Diligent Services Private Limited, V. ACIT,

ITA 3299/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58448 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S KRISHNA
• Keywords: Capital asset; Business income; Speculation loss
• Section: 14A

Judgement Text

ITA NOS. 3299 & 3318/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3299/DEL/2009 A.Y. : 2006-07 M/S DILIGENT SERVICES PRIVATE LIMITED, R.N. 201, S-524, AGARWAL COMPLEX, VIKAS MARG, SHAKARPUR, DELHI 110 092 (PAN : AAACD4289R) VS. ACIT, CIRCLE 10(1), NEW DELHI AND ITA NO. 3318 /DEL/2009 A.Y. 2006-07 ACIT, CIRCLE-10(1), VS. M/S DILIGENT SERVICES P RIVATE LIMITED, NEW DELHI R.N. 201, S-524, AGARWAL COMPLEX , ROOM NO. 406, 4 TH FLOOR, CR BUILDING, VIKAS MARG, SHAKARPUR, IP ESTATE, NEW DELHI DELHI 110 092 (PAN : AAACD4289R) (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (APPELLANTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) (RESPONDENTS ) ASSEESSEE BY : SH. AJAY VOHRA, ADV. DEPARTMENT BY : SH. S. KRISHNA, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVEN UE EMANATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) DATED 15.5.2009 AND PERTAIN TO ASSESSMENT YEAR 2006-07. ITA NOS. 3299 & 3318/DEL/2009 2 2. THE GROUNDS RAISED IN THE ASSESSEES APPEAL REA D AS UNDER:- (I) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN ASSESSING THE GAINS OF ` 1,10,25,787/- ARISING ON S ALE OF SHORT TERM CAPITAL ASSETS BEING INVESTMENT IN EQ UITY SHARES AS PROFITS AND GAINS OF BUSINESS AND PROFESSION INSTEAD OF SHORT TERM CAPITAL GAINS BY HOLDING THE INVESTMENT IN SHARES AS STOCK IN TRAD E OF THE COMPANY. (II) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFI CER IN ASSESSING THE GAINS ARISING ON SALE OF SHORT TE RM CAPITAL ASSETS OF ` 1,10,25,787/- AS INCOME FROM BUSINESS OR PROFESSION. (III) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN HOLDING THAT THE SHARES HELD AND DISCLOSED AS INVESTMENT WERE TRADING ASSETS. (IV) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE T HE DISALLOWANCE U/S 14A OF THE ACT AS PER RULE 8D MORE PARTICULARLY WHEN THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE FACTS OF THE CASE. APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TI ME OF HEARING. 3. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- ITA NOS. 3299 & 3318/DEL/2009 3 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME OF ` 53,61,68,729/- EARNED ON TRADING OF LON G TERM SHARE HOLDING AS INCOME UNDER THE HEAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME, AS HELD BY THE ASSESSING OFFICER. (II) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR A MEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 4. IN THIS CASE THE ASSESSEE IS A PRIVATE LIMITED C OMPANY WHICH DERIVES INCOME FROM SALE AND PURCHASE OF SHARES AND MUTUAL FUNDS. DURING THE YEAR THERE WAS A BUSINESS LOSS OF ` 8,83, 802/-. SHORT TERM CAPITAL GAIN OF ` 1,10,25,787/- AND LONG TERM CAPIT AL GAIN AT ` 53,61,68,729/-. 4.1 THE ASSESSING OFFICER OBSERVED THAT WITH REGAR D TO LTCG EVEN THOUGH THE ASSESSEE HAVE BEEN HOLDING THESE SHARES FOR A LONG PERIOD, SINCE THE ASSESSEE IS ENGAGED IN SELLING AND PURCHA SE OF SHARES, IT IS CLEARLY A TRADING ACTIVITY AND CANNOT BE SAID TO BE AN INVESTMENT BY THE ASSESSEE. IT WAS FURTHER, OBSERVED THAT THE SURPLUS GENERATED BY THE ASSESSEE WAS OUT OF TRADING OF SHARES AND ACCORDING LY, THE CLAIM OF THE ASSESSEE THAT CERTAIN SHARES HAVE BEEN HELD IN THE LONG RUN FOR INVESTMENT PURPOSES, DOES NOT APPEAR TO BE CORRECT . THE ASSESSING OFFICER HELD THAT SINCE ALL THE FUNDS OF THE COMPA NY WERE BLOCKED FOR THE PURPOSE OF THE SHARES NO OTHER ACTIVITY WERE C ARRIED ON BY THE ASSESSEE. IT WAS THEREFORE, CONCLUDED BY THE ASSE SSING OFFICER THAT THE SALE AND PURCHASE OF SHARES WHICH HAS BEEN CLAI MED AS LONG TERM CAPITAL GAIN IS ACTUALLY IN THE NATURE OF BUSINESS INCOME. ITA NOS. 3299 & 3318/DEL/2009 4 4.2 THE ASSESSING OFFICER HAS FURTHER OBSERVED TH AT WITH REGARD TO THE CLAIM OF SHORT TERM CAPITAL GAIN, THE ASSESSEE HAS NOT PROVIDED ANY DETAILS OF EXPLANATIONS ON THE BASIS OF WHICH THE TRANSACTIONS IN SHARES PERTAINING TO SHORT TERM CAPITAL GAINS COU LD BE EXAMINED IN VIEW OF THE CIRCULAR NO. 4/2007 DATED 15.6.2007 ISS UED BY THE CBDT. ON PAGE 3 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER POINTED OUT SEVERAL FACTORS ON THE BASIS OF WHICH TRADING OF SH ARES SHOULD BE TREATED AS CAPITAL GAINS OR BUSINESS INCOME. THE ASSESSING OFFICER HAS ALSO RELIED UPON VARIOUS JUDICIAL PRONOUNCEME NTS INCLUDING C.I.T. VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY PRIVAT E LTD. 82 ITR 586 (SC), C.I.T. VS. HOLCK LARSON 160 ITR 67 (SC) A ND THE CASE OF FIDELITY GROUP 288 ITR 641 (SC). 4.3 IN PARA 5 TO 7 OF THE ASSESSMENT ORDER, THE ASS ESSING OFFICER HAS OBSERVED THAT WITH REGARD TO THE SHARE TRANSACTION S TREATED AS LONG TERM AND SHORT TERM CAPITAL GAIN, THE FOLLOWING CHARA CTERISTICS INDICATED THAT THE SHARE TRANSACTIONS WERE IN THE N ATURE OF BUSINESS INCOME:- I) TRANSACTIONS WERE REGULARLY ENTERED DURING THE YEAR. II) PURCHASE AND SALE OF SHARES WERE CONTINUOUS. III) THE ASSESSEE IS NOT MAINTAINING SEPARATE BOOK S AND ACCOUNTS. IV) THE HOLDING PERIOD OF SHARES WAS 10 DAYS TO 8 M ONTHS FOR SHORT TERM CAPITAL GAIN AND AT THE SAME TIME THE PU RCHASE TO SALE RATIO WAS SUBSTANTIAL. CIRCUMSTANCES INDICA TE THAT THE INTENTION OF THE ASSESSEE WAS NOT TO EARN THE DIVIDEND BUT TO EARN PROFIT ON SALE/ PURCHASE OF SHARES. ITA NOS. 3299 & 3318/DEL/2009 5 V) THE ASSESSEE HAS ALSO SHOWN SPECULATIVE LOSS WHI CH INDICATES THAT TRADING WAS BEING DONE BY THE ASSESS EE WITH THE INTENTION OF EARNING PROFIT OUT OF SHARE TRANSA CTIONS. 4.4 THE ASSESSING OFFICER HAS FURTHER EMPHASIZED TH AT THE ASSESSEE HAS WRONGLY INTERPRETED THE MEANING OF INVESTMENT AND CAPITAL ASSETS AND USED IT FOR ITS BENEFIT TO DEFLATE ITS TAX LIAB ILITY. IT WAS ARGUED THAT KEEPING IN VIEW OF THE OVER ALL CONTEXT AND THE F REQUENT TRANSACTIONS OF PURCHASE AND SALE OF SHARES BY ASSESSEE COMPANY, INCLUDING THE QUANTITY AND VOLUME OF TRANSACTIONS, IT CAN BE CONC LUDED THAT THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO LONG TERM C APITAL GAIN AND SHORT TERM CAPITAL GAIN IS NOT JUSTIFIED. 5. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) MADE ELABORATE SUBMISSION. CONSIDERING THE ABOVE, LD. CO MMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE EVEN THOUGH SHARE TRANSACTIONS HAVE BEEN UNDER TAKEN BY THE COMPANY, T HE LEGAL PROVISION AS WELL AS CBDT CIRCULAR NO. 4/2007 CLEAR LY PERMIT HOLDING OF SHARES BOTH FOR THE PURPOSES OF INVESTMENT AND OR T RADING. FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THA T ON GOING THROUGH THE LIST OF SHARE TRANSACTION, IT WAS SEEN WITH REGARD TO THE LONG TERM CAPITAL GAIN THERE WAS SALE OF ONLY ONE S HARE RELATING TO JUBILANT ORGANOSYS LIMITED (JOL) WHICH CONSISTED OF SALE OF THESE SHARES ON 7.7.2005 OF 6,11,400 SHARES. APART FROM THIS TRANSACTION WHICH WAS ALSO CARRIED OUT THROUGH A SEPARATE DMAT AC COUNT, THERE IS NO OTHER TRANSACTION RELATING TO LONG TERM CAPITAL G AIN. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER NOTED T HAT SEPARATE DMAT ACCOUNT WERE BEING MAINTAINED BY THE ASSESSEE WI TH REGARD TO THESE SHARES OF JOL, IN WHICH INVESTMENT HAD BEEN M ADE AFTER ITA NOS. 3299 & 3318/DEL/2009 6 OBTAINING A SPECIAL RESOLUTION BY THE BOARD MEMBERS O F THE COMPANY; THAT THE SHARES OF JOL HAD BEEN PURCHASED BY THE A SSESSEE COMPANY INITIALLY IN THE A.Y. 2001-02 AND ALSO IN A.Y. 2004 -05 WITH THE PURPOSES OF MAKING INVESTMENT AND EARNING DIVIDEND. LD. COMMI SSIONER OF INCOME TAX (APPEALS) FURTHER, REFERRED TO THE BOARD RESOLUTION OF THE ASSESSEE COMPANY. ON THE BASIS OF THE BOARD RESOLU TION AS WELL AS AUDITED BALANCE SHEET AND P&L ACCOUNT, THE INTENT OF THE ASSESSEE TO HOLD THESE SHARES AS INVESTMENT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ALL THE SHARES HAVE BEEN PURCHASED AND RETAINED BY THE ASSESSEE FOR A SUBSTANTIAL PERI OD OF TIME AND DURING THIS PERIOD, THE ASSESSEE HAS ALSO RECEIVED BONUS SHARES. DURING THE PERIOD OF HOLDING, THE FACE VALUE OF THE SHARES HAD ALSO BEEN REVISED FROM ` 10 TO ` 5 PER SHARE. THAT THE ASSESSEE HAD BEEN MAINTAINING TWO SEPARATE DMAT ACCOUNTS; THESE SEPARATE ACCOUNTS WERE FOR LONG TERM INVESTMENTS AND SHORT TERM INVEST MENTS. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVE D THAT THE INVESTMENT MADE BY THE ASSESSEE IN THE SHARES OF J OL WERE INTENDED TO BE RETAINED FOR A LONGER PERIOD OF TIME WITH THE INTENTION OF EARNING DIVIDEND AND OBTAINING LONG TERM CAPITAL GAIN. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THE ASSE SSING OFFICER HAS NOT DISPUTED THAT WITH REGARD TO THE SHARES HELD FO R MORE THAN ONE YEAR, THERE IS ANY FACTUAL ERROR MADE BY THE ASSESS EE. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER NOTED T HAT INVESTMENT IN SHARE OF JOL HAS BEEN CONSISTENTLY SHOWN AS INVE STMENT, SINCE THE DATE THEY WERE PURCHASED AND SOME SHARES OF JOL HAD ALSO BEEN SOLD IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR, IN THE A.Y. 2005-06, THE CLAIM OF THE ASSESSEE REGARDING THE SALE OF THESE SH ARES AS LONG TERM CAPITAL GAIN HAS ALSO BEEN ACCEPTED BY THE DEPARTM ENT. ITA NOS. 3299 & 3318/DEL/2009 7 5.1 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ON GOING THROUGH THE FACT OF THIS PARTICULAR CASE, IT IS OBSERVED THAT THERE ONLY ONE TRANSACTION DURING THE YEAR RELATING TO JOL SHARES WHICH MAINTAINED SEPARATE DMAT ACCOUNT; THAT IT CANNOT BE SAID THAT THERE WERE FREQUENT TRANSACTION; THAT THE PERIOD OF HOLD ING HAS BEEN SHOWN BETWEEN ONE TO THREE YEARS; THAT THE PURCHASE OF TH E SHARES WERE MADE PARTLY OUT OF BORROWINGS AND PARTLY OUT OF OWN FUNDS; THAT THE SHARES HAVE BEEN HELD WITH THE INTENTION OF EARNING DIVIDEND; THAT ASSESSEE HAS CLEARLY MENTIONED THESE SHARES AS PART OF THE INVESTMENT IN THE BALANCE SHEET. LD. COMMISSIONER O F INCOME TAX (APPEALS) FURTHER OBSERVED THAT IT IMPORTANT TO NOTE THAT IN THE PRESENT CASE THE ASSESSEE HAS SPECIFICALLY MAINTAINED A SEPA RATE DMAT ACCOUNT WITH REGARD TO THE SHARES OF THE JOL AND HA S ALSO SHOWN DIVIDENDS EARNED FROM THE SAME IN DIFFERENT YEARS, CLEARLY ESTABLISHING THAT THE SHARES HAVE BEEN HELD WITH THE INTENTION O F LONG TERM INVESTMENT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ASSESSING OFFICER HAS NOT GIVEN ANY REASON AS TO WHY THESE SHARES SHOULD BE CONSIDERED AS STOCK IN TRADE , WHEN THE SURROUNDING CIRCUMSTANCES CLEARLY INDICATE THAT THES E SHARES OF JOL HAD BEEN HELD FOR A SUBSTANTIAL PERIOD OF TIME, ON WHICH DIVIDEND HAD ALSO BEEN EARNED AND THE SAME HAD BEEN CONSISTENTLY SHOWN AS INVESTMENT SINCE A.Y. 2001-02. 5.2 LD. COMMISSIONER OF INCOME TAX (APPEALS)S OBSERVA TION WITH REGARD TO THE SHORT TERM CAPITAL GAIN MADE BY THE A SSESSEE IS AS FOLLOWS:- LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THA T IT IS SEEN THAT DURING THE YEAR EVEN THOUGH THE ASSESSEE HAD SHOWN ITA NOS. 3299 & 3318/DEL/2009 8 ALL THE SHARES AS INVESTMENT IN THE BALANCE SHEET, THERE WERE A LARGE NUMBER OF SHARES TRANSACTED RELATING TO A VARI ETY OF SHARES WHEREIN THE FREQUENCY OF TRANSACTIONS IS CLEARLY RE FLECTED; THAT FURTHER THERE WERE MANY INSTANCES WHERE THE HOLDING PERIOD OF SHARES IS ALSO VERY SHORT AND IT CLEARLY INDICATES THE INTENTION OF THE ASSESSEE TO EARN SHORT TERM PROFIT BY PURCHASIN G AND SELLING OF SHARES IN THE MARKET. LD. COMMISSIONER OF INCOME TA X (APPEALS) GAVE CERTAIN SAMPLES TRANSACTION AS UNDER :- NAME OF THE COMPANY DATE OF PURCHASE OF SHARES DATE OF SALE OF SHARES TNPL SEPTEMBER, 2005 OCTOBER, 2005 RAJAPAMIL SEPTEMBER, 2005 OCTOBER, 2005 PATEL ENGINEERING JULY, 2005 DECEMBER, 2005 MADRAS CEN SEPTEMBER, 2005 SEPTEMBER, 2005 MADRAS CEN SEPTEMBER, 2005 OCTOBER, 2005 JINDAL POLY SEPTEMBER, 2005 OCTOBER, 2005 GULF OIL DECEMBER, 2005 JANUARY, 2006 IDFC SEPTEMBER, 2005 NOVEMBER, 2005 IFSI SEPTEMBER, 2005 MARCH, 2006 5.3 LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT THIS CLEARLY INDICATE THAT THE SHARES WERE HELD WIT H THE INTENTION OF EARNING PROFITS AND NOT EARNING DIVIDEND. LD. COMM ISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT IT IS PERTINENT TO NOTE THAT WHENEVER ANY INVESTMENT IS MADE BY A PERSON, A REAS ONABLE TIMEFRAME HAS TO BE KEPT IN MIND BEFORE THE SHARES A RE SOLD, UNLESS THERE ARE CERTAIN EXCEPTIONAL CIRCUMSTANCES; THAT IN THE PRESENT CASE ITA NOS. 3299 & 3318/DEL/2009 9 THE SHARES HAVE BEEN CLAIMED TO BE SHOWN AS INVESTME NT HAVE NOT BEEN HELD AS INVESTMENT WITH THE INTENTION OF EARN ING DIVIDENDS AND THEREFORE, MERELY BECAUSE THEY HAVE BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET DOES NOT STRENGTHEN THEIR CLAIM THAT S ALE OF THESE SHARES SHOULD BE TREATED AS CAPITAL GAIN AND NOT BUSINESS INCOME. LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER:- KEEPING IN VIEW THE VARIOUS JUDICIAL PRONOUNCEMENT S AS WELL AS CBDT CIRCULAR ON THIS ISSUE, I AM OF THE OP INION THAT THE APPELLANT COULD HOLD SOME OF THE SHARES AS INV ESTMENT AND AT THE SAME TIME CARRY ON THE BUSINESS OF BUYING AND SELLING OF SHARES. ACCORDINGLY, WITH REGARD TO THE CLAIM OF THE LONG TERM CAPITAL GAIN, THE FACTS INDICATED THAT THOSE SHARES HAD BEEN HELD WITH THE INTENTION OF INVESTME NT. HOWEVER, IN THE CONTEXT OF THE SALE OF SHARES ON WH ICH SHORT TERM CAPITAL GAIN HAS BEEN CLAIMED BY THE APPELLANT, THE FACTS INDICATE THAT KEEPING IN VIEW THE FREQUENCY OF TRANSACTION, INTENTION OF THE ASSESSEE TO EARN PROF ITS AS WELL AS MOST OF THESE SHARES HAVING BEEN HELD IN A SEPARA TE DEMAT ACCOUNT, IS POINTING TOWARDS THE FACT THAT TO T HE EXTENT OF THESE SHARES THE APPELLANT WAS CARRYING OUT BUSINESS TRANSACTIONS. THE APPELLANT HAS ALSO SH OWN SOME SPECULATION LOSS WHICH FURTHER INDICATE THAT SHARE TRANSACTIONS IN THE NATURE OF BUSINESS WERE ALSO BE ING CARRIED OUT BY THE APPELLANT. IN VIEW OF THE FACTS WITH REGARD TO THE SHARES WHICH HAVE BEEN SHOWN AS SHO RT TERM CAPITAL GAIN, I AM CONVINCED THAT THESE TRANSACTION S CANNOT BE TREATED AS SHORT TERM CAPITAL GAINS AND HAVE TO BE CONSIDERED AS BUSINESS INCOME OF THE APPELLANT. I ITA NOS. 3299 & 3318/DEL/2009 10 THEREFORE, AGREE WITH THE ASSESSING OFFICER IN TRE ATING THE AMOUNT SHOWN AS STCG AS BUSINESS INCOME OF THE ASSES SEE. ON THE BASIS OF THE OBSERVATIONS WITH REGARD TO T HE LONG TERM CAPITAL GAIN CLAIMED BY THE APPELLANT WHI CH HAVE BEEN DISCUSSED FROM (A) TO (E) IN THE ABOVE PARAGRAP HS, KEEPING IN VIEW THE FACTS OF THE CASE, VARIOUS JUDI CIAL PRONOUNCEMENTS AND THE CBDT CIRCULAR, I AM OF THE OPI NION THAT THE TRANSACTION RELATING TO THE SHARES OF JOL WHICH WERE HELD AS INVESTMENT FOR A LONG DURATION BETWEEN 1 TO 5 YEARS AND ON WHICH DIVIDEND INCOME HAD ALSO BEEN EA RNED BY THE APPELLANT, SHOULD BE TREATED AS LONG TERM CA PITAL GAIN (` 53,61,68,722/-_ AS DECLARED BY THE APPELLAN T. HOWEVER, WITH REGARD TO THE SHORT TERM CAPITAL GAIN , CONSIDERING THE FREQUENCY OF THE TRANSACTION, SHORT HOLDING PERIOD AND THE INTENTION OF THE APPELLANT TO EARN SHORT TERM PROFITS, I AM CONVINCED THAT TO THIS EXTENT, THE INC OME EARNED FROM SALE OF SHARES (SHOWN AS SHORT TERM CAP ITAL GAIN) AMOUNTING TO ` 1,10,25,787/- SHOULD BE TREATE D AS THE BUSINESS INCOME OF THE APPELLANT. AS A RESULT, THIS GROUND OF THE APPELLANT IS TREATED AS PARTLY ALLOWED. 6. AGAINST THE ABOVE ORDER THE ASSESSEE AND REVENU E ARE IN CROSS APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. COUNSEL OF THE ASSESSEE ARGUED THAT CLAIM FOR LONG TERM CAPITAL GAIN AND SHO RT TERM CAPITAL GAIN IS IN ORDER AND IS FULLY JUSTIFIED. LD. COUNSEL OF THE ASSESSEE FURTHER PLACED RELIANCE UPON THE SERIES OF CASE LAWS WHICH ARE AS UNDER:- ITA NOS. 3299 & 3318/DEL/2009 11 - HONBLE DELHI HIGH COURT DECISION IN THE CASE OF C .I.T. VS. ROHIT ANAND : 327 ITR 445. - ITAT, DELHI BENCH DECISION IN THE CASE OF ITO VS. ROHIT ANAND : 34 SOT 42. - HONBLE MUMBAI HIGH COURT DECISION IN THE CASE OF C.I.T. VS. GOPAL PUROHIT : 228 CTR 582. - ITAT, MUMBAI BENCH DECISION IN THE CASE OF GOPAL P UROHIT VS. JCIT : 29 SOT 117 - ITAT, MUMBAI BENCH DECISION IN THE CASE OF MANAGEM ENT STRUCTURE AND SYSTETMS (P) LTD. VS. ITO : ITA NO. 6966/MUM/2007. - HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS . PNB FINANCE AND INDUSTRIES LTD. : ITA NO. 306/2010. - ITAT, MUMBAI DECISION IN THE CASE OF DCIT VS. SMK S HARES AND STOCK BROKING : ITA NO. 799/MUM/2009. - ITAT, DELHI BENCH DECISION IN THE CASE OF ACIT VS. JUBILANT SECURITIES P LTD. : ITA NO. 3337/DEL/2008. - ITAT, MUMBAI BENCH IN THE CASE OF SHRI VINOD K. NE VATIA VS. ACIT : ITA NO. 6556/MUM/2009. - ITAT, MUMBAI BENCH IN THE CASE OF DCIT VS. VRUSCHIK CONSULTANCY SERVICES P. LTD. : ITA NO. 3774/MUM/2004. - HONBLE MUMBAI HIGH COURT IN THE CASE OF C.I.T. VS . SHRI DARIUS PANDOLE : ITA NO. 3053 OF 2009. ITA NOS. 3299 & 3318/DEL/2009 12 - ITAT DELHI BENCH, IN THE CASE OF DCIT VS. BMW HOLDI NGS P LTD. : ITA NO. 3187/DEL/2010. - ITAT, MUMBAI BENCH, IN THE CASE OF VINOD M. SHAH V S. ACIT : 38 SOT 503 - ITAT MUMBAI BENCH IN THE CASE OF ACIT VS. SHEELA CHINIWALA : ITA NO. 5463/MUM/2009. - HONBLE APEX COURT IN THE CASE OF C.I.T. VS. JIND AL PHOTO INVESTMENT LTD. SLP (CIVIL) NO. 26867 OF 2010 WHERE THE COURT DISMISSED THE PETITION FILED BY THE DEPARTMENT : 334 ITR (ST.) 307 - HONBLE APEX COURT IN THE CASE OF C.I.T. VS. GOPA L PUROHIT : SLP (CIVIL) NO. 32891 OF 2010 WHERE THE COURT DISMISS ED THE PETITION FILED BY THE DEPARTMENT : 334 ITR (ST.) 30 8. - DELHI HIGH COURT IN THE CASE OF C.I.T. VS. JUBILAN T SECURITIES P LTD. 333 ITR 445. - ITAT, DELHI BENCH IN THE CASE OF AMIT JAIN VS. ACIT : ITA NO. 309/DEL/2010. - ITAT, DELHI BENCH IN THE CASE OF M/S CNB FINWIZ L TD. VS. ACIT ITA NO. 1962/DEL/2009. - ITAT, MUMBAI IN THE CASE OF NAGINDAS P. SETH (HUF) VS . ACIT : ITA NO. 961/MUM/2010. - ITAT, DELHI BENCH IN THE CASE OF ACIT VS. M/S DEV ASAN INVESTMENTS P LTD. : ITA NOS. 3494 AND 3430/DEL/2010. ITA NOS. 3299 & 3318/DEL/2009 13 - MUMBAI HIGH COURT IN THE CASE OF C.I.T. VS. RAHEJA CORPORATION P. LTD. : ITA NO. 1260 OF 2009. - ITAT, DELHI BENCH, IN THE CASE OF MINDA INVESTMENTS LTD. VS. DCIT : ITA NO. 4046/DEL/2009. - ITAT, DELHI BENCH IN THE CASE OF OM ERA ENGINEE RING P LTD. VS. ITO : ITA NO. 3913/DEL/2010. - ITAT, MUMBAI BENCH, IN THE CASE OF ACIT VS. NAIS ADH VS. VACHARAJANI : LEX DOC: 405065 - MUMBAI HIGH COURT IN THE CASE OF ACIT VS. NAISADH V S. VACHARAJANI : LEX DOC. 417846. - DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. C.I.T. : ITA NO. 687/2009. 7.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND, SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THAT OF LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE OF SHORT TERM CAP ITAL GAIN. HE CLAIMED THAT THE SHARES TRANSACTION ARE ONLY THE BUS INESS OF THE ASSESSEE AND RESULTANT GAINS AND LOSSES ARE OF BUSI NESS ONLY. 7.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS A ND PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TA X (APPEALS) HAS GIVEN A FINDING THAT WITH REGARD TO LONG TERM CAPITA L GAIN THERE WAS SALE OF ONLY ONE SHARE RELATING TO JUBILANT ORGANO SYS LIMITED (JOL) WHICH CONSISTED OF SALE OF THESE SHARES ON 7.7.2005 OF 6,11,400 SHARES. APART FROM THIS TRANSACTION WHICH WAS ALSO CARRIED O UT THROUGH A SEPARATE DMAT ACCOUNT, THERE IS NO OTHER TRANSACTION RELATING TO LONG TERM CAPITAL GAIN. THE INVESTMENT IN JOL SHARES HAD BEEN MADE AFTER ITA NOS. 3299 & 3318/DEL/2009 14 OBTAINING A SPECIAL RESOLUTION BY THE BOARD MEMBERS OF THE COMPANY. THE SHARES OF JOL HAD BEEN PURCHASED BY THE ASSESS EE COMPANY INITIALLY IN THE A.Y. 2001-02 AND ALSO IN A.Y. 2004 -05 FOR THE PURPOSES OF MAKING INVESTMENT AND EARNING DIVIDEND. ASSESSEES INTENT IN THIS REGARD IS CLEAR TO HOLD THEM AS INVESTMENT AND EARN DIVIDEND. THE BOARD RESOLUTION AS WELL AS AUDITED BALANCE SHEET A ND P&L ACCOUNT IN THIS REGARD AMPLY FORTIFY THE ASSESSEES INTENT. MOR EOVER, ALL THE SHARES HAVE BEEN PURCHASED AND RETAINED BY THE ASS ESSEE FOR A SUBSTANTIAL PERIOD OF TIME AND DURING THIS PERIOD , THE ASSESSEE HAS ALSO RECEIVED BONUS SHARES. DURING THE PERIOD OF H OLDING, THE FACE VALUE OF THE SHARES HAD ALSO BEEN REVISED FROM ` 10 TO ` 5 PER SHARE. ASSESSEE HAD BEEN MAINTAINING TWO SEPARATE DMAT ACCOU NTS; THESE SEPARATE ACCOUNTS WERE FOR LONG TERM INVESTMENTS AND SHORT TERM INVESTMENTS. THUS, LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAS GIVEN A FINDING THAT INVESTMENT MADE BY THE ASSESSE E IN THE SHARES OF JOL WERE INTENDED TO BE RETAINED FOR A LONGER PERIO D OF TIME WITH THE INTENTION OF EARNING DIVIDEND AND OBTAINING LONG TE RM CAPITAL GAIN. IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOTED THAT ASSESSING OFFICER HAS NOT DISPUTED THAT WITH REGAR D TO THE SHARES HELD FOR MORE THAN ONE YEAR, THERE IS ANY FACTUAL ERROR M ADE BY THE ASSESSEE. IT IS FURTHER NOTED THAT ASSESSEE HAS B EEN CONSISTENTLY SHOWING THEM AS INVESTMENT. SOME OF THEM HAD ALSO BEEN SOLD IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR, IN THE A.Y. 2 005-06, THE CLAIM OF THE ASSESSEE REGARDING THE SALE OF THESE SHARES AS LONG TERM CAPITAL GAIN HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT. 7.3 IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE ARE OF THE OPINION THAT SHARES IN JOL HAS BEEN HELD FOR SUBSTA NTIAL PERIOD OF TIME ON WHICH DIVIDEND HAD ALSO BEEN EARNED AND THE SAM E HAS BEEN ITA NOS. 3299 & 3318/DEL/2009 15 CONSISTENTLY SHOWN AS INVESTMENT SINCE THE A.Y. 20 01-02. IN THESE CIRCUMSTANCES, LD. COMMISSIONER OF INCOME TAX (APPEALS ) IS CORRECT IN HOLDING THAT THE ASSESSEES CLAIM IS LONG TERM CAPI TAL GAIN IN THIS REGARD. WE FURTHER FIND THAT HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS. C.I.T. IN 193 ITR 321 HAS HEL D THAT IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENU E TO TAKE THE DIFFERENT VIEW OF THE MATTER, REVENUE IS NOT JUSTIF IED IN TAKING DIFFERENT VIEW. SO, IN OUR CONSIDERED OPINION, SINCE THE FA CTS AND CIRCUMSTANCES WITH RESPECT TO THESE SHARES OF JOL ARE SAME AS IN THE PRECEDING YEAR, HENCE, LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CO RRECT IN HOLDING IT AS LONG TERM CAPITAL GAIN. 7.4 AS REGARDS SHORT TERM CAPITAL GAIN MADE BY THE AS SESSEE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FIN DING THAT EVEN THOUGH ALL THE SHARES HAVE BEEN HELD AS INVESTMENT I N THE BALANCE SHEET, THERE WERE A LARGE NUMBER OF SHARES TRANSACTE D RELATING TO A VARIETY OF SHARES WHEREIN THE FREQUENCY OF TRANSACT IONS IS CLEARLY REFLECTED. IT WAS FURTHER FOUND THAT THERE ARE MANY INSTANCES WHERE THE HOLDING PERIOD OF SHARES IS ALSO VERY SHORT AND IT CLEARLY INDICATES THE INTENTION OF THE ASSESSEE TO EARN SHORT TERM PR OFIT BY PURCHASING AND SELLING OF SHARES IN THE MARKET. IN THIS REGARD , CERTAIN SAMPLES TRANSACTION AS UNDER:- NAME OF THE COMPANY DATE OF PURCHASE OF SHARES DATE OF SALE OF SHARES TNPL SEPTEMBER, 2005 OCTOBER, 2005 RAJAPAMIL SEPTEMBER, 2005 OCTOBER, 2005 PATEL ENGINEERING JULY, 2005 DECEMBER, 2005 MADRAS CEN SEPTEMBER, 2005 SEPTEMBER, 2005 ITA NOS. 3299 & 3318/DEL/2009 16 MADRAS CEN SEPTEMBER, 2005 OCTOBER, 2005 JINDAL POLY SEPTEMBER, 2005 OCTOBER, 2005 GULF OIL DECEMBER, 2005 JANUARY, 2006 IDFC SEPTEMBER, 2005 NOVEMBER, 2005 IFSI SEPTEMBER, 2005 MARCH, 2006 THE ABOVE CLEARLY INDICATE THAT THESE SHARES WERE HELD WITH THE INTENTION OF EARNING PROFITS AND NOT EARNING DIVID END. THUS, IT IS FOUND THAT WITH RESPECT TO THESE SHARES TRANSACTION, THE TRANSACTIONS WERE REGULARLY ENTERED DURING THE YEAR; PURCHASE AND SA LE OF SHARES WERE CONTINUOUS; HOLDING PERIOD WAS VERY SHORT; CIRCUMST ANCES CLEARLY INDICATE THAT THE INTENTION OF THE ASSESSEE WAS NO T TO EARN THE DIVIDEND BUT TO EARN PROFIT ON SALE AND PURCHASE O F SHARES. THE ASSESSEE HAS ALSO SHOWN SPECULATION LOSS WHICH INDI CATE THAT SHARE TRANSACTIONS IN THE NATURE OF BUSINESS WERE ALSO BE ING CARRIED OUT BY THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (APP EALS) IS CORRECT IN HOLDING THAT WHENEVER ANY INVESTMENT IS MADE BY A PERSON, A REASONABLE TIMEFRAME HAS TO BE KEPT IN MIND BEFORE T HE SHARES ARE SOLD, UNLESS THERE ARE CERTAIN EXCEPTIONAL CIRCUMSTA NCES. IN THE PRESENT CASE, THE SHARES HAVE BEEN CLAIMED TO BE SH OWN AS INVESTMENT HAVE NOT BEEN HELD AS INVESTMENT WITH TH E INTENTION OF EARNING DIVIDENDS AND THEREFORE, MERELY BECAUSE THEY HAVE BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET DOES NOT S TRENGTHEN THEIR CLAIM THAT SALE OF THESE SHARES SHOULD BE TREATED AS CAPITAL GAIN AND NOT BUSINESS INCOME. THE FACTS CLEARLY INDICATE T HAT KEEPING IN VIEW OF THE FREQUENCY OF TRANSACTION, INTENTION OF THE ASSESSEE TO EARN PROFITS AS WELL AS MOST OF THESE SHARES HAVING BEEN HELD IN A SEPARATE DEMAT ACCOUNT, IS POINTING TOWARDS THE FACT THAT TO T HE EXTENT OF THESE ITA NOS. 3299 & 3318/DEL/2009 17 SHARES THE ASSESSEE WAS CARRYING OUT BUSINESS TRANS ACTIONS. THUS, WE AGREE WITH THE FINDING THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) WITH REGARD TO THESE SHARES WHICH HAVE BEEN SHOWN A S SHORT TERM CAPITAL GAIN, THESE TRANSACTIONS CANNOT BE TREATED AS SHORT TERM CAPITAL GAINS AND HAVE TO BE CONSIDERED AS BUSINESS INCOM E OF THE ASSESSEE. THEREFORE, WE UPHOLD THE ORDER OF THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) ON THE ISSUE OF LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN IS TO BE HELD AS L ONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN IS TO BE HELD AS BUSI NESS INCOME. 8. APROPOS TO DISALLOWANCE U/S. 14A: ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS EARNED DIVIDEND INCOME OF ` 86,75,104/- DURING THE YEAR. ASSESSING OFFICER HELD THAT THE ADMINISTRATIVE EXPENDITURE RELATING T O MANAGEMENT AND CONSULTATION ON INVESTMENT OF SHARES OF VARIOUS CO MPANIES AND MUTUAL FUNDS CANNOT BE ALTOGETHER RULED OUT. CONSIDERING THE OVERALL CIRCUMSTANCES, ASSESSING OFFICER HELD THAT A SUM OF ` 10,00,000/- IS REASONABLY AND JUSTIFIABLY IS CONSIDERED TO HAVE REL ATED TO EARNING OF THE EXEMPT DIVIDEND INCOME AND HENCE, HE ADDED BAC K THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S. 14A. 9. UPON ASSESSEES APPEAL IN THIS REGARD LD. COMMISS IONER OF INCOME TAX (APPEALS) DIRECTED THAT THE DISALLOWANCE BE MADE, AS PER RULE 8D IN THIS REGARD. 10. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 11. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO . LTD. VS. DCIT ITA NOS. 3299 & 3318/DEL/2009 18 IN ITA NO. 626 OF 2010 234 CTR 1 HAS OVERRULED THE ITAT DECISION OF DAGA CAPITAL MANAGEMENT (SUPRA) AND HELD THAT RULE 8D HAS BEEN NOTIFIED ON 24.3.2008 AND WILL BE APPLICABLE ONLY F ROM ASSESSMENT YEAR 2008-09. HENCE, THE PRESENT YEAR IS A.Y. 2006-07 AN D RULE 8D IS CLEARLY NOT APPLICABLE. ACCORDINGLY, IN LIGHT OF T HE ABOVE DECISION, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R TO CONSIDER THE ISSUE AFRESH. BOTH THE COUNSEL FAIRLY AGREED TO TH IS PROPOSITION. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED BY THE RE VENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/1/201 2. SD/- SD/- [ [[ [U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI U.B.S. BEDI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTAN ACCOUNTAN ACCOUNTAN ACCOUNTANT MEMBER T MEMBER T MEMBER T MEMBER DATE 06/1/2012 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES