ACIT, UDAIPUR V. Shri Pawan Kumar Sharma, RAJSAMAND

ITA 431/JODH/2013

• Counselvise Citation: 43123314 RSA 2013
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Capital asset; Business income; Salary income; Rule of consistency
• Section: 45(2); 143(3)

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 431/JODH/2013 (A.Y. 2008-09) ACIT, CIRCLE-2, VS. SHRI PAWAN KUMAR SHARMA, UDAIPUR. PANCHARATAN COMPLEX, BHILWARA ROAD, KANKROLI, RAJSAMAND. PAN NO. AITPS 7990 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 19/11/2013. DATE OF PRONOUNCEMENT : 29/11/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 08/05/2013 OF LD. CIT (A), UDAIPUR. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN TREATING THE INCOME AS CAPITAL GAIN (SHORT TERM & LONG 2 TERM) INSTEAD OF BUSINESS INCOME SO ASSESSED BY AO WITHOUT CONSIDERING THE MAGNITUDE OF TRANSACTIONS, SUBSTANTIAL NATURE OF TR ANSACTIONS IN SHARE, RATIO BETWEEN PURCHASE & SALE OF SHARES BY THE ASSESSEE. THAT THE APPELLANT CRAVES TO ADDITIONAL, AMEND, A LTER, DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFOR E OR AT THE TIME OF HEARING. 2. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE WAS ENGAGED IN THE BUSINESS OF MARBLE IN HIS PROPRIETORSHIP CONCER N NAMED AS M/S. RAMA MARBLES. HE WAS ALSO DIRECTOR IN M/S. KIRAN MARBLE S (P) LTD. AND DERIVED SALARY & SITTING FEE THERE FROM. THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING SALARY INCOME OF RS. 4,80,000/-, INCOME F ROM MARBLE BUSINESS RS. 2,20,164/-, INCOME FROM HOUSE PROPERTY RS. 16,8 00/-, INTEREST & OTHER INCOME RS. 70,781/-, SHORT TERM CAPITAL GAIN ON SALE OF SHARES & MUTUAL FUNDS RS. 19,27,040/-, LONG TERM CAPITAL GAI N ON SALE OF SHARES & MUTUAL FUNDS RS. 4,85,412/- AND LOSS IN F & O BUSIN ESS OF SHARES RS. 12,76,190/-, DIVIDEND INCOME OF RS. 90,934/- AND TA X FREE INTEREST OF RS. 1,74,468/-. HOWEVER, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER AFTER TREATING THE SHORT TERM AND LONG TERM CAPITAL GAINS ON SHARES AMOUNTING TO RS. 20,81,774/- AS BUSINESS INCOME. TH E ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE HAD CLAIMED SHORT TER M CAPITAL GAIN OF RS. 19,79,474/- AND LONG TERM CAPITAL GAIN OF RS. 1,02, 300/- ON PURCHASE AND SALE OF SHARES DURING THE YEAR. HE ASKED THE ASSES SEE TO STATE THE REASONS 3 AS TO WHY THE ABOVE SAID GAINS SHOULD NOT BE TREATE D AS INCOME FROM BUSINESS OF SHARE TRADING, SINCE THE ASSESSEE WAS F OUND TO BE HEAVILY ENGAGED IN THE ACTIVITY OF PURCHASE AND SALE OF SHA RES. THE ASSESSEE EXPLAINED THAT HIS INTENTION WHILE PURCHASING THE S HARES WAS TO MAKE INVESTMENT IN SHARES BY OBTAINING A CAPITAL ASSET A ND REALIZING ITS APPRECIATION AND NOT TO CARRY ON BUSINESS OF SHARES AND SECURITIES. IT WAS ALSO SUBMITTED THAT THE INVESTMENT IN SHARES AS AN ASSET WAS SHOWN UNDER THE HEAD SHARES IN BALANCE SHEET AND NOT AS STOC K IN TRADE, WHICH WOULD AMOUNT TO INVESTMENT ACTIVITY. IT WAS ALSO S TATED THAT HOLDING OF SHARES AS INVESTMENT WAS ACCEPTED BY THE ASSESSING OFFICER IN THE PAST ALSO WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT). HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TREATED THE INCOME OF RS. 20,81,774/- (RS. 19,79,47 4/- + RS. 1,02,300/-) AS TRADING INCOME INSTEAD OF SHORT TERM AND LONG TE RM CAPITAL GAINS SHOWN BY THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND THE SUBMISSIONS MADE AS MENTIONED AT PAGES NO. 3 TO 12 OF THE IMPUGNED ORDER WERE AS UNDER:- 4 01. IN THIS CONNECTION, IT IS HUMBLY & RESPECTFULL Y SUBMITTED THAT THE MAIN OCCUPATION OF THE ASSESSEE IS NOT SHARE TRADIN G. THE ASSESSEE IN HIS INDIVIDUAL CAPACITY CARRIES ON BUSINESS OF MARB LE. HE IS ALSO DIRECTOR IN KIRAN MARBLES (P) LTD., WHERE HE IS ACT IVELY ENGAGED AND DRAWING SALARY & SITTING FEE. THE LD. AO SIMPLY CON SIDERED THE TURNOVER OF PROPRIETARY CONCERN OF THE ASSESSEE WIT HOUT GIVING ANY COGNIZANCE TO THE LEVEL OF ACTIVITY IN KIRAN MARBLE S (P) LTD. THAT APART FROM THE SAID BUSINESS, THE APPELLANT- ASSESSEE INV ESTS IN SHARES AND TREATS SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT . THIS ITSELF MANIFESTS THE INTENTION OF THE ASSESSEE AS TO WHETH ER HE PROPOSED INTO DEALING IN SHARES OR EARN DIVIDEND AND PROFIT OUT OF SUCH INVESTMENT. DURING THE RELEVANT YEAR' THE ASSESSEE EARNED SUBSTANTIAL DIVIDEND OF RS.90934/- AND GAINS ON SALE OF SHARES. 02. IT IS RESPECTFULLY SUBMITTED THAT THERE HAS TO BE A SYSTEMATIC BUSINESS ACTIVITY AND ALSO INTENTION TO CARRY ON THE BUSINES S, WHICH WILL DECIDE BUSINESS INCOME OR CAPITAL GAINS. THEREFORE, THE MO ST IMPORTANT AND REVEALING FACTOR IS THE INTENTION BEHIND THE PURCHA SE OF SHARES. OTHER FACTORS LIKE FREQUENCY AND VOLUME OF TRANSACTIONS T REATMENT OF SHARE TRANSACTIONS IN THE BOOKS, INFRASTRUCTURE FOR BUSIN ESS, SOURCE OF LIVELIHOOD, NORMAL BUSINESS ACTIVITIES, PERIOD OF S HARE HOLDING, SOURCE OF INVESTMENT, ETC. ARE ANCILLARY. IT IS A SETTLE T RITE THAT NO SINGLE FORMULA OR PRINCIPLE CAN BE THE DETERMINATIVE FACTO R FOR DECIDING THE NATURE OF TRANSACTION AND THE COMBINED EFFECT OF AL L OF THEM HAS TO BE CONSIDERED TO CATEGORIZE A TRANSACTION AS BUSINE SS OR INVESTMENT. 03. LT IS THE INTENTION OF THE ASSESSEE WHICH IS T O BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE . LT IS REITERATED THAT THE MOTIVE OF APPELLANT IS WELL DEFINED BY APP ELLANT IN THE BOOKS OF ACCOUNT AND ACCORDINGLY, INCOME FROM SHARES TRAD ED UNDER FUTURE AND OPTION IS SHOWN AS BUSINESS INCOME OR LOSS AND INCOME FROM DELIVERY BASED SHARE TRANSACTIONS ARE SHOWN AS CAPI TAL GAIN. LT IS WELL ACCEPTED PRINCIPLE THAT AN INVESTOR CAN HAVE SHARE TRANSACTIONS WITH A MOTIVE OF MAKING INVESTMENT AS WELL AS TRADING IF THEY ARE SEPARATELY SHOWN IN BOOKS OF ACCOUNT. LN FACT, THE SEPARATE TREATMENT OF DELIVERY BASED PURCHASE AND SALE OF SHARES UNDER THE INVESTMENT PORTFOLIO AND PURCHASE AND SALE UNDER FUTURE AND OP TIONS ETC., WITH PROFIT MOTIVE BY APPELLANT IS ITSELF RELIABLE EVIDE NCE AVAILABLE TO SHOW 5 THAT THE TRANSACTIONS RELATED TO DELIVERY BASED PUR CHASE AND SALE OF SHARES RESULTING IN CAPITAL GAIN ARE ENTERED INTO W ITH THE INTENTION OF INVESTMENT. 04. MOREOVER, THE APPELLANT-ASSESSEE HAS TREATED T HE TRANSACTION IN SHARES AS INVESTMENT IN HIS BOOKS OF ACCOUNT AND NO T AS STOCK-IN- TRADE. THE ASSESSEE HAS SHOWN INVESTMENT IN SHARES AS AN ASSET UNDER THE HEAD 'SHARES' IN HIS BALANCE SHEET AND NO T AS STOCK IN TRADE WHICH WOULD AMOUNT TO INVESTMENT ACTIVITY. EVEN THE ASSESSEE HAS ACCOUNTED SHARE TRANSACTIONS IN HIS BOOKS OF ACCOUN TS KEEPING IN VIEW INVESTMENT OBJECTIVES AND ANY PROFIT OR LOSS A RISING FROM SUCH TRANSACTIONS ARE BEING TREATED BY HIM UNDER THE HEA D CAPITAL GAIN. LT IS A SETTLED LEGAL POSITION BY NOW THAT ENTRIES IN BOOKS ARE NOT CONCLUSIVE BUT THERE SHOULD BE A FIRM BASIS TO TAKE A DIFFERENT VIEW FROM ENTRIES IN BOOKS OF ACCOUNT. IN THE PRESENT CA SE, THE AO HAS TAKEN A DIFFERENT VIEW CONTRARY TO BOOKS OF ACCOUNT ON THE BASIS OF MAGNITUDE AND NUMBER OF TRANSACTIONS WITHOUT BRINGI NG ANYTHING ELSE ON RECORD THAT PURCHASE OF SHARE WAS MADE ON A CCOUNT OF DEALING IN SHARES AND NOT ON ACCOUNT OF INVESTMENTS . 05. LT IS SUBMITTED THAT THE ASSESSEE'S ACCOUNTS C ONSISTENTLY EXHIBITED THE HOLDING OF SHARES AS INVESTMENT AS OPPOSED TO STOC K-IN-TRADE. THOUGH THE INVESTMENT TREATMENT MAY NOT BE TAKEN AS CONCLUSIVE EVIDENCE, YET IT IS A CIRCUMSTANCE WITH BEARING AS A PRESUMPTION OF THE INTENTION OF INVESTMENT. THIS IS SETTLED PROPO SITION OF LAW. IT IS STATED THAT THERE BEING NO MATERIAL ON RECORD TO SH OW THAT THE SAME WERE CONVERTED INTO STOCK-IN-TRADE. 06. AS FAR AS VOLUME OF TRANSACTIONS IS CONCERNED, IT CAN ONLY BE AN INDICATIVE FACTOR BUT IT CANNOT BE A DETERMINATIVE FACTOR IN ANALYSING ANY TRANSACTION. THE FREQUENCY OF THE TRANSACTIONS CANNOT BE PER SE DECISIVE. HOWEVER, THE LD. AO MERELY BECAUSE OF THE TOTAL VOLUME OF TRANSACTION IS SUBSTANTIAL GUIDED TO HOLD THE SAME AS BUSINESS ACTIVITY. LT IS STATED THAT AS PER WELL SETTLED PRI NCIPLES, IN CURRENT DAYS, CHANGE IN PORTFOLIO IS REQUIRED ON THE BASIS OF PER FORMANCES OF THE COMPANIES IN VARIOUS INDUSTRIAL AND OTHER SECTORS A ND VOLATILE SHARE MARKET' THE VOLUME OF PURCHASE AND SALE OF SHARES U NDER INVESTMENT IS ONLY INCIDENTAL TO THE NECESSARY CHANGES REQUIRE D IN MAINTAINING A HEALTHY INVESTMENT PORTFOLIO OF SHARES IN A VOLATIL E SHARE MARKET. THE 6 LD. AO ALSO FAILED TO RECOGNIZE THAT THE VOLUME OF TRANSACTION INCLUDES THE APPRECIATION IN SHARES AND SUCH APPRECIATION HA S BEEN OFFERED FOR TAXATION. 07. AS REGARDS THE FREQUENCY OF PURCHASE AND SALE O F SHARES, IT IS SUBMITTED THAT THE ASSESSEE HAS EFFECTED ALL TRANSA CTIONS OF SALES AND PURCHASES THROUGH D-MAT ACCOUNT IN THE ELECTRONIC S YSTEM OF STOCK EXCHANGE WHEREBY A SINGLE ORDER MAY BE COMPLETED BY WAY OF VARIOUS SMALL QUANTITIES OF SHARES TO MEET OUT THE DEMAND OF THE PURCHASER. THUS, NUMBERS OF TRANSACTIONS ARE TAKEN AS PER DIFFERENT LOTS AVAILABLE FOR EXECUTION OF ONE ORDER AND THIS GIVES UNREALISTIC FIGURE OF NUMBER OF TRANSACTIONS. THUS, THE VERY BA SIS OF AVERAGE 20 TRANSACTIONS PER MONTH TAKEN BY THE LD. AO IS NOT C ORRECT. 08. LT MAY KINDLY BE APPRECIATED THAT THE ACTIVITY CANNOT BE SAID AS SUBSTANTIAL BECAUSE THERE ARE AS MUCH AS 283 DAYS F OR WHICH NO TRANSACTION TOOK PLACE DURING THE YEAR. FOR 268 DAY S' THERE HAVE BEEN NO TRANSACTIONS AT ALL AND PARTICULARLY, THERE WAS NO SALE FOR 307 DAYS AND NO PURCHASES FOR 275 DAYS IN THE RELEVANT YEAR. THEREFORE, IT CANNOT BE SAID THAT THERE WERE REGULAR AND CONTINUO US TRANSACTIONS. 09. LT IS EVIDENT FROM RECORD THAT ALL THE SHARES P URCHASED ARE NOT SOLD AND RATHER HELD FOR QUITE NUMBER OF DAYS AND THE AS SESSEES INTENTION WAS TO HOLD THE SHARES TO EARN INCOME ON APPRECIATI ON IN THE VALUE OF THE SHARES AND NOT TO EARN PROFIT IN SHORT PERIOD. IT IS RESPECTFULLY SUBMITTED THAT THE LT ACT ITSELF HAS PROVIDED THAT WHEN THE SHARES ARE HELD FOR A PERIOD OF ONE YEAR OR MORE SAME WILL BE TREATED AS LONG TERM CAPITAL ASSET CONTRARY TO OTHER ASSETS WHERE T HE HOLDING PERIOD TO TREAT SUCH ASSET AS IONG-TERM IS MORE THAN 36 MO NTHS. THUS, EVEN AFTER HOLDING THE SHARES FOR MORE THAN 12 MONTHS AN D SHOWING SUCH INTENTION FROM THE CONDUCT, THE LD. AO CANNOT REPLA CE HIS OPINION FOR THAT OF THE ASSESSEE IN HOLDING THAT THE SHARES ARE HELD AS STOCK-IN- TRADE AND PROFIT FROM WHICH IS TO BE ASSESSED AS BU SINESS INCOME. LT IS A COMMON PRACTICE THAT IN ORDER TO REDUCE THE RISK OF LOSS OF CAPITAL OR INCOME, THE INVESTOR MAY TRY TO DIVERSIF Y THE INVESTMENT. THUS, RESHUFFLING OF PORTFOLIOS IN A SHORT PERIOD I S NOT NECESSARILY AN ACTIVITY OF TRADING. AS EARLIER SAID , THE LAW 7 IS FAMILIAR WITH THE REQUIREMENT OF SUCH CHANGES IN INVESTMENT IN BOTH LONG AND SHORT SPANS. THE PROVISION PERMISSIVE OF SHORT-TERM CAPITAL GAIN IS ACKNOWLEDGEMENT OF THIS GROUND REAL ITY. 10. LT IS FURTHER SUBMITTED THAT THE VALUATION OF SHARES AS TAKEN IN THE BALANCE SHEET AT THE END OF THE YEAR IS ALSO RELEVA NT TO SEE THE INTENTION AND TREATMENT OF THE TRANSACTION BY THE A SSESSEE. LT IS STATED THAT THE APPELLANT-ASSESSEE HAS VALUED THE S HARES UNDER INVESTMENT PORTFOLIO AT COST AND NOT AT MARKET PRIC E OR REALIZABLE VALUE. THEREFORE, THE SAME CANNOT BE HELD AS STOCK IN TRADE. IT IS RESPECTFULLY SUBMITTED, WITHOUT ACCEPTING, THAT EVE N IF THE LD. AO HAS TREATED THE SAME AS BUSINESS INCOME, HE WAS REQUIRE D TO REVALUE THE CLOSING SHARES ON MARKET VALUE OR COST WHICHEVER IS LOWER. 11. LT IS ALSO SUBMITTED THAT IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YE AR. IT IS THE INTENTION OF THE ASSESSEE WHICH IS TO BE SEEN TO DE TERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH TH E INVESTMENT IN SHARES MAY BE ON A LARGE MAGNITUDE BUT THE SAME SHA LL NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PRECEDING YEAR HAS BEEN HELD TO BE IN COME FROM CAPITAL GAINS BOTH ON LONG TERM AND SHORT-TERM BASIS. THE T RANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PUR CHASE OF SHARES IS SAME AS IN THE PRECEDING YEARS AND AS SUCH, THE SAM E MERITS TO BE ACCEPTED AS CAPITAL GAINS AS BEING ASSESSED IN PREC EDING YEAR U/S 143(3) OF THE ACT. THERE IS NO BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES IN THE CURRENT YEAR. LT IS ALSO TH E ADMITTED FACT THAT THE ASSESSEE IS INDEED DEALINGS IN INVESTMENT IN SH ARES IN THE PAST. ON THE PERUSAL OF THE BALANCE SHEET FITTED BY THE A SSESSEE, THE ASSESSEE HAS SHOWN THE INVESTMENT IN SHARES UNDER T HE HEAD 'SHARES' AND NOT AS STOCK-IN-TRADE. 12. LT IS TRUE AS POINTED OUT BY THE LD. AO THAT T HE PRINCIPLES OF RES JUDICATA DO NOT APPLY TO INCOME-TAX PROCEEDINGS AS EACH AND EVERY ASSESSMENT YEAR IS TREATED AS A SEPARATE ONE BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE I S A MATERIAL CHANGE IN THE FACTS' THE ASSESSEE IS CONSISTENTLY H OLDING SHARES AS AN INVESTMENT WHICH IN THE EARLIER YEARS IS ACCEPTED B Y THE AO. THOUGH 8 RES JUDICATA DOES NOT APPLY IN TAXATION, NO DEPARTURE FROM THE ESTABLISHED POSITION IS WARRANTED AS HELD BY THE SU PREME COURT IN RADHASOAMI SATSANG VS. CIT (1991) 100 CTR (SC) 267 .THE SAME VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI HIGH COURT IN C IT VS. NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DEL). 13. LT IS ALSO SUBMITTED THAT THE TURNOVER TO STOCK RATIO IS AS LOW AS 1.68:1. THEREFORE, IT IS EVIDENT THAT THE ASSESSEE NOT EVEN ROTATING HIS SHARE PORTFOLIO IN SUCH A WAY AS A BUSINESSMAN WOULD NORM ALLY DO. 14. LT IS WORTHY OF SUBMISSION THAT PURCHASE OF SH ARES BY THE ASSESSEE HAVING BEEN ACCEPTED BY THE DEPARTMENT AS INVESTMEN T, RECEIPTS FROM SALE THEREOF HAVE TO BE ASSESSED AS CAPITAL GA INS. 15. LT IS SUBMITTED THAT THE ASSESSEE DID NOT HAVE HIS OWN BUSINESS INFRASTRUCTURE IN THE FIELD OF SHARE TRANSACTION WH ICH WAS NOT IN THE LINE OF MARBLE BUSINESS AND NO EXPENDITURE HAD BEEN CLAIMED ON THIS ACCOUNT. 16. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT T HE ASSESSEE HAS NOT BORROWED ANY MONEY FOR MAKING THE INVESTMENT IN THE SHARES. LN THIS REGARD, IT IS SUBMITTED THAT THE LD. AO IN ORDER TO JUSTIFY THAT BORROWED FUNDS TO THE EXTENT OF RS.10 LAC WAS UTILI ZED IN PURCHASE OF SHARES STATED THAT THE ASSESSEE HAD BORROWED LOAN F ROM MR. SUNDER LAL LODHA DURING AY 2007-08. LT IS SUBMITTED THAT T HE SAID LOAN WAS TAKEN IN THE YEAR 2007-08 IN WHICH THE LD. AO HIMSE LF HAS ACCEPTED THE TRANSACTION AS INVESTMENT AND DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. MOREOVER, THE ASSESSEE WAS HAVING HI S OWN FUNDS TO MAKE SUBSTANTIAL INVESTMENT AND INVESTMENT CAN ALSO BE MADE FROM LOAN TO MEET OUT THE SHORTFALL LOOKING TO THE FUTUR E APPRECIATION OF INVESTMENT TO BE MADE. THEREFORE, THERE IS NO SUBS TANCE IN THE CONTENTION OF THE LD. AO THAT THE ASSESSEE HAS USED BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT. 17. LN SUPPORT OF THE ABOVE CONTENTION, WE FURTHER RELY ON THE FOLLOWING JUDGMENTS: 9 1. BHARAT KUNVERJI KENIA VS. ADDL. CIT IN ITA NO. 6544/MUM/2008 FOR ASST. YR. 2005-06, DT. 15 TH MAY, 2009 [REPORTED AT (2010) 130 TTJ (MUMBAI)(UO) 86-ED.]. 2. KUNVARJI NANJI KENIA VS. ADDL. CIT IN ITA NO. 6 545/MUM/2008 FOR ASST. YR. 2005-06, DT.28 TH APRIL, 2009 [REPORTED AT (2010) 191 TTJ (MUMBAI)(UO) 87-ED.]. 3. GOPAL PUROHIT VS. JT. CIT IN ITA NO. 4854/MUM/2 00G FOR ASST. YR. 2005-06, DT. 10 TH FEB., 2009 [REPORTED AT (2009) 122 TTJ (MUMBAI) 87 : (2009) 20 DTR (MUMBAI)(TRIB) 99-ED.]. 4. CIT VS. GOPAL PUROHIT IN IT APPEAL NO. 1121 OF 2009 JUDGMENT DT. 6 TH JAN., 2010 [REPORTED AT (2010) 228 CTR (BOM) 582 OF HON'BLE BOMBAY HIGH COURT. 5. MAHENDRA C. SHAH VS. ADDL. CIT (2011) 140 TTJ (MUMBAI) 16 6. INVESTMENT LTD. VS. CIT (1970) 77 ITR 533 (SC) 7. JANAK S. RANGWALLA VS. ASST. CIT (2007) 11 SOT 627 (MUMBAI). 8. CIT VS. ESS JAY ENTERPRISES (P) LTD. (2008) 17 3 TAXMAN 1 (DEL) OF DELHI HIGH COURT 9. JANAK S.RANGWALLA VS. ASSTT. CIT (2007) 11 SOT 627 (MUMBAI) 10. HITESH SATISH CHANDRA DOSHI VS. JT. CIT (2011 ) 140 TTJ (MUMBAI) 32 11. VINOD M. SHAH VS. ADDL. CIT (2010) 38 SOT 503 (MUMBAI) 18. THE FACTS OF THE PRESENT CASE MAY BE SUMMARIZE D AND ANALYZED IN THE LIGHT OF VARIOUS GUIDING FACTORS, AS DISCUSSED IN J UDICIAL PRONOUNCEMENTS AND ENUMERATED BY THE CBDT AS UNDER: SL. NO. REQUIREMENTS ANSWER REMARKS 10 1 WHETHER PURCHASE AND SALE OF SECURITIES WAS AN INDEPENDENT ACTIVITY AS COMPARED TO HIS USUAL YES THE ASSESSEE IS IN THE BUSINESS OF DEALING IN MARBLE AS PROPRIETOR OF M/S RAMA MARBLES AND ALSO WORKING AS DIRECTOR IN KIRAN MARBLES (P) LTD. FROM WHERE IS REGULARLY DRAWING SALARY AND SITTING FEE. 2. WHETHER PURCHASE IS MADE WITH THE PURPOSE OF LONG TERM APPRECIATION YES THE ASSESSEE HAS SHOWN INVESTMENT IN SHARES AS AN ASSET UNDER THE HEAD 'SHARES' IN HIS BALANCE SHEET AND NOT AS STOCK IN TRADE WHICH WOULD AMOUNT TO INVESTMENT ACTIVITY. EVEN THE ASSESSEE HAS ACCOUNTED SHARE TRANSACTIONS IN HIS BOOKS OF ACCOUNT KEEPING IN VIEW INVESTMENT OBJECTIVES AND ANY PROFIT OR LOSS ARISING FROM SUCH TRANSACTIONS ARE BEING TREATED BY HIM UNDER THE HEAD CAPITAL GAIN. THE LONG TERM GAIN ITSELF SHOWS A SUBSTANTIAL PERIOD OF HOLDING AND HOLDING WAS SUFFICIENT FOR SHORT -TERM CAPITAL GAIN. THERE WAS SUBSTANTIAL DIVIDEND INCOME ALSO. 3 WHETHER SCALE OF ACTIVITY IS SUBSTANTIAL NO NOT SUBSTANTIAL. THERE ARE 283 DAYS ON WHICH NO TRANSACTION HAVE BEEN CARRIED OUT DURING THE YEAR. 4 TRANSACTIONS WERE ENTERED INTO CONTINUOUSLY AND REGULARLY THERE HAVE BEEN NO TRANSACTIONS FOR 26 8 DAYS AND PARTICULARLY, NO SALE FOR 307 DAYS AND NO PURCHASE FOR 275 DAYS OUT OF 365 DAYS IN THE RELEVANT YEAR. NO REGULAR AND CONTINUOUS 11 TRANSACTIONS. 5 PURCHASES OUT OF OWN FUNDS YES PURCHASES DURING THE YEAR WERE MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED DURING THE YEAR. 6 SUBSTANTIAL PERIOD OF HOLDING YES FOR LONG TERM CAPITAL GAIN PERIOD OF HOLDING IS MORE THAN 12 MONTHS AND FOR SHORT -TERM CAPITAL GAIN AVERAGE HOLDING IS 76 DAYS WORKED OUT ON THE BASIS OF NUMBER OF PURCHASE TRANSACTIONS. 7 SUBSTANTIAL RATIO OF SALES TO PURCHASES NO THE RATIO IS ONLY 1.10:1 8 SUBSTANTIAL TIME DEVOTED TO THE ACTIVITY OF SHARES NO ACTIVELY ENGAGED IN MARBLE BUSINESS AS PROPRIETOR AND DIRECTOR IN THE COMPANY DRAWING SALARY. 9 ONLY MEANS OF LIVELIHOOD NO PROPRIETOR IN OTHER CONCERN HAVING SUBSTANTIAL PROFIT. SALARY INCOME FROM COMPANY. OTHER MEANS OF LIVELIHOOD INCLUDE HOUSE PROPERTY INCOME AND INTEREST INCOME. 10 CHARACTERIZATION OF SECURITIES IN BOOKS OF ACCOUNT YES SHOWN AS SHARES AND NOT AS STOCK IN TRADE IN THE BALANCE SHEET AS WELL AS BOOKS OF ACCOUNT, WHICH WOULD AMOUN T TO INVESTMENT ACTIVITY. 11 ARE SECURITIES PURCHASED OR SOLD ARE LISTED? YES LISTED ON THE BOMBAY STOCK EXCHANGE AND/OR NATIONAL STOCK EXCHANGES. 12 WHETHER INVESTMENT IN INDEPENDENT COMPANIES. YES I NVESTMENT IN THE COMPANIES OF REPUTE HAVING NO RELATION WITH THE ASSESSEE. 13 SUBSTANTIAL NUMBER OF YES AS COMPARED TO THE NUMBER 12 STOCKS DEALT IN VERY LIMITED STOCKS. OF SHARES LISTED ON THE STOCK EXCHANGE THE NUMBER OF STOCKS DEALT IN IS 55, WHICH IS NOT SUBSTANTIAL. 14 SUBSTANTIAL CLOSING BALANCE OF SCRIPTS YES HOLDING SHARES OF RS.1.15 CRORE AND MUTUAL FUNDS OF RS.21 .45 LAC AT CLOSE OF THE YEAR. TURNOVER TO STOCK RATIO IS LOW AS 1.68:1. 15 WHETHER STOCK IS VALUED AT COST YES CLOSING BALANCE OF SCRIPTS IS VALUED AT COST ONLY AND NOT ON THE BASIS OF COST OR MARKET VALUE WHICHEVER IS LOWER. 16 WHETHER UNIFORMITY IN TREATMENT AND CONSISTENCY FOLLOWED BY THE DEPARTMENT NO ASSESSEE IS ENGAGED IN THE ACTIVITY OF SALE AND PURCHASE OF SHARES FOR A QUITE LONG PERIOD AND REGULARLY FOLLOWING TH E SAME ACCOUNTING METHOD IN RESPECT OF SHARE TRANSACTIONS. IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR I.E. 2007 -08 ALSO, THE ASSESSEE HAD DECLARED SHOR T TERM CAPITAL GAIN ON SHARES RS.503705/ - AND ON MUTUAL FUNDS RS.276761 /- AND LONG TERM CAPITAL GAIN ON SHARES AND MUTUAL FUNDS AS RS.62525/ - AND RS.123882/-, RESPECTIVELY, WHICH HAVE BEEN ASSESSED BY THE DEPARTMENT U/S 143(3) AS CAPITAL GAIN INCOME AND NOT AS INCOME FROM BUSINESS. 13 19. THE JUDGMENTS REFERRED TO BY THE LD. AO SHOW T HAT THE FACTS OF THE CASE OF THE APPELLANT ARE TOTALLY DIFFERENT AND IN DIVERGENT CONTEXT. THE PRINCIPLES DECIDED ARE NOT DISPUTED BUT THE FAC TS ARE ALTOGETHER DIFFERENT. CASE OF CIT VS. REWASHANKER A KOTHARI (2 006) 283 ITR 338 REPORTED BY THE LD. AO IS IN FAVOUR OF THE ASSESSEE . IN 41 ITR 685, THE COURT HELD THAT SUBSTANTIAL NATURE OF THE TRANSACTI ONS, THE MANNER IN WHICH THE BOOKS HAD BEEN MAINTAINED, THE MAGNITUDE OF THE SHARES PURCHASED AND SOLD AND THE RATIO BETWEEN THE PURCHA SES AND SALES AND THE HOLDINGS INDICATED THAT WHAT WAS DONE WAS N OT MERELY A REALISATION OR A CHANGE OF INVESTMENT BUT DEALING I N SHARES AS BUSINESS. BUT THE SAID FACTORS ARE IN FAVOUR OF TH E PRESENT APPELLANT- ASSESSEE, AS SUBMITTED HERE-IN-ABOVE. CASE OF AAR I S ALSO NOT APPLICABLE FOR THE STATED REASONS. OTHER TWO JUDGME NTS CITED ALSO DO NOT MATCH WITH FACTS OF THE PRESENT CASE. 20. IT IS HUMBLY SUBMITTED THAT IN ANY CASE, HERE THE CIRCUMSTANCES CUMULATIVELY SHOW TREATING THE TRANSACTION OF PURCH ASE AND SALE OF SHARES AS BUSINESS ACTIVITY IS TOTALLY UNCALLED FOR AND AGAINST THE FACTS. UNDER THESE FACTS AND CIRCUMSTANCES, IT IS HUMBLY P RAYED THAT THE APPEAL MAY KINDLY BE ALLOWED. 4. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER HAD TREATED THE PURCHASES AND SALES OF SHARES AS BUSINESS INCOME WHICH WAS OF FERED AS SHORT TERM CAPITAL GAIN BY THE ASSESSEE FOR THE REASONS THAT T HE PURCHASES AND SALES WERE STATED TO BE VOLUMINOUS AND OF HIGH MAGNITUDE. LD. CIT(A) POINTED OUT THAT THE PURCHASES WERE OF RS. 2,09,42,619/- AN D SALES 2,29,60,868/-. LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS HOLDING S HARES AS INVESTMENT FROM YEAR TO YEAR AND THE SAME WERE RECEIVED IN THE DEMAT ACCOUNT AND SOLD LATER ON. HE ALSO POINTED OUT THAT IN THE EAR LIER YEARS, THE SIMILAR 14 SHARES TRANSACTIONS HAD BEEN ACCEPTED AS AN INVESTM ENT LEADING TO SHORT TERM CAPITAL GAIN AND THOSE SHARES WERE NOT TREATED AS STOCK IN TRADE AND THAT THE SOME OF THE SHARES SOLD WERE PURCHASED LAS T YEAR WHICH WERE SHOWN AS INVESTMENT BEFORE SELLING IN THIS YEAR. T HESE SHARES WERE NEVER SHOWN IN THE BALANCE SHEET AS STOCK IN TRADE NOR VA LUATION WAS MADE AS A STOCK IN TRADE AND DIVIDENDS WERE RECEIVED OVER THE YEARS WHICH HAD BEEN OFFERED FOR TAX, IT WAS NOT THE CASE OF THE ASSESSI NG OFFICER THAT SHARES SHOWN AS INVESTMENT HAD BEEN CONVERTED INTO STOCK I N TRADE AS PER SECTION 45(2) OF THE ACT AT ANY POINT OF TIME. LD. CIT(A) POINTED OUT THAT THE ASSESSEE HAD BEEN REGULAR INVESTOR AND INVESTED OVER A LONG PERIOD OF TIME AND HAD RECEIVED DIVIDENDS CONTINUOUSLY IN YEA R TO YEAR. HE ALSO POINTED OUT THAT THE ASSESSEE PURCHASED SHARES OUT OF HIS OWN FUNDS, NO FUNDS WERE BORROWED FROM COMMERCIAL BANKS OR INSTIT UTIONS FOR PURCHASING SHARES. LD. CIT(A) OBSERVED THAT THE ASS ESSEE HAD BEEN FILING RETURN FROM YEAR TO YEAR AND SIMILAR TRANSACTION OF THE SALE AND PURCHASE HAD BEEN ACCEPTED BY THE DEPARTMENT TREATING THE AS SESSEE AS INVESTOR. LD. CIT(A) ALSO POINTED OUT THAT HOLDING PERIOD ON AN AVERAGE FOR THE SHORT TERM CAPITAL GAIN TRANSACTION HAD BEEN 76 DA YS AND FOR THE LONG TERM CAPITAL GAIN 2-3 YEARS. LD. CIT(A) OBSERVED T HAT THE RATIO OF TOTAL PURCHASE/SALE WAS 1.10 AND RATIO OF SALES/STOCK WAS 1.68 ONLY, THEREFORE, 15 AS PER CIRCULAR NO. 4/2007 DATED 15/06/2007 AND CON SIDERING THE MATTER OF MAINTAINING THE BOOKS OF ACCOUNTS, HOLDING PERIO D, MOTIVE FOR PURCHASE AND SALES OF THE SHARES, NATURE OF TRANSACTIONS AND RATIO BETWEEN PURCHASES AND SALES, THE ASSESSEE WAS AN INVESTOR. LD. CIT(A) POINTED OUT THAT THE ASSESSEE HAD SUBMITTED BOOKS OF ACCOUNTS A ND THE DETAILS OF INVESTMENT MADE AND TREATMENT OF THEIR VALUATION IN THE BOOKS AS INVESTMENT AT THE YEAR END, THEREFORE , THE INTENTI ON OF THE ASSESSEE WAS TO BE INVESTOR FROM THE BEGINNING ITSELF AS WAS SEE N FROM PURCHASES THROUGH DEMAT ACCOUNT FROM OWN FUNDS, HOLDING PERI OD OF THE SHARES AND TREATMENT GIVEN IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) HELD THAT THE RULE OF CONSISTENCY WAS APPLICABLE IN THE ASSESSEE S CASE AS DECIDED IN THE CASE OF RADHA SWAMI SATSANG VS. CIT 193 ITR 321 (SC ). ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER TREATING THE INCOME OF RS. 20,81,774/- AS BUSINESS INCOME WAS DELETED. NOW TH E DEPARTMENT IS IN APPEAL. 5. LEARNED D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 16/12/2010. 16 6 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT( A). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PART IES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSING OFFICER TREATED THE INCOME SHOWN BY THE ASSESSEE AS LONG TERM CAPITAL GAIN AND SHORT TE RM CAPITAL GAIN ON ACCOUNT OF SALES OF SHARES AS BUSINESS INCOME SINCE THE TRANSACTION WAS VOLUMINOUS HAVING HIGH MAGNITUDE. ON THE CONTRARY, THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR AND NEVER SHOWN THE SAME AS STOCK IN TRADE IN HIS BALANCE SHEET. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE CONVERTED THE I NVESTMENT OF SHARES INTO STOCK IN TRADE AT ANY POINT OF OUT TIME. TH E SHARES AT THE TIME OF PURCHASE IN EARLIER YEARS HAD BEEN ACCEPTED AS INVE STMENT BY THE ASSESSING OFFICER, THEREFORE, PROFIT EARNED BY THE ASSESSEE ON SALE OF THOSE SHARES WAS THE PROFIT I.E. CAPITAL GAIN FROM THE INVESTMENT AND NOT THE PROFIT OF BUSINESS. IN OUR OPINION, ONLY ON THE BASIS OF HIGH MAGNITUDE, A TRANSACTION CANNOT BE TREATED AS BUSINESS TRANSAC TION PARTICULARLY WHEN THE INTENTION OF THE ASSESSEE WAS OF AN INVESTOR AN D THE SAME WAS 17 ACCEPTED IN THE EARLIER YEARS. WE, THEREFORE, CONS IDERING THE TOTALITY OF THE FACTS, DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSE D. (ORDER PRONOUNCED IN THE COURT ON 29 TH NOVEMBER, 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH NOVEMBER , 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.