JCIT RG 19(2), MUMBAI V. CHETAN K. DESAI, MUMBAI

ITA 5029/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9468 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 10-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 02-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NITIN JOSHI
• Keywords: Capital asset; Business income; Question of law; Speculative transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.5029/M/2009 ASSESSMENT YEAR: 2005-2006 THE ACIT - 19(2), R.NO.315, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI 400 012. VS. MR. CHETAN K. DESAI, 34, AUROVILLA, ST. ANDREWS ROAD, SANTACRUZ (W), MUMBAI 400 054. PAN: AAAPD 8549R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI OM PRAKASH, DR RESPONDENT BY : SHRI NITIN JOSHI DATE OF HEARING 10.10.2012 DATE OF OR DER: 5 .12.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 2.9.2009 IS DIR ECTED AGAINST THE ORDER OF CIT (A)- XIX, MUMBAI DATED 22.6.2009 IN RELATION TO ASSESSME NT YEAR 2005-2006. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GRO UNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) HAS FAILED TO APPRECIATE THE IN DEPTH ANALYSIS MADE BY THE AO BEFORE TREATING THE GAINS AS BUSINESS INCOME AND THAT CIRCULAR NO.4 OF 2007 HAS BEEN TAKEN INTO CONSIDERATION TO DECIDE WHETHER THE GAINS ARE TO BE TREATED AS SUCH OR AS BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ALSO ERRED IN IGNORING THE FACT THAT THE ASSESS EES AVERAGE PERIOD OF HOLDING OF SHARES IS ONLY 15 DAYS TO 30 DAYS AND ALSO THAT THE ASSESSEE HAS ENTERED INTO 200 ODD TRANSACTIONS OF PURCHASE & SAL E OF SHARES IN CURRENT YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ALSO ERRED IN TREATING BUSINESS INCOME AS LTCG WITHOUT APPRECIATING THE FACT THAT THE SHARES ARE HELD BY THE ASSESSEE AS HIS STOCK IN TRADE RATHER THAN AS INVESTMENT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ALSO ERRED IN HOLDING THAT THE ASSESSEES USE OF OWN FUNDS FOR PURCHASE OF SHARES WOULD IMPLY THAT THE SHARES ARE PROCURED FOR THE PURPOSE OF INVESTMENT, THEREBY IGNORING THE FACT THAT THE ASSESSEE BEING A HIGH NET WORTH INDIVIDUAL MAY NOT REQUIRE LOAN FUNDS. 2 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) ALSO ERRED IN TREATING BUSINESS INCOME AS STCG WITHOUT APPRECIATING THE FACT THAT THE ASSESSEES INTENTION/MOTIVE WHILE INVESTING IS NOT APPRECIATION OF INVESTMENT BUT TO MAXIMIZE THE PROFIT. 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT THE ASSESSEE IS AN INDIVIDUAL AND HAS SHARE INCOME FROM M/S. CREATION BY SHANAGAR. A SSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 1,49,75,240/-. IN TH E RETURN, ASSESSEE DECLARED CAPITAL GAINS RS. 1,07,35,512/- ON SALE OF SHARES AND SECURITIES, WHICH INCLUDES TH E SHORT TERM CAPITAL GAINS OF RS. 84,88,017/- AND LONG TERM CAPITAL GAINS OF RS.2 2,46,495/-. DURING THE ASSESSMENT PROCEEDINGS, AO MADE ENQUIRIES INTO ABOVE SAID CAPI TAL GAINS CLAIMED BY THE ASSESSEE IN THE RETURN AND EXAMINED VARIOUS ELEMENTS OF THE SAID TR ANSACTIONS SUCH AS TIME DEVOTED, NORMAL ACTIVITY OF THE ASSESSEE, MOTIVE / INTENTION, SOURC E OF FUNDS FOR ACQUIRING THE SHARES, PERIOD OF HOLDING, FREQUENCY OF TRANSACTIONS, NUMBER OF STOCK S INVESTED, ENTRIES IN THE BOOKS OF ACCOUNTS ETC. AND EXAMINED EACH OF THE ISSUES AT LENGTH AS M ENTIONED IN PARA 3.5 OF HIS ORDER AND AO CAME TO THE CONCLUSION THAT THE PROFITS ARISING OUT OF THE SALE OF SHARES CONSTITUTES BUSINESS INCOME AND NOT CAPITAL GAINS EITHER SHORT TERM OR L ONG TERM AND TREATED THE AGGREGATE AMOUNT OF RS. 1,07,35,512/- AS BUSINESS PROFITS OF THE ASSESSEE OR ARISING FROM THE ADVENTURE IN THE NATURE OF TRADE. BEFORE THE AO, ASSESSEE SUBMI TTED THAT THE TURNOVER OF THESE TRANSACTIONS WORKS OUT TO RS. 19.28 CRORES AND PROFIT BEFORE TAX (PBT) FOR THE YEAR IS RS 9.69 CR. IT IS THE CLAIM OF THE ASSESSEE THAT HE HAS NOT EMPLOYED ANY PROFESSIONALS FOR THIS PURPOSE AND THE INVESTMENT IS MADE ENTIRELY OUT OF OWN FUNDS. THE M AIN BUSINESS OF THE FIRM IS MANUFACTURING AND EXPORTING OF EMBROIDERED FABRICS AND ALLIED PRO DUCTS AND THE ASSESSEE IS ENGAGED WITH THE SAID BUSINESS OF THE FIRM TOO. THE ACTIVITY OF INV ESTMENT IN SHARES IS AN INDEPENDENT ACTIVITY / CAPITAL GAIN ACTIVITY. ASSESSEES INTENTION WHILE INVESTING IS TO EARN DIVIDEND AND TO GET APPRECIATION ON THE CAPITAL INVESTMENT. ASSESSEE H ELD THE SHARES FOR A LONGER PERIOD AND DOES NOT INVOLVE IN ANY INTRA-DAY TRADING. OUT OF TOTAL INVESTMENT OF RS. 8.07 CRORES, THE MAJOR INVESTMENTS ARE HELD FOR THE PERIOD LONGER THAN 15 DAYS. THE IDEA OF SELLING THE SAID INVESTMENT IS TO AVOID FURTHER EROSION IN VALUE. ASSESSEE TRA NSACTED FOR A PERIOD OF 90 DAYS OUT OF 250 ODD DAYS OF TRADING ACTIVITY IN THE YEAR. THE NUMBER O F TRANSACTIONS ON PURCHASE AND SALE PUT TOGETHER AMOUNTING TO 200 ODD TRANSACTIONS AND THAT SHOWS THE FREQUENCY OF TRANSACTIONS, WHICH WAS CONSIDERED BY THE AO AS VERY HIGH. FURTH ER, REGARDING THE NUMBER OF STOCKS INVESTED, ASSESSEE SUBMITTED THAT HE INVESTED IN 80 DIFFERENT COMPANIES OUT OF WHICH MOST OF 3 THE SCRIPS ARE LISTED IN THE STOCK EXCHANGES. REGA RDING ENTRIES IN THE BOOKS OF ACCOUNTS, ASSESSEE MENTIONED THAT ALL THE INVESTMENTS ARE SHO WN IN THE BOOKS OF ACCOUNT AS INVESTMENTS NOT AS STOCK-IN-TRADE AND ALL THE TRANSACTIONS ARE DELIVERY BASED. THERE ARE NO SPECULATIVE TRANSACTIONS TO MAINTAIN TWO SEPARATE PORTFOLIOS IE ONE FOR INVESTMENT AND ANOTHER FOR TRADING. FURTHER, IT WAS SUBMITTED THAT ASSESSEE EARNED CAPI TAL GAINS OF RS. 2,52,313/- OUT OF PORTFOLIO MANAGEMENT AND OUTSOURCING THE PORTFOLIO MANAGEMENT SERVICES. FROM THE ABOVE, ASSESSEE SUBMITTED THAT THE CLAIM MADE BY THE ASSESSEE MUST BE ACCEPTED. HOWEVER, THE ASSESSING OFFICER REJECTED THE SAME HOLDING THAT THE TURNOVER OF 19.27 CR AND PROFIT BEFORE TAX OF RS. 9.69 CR, REJECTING THE INVESTMENT TO THE EXTENT OF OWN F UNDS AMOUNTS TO BUSINESS NATURE OF THE ASSESSEE. 86% OF THE SHARES WERE HELD FOR A PERIOD OF LONGER THAN 15 DAYS WHICH SHOWS THAT ASSESSEE ACQUIRED THE SHARES NOT FOR ONLY RESALE. ON THE FACTS RELATING TO THE 200 TRANSACTIONS, THE TRANSACTING DAYS OF 90 OUT OF 250 TRADING DAYS IN THE YEAR, IT CONFIRMS THE STAND OF THE AO ABOUT THE REGULARITY IN BUSINESS TRANSACTIONS. INV ESTMENTS IN DIVERSIFIED PORTFOLIO, AROUND 80 COMPANIES ODD, SHOWS THE SYSTEMATIC BUSINESS ACTIVI TY AND CONFIRMS THE BUSINESS INTENTION OF THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE ALLE GED GAINS OF RS. RS. 1,07,35,512/- AS BUSINESS INCOME OF THE ASSESSEE. IN THIS PROCESS, A O DID NOT DISTINGUISH THE SHARES HELD FOR THE PERIOD FOR MORE THAN 12 MONTHS TOO. 4. AGGRIEVED WITH THE ORDER OF THE ASSESSING OFFICE R, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 5. IT WAS CONTESTED BEFORE THE CIT (A) THAT TREATIN G THE CAPITAL GAINS AS THE BUSINESS INCOME IS AGAINST THE SPIRIT OF THE PROVISIONS OF T HE ACT. FURTHER, IT WAS ALLEGED THAT THE GAINS EARNED OUT OF SALE OF INVESTMENTS, WHEN HOLDING PER IOD OF MORE THAN 12 MONTHS ALSO AS BUSINESS PROFITS IS BELATEDLY WRONG. ASSESSEE PRAY ED THAT THE AMOUNT OF RS. 22,46,495/- SHOULD BE ALLOWED AS A LONG TERM CAPITAL GAIN AND BALANCE OF RS. 84,88,017/- SHOULD BE ALLOWED AS CLAIMED BY THE ASSESSEE. REGARDING LONG TERM CAPITA L GAINS ISSUE ASSESSEE CONTENDED THAT ASSESSEES INVESTMENT IN LONG TERM CAPITAL ASSETS I N RESPECT OF RELIANCE VISION FUND AND KOTAK FLOATER DIVIDEND FUND WERE HELD BY THE ASSESSEE FOR A PERIOD OF MORE THAN 12 MONTHS AND WHEN HE RECEIVED DIVIDEND INCOME ALSO ON REDEMPTION , ASSESSEE GOT THE GAIN OF RS. 22,46,495/-. UNDER THESE FACTS, THE CLAIM OF THE A SSESSEE MUST BE ALLOWED IN FULL. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE, WITH REGARD TO L ONG TERM CAPITAL GAINS. REGARDING THE CLAIM 4 OF SHORT TERM CAPITAL GAINS OF RS. 84,88,017/-, THE CIT (A) DEALT EACH OF THE PARAMETERS THAT DECIDES THE ACTUAL NATURE OF THE ASSETS SOLD AS SEE N FROM PARA 3.4 OF THE IMPUGNED ORDER AND CONCLUDED BY STATING THAT THE CLAIM OF THE ASSESSEE IS ALLOWED IN THIS REGARD ALSO. 6. IN THE PROCESS, CIT (A) GAVE A FINDING THAT THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF THE SHARES IN TERMS OF TIM E DEVOTED FOR IT. HE ALSO HELD THAT THE ACTIVITY IS ONLY AN INCIDENTAL NOT A PRINCIPLE ACTIVITY. FU RTHER, HE WAS OF THE OPINION THAT THE ASSESSEE REDEEMED SHARES TO AVOID FURTHER EROSIONS IN VALUE. ABSENCE OF BUSINESS FUNDS FOR ACQUIRING THE SHARES CONFIRMS THE ASSESSEES CLAIM OF CAPITAL INVESTMENT. REGARDING THE PERIOD OF HOLDING, CIT (A) RELIED ON THE ANALYSIS FURNISHED B Y THE ASSESSEE WHICH IS AS UNDER: PERIOD OF HOLDING % OF TOTA L TRANSACTIONS % OF CAPITAL GAINS 1 - 5 5.81 6.67 6 - 14 8.72 3.49 15 - 30 9.88 6.01 31 - 90 29.07 31.79 91 - 180 22.67 16.16 180 - 365 23.85 35.88 7. REGARDING 205 TRANSACTIONS, THE INVESTMENT OF RS . 8.07 CRORES OVER A PERIOD OF 90 DAYS OUT OF TOTAL 250 TRADING DAYS OF THE YEAR AND IN AN Y CASE, THIS FREQUENCY CANNOT BE CONSIDERED AS VERY HIGH. ASSESSEE RELIED ON THE DECISION OF I TAT, MUMBAI BENCH IN THE CASE OF JANAK S RANGWALLA VS. ACIT [11 SOT 627] FOR THE PROPOSITION THAT THE MAGNITUDE OF INVESTMENT DOES NOT DECIDE THE NATURE OF INVESTMENT. HOLDING OF 80 DIF FERENT STOCKS WHICH ARE LISTED IN THE STOCK EXCHANGES SHOWS THE DIVERSIFIED PORTFOLIO AND INTEN TION OF THE ASSESSEE FOR LONG TERM HOLDING. THE FACT THAT ASSESSEE MAINTAINED TWO PORTFOLIOS, T RADER AS WELL AS INVESTOR, AND THE SHARES MAINTAINED AS INVESTMENT WERE OF THE SUBJECT MATTER OF THE CAPITAL GAINS AND THOSE SHOWN AS STOCK-IN-TRADE WAS DECLARED AS BUSINESS INCOME OF T HE ASSESSEE. AS SEEN FROM PARA 4.1 OF THE IMPUGNED ORDER, CIT (A) DISCUSSED ABOUT THE APPLICA BILITY OF THE CBDT CIRCULAR NO.4 OF 2007 WHICH REFERS TO VARIOUS PARAMETERS AND DISCUSSED TH E ASSESSEE CONDUCT OF NOT BORROWING ANY FUNDS FOR THE BUSINESS PURPOSES WHICH IS ONE OF THE CRITERION OF THE CIRCULAR WHICH WAS RELIED UPON BY THE CIT (A) IN THE CASE OF JCIT VS. DINESH KUMAR GUPTA [2005] 2 SOT 126 (DEL). FINALLY, CIT (A) GAVE RELIEF TO THE ASSESSEE HOLDIN G THAT RS. 84,88,017/- SHOULD BE ALLOWED AS 5 SHORT TERM CAPITAL GAIN AND NOT BUSINESS INCOME AS HELD BY THE AO. ACCORDINGLY, CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE. 8. AGGRIEVED WITH THE ABOVE, REVENUE FILED THE PRES ENT APPEAL BEFORE US. 9. DURING THE PROCEEDINGS BEFORE US, LD DR RE LIED ON THE ORDER OF THE AO AND WAS SO CRITICAL OF THE WAY CIT (A) DECIDED THE ISSUES AGAINST THE R EVENUE. SHRI OM PRAKASH MEENA, LD DR READ OUT THE RELEVANT DISCUSSION OF THE ORDER OF TH E AO FROM PARA 3.5 UP TO 3.15 AND MENTIONED THAT THE ORDER OF THE AO IS QUITE ELABORATIVE AND A REASONED ONE. THEREFORE, THE DECISION OF THE AO SHOULD BE UPHELD. REGARDING CIT (A)S DECISION IN TREATING THE CAPITAL GAINS OF RS. 22,46,495/- LD DR RELIED ON THE ORDER OF THE AO. A S PER THE LD DR, WHEN THE PURCHASE AND SALE ARE TO THE TUNE OF RS. 8.07 CR AND RS. 9.15 CR RESPECTIVELY, WHEN IT WORKS OUT TO AVERAGE WEEKLY TURNOVER OF RS. 15,52,430/- FOR PURCHASES AN D RS. 17,58,863/- FOR SALES AND THE SAME CONSTITUTES VERY HIGH VOLUME. WHEN THE ASSESSEES INVESTMENT IN 80 DIFFERENT COMPANIES SCRIPS WHICH ARE LISTED IN THE STOCK EXCHANGES WITH 200 OD D TRANSACTIONS ENTERED INTO A HOLDING PERIOD OF LESS THAN 15 DAYS WHILST MORE THAN 15 DAYS 14% A ND 86% RESPECTIVELY AND WHEN ASSESSEE TRANSACTED FOR 80 LONG DAYS IN A YEAR WHICH CONTAIN S 200 ODD TRADING DAYS, THE SAME MUST CONSTITUTE BUSINESS ACTIVITY OF THE ASSESSEE. THER EFORE, LD DR MENTIONED THAT THE GAINS OF RS. 84,88,017/- IS BUSINESS INCOME OF THE ASSESSEE AND NOT AS A SHORT TERM CAPITAL GAINS. FURTHER, IN RESPONSE TO THE QUERY RAISED BY THE BENCH ABOUT THE EXISTENCE OF DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF P. RAJYALAKSHMI V S ADDITIONAL COMMISSIONER OF INCOME-TAX (AP) 340 ITR 75, LD DR MENTIONED THAT THE PRINCIPLE S LAID DOWN IN THIS DECISION SHOULD BE UPHELD AS THEY ARE DIRECTLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. 10. ON THE OTHER HAND, SHRI NITIN JOSHI, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THIS IS THE FIRST YEAR AND THE CLAIM OF THE ASSESSEE WAS UP HELD BY THE CIT(A). FURTHER, HE RELIED ON THE ORDER OF THE AO IN FULL. IN RESPECT OF LONG TERM C APITAL GAINS, LD COUNSEL MENTIONED THAT THE CRITERION OF HOLDING 12 MONTHS WAS DULY CONSIDERED AS PER THE PROVISIONS OF THE ACT. THEREFORE, THE SAME SHOULD BE UPHELD WITHOUT ANY INTERFERENCE. REGARDING CLAIM OF RS. 84,88,017/- HELD AS BUSINESS INCOME BY THE AO, LD COUNSEL MENTIONED THAT CIT (A) RIGHTLY UPHELD THE CLAIM OF THE ASSESSEE AS PER THE REASONS GIVEN IN PARA 3 AND ITS SUB PARAS. FURTHER, HE MENTIONED THAT ASSESSEE MERELY MAINTAINED 200 ODD TRANSACTIONS AGA INST 2000 TO 3000 TRANSACTIONS NORMALLY IN A YEAR I.E. @ 10 TO 15 TRANSACTIONS IN A DAY. WITH 90 DAYS OF TRANSACTION ACTIVITY, BY NO STRETCH 6 OF IMAGINATION, THE ASSESSEE CANNOT BE CALLED AS A TRADER AS HELD BY THE AO. REGARDING HOLDING PERIOD, LD COUNSEL MENTIONED THAT THE ASSESSEE GOT INTO RESALE MODE, AS AND WHEN THERE IS NEWS OF EROSION IN VALUE OF THE CAPITAL. THE PURCH ASE OF 8.07 CR, SALE OF RS. 9.14 CR, 80 SCRIPS, 205 TRANSACTIONS, ABSENCE OF ANY SPECULATIVE ACTIVI TY, ABSENCE OF ANY BORROWED FUNDS FOR ACQUIRING THE SHARES SUGGESTS THE CAPITAL INVESTMEN T ACTIVITY ONLY, NOT THE BUSINESS ACTIVITY. IT IS ALSO MENTIONED BY THE LD COUNSEL THAT ASSESSEE N EVER ENTERED INTO THE INTRA-DAY TRANSACTIONS AND THE STATEMENTS GIVEN BY THE AO IN THIS REGARD A RE COMPLETELY ERRONEOUS. FINALLY, LD COUNSEL ARGUED FOR CONFIRMATION OF THE ORDER OF THE CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD, JUDGMENTS AND PAPER BOOKS FILED BEFORE US. THERE IS NO DISPUTE ON FACTS AND ASSESSEE DECLARED CAPITAL GAINS RS. 1,07,35,512/- ON SALE OF SHARES AND SECURITIES AND AS PER THE ASS ESSEE THE SHORT TERM CAPITAL GAINS ARE RS.84,88,017/- AND LONG TERM CAPITAL GAIN S ARE RS.22,46,495/-. CONSIDERING THE FACTS RELATING TO TURN OVER, VOLUME, NUMBER AND MAG NITUDE OF TRANSACTIONS ETC, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING ONLY AND HELD THAT THE SAID GAINS CONSTITUTES PROFITS AND GAINS FROM THE BUSIN ESS OF PROFESSION. IN THE PROCESS, THE AO IGNORED THE FACT THAT THE ASSESSEE HELD SOME SHARES FOR THE PERIOD LONGER THAN 12 MONTHS AND REFLECTED THE SHARES IN THE BOOKS AS THE INVESTMENT S. THE CIT(A) IN HIS ORDER DEALT WITH BOTH THE ISSUES OF (A) LONG TERM CAPITAL GAINS -LTCG IS SUE AND (B) SHORT TERM CAPITAL GAINS ISSUES AND GRANTED RELIEF ON THE BOTH THE COUNTS. 12. WE SHALL TAKE UP THE LTCG ISSUE AND THE CASE OF THE ASSESSEE IS THAT WHEN THE ASSESSEE PURCHASE THE UNITS OF RELIANCE VISION FUND AND KOTA K FLOATER DIVIDEND FUND AND HELD THEM FOR MORE THAN 12 MONTH PERIOD AND ALSO EARNED THE DIVID END INCOME BEFORE REDEEMING THE UNITS, BY NO STRETCH OF IMAGINATION, THE GAINS CANNOT BE P ROFITS FROM BUSINESS INCOME. IT IS A UNDISPUTED FACT THAT THE UNITS ARE ACCOUNTED IN THE BOOKS AS THE INVESTMENTS. ON THE OTHER HAND, THE REVENUE REJECTED ALL THE ARGUMENTS OF THE ASSESSEE AND TAXED THEM AS BUSINESS PROFITS. FURTHER, REVENUE IS OF THE OPINION THAT T HE ASSESSEE OFFERED THE IMPUGNED GAINS AS LONG TERM AND SHORT TERM CAPITAL GAINS ONLY TO AVAI L THE CONCESSIONAL TAX RATES OF 20% AND 10% RESPECTIVELY. IN THIS REGARD, WE HAVE PERUSED THE C ONTENTS OF PARA 2.2 OF THE IMPUGNED ORDER AND FIND THAT THE CIT(A) IS FAIR IN HOLDING THAT TH E UNITS OF MFS HELD FOR THE PERIOD OF MORE THAN 12 MONTHS MUST BE TAXED AS LONG TERM CAPITAL GAINS . IN OUR OPINION, AO IS UNFAIR IN NEGATING 7 THE CLAIMS OF THE ASSESSEE WHEN THE PROVISIONS OF T HE PROVISO TO SECTION 2(42A) OF THE ACT PROVIDES FOR TAXATION OF GAINS ON SALE OF UNITS OF MFS AS LONG TERM CAPITAL GAINS AT THE CONCESSIONAL RATE OF TAXATION IF THEY ARE HELD FOR 12 MONTHS OR MORE. THEREFORE, THE ORDER OF THE CIT(A) ON THIS ISSUE DOES NOT CALL FOR INTERFERENCE . ACCORDINGLY, RELEVANT GROUNDS ARE DISMISSED . 13. THE SECOND ISSUE RELATES TO THE TAXATION OF GAI NS OF RS 84,88,017/- EARNED ON SALE OF SECURITIES HELD FOR THE PERIOD LESS THAN 12 MONTHS: BRIEFLY, RELEVANT FACTS ARE THAT THE PURCHASE TURNOVER OF SECURITIES OF THE ASSESSEE FOR THE YEAR IS RS 8.07 CRORES AND SALE TURNOVER IS RS 9.14 CR. NUMBER OF SCRIPS ARE 80 AND ALL OF THEM ARE LIS TED IN THE STOCK EXCHANGES. TOTAL NUMBER OF TRANSACTIONS ARE 205. THERE IS NO SPECULATIVE ACTIV ITY RECORDED IN THE YEAR. ASSESSEE HAS NOT USED ANY BORROWED FUNDS FOR ACQUIRING THE SHARES. T HERE ARE NO INTRA-DAY TRADING. ASSESSEE TRADED FOR 90 DAYS OUT OF THE 200 AND ODD TRADING D AYS IN THE YEAR. SHARES WERE ALWAYS ENTERED AS INVESTMENTS IN THE BOOKS OF ACCOUNTS CONSISTENTL Y LIKE IN THE PAST YEARS. AO ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT ANY DISTURBANCE IN TH E EARLIER YEARS AND THIS IS FOR THE FIRST TIME, AO RAISED OBJECTIONS TO THE CLAIMS OF THE ASSESSEE. ASSESSEE NEVER HELD THE IMPUGNED SHARES AS STOCK IN TRADE. IN THE FACTUAL MATRIX OF THE ABOVE, WE NEED TO DECIDE IF THE AO IS JUSTIFIED IN DISTURBING THE CLAIM OF THE ASSESSEE THAT RS. 84,88 ,017/- CONSTITUTES THE SHORT TERM CAPITAL GAINS. 14. THE ABOVE PRECISE DATA SHOWS THAT THE SECURITIE S INVOLVED ARE THE ONES REGULARLY TRADED ONES IN THE STOCK EXCHANGES. CONSIDERING THE LISTED NATURE OF THE SCRIPS AND THEIR HIGHER VALUES AND MAGNITUDE, THE PURCHASE TURNOVER OF RS RS 8.07 CRORES AND SALE TURNOVER OF RS 9.14 CRORES CANNOT BE TERMED VERY HIGH. CONSIDERING THE TRANSAC TIONS NUMBER OF 205 IN THE YEAR, THEY SAME DO NOT ACCOUNT FOR AT LEAST ONE TRANSACTION PER DAY AND THEREFORE, THE SAME CANNOT BE TERMED VERY HIGH TOO. IT IS ALSO NOT THE CASE OF THE REVEN UE THAT THE ASSESSEE PURCHASED OR SOLD THE SHARES EVERYDAY OR MULTIPLE TIMES IN A TRADING DAY. THERE IS NEITHER SPECULATION ACTIVITY NOR AN INTRA-DAY TRADING ACTIVITY RECORDED IN THE YEAR. AL L THE SHARE TRANSACTIONS ARE DELIVERY BASED AND THE IMPUGNED SHARES PURCHASED ARE ENTERED IN TH E BOOKS OF ACCOUNTS AS INVESTMENT AND THE SHARES PURCHASED FOR BUSINESS ARE ENTERED AS ST OCK IN TRADE SEPARATELY. IT SHOWS THE ORIGINAL INTENTION OF THE ASSESSEE TO TREAT CERTAIN SECURIT IES AS CAPITAL ASSETS WITH INTENTION TO HOLD THEM FOR LONGER PERIOD. IT IS NOT THE CASE OF THE R EVENUE THAT THE SHARES ENTERED IN THE BOOKS AS STOCK IN TRADE ARE RECLASSIFIED IN BOOKS AS IN VESTMENT WITH THE INTENTION OF TAX AVOIDANCE. IT 8 IS THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE REDE EMED THEM AS WHEN THERE IS THREAT OF FURTHER EROSION OF THE VALUE OF THE SHARES. IT IS ALSO NOT THE CASE OF THE REVENUE THAT SOME OF SUCH SHARES ARE SHOWN AS STOCK IN TRADE AND OTHERS ARE S HOWN AS THE SHORT TERM CAPITAL ASSETS ONLY FOR TAX BENEFITS. ALL THESE FEATURES SUGGEST THAT T HE ASSETS IN QUESTION ARE THE INVESTMENTS AND NOT THE STOCK IN TRADE. FURTHER, IT IS AN UNDISPUTE D FACT THAT THE ASSESSEE HAS NOT BORROWED FUNDS FOR ACQUIRING THE SHARES IN QUESTION AND ASSE SSEE PURCHASED THE SHARES OUT OF OWN FUNDS ONLY. IT IS A FEATURE OF THE INVESTMENT ACTIVITY. N ORMALLY, THE ACT OF BORROWING FUNDS FOR PURCHASE OF SHARES IS THE FACET OF A BUSINESS ACTIV ITY, WHICH IS ABSENT IN THIS CASE. ASSESSEE RELIED ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF JANAK S RANGWALLA VS. ACIT [11 SOT 627] FOR THE PROPOSITION THAT THE MAGNITUDE OF INVESTMENT DOES NOT DECIDE THE NATURE OF INVESTMENT. HOLDING OF 80 DIFFERENT STOCKS WHICH AR E LISTED IN THE STOCK EXCHANGES SHOWS THE DIVERSIFIED PORTFOLIO AND INTENTION OF THE ASSESSEE FOR LONG TERM HOLDING. AS SEEN FROM PARA 4.1 OF THE IMPUGNED ORDER, CIT (A) DISCUSSED ABOUT THE APPLICABILITY OF THE CBDT CIRCULAR NO.4 OF 2007 WHICH REFERS TO VARIOUS PARAMETERS AND DISCUSS ED THE ASSESSEE CONDUCT OF NOT BORROWING ANY FUNDS FOR THE BUSINESS PURPOSES WHICH IS ONE OF THE CRITERION OF THE CIRCULAR WHICH WAS RELIED UPON BY THE CIT (A) IN THE CASE OF JCIT VS. DINESH KUMAR GUPTA [2005] 2 SOT 126 (DEL). IT IS A SETTLED ISSUE THAT THE MATTERS OF THIS KIND ARE MIXED QUESTION OF LAW AND FACT AND THE ISSUE HAS TO BE DECIDED BASED ON THE FACTS OF EACH CASE. NONE OF THE LOWER AUTHORITIES HAS GONE INTO THE RELEVANT FACTS RELATING TO THE IMPUGNED IS SUE INVOLVING MANY YEARS AND THEREFORE WE CANNOT GIVE FINDING ON THE APPLICABILITY OF THE RUL E OF CONSISTENCY TO THE INSTANT CASE AS HELD BY THE APEX COURT IN THE CASE OF GOPAL PUROHIT (SUPRA) . THEREFORE, WE ARE OF THE OPINION, THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE IS PROPE R AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, RELEVANT GROUNDS OF THE REVENUE ARE DI SMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF DECEMBER, 2012. SD/- SD/- (D.K. AGARWAL) (D. KARU NAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 5.12.2012 AT :MUMBAI OKK 9 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI