Appeal Details
Counselvise Citation
293220514 RSA 2009
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 11 month(s) 8 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-10-2011
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
28-09-2011
Assessment Year
2006-2007
Appeal Filed On
27-10-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G. D. AGARWAL, VP AND SHRI BHAVNESH SA INI, JM) ITA NO. 2932/AHD/2009 A. Y.: 2006-07 THE A. C. I. T., CENT. CIR-1(3), ROOM NO.304, 3 RD FLOOR, AAYAKAR BHAVAN, ASHRAM ROAD, AHMEDABAD VS SHRI RAJESH V. PATEL, 5,SHIVAM SATELLITE SOCIETY, NEHRU PARK, VASTRAPUR, AHMEDABAD PA NO. ABCPP 2582 R (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. K. GUPTA, CIT DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 28-09-2011 DATE OF PRONOUNCEMENT: 05-10-2011 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I, AHMEDABAD DATED 24-08-2009 FOR THE ASSESSMENT YEAR 2006-07, CHALLE NGING THE ORDER OF THE LEARNED CIT(A) IN DIRECTING THE AO TO TAX TH E GAIN ON SALE OF SHARES OF RS.5,40,33,673/- AS SHORT TERM CAPITAL GA INS AND NOT AS BUSINESS INCOME. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.5,39, 32,300/- WHICH WAS FILED ON 31-07-2006. THE AO HAS ASSESSED THE TO TAL INCOME AT RS.5,44,24,880/-. THE AO HAS CONSIDERED THE SHORT T ERM CAPITAL GAIN ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 2 ON SALE OF SHARES DECLARED BY THE ASSESSEE AT RS.5, 40,33,673/- AS BUSINESS INCOME. THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN SHORT TERM CAPITAL GAIN AS ABOVE WHICH WAS REQUIRED TO BE CONSIDERED KEEPING IN VIEW VARIOUS FACTORS WHICH DETERMINE THE STATUS OF THE PORTFOLIO I.E., INVESTOR OR TRADER. HE HAS REFERRED TO CBDT CIRCULAR NO.4 DATED 15-6-2007 AND STATED THAT THE APPELLANT WAS ASKED TO GIVE VARIOUS DETAILS REGARDING PURCHASE AND SALE OF TRAD ERS. THE ASSESSEE WAS ISSUED SHOW CAUSE NOTICE AS UNDER: '2. IN CONNECTION WITH THE ABOVE VARIOUS DETAILS H AVE BEEN FILED BY YOU. ON GOING THROUGH THE SAID DETAIL S IT IS NOTED THAT DURING THE YEAR UNDER CONSIDERATION YOU HAVE TRADED AS WELL AS INVESTED IN VARIOUS SCRIPTS AND S URPLUS ARISING OUT OF THE PURCHASE AND SALE OF SHARES OF O THER COMPANIES AS STATED ABOVE HAVE BEEN SHOWN AS SHORT TERM CAPITAL GAINS BY YOU WHICH IS NOT ACCEPTABLE O N THE BASIS OF BELOW MENTIONED FACTS EMERGING FROM THE RECORDS. (1) ON GOING THROUGH THE RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION IT IS NOTICED THAT THE PURCHASE AND SALES OF SECURITIES IS ALLIED TO YOUR USUAL TRA DE OR BUSINESS OR INCIDENTAL TO IT AND IT WAS NOT AN OCCASIONAL INDEPENDENT ACTIVITY. (2) ON MOST OF THE OCCASIONS WHERE THE SHARES W ERE ACQUIRED WITH THE INTENTION TO RESALE AT A PROFIT O NLY AND THERE WAS NO INTENTION TO HOLD THEM FOR LONG TERM APPRECIATION. (3) THE RATIO OF SALES TO PURCHASE IS VERY NARROW RESULTING INTO HOLDING OF SHARES OF A PARTICULAR CO MPANY FOR A SHORTER PERIOD. (4) ON COMPARISON OF THE DETAILS OF PURCHASE AND SA LE OF ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 3 SHARES OF VARIOUS COMPANIES OF CURRENT YEAR WITH PREVIOUS YEARS, IT APPEARS THAT THE VOLUME INCREASE D OVER THE YEARS WHICH SHOWS THAT THE COMPANY CEASED TO BE AN INVESTOR AND BECOME TRADER. IN VIEW OF ABOVE, YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY THE SURPLUS AMOUNTING TO RS.5,40,33,673/- ARISING OUT OF PURCHASE AND SALE OF SHARES VARIOUS COMPANIES SHOULD NOT BE TREATED AS BUSINESS INCOME IN THE YEAR OF ITS SALE.' THE ASSESSEES EXPLANATION IS REPRODUCED IN THE ASS ESSMENT ORDER IN PARA 3.4. THE A.O. HAS STATED THAT THE SAID CONTENT IONS ARE NOT ACCEPTABLE FOR THE REASONS GIVEN BY HIM IN PARA 3.6 TO PARA 3.8 OF THE ASSESSMENT ORDER. HE HAS REFERRED TO THE HONBLE SU PREME COURT DECISION IN THE CASE OF CIT VS HOLCK LARSON, 160 IT R 67 AND STATED THAT THOUGH IN THE SAID CASE THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE, IT LAID DOWN CERTAIN TESTS TO BE APPLIED FOR DETERMINING THE NATURE OF TRANSACTION. HE HAS STATED HAT THE TESTS LAID DOWN IN THE SAID CASE ARE TO BE APPLIED IN THE CASE OF THE ASSE SSEE AS PER THE DISCUSSION IN PARA 3.7 OF THE ORDER. THE DISCUSSION CONTAINED IS SUMMARIZED AS UNDER: I) THE FIRST TEST STATED BY THE A.O. IS THAT THE SUBJECT MATER OF REALIZATION IS TO BE CONSIDERED AND HE HAS STATED THAT AS PER THE DETAILS OF TURNOVER IN SHARES, CONS IDERING THE VOLUME INVOLVED IT CANNOT BE TREATED AS INVESTM ENT. HE HAS STATED THAT THE SHARE BECAME COMMODITY FOR T HE ASSESSEE HAVING REGARD TO THE VOLUME INVOLVED. HE H AS REFERRED TO THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF H. MOHAMED & CO. 107 ITR 637 AND STATED THA T THE DISTINCTION BETWEEN STOCK IN TRADE AND INVESTME NT IS THAT OF SELLING OUT RIGHT IN THE CASE OF BUSINESS A CTIVITY AND ARRIVING INCOME FROM EXPLOITATION OF ENTIRE ASSET. HE HAS ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 4 ALSO REFERRED TO THE DECISION IN THE CASE OF SARDAR INDRASING 24 ITR 415. II) THE SECOND TEST REFERRED TO BY THE A.O. IS LENGTH OF PERIOD OF OWNERSHIP. III) THE THIRD TEST REFERRED TO BY THE A.O. IS FREQUENCY OF NUMBER OF TRANSACTIONS. HE HAS ALSO GIVEN DETAILS O F SHARES PURCHASED AND SOLD IN ASSESSMENT ORDER ON PA GE 13 TO 15 AND STATED THAT THAT THE PERIOD OF HOLDING REMAINED SHORT IN MOST OF THE CASES AND THAT THE ASSESSEE WAS INVOLVED IN SIMILAR TRANSACTIONS FREQU ENTLY. HE HAS STATED THAT THE SOURCE OF INCOME REMAINS CAP ITAL GAIN ON SALE OF SHARES/ SECURITIES. HE HAS ALSO STA TED THAT SIMILAR TREND IS OBSERVED IN OTHER YEARS. THEREFORE , THE APPELLANT IS A TRADER IN SHARES. HE HAS ALSO REFERR ED TO THE DECISION OF ASSOCIATED INDUSTRIES DEVELOPMENT COMPA NY 82 ITR 586 AND STATED THAT THE SUPREME COURT HAS IN THE SAID CASE OBSERVED THAT MULTIPLICITY OF TRANSACTION S SUPPORT THE DEPARTMENT'S STAND THAT THE ASSESSEE CE ASED TO BE AN INVESTOR. IV) THE FORTH TEST STATED BY THE A.O. IS THAT NO SUPPLEMENTARY WORK IN RESPECT OF SHARES OR MUTUAL F UND WAS FOUND TO HAVE BEEN CARRIED OUT BY THE ASSESSEE. V) HE HAS FURTHER STATED THAT THE CIRCUMSTANCE RESPONSIBLE FOR REALIZATION IS THE FIFTH TEST AND T HAT THE APPELLANT HAS SOLD THE SHARES WHEN IT REACHED TO TA RGETED PRICE. THERE WAS NO EMERGENCY FOR REALIZATION OF MO NEY. VI) THE SIXTH TEST STATED BY THE A.O. IS MOTIVE O F THE ASSESSEE AND HE HAS OBSERVED THAT THE MOTIVE OF THE ASSESSEE IS TO EARN THE MAXIMUM PROFIT AND NOT THE INVESTMENT. THE INTENTION TO HOLD SHARES FOR LONGER PERIOD AND ENJOY THE BENEFIT OF OWNERSHIP IS MISSING. THE AO HAS ALSO REFERRED TO THE DECISION OF H. MOHA MED & CO. AND STATED THAT IT IS POSSIBLE THAT ONE AND THE SAME CO MMODITY IN THE CASE ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 5 OF ONE ASSESSEE MAY BE STOCK IN TRADE WHEREAS IN TH E CASE OF OTHER ASSESSEE IT MAY BE CAPITAL ASSET. IT WAS OBSERVED B Y THE AO THAT APPLYING THE ABOVE TESTS TO THE TRANSACTIONS ENTERE D INTO BY THE ASSESSEE THE SURPLUS ARISING ON SALE OF SHARES WAS BUSINESS INCOME AND THE ASSESSEE HAD HELD THE SHARES AS TRADING ASS ET. TO SUPPORT THIS CONCLUSION HE HAS ALSO RELIED UPON THE CBDT CI RCULAR NO. 1827 DATED 31-8-1989 AND CIRCULAR NO.4 DATED 15-6-2007. THE ASSESSEE IN THE STATEMENT OF FACTS IN THIS CONNECTION SUBMITTED THAT HE WAS RESIDING AT USA WHERE HE WAS HAVING HIS OWN BUSINES S AND IS EARNING LIVELIHOOD SINCE 2002. THE ASSESSEE FURTHER STATED THAT IN INDIA, HE WAS MAKING INVESTMENT AND IN THE YEAR UND ER CONSIDERATION, HE HAS EARNED SHORT TERM CAPITAL GAIN OF RS.5,40,33 ,373/- WHICH INVOLVED TOTAL NUMBER OF SALE TRANSACTIONS DURING T HE ENTIRE YEAR WHICH IS ONLY 58. IT WAS STATED THAT THE SHARES WERE HELD FOR A REASONABLE PERIOD OF TIME BEFORE SALE AND THAT THE ASSESSEE EARNED MAJOR PROFIT OF RS.6.32 CRORES ONLY IN SHARES OF VI SHAL EXPORTS LTD. WHICH WERE HELD FOR A PERIOD RANGING BETWEEN 74 TO 83 DAYS. IT WAS SUBMITTED THAT SHARES PURCHASED WERE ON INVESTMENT ACCOUNT AND IT WAS WITH THIS SPECIFIC INTENTION OF HOLDING THE SAM E AS INVESTMENT WHICH WAS ALSO REFLECTED IN THE BOOKS OF ACCOUNT IN SEPARATE ACCOUNT FOR EACH OF THE SECURITIES WHICH ARE SOLD. THE ASSE SSEE RELIED UPON THE SUBMISSIONS MADE BEFORE THE AO ON THIS ISSUE. R ELEVANT PORTION OF SUBMISSIONS IS REPRODUCED AS UNDER: '1.1) WITH REFERENCE TO THE SAME, THE ASSESSEE SU BMITS THAT ALL THE TRANSACTIONS ENTERED INTO BY THE ASSES SEE DURING THE PERIOD UNDER CONSIDERATION WERE MADE WIT H AN INTENTION OF INVESTMENT. MERELY THE FACT THAT THE ASSESSEE ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 6 HAS EARNED PROFITS ON THE SAID TRANSACTIONS DOES NO T RENDER THE SAME AS OF A TRADING NATURE. FURTHER, TH E ASSESSEE WOULD LIKE TO SUBMIT THAT MERELY ON THE BA SIS OF FREQUENCY OF THE TRANSACTIONS AND THE HOLDING PERIO D THEREOF, TO TREAT THE SAME AS OF BEING IN THE NATUR E OF BUSINESS, WITHOUT GIVING DUE CONSIDERATION TO THE R EAL INTENTION OF THE ASSESSEE BEHIND THE EXECUTION OF S UCH TRANSACTIONS WOULD BE CAUSING GRAVE INJUSTICE TO TH E ASSESSEE. THE ASSESSEE WOULD LIKE TO POINT OUT THAT THERE IS NO SINGULAR GENERAL PRINCIPLE WHICH CAN BE LAID DOWN FOR DETERMINING WHETHER A TRANSACTION SHOULD BE TREATED AS TRADING OR INVESTMENT ACTIVITY, BUT IT IS THE TOTAL ITY OF ALL SUCH CIRCUMSTANCES. (A) WHETHER THE PURCHASE AND SALE OF SECURITIE S WAS ALLIED TO HIS USUAL TRADE OR BUSINESS / WAS INCIDEN TAL TO IT OR WAS AN OCCASIONAL INDEPENDENT ACTIVITY? THE FIRST OBSERVATION ON YOUR PART IS THAT THE ACTI VITIES OF INVESTMENTS, RESULTING INTO EARNING OF INVESTMENT I NCOME IN THE FORM OF DIVIDEND AND CAPITAL GAIN ON THE PAR T OF THE ASSESSEE IS INCIDENTAL TO OR ALLIED TO USUAL TRADE OR BUSINESS. IN THIS REGARD, THE ASSESSEE WOULD LIKE T O STATE THAT BY PROFESSION, HE IS CHARTED ACCOUNTANT AND TH US, BEING IN THE FIELD OF PROFESSION, IT WOULD BE UNREA SONABLE TO CONCLUDE THAT THESE ACTIVITIES ARE INCIDENTAL OR ALLIED TO USUAL TRADE/BUSINESS. IT WAS OCCASIONALLY, THE ASSE SSEE, CONSIDERING THE MOVEMENT IN THE MARKET AND CIRCUMSTANCES, THOUGHT FIT TO ENTER IN TO THE MARKE T TO REALIZE GAIN. THUS, HER INVESTMENT ACTIVATES ARE AN CILLARY ACTIVITIES AND CAN NO WAY BE REGARDED AS COMMERCIAL ACTIVITIES. THIS GESTURE ON THE PART OF THE ASSESSE E MAKES IT AMPLE CLEAR THAT THE PURCHASE AND SALE OF SECURI TIES WAS AUXILIARY ACTIVITIES WHICH IN NO WAY BE REGARDED AS HER USUAL OPERATION ACTIVITIES TO CONSTITUTE IT AS BUSI NESS. (B) FURTHER, YOUR GOOD SELF HAS OBSERVED THAT THE ASSESSEE HAS ACQUIRED THE SHARES WITH INTENTION TO RESALE ONLY AT PROFIT AND THERE WAS NO INTENTION TO HOLD T HEM FOR LONG TERM APPRECIATION. ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 7 IN THIS REGARD, THE ASSESSEE AT THE OUTSET STATES T HAT THERE IS NO BENCHMARK RULE, WHICH DIFFERENTIATE A INVESTO R'S ACT AND THAT OF A TRADER. SIMPLY BECAUSE THE ASSESSEE THOUGHT FIT TO LIQUIDATE HIS INVESTMENT AT PROPER T IME, WHERE HE WAS ABLE TO GET THE EXPECTED RETURNS FORM INVESTMENTS, IT WOULD NOT RENDER THE TRANSACTION AS TRADING. IT MAY ALSO BE BORNE IN MIND THAT EVERY IN VESTOR MAKES INVESTMENT KEEPING IN MIND THE RETURN HE WOUL D LIKE TO EARN ON THE SAME. AS SOON AS HE IS ABLE TO EARN SUCH RETURN, HE IS LIKELY TO LIQUIDATE HIS HOLDINGS . MOREOVER, IT WOULD BE PRUDENT TO CONSIDER ALL THE R ELEVANT FACTORS AND CIRCUMSTANCE OF THE CASE TO ARRIVE AT T HE CONCLUSION. HAVING SAID THIS, ONE HAS TO GIVE DUE R ESPECT TO THE CIRCUMSTANCE BEING HOLDING PERIOD OF PARTICU LAR SCRIPT, ITS RELATION WITH MARKET FLUCTUATION AND CO NSEQUENT IMPACT ON THE MARKET OF THE SHARES ETC., CONSIDERIN G THE SAME, THE ASSESSEE WOULD LIKE TO DRAW YOUR ATTENTIO N TO THE FOLLOWING REASONS THAT NECESSITATED THE DISPOSA L OF THE SHARES. A) IT MAY BE NOTED THAT THE SHARES WHICH WERE ALREA DY HELD BY THE ASSESSEE HAD SEEN A DECENT UPSWING AND THE ASSESSEE HAD ALREADY ACHIEVED TARGETED RETURN ON SU CH SHARES. B) IT MAY ALSO BE NOTED THAT AS THE SAID SHARES HAD ALREADY SEEN INCREASE IN ITS VALUE AND THEIR P/E RA TIO WAS ALREADY SIGNIFICANTLY HIGHER; IT IS A PRUDENT DECIS ION TO EXIT SUCH SHARES AND RATHER INVEST IN OTHER SHARES WITH A LOWER P/E RATIO WHICH HAD YET TO SEE AN UPSWING. BY DOING SO THE ASSESSEE IS ONLY ACTING PRUDENTLY WITH A VIEW T O MAXIMIZE GAINS ON INVESTMENTS. IT MAY ALSO BE BORNE IN MIND THAT EVERY INVESTOR M AKES INVESTMENT KEEPING IN MIND THE RETURN HE WOULD LIKE TO EARN ON THE SAME. AS SOON AS HE IS ABLE TO EARN SUC H RETURN, HE IS LIKELY TO LIQUIDATE HER HOLDINGS. II) IT MAY ALSO BE POINTED OUT THAT THOUGH THE PERI OD OF HOLDING MAY BE CONSIDERED AS AN IMPORTANT POINT WHI LE ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 8 DECIDING THE INTENTION OF THE ASSESSEE MAKING INVES TMENT IN SHARES, IT CAN NEVER BE CONSIDERED AS OVERRIDING CRITERIA TO JUDGE THE INTENTION OF THE ASSESSEE. IT WOULD BE DIFFICULT TO DEFINE PRESCRIBED PERIOD WHICH WOULD ENABLE ONE TO DRAW PRECISE LINE WITH REGARD TO ABOVE AS THERE ARE MANY FACTORS WHICH DESERVE TO BE SEEN ALTOGETHER RATHER TO SEE MERELY HOLDING AS CONCLUSIVE AND ISOLATIVE FACTOR B EFORE ONE CAN CONCLUDE THAT THE ASSESSEE HAS EXECUTED COMMERCIAL TRANSACTION AND NOT INVESTMENT. ON THE O THER HAND, THE LAW HAS RECOGNIZED AND ACCEPTED SHORT HOL DING PERIOD. III) SOMETIMES, IT MAY BE POSSIBLE THAT THE ASSESSE E WILL BE ABLE TO EARN HIS THRESHOLD RETURN WITHIN A SHORT DURATION OF TIME ALSO. IT MAY ALSO BE -BORNE-IN MIND THAT AN INVESTMENT DOES NOT LOSE ITS NATURE OF BEING AN INVESTMENT EVEN IF THE RESALE WAS FORESEEN AND CONTEMPLATED, WHEN THE INVESTMENT WAS MADE AND IT W AS THE POSSIBILITY OF THE ENHANCED VALUE THAT MOTIVATE D THE INVESTMENT. FURTHER, YOU WILL APPRECIATE THAT IN MA JORITY OF THE CASES, THE SHARES HAVE BEEN PURCHASED FIRST WIT H THE INTENTION TO HOLD THEM FOR APPROPRIATE TIME. NOT ON LY THAT, YOU WOULD FURTHER APPRECIATE THAT MOST OF THE CASES , THE SHARES WERE HOLD FOR MORE THAN ONE MONTH WHICH JUST IFY THE GESTURE ON THE PART OF THE ASSESSEE TO TREAT TH E SAME AS INVESTMENT. YOU WILL ALSO APPRECIATE THE FACT THAT DURING THE PERIOD UNDER CONSIDERATION, THE STOCK MA RKETS SHOWED A SUSTAINED UPSWING AND THEREFORE IT IS ONLY JUSTIFIABLE BEHAVIOR ON THE PART OF THE ASSESSEE, W HO IS ACTING AS A PRUDENT INVESTOR TO LIQUIDATE HER HOLDI NG AND MAXIMIZE WEALTH AS IT IS NOT CERTAIN WHETHER THIS U PSWING WILL CONTINUE AND IF IT WAS SO, UP TO WHAT PERIOD. (IV) MOREOVER, IN SPITE OF THE FACT THAT IN VIE W OF THE NARRATED FACTS, ONLY CONCLUSION THAT CAN BE DRAWN I S THAT THE ASSESSES IS INVESTOR ONLY, LET US ASSUME FOR A MOMENT THAT THE ASSESSEE WAS NOT ACTING IN PRUDENT MANNER, AS HE HAS LIQUIDATED THE INVESTMENTS IN SHORTER PERIOD OF TIME, RATHER WAITED FOR LOG TERM APPRECIATION. IN T HIS REGARD, THE ASSESSEE WOULD LIKE TO DRAW YOUR ATTENT ION TO ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 9 THAT FACT THAT INVESTMENT HAVE BEEN MADE KEEPING IN MIND THE RETURN HE WOULD LIKE TO EARN ON THE SAME AND TH US, AS SOON AS THE SAME SEEMS ACHIEVABLE IN SHORT PERIOD O F TIME, THE SAID HAVE BEEN LIQUIDATED. HAVING EXPLAIN ED THE REASONS FOR THAT, THE ASSESSEE WOULD LIKE TO DRAW Y OUR KIND ATTENTION TO THE DETAILED WORKING OF CAPITAL G AIN, FROM WHERE YOUR GOOD SELF WILL APPRECIATE THAT THE ASSES SEE HAS INCURRED LOSS IN FEW CASES WHICH SHOWS THAT HOW UNCERTAIN THE MARKET THE MARKET WAS AT THAT TIME CONSEQUENT RISK ASSOCIATED WITH IT, IF THE INVESTME NTS WOULD HAVE BEEN HELD FOR LONGER PERIOD OF TIME. FUR THER, THE ASSESSEE WOULD LIKE TO BRING TO YOUR KIND NOTIC E THE FACT THAT IN MOST OF THE TIMES, THE PRICES WERE IN FACT REDUCED AFTER LIQUIDATION, WHICH JUSTIFY THE ACT ON THE PART OF THE ASSESSEE. SAY FOR EXAMPLE, IN CASE OF NANDAN EXIM, THE PRICE WAS CONTINUOUSLY SHOWING THE DOWNWA RD TREND AND IF THAT WOULD HAVE BEEN HELD AS SUGGESTED BY YOUR GOOD SELF, THE ASSESSEE MIGHT HAVE PLACED HIM SELF IN INCURRING HUGE LOSS. THE SAME IS THE CASE WITH KOPRAN LTD, PCS LTD. AND VISHAL EXPORTS, WHERE THE ASSESSEE HAS EARNED REASONABLE RETURN. THE COPY OF PRICE LIST SHOWING THE MOVEMENT POST SALE IS ATTACH ED VIDES ANNEXURE-2. CHART SHOWING THE MOVEMENT IN PRI CE POST DISPOSAL IS AS GIVEN HEREUNDER; NAME OF THE SCRIPT LAST SALE RATE LOWEST RATE PO ST SALE NANDAN EXIM LTD 10.97 9.50 KOPRAN LTD 91.79 68.65 PCS LTD 177.43 104.00 VISHAL EXPORTS 25.98 19.80 OVERSEAS LTD YOUR GOOD SELF FROM THE ABOVE, WILL APPRECIATE FORM THE SAME THOSE PRICES WERE REDUCED SUBSTANTIALLY AND TH US THE ASSESSEE'S DECISION TO DISPOSES OFF THE SAME WA S PRUDENT ONE. THUS, IN LIGHT OF THE SAID FACT, YOUR GOOD SELF WILL APPRECIATE THAT THE ASSESSEE IS INVESTOR ONLY AND ALL ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 10 THE TRANSACTIONS ARE MADE WITH AN INTENTION FOR INVESTMENTS ONLY. (D) THE CHARACTERIZATION OF SECURITIES IN THE BOOKS OF ACCOUNT AND IN BALANCE SHEET AS STOCK IN TRADE OR INVESTMENTS. IN FACT, THE INTENTION OF THE ASSESSEE TO TREAT THI S AS INVESTMENT IS WELL SPELT OUT BY THE ACCOUNTING ENTR IES AND ALSO TREATMENT GIVEN IN BOOKS OF ACCOUNT. THEREFORE , WHAT IS NECESSARY TO TAKE INTO CONSIDERATION IS THE REAL INTENTION OF THE ASSESSEE BEHIND ENTERING INTO SUCH TRANSACTI ON, WHICH IN THE PRESENT CASE, IS THAT OF INVESTMENT AC TIVITY. HENCE, IN VIEW OF THE SAME, IT HAS BEEN RIGHTLY CON SIDERED AS INVESTMENT. (E) THE ASSESSEE SUBMITS THAT HE HAD ENTERED I N TO TRANSACTION ONLY WITH THE MOTIVE OF INVESTMENTS AND THE SAME IS REFLECTED FROM THE ENTRIES MADE IN THE BOOK S OF ACCOUNTS, AS EXPLAINED HEREINABOVE. FURTHER, YOUR K IND ATTENTION IS INVITED TO THE BOARD CIRCULAR NO.4/200 7 DATED 15 TH JUNE 2007, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, WHICH CLEARLY STIPULATES AT PARA 10 THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS I.E . INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE TRADING PORTFO LIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. PERUSAL OF THE SAID GUIDELINE WILL FURTHER JUSTIFY THE GESTURE ON THE PART OF THE ASSESSEE TO TREAT THE SAID AS INVESTMENT. IF WE CONSIDER ALL THE GUIDELIN ES IN TOTALITY, YOU WILL APPRECIATE THAT THE ASSESSEE HAS RIGHTLY TREATED THE SHARES AS INVESTMENT. IT WAS FURTHER CL ARIFIED BY THE BOARD THAT WHERE AN ASSESSEE HAS TWO PORTFOL IOS, HE MAY HAVE INCOME UNDER BOTH THE HEADS I.E. 'CAPIT AL GAINS' AS WELL AS 'BUSINESS INCOME'' THE ASSESSEE REFERRED TO THE INSTRUCTION NO.1827 DA TED 31-8-1989 AND CIRCULAR NO.4 DATED 15-6-2007, WHICH ARE ALSO R EFERRED TO BY THE A.O. AND ALSO INVITED REFERENCE TO THE PRESS INFORM ATION DATED ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 11 22-5-2006, WHEREIN THE CBDT HAS MADE IT DEAR THAT T HE A.O. HAS TO TAKE NOTE OF TOTALITY OF THE FACTS AND CIRCUMSTANCE S BEFORE REACHING TO A PARTICULAR CONCLUSION. IT IS SUBMITTED THAT SHORT TERM CAPITAL GAIN WHICH IS ELIGIBLE TO FAVORABLE TAX TREATMENT U/S. 1 11A SHOULD NOT BE DENIED BY HOLDING IT AS BUSINESS INCOME. THE ASSESS EE FURTHER SUBMITTED THAT IN HIS CASE FOLLOWING FACTORS ARE RE QUIRED TO BE CONSIDERED: '(A) THAT THE ASSESSEE IS BASED IN USA WHERE HE CARRIES ON FULL TIME BUSINESS TO EARN HIS LIVELIHOOD; THAT THE ASSESSEE HAD A HUGE INVESTIBLE SURPLUS CAPITAL WHICH HE HAD BEEN DEPLOYING BY MAKING INVESTMENT IN FINAN CIAL SECURITIES WHICH WOULD GIVE HIM A REASONABLE RETURN BOTH BY WAY OF DIVIDENDS/INTEREST AS ALSO CAPITAL APPREC IATION WHICH WOULD ALSO KEEP HIM SHIELDED AGAINST PERENNIA L INFLATION; (B) THAT HIS TRANSACTIONS IN SHARES OR OTHER F INANCIAL SECURITIES ARE ENTIRELY UNCONNECTED WITH HIS AFORESAID FULL TIME BUSINESS; (C) THAT THE ASSESSEE DOES NOT HAVE EVEN A SKELETON OF THE KIND OF PERSONNEL OR OTHER PHYSICAL INFRASTR UCTURE WHICH A PERSON CARRYING ON BUSINESS WOULD HAVE TO MAINTAIN; THAT ABSENCE OF THE TYPE OF EXPENDITURE W HICH A BUSINESSMAN WOULD INCUR AFTER PERSONNEL AND OTHER PHYSICAL INFRASTRUCTURE THAT HE MUST HAVE IN ORDER THAT HE CAN CARRY ON HIS BUSINESS, CLEARLY GOES TO SHOW THA T THE TRANSACTIONS OF THE ASSESSEE CANNOT BE REGARDED AS BUSINESS; THAT THE MERE CIRCUMSTANCE, THAT AN ASSESSEE MAY HAVE BORROWED SOME FUNDS TO FACILITATE HIS TRANSACTIONS IN SECURITIES, CANNOT ENTITLE THE DEPARTMENT TO COME TO THE CONCLUSION THAT THE ASSES SEE'S TRANSACTIONS IN SECURITIES CONSTITUTE A BUSINESS, A S LONG AS THE EXTENT OF BORROWINGS IN RELATION TO HIS AGGREGA TE INVESTMENTS AND OTHER SIMILAR FACTORS GO TO SHOW TH AT THE ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 12 BORROWINGS ARE USED PRIMARILY TO FACILITATE TRANSACTIONS IN HIS INVESTMENTS. (D) THAT JUST BECAUSE THE ASSESSEE HAPPENED TO ENTER INTO A SOMEWHAT LARGER LOOKING NUMBER OF TRANSACTIONS THIS YEAR PRIMARILY BECAUSE OF AN EXCEPTIONAL BULL RUN WITH ITS ACCOMPANYING VOLATILITY IN THE CAPITAL MAR KETS, RESULTING INTO HIS BEING ABLE TO GET APPRECIATION O F HIS INVESTMENTS MUCH SOONER THAN HE HAD HOPED, HIS TRANSACTIONS CANNOT BE BRANDED AS BUSINESS TRANSACT IONS MERELY BECAUSE THAT WOULD ENABLE THE DEPARTMENT TO LEVY TAX AT THREE TIMES THE RATE OF TAX APPLICABLE TO SH ORT TERM CAPITAL GAINS THAT HE HAD IN FACT MADE. (E) THAT WHEREAS ONLY A PLAIN READING OF PARA 8 OF THE CIRCULAR QUOTED BEFORE SHOWS THAT IT IS INTENDED TO BE APPLIED TO COMPARABLE CASES OF CORPORATES AND WOULD NOT APPLY TO INDIVIDUALS OR HUFS OF THE TYPE REFERRED TO BEFORE, IT WOULD BE SIGNIFICANT TO CONSIDER THE FOLLOWING: (I) THAT THE CRITERIA REFERRED TO AT PARA 8(II) ARE DEARLY REPUGNANT TO THE VERY SCHEME OF THE INCOME- TAX ACT CONCERNING SHORT TERM CAPITAL GAINS, ESPECIALLY, FROM FINANCIAL ASSETS WHICH ENJOY CONCESSIONAL TAX TREATMENT U/S. 111 A; THAT THIS ASPECT HAS BEEN ELABORATELY EXPLAINED HEREIN; (II) THAT THE FIRST PORTION OF THE CRITERION A T PARA 8(III) HAS GOT TO BE SUBJECT TO THE DECISION OF THE SUPREME COURT IN 35 ITR 594 REFERRED TO BEFORE WHERE THE BASIC REQUIREMENTS FOR ANY TRANSACTION TO BE REGARDED AS AN ADVENTURE IN THE NATURE OF TRADE HAVE BEEN LAID DOWN; THAT, IN ANY CASE, AS EXPLAINED BEFORE, THIS CRITERION TOO IS REPUGNANT T O THE VERY SCHEME OF THE INCOME-TAX ACT CONCERNING SHORT TERM CAPITAL GAINS, ESPECIALLY FROM FINANCIAL ASSETS WHICH ENJOY CONCESSIONAL TAX TREATMENT U/S. 111 A; THAT, FURTHER, THE LATTER PART OF PARA 8(III ) IS VERY CATEGORICAL ABOUT WHEN THE PROFIT RESULTING FROM CHANGE IN INVESTMENT WOULD YIELD A CAPITAL ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 13 GAIN AND NOT REVENUE RECEIPT AND TO THAT EXTENT DOES INDIRECTLY RECOGNIZE THE SCHEME OF THE ACT IN THE MATTER OF GIVING CONCESSIONAL TAX TREATMENT TO SHORT TERM CAPITAL GAINS FROM TRANSFER OF SHARES ET C. U/S. 111A EVEN AS IT SEEMS TO OMIT TO CONSIDER THAT THE OBJECT OF MAKING AN INVESTMENT IN THE SHARES OF A COMPANY NEED NOT BE MERELY TO DERIVE INCOME BY WAY OF DIVIDENDS AND THAT IT MAY VERY WELL ALSO BE TO GET APPRECIATION OF THE INVESTMENT; THAT FURTHER, CONSIDERING THAT THE VERY DEFINITION OF THE EXPRESS ION 'SHORT TERM CAPITAL ASSET' ENVISAGES A MUCH SHORTER PERIOD OF BETWEEN 1 DAY AND 12 MONTHS FOR SHARES IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA OR CERTAIN MUTUAL FUND UNITS ETC. THAN THE LONGER PERIOD OF BETWEEN 1 DAY AND 36 MONTHS FOR OTHER ASSETS, IT HAS NECESSARILY TO FOLLOW THAT THE CRITERION REQUIRING MAKING OF INVESTMENT FOR THE PURPOSE OF DERIVING INCOME BY WAY OF DIVIDEND HAS BEEN SUBORDINATED TO THE CRITERION OF EARNING APPRECIATION BECAUSE IF THE HOLDING PERIOD FOR A SHORT TERM CAPITAL ASSET IN THE FORM OF SHARES COUL D BE 12 MONTHS OR LESS, THE QUESTION OF EARNING DIVIDEND INCOME ON A REGULAR BASIS CAN HARDLY ARISE; THAT THE SCHEME EMERGING FROM THE VERY DEFINITION OF THE EXPRESSION 'SHORT TERM CAPITAL ASSET' AS APPLICABLE TO SHARES ETC. REALLY EXCLUDES ANY POSSIBILITY FOR ENTERING INTO NICETIES WITH A VIEW TO FINDING OUT IF AN ASSESSEE WHO HAS EARNED SHORT TERM PROFITS ON THE TRANSFER OF SHARES ETC. MUST BE REGARDED AS HAVING EARNED BUSINESS INCOME OF SHORT TERM CAPITAL GAINS ELIGIBLE TO CONCESSIONAL TAX TREATMENT U/S. 111 A; THAT IF THE ASSESSEE IS A DEALER IN SECURITIES THEN IT WILL BE TREATED AS BUSINESS INCOME UNLESS HE ALSO HAS AN IDENTIFIED INVESTMENT PORTFOLIO; THAT ON THE OTHER HAND, AN ASSESSEE SUCH AS AN INDIVIDUAL OR HUF AS REFERRED TO BEFORE, WOULD HAVE TO BE REGARDED AS ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 14 HAVING EARNED SHORT TERM CAPITAL GAINS ELIGIBLE TO CONFESSIONAL TAX TREATMENT U/S. 111 A. (F) THAT IN THE CASE, OF AN ASSESSEE EARNING LIVELI HOOD FROM FULL TIME ENTIRELY UNCONNECTED BUSINESS, AND T HAT TOO, IN A FOREIGN COUNTRY, AND RETURNING INCOME FROM TRA NSFER OF SHORT TERM CAPITAL ASSETS ELIGIBLE TO CONFESSIONAL TAX TREATMENT U/S.111A, IT IS FOR THE DEPARTMENT ALLEGING THAT THE ASSESSEE'S TRANSACTIONS CONSTITUTED BUSINE SS YIELDING BUSINESS INCOME CHARGEABLE TO TAX AT A CONSIDERABLY HIGHER RATE THAN THE SHORT TERM CAPITA L GAINS, TO ESTABLISH THAT IT WAS INDEED SO; THAT THE DEPARTMENT CANNOT BE SAID TO HAVE DISCHARGED THIS BURDEN BY MERELY SUGGESTING THAT THE TRANSACTIONS OF SUCH AN ASSESSEE AMOUNT TO AN ADVENTURE IN THE NATURE OF TRADE, ESPE CIALLY CONSIDERING THAT THE SUPREME COURT HAS VERY CATEGOR ICALLY LAID DOWN THE BASIC REQUIREMENTS FOR WHAT MAY AMOUN T TO 'AN ADVENTURE IN THE NATURE OF TRADE' IN ITS DECISI ON IN G. VENKATASWAMI NAIDU & CO V. CIT (35 ITR 594)' THE ASSESSEE FURTHER SUBMITTED AS UNDER: '10.1 FURTHER, THE VERY SCHEME OF THE INCOME-TAX AC T, 1961 EMERGING FROM THE DEFINITION OF THE EXPRESSION 'SHORT TERM CAPITAL ASSET' (AS AMENDED WITH EFFECT FROM 1-4-1987) AND IN TURN, OF 'SHORT TERM CAPITAL GAIN' AS APPLICABLE TO SOME OF THE FINANCIAL ASSETS (SHARES IN A COMPANY, OR ANY OTHER SECURITY LISTED IN A RECOGNIZ ED STOCK EXCHANGE IN INDIA, MUTUAL FUND UNITS ETC) AND FROM SECTION 111A (INSERTED WITH EFFECT FROM 1-4-2005, SIMULTANEOUSLY WITH THE INTRODUCTION OF THE LEVY BY WAY OF SECURITIES TRANSACTION TAX) PROVIDING FOR A FAVOURA BLE TAX TREATMENT OF SUBJECTING SHORT TERM CAPITAL GAINS FR OM THE TRANSFER OF LISTED SHARES OR EQUITY ORIENTED MUTUAL FUND UNITS WHICH ARE SUBJECT TO THE LEVY OF SECURITIES TRANSACTION TAX, SHOWS THAT THE APPROACH OF THE LEA RNED ASSESSING OFFICER AT SOMEHOW OR THE OTHER TREATING THE ASSESSEE'S TRANSACTIONS AS BUSINESS TRANSACTIONS SO THAT THE FAVOURABLE TAX TREATMENT PROVIDED FOR BY THE LEGISLATURE IS DENIED AND INSTEAD TAX MAY BE GATHER ED AT ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 15 THREE TIMES THE CONCESSIONAL RATE, IS ENTIRELY MISP LACED. PERTINENTLY, THIS SCHEME OF THE INCOME-TAX ACT HAS COME ABOUT LONG AFTER THE JUDICIAL DECISIONS ON THE BASI S OF WHICH THE CBDT INSTRUCTION AND CIRCULAR WERE ISSUED , WERE RENDERED BY THE SUPREME COURT AND HIGH COURTS. IN THE APPELLANT'S HUMBLE SUBMISSION, THE VARIOUS PRIN CIPLES AND/OR CRITERIA TO WHICH THE CBDT HAS REFERRED IN I TS INSTRUCTION NO. 1827 DATED 31.8.1989 AND IN CIRCULA R NO.4 DATED 15.6.2007 AND WHICH HAVE BEEN CULLED OUT FROM JUDICIAL DECISIONS RENDERED UNDER THE LAW AS IT REA D BEFORE THE RELEVANT AMENDMENTS WERE MADE WITH EFFECT FROM 1-4-1988 [IN THE CASE OF SECTION 2(42A)] AND WITH E FFECT FROM 1-4-2005 WHEN SECTION 111A WAS INTRODUCED SIMULTANEOUSLY WITH THE INTRODUCTION OF A NEW LEVY IN THE FORM OF SECURITIES TRANSACTION TAX IGNORE THE VERY FUNDAMENTAL ASPECT OF THE LAW OF INCOME-TAX WHICH I S THAT CLAUSE (42A) OF SECTION 2 OF THE INCOME-TAX ACT, 19 61 PROVIDES FOR A DEFINITION OF THE EXPRESSION 'SHORT -TERM CAPITAL ASSET' IN THE FOLLOWING TERMS: '(42A) 'SHORT-TERM CAPITAL ASSET' MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY- SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER: PROVIDED THAT IN THE CASE OF A SHARE HELD IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNIZED STOCK EXCHANGE IN INDIA OR A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963) OR A UNIT OF A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10 OR A ZERO COUPON BOND, THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS 'THIRTY-SIX MONTHS', THE WORDS 'TWELVE MONTHS' HAD BEEN SUBSTITUTED.' 10.2 THUS, EVEN AS THE LEGISLATURE HAS PROVIDED THA T A SHORT-TERM CAPITAL ASSET MEANS A CAPITAL ASSET HELD FOR A PERIOD NOT EXCEEDING 36 MONTHS IMMEDIATELY PRECEDIN G ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 16 ITS TRANSFER, IT HAS ALSO PROVIDED, BY MEANS OF THE PROVISO IN SECTION 2(42A), THAT INSOFAR AS SHARES IN A COMPANY OR ANY OTHER SECURITY LISTED IN A RECOGNIZED STOCK EXCHANGE OR UNITS OF MUTUAL FUNDS ETC. ARE CONCERNED, THE PRESCRIBED HOLDING PERIOD IS UPTO 12 MONTHS. IN OTHER WORDS, THE LEGISLATURE HAS EXPRESS LY PROVIDED THAT EVEN AS THE HOLDING PERIOD FOR A LONG -TERM CAPITAL ASSET IN GENERAL IS 'MORE THAN 36 MONTHS', THE HOLDING PERIOD FOR SHARES AND OTHER LISTED SECURITI ES OR UNITS OF MUTUAL FUNDS ETC., IN ORDER THAT THEY MAY QUALIFY TO BE LONG-TERM CAPITAL ASSETS, IS ONLY 1/3 RD THEREOF VIZ., MORE THAN 12 MONTHS. IT ALSO MEANS THAT EVEN AS CAPITAL ASSETS IN GENERAL WOULD BE REGARDED AS SHOR T- TERM CAPITAL ASSETS THOUGH THEY MAY HAVE BEEN HELD FOR AS LONG AS UPTO 36 MONTHS, THE CORRESPONDING REQUIREMENT IN THE CASE OF SHARES ETC. IS ONLY UPTO 12 MONTHS. ACCORDINGLY, A CAPITAL ASSET IN GENERAL WOULD HAVE TO BE REGARDED AS A SHORT-TERM CAPITAL ASSET I F HELD FOR ANY DURATION FROM 1 DAY TO 36 MONTHS WHEREAS IN THE CASE OF SHARES ETC., THE DURATION IS FROM 1 DAY TO JUST 12 MONTHS. COUPLED WITH THE FACT THAT SECTION 111A INSERTED WITH EFFECT FROM 1-4-2005 PROVIDES FOR A CONCESSIONAL TREATMENT OF LEVYING TAX ON SHORT TERM CAPITAL GAINS FROM THE TRANSFER OF SHARES OR UNITS OF EQUITY ORIENTED MUTUAL FUNDS WHICH HAVE BEEN SUBJECTED TO THE LEVY OF SECURITIES TRANSACTION TAX (WHICH TOO WAS INSERTED SIMULTANEOUSLY WITH THE INSERTION OF SECTI ON 111A) AT ONLY 10% (WHICH IS 1/3 RD OF THE MAXIMUM MARGINAL TAX APPLICABLE TO TOTAL INCOME OTHER THAN SUCH SHORT TERM CAPITAL GAINS), THE LEGISLATIVE INTENTION OF GIVING CONSIDERABLY FAVOURABLE TAX TREATMENT TO SUC H SHORT TERM CAPITAL GAINS IS SO EXPLICIT THAT IT REN DERS MOST OF THE PRINCIPLES/CRITERIA REFERRED IN ITS INSTRUCTION NO. 1827 DATED 31.8.1989 AND IN CIRCULA R NO.4 DATED 15.6.2007 (WHICH HAVE BEEN CULLED OUT FROM JUDICIAL DECISIONS RENDERED UNDER THE OLD LAW) REDUNDANT.' ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 17 BEFORE THE LEARNED CIT(A), THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A COPY OF DECISION OF THE ITAT, AHMEDABAD DATED 17-9- 2009 IN APPEAL NO.2875, 2878, 2879, 2880/AHD/2008 I N THE CASE OF HIMANSHU SHAH AND IT WAS SUBMITTED THAT IN THE SAID CASE AFTER CONSIDERING VARIOUS AUTHORITIES AND THE ABOVE REFER RED CIRCULAR, THE ITAT HAS HELD THAT THE DEPARTMENT WAS NOT JUSTIFIED IN HOLDING THAT THE TRANSACTIONS MADE BY THE ASSESSEE WERE THAT OF A BU SINESS TRANSACTION AND NOT INVESTMENT. 3. THE LEARNED CIT(A) CONSIDERING THE EXPLANAT ION OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD DIRECTED THE A O TO TAX THE SAME AS SHORT TERM CAPITAL GAINS. HIS FINDINGS IN PARA 9 AND 12 OF THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: 9 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE STAND OF THE A.O. TO HOLD THAT THE IMPUGNED SURPLUS ARISING ON SALE OF SHARES IS BUSINESS PROFIT IS MAI NLY ON HIS OBSERVATION THAT VOLUME INVOLVED IN THE PURCHASE AN D SALE OF SHARES I.E. AMOUNT INVOLVED IS LARGE AND TH AT THE PERIOD OF HOLDING WAS NOT LONG AND THAT THERE ARE V ARIOUS TRANSACTIONS ENTERED INTO DURING THE YEAR. HE HAS A LSO HELD THAT THERE WAS NO REASON FOR REALIZATION OF IN VESTMENT AND ON THAT BASIS HE HAS HELD THAT THERE WAS NO INT ENTION TO HOLD THE SHARES FOR LONGER PERIOD. ON THE OTHER HAND THE APPELLANT HAS SUBMITTED THAT THE INTENTION OF M AKING THE INVESTMENT IS CLEARLY SPELT BY THE ENTRIES IN T HE BOOKS OF ACCOUNT WHEN THE SHARES WERE PURCHASED AS INVESTMENT. 10 BEFORE ADJUDICATING THIS ISSUE, IT WOULD BE WORTHWHILE TO REFER TO THE SHARE PURCHASE AND SALE TRANSACTION, AS FURNISHED BY THE APPELLANT IN ANNEX URE-B OF THE APPELLANT'S APPEAL. ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 18 SCRIP NAME OPENING INVESTMEN T INVESTMENT PURCHASES INVEST*ENT SALES CLOSING INV. INCOME/ LOSS CITY. VALUE DATE QTY. VALUE DATE QTY. VALUE QTY. VALUE AFTER INFOSYS 21/11/2005 50000 5705500 28/11/2005 50000 5794000 88500 CHANDANI ENG 02/06/2005 15000 113250 28/06/2005 15000 185988 72738 FACOR 21/12/2005 150000 609000 05/01/2006 400000 2399740 ALLOYS 23/12/2005 250000 1057500 06/01/2006 262000 1419740 26/12/2005 500000 2210000 25/01/2006 564000 2257639 27/12/2005 250000 1132500 30/01/2006 179850 721824 30/12/2005 570000 2896744 31/01/2006 308795 1248987 02/01/2006 570000 3230158 03/02/2006 71824 253339 03/01/2006 570000 3492800 23/03/2006 24000 35852 27/03/2006 570000 671572 28/03/2006 479531 537209 TOTAL 236000 0 14628702 2860000 9545901 0 -5082801 FERRO ALLOYS 30/08/2005 4100 139628 01/09/2005 4100 126943 0 ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 19 06/10/2005 425000 10387018 11/10/2005 50000 1301000 07/10/2005 200000 5212584 20/10/2005 55850 1231289 13/10/2005 100000 2848000 21/10/2005 35000 720561 17/10/2005 400000 10557237 24/10/2005 25000 463250 18/11/2005 50000 909123 08/12/2005 200000 3430058 21/11/2005 3675 66224 12/12/2005 425000 6392348 25/11/2005 100000 1734234 15/12/2005 425000 7023669 21/12/2005 62825 931695 TOTAL 128277 5 31854048 1282775 21620813 0 -10233235 FESSERS LLOYD 01/12/2005 11601 841305 08/12/2005 11661 856271 08/12/2005 60 4381 TOTAL 11661 845685 11661 856271 10586 ICICI BANK 25/11/2005 10 5284 08/12/2005 10 5290 5 C M SUGAR 30/11/2005 90000 6414934 21/12/2005 25000 1636848 23/12/2005 90000 6351591 22/1272005 40000 2558780 26/12/2005 90000 7530201 23/12/2005 1000 65990 27/12/2005 90000 8457002 29/12/2005 90000 8567626 ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 20 30/12/2005 90000 8806596 02/01/2006 294050 25517457 02/01/2006 50 4293 TOTAL 450050 37564617 450050 38346701 782084 )PRAN LTD 16/06/2005 60000 4680506 17/06/2005 60000 5548138 16/06/2005 60000 4682907 17/06/2005 60000 5507886 TOTAL 120000 9363413 120000 11056024 0 1692611 NANDAN EXIM 07/06/2005 756250 1940261 16/11/2005 60000 661225 3369846 166470 39 05/07/2005 200000 0 10728535 21/11/2005 50000 549367 11/07/2005 650000 3877702 22/11/2005 20154 221291 16/08/2005 9375 729375 TOTAL 350000 0 17275876 130154 1431883 3369846 166470 39 803046 DVAPETRO 22/11/2005 278 21081 30/11/2005 50 4735 22/11/2005 100 7578 21/12/2005 11952 1378895 28/11/2005 6967 587996 20/01/2006 5250 482528 28/1 1/2005 1935 162815 25/01/2006 10572 1023898 30/11/2005 2722 237170 17/03/2006 7654 1177568 ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 21 17/01/2006 950 88436 18/01/2006 5216 490712 19/01/2006 9656 913311 16/03/2006 7654 1210557 TOTAL 35478 3719655 35478 4067623 0 347969 ROY ALE MANOR 30/11/2005 24938 664888 02/12/2005 10OO 28938 08/02/2006 23938 532144 TOTAL 24938 664888 24938 561082 0 -103806 SHRI ADHIKARI 26/12/2005 75000 1528868 10/01/2006 8513 205986 10/01/2006 29471 676769 08/02/2006 37016 639636 TOTAL 75000 1528868 75000 1522391 0 .6477 SHRI ADHIKARI BRO 26/12/2005 75000 1528868 26/12/2005 75000 1528868 (15000*3) TR SHR AD TOTAL 75000 1528868 75000 1528868 0 0 ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 22 CYBER MEDIA 20/06/2005 40000 5719544 21/06/2005 40000 6004360 24/06/2005 421 57218 04/10/2005 421 52239 TOTAL 40421 5776763 40421 6056599 0 279837 : CS SHARE A/C 23/09/2005 69000 9981815 27/09/2005 69000 12243011 TOTAL 69000 9981815 69000 12243011 0 2261196 INDIA CEMENT 16/06/2005 50000 4102228 13/07/2005 37138 2989499 13/07/2005 12862 1028767 TOTAL 50000 4102228 50000 4018266 0 43962 NTERFACE FINANCE 16/06/2005 230000 443900 29/08/2005 230000 765900 17/06/2005 230000 472650 31/08/2005 160000 644800 01/09/2005 70000 309400 TOTAL 460000 916550 460000 1720100 0 803550 ORIENTAL BANK 04/04/2005 5 1522 16/01/2006 5 1357 -165 ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 23 SAKSOFT 17/06/2005 40000 5705193 27/06/2005 150000 22004027 21/06/2005 149000 22491113 04/10/2005 39000 5264610 TOTAL 18SGO O 28196305 183000 27268637 -927668 \FTSHAL EXP 325 000 0 347893 42 13/06/2005 550000 16843551 14/06/2005 526551 . 15870593 - 15/06/2005 500000 15067508 16/06/2005 590000 17889578 17/06/2005 472000 14198097 20/06/2005 590000 17692221 22/06/2005 21449 557460 TOTAL 325 000 0 347893 42 0 0 3250000 98119008 63329665 10.1 FORM THE AFOREMENTIONED PURCHASE AND SALES ACCOUNT OF SHARES, IT IS APPARENT THAT IN MAJORITY OF THE SHARE TRANSACTIONS,, THE APPELLANT HAD INCURRED LOS S DURING THE YEAR UNDER CONSIDERATION OR IT HAS EARNED NOMIN AL PROFIT, EXCEPT IN THE SHARE TRANSACTIONS RELATED TO ONE COMPANY, I.E., M/S. VISHAL EXPORTS, WHEREIN IN HA E ARNED PROFIT OF RS.6,33,29,665/-. IN OTHER WORDS, THE N ET PROFIT POSITION IN THE SHARE TRANSACTION IS BECAUSE OF THE PROFIT EARNED BY THE APPELLANT IN THE SALE/PURCHASE TRANSA CTIONS OF SHARES OF M/S. VISHAL EXPORTS. HAD THE PROFIT OF AROUND RS.6.33 CORES IN SHARES TRANSACTIONS OF M/S. VISHAL EXPORTS NOT HAVE BEEN EARNED, THEN, THE NET POSITIO N WOULD HAVE BEEN A LOSS IN THE SHARE PURCHASE AND SA LES ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 24 TRANSACTIONS. IN THE LIGHT OF THIS FACT, ISSUES ARE NOW REQUIRED TO BE CONSIDERED AS HEREUNDER. 11. IT IS SEEN THAT THE APPELLANT IS RESIDING AT U SA AND HE CANNOT HAVE DAY TO DAY ACTIVITY OF TRADING IN SH ARES IN INDIA. THE APPELLANT HAS POINTED OUT THAT THE SHARE S HAVE BEEN TRANSFERRED TO THEIR ACCOUNT AND THUS ACTUAL D ELIVERY THEREOF HAS BEEN TAKEN OR GIVEN AT THE TIME OF SALE . THE SHARES ARE SOLD DURING THE PERIOD WHEN THE APPELLAN T THOUGHT IT HAD REACHED THE PEAK. THIS IS ALSO ESTAB LISHED BY THE FIGURES OF PRICES OF THE SHARES SUBSEQUENT T O SALE BY THE APPELLANT WHICH HAS REDUCED SUBSTANTIALLY. T HE MAIN PLEA IS THAT THE SHARES HAVE BEEN TREATED BY T HE APPELLANT FROM THE BEGINNING AS INVESTMENT. THE APP ELLANT HAS EXPLAINED THAT THE PROVISIONS OF SECTION 2(42A) GIVING DEFINITION OF SHORT TERM CAPITAL ASSET ENVISAGES TH AT THE PERIOD OF HOLDING MAY BE LESS THAN ONE YEAR, I.E. I T MAY BE RANGING THE PERIOD UPTO 12 MONTHS. THE PROVISIONS O F SECTION 111A PROVIDE SPECIFIC RATE OF TAX WHICH IS CONCESSIONAL FOR TRANSACTION OF SALE OF SHARES CONS IDERED AS SHORT TERM ASSET. IN THE AFORESAID DECISION OF HIMANSHU J. SHAH, THE ITAT AHMEDABAD HAS AFTER CONSIDERING DIFFERENT DECISIONS OF HIGH COURTS, SUP REME COURT AND THE CIRCULAR NO.4 OF 2007 DATED 15-6-2007 AS ALSO INSTRUCTION NO. 1827 DATED 31-8-1989 AND THE DECISIONS OF DIFFERENT ITAT HELD AS UNDER: '12. WHEN WE APPLY THE PRINCIPLES LAID DOWN IN THE ABOVE JUDGMENTS, WE FIND IN THE PRESENT CASE THAT - (1) THE ASSESSEES DID NOT HAVE DEALINGS IN LARGE NUMBER OF SCRIPTS OR LARGE FREQUENCY OF TRANSACTION S WHICH WOULD WARRANT INTERFERENCE THAT THEY ARE TRADERS; (2) IN THE BOOKS OF ACCOUNTS THE ASSESSEES HAVE NEVER TREATED THE SHARES AS STOCK IN TRADE AND RETURNS OF INCOME HAVE BEEN FILED PRIOR TO THE SEAR CH ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 25 SHOWING THEM AS INVESTMENTS AND PROFIT THERE FROM AS CAPITAL GAINS; (3) EVEN THOUGH MONEY HAS BEEN BORROWED TO INVEST IN SHARES, NEITHER THE INTEREST PAID ON BORROWED MONEY OR SECURITY TRANSACTION TAX HAS BEEN CLAIMED WHILE COMPUTING CAPITAL GAINS; (4) THE ASSESSES HAVE RETAINED THE SHARES FOR ENJOYING APPRECIATION IN VALUE AND NOT FOR THE PURPOSE OF REALIZATION OF PROFIT. THERE IS APPARENT LY NO COMMERCIAL MOTIVE WHICH IS AN ESSENTIAL INGREDIENT TO BE A TRADER. IT IS CLEARLY SHOWN BY T HEM IN THE RETURN OF INCOME FILED THAT THEY ARE ENJOYIN G DIVIDEND INCOME FROM HOLDING SHARES AS INVESTMENT; (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 ASSESSES HAVE APPARENTLY DISCHARGED THE PRIMARY ONUS BY KEEPING RECORD OF INVESTMENT SHOWING 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 SPREAD THEM ON MONTHLY BASIS AS OBSERVED BY US ABOVE; (7) ASSESSES HAVE ALWAYS TAKEN THE DELIVERY OF SHARES AND MADE THEM REGISTERED. IT HAS BEEN HELD IN SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (122 TTJ 216) THAT ONCE SHARES ARE REGISTERED IN THE NAME OF ASSESSEE, INTENTION IS CLEAR THAT IT IS AN INVESTME NT AND NOT A TRADE. ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 26 (8) THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS FULFILLED THE LEGAL REQUIREMENT FO R DEALING AS A TRADER IN SHARES. 13. IN OUR CONSIDERED VIEW THE SUSPICION OF THE REVENUE TO HOLD THE TRANSACTIONS MADE BY THE ASSESSEE AS IN THE NATURE OF TRADE IS BASED ON THE PREMISE THAT THE ASSESSES ARE FREQUENTLY RESHUFFLIN G ITS PORTFOLIO AN MERELY BECAUSE SHARES ARE REGISTERED/ TRANSFERRED IN THE NAMES OF THE ASSESSE 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 LEGALLY 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 ASSESSES HAVE DISCHARGED THEIR ONUS BY GETTING THE SHARES REGISTERED IN THEIR NAMES. NOW ONUS SHIFTS TO THE REVENUE TO SHOW THAT INSPITE OF SHARES BEING TRANSFERRED/REGISTERED IN THE NAME OF THE ASSESSEES, THE ASSESSES ARE STILL DEALING IN SHARES AS A TRADER. THIS CAN BE DONE BY THEM BY SHOWING THAT THE ASSESSES ARE CARRYING OUT LARGE FREQUENCY OF TRANSACTIONS, CREATING AN OFFICE, CARRYING OUT RELATED ORGANIZED ACTIVITIES AND COMPLYING WITH OTHER LEGAL REQUIREMENT OF BEING A TRADER. IN THE PRESENT CASE THE FREQUENCY OF TRANSACTIONS ARE NOT SO MUCH TO HOLD THAT ASSESSES ARE STILL TRADERS EVEN THOUGH SHARES ARE REGISTERED IN THEIR NAMES. IN THE ABOVE TWO JUDGMENTS NAMELY SARANATH INFRASTRUCTURES (P) LTD. V. ACIT (122 TTJ 216) AND GOPAL PUROHIT V. JCIT [(2009) 20 SOT 117 (MUM.)], IT HAS BEEN HELD THAT ASSESSEE WOULD BE INVESTOR PRIMARILY IF SHARES ARE REGISTERED BY IT I N ITS NAME. ONCE THERE IS NO CONTRARY MATERIAL TO HOLD OTHERWISE, WE WOULD RESPECTFULLY FOLLOW THESE DECISIONS AND HOLD THAT THE ASSESSEES IN THE INSTAN T CASES ON HAND HAVE DISCHARGED THE PRIMARY ONUS BY GETTING THE SHARES REGISTERED IN THEIR NAMES AND ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 27 THEREFORE, THEY CAN VERY WELL CLAIM AS INVESTORS. SINCE THE CASE OF REVENUE IS BASED MERELY ON SUSPICION AND NOT ON ADEQUATE MATERIAL TO SHOW THAT THE ASSESSEE IS ACTING AS A TRADER, WE ARE UNABLE T O INTERFERE WITH THE ORDER PASSED BY THE LEARNED CIT(A) WHICH IS QUITE ELABORATE, REASONED AND BASED ON JUDGMENTS OF COURTS.' 12 FOR THE REASONS DISCUSSED HEREINABOVE OH THE FA CTS OF THE CASE, THE FOLLOWING ABOVE DECISION OF ITAT, AHMEDABAD I HOLD THAT THE A.O. WAS NOT JUSTIFIED IN HOLDING THAT THE IMPUGNED AMOUNT IS BUSINESS INCOME . THE ASSESSING OFFICER IS DIRECTED TO TAX THE SAME A S SHORT TERM CAPITAL GAINS AND NOT CAPITAL GAINS. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND ALSO FILED WRITTEN SUBMISSION. THE LEARNED DR SUBMITTED THAT D URING THE YEAR, THE ASSESSEE HAS SHOWN INCOME FROM SHARE TRADING AN D SHORT TERM CAPITAL GAIN ON SALE OF SHARES. THE DETAILS OF PURC HASE COST, SALE VALUE, PROFIT AND INVESTMENT IN SHARES IS HIGHLIGHT ED IN THE WRITTEN SUBMISSION. THE LEARNED DR, THEREFORE, SUBMITTED TH AT INVESTMENT WAS MADE FROM THE BORROWED FUNDS BECAUSE THE CAPITA L IS ONLY ABOUT RS. 1 CRORES WHEREAS THE CREDITORS ARE OF RS.16 CRO RES. THE LEARNED DR REFERRED TO PARA 3.1 OF THE ASSESSMENT ORDER AND SUBMITTED THAT CAPITAL WAS NOT SUFFICIENT TO MAKE INVESTMENT IN SH ARES. THE LEARNED DR ALSO REFERRED TO PAGE 13, 14 AND 15 OF THE ASSES SMENT ORDER TO SHOW THE DURATION OF THE SHARES WAS FOR VERY SMALL PERIOD AND AS SUCH FREQUENCY OF THE TRANSACTION WAS VERY HIGH. HE HAS ATTACHED THE TABLE IN THE WRITTEN SUBMISSION TO SHOW THAT HOLDIN G PERIOD OF THE ASSESSEE WAS FOR QUITE SMALL PERIOD WHICH VARIES FR OM AS SMALL AS ONE DAY TO ABOUT TEN MONTHS. THE FREQUENCY OF THE T RANSACTIONS IS ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 28 QUITE LARGE. THE MONEY INVESTED IS MOSTLY FROM BORR OWED FUNDS. IT MAY BE NOTED HERE THAT THE TABLE ANNEXED BY THE LEA RNED DR IN THE WRITTEN STATEMENT IS SAME AS IS NOTED BY THE LEARNE D CIT(A) IN HIS FINDINGS ABOVE. THE LEARNED DR SUBMITTED THAT WHETH ER TRANSACTION IS IN THE NATURE OF INVESTMENT OR BUSINESS CAN BE DECI DED ONLY AFTER CONSIDERING THE DEFINITION OF BUSINESS AND CAPITAL ASSET AS IS PROVIDED UNDER THE INCOME TAX ACT. THE BUSINESS INCLUDES ANY TRADE, COMMERCE OR MANUFACTURING OR ANY ADVENTURE OR CONCE RN IN THE NATURE OF TRADE AND COMMERCE OR MANUFACTURE. CAPITA L ASSET MEANS PROPERTY OF ANY KIND HELD BY AN ASSESSEE WHETHER OR NOT THAT AS BUSINESS OR PROFESSION AND ARE EXCLUDES STOCK IN TR ADE, THE PERSONAL EFFECTS WITH SOME EXCEPTIONS. TWO ESSENTIAL REQUIRE MENTS FOR AN ACTIVITY TO BE CONSIDERED AS BUSINESS ARE: (I) IT M UST BE A CONTINUOUS COURSE OF ACTIVITY AND (II) IT MUST BE CARRIED OUT ON PROFIT MOTIVE AND REFERRED TO CERTAIN DECISIONS IN SUPPORT OF THE SAM E IN THE WRITTEN SUBMISSION. HE HAS SUBMITTED THAT HIGH FREQUENCY, H IGH VOLUME AND REGULARITY OF TRANSACTIONS ARE, THEREFORE, THE BASI C FEATURES OF A TRADING TRANSACTION AND INVESTOR ON THE OTHER HAND MAKES PURCHASES WITH A VIEW TO EARN INCOME FROM THE INVESTMENT. HE IS NOT TEMPTED TO SELL THE COMMODITY TO EARN QUICK PROFIT ON EACH AND EVERY RISE IN THE VALUE AND HOLDS THE COMMODITY FOR LONGER PERIOD SO AS TO HAVE INCOME AS WELL AS APPRECIATION IN VALUE. HE HAS, TH EREFORE, SUBMITTED THAT THE TRUE NATURE OF THE TRANSACTION CAN BE UNDE RSTOOD FROM THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE A ND VARIOUS FACTORS NEEDS TO BE CONSIDERED I.E. FREQUENCY AND VOLUME OF TRANSACTION, NATURE OF ENTRY IN THE BOOKS OF ACCOUNTS, OBJECT CL AUSE IN THE MEMORANDUM OF ASSOCIATION AUTHORIZING SUCH TRANSACT ION, PROFIT ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 29 MOTIVE TO EARN INCOME AND DEPLOYMENT OF BORROWED FU NDS AS WELL AS LOANS. FOR THAT TOTALITY OF THE FACTS AND CIRCUMSTA NCES SHALL HAVE TO BE CONSIDERED IN ARRIVING AT THE FAIR CONCLUSION IN TH E MATTER. THOUGH, FREQUENCY AND VOLUME ARE INDICATIVE OF A TRADING TR ANSACTION, YET THE SAME ARE NOT CONCLUSIVE. THE VOLUME WILL DEPEND UPO N FUNDS DEPLOYED BY THE ASSESSEE AND, THEREFORE, THE SAME C AN BE HIGH EVEN IN THE CASE OF INVESTMENT. THE LEARNED DR IN SUPPOR T OF THE CONTENTIONS RELIED UPON THE FOLLOWING DECISIONS: (I) SHRI NAROTTAM SOMANI (HUF) [2011] 12 TAXMAN.COM 292 (INDORE) (II) TRIPURAPRASAD N. PANDYA PANDYA HOUSE [2011] 10 TAXMAN.COM 77 (MUM.) (III) IMMORTAL FINANCIAL SERVICES (P) LTD. [2011] 4 4 SOT 88 (MUM.) (IV) SMT. HARSHA N. MEHTA [2011] 43 SOT 332 (MUM.) (V) WALLFORT FINANCIAL SERVICES LTD. [2010] 41 SOT 200 (MUM.) (VI) JAYSHREE PRADIP SHAH [2011] 12 TAXMAN.COM 44 ( MUM.) 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND REFERRED TO PAGES 17, 18 AND 19 OF THE ORDER OF THE LEARNED CIT(A) WHICH PROVIDES THE DETAILS OF INCOME/LOSS SUFFERED BY THE ASSESSEE IN TRANSACTIONS OF SHARES IN QUESTION. THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT IN MAJORITY OF THE CASES TH E ASSESSEE SUFFERED LOSS AND IN THE CASE OF M/S. VISHAL EXPORT S LTD. THE ASSESSEE HAS EARNED PROFIT OF RS.6.33 CRORES, IN WHICH ACCOR DING TO THE LEARNED DR THE HOLDING PERIOD WAS MORE THAN TWO AND A HALF MONTHS. HE HAS, THEREFORE, SUBMITTED THAT IN THE CASE OF M/S. VISHA L EXPORTS LTD. IT IS CLEAR CASE OF CAPITAL GAINS AND IF THE PROFIT OF TH E SAME IS ADJUSTED ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 30 AGAINST OTHER PROFITS/LOSSES OF THE PARTIES CONCERN , THERE WOULD BE A BUSINESS LOSS. THEREFORE, THE DEPARTMENTAL APPEAL H AS NO MERIT AND IS LIABLE TO BE DISMISSED. HE HAS REFERRED TO THE S TATEMENT OF FACTS FILED BEFORE THE LEARNED CIT(A) (ANNEXURE C/45) TO SHOW THAT OPENING BALANCE IN THE CASE OF M/S. VISHAL EXPORTS LTD. WA S VERY HIGH WHICH IS OF RS.3.47 CRORES AS ON 01-04-2005. HE HAS ALSO SUBMITTED THAT THE ASSESSEE IS BY PROFESSION A CHARTERED ACCOUNTAN T AND IS PERMANENTLY SETTLED IN USA. SURPLUS FUNDS WERE INVE STED IN THE SHARES AND AS SUCH THERE WAS NO INTENTION OR MOTIVE FOR THE ASSESSEE TO TRADE IN SALE AND PURCHASE OF THE SHARES. HE HAS REFERRED TO PAGE 40 I.E. THE BALANCE SHEET TO SHOW THAT THE ASSESSEE HAS SUFFICIENT CAPITAL OF RS.6.37 CRORES AND NO INTEREST BEARING L OANS HAVE BEEN USED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES . UNSECURED LOANS WITHOUT INTEREST ARE RS.15.82 CRORES. PB-41 O F THE STATEMENT OF FACT IS PROFIT & LOSS ACCOUNT OF THE YEAR UNDER CON SIDERATION IN WHICH THE ASSESSEE HAD PAID INTEREST OF RS.4,38,509/- ONL Y. HE HAS, THEREFORE, SUBMITTED THAT ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. HE HAS SUBMITTED THAT THE ASSESSEE HAS ALWAYS SHOWN INVESTMENT IN SH ARES IN THE BOOKS OF ACCOUNTS AND NO STOCK IN TRADE IS KEPT. HE HAS RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS NIRAJ AMIDHAR SURTI IN TAX APPEAL NO.836 OF 2009 DA TED 21-10-2010. COPY OF THE SAME IS PLACED IN RECORD IN WHICH THE H ONBLE HIGH COURT OBSERVED THAT MERELY BECAUSE THE SHARES HAD BEEN PU RCHASED FROM THE BORROWED FUNDS OBTAINED ON HIGH RATE OF INTERES T WOULD NOT CHANGE THE NATURE OF TRANSACTIONS FROM THE INVESTME NT TO ONE IN THE NATURE OF AN ADVENTURE IN THE NATURE OF TRADE. HE H AS ALSO SUBMITTED ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 31 THAT INTEREST ON OTHER SOURCES CAN BE ADJUSTED EVEN IF NO INTEREST IS EARNED AND REPLIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY AND CIT VS RAGHUNANDAN PRASAD MOODY, 115 ITR 519. HE HAS ALSO RELIED UPON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF GO PAL PUROHIT, 29 SOT 117 IN WHICH IT WAS HELD THAT DELIVERY BASED TR ANSACTIONS SHOULD BE TREATED AS OF THE NATURE OF INVESTMENTS TRANSACT IONS AND PROFIT THERE FROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. HE HAS SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT CONFIRMED THE AB OVE DECISION OF THE ITAT MUMBAI BENCH REPORTED IN 228 CTR 582 AND T HE DECISION OF THE HONBLE BOMBAY HIGH COURT HAS BEEN CONFIRMED B Y THE HONBLE SUPREME COURT IN THE CASE REPORTED IN 334 ITR (ST) 308. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON T HE ORDER OF THE ITAT AHMEDABAD BENCH IN THE GROUP CASES OF DCIT VS SHRI RAVINDRA M. AGRAWAL AND OTHERS IN ITA NO.1725/AHD/2 008 DATED 28-01-2011 IN WHICH THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE SIMILAR FACTS AND DISMISSED THE DEP ARTMENTAL APPEAL. THE TRIBUNAL HAS CONSIDERED THE DECISION OF ITAT LU CKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. 120 T TJ 216, DECISION OF AHMEDABAD BENCH IN THE CASE OF HIMANSHU J. SHAH & OTHERS, ITA NO.2875 TO 2889/AHD/2008 AND THE DECISION IN THE CA SE OF GOPAL PUROHIT (SUPRA). HE HAS SUBMITTED THAT NO OTHER INC OME IS ASSESSED AGAINST THE ASSESSEE. HE HAS ALSO FILED DETAILS OF HOLDING OF THE SHARES IN THE CASE OF M/S. VISHAL EXPORTS LTD. IN T HE YEAR 2004 COPY OF WHICH IS PLACED ON RECORD. HE HAS, THEREFORE, SU BMITTED THAT NO INTERFERENCE IS REQUIRED IN THIS MATTER. ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 32 6. THE LEARNED DR IN THE REJOINDER SUBMITTED THAT I N THE CASE OF WALLFORT FINANCIAL SERVICES LTD., IMMORTAL FINANCIA L SERVICES PVT. LTD. AND JAYASHREE PRADIP SHAH (SUPRA), THE ITAT MUMBAI BENCH DISTINGUISHED AND EXPLAINED THE CASE OF GOPAL PUROH IT (SUPRA). THEREFORE, THE DECISION IN THE CASE OF GOPAL PUROHI T (SUPRA) IS NOT APPLICABLE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. THE LEARNED DR HAS REFERRED TO THE DETAILS OF HOLDING OF THE SHARES AND FREQUENCY OF THE TRANSACTIONS IN THE TAB LE FILED WITH THE WRITTEN SUBMISSIONS. THE SAME IS ALSO REPRODUCED BY THE LEARNED CIT(A) IN THE APPELLATE ORDER MENTIONED ABOVE. THE DETAILS OF BOTH ARE SAME EXCEPT THAT THE LEARNED DR FURTHER ADDED T O DAYS AND MONTHS FOR WHICH SHARES WERE HELD BY THE ASSESSEE AND IN THE TABLE NOTED BY THE LEARNED CIT(A) THE INCOME/LOSSES IN T HE CASES OF THE PARTIES HAVE BEEN NOTED. THE SAME IS REPRODUCED IN THE ORDER OF THE LEARNED CIT(A) ABOVE IN THIS ORDER. FROM THE SAME D ETAILS PURCHASE AND SALES ACCOUNTS OF SHARES, IT IS APPARENT THAT I N MAJORITY OF THE SHARE TRANSACTIONS, THE ASSESSEE HAD SUFFERED LOSS DURING THE YEAR UNDER CONSIDERATION OR HE HAS EARNED NOMINAL PROFIT EXCEPT IN THE SHARE TRANSACTIONS RELATED TO M/S. VISHAL EXPORT LT D., WHEREIN THE ASSESSEE EARNED PROFIT OF RS.6.33 CRORES. IN OTHER WORDS, THE NET PROFIT POSITION IN THE SHARE TRANSACTION IS BECAUSE OF THE PROFIT EARNED BY THE ASSESSEE IN THE SALES/PURCHASE TRANSACTIONS OF SHARES OF M/S. VISHAL EXPORTS LTD. THE ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAINS OF RS.5.40 CRORES IN THE ASSESSMENT YEAR UNDE R APPEAL AND HAD THE PROFIT OF RS.6.33 CRORES IN THE SHARE TRANS ACTIONS OF M/S. ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 33 VISHAL EXPORTS LTD. WOULD NOT HAVE BEEN EARNED, THE N THE NET POSITION IN THE CASE OF THE ASSESSEE WOULD HAVE BEEN LOSS IN THE SHARE PURCHASE AND SALES TRANSACTIONS. EVEN, ACCORDING TO THE LEARNED DR, THE SHARES IN THE CASE OF M/S. VISHAL EXPORTS LTD. WERE HELD FOR ABOUT TWO AND A HALF MONTHS PRIOR TO THE SALE WOULD INDIC ATE THAT THE TRANSACTIONS IN THAT CASE WERE IN THE NATURE OF INV ESTMENT. THE ASSESSEE ALSO CLAIMED THAT DURING THE YEAR IT HAS T RANSACTED 58 SALE TRANSACTIONS. THE DETAILS OF HOLDING OF THE SHARES BY THE ASSESSEE IN THE CASE OF M/S. VISHAL EXPORTS LTD. ARE FILED ON R ECORD TO SUPPORT THE CONTENTION OF THE ASSESSEE THAT THE SHARES IN THAT CASE WERE PURCHASED IN NOVEMBER, 2004 AND DECEMBER, 2004. THE ASSESSEE CLAIMED THAT HE HAS NOT ENTERED INTO ANY BUSINESS T RANSACTIONS OF SHARES IS ALSO SUPPORTED BY THE FACT THAT IN MAJORI TY OF THE CASES THERE WAS LOSS IN TRANSACTION OF SALES AND PURCHASES EVEN DURING SHORT PERIOD, OTHERWISE, NO PRUDENT PERSON WOULD ACT IN S UCH CIRCUMSTANCES IF INVOLVED IN THE TRADING OF SALES A ND PURCHASES OF SHARES. THE ASSESSEE FURTHER EXPLAINED THAT IN THE BOOKS OF ACCOUNTS HE HAS TREATED THE TRANSACTIONS OF SHARES AS INVEST MENT ONLY AND NO STOCK IN TRADE IS SHOWN IN THE BOOKS OF ACCOUNTS. T HE SHARES WERE TRANSFERRED IN THE NAME OF THE ASSESSEE ON ACTUAL D ELIVERY. THE LEARNED CIT(A) CONSIDERING THE FACTS OF THE CASE FO UND THAT THE ASSESSEE IS RESIDING IN USA AND HE COULD NOT HAVE D AY TO DAY ACTIVITY OF TRADING IN SHARES IN INDIA. SINCE THE SHARES ARE TRANSFERRED IN HIS ACCOUNTS ON ACTUAL DELIVERY AND THE SHARES WERE SOL D DURING THE PERIOD WHEN THE ASSESSEE THOUGHT IT HAS REACHED PEA K, WOULD ESTABLISH THAT THE ASSESSEE MADE ONLY INVESTMENT IN SHARES. IT WAS ALSO FOUND BY THE LEARNED CIT(A) BY THE FIGURES OF PRICE OF SHARES ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 34 SUBSEQUENT TO THE SALE BY THE ASSESSEE THAT IT IS R EDUCED SUBSTANTIALLY. THE ASSESSEE FURTHER CLAIMED THAT SI NCE HE HAD SURPLUS AMOUNT, THEREFORE, HE MADE INVESTMENT IN INDIAN IN SHARES. THEREFORE, THE ASSESSEE CANNOT BE SAID TO BE IN THE BUSINESS OF TRADING IN SALES AND PURCHASES OF SHARES. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID ONLY SMALL INT EREST OF RS.4.38 LACS AS PER THE PROFIT & LOSS ACCOUNT AND FURTHER T HE ASSESSEE WAS HAVING CAPITAL OF RS.6.37 CRORES WOULD PROVE THAT THE ASSESSEE HAS SUFFICIENT FUNDS FOR MAKING INVESTMENT IN SHARES. EVEN SOME MONEY WAS USED BUT NO INTEREST HAS BEEN PAID THEREON BECA USE ACCORDING TO THE ASSESSEE THESE WERE UNSECURED LOAN OF RS.15.82 CRORES ON WHICH NO INTEREST HAS BEEN PAID. THESE FACTS WOULD PROVE THAT NO INTEREST HAS BEEN PAID ON BORROWED FUNDS AND NO BOR ROWED FUNDS HAVE BEEN USED FOR INVESTMENT IN SHARES. THE ASSESS EE DID NOT MAINTAIN ANY OFFICE OR STAFF FOR TRADING IN SHARES. NO OTHER INCOME IS ASSESSED AGAINST THE ASSESSEE. NO MOTIVE IS PROVED FOR THE ASSESSEE INDULGING IN TRADING OF SALES AND PURCHASE S OF SHARES. EVEN THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRAJ AMIDHAR SURTI (SUPRA) HELD THAT MERELY BECAUSE THE SHARES HAVE BEEN PURCHASED FROM BORROWED FUNDS OBTAINED ON HIGH RATE OF INTEREST WOULD NOT CHANGE THE NATURE OF THE TRANSAC TION FROM INVESTMENT TO ONE IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE. THE LEARNED CIT(A) IN SUPPORT OF HIS FINDINGS HOLDI NG THAT IT IS TRANSACTION OF SHORT TERM CAPITAL GAIN RELIED UPON DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF HIMANSHU J. SHAH & O THERS (SUPRA) IN THE LIGHT OF THE BOARD CIRCULAR WHICH IS CONSIDE RED IN THE CASE OF SHRI RAVINDRA M. AGRAWAL AND OTHERS (SUPRA). IN THE CASE OF SHRI ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 35 RAVINDRA M. AGRAWAL AND OTHERS (SUPRA) ITAT AHMEDAB AD BENCH ALSO CONSIDERED SEVERAL OTHER DECISIONS INCLUDING T HE DECISION OF ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRU CTURE PVT. LTD. (SUPRA) AS WELL AS DECISION IN THE CASE OF GOPAL PU ROHIT (SUPRA). THE FINDINGS OF THE TRIBUNAL IN THIS CASE IN PARA 9 TO PARA 14 ARE REPRODUCED AS UNDER: 9. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US . IT WAS ADMITTED BY BOTH THE PARTIES THAT THE FACTS IN THE CASES OF ALL THE ASSESSEES IN ALL THE YEARS ARE MOR E OR LESS SIMILAR THEREFORE, THE FACTS IN ANY YEAR CAN B E CONSIDERED WHICH WOULD BE APPLICABLE IN OTHER YEARS ALSO. THEREFORE, THE ASSESSEE WAS DIRECTED TO FURNISH COP Y OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION OF ONE YEAR IN THE CASE OF SHRI RAVINDRA M. AGARWAL. HE HAS FURNISHED THE COPY OF RETURN FOR ASSESSMENT YEA R 2001-2002, THEREFORE, WE SHALL DEAL HEREINBELOW THE FACTS FOR ASSESSMENT YEAR 2001-2002. 10. THE ONLY DISPUTE IN THIS APPEAL BY THE REVENUE IS WHETHER THE PROFIT FROM SALE OF SHARES IS TO BE ASS ESSED AS BUSINESS INCOME OR AS INCOME FROM CAPITAL GAIN. TO DETERMINE THIS, THE MOST IMPORTANT TEST IS WHETHER THE INITIAL ACQUISITION OF THE SHARES WAS WITH THE INTE NTION OF DEALING IN THE SHARES OR IT WAS MADE AS AN INVESTME NT. THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM AND THE DISPUTE COMES TO THE APPELLATE AUTHORITIES ONLY WHEN THE REVENUE AUTHORITIES DO NOT ACCEPT THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITIES HAVE LAID DOWN CERTAIN GUIDELINES ON THE BASIS OF WHICH THE INTENT ION OF THE ASSESSEE CAN BE INFERRED. IN THE CASE OF SARNA TH INFRASTRUCTURE PVT. LTD. (SUPRA), THE LUCKNOW BENCH OF THE ITAT HAS LAID VARIOUS PRINCIPLES WHICH MAY BE APPLI ED TO DETERMINE WHETHER THE TRANSACTION OF PURCHASE AND S ALE OF SHARE IS IN THE NATURE OF TRADE OR INVESTMENT. THE RELEVANT FINDINGS OF THE ITAT READ AS UNDER: ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 36 THE FOLLOWING PRINCIPLES CAN BE APPLIED ON THE FAC TS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PU RPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNTWHETHER IT IS TREATED AS STOCK-IN-TRADE OR INVESTMENT; WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET . (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRAD E AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM ? IF PURCHASES AND SALES ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE . SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDI NGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTI NG (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE ARE FOR REALIZING PROFI T OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION I N ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SAL E AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSEN TIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHER E THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABL E VALUE ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 37 (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW T HAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WH AT DISTINCTION HE HAS KEPT TO THE RECORDS OR OTHERWISE , BETWEEN TWO TYPES OF HOLDINGS: IF THE ASSESSEE IS A BLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SH OW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN- TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE TH AT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PA RTICULAR ACCOUNT OR MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE W AS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES F OR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WH ETHER THE ASSESSEE 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 A S A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE? ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 38 (10) IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15-6-2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMEN T PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EAC H TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S 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 EFFECT OF SEVERAL FACTORS HAS TO BE SEEN . THE ASSESSEE-COMPANY WAS DEALING IN SHARES AND IT H AD DEALT IN SHARES BOTH AS STOCK-IN-TRADE AS WELL AS INVESTMENT. IT SOLD SHARES FROM THE INVESTMENT PORT FOLIO AND CLAIMED THAT THE PROFIT ARISING THEREFROM WAS C APITAL GAIN. THE ASSESSING OFFICER HELD THAT MAIN BUSINESS OF THE ASSESSEE WAS PURCHASE AND SALE IN SHARES. IT WA S NEITHER A SHARE DEALER NOR A SHARE BROKER. THE DETA ILS FOR PURCHASE AND SALES AFFECTED BY THE ASSESSEE COMPANY REVEALED THAT SALES AND PURCHASES WERE QUITE SUBSTA NTIAL AND WOULD NOT BE MADE BY A PERSON WHO INVESTED IN SHARES. FURTHER, THE ASSESSEE DID NOT HAVE SUFFICIE NT FUNDS TO MAKE SUCH INVESTMENTS AND THE ASSESSEE WAS CLAIMING TO HAVE MADE INVESTMENT OUT OF BORROWED CAPITAL. HE, THEREFORE, HELD THAT THE PROFIT IN QUE STION WAS ASSESSABLE AS BUSINESS INCOME. HELD THAT THE UNDISPUTED FACT WAS THAT THE ASSESSEE WAS DEALING IN SHARES BOTH AS BUSINESS AS WELL AS INVES TMENT. IT HAD KEPT SEPARATE ACCOUNTS IN RESPECT OF TWO POR TFOLIOS. NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT DEMARCATION LINE BETWEEN BUSINESS AND INVESTMENT WA S HAZY OR THAT THE ASSESSEE HAD NOT MAINTAINED AN INVESTMENT PORTFOLIO AND IT WAS DEALING IN SHARES O NLY LIKE A TRADER. THUS, ON APPRECIATION OF CUMULATIVE EFFEC T OF SEVERAL FACTORS PRESENT IT WAS TO BE HELD THAT THE SURPLUS ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 39 WAS CHARGEABLE TO CAPITAL GAINS ONLY AND THE ASSESS EE WAS NOT TO HE TREATED AS TRADER IN RESPECT OF SALE AND PURCHASE OF SHARES IN THE INVESTMENT PORTFOLIO. THE ITAT, MUMBAI BENCH IN THE CASE OF JANAK S. RANG WALA (SUPRA) HELD AS UNDER: THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF TH E TRANSACTION DOES NOR AFTER THE NATURE OF TRANSACTIO N. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDE NT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS UNL ESS THERE IS A MATERIAL CHANGE IN THE FACTS. (PARA 6] IN THE FACTS OF THE INSTANT CASE, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO BE SEERS TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY TH E ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGNITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAD BEEN HELD TO BE INCOME FRONT CAPITAL GAINS BOTH ON LONG-TERN AND SHORT-TERM BASIS. TIRE TRANSACTION IN THE YEAR UNDE R CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SH ARES WAS SAME AS IN THE PRECEDING YEARS AND THE SAME WAS TO BE ACCEPTED AS SHORT-TERM CAPITAL GAINS. THERE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHAR ES, WHEN HIS INTENTION WAS TO HOLD SHARES ITS THE INDIA N COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRAD E. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHAN GE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS : ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 40 THE ITAT, MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT (SUPRA) FOLLOWED THE DECISION OF THE ITAT, LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE PVT. LTD. (SUPRA) AND HEL D AS UNDER: FURTHER, ON THE BASIS OF MERITS ALSO, IN VIEW OF T HE RATIO OF THE DECISION OF SARNATH INFRASTRUCTURE P. LTD.S CA SE (SUPRA), IT WAS HELD THAT THE DELIVERY BASED TRANSA CTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IN ADDITION TO THE ABOVE, THE ITAT, MUMBAI BENCH AL SO ACCEPTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT IN THE PRECEDING YEAR, SIMILAR CLAIM WAS ACCEPTED BY THE R EVENUE. THE RELEVANT FINDINGS OF THE ITAT ARE AS UNDER: THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF THE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATIO N OF SHARES AS INVESTMENT AT THE YEAR END WERE SAME IN A LL THE YEARS, AND, HENCE, APPARENTLY, THERE APPEARED NO RE ASON AS TO WHY THE CLAIMS MADE BY THE ASSESSEE SHOULD NO T BE ACCEPTED. HOWEVER, THE REVENUE AUTHORITIES HAD TAK EN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY H OLDING THAT PRINCIPLE OF RES JUDICATA WAS NOT APPLICABLE T O THE ASSESSMENT PROCEEDINGS. THERE COULD NOT BE ANY DISP UTE ON THIS ASPECT, BUT THERE IS ALSO ANOTHER JUDICIAL THOUGHT THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES AND IT WAS AS ALREADY FOUND THAT FACTS AND CIRCUMSTANCE S WERE IDENTICAL EVEN THOUGH A DIFFERENT STAND HAD BEEN TA KEN BY THE REVENUE AUTHORITIES. THE REVENUE FILED THE APPEAL BEFORE THE HONBLE BOM BAY HIGH COURT AGAINST THE DECISION OF THE ITAT IN THE CASE OF GOPAL PUROHIT (SUPRA) AND A SPECIFIC QUESTION WAS RAISED AGAINST THE RULE OF CONSISTENCY APPLIED BY THE ITAT. THE HONB LE HIGH COURT VIDE ORDER DATED 6-1-2010, 228 CTR 582 (BOM) UPHELD THE ORDER OF THE ITAT AND HELD AS UNDER: ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 41 3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TR IBUNAL HAS OBSERVED IN PARE 8. OF ITS JUDGMENT THAT THE AS SESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AN D THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEAR THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEA R IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OU GHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN TH E CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICAT ION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YE AR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RA ISE ANY SUBSTANTIAL QUESTION. 11. ON MERIT ALSO, THEIR LORDSHIPS UPHELD THE FINDI NGS OF THE ITAT HOLDING THE SAME TO BE PURE FINDING OF THE FAC T. 12. SIMILAR VIEW IS TAKEN BY THE OTHER BENCHES OF T HE ITAT IN VARIOUS DECISIONS RELIED UPON BY THE LEARNED COUNSE L. HOWEVER, FOR THE SAKE OF BREVITY, THE SAME ARE NOT DISCUSSED HERE IN DETAIL. 13. THE LEARNED DR HAD CONTENDED THAT THE ABOVE DEC ISIONS OF THE ITAT WOULD NOT BE APPLICABLE TO THE CASE UND ER APPEAL BEFORE US, BECAUSE, IN THESE CASES THE TRANSACTIONS OF THE PURCHASE AND SALE OF SHARES WERE DISCLOSED TO THE D EPARTMENT, WHILE IN THE CASE OF THE ASSESSEE, THESE WERE UNDIS CLOSED TRANSACTIONS DETECTED BY THE REVENUE ONLY AS A RESU LT OF SEARCH. TO VERIFY FACTUAL CORRECTNESS OF THE CONT ENTION OF THE REVENUE, THE ASSESSEE WAS ASKED TO FURNISH THE COPY OF ORIGINAL COMPUTATION AS WELL AS REVISED COMPUTATION IN THE CASE OF RAVINDRA AGRAWAL FOR ANY ONE ASSESSMENT YEAR. T HE ASSESSEE FURNISHED THE DETAIL FOR A.Y.2000-2001 FRO M WHICH WE FIND THAT THE ORIGINAL RETURN WAS FURNISHED BY THE ASSESSEE ON 7- ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 42 11-2001 WHEREAS THE SEARCH HAS TAKEN PLACE AT THE A SSESSEES PREMISES ON 29-10-2004. IN THIS ORIGINAL RETURN LO NG TERM CAPITAL GAIN OF RS.10,02,774/- WAS DISCLOSED. IN R ESPONSE TO THE NOTICE UNDER SECTION 153A, THE ASSESSEE FURNISH ED RETURN DISCLOSING CAPITAL GAIN OF RS.7,31,096/- WHICH WAS FILED ON 30- 11-206. THIS RETURN WAS AGAIN REVISED ON 24-4-2007 IN WHICH THE CAPITAL GAIN OF RS.7,33,450/- WAS DISCLOSED. THE FACT REMAINS THAT THE CAPITAL GAIN WAS DISCLOSED BY THE ASSESSEE IN THE ORIGINAL RETURN AS WELL. OF COURSE THERE IS SO ME VARIATION IN THE AMOUNT OF CAPITAL GAIN DISCLOSED. IN THE ORDER UNDER SECTION 153A ALSO THERE IS NO FINDING BY THE AO THA T THE TRANSACTION OF PURCHASE AND SALE OF SHARES WERE NOT DISCLOSED BY THE ASSESSEE. THE SAME IS NOT ASSESSED AS INCOM E FROM UNDISCLOSED SOURCES, BUT ASSESSED AS BUSINESS INCOM E. THEREFORE, THE CONTENTION OF THE LEARNED DR THAT TH E TRANSACTION OF PURCHASE AND SALE OF SHARES WAS NOT DISCLOSED TO THE DEPARTMENT IS FACTUALLY NOT CORRECT. MOREOVER, WHE THER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS DISC LOSED BEFORE THE DATE OF SEARCH OR NOT WOULD NOT BE RELEV ANT FOR DETERMINING WHETHER THE TRANSACTION WAS IN THE NATU RE OF TRADING TRANSACTION OR IN THE NATURE OF INVESTMENT. THEREF ORE, WHETHER THE TRANSACTION OF PURCHASE AND SALE OF SHARES WAS A TRADING TRANSACTION OR INVESTMENT WILL HAVE TO BE EXAMINED CONSIDERING THE TOTALITY OF THE FACTS OF THE ASSESSEES CASE. WE FIND THAT SHRI RAVINDRA M. AGARWAL IS A CHARTERED ACCOUNTANT, COST ACCOUNTANT AS WELL AS COMPANY SECRETARY BY EDUCATIO N. HE WAS AN EXECUTIVE DIRECTOR IN SAURAHSTRA CHEMICALS L TD., PORBANDAR AT THE RELEVANT TIME. HE WAS NOT IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. IN THE ORIGINAL RETUR N OF INCOME FURNISHED PRIOR TO THE SEARCH, THE PROFIT FROM SALE OF SHARES WAS OFFERED TO TAX AS CAPITAL GAIN AND THE SAME WAS ACC EPTED BY THE REVENUE UNDER SECTION 143(1). NO MONEY WAS BORROWE D BY THE ASSESSEE FOR THE ACQUISITION OF THE SHARES. AL L SHARES WERE ACQUIRED BY UTILISING OWN FUND. NEITHER ANY OFFICE NOR ANY STAFF WAS KEPT AND MAINTAINED FOR THE PURPOSE OF SALE OF PURCHASE/SHARES. HOWEVER, THERE WERE FREQUENT TRAN SACTIONS OF PURCHASE AND SALE OF SHARES. THERE IS DISPUTE WITH REGARD TO TOTAL NUMBER OF SHARE TRANSACTIONS OF PURCHASE AND SALE OF SHARES BY VARIOUS ASSESSES. AS PER THE REVENUE THE TOTAL NUMBER OF TRANSACTION BY ALL THE ASSESSEES DURING T HE VARIOUS ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 43 ASSESSMENT YEARS UNDER APPEAL WAS TOTALING TO 36,00 0 (APPROX.). AS PER THE ASSESSEE THE NUMBER OF TRANS ACTIONS WERE 4611. THE REVENUE HAS NOT GIVEN ANY BASIS FOR THE FIGURE OF 36,000 MENTIONED IN THE ASSESSMENT ORDER WHILE T HE ASSESSEE HAS GIVEN WORKING HOW THERE WERE 4,611 TRA NSACTIONS BY VARIOUS ASSESSEES IN SEVERAL YEARS. WHETHER THE TRANSACTIONS WERE 4,611 OR 36,000, THE FACTS REMAIN THAT THERE WERE FREQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES. HOWEVER, EXCEPT THE PARAMETER OF FREQUENCY IN PURCH ASE/SALE OF SHARES ALL OTHER PARAMETERS INDICATE THAT THE TR ANSACTIONS WERE IN THE NATURE OF INVESTMENT AND NOT THE TRADE TRANSACTIONS. EVEN FOR FREQUENCY, IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS MOSTLY MAKING THE INVESTMENT IN B- GROUP SCRIPTS AND TO AVOID RISK HE MADE INVESTMENT IN SEVERAL SCRIPTS INSTEAD OF INVESTING IN ONE SCRIPT. FOR EX AMPLE, IF THE ASSESSEE HAD TO INVEST RS.10 LAKHS INSTEAD OF INVES TMENT IN ONE SCRIPT, HE USED TO INVESTMENT IN TEN DIFFERENT SCRIPTS. HE MADE A STATEMENT THAT THE ASSESSEE NEVER PURCHASED AND SOLD THE SAME SCRIPTS FREQUENTLY. HE ALSO STATED THAT S HARES WERE KEPT FOR LONG PERIOD AND THERE IS NO FREQUENT PURCH ASE/SALE OF SAME SCRIPTS. THIS CONTENTION OF THE LEARNED COUNSE L APPEARS REASONABLE AND HAS NOT BEEN FACTUALLY CONTROVERTED BY THE REVENUE. THERE IS A SAYING THAT NEVER PUT ALL YOU R EGGS IN ONE BASKET AND IF THE ASSESSEE AS A PRUDENT PERSON MAD E INVESTMENT IN NUMBER OF SCRIPTS INSTEAD OF ONE SCRI PTS, IT CANNOT BE SAID THAT HE WAS CARRYING ON THE BUSINESS OF PUR CHASE AND SALE OF SHARES. THERE WERE SUBSTANTIAL INCOME FROM THE DIVIDEND. IN THE CASE OF SHRI RAVINDRA M. AGARWAL FOR A.Y.2001-2002, AS PER THE REVISED RETURN, THE DIVID END INCOME WAS AS HIGH AS RS.19,33,425/-. IT IS A SETTLED LA W THAT, TO DETERMINE WHETHER THE ASSESSEE IS A TRADER OR INVES TOR IN SHARES, NO SINGLE TEST IS CONCLUSIVE BUT CUMULATIVE EFFECT OF ALL THE FACTS ARE TO BE SEEN. IN THE CASE OF THE ASSES SEE, ONE FACT I.E. FREQUENT PURCHASE/SALE OF SHARES CAN BE SAID T O BE AGAINST THE ASSESSEE BUT ALL OTHER FACTS WHICH CAN BE SUMMA RISED AS UNDER ARE IN FAVOUR OF THE ASSESSEE: I) SHRI RAVINDRA AGRAWAL IS A QUALIFIED PROFESSIONA L BEING CHARTERED ACCOUNTANT, COMPANY SECRETARY AND COST ACCOUNTANT; ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 44 II) SHRI AGRAWAL WAS FULL TIME DIRECTOR OF A PUBLIC LIMITED COMPANY AT THE RELEVANT TIME, POSTED AT PORBANDER; III) SHARES WERE ACQUIRED WITH OWN MONEY AND THERE WAS NO BORROWING BY SHRI RAVINDRA AGRAWAL OR ANY OTHER FAM ILY MEMBER; IV) NO OFFICE OR ANY STAFF WAS MAINTAINED FOR LOOKI NG AFTER PURCHASE AND SALE OF SHARES; V) THERE WAS SUBSTANTIAL DIVIDEND INCOME VI) HIS SOURCE OF INCOME WAS INCOME FROM SALARY, CA PITAL GAIN, DIVIDEND AND INTEREST AND HE WAS NOT HAVING A NY BUSINESS INCOME; VII) IN THE ORIGINAL RETURN OF INCOME FURNISHED FRO M TIME TO TIME, INCOME FROM SALE OF SHARES WAS DISCLOSED UNDE R THE HEAD CAPITAL GAIN AND WAS ACCEPTED BY REVENUE AS SUCH UNDER SECTION 143(1). WHEN TOTALITY OF ALL THE ABOVE FACTS ARE CONSIDERED , THE INFERENCE DRAWN BY THE CIT(A) THAT THE ASSESSEE IS AN INVESTOR IN SHARES, APPEARS TO BE CORRECT. APART FROM THE A BOVE, ON THE PRINCIPLE OF CONSISTENCY ALSO ORDER OF THE CIT(A) O N THIS POINT DESERVES TO BE UPHELD BECAUSE IN THE ORIGINAL RETUR NS INCOME FROM SALE OF SHARES WAS DISCLOSED UNDER THE HEAD C APITAL GAIN AND THE SAME WAS ACCEPTED BY THE REVENUE. ITAT, MU MBAI BENCH IN THE CASE OF GOPTAL PURROHIT (SUPRA) HELD T HAT THOUGH IN INCOME TAX PROCEEDINGS THE RULE OF RES JUDICATA DOE S NOT APPLY BUT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CON SISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES. THIS DECIS ION IS UPHELD BY THE HONBLE MUMBAI HIGH COURT IN CIT VS. GOPTAL PUROHIT, 228 CTR 582 (BOM). THESE DECISIONS WOULD BE SQUARELY APPLICABLE TO THE CASES OF THE ASSESSEE UN DER APPEAL BECAUSE IN THESE CASES NOT ONLY IN EARLIER YEAR BUT IN THE YEARS UNDER APPEAL ALSO IN ORIGINAL PROCEEDINGS TRANSACTI ON OF PURCHASE AND SALE OF SHARES SHOWN AS CAPITAL GAIN W AS ACCEPTED BY THE REVENUE. MERELY BECAUSE, THERE WAS SEARCH AT THE ASSESSEES PREMISES, THE NATURE OF TRANSACTI ON WOULD NOT ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 45 CHANGE. IN VIEW OF THE ABOVE, AFTER CONSIDERING T HE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND VARIOUS JUDICIAL PRONOUNCEMENT REFERRED ABOVE, WE FIND NO JUSTIFICAT ION TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS POIN T. THE SAME IS UPHELD AND THE REVENUES APPEALS ARE DISMISSED. 14. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. 8. IN THE CASE OF GOPAL PUROHIT (SUPRA) THE ORDER O F THE TRIBUNAL IS NOT ONLY CONFIRMED BY THE HONBLE HIGH COURT BUT LA TER ON CONFIRMED BY THE HONBLE SUPREME COURT AS IS REPORTED IN 334 ITR (ST) 308 (SUPRA). CONSIDERING THE ABOVE DISCUSSIONS IT IS CL EAR THAT THE ASSESSEE HAD NO INTENTION OF TRADING IN SHARES AT T HE TIME OF PURCHASE OF THE SHARES. THE SAME IS ALSO FORFEITED BY THE FA CT THAT THE ASSESSEE ENJOYED SHARE DIVIDEND INCOME AND IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS .4.68 LAKHS. THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND THE MAT ERIAL PRODUCED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW CLEARL Y PROVE THAT THE ASSESSEE MADE INVESTMENT IN SHARES AND EARNED CAPIT AL GAIN. PRIMARY ONUS PROVED BY THE ASSESSEE HAS NOT BEEN RE BUTTED BY THE AO THROUGH ANY EVIDENCE OF MATERIAL ON RECORD. IT I S NOT IN DISPUTE THAT EACH CASE HAS TO BE DECIDED ON THE BASIS OF IT S ON FACTS AND EVIDENCES PRODUCED. THE CRITERIA LAID DOWN FOR CONS IDERING THIS TRANSACTION HAS BEEN LAID OUT IN SEVERAL DECISIONS INCLUDING THE DECISIONS NOTED ABOVE. THEREFORE, THE DECISIONS CIT ED BY THE LEARNED DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. THE L EARNED DR TRIED TO ARGUE THAT ITAT BOMBAY BENCH IN THREE DECISIONS DISTINGUISHED THE DECISION IN THE CASE OF GOPAL PUROHIT (SUPRA, T HEREFORE, THE DECISION IN THE CASE OF GOPAL PUROHIT (SUPRA) MAY N OT BE FOLLOWED IN ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 46 THIS CASE. HOWEVER, THAT DECISION IS ALSO TAKEN INT O CONSIDERATION BY ITAT AHMEDABAD BENCH IN THE CASE OF SHRI RAVINDRA M . AGRAWAL (SUPRA) AND DISMISSED THE DEPARTMENTAL APPEAL IN TH AT CASE. WE MAY ALSO NOTE HERE THAT CONSIDERING THE PECULIAR FACTS IN THIS CASE THAT IN THE CASE OF M/S. VISHAL EXPORTS LTD. THERE WAS A PR OFIT IN WHICH SHARE HOLDING WAS ALSO OF SOME MONTHS EVEN AS PER LEARNED DR. THEREFORE, IT WAS CLEAR CASE OF SHORT TERM CAPITAL GAINS AS IS HELD BY THE LEARNED CIT(A). IF THIS INCOME IS ADJUSTED AGAINST OTHER LO SS/INCOME AGAINST OTHER PARTIES, RESULT WOULD BE FURTHER LOSS. THEREF ORE, REVENUE DEPARTMENT WOULD NOT GET ANY BENEFIT OUT OF THAT SI TUATION. THE DEPARTMENTAL APPEAL, BECAUSE OF THIS PECULIAR CIRCU MSTANCES OF THE CASE WOULD HAVE ONLY ACADEMIC ISSUE AND AS SUCH, IN OUR VIEW NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEAR NED CIT(A). CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN HOLDING TO TAX THE INCOME AS SHORT TERM CAPITAL GAINS. APPEAL OF THE R EVENUE HAS NO MERIT AND IS ACCORDINGLY DISMISSED. 9. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- ITA NO. 2932/AHD/2009 THE A. C. I. T., CENT. CIR- 1 (3), AHMEDABAD VS SHR I RAJESH V. PATEL 47 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
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