ACIT 17(1), MUMBAI V. HIREN DAND, MUMBAI

ITA 4163/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75746 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 25-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Rule of consistency; Transactions in derivatives; Source of fund
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND B.R.BHASKARAN (AM ) . . , . . , ./I.T.A. NO.4163/MUM/2012 ( / ASSESSMENT YEAR : 2008-09) ASSISTANT COMMISSIONER OF INCOME TAX, 17(1), 1 ST FLOOR, ROOM NO.113, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI / VS. MR.HIREN DAND, C-25, ADINATH SOC. LTD., 79-B, MAZGAON ROAD, MAZGAON, MUMBAI-400010 ( % / APPELLANT) .. ( &% / RESPONDENT) ./ ./PAN/GIR NO. : AACPD9760A % / APPELLANT BY : SHRI SURENDRA KUMAR &% * /RESPONDENT BY : SHRI S C TIWARI * - / DATE OF HEARING : 27.2.2014 * - /DATE OF PRONOUNCEMENT : 28.2.2014 / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSM ENT YEAR 2008-09 AGAINST THE ORDER OF LD. CIT(A) DATED 26.3.2012 ON FOLLOWING G ROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE O F THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DIRECTING AO TO TREAT THE G AIN ARISING OUT OF PURCHASE AND SALES OF SHARES AS EITHER LONG TERM CAPITAL GAIN (L TCG) OR SHORT TERM CAPITAL GAIN (STCG) INSTEAD OF BUSINESS INCOME 2. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT (A) ON THE ABOVE GROUNDS BE REVERSED AND THAT OF THE AO BE RESTORED 2. RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE T HAT THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.6,63,67,615/-. AO HAS STATED THAT THE ASSESSEE IS DEALING IN SHARES AND THE SHORT TERM CAPITAL GAINS (STCG) OF RS.6,22,91,448/- IS TO BE ASSESSED AS BUSINESS INCOME OF THE ASSESSEE AS AGAI NST STCG SHOWN BY THE ASSESSEE. THE REASONS AS GIVEN BY AO TO HOLD THAT PURCHASE AN D SALES OF SHARES CONSTITUTES I.T.A. NO.4163/MUM/2012 2 ACTIVITY OF ASSESSEE HAS BEEN SUMMARIZED IN PARA 4 .1 OF THE ASSESSMENT ORDER AS UNDER: (1) ASSESSEES PRINCIPAL SOURCE OF INCOME IS FROM PURCHASE AND SALE OF SHARES. (2) ASSESSEE IS INVOLVED IN THIS SHARE BUSINESS AC TIVITIES FOR SEVERAL YEARS. (3) ASSESSEE IS NOT ENGAGED IN ANY OTHER BUSINESS ACTIVITIES OTHER THAN PURCHASE AND SALE OF SHARES. (4) DURING THE CURRENT ASSESSMENT YEAR, THE ASSESS EE HAS DEALT IN OVER 11 SCRIPTS AND 174 PURCHASE/SALE TRANSACTIONS. DURING THE RELEVANT YEAR THE ASSESSEE HAS TRADED IN SHARES FOR 87 DAYS. SIMILAR FREQUENCY OF TRANSACTIONS ARE MADE IN THE EARLIER YEARS AND ALSO IN SUBSEQUENT YEARS. (5) ASSESSEE HAS PURCHASED 17,08,671 SHARES AND SO LD 17,08,671 SHARES DURING THE PREVIOUS YEAR RELATING TO THIS ASSESSMEN T YEAR. IT IS IMPORTANT TO MENTION HERE THAT SIMILAR VOLUMES OF PURCHASE AN D SALE IS DONE IN LAST SEVERAL YEARS AND IN SUBSEQUENT YEARS ALSO. (6) THE SOURCE OF FUND UTILIZED FOR ACQUISITION OF SHARES ARE BOTH BORROWED AS WELL AS ACCRUALS OF THE BUSINESS. DURING THE PREVIO US YEAR ASSESSEE HAS UTILIZED THE BORROWED FUND TO THE TUNE OF RS.2,06,5 0,000/- (7) DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE HAS PURCHASED SHARES WORTH RS.19.78 CRORES AND SOLD OF RS.20.82 CRORES. (8) MOST OF THE SHARES ARE SOLD BEFORE THE DATE OF DECLARATION OF DIVIDEND. (9) AS PER THE RETURN OF INCOME DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE EARNED DIVIDEND OF RS.10,29,520/- AS COMPA RED TO PROFIT FROM PURCHASE & SALE OF SHARES OF RS.6,22,91,448/- 3. AO HAS STATED THAT THERE IS LARGE VOLUMES OF TRANSACTIONS IN SHARES WITH CONSIDERABLE FREQUENCY. THAT THE ASSESSEE IS CARRY ING ON SUCH TRANSACTIONS FOR SEVERAL YEARS AND IT PROVES CONTINUITY AND REGULARITY. TH AT THE ASSESSEE HAS ALSO USED BORROWED FUNDS AND ALSO EARNING FROM SALE OF SHARES SYSTEMATICALLY RE-INVESTED IN ACQUISITION OF SHARES AS WELL AS THERE IS A CLEAR PROFIT MOTIVE OF THE ASSESSEE. HOWEVER, THE ASSESSEE FILED ITS REPLY BEFORE AO STATING THA T THE STCG IS ONLY ON 13 SCRIPS AND LTCG IS ONLY 2 SCRIPS. OUT OF THESE 15 SCRIPS, O NLY 1 SCRIP WAS HELD FOR ONE MONTH OR LESS AND WEIGHTED AVERAGE SHARES RELATING TO STCG IS ABOUT 2.84 MONTHS AND THAT OF SHARES RELATED TO LTCG IS ABOUT 22.45 MONTHS. THA T ALL THE PURCHASE OF SHARES HAVE BEEN ENTERED WITH THE SOLE INTENTION OF INVESTMEN T. THAT THE AVERAGE HOLDING PERIOD OF STOCK IS AROUND 4 TO 6 MONTHS DURING THE ASSESSM ENT YEAR UNDER CONSIDERATION. THAT MOST OF THE INVESTMENT WERE MADE FROM OWN FUND OF THE ASSESSEE. THAT THERE IS NO DAILY INVOLVEMENT IN THE MARKET. THAT THE SHARES AND SECURITIES ARE ALWAYS CLASSIFIED AS INVESTMENT IN THE BALANCESHEET AND THE SAME HAVE BEEN ACCEPTED IN THE PRECEDING I.T.A. NO.4163/MUM/2012 3 ASSESSMENT YEAR IN THE ASSESSMENT MADE U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). THAT THE SAID SHARES HAVE BEEN VALUED AT C OST AND NEVER VALUED AT LOWER OF COST OR MARKET VALUE. THE ASSESSEE PLACED RELIANCE ON THE NUMBER OF DECISIONS WHICH HAVE BEEN CITED BY AO. HOWEVER, AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND ACCORDINGLY CONSIDERED STCG DECLARED BY ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. 4. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE HAS HELD THAT THE SAID STCG DECLARED BY ASSESSEE IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND THE REASONS GIVEN BY HIM ARE STATED IN PARAS 6 TO 27 O F THE IMPUGNED ORDER WHICH WE CONSIDER IT RELEVANT TO STATE AND SAME READ AS UND ER : 6. I HAVE CAREFULLY CONSIDERED THE ASSESSEES SU BMISSION ALONG WITH THE PAPER BOOK, THE IMPUGNED ASSESSMENT ORDER AND FACTS OF THIS CASE ON THIS ISSUE. WHETHER A PARTICULAR SHARE TRANSACTIONS CONSTITUTE INVESTMENT ACTIVITY OR TRADING ACTIVITY WILL DEPEND UPON FACTS AND CIRCUMSTANCES O F EACH CASE. THE FACTORS SUCH AS, VOLUME AND FREQUENCY, ENTRY IN THE BOOKS OF ACC OUNT AS INVESTMENT, TRANSACTIONS BEING FUNDED FROM OWN FUNDS/BORROWED F UNDS ETC, ARE SOME OF THE RELEVANT FACTORS IN DECIDING THE TRUE NATURE OF TRA NSACTIONS BUT NONE OF THESE FACTORS IS CONCLUSIVE. THE INTENTION AT THE TIME OF PURCHASES IS THE MOST IMPORTANT FACTOR BUT SUCH INTENTION HAS TO BE GATHE RED FROM SUBSEQUENT CONDUCT OF THE ASSESSEE IN DEALING WITH THESE SHARES AND NO T FROM THE ENTRY IN THE BOOKS OF ACCOUNTS. 7. EACH CASE HAS ITS UNIQUE AND PECULIAR SET OF FA CTS. NUMEROUS DECISIONS OF ITATS AND HIGH COURTS ARE AVAILABLE ON THIS ISSUE. ALL THESE DECISIONS CANNOT BE APPLIED AS A STRAIT JACKET FITTING TO THE FACTS OF THE ASSESSEES CASE AS DONE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ANALYS ED VARIOUS INGREDIENTS/FACTORS LAID DOWN BY THE JUDICIARY AND THE CBDTS INSTRUCTI ON, IN A GENERAL AND ROUTINE MANNER BUT NOT WITH REFERENCE TO THE ACTUAL FACTS I N THE APPELLANTS CASE. THE VARIOUS TESTS LAID DOWN HAS TO BE ANALYZED WITH REF ERENCE TO THE SCRIPS ACTUALLY PURCHASED AND SOLD BY THE ASSESSEE. IT WAS THE SUBM ISSION OF THE APPELLANT THAT DURING THE YEAR THERE WERE ONLY 174 TRANSACTIONS I. E. 87 PURCHASES AND 87 SALES. THE NUMBER OF SCRIPS TRADED WAS ONLY 11. THE ACTUAL SCRIPS TRADED, DATE OF ACQUISITION, DATE OF SALE, PERIOD OF HOLDING ETC., IS AVAILABLE, IN PAGES 14 TO 16 AND 29 OF THE PAPER BOOK AND FOR THE SAKE OF CONVEN IENCE IT IS ENCLOSED AS ANNEXURE TO THIS ORDER. 8. THAT TABLE IN THE ANNEXURE INDICATES THAT THE AP PELLANT HAD BOUGHT AND SOLD 17,06,671/- SHARES BELONGING TO 10 SCRIPS FOR EARNING STCG. THIS FACTOR COUPLED WITH ONLY 87 DAYS OF BUYING AND SELLING THE SCRIPS SHOWS THAT THE ASSESSEE IS NOT A FREQUENT VISITOR OF STOCK EXCHANG E. THE PURCHASE AND SALE OF SHARES WERE NOT ON A DAY TO DAY BASIS. NO DOUBT MOS T OF THE TRANSACTIONS HAD RESULTED IN A PROFIT BUT THAT CANNOT BE SOLD CRITER IA TO COME TO THE CONCLUSION THAT THE ASSESSEE IS INDULGING IN BUSINESS ACTIVITY, A C AREFUL SCRUTINY OF THE TABLE REVEALS THAT THE SCRIPS WERE PURCHASED ONCE OR TWIC E IN A YEAR AND THERE IS NOT MUCH REPETITIVE PURCHASE AND SALE OF THE SAME SCRIP S. THIS SHOWS THE APPELLANTS INTENTION WAS NOT TO MAKE QUICK MONEY. I.T.A. NO.4163/MUM/2012 4 9. THE ACID TEST TO JUDGE INTENTION IS WHETHER ON E INDULGES IN FREQUENT BUYING AND SELLING ONLY TO MAKE QUICK MONEY. IF THI S INGREDIENT IS PRESENT THEN IT CAN BE CLEARLY CONCLUDED THAT ONE IS IN THE HABIT O F TRADING IN SHARES THE MOST IMPORTANT CRITERIA IS TO ASCERTAIN THE INTENTION AT THE TIME OF PURCHASE, BUT SUCH INTENTION HAS TO BE GATHERED FROM THE SUBSEQUENT CO NDUCT OF THE ASSESSEE IN DEALING WITH THE SHARES. THE INVESTOR IS CONSISTENT LY NOT MOTIVATED TO SELL THE SHARES ON EACH AND EVERY RISE IN THE VALUE OF SHARE S. IN FACT, THE ATTRIBUTE OF THE TRADER IS THAT THERE SHOULD BE FREQUENT BUYING AND SELLING. THE INVESTOR IS NOT BARRED FROM SELLING THE SHARES AFTER SHORT HOLDING PERIOD IN ORDER TO RESHUFFLE PORTFOLIO WHEN A PARTICULAR SHARE IS NOT DOING WELL . MERELY BECAUSE THE ASSESSEE LIQUIDATES ITS INVESTMENT AFTER A SHORT PERIOD OF H OLDING, IT SHOULD NOT LEAD TO A CONCLUSION THAT THE INTENTION WAS TO TRADE. LARGE V OLUME OF PURCHASE AND SALE OF SHARES DOES NOT PER-SE MEANS BUSINESS ACTIVITY. THE VOLUME AND FREQUENCY CANNOT BE SOLE CRITERIA TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE IS INTO TRADING. A PRUDENT INVESTOR ALWAYS KEEPS A WATCH ON THE MARKET TRENDS. WHEN PARTICULAR SCRIP IS NOT DOING WELL, THEN, IT DOES N OT BAR HIM FROM LIQUIDATING THE SAME TO ESCAPE FROM FURTHER LOSS. 10. THUS THE INTENTION CAN BE PROVED ONLY BY WAY O F CONDUCT OF THE APPELLANT AFTER THE PURCHASE. THE CONDUCT OF THE APPELLANT IN THE PRESENT CASE SHOWS THAT THE INTENTION WAS TO HOLD THE SHARES FOR SOME TIME BEFORE DISPOSING OFF THE SAME. AS MENTIONED ALREADY, THE AVERAGE HOLDING PER IOD FOR STCG IS MORE THAN 3 MONTHS . THE ANALYSIS OF THE TABLE ALSO REVEALS THAT THERE IS NO INTRA TRADING ACTIVITY. THE VOLUME TRADED WAS HIGH I.E 17 ,06,671 SHARES IN THE WHOLE YEAR. 10 SCRIPS BOUGHT AND SOLD IN 87 DAYS INDICATE S THAT THE FREQUENCY IS DEFINITELY NOT HIGH. THE ABOVE FACTS SHOWS THAT THO UGH THE VOLUME IS HIGH BUT THE FREQUENCY IS LESS. THESE ARE NOT DEFINITELY THE ATTRIBUTES OF THE TRADER. 11. THE TRANSACTION WITH REGARD THESE 10 SCRIPS OUT OF WHICH THE STCG WAS DISCLOSED ARE DISCUSSED AS UNDER: 1. BHARATH FORGE WAS BOUGHT ON 19/2/2008 AND SOLD ON 2 2/2/2008. THIS SCRIPS WAS BOUGHT ONCE AND SOLD ONCE. 2. BOSCHE CHASIS SYSTEMS BOUGHT ON 7/7/2007 AND SOLD O N 11/3/2008. THIS SHARE WAS BOUGHT ONCE AND SOLD ONCE. 3. KIRLOSKAR BROTHERS WAS BOUGHT ON 24/8/2007 AND 27/0 8/2007 SOLD ON 18, 19/10/2007 AND 21/1/2008. THOUGH THESE SHARE WE RE BOUGHT ON 2 DAYS, THERE WERE 9 TRANSACTIONS. SIMILARLY, THERE WERE 9 SALE TRANSACTIONS IN 3 DAYS. 4. KOTAK MAHINDRA BANK WAS BOUGHT ON 28/29/30/11/2007 BUT SOLD ON 14/1/2008. 5. MARICO INDUSTRIES WAS BOUGHT ON 28, 30/08/2007 AND 25/1/2008 AND SOLD ON 30/11/2007, 18/1/2008 AND 03/03/2008. 6. PRISM CEMENTS BOUGHT ON 13, 16/07/2007 AND 22/08/20 07 AND SOLD BETWEEN 13/9/2007 TO 31/10/2007. THERE WERE 21 BUY AND 27 SALE TRANSACTIONS. 7. RELIANCE INDUSTRIES WAS BOUGHT ON 28/02/2007 AN D SOLD ON 02/2008. THERE WAS 1 BUY AND 1 SALE. I.T.A. NO.4163/MUM/2012 5 8. RELIANCE INFRASTRUCTURE WAS BOUGHT ONCE ON 19/1 0/2007 AND SOLD ON 5 TH , 6 TH , 7 TH AND 8TH OF NOVEMBER, 2007. 9. TAYO ROLLS WAS BOUGHT ONCE ON 107/2007 AND SOLD ON 24TH, 28TH SEPTEMBER, 2007 AND I2 AND 25TH FEBRUARY, 2008. 10. TITAN INDUSTRIES WAS BOUGHT BETWEEN 12/9/2007 T O 25/9/2007 AND SOLD BETWEEN 28/11/2007 TO 09/02/2008. THERE WERE 2 3 BUY AND 23 SELL TRANSACTIONS. 12. JUST BECAUSE PARTICULAR SCRIP HAS RESULTED IN A PROFIT THE ASSESSEE HAS NOT REPEATEDLY DEALT IN THOSE STOCKS EXCEPT IN THE CASE OF PRISM CEMENTS AND TITAN INDUSTRIES. HAD THE ASSESSEE BEEN A TRADER THAN HE WOULD HAVE REPEATEDLY BOUGHT THOSE SCRIPS WHICH HAD YIELDED GOOD PROFITS, SO THE ELEMENT OF INTENTION OF MAKING QUICK PROFIT IS NOT THERE IN THE APPELLAN TS CASE. THE BEHAVIOR OF THE ASSESSEE CLEARLY PROVES THAT HE IS AN INVESTOR AND NOT A TRADER. 13. FURTHER ANALYSIS OF THE HOLDING PERIOD AS PER THE ABOVE TABLE REVEALS THAT EXCEPT, THREE SCRIP NAMELY BHARATH FORGE, KOTAK MA HINDRA BANK AND RELIANCE INFRA WHICH WERE HELD BETWEEN ONE TO TWO MONTHS, FOR THE BALANCE 7 SCRIPS THE HOLDING PERIOD WAS MORE THAN THREE MONTHS WHICH PRO VES THE INTENTION THAT THESE WERE MEANT FOR INVESTMENT BECAUSE THERE WAS NO QUICK BUY AND SELL. 14. THE APPELLANT HAS DECLARED 6.22 CRORES TOWARDS STCG. THE MAJOR GAIN WAS WITH RESPECT TO RIL SCRIPS WHICH HAD YIELDED RS 6.71 CRORES. IN FACT, THE SHARES OF RIL WAS HELD BY THE APPELLANT FOR ALMOST 12 MONTHS. THE SCRIPS WERE PURCHASED ON 28/2/2007 AND SOLD ON 07/02/2008. THIS CLEARLY PROVES THE INTENTION WAS TO HOLD FOR FAIRLY A LONG TIME .THE A PPELLANT WAS NOT MOTIVATED TO SELL ON EACH AND EVERY RISE WHICH IS AN ATTRIBUTE O F DEFINITELY THE INVESTOR AND NOT A TRADER. 15. AS MENTIONED ALREADY, THE ABERRATION WAS WITH RESPECT TO TITAN INDUSTRIES SCRIPS WHERE THERE IS REPETITIVE BUYING AND SELLING BUT CLOSER SCRUTINY REVEALS THAT THE TRANSACTION HAS RESULTED IN A NET LOSS OF RS 1.98CRS. THESE SCRIPS WERE HELD ALMOST FOR MORE THAN 3 MONTHS. TO ESCAPE FROM FURTHER LOSS THE APPELLANT WAS PROMPTED TO LIQUIDATED THESE SCRIPS. HENCE IT C AN BE SAID THAT THE TRANSACTION AMOUNTS TO TRADING. 16. THE ASSESSING OFFICER HAS CLEARLY FAILED TO AN ALYZE THESE FINER FACTUAL ASPECTS TO ARRIVE AT A FINAL CONCLUSION THAT THE AS SESSEE IS NOT AN INVESTOR. 17. WHILE DEALING WITH THE SOURCE OF ACQUISITION, THE ASSESSING OFFICER HAS GIVEN FINDING THAT BORROWED FUNDS WERE UTILIZED FOR INVESTMENT. THE TABULAR COLUMNS AVAILABLE IN PAGES 18 OF THE ASSESSMENT ORDER, SHOWS THE DETAILS, SUC H AS PARTY WISE AND DATE WISE BORROWING. IT IS THE CONCLUSION OF THE AO THAT BECAUSE BORROWED FUNDS WERE UTILIZED FOR ACQUISITION, IT IS NOTHING BUT TRADING ACTIVITY. 19. THE CONTENTION OF THE APPELLANT IS AS FOLLOWS: AS REGARDS USER OF BORROWED FUNDS, IT WAS EXPLAINE D TO THE ASSESSING OFFICER THAT THE FUNDS WERE TAKEN TEMPORARILY FROM WIFE AND HUF OF YOUR APPELLANT. AS REGARDS LOAN FROM SAMTA MANAGEMENT STRATEGIES PVT. LTD. ALLEGED BY THE I.T.A. NO.4163/MUM/2012 6 ASSESSING OFFICER AS STATED ABOVE, IT WAS IN FACT C APITAL CONTRIBUTION LOAN GIVEN TO THAT COMPANY BY YOUR APPELLANT THAT WAS RETURNED TO HIM BY THE SAID COMPANY. HOWEVER, THE ASSESSING OFFICER MISSED THIS POINT. T HUS, IT WAS SUBMITTED THAT IT WAS INTERNAL FUNDS THAT WERE USED FOR INVESTMENT AC TIVITIES. 20. AS PER THE AO, LOAN OF RS 2.06 CRORES WERE TAKE N ON SEVERAL OCCASIONS FROM THE FOLLOWING PARTIES: NAME RELATIONSHIP HEMA H. DAND WIFE HIREN M. DAND (HUF) HUF OF THE APPELLANT SARAL MANAGEMENT ADVISORS PVT. LTD. NO SUCH PARTY EXIST IN THE BOOKS OF APPELLANT 21. THE FACTUAL POSITION IS THAT THE ABOVE LOANS A RE FROM THE FAMILY MEMBERS OF THE APPELLANT I.E. FROM WIFE AND HUF. AS FAR AS THE LOAN ALLEGED TO HAVE BEEN TAKEN FROM THE COMPANY, IT IS THE CONTENTION OF THE APPELLANT THAT IT WAS IN FACT LOAN RETURNED BY THE COMPANY. IN SUPPORT OF THIS, T HE A.R. HAS ALSO FURNISHED THE COPIES OF THE ACCOUNTS OF THE COMPANY. THESE LOANS WERE TEMPORARY IN NATURE, WITHOUT ANY INTEREST. THE ASSESSING OFFICER FAILED TO TAKE A NOTE THAT THESE LOANS WERE NON INTEREST BEARING LOANS AND ACCORDINGLY HE CAME TO A WRONG CONCLUSION. 22. ONE OF THE REASONS ADDUCED BY THE ASSESSING OF FICER TO ARRIVE AT A CONCLUSION THAT ASSESSEE IS A TRADER WAS THAT BUYIN G AND SELLING OF SHARES IS A SOLE ACTIVITY OF THE APPELLANT AND THE APPELLANT HA S SPENT HIS ENTIRE TIME IN DEALING OF SHARES. IT WAS THE APPELLANTS CONTENTIO N THAT ONLY 87 DAYS WERE SPENT IN THE STOCK EXCHANGE TOWARDS BUYING AND SELLING OF SHARES. MOREOVER, THE APPELLANT IS A DIRECTOR IN THREE COMPANIES, VIZ., G OOD WILL WAREHOUSING PVT. LTD., (INVOLVED IN THE BUSINESS OF WAREHOUSING), SAMTA MA NAGEMENT AND STRATEGY PVT,.LTD, (INVOLVED IN PORTFOLIO MANAGEMENT SERVICE S), PURVAJ PROPERTIES PVT. LTD. (DEVELOPERS AND BUILDERS OF IMMOVABLE PROPERTIES) A ND CONSIDERABLE TIME WAS SPENT ON THE ACTIVITY OF THESE THREE COMPANIES. THE ABOVE FACTS WERE AVAILABLE BEFORE THE AO HOWEVER HE FAILED TO APPRECIATE THE S AME. ALL THESE FACTS CLEARLY SHOWS THAT THE APPELLANT HAD NOT INDULGED IN THE SO LE ACTIVITY OF BUYING AND SELLING OF SHARES DURING THE ENTIRE YEAR. 23. THE APPELLANT HAS ALSO SUBMITTED THE ASSESSMEN T ORDER FOR 2004-05 WHERE IN THE AO HELD THE STCG AS BUSINESS OF THE AP PELLANT. HOWEVER THE CIT(A) HAS GIVEN A RELIEF BY DIRECTING THE AO TO TREAT THE SAME AS STCG. SUBSEQUENTLY FOR AY 2006-07 AND 2007-08 THE AO HAS ACCEPTED THE CLAIM OF THE APPELLANT U/S 143(3). COPIES OF THE ABOVE ORDERS AVAILABLE AS A P ART OF THE PAPER BOOK. THIS SHOWS THAT CONSISTENTLY THE ASSESSEES CLAIM OF CAP ITAL GAIN ON SALE OF SHARES HAVE BEEN ACCEPTED BY THE DEPARTMENT OVER THE YEAR S AFTER A THOROUGH SCRUTINY U/S143(3). WHEN THE ASSESSING OFFICER HAS ACCEPTED THESE SHARES AS INVESTMENT IN EARLIER YEARS, HE CANNOT SUDDENLY CHA NGE THE TREATMENT AND TREAT THE PROFIT ARISING OUT OF THE TRANSACTION AS BUSIN ESS ACTIVITY DURING THE YEAR. THE PRINCIPLE OF CONSISTENCY CANNOT BE GIVEN A GO BY, B Y THE ASSESSING OFFICER. 24. THE ASSESSEE OVER THE PAST FEW YEARS ENGAGED I N PURCHASE AND SALE OF SHARES BUT THE ACTIVITY IS RESTRICTED ONLY TO VERY FEW SCRIPS AND ALL THE PURCHASES HAVE BEEN TREATED AS INVESTMENT IN THE BOOKS OF ACC OUNT ONLY TO MAXIMIZE THE WEALTH. I.T.A. NO.4163/MUM/2012 7 25. THE APPELLANT HAS NOT DONE ANY SINGLE TRANSACT ION WHICH IS OF SPECULATIVE IN NATURE AND NOT DONE ANY F&O OR COMMODITY SALES. 26. AS FAR AS LONG TERM CAPITAL GAIN IS CONCERNED, THE APPELLANT EARNED 18,474/- OUT OF ONLY 1 SCRIP I.E. BOSCH CHASIS SYST EMS. THE AVERAGE PERIOD OF HOLDING WAS 22.74 MONTHS. THE SCRIP WAS BOUGHT ONCE AND SOLD ONCE AND AT NO STRETCH OF IMAGINATION THIS CAN BE CONSIDERED AS TR ADING ACTIVITY. 27. AS POINTED OUT, ALREADY IN THE PRECEDING 2 YEA RS, THE APPELLANT HAS CONSISTENTLY DECLARED THE GAIN ARISING OUT OF SALE OF SHARE AS CAPITAL GAIN AND SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER U/S 143(3). THOUGH THE RULE OF RESJUDICATA IS NOT APPLICABLE L.T. PROCEEDINGS IN T HE ABSENCE OF CHANGE OF FACTS, THE PRINCIPLE OF CONSISTENCY HAS TO BE FOLLOWED. TO SUM UP VOLUME & FREQUENCY IS LESS. THE AVERAGE PERIOD OF HOLDING WAS MORE THAN 3 MON THS FOR SHORT TERM AND 27 MONTHS FOR LONG TERM. THERE WAS NO SHORT BUYING AND SELLING. THERE WAS NO INTRA DAY TRADING. THERE IS NO REPETITIVE, PURCHASE AND SALE ON PART ICULAR SCRIP. THERE IS NO DERIVATIVE TRANSACTION. THERE WERE NO TRANSACTIONS WITHOUT DELIVERY THE BOOKS OF ACCOUNTS, THE ENTIRE SHARES ARE BEIN G SHOWN AS INVESTMENT AND NOT AS STOCK IN TRADE. THE INTENTION OF THE APPELLANT WAS ONLY TO HOLD A ND NOT TO MAKE QUICK MONEY. THOUGH THERE WAS BORROWED FUNDS, THEY ARE NON IN TEREST BEARING FUNDS ONLY FROM THE FAMILY MEMBERS OR RELATED CONCERN. CONSISTENTLY, THE LAST 3 YEARS THE SCRUTINY ASSE SSMENT HAS BEEN COMPLETED AND THE APPELLANTS CLAIM HAS BEEN ALLOWE D BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE TOTALITY OF THE FACTS, I HOLD THAT THE GAIN ARISING OUT OF PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS EITHER LTCG OR STCG DEPENDING UPON PERI OD OF HOLDING AND IT CANNOT BE TREATED AS BUSINESS AS HELD BY THE AO. T HIS GROUND OF ASSESSEE IS ALLOWED. HENCE, THIS APPEAL BY THE DEPARTMENT. 5. DURING THE COURSE OF HEARING, THE LD. DR SUBMITT ED THAT THE AO HAS RIGHTLY HELD THAT STCG DECLARED BY ASSESSEE IS BUSINESS INCOME AND SUBMITTED THAT THE ASSESSEE PURCHASED 17,08,671 SHARES AND ALSO SOLD THE SAME NUMBER OF SHARES IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT THE ASSESSEE ALSO BORROWED FUNDS OF RS.2.06 CRORES FOR PURCHASE OF SHARES. H E SUBMITTED THAT ASSESSEE CARRIED ON 175 PURCHASES/SALES TRANSACTION. HE SUBMITTED THAT ALL THESE SHOWS THAT THE ASSESSEE WAS CARRYING ON SYSTEMATIC ACTIVITY OF PURCHASE AN D SALE OF SHARES. LD DR REFERRED PAGES 20 TO 25 OF THE ASSESSMENT ORDER AND SUBMIT TED THAT THE AO HAS ANALYZED THE I.T.A. NO.4163/MUM/2012 8 PERIOD OF HOLDING AND HAS STATED THAT THERE WAS NU MBER OF SHARES IN WHICH THE PERIOD OF HOLDING WAS AS SHORT AS FEW DAYS. DURING THE C OURSE OF HEARING THE ATTENTION OF THE LD. AR WAS DRAWN TO THE TABLE IN WHICH THE AO HAS STATED THAT THE PERIOD OF HOLDING IS LESS THAN ONE MONTH AND IN RESPECT OF SHARES SCRIP S OF RELIANCE INDUSTRIES, IT IS INDICATED THAT THE ASSESSEE PURCHASED SHARES ON 28. 2.2007 AND SOLD THE SAME ON 7.2.2008 I.E. AFTER HOLDING FOR MORE THAN 11 MONTHS I.E. PRECISELY FOR A PERIOD OF 344 DAYS AND THE TOTAL STCG SHOWN BY THE ASSESSEE IS RS .6,71,96,013/- AND IF THE SAID TRANSACTION IS EXCLUDED FROM THE TOTAL STCG OF RS.6 ,22,91,448/- SHOWN BY ASSESSEE, IT IS INDICATED THAT IN RESPECT OF OTHER TRANSACTIONS THE RE IS LOSS TO THE ASSESSEE. HOWEVER, ATTENTION OF THE LD.DR WAS ALSO DRAWN TO THE STATEM ENT PLACED AT PAGE 30 OF THE PAPER BOOK WHICH IS A SUMMARY OF THE STATEMENT OF SHORT T ERM CAPITAL GAIN ANALYZED BY AO AT PAGES 20 TO 25 OF THE ASSESSMENT ORDER, THERE ARE CERTAIN SCRIPS IN WHICH THE PERIOD OF HOLDING IS 248 DAYS , 147 DAY,141 DAY, 217 DAY, 23 0 DAY, 229 DAY,230 DAY, 127 DAY, 123 DAY, 142 DAY, 143 DAY, 144 DAY, 140 DAY AND 136 DAYS. THEREFORE, IN RESPECT OF THOSE TRANSACTIONS, IT CAN NOT BE SAID THAT THE PE RIOD OF HOLDING ONLY WAS FOR A FEW DAYS AND IT HAS RIGHTLY BEEN CATEGORIZED IN THE TABLE S UMMARIZED BY AO AT PAGES 20-21 OF THE PAPER BOOK SHOWING A PERIOD OF ONE MONTH. T HE LD. DR DID NOT DISPUTE THE ABOVE CONTENTION AND SUBMITTED THAT HE RELIED ON THE ORD ER OF AO. 6. ON THE OTHER HAND, THE LD. AR SUPPORTED THE ORDE R OF LD. CIT(A). HE FURTHER SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEARS 20 06-07 AND 2007-08, AO WHILE MAKING THE ASSESSMENT U/S 143(3) OF THE ACT ACCEPTE D THE STCG DECLARED BY ASSESSEE. HE SUBMITTED THAT COPIES OF THE SAID ASSESSMENT ORD ER ARE PLACED AT PAGES 10 TO 12 OF PAPER BOOK FOR ASSESSMENT YEAR 2006-07 AND PAGES 13 TO 15 OF THE PAPER BOOK FOR ASSESSMENT YEAR 2007-08. HE FURTHER SUBMITTED THAT IN RESPECT OF ASSESSMENT YEAR 2004-05, AO HELD STCG AS BUSINESS INCOME OF THE A SSESSEE BUT LD. CIT(A) VIDE ITS ORDER DATED 20.2.2008 ALLOWED THE APPEAL OF THE ASS ESSEE TO HOLD THAT THE STCG IS TO BE ACCEPTED UNDER THE HEAD CAPITAL GAIN AND SHOUL D NOT BE CONSIDERED AS BUSINESS INCOME . HE SUBMITTED THAT COPY OF THE ASSESSMEN T ORDER FOR ASSESSMENT YEAR 2004- 05 IS PLACED AT PAGE 1 TO 4 OF THE PAPER BOOK AND T HE COPY OF ORDER OF LD. CIT(A) IS AT PAGES 5 TO 9 OF THE PAPER BOOK. HE SUBMITTED THAT DEPARTMENT DID NOT FILE FURTHER APPEAL AGAINST SAID ORDER OF LD. CIT(A). THE LD. AR SUBMITTED THAT DATE-WISE BREAK UP OF SCRIP IS PLACED AT PAGE 30 OF THE PAPER BOOK AN D THERE ARE ONLY 10 SCRIPS AND THERE IS NO REPETITIVE TRANSACTIONS ENTERED INTO BY ASS ESSEE FOR PURCHASE OF SHARES OF THE SAME COMPANY. LD. AR FURTHER SUBMITTED THAT IN RE SPECT OF LOAN OF RS.2.06 CRORES, THE SAME WAS TAKEN BY ASSESSEE FROM HIS WIFE AND HUF O F WHICH THE ASSESSEE IS THE KARTA. I.T.A. NO.4163/MUM/2012 9 THE SAID LOAN IS ALSO WITHOUT INTEREST. HE SUBMI TTED THAT THE SAID FACTS WERE ALSO CONSIDERED BY LD. CIT(A) WHILE HOLDING THE LTCG / STCG DECLARED BY ASSESSEE AND HAS HELD TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS INCOME. HE SUBMITTED THAT THE FACTS IN THE ASSESS MENT YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE PRECEDING ASSESSMENT YEARS AND THE REFORE, THE ORDER OF LD. CIT(A) IS JUSTIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CONSIDERED THE STATEMENT OF STCG PLACED AT PAGE 30 OF THE PAPER BOOK AS WELL AS STATEMENT OF LTCG PLACED AT PAGE 24 OF THE PAPER BOOK. 8. ON PERUSAL OF THE ORDERS OF THE PRECEDING ASSE SSMENT YEARS 2006-07 AND 2007- 08, COPIES PLACED AT PAGES 10 TO 12 AND 13 TO 15 O F THE PAPER BOOK RESPECTIVELY, WE OBSERVE THAT THE ASSESSEE DECLARED STCG OF RS.2,75 ,22,396/- IN THE ASSESSMENT YEAR 2006-07 AND RS.2,78,29,324/- IN THE ASSESSMENT YEA R 2007-08 AND THE AO ACCEPTED THAT SAID INCOME IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN. THERE IS NO DISPUTE TO THE FACT THAT THE ACTUAL CONDUCT OF THE ASSESSE E HAS TO BE VALUED BY ANALYZING HOLDING PERIOD ETC TO ASCERTAIN THE INTENTION OF TH E ASSESSEE. WE OBSERVE THAT THERE IS ONLY ONE SCRIP IN WHICH THE PERIOD OF HOLDING IS O NLY 3 DAYS AND THAT TOO THE ASSESSEE HAS SHOWN LOSS OF RS.1,04,805/-. SIMILARLY, IN R ESPECT OF OTHER SHARES IN WHICH THE PERIOD OF HOLDING IS LESS THAN ONE MONTH, WE OBSERV E THAT THE ASSESSEE HAS SHOWN THE LOSS OF RS.21,23,150/-. SAVE AND EXCEPT THESE TWO S CRIPS, WE OBSERVE THAT THE PERIOD OF HOLDING IS MORE THAN ONE MONTH. THE ASSESSEE HAS D EALT ONLY IN 10 SCRIPS SHOWING THE STCG AGGREGATING TO RS.6,22,91,448/- AND IN ONE SC RIP OF RELIANCE INDUSTRIES LIMITED THE STCG OF RS.6,71,96,041/- IS SHOWN AND THE PERI OD OF HOLDING IS 344 DAYS. WE OBSERVE THAT THE LD. CIT(A) HAS STATED THAT AVERAGE PERIOD OF HOLDING ON WHICH ASSESSEE HAS SHOWN STCG IS MORE THAN 3 MONTHS. THE DEPARTM ENT HAS ALSO NOT DISPUTED THE FACT THAT THERE IS NO INTRA TRADING ACTIVITY. 9. IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE REASONS AS GIVEN BY LD CIT(A) IN THE IMPUGNED ORDER, THE RELEVANT PARAS OF WHICH WE HAVE ALREADY STATED HEREINABOVE CALLS FOR NO INTERFERENCE. HENCE, WE U PHOLD HIS ORDER AND REJECT GROUND OF APPEAL TAKEN BY DEPARTMENT. I.T.A. NO.4163/MUM/2012 10 10. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY, 2014. 1 2 28TH FEBRUARY, 2014 * SD SD ( . . / B.R. BASKARAN ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: TH FEBRUARY, 2014. . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &% / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 9 &: , - : , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - : , /ITAT, MUMBAI