SUNIL KUMAR GANERIWAL, MUMBAI V. DY CIT CIR 14(2), MUMBAI

ITA 4276/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55978 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 03-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transactions in derivatives
• Section: 143(3)

Judgement Text

1 SRI SUNIL KUMAR GANERIWAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI B RAMAKOTAIAH , AM & SHRI VIJAY PAL RA O, JM ITA NO. 4276/MUM/2008 (ASST YEA 2005-06) SRI SUNIL KUMAR GANERIWAL C/O SHANKARLAL JAIN & ASSOCIATES 12 ENGRS BLDG 265 PRINCES ST MUMBAI VS THE DY COMMR OF INCOME TAX CIR 14(2), MUMBAI (APPELLANT) (RESPONDENT) & ITA NO. 4143/MUM/2009 (ASST YEA 2006-07) THE DY COMMR OF INCOME TAX CIR 14(2), MUMBAI VS SRI SUNIL KUMAR GANERIWAL C/O SHANKARLAL JAIN & ASSOCIATES 12 ENGRS BLDG 265 PRINCES ST MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AABPG 1093J ASSESSEE BY SRI J P BAIRAGRA REVENUE BY SRI G P TRIVEDI DT.OF HEARING 3 RD NOV 2011 DT OF PRONOUNCEMENT 25 TH , NOV 2011 PER VIJAY PAL RAO, JM THE APPEAL IN ITA NO.4276/M/2008 IS BY THE ASSESSE E AGAINST THE ORDER DATED 8 TH MAY 2008 FOR THE ASSESSMENT YEAR 2005-06 AND THE A PPEAL IN ITA NO.4143/M/2009 IS BY THE REVENUE AGAINST THE ORDER DATED 20 TH APRIL 2009 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2 SINCE A COMMON ISSUE HAS BEEN RAISED IN BOTH THES E APPEALS; THEREFORE, WE HEARD THESE APPEALS TOGETHER AND DISPOSED OF BY THI S COMPOSITE ORDER. 2 SRI SUNIL KUMAR GANERIWAL 3 THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND A DJUDICATION IS WHETHER THE INCOME EARNED BY THE ASSESSEE ON PURCHASE AND SALE OF SHARES IS BUSINESS INCOME OR SHORT TERM CAPITAL GAIN? 4 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND A PARTNER IN FAMILY RUN FIRMS AS WELL AS DIRECTOR IN FAMILY R UN COMPANY. THE ASSESSEE HAS BEEN PURCHASING AND SELLING SHARES SINCE ASSESSMENT YEAR 2002-03. THE ASSESSEE HAS ADMITTED SHORT TERM CAPITAL GAIN ON SALE OF SHARES SINCE BEGINNING I.E. ASSESSMENT YEAR 2002-03 AND THE SAME WAS ACCEPTED BY THE DEPAR TMENT EXCEPT FOR THE TWO AYS UNDER CO0NSIDERATION. THE ASSESSING OFFICER WA S OF THE VIEW THAT THE ASSESSEE WAS INVOLVED IN THE BUSINESS OF SHARE TRADING SINCE THE ASSESSEE HAS DONE THE PURCHASE AND SALE OF SHARES IN A LARGE SCALE AT HIG H FREQUENCY AND PERIOD OF HOLDING IS ALSO NOT VERY LONG. ACCORDINGLY, THE AS SESSING OFFICER HELD THAT THE INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD SHORT TERM CA PITAL GAIN IS TAXED AS BUSINESS INCOME. 4.1 ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 BUT ALLOWED THE CLAIM OF TH E ASSESSEE FOR THE ASSESSMENT YEAR 2006-07. HENCE, BOTH ASSESSEE FOR ASSESSMENT Y EAR 2005-06 AND THE REVENUE FOR ASSESSMENT YEAR 2006-07 FILED THE RESPECTIVE APPEAL S. 4.2 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSING OFFICER HAS ACCEPTED LONG TERM CAPITAL GAINS FOR THE ASSESS MENT YEAR 2005-06 BUT TREATED THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. HE HAS FURTHER SUBMITTED THAT LONG TERM CAPITAL GAINS WAS ACCEPTED FOR THE ASSESSMENT YEAR 2003-04 U/S 143(1) BY THE ASSESSING OFFICER. FOR THE ASSESSMENT YEAR 2004-05, THE ASSESSING OFFICER ACCEPTED THE SHORT TERM CAPITAL GAINS U/S 143(3) CLAIMED ON SALE AND PURCHASE OF SHARE. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER ACCEPTED THE CLAIM OF SHORT TERM 3 SRI SUNIL KUMAR GANERIWAL CAPITAL GAIN/ THE LD AR OF THE ASSESSEE HAS FILED THE COPIES OF THE ASSESSMENT PASSED U/S 143(3). THE LD AR OF THE ASSESSEE HAS R EFERRED THE DETAILS OF SALE AND PURCHASE OF SHARES AND SUBMITTED AS UNDER; (I) IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HA S DECLARED SHORT TERM GAIN EARNED UPTO 30-9-2004 AMOUNTING TO 79,96,944/- (WHI CH IS TAXABLE @ 30%). (II) FURTHER, THE SHORT TERM CAPITAL GAIN EARNED AF TER 30-9-2004 TILL 31-3-2005 IS DECLARED AT 1,24,09,333/- WHICH IS TAXABLE @ 10% AF TER THE AMENDMENT IN RESPECT OF THE TRANSACTIONS ON WHICH STT IS PAID. (III) THE ASSESSEE HAS ALSO DECLARED LONG TERM CAPI TAL GAIN ON SALE OF SHARES AT 10,81,261/- AND CLAIMED EXEMPTION U/S. 10(38) OF TH E INCOME TAX ACT. (IV) THE AO HAS TREATED THE TOTAL SHORT TERM CAPITA L GAIN ON SALE OF SHARES THAT IS EARNED BEFORE 30-9-2004 AND AFTER 30-9-2004 AT 2 ,04,06,277/- AS BUSINESS INCOME WHILE HE HAS ACCEPTED THE LONG TERM CAPITAL GAIN OF 10,81,261/- AS DECLARED AND ALSO GRANTED THE EXEMPTION U/S. 10(38) . (IV) IN THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS DECLARED SHORT TERM CAPITAL GAIN ON SALE OF SHARES AT 1,97,10,401/- AND INCOME IN THE DERIVATIVES TRANSACTIONS OF SHARES AS BUSINESS INCOME AMOUNTING TO 2,28,36,122/-. 4.3 THE LD AR SUBMITTED THAT THE ASSESSEE WAS A PAR TNER IN SOME OF THE CONCERNS RUN BY FAMILY MEMBERS AND ALSO DIRECTOR IN A FEW FA MILY RUN COMPANIES ALONG WITH OTHER FAMILY MEMBERS. THERE WAS A PARTITION IN THE FAMILY AND THE ASSESSEE HAS RECEIVED LIQUID FUNDS IN THE AY 2002-03. HE HAS RE FERRED THE YEAR WISE DETAILS OF CAPITAL, SHARE INVESTMENTS AND OTHER INVESTMENTS, C APITAL GAIN AND DIVIDEND INCOME PLACED AT PAGE 25 OF THE PAPER BOOK. IT WAS FURTHE R SUBMITTED THAT FOR THE ASSESSMENT YEAR 2006-07, THE CIT(A) FOLLOWED THE DE CISION IN THE CASE OF GOPAL PUROHIT IN 29 SOT 117 AND ALLOWED THE CLAIM OF TH E ASSESSEE. IT WAS FURTHER SUBMITTED THAT FROM THE ABOVE POSITION, FOR THE ASSESSMENT YE AR PRIOR TO AND AFTER THE ASSESSMENT YEARS 2005-06 AND 2006-07, IT IS CLEAR T HAT JUST BECAUSE OF CHANGE IN THE PROVISION FOR TAXING THE CAPITAL GAINS W.E.F 1.10.1 994, THE ASSESSING OFFICER HAS TREATED THE SHORT TERM CAPITAL GAINS FOR ASST YEARS 2005-06 AND 2006-07 AS BUSINESS INCOME, THOUGH HE HAS ACCEPTED THE LONG TERM CAPITA L GAINS AS EXEMPT AS PER THE 4 SRI SUNIL KUMAR GANERIWAL AMENDED PROVISIONS. FURTHER, FOR THE ASSESSMENT YEA R 2008-00, WHILE PASSING THE ORDER U/S 143(3), THE ASSESSING OFFICER HAS ACCEPTE D THE SHORT TERM CAPITAL GAIN. HE HAS RELIED UPON THE FOLLOWING DECISIONS OF THE TRIB UNAL IN THE FOLLOWING CASES: I) CIT VS NAISHAD V VACHHARAJANI IN ITA NO 6429/M /2009 II) CIT V M/S SMK SHARES & STOCK BROKING 799/M/ 2009 III) MR NAHAL V SHAH VS ACIT 2733/MUM/2009 IV) SHRI VINOD K NEVATIA VS ACIT 2011-TIOL 65 ITAT MUM 4.5 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSEE WAS DOING REGULAR AND SYSTEMATIC TRANSACTIONS. EACH YEAR IS A SEPARATE UNIT AND PRINCIPLE OF RESJUDICATE IS NOT APPLICABLE IN THE MATTER OF INCO ME TAX. THE LD DR HAS SUBMITTED THAT THERE WAS ONLY ONE TRANSACTION OF LONG TERM CA PITAL GAIN. HE HAS SUBMITTED THAT EXCLUDING A FEW TRANSACTIONS, THE MAXIMUM PERIOD FO R WHICH THE SHARES WERE HELD WAS A PERIOD OF ABOUT THREE MONTHS ONLY AGAINST WHI CH, THERE WERE A NUMBER OF TRANSACTIONS FOR PURCHASE AND SALE OF SHARES WHERE THE PERIOD OF HOLDING WAS MUCH LESS THAN 30 DAYS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD INVESTED SUBSTANTIAL FUNDS IN THE IPO OF NTPCV, TCS AND AFTE R THE SHARES WERE ALLOTTED THE SUBSTANTIAL NUMBER OF SHARES WERE SOLD OUT IN A VER Y SHORT PERIOD WHICH HAS RESULTED IN THE GAIN OF RS. 53,85,125/-. THE LD DR FURTHER SUBMITTED THAT ON PERUSAL OF THE ENTIRE DETAILS OF THE TRANSACTIONS, ONE THING IS VERY CLEA R THAT THE ASSESSEE HAD CONTINUOUSLY BEEN MAKING PURCHASE AND SALE OF SHARES IN AN UNINT ERRUPTED MANNER. IT S ALSO SEEN THAT THE TOTAL MAGNITUDE OF VOLUME OF TRANSACTION I S VERY SUBSTANTIAL WHICH HAS RESULTED INTO AN INCOME OF ABOUT RS. 2,04,06,277/-. THE LD DR SUBMITTED THAT THE GAIN OR SURPLUS GENERATED FROM THE SHARES HELD FOR A PERIOD OF LESS THAN 30 DAYS STOOD AT RS. 34,06,148/-. FURTHER, LOOKING TO THE FACTS AND CIRCUMSTANCES, IN ASSESSEES CASE COMMERCIAL MOTIVE WAS VERY CLEAR. MAGNITUDE, FREQUE NCY AND SMALL HOLDING PERIOD WHICH SUBSTANTIAL VOLUME CLEARLY INDICATE THAT THE ASSESSEES AIM WAS TO MAKE PROFIT BY FREQUENTLY SELLING THE SHARES AS PER MARKET COND ITIONS. THEREFORE, IT WAS SUBMITTED 5 SRI SUNIL KUMAR GANERIWAL THAT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN T REATING THE INCOME GENERATED OUT OF PURCHASE AND SALE OF SHARES AS BUSINESS INCOME. HE HAS RELIED UPON THE DECISIONS OF THE TRIBUNAL IN THE FOLLOWING CASES: I) SMT SADHANA NABERA VS ACIT ITA NO.2586/M/2009 O RDER DT26.3.2010 II)SMNT RAKHA KHANDELWAL VS ACIT ITA NO.785/M/2009 ORDER DT 17.3.2010 IIII) MR RAKESH J SANGHVI V DCIT ITA NBO.4607/M/20 08 ORDER DT 31.8.2010 IV) SHAILESH L SHAH HUF V DCIT ITA 3991 & 3992/M/08 ORDER DT13.1.2010 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AND CAREF ULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER TREATED THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME IN BOTH THE YEARS ON THE GROUND OF MAGNITUDE, FREQUENCY AND HOLDING PERIOD OF SHARES. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR THE AY 2005-06 ON SIMILAR LINE AS OF THE ASSESSIN G OFFICER. HOWEVER, FOR THE AY 2006- 07 THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA). THE REASON FOR TAKING A DIFFERENT VIEW BY THE CIT(A) IS THAT FOR THE AY 2005-06, THE CLAIM OF THE ASSESSEE WAS REJECTED BECAUSE THE DECISION IN THE CASE OF GOPAL PUROHIT WAS NOT AVAILABLE AT THAT POINT OF TIME. UNDISPUTEDLY, THE CLAIM OF SHORT TERM CAPITA L GAIN WAS ACCEPTED BY THE ASSESSING OFFICER FOR THE AYS 2003-04, 2004-05 BEFO RE DISALLOWING THE SAME FOR THE AY 2005-06 AND 2006-07. FURTHER, THE CLAIM OF THE ASSE SSEE HAS BEEN ALLOWED FOR THE AY 2008-09. THOUGH THE PRINCIPLE OF RESJUDICATE IS NOT APPLICABLE IN TAX MATTER; HOWEVER, WHEN THE ASSESSING OFFICER HAS NOT POINTED OUT ANY MATERIAL CHANGE OR DIVERSION IN THE ACTIVITY OF THE ASSESSEE THEN, THE RULE OF CONS ISTENCY DEMANDS THAT THE ASSESSING OFFICER CANT TAKE A DIFFERENT VIEW IN SELECTIVE AS SESSMENT YEAR. ONCE THE ASSESSING OFFICER ACCEPTED THE TRANSACTION AS INVESTMENT IN T HE EARLIER YEAR AND ALSO IN THE SUBSEQUENT YEARS, THEN, IN THE ABSENCE OF ANY GLARI NG MATERIAL CHANGE IN THE FACTS AND CIRCUMSTANCES, THE ASSESSING OFFICER OUGHT TO H AVE MAINTAINED THE CONSISTENT 6 SRI SUNIL KUMAR GANERIWAL VIEW ON THE ISSUE. IN THE CASE OF GOPAL PUROHIT, TH E HONBLE JURISDICTIONAL HIGH WHILE UPHOLDING THE DECISION OF THE TRIBUNAL HAS OBSERVED AS UNDER: 2. THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT T HAT THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECO ND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPO SES OF BUSINESS (DESCRIBED IN PARA 8.3 OF THE JUDGMENT OF THE TRIBUNAL AS TRANSACTIONS PURELY OF JOBBING WITHOUT DELIVERY). THE TRIBUNAL H AS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RE LATING TO INVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINES S ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNAL HELD THAT THE DELIVE RY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN T HE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THEREF ROM SHOULD BE TREATED EITHER AS SHORT-TERM OR, AS THE CASE MAY BE, LONG-TERM CAPITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. A FI NDING OF FACT HAS BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE EXISTENC E OF TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVEST MENT ON ONE HAND AND THOSE FOR THE PURPOSES OF BUSINESS ON THE OTHER H AND. QUESTION (A) ABOVE, DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LA W. 3. INSOFAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL HAS OBSERVED IN PARA 8.1 OF ITS JUDGMENT THAT THE ASSESSEE HAS FOLLO WED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, TH E MANNER OF KEEPING RECORDS AND THE PRESENTATION OF SHARES AS INVE STMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE REVENUE SUBM ITTED THAT A DIFFERENT VIEW SHOULD BE TAKEN FOR THE YEAR UNDER CONSIDERATION , SINCE THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESS MENT PROCEEDINGS. THE TRIBUNAL CORRECTLY ACCEPTED THE POSITION THAT TH E PRINCIPLE OF RES JUCLICATA IS NOT ATTRACTED SINCE EACH ASSESSMENT YE AR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UNI FORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. THIS APPRO ACH OF THE TRIBUNAL CANNOT BE FAULTED. THE REVENUE DID NOT FURNISH ANY J USTIFICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION. QUESTION (B), THEREFORE, DOES NOT ALSO RAISE ANY SUBS TANTIAL QUESTION. 5.1 NOW, THE HONBLE SUPREME COURT HAS ALSO CONFIRM ED THE DECISION OF THE HONBLE HIGH COURT REPORTED IN 334 ITR 308 (STATUE) . THUS, ON THRESHOLD, THE ISSUE DESERVES TO BE DECIDED ON THE BASIS OF RULE OF CONS TANCY IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7 SRI SUNIL KUMAR GANERIWAL 6 ON MERIT, BOTH THE PARTIES PLACED RELIANCE ON A S ERIES OF DECISIONS; BUT THE ISSUE OF CAPITAL GAIN OR BUSINESS INCOME HAS TO BE DECIDED ON THE BASIS OF THE FACTS OF EACH CASE. THEREFORE, THE RULE OF PRECEDENT IS N OT MUCH HELPFUL IN SUCH CASES THOUGH IT PROVIDES SIGNIFICANT GUIDING PRINCIPLE. T HE REVENUE HAS ALSO RECOGNIZED THOSE GUIDING PRINCIPLE AND CRITERIA AS THE CBDT HA S ISSUED CIRCULAR DATED 15.6.2007. 7 IN THE CASE IN HAND, THE COMPARATIVE DETAILS OF F UNDS, INVESTMENT, CAPITAL GAIN AND DIVIDEND INCOME AS GIVEN AT PAGE 25 OF THE PAPER BOOK ARE AS UNDER: ASST. YEAR CAPITAL SHARE INVESTMENT GOVT. OF INDIA BONDS BANK FIXED DEPOSITS CAPITAL GAIN DIVIDEND 2002-03 32,894,080 1,148,910 9,500,000 31,332,413 - 5,190 2003-04 31,374,229 13,848,881 9,700,000 - 193,964 (SHORITERM) 475,169 2004-05 55,180,315 30,589,345 9,700,000 - 1,786,666 (SHORTTERM) 27,585,285 2005-06 72,128,377 35,766,812 24,700,000 - 20,406,277 1,081,261 (SHORTTERM) (LONG TERM) 1,322,754 7.1 IT IS CLEAR FROM THE ABOVE DETAILS THAT THE ASS ESSEE WAS HAVING ITS OWN FUNDS FOR UTILIZING FOR PURCHASE OF SHARES AND NO BORROWE D FUND WAS USED. THE DETAILS OF HOLDING PERIOD FOR THE AY 2005-06 AS GIVEN AT PAGE NO.26 OF THE PAPER ARE AS UNDER: I PERIOD OF HOWNG PUR AMOUNT SALES AMOUNT GAIN(LOSS) PUBLIC ISSUE 40916919.88 45845735.62 4928815.74 300AYS 251700877.1 251172885.4 - 527991.62 8ODAYS 51466978.89 57233689.53 5767710.84 900AYS 77372388.59 87610131.25 10237742.66 421456 164.4 441862441.8 20406277.42 2 PURCHASESED SCRIPS 76 3 SOLD SCRIPS 74 4 PURCHASES VALUE OPEING 29157703.05 PURCHASES 42 8065275.1 CLOSING - - 35766613.7 421458164.4 8 SRI SUNIL KUMAR GANERIWAL 5 SALES VALUE 441862441.8 6 NUMBER FO DAYS PURCHASES . 119 7 NUMBER FO SALES DAYS 120 8 LONG TERM GAIN 1431643.55 2512904.94 1061281.39 7.2 AS EVIDENT FROM THE RECORD THAT THE ASSESSING O FFICER EVEN TREATED THE PURCHASE OF SHARES IN PUBLIC ISSUE AS BUSINESS TRAN SACTION THOUGH SHOWN BY THE ASSESSEE AS INVESTMENT THAT APART THE SHORT TERM C APITAL GAIN FROM THE SHARE HELD FOR LESS THAN 30 DAYS IS LOSS WHEREAS THE GAIN FR OM SHARE HELD FOR 60 DAYS IS ABOUT 25% OF THE TOTAL GAIN AND GAIN GENERATED FROM THE SHARE HELD FOR 90 DAYS IS 50% OF THE TOTAL GAIN, WHICH SHOWS THAT THE MOTIVE OF THE ASSESSEE IS NOT TO EARN PROFIT AT THE SHORTEST POSSIBLE OCCASION. WE FURTHER NOTE THA T THE ASSESSEE HAS PURCHASED 76 SCRIPS AND SOLD 74 SCRIPS DURING THE PERIOD RELEVAN T TO AY 2005-06 WHICH SHOWS THAT THE ASSESSEE HAS PURCHASED SELECTIVE AND LIMITED SC RIPS BUT IN LARGE/BULK PURCHASES WHICH LED THE ASSESSING OFFICER TO OBSERVE TURNOVER AS LARGE. THE SALE TURNOVER IS MORE THAN RS 44 CRORES FROM 74 SCRIPS AND PURCHASE CONSIDERATION IS MORE THAN RS 42 CRORES ON 76 SCRIPTS WHICH SHOW THAT THE PURCHASE AND SALE OF FEW SCRIPTS IN LARGE VOLUME. THE CIT(A) FOR AY 2006-07 HAS ANALYZED THE FACT AS UNDER: THE ABOVE OBSERVATIONS AND FINDINGS OF THE HONBLE I TAT IS SQUARELY APPLICABLE TO THE FACTS OF THE APPELLANTS CASE AS WELL. FURTHER ON MERIT ALSO THE HONBLE TRIBUNAL IS FOUND HAVING CONSIDERED ALMO ST ALL THE IMPORTANT JUDICIAL DECISIONS LAYING DOWN LEGAL PRINCIPLES TO D ETERMINE THE NATURE OF TRANSACTIONS I.E. TRADING THE TRANSACTIONS OR INVES TMENTS AND BY ALSO CONSIDERING THE CBDT CIRCULAR NO.4 OF 2007, HAS THUS , SUMMARIZED THE PRINCIPLES. IF THE FACTS OF THE APPELLANTS CASE ARE EXAMINED, 1 FIND THAT THE APPELLANT HAS BEEN GIVING THE TREATMENT TO THE PURCH ASE OF SHARES IN ITS BOOKS OF ACCOUNTS BY REFLECTING IT AS INVESTMENTS AND NOT STOCK IN TRADE. THE APPELLANT IS FOUND HAVING NOT BORROWED ANY MONEY TO PURCHASE SHARES AND PAID ANY INTEREST THEREON. FURTHER, THE HOLDING OF THE SHARES BY THE APPELLANT AS COMPARED TO THE TRANSACTION IS ALSO FOUND TO BE H IGH AS THE INVESTMENT IN SHARES ON THE YEAR ENDING 31-03-06 WAS AT RS.8,81,63 ,005/-, AS ON 31-03-05 IT WAS AT RS.3,57,66,812/- AND AS ON 31-03-04 IT WAS A T RS. 3,05,89,345/- AS COMPARED TO THE TRANSACTION OF SHARES OF RS.4,42,97,5 10/-, RS. 2,94,87,538/- AND RS.17,86,666/-/- RESPECTIVELY. THE APPELLANT ALS O IS FOUND HAVING ENJOYED DIVIDEND INCOME AND NOT MERELY EARNED PROFIT AND GAI NS ON SALE AND PURCHASE OF SHARES. AS ALREADY HELD, THE SHARES IN Q UESTION HAVE CONSISTENTLY 9 SRI SUNIL KUMAR GANERIWAL BEEN SHOWN AS INVESTMENT AND VALUED AT COST AND NOT AT COST OR MARKET VALUE OR ANY REALIZABLE VALUE, WHICHEVER IS LESS. MO REOVER, THE ASSESSING OFFICER HIMSELF IN HIS ORDER HAS ADMITTED THAT 62% OF SHARES HAD BEEN HELD FOR MORE THAN 100 DAYS BEFORE SALE, AND 21% OF SHARES WE RE HELD FOR MORE THAN 30 DAYS. THUS, FROM THIS FACT OF HOLDING ITSELF, IT IS EVIDENT THAT THE APPELLANT HAD NOT DONE ANY DAY TO DAY TRADING. THEREFORE, I FI ND CONSIDERABLE FORCE IN THE CLAIM OF THE APPELLANT. 8 THUS, IT IS CLEAR THAT THERE IS A CONSISTENCY IN THE PATTERN OF PURCHASE AND SALES OF SHARE OVER THE YEARS AND ALSO UNIFORMITY IN TREA TMENT OF THE TRANSACTIONS, WHICH SHOW THAT THE INTENTION OF THE ASSESSEE TO HOLD THE SHARE AS INVESTMENT. FURTHER, WHEN THE ASSESSEE IS SHOWING THE SHARES HELD AS INV ESTMENT AND VALUED THE SAME AT THE COST IN THE BALANCE SHEET AT THE END OF THE FIN ANCIAL YEAR THEN THE SHARES WHICH WERE PURCHASED DURING THE EARLIER YEAR AND SHOWN AS INVESTMENT IN THE BALANCE SHEET AND ACCEPTED BY THE REVENUE AS INVESTMENT IN THE EARLIER YEAR CANNOT BE TREATED DIFFERENTLY IN THE YEAR OF SALE. THE ASSESS ING OFFICER CANNOT BE ALLOWED TO TREAT THE SHARE AS STOCK IN TRADE WHEN ACCEPTED THE SAME AS INVESTMENT IN THE EARLIER YEAR. THIS PRACTICE WOULD CREATE SERIOUS CO NFLICTS AND CANNOT BE PERMITTED UNLESS THE ASSESSEE CONVERT THE INVESTMENT INTO STO CK IN TRADE AND SUCH CONVERSION IS SEPARATELY TREATED UNDER THE PROVISIONS OF LOW. 9 IN ORDER TO DECIDE THE QUESTION OF NATURE OF TRAN SACTION AS TRADING OR INVESTMENT, WHAT IS FOREMOST IMPORTANT AND RELEVANT IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES AND THE SUBSEQUEN T CONDUCT AND TREATMENT OF TRANSACTION IN THE BOOKS OF ACCOUNT OF THE ASSESSEE . THE OTHER RELEVANT FACTORS ARE TO BE TAKEN INTO CONSIDERATION WHILE DETERMINING THE N ATURE OF TRANSACTION AND INTENTION OF THE ASSESSEE ARE WHETHER THE ASSESSEE HAS BORROWED MONEY TO PURCHASE THE SHARES AND PAID THE INTEREST THEREON. FURTHER, THE FREQUENCY OF SUCH PURCHASES AND SALE OF SHARES AND PARTICULARLY IN TH E SAME SCRIPS IS ALSO AN IMPORTANT FACTOR TO JUDGE THE MOTIVE OF THE ASSESSEE WHETHER THE PURCHASE AND SALE IS FOR 10 SRI SUNIL KUMAR GANERIWAL REALIZATION PROFIT OR PURCHASES ARE MADE FOR RETENT ION AND APPRECIATION IN ITS VALUE. THE VALUATION OF THE SHARES AS TAKEN IN THE BALANCE SHEET AT THE END OF THE YEAR IS ALSO RELEVANT TO SEE THE INTENTION AND TREATMENT OF THE TRANSACTION BY THE ASSESSEE. THERE IS NO SINGLE FACTOR OR PRINCIPLE TO BE TREATE D AS DECISIVE FOR DETERMINING THE NATURE OF TRANSACTION. THEREFORE, EACH CASE HAS TO BE DECIDED ON THE BASIS OF PECULIAR FACTS AND CIRCUMSTANCES OF THE SAID CASE I TSELF. 9.1 IF THE FACTS IN THE CASE IN HAND ARE ANALYSED I N THE LIGHT OF VARIOUS GUIDING FACTORS, AS DISCUSSED ABOVE AND ALSO ENUMERATED BY THE CBDT IN CIRCULAR NO. 4/2007 DT 15.6.2007, THE ONLY FAIR AND LOGICAL CONCLUSION ONE CAN DRAW IS THAT THE INTENTION OF THE ASSESSEE TO HOLD THE SHARES AS INVESTMENT AN D NOT AS STOCK IN TRADE. THIS CAN BE VIEWED IN THE LIGHT OF THE FACT THAT THE CAPITAL GAIN OF RS. 49.28 LACS WAS FROM THE SHARES ALLOTTED TO THE ASSESSEE IN PUBLIC ISSUE WHI CH IN ANY CASE CANNOT BE CLASSIFIED AS STOCK IN TRADE WHEN THE ASSESSEE IS HOLDING THE SAME AS INVESTMENT. FURTHER, THE ENTIRE CAPITAL GAIN ARISING FROM THE TRANSACTION OF THE SHARES WHICH WERE HELD BY THE ASSESSEE FOR 60 DAYS AND ABOVE AND ONLY CAPITAL LOS S OF RS. 5.27 LACS HAS BEEN INCURRED FROM THE TRANSACTION OF THE SHARES HELD UP TO TO 30 DAYS. THIS SHOWS THAT THE SHORT PERIOD OF HOLDING THE SHARES WAS TO MITIGATE THE LOSS ON THE PARTICULAR SCRIPS. APART FROM THIS, AS IT IS CLEAR FROM THE DETAILS OF THE CAPITAL AND THE AMOUNT UTILISED FOR PURCHASE OF SHARES IN THE VARIOUS YEARS FROM A Y 2002-02 TO 2005-06 THAT THE ASSESSEE WAS HAVING ENOUGH CAPITAL FOR INVESTMENT I N THE SHARES AND SECURITIES AND NO BORROWED FUND WAS USED FOR PURCHASE OF SHARES. 10 IN VIEW OF THE ABOVE DISCUSSION, THE INCOME ARIS ING FROM PURCHASE AND SALE OF SHARES HELD AS INVESTMENT IS ASSESSABLE AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. ACCORDINGLY, THIS ISSUE IN BOTH THE AYS IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11 SRI SUNIL KUMAR GANERIWAL 11 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED WHEREAS THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 25 TH , DAY OF NOV 2011. SD/- SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 25 TH , NOV 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI