Sukarma Finance Ltd., New Delhi V. ACIT, New Delhi

ITA 3589/DEL/2010

• Counselvise Citation: 358920114 RSA 2010
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 10-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GAGAN SOOD
• Assessee Lawyers: AJAY VOHRA SHRI ROHIT JAIN S
• Keywords: Capital asset; Business income; Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH G GG G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SMT. DIVA SINGH SMT. DIVA SINGH SMT. DIVA SINGH SMT. DIVA SINGH, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NOS SS S. .. .3588/DEL/2010 & 3589/DEL/2010 3588/DEL/2010 & 3589/DEL/2010 3588/DEL/2010 & 3589/DEL/2010 3588/DEL/2010 & 3589/DEL/2010 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2006 2006 2006 2006- -- -07 & 2007 07 & 2007 07 & 2007 07 & 2007- -- -08 0808 08 M/S SUKARMA FINANCE M/S SUKARMA FINANCE M/S SUKARMA FINANCE M/S SUKARMA FINANCE LIMITED, LIMITED, LIMITED, LIMITED, 483 483 483 4832/24, CHAMBER NO.104, 2/24, CHAMBER NO.104, 2/24, CHAMBER NO.104, 2/24, CHAMBER NO.104, PRAHALAD HOUSE, PRAHALAD HOUSE, PRAHALAD HOUSE, PRAHALAD HOUSE, ANSARI ROAD, DARYAGANJ, ANSARI ROAD, DARYAGANJ, ANSARI ROAD, DARYAGANJ, ANSARI ROAD, DARYAGANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 002. 110 002. 110 002. 110 002. PAN : PAN : PAN : PAN : AAACS AAACS AAACS AAACS3512L. 3512L. 3512L. 3512L. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), 9(1), 9(1), 9(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY VOHRA, SHRI ROHIT JAIN, ADVOCATES AND SHRI SHAILY GUPTA, CA. RESPONDENT BY : SHRI GAGAN SOOD, SR.DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : IT ITIT ITA NO.3588 A NO.3588 A NO.3588 A NO.3588/DEL/2010 /DEL/2010 /DEL/2010 /DEL/2010 (ASSESSEES APPEAL FOR AY (ASSESSEES APPEAL FOR AY (ASSESSEES APPEAL FOR AY (ASSESSEES APPEAL FOR AY 2006 2006 2006 2006- -- -07 0707 07) )) ) :- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A)-XII, NEW DELHI DATED 30 TH MARCH, 2010 FOR THE AY 2006- 07. 2. GROUND NOS.1 & 2 OF THE ASSESSEES APPEAL READ A S UNDER:- 1. THAT THE COMMISSIONER OF INCOME-TAX (A) ERRED O N FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.5,90,029 UNDER SECTION 14A OF THE ACT, 1961 (TH E ACT). 1.1 THAT THE COMMISSIONER OF INCOME-TAX (A) ERRED O N FACTS AND IN LAW IN NOT APPRECIATING THAT THE PROVI SIONS OF SECTION 14A OF THE ACT WERE NOT AT ALL APPLICABLE A ND, THEREFORE, NO DISALLOWANCE UNDER THAT SECTION WAS C ALLED FOR. ITA-3588 & 3589/D/2010 2 1.2 THAT THE COMMISSIONER OF INCOME-TAX (A) ERRED O N FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AS SESSING OFFICER IN MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT AS PER RULE 8D OF THE INCOME TAX RULES. 2. WITHOUT PREJUDICE, THAT THE COMMISSIONER OF INCO ME- TAX (A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATI NG THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT CORRECTLY COMPUTED BY THE ASSESSING OFFICER AS PER RULE 8D OF THE INCOME TAX RULES. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D PERUSED RELEVANT MATERIAL PLACED BEFORE US. AFTER CONSIDER ING THE ARGUMENTS OF BOTH THE SIDES, WE FIND THIS ISSUE TO BE COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA XOPP INVESTMENT LTD. VS. CIT [2012] 347 ITR 272 (DELHI). RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW ON THI S POINT AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. W E DIRECT HIM TO READJUDICATE THE ISSUE AFRESH AS PER THE DIRECTION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT LTD. (SUPRA). NEEDLESS TO MENTION THAT ASSESSING OFFICER WILL ALL OW ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS UN DER:- 3. THAT THE COMMISSIONER OF INCOME-TAX (A) ERRED O N FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AS SESSING OFFICER IN ASSESSING SHORT TERM CAPITAL GAINS OF RS.47,11,569 AS BUSINESS INCOME OF THE APPELLANT. 3. THAT THE COMMISSIONER OF INCOME-TAX (A) ERRED IN HOLDING THAT THE FREQUENCY AND VOLUME OF TRANSACTIO NS OF SALE/PURCHASE OF SHARES WAS VERY LARGE. 3.2 THAT THE COMMISSIONER OF INCOME-TAX (A) FAILED TO APPRECIATE THAT LONG TERM CAPITAL GAINS ON TRANSF ER OF SHARES SIMILARLY HELD AS INVESTMENT BY THE APPELL ANT WAS ACCEPTED BY THE ASSESSING OFFICER AND THEREFORE, TH ERE WAS NO WARRANT TO ASSESS SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. ITA-3588 & 3589/D/2010 3 5. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT ORIGINALLY THE ASSESSEE COMPANY WAS IN CORPORATED TO DO THE FINANCE BUSINESS AND AFTER RESTRICTIONS IMPOSED BY RESERVE BANK OF INDIA, THE COMPANY STOPPED ITS MAIN BUSINESS AND ST ARTED DEALING IN SHARES. HOWEVER, DURING THE ACCOUNTING YEAR RELEVA NT TO ASSESSMENT YEAR 2005-06, I.E., ON 30 TH SEPTEMBER, 2004, THE ASSESSEE COMPANY TURNED INTO INVESTOR OF SHARES AND SECURITIES BY CO NVERTING THE CLOSING STOCK OF THE IMMEDIATELY PREVIOUS YEAR INTO INVESTM ENT AND PAID SHORT TERM CAPITAL GAINS THEREON. THAT THE CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT IN THE PRECEDING YEAR, I.E., AY 2005-06 WAS NOT DISPUTED BY THE REVENUE. THAT DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE REALIZED THE INVESTMENT AND OFFERED CAPITAL GAINS T AX THEREON. THE ASSESSEE SHOWED LONG TERM CAPITAL GAIN WHERE THE HO LDING OF THE SHARES WAS MORE THAN 12 MONTHS AND SHORT TERM CAPIT AL GAIN WHERE THE HOLDING WAS LESS THAN 12 MONTHS. THAT THE ASSE SSING OFFICER ACCEPTED THE LONG TERM CAPITAL GAIN BUT WITH REGARD TO SHORT TERM CAPITAL GAIN, HE OBSERVED THAT IN THE IMMEDIATELY P RECEDING YEAR, THE CONVERSION OF CLOSING STOCK OF THE SHARES INTO INVE STMENT WAS TO TAKE THE ADVANTAGE OF DIFFERENTIAL RATE OF TAX ON SHORT TERM CAPITAL GAIN AND BUSINESS INCOME. IT IS SUBMITTED BY THE LEARNED CO UNSEL THAT FIRST OF ALL, IF THE DEPARTMENT HAD ANY OBJECTION TO THE CONVERSI ON OF STOCK-IN-TRADE TO THE CAPITAL GAIN, IT SHOULD HAVE BEEN TAKEN IN A SSESSMENT YEAR 2005-06 IN WHICH THE CONVERSION TOOK PLACE AND NOT IN THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT EVEN ON M ERITS, THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S EXPRES S SECURITIES PVT.LTD. VIDE ORDER DATED 22 ND OCTOBER, 2013 IN INCOME TAX APPEAL NO.406/2013. IN THE SAID CASE, UNDER IDENTICAL FAC TS, THE CONVERSION OF STOCK-IN-TRADE TO THE HEAD INVESTMENT WAS UPHELD BY THE ITAT AND HON'BLE JURISDICTIONAL HIGH COURT DISMISSED THE REV ENUES APPEAL. HE FURTHER POINTED OUT THAT THE ASSESSING OFFICER WRON GLY HELD THAT THE ITA-3588 & 3589/D/2010 4 INTENTION OF THE ASSESSEE WAS TO ACT AS A TRADER AS IN THE PAST. HE SUBMITTED THAT AFTER THE CONVERSION OF STOCK-IN-TRA DE AS INVESTMENT, THE INTENTION OF THE ASSESSEE IS TO HOLD THE INVEST MENT AND REALIZE THE INVESTMENT. HE ALSO STATED THAT THE VOLUMES OF PURC HASE AND SALE TRANSACTIONS ARE NOT HIGH AND THE SAME ARE ONLY IN A FEW SCRIPTS. LEARNED COUNSEL RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT WHEREIN THE REVE NUES SLP WAS REJECTED BY HONBLE APEX COURT. HE ALSO REFERRED T O THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RO HIT ANAND VIDE ITA NO.1135/2010 AND CIT VS. AVINASH JAIN [2014] 362 ITR 441 (DELHI). 6. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF AUTHORITIES BELOW AND HE STATED THAT IN THE PRECEDI NG YEAR, THE CONVERSION OF STOCK-IN-TRADE TO INVESTMENT WAS ONLY TO TAKE ADVANTAGE OF CHANGE IN THE LAW. HE FURTHER SUBMITTED THAT TH E ASSESSMENT FOR AY 2005-06 WAS NOT TAKEN UNDER SCRUTINY AND, THEREFORE , THE REVENUE DID NOT GET ANY OPPORTUNITY TO EXAMINE THE INTENTION BE HIND THE CONVERSION OF STOCK-IN-TRADE TO INVESTMENT AND, THE REFORE, THE SAME IS EXAMINED IN THE YEAR UNDER CONSIDERATION. HE FURTH ER SUBMITTED THAT THE SALE TRANSACTIONS ARE HUGE AND THERE IS A FREQU ENCY OF THE TRANSACTIONS. THEREFORE, EVEN OTHERWISE, THE ACTIV ITY OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE WAS IN THE NATURE OF TRADING AND NOT INVESTMENT. HE, THEREFORE, SUBMITTED THAT THE ORDE R OF LEARNED CIT(A) IS PERFECTLY JUSTIFIED AND THAT THE SAME SHOULD BE SUSTAINED AND ASSESSEES APPEAL SHOULD BE DISMISSED. 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. OR IGINALLY, THE ASSESSEE COMPANY WAS INCORPORATED TO DO THE FINANCE BUSINESS BUT, LATER ON, IT STARTED DEALING IN SHARES. ON 30 TH SEPTEMBER, 2004, THE COMPANY CONVERTED THE STOCK-IN-TRADE INTO INVESTMEN T AND ALSO PAID SHORT TERM CAPITAL GAIN ON SUCH CONVERSION. THE SA ME HAS BEEN ITA-3588 & 3589/D/2010 5 ACCEPTED BY THE REVENUE, OF COURSE UNDER SECTION 14 3(1). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER OBJ ECTED TO SUCH CONVERSION ON THE GROUND THAT THE CONVERSION WAS DO NE TO TAKE ADVANTAGE OF DIFFERENTIAL RATE OF TAX ON SHORT TERM CAPITAL GAIN AND BUSINESS INCOME. THE RELEVANT OBSERVATION OF THE A SSESSING OFFICER IN PARAGRAPH 6 OF THE ASSESSMENT ORDER READS AS UNDER: - THE ASSESSEE WAS A TRADER OF SHARES AND SECURITIES IN THE PAST AND IT WAS SO IN THE IMMEDIATELY PREVIOUS YEAR ALSO. BUT TO GAIN THE ADVANTAGE OF DIFFERENTIAL RATE OF T AX ON STCG AND BUSINESS INCOME THE ASSESSEE HAS TURNED IN TO AN INVESTOR OF SHARES & SECURITIES BY CONVERTING THE C LOSING STOCK OF IMMEDIATELY PREVIOUS YEAR INTO INVESTMENTS . IN THIS CONTEXT THE AUTHORIZED REPRESENTATIVE WAS ASKE D AS TO WHY CAPITAL GAINS SHOULD NOT BE TREATED AS BUSINESS INCOME. 8. WE FIND THAT IDENTICAL ISSUE HAS BEEN CONSIDERED BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S EXPRES S SECURITIES PVT.LTD. (SUPRA). THE FACTS IN THAT CASE WERE THAT THE ASSE SSEE WAS A COMPANY. IN THE AY 2006-07, THE ASSESSEE COMPANY DECLARED LO NG TERM CAPITAL GAIN OF ` 3.34 CRORES AND CLAIMED THE SAME AS EXEMPT UNDER SE CTION 10(38) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE C OMPANY WAS MAINTAINING TWO SETS OF PORTFOLIO, I.E., INVESTMENT AND TRADING PORTFOLIO. THE ASSESSING OFFICER DID NOT ACCEPT THE LONG TERM CAPITAL GAIN ON THE GROUND THAT THE ASSESSEE WAS A SHARE BROKER WITH TH E BOMBAY, DELHI AND CALCUTTA STOCK EXCHANGE. HE ALSO OBSERVED THAT CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT WAS DONE WITH THE IN TENTION NOT TO PAY TAX AS SECTION 10(38) WAS INTRODUCED BY THE FINANCE ACT, 2004 WITH EFFECT FROM 1.4.2005. ACCORDINGLY, HE HELD THAT TH E ENTIRE AMOUNT WAS TAXABLE AS TRADING RECEIPT AND NOT UNDER THE HEAD C APITAL GAIN. THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION WHICH IS FURTHER UPHELD BY THE ITAT. THE REVENUE FILED THE APPEAL BEFORE HON' BLE JURISDICTIONAL HIGH COURT WHICH, VIDE ORDER DATED 22 ND OCTOBER, 2013, DISMISSED THE ITA-3588 & 3589/D/2010 6 REVENUES APPEAL. THEIR LORDSHIPS IN PARAGRAPH 4 O F THE ORDER HELD AS UNDER:- MERE FACT THAT SECTION 10(38) WAS INTRODUCED IN TH E STATUTE BY FINANCE ACT 2004 WITH EFFECT FROM 1 ST APRIL, 2005, DOES NOT MEAN THAT THE SAID CONVERSION WAS IMPROPER OR ILLEGAL. AFTER THE SAID SECTION WAS IN SERTED, THE ASSESSEE ON NOTICING THE TAX BENEFIT, WAS ENTITLED TO CONVERT AND CHANGE HIS HOLDING FROM STOCK IN TRADE INTO INVESTMENT. SUCH CONVERSION CANNOT BE DEALT WITH A ND REJECTED ON THE GROUND THAT SECTION 10(38) OF THE A CT WAS INTRODUCED WITH EFFECT FROM THE SAID DATE. CONVERS ION MAY BE REJECTED FOR OTHER REASONS AND GROUNDS LIKE THE INTENTION WAS NOT TO CONVERT AND THE ASSESSEE STILL CONTINUED TO TREAT AND REGARD THE SHARES AS STOCK I N TRADE AND NOT INVESTMENT. BUT THERE IS HARDLY ANY DISCUS SION IN THE ASSESSMENT ORDER IN THIS REGARD. JUSTIFICATION AND REASONS HAVE NOT BEEN ELUCIDATED AND BROUGHT ON REC ORD TO UPHOLD THE CONTENTION OF THE REVENUE THAT THE SHARE S WERE CONTINUED TO BE HELD AS STOCK IN TRADE AND NOT AS A N INVESTMENT. 9. THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTI CAL AND, THEREFORE, THE ABOVE OBSERVATIONS WOULD BE SQUARELY APPLICABLE TO THE ASSESSEES CASE. THAT MERELY BECAUSE DUE TO AMENDMENT UNDER T HE INCOME TAX ACT BY WHICH LONG TERM CAPITAL GAIN IS EXEMPT AND S HORT TERM CAPITAL GAIN IS CHARGEABLE AT A LESSER RATE OF TAX, THEN BU SINESS INCOME DOES NOT MEAN THAT THE CONVERSION OF STOCK-IN-TRADE TO T HE INVESTMENT IS IMPROPER OR ILLEGAL. THE ASSESSEE WAS ENTITLED TO CONVERT THE HOLDING FROM STOCK-IN-TRADE TO INVESTMENT ON NOTICING THE T AX BENEFIT. NO OTHER REASON IS GIVEN BY THE ASSESSING OFFICER FOR REJECT ING THE CONVERSION OF STOCK-IN-TRADE INTO INVESTMENT. IN VIEW OF THE ABO VE, WE HOLD THAT THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S EXPRESS SECURITIES PVT.LTD. WOULD BE SQUARELY APPLI CABLE TO THE CASE OF THE ASSESSEE. WE ALSO FIND THAT ON THE SALE OF SHA RES DURING THE YEAR UNDER CONSIDERATION WHICH WERE CONVERTED INTO STOCK -IN-TRADE LAST YEAR, THE GAIN ARISING WAS PARTLY LONG TERM CAPITAL GAIN AND PARTLY SHORT TERM CAPITAL GAIN IN VIEW OF THE PERIOD OF HOLDING OF SU CH SHARES. THE ITA-3588 & 3589/D/2010 7 REVENUE ACCEPTED THE LONG TERM CAPITAL GAIN, MEANIN G THEREBY, CONVERSION OF SHARES FROM STOCK-IN-TRADE TO INVESTM ENT WAS ACCEPTED IN RESPECT OF SHARES WHICH WERE HELD FOR MORE THAN 12 MONTHS BUT NOT ACCEPTED IN RESPECT OF SHARES WHICH WERE HELD FOR L ESS THAN 12 MONTHS. THE REVENUE CANNOT TAKE THIS DOUBLE STAND. ALL THE SHARES WHICH WERE EARLIER HELD AS STOCK-IN-TRADE WERE CONVERTED INTO INVESTMENT AS ON 30 TH SEPTEMBER, 2004. MERELY BECAUSE SOME SHARES WERE S OLD BEFORE 12 MONTHS FROM THE PURCHASE, IT CANNOT BE SAID THAT TH E CONVERSION OF THOSE SHARES FROM STOCK-IN-TRADE TO INVESTMENT WAS NOT PERMISSIBLE IN LAW. 10. THE ASSESSING OFFICER HAS ALSO HELD THAT THE SO LE INTENTION OF THE ASSESSEE WAS TO RESALE THE SHARES AT A PROFIT. THE REFORE, THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT RIGHTLY APPRECIATED THE FACTS OF THE CASE. IN THIS CASE, TILL 30 TH SEPTEMBER, 2004, ALL THE PURCHASES OF SHARES WERE CERTAINLY MADE WITH THE INTENTION OF TR ADING AND IN THE BOOKS OF ACCOUNT ALSO, THE ASSESSEE HAS RECORDED TH E SHARES AS STOCK- IN-TRADE. HOWEVER, AS ON 30 TH SEPTEMBER, 2004, THE ASSESSEE CONVERTED THE STOCK-IN-TRADE INTO INVESTMENT AND TH EREAFTER, THE PURCHASES MADE WERE RECORDED IN THE BOOKS AS INVEST MENT. IN THE BALANCE SHEET OF 31 ST MARCH, 2005, THE SHARES WERE DISCLOSED AS INVESTMENT IN THE BALANCE SHEET. THEREFORE, IN THE YEAR UNDER CONSIDERATION, IT CANNOT BE SAID THAT THE SHARES WE RE HELD BY THE ASSESSEE WITH THE INTENTION OF CARRYING ON ADVENTUR E OR BUSINESS IN SUCH SHARES. THE ASSESSING OFFICER HAS NOT GIVEN A NY REASON FOR HIS INFERENCE THAT THE PURCHASES WERE MADE WITH THE INT ENTION TO RESALE THEM AT A PROFIT. THE INTENTION OF AN ASSESSEE IS TO BE GATHERED FROM THE FACTS ON RECORD AND THE UNDISPUTED FACTS ON REC ORD ARE THAT AS ON 30 TH SEPTEMBER, 2004, THE ASSESSEE CONVERTED THE STOCK- IN-TRADE INTO INVESTMENT AND THEREAFTER, PURCHASES OF SHARES AND STOCK OF SHARES HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNT AS INVES TMENT. THEREFORE, ITA-3588 & 3589/D/2010 8 FOR HOLDING THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARES, THE ASSESSING OFFICER WAS REQUIRED TO BRING SOME MA TERIAL ON RECORD WHICH MAY JUSTIFY THIS INFERENCE. THE ASSESSING OF FICER HAS NOT BROUGHT ON RECORD ANY MATERIAL WHICH MAY INDICATE THAT THE INTENTION OF THE ASSESSEE WAS TO CARRY ON THE BUSINESS IN SHARES. 11. IT IS NOT IN DISPUTE THAT THE INVESTMENT IN SHA RES HAS BEEN MADE BY THE ASSESSEES OWN FIRM AND NO BORROWED MONEY HA S BEEN UTILIZED. 12. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT TH E VOLUME OF THE SHARE TRANSACTIONS IS VERY HIGH AS WELL AS THE FREQ UENCY OF THE TRANSACTIONS IS ALSO HIGH. COMPLETE DETAILS OF THE PURCHASE AND SALE OF SHARES GIVING RISE TO SHORT TERM CAPITAL GAIN IS GI VEN AT PAGES 20 TO 22 OF THE ASSESSEES PAPER BOOK FROM WHICH IT IS EVIDE NT THAT THE TOTAL SALE IS ` 2,62,04,884/-. THE DETAILS ARE ANNEXED FOR READY R EFERENCE TO THIS ORDER AS ANNEXURE A ANNEXURE A ANNEXURE A ANNEXURE A. FROM SUCH DETAILS, IT IS EVIDENT THA T IN THE CASE OF MOST OF THE SHARES, THERE IS ONLY ONE OR TWO INS TANCES OF PURCHASE AND SALE. IT IS ONLY IN RESPECT OF ONE SHARE, I.E. , MAHA SEAMLESS IN WHICH THERE ARE NINE INSTANCES OF PURCHASE AND SALE . THEREFORE, THE OBSERVATION OF THE ASSESSING OFFICER THAT THERE IS HIGH FREQUENCY OF PURCHASE AND SALE CANNOT BE ACCEPTED. CONSIDERING THE HIGH VALUE OF THE SHARES NOWADAYS, THE TOTAL SALE CONSIDERATION O F ` 2.62 CRORES CANNOT BE SAID TO BE HUGE VOLUME AND, MOREOVER, THE VOLUME ITSELF CANNOT BE DETERMINATIVE OF THE FACT WHETHER THE ASS ESSEE IS TRADING IN SHARES OR MADE AN INVESTMENT IN SHARES. IN THE CAS E OF GOPAL PUROHIT, THE SHORT TERM CAPITAL GAIN WAS ` 57.31 CRORES AND LONG TERM CAPITAL GAIN CLAIMED EXEMPT WAS ` 102.68 CRORES AND LONG TERM CAPITAL GAIN TAXABLE AT THE RATE OF 10% WAS ` 60 CRORES. EVEN WITH SUCH QUANTUM OF THE CAPITAL GAIN, THE ITAT MUMBAI BENCH IN THE CASE OF GOPAL PUROHIT 29 SOT 117 HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING PROFIT ARISING FROM SUCH TRANSACTION AS INCOME FROM BUSINESS OR PROFESSION. THE ABOVE ORDER OF THE ITAT WAS UPHELD BY HON'BLE ITA-3588 & 3589/D/2010 9 BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PURO HIT 228 CTR 582. THE REVENUE FILED THE SLP AND THEIR LORDSHIPS OF TH E APEX COURT DISMISSED THE SLP WHICH IS REPORTED IN 334 ITR 308 (STATUTE). 13. IN THE CASE OF ROHIT ANAND (SUPRA), ON THE SIMI LAR FACTS, THE ASSESSING OFFICER HAS TREATED THE PROFIT FROM SALE OF SHARES AS PROFITS AND GAINS OF BUSINESS AS AGAINST THE CAPITAL GAIN C LAIMED BY THE ASSESSEE. THE ITAT ACCEPTED THE ASSESSEES CONTENT ION WITH THE FOLLOWING FINDING:- 9. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS AND THE FINDINGS OF BOTH THE AUTHORITIES BELOW. THE AS SESSEE IN HIS INDIVIDUAL CARRIES ON BUSINESS OF JEWELLERY. A PART FROM SAID BUSINESS, THE ASSESSEE INVESTED IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT. THIS ITSELF MANIFEST THE INTENTION OF THE ASSESSEE AS TO WHETHE R HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AN D PROFIT OUT OF SUCH INVESTMENT. THE ASSESSING OFFICER WAS GUIDED MORE BECAUSE OF THE TOTAL AMOUNT INVOLVED RATHER TH AN THE ACTUAL INTENTION AND THE WAY OF CARRYING ON SHARE TRANSACTION. THERE IS NO DOUBT THAT EVEN A SINGLE TRANSACTION CAN BE IN THE NATURE OF TRADE BUT THE A SSESSEE HAS DEMONSTRATED THAT HIS INTENTION WAS NEVER TO TR ADE IN SHARES. THE INTENTION IS MANIFESTED BY TREATMENT G IVEN TO SUCH INVESTMENT THAT THE INVESTMENT IS OUT OF OWN F UND AND NOT BORROWED THAT THE INVESTMENT IS NOT ROTATED FREQUENTLY, THAT THE TOTAL NUMBER OF TRANSACTIONS A RE VERY FEW, THAT ALL THE SHARES PURCHASED ARE NOT SOLD AND RATHER HELD FOR QUITE NUMBER OF DAYS. IT IS TO BE NOTED T HE INCOME TAX ACT ITSELF HAS PROVIDED THAT WHEN THE SHARES AR E HELD FOR A PERIOD OF ONE YEAR OR MORE WILL BE TREATED AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE T HE HOLDING PERIOD TO TREAT SUCH ASSET A LONG TERM IS M ORE THAN 36 MONTHS. THUS EVEN AFTER HOLDING THE SHARES FOR MORE THAN 12 MONTHS AND SHOWING SUCH INTENTION FROM THE CONDUCT, THE ASSESSING OFFICER CANNOT REPLACE HIS O PINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK IN TRADE AND PROFIT FROM WHICH IS TO BE AS SESSED AS BUSINESS INCOME. IN ALL SUCH CASES THE INTENTION I S MANIFESTED BY THE ASSESSEE HIMSELF BY HIS CONDUCT A ND OTHER RELEVANT FACTS AS CONSIDERED BY THE LEARNED C IT(A). IT IS ALSO SEEN THAT THE SHARES WERE TREATED AS INVEST MENT IN EARLIER YEAR AND WHICH FACT HAS BEEN ACCEPTED BY TH E ITA-3588 & 3589/D/2010 10 ASSESSING OFFICER. THE ASSESSEE HAS ALSO EARNED HU GE DIVIDEND INCOME FROM SUCH SHARES. THE ASSESSING OF FICER MERELY BECAUSE OF THE TOTAL VOLUME OF TRANSACTION I S SUBSTANTIAL, IS GUIDED TO HOLD THE INCOME AS BUSINE SS INCOME. HOWEVER, HE FAILED TO RECOGNIZE THAT THE V OLUME OF TRANSACTION INCLUDES THE APPRECIATION IN SHARES ALSO AND SUCH APPRECIATION HAS BEEN OFFERED FOR TAX. IF VOL UME OF TRANSACTION IS THE CRITERIA, WHAT IS TO BE EXAMINED IS HOW FREQUENTLY THE TRANSACTION IS DONE, WHETHER THE TRA NSACTION IS SETTLED IN THE COURSE OF THE DAY OF TRADING ITSE LF OR IN THE SETTLEMENT PERIOD ITSELF SO AS TO AVOID PAYMENT OF FULL PURCHASE PRICE. HERE THE ASSESSEE HAS BEEN HOLDING THE SHARES BY TAKING DELIVERY AND MAKING FULL PAYMENT F OR SUCH INVESTMENT. IN SUCH CIRCUMSTANCES, THE TRANSACTION S ARE TO BE TREATED AS GIVING RISE TO THE CAPITAL GAIN AND C ANNOT BE BRANDED AS TRADING OF MAKING INVESTMENT SO AS TO DETERMINE WHETHER THE TRANSACTION WAS FOR DEALING I N SHARES OR MAKING INVESTMENT FOR EARNING DIVIDEND AN D APPRECIATION FROM SUCH INVESTMENT. THE TOTAL NUMBE R OF SHARES DEALT IN RESPECT OF LONG TERM PORTFOLIO IS O NLY 5. THIS CANNOT BE CONSIDERED AS VOLUME TRANSACTION. THEREF ORE, THIS TRANSACTION IN SHARES CANNOT BE SAID TO BE WIT H INTENTION TO DEAL IN SUCH SHARES. RATHER THE TRANS ACTION WERE WITH INTENTION OF EARNING APPRECIATION FROM SU CH SHARES. THEREFORE, THE SAME ARE ASSESSABLE AS CAPI TAL GAIN AND NOT AS PROFITS AND GAINS OF BUSINESS. WE, THER EFORE, UPHOLD THE ORDERS OF THE LEARNED CIT(A). 14. THE REVENUE, AGGRIEVED WITH THE ORDER OF THE IT AT, FILED APPEAL BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT AND HO N'BLE JURISDICTIONAL HIGH COURT, VIDE ORDER DATED 16 TH AUGUST, 2010 IN ITA NO.1135/2010, UPHELD THE ORDER OF THE ITAT AND HELD AS UNDER:- 4. IN OUR OPINION, THE FACTUAL FINDINGS OF THE FIN AL FACT FINDING AUTHORITY ARE NEITHER PERVERSE NOR CONTRARY TO RECORD. ACCORDINGLY, WE FIND THAT NO SUBSTANTIAL Q UESTION OF LAW ARISES IN THE PRESENT APPEAL. 15. THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL. THEREFORE, THE ABOVE DECISION OF ITAT WHICH IS APPROVED BY HON'BLE JURISDICTIONAL HIGH COURT WOULD BE SQUARELY APPLICABLE. CONSIDERING TH E TOTALITY OF THE ABOVE FACTS AND RELYING UPON THE DECISION OF ITAT, HON'BLE BOMBAY ITA-3588 & 3589/D/2010 11 HIGH COURT AS WELL AS HONBLE APEX COURT IN THE CAS E OF GOPAL PUROHIT (SUPRA) AND OF THE ITAT AND HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ROHIT ANAND (SUPRA), WE ARE OF THE OPINION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE SHORT TER M CAPITAL GAIN AS INCOME FROM BUSINESS OR PROFESSION. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ASSESS THE INCOME FROM SHORT T ERM CAPITAL GAIN UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HE AD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. ACCORDINGLY, G ROUND NO.3 OF THE ASSESSEES APPEAL IS ALLOWED. 16. GROUND NO.4 OF THE ASSESSEES APPEAL READS AS U NDER:- WITHOUT PREJUDICE, THE COMMISSIONER OF INCOME-TAX (A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALL OW SECURITIES TRANSACTION TAX PAID ON SHARES, INCOME WHEREFROM WAS ASSESSED AS BUSINESS INCOME, AS BUS INESS EXPENDITURE. 17. AT THE TIME OF HEARING BEFORE US, IT WAS SUBMIT TED BY THE LEARNED COUNSEL THAT GROUND NO.4 IS ONLY AN ALTERNATIVE GRO UND AND WOULD SURVIVE FOR ADJUDICATION ONLY IF GROUND NO.3 IS ADJ UDICATED AGAINST THE ASSESSEE. SINCE WE HAVE ALLOWED GROUND NO.3 OF THE ASSESSEES APPEAL, GROUND NO.4 IS TREATED AS NOT PRESSED AND T HE SAME IS REJECTED AS SUCH. ITA NO.3589/DEL/2010 ITA NO.3589/DEL/2010 ITA NO.3589/DEL/2010 ITA NO.3589/DEL/2010 (ASSESSEES (ASSESSEES (ASSESSEES (ASSESSEES APPEAL FOR AY 2007 APPEAL FOR AY 2007 APPEAL FOR AY 2007 APPEAL FOR AY 2007- -- -08) 08) 08) 08) :- 18. ALL THE GROUNDS RAISED IN THIS APPEAL BY THE AS SESSEE ARE IDENTICAL TO GROUNDS RAISED IN ASSESSEES APPEAL FOR AY 2006- 07. FOR THE DETAILED DISCUSSION THEREIN, THE ISSUE ARISING VIDE GROUND NOS.1 & 2 IS SET ASIDE AND RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION AS PER THE DECISION OF HON'BLE JURIS DICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA). ITA-3588 & 3589/D/2010 12 19. GROUND NO.3 OF THE ASSESSEES APPEAL IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO ASSESS THE SHORT T ERM CAPITAL GAIN UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HE AD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. 20. GROUND NO.4 OF THE ASSESSEES APPEAL IS TREATED AS NOT PRESSED AND ACCORDINGLY REJECTED. 21. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 2 ND MAY, 2014. SD/- SD/- ( (( (DIVA SINGH DIVA SINGH DIVA SINGH DIVA SINGH) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 02.05.2014 VK. COPY FORWARDED TO: - 1. APPELLANT : M/S SUK M/S SUK M/S SUK M/S SUKARMA FINANCE LIMITED, ARMA FINANCE LIMITED, ARMA FINANCE LIMITED, ARMA FINANCE LIMITED, 4832/24, CHAMBER NO.104, 4832/24, CHAMBER NO.104, 4832/24, CHAMBER NO.104, 4832/24, CHAMBER NO.104, PRAHALAD HOUSE, ANSARI ROAD, DARYAGANJ, PRAHALAD HOUSE, ANSARI ROAD, DARYAGANJ, PRAHALAD HOUSE, ANSARI ROAD, DARYAGANJ, PRAHALAD HOUSE, ANSARI ROAD, DARYAGANJ, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 002. 110 002. 110 002. 110 002. 2. RESPONDENT : ASSISTANT COMMISSIONER OF INCOME TA X, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), NEW DELHI. 9(1), NEW DELHI. 9(1), NEW DELHI. 9(1), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR CONTD./.. ITA-3588 & 3589/D/2010 13 ITA-3588 & 3589/D/2010 14 ITA-3588 & 3589/D/2010 15