ANAHAITA NALIN SHAH, MUMBAI V. ACIT CIR 4(1), MUMBAI

ITA 4105/MUM/2008

• Counselvise Citation: 410519914 RSA 2008
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 11-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: PRAMOD KUMAR PARIDA
• Keywords: Capital asset; Business income; Business expenditure; Salary income; Rule of consistency; Transactions in derivatives; Question of law; Speculation loss
• Section: 14A; 43(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 7722/MUM./2007 (ASSESSMENT YEAR : 2004-05 ) MRS. ANAHAITA NITIN SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 1009/MUM./2008 (ASSESSMENT YEAR : 2004-05 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .... RESPONDENT ITA NO. 4105/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 2 ITA NO. 4992/MUM./2008 (ASSESSMENT YEAR : 2005-06 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .... RESPONDENT ITA NO. 3106/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 4867/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 02 3 PAN AAANPS9303H .... RESPONDENT MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 3 ITA NO. 5953/MUM./2009 (ASSESSMENT YEAR : 2006-07 ) DY. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .... RESPONDENT C.O. NO.102/MUM./2010 (ARISING OUT OF ITA NO. 5953/MUM./2009 ) (ASSESSMENT YEAR : 2006-07 ) MRS. ANAHAITA N. SHAH 1 & 1A, BIRLA MANSION 234, N.M. ROAD, FORT MUMBAI 400 023 PAN AAANPS9303H .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE-4(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ASSESSEE BY : MR. PRAMOD KUMAR PARIDA REVENUE BY : MR. V.V. SHASTRI DATE OF HEARING 11.01.2012 DATE OF ORDER 31.01.2012 O R D E R PER BENCH CROSS APPEALS FOR ASSESSMENT YEAR 2004-05, ARE DIR ECTED AGAINST THE IMPUGNED ORDER DATED 27 TH NOVEMBER 2007, PASSED BY THE COMMISSIONER (APPEALS)-IV, MUMBAI. CROSS APPEALS FOR ASSESSMENT YEAR 2005-06, ARE MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 4 DIRECTED AGAINST THE IMPUGNED ORDER DATED 21 ST APRIL 2005, BY THE COMMISSIONER (APPEALS)-IV, MUMBAI. CROSS APPEALS FO R ASSESSMENT YEAR 2007-08, ARE DIRECTED AGAINST THE IMPUGNED ORDER DA TED 22 ND MARCH 2010, PASSED BY COMMISSIONER (APPEALS)-VIII, MUMBAI, AND APPEAL PREFERRED BY THE REVENUE AS WELL AS THE CROSS OBJECTION PREFERRE D BY THE ASSESSEE FOR ASSESSMENT YEAR 2006-07, ARE DIRECTED AGAINST THE I MPUGNED ORDER DATED 19 TH AUGUST 2009, PASSED BY THE COMMISSIONER (APPEALS)- IV, MUMBAI. SINCE THE ISSUES RAISED IN ALL THESE APPEALS ARE MOSTLY C OMMON, FOR THE SAKE OF CONVENIENCE, THESE WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE, IS AN INDIVIDUAL , AND IS WORKING AS DIRECTOR AND FULL TIME EMPLOYEE OF N.V.S . BROKERAGE PVT. LTD., AND EARNS REMUNERATION OF ` 7.24 LAKHS PER ANNUM. THE ASSESSEE ALSO DERIVES INCOME FROM DIVIDEND AND INTEREST INCOME AND ALSO I NCOME FROM SPECULATIVE TRANSACTIONS. BESIDES THIS, THE ASSESSEE HAS ALSO S HOWN INCOME FROM SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. EARLI ER, THE ASSESSEE WAS A FULL TIME EMPLOYEE OF M./S. J.P. MORGAN STANLY LTD., I.E ., PRIOR TO ASSESSMENT YEAR 2002-03. SHE WAS IN EMPLOYMENT FOR THE LAST TH IRTY YEARS. BESIDES EARNING REMUNERATION, SHE HAS BEEN INVESTING IN SHA RES AND SECURITIES, BONDS, MUTUAL FUNDS, ETC., FOR MORE THAN THIRTY YEA RS, AND THIS FACT HAS BEEN ACCEPTED BY THE REVENUE. 3. FOR ALL THE YEARS UNDER CONSIDERATION, THE ASSESSIN G OFFICER, AFTER SCRUTINY OF THE MATERIAL AVAILABLE BEFORE HIM, OBSE RVED THAT APART FROM EARNING SALARY INCOME AND HER INDIVIDUAL BUSINESS I NCOME, THE ASSESSEE IS ALSO DEALING IN SHARES-TRANSACTIONS IN LARGE VOLUME AND MOST OF THE SHARES WERE PURCHASED AND SOLD WITHIN SHORT PERIOD. THE AS SESSING OFFICER HELD THAT FROM THE NATURE OF TRANSACTIONS OF THE ASSESSEE, IT CAN BE CONCLUDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARES TRADI NG. HE HELD THAT IT IS CLEAR THAT THE MOTIVE OF THE ASSESSEE IS TO CARRY ON BUSI NESS IN SHARES AND TO BOOK PROFIT. THUS, THE ASSESSING OFFICER TREATED AND ASS ESSED THE PROFIT FROM THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AS ASSE SSEES INCOME FROM BUSINESS AS AGAINST THE ASSESSEE CLAIMING THE SAME AS CAPITAL GAIN . THE MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 5 ASSESSEE, BEING AGGRIEVED, CARRIED THE MATTER BEFOR E THE FIRST APPELLATE AUTHORITY. THE COMMISSIONER (APPEALS) PARTLY CONFIR MED THE ORDERS PASSED BY THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE A S WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 4. WE NOW FIRST PROCEED TO DISPOSE OFF THE CROSS APPEA LS FOR ASSESSMENT YEAR 2004-05, I.E., APPEALS IN ITA NO.7722/MUM./200 7 (PREFERRED BY THE ASSESSEE) AND ITA NO.1009/MUM./2008 (PREFERRED BY T HE REVENUE). 5. THE FIRST ISSUE WHICH ARISES OUT OF THESE ASSESSEE S APPEAL IS, WHETHER OR NOT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE AMOUNTS OF ` 23,55,457, UNDER THE HEAD B USINESS INCOME INSTEAD OF TREATING THE SAME UNDER THE HEADS SHORT TERM CAPITAL GAIN. 6. THE ASSESSING OFFICER, VIDE PARA-5 / PAGES-3 TO 16 OF HIS ORDER, MADE CERTAIN OBSERVATIONS WHILE TREATING THE INCOME SHOW N BY THE ASSESSEE BOTH AS SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN AS BUSINESS INCOME FOR THE REASONS MENTIONED THEREIN. 7. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS), WHIL E GIVING PART RELIEF, DIRECTED THE ASSESSING OFFICER TO TREAT THE PROFIT ON SALE OF SHARES HELD FOR MORE THAN ONE YEAR AS LONG TERM CAPITAL GAIN . HIS OBSERVATIONS ARE AS FOLLOWS:- 5. I HAVE GONE THROUGH THE ORDER OF THE A.O. AND SU BMISSIONS OF THE APPELLANT. IT IS SEEN THAT THE APPELLANT IN COU RSE OF HER EMPLOYMENT DEALS WITH THE SHARE TRANSACTIONS AND HA S ALSO BUSINESS INCOME. CONSIDERING THE FREQUENCY OF TRANSACTIONS, SO FAR AS THE SHORT TERM CAPITAL GAIN AMOUNT SHOWN BY THE APPELLANT, TH E SAME HAS PROPERLY BEEN TREATED BY THE A.O. AS BUSINESS INCOM E. 5.1 A SALARIED PERSON AND A BUSINESSMAN CAN ALSO BE AN INVESTOR. THE SHARES WHICH HAVE BEEN HELD FOR MORE THAN ONE Y EAR MAY, THEREFORE, BE REASONABLY TREATED TO BE INVESTMENT A ND ACCORDINGLY THE SAME SHOULD BE TREATED AS LONG TERM CAPITAL GAIN RA THER THAN BUSINESS INCOME . MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 6 8. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FIL ED A PAPER BOOK DULY PAGINATED FROM 1 TO 66. HE, WHILE REITERATING THE S UBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE ASSESSEE IS AN INVESTOR AND SHE HAD BEEN SHOWING DEALINGS IN SHARES AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN IN ALL THE PREVIOUS YEARS AND THAT THE SAME HAS BE EN ACCEPTED BY THE DEPARTMENT. HE RELIED ON THE FOLLOW ING DECISIONS OF THE TRIBUNAL:- ACIT V/S NAISHADH V. VACHHARAJANI, ITA NO.6429/MUM. /2009, ORDER DATED 25 TH FEBRUARY 2011; HITESH SATISHCHANDRA DOSHI ETEMIA V/S JCIT, ITA NO.6497/MUM./2009 AND OTHERS, ORDER DATED 15 TH JUNE 2011; ACIT V/S MR. JAGDISH MASTER HUF, ITA NO.3233/MUM./2 009, ORDER DATED 18 TH MAY 2011; AND BHARAT KUNVERJI KENIA V/S ACIT, 130 TTJ (MUM.) (UO) 86. 9. THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESS EE ARE AS FOLLOWS:- I) THE ASSESSEE HAS BEEN MAKING INVESTMENTS IN SHARES FOR MORE THAN THIRTY YEARS FROM OUT OF HER OWN SAVINGS AND H AS BEEN RECORDING THEM AS INVESTMENT IN HER BOOKS OF ACCOUNT. SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED; II) THE REVENUE HAS BEEN ACCEPTING SUCH TREATMENTS IN A LL THE PREVIOUS YEARS; III) THE ASSESSEE HAS NOT BORROWED FUNDS FOR MAKING INVE STMENTS AND HER CAPITAL ACCOUNT BALANCE IS MORE THAN HER IN VESTMENTS FOR ALL THE YEARS UNDER CONSIDERATION; IV) SHE HAS SUBSTANTIAL DIVIDEND EARNINGS; AND V) ALL THE SHARES, ON WHICH SHORT TERM CAPITAL GAIN AN D LONG TERM CAPITAL GAIN ARE OFFERED, ARE DELIVERY BASED TRANSA CTIONS. MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 7 10. THUS, THE LEARNED COUNSEL SUBMITTED THAT THE REVENU E SHOULD FOLLOW THE PRINCIPLE OF CONSISTENCY OF HAVING TREATED THE ASSESSEE AS AN INVESTOR FOR MORE THAN THIRTY YEARS AND ALSO FOLLOW THE PROP OSITIONS LAID DOWN IN THE CASE OF CIT V/S GOPAL PUROHIT, [2011] 336 ITR 0287 (BOM.) AND OTHER JUDGMENTS. 11. THE LEARNED COUNSEL, ON THE OTHER GROUNDS, MADE HIS SUBMISSIONS, WHICH WE WOULD BE CONSIDERING WHILE ADJUDICATING TH E RESPECTIVE ISSUES. 12. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, SUBMITTED THAT BOARDS GUIDELINES ISSUED VIDE CIRCULAR NO.4/2 007 DATED 15 TH JUNE 2007, IS TO BE CONSIDERED. THE BOARD HAS ACCEPTED THAT TH E ASSESSEE CAN HAVE TWO PORTFOLIOS, VIZ. (I) INVESTMENT PORTFOLIO COMPRISIN G OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND (II) TRADING PORTF OLIO COMPRISING OF STOCK AND TRADE, WHICH ARE TO BE TREATED AS TRADING ASSETS. H E RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT ALONE IS NOT CONCLUSIVE EVIDENCE / PROOF TO DECIDE WHETHER SUCH TRANSACTIONS IS ASSESSABLE AS CAPITAL GAINS OR BUSINESS INCOME . IN SUPPORT OF HIS ARGUMENTS, HE RELIED ON FOLLOWING DE CISIONS OF THE TRIBUNAL:- SHRI RAKESH J. SANGHVI V/S DCIT, ITA NO.4607/MUM./2 008, ORDER DATED 31 ST AUGUST 0210; SMT. REKHA KHANDELWAL V/S ACIT, ITA NO.785/MUM./200 9, ORDER DATED 17 TH MARCH 2010; SMT. SADHANA NABERIA V/S ACIT, ITA NO.2586/MUM./200 9, ORDER DATED 26 TH MARCH 2010; SHRI V. NAGESH V/S ACIT, ITA NO.5410/MUM./2008, ORD ER DATED 24 TH SEPTEMBER 2009; AND M/S. SYNTHETIC FIBERS TRADING CO. V/S ACIT, ITA NO. 3022/MUM./ 2009. COPIES OF THE AFORESAID DECISIONS OF THE TRIBUNAL R ELIED ON BY BOTH THE LEARNED REPRESENTATIVES ARE PLACED ON RECORD. 13. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE FREQUENCY OF TRANSACTIONS, THE TURNOVER AND THE PERIOD OF HOLDIN G CLEARLY POINT OUT TO THE MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 8 FACT THAT THE ASSESSEE IS CARRYING ON TRADING IN SH ARES AND NOT INVESTMENT IN SHARES. HE RELIED ON THE ORDER OF THE ASSESSING OFF ICER AND SUBMITTED THAT THE SAME SHOULD BE UPHELD. 14. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE FIND THAT THE ASSESSEE HAS BEEN ASSESSED TO TAX FOR MORE THAN THIRTY YEARS. SHE WAS EMPLOYED WITH M/S. J.P. MORGAN STANLY LTD., IN VARIOUS CAPACITIES AND FROM ASSESSMENT YEAR 2003- 04, SHE JOINED AS A DIRECTOR WITH N.V.S. BROKERAGE PVT. LTD. A PERUSAL OF THE PERIOD OF HOLDING OF SHARES, SALE OF WHICH WAS DISC LOSED AS LONG TERM CAPITAL GAIN BY THE ASSESSEE, DISCLOSES THAT THE AVERAGE PE RIOD OF HOLDING HAS BEEN AS HIGH AS 7,074 IN GUJARAT AMBUJA CEMENTS, 2,728 D AYS IN THE CASE OF ITI LTD., 2,933 DAYS IN THE CASE OF RELIANCE INDUSTRIES LTD., 4,207 DAYS IN THE CASE OF RUCHI SOYA, 4,435 DAYS IN THE CASE OF TATA CHEMICALS LTD., 2,171 DAYS IN THE CASE OF SILVERLINE INDUSTRIES, 3,652 DA YS IN THE CASE OF NIRLON, ETC. SALE OF SHARES WHICH ARE HELD FOR SUCH LONG PE RIOD, CANNOT BE TREATED AS TRADING TRANSACTIONS. WHEN A PERSON HAS BEEN DECLAR ING INCOME FROM LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN , IN HER INCOME TAX RETURNS FOR A NUMBER OF YEARS AND WHEN THE PERIOD O F HOLDING AS INDICATED ABOVE, DEMONSTRATES THAT IN MANY CASES, THE ASSESSE E HAS BEEN HOLDING SHARES AS INVESTMENTS FROM LONG PERIOD, IT IS FACTU ALLY INCORRECT FOR THE ASSESSING OFFICER TO HAVE COME TO A CONCLUSION THAT THE ASSESSEE HAS NO INCOME FROM CAPITAL GAINS AND THAT THE INCOME DERIV ED BY WAY OF SALE OF SHARES IS INCOME FROM SHARE TRADING AND HAS TO BE A SSESSED AS BUSINESS INCOME. HAVING HIGH VOLUMES IS NOT DETERMINATIVE OF THE ISSUE. THE UNDISPUTED FACT IN THIS CASE IS THAT THE ASSESSEE H AS BEEN MAINTAINING SEPARATE PORTFOLIOS AND SEPARATE BOOKS OF ACCOUNT F OR INVESTMENTS. INCOME BY WAY OF E&O TRANSACTIONS, DERIVATIVE TRANSACTIONS AS WELL AS FOR INCOME FROM SPECULATIVE TRANSACTIONS. THE HON'BLE JURISDIC TIONAL HIGH COURT IN GOPAL PUROHIT (SUPARA) HELD THAT THERE SHOULD BE UNIFORMI TY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES ARE IDENTI CAL. IT IS ALSO WELL RECOGNISED THAT THE ASSESSEE CAN BE BOTH AN INVESTOR AS WELL AS A TRADER . THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR EN OUGH TO AGREE TO THIS MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 9 LEGAL POSITION AND TO SUBMIT THAT HE DOE NOT DISPUT E THE FINDINGS OF THE COMMISSIONER (APPEALS) ON THE ISSUE OF LONG TERM CAPITAL GAIN . 15. IN THE CASE ON HAND, WE FIND THAT THE ASSESSEE HAS EARNED SUBSTANTIAL INCOME BY WAY OF DIVIDEND AND ALSO THAT THE ASSESSE E HAS NOT BORROWED ANY FUNDS FOR MAKING PURCHASES IN SHARES. THE ENTIRE IN VESTMENT WAS FROM OWN FUNDS. THE TRANSACTIONS ARE DELIVERY BASED TRANSACT IONS. JUST BECAUSE THE ASSESSEE MAINTAINS MULTIPLE PORTFOLIOS, IT CANNOT B E CONCLUDED THAT THE ASSESSEE IS A TRADER. THE MERE FACT THAT THE TRANSA CTIONS ARE VOLUMINOUS, DOES NOT LEAD TO A CONCLUSION THAT THE ASSESSEE HAS TRADED IN SHARES. AS A PRUDENT INVESTOR, THE ASSESSEE MAY HAVE SOLD CERTAI N SHARES WITHIN A SHORT PERIOD, AS IN HER OPINION, THE SALE HAD BEEN MADE A T THE OPPORTUNE TIME. THE ASSESSEE, IN THIS CASE, HAS NOT VALUED HER INVESTME NTS AT COST OR NET REALISABLE VALUE WHICHEVER IS LESS AND CLAIMED LOSS ES AS IN THE CASE OF STOCK- IN-TRADE. ON THIS FACTUAL MATRIX, WE UPHOLD THE FIN DINGS OF THE FIRST APPELLATE AUTHORITY THAT INCOME FROM SALE OF SHARES WHICH ARE HELD BY THE ASSESSEE FOR MORE THAN ONE YEAR, IS TO BE ASSESSED AS INCOME EAR NED FROM LONG TERM CAPITAL GAIN. 16. COMING TO THE ISSUE OF SHORT TERM CAPITAL GAIN, WE FIND THAT THE SCRIP- WISE PERIOD OF HOLDING HAS NOT BEEN EXAMINED BY ANY OF THE AUTHORITIES BELOW. CONCLUSIONS HAVE BEEN DRAWN BASED ON GENERAL PROPOSITION OF LAW WITHOUT EXAMINING THE FACTS. THUS, ON THE ISSUE OF TAXATION OF INCOME EARNED ON SHARES WHICH WAS SOLD WITHIN A PERIOD OF ONE YEA R, WE RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH IN ACCORDANCE WITH LAW. WHILE DOING SO, WE DIRECT THE ASSESSING OFFICE R NOT TO TREAT THE SHARES HELD BY THE ASSESSEE FOR SUBSTANTIAL PERIOD OF TIME , BEFORE BEING SOLD, AS TRADING IN SHARES, FOR THE REASON THAT THE ASSESSEE HAS BEEN AN INVESTOR AND HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR THE LA ST MANY YEARS AND THE PERIOD OF HOLDING OF CERTAIN SHARES INDICATE THAT T HEY ARE INVESTMENTS.. THE ASSESSING OFFICER HAS TO BE CONSISTENT IN HIS APPRO ACH. ON AN EXAMINATION OF THE HOLDING PERIOD OF SOME OF THE SHARES WHICH WERE SOLD WITHIN A PERIOD OF ONE YEAR, WE FIND THAT THE PERIOD OF HOLDING IS AS HIGH AS 326 DAYS. IN MANY CASES, WE FIND THAT THE ASSESSEE HAS BEEN HOLDING S HARES FOR MORE THAN 200 MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 10 DAYS. FOR E.G., IN THE CASE OF STEEL AUTHORITY, THE ASSESSEE HAS HELD SHARES FOR 358 DAYS. IN THE CASE OF ROLTA INDIA, SHARES WE RE HELD FOR 316 DAYS. WHEN THE ASSESSEE HAS SHOWN THE PURCHASES AS INVESTMENT IN HER BOOKS OF ACCOUNT AND WHEN THE VALUES ARE DONE ON COST ONLY, THE ASSESSING OFFICER SHOULD TREAT THEM AS INVESTMENT . 17. IN ITA NO.3233/MUM./2009, ASSESSMENT YEAR 2006-07, ORDER DATED 18 TH MAY 2011, THE JUDICIAL PROPOSITION ON THE ISSUE WE RE CULLED OUT:- (A) WHETHER A TRANSACTION OF SALE AND PURCHASE OF S HARES WERE TRADING TRANSACTIONS OR WHETHER THEY WERE IN THE NA TURE OF INVESTMENTS IS MIXED QUESTION OF LAW AND FACT. CIT V/S HOLCK LA RSEN, 60 ITR 67 (SC). (B) IT IS POSSIBLE FOR AN ASSESSEE TO BE BOTH AN IN VESTOR AS WELL AS A DEALER IN SHARES. WHETHER A PARTICULAR HOLDING IS B Y WAY OF INVESTMENT OR FORMED PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSE E TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE MAINTAIN ED ANY DISTINCTION BETWEEN SHARES WHICH WERE HOLD BY HIM AS INVESTMENT S AND THOSE HOLD AS STOCK IN TRADE. (CIT V/S ASSOCIATED INDUSTRIAL D EVELOPMENT CO. LTD., 82 ITR 586 (SC). (C) TREATMENT IN THE BOOKS BY AN ASSESSEE WILL NOT BE CONCLUSIVE. IF THE VOLUME, FREQUENCY AND DT. 15.6.2007 ULARITY WIT H WHICH TRANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AN D ORGANIZED ACTIVITY WITH PROFIT MOTIVE, THEN IT WOULD BE A CASE OF BUSI NESS PROFITS AND NOT CAPITAL GAIN. CIT V/S MOTILAL HIRABAI SPG. AND WVG. CO. LTD. 113 ITR 173 (GUJ.); RAJA BAHADUR VISWSHWARA SINGH V/S CIT, 41 ITR 685 (SC). (D) PURCHASE WITHOUT AN INTENTION TO RESELL WHERE T HEY ARE SOLD UNDER CHANGED CIRCUMSTANCES WOULD BE CAPITAL GAINS. CIT V/S PKN, 60 ITR 65 (SC). PURCHASE WITH AN INTENTION TO RESELL W OULD RENDER THE GAIN PROFIT ON SALE BUSINESS PROFIT DEPENDING ON THE CIR CUMSTANCE OF THE CASE LIKE NATURE AND QUANTITY OF ARTICLE PURCHASED, NATURE OF THE OPERATION INVOLVED. SAROJ KUMAR MAZUMDAR V/S CIT, 3 7 ITR 242 (SC). (E) NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AN D THE QUESTION MUST DEPEND UPON THE COLLECTIVE EFFECT OF ALL THE R ELEVANT MATERIALS BROUGHT ON RECORD. JANKI RAM BAHADUR RAM V/S CIT, 5 7 ITR 21 (SC). 6. THE ABOVE TEST HAVE AGAIN BEEN REITERATED BY THE CBDT IN ITS CIRCULAR NO.4/2007 DT. 15.4.2007. 18. IN VIEW OF THE ABOVE DISCUSSION, THOUGH, WE ARE, PR IMA-FACIE, OF THE OPINION THAT THE ASSESSEE IS AN INVESTOR , WE RESTORE GROUND NO.1, WHICH IS ON THE ISSUE OF TREATING SHORT TERM CAPITAL GAIN EA RNED BY THE ASSESSEE AS MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 11 BUSINESS INCOME, TO THE FILE OF ASSESSING OFFICER F OR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW. THUS, THIS GROUND IS ALLOWED F OR STATISTICAL PURPOSES. 19. GROUND NO.1, IN REVENUES APPEAL, WHICH IS ON THE I SSUE OF ASSESSING LONG TERM CAPITAL GAIN AS BUSINESS INCOME IS HEREBY DISMISSED. 20. COMING TO OTHER GROUND NO.2, RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05, IT IS ON THE ISSUE OF DISALLOWANCE OF ` 3,75,902, AS BAD DEBT INCURRED BY THE ASSESSEE, ON ACCOUNT OF BAD DELIVER Y OF SHARES. 21. THE FIRST APPELLATE AUTHORITY AT PARA-8.1 / PAGE-3, HELD AS FOLLOWS:- 8.1 THE CLAIM OF BAD DEBT AMOUNTING TO ` 3,75,902, IS ON ACCOUNT OF TRANSACTION WITH RESPECT OF BAD DELIVERY IN CASE OF 3,500 SHARES OF VAKARANGEE SOFTWARE LTD. IN THE FINANCIAL YEAR 2000 -01, SO FAR AS THE CASE IS CONCERNED, IT IS A CASE IN WHICH SHARE HAS BEEN HELD FOR MORE THAN 1 YEAR AND HENCE MAY BE TREATED TO BE INVESTME NT OF THE APPELLANT. THE LOSSES INCURRED ON ACCOUNT OF BAD DE LIVERY IS, TREATED TO BE CAPITAL LOSS. AS NO TRANSFER OF THE SHARES HAS T AKEN PLACE THE LONG TERM CAPITAL LOSS CANNOT BE DETERMINED. FURTHER MOR E, THE BAD DELIVERY HAS TAKEN PLACE IN THE F.Y. 2000-01. THE CAPITAL LO SS, THEREFORE, CANNOT BE ALLOWED AS BAD DEBT AND THE ACTION OF THE A.O. I S CONFIRMED. 22. WE UPHOLD THE FINDINGS OF THE FIRST APPELLATE AUTHO RITY. WHEN THE ASSESSEE CLAIMS THAT SHE IS AN INVESTOR , THE QUESTION OF CLAIMING BAD DEBT DOES NOT ARISE. THE LOSS IS IN THE CAPITAL FIELD. T HUS, WE DISMISS THIS GROUND. 23. GROUND NO.3, IS ON THE ISSUE OF DISALLOWANCE OF AN AMOUNT OF ` 64,334 OF BUSINESS EXPENSES UNDER SECTION 14A OF THE ACT. 24. THE FIRST APPELLATE AUTHORITY RESTRICTED THIS DISAL LOWANCE TO ` 30,000. 25. WE ARE OF THE OPINION THAT THIS IS A REASONABLE DIS ALLOWANCE. THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ AND BOY CE MFG. CO. LTD. V/S DCIT, [2010] 328 ITR 081 (BOM.), HAS HELD THAT A REASONAB LE AMOUNT MAY BE DISALLOWED UNDER SECTION 14A OF THE ACT, BASED ON T HE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, UPHOLD THE ORDER O F THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND. MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 12 26. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. 27. WE NOW TAKE UP THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06 I.E., APPEALS IN ITA NO.4105/MUM./2008. 28. THE ISSUE ARISING OUT OF GROUNDS NO.1 AND 2, IS WHE THER OR NOT THE AUTHORITIES BELOW WERE JUSTIFIED IN TREATING SHORT TERM CAPITAL GAIN AS BUSINESS INCOME . 29. AS THE ISSUE ARISING IN THIS REGARD IS THE SAME AS THOSE ARISING IN GROUND NO.1, FOR ASSESSMENT YEAR 2004-05, AND AS TH E FACTS AND ARGUMENTS ARE THE SAME, CONSISTENT WITH THE VIEW TAKEN THEREI N, WE RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATIO N IN ACCORDANCE WITH LAW. 30. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. 31. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.4992/MUM. /2008, FOR ASSESSMENT YEAR 2005-06. 32. GROUND NO.1, IS ON THE ISSUE OF TREATING LONG TERM CAPITAL GAIN AS BUSINESS INCOME. 33. AS THE ISSUE ARISING IN THIS REGARD IS THE SAME AS THOSE ARISING IN GROUND NO.1, OF THE REVENUES APPEAL, FOR ASSESSMEN T YEAR 2004-05, AND AS THE FACTS AND ARGUMENTS ARE THE SAME, CONSISTENT WI TH THE VIEW TAKEN THEREIN, WE UPHOLD THE FINDINGS OF THE FIRST APPELL ATE AUTHORITY AND DISMISS THE GROUND. 34. GROUNDS NO.2 TO 5, ARE ON THE ISSUE OF TREATMENT OF LOSSES ON DERIVATIVE TRANSACTIONS AS NON-SPECULATIVE LOSS BY THE FIRST APPELLATE AUTHORITY. 35. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT THE I SSUE IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE B Y THE DECISION OF A SPECIAL BENCH OF THE TRIBUNAL IN SHREE CAPITAL SERV ICES V/S ACIT, WHEREIN IT MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 13 IS HELD THAT CLAUSE (D) OF SECTION 43(5) OF THE ACT CANNOT BE HELD TO BE CLARIFICATORY AND IT APPLIES ONLY TO ASSESSMENT YEA R 2006-07 AND ONWARDS. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S BH ARAT R. RUIA, IN ITA NO.1359 OF 2010, JUDGMENT DATED 18 TH APRIL 2011, IMPLIEDLY UPHELD THE SPECIAL BENCH DECISION. AT PARA-37, THE ARGUMENT TH AT AMENDMENT BY WAY OF INSERTION OF CLAUSE (D) TO THE PROVISO TO SECTION 4 3(5), IS CLARIFICATORY AND, HENCE, RETROSPECTIVE WAS REJECTED BY THE HONBLE CO URT. IN VIEW OF THE ABOVE, WE ALLOW GROUNDS NO.2 TO 5 OF THE REVENUE. 36. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 37. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.5953/MUM. /2009, FOR ASSESSMENT YEAR 2006-07. 38. THE SOLE GROUND RAISED BY THE REVENUE, READS AS FOL LOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT F&O / DERIVATI VE TRANSACTION DURING 1.4.2005 TO 24.1.2006, AS NON-SPECULATIVE BU SINESS LOSS WITHOUT APPRECIATING THE FACT THAT AS PER EXPLANATO RY NOTE TO FINANCE ACT, 2005, DERIVATIVE TRANSACTIONS HAS TO BE TREATE D AS SPECULATIVE TRANSACTIONS AS AMENDMENT TO SECTION 43(5)(D) OF TH E ACT IS NOT RETROSPECTIVE IN NATURE. 39. WE HAVE HEARD RIVAL PARTIES. IN VIEW OF OUR FINDING S ON AN IDENTICAL ISSUE FOR THE EARLIER ASSESSMENT YEAR AND AS THE YE AR IN QUESTION IS ASSESSMENT YEAR 2006-07, WE HOLD THAT THE AMENDMENT BY WAY OF INSERTION OF CLAUSE (D) TO PROVISO TO SECTION 43(5), BY FINAN CE ACT, 2005, W.E.F. 1 ST APRIL 2006, COMES INTO EFFECT AND THE ASSESSEE SUCC EEDS IN ITS PLEA. HENCE, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) T HOUGH FOR DIFFERENT REASONS. THIS GROUND IS, THUS, DISMISSED. 40. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 41. WE NOT TAKE UP CROSS OBJECTION NO.102/MUM./2010, AR ISING OUT OF REVENUES APPEAL IN ITA NO.5953/MUM./2009, FOR ASSE SSMENT YEAR 2006-07. GROUND NO.1, READS AS FOLLOWS:- MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 14 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SUR PLUS OF ` 94,26,373, EARNED BY THE PETITIONER ON THE SALE OF EQUITY SHARES LISTED ON THE STOCK EXCHANGES WITHIN A PERIOD OF 12 MONTHS AS BUSINESS INCOME. THE PETITIONER SUBMITS THAT THE LEARNED CIT (A) SHOULD HAVE TREATED SUCH SURPLUS AS SHORT TERM CAPITAL GAIN ON THE SALE OF SHARES. 42. AFTER HEARING THE RIVAL PARTIES, WE FIND THAT IDENT ICAL ISSUE HAS BEEN DECIDED BY US IN EARLIER ASSESSMENT YEAR. CONSISTEN T WITH THE VIEW TAKEN THEREIN, WE RESTORE THE ISSUE TO THE FILE OF ASSESS ING OFFICER FOR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW. 43. COMING TO GROUND NO.2, WHICH IS ON THE ISSUE OF DIS ALLOWANCE OF ` 3,85,222, UNDER SECTION 14A OF THE ACT. 44. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE DI SALLOWANCE IN QUESTION IS EXCESSIVE. THIS ISSUE IS ALSO RESTORED TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION KEEPING IN VIEW THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD. V/S DCIT, [2010] 328 ITR 081 (BOM.). THIS GROUND IS, THUS, ALLOWED F OR STATISTICAL PURPOSES. 45. IN THE RESULT, ASSESSEES CROSS OBJECTION IS ALLOWE D FOR STATISTICAL PURPOSES. 46. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.3106/MUM ./2010, FOR ASSESSMENT YEAR 2007-08. 47. GROUND NO.1, IS ON THE ISSUE OF TREATING SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS INCOME. 48. AFTER HEARING THE RIVAL PARTIES, WE FIND THAT IDENT ICAL ISSUE HAS BEEN DECIDED BY US IN EARLIER ASSESSMENT YEAR. CONSISTEN T WITH THE VIEW TAKEN THEREIN, WE RESTORE THIS ISSUE TO THE FILE OF ASSES SING OFFICER FOR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW. THIS GROUND IS , THUS, ALLOWED FOR STATISTICAL PURPOSES. 49. GROUND NO.2, IS ON THE ISSUE OF DISALLOWANCE OF ` 3,85,222, UNDER SECTION 14A OF THE ACT. MRS. ANAHAITA NITIN SHAH A.Y. 2004-05, 2005-06 A.Y. 2006-07 AND 2007-08 15 50. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE DI SALLOWANCE IN QUESTION IS EXCESSIVE. THIS ISSUE IS ALSO RESTORED TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION KEEPING IN VIEW THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD. V/S DCIT, [2010] 328 ITR 081 (BOM.). THIS GROUND IS, THUS, ALLOWED F OR STATISTICAL PURPOSES. 51. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. 52. WE NOT TAKE UP REVENUES APPEAL IN ITA NO.4867/MUM. /2010, FOR ASSESSMENT YEAR 2007-08. 53. THE ISSUE ARISING OUT OF GROUNDS NO.1 AND 2, IS TRE ATMENT OF LONG TERM CAPITAL GAIN AS BUSINESS INCOME. 54. AFTER HEARING RIVAL PARTIES, WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY US IN EARLIER ASSESSMENT YEAR. CONSISTEN T WITH THE VIEW TAKEN THEREIN, WE DISMISS THIS GROUND RAISED BY THE REVEN UE. 55. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY 2012. SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 31 ST JANUARY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, H BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI