The ACIT, - 3(1), Indore V. Shri Sunil Mallo, Indore

ITA 454/IND/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74765 (ITAT-INDORE)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 14-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRIKANT NAMDEO
• Keywords: Capital asset; Business income; Rule of consistency; Transactions in derivatives; Cost of acquisition
• Section: 143(3); 10

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.454/IND/2013 A.Y. 2008-09 ACIT 3(1), INDORE :: APPELLANT VS SUNIL MALOO, INDORE PAN ABMPM 6217 E :: RESPONDENT APPELLANT BY SHRI SRIKANT NAMDEO RESPONDENT BY SHRI PRAKASH JAIN DATE OF HEARING 30 . 1 .201 4 DATE OF PRONOUNCEMENT 30 . 1 .201 4 O R D E R PER JOGINDER SINGH , JUDICIAL MEMBER THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 20.2.2013 OF THE LD. FIRST APPELLATE AUTHORITY. THE ONLY GROUND RAISED IN THIS APPEAL IS THAT THE LEARNED CIT(A) WAS NOT J USTIFIED IN DELETING THE ADDITION OF RS. 25,43,812/- ALLOWING BUSINESS I NCOME EARNED 2 FROM SHARE TRADING AS SHORT TERM CAPITAL GAIN WITHO UT APPRECIATING THE FACTS. 2. DURING HEARING, WE HAVE HEARD SHRI SRIKANT NAMDE O, LD. DR AND SHRI PRAKASH JAIN, LEARNED COUNSEL FOR THE ASSE SSEE. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS IN SUPPORT OF THE ASSESSMENT ORDER WHEREAS LEARNED COUNSEL FOR THE AS SESSEE PLACED RELIANCE UPON THE IMPUGNED ORDER BY FURTHER SUBMITT ING THAT THE ISSUE IS COVERED AGAINST THE REVENUE BY THE ORDER O F TRIBUNAL IN CASE OF DURGESH PRASAD MALOO (ITA NO.424/IND/2012, ORDER DATED 14 TH NOVEMBER, 2013). THIS FACTUAL MATRIX WAS NOT CONT ROVERTED BY THE REVENUE BY BRINGING ANY POSITIVE MATERIAL ON RE CORD. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF T HE AFORESAID ORDER DATED 14.11.2013: THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER D ATED 24-04-2012 OF THE LD. FIRST APPELLATE AUTHORITY, INDORE ON THE GROUND THA T, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE INCOME OF RS. 58,25, 577/- FROM TRADING OF SHARES TO BE FIXED @ 10% FROM SUCH ACTIVITY. 2. THE CRUX OF ARGUMENT ADVANCED ON BEHALF OF THE R EVENUE IS THAT IT WAS TO BE TAXED @ 30% AS INFORMATION WAS RECEIVED FROM NSE AN D BSE INFERRING THE NATURE OF TRANSACTIONS WERE BUSINESS ACTIVITY. IT WAS CONTEND ED THAT THE LD. CIT(A) IGNORED THE FACTS BROUGHT OUT ON RECORD B THE ASSESSING OFFICER . PLEA WAS ALSO RAISED THAT THE 3 ASSESSEE WAS A TRADER AD NOT AN INVESTOR. IT WAS SU BMITTED THAT BORROWED FUNDS WERE USED FOR PURCHASE OF SHARES. ON THE RULE OF CO NSISTENCY, IT WAS PLEADED THAT EACH YEAR IS AN INDEPENDENT, THEREFORE, RES JUDICAT A IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS. A STRONG PLEA WAS RAISED THAT ASSESS EE DID TRADING AND MAGNITUDE OF TRANSACTION IS VERY HIGH. RELIANCE WAS PLACED ON TH E DECISION IN THE CASE OF ACIT VS SHRI NAVNEET KUMAR (ITA NO.346/IND/2013). FURTHER R ELIANCE WAS PLACED UPON CIRCULAR NO. 4 OF 2007, ISSUED BY CENTRAL BOARD OF DIRECT TAXES (CBDT) TO THE EFFECT THAT NO SINGLE PRINCIPLE IS DECISIVE. THE LD. SR. D .R. PLACED RELIANCE UPON THE FOLLOWING DECISIONS. (A) RAJABAHADUR VISHESHWARA SINGH & OTHERS VS LD. CIT (1961), 41 ITR 685 (SC). (B) FIDILITY NORT STAR & ORS (2007) 207 CTR (AAR) 297. (C) CIT VS HOLCKLARSEN (160 ITR 67 (SC) (D) DCIT VS SMT. DEEPABEN, AMITBHAI SHAHA, 99 ITD 219 (AHD.) (E) CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO. L TD. 82 ITR 586 (SC) 2.1 ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSE SSEE CONTENDED THAT THE ASSESSEE IS 89 YEARS OLD PERSON AND FOR EARLIER YEA RS MOST OF THE ASSESSMENT WERE FRAMED U/S 143(3) OF THE ACT, ACCEPTING THE CLAIM OF THE ASSESSEE. ON THE ISSUE OF CONTENTION OF THE SR. DR THAT THERE WERE LARGE FR EQUENCY IN TRADING / BUSINESS ACTIVITY, OUR ATTENTION WAS INVITED TO PAGE 50 OF T HE PAPER BOOK EXPLAINING THAT THERE ARE ONLY 258 TRANSACTIONS (PAGE 54 OF THE PAP ER BOOK). ON THE PLEA OF MULTIPLE TRANSACTIONS, IT WAS EXPLAINED THAT DUE TO E FILING OF RETURN, THESE TRANSACTIONS WERE AUTOMATICALLY SPLITTED UP. RELIANCE WAS PLACED UPON THE DECISION OF THE TRIBUNAL IN ACIT VS OM PRAKASH SURI (2010) 16 ITJ 185 (INDORE) WHICH WAS AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT REPORTED IN (2012 ) 19 ITJ 326 (M.P.). IT WAS PLEADED THAT THE ASSESSEE IS AN INVESTOR FOR WHICH RELIANC E WAS PLACED ON THE FOLLOWING DECISIONS:- (I) MAHENDA C SHAH, MUMBAI VS ADDL. CIT, RANGE 13( 1), MUMBAI. (II) SHANTILAL M JAIN VS ACIT, 12 (3), MUMBAI (III) RAMESH BABU RAO VS ACIT 17 (3), MUMBAI (IV) ITO 19(2)(1), MUMBAI VS RADHA BIRJU PATEL (V) ACIT 21(3) MUMBAI VS NISHAD V. VACHHARAJANI (VI) DCIT 4(2), MUMBAI VS SMK SHARES & STOCK BROKI NG PVT LTD. (VII) VINOD K. NEVATIA VS ACIT, MUMBAI (IX) ITO VS ROHIT ANAND 4 (X) CIT VS PNB FINANCE & INDUSTRIES LTD. (XI) SUGANCHAND C SHAH VS ACIT (XII) MANAGEMENT STRUCTURE & SYSTEM PVT. LTD VS IT O 6(3)(2). (XIII) MR. NEHAL V. SHAH VS ACIT 21 (1), MUMBAI (XIV) ACIT CENTRAL CIRCLE 2(3), AHEMDABAD VS BANKI M JAYAANTILAL SHAH THE LD. COUNSEL ALSO PLACED RELIANCE UPON THE DECIS ION IN THE CASE OF NAGINDAS P SETH(HUF) ACIT (ITA NO.961/MUM/2010) TO THE EFFECT THAT DESPITE LARGE NUMBER OF TRANSACTIONS IN SHARES, THE PROFIT MAYA BE ASSESSAB LE AS CAPITAL GAINS. FURTHER RELIANCE WAS PLACED ON THE DECISION IN JANAK S RANA WALA VS ACIT, 11 SOT 627, ITO VS RADHA BIRJU PATEL (ITA NO.5382/MUM/2009). THE IMPUG NED ORDER WAS DEFENDED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION, WE ARE REP RODUCING HEREUNDER THE RELEVANT PORTION OF THE CONCLUSION DRAWN IN THE IMP UGNED ORDER FOR READ REFERENCE. 4.2.2 THE ISSUE IS CONSIDERED. UNDER THE OLD PRO VISIONS OF THE INCOME-TAX ACT, PROFITS OR GAINS ARISING TO AN INVESTOR FROM THE TR ANSFER OF SECURITIES WERE CHARGED TO TAX EITHER AS LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING OF THE SAID SECURITIES. SHORT TE RM CAPITAL GAINS ARISING FROM TRANSFER OF SECURITIES WEE TAXED AT THE APPLICABLE RATES (NORMAL RATE) AND LONG TERM CAPITAL GAINS WERE TAXED @ 20%, AFTER ADJUSTING THE INFLATION BY INDEXING THE COST OF ACQUISITION. FOR LISTED SECURITIES, THE TA XPAYER HAD AN OPTION TO PA TAX ON LONG TERM CAPITAL GAINS @ 10% BUT WITHOUT INDEXATION. FO R FOREIGN INSTITUTIONAL INVESTORS (FIIS), THE LONG TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS WERE TAXED AT THE RATE OF 10%(WITHOUT INDEXATION)AND 30% RESPECTIVELY. IN CASES OF A TRADER IN SECURITIES, HOWEVER, THE GAINS WERE TAXED AS ANY OTHER NORMAL B USINESS INCOME. HOWEVER, THE ISSUE OF TREATMENT OF INCOME FROM SHARE TRANSACTION AS CAPITAL GAINS OR BUSINESS INCOME HAS N FACT ARISEN AFTER THE AMENDMENT BROUGH T WITH FINANCE ACT, 2004 BY INSERTION OF PROVISIONS OF SECTION 111A AN 10(38) A S REGARDS TO LEVY OF TRANSACTION TAX AND EXEMPTION/ CONCESSION ON CAPITAL GAINS ARISING FROM SECURITIES ENTERED IN A RECOGNIZED STOCK EXCHANGE. WITH A VIEW TO SIMPLIFY THE TAX REGIME ON SECURITIES TRANSACTIONS, A TAX AT THE RATE OF 0.015 PER CENT ( SEE: CHANGE IN RATES ON SECURITIES TRANSACTIONS, BY FINANCE ACTS, AT APPROPRIATE HEAD) IS LEVIED ON THE VALUE OF ALL THE TRANSACTIONS OF PURCHASE OF SECURITIES THAT TAKE PL ACE IN A RECOGNIZED STOCK EXCHANGE IN INDIA. THIS TAX IS COLLECTED BY THE STOCK EXCHAN GE FROM THE PURCHASER OF SUCH SECURITIES AND PAID TO THE EXCHEQUER. THE PROVISION S RELATING TO THE SECURITIES TRANSACTION TAX ARE CONTAINED IN CHAPTER VII OF THE FINANCE (NO.2) BILL, 2004, AND CAME INTO EFFECT FROM 01-10-2004. FURTHER CLAUSE (3 8) HAS BEEN INSERTED IN SECTION 10 OF THE INCOME-TAX ACT, SO AS TO PROVIDE EXEMPTIO N FROM LONG TERM CAPITAL GAIN ARISING OUT OF SECURITIES SOLD ON THE STOCK EXCHANG E. A NEW SECTION 111A HAS ALSO BEN INSERTED AND SECTION 115AD IS AMENDED, SO AS TO PROVIDE THAT SHORT TERM CAPITAL GAINS ARISING FROM SALE OF SUCH SECURITIES TO AN INVESTOR INCLUDING FIIS SHALL BE CHARGED AT THE RATE OF TEN PER CENT. THESE AMENDMEN TS APPLY TO ASSESSMENT YEAR 5 2005-06 AND SUBSEQUENT YEARS. THROUGH FINANCE ACT 2 008, SECTIONS 111A AND 115AD HAVE FURTHER BEEN AMENDED WHEREBY THE RATE OF TAX ON SHORT TERM CAPITAL GAIN HAS BEEN RAISED TO FIFTEEN PER CENT. THUS W.E.F. 01-10-2004, ON THE SHARE TRANSACTIONS SUBJECTED TO STT, CONCESSIONAL TAX RAT E OF 10% (WHICH HAS BEEN INCREASED TO 15% FROM ASSESSMENT YEAR 2009-10) ARE APPLICABLE IN RESPECT OF STCG WHEREAS THE TAX IS CHARGEABLE IN RESPECT OF STCG. I T IS ALSO NOTED THAT THE CBDT VIE ITS CIRCULAR NO. 4/2007 DATED 15-06-2007 HAS ALSO R ECOGNIZED POSSIBILITY OF TWO PORTFOLIOS, I.E. ONE INVESTMENT PORTFOLIO COMPRIS ING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND THE OTHER TRADING PO RTFOLIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. IN THE CASE OF PRESENT ASSESSEE, THE INCOME ARISING FROM F&O TRANSACTIONS AND DAILY TRAD ING IN SHARES (WITHOUT PHYSICAL DELIVERY) HAS BEEN REFLECTED CONSISTENTLY FOR THE L AST SEVERAL YEARS AS SPECULATIVE BUSINESS WHEREAS THE INCOME ON DELIVERY BASED TRANS ACTIONS OF SALE AND PURCHASE OF SHARES HAVE BEEN SHOWN AS CAPITAL GAINS STCG OR LTCG DEPENDING UPON THE PERIOD OF HOLDING. THE BALANCE SHEET REFLECTS THE H OLDINGS OF SHARES AS INVESTMENT(ONLY ONE PORTFOLIO). THEREFORE, IN MY CO NSIDERED VIEW INCOME ARISING ON PURCHASE AND SALE OF SHARES ARE TO BE TREATED AS IN COME FROM CAPITAL GAIN WHICH WOULD FURTHER BE CLASSIFIED AS STCG OR LTCG. IT IS NOTED THAT ALTHOUGH ASSESSING OFFICER TREATED THE STCG SHOWN BY THE ASSESSEE AS BUSINESS INCOME AND SUBJECTED THE SAME AT NORMAL TAX RATE, BUT THE CLAIM OF THE L TCG (ON SALE OF SHARES) WERE ACCEPTED AS SUCH AS EXEMPTED INCOME U/S 10(38). WH EREAS THE NATURE AND SOURCE OF INCOME WAS SAME I.E. INVESTMENT N SHARES AND THE INCOME THEREON WAS CLASSIFIED BY THE ASSESSEE AS STCG OR LTCG DEPENDING ON THE P ERIOD OF HOLDING,, THE ASSESSING OFFICER APPLIED DIFFERENTIAL TREATMENTS WHICH IS EV EN AGAINST THE RULE OF CONSISTENCY. HAVING CONSIDERED THE FACTS AND FOLLOWING THE RULE OF CONSISTENCY, I AM OF THE VIEW THAT THE INCOME SHOWN AS STCG DESERVES TO BE TAXED AT CONCESSIONAL RATE ITSELF IN ACCORDANCE WITH PROVISIONS OF SECTION 111A AND NOT AS BUSINESS INCOME CHARGEABLE TO TAX AT NORMAL RATE AS DONE BY THE ASSESSING OFFI CER. IN THE RESULT, THE ASSESSEES GROUND STANDS ALLOWED. IF THE CONCLUSION DRAW IN THE IMPUGNED ORDER, OBSE RVATION MADE FROM THE ASSESSMENT ORDER, ASSERTIONS MADE BY THE LD. RESPEC TIVE COUNSEL AND THE MATERIALS AVAILABLE ON RECORD ARE KEPT IN JUXTAPOSITION AND A NALYSE, WE FIND THAT THE ASSESSEE HAD BEEN CONSISTENTLY TRADING IN SHARES FOR THE LAS T ABOUT 25 YEARS AND THE INCOME ARISING FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES HAD BEEN REFLECTED CONSISTENTLY AS SPECULATIVE BUSINESS (WITHOUT PHYSI CAL DELIVERY) AND IN THE CASE OF DELIVER BASED TRANSACTION OF SALE AND PURCHASES O F SHARES HAD BEEN SOWN AS CAPITAL GAINS I.E. LTCG AD STCG, DEPENDING UPON THE PERIOD OF HOLDING. IF THE BALANCE SHEET OF THE ASSESSEE IS ANALYSED, IT REFLECTS HOLIDNG O F SHARES AS INVESTMENT (ONE PORTFOLIO). I IS FURTHER NOTED THAT THE DEPARTMENT CONSISTENTLY HAD BEEN ACCEPTING THE CLAIM OF THE ASSESSEE FROM LONG TERM CAPITAL G AIN, THEREFORE, NO U TURN IS EXPECTED FOR SHORT TERM CAPITAL GAIN. DURING HEAR D, THE LD. SR. DR CONTENDED THAT BORROWED FUNDS WERE USED FOR PURCHASE OF SHARES WHI CH WAS STRONGLY OBJECTED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE BY SUBMITTING THAT NO INTEREST WAS PAID ON THE BORROWED FUNDS. THIS ASSERTIONS OF THE ASSESSEE WA S NOT CONTROVERTED BY THE REVENUE WITH THE HELP OF AN POSITIVE MATERIALS. IT IS ALSO UNDISPUTED FACTS THAT IN EARLIER YEARS, THE DEPARTMENT, IDENTICALLY, ACCEPTE D THE CLAIM OF THE ASSESSEE THAT TOO WHILE FRAMING THE ASSESSMENT U/S 143() OF THE ACT. THE LD. SR.DR ALSO POINTED 6 OUT THAT THE ASSESSEE MADE TOTAL TRANSACTIONS TO T HE EXTENT OF MORE THAN 2500 WHICH WAS ALSO CONTROVERTED BY THE ASSESSEE BY INV ITING OUR ATTENTION TO PAGES 50 TO 54 OF THE PAPER BOOK. WE HAVE PERUSED THE PAPER BOOK AND FOUND THAT THERE ARE 258 TRANSACTIONS ONLY AND SOME OF THEM ARE FROM THE SAME COMPANY/ CONCERN AND DUE TO E FILING THESE HAVE BEEN AUTOMATICALLY SPLIT UP. IT IS ALSO WORTH NOTING THAT PRIOR TO AMENDMENT, THE DEPARTMENT NEVER OBJECTED T O THE CLAIM OF THE ASSESSEE AND FOR THE IMPUGNED ASSESSMENT YEAR OBJECTED DUE TO RATE OF TAX. IN VIEW OF THE FACTS, THE CONTENTION OF THE ASSESSING OFFICER THAT THERE WERE LARGE FREQUENCIES IS NOT SUBSTANTIATED. THE ASSESSEE WAS CLAIMED TO BE 89 YEARS OLD, HAD BEEN SHOWING CONSISTENTLY INCOME FROM TRADING IN SHARES, LONG AN D SHORT TERM CAPITAL GAINS ON THE SALE OF SHARES AND ALSO INCOME FROM OTHER SOURCES. WE HAVE ALSO PERUSED THE ASSESSMENT ORDER FROM THE ASSESSMENT YEAR 2001-02, 2005-06 TO 2007-08 WHICH HAVE BEEN FRAMED U/S 143(3) OF THE ACT. THE DETAIL S OF SOME OF THE ASSESSMENT YEARS ALONGWITH BREAD UP OF LONG TERM AND SHORT TER M CAPITAL GAINS FOR THE IMPUGNED ASSESSMENT YEARS ARE SUMMARISED AS UNDER: - S.N. A.Y. INCOME FROM CAPITAL GAINS COMPILATION PAGE NO. SECTION UNDER WHICH ASSESSMENT DIVIDEND INCOME 01 2007 - 08 SHORT TERM CAPITAL GAIN RS. 29,13,943/-, LONG TERM CAPITAL GAIN RS. 3,65,918/- 71 TO 78 143(3) RS. 3,72,422/ - PAGE NO. 80 & RS. 7,49,028/- PAGE NO. 81 02 2006 - 07 SHORT TERM CAPITAL GAIN RS. 16,47,346/- 85 TO 94 143(3) RS. 9,77,010/ - PAGE NO. 98 03 2005 - 06 SHORT TERM CAPITAL GAIN RS. 45,521/- AND RS. 19,838/- LONG TERM CAPITAL GAIN RS. 9,33,825/- 103 TO 111 143(3) RS. 3,84,561/ - PAGE NO.134 04. 2004 - 05 LONG TERM CAPITAL GAIN RS. 4,67,930/- SHORT TERM CAPITAL GAIN RS. 2,05,339/- 139 TO 144 143(3) FIGURE NOT AVAILABLE 05 2003 - 04 LONG TERM CAPITAL GAIN RS. 36,730/- 145 TO 148 143(1) RS. 1,25,740/ - PAGE O. 150 06 2002 - 03 LONG TERM CAPITAL GAIN RS. 5,57,424/- 157 TO 160 143(1) RS. 1,37,112/ - PAGE NO.161 07 2001 - 02 LONG TERM CAPITAL GAIN RS. 3,15,661/- 167 TO 170 143(3), THERE IS ALSO OF HON'BLE ITAT WHICH IS ON PAGE NO. 196 TO 201 IN THE SAID ORDER ALSO, THE REFERENCE IN INVESTMENT IN SHARES IS GIVEN WHICH IS ON PARA 11 BACK OF PAGER 196 RS. 2,04,233/ - PAGE NO.185 7 02. THAT THE BREAK UP OF LONG TERM CAPITAL GAIN A ND SHORT TERM CAPITAL GAIN FOR THE ASSESSMENT YEAR 2008-09 IS AS UNDER:- (I) SHORT TERM CAPITAL GAIN (A) SELF INVESTMENT RS. 17,21,234/- (B) THROUGH PMSMIV INVESTMENT SERVICES LTD. RS. 41,04,340/- TOTAL:- RS.58,25,574/- (II) LONG TERM CAPITAL GAIN (A) SELF INVESTMENT RS.37,28,589/- (B) THROUGH PMS RS. 2,43,840/- TOTAL:- RS.39,72,429/- 3.1 WE FURTHER NOTED THAT THE CONTROVERSY AROSE FOR THE FIRST TIME FOR THE IMPUGNED ASSESSMENT YEAR WHEREIN THE ASSESSING OFFICER TREAT ED THE CLAIM OF SHORT TERM CAPITAL GAIN AS BUSINESS INCOME AND SIMULTANEOU SLY ACCEPTED THE LONG TERM CAPITAL GAIN OF RS. 39,79,429/- AS EXEMPT U /S 10(38) OF THE ACT. WHILE COMING TO A PARTICULAR CONCLUSION, THE LD. CIT(A) BROADLY EXA MINED THE HISTORY OF THE ASSESSEE WITH THE HELP OF ORDER PASSED IN EARLIER ASSESSMEN T YEARS, PLACED RELIANCE UPON THE DECISION IN THE CASE OF GOPAL PUROHIT, 228 CTR 52 8 (BOM.) AND THE SLP FILED BY THE DEPARTMENT AGAINST THIS DECISION WAS ALSO DISMISSED BY HON'BLE APEX COURT VIDE ORDER DATED 15-11-2010. OTHER JUDICIAL DECISIONS HA VE ALSO BEEN CITED BY THE LD. CIT(A). IT IS ALSO NOTED THAT THE LD. CIT(A) HAS FO LLOWED THE DECISION FOR ASSESSMENT YEAR 2002-03 IN THE CASE OF THE ASSESSEE ITSELF WH ICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THEREFORE, IN THE ABSENCE OF ANY CONTRA RY MATERIALS, THE DEPARTMENT IS NOT EXPECTED TO TAKE A CONTRARY STAND. IN ITS SPEEC H BY THE HON'BLE FINANCE MINISTER REGARDING DIRECT TAX CASES (UNION BUDGET 2004-05), SPECIFICALLY CLAUSE 111 (PAGE 69 OF THE PAPER BOOK), THE INTENTION OF THE GOVT. FOR INTRODUCING THE SECURITY TRANSACTION TAX AND EXEMPTING THE LONG TERM CAPITAL GAIN EARNED FROM SALE OF SHARES AND LEAVING 10% TAX ON SHORT TERM CAPITAL GAIN, EA RNED FROM SALE OF SHARES, ALSO SUPPORTS THE CASE OF THE ASSESSEE . THE IDEA BEHIN D INTRODUCTION OF SECURITY TRANSACTION TAX IS TO END THE LITIGATION ON THE I SSUE WHETHER PROFIT EARNED FROM THIS DELIVERY BASE SALE OF SHARES IS A CAPITAL GAIN OR A BUSINESS PROFIT. EVEN THE HON'BLE APEX COURT IN THE CASE OF K.P. VERGHESE VS TO, 131 ITR 597 (SC) OBSERVED AS UNDER:- THE TASK OF INTERPRETATION OF A STATUTORY ENACTME NT IS NOT MECHANICAL TASK. IT IS MORE THAN A MERE READING OF MATHEMATICAL FORMULAE B ECAUSE FEW WORD POSSESSES THE PRECISION OF MATHEMATICAL SYMBOLS. IT IS AN ATT EMPT TO DISCOVER THE INTENT OF THE LEGISLATURE FROM THE LANGUAGE USED B IT AND IT MUST ALWAYS BE REMEMBERED THAT LANGUAGE IS AT BEST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT AND, AS POINTED OUT BY LORD DENNING, IT WOULD BE ID LE TO EXPECT EVERY STATUTORY PROVISIONS TO BE DRAFTED WITH DIVINE PRESCIENCE AN D PERFECT CLARITY. WE CAN DO BETTER THAN REPEAT THE FAMOUS WORDS OF JUDGE LEARNE D HAND WHEN HE SAID. 8 THE ABOVE OBSERVATIONS OF HON'BLE JUDGES OF THE APE X COURT WAS REITERATED BY HON'BLE APEX COURT IN THE CASE OF KERALA STATE INDU STRIAL CORPORATION, 259 ITR 51 (SC) HOLDING AS UNDER:- THAT THE FINANCE MINISTERS SPEECH CAN BE RELIED UPON TO THROW LIGHT ON THE OBJECT AND PURPOSE OF THE PARTICULAR PROVISIONS INTRODUCTI ON BY THE FINANCE BILL HAS BEEN RECOGNIZED BY THIS COURT IN K.P. VERGHESE VS ITO 1981), 131 ITR 597 (SC), AT 609. AGAIN IN THE CASE OF R & B FALCON (A) PVT. LTD VS C IT (2008) 301 ITR 309 (SC), IT WAS HELD THAT (PAGE 323):- RULES OF EXECUTIVE CONSTRUCTION IN A SITUATION OF THIS NATURE MAY ALSO BE APPLIED. WHERE A REPRESENTATION IS MADE BY THE MAKERS OF LEG ISLATION AT THE TIME OF INTRODUCTION OF BILL OR CONSTRUCTION THEREUPON IS P UT BY THE EXECUTIVE UPON ITS COMING INTO FORCE, THE CARRIES GREAT WEIGHT. THE HON'BLE DELHI HIGH COURT IN ARJ SECURITY PRINTE RS, 264 ITR 276 AND NEO POLLYPACK PVT LTD. 245 ITR 492 (DEL.) HELD THAT EVE N WHEN THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, WHERE A I SSUE HAS BEEN DECIDED CONSISTENTLY IN EARLIER ASSESSMENT YEARS IN PARTIC ULAR MANNER, THE SAME VIEW SHOULD PREVAIL IN SUBSEQUENT YEARS UNLESS THERE IS A MATER IAL CHANGE IN FACTS, MEANING THEREBY, THERE MUST BE MATERIAL CHANGE IN THE FACTS . AS MENTIONED EARLIER, THE LD. CIT(A), IDENTICALLY FOR ASSESSMENT YEAR 2002-03 AL LOWED THE CLAIM OF THE ASSESSEE AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. 3.2 THE INDORE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS OM PRAKASH SURI (SUPRA) HELD AS UNDER:- 3. WE HAVE CONSIDERED THE SUBMISSIONS PUT FORTH BY THE LEARNED SENIOR DR AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. BRIE F FACTS ARE THAT IN THE PAST THE ASSESSEE WAS ENGAGED IN ROAD BUILDING CONTRACTOR AN D WAS DERIVING INCOME FROM CONTRACT RECEIPTS AS WELL AS FROM SALE OF GITTI AND DURING THE IMPUGNED YEAR, VENTURED INTO INVESTMENT IN SHARE MARKET. THE INCO ME ARISING FROM F&O TRANSACTIONS AND DAILY TRADING IN SHARES (WITHOUT P HYSICAL DELIVERY) REFLECTED AS SPECULATIVE BUSINESS WHEREAS THE INCOME ON DELIVERY BASED TRANSACTIONS OF SALE AND PURCHASE OF SHARES, INCOME WAS SHOWN FROM CAPITAL G AINS. THE LEARNED AO CONSIDERED THE INCOME WHICH WAS BASED ON PURCHASE A ND SALE OF SHARES AS BUSINESS INCOME ON THE GROUNDS AS NARRATED IN THE ASSESSMENT ORDER AS WELL ASAT PAGES 3 AND 4 OF THE APPELLATE ORDER. BROADLY, THE LEARNED AO WAS OF THE VIEW THAT THE INTENTION OF THE ASSESSEE SINCE BEGINNING WAS SALE OF SHARES AS TRADING ACTIVITIES, AS EVIDENT FROM AUDITED PROFIT AND LOSS ACCOUNT BY NOT SHOWING THE SAME AS SHORT TERM CAPITAL GAIN AND ALSO IN FORM 3CD THE ASSESSEE HAS MENTIONE D THE NATURE OF BUSINESS AS TRADING/DEALING IN SHARES/SECURITIES AND MUTUAL FUN DS. THE FREQUENCY OF TRANSACTIONS WAS ALSO CONSIDERED, CONSEQUENTLY HE T REATED THE AMOUNT OF RS.49,81,915/- AS BUSINESS INCOME FROM SHARE TRADIN G. HOWEVER, BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE BASIS OF A DDITIONS WAS EXPLAINED AS EVIDENT FROM PARA 3.1.1 ONWARDS. THE CRUX OF CLAIM OF THE ASSESSEE IS THAT IN THE AUDITED ACCOUNTS, THE SALE OF SHARES AMOUNTING TO R S. 9.43 CRORES IN WHICH DELIVERY 9 HAD BEEN TAKEN, STT WAS PAID AND THE SHARES WERE SO LD AFTER HOLDING FOR A FEW DAYS/FEW WEEKS. THE MUTUAL FUNDS OF RS. 2.91 LACS WERE SOLD AND WERE TREATED AS INCOME FROM SHORT TERM CAPITAL GAINS. BEFORE THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE ALSO FILED A DETAILED NO TE ON THE PURCHASE PROCESS FOR DELIVERY BASE SHARES, DETAILS OF DIVIDEND RECEIVED ON THE BASIS OF RELEVANT STATEMENTS BY PLACING RELIANCE ON THE DECISION OF T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JM SHARES & STOCK BROKERS V. JCIT DA TED JANUARY, 2009. BRIEFLY, THE CLAIM OF THE ASSESSEE BEFORE THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS) WAS THAT THE DELIVERY BASED TRANSACTIONS WERE MADE WIT H AN INVESTMENT MOTIVE AND AS SUCH THE INCOME THEREFROM WAS IN THE NATURE OF SHOR T TERM CAPITAL GAINS WHEREAS THE INCOME AROSE FROM F&O TRANSACTIONS AND DAILY T RADING IN SHARES WERE WITH THE BUSINESS MOTIVE WHICH WERE SHOWED AS BUSINESS INCOM E ONLY WHICH WAS MAINLY THROUGH STOCK BROKER, ARIHANT CAPITAL MARKETS LIMIT ED, REGISTERED WITH NSC, NSE AND BSE. IT IS ALSO SEEN THAT IN THE IMPUGNED ORDER TH E BOARD CIRCULAR NO. 4/2007 DATED 15.6.2007 WHEREIN IT WAS EMPHASIZED THAT IT IS POSS IBLE FOR A TAX PAYER TO HAVE TWO PORT FOLIOS I.E. AN INVESTMENT PORT FOLIO COMPRISIN G OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET AND TRADING PORT FOLIO COM PRISING STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSET, WAS CONSIDERED. THE BO ARD FURTHER CLARIFIES THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL PR OPOSITION NEEDS TO BE CONSIDERED. THE ASSESSEE HAS MAINTAINED ONLY ONE PORT FOLIO AND CLAIMED THAT TO BE AN INVESTMENT FOLIO. UNDISPUTEDLY, THE PERIOD OF HOL DING IS LESS THAN ONE YEAR, CONSEQUENTLY, THERE IS NO INFIRMITY IN HOLDING THAT THESE TRANSACTIONS WOULD BE TREATED AS SHORT TERM CAPITAL GAIN ON WHICH THE APP LICABLE TAX IS @ 10% ONLY. IN VIEW OF THIS UNCONTROVERTED FACT, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. ORDER PRONOUNCED IN OPE N COURT ON 4 TH AUGUST, 2010. THE AFORESAID DECISION WAS AFFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT REPORTED IN (2012) 19 ITJ 326 M.P). THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF SHANTILAL M JAIN VS ACIT VIDE ORDER DATED 27-04-201 1 (ITA NO. 269/MUM/2010) HELD THAT DESPITE LARGE VOLUME OF SHARES TRANSACTIONS, T HE ASSESSING OFFICER CANNOT IGNORE THE RULE OF CONSISTENCY TO TREAT THE GAINS ON SALE OF SHARES AS STCG. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF INVESTMENT IN SHARES AND SECURITIES OFFERED RS. 1.54 CRORES AS SHORT TERM C APITAL GAIN AND RS. 2.91 CRORES FROM LONG TERM CAPITAL GAIN. THE LONG TERM CAPITAL GAIN WAS ACCEPTED WHEREAS SHORT TERM CAPITAL GAIN WAS HELD TO BE BUSINESS PROFIT. SINCE IN EARLIER ASSESSMENT YEARS THE CLAIM OF THE ASSESSEE WAS CONSISTENTLY ACCEPTED AS SHORT TERM CAPITAL GAIN, IT WAS HELD THAT THE RULE OF CONSISTENCY AS PROPOUNDED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT (SUPRA), IT IS FAIRLY APP LICABLE AND THE INCOME HAS TO BE TREATED AS SHORT TERM CAPITAL GAIN. IDENTICALLY I N THE CASE OF NAGINDAS P SETH (ITA NO.961/MUM/2010) IT WAS HELD THAT DESPITE LARGE NUM BER OF TRANSACTIONS IN SHARES, THE PROFIT CAN BE ASSESSED AS CAPITAL GAINS UNDER THE FACTS OF THE CASE. THE CASE OF THE ASSESSEE IS FURTHER FORTIFIED BY THESE DECISIO NS MORE SPECIFICALLY WHEN THE ASSESSEE WAS HOLD THE SHARES IN HIS BOOKS AS INVE STOR, WAS NOT HAVING OFFICE OR ADMINISTRATIVE SET UP, NO INTEREST WAS PAID ON THE FUNDS AND THERE WAS NOT A SINGLE INSTANCE WHERE THE ASSESSEE SQUARED UP THE TRANSAC TIONS ON THE SAME WITHOUT TAKING THE DELIVERY OF SHARES. THE DECISION IN THE CASE OF JANAK S RANAWALA, 11 SOT 627 (MUM.) FURTHER SUPPORTS THE CASE OF THE ASSESS EE. LIKEWISE, THE DECISION FROM 10 HON'BLE MADRAS HIGH COURT IN CIT VS N.S.S. INVESTME NT PVT LTD. 227 ITR 149 (MAD), CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY, 8 2 ITR 526 (SC) SUPPORTS THE CASE OF THE ASSESSEE. IN THE PRESENT APPEAL, WE NO TE THAT THE ASSESSEE MADE INVESTMENT IN SHARES WITH INTENTION TO EARN DIVIDEN D INCOME ON APPRECIATION OF PRICE OF SHARES. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS. MORE SPECIFICALLY WHEN, THE ASSESSEE EITHER UTILIS ED HIS OWN FUNDS/ FAMILY FUNDS OR DID NOT PAY ANY INTEREST AND DEPICTED THE TRANSACTI ONS IN SHARES UNDER INVESTMENT PORTFOLIO. DURING HEARING, IT WAS ALSO EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT ACCOUNTS WERE MAINTAINED BY THE ASSE SSEE IN TWO SEPARATE CAPACITIES I.E. TRADER AND INVESTOR AND NEVER TREATED THE SAME AS HOLDINGS OF SHARES AS STOCK IN TRADE WHICH CLARIFIES THE INTENTION OF THE ASSESSE E. THIS ASSERTION WAS NOT CONTROVERTED BY THE REVENUE. SO FROM THIS ANGLE, TH E STAND OF THE LD. CIT(A) DESERVES TO BE AFFIRMED. 3.3 THE LD. SR. DR PLACED RELIANCE UPON THE DECISI ON OF THIS TRIBUNAL IN ACIT VS SHRI NAVEET KUMAR (ITA NO.346/IND/2013) ORDER DATED 30-0 8-2013. WE HAVE PERUSED THIS ORDER AND FOUND THAT IT HAS BEEN CLARIFIED THA T IF THE SHARES ARE SHOWN AS INVESTMENT AND NOT AS STOCK IN TRADE, PROFIT ARRIVI NG FROM SUCH SHARES WILL BE CAPITAL GAINS AND NOT BUSINESS PROFIT. THE MATTER WAS RES TORED TO THE ASSESSING OFFICER TO EXAMINE THE FACTS AND THEN DECIDE ACCORDINGLY. THER EFORE, THIS JUDICIAL PRONOUNCEMENT MAY NOT HELP THE REVENUE. THE OTHER C ASES RELIED UPON BY THE REVENUE HAVE ALSO BEEN PERUSED AND ARE OF THE VIEW THAT THE FACTS ARE NOT IDENTICAL, THEREFORE, THESE MAY NO HELP THE REVENUE. THE BOAR D CIRCULAR NO. 4.2007 DATED 15- 06-207 ALSO EMPHASIZES THAT IT IS POSSIBLE FOR A TA X PAYER TO HAVE TWO PORTFOLIOS NAMELY, AN INVESTMENT PORTFOLIO, COMPRISING OF SECU RITIES, WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADING PORTFOLIO COMPRISING O F STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADE ASSETS. NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE FACT HAS TO BE CONSIDERED IN ENTIRETY. THIS PROPOSITION HAS BEEN C ONFIRMED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI OM PR AKASH SURI (SURPA). THE TOTALITY OF FACTS PLAINLY INDICATE THAT THE LD. FIRST APPELLAT E AUTHORITY RIGHTLY DIRECTED THE ASSESSING OFFICER TO TREAT THE SHORT TERM CAPITAL GAIN AS EARNED FROM INVESTMENT IN SHARES. INSTRUCTION NO.1827 DATED31 ST AUGUST, 1989 WAS SUPPLEMENTED BY CBDT CIRCULAR NO. F.NO.149/287/2005-TPL [REPORTED IN 210 CTR 29 (ST.)], ADVISING THE ASSESSING OFFICERS THAT THE PRINCIPLES CONTAINED IN THE CIRCULAR SHOULD GUIDE THEM IN DETERMINING WHETHER, IN GIVEN CASES, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE, GIVING RISE TO CAPITAL GAINS) OR STOCK-IN-TRADE (AND THEREFORE, GIVING RISE TO BUSINESS PROFIT) BY FURTH ER OPINING THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND TOTAL EFFECT OF ALL THE PRINC IPLES SHOULD BE CONSIDERED. IF THE NUMBER OF TRANSACTIONS ARE ANALYSED, WE NOTE THAT, IN A COMPUTER BASED TRADING SYSTEM/ E-FILING, THE FIGURES, BEING SPLIT UP, GIVE MISLEADING HIGH FIGURES, REFLECTING THE INDIVIDUAL COMPONENT OF THE TRANSACTION BUT REA LLY, IF THESE FIGURES ARE SYNCHRONISED THEN CLEAR PICTURE OOZES OUT. SINCE TH E GAIN HAS BEEN EARNED FROM THE DELIVERY BASED TRANSACTIONS, THEREFORE, RESPECTFULL Y FOLLOWING THE DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SH RI OM PRAKASH SURI (SUPRA), WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT (A). IT IS AFFIRMED. FINALLY, THE APPEAL OF THE REVENUE IS HAVING NO ME RIT, CONSEQUENTLY DISMISSED. 11 THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 14 TH NOV. 2013. IF THE FACTS OF THE PRESENT APPEAL ARE ANALYSED IN THE LIGHT OF THE AFORESAID ORDER, WE FIND THAT THE TRIBUNAL HAS MADE ELABORATE DISCUSSION IN THE AFORESAID ORDER DATED 14 TH NOVEMBER, 2013 ON IDENTICAL FACTS WITH THE HELP OF THE JUDICIAL PRONO UNCEMENTS. THE LD. CIT(A) HAS ALSO DISCUSSED THE DECISION FROM HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOPAL PUROHIT, 228 CTR 582 AND ALSO A DECISION FROM HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHRI OM PRAKASH SURI (19 ITJ 326) (MP). IN THIS VIEW OF THESE FACTS AND THE JUDICIAL PRONOUNCEMENTS, WE FIND NO INFIRMITY I N THE ORDER OF THE LEARNED CIT(A) AND CONFIRM THE SAME. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS D ISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCL USION OF THE HEARING ON 30.1.2014. SD/- SD/- (R.C.SHARMA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL ME MBER DATED: 30.1.2014 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYAS!