DCIT, New Delhi V. M/s. Datavision Systems (P) Ltd., New Delhi

ITA 3576/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2676 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-05-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 06-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K BHAHETI
• Assessee Lawyers: ARCHANA S AWASTHI
• Keywords: Capital asset; Business income; Rule of consistency
• Section: 143(3); 2(14); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B: NEW DELHI) BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER AND SMT. DIVA SINGH, JUDICIAL MEMBER ITA NO.3576/DEL/ 2012 (ASSESSMENT YEAR: 2009-10) DCIT VS. DATAVISION SYSTEMS (P) LTD., CIRCLE- 19(1) 203, PRAGATI HOUSE, NEW DELHI 47-48, NEHRU PLACE NEW DELHI AAACD338IN (APPELLANT) (RESPONDENT) ASSESSEE BY :MS. ARCHANA S. AWASTHI SR. D.R. REVENUE BY : SHRI B. K. BHAHETI, C.A ORDER PER DIVA SINGH, JUDICIAL MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 27/4/12 OF LD. CIT(A) XIII, AAYAKAR BHAWAN , LAXMI NAGAR, NEW DELH I ON THE FOLLOWING GROUNDS:- 1. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW WAS JUSTIFIED IN TREATING THE INCOM E FROM SALE OF SHARES AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME AS TREAT ED BY THE ASSESSING OFFICER. 2. THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE RELEVANT FACTS IN THE CASE ARE THAT THE ASSESSEE COMPANY FILED E RETURN DECLARING AN INCOME OF RS.16,35,82,890/- ON 29/9/20 09. THE SAID RETURN WAS PROCESSED U/S 143 (1) AND SUBSEQUENTLY SELECTED FOR SCRUTINY BY WAY OF ISSUANCE OF NOTICES U/S 143(2) AND 142(1) ALONG WITH QUESTIONNA IRE ETC. ITA NO.3576/DEL/12 2 2.1 A PERUSAL OF THE ASSESSMENT ORDER SHOWS T HAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING REPRESENTATION AND CONSULTANCY SERVICES. APART FROM THAT IT HAD ALSO DECLARED INCOME FROM PROPERTY INCOME FROM OTHER SOURCES AND DIVIDEND INCOME EXEMPT U/S 10(33) IN THE YEAR UNDER CONSIDERATION. UNDER THE HEAD INCOME FROM BUSINESS, THE ASSESSEE HAD DISCLOSED IN COME OF RS.1,46,52,16,651/- AND UNDER THE HEAD INCOME FROM LONG TERM CAPITAL GAIN O F RS. 27,401/- (U/S 112 OF THE I.T. ACT, 1961) AND SHORT TERM CAPITAL GAIN OF RS.4 6,71,513/- HAS BEEN DISCLOSED (U/S 111 OF THE I. T ACT, 1961) OF RS.5,03,1621/- AND INCOME FROM OTHER SOURCES OF RS. 1,24,20,408/-. APART FROM THAT THE ASSESSEE HA D DISCLOSED DIVIDEND INCOME EXEMPT U/S 10(38) OF RS.1,77,56,957/-. 2.2 THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE INCOME FROM CAPITAL GAIN MAY NOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. IN RESPONSE TO, IF THE ASSESSEE TO MADE A DETAILED REPLY DATED 30 TH SEPTEMBER 2011 WHICH IS REPRODUCED AT PAGES 2 TO 4 OF THE ASSESSMENT ORDER, APART FRO M THAT THE ASSESSEE ALSO RELIED UPON THE CIRCULAR NO- 4/2007 DATED 15/7/2007 ISSUE BY TH E CB DT. 2.3 CONSIDERING THE REPLY FILED BY THE ASSESSEE, TH E A.O WAS OF THE VIEW THAT THE ASSESSEE HAS BEEN MAKING FREQUENT TRANSACTIONS IN S HARES AND MUTUAL FUNDS. THE DETAILS ARE SET OUT IN PAGE 5 OF THE ASSESSMENT ORD ER AND RELYING ALL THESE FACTS IT WAS CONCLUDED THAT THE HUGE VOLUME OF TRANSACTIONS INDI CATES THAT THE ASSESSEE WAS DOING THE BUSINESS ACTIVITY INSPITE OF MAKING INVESTMENTS AND TREATING IT AS CAPITAL GAIN. CONSIDERING THE CIRCULAR RELIED UPON BY THE ASSESSE E AND THE PROVISIONS OF SECTION 2(14) WHICH DEFINES THE TERM CAPITAL ASSET AND SECT ION 2(29A) AND SECTION 2(29B) WHICH DEALT LONG TERM CAPITAL ASSETS AND GAINS AN D SECTION 2 (42A) AND SECTION 2(42B) WHICH DEALT WITH SHORT TERM CAPITAL ASSETS I N GAIN AND SECTION 28A OF THE INCOME TAX ACT WHICH DEALS WITH TRADING ASSETS THE A.O WAS OF THE VIEW THAT THE C.B.D.T INSTRUCTION NO- 1827 DATED 31 ST AUGUST 1989 WAS RELEVANT AS IT HAD BROUGHT ITA NO.3576/DEL/12 3 TO THE NOTICE OF THE ASSESSING OFFICERS THAT THERE WAS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT AND SHARES HELD AS STOCK IN TRAD E. RELYING UPON CIT (CENTRAL) VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) L TD. (82 ITR 586) AND CIT, BOMBAY VS. H. HOICK LARSEN (160 ITR 67) 241 SC ;AND AAR IN THE CASE OF FIDELITY GROUP REPORTED IN 288 ITR 641 AAR. THE A.O WAS OF T HE VIEW THAT THE ALLEGE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN EARNED ON SALE AND PURCHASE OF SHARES I.E RS. 46,71,513/- AND RS.27,401/- RESPECTI VELY WAS TO BE TREATED AS BUSINESS INCOME BY REJECTING THE SPECIAL TAX TREATMENT AS PE R SECTION 111(A), THEREBY MAKING AN ADDITION OF RS. 46,71,513/-. 3. AGGRIEVED BY THIS THE ASSESSEE CAME IN APPEAL BE FORE THE LD. CIT(A). THE SUBMISSIONS ADVANCED BEFORE THE ASSESSING OFFICER W AS REITERATED. APART FROM THAT RELIANCE WAS PLACED UPON THE ORDER OF THE CIT (A) F OR THE PROCEEDING ASSESSMENT YEAR I.E 2007-08 WHEREIN THE ORDER WAS CONFIRMED BY THE I.T.A.T. COPIES OF BOTH THE ORDERS WERE RELIED UPON BEFORE THE CIT (A). IT WAS CONTENDED THAT THE A.O HAS TREATED THE TRANSACTIONS AS BUSINESS TRANSACTIONS P RIMARILY ON TWO GROUNDS. ONE, ON THE GROUND THAT THE VALUE OF THE TRANSACTIONS AND S ECOND ON THE FREQUENCY OF TRANSACTIONS. 3.1. ADDRESSING THE SAME IT WAS SUBMITTED THAT THE A.O HAS ERRED IN STATING THAT THE AMOUNT OF INVESTMENT IS LARGE IN SO MUCH AS THE SAME IS LARGE ONLY DUE TO THE LARGE INVESTIBLE SURPLUS OF THE ASSESSEE AND THE A. O HAS NOT CARRIED HIS EXPLANATION OF LARGE AMOUNT TO THE INVESTMENTS IN MUTUAL FUNDS, WHEREIN THE INVESTMENTS ARE EVEN LARGER TOTALING TO RS. 14.03 CRORES. ACCORDIN GLY THE ATTENTION WAS INVITED TO THE FALLACY OF THE AO IN ASSUMING THAT INVESTMENTS IN M UTUAL FUNDS ARE PASSIVE INVESTMENTS AND ONLY FOR SHARES, IT WAS CONSIDERED THAT THEY ARE OF BUSINESS IN NATURE DUE TO THE FREQUENCY OF TRANSACTIONS. NO DISCUSSION IN THE IMPUGNED ORDER OF THE A.O HAS TAKEN PLACE IN REGARD TO THE INVESTMENTS IN MUT UAL FUNDS AND DESPITE THERE BEING ITA NO.3576/DEL/12 4 NO DISCUSSION THEREON, THE A.O HAS TAXED THE CAPITA L GAINS IN MUTUAL FUNDS ALSO AS INCOME FROM BUSINESS. ACCORDINGLY, IT WAS CONTENDE D THAT THIS REFLECTS THE MECHANICAL ATTITUDE ADOPTED BY THE A.O WHILE DRAFTI NG HIS ORDER. IT WAS SUBMITTED THAT IN THE IMMEDIATELY PROCEEDING ASSESSMENT ORDER S 2008-09 AND 2007-08 INCOME FROM REDEMPTION OF MUTUAL FUNDS HAD BEEN ACCEPTED A S CAPITAL GAINS. ACCORDINGLY, THE TOTAL SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 46, 71,513/- COMPRISING OF CAPITAL GAINS FROM REDEMPTION OF MUTUAL FUNDS (NON STT PAID) AMOUNTING TO RS. 26,55,145/- ;CAPITAL GAINS FROM REDEMPTION OF MUTUA L FUNDS (STT PAID) AMOUNTING TO RS.7,50, 584/- AND CAPITAL GAIN FROM SALE OF SHA RES AMOUNTING TO RS.12, 65,783/- DESERVE TO BE ALLOWED. 3.2 ADDRESSING THE TABLE AT PAGE 5 OF THE ASSES SMENT ORDER, IT WAS SUBMITTED THAT THE THERE ARE TOTAL 33 TRANSACTIONS OF SALE AND PUR CHASE ON THE BASIS OF WHICH WAS CONCLUDED THAT THERE WAS WELL FREQUENT TRANSACTIONS . IT WAS SUBMITTED THAT THE TOTAL TRANSACTIONS NUMBERING 33 COMPRISED SALE OF AS WELL AS PURCHASE IN A COMPLETE YEAR AS SUCH CANNOT BY ANY YARDSTICK BE CONSIDERED TO BE A LARGE ENOUGH SO AS TO CONSTITUTE A BUSINESS ACTIVITY AND IT WAS EMPHASIZE D THAT THERE WERE 33 TRANSACTIONS IN A WHOLE YEAR AND NOT IN A MONTH. IT WAS FURTHER SUBMITTED THAT THERE IS NEITHER CONTINUITY NOR REPEATED TRANSACTIONS IN A SYSTEMATI C MANNER SO AS TO CONSTITUTE A BUSINESS TRANSACTIONS. OUT OF THESE ALSO, THERE AR E ONLY 18 TRANSACTIONS OF SALE GIVING RISE TO CAPITAL GAINS. THE FOLLOWING TABLE ADDRESS ING THE PARA METERS ON THE BASIS OF WHICH THE ISSUE WAS TO BE ADDRESSED WAS RELIED UPON REPRODUCED HEREUNDER:- PARAMETER ON WHICH TRANSACTIONS ARE TESTED CONDUCT OF THE ASSESSEE WHETHER BUYING AND SELLING OF NO. THE NO. THE PRINCIPAL BUSINESS OF ASSESSEE IS CONSULTING AND IS ASSESSED TO BE SO ITA NO.3576/DEL/12 5 PRINCIPAL BUSINESS OF ASSESSEE REGULARLY FROM A NUM BER OF YEAR. THE SAME IS EVIDENT FROM TAX AUDIT REPORT (PAGE NO 44 OF THE PAPER BOOK) AND AOS ORDER (PAGE NO-2 OF THE PAPER BOOK) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES-HOW IS THE SAME RECORDED IN THE BOOKS OF ACCOUNTS THE INTENTION IS TO HOLD THE SHARES AS INVESTMENTS. THEY ARE RECORDED IN THE BOOKS CONSISTENTLY AS INVESTMENTS AND NOT STOCK IN TRADE. WHETHER MONEY BORROWED FOR PURCHASING SUCH SHARES NO. THE PURCHASE IS ENTIRELY OUT OF ASSESSEES OWN FUND. IT IS THE SURPLUS FUNDS OF THE ASSESSEE, EARNED OUT OF MANLY YEARS TAX PAID PROFITS. THE ASSESSEE NOT HAVING ANY WORKING CAPITAL REQUIREMENTS, REGULARLY DEPLOYS THESE SURPLUS FUNDS TOWARDS INVESTMENTS IN MUTUAL FUNDS AND SHARES. WHETHER FREQUENCY OF BUYING AND SELLING IS SUBSTANTIAL NO. THERE ARE A TOTAL OF 18 TRANSACTIONS OF SALES OF SHARES IN THE CURRENT YEAR. THERE ARE NO INSTANCES OF BUY OF THE SPECIFIED SHARES IN REGARD TO THE INCOME FROM LONG TERM CAPITAL GAINS AS ALL PURCHASES ARE IN THE YEAR (S) BEFORE. IN CASES OF SHORT TERM CAPITAL GAINS, THE TOTAL NUMBERS OF PURCHASES ARE 14. WHETHER THE SHARES HAVE BEEN HELD FOR A CONSIDERABLE PERIOD ALL LONG TERM SHARES, OF COURSE HAVE BEEN HELD FOR A PERIOD OF MORE THAN 365 DAYS. EVEN SHARES OF SHORT TERM NATURE HAVE BEEN HELD FOR PERIODS AS LONG AS 298 DAYS, 108 DAYS, 96 DAYS ETC. AVERAGE HOLDING PERIOD ITA NO.3576/DEL/12 6 OF SHARES WHICH HAVE BEEN SOLD LEADING TO ACCRUAL OF SHORT TERM CAPITAL GAIN (GOING BY SCRIPS) IS 135 DAYS. WHETHER SHARES HAVE BEEN HELD IN THE ASSESSEES OWN D-MAT A/C YES. ALL SHARES ARE SO HELD. REFLECTED FROM D-MAT STATEMENT ANNEXED AS PAGE 125 TO 151 OF THE PAPER BOOK SUBMITTED. WHETHER ANY DIVIDEND HAS BEEN EARNED ON SHARES. YES. SUBSTANTIAL AMOUNT OF RS. 1,54,70,414 HAS BEEN EARNED AS DIVIDEND FROM THESE SHARES AND MUTUAL FUNDS. HOW THE VALUE OF ITEMS IS ACCOUNTED FOR IN THE BALANCE SHEET-AT COST OR AT COST OR MARKET VALUE WHICHEVER IS LESS THE SHARES HAVE ALL BEEN CONSISTENTLY STATED AT COST IN THE BALANCE SHEET. THIS CAN BE SEEN FROM ACCOUNTING POLICY OF THE ASSESSEE DISCLOSED IN NOTES TO ACCOUNTS (SCHEDULE NO 15 TO THE BALANCE SHEET) APPEARING ON PAGE 34 OF THE PAPER BOOK. THIS IS THE TREATMENT METED OUT YEAR AFTER YEAR. THE STOCKS ARE STATED AT COST OR MARKET VALUE WHICHEVER IS LOW IN CASE OF STOCK-IN-TRADE, WHICH IS NOT THE CASE IN ASSESSEES BOOK. WHETHER THE MEMORANDUM OF ASSOCIATION AUTHORIZES THE COMPANY TO TRADE IN SHARES OR TO INVEST IN SHARES. THE MEMORANDUM OF ASSOCIATION OF THE COMPANY ONLY AUTHORIZES IT TO INVEST ITS SURPLUS FUNDS IN SHARES OR IN OTHER FORMS OF INVESTMENTS. 3.3. IT WAS ALSO SUBMITTED THAT ALL ALONG THIS ACTI VITY HAS BEEN CLAIMED AS AN INVESTMENT FOR MORE THAN 10 YEARS AND HAS BEEN ASSE SSED AS SUCH WHICH WAS ALSO A ITA NO.3576/DEL/12 7 FACT WHICH WAS NOTICED BY CIT (A) IN THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR. RELIANCE WAS PLACED UPON THERE FACTS AND ALSO ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN NAISHADH VS. VACHHARAJANI ,GOPAL PUROHIT VS. JCIT [2009] 29 SOT 117 (MUM) CIT VS. GOPAL PUROHIT [2011] ITA NO. 1121 OF 200 (B OM) SARNATH INFRASTRUCTURE LTD. VS. ACIT (2009) 120 TTJ 216 (LUCKNOW) A. FIDELITY ADVISOR SERIES VIII, IN RE [2004J 192 CTR (AAR) 201: [2004J] 271 ITR1(AAR), B. CITV. H. HOLCK LARSEN [1986J 58 CTR (SC) 53: [1 986J 160 ITR 67 (SC) (P.75): C. J.P. HARRISON (WATFORD) LTD. V. GRIFFITHS ( H.M. INSPECTOR OF TAXES) [1962J 40 TAX CASES 281 (HL), D. RAJA BAHADUR VISHESHWARA SINGH (DECEASED) V. CI T [1961J 41 ITR 685 (SC), E. CENTRAL INDIA AGENCIES (P.) LTD. V. CIT [1970J 77ITR 959 (ALL.) F. MRS. SAROJINI RAJAH V. CIT [1969J 71 I TR 504 (MAD.), G. DALHOUSIE INVESTMENT TRUST CO. LTD. V. CIT [1968J 68 ITR 486 (SC), H. CIT V. ASSOCIATED INDUSTRIAL DEVELOPME NT CO. LTD. 1972 CTR (SC) 239: [1971J 82 I. ITR 586 (SC), J. CIT V. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. 19 75 CTR (SC) 228 K) _ K. A. V; THOMAS & CO. LTD. V. CIT [1963J 48 ITR 67 (SC), 10. CONSIDERING THESE SUBMISSION THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE FOLLOWING REASONING FACTS:- 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPEL LANT, OBSERVATION OF THE ASSESSING OFFICER AND VARIOUS JUDICIAL PRONOUNCEMEN TS RELIED UPON BY THE APPELLANT IN THIS REGARD. THE APPELLANT IS ENGAGED IN THE BUSINESS OF PROVIDING REPRESENTATION AND CONSULTANCY SERVICES. IT HAS SHO WN INCOME FROM CONSULTANCY BUSINESS OF RS. 19.63 CRORES DURING THE YEAR UNDER CONSIDERATION. IT ALSO MAKES OCCASIONAL INVESTMENTS IN SHARES, MUTUAL FUNDS AND SECURITIES. DURING THE YEAR, THE APPELLANT HAS MADE SALE AND PURCHASE OF SHARES AND REDEMPTION OF ITS INVESTMENTS IN MUTUAL FUNDS. THE APPELLANT HAS EARN ED A TOTAL SHORT AND LONG TERM CAPITAL GAIN OF RS. 46,71,513/- WHICH IS AS UN DER:- ITA NO.3576/DEL/12 8 REDEMPTION OF MUTUAL FUNDS (NON STT PAID) RS.26,5 5,145/- (I) (II) REDEMPTION OF MUTUAL FUND (STT PAID) RS. 7,50, 584.30/- (III) CAPITAL GAIN ON SALE OF SHARES RS. 12,6 5,783.63/- THE APPELLANT HAS EARNED DIVIDEND FROM INVESTMENT I N SHARES AND MUTUAL FUNDS OF RS. 1,54,70,414/- . THE MEMORANDUM OF ASSOCIATION O F THE COMPANY AUTHORIZES IT TO INVEST ITS SURPLUS FUNDS IN SHARES OR IN OTHER FORM S OF INVESTMENT DURING THE YEAR THE APPELLANT HAS DONE SALE AND PUR CHASE OF THE SHARES IN THE FOLLOWING COMPANIES:- S. NAME OF THE SCRIP NO. OF SHARES NO. OF AMT. INVOLVED DATE OF PERIOD OF NO PURCHASED SHARES SOLD SALE HOLDING AN D DATE OF PURCHASE SALE PURCHASE I CAIRN INDIA LTD. P.Y. 5000 7,42,750 7,58,104 25.02.09 LONG TERM 2 CAIRN INDIA LTD. P.Y. 2500 3,71,375 3,83,448 26.02.09 LONG TERM 3 GSPL 18.01.08 30,000 17,97,300 9,88,087 1 1.1 1.08 298 4 HINDALCO IND. LTD. 27.10.08 50,000 20,13,00 0 27,13,355 29.10.08 2 5 INDIAN HOTELS 18.01.08 20,000 21,11,600 22 ,91,139 23.04.08 96 6 POWER GRID 18.01.08 5000 4,72,216 5,32,000 23.04.08 96 7 POWER GRID 18.01.08 2043 1,92,947 2,17,771 .12 02.05.08 105 8 RANBAXY LABS 29.12.08 10,000 21,94,500 23, 54,639 02.01.09 4 9 STERLITE IND. INDIA 27.10.08 10,000 18,61,163.21 27,63,771 31.10.08 4 LTD. 10 GSPL 18.01.08 4892 2,44,981.4 7 2,93,066.51 23.04.08 96 11 POWER GRID 18.01.08 2957 2,43,476.92 2,79,268.78 05.05.08 108 12 NTPC 18.1.08/50,000 ----- 93,86,483 ----- ----- ----- PY 40,556/- 10,000 25,14,472 19,98,374 02.05. 08 LONG TERM TOTAL AMOUNT INVOLVED IN PURCHASES:- RS. 1,22,45, 310.62 TOTAL OF AMOUNT INVOLVED I SALES:- RS. 1,35,74,65 0.03 LTCG RS. 27,427/- STCG RS. 12,65,783.63 FROM THE ABOVE TABLE IT IS SEEN THAT APPELLANT HAS DEALT IN THE SHARES OF NINE COMPANIES DURING THE YEAR. IT HAS PURCHASED SHARES OF MIS CAIRN INDIA DURING THE F.Y. 2006-07 AND SAME HAVE BEEN SOLD DUR ING THE YEAR. ON THESE SHARES THE APPELLANT HAS DECLARED LONG TERM CAPITAL GAIN. THE HOLDING OF THESE SHARES IS MORE THAN 12 MONTHS. THE APPELLANT HAS PURCHASED SHARES OF GSPL, HINDALCO INDUSTRIES, INDIAN HOTELS, POWER GRI D, RANBAXY, STERLITE INDUSTRIES INDIA LTD DURING THE YEAR. THE HOLDING P ERIOD OF THE SHARES RANGES FROM 2 DAYS TO 298 DAYS. IN THE CASE OF HIND ALCO INDUSTRIES THE HOLDING WAS OF 2 DAYS, SIMILARLY IN THE CASE OF STE RLITE INDUSTRIES AND RANBAXY LABS, THE HOLDING WAS 4 DAYS EACH. IN THE O THER SALE AND PURCHASE ITA NO.3576/DEL/12 9 OF SHARES THE HOLDING PERIOD RANGES FROM 96 DAYS TO 298 DAYS. IT IS CLAIMED BY THE APPELLANT THAT DURING THE YEAR IT HAS DONE 3 3 TRANSACTIONS OF SALES AND PURCHASES OF SHARES, OF THIS THE 18 TRANSACTIONS WE RE PERTAINING TO SALES OF THE SHARES. IT IS FURTHER CLAIMED BY THE APPELLANT THAT BUSINESS OF THE APPELLANT WAS NOT IN TRADING IN SHARES BUT THE SURP LUS FUNDS HAVE BEEN INVESTED IN SHARES AND MUTUAL FUNDS AND INTENTION O F THIS INVESTMENT WAS TO MAXIMIZE THE WEALTH BY HOLDING THE INVESTMENT IN SH ARES. THE APPELLANT HAS INVESTED RS. 11.69 CRORE IN SHARES DURING THE YEAR, RS. 14.032 CRORE IN MUTUAL FUNDS AND RS. 46 CRORE IN BANK FDR'S. IT IS SUBMITTED BY THE APPELLANT THE ASSESSING OFFICER HAS ALSO TREATED TH E LONG TERM AND SHORT TERM CAPITAL GAIN RECEIVED FROM REDEMPTION OF MUTUAL FUN DS AS BUSINESS INCOME. THE APPELLANT HAS FURTHER SUBMITTED THAT OUT OF INV ESTMENT OF RS. 11.69 CRORE, THE APPELLANT HAS SOLD SHARS ONLY OF RS.1,35 ,74,656/- THE SHARES PURCHASED DURING THE F.Y. 2007-08 AND 20 08-09 HAVE BEEN SHOWN BY THE APPELLANT AS INVESTMENT IN ITS BOOKS O F ACCOUNTS AND BALANCE SHEET. IT IS CLAIMED BY THE APPELLANT THAT THESE SH ARES WERE PURCHASED FOR INVESTMENT PURPOSES AND SAME HAVE BEEN SHOWN UNDER THE HEAD 'INVESTMENT PORTFOLIO' SEPARATELY. IT IS SEEN FROM THE INVESTME NT SCHEDULE THAT THESE SHARES HAVE BEEN SHOWN UNDER THE HEAD INVESTMENT. T HERE IS NO FREQUENT PURCHASE AND SALES OF SHARES IN OTHER COMPANIES EXC EPT THE PURCHASE AND SALES DONE IN THE SHARES OF CAIRN INDIA, GSPL, HIND ALCO INDUSTRIES, INDIAN HOTELS, POWER GRID, RANBAXY, STERLITE INDUSTRIES IN DIA LTD AND NTPC. THE SHARES OF THESE COMPANIES WERE PURCHASED AND SOLD I N DIFFERENT LOTS AFTER RETAINING THE SAME FOR SOME TIME EXCEPT IN THE CASE OF HINDALCO INDUSTRIES, RANBAXY LABS AND STERLITE INDUSTRIES. IT IS SEEN TH AT ALL TRANSACTIONS OF PURCHASE AND SALES ARE DELIVERY BASED TRANSACTIONS. THE APPELLANT HAS ALSO SHOWN INVESTMENTS IN SHARES IN ITS BALANCE SHEET AS ON 31.03.2009 TO THE TUNE OF RS. 11.69 CRORE IN THE SHARES OF TWELVE COM PANIES. THESE INVESTMENTS HAVE BEEN REFLECTED AT COST PRICE IN THE BALANCE SH EET. HAD THE APPELLANT ENGAGED IN THE TRADING OF SHARES, THE VALUATION TH E SAME WOULD HAVE BEEN DONE LOWER OF THE MARKET VALUE OR COST WHICH IS NOT THE CASE HERE. IT IS CLAIMED BY THE APPELLANT THAT INVESTMENT IN T HE SHARES WAS DONE OCCASIONALLY IN FEW SCRIPS JUST TO MAXIMIZE THE WEA LTH AND TO PARK THE SURPLUS FUNDS AVAILABLE WITH THE APPELLANT. THE APP ELLANT HAS CLAIMED THAT THERE ARE NO BORROWED FUNDS UTILIZED BY THE APPELLA NT IN MAKING THE INVESTMENTS. THE APPELLANT HAS CLAIMED THAT HIS ASSESSMENTS FOR A.Y.'S 2004-05, 2005- 06 AND A.Y. 2006-07 HAVE BEEN PASSED U/S 143(3) OF THE IT ACT AND THE SHORT TERM AND LONG TERM CAPITAL GAIN DECLARED BY T HE APPELLANT HAVE ITA NO.3576/DEL/12 10 BEEN ACCEPTED BY THE ASSESSING OFFICER IN ALL THESE YEARS. THE APPELLANT HAS FURTHER STATED THAT IN A.Y. 2007 -08 THE ASSESS ING OFFICER HAS TREATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. THE APPEAL AGAINST THE SAID ORDER HAS BEEN ALLOWED BY THE CIT(A)-XVII AND THE SHORT TERM CAPITAL GAIN HAS BEEN ACCEPTED. THE ORDER OF THE CI T (A) HAS BEEN CONFIRMED BY THE HON'BLE ITAT VIDE ITA NO. 5957/DEL / 2010 DATED 31.03.2011 AND WITH FOLLOWING OBSERVATIONS:- 'WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH TH E MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE IT IS EVIDEN T THAT THE ASSESSEE HAD INVESTED IN SHARES INCLUDING IPOS. IN THE BOOKS OF THE . ACCOUNT THE PURCHASES HAVE BEEN TREATED AS INVEST MENT AND HAD BEEN VALUED AT COST. NO MATERIAL HAS BEEN BROUGHT OUT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HELD T HESE SHARES AS STOCK IN TRADE. MOREOVER, IN EARLIER YEARS ON IDENT ICAL FACTS, THE ASSESSING OFFICER HAD TREATED THE PROFITS ARISING O N SALE OF SHARES AS CAPITAL GAIN. THEREFORE, IN ABSENCE OF ANY MATER IAL TO PROVE THAT THE SHARES WERE HELD AS STOCK IN TRADE, IN OUR CONSIDER ED OPINION LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. HENCE NO IN TERFERENCE IS CALLED FOR'. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APP ELLANT SUBMITTED THAT ALL TRANSACTIONS HAVE BEEN DELIVERY BASED AND WERE SETTLED BY WAY OF PAYMENT. THE TRANSACTION OF INVESTMENT AND SALE WER E DONE THROUGH A REGISTERED BROKER WITH SEBI. THE STATEMENT OF D-MAT ACCOUNT RUNNING WITH ABN AMRO BANK HAS BEEN FILED BY THE APPELLANT IN THE PAPER BOOK FROM PAGE 125 TO 151 WHICH PROVES THAT ALL TRANSACT IONS WERE SETTLED THROUGH PAYMENT AND DELIVERY OF THE SHARES WERE TAK EN. THE HOLDING OF THE SHARES ON WHICH SHORT TERM CAPIT AL HAS BEEN CLAIMED RANGES FROM 2 DAYS TO 298 DAYS. IT IS CLAIMED BY TH E APPELLANT THAT INVESTMENT WAS MADE IN THE SHARES WITH THE INTENTIO NS TO HOLD THE SAME FOR LONG TERM APPRECIATION AND FOR EARNING DIVIDEND S. HOWEVER THE INVESTMENT IN SOME SHARES WAS OFFLOADED BECAUSE OF APPRECIATION AND FOR MAXIMIZING THE WEALTH. IT IS ALSO CONTENDED BY THE APPELLANT THAT PERIOD OF HOLDING OF SHARES AND NON RECEIPT OF DIVIDEND IN COME IS NOT EXCESSIVE FACTOR FOR TREATMENT OF PARTICULARS TRANSACTION AS INVESTMENT OR TRADING TRANSACTION. IT IS FURTHER CONTENDED BY THE APPELLA NT THAT EXCEPT IN FEW CASES THE .HOLDING PERIOD RANGES FROM 96 DAYS TO 29 8 DAYS. I AM IN FULL AGREEMENT WITH THE 'SUBMISSION OF THE APPELLANT THA T PERIOD OF HOLDING OF SHARES AND NON RECEIPT OF DIVIDEND INCOME IS NOT A DECISIVE FACTOR FOR TREATMENT OF PARTICULAR TRANSACTION AS INVESTMENT O R TRADING TRANSACTION. ONE HAS TO SEE THE INTENTION OF THE PERSON WHO IS D OING SALE AND PURCHASE ITA NO.3576/DEL/12 11 OF SHARES. THE CIRCULAR NO.4 OF 2007 ISSUED BY THE CBDT ALSO DOES NOT PRESCRIBED ANY TIME LIMIT OF HOLDING OF SHARES WHER E SHARES ARE PURCHASED FOR INVESTMENT PURPOSES. IT IS OBSERVED FROM THE DETAILS FILED BY THE APPELL ANT THAT IT HAS MADE INVESTMENT IN THE SHARES OF CAIRN INDIA, GSPL, HIND ALCO INDUSTRIES, INDIAN HOTELS, POWER GRID, RANBAXY, STERLITE INDUST RIES INDIA LTD AND NTPC DURING THE PREVIOUS YEAR AND CURRENT YEAR. HOW EVER THESE SHARES WERE OFFLOADED AFTER HOLDING FOR SOME TIME TO MAXIM IZE THE WEALTH. THE SALE AND PURCHASE WAS DONE ONLY IN THE SHARES O F 9 COMPANIES DURING THE YEAR, IF THE APPELLANT WOULD HAVE ENGAGE D IN THE TRADING OF SHARES, THE FREQUENCY OF SALE AND PURCHASE WOULD HA VE BEEN VERY HIGH AND IT WOULD NOT HAVE BEEN LIMITED TO THE SHARES OF NINE COMPANIES. HOWEVER THAT ELEMENT IS NOT EVIDENT IN THE CASE OF APPELLANT. THE CIRCULAR NO.4 OF 2007 HAS CLEARLY MENTIONED THA T A PERSON CAN HAVE TWO PORTFOLIO, ONE FOR INVESTMENT PURPOSES AND ANOT HER FOR TRADING PURPOSES. IN THIS CIRCULAR NO TIME LIMIT HAS BEEN P RESCRIBED FOR HOLDING A SHARE TO DETERMINE WHETHER THE SHARES WERE HELD FOR INVESTMENT OR STOCK IN TRADE. THESE THINGS HAVE TO BE DETERMINED BY INT ENTION OF THE PERSON WHO IS DOING INVESTMENT OR PURCHASE OF SHARES. IN THE CASE OF APPELLANT, THE CIRCUMSTANCES CLEARLY SUGGEST THAT HE HAD PURCHASED SHARES ONLY FOR INVESTMENT PURPOSES AND N OT FOR TRADING PURPOSES. IN THE ENTIRE YEAR HE HAS DEALT IN THE SH ARES OF NINE COMPANIES AND HOLDING PERIOD RANGES FROM 2 DAYS TO 298 DAYS. IN VIEW OF THE FACTS STATED ABOVE, IT IS CLEARLY ES TABLISHED THAT SHARES AND MUTUAL FUNDS PURCHASED BY THE APPELLANT WERE FOR IN VESTMENT PURPOSES AND CAPITAL GAIN RECEIVED ON SUCH SALES IS LIABLE T O BE TAXED UNDER THE HEAD SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. HENCE THE ACTION OF THE ASSESSING OFFICER OF TREATING THE SHO RT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS BUSINESS INCOME WAS NOT JUSTIFIED. I, THEREFORE, DIRECT THE ASSESSING OFFICER TO TREAT TH E SURPLUS RECEIVED ON SALE AND PURCHASE OF SHARES AS SHORT TERM CAPITA L GAIN AND LONG TERM CAPITAL GAIN AS DECLARED BY THE APPELLANT IN ITS RE TURN OF INCOME. AS A RESULT GROUND NO. 1 & 2 OF THE APPELLANT ARE ALLOWE D. ITA NO.3576/DEL/12 12 SUPPORT WAS DERIVED FROM THE FOLLOWING DECISIONS I N ORDER TO DECIDE THE ISSUE IN ASSSESSEES FAVOUR:- CIT VS. GOPAL PUROHIT (2010) 188 TAXMAN 140 (BOM). ITO, WARD 33(4), NEW DELHI VS. ROHIT ANAND 34 SOT 4 2 (DEL). ARA TRADING & INVESTMENTS (P) LTD. VS. DEPUTY COMM ISSIONER OF INCOME- TAX, RANGE 11(1), PUNE 47 SOT 172 (PUNE) ITO 19 (2) (1) VS. RADHA BIRJU PATEL 46 SOT 23 (MUM ) JANAK S. RANGWALLA VS. ASSTT. CIT, RANGE 12(2) [200 7] 11 SOT 627(MUM) D&M COMPONENTS LTD. VS. ACIT, CIRCLE 10(1), NEW DEL HI [49 SOT 224] NAGEN DAS P SHETH (HUF) VS. ACIT 21(3) MUMBAI IN IT A NO. 961/MUM/2010. CONSIDERING THE LEGAL POSITION THE CIT(A) CONCLUDE D AS UNDER: - THE FACTS OF THE ABOVE CITED JUDICIAL PRONOUNCEME NTS ARE IDENTICAL WITH THE FACTS OF THE APPELLANTS CASE. THEREFORE, THE RATION OF ABOVE CITED JUDICIAL PRONOUNCEMENTS IS SQ UARELY APPLICABLE TO THE FACTS OF APPELLANTS CASE. IN VIE W OF THE ABOVE CITED JUDICIAL PRONOUNCEMENTS THE INCOME OF THE APP ELLANT IS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN AND LONG TER M CAPITAL GAIN, AS DECLARED BY THE APPELLANT IN THE RETURN OF INCOME AND ADDITION MADE BY THE ASSESSING OFFICER OF RS. 46,71 ,513/- IS DELETED AND LONG TERM CAPITAL GAIN OF RS.27,401/- I S TO BE ASSESSED AS LONG TERM CAPITAL GAIN AS AGAINST BUSIN ESS INCOME ASSESSED BY THE ASSESSING OFFICER. 5. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE THE TRIBUNAL. THE LD. SR. D.R RELIES UPON THE ASSESSMENT ORDER. THE LD. A.R ON THE OTHER HAND AUTHORITIES REPRESENTS OF RELIES UPON THE IMPUGNED ORDER WHICH HAS FOLLOWED THE ORDER OF THE TRIBUNAL IS ASSESSEES OWN CASE. COPY OF THE SAID ORDER WAS FILED IN THE COURT BY THE LD. A.R. THE APPEAL WAS ADJOURNED TO THE NEXT DATE SO S TO GIVE TIME TO THE REVENUE TO GO THEREBY THE ORDER DATED 3 1 ST MARCH 2011 IN ITA NO. ITA NO.3576/DEL/12 13 5957/DEL/2010 IN CASE OF THE ASSESSEE WHEREIN THE D EPARTMENT IN APPEAL IN 2007- 08 HAD BEEN DISMISSED. 5.1 ON THE NEXT DATE, THE LD. SR. D.R RELYING UPON THE ASSESSMENT ORDER STATED THAT THE AUTHORITIES HAVE RELIED UPON THE POSITION FOR 2 007-08 ASSESSMENT YEAR AS SUCH THOUGH SHE WOULD RELY ON THE A.O, HOWEVER, NO CONTR ARY VIEW OR JUDGMENT ON THE FACTS WAS REFERRED TO BY HER NOT ANY ARGUMENT DISTI NGUISHING FROM THE ORDER OF THE TRIBUNAL WAS BROUGHT TO OUR NOTICE. THE LD. A.R ON THE OTHER HAND RELIED UPON THE ORDER OF THE TRIBUNAL AND THE IMPUGNED ORDER WHICH WAS STATED TO BE COVERED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE COORDINATE BENCH IN THE ORDER CITED SUPRA IN THE CASE OF THE ASSESSEE HAS HAD AN OCCASION TO CONSIDER THE ID ENTICAL POSITION IN THE FOLLOWING MANNER:- 5. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION ON ACCOUNT OF BUSINESS INCOME INSTEAD OF SHORT-TERM CA PITAL GAINS. THE ASSESSEE HAD SHOWN IN ITS RETURN OF INCOME LONG TER M CAPITAL GAIN OF RS.1,24,707/-FROM MUTUAL FUNDS INCOME FOR SHORT TER M CAPITAL OF RS.19,79,164/- FROM REDEMPTION OF UNITS AND INCOME FROM SHORT TERM CAPITAL GAIN OF RS.17,28,820/-. THE A.O HOWEVER TR EATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. 6. ON APPEAL, IT WAS SUBMITTED BY THE ASSESSEE THAT TH E ASSESSEE COMPANY WAS A PASSIVE INVESTOR. IT HAD PURCHASED A ND SOLD SHARES AS ONLY 11 COMPANIES INCLUDING SUBSCRIBING IN IPOS. THE ASSESSEE HAD HELD THESE SHARES IN ITS ACCOUNT. IN ALL THE T RANSACTIONS, THE DELIVERY WAS TAKEN AND GIVEN. IT WAS ALSO SUBMITTE D THAT THE A.O IN PRECEDING TWO ASSESSMENT YEARS HAD TREATED THE INCO ME FROM PURCHASE END SALE OF SHARES AS CAPITAL GAIN. THERE FORE, THE CONSISTENCY DEMANDED THAT THIS ACTIVITY SHOULD HAVE BEEN ACCEPTED IN THE YEAR UNDER CONSIDERATION ALSO. LD. CIT (A)C ONSIDERED THE SUBMISSION OF THE ASSESSEE IN THE LIGHT OF VARIOUS DECISION. HE WAS OF THE OPINION THAT THE ASSESSEE WAS INVESTOR IN SH ARES AND NOT TRADER. THE ASSESSEE HAD SUPPORTED ITS ARGUMENT WI TH THE FACTS AS ITA NO.3576/DEL/12 14 WELL AS BY JUDICIAL PRONOUNCEMENTS. THE A.O HAD NO T BROUGHT OUT ANY EVIDENCE ON RECORD TO DISPROVE THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE WAS NOT INVESTOR. HE ACCORDINGLY HELD THA T THE INCOME ON SALE OF SHARES WAS SHORT-TERM CAPITAL GAIN. HE ACC ORDINGLY DIRECTED THE A.O TO ALLOW THE CLAIM OF THE ASSESSEE. 7. BEFORE US, LD. SR. D.R SUBMITTED THAT THE ASSESSE H AD NOT PRODUCED ANY EVIDENCE TO DISTINGUISH BETWEEN STOKC IN TRADE AND INVESMTEN RESULTING INTO SHORT TERM CAPITAL GAIN. THEREFORE, THE A.O WAS JUSTIFIED IN TREATING THE SALE OF SHARES AS BUSINES S TRANSACTION. ON THE CONTRARY, LD. A. R SUBMITTED THAT THE ASSESSEE HAD INVESTED IN SHARES OF 11 COMPANIES, WHICH INCLUDED INVESTMENT I N IPOS. THE ASSESSEE HAD INVESTED HUGE AMOUNT IN IPOS BECAUSE O F WHICH THE VALUATION OF TRANSACTION WAS HIGHER. MERELY BECAUS E THE VALUATION OF TRANSACTION IS HIGHER IT WOULD NOT MEAN THAT ASS ESSEE IS ENGAGED IN BUSINESS TRANSACTIONS. THE VALUATION OF TRANSAC TION IS HIGHER BECAUSE ASSESSEE HAD INVESTED HUGE AMOUNT. ASSESSE E HAD TREATED THE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE. IN EARLIER YEARS, ASSESSMENT HAD BEEN COMPETED U/S 143(3) AND THE CLA IM OF THE ASSESSEE HAD BEEN ACCEPTED BY THE A.O. THEREFORE, THE A.O SHOULD HAVE FOLLOWED THE PRINCIPLE OF CONSISTENCY AND TREA TED THE TRANSACTION AS SHORT TERM CAPITAL GAIN AND NOT AS A BUSINESS INCOME. 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH RTE H MATERIAL AVAILABLE ON RECORD. FROM THE FCTS STATED ABOVE IT IS EVIDENT THAT THE ASSESSEE HAD INVESTED IN SHARES INCLUDING IPOS. IN THE BOOKS OF ACCOUNT THE PURCHASES HAVE BEEN TREATED AS INVESTME NT AND HAD BEEN VALUED AT COST. NO MATERIAL HAS BEEN BROUGHT OUT O N RECORD BY THE A.O TO PROVE THAT ASSESSEE HAD THESE SHARES AS STOC K IN TRADE. MOREOVER, IN EARLIER YEARS ON IDENTICAL FACTS, THE A.O HAD TREATED THE PROFITS ARISING ON SALE OF SHARES AS CAPITAL GAIN. THEREFORE, IN ABSENCE OF ANY MATERIAL TO PROVE THAT THE SHARES WE RE HELD AS STOCK IN TRADE, IN OUR CONSIDERED OPINION LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. HENCE NO INFERENCE IS CALLE D FOR. 7. THE SAID VIEW ON FACTS HAS BEEN FOLLOWED BY THE CIT(A) IN HIS DETAILED FINDING REPRODUCED IN THE EARLIER PART OF THE ORDER . IN THE ABSENCE OF ANY CONTRARY FACT POINTED OUT BY THE SR. D.R IN THE IMPUGNED ORDER. WE FIND NO GOOD REASON TO INTERFERE WITH THE FINDINGS ARRIVED AT WHEREIN THE ORDER OF THE COORDINATE BENCH HAS ITA NO.3576/DEL/12 15 BEEN FOLLOWED. ACCORDINGLY BEING SATISFIED BY THE D ETAILED FINDING ON PECULIAR FACTS AND CIRCUMSTANCES OF THE CASES WE FIND OURSELVES IN AGREEMENT WITH THE FINDING THAT THE CLAIM OF THE ASSESSSEE IN APPEAL TO THE INCOME IS COVERED ORDER HE HAD OF CAPITAL GAIN AS OPPOSED TO INCOME FROM BUSINESS AND HAS BEE N RIGHTLY ALLOWED BY THE CIT(A) ON FACTS AND LAW. ACCORDINGLY THE AFOREMENT IONED GROUND IS DISMISSED. 15. 8. IN THE RESULT, THE APPEAL FILED BY THE R EVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/05/ 20 13. SD/- SD/- (P. K. BANSAL) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 30 TH DAY OF MAY, 2013 R. NAHEED COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT(ITAT), NEW DELHI. AR,ITAT NEW DELHI.