Smt. Chandrika Rashmikant Patel, Dharmaj V. The Addl.CIT.,Range-3, Baroda

ITA 3006/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68085 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ILA VARSHI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Business income; Rule of consistency; Advance ruling; Cost of acquisition; Fair market value; Benefit of exemption
• Section: 45(2); 143(3); 14A; 147

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BENCH, AHMEDABAD .., ! ! ! ! ' #$, BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER !./ I.T.A. NOS.3006 & 3007/AHD/2010 ( & '& & '& & '& & '& / / / / ASSESSMENT YEARS : 2006-07 & 2007-08) SMT.CHANDRIKA RASHMIKANT PATEL C/O.URVAKUNJ NICOTINE INDUSTRIES PETLAD CAMBAY ROAD DHARMAJ 388 430 / VS. ADDL.CIT RANGE-3 BARODA ( !./)* !./ PAN/GIR NO. : AERPP 3062 N ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY : SHRI S.N. SOPARKAR, A.R. ,-(+ / . / RESPONDENT BY : MS. ILA VARSHI, SR.D.R. ' 0 / $1 / / / / DATE OF HEARING : 28/11/2013 23' / $1 / DATE OF PRONOUNCEMENT : 31/12/2013 4 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOME TA X(APPEALS)-I, BARODA (CIT(A) FOR SHORT) IDENTICALLY DATED 30/08/2010 P ERTAINING TO ASSESSMENT YEARS (AYS) 2006-07 & 2007-08. SINCE B OTH THESE APPEALS PERTAIN TO THE SAME ASSESSEE AND COMMON ISSUES INVO LVED, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 2 - 2. FIRST, WE TAKE UP ITA NO.3006/AHD/2010 FOR AY 20 06-07, WHEREIN FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE EARNED SHORT TERM CAPITAL GAIN OF RS.84,50 ,080/- ON THE SALE OF OPENING STOCK OF INVESTMENT SHARES, ON THE ASSUM PTION THAT SUCH OPENING STOCK WAS CONVERTED INTO STOCK-IN-TRADE AS O 1.4.2005, AD ARBITRARILY APPLYING THE PROVISIONS OF SECTION 45(2 ) OF THE I.T. ACT. 2. ON THE FACTS AD IN THE CIRCUMSTANCES OF THE CASE, T HE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE EARNED LOG TERM CAPITAL GAIN OF RS.59,13,448 ON THE SALE OF OPENING STOCK OF INVESTMENT SHARES, ON THE ASSUMPTION THAT SUCH OPENING STOCK WAS CONVERTED INTO STOCK-IN-TRADE AS ON 1.4.2 005, AND ARBITRARILY APPLYING THE PROVISIONS OF SECTION 45(2 ) OF THE I.T. ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE EARNED BUSINESS INCOME OF RS.52,90,659 ON SALE OF SHARES, AGAIN ON THE ASSUMPTION THAT SUCH SHARES FORMING PA RT OF OPENING STOCK STOOD CONVERTED AS ON 1.4.2005 INTO STOCK-IN- TRADE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE EARNED BUSINESS INCOME FROM SALE OF SHARES AT RS.1,32,39,591 AS AGAINST SHORT TERM CAPITAL GAIN D ISCLOSED BY THE ASSESSEE AT RS.2,33,08,026. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT THE ASSESSEE EARNED TOTAL BUSINESS INCOME OF RS.1,86,20 ,721. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2.1. OUT OF FIVE GROUNDS RAISED, TWO ISSUES ARISE F OR ADJUDICATION, I.E. WHETHER INCOME EARNED BY EXECUTING SALES OF SHARES IS TO BE TAXED AS BUSINESS INCOME OR CAPITAL GAIN. SECONDLY, WHETHER THE AO W AS JUSTIFIED IN INVOKING ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 3 - THE PROVISIONS OF SECTION 45(2) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) QUA THE OPENING STOCK OF SHARES. 3. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE AS SESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE IT ACT WAS FRAMED VIDE ORDER DATED 31/12/2008, THEREBY THE ASSESSING OFFICER(AO) COMPUTED INCOME OF RS.3,24,63,908/- AGAINST THE TOT AL INCOME OF RS.2,34,10,640/- AS DISCLOSED BY THE ASSESSEE IN I TS RETURN OF INCOME. WHILE FRAMING THE ASSESSMENT, THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE ON THE BASIS OF OBSERVATION MADE IN PA RA 6.7 OF HIS ORDER. THE ASSESSEE FEELING AGGRIEVED BY THE ASSESSMENT OR DER, PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, PARTLY ALLOWED THE APPEAL. THE LD.CIT(A) AFFIRMED THE VIEW OF THE AO THAT SHORT TERM CAPITAL GAIN IS NOTHING BUT BUSINES S PROFITS AND IS TO BE SO ASSESSED. HOWEVER, ALLOWED THE EXPENDITURE OF RS.3 3,93,406/- FOR THE YEAR UNDER CONSIDERATION. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. 4. THE LD.SR.COUNSEL FOR THE ASSESSEE SHRI S.N.SOPA RKAR VEHEMENTLY ARGUED THAT THE ENTIRE APPROACH OF THE AUTHORITIES BELOW IS ERRONEOUS, UNJUSTIFIED AND CONTRARY TO THE JUDICIAL PRONOUNCEM ENTS. HE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD.CIT(A) A ND ALSO RELIED ON THE STATEMENT OF FACTS. LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE ASS ESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT IN RESPECT OF BUSINESS ACTIVITY AND THE INVESTMENT ACTIVITY FOR THE PAST MANY YEARS. H E SUBMITTED THAT THE REVENUE AUTHORITIES HAVE DULY ACCEPTED IN PAST, TH E TREATMENT GIVEN BY ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 4 - THE ASSESSEE. THE LD.SR.COUNSEL POINTED OUT THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED PROFIT IN RE SPECT OF FUTURE OPTION (FO IN SHORT) AMOUNTING TO RS.99,471/- WHICH HAS BEEN DECLARED AS BUSINESS INCOME IN THE RETURN OF INCOME. HE FURTHE R SUBMITTED THAT THE ASSESSEE HAS BEEN HOLDING SHARES AS INVESTMENT SINC E BEGINNING THAT HAS BEEN DULY ACCEPTED BY THE REVENUE TILL THE ASSESSME NT YEAR 2005-06. HE SUBMITTED THAT EVEN IN THE SCRUTINY ASSESSMENT U/S. 143(3) OF THE ACT, PERTAINING TO AY 2004-05, THE INCOME SHOWN AS SHORT TERM CAPITAL GAIN AMOUNTING TO RS.5,61,521/- AFTER CLAIMING SETTING O FF OF SHORT-TERM CAPITAL LOSS OF RS.6,01,000/-. THE AO ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE, HOWEVER ASSESSED THE SHORT-TERM CAPIT AL GAIN AT RS.11,62,521/- AFTER REJECTING THE CLAIM OF SET OFF OF SHORT TERM CAPITAL LOSS SINCE THE LOSS WAS FROM THE SPECULATIVE TRANSA CTION. 4.1. IT IS CONTENDED BY THE LD.SR.COUNSEL FOR THE A SSESSEE THAT ASSESSEE HAS DECLARED RS.80.36 LACS AS LONG TERM CAPITAL GAI N THAT MEANS AT 25% OF TOTAL SHARES HOLDING PERIOD WAS MORE THAN 12 MONTHS . HE SUBMITTED THAT THE ASSESSEE IS HOLDING LARGE PORTFOLIO THAT CONTAI NS SUCH SHARES WHICH HAS BEEN HELD FOR A VERY LONG TIME. HE POINTED OUT THA T SHARES OF TISCO ARE HELD SINCE 1991-92, GAIL SINCE 2002, FSFC SINCE 199 9, HDFC 2003, ICICI BANK SINCE 2003, MOTOR INDUSTRIES LTD. SINCE 2004 AND SHASAN CHEMICALS SINCE 2004. HE SUBMITTED THAT THIS GOES TO SHOW THAT THE ASSESSEE IS AN INVESTOR BUT NOT A TRADER AS HELD BY THE AUTHORITIES BELOW. HE SUBMITTED THAT THE STATUTE HAS PRESCRIBED CRITER IA FOR TREATING CAPITAL ASSET ON THE BASIS OF HOLDING PERIOD. IN SUPPORT T HIS CONTENTION, HE DREW OUR ATTENTION TOWARDS SECTION 2(42A) OF THE ACT WHI CH DEFINES SHORT TERM ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 5 - CAPITAL ASSET. THE CAPITAL ASSET HELD BY THE ASSES SEE FOR NOT MORE THAN 12 MONTHS IN THE CASE OF SHARES AND OTHER SECURITIES. THE LD.SR.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGEMENT OF KE RALA HIGH COURT RENDERED IN THE CASE OF ACIT VS. KETHAN KUMAR A.SHA H REPORTED AT 242 ITR 83, DECISION OF ITAT AHMEDABAD IN THE CASE OF V AIBHAV J.SHAH IN ITA NOS.2884, 2887, 2888, 2889/AHD/2008 AND ALSO T HE DECISION OF HONBLE MUMBAI HIGH COURT RENDERED IN THE CASE OF J ANAK S.RANJANA VS. ACIT 11 SOT 621. LD.SR.COUNSEL ALSO REFERRED TO C IRCULAR NO.4/2007 DATED 5 TH JUNE,2007 AND DREW ATTENTION TO PAPER-BOOK AT PAGE NOS.31 TO 33 TO BUTTRESS HIS ARGUMENT THAT THE ASSESSEE HAS F ULFILLED CRITERIA DECIDING HER AS INVESTOR. 4.2. THE LD.SR.COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS INVESTOR NOT A TRADER SINCE THERE WAS FAVOURABLE MA RKET CONDITIONS, SHE ENTERED INTO SHARE TRANSACTIONS TO TAKE THE MAXIMUM ADVANTAGE OF SUCH CONDITIONS. LD.SR.COUNSEL FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS:- (A) CIT VS. REWASHANKER OF KOTHARI, 283 ITR 338 (G UJ.) (B) GOPAL PUROHIT VS. JCIT 29 SOT 117 (C) ITO VS. RAJESH BALWANTHBHAI BRAHMBHATT, ITA NO.1705/AHD/2009 (D) HIRA MAISH SHAH VS. ADDL.CIT, ITA NO.683/AHD/2 010. (E) RAVINDRA M.AGRAWAL VS. ITO, ITA NO.1725/A HD/2010 4.3. THE LD.SR.COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF ITAT MUMBAI RENDERED IN THE CASE OF SHR I MAHENDRA C.SHAH VS. ADDL.CIT REPORTED AT 140 TTJ 16. THE LD.SR.COU NSEL FOR THE ASSESSEE ARGUED THAT THE AO WAS NOT JUSTIFIED INVOKING THE P ROVISIONS OF SECTION ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 6 - 45(2) OF THE ACT. HE SUBMITTED THAT THE PROVISIONS ENVISAGED THAT IT IS SOLELY ON THE OWNER OF THE ASSET WHO CAN TRANSFER B Y WAY OF CONVERSION OR HE ALONE CAN TREAT SUCH CAPITAL ASSET AS STOCK-IN-T RADE OF A BUSINESS CARRIED OUT BY HIM. HE SUBMITTED THAT IN THE PRESET CASE, IT WAS NOT SO , THEREFORE, THE ORDER OF THE AO IS NOT JUSTIFIED. 4.4. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE AO HAS GIVEN DETAILED REASONING IN PARA 6.7 OF HIS ORDER. HE SUBMITTED THAT THE AO HAS ALS O RELIED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS, THEREFORE IN THE LIGHT OF THE SAME, THE ACTION OF THE AUTHORITIES BELOW IS JUSTIFIED AND, HENCE, CALL ED FOR NO INTERFERENCE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE-LAWS CITED. WE FIND THAT THE AO HAS RECORDED HIS OBSERVATION IN PARA 6.7 OF HIS ORDER AND THE ASSESS EE HAS MADE POINT-WISE EXPLANATION IN THE STATEMENT OF FACTS AT PARA NOS.6 .1 TO 6.4. THE OBSERVATION OF THE AO CONTAINED IN PARA 6.7 IS REPR ODUCED HEREINBELOW:- 6.7 THE CONTENTIONS REPEATEDLY MADE BY THE ASSESS EE AS REPRODUCED ABOVE IN PARAS 6.3 AND 6.4 ABOVE HAVE BEEN DULY CONSIDERED A ND THEY ARE DEALT WITH AS UNDER: (I) FROM THE PERUSAL OF THE TRADING ACCOUNT OF THE ASSESSEE, IT IS OBSERVED THAT THE MAIN INTENTION OF TRANSACTIONS IN SHARES W AS NOT TO HOLD THEM AS INVESTMENT AS INVARIABLY THE SHARES HAVE BEEN DISPO SED OF WITHOUT WAITING FOR THE RECORD DATE FOR DISTRIBUTION OF DIVIDENDS TO PA SS. THIS INTENTION OF THE ASSESSEE TO DEAL IN SHARES AND NOT TO HOLD THEM AS INVESTMEN TS IS CLEARLY MANIFESTED BY THE FACT THAT ON A TOTAL SHARES HELD' WORTH RS. 36.22 CRORES (PURCHASES OF SHARES IN F.Y. 2005-06 OF RS. 35.12 C RORES PLUS THE OPENING STOCK OF RS. 1.10 CRORES) DURING THE YEAR THE ASSESSEE HAS ONLY EARNED DIVIDEND INCOME OF RS. 9.59 LACS WHICH IS ONLY 0.26 % OF THE SHARES HELD. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 7 - (II) THE CONTENTION OF THE ASSESSEE THAT ONLY SIZE OF THE PORTFOLIO IS THE REASON WHY HIS INCOME IS PROPOSED TO BE TREATED AS BUSINES S INCOME IS INCORRECT. DURING THE YEAR, THE TOTAL VALUE OF SHARES PURCHASE D BY THE ASSESSEE COMES TO RS. 35.12 CRORES. THE TOTAL NUMBER OF SPECIFIC TRAN SACTIONS DONE BY THE ASSESSEE DURING THE YEAR RUNS IN THOUSANDS. HENCE, FROM THE SCALE OF THE TRANSACTIONS OF THE ASSESSEE IT IS ESTABLISHED THAT 'DURING THE YEAR, THE ASSESSEE WAS DEALING IN SHARES. THE SUBMISSION OF THE ASSESSEE THAT ONLY TO THE EXTENT OF TRANSACTIONS DONE IN F & O SEGMENT HI S INTENTION WAS OF DEALING IN SECURITIES IS JUST AN AFTER THOUGHT AS D URING THE YEAR AS ONLY RS.90471 FROM SUCH ISOLATED TRANSACTIONS IS REPORTE D. FURTHER THE SUBMISSION THAT SEPARATE BOOKS WERE MAINTAINED FOR THE INVESTMENT PORTFOLIO AND THE TRADING PORTFOLIO IS ALSO NOTHING BUT AN AF TER THOUGHT. (III) THE PROPORTION OF THE STCG TO THE LTCG R ETURNED BY THE ASSESSEE ALSO INDICATES THAT THE FREQUENT TURNOVER OF THE STOCKS DONE BY THE ASSESSEE WITH AN INTENTION OF DEALING IN SHARES. AS AGAINST THE STCG RETURNED OF OVER RS. 2.33 CRORES THE LTCG RETURNED IS ONLY RS. 85.36 LACS I.E . STCG TO LTCG RATIO IS ABOUT 3:1. (IV) FURTHER, FROM THE PERUSAL OF THE PROVISIO NAL WORKING OF THE PROFIT AND LOSS SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 19 .12.2008, IT SEEN THAT TOTAL INTEREST EXPENSES IN A.Y. 2006-07 ON BORROWINGS CO MES TO RS. 2999012/-. IF AN AVERAGE INTEREST RATE OF 8 % IS TAKEN FOR THE YE AR THE AVERAGE SUM BORROWED BY THE ASSESSEE DURING THE YEAR WOULD COME TO RS. 3.73 CRORES (RS. 2999012 DIVIDED BY 0.08). RATE OF 8% IS A REASONABL E RATE AS SUCH BORROWINGS ARE SECURED BY PLEDGING OF SHARES. THIS INDICATES THAT THE ASSESSEE HAD PLEDGED HER OPENING STOCK OF SHARES AS ON 1.4.2005 HAS PLAY ED IN THE STOCK MARKET ON BORROWED FUNDS. THIS MODUS O PERANDI CLEARLY ESTABLISHES THAT THE INCOME SO EARNED IS BEING RIGH TLY TAXED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. (V) THE OPENING STOCK AS ON 01.04.2005 IS OF RS. 1.10 CRORES. THE TOTAL PURCHASES DURING THE YEAR ARE OF RS. 35.12 CRORES. THUS, THE RATIO OF PURCHASES TO THE OPENING STOCK IS 32:1. THIS ALSO C LEARLY POINTS OUT THAT THE INCOME EARNED FROM SHARE TRANSACTIONS IS NOTHING BU T INCOME FROM BUSINESS AS THE PRIMARY AIM WAS TO ROLLOVER THE SHARES A NUM BER OF TIMES LIKE ANY OTHER STOCK IN TRADE AND TO EARN BUSINESS INCOME FR OM SUCH ROLLOVER. THIS ALSO INDICATES THAT IN A.Y. 2006-07 THE ASSESSEE HA D NO INTENTION OF REALIZING GAINS FROM APPRECIATION IN VALUE OF SHARES OVER TIM E. (VI) THE CLOSING STOCK OF THE ASSESSEE AS ON 31.3 .2006 WAS RS. 5.98 CRORES IS THERE AS ON 31.3.2006. THUS, THE RATIO OF PURCHASES TO THE OPENING STOCK IS 6:1. BUT THE CRITICAL FACTOR TO ANALYZE IN THIS IS THAT THE CLOSING STOCK AMOUNT ALSO INDICATES THAT THE ASSESSEE HAS DURING THE YEAR MORE REINVESTED THE INCOME FROM DEALING IN SHARES TO INCREASE HIS STOCK IN TRA DE. AS IF WE ADD UP THE OPENING STOCK [RS. LI CRORES] THE SHARES BOUGHT ON BORROWED FUNDS [RS. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 8 - 3.7 CRORES AS PER (IV) ABOVE) AND THE TOTAL SURPLUS FRO M DEALING IN SHARES [RS. 3.18 CRORES (STCG RETURNED RS. 2.33 CRORES + LTCG RETURNED RS. 0.85 CRORES] IT COMES TO RS. 7.98 CRORES WHICH SHOWS THA T LIKE ANY OTHER BUSINESS THE ASSESSEE HAS MORE OR LESS THE REINVESTED THE INCOME FROM DEA LING IN SHARES TO INCREASE HIS STOCK IN TRADE. (VII) EVEN THE RATIO OF SALES TO PURCHASES IS 0 .9, WHICH ALSO INDICATES THAT THE MAIN INTENTION OF BUYING OF SHARES' WAS TO ROLL THEM OVER AS IN OTHER STOCK IN TRADE AND EARN BUSINESS INCOME. (VIII) FROM THE PERUSAL OF THE COMPUTATION OF INCOME FILED BY THE ASSESSEE, IT IS SEEN THAT AS AGAINST A TOTAL INCOME OF RS. 3.27 CRORES FROM THE DEALING IN SHARES (LTCG RETURNED ON RS. 85,36,456/- + STCG RETURNED OF RS. 2,33,08,026/- + DIVIDEND INCOME OF RS. 9,59,302/-), THE OTHER INCOME OF THE ASSESSEE IS ONLY AN INCOME OF RS. 102611/- EARNED AS INTERES T AND BUSINESS INCOME. THIS ALSO INDICATES THAT THE BUSINESS OF DE ALING IN SHARES IS THE MEANS OF LIVELIHOOD OF THE ASSESSEE AND THE SAME HE DEVOTES MOST OF HIS WORKING TIME. (IX) REGARDING THE CONTENTION OF THE ASSESSEE ABOUT THE TREATMENT OF SHARES AS INVESTMENT IN A.Y. 2005-06, IT IS HELD THAT THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY ASSESSMENTS UNDER THE I. T. ACT AND HENCE , THE A.O. IN 2006-07 IS NOT BOUND BY THE VIEW TAKEN IN THE A.Y. 2005-06 OR ANY OF THE EARLIER YEARS. FURTHER AS POINTED OUT IN POINT (IV) ABOVE THE FACT S OF THE CASE IN A.Y. 2006-07 ESTABLISH THAT THIS YEAR THERE IS A PARADIGM SHIFT IN THE CONDUCT OF THE ASSESSEE. IN THIS REGARD, RELIANCE IS ALSO PLACED ON THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF RAJA BAHADUR VISHESHWARA SIRIGH AND OTHERS VS. CIT 41ITR 685. (X) IT IS HELD THAT IN VIE OF THE FACTS EMERG ING FROM THE TRADING ACCOUNT OF THE ASSESSEE AS ENUMERATED IN DETAIL ABOVE IT IS NOT ONLY THE INITIAL INTENTION OF THE ASSESSEE BUT ALSO THE SUBSEQUENT CONDUCT THAT IS CRUCIAL IN DECIDING THE ISSUE WHETHER ASSESSEE'S TRANSACTIONS IN SHARES TANTAMOUN T TO BUSINESS OF DEALING IN SHARES OR NOT. FOR THIS RELIANCE IS PLAC ED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DALHOUSIE INVESTMENT TRUST CO. VS. CIT 68 ITR 486. RELIANCE, IN THIS REGARD, IS ALSO PLACED ON THE DEC ISION IN THE CASE OF CIT VS. SULTEJ COTTON MILLS SUPPLY AGENCY LTD. 1 00 ITR 706. (XI) IN SUPPORT OF THE VIEW THAT THE SYSTEMATI C ACTIVITY OF SALE AND PURCHASE OF SHARES AS DONE BY THE ASSESSEE DURING THE A.Y. 2 006-07 AMOUNTS TO BUSINESS OF DEALING IN SHARES RELIANCE IS ALSO PLAC ED ON THE OBSERVATIONS OF THE AUTHORITY OF ADVANCE RULING IN XYZ / ABC EQUITY FUN D 250 ITR 194. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 9 - 6. ON THE BASIS OF THE OBSERVATIONS EMBEDDED IN PAR A 6.7 OF THE ORDER, THE AO ADOPTED FOLLOWING PRINCIPLES IN PARA 6.8 OF HIS ORDER, WHICH READS AS UNDER:- 6.8 IN VIEW OF THE DETAILED REBUTTAL ABOVE IT IS H ELD THAT THE INCOME OF THE ASSESSEE DURING THE YEAR FROM SHARE TRANSACTIONS IS TO BE TA XED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. FOR THIS AS OUTLINED IN TH E SHOW CAUSE DATED 24.12.2008 THE FOLLOWING PRINCIPLES ARE ADOPTED : A) SHARES HELD AS ON 1.4.2005 AS INVESTMENTS WERE CONVERTED INTO STOCK-IN TRADE AT THE BEGINNING OF THE PREVIOUS YEAR RELEVAN T TO A.Y. 2006-07 AND THE PROVISIONS OF SECTION 45(2) ARE THUS APPLICABLE I.E . THE DIFFERENCE BETWEEN FAIR MARKET VALUE AS AT THE BEGINNING OF THE PREVIOUS YE AR AND THE ORIGINAL COST IS TAXED AS LTCG/STCG, IF SUCH SHARES CONVERTED INTO S TOCK-IN-TRADE ARE SOLD IN A.Y. 2006-07. FURTHER, THE DIFFERENCE BETWEEN THE S ALE PRICE AND THE FAIR MARKET VALUE AS AT THE BEGINNING OF THE PREVIOUS YE AR IS TAXED AS BUSINESS INCOME IN A.Y. 2006-07. B) IN THE COMPUTATION OF THE CAPITAL GAINS O N THE SHARES TO WHICH SECTION 45(2) IS APPLIED BENEFIT OF EXEMPTION UNDER SECTION 10(38) IS NOT ALLOWED ON ACCOUNT OF THE FACT THAT THE TRANSFER GIVING RISE T O THE LTCG IS THE ACT OF CONVERSION OF CAPITAL ASSETS INTO STOCK-IN-TRADE AN D THIS IS NOT SUBJECT TO ANY SECURITIES TRANSACTION TAX (STT). THUS SUCH LONG TE RM CAPITAL GAINS SUFFER TAX, AT RATE OF 10% WITHOUT INDEXATION OR 20% WITH INDEXATION (IF THE SHARES ARE LISTED). 6.1. THE AO COMPUTED THE TAXABLE INCOME AS UNDER:- 6.9 THE DETAILED WORKING OF THE INCOME AS PER THES E PRINCIPLES IS MADE PART OF THE OTHER AS ANNEXURE A. THE WORKING OF THE TOTAL INCOME AND THE TAX PAYABLE THE REON IS DONE AS UNDER: DETERMINATION OF TOTAL INCOME RS. SHORT TERM CAPITAL GAIN ON OPENING INVESTMENT CONVE RTED INTO STOCK IN TRADE ON 1- 4-2005 AS PER ANNEXURE A 8450080 LONG TERM CAPITAL GAIN ON OPENING INVESTMENT CONVER TED INTO STOCK IN TRADE ON 1-4- 2005 AS PER ANNEXURE A 5913448 BUSINESS INCOME ON SALE IN A.Y. CONVERTED INTO STOC K IN TRADE AS 2006-07 OF SHARES SO PER ANNEXURE A 5290659 STCG NOW TAXABLE UNDER BUSINESS INCOME EXCLUDING STCG ON THE OPENING STOCK CALCULATED ABOVE 13239591 BUSINESS INCOME AS PER RETURN OF INCOME 90471 ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 10 - TOTAL INCOME UNDER HEAD BUSINESS INCOME 18620721 LESS: EXPENDITURE INTEREST ON BORROWING FUNDS AFTER DISALLOWANCE U/S 14A 532481 TOTAL EXPENDITURE 532481 TOTAL INCOME CHARGEABLE TO TAX UNDER THE HEAD BUSIN ESS INCOME 18088240 INCOME FROM OTHER SOURCES AS PER RETURN OF INCOME 12140 TOTAL TAXABLE INCOME FOR THE A.Y.2006-07 32463908 6.2. THE LD.CIT(A) AFFIRMED THE VIEW OF AO THAT THE SHORT-TERM CAPITAL IS NOTHING BUT A BUSINESS PROFIT ON THE GROUND THAT THE ASSESSEE HAS CARRIED OUT MULTIPLE TRANSACTIONS OF PURCHASE AND SALES AND THE NUMBER OF SUCH TRANSACTION WAS QUITE LARGE, THE PERIOD OF HOLDING THE SHARES WAS LESS THAN SIX MONTHS, WHEREAS AN INVESTOR IS TO HOLD A PARTIC ULAR SCRIPT FOR A LONGER PERIOD OF TIME IF HIS INTENTION IS TO MAKE INVESTME NT AND NOT TO TRADE IN SHARES, FREQUENCY OF TRANSACTION INDICATES THAT THE ASSESSEE WAS NOT AN INVESTOR AND THE ASSESSEE HAS ALSO UTILIZED BORROWE D FUNDS. IN THIS FACTUAL MATRIX, WE NEED TO EXAMINE WHETHER THE ASSESSEE IS RIGHTLY HELD SOLELY AS A TRADER OR THE ASSESSEE IS PURELY AN INVESTOR AND IF NOT, WHETHER THE ASSESSEE IS BOTH AN INVESTOR AND TRADER. IN THE LI GHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, RELIED UPON BY THE RESPECTIVE PARTI ES. AT THE OUTSET, WE FIND THAT THE AO HAS INVOKED THE PROVISIONS OF S ECTION 45(2) OF THE ACT BY CONCLUDING THAT ALL SHARES HELD AS INVESTMEN T AS ON 01/04/2005 ARE CONVERTED INTO STOCK-IN-TRADE, DIFFERENCE BETWEEN F ROM MARKET VALUE AS AT THE BEGINNING OF THE YEAR AND ORIGINAL COST IS TAXE D AS LONG-TERM CAPITAL GAIN(LTCG)/SHORT-TERM CAPITAL GAIN(STCG) IF THE AFO RESAID CONVERTED SHARES ARE SOLD IN CURRENT ASSESSMENT YEAR, LTCG AR E REQUIRED TO BE TAXED ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 11 - @ 10% OR 20% DEPENDING UPON THE FACT THAT THE ASSES SEE IS NOT ENTITLED TO CLAIM EXEMPTION U/S.10(38) OF THE ACT AS SHARES ARE CONVERTED IN STOCK- IN-TRADE AND LTCG IS COMPUTED ON THE DATE OF CONVER SION, DIFFERENCE BETWEEN SALE VALUE AND FAIR MARKET VALUE OF SHARES AS COMPUTED IS REQUIRED TO BE TAXED AS BUSINESS INCOME. WE FIND F ORCE INTO THE CONTENTION OF THE LD.SR.COUNSEL THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 45(2) OF THE ACT. THEREF ORE, FROM A BARE READING OF THE PROVISIONS OF SECTION 45(2) OF THE ACT, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF THE AO IS NOT JUSTIFIED IN PARTIALLY TAXING PROFIT ON SALE SHARES OUT OF OPENING SHARES AS STCG AND LTCG AND PARTIALLY TAXING SUCH INCOME AS BUSINESS INCOME. THE AO IS H EREBY DIRECTED TO TAX PROFITS EARED FROM SALE OF SHARES AS STCG/LTCG AS SHOWN IN THE RETURN OF INCOME, SINCE THE REVENUE HAS ITSELF ACCE PTED THE SHARES AS INVESTMENT IN EARLIER ASSESSMENT YEARS. GROUND NOS. 1, 2 & 3 OF ASSESSEES APPEAL ARE ALLOWED. 7. NOW, COMING TO SECOND ISSUE, I.E. WHETHER THE AS SESSEE IS AN INVESTOR OR THE TRADER. UNDISPUTED FACTS AS TRANS PIRED FROM THE RECORD THAT THE ASSESSEE HAS BEEN CONSISTENTLY DECLARING P ROFIT EARNED FROM SALE OF SHARES AS CAPITAL GAIN IN PAST ASSESSMENT YEARS. THIS TREATMENT BY THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE, COUPLED WITH THE FACT THAT THE ASSESSEE IS 70 YEARS OLD AND NO OFFICE AND ANY OTHE R INFRASTRUCTURE IS CREATED FOR CARRYING OUT TRADING ACTIVITY, THEREFOR E, THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN NOT APPRECIATING AND CONSIDER ING THE SUBMISSION OF THE ASSESSEE IN RIGHT PERSPECTIVE. WE NEED TO EXAM INE THIS IN THE LIGHT OF JUDICIAL PRONOUNCEMENTS AND FACTS OF THE PRESENT CA SE. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 12 - 7.1. IT IS NOTEWORTHY THAT ASSESSEE HAS TAKEN DELIV ERY OF SHARES AND THERE IS NO MATERIAL PLACED ON RECORD SUGGESTING TH AT THE SHARES WERE SOLD BY THE ASSESSEE WITHOUT TAKING DELIVERY AND EARNED PROFIT. THE CONTENTION OF LD.COUNSEL THAT THE ASSESSEE HAS NOT DELIVERED S ECURITY TRANSACTION TAX IN COMPUTATION OF CAPITAL GAIN REMAINED UNCONTROVER TED. MOREOVER, THE ASSESSEE IS NOT HAVING ANY INFRASTRUCTURE FOR CARRY ING OUT TRADING ACTIVITY, NOR ANY EXPENDITURE HAS BEEN CLAIMED TO THIS EFFECT . 7.2. ONE OF THE OBJECTIONS OF THE AO WAS THAT THE A SSESSEE HAS UTILIZED THE BORROWED FUNDS. WE FIND THAT ALTHOUGH THE ASSE SSEE HAS UTILIZED BORROWED FUNDS FOR MAKING INVESTMENT IN SHARES YET SHE HAD NOT CLAIMED INTEREST PAID THEREON AS DEDUCTING AGAINST SHORT TE RM CAPITAL GAIN. THE RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF HONBL E HIGH COURT OF GUJARAT RENDERED IN THE CASE OF CIT VS. NIRAJ AMIDH AN SURTI REPORTED AT 347 ITR 149 WHEREIN THE HONBLE HIGH COURT HAS OBSE RVED THAT THE REASONING ADOPTED BY THE AO LOSES SIGHT OF THE FACT THAT MERELY BECAUSE THE SHARES HAD BEEN PURCHASED FROM BORROWED FUNDS O BTAINING ON HIGH RATE OF INTEREST WOULD NOT CHANGE THE NATURE OF TRA NSACTION FROM INVESTMENT TO ONE IN THE NATURE OF AN ADVENTURE IN THE NATURE OF TRADE. 7.3. ANOTHER OBJECTION OF THE AO IS QUA THE VOLUME AND FREQUENCY OF TRANSACTIONS. IT IS PERTINENT TO NOTE THAT IN THE CASE OF JANAK S.RANGAWALA VS. ACIT, 11 SOT 627 THE HONBLE TRIBUNAL HAS HELD, THE MERE VOLUME TRANSACTIONS BY THE ASSESSEE WOULD NOT ALTER THE NA TURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE CO MPUTED WITH REGARD TO TRANSACTION. THE TRANSACTION AS A WHOLE HAS TO BE TAKEN INTO CONSIDERATION ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 13 - AND THE MAGNITUDE DOES NOT ALTER THE NATURE OF TRAN SACTION. THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INC OME TAX PROCEEDINGS AS EACH YEAR IS A INDEPENDENT YEAR OF THE ASSESSMENT B UT IN ORDER TO MAINTAIN CONSISTENCY, IT IS JUDICIALLY ACCEPTED PRINCIPLE TH AT SAME VIEW SHOULD BE ADOPTED FOR SUBSEQUENT YEARS, UNLESS THERE IS A MAT ERIAL CHANGE IN FACTS. 7.4. THE RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GOPAL PUROHIT RE PORTED AT 228 CTR 582 (BOM.) WHEREIN THE HONBLE HIGH COURT UPHELD TH E ORDER OF ITAT AND HELD AS UNDER:- '3. IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRI BUNAL HAS OBSERVED IN PARE 8. OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSI STENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING REC ORDS AND 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 ASSE SSMENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT THE P RINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSI STENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CA SE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REV ENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RA ISE ANY SUBSTANTIAL QUESTION. ' 7.5. FURTHER, THE LD.SR.COUNSEL FOR THE ASSESSEE PL ACED RELIANCE ON THE DECISION OF HONBLE COORDINATE BENCH OF THIS TRIBUN AL RENDERED IN THE CASE OF ITO VS. RAJESH BALWANTBHAI BRAHMBHATT (IN I TA NO.1705/AHD/2009 FOR AY 2006-07 VIDE ORDER DATED 31 /08/2012), WHEREIN THE HONBLE TRIBUNAL HAS HELD AS UNDER:- 8.. REGARDING THE MAGNITUDE OF TRANSACTION AND F REQUENCY OF PURCHASE AND SALE, IT IS HELD BY THE TRIBUNAL IN THE CASE CI TED BY LD. A.R. THAT THESE FACTORS ALONE CANNOT BE DECISIVE TO SAY THAT THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. REGARDING OTHER ASPECTS, IT WAS THE ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 14 - SUBMISSION OF THE ASSESSEE BEFORE THE AUTHORITIES B ELOW THAT THE ASSESSEE WAS IN FULL TIME EMPLOYMENT OF CONSTRUCTION BUSINESS TO EARN HIS LIVELIHOOD AND ITS TRANSACTION IN SHARES WAS ENTIRELY UNCONNECTED WITH HIS FULL TIME EMPLOYMENT. REGARDING THIS OBJECTION THAT EVEN DIVIDEND INCOME IS SMALL, IT WAS THE CLAIM OF THE ASSESSEE THAT THE INVESTMENT WAS NOT MADE FO R MERELY EARNING DIVIDEND INCOME BUT ALSO FOR APPRECIATION OF THE INVESTMENT. IN THE CASE OF CIT VS REWASHANKAR A KOTHARI (SUPRA), HON'BLE GUJARAT HIGH COURT HAS ALSO NOTED ITS EARLIER JUDGEMENT IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS CIT (1977) CTR 647 AND HAS ALSO REPRODUCED CERTAIN TEST S TO DETERMINE AS TO WHETHER THE ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. AS PER THE SAME, THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM, OR WITH A VIEW TO MAKING AN INVESTMENT. IT WAS ALSO STATED THAT IF TH E TRANSACTION, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT , IT WOULD FURNISH A VALUABLE GUIDELINE. IN THE PRESENT CASE, THE A.O.'S DECISION IS NOT ON THE BASIS OF INTENTION AT THE STAGE OF INITIAL ACQUISITION OF SH ARES BUT HE IS DRAWING CONCLUSION FORM THIS FACT THAT THE SHARES WERE SOLD WITHIN A VERY SHORT PERIOD FORM THE DATE OF ACQUISITION. THERE ARE VARIOUS TES TS SUGGESTED BY HON'BLE GUJARAT HIGH COURT AND THE MOST IMPORTANT TEST SUGG ESTED IS REGARDING VOLUME, FREQUENCY, CONTINUITY AND REGULARITY FOR TR ANSACTION OF PURCHASE AND SALE OF GOODS CONCERNED. IF THE ASSESSEE IS UNDERTA KING 91 TRANSACTIONS IN 26 SCRIPTS DURING THE WHOLE YEAR, IT CANNOT BE SAID TH AT CONTINUITY AND REGULARITY OF TRANSACTION IS THERE REGARDING PURCHASE AND SALE OF THE SHARES. IF THESE TWO ARE RULED OUT THEN THE ONLY ADVERSE FACTOR REMAININ G IS VOLUME AND ON THIS BASIS ALONE, IT CANNOT BE CONCLUDED THAT THE ASSESS EE IS DOING BUSINESS OF PURCHASE AND SALE OF SHARES. ONE OF THE TESTS SUGG ESTED BY HON'BLE GUJARAT HIGH COURT IS THAT WHETHER THE TRANSACTION WAS TREA TED AS STOCK IN TRADE IN THE BOOKS OF ACCOUNTS AND THE BALANCE SHEET OR WHETHER IT WAS SHOWN AS INVESTMENT. ON THIS POINT, THE DECISION GOES IN FAV OUR OF THE ASSESSEE ALTHOUGH IT IS NOT CONCLUSIVE. ONE OTHER TEST SUGGESTED BY H ON'BLE GUJARAT HIGH COURT IS THE TREATMENT GIVEN BY THE ASSESSEE IN RESPECT OF S IMILAR ACTIVITIES IN THE PRECEDING AND SUCCEEDING ASSESSMENT YEARS. THE RESU LT OF SIMILAR TRANSACTION WAS DECLARED BY THE ASSESSEE AS INCOME FROM CAPITAL GAIN AND IT WAS ACCEPTED BY THE DEPARTMENT ALTHOUGH U/S 143(1) AND NOTHING H AS BEEN BROUGHT OUT ON RECORD TO SHOW THAT SUCH OTHER ASSESSMENTS WERE REO PENED BY INVOKING THE PROVISIONS OF SECTION 147 OF THE ACT. CONSIDERING A LL THESE FACTS, IN OUR CONSIDERED OPINION AND AS PER THE JUDGEMENT OF HON' BLE GUJARAT HIGH COURT CITED BY LD. A.R. AND THE TRIBUNAL DECISION RENDERE D IN THE CASE OF MANISHA D SHAH (SUPRA), IT CANNOT BE SAID THAT IN THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHA RES AND, THEREFORE, THE SURPLUS ARISING ON SUCH PURCHASE AND SALE OF SHARES CANNOT BE TREATED AS BUSINESS PROFIT AND IT HAS TO BE TAXED AS SHORT TER M CAPITAL GAIN AS HAS BEEN OFFERED BY THE ASSESSEE. THE JUDGEMENT OF HON'BLE B OMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS GOPAL PUROHIT AS REP ORTED IN 228 CTR 582 (MUM.) ALSO SUPPORTS THE CASE OF THE ASSESSEE. RESP ECTFULLY FOLLOWING ALL THESE ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 15 - JUDGEMENTS AND IN THE FACTS OF THE PRESENT CASE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) IN THE PRESENT CASE. 7.6. THE RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE COORDINATE BENCH RENDERED IN THE CASE OF HIRAL MANI SH SHAH VS. ADDL.CIT, WHEREIN THE HONBLE TRIBUNAL HAS HELD AS UNDER:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND VARIOUS JUDGEMENTS CITED BY THE LD. A.R. IN THE PRESENT CAS E, THIS ISSUE WAS DECIDED BY LD, CIT(A) AGAINST THE ASSESSEE ON THIS BASIS THAT THERE IS NO DOUBT THAT A PERSON CAN HOLD SHARES BOTH UNDER THE BUSINESS AS W ELL AS INVESTMENT PURPOSE BUT CLEAR DEMARCATION IS TO BE DONE BY HIM AT THE T IME OF ITS PURCHASE ONLY. HE HAS ALSO NOTED THAT INVESTMENT CANNOT BE FOR A SMAL L PERIOD OF 1-2 DAYS TO 10- 15 DAYS AS SHOWN BY THE ASSESSEE. ON THE BASIS OF T HIS, HE HAS DECIDED THAT THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE ARE IN FAC T BUSINESS TRANSACTIONS. 6. NOW, WE EXAMINE APPLICABILITY OF VARIOUS JUDGEME NTS CITED BY THE LD. A.R. IN THE LIGHT OF ABOVE FACTS OF THE PRESENT CASE. IN THE CASE OF ITO VS RAJESH BALWANTBHAI BRAHMBHATT (SUPRA), THE TRIBUNAL HAS CO NSIDERED ANOTHER TRIBUNAL DECISION RENDERED IN THE CASE OF MANISHA D IXIT SHAH RENDERED IN I.T.A.NO. 272/AHD/2010 DATED 12.08.2011 AND IT WAS NOTED IN PARA 8 THAT IN ANOTHER TRIBUNAL DECISION, IT WAS HELD BY THE TRIBU NAL THAT MAGNITUDE OF TRANSACTION AND FREQUENCY OF PURCHASE AND SALE ETC . ALONE CANNOT BE BASIS TO CONCLUDE THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. IT WAS HELD THAT ALL THE FACTORS HAVE TO BE CONSIDERED TOGETHER AND THEN ON THE HOLISTIC; CONSIDERATION OF ALL THE FACTORS, REASONABLE VIEW HAS TO BE TAKEN. IN THE PRESENT CASE, COPY OF THE WRITTEN SUB MISSIONS MADE BY THE ASSESSEE BEFORE ID. CIT(A) ARE APPEARING ON PAGES 1 -4 OF THE PAPER BOOK AND AS PER THESE SUBMISSIONS, IT WAS SUBMITTED BY THE A SSESSEE BEFORE LD. CIT(A) THAT OWN FUNDS HAVE BEEN UTILIZED FOR THE PURPOSE O F MAKING INVESTMENT IN SHARES. IT WAS POINTED OUT THAT PARTNERS CAPITAL WA S OF RS.264.24 LACS WHEREAS INVESTMENT IN SHARES WAS ONLY RS.237.77 LACS. IT WA S ALSO SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED ANY OFFICE OR OTHER INF RA- STRUCTURE TO CARRY OUT TRANSACTION IN SHARES WHICH IS ORDINARILY A STRONG INDICATION OF THE ASSESSEE CARRYING ON BUSINESS. RELIANCE WAS ALSO PLACED ON T HE BOARD'S CIRCULAR NO.4/2007 IN WHICH IT WAS SUGGESTED THAT IF THE SOU RCE OF FUNDS IS BORROWED FUND, IT WOULD BE CONSIDERED THAT SHARES ARE STOCK IN TRADE. RELIANCE WAS ALSO PLACED ON THE TRIBUNAL DECISION RENDERED IN THE CAS E OF GOPAL PUROHIT AS REPORTED IN 29 SOT 117 WHERE ALSO, IT WAS HELD THAT HIGH VOLUME ALONE CANNOT BE A BASIS OF HOLDING THAT THE TRANSACTIONS ARE IN RESPECT OF SHARE TRADING. IN THE ORDERS OF AUTHORITIES BELOW, APART FROM HIGHER MAGNITUDE AND FREQUENCY, THERE IS NO ADVERSE FACTOR POINTED OUT BY THE AUTHO RITIES BELOW TO SAY THAT THE ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 16 - ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARES AND N OT IN INVESTMENT IN SHARES. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT IN THE LIGHT OF THE TRIBUNAL DECISION RENDERED IN THE CASE OF RAJESH B BRAHMBHATT (SUPRA), IT CANNOT BE SAID THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND HENCE, IT HAS TO BE ACCEPTED THAT THE AS SESSEE IS CARRYING ON THE TRANSACTIONS OF THESE SHARES IN THE COURSE OF INVES TMENT IN SHARES AND, THEREFORE, PROFIT ON SALE OF SUCH SHARES HAS TO BE ASSESSED AS INCOME FROM CAPITAL GAIN AND NOT AS INCOME FROM BUSINESS. THE J UDGEMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GOPAL PUR OHIT AS REPORTED IN 228 CTR 582 (BOM.) ALSO SUPPORTS THE ASSESSEE AND THE O THER JUDGEMENTS CITED BY THE LD, A.R. ARE ALSO SUPPORTING THE CASE OF THE AS SESSEE AND NO CONTRARY DECISION HAS BEEN CITED BEFORE US BY THE LD. D.R. I N THE ORDERS OF AUTHORITIES BELOW ALSO, RELIANCE IS NOT PLACED ON ANY OF THE JU DGEMENTS POINTING OUT THAT MERELY ON THE BASIS OF HIGH VOLUME AND FREQUENCY, I T CAN BE SAID THAT THE SHARES ARE TRANSACTED IN THE COURSE OF TRADING IN S HARES AND NOT IN THE COURSE OF INVESTMENT IN SHARES. AS PER ABOVE DISCUSSION, W E ARE OF THE CONSIDERED OPINION THAT IN THE FACTS OF THE PRESENT CASE, THE INCOME ARISING TO THE ASSESSEE FROM PURCHASE AND SALE OF SHARES IS ASSESSABLE AS S HORT TERM CAPITAL GAYI AND NOT AS BUSINESS INCOME. WE HOLD ACCORDINGLY. 7.7 IN THE CASE OF ACIT VS. SHRI RAJESH V. PATEL RE NDERED IN ITA NO.2932/AHD/2009, THE HONBLE COORDINATE BENCH HAS HELD AS UNDER: 8. IN THE CASE OF GOPAL PUROHIT (SUPRA) THE ORDER OF THE TRIBUNAL IS NOT ONLY CONFIRMED BY THE HON'BLE HIGH COURT BUT LATER ON CO NFIRMED BY THE HON'BLE SUPREME COURT AS IS REPORTED IN 334 ITR (ST) 308 (S UPRA). CONSIDERING THE ABOVE DISCUSSIONS IT IS CLEAR THAT THE ASSESSEE HAD NO INTENTION OF TRADING IN SHARES AT THE TIME OF PURCHASE OF THE SHARES. THE S AME IS ALSO FORFEITED BY THE FACT THAT THE ASSESSEE ENJOYED SHARE DIVIDEND INCOM E AND IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS SHOWN DIVIDEND I NCOME OF RS.4.68 LAKHS. THE FACTS AND CIRCUMSTANCES NOTED ABOVE AND THE MAT ERIAL PRODUCED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW CLEARLY PROVE THAT THE ASSESSEE MADE INVESTMENT IN SHARES AND EARNED CAPITAL GAIN. PRIMA RY ONUS PROVED BY THE ASSESSEE HAS NOT BEEN REBUTTED BY THE AO THROUGH AN Y EVIDENCE OF MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT EACH CASE HAS TO BE DECIDED ON THE BASIS OF ITS ON FACTS AND EVIDENCES PRODUCED. THE CRITERIA LAID DOWN FOR CONSIDERING THIS TRANSACTION HAS BEEN LAID OUT IN SEVERAL DECISIONS INCLUDING THE DECISIONS NOTED ABOVE. THEREFORE, THE DECISIONS CITED BY THE LEARNED DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. THE LEARNED DR TRI ED TO ARGUE THAT ITAT BOMBAY BENCH IN THREE DECISIONS DISTINGUISHED THE D ECISION IN THE CASE OF GOPAL PUROHIT (SUPRA, THEREFORE, THE DECISION IN TH E CASE OF GOPAL PUROHIT (SUPRA) MAY NOT BE FOLLOWED IN THIS CASE. HOWEVER, THAT DECISION IS ALSO TAKEN INTO CONSIDERATION BY ITAT AHMEDABAD BENCH IN THE C ASE OF SHRI RAVINDRA M. AGRAWAL (SUPRA) AND DISMISSED THE DEPARTMENTAL APPE AL IN THAT CASE. WE MAY ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 17 - ALSO NOTE HERE THAT CONSIDERING THE PECULIAR FACTS IN THIS CASE THAT IN THE CASE OF M/S. VISHAL EXPORTS LTD. THERE WAS A PROFIT IN W HICH SHARE HOLDING WAS ALSO OF SOME MONTHS EVEN AS PER LEARNED DR. THEREFORE, I T WAS CLEAR CASE OF SHORT TERM CAPITAL GAINS AS IS HELD BY THE LEARNED CIT(A) . IF THIS INCOME IS ADJUSTED AGAINST OTHER LOSS/INCOME AGAINST OTHER PARTIES, RE SULT WOULD BE FURTHER LOSS. THEREFORE, REVENUE DEPARTMENT WOULD NOT GET ANY BEN EFIT OUT OF THAT SITUATION. THE DEPARTMENTAL APPEAL, BECAUSE OF THIS PECULIAR C IRCUMSTANCES OF THE CASE WOULD HAVE ONLY ACADEMIC ISSUE AND AS SUCH, IN OUR VIEW NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED CIT(A). CONS IDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LEARNED CIT(A) IN HOLDING TO TAX THE INCOME AS SHOR T TERM CAPITAL GAINS. APPEAL OF THE REVENUE HAS NO MERIT AND IS ACCORDING LY DISMISSED. 7.8. WE FIND THAT IN THE CASE OF MAHENDRA C.SHAH VS . ADDL.CIT REPORTED AT (2011) 140 TTJ (MUMBAI) 16, DATED 18 TH MAY, 2011, WHEREIN THE FACTS WERE IDENTICAL TO THE FACTS OF THE CASE I N HAND. THE HONBLE ITAT MUMBAI DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE AND HELD AS UNDER:- 17. IT IS FURTHER SEEN THAT EVEN IN RESPECT OF THE ASS T. YR. 2007-08 IN WHICH YEAR AN ASSESSMENT WAS COMPLETED UNDER S. 143(3) OF THE ACT BY ORDER DT. 13TH NOV., 2009, THE AO HAS ACCEPTED THE SHORT-TERM CAPI TAL LOSS OF RS. 69,43,821 ON SALE OF THE SHARES AND THE SAME HAS NOT BEEN CON SIDERED AS BUSINESS. 18. IT WOULD THUS APPEAR THAT PRIMA FACIE THERE IS ENO UGH EVIDENCE TO SHOW THAT THE ASSESSEE IS AN INVESTOR IN SHARES AND THER EFORE THE SURPLUS ARISING ON THE SALE OF SHARES SHOULD BE ASSESSED AS SHORT-TERM OR LONG-TERM CAPITAL GAINS, DEPENDING ON THE PERIOD OF HOLDING AND NOT AS BUSIN ESS INCOME. 19. BUT THEN THE CONTENTION OF THE DEPARTMENT IS THAT THE ASSESSEE IS ALSO CARRYING ON F & O TRANSACTIONS AS SPECULATION BUSIN ESS IN SHARES AND THAT THE INVESTMENT IN F & O TRANSACTION AS PER THE BALANCE SHEET AS ON 31ST MARCH, 2005 IS RS. 1,03,01,657 AS AGAINST THE INVESTMENT I N THE SHARES OF RS. 3,24,59,391. THE POINT MADE IS THAT ALMOST 1/4TH OF THE TOTAL INVESTMENT OF THE ASSESSEE IS IN SPECULATION AND F & O BUSINESS AND W ITH THIS KIND OF BACKGROUND IT WOULD BE DIFFICULT TO BELIEVE THAT TH E ASSESSEE CAN ALSO BE TREATED AS INVESTOR IN SHARES. WE FIND IT DIFFICULT TO ACCEPT THE CONTENTION BECAUSE THE CIRCULAR ISSUED BY THE CBDT REFERRED TO SUPRA HAS ITSELF RECOGNIZED THAT A PERSON CAN HAVE TWO PORTFOLIOS, O NE FOR INVESTMENT AND THE OTHER AS STOCK-IN-TRADE. THE HONBLE BOMBAY HIGH CO URT HAS ALSO ACCEPTED THIS POSITION IN ITS JUDGMENT IN THE CASE OF CIT VS . GOPAL PUROHIT (2010) 34 ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 18 - DTR (BOM) 52 DELIVERED ON 6TH JAN., 2010. IT IS THEN POINTED OU T THAT THE ASSESSEE HAS BORROWED FROM INDIA BULLS FOR THE PURP OSE OF BUYING SHARES AND THIS IS A STRONG INDICATION THAT THE ASSESSEE INTEN DED TO DO BUSINESS IN SHARES AND NOT MERELY INVEST IN THEM. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO AN ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF S. BALAN ALIAS SHANMUGAM BALKRISHNAN CHETTIAR VS. DY. CIT (SUPRA), TO SUBMIT THAT THERE IS NO THUMB RULE THAT A PERSON CANNOT BO RROW MONEY FOR THE PURPOSE OF MAKING INVESTMENT. WE HAVE EXAMINED THE POSITION WITH REFERENCE TO THE ORDER OF THE PUNE BENCH TO WHICH ONE OF US ( THE AM) WAS PARTY. IN THIS CASE THE ASSESSEE HAD BORROWED MONIES FOR ACQUIRING SHARES. THE SURPLUS ON THE SALE OF SHARES WAS DECLARED UNDER THE HEAD CAPI TAL GAINS AND FOR THE PURPOSE OF COMPUTING THE GAINS, THE INTEREST COST W AS ALSO CAPITALIZED AND REDUCED FROM THE SALE PRICE. THE INTEREST HAS NEVER BEEN CLAIMED AS REVENUE DEDUCTION. ON THESE FACTS IT WAS HELD THAT THERE WA S NO RULE THAT INTEREST COST CANNOT BE CAPITALIZED AND ESPECIALLY ON THE FACTS O F THE CASE OF THE ASSESSEE BEFORE THE PUNE BENCH IT WAS HELD THAT THE RIGHT CO URSE WOULD BE TO CAPITALIZE THE INTEREST COST AND DEDUCT THE WHOLE COST FROM TH E SALE PRICE WHILE COMPUTING THE CAPITAL GAINS. IT WAS OBSERVED THAT T HE INTEREST COST CANNOT BE SEGREGATED FROM THE COST OF ACQUISITION AND FOR THI S PURPOSE RELIANCE WAS PLACED ON THE JUDGMENT OF THE DELHI HIGH COURT IN C IT VS. MITHLESH KUMARI (1973) 92 ITR 9 (DEL) WHERE IT WAS HELD THAT INTERE ST PAID BY THE ASSESSEE ON MONIES BORROWED FOR THE PURCHASE OF AN OPEN PLOT OF LAND WOULD FORM PART OF THE ACTUAL COST OF THE ASSESSEE FOR THE PURPOSE OF DETERMINING THE CAPITAL GAINS DERIVED FROM THE SALE OF THE PLOT. THIS DECISION CE RTAINLY LENDS SUPPORT TO THE CONTENTION OF THE ASSESSEE BEFORE US. EVEN IN THE P RESENT CASE THE DEPARTMENT HAS NO OBJECTION TO THE CAPITALIZATION OF THE INTER EST. THE ALTERNATIVE SUBMISSION OF THE ASSESSEE HOWEVER WAS THAT IN ANY CASE THE BALANCE IN HIS CAPITAL ACCOUNT AS ON 31ST MARCH, 2005 WAS RS. 4,19 ,60,788 WHICH IS MORE THAN THE INVESTMENT IN THE SHARES AS ON THAT DATE W HICH STOOD AT RS. 3,24,59,391 AND THEREFORE IT CAN BE PRESUMED THE BO RROWED MONIES WERE UTILIZED ONLY FOR THE PURPOSE OF CARRYING ON THE F & O BUSINESS. IN FACT THIS CONTENTION HAS BEEN ACCEPTED BY THE CIT(A) IN HIS O RDER FOR THE ASST. YR. 2006- 07. REFERENCE MAY BE MADE IN THIS CONNECTION TO PAR A 2.3(I) OF THE ORDER OF THE CIT(A) FOR THE ASST. YR. 2006-07. IN THAT YEAR THE ASSESSEE HAD PAID INTEREST OF RS. 15.73 LAKHS AND THAT WAS PUT AS ONE OF THE POINTS AGAINST THE ASSESSEES CONTENTION THAT HE WAS AN INVESTOR IN TH E SHARES. THE CIT(A) HELD THAT THE ASSESSEES OWN CAPITAL WAS RS. 5.15 CRORES IN THAT YEAR OUT OF WHICH THE INVESTMENT OF RS. 3.32 CRORES IN SHARES COULD H AVE COME AND THUS IT CANNOT BE SAID THAT THE ASSESSEE WAS DEPENDING TOTALLY ON BORROWED FUNDS. IN THE LIGHT OF THIS FINDING ALSO IT CANNOT BE SAID THAT T HE FACT THAT THE ASSESSEE PAID INTEREST ON BORROWINGS SHOULD BE HELD AGAINST HIM, PARTICULARLY WHEN THERE ARE OTHER PREDOMINATING FEATURES IN THE CASE WHICH GIVE CLEAR IMPRESSION THAT THE ASSESSEE INTENDED ONLY TO INVEST IN SHARES AND NOT HOLD THEM AS STOCK-IN- TRADE. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 19 - 20. IT THUS APPEARS TO US THAT THE CIT(A) TOOK AN INCO RRECT VIEW OF THE MATTER IN THE ASST. YR. 2005-06 AND THAT THE CIT(A) WHO DE ALT WITH THE APPEAL FOR THE ASST. YR. 2006-07 HAS TAKEN THE CORRECT VIEW OF THE MATTER AND APPLIED THE APPROPRIATE PRINCIPLES CORRECTLY IN HOLDING THAT TH E ASSESSEE WAS AN INVESTOR IN SHARES. 7.9. RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE COORDINATE BENCH IN THE CASE OF ACIT VS. GARGI SHITALKUMAR PAT EL IN ITA NO.1911/AHD/2009, WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- 5.10. IN NUTSHELL, THE CLAIM OF THE ASSESSEE REGA RDING INCOME FROM SALE OF SHARES HAS ALL ALONG BEEN ACCEPTED UNDER THE HEAD S HORT-TERM/LONG-TERM CAPITAL GAINS . THE LD. CIT(A) AS ALSO THE LD. DR APPEARING BEFORE US IN HIS WRITTEN SUBMISSIONS HAVE OBSERVED THAT THE FACTS O F THE CASE PERTAINING TO THE CLAIM OF STCG REMAIN THE SAME THIS YEAR AS WERE OBT AINING IN THE IMMEDIATELY PRECEDING YEAR . IN THE LIGHT OF VIEW T AKEN IN THE AFORESAID DECISIONS , WE ARE OF THE OPINION THAT THE MERE VOL UME OF TRANSACTIONS TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATU RE OF TRANSACTION. THOUGH THE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT 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, UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS. IN THE FACTS OF THE INSTANT CASE, THE ASSESS EE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT WAS THE INTENTION OF THE ASSESSEE WHICH WAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION COND UCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES WAS ON A LARGE MAGN ITUDE BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG-TERM AND SHORT-TERM BASI S. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PUR CHASE OF SHARES WAS SAME AS IN THE PRECEDING YEARS . THERE WAS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD SH ARES IN THE INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK-IN-TRAD E. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NATURE OF TRANS ACTIONS, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST S EVERAL YEARS. 5.11. THE PLEA OF THE LD. DR THAT THE FACTS AND CIR CUMSTANCES IN THE DECISION RELIED UPON IN THE CASE OF GOPAL PUROHIT (SUPRA) BY THE ITAT IN THE PRECEDING YEAR, WERE DIFFERENT, IS NOT TENABLE AS OBSERVED BY US ALREADY ABOVE FIRSTLY , THE RATIO OF THE SAID DECISION HAS BEEN FOLLOWED IN A NUMBER OF DECISIONS REFERRED TO ABOVE AND SECONDLY, THE LD. DR DID NOT DEMONSTRATE BEFORE US AS TO HOW THE SAID DECISIONS IS NOT APPLICABLE IN THE FAC TS AND CIRCUMSTANCES OF THE INSTANT CASE BEFORE US. TO A QUERY BY THE BENCH, TH E LD. DR ADMITTED THAT HE ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 20 - WAS NOT AWARE AS TO WHETHER OR NOT THE DECISION OF THE ITAT FOR THE PRECEDING YEAR HAS BEEN CHALLENGED BEFORE THE HONBLE HIGH CO URT. 5.12. IN VIEW OF THE FOREGOING, FOLLOWING THE VIEW TAKEN IN THE AFORESAID DECISIONS, IF WE ANALYSE THE TRANSACTIONS IN THE IN STANT CASE, WE FIND THAT THE ASSESSEE DISCLOSED INCOME FROM CAPITAL GAINS / DIVI DENDS IN EARLIER YEARS AND THE SHARES HAVE ALL ALONG BEEN TREATED AS INVESTMEN TS IN THE BOOKS OF ACCOUNT/BALANCE SHEETS. IN THESE CIRCUMSTANCES, WE, THEREFORE, DIRECT THE AO TO ACCEPT THE SHORT-TERM CAPITAL GAIN AMOUNTING TO RS. 62,67,735/- DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME. THEREFORE, GROUND NO.1 IN THE APPEAL IS ALLOWED. 7.10. IN THE CASE OF SHANTILAL M.JAIN VS. ACIT, 132 ITD 466, THE HONBLE ITAT MUMBAI DECIDED IN FAVOUR OF ASSESSEE B Y HOLDING THAT FROM AYS 2003-04 TO 2008-09, THE AO HAD CONSISTENTL Y ACCEPTED THE SHORT-TERM CAPITAL GAIN SHOWN BY THE ASSESSEE EXCEP T FOR THE ASSESSMENT YEAR 2006-07, I.E. THE IMPUGNED ASSESSMENT YEAR. U NDER THESE CIRCUMSTANCES, RULE OF CONSISTENCY WAS TO BE APPLIE D AND ASSESSEES CLAIM WAS TO BE ALLOWED FOR THE AY 2006-07 ALSO. 7.11. IN ANOTHER CASE, IN THE CASE OF KALPESH C.SHA H IN ITA NO.2818/AHD/2011, THE HONBLE COORDINATE BENCH HAS NOTED IN PARA-3 OF ITS ORDER, THE OBSERVATION OF THE AO IS AS UNDER:- 3. THE A.O., IN THIS CASE, HAS TREATED SHORT-TERM C APITAL GAIN ON SALE OF SHARES AMOUNTING TO RS.8,08,357/- SHOWN IN HIS RETURN OF INCOME AS BUSIN ESS INCOME BY OBSERVING AS UNDER:- 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAD SHOWN HUGE PROFIT ARISING OUT OF SHARE TRADING ACTIVITY, THE PROFITS HOWEVER WERE REDUCED FROM THE INCOME UNDER THE HEAD 'BUSINESS & PROFESSION', TREATING THESE AS INV ESTMENT AND THUS WERE TAKEN UNDER THE HEAD 'CAPITAL GAIN'. FROM A PERUSAL OF THE DETAILS SUBMITTE D BY THE ASSESSEE THE FOLLOWING FACTS EMERGED: 1.1 THE ASSESSEE PURCHASED AND SOLD THOUSANDS OF SH ARES AGGREGATING IN TOTAL TO ALMOST ONE LAKH SHARES DURING THE YEAR. 1.2 THE ASSESSEE PURCHASED AND SOLD 52 DIFFERENT TY PES OF SHARES. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 21 - 1.3 THE NUMBER OF TIMES ON WHICH THE SCRIPS WERE TRAN SACTED BY THE ASSESSEE WAS 316 DURING THE ENTIRE YEAR. 1.4 THE NUMBER OF DAYS ON WHICH THE SHARES WERE PURC HASED WAS 187 DURING THE YEAR. 1.5 THE NUMBER OF DAYS ON WHICH THE SHARES WERE SOLD WAS 157 DURING THE YEAR. 1.6 THUS THE ASSESSEE HAD ADEQUATE KNOWLEDGE AND EX PERIENCE TO INDULGE IN SHARE TRADING. 1.7 THE ASSESSEES INDULGED IN BUYING AND SELLING OF SHARES ON ALMOST EACH DAY THAT THE MARKET WAS OPEN. 1.8 OUT OF 316 TIMES THAT THE SHARES WERE TRANSACTE D IN THE MARKET THE ASSESSEE SOLD OF THE SHARES - WITHIN A PERIOD OF ONE MONTH ON 131 TIMES. 1.9 OUT OF THE 316 TIMES THE SHARES WERE TRANSACTED IN THE MARKET IT WAS ONLY ON 66 OCCASIONS THAT THE SHARES WERE HELD ON FOR MORE THAN 3 MONTHS BEFORE BEI NG SOLD IN THE MARKET. 1.10 IT WOULD ALSO NOT BE OUT OF PLACED TO MENTION T HAT THE STOCK MARKET IN THE FINANCIAL YEAR 2007-08 HAD HUGE FLUCTUATION. THE MARKET HAD RISEN TO RECOR D HIGH DURING THE YEAR AND HAD ALSO CRASHED DOWN. IN SUCH A SCENARIO IT CAN ONLY BE REASONABLE TO HOLD THAT THE INTENTION OF THE ASSESSEE WAS ONLY TO TRADE IN SHARES AND NOT HOLD ON TO THEM AS INVEST MENT. IN UNCERTAIN TIME IT IS ONLY REASONABLE TO EXPECT THAT A REASONABLE PERSON WOULD WAIT FOR THE MARKET TO STABILIZE BEFORE MAKING INVESTMENT. FURTHER IF THE CONDUCT OF THE ASSESSEE IMPLIES THAT FREQUENT BUYING AND SELLING HAS TAKEN PLACE IT CAN ONLY SUGGEST THAT THE INTENTION OF THE ASSESSEE HAS BEEN TO TRADE AND NOT TO INVEST. 1.11 THE DETAILS OF THE SHARE TRADING INDULGED INTO BY THE ASSESSEE IS TABULATED BELOW FOR READY REFERENCE. STCG CLAIMED DURING THE A.Y. 2008-09 SL.NO. SCRIPT NAME NO.OF TIMES THE SCRIPT WAS TRANSACTED NO. OF DATES ON WHICH PURCHASED NO.OF DATES ON WHICH SOLD 1. ALLAHABAD BANK 7 4 4 2. ANDHRA BANK 2 1 2 3. APOLLO TYRES LTD. 1 1 1 4. ASHOK LEYLAND LTD 11 5 6 5. BAJAJ HINDUSTAN 1 1 1 6. BINANI CEMENT LIMITED 1 1 1 7. BIRLA POWER SOLUTIONS LTD. 22 7 5 8. CHAMBAL FERTILIZERS LTD. 7 4 1 9. CINEMAX INDIA LIMTIED 8 7 3 ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 22 - 10. DENA BANK 6 5 5 11. DISH TV INDIA LTD. 1 1 1 12. ESSAROIL LTD. 10 8 5 13. EVEREDY INDUSTRIES INDIA 2 1 ; 14. EXIDE INDUSTRIES LTD. 4 3 2 15. FIDELITY EQUITY FUND 3 3 1 16. FIDELITY INDIA SPECIAL SITUATIO FUND 1 1 1 17. GKWLTD. 2 1 1 18. GRANULES LTD. 11 6 5 19. GUJARAT AMBUJA CEM LTD. 1 1 1 20. GUJARAT AMBUJA EXPORT LTD. 1 1 1 21. HIND.OIL EXP 7 5 5 22. HINDALCO INDUSTRIES LTD. 2 1 1 23. HUGHES TELKCOM 1 1 1 24. IFCI LTD 5 2 3 25. INDUS IND BK LTD. 4 2 2 26. ITC LTD. 4 1 4 27. KEI INDUSTRIES 10 5 4 28. MANGALORE FEFINERY PETR 3 2 2 29. MTNL 4 3 3 30. MYSORE CEMENT 1 1 1 31. NAGARJUNA FERTILISER 6 4 4 32. NISSAN COPPER LIMITED 2 2 1 33. NOCIL 4 4 3 34. ORIENTAL BANK OF COMMERCE 2 1 1 35. PETRONETLNG LIMITED 3 3 1 36. POWER TRADING CORP 20 13 6 37. PRISM CEMENTS LTD 16 6 9 38. RASHTRIYA CHEMICALS AND FERTILIZERS 2 1 2 39. RELIANCE NATURAL RESO LTD. 9 6 6 40. RELIANCE PETROLEUM LTD. 8 4 4 41. SONATA SOFT 23 12 8 42. SREI INFRASTRUCTURE FIN LTD. 8 6 2 43. SYNDICATE BANK 7 6 4 44. TAMILNADU NEWSPRT & PAPER 18 10 8 45. UCO BANK 1 1 1 46. UNION BANK OF INDIA 1 1 1 47. UTTAMGALVA STEELS LTD. 12 4 4 48. VISA STEEL LTD. 9 5 4 49 WIRE 7 WIRELESS (INDIA) LTD. 8 4 5 50. ZEE NEWS LIMITED 12 7 7 ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 23 - 51. ZEE TELE FILMS LTD. 1 1 1 52. ZENITH BIRLA 1 1 1 TOTAL 316 187 157 4. AFTER GOING THROUGH THE CASE RECORDS AND THE NA TURE OF TRANSACTION AS A WHOLE THE ASSESSEE WAS ASKED TO SHOW CAUSE VIDE ORDER SHEET ENTRY DATED 16 -11-2010 AS TO WHY HIS ACTIVITY SHOULD NOT BE TREATED AS BUSINESS ACTIVITY INSTEAD OF INVESTMENT ACTIVITY AS SHOWN BY HIM. THE ASSESSEE VIDE LETTER DATED 19-11-2010 FURNISHED THE REPLY. 5. THE SUBMISSION FINISHED BY THE ASSESSEE HAS BEEN CAREFULLY PERUSED. HOWEVER, AS THE SUCCEEDING OBSERVATION WOULD SHOW THE SUBMISSION OF THE ASSESSE E IS NOT ACCEPTABLE. 5.1 DURING THE YEAR THE ASSESSEE HAD CARRIED OUT TH E PURCHASE AND SALE OF SHARES IN A SYSTEMATIC AND ORGANIZED MANNER. 5.2 THE VOLUME OF SHARE TRANSACTIONS TOTAL RS.163.06 LACS 5.3 THE TRANSACTION IN SHARES HAD TAKEN PLACE IN UN CERTAIN TIMES WHEREIN THE MARKET WAS FLUCTUATING ON A DAILY BASIS IF NOT ON AN HOURLY BASIS. 6. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES THE PROFITS ARRIVING FROM SHARE TRANSACTION MUST BE HELD AS BUSINESS INCOME. RELIANCE IS PLACED UPON THE RATIO OF THE FOLLOWING JUDICIAL DECISIONS: 6.1 RELIANCE IS ALSO PLACED ON THE ENGLISH DECISION OF THE COMMISSIONER OF INLAND REVENUE V/S. TYRE INVESTMENT TRUST LTD. (1924) 12 TC 646 KB 6.2 RELIANCE IN THIS MATTER IS ALSO PLACED ON THE CB DT'S CIRCULAR NO. 4/2007 WHEREIN CERTAIN CRITERIA HAVE BEEN LAID DOWN ON THE BASIS OF WHICH THE AO H AS TO DECIDE WHETHER INCOME SHOWN FROM PURCHASE AND SALE OF SHARES IS TO BE TAXED AS INCOME FROM CAP ITAL GAINS OR FROM BUSINESS. THE TESTS ARE: I) WHETHER DIVIDEND INCOME HAS BEEN EARNED OR NOT FR OM THE SHARES? II) THE FREQUENCY OF PURCHASE AND SALE OF SHARES, I I) THE MAGNITUDE OF PURCHASE AND SALE. IV) THE RATIO BETWEEN PURCHASE AND SALE. V) THE PERIOD FOR WHICH THE SHARES HAVE BEEN HELD. FROM THE ABOVE TEST IT IS CLEAR THAT THE ASSESSEE'S C ASE CLEARLY FALLS WITHIN THE TEST LAID DOWN BY THE CBDT. THEREFORE, THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE IS REQUIRED TO BE TAXED UNDER THE HEAD 'BUSINESS'. 6.3 THE HON 'BLE SUPREME COURT IN THE CASE OF CIT V /S DISTRIBUTORS BARODA (83 ITR 377) WHERE THE QUESTION BEFORE THE HON'BLE SUPREME COURT WAS WHETHE R THE COMPANY COULD BE SAID TO BE ONE, WHOSE BUSINESS CONSISTED 'WHOLLY OR MAINLY IN THE DEALING IN OR HOLDING OF INVESTMENTS.' THE SUPREME COURT POINTED OUT THAT IN SUCH A CASE THE PRIMARY ACTIVITY SHOULD BE DEALING IN OR HOLDING OF AN INVESTMENT. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 24 - WHILE DEALING WITH THE ISSUE, THE HON 'BLE SUPREME C OURT ALSO HAD GONE INTO THE QUESTION AS TO WHETHER THERE COULD BE ANY BUSINESS OF HOLDING OF INVESTMEN TS. 6.4 THIS MATTER WAS EXAMINED BY THE HON'BLE MADRAS HI GH COURT IN THE CASE OF CIT V/S. AMALGAMATIONS PVT. LTD. (108ITR 885). 6.5 SUPPORT CAN ALSO BE TAKEN FROM THE MADRAS HIGH C OURT DECISION IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. K.S. VENKATASUBBAIAH REDDIAR [221 ITR 18]. 6.6 RELIANCE IS ALSO PLACED ON THE DECISION OF SUPR EME COURT IN THE CASE OF STATE OF ANDHRA PRADESH VS. H.ABDUL BAKSHI & BRS. [1964 15 STC 644]. 6.7 RELIANCE IS ALSO PLACED ON THE DECISION OF MADR AS HIGH COURT IN THE CASE OF K.N.NALLATHAMBI PILLAI VS. COMMISSIONER OF INCOME-TAX. 6.8 RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF JUGGILAL KAMLAPAT VS. COMMISSIONER OF INCOME-TAX [75 ITR 186(SC). 6.9 RELIANCE CAN ALSO BE PLACED UPON THE RECENT DEC ISION OF THE HON 'BLE IT A T 'C' BENCH AHMEDABAD IN THE CASE OF SMT. PURNIMA K. SHAH V. ITO, WD-7(2), A ' BAD HA NO.3154/AHD/2002 WHEREIN, EON 'BLELTATHAS HELD THAT PURCHASING AND SELLING SHARES FREQUENTLY AND IN A SUBSTANTIVE MANNER CAN BE TREATED AS BUSINESS INCOME. 6.10 IN THE LIGHT OF THE ABOVE DISCUSSIONS, CASE LA WS, FACTS AND CIRCUMSTANCES, NO OTHER CONCLUSION EXCEPT THAT THESE SHARES WERE PURCHASED AND SOLD BY THE ASSESSEE WITH THE MOTIVE OF EARNING OF PROFIT BY SUCH PURCHASE AND SALES AND NOT WITH THE OBJECT OF INVESTING ITS CAPITAL IN THESE SHARES IN ORDER T O DERIVE INCOME FROM THAT INVESTMENT. FURTHER, THE VOLU ME OF TRANSACTIONS, THE FREQUENCY OF TRANSACTIONS, THE SYSTEMATIC AND ORGANIZED MANNER OF THE TRANSACTIONS STRONGLY POINT TO THE CONCLUSION THAT THE SHARES COULD NOT HAVE BEEN PURC HASED AS AN INVESTMENT TO EARN INCOME FROM DIVIDENDS AND THAT THE PURCHASE OF THESE SHARES WER E WITH THE OBJECT OF SELLING THEM SUBSEQUENTLY AT AN PROFIT. THE SHARES WERE IN FACT SOLD AT CONSIDERABL E PROFITS SUBSEQUENTLY. ALL THESE FACTS LEAD TO THE INFERENCE THAT THE ASSESSEE'S TRANSACTIONS IN BUYIN G AND SELLING UNITS/SHARES AMOUNT TO BUSINESS ACTIVITIES WITH THE MOTIVE BEHIND THE TRANSACTIONS BEING TO EARN PROFITS. THIS CONCLUSION IS ALSO STRO NGLY SUPPORTED BY THE SUPREME COURT IN THE CASE OF DALHOUSIE INVESTMENT TRUST CO. LTD. VS. COMMISSIONER OF INCOME-TAX [68ITR 486] AND STRONG RELIANCE IS PLACED ON THIS DECISION. 6.11 IN VIEW OF THE FOREGOING PARAGRAPHS, IT IS HEL D THAT THE ASSESSEE IS INTO THE BUSINESS OF TRADING IN SHARES/UNITS AND HENCE, THE BENEFIT OF SPECIAL RATE OF TAXATION @ 10% APPLIED TO THE STCG IS NOT ALLOWED TO THE ASSESSEE AND THE ENTIRE TRANSACTIONS IS TREATED AS BUSINESS TRANSACTIONS AND ACCORDINGLY, THE PROFIT / LOSS ARISING OUT OF THE S HARE TRANSACTIONS IS TAKEN UNDER THE HEAD 'BUSINESS '. IN VIEW OF THE RATIO OF CIRCULAR NO. 4/2007 DATED 1 5-06-2007 THE STCG CLAIMED BY THE ASSESSEE IS TREATED AS 'BUSINESS INCOME '. HOWEVER, THE LTCG IS TREATED AS INVESTMENT OF THE ASSESSEE AND IS ACCORDINGLY CHARGED TO TAX UNDER THE HEAD 'CAPITAL GAIN'. RELIANCE IN THIS REGARD IS ALSO PLACED UPON THE FOL LOWING JUDICIAL DECISIONS: ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 25 - (I) PMMOHAMMED MEERAKHAN VS. CIT [1969] 73ITR 735 (SC ) (II) KHAN BAHDUR AHMED ALLADIN & SONS VS. CIT [1968 ] 68 ITR 573 (SC) (III) JANKI RAM BAHADUR RAM VS. CIT[1965] 57 ITR 21 ( SC) (IV) G. VENKATASWAMINAIDU & CO. VS. CIT [1959] 35 IT R 594 (SC) (V) ECLAT CONSTRUCTION (P) LTD VS. CIT [1988] 172 I TR 84 (PAT.) (VI) RAJA BAHADUR KAMAKHYA NARAIN SINGH VS. CIT[1970 ] 77 ITR 253 (SC) (VII) DALHOUSIE INVESTMENT TRUST CO. LTD VS. CIT [1 968] 68 ITR 486 (SC) (VIII) SUGAMCHANDC. SHAH VS. ACIT[2010] 37DTR (AHD)( TRIB) 345 ACCORDINGLY A SUM OF RS.808357/- IS ADDED TO THE TO TAL INCOME OF THE ASSESSEE AS INCOME UNDER THE HEAD 'BUSINESS.' THEN, THE TRIBUNAL VIDE ITS ORDER DATED 31/10/2012 HAS DECIDED THE ISSUE IN PARA-7, WHICH IS REPRODUCED HEREINBELOW:- 7. HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT ASSESSEE HAS SHOWN SHORT-TERM CAPITAL GAIN OF RS.8,08,357/- ON S ALE OF SHARES AND MUTUAL FUNDS. THE A.O. HAS TREATED THIS AS BUSINESS INCOME . WE FURTHER FIND THAT THERE IS NO DISPUTE THAT THE INVESTMENT MADE IN SHARES AN D MUTUAL FUNDS HAVE BEEN SHOWN BY THE ASSESSEE IN THE BALANCE-SHEET UNDER TH E HEAD 'INVESTMENT' AND FOR MAKING THIS INVESTMENT ASSESSEE HAS NOT BORROWE D ANY FUND. FOR DECIDING THE ISSUE WHETHER THE SHORT-TERM CAPITAL GAIN SHOWN BY THE ASSESSEE CAN BE TAXED AS BUSINESS INCOME, THERE ARE VARIOUS CRITERI A/FACTORS WHICH HAVE TO BE TAKEN INTO ACCOUNT. ONE OF THE CRITERION IS THE INT ENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES WHICH IS CLEAR IN THIS C ASE THATASSESSEE PURCHASED THE SHARES FOR INVESTMENT. OTHER CRITERION IS WHETH ER THE ASSESSEE HAS BORROWED FUNDS TO PURCHASE THE SHARES. IN THIS CASE THE ASSESSEE DID NOT BORROW ANY MONEY FOR MAKING INVESTMENT IN SHARES AN D MUTUAL FUNDS. WE FURTHER FIND THAT WHEN ASSESSEE WAS ASKED DURING TH E HEARING BEFORE US AS TO HOW THE ASSESSEE HAS TREATED SIMILAR TRANSACTIONS I N EARLIER AND SUBSEQUENT YEAR, THE ASSESSEE FILED COPIES OF COMPUTATION OF E ARLIER AND SUBSEQUENT YEARS TO SHOW THAT IN THOSE YEARS ALSO ASSESSEE HAS SHOWN SHORT-TERM CAPITAL GAIN FROM SALE OF SHARES AND MUTUAL FUNDS WHICH WERE HEL D BY HIM FOR LESS THAN 12 MONTHS AND HAS NEVER SHOWN BUSINESS INCOME FROM SAL E OF SHARES. WHILE GOING THROUGH THE COMPUTATION OF INCOME FOR SUBSEQ UENT ASSESSMENT YEAR WE ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 26 - FIND THAT THOUGH ASSESSEE SUFFERED LOSS ON SALE O F SHARES, THE SAME HAS BEEN SHOWN AS SHORT-TERM CAPITAL LOSS AND THE SAME WAS CARRIED FORWARD TO THE NEXT YEAR INSTEAD OF TREATING THE SAME AS BUSINESS LOSS AND TAKING ADVANTAGE OF THIS BY WAY OF REDUCING THE INCOME OF THAT YEAR . THUS THE INTENTION OF THE ASSESSEE IS CLEAR THAT HE HAS TREATED INVESTMENT I N SHARES AS 'INVESTMENT' AND NOT FOR THE PURPOSE OF TRADE. THE REVENUE HAS NOT BROUGHT ANY MATERIAL TO SHOW THAT ASSESSEE HAS INVESTED IN SHARES FOR 'TRAD E'. WE FURTHER FIND THAT REVENUE HAS NOT FILED ANY APPEAL AGAINST THE ORD ER OF LD. CIT(A) TREATING THE INVESTMENT OF ASSESSEE IN SHARES FOR MORE THAN 30 DAYS AND LESS THAN 12 MONTHS AS INVESTMENT IN SHORT-TERM ASSET. THERE IS NO PROVISION UNDER THE ACT TO INDICATE THAT THE HOLDING PERIOD OF 30 DAYS IS R ELEVANT TO DECIDE WHETHER ANY TRANSACTION IS MADE FOR INVESTMENT OR FOR TRAD ING. THEREFORE, WE HAVE NO HESITATION IN HOLDING THAT LD. CIT(A) WAS NOT JUST IFIED IN TREATING THE SURPLUS ARISING OUT OF SALE OF SHARES HELD FOR THE PERIOD OF LESS THAN 30 DAYS AS BUSINESS INCOME INSTEAD OF SHORT-TERM CAPITAL GAIN SHOWN BY THE ASSESSEE. THE ORDER PASSED BY HIM TO THIS EFFECT IS SET ASID E AND THE A.O. IS DIRECTED TO ACCEPT THE SHORT-TERM CAPITAL GAIN OF RS.8,08,357/ - ON SALE OF SHARES AND MUTUAL FUNDS SHOWN BY ASSESSEE IN HIS RETURN OF IN COME. THIS GROUND OF THE ASSESSEE IS ALLOWED. 7.12. FURTHER, THE RELIANCE IS ALSO PLACED BY THE L D.SR.COUNSEL FOR THE ASSESSEE ON THE DECISION OF COORDINATE BENCH RENDER ED IN THE CASE OF SUGAM CHAND C.SHAH 48 SOT 189(2011), WHEREIN THE HO NBLE TRIBUNAL HAS HELD AS UNDER:- IN THE INSTANT CASE, THE ASSESSEE HAD DISCHARGED T HE ONUS OF SHOWING THAT IT WAS MAKING INVESTMENT BUT REVENUE WAS ABLE TO SHOW THAT THESE WERE HIGH FREQUENCIES AND LAW HOLDING IN MANY TRANSACTIONS OF SHARE INDICATING THAT THE ASSESSEE HAD SOME INTENTION OF PURCHASING AND SELLI NG OF SHARES AS A TRADER. THE CASE OF THE ASSESSEE WAS SUPPORTED BY THE FACT THAT IT HAD ENTERED THE PURCHASES IN THE BOOKS AS INVESTMENT, SHARES WERE V ALUED AT COST AND REVENUE WAS HOLDING SUCH ACCOUNTING TREATMENT AS INVESTMENT IN THE PAST. THUS, THERE COULD NOT BE A FIXED CRITERIA TO DECIDE AS IN THE I NSTANT CASE WHETHER THE ASSESSEE HAD TRADED IN SHARES EVENTHOUGH ASSESSEE H ELD THEM AS INVESTMENT. 7.13. THE HONBLE TRIBUNAL FURTHER OBSERVED AND HEL D THAT CONSIDERING THE TOTALITY AND PECULIARITY OF THE FACTS OF THE CA SE, IT WAS FOUND THAT THE ASSESSEE WAS NEITHER FULLY ACTING AS TRADER NOR AS AN INVESTOR. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 27 - DEMARCATION IS QUITE LAZY, THOUGH IN THE BOOKS HE W AS SHOWING ALL THE PURCHASES AS INVESTMENT BUT FREQUENCY OF TRANSACTIO N IN SEVERAL CASE WAS SO LARGE AND HOLDING PERIOD IN MANY CASES, SO SMALL FROM 0 TO A WEEK OR SO THAT THE ASSESSEE WAS DE FACTO SELLING AND PURCH ASING SHARES AS TRADER. HE WAS ALSO HOLDING SHARES FOR LONG PERIOD INDICATI NG THAT THEY WERE HELD AS INVESTMENT. THEREFORE, A CRITERIA HAD TO BE FIX ED FOR DETERMINING AS TO WHEN HE WAS ACTING AS TRADER AND WHEN INVESTOR. WH EN GAINS WERE TO BE TAXED AS PROFIT TO BE EARNED UNDER THE BUSINESS OR TO BE TAXED AS SHORT- TERM CAPITAL GAIN, IF SHARES WERE NOT HELD EVEN SAY FOR A MONTH, THEN THE INTENTION WAS CLEARLY TO REAP PROFIT BY ACTING AS T RADER AND DID NOT INTEND TO HOLD THEM IN INVESTMENT PORTFOLIO. IF A PERSON INTENDS TO HOLD HIS PURCHASES OF SHARES AS INVESTMENT, HE WOULD WATCH T HE FLUCTUATION OF RATES OF MARKET FOR WHICH A MINIMUM TIME IS NECESSA RY, WHICH IS ESTIMATED AT ONE MONTH. WHERE SHARES WERE HELD FOR MORE THAN A MONTH, THEY WOULD BE TREATED AS INVESTMENT AND ON THEIR SA LE SHORT-TERM CAPITAL GAIN WILL BE CHARGED, WHEN SHARES ARE HELD FOR LESS THAN A MONTH GAIN AS THEM WOULD BE TREATED AS PROFIT FROM BUSINESS. 8. AFTER EXAMINING THE VARIOUS CASE LAWS IT CAN BE INFERRED THAT IT IS NOW WELL SETTLED THAT AN ASSESSEE CAN BE BOTH AN IN VESTOR AND A TRADER. IT IS TO BE INFERRED FROM THE FACTS OF EACH CASE. IN THE CASE IN HAND, THE ASSESSEE HAS BEEN TREATED AS INVESTOR IN THE PRECED ING ASSESSMENTS MADE BY THE REVENUE. HOWEVER, IN THE YEAR UNDER APPEAL, THE AO ON THE BASIS OF VOLUME AND FREQUENCY OF TRANSACTIONS TREATED THE ASSESSEE AS THE TRADER AND TAXED AS BUSINESS INCOME AND CONFIRMED BY LD.CI T(A). HOWEVER, IT IS SETTLED PRINCIPLE OF LAW THAT PRINCIPLE OF RES J UDICATA DOES NOT APPLY ON ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 28 - ASSESSMENT PROCEEDINGS BUT RULE OF CONSISTENCY CANN OT BE IGNORED. UNDER THE PECULIARITY OF FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS NEITHER FULL-FLEDGED TRADER NOR FULLY AN INVESTOR, SINCE THE ASSESSEE HAS DISCHARGED THE ONUS BY DEMONSTRATING THAT SHE HAS B EEN MAKING INVESTMENT, BUT THE REVENUE IS ABLE TO SHOW THAT D URING THE YEAR UNDER CONSIDERATION, THERE WERE HIGH FREQUENCIES AND LAW HOLDINGS IN MANY TRANSACTIONS INDICATING THAT THE ASSESSEE HAD SOME INTENTIONS OF PURCHASE OF AND SELLING OF SHARES AS TRADER. THEREFORE, AFT ER CONSIDERING THE TOTALITY OF FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE CANN OT BE TERMED FULLY AS TRADER OR INVESTOR, HENCE UNDER THESE FACTS A CRITE RIA IS REQUIRED TO BE FIXED FOR DETERMINING AS TO WHEN THE ASSESSEE IS A TRADER AND WHEN SHE IS AN INVESTOR. THE HONBLE TRIBUNAL IN THE CASE OF SUG AM CHAND SHAH (SUPRA) RULED THAT WHERE THE SHARES HAVE BEEN HELD FOR MORE THAN A MONTH, THEY WOULD BE TREATED AS INVESTMENT AND ATTRACT SHO RT TERM CAPITAL GAIN AND IF THE SHARES ARE HELD FOR LESS THAN 30 DAYS, T HE PROFIT ARISING FROM THE SAME WOULD BE TREATED AS PROFIT FROM BUSINESS ACTIV ITY. HOWEVER, THE TRIBUNAL IN A SUBSEQUENT DECISION IN THE CASE OF KA LPESH C. SHAH (SUPRA) HELD THAT THERE IS NO PROVISION UNDER THE ACT TO IN DICATE THAT HOLDING PERIOD OF 30 DAYS IS RELEVANT TO DECIDE WHETHER ANY TRANSACTION IS MADE FOR INVESTMENT OR TRADING. THEREFORE, IN THE LIGH T OF VARIOUS CASE-LAWS REFERRED HEREINABOVE, BOTH THE CRITERIA, I.E. HOLDI NG PERIOD AS WELL AS FREQUENCY OF THE TRANSACTIONS UNDER THE FACTS AND C IRCUMSTANCES OF THE PRESENT CASE ARE TO BE ADOPTED. FOR DETERMINING T HE CRITERIA ADOPTED, DEPENDING UPON FREQUENCY OF CERTAIN TRANSACTIONS, I T IS OBSERVED THAT PURCHASING OF PARTICULAR SCRIPT AND SELLING THE WHO LE QUANTITY WOULD COMPRISE A CYCLE IF SUCH CYCLE IS REPEATED FOR MORE THAN FOUR TIMES, THEN ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 29 - THE SCRIPT WOULD BE AS STOCK-IN-TRADE. IN SUCH A S ITUATION, INTENTION OF THE ASSESSEE CANNOT BE HELD THAT THE SHARES AS INVESTME NT. IN CASE, WHERE HOLDING PERIOD IS MORE THAN A MONTH, SAME TO BE TRE ATED AS INVESTMENT AND WHERE HOLDING PERIOD IS LESS THAN 30 DAYS AND A SSESSEE HAS TRANSACTED MORE THAN FOUR TIMES, THE GAIN ARISING FROM SUCH WO ULD BE TREATED AS BUSINESS PROFIT. THEREFORE, THE AO SHALL TREAT P ROFIT ON SALES OF SHARES SHOWN AS LONG-TERM CAPITAL GAIN AMOUNTING TO RS.85, 36,456/-. THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC TION 45(2) OF THE ACT WHEN THE REVENUE ITSELF HAS BEEN TREATING OPENING S TOCK OF SHARES AS INVESTMENT, HENCE PROFIT ARISING OUT OF SALES OF OP ENING STOCK NEEDS TO BE TAXED AS SHORT-TERM CAPITAL GAIN OR LONG-TERM CAPIT AL GAIN DEPENDING UPON HOLDING PERIOD AND ASSESSEE SHALL BE ENTITLED TO BE NEFIT OF SECTION 10(38) OF THE ACT AS PER LAW. 8.1. IN VIEW OF THE DISCUSSION MADE HEREINBEFORE, T HE FOLLOWING TREATMENT GIVEN BY THE AO IN OUR CONSIDERED VIEW IS NOT CORRECT AND SAME NEEDS TO BE TREATED AS CAPITAL GAIN AND TAXED ACCOR DINGLY. (1) SHORT-TERM CAPITAL GAIN ON OPENING CONNECTED INTO STOCK-IN-TRADE ON 1-4-2005 AS PER ANNEXURE-A - RS.84,50,080/- (2) LONG TERM CAPITAL GAIN ON OPENING INVESTMENT CONNECTED INTO STOCK-IN-TRADE ON 1.4.2005 - RS.59,13,448/- AS PER ANNEXURE-A (3) BUSINESS INCOME ON SALE OF SHARES IN AY 2006-07 SO CONNECTED INTO ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 30 - STOCK-IN-TRADE AS PER ANNEXURE-A - RS.52,90,569/- THE PROFIT ON SALE OF SHARES AMOUNTING TO RS.1,32, 39,591/- ARISING OUT OF PURCHASES MADE DURING THE YEAR UNDER APPEAL AND TAXED AS BUSINESS INCOME, AO IS HEREBY DIRECTED TO RE-COMPUTE INCOME FROM CAPITAL GAIN AND BUSINESS INCOME IN THE LIGHT OF OBSERVATION MAD E IN PRECEDING PARAS OF THIS ORDER. IN VIEW OF THE ABOVE, THE ORDER OF THE LD.CIT(A) IS HEREBY SET ASIDE AND MATTER IS RESTORED BACK TO THE AO FOR FRESH DECISION IN THE LIGHT OF THE DIRECTION/OBSERVATION MADE HEREINABOVE . THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES ONLY. 9. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.3006/ AHD/2010 FOR AY 2006-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. 10. NOW, WE TAKE UP ITA NO.3007/AHD/2010 FOR AY 2007-08 . 10.1. THE ONLY EFFECTIVE GROUND IS AGAINST THE TREA TMENT OF PROFIT ON SALE OF SHARES AMOUNTING TO RS.2,19,13,506/- TAXED AS BU SINESS INCOME BY THE AO. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO T HE PRECEDING AY 2006- 07 IN ITA NO.3006/AHD/2010. NO CHANGE INTO THE FAC TS AND CIRCUMSTANCES HAS BEEN POINTED OUT. THEREFORE, IN THIS CASE ALSO, THE ORDER OF THE LD.CIT(A) IS HEREBY SET ASIDE AND MATT ER IS RESTORED BACK TO THE FILE OF AO FOR FRESH DECISION IN THE LIGHT OF D IRECTION ISSUED IN OUR ABOVE ORDER PASSED IN ITA NO.3006/AHD/2010. THUS, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED BUT FOR STATISTICAL PU RPOSES. AS A RESULT, ASSESSEES THIS APPEAL IS ALLOWED FOR STATISTICAL P URPOSES ONLY. ITA NOS.3006 & 3007/AHD/2 010 SMT. CHANDRIKA RASHMIKANT PATEL VS. ADDL.CIT AYS 2006-07 & 2007-08 - 31 - 11. IN THE COMBINED RESULT, ASSESSEES APPEAL(S) IN ITA NO.3006/AHD/2010 FOR AY 2006-07 IS PARTLY ALLOWED B UT FOR STATISTICAL PURPOSES AND ITA NO.3007/AHD/2010 FOR AY 2007-08 I S ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) (' #$) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 31/ 12 /2013 71.., .../ T.C. NAIR, SR. PS 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$ 4 / ,$8 98'$/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. !! $ ': / CONCERNED CIT 4. ':() / THE CIT(A)-I, BARODA 5. 8 #; ,$ , , / DR, ITAT, AHMEDABAD 6. ;<& =0 / GUARD FILE. 4' 4' 4' 4' / BY ORDER, -8$ ,$ //TRUE COPY// > >> >/ // / !) !) !) !) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 26/27.12.13 (DICTATION-PAD 24+ PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26 & 27/12/13 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.31.12.13 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31.12.13 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER