ACIT 16(3), MUMBAI V. KAUSHIK C. PAREKH, MUMBAI

ITA 3347/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4272 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MORYA PRATAP
• Assessee Lawyers: B V JHAVERI
• Keywords: Capital asset; Business income; Rule of consistency; Question of law
• Section: 143(3); 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3347/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) ACIT- 16(3), MATRU MANDIR, 2 ND FLOOR, R.NO.206, TARDEO ROAD, MUMBAI- 400 007. / V. SHRI KAUSHIK C. PARIKH 1216, PRASAD CHAMBERS, OPERA HOUSE, MUMBAI-400 004. ./ ./PAN/GIR NO. AADPP1909Q ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI MORYA PRATAP / RESPONDENT BY : SHRI B. V. JHAVERI / DATE OF HEARING : 15.12.2015 !'#$ / DATE OF PRONOUNCEMENT : 01.12.2015 %& / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 27, M UMBAI (CIT(A) FOR SHORT) DATED 06.02.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN T HE MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER: 2 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH 1. WHETHER ON THE FACTS AND CIRCUMSTANCES AND IN L AW, THE LD. CIT(A) WAS JUSTIFIED IN TREATING SALE OF SHARES AS SHORT TERM AND LONG TERM CAPITAL GAIN AS AGAINST INCOME FROM BUSINESS ASSESSED BY THE ASSESSING OFFICER? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN NOT TAKING COGNIZANCE OF HON. BOMBAY HIGH COURT IN THE CASE OF CIT V/S. GOPAL PUROHIT ; 336 ITR 287 (BOM.) WHICH CLAR IFIES THAT, A FINDING OF FACT HAS BEEN ARRIVED AT BY TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE B Y WAY OF INVESTMENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. UNLIKE IN THE PRESENT CASE WHEREIN ASSESSEE HAS NOT MAINTAINED S EPARATE BOOKS OF ACCOUNTS? 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND HAVING INCOME FROM BUSINESS, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE ASSESSEE FILED THE DETAILS OF SHORT TERM CAPITAL GAINS(STCG) OF RS.1,27,94,968/- EARNED DURING THE P REVIOUS YEAR ON THE SALE OF SHARES. THE ASSESSEE WAS ASKED BY THE LEARNED ASSES SING OFFICER (HEREINAFTER CALLED THE AO) TO SUBMIT THE EXPLANATION THAT WHY THE S TCG BE NOT TREATED AS BUSINESS INCOME. THE ASSESSEE SUBMITTED THE EXPLANATION AS UNDER :- 1. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM PARTNERSHIP FIRM AND ALSO DERIVING INCOME FROM L.T.C.G. AND S.T.C.G. AND INCOME FROM OTHER SOURCES 2. ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR ENDED 31 ST MARCH 2010 YOUR HONOUR WILL FOUND THAT THE ASSESSE E HAS MADE INVESTMENT IN SHARES AND THE LIKE AS ON 31.03.2009 WHICH INCREASES TO RS.107619247/- AS ON 31 ST MARCH 2010. THE DETAILS OF THE SAID 3 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH INVESTMENT IN SHARES AS ON 31 ST MARCH, 2010 VALUED AT COST OF RS.107619247/-. 3. YOUR HONOURS KIND ATTENTION IS INVITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2010 WHICH SHOWS THAT THE ASSESSEE HAS EARNED L.T.C.G. AND S.T.C.G. AND INCURRED L .T.C.G. LOSS AND S.T.C.G. LOSS OF RS.151824, 3239632, 12794968 AND RS.1174753/- RESPECTIVELY . THE AFORESAID DETAILS FOR THE A.Y.20 10-11 PROVE THAT THE ASSESSEE IS AN INVESTOR IN SHARES. 4. THE ASSESSEE HAS INVESTED HIS SURPLUS FUNDS FO R A LONG TIME AND THE POSITION IS ACCEPTED YEAR AFTER YEAR AS WILL BE S EEN FROM THE SCRUTINY ASSESSMENT ORDER MADE U/S. 143(3) OF THE ACT FOR A.YS. 2007-08, 2008-09 AND 2009-10. BRIEFLY THE DETAILS ARE AS UNDER:- SR. NO. A.Y. L.T.C.G. S.T.C.G. INVESTMENT 1 2006-07 8751163 16098368 73754858 2 2007-08 23531677 5153600 86414090 3 2008-09 27296345 -(1380608) 110128712 4 2009-10 -(798021) -(29473795) 76229707 5. FOR THE YEAR ENDED 31 ST MARCH 2010 RELEVANT TO A.Y. 2010-2011 THE ASSESSEES INVESTMENT IN SHARES HAD INCREASED FR OM RS.76229707/- TO RS.107619247/- . DURING THE YEAR ENDED 31 ST MARCH 2010, THE ASSESSEE HAD EARNED S.T.C.G. OF RS.12794968 AND HAD INCU RRED A S.T.C.LOSS OF RS.1174753/- . THE ASSESSEE HAD ALSO EARNED L.T. C.G OF RS.151824/- AND HAD INCURRED L.T.C.LOSS OF RS.3239632/-. 4 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH THE AFORESAID EVIDENCES CLEARLY PROVE THAT THE ASSESSEE IS AN INVESTOR IN SHARES AS IN THE EARLIER YEARS AND TH E SAID INVESTMENT IN SHARES IS VALUED BY THE ASSESSEE AT COST. SECONDL Y THE ASSESSEE HAD RESHUFFLED HIS PORTFOLIOS OF SHARES MANY TIMES IN EARLIER YEARS AND ACCORDINGLY EARNED SHORT TERM CAPITAL GAINS AND L ONG TERM CAPITAL GAINS AND HE HAD ALSO INCURRED SHORT TERM CAPITAL LOSS AND LONG TERM CAPITAL LOSS WHICH ARE REFLECTED IN THE RETURNS O F INCOME OF THE ASSESSSEE FOR EARLIER YEARS AND THE SAME ARE ACCEPTED. IT I S THEREFORE , RESPECTIVELY SUBMITTED THAT IT BE OBSERVED THAT THE ASSESSEES PAST RECORDS SHOW SUBSTANTIAL INCOME BY WAY OF CAPITAL GAINS. 6. THE ASSESSEE RELIED ON THE DECISION OF THE BOMB AY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT . FURTHER, RELIED UP ON THE DECISION OF ITAT, MUMBAI IN THE CASE OF JANAK S. RANGWELL AND THE APEX COURT IN THE CASE OF RADHASOAMI SATASANG V. CIT. 3. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAS SHOWN THE INCOME FROM SALE OF SHARES FALLING U/S. 4 3(5) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) SEPARATELY AS SPECUL ATION INCOME WHICH INDICATES THAT THE ASSESSEE IS ENGAGED IN TRADING OF SHARES. HENCE , THE CONTENTION OF THE ASSESSEE AS INVESTOR CANNOT BE ACCEPTED. THE AO REJECTED THE CO NTENTIONS OF THE ASSESSEE THAT THE INCOME FROM SALE OF SHARES WAS TREATED AS STCG OR S HORT TERM CAPITAL LOSS(STCL) FOR ASSESSMENT YEAR 2007-08, 2008-09 AND 2009-10 BY HOLDING THAT THE PRINCIPAL OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEED INGS AND EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT. HENCE, THE ASSESSEE CANNOT T AKE BENEFIT OF THE ARGUMENT THAT EARLIER SUCH PROFIT WAS TREATED AS STCG/ STCL AND N OT BUSINESS INCOME. THE AO 5 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH OBSERVED THAT ON PERUSAL OF STCG DETAILS SUBMITTED BY THE ASSESSEE REFLECTS THAT THE ASSESSEE HAS PURCHASED SHARES/UNITS WORTH RS.9,72,7 2,530/- AND SOLD SHARES WORTH RS. 12,88,57,228/- WHICH SHOWS THE INTENSIVE, INTEGRATE D AND BRISK ACTIVITY OF THE ASSESSEE TO ACQUIRE AND SELL THE SHARES. HENCE , THE ASSESSE E CANNOT TERMS HIMSELF AS AN INVESTOR. THUS , THE AO OBSERVED THAT THE ASSESSEE HAS DERIVED THE INCOME FROM TRADING IN SHARES AND OFFERED THE SAME UNDER THE HE AD STCG. THE AO OBSERVED THAT THE NUMBER OF TRANSACTIONS AND THE QUANTUM IS QUITE HUGE I.E. THE SALE AND PURCHASE OF SHARES STOOD AT RS.9,22,58,412 AND RS. 10,50,53,364 /- RESPECTIVELY WITH A TOTAL DEALING IN SHARES OF SEVERAL COMPANIES IN VARIOUS TRANSACTI ONS. THE AO OBSERVED THAT THE ASSESSEE HAS INDULGED IN TRADING ACTIVITY IN SHARES ON REGULAR BASIS WITH PERIOD OF HOLDING OF THESE SHARES TO AS MINIMUM AS 2 DAYS. 4. THE AO OBSERVED THAT THE ASSESSEE HAS ENTERED IN TO THE REPEATED NATURE OF TRANSACTIONS OF THE SAME SCRIPTS WHICH GIVES A CLEA R INDICATION THAT IS NOT A CASE OF INVESTMENT BUT IS OF TRADING OF SHARES AND HENCE, I NCOME OF RS.99,24,367/- SHOWN BY THE ASSESSEE WAS TREATED AS BUSINESS INCOME UNDER T HE HEAD INCOME FROM BUSINESS OR PROFESSION. 5. AGGRIEVED THE ASSESSEE FILED THE FIRST APPEAL BE FORE THE CIT(A) AND SUBMITTED AS UNDER:- 1. THE ASSESSEE IS AN INDIVIDUAL AND IS CARRYING O N THE BUSINESS OF TRADING IN DIAMONDS IN THE FIRM'S NAME AND STYLE OF M/S. DIA E XPORTS CORPORATION. THE ASSESSEE FILED HIS RETURN OF INCOME FOR A. Y. 2010-11 ON 31S T JULY, 2010 DECLARING TOTAL INCOME OF RS.11,07,808/-. IN THE AFORESAID RETURN OF INCOM E THE ASSESSEE HAD DECLARED THE LONG-TERM CAPITAL LOSS OF RS. 30,87,808/- AFTER ADJ USTING THE LONG-TERM CAPITAL GAIN OF RS.1,51,824/-. THE SAID LONG-TERM CAPITAL LOSS I S CLAIMED TO BE CARRIED FORWARD. THE ASSESSEE HAD DECLARED THE NET SHORT-TERM CAPITA L GAIN OF RS.1,15,58,156/- WHICH WAS ADJUSTED AGAINST THE CARRIED FORWARD SHORT-TERM CAPITAL LOSS OF A. Y. 2008-09 OF RS. 13,80,608/- AND SHORT-TERM CAPITAL LOSS OF A. Y . 2009-10 OF RS.2,94,73,795/-. 6 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH THUS THE ASSESSEE HAD OFFERED THE NET SPECULATION I NCOME OF RS.3,03,915/- AND INCOME FROM OTHER SOURCES OF RS.9,18,272/-. 2. THE AFORESAID RETURN OF INCOME HAS BEEN SCRUTINI ZED BY THE ASST. COMMISSIONER OF INCOME-TAX- 16 (3), MUMBAI AND THE ORDER U/S.143 (3) OF THE ACT HAS BEEN PASSED ON 20TH MARCH, 2013 DETERMINING THE TOTAL INCOME AT RS .1,10,46,310/-. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT HAS TREATED THE SHORT-TERM CAPITAL GAINS OF RS.99,24,357/- AS BUSINESS INCOME AND ACCORDINGLY T HE SAME IS NOT ADJUSTED AGAINST THE SHORT-TERM CAPITAL LOSS OF THE EARLIER YEARS. T HE ASSESSING OFFICER HAS ALSO DISALLOWED RS.14,750/- U/S.94(7) OF THE ACT AND ACC ORDINGLY ADDED RS.1,02,43,032/- AS BUSINESS INCOME FOR THE YEAR ENDED 31ST MARCH 2010. 3. THE ASSESSING OFFICER WHILE TREATING THE SHORT T ERM CAPITAL GAIN AS BUSINESS INCOME GAVE THE FOLLOWING REASONS: (A) THE ASSESSEE HAS SHOWN INCOME FROM SALE OF SHAR ES AS SPECULATION INCOME IN THE YEAR UNDER CONSIDERATION WHICH SHOWS THAT THE ASSES SEE IS NOT AN INVESTOR IN SHARES. (B) THE PRINCIPLES OF RES JUDICATA IS NOT APPLICABL E TO INCOME-TAX PROCEEDING AND EACH ASSESSMENT YEAR IS SEPARATE AND DISTINCT AND THEREF ORE, THE ASSESSEE CANNOT ARGUE THAT IN THE EARLIER YEARS PROFIT ON SALE OF SHARES WAS T REATED AS STCG/STCL AND NOT BUSINESS INCOME. (C) THE ASSESSEE HAS PURCHASED SHARES WORTH RS.9,72 ,72,530/- AND SOLD SHARES OF RS. 12,88,57,228/- AND THEREFORE, THE ASSESSEE CANNOT B E TERMED AS AN INVESTOR. (D) THE NUMBER OF TRANSACTIONS AND THE QUANTUM OF T HE TURNOVER IN RESPECT OF SHORT- TERM CAPITAL GAINS IS QUITE HUGE. (E) THE ASSESSEE HAS INDULGED IN TRADING ACTIVITY I N SHARES ON REGULAR BASIS WITH PERIOD OF HOLDING OF THESE SHARES AS MINIMUM AS TWO DAYS. 4. HOWEVER THE ASSESSING OFFICER HELD THAT WHILE CO MPLETING THE ASSESSMENT FOR A. Y. 2009-10 U/S.143(3) OF THE ACT, THE SHARES HELD AS O N 31.3.2009 WERE TREATED AS INVESTMENT AND THEREFORE, THE SALE OF THE SAID SHAR ES IN THE PREVIOUS YEAR RELEVANT TO THE A. Y. 2010-11 IS TO BE TREATED AS SHORT TERM CA PITAL GAINS/LOSS. ACCORDINGLY THE ASSESSING OFFICER COMPUTED THE SHORT TERM CAPITAL G AINS ON SALE OF SUCH SHARES AT RS.32,80,883/- AND SHORT TERM CAPITAL LOSS ON SALE OF SUCH SHARES AT RS.4,10,280/-. THEREFORE, THE ASSESSING OFFICER TREATED THE BALANC E SHORT TERM CAPITAL GAINS OF 7 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH RS.99,24,367/- AS BUSINESS INCOME AND TAXED ACCORDI NGLY. AGAINST THE AFORESAID ORDER OF THE ASSESSING OFFICER, THE ASSESSEE IS IN APPEAL BEFORE YOUR HONOUR. 5. IN THIS RESPECT AT THE OUTSET, YOUR HONOUR'S ATT ENTION IS INVITED TO PAGE 23 OF THE PAPER BOOK, WHEREIN THE ASSESSEE HAS GIVEN DETAILS OF SHORT TERM CAPITAL GAIN/LOSS AND LONG TERM CAPITAL GAIN/LOSS, INCOME FROM SHARE TRADING AND INVESTMENT IN SHARES IN THE A. YS. 2001-02 TO 2010-11. ON PERUSAL OF THE AFORESAID CHART, YOUR HONOUR WILL FIND THAT THE ASSESSEE IS AN INVESTOR I N SHARES PRIOR TO A. Y. 2001-02. SECONDLY , EVERY YEAR THE ASSESSEE HAS MADE FURTHER INVESTME NT IN SHARES, WHICH IS APPARENT FROM THE FACT THAT THE INVESTMENT IN SHARE S OF RS.1.61 CRORES AS ON 31.3.2001 HAD INCREASED TO RS.10.92 CRORES AS ON 31.3.2008. I N THE PREVIOUS YEAR RELEVANT TO THE A. Y. 2009-10 THE ASSESSEE DISINVESTED A SUBSTANTIA L PART OF THE INVESTMENT IN SHARES AS THE MARKET HAD FALLEN SHARPLY AND THEREFORE, ON 31. 3.2009 THE ASSESSEE HAD INVESTMENT IN SHARES OF RS. 7.53 CRORES. HOWEVER IN THE YEAR E NDED 31ST MARCH 2010 THE ASSESSEE HAD MADE SUBSTANTIAL INVESTMENT IN SHARES, EVEN AFTER SELLING SOME OF THE SHARES FOR THE PURPOSE OF BOOKING APPRECIATION, AT RS. 10.67 CRORES AS ON 31.3.2010. THIRDLY , ON PERUSAL OF THE AFORESAID CHART IT IS SEEN THAT EVERY YEAR FROM A. Y. 2001-02 THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN/LOS S AND/OR LONG TERM CAPITAL GAIN/LOSS FROM A. Y.S 2001-02 TO 2009-10 AND THE SA ID SHORT TERM CAPITAL GAIN/LOSS AND/OR LONG TERM CAPITAL GAIN/LOSS IS ACCEPTED WHIL E COMPLETING THE ASSESSMENTS. FOR ASSESSMENT YEARS 2004-05 TO 2009-10 THE ASSESSM ENTS HAVE BEEN COMPLETED AFTER SCRUTINIZING THE RETURNS U/S.143(3) OF THE ACT. IN ALL THESE YEARS, THE CAPITAL GAINS FROM SHARE DEALINGS OFFERED BY THE ASSESSEE HAS BEEN ACC EPTED, EVEN THOUGH THE ASSESSEE HAS DEALT WITH LARGE NUMBER OF SCRIPS AND THERE WER E VOLUMINOUS TRANSACTIONS. FOURTHLY , THE ASSESSEE HAS SUBSTANTIAL BUSINESS INCOME FROM THE DIAMOND BUSINESS IN THE FORM OF SHARE OF PROFIT AND THE ASSESSEE IS FU LL TIME OCCUPIED FOR CARRYING ON THE SAID BUSINESS OF DEALING IN DIAMONDS. FIFTHLY , THE ASSESSEE HAS HIS OWN SUBSTANTIAL CAPITAL WHIC H HAS INCREASED FROM RS.8.84 CRORES IN A. Y. 2001-02 TO RS.21.24 CRORES IN A. Y. 2010-11. THE SAID CAPITAL HAS BEEN USED BY THE ASSESSEE IN MAKING INVESTMENT IN SHARES FOR CAPITAL APPRECIATION WHICH HAS BEEN ACHIEVED BY THE ASSESSEE FROM YEAR T O YEAR. SIXTHLY , THE ASSESSEE HAS NOT MADE ANY BORROWINGS FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES, BUT HE HAS ALWAYS UTILIZED HI S OWN FREE CAPITAL FOR APPRECIATION OF THE CAPITAL. 8 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH SEVENTHLY, AS THE ASSESSEE HAS MADE INVESTMENT IN SHARES FOR CAPITAL APPRECIATION, HE HAS UNDERTAKEN DELIVERY BASED TRANSACTIONS, WHICH A RE RECORDED IN HIS DEMAT ACCOUNT. IF ANY TRANSACTIONS OF PURCHASE AND SALE O F SHARES WERE CARRIED OUT WITHOUT TAKING DELIVERY, THE PROFIT OR LOSS ARISING FROM TH E SAID TRANSACTIONS IS TREATED AS BUSINESS INCOME FROM SHARE TRADING AND IT IS OFFERE D FOR TAXATION ACCORDINGLY. THIS FACT IS ALSO APPARENT FROM THE AFORESAID CHART WHIC H IS ENCLOSED AT PAGE 23 OF THE PAPER BOOK. EIGHTHLY . THE ASSESSEE HAS VALUED HIS SHARES ALWAYS AT COST AS THE SHARES ARE HELD BY THE ASSESSEE AS HIS INVESTMENT AND NOT STOCK IN TRA DE. NINTHLY , THE ASSESSEE HAS ALWAYS ACTED AS AN INVESTOR WHO WOULD SHUFFLE HIS PORTFOLIO BY BOOKING THE EXPECTED APPRECIATION WHICH IS APPAR ENT FROM THE FACT THAT ON AN AVERAGE WITHIN A PERIOD OF LESS THAN A YEAR THE ASS ESSEE HAS BEEN ABLE TO GET 10% APPRECIATION. TENTHLY , ON PERUSAL OF THE DETAILS OF THE SHORT TERM CAPIT AL GAINS ON PAGES 10 TO 14 OF THE PAPER BOOK, YOUR HONOUR WILL FIND THAT ON AN AVERAGE THE PERIOD OF HOLDING OF EACH SCRIP IS MORE THAN 30 DAYS, WHICH SHOWS THAT T HE ASSESSEE IS AN INVESTOR IN SHARES. ELEVENTHLY, ON PERUSAL OF THE CHART ON PAGE 23 OF THE PAPER BO OK, YOUR HONOUR WILL FIND THAT IN ALL THE YEARS, EXCEPT A. Y. 2001-02 TH E ASSESSEE HAS SOLD SHARES WHICH WERE HELD FOR MORE THAN 365 DAYS AND THEREFORE, THE ASSESSEE HAS EARNED LONG TERM CAPITAL GAINS OR LOSS IN EACH OF THE YEARS. THIS FA CT ALSO PROVES THAT THE ASSESSEE IS MAKING INVESTMENT IN SHARES FOR THE PURPOSE OF CAPI TAL APPRECIATION FOR WHICH THE ASSESSEE HELD THE SHARES FOR MORE THAN A YEAR AND T HEREFORE, HE IS NOT TRADING IN SHARES. HOLDING OF SHARES FOR A LONGER PERIOD HAS B ARE FRUITS TO THE ASSESSEE IN THE ASSESSMENT YEARS 2005-06 TO 2008-09 WHEREIN THE ASS ESSEE HAS EARNED THE AGGREGATE LONG TERM GAINS OF RS.6,84,75,372/- (OVER A PERIOD OF 4 YEARS). TWELFTHLY , THE ASSESSEE HAS MADE INVESTMENT IN SHARES WITH A N EXPECTATION OF APPRECIATION WHICH IS MORE THAN THE RATE OF INTERES T ON FIXED DEPOSIT AND IF THE SAME IS ACHIEVED WITHIN A SPAN OF A MONTH TO ELEVENTH MONTH , THE ASSESSEE HAS DISINVESTED THE SAID SHARES IN ORDER TO BOOK THE APPRECIATION AND N OT ALLOW IT TO BE ON PAPER AND THEREFORE, THE ASSESSEE HAS EARNED SHORT TERM CAPIT AL GAINS IN ALL THE YEARS AS SHOWN ON PAGE 23 AND OFFERED THE SAME AS SHORT TERM CAPIT AL GAINS. HOWEVER THE SAME WOULD NOT MAKE THE ASSESSEE A TRADER IN SHARES BECA USE THE INTENTION OF THE ASSESSEE IS ALWAYS TO INVEST IN SHARES FOR CAPITAL APPRECIAT ION AS THE ASSESSEE HAS HIS OWN 9 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH BUSINESS OF DEALING IN DIAMONDS FROM WHICH THE ASSE SSEE EARNS SUBSTANTIAL INCOME AND WHICH KEEPS THE ASSESSEE OCCUPIED THROUGHOUT TH E DAY AND 365 DAYS. THIRTEENTHLY , ON PERUSAL OF THE CHART ON PAGE 23 IT WILL BE SEE N THAT THE ASSESSEE HAS SUBSTANTIAL INVESTMENT IN SHARES AT THE END OF EACH YEAR WHICH AN INVESTOR IN SHARES WOULD MAKE AND NOT A TRADER IN SHARES BECAUSE THE I NVESTOR IS INTERESTED IN APPRECIATION IN CAPITAL AND THEREFORE, HE WOULD GEN ERALLY HOLD ON TO THE INVESTMENT SO THAT IT APPRECIATES. FOURTEENTHLY , THE ASSESSEE HAS NOT TAKEN ADVICE OR CONSULTED OR APPOINTED ANY BROKER FOR MAKING INVESTMENT IN SHARES. THE ASSESSEE HAS W ITH HIS OWN LIMITED KNOWLEDGE GATHERED FROM NEWSPAPERS AND MAGAZINES MADE INVESTM ENT IN SHARES AND SHUFFLED THE PORTFOLIO FROM TIME TO TIME. FIFTEENTHLY, THE CBDT VIDE ITS CIRCULAR BEARING NO.4/2007 DATED 15TH JUNE 2007 IN PARA 10 HAS ACCEPTED THAT A TAX PAYER CAN HAVE TWO PORTFOLIOS, VIZ., AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK IN TRADE WHIC H ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE A SSESSEE MAY HAVE INCOME UNDER BOTH HEADS VIZ. CAPITAL GAINS AS WELL AS BUSINESS I NCOME. SIXTEENTHLY , YOUR HONOUR'S ATTENTION IS INVITED TO THE DECISIO N OF THE APPELLATE TRIBUNAL IN THE CASE OF JANAK RANGWALLA VS. ACIT (1 1 SOT 627) WHEREIN THE HON. TRIBUNAL IN PARAGRAPH 6 HAS HELD AS UNDER: '6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RECORDS. THE FACTS OF THE PRESENT CASE ARE THAT THE ASSESSEE HAD EARNED INCOM E FROM SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 1,47,15,196 ON SALE OF SHARES IN T HE YEAR UNDER CONSIDERATION, WHICH WAS CLAIMED TO BE ADJUSTED AGAINST LONG TERM CAPITA L LOSS. THE ASSESSEE HAS ALSO DECLARED INCOME FROM SPECULATION GAINS/LOSS WHICH A RE ON ACCOUNT OF SALE AND PURCHASE OF SHARES WITHOUT DELIVERY OF THE SHARES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ALSO CLAIMED LONG T ERM CAPITAL LOSS OF RS. 1,02,31,691 ON SALE OF SHARES WHICH WERE HOLD BY TH E ASSESSEE AS INVESTMENT AND DULY REFLECTED IN HIS BALANCE SHEET AS INVESTMENT. SIMIL AR TRANSACTION OF SALE AND PURCHASE OF SHARES ARE BEING CARRIED OUT BY THE ASSESSEE IN PRECEDING YEARS, DETAILS OF WHICH HAVE BEEN FILED ON RECORD. IN ADDITION TO THE CAPIT AL GAINS RECEIVED FROM SALE OF SHARES THE ASSESSEE HAD DECLARED INCOME FROM DIVIDE ND RECEIVED FROM THE SAID SHARES BEING HELD AS INVESTMENT BY THE ASSESSEE. THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANS ACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TR ANSACTION. THE TRANSACTION IN 10 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MA GNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRI NCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN IN DEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDIC IALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UN LESS THERE IS A MATERIAL CHANGE IN THE FACTS. .. THE APPELLATE TRIBUNAL FURTHER OBSERVED AS UNDER: '7. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION OF THE ASSES SEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE . THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL NOT DECI DE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG T ERM AND SHORT TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCO UNT OF SALE AND PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERI TS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE IS NO BASIS FOR TREATING THE A SSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD THE SHARES IN INDIAN COMP ANIES AS AN INVESTMENT AND NOT AS STOCK-IN- TRADE. THE MERE MAGNITUDE OF THE TRANSACT ION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FRO M CAPITAL GAINS IN THE PAST SEVERAL YEARS. ' SEVENTEENTHLY , YOUR HONOUR'S ATTENTION IS INVITED TO THE DECISIO N OF THE HON. APPELLATE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT [20 DTR 99 (MUM)] WHEREIN THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF SALE AND PU RCHASE OF SHARES FOR A QUITE LONG PERIOD. IT IS ALSO NOTED THAT NON-DELIVERY BASED TR ANSACTIONS HAVE BEEN TREATED BY THE ASSESSEE AS BUSINESS ACTIVITY AND DELIVERY BASED TR ANSACTIONS HAVE BEEN TREATED AS AN INVESTMENT ACTIVITY AND, ACCORDINGLY, THE ASSESSEE HAS CLAIMED HIMSELF BOTH DEALER AS WELL AS INVESTOR AND HAS OFFERED INCOME FOR TAXATIO N ACCORDINGLY, WHICH HAS BEEN CLAIMED TO HAVE BEEN ACCEPTED BY THE REVENUE AUTHOR ITIES IN EARLIER YEARS. THE ASSESSEE HAS ALSO SUBMITTED DETAILS OF SHARES PURCH ASED AND TAKEN DELIVERY FROM ASST. YR. 2001-02 TILL ASST. YR. 2005-06 TO SHOW THE PERI OD OF HOLDING AS WELL AS TO SUBSTANTIATE THE CLAIM THAT IN RESPECT OF DELIVERY TRANSACTIONS, THE ASSESSEE ALWAYS SHOWED THE PROFIT THERE FROM EITHER AS LONG TERM CA PITAL GAIN AND SHORT TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. THE HON' BLE TRIBUNAL IN PARA 8.1 HAS OBSERVED AS UNDER: '8.1 THUS, THE NATURE OF ACTIVITIES, MODUS OPERANDI OF THE ASSESSEE, MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS INVESTMENT AT THE YEAR END IS SAME IN ALL THE 11 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH YEARS, HENCE; APPARENTLY, THERE APPEARS NO REASON A S TO WHY THE CLAIMS MADE BY THE ASSESSEE SHOULD NOT BE ACCEPTED. HOWEVER, THE REVEN UE AUTHORITIES HAVE TAKEN A DIFFERENT VIEW IN THE YEAR UNDER CONSIDERATION BY H OLDING THAT PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS. TH ERE CANNOT BE, IN OUR VIEW, ANY DISPUTE ON THIS, ASPECT BUT THERE IS ALSO ANOTHER J UDICIAL THOUGHT, THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY UNDER THE S AME FACTS AND CIRCUMSTANCES AND WE HAVE ALREADY FOUND THAT FACTS AND CIRCUMSTANCES ARE IDENTICAL, EVEN THOUGH A DIFFERENT STAND HAS BEEN TAKEN BY THE REVENUE AUTHO RITIES. THIS ACTION OF THE REVENUE AUTHORITIES HAS LED US TO ASK OURSELVES THAT IN THI S YEAR WHY IT HAS BEEN DONE SO. IN THE PROCESS TO FIND THE ANSWER, WE NOTED THAT THERE WAS A CHANGE IN THE SCHEME OF TAXATION RELATING TO SHORT-TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS. THROUGH THE FINANCE ACT, 2004, THE LEGISLATURE IMPOSED SECURITIES TRANS ACTION TAX ON THE SALE AND PURCHASE OF SHARES AND OTHER DERIVATIVE TRANSACTIONS AND, SI MULTANEOUSLY, THE LEGISLATURE EXEMPTED LONG-TERM CAPITAL GAIN UNDER SECTION 10(38 ) OF THE ACT FROM THE LEVY OF TAX AND ON SHORT- TERM CAPITAL GAIN, A CONCESSIONAL RAT E OF TAX I.E., 10 PER CENT HAS BEEN LEVIED SUBJECT TO THE CONDITION THAT TRANSACTIONS R ESULTING INTO THIS TYPE OF GAIN MUST HAVE SUFFERED SECURITIES TRANSACTION TAX: THIS IS T HE FIRST YEAR OF SUCH CHANGE AND, HAVING REGARD TO THE QUANTUM OF GAINS, THIS SCHEME OF TAXATION ONLY, IN OUR VIEW, HAS PROMPTED THE REVENUE AUTHORITIES TO TAKE A DIFFEREN T VIEW ON THE SAME TYPES OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE IN EARLIE R YEARS. AT THIS STAGE, WE CONSIDER IT FIT TO STATE THAT THERE IS NO DISPUTE BEFORE US THA T ASSESSEE HAS CLAIMED EXEMPTION UNDER SECTION 10(38) AND/OR HAS PAID TAX UNDER SECT ION 111A AT CONCESSIONAL RATE ON THE TRANSACTIONS, WHERE SECURITIES TRANSACTION TAX HAS NOT BEEN. IT IS ALSO NOTED THAT THE ASSESSEE HAS PAID TAX ON SHORT-TERM CAPITAL GAI NS AT NORMAL RATES ON SHARE TRANSACTIONS EXECUTED IN THE PERIOD PRIOR TO IMPOSI TION OF SECURITIES TRANSACTIONS TAX. IN OUR VIEW, THE LEGISLATIVE CHANGE OF THIS NATURE, WHEREBY NO CHANGE HAS BEEN MADE IN RESPECT OF NATURE END MODUS OPERANDI OF SUCH SHA RE TRANSACTIONS, RESULTING INTO ANY ADVANTAGE CANNOT BE TAKEN AWAY BY THE REVENUE AUTHO RITIES IN THIS MANNER AND IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT, PRINC IPLE OF CONSISTENCY, THOUGH IT IS AN EXCEPTION TO THE PRINCIPLE OF RES JUDICATA MUST BE APPLIED HERE. IT IS FURTHER SO BECAUSE THE PAYMENT OF SECURITIES TRANSACTION TAX IS MANDAT ORY I.E., WHETHER AN ASSESSEE EARNS THE PROFIT OR NOT OR SUFFERS A LOSS AND BY IMPOSITI ON OF SUCH TAX, THE LEGISLATURE HAS NOT GIVEN ANY BENEFIT TO A CLASS OF TRANSACTIONS AS A WHOLE THOUGH IT MAY RESULT INTO AN APPARENT BENEFIT TO INDIVIDUAL(S) ENTERING INTO TH OSE TRANSACTIONS. THUS, IN OUR VIEW, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE BASIS OF PRINCIPLE OF CONSISTENCY ALONE, THE ACTION OF THE REVENUE AUTHORITIES IS LIA BLE TO BE QUASHED. WE ORDER ACCORDINGLY AND DIRECT THE ASSESSING OFFICER TO ACC EPT THE CLAIMS OF ASSESSEE IN REGARD TO SHORT-TERM CAPITAL GAIN AND LONG-TERM CAP ITAL GAIN.' 12 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH THE AFORESAID DECISION OF THE TRIBUNAL IS AFFIRMED BY THE BOMBAY HIGH COURT AND ACCORDINGLY THE APPEAL OF THE DEPARTMENT U/S. 260A OF THE ACT HAS BEEN DISMISSED WHICH IS REPORTED IN 336 ITR 287 . IN THE SAID JUDGMENT THEIR LORDSHIPS HELD AS UNDE R: THE TRIBUNAL HAS CORRECTLY APPLIED THE PRINCIPL E OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORT FOLIOS, ONE RELATING TO INVESTMENT IN SHARES AND ANOTHER RELATI NG TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIV ERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NAT URE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED EI THER AS SHORT-TERM OR, AS THE CASE MAY BE, LONG-TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FINDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENCE OF TWO DISTINCT TYPES OF TRANSACTIONS, NAMELY, THOSE BY WAY OF INVESTMENT ON THE ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER HAND. QUESTION (A ) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. 'IN SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUN AL HAS OBSERVED IN PARAGRAPH 8.1 . OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CO NSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING REC ORDS AND THE PRESENTATION OF SHARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YE ARS. THE REVENUE SUBMITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER C ONSIDERATION, SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEE DINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION, THAT THE PRINCIPLE OF RES JU DICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FA CTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE . THIS APPROACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUEST ION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBSTANTIAL QUESTION OF LAW.' EIGHTEENTH , YOUR HONOUR'S ATTENTION IS INVITED TO THE DECISIO N OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DARIUS PANDOLE (330 IT R 485) WHEREIN THEIR LORDSHIPS WHILE DECIDING THE ISSUE WHETHER THE ASSESSEE INCUR RED LOSS ON SALE OF SHARES AS BUSINESS LOSS OR CAPITAL LOSS HELD AS UNDER: IT IS IN THIS FACTUAL BACKGROUND THAT THE TRIBUNAL, WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2003-04 HAS OBSERVED THAT THERE WAS NO CHANGE IN THE SET OF FACTS AND CIRCUMSTANCES AS THEY OBTAINED FOR THE ASSESSMENT Y EARS 1997-98 AND 2002-03. THE TRIBUNAL WAS CORRECT IN HOLDING THAT THERE WAS DUE APPLICATION OF MIND BY THE ASSESSING OFFICER TO THE VERY SAME ISSUE DURING THE COURSE OF THE EARLIER TWO 13 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH ASSESSMENT YEARS AND THAT THE ASSESSMENTS WERE FINA LIZED AFTER CONSIDERING THE REPLY FILED BY THE ASSESSEE SPECIFICALLY TO THE QUERY RAI SED BY THE ASSESSING OFFICER. IN THE CIRCUMSTANCES, THE TRIBUNAL WAS, IN OUR VIEW, JUSTI FIED IN FOLLOWING THE DECISION OF THE SUPREME COURT IN RADHASOAMI SATSANG V. CIT [1992]19 3 ITR 321. WHILE THE PRINCIPLE OF RES JUDICATA COULD NOT AS AN ABSTRACT PRINCIPLE APPLY TO ASSESSMENT PROCEEDINGS SINCE EACH YEAR OF ASSESSMENT HAS TO BE CONSIDERED SEPARATELY, YET WHEN A FUNDAMENTAL ASPECT WAS DULY CONSIDERED AFTER A QU ERY WAS RAISED BY THE ASSESSING OFFICER AND WAS ANSWERED BY THE ASSESSEE ON THE SAM E FACTS, A CHANGE IN VIEW, WAS EVIDENTLY NOT WARRANTED FOR THE ASSESSMENT YEAR IN QUESTION. SO CONSTRUED, WE DO NOT FIND THAT THE DECISION OF THE TRIBUNAL WILL GIVE RI SE TO ANY SUBSTANTIAL QUESTION OF LAW. THE VIEW WHICH WE HAVE TAKEN IS CONSISTENT WITH THE PRINCIPLE LAID DOWN BY THE DIVISION BENCH OF THIS COURT IN KARSONDAS RANCHHODD AS V. CIT [1972] 83 ITR 256. THE APPEAL IS HENCE DISMISSED. ' NINETEENTHLY, YOUR HONOUR'S ATTENTION IS ALSO INVITED TO THE LAT EST DECISION OF THE HON. APPELLATE TRIBUNAL IN THE CASE OF ACIT VS. SHRI NAI LESH P. DALAL IN ITA NO. 3337/MUM/2009 AND C.O. NO.235/MUM/2009 DATED 28-8- 2013 WHEREIN THE HON. TRIBUNAL HELD AS UNDER: '10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE AS TO WHETHER THE PROFITS ON S ALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE ASSESSEE OR LONG TERM CAPITAL GAINS D EPENDS ON WHETHER THE SAID SHARES WERE PURCHASED BY THE ASSESSEE AS INVESTMENT OR STO CK IN TRADE. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASED BY THE ASSE SSEE AS INVESTMENT OR STOCK-IN- TRADE, THE MOST RELEVANT ASPECT WHICH IS TO BE SEEN IS THE INTENTION OF THE ASSESSEE BEHIND THE PURCHASE OF SHARES AND SUCH INTENTION HA S TO BE GATHERED FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE. IN THE CASE OF SARNATH INFRASTRUCTURE P. LTD. 313 ITR (A T) 13, THE COORDINATE BENCH OF THIS TRIBUNAL AT LUCKNOW HAS LAID DOWN CERTAIN PRINCIPLES/CRITERIAS WHICH CAN BE APP LIED TO THE FACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER TRANSACTIONS IN SHARES ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSE. WHILE LAYING DOWN THE SAID GUIDELINES/PRINCIPLES, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE VARIOUS JUDICIAL P RONOUNCEMENTS ON THIS ISSUE AS WELL AS THE CIRCULAR ISSUED BY THE CBDT. THE GUIDELINES/ PRINCIPLES LAID DOWN BY THE TRIBUNAL ARE ENUMERATED BELOW: '(1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE T IME OF PURCHASE OF THE SHARES. THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUC H PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK-IN-TRADE OR INVESTME NT? WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON-TRADING ASSET? (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON. 14 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR T HE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. (3) WHAT IS TH E FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND S ALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE . SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETH ER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDIC ATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT): (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPR ECIATION IN ITS VALUE. FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTME NT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDI ENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BALANCE SHEET? IF T HE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS O R WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORANDUM OF ASSOCIATION/ARTICLE OF ASSOCIATION ? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHET HER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SH OW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO D ISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS IN VESTMENT FOR SAY, STOCK-IN-TRADE), THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPA RENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT M ATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES FOR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LE GAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITE M SINCE BEGINNING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDT CIRCU LAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCO UNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTER MINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOV E ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN.' 15 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH '11. IF THE ABOVE PRINCIPLES/GUIDELINES ARE APPLIED TO THE FACTS OF THE PRESENT CASE, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT(AP PEALS) THAT THE TRANSACTIONS IN SHARES WERE CARRIED OUT BY THE ASSESSEE AS AN INVES TOR AND NOT AS A TRADER AND THE PROFIT EARNED FROM THE SAID TRANSACTION WAS CHARGEA BLE TO TAX IN ITS HANDS UNDER THE HEAD 'CAPITAL GAINS'. IT IS OBSERVED IN THIS REGARD THAT THE SHARES WERE CONSISTENTLY TREATED BY THE ASSESSEE AS INVESTMENT IN HIS BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION AS WELL AS IN THE IN THE EARLIER YEAR S AND THE TREATMENT SO GIVEN WAS ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS. TH ERE WERE NO BORROWED FUNDS UTILIZED BY THE ASSESSEE FOR MAKING INVESTMENT IN S HARES AND THE ENTIRE INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE OUT OF HIS OWN FUND S. THE TOTAL INVESTMENT OF THE ASSESSEE IN SHARES DURING THE YEAR UNDER CONSIDERAT ION WAS TO THE EXTENT OF RS. 4.23 CRORES WHILE THE TOTAL SALE OF SHARES WAS ONLY TO T HE EXTENT OF RS. 1.63 CRORES SHOWING A VERY LOW TURNOVER WHICH COULD HAPPEN ONLY IN THE CASE OF AN INVESTOR AND NOT IN THE CASE OF TRADER IN SHARES. THE AVERAGE PERIOD OF HOL DING OF SHARES GIVING RISE TO LONG TERM CAPITAL GAIN WAS 1214 DAYS WHILE THE SAME WAS 129 DAYS IN THE CASE OF SHARES GIVING RISE OF SHORT TERM CAPITAL GAIN WHICH AGAIN GOES TO SHOW THAT THE SHARES WERE HELD BY THE ASSESSEE FOR A CONSIDERABLY LONG PERIOD BEFORE THE SALE SHOWING LOW FREQUENCY. THE INVESTMENT PORTFOLIO OF THE ASSESSEE WAS COMPRISING OF MUTUAL FUNDS, SHARES OF UNLISTED COMPANIES ETC. AND THIS PATTERN OF INVESTMENT FURTHER SHOWS THAT THE ASSESSEE WAS INVESTOR IN SHARES AND SECURITIES AND NOT A TRADER. ALL THE INVESTMENTS MADE BY THE ASSESSEE IN SHARES AND SECURITIES WERE CONSISTENTLY VALUED AT COST WHICH FURTHER SHOWS THAT THE SHARES WERE TREATED BY THE A SSESSEE AS INVESTMENT AND NOT STOCK-IN-TRADE. THE ASSESSEE WAS A WORKING DIRECTOR IN MISS DALAL BROACHA STOCK BROKING PVT. LTD. EARNING A REMUNERATION OF RS. 52 LACS AND ALTHOUGH THE SAID COMPANY WAS ENGAGED IN THE BUSINESS OF TRADING IN S HARES, THE FACT THAT HE WAS IN FULL EMPLOYMENT OF THAT COMPANY SHOWS THAT HE WAS NOT LE FT WITH SUFFICIENT TIME TO CARRY ON THE BUSINESS OF TRADING ON SHARES ON HIS PERSONAL A CCOUNT. IN OUR OPINION, IF ALL THESE RELEVANT FACTS OF THE ASSESSEE'S CASE ARE TAKEN INT O CONSIDERATION IN TOTALITY, IT BECOMES ABUNDANTLY CLEAR THAT THE TRANSACTIONS IN SHARES WE RE MADE BY THE ASSESSEE AS IN INVESTOR AND NOT AS A TRADER AND THE PROFIT EARNED BY HIM FROM THE SAID TRANSACTIONS WAS CAPITAL GAINS AND NOT BUSINESS INCOME AS RIGHTL Y HELD BY THE ID. CIT(A). WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A) DIRECTING THE AG. TO TREAT THE PROFIT EARNED BY THE ASSESSEE FROM SHARE TRANSACTIONS AS CAPITAL GAINS AND UPHOLDING THE SAME, WE DISMISS THIS APPEAL FILED BY THE' REVENUE.' LASTLY , THE ASSESSEE RELIES ON THE DECISION OF THE HON. T RIBUNAL DELHI BENCH IN THE CASE OF HERO MOTOR CORP LTD. VS. ADDL. CIT IN ITA N O. 1980/DEL/2012 DATED 11 TH JUNE, 2013 WHEREIN THE HON. TRIBUNAL HAS FOLLOWED T HE AFORESAID CRITERIA TO DECIDE THAT THE ASSESSEE COMPANY HAD EARNED SHORT TERM CAP ITAL GAINS AND NOT BUSINESS INCOME. 16 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH 6. THE CIT(A) AFTER CONSIDERING THE REPLIES SUBMITT ED BY THE ASSESSEE HELD THAT THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING THE INCOME F ROM SALE OF SHARES AS INVESTMENT GIVING RISE TO LONG TERM CAPITAL GAIN OR LOSS AND R IGHT FROM ASSESSMENT YEAR 2004-05 TO 2009-10 , THE CASE OF THE ASSESSEE WAS SCRUTINIZED UNDER SECTION 143(3) OF THE ACT AND HE WAS TREATED AS INVESTOR.THE CIT(A) ALSO OBSERVE D THAT IN THIS YEAR IN RESPECT OF CERTAIN SHARES WHERE THE APPELLANT HAS ENTERED INTO REPETITIVE TRANSACTIONS IN SOME SHARES OR IN OTHER WORDS, HE HAS INDULGED IN CHURNI NG OF SAME SHARES WHICH WAS HELD TO BE BUSINESS INCOME . THE DETAILS OF SUCH SHARES WHERE THE HOLDING PERIOD IS LESS THAN TEN DAYS IS AS UNDER:- SR. NO. NAME OF THE COMPANY NO. OF SHARES RATE DATE OF PURCHASE AMOUNT DATE OF SALE NO. OF DAYS HELD RATE NO. OF SHARES AMOUNT P/L. 1 ABAN OFFSHORE 465 434.10 7.5.09 201856.50 11.5.09 3-4 464.20 1465 680053.00 16216.50 1000 461.98 8.5.09 461980.00 2 APTECH 5000 185.50 3.6.09 927500.00 11.6.09 9. 20 1.53 5000 1007650.00 80150.00 3 BALRAMPUR CHINI 1260 73.68 4.5.09 92836.80 6.5.09 2 78.70 1260 9916 2.00 6325.20 5740 73.68 4.5.09 422923.20 7.5.09 2-3 76.70 7000 536900.00 20283.20 1260 74.36 5.5.09 93693.60 6000 86.41 25.5.09 518460.00 2.6.09 8 94.55 6000 597300.00 48840.00 4 CUMMINS INDIA 3000 324.43 13.8.09 973890.00 17.8.09 4 327.57 3000 982710.00 9420.00 5 EDUCOMP SOLU 250 3608.40 11.8.09 902100.00 17.8.09 7 3744.28 250 936070.00 33970.00 17 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH 6 IFCI 21000 45.98 17.7.09 965580.00 23.7.09 6 48.6 6 21000 1021860.00 56280.00 7 JAIPRAKASH ASS 4000 190.95 26.5.09 763800.00 1.6.09 6 223.15 4000 892600.00 128800.00 5000 194.71 18.6.09 973550.00 25.6.09 7 216.67 50 00 1083350.00 109800.00 5000 198.40 6.7.09 992000.00 15.7.09 1-10 204.97 8000 1639760.00 79470.00 3000 189.43 14.7.09 568290.00 8 MERCATOR LINES 8000 61.64 1.10.09 493120.00 9.10.09 8 64.97 8000 5 19760.00 26640.00 9 MCLEOD RUSSEL 5000 155.86 19.8.09 779300.00 21.8.09 2 167.08 5000 835400.00 56100.00 10 M & M 1000 836.99 28.7.09 836990.00 31.7.09 3 88 0.12 1000 880120.00 43130.00 11 RUCHI SOYA 16500 60.51 30.7.09 998415.00 5.8.09 5 64.18 16500 1058970.00 60555.00 5000 81.95 12.11.09 409750.00 16.11.09 4 87.53 50 00 437650.00 27900.00 TOTAL 12375435.10 131793150.00 803879.90 THE CIT(A) HELD THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE CBDT INSTRUCTION NO. 4/2007 DATED 15.06.2007 ON THE SUBJ ECT. IN THIS CASE, THE RATIO OF HONBLE HIGH COURT IN THE CASE OF GOPAL PUROHIT (SU PRA) IS SQUARELY APPLICABLE THAT THE ASSESSEE HAS BOTH THE LONG TERM CAPITAL GAINS(L TCG) AND STCG, HELD THAT THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. SO THE CIT(A) HELD THAT RS.8,03,880/ - AS PER ABOVE CHART WHERE THE HOLDING IS FOR A VERY SHORT DURATION HAS TO BE TREA TED AS BUSINESS INCOME AND BALANCE AMOUNT SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN . 7. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL, THE LD. DR SUBMITTED THAT THE ASSESSEE IS TRADING IN SHARES AND THE AO HAS 18 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH RIGHTLY BROUGHT THE INCOME TO TAX AS BUSINESS INCOM E AND CIT(A) ERRED IN TREATING THE SAME AS SHORT TERM CAPITAL GAIN. THE LD. DR RELIED UPON THE ORDERS OF THE AO WHILE ON THE OTHER HAND, THE LD. COUNSEL OF ASSESSEE RELI ED UPON THE ORDERS OF THE CIT(A) AND SUBMITTED THAT IN EARLIER SIX YEARS FROM ASSESS MENT YEAR 2004-05 TO 2009-10 THE CASE WAS SCRUTINIZED U/S. 143(3) OF THE ACT , WHERE BY, THE REVENUE HAS ACCEPTED THE ASSESSEE AS AN INVESTOR. HE ALSO RELIED UPON THE O RDERS IN THE CASE OF ACIT V. SANJAY M. JHAVERI, ITAT, MUMBAI A BENCH ITA NO. 4039/MUM /2011(MUM. TRIB.) AND ALSO RELIED UPON THE ORDERS OF ITO V. JANARDHAN PRA HALADRAO GUPTA IN ITA NO. 1030/PN/2011(PUNE-TRIB) TO CONTEND THAT THE ASSESSE E IS AN INVESTOR. 8.WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD AND CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT THE AS SESSEE IS A REGULAR INVESTOR AND THE ASSESSEE HAS SHOWN THE INCOME OF SHORT TERM CAPITAL GAIN/LOSS AND LONG TERM CAPITAL GAIN /LOSS FROM THE SALE OF SHARES WHICH IS BEING SHOWN CONSISTENTLY SINCE PRECEDING SEVERAL YEARS AND THE SAME WAS ACCEPTED IN THE PRECEDING YEARS BY THE REVENUE. THE REVENUE HAS DURING THE LAST SIX YEARS I.E. ASSESSMENT YEARS 2004-05 TO 2009-10 PROCESSED THE CASE OF THE ASSESSEE UNDER SC RUTINY U/S 143(3) OF THE ACT AND ACCEPTED THE ASSESSEE AS AN INVESTOR AND BROUGHT TO TAX GAINS FROM SHARES AS CAPITAL GAINS/LOSS.THE ASSESSMENT ORDERS FRAMED BY THE REVE NUE U/S 143(3) FOR THE ASSESSMENT YEAR 2004-05 TO 2009-10 ARE PLACED AT PAPER BOOK FI LED BY THE ASSESSEE.THE PRINCIPLES OF RES-JUDICATA ARE NOT APPLICABLE TO INCOME TAX PR OCEEDINGS BUT PRINCIPLES OF CONSISTENCY HAS TO BE FOLLOWED AND THE REVENUE CANN OT TAKE ALTOGETHER STAND BASED ON IDENTICAL FACTS AS EXISTING IN THE EARLIER YEARS. W E HAVE OBSERVED THAT THE ASSESSEE HAS ALSO VALUED THE INVESTMENT IN SHARES AT COST IN HIS BOOKS OF ACCOUNTS AND NOT COST OR MARKET VALUE WHICH EVER IS LOWER WHICH IS AGAIN IN DICATIVE THAT THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT. THE SHARES PURCHASED A ND SOLD ARE ALL DELIVERY BASED TRANSACTIONS ON WHICH STCG/STCL OR LTCG/LTCL IS EAR NED. THE ASSESSEE HAS ALSO 19 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH OFFERED FOR TAX , INCOME FROM SALE OF SHARES AS SPE CULATIVE PROFITS (NET) OF RS 3,03,915/- UNDER THE ACT WHERE THE TRANSACTIONS ARE NOT BACKED WITH DELIVERY. THE ASSESSEE IS PARTNER IN M/S DIA EXPORT CORPORATION W HICH IS ENGAGED IN TRADING IN DIAMOND AND ASSESSEE HAS MADE SUBSTANTIAL INVESTMEN T IN SAID PARTNERSHIP FIRM FROM WHICH RECEIVABLE AS ON 31-03-2010 STOOD AT RS.6.74 CRORES AND HAS SUBSTANTIAL INCOME FROM THE SAID FIRM WHICH STOOD AT RS.32,88,0 53/- FOR THE ASSESSMENT YEAR 2010-11 WHICH AGAIN INDICATES THAT IT MUST BE OCCUP YING SUBSTANTIAL TIME OF THE ASSESSEE AS THE ASSESSEE HAS ALSO CONTENDED THAT HE IS WORKING PARTNER OF THE SAID FIRM M/S DIA EXPORT CORPORATION . WE HAVE ALSO OBSERVED THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR BUYING AND HOLDING THE SHARE S WHICH ALSO INDICATES THAT THE ASSESSEE IS AN INVESTOR. IN OUR CONSIDERED VIEW KEE PING IN VIEW FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS RIGHTLY CLASSIFIED AND DISTINGUISHED WHEREBY THE SHARES TRANSACTED REPEATEDLY WITHIN SHO RT PERIOD OF TIME WITHIN FEW DAYS WAS HELD TO BE BUSINESS INCOME OF RS.8,03,879.90 AS PER CHART ABOVE IN PRECEDING PARAS WHILE THE REST OF INCOME/GAIN FROM SALE OF S HARES IS CLASSIFIED AS STCG OR LTCG AND WE DO NOT FIND ANY INFIRMITY IN THE WELL R EASONED ORDERS OF THE CIT(A) WHICH WE UPHOLD. WE ORDER ACCORDINGLY. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JANUARY, 2016 SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) '( % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER ) * MUMBAI; +% DATED : 01.01.2016 PS:- POOJA K. 20 I.T.A. NO. 3347/MUM/2014 ASST YR.: 2010-11) ACIT V. SHRI KAUSHIK C, PARIKH ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4 ( ) / THE CIT(A) 4. 4 / CIT - CONCERNED 5. 789 ((:; , :;$ , ) * / DR, ITAT, MUMBAI 6. 9=> ? / GUARD FILE ' / BY ORDER, (/') * (DY./ASSTT. REGISTRAR) , ) * / ITAT, MUMBAI