ACIT, New Delhi V. Satish Kumar Gupta, New Delhi

ITA 4946/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86559 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G , NEW DELHI) BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER I.T.A. NO.895 /DEL/2000, 6806/DEL/2010 & 4946/DEL/2 011 ASSESSMENT YEAR : 2006-07, 2007-08 & 2008-09 RESPEC TIVELY ACIT, CIRCLE 23(1), VS. SH. SATISH KUMAR GUPTA, NEW DELHI DEVIKA TOWER, 6, NEHRU PLACE, NEW DELHI. GIR / PAN:AACPG7419H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BRR KUMAR, SR. DR RESPONDENT BY : SHRI AJAY VOHRA, SR. ADV., SHRI GAURAV JAIN, ADV SHRI SAHIL MEHTA, CA ORDER PER T.S. KAPOOR, AM: THESE ARE THREE APPEALS FILED BY REVENUE AGAINST S EPARATE ORDERS OF LD. CIT(A) DATED 03.12.2009, 22.10.2010 AND 12.08.2 011 RESPECTIVELY. THESE APPEALS WERE HEARD TOGETHER AND THEREFORE, FO R THE SAKE OF CONVENIENCE, A COMMON AND CONSOLIDATED ORDER IS BEI NG PASSED. COMMON ISSUE INVOLVED IN THESE APPEALS IS THE ACTION OF LD . CIT(A) BY WHICH HE HAD TREATED THE INCOME OF THE ASSESSEE AS INCOME FROM S HORT TERM AND LONG TERM CAPITAL GAINS INSTEAD OF BUSINESS INCOME HELD BY A. O. THE A.O. IN THESE YEAS HAS HELD THE INCOME OF THE ASSESSEE CLAIMED AS SHORT TERM AND LONG TERM CAPITAL GAINS TO BE INCOME FROM BUSINESS HOLDING SI MILAR FINDINGS. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD DECLARED ITS INCOME FROM BUSINESS INCOME, INCOME FROM CAPITAL GA IN AND INCOME FROM ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 2 OTHER SOURCES. THE A.O. OBSERVED THAT THE ASSESSEE WAS DEALING IN LARGE NUMBER OF SECURITIES AND HE HELD THAT PRIMA FACIE, ASSESSEE WAS NOT INVESTOR BUT A TRADER IN SECURITIES. HE FURTHER OBSERVED TH AT IN HIS ACTUAL BUSINESS OF TRADING IN CARPETS ETC., HE WAS INCURRING LOSSES AN D ALSO THERE WAS LITTLE TURNOVER IN THIS BUSINESS. THE A.O. RELIED UPON IN STRUCTIONS 1827 DATED 31.08.1989 ALONG WITH CBDT CIRCULAR 4/2007 ALONG WI TH VARIOUS JUDICIAL PRONOUNCEMENTS AND HELD THE INCOME OF THE ASSESSEE TO BE FORM BUSINESS INSTEAD OF CAPITAL GAINS. THE CRUX OF FINDING OF A .O. AS CARVED OUT FROM THE THREE ASSESSMENT YEARS ARE DETAILED AS UNDER: I) THE ASSESSEE HAD VERY LITTLE BUSINESS TURNOVER I N RESPECT OF CARPETS AND HANDICRAFTS WHEREAS IN CASE OF SHARES AND MUTUAL FU NDS, THE ASSESSEE HAD HUGE TURNOVER AND MOREOVER, THE ASSESSEE HAD INCURR ED LOSS ON SALE OF NIFTY DERIVATIVES AND HAD TREATED THE SAME AS BUSINESS LO SS. II) THAT THE DIVIDEND EARNED ON THE INVESTMENT WAS NEGLIGIBLE AND THEREFORE, HE HELD THAT ASSESSEE WAS NOT INDULGING INTO SALE AND PURCHASE OF SECURITIES FOR EARNING OF DIVIDEND BUT HIS INTENTIO N WAS TO EARN PROFIT FROM SALE OF THE SAID SECURITIES. III) THE ASSESSEE WAS DEALING INTO HUGE QUANTITY OF SECURITIES AND TURNOVER OF ASSESSEE FROM THESE TRANSACTIONS RAN INTO CRORES AND, THEREFORE, THE SCALE OF ACTIVITIES WAS SUBSTANTIAL. IV) THAT THE ASSESSEE BESIDES USING HIS OWN FUNDS , HAD USED SECURED LOAN WHICH WAS OBTAINED AGAINST THE SECURITY OF SHARES. V) THAT THE PERIOD OF HOLDING OF SOME OF THE SECURI TIES WAS AS LESS AS THAN A MONTH. ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 3 VI) THAT FROM THE QUANTUM OF DEALING IT IS APPARENT THAT ASSESSEE HAD BEEN DEVOTING SUBSTANTIAL TIME TO DEAL IN ACTIVITIES OF SHARES AND MUTUAL FUNDS AND THIS DEALING IN SECURITIES WAS ONLY MEANS OF LIVELI HOOD TO THE ASSESSEE SPECIALLY IN THE LIGHT OF THE FACTS THAT USUAL BUSI NESS OF EXPORT OF CARPETS HAD SHOWN DECLINE IN BUSINESS. 3. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD. CIT( A) AND MADE VARIOUS SUBMISSIONS. LD. CIT(A) DELETED THE ADDITIONS BY HOLDING SIMILAR FINDINGS. FOR THE SAKE OF CONVENIENCE, THE FINDING OF LD. CIT (A) IN ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09 ARE REPRODUCED BELOW: A ASSESSMENT YEAR 2006-07: {7} THE ISSUE OF DEALING IN SHARES OR, INVESTMENT IN SHARES , HAS OFTEN INVITED THE ATTENTION OF THE COURTS, AS THERE IS OF TEN A VERY THIN LINE OF DISTINCTION, IN CASES MORE THAN OFTEN. RECENTLY, TH E LUCKNOW BENCH OF THE TRIBUNAL IN SARNATH INFRASTRUCTURE (P) LTD. VS ACIT (2008) 16 DTR LUCKNOW) (TRIB) 97, HAD THE OCCASION TO CONSIDE R ALMOST ALL THE IMPORTANT JUDICIAL DECISIONS THAT HAVE LAID DOWN LE GAL PRINCIPLES TO DETERMINE THE NATURE TRANSACTIONS, SUCH AS RAJA BAH ADUR VISHESHWARA SINGH (DECEASED) & OTHERS VS CIT (1961) 41 ITR 685 (SC), CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD (1971) 82 ITR 586 (SC), CIT VS H.HOLCK LARSEN (1986) 160 ITR 67 (SC), FIDELITY NORTHSTAR FUND & OTHERS (2007) 288 ITR 641 (AAR) DALHOUSIE INVESTMENT TRUST CO. LTD. VS CIT 68 ITR 4 86 (SC), MRS SAROJINI RAJAH VS CIT (1969) 71 ITR 504 (MAD), CIT S SUTLEJ COTTON MI,LISPLY AGENCY LTD (1975) 100 ITR 706 (SC). THE H ON'BLE TRIBUNAL ALSO DELIBERATED ON THE CBDT CIRCULAR NO 4 OF 2007 DATED 15.6.2007, WHICH HAS BEEN RELIED UPON BY THE LEARNED ASSESSING OFFICER IN THE IMPUGNED ORDER. AFTER CONSIDERING ALMOST ALL JUDICI AL DECISION AND THE CBDT CIRCULAR, THE HON'BLE TRIBUNAL CULLED OUT THE PRINCIPLES TO DETERMINE WHETHER TRANSACTIONS IN QUESTION WERE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOSES. IT WAS HELD AS UNDER: '13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 4 (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT. WHETHER SHOWN IN OPE NING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON ? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR INVESTING IN AN A SSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT, OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEMS IS INDICATIVE OF I NTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? F ORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE ) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT ? IF AUTHORIZED ONLY FOR TRADE, THEN WHE THER THERE ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS IN THAT COMMODITY? (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SH OW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDING. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT ( OR SAY, STO CK IN TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 5 (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENTLY OF SALE AND PURCHASE WILL ALONE WIL L NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IN COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS. IF IT IS CLAIME D THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTEN TION ( TO CARRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDT'S CIRCULAR NO 4 OF 2007 OF IS' JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN'. {8}. ON THE TOUCH STONE OF THE PRINCIPLES CULLED OU T ABOVE, LET ME EXAMINE THE FACTS OF THE CASE. IN THE CASE IN HAND, IT IS OBSERVED THAT THE ASSESSEE HAS TREATED THE SECURITIES AS INVESTME NT. BALANCE SHEET INDICATES LIKEWISE. THE ASSESSEE HAS NOT BORROWED M ONEY FOR DEALING/ INVESTMENT IN SHARES. IN ORDER TO ASCERTAIN THE FRE QUENCY OF SHARES AND PURCHASE OF THE SHARES, I DURING HAD REFERRED THE M ATTER TO THE LD AO UNDER SUB-SECTION (4) OF SECTION 250. ONE DOES NOT OBSERVE ANYTHING ADVERSE IN THE REPORT OF THE AO. AS A MATTER OF ABU NDANT PRECAUTION, I DURING THE COURSE OF HEARING, ALSO DESIRED THAT THE ASSESSEE PREPARE A CHART TO ASCERTAIN THE RETENTION PERIOD. THIS WAS F ILED ON 09/11/2009, WHEN THE ASSESSEE ALSO ATTENDED THE HEARING. IT IS OBSERVED FROM THE CHART THAT THE PERIOD OF RETENTION IS FROM 1 DAY ( AS IN THE CASE OF 31 INFOTECH) TO 1907 DAYS ( AS IN THE CASE OF GUJARAT ALKALIES & CHEMICALS). IT IS ALSO OBSERVED FROM THE CHART THAT WHILE THE VOLUMES ARE HEAVY, IN 785 INSTANCES, THE PERIOD OF RETENTIO N IS 100 DAYS OR MORE. THIS CANNOT BE TERMED AS DEALING OR TRADING I N SHARES. OBVIOUSLY, THE TRANSACTION HAVE TAKEN PLACE, WITH T HE OBJECTIVE OF INVESTMENTS AND ALSO TO REALIZE APPRECIATION IN THE VALUE AND ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 6 DIVIDEND, WHICH IS MORE THAN RS 14,00,000/- DURING THE YEAR. FURTHER, THE CONTENTION OF THE ID A.O THAT THE ASSESSEE HAD ALSO ENGAGED HIMSELF IN TRADING IN DERIVATIVES TO SHOW THAT THE ASSESSEE WAS A TRADER DOES NOT HOLD WATER ESPECIALLY IN THE BACKDR OP OF AMENDMENT IN THE ACT BROUGHT ABOUT BY FINANCE ACT, 2005. WHIL E TAKING THE DECISION, I HAVE ALSO BEEN CONVENED BY THE ARGUMENT OF THE ASSESSEE, THAT HAD HE BEEN A TRADER HE WOULD HAVE INDULGED IN SHORTING, HEDGING ETC. {9}. IN VIEW OF THE DISCUSSION ABOVE, I HOLD THAT T HE ASSESSEE IS NOT A TRADER IN SHARES AND THEREFORE, THE ID A.O HAS ERRE D IN TREATING THE INCOME AS INCOME FROM BUSINESS. THE ASSESSEE SUCCEE D IN GROUND OF APPEAL NO 1. B. ASSESSMENT YEAR 2007-08: {4} THE ISSUE OF DEALING IN SHARES OR INVESTMENT I N SHARES , HAS OFTEN INVITED THE ATTENTION OF THE COURTS, AS THERE IS OF TEN A VERY THIN LINE OF DISTINCTION, IN CASES MORE THAN OFTEN. RECENTLY, TH E LUCKNOW BENCH OF THE TRIBUNAL IN SARNATH INFRASTRUCTURE (P) LTD. VS ACIT (2008) 16 DTR (LUCKNOW) (TRIB) 97, HAD THE OCCASION TO CONSID ER ALMOST ALL THE IMPORTANT JUDICIAL DECISIONS THAT HAVE LAID DOWN LE GAL PRINCIPLES TO DETERMINE THE NATURE OF TRANSACTIONS, SUCH AS RAJA BAHADUR VISHESHWARA SINGH (DECEASED) & OTHERS VS CIT (1961) 41 ITR 685 (SC), CIT VS ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD (1971) 82 ITR 586 (SC), CIT VS H. HOLCK LARSEN (1986) 160 ITR 67 (SC), FIDELITY NORTHSTAR FUND & OTHERS (2007) 288 ITR 641 (AAR) DALHOUSIE INVESTMENT TRUST CO. LTD. VS CIT 68 ITR 4 86 (SC), MRS SAROJINI RAJAH VS CIT (1969) 71 ITR 504 (MAD), CIT S SUTLEJ COTTON MILLS SUPPLY AGENCY LTD (1975)100 ITR 706 (SC). THE HON'BLE TRIBUNAL ALSO DELIBERATED ON THE CBDT CIRCULAR NO 4 OF 2007 DATED 15.6.2007, WHICH HAS BEEN RELIED UPON BY THE LEARNE D ASSESSING OFFICER IN THE IMPUGNED ORDER. AFTER CONSIDERING AL MOST ALL JUDICIAL DECISION AND THE CBDT CIRCULAR, THE HON'BLE TRIBUNA L CULLED OUT THE PRINCIPLES TO DETERMINE WHETHER TRANSACTIONS TN- QU ESTION WERE IN THE NATURE OF TRADE OR ARE MERELY FOR INVESTMENT PURPOS ES. IT WAS HELD AS UNDER :- 'AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FOLLOW ING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 7 TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME-OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT F ROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHE THER IT IS TREATED AS STOCK-IN- TRADE OR INVESTMENT. WHETHER SHOWN IN OPE NING/CLOSING STOCK OR SHOWN SEPARATELY AS INVESTMENT OR NON-TRADING AS SET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO PU RCHASE GOODS FOR THE PURPOSES OF TRADE AND NOT FOR IN VESTING IN AN ASSET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASES AND DIS POSAL IN THAT PARTICULAR ITEM ? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTIONS IN THAT ITEM, IT WOULD IND ICATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEMS IS INDICATIVE OF I NTENTION OF TRADE. SIMILARLY RATIO BETWEEN THE PURCHASES AND SALES AND THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION IN ITS VALUE? F ORMER WILL INDICATE INTENTION OF TRADE AND LATTER, AN INVESTMENT. IN TH E CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOULD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE ) IS AUTHORIZED IN ME MORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHET HER THERE. ARE SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO C ARRY OUT INVESTMENTS 'IN THAT COMMODITY? (7) IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SH OW THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTION HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDING. IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FADE SHOW THAT ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 8 PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOC K IN TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. (8) THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHA RES (OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENTLY OF SALE AND PURCHASE WILL ALONE WIL L NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. (9) ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISIT ES FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IN COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSESS EE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS. IF IT IS CLAIME D THAT ITS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTI ON (TO CARRYON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR W HEN PURCHASES WERE MADE? (10) IT IS PERMISSIBLE AS PER CBDT'S CIRCULAR NO 4 OF 2007 OF 15TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR B OTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. (11) NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN'. {5} THE FACTS OF THE CASE UNDER CONSIDERATION NEED TO BE ANALYZED IN THE BACKGROUND OF ABOVE DETAILED PRINCIPLES. IT IS SEEN THAT THE ASSESSEE HAS RECORDED THE SECURITIES AS INVESTMENTS IN THE BOOKS OF ACCOUNTS AS AGAINST STOCK-IN-TRADE. THE VALUATION O F SECURITIES AT THE END OF THE YEAR HAS BEEN AT COST AS AGAINST COST OR MARKET PRICE WHICHEVER IS LESS. THE ASSESSEE HAS UTILIZED HIS OW N FUNDS TO MAKE INVESTMENTS INTO SECURITIES AS AGAINST BORROWING TH E INTEREST BEARING FUNDS. THE ISSUE OF FREQUENCY OF TRANSACTIONS CARRI ED OUT BY THE ASSESSEE HAS ALSO BEEN EXAMINED AND THE CHART SUBMI TTED IN THIS REGARD SHOWS THAT INVESTMENT IN SHARES WAS DONE ONL Y FOR 24 DAYS, INVESTMENT AND ENCASHMENT WAS DONE FOR 73 DAYS AND ONLY ENCASHMENT WAS DONE FOR 70 DAYS. THERE HAVE BEEN LO NG PERIODS OF INACTIVITY CLEARLY SHOWING THAT THE ASSESSEE HAS NO T BEEN DOING THIS ACTIVITY ON DAY-TO-DAY BASIS. THE RETENTION PERIOD FOR THE SHARES WHICH WERE HELD AS LONG TERM CAPITAL GAIN IS 558 DAYS AND FOR SHARES HELD ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 9 FOR SHORT TERM CAPITAL GAINS IS 124 DAYS. THE FACT THAT THE ASSESSEE HAS DONE TRANSACTIONS IN FUTURE AND OPTION SEGMENT OF THE MARKET CANNOT BE HELD AGAINST THE ASSESSEE AS THIS PARTICU LAR ACTIVITY HAS BEEN LEGISLATED AS BUSINESS BY AMENDMENTS BROUGHT I N BY FINANCE ACT, 2005. THE ASSESSEE HAS ALSO GAINED IN TERMS OF DIVI DENDS EARNED FROM HIS INVESTMENTS TO THE TUNE OF RS. 14,33,706/- AS A GAINST RS. 14,51,266/- EARNED IN FINANCIAL YEAR 2005-06. THIS ONLY SHOWS THAT THE ASSESSEE HAS STAYED INVESTED, THEREBY EARNING D IVIDENDS. THE QUANTUM OF DIVIDEND AT RS. 14,33,706/- CANNOT BE SA ID TO BE INSIGNIFICANT AS THE DIVIDEND IS ALWAYS DECLARED ON THE FACE VALUE OF THE SHARES ,AND IF SEEN FROM THE POINT OF VIEW OF C APITAL INVESTMENT, WHICH IS NORMALLY AT THE MARKET RATE, IT WOULD ALWA YS APPEAR LOW IN TERMS OF PERCENTAGE. THEREFORE, THE ASSESSING OFFIC ER'S ACTION IN TAXING THE INCOME FROM SHORT TERM CAPITAL GAINS AS INCOME FROM BUSINESS AND PROFESSION DOES NOT STAND THE TEST OF VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE AS DISCUSSED ABOVE AND THEREFORE, ADDITION MADE BY THE ASSESSING OFFICER IN TREATING THE SAME UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION IS DELETED. C. ASSESSMENT YEAR 2008-09: {4} I HAVE CAREFULLY CONSIDERED THE APPELLANT'S VARIOUS SUBMISSIONS AND HAVE EXAMINED THE FACTS OF THE CAS E IN THE LIGHT OF THE PRINCIPLES LAID DOWN IN THE CITED JUDGMENTS. I HAVE ALSO SEEN THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT B Y MY LEARNED PREDECESSOR IN THE ASSESSMENT YEAR 2006-07 AND 2007 -08 VIDE ORDERS DATED 03.12.2009 AND 22.10.2010. IT IS FURTHER NOTE D, AS IN EARLIER YEARS, THAT THE APPELLANT HAS TREATED THE SECURITIE S AS INVESTMENTS, AND NOT AS STOCK-IN-TRADE, IN HIS BOOKS OF ACCOUNTS. TH E APPELLANT HAS ALSO VALUED THE SECURITIES AT THE END OF THE YEAR AT COS T AND NOT BY THE METHOD OF MARKET PRICE OR COST, WHICHEVER IS LESS. THE APPELLANT HAS NOT CLAIMED ANY INTEREST PAYMENT RELATING TO THIS A CTIVITY, AND IT IS VERIFIED THAT NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURCHASE OF SHARES. SO FAR AS THE FREQUENCY OF TRANSACTIONS CAR RIED OUT IS CONCERNED, THE CHART SUBMITTED BY THE APPELLANT SHO WS THAT INVESTMENT IN SHARES WAS DONE ONLY ON 16 DAYS OF THE YEAR, AND ENCASHMENT WAS DONE ON ONLY 108 DAYS. THUS, ON MOST DAYS OF THE YE AR, THE APPELLANT WAS NOT ENGAGED IN EITHER PURCHASE OR SALE AND THUS THERE IS NO REGULAR OR DAY-TO-DAY ACTIVITY OF TRADING. THE PERI OD OF RETENTION OF ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 10 THE SHARES ON WHICH SHORT TERM CAPITAL GAINS HAVE B EEN REALIZED VARIES FROM 1 DAY IN ONE CASE TO 363 DAYS. THE RETE NTION PERIOD FOR THE SHARES ON WHICH LONG TERM CAPITAL GAINS HAVE BEEN D ISCLOSED VARIES BETWEEN 417 DAYS AND 977 DAYS. UNDOUBTEDLY, THE APP ELLANT HAS ENGAGED IN THIS ACTIVITY OF PURCHASE AND SALE OF SH ARES WITH THE INTENTION TO REALIZE THE APPRECIATION IN THE VALUE AS WELL AS TO EARN DIVIDENDS, BUT IT CANNOT BE CONCLUDED THAT HE WAS C ARRYING ON TRADING OF SHARES AS A BUSINESS ACTIVITY. THE CONTENTION OF THE ASSESSING OFFICER THAT THE APPELLANT HAS ENGAGED IN TRADING I N DERIVATIVES AND HAS MADE SPECULATIVE TRANSACTIONS IS ALSO NOT RELEV ANT IN VIEW OF THE AMENDMENTS BROUGHT IN BY THE FINANCE ACT, 2005. IN VIEW OF THE ABOVE DISCUSSION, THE APPELLANT SUCCEEDS AT GROUND OF APP EAL NO. 1 AND THE ASSESSING OFFICER IS DIRECTED TO ASSESS THE SAID IN COME AS INCOME FROM CAPITAL GAINS, AS DISCLOSED BY THE APPELLANT. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, LD. D.R. SUBMITTED THAT THERE WAS VOLUMINOUS TRANSACTION OF SALE AND PURCHASE OF SHARES AND ASSE SSEE WAS ACTIVELY DEALING INTO BUSINESS OF SALE AND PURCHASE OF SHARES AND, T HEREFORE, A.O. AFTER VERIFICATION, HAS HELD THE TRANSACTIONS TO BE IN TH E NATURE OF TRADE INSTEAD OF INVESTMENT. IT WAS SUBMITTED THAT LD. CIT(A)S FIN DING THAT HOLDING PERIOD OF 100 DAYS WAS SUFFICIENT FOR TREATING THE INCOME AS CAPITAL GAIN IS NOT CORRECT AS HE HAD IGNORED THE FACT THAT IN A NUMBER OF SECURITIES THE PERIOD OF HOLDING WAS FROM ONE DAY TO SEVEN DAYS. HE FURTHE R SUBMITTED THAT LD. CIT(A) HAS NOT PROPERLY APPLIED HIS MIND AND HAS AL LOWED THE RELIEF TO THE ASSESSEE WHICH IS AGAINST THE FACTS AND CIRCUMSTANC ES OF THE CASE. 6. LD. SR. COUNSEL ON THE OTHER HAND SUBMITTED THAT THE SHARES PURCHASED BY ASSESSEE WERE REFLECTED AS INVESTMENT IN THE BOO KS OF ACCOUNTS AND WERE ALSO VALUED AT COST PRICE INSTEAD OF COST PRICE OR MARKET PRICE WHICHEVER IS LESS AND, THEREFORE, THEY WERE ACCEPTED AS INVESTME NT IN THE YEAR OF ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 11 PURCHASES AND, THEREFORE, SALES OF THE SAME IN SUBS EQUENT YEARS CANNOT BE TREATED AS OUT OF STOCK IN TRADE FOR THE PURPOSE OF CALCULATION OF BUSINESS PROFITS. IN SUPPORT OF HIS ARGUMENTS, LD. SR. COUN SEL HEAVILY RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF DEVASAN INVESTMENTS PVT. LTD. IN I.T.A. NO. 1102 & 1103 PLACED AT PAPER BOOK PAGES 9-27. LD. SR. COUNSEL SUBMITTED THAT SLP FILED BY DEPARTMENT IN THIS CASE HAS ALREADY BEEN DISMISSED. LD. A.R. INVITED OUR ATTENTION TO CALCULATION OF SHORT TERM AND LONG TERM CAPITAL GAIN IN THESE THREE YEAS WHIC H WAS PLACED IN PAPER BOOK AT PAGES 28-35, 101-150 AND 86-91 RESPECTIVELY . LD. A.R. HIGHLIGHTING FROM THE STATEMENT IN ASSESSMENT YEAR 2006-07 SUBMI TTED THAT THE SHARES PURCHASED ON VARIOUS DATES WERE TRANSFERRED TO DEMA T ACCOUNT OF ASSESSEE AND AFTER THAT, AT THE TIME OF SALE SHARES WERE AGA IN TRANSFERRED FROM DEMAT ACCOUNT OF THE ASSESSEE. INVITING OUR SPECIFIC ATT ENTION TO PAGES 36-62 OF THE PAPER BOOK, LD. SR. COUNSEL EMPHASIZED ON THE FACT THAT VARIOUS SHARES WERE HELD FOR VARIOUS NUMBERS OF DAYS AS NOTED AGAINST E ACH. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS NEVER A TRADER IN S HARES BUT WAS MAKING INVESTMENTS AND WAS SELLING THEM ONLY WHEN A PARTIC ULAR TARGET WAS ACHIEVED. IT WAS SUBMITTED THAT THE PERIOD OF HOLD ING OF EACH SHARE DIFFERED BUT THE INTENTION WAS ALWAYS TO HOLD THEM AS INVEST MENTS AND TO EARN SHORT TERM AND LONG TERM CAPITAL GAINS. IT WAS FURTHER S UBMITTED THAT LD. CIT(A) HAD OBTAINED REMAND REPORT ALSO FROM ASSESSING OFFI CER WITH A VIEW TO ASCERTAIN AS TO WHETHER THE DELIVERY OF PURCHASED S HARES WAS TAKEN INTO DEMAT ACCOUNT OF ASSESSEE OR NOT AND THE A.O. VIDE REMAND REPORT DATED 18.09.2009 PLACED AT PAPER BOOK PAGES 164-166 HAS H ELD THAT ENTRIES OF PURCHASES WERE FOUND TO HAVE BEEN ENTERED IN THE DE MAT ACCOUNT OF ASSESSEE. ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 12 7. AS REGARDS OBSERVATION OF THE A.O. REGARDING LOS S IN CARPET BUSINESS, LD. SR. COUNSEL SUBMITTED THAT LOSS IN CARPET BUSIN ESS IS NOT RELEVANT AND SINCE THE SHARES WERE BROUGHT FORWARD FROM YEAR TO YEAR, THE LOSS / PROFIT WAS CAPITAL GAIN IRRESPECTIVE OF QUANTUM OF CARPET BUSI NESS. HE FURTHER SUBMITTED THAT A.O.S FINDING THAT BORROWED FUNDS W ERE USED FOR ACQUISITION OF SHARES, WAS NOT CORRECT AS THE SAID LOAN WAS TAK EN AGAINST SECURITY OF SHARES FOR INVESTMENT IN A PROPERTY AND IN THIS RES PECT, OUR ATTENTION WAS INVITED TO PAPER BOOK PAGES 90-92 WHERE DOCUMENTS R EGARDING LOAN OF RS.1 CRORES ALONG WITH BANK STATEMENT OF PNB WHERE FUNDS WERE TRANSFERRED AND FROM WHERE, THESE WERE UTILIZED, WAS PLACED. THE L D. SR. COUNSEL PLACED HIS RELIANCE ON VARIOUS CASE LAWS AS PLACED IN PAPER BO OK PAGES 1-126. 8. LD. D.R. IN HIS REJOINDER SUBMITTED THAT THE CAS E LAWS RELIED UPON BY LD. A.R., ARE NOT OF ANY HELP TO THE ASSESSEE AS IN THOSE CASE LAWS, THERE WERE VERY LITTLE TRANSACTIONS WHEREAS IN THE CASE OF THE ASSESSEE, UNDISPUTEDLY THERE WERE LARGE TRANSACTIONS AND ASSESSEE WAS REGU LARLY ON DAY TO DAY BASIS HAS BEEN ENTERING INTO HUGE TRANSACTIONS. 9. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT FOR DETERMINATION OF THE F ACT AS TO WHETHER THE INCOME FROM SALE OF SHARES REPRESENT INCOME FROM CA PITAL GAIN OR BUSINESS INCOME, FACTS OF EACH CASE HAS TO BE ANALYZED SEPAR ATELY AND NO CASE LAW CAN BE MADE AS A PRECEDENT AS THE FACTS OF EACH CASE AL WAYS DIFFER. A COMBINATION OF FACTORS HAS TO BE KEPT IN MIND AND O NE OF THE FACTORS IS THE INTENTION OF ASSESSEE AT THE TIME OF PURCHASE AND I NTENTION OF ASSESSEE CAN ALWAYS BE JUDGED FROM THE TREATMENT OF SHARES IN TH E BALANCE SHEET OF THE ASSESSEE FOR THE PROPOSITION THAT AS TO WHETHER THE ASSESSEE HAD REFLECTED THE PURCHASES AS INVESTMENT OR STOCK IN TRADE. UNDISPU TEDLY, IN THE PRESENT ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 13 CASES, THE ASSESSEE HAD CLASSIFIED THE SHARES AS IN VESTMENT AND HAD VALUED THE SAME AT COST PRICE, AS IS VERIFIABLE FORM THE COPIE S OF BALANCE SHEETS PLACED AT PAPER BOOK PAGES 12,10 AND 12 RESPECTIVELY FOR THE ABOVE ASSESSMENT YEARS. HOWEVER, THE ONLY CLASSIFICATION OF SHARES AS INVES TMENT IN THE BALANCE SHEET CANNOT LEAD TO THE CONCLUSION THAT ASSESSEE WAS AN INVESTOR. THIS FACTOR HAS TO BE EXAMINED IN CONJUNCTION WITH OTHER FACTORS SU CH AS WHETHER ASSESSEE HAD BORROWED FUNDS AND WHAT IS THE FREQUENCY AND VO LUME OF TRANSACTIONS & HOW THE ACCOUNT OF BROKER IS SETTLED AS TO WHETHER IT IS KEPT AS A CURRENT ACCOUNT OR IS SETTLED AFTER EVERY TRANSACTION OR AF TER A PARTICULAR PERIOD AND FURTHER AS TO WHETHER THE ASSESSEE WAS TAKING DELIV ERIES IN THE DEMAT ACCOUNT OR NOT AND THE FACT ALSO ABOUT THE NUMBER OF SCRIPT S IN WHICH THE ASSESSEE DEALS WITH. DURING THE COURSE OF PROCEEDINGS BEFOR E US WITH THE PURPOSE OF LOOKING INTO THESE FACTORS, THE LD. SR. COUNSEL WAS DIRECTED TO FILE COPY OF ACCOUNT OF BROKER AS APPEARING IN THE BOOKS OF ASSE SSEE ALONG WITH COMPLETE DEMAT ACCOUNT STATEMENTS OF THE ASSESSEE FOR THREE YEARS. AFTER THE CONCLUSION OF HEARING THE LD. SR. COUNSEL HAS FILED THESE DOCUMENTS EXCEPT DEMAT ACCOUNT STATEMENT FOR THE ASSESSMENT YEAR 200 8-09. 10. FROM THE DOCUMENTS ALREADY FILED IN THE FORM OF PAPER BOOK AND THOSE FILED AFTER THE CONCLUSION OF HEARING, WE FIND AS U NDER: I) THAT ASSESSEE HAS BEEN DEALING INTO SHARES, SECU RITIES AND PORTFOLIO MANAGEMENT SCHEMES OF VARIOUS PORTFOLIO MANAGERS. II) THE TOTAL PURCHASES & SALES OF ASSESSEE FOR SHA RES AS CALCULATED FROM THE ACCOUNT OF BROKER IN THE BOOKS OF ACCOUNTS OF A SSESSEE FOR THE THREE YEARS IS AS UNDER: 2006-07 2007-08 2008-09 PURCHASES 4,36,82,144 90,04,364 24,98,628 SALES 4,25,04,465 2,09,07,257 1,95,82,341 ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 14 III) THE ASSESSEE IS HAVING CURRENT ACCOUNT WITH TH E BROKER WHEREIN REGULAR ENTRIES OF PURCHASES AND SALES, CHEQUES PAI D AND CHEQUES RECEIVED HAS BEEN ENTERED. THE ACCOUNT HAS NEVER BEEN SETTL ED COMPLETELY IN THE THREE YEARS AND SOMETIMES, IT HAD DEBIT BALANCE AND SOMET IMES IT HAD CREDIT BALANCE. FOR THE SAKE OF CONVENIENCE THE COPY OF A CCOUNT OF BROKER AS APPEARING IN THE BOOKS OF ASSESSEE AS SUBMITTED BY LD. SR. COUNSEL HAS BEEN MADE PART OF THIS ORDER ATTACHED AS ANNEXURE A . FROM THE ABOVE STATEMENT, IT CAN BE SEEN THAT ON MA NY OCCASIONS, THE SHARES PURCHASED REMAINED UNPAID AND DUES WERE SETTLED IN SUCCEEDING DAYS BY MAKING SALES OUT OF EXISTING SHARES. FROM THE ANAL YSIS OF ABOVE STATEMENT, IT CAN BE CONCLUDED THAT ON THE ONE HAND ON SOME OCCAS IONS THE SHARES REMAINED UNPAID AND ON THE OTHER HAND IT ALSO PROVE S THAT BROKER ACCOUNT WAS A CURRENT ACCOUNT AND WAS NOT FULLY SQUARED UP AND ON A NUMBER OF OCCASIONS, THE DUES WERE SETTLED BY SELLING SHARES. IV) THE CLAIM OF THE LD. A.R. THAT NO BORROWED FUND S FOR PURCHASE OF SHARES WERE UTILIZED IS NOT CORRECT IN VIEW OF THE FACT THAT ASSESSEE HAD DEBITED INTEREST OF RS.4,27,753/-, RS.3,34,415/- AN D RS.9,38,655/- IN THE P & L ACCOUNT AS PLACED IN PAPER BOOK PAGES 14,12 AND 1 1 RESPECTIVELY. THE ASSESSEE HAS ALSO CLAIMED THE EXPENDITURE OF INTERE ST IN THE COMPUTATION OF INCOME AGAINST LONG TERM AND SHORT TERM CAPITAL GAI NS IN TWO YEARS AS IS APPARENT FORM PAPER BOOK PAGE 1 IN ASSESSMENT YEARS 2006-07 AND 2007- 08. IN VIEW OF THIS, THE OBSERVATION OF LD. CIT(A) THAT NO BORROWED FUNDS WERE USED, IS AGAINST THE FACTS OF THE CASES. V) DURING ARGUMENTS, THE LD. SR. COUNSEL HAD SUBMIT TED THAT ALL PURCHASED SHARES WERE FIRST TRANSFERRED INTO DEMAT ACCOUNT OF ASSESSEE & IN THIS RESPECT, HE HAD INVITED OUR ATTENTION TO REMAN D REPORT FOR ASSESSMENT ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 15 YEAR 2006-07, ALSO WHEREIN THE A.O. ON THE BASIS OF TEST CHECKS HAD STATED THAT PURCHASES OF SHARES WERE FOUND TO BE ENTERED I N DEMAT ACCOUNT. HOWEVER, FROM THE DETAILS OF SCRIPT-WISE HOLDING PE RIOD, WE FIND THAT ALL SCRIPTS CANNOT BE SAID TO HAVE BEEN FIRST TRANSFERR ED INTO DEMAT ACCOUNT AS PERIOD OF HOLDING IN CERTAIN CASES RANGES FROM ONE DAY TO SEVEN DAYS WITHIN WHICH PERIOD, IT MAY NOT BE PRACTICAL TO FIRST RECE IVE SHARES IN DEMAT ACCOUNT AND THEN TO RELEASE THE SAME OUT OF DEMAT ACCOUNT W HEN SALES ARE MADE. RETENTION PERIOD FOR VARIOUS SHARES FOR ASSESSMENT YEAR 2006-07 IS PLACED AT PAPER BOOK PAGES 36-62 AND FROM WHICH WE CAN FIN D THAT IN MANY CASES SCRIPTS WERE HELD FOR ONE TO SEVEN DAYS AND THEREFO RE ALL SCRIPTS CANNOT BE SAID TO HAVE BEEN TRANSFERRED TO DEMAT ACCOUNT FIRS T. MOREOVER, SUCH EXERCISE HAS NOT BEEN DONE FOR ASSESSMENT YEARS 200 7-08 AND 2008-09. VI) THE SHORT TERM CAPITAL GAIN EARNED AND DECLARED BY ASSESSEE INCLUDES GAINS FROM PORTFOLIO SCHEMES ALSO THE NATURE OF WHI CH HAS NOT BEEN DETERMINED EITHER BY A.O. OR LD. CIT(A). FROM THE PAPER BOOK FILED BY ASSESSEE, WE FIND THAT SHORT TERM CAPITAL GAIN EARN ED AND DECLARED BY ASSESSEE INCLUDES INCOME FROM PORTFOLIO SCHEMES THE DETAILS OF WHICH IS AS UNDER: 2006-07 2007-08 2008-09 TOTAL SHORT TERM 91,87,581/- 50,09,092/- 70,38,1 79/- CAPITAL GAIN DECLARED GAIN FORM PORTFOLIO 9,25,100/- - 50,39,990/- SCHEMES INCLUDED IN (P.B.34) (P.B.8.7) ABOVE. FOR THE ASSESSMENT YEAR 2007-08, BREAK UP OF SHORT TERM CAPITAL GAIN FORM SCRIPTS AND FROM PORTFOLIO SCHEMES COULD NOT BE FOU ND OUT FROM PAPER BOOK, ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 16 THEREFORE, COLUMN HAS BEEN LEFT BLANK. THE PROPOSI TION AS TO WHETHER INCOME FROM PORTFOLIO SCHEMES IS A CAPITAL GAIN OR BUSINES S INCOME HAS NOT BEEN ADDRESSED AT ALL. VII) THE DEMAT ACCOUNT STATEMENT AS FILED FOR ASSES SMENT YEAR 2006-07 RUNS INTO 66 PAGES AND THAT OF ASSESSMENT YEAR 2007 -08 RUNS INTO 34 PAGES. THE DEMAT STATEMENT FOR ASSESSMENT YEAR 2008-09 HAS NOT BEEN FILED. THE VOLUME OF DEMAT STATEMENT ITSELF DESCRIBES THE FREQ UENCY OF TRANSACTIONS, WHICH IS QUITE LONG. VIII) THE NUMBER OF SCRIPTS DEALT BY THE ASSESSEE A S PER DEMAT ACCOUNT STATEMENT IS 259 IN ASSESSMENT YEAR 2006-07 WHEREAS THE NUMBER IS 228 SCRIPTS IN ASSESSMENT YEAR 2007-08. THE DEMAT STAT EMENT FOR ASSESSMENT YEAR 2008-09 HAS NOT BEEN FILED. THE NUMBER OF SCR IPTS DEALT BY ASSESSEE IS TOO LARGE FOR AN INVESTOR AND ONLY A TRADER WHO IS INVOLVED IN THE MARKET ON DYA TO DAY BASIS CAN ONLY MANAGE SUCH A HUGE PORTFO LIO. IX) THE MERE NUMBER OF SCRIPTS DEALT WITH BY ASSESS EE COUPLED WITH FREQUENT TRADES AND CHANGES IN SCRIPTS BY SELLING O NE AND BY BUYING ANOTHER OR BUYING THE SAME SCRIPT AFTER A PERIOD ITSELF IND ICATES THAT ASSESSEE CANNOT BE CLASSIFIED AS INVESTOR ONLY. ORDINARILY, AN INV ESTOR IN SHARES DOES NOT INDULGE INTO SO MANY SCRIPTS AND THAT TOO SO FREQUE NTLY. ALL THESE FACTS AND CIRCUMSTANCES AS LISTED ABOVE INDICATE THAT ASSESSE E CANNOT BE CLASSIFIED ONLY AS AN INVESTOR BUT HE IS A TRADER ALSO. X) THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR O F ASSESSEE BY LOOKING AT SCRIPTS WHICH WERE HELD BY THE ASSESSEE FOR A LO NGER PERIOD AND HAS NOT LOOKED INTO THE ENTIRE FACTS. XI) THE MERE FACT THAT PERIOD OF HOLDING FOR SOME O F THE SCRIPTS EXCEEDED MORE THAN 365 DAYS OR MORE ITSELF CANNOT LEAD TO TH E CONCLUSION THAT GAIN ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 17 WAS NECESSARILY A LONG TERM CAPITAL GAIN AS IT CAN HAPPEN IN THE CASE OF TRADER ALSO WHERE SOME OF THE SCRIPTS REMAIN UNSOLD FOR A LONG PERIOD OF TIME FOR A NUMBER OF REASONS. XII) WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE , LD. CIT(A) OBSERVED THAT HAD THE ASSESSEE BEEN A TRADER, HE WOULD ALSO HAVE SHORTED/HEDGED BUT IN ONE VIEW, SHORTING/HEDGING IS NOT ALLOWED IN SHARES / SCRIPTS AND IT IS ALLOWED ONLY IN DERIVATIVES AND THEREFORE, THIS FINDING OF LD. CIT(A) IS ALSO NOT CORRECT AND MOREOVER EVEN IF SHORTING WAS ALLOWED I N SCRIPTS AND ASSESSEE DID NOT DO IT DOES NOT MEAN THAT HE WAS NOT A TRADE R.. 11. FROM THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE THOUGH HAD CLASSIFIED ALL UNSOLD SHARES AS ON THE CLOSE OF ACCOUNTING YEAR AS INVESTMENTS YET HE WAS A BOTH TRADER AND AN INVESTOR. 12. CBDT IN ITS CIRCULAR NO.4 OF 2007 HAS ALSO EMPH ASIZED THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS ONE AS INVESTMENT PORTFOLIO AND ANOTHER AS TRADING PORTFOLIO AND WHERE, THE ASS ESSEE HAS BOTH PORTFOLIOS, THE INCOME HAS TO BE ASSESSED UNDER BOTH HEADS I.E. CAPITAL GAIN AND BUSINESS INCOME. MOREOVER, WE FIND THAT ASSESSEE HAD EARNED SIGNIFICANT INCOME FROM PORTFOLIO SCHEMES AND THEREFORE THE NATURE OF INCOME AS TO WHETHER THE SAME WAS CAPITAL GAIN OR BUSINESS INCOME, HAS TO BE LOOKED INTO KEEPING IN VIEW THE OBJECTIVES OF SUCH SCHEMES AND OTHER TERMS AND CONDITIONS OF SUCH SCHEMES AND ALSO ON THE BASIS OF SETTLED LAW WITH R ESPECT O TAXATION OF INCOME FROM PORTFOLIO SCHEMES. 13. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, W E SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT HIM TO RE-ADJUDICATE ON THE I SSUE AFTER TAKING INTO ACCOUNT ALL FACTS AND CIRCUMSTANCES AS ENUMERATED A BOVE. THE LD. CIT(A) ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 18 SHOULD EXAMINE THE THREE YEARS INDEPENDENTLY AS ENT IRE FACTS IN ONE YEAR MAY NOT BE AVAILABLE IN ANOTHER YEAR. 14. THE CASE LAWS RELIED UPON BY LD. A.R. ARE DISTI NGUISHABLE ON THE FACTS AS IN THE CASE LAW AS M/S. DEVASAN INVESTMENTS (P) LTD. THE NUMBER OF SCRIPTS WAS QUITE LOW AND THERE WAS NO FREQUENCY OF TRANSACTIONS. MOREOVER, IN DETERMINATION OF THE NATURE OF INCOME OF AN ASSE SSEE AS TO WHETHER INCOME IS FROM CAPITAL GAINS OR FROM BUSINESS, A COMBINATI ON OF FACTORS HAS TO BE CONSIDERED AND NO CASE LAW CAN BE MADE AS A PRECEDE NT. 15. IN VIEW OF THE ABOVE, THE APPEALS FILED BY REVE NUE ARE ALLOWED FOR STATISTICAL PURPOSES. 16. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JAN., 2015. SD./- SD./- ( A. T. VARKEY) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 13 TH JANUARY, 2014 ENCLOSURE: ANNEXURE A SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO.895/DEL/2000 I.T.A.NO. 6806/DEL/2010 I.T.A.NO. 4946/DEL/2011 19 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER SCAN0004.PDF