Anil Kumar Goel, CHENNAI V. ACIT, CHENNAI

ITA 3142/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6441 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS RU GEORGE
• Keywords: Capital asset; Business income; Audit objection; Wrong claim; Difference of opinion; Sham transactions; Change of opinion
• Section: 14A; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI , ! . , ' BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER , AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.3142/MDS/2016 /ASSESSMENT YEAR: 2008-09 MR.ANIL KUMAR GOEL, NO.7-A, OLD TOWER BLOCK, NANDANAM, CHENNAI-600 035. VS. THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-1, CHENNAI-34. [PAN: AAJPG 2552 Q ] ( & /APPELLANT) ( '(& /RESPONDENT) & ) / APPELLANT BY : MR.AJAY VOHRA, ADV. '(& ) /RESPONDENT BY : MRS.RUBY GEORGE, CIT ) /DATE OF HEARING : 08.08.2017 ) /DATE OF PRONOUNCEMENT : 08.08.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.3142/MDS/2016 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2 , CHENNAI, IN ITA NO.150/CIT(A)-2/2016-17 DATED 15.09.2016 FOR THE AY 2008-09. 2. MRS.RUBY GEORGE, CIT REPRESENTED ON BEHALF OF TH E REVENUE AND MR.AJAY VOHRA, ADV., REPRESENTED ON BEHALF OF THE A SSESSEE. ITA NO.3142/MDS/2016 :- 2 -: 3. THE ASSESSEE HAS FILED CONCISE GROUNDS AS FOLLO WS: JURISDICTION 1. THE CIT (APPEALS) IS WRONG IN CONFIRMING THE ORDE R OF THE ASSESSING OFFICER IN RESPECT TO THE RE-OPENING OF THE ASSESSMENT UNDER SECTION 147 OF THE INCOME TAX ACT, 1961. 2. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD FURNISHED ALL RELEVANT MATERIALS ALONG WITH THE RETURN AND THERE IS NO NON-DISCLOSURE OR OMISSION OR FAILURE ON THE PART OF THE APPELLANT AND OUGHT TO H AVE APPRECIATED THAT ALL ALONG THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10(38) ON S ALE OF SHARES WHICH WAS ACCEPTED BY THE DEPARTMENT EARLIER AS WELL AS SUBSEQUENT ASSESS MENT YEARS. HENCE, THERE IS A MERE CHANGE OF OPINION ON THE PART OF THE ASSESSMENT YEA R. MERITS 3. THE CIT (APPEALS) IS WRONG IN HOLDING THAT THE TR ANSACTION WITH RESPECT TO SHARES HELD BY THE APPELLANT, WILL HAVE TO BE TREATED AS BUSINESS INCOME AND HENCE APPELLANT IS NOT ENTITLED EXEMPTION UNDER FOR SECTION 10(38) OF THE I NCOME TAX ACT 1961. FURTHER, THE ASSESSEE HAS SHOWN THE PURCHASE OF SHARES AS INVEST MENT IN HIS BALANCE SHEET, WHICH REFLECTS THE INTENTION OF THE ASSESSEE. 4. THE CIT (APPEALS) OUGHT TO HAVE SEEN THAT A SHARE PURCHASED ON A PARTICULAR DAY WHICH CAME TO BE SOLD ON THE VERY SAME DAY IS SHOWN AS SH ORT TERM CAPITAL GAINS BY THE ASSESSEE HIMSELF AND IN RESPECT OF THE SHARES HELD BEYOND 12 MONTHS WAS SHOWN AS LONG TERM CAPITAL GAINS. 5. THE CIT (APPEALS) IGNORED THE SCOPE AND PURPORT O F THE CBDT CIRCULAR BEARING NO.6 OF 2016 DATED 29TH FEBRUARY 2016, WHEREIN THE ASSESSEE DESIRE TO TREAT THE TRANSACTIONS AS CAPITAL GAINS WOULD NOT BE OPEN TO QUESTION BY THE ASSESSING OFFICER. 6. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS TREATED THE INCOME DERIVED FROM THE TRANSFER OF SHARE AS CAPITAL GAIN WHICH THE REVENUE HAD SO ACCEPTED AND HENCE THERE IS CONSISTENCY ON THE PART OF THE ASSES SEE IN LINE WITH THE SPIRIT OF THE CIRCULAR. 7. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT MOST OF THE SHARES SOLD DURING THE ACCOUNTING YEAR WERE HELD FOR MORE THAN 2 YEARS. 8. THE CIT (APPEALS) IS WRONG IN PLACING STRONG RELI ANCE ON GREATER VOLUME OF PURCHASE/HOLDING OF SHARES AND HIGHER FREQUENCY IN T RADING WHEN THE FACT REMAINS THAT ARE SEVERAL OTHER PRINCIPLES INCLUDING THE ASCERTAINMEN T OF INTENTION OF THE ASSESSEE WHICH IN THE CURRENT CASE IS TO DERIVE DIVIDEND INCOME WHICH SIGNIFIES INTENT TO MAKE INVESTMENT. DISALLOWANCE UNDER SECTION 14A 9. THE CIT (APPEALS) ERRED IN DISALLOWING INTEREST O F RS.31,42,235/-INVOKING SECTION 14 OF THE ACT. 10. THE CIT (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE INTEREST PAYMENT OF RS.16,24,380/- PERTAINED TO INCOME FROM DERIVATIVES . 11.THE CIT (APPEALS) OUGHT TO HAVE SEEN THAT ONLY TH E SURPLUS FUNDS OF THE APPELLANT HAVE BEEN USED FOR THE PURPOSE OF THE INVESTMENT. 4. IT WAS SUBMITTED BY THE LD.AR THAT GROUND NOS.1 & 2 WERE AGAINST THE RE-OPENING OF THE ASSESSMENT, GROUND NOS.3 TO 8 WERE AGAINST THE ITA NO.3142/MDS/2016 :- 3 -: ACTION OF THE LD.CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TREATING THE TRANSACTION OF THE PURCHASE AND SALE OF SHARES BY T HE ASSESSEE AS BUSINESS INCOME AS AGAINST LONG TERM CAPITAL GAINS AS DISCLO SED BY THE ASSESSEE. GROUND NOS.9 TO 11 WERE AGAINST THE DISALLOWANCE U/ S.14A. 5. AT THE TIME OF THE HEARING, THE LD.COUNSEL ON BE HALF OF THE ASSESSEE SUBMITTED THAT HE DOES NOT WISH TO PRESS THE GROUND S IN RESPECT OF THE DISALLOWANCE U/S.14A. CONSEQUENTLY, GROUND NOS.9 T O 11 OF THE ASSESSEES CONCISE GROUNDS STANDS DISMISSED AS NOT PRESSED. 6. IN REGARD TO GROUND NOS.1 & 2 IN RESPECT OF THE RE-OPENING. IT WAS SUBMITTED BY THE LD.AR THAT THE ORIGINAL ASSESSMENT CAME TO BE COMPLETED U/S.143(3) ON 30.11.2010. IT WAS A SUBMIS SION THAT THE RE- OPENING WAS DONE BY ISSUANCE OF NOTICE U/S.148 ON 0 8.08.2014 WHICH IS BEYOND 4 YEARS PERIOD AND CONSEQUENTLY, THE PROVISI ONS OF SEC.147 WOULD APPLY. IT WAS A SUBMISSION THAT THE RE-OPENING WAS BAD IN LAW ON ACCOUNT OF THREE REASONS. THE FIRST WAS THAT THERE WAS NO FAILURE BY THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. TH E SECOND WAS THAT THE RE- OPENING WAS PURELY BASED ON CHANGE OF OPINION AND T HIRDLY THE RE-OPENING WAS DONE ON THE DICTATE OF THE AUDIT PARTY & THE LD .CIT AND THERE WAS NO INDEPENDENT APPLICATION OF MIND BY AO. THE LD.AR D REW OUR ATTENTION TO PAGE NO.6 OF THE PAPER BOOK, WHICH IS A COPY OF THE RETURN TO SUBMIT THAT THE ASSESSEE WAS DOING A BUSINESS OF FUTURES AND OP TIONS. IT WAS A SUBMISSION THAT DURING THE YEAR THE ASSESSEE HAD LI QUIDATED SUBSTANTIAL ITA NO.3142/MDS/2016 :- 4 -: PORTIONS OF INVESTMENTS WHICH WERE HELD FOR PERIOD OF VARYING MORE THAN ONE YEAR TO NEARLY FIVE YEARS. THE LD.AR ALSO DREW OUR ATTENTION TO PAGE NO.15 OF THE PAPER BOOK WHICH WAS A COPY OF THE FOR M NO.3CD REPORT, WHEREIN THE AUDITORS HAVE REPORTED THE NATURE OF TH E BUSINESS OF THE ASSESSEE AS DERIVATIVE, FUTURE & OPTIONS IN SHARES. IT WAS A SUBMISSION THAT AT PAGE NO.21 IN RESPECT OF CLAUSE NO.28(A) OF THE FORM NO.3CD REPORT, AUDITORS HAVE ALSO MENTIONED THAT THE ASSES SEE IS CARRYING ON THE BUSINESS OF DERIVATIVE, FUTURE & OPTIONS IN SHARES. THE CONSOLIDATED BALANCE SHEET OF THE ASSESSEE WAS SHOWN AT PAGE NO. 26 OF THE PAPER BOOK TO SHOW THE INVESTMENTS AS SEPARATELY DISCLOSED AND THE CURRENT ASSETS IN RESPECT OF DERIVATIVE BUSINESS. HE FURTHER DREW OU R ATTENTION TO PAGE NO.62 OF THE PAPER BOOK WHICH IS A COPY OF THE 143( 2) NOTICE DATED 16.09.2009 AND THE REPLIES AT PAGE NO.63, 66 & 68 W HEREIN THE DETAILS OF THE INVESTMENT AND THE DETAILS OF THE ASSESSEES BU SINESS OF DEALING IN DERIVATIVE, FUTURE & OPTIONS IN SHARES WAS ALSO CLE ARLY EXPLAINED. IT WAS A SUBMISSION THAT FURTHER VERIFYING THE SAID DETAILS, THE ASSESSMENT HAD BEEN COMPLETED U/S.143(3) ON 30.11.2010. THE LD.AR FURTHER DREW OUR ATTENTION TO PAGE NO.75 OF THE PAPER BOOK WHICH WAS THE COPY OF THE APPROVAL OBTAINED FROM THE COMMISSIONER OF INCOME T AX, CHENNAI-I, IN RESPECT OF REASONS RECORDED FOR RE-OPENING. AT PAG E NO.77 WAS THE APPROVAL GRANTED BY THE LD.CIT(A) IN RESPECT OF THE RE-OPENING, PAGE NO.78 WAS THE NOTICES U/S.148. THE LD.AR FURTHER D REW OUR ATTENTION TO PAGE NO.79 OF THE PAPER BOOK WHICH WAS AN HAND WRIT TEN AUDIT OBJECTION AND PAGE NO.73 WHICH WAS A COPY OF THE LETTER ADDRE SSED BY THE AO TO THE ITA NO.3142/MDS/2016 :- 5 -: COMMISSIONER OF INCOME TAX, CHENNAI DATED 20.12.201 3 SEEKING DIRECTIONS TO INITIATE REMEDIAL ACTIONS. PAGE NO.7 4 WAS A LETTER OF THE LD.CIT(A), CHENNAI-I TO THE AO GRANTING APPROVAL FO R ISSUANCE OF NOTICE U/S.148. IT WAS A SUBMISSION THAT THE REASONS RECO RDED FOR THE PURPOSE OF RE-OPENING WERE IN FACT THE VERBATIM COPY OF THE AU DIT OBJECTIONS. IT WAS A SUBMISSION THAT CONSEQUENT TO THE RE-OPENING, THE RE-ASSESSMENT CAME TO BE COMPLETED ON 29.03.2016. THE LD.AR FURTHER DR EW OUR ATTENTION TO PAGE NO.92 OF THE PAPER BOOK WHICH WAS A REPLY GIVE N BY THE AO TO THE DY. ACCOUNTANT GENERAL(ITRA) IN RESPECT OF THE REVE NUE AUDIT OBJECTION WHEREIN THE AO HAS INTIMATED THAT THE ASSESSMENT WA S RE-OPENED AND THE RE-ASSESSMENT COMPLETED RAISING THE DEMAND AND THE COPY OF THE RE- ASSESSMENT ORDER WAS ENCLOSED. IT WAS A SUBMISSION THAT A PERUSAL OF THE REASONS RECORDED DOES NOT STATE THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IT WA S A SUBMISSION THAT THUS, THE RE-OPENING WAS DONE ONLY ON THE DICTATE OF THE AUDIT PARTY AND THE LD.CIT AND IN VIEW OF THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY V. CIT : 119 ITR 997 (SC) AND ALSO CIT V. LUCAS T.V.S. LTD. 249 ITR 306 (SC) RE-ASSESSMENT WAS BASED ON THE OPINION OF AUDIT PARTY WAS NOT PERMISS IBLE AND WAS LIABLE TO BE QUASHED. 7. AT THIS POINT, IT WAS INFORMED TO THE LD.AR THAT AS THE RE-OPENING HAD TWO ISSUES. ONE IN REGARD TO THE TREATMENT OF THE LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE AS BUSINESS INCOME AND THE SECOND ONE ITA NO.3142/MDS/2016 :- 6 -: BEING THE DISALLOWANCE U/S.14A, AND AS THE ASSESSEE HAVING WITHDRAWN HIS GROUND IN REGARD TO THE DISALLOWANCE U/S.14A, THOUG H, THE ASSESSEE DID HAVE A VERY GOOD CASE IN REGARD TO THE RE-OPENING, THE SAME CANNOT BE QUASHED ON ACCOUNT OF THE WITHDRAWAL OF THE GROUND IN REGARD TO THE DISALLOWANCE U/S.14A. 8. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE ORD ER OF THE AO AND CIT(A) IN RESPECT OF RE-OPENING. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE REASONS RECORDED AT PAGE NO.84 OF THE PAPER BOOK SHOWS THAT THE RE-OPENING IS ON TWO GROUNDS. THE FIRST ONE IS IN REGARD TO THE WIT HDRAWAL OF THE EXEMPTIONS GRANTED U/S.10(38) OF THE ACT AND THE SE COND ONE IS IN REGARD TO THE DISALLOWANCE U/S.14A R/W RULE 8D. ADMITTEDL Y, THE RE-OPENING HAS BEEN DONE BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND CONSEQUENTLY, THE REASONS RECOR DED MUST DISCLOSE THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS REQUIRED FOR ASSESSMENT. IN THE PRES ENT CASE, THE REASONS RECORDED DO NOT SPECIFY THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL THE MATERIAL FACTS IN RESPECT O F THE ASSESSMENT. FURTHER, A PERUSAL OF THE REASONS RECORDED CLEARLY SHOWS THA T THE SAME IS A VERBATIM EXTRACT OF THE AUDIT OBJECTION. ON BOTH T HESE GROUNDS, THE RE- OPENING IS BAD IN LAW. HOWEVER, AS THE ASSESSEE HA S WITHDRAWN THE GROUND IN RESPECT OF THE CHALLENGE TO THE DISALLOWA NCE U/S.14A, WE ARE ITA NO.3142/MDS/2016 :- 7 -: UNABLE TO QUASH THE RE-OPENING, AS IF THE RE-OPENIN G ASSESSMENT IS VALIDLY INITIATED IN RESPECT OF ONE OF THE ISSUES, THEN THE AO WOULD BE ENTITLED TO EXAMINE OTHER ISSUES ALSO IN THE COURSE OF THE RE-O PENED ASSESSMENT. IN THESE CIRCUMSTANCES, AS THE ASSESSEE HAS WITHDRAWN THE GROUND IN RESPECT OF THE CHALLENGE TO THE DISALLOWANCE MADE U/S.14A, WE ARE OF THE VIEW THAT THE RE-OPENING IS VALID. IN THESE CIRCUMSTANC ES, GROUND NOS.1 & 2 OF THE ASSESSES CONCISE GROUNDS STANDS DISMISSED. 10. IN RESPECT OF THE MERITS, IN REGARD TO THE WITH DRAWAL OF THE EXEMPTION U/S.10(38) OF THE ACT, IN RESPECT OF THE LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE RAISED IN GROUND NOS.3 TO 8 OF THE CONCISE GROUNDS, IT WAS A SUBMISSION THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF PURCHASE AND SALES OF SHARES. THE LD.AR DREW OUR A TTENTION TO PAGE NO.26 OF THE PAPER BOOK, WHICH IS A COPY OF THE CON SOLIDATED BALANCE SHEET OF THE ASSESSEE TO SHOW THAT THE INVESTMENTS IN THE SHARES ARE SEPARATELY SHOWN AND THE DERIVATIVES BUSINESS IS SE PARATELY SHOWN UNDER THE HEAD CURRENT ASSETS, LOANS AND ADVANCES. HE, F URTHER, DREW OUR ATTENTION TO PAGE NO.131 OF THE PAPER BOOK WHICH WA S THE CHART SHOWING THE LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSESS EE IN RESPECT OF THE SALE OF THE INVESTMENT IN EQUITY SHARES RIGHT FROM THE A Y 2001-02 TO 2016-17. IT WAS A SUBMISSION THAT THE BUSINESS OF THE ASSESS EE IN RESPECT OF THE DERIVATIVES, FUTURE & OPTIONS WAS SEPARATELY SHOWN AND THE SHORT TERM AND LONG TERM CAPITAL GAINS/LOSS ON THE SALE OF INV ESTMENTS IN EQUITY SHARES WAS ALWAYS SEPARATELY SHOWN AND ACCEPTED BY THE REVENUE. THE ITA NO.3142/MDS/2016 :- 8 -: LD.AR ALSO DREW OUR ATTENTION TO PAGE NOS.132 & 133 WHICH WAS A COPY OF THE ASSESSMENT ORDER U/S.143(3) R/W 147 WHEREIN RET URNED INCOME HAS BEEN ACCEPTED FOR THE AY 2005-06. HE FURTHER DREW OUR ATTENTION TO PAGE NO.137 OF THE PAPER BOOK WHICH WAS A COPY OF THE AS SESSMENT ORDER U/S.143(3) FOR THE AY 2006-07 WHEREIN HIS RETURNED INCOME HAS BEEN ACCEPTED, WHEREIN THE BUSINESS INCOME FROM FUTURES AND OPTIONS ARE SEPARATELY SHOWN AND HIS LONG TERM CAPITAL GAINS CL AIMED AS EXEMPT U/S.10(38) HAS BEEN ACCEPTED. SAME ALSO AT PAGE NO .149 FOR THE AY 2010-11 AND PAGE NO.163 FOR THE AY 2012-13. THE LD .AR FURTHER DREW OUR ATTENTION TO PAGE NO.95 OF THE PAPER BOOK WHICH WAS A COPY OF THE BREAK-UP OF THE INVESTMENT IN THE SHARES WHICH HAS LEAD TO LONG TERM CAPITAL GAINS CLAIMED EXEMPT U/S.10(38) TO SUBMIT T HAT OUT OF THE SHARES SOLD 77.12% OF THE SHARES WAS HELD FOR MORE THAN FI VE YEARS, 11.57% WAS HELD FOR A PERIOD OF 3 TO 5 YEARS, 6.75% FOR A PER IOD OF 2 TO 3 YEARS AND 4.5% FOR A PERIOD OF 1 TO 2 YEARS. IT WAS A FURTHE R SUBMISSION THAT ONE SINGLE HOLDING OF M/S.PARRY AGRO INDUSTRIES LTD. WH ICH CONSTITUTED NEARLY 63.38% OF THE ENTIRE CAPITAL GIVEN OFFER BY THE ASS ESSEE DURING THE RELEVANT PREVIOUS YEAR WAS HELD AS INVESTMENT FOR S UBSTANTIAL MORE THAN FIVE YEARS. THE BREAKUP OF THE SHARES HOLDING AS I NVESTMENT WAS SHOWN AT PAGE NO.97 OF THE PAPER BOOK. IT WAS A SUBMISSION THAT THE SHARES HAVING BEEN HELD AS INVESTMENT CONTINUOUSLY AND THE SAME HAVE ALSO BEEN ACCEPTED BY THE REVENUE FOR THE EARLIER YEARS IT WAS NOT OPEN TO THE REVENUE TO TURN AROUND AND TREAT THE LONG TERM CAPI TAL GAINS DISCLOSED BY THE ASSESSEE AS THE BUSINESS INCOME OF THE ASSESSEE . IT WAS A SUBMISSION ITA NO.3142/MDS/2016 :- 9 -: THAT THE ASSESSEE MAY BE GRANTED BENEFIT OF DEDUCTI ON U/S.10(38) AS CLAIMED. 11. IN REPLY, THE LD.DR VEHEMENTLY SUPPORTED THE OR DERS OF THE AO & THE CIT(A). IT WAS A SUBMISSION THAT THE LD.CIT(A) HAS ALSO EXAMINED THE CLAIM U/S.10(38). IT WAS A SUBMISSION THAT THE VOL UME OF TRANSACTION ITSELF CLEARLY SHOWED THAT THE TRANSACTION WHICH HA S BEEN CLAIMED AS GIVEN RISE TO LONG TERM CAPITAL GAINS WAS IN EFFECT THE B USINESS OF THE ASSESSEE. IT WAS A SUBMISSION THAT THE ORDER OF THE AO & THE CIT(A) WAS LIABLE TO BE UPHELD. 12. IN REPLY, THE LD.AR SUBMITTED THAT THE CIRCULAR ISSUED BY THE CBDT IN NO.6 OF 2016 IN F.NO.225/12/2016-ITA-II DATED 29 .02.2016 IN REGARD TO THE ISSUE OF TAXABILITY OF THE SURPLUS ON THE SALE OF SHARES AND SECURITIES APPLIED TO THE ASSESSEES CASE AND THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION U/S.10(38) OF THE ACT. HE DREW OUR AT TENTION TO PAGE NO.194 OF THE PAPER BOOK, IT IS A COPY OF THE SAID CIRCULA R. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ADMI TTEDLY, THE LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE FOR TH E RELEVANT ASSESSMENT YEAR AMOUNT TO RS.46,14,11,403/-, A SUBSTANTIAL POR TION RELATES TO M/S.PARRY AGRO INDUSTRIES LTD. NEARLY 63.38% OF THE CAPITAL GAINS. A PERUSAL OF THE BREAKUP OF THE HOLDING OF THE SHARES OF M/S.PARRY AGRO INDUSTRIES LTD. SHOWS NEARLY 77.12% OF THE SAID SHA RES WERE HELD FOR ITA NO.3142/MDS/2016 :- 10 -: MORE THAN 5 YEARS AND MINIMUM HOLDING OF THE SHARES OF M/S.PARRY AGRO INDUSTRIES LTD. IS 2 TO 3 YEARS. THE NEXT LARGEST TRANSACTION IS IN RESPECT OF THE STEEL AUTHORITY OF INDIA, WHICH HAS BEEN SUB STANTIALLY HELD FOR A PERIOD OF 2 TO 3 YEARS AND THE THIRD IS IN RESPECT OF THE INDIAN HOTELS WHICH HAS BEEN HELD FOR A PERIOD OF 2 TO 3 YEARS. A PERU SAL OF THE PAGE NO.137 OF THE PAPER BOOK, WHICH SHOWS THAT THE ASSESSMENT ORDER U/S.143(3) FOR THE AY 2006-07 AND THE CONNECTED RETURN COPY SHOWS THAT THE INVESTMENTS CLAIMED BY THE ASSESSEE HAD NOT BEEN TI NKERED WITH BY THE AO. IF THE TRANSACTION CLAIMED AS LONG TERM CAPITA L GAINS BY THE ASSESSEE FOR THE CURRENT YEAR IS TO BE TINKERED WITH, THEN, IN THE FIRST PLACE THE SAID INVESTMENT WOULD HAVE TO BE TREATED AS STOCK IN TRA DE IN THE EARLIER YEARS OR DURING THE CURRENT YEAR. THE FACT THAT THE SHAR ES WERE HELD FOR MORE THAN 1 TO 2 YEARS WOULD AUTOMATICALLY REQUIRE THE S HARES TO BE HELD STOCK IN TRADE IN THE EARLIER YEARS. IF THAT IS SO, THE MARKET VALUE OF THE SHARES WOULD TO BE DETERMINED AT THE END OF THE EACH YEAR AND THE PROFITS/LOSS WOULD HAVE BEEN DETERMINED AND ASSESSED. THIS HAS NOT BEEN DONE IN THE ASSESSEES CASE. A PERUSAL OF THE ASSESSMENT ORDER S FOR THE EARLIER YEARS CLEARLY SHOWS THAT THE REVENUE HAS RECOGNIZED THAT THE ASSESSEE IS IN THE BUSINESS OF DERIVATIVE, FUTURE & OPTIONS IN SHARES AND THE ASSESSEE IS HAVING INVESTMENTS IN SHARES WHICH HAS GIVEN RISE T O LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS WHICH ARE BEING ASSESSED AS OFFERED. IT IS ONLY DURING THIS YEAR THAT THE REVENUE HAS SHIFT ED ITS STAND AND HAS ATTEMPTED TO TAX THE LONG TERM CAPITAL GAINS DISCLO SED BY THE ASSESSEE AND CLAIMED AS EXEMPT U/S.10(38) AS A BUSINESS INCOME O F THE ASSESSEE. A ITA NO.3142/MDS/2016 :- 11 -: PERUSAL OF THE CIRCULAR ISSUED BY THE CBDT IN CIRCU LAR NO.6/2016 IN F.NO.225/12/2016-ITA-II WHICH IS EXTRACTED BELOW:- CIRCULAR NO.6/2016 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK, NEW DELHI, THE 29TH OF FEBRUARY, 2016 SUB: ISSUE OF TAXABILITY OF SURPLUS ON SALE OF SHAR ES AND SECURITIES CAPITAL GAINS OR BUSINESS INCOME INSTRUCTIONS IN ORDER TO REDUCE L ITIGATION - REG. SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX ACT, 1961 (ACT) DEFINES THE TERM CAPITAL ASSET TO INCLUDE PROPERTY OF ANY KIND HELD BY AN A SSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION, BUT DOES NOT INCLUDE AN Y STOCK-IN-TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AN D OTHER SECURITIES, THE SAME CAN 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 O THER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY FACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY AND LITIGATION IN T HE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFFERE NT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK-I N-TRADE. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) HAS ALSO, THROUGH INSTRUCTION NO. 182 7, DATED AUGUST 31, 1989 AND CIRCULAR NO. 4 OF 2007 DATED JUNE 15,2007, SUMMARIZED THE SA ID 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 DIFF ICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RE COGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARA CTER OF INCOME 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 TRANS ACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AN D UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHAL L TAKE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERI OD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE, T HE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSIN ESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS S TAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REM AIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT B E ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUEN T YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE T O BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL N OT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINENESS OF THE TRANS ACTION ITSELF IS QUESTIONABLE, SUCH AS ITA NO.3142/MDS/2016 :- 12 -: BOGUS CLAIMS 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 MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHARES AND SECURITI ES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVI NG TRANSFER OF SHARES AND SECURITIES. SD/- (ROHIT GARG) DEPUTY SECRETARY GOVERNMENT OF INDIA F.NO.225/12/2016-ITA-LI COPY TO: 1) CHAIRMAN. CBD1 AND ALL MEMBERS, CI3L) I 2) OSD TO REVENUE SECRETARY 3) ALL PR. CCSIT/PR. DSGIT 4) ALL JS/CSIT, CBDT 5) ADG(PR,PP & OL) WITH REQUEST FOR PLACING ON OFFICI AL HANDLE OF THE DEPARTMENT 6) ADDL. CIT, DATA BASE CELL FOR UPLOADING ON DEPART MENTAL WEBSITE 7) WEB MANAGER FOR UPLOADING ON INCOMETAXINDIA.GOV.I N & PLACING IN PUBLIC DOMAIN 8) ITCC, CENTRAL BOARD OF DIRECT TAXES (3 COPIES) 9) GUARD FILE SD/- (ROHIT GARG) DEPUTY SECRETARY GOVERNMENT OF INDIA 14. IT IS CLEARLY SHOWS THAT 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 TO TREAT T HE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NO T BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TA KEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICAB LE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT B E ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUE NT YEARS; 15. THIS APPLIES TO THE REVENUE ALSO. IN THE PRESE NT CASE, THE ASSESSEE HAS BEEN CONSISTENTLY HOLDING HIS CLAIM OF LONG TER M CAPITAL GAINS IN RESPECT OF HIS INVESTMENTS IN SHARES. THIS BEING S O, WE ARE OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN DENYING THE ASSESSE ES CLAIM OF DEDUCTION ITA NO.3142/MDS/2016 :- 13 -: U/S.10(38). IN THESE CIRCUMSTANCES, THE AO IS DIRE CTED TO GRANT THE ASSESSEE, THE CLAIM U/S.10(38) IN RESPECT OF THE LO NG TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE. 16. IN THE RESULT, GROUND NOS.3 TO 8 OF THE ASSESSE ES CONCISE GROUNDS PARTLY ALLOWED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 08, 2 017, AT CHENNAI. SD/- SD/- ( . ) ( A. MOHAN ALANKAMONY ) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ! /JUDICIAL MEMBER /CHENNAI, 1 /DATED: AUGUST 08, 2017. TLN ) '23 43 /COPY TO: 1. & /APPELLANT 4. 5 /CIT 2. '(& /RESPONDENT 5. 3 ' /DR 3. 5 ( ) /CIT(A) 6. /GF