ACIT, New Delhi V. Mrs. Veena Singh, New Delhi

ITA 4220/DEL/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3751 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S KRISHNAN
• Keywords: Business income; Income from undisclosed sources; Rule of consistency; Additional evidence; Question of law
• Section: 142(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: D , NEW DELHI BEFORE SHRI G.D.AGRAWAL , HON BLE PRESIDENT AND SMT. BEENA A PILLAI, JUDICIAL MEMBER ITA NO. 4 220 /DEL/201 1 AY: 20 07 - 08 A CIT, CIRCLE 31 (1) C.R.BUILDING, I.P.ESTATE NEW DELHI VS . MRS. VEENA SINGH 10 G, DCM BUILDING 16, BARAKHAMBA ROAD NEW DELHI (APPELLANT) (RESPONDENT) APPELLAN T BY SH. S.KRISHNAN, ADV. RESPONDENT BY SH. AMIT JAIN , SR. DR DATE OF HEARING 18.01.2018 DATE OF PRONOUNCEMENT 07.02.2018 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER T HE PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAINST ORDER DATED 06/06/11 PASSED BY LD.CIT(A) - 26, NEW DELHI FOR ASSESSMENT YEAR 2007 - 08 ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN ADMITTING ADDITIONAL GROUNDS OF APPEAL FILED BY THE ASSESSEE IN VI EW OF THE FACT THAT THE ADDITIONAL EVIDENCE IS NOT COVERED BY THE SUB RULE (1) TO RULE 46A OF THE INCOME TAX RULES, 1962. 2. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN TREATING THE ADDITION OF RS.33,76,049/ - ON ACCOUNT OF BUSINESS I NCOME AS SHORT TERM CAPITAL GAIN. 2 3. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.82,23,826/ - ON ACCOUNT OF INCOME FROM UNDISCLOSED SOURCES AS LONG TERM CAPITAL GAIN. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ANY/ALL THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: A SSESSEE FILED HER RETURN OF INCOME ON 15/11/07 DECLARING TOTAL INCOME OF RS.44,31,729/ - . THE RETURN WAS PROCES SED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (THE A CT ) AND THE CASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT ALONG WITH THE QUESTIONNAIRE WAS SERVED UPON THE ASSESSEE. IN RESPONSE TO THE STATUTORY N OTICES, REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND FILED RELEVANT DETAILS AS CALLED FOR. 2.1. DURING THE ASSESSMENT PROCEEDINGS LD.AO OBSERVED THAT ASSESSEE HAD DECLARED BUSINESS INCOME, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN FROM SALES/P URCHASE OF SHARES AND INCOME FROM OTHER SOURCES. IT WAS OBSERVED THAT SHE HAD DECLARED SHORT TERM CAPITAL GAIN OF RS.34,23,376/ - FROM SALE OF SHARES. LD. AO WAS OF THE OPINION THAT THE AMOUNT DECLARED AS SHORT TERM CAPITAL GAIN SHOULD BE TREATED AS BUSINESS INCOME AND ACCORDINGLY MADE ADDITION IN THE HANDS OF ASSESSEE. LD. AO ALSO TREATED THE LONG TERM CAPITAL GAIN AMOUNTING TO RS. 80,07,268/ - ON SALE OF EQUITY SHARES OF RELIANCE C APITAL L IMITED AS INCOME FROM UNDISCLOSED SOURCES. LD. AO THUS REJECTED THE LONG TERM CAPITAL GAINS CLAIMED BY ASSESSEE. 3 2.2. AGGRIEVED BY THE ORDER OF LD.AO ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) , WHO DELETED THE ADDITIONS ON THE BASIS OF THE DOCUMENTS SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY AS ADDITIONAL EVID ENCE. 2.3. AGGRIEVED BY THE ORDER OF LD.CIT(A) , THE REVENUE IS IN APPEAL BEFORE US NOW. 2.4 . LD. DR PLACED RELIANCE UPON THE ORDER OF LD. AO. 2.5 . HOWEVER , AT THE OUTSET LD. AR SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED IN THE CASE OF SHREE BHUWANESW AR PRASAD SINGH, HUSBAND OF ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 IN AN ORDER PASSED BY THIS T RIBUNAL IN ITA NUMBER 3807/DEL/2011 V IDE ORDER DATED 19/05/17 . GROUND NO. B 3. FROM THE ORDER PASSED BY LD.CIT(A) : THE OBSERVATIONS OF LD. CIT (A) IS ON THE BASIS OF THE FOLLOWING SUBMISSIONS ADVANCED BY ASSESSEE AT THE TIME OF HEARING BEFORE HIM WHICH IS REPRODUCED HEREUNDER: 7.6. THE LD.AR HAS ALSO PLACED RELIANCE ON THE FOLLOWING CASE LAWS WHICH ARE FOUND TO BE WE LL IN SUPPORT OF ITS CASE. CIT VS. GOPAL PUROHIT (2010) 228 CTR (BOM) 582: CAPITAL GAINS VIS - A - VIS BUSINESS INCOME TRANSACTIONS IN SHARES TRIBUNAL HAVE DECIDED ON THE MERITS OF THE CASE IN THE LIGHT OF THE CIRCULAR NO.4/2007. IT WAS HELD THAT THE DE LIVERY BASED TRANSACTIONS ARE TO BE TREATED AS INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THERE FROM IS TO BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF SHARES TRIBUNAL HAS CORRECTLY HELD THAT THOUGH THE PR INCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YEAR IS SEPARATE IN ITSELF, THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. 4 IN SARNATH INFRASTRUCTURE P LTD. VS. ACIT (2009) 120 TTJ (L UCKNOW) 216, IT WAS HELD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT THERE FROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. CI T VS. ESS JAY ENTERPRISES P LTD. (2008) 173 TAXMAN 1 (DEL): CAPITAL GAINS VIS - A - VIS BUSINESS INCOME RECEIPTS FROM SALE OF SHARES HELD AS INVESTMENT ASSESSEE HAVING SHOWN THE SHARES AS INVESTMENT IN THE BOOKS AND THERE BEING NO MATERIAL ON RECORD TO SHOW THAT THE SAME WERE CONVERTED INTO STOCK - IN - TRADE, RECEIPTS FROM SALE THEREOF ARE ASSESSABLE AS CAPITAL GAINS AND NOT BUSINESS EVEN THOUGH ONE OF THE OBJECT OF ASSESSEE, RUNNING A RESTAURANT, AS MENTIONED ITS MOA WAS TRADING IN SHARES, THERE WAS NO MATERIAL TO SHOW THAT IT WAS REGULARLY DEALING IN SHARES TREATMENT GIVEN TO A TRANSACTION IN BOOKS OF ACCOUNTS IS IMPORTANT NO SUBSTANTIAL QUESTION OF LAW AROSE RAJA BAHADUR KAMAKHYA NARAIN VS. CIT(1964) 51 ITR 596 (PAT) APPLIED. THE HON BLE MUMBAI I TAT IN THE CASE OF JANAK S RANGWALLA VS. ACIT (11 SOT 627) HELD AS UNDER ON THE PRINCIPLE OF CONSISTENCY AND THE ISSUE OF MAGNITUDE OF TRANSACTIONS: THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIPLE OF R ES JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS TH ERE IS A MATERIAL CHANGE IN THE FACTS. THE SAME VIEW HAS BEEN TAKEN BY THE HON BLE DELHI COURT IN CIT VS. NEO POLY PACK (P) LTD. (2000) 245 ITR 492. IN THE FACTS OF THE CASE, THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE I NTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE 5 NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BUT THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTION OF SALE A ND PURCHASE OF SHARES IN THE PRECEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG TERM AND SHORT TERM BASIS. THE PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. T HERE IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK IN TRADE. THE MERE MAGNITUDE OF TRANSACTION DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. IN THE DECISION OF HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF SHAH - LA - INVESTMENT & FINANCIAL CONSULTANTS P LTD. REPORTED IN 2 SOT 371, IT WAS SUBMITTED THAT THE VOLUMINOUS TRANS ACTIONS IS NOT THE DETERMINING FACTOR FOR DECIDING THE INCOME AS BUSINESS INCOME OR CAPITAL GAIN . FURTHER THE FREQUENCY, QUANTUM OR MAGNITUDE HAVE NO BEARING TO THE ISSUE OF DETERMINATION OF SHORT TERM CAPITAL GAIN. REFERRING TO THE DECISION OF THE T RIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT REPORTED IN 20 DTR 99, WHICH HAS SINCE BEEN UPHELD BY THE JURISDICTIONAL HIGH COURT, AND THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. NSS INVESTMENTS P LTD. REPORTED IN 277 ITR 149, IT I S SUBMITTED THAT WHEN THE ASSESSEE IS HOLDING SHARES FOR THE PURPOSE OF EARNING DIVIDEND AND NOT AS STOCK IN TRADE, THE PROFIT ON SALE OF SUCH SHARES HAS TO BE TREATED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. IT IS FURTHER RELIED ON THE FOLLOWING DECISI ONS THAT THE ENTIRE PROFIT ON SALE OF SHARES HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. *JCIT VS. DINESH KUMAR GUPTA, 2 SOT (14)(DELHI) * BOMBAY GYMKHANA VS. JCIT 115 TTJ 639 (MUM) * NA MODI VS. SAL NARAYAN ROW, 61 ITR 428 7 .7. WHEN VIEWED IN THE LIGHT OF THE ABOVE JURISDICTIONAL DECISIONS AND FOR THE OTHER REASONS GIVEN ABOVE, IT IS FOUND THAT THE CLAIM OF THE ASSESSEE HAS TO 6 BE ACCEPTED. IT IS OBSERVED THAT AS REGARDS THE LAW POINT IN VARIOUS CASES, COURTS HAVE TAKEN THEIR VIE WS BASED ON THE FACTS ON RECORD HENCE THERE ARE CLEAR - CUT PRINCIPLES TO DECIDE ON THESE TYPES OF CASES WHICH HAVE TO BE DECIDED ON INDIVIDUAL MERITS AND FACTS ON RECORD OF THAT CASE. THE CASE LAW OF GOPAL PUROHIT (SUPRA) RELIED UPON BY THE ASSESSEE THROWS LIGHT ON THE BASIS TO BE ADOPTED TO DIFFERENTIATE BETWEEN CAPITAL GAINS AND BUSINESS INCOME. THIS CASE HAS BEEN DECIDED ON THE FACTS THAT THE ASSESSEE IN THIS CASE WAS A TRADER IN SHARES AND HOW TO DEMARCATE THE BUSINESS INCOME FROM CAPITAL GAINS AS EXPLAI NED IN AN EARLIER CASE OF SA RN ATH INFRASTRUCTURE P LTD (SUPRA). THE HON'BLE TRIBUNAL HAS STATED THAT AFTER CONSIDERING ABOVE RULINGS AND VARIOUS PROVISIONS OF THE CIRCULARS ISSUED BY THE CBDT; WE CULL OUT FOLLOWING PRINCIPLES WHICH CAN BE APPLIED ON THE FA CTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM)? THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK - IN - TRADE OR INVESTMENT? WHETHER SHOWN IN OPENING/ CL OSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON - TRADING ASSET? IN THE CASE OF THE APPELLANT, IT HAS BEE N SHOWN AS INVESTMENT IN HIS BOOKS OF ACCOUNT AND BALANCE SHEET FILED ON RECORD. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING I N AN ASSET FOR RETAINING. IN THE CASE OF APPELLANT, NO MONEY WAS BORROWED BY THE APPELLANT. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). IN THE INSTANT CASE, THERE ARE 49 TRANSACTIONS IN THE ENTIRE YEAR FOR THE PURCHASE OF SHARES OF 5 COMPANIES AND WHICH HAVE SHOWN SUBSTANTIAL GAIN IN VALUE WITHIN THE YEAR AND HAVE BEEN SOLD BY THE YEAR END. (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHE THER INTENTION WAS TO ENJOY, DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. IT HAS BEEN SUBMITTED THAT THERE WAS NO COMMERCIAL MOTIVE INVOLVED IN CASE OF THE APPELLANT AS THESE T RANSACTIONS WERE DONE ON THE BASIS OF VARIOUS NEWS AND MARKET REPORTS. 7 (5). HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN I N THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENT: OR WHERE THEY ARE VALUED A T COST OR MARKET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK - IN TRADE. IN CASE OF THE APPELLANT, THE SHARES HAVE VALUES AT COST AND TREATED AS INVESTMENTS. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED I N MEMORANDUM OF ASSOCIATION/ ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? A ND V ICE VERSA. THIS POINT IS NOT APPLICABLE TO THE APPELLANT. (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK - IN - TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. IN THE PRESENT CASE, THE APPELLANT HAS ADDUCED SUFFICIENT EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT WHICH THE ASSESSING OFFICER HAS NOT BEEN ABLE TO DISPROVE. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE IT EMS IN QUESTION) FOR INVESTMENT. THE COPY OF THE LEDGER ACCOUNT AND THE CONTRACT NOTES REFLECT THE ASSESSEE TO BE AN INVESTOR. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION ( TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SI NCE BEGINNING OR WHEN PURCHASES WERE MADE? THE ASSESSEE IS AN INVESTOR AND HAS DEALT IN SHARES THROUGH THE BROKER ITSELF AND HAS TRADED IN HIS OWN NAME ONLY. (10) IT IS PERMISSIBLE AS PER CBDT CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. THE ASSESSEE HAS INVESTMENT PORTFOLIO ONLY. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. IN THE INSTANT CASE, THE ENTIRE FACTS & CIRCUMSTANCES OF THE CASE CLEARLY LEAD TO THE CONCLUSION THAT THE PURCHASE/SALE OF SHARES BY THE ASSESSEE HAS TO BE TREATED AS AN INVESTMENT ACTIVITY AND NOT AS TRADING IN VIEW OF THE FOLLOWING FACTS AS BROUGHT OUT IN THE PRECEDING PARAGRAPHS; 8 * AS PER T HE BOOKS OF ACCOUNTS, THE ASSESSEE HAS TREATED THE ENTIRE INVESTMENT AS INVESTMENT AND NOT AS STOCK IN TRADE. * THE ENTIRE SHORT TERM CAPITAL GAIN IS FROM EQUITY SHARES HELD FOR AN AVERAGE OF ABOUT 67 DAYS. * THERE WERE NO DERIVATIVE TRANSACTIONS BY THE ASSESSEE. * ALL THE TRANSACTIONS WERE DELIVERY BASED (EXCEPT FOR ONE TRANSACTION AND WHICH HAS BEEN RIGHTLY TREATED AS BUSINESS INCOME). * THE ASSESSEE IS NOT A SHARE BROKER NOR IS HAVING REGISTRATION WITH ANY STOCK EXCHANGE. * THE ASSESSEE USED HIS OW N SURPLUS FUNDS FOR INVESTING IN SHARES AND NOT BORROWED ANY MONEY. * THE ASSESSEE HAS DECLARED DIVIDEND INCOME AS WELL. 7.8. IN VIEW OF THE ABOVE DISCUSSION, AND AFTER CAREFUL CONSIDERATION OF VARIOUS CASE LAWS REFERRED ABOVE, IT IS HEREBY HELD THAT TH E ASSESSING OFFICER WAS NOT JUSTIFIED IN CHANGING THE TREATMENT OF INCOME OF THE APPELLANT FROM SHORT TERM CAPITAL GAINS TO INCOME FROM BUSINESS. THE ASSESSING OFFICER IS, ACCORDINGLY, DIRECTED TO TREAT AN AMOUNT OF RS. 45, 51,746/ - AS SHORT TERM CAPITAL GAINS AS DECLARED BY THE ASSESSEE AND NOT AS INCOME FROM BUSINESS. 3.1 . LD. AR PLACED RELIANCE UPON THE FINDINGS OF THIS T RIBUNAL AS UNDER: (C) WE HAVE HEARD BOTH SIDES PATIENTLY. WE HAVE ALSO PERUSED ALL MATERIALS ON RECORD CAREFULLY. AS FAR AS THE FIRST GROUND OF APPEAL REGARDING TREATMENT OF AMOUNT SHOWN BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN AND UPHELD BY LD.CIT(A) IS CONCERNED; THE CONTRARY VIEW OF THE AO WHO TREATED THE AMOUNT AS BUSINESS INCOM E, WAS BASED ON HIS UNDERSTANDING THAT THE MAGNITUDE AND FREQUENCY OF SHARE TRANSACTIONS WAS HIGH, THAT PERIOD FOR WHICH SHARES WERE HELD (I.E. HOLDING PERIOD) WAS SMALL AND THAT THE MOTIVE OF THE ASSESSEE WAS TO REALIZE PROFITS. THE LD. CIT(A) REVERSED TH IS VIEW OF THE AO GIVING DETAILED REASONS. THE RELEVANT PORTION OF THE ORDER OF LD.CIT ( A) IS REPRODUCED AS UNDER: - '7 .7. IT IS OBSERVED THAT AS REGARDS THE LAW POINT IN VARIOUS CASES, COURTS HAVE TAKEN THEIR VIEWS BASED ON THE FACTS ON RECORD HENCE THE RE ARE CLEAR - CUT PRINCIPLES TO DECIDE ON THESE TYPES OF CASES WHICH HAVE TO BE DECIDED ON INDIVIDUAL MERITS AND FACTS ON RECORD OF THAT CASE. THE CASE LAW OF GOPAL PUROHIT (SUPRA) RELIED UPON BY THE ASSESSEE THROWS LIGHT ON THE BASIS TO BE ADOPTED TO DIFFE RENTIATE BETWEEN CAPITAL GAINS AND BUSINESS INCOME. THIS CASE HAS BEEN DECIDED ON THE FACTS THAT THE ASSESSEE IN THIS CASE WAS A TRADER IN SHARES AND HOW TO DEMARCATE THE BUSINESS INCOME FROM CAPITAL GAINS AS EXPLAINED IN AN EARLIER CASE OF SAMATH INFRASTR UCTURE P LTD (SUPRA). THE HON'BLE TRIBUNAL HAS STATED THAT AFTER CONSIDERING ABOVE RULINGS AND VARIOUS PROVISIONS OF THE CIRCULARS ISSUED BY THE CBDT; WE CULL OUT FOLLOWING 9 PRINCIPLES WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACT ION(S) IN QUESTION ARE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM)? THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED AS STOCK - IN - TRADE OR INVESTMENT? WHETHER SHOWN IN OPENING/ CL OSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON - TRADING ASSET? IN THE CASE OF THE APPELLANT, IT HAS BEEN SHOWN AS INVESTMENT IN HIS BOOKS OF ACCO UNT AND BALANCE SHEET FILED ON RECORD. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PURCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN ASSET FOR RETAINING. IN THE CASE OF A PPELLANT, NO MONEY WAS BORROWED BY THE APPELLANT. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DISPOSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD INDICATE TRADE. HABITUAL DE ALING IN THAT PARTICULAR ITEM IS INDICATIVE OF INTENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING (HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANS ACTIONS AND HIGH HOLDINGS INDICATE INVESTMENT). IN THE INSTANT CASE, THERE ARE 49 TRANSACTIONS IN THE ENTIRE YEAR FOR THE PURCHASE OF SHARES OF 5 COMPANIES AND WHICH HAVE SHOWN SUBSTANTIAL GAIN IN VALUE WITHIN THE YEAR AND HAVE BEEN SOLD BY THE YEAR END. (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROFIT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? FORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY, DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. IT HAS BEEN SUBMITTED THAT THERE WAS NO COMMERCIAL MOTIVE INVOLVED IN CASE OF THE APPELLANT AS THESE TRANSACTIONS WERE DONE ON THE BASIS OF VARI OUS NEWS AND MARKET REPORTS. (5). HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN I N THE BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENT: OR WHERE THEY ARE VALUED AT COST OR MARKET VALUE OR NET REALIZABLE VALUER (WHICHEVER IS LESS), IT WILL INDICATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK - IN TRADE. IN CASE OF THE APPELLANT, THE SHARES HAVE VALUES AT COST AND TREATED AS INVESTMENTS. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED I N MEMORANDUM OF ASSOCIA TION/ ARTICLES OF ASSOCIATION? WHETHER FOR TRADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSA. THIS POINT IS NOT APPLICABL E TO THE APPELLANT. 10 (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOCK - IN - TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NOT REAL. IN THE PRESENT CASE, THE APPELLANT HAS ADDUCED SUFFICIENT EVIDENCE TO SHOW THAT HIS HOLDING IS FOR INVESTMENT WHICH THE ASSESSING OFFICER HAS NOT BEEN ABLE TO DISPROVE. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHARES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE A ND PURCHASE WILL ALONE NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. THE COPY OF THE LEDGER ACCOUNT AND THE CONTRACT NOTES REFLECT THE ASSESSEE TO BE AN INVESTOR. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASSESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESSEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WERE MADE? THE ASSESSEE IS AN INVESTOR AND HAS DEALT IN SHARES THROUGH THE BROKER ITSELF AND HAS TRADED IN HIS OWN NAME ONLY. ( 10) IT IS PERMISSIBLE AS PER CBDT CIRCULAR NO. 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIOS, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BO TH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. THE ASSESSEE HAS INVESTMENT PORTFOLIO ONLY. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EFFECT OF SEVERAL FACTORS HAS TO BE SEEN. IN THE INSTANT CASE, THE ENTIRE FACTS & CIRCUMSTANCES OF THE CASE CLEARLY LEAD TO THE CONCLUSION THAT THE PURCHASE/SALE OF SHARES BY THE ASSESSEE HAS TO BE TREATED AS AN INVESTMENT ACTIVITY AND NOT AS TRADING IN VIEW OF THE FOLLOWING FACTS AS BROUGHT OUT IN THE PRECEDING PARAGRAPHS; * AS PER THE BOOKS OF ACCOUNTS, THE ASSESSEE HAS TREATED THE ENTIRE INVESTMENT AS INVESTMENT AND NOT AS STOCK IN TRADE. * THE ENTIRE SHORT TERM CAPITAL GAIN IS FROM EQUITY SHARES HELD FOR AN AVERAGE OF ABOUT 67 DAYS. * THERE WERE NO DERIVATIVE TRANSACTIONS BY THE ASSESSEE. * ALL THE TRANSACTIONS WERE DELIVERY BASED (EXCEPT FOR ONE TRANSACTION AND WHICH HAS BEEN RIGHTLY TRE ATED AS BUSINESS INCOME). * THE ASSESSEE IS NOT A SHARE BROKER NOR IS HAVING REGISTRATION WITH ANY STOCK EXCHANGE. * THE ASSESSEE USED HIS OWN SURPLUS FUNDS FOR INVESTING IN SHARES AND NOT BORROWED ANY MONEY. 11 * THE ASSESSEE HAS DECLARED DIVIDEND INCOME AS WELL. 7.8. IN VIEW OF THE ABOVE DISCUSSION, AND AFTER CAREFUL CONSIDERATION OF VARIOUS CASE LAWS REFERRED ABOVE, IT IS HEREBY HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN CHANGING THE TREATMENT OF INCOME OF THE APPELLANT FROM SHORT TERM CAPIT AL GAINS TO INCOME FROM BUSINESS. THE ASSESSING, OFFICER IS, ACCORDINGLY, DIRECTED TO TREAT AN AMOUNT OF RS. 45, 51,746/ - AS SHORT TERM CAPITAL GAINS AS DECLARED BY THE ASSESSEE AND NOT AS INCOME FROM BUSINESS. WE ARE OF THE VIEW THAT THE ORDER OF LD. CIT(A) ON THIS ISSUE IS JUST, FAIR AND IN ACCORDANCE WITH LAW IN THE FACTS AND CIRCUMSTANCES OF THE CASE; AND THE LD.DR FAILED TO POINT OUT ANY INFIRMITY, MISTAKE OR ILLEGALITY IN THE IMPUGNED ORDER OF LD.CIT(A) ON THIS ISSUE AND FAILED TO MAKE OUT ANY CAS E FOR INTERFERENCE WITH THE IMPUGNED ORDER ON THIS ISSUE. THE LD.DR ALSO FAILED TO BRING ANY DECIDED PRECEDENTS IN FAVOUR OF THE REVENUE TO WARRANT ANY INTERFERENCE WITH THE ORDER OF LD.CIT(A) ON THIS ISSUE. THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A ) AS FAR AS TREATMENT OF AFORESAID AMOUNT OF RS.45,51,746/ - AS SHORT TERM CAPITAL GAIN IS CONCERNED. 3.2. WE DO NOT FIND ANY INFIRMITY IN THE OBSERVATIONS RECORDED BY LD.CIT(A). IN FACT , IN OUR CONSIDERED OPINION LD.CIT(A) HAS ANALYSED THE ISSUE THREADBARE , BEFORE GRANTING RELIEF TO ASSESSEE. EVEN IN THE PRESENT CASE LD.DR HAS NOT BEEN ABLE TO POINT OUT ANY INFIRMITY OR MISTAKE IN THE IMPUGNED ORDER ON THE ISSUE AND HAS FAILED TO MAKE OU T ANY CASE OF INTERFERENCE WITH THE SAME. FURTHER ON IDENTICAL FACTS THIS TRIBUNAL HAS ALLOWED SIMILAR ISSUE IN THE CASE OF ASSESSEE S HUSBAND, WHICH HAS BEEN REPRODUCED HEREINABOVE. IN THE LIGHT OF TOTALITY OF FACTS WE ARE INCLINED TO CONFIRM THE ORDER OF LD.CIT(A) ON THIS ISSUE. 3.3 . ACCORDINGLY THE GROUND RAISED BY REVENUE STANDS DISMISSED. GROUND NO.C 4. LD. AR SUBMITTED THAT THIS ISSUE HAS BEEN SET ASIDE BY THIS T RIBUNAL IN THE CASE OF SHREE BHUWANESWAR PRAS A D SINGH 12 (SUPRA). HE PLACED RELIANCE UPON T HE FOLLOWING PARAGRAPHS OF THE ORDER PASSED BY THIS T RIBUNAL WHICH IS REPRODUCED HEREUNDER: C.1. REGARDING THE OTHER ISSUE OF THE AFORESAID AMOUNT OF RS.80,32,765/ - SHOWN BY THE ASSESSEE AS LONG TERM CAPITAL GAIN BUT TAXED BY THE A.O. AS INCOME FROM UNDISCLOSED SOURCES, WE FIND THAT THE LOWER AUTHORITIES (BOTH A.O. AND LD.CIT(A)) HAVE FAILED TO CARRY OUT/CAUSE NECESSARY INQUIRIES. WHETHER THIS AMOUNT IS GENUINELY CLAIMED BY THE ASSESSEE AS LONG TERM CAPITAL GAIN OR IT IS INCOME FR OM UNDISCLOSED SOURCES AS OPINED BY THE A.O. WILL DEPEND ON RELEVANT FACTS ALL OF WHICH ARE NOT PRESENTLY AVAILABLE. ONE SUCH RELEVANT FACT, PRESENTLY NOT AVAILABLE BEFORE US, IS WHETHER DISTINCTIVE NUMBERS OF PURCHASE TRANSACTIONS IN THE SHARES OF 'RELIA NCE CAPITAL' AS PER RECORDS OF STOCK EXCHANGE FOR THE RELEVANT DATE EXACTLY MATCH WITH DISTINCTIVE NUMBERS OF SALE TRANSACTIONS IN THE SHARES OF 'RELIANCE CAPITAL' AS PER RECORDS OF STOCK EXCHANGE FOR THE RELEVANT DATE. TO SUBSTANTIATE HIS CLAIM FOR LONG T ERM CAPITAL GAIN ON SALE OF SHARES; THE ASSESSEE NEEDS TO FURNISH CONCLUSIVE EVIDENCE THAT THE SHARES (OF 'RELIANCE CAPITAL') CLAIMED TO HAVE BEEN SOLD ARE EXACTLY THE SAME SHARES (OF 'RELIANCE CAPITAL') HAVING REGARD TO CORRESPONDING DISTINCTIVE NUMBERS O F SHARES. CONVINCING MATERIALS CAN ALSO BE PRESENTED WITH THE HELP OF CORRESPONDING ORDER NO., ORDER TIME, TRADE NO. AND TRADE TIME. FROM THE MATERIALS PRESENTLY AVAILABLE BEFORE US, IT IS NOT POSSIBLE TO CONCLUDE WHETHER THE SHARES CLAIMED TO HAVE BEEN SO LD BY THE ASSESSEE ARE EXACTLY THE SAME AS THE SHARES CLAIMED TO HAVE BEEN PURCHASED BY THE ASSESSEE - AS FAR AS ASSESSEE'S CLAIM OF LONG TERM CAPITAL GAIN IS CONCERNED. AS RELEVANT FACTS FOR ADJUDICATION OF THIS ISSUE ARE NOT PRESENTLY AVAILABLE; IN THE F ITNESS OF THINGS, WE SET ASIDE THE ORDERS OF LD.CIT(A) AND AO ON THIS ISSUE AND RESTORE THE ISSUE IN DISPUTE IN THE SECOND GROUND OF APPEAL TO THE FILE OF THE AO WITH THE DIRECTION TO PASS A FRESH ORDER DENOVO AFTER CARRYING OUT NECESSARY ENQUIRIES AND AFT ER PROVIDING OPPORTUNITY TO THE ASSESSEE. FOR STATISTICAL PURPOSES, THE SECOND GROUND OF APPEAL IS PARTLY ALLOWED. 4.1. THE ISSUE UNDER CONSIDERATION BEFORE US IN THE CASE OF PRESENT ASSESSEE IS ALSO SIMILAR. ACCORDINGLY RESPECTFULLY 13 FOLLOWING THE SAID DECISION OF THIS T RIBUNAL IN CASE OF SHREE BHUBANESWAR PRASAD SINGH (SUPRA), WE ARE INCLINED TO SET ASIDE THIS ISSUE TO LD.AO FOR CARRYING OUT NECESSARY ENQUIRIES AS MENTIONED HEREINABOVE IN THE LIGHT OF THE DOCUMENTS PLACED ON RECORD AS ADMITTED BY LD.C IT(A). NEEDLESS TO SAY THAT ASSESSEE SHALL BE GRANTED PROPER OPPORTUNITY AS PER LAW. 4.2 . ACCORDINGLY THIS GROUND RAISED BY REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 4.3. AS GROUND A RAISED BY REVENUE IS IN RESPECT OF ADDITIONAL EVIDENCE AD MITTED BY LD.CIT(A) IN RESPECT OF GROUND C. AS WE HAVE SET ASIDE GROUND C BACK TO FILE OF LD.AO, THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE RESULT APPEAL FILED BY REVENUE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07.02.2018. SD/ - SD/ - ( G.D.AGRAWAL ) (BEENA A PILLAI) PRESIDENT JUDICIAL MEMBER DT. 07.02.2018 *MV 14 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES 15 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON DRAGON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER