Sujal Leasing & Finance Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Cent.Circle-1(3), Ahmedabad

ITA 3421/AHD/2009

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9126 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 142(1); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 3421 & 3439/AHD/2009 (ASSESSMENT YEAR: 2006-07) SUJAL LEASING & FINANCE PVT. LTD. 1 ST FLOOR, H.N. HOUSE, NR. OLD HIGH COURT, NAVRANGPURA, AHMEDABAD DCIT CENTRAL CIRCLE- 1(3),AHMEDABAD V/S DCIT CENTRAL CIRCLE- 1(3),AHMEDABAD SUJAL LEASING & FINANCE PVT. LTD. 1 ST FLOOR, H.N. HOUSE, NR. OLD HIGH COURT, NAVRANGPURA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AACCS1273Q APPELLANT BY : SHRI S.N. SOPARKAR, A.R. RESPONDENT BY : SHRI JAMES KURIAN, SR. D.R. ( )/ ORDER DATE OF HEARING : 16 -02-201 7 DATE OF PRONOUNCEMENT : 22 -02-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 2 1. ITA NOS. 3421 & 3439/AHD/2009 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE VERY SAME ORDER OF TH E LD. CIT(A)-I, AHMEDABAD DATED 15.10.2009 PERTAINING TO A.Y. 2006- 07. 2. AS COMMON GRIEVANCE IS INVOLVED IN THESE APPEALS, T HEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. 3. THE COMMON GRIEVANCE RELATES TO THE TREATMENT OF SH ORT TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE ACTION OF T HE A.O. HAS BEEN PARTLY CONFIRMED BY THE FIRST APPELLATE AUTHORITY AGAINST WHICH THE ASSESSEE IS IN APPEAL AND THE REVENUE IS IN APPEAL AGAINST THE PAR T RELIEF GIVEN BY THE FIRST APPELLATE AUTHORITY. 4. BRIEFLY STATED THE ASSESSEE IS A LIMITED COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. IT IS ENGAGED IN THE BUSI NESS OF TRADING IN SHARES AND SECURITIES. DURING THE YEAR UNDER CONSIDERATION , IT HAS SHOWN INCOME FROM BUSINESS, DIVIDEND AND SHORT TERM CAPITAL GAIN ON SALE OF SHARES. 5. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS AND ON GOING THROUGH THE DETAILS RELATING TO THE PURCHASE AND SA LE OF SHARES WHICH HAVE RESULTED INTO SHORT TERM CAPITAL GAINS, THE A.O. IS SUED A SHOW CAUSE NOTICE DATED 22.08.2008 BY WHICH THE ASSESSEE WAS REQUESTE D TO SHOW CAUSE AS TO WHY THE SURPLUS ARISING OUT OF SALE OF SHARES SHOUL D NOT BE TAXED AS ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 3 BUSINESS INCOME. THE RELEVANT PORTION OF THE SHOW C AUSE NOTICE IS REPRODUCED HEREUNDER:- 2. IN CONNECTION WITH THE ABOVE, VARIOUS DETAILS H AVE BEEN FILED BY YOU. ON GOING, THROUGH THE SAID DETAILS, IT IS NOTED THAT D URING THE YEAR UNDER CONSIDERATION, SHARES OF PCS, NANDAN EXIM, YES BANK , IDFC LTD., 1L & FS, ETC. HAVE BEEN SHOWN AS PURCHASES AND SALES. IN THIS REG ARD, VIDE NOTICE DATED 10.10.2007 ISSUED U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAIRE, YOU WERE REQUESTED TO SUBMIT COMPLETE DETAILS OF APPLICATION S MADE IN VARIOUS NAMES, AMOUNT PAID ON APPLICATION, DETAILS OF ALLOTMENT OF SHARES, DETAILS OF REFUNDS, IF ANY, DETAILS OF SALE OF SHARES ALLOTTED WITH DATE - RATE - NAME OF THE PERSON TO WHOM SOLD, FOR EACH IPOS IN WHICH MULTIPLE APPLICAT IONS HAVE BEEN MADE BY YOU OR THROUGH YOU. YOU WERE ALSO REQUESTED TO SHOW-CAU SE AS TO WHY THE INCOME AS COMPUTED UNDER THE PROVISIONS OF I.T. ACT ARISING O UT OF AFORESAID ACTIVITY SHOULD NOT BE TREATED AS YOUR INCOME FROM BUSINESS OR PROF ESSION INSTEAD OF SHORT TERM CAPITAL GAIN AS SHOWN BY YOU. 6. IN RESPONSE TO THE ABOVE, THE ASSESSEE SUBMITTED TH E REQUIRED DETAILS VIDE LETTER DATED 18.03.2008. 7. ON PERUSAL OF THE REPLY, THE A.O. NOTED THAT APART FROM THE ABOVE SHARES, THE ASSESSEE HAS TRADED AS WELL AS INVESTED IN VARI OUS SCRIPS DURING THE YEAR UNDER CONSIDERATION AND SURPLUS ARISING OUT OF THE PURCHASE AND SALE OF SHARES OF IPOS AND OTHER COMPANIES HAVE SHOWN AS SH ORT TERM CAPITAL GAINS. THIS WAS NOT ACCEPTABLE TO THE A.O. FOR THE FOLLOWI NG REASONS:- (1) ON GOING THROUGH THE RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION IT IS NOTICED THAT THE PURCHASE AND SALES OF SECURITIES I S ALLIED TO YOUR USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT AND IT WAS NOT AN OCCA SIONAL INDEPENDENT ACTIVITY. (2) ON MOST OF THE OCCASIONS WHERE THE SHARES WERE ACQU IRED WITH THE INTENTION TO RESALE AT A PROFIT ONLY AND THERE WAS NO INTENTION TO HOLD THEM FOR LONG TERM APPRECIATION. (3) THE DETAILS SUBMITTED SHOWS THAT THE ACTIVITY OF SU BSCRIBING TO VARIOUS IPOS THROUGH THE COMPANIES AS REFERRED TO ABOVE OR HNL C ATEGORY WAS ON LARGE SCALE. ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 4 (4) IT IS ALSO NOTED THAT ON RECEIPT OF REFUND/ ALLOTME NT OF A PARTICULAR IPO, AGAIN THE SURPLUS FUNDS WERE INVESTED IN ANOTHER IPO. THE SAI D PATTERN HAS BEEN FOLLOWED REGULARLY. (5) THE RATIO OF SALES TO PURCHASE IS VERY NARROW RESUL TING INTO HOLDING OF SHARES OF A PARTICULAR COMPANY FOR A SHORTER PERIOD. (6) ON COMPARISON OF THE DETAILS OF PURCHASE AND SALE O F SHARES OF VARIOUS COMPANIES OF CURRENT YEAR WITH PREVIOUS YEARS, IT APPEARS THA T THE VOLUME INCREASED OVER THE YEARS WHICH SHOWS THAT THE COMPANY CEASED TO BE AN INVESTOR AND BECOME TRADER. IN VIEW OF ABOVE, YOU ARE REQUESTED TO SHOW CAUSE A S TO WHY THE SURPLUS AMOUNTING TO RS. 3,93,54,700/- ARISING OUT OF PURCHASE AND SA LE OF SHARES VARIOUS COMPANIES SHOULD NOT BE TREATED AS BUSINESS INCOME IN THE YEA R OF ITS SALE. 8. IN RESPONSE TO THE AFOREMENTIONED QUERIES RAISED BY THE A.O., THE ASSESSEE FILED A DETAILED SUBMISSIONS DATED 26.08.2008. IT W AS BROUGHT TO THE NOTICE OF THE A.O. THAT ALL THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE MADE WITH AN INTENTIO N OF INVESTMENT. IT WAS STRONGLY CONTENDED THAT AN INVESTOR CAN BE SMAL L INVESTORS OR LARGE INVESTORS. SIMPLY BECAUSE THE ASSESSEE IS HAVING LA RGE PORT FOLIO, IT WOULD NOT TAKE AWAY THE REAL CHARACTER OF SHARES THAT HAV E BEEN BOUGHT AND HELD AS INVESTMENT. THE ASSESSEE FURTHER STATED THAT EVE RY INVESTOR MAKES INVESTMENT KEEPING IN MIND CERTAIN RETURN HE EXPECT S TO EARN ON HIS INVESTMENT. THE MOTIVE OF SUCH INVESTMENT WAS WEALT H MAXIMIZATION AND THE ASSESSEE ONLY DISPOSED THE INVESTMENTS ON PROPE R ADVICE. THEREFORE, THE SAID TRANSACTION SHOULD NOT BE TREATED AS BEING PURCHASED AND SOLD FOR TRADING PURPOSE; RATHER THE TRANSACTION SHOULD BE C ONSTRUED IN THEIR TRUE SENSE AS MADE FOR INVESTMENT ONLY. 9. THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE DID N OT FIND ANY FAVOUR WITH THE A.O. THE A.O. WAS OF THE FIRM BELIEF THAT THE S UBJECT MATTER OF ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 5 REALIZATION IS SHARES AND CONSIDERING THE VOLUME IN VOLVED, IT CANNOT BE TREATED AS INVESTMENT. THE A.O. FURTHER OBSERVED TH AT THE LENGTH OF THE PERIOD OF OWNERSHIP WAS VERY SHORT. THE A.O. WAS OF THE OPINION THAT THE SHARES HAVE BEEN ACQUIRED FROM PANCHAL AND SUGANDH GROUP WHICH WERE INVOLVED IN AN IPO SCAM OF THE IMPUGNED SHARES. DRA WING SUPPORT FROM THE CBDT INSTRUCTION NO. 1827 DATED 31.08.1989 AND SUPP LEMENTARY INSTRUCTION IN THE FORM OF CIRCULAR NO. 4 OF 2007 DATED 15.06.2 007. THE A.O. TREATED THE SURPLUS OF RS. 3,93,54,700/- AS BUSINESS INCOME OF THE ASSESSEE. 10. THE ASSESSEE ASSAILED THE ASSESSMENT ORDER BEFORE T HE FIRST APPELLATE AUTHORITY AND REITERATED ITS CLAIM OF BEING AN INVE STOR. 11. AFTER CONSIDERING THE DETAILED SUBMISSION MADE BY T HE ASSESSEE QUA THE FINDINGS OF THE A.O., THE LD. CIT(A) OBSERVED THAT THE FOLLOWING FACTS EMERGE:- (A) THE APPELLANT COMPANY, IN THE PREVIOUS YEAR UNDER C ONSIDERATION, HAS GOT SURPLUS OF RS.3,93,54,700/- IN THE SHARE TRANSACTIONS. IN T HE RETURN, THE AFORESAID SURPLUS AMOUNT HAS BEEN OFFERED TO TAX AS STCG, WHICH IS TA XED @ 10%. (B) OUT OF TOTAL SURPLUS AMOUNT OF RS.3,93,54,700/-, TH E SURPLUS AMOUNT OF RS.2,31,86,300/- HAS BEEN GENERATED IN THE SALE / P URCHASE OF SHARES OF THE COMPANIES, THE SHARES OF WHICH WERE ACQUIRED THROUG H RUPAL NARESH PANCHAL AND M/S. SUGANDH ESTATE & INVESTMENT PVT. LTD. THE MODU S OPERAND! OF THESE GROUPS AND AMOUNT ADVANCED BY THE APPELLANT TO THESE PARTI ES HAS ALSO BEEN MENTIONED IN THE INSTANT APPELLATE ORDER. (C) THE BALANCE SURPLUS OF RS.1,61,68,400/- (RS.3,93,54 ,700 - RS.2,31,86,300) IN SHARE TRANSACTIONS HAS BEEN GENERATED IN DEALING WITH SHA RES, WHICH RELATED TO RUPAL PANCHAL AND M/S. SUGANDH ESTATE AND INVESTMENT PVT. LTD. ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 6 12. THE LD. CIT(A) TESTED THE AFOREMENTIONED FACTS IN T HE LIGHT OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF HIPOLIN LTD. I N ITA NO. 4259/AHD/2007 WHEREIN A SIMILAR ISSUE WAS DECIDED VIDE ORDER DATE D 04.09.2009. THE OPERATIVE PART OF THE JUDGMENT READS AS UNDER:- *17. THE ASSESSEE THEN REFERRED TO THE DECISION OF THE ITAT AHMEDABAD BENCH 'A ' IN THE CASE(S) OF ACIT VS. HIMANSHU J. SHAH & OTHE RS IN ITA NOS. 2875, 2878, 2879 & 2880/AHD/2008 & CO, NOS. 292, 295, 296 & 297 /AHD72008 AND 2881 AND 2883/AHD/2008 & CO. NOS. 299 & 300/AHD/2008 & OTHER S, PRONOUNCED ON 17.07.2009, WHEREIN RELIANCE WAS PLACED ON THE DECI SION OF ITAT, LUCKNOW BENCH IN THE CASE OFSARNATH INFRASTRUCTURE (P) LTD. VS.AC IT (122 TTJ 216) (2009) 313 ITR (AT) 13 ITAT LUCKNOW, WHEREIN IT WAS HELD THAT THE ASSESSEE DOES NOT INTEND TO DEAL IN SHARES. FOR THE SAKE OF CONVENIENCE, WE REP RODUCE PARAGRAPH NO.LL'FROM THAT JUDGMENT AS UNDER :- '11.1 NOW WE CONSIDER THE RELEVANT AUTHORITIES ON TH E SUBJECT. THE ISSUE WHETHER TRANSACTION IN SHARES SHOULD BE TREATED AS INVESTME NT OR TREATED AS BUSINESS AND IN WHAT CIRCUMSTANCES HOLDINGS SHOULD BE TREATED AS INVESTMENT OR AS STOCK IN TRADE, HAS BEEN DISCUSSED IN DETAIL BY THE TRIBUNAL , LUCKNOW BENCH SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT (122 TTJ 216). IN THAT DECISION, TRIBUNAL HAS REFERRED TO THE FOLLOWING JUDGEMENT OF THE COURTS. 1. FIDELITY NORTHSTAR FUND, IN RE (2007) 288 ITR 641 (AAR). 2. RAJA BAHADUR VISHESHYVAR SINGH VS. COMMISSIONER O F INCOME TAX (1961) 41 ITR685(SC) 3. CENTRAL INDIA AGENCIES (P) LTD. VS. COMMISSIONER OF INCOME TAX (1970) 71ITR 959 (ALL.) 4. SAROJINI RAJAH (MRS.) VS. COMMISSIONER OF INCOME -TAX (1969) 71 ITR 504 (MAD). 5. DALHOUSIE INVESTMENT TRUST CO. LTD. VS. COMMISSIO NER OF INCOME-TAX (1968) 68 ITR 486 (SC). 6. COMMISSIONER OF INCOME-TAX VS. ASSOCIATED INDUSTRIA L DEVELOPMENT CO. (P) LTD. (1971) 82 ITR 586 (SC). 7. COMMISSIONER OF INCOME-TAX VS. HOLCK LARSEN (H.) (1986) 160 ITR 067 (SC). 8. COMMISSIONER OF INCOME-TAX VS. SUTLEJ COTTON MILLS SUPLLY AGENCY LTD. (1975) 100 ITR 706 (SC). ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 7 18. AFTER CONSIDERING ABOVE RULINGS, WE CULL OUT FOLLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETH ER TRANSACTIONS(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVEST MENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME O F PURCHASE OF SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATME NT-IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TRE ATED AS STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING / CLOSING STOC K OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORROWED TO PURCHASE G OODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINI NG. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSA L IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUB STANTIAL TRANSACTIONS IN THAT IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEA LING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF IT IS FOR THE ASSESSEE T O ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING A ND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL.TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDI NGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACT IONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HO LDINGS INDICATE INVESTMENT.) (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT O R PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WIL L INDICATE INTENTION OF TRADE AND LATER, AN INVESTMENT. IN THE CASE OF SHARES WHE THER INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PUR CHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRA DE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BA LANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE T HAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NE T REALIZABLE VALUE (WHICHEVER IS LESS), IT 'WILL INDICATE THAT ITEMS I N QUESTION ARE TREATED AS STOCK- IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEMORAN DUM OF ASSOCIATION / ARTICLES OF ASSOCIATION?- WHETHER FOR TRADE OR FO R INVESTMENT. IF AUTHORIZED ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 8 ONLY FOR TRADE, THEN WHETHER THESE ARE SEPARATE RES OLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODIT Y? AND VICE VERSA. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW T HAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE H AS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE AS SESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PA RTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR I NVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES F OR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPL YING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLA TING 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 ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDT'S CIRCULAR NO. 4 OF 2 007OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADI NG AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCO UNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO I NTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE S UFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SE VERAL FACTORS HAS TO BE SEEN. 13. IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE CO- ORDINATE BENCH IN THE CASE OF HIPOLIN LTD. (SUPRA), THE LD. CIT(A) EXAMINED TH E FACTS OF THE CASE IN HAND. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS DERIV ED SURPLUS OF RS. 2,31,86,300/- FROM THE PURCHASE AND SALES OF SHARES OF THE COMPANIES WHICH WERE ACQUIRED THROUGH RUPAL NARESH PANCHAL AN D M/S. SUGANDH ESTATE & INVESTMENT PVT. LTD. THE FIRST APPELLATE AUTHORITY FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS FINANCED MOR E THAN RS. 20 CRORES, THESE TWO CONCERNS WITH THE INTENTION THAT THESE G ROUPS WOULD MAKE ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 9 MULTIPLE APPLICATIONS IN THE IPO OF CERTAIN COMPANI ES. NO SECURITY OF ANY KIND HAS BEEN TAKEN BY THE ASSESSEE BEFORE ADVANCIN G SUCH A HUGE FUND TO PANCHAL AND SUGANDH GROUPS. SUCH AN ACTIVITY HA S TO BE TERMED AS AN ORGANIZED AND SYSTEMATIC ACTIVITY, CARRIED ON CONTI NUOUSLY WITH A VIEW TO EARN PROFITS AND SUCH AN ORGANIZED AND SYSTEMATIC A CTIVITY HAS TO BE CONSTRUED AS ADVENTURE IN THE NATURE OF TRADE. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO TAX THE GAIN OF RS. 23186300/- AT THE RATES APPLICABLE IN THE CASE OF BUSINESS. 14. AS REGARDS TO BALANCE SURPLUS OF RS. 1,61,68,400/- , THE LD. CIT(A) OBSERVED THAT THIS SURPLUS HAS ARISEN AS THE ASSESSEE COMPAN Y HAD INVESTED IN SHARE FROM ITS OWN FUNDS. DRAWING SUPPORT FROM THE DECISI ON OF THE CO-ORDINATE BENCH GIVEN IN THE CASE OF GOPAL PUROHIT 29 SOT 117 , THE LD. CIT(A) CAME TO THE CONCLUSION THAT THE SURPLUS OF RS. 1,61,68,400/ - IS NOTHING BUT SHORT TERM CAPITAL GAINS AND DIRECTED THE A.O. TO TREAT THE SAME AS SUCH. 15. BOTH SIDES ARE IN APPEAL AGAINST THE ABOVE FINDINGS OF THE LD. CIT(A). THE LD. SENIOR COUNSEL VEHEMENTLY STATED THAT THE LD. CIT(A ) GROSSLY ERRED IN TAKING DIVERSIFIED VIEWS FOR THE SAME SET OF TRANSACTIONS. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE WAS INDULGED IN SIMILAR K IND OF TRANSACTIONS IN THE EARLIER ASSESSMENT YEAR WHERE THE SURPLUS ARISEN OU T OF PURCHASE AND SALE OF SHARES HAVE BEEN ACCEPTED UNDER THE HEAD CAPITA L GAINS. THE LD. COUNSEL FURTHER POINTED OUT THAT THE LOWER AUTHORITIES HAVE HEAVILY RELIED UPON THE FINDINGS GIVEN IN THE CASE OF SEER FINLEASE PVT. LT D. FOR A.Y. 2006-07. THE LD. COUNSEL POINTED THAT THE ORDER PASSED BY THE LD. CI T(A) IN THE CASE OF SEER ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 10 FINLEASE PVT. LTD. INSOFAR AS IT WAS AGAINST THE AS SESSEE HAS BEEN REVERSED BY THE TRIBUNAL IN ITA NO. 3336 & 3440/AHD/2009 AND IT(SS)A NO. 3/AHD/20012 WITH C.O. NO. 70/AHD/2012 VIDE ORDER DA TED 17.03.2016. THE LD. COUNSEL FURTHER POINTED OUT THAT IN A.Y. 2005-0 6, THE TRIBUNAL HAS DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE IN ASS ESSEES OWN CASE IN ITA NO. 1524/AHD/2010 VIDE ORDER DATED 21.08.2015. 16. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE A.O. 17. THE LD. D.R. POINTED OUT THAT THERE WAS FREQUENCY I N TRANSACTIONS BY THE ASSESSEE. HE ALSO POINTED OUT THAT THE ASSESSEE HAS PURCHASED SHARES FROM THE PERSONS WHO ARE INVOLVED IN IPO SCAM. SUCH PURC HASES WERE LARGE IN NUMBERS WHICH HAVE GIVEN RISE TO A SURPLUS OF RS. 3 ,93,54,700/- . IT IS SAY OF THE LD. D.R. THAT THIS ACTIVITY WAS CARRIED OUT SIM PLY KEEPING IN VIEW THE PROFIT MOTIVE IN AN ORGANIZED MANNER. 18. ITAT LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRU CTURE PVT. LTD. REPORTED IN 120 TTJ 216 HAS LAID DOWN CERTAIN TESTS WHICH RE AD AS UNDER:- '13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOL LOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOS ES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME O F PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TRE ATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TRE ATED STOCK-IN-TRADE OR INVESTMENT. WHETHER SHOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NONTRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AN D PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR T HE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 11 (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTA NTIAL TRANSACTION IN THAT ITEM, IF WOULD INDICATE TRADE. HABITUAL DEALING IN THAT P ARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PU RCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING O R INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREA S LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT O R PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FORMER WILL I NDICATE INTENTION OF TRADES AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHE R INTENTION WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PUR CHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN THE BA LANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REAL IZABLE 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 MEMORAN DUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE S EPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW T HAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE H AS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE AS SESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTIC ULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES ( OR FOR THAT MATTER 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 T HAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES F OR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPL YING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING T HOSE 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'S CIRCULAR NO. 4 OF 2 007 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. ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 12 (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE S UFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SE VERAL FACTORS HAS TO BE SEEN.' 11. THE HON'BLE GUJARAT HIGH COURT HAD ALSO AN OCCA SION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HON'BLE COURT HAS MADE REFERENCE TO THE TEST L AID BY IT IN ITS EARLIER DECISION RENDERED IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 647. THESE TESTS READ AS UNDER: 'AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT- MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTION, SINCE TH E INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACTER OF A COMMERCIAL TRANSA CTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GU IDELINE. (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME T HE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STOCK-IN- TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT. THIS INQUIRY, T HOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF H AS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WI TH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED I N THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR THE MEMORANDUM O F ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CASE WHERE THERE IS REPETITIO N AND CONTINUITY, COUPLED WITH THE MAGNITUDE OF THE TRANSACTION, BEARING REASONABL E PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN T HAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. 19. IN THE LIGHT OF ABOVE GUIDELINES/DECISIONS, NO DOUB T, THERE IS A FREQUENCY OF TRANSACTIONS DURING THE YEAR BUT SUCH FREQUENCY WAS THERE IN THE PAST ALSO ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 13 WHEN THE ASSESSEE WAS TREATED AS INVESTOR BY THE OR DER OF THE CO-ORDINATE BENCH (SUPRA). WE FIND THAT THE LD. CIT(A) HAS ACCE PTED THE CONTENTIONS OF THE ASSESSEE WITH REGARD TO THE INVESTMENT, WHICH W ERE NOT MADE THROUGH SMT. RUPAL NARESH PANCHAL AND SUDGANDH ESTATE & INV ESTMENT PVT. LTD. WE FIND THAT IN THE ACCOUNTS, THE ASSESSEE HAS SHOWN T HE SHARES UNDER THE HEAD INVESTMENT AND NOT STOCK-IN-TRADE. WE ALSO FIND THAT AT THE END OF THE YEAR, THE ASSESSEE HAS NOT VALUED THE SHARES IN THE MANNER STOCK IS BEING VALUED. THE ASSESSEE HAS PAID SECURITY TRANSA CTION TAX. THE FINDING OF THE LD. CIT(A) ARE BASED ON THE FACTS THAT THE ASSE SSEE HAS FINANCED MORE THAN 20 CRORES TO SMT. RUPAL NARESH PANCHAL AND SU GANDH ESTATE AND INVESTMENT PVT. LTD. GROUP WITH THE INTENTION THAT THIS GROUP WOULD MAKE MULTIPLE APPLICATION IN THE IPOS OF CERTAIN COMPANI ES. THE SECOND REASON ASSIGNED BY THE LD. CIT(A) IS THAT THE ASSESSEE DID NOT TAKE ANY KIND OF SECURITY FROM THESE PERSONS. 20. HOWEVER, WE DO NOT FIND ANY MATERIAL BROUGHT ON REC ORD BY THE REVENUE WHICH COULD SUBSTANTIATE THE APPREHENSIONS MADE BY THE FIRST APPELLATE AUTHORITY. THERE IS NO EVIDENCE WITH THE REVENUE TO ESTABLISH THE NEXUS BETWEEN THE ASSESSEE AND THE GROUP OF TWO PERSONS N AMELY RUAL NARESH PANCHAL AND SUANDH ESTATE & INVESTMENT PVT. LTD. TH ERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAS COLLUDED WI TH SMT. RUPAL NARESH PANCHAL AND SUGANDH ESTATE & INVESTMENT PVT. LTD. I N A MANNER THAT WOULD INDICATE THAT SHARES WERE ACQUIRED FOR THE PURPOSE OF TRADE. SUCH NEXUS HAS NOT BEEN ESTABLISHED. THE OBSERVATION OF THE FIRST APPELLATE AUTHORITY ARE ITA NOS. 342 1 & 3439/AHD/2009 . A.Y. 2006-07 14 ONLY INFERENTIAL WITHOUT ANY CONCRETE MATERIAL IN T HE POSSESSION OF THE A.O./CIT(A). 21. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF T HE JUDICIAL DECISIONS REFERRED TO HEREINABOVE, WE ARE OF THE OPINION THAT THE REVE NUE HAS GROSSLY FAILED TO ESTABLISH THAT THE ASSESSEE WAS TRADING IN SHARES. ON THE CONTRARY, THE LD. SENIOR COUNSEL HAS SUCCESSIVELY PROVED THE ASSESSEE IS AN INVESTOR. THEREFORE, THE SURPLUS OF RS. 3,93,54,700/- HAS TO BE TAXED AS SHORT TERM CAPITAL GAIN. 22. IN OUR CONSIDERED OPINION, THE FIRST APPELLATE AUTH ORITY HAS ERRED IN CREATING THE ARTIFICIAL DISTINCTION ONLY ON THE BAS IS OF MODE OF ACQUISITION, WE DO NOT FIND ANY LOGIC NOR ANY MERIT IN SUCH SEGR EGATION MADE BY THE FIRST APPELLATE AUTHORITY. WE, ACCORDINGLY, ALLOW THE APP EAL OF THE ASSESSEE AND DIRECT THE A.O. TO TAX THE SURPLUS ON SALE OF SHARE S UNDER THE HEAD SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. CO NSEQUENTLY, THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE A SSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 22 - 02- 2017 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 22 /02/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT.