Shri Manoj Girdharilal Goyal, Surat V. The Income tax Officer,Ward-3(3), Surat

ITA 3630/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9277 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 04-11-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Unexplained cash credit; Capital asset; Business income
• Section: 6; 68

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI H.L.KARWA AND SHRI A.N.PAHUJA ITA NO.3630/AHD/2008 (ASSESSMENT YEAR : 2005-06 ) MANOJ GIRDHARILAL GOYAL 501,PRAKRITI APARTMENT, BHATAR ROAD, SURAT-395007. VS. INCOME TAX OFFICER, WARD 3(3), SURAT. (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI M.C.PANDIT, SR. D.R. ( (( ( )/ )/)/ )/ ORDER PER KARWA, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE O RDER OF CIT(A)-II, SURAT DATED 22.8.2008 RELATING TO ASSESSMEN T YEAR 2005-06. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNE D CIT(A) HAS ERRED IN UPHOLDING THE ADDITION OF RS.33, 600/- BY ESTIMATING ANNUAL RENTAL VALUE OF HOUSE PROPERTY, WHI CH NEEDS TO BE DELETED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN THE TRADING BUSINESS OF SHARES AND SECURITIES. THE ASSESSEE HAS ALSO SHOWN INCOME FROM DIVIDEND/BANK INTEREST ETC. T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE OWNED A FLAT AT J-603, INDIA MARKET, WHILE HE RESIDES AT 501, PRAKRUTI APARTMENT,BHATARROA D,SURAT. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE ALV OF THE FLAT AT J-603, INDIA MARKET SHOULD NOT BE ADDED TO THE TOTAL INCOME. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FAILED TO F URNISH ANY EXPLANATION. REFERRING TO THE PROVISIONS OF SEC. 23(1) OF THE I.T.ACT, 1961 2 (IN SHORT THE ACT), THE ASSESSING OFFICER ESTIMATED THE ALV OF THE SAID PROPERTY AT RS.48,000/- FOR THE YEAR, AND, AFTER ALL OWING FOR DEDUCTION U/S 24, HE ADDED THE NET SUM OF RS.33,600/- TO THE ASSESSEES TOTAL INCOME. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION OBSER VING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE AO AS ALSO THE SUBMISSIONS OF THE AR. I DO NOT ACCEPT THE CONTENTI ONS OF THE AR. SUB-SEC.(2) OF SEC.23 OF THE IT ACT PROVIDES AS UNDER :- (2) WHERE THE PROPERTY CONSISTS OF A HOUSE OR PART OF A HOUSE WHICH - (A) IS IN THE OCCUPATION OF THE OWNER FOR THE PURP OSE OF HIS OWN RESIDENCE; OR (B) CANNOT ACTUALLY BE OCCUPIED BY THE OWNER BY RE ASON OF THE FACT THAT OWING TO HIS EMPLOYMENT, BUSINESS OR PROFE SSION CARRIED ON AT ANY OTHER PLACE, HE HAS TO RESIDE AT THAT OTHER PLACE IN A BUILDING NOT BELONGING TO HIM, A PLAIN READING OF THE AFORESAID SUB-SECTION SHOWS THAT THE INTENTION OF THE LEGISLATURE WAS TO EXEMPT FROM TAXAT ION, FIRSTLY, THE HOUSE PROPERTY IN WHICH A PERSON RESIDES HIMSELF I.E. A SE LF- OCCUPIED PROPERTY, AND SECONDLY, THE PROPERTY WHICH BELO NGS TO A PERSON BUT WHICH WITHIN 'CANNOT ACTUALLY BE OCCUPIED' BE CAUSE OF THE FACT THAT 'OWING TO HIS EMPLOYMENT BUSINESS OR PROF ESSION CARRIED ON ANY OTHER PLACE' HE HAS TO PERFORCE OF CIRCUMST ANCES RESIDE IN THAT OTHER PLACE, WHICH DOES NOT BELONG TO HI M. IN THE CASE OF THE ASSESSEE, THERE WAS NO COMPULSION ON HIM TO LI VE AT A PREMISE OWNED BY SOMEBODY ELSE, WHO ALLEGEDLY WAS ALSO A DIRECTOR IN THE SAME COMPANY. SECONDLY, THE PREMISES IS NOT LOCATED AT ANY 'OTHER PLACE' BUT WITHIN THE SAME CITY AND WITHIN A DI STANCE OF 5-6 K.M. FROM THE PROPERTY OWNED BY THE ASSESSEE HIMSELF. IN OTHER WORDS, THERE WAS NO EXTRANEOUS COMPULSION OR FORCE FOR THE ASSESSEE TO LIVE IN AN ACCOMMODATION OTHER THAN THE HOUSE PROPERTY OWNED BY HIM IN THE SAME CITY. FURTHER, IT HAS NOT BEEN SHOWN HOW, LIVING IN THE FLAT ON BHATAR ROAD, WAS MOR E CONVENIENT FOR THE ASSESSEE TO ATTEND TO HIS DUTIES AS A DIRECTOR OF THE SAID COMPANY, AS COMPARED TO LIVING IN HIS OWN FLAT ON RING ROAD. ADMITTEDLY, THE MAIN BUSINESS OF THE ASSESSEE WAS TRADING IN SHARES AND SECURITIES. THIS MEANT THAT BEING A DIRECTOR IN SHRI AMBAJI FIBRES P.LTD. WAS NOT HIS ONLY OR EVEN THE MAIN BUSINESS 3 ACTIVITY, WHICH IN TURN WOULD MEAN THAT THE ASSESSEE GAIN ED NO ADVANTAGE BY RESIDING IN A PREMISES OWNED BY SOMEONE EL SE, EVEN THOUGH HE HAD HIS OWN RESIDENTIAL PREMISES WITHIN A CO UPLE OF KILOMETERS IN THE SAME CITY. NO EXEMPTION COULD THEREFO RE BE CLAIMED U/S.23(2)(B) OF THE IT ACT. 5. THE ABOVE APPEAL WAS FIXED FOR HEARING ON 20.8.20 09. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE IN SPITE OF SERV ICE OF NOTICE BY RPAD. THE ASSESSEE HAS ALSO NOT FILED ANY APPLICATION FOR ADJOURNMENT OF HEARING. THE APPEAL WAS FILED ON 04.11.2008. UNDER T HE CIRCUMSTANCES, WE ARE CONSTRAINED TO DISPOSE OF THE APPEAL ON MERITS, O F COURSE, AFTER HEARING THE LD. D.R. 5.1 WE HAVE HEARD THE LD. D.R. AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IN OUR VIEW, THE CIT(A) WAS JUST IFIED IN CONFIRMING THE ADDITION OF RS.33,600/- UNDER THE PROVISIONS OF SEC. 23(1) OF THE ACT. WE FULLY AGREE WITH THIS OBSERVATION OF THE CIT(A) TH AT IN THE CASE OF THE ASSESSEE, THERE WAS NO COMPULSION ON HIM TO LIVE AT A PRE MISE OWNED BY SOMEBODY ELSE WHO ALLEGEDLY WAS A DIRECTOR IN THE SAME COMPANY. SECONDLY, THE PREMISE IS NOT LOCATED AT ANY OTHER PLACE BUT WITHIN THE SAME CITY AND WITHIN A DISTANCE OF 5-6 KMS. FROM THE PR OPERTY OWNED BY THE ASSESSEE HIMSELF. THE ASSESSEE ALSO FAILED TO SHOW THAT LIVING IN THE FLAT AT BHATAR ROAD WAS MORE CONVENIENT FOR HIM TO AT TEND TO HIS DUTIES AS A DIRECTOR OF THE SAID COMPANY AS COMPARED TO LIVING I N HIS OWN FLAT ON RING ROAD. WE ALSO AGREE WITH THIS OBSERVATION OF THE CIT(A) THAT THE ESTIMATED RENT OF RS.4,000/- PER MONTH FOR A FLAT AT RING ROAD WAS QUITE REASONABLE AND APPROPRIATE ESTIMATE. IN FACT, THERE IS NO MATERIAL ON RECORD TO CONTROVERT THE ABOVE ESTIMATE. THUS, CONSIDER ING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE UPHOLD THE ORDER OF CIT(A) AND REJECT THE GROUND. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER: 4 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE TREATMENT OF THE SHORT TER M CAPITAL GAIN OF RS. 3,60,319/- ON SALE OF SHARES AS BUSINESS INCOME, WHICH NEEDS TO BE DELETED. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER ASKED THE ASSESSEE TO FURNISH THE RELEVANT EVIDENCE, FAIL ING WHICH WHY THE SHORT-TERM CAPITAL GAIN OF RS.3,60,319/- SHOULD NOT BE TREATED AS INCOME FROM BUSINESS. THE ASSESSEE DID NOT REPLY TO THE ABOVE QUE RY. THE ASSESSING OFFICER, THEREFORE, PROCEEDED TO EXAMINE THE SHA RE TRANSACTIONS IN THE LIGHT OF C.B.D.TS CIRCULAR NO.4/2007 DATED 15 .6.2007. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE HAD EARNED DIVIDEND ONLY OF RS. 17,210/-, WHERE AS, THE PROFIT FROM THE SALE OF SHARES WAS RS.3,60,320/-. ACCORDING TO T HE ASSESSING OFFICER, THIS FACT CLEARLY SHOWED THAT THE MAIN PURPOSE O F THE INVESTMENTS WAS TO EARN PROFITS FROM TRANSACTING IN SHARES. THE RATI O OF DIVIDEND TO PROFIT WAS 1:21. THE ASSESSING OFFICER OPINED THAT THE MO TIVE, THEREFORE, WAS CLEARLY TO EARN PROFITS FROM SUCH TRANSACTIONS IN A REG ULAR AND SYSTEMATIC MANNER. THE SECOND GROUND WAS THE FREQUENCY OF TRANSACTIONS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE H AD ENTERED INTO 288 PURCHASE AND 252 SALE TRANSACTIONS DURIN G THE YEAR, IN RESPECT OF 161 SCRIPS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAD PURCHASED AND SOLD EACH SCRIP APPROXIMATELY TWICE, AN D HAD ENGAGED IN AN AVERAGE TWO TRANSACTIONS IN A WORKING DA Y. THE ASSESSING OFFICER OPINED THAT SUCH TRANSACTIONS COULD NOT BE TREAT ED AS AN ACTIVITY OF INVESTMENTS. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT TH E TOTAL VALUE OF THE SHARES SOLD WAS MORE THAN RS. 1 CRORE WHICH MEANT T HAT THERE WAS HARDLY ANY HOLDING PERIOD OF SUCH SHARES. 7.1 THE NEXT GROUND TAKEN BY THE ASSESSING OFFICER WAS TH E PERIOD OF HOLDING OF SHARES. HE NOTED THAT THE ASSESSEE HAD MAJORI TY OF THESE SCRIPS FOR LESS THAN 45 DAYS AND HAD TRANSACTED AS AND WHEN THERE WAS SCOPE TO EARN PROFIT. THE ASSESSING OFFICER OPINED THAT IF THE INTENTION OF 5 THE ASSESSEE WAS TO HOLD THE SHARES AS INVESTMENT, HE WOULD HAVE RETAINED THEM FOR A LONG PERIOD. THE ASSESSING OFFICER F URTHER OBSERVED THAT DURING THE YEAR, THE ASSESSEE CARRIED OUT TRANSACTION S ONLY IN SHARES AND, THEREFORE, ONE OF THE MAIN SOURCE OF INCOME WAS THE PROFIT EARNED FROM SUCH TRANSACTIONS EVEN THEN HE MAY HAVE BEEN ENGAG ED IN SOME OTHER BUSINESS ACTIVITY. THE ASSESSING OFFICER FURTHER OBSER VED THAT THE ASSESSEE HAD VERY WELL ORGANIZED AND ESTABLISHED INFRASTRU CTURE AND SYSTEM FOR ENGAGING IN SHARES TRANSACTIONS. THE ASSESSING OFFI CER OPINED THAT THE ASSESSEE WAS RUNNING A REGULAR BUSINESS OF SHARE DEALING. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAD ALSO TAKEN FRESH UNSECURED LOANS AMOUNTING TO RS.9,72,894/- DURING THE Y EAR FOR ENGAGING IN THE SHARE TRANSACTIONS, THE TOTAL LOANS OUTSTANDING B EING RS.15,37,973/- ON WHICH INTEREST OF RS.57,799/- HAD BEE N PAID. THE ASSESSING OFFICER, THEREFORE, TREATED THE SUM OF RS. 3,60, 319/- SHOWN BY THE ASSESSEE IN HIS STATEMENT OF TOTAL INCOME UNDER THE HE AD SHORT-TERM CAPITAL GAIN AS BUSINESS INCOME. 8. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION OBSER VING AS UNDER: 10. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY TH E AO, WHICH HE HAS RECORDED IN CONSIDERABLE DETAIL, AS ALSO THE WRIT TEN SUBMISSIONS OF THE AR. THE AR HAS ARGUED THAT THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF YARN TEXTURISING AND THAT HE WAS A DIRECTOR OF SHRI AMBAJI FIBERS P. LTD. HE DID NOT HAVE ANY INFRASTRUCTURE DEALING IN SHARES AND THEREFORE, THE TR ANSACTIONS IN SHARES COULD NOT BE TREATED AS BUSINESS ACTIVITY. I DO NOT ACCEPT SUCH A PROPOSITION. NOTHING PREVENTS A PERSON FROM ENGAG ING IN MORE THAN ONE BUSINESS, AND TO COMBINE THE BUSINESS OF Y ARN TEXTURISING WITH THAT OF SHARE DEALINGS. FURTHER, EVE N THOUGH THE ASSESSEE MAY NOT HAVE HAD ANY SEPARATE INFRASTRUCTURE FOR DEALING IN SHARES, YET FROM THE FACTS AS BROUGHT OUT BY THE AR H IMSELF, IT IS ABSOLUTELY CLEAR THAT THE ASSESSEE HAD SUFFICIENT EXISTI NG AND ONGOING INFRASTRUCTURE FOR HIM TO ENGAGE IN THE BUSIN ESS OF SHARE DEALINGS. IT IS ALSO NOT CORRECT TO SAY THAT IT IS NOT FEA SIBLE TO ENTER INTO A SINGLE DEAL OR TRANSACTION WITHOUT HAVING OWN INFRASTRUCTURE. THIS IS SIMPLY A BASELESS ARGUMENT. THE ASSESSEE HAD BEEN T RADING THROUGH THE THREE DIFFERENT STOCK BROKERS, M/S. MOTILAL OSWAL, M/S. 6 HDFC SECURITIES AND M/S. DIMENSIONAL SECURITY PVT. LTD. THEREFORE, THE ASSESSEE DID NOT REALLY NEED ANY SEPARATE INFRASTRUCTU RE TO ENGAGE IN THE BUSINESS OF SHARE DEALING. IT IS QUITE CLEA R FROM THE ASSESSMENT ORDER THAT THE AO SIMPLY APPLIED THE CRITERIA OR THE PARAMETERS LAID DOWN BY THE CBDT IN CIRCULAR NO.4 OF 2007, DTD. 15.6.2007, FOR THE PURPOSE OF DETERMINING WHETHER OR NOT THE TRANSACTIONS ENGAGED IN BY THE ASSESSEE, WERE SIMPLE INVESTM ENTS OR WERE IN THE NATURE OF BUSINESS TRANSACTIONS. INTERESTIN GLY, THE AR HAS NOT BEEN ABLE TO REBUT THE AO'S APPLICATION OF THE PRINCIPLES AND CRITERIA LAID DOWN IN THE SAID CIRCULAR. THUS, IN RESPON SE TO THE AO'S OBSERVATION REGARDING THE SMALL PERCENTAGE OF DIVIDEND EARNED BY THE ASSESSEE, AS COMPARED TO THE PROFIT FROM SHARE TRADING , THE AR HAS CONTENDED THAT WHEN A PERSON INVESTS IN THE SHARE MA RKET, HE ONLY THINKS IN TERMS OF APPRECIATION IN THE VALUE OF SH ARES AND NOT IN TERMS OF EARNING DIVIDEND. ACCORDING TO HIM, DIVIDE ND IS DEFINITELY THE MAIN CRITERIA IN THE CASE OF INVESTMENT IN MUTUAL F UNDS BUT NOT IN SHARES. THIS ARGUMENT ONCE AGAIN IS QUITE BASELESS. WHA T THE AO TRIED TO SHOW WAS, IF THE ASSESSEE HAD INDEED PURCHASED THE SHARES AS INVESTMENTS THEN HE WOULD HAVE EARNED MORE IN THE F ORM OF DIVIDEND. ON THE CONTRARY, HE EARNED VERY LITTLE DIV IDEND, THE RATIO TO THE PROFIT ON SALE OF SHARES BEING 1:21. THIS WAS BECA USE THE ASSESSEE HARDLY HELD THE SHARES FOR ANY LENGTH OF TIME, A S HE WAS ALWAYS TRANSACTING WITH THE MOTIVE TO EARN PROFIT FROM A FAST MOVING AND VOLATILE MARKET. IT IS ALSO NOT TRUE THAT THE MOTIVE TO EARN DIVIDEND IS CONFINED ONLY TO INVESTMENTS IN MUTUAL FUNDS. 10.1 AS POINTED OUT BY THE AO, THE ASSESSEE HAD ENGAGED IN 288 PURCHASE TRANSACTIONS AND 252 SALES TRANSACTIONS (TOTAL 540) , INVOLVING 161 SCRIPS. THE FREQUENCY OF TRANSACTIONS IS ONCE OF THE IMPORTANT CRITERIA LAID DOWN IN THE CIRCULAR NO.4 OF 2007. THE AR'S RESPONSE IS THAT, FREQUENCY OF THE TRANSACTIONS WAS BECAUSE T HE ASSESSEE MADE HIS INVESTMENTS IN A FLUCTUATING VOLATILE MAR KET UNDER THE GUIDANCE OF STOCK BROKERS, WHICH HAD REDUCED TH E HOLDING PERIODS OF SUCH STOCKS. THE AR IS PERHAPS NOT AWARE OF WHA T IS FREQUENTLY STATED BY INVESTMENT GURUS, OR HE IS PLAIN LY MISLEADING AND DRAWING ATTENTION AWAY FROM THE FACT THAT WHEN T HE MARKET IS VOLATILE, ANY RETAIL OR SMALL-TIME INVESTOR LIKE THE ASSESSEE, IS ALWAYS ADVISED TO STAY AWAY FORM THE MARKET AND HOLD O N TO THE INVESTMENTS UNTIL THE MARKET STABILISES. A PERSON WHO TRA NSACTS IN TIMES OF MARKET VOLATILITY IS A HIGH-RISK TAKER, WHO SEEKS TO REAP PROFITS FROM SUCH TURBULENCE. A NORMAL HOUSEHOLD INVESTO R CANNOT BE EXPECTED TO RIDE SUCH A VOLATILE MARKET. THEREFORE, THE AR'S ASSERTION THAT THE FREQUENCY OF TRANSACTIONS WHICH TOTALLE D 540 IN ALL, COULD ONLY BE ATTRIBUTABLE TO THE MARKET VOLATI LITY, IS ABSOLUTELY BASELESS, AND IS A FUTILE ATTEMPT TO EXPLAIN AND ARGUE THE 7 ASSESSEE'S CLAIM OF STCG. 10.2 IN THE CASE OF CIT VS. H.HOLCK LARSEN (1986) 160 ITR 67, THE HON. SUPREME COURT OBSERVED THAT THE QUESTION WHETHER THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES ARE TRADING TRA NSACTIONS OR ARE IN THE NATURE OF INVESTMENTS, IS A MIXED QUESTIO N OF LAW AND FACT. HOWEVER, THE REAL QUESTION IS NOT 'WHETHER THE T RANSACTION OF BUYING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADI NG, BUT WHETHER THE LATER STAGES OF THE WHOLE OPERATION SHOW T HAT THE FIRST STEP - THE PURCHASE OF THE SHARES - WAS NOT TAKEN AS, OR IN THE COURSE OF, A TRADING TRANSACTION'. IN THE CASE OF THE ASSESSE E CASE, THE LATER STAGE OF THE TRANSACTIONS I.E. THE 252 SALE TR ANSACTIONS IN 161 SCRIPS WITHIN AN AVERAGE TIME OF 45 DAYS, CLEARLY SHO WED THAT THE FIRST STEP I.E., THE PURCHASE OF THE SHARES, WAS TAKE N AS A TRADING TRANSACTION. IN OTHER WORDS, THE INTENT AND P URPOSE OF PURCHASING THE SHARES WAS CLEARLY TO EARN PROFITS AS AND WH EN THE OPPORTUNITY AROSE. IT IS SEEN THAT THE ASSESSEE PURCHASED TH E SHARES WHEN THE PRICES WERE LOW, AND SOLD THE SHARES WHEN THE PRICES WERE HIGH ENOUGH TO EARN A PROFIT. DEPENDING O N THE MOVEMENT IN THE PRICES OF SHARES OF DIFFERENT COMPANIES, THE ASSESSEE INDULGED IN BUYING AND SELLING, WHICH CLEARLY IN DICATED THAT THE ACTIVITY ENGAGED IN BY THE ASSESSEE WAS PURELY A BUSIN ESS ACTIVITY. THERE WAS A SYSTEM AND A CONSISTENCY IN EARNING P ROFITS. 10.3 THE AR HAS ATTEMPTED TO PLACE HIS ARGUMENTS REG ARDING THE FREQUENCY AND MAGNITUDE OF THE TRANSACTIONS, FROM A DI FFERENT PERSPECTIVE. ACCORDING TO HIM, THE LAW ALLOWS THE SALE AN D PURCHASE OF SHARES WITHIN ONE YEAR, AND THE GAIN EARNED FROM SU CH TRANSACTIONS IS TO BE TAXED AS STCG. WHAT HOWEVER THE AR HAS CONVENIENTLY SIDE-TRACKED IS THAT, THE LAW THAT HE IS R EFERRING TO DOES NOT ENVISAGE OR TREAT 540 TRANSACTIONS INVOLVING PU RCHASE AND SALE OF 161 SCRIPS WITHIN A 12 MONTH PERIOD AS A SHORT TE RM CAPITAL GAIN. 10.4 THE AO VERY CLEARLY LAID DOWN THE VARIOUS PARAM ETERS WHICH HE CULLED OUT FROM DIFFERENT CASE-LAWS INCLUDING THE DECI SION OF THE AUTHORITY FOR ADVANCED RULINGS (AAR) IN THE CASE OF FID ELITY NORTH STAR FUND AND ORS., (2007) 288 ITR 641. THUS, APART F ROM THE MOTIVE I.E. THE FIRST STEP TAKEN IN THE PURCHASE OF SHAR ES, AND THE FREQUENCY OF THE TRANSACTIONS, THE MAGNITUDE OF THE SALE AND PURCHASE OF SHARES AS ALSO THE SHORT HOLDING PERIODS, CLEARL Y SHOWED THAT THE PROFITS EARNED FROM THE SALE OF SHARES WAS IN T HE NATURE OF BUSINESS INCOME. THE AO PLACED STRONG RELIANCE ON CIRCULAR NO.4 OF 2007, WHERE IT HAS BEEN STATED THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, ONE COMPRISING OF SECURITIES AND CAPI TAL ASSETS, 8 AND THE OTHER BEING A TRADING PORTFOLIO COMPRISING OF TRADING ASSETS. THE AR HAS STATED THAT THE ASSESSEE HAD EXERCISED THE RIGH T TO TREAT THE PURCHASE AND SALE OF SHARES AS CAPITAL ASSET AND N OT STOCK-IN-TRADE. WHAT HAS BEEN COMPLETELY MIXED UP BY TH E AR IS THAT, THERE IS NO RIGHT VESTED ON ANY ASSESSEE TO 'TREAT' THE TRANSACTIONS IN SHARES IN A PARTICULAR MANNER. THE NATURE OF THE TWO PORTFOLIOS HAVE TO BE DISTINGUISHED AND DECIDED ON THE BASIS OF THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE, AND NOT WH AT THE ASSESSEE DECIDES IT SHOULD BE. IN THE CASE OF THE ASSESSEE, THE FACTS AND CIRCUMSTANCES, AND HENCE, ALL THE RELEVANT PARAMETER S CLEARLY SHOWED THAT THE ACTIVITY OF THE ASSESSEE OF PURCHASING AN D SELLING SHARES DURING THE YEAR, WAS CLEARLY A BUSINESS ACTIVITY. 10.5 A SIGNIFICANT FACT BROUGHT OUT BY THE AO WAS THAT, THE ASSESSEE HAD BORROWED SUBSTANTIAL FUNDS FOR THE PURPOSE OF ENGAGING IN SUCH SHARE DEALINGS. THE ASSESSEE HAD TAKEN UNSECURED LOANS DURING THE YEAR TOTALLING RS.9,72,984 A ND THE TOTAL LOANS OUTSTANDING AT THE END OF THE YEAR WAS RS.15,37,9 73. THE ASSESSEE HAD PAID INTEREST OF RS.57,799 ON SUCH LOANS. WHILE SUCH BORROWINGS WERE UTILISED TO PURCHASE THE SHARES, THE TOTA L SALE VALUE OF THE SHARES WAS OF RS.L,13,61,922. THE ARGUMENT OF THE AR IS THAT, WHILE THE TOTAL INVESTMENT IN SHARES WAS RS.22, 04,547, THE UNSECURED LOAN WAS TO THE EXTENT ONLY OF RS. 14,08,902 . EVEN IF THE AR'S FIGURES ARE TO BE ACCEPTED, THEN ALSO IT IS SEEN THAT THE BORROWINGS FORMED 64% OF THE TOTAL INVESTMENT MADE IN THE SHARES. THESE FACTS CLEARLY ESTABLISH AND CONFIRM THE AO'S ASSERTION THAT THE TRANSACTIONS WERE INDEED IN THE NATURE OF BUSINESS TRANSACT IONS. NOBODY WOULD MAKE ANY INVESTMENT WITH BORROWED FUNDS SINCE, THE RETURNS ON SUCH INVESTMENTS CAN NEVER MATCH THE COST OF BORROWINGS, ESPECIALLY FROM PRIVATE PARTIES. SUCH BORRO WINGS AT SUCH COSTS CAN BE FEASIBLE ONLY IF THEY ARE UTILISED TO MAK E SUBSTANTIAL PROFITS FROM DEALING IN SHARES, AND NOT MER ELY WAITING FOR THE VALUE OF THE SHARES TO APPRECIATE. 10.6 CONNING TO THE AR'S ALTERNATE ARGUMENT THAT IT WOULD BE BENEFICIAL TO THE REVENUE IF THE ASSESSEE'S CLAIM OF STCG IS ACCEPTED, SINCE, THE TREATMENT OF SUCH TRANSACTIONS AS BUSIN ESS TRANSACTIONS WOULD RESULT IN THE COMPUTATION OF BUSINESS I NCOME, AND CONSEQUENT LOW REVENUE YIELD. I DO NOT BUY SUCH AN ARGUMENT. FIRSTLY, IF THERE IS LOSS TO REVENUE BY TREATING SUCH TRA NSACTIONS AS BUSINESS TRANSACTIONS, SO BE IT, ESPECIALLY SINCE THE FACTS OF THE ASSSSEE'S CASE WHEN EXAMINED AGAINST CIRCULAR NO.4/2007 ISSUE D BY THE CBDT, CLEARLY SHOWS THE TRANSACTIONS ENGAGED IN BY THE ASSESSEE TO BE IN THE NATURE OF A BUSINESS ACTIVITY. SECOND LY, AS OBSERVED BY THE AO IN PARA - 3(VI), THE ASSESSEE HAD ALR EADY 9 CLAIMED THE EXPENSES INCURRED TO EARN SUCH INCOME, IN THE COMPUTATION INCOME FURNISHED ALONG WITH THE RETURN. TH EREFORE NO FURTHER DEDUCTION COULD BE ALLOWED. 10.7 IN VIEW OF SUCH INCONTROVERTIBLE FACTS AS BROUGHT OUT BY THE AO AND AS DISCUSSED ABOVE IN SOME DETAIL, IT IS HELD THAT T HE AO WAS FULLY JUSTIFIED IN TREATING THE SUM OF RS.3,60,319 AS THE ASSESSEE'S INCOME FROM BUSINESS FOR THE YEAR. 9. AFTER HEARING THE LD. D.R., WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. IN OUR VIEW, THE CIT(A) H AS CORRECTLY HELD THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN TREATING THE SUM OF RS.3,60,319/- AS ASSESSEES INCOME FROM BUSINESS FOR THE YEAR UNDER CONSIDERATION. IN FACT, THERE IS NO MATERIAL ON RECORD T O CONTROVERT THE FINDINGS OF THE CIT(A) ON THIS ISSUE. THE FACTS NOTED B Y THE LOWER AUTHORITIES CLEARLY SHOWED THAT THE ACTIVITY OF THE ASSE SSEE OF PURCHASING AND SELLING SHARES DURING THE YEAR WAS CLEARLY A BUSINESS ACTIVITY. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, W E ARE OF THE VIEW THAT THE CIT(A) HAS PASSED A WELL REASONED ORDER A FTER APPRECIATING THE FACTS OF THE CASE AND, THEREFORE, WE DO NOT SEE AN Y VALID GROUND FOR INTERFERING WITH THE SAME. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND. 10. GROUND NO.3 OF THE APPEAL READS AS UNDER: 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ADDITION OF RS. 84,200/- U /S. 68 OF THE ACT, ALLEGING UNEXPLAINED CASH CREDIT, WHICH NEEDS TO BE DELETED. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD OBTAINED NEW LOANS FROM FO LLOWING PERSONS: SR.NO. NAME OF PERSON FROM WHOM LOAN IS RECEIVED AMOUNT MODEOF PAYMENT RECEIVED 1 SHRI CHHOTUBHAI 17500 CASH 10 2 SHRI JIMMI KEDIA 16700 CASH 3. SHRI OMPRAKASH UPADHDYAY 50000 CASH & CHEQUE 84,200 THE ASSESSING OFFICER ADDED THE ABOVE SUM U/S 68OF THE AC T. 12. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION STA TING THAT TWO CREDITORS NAMELY, SHRI CHHOTUBHAI AND SHRI JIMMI KEDI A WERE PERSONS OF SMALL MEANS, WHO DID NOT HAVE ANY TAXABLE INCOME. HE, THEREFORE, HELD THAT THE SAID PERSONS SIMPLY DID NOT HAVE THE CREDITWORT HINESS TO GIVE SUCH LOANS TO THE ASSESSEE. THE CIT(A) HAS ALSO OBSERVED THAT EVEN THOUGH THEIR CONFIRMATIONS WERE FURNISHED YET, MORE EV IDENCE WAS REQUIRED TO BE PRODUCED TO ESTABLISH THEIR IDENTITY. HE, THEREFORE, CONFIRMED THE ADDITIONS OF RS. 17,500/- AND RS.16,700/- . AS REGARDS THE LOAN OF RS. 50,000/-, THE CIT(A) OBSERVED THAT THE ASSE SSEE HAD PRODUCED A COPY OF HIS PAN CARD TO ESTABLISH THE IDENTITY OF T HE CREDITOR. HOWEVER, NO EVIDENCE HAS BEEN PRODUCED TO ESTABLISH HIS CREDITWOR HTINESS, SO THAT HE COULD BE HELD AS HAVING THE FINANCIAL MEANS OF GIVIN G SUCH A SUBSTANTIAL SUM OF LOAN TO THE ASSESSEE. THE CIT(A) HAS A LSO OBSERVED THAT THE INITIAL BURDEN WAS ON THE ASSESSEE TO ESTABLISH T HE GENUINENESS OF THE LOAN. THE CIT(A) CATEGORICALLY HELD THAT THE A SSESSEE WAS NOT ABLE TO DISCHARGE SUCH BURDEN. HE, THEREFORE, CONFIRM THE ADDI TION OF RS.50,000/- BEING LOAN ALLEGEDLY RECEIVED FROM SHRI O M PRAKASH UPADHAY. 13. WE HAVE HEARD THE LD. D.R. AT LENGTH. IT IS SETTL ED LAW THAT IN ORDER TO DISCHARGE THE ONUS U/S 68 OF THE ACT, THE ASSESSEE MUST PR OVE THE FOLLOWING: I) THE IDENTITY OF THE CREDITOR, 11 II) THE CAPACITY OF THE CREDITOR TO ADVANCE MONEY; AND III) THE GENUINENESS OF THE TRANSACTION. IT IS ALSO WELL SETTLED LAW THAT THE MERE FURNISHING OF PARTICULARS, OR THE MERE FACT OF PAYMENT BY AN ACCOUNT PAYEE CHEQUE, OR THE MERE SUBMISSION OF A CONFIRMATORY LETTER BY THE CREDITOR IS, BY ITSELF, NOT ENOUGH TO SHIFT THE ONUS TO THE DEPARTMENT. IN THE I NSTANT CASE, THE CIT(A) HAS CATEGORICALLY HELD THAT THE ASSESSEE FAILED TO PROVE THE CAPACITY OF THE CREDITORS TO ADVANCE MONEY AND THE GENUI NENESS OF THE TRANSACTIONS. IN FACT, THE ASSESSEE HAS NOT DISCHARGED THE ON US WHICH WAS CAST UPON HIM AS PER THE LAW. THUS, CONSIDERING THE ENTI RE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE UPHOLD THE ORDER OF C IT(A) AND DISMISS THE GROUND. 14. GROUND NO.4 OF THE APPEAL READS AS UNDER: 4. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ADDITION OF RS. 12,081/- A LLEGING LOW HOUSEHOLD WITHDRAWALS, WHICH NEEDS TO BE DELETED. 15. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HA D SHOWN WITHDRAWAL ONLY OF RS.68,119/-.THE EXPENSES INCLUDED R S.38,104/- TOWARDS EDUCATION FEES FOR MINORS, WHICH MEANT THAT THE HOUSEHOLD WITHDRAWALS WORKED OUT TO ONLY RS.30,000/-. THE ASSE SSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS OF FAMILY MEMB ERS AND WITHDRAWALS SHOWN BY THEM. FROM THE DETAILS FURNISHED , THE ASSESSING OFFICER NOTED THAT THE FAMILY CONSISTED OF FOUR MEMBERS I.E. TWO ADULTS AND TWO SCHOOL-GOING CHILDREN. TAKING INTO ACCOUNT THE SIZE OF THE FAMILY AND ALSO THE COST OF LIVING IN THE PREVAILING AREA, TH E ASSESSING OFFICER ESTIMATED THE HOUSEHOLD EXPENSES OF THE ASSESSEE AT RS.1,20, 000/- WHICH RESULTED IN THE ADDITION OF RS.51,881/-. 12 16. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.12,081/-. 17. AFTER HEARING THE LD. D.R. AND PERUSING THE MATE RIALS ON RECORD WE ARE OF THE VIEW THAT THE CIT(A) HAS CORRECTLY ALLOWED THE BENEFIT OF WITHDRAWALS SHOWN BY THE FAMILY OF ASSESSEE AT RS.1,07,91 9/-.IN OUR VIEW, THE ASSESSING OFFICER HAS CORRECTLY ESTIMATED THE HOUSE HOLD EXPENSES OF ASSESSEE AT RS.1,20,000/- WHICH HAS BEEN CONFIR MED BY THE CIT(A). THERE IS NO MATERIAL ON RECORD TO SHOW THAT TH E HOUSEHOLD EXPENSES ESTIMATED BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS ON HIGHER SIDE. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND. 18. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28.8. 2009. SD/- (A.N.PAHUJA) ACCOUNTANT MEMBER SD/- (H.L.KARWA) JUDICIAL MEMBER AHMEDABAD, DATED:28.8.2009 PSP* COPY TO : (1) THE ASSESSEE (2) THE ASSESSING OFFICER (3) THE CIT(A) CONCERNED, (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.