ARJUN JAIN, MUMBAI V. DY.C.I.T. CIRCEL 12(3), MUMBAI

ITA 4542/MUM/2012

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1444 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Capital asset; Business income; Opportunity of being heard; Rule of consistency
• Section: 14A

Judgement Text

P A G E | 1 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) IN THE INCOME TAX APPELLATE TRIBUNAL ' A ' BENCH, MUMBAI BEFORE SHRI G.S.PANNU, VICE PRESIDENT AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.6037/MUM/2010 ITA NOS.2518 & 4542/MUM/2012 (ASSESSMENT YEARS: 2006 - 07, 2007 - 08 & 2008 - 09 ) SHRI ARUN JAIN 11, VIKAS PARK JALPANKHI CHS, JUHU, MUMBAI - 400 049 VS. ACIT - 12(3) AAYAKAR BHAVAN, 1 ST FLOOR M.K. ROAD, MUMBAI - 400 020 PAN AAFPJ0335G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY: SHRI ANIL THAKRAR, A.R RESPONDENT BY: SHRI RAJESH KUMAR YADAV , D.R DATE OF HEARING: 14 .09 .2018 DA TE OF PRONOUNCEMENT: 1 6 .1 1 .2018 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT( A) - 23, MUMBAI, DATED 04.05.2010 FOR A.Y 2006 - 07, A.Y. 2007 - 08 AND A.Y. 2008 - 09, WHICH IN TURN ARISES FROM THE RESPECTIVE ORDERS PASSED BY THE A.O UNDER SEC.143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) DATED 31.12.2008, 04.12.2009 AND 27.12.2010 FOR THE AFOREMENTIONED Y EARS. AS A COMMON ISSUE IS INVOLVED IN THE CAPTIONED APPEALS, THEREFORE, THE SAME ARE BEING TAKEN UP AND DISPOSED OFF TOGETHER BY WAY OF A CONSOLIDATE ORDER. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSEE FOR A.Y. 2006 - 07. THE ASSES SEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : 1. THE LEARNED CIT(A) ERRED IN CONCLUDING THAT THE SHORT TERM CAPITAL GAINS ON SALE OF SHARES AND MUTUAL FUND IS THE BUSINESS INCOME OF YOUR APPELLANT, WHICH IS BASED ON MERE SURMISE AND CONJU N CTION AND WITHOUT ANY EVIDENCE. P A G E | 2 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) 2. THAT THE APPELLANT CRAVES LEAVE TO ADD TO ALTER, AMEND MODIFY, SUBSTITUTE, DELETE AND /OR RESCIND ALL OR ANY OF THE GRO U ND OF APPEAL ON OR BEFORE THE FINAL HEARING IF NECESSITY SO ARISES . 2. BRIEFLY STATED, THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF TRADING IN STEEL , FINANCE HAD FILED HIS RETURN OF INCOME FOR A.Y 2006 - 07 ON 27.10.2006 DECLARING TOTAL INCOME AT RS.95,86,471/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. THE ISSUE INVOLVED IN THE PRESENT APPEAL LIES WITHIN A NARROW COMPASS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY TH E A.O THAT THE ASSESSEE HAD CLAIMED TO HAVE EARNED SHORT TERM CAPITAL GAIN (FOR SHORT STCG) OF RS. 44,39,203/ - BY DEALING IN SHARES AND SECURITIES . THE A.O AFTER DELIBERATING ON THE AFORESAID CLAIM OF THE ASSESSEE WAS NOT PERSUADED TO ACCEPT THE SAME. IT WAS OBSERVED BY HIM THAT THE ASSESSEE HAD DURING THE YEAR UNDER CONSIDERATION INDULGED IN PURCHASE/SALE OF SHARES O N A SUBSTANTIAL LY HIGH SCALE . THE A.O NOTICED THAT THE VOLUME OF THE TRANSACTIONS BECAME SIGNIFICANT IN THE BACKDROP OF THE FACT THAT THE ASSESSEE HAD A CAPITAL BASE OF RS.4,42,75,618/ - ONLY AT THE BEGINNING OF THE YEAR I.E. AS ON 01.04.2005. FURTHER , IT WAS NOTICED BY HIM THAT THE RATIO BETWEEN THE PURCHASE AND SALES FOR THE YEAR UNDER CONSIDERATION WAS APPROXIMATELY 1:1 , WHICH REVEALED THAT THE REAL INTENTION OF THE ASSESSEE WAS TO TRADE IN SHARE S AND NOT TO HOLD THEM AS INVESTMENTS. ON THE BASIS OF NECESSARY DELIBERATIONS AS REGARDS THE VARIOUS HEADS OF INCOME DISCLOSED BY THE ASSESSEE IN HIS RETURN OF INCOME FOR THE YEAR UNDER CONSID ERATION, IT WAS OBSERVED BY THE A.O THAT THE INCOME OF THE ASSESSEE FROM SHARES AND DERIVATIVES WAS THE MAIN SOURCE OF HIS INCOME. O THER ACTIVITIES OF THE ASSESSEE WERE ALSO FOUND BY THE A.O TO BE INTRICATELY CONNECTED WITH THE SHARE MARKET OPERATIONS. 4 . IN THE BACKDROP OF THE FACTS OF THE CASE THE A.O DELIBERATED ON VARIOUS PARAMETERS /ASPECTS WHICH AS PER HIM WERE DECISIVE FOR DETERMINING AS TO P A G E | 3 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) WHETHER THE PROFIT EARNED BY THE ASSESSEE FROM THE PURCHASE AND SALE OF SHARES AND DERIVATIVES WAS RIGHTLY SHO WN BY HIM UNDER THE HEAD STCG, OR W AS LIABLE TO BE BROUGHT TO TAX AS HIS INCOME FROM BUSINESS. IN ORDER TO ARRIVE AT THE CORRECT HEAD OF INCOME THE A.O LOOKED INTO VARIOUS ASPECTS VIZ. (I) AS TO WHETHER THE PURCHASE AND SALE OF SHARES WAS ALLIED TO HIS USUAL TRADE OR IT WAS AN OCCASIONAL INDEPENDENT ACTIVITY; (II). AS TO WHETHER THE SCALE OF ACTIVITY OF PURCHASE/SALE OF SHARES WAS SUBSTANTIAL; (III). AS TO WHETHER THE TRANSACTIONS WERE ENTER ED INTO CONTINUOUSLY AND REGULARLY DURING THE YEAR; (IV). AS TO WHETHER THE PURCHASE OF SHARES WAS MADE OUT OF OWN FUNDS OR BORROWINGS; (V). AS TO WHAT WAS THE TYPICAL HOLDING PERIOD FOR SECURITIES BOUGHT AND SOLD; (VI). AS TO WHAT TIME WAS DEVOTED BY THE ASSESSEE TOWARDS THE ACTIVITY OF PURCHASE AND SALE OF SHARES, AND WHAT WAS THE MEANS OF HIS LIVELIHOOD; AND (VII). AS TO WHETHER THE PURCHASE OF SHARES WAS MADE SOLELY WITH THE INTENT OF RESALE AT A PROFIT OR FOR LONG TERM HOLDING FOR EARNING DIVIDEND AND INTEREST INCOME . ON THE BASIS OF THE NECESSARY DELIBERATIONS ON THE AFORESAID ASPECTS, IT WAS GATHERED BY THE A.O THAT THE ASSESSEE WAS DEALING IN LARGE VOLUME OF SHARES DURING THE YEAR UNDER CONSIDERATION. IT WAS NOTICED BY HIM THAT WHILE FOR MOST OF THE SHARES WERE BOUGHT AND SOLD IN SHORT PERIOD, HOWEVER SOME OF THE SHARES WERE NOT SOLD DUE TO MARKET CONDITIONS AND WERE HELD BY THE ASSESSEE BEYOND THAT SAID SHORT PERIOD. THE A.O OBSERVED THAT THE ASSESSEE HAD RAISED LOANS AND PAID HUGE INTEREST TO CARRY ON HIS SHARES AND MUTUAL FUND BUSINESS. IN TERMS OF HIS AFORESAID OBSERVATIONS IT WAS CONCLUDED BY THE A.O THAT THE SCALE OF ACTIVITY IN DEALING IN SHARES BY THE ASSESSEE WAS SUBSTANTIAL NOT ONLY IN TERMS OF QUANTITY OF SHARES, BUT ALSO IN AMOUNT . FURTHER, IT WAS OBSERVED BY THE A.O THAT EVEN ON A SINGLE DAY THE EXPOSURE OF THE ASSESSEE TO THE SHARE PURCHASES IN CERTAIN SCRIPS WAS QUITE HUGE, RUNNING INTO L ACS OF RUPEES. IT WAS ALSO NOTICED BY HIM THAT DURING THE YEAR THE ASSESSEE ON A REGULAR BASIS WITH AN INTENT TO MAKE PROFIT SOLD SUBSTANTIAL MUTUAL FUNDS AND HAD EARNED A PROFIT OF RS.24,35,706/ - . IN SUPPORT OF HIS AFORESAID OBSERVATIONS, IT WAS NOTICED BY THE A.O THAT DURING THE YEAR THE ASSESSEE HAD TRANSACTED 1 , 065 TRANSACTIONS OF SALE , WHICH INVOLVED PURCHASE OF SHARES OF P A G E | 4 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) RS.21,95,74,010/ - AND SALE OF SHARES OF RS.22,40,13,213/ - . ON THE BASIS OF THE AFORESAID PATTERN OF REGULAR PURCHASE AND SALE OF SHARES BY THE ASSESSEE, THE A.O WAS OF THE VIEW THAT THE SAME PROVED THAT HE HAD INDULGED INTO TRADING OF SHARES TO EARN QUICK PROFITS , AND NOT WITH AN INTENT OF HOLDING THEM AS AN INVESTMENT. IT WAS FURTHER NOTICED BY THE A.O THAT ON A PERUSAL OF THE RECORDS IT EMERGED THAT THE ASSESSEE HAD RAISED UNSECURED LOANS OF SUBSTANTIAL AMOUNT OF RS.5,62,68,200 / - DURING THE YEAR, WHICH WERE MUCH MORE THAN THE CAPITAL BASE OF THE ASSESSEE. ON THE BASIS OF THE AFORESAID FACTS, THE A.O HELD A STRONG CONVICTION THAT THE ASSESSEE HAD CARRIED OUT THE SHARE TRANSACTIONS BY DEPLOYING INTEREST BEARING BORROWED FUNDS. AS REGARDS THE PERIOD OF HOLDING OF THE SHARES, IT WAS OBSERVED BY THE A.O THAT IN ALMOST ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES THE HOLDING PERIOD WAS QUITE SHORT FROM 1 TO 30 DAYS. IN THE BACKDROP OF THE AFORESAID SHORT PERIOD OF HOLDING , THE A .O WAS OF THE VIEW THAT THE SAME CLEARLY REVEALED THAT THE INTENTION OF THE ASSESSEE WAS TO INVEST IN THE AFORESAID SHARES AS A TRADER AND NOT AS AN INVESTOR. FURTHER, THE A.O DELIBERATING ON THE PATTERN OF THE SHARE TRANSACTIONS OBSERVED THAT THE INVESTME NTS MADE BY THE ASSESSEE IN A NUMBER OF SCRIPS WERE SOLD IN A SHORT PERIOD AND THEN INVESTED IN ANOTHER SET OF TWO OR THREE SCRIPS. THE AFORESAID PROCESS WAS THEREAFTER REPEATED BY THE ASSESSEE ON REGULAR BASIS DURING THE YEAR AND THE PERIOD OF HOLDING IN EACH CASE WAS QUITE SHORT RANGING UP TO 15 DAYS AT THE MOST. THE A.O WAS OF THE VIEW THAT THE AFORESAID NATURE OF SHARE TRANSACTIONS REVEALED BEYOND DOUBT THAT THE INTENTION OF THE ASSESSEE WAS NOT TO STAY INVESTED IN A PARTICULAR AND SELECTED SCRIP , BUT R ATHER WAS ACTUATED WITH THE PREDOMINANT MOTIVE OF MAKING QUICK PROFIT . IN ORDER TO FORTIFY HIS AFORESAID OBSERVATIONS , IT WAS NOTICED BY THE A.O THAT MAJORITY OF SHARES PURCHASED IN EACH SCRIP WERE SOLD BY THE ASSESSEE IN TOTALITY. IT WAS ALSO OBSERVED BY THE A.O THAT THE PATTERN AND THE VOLUME OF SHARE TRANSACTIONS REVEALED THAT THE SAME WERE SPREAD ALL OVER THE YEAR , AND FREQUENT PURCHASE AND SALE OF SHARES WERE CARRIED OUT BY THE ASSESSEE ON A REGULAR BASIS AND IN A SYSTEMATIC MANNER. FURTHER, T HE A.O WA S OF THE VIEW THAT THOUGH THE ASSESSEE HAD BUSINESS INCOME FROM TRAD ING IN STEEL, FINANCE BUT THE MAJOR TRANSACTIONS AND PROFIT S P A G E | 5 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) HAD COME ONLY FROM THE SHARE TRANSACTIONS. THE A.O WAS OF THE VIEW THAT THE VALUE OF TRANSACTIONS IN PURCHASE AND SALE OF SHARE S AND MUTUAL FUNDS REVEALED THAT THE SAME WAS NOT A CASUAL OR SPORADIC ACTIVITY , BUT THE MAIN ACTIVITY OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION . 5. IN THE BACKDROP OF THE AFORESAID OBSERVATIONS, THE A.O WAS OF THE VIEW THAT THE ASSESSEE HAD CARRIED OUT SUBSTANTIAL PURCHASE S AND SALE OF SHARE TRANSACTIONS ONLY WITH THE INTENTION OF PROFIT MAKING , AND NOT FOR THE PURPOSE OF HOLDING THE SAME AS AN INVESTMENT FOR EARNING DIVIDEND INCOME. ON THE BASIS OF HIS AFORESAID OBSERVATIONS , THE A.O ASSESSE D THE INCOME FROM THE PURCHASE AND SALE OF SHARES AND SECURITIES OF RS.68,74,909/ - THAT WAS OFFERED BY THE ASSESSEE AS STCG IN HIS RETURN OF INCOME, AS HIS BUSINESS INCOME. 6. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CI T(A) AFTER DELIBERATING ON THE CONTENTION S ADVANCED BY THE ASSESSEE BEFORE HIM OBSERVED , THAT IT WAS POSSIBLE FOR AN ASSESSEE TO HAVE TWO PORTFOLIO S I.E AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH WERE TO BE TREATED AS A CAPITAL ASSET, AND A TRA DING PORTFOLIO COMPRISING OF STOCK IN TRADE WHICH WAS TO BE TREATED AS TRADING ASSET. THE CIT(A) WAS OF THE VIEW , THAT FOR THE PURPOSE OF DETERMINING AS TO WHETHER THE SHARES TRANSACTED BY THE ASSESSEE WERE TO BE TREATED AS A CAPITAL ASSET OR AS A TRADING ASSET, IT WAS THE INTENTION OF THE ASSESSEE AND THE REAL TRANSACTIONS WHICH WERE REQUIRED TO BE SEEN, AND AS TO HOW THE ASSESSEE HAD DISCLOSED THE SAME IN HIS BOOKS OF ACCOUNTS WOULD NOT CONCLUSIVELY ANSWER THE AFORESAID ISSUE. IT WAS NOTICED BY THE CIT(A) THAT THE ASSESSEE HAD DURING THE YEAR CARRIED OUT SUBSTANTIAL SHARE TRANSACTIONS IN A REGULAR AND A SYSTEMATIC MANNER. OBSERVING , THAT THE CAPITAL BASE OF THE ASSESSEE WAS RS.4,42,75,618/ - AS ON 01.04.2005 , THE CIT(A) WAS OF THE VIEW THAT THE PURCHA SE S OF RS.21,95,74,010/ - AND SALE S OF RS.22,40,13,213/ - BY WAY OF 1 , 065 TRANSACTIONS DURING THE YEAR CLEARLY REVEALED THAT THE ASSESSEE HAD INDULGED IN SHARE TRANSACTIONS ON A SUBSTANTIAL LY HIGH SCALE. FURTHER, IT WAS NOTICED BY THE CIT(A) THAT THE MAJOR P ART OF THE INCOME OF THE ASSESSEE WAS EITHER P A G E | 6 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) FROM SPECULATIVE PROFIT FROM DEALING IN SHARES OR THE STCG AS CLAIMED BY HIM. THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAD FAILED TO ESTABLISH THAT THE SHARE TRANSACTIONS WERE CARRIED OUT BY HIM BY DEPLOYING HIS OWN FUNDS , AND NOT OUT OF BORROWED FUNDS. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THE CIT(A) HELD A CONVICTION THAT SOLELY FOR THE REASON THAT THE ASSESSEE HAD ACCOUNTED FOR THE AFORESAID SHARES AS AN INVESTMENT IN HIS BOOKS OF ACCOUNT , THE SAME COULD NOT BE CONCLUSIVELY PROVED TO HAVE BEEN HELD BY THE ASSESSEE AS SUCH. THE CIT (A) DELIBERATING ON THE VOLUME, MAGNITUDE , FREQUENCY, CONTINUITY, REGULARITY AND RATIO BETWEEN THE PURCHASE AND SALE TRANSACTIONS OF SHARES CARRIED OUT BY THE ASSESSEE, WAS OF THE VIEW THAT THE SAME WERE CLEARLY INDICATING A TRADING ACTIVITY ON THE PART OF THE ASSESSEE. IN ORDER TO FORTIFY HIS AFORESAID VIEW, IT WAS OBSERVED BY THE CIT(A) THAT A PERUSAL OF THE RECORDS REVEALED THAT THE ASSESSEE HAD CARRIED OUT REPETITIVE PURC HASE AND SALE OF SCRIPS DURING THE YEAR. FURTHER, I N ORDER TO SUPPORT HIS AFORESAID VIEW THE CIT(A) REFERRED TO CERTAIN INSTANCES OF REPETITIVE AND SYSTEMATIC BUYING AND SELLING OF SHARES CARRIED OUT BY THE ASSESSEE DURING THE YEAR, WHICH AS PER HIM CLEARL Y REVEALED THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE QUICK PROFIT AND NOT TO HOLD THE SHARES AS AN INVESTMENT. THE CIT(A) WAS OF THE VIEW THAT THE FACT THAT THE ASSESSEE HAD TAKEN THE DELIVERY OF THE SHARE S UNDER CONSIDERATION COULD NOT BE THE SOLE FA CTOR FOR DETERMINING AS TO WHETHER THE SHARE S WERE PURCHASED FOR THE PURPOSE OF INVESTMENT OR ACTUATED WITH AN INTENT OF TRADING. FURTHER, IT WAS NOTICED BY HIM THAT EVEN OTHERWISE IN 179 TRANSACTIONS RELATING TO 4,98,757 SHARES O F DIFFERENT SCRIPS NO DELI VERIES WERE FOUND TO HAVE BEEN MADE. THE CIT(A) WAS ALSO NOT PERSUADED TO SUBSCRIBE TO THE CLAIM OF THE ASSESSEE THAT AS HE HAS EARNED DIVIDEND ON THE AFORESAID SHARES, THEREFORE, HIS INTENT OF HOLDING THE SAME AS AN INVESTMENT STOOD PROVED. THE CIT(A) REF UTING THE AFORESAID CLAIM OF THE ASSESSEE OBSERVED , THAT AS DIVIDEND WOULD BE DECLARED AT A PARTICULAR POINT OF TIME BY A COMPANY, THUS IF AT THAT POINT OF TIME THE ASSESSEE HAPPEN ED TO BE THE HOLDER OF SHARES OF THE SAID COMPANY, HE WOULD RECEIVE THE DIVIDEND. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, THE CIT(A) WAS OF THE VIEW THAT THE RECEIPT OF DIVIDEND WOULD BE INCIDENTAL AND COULD NOT BE HELD TO BE A P A G E | 7 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) CRITERIA THAT WOULD BE DE CISIVE FOR CONCLUDING THAT THE SHARES WERE HELD BY THE ASSESSEE BY WAY OF AN INVESTMENT. ON THE BASIS OF HIS AFORESAID OBSERVATIONS, THE CIT(A) UPHELD THE ORDER OF THE A.O AND CONCLUDED THAT HE HAD RIGHTLY ASSESSED T HE INCOME FROM THE SHARE TRANSACTIONS AS THE BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. 7. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEAR ING OF THE APPEAL SUBMITTED , THAT A COMMON ISSUE WAS INVOLVED IN THE AFOREMENTIONED THREE APPEALS FOR A.Y S 2006 - 07, 2007 - 08 & 2008 - 09. THE LD. A.R SUBMITTED THAT THE A.O HAD WRONGLY OBSERVED THAT THE MAIN SOURCE OF INCOME OF THE ASSESSEE WAS FROM SHARE TRA NSACTIONS. IN ORDER TO FORTIFY HIS AFORESAID CONTENTION , THE LD. A.R TOOK US THROUGH THE TRADING AND PROFIT AND LOSS ACCOUNT OF THE ASSESSE E FOR THE PRECEDING YEAR S VIZ. A.Y. 2003 - 04, A.Y. 2004 - 05 AND A.Y. 2005 - 06. IT WAS SUBMITTED BY THE LD. A.R THAT DURI NG THE SAID YEARS THE SALES OF THE ASSESSEE WERE TO THE EXTENT OF RS.4.77 CRORE, 1 . 63 CRORE AND RS.199 CRORE S , RESPECTIVELY . FURTHER, THE LD. A.R TOOK US THROUGH THE FINANCIAL RESULTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, VIZ. A.Y. 2006 - 07. THE LD. A.R DRAWING OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION SUBMITTED , THAT IT HAD DURING THE SAID YEAR CARRIED OUT SALES O F HOT ROLLED COILS AND NON - ALLOY STEEL WIRE ROD S TO THE TUNE OF RS.6.51 CRORES (APROX.). IN ORD ER TO SUPPORT HIS CONTENTION THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SUBSTANTIAL INCOME FROM OTHER SOURCES VIZ. BUSINESS INCOME FROM TRAD ING IN STEEL AND RENTAL INCOME, THE LD. A.R DREW OUR ATTENTION TO THE COMPUTATION OF INCOME FOR THE YEAR UNDER CONSIDERATION VIZ. A.Y. 2006 - 07. IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT THE A.O HAD WRONGLY OBSERVED THAT THE ASSESSEE HAD TAKEN INTEREST BEARING LOANS FOR CARRYING OUT THE SHARE TRANSACTIONS. IN ORDER TO FORTIFY HIS AFORESAID CONTENTION THE LD. A.R TOOK US THROUGH THE COMPUTATION OF INCOME AND SUBMITTED THAT A CURSORY GLANCE OF THE SAME REVEALED THAT NO INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSEE DURING THE YEAR UNDER P A G E | 8 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) CONSIDERATION. IN THE BACKDROP OF HIS AFORESAID CONTENTION, IT WAS SUBMITTED BY THE LD. A.R THAT THE A.O HAD WRONGLY STATED THAT THE ASSESSEE HAD RAISED A LOAN OF RS.5,62,68,200/ - DURING THE YEAR FOR CARRYING OUT HIS SHARE TRANSACTIONS . FURTHER, THE LD. A.R TOOK US THROUGH THE BALANCE SHEET OF THE ASSESSEE FOR THE Y EAR UNDER CONSIDERATION FROM WHERE THE INVESTMENTS MADE BY THE ASSESSEE IN SHARES AND DEBENTURES AS ON 31.03.2006 WERE DISCERNIBLE. IT WAS THE SUBMITTED BY THE LD. A.R THAT ADMITTEDLY THE STCG ARISING ON THE SALE OF SHARES WAS ACCEPTED BY THE A.O IN THE CA SE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR I.E A.Y. 2005 - 06 . THE LD. A.R SUBMITTED THAT THE MAIN BUSINESS OF THE ASSESSEE WAS TRADING IN IRON AND STEEL. IN SUPPORT OF HIS CONTENTION THE LD. A.R DREW OUR ATTENTION TO THE FINANCIAL RESULTS OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION, VIZ. A.Y. 2006 - 07, WHICH REVEALED THAT WHILE FOR THE O PENING STOCK OF HOT ROLLED COILS/NON ALLOY STEEL WIRE ROD WAS NIL AS ON 01.04.2005, HOWEVER, THE C LOSING STOCK STOOD REFLECTED AT RS. 1.75 CRORE ON 31.03.2006. THE LD. A.R HAD DURING THE COURSE OF HEARING OF THE APPEAL PLACED ON RECORD A CHART WHICH REVEALED THE 1,065 SHARE TRANSACTIONS THAT WERE CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER AVERRED BY THE LD. A.R THAT THE LOANS WHICH WERE TAKEN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE UTILISED IN HIS BUSINESS OF TRADING IN IRON & STEEL , AND NOT FOR THE PURPOSE OF MAKING INVESTMENTS IN SHARES. IN ORDER TO FORTIFY HIS CLAIM THAT THE SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WERE IN THE NATURE OF AN INVESTMENT, THE LD. A.R TOOK US THROUGH THE COMPUTATION OF INCOME WHICH REVEALED THAT THE ASSESSEE HAD RECEIVED A DIVIDEND INCOME OF RS. 5,12,633/ - ON THE AFOREMENTIONED SHARES. IN ORDER TO BUTTRESS HIS AFORESAID CLAIM THE LD. A.R ALSO TOOK SUPPORT OF THE ASSESSMENT FRAMED IN THE CASE OF THE ASSESSEE UNDER SEC.143(3) FOR A.Y. 2009 - 10 ( PAGE 198 OF APB). IT WAS THE CONTENTION OF THE LD. A.R THAT THE SHORT TERM CAPITAL LOSS (FOR SHORT STCL) CLAIMED B Y THE ASSESSEE IN THE SAID YEAR WAS ACCEPTED BY THE REVENUE. IT WAS SUBMITTED BY THE LD. A.R THAT NOW WHEN THE ASSESSEE HAD BEEN SHOWING THE INCOME FROM THE SALE OF SHARES UNDER THE HEAD STCG/STCL, WHICH WAS CONSISTENTLY ACCEPTED BY THE REVENUE, THEREFORE, IT P A G E | 9 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) WAS INCORRECT ON THE PART OF THE A.O TO HAVE TAKEN A DEPARTURE FROM THE AFORESAID CONSIST ENT STAND OF THE REVENUE AND ASSESSED THE INCOME ARISING FROM THE PURCHASE AND SALE OF SHARES DURING THE YEAR UNDER CONSIDERATION AS BUSINESS INCOME. IT WAS SUBM ITTED BY THE LD. A.R , THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SUBSTANTIAL BUSINESS INCOME , AND THE SHARE TRANSACTIONS WERE ONLY IN THE NATURE OF INVESTMENT S HELD BY HIM. THE LD. A.R RELIED ON THE ORDER OF A COORDINATE BENCH OF THE TRIBUNA L, VIZ. ITAT, E BENCH IN THE CASE OF SHANKER REALTY PVT. LTD. VS. ACIT, CIRCLE - 5(3), MUMBAI (ITA NO. 828/MUM/2012; DATED 31.10.2017). IT WAS SUBMITTED BY THE LD. A.R THAT IN THE AFOREMENTIONED CASE THE TRIBUNAL IN ALL FAIRNESS HAD CONCLUDED THAT WHERE TH E TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE SQUARED UP AFTER 30 DAYS OF ITS PURCHASE , THE SAME WERE TO BE TREATED AS INCOME FROM CAPITAL GAINS. FURTHER, THE LD. A.R ALSO TOOK SUPPORT OF THE CBDT CIRCULAR NO. 4/2007, DATED 15.06.2007, WHICH LAID DOWN THE DISTINCTION BETWEEN THE SHARES HELD AS STOCK IN TRADE AND THOSE HELD AS AN INVESTMENT BY AN ASSESSEE. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. THE LD. D.R SUBMITTED THAT AS THE PRINCIPAL OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AND EVERY YEAR IS A DIFFERENT YEAR , THUS THE CLAIM OF THE ASSESSEE THAT AS THE INCOME FROM SALE OF SHARES HAD BEEN ACCEPTED AS STCG/STCL IN THE EARLIER YEAR S , HENCE A DEPARTURE FROM THE SAID CONSISTENT VIEW WOULD NOT BE PERMISSIBLE IN THE YEAR UNDER CONSIDERATION . THE LD. D.R DREW OUR ATTENTION TO THE OBSERVATIONS OF THE CIT(A) RECORDED AT PAGE 5 - PARA 3.3 OF HIS ORDER. IT WAS THE CONTENTION OF THE LD. D.R THAT AS THE ASSESSEE H AD CARRIED OUT SUBSTANTIAL TRANSACTIONS OF PURCHASE AND SALE OF SHARE S IN A REGULAR AND A SYSTEMATIC MANNER, THUS THE LOWER AUTHORITIES HAD RIGHTLY HELD THAT THE INCOME ARISING THEREFROM WAS LIABLE TO BE BROUGHT TO TAX AS THE BUSINESS INCOME OF THE ASSES SEE. 9. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE ORDER S OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON P A G E | 10 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) RECORD. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US , AND FIND THAT OUR INDULGENCE HAS BEEN SOUGHT BY THE ASSESSEE TO ADJUDICATE AS TO WHETHER THE CIT(A) HAS RIGHTLY CONCURRED WITH THE A.O THAT THE INCOME ARISING FROM THE PURCHASE AND SALE OF SHARES WAS LIABLE TO BE ASSESSED AS THE BUSINESS INCOME OF THE ASSESSEE. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE BEFORE US. T HE CBDT IN ITS CIRCULAR NO. 4/2007, DATED 15.06.2007 HAS EMPHASIZED THAT IT IS POSSIBLE FOR A TAX PAYE R TO HAVE TWO PORTFOLIO S I.E AN INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS A CAPITAL ASSETS , AND A TRADING PORTFOLIO COMPRISING OF STOCK - IN - TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. SIMILAR VIEW HAD ALSO BEEN ARRIVED AT BY THE HONBLE HIGH COURT OF BOMBAY IN CIT VS. GOPA L PUROHIT (2011) 336 ITR 287 (BOM). WE FIND THAT THE HONBLE SUPREME COURT IN CIT (CENTRAL). VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY LIMITED ( 1971) 82 ITR 586 (SC), HAS HELD THAT THE FACT THAT THE SHARES ARE HELD BY WAY OF AN INVESTMENT OR FORM PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE. WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO STRAIGHT - JACKET OR A LITMUS TEST FOR DETERMINING AS TO WHETHER THE INCOME FROM THE PURCHASE AND SALE OF SHARES IS LIABLE TO B E ASSESSED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS OR AS BUSINES S INCOME. THE HONBLE SUPREME COURT IN G.VENKATASWAMI NAIDU & CO. VS. CIT (1959) 35 ITR 594 (SC), STRESSING THAT THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WO ULD BE A DECISIVE TEST FOR DETERMINING AS TO WHETHER THE PROFIT OR ACCRETION ARISING FROM A SUBSEQUENT SALE WOULD BE IN THE NATURE OF CAPITAL GAIN OR IN THE NATURE OF A BUSINESS INCOME, HAD OBSERVED AS UNDER: 13. AS WE HAVE ALREADY OBSERVED IT IS IMPOSSIBLE TO EVOLVE ANY FORMULA WHICH CAN BE APPLIED IN DETERMINING THE CHARACTER OF ISOLATED TRANSACTIONS WHICH COME BEFORE THE COURTS IN TAX PROCEEDINGS. IT WOULD BESIDES BE INEXPEDIENT TO MAKE ANY ATTEMPT TO EVOLVE SUC H A RULE OR FORMULA. GENERALLY SPEAKING, IT WOULD NOT BE DIFFICULT TO DECIDE WHETHER A GIVEN TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR NOT. IT IS THE CASES ON THE BORDER LINE THAT CAUSE DIFFICULTY. IF A PERSON INVESTS MONEY IN LAND INTENDING TO HOLD IT, ENJOYS ITS INCOME FOR SOME TIME, AND THEN SELLS IT AT A PROFIT, IT WOULD BE A CLEAR CASE OF CAPITAL ACCRETION AND NOT PROFIT DERIVED FROM AN ADVENTURE IN THE NATURE OF TRADE. CASES OF REALISATION OF INVESTMENTS CONSISTING OF PURCHASE AND RESALE, P A G E | 11 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) THOUGH PROFITABLE, ARE CLEARLY OUTSIDE THE DOMAIN OF ADVENTURES IN THE NATURE OF TRADE. IN DECIDING THE CHARACTER OF SUCH TRANSACTIONS SEVERAL FACTORS ARE TREATED AS RELEVANT. WAS THE PURCHASER, A TRADER AND WERE THE PURCHASE OF THE COMMODITY AND ITS RESAL E ALLIED TO HIS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT ? AFFIRMATIVE ANSWERS TO THESE QUESTIONS MAY FURNISH RELEVANT DATE FOR DETERMINING THE CHARACTER OF THE TRANSACTION. WHAT IS THE NATURE OF THE COMMODITY PURCHASED AND RESOLD AND IN WHAT QUANTITY W AS IT PURCHASED AND RESOLD ? IF THE COMMODITY PURCHASED IS GENERALLY THE SUBJECT - MATTER OF TRADE, AND IF IT IS PURCHASED IN VERY LARGE QUANTITIES, IT WOULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENT FOR PERSONAL USE, POSSESSION OR ENJOYMENT. DID THE P URCHASER BY ANY ACT SUBSEQUENT TO THE PURCHASE IMPROVE THE QUALITY OF THE COMMODITY PURCHASED AND THEREBY MADE IT MORE READILY RESALEABLE ? WHAT WERE THE INCIDENTS ASSOCIATED WITH THE PURCHASE AND RESALE ? WERE THEY SIMILAR TO THE OPERATIONS USUALLY ASSOCI ATED WITH TRADE OR BUSINESS ? ARE THE TRANSACTIONS OF PURCHASE AND SALE REPEATED ? IN REGARD TO THE PURCHASE OF THE COMMODITY AND ITS SUBSEQUENT POSSESSION BY THE PURCHASER, DOES THE ELEMENT OF PRIDE OF POSSESSION COME INTO THE PICTURE ? A PERSON MAY PURCH ASE A PIECE OF ART, HOLD IT FOR SOME TIME AND IF A PROFITABLE OFFER IS RECEIVED MAY SELL IT. DURING THE TIME THAT THE PURCHASER HAD ITS POSSESSION HE MAY BE ABLE TO CLAIM PRIDE OF POSSESSION AND AESTHETIC SATISFACTION; AND IF SUCH A CLAIM IS UPHELD THAT WO ULD BE A FACTOR AGAINST THE CONTENTION THAT THE TRANSACTION IS IN THE NATURE OF TRADE. THESE AND OTHER CONSIDERATIONS ARE SET OUT AND DISCUSSED IN JUDICIAL DECISIONS WHICH DEAL WITH THE CHARACTER OF TRANSACTIONS ALLEGED TO BE IN THE NATURE OF TRADE. IN CON SIDERING THESE DECISIONS, IT WOULD BE NECESSARY TO REMEMBER THAT THEY DO NOT PURPORT TO LAY DOWN ANY GENERAL OR UNIVERSAL TEST. THE PRESENCE OF ALL THE RELEVANT CIRCUMSTANCES MENTIONED IN ANY OF THEM MAY HELP THE COURT TO DRAW A SIMILAR INFERENCE; BUT IT I S NOT A MATTER OF MERELY COUNTING THE NUMBER OF FACTS AND CIRCUMSTANCES PRO AND CON; WHAT IS IMPORTANT TO CONSIDER IS THEIR DISTINCTIVE CHARACTER. IN EACH CASE, IT IS THE TOTAL EFFECT OF ALL RELEVANT FACTORS AND CIRCUMSTANCES THAT DETERMINES THE CHARACTER OF THE TRANSACTION; AND SO, THOUGH WE MAY ATTEMPT TO DERIVE SOME ASSISTANCE FROM DECISIONS BEARING ON THIS POINT, WE CANNOT SEEK TO DEDUCE ANY RULE FROM THEM AND MECHANICALLY APPLY IT TO THE FACTS BEFORE US. 14. IN THIS CONNECTION, IT WOULD BE RELEVANT TO REFER TO ANOTHER TEST WHICH IS SOMETIMES APPLIED IN DETERMINING THE CHARACTER OF THE TRANSACTION. WAS THE PURCHASE MADE WITH THE INTENTION TO RESELL IT AT A PROFIT ? IT IS OFTEN SAID THAT A TRANSACTION OF PURCHASE FOLLOWED BY RESALE CAN EITHER BE AN INVEST MENT OR AN ADVENTURE IN THE NATURE OF TRADE. THERE IS NO MIDDLE COURSE AND NO HALF - WAY HOUSE. THIS STATEMENT MAY BE BROADLY TRUE; AND SO SOME JUDICIAL DECISIONS APPLY THE TEST OF THE INITIAL INTENTION TO RESELL IN DISTINGUISHING ADVENTURES IN THE NATURE OF TRADE FROM TRANSACTIONS OF INVESTMENT. EVEN IN THE APPLICATION OF THIS TEST DISTINCTION WILL HAVE TO BE MADE BETWEEN INITIAL INTENTION TO RESELL AT A PROFIT WHICH IS PRESENT BUT NOT DOMINANT OR SOLE; IN OTHER WORDS, CASES DO OFTEN ARISE WHERE THE PURCHASE R MAY BE WILLING AND MAY INTEND TO SELL THE PROPERTY PURCHASED AT PROFIT, BUT HE WOULD ALSO INTEND AND BE WILLING TO HOLD AND ENJOY IT IF A REALLY HIGH PRICE IS NOT OFFERED. THE INTENTION TO RESELL MAY IN SUCH CASES BE COUPLED WITH THE INTENTION TO HOLD TH E PROPERTY. CASES MAY, HOWEVER, ARISE WHERE THE PURCHASE HAS BEEN MADE SOLELY AND EXCLUSIVELY WITH THE INTENTION TO RESELL AT A PROFIT AND THE PURCHASER HAS NO INTENTION OF HOLDING THE PROPERTY FOR HIMSELF OR OTHERWISE ENJOYING OR USING IT. THE PRESENCE OF SUCH AN INTENTION IS NO DOUBT A RELEVANT FACTOR AND UNLESS IT IS OFFSET BY THE PRESENCE OF OTHER P A G E | 12 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) FACTORS IT WOULD RAISE A STRONG PRESUMPTION THAT THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE. EVEN SO, THE PRESUMPTION IS NOT CONCLUSIVE; AND IT IS CONCEIVABLE THAT, ON CONSIDERING ALL THE FACTS AND CIRCUMSTANCES IN THE CASE, THE COURT MAY, DESPITE THE SAID INITIAL INTENTION, BE INCLINED TO HOLD THAT THE TRANSACTION WAS NOT AN ADVENTURE IN THE NATURE OF TRADE. WE THUS COME BACK TO THE SAME POSITION A ND THAT IS THAT THE DECISION ABOUT THE CHARACTER OF A TRANSACTION IN THE CONTEXT CANNOT BE BASED SOLELY ON THE APPLICATION OF ANY ABSTRACT RULE, PRINCIPLE OR TEST AND MUST IN EVERY CASE DEPEND UPON ALL THE RELEVANT FACTS AND CIRCUMSTANCES. IN SO FAR, THE INTENT ION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES IN THE CASE BEFORE US IS CONCERNED, THE SAME IN OUR CONSIDERED VIEW CAN BE GATHERED FROM A CONJOINT APPRECIATION OF CERTAIN ASPECTS VIZ. NATURE OF TRANSACTIONS , MANNER OF MAINTAINING THE BOOKS OF ACCOUNTS, MAGNITUDE OF PURCHASES AND SALES , PERIOD OF HOLDING OF THE SHARES, SOURCE OF MAKING THE INVESTMENT AND THE RATIO BETWEEN THE PURCHASES AND SALES AND HOLDING . IN OUR CONSIDERED VIEW , THE PURCHASE AND SALE OF SHARES WITH THE MOTIVE OF EARNING QUICK PROFIT WOULD RESULT IN CHARACTERISATION OF THE T RANSACTIONS AS BEING IN THE NATURE OF A TRADE/ADVENTURE IN THE NATURE OF TRADE, BUT WHERE THE OBJECT WAS TO HOLD SUCH SHARES AS AN INVESTMENT AND DERIVE INCOME BY WAY OF DIVIDEND ETC . , THE PROFITS ACCRUING ON SALE OF SUCH SHARES WOULD YIELD CAPITAL GAINS. 10. ADMITTEDLY, IN THE CASE BEFORE US THE ASSESSEE HAD INDULGED IN PURCHASE AND SALE OF SHARES ON A LARGE SCALE. I T IS REVEALED FROM A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESSEE HAD DURING THE YEAR CARRIED OUT PURCHASE S AND SALES OF SHARES AMOUNTING TO RS. 21,95,74,010/ - AND RS. 22,40,13,213/ - , RESPECTIVELY . DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD INDULGED IN 1065 SHARE TRANSACTIONS . THE LD. A.R HAD DURING THE COURSE OF HEARING OF THE APPEAL PLACED ON RECORD A CHART REVEALING THE AFORESAID 1065 SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE LD. A.R DURING THE COURSE OF HEARING OF THE APPEAL HAD ALSO PLACED ON RECORD THE DETAILS OF THE STCG OF RS.20,82,920 - 83 THAT WAS DISCLOSED BY THE ASSESSEE IN RESPECT OF 253 SHARE TRANSACTIONS CARRIED OUT IN THE IMMEDIATELY PRECEDING YEAR I.E A.Y 2005 - 06 , DURING THE PERIOD 01.10.2004 TO 31.03.2005 ( I.E AFTER THE LEVY OF STT ) . IT P A G E | 13 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) WAS THE CONTENTION OF THE LD. A.R THAT THE STCG SHOWN BY THE ASSESSEE IN RESPECT OF THE AFORESAID SHARE TRANSACTIONS WHICH WERE SPREAD OVER THE PERIOD 01.10.2004 TO 31.03.2005 AND WERE SUBJECTED TO LEVY OF SECURITIES TRANSACT ION TAX (FOR SHORT STT) , WAS ACCEPTED BY THE REVENUE. IT WAS THUS THE CONTENTION OF THE LD. A.R THAT THE PRINCIPLE OF CONSISTENCY COULD NOT HAVE BE EN BYPASSED BY THE A.O BY ADOPTING A N INCONSISTENT APPROACH IN THE YEAR UNDER CONSIDERATION. 11. IN THIS REGARD , IT WOULD BE RELEVANT TO OBSERVE THAT THE ORDERS OF THE LOWER AUTHORITIES ARE SILENT AS REGARDS THE COMPLETE DETAILS OF THE SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. RATHER, BOTH OF THE AUTHORITIES BELOW HA D BY WAY OF A CHART ONLY PROJECTED THE 12 MAIN SCRIPS IN WHICH THE ASSESSEE IS STATED TO HAVE INDULGED ON A LARGE SCALE, ALONGWITH A MENTION OF THE CONSOLIDATE NUMBER OF SHARES AND TOTAL AMOUNT INVESTED IN THE SAID RESPECTIVE SCRIPS . WE ARE OF THE CONSID ERED VIEW THAT THE LOWER AUTHORITIES HAD HUSHED THROUGH THE MATTER BY MAKING GENERAL AND SWEEPING OBSERVATIONS ON THE BASIS OF SOME OF THE SHARE TRANSACTIONS OF THE ASSESSEE DURING THE YEAR . FURTHER, THE SAID AUTHORITIES HAD REFERRED TO SUBSTANTIAL SINGLE DAY TRANSACTIONS IN VARIOUS SCRIPS MADE BY THE ASSESSEE ON 8 DIFFERENT DATES DURING YEAR. WE ARE OF THE CONSIDERED VIEW THAT THE FACT AS TO WHETHER THE ASSESSEE HAD PURCHASED THE SHARES WITH AN INTENTION TO TRADE IN THE SAME AND EARN PROFIT AT THE EARLIEST POSSIBLE OCCASION AS AND WHEN THERE WAS A RISE IN PRICE OF THE SAME, OR HOLD THE SAME AS AN INVESTMENT, CAN ONLY BE GATHERED AFTER DELIBERATING ON THE TREND OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE. IN THIS REGARD, WE MAY HEREIN OBSERVE THAT THE HONBLE HIGH COURT OF BOMBAY IN ITS RECENT JUDGMENT IN THE CASE OF RAMILABEN D. JAIN VS. THE ASSISTANT COMMISSIONER OF INCOME - TAX, RANGE 14(2) [ITA NO. 325 OF 2016; DATED 20.08.2018] HAS OBSERVED THAT IF A PERUSAL OF THE SHARE TRANSACTIONS REVEALS THAT THE ASSESSEE IS MOVING AS PER THE STOCK MARKET TREND, THEN IT CAN SAFELY BE HELD THAT SUCH TYPE OF ACTIVITY OF PURCHASE AND SALE OF SHARES IS NOT AN INVESTMENT, BUT ACTUATED BY A MOTIVE TO EARN PROFIT AT THE EARLIEST OCCASION. IN SO FAR, THE P A G E | 14 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) CASE OF THE ASSESSEE BEFORE US IS CONCERNED, IT WAS IMPERATIVE ON THE PART OF THE LOWER AUTHORITIES TO HAVE L OOKED INTO ALL THE SHARE TRANSACTIONS OF THE ASSESSEE AND RECORDED THEIR OBSERVATIONS AS REGARDS THE SAME. W E FIND THAT BOTH THE A.O AND THE CIT(A) BYPASSED THE MATERIAL FACT THAT THE ASSESSEE HAD CARRIED OUT 1065 TRANSACTIONS PERTAINING TO A NUMBER OF SCR IPS , AND RATHER BY FOCUSS ING ONLY ON 12 SCRIPS IN WHICH THE ASSESSEE IS STATED TO HAVE INDULGED ON A LARGE SCALE , HAD ARRIVED AT GENERAL AND SWEEPING OBSERVATIONS AS REGARDS THE ENTIRE LOT OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. APART FROM THIS, THERE IS NOTHING DISCERNIBLE FROM THE ORDERS OF THE LOWER AUTHORITIES WHICH WOULD REVEAL THAT ANY EFFORT WAS EVER MADE TO LOOK INTO THE TREND OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE DURING THE YEAR. IN THE BACKDROP OF THE AFORESAID FACTS, WE ARE OF THE CONSIDERED VIEW THAT IN ALL FAIRNESS THE MATTER REQUIRES TO BE REVISITED BY THE A.O FOR MAKING THE REQUISITE VERIFICATIONS AS REGARDS THE TREND OF THE PURCHASE AND SALE OF SHARES BY THE ASSESSEE , AFTER CONSIDERING ALL THE SHARE TRANSACTIONS CARRIED OUT BY HIM DURING THE YEAR . AS OBSERVED BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF JAY CHHEDA (LEGAL HEIR OF LATE SH. HITESH S. BHAGAT) VS. THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 18(1) [ITA NO. 325 OF 2015; DATED 08.11.2017], THE A.O WILL HAVE TO LOOK INTO THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES AND DETERMINE AS TO WHICH ARE RELATING TO INVESTMENT IN SHARES AND WHICH ALL ARE RELATING TO ITS BUSINESS ACTIVITIES OF DEALING IN SHARES. FURTHER, AS OBSERVED BY THE HONBLE HIGH COURT IN THE CASE OF RAMILABEN D. JAIN (SUPRA), IF THE ASSESSEE WAS FOUND TO BE MOVING AS PER THE STOCK MARKET TREND, ACTUATED WITH THE MOTIVE OF PURCHASE AND SALE OF SHARES TO EARN PROFIT AT THE EARLIEST OCCASION, THEN THE INCOME ARISING THEREFROM SHALL B E ASSESSED AS ITS BUSINESS INCOME. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS RESTORE THE MATTER TO THE FILE OF THE A.O FOR FRESH ADJUDICATION OF THE ISSUE UNDER CONSIDERATION. NEEDLESS TO SAY, THE A.O SHALL DURING THE COURSE OF THE SET ASIDE PROCE EDINGS AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHO SHALL REMAIN AT A LIBERTY TO SUBSTANTIATE HIS CLAIM ON THE BASIS OF FRESH DOCUMENTARY EVIDENCE. P A G E | 15 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) 1 2 . IN SO FAR, THE INCOME EARNED BY THE ASSESSEE ON THE REDEMPTION OF MUTUAL FUNDS IS CONCERNED, THE COMPLETE DETAILS AS REGARDS THE PURCHASE AND REDEMPTION OF THE 7 MUTUAL FUND TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR IS BORNE FROM THE ORDER OF THE A.O. WE FIND THAT ON A PERUSAL OF THE ASSESSMENT ORDER , IT EMERGES THAT THE HOLDING PERIOD OF THE MUTUAL FUNDS HAD RANGED FROM 2 MONTHS TO 9.4 MONTHS . FURTHER, THERE ARE NO SUCH REPETITIVE MUTUAL FUND TRANSACTIONS CARRIED OUT BY THE ASSESSEE WHICH COULD DISSUADE US FROM CONCLUDING THAT THE ASSESSEE HAD HELD THE SAME BY WAY OF INVESTMENT S . WE THUS ARE UNABLE TO SUBSCRIBE TO THE OBSERVATIONS OF THE LOWER AUTHORITIES THAT THE INCOME EARNED BY THE ASSESSEE ON THE REDEMPTION OF MUTUAL FUNDS WAS LIABLE TO BE ASSESSED AS HIS BUSINESS INCOME. IN THE ABSENCE OF ANY CONCRETE MATERIAL WHICH COULD PERSUADE US TO CONCLUDE THAT THE ASSESSEE HAD VENTURED INTO TRADING OF MUTUAL FUNDS, WE ARE UNABLE TO UPHOLD THE OBSERVATIONS OF THE LO WER AUTHORITIES. THE ORDER OF THE CIT(A) SUSTAINING THE ASSESSING OF THE INCOME EARNED BY THE ASSESSEE FROM REDEMPTION OF MUTUAL FUNDS IS VACATED AND THE A.O IS DIRECTED TO ASSESS THE SAME AS STCG IN THE HANDS OF THE ASSESSEE. 1 3 . THE APPEAL OF THE ASSES SEE IS PARTLY ALLOWED . ITA NO. 2518/MUM/2012 AY. 2007 - 08 1 4 . WE SHALL NOW ADVERT TO THE APPEAL OF THE ASSESSEE FOR A.Y. 2007 - 08. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUND OF APPEAL : 1. THE LEARNED CIT(A) ERRED IN CONCLUDING THAT THE SHORT TERM CAPITAL GAINS ON SALE OF SHARES MUTUAL FUND IS THE BUSINESS INCOME OF YOUR APPELLANT, WHICH IS BASED ON MERE SURMISE AND CONJUNCTION AND WITHOUT ANY EVIDENCE. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD , TO ALTER, AMEND, MODIFY, SUBSTITUTE, DELETE AND/OR RESCIND ALL OR ANY OF THE GROUND OF APPEAL ON OR BEFORE THE FINAL HEARING, IF NECESSARY SO ARISES. 1 5 . BRIEFLY STATED, THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR A.Y. 2007 - 08 ON 31.10.2007 DECLARI NG TOTAL INCOME OF RS.85,59,415/ - . P A G E | 16 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2) OF THE ACT. 1 6 . THE A.O WHILE FRAMING THE ASSESSMENT OBSERVED THAT THE ASSESSEE HAD CLAIMED TO HAVE EARNED STCG OF RS.53 ,57,635/ - BY DEALING IN SHARES AND SECURITIES. HOWEVER, THE A.O WAS NOT PERSUADED TO SUBSCRIBE TO THE AFORESAID CLAIM OF THE ASSESSEE AND BROUGHT THE INCOME FROM SALE OF SHARES AND MUTUAL FUNDS TO TAX UNDER THE HEAD BUSINESS INCOME. 1 7 . AGGRIEVED, THE A SSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS ADVANCED BY THE ASSESSEE WAS HOWEVER NOT PERSUADED TO ACCEPT THE SAME AND UPHELD THE VIEW OF THE A.O IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. 1 8 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. ON A PERUSAL OF THE MATERIAL MADE AVAILABLE ON RECORD BY THE ASSESSEE, IT EMERGES THAT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAIN (FOR SHORT LTCG) OF RS. 11,19,780 - 30 AND STCG OF RS. 53,57,635/ - [COMPRISING OF STCG ON SHARES : RS. 23,98,861/ - (+) STCG ON REDEMPTION OF MUTUAL FUND : RS. 29,58,773.27]. WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME AS WERE THER E BEFORE US IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2006 - 07 VIZ. ITA NO. 6037/MUM/2010, THEREFORE, OUR ORDER PASSED WHILE DISPOS ING OFF THE AFOREMENTIONED APPEAL OF THE ASSESSEE FOR A.Y. 2006 - 07 SHALL APPLY MUTATIS MUTANDIS IN T HIS PRESENT APPEAL FOR A.Y. 2007 - 08. THE MATTER IS SET ASIDE TO THE FILE OF THE A.O FOR GIVING EFFECT TO OUR AFORESAID OBSERVATIONS. IN TERMS OF OUR AFORESAID OBSERVATIONS THE APPEAL OF THE ASSESSEE FOR A.Y. 2007 - 08 I.E ITA NO. 2518/MUM/2012 IS PARTLY ALLOWED . ITA NO. 4542 /MUM/2012 AY. 2008 - 09 19 . WE SHALL NOW ADVERT TO THE APPEAL OF THE ASSESSEE FOR A.Y. 2008 - 09. THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL : P A G E | 17 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE SHORT TERM CAPITAL GAINS OF RS.66,60,343/ - AS BUSINESS INCOME AS AGAINST SHORT TERM CAPITAL GAINS RETURNED BY YOUR APPELLANT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.11,76,000/ - OUT OF INTEREST PAID. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.6,11.992/ - UNDER SECTION 14A READ WITH RULE 8D. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND, MODIFY, SUBSTITUTE, DELETE AND/OR RESCIND ALL OR ANY OF THE GROUND OF APPEAL ON OR BEFORE THE FINAL HEARING, IF NECESSITY SO ARISES. 20 . BRIEFLY STATED, THE ASSESSEE HAD FILED HIS RETURN OF INCOME FOR A.Y. 2008 - 09 ON 29.09.2008, DECLARING TOTAL INCOME AT RS.40,80,018/ - . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC.143( 2) OF THE ACT. 21 . IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A.O OBSERVED THAT THE AS SESSEE HAD CLAIMED TO HAVE EARNED STCG OF RS. 66,60,343/ - BY DEALING IN SHARES AND SECURITIES. THE A.O NOT FINDING HIMSELF AS BEING IN AGREEMENT WITH THE AFORESAID CLAIM OF THE ASSESSEE BROUGHT THE SAID INCOME TO TAX UNDER THE HEAD BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. 22 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT( A ) AFTER DELIBERATING ON THE CONTENTION S ADVANCED BY T HE ASSESSEE WAS HOWEVER NOT PERSUADED TO ACCEPT THE SAME , AND UPHELD THE VIEW TAKEN BY THE A.O. 23 . THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) A T THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED THAT GROUND OF APPEAL NO. 2 AND 3 ARE NOT BEING PRESSED. IN THE BACKDROP OF THE AFORESAID CONCESSION OF THE LD. A.R THE G ROUNDS OF APPEAL NOS. 2 AND 3 ARE DISMISSED AS NOT PRESSED. THE ASSESSEE HAS F URTHER ASSAILED THE ORDER OF THE CIT(A) ON THE GROUND THAT HE HAS ERRED IN CONCURRING WITH THE AO THAT THE INCOME P A G E | 18 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3) FROM SALE OF SHARES WAS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE UNDER THE HEAD BUSINESS INCOME. WE FIND THAT AS THE FACTS AND THE ISSUE INVOLVED IN THE PRESENT APPEAL REMAINS THE SAME AS W ERE THERE BEFORE US IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2006 - 07 I.E. ITA NO. 6037/MUM/2010, THUS OUR ORDER PASSED WHILE DISPOSING OFF THE SAID APPEAL SHALL APPLY MUTATIS MUTANDIS FOR THE PURPOSE OF DISPOSING OFF THE PRESENT APPEAL OF THE ASSESSEE FOR A.Y. 2008 - 09 I.E ITA NO. 4542/MUM/2012. 24 . THE MATTER IS SET ASIDE TO THE FILE OF THE A.O FOR GIVING EFFECT TO OUR AFORESAID OBSERVATIONS. THE APPEAL OF THE ASSESSEE FOR A.Y. 2008 - 0 9 IS PARTLY ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. 25 . THE APPEALS OF THE ASSESSEE FOR A.Y. 2006 - 07 IN ITA NO. 6037/MUM/2010 ; A.Y. 2007 - 08 IN ITA NO. 2518/MUM/2012 AND A.Y. 2008 - 09 IN ITA NO. 4542/MUM/2012 ARE PARTLY ALLOWED IN TERMS OF OUR AFOR ESAID OBSERVATIONS. ORDER PRO NOUNCED IN THE OPEN COUR T ON 1 6 . 1 1 .2018 S D / - S D / - ( G.S.PANNU ) (RAVISH SOOD) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; 1 6 .1 1 .2018 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 19 ITA NO. 6037/MUM/2010 & ITA NOS. 2518 &4542/MUM/2012 C.O. NO. 181/MUM/2017 (ARISING OUT OF ITA NO.2518/MUM/2012 SHRI ARUN JAIN VS. ACIT - 12(3)