ADLL CIT RG 13(1), MUMBAI V. BABULAL C. SHAH, MUMBAI

ITA 4269/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55277 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 30-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 13-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAMTAM BOSE
• Assessee Lawyers: REPAL TRALSHWALA
• Keywords: Capital asset; Business income; Cost of acquisition; Speculation loss
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 3577 AND 4269/MUM./2009 (A.YS : 2005-06 AND 2006-07 ) DY. COMMISSIONER OF INCOME TAX RANGE-13(1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S MR. BABULAL C. SHAH 29, HANUMAN BUILDING MUMBADEVI ROAD, PYDHONIE MUMBAI 400 003 AADPS4811L .... RESPONDENT REVENUE BY : MR. SHAMTAM BOSE ASSESSEE BY : MR. REPAL TRALSHWALA DATE OF HEARING 6.9.2011 DATE OF ORDER 16.09.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. REVENUES APPEALS IN ITA NO.3577/MUM./2009, FOR AS SESSMENT YEAR 2005-06, IS DIRECTED AGAINST THE IMPUGNED ORDER DAT ED 4 TH MARCH 2009, AND ITA NO.4269/MUM./2009, FOR ASSESSMENT YEAR 2006-07, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 14 TH MAY 2009, PASSED BY THE COMMISSIONER (APPEALS)-XIII, MUMBAI, RESPECTIVELY. 2. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE IN ASSE SSMENT YEAR 2005- 06, READ AS FOLLOWS:- MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACTS C ORRECTLY AS MUCH AS THAT THE A.O. NOWHERE MENTIONED THAT THE NUMBER OF TRANSACTIONS AS WAS PROFIT EARNED BUT THE LEARNED CIT(A) MISTOOK IT AS A NUMBER OF TRANSACTIONS AND CAME TO A WRONG CONCLUSION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN TREATING ` 59,81,873 AS SHORT TERM CAPITAL GAIN AND ` 16,57,152 AS LONG TERM CAPITAL GAIN INSTEAD OF TRE ATING THEM AS BUSINESS INCOME AS ENVISAGED IN THE ASSESSM ENT ORDER. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN TREATING THE COST OF BO NUS SHARES AS NIL INSTEAD OF ` 9,43,810 BY TREATING THE ASSESSEE AS INVESTOR INST EAD OF TRADER. 2. THE SOLE EFFECTIVE GROUND RAISED BY THE REVENUE IN ASSESSMENT YEAR 2006-07, READS AS FOLLOWS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) HAS ERRED IN TREATING ` 45,84,220 AS STCG AND ` 49,84,220 AS LTCG INSTEAD OF TREATING THEM AS BUSIN ESS INCOME AS ENVISAGED IN THE ASSESSMENT ORDER. 3. THE FACTS, AS BROUGHT OUT BY THE ASSESSING OFFICER, VIDE PARA-2 OF THE ASSESSMENT ORDER, READS AS FOLLOWS:- 2. THE ASSESSEE DERIVED INCOME BY WAY OF SALARY FRO M THREE CONCERNS, NAMELY, M/S. SARAVANA POLY, M/S. R.S. TRA DERS, M/S. S.V. TRADERS. HE IS ALSO RUNNING THE BUSINESS UNDER AND NAME AND STYLE OF M/S. RAM TEXTILES. THE ASSESSEE ALSO DEALS IN SHARE S FUTURE FROM WHICH LOSS OF ` 45,744 IS CLAIMED. THE ASSESSEE HAS DISCLOSED SHOR T TERM CAPITAL GAIN OF ` 9,51,892 UPTO 30.9.2004. ON THE SAID SHORT TERM CAPITAL GAIN (HEREINAFTER REFERRED TO AS STCG), THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PAYMENT OF INTEREST TO M/S. INDIABULLS OF ` 3,32,466. FURTHER, HE HAS DISCLOSED STCG AFTER 1.1 0.2004, OF ` 63,00,073. FROM THE SAID STCG OF ` 63,00,073, THE ASSESSEE HAS CLAIMED PAYMENT OF INTEREST TO M/S. INDIABULLS OF ` 9,37,626 AND THUS, STCG OFFERED FOR THE PERIOD FROM 1.10.2004 TILL 31. 3.2005 IS ` 53,62,447 AND THE TOTAL STCG OFFERED, THUS, COMES T O ` 59,81,873. AGAINST THE AFORESAID STCG THE ASSESSEE CLAIMED DED UCTION ON ACCOUNT OF DEMAT CHARGES OF ` 3,912, SERVICE TAX OF ` 57,133 AND TURNOVER TAX OF ` 15,222, TOTALING TO ` 76,267. ACCORDINGLY, NET STCG OF ` 59,05,606 HAS BEEN OFFERED TO TAX. THE ASSESSEE ALS O OFFERED LONG TERM CAPITAL GAIN (HEREINAFTER REFERRED TO AS LTCG ') OF ` 6,49,798. THE ENTIRE LTCG SO OFFERED HAS BEEN ADJUSTED AGAINS T THE BROUGHT FORWARD LOSS OF A.Y. 2000-01. THUS, EFFECTIVELY THE RE IS NO LTCG OFFERED TO TAX. THE ASSESSEE HAS ALSO DISCLOSED INT EREST ON DEBENTURES MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 3 OF ` 516,. THE ASSESSEE HAS ALSO SHOWN EXEMPTED DIVIDEN D INCOME OF ` 7,17,759. 4. THE ISSUE, WHICH ARE COMMON FOR BOTH THE YEARS UNDE R APPEAL IS WHETHER THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN HOLDING THAT THE INCOME IN QUESTION FROM SALE AND PURCHASE OF SHARES IS ASS ESSABLE AS SHORT TERM CAPITAL GAIN AND AS LONG TERM CAPITAL GAIN INSTEAD OF TREATING THEM AS BUSINESS INCOME, AS DONE BY THE ASSESSING OFFICER I N HIS ASSESSMENT ORDER. 5. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SHAMTAM BOSE, ON BEHALF OF THE REVENUE AND THE LEARNED COUN SEL, MR. REPAL TRALSHWALA, ON BEHALF OF THE ASSESSEE. 6. BOTH PARTIES AGREE BEFORE US THAT THE FACTS, IN THE PRESENT CASE, IS IDENTICAL TO THE FACTS IN THE CASE OF MAHENDRA C. S HAH, WHO IS A BROTHER OF THE ASSESSEE [ITA NO.6289/MUM./2008 AND ITA NO.4932 /MUM./2009, ORDER DATED 18 TH MAY 2011]. 7. LEARNED DEPARTMENTAL REPRESENTATIVE, WHILE ACCEPTIN G THAT ON FACTS, THERE IS NO DIFFERENCE IN THE CASE OF BOTH THE BROT HERS, DEFENDED THE ORDER OF THE ASSESSING OFFICER BY SUBMITTING THAT THE COMMIS SIONER (APPEALS) HAD COMMITTED A FACTUAL ERROR BY WRONGLY RECORDING AT P AGE-6 OF HIS ORDER, THE PROFITS EARNED, AS NUMBER OF TRANSACTION. HE ALSO P OINTED OUT THAT THE COMMISSIONER (APPEALS) WHILE HOLDING THAT THE NATUR E OF MARKETS ARE VOLATILE, DID NOT COME TO THE LOGICAL CONCLUSION TH AT THE ASSESSEE IS A TRADER IN SHARES. HE ALSO POINTS OUT THAT THE ASSESSEE HAD BORROWED MONEY FROM INDIABULLS AND UNDER THOSE CIRCUMSTANCES, HE SHOULD BE HELD AS A TRADER RATHER THAN AN INVESTOR. 8. LEARNED COUNSEL, ON THE OTHER HAND, POINTED OUT THA T THE FINDINGS OF THE ASSESSING OFFICER, IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEARS 2005-06 AND 2006-07, ARE IDENTICAL TO THE FINDINGS OF THE ASSESSING OFFICER IN MAHENDRA C. SHAH (SUPRA). HE DEMONSTRATED BEFORE TH E BENCH THAT THE FACTS AND CIRCUMSTANCES ARE IDENTICAL AND SUBMITTED THAT THE CO-ORDINATE BENCH ORDER IN MAHENDRA C. SHAH (SUPRA), SHOULD BE FOLLOW ED. MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 4 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE FIND THAT THE ISS UE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE DECISI ON OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN MAHENDRA C. SHAH (SUPRA), WHEREIN AT PARA-14, THE TRIBUNAL HELD AS FOLLOWS:- 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. THE QUESTION WHETHER THE SURPLUS ON THE SALE OF SHARES IS TO BE ASSESSED AS CAPITAL GAINS (SHORT TERM OR LONG TERM) AS CLAIMED BY THE A SSESSEE OR AS BUSINESS INCOME AS CLAIMED BY THE ASSESSING OFFICER IS A QUESTION OF FACT TO BE DECIDED ACCORDING TO THE CUMULATIVE EFFE CT OF SEVERAL FACTS AND CIRCUMSTANCES OF THE CASE. THE INTENTION OF THE ASSESSEE, THE NATURE OF THE COMMODITY SOLD, WHETHER THE ASSESSEE HAS USED HIS OWN FUNDS OR BORROWED FUNDS, THE TREATMENT GIVEN TO THE ASSET IN THE BOOKS OF ACCOUNT, THE CONSISTENT STAND TAKEN BY THE REVEN UE AUTHORITIES IN RESPECT OF THE SALE PROCEEDS OF THE ASSET IN THE EA RLIER YEARS, THE FREQUENCY AND VOLUME OF THE TRANSACTIONS, THE PERIO D OF HOLDING THE SHARES, WHETHER THE ASSESSEE TOOK OR GAVE DELIVERY OF THE SHARES, ARE ALL QUESTIONS WHICH HAVE TO BE CONSIDERED BEFORE A DECISION IS TAKEN AS TO WHETHER THE ASSESSEE HELD THE SHARES AS CAPITAL ASSETS (INVESTMENT) OR AS STOCK-IN-TRADE. IT IS ALSO RECOGNIZED BY THE REVENUE THAT THE SAME ASSESSEE CAN HOLD THE SHARES IN TWO DIFFERENT PORTFOLIOS ONE PORTFOLIO FOR STOCK-IN-TRADE AND ANOTHER PORTFOLIO AS INVESTMENT. THIS POSITION HAS BEEN RECOGNIZED BY THE CBDT IN ITS CIR CULAR NO: 665 DATED 05.10.1992. 15. IN THE PRESENT CASE THE COMMODITY IN QUESTION I S SHARES WHICH ARE GENERALLY TRADED. BUT THAT IS NOT CONCLUSIVE BE CAUSE IT IS COMMON KNOWLEDGE THAT SHARES ARE ALSO HELD AS INVESTMENT P ARTICULARLY SHARES OF BLUE CHIP COMPANIES WHICH MAY YIELD CONSISTENT D IVIDEND AND MAY ALSO APPRECIATE IN VALUE OVER A PERIOD OF YEARS, TH E APPRECIATION BEING SIMILAR TO THE APPRECIATION IN THE VALUE OF OTHER I NVESTMENTS SUCH AS FIXED DEPOSITS WITH BANKS, REAL ESTATE, GOLD AND OT HER PRECIOUS METALS, ETC. IT IS A FACT THAT IN THE PRESENT CASE THE ASSE SSEE HAS SHOWN THE SHARES AS INVESTMENT IN HIS BALANCE SHEETS. THE REL EVANT DETAILS ARE GIVEN IN PARA 2.2(C) OF THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE SAME IS SET OUT BELOW: - F.Y. ENDING ON NO.OF COMPANIES NO. OF SHARES VALUE 31.03.2003 147 143323 98,22,424/- 31.03. 2004 159 302243 1,69,96,403/- 31.03.2005 149 490237 3,24,59,391/- 31.03.2006 131 541377 3,32,72,973/- MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 5 ONE ASPECT WHICH IS THROWN UP BY THE ABOVE TABLE IS THAT THOUGH THE INVESTMENT VALUE INCREASED SUBSTANTIALLY FROM YEAR TO YEAR, THE NUMBER OF COMPANIES WHOSE SHARES WERE HELD BY THE A SSESSEE REMAINED MORE OR LESS CONSTANT AND IN FACT AS ON 31 .03.2006 IT ACTUALLY FELL TO 131 FROM THE EARLIER HIGH OF 159. IT APPEARS TO US THAT BASICALLY THE NUMBER OF SHARES OF A PARTICULAR COMP ANY PURCHASED BY THE ASSESSEE HAD INCREASED WHICH SUBSTANTIALLY CONT RIBUTED TO THE INCREASE IN THE VALUE OF THE INVESTMENT. THE ABOVE ANALYSIS PRIMA FACIE SHOWS THAT THE ASSESSEE IS BASICALLY AN INVESTOR MO RE THAN A SHARE DEALER. THE STAND OF THE ASSESSEE HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES IN THE ASSESSMENT YEARS 2001-02 AND 200 4-05 IN ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) OF TH E ACT. THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02 IS AT PAGE 34 35 OF THE PAPER BOOK. IT IS SEEN THEREFROM THAT THE AS SESSING OFFICER HAS ACCEPTED THE SHORT TERM CAPITAL LOSS AND THE LONG T ERM CAPITAL GAINS SHOWN BY THE ASSESSEE ON SALE OF SHARES. THE ASSESS MENT ORDER FOR THE ASSESSMENT YEAR 2004-05 IS AT PAGES 61 & 62 OF THE PAPER BOOK. IN THIS YEAR ALSO THE SHORT TERM CAPITAL GAINS OF RS.1 3,94,013/- HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS BEEN DECLARING THE COST OF THE SHARES AS INVESTMENT IN HIS BALANCE SHEETS IN ALL THE YEARS. 16. FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE H AS FURNISHED THE DETAILS OF THE SALE OF SHARES FOR TWO PERIODS I .E. FROM 01.04.2004 TO 30.09.2004 AND FROM 01.10.2004 TO 31.03.2005. IT IS SEEN THAT IN RESPECT OF THE FIRST PERIOD THE SHARES SOLD ARE THO SE OF BHARAT EARTH MOVERS LTD., BALAJI TELEFILM LTD., CENTURY TEXTILES INDIA LTD., CIPLA LTD., GAIL INDIA LTD., PENNAR ALUMINIUM CO.LTD., RELIANCE CAPITAL LTD., TATA STEEL LTD. AND VISUAL SOFTWARE LTD. THE HOLDING PER IOD IN RESPECT OF THESE SHARES RANGES FROM 533 DAYS TO 3981 DAYS. THE DETAILS OF SALE OF SHARES IN RESPECT OF THE SECOND PERIOD SHOW SHARES OF AVERY INDIA LTD., BALLARPUR INDUSTRIES LTD., COLGATE PALMOLIVE (INDIA ) LTD., HDFC BANK LTD., ICICI BANK LTD., LARSEN & TOUBRO LTD., CEAT L TD., TATA STEEL, VOLTAS LTD. THE HOLDING PERIOD RANGES FROM 387 DAYS TO 9016 DAYS. IT IS SEEN THUS THAT THE ASSESSEE HAS HELD THE SHARES FOR QUITE A LONG PERIOD. FOR EXAMPLE, THE SHARES OF GREAVES COTTON L TD. WERE HELD FOR ALMOST 27 YEARS (9016 DAYS). THE SHARES OF AVERY IN DIA LTD. WERE HELD FOR 7493 DAYS. THE SHARES OF PCS INDUSTRIES LTD. WE RE HELD FOR 5674 DAYS. MANY OF THE SHARES WERE HELD FOR 3000 TO 4000 DAYS (9 YEARS TO 12 YEARS). SIMILAR DETAILS HAVE BEEN FILED FOR THE ASSESSMENT YEAR 2006-07 ALSO. FOR THIS YEAR IN RESPECT OF SUBSTANTI AL NUMBER OF SALE OF SHARES THE HOLDING PERIOD WAS MORE THAN ONE MONTH A ND IN RESPECT OF SHARES WHICH WERE HELD FOR LESS THAN A PERIOD OF TW ELVE MONTHS, THE SURPLUS WAS SHOWN AS SHORT TERM CAPITAL GAINS. IN R ESPECT OF THE SURPLUS SHOWN AS LONG TERM CAPITAL GAINS, THE PERIO D OF HOLDING IN ALL THE SHARE TRANSACTIONS WAS SEVERAL YEARS. IT IS SIG NIFICANT THAT THE REVENUE HAS NOT FILED ANY APPEAL AGAINST THE FINDIN G OF THE CIT(A) THAT THE LONG TERM CAPITAL GAINS DECLARED BY THE ASSESSE E FOR THE ASSESSMENT YEAR 2006-07 SHOULD BE ASSESSED AS SUCH AND NOT UNDER THE HEAD BUSINESS. 17. IT IS FURTHER SEEN THAT EVEN IN RESPECT OF THE ASSESSMENT YEAR 2007-08 IN WHICH YEAR AN ASSESSMENT WAS COMPLETED U NDER SECTION MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 6 143(3) OF THE ACT BY ORDER DATED 13.11.2009, THE AS SESSING OFFICER HAS ACCEPTED THE SHORT TERM CAPITAL LOSS OF RS.69,43,82 1/- ON SALE OF THE SHARES AND THE SAME HAS NOT BEEN CONSIDERED AS BUSI NESS. 18. IT WOULD THUS APPEAR THAT PRIMA-FACIE THERE IS ENOUGH EVIDENCE TO SHOW THAT THE ASSESSEE IS AN INVESTOR IN SHARES AND THEREFORE THE SURPLUS ARISING ON THE SALE OF SHARES SHOULD BE ASS ESSED AS SHORT TERM OR LONG TERM CAPITAL GAINS, DEPENDING ON THE PERIOD OF HOLDING AND NOT AS BUSINESS INCOME. 19. BUT THEN THE CONTENTION OF THE DEPARTMENT IS TH AT THE ASSESSEE IS ALSO CARRYING ON F & O TRANSACTIONS AS SPECULATI ON BUSINESS IN SHARES AND THAT THE INVESTMENT IN F & O TRANSACTION AS PER THE BALANCE SHEET AS ON 31.03.2005 IS RS.1,03,01,657/- AS AGAINST THE INVESTMENT IN THE SHARES OF RS.3,24,59,391/-. THE POINT MADE IS THAT ALMOST 1/4TH OF THE TOTAL INVESTMENT OF THE ASSESSEE IS IN SPECULATION AND F & O BUSINESS AND WITH THIS KIND OF BACKGROUND IT WOULD BE DIFFIC ULT TO BELIEVE THAT THE ASSESSEE CAN ALSO BE TREATED AS INVESTOR IN SHA RES. WE FIND IT DIFFICULT TO ACCEPT THE CONTENTION BECAUSE THE CIRC ULAR ISSUED BY THE CBDT REFERRED TO SUPRA HAS ITSELF RECOGNIZED THAT A PERSON CAN HAVE TWO PORTFOLIOS, ONE FOR INVESTMENT AND THE OTHER AS STOCK-IN-TRADE. THE HONBLE BOMBAY HIGH COURT HAS ALSO ACCEPTED THIS PO SITION IN ITS JUDGEMENT IN THE CASE OF CIT VS. GOPAL PUROHIT (34 DTR 52) DELIVERED ON 6 TH JANUARY, 2010. IT IS THEN POINTED OUT THAT THE ASS ESSEE HAS BORROWED FROM INDIA BULLS FOR THE PURPOSE OF BUYING SHARES AND THIS IS A STRONG INDICATION THAT THE ASSESSEE INTENDED TO D O BUSINESS IN SHARES AND NOT MERELY INVEST IN THEM. THE LEARNED COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TO AN ORDER OF THE PUNE BEN CH OF THE TRIBUNAL IN THE CASE OF S.BALAN @ SHANMUGAM BALKRISHNAN CHET TIAR VS. DCIT., (2009) 120 ITD 469, TO SUBMIT THAT THERE IS NO THUM B RULE THAT A PERSON CANNOT BORROW MONEY FOR THE PURPOSE OF MAKIN G INVESTMENT. WE HAVE EXAMINED THE POSITION WITH REFERENCE TO THE ORDER OF THE PUNE BENCH TO WHICH ONE OF US (THE ACCOUNTANT MEMBER) WA S PARTY. IN THIS CASE THE ASSESSEE HAD BORROWED MONIES FOR ACQUIRING SHARES. THE SURPLUS ON THE SALE OF SHARES WAS DECLARED UNDER TH E HEAD CAPITAL GAINS AND FOR THE PURPOSE OF COMPUTING THE GAINS, T HE INTEREST COST WAS ALSO CAPITALIZED AND REDUCED FROM THE SALE PRIC E. THE INTEREST HAS NEVER BEEN CLAIMED AS REVENUE DEDUCTION. ON THESE F ACTS IT WAS HELD THAT THERE WAS NO RULE THAT INTEREST COST CANNOT BE CAPITALIZED AND ESPECIALLY ON THE FACTS OF THE CASE OF THE ASSESSEE BEFORE THE PUNE BENCH IT WAS HELD THAT THE RIGHT COURSE WOULD BE TO CAPITALIZE THE INTEREST COST AND DEDUCT THE WHOLE COST FROM THE SA LE PRICE WHILE COMPUTING THE CAPITAL GAINS. IT WAS OBSERVED THAT T HE INTEREST COST CANNOT BE SEGREGATED FROM THE COST OF ACQUISITION A ND FOR THIS PURPOSE RELIANCE WAS PLACED ON THE JUDGMENT OF THE DELHI HI GH COURT IN CIT VS. MITHLESH KUMARI (1973) 92 ITR 9 WHERE IT WAS HELD T HAT INTEREST PAID BY THE ASSESSEE ON MONIES BORROWED FOR THE PURCHASE OF AN OPEN PLOT OF LAND WOULD FORM PART OF THE ACTUAL COST OF THE A SSESSEE FOR THE PURPOSE OF DETERMINING THE CAPITAL GAINS DERIVED FR OM THE SALE OF THE PLOT. THIS DECISION CERTAINLY LENDS SUPPORT TO THE CONTENTION OF THE ASSESSEE BEFORE US. EVEN IN THE PRESENT CASE THE DE PARTMENT HAS NO OBJECTION TO THE CAPITALIZATION OF THE INTEREST. TH E ALTERNATIVE SUBMISSION OF THE ASSESSEE HOWEVER WAS THAT IN ANY CASE THE BALANCE IN HIS CAPITAL ACCOUNT AS ON 31.03.2005 WAS RS.4,19 ,60,788/- WHICH IS MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 7 MORE THAN THE INVESTMENT IN THE SHARES AS ON THAT D ATE WHICH STOOD AT RS.3,24,59,391/- AND THEREFORE IT CAN BE PRESUMED T HE BORROWED MONIES WERE UTILIZED ONLY FOR THE PURPOSE OF CARRYI NG ON THE F & O BUSINESS. IN FACT THIS CONTENTION HAS BEEN ACCEPTED BY THE CIT(A) IN HIS ORDER FOR THE ASSESSMENT YEAR 2006-07. REFERENC E MAY BE MADE IN THIS CONNECTION TO PARA 2.3(I) OF THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. IN THAT YEAR THE ASSESSEE HAD PAID INTEREST OF RS.15.73 LAKHS AND THAT WAS PUT AS ONE OF THE PO INTS AGAINST THE ASSESSEES CONTENTION THAT HE WAS AN INVESTOR IN TH E SHARES. THE CIT(A) HELD THAT THE ASSESSEE S OWN CAPITAL WAS RS .5.15 CRORES IN THAT YEAR OUT OF WHICH THE INVESTMENT OF RS.3.32 CRORES IN SHARES COULD HAVE COME AND THUS IT CANNOT BE SAID THAT THE ASSES SEE WAS DEPENDING TOTALLY ON BORROWED FUNDS. IN THE LIGHT OF THIS FIN DING ALSO IT CANNOT BE SAID THAT THE FACT THAT THE ASSESSEE PAID INTEREST ON BORROWINGS SHOULD BE HELD AGAINST HIM, PARTICULARLY WHEN THERE ARE OT HER PREDOMINATING FEATURES IN THE CASE WHICH GIVE CLEAR IMPRESSION TH AT THE ASSESSEE INTENDED ONLY TO INVEST IN SHARES AND NOT HOLD THEM AS STOCK-IN-TRADE. 20. IT THUS APPEARS TO US THAT THE CIT(A) TOOK AN I NCORRECT VIEW OF THE MATTER IN THE ASSESSMENT YEAR 2005-06 AND THAT THE CIT(A) WHO DEALT WITH THE APPEAL FOR THE ASSESSMENT YEAR 2006- 07 HAS TAKEN THE CORRECT VIEW OF THE MATTER AND APPLIED THE APPROPRI ATE PRINCIPLES CORRECTLY IN HOLDING THAT THE ASSESSEE WAS AN INVES TOR IN SHARES. 21. FOR THE ABOVE REASONS, WE ALLOW THE FIRST GROUN D TAKEN BY THE ASSESSEE IN HIS APPEAL. THE GROUNDS TAKEN BY THE DE PARTMENT IN ITS APPEAL FOR THE ASSESSMENT YEAR 2006-07 ARE REJECTED . 10. KEEPING IN VIEW THE AFORESAID DECISION OF THE TRIBU NAL, WE DISMISS THE GROUND RAISED BY THE REVENUE FOR BOTH THE YEARS UND ER ASSESSMENT. 11. THE REVENUE HAS ALSO FILED AN ADDITIONAL GROUND, WH ICH READS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE LOSS OF FUTU RE AND OPTION TRANSACTION (DERIVATIVES) FOR ` 14,37,338 AS SPECULATIVE LOSS AS AGAINST THE LOSS UNDER THE HEAD OTHER INCOME AS CLAIMED A S AND SHOWN BY THE APPELLANT. 12. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS I SSUE IS ALSO COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF A CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN MAHENDRA C. SHAH (SUPRA), WHEREIN THE TRIBUNAL, VIDE PARAS-25 AND 26, HELD AS FOLLOWS:- 25. GROUND NO.3 IS AS UNDER:- MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 8 3. ON THE FACTS, CIRCUMSTANCES AND LEGALITY OF THE CASE, THE CIT(A) ERRED IN CONFIRMING THE LOSS OF FU TURE AND OPTION TRANSACTION (DERIVATIVES) FOR RS.14,37,338/- AS SPECULATIVE LOSS AS AGAINST THE LOSS UNDER THE HEAD OTHER INCOME AS CLAIMED AND SHOWN BY THE APPELLANT. 26. THE LEARNED COUNSEL FOR THE ASSESSEE FAIRLY STA TED THAT THIS GROUND IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE KOLKATA SPECIAL BENCH IN THE CASE OF SHREE CAPITAL SERVICES LTD. VS.ACIT., 121 ITD 498(SB). RESPECTFULLY FOLLOWING THE SAID ORDER, WE DISMISS THE GROUND. 13. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL, WE ALLOW THE GROUND RAISED BY THE REVENUE. 14. THE REVENUE HAS RAISED ONE MORE GROUND IN ASSESSMEN T YEAR 2005- 06, WHICH RELATES TO COST OF BONUS SHARES. 15. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE IS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF A CO- ORDINATE BENCH OF THIS TRIBUNAL IN MAHENDRA C. SHAH (SUPRA), WHEREIN AT PARAS-23 AND 24, THE TRIBUNAL HELD AS FOLLOWS:- 23. THE BRIEF FACTS IN THIS CONNECTION ARE AS FOLLOWS: - THE ASSESSEE PURCHASED 471 EQUITY SHARES OF INFOSYS TECHNOLOGY ON 27.02.2004 @ RS.4896/- PER SHARE. THE TOTAL COST WA S RS.23,06,114/-. THE COMPANY DECLARED BONUS SHARES OF 1:3 AS ON 2.7.2004 AND ACCORDINGLY THE ASSESSEE GOT 1413 EQUITY SHARES AS BONUS SHARES. HE THUS BECAME THE OWNER OF 471 + 1413 = 1884 SHARES. OUT OF THE SHARES, HE SOL D 1000 SHARES IN JULY, 2004 AT RS.14,85,953/- AND CLAIMED A LOSS OF RS.8,20,161 /-. HE FURTHER SOLD 700 SHARES FOR RS.14,19,838/- AND OFFERED THE ENTIRE AMOUNT AS SHORT TERM CAPITAL GAINS UNDER SECTION 111A. THE ASSESSEE ALSO HAD 1187 EQUI TY SHARES OF TATA STEEL AT A COST OF RS.1,40,113/-. THESE SHARES WERE PURCHASED IN JULY, 2000. THEY WERE SOLD ON 8.7.2004, 10.12.2004 AND 31.03.2005. IN THE ASSESSMENT ORDER THE PROFIT AND SALE OF THE ABOVE SHARES, BOTH INFOSYS TECHNOLO GY AND TATA STEEL, WAS TREATED AS BUSINESS INCOME. 24. THE ARGUMENT BEFORE THE CIT(A) WAS THAT THE COS T OF BONUS SHARES WAS RS.NIL SINCE THE ASSESSEE IS AN INVESTOR. THIS DISP UTE IS ALSO AN OFFSHOOT OF OUR DECISION WITH REGARD TO GROUND NO.1. THE SHARES WHI CH REMAINED WITH THE ASSESSEE AS AT THE CLOSE OF THE PREVIOUS YEAR WERE 184 IN RESPECT OF INFOSYS TECHNOLOGY AND 543 IN RESPECT OF THE TATA STEEL. TH E ENTIRE TATA STEEL SHARES REPRESENTED BONUS SHARES. IN RESPECT OF INFOSYS SHA RES, 46 SHARES WERE ORIGINAL SHARES AND THE BALANCE SHARES WERE BONUS SHARES. SI NCE THE ASSESSING OFFICER HAD TREATED THE ASSESSEE AS A SHARE DEALER, HE VALU ED 184 SHARES OF INFOSYS TECHNOLOGY AT RS.4896.21 PER SHARE. THIS INCLUDED 4 6 ORIGINAL SHARES WHICH WERE VALUED AT RS.2,25,217/- . THE AVERAGE COST OF 543 BONUS SHARES OF TATA STEEL WAS VALUED AT RS.68,526/-. THE ASSESSING OFFI CERS REASONING WOULD HAVE MR. BABULAL C. SHAH ITA NO.3577/M./2009 ITA NO.4269/M./2009 9 HELD GOOD IF HIS DECISION TO TREAT THE ASSESSEE AS A DEALER IN SHARES IS UPHELD. HOWEVER WE HAVE HELD THAT THE ASSESSEE IS AN INVEST OR IN SHARES. THE BONUS SHARES CANNOT THEREFORE BE VALUED AS IF THEY ARE ST OCK-IN-TRADE. WE THEREFORE DELETE THE ADDITION OF RS.2,25,217/- AND RS.68,526/ -. 16. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNAL, WE ALLOW THE GROUND RAISED BY THE REVENUE. 17. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED WHEREAS APPEAL FOR ASSESSMENT YEAR 2006-07 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 16 TH SEPTEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, F BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI