STOREWELL CREDITS & CAPITAL P. LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 5286/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7565 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: H P MAHAJANI
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E BENCH BEFORE SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) AND SHRI VIVEK VARMA (JUDICIAL MEMBER) ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 STOREWELL CREDITS & CAPITAL P. LTD., KEJRIWAL HOUSE, 7 N GAMADIA ROAD, MUMBAI-26. PA NO.AADCS 9561 Q ADDL. CIT, RANGE 5(3) 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400 020 (APPELLANT) VS. (RESPONDENT) APPELLANT BY : MR H.P.MAHAJANI RESPONDENT BY: MR C.G.K. NAIR DATE OF HEARING: 5.3.2012 DATE OF PRONOUNCEMENT: 21.3.2012 ORDER PER VIVEK VARMA, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 16.7.2009 OF THE CIT(A)-V, MUMBAI, FOR THE ASSESSMENT YEAR 2 008-09, WHEREIN, THE CIT(A) UPHELD THE OBSERVATIONS MADE BY THE AO IN THE ASSESSMENT O RDER PASSED UNDER SECTION 143(3) OF THE ACT ON 5.12.2008. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE, IN THE RELEVANT ASSESSMENT YEAR, IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHA RES. THE PROFIT THERE FROM HAS BEEN OFFERED TO TAX AS SHORT TERM CAPITAL GAINS. THE AS SESSING OFFICER LOOKING INTO THE DETAILS SUBMITTED BEFORE HIM, NOTICED THAT THERE WE RE NUMEROUS TRANSACTIONS OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE COMPANY . THE ASSESSING OFFICER, THUS, HELD THAT THE SALE AND PURCHASE OF SHARES MADE BY T HE ASSESSEE COMPANY WHICH WERE CONTINUOUS, ORGANIZED AND SYSTEMATIC WOULD ONLY RES ULT INTO THE BUSINESS ACTIVITY NOT THE ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 2 INVESTMENT AS SHOWN BY THE ASSESSEE. HE, THEREFORE , HELD THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE IN THE NATURE OF BUSINESS AND NOT AS INVESTMENT. AGGRIEVED BY THE FINDINGS OF THE AO, THE ASSESSEE PREFERRED A PPEAL BEFORE THE CIT(A), WHEREIN, IT WAS ONCE AGAIN PLEADED THAT THE TRANSACTIONS ENTERE D INTO BY THE ASSESSEE WERE NOT IN THE NATURE OF BUSINESS. THE CIT(A) NEGATED THE GRI EVANCE OF THE ASSESSEE AND SUSTAINED THE OBSERVATIONS OF THE AO. AGGRIEVED, T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE ASSESSE HAS PREFERRED THE FOLLOWI NG GROUNDS OF APPEAL: 1. THE LD CIT(A) ERRED IN HOLDING THAT THE APPELLA NT WAS A DEALER IN SHARES AND THE PROFIT/LOSS ARISING ON SALE OF SUCH SHARES WAS ASSESSABLE TO TAX AS BUSINESS INCOME AND NOT AS CAPITAL GAIN AS CONTENDED BY T HE APPELLANT. 2. THE LD CIT(A), IN THE FACTS AND CIRCUMSTANCES OF THE CASE OUGHT TO HAVE HELD THAT THE APPELLANT HELD THE SHARES IN LISTED COMPAN IES AS INVESTMENTS AND NOT AS STOCK IN TRADE. 3. THE LD CIT(A) ERRED IN NOT FOLLOWING THE ORDERS OF HIS LEARNED PREDECESSOR FOR A.Y. 2004-05 AND 2005-06 WHERE THE APPELLANTS STAN D THAT IT WAS HOLDING THE SHARES AS INVESTMENTS AND THE PROFIT ARISING ON SAL E OF SHARES WAS ASSESSABLE AS CAPITAL GAIN WAS ACCEPTED. 4. THE LD CIT(A) ERRED IN HOLDING THAT THE FOLLOWIN G DECISIONS RELIED UPON BY THE APPELLANT WERE NOT APPLICABLE TO THE FACTS OF THE P RESENT CASE. A. GOPAL PUROHIT VS. JCIT, 20 DTR 99 B. BOMBAY GYMKHANA LTD VS ITO, 115 TTJ 639 C. J.M.SHARE & STOCK BROKER LTD VS JCIT, 2801 & 28 02/M/2000. 4. BEFORE THE BENCH, THE ASSESSEE HAS FILED A PAPER BOOK, WHEREIN, THE ASSESSEE HAS SHOWN THE MOVEMENT OF VARIOUS SHARES DURING THE CURRENT YEAR. IT WAS POINTED OUT BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAS BEEN DOING THIS BUSINESS FROM THE ASSESSMENT YEARS 2004-05 AND 2005-06. THIS IS THE THIRD YEAR OF THE BUSINESS OF THE ASSESSEE. THE APPEALS FOR THE ASSESSMENT YEARS 200 4-05 AND 2005-06 ARE ALSO BEFORE THE TRIBUNAL BUT SINCE THE MAIN ORDERS ARE IN THE C URRENT YEAR I.E. 2006-07, THE ASSESSEE PRAYED THAT THE APPEAL FOR THE ASSESSMENT YEAR 2006 -07 MAY BE TAKEN PRIOR TO THE PRECEDING TWO ASSESSMENT YEARS. THERE WAS NO OBJECT ION BY THE LEARNED DEPARTMENTAL REPRESENTATIVE HENCE THE APPEAL IS BEING TAKEN UP. ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 3 5. AS POINTED OUT IN PRECEDING PARAGRAPH, THE ASSES SEE COMPANY, DURING THE YEAR HAD OFFERED TO TAX INCOME FROM SHORT TERM CAPITAL G AIN. THE ASSESSING OFFICER ISSUED A LETTER TO THE ASSESSEE ASKING FOR COMPLETE DETAILS ON THE ACTIVITIES OF DEALING IN SHARES AND WHY THESE DEALINGS IN SHARES SHOULD NOT BE TREA TED AS BUSINESS INCOME. THE ASSESSEE VIDE ITS SUBMISSIONS DATED 10.10.2008 SUBM ITTED THAT THE NATURE OF BUSINESS WAS THAT OF INVESTMENT. THE AO, IN THE ASSESSMENT ORDER HAS GIVEN BRIEF POINTS CULLED OUT FROM THE SUBMISSIONS DATED 10.10.2008 WHICH ARE AS UNDER: I) THE ASSESSEE IS A PVT. LTD. COMPANY FORMED IN 19 94 WITH THE OBJECT OF MAKING INVESTMENT. INVESTMENT IN SHARES IS AN INDE PENDENT ACTIVITY OF THE COMPANY AND NOT ITS USUAL TRADE OR BUSINESS. II) THE INVESTMENTS ARE MADE WITH THE OBJECT OF LON G TERM APPRECIATION ONLY. III) THE ASSESSEE HAS MADE INVESTMENTS IN ABOUT 25 SCRIP S ONLY, AND THE RATIO OF AVERAGE INVESTMENTS HELD BY THE ASSESSEE AS COMP ARED TO ITS TOTAL AVERAGE ASSETS IS 29%. THUS, THE ACTIVITY OF MAKIN G INVESTMENTS IN SHARES AND SECURITIES IS NOT SUBSTANTIAL. IV) ALL TRANSACTIONS ARE DELIVERY BASED, AND THEY ARE N OT ENTERED INTO CONTINUOUSLY AND REGULARLY. AS AND WHEN OPPORTUNIT IES ARISE FOR BETTER EARNING BY WAY OF DIVIDEND OR APPRECIATION IN SHARE S, THE COMPANY DECIDES TO MAKE INVESTMENTS. V) THE COMPANY HAS MADE INVESTMENTS IN SHARES PARTLY W ITH BORROWED FUNDS, BUT THE THRUST WAS ON UTILIZATION OF OWN FUN DS. VI) NONE OF THE OBJECT CLAUSES IN THE MEMORANDUM AND AR TICLES OF ASSOCIATION PERMIT THE ASSESSEE TO TRADE OR CARRY O N BUSINESS OF BUYING AND SELLING OF SHARES. VII) THE AVERAGE HOLDING PERIOD PER SHARE SCRIP IS 195 D AYS, AND THE AVERAGE HOLDING PERIOD OF MAJORITY OF THE SCRIPS IS MORE TH AN 90 DAYS. VIII) THE TIME DEVOTED BY THE COMPANY FOR INVESTMENT IN S HARES IS MINIMAL. THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR S ET UP OF THE OFFICE OR OTHER INFRASTRUCTURAL FACILITIES. THERE ARE NO EMP LOYEES. THE TRANSACTIONS ARE MONITORED BY THE DIRECTORS ONLY. IX) THE BALANCE SHEET OF THE COMPANY REFLECTS THE SHARE S AND SECURITIES AS INVESTMENTS. THE INTENTION OF THE COMPANY IS TO HO LD THE SHARES ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 4 PURCHASED FOR LONGER DURATION. HENCE, IT IS SHOWN UNDER THE HEAD OF INVESTMENT AS LONG TERM INVESTMENTS. X) ALL THE SECURITIES PURCHASED AND SOLD ARE LISTED AN D ALL TRANSACTIONS ARE DONE ON THE RECOGNISED STOCK EXCHANGE. XI) ALL INVESTMENTS ARE IN INDEPENDENT COMPANIES. XII) THE COMPANY PURCHASES SHARES WITH THE INTENTION OF INVESTMENT, WHEREIN, THE COMPANY TAKES DELIVERY OF ALL SHARES PURCHASED AND THE SAME IS HELD IN THE COMPANYS DEMAT ACCOUNT OVER A PERIOD OF TIM E TILL THE SAME ARE SOLD. THE CONTRACT NOTES/BILLS PROVIDE ALL THE REL EVANT DETAILS. THIS CLEARLY INDICATES THAT THE TRANSACTIONS ARE NOT MERE BOOK E NTRIES. IN SHORT, THE ASSESSEE CO. EXPLAINED THAT IT WAS AN INVESTOR IN STOCK MARKET. 6. ON GOING THROUGH THE FACTS, IT IS FOUND THAT THE ASSESSEE HAD PURCHASED SHARES WORTH RS. 11.57 CRORES AND SOLD SHARES WORTH RS. 16 .97 CRORES AND IT WAS HELD THAT THE AVERAGE HOLDING PERIOD OF THE SHARES WAS 90 DAYS. THE ASSESSEE BEFORE THE CIT(A) HAD MADE SIMILAR SUBMISSIONS AND FROM THE CIT(A)S ORDE R, IT IS FOUND THAT THE CIT(A) MADE OBSERVATIONS THAT THERE WOULD BE NO SINGLE PRINCIPL E THAT WOULD BE DECISIVE AS TO GIVE THE DEFINITE CONCLUSIONS TO SHOW WHETHER THE SHARES ARE HELD AS INVESTMENT OR STOCK-IN- TRADE. THE CIT(A) IN HIS ORDER REFERRED TWO CBDT C IRCULARS NO.1827 DT. 31.8.1989 AND NO.4 OF 2007. IN BOTH THE CIRCULARS, WHAT HAS BEEN LAID DOWN IS THAT IN PRINCIPLE, COURTS SHOULD GUIDE THE ASSESSING OFFICER IN A PARTICULAR CASE WHETHER SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR AS STOCK-IN-TRADE. THE C IT(A) FURTHER CITED THE CASE OF G.VENKATSWAMI NAIDU, 35 ITR 594 (SC), WHERE THE HON BLE SUPREME COURT HAS LAID DOWN THREE PRINCIPLES AS UNDER: 1. WHETHER THE PURCHASER WAS A TRADER AND THE PUR CHASE OF THE COMMODITY AND ITS RESALE WERE ALLIED TO HIS USUAL TRADE OR BU SINESS OR WHERE INCIDENTAL TO IT. 2. THE NATURE AND QUANTITY OF COMMODITY PURCHASED AND RESOLD-IF THE COMMODITIES PURCHASED IS IN VERY LARGE QUANTITY, IT WOULD TEND TO ELIMINATE THE POSSIBILITY OF INVESTMENT FOR PERSONAL USE, POS SESSION OR ENJOYMENT. 3. THE REPETITION OF THE TRANSACTION. ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 5 7. THE CIT(A) ALSO IN HIS ORDER, INTER ALIA, STA TES AS UNDER: ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERMINAT IVE OF THE NATURE OF THE NATURE OF TRANSACTIONS THOUGH IT IS ONE OF THE GUID ING FACTORS. SIMILARLY, THE FACT THAT THE ASSESSEE HAS VALUED THE CLOSING STOCK OF SHARES BY TREATING IT AS AN INVESTMENT IS ONLY RELEVANT BUT NOT A DETERMINAT IVE FACT TO DECIDE THE NATURE OF TRANSACTIONS CARRIED OUT BY THE APPELLANT. THE APPELLANT HAS RELIED ON THE DECISION OF MY PREDECESSOR IN THE ASSESSMENT YEAR 2 004-05 TO ARGUE THAT THE TRANSACTIONS CARRIED OUT BY IT ARE TRANSACTIONS OF PURCHASE AND SALE OF INVESTMENT AND, THEREFORE, INCOME OR LOSS FROM SUCH TRANSACTIONS SHOULD BE TREATED AS CAPITAL GAIN OR CAPITAL LOSS. IN TH IS REGARD IT MAY BE MENTIONED THAT THE PRINCIPLE OF RE JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS. HOWEVER, ISSUE DECIDE IN THE EARLIER YEARS SHOULD N OT NORMALLY BE DISTURBED UNLESS THERE ARE REASONS TO TAKE A DIFFERENT VIEW. RELIANCE IS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF RADHASWAMI SATSANG, 193 ITR 321. THE ISSUE, WHETHER THE APPELLANT HAS CARRIED OUT BU SINESS IN PURCHASE AND SALE OF SHARES OR NOT, IS TO BE DECIDED IN EACH YEAR REG ARDLESS OF THE FACT WHETHER SUCH ACTIVITIES WERE TREATED AS TRANSACTIONS OF PUR CHASE AND SALE OF INVESTMENTS IN EARLIER YEAR BECAUSE FACTS AND CIRCU MSTANCES ARE LIKE TO DIFFER YEAR AFTER YEAR. THE REVENUE AUTHORITIES HAVE THUS RELIED UPON THE P RINCIPLES THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DETERMINING FACTOR TO DECI DE THE REAL NATURE OF TRANSACTION AND TO HOLD AS TO WHAT COMPRISES OF THE BUSINESS ACTIVI TY, IT WAS NECESSARY TO GO INTO THE VOLUME, FREQUENCY AND REGULARITY OF TRANSACTIONS. 8. COMING TO THE FACT OF THE CASE AND LOOKING INTO THE ACCOUNTS OF THE ASSESSEE AS PLACED IN THE PAPER BOOK, IT IS FOUND THAT THE ASSE SSEES BORROWINGS DURING THE CURRENT YEAR HAVE ACTUALLY REDUCED FROM RS. 2.69 CRORES IN FINANCIAL YEAR 2003-04 TO RS. 1.90 CRORES IN FINANCIAL YEAR 2004-05 TO RS. 1.30 IN CUR RENT YEAR AS AGAINST THE TOTAL INVESTMENTS OF RS. 11.57 CRORES. EFFECTIVELY, THER E ARE 0% BORROWINGS. ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 6 9. LEARNED A.R. FURTHER DREW OUR ATTENTION TO THE H OLDINGS PATTERNS OF DIFFERENT SCRIPS AND VIDE DIFFERENT CHARTS APPENDED WITH APB, LEARNED A.R. SUBMITTED THAT HE HAD PROVIDED HOLDING DATA AND AVERAGE HOLDING OF THE EA CH OF THE SCRIPS (APB 11-20). IT WAS, THEREFORE, SUBMITTED BY THE LD A.R. THAT IN MO ST OF THE SHARES, HOLDING PERIOD EXCEEDED WELL OVER 60 DAYS AND IN CERTAIN SHARES EX CEEDED 365 DAYS. WHILE DEALING WITH THESE ISSUES, LD A.R. SUBMITTED THAT THERE WAS SUBSTANTIAL ACTIVITY OF THE MOVEMENTS OF THE SHARES OF PRAJ INDUSTRIES LTD. HE FURTHER SU BMITTED THAT THE MOVEMENTS IN THE SHARES OF PRAJ INDUSTRIES WERE BECAUSE OF HUGE VOLA TILITY IN THE MARKET QUOTATIONS OF THIS SCRIP, BUT DESPITE MAJOR ACTIVITY IN THIS SCRIP, TH E AVERAGE HOLDING PERIOD WAS 261 DAYS. THE LEARNED AR TOOK US TO THE DETAIL AT PAGE 21 OF APB, WHERE THE STATEMENT OF CLOSING STOCK AS ON 31.03.2006, WHERE IT WAS POINTED OUT TH AT THE AVERAGE HOLDING DAYS WERE 1378 DAYS. LEARNED A.R. WHILE REFERRING TO THE MOVE MENT OF THE SHARES CATEGORICALLY STATED THAT NO SHARE WAS ACQUIRED WITHOUT ACTUAL DE LIVERY. LEARNED A.R. FURTHER SUBMITTED THAT THE INTENTION OF THE INVESTOR/TRADER HAS TO BE SEEN AT THE TIME OF ACQUISITION OF SHARES. EVEN THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA IN ITS ACCOUNTING STANDARD 13 HAS DEALT WITH THE INTENTION OF THE BUSINESS DEAL. THE A.R. FURTHER SUBMITTED THAT THE PROVISION FOR TREATMENT OF SHARES AS LONG TERM AND SHORT TERM WAS ALWAYS THERE IN THE LEGISLATION AND TO SIMPLIFY THE EXISTING PROVISION, THE GOVERNMENT THROUGH THE HONBLE FINANCE MINISTER IN HIS BUDGET SPEECH, WAY BACK IN 1987 PROCEEDED TO CURTAIL THE HOLDING PERIOD OF SHA RES FOR THE PURPOSES OF TREATMENT OF LONG TERM FROM 36 MONTHS TO 12 MONTHS. LEARNED A.R. DREW OUR ATTENTION TO PARA 82 OF THE FINANCE MINISTERS SPEECH, WHEREIN, THE HONBLE FINANCE MINISTER SAYS THIS WILL PROVIDE GREATER FLEXIBILITY TO INVESTOR AND ALSO IM PROVE THE MOBILITY OF CAPITAL INVESTED IN SHARE. IN SUPPORT OF THIS PROPOSITION, THE LEARNED AR PLACED BEFORE US A COPY OF JUDGMENT IN THE CASE OF CIT VS. PODAR CEMENT PVT. L TD. & OTHERS REPORTED IN 226 ITR 625, WHEREIN THE HONBLE SUPREME COURT EXPLAINED TH E DOCTRINE OF UPDATING CONSTRUCTION. LEARNED A.R SUBMITTED THAT THE LEGISL ATURE DOES NOT CREATE A BAR ON THE INVESTOR OF SHARES, IN TRADING IN SHARES. FACTUALL Y ALSO, THE INVESTOR IS NOT EXPECTED TO KEEP ON INVESTING WITHOUT HAVING SOME SORT OF ROTAT ION OF MONEY. THIS ROTATION OF MONEY CAN ONLY BE ACHIEVED BY HAVING CERTAIN ELEMEN T OF TRADING IN THE PORTFOLIO. WHILE SUBMITTING THIS, THE LEARNED A.R. DREW OUR ATTENTIO N TO THE DETAILS OF LONG TERM CAPITAL GAIN AND LOSS, WHEREIN, THE AR EXPLAINED TO THE BEN CH THAT IN FACT, THE ASSESSEE ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 7 COMPANY HAS SHOWN LONG TERM CAPITAL GAINS IN THE SC RIPS FOR RCF AND PRAJ INDUSTRIES LTD., THOUGH THE SCRIP OF PRAJ INDUSTRIES LTD., DOES FIGU RE IN THE DETAILS OF SHORT TERM CAPITAL GAINS AS WELL. LD AR FURTHER SUBMITTED THAT IN CAS E OF SHORT TERM CAPITAL GAINS, SECTION 111A OF THE ACT WAS ATTRACTED AND ALL THE TRANSACTI ONS WERE SUBJECT TO STT. DURING THE COURSE OF HEARING LD. AR SUBMITTED A SYNOPSIS WHERE IN, THE AR DREW OUR ATTENTION THAT IF COMPLETE ANALYSIS IS TO BE MADE, THE TOTAL NO. OF A LL TYPES OF TRANSACTIONS OF PURCHASES HAVE BEEN 30 AND ALL THESE 30 TRANSACTIONS ARE DELI VERY BASED, BESIDES THE AVERAGE HOLDING OF SHORT TERM TRANSACTIONS IS 192 DAYS AND AVERAGE HOLDING FOR LONG TERM TRANSACTION IS 470 DAYS. 10. THE AR OF THE ASSESSEE CO. ANALYZED THE VARIOUS CASE LAWS PLACED BY THE LD CIT(A) IN THE IMPUGNED ORDER AND COUNTERED THE ARGU MENT OF THE AO AND SUBMITTED THAT THE ASSESSEE WAS AN INVESTOR AND CANNOT BE CON SIDERED AS A TRADER. IN DOING SO, THE AR PLACED BEFORE US TWO SETS OF PAPER BOOKS COM PRISING THE SYNOPSIS OF VARIOUS CASE LAWS RELIED UPON BY HIM, THE CASE LAWS ARE AS UNDER : PAPER BOOK OF CASE LAWS NO. 1 IN THE CASE OF SHANTILAL JAIN VS. ACIT (ITA NO.269 0/M/2010 A.Y. 2006- 07), DESPITE LARGE VOLUME ETC. OF SHARE TRANSACTION S, AO BOUND BY RULE OF CONSISTENCY TO TREAT SHARE GAINS AS STCG. RAMESH B ABU RAO VS. ACIT (ITA NO.3719/M/2009 A.Y. 2005-06), LARGE VOLUME/ FREQU ENCY IN SHARES NOT DECISIVE FACTOR TO HOLD ASSESSEE TRADER. NAGINDAS SHETH HUF VS. ACIT (ITA NO.961 & 1386/M/2010), DESPITE LARGE NUMBER OF TRAN SACTIONS IN SHARES, PROFIT ASSESSABLE AS CAPITAL GAINS. DELIVERY BASED TRANSAC TIONS RESULT IN CAPITAL GAINS. ACIT VS. NAISHADH VACCHARIAJANI (ITA NO.6429/M/2009 ), DESPITE HIGH VOLUME & SHORT HOLDING PERIOD, GAINS IS STCG. SHARES HELD FO R 2 TO 5 MONTHS IS INDICATION OF STCG. PROFIT FROM DELIVERY BASED TRANSACTION IS STC G. SUGAMCHAND SHAH VS ACIT (ITA NO.4024/AHD/2008 A.Y. 2005-06 AND ITA NO.2219/ AHD/2009) A.Y. 2006-07, MERE USE OF BORROWED FUNDS DOES NOT MEAN BUSINESS. TREATMENT IN BOOKS AS INVESTMENT IS RELEVANT. S.K.FINANCE VS ACIT (ITA N O.6190/M/2008), TREATMENT IN BOOKS AS INVESTMENT IMPORTANT. LARGE VOLUME / FR EQUENCY OF TRANSACTIONS NOT DECISIVE. CIT VS. NAISHADH V VACHHARAJANI (INCOME T AX APPEAL (L) NO.1042 OF 2011, ITAT DECISION UPHELF BY HIGH COURT. SHRI MAH ENDRA C.SHAH VS ACIT (ITA ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 8 NO.6289/M/2008 & 4932/M/2009), DESPITE BORROWINGS, SHARES GAIN CAN BE STCG & NOT BUSINESS PROFITS. HITESH SATISCHANDRA DOSHI V S JCIT (ITA NO.6497/M/2009 & 6603/M/2009), EVEN GAIN ON SHARES HELD FOR 30 DAY S & LESS IS STCG & NOT BUSINESS PROFITS. PAPER BOOK OF CASE LAWS NO. 2 IN THE CASE OF SMK SHARES & STOCK BROKING PVT LTD. (ITA NO.799/M/2009), LARGE VOLUME OF PURCHASE & SALE OF SHARES DOES NOT PER SE MEAN ACTIVITY IS BUSINESS. SHRI VINOD K. NEVATIA V S ACIT (ITA NO.6556/M/09 & 181/M/10), SHORT PERIOD OF HOLDING SHARES DOES NOT PER SE SUGGEST BUSINESS ACTIVITY. NEHAL V.SHAH VS ACIT (ITA NO.2733/M/2009 ), MULTIPLE ORDERS FOR PURCHASE / SALE OF SHARES MAY CONSTITUTE ONE TRANSA CTION. CIT VS. PNB FINANCE & IND LTD (ORDER DT. 18.10.10) (DELHI H.C.), THOUGH M AIN OBJECT IS TO DO BUSINESS IN SHARES, SHARES CAN BE HELD AS A CAPITAL ASSET & NOT STOCK IN TRADE. TREATMENT IS BOOKS AS INVESTMENTS IMPORTANT. JANAK RANGWALA, 11 SOT 627(MUM), INTENTION TO HOLD SHARES AS INVESTMENT RELEVANT FACTOR. MERE LARGE VOLUME OF TRANSACTIONS DOES NOT MAKE IT BUSINESS. BOMBAY GYMKHANA LTD., 1 15 TTJ 639(BOM), MERE LARGE MAGNITUDE & NUMBERS OF TRANSACTIONS WITHOUT A NYTHING ELSE IS NOT DECISIVE. J.M.SHARE AND STOCK BROKERS LTD VS JCIT (ITA NO.280 1/M/10 & ORS), TREATMENT N BOOKS OF ACCOUNT IS RELEVANT. MERE VOLUME & FREQUEN CY OF TRANSACTIONS DOES NOT MEAN BUSINESS. GOPAL PUROHIT, 29 SOT 117(BOM), TREA TMENT IN BOOKS OF ACCOUNT IN RELEVANT RULE OF CONSISTENCY APPLIED. DELIVERY BASED TRANSACTIONS TO BE ASSESSED AS CAPITAL GAINS. ESSJAY ENTERPRISES (P) L TD., 9 SOT 695(DEL), ACCOUNTING TREATMENT IN BOOKS VITAL. FACT THAT ONE OF THE OBJECT CLAUSE IN MEMORANDUM ALLOWS TRADING IN SHARES IS NOT CONCLUSI VE. REVA INVESTMENT PVT LTD., 35 ITD90(AHD), CAPITAL INVESTMENT WOULD NOT L OSE ITS CAPITAL NATURE MERELY BECAUSE RESALE WAS FORESEEN & CONTEMPLATED BY ASSES SEE. TRISHAL INVESTMENTS LTD., 305 ITR 434(MAD), ASSESSEES INTENTION TO HOL D SHARES AS INVESTMENT RELEVANT. TREATMENT IN BOOKS VITAL. KANKHAL INVEST MENTS AND TRADING CO.P.LTD., 301 ITR 359(AT)(BOM), INVESTOR DOES NOT MERELY INVE ST FOR DIVIDEND BUT ALSO FOR CAPITAL APPRECIATION. TREATMENT IN BOOKS AS LONG TE RM INVESTMENTS VITAL. MERE VOLUME / NO. OF COMPANIES INVESTED IS NOT RELEVANT. ROHIT ANAND, 34 DTR(DEL) ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 9 89, LARGE VOLUME / FREQUENCY OF TRANSACTIONS NOT DE CISIVE. TREATMENT IN BOOKS VITAL. PERIOD OF HOLDINGS OF 5 MONTHS INDICATES INV ESTMENT NATURE. INTENTION AT THE TIME OF PURCHASE RELEVANT. ROHIT ANAND, 46 DTR (DEL) 236, ITAT DECISION UPHELD BY HIGH COURT. CLOSING THE ARGUMENTS, THE LD. AR SUBMITTED BEFORE US THAT TAKING INTO ACCOUNT THE FACTS AND THE CASE LAWS AS CITED BY HIM, THE VIEW TAKEN B Y THE ASSESSEE CO. WAS CORRECT AND NEEDS TO BE ACCEPTED. 11. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT THE ASSESSEE IS A COMPANY HAVING A PERMANENT PLACE OF B USINESS. THE ASSESSEE IS ALSO UTILISING BORROWED FUNDS FOR THE PURPOSES OF ITS BU SINESS. LEARNED D.R. FURTHER DREW OUR ATTENTION THAT THE ASSESSEE COMPANY EARNED MINISCUL E AMOUNT OF DIVIDEND AS COMPARED TO THE SHARES HELD. THIS CLEARLY SHOWS THAT THE AS SESSEE COMPANY WAS A TRADER AND NOT AN INVESTOR. HE FURTHER SUBMITTED THAT THE QUESTIO N OF VOLATILE MARKET DOES NOT AFFECT THE INVESTOR IN SHARES THOUGH IT WOULD DEFINITELY A FFECT THE PERSONS WHO IS TRADING IN SHARES. THEREFORE, THE INVESTOR DOES NOT LOOK INTO THE VOLATILITY IN THE MARKET. LEARNED D.R. FURTHER SUBMITTED THAT SINCE THE ASSESSEE WAS MAINTAINING AN OFFICE AND WAS UTILIZING BORROWED FUNDS, THE QUESTION OF THE ASSES SEE BEING AN INVESTOR IS MOST UNLIKELY. HE PLACED ON RECORD A DECISION OF MUMBAI ITAT IN TH E CASE OF IMMORTAL FINANCIAL SERVICES PVT. LTD. VS. DCIT, REPORTED IN 44 SOT 88, WHEREIN IT WAS HELD THAT THE ACTIVITY OF FREQUENT BUYING & SELLING WERE TO BE TREATED AS BUSINESS AND NOT AS CAPITAL GAIN. 12. IN THE REJOINDER, LEARNED A.R. SUBMITTED THAT T HE ASSESSEE CO. WAS NOT MAINTAINING ANY OFFICE FOR THE PURPOSE OF ITS BUSIN ESS BUT WAS DOING THE BUSINESS FROM THE RESIDENCE OF ITS DIRECTOR. LEARNED A.R. FURTHE R TOOK US TO THE PROFIT AND LOSS ACCOUNT, WHEREIN, HE INVITED OUR ATTENTION TO THE TOTAL EXPE NDITURE INCURRED BY THE ASSESSEE AT RS. 1.57 CRORES. OUT OF RS. 1.57 CRORES, RS. 1.28 CROR ES AND RS. 20 LAKHS ARE ON ACCOUNT OF LOSS IN SALE OF SHARES AND INTEREST, THEREBY, THESE TWO ENTRIES ITSELF AMOUNT TO RS. 1.48 CRORES. THE REMAINING RS. 9 LAKHS ARE OTHER EXPENS E WHICH INCLUDES STT, DEPRECIATION, ETC. HE, THEREFORE, SUBMITTED THAT THE AOS VERSIO N THAT THE ASSESSEE IS DOING BUSINESS FROM A WELL EQUIPPED OFFICE IS A MISPLACED FACT, BA SED ON CONJECTURES. THE LEARNED AR ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 10 ALSO DISTINGUISHED THE FACTUAL MATRIX OF THE CASE C ITED BY THE LEARNED DR AND THE CASE OF THE ASSESSEE AND POINTED OUT THAT IN THE CASE OF IM MORTAL FINANCIAL SERVICES PVT.LTD. IT WAS FOUND THAT THE SHARES WERE HELD A VERY FEW DAYS . IN SOME CASES FOR A FEW MONTHS BUT IN NO CASE THE HOLDING OF ANY SHARE WAS MORE TH AN 85 DAYS, WHEREAS IN THE CASE OF THE ASSESSEE THE AVERAGE HOLDING IN SHORT TERM CAPI TAL GAIN WAS 192 DAYS AND IN LONG TERM THE AVERAGE HOLDING WAS 470 DAYS. 13. THE QUESTION WHETHER PARTICULAR HOLDING IS INVE STMENT OR STOCK IN TRADE IS A MATTER WITHIN THE KNOWLEDGE OF THE ASSESSEE AND IT IS FOR THE ASSESSEE TO PRODUCE EVIDENCE FROM THE RECORDS AS TO WHETHER HE MAINTAIN ED SHARES AS INVESTMENTS. NO DOUBT, VOLUME, FREQUENCY AND REGULARITY AT WHICH TR ANSACTIONS ARE CARRIED OUT INDICATE SYSTEMATIC AND ORGANIZED ACTIVITY WHICH MAKES IT BU SINESS AND NOT INVESTOR, BUT THE INTENTION OF THE ASSESSEE TO HOLD AND RESELL, UNDER THE CHANGED CIRCUMSTANCES WOULD MAKE IT CAPITAL GAIN (CIT V/S. P.K.N. CO. LTD. 60 I TR 65). THE HONBLE APEX COURT IN JANKI RAM BAHADUR RAM V/S. CIT 57 ITR 21, HELD THAT NO SINGLE FACT HAS ANY DECISIVE SIGNIFICANCE AND THE QUESTION MUST BE ANSWERED DEPE NDING UPON THE COLLECTIVE EFFECT OF ALL RELEVANT MATERIAL BROUGHT ON RECORD. 14. ON HEARING BOTH SIDES, IT IS CLEAR THAT THE HOL DING PATTERN BY THE ASSESSEE CO. HAS TO BE TAKEN INTO ACCOUNT. IT IS SEEN THAT THE ASSES SEE CO. HAS DEMONSTRATED THAT DESPITE THE FACT, THAT THERE WERE SUBSTANTIAL MOVEMENT IN S OME OF THE SCRIPS (PRAJ) , THE AVERAGE HOLDING IN ALL SHARES PUT TOGETHER EXCEED 1 92 DAYS, I.E. MORE THAN SIX MONTHS. THIS ITSELF ESTABLISHES THAT THE ASSESSEE CO. HAS B EEN HOLDING ON ITS PURCHASES. THE ASSESSEE CO. FURTHER ESTABLISHES THE FACT THAT IN T HE CURRENT YEAR THE INVESTMENTS ARE MORE THAN 10 TIMES THE BORROWINGS, WHICH ACCORDING TO THE AR BORROWINGS, WERE EFFECTIVELY 0% AGAINST INVESTMENTS. THE AR OF THE A SSESSEE CO. VERY EFFECTIVELY POINTED OUT THAT ALL PURCHASE HAVE BEEN DELIVERY BASED, WHI CH THE DR COULD NOT CONTROVERT. THE FACT THAT THE ASSESSEE CO. IN CONDUCTING ITS BUSINE SS FROM ITS RESIDENCE GOES TO PROVE THAT THE OBSERVATION OF THE AO AND CIT(A) THAT THE ASSESSEE HAS BEEN CONDUCTING BUSINESS IN A CONTINUOUS, ORGANIZED AND SYSTEMATIC MANNER DOES NOT SEEM TO INSPIRE CONFIDENCE, BECAUSE IF THE ASSESSEE CO. IS CONDUCTI NG ITS PORTFOLIO FROM RESIDENCE, IT ITA NO.5286 /MUM/2009 ASSESSMENT YEAR: 2006-07 11 CANNOT BE ORGANIZED AND SYSTEMATIC AND IF THE HOLDI NG PATTERN IS BETWEEN 192 DAYS TO 470 AND CLOSING STOCK HOLDING, AVERAGES 1378 DAYS C ANNOT BE CALLED CONTINUOUS. 15. TAKING IN TO ACCOUNT ALL THE FACTS AND GOING IN TO THE REFERRED CASE LAWS, AS PLACED BEFORE US, ALONGWITH THE CASE OF GOPAL PUROHIT, WHI CH HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT, WHICH SQUARELY APPLY TO THE ASSE SSEES CASE IN THE PRESENT SET OF CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT T HE ASSESSEE CO. IS AN INVESTOR AND NOT A TRADER IN SHARES. 16. THE OBSERVATIONS, HERE IN ABOVE TAKE CARE OF TH E GROUNDS AS MENTIONED IN THE ORDER, IN PARA NO. 3. 17. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED. PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2012 SD/- SD/- (B.RAMAKOTAIAH) (VI VEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 21 ST MARCH, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A), -MUMBAI 4. COMMISSIONER OF INCOME TAX, MC- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH E MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI