Appeal Details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 91143 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
8 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-06-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
17-03-2015
Assessment Year
2010-2011
Appeal Filed On
24-09-2014
Judgement Text
DELHI BENCH A : NEW DELHI BEFORE SHRI S.V.MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5227 /DEL/ 2014 (ASSESSMENT YEAR: 2010 - 11 ) ASHISH CHAUDHARY, 4410, GANE S H BAZAR, CLOTH MARKET, DELHI - 110006 PAN:AAAPC2274L VS. ITO WARD - 29(1), NEW DELHI (APPELLANT) (RESPONDENT) DATE OF HEARING 18.03.2015 DATE OF PRONOUNCEMENT 12 .0 6 .2015 O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD CIT(A) - XXV, NEW DELHI DATED 02.06.2014 FOR THE ASSESSMENT YEAR 2010 - 11 ON THE FOLLOWING GROUNDS: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ['CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DETERMINING/ ASSESSING THE TOTAL INCOME AT RS.2,91,83,600/ - AS AGAINST INCOME OF RS.14,10,350/ - DECLARED BY THE APPELLANT. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW, IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN ASSESSING THE GAINS OF RS . 2,77,73,257/ - ARISING ON SALE FROM LONG - TERM CAPITAL ASSETS AND GAINS OF RS. 4,06,124/ - ARISING ON SALE OF SHORT TERM CAPITAL ASSETS, BEIN G INVESTMENT IN EQUITY SHARES, AS 'BUSINESS INCOME' INSTEAD OF 'CAPITAL GAINS' DECLARED BY THE APPELLANT. 2.1. THAT THE CIT(A) ERRED, ON FACTS AND IN LAW, IN HOLDING THAT THE SHARES HELD AND DISCLOSED AS 'INVESTMENT' IN THE BALANCE SHEET WERE IN THE NATUR E OF TRADING ASSET(S) AND NOT CAPITAL ASSET(S), AS CLAIMED BY THE APPELLANT. 2.2 THAT THE CIT(A) ERRED, ON FACTS AND IN LAW, IN HOLDING THAT THE INTENTION OF THE APPELLANT IN PURCHASING SHARES OF SO - CALLED INSIGNIFICANT APPELLANT BY : SH . ROHIT JAIN ADV, SH. SA HIL MEHTA, CA RESPONDENT BY : SMT. Y KAKKAR, DR PAGE 2 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) COMPANIES REVEALED THAT THE INTENTI ON OF THE APPELLANT WAS TO RESELL THE SHARES, RATHER THAN TO HOLD THEM OR RETAIN THEM AS CAPITAL ASSET. 2.3 THAT THE CIT(A) ERRED, ON FACTS AND IN LAW, IN AFFIRMING THE ACTION OF THE ASSESSING OFFICER IN ASSESSING CAPITAL GAINS AS BUSINESS OF LEVELLING VA RIOUS FALSE/BASELESS ALLEGATIONS, WITHOUT JUDICIOUSLY APPRECIATING THE SUBMISSION OF THE APPELLANT. 3. THAT THE AO/CIT(A) ERRED ON FACTS AND IN LAW IN CHARGING INTEREST UNDER SEC TION 2348 AND 234C OF THE ACT. 2. GROUND NO.1 IS GENERAL IN NATURE AND SO IS NOT ADJUDICATED . APROPOS GROUND NO.2 IS AGAINST THE CONFIRMATION OF THE ORDER OF THE AO IN ASSESSING THE GAINS OF RS.2,77,73,257/ - ARISING ON SALE FROM LONG - TERM CAPITAL ASSETS AND GAIN OF RS.4,06,124/ - ARISING ON SALE OF SHORT TERM CAPITAL ASSETS , BEING INVESTMENT IN EQUITY SHARES, AS BUSINESS INCOME INSTEAD OF CAPITAL GAINS AS DECLARED BY THE ASSESSEE. 3. BRIEF FACTS OF THE CASE IS THAT DURING THE YEAR THE APPELLANT / ASSESSEE DERIVED HIS INCOME FROM SALARY, INTEREST ; AND HIS PROPRIETARY CONCER N, M / S ASHISH CHAUDHARY STOCK INVESTMENT, (A SOLE PROPRIETARY CONCERN) IS ENGAGED IN SHARE TRANSAC TION. THE APPELLANT SUBMITTED HI S RETURN O F INCOME DECLARING INCOME OF RS.1 4,10,350 / - ON 28.09.2010. IN THE COMPUTATION OF INCOME FILED ALONG WITH IT THE ASSE SSEE CLAIMED EXEMPTIONS U/S 10(38) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) ON SALE OF SHARES. IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE CREDITED THE INTEREST INCOME OF RS.22,64,917/ - AS UNDER: BANK INTEREST RS. 73,899/ - INTEREST FROM SH UBHKARANDASS CHIRANJILAL AGENCIES PVT, LTD. RS. 14 , 40,367/ - INTEREST ON FDR RS. 7,24,858/ - INTEREST ON HDFC (ST PLAN) RS. 25.793/ - TOTAL INCOME RS. 22,64,917 / - 4. TAKING THE ABOVE FACTORS INTO CONSIDER A TION THE RETURN WAS PROCESSED U/S 143(1) OF THE I NCOME TAX ACT, 1961 ( HEREIN AFTER THE ACT) . THEREAFTER IT WAS SELECTED FOR SCRUTINY THROUGH CASS PURSUANT WHERE TO NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED TO HIM . PAGE 3 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 5. WHILE SCRUTINIZING THE CASE OF THE APPELLANT , THE AO NOTICED THAT A SUM OF RS. 7000 / - WAS DEBITED AS PROFESSIONAL CHARGES AND A LOSS OF RS.12,11,585/ - WAS ALSO CLAIMED WHICH WAS SET OFF AGAINST THE ABOVE INCOME. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, IT WAS FURTHER OBSERVED BY THE AO THAT IN COLUMN 8(A) OF FORM 3 CD OF AUDIT REPORT, THE NATURE OF BUSINESS OR PROFESSION WAS WRITTEN AS 'SHARE TRANSACTION' FURTHER ON GOING THROUGH THE REPORT IN 3CD, THE BALANCE SHEET, THE PROFIT AND LOSS ACCOUNT AND THE TRADING ACCOUNT THE AO OBSERVED THAT THE AP PELLANT HAD PURCHASED AND INVESTED IN SHARES WORTH RS. 3,87,78,265.27 / - WHICH WAS REFLECTED ON THE ASSET SIDE OF BALANCE SHEET OF THE YEAR. AO NOTED THAT THE INCOME ARISING OUT OF THE SALES OF SHARES OF M /S BALRAMPUR CHINI, M/ S GMR AND M / S PACELEP AMOUNTIN G TO RS.2,77,73,257/ - WAS DECLARED AS LONG TERM CAPITAL GAIN ON WHICH EXEMPTION U / S 10(38) OF THE ACT WAS CLAIMED. THE APPELLANT ALSO CLAIMED LOSS OF RS.12,11,585/ - ON SALES OF FUTURE SHARES AS A LOSS FROM BUSINESS OR PROFESSION WHICH WAS SET OFF AGAINST I NCOME FROM OTHER SOURCES. 6. THE CLAIM OF THE LONG TERM CAPITAL GAINS AS ABOVE BECAME THE BONE OF CONTENTION. THEREFORE A SHOW CAUSE NOTICE WAS ISSUED TO THE APPELLANT BY THE AO VIDE LETTER DATED 27.02.2013 ASKING THE ASSESSEE TO EXPLAIN AS TO WHY THE INC OME ARISING FROM THE SALE OF M/S BALRARNPUR CHINI, M/S GMR AND M/S PACELEP AMOUNTING TO RS.2,77,73,257/ - SHOULD NOT BE TREATED AS INCOME FROM BUSINESS OF SHARE TRANSACTION. THE ABOVE REFERRED SHOW CAUSE NOTICE IS REPRODUCED FOR REFERENCE AS UNDER: 'AS PER COLUMN 8(A) OF 3 CD OF THE AUDIT REPORT, NATURE OF BUSINESS OR PROFESSION HAS BEEN WRITTEN AS SHARE TRANSACTION, THEN WHY PURCHASE OF SHARE OF RS.3,87,78,265.27 HAS BEEN SHOWN AS INVESTMENT, IN SHARE IN THE ASSET SIDE OF THE BALANCE SHEET OF THE YEAR UND ER CONSIDERATION AND NOT SHOWN AS CLOSING STOCK OF THE BUSINESS. AS PER COLUMN 8(A) OF FROM 3CD OF THE AUDIT REPORT, NATURE OF BUSINESS OR PROFESSION HAS BEEN WRITTEN AS SHARE TRANSACTION, THEN WHY THE INCOME ARISING FROM THE SALE OF SHARE OF BALRAMPUR CHINI, GMR AND P ACELEP AMOUNTING TO RS.2,77,73,257/ - HAS BEEN SHOWN AS LONG TERM CAPITAL GAIN A ND /NOT SHO WN AS SALES RECEIPT OF THE BUSINESS. IT IS CLEARLY STATED IN SECTION 2(14) OF THE I .T. ACT, 1961 THAT THE STOCK IN TRADE OF ANY BUSINESS & PROFESSION IS NOT A CAPITAL ASSET AND CAPITAL GAIN - ARISES PAGE 4 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) ONLY ON SALE OF CAPITAL ASSETS. IN THE LIGHT OF THE ABOVE , YOU ARE REQUESTED TO SHOW CAUSE AS TO WHY THE INCOME ARISING FROM THE SALE OF BALRAMPUR CHILLI, GMR AND PACELEP AMOUNTING TO RS.2,77,73,257/ - SHOULD NOT BE TREATED AS INCOME FROM BUSINESS PROFESSION AND ASSESSED TO TAX AS INCOME FROM BUSINESS OF SHARE TR ANSACTION.' 7. IN RESPONSE TO THE ABOVE LETTER, THE ASSESSEE FURNISHED ITS REPLY VIDE LETTER DATED 05.03.2013 WHICH IS REPRODUCED AS UNDER: 'THEY ARE OF INVESTMENT IN NATURE AS I DON'T INDULGE IN DAY TO DAY TRANSACTION OF SHARE. THE SHARES PURCHASED ARE WITH THE MOTIVE OF INVESTMENT ONLY AND ARE HELD WITH ME FOR LONG PERIODS OF TIME AS AN INVESTMENT IN MY PERSONAL CAPACITY. I AM NOT SOURCING MONEY ON INTEREST OR AS A LOAN TO CARRY ANY DAY TO DAY BUSINESS. L AM ALSO WORKING AS A DIRECTOR IN THE FIRM M/S S UBHKARANDAS CHIRANJILAL AGENCIES PVT. LTD. AND ALSO HELPING MY FATHER IN HIS DAILY WORK OF TEXTILES WHERE I CARRY OUT THE DAILY BUSINESS ACTIVITIES. .........AS FAR AS ACCOUNTING IT UNDER STOCK IN TRADE IS CONCERNED, IT CANNOT BE AS THE INVESTMENT IF YOU OBSERVE ARE NOT OF TRADING BUT OF INVESTMENT WHERE SHARE ARE BEING HELD OVER LONG PERIOD OF TIME. ANY STOCK IN TRADE CAN BE WHERE THE INTENTION TO BUY THE STOCK IN THE IMMEDIATE SHORT TERM FOR PROFIT AND ON A DAILY BASIS WHERE THE BUYING MOTIVE IS TO KEEP THE SHARE FOR A LONGER TIME TILL IS ONLY A INVESTMENT. 8. THE CONTENTION OF THE APPELLANT AS ABOVE WAS NOT ACCEPTABLE TO THE AO AND HE REJECTED THE SAME BY STATING AS UNDER - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED ABOUT HI S BUSINESS ACTIVITY AND HE REPLIED IN WRITTEN THAT HE IS ENGAGED IN STOCK TRADING . FURTHER AS PER COLUMN 8(A) OF 3CD OF ASSESSEE'S AUDIT REPORT, NATURE OF BUSINESS OR PROFESSION HAS BE EN WRITTEN AS SHARE TRANSACTION . MOREOVER, THE OBSERVATION OF ASSESSEE'S COMPUTATION OF INCOME FOR THE A.Y. 2010 - 11 CLEARLY INDICATES THAT T HE ASSESSEE HAS DERIVED MAJOR PART OF INCOME FROM SHARE TRADING ONLY. ASSESSEE IN HIS REPLY STATE THAT HE IS DIRECTOR OF M/S SUBHKARANDAS CHIRANJIL AL AGENCIES PVT. LTD. BUT ON PERUSAL OF THE 3CDREPORT FILED DURING THE COURSE OF PROCEEDINGS IN THE CASE OF M/S SHUBHKARAN DASS CHIRANJILAL (AGENCY) WITH PAN AAAPC3276C WHICH SHOWS THAT M/S SUBHKARANADASS CHIRANJILAL AGENCIES IS A SOLE PROPRIETARY FIRM IN THE NAME OF SH. VINOD CHAUDHARY (PAN AAAPC3276C). WHEN THE STATUS OF THE ABOVE IS A FIRM THEN HOW THE ASSESSEE HAS STATED THAT HE IS A DIRECTOR IN THE ABOVE COMPANY. PAGE 5 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) MOREOVER ASSESSEE HAS DECLARED ONLY RS.24000/ - SALARY INCOME AS A DIRECTOR FROM THE SO CA LLED COMPANY IN HIS COMPUTATION OF INCOME FOR AY 2010 - 11. KEEPING IN VIEW OF THE ABOVE FACTS, I ARRIVED AT THE CONCLUSION THAT THE ASSESSEE SPENT MOST OF HIS TIME IN NO OTHER WORK EXCEPT SHARE TRADING. THE ASSESSEE IS RUNNING HIS BUSINESS OF SHARE TRADING BY MAKING A SOLE PROPRIETARY FIRM NAMED M/S. ASHISH CHOUDHARY STOCK INVESTMENT WHOSE BUSINESS PREMISES ADDRESS IS 4410, GANESH BAZAR, CLOTH MARKET, DELHI - 110006 AS DECLARED BY THE ASSESSEE. THE ASSESSEE FILED A PROFIT &LOSS ACCOUNT BALANCE SHEET AND TAX AU DIT REPORT OF HIS FIRM. KEEPING IN VIEW THE ABOVE FACTS, I ALSO ARRIVED AT CONCLUSION THAT THE ASSESSEE HAS WELL DEVELOPED INFRASTRUCTURE IN THE FORM OF OFFICE EQUIPMENTS AND ONLY INDULGED IN THE BUSINESS OF SHARE TRADING. UNDOUBTEDLY THE ASSESSEE HAS MAJ OR SOURCE OF INCOME FROM SHARE TRADING. DURING THE YEAR, THE ASSESSEE HAS EARNED INCOME FROM SHARE TRADING OF RS.2,77,73,257/ - (LONG TERM) + RS.4,06,124/ - (SHORT TERM) RS.2,81,79,381/ - AND SUFFERED LOSS IN FUTURE OPTION SHARE TRADING OF RS.12,11,585/ - . THE ASSESSEE HAS SHOWN INCOME FROM SHARE TRADING AS INCOME FROM LONG TERM CAPITAL GAIN & SHORT TERM CAPITAL GAIN' AND CLAIMED U/S 10(38) WHEREAS LOSS FROM FUTURE OPTION SHARES HAS BEEN SET OFF AGAINST INTEREST INCOME. THE ASSESSEE TRADED IN A NUMBER OF SHARE AND TRANSACTION WERE HUGE AND HE HAD OPENING INVESTMENT OF RS 4,07,48,118/ - IN SHARES WHILE SHARE WORTH RS.4,00,28.232/ - HAD BEEN SOLD AND SHARES OF RS.98,78,996/ - HAS BEEN PURCHASED DURING THE YEAR. ALSO, HE HAD PURCHASED F&0 SHARE OF RS.4,11,63,180/ - AN D SOLD F&O SHARE OF RS.4,01,80,152/ - . IT CONCLUDES THAT THE ASSESSEE THAT THE ASSESSEE TRADED IN SHARE WITH THE MOTIVE OF PROFITS. THE ASSESSEE TRADED IN PURCHASE AND SALE OF SHARE TH R OUGH BROKERS AND DECLARED HUGE PROFIT EARNED FROM THIS ACTIVITY. IN R EPLY TO THE QUESTIONNAIRE DATED 09.01.2013 THE ASSESSEE HAS FILED A COPY OF LEDGER ACCOUNT SHOWING CLOSING BALANCE OF RS.4,00.28,232/ - AS 'SALE OF STOCKS'. THE ASSESSEE WAS FURTHER ASKED VIDE LETTER DATED 27.02.2013 REQUIRING THE BOOK OF ACCOUNT AND OTHER INFORMATION PARTICULARLY WHY THE CAPITAL GAIN CLAIMED BY YOU SHOULD NOT BE TREATED AS YOUR INCOME FROM BUSINESS AND PROFESSION. IN REPLY FILED BY THE ASSESSEE VIDE LETTER DATED 09.03.2013 ENCLOSING THEREWITH A COPY OF LEDGER ACCOUNT SHOWING CLOSING BALA NCE OF RS.4,00,28,232/ - AS FILED EARLIER ON 9.01.2013. LN THIS COPY OF LEDGER ACCOUNT THE ASSESSEE HAS SHOWN 'SALE OF SHARE INVESTMENT '. THIS BRINGS ON SURFACE THE INTENTION OF THE ASSESSEE THAT THE INITIAL ACQUISITION OF SHARE WAS WITH THE INTENTION OF THE ASSESSEE THAT THE INITIAL ACQUISITION OF SHARE WAS WITH THE INTENTION OF DEALING IN THE SHARES. THE ASSESSEE HAS FILED A COPY OF D - MAT ACCOUNT. SOME OF THE DETAILS OF SALE AND PURCHASE OF SHARE AS INDICATED IN THE D - MAT ACCOUNT OF THE ASSESSEE ARE PRODUCED HERE UNDER: PAGE 6 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) S. N. NAME OF SHARE DATE OF TRANSACTION BUY (CR) SOLD (DR) BALANCE 1. BALRAMPUR CHINI 24.01.2008 06.02.2008 07.02.2008 05.03.2009 08.06.2009 11.06.2009 13.06.2009 13.06.2009 29.07.2009 31.07.2009 06.08.2009 17.09.2009 79200 21160 440 30000 10000 75000 5000 20800 10000 10000 10000 10000 79200 100360 100800 25800 20800 0 30000 20000 10000 20000 10000 0 2. SVC RESOURCES 31.08.2007 14.07.2009 14.07.2009 17.07.2009 04.08.2009 11.08.2009 12.08.2009 21.08.2009 26.08.2009 03.09.2009 07.09.2009 08.09.2009 11.09.2009 15.09.2009 15.09.2009 16.09.2009 22.09.2009 23.09.2009 400000 30000 20000 25000 5000 30000 20000 25000 25000 50000 10000 15000 25000 25000 15500 3000 6500 25000 400000 370000 350000 325000 275000 245000 225000 200000 175000 125000 115000 100000 75000 50000 34500 31500 25000 0 3. SPENTEX INDUSTRIES LIMITED 31.05.2007 31.05.2007 28.06.2007 03.07.2007 05.07.2007 18.07.2007 19.07.2007 27.07.2007 27.07.2007 24.01.2008 18.07.2008 14.10.2008 17.10.2008 24.10.2008 31.10.2008 04.02.2011 05.02.2011 07.02.2011 07.02.2011 08.02.2011 08.02.2011 08.02.2011 09.02.2011 09.02.2011 400 0 10000 1261 5000 3000 2000 2500 16071 50000 1000 3000 30000 30000 1155 611 3500 94 1849 3703 10000 2500 7500 10000 2500 4000 14000 15261 5261 10261 13261 15261 17761 15261 31332 81332 82332 85332 115332 145332 146487 147098 150598 150692 152541 156244 166244 168744 176244 PAGE 7 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 10.02.2011 10.02.2011 11.02.2011 11.02.2011 14.02.2011 21.02.2011 21.02.2013 22.02.2013 25.02.2013 27.02.2013 01.02.2013 04.03.2013 04.03.2013 06. 03.2013 07.03.2013 07.03.2013 07.03.2013 12.03.2013 13.03.2013 13.03.2013 4499 2003 8873 36229 12624 1000 2506 4373 250 1000 301 2062 1278 52952 1000 501 60797 200 450 2428 180743 182746 191116 227348 239972 240972 243478 247851 248101 249101 249402 251464 252742 305694 306694 307195 367992 368192 368642 371070 4. AMIT SPINNING 03.12.2009 04.12.2009 31.03.2010 31.03.2010 31.03.2010 05.04.2010 06.04.2010 06.04.2010 07.04.2010 09.04.2010 13.04.2010 16.04.2010 19.04.2010 20.04.2010 21.04,2010. 21.04.2010 22.04.2010 28.04.2010 77094 47051 3300 51166 21700 15265 21800 19165 8200 5000 14800 21260 12002 3949 600 1735 24999 77094 124145 127445 178611 200311 215576 237376 256541 264741 269741 284541 305801 317803 321752 327752 334302 336037 361036 5. ION EXCHANGE (INDIA) LIMITED 31.07.2009 31.07.2009 03.08.2009 12.08.2009 24.08.2009 20.10.2009 03.08.2010 04.08.2010 01.06.2011 01.06.2011 02.06.2011 02.06.2011 7075 5196 12730 5000 3545 3455 3620 380 25000 500 10000 17000 7075 12270 25000 30000 27500 27000 17000 0 3545 7000 10620 11000 6. SUJANA UNIVERSAL INDUSTRIES LIMITED 09.07.2007 30.10.2007 18.02.2008 13.03.2008 24.10.2008 400000 200000 25000 25000 10000 400000 600000 625000 650000 660000 PAGE 8 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 24.10.2008 19.01.2009 20.01.2009 22.01.2009 23.01.2009 23.01.2009 27.01.2009 27.01.2009 28.01.2009 28.01.2009 29.01.2009 29.01.2009 30.01.2009 30.01.2009 02.02.2009 02.02.2009 03.02.2009 03.02.2009 04.02.2009 01.12.2009 02.12.2009 08.12.2009 338 2109 108776 3565 19075 3038 124203 30000 30100 7900 1962 38 7000 53963 17908 2592 4024 95077 18670 173579 26421 139662 660338 662447 771223 774788 793863 796901 921104 951104 981204 989104 991066 991104 998104 1052067 1069975 1072567 1076591 1141668 1160338 133917 1360338 1500000 7. VALECCHA ENGINEERING LIMITED 16.05.2007 16.05:2007 21.05.2007 26.06.2001 26.06.2007 10.07.2007 12.07.2007 13.07.2007 I 2.11.2007 13.1L.2007 05.01.2008 15.01.2008 2I.10.2008 09.04.2010 7000 7969 31 1000 3000 1500 1000 6000 3000 1540 1460 200 2800 4500 7000 14969 1500 14000 8000 5000 3460 2000 1800 280 0 3000 4500 0 JMC PROJECTS (INDIA) LIMITED 08.05.2007 10.05.2007 12.05.2007 26.05.2007 01.06.2007 28.06.2007 29.06.2007 03.07.2007 03.07.2007 05.07.2007 35000 5000 5000 1004 996 1103 6897 5000 5000 5000 35000 30000 25000 23996 23000 21897 15000 10000 5000 0 9. VENUS REMEDIES LIMITED 08.05.2007 26.11.2007 27.11.2007 29.11.2007 03.02.2010 01.02.2011 08.02.2011 08.02.2011 24.12.2011 04.04.2012 20200 107 2393 500 9000 1227 6773 20000 20200 20301 22700 23200 3200 12200 13427 20200 40500 200 PAGE 9 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 12.04.2012 40000 40200 10 PARSVNATH DEVELOPMENT 08.05.2007 14.05.2007 14.05.2007 27.08.2009 20.10.2010 20.10.2010 9100 32 64 7500 1600 32 9100 1600 0 32 0 64 11. MOREPEN LABORATORIES LTD 08.05.2007 24.10.2007 31.11.2007 22.11.2007 05.12.2007 03.02.2011 531004 300000 81004 45350 25000 37965 0 531004 450000 404650 379650 0 300000 9. ACCORDING TO AO, T HE ASSESSEE EVEN ON A SINGLE DAY TRADED IN A NUMBER OF SHARES TRANSACTIONS WHI CH WERE HUGE AND HE HAD OPENING INVESTMENT OF RS.4 , 07,48 ,118/ - IN SHARE WHILE SHAR E WORTH RS .4,00,28,232/ - HAD BEEN SOLD AND SHARE OF RS. 98 , 78 , 996 / - HAD BEEN PURCHASED DU RING THE YEAR , IT CONCLUDES THAT THE ASSESSEE TRADED IN SHARE WITH THE MOTIVE FOR PROFITS. ACCORDING TO AO, T HE ASSESSEE HAD BEEN HABITUALLY TRADING IN QUOTED SHARE AND THE FREQUENCY OF SUCH SHARE AND DISPOSAL AS ALSO THE FACT THAT WITH THE INVESTMENT OF OVER RS . 4,07 , 48,1 18 / - IN SHARE, THE ASSESSEE HAD TURNOVER RS . 4 , 00 , 28 , 23 2/ - INDICATES NOTHING BUT INTENTION OF TRADE . I T WAS POINTED OUT BY THE AO THAT THE ASSESSEE EARNED ONLY A MEAGRE AMOUNT OF DIVIDEND OF RS. 1 , 09,444 / - FROM THE SHARE HE HAD WITH HIM IN THE YEAR UNDER CONSIDERATION . 10. ACCORDING TO AO T HE F ACTS AND CIRCUMSTANCES OF THE CASE INDICATE THA T THE VOLUMINOUS SHARE TRANSACT ION WERE IN THE NATURE OF THE BUSINESS AND P URCHASE OF SHARE BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF EARNING DIVIDEND , BUT WITH THE DOMINANT INTENTION OF RESALE IN ORDER TO EAR N PROFIT . ACCORDING TO AO , THE H UGE VOLUME OF SHARE TRANSACTION, THE REPETITION AND CONTINUITY OF THE TRANSACTION, GIVE T HEM A FLAVOUR OF 'TRADE'. THE MAGNITUDE, FREQUENCY AND THE RATIO OF SALES AND PURCHASE ON THE TOTAL HOLDING IS EVIDENCE THAT THE ASSESSEE HAD N OT PURCHASED THE SHARE AS AN INVESTMENT, BUT WITH THE INTEN TION TO TRADE IN SUCH SCRIPTS. SO ACCORDING TO AO , D URING THE YEAR THE ASSESSEE TRADED IN PURCHASE AND SALE OF SHARE THROUGH BROKERS AND DECLARED HUGE PROFIT EARNED FROM THIS ACTIVITY. THE ASSESSEE HAS SHOWN THIS INCOME A S LONG TERM CAPITA L GAIN AND SHORT TERM CAPITAL GAIN ON THE PLEA THAT THE SHARES WERE HELD AS INVESTMENT. HOWEVER, WHILE G OING PAGE 10 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THROUGH THE SHARE ACCOUNT ON DEMAT ACCOUNT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD CONDUCTED NUMB ER OF TRANSACTION S AND TRADED IN A NUMBER OF SHARE AND TRANSACTION S WERE HUGE. THE AO NOTES THAT I N DETERMINING THE ISSUE AS TO WHETHER, AFTER ACQUIRING THE SHARE, T HE ASSESSEE DEALT WITH IT AS AN INVESTOR, OR CARRIED ON BUSINESS WITH IT TREATING IT AS ITS STOCK IN TRADE OR AS A TRADING ASSET, WHAT IS RELEVANT IS THAT, IF THE CASE FALLS WITHIN THE FORMER CATEGORY, RECEIPTS BY WAY OF SALE RECEIPT, AND PROFITS THERE FROM ARE BUSINESS INCOME. 11. T HE AO OBSERVES THAT TO DET ERMINE AS TO WHETH ER SALE OF SHARE IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCOME FROM CAPITAL GAIN, THE MOST IMPORTANT TEST IS WHETHER THE INITIAL ACQUISITION OF THE S HARE WAS WITH THE INTENTION OF DEALING I N THE SHARE AS AN INVESTMENT OR TO TREAT IT AS STOCK - IN - TRADE . THE INTENTION OF THE ASSESSEE IS BEST KNOWN TO HIM; HOWEVER THE CONDUCT OF THE ASSESSEE SHOWS HIS INTENTION. IN THE INSTANT CASE THE TRANSACTION O F SHARE HAVE BEEN MADE WHICH ARE IN THE ORDINARY LINE OF ASSESSORS BUSINESS AND THE ASSESSEE HAS ALSO ACCEPTE D THIS FACT BY OPENING A SHARE TRADING FIRM CONDUCTING SHARE BUSINESS. 12. THEREFORE, ACCORDING TO AO, W HAT IS IMPORTANT IS THAT A HUGE INCOME WAS EARNED FROM SHARE TRADING BUSINESS WHICH HAS BEEN CLASSIFIED BY HIM AS INCOME FROM LONG TERM GAIN AND CLAIME D AS EXEMPT. THERE IS NO MATERIAL TO SHOW THAT SHARE AND SECURITIES PURCHASED BY THE ASSESSEE WERE ACTUALL Y INTENDED TO BE HELD AS LONG TER M INVESTMENT. THE SUBSTANTIA L NATURE OF TRANSACTION, THE MAGNITUDE OF THE SHARE PURCHASED AND SOLD AND BETWEEN THE PU RCHASE AND SALE HOLDING, REVEALS THE INTENTION OF THE ASSESSEE AS A TRADER IN SHARE S AND NOT AS AN INVESTOR. 13. THEREFORE, THE AO CONCLUDES I N THE INSTANT CASE THAT THE ASSESSEE HAS BEEN HABI TUALLY TRADING IN QUOTED SHARE BY RUNNING A FIRM TO CONDUCT SHA RE BUSINESS . AND THE ACCOUNTS OF THE SAID BUSINESS IN SHARES ARE DULY AUDITED. THE FREQUENCY OF PURCHASE AND SAL E OF SHARES AND THE REGU LAR PROFIT EARNED THERE FROM BEING HUGE , INDICATED , NOTHING BUT INTENTION OF TRADE . THE AO, POINTED OUT THAT THE ASSESSEE EARNED O NLY A ME AGRE AMOUNT OF DIVIDEND IN THE YEAR UNDER CONSIDERATION. ALL THESE FACTORS ACCORDING TO HIM, INDICATED THAT THE ASSESSEE IS PAGE 11 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) ACTIVELY ENGAGED IN SHARE TRADING BUSINESS AND HENCE INCOME EARNED THERE FROM WILL BE INCOME FROM BUSINESS AND NOT FROM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. 14. AO RELIED ON ITA T DELHI BENCH 'E' IN THE CASE OF ACIT, CIR LE - 31 (I) , NEW DELHI VS. MANOJ KUMAR SAMDARIA (2012) 27 TAXMANN.COM 102 (DELHI) AND ON CBDT INSTRUCTION N O . 1872 DATE D ACCORDINGLY , RELYING UPON THE CBD T INSTRUCTION NO. 1827 DATED 31 .08. 1989, CIRCULAR N O . 4/2007 DATED 15.06.2007 AN D ORDER OF ITAT DELHI BENCH 'E' IN THE CASE ACIT, CIRCLE - 31(1), NEW DELHI VS MANO J KUMAR SAMDARIA (20L2)2 7 TA XMANN.COM 102 (DELHI), THE AO WAS OF THE VIEW THAT THE ASSESSEE TRADED IN SHARE WITH THE MOTIVE OF PROFIT . HE, THEREFOR E, ASSESS ED THE GAIN RESULTING FRO M THE SALE OF SHARE OF RS 2,81, 79,381/ - AS BUSINESS INCOME. 15. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT (A) WHO WAS PLEASED TO DISMISS THE SAME. 16. AGGRIEVED THE ASSESSEE IS BEFORE US. 17 . THE LD. COUNSEL SHRI ROHIT JAIN SUBMITTED THAT T HE APPELLANT IS A RESIDENT INDIVIDUAL AND WAS ENGAGED IN THE TRADING OF DERIVATIVES (FUTURES AND OPTIONS), INVESTMENT IN SHARES AND LOOKING AFTER TEXTILE TRADING BUSINESS AS DIRECTOR OF M/S SHUBH KARAN DAS CHIRANJI LAL AGENCIES PRIVATE LIMITED. THE APPELLANT DURING THE YEAR UNDER CONSIDERATION REALIZED LONG TERM CAPITAL GAINS OF RS.2,77,73,257, WHICH WERE CLAIMED AS EXEM PT IN THE RETURN OF INCOME, AND SHORT TERM CAPITAL GAINS OF RS 4 ,06,124, ON WHICH TAX @ 15% WAS PAID UNDER SECTION 111A OF THE ACT. THE ASSESSING OFFICER, MADE ADDITION TO THE INCOME OF THE APPELLANT BY BRINGING TO TAX THE CAPITAL GAINS REALIZED BY THE APPE LLANT IN SHARE INVESTMENTS BY TREATING THE SAME AS BUSINESS INCOME. ONE OF THE OBJECTIONS RAISED BY THE ASSESSING OFFICER FOR TREATING THE CAPITAL GAINS FROM INVESTMENT IN SHARES AS BUSINESS INCOME IS THAT AS PER COLUMN 8(A) OF FORM 3CD OF THE AUDIT REPOR T SUBMITTED BY THE ASSESSEE, THE NATURE OF BUSINESS OR PROFESSION HAS BEEN WRITTEN AS SHARE TRANSACTIONS, THEN THE AO WONDERED AS TO WHY THE INVESTMENT IN SHARES SHOULD NOT BE TREATED AS ST OCK IN TRADE AND RESULTANT GAINS ARISING THERE FROM AS INCOME FROM BUSINESS. IN REPLY TO PAGE 12 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THE SAID OBJECTION THE LD AR CONTENDED BEFORE THE AUTHORITIES BELOW THAT THE APPELLANT IS TRANSACTING IN THE CAPITAL MARKETS IN TWO CAPACITIES: (A) AS AN INVESTOR IN SHARES THROUGH PHYSICAL DELIVERY OF SHARES IN THE DEMAT ACCOUNT B) AS A TRADER DEALING IN SHARE DERIVATIVES (FUTURES AND OPTIONS) WITHOUT PHYSICAL DELIVERY ON RECOGNIZED STOCK EXCHANGE. 18 . SO, ACCORDING TO THE LD AR, IT IS THE SECOND SET OF TRANSACTIONS WHICH QUALIFY AS BUSINESS OF THE APPELLANT AND FOR WHICH THE APPELLANT HAS UNDERTAKEN TO GET HIS ACCOUNTS AUDITED FROM A CHARTERED ACCOUNTANT UNDER SECTION 44AB OF THE ACT. ACCORDING TO HIM, IT IS SETTLED LAW THAT TRANSACTION OF SALE AND PURCHASE OF DERIVATIVES (WITHOUT ACTUAL DELIVERY) IS TO BE CLASSIFIED UNDER THE BUSINESS HEAD. THE LD. AR POINTED OUT THAT EARLIER AS PER SECTION 54(5) OF THE ACT THE SALE AND PURCHASE OF SHARE DERIVATIVES WERE TREATED AS SPECULA TIVE TRANSACTIONS. HOWEVER, THE FINANCE ACT, 2005 W.E.F. 1.4.2006 INSERTED PROVISO (D), WHICH PROVIDED THAT TRADING IN DERIVATIVES ON RECOGNISED STOCK EXCHANGE ARE NOT SPECULATIVE TRANSACTIONS. THIS PROPOSITION HAS BEEN ACCEPTED BY THE AO AND THERE IS NO DISPUTE WITH RESPECT TO THIS ASPECT . 19 . THE LD. AR PO I NTED TO THE TRANSACTION OF THE ASSESSE STATED AS (A) TO PARA 17 (SUPRA) SUBMITTED THAT THIS SET OF T RANSACTIONS ARE ARE CLEARLY SHARE INVESTMENTS WHICH ARE DULY REFLECTED IN THE AUDITED BALANCE SHE ET AS INVESTMENT AND THE CLOSING INVESTMENT AS ON 31.3.2010 WAS RS. 3,87,78,265. THE CAPITAL GAINS FROM SALE OF THE SHARES HELD AS INVESTMENT WERE ADDED TO THE CAPITAL OF THE APPELLANT IN THE BALANCE SHEET AND DULY S HOWN IN HIS RETURN OF INCOME. AND I T IS ONLY FOR THE SECOND SET OF TRANSACTIONS THAT THE TAX AUDIT WAS REQUIRED. BUT FOR EXTRA AND ABUNDANT CAU TION TAX - AUDIT HAS BEEN DONE. THE LD. AR POINTED OUT THAT THE AO ONLY REFERRED CLAUSE 8(B) OF THE AUDIT REPORT AND DID NOT MENTION CLAUSE 12(A) OF THE SAME AUDIT REPORT, WHICH MENTIONED THAT THERE IS NO CLOSING STOCK OF SHARES. 20 . THE LD COUNSEL FOR THE ASSESSEE BROUGHT TO OUR ATTENTION THE DETAILS OF THE LONG TERM CAPITAL INVESTMENT MADE IN SHARES FOR THE YEAR UNDER APPEAL AND CONTENDED THAT THE AO HAS BROUGHT IN TRANSACTION WHICH IS NOT RELEVANT FOR THE PAGE 13 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) A.Y. UNDER CONSIDERATION AND SUBMIT TED THAT ONLY THREE SCRIP HAS BEEN SOLD IN THIS YEAR TO CLAIM LONG - TERM CAPITAL GAIN AND 3 SCRIP FOR SHORT TE RM CAPITAL GAIN . 21 . THE LONG - TERM CAPITAL OF THE ASSESSEE IS AS UNDER: - S.NO. DATE IAR'S NAME QTY. PURCHASES AMOUNT DATE QTY. SALE AMOUNT PROFIT/ LOSS 1. 04 - FEB - 08 22 - JAN - 08 04 - FEB - 08 28 - AUG - 07 GMR INFRA BALRAMPUR CHINI PACELEP 2,500 79,200 21,600 100,800 310,828 5,442,681 1,872,S21 7,315,201 21 - MAY - 09 08 - JUN - 09 11 - JUN - 09 12 - JUN - 09 29 - JUL - 09 05 - AUG. - 09 17 - JUN - 09 25 - SEP - 09 14 - JUL - 09 16 - JUL - 09 04 - AUG - 09 10 - AUG - 09 12 - AUG - 09 21 - AUG - 09 25 - AUG - 09 03 - SEP - D9 07 - SEP - 09 08 - SEP - 09 11 - SEP - 09 15 - SEP - 09 16 - SEP - 09 22 - SEP - 09 23 - SEP - 09 2,500 5,000 20,800 10,000 10,000 10,000 10,000 35,000 419,096 522,053 2,131,798 1,084,642 1,160,041 1,267,987 1,278,659 4,236,287 108,269 4,366,267 400,000 3,081,630 100,800 50,000 25,000 50,.000 30,000 20,000 25,000 25,000 50,000 10,000 15,000 25,000 40,500 3,000 6,500 25,000 11,681,468 1,874,507 1,010,383 2,455,149 1,524,554 1,055,104 1,629,875 1,729,470 3,981,785 875,998 1,282,189 2,202,203 3,550,082 262,799 582,311 2,363,943 400,000 3,081,630 400,000 26,380,352 23,298,721 TOTAL RS. 27,773,257 22 . AND THE SHORT - TERM CAPITAL GAIN IS AS UNDER: - S. NO. DATE SHARE'S NAME QTY. URCHASES AMOUNT DATE QTY. SALE AMOUNT PROFIT/LOSS 1. 2. 3 . 12 - JUN - 08 13 - 0CT - 08 15 - 0CT - 08 10 - AUG - 09 GMR INFRA TIIL TIIL ION EXCHANGE 1,000 10,000 10,147 105,748 266,342 252,442 05 - MAY - 09 26 - MAY - 09 05 - JUN - 09 24 - OCT - 09 21 - 0CT - 09 1,000 545 19,602 119,437 22,716 778,726 13,689 282,658 109,777 20,147 3,000 518,784 301,379 20,147 2,500 500 801,443 342,801 68,355 3,000 301,379 3,000 411,156 TOTAL RS. 406,124 PAGE 14 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 23 . THE LD. AR POINTED OUT THE FOLLOWING FACTORS WHICH WOULD FURTHER CORROBORATE THE CLAIM OF THE APPELLANT SHOWI NG THE SHARES AS INVESTMENTS: I) THE SHARES WERE BOUGHT FROM APPELLANT'S OWN FUNDS AND THERE WERE NO BORROWINGS. THE SAME CAN BE SEEN FROM T HE AUDITED BALANCE SHEET OF THE A PPELLANT. (REFER P - 4 IN THE PAPER BOOK) (II) THE SHARES WERE HELD FOR A LONG PERIOD OF THE TIME AND WERE BOUGHT WITH AN INTENTION OF CAPITAL APPRECIATION. (III) THE APPELLANT DEALT IN LIMITED NUMBER OF SCRIPS - 3 IN CASE OF LONG - TERM CAPITAL GAINS AND AGAIN 3 SCRIPS IN CASE OF SHORT TERM CAPITAL GAINS. ACCORDING TO LD AR, T HIS FACT IS CONTRARY TO THE OBSERVATION OF ASSESSING OFFICER THAT THE APPELLANT HAS DEALT IN 25 SCR IPS, WHICH IS WITHOUT ANY BASIS. THE COMPLETE CHART OF LONG - TERM AND SHORT - TERM CAPITAL GAINS IS E NCLOSED HEREWITH (REFER P G 1 0 AND 11 OF PAPER BOOK , WHICH IS REPRODUCED ABOVE IN PARA 21 AND 22 ) (IV) THE TOTAL VOLUME OF TRADE OF SHARES DURING THE YEAR WAS AROUND RS .4 CRORES. SO, THE SAME CANNOT BE SAID TO BE HUGE CONSIDERING THE DAILY AVERAGE TURN OVER ON STOCK EXCHANGES IS TO THE TUNE OF RS.5,000 CRORES. (V) TO THE OBSERVATION OF THE AO THAT THE APPELLANT HAS EARNED A MEAGRE DIVIDEND OF RS. 1 ,09,444 / - DURING THE YEAR UNDER CONSIDERATION ON OPENING SHARE INVESTMENT OF RS.4,07,48,118 / - VIZ, 0.27% OF THE VALUE OF INVESTMENT , IT WAS POINTED OUT BY THE LD AR THAT RELIANCE INDUSTRIES LIMITED (THE LARGEST CASH RICH COMPANY IN INDIA) DURING FINANCIAL YEAR 2009 - 10 DECLARED A DIVIDEND OF RS . 7 P ER SHARE; WHEREAS, THE MARKET PRICE AS ON 31.3.2010 WAS RS.I,100 I.E. A DIVIDEND PERCENTAGE OF 0.63%. THUS, THE DIVIDEND RECEIVED IS NOT ' M EAGER' AS TERMED BY THE ASSESSING OFFICER AND IS, IN TURN, ADEQUATE AS PER INDUSTRY AVERAGE. FURTHER, WHEN THE MAIN INTENTION IS TO REALIZE THE CAPITAL APPRECIATION, EARNING OF DIVIDENDS IS INCIDENTAL AND CANNOT BE A DETERMINING FACTOR FOR CLASSIFICATION OF ASSET INTO 'INVESTMENT' OR 'STOCK IN TRADE'. FURTHER, THERE ARE SO MANY MUTUAL FUNDS, ETC. WITH GROWTH OPTION. SO PAGE 15 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) ACCORDING TO LD AR, IF WE GO BY THE ASSESSING OFFICER'S LOGIC, THEN THESE MUTUAL FUNDS WILL ALWAYS HAVE TO BE CLASSIFIED AS 'STOCK IN TRADE'. (VI) THAT THE APPELLANT IS AN INVESTOR IN SHARES IS AN ACCEPTED POSITION BY THE INCOME TAX DEPARTMENT ITSELF. THE APPELLANT'S CA SE WAS UNDER SCRUTINY FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AS WELL, WHEREIN THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 29( 1), VIDE ORDER DATED 22.12.20 11, HAS HELD THE PROFIT FROM SALE OF SHARES AS CAPITAL GAINS. SINCE THERE IS NO CHANGE I N THE FACTS OF THE APPELLANT AND IN VIEW OF THE OTHER FACTORS AS DETAILED ABOVE, THERE IS NO REASON WHY THE ACCEPTED POSITION OF APPELLANT BEING A SHARE INVESTOR SHOULD BE DISTURBED. (REFER P - 18 - 19 IN PAPERBOOK) 24 . COUNTERING THE NEXT OBJECTION OF THE AS SESSING OFFICER THAT M / S SHUBH KARAN DAS CHIRANJI LAL AGENCIES PRIVATE LIMITED, WITH WHOM THE APPELLANT IS STATED TO BE A DIRECTOR , THE AO OBSERVED THAT THIS IS NO COMPANY WHICH IS EXISTING AND IT IS ONLY AN AGENCY ; AND THAT T HE APPELLANT S PENDS MOST OF HI S TIME IN NO OTHER WORK EXCEPT SHARE TRADING , THE LD AR SUBMITTED THAT THE ASSESSING OFFICER HAS REACHED THIS CONCLUSION W ITHOUT FULLY APPRECIATING THE TRUE FACTS. ACCORDING TO THE LD AR M / S SHUBH KARAN DAS CHIRANJI LAL AGENCIES PRIVATE LIMITED IS INDEED IN EXISTENCE AND ITS COMPANY MASTER DATA RECORD FROM ROC IS PLACED AT P - 17 OF THE PAPER BOOK AND THE APPELLANT IS STATED TO BE A DIRECTOR IN THIS COMPANY SINCE 01.03.1995. FURTHER, IT WAS SUBMITTED THAT THERE IS ALSO A PROPRIETORSHIP FIRM BY THE NAME OF SHUBH K ARAN DAS CHIRANJ I LAL AGENCIES, WHOSE PROPRIETOR IS SH. VINOD CHOUDHARY, APPELLANT'S FATHER. THE APPELLANT DEVOTES ALMOST ALL HIS TIME LOOKING AFTER THE FAMILY BUSINESS IN THESE FIRMS. THE LD AR P OINTED OUT THAT THE COMBINED TURNOVER FOR THE FIRMS WAS TO THE TUNE OF RS .41 CRORES DURING YEAR 2009 - 10 AND THE APPELLANT BEING THE ONLY SON WAS RESPONSIBLE FOR THE RUNNING THE SAID FIRMS. HE W AS THE AUTHORISED SIGNATORY IN B ANK IN BOTH THE FIRMS AND SIGN S ALL THE SALE BILLS OF THE FIRM, WHICH GOES TO SHOW HIS INVOLVE MENT IN THE BUSINESS. FURTHER, AS A CUSTOMARY PRACTICE AND MARK OF RESPECT FOR HIS FATHER, HE DOES NOT DRAW A SALARY FROM THE PROPRIETORSHIP FIRM, WHICH IS THEIR FLAGSHIP BUSINESS. THE PRIVAT E LIMITED COMPANY IS A SMALLER VENTURE AND HAD TURNOVER OF RS . 40 LACS DURING 2009 - 10 AND THE APPELLANT DREW A SALARY OF RS.24,000 FROM IT. THUS , ACCORDING TO THE LD. AR THE PAGE 16 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) ALLEGATION OF THE ASSESSING OFFICER THAT THE APPELLANT SPENDS MOST OF HIS TIME IN SHA RE TRADING IS BASELESS AND IS A FIGMENT OF IMAGINATION . ACCORDING TO THE LD AR, INVESTMENT IN SHARES IS ONLY A SECONDARY TASK AND IS INT ENDED TO CAPITAL APPRECIATION OF HIS OWN MONEY. 25 . COUNTERING THE NEXT OBJECTION OF THE ASSESSING OFFICER THAT T HE APPELLANT IS RUNNING HIS BUSINESS IN THE NAME OF PROPRIETORSHIP FIRM NAMELY, M / S ASHISH CHOUDHARY STOCK INVESTMENTS AND HAS A WELL DEVELOPED INFRASTRUCTURE THE LD. AR SUBMITTED THAT T HERE IS NO FIRM BY THE NAME OF M/S. ASHISH CHOUDHARY STOCK INVESTMENTS. NO BANK ACCOUNT EXISTS IN THIS NAME. FURTHER THE LD. AR WONDERED AS TO HOW A W E LL DEVELOPED INFRASTRUCTURE BE MAINTAINED BY INCURRING AN EXPENDITURE OF RS.7,000 / - THAT TOO THE SAID EXPENDITURE WAS ON ACCOUNT OF AUDIT FEES WHICH IS BEYOND IMAGI NATION. 26 . IN RESPECT TO THE LAST ALLEGATION THAT THE APPELLANT HAD MAJOR SOURCE OF INCOME FROM SHARE 'TRANSACTIONS AND THUS, THESE TRANSACTIONS ARE TO BE HELD AS BUSINESS TRANSACTIONS . THE LD. AR SUBMITTED THAT JUST BECAUSE THE AMOUNT OF CAPITAL GAINS IS BIG, IT DOES NOT MEAN THAT THE TRANSACTION WOULD CLASSIFY AS BUSINESS. SHARE INVESTMENTS MADE WITH A LONG TIME HORIZON AND APPROPRIATE EXIT TIMING ARE ESSENTIAL FOR - CAPITAL REALISATION. IN FACT, IN A SHARE BUSINESS PORTFOLIO, THE POSSIBILITY OF EARNING PROFIT IS LIMITED AND THERE HAS TO BE LARGE CHURNING OF SHARES DURING A SHORT PERIOD OF TIME AND H UGE VOLUMES TO REALIZE A SUBSTANTIAL AMOUNT OF PROFIT . THUS, THE FACT THAT THE HUGE AMOUNT OF CAPITAL GAINS GOES TO SHOW THAT THE APPELLANT IS AN INVESTOR AND NOT A TRADER SINCE THE INVESTMENTS WERE MADE WITH A LARGE TIME HORIZON. 27 . THE LD. AR RELIED ON THE DECISION OF JURISDICTIONAL DELHI HIGH COURT IN THE MATTER OF CIT V. VINAY MITTAL: 208 TAXMAN 106 D ATED 27.04.2012 AND ATTENTION WA S ALSO INVITED TO TH E DECISION OF THE HON'B L E BOMBAY HIGH COURT IN THE CASE OF CIT V. GOPAL PUROHIT: 336 ITR 287, DATED 06.01.2010 WHEREIN IT WAS HELD THAT CAPI T A L GAINS ON SALE OF SHARES TREATED AS I N VESTMENT INCOME IN EARLIER YEARS CANNOT BE TREATED AS BUSINESS INCOME I N SU B SEQUENT YEARS. FURTHER, THE HON'BLE COURT ALSO UPHELD THAT THE ASSESSEE CAN KEEP TWO PORTFOLIOS ONE FOR JOBBING (WITHOUT DELIVERY) TO BE PAGE 17 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) CLASSIFIED AS BUSINESS PORTFOLIO AND OTHER AS INVEST M ENT TO BE CLASSIFIED AS CAPITAL G AI NS. 2 8 . IT WAS POINTED OUT BY THE LD AR THAT THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT HAS NOW BEEN AFFIRMED BY THE SUPREME COURT VIDE JUDGMENT DATED 15TH NOVEMBER, 2010 IN CC 16802 / 2010, 334 ITR 308 (ST.) AND EMPHASIS ED CONSISTENCY IN TAX TREATMENT. SIMILARLY, ON THE SIM ILAR ISSUE IN THE CASE OF JINDAL PHOTO INVESTMENT LTD. , T HE HONBLE S UPREME COURT DISMISSED THE DEPARTMENT'S SLP ON 13.09.2010 REPORTED IN 334 ITR (ST.) 307. THE APPELLANT'S CASE ACCORDING TO THE LD AR IS SQUARELY COVERED WITHIN THE FOUR CORNERS OF THE AF O RESAID DECISIONS OF HONBLE DELHI HIGH COURT AND THE BOMBAY HIGH COURT WHICH WERE AFFIRMED B Y HONBLE SUPREME COURT. ACCORDING TO THE LD AR, THE APPELLANT ALSO MAINTAINED TWO PORTFOLIOS AND THE PERIOD OF HOLDING O F SHARES WAS SIGNIFICANT AND THUS , IT WAS THE SUBMISSION OF THE LD AR THAT THE TAX DEMAND RAISED BY THE AO BY CLASSIFYING LTCG AND 'THE STCG REALIZED BY T HE APPELLANT AS BUSINESS INCOME OUGHT TO BE DELETED. 29 . REFERENCE WAS ALSO MADE TO THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS . ROHIT ANAND 327 ITR 445 (DELHI). ATTENTION WA S ALSO INVITED TO THE DECISION IN THE CASE OF S.K. FINANCE VS DCIT: 13 ITR(TRIB) 236 (MUM ITAT ), DATED O4.O 2. 2010, WHEREIN THE ITAT HELD THAT DEPENDING UPON THE FREQUENCY AND VOLUME OF SHARES AND COMPARING THE SAME WITH THE OTHER DECIDED CASES, THE PROFIT FROM SHARE INVESTMENTS WAS HELD AS SHORT TERM CAPITAL GAIN. IN THIS CASE, THE DATA WITH RESPECT TO THE FREQUENCY AND VOLUME IN A FEW DECIDED CASES WAS COMPARED WHERE THE TRANSACTIONS HAVE BEEN HELD AS INVESTME NTS. THE TABLE CONTAINING THE SAME WAS SHOWN TO US WHICH IS REPRODUCED BELOW : - CRITERIA ASHISH CHAUDHARY (APPELLANT) SK FINANCE (ASSESSEE) LAXMI CHAND KENIA RAMJI KENIA DHIRAJ KENIA BHARAT KENIA KUNVERJI KENIA NO. OF SCRIPS PURCHASED 5 51 106 144 129 142 213 NO. OF SCRIPS SOLD 6 49 104 129 105 168 173 VOLUME OF PURCHASES 79,15,605 2,65,81,691 2,45,03,380 1,53,70,408 2,72,94, 423 20,08,45,292 VALUE OF SALES 3,98,12,949 79,35,156 2,38,20,271 2,06,27,334 1,31,47,240 3,69,83, 128 10,59,95,053 PAGE 18 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) NO. OF PURCHASE DAYS 11 DAYS 315 DAYS 268 DAYS 234 DAYS 161 DAYS 236 DAYS 177 DAYS NO. SALE DAYS 28 DAYS 312 DAYS 195 DAYS 214 DAYS 240 DAYS 202 DAYS 162 DAYS 30 . FURTHER, THE PERIOD OF HOLDING FOR CAPITAL GAINS REALISED BY APPELLANT IS TABULATED AS UNDER: PERIOD OF HOLDING CAPITAL GAIN PERCENTAGE LESS THAN 30 DAYS 91,652 0.33 30 - 90 DAYS 18,125 0.06 90 - 180 DAYS - - 180 270 DAYS 282,658 1.00 270 - 375 DAYS 13,689 0.05 1 YEAR 2 YEAR 14,020,161 49.75 MORE THAN 2 YEARS 13,753,096 48.81 TOTAL 28,179,381 31 . IN VIEW OF THE TABLE AS ABOVE, THE LD AR CONTENDED THAT THE APPELLANTS CASE IS MOST STRONG AS THE PERIOD OF HOLDING IS MOST AND N UMBER OF SCRIPS AS WELL AS N UMBER OF PURCHASE AND SALE DAYS IS LEAST. ATTENTION WAS ALSO INVITED TO THE DECISION IN THE CASE ACIT VS. MANOJ KUMAR SAMDARIA, RELIED UPON BY THE AO IS DISTINGUISHABLE ON FACTS AS IN THAT CASE, THERE WAS SALE OF SHARE WITHIN 2 - 3 DAYS OF PURCHASE AND F REQUENT CHURNING OF SECURITIES. IN THE LIGHT OF THE AFOR ESAID SUBMISSION THE LD . AR PRAYED THAT THE IMPUGNED CONFIRMATION OF THE ADDITION MADE BY THE AO BY TREATING THE CAPITAL GAINS ON SHARES AS BUSINESS INCOME BE DELETED . 32 . ON THE OTHER HAND THE LD DR SUPPORTED THE DECISION OF THE LD CIT(A) AND ARGUED ON THE SAME LINES AS REASONED BY THE AO AND DOES NOT WANT US TO INTERFERE IN THE IMPUGNED ORDER OF THE LD CIT(A) AND CITED THE FOLLOWING DECISION S DALHOUSIE INVESTMENT TRUST COMPANY LIMITED VS. CIT. (1968) 68 ITR 486(SC) RAJA BAHADUR VISHESHWARA SINGH V. CIT [1961] 41 ITR 685; KKARAN R BAHL VS. ITO (60 SOT 63 (MUMBAI) COMMISSIONER OF INCOME TAX, U.P V. MADAN GOPAL RADHEY LAL, [1969] 73 ITR 652 (SC); DCIT V MUKESHBHAI BABULAL SHAH (2013) 57 SOT 45 (RAJKOT) (TRIB.) N.K. LEASING CONSTRUCTION LTD. VS. CIT (2006) 285 ITR 330(AP) PAGE 19 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) MANOJ KUMAR SAMDARI VS. COMMSSION OF INCOME TAX, ITA NO.97 OF 2014 (DEL) 33 . THE LD DR POINTED OUT THE FREQUENCY OF TRANSACTION MADE BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR FROM THE D - MAT ACCOUNT WHICH HAS BEEN FILED BY THE REVENUE FROM THE PAPER BOOK IS REPRODUCED AS UNDER: - S. NO. BKG DATE TRANS DESCRIPTION CREDIT/ DEBIT BALANCE AMIT SPINNING 1. 03/12/200910111792 DYNAMIC EQUITIES PVT LTD/ 10008760 77094 77094 2. 04/12/200910111963 BY DYNAMIC EQUITIES PVT LTD/10008760 47051 124145 3. 31/03/201019450 BY INTER DEPOSITORY TRANSFER CDS/12028800000000110 3300 127445 4. 31/03/201010127421 BY DYNAMIC EQUITIEIS PVT LTD/10008760 51166 178? 5. 31/03/201010127508 BY CM DYNAMIC EQUISITIES PVT, ROLLING MARKET LOT/1011001 21700 200311 BALRAMPUR CHINI MILLS LTD. 6. 08/06/200910089348 TO CM PKC STOCK BROKING P LTD, NORMAL/2009102 5000 20800 7. 11/06/200910089918 TO CM PKC STOCK BROKING P LTD, NORMAL/2009105 20800 8. 13/06/200910090241 BY DYNAMIC EQUITIEIS PVT LTD/10003983 30000 30000 9. 13/06/200910090277 TO CM PKC STOCK BROKING P LTD, NORMAL/2009106 10000 20000 10. 29/07/200910095505 TO CM DYNAMIC EQUISITIES PVT LTD, ROLLING MARKET LOT/0910082 10000 10000 11. 31/07/200910095770 BY CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET LOT/0910082 10000 20000 12. 06/08/200910096444 TO CM PKC STOCK BROKING P LTD, NORMAL/ 2009144 10000 10000 13. 17/09/200910102722 TO CM PKC STOCK BROKING P LTD, NORMAL/2009175 10000 0 GMR INFRA STREET 14. 06/05/200910084639 TO CM PKC STOCK BROKING P LTD, NORMAL/ 2009078 1000 2500 15. 22/05/200910086838 TO CM PKC STOCK BROKING P LTD, NORMAL/2009090 2500 0 ION EXCHANGE (INDIA) LIMITED 16. 31/07/200915269 BY INTER DEPOSITORY TRANSFER CDS/12028800000000110 7075 7075 17. 31/07/200910095771 BY CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910082 5195 12270 18. 03/08/200915284 BY INTER DEPOSITORY TRANSFER CDS/12028800000000110 12730 25000 19. 12/08/20091009703 BY CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET 5000 30000 PAGE 20 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) LOT/0910090 20. 24/08/200910098495 BY CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET LOT/0910100 2500 27500 21. 20/10/2009101068221 BY CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET LOT/0910136 500 27000 JSW ISPAT STEEL LTD. 22. 17/11/200910110221 BY CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET LOT/0910154 10000 10000 23. 17/11/200910110222 BY DYNAMIC EQUITIES PVT LTD/10008760 684 10684 NTPC 24. 27/08/200910098997 BY THE J AND K BANK LTD/10231258 214 214 25. 31/08/200910099386 BY THE J &K BANK LTD/10230675 214 428 PARSVNATH DEVELOPERS LTD. 26. 27/08/2010195179 BY THE J& K BANK LTD./10231258 32 0 RELIANCE INDUSTRIES LTD. 27. 02/10.2009158829 BY AMALGAMATION 224 224 28. 05/09/201010147171 BY BONUS ALLOTMENT 224 448 RELIANCE PETROLEUM LTD. 29. 27/08/200910098994 BY THE J&K BANK LTD/ 10230690 3472 3472 30. 02/10/2009158829 TO AMALGAMATION 3588 0 RELIANCE POWER LTD 31. 31/08/200910099388 BY THE J&K BANK LTD/10230675 27 52 RURAL ELECTRICAL CORP LTD. 32. 31/08/200910099387 BY THE J&K BANK LTD/10230675 121 242 SHUBHA DEVELOPERS 33. 27/08/200910098995 BY THE J&K BANK LTD/10231258 10 10 SUJANA UNIVERSAL INDUSTRIES LTD. 34. 01/12/200910111543 BY CM PKC STOCK BROKING P LTD, NORMAL/2009221 173579 1333917 35. 02/12/200917266 BY INTER DEPOSITORY TRANSFER CDS/1201910300154783 26421 1360338 36. 08/12/200910112375 BY DYNAMIC EQUITIES PVT LTD/10008760 139662 1500000 SVC RESOURCES LTD. 37. 14/07/200910093574 TO CM DYNAMIC EQUITIES PVT LTD, ROLLING MARKET LOT/0910071 90000 370000 38 17/07/200910093577 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910071 20000 350000 39. 17/07/200910093925 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910071 25000 325000 40. 04/08/200910096194 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910086 50000 275000 41. 11/08/200910096874 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910090 30000 245000 PAGE 21 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 42. 12/08/200910097069 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910092 20000 225000 44. 26/08/200910098740 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910101 25000 175000 45. 03/09/200910100486 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910108 50000 125000 46. 07/09/200910100983 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910110 10000 115000 47. 08/09/200910101217 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910111 15000 10000 48. 11/09/200910101890 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910114 25000 75000 49. 15/09/200910102246 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910116 25000 50000 50. 15/09/200910102266 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910116 15500 34500 51. 16/09200910102445 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910117 3000 31500 52. 22/09200910103172 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910120 6500 25000 53. 23/09/200910103396 TO CM DYNAMIC EQUITIES PVT LTD, ROLLOING MARKET LOT/0910121 25000 0 TATA CONSULTION SERVICES 54. 27/08/209910098993 BY THE J&K BANK LTD/1023158 68 68 55. 31/08/200910099385 BY THE J&K BANK LTD/10230675 68 136 TECHNOCRAFT INDUSTRIES (INDIA) 56. 27/05/200810068626 TO CM PKC STOCK BROKING P LTD, NORMAL/2009096 545 19602 57. 06/06/200910089195 TO TO CM PKC STOCK BROKING P LTD, NORMAL/2009101 19602 0 VENUS REMEDIES LTD. 58. 03/02/201010119241 TO DYNAMIC EQUITIES PVT LTD/ 10003983 20000 3200 34 . POINTING TO THE AFORESAID TRANSACTION MADE BY THE ASSESSEE, THE LD DR CONTENDED THAT THE FACTUAL MATRIX OF VOLUMINOUS TRANSACTION AT FREQUENT INTERVALS OF SALE, PURCHASE, TRADING DEPICTS THAT ASSESSEE IS TRADING IN SHARES WHICH HAS BEEN RIGHTLY SUBSTANTIATED BY AO ON PAGE 4 - 10 OF ASSESSMENT ORDER . 35 . THE FACTOR S WHICH ARE CLAIMED BY THE LD. DR TO BE STRONGLY AGAINST THE TREATMENT OF SHARES AS `INVESTMENT ARE AS UNDER: - PAGE 22 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) A) ASSESSEE IN PAST A SSESSMENT YEARS HAS NO WHERE SHOWN IN THE BALANCE SHEET ACCOMPANYING THE RETURNS AS TO WHICH SHARES ARE HELD AS INVESTMENT WHICH T HUS NEGATES THE VERY HYPOTHESIS OF HOLDING EITHER AS INVESTMENT OR AS TRADING STOCK FAILS AT THE OUTSET. COPY OF BALANCE SHEET FILED FOR A Y 08 - 09, 09 - 10 WAS ENCLOSED FOR RE A DY PERUSAL OF US B) IN FACT THE ACCOUNT STATEMENT WITH TAMIL NAD U CLEARLY STATES THAT THE OPENING STOCK OF MANY A SCRIPS BOUGHT WAS ZERO. COPY OF TAMIL NAD U STATEMENT AS AVAILABLE ON RECORD ENCLOSED THUS DEPICTING THAT WITH OPENING STOCK OF ZERO PURCHASES, THE PURCHASE AND SALE EFFECTED VIA PKC STOCK BROKING FIRM AND ALSO VIA DYNAMIC S ECU RITIES EQUITIES PVT LTD ENTITY ( TWO DIFFERENT FIRM) C) THE S TOCK - FUTURES AND OPTIONS TRAD ING WERE ALSO DONE D) THE ASSESSEE CONTINUED TO RECEIVE DIVIDEND ON MATTERS (SCRIPS) IRRESPECTIVE OF WHETHER IT SHOWED IT AS ALLEGED INVESTMENT OR FOR TRADING, AND IN FACT THE RECONCILIATION OF SO CALLED ALLEGED INVESTMENT SCRIPS WITH DETAILS ON RECORD IS NOT DONE TO SUPPORT THE STAND OF ASSESSEE AS THE SO CALLED SCRIPS ON WHICH L TCG AND STCG WERE SHOWN IN RETURNS WERE NOT SHOWN TO THE REVENUE IN DETAILS FI LED B Y ASSESSEE AT THAT POINT OF TIME. E) THE ASSESSEE NEEDLESS TO ADD AS PER FORM 3CD FOR AYI - II IS AS PER COLUMN 8(A) DOING BUSINESS IN 'SHARES TRANSACTION' LIKE PAST YEARS 08 - 09, 09 - 1 0, - THIS PUTS TO REST ANY PLEA RAISED BY ASSESSEE REGARDING INVESTMENT - F URTHER ASSESSEE PURCHASED FREQUENTLY BALRAM CHINI , AFTEK VEN US, SUJANA, TIL, REI. GMR INFRA ., PACELEP IN INITIAL FY 2008 ,AND STARTED SELLING THE SAME IMMEDIATELY BY JUNE 2008 - 09 - 10 YEARS THUS SHO WING THAT ITS ACTUAL INTENTION IS TRADING IN SHARES ; FURT HER IT ALSO ADVANCED SUBSTANTIAL ADVANCE TO M / S SHUBKARAN DASS CHIRANJIVI LALL WHO INFACT FURTHER TRADED IN SHARES TO BUTTRESS THE SHARE TRADING PORTFOLIO OF ASSESSEE ( INJCIDENTALLY THE ASSESSEE IS CONNECTED WITH OTHER ENTITY M / S SHUBKARAN DASS CHIRANJIVI LALL) . SUCH EXAMPLERS ABOUND IN ASSESSES CASE THROUGH OUT 07 - 08 TO 11 - 12. PAGE 23 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 36 . IN THE LIGHT OF THE DECISIONS RELIED UPON BY HER, THE LD DR VEHEMENTLY SUPPORTED THE DECISION OF THE LD CIT(A) AND URGED US NOT TO DISTURB THE WELL REASONED ORDER OF THE LD CIT( A). 37 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, WE WANT TO MAKE IT CLEAR THAT ANY DECISION TO HOLD SHARES AS INVESTMENT OR STOCK - IN - TRADE DEPENDS ON A HOST OF FACTORS. THERE CAN BE NO SINGLE CRITERIA TO DECIDE THE NATURE OF SHARES PURCHASED. IN FACT, IT IS THE CUMULATIVE EFFECT OF ALL THE RELEVANT FACTORS, WHICH IS TAKEN INTO CONSIDERATION FOR REACHING A CONCLUSION AS REGARDS THE NATURE OF SHARES AND THE RESULTANT INCOME ARISING FROM THEIR TRANSFER. THERE MAY BE SOME FACTORS INDICATING THE PURCHASE OF SHARES AS INVESTMENT, WHILE OTHERS MAY POINT TOWARDS STOCK - IN - TRADE. IT IS THE HOLISTIC CONSIDERATION OF ALL SUCH FACTORS WHICH IS KEPT IN VIEW WHILE DECIDING AS TO WHETHER THE SHARES PURCHASED BY THE ASSESSEE CONSTITUTED STOCK - IN - TRADE OR INVESTMENT. 38 . SINCE THE AO AND THE LD CIT(A) HAS HELD THAT THE PROFIT ASSESSEE EARNED IS BUSINESS INCOME AND NOT FROM INVESTMENT AS CLAIMED BY THE ASSESSEE LET US LOOK INTO THE MEANING OF THE WORD BUSINESS. WE FIND THAT THE WORD 'BUSINESS' CONNOTES SOME REAL, SUBSTANT IAL AND SYSTEMATIC OR ORGANISED COURSE OF ACTIVITY OR CONDUCT WITH A SET PURPOSE, HOWEVER, A SINGLY AND ISOLATED TRANSACTION HAS BEEN HELD TO BE CONCEIVABLY CAPABLE OF FALLING WITHIN THE DEFINITION O F BUSINESS AS BEING AN ADVENTURE IN THE NATURE OF TRADE P ROVID ED THE TRANSACTION BEARS CLEAR INDICIA OF TRADE. THE QUESTION, THEREFORE, WHETHER A PARTICULAR SOURCE OF INCOME IS BUSINESS OR NOT MUST BE DECIDED ACCORDING TO OUR ORDINARY NOTIONS AS TO WHAT A BUSINESS IS ( NARAIN SWADESHI WEAVING MILLS VS COMMISSION ER OF E X CESS PROFITS TAX: 26 ITR 765 (SC)) 39 . THE HONBLE SUPREME COURT, IN THE CASE OF SAROJ KUMAR MAZUMDAR VS CIT 37 ITR 242, OBSERVE D THAT WHERE A 'TRANSACTION WAS NOT IN THE LINE OF BUSINESS OF THE ASSESSEE BUT WAS AN ISOLATED OR SINGLE INSTANCE OF, A TRANSACTION, THE 'ONUS WAS ON THE DEPARTMENT TO PROVE THAT THE TRANSACTION WAS AN ADVENTURE IN THE NATURE OF TRADE. PAGE 24 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 40 . THE HONBLE APEX COURT IN RAJA BAHADUR KAMAKHYA NARAIN SINGH VS CIT: 77 ITR 253 OBSERVED AS UNDER: THE SURPLUS REALISED ON THE SAL E OF SHARES, FOR INSTANCE, WOULD BE CAPITAL IF THE ASSESSEE IS AN ORDINARY INVESTOR REALISING HIS HOLDING; BUT IT WOULD BE REVENUE, IF HE DEALS WITH THEM AS AN ADVENTURE IN THE NATURE OF TRADE. THE FACT THAT THE ORIGINAL PURCHASE WAS MADE WITH THE INTENTIO N TO RESELL IF AN ENHANCED PRICE COULD BE OBTAINED IS BY ITSELF NOT ENOUGH BUT IN CONJUNCTION WITH THE CONDUCT OF THE ASSESSEE AND OTHER CIRCUMSTANCES IT MAY POINT TO THE TRADING CHARACTER OF THE TRANSACTION. FOR INSTANCE, AN ASSESSEE MAY INVEST HIS CAPITA L IN SHARE'S WITH THE INTENTION TO RESELL THEM IF IN FUTURE THEIR SALE MAY BRING IN HIGHER PRICE. SUCH AN INVESTMENT, THOUGH MOTIVATED BY A POSSIBILITY OF ENHANCED VALUE, DOES NOT RENDER THE INVESTMENT A TRANSACTION IN THE NATURE OF TRADE. THE TEST OFTEN APPLIED IS, HAS THE ASSESSEE MADE HIS SHARES AND SECURITIES THE STOCK - IN - TRADE OF A BUSINESS.' 41 . THE HONBLE GUJARAT HIGH COURT IN THE MATTER OF CIT VS MANISH NATKULAL LAVTI: 218 TAXMAN 308, DATED 1.10.2012 HAS UPHELD THE TRIBUNAL'S FOLLOWING OBSERVATIONS AND DISMISSED THE DEPARTMENTAL APPEAL: - '4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND HAVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. FOR THE PURPOSE OF FIN DING OUT THE NATURE OF TRANSACTI ON AS TO WHETHER IT IS AN INVESTMENT OR ADVENTURE IN THE NATURE OF TRADE, ONE HAS TO SEE THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF THE SHARES. THE ASSESSEE IS ONLY AN EMPLOYEE HAVING SALARY INCOME. IN THE RETURN OF INCOME AS SEEN FROM THE AS SESSMENT ORDER, THE ASSESSEE HAS CLAIMED RS.83,712 FROM SHARE TRADING AND ANOTHER SUM OF RS.53,84,239 AS EXEMPT INCOME ON SALE OF CERTAIN SALES. THIS RS.53,84,239 WAS TREATED BY THE ASSESSING OFFICER AS BUSINESS INCOME ON SALE OF SHARES. WE FIND THAT THE C BDT IN ITS CIRCULAR NO. A12007. DATED 15 - 06 - 2007 EXAMINED THIS ISSUE AND AFTER REFERRING TO THE JUDGMENT OF THE APEX COURT, INSTRUCTED ALL ITS OFFICERS THAT IT IS POSSIBLE FOR THE TAXPAYER TO HAVE TWO PORTFOLIOS, I.E., INVESTMENT PORTFOLIO. WHEN THE ASSE SSEE HAS TWO PORTFOLIOS, THE INCOME HAS TO. BE ASSESSED BOTH UNDER' THE HEAD. 'CAPITAL GAINS' AS WELL AS 'BUSINESS INCOME'. IN THIS CASE, THE ASSESSEE IS A SALARIED EMPLOYEE.' THEREFORE, THE QUESTION OF MAINTAINING TWO PORTFOLIO DOES NOT ARISE FOR CONSIDER ATION. THE ASSESSEE INVESTED HIS FUNDS AS INVESTMENT AND WHENEVER IT WAS CONVENIENT, IT WAS SOLD. THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE IS VERY CLEAR THAT IT IS AN INVESTMENT AND NOT TO TRADE IN SHARES. MERELY BECAUSE, ON ONE OR TWO OCCASIO NS THERE WAS ALSO PURCHASE AND SALE OF SHARES, WE CANNOT SAY THAT THE ASSESSEE IS TRADING IN SHARES. THE TRANSACTION AS EXTRACTED. BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE NEVER INTENDED TO TRADE IN SHARES AND BEING SALARIED PERSON INTENDED TO INVESTOR. THEREFORE, THE PROFIT ON SALE OF SHARES HAS TO BE PAGE 25 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) CLASSIFIED AS CAPITAL GAIN EITHER AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD HOLDING. SINCE THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO TREAT THE SAME AS CAPITAL GAIN WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIRMED.' (EMPHASIS SUPPLIED) 42 . FROM THE AFORESAID PRECEDENTS WE NEED TO FIND OUT WHETHER THE ACTIVITY OF THE ASSESSEE WAS ADVENTURE IN THE NATURE OF TRADE ; AND THAT DEPENDS UPON THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE AND THE CONDUCT OF THE ASSESSEE THEREAFTER 43 . THE RATIONALE BEHIND INTRODUCTION OF SECTION 10(38) OF THE ACT WAS TO PROMOTE INVESTMENT IN CAPITA L MARKET S, THE SAID SE CT ION BEING AN IN C ENTIVE PROVISION, SHOULD BE LIBERALLY CONSTRUED AS HELD BY THE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD. V. CIT : (1992) 196 ITR 188, WHEREIN THE HON'BLE SUPREME COURT OBSERVED AS UNDER: A PROVISION IN A TAXING STATUTE GRANTING INCENTIVE FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, THE RESTRICTION ON IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT.' 44 . IN ORDER TO FIND AN ANSWER TO THE ISSUE BEFORE US, WE HAVE TO APPRECIATE THE FACTS OF THE CASE BY TAKING INTO ACCOUNT THE DETAILS OF SALE, PURCHASE AND INVESTMENT IN SHARES, THE INTENTION OF THE ASSESSEE, VARIOUS CAS E LAWS AND CIRCULARS OF CBDT IN THIS REGARD. THE CBDT CIRCULAR NO. 4/2007 HAS REFERRED TO VARIOUS PRINCIPLES LAID DOWN BY JUDICIAL AUTHORITIES IN ORDER TO ENABLE MAKING DISTINCTION BETWEEN SHARES HELD FOR TRADING AND SHARES HELD AS INVESTMENTS AND HAVE CLA RIFIED THAT TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED IN DETERMINING WHETHER IN A GIVEN CASE THE SHARES ARE HELD BY ASSESSEE AS INVESTMENT OR STOCK IN TRADE. IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. (P) LTD., 82 ITR 586, T HE HONBLE SUPREME COURT HAD OBSERVED THAT WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTAN CES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS PAGE 26 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THE A SSESSEE IS AN INDIVIDUAL WHO HAVE INVESTED HIS FUNDS IN VARIOUS SHARES. DURING THE YEAR, THE ASSESSEE HAS INVESTED HIS OWN FUND (NOT BORROWED FUND) IN VARIOUS SHARES AND EARNED A LONG TERM CAPITAL GAIN OF RS.2,77,73,257/ - AND SHORT TERM CAPITAL GAIN OF RS. 4,06,124/ - . THE ASSESSEE ALSO EARNED AN AMOUNT OF RS.1,09,444/ - AND RS.1,49,314/ - FROM HDFC SHORT TERM PLAN ON ACCOUNT OF DIVIDEND AND RS.22,64,917/ - FROM AS INTEREST INCOME. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR ON 28.09.2010 DEC LARING AN INCOME OF RS.14,10, 350/ - . 45. WE HAVE TO KEEP IN MIND THAT AN EQUITY SHARE OF INDIAN COMPANIES IS NOT ESSENTIALLY A TRADING COMMODITY. MORE OFTEN THAN NOT SHARES ARE PURCHASED BY INDIAN PUBLIC AS AN INVESTMENT. WHILE HELD FOR LONG PERIOD THE SHAR ES YIELD REGULAR INCOME IN THE FORM OF DIVIDEND. IT MAY, HOWEVER, BE NOTED THAT SOME HOLDERS BUY AND SELL SHARES BY WAY OF TRADE AND NOT INVESTMENT. WHERE SHARES - HOLDING IS FOR TRADING, FREQUENCY OF PURCHASE AND SALE SCRIP - WISE IS VERY HIGH AND THE PERIOD OF HOLDING OF A PARTICULAR LOT IS MINIMAL. WE CANNOT OVER LOOK THE FACT NOTED THAT OVER THE COURSE OF TIME EQUITY SHARES HAVE BECOME A POPULAR MODE OF INVESTMENT. THERE IS HUGE VARIETY TO CHOOSE FROM. DUE TO GLOBALIZATION AND VARIOUS UNCERTAINTIES OF MODER N TIMES, THERE IS INCREASING VOLATILITY IN THE SHARE MARKET. THIS HAS AFFECTED THE LENGTH OF PERIOD OF HOLDING IN THE CASES OF INVESTORS ALSO. HAVING REGARD TO THESE VARIOUS ISSUES UNDER THE PROVISIONS OF THE ACT WHERE SHARES ARE HELD FOR ONE YEAR AND MORE , THE SAME QUALIFY TO BE ASSESSED AS LONG TERM CAPITAL ASSETS. THE PERIOD OF LESS THAN ONE YEAR RESULTS INTO SHORT TERM CAPITAL ASSET. THERE IS NO MINIMUM PERIOD PRESCRIBED FOR SHORT TERM CAPITAL GAINS. IN CERTAIN CIRCUMSTANCES, HOLDING OF EVEN ONE DAY MAY RESULT INTO A SHORT TERM CAPITAL GAIN . IT IS TO BE NOTED THAT DUE TO LARGE NUMBER OF COMPANIES LISTED ON STOCK EXCHANGE AND VOLATILITY IN THE MARKET, EVEN A SERIOUS INVESTOR HAS TO FREQUENTLY SHUFFLE HIS PORTFOLIO BUT IT DOES NOT SIGNIFY THAT THE INVESTOR IS TRADING. PAGE 27 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 46 . AT ANY RATE, WHERE A PARTICULAR LOT OF SHARES ARE PRIMARILY INTENDED FOR TRADING, THE SAME WOULD NOT BE HELD FOR WEEKS OR MONTHS. IN THE CASE OF THE PRESENT ASSESSEE, ALL THE SHARES HAVE BEEN SOLD AFTER THE DELIVERY OF SAME WERE TAKEN BY IT IN ITS BANK ACCOUNT. THE EXPRESSION SIMILAR TRANSACTIONS BY THE SAME PERSON AND SAME SORT OF PROPERTY NEEDS TO BE EMPHASIZED. AN INVESTOR MAY BUY OR SELL EVERYDAY BUT THAT MAY NOT BE CONSIDERED SUCH FREQUENCY AS TO LEAD TO THE INFERENCE OF TRADING. IT IS ONLY WHEN PARTICULAR SCRIP IS BOUGHT AND SOLD A NUMBER OF TIM ES OVER A SHORT PERIOD THAT AN INFERENCE OF TRADING AS AGAINST INVESTMENT MAY BE DRAWN. IN THE CASE OF THE PRESENT ASSESSEE, THE ALLEGATION OF FREQUENCY IS NOT ONLY UNSUPPORTED BUT INCORRECT AS WELL IF SCRIP WISE DETAILS ARE ANALYZED IN PARA 21 AND 22 (S UP RA). ACCORDING TO THE LD. AR, ALL SHARES PURCHASED WERE DULY TRANSFERRED TO THE DMAT ACCOUNT OF THE ASSESSEE FIRM AND ALL THE TRANSACTIONS WERE DONE BY INVESTMENT IN SHARES THROUGH DYNAMIC EQUITIES PVT. LTD., A MEMBER OF BOMBAY STOCK EXCHANGE. 47 . FURTHER IT WAS SUBMITTED BY THE LD. AR S THAT AS AND WHEN THE OPPORTUNITY AROSE, THE ASSESSEE SOLD THE SHARES IN THE OPEN MARKET. ACCORDING TO HIM, THE SAID GAIN WAS IN THE NATURE OF SHORT TERM CAPITAL GAIN WHICH WAS DULY OFFERED FOR TAXATION IN THE RETURN OF INCO ME FILED BY THE ASSESSEE FIRM FOR THE YEAR UNDER CONSIDERATION AS WELL AS EARNED LONG TERM CAPITAL GAIN ON SHARES WHICH WERE SOLD AFTER ONE YEAR. FURTHER, IT WAS BROUGHT TO OUR NOTICE THAT ASSESSEE HAS NOT BORROWED FUNDS FOR THE PURPOSE OF MAKING INVESTME NTS SO AS TO CALL ITS ACTIVITIES AS BUSINESS. 48 . THE CBDT CIRCULAR NO. 4/2007, DATED 15.06.2007, WHICH HAS SPECIFICALLY SPELLED OUT THE CONDITIONS TO DETERMINE THE NATURE OF TRANSACTION WHICH IS IN QUESTION OF BEING WHETHER IT IS IN THE NATURE OF INVEST MENT OR TRADE. IN THE SAID CIRCULAR OF CBDT IT HAS STATED THE PRINCIPLE LAID DOWN IN THE CASE OF ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. AS REPORTED IN 82 ITR 586 AND IN THE CASE OF H. HOICK LARSEN AS REPORTED IN 160 ITR 67 (SC) WHICH AFFORDED A DEQUATE GUIDANCE TO THE ASSESSING OFFICER WHILE DETERMINING WHETHER A TRANSACTION IS IN THE NATURE OF INVESTMENT OR TRADE. WHEN THE RATIO OF THESE DECISIONS WHEN APPLIED PAGE 28 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) TO THE FACTS OF THE PRESENT CASE, THEN IT WOULD BE FOUND THAT ASSESSEE SATISFIED THE R EQUIREMENTS BECAUSE AS A RULE, THE ASSESSEE HAD TAKEN DELIVERY AT THE TIME OF PURCHASE AND GIVEN DELIVERY AT THE TIME OF SALE IN RESPECT OF ALL THE SHARES IN ITS INVESTMENT PORTFOLIO AND THE ASSESSEE HAD ALSO KEPT SEPARATE RECORDS TO RECORD THE TRANSACTION S OF EACH CATEGORY, I.E., DELIVERY BASED AND NON - DELIVERY BASED (F&O) . ALSO, BY TREATING THE DELIVERY BASED TRANSACTION AS AN INVESTMENT, THE ASSESSEE CLEARLY ESTABLISHED THAT IT DID NOT TAKE THE FIRST STEP AS A TRADER, HENCE, THE RESULT OF THE DELIVERY BA SED TRANSACTION IT WAS TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING OF SUCH SHARES. THE TESTS OF BADGES OF TRADE EVOLVED BY ROYAL COMMISSION OF ENGLAND AND APPROVED BY THE HONBLE SUPREME COURT ARE ALSO NOT MET BY THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE HAS DRESSED UP IN SUCH WAY SO AS TO WEAR THE BADGE OF TRADING. 49 . ADMITTEDLY THE ASSESSEE DOES NOT INDULGE IN ADVERTISING OR CA NVASSING OF ANY KIND WHATSOEVER AND THERE IS NO ORGANIZED EFFORT TO OBTAIN PROFIT. 50 . THE INTENTION OF THE ASSESSEE IS THE KEY TO DECIDE WHETHER THE TRANSACTION IN SHARES WAS FOR TRADING OR INVESTMENT LET US LOOK INTO SOME CASE LAWS IN CIT VS. JINDAL EXPORTS LTD. (DELHI) TM 101 ITD 129 WHERE IN THE IT WAS OBSERVED AT PAGE 139 AS UNDER : A COMPANY CAN BE SAID TO CARRY ON THE BUSINESS PARTLY IN SHARES ONLY WHERE THE SHARES ARE PURCHASED AS STOCK IN TRADE AND NOT OTHERWISE. IF SHARES ARE PURCHASED BY A COMPANY BY WAY OF INVESTMENT THEN LOSS AR ISING FROM THE SALE OF SUCH SHARES IN MY OPINION WOULD BE CAPITAL LOSS AND CAN NEVER BE CONSIDERED AS BUSINESS LOSS'. IN KARAM CHAND THAPAR & BROS (P) LTD. VS. CIT 82 ITR 899 THE SUPREME COURT HAS HELD THAT THE FACT THAT THE ASSESSEE HAD SHOWN THESE SHARES AS INVESTMENT SHARE IN ITS BOOKS AS WELL AS IN ITS BALANCE SHEET WAS BY ITSELF NOT CONCLUSIVE BUT IT WAS A RELEVANT CIRCUMSTANCES ON WHICH THE TRIBUNAL COULD HAVE RELIED FOR DRAWING ITS INFERENCE. 51 . IN PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATE LTD . VS CLT 292 ITR (AT) 268 THE ITAT SPECIAL BENCH HAS HELD AS UNDER 'SHARES MAY BE HELD BY AN ASSESSEE AS A CAPITAL INVESTMENT OR AS STOCK IN TRADE DEPENDING UPON A LARGE NUMBER OF FACTORS CHIEFLY THE INTENTION OF THE ASSESSEE. HOWEVER ONCE THE NATURE OF PAGE 29 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) SHAREHOLDING IS ACCEPTED OR KNOWN NO FURTHER TEST IS REQUIRED TO BE APPLIED FOR DETERMINING THE NATURE OF DIVIDEND INCOME. IF THE HOLDING OF SHARES IS BUSINESS (STOCK IN TRADE) THEN THE DIVIDEND EARNED IS BUSINESS INCOME, ALTHOUGH REQUIRED TO BE TAKEN U NDER THE HEAD 'OTHER SOURCE' FOR COMPUTING OF INCOME. IF SHARES ARE HELD AS A CAPITAL INVESTMENT THE DIVIDEND CANNOT BE TAKEN AS BUSINESS INCOME. 5 2 . THE HONBLE MADRAS HIGH COURT IN CIT VS. RAMAAMIRTHAM REPORTED IN 306 ITR 239 HAS OBSERVED THAT THERE IS NOTHING IN LAW WHICH PROHIBITS A TRADER IN SHARES TO INVEST IN SHARES. IT FURTHER HELD AS UNDER: 'HELD, DISMISSING THE APPEAL, THAT ON THE FACTS IT WAS FOUND THAT THE ASSESSEE HAD BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR TRADING IN SHAR ES AND INVESTMENT IN SHARES. THE ASSESSEE WAS CARRYING ON THE BUSINESS ONLY IN THE NAME OF THE COMPANY AND THE SURPLUS EARNED FROM THE COMPANY HAD BEEN SHOWN AS BUSINESS INCOME. THE PAYMENT FOR THE SHARES HAD BEEN DONE BY THE ASSESSEE IN HIS PERSONAL ACCOU NT. FURTHER, IT WAS FOUND THAT THE ASSESSEE HAD BEEN HOLDING SHARES FOR A LONG TIME AND HAD BEEN UTILIZING THE SURPLUS FUNDS ONLY FOR THE INVESTMENTS. IN EARLIER YEARS ALSO, THE ASSESSEE HAD BEEN SHOWING ONLY CAPITAL GAINS ON SIMILAR TRANSACTIONS AND THAT WAS ACCEPTED BY THE REVENUE. THE INTENTION OF THE ASSESSEE WAS RELEVANT TO DETERMINE WHETHER HE WAS CARRYING ON THE BUSINESS IN SHARES AND INVESTMENTS. ON THE FACTS BOTH THE FIRST APPELLATE AUTHORITY AND THE TRIBUNAL HAD CORRECTLY HELD THAT THE SURPLUS DERIVED FROM THE SALE OF SHARES HAD TO BE ASSESSED UNDER THE HEAD 'CAPITAL GAINS'. THE FINDINGS WERE BASED ON VALID MATERIALS AND EVIDENCE AN D THE ORDER OF THE TRIBUNAL WAS NOT A PERVERSE ONE WARRANTING INTERFERENCE. SIMILARLY THE HONBLE MADRAS HIGH COURT IN CIT VS TRISHUL INVESTMENTS LTD. 305 ITR 434 HAS STRESSED ON THE INTENTION OF THE ASSESSEE IN DETERMINING WHETHER IT WAS BUSINESS INCOME OR INCOME FROM CAPITAL GAINS. ON PAGE 437 THEIR LORDSHIPS HAVE OBSERVED AS UN DER: HEARD THE COUNSEL. THE ASSESSEE IS IN THE BUSINESS OF INVESTMENTS IN SHARES AND SECURITIES AND IT WAS NEVER IN THE BUSINESS OF TRADING IN SHARES. THE TERM 'BUSINESS' IS DEFINED IN SECTION 2( 13) OF THE ACT. THE 'CAPITAL ASSET' IS DEFINED IN SECTION 2( 14) OF THE ACT. THE TEST TO DECIDE WHETHER IT WAS AN INVESTMENT OR AN ADVENTURE. IN THE NATURE OF TRADE, HAS A VERY THIN LINE OF DEMARCATION. EVEN A SINGLE INSTANCE OF TRANSACTION CAN BE REGARDED AS BUSINESS AN 'EVEN MULTIPLE TRANSACTION SOMETI MES IS DEEMED AS INVESTMENTS. SO THE CRITERIA FOR DECIDING . WHETHER IT IS INVESTMENT OR BUSINESS ARE THAT OF THE INTENTION OF THE ASSESSEE. VIZ WHETHER THE ASSESSEE'S REAL INTENTION IS TO INVEST OR THE INTENTION WAS IN THE NATURE OF TRADE. PAGE 30 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THE FINDINGS GIVEN BY THE TRIBUNAL IS THAT THE ASSESSEE HAD NO INTENTION TO TRADE IN SHARES. HENCE, THE PURCHASE OF SHARES COULD NOT BE BUSINESS ASSET IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS RIGHTLY OFFERED THE SAME UNDER THE HEAD 'CAPITAL GAINS' THE TRIBUNAL AL SO CORRECTLY ARRIVED AT A CONCLUSION THAT IT IS ONLY AN INVESTMENT ACTIVITY AND HELD THAT THE PROFITS DERIVED FROM SALE OF SHARES IS SUBJECT TO CAPITAL GAINS.' 53 . IN THE CASE OF COMMISSIONER OF INCOME - TAX (CENTRAL), CALCUTTA V. ASSOCIATED INDUSTRIAL DEVE LOPMENT CO. (P.) LTD. [1971] 82 ITR 586, THE HONBLE SUPREME COURT OBSERVED THAT: 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK - IN - TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE IN STOCK - IN - TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT.' 54 . THE MUMBAI ITAT (HAVING IDENTICAL FACTS AS IN THE CASE OF THE APPELLANT), IN THE CASE OF GOPAL PUROHIT VS. CIT (2009) 122 DJ 87 (MUMBAI) WHEREIN IT HAS BEEN SPECIFICALLY HELD: THE ASSESSEE WAS ENGAGED IN SALE AND PURCHASE OF SHARES. TH E DELIVERY BASED TRANSACTIONS WERE TO BE TREATED AS OF NATURE OF INVESTMENT AND PROFITS THERE FROM WERE TO BE TREATED AS SHORT TERM OR LONG TERM CAPITAL GAINS DEPENDING ON PERIOD OF HOLDING. SUCH PROFITS COULD NOT BE TREATED AS BUSINESS INCOME.' 55 . THE S AID JUDGMENT HAS FURTHER BEEN UPHELD BY THE HON'BLE BOMBAY HIGH COURT REPORTED AT 228 CTR 582 (2010). IN THE PRESENT CASE, ALL THE TRANSACTIONS ARE DELIVERY BASED TRANSACTIONS ONLY. THE ASSESSEE ALSO EARNED DIVIDEND OF RS.1,09,444/ - THEREON. IT IS A LSO NOTED THAT THE APPELLANT HAD NOT CLAIMED THE AMOUNT OF SIT PAID BY IT AS BUSINESS EXPENDITURE. 5 6 . FURTHER, THE COURTS HAVE DECIDED THAT A PERSON CAN BE A TRADER AS WELL AS AN INVESTOR FOR SOME TYPES OF TRANSACTIONS DONE WITH DIFFERENT MOTIVES. (I) RAM NARAIN SONS (P) LTD. V CLT AS REPORTED IN 41LTR 534 (SC), (II) OWARKADAS KESARDEV MORARKA AS REPORTED IN 44 ITR 625 (SC), (III) CLT VS. MADAN GOPAL RADHEYLAL AS REPORTED IN 73 ITR 652 (SCE) PAGE 31 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) (IV) CIT V. ASSOCIATED DEVELOPMENT CO. LTD. AS REPORTED IN 82 ITR 586 (SC). THE ABOVE JUDGMENTS CLEARLY STATE THAT THE SAME PERSON CAN BE A TRADER AS WELL AS INVESTOR IN SHARES. 57 . WE HAVE REPRODUCED THE TABLE ON PARA 22 (SUPRA) WHICH DIVULGES THE DATES OF PURCHASE OF THESE SHARES STARTING FROM 28 TH AUGUST 2007 TO 04 FEB 2008 AND, THEREAFTER, THE SALE STARTED FROM 24 TH MAY 2009 TILL 25 TH SEPTEMBER 2009 IN RESPECT TO HIS CLAIM FOR TREATING THE GAIN A PERUSAL OF THE TABLE REPRODUCED IN PARA 33 (SUPRA) IT REVEALS THAT AS LONG TERM CAPITAL GAINS WHEREAS FOR CLAI MING SHORT TERM CAPITAL GAIN THE ASSESSEE HAS PURCHASED THE SHARE FROM 12 JUNE 2008 TO 15 TH OCTOBER 2008 AND SALE WAS BETWEEN 5 TH MAY 2009 TILL 24 TH OCTOBER 2009. THE ASSESSEE PAID STT AT THE TIME OF SALE OF SUCH SHARES. THIS TABLE INDICATES THAT THE ASSES SEE FIRSTLY PURCHASED ALL THE SHARES OVER A PERIOD OF TIME AND, THEREAFTER, STARTED THEIR DISPOSAL. IN OTHER WORDS, THERE IS NO FREQUENT IN AND OUT OF THESE SHARES. 58 . IT IS MANIFEST FROM A PERUSAL OF THE BALANCE SHEET AT PAGE 4 INVESTMENT, SCHEDULE 2, REVEALS AN INVESTMENT OF RS.3,87,78,265/ - FOR THE YEAR ENDING 31.03.2010. AND FROM A PERUSAL OF THE BALANCE SHEET OF ASSESSMENT YEAR 2008 - 09 AT THE TIME OF PURCHASE OF SHARES IT IS REFLECTED AS INVESTMENTS . (35/DPB, VOL - II, WHICH CONTINUES TO BE REFLECTED AS INVESTMENT IN ASSESSMENT YEAR 2009 - 10 (66 - 72) DPB VOL - II), AND WHEN IT IS SOLD OUT IN THIS ASSESSMENT YEAR OBVIOUSLY IT WILL NOT FIGURE AS INVESTMENT IN THE BALANCE SHEET OF THE RELEVANT A SSESSMENT YEAR SO FROM THE SAID FACT, IT IS DISCERNIBLE THAT THE ASSESSEE HAD THE INITIAL INTENTION TO HOLD THESE SHARES AS `INVESTMENT . THIS IS ANOTHER REASON TO SHOW THE ASSESSEES INTENTION OF HOLDING THE SHARES AS INVESTMENT AB INITIO. 59 . THE CONTENTION OF THE LD DR THAT INVESTMENT IN SHARES WERE NOT REFLECTED AS INVESTMENT IN THE BALANCE SHEET IS FACTUALLY INCORRECT. ON THE CONTRARY, SHARES HELD BY THE APPELLANT WERE DULY SHOWN AS 'INVESTMENT' IN THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 S T MARCH, 2008 AND 31 ST MARCH, 2009. THE SAID SHARES WERE NOT ACQUIRED/ HELD AS 'STOCK - IN - TRADE'. PAGE 32 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 60 . THE LD DR POINTED TO THE RETURN FROM ASSESSMENT YEAR 2011 - 12 FILED BY PB LETTER DATED 17.12.2014, WHEREIN SHE TOOK OUR ATTENTION TO PAGE 2 OF THE ITR WHEREIN INVESTMENT COLUMN IS SHOWN AS NIL AND SHE CONTENDED THAT IF THE ASSESSEE WAS INVESTING IN SHARES , HE COULD HAVE DULY REFLECTED IT IN THE COLUMN SPECIFIED FOR IT IN THE ITR FORM. SO THE LD DRS CONTENTION WAS THAT ASSESSEE WAS IN BUSINESS OF SHARES AND HAS NOT SO REFLECTED ABOUT SHARES IN THE INVESTMENT COLUMN. THERE IS A FLAW IN THE AFORESAID CONTENT ION OF THE LD DR, FOR THE SIMPLE REASON THAT A PERUSAL OF PAGE 1 OF ITR FORM REVEALS PART A - BALANCE SHEET WHERE THE PARTICULARS ARE REQUIRED TO BE FURNISHED OF THE PROPRIETARY BUSINESS AS IS EVIDENT FROM A PERUSAL OF THE SAME. WHEN THE ASSESSEE IS NOT DO ING TRADING/ BUSINESS IN SHARES THEN HE HAS RIGHTLY NOT REFLECTED THE SAME IN PAGE 2 OF THE ITR FORM, WHEREAS IF HE WAS DOING BUSINESS OF SHARES HE SHOULD HAVE REFLECTED IT. HOWEVER WE FIND THAT, THE ASSESSEE HAD FILED ALONG WITH THE ITR FORM, THE BALANCE SHEETS IN WHICH INVESTMENT IN SHARES ARE SEPARATELY SHOWN FOR M/S. GMR INFRA, M/S. BALRAMPUR CHINI, PACELEP TEXTILES IN PAGE 35/DPB VOL - II WHICH WAS BROUGHT IN ASSESSMENT YEAR 2008 - 09. 61 . IT IS ALSO A MATTER OF RECORD THAT ALL THE TRANSACTIONS IN RESPEC T OF SHARES WERE DELIVERY BASED AND WERE HELD FOR A SUBSTANTIAL PERIOD OF TIME PRIOR TO TRANSFER. FURTHERMORE, SHARES WHICH WERE SOLD DURING THE RELEVANT ASSESSMENT YEAR WERE ACQUIRED IN THE EARLIER YEAR(S) AND WERE ACCEPTED TO BE INVESTMENT IN THE ASSESSM ENT YEAR 2009 - 10. THEN, IT IS NOT OPEN TO THE REVENUE TO CONTEND THAT INCOME FROM SHARES TRANSFERRED IS TAXABLE AS BUSINESS INCOME AND NOT AS CAPITAL GAIN. THE SUPREME COURT IN THE CASE OF KARAM CHAND THAPAR AND BROS (P) LIMITED VS. CI T: 82 ITR 899 WHEREIN THE COURT HELD THAT MANNER OF DISCLOSURE OF INVESTMENTS IN BOOKS, THOUGH NOT CONCLUSIVE, IS VERY MATERIAL. 62. TO THE LD DRS CONTENTION THAT ACCOUNT STATEMENT WITH TAMIL NADU CLEARLY SHOWS THAT THE OPENING STOCK OF MANY SCRIPTS BROUGHT WERE ZERO, IT WAS CLARIFIED BY THE LD AR THAT THE DEMAT STATEMENT, VIZ., TAMILNAD STATEMENT WHICH HAS BEEN FILED BY THE DR FOR THE PERIOD FROM 1.4.2004 TO 14.3.2013, I.E., FOR A PERIOD OF 10 YEARS. THE SAID STATEMENT CONTAINS SCRIPT WISE DETAILS OF THE INVESTMENT MADE BY PAGE 33 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THE APPELLANT OVER A PERIOD OF 10 YEARS. INSOFAR AS SHARES ACQUIRED DURING THE INTERVENING PERIOD, SAY IN 2008, OBVIOUSLY THE OPENING BALANCE AS ON 01.04 .2004 WOULD BE REFLECTED AS NIL IN THE STATEMENT FROM THE PERIOD FROM 01.04. 2004. THEREFORE, THE CONT ENTION OF THE DR THAT IN RESPECT OF CERTAIN SCRIPTS OPENING BALANCE IS SHOWN AS NIL IS , IT IS INCORRECT. FOR EXAMPLE, SHARES IN M/ S. AFTEK LIMITED WERE ACQUIRED ON 22.01.2008 (REFER PAGE 2 OF DPB - VOLL). SINCE THE SAID SHARES WERE ACQUIRED IN 2008, OBVIOU SLY THE OPENING BALANCE AS ON 01.04 .2004 WOULD BE NIL. WE FIND NOT H ING TURNS AROUND THE SAID CONTENTION OF THE LD DR AND SO IS REJECTED. 63 . AS REGARDS THE CONTENTION OF THE LD DR THAT THE ASSESSEE HAD TRANSACTION IN FUTURE & OP TION (F&O), WE FIND THAT IT IS A MATTER OF RECORD THAT INCOME FROM F&O TRANSACTIONS WERE DULY DECLARED AS 'BUSINESS INCOME' B Y THE APPELLANT. IN FACT, IT IS THE CASE OF THE APPELLANT THAT INCOME FROM F&O TRANSACTIONS , WHICH ARE NON - DELIVERY BASED TRANSACTIONS, ARE ON BUSINESS/ TRADIN G ACCOUNT WHEREAS, TRANSACTIONS ON PURCHASE AND SALE OF SHARES, WHICH ARE DELIVERY BASED AND HELD FOR SUBSTANTIAL PERIOD OF TIME PRIOR TO TRANSFER, ARE OF CAPITAL ACCOUNT. IN IDENTICAL CIRCUMSTANCES, THE COURTS AND VARIOUS BENCHES OF THE TRIBUNAL IN THE FO LLOWING DECISIONS HAVE HELD THAT ASSESSEE HAS RIGHTLY DECLARED NON - DELIVERY BASED TRANSACTIONS AS BUSINESS INCOME AND DELIVERY BASED TRANSACTIONS AS RESULTING IN CAPITAL GAIN: CIT V. GOPAL PUROHIT: 336 LTR 287 (80M.) [AFFIRMING GOPAL PUROHIT: 122 TTJ 87 (MUM] THE SUPREME COURT HAS DISMISSED DEPARTMENTAL APPEAL: 334 ITR 308 (ST.) (SC). ( REFER PAGES 1 - 3 OF ASSESSEE PAPER BOOK OF CASE LAW ) CIT V. M.G. SHARE & STOCK (P.) LTD.: ITA NO. 177 OF2014 (DEL) CIT V. VINAY MITTAL: 208 TAXMANN 106 (DEL.) [REFE R PAGES 11 - 14 OF ASSESSEE PAPER BOOK OF CASE LAW] CIT V. M/S DEVASAN INVESTMENT PVT. LTD: ITA NO. 1102 & 1103/ 20 II (DEL.) [REFER PAGES 15 - 33@27 OF ASSESSEE PAPER BOOK OF CASE LAW] CIT V. JUBILANT SECURITIES (P.) LTD.: 333 ITR 445 (DEL) CIT V. CNB FINWIZ LTD.: 228 TAXMAN 175 (DEL) PAGE 34 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 64 . AS REGARDS THE CONTENTION OF THE DR THAT DIVIDEND WAS RECEIVED IN RESPECT OF SHARES HELD AS INVESTMENT AS WELL AS TRADING, IT IS COMMON KNOWLEDGE THAT SHARES WOULD RESULT IN DIVIDEND, IRRESPECTIVE OF THE F ACT WHETHER SHARES ARE HELD AS INVESTMENT AS STOCK - IN - TRADE. THE VERY FACT THAT DIVIDEND WAS RECEIVED ON SHARES HELD AS INVESTMENT SUPPORTS THE CONTENTION OF THE APPELLANT THAT SHARES WERE ACQUIRED ON CAPITAL ACCOUNT AS 'INVESTMENT' TO EARN INCOME (I.E., D IVIDEND) THERE FROM AND NOT FOR TRADING PURPOSES. 65 . THE LD DRS CONTENTION INSOFAR AS BUSINESS OF APPELLANT BEING SHOWN AS SHARE TRANSACTION IN FORM 3CD, IT WAS POINTED OUT BY THE LD AR THAT THE SAID DISCLOSURE WAS IN FACT ON ACCOUNT OF BUSINESS OF DEAL ING IN F&O TRANSACTIONS. ON PERUSAL OF CLAUSE 12(A) OF FORM 3CD, IT IS NOTICED THAT OPENING/ CLOSING STOCK OF INVENTORY IS SHOWN AS NIL, WHICH SUPPORTS THE CASE OF THE APPELLANT THAT SHARES WERE HELD AS 'INVESTMENT' AND NOT AS 'STOCK - IN - TRADE'. 66 . THE AL LEGATION OF LD DR ABOUT FREQUENT TRADING WAS VEHEMENTLY DENIED BY THE LD AR. HE TOOK OUR ATTENTION TO PAGES 4 TO 10 OF THE ASSESSMENT ORDER, AND SHOWED US THAT THE ASSESSING OFFICER HAS REPRODUCED TRANSACTIONS FOR THE PERIOD FROM 01.04.2007 TO 31.03.2013, I.E., SPREAD OVER PERIOD OF 6 YEARS . ON THE CONTRARY WE FIND THAT THE SHARES TRANSFERRED DURING THE YEAR WERE HELD FOR SUBSTANTIAL PERIOD OF TIME PRIOR TO ITS TRANSFER AS IS EVIDENT FROM A PERUSAL OF PARA 22 AND 23 (SUPRA) THAT THE ASSESSEE SOLD TOTAL ONLY FIVE (5) SCRIPS TO EARN BOTH THE LTCG AND STCG. 67 . THE ALLEGATION OF THE LD DR THAT AMOUNT WERE ADVANCED TO M/ S. SHUBKARAN DAS CHIRANJI LAL FOR TRADING IN SHARES IS FACTUALLY INCORRECT FOR THE SIMPLE REASON AS POINTED OUT BY THE LD AR T HAT THE SAID FIRM HAS NEVER TRADED/ INVESTED / PURCHASED SHARES, B UT IS ENGAGED IN THE FAMILY BUSINESS OF TRADING IN TEXTILE. IN FACT , IT IS NOBODY S CASE, NOT EVEN ASSESSING OFFICER/ CIT(A) THAT THE ADVANCES WERE GIVEN BY THE APPELLANT TO THE SAID FIRM FOR TRADING IN SHAR ES. THE CONTENTION OF THE LD DR IS CONTRARY TO FACTS EMERGING FROM R ECORDS AND CAN BEST BE TERMED AS GUESS WORK. PAGE 35 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) 68 . THE CONTENTION OF LD DR THAT TRANSACTION IN SHARES WAS NOT SUBJECT MATTER OF SCR UTINY IN ASSESSMENT YEAR 2009 - 1 0 (AND NOT A. Y 2008 - 09 AS MENTIONED BY DR) IS NOT CORRECT. IN FACT, OFFICE NOTE APPENDED TO THE ASSESSMENT ORDER (REFER PAGE 3 OF DPB - VOL IV WHICH HAS BEEN REPRODUCED IN THIS ORDER IN PARA 79 MAKES IT PATENTLY CLEAR THAT TRANSACTION IN SHARES WERE DULY EXAMINED BY THE ASSESSING OFFICER. 69 . IT MAY BE NOTED THAT ONCE NATURE OF SHARES ARE ACCEPTED IN THE EARLIER ASSESSMENT YEAR , THEN THE SAME CANNOT BE DENIED IN THE SUBSEQUENT YE AR AT THE TIME OF TRANSFER. THE FOLLOWING CASES SAY THAT : CIT V. GOPAL PUROHIT: 336 ITR 287 (BOM.) [AFFIRMING GOPALPUROHIT: 122 TTJ 87 (MUM.) THE SUPREME COURT HAS DISMISSED DEPARTMENTAL APPEAL: 334 ITR 308 (ST.) (SC). [REFER PAGES 1 - 3 OF ASSESSEE PAPER BOOK OF CASE LAW] CIT VS. DEVASAN INVESTMENT P. LTD: [T AS 1102 & 110312 011 (DEL HC) [REFER PAGES 15 - 33 @ 27 OF ASSESSEE PAPER BOOK OF CASE LAW] CIT V. AVINASH JAIN (2013) 214 TAXMAN 260/362 ITR 441 (DEL) [REFER PAGES 38 - 39 & 40 - 47 @ 46 OF ASSESSEE PAPER BOOK OF CASE LAW] CIT VS. GULMOHAR FINANCE LIMITED: 170 TAXMAN 483 (DE L) [REFER PAGES 34 - 37 @ 36 OF ASSESSEE PAPER BOOK OF CASE LAW] SUNIL KUMAR GANERIWAL V. DCIT: 134 ITD 179 (MUM.) [REFER PAGES 48 - 53@ 51 OF ASSESSEE PAPER BOOK OF CASE LAW] ] DCIT VS. SMK SHARES & STOCK BROKING : ITA NO. 799/MUM.L2009 (MUM) [REFER PAGES 91 - 98 @. 91 OF ASSESSEE PAPER BOOK OF CASE LAW) 7 0 . THE CONTENTION OF THE LD DR AGAINST SALE OF SHARES OF M/S BALRAMPUR CHINI IS NOT UNDERSTANDABLE. T HE FACT IS THAT SHARES IN M/ S BALRAMPUR CHINI W ERE ACQUIRED IN JANUARY, 2008 AND SOLD AFTER HOLDING THE SAME FOR AROUND 1 1/ 2 (ONE AND HALF) YEARS, SUPPORTS THE CONTENTION OF THE APPELLANT THAT SHARES WERE ACQUIRED AND HELD AS INVESTMENT AND NOT AS STOCK IN TRADE. 71 . THE CONTENTION OF LD DR THAT DIVI DEND OF RS. 2,58,758/ - IS MEAGRE TAKING INTO CONSIDERATION THE VOLUME OF INVESTMENT THE ASSESSE E HAS MADE QUESTIONS THE VERACITY OF THE CLAIM, I T SHOULD BE REMEMBERED THAT RECEIPT OF DIVIDEND IS DEPENDENT ON VARIOUS FACTORS VIZ., DECLARATION OF DIVIDEND BY THE INVESTEE PAGE 36 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) COMPANY, HOLDING OF SHARES ON THE RECORD DATE, ETC AND CANNOT BE THE ONLY INDICATOR TO DECIDE THE NATURE OF GAIN. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASHOK WADIA: 224 TAXMAN 23 , WHEREIN THE HONBLE HIGH COURT HELD THAT THE QUANTUM OF DIVIDEND IS NOT RELEVANT IN DETERMINING THE NATURE OF GAIN ARISING ON TRANSFER OF SHARES. 72 . AS REGARDS THE DECISIONS REFERRED BY THE LD DR ARE CONCERNED, THE SAM E ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACT OF THE PRESENT CASE AS ELABORATED HEREUNDER: - A) DALHOUSIE TRUST COMPANY INVESTMENT: 68 ITR 486 (SC): IN THAT CASE SHARES WERE HELD AS STOCK - IN - TRADE BY THE ASSESSEE AND THEREFORE PROFIT WAS HELD TO BE I N THE NATURE OF BUSINESS INCOME. IN THE PRESENT CASE, SHARES ARE HELD AS 'INVESTMENT' AND NOT AS STOCK - IN - TRADE AND THEREFORE, GAIN HAS RIGHTLY BEEN OFFERED FOR TAX UNDER THE HEAD 'CAPITAL GAIN'. B) RAJA BAHADUR VISHESHWARA SINGH VS. CLL: 41 ITR 685(SC): IN THAT CASE, ON ACCOUNT OF SUBSTANTIAL NATURE OF TRANSACTIONS, MAGNITUDE OF SHARES, TRANSACTION OF SALE OF SHARES WERE HELD TO BE BUSINESS INCOME. IN THE PRESENT CASE, GAIN AROSE ON ACCOUNT OF TRANSFER OF FIVE SCRIPTS ONLY AND THERE WERE NO SUBSTANTIAL TR ANSACTIONS OF PURCHASE/SALE OF SHARES. THE SHARES WERE HELD AS INVESTMENT AND NOT AS STOCK - IN - TRADE AND ALL THE TRANSACTIONS WERE DELIVERY BASED. C) C IT V. MADAN GOPAL RADHEY LAL : 73 ITR 652 (SC): IN THAT CASE, THE ASSESSEE WAS HOLDING SHARES AS 'STOCK - I N - TRADE' AND WAS ALLOTTED BONUS SHARES IN PROPORTION TO ITS EXISTING HOLDING. IN THESE FACTS, GAIN ARISING ON TRANSFER OF SHARES WERE HELD TO BE IN THE COURSE OF AND PART OF SHARE DEALING BUSINESS AND WAS HELD TO BE REVENUE RECEIPT. IN FACT, IN THE SAID DECISION, THE APEX COURT CATEGORICALLY OBSERVED, 'A TRADER MAY ACQUIRE A COMMODITY IN WHICH HE IS DEALING FOR HIS OWN PURPOSES, AND HOLD IT APART FROM THE STOCK - IN - TRADE OF HIS BUSINESS. PAGE 37 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THERE IS NO PRESUMPTION THAT EVERY ACQUISITION BY A DEAL ER IN A PARTICULAR COMMODITY IS ACQUISITION FOR THE PURPOSE OF HIS BUSINESS; IN EACH CASE THE QUESTION IS ONE OF INTENTION TO HE GATHERED FROM THE EVIDENCE OF CONDUCT BY THE ACQUIRER AND HIS DEALINGS WITH THE COMMODITY. THE AFORESAID OBSERVATIONS CLEARLY SUPPORT THE CASE OF THE APPELLANT RATHER THAN SUPPORTING THE CASE OF THE REVENUE. D) IN KARAN R. BAHL VS. ITO: 60 SOT 63, THE TRIBUNAL SIMPLY REITERATED THE SETTLED LEGAL POSITION THAT THE PRIMARY ONUS IS ON THE ASSESSEE THAT THE SHARES WERE HELD AS INVE STMENT. IN THE PRESENT CASE, THE ASSESSEE HAS CLEARLY DISCHARGED THE AFORESAID ONUS BY POINTING OUT THAT SHARES WERE HELD AS 'INVESTMENT' AND NON AS STOCK - IN - TRADE AS REFLECTED IN THE FINANCIAL STATEMENTS, WHICH HAS BEEN HELD BY THE SUPREME COURT IN THE CASE OF KA RAM CHAND THAPAR AND BROS (P) LIMITED VS. CIT: 82 ITR 899 TO BE MATERIAL FACTOR. FURTHER, ALL THE TRANSACTIONS OF PURCHASE/ SALE OF SHARES WERE DELIVERY BASED AND THERE WAS SUBSTANTIAL HOLDING PERIOD PRIOR TO TRANSFER OF SHARES. E) SANJAY KUMAR JHABAK VS. DCLT: 63 SOT 66(BOM): IN THAT CASE HOLDING PERIOD OF ASSESSEE WAS FEW DAYS ONLY AND THERE WAS SUBSTANTIAL FREQUENCY AND REGULARITY OF TRANSACTION. IN THESE FACTS, IT WAS HELD THAT INCOME FROM TRANSFER OF SHARES IS TAXABLE AS BUSINESS INCOME. IN THE PRESE NT CASE, SHARES WERE HELD FOR SUBSTANTIAL PERIOD OF TIME. F ) DCIT VS. MUKESH BHAI BABU LAL SHAH: 57 SOT 45: IN THAT CASE ON ACCOUNT OF LARGE TURNOVER OF SHARES AND THE FACT THAT THE ASSESSEE DID NOT COMPUTE CAPITAL GAIN IN ACCORDANCE WITH SECTION 48, THE TRIBUNAL HELD THAT THE DOMINANT INTENTION TRADING IN SHARES. PAGE 38 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) THE AFORESAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE INASMUCH AS THE ASSESSEE DEALT WITH ONLY FIVE SCRIPTS DURING THE RELEVANT YEAR AND THE GAINS WERE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 45 OF THE ACT. G ) MANOJ KUMAR SANDA RIA VS. CIT: ITA NO.97 OF2014: IN THAT CASE, THE TRIBUNAL NOTICED THAT THE SHARES WERE TRADED VERY FREQUENTLY AND THE AVERAGE PERIOD WAS ONE MONTH ONLY. IT WAS FURTHER NOTICED THAT VOLUME OF TRANSACTION IN 25 SCRIPTS WAS QUITE HIGH. IN THOSE FACTS, GAIN ARISING ON TRANSFER OF SHARES WAS HELD TO BE BUSINESS INCOME. IN THE PRESENT CASE, GAIN AROSE IN ONLY 5 SCRIPTS AND THE SHARES WERE HELD FOR SUBSTANTIAL PERIOD OF TIME. 7 3 . ANOTHER FACTOR WHICH IS OF PARAMOUNT IMPORTANCE IS THE ASSESSEES CONTENTION RAISED BEFORE THE AUTHORITIES BELOW THAT THESE SHARES WERE PURCHASED OUT OF THE ASSESSEES OWN FUNDS WITHOUT MAKING ANY BORROWING. THIS ARGUMENT OF THE ASSESSEE HAS NOT BEEN CONTROVERTED ON BEH ALF OF THE REVENUE BY ANY COGENT MATERIAL, WHEREAS, IT IS CLEAR FROM A PERUSAL OF THE AUDITED BALANCE SHEET AT P.4 OF P.B. THAT THE SHARES WAS BROUGHT FROM APPELLANTS OWN FUND. 7 4 . APART FROM THAT, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE TOOK DELIVERY OF SUCH SHARES AFTER MAKING FULL PAYMENT AND IT WAS NOT A CASE OF SETTLING THE TRANSACTION OF PURCHASE AND SALE OF SUCH SHARES DURING THE SETTLEMENT PERIOD ITSELF. THIS IS ANOTHER REASON TO INDICATE THAT THE INTENTION OF THE ASSESSEE TO HOLD THEM AS INVES TMENT. 7 5 . ANOTHER FACTOR WHICH NEEDS TO BE MENTIONED IS THAT THE ASSESSEE WAS CONSISTENTLY HOLDING SOME OTHER SHARES AS INVESTMENT OVER A PERIOD OF TIME AND WAS REGULARLY EARNING INCOME FROM THEIR SALE BY DECLARING PROFIT AS SHORT - TERM CAPITAL GAIN OR LONG - TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF THEIR HOLDING. EARLIER YEARS ALSO THE ASSESSEE WAS ENGAGED IN THE PURCHASE OF SHARES AS INVESTMENT AND SHOWING PROFIT FROM THEIR SALE UNDER THE HEAD CAPITAL GAINS. THIS TREATMENT OF PROFIT FROM SALE OF SHARES HELD AS INVESTMENT HAS NOT BEEN DISPUTED PAGE 39 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) BY THE AO IN THE ASSESSMENTS MADE U/S 143(3) OF THE ACT. THE ASSESSEE HAS PLACED ON RECORD A COPY OF THE ASSESSMENT ORDERS FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR ( PAGE 22 - 26 OF PAPER BOOK) IN WHICH TH ERE WAS SHORT - TERM CAPITAL GAIN WHICH HAS BEEN ACCEPTED BY THE AO VIDE HIS ORDER DATED 22.12.2011. IT IS PERTINENT HERE TO ADD THAT THE AO HAS CONFIRMED THE GENUINENESS OF THE SHORT TERM CAPITAL GAIN FOR THE SAID ASSESSMENT YEAR 2009 - 10 BY MAKING AN OFF ICE NOTE WHICH IS ANNEXED AT PG. 3 OF DEPARTMENTAL PAPER BOOK, VOLUME - IV WHICH IS AS UNDER: - NAME: SH. ASHISH CHOUDHARY PAN:AAAPC2274L A.Y.:2009 - 10 OFFICE NOTE AS PER AIR INFORMATION AND REASON FOR SELECTION THE UNDERSIGNED HAS EXAMINED THE GENUINENESS OF STCG U/S 11A. THE AR OF THE ASSESSEE SUBMITTED THE DETAILS OF STT PAYMENTS. NECESSARY DETAILS WERE PRODUCED AND FILED WHICH WERE EXAMINED AND NO ADVERSE INFEREN CE WAS DRAWN. (AASTHA LAKSHMI) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 29(1), NEW DELHI 76 . SIMILARLY ORDERS PASSED U/S 143 (1) FOR ASSESSMENT YEAR 2008 - 09 (DEPARTMENTAL PAPER BOOK - VOLUME II P - 1 TO 23 AND FOR ASSESSMENT YEAR 2011 - 12 (ASSESSEES PAPER BOOK VOLUME II) ACCEPTING THE CLAIM OF INVESTMENT OF SHARES FROM WHICH CAPITAL GAIN WAS EARNED BY THE ASSESSEE. A COPY OF SUCH ORDERS ARE AVAILABLE ON RECORD FROM WHICH IT IS MANIFEST THAT THERE IS NO ALTERATION IN THE CHARACTER OF INCOME SHOWN BY THE ASS ESSEE. THE PRINCIPLE OF CONSISTENCY IN TE RMS OF THE ASSESSEE DOING BUSINESS IN F & O TRANSACTION AS WELL AS INVESTMENT IN SHARES CANNOT BE LOST SIGHT OF. 77 . IN VIEW OF THE ABOVE DISCUSSION, AND AFTER CAREFUL CONSIDERATION OF VARIOUS CASE LAWS AND THE BOA RDS CIRCULAR ON THE SUBJECT REFERRED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT(A) ERRED BY HOLDING THAT THE ASSESSING OFFICER WAS JUSTIFIED IN CHANGING THE TREATMENT OF INCO ME OF APPELLANT FROM SHORT TERM CAPITAL PAGE 40 OF 40 ITA NO. 5227/DEL/2014 (ASSESSMENT YEAR: 2010 - 11) GAINS AND LONG TERM CAPITAL GAI N TO INCOME FROM BUSINESS. THE IMPUGNED ORDER TO TREAT THE INCOME OF RS. 4,06,124 / - DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAINS AS BUSINESS INCOME AND TO TREAT THE INCOME DECLARED BY THE ASSESSEE AS LONG TERM CAPITAL GAIN OF RS.2,77,73,257/ - AS BUSINESS INCOME IS NOT SUSTAINABLE IN THE EYES OF LAW AND SO IT NEED TO SET - ASIDE AND WE DO SO. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS, WE SET ASIDE THE FINDING OF THE LD CIT(A) AND WE ALLOW THE APPEAL. 78 . IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 .06.2015 . - S D / - - S D / - ( S.V.MEHROTRA) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12/ 06 / 2015 * A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELH I
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