ADDL CIT RG 20(2), MUMBAI V. PRAKASH AMRUTLAL SHAH, MUMBAI

ITA 329/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9124 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Business income; Opportunity of being heard; Rule of consistency; Transactions in derivatives; Speculation loss; Futures and options
• Section: 45(2); 234B; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , . . ! , ' #$ % BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLA IYA, AM ./I.T.A. NO. 6396/MUM/2009 ( & & & & / ASSESSMENT YEAR :2006-07 SHRI PRAKASH AMRITLAL SHAH, A-101, MOTA NAGAR, ANDHERI KURLA ROAD, CHAKALA, ANDHERI (EAST), MUMBAI-400 099 / VS. THE ACIT 20(2), PIRAMAL CHAMBERS, MUMBAI ./I.T.A. NOS. 329 & 6555/MUM/2010 ( & & & & / ASSESSMENT YEARS :2006-07 & 2007-08 THE ACIT 20(2), PIRAMAL CHAMBERS, MUMBAI / VS. SHRI PRAKASH AMRITLAL SHAH, A-101, MOTA NAGAR, ANDHERI KURLA ROAD, CHAKALA, ANDHERI (EAST), MUMBAI-400 099 $' ' ./ () ./PAN/GIR NO. : ABVPS 5671F ( '* /APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / ASSESSEE BY: SHRI VIJAY KOTHARI +,'* . - / REVENUE BY : SHRI RAJARSHI . /0' / DATE OF HEARING : 10.12.2012 12& . /0' / DATE OF PRONOUNCEMENT : #3 / O R D E R PER N.K. BILLAIYA, AM: THE APPEAL IS FILED BY THE ASSESSEE AND THE CROSS A PPEALS ARE FILED BY THE REVENUE ARE DIRECTED AGAINST THE ORDERS OF T HE LD. CIT(A)-31, MUMBAI PERTAINING TO A.YRS. 2006-07 & 2007-08. SI NCE ALL THE APPEALS ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 2 BEING DIRECTED AGAINST THE VERY SAME ORDER HAVE COM MON ISSUES, THEREFORE ALL THESE APPEALS ARE DISPOSED OFF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 6396/MUM/2009- A.Y. 2006-07 2. THE ASSESSEE IS IN THE BUSINESS AS INVESTMENT CO NSULTANT, MONEY LENDERS, SUB-BROKERS AND DEALING IN SHARES. RETURN FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 31.10.2006 DECLARING TOT AL INCOME AT RS. 71,04,780/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES U/S. 143(2) AND 142( 1) WERE DULY ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE HAS RETURNE D INCOME UNDER THE HEADS SHORT TERM CAPITAL GAINS AT RS. 72,04,778/-, NET PROFIT FOR FUTURES AND OPTIONS AT RS. 23,95,361/- AND SPECULATION INC OME AT RS. 11,38,242/- . FURTHER, THE ASSESSEE HAS ALSO SHOWN NET LOSS FR OM PROPRIETARY CONCERN WHICH IS ALSO ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND ALSO INCOME FROM BANK INTEREST, INTEREST ON LOANS AND DEBENTURE S ETC. THE ASSESSEE HAS ALSO SHOWN CAPITAL LOSS ON SALE OF SHARES. 2.1 DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER OBSERVED THAT THE SO CALLED SHORT TERM CAPI TAL GAIN IS NOTHING BUT BUSINESS INCOME AS APPEARS FROM THE FACTS OF THE CA SE THAT THE ASSESSEE IS ENGAGED IN THE TRADING OF SHARES IN THE DISGUISE OF BEING AN INVESTOR. THEREAFTER, THE AO ANALYZED SHARES AS EXHIBITED AT PAGES 7 TO 10 OF THE ASSESSMENT ORDER AND FOUND THAT THE ASSESSEE IS ENG AGED IN MULTIPLE TRADES IN THE SAME SHARES, THE OPERATION IS SYSTEMATIC AND REGULAR. DRAWING SUPPORT FROM THE CIRCULAR NO. 4 OF CBDT DT. 15.6.20 07 WHEREIN THE GUIDELINES HAVE BEEN ISSUED TO THE AO ON THE QUESTI ON WHETHER TRANSACTIONS OF PURCHASE AND SALE OF SHARES ARE TO BE TREATED AS TRADING ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 3 TRANSACTION OR TO BE TREATED AS MERE INVESTMENT. T HE AO OBSERVED THAT THE TIME DEVOTED BY THE ASSESSEE IS EXCLUSIVELY FOR TRADING IN FUTURES AND OPTIONS, SHARES IN THE STOCK MARKET. THE ASSESSEE IS NOT ENGAGED IN ANY OTHER ACTIVITY EVEN THE CONCERN IN WHICH THE ASSESS EE IS A PROPRIETOR IS ALSO DEALING IN SHARES AND SECURITIES. THE AO FURT HER POINTED OUT THAT AS THE ASSESSEE IS ENGAGED IN F&O TRADING IN STOCK MA RKET WHICH IN ANY CASE IS A BUSINESS INCOME, THEREFORE DEALING IN SHA RES IS AN INTEGRAL PART OF THE SAME ACTIVITY DONE IN THE STOCK MARKET. THE AO FURTHER NOTED THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS BORR OWED FUNDS AT RS. 69.06 LAKHS. FURTHER, THE HOLDING PERIOD OF 123 SC RIPS RUNNING ACROSS 618 TRANSACTIONS IS LESS THAN 30 DAYS. IT IS ALSO MENT IONED BY THE AO THAT OUT OF THE TOTAL TRANSACTIONS, 54 TRANSACTIONS ARE SUCH THAT THE PERIOD OF HOLDING IS ONLY ONE DAY. 332 TRANSACTIONS ARE SUCH WHERE HOLDING PERIOD IS UPTO ONE WEEK. 478 TRANSACTIONS HAVE HOLDING PE RIOD OF 15 DAYS, 616 TRANSACTIONS HAVE BEEN SQUARED OFF IN A MONTH AND I N THE CASE OF 745 TRANSACTIONS, THE PURCHASE AND SALE HAVE BEEN COMPL ETED WITHIN 90 DAYS. THE FREQUENCY OF TRANSACTION IS NOT ONLY VERY HIGH BUT ALSO VERY REGULAR. ON THESE FACTUAL BACKGROUND, THE ASSESSEE WAS ASKED TO SUBSTANTIATE HIS CLAIM THAT THE GAIN ARISING FROM SHARES AND SECURIT IES IS SHORT TERM CAPITAL GAINS. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE FILED A DETAILED REPLY AS UNDER: 4.2 IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE, TH E AUTHORISED REPRESENTATIVE OF THE ASSESSEE VIDE HIS LETTER DTD. HAS SUBMITTED AS UNDER: IN RESPONSE TO YOUR SHOW CAUSE NOTICE NO: ACIT 20(2)/SCRUTINY/2008-09 DATED 08.12.2008, SIR, I HAV E TO STATE THAT I HAVE ALREADY GIVEN MY DETAILED SUBMISSIONS VIDE MY LETTERS DATED 23.02.2008, 10.03.2008, 01. 04.2008, 15.09.2008, 08.10.2008 AND 05.11.2008. ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 4 WITHOUT PREJUDICE TO ANYTHING AND/OR ANY SUBMISSION S MADE BY ME IN THIS REGARD, IN CASE YOU TREAT ME AS A TRADER IN SHARES NOW, AS AGAINST AN INVESTOR IN SHA RES AS STATED BY ME, YOU MAY KINDLY TAKE THE FOLLOWING INTO CONSIDERATION, PRIOR TO THE MAKING OF THE FINAL ASSESSMENT ORDER FOR THE A. Y. 2006-07: 1. PLEASE TAKE INTO CONSIDERATION, THE ENCLOSED STATEMENT OF TAX WORKING, WHICH HAS BEEN PREPARED B Y ME, TO GIVE YOU A CORRECT PICTURE OF MY INCOME FOR THE A. Y. 2006-200 7 IN CASE I AM TREATED AS A TRADER I N SHARES BY YOU AND NOT AS AN INVESTOR AND AS PER WHI CH AN AMOUNT OF RS.9,42,607.00 IS DUE TO ME, BY WAY OF REFUND OF TAX PLEASE. 2. YOU MAY KINDLY TAKE INTO ACCOUNT, THE VALUE OF T HE CLOSING STOCK AT RS. 55,79,211.93, AS AGAINST MY INVESTMENT (AT COST) VALUE OF RS.81,02,756.91 SHOWN BY ME, IN MY BALANCE SHEET AS AT 31.03.2006 (THE REVISED WORKING IN THIS CONNECTION IS ENCLOSED HEREWITH FOR YOUR READY REFERENCE PLEASE). THIS IS IN VIEW OF THE FACT THAT IF I AM TREATED AS A TRADER, THEN THE CLOSING STOCK SHOULD BE VALUED AT COST OR MARKE T PRICE, WHICHEVER IS LOWER, AS ON 31.03.2006 (A XERO X COPY OF THE OFFICIAL SHARES PRICE LIST OF BSE AS ON 31.03.2006 IS ALSO ENCLOSED HEREWITH FOR YOUR READY REFERENCE PLEASE. YOU MAY ALSO GET THE SAME ON BSE SITE AT WWW.BSEINDIA.COM PLEASE). THIS WOULD REDUCE MY BUSINESS INCOME BY RS.25,23,544.98, DUE TO THE LOSS IN THE VALUE OF SHARES HELD BY ME, IF MY INVESTMENTS ARE TREATED AS CLOSING STOCK AND THE VALUATION OF SAME IS DONE AS MENTIONED ABOVE PLEASE . 3. ALSO, SHARES HAVING NIL VALUE HAVE BEEN WRITTEN OFF TO THE EXTENT OF RS,3,17,116.00, DURING THE YEAR, (ALREADY DISCLOSED IN MY RETURN) WHICH MAY BE ALLOWED .AS A BU1NESS LOSS, IN CASE I AM TREATED AS A TRADER IN SHARES BY YOU AND NOT AS AN INVESTOR (A STATEMENT OF THESE SHARES HAS BEEN ALSO ENCLOSED HEREWITH PLEASE). 4. SINCE I HAVE FILED MY RETURN OF INCOME AS AN INVESTOR, I HAVE NOT TAKEN THE BENEFIT OF THE SECUR ITY ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 5 TRANSACTION TAX PAID BY ME. IN CASE I AM TREATED AS A TRADER IN SHARES BY YOU AND NOT AS AN INVESTOR, YOU MAY KINDLY GIVE ME THE CREDIT FOR THE SECURITY TRANSACTION TAX PAID BY ME PLEASE, WHILE FINALIZING MY ASSESSMENT ORDER FOR THE A. Y.2006-2007. I AM ALSO ENCLOSING HEREWITH ORIGINAL CERTIFICATES OF SECURITY TRANSACTION TAX FOR AN AMOUNT OF RS 4,18,566.00. IN CASE YOU ARE IN DISAGREEMENT WITH WHATEVER IS STATED BY ME ABOVE, SIR, MAY I REQUEST YOU TO KINDL Y GIVE ME AN OPPORTUNITY TO EXPLAIN THE SAME TO YOU PLEASE. 2.3 IN CONTINUATION TO HIS EARLIER SUBMISSIONS, THE ASSESSEE FILED ANOTHER DETAILED SUBMISSION AS UNDER: FURTHER, THE ASSESSEE SUBMITTED ONE MORE SUBMISSION ON 24.12.2008, THE SAME IS REPRODUCED HEREUNDER: WITH REFERENCE TO THE ABOVE, THE UNDERSIGNED CAME AND MET YOU ON 23.12.2008 AND SUBMITTED A REPLY TO YOUR SHOW CAUSE NOTICE DATED 08.12.2008. DURING THE DISCUSSIONS, YOUR GOOD SELVES HAVE ASKED FOR THE CERTAIN ADDITIONAL DETAILS PERTAINING TO TH E OPENING STOCK OF SHARES AND THE VALUATION OF THE SA ME. WITHOUT PREJUDICE TO ANYTHING AND/OR ANY SUBMISSION S MADE BY ME, EARLIER IN THIS REGARD, I AM SUBMITTING HEREWITH THE OPENING STOCK STATEMENT, AS DESIRED BY YOU. IN CASE YOU WANT TO TREAT ME AS A TRADER IN SHARES NOW, THE SAME OPENING STOCK STATEMENT MAY PLEASE BE CONSIDERED BY YOU. YOU MAY NOTE FROM THE ENCLOSED STATEMENT OF STOCK THAT MY INVESTMENT AT COST, AS ON 31.03.2005 WAS RS.1,31,35,058.34. NOW, IF YOU TREAT ME AS A TRADER IN SHARES, MY INVESTMENTS WOULD GET CONVERTED INTO STOCK-IN-TRADE AS ON 01.04.2005 AND THE MARKET VALU E ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 6 (VALUATION AT COST OR MARKET VALUE, WHICHEVER IS LOWER) OF THE SAME WOULD BE RS.94,93,750.65. NOW, THE DIFFERENCE BETWEEN MY COST OF INVESTMENTS AND THE VALUE OF STOCK CONVERTED AS ON 01.04.2005 SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS U/S 45(2) OF THE INCOME TAX ACT, 1961. SUCH SHORT TERM CAPITAL GAINS IN MY CASE WOULD AMOUNT TO A SHORT TERM CAPITAL LOSS OF RS.36,41,307.69. THIS SHORT TERM CAPITAL LOSS OF RS.36,41,307.69 SHOULD ALSO BE TAKEN INTO ACCOUNT, WHILE COMPUTING MY BUSINESS INCOME, BECAUSE YOU PROPOSE TO TREAT MY SHORT TERM CAPITAL GAINS OF THE YEAR, AS BUSINESS INCOME. THEREFORE, THIS BENEFIT OF SHORT TERM CAPIT AL LOSS OF RS. 36,41,307.69 SHOULD ALSO BE ALLOWED BY TREATING AS A BUSINESS LOSS OF THE YEAR. I HOPE, SIR, YOU WOULD FIND THE ABOVE IN ORDER PLEA SE. I ALSO HOPE THAT YOU WOULD KINDLY TREAT MY INCOME, UNDER THE HEAD SHORT TERM CAPITAL GAINS ONLY AS STATED BY ME EARLIER. HOWEVER, IN CASE YOU WANT TO TREAT MY INCOME UNDER THE HEAD BUSINESS INCOME, I WOULD REQUEST YOU TO KINDLY GIVE ME ALL THE BENEFIT S OF A BUSINESSMAN (TRADER IN SHARES) UNDER THE INCOME TAX ACT. 1961 PLEASE. IN CASE YOU NEED ANY FURTHER DETAILS, I WOULD SUREL Y PROVIDE THE SAME, AS AND WHEN CALLED FOR PLEASE. 2.4 AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE, THE AO DID NOT ACCEPT THE CONTENTION OF T HE ASSESSEE. THE AO WAS OF THE OPINION THAT CONSIDERING THE VOLUME AND THE FREQUENCY OF THE TRANSACTION ALONGWITH THE HOLDING PERIOD ADDED WITH BORROWED FUNDS, THERE IS NO DOUBT THAT THE ASSESSEE IS ACTUALLY ENG AGED IN THE BUSINESS OF PURCHASE OF SALE OF SHARES AND CANNOT BE SAID TO BE AN INVESTOR. THE AO RELIED UPON THE DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN THE CASE OF DCIT VS. SMT. DEEPABEN AMITBHAI SHAH (2006) 100 TTJ 1065 WHEREIN IT WAS HELD THAT WHETHER OR NOT A PERSON CARRIES ON BU SINESS IN A PARTICULAR ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 7 COMMODITY CAN BE INFERRED FROM THE VOLUME, FREQUENC Y, CONTINUITY AND REGULARITY OF THE TRANSACTIONS AND THE MOTIVE INVOL VED. THE AO FURTHER REJECTED THE SUBMISSION OF THE ASSESSEE THAT IN THE PRECEDING YEARS THE GAINS HAVE BEEN ASSESSED AS STCG/LTCG STATING THAT THE PRINCIPLES OF RES-JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS . THEREAFTER, THE AO WENT ON TO TREAT STCG AS BUSINESS INCOME AND ADDED RS. 72,04,778/- UNDER THE HEAD BUSINESS INCOME. 3. THE ASSESSEE QUESTIONED THIS BEFORE THE LD. CIT (A) AND REITERATED HIS SUBMISSION THAT HE IS AN INVESTOR AND NOT A TRA DER IN SHARES. FURTHER, WHEREVER HE HAS DONE TRANSACTION AS A TRADER HAS BE EN SHOWN UNDER THE HEAD BUSINESS INCOME. IT WAS EXPLAINED BY THE AS SESSEE THAT HE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT, BANK ACCOUNT S AND DEMAT ACCOUNTS FOR SCRIPS SHOWN UNDER THE HEAD INVESTMENT S AND STOCK IN TRADE. IT WAS FURTHER EXPLAINED THAT WHENEVER A SCRIP WAS PURCHASED WITH AN INTENTION OF INVESTMENT, IT IS SHOWN UNDER THE HEAD INVESTMENT OTHERWISE THE SAME IS SHOWN UNDER THE HEAD STOCK-IN -TRADE. THE ASSESSEE FURTHER CLAIMED THAT ON SIMILAR PATTERN AND IDENTIC AL FACTS, THE AO HAS ACCEPTED THE STCG AND LTCG AS SHOWN BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEARS. 3.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSION S OF THE ASSESSEE, THE LD. CIT(A) WAS OF THE OPINION THAT THE FACTS OF ASS ESSEES CASE IS MORE OR LESS IDENTICAL TO THE FACTS OF THE CASE OF SH. GOP AL PUROHIT VS JCIT EXCEPT THAT IN ASSESSEES CASE FOR THE YEAR UNDER C ONSIDERATION , THE SHARE TRANSACTION IN CERTAIN SCRIPS WERE HIGH, FREQUENT, CONSISTENT AND REPEATED. THE LD. CIT(A) FURTHER FOUND THAT IN CERTAIN SCRIPS , THE PURCHASE AND SALE IS MORE THAN FOUR TIMES IN THE SAME SHARES DURING T HE YEAR. THIS FEATURE OR THE FACTUAL ASPECTS HAS ALSO NOT BEEN DENIED BY THE ASSESSEE, IS RELATED ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 8 TO HIS BUSINESS CARRIED OUT IN THESE SHARES AND THE LOSS OR PROFIT REALIZED THROUGH THESE TRANSACTIONS CANNOT BE HELD AS STCG/L TCG. THE LD. CIT(A) HAS EXHIBITED SUCH SCRIPS AS ANNEXURE A TO HIS ORDER. ACCORDINGLY, OUT OF THE TOTAL ADDITION OF RS. 72,04 ,778/- FROM GAINS IN SHARES UNDER THE HEAD BUSINESS INCOME , THE LD. CI T(A) CONFIRMED THE ADDITION ONLY TO THE EXTENT OF RS. 64,02,991/- AND DIRECTED THE AO TO TREAT RS. 8,01,787/- UNDER THE HEAD STCG. 4. THE ASSESSEE AND REVENUE BEING AGGRIEVED BY THIS FINDING OF THE LD. CIT(A) ARE BEFORE US. THE LD. COUNSEL FOR THE A SSESSEE STRONGLY SUBMITTED THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR INVESTMENT AND TRADING PURPOSES. NOT ONLY THAT THE ASSESSEE IS ALSO MAINTAINING SEPARATE DEMAT ACCOUNT AND BANK ACCOUNT S FOR THE TRANSACTIONS UNDERTAKEN IN THESE TWO CATEGORIES. T HE LD. COUNSEL FURTHER ARGUED THAT ON SIMILAR SET OF FACTS, THE ASSESSEE H AS BEEN ASSESSED AS AN INVESTOR AND THE GAINS HAVE BEEN ACCEPTED AS STCG/L TCG IN NOT ONLY PRECEDING ASSESSMENT YEARS BUT ALSO IN SUBSEQUENT ASSESSMENT YEARS. TO SUBSTANTIATE HIS CLAIM, THE LD. COUNSEL FILED COPIE S OF THE ASSESSMENT ORDER FOR A.Y. 2008-09 AND TO FURTHER SUBSTANTIATE HIS SUBMISSION, THE LD. COUNSEL RELIED UPON THE DECISION OF THE TRIBUNAL IN ITA NO. 961 & 1836/MUM/2010 EMPHASIZING ON HIS POINT THAT RULE OF CONSISTENCY SHOULD BE FOLLOWED. THE LD. COUNSEL FURTHER PLACED RELIANC E ON THE DECISION OF THE TRIBUNAL IN ITA NO. 2690/MUM/2010. 5. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE S TRONGLY SUPPORTED THE FINDINGS OF THE AO AND SUBMITTED THAT THE LD. C IT(A) HAVING ACCEPTED THAT THE ASSESSEE IS ENGAGED IN VOLUMINOUS TRANSACTIONS IN THE SAME SCRIPS REPEATEDLY , SHOULD HAVE CONFIRMED THE ASSESSMENT ORDER INSTEAD OF GIVING PARTIAL RELIEF TO THE ASSESSEE. ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 9 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE JUDICIAL DECISIONS RELIED UPON BY THE RIVAL PARTIES. THE DISPUTE IS REGARDING THE NATURE OF IN COME FROM SALE AND PURCHASE OF SHARES BY THE ASSESSEE. THE ISSUE, WHE THER THE INCOME FROM SALE AND PURCHASE OF SHARES IN A PARTICULAR CASE SH OULD 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 I SSUE. EACH CASE IS, THEREFORE, TO BE BASED ON ITS OWN FACTUAL SITUATION . 7. FACTS OF THE PRESENT CASE AND AS DEMONSTRATED BY THE AO IN HIS ASSESSMENT ORDER CLEARLY SHOW THE CHURNING OF SHARE S REPEATEDLY BY THE ASSESSEE. THE VOLUME AND THE FREQUENCY OF TRANSACT ION IS ENOUGH TO SUGGEST THAT THE ASSESSEE IS DEFINITELY NOT AN INVE STOR BUT A TRADER. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NO OTHER ACTI VITY AND IS FULLY ENGAGED IN STOCK MARKET. THE HOLDING PERIOD IS ALSO NOT SU GGESTIVE OF BEING AN INVESTOR. IN THE CASE OF THE SHARES OF KIRLOSKAR FERROS, IT IS SEEN THAT IN ONE MOTH THE ASSESSEE HAS TRANSACTED 22 TIMES AND S URPRISINGLY , CLAIMING HIMSELF TO BE AN INVESTOR, ON ALL 22 OCCASIONS, TH E ASSESSEE HAS SOLD SCRIPS AT A LOSS WHICH IS NOT JUSTIFIABLE FOR AN IN VESTOR ,BECAUSE, COMMONLY AN INVESTOR WOULD INVEST IN A SHARE AND LA Y BACK AND AS AND WHEN THE SHARE PRICES RISE AND THE INVESTOR INTEND TO RESHUFFLE HIS PORTFOLIO HE WOULD BOOK PROFIT AND CHANGE THE PORTF OLIO. BUT FACTS OF THE PRESENT CASE SHOW THAT THE ASSESSEE HAS BEEN SELLIN G SHARES EVEN AT A LOSS. ANOTHER EXAMPLE IS THAT OF THE SHARES OF ENCORE SOF TWARE. IN THIS CASE, DURING THE PERIOD FROM MARCH TO JULY, THE ASSESSEE HAS TRANSACTED 30 TIMES AND ONCE AGAIN ON EVERY TRANSACTION, THE ASSE SSEE HAS BOOKED LOSS. THE CONTENTION OF THE ASSESSEE THAT IN THE PRECEDIN G YEARS, THE DEPARTMENT HAS ACCEPTED GAINS AS STCG/LTCG CANNOT BE ACCEPTED BECAUSE EACH ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 10 ASSESSMENT YEAR IS CONSIDERED AS A SEPARATE UNIT A ND WE DO NOT KNOW THE FACTS OF THE PRECEDING YEARS AND ALSO THE SUCCEEDIN G YEARS BUT WE DO KNOW THE FACTS OF THE PRESENT CASE AND CONSIDERING THE FACTS IN TOTALITY, WE HAVE NO HESITATION TO HOLD THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES CONSIDERING THE PECULIA RITY OF THE FACTS AND CIRCUMSTANCES IN WHICH THE TRANSACTION HAS BEEN DON E. AT THE SAME TIME, WE FIND THAT THE LD. CIT(A) HAS GROSSLY ERRED IN DI RECTING THE AO TO TREAT RS. 8,01,787/- AS SHORT TERM CAPITAL GAINS. ONCE IT IS ESTABLISHED THAT THE NATURE OF TRANSACTIONS ARE SUCH THAT THE ASSESSEE I S TRADING IN SHARES, IT DOES NOT MAKE ANY DIFFERENCE WHETHER HE HAS TRANSAC TED IN THE SAME SHARES MORE THAN FOUR TIMES OR LESS THAN FOUR TIME S. TO THAT EXTENT, WE DO NOT AGREE WITH THE FINDINGS OF THE LD. CIT(A). WE ACCORDINGLY REVERSE THE FINDINGS OF THE LD. CIT(A) AND ALLOW REVENUES APPEAL ON THIS ISSUE AND DISMISS ASSESSEES APPEAL ON THE SAME ISSUE. ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE AO. RS. 72,04,778/- IS TO BE TAXED UNDER THE HEAD BUSINESS INCOME. 8. OTHER GROUNDS IN REVENUES APPEAL IN ITA NOS. 32 9 & 6555/MUM/2010 ARE DIRECTLY RELATED TO GROUND NO. 1 AND ARE ACCORDINGLY ALLOWED. 9. GROUND NO. 2 IN ASSESSEES APPEAL RELATES TO TH E CLAIM OF SET OFF OF BUSINESS LOSS FROM F&O AGAINST INCOME ASSESSABLE FO R THE YEAR. 10. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE HAS EARNED INCOME FROM TRADING I N DERIVATIVES BEING FUTURES AND OPTIONS TO THE TUNE OF RS. 23,95,631/- AND HAS SET OFF THE SAME AGAINST THE BROUGHT FORWARD LOSSES OF RS. 32, 11,631/- AND THE BALANCE IS FURTHER CARRIED FORWARD TO THE SUBSEQUEN T ASSESSMENT YEAR. HOWEVER, APPLYING THE PROVISO (D) TO SECTION 43(5) OF THE ACT R.W. ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 11 NOTIFICATION NO. 2 OF 2006, THE AO OPINED THAT A TR ANSACTION IN DERIVATIVES BEING FUTURES & OPTIONS AFTER 25 TH JANUARY, 2006 IS DEEMED NOT TO BE A SPECULATION TRANSACTION WHICH MEANS THAT PRIOR TO 2 5.1.2006 THE SAME TRANSACTION WAS TO BE CONSIDERED AS A SPECULATION T RANSACTIONS. IN THE LIGHT OF THE PROVISIONS OF SEC. 43(5), THE AO WAS O F THE OPINION THAT ONLY THE INCOME EARNED FROM THE TRADING IN DERIVATIVES B EFORE 25.1.2006 AMOUNTING TO RS. 17,60,728/- IS ALLOWED TO BE SET O FF AGAINST THE BROUGHT FORWARD SPECULATION LOSS FROM THE ACTIVITY OF TRADI NG IN DERIVATIVES. HOWEVER, AS WE HAVE HELD THAT THE INCOME FROM SHARE S IS TO BE TREATED AS BUSINESS INCOME, WE ACCORDINGLY RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO CONSIDER THE CLAIM OF LO SS IN THE LIGHT OF OUR DECISION, AS PER PROVISIONS OF THE LAW. GROUND NO . 2 IS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO. 3 RELATES TO DISALLOWANCE OF THE SET OFF OF LOSS DISCLOSED UNDER THE HEAD BROUGHT FORWARD LONG TERM CAPITAL LO SS. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT T HE ASSESSEE HAS CERTAIN BROUGHT FORWARD LONG TERM CAPITAL LOSS WHICH SHOULD BE ALLOWED TO BE SET OFF AGAINST BUSINESS INCOME OF THE SHARES AS THE NA TURE OF THE UNDERLYING ASSETS IS THE SAME I.E. SHARES. THE LD. COUNSEL PL ACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN ITA NO. 1798/MUM/2010. 12. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON T HE ORDERS OF THE LOWER AUTHORITIES. 13. WE HAVE CONSIDERED THE SUBMISSIONS AND THE DECI SIONS RELIED UPON BY THE COUNSEL. WE FIND THAT THE SAME IS MISPLACED AND NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE BECAUSE IN THAT CASE, THE ISSUE INVOLVED WAS THE TREATMENT OF PROFITS/LOSSES FROM DERIVATIVE MARKET IN FUTURES AND OPTIONS. IT WAS ON THAT BACKGROUND, THE TRIBUNAL H ELD THAT PRIOR TO THE ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 12 AMENDMENT TO SEC. 43(5), F&O TRANSACTIONS WERE TREA TED AS SPECULATIVE TRANSACTION BUT POST AMENDMENT, THE SAME WAS TREATE D AS BUSINESS TRANSACTION . AS THE UNDERLYING NATURE OF THE TRANSACTION WAS THE SAME I.E. F&O, THEREFORE BROUGHT FORWARD LOSSES WHICH WERE ER STWHILE TREATED AS SPECULATIVE LOSSES WERE ALLOWED TO BE SET OFF AGAIN ST SUBSEQUENT YEARS F&O PROFIT. HOWEVER, IN THE PRESENT CASE, THE LOSS WHICH THE A SSESSEE CLAIMS TO SET OFF IS LONG TERM CAPITAL LOSS AND THE RE IS NO SUCH AMENDMENT SO FAR AS CLAIM OF SUCH LOSS IS CONCERNED . THEREFORE WE DO NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESSEE TO ALLOW SET OFF OF LONG TERM CAPITAL LOSS AGAINST BUSINESS INCOME. GROUND NO. 3 IS ACCORDINGLY DISMISSED. 14. GROUND NOS. 4 & 5 READ AS UNDER: 4. THE LD. CIT(A) ERRED IN NOT ALLOWING THE ENTIRE LOSS ARISING OF RS. 25,23,545/- ON ACCOUNT OF VALUATION OF CLOSING STOCK AS PER THE RECOGNIZED METHOD COST OR MARKET VALUE WHICHEVER IS LOWER. 5. THE LD. CIT(A) ERRED IN NOT ALLOWING THE LOSS AR ISING OF RS. 3,17,116/- ON ACCOUNT OF THE SHARES WRITTEN OFF ON THE BASIS OF VALUATION OF CLOSING STOCK AS PER T HE RECOGNIZED METHOD COST OR MARKET VALUE WHICHEVER I S LOWER 15. AS WE HAVE HELD THAT STCG IS TO BE TREATED AS B USINESS INCOME, GRIEVANCE RAISED BY THE ASSESSEE IN GROUND NOS. 4 & 5 (SUPRA) DESERVE TO BE RECONSIDERED BY THE AO. WE ACCORDINGLY RESTORE THESE ISSUES BACK TO THE FILE OF THE AO. THE AO IS DIRECTED TO EXAMINE THE CLAIM OF LOSS OF THE ASSESSEE IN THE LIGHT OF THE DECISION THAT ENTIRE S TCG IS TO BE TAXED UNDER THE HEAD BUSINESS INCOME , AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 4 & 5 ARE ALLOWE D FOR STATISTICAL PURPOSES. ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 13 16. GROUND NO. 6 RELATES TO THE CLAIM OF REBATE U/S .88E OF THE ACT ON ACCOUNT OF STT PAID BY THE ASSESSEE. 17. THIS ISSUE ALSO REQUIRES VERIFICATION BY THE AO IN THE LIGHT OF THE DECISION OF GROUND NO. 1. THE AO IS ACCORDINGLY DI RECTED TO CONSIDER THE CLAIM OF THE REBATE U/S. 88E AS PER THE PROVISIONS OF THE LAW AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. GROUND NO. 6 IS ALLOWED FOR STATISTICAL PURPOSES. 18. GROUND NO. 7 RELATES TO CHARGING OF INTEREST U/ S. 234B AND 234C OF THE ACT. THIS GRIEVANCE IS CONSEQUENTIAL TO THE FI NDING OF GROUND NO. 1. THEREFORE, THE AO IS DIRECTED TO RECONSIDER IT WHIL E FRAMING THE ASSESSMENT ORDER IN THE LIGHT OF THE DIRECTIONS GIV EN HEREINABOVE. 19. GROUND NO. 8 RELATES TO THE INITIATION OF PENAL TY U/S. 271(1)(C) OF THE ACT. THIS GROUND IS PRE-MATURE AND IS ACCORDIN GLY DISMISSED. 20. IN THE RESULT, THE APPEALS OF THE REVENUE ARE A LLOWED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2012 . #3 . 2& ' 4 5#6 14.12.2012 2 . 7 SD/- SD/- (B.R.MITTAL) (N.K. BILLAIYA) #$ /JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 5# DATED 14.12.2012 . . ./ RJ , SR. PS ITA NO. 6396/M/09 & ITA NOS. ,329 & 6555/M/10 14 #3 #3 #3 #3 . .. . +/ +/ +/ +/ 8&/ 8&/ 8&/ 8&/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :7 +/ , , / DR, ITAT, MUMBAI 6. 7; < / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,/ +/ //TRUE COPY// = == = / > > > > ( ( ( ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI