ACIT, New Delhi V. M/s Puran Associates Pvt. Ltd., New Delhi

ITA 3078/DEL/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2813 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHI
• Keywords: Capital asset; Business income; Business expenditure; Share purchase agreement; Rule of consistency; Earning of tax free income; Retrospective amendment; Sham transactions
• Section: 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.3078/DEL/2011 ASSESSMENT YEAR: 2008-09 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI. VS. M/S. PURAN ASSOCIATES PVT. LTD., 4 TH FLOOR, PUNJABI BHAWAN, 10 ROUSE AVENUE, NEW DELHI. TAN/PAN: AAACP 0458J (APPELLANT) (RESPONDENT) I.T.A. NO.820/DEL/2013 ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-14(1), NEW DELHI. VS. M/S. PURAN ASSOCIATES PVT. LTD., 4 TH FLOOR, PUNJABI BHAWAN, 10 ROUSE AVENUE, NEW DELHI. TAN/PAN: AAACP 0458J (APPELLANT) (RESPONDENT) I.T.A. NO.5054/DEL/2015 ASSESSMENT YEAR: 2011-12 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-20(1), NEW DELHI. VS. M/S. PURAN ASSOCIATES PVT. LTD., 4 TH FLOOR, PUNJABI BHAWAN, 10 ROUSE AVENUE, NEW DELHI. TAN/PAN: AAACP 0458J (APPELLANT) (RESPONDENT) APPELLANT BY: MS. PARAMITA TRIPATHI, CIT-DR RESPONDENT BY: SHRI M.P. RASTOGI, ADV. DATE OF HEARING: 24 05 2018 DATE OF PRONOUNCEMENT: 20 08 2018 O R D E R I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 2 PER AMIT SHUKLA, J.M.: THE AFORESAID APPEALS HAVE BEEN FILED BY THE REVENU E FOR THE ASSESSMENT YEARS 2008-09, 2009-10 & 2011-12, PA SSED BY LD. CIT (APPEALS)-XVII VIDE SEPARATE ORDER DATED 11 .03.2011, 30.11.2012 AND 26.05.2015 RESPECTIVELY, FOR THE QUA NTUM OF ASSESSMENT PASSED U/S.143(3). SINCE THE ISSUES INVO LVED IN ALL THE APPEALS ARE COMMON, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDAT ED ORDER. 2. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSM ENT YEAR 2008-09, WHEREIN THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 15,41, 96,869/- BY TREATING LONG TERM CAPITAL GAIN AND SHORT-TERM CAPITAL GAIN AS BU SINESS INCOME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE ADDITION MADE U/S. 14A FROM RS. 57.64 LACS TO RS. 32.14 LACS. LD. CIT (A) ERRED IN GIVING RELIEF TO THE ASSESSEE ON THE FACT THAT THE ASSESSEE HAS EARNED INTEREST INCOME AND TH EREFORE HE IS ENTITLED FOR SET OFF. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT SECT ION 14A READ WITH RULE 8D, TAKES INTO ACCOUNT ONLY THE INTEREST COMPONENT WHICH CAN BE ATTRIBUTED TOWARDS THE INCOME AND NOT FORMING PART OF TOTAL INCOME. IT HAS NOTHING TO DO WITH THE EARNING OF INTEREST INCOME. 4. THE APPELLANT CRAVES TO THE ALLOWED TO AMEND, DELET E OR ADD ANY OTHER GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF T HIS APPEAL 3. THE FACTS IN BRIEF QUA THE ISSUE ARE THAT, ASSESSEE- I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 3 COMPANY HAS BEEN STATED TO BE IN THE BUSINESS OF SA LE AND PURCHASE OF SHARES AND MUTUAL FUNDS. DURING THE YEA R, THE ASSESSEE HAD SHOWN INCOME FROM BUSINESS AND ALSO IN COME FROM LONG TERM AND SHORT-TERM CAPITAL GAINS IN THE FOLLO WING MANNER: - HEADS OF INCOME RS. CAPITAL GAINS I) LONG TERM CAPITAL GAINS EXEMPT U/S 10(38) 106,78,21,147 II) LONG-TERM CAPITAL GAIN WITHOUT INDEXATION 10,13,29,232 III) LONG-TERM CAPITAL GAIN WITH INDEXATION 1,35,49,508 IV) SHORT-TERM CAPITAL GAIN U/S 111A 1,85,41,338 V) SHORT-TERM CAPITAL GAIN OTHERS 29,95,242 PROFIT AND GAINS OF BUSINESS OR PROFESSION TRADING IN MUTUAL FUNDS 3,60,77,965 INCOME FROM OTHER SOURCES DIVIDEND INCOME 8,19,14,172 5. THE ASSESSING OFFICER TO UNDERSTAND THE DIFFEREN T NATURE OF TRANSACTION UNDERTAKEN BY THE ASSESSEE, FIRST OF ALL NOTED THAT ASSESSEE HAD DONE HUGE TRADING IN MUTUAL FUND HAVIN G TURNOVER OF RS. 907.91 CRORES FOR WHICH ASSESSEE HAS OFFERED THE INCOME UNDER THE HEAD BUSINESS AND PROFESSION. THEN HE T RIED TO EXAMINE THE TRANSACTION WHICH HAS BEEN REFLECTED UN DER THE HEAD CAPITAL GAIN AND NOTED THAT ASSESSEE HAS HUGE TUR NOVER IN THESE TRANSACTIONS ALSO, WHICH WAS AROUND RS.132.63 CRORE S. IN THE CATEGORY OF LONG TERM CAPITAL GAIN, IT HAS TRANSA CTED INTO 20 SCRIPS AND IN SHORT TERM CAPITAL GAIN, 64 SCRIPS. FROM THIS HE INFERRED THAT THE FREQUENCY OF THE TRANSACTIONS CAR RIED OUT BY THE I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 4 ASSESSEE IS VERY HIGH WITH LARGE VOLUME OF SHARES. HE FURTHER NOTED THAT UNDER THE CATEGORY OF LONG TERM CAPITAL GAIN, ASSESSEE HAS SOLD SHARES OF PUNJAB TRACTORS LTD. W HEREIN ASSESSEE HAS EARNED PROFIT OF RS.10.11 CRORES. THE SAID TRANSACTION WAS CARRIED OUT OVER THE COUNTER WITHOU T PAYING STT. HE ALSO NOTED THAT ASSESSEE HAD PAID INTEREST OF RS .1.56 CRORE ON BORROWED FUNDS AND IN ABSENCE OF ANY SEGREGATION IN THE ACCOUNT, HE PRESUMED THAT NET BORROWED FUNDS MUST H AVE BEEN UTILIZED IN INVESTMENT ACTIVITIES AND THIS INDICATE S MOTIVE OF THE ASSESSEE WAS TO EARN PROFIT FROM SUCH TRANSACTION A ND NOT TO ENJOY DIVIDEND INCOME. THE ASSESSEE HAS ALSO TAKEN HELP FROM THE EXPERTS IN ITS PORTFOLIO MANAGEMENT AND BUSINESS FO R WHICH IT HAS PAID CONSULTANCY CHARGES OF RS.13.08 LACS. ANOTHER IMPORTANT FACT NOTED BY HIM WAS THAT THE ASSESSEE WAS HOLDING SHARES AS STOCK-IN-TRADE TILL 31 ST MARCH, 2004 AND THE SAME WERE CONVERTED INTO INVESTMENT PORTFOLIO AS ON 01.04.2004 AND THUS , TILL ASSESSMENT YEARS 2004-05, THE ASSESSEE WAS SHOWING ALL THE INCOME FROM SHARE TRANSACTIONS AND MUTUAL FUND TRAN SACTIONS UNDER THE HEAD INCOME FROM BUSINESS; AND IT IS ON LY FROM ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS SEGREGATED THE INCOME UNDER THE HEAD CAPITAL GAIN AND BUSINESS IN COME. OUT OF THE TOTAL TRANSACTION UNDERTAKEN BY THE ASSESSEE UNDER THE HEAD CAPITAL GAIN, THE ASSESSING OFFICER HELD THA T IN SO FAR AS SHARES INVESTED IN DABUR INDIA LTD. IS CONCERNED WH ICH WAS INVESTED IN THE SHARE CAPITAL OF THE GROUP COMPANY, WAS HAS HELD AS INVESTMENT SINCE BEGINNING, THEREFORE, TAX ON SA LE TRANSACTION ON SUCH SHARES I.E., DABUR INDIA LTD. CAN BE HELD T O BE TAXABLE I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 5 UNDER THE HEAD LONG TERM CAPITAL GAIN. AFTER EXCLU DING THE SHARE OF DABUR INDIA LTD, HE HAS COMBINED THE ENTIR E TRANSACTION OF SHARES AND MUTUAL FUNDS, BOTH UNDER THE HEAD BU SINESS AND CAPITAL GAIN IN THE FOLLOWING MANNER: - OPENING STOCK A. MUTUAL FUND (SHOWN AS STOCK IN TRADE) = RS.30.24 CRORE B. SHARES (SHOWN AS INVESTMENT) = RS.39.92 CR ORE (EXCLUDING DABUR INDIA LTD. STOCK OF RS.60,054/- TOTAL = RS.70.16 CRORE CLOSING STOCK C. MUTUAL FUND (SHOWN AS STOCK IN TRADE) = RS.53.35 CRORE D. SHARES (SHOWN AS INVESTMENT) = RS.88.62 CROR E (EXCLUDING DABUR INDIA LTD. STOCK OF RS.41,774/-) TOTAL = RS.141.97 CRORE TURNOVER E. MUTUAL FUND (SHOWN AS STOCK IN TRADE) = RS.907.91 CRORE F. SHARES (SHOWN AS INVESTMENT) = RS.37.78 CROR E (EXCLUDING DABUR INDIA LTD. SALE OF RS.106.46 CRORES) TOTAL = RS.945.69 CRORE 5. THEREAFTER, THE LEARNED ASSESSING OFFICER AFTER REFERRING THE VARIOUS JUDGMENTS HELD THAT MERE ENTRIES IN THE BOOK S OF ACCOUNT SHOWING SHARES AS INVESTMENT IS NOT A DETERMINATIVE FACTOR TO DECIDE THE REAL NATURE OF TRANSACTION. IN SUPPORT, HE STRONGLY RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT, REPORTED IN 271 ITR 172 AND CATENA OF OTHER JUDGMENTS AS I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 6 INCORPORATED BY HIM IN THE ASSESSMENT ORDER. THEREA FTER, HE HAS DISCUSSED THE VARIOUS TESTS LAID DOWN BY THE COURTS FROM TIME TO TIME DISTINGUISHING BETWEEN SHARES HELD AS STOCK-IN -TRADE AND SHARES HELD IN INVESTMENT WHICH HAS BEEN HIGHLIGHTE D BY HIM IN THE FOLLOWING MANNER: (I) WHETHER THE PURCHASE AND SALE OF SECURITIES WAS ALL IED TO HIS USUAL TRADE OR BUSINESS WAS INCIDENTAL TO IT OR WAS AN OC CASIONAL INDEPENDENT ACTIVITY. THE ASSESSEE IS HAVING SOLE ACTIVITY OF BUYING AND SELLING OF SHARES/MUTUAL FUNDS WHERE THE TRANSACTIONS WERE ENT ERED INTO CONTINUOUSLY AND REGULARLY DURING THE ASSESSMENT YE AR UNDER CONSIDERATION. II) TIME DEVOTED TO THE ACTIVITY AND THE EXTENT TO WHI CH IT IS THE MEANS OF LIVELIHOOD. IN THE GIVEN CASE THE SHARE/MUTUAL FUND TRADING ACT IVITY IS THE ONLY ACTIVITY BEING UNDERTAKEN BY THE ASSESSEE AND IS A WHOLE-TIME OCCUPATION FOR THE ASSESSEE. III) WHETHER SCALE OF ACTIVITY IS SUBSTANTIAL. THE SCALE OF ACTIVITY IS DEFINITELY SUBSTANTIAL IN THE CASE OF THE ASSESSEE. THE NUMBER OF TRANSACTIONS AND THE QUANTUM OF SALE AND PURCHASE OF SHARES/MUTUAL FUND HAVE BEEN ELABORATED IN THE EARL IER PARAGRAPHS OF THIS ASSESSMENT ORDER FROM WHERE IT IS CLEAR THAT B OTH THE NUMBER AND QUANTUM OF TRANSACTIONS ARE SUBSTANTIAL. V. RATIO OF DIVIDEND EARNED AND PROFIT FROM INVESTMENT ACTIVITY. THE DIVIDEND EARNED BY THE COMPANY IS AS UNDER: FROM MUTUAL FUND CATEGORY(STOCK IN TRADE) RS. 98,99 ,593 FROM INVESTMENT CATEGORY DABUR INDIA LIMITED.(TREATED AS INVESTMENT) RS.7,09 ,54,500 OTHERS (DISPUTED TO BE INVESTMENT) RS. 10, 60,079 THUS IT CAN BE SEEN THAT THE DIVIDEND EARNED ON SO CALLED INVESTMENT IS RS. 10,60,079/- ONLY, WHILE THE PROFIT EARNED FROM ABOVE TRANSACTIONS IS RS. RS. 15,41,96,869/-(PARA NO. 14). THUS THE RATIO OF DIVIDEND TO PROFIT IS 1 : 145. THIS CLEARLY AND STRONGLY INDICATE THAT TH E MOTIVE IS TO EARN PROFIT IN REGULAR AND SYSTEMATIC MANNER. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 7 V) HOLDING PERIOD OF SECURITIES BOUGHT AND SOLD AND FR EQUENCY OF TRANSACTIONS. ANALYSIS OF STATEMENT OF CAPITAL GAINS FILED BY THE ASSESSEE SHOWS THAT THE PERIOD OF HOLDING VARIES FROM FEW DAYS TO FEW M ONTHS. TRANSACTIONS HAVE BEEN CARRIED OUT THROUGHOUT THE YEAR ALMOST ON DAILY BASIS. IT WILL NOT BE OUT OF PLACE TO MENTION EVEN AT THE COST OF REPETITION THAT TAXABILITY OF TRANSACTIONS WILL NOT DEPEND ON PRESE NTATION OF ACCOUNTS OR BY SHOWING THE SHARES AS INVESTMENT. IT WILL DEPEND ON THE FACTS OF THE CASE. THE VOLUME, FREQUENCY AND REGULARITY OF SHARE TRANSACTIONS DONE IN ORGANIZED MANNER INDICATE BUSINESS ACTIVITY [CIT VS. MOTILAL HIRABHAI SPG. & SVG. CO. LTD. (1978) 113 ITR 173 (GUJ)]. 6. THEREAFTER, HE AGAIN REFERRED TO VARIOUS DECISION S AS DISCUSSED FROM PAGES 15 TO 22 OF HIS ORDER INCLUDIN G CBDT CIRCULAR NO.4 OF 2007 DATED 15 TH JUNE, 2007 AND CONCLUDED THAT ASSESSEE WAS DEALING IN SALE AND PURCHASE OF SHARES FOR EARNING PROFIT AND TAX THEM UNDER THE HEAD BUSINESS INCOME IN THE FOLLOWING MANNER: LONG TERM CAPITAL GAIN: RS. 32,39,427 (EXCEPT DABUR INDIA LTD.) LONG TERM CAPITAL GAIN: RS.10,13,29,232 (WITHOUT INDEXATION) LONG TERM CAPITAL GAIN: RS. 2,93,99,990 (WITH INDEXATION AFTER REMOVING INDEXATION) SHORT TERM CAPITAL GAIN: RS. 1,85,41,338 SHORT TERM CAPITAL GAIN: WITH PMS (NET): RS. 16,86,882 TOTAL RS. 15,41,96,869/- I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 8 7. HOWEVER, BEFORE COMING TO HIS DECISION, AO HA S HIGHLIGHTED FOLLOWING FACTS TO REACH TO THE FOLLOWI NG CONCLUSIONS: - (I) ASSESSEE IS IN THE BUSINESS OF SALE AND PURCHAS E OF SHARES AND MUTUAL FUNDS, WHICH IS THE ONLY BUSINESS OF THE ASSESSEE. (II) THE ASSESSEE IS EVEN DOING THE TRADING IN ITEM S OF GROWTH ORIENTED OR DIVIDEND ORIENTED MUTUAL FUNDS WHICH ARE NORMALLY C ONSIDERED AS INVESTMENT ITEMS. THIS SHOWS THE MOTIVE OF THE ASSE SSEE IN SUCH ACTIVITIES. (III) THE ASSESSEE FAILED TO GIVE ANY LOGIC FOR DIFFERENT CLASSIFICATION OF SECURITIES/MUTUAL FUNDS UNDER DIFFERENT HEADS OF IN COME. (IV) THE OBJECT IN THE MOA I.E., TO CARRY ON THE BUSINESS OF DEALERS IN SHARES, STOCKS, DEBENTURE STOCKS, BONDS, OBLIGATIONS, UNITS, SECURITIES.......... CLEARLY INDICATES THAT THE CO MPANY IS AUTHORIZED TO CARRY OUT THE BUSINESS OF DEALERS IN SHARES, STOCKS, DEBE NTURES STOCKS, BONDS, OBLIGATIONS, UNITS, SECURITIES, ETC, (V) TILL A.Y. 2004-05 THE ASSESSEE WAS SHOWING ALL THE INCOME FROM SHARE TRANSACTIONS AND MUTUAL FUND TRANSACTION UNDE R THE HEAD INCOME FROM BUSINESS. (VI) THE ASSESSEE CARRIED OUT HUGE TURNOVER IN SUCH TRAN SACTIONS PRECISELY RS. 132.63 CRORES IN LONG TERM CATEGORY A ND RS. 11.88 CRORES IN SHORT-TERM CATEGORY. (VII) THE ABOVE TRANSACTIONS WERE CARRIED OUT THROUGHOUT THE YEAR ON ALMOST DAILY BASIS. (VIII) THE OPENING AND CLOSING STOCK OF SUCH SCRIP IS HUGE. THE OPENING STOCK IS RS.39.93 CRORES AND CLOSING STOCK IS RS. 8 8.62 CRORES. (IX) THE ASSESSEE HAS SOLD THE SHARES OF PUNJAB TRA CTORS LTD. OVER- THE- COUNTER (OTC) WITHOUT PAYING STT, WHICH CLEARLY IND ICATES THE STRONG INTENTION OF THE ASSESSEE TO EARN PROFIT. (X) THE ASSESSEE HAS PAID INTEREST OF RS.1.56 CROR E ON BORROWED FUNDS FOR SUCH ACTIVITIES. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 9 (XI) THE ASSESSEE HAS PAID CONSULTANCY CHARGES FOR INVESTMENT PLANNING AMOUNTING TO RS. 13.08 LAKHS. THE HIRING OF SERVICE OF EXPERTS CLEARLY INDICATES THAT THE MOTIVE OF THE ASSESSEE IS TO EAR N PROFIT ON SUCH TRANSACTION AND NOT MERELY TO MAKE INVESTMENT AND E ARN SILENT INCOME. (XII) ON COMBINED EXAMINING THE MUTUAL FUND AND EQU ITY SHARE TRANSACTION, THERE IS HUGE TURNOVER OF RS. 945.69 C RORE AND AVERAGE HOLDING OF RS 106.06 CRORE WHICH IS CLEARLY THE CAS E OF HIGH TRANSACTION AND LOW HOLDING, WHICH IN TURN INDICATES TRADING AC TIVITY. (XIII) THE RATIO OF DIVIDEND TO PROFIT IS 1: 145. THIS CLEARLY AND STRONGLY INDICATE THAT THE MOTIVE IS TO EARN PROFIT IN REGUL AR AND SYSTEMATIC MANNER. (XIV) FROM THE VOLUME, FREQUENCY, CONTINUITY AND R EGULARITY OF TRANSACTIONS OF PURCHASE AND SALES IN SHARES IT CAN BE INFERRED THAT THESE TRANSACTIONS MUST HAVE BEEN ENTERED INTO BY THE ASS ESSEE WITH A PROFIT MOTIVE. (XV) TESTS LAID DOWN UNDER VARIOUS JUDICIAL PRONOU NCEMENTS CONFIRMS THAT THE ASSESSEE HAS ENTERED INTO SHARE TRANSACTIO N WITH PROFIT MOTIVE. 8. BEFORE THE LD. CIT (A), THE ASSESSEE SUBMITT ED THAT IT HAS MAINTAINED TWO PORTFOLIOS FOR THE SHARES IN THE BAL ANCE-SHEET; ONE AS AN INVESTMENT AND OTHER AS STOCK FOR TRADING ACTIVITIES. SUCH AN INVESTMENT IN SHARES HAVE BEEN CLASSIFIED SINCE ASSESSMENT YEAR 2005-06 AND IN ALL THE YEARS SEPARATE SCHEDULE OF INVESTMENT HAVE BEEN SHOWN RIGHT FROM 31 ST MARCH, 2005 TO 31 ST MARCH, 2008. THE INTENTION OF THE ASSESSEE FOR MAKI NG INVESTMENT IN SHARES IS ALSO BORNE OUT FROM THE RES OLUTION OF BOARD OF DIRECTORS. IT WAS FURTHER POINTED OUT THAT 85% OF THE GAIN WERE FROM LONG TERM CAPITAL GAIN, I.E., THE SH ARES WHICH WERE HELD FOR MORE THAN 365 DAYS AND ONLY 15% OF TH E SHARES WERE HELD FOR LESS THAN A YEAR, HENCE, THE INTENTIO N WAS ALWAYS TO I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 10 KEEP THE SHARES AS INVESTMENT. IN SUPPORT, THE RELI ANCE WAS PLACED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ESSJAY ENTERPRISES PVT. LTD., REPORTED IN (2007) 165 TAXMANN.COM (DEL.) AND MADRAS HIGH COURT JUDGMENT IN THE CASE OF CIT VS. NSS INVESTMENTS PVT. LTD., REPORTED IN (2005) 277 ITR 149 (MAD.) . THEREAFTER, POINT-WISE REBUTTAL OF ASSESSING OFFICERS ALLEGATION WAS GIVEN WHICH HAS BEEN INCORPORATED IN THE APPELLATE ORDER IN DETAIL. AGAI N, IN SUPPORT OF THE CONTENTION THAT IF THE ASSESSEE HAS MAINTAINED TWO SEPARATE PORTFOLIOS, ONE FOR THE INVESTMENT AND OTHER FOR TR ADING, THEN IT CANNOT BE HELD THAT SHARES HELD UNDER THE HEAD INV ESTMENT PORTFOLIO WOULD BE TAXED AS BUSINESS INCOME, RELIA NCE WAS PLACED UPON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. GOPAL PUROHIT, REPORTED IN (2011) 336 ITR 287 . 9. LD. CIT (A) NOTED THAT IN THE ASSESSMENT YEAR 2 005-06 IN ASSESSEES OWN CASE, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAIN IN THE ASSESSMENT YEARS 2006-07 & 2007-08, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE; AND HELD THAT ASSESSEE HAS INVESTED IN SHARES AND SHARES HEL D AS INVESTMENT IS TO BE TAXED UNDER THE HEAD LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN AND NOT AS BUSINES S INCOME. 10. BEFORE US, LD. CIT-DR AFTER REFERRING TO THE VARIOUS OBSERVATIONS MADE BY THE ASSESSING OFFICER, SUBMITT ED THAT THE LD. CIT (A) HAS FOLLOWED THE APPELLATE ORDER FOR TH E ASSESSMENT YEARS 2005-06 TO 2007-08; AND NOW THIS ISSUE STANDS DECIDED BY I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 11 THE TRIBUNAL AGAINST THE ASSESSEE WHEREIN VIDE ORDE R DATED 31.01.2012 PASSED IN ITA NOS.1118, 942 AND 943/DEL/ 2010 WHEREIN THE REVENUES APPEAL HAS BEEN ALLOWED. WHEN CE, ON SIMILAR FACTS AND ISSUE, THE MATTER HAS BEEN DECIDE D BY THE TRIBUNAL, THEN NO DIFFERENT VIEW CAN BE TAKEN. 11. ON THE OTHER HAND, LEARNED COUNSEL FOR THE A SSESSEE, MR. M.P. RASTOGI AFTER NARRATING THE ENTIRE FACTS, SUBM ITTED THAT ONE THING WHICH HEAVILY WEIGHED THE TRIBUNAL WAS THAT A SSESSEE HAD EARLIER HELD THE SHARES AS STOCK-IN-TRADE WHICH W AS LATER CONVERTED INTO INVESTMENT AND THUS, IT WAS HELD THA T THE INTENTION OF THE ASSESSEE WAS TO DO BUSINESS. BUT C ONVERSION OF STOCK INTO INVESTMENT WAS DONE WAY BACK IN THE FINA NCIAL YEAR 2004-05 AND IF ONE LOOKS TO THE SCHEDULE OF INVESTM ENT, APPEARING AT PAGES 63 TO 67 OF THE PAPER BOOK WHICH IS SCRIP-WISE DETAIL, THEN IT COULD BE SEEN THAT NONE OF THE SCRI PS WHICH HAS BEEN SOLD DURING THE YEAR WERE PART OF SUCH CONVERS ION OF STOCK. HE HAD ALSO FILED A DETAIL OF TRANSACTION OF SHARES UNDERTAKEN UNDER THE HEAD LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN AND POINTED OUT THAT ALL THE SHARES WHICH WER E HELD AS INVESTMENT HAVE BEEN ACQUIRED IN THE FINANCIAL YEAR S 2005-06, 2006-07 AND 2007-08. ONLY THE SHARES OF DABUR INDIA LTD. WERE PURCHASED IN THE YEAR 1987 WHICH ASSESSING OFFICER HIMSELF HAS HELD THAT IT WAS ALWAYS HELD AS INVESTMENT AND HE H AS EXCLUDED IT FROM THE COMPUTATION OF BUSINESS INCOME. FROM THESE DETAILS, HE AGAIN POINTED OUT THAT THERE WAS ONE SCRIP OF PUNJA B TRACTORS LTD. WHICH WAS PURCHASED IN THE ASSESSMENT YEARS 2 005-06 AND I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 12 2006-07, WAS ALWAYS HELD AS INVESTMENT AND WAS NEVE R PART OF STOCK-IN-TRADE. OUT OF TOTAL GAIN OF LONG TERM CAPI TAL GAIN OF RS. 15,41,96,869/- GAIN ON THE SHARES OF PUNJAB TRACTORS LTD. ALONE WERE RS.10,13,29,232/-. THIS GAIN AT ANY COST CANNO T BE HELD TO BE IN THE NATURE OF BUSINESS INCOME, BECAUSE RIGHT FROM DAY ONE IT WAS ACQUIRED AS AN INVESTMENT AND WAS SOLD AS SU CH. HE FURTHER POINTED OUT THAT THE SHARES OF PUNJAB TRACT ORS LTD. WERE SOLD TO MAHINDRA & MAHINDRA IN A TAKEOVER DEAL FOR WHICH HE HAS ALSO FILED COPY OF SHARE PURCHASE AGREEMENT DATED 0 8.03.2007 EXECUTED BETWEEN ASSESSEE AND MAHINDRA & MAHINDRA A ND THE OFFER LETTER MADE BY MAHINDRA & MAHINDRA TO PURCHAS E EQUITY SHARES FROM THE PUBLIC AT LARGE AFTER THE ACQUISITI ON OF THE SHARES OF THE PUNJAB TRACTORS LTD FROM THE ASSESSEE IN ACC ORDANCE WITH PROVISION OF SEBI. APART FROM THAT, HE SUBMITTED TH AT ANOTHER MAJOR AMOUNT RELATES TO ABN AMRO SECURITIES PVT. LTD . AMOUNTING TO RS.2,08,03,217/- WHICH WAS NEVER PART OF TRADE-IN- STOCK BUT WERE TREATED AS INVESTMENT SINCE INCEPTIO N AND THIS SCRIP WAS NOT TRADEABLE. THUS, THESE TWO STOCKS CAN NOT BE HELD TO BE FOR BUSINESS PURPOSE AND SHOULD BE REMOVED FROM THE BUSINESS INCOME AS COMPUTED BY THE ASSESSEE. 12. COMING TO THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08, MR. RASTOGI SUBMITTED THA T THE TRIBUNAL HAS GIVEN A FINDING ON THE GROUND THAT ASS ESSEE HAD HELD SHARES AS STOCK-IN-TRADE WHICH WAS CONVERTED I NTO INVESTMENT FROM 1 ST APRIL, 2004; AND THUS, WHEN THE SHARES WERE PURCHASED IT WAS FOR THE INTENTION OF TRADING. THE TRIBUNAL HAS REFERRED TO VARIOUS DECISIONS WHICH WERE MORE WITH REGARD TO I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 13 WHETHER THE TREATMENT IN THE BOOKS COULD BE DECISIV E FACTOR OR NOT. NOW THE DECISION OF THE TRIBUNAL DOES NOT HOLD GROUND IN WAKE OF CBDT CIRCULAR NO. 6/2016, DATED 29.02.2016, WHEREBY IT HAS BEEN CLARIFIED THAT IF THE ASSESSEE IS TREATING THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN T HEN SAME SHOULD NOT BE DISPUTED BY THE DEPARTMENT. AGAIN, BY WAY OF CLARIFICATORY NOTE ISSUED ON 2 ND MAY, 2016 BY CBDT, SUCH A BENEFIT HAS BEEN GIVEN TO THE UNLISTED SHARES ALSO. HE ALSO REFERRED TO A JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. BHANUPRASAD D. TRIVEDI (HUF) (2017) 87 TAXMANN.COM 137 WHICH WAS PRECISELY ON THIS ISSUE THAT IF THE INTEN TION OF THE ASSESSEE AT THE TIME OF PURCHASE IS OF INVESTOR AND HELD AS INVESTMENT THEN ANY ACTION ARISING OUT OF TRANSFER OF SHARES SHOULD BE TREATED AS CAPITAL GAINS. THIS JUDGMENT OF HON'BLE GUJARAT HIGH COURT HAS NOW BEEN AFFIRMED BY THE HON 'BLE SUPREME COURT VIDE ORDER DATED 4 TH MAY, 2018, REPORTED IN (2018) 256 TAXMANN.COM 66. REGARDING BALANCE SALE OF SHARES OTHER THAN PUNJAB TRACTOR LTD. AND ABN AMRO SECURITI ES LTD., HE SUBMITTED THAT LOOKING TO THE TRANSACTION IN THE SH ARES WHICH WAS HELD FOR MORE THAN 365 DAYS WHICH CONSTITUTED 9 8.34%, THEN IT IS CLEAR THAT ASSESSEES INTENTION WAS ALWAYS TO TREAT THE SHARE AS INVESTMENT. HE FURTHER POINTED OUT THAT IN THE A SSESSMENT YEAR 2012-13, THE TRIBUNAL IN THE CASE OF THE ASSES SEE HAS HELD THAT TRANSACTION OF SHARES HELD UNDER THE HEAD INV ESTMENT IS TO BE TAXED AS CAPITAL GAIN AND IN SUPPORT, HE FILED A COPY OF ITAT ORDER DATED 26.03.2018 PASSED IN ITA NO.4711/DEL/20 16. THUS, HE SUBMITTED THAT NOW IN THE WAKE OF VARIOUS DECISI ONS OF HON'BLE I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 14 HIGH COURT AND HON'BLE SUPREME COURT WHICH HAS BEEN RENDERED AFTER THE EARLIER TRIBUNAL ORDER AND LOOKING TO THE FACT THAT THE MAJOR TRANSACTION IS INTO PUNJAB TRACTOR LTD. AND AB N AMRO SECURITIES LTD. WHICH HAS HELD AS INVESTMENT FROM D AY ONE, THE RATIO LAID DOWN BY THE EARLIER ORDER WOULD NOT BE A PPLICABLE. 13. BY WAY OF REJOINDER, LD. CIT-DR VEHEMENTLY O PPOSED THE CONTENTION OF THE LD. COUNSEL WITH REGARD TO THE NA TURE OF HOLDING OF SHARES OF PUNJAB TRACTORS LTD. ON THE GROUND THA T, THIS PLEA WAS NEVER TAKEN BEFORE THE ASSESSING OFFICER AND LD . CIT(A). EVEN THOUGH THE ASSESSEE HAS FILED AN APPLICATION UNDER RULE 27, HOWEVER, SUCH AN APPLICATION IS NOT TENABLE UNDER T HE SCOPE OF RULE 27, BECAUSE HERE THE LD. CIT (A) HAS REVERSED THE ENTIRE FINDING OF THE ASSESSING OFFICER THAT THE SALE AND PURCHASE OF THE SHARE OF THE ASSESSEE IS NOT IN THE NATURE OF TRADE AND BUSINESS BUT ASSESSABLE UNDER THE HEAD LONG-TERM CAPITAL GA IN AND SHORT-TERM CAPITAL GAIN. THERE IS NO SUCH FINDING WHICH HAS BEEN DECIDED AGAINST THE ASSESSEE. THUS, SUCH A PLE A CANNOT BE TAKEN UNDER RULE 27. MOREOVER, THE ASSESSEE HAS ALS O NOT FILED ANY CROSS OBJECTION BEFORE THE TRIBUNAL ON THIS GRO UND THAT INVESTMENT IN PUNJAB TRACTORS WAS MADE TO HAVE CONTR OLLING STAKE/INTEREST IN THE SAID COMPANY AND NOT TO TRADE IN SHARES AND THESE FACTS WAS NEITHER PRESENTED BEFORE THE AS SESSING OFFICER NOR BEFORE THE LD. CIT (A). HENCE, THIS PLE A CANNOT BE TAKEN BY THE LEARNED COUNSEL AT THIS STAGE IN REVEN UES APPEAL. 14. WE HAVE HEARD THE RIVAL SUBMISSION AND ALSO PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS W ELL AS MATER I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 15 REFERRED TO BEFORE US. THE CORE ISSUE BEFORE US IS, WHETHER THE AMOUNT OF RS.15,41,96,869/- WHICH HAS BEEN CLASSIFI ED AS BUSINESS INCOME BY THE ASSESSING OFFICER WHICH INCO ME HAS BEEN OFFERED TO TAX BY THE ASSESSEE UNDER THE HEAD CAPI TAL GAIN IS TO BE ASSESSED AS BUSINESS INCOME OR CAPITAL GAIN. THE ASSESSING OFFICER HAS SUMMARIZED THE FOLLOWING INCOME SHOWN U NDER THE HEAD CAPITAL GAIN AS BUSINESS INCOME: LONG TERM CAPITAL GAIN RS. 32,39,427 (EXCEPT DABUR INDIA LTD.) LONG TERM CAPITAL GAIN RS.10,13,29,232 (WITHOUT INDEXATION) LONG TERM CAPITAL GAIN RS. 2,93,99,990 (WITH INDEXATION AFTER REMOVING INDEXATION) SHORT TERM CAPITAL GAIN RS. 1,85,41,338 SHORT TERM CAPITAL GAIN WITH PMS (NET) RS. 16,86,882 TOTAL RS. 15,41,96,869/- THE ASSESSEE COMPANY IS A NBFC, WHICH WAS ALSO IN T HE BUSINESS OF SALE AND PURCHASE OF SHARES AND MUTUAL FUND. IN SO FAR AS TRANSACTIONS IN MUTUAL FUNDS ARE CONCERNED, THE SAM E HAS BEEN OFFERED UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS AND PROFESSION. HOWEVER, VARIOUS SHARES WHICH HAS BEEN HELD UNDER THE INVESTMENT PORTFOLIO ON WHICH ASSESSEE HAS BEEN SHOWN UNDER THE HEAD LONG-TERM CAPITAL GAIN AND SHORT-TER M CAPITAL GAIN AS PER THE DETAILS INCORPORATED ABOVE. THE INC OME EARNED BY THE ASSESSEE FROM VARIOUS SOURCES WAS AS UNDER: - I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 16 PARTICULARS ASSET TYPE AMOUNT INCOME FROM BUSINESS (A) A)TRADING IN UNITS OF MUTUAL FUNDS; B) INCOME FROM INTEREST; C) INCENTIVE AND MISCELLANEOUS INCOME 360,77,965 INCOME FROM CAPITAL GAINS (B) INCOME FROM CAPITAL ASSETS - INVESTMENT IN EQUITIES LTCG- 11,48,78,740 (85%) STCG- 2,02,28,220 (15%) 13,51,06,960 INCOME FROM OTHER SOURCES (C) DIVIDEND EARNED FROM INVESTMENT IN EQUITIES 8,19,14,172 15. ONE OF THE MAIN CONTENTIONS OF THE REVENUE WHICH HAS BEEN STRONGLY HARPED BY THE TRIBUNAL IN THE EARLIER YEARS IS THAT, ASSESSEE PRIOR TO 31 ST MARCH, 2004 WAS HOLDING SHARES AS STOCK IN TRADE, HENCE INTENTION WAS TO DO BUSINESS ONLY AND MERE CLASSIFICATION IN BOOKS AS INVESTMENT BY MAKING ENT RIES IS NOT DECISIVE FACTOR. IT WAS ON 01.04.2004 THE SHARES WE RE CONVERTED INTO INVESTMENT PORTFOLIO AND SINCE A.Y. 2005-06; A SSESSEE HAS SEGREGATED THE INCOME UNDER THE HEAD CAPITAL GAINS AND BUSINESS INCOME. APART FROM THAT, ASSESSING OFFIC ER HAS NOTED THAT MAGNITUDE OF THE TRANSACTION AND THE VOLUME SH OWS THAT ASSESSEE WAS INTO SALE AND PURCHASE OF SHARE FOR TH E INTENTION OF BUSINESS ONLY AND HAS ALSO REFERRED TO THE HUGE TUR NOVER AND ALSO HIGHLIGHTED VARIOUS FACTS IT HAS BEEN DISCUSSED AND INCORPORATED IN DETAIL IN THE EARLIER PART OF THE ORDER. NOW FRO M THE PERUSAL OF THE SCHEDULE OF INVESTMENTS ESPECIALLY INVESTMENT M ADE IN THE SHARES UNDER THE HEAD LONG-TERM CAPITAL GAIN, WE FIND THAT THE MAJOR AMOUNT ON AMOUNT OF LONG-TERM CAPITAL GAIN IS ARISING ON ACCOUNT OF SALE OF SHARES OF PUNJAB TRACTORS LTD. WH ICH IS AT I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 17 RS.10,13,29,232/-, OUT OF TOTAL LONG-TERM CAPITAL G AIN OF RS. 15,41,96,869/-, WHICH HAS BEEN TREATED AS BUSINESS INCOME BY THE ASSESSING OFFICER. SHARES OF PUNJAB TRACTORS WER E ACQUIRED IN THE YEARS 2005 AND 2006 AND SINCE THE DATE OF PURCH ASE IT WAS SHOWN UNDER THE HEAD INVESTMENT, BECAUSE THESE SH ARES WERE ACQUIRED BY THE ASSESSEE FOR HAVING CONTROLLING STA KE/INTEREST IN THE SAID COMPANY. LATER ON, THESE SHARES WERE SOLD TO MAHINDRA & MAHINDRA AS A PART OF TAKEOVER DEAL WHICH IS EVID ENT FROM SALE PURCHASE AGREEMENT DATED 08.05.2007. THEREAFTER MAH INDRA & MAHINDRA HAS GIVEN A LETTER OF OFFER FOR PURCHASE O F EQUITY SHARES FROM PUBLIC AT LARGE AFTER THE ACQUISITION OF THE S HARES OF PUNJAB TRACTORS FROM THE ASSESSEE IN ACCORDANCE WITH SEBI RULES. IN SO FAR AS LONG-TERM CAPITAL GAIN SHOWN ON THE SALE OF THE PUNJAB TRACTORS LTD., IT CANNOT BE DISPUTED THAT IT WAS NE VER A PART OF STOCK-IN-TRADE, PRIOR TO 1.4.2004, BECAUSE, FIRSTLY , THEY WERE ACQUIRED MUCH LATER TO THIS DATE; AND SECONDLY , IT WAS ACQUIRED FOR THE PURPOSE OF ACQUIRING CONTROLLING STAKE/INTE REST. HENCE SUCH AN ACQUISITION CANNOT BE HELD TO BE FOR TRADIN G PURPOSE. THE TRANSFER OF SUCH SHARES ON A TAKEOVER OF PUNJAB TRAC TORS LTD. BY MAHINDRA & MAHINDRA ALSO GOES TO PROVE THAT THIS WA S AN INVESTMENT HELD BY THE ASSESSEE. SIMILARLY, IN THE CASE OF ABN AMRO BANK THEY WERE ALWAYS HELD AS INVESTMENT AND S INCE THE STOCK WAS NOT A TRADEABLE IN THE STOCK MARKET, THER EFORE IT COULD HAVE BEEN HELD AS STOCK FOR THE PURPOSE OF TRADE. T HUS, THE SHARES OF ABN AMRO BANK CAN NEVER BE TREATED AS ACQ UIRED FOR TRADING PURPOSE. HENCE ANY GAIN ARISING FROM SAKE O F THESE TWO SHARES HAS TO BE ASSESSED AS CAPITAL GAIN. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 18 16. FURTHER, FROM THE PERUSAL OF DETAILS SHOWN UNDER LTCG OF OTHER SCRIPS ALSO, WE FIND THAT THE SAME HAVE BEEN ACQUIRED IN THE YEARS 2005, 2006 AND 2007 AND WERE TREATED AS P ART OF INVESTMENT AND THE HOLDING DAYS OF THESE SHARES ARE RANGING FROM 372 DAYS TO 828 DAYS. THESE SHARES WERE NOT CONVERT ED FROM STOCK AS ON 01.04.2004, BECAUSE THEY HAVE BEEN ACQU IRED IN THE LATER YEARS AND FROM THE DATE OF ACQUISITION, ALWAY S BEEN KEPT AS INVESTMENT IN THE BOOKS AND LATER ON SOLD AFTER MOR E THAN A YEAR ON WHICH GAIN HAS BEEN SHOWN UNDER THE HEAD LONG T ERM CAPITAL GAIN. NOWHERE IT HAS BEEN LAID DOWN THAT T HE ASSESSEE WHO IS DEALING IN SHARES CANNOT MAINTAIN TWO SEPARA TE PORTFOLIOS, ONE FOR THE TRADING PURPOSE AND OTHER FOR THE INVES TMENT PURPOSE AND THERE IS NO PROVISION THAT SHARES HELD IN INVES TMENT PORTFOLIO HAVE TO BE TREATED AS PART OF STOCK. THE MOST PARAM OUNT FACTOR WHICH NEEDS TO BE EXAMINED IN SUCH CASES IS, WHETHE R THE INTENTION OF THE ASSESSEE WHILE ACQUIRING SHARES WA S FOR INVESTMENT PURPOSE OR FOR TRADING IN FUTURE FOR PRO FIT. HOWEVER, WE FIND THAT IN THE EARLIER YEARS THE TRIBUNAL HAS TAKEN A DIFFERENT VIEW AND HELD THAT EVEN IF THE SHARES HAVE BEEN HEL D UNDER INVESTMENT PORTFOLIO ALSO, IT CAN BE TAXED AS BUSIN ESS INCOME. ONE OF THE CORE REASONING FOR ARRIVING TO THIS CONC LUSION WAS THAT THE ASSESSEE HAS BEEN TRADING IN SHARES AND THE AUD IT REPORT ALSO SUGGEST THAT THE ASSESSEE IS DEALER IN SHARES AND P RIOR TO 31 ST MARCH, 2004 ASSESSEE WAS A FULL-FLEDGED TRADER OF S HARE. THUS, THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHA SE BECAME THE DECISIVE FACTOR TO HOLD THAT IT WAS ONLY FOR THE BU SINESS PURPOSE. THE CONCLUSION OF THE TRIBUNAL IN THIS REGARD READS AS UNDER: - I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 19 8. WE ARE OF THE OPINION THAT THE CHARACTER OF A TR ANSACTION CANNOT BE DETERMINED SOLELY ON THE APPLICATION OF ANY ABSTRAC T TEST OR RULE AND THE CUMULATIVE FACTORS AFFECTING THE TRANSACTIONS HAVE TO BE SEEN. HABITUAL DEALING IN A PARTICULAR ITEM AND THAT TOO SINCE INC EPTION IS INDICATIVE OF THE ASSESSEES INTENTION OF TRADING. MERELY FOR TAK ING BENEFIT OF PROVISIONS OF SEC. 111A OF THE ACT APPLICABLE FROM THE AY 2005-06, THE ASSESSEE CANNOT BE CATEGORISED AS AN INVESTOR, ESPE CIALLY WHEN THE AFORESAID FACTS SPEAK OTHERWISE AND THE ID. AR DID NOT PLACE ANY MATERIAL, OTHER THAN RESOLUTION DATED 22.4.2005, BE FORE US WHILE THE AUDITOR REPORTS AND FACTS FOR THE YEARS UNDER CONSI DERATION REFLECTING INTENTION OF THE ASSESSEE, LEAD US TO THE CONCLUSIO N THAT THE ASSESSEE IS CONTINUING ITS ACTIVITIES AS IN EARLIER YEARS OF A TRADER IN SHARES. AS OBSERVED IN SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (SUPRA), IT IS A MATTER OF FIRST IMPRESSION WITH THE COURT WHETHER A PARTIC ULAR TRANSACTION IS IN THE NATURE OF TRADE OR NOT., IT IS NOT EVEN THE ASS ESSEES CASE THAT THEY HAD HELD ALL THE SHARES FOR A LONG DURATION. THE FA CTS AND CIRCUMSTANCES OF THE CASE BEFORE US, WHEN VIEWED IN THE LIGHT OF PRINCIPLES LAID DOWN IN THE VARIOUS DECISIONS REFERRED TO ABOVE, LEAD US TO THE CONCLUSION THAT THE VOLUMINOUS SHARE TRANSACTIONS WERE IN THE ORDIN ARY LINE OF THE ASSESSEES BUSINESS; PURCHASE OF SHARES BY THEM WAS NOT FOR THE PURPOSE OF EARNING DIVIDEND, BUT WITH THE DOMINANT INTENTION OF RESALE IN ORDER TO EARN PROFITS; THE PROFIT MADE BY THEM I S NOT OF MERE ENHANCEMENT OF VALUE OF THE SHARES, BUT IS A PROFIT MADE IN THE CARRYING ON OF A BUSINESS SCHEME OF PROFIT MAKING; HUGE VOLU ME OF SHARE TRANSACTIONS, THE REPETITION AND CONTINUITY OF THE TRANSACTIONS, GIVE THEM A FLAVOUR OF TRADE; THE MAGNITUDE, FREQUENCY AND THE RATIO OF SALES TO PURCHASES ON THE TOTAL HOLDINGS IS EVIDENCE THAT TH E ASSESSEE HAD NOT PURCHASED THE SHARES AS AN INVESTMENT, BUT WITH THE INTENTION TO TRADE IN SUCH SCRIPS. IN THE LIGHT OF VIEW TAKEN IN THE A FORESAID DECISIONS, INCLUDING IN WALLFORT FINANCIAL SERVICES LTD.(SUPRA ) RELIED UPON BY THE ID. DR, WE ARE OF THE OPINION THAT THE ID. CIT(A) W AS NOT JUSTIFIED IN ACCEPTING THE CLAIM OF THE ASSESSEE AS INVESTOR IN SHARES ESPECIALLY WHEN THE NATURE OF TRANSACTIONS IN THE YEARS UNDER CONSIDERATION WAS SIMILAR TO WHAT THE ASSESSEE HAD UNDERTAKEN HITHER TO AND TURNOVER OF THE ASSESSEE CONTINUALLY INCREASED IN THE YEARS UND ER CONSIDERATION. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 20 ACCORDINGLY, WE VACATE THE FINDINGS OF THE LD. CIT (A) AND RESTORE THE ORDER OF THE AO. THEREFORE, GROUND NO.1 IN THESE AP PEALS IS ALLOWED. IF THE AFORESAID RATIO AND PRINCIPLE OF THE TRIBUN AL IS TO BE FOLLOWED AS IT IS, THEN AS OBSERVED IN THE EARLIER PART OF THE ORDER, IN SO FAR AS THE TRANSACTION OF SHARES OF PUNJAB TRA CTORS LTD. AND ABN AMRO ARE CONCERNED, RIGHT FROM DAY ONE IT WAS A CQUIRED AS A PART OF INVESTMENT ONLY AND WAS CLASSIFIED AS SUCH IN BOOKS RIGHT FROM THE DAY OF ACQUISITION AND IT IS NOT THE CASE THAT THESE SHARES WERE EARLIER PART OF STOCK-IN-TRADE WHICH HA S BEEN CONVERTED INTO INVESTMENT AFTER 01.04.2004. WE HAVE ALREADY HELD THAT THE SHARES OF PUNJAB TRACTORS LTD. WERE ACQUIR ED FOR CONTROLLING INTEREST AND ABN AMRO SHARES ARE NOT TR ADEABLE IN STOCK MARKET AND IF ONE GOES BY THE INTENTION PART, THEN THESE TWO SCRIPS COULD NEVER BE HELD TO BE INTENDED FOR T RADING PURPOSES. THUS, THE AFORESAID DECISION WILL NOT BE BINDING AT LEAST FOR THESE TWO SCRIPS. FOR THE OTHER SCRIPS ALSO, IF WE SEE THE VOLUME OF TRANSACTION AND THE PERIOD OF HOLDING, TH EN WE FIND THAT THE TRANSACTION IN THE SHARES WHICH WAS HELD FOR MO RE THAN A YEAR CONSTITUTE 98.38%. FOR THE SAKE OF READY REFER ENCE, THE PERIOD OF HOLDING, VOLUME OF SHARES DEALT, PERCENTA GE OF SHARES HELD IN LTCG AND OTHER PERCENTAGE OF GAIN IN SHARES ARE INCORPORATED HEREUNDER:- PERIOD OF HOLDING MORE THAN 81 TO 364 91 TO 180 60 TO 90 30 TO 59 LESS THAN 365 DAYS DAYS DAYS DAYS DAYS 30 DAYS QUANTITY OF 1,33,65,009* 53,003 1,01,571 43,971 78,813 67,802 SHARES PERCENTAGE TO 97 . 48% 03.8% 0.74% 0.32% 0.57% 0.49% TOTAL QUANTITY GAIN OR LOSS 1,19,85,50,369 86,05,051 2 0,57,841 21,45,605 22,70,962 19,21,5 80 I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 21 PERCENTAGE OF CAPITAL GAIN TO TOTAL CAPITAL GAIN 98.34% 0.70% 0.16% 0.17% 0.18% 0.15% *INCLUSIVE OF SHARES OF DABUR INDIA LTD., PUNJAB TR ACTORS LTD. AND ABN AMRO SECURITIES PVT. LTD. TOTAL CAPITAL GAIN RS. LONG TERM CAPITAL GAIN CLAIMED EXEMPT U/S.10(38) 1,06,78,21,147 LONG TERM CAPITAL GAIN ON SALE OF SHARES OF PUNJAB TRACTORS LTD. 10,13,29,232 LONG TERM CAPITAL GAIN ON SALE OF SHARES OF ABN AMR O SECURITIES PVT. LTD. 2,93,99,990 SHORT TERM CAPITAL GAIN 2 ,02,28,140 TOTAL 1,21,87,78 ,509 17. NOW, IT HAS BEEN WELL SETTLED THAT IF THE SH ARES WHICH HAS BEEN ACQUIRED AND TREATED AS INVESTMENT FROM DAY ON E AND HELD FOR MORE THAN A YEAR, THEN SALE OF SUCH SHARES HAS TO BE TAXED UNDER THE HEAD LONG TERM CAPITAL GAIN. THIS HAS B EEN CLARIFIED BY THE CBDT IN ITS FOLLOWING TWO CIRCULARS: - CIRCULAR NO.6/2016; DATED 29/02/2016 SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS I N ORDER TO REDUCE LITIGATION - REG.- SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT , 1961 (ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERTY OF ANY KIN D HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFE SSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASSETS SUBJE CT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SECURITIES, THE SAME CA N BE HELD EITHER AS CAPITAL ASSETS OR STOCK-IN-TRADE/ TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULAR INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSE T OR STOCK-IN- TRADE, IS ESSENTIALLY A FACT-SPECIFIC DETERMINATION AND HAS L ED TO A LOT OF UNCERTAINTY AND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFER ENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK- I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 22 IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ('CBDT' ) HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIR CULAR NO. 4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SAID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APPL ICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRI NCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF I NCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBDT REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPE CT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINT Y IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FU RTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS G ENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOW ING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE P ERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURIT IES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATEL Y PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES T O TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING O FFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQU ENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED T O ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUE NT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHE R THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CO NTINUE TO BE DECIDED I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 23 KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS C LAIMS OF LONG TERM CAPITAL GAIN / SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTIONS. 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITIGATION AND MAINTAINI NG CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVE D FROM TRANSFER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECURITIES. 17.1 LATER ON CBDT AGAIN CLARIFIED IN THE FOLLOW ING MANNER:- F. NO. 225/12/2016/ITA.II GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE (CBDT) NORTH BLOCK, NEW DELHI, DATED THE 2ND OF MAY, 2016 TO PRINCIPAL CHIEF-COMMISSIONERS OF INCOME-TAX/ PRINCIPAL DIRECTORS GENERAL OF INCOME-TAX SUBJECT: - CONSISTENCY IN TAXABILITY OF INCOME/LOSS ARISING FROM TRANSFER OF UNLISTED SHARES UNDER INCOME-TAX ACT, 1961-REGD, REGARDING CHARACTERISATION OF INCOME FROM TRANSACTI ONS IN LISTED SHARES AND SECURITIES, CENTRAL BOARD OF DIRECT TAXE S (CBDT) HAD ISSUED A CLARIFICATORY CIRCULAR NO. 6/2016 DATED 29TH FEBRUA RY, 2016, WHEREIN WITH A VIEW TO REDUCE LITIGATION AND MAINTAIN CONSISTENC Y IN APPROACH IN ASSESSMENTS, IT WAS INSTRUCTED THAT INCOME ARISING FROM TRANSFER OF LISTED SHARES AND SECURITIES, WHICH ARE HELD FOR MORE THAN TWELVE MONTHS WOULD BE TAXED UNDER THE HEAD 'CAPITAL GAIN' UNLESS THE T AX-PAYER ITSELF TREATS THESE AS ITS STOCK- IN-TRADE AND TRANSFER THEREOF A S ITS BUSINESS INCOME. IT I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 24 WAS FURTHER STATED THAT IN OTHER SITUATIONS, THE IS SUE WAS TO BE DECIDED ON THE BASIS OF EXISTING CIRCULARS ISSUED BY THE CBDT ON THIS SUBJECT. 2. SIMILARLY, FOR DETERMINING THE TAX-TREATMENT OF INCOME ARISING FROM TRANSFER OF UNLISTED SHARES FOR WHICH NO FORMAL MAR KET EXISTS FOR TRADING, A NEED HAS BEEN FELT TO HAVE A CONSISTENT VIEW IN ASS ESSMENTS PERTAINING TO SUCH INCOME. IT HAS, ACCORDINGLY, BEEN DECIDED THAT THE INCOME ARISING FROM TRANSFER OF UNLISTED SHARES WOULD BE CONSIDERE D UNDER THE HEAD CAPITAL GAIN', IRRESPECTIVE OF PERIOD OF HOLDING, WITH A VIEW TO AVOID DISPUTES/LITIGATION AND TO MAINTAIN UNIFORM APPROAC H. 3. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE WOULD NOT BE NECESSARILY APPLIED IN THE SITUATIONS WHERE: I. THE GENUINENESS OF TRANSACTIONS IN UNLISTED SHA RES ITSELF IS QUESTIONABLE; OR II. THE TRANSFER OF UNLISTED SHARES IS R ELATED TO AN ISSUE PERTAINING TO LIFTING OF CORPORATE VEIL; OR III. THE TRANSFER OF UNLISTED SHARES IS MADE ALONG WITH THE CONTROL AND MANAGEMENT OF UNDERLYING BUSINESS; AND THE ASSESSING OFFICER WOULD TAKE APP ROPRIATE VIEW IN SUCH SITUATIONS. 4. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL TH E NECESSARY COMPLIANCE. 17.2 NOW THIS CIRCULAR HAS BEEN APPROVED AND UPH ELD IN MANY JUDGMENTS INCLUDING THAT OF HON'BLE GUJARAT HIGH COU RT IN THE CASE OF PCIT VS. RAMNIWAS RAMJIVAN KASAT, REPORTED IN 248 TAXMAN 484. (GUJ). FOLLOWING THE ABOVE TWO CIRCULARS, THE TRIBUNAL IN ASSESSEES OWN CASE IN THE A.Y. 2011-12 HAS DECIDED THE ISSUE IN FAVOUR. APART FROM THAT, THERE ARE MAN Y JUDGMENTS NOW INCLUDING THAT OF HONBLE JURISDICTIONAL HIGH C OURT RENDERED AFTER THE JUDGMENT OF TRIBUNAL ORDER FOR THE EARLIER YEARS (SUPRA), WHEREIN IT HAS BEEN CONSISTENTLY HELD THAT IF THE S HARES HAVE BEEN HELD UNDER THE PORTFOLIO OF INVESTMENT WHICH IS SEP ARATE FROM THE I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 25 SHARES THEN SAME CANNOT BE BROUGHT TO TAX UNDER THE HEAD CAPITAL GAIN. SOME OF THE JUDGMENTS ARE AS UNDER: - 1. CIT VS. GOPAL PUROHIT, 336 ITR 287 (BOM.) [ALSO CONFIRMED BY HONBLE SUPREME COURT] 2. CIT VS. VINAY MITTAL, 208 TAXMAN 106 (DEL. HC) 3. ITO VS. ROHIT ANAND, (2009) 34 SOT 42 (DEL.) 4. CIT VS. AMIT JAIN, 374 ITR 550 (DEL.) 5. CIT VS. SAHARA INDIA HOUSING CORPORATION LTD., I TA NO.740/2009 (DEL.) 18. IN THE LIGHT OF THE CATENA OF DECISION HON' BLE JURISDICTIONAL HIGH COURT AND ALSO SOME OF THE JUDGMENT AFFIRMED B Y THE HON'BLE SUPREME COURT AND THE FACTS AS DISCUSSED AB OVE, THE EARLIER YEARS TRIBUNAL ORDER CANNOT BE HELD TO HAVE ANY BINDING PRECEDENCE AND ACCORDINGLY, WE HOLD THAT IN SO FAR AS TRANSACTION IN SALE OF SHARES SHOWN UNDER THE HEAD LONG TERM C APITAL GAIN SAME CANNOT BE TAXED UNDER THE HEAD BUSINESS INCOME ESPECIALLY IN THE LIGHT OF THE CATEGORICAL CLARIFICATION BY TH E CBDT. 19. IN SO FAR AS THE ALLEGATION OF THE ASSESSING OFFICER THAT LOOKING TO THE MAGNITUDE OF THE TRANSACTION AND THE VOLUME SO FAR AS SHORT TERM CAPITAL GAIN IS CONCERNED, BEFORE U S, THE ASSESSEE HAS FILED SCRIP WISE DETAILS TO SHOW THAT IN MOST O F THE CASES PERIOD OF HOLDING WAS MORE THAN SIX MONTHS AND THER E IS NO REPETITIVE TRANSACTION. THE VOLUME AND FREQUENCY MA Y BE ONE OF THE FACTORS TO GAUGE, WHETHER THE SHARES ACQUIRED W ERE FOR TRADING PURPOSE OR FOR WERE FOR INVESTMENT, BUT THA T ALONE IS NOT A FINAL TEST, BECAUSE THE SHARES MAY BE ACQUIRED FOR A SHORT PERIOD I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 26 AND WHENEVER THE ASSESSEE FEELS THAT EITHER THE SCR IP IS GIVING IMMEDIATE GAIN OR THERE GOING TO BE A LOSS, THEN SU CH SHARES ARE SOLD/TRANSFERRED EITHER TO MAXIMIZE THE GAIN OR TO MITIGATE THE LOSS. SIMPLY BECAUSE THE ASSESSEE HAS HELD THE SHAR ES FOR LESS THAN PERIOD OF 12 MONTHS IT DOES NOT STRAIGHT AWAY PUT IN THE BRACKET OF TRADING ACTIVITY, ESPECIALLY WHEN THERE IS NO REPETITIVE TRANSACTION OF THE SHARES. HOWEVER IN SO FAR AS DET AIL OF SHORT TERM CAPITAL GAIN IS CONCERNED, THE ASSESSEE HAS FI LED VOLUMINOUS DETAIL WHICH HAS BEEN NEITHER EXAMINED O R LOOKED UPON BY THE ASSESSING OFFICER OR BY THE LD. CIT(A), THEREFORE, WE DEEM IT PROPER THAT IN SO FAR AS TRANSACTION OF SHA RES SHOWN UNDER THE HEAD SHORT TERM CAPITAL GAIN, MATTER SH OULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE, WHETHER THERE IS ANY REPETITIVE TRANSACTION; OR WHE THER SIMILAR SCRIPS HAVE BEEN SHOWN BY THE ASSESSEE IN ITS TRADI NG PORTFOLIO; OR THERE IS FREQUENT SWITCHING OF SAME SHARES. THE ASS ESSING OFFICER WILL EXAMINE THESE ASPECTS AND WILL ALSO EXAMINE IT IN THE LIGHT OF THE CLARIFICATION ISSUED BY THE CBDT VIDE CIRCULAR DATED 2 ND MAY, 2016. THUS, WITH THIS DIRECTION THIS ISSUE IS REMAN DED BACK FOR LIMITED PURPOSE; AND IN SO FAR AS TRANSACTION OF LO NG TERM CAPITAL GAIN IS CONCERN, WE HOLD THAT SAME IS ASSES SABLE AS LONG-TERM CAPITAL GAIN AND NOT BUSINESS INCOME. 20. LASTLY, COMING TO THE OBJECTION RAISED BY TH E LD. CIT-DR THAT THE NEW PLEA HAS BEEN RAISED WITH REGARD TO TH E TRANSACTION OF PUNJAB TRACTOR LTD., WE DO NOT FIND ANY MERITS IN SUCH OBJECTION, BECAUSE THE ACQUISITION OF SALE OF PUNJA B TRACTOR LTD. HAS BEEN DISCUSSED BY THE ASSESSING OFFICER ALSO AN D MOREOVER IF I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 27 THE ENTIRE ISSUE OF LONG-TERM CAPITAL GAIN, WHETHER ASSESSABLE UNDER THE HEAD CAPITAL GAIN OR BUSINESS INCOME IS IN DISPUTE AND IF CERTAIN FACTS ARE BEING POINTED OUT FROM THE MATERIAL ALREADY ON RECORD, THEN THE SAME CAN ALWAYS BE EXAM INED TO SEE, WHETHER IT WAS ACQUIRED FOR THE PURPOSE OF INVESTME NT OR FOR THE PURPOSE OF TRADING. THUS, OBJECTION RAISED BY THE L D. CIT-DR IS REJECTED. 21. THE NEXT ISSUE RELATES TO RESTRICTING THE AD DITION MADE U/S.14A FROM RS. 57.64 LACS TO RS. 32.12 LACS. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS EARNED DIVIDEND INC OME OF RS.8,19,14,172/- AND HENCE HE OBSERVED THAT PROVISI ONS OF SECTION 14A ARE APPLICABLE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT IT HAD ALREADY ADDED BA CK THE SUM OF RS.37,74,438/- FOR THE PURPOSE OF DISALLOWANCE U /S.14A AND AS PER THE CALCULATION UNDER RULE 8D THE DISALLOWAN CE ONLY COMES TO RS32,13,921/-, WHICH IS LESSER THAN THE FI GURE ADDED BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER HELD TH AT ASSESSEE IS HAVING COMMON INFRASTRUCTURE AND COMMON PERSONNEL F OR EARNING INCOME UNDER VARIOUS HEADS AND ALSO USING T HE ADMINISTRATIVE, MANAGERIAL AND INFRASTRUCTURE SET U P FOR EARNING THE INCOME. ACCORDINGLY, HE HELD THAT NO DOUBT ASSE SSEE HAS COMPUTED THE DISALLOWANCE UNDER RULE 8D BUT IT IS O NLY WITH REGARD TO THE INDIRECT EXPENDITURE BY TAKING 0.5% O F THE AVERAGE INVESTMENT. THE ASSESSEE HAS NOT INCLUDED THE DISAL LOWANCE OF INTEREST EXPENSES DEBITED IN THE P&L ACCOUNT. ACCOR DINGLY, HE COMPUTED THE DISALLOWANCE AT RS.95,39,000/- WHICH C ONSTITUTED RS.63,25,000/- UNDER RULE 8D(2)(II) AND RULE 8D(2)( III) OF I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 28 RS.32,14,000/- SINCE THE ASSESSEE HAD SUO - MOTO DISALLOWED RS.37,74,438/-, HE MADE FURTHER DISALLOWANCE OF RS. 57,64,562/-. 22. BEFORE THE LD. CIT (A), ASSESSEE SUBMITTED THAT IT HAD EARNED INTEREST INCOME OF RS.395.23 LACS AND MADE I NTEREST PAYMENT OF RS.156.86 LACS WHICH RESULTED INTO NET I NCOME OF INTEREST OF RS.328.37, WHICH HAS BEEN OFFERED FOR T AX FOR THE YEAR UNDER CONSIDERATION. THUS, THE DISALLOWANCE OF INTE REST BY TAKING THE TOTAL INTEREST PAYMENT OF RS.156.86 LACS AS PER RULE 8D IS NOT JUSTIFIED AS ASSESSEE HAS ALREADY OFFERED HUGE INTER EST INCOME OF RS.238.37 LACS FOR TAX. THE LD. CIT (A) HAS DELETED THE SAID DISALLOWANCE OF INTEREST AFTER OBSERVING AND HOLDIN G AS UNDER: 3.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LD. AR AND PERUSED THE ASSESSMENT ORDER PASSED BY THE AO. I AG REE WITH THE SUBMISSION OF ID. A.R. THAT THE APPELLANT IS A NON- BANKING FINANCIAL COMPANY AND ALSO ENGAGED IN FINANCING ACTIVITIES. T HE APPELLANT IS REGISTERED WITH RESERVE BANK OF INDIA AS NON-BANKIN G FINANCIAL COMPANY AND EARNING INTEREST INCOME. TO EARN THE INTEREST I NCOME OF RS. 395.23 LAKHS IT HAS PAID INTEREST OF RS. 156.86 LAKHS AND OFFERED THE BALANCE INTEREST INCOME OF RS. 238.37 LAKHS FOR TAX UNDER T HE HEAD BUSINESS INCOME. SINCE THE APPELLANT IS A NON-BANKING FINANC IAL COMPANY AND IT IS ALSO MAINTAINING A SEPARATE FINANCING BUSINESS ACTI VITY TO EARN INTEREST AND OTHER BUSINESS RECEIPTS, TOTAL INTEREST PAYMENT MADE TO EARN THE INTEREST INCOME IS ELIGIBLE TO BE SET OFF AGAINST T HE INTEREST INCOME. IN THE INSTANT CASE PAYMENT OF INTEREST IS ADJUSTED WITH I NTEREST INCOME AND BALANCE INTEREST INCOME OF RS. 238.37 LAKHS IS OFFE RED FOR TAX PROVED THE FINANCING ACTIVITY AS A SEPARATE BUSINESS ACTIVITY WHICH SHOULD NOT BE CLUBBED WITH OTHER BUSINESS ACTIVITIES. ANY EXPENS E WHICH IS RELATED TO EARNING A SPECIFIC INCOME, SHOULD BE ALLOWED AND SU CH INCOME SHOULD BE REDUCED TO THE EXTENT OF SUCH EXPENSE. THE SAME PR INCIPLE IS ADOPTED BY THE APPELLANT AND IT HAS CORRECTLY SETT OF THE INTE REST PAYMENT WITH ITS I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 29 INTEREST INCOME. IT IS ALSO OBSERVED FROM THE BALAN CE SHEET OF THE APPELLANT COMPANY THAT THE APPELLANT IS HOLDING RESERVES OF R S. 19199.85 LAKHS. SO CONSIDERING THE INTEREST PAYMENT OF RS. 156.86 LAKH S FOR SUB POINT D OF POINT NO. II OF THE TABLE OF RULE 8D IS NOT CORRECT AND THE DISALLOWANCE OF EXPENSES SHOULD BE RESTRICTED TO RS. 32.14 LAKHS ON LY AS MENTIONED BY THE AO IN POINT NO. III OF THE TABLE OF RULE 8D. HENCE THE GROUND NO. 8 OF THE APPEAL IS ALLOWED. 23. LEARNED DEPARTMENT REPRESENTATIVE HAS STRONGL Y RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE C ASE OF MAXOPP INVESTMENT LTD. VS. CIT (2018) 91 TAXMANN.CO M 154; AND SUBMITTED THAT IF THE EXPENDITURE HAS BEEN INCURRED IN EARNING OF DIVIDEND INCOME THEN THAT MUCH OF EXPENDITURE WHICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISAL LOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. EVEN THE SHARES HELD AS STOCK IN TRADE FROM WHICH ASSESSEE HAS EARNED PR OFIT THEREFROM AND ALSO THE DIVIDEND THEN ALSO SECTION 1 4A IS TRIGGERED. 24. ON THE OTHER HAND, LEARNED COUNSEL SUBMITTED THAT HAS A HUGE RESERVE AND SURPLUS OF RS.19,199.85 LACS AND A LSO ASSESSEE HAS SHOWN HUGE NET INTEREST INCOME, THEREFORE, DISA LLOWANCE UNDER RULE 8D ON ACCOUNT OF INTEREST CANNOT BE MADE . 25. AFTER CONSIDERING THE AFORESAID SUBMISSION AND ON PERUSAL OF THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDE RS, WE FIND THAT IN SO FAR AS DISALLOWANCE UNDER RULE 8D2(III) IS CONCERNED, IT IS NOT IN DISPUTE, BECAUSE ALREADY ASSESSEE HAS OFF ERED MORE THAN WHAT IS DISALLOWABLE UNDER THE FORMULA GIVEN UNDER RULE 8D2(III). I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 30 THE ASSESSING OFFICER HAS IMPUTED THE DISALLOWANCE OF INTEREST WITHOUT EVEN ANALYZING THE NATURE OF ACCOUNTS AND T HE FACT THAT ASSESSEE HAS A HUGE NET SURPLUS OF INTEREST INCOME WHICH HAS BEEN OFFERED FOR TAX. THE ASSESSEE IS A NHBC AND HA S EARNED INTEREST INCOME OF RS.395.23 LACS ON LOAN ADVANCES TO THE PARTIES. IT HAS MADE TOTAL INTEREST PAYMENT OF RS.156.86 LAC ON LOANS TAKEN AND NET INCOME INTEREST OF RS.238.37 LAC HAS BEEN OFFERED TO TAX. SINCE THE INTEREST PAYMENT HAS BEEN ADJUSTED WITH THE INTEREST RECEIVED, THIS ITSELF GOES TO SHOW THAT AS SESSEE IS MAINTAINING A SEPARATE FINANCE ACTIVITY AND THE INT EREST PAYMENT IS DIRECTLY RELATING TO SUCH FINANCIAL ACTIVITIES. NOWHERE THE ASSESSING OFFICER HAS BROUGHT OUT THAT SUCH AN INTE REST PAYMENT HAS ANY CO-RELATION WITH THE LOAN FUNDS FOR THE PUR POSE OF MAKING THE INVESTMENT. ON THE OTHER HAND, WE FIND THAT THE ASSESSEE HAS HUGE SURPLUS FUNDS IN ITS RESERVE WHICH IS AROUND R S. 19,200 LACS. UNDER THESE CIRCUMSTANCES, IT COULD BE EASILY PRESUMED THAT, INVESTMENTS HAVE BEEN MADE FROM INTEREST FREE SURPLUS FUNDS AND NO PORTION OF INTEREST EXPENDITURE CAN BE DISALLOWED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. CIT (A) AND SAME IS CONFIRMED. 25. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YEAR 2008-09 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOS ES. 26. IN THE ASSESSMENT YEAR 2009-10, THE REVENUE H AS TAKEN ONLY ONE GROUND, I.E., LD. CIT(A) HAS EARNED IN TRE ATING PROFIT FROM SALE OF SHARES AS LONG-TERM AND SHORT-TERM CAPITAL GAINS OR BUSINESS INCOME. ADMITTEDLY, THE FACT IN THIS YEAR ARE BY AND I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 31 LARGE THE SAME AS WERE IN THERE IN THE ASSESSMENT Y EAR 2008-09, THAT IS, THE SHARES WHICH WERE HELD FOR MORE THAN 3 65 DAYS WERE HELD AS INVESTMENT FROM THE DATE OF ACQUISITION. WE HAVE ALREADY HELD THAT SO FAR AS THE SHARES TRANSACTED UNDER THE HEAD LONG TERM CAPITAL GAIN THE SAME CANNOT BE HELD TO BE FOR THE PURPOSE OF TRADING ACTIVITY AND CONSEQUENTLY IT CANNOT BE A SSESSED UNDER THE HEAD BUSINESS INCOME, FOLLOWING THE CBDT CIRC ULAR (SUPRA). ON THIS ISSUE AND VARIOUS JUDGMENT OF THE HON'BLE H IGH COURT HAVE BEEN FOLLOWED. IN SO FAR AS SHORT-TERM CAPITAL GAIN IS CONCERNED, WE HAVE GIVEN CERTAIN DIRECTIONS TO THE ASSESSING OFFICER FOR EXAMINATION OF CERTAIN ASPECTS; THEREFO RE, FOR THIS YEAR ALSO SAME DIRECTION IS GIVEN TO THE ASSESSING OFFIC ER. ACCORDINGLY, APPEAL FOR THE ASSESSMENT YEAR 2009-10 IS TREATED P ARTLY ALLOWED FOR STATISTICAL PURPOSES. 27. IN THE APPEAL FOR THE ASSESSMENT YEAR 2011-1 2, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; - 1) THE LD. CIT(A) ERRED ON THE FACTS AND UNDER THE CIR CUMSTANCES OF THE CASE IN TREATING THE LOSS OF RS.34,78,378/- AS LONG -TERM CAPITAL LOSS AND RS.57,05,498/- AS SHORT-TERM CAPITAL GAIN BY FOLLOW ING THE EARLIER DECISION OF CIT(A)'S PRINCIPLE OF CONSISTENCY. 2) ON THE FACTS AND UNDER CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.25,57,020/- BY IGNOR ING THE MANDATORY PROCEDURE PRESCRIBED UNDER RULE 8D OF THE IT RULES R.W.S 14A OF THE IT ACT. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT(A) ERRED IN DELETING THE ADDITION OF RS.66,998/- BY GIVING EFFE CT TO CBDT'S NOTIFICATION NO.56/2012 WHICH IS OPERATIVE FROM 01.01.2013 AND N OT APPLICABLE TO THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ALSO ERRED IN HOLDING THAT THE PAYMENT OF DEMAT CHARGES DOES NOT QUALIFY FOR DEDUC TION U/S 194H OF THE IT ACT, 1961. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 32 28. IN SO FAR AS GROUND NO.1 IS CONCERNED, AGAI N THE ISSUE IS BY AND LARGE THE SAME AS HAS BEEN DISCUSSED IN THE EAR LIER PART OF THE ORDER AND EVEN THE LD. CIT (A) HAS FOLLOWED THE EARLIER YEARS. SINCE WE HAVE ALREADY HELD THAT THE TRANSACTION OF THE SHARES HELD BY THE ASSESSEE IN THE INVESTMENT PORTFOLIO IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND THEREFORE, THE LO SS OF RS.34,78,378/- HAS TO BE TREATED AS LONG TERM CAPIT AL LOSS. IN SO FAR AS AMOUNT OF RS.57,05,498/- TREATED AS BUSIN ESS INCOME AS AGAINST SHORT TERM CAPITAL GAIN CLAIMED BY THE A SSESSEE, WE HAVE ALREADY GIVEN THE DIRECTION TO THE ASSESSING O FFICER IN THE EARLIER YEAR, THEREFORE, SAME FINDING WILL APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. 29. NOW COMING TO THE ISSUE OF DISALLOWANCE U/S .14 OF RS.25,57,020/-, IT IS SEEN THAT THE DISALLOWANCE CO NSISTS OF INTEREST COMPONENT MADE UNDER RULE 8D(2)(II) BY THE ASSESSING OFFICER. THE ASSESSEE HAS ALREADY DISALLOWED SUM OF RS.28,42,651/- FOR THE PURPOSE OF DISALLOWANCE U/S. 14A WHICH HAS BEEN COMPUTED IN ACCORDANCE WITH FORMULA GIVEN IN RULE 8D2(III). HOWEVER, THE ASSESSING OFFICER HAS IMPUTE D THE INTEREST DISALLOWANCE WITHOUT EVEN EXAMINING THE NATURE OF A CCOUNTS AND ALSO WHETHER ANY INTEREST-BEARING FUNDS HAVE BEEN I NVESTED IN THE PURCHASE OF THE INVESTMENT WHICH HAS YIELDED DI VIDEND INCOME. NO SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER AS TO WHY SUCH INTEREST DISALLOWANCE SHOULD BE MADE. THE LD. CIT(A) NOTED THAT ASSESSEE HAS NOT MADE INVESTM ENT FROM THE BORROWED FUNDS AND INTEREST EXPENDITURE HAS NO LINK WHATSOEVER FOR THE EARNING OF THE EXEMPT INCOME AND ACCORDINGL Y, HE HAS I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 33 DELETED THE ADDITION UNDER RULE 8D2(II). 30. AFTER CONSIDERING THE SUBMISSION MADE BY BO TH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THE ASSESSEES CONTENTION HAS BEEN THAT IT ALWAYS HAD H UGE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT WHICH IS ALSO EVIDENT FROM THE BALANCE-SHEET IN THE FORM OF HUGE RESERVES AND SUR PLUS AND THEREFORE, NO DISALLOWANCE OF INTEREST COULD HAVE B EEN MADE. THIS CONTENTION OF THE ASSESSEE HAS NOT BEEN REBUTTED BY THE ASSESSING OFFICER. APART FROM THAT, ASSESSEE HAS AL SO CATEGORICALLY STATED THAT NONE OF ITS BORROWED FUNDS WAS APPLIED FOR THE PURPOSE OF THE INVESTMENT AND IT HAS EARNED INTERES T INCOME OF RS.19.84 CRORE FROM THE LOAN ADVANCED BY IT AND HAS PAID INTEREST ON LOANS OF RS.1.98 CRORES ONLY. THUS, THERE IS A N ET INTEREST INCOME. WE HAVE ALREADY GIVEN A FINDING WHILE DECID ING THE APPEAL FOR ASSESSMENT YEARS 2008-09 THAT IF THERE I S NET INTEREST INCOME THEN NO DISALLOWANCE OF INTEREST CAN BE MADE . UNDER THESE CIRCUMSTANCES AND FACTS, WE HOLD THAT NO DISA LLOWANCE OF INTEREST CAN BE MADE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(III) IS DIRECTED TO BE DELETED AND HENCE, THE ORDER OF THE LD. CIT(A) ON THIS SCOR E IS CONFIRMED. 31. LASTLY, COMING TO THE ISSUE OF DELETING THE ADDITION OF RS.66,998/- WE FIND THAT ASSESSING OFFICER HAS HELD THAT ASSESSEE HAS NOT DEDUCTED TDS ON DEMAT CHARGES OF RS.66,998/ - PAID DEUTCHE BANK AND HDFC BANK. THE RELIANCE PLACED BY THE ASSESSEE ON THE CBDT NOTIFICATION NO.56/2012 THAT N O TDS IS REQUIRED TO BE DEDUCTED ON THE DEMAT ACCOUNT; THE A O HELD THAT I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 34 THE SAID CIRCULAR HAS COME INTO FORCE FROM 1 ST DAY OF JANUARY, 2013 AND HENCE CANNOT BE APPLICABLE IN THE PRESENT CASE. LD. CIT (A) HELD THAT NOTIFICATION ONLY CLARIFIES THAT NO T AX WILL BE DEDUCTED AT SOURCE WITH DEMAT CHARGES W.E.F. 01.01. 2013, BUT THIS DOES NOT IMPLY THAT TDS WAS REQUIRED TO BE DED UCTED. HE FURTHER HELD THAT TDS U/S.194H WOULD NOT BE APPLICA BLE ON DEMAT CHARGES, BECAUSE THERE IS NO PRINCIPLE AGENT RELATIONSHIP. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE U/S. 40(A)(IA) MADE BY THE ASSESSING OFFICER. 32. AFTER HEARING BOTH THE PARTIES AND ON PERUSA L OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FI ND THAT THE ONLY REASON FOR DISALLOWING THE PAYMENT OF DEMAT CH ARGES OF RS.66,998/- BY THE ASSESSING OFFICER IS THAT THE CB DT NOTIFICATION NO.56/2012 HAS COME INTO EFFECT FROM 0 1.01.2013 AND THEREFORE, FOR THE EARLIER PERIOD TDS IS REQUIR ED TO BE DEDUCTED U/S.194H. SUCH A REASONING FOR DISALLOWANC E CANNOT BE SUSTAINED, BECAUSE IF CBDT HAS CLARIFIED THAT NO TD S IS REQUIRED TO BE DEDUCTED ON DEMAT CHARGES, THEN SUCH A CLARIF ICATION BROUGHT TO REMOVE THE RIGORS AND THE HARDSHIP TO TH E ASSESSEE, HAS TO BE GIVEN RETROSPECTIVE EFFECT, BECAUSE THE R EASON GIVEN BY THE CBDT TO BRING THE CIRCULAR WAS TO REDUCE THE HA RDSHIP AND THE COMPLIANCE COST AND IT IS CAUSING GREAT HARDSHI P TO THE DEDUCTEE. SUCH A CLARIFICATION BROUGHT BY CBDT TO R EMOVE THE HARDSHIP, CANNOT BE HELD THAT PRIOR TO 01.01.2013 S UCH A HARDSHIP SHOULD BE IMPOSED. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) FOR DELETING THE SAID DISALLOWANCE IS AFFIRM ED. I.T.A. NO.3078/DEL/2011, 820/DEL/2013 & 5054/DEL/2 015 35 IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST, 2018. SD/- SD/- [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20 TH AUGUST, 2018 PKK: