Dr. Prannath Nagpal, Ahmedabad V. The J.T.CIT., (Asstt.), Spl.Range-5, Ahmedabad

ITA 537/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9048 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 28-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 03-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C
• Keywords: Capital asset; Business income; Advance ruling; Question of law; Capital Gains
• Section: 2(14); 143(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI A.N.PAHUJA, ACCOUNTANT MEMBER ITA NO.537/AHD/2006 ASSESSMENT YEAR:2001-02 DATE OF HEARING:28.8.09 DRAFTED:2.9.09 DR. PRANNATH NAGPAL, RETINA FOUNDATION, NEAR. SHAHIBAUG UNDER BRIDGE, AHMEDABAD [PAN :AAUPN4445L] V/S . JOINT COMMISSIONER OF INCOME TAX (ASSTT.) SPL. RANGE-5, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI SANJAY R SHAH, AR REVENUE BY:- SHRI M.C. PANDIT, DR O R D E R A.N.PAHUJA :THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 31- 10-2005 OF LD. CIT(APPEALS) -XV, AHMEDABAD, RAISES THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ORDER OF THE A.O THAT SHARES HELD AS STOCK-IN-TRADE UPTO 31-03-1996 AND CONVERTED INTO INVESTMENTS ON 01-04- 1996 IS NOT ACCEPTED AND THAT SUCH SHARES WOULD CONTINUE TO BE STOCK-IN-TRADE OF THE APPELLANT AND THAT THE GAIN ON SALES OF SHARES (OUT OF THESE SHARES) DURING THE YEAR AMOUNTING TO RS.2,57,034/- WOULD CO NSTITUTE BUSINESS INCOME AND THAT SUCH SALE WILL NOT GIVE RISE TO LON G TERM GAIN OF RS.63,708/- AS CLAIMED BY YOUR APPELLANT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE O F YOUR APPELLANT, THE LEARNED CIT OUGHT TO HAVE 1. ALLOWED THE CONTENTION OF THE APPELLANT AND ALLO WED THE CONVERSION OF STOCK-IN-TRADE INTO INVESTMENTS AND TREATED THE GAINS ARISING FROM SALE OF SUCH SHARES AS GIVING RISE TO LONG TERM CAP ITAL GAINS WITH ALL INCIDENTAL FALL OUTS ARISING THEREFROM TO BE CONSID ERED OR GIVEN EFFECT TO ACCORDINGLY. ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 2 2. THE LEARNED CIT HAS ERRED ON FACTS AND IN LAW WH ILE UPHOLDING THE DISALLOWANCE OF TELEPHONE EXPS. FOR PERSONAL USE AT RS.15,000/-. YOUR APPELLANT SUBMITS THAT THE ESTIMATE MADE BY LE ARNED ACIT IS ON VERY HIGHER SIDE AND NEEDS TO BE SUITABLY REDUCED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AMEND , MODIFY OR SUBSTITUTE ALL OR ANY OF THE GROUNDS BEFORE THIS AP PEAL IS FINALLY DISPOSED OF 2. FACTS, IN BRIEF, AS PER THE RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.27,86,914/- FILED ON 31-10-2001 BY TH E ASSESSEE, A PRACTICING OPHTHALMOLOGIST, AFTER BEING PROCESSED U/S 143(1) O F THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S.143(2) OF THE ACT ON 24-10-2002 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD SHOWN LONG TERM CAPITAL GAINS OF RS.63 708/- AND SHORT TERM CAPITAL LOSS OF RS.35,150/- ON SALE OF SHARES. THE AO NOTICED THAT THE ASSESSEE WAS ENGAGED IN DEALING IN SHARES AND SECUR ITIES THROUGH M/S.DSJ FINANCIAL SERVICES LTD. UNDER THEIR PMS SCHEME. ON TERMINATION OF THE SAID SCHEME IN EARLIER YEARS, THE ASSESSEE RECEIVED SHAR ES FROM THE SAID COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE SOLD OF SOME OF THESE SHARES. THE AO FOUND THAT IN THE ASSESSMENT YEAR 1997-98, THE ASSESSEES CLAIM OF CONVERSION OF SHARES FROM STOCK -IN-TRADE INTO INVESTMENT I.E.CAPITAL ASSET WAS NOT ACCEPTED BY THE AO AND ON APPEAL , THE LD. CIT(APPEALS) VIDE HIS ORDER DATED 23-01-2002 UPHELD THE FINDINGS OF THE AO. ON FURTHER APPEAL, THE ITAT VIDE THEIR ORDER DATED 03-11-2006 IN ITA NO.926/AHD/2002 CONCLUDED THAT THE DIRECTIONS OF TH E LD. CIT(APPEALS) IN RESPECT OF THE TRANSACTIONS FOR A FUTURE DATE WERE CONTRARY TO LAW, THERE BEING NO SALE OF SHARES IN THE PERIOD RELEVANT TO THE AY 1997-98 OUT OF SHARES CONVERTED INTO INVESTMENT. IN THE YEAR UNDER CONSI DERATION , THE AO FOUND THAT THE ASSESSEE EARNED CAPITAL GAINS OF RS.2,57,034 ON SALE OF SHARES RECEIVED FROM M/S.DSJ FINANCIAL SERVICES LTD AND THEREFORE, IN THE LIGHT OF FINDINGS OF THE LD. CIT(APPEALS) IN THE AY 1997-98, THE AO TREA TED THE INCOME FROM SALE ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 3 OF SHARES AS TRADING INCOME I.E. INCOME UNDER THE H EAD BUSINESS AND NOT AS CAPITAL GAINS. 3. ON APPEAL, THE LD. CIT(APPEALS) UPHELD THE FINDI NGS OF THE AO IN FOLLOWING TERMS: 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHO RIZED REPRESENTATIVE CAREFULLY. THE APPELLANT IN THE PAS T HAS CARRIED OUT TRADING ACTIVITY IN SHARES THROUGH M/S. DSJ FINANCI AL SERVICES LTD. AND THE SHARES WERE SHOWN AS STOCK IN TRADE AND THE PRO FIT ON TRADING OF SHARES WAS SHOWN AS BUSINESS INCOME BY THE APPELLAN T. THE APPELLANT HAS CONVERTED THE STOCK IN TRADE AS ON 1/4/1996 TO CAPITAL ASSETS. THE CONVERSION OF SHARES FROM STOCK IN TRADE TO CAPITAL ASSET WAS NOT ACCEPTED IN THE EARLIER APPEAL FOR A.Y. 1997-98 VID E ORDER PASSED ON 23.1.2002 BY CIT(A)-XV, AHMEDABAD. THE FREQUENCY AN D REGULARITY OF SHARE TRANSACTIONS SHOW THAT THE APPELLANT HAS BEEN DOING TRADING IN SHARES AND AS IN THE PAST THE APPELLANT HAS SHOWN T HE SHARES AS STOCK IN TRADE AND THE APPELLANT HAS CARRIED OUT TRADING ACTIVITIES IN SHARES, THE CHANGE OF STAND BY THE APPELLANT FOR THE YEAR IN AP PEAL SAYING THAT THE SAME HAS BEEN CONVERTED INTO INVESTMENTS OR CAPITAL ASSETS IS NOT ACCEPTED. IN VIEW OF THE ABOVE FACTS AND CONSIDERIN G THE PAST CONDUCT OF THE APPELLANT AND FOR THE REASONS DISCUSSED IN T HE APPELLATE ORDER FOR A.Y. 1997-98, THE FINDING OF THE AO THAT THE PROFIT ON SALE OF SHARES IS BUSINESS INCOME, IS CONFIRMED. ACCORDINGLY, THIS G ROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LD. CIT(APPEALS). THE LD. AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT ON TERMINATION OF PMS WITH ONE M/S.DSJ FINANCIAL SERVI CES LTD, THE SHARES RECEIVED FROM SAID COMPANY ON 01-04-1996 WERE CONV ERTED INTO CAPITAL ASSET. SINCE THEN THE ASSESSEE DID NOT SELL A SINGLE SHARE SO RECEIVED AND FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION, THE ASS ESSEE SOLD SOME OF THESE SHARES. THUS, THE FINDINGS OF LD. CIT(APPEALS) REG ARDING FREQUENCY AND REGULARITY OF SHARE TRANSACTIONS IN EARLIER YEARS W ERE NOT IN ACCORDANCE WITH THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATI ON.RELYING UPON A CIRCULAR NO.4/2007OF THE CBDT, THE LD. AR CONTENDED THAT INC OME HAS TO BE ASSESSED AS CAPITAL GAINS ON SALE OF SHARES. ON THE OTHER HA ND, THE LD. DR WHILE RELYING UPON THE FINDINGS OF THE LD. CIT(APPEALS) SUBMITTE D THAT THERE WAS NOTHING TO ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 4 SUGGEST THAT ASSESSEE DID NOT SELL SHARES RECEIVED UNDER THE PMS FROM M/S.DSJ FINANCE IN THE INTERVENING PERIOD. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT ON TERMINATION OF PM SCHEME OF M/S.DSJ FINANCIAL SERVICES LTD., THE ASSESSEE IS STATED TO HAVE CONVERTED THE ENTIRE STOCK-IN-TRADE OF SHARES INTO CAPITAL ASSET W.E.F 1.4.1996 ON THEIR BOOK VAL UE. UNDISPUTEDLY, FOR THE FIRST TIME IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE SOLD THESE SHARES AND EARNED CAPITAL GAINS. THERE IS NOTHING TO SUGGEST THAT THE ASSESSEE INDULGED IN FREQUENT PURCHASE AND SALE OF SHARES IN THE YEAR UNDER CONSIDERATION. AS REGARDS DISTINCTION BETWEEN SHARES HELD AS STOCK-IN -TRADE AND THOSE HELD AS INVESTMENTS, WE MAY REFER TO A CIRCULAR NO. 4 /2007 OF THE CBDT ,WHICH READS AS UNDER: DISTINCTION BETWEEN SHARES HELD AS STOCK-IN-TRADE AND SHARES HELD AS INVESTMENTS - TESTS FOR SUCH A DISTINCTION 1. THE INCOME-TAX ACT, 1961 MAKES A DISTINCTION BET WEEN A CAPITAL ASSET AND A TRADING ASSET. 2. CAPITAL ASSET IS DEFINED IN SECTION 2(14) OF THE ACT. LONG-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(29A) AND SECTI ON 2(29B). SHORT-TERM CAPITAL ASSETS AND GAINS ARE DEALT WITH UNDER SECTION 2(42A ) AND SECTION 2(42B). 3. TRADING ASSET IS DEALT WITH UNDER SECTION 28 OF THE ACT. 4. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) THROUGH INSTRUCTION NO.1827 DATED AUGUST 31, 1989 HAD BROUGHT TO THE NOTICE OF THE AS SESSING OFFICERS THAT THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVESTMENT (CAPI TAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING ASSET). IN THE LIGHT OF A N UMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTION S, IT IS PROPOSED TO UPDATE THE ABOVE INSTRUCTIONS FOR THE INFORMATION OF ASSESSEES AS WELL AS FOR GUIDANCE OF THE ASSESSING OFFICERS. 5. IN THE CASE OF COMMISSIONER OF INCOME TAX (CENTR AL), CALCUTTA VS ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD (82 ITR 586) , THE 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 CIRCU MSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOC K-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 5 6. IN THE CASE OF COMMISSIONER OF INCOME TAX, BOMBA Y VS H. HOLCK LARSEN (160 ITR 67), THE SUPREME COURT OBSERVED : THE HIGH COURT, IN OUR OPINION, MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS WAS A MIXED QUESTION OF LAW AND FACT. 7. THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. 8. THE AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 641), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HAS CULLED O UT THE FOLLOWING PRINCIPLES :- (I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF T HE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOCIATION IS NOT DECI SIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND SALES AND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN THE NATURE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; BUT WHERE THE OBJECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF DIVIDEND ETC. THEN THE PROF ITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY SALE OF SHARES) WILL YIELD CAPITAL G AIN AND NOT REVENUE RECEIPT. 9. DEALING WITH THE ABOVE THREE PRINCIPLES, THE AAR HAS OBSERVED IN THE CASE OF FIDELITY GROUP AS UNDER:- WE SHALL REVERT TO THE AFOREMENTIONED PRINCIPLES. T HE FIRST PRINCIPLE REQUIRES US TO ASCERTAIN WHETHER THE PURCHASE OF SHARES BY A FI I IN EXERCISE OF THE POWER IN THE MEMORANDUM OF ASSOCIATION/TRUST DEED WAS AS STOCK-IN-TRADE AS THE MERE EXISTENCE OF THE POWER TO PURCHASE AND SELL SH ARES WILL NOT BY ITSELF BE DECISIVE OF THE NATURE OF TRANSACTION. WE HAVE TO V ERIFY AS TO HOW THE SHARES WERE VALUED/HELD IN THE BOOKS OF ACCOUNT I.E. WHETH ER THEY WERE VALUED AS STOCK-IN-TRADE AT THE END OF THE FINANCIAL YEAR FOR THE PURPOSE OF ARRIVING AT BUSINESS INCOME OR HELD AS INVESTMENT IN CAPITAL AS SETS. THE SECOND PRINCIPLE FURNISHES A GUIDE FOR DETERMINING THE NATURE OF TRA NSACTION BY VERIFYING WHETHER THERE ARE SUBSTANTIAL TRANSACTIONS, THEIR M AGNITUDE, ETC., MAINTENANCE OF BOOKS OF ACCOUNT AND FINDING THE RATIO BETWEEN P URCHASES AND SALES. IT WILL NOT BE OUT OF PLACE TO MENTION THAT REGULATION 18 O F THE SEBI REGULATIONS ENJOINS UPON EVERY FII TO KEEP AND MAINTAIN BOOKS O F ACCOUNT CONTAINING TRUE AND FAIR ACCOUNTS RELATING TO REMITTANCE OF INITIAL CORPUS OF BUYING AND SELLING AND REALIZING CAPITAL GAINS ON INVESTMENTS AND ACCO UNTS OF REMITTANCE TO INDIA FOR INVESTMENT IN INDIA AND REALIZING CAPITAL GAINS ON INVESTMENT FROM SUCH REMITTANCES. THE THIRD PRINCIPLE SUGGESTS THAT ORDI NARILY PURCHASES AND SALES OF SHARES WITH THE MOTIVE OF REALIZING PROFIT WOULD LEAD TO INFERENCE OF TRADE/ADVENTURE IN THE NATURE OF TRADE; WHERE THE O BJECT OF THE INVESTMENT IN SHARES OF COMPANIES IS TO DERIVE INCOME BY WAY OF D IVIDENDS ETC., THE ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 6 TRANSACTIONS OF PURCHASES AND SALES OF SHARES WOULD YIELD CAPITAL GAINS AND NOT BUSINESS PROFITS. 10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSIB LE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT PORTFOLIO COMPRISIN G OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO C OMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSES SEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAP ITAL GAINS AS WELL AS BUSINESS INCOME. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE P RINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER, IN A GIVEN CASE, THE SHARES AR E HELD BY THE ASSESSEE AS INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GA INS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUSINESS PROFITS). THE ASS ESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIV EN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE. 12. THESE INSTRUCTIONS SHALL SUPPLEMENT THE EARLIER INSTRUCTION NO. 1827 DATED AUGUST 31, 1989. 6. IN THE LIGHT OF GUIDELINES LAID DOWN IN THE AFORESAID CIRCULAR AND THE RATIO OF VARIOUS DECISIONS REFERRED TO THEREIN, IF WE ANALYS E THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THERE IS NO MATERIAL ON RECORD THAT AFTER THE TERMINATION OF THEIR PMS WITH M/S DSJ FINANCIAL SERVICES LTD., THE ASSESSEE FREQUENTLY AND WITH REGULARITY TRADED IN SHARES RECEIVED FROM THE SAID COMPANY. UNDISPUTEDLY, FOR THE FIRST TIME , THE ASSESSEE SOLD SOME OF THESE SHARES IN THE YEAR UNDER CONSIDERATION. BUT IT IS NOW WELL SETTLED THAT THE WAY IN WHICH EN TRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QU ESTION. IN CIT V. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. P. LTD. [1971] 82 ITR 586 , THE HON'BLE SUPREME COURT HELD THAT WHETHER A PARTICULAR HOLDING OF SHARES I S BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NORMAL CIRCU MSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. SINCE THERE IS NO EVIDENCE ON RECORD THAT THE ASSESSEE TRADED IN THE AFORESAID SHARES REGULARLY AND FREQUENTLY AFTER REC EIPT OF SHARES FROM THE AFORESAID COMPANY, CONSIDERING THE MAGNITUDE OF TRANSACTIONS IN SHARES, CONVERSION OF THE STOCK IN TRADE OF SHARES IN TO INVESTMENTS AT THEIR BOOK VALUE AND THE CBDT CIRCULAR ITSELF ENVISAGING THE POSSIBILITY OF HAVING TWO POR TFOLIOS, I.E., AN INVESTMENT PORTFOLIO ITA NO.537/AHD/2006 A.Y. 2001-02 DR. PRANNATH NAGPAL V. JT.CIT (ASST) SPL. RANGE-5 A BD PAGE 7 COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS, W E ARE OF THE OPINION THAT THE ASSESSEES VERSION THAT THESE SHARES WERE HELD BY WAY OF INVESTMENT IN THE YEAR UNDER CONSIDERATION HAS TO BE ACCEPTED. CONSEQUENTLY, WE HAVE NO HESITATION IN VACATING THE FINDINGS OF THE LD. CIT(APPEALS) AND ACCORDINGLY, DIRECT THE AO TO ASS ESS THE PROFIT ON SALE OF THE SAID SHARES UNDER THE HEAD CAPITAL GAINS. THERE FORE, GROUND NO. 1 IS ALLOWED. 7.. GROUND NO.2 IN APPEAL WAS NOT PRESSED BEFORE US WHI LE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUA RY GROUND, BOTH THESE GROUNDS ARE DISMISSED. 8. IN THE RESULT, APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON11TH SEPTEMBER,20 09 SD/- SD /- (H.L KARWA) (A.N.PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, DATED : 11TH SEPTEMBER, 2009 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE CONCERNED AO I.E.JOINT COMMISSIONER OF INC OME TAX (ASSTT.) SPL. RANGE-5, AHMEDABAD 3. THE CIT(APPEALS)-XV, AHMEDABAD 4. THE CIT CONCERNED. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD