Mr. Abhay lodha, Pune V. ACIT, Range-5, Pune

ITA 459/PUN/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9691 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ANN KAPTHUAMA
• Keywords: Business income; Maximum Marginal Rate

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 459/PN/2010 (ASSESSMENT YEAR 2005-06) ABHAY LODHA A-112, KALPATARU PLAZA, 224, BHAWANI PETH, PUNE 411 042. PAN NO. AAKPL 7249L .. APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, RANGE-5, PUNE. .. RESPONDENT ASSESSEE BY : SRI KISHORE PHADKE DEPARTMENT BY : MRS. ANN KAPTHUAMA DATE OF HEARING : 10-09-2012 DATE OF PRONOUNCEMENT : 18-09-2012 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 17-12- 2009 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 2005-06. 2. GROUNDS OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ASSESSING OFFICERS ACTION IN REJECTING THE LOSS ON SALES OF STOCK-IN-TRADE OF SPECIAL STEEL INCURRED BY THE APPELLANT IN SALES TO THE SISTER C ONCERNS VIZ., M/S. AKSHATA MERCANTILE PVT. LTD. AND M/S. PHOENIX IMPEX PVT. LTD. OF RS.36 ,43,024/- AND FURTHER IN ESTIMATING GROSS PROFIT OF RS.35,83,140/- ON SUCH SALES MAKING AN ADDITION OF RS.72,26,164/- TO THE PROFIT SHOWN. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS THE PROPRIETOR OF M/S. YASH SALES & MARKETING CORPORATION HAVING WHOLESALE AND RETAIL TRADING BUSINESS IN H.R. COILS, C.R. COILS AND G.P./G.C. STEEL SHEETS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO GIVE MONTH -WISE BREAK UP OF OPENING STOCK, PURCHASES AND SALES AND CLOSING STOCK BOTH Q UANTITY-WISE AND VALUE-WISE. WHILE ANALYSING THE DETAILS FOR THE MONTH OF DECEMB ER 2004, THE AO NOTED THAT 2 THERE IS A LOSS OF RS.42,69,622/- PERTAINING TO TRA NSACTIONS CONDUCTED IN DECEMBER 2004. ON BEING ASKED TO EXPLAIN THE LOSS SO ARISED OUT OF TRANSACTIONS MADE IN THE MONTH OF DECEMBER 2004, IT WAS SUBMITTED THAT THE S AME IS DUE TO DIFFERENCE IN THE VALUATION RATE ADOPTED BY OPENING AND CLOSING STOCK FOR THE MONTH OF DECEMBER 2004, THE TWO RATES BEING RS.35,402/- PER TONNES AN D RS.24,348/- PER TONNE RESPECTIVELY. THE AO NOTED THAT EVEN IF THE SAME I S CONSIDERED STILL THERE IS SIGNIFICANT LOSS AMOUNTING TO APPROXIMATELY RS. 14 LAKHS ON ACCOUNT OF TRANSACTIONS MADE IN THE MONTH OF DECEMBER 2004. O N FURTHER ANALYSIS OF THE MONTH-WISE PURCHASE AND SALES DETAILS GIVEN BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR THE AO NOTED THAT OUT OF THE TOTAL SALES OF 4442.093 TONNE MADE IN THE MONTH OF DECEMBER 2004, THE ASSESSEE HAD A BULK SALE OF 4175.84 TONNES TO ONE M/S. AKSHATA MERCANTILE (P) LTD ON 22-12-2004 AT A RATE OF RS.31,750/- PER TONNE WHICH WAS SIGNIFICANTLY LOWER THAN THE PURCHASE IN THE SAME MONTH. HE NOTED THAT THE ABOVE CONCERN IS A SISTER CONCERN WHEREIN THE A SSESSEES WIFE AND BROTHER ARE DIRECTORS. THE AO FURTHER NOTED THAT THERE IS ONE MORE COMPANY BY NAME PHOENIX IMPEX PVT. LTD. WHEREIN ASSESSEE HIMSELF IS ONE OF THE DIRECTOR. CONSIDERING THE POSSIBILITY OF SALES BEING MADE TO THE SISTER CONCE RNS AT A LOSS THE AO THOROUGHLY ANALYSED THE TRANSACTIONS OF THE ASSESSEE WITH THE SE TWO SISTER CONCERNS. THE AO ASKED THE ASSESSEE TO GIVE BILL TO BILL CORRELATION AND SALES MADE TO THESE TWO SISTER CONCERNS WITH THE RELATABLE PURCHASES PRECEDING SUC H SALES. THE ASSESSEE FILED SUCH CORRELATION OF PURCHASES FROM OUTSIDE PARTIES AND S ALES TO SISTER CONCERN AND QUANTIFIED THE LOSS DUE TO SALES MADE TO THE ABOVE SISTER CONCERNS WHICH ARE AS UNDER : STATEMENT SHOWING PROFIT/LOSS ON SALES TO SISTER CO NCERN COMPANY (ACTUAL) SALE DETAILS PURCHASE DETAILS DATE SALE TO QTY (TONNS) RATE TOTAL SALE CONS. DATE PURCHASE FROM QTY RATE TOTAL PURCHASE PRICE 22-12-04 AKSHATA MERCANTILE (P) LTD. 4175.843 31750 132583015 8.12.04 TO 22.12.04 NATIONAL STEEL 4175. 842 VARIOUS RATES AS PER SUBMISSIONS 135265924 3 22-09-04 AKSHATA MERCANTILE 22.82 269.50 614999 19.08.04 TO 04.09.04 ANERI INC. & NARESH STEEL 22.82 -- 657287 09-09-04 AKSHATA MERCANTILE 26.55 31952 848326 21.07.04 TO 19.08.04 ANERI INC, NARESH STEEL & SHAILESH KUMAR 26.55 -- 798600 24-08-04 AKSHATA MERCANTILE 41.05 30136 1237080 13.07.04 TO 21.07.04 ANERI INC, JANNAT ENT. & PRANAV STEEL 41.05 -- 102521 TOTAL 4286.263 135283420 4266. 263 137748333 LOSS ON SALES TO M/S. AKSHATA MERCANTILE 24,64,91 3 27.03.05 PHOENIX IMPEX PVT. LTD. 610.21 28600 17452006 14.03.05 TO 22.03.05 NATIONAL STEEL, YATIN STEEL & ANERI INC. 610.21 30531 18630118 TOTAL 610.21 17452006 610.21 18630118 LOSS ON SALES TO M/S. PHOENIX IMPEX 1178112 TOTAL EFFECT OF TRANSACTIONS WITH SISTER CONCERNS TOTAL PURCHASE PRICE 15,63,78,451/- TOTAL SALE PRICE 15,27,35,426/- TOTAL LOSS ON SALES TO SISTER CONCERN 36,43,024/- 4. FROM SUCH DETAILS THE AO NOTED THAT THE ASSESSEE HAS SHOWN LOSS ON ACCOUNT OF SALES MADE BELOW THE PURCHASE PRICE TO THE SISTE R CONCERNS, THE DETAILS OF WHICH ARE UNDER : ( 1) LOSS ARISING ON ACCOUNT OF SALES TO M/S. AKSHATA MERCANTILE PVT. LTD., RS. 24,64,913/ - (2) LOSS ARISING ON ACCOUNT OF SALES TO M/S. PHOENIX IMPEX PVT. LTD. RS. 11,78,111/- -------------------- TOTAL LOSS ARISING ON ACCOUNT OF SALES TO SISTER CONCERNS RS.36,43,024/- -------------------- 5. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE A O COMPARED THE RATE OF SALE TO SISTER CONCERNS AND THE RATE OF SALE MADE TO OUT SIDE PARTIES DURING THE SAME PERIOD AND NOTED THAT THE SALES MADE TO SISTER CONC ERNS WERE SUBSTANTIALLY LOWER THAN COMPARED TO THE SALES MADE OUTSIDE PARTIES DUR ING THE SAME PERIOD. ON BEING CONFRONTED BY THE AO, IT WAS SUBMITTED THAT THE SAL ES MADE TO THE SISTER CONCERNS BEING BULK IN NATURE CANNOT BE COMPARED WITH SALES TO OUTSIDE PARTIES. FURTHER, SALES WERE MADE TO SISTER CONCERNS AT A LOWER RATE DUE TO AVAILABILITY OF FUNDS FROM 4 SISTER CONCERNS TO THE ASSESSEE, ASSESSEES OBLIGAT ION FOR ENABLING SISTER CONCERNS TO MEET THEIR COMMITMENT ON FURTHER SALES AND BUSINESS EXPEDIENCY TO MAXIMISE THE SUM OF THE PROFIT OF ALL THE GROUP CONCERNS TAKING TOGETHER. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASS ESSEE. ACCORDING TO THE AO, THERE WAS NO REASON FOR THE ASSESSEE TO PURCHASE AT A HIGHER PRICE AND SELL THE SAME TO THE SISTER CONCERNS AT A LOWER PRICE. HE ALSO R EJECTED THE EXPLANATION OF THE ASSESSEE THAT NO LOSS IS BEING CAUSED TO THE REVENU E SINCE THE SISTER CONCERNS HAS ALSO PAID DUE TAXES. FOR THIS PROPOSITION HE RELIE D ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ITO VS. CH. ATCHAIAH R EPORTED IN 218 ITR 239 AND THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF PATEL CHEMICAL WORKS VS. ACIT REPORTED IN 265 ITR 273. THE AO ANA LYSED THE SALES MADE TO OUTSIDE PARTIES AND NOTED THAT THE GP RATIO ON SUCH SALES TO OTHERS IS 2.24%. SINCE THE ASSESSEE HAS SOLD GOODS WORTH RS.15,63,78,451/- THE AO DETERMINED THE GP ON SUCH SALES AT RS. 35,83,140/-. AFTER ADDING THE LO SS CAUSED DUE TO SALES TO SISTER CONCERNS AT BELOW THE COST PRICE AND THE GP LOSS BY NOT SELLING AT A MARGIN OF 2.24% THE AO DETERMINED THE UNDISCLOSED PROFIT OF R S.72,22,164/- (36,43,024/- + 35,83,140/-). 6. BEFORE THE LEARNED CIT(A) THE ASSESSEE SUBMITTED THAT IN MUTUAL TRANSACTIONS IN STOCK IN TRADE TRUE COMMERCIAL PRINCIPLES WERE F OLLOWED WHILE FIXING RATES IN HIS CASE KEEPING WITH THE MARKET TRENDS AT THE RELEVANT TIME AND ALLOWING NORMAL DISCOUNTS FOR BULK TRADING. THE ASSESSEE ALSO MADE DETAILED SUBMISSIONS TO THE PROPOSITION THAT WHEN THE SISTER CONCERNS ALSO HAVE PAID THE TAXED AT THE MAXIMUM MARGINAL RATE THERE IS NO SUPPRESSION OF TAX. HOWE VER, REGARDING BOOKS OF ACCOUNTS ARE MAINTAINED SUPPORTED BY FULL DETAILS O F STOCK, AUDITORS HAVE NOT POINTED OUT ANY MISTAKES AND THERE WAS FLUCTUATION IN MARKET RATES. 5 7. HOWEVER, THE VARIOUS SUBMISSIONS MADE BY THE ASS ESSEE WERE NOT ACCEPTED BY THE CIT(A). HE NOTED THAT ON 22-12-2004, IMMEDI ATELY BEFORE SELLING GOODS TO ITS SISTER CONCERNS M/S. AKSHATA MERCANTILE PVT. LT D. @ RS.31,750/- PER TONNE, THE ASSESSEE MADE SALES TO SHREEJI SALES CORPORATION @ RS. 34,000/- . SIMILARLY ON 22- 09-2004 THE GOODS HAVE BEEN SOLD TO M/S. AKSHATA ME RCANTILE (P) LTD. @ RS.26,950/- PER TONNE AND ON THE SAME DAY SALES HAV E BEEN MADE TO ALANG SHIP BREAKERS AT AVERAGE RATE OF RS.30,000/- PER TONNE. ON 24-08-2004 SALES HAVE BEEN MADE TO AKSHATA MERCANTILE PVT. LTD. AT THE LOWEST RATE ON THAT DAY. SIMILARLY ON 27-03-2005 THE ASSESSEE HAS SOLD GOODS TO ITS OTHER SISTER CONCERN M/S. PHOENIX MERCANTILE PVT. LTD. @ RS.28,600/- WHEREAS SALES TO OTHER PARTIES HAVE BEEN MADE ON THE SAME DATE @ RS.32,250/- TO RS. 35,750/-. TH EREFORE, HE REJECTED THE CONTENTION OF THE ASSESSEE REGARDING THE THEORY OF MAKING SALES IN ACCORDANCE WITH THE MARKET TREND. 7.1 AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT SA LES WERE MADE TO SISTER CONCERNS DUE TO AVAILABILITY OF FUNDS HE OBSERVED T HAT NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT ON THE DATES OF SALES MADE TO I TS SISTER CONCERNS THE ASSESSEE WAS IN DIRE NEED OF FUNDS WHICH COMPELLED THE ASSE SSEE TO MAKE DISTRESS SALES AT A RATE LOWER THAN THE PURCHASE PRICE. ACCORDING TO T HE CIT(A) EVEN IF THE ASSESSEE HAS MADE SALES TO ITS SISTER CONCERNS AT NORMAL MAR KET RATES ON THAT DAY IT WOULD HAVE GOT THE NECESSARY FUNDS FROM THE SISTER CONCER NS. THEREFORE, HE HELD THAT THERE IS NO FORCE IN THE SUBMISSION OF THE ASSESSEE THAT SALES WERE MADE TO SISTER CONCERNS AT LOWER RATE KEEPING IN MIND THE AVAILABI LITY OF FUNDS. 7.2 AS REGARDS THE CONTENTION OF THE ASSESSEE THAT SALES HAVE BEEN MADE TO THE SISTER CONCERNS AFTER ALLOWING NORMAL DISCOUNT FOR BULK SALES HE NOTED THAT SALES HAVE BEEN MADE TO SISTER CONCERNS AT LOSS AND NOT A FTER ALLOWING NORMAL DISCOUNT 6 FOR THE BULK SALES. HE ACCORDINGLY UPHELD THE ACTI ON OF THE AO IN MAKING ADDITION OF RS.72,26,124/-. 7.3 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND CIT(A) AND FURTHER SUBMITTED THAT DUE TO VOLATILITY INTHE MARKET THE ASSESSEE WAS FORCED TO SELL THE GOODS AT LESSER PRICE. REFERRING TO PAGE 10 AND 11 OF THE ORDER OF THE CIT(A) THE LEARNED CO UNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE AVERAGE RATES PER MET RIC TONNE WHICH WAS OF RS.22,298/- IN THE MONTH OF MAY AND HAS GONE UP TO RS.31,533/- IN THE MONTH OF MARCH NEXT YEAR. HE SUBMITTED THAT THE GOODS SOLD T O THE SISTER CONCERNS WERE SOLD BACK TO BACK TO THE OTHER CUSTOMERS. IF THE ADDITI ON MADE BY THE AO AND CIT(A) IS UPHELD THEN IT WOULD AMOUNT TO DOUBLE TAXATION. HE SUBMITTED THAT THE SISTER CONCERNS HAVE ALREADY PAID THE TAXED AT THE MAXIMUM MARGINAL RATE. IT WAS NOT THE INTENTION OF THE ASSESSEE TO REDUCE THE TAX LIABILI TY BY SELLING GOODS AT LOWER RATE TO THE SISTER CONCERNS. HE SUBMITTED THAT TO MEET THE OBLIGATION OF THE SISTER CONCERNS THE ASSESSEE HAD SOLD THE GOODS TO THE SISTER CONCE RNS AT LOWER RATE. HE FURTHER SUBMITTED THAT IN THE BEST INTEREST OF THE BUSINES S, THE ASSESSEE HAS TAKEN A PRUDENT DECISION. THERE IS NO LOSS TO THE REVENUE SINCE SA ME RATE OF TAX HAS BEEN PAID BY BOTH THE SIDES. HE SUBMITTED THAT THE AO CANNOT SI T ON THE JUDGMENT OF A BUSINESSMAN. HE ACCORDINGLY SUBMITTED THAT NO DISA LLOWANCE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IS CALLED FOR. 9. IN HIS ALTERNATE CONTENTION HE SUBMITTED THAT TH E AO HAS ADOPTED THE GP RATE OF 2.2% WHEREAS THE SISTER CONCERNS HAVE SOLD THE G OODS AT A GP RATE OF 1.43% TO 0.12%. THEREFORE, TAXING THE ENTIRE AMOUNT AGAIN W ILL AMOUNT TO DOUBLE TAXATION. 7 HE SUBMITTED THAT AT THE BEST ADDITION TO THE TUNE OF RS. 19 LAKHS CAN BE MADE BECAUSE OF THE GOODS SOLD TO SISTER CONCERNS AT LOW ER RATE. 10. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE AO AND CIT(A). SHE SUBMITTED THAT THE ASSESSEE IN THE INS TANT CASE HAS DELIBERATELY SOLD THE GOODS AT A LESSER RATE THAN THE PURCHASE PRICE. EVEN ON CERTAIN DATES WHEN GOODS WERE SOLD TO OUTSIDE PARTIES AT MUCH HIGHER P RICE, THE ASSESSEE HAS SOLD THE GOODS TO SISTER CONCERN AT BELOW THE COST PRICE. S INCE THE ASSESSEE BY DOING THIS HAS TRIED TO LOWER ITS PROFIT AND THEREBY PAID LESS TAX THEREFORE THE SAME SHOULD NOT BE ALLOWED. SHE SUBMITTED THAT THE EXPLANATION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT ASSESSEE AS WELL AS THE SISTER CONCER NS HAVE PAID TAXES AT THE SAME RATE CANNOT BE ACCEPTED SINCE BY DIVERTING THE PROFIT TO THE SISTER CONCERNS AND DEBITING VARIOUS EXPENSES IN THE HANDS OF THE SISTER CONCERN S THE ASSESSEE HAS REDUCED ITS TAX LIABILITY. RELYING ON THE VARIOUS DECISIONS MENTIO NED IN THE BODY OF THE ASSESSMENT ORDER, SHE SUBMITTED THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY THE CIT(A)IS JUSTIFIED AND THEREFORE THE SAME SHOULD BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IN THE INS TANT CASE HAS SOLD GOODS TO SISTER CONCERNS AT A PRICE WHICH IS MUCH BELOW THE COST PR ICE. IT IS ALSO A FACT THAT ON CERTAIN DATES WHEN ASSESSEE HAS SOLD GOODS TO OUTSI DE PARTIES AT MUCH HIGHER PRICE, THE ASSESSEE HAS SOLD GOODS ON THE SAME DAY TO THE SISTER CONCERNS AT LESS THAN THE COST PRICE. DUE TO THIS THE ASSESSEE HAS INCURRED LOSS OF RS.36,43,024/- WHICH HAS BEEN QUANTIFIED BY THE AO AT PARA 4 OF THE ASSESSME NT ORDER. SIMILARLY WHEN THE ASSESSEE WAS SHOWING THE GP RATE OF 2.24% ON SALES MADE TO OUTSIDE PARTIES ITS GP RATE HAS COME DOWN TO 1.11% BECAUSE OF THE SALES MA DE TO SISTER CONCERNS AT BELOW 8 THE COST PRICE. THE AO THEREFORE RECOMPUTED THE GR OSS PROFIT BY REJECTING THE BOOK RESULTS AND ARRIVED AT THE SUPPRESSED GROSS PROFIT FIGURE OF RS.72,26,164/- WHICH HAS BEEN UPHELD BY THE CIT(A). WE DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SALES TO SISTER CONCERNS AT BELOW THE COST PRICE WAS DUE TO MARKET VOLATILITY OR DUE TO FULFIL MENT OF OBLIGATION ON THE PART OF THE SISTER CONCERNS OR DUE TO PAUCITY OF FUNDS. TH EREFORE, THE LOSS CAUSED TO THE ASSESSEE ON ACCOUNT OF SALE OF GOODS TO SISTER CONC ERNS AT BELOW THE COST PRICE QUANTIFIED AT RS.36,43,024/- IN OUR OPINION IS JUST IFIED AND THEREFORE THE SAME IS UPHELD. AT THE SAME TIME THE ASSESSEE CANNOT BE FO RCED TO SELL THE GOODS AT THE SAME RATE OF GP AT WHICH GOODS HAVE BEEN SOLD TO OU TSIDE PARTIES. SINCE THE SISTER CONCERNS HAVE SOLD THE GOODS AT A PROFIT AND PAID T HE TAXES, THEREFORE, WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE AS SESSEE THAT AGAIN ADDING THE GP IN THE HANDS OF THE ASSESSEE WILL AMOUNT TO DOUBLE TAXATION. FURTHER THE SISTER CONCERNS COULD HAVE PURCHASED DIRECTLY FROM THE COM PANY AT THE SAME PRICE AT WHICH THE ASSESSEE COMPANY HAS PURCHASED THE GOODS. IN THAT CASE THERE WOULD HAVE BEEN NO FURTHER LOSS IN THE HANDS OF THE ASSES SEE. WE, THEREFORE, ARE OF THE OPINION THAT LOSS DUE TO THE ASSESSEE AT RS.36,43,0 24/- BEING THE DIFFERENCE BETWEEN THE PURCHASE PRICE AND SALE PRICE BY SELLING THE GO ODS TO ITS SISTER CONCERNS ONLY HAS TO BE ADDED. WE, ACCORDINGLY SUSTAIN THE ADDITION OF RS.36,43,024/- OUT OF RS.72,26,164/- MADE BY THE AO AND UPHELD BY THE CIT (A). GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 12. GROUND OF APPEAL NO. 2 BY THE ASSESSEE READS AS UNDER : 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE REJECTION OF THE CLAIM OF SHORT TERM CAPITAL GAIN I N THE TRANSACTIONS IN SHARES (ACCORDING TO THE CORRECTED STATEMENT OF RS. 9,08,095/- AND IN CHARGING THE FIGURE OF RS.13,65,606/- AS REPRESENTING BUSINESS INCOME, REJECTING ALSO THE CLAIM OF CHARGE OF THE PART ELIGIBLE AT THE LOWER RATE OF 10% U/S.111A OF THE ACT. 9 13. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS SHOWN SHORT TER M CAPITAL GAIN OF RS.13,65,606/- ON ACCOUNT OF PURCHASE AND SALE OF S HARES AFTER 01-10-2004 AND HAS CLAIMED TAX RATE OF 10% ON THE SAME UNDER THE PROVI SIONS OF SECTION 111A OF THE INCOME TAX ACT. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE AO NOTED THAT THERE ARE 231 SHARE TRANSACTIONS RESULTING INT O SHORT TERM CAPITAL GAIN OF RS.13,65,606/-. SINCE THE DATE OF PURCHASE AND SAL E OF SHARE TRANSACTIONS WERE NOT GIVEN THE AO ASKED THE ASSESSEE TO FURNISH SUCH DAT ES AND THE ASSESSEE COMPLIED TO THAT REQUIREMENT. FROM THE VARIOUS DETAILS FURNISH ED BY THE ASSESSEE THE AO NOTED THAT THE HOLDING PERIOD OF SOME OF THE SHARES WAS F EW DAYS ONLY ON AN AVERAGE. THE FREQUENCY OF TRANSACTIONS ARE VERY HIGH AND THE ASSESSEE APART FROM USING HIS OWN FUNDS HAS BORROWED FUNDS FOR THE SHARE TRADING ACTIVITY. HE THEREFORE HELD THAT THE ACTIVITY OF BUYING THE SELLING OF SHARES BY THE ASSESSEE AMOUNTS TO BUSINESS IN NATURE. RELYING ON A NUMBER OF DECISIONS AND CBDT CIRCULAR NO. 4/2007 DATED 15-06-2007 THE AO TREATED THE INCOME FROM SUCH SHAR E TRANSACTIONS AS BUSINESS IN NATURE. 13.1 IN APPEAL THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO FOR WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THE ISSUE TO BE DECIDED IN THIS GROUND IS REGARDING THE NATUR E OF PROFIT ON ACCOUNT OF PURCHASE AND SALE OF SHARES. IT IS THE CASE OF THE REVENUE THAT DUE TO THE HIGH VOLUME AND FREQUENCY, SHORT PERIOD OF HOLDING AND UTILISATION OF BORROWED FUNDS, THE ACTIVITY OF PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS BU SINESS ACTIVITY AND THE RESULTANT PROFIT HAS TO BE TREATED AS BUSINESS INCOME. IT IS THE CASE OF ASSESSEE THAT DUE TO 10 VARIOUS RECENT DECISIONS INCLUDING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT REPORTED IN 188 TAXMANN.C OM 140 (BOMBAY) AND THE SLP FILED BY THE REVENUE HAVING BEEN DISMISSED BY T HE HONBLE SUPREME COURT DESPITE HIGH VOLUME AND FREQUENCY OF TRANSACTIONS A ND SMALL PERIOD OF HOLDING, PROFIT FROM PURCHASE AND SALE OF SHARES HAS TO BE T REATED AS INCOME FROM CAPITAL GAIN AND NOT BUSINESS INCOME. WE FIND THE VARIOUS COORDINATE BENCHES OF THE TRIBUNAL ARE TAKING THE CONSISTENT VIEW THAT DESPIT E HIGH VOLUME AND FREQUENCY AND DESPITE SHORT PERIOD OF HOLDING THE PROFIT FROM PUR CHASE AND SALE OF SHARES HAS TO BE TREATED AS INCOME FROM CAPITAL GAIN AND NOT BUSINES S INCOME. 15. RECENTLY THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. SURESH R. SAHA VIDE INCOME TAX APPEAL NO.1974/2011 ORDER DATE D 20-06-2012 HAS HELD THAT DESPITE HIGH VOLUME, FREQUENCY, SPECULATION ACTIVIT Y AND SHORT PERIOD OF HOLDING PROFIT FROM PURCHASE AND SALE OF SHARES IS SHORT TE RM CAPITAL GAIN AND NOT BUSINESS PROFITS, IF THE ASSESSEE IS AN INVESTOR AND NOT A T RADER IN SHARES. SINCE IN THE INSTANT CASE THE ASSESSEE HAS REFLECTED THE SHARES IN THE B ALANCE SHEET UNDER THE HEAD INVESTMENT, SINCE THERE IS NO BORROWED FUNDS UTIL ISED FOR THE SHARE TRADING ACTIVITY AND SINCE THERE IS NO SYSTEMATIC BUSINESS ACTIVITY OF PURCHASE AND SALE OF SHARES BY ENGAGING EMPLOYEES AND OFFICE PREMISES ET C. WE HOLD THAT THE PROFIT FROM PURCHASE AND SALE OF SHARES HAS TO BE TREATED AS SH ORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME. WE ACCORDINGLY SET-ASIDE THE ORDE R OF THE CIT(A) AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 18 TH DAY OF SEPTEMBER, 2012. (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 18 TH SEPTEMBER 2012 MSK 11 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. THE D.R, A PUNE BENCH 5. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE