, SRT V. SH SHYAM B SHAH PAGE 9 CIRCUMSTANCES OF THE PRESENT CASE. WE ALSO FIND FOR CE IN THE CONTENTION OF LD. A.R. THAT IN THE EVENT OF TREATING CAPITAL GAIN AS BUSINESS INCOME THEN COMPUTATION HAS TO BE MADE IN ACCORDANCE WITH SECTI ON 28 OF ACT. WE FEEL THAT UNDER THE AFOREMENTIONED FACTS AND CIRCUMSTANC ES IT WOULD BE APPROPRIATE IN THE INTEREST OF NATURAL JUSTICE THAT MATTER IS REMITTED BACK TO THE FILE OF THE LD. CIT(APPEAL) AND WE HEREBY SET ASIDE THE IMPUGNED ORDER. LD. CIT(APPEAL) IS DIRECTED TO PASS A SPEAKING ORDER AF TER GIVING OPPORTUNITY OF HEARING TO THE CONCERNED PARTIES. IN THE RESULT TH E APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 20/04 /2012 SD/- SD/- (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, *DKP - 20/0 4 /2012 &'( ) *+ *+ *+ *+ ,,- ,,- ,,- ,,- .- .- .- .- / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. (,1 * *2 / CONCERNED CIT 4. * *2- / CIT (A) 5. -56 ,,,1, * ,1 , &'( / DR, ITAT, AHMEDABAD 6. 69: ;< / GUARD FILE. BY ORDER/ *+ , /TRUE COPY/ =/ & > * ,1 , &'( )