Shri Ramakant R. Kasat, Surat V. The Dy.CIT.,Circle-2, Surat

ITA 328/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9501 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Capital asset; Business income; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.328/AHD/2014 2. ./ I.T.A. NO.357/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) 1. RAMAKANT R. KASAT 505-508, SHREE LAXMI MARKET, RING ROAD SURAT- 395003 2. THE ACIT CIRCLE-2 SURAT / VS. 1. THE DCIT CIRCLE-4, BARODA 2. RAMAKANT R.KASAT SURAT # ./ ./ PAN/GIR NO. : ABVPK 6554 F ( #% / APPELLANTS ) .. ( &#% / RESPONDENTS ) ASSESSEE BY : SHRI RASESH SHAH, AR REVENUE BY : SHRI PRASOON KABRA, SR.DR '()* / DATE OF HEARING 09/12/2016 +,-.)* / DATE OF PRONOUNCEMENT 03/01/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, SURAT DATED 07/11/2013 PASSED FOR ASSESSMENT YEAR (AY) 20 10-11. ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 2 - 2. WHEREAS THE REVENUE IN ITS APPEAL QUESTIONED THE WISDOM OF THE CIT(A) IN GRANTING PARTIAL RELIEF TO THE ASSESSEE A GAINST THE ACTION OF THE ASSESSING OFFICER (AO) HOLDING THE SHORT TERM CAPIT AL GAINS (STCGS) AND LONG TERM CAPITAL GAINS (LTCGS) ARISING ON SALE OF SHARES AS BUSINESS INCOME, THE ASSESSEE HAS ALSO ASSAILED THE ORDER OF THE CIT(A) HOLDING GAINS ARISING ON SALE OF SHARES, WHE RE HOLDING PERIOD IS LESS THAN ONE MONTH, TO BE BUSINESS INCOME OF THE ASSESSEE. 3. THE RELEVANT GROUNDS OF APPEAL RAISED BY THE AS SESSEE AND THE REVENUE READ AS UNDER:- ASSESSEES APPEAL IN ITA NO.328/AHD/2014 FOR AY 201 0-11 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN PARTLY CONFIRMING THE ACTION OF ASSESS ING OFFICER IN TREATING THE CAPITAL GAINS INCOME ARISING ON SALE O F SHARES AS BUSINESS INCOME IN RESPECT OF SHARES WHERE HOLDING PERIOD IS LESS THAN ONE MONTH. THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) OUGHT TO HAVE TREATED ENTIRE GAIN ARISING ON SALE OF SHARES AS CAPITAL GAINS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING RS.1,75,069/- U/S.14A WHEREAS INTEREST CLAIMED BY THE ASSESSEE IS RS.60,576/- ONLY. ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 3 - REVENUES APPEAL IN ITA NO.357/AHD/2014 FOR AY 2010 -11 (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHE R THE LD.CIT(A)-II, SURAT WAS JUSTIFIED IN TREATING INCOM E FROM SHARE TRADING AS LONG TERM CAPITAL GAIN AND SHORT TERM CA PITAL GAIN INSTEAD OF BUSINESS INCOME TREATED BY THE AO, BY OBSERVING THAT THE ASSESSEE HAS INDULGED IN HIGH MA GNITUDE OF SHARES TRADING WITH VERY HIGH FREQUENCY WITH BORROW ED FUNDS. 4. THE RELEVANT FACTS CONCERNING THE ISSUE INVOLVED ARE THAT THE ASSESSEE IS ENGAGED IN THE TRADING BUSINESS OF ART SILK CLOTH. THE ASSESSEE DERIVES STCGS AND LTCGS ON SALE OF SHARES. THE ASS ESSEE FILED THE RETURN OF INCOME SHOWING TAXABLE INCOME OF RS.59,02 ,300/- WHICH INCLUDED STCGS OF RS.56,57,594/-. THE ASSESSEE HAS DECLARED LTCGS OF RS.18,96,152/-. THE LTCGS NOTED ABOVE WERE CLAIME D AS EXEMPT INCOME UNDER SECTION 10(38) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). THE ASSESSEE ALSO AVAIL ED CONCESSIONAL RATE OF TAX AT 10% UNDER SECTION 111A OF THE ACT IN RESPECT OF STCGS NOTED ABOVE. THE AO AFTER OBTAINING THE REQUISITE DETA ILS CONCERNING THE TRANSACTIONS GIVING RISE TO LTCGS AND STCGS CONCLUD ED THAT THE AFORESAID GAINS ON SALE OF SHARES ARE IN THE NATURE OF BUSINESS INCOME HAVING REGARD TO THE QUANTUM, VOLUME, FREQUENCY AND PROFIT MOTIVE. HE ACCORDINGLY TREATED THE GAINS ARISING ON SALE OF SH ARES CLAIMED AS STCGS ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 4 - OR LTCGS, AS THE CASE MAY BE, AS BUSINESS INCOME OF THE ASSESSEE WHILE FRAMING THE ASSESSMENT. 5. IN FIRST APPEAL AGAINST THE ORDER OF THE AO, THE CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE. THE CIT(A) TOOK NO TE OF THE DECISION RENDERED IN ASSESSEES OWN CASE IN RESPECT OF EARLI ER AY 2008-09 AND FOLLOWING THE SAME, DIRECTED THE AO TO TREAT THE IN COME ON SALE OF SHARES AS STCGS OR LTCGS AS THE CASE MAY BE UNDER THE HEAD CAPITAL GAIN IN SO FAR AS GAIN ARISING ON SALE OF SHARES WHICH WERE HE LD BY THE ASSESSEE FOR A PERIOD OF MORE THAN ONE MONTH. 6. THE RELEVANT PARA OF THE ORDER OF THE CIT(A) IS REPRODUCED HEREUNDER:- 7. AS REGARDS TREATMENT OF SHORT TERM CAPITAL GAI N OF RS.56,57,594/- AND LONG TERM CAPITAL GAIN OF RS.18, 96,152/- AS BUSINESS INCOME, THE ASSESSING OFFICER HAS MAINLY RELIED ON THE ASSESSMENT ORDER OF EARLIER YEARS. THE APPELLANT I N HIS WRITTEN SUBMISSIONS RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN APPELLANTS OWN CASE IN ASSESSMENT YEARS 2006- 07. 2007-08 AND 2008-09. IN ALL THESE DECISIONS, T HE ISSUE OF ASSESSABILITY OF THE INCOME HAS BEEN DECIDED ON THE PRINCIPAL LAID DOWN IN THE CASE OF SHRI SUGAMCHAND C SHAH V/S ACIT OF ITAT AHMEDABADS IN THE DECISION DATED 29.01.2010. FOR REFERENCE, PARAS 4.1 AND 4.2 OF THE APPELLATE ORDER FOR ASSESS MENT YEAR 2008- 09 ARE REPRODUCED HEREIN UNDER:- ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 5 - 4.1 I HAVE DULY CONSIDERED THE ABOVE SUBMISSION OF THE APPELLANT AND FIND THAT ALL THE ABOVE THREE GROUNDS OF APPEALS TAKEN BY THE APPELLANT ARE IDENTICAL TO THE GROUNDS OF APPEAL NO.1,2,& 4 TAKEN IN THE IMMEDIATE PROCEED ING ASSESSMENT YEAR, I.E. A Y 2007-08 VIDE APPEAL NO.CAS/II/287/09-10, WHICH HAS BEEN PARTLY ALLOWED BY THE UNDERSIGNED VIDE ORDER DATED 15.09.2010. IN VIEW O F THE SAME, THE ISSUES INVOLVED IN THE INSTANT APPEAL ARE FOUND TO BE COVERED BY THE ABOVE APPELLATE ORDER. I, THEREF ORE, FOLLOWING THE ABOVE APPELLATE ORDER DT 15.09.2010 I N THE APPELLANTS CASE IN ASSTT.YEAR 2007-08, DIRECT THE ASSESSING OFFICER TO TREAT THE CAPITAL GAIN FROM SALE OF SHAR ES HELD FOR A PERIOD OF 1 YEAR OR MORE AS LONG TERM CAPITAL GA IN AND TO ASSESS THE SAME UNDER THAT HEAD. 4.2. IN SO FAR AS CAPITAL GAIN DECLARED BY THE APP ELLANT UNDER THE HEAD SHORT TERM CAPITAL GAIN IS CONCERNED , I DIRECT THE ASSESSING OFFICER TO APPLY THE RATIO OF THE DEC ISION IN THE CASE OF SHRI SUGAMCHAND C. SHAH, VIDE ITAT, AHMEDAB AD BENCH D ORDER DATED 29.01.2010 IN ITA NO.3554/AHD/2008 AND 1932/AHD/2008, FOR THE PURCHAS E OF DETERMINING THE SHORT TERM CAPITAL GAIN, I.E. THE S HARES WHICH ARE HELD FOR A MONTH AND MORE BUT LESS THAN O NE YEAR SHOULD BE TREATED AS INVESTMENT AND ON THEIR SALE , PROFIT SHALL BE CHARGEABLE UNDER THE HEAD SHORT TERM CAPIT AL GAIN, AND, WHERE SHARES ARE HELD FOR LESS THAN A MONTH, G AIN FROM SALE OF THESE SHARES SHOULD BE TREATED AS PROFIT F ROM BUSINESS. THE ABOVE DECISION OF D BENCH OF ITAT , AHMEDABAD, IN THE CASE OF SHRI SUGAMCHAND C SHAH (S UPRA) HAS ALSO BEEN RECENTLY FOLLOWED BY THE ITAT, AHMEDA BAD IN ANOTHER CASE OF SMT. SIPIKABEN MUKESHBHAI SARAIYA S URAT IN ASSTT YEAR 2005-06 VIDE ORDER DATED 25.03.2011 IN I TA NO.2669/AHD/2008. THE APPELLANT SHALL, ACCORDINGLY , ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 6 - FURNISH DETAILS OF ALL SUCH SCRIPS HELD FOR A PERI OD OF LESS THAN 30 DAYS, BEFORE THE ASSESSING OFFICER FOR GIVI NG EFFECT TO THIS ORDER. THE FIRST AND THIRD GROUNDS OF APPE AL ARE, THEREFORE, PARTLY ALLOWED. 7.1. SINCE THE ISSUE IS PARTLY COVERED IN FAVOUR O F THE APPELLANT BY THE DECISION OF MY PREDECESSOR (APPELLATE ORDER NO.CAS- II/338/10-11 DATED 24.06.2011, IN APPELLANTS OWN C ASE, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE CAPITAL GAIN FROM SALE OF SHARES HELD BY THE APPELLANT FOR A PERIOD OF ONE YE AR OR MORE AS LONG TERM CAPITAL GAIN. THE SHARES HELD BY THE A PPELLANT FOR A PERIOD OF ONE MONTH OR MORE, BUT LESS THAN ONE YEAR SHOULD BE A PERIOD OF ONE MONTH OR MORE, BUT LESS THAN ONE YEAR SHOULD BE TREATED AS INVESTMENT AND PROFIT EARNED FROM SALE O F THE SAME SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAIN, WH ILE THE SHARES HELD FOR LESS THAN A MONTH SHOULD BE TREATED AS TRA DING PURCHASES OF THE APPELLANT AND PROFITS FROM THE SAME SHOULD B E ASSESSED UNDER THE HEAD BUSINESS INCOME. THE APPELLANT SH ALL FURNISH THE DETAILS OF ALL THE SHARES WITH DURATION FOR WHICH T HE SHARES WERE HELD BY HIM, BEFORE THE ASSESSING OFFICER. CONSEQU ENTLY, THE GROUND NOS 1 AND 3 ARE PARTLY ALLOWED IN FAVOUR OF THE APPELLANT. 7. THE LD.AR MR. RASESH SHAH, AT THE OUTSET, SUBMIT TED THAT IDENTICAL ISSUE ON SIMILAR FACTS HAS ARISEN BEFORE THE HONBL E ITAT AHMEDABAD IN ASSESSEES OWN CASE IN ITA NOS.1970 & 2247/AHD/2011 & ORS. FOR AY 2006-07 AND ALSO IN OTHER ASSESSMENT YEARS, ORDER D ATED 31/05/2016 AND THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE ON SIMILAR FACTS. THEREAFTER, THE LD.AR POINTED OUT THAT THE ACTION O F THE CIT(A) IN HOLDING THE GAINS ARISING ON SALE OF SHARES WHICH W ERE HELD FOR LESS THAN ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 7 - 30 DAYS PRIOR TO ITS SALE AS BUSINESS INCOME IS W ITHOUT ANY LEGAL FOUNDATION AND MISDIRECTED IN LAW. IT WAS SUBMITT ED THAT THE SCHEME OF ACT DOES NOT PROVIDE FOR SUCH DISTINCTION WITH REFE RENCE TO PERIOD OF HOLDING. THE LD.AR ON FACTS CONTENDED THAT THE ASS ESSEE IS NOT A HABITUAL TRADER IN SHARES AND HAS DECLARED THE SHARES UNDER THE HEAD INVESTMENT IN ITS BOOKS OF ACCOUNTS. THUS, THE SHARES WERE HELD AS CAPITAL ASSETS WITH AN INTENTION TO BENEFIT FROM ITS CAPITAL ACCRE TION. HE ADVERTED TO THE ASSESSMENT ORDER AND SUBMITTED THAT THE SHARES ARE HELD AS INVESTMENT SINCE LONG AND THE INCOME TAX DEPARTMENT AS DULY AC CEPTED THE ACTION OF THE ASSESSEE UPTO AY 2005-06. IT WAS SUBMITTED TH AT THE ASSESSEE WAS ACTIVELY ENGAGED IN TEXTILE TRADING AS REFLECTED FR OM THE HIGH VOLUME THERETO WHICH FACT IS ALSO ON RECORD. DURING THE R ELEVANT ASSESSMENT YEAR, THE ASSESSEE HAS ENTERED INTO 79 TRANSACTIONS IN ST CG ONLY WHICH INCLUDES 25 TRANSACTIONS OF SCRIPS HELD FOR LESS TH AN 30 DAYS GIVE RISE TO A CAPITAL GAIN OF RS.5,58,687/- AND OF ALL 54 TRANSAC TIONS OF SCRIPS HELD FOR MORE THAN 30 DAYS TO ONE YEAR YIELDING TO A CAPITAL GAIN OF RS.50,98,907/-. THE LTCGS OF RS.18,96,152/- WAS EA RNED FROM ABOVE 19 TRANSACTIONS OR SO. IT WAS THEREFORE CONTENDED THAT SURPLUS ARISING ON SALE OF SHARES IS IN THE NATURE OF CAPITAL GAIN ON THE PARAMETERS OF VOLUME, FREQUENCY, MAGNITUDE ETC. IT WAS THUS PLEADED THA T THERE WAS NO JUSTIFICATION FOR THE CIT(A) TO ARTIFICIALLY RESTRI CT THE RELIEF ONLY IN RESPECT OF THOSE SHARES WHICH WERE HELD FOR MORE THAN 30 DA YS. THE LD.AR ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 8 - ACCORDINGLY PRAYED THAT HIS CLAIM TOWARDS CAPITAL G AIN AS PER RETURN OF INCOME DESERVES TO BE ACCEPTED IN TOTO. 8. THE LD.DR FOR THE REVENUE, MR.PRASOON KABRA, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE WAS A CLEAR PROFIT MOTIVE BEHIND ACQUISITION OF SHARES. THE FR EQUENCY OF TRANSACTIONS ARE ALSO ON THE BUSINESS SCALE AND MAGNITUDE OF THE SALES AND PURCHASE ARE SUBSTANTIAL AND THEREFORE THE ORDER OF THE AO R EQUIRES TO BE UPHELD AND THE PARTIAL RELIEF GRANTED BY THE CIT(A) IS REQ UIRED TO BE SET ASIDE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE-LAW CITED. THE LIMITED CONTROVERSY IN HAND IS WHETHER THE LTCGS AM OUNTING TO RS.18,96,152/- AND STCGS AMOUNTING TO RS.56,57,594/ - EARNED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL GAINS AS DEC LARED BY THE ASSESSEE ON A BUSINESS INCOME AS SOUGHT TO BE HELD BY THE AO. IT IS THE CASE OF THE ASSESSEE THAT THE SHARES WERE HELD AS CAPITAL ASSE T AND NOT AS A TRADING ASSET PRIOR TO ITS SALE. THE INTENTION OF THE ASS ESSEE IN THIS RESPECT CAN BE GAUGED FROM THE FACT THAT THE ASSESSEE IS OVERWHELM INGLY ENGAGED IN TEXTILE BUSINESS AND THEREFORE NOT OCCUPIED PRIMARI LY AS A TRADER. SECONDLY, IT IS CLAIMED THAT THE ASSESSEE HAS CLEAR LY MAINTAINED SEPARATION BETWEEN INVESTMENT IN SHARES AND STOCK-IN-TRADE IN ITS BOOKS OF ACCOUNTS. WE ALSO OBSERVE THAT IN THE EARLIER ASSESSMENT YEAR S, THE CIT(A) HAS TAKEN VIEW IN FAVOUR OF ASSESSEE ON SIMILAR FACTS. WE ALSO TAKE NOTE OF ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 9 - THE CONTENTION ON BEHALF OF THE ASSESSEE THAT THE C APITAL GAINS ON TRANSACTIONS HELD FOR LESS THAN 30 DAYS IS MEAGER. AS CLAIMED BY THE ASSESSEE, THERE ARE HARDLY 94 TRANSACTIONS DURING T HE WHOLE YEAR AND MAXIMUM GAINS RESULTED OUT OF SHARES WHICH WERE HEL D FOR MORE THAN 30 DAYS. FURTHER THE LTCGS OF RS.18,96,152/- WERE EA RNED FROM 19 TRANSACTIONS WHERE PERIOD OF HOLDING VARY FROM 36 5 DAYS TO 1825 DAYS. THESE FACTS DO NOT SUPPORT THE ASSUMPTION MADE BY T HE AO WITH REGARD TO VOLUME, FREQUENCY AND MAGNITUDE ADVERSE TO THE ASSE SSEE. WE NOTE THAT SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH OF THE ITAT IN ITA NOS.1970 & 2247/AHD/2011 & ORS. FOR AY 2008-09, ORD ER DATED 31/05/2016 IN ASSESSEES OWN CASE WHILE DECIDING TH E ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT PARAS OF THE TRIBUNALS OR DER READ AS UNDER:- 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE DISPUTE IS REG ARDING THE NATURE OF INCOME ON SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CA SE SHOULD BE TREATED AS CAPITAL GAIN OR AS BUSINESS INCOME HAS BEEN A DEBAT ABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE . EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE SHOW THAT THE ASSESSEE HAS SEPARATE LY SHOWN DERIVATIVE PROFIT, LONG TERM CAPITAL GAINS/SHORT TERM CAPITAL GAINS ON SHARES. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN SHARES UNDER THE HEAD 'INVESTMENT'. THESE INVESTMENT SHARES HAVE BEEN VALUED AT COST. THE HON 'BLE SUPREME COURT IN THE CASE OF CIT ASSOCIATED INDUSTRIAL DEVELOPMENT C O PVT. LTD. 82 ITR 586, WHICH DECISION HAS ALSO BEEN CONSIDERED BY THE CBDT IN ITS CIRCULAR NO. 4/2007 DT. 15.6.2007, HAS OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN T HE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCU MSTANCES, BE IN A POSITION ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 10 - TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT'. 20. THE CBDT IN ITS CIRCULAR NO. 6/2016 DATED 29.02.20 16, INTERALIA OBSERVED AS UNDER:- 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 RESPECT OF THE LISTED O NES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER INSTRUCTS 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 BUSI NESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM A S 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 IMMEDIATELY PRECEDING THE DATE OF ITS TRA NSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE A SSESSING OFFICER. 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 TO ADOP T A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (L E, WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHAL L CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY T HE CBDT. ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 11 - 21. THE ALLEGATION OF THE A.O IS THAT THE ASSESSEE HAS INDULGED INTO HIGH FREQUENCY TRANSACTION. THIS IN ITSELF COULD NOT MEA N THAT TRADING ACTIVITIES HAVE BEEN CARRIED OUT. A PRUDENT INVESTOR ALWAYS KE EP A WATCH ON THE VOLATILITY OF THE MARKET AND MAKES SOUND INVESTMENT DECISION IN ACCORDANCE WITH SUCH MARKET FLUCTUATION AND HAS THE LIBERTY TO LIQUIDATE ITS INVESTMENTS IN SHARES AS AND WHEN NECESSARY. TH E LAW ITSELF HAS RECOGNIZED THIS FACT BY TREATING THE SAME AS SHORT TERM CAPITAL GAINS FOR SHARES HELD LESS THAN 12 MONTHS AND LONG TERM CAPIT AL GAINS WHERE THE SHARES ARE HELD FOR MORE THAN 12 MONTHS. HAD THIS B EEN NOT THE CASE, ALL THE GAINS ON SHARES WOULD HAVE BEEN CONSIDERED AS B USINESS INCOME ONLY. THE FACT THAT THE LAW RECOGNIZES SUCH VOLATILITY AN D HAS SPECIFICALLY PROVIDED A SEPARATE HOLDING PERIOD IN RESPECT OF SU CH SHARES MAKES IT VERY CLEAR THOSE GAINS ON SUCH SHARES HAVING A HOLDING P ERIOD OF LESS THAN 12 MONTHS AND HELD AS INVESTMENT WOULD BE CONSIDERED A S SHORT TERMS CAPITAL GAINS ONLY. THUS THE ASSESSEES CLAIM CANNOT BE NEG ATED ON THE BASIS OF FREQUENCY OF TRANSACTION. 22. CONSIDERING THE ENTIRE FACTS IN TOTALITY, WE FIND T HAT THE ASSESSEE HAS SHOWN SHARES AS INVESTMENT RIGHT FROM THE YEAR OF P URCHASE AND THAT WAS SHOWN AS SUCH IN THE BALANCE SHEET OF THE ASSESSEE WHICH WAS FILED BEFORE THE A.O. 23.IN OUR HUMBLE OPINION, THE SHARES HAVE TO BE TRE ATED AS INVESTMENTS AND, THEREFORE ANY PROFIT EARNED ON THE SALE THEREOF IS TO BE TREATED AS CAPITAL GAINS. 10. WHILE THE VOLUME, FREQUENCY AND MAGNITUDE OF TR ANSACTIONS ARE RELEVANT FACTORS FOR DETERMINATIVE OF NATURE OF TRA NSACTIONS, NO SINGLE TEST BY ITSELF IS DETERMINATION OF THE ISSUE. THE CUMUL ATIVE EFFECT HAS TO BE WEIGHED TO DETERMINE AS TO WHETHER THE IMPUGNED TRA NSACTIONS BEAR THE TRAPPINGS OF ADVENTURE IN THE NATURE OF TRADE OR CO MMERCE ETC. OR OTHERWISE. IN THE LIGHT OF AFORESAID DECISION REND ERED IN SIMILAR FACTS AND ON THE TOTALITY OF THE FACTS, WE FIND NO REASON TO DRAW ADVERSE INFERENCE ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 12 - AGAINST THE CLAIM OF THE ASSESSEE. THEREFORE, THE A PPEAL OF THE REVENUE IS LIABLE TO BE DISMISSED. 11. AS REGARDS THE GRIEVANCE OF THE ASSESSEE, WE FI ND CONSIDERABLE MERIT THEREIN. MERE FACT THAT THE ASSESSEE HAS AL SO QUICKLY SOLD SHARES IN SOME INSTANCES WITHIN THE SHORT INTERVAL WOULD NOT IPSO FACTO LEAD TO A CONCLUSION THAT THE ASSESSEE WAS A TRADER IN THE SH ARES. THE ACTION OF THE CIT(A) IN BIFURCATING THE GAINS BASED ON THE PERIOD OF HOLDING OF LESS THAN 30 DAYS AND MORE THAN 30 DAYS IS NOT SUPPORTAB LE BY THE SCHEME OF THE ACT. THE STCGS AS DEFINED UNDER SECTION 2(42A) DOES NOT CONTEMPLATE SUCH BIFURCATION. THUS, THE AFORESAID ACTION OF THE CIT(A) IS A MERE IPSE DIXIT OF THE CIT(A) AND IS NOT SUSTAINABLE IN LAW. HENC E, THE PLEA ON BEHALF OF THE ASSESSEE DESERVES ACCEPTANCE. AS A RESULT, GRIEVANCE OF THE ASSESSEE RAISED IN GROUND NO.1 IS DECIDED IN FAVOUR OF ASSESSEE. 12. GROUND NO.2 OF THE ASSESSEES APPEAL CONCERNS D ISALLOWANCE UNDER SECTION 14A OF THE ACT WHICH WAS NOT PRESSED AND AC CORDINGLY STANDS DISMISSED. ITA NO.328/AHD/2014 (BY ASSESSEE) ITA NO.357/AHD/2014 (BY REVENUE) RAMAKANT R. KASAT VS.DCIT ASST.YEAR 2010-11 - 13 - 13. IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03/01/2017 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 03/ 01 /2017 2..',.'../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 345* 6* / CONCERNED CIT 4. 6* ( ) / THE CIT(A)-II, SURAT 5. 789*'45 , 45. , 3 / DR, ITAT, AHMEDABAD 6. 9;( / GUARD FILE. / BY ORDER, &7** //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 27.12.16 (DICTATION-PAD 25 -PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.12.16/02-01-2017 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.03.01.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 03.01.17 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