ACIT 21(1), MUMBAI V. PANKAJ VARJLAL KARANI, MUMBAI

ITA 4140/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4048 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Business income; Salary income; Question of law

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , , BEFORE SHRI B.R. MITTAL, JM AND SHRI RAJENDRA, AM ./I.T.A. NO.4140/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) ASSTT. COMMISSIONER OF INCOME TAX,CIRCLE-21(1), ROOM NO.601,6 TH FLOOR, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI-500051. / VS. MR.PANKAJ V ARJLAL KARANI, 7, QUEENS CRAFT CHS LTD., ST.XAVIERS SCHOOL ROAD, VILE PARLE (E), MUMBAI-400057 ./ ./PAN/GIR NO. : AADPK3126A ( ! /APPELLANT ) .. ( ' ! / RESPONDENT ) ! / APPELLANT BY : SHRI MOHIT JAIN ' ! $ /RESPONDENT BY : SHRI SANJAY R PARIKH $ ( / DATE OF HEARING : 16.07.2013 $ ( /DATE OF PRONOUNCEMENT : 26.07.2013 / O R D E R PER B.R.MITTAL JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSM ENT YEAR 2006-07 AGAINST THE ORDER OF LD. CIT(A) DATED 11.3.2010 ON FOLLOWING GR OUNDS : 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS REGARD ING NATURE OF INCOME FROM SHARE TRANSACTIONS UNDERTAKEN BY ASSESSEE DURING THE FINA NCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. 3. RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE THAT THE ASSESSEE FILED RETURN OF INCOME CLAIMING SHORT TERM CAPITAL GAINS OF RS.30,01,631 /-. ASSESSING OFFICER HAS STATED THAT ASSESSEE IS AN INDIVIDUAL AND DECLARED INCOME F ROM SALARY, PROFIT ON SPECULATION BUSINESS, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. AO STATED THAT ASSESSEE IS AN EMPLOYEE OF M/S PAVAK SECURITIES PVT LTD, A STOCK BROKER WHO IS ENGAGED IN FULL TIME BUSINESS OF SHARE TRADING. AO ST ATED THAT THE ASSESSEE ADMITTED THE INCOME AS UNDER : I.T.A. NO.4140/MUM/2010 2 INCOME FROM BUSINESS RS.2,61,229/- SHORT TERM CAPITAL GAIN RS.30,01,631/- LONG TERM CAPITAL GAIN RS.1,84,06,438/- OTHER SOURCES RS.3,89,815/- AO HAS STATED THAT FROM THE DETAILS OF SHARES TRANS ACTIONS FILED ALONG WITH THE RETURN OF INCOME AND ALSO DURING THE COURSE OF ASSESSMENT TH E MAGNITUDE OF DELIVERY BASED TRANSACTIONS OF SALE AND PURCHASE DONE BY THE ASSES SEE ON WHICH SHORT TERM CAPITAL GAIN IS CLAIMED ARE AS UNDER: SHORT TERM CAPITAL GAINS FROM 1.4.2005 TO 31.3.2006 NO. OF SHARES BOUGHT AND SOLD 11,74,779 PURCHASE AMOUNT 6,04,40,994 SALES AMOUNT 6,34,42,625 NO.OF SCRIPTS 173 TOTAL GAINS 30,01,631 THE AO HAS STATED THAT ON ANALYSIS OF STATEMENT OF SHORT TERM CAPITAL GAIN AND DETAILS FILED BY THE ASSESSEE DURING THE ASSESSMENT PROCEED INGS REVEALS THE FOLLOWING FACTS: (1) THE CONCERN FROM WHICH SALARY INCOME IS DERIV ED IS ENGAGED IN SHARE BUSINESS AND DEAL IN STOCK MARKED ON A REGULAR BAS IS; (2) ASSESSEES CONCERN HAS ALL THE INFRASTRUCTURE F OR CARRYING ON THE BUSINESS OF SHARE TRADING 4. IN VIEW OF ABOVE, THE AO REQUESTED THE ASSESSEE TO EX PLAIN AS TO WHY SHORT TERM CAPITAL GAINS SHOULD NOT BE ASSESSED UNDER THE HEAD BUSINESS. THE ASSESSEE FILED HIS REPLY VIDE LETTER DATED 26.11.2008, THE DE TAILS OF WHICH HAVE BEEN STATED BY THE AO AT PAGES 2 TO 12 OF THE ASSESSMENT ORDER. IN THE SAID REPLY, THE ASSESSEE STATED INTERALIA THAT THE ASSESSEE UTILIZED HIS OWN FUNDS FOR I NVESTMENT AND SHOWED THE SAME UNDER THE HEAD INVESTMENT IN BLANCESHEET . THE ASSESSE E HAS EXTENSIVELY MENTIONED CIRCULAR NO.4/2007 DATED 15.6.2007 AND SUBSTANTIATED HI S CLAIM OF SHORT TERM CAPITAL GAINS BY RELYING ON VARIOUS DECISIONS THAT THE SHARES WERE HELD AS INVESTMENT AND ACCORDINGLY PROFIT SHOULD BE TREATED AS CAPITAL GAIN. T HE ASSESSEE HAS ALSO STATED THAT THERE WAS CERTAIN NUMBER OF SHARES SOLD DURING THE YEAR BUT WERE ACQUIRED IN THE LAST YEAR. THE ASSESSEE HAS ALSO CONTENDED THAT HE PAID STT AT THE RATE APPLICABLE TO THE INVESTMENT IN RESPECT OF SHARES AND IF THE SHORT TERM GAIN IS TREATED AS BUSINESS INCOME, THEN TO GIVE THE CREDIT OF STT PAID ON THE SHARE TRANSACTIONS A REBATE U/S 88E OF THE ACT. IT IS STATED THAT CIRCULAR OF STT WILL B E SUBMITTED IN DUE COURSE. I.T.A. NO.4140/MUM/2010 3 5. THE AO HAS STATED THAT HE HAS CONSIDERED THE ASSESSEES REPLY CAREFULLY. HOWEVER, THE AO HAS STATED THAT MERE ENTRIES IN THE B OOKS OF ACCOUNTS SHOWING SHARES AS INVESTMENT IS NOT THE DETERMINING FACTOR TO DECIDE T HE REAL NATURE OF TRANSACTIONS. THE AO AT PAGE 13 TO 16 OF THE ASSESSMENT ORDER REFERRED CERTAIN CASES, WHICH WE DO NOT CONSIDER IT RELEVANT TO STATE AT THIS STAGE. THE AO HA S ALSO REFERRED THE CBDT CIRCULAR NO.4/2007 DATE 15.6.2007, THE CIRCULAR ON WHICH THE A SSESSEE HAS ALSO PLACED RELIANCE. THE AO HAS STATED THAT THE ASSESSEE IS DEALING IN LARGE NU MBER OF SHARES. MOST OF THE SHARES PURCHASED AND SOLD WITHIN SHORT TERM PERIOD. H E HAS STATED THAT WHILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AND THEREFORE HOLDING WITH THE ASSESSEE REMAINS BEYOND FEW DAYS, IT WILL NOT CHANGE THE NATURE OF TR ANSACTIONS. THE AO HAS STATED THAT THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS OF SHARES TRADING AND RUNNING FULL- FLEDGED OFFICE FOR THIS PURPOSE. THE AO HAS SUMMARIZED HIS FINDING IN RESPECT OF HIS FINDING ON THE VOLUME OF THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AT PAGES 23 TO 24 OF THE ASSESSMENT ORDER AND WE CONSIDER IT PRUDENT TO STATE THE SAME WHICH IS AS UNDER : IN THE INSTANT CASE, ASSESSEE IS AN WHOLE TIME WOR KING DIRECTOR OF M/S PAVAK SECURITIES PVT.LTD, WHO IS A MEMBER OF BOMBAY STO CK EXCHANGE. SINCE THE ASSESSEE IS A FULL TIME DIRECTOR EMPLOYEE OF THE CO MPANY, ASSESSEE IS INTO THE BUSINESS OF DEALING IN SHARES. ON PERUSAL OF THE DE TAILS OF THE TRANSACTIONS, IT IS SEEN THAT THERE WERE TOTAL 4943 TRANSACTIONS DURIN G THE YEAR, WHICH CLEARLY SHOWS THAT THE DAILY TRANSACTIONS OF THE ASSESSEE I N ONE DAY IS ABOUT 153 TRANSACTIONS. FORT EXAMPLES THE TRANSACTIONS ON 1. 4.05 WAS ABOUT 153 AND NUMBER OF SCRIPS WERE ONLY 11. THERE WAS 53 TRANSA CTIONS IN JET AIRWAYS. IT IS FURTHER SEEN FROM THE DETAILS THAT MOST OF THE SC RIPS WERE SOLD WITHIN A PERIOD OF 2 TO 15 DAYS. VERY FEW SCRIPS WERE KEPT BY THE ASSESSEE FOR MORE THAN A MONTHS TIME. A PRUDENT BUSINESS MAN ONLY CAN DO THE SE MANY TRANSACTIONS. A PERSON WHOSE MOTIVE IS INVESTMENT ONLY CANNOT DO TH ESE MANY NUMBER OF TRANSACTIONS. THE SCRIP OF JET AIRWAYS PURCHASED O N 29.3.2005 WERE SOLD ON 1.4.05 I.E. IT IS KEPT FOR ONLY 3 DAYS. THE SCRIP OF NANDAN EXIM LTD. PURCHASED ON 6.6.2005 WERE SOLD ON 20.6.2005 AND THERE WERE 2 17 TRANSACTIONS OF THE SAME SCRIP, 23 TRANSACTIONS IN ANOTHER 3 SCRIPTS WH ICH CLEARLY SHOWS THAT THE INTENTION OF THE ASSESSEE IS TO PURCHASE THE SELL I T ON SMALL MARGIN AND MAKE PROFIT. SIMILARLY ASSESSEE HAS MADE 100 TRANSACTIO NS IN THE SCRIP OF M/S TATA TELE SERVICES LTD ON 23.3.2006 WHICH WERE PURCHASE D BETWEEN 13.1.2006 TO 23.2.2006. THE ACTIVITIES DOES TO PROVE THAT IN FA CT THE ASSESSEE WAS NOT INTENDING FOR THE INVESTMENT BUT FOR TRADING IN S HORT INTERVALS ON FULL TIME BASIS TO MAXIMIZE THE PROFIT. HENCE, THE PROFIT SHOWN BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN OF RS.30,01,631/- IS TREAT ED AS BUSINESS PROFIT OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 6. IT IS RELEVANT TO STATE THAT AO WHILE TREATING THE SAID CLAIM OF THE ASSESSEE OF SHORT TERM CAPITAL GAINS UNDER THE HEAD BUSINESS, HAS A LLOWED REBATE U/S 88E OF THE ACT. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. I.T.A. NO.4140/MUM/2010 4 7. THE LD. CIT(A) HAS STATED THAT THE ASSESSEE FILED DE TAILED WRITTEN SUBMISSIONS BEFORE HIM AND CLAIMED THAT HE IS AN INDIVIDUAL ENGAG ED IN THE ACTIVITY OF MAKING INVESTMENT IN EQUITY SHARES AND NOT TRADING IN EQUITY SHARES. LD.CIT(A) HAS STATED THAT THE ASSESSEE HAS STATED RELEVANT FACTS BEFORE HIM WHICH A RE REPRODUCED AT PAGES 6 TO 8 OF THE SAID IMPUGNED ORDER OF LD. CIT(A): A) MANY OF THE SHARES IN WHICH INVESTMENTS WERE MADE WE RE NOT LISTED ON STOCK EXCHANGES AT THE TIME OF MAKING INVESTMENTS AND A PERSON IS NOT ALLOWED TO DO BUSINESS OF SHARES TRADING IN SUCH SHARES ; B) THE INTENTION AT THE TIME OF PURCHASE OF THESE SHARE S WAS TO HOLD THE SAME AS INVESTMENT; C) THE SHARES WERE SHOWN IN THE BOOKS OF ACCOUNT AND THE BALANCE SHEETS AS INVESTMENT; D) THE SHARES ARE VALUED AT COST IN ACCORDANCE WITH ACCOUNT ING STANDARD 13 I.E. ACCOUNTING FOR INVESTMENTS ISSUED BY THE INSTI TUTE OF CHARTERED ACCOUNTANTS OF INDIA, NEW DELHI. IT IS SUBMITTED THAT T HE STOCK IN TRADE IS VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER; E) HE IS FULL TIME EMPLOYEE OF PAVAK SECURITIES PVT. LTD AND ALSO DOING BROKERAGE ACTIVITIES. IN ADDITION TO ABOVE, HE HAS EA RNED SUBSTANTIAL DIVIDEND INCOME. THE DETAILS OF DIVIDEND INCOME FOR THREE YEARS ARE AS UNDER : AY 2004-05 RS.5,65,487 AY 2005-06 RS.15,55,118 AY 2006-07 RS.6,71,492/- F) THE APPELLANT DID NOT HAVE ANY INFRASTRUCTURE FA CILITIES TO DEAL WITH THE BUSINESS OF SHARES TRADING; G) AS PER THE CBDT CIRCULAR NO.4/2007, THE ASSESSEE CAN BO TH, BE TRADER AND INVESTOR, THE ASSESSEE HAS SHOWN PROFIT FROM SHARES TRADING UNDER HEAD BUSINESS INCOME. F) THE HOLDING OF THE SHARES ARE FOR A QUITE LONG PER IOD; I) NO ADMINISTRATIVE EXPENSES ARE INCURRED BY THE APPEL LANT WHICH SHOW THERE WAS NO BUSINESS ACTIVITIES; J) THE APPELLANT HELD QUOTED AS WELL AS UNQUOTED SHARE S AND NO TRADING COULD BE DONE IN CASE OF UNQUOTED SHARES. THE APPELLANT ALSO HELD NCD/SBI BONDS/ UNLISTED SHARES AS INVESTMENT, HE ALSO HOLDS FIXED D EPOSIT WITH BANK; K) THE SHARES HAVE BEEN SHOWN AS INVESTMENTS AND VALUED A T COST. IF THE SHARES ARE HELD AS STOCK IN TRADE THEN THESE SHARES WOULD H AVE BEEN DECLARED AS CLOSING STOCK IN BALANCE SHEET AND WOULD HAVE BEEN VALU ED AT COST OR MARKET VALUE WHICHEVER IS LESS. IF THE MARKET VALUE WOULD HAVE BONE LESS THAN THE COST PRICE AS ON THE LAST DAY OF THE ACCOUNTING YEAR THEN T HERE WOULD HAVE BEEN TRADING LOSS; L) THERE ARE NO FIXED ASSETS AND THERE IS NO EMPLOYEE W ITH THE APPELLANT; I.T.A. NO.4140/MUM/2010 5 M) FREQUENCY OF PURCHASE AND SALES ARE MUCH LESS; N) SOURCES OF ACQUISITION OF SHARES WAS OUT OF OWN FUNDS. NO BORROWINGS IS MADE BY THE APPELLANT FOR MAKING INVESTMENT IN SHARE S. THE LOANS ARE MAINLY OLD LOANS. THE TOTAL VALUE OF INVESTMENT IS FAR BELOW COM PARED TO THE OWN CAPITAL; O) THE APPELLANT RIGHT FROM INCEPTION CONSIDERED THE SH ARES WITH DELIVERY AS INVESTMENT AND SHARES WITHOUT DELIVERY ON TRADING ACCOU NT WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. P) HE FURTHER ARGUED THAT MERELY BECAUSE THE APPELLAN T WAS HAVING SOME INCOME FROM SHARE TRADING ACTIVITY, THE INVESTMENT IN SH ARES CANNOT BE TREATED AS STOCK IN TRADE OF THE APPELLANT AND HE ARGUED THA T THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN SHARES AND ALSO HOLD SOME SHARES AS IN VESTMENT AS HELD BY THE HONBLE HYDERABAD TRIBUNAL IN THE CASE O F SHAH-LA INVESTMENTS AND FINANCIAL CONSULTANTS PVT. LTD V/D DCIT (2SOT 371 ); A TRANSACTIONS IS NOT NECESSARILY IN THE NATURE OF TRADE BECAUSE THE PURCHASE WAS MADE WITH INTENTION OF RESALE-JANKI RAM BAHADUR RAM V/S CIT (1965) 57 ITR 21 (SC); SAROJ KUMAR MAZUMDAR V/S CIT (1959) 37 ITR 24 2 (SC), G.VENKATASWAMI NAIDU & CO. V/S CIT (1959) 35 ITR 594, 610, 622 (SC ), GUSTAND IRANI V/S CIT (1957) 31 ITR (BOM), BHOGILAL H, PATEL V/S CIT (196 9) 74 ITR 692 (BOM). WHERE PURCHASE OF ANY ARTICLE OR OF ANY CAPITAL INVESTME NT, FOR INSTANCE, SHARES IS MADE WITHOUT THE INTENTION OF RESELL AT A PROFIT, A RESALE UNDER CHANGED CIRCUMSTANCES WOULD ONLY BE A REALIZATION OF CAPITAL AND WOULD NOT STAMP THE TRANSACTION WITH A BUSINESS CHARACTER CIT V/S P.K.N CO. LTD (1996) 60 ITR 65, RAJPUTANA TEXTILE (AGENCIES ) LTD V/S CIT (1953) 24 IT R 46 (BOM) AFFIRMED IN (1961) 42 ITR 743 (SC). THE MERE FACT THAT AN INVESTMENT COMPANY PERIODICALLY V ARIES ITS INVESTMENTS DOES NOT NECESSARILY MEAN THAT THE PROFITS FROM SUCH VARIA TION IS TAXABLE- DALHOUSIE INVESTMENTS TRUST CO.LTD V/S CIT 66 ITR 473 (SC). THE AFORESAID DECISION IS EQUALLY APPLICABLE IN MY CASE. THE LD.CIT(A)L HAS FURTHER STATED THAT THE ASSESSEE ALSO PLACED RELIANCE BEFORE ON THE FOLLOWING JUDGMENT : I) SHRI JANAK S. RANGWALIA ITA NO.1163/M/2004 (MUM) II) ACIT V/S SHRI SUNDER IYER III) ACIT V/S SHRI MOTILAL OSWAL FURTHER LD. CIT(A) HAS STATED THAT THE ASSESSEE CO NTENDED REGARDING THE VOLUME AND FREQUENCY OF TRANSACTION, THAT THE IN A VOLATILE M ARKET, HUGE TRANSACTIONS TAKEN PLACE ON A DAY TO DAY BASIS. ACCORDINGLY, IF AN ASSESSEE WAN TS TO PURCHASE CERTAIN NUMBER OF SHARES, IT MAY NOT BE POSSIBLE FOR THE ASSESSEE TO AC QUIRE ALL SHARES AT ONE INSTANCE. THAT THE SHARES MAY BE SOLD BY DIFFERENT SELLERS TO DIFFERENT BROKERS OVER A PERIOD OF TIME. THAT THE PURCHASE OF SAME SCRIP OVER A COUPL E OF DAYS IN ORDER TO BUY THE REQUIRED QUANTITY DECIDED BY THE ASSESSEE WOULD NOT MEAN THAT THE FREQUENCY OF PURCHASE IS HIGH.. SIMILARLY, IF THE ASSESSEE WANTS TO SALE SUBSTANTIAL SHARES, THEN IT IS NOT NECESSARY THAT HE WOULD GET A BUYER FOR ALL T HE SHARES AT ONE GO. THEREFORE, I.T.A. NO.4140/MUM/2010 6 SAME SCRIP MAY HAVE TO BE SOLD OVER A PERIOD 3 T O 4 DAYS IN SMALL QUANTITIES AT DIFFERENT RATES THROUGH DIFFERENT BROKERS. IT WA S CONTENDED BEFORE LD. CIT(A) THAT FOR THE PURPOSE OF FREQUENCY ONE HAS TO SEE NUMBER OF S HARES TRADED IN AND NUMBER OF TIMES PARTICULAR SCRIP HAS BEEN BOUGHT OR SOLD AND PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF JANAK S RANGWALLA V/S ACI T REPORTED IN 1 SOT 627. THE ASSESSEE ALSO REFERRED THE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT REPORTED IN 29 SOT 117 AND STATED T HAT IN THE SAID JUDGMENT IT IS HELD THAT DELIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT. IT WAS CONTENDED THAT THE SAID DECISION OF THE TRIBUNAL WAS CONFIRMED BY THE HONBLE BOMBAY HIGH COURT. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE DIRECTED THE AO TO VERIFY THE TRANSACTIONS OF SHARES AND MUTUAL FUNDS WHICH ARE DELIVERY BASED AND TREAT THE SAME AS GIVING RISE TO CAPITAL GAIN AND CHARGE THE SHORT T ERM CAPITAL GAIN RATE OF 10% AS PROVIDED U/S 111A OF THE ACT. THE FINDING OF THE L D. CIT(A) ARE GIVEN IN PARAGRAPH 6.1 OF THE IMPUGNED ORDER, WHICH IS AS UNDER : 6.1 I HAVE CONSIDERED THE ARGUMENTS OF THE APPELLA NT AND HAVE CAREFULLY CONSIDERED THE ISSUE. THE AR OF THE APPELLANT HAS R ELIED ON THE HONBLE MUMBAI ITAT JUDGMENT IN THE CASE OF CIT V/S GOPAL PUROHIT AND HAS PRAYED THAT INCOME DERIVED BY THE APPELLANT FROM INVESTMENT ACTIVITY B E TREATED AS SHORT TERM CAPITAL GAIN AND THE SAME SHOULD NOT BE TREATED AS INCOME FROM BUSINESS. BASED ON FINDING OF ITAT IN THE CASE OF CIT V/S GOPAL PURO HIT -122 TTJ MUMBAI 97, IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFO LIOS ONE RELATING TO INVESTMENT IN SHARES AND OTHER RELATING TO BUSINE SS ACTIVITIES INVOLVING DEALING IN SHARERS. THE ONLY DELIVERY BASED TRANSACTIONS F ALL WITHIN THE PURVIEW OF NATURE OF INVESTMENT TRANSACTIONS GIVING RISE TO CAPITAL GAINS. I HAVE OBSERVED THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE RA TIO LAID DOWN IN THE CASE OF CIT V/S GOPAL PUROHIT MENTIONED SUPRA AND ALSO CONF IRMED BY THE HONBLE BOMBAY HIGH COURT VIDE THEIR JUDGMENT DELIVERED ON 6 TH JANUARY, 2010. THEREFORE, THE AO IS DIRECTED TO VERIFY THE TRAN SACTIONS OF SHARES AND MUTUAL FUNDS WHICH ARE DELIVERY BASED AND AND TREAT THE S AME AS GIVING RISE TO CAPITAL GAIN AND CHARGE THE SHORT TERM CAPITAL GAIN AT OF 10% AS PROVIDED U/S 111A OF THE ACT. EXEMPTION U/S 10(38)WILL CONTINUE TO BE GRANTED IN RESPECT OF LONG TERM CAPITAL GAINS. THIS GROUND OF APPEAL IS, ACCO RDINGLY, ALLOWED HENCE, THE DEPARTMENT IS IN APPEAL BEFORE US. 8. DURING THE COURSE OF HEARING, LD.DR REFERRED PAG E 2 OF THE ASSESSMENT ORDER AND STATED THAT THE AO HAS STATED THAT THERE ARE 1 73 SCRIPS IN WHICH THE ASSESSEE HAS DEALT WITH IN RESPECT OF WHICH THE SHORT TERM CAPIT AL GAINS HAS BEEN CLAIMED. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN FREQUENTLY BUY ING AND SELLING SHARES ON DAY TO DAY BASIS. LD. DR ALSO REFERRED PAGE 21 OF THE ASSESSMENT ORDER AND SUBMITTED THAT AO HAS CATEGORICALLY STATED THAT THE ASSESSEE HAS D EALT IN LARGE VOLUME OF SHARES. HE I.T.A. NO.4140/MUM/2010 7 SUBMITTED THAT THERE WAS NO BUSINESS OF THE ASSESSE E AND THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARES TRADING BEING DIRECTOR OF M/S PAVAK SECURITIES PVT.LTD WHO IS A MEMBER OF BOMBAY STOCK EXCHANGE. LD. DR SUBMITTED TH AT AS PER THE DETAILS FILED BY THE ASSESSEE VIDE LETTER DATED 11.7.2013, THERE ARE 624 TRANSACTIONS WHICH ARE RUNNING INTO TO 11 PAGES AND THE TOTAL PURCHASE AMOUNT OF SHARE S IS OF RS.6,05,29,929/-. HE FURTHER REFERRED THE SAID STATEMENT AND SUBMITTED TH AT MOST OF THE TRANSACTIONS ARE THOSE WHERE HOLDING PERIOD IS LESS THAN 30 DAYS. L.D D R SUBMITTED THAT THE INTENTION OF THE ASSESSEE IS NOT TO MAKE THE INVESTMENT BUT TO DEAL I N SHARES. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE ENTERED INTO REPETITIVE TRA NSACTIONS OF THE SAME SCRIP, IT IS ALSO STATED THAT THE ASSESSEE WAS DEALER IN SHARES AND NOT THE INVESTOR. LD.DR SUBMITTED THAT THE AO HAS REFERRED THE CASE IN THE ASSESSME NT ORDER AND SAID DECISION THAT ONE OF THE TEXT TO CONSIDER AS TO WHETHER THE ASSESSEE IS INVESTOR OR A DEALER IN SHARES IS THE VOLUME, FREQUENCY AND REGULARITY OF SHARES TRANSACTIONS OF PURCHASE AND SALE OF GOODS CONCERNED. HE SUBMITTED THAT IN THE CASE OF ASSESSEE ALL THE ABOVE CRITERION ARE SATISFIED THAT THERE ARE NUMBER OF TRA NSACTIONS WHICH ARE RUNNING INTO 11 PAGES AS PER THE STATEMENT FILED AND THERE ARE REPETI TIVE TRANSACTIONS. THE LD. DR REFERRED THE ORDER OF THE AO AT PAGES 23 AND 24 AND SUBMITTED THAT THE AO HAS STATED THAT THERE WERE 53 TRANSACTIONS IN THE CASE OF JET AIRW AYS AND ON 1.4.2005, THE TRANSACTION WERE ABOUT 153 IN 11 SCRIPS. LD. DR FURTHER SUBMITTED THAT ASSESSEE HAS USED BORROWED FUNDS IN THE SAID PURCHASE AND SALE OF SCRIPS. HE SUBMITTED THAT THE ASSESSMENT ORDER SHOULD BE CONFIRMED THAT THE ENTIRE CLAI M OF THE ASSESSEE THAT IT IS A SHORT TERM PROFIT BE TREATED AS BUSINESS INCOME. 9. ON THE OTHER HAND, LD. AR MADE HIS SUBMISSIONS ON TH E LINES ON THE SUBMISSIONS MADE BEFORE LD. CIT(A) AND SUBMITTED THAT LD. CIT(A) HAS RIGHTLY HELD THAT THE PROFIT SHOWN BY THE ASSESSEE IS A SHORT TERM CAPITAL GAINS. LD. AR FURTHER SUBMITTED THAT IT IS NOT FACTUALLY CORRECT THAT THE ASSESSEE HAS BORROWED MONE Y FOR ENTERING INTO SHARES TRANSACTIONS AND THE ASSESSEE USED HIS OWN FUNDS. HE SUBMITT ED THAT MANY SHARES WERE HELD BY THE ASSESSEE FOR MORE THAN A MONTH, AN D ATLEAST PROFIT ON THOSE SHARES BE CONSIDERED AS SHORT TERM CAPITAL GAIN. THE LD. AR FURTHER REFERRED THE CAPITAL ACCOUNT PLACED AT PAGE 1 OF THE PAPER BOOK AND SUBMITTE D THAT THE ASSESSEE HAS BORROWED MONEY WITHOUT INTEREST FROM HIS FAMILY MEMB ERS AND THERE IS NO CLAIM OF INTEREST IN THE PROFIT AND LOSS ACCOUNT. LD.AR FURTHER SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR, ASSESSEE HAS BEEN TREATED AS INVESTOR AND THE PROFIT HAS BEEN CONSIDERED AS CAPITAL GAIN. LD.AR ALSO FILED A STATEMENT OF FACTS AND CRUX OF IT IS THE SUBMISSIONS AS TAKEN BEFORE LD.CIT(A) AND MENTIONED HER EIN ABOVE. LD.AR HAS ALSO PLACED RELIANCE ON THE DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL AND ALSO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS . GOPAL PUROHIT (2011) 336 I.T.A. NO.4140/MUM/2010 8 ITR 287 (BOM) AND ALSO THE DECISION OF THE AHMEDABA D BENCH OF THE TRIBUNAL IN THE CASE OF SUGAMCHAND C SHAH V/S ACIT (2011) 48 SOT 1 89 (AHMEDABAD) (URO) WHERE, THE TRIBUNAL HAS HELD THAT THE SHARES WHICH WERE HELD FOR MORE THAN A MONTH SHOULD BE TREATED AS INVESTMENT AND ON THEIR SALE SHORT TERM CAPITAL GAINS WOULD BE CHARGED, WHEREAS IN CASE OF SHARES HELD FOR LESS THAN A MONT H, GAIN ON SALE OF THEM WOULD BE TREATED AS PROFIT FROM BUSINESS. LD. AR SUBMITTED THAT IN VIEW OF ABOVE, DECISION OF THE TRIBUNAL, THE SHARES WHICH WERE HELD BY THE ASS ESSEE FOR MORE THAN A MONTH ATLEAST SHOULD BE TREATED AS INVESTMENT AND THE PROFIT THE REON BE CONSIDERED AS SHORT TERM CAPITAL GAINS. 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE G ONE THROUGH THE STATEMENT OF THE SHARES IN RESPECT OF THE PROFITS HAS ARISEN TO TH E ASSESSEE WHICH HAS BEEN CLAIMED AS SHORT TERM CAPITAL GAIN AND ALSO THE RELEVANT PAGES OF THE PAPER BOOK AND THE CASES RELIED BEFORE US AS WELL AS CONSIDERED BY THE AUTHO RITIES BELOW. THE DISPUTE IS REGARDING NATURE OF INCOME FROM SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE, AS TO WHETHER PROFITS SHOWN BY THE ASSESSEE OUT OF SHARE TRANSACTIONS SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY. THERE I S NO DISPUTES TO THE FACT THAT IT DEPENDS ON ITS OWN FACTS AND CIRCUMSTANCES OF THE CASE, AND NO STANDARD FORMULAE CAN BE LAID DOWN. THERE ARE VARIOUS FACTORS SUCH AS FREQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PERIOD ETC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTOR IS CONCLUSIVE. HOWEVER, MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE, WHICH IS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALI NG WITH THE SHARES SUBSEQUENTLY, AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCO UNT. WE MAY ALSO STATE THAT RULE OF RESJUDICATTA IS NOT APPLICABLE AS EVERY ASSESSMENT YEAR, NAT URE OF TRANSACTION HAS TO BE CONSIDERED ON THE BASIS OF FACTORS OF THE RELEV ANT ASSESSMENT YEAR. FURTHER AN INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EA RNING OF INCOME FROM THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHAR ES ON EVERY RISE OR FALL IN THE MARKET WHICH ARE THE ATTRIBUTES OF TRADER. HOWEVER, T HERE MAY BE SITUATIONS WHEN THE INVESTOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDI NG IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO EN-CASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. THEREFORE, EACH CASE IS REQU IRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. I.T.A. NO.4140/MUM/2010 9 11. IN THE CASE BEFORE US, THERE IS NO DISPUTE TO THE FACT THAT THERE ARE NUMBER OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE, THE DETA ILS OF WHICH ARE FILED BY THE ASSESSEE VIDE HIS LETTER DATED 11.7.2013 AND ON PERUSAL THER EOF IT IS OBSERVED THAT THE SAID STATEMENT IS RUNNING INTO 11 PAGES CONTAINING 624 T RANSACTIONS. AO HAS STATED AT PAGE 23 OF THE IMPUGNED ORDER AND THE RELEVANT PART OF W HICH WE HAVE REPRODUCED HEREINABOVE IN PARA 5. THAT THERE WERE TOTAL 494 3 TRANSACTIONS DURING THE YEAR, WHICH CLEARLY SHOWS THAT THE DAILY TRANSACTIONS OF THE AS SESSEE IN ONE DAY IS ABOUT 153 TRANSACTIONS. WE ALSO OBSERVE ON PERUSAL OF THE ST ATEMENT FILED BY THE ASSESSEE THAT THERE ARE REPETITIVE TRANSACTIONS ENTERED INTO BY T HE ASSESSEE. THE ASSESSEE HAS AGAIN PURCHASED THE SHARES AFTER THE SAME WERE SOLD. DUR ING THE COURSE OF HEARING LD.AR WAS ALSO CONFRONTED THAT IF THE INTENTION OF THE AS SESSEE WAS TO MAKE THE INVESTMENT IN SHARES THEN WHY THE ASSESSEE HAD ENTERED INTO THE REPETITIVE TRANSACTIONS AND THAT TOO WHEN PERIOD OF HOLDING OF MOST OF THE TRANSACTIONS IS LESS THAN ONE MONTH. AS IS EVIDENT FROM PAGE 1 OF THE SAID STATEMENT, THE MAX IMUM PERIOD OF HOLDING OF ONE SCRIP (SR.NO.57) IS 30 DAYS OTHERWISE THE PERIOD OF HOLD ING VARIES FROM 03 DAYS TO 23 DAYS. THE LD.AR COULD NOT CONTROVERT THE ABOVE FACTS NO R COULD SATISFACTORILY EXPLAINED THE REASONS FOR SUCH A SHORT PERIOD HOLDING OF THE SHAR ES IN RESPECT OF WHICH ASSESSEE HAS CLAIMED SHORT TERM CAPITAL GAINS. WE ALSO OBSERVE FROM THE ORDER OF THE ASSESSING OFFICER AT PAGE 24 THAT THERE WERE 53 TRANSACTIONS IN JET AIRWAYS. THE SCRIP OF JET AIRWAYS WERE PURCHASED ON 29.3.2005 AND WERE SOLD O N 1.4.2005 I.E. PERIOD OF HOLDING IS ONLY FOR THREE DAYS. THE AO HAS FURTHER STATED THAT THE ASSESSEE MADE 100 TRANSACTIONS IN THE SCRIP OF M/S TATA TELE SERVIC ES LTD ON 23.3.2006 WHICH WERE PURCHASED BETWEEN 13.1.2006 TO 23.2.2006 AND THE ASSESSEE DURING THE COURSE OF HEARING BEFORE US HAS NOT DISPUTED THE ABOVE FACT. CONSIDERING ALL THESE FACTS IT SHOWS THAT THE ASSESSEE IS A TRADER IN SHARES AND N OT AN INVESTOR AS THE FREQUENCY AND VOLUME OF SHARES ARE NOT ONLY QUITE HIGH, BUT THE I NTENTION IS CLEAR THAT THE ASSESSEE WAS TRADING IN SHARES AND NOT PURCHASED THE SHARES WITH AN INTENTION AS AN INVESTOR. THE HONBLE APEX COURT HAS HELD IN THE CASE OF CI T V/S H. HOLCK LARSEN (1986) 160 ITR 67 THAT WHETHER A PERSON IS AN INVESTOR OR A D EALER IS A MIXED QUESTION OF LAW AND FACT. THE HONBLE DELHI HIGH COURT HAS HELD IN TH E CASE OF CIT V/S SAHARA INDIA HOUSING CORPORATION LTD (2012) 2012 TPL 1265 (DELHI ) IN ITA NOS.740 OF 2009, 762 OF 2009 AND 847 OF 2010 DATED 27.4.2012 THAT THE MOST IMPORTANT TEXT TO BE CONSIDERED IS WHETHER THE ACTIVITY IS IN THE NATURE OF BUSINESS OR NOT IS VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND S ALE OF THE GOODS CONCERN, ON THE BASIS OF WHICH AN INFERENCE CAN BE DRAWN. SIMILAR TEXT HAS ALSO BEEN LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V/S REWASHANKER A KOTHARI (2006) 283 I.T.A. NO.4140/MUM/2010 10 ITR 338(GUJ). WE ARE OF THE CONSIDERED VIEW THAT AL L THE TEXTS LAID DOWN IN ALL ABOVE CASES TAKES US TO THE CONCLUSION THAT THE AO HAS RIGHTLY HELD THAT SHARE TRANSACTIONS FROM WHICH THE ASSESSEE HAS EARNED PROFITS OF RS.3 0,01,631/- AND CLAIMED AS SHORT TERM GAINS IS IN THE NATURE OF TRADING ACTIVITY OF THE ASSESSEE. WE ALSO OBSERVE THAT LD. CIT(A) HAS ONLY ADOPTED THE ADHOC BASIS WITHOUT GI VING THE REASONS CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE TO HOLD THAT P ROFIT SHOULD BE CONSIDERED IN THE NATURE OF SHORT TERM CAPITAL GAINS BUT NO REASONS H AVE BEEN GIVEN WHICH COULD BE SET TO FIT IN THE PRINCIPLE LAID DOWN IN VARIOUS CASES OF THE HONBLE SUPREME COURT AS WELL AS HONBLE HIGH COURTS TO SUPPORT THE OBSERVATIONS OF LD. CIT(A). WE ALSO OBSERVE THAT THE CASE OF GPOAL A. PUROHIT (SUPRA) ON WHICH THE ASS ESSEE HAS PLACED RELIANCE IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSE E. WE ALSO OBSERVE THAT THERE IS NO UNIVERSAL FINDING IN THAT CASE THAT A DELIVERY BASE D TRANSACTIONS HAVE BEEN TREATED AS INVESTMENT. WE ALSO OBSERVE THAT TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA) HAS DECIDED THE CASE FOLLOWING THE DECISION OF THE L UCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF SARNATH INFRASTRUCTURE (P.) LTD. V/S ACIT ( 2010) 120 TTJ 216 (LUCK) HOLDING THAT FACTS AND CIRCUMSTANCES OF SARNATH INFRASTRUCT URE (P) LTD (SUPRA) WERE IDENTICAL. HOWEVER, IT IS NOTED THAT IN SARNATH INFRASTRUCTU RE (P) LTD (SUPRA) SHARES SOLD OUT OF INVESTMENT AGAIN HAD BEEN HELD FOR TWO TO THREE YE ARS AND REVENUE COULD NOT SHOW ANY SHARES WHICH HAD BEEN PURCHASED AND SOLD DURI NG THE YEAR OR IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, WE ARE OF THE CONSIDER ED VIEW THAT ONLY IN RESPECT OF SUCH CASES, THE DECISION IN THE CASE OF GOPAL PUROHIT (SUPRA) COULD BE APPLIED. WE ALSO OBSERVE THAT THE HONBLE BOMBAY HIGH COURT HAD UPHE LD THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA) ON THE GROUND TH AT THERE WAS NO SUBSTANTIAL QUESTION OF LAW INVOLVED. EVEN, BEFORE THE HONBLE HIGH CO URT THERE WAS NO QUESTION RAISED THAT ALL DELIVERY BASED TRANSACTIONS HAVE TO BE TREATE D AS INVESTMENT ACTIVITY. THUS, THE DECISION OF THE TRIBUNAL AS WELL AS THE DECISION O F THE HONBLE HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) CANNOT BE CONSIDERED AS PREC EDENT FOR THE PROPOSITION THAT DELIVERY BASED TRANSACTIONS HAVE TO BE TREATED AS I NVESTMENT ACTIVITY. THE ASSESSEE CAN ALSO BE TREATED AS TRADER IN THE CASE OF DELIVE RY BASED PURCHASES AND SALES WHICH IS A NORMAL FACTOR IN TRADING ACTIVITY. WE ALSO DO NO T FIND MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE SHARES WHICH WERE HELD BY THE ASS ESSEE FOR MORE THAN A MONTH MAY BE TREATED AS INVESTMENT AND ON THEIR SALE THE GAIN MAY BE CONSIDERED AS SHORT TERM CAPITAL GAIN FOR WHICH THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SUGAMCHAND C SHAH (SUPRA). SINCE, WE HAVE H ELD THAT THE SHARE TRANSACTIONS FROM WHICH THE ASSESSEE EARNED PROFIT IS NOT SHORT TERM CAPITAL GAIN BUT ARE IN THE NATURE OF TRADING ACTIVITY. THUS, THE QUESTION OF CONSIDERING THE PERIOD OF HOLDING MORE I.T.A. NO.4140/MUM/2010 11 THAN ONE MONTH AS INVESTMENT AND TO TREAT THE PROF IT THEREON AS SHORT TERM CAPITAL GAINS DOES NOT ARISE. THEREFORE, WE REJECT THE SAID CONTENTION OF LD. AR. 12. IN VIEW OF ABOVE, WE HOLD THAT THE ENTIRE PROFI T SHOWN BY THE ASSESSEE ON PURCHASE AND SALE OF SHARES OF RS.30,01,631/- HAS RIGHTLY BEEN CONSIDERED BY THE AO AS PROFIT FROM BUSINESS AND NOT SHORT TERM CAPITAL GAIN. THEREFORE, WE REVERSE THE ORDER OF LD. CIT(A) AND CONFIRM THE ORDER OF AO BY ALLOWI NG GROUND OF APPEAL TAKEN BY THE DEPARTMENT. 13. IN THE RESULT, APPEAL FILED BY THE DEPARTMENT IS ALLOWED. ORDER PRONOUNCED AFTER HEARING LD. REPRESENTATIVE OF THE PARTIES IN THE OPEN COURT ON 26 TH JULY, 2013 $ / 0 26 TH JULY, 2013 $ SD SD (RAJENDRA) (B.R. MITTAL) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0 DATED 26 /07/2013 . . ./ SRL , SR. PS ! '! / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. ' ! / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 5 '7 , ( 7 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI