Nirudhoddi Jaya Srinivasulu, Hyderabad V. ACIT, Circle-6(1), Hyderabad

ITA 563/HYD/2012

• Counselvise Citation: 56322514 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Business income; Salary income; Rule of consistency; Advance ruling
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 563/HYD/2012 ASSESSMENT YEAR 2008-09 SRI NIRUDHODDI JAYA SRINIVASULU, HYDERABAD PAN: AABPN7131J VS. THE ASST. CIT CIRCLE-6(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI S. RAMA RAO RESPONDENT BY: SRI SOLGY JOSE T. KOTTARAM DATE OF HEARING: 1 0 .07.2014 DATE OF PRONOUNCEMENT: 05. 0 9 .2014 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-IV, HYDERABAD DATED 31.01.2012 FOR ASSESSMENT YEAR 2008-09. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN TRADING OF SHARES BESIDES HAV ING INCOME FROM OTHER SOURCES. DURING THE YEAR UNDER CONSIDERATION HE HAD ADMITTED SHORT TERM CAPITAL GAINS ON PURCHASE AND SALE OF SHARES AT RS. 73,89,308 AFTER CLAIMING SET OFF OF LOSS IN F & O TRANSACTIONS OF RS. 2,15,485 AND STT AND DEMAT CHARGES AT RS. 1,25,649. FROM THE DETAIL S OF SHARE TRADING ACTIVITIES, THE ASSESSING OFFICER OBS ERVED THAT THE TOTAL PURCHASES IN SHARES AMOUNTED TO RS. 4,57, 39,245, WHEREAS SALES WERE OF RS. 5,38,36,310. OUT OF THE T OTAL SHARE TRANSACTIONS, THE ASSESSEE HAD ADMITTED LONG TERM C APITAL GAINS AT RS. 3,22,623, WHILE SHORT TERM CAPITAL GAI NS WAS DECLARED AT RS. 73,89,308. CONSIDERING THE VOLUME OF 2 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= BUSINESS AND THE PROFIT MOTIVE INVOLVED IN THE ACTI VITY, THE ASSESSING OFFICER PROPOSED TO TREAT THE SAME AS AN ADVENTURE IN THE NATURE OF TRADE AND TO HOLD THE IN COME OFFERED UNDER THE HEAD 'SHORT TERM CAPITAL GAINS' A S 'BUSINESS INCOME'. 3. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE CONTESTED THAT HE IS ONLY AN INVESTOR AND IS NOT DO ING ANY BUSINESS ACTIVITY. THE ASSESSEE ARGUED THAT ALL TH E TRANSACTIONS IN SHARES WERE INVESTMENTS AND THERE I S NO FORWARD OR SPECULATIVE TRADING INVOLVED. THE ASSE SSEE ALSO FURNISHED DETAILS IN RESPECT OF PURCHASE AND SALE O F SHARES ALONG WITH THE PERIOD OF HOLDING BEFORE THE ASSESSI NG OFFICER. THE ASSESSEE ALSO AVERRED THAT HE WAS NOT MAINTAINI NG ANY OFFICE OR STAFF NOR HAD CLAIMED ANY EXPENDITURE INC IDENTAL TO EARNING OF SUCH INCOME. THE ASSESSEE ALSO CLAIMED THAT HE HAD INVESTED OUT OF HIS OWN FUNDS WITHOUT AVAILING ANY LOAN. IT WAS SUBMITTED THAT NO BOOKS OF ACCOUNT WERE MAIN TAINED FOR SUCH ACTIVITIES AND THE ASSESSEE HAD EVEN RECEI VED DIVIDEND OF RS. 1.2 LAKHS ON THE INVESTMENTS AND HE NCE IT WAS CLAIMED THAT THE ASSESSEE'S ACTIVITIES WERE IN THE NATURE OF INVESTMENT ONLY. 4. THE ASSESSING OFFICER REFERRED TO THE PRINCIPLES LA ID DOWN BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) IN THE MATTER AFTER CONSIDERING THE DECISIONS OF THE HON 'BLE SUPREME COURT IN THE CASES OF CIT VS. ASSOCIATED IN DUSTRIAL DEVELOPMENT CO. (P) LTD. (82 ITR 586), CIT VS. HOLCK LARSEN (160 ITR 167) AND THE DECISION OF THE AUTHORITY FOR ADVANCE RULINGS REPORTED IN 288 ITR 641. HE NOTED THAT THE FOLLOWING ARE THE MAIN GUIDING PRINCIPLES IN THE MATTER: (A) THE SUBSTANTIAL NATURE OF THE TRANSACTIONS - THE VOLUME OF THE TRANSACTIONS CARRIED OUT, THE PERIOD WITHIN WHICH THE VOLUMES WERE DONE, THE 3 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= CONTINUITY OR LACK OF IT ETC. WOULD DETERMINE THE SUBSTANTIAL NATURE OF TRANSACTION. (B) THE MANNER OF MAINTAINING BOOKS OF ACCOUNTS - WHETHER THE ASSESSEE MAINTAIN BOOKS OF ACCOUNTS OR NOT, WHETHER THE SHARES ARE VALUED AS STOCK IN TRADE OR AS INVESTMENTS WITH THROW LIGHT ON THIS ASPECT. (C) MAGNITUDE OF PURCHASES TO SALES - THE RATIO OF PURCHASES TO SALES, THE NATURE OF HOLDING, THE RECEIPT OF DIVIDEND OR OTHERWISE, THE MOTIVE OF PROFIT WOULD SUGGEST THE NATURE OF TRANSACTIONS. 5. THE ASSESSING OFFICER CONCLUDED THAT: (A) THE ASSESSEE HAD A TURNOVER OF ABOUT 5.38 CRORES IN MORE THAN 1 00 SCRIPS, WHICH IS VERY HUGE FOR AN INDIVIDUAL INVESTOR. (B) THE ASSESSEE IS INVOLVED IN THE ACTIVITY OF TRADING IN SHARES THROUGHOUT THE YEAR CONTINUOUSLY. (C) NO BOOKS OF ACCOUNTS ARE MAINTAINED FOR THE SHARE TRADING ACTIVITY. (D) EXCEPT IN A FEW CASES, ALL PURCHASES WERE DONE IN THE YEAR ITSELF; (E) THE ASSESSEE HAD RECEIVED DIVIDENDS ON SHARES AT RS. 1.25 LAKH WHICH WAS VERY MARGINAL, WHEN COMPARED TO THE TURNOVER OF RS. 5.38 CRORES. (F) THE ASSESSEE HAD FINANCED THE TRANSACTIONS WITH HIS OWN FUNDS. 6. THE ASSESSING OFFICER RELIED ON THE DECISION IN THE CASE OF ECLAT CONSTRUCTIONS (P) LTD. VS. CIT (172 I TR 84) (PATNA) WHEREIN IT HAS BEEN ELABORATELY DISCUSSED A BOUT 'AN ADVENTURE IN THE NATURE OF TRADE'. THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE WAS CARRYING ON SHARE TRADING BUSINESS AND HAD DONE HUGE NUMBER OF TRANSACTIONS FROM WHICH PROFIT MOTIVE WAS CLEARLY 4 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= IDENTIFIABLE. THE ASSESSING OFFICER OBSERVED THAT THE INTENTION OF THE ASSESSEE WAS TO GAIN PROFITS BY DE ALING IN SHARE TRADING WITHIN A SHORT SPAN OF PERIOD ONLY. FURTHER, THE ASSESSING OFFICER APPLYING THE TESTS GIVEN IN T HE CIRCULAR NOTICED THAT THE TURNOVER OF RS. 5.38 CROR ES WAS A HUGE AMOUNT FOR AN INDIVIDUAL. THE ASSESSING OFFIC ER POINTED OUT THAT IN ALMOST ALL THE CASES, THE PURCH ASES HAPPEN IN THE YEAR CONCERNED ONLY AND THE RATIO OF PURCHASES TO SALE IS AROUND 1:1 WITH THE CLOSING ST OCK BEING ALMOST NIL OUT OF THE TOTAL PURCHASE OF 4.57 CRORES SHOWING THAT ALL THE STOCK HAD BEEN SOLD WITH AN IN TENTION OF MAKING QUICK PROFITS. THE ASSESSING OFFICER REL IED ON THE DECISION OF MUMBAI ITAT IN THE CASE OF SMT. SAD HANA NABERA VS. ACIT IN ITA NO. 2586/MUM/2009. 7. ON FURTHER APPEAL BEFORE THE CIT(A), THE REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS EARLIER AN EMPLOYEE DRAWING SALARY INC OME. DURING THE RELEVANT PREVIOUS YEAR, HOWEVER, HE WAS NOT EMPLOYED AND DERIVED INCOME FROM 'CAPITAL GAINS' AN D OTHER SOURCES. IT WAS SUBMITTED THAT THE ASSESSEE N EVER INTENDED TO CARRY ON ANY BUSINESS ACTIVITY. HE KEPT HIS OWN FUNDS FOR THE PURPOSE OF ACQUISITION OF A SHARE PORTFOLIO. THE REPRESENTATIVE STATED THAT THE ASSES SEE WAS HOLDING THE SHARE PORTFOLIO AS AN INVESTMENT AND NO T AS STOCK IN TRADE. HOWEVER, WHENEVER SHARES OF ONE COM PANY WERE LIKELY TO REDUCE IN THEIR VALUE, THE ASSESSEE USED TO SELL THEM AND ACQUIRE ANOTHER SHARE. THE REPRESENTA TIVE POINTED OUT THAT SOME OF THE SHARES WERE HELD BY TH E ASSESSEE FOR A LONG TIME OF MORE THAN 2 YEARS. HE H AD MAINTAINED A DEMAT ACCOUNT, WHEREIN ALL THE SHARES WERE ACTUALLY RECEIVED. EVEN THE SALE OF SHARES WAS MADE FROM 5 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= THE SAID DEMAT ACCOUNT ONLY AFTER HOLDING FOR SOME TIME. HE EXPLAINED THAT THE ASSESSEE DID NOT MAINTAIN ANY BOOKS OF ACCOUNTS FOR THE PURPOSE AND THE PROFITS W AS WORKED OUT ON THE BASIS OF ENTRIES, AS MADE IN THE DEMAT ACCOUNT. THE AR OF THE ASSESSEE RELIED ON THE DECI SION IN THE CASE OF GOPAL PUROHIT VS. JCIT (122 TTJ 87)(MUM ), CONTENDING THAT IN THE SAID DECISION GAINS ARISING FROM SHARE TRANSACTIONS, WHERE DELIVERY OF SHARES TOOK P LACE AND STT WAS PAID, WERE HELD AS CAPITAL GAINS. HE AL SO CITED THE DECISION IN THE CASE OF KUNVARJI NANJI KE NIA VS. ADDL.CIT (131 TTJ 87)(MUM). THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF HONBLE GUJ ARAT HIGH COURT IN THE CASE OF CIT VS. REWA SHANKER KOTH ARI (283 ITR 338), MADRAS HIGH COURT DECISION IN THE CA SE OF CIT VS. TRISHUL INVESTMENTS PV. LTD. (305 ITR 434), AND THE DECISIONS IN THE CASES OF CIT VS. GIRISH MOHAN GANERIWALA (260 ITR 417) (P&H) AND CIT VS. NSS INVESTMENTS P. LTD. (277 ITR 149). 8. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT AS AGAINST THE PRINCIPLES EMERGING FROM THE ABOVE DECISIONS, THE ASSESSING OFFICER ONLY OBS ERVED THAT THERE WERE A LARGE NUMBER OF TRANSACTIONS AND HENCE THERE WAS A BUSINESS ACTIVITY. HE ARGUED THAT THE A SSESSEE HAD MADE AN INVESTMENT IN THE SHARES PORTFOLIO COMPRISING OF A NUMBER OF SHARES AND THOUGH A NUMBE R OF TRANSACTIONS ARE APPEARING IN THE SHARE TRADING ACCOUNT, ALL OF THOSE RELATE TO THE HOLDING OF THE SAID SHARE PORTFOLIO. WITH REGARD TO THE OBSERVATIONS OF THE A SSESSING OFFICER, THE ASSESSEE HAD ENGAGED IN THE ACTIVITY THROUGHOUT THE YEAR, THE REPRESENTATIVE OF THE ASSE SSEE SUBMITTED THAT ONCE A PERSON HOLDS A PORTFOLIO OF S HARES 6 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= AS INVESTMENT, HE HAS TO OBSERVE WHETHER THE INVEST MENTS ARE REDUCING IN THEIR VALUE OR NOT AND ACCORDINGLY ADJUSTMENTS HAVE TO BE MADE THROUGHOUT. HE AVERRED THAT THIS WOULD NOT CHANGE THE NATURE OF TRANSACTIONS. W ITH REGARD TO THE SOURCE OF ACQUISITION OF SHARES, THE REPRESENTATIVE ARGUED THAT SINCE THE ASSESSEE HAD S OLD SOME SHARES FOR LOSS, IT SHOWED THAT THERE WAS NO M OTIVE OF PROFIT MAKING. HE MAINTAINED THAT THE ASSESSEE H AD INVESTED SOME AMOUNTS OF HIS OWN IN SHARES AND NO PRUDENT MAN WOULD PURCHASE SHARES OF ONE COMPANY ONLY. BESIDES, IT IS NOT POSSIBLE TO PURCHASE SHARE S ONE COMPANY ONLY, AND THEREFORE, HE HAD TO PURCHASE SHA RES OF VARIOUS COMPANIES. ACCORDINGLY, HE HAD ACQUIRED SHARES OF SEVERAL COMPANIES AS AVAILABLE AT THE TIM E OF INVESTMENT AND CONTINUED TO HOLD IT AS INVESTMENT, DULY TAKING CARE TO SEE THAT THE INVESTMENT DOES NOT RED UCE IN ITS VALUE. HE AVERRED THAT THE ENTIRE EXERCISE OF P URCHASE AND SALE WAS TO RETAIN THE INVESTMENT IN SHARES. TH E REPRESENTATIVE FURTHER ARGUED THAT EVEN UNDER THE A CT WHEN SHARES ARE SOLD WITHIN ONE YEAR, IT IS CALLED SHORT TERM CAPITAL GAINS ONLY, AND THEREFORE, THE ASSESSI NG OFFICER'S RELIANCE ON DECISIONS RELATING TO CAPITAL GAINS DERIVED ON OTHER ASSETS IS NOT JUSTIFIED. 9. THE AR SUBMITTED THAT THE ASSESSING OFFICER TREATED THE SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. THE ASSESSING OFFICER ACCEPTED THA T THE ASSESSEE HELD THE SHARES AS INVESTMENT IN SO FAR AS LONG TERM CAPITAL GAINS IS CONCERNED AND DID NOT ACCEPT THE SAME W ITH REFERENCE TO SHORT TERM CAPITAL GAINS. THE ASSESSING OFFICER DID NOT PROVIDE REASONS FOR DOING SO. WHILE PASSING THE ORD ER, THE ASSESSING OFFICER RELIED ON THE DECISION OF THE HON 'BLE 7 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= ITAT, T-BENCH, MUMBAI IN THE CASE OF SMT. SADHANA NABERA VS. ACIT IN ITA NO. 2586 / MUM / 2009. THE FACTS IN THE SAID CASE ARE DIFFERENT FROM THE FACTS OF THE ASSESSEE 'S CASE. 10. THE CIT(A) OBSERVED THAT THIS ISSUE HAS BEEN ELABORATELY DISCUSSED IN THE CASE OF G. VENKATASWAM Y NAIDU & CO. (35 ITR 594) (SC), ECLAT CONSTRUCTIONS (P) LTD. (SUPRA), CIT VS. RAUNAQ SINGH SWARAN SINGH (85 ITR 220) AND RAMNARAIN SONS (P) LTD. VS. CIT (41 ITR 53 4). THE CIT(A) OBSERVED THAT THE ASSESSEE HAD A HUGE TURNOVER OF RS. 5.38 CRORES DURING THE YEAR AND HAD TRANSACTED MORE THAN 100 SCRIPS DURING THE YEAR. H E FURTHER OBSERVED THAT THE ASSESSEE ACHIEVED THE TUR NOVER DURING THE YEAR ONLY BY ENGAGING IN REGULAR AND MUL TIPLE TRANSACTIONS DURING THE YEAR, GIVING UP HIS EMPLOYM ENT AND DEVOTING ALL HIS TIME TO SHARE TRADING ACTIVITY ONLY. THE CIT(A) NOTED THAT AGAINST THE TURNOVER OF RS. 5 .38 CRORES, THE ASSESSEE HAD INSIGNIFICANT STOCK OF SHA RES LEFT IN HIS HAND AT THE YEAR END AND THE RATIO OF PURCHA SE OF SHARES TO SALES WAS AROUND 1:1, WITH THE CLOSING ST OCK BEING ALMOST NIL, OUT OF THE PURCHASES DURING THE Y EAR. THE CIT(A) STATED THAT THE HONBLE CALCUTTA ITAT IN THE CASE OF ITO VS. M/S. VEER ENTERPRISES LTD. (2011-TI OL- 233-ITAT-CAL DTD. 11.3.2011), HAVE OBSERVED THAT 'I N NATURAL COURSE OF SHARE TRADING BUSINESS, THERE MUS T BE PURCHASES DURING THE YEAR AND THE TOTAL TURNOVER IS MUCH MORE TO THE TOTAL HOLDING OF THE STOCK:' THE CIT(A ) HELD THAT IT IS CLEAR THAT IN THE CASE OF THE PRESENT AS SESSEE PURCHASES MUCH EXCEEDED THE HOLDINGS AND THAT THE INVESTMENT STAKE OF THE ASSESSEE AT THE YEAREND WAS ONLY A SMALL FRACTION OF THE HUGE TURNOVER ATTAINED BY H IM ON 8 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= ACCOUNT OF MULTIPLE PURCHASES DURING THE YEAR ITSEL F. THE CIT(A) POINTED OUT THAT THIS ALSO DEMONSTRATES THAT SUCH HUGE TURNOVER WAS ACHIEVED ONLY ON ACCOUNT OF FREQU ENT BUYING AND SELLING OF A LARGE NUMBER OF SCRIPS DURI NG THE YEAR, WITHOUT EMPLOYING COMMENSURATE CAPITAL OF HIS OWN. 11. THE CIT(A) RELIED UPON THE DECISION OF BANGALORE BENCH OF ITAT IN THE CASE OF M.V. CHANDRASEKHAR VS. DCIT (91 ITD 543) AND OBSERVED THAT THE MANNER OF EXECUTING TRANSACTIONS BY THE ASSESSEE SHOWS THAT T HE ASSESSEE HAS MADE MULTIPLE ENTRIES AND EXITS IN THE SAME SCRIPS IN ORDER TO TAKE THE BENEFIT OF RANGE BOUND TRADING, INDICATING THAT THE HE WAS NOT AIMING AT THE LONG T ERM APPRECIATION OF THE SHARES. HE FURTHER OBSERVED TH AT IN THE LIST OF TRANSACTIONS IT IS SEEN THAT MANY OF TH E SHARES WERE PURCHASED AND SOLD AS 'SAME DAY TRADING'. 12. THE CIT(A) HELD THAT THE ASSESSEE'S CONDUCT OF A NUMBER OF SCRIPS ON A REGULAR BUYING AND SELLING SM ALL QUANTITIES BASIS REFLECTS THE INTENTION OF MAKING Q UICK PROFITS ONLY. IT CANNOT BE PRESUMED THAT SUCH SMALL INVESTMENTS ON MULTIPLE OCCASIONS COULD HAVE GIVEN ANY CAPITAL APPRECIATION WITHIN A SHORT TIME. HE NOTED THAT SUCH INVESTMENTS CANNOT BE SAID AS MADE OUT OF THE INTENTION OF EARNING ANY DIVIDEND INCOME, AS DIVIDE ND, IF ANY, ON SUCH SMALL NUMBER OF SHARES WOULD BE MEAGRE ONLY. THE CIT(A) HELD THAT THE INTENTION OF THE ASS ESSEE, THEREFORE, WAS NOT TO EARN ANY DIVIDENDS THEREON, B UT TO MAKE QUICK PROFITS FROM SALE AND PURCHASE OF THOSE SHARES AND THIS CONCLUSION IS SUPPORTED BY THE FACT THAT THE ASSESSEE EARNED A MEAGRE DIVIDEND INCOME OF RS. 1.25 LAKHS ON THE HUGE TURNOVER OF RS. 5.38 CRORES. 9 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= 13. THE CIT(A) FURTHER HELD THAT WHILE CONSISTENCY IS A N IMPORTANT INDICATOR, THE NATURE OF TRANSACTIONS OF AN ASSESSEE NEEDS TO BE DECIDED AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CONDUCT OF THE ASSESSEE AND HENCE ON A PROPER EXAMINATION OF THE CONDUCT OF THE ASSESSEE, ACCORDING TO THE CIT(A), IS THAT OF A TRADER IN SHA RES AND NOT AN INVESTOR. THE CIT(A) UPHELD THE ASSESSMENT OF THE ASSESSING OFFICER AND HELD THAT THE SHORT TERM CAPI TAL GAINS ADMITTED AT RS. 73,89,309 IS ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS'. AGGRIEVED, THE ASSESS EE IS IN APPEAL BEFORE US. 14. THE ASSESSEE ALSO FILED THE FOLLOWING ADDITIONAL GROUNDS BEFORE US: (1) THE LEARNED CIT(A) OUGHT TO HAVE HELD THE ORDER AS INVALID AS NO VALID NOTICE U/S. 143(2) WAS SERVED WITHIN THE TIME ALLOWED. (2) 'WITHOUT PREJUDICE TO THE CONTENTION THAT THE INCOME IS ASSESSABLE UNDER THE HEAD 'CAPITAL GAINS' AND NOT UNDER THE HEAD 'INCOME FROM BUSINESS' AS WAS DONE BY THE ASSESSING OFFICER, THE COST PRICE OF THE STOCK IS TO BE DETERMINED BY ADOPTING THE MARKET VALUE AS ON 1.4.2007. THE ASSESSING OFFICER MAY BE DIRECTED TO DETERMINE THE INCOME FROM BUSINESS BY ADOPTING THE ABOVE PRINCIPLES. THE LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, DID NOT PRESS THE ADDITIONAL GROUND. ACCORDINGLY THE ADDIT IONAL GROUND IS DISMISSED. 15. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THE APPEAL IS WHETHER 10 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= THE SHARES WERE HELD FOR A PERIOD OF LESS THAN ONE YEAR REPRESENT INVESTMENTS OR REPRESENT STOCK-IN-TRADE. HE SUBMITTED THAT THE GAIN DERIVED BY HIM FROM SALE OF SHARES IS DIVIDED INTO THE FOLLOWING THREE DIFFEREN T ITEMS: 1. GAIN ON SALE OF LONG TERM CAPITAL ASSETS - RS. 3,66,623 2. GAIN ON SALE OF SHORT TERM CAPITAL ASSETS - RS. 77, 30,442 3. LOSS IN FUTURES & OPTIONS TRANSACTIONS - RS. 2,1 5,485 16. INSOFAR AS THE GAIN FROM LONG TERM CAPITAL ASSETS I S CONCERNED, THE ASSESSING OFFICER ACCEPTED THAT IT R ELATES TO THE ACTIVITY OF INVESTMENT AND NOT THE ACTIVITY OF BUSINESS. INSOFAR AS THE GAIN FROM SHORT TERM CAPIT AL ASSETS IS CONCERNED, THE ASSESSING OFFICER HELD THA T THE SAID GAIN IS TAXABLE AS BUSINESS INCOME. THE ASSESS ING OFFICER ACCEPTED THE LOSS FROM SALE OF SHARES IN F & 0 AND ALLOWED SUCH LOSS FROM THE BUSINESS INCOME SO DERIV ED. 17. THE ASSESSEE IS IN APPEAL AGAINST THE ASSESSMENT SO MADE BY THE ASSESSING OFFICER. THE DETAILS OF THE A CTIVITY OF PURCHASE AND SALE OF SHARES, CARRIED ON BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE SUBMITTED AT PAGE NOS. 18 TO 54. THE ASSESSING OFFICER IS OF THE VIEW THAT THE ASSESSEE CARRIED ON THE ENTIRE ACTIVITY OF PURCHASE AND SALE OF SHORT TERM ASSETS AS A BUSINESS ACTIVIT Y AND ACCORDINGLY TAXED AN AMOUNT OF RS. 73,89,308 AS BUSINESS INCOME. ON AN APPEAL FILED, THE LEARNED CIT(A) FOUND THAT THERE ARE CERTAIN TRANSACTIONS WHICH WER E SQUARED UP THE SAME DAY WITHOUT TAKING DELIVERY OF THE SCRIPS. THE LEARNED CIT (A) IS ALSO OF THE VIEW THA T MORE THAN 100 COMPANIES SHARES WERE TRANSACTED DURING TH E YEA R AND MANY OF THE SHARES WERE PURCHASED AND SOLD AS SAME DAY TRADING. 11 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= 18. THE AR SUBMITTED THAT MOST OF THE PROFIT WAS DERIVED FROM THE SHARES HELD FOR MORE THAN 180 DAYS AS EXHI BITED AT PAGE 16 OF THE PAPER BOOK. IT CAN BE SEEN THAT A BOUT 73% OF THE PROFIT WAS DERIVED FROM SCRIPS HELD FOR MORE THAN 6 MONTHS. THE ASSESSEE SUBMITS THAT THE ACTIVITY OF HOLDING THE SHARES IS CARRIED OUT BY HIM AS AN INVE STMENT IN SHARE PORTFOLIO AND THE TRANSACTIONS WERE UNDERT AKEN BY THE ASSESSEE WITH A VIEW TO PROTECT THE INVESTME NT MADE AND NOT WITH A VIEW TO CARRY ON BUSINESS. THE FOLLOWING FACTS CONCERNING THE ASSESSEE ARE NECESSA RY FOR THE PURPOSE. A) THE ASSESSEE STARTED INVESTING IN SHARE PORTFOLIO FROM THE YEAR 2004-05 AND ONWARDS AND THE SHARES WERE HELD ONLY AS INVESTMENT AND NOT AS STOCK-IN-TRADE AND WERE SHOWN AS SUCH IN THE RETURNS OF INCOME. B) AT NO POINT OF TIME, THE ASSESSEE BORROWED FUNDS FOR THIS PURPOSE. HE UTILIZED HIS OWN FUNDS FOR THE PURPOSE OF INVESTMENT; C) ANY SURPLUS GENERATED IS REINVESTED IN THE SHARE PORTFOLIO; D) FOR ALL THE ASSESSMENT YEARS, THE ASSESSEE DERIVED SALARY INCOME AND NO OTHER BUSINESS WAS CARRIED ON BY HIM. HE ADMITTED THE INCOME ON SALE OF SHARES ONLY UNDER THE HEAD CAPITAL GAIN AND AT NO POINT OF TIME HE DEVIATED. THE SHARES WERE SHOWN AT COST PRICE AND NOT AT COST OR MARKET VALUE. E) THE ASSESSEE DID NOT MAINTAIN BOOKS OF ACCOUNT FOR THE PURPOSE OF THIS ACTIVITY AND NO EXPENDITURE FOR CARRYING ON THE ACTIVITY WAS CLAIMED AT ANY POINT OF TIME; F) THE INCOME-TAX AUTHORITIES ACCEPTED THE TREATMENT GIVEN TO THE INCOME DERIVED UP TO AND INCLUDING THE ASSESSMENT YEAR 2005-06; 12 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= G) THE ASSESSEE FURNISHED DETAILS OF THE SHARES HELD BOTH UNDER SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN. THE SHARES WERE HELD FOR SUBSTANTIAL PERIODS ON MANY OCCASIONS AS DETAILED ABOVE. H) NONE OF THE SHARES WERE SOLD PRIOR TO THEIR PURCHASE AND SUCH SHARE TRANSACTIONS ARE SEGREGATED. I) ALL THE SHARES WERE PURCHASED, TAKEN POSSESSION OF; WERE SOLD AND POSSESSION WAS HANDED OVER. THIS FACT WAS ACCEPTED BY THE ASSESSING OFFICER WITH REGARD TO LTCG. J) THE SHARES WERE HANDED OVER AFTER EFFECTING THE SALES. THEREFORE, PHYSICAL DELIVERY OF SHARES WERE EFFECTED BOTH AT THE TIME OF PURCHASE AND AT THE TIME OF SALE THROUGH DEMAT ACCOUNT. K) THE PURPOSE OF THE SALE OF SHARES IS TO PROTECT THE CAPITAL AND IT IS ONLY EXCHANGE FROM ONE CAPITAL ASSET TO ANOTHER CAPITAL ASSET FOR THE PURPOSE OF PROTECTING THE CAPITAL INVESTED AND THE INTENTION OF THE ASSESSEE IS ONLY TO MAKE INVESTMENT IN THE SHARES AND RETAIN SUCH INVESTMENT WITHOUT LOSS OF CAPITAL. 19. THE AR SUBMITTED THAT THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF GOPAI PUROHIT VS. JCIT REPORTED IN 122 TIJ 87 WHEREIN IT IS HELD THAT (A) IT IS WITH REGARD TO THE FACT THAT WHETHER THE TRANSACTION IS INVESTMENT OR A TRADE IS TO BE CONSIDERED WITH REFE RENCE TO THE RULE OF CONSISTENCY; (B) THE SHARES WERE HELD F OR A PERIOD OF MORE THAN 12 MONTHS IN CERTAIN CASES AND THAT THE INCOME IS DETERMINED AS SHORT TERM OR LONG TERM CAPITAL GAINS ON THE SHARE TRANSACTIONS WHETHER THE DELIVERY HAS BEEN TAKEN OR GIVEN AND SECURITIES TRANSACTION TAX HAS BEEN PAID DESERVES TO BE ALLOWE D. IN THE CASE OF THE ASSESSEE ALL THE FACTS ARE IDENTICAL TO THE FACTS STATED IN THE CASE DECIDED BY THE HON'BLE ITA T. 13 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= 20. THE AR RELIED ON THE DECISION OF ITAT, MUMBAI A- BENCH IN THE CASE OF KUNVARJI NANJI KENIA VS. ACIT (SUPRA). THE LEARNED AR FURTHER RELIED ON T HE ITAT, MUMBAI BENCH IN THE CASE OF SHANTILAL JAIN VS. ACIT REPORTED IN ITA NO. 2690/MUM/2010 DATED 27-04-2011. THE AR RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. AVINASH JAIN REPORTED IN ITA NO. 703 / 2012 DATED 09 . 01 . 2013 . THE AR SUBMIT TED THAT THE JUDGMENT OF THE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF PVS RAJU VS. ADDL.CIT REPORTED IN 340 ITR 75 AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SPECTRA SHARES APPLIES TO THE PRESENT CASE. 21. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF THE ITAT MUMBAI BENCH 'C' IN THE CASE O F ACIT VS. JAHANGIR T. NAGRI REPORTED IN 23 SOT 512. IN THE S AID CASE, THE ASSESSEE WAS TREATING THE SALE OF SHARES AS INV ESTMENT. IN THE YEAR HE SUFFERED LOSSES, THE ASSESSEE CONVERTED THE TREATMENT INTO STOCK-IN-TRADE. THE ASSESSING OFFIC ER OBJECTED TO SUCH TREATMENT. THE ITAT WHILE DECIDING THE APP EAL HELD THAT IT IS THE SWEET WILL OF THE ASSESSEE TO DECIDE AS TO WHEN HE INTENDED TO CONVERT HIS INVESTMENT IN STOCK-IN-TRAD E. 22. AS AN ALTERNATE SUBMISSION, THE LEARNED COUNSEL FOR THE ASSESSEE REQUESTED THE TRIBUNAL TO HOLD THA T THE SHARES HELD FOR LESSER PERIOD I.E., LESS THAN 30 DA YS BE HELD AS BUSINESS ACTIVITY AND THE INCOME DERIVED FR OM SALE OF SHARES HELD FOR MORE THAN 30 DAYS MAY BE HELD AS CAPITAL GAIN. THIS IS PARTICULARLY SO AS THE ASSES SING OFFICER HIMSELF HELD THAT THE LONG TERM CAPITAL GAI NS IS A GAIN ON INVESTMENT AND IS TAXABLE AS CAPITAL GAIN. 14 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= 23. THE DR SUBMITTED THAT THE MAIN GUIDING PRINCIPLES WERE GIVEN BY THE BOARD AFTER CONSIDERING THE DECIS IONS OF THE SUPREME COURT IN THE CASES OF (I) CIT V S. ASSOC I ATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. (82 ITR 586 ) (II) CIT V S. HOICK LARSEN (160 ITR 67) AND (III) AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 641), WHICH ARE ELABORATED AS UNDER: (I) THE SUBSTANTIAL NATURE OF TRANSACTIONS - THE VOLUME OF THE TRANSACTIONS CARRIED OUT, THE PERIOD WITHIN WHICH THE VOLUMES WERE DONE, THE CONTINUITY OR LACK OF IT ETC., WOULD DETERMINE THE SUBSTANTIAL NATURE OF TRANSACTIONS. (II) THE MANNER OF MAINTAINING BOOKS OF ACCOUNTS - WHETHER THE ASSESSEE MAINTAINED BOOKS OF ACCOUNTS OR NOT, WHETHER THE SHARES WERE VALUED AS STOCK-IN-TRADE OR AS INVESTMENTS WILL THROW LIGHT ON THIS ASPECT. (III) MAGNITUDE OF PURCHASES TO SALES - THE RATIO OF PURCHASES TO SALES, THE NATURE OF HOLDING, THE RECEIPT OF DIVIDENDS OR OTHERWISE, THE MOTIVE OF PROFIT WOULD SUGGEST THE NATURE OF TRANSACTIONS. CONSIDERING THE ABOVE PRINCIPLES, THE FOLLOWING CONCLUSIONS ARE DRAWN: (I) THE ASSESSES TOTAL INVESTMENT IS RS. 73.89 LAKHS BUT HE HAS A TURNOVER OF ABOUT RS. 5.38 CRORES IN MORE THAN 100 SCRIPS, WHICH IS VERY HUGE FOR AN INDIVIDUAL INVESTOR. THIS ALSO SHOWS HIGH FREQUENCY OF TRANSACTIONS. (II) THE ASSESSEE IS INVOLVED IN THE ACTIVITY OF TRADIN G IN SHARES THROUGHOUT THE YEAR CONTINUOUSLY. BUT AS PER HIS PAPER BOOK PAGE NO. 13 & 14 AND WRITTEN SUBMISSION PAGE NO. 2 & 3 MOST OF THE SHARES WERE HELD FOR LESS THEN 30 DAYS AND THERE ARE MANY SHARES WHICH ARE HELD FOR ONLY 1 OR 2 DAYS. (III) NO BOOKS OF ACCOUNTS ARE MAINTAINED FOR THE SHARE TRADING ACTIVITY. 15 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= (IV) EXCEPT IN A FEW CASES, ALL PURCHASES WERE DONE IN THE YEAR ITSELF. (V) THE ASSESSEE HAD RECEIVED DIVIDENDS ON SHARES AT RS. 1.25 LAKHS WHICH IS VERY MARGINAL WHEN COMPARED TO THE TURNOVER OF RS. 5.38 CRORES. (VI) THE ASSESSEE HAD INSIGNIFICANT STOCK OF SHARES LEFT IN HIS HAND YEAR END. FURTHER, THE HON'BLE SUPREME COURT LAID DOWN THE RU LES BY VARIOUS JUDGMENTS SUCH AS THOSE IN THE CASE OF: (I) DALMIA CEMENT LTD. VS CIT (1976) 105 ITR (SC) (II) CIT VS SUTLEJ COTTON MILLS SUPPLY AGENCY LTD., (197 5) 100 ITR 706(SC) AND (III) P.M. MOHAMMED MEERAKHAN VS. CIT (1969) 73 ITR 735. 24. THE DR SUBMITTED THAT PRINCIPLES HAVE BEEN ELABORATED IN THE JUDGEMENT OF PATNA HIGH COURT IN THE CASE OF ECLAT CONSTRUCTION (PVT . ] LTD., V S CIT (1988) 172 ITR 84 (PATNA) . IN THIS CASE, THERE IS NO DOUBT THAT SHARE TRADING BUSINESS WAS CARRIED ON BY THE ASS ES SEE. FURTHER, THE ASSESSEE DID NOT DO ONLY ONE SINGLE TRANSACTION BUT A HUGE NUMBER OF TRANSACTIONS. THE ONLY CONTENTION IS WHETHER THE STATED TRANSACTIONS WERE DONE WITH THE OBJECT OF EARNING PROFIT OR SIMPLY WITH AN INVESTMENT MOTI VE. GOING BY THE PRINCIPLES IN CBDT CIRCULAR NO . 4/ 2007, THE ASSE S SEE IS FULFILLING ALMOST ALL THE CONDITIONS AND, HE NCE, THE ASSESS E E MOTIVE OF INVESTMENT IS NOT CONFIRMED BUT, IN FACT THE PROFIT MOTIVE IS CLEAR. ALL THESE FACTS INDICATE THAT THE INTENTION OF THE ASSE S SEE IS TO GAIN PROFIT BY DEALING IN SHORT TERM PERIOD ON LY. 25. HEAD BOTH PARTIES. WE FIND THAT AT PARA 47 OF THE ORDER, THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF SPECTRA SHARES AND SCRIPS PVT. LTD. VS. CIT (354 16 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= ITR 35) OBSERVED THE FOLLOWING, WHICH IF ANALYSED I N THE CONTEXT OF ASSESSEE TRANSACTION EQUALLY APPLY. A) THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT BORROWED ANY FUNDS. IT HAD MADE ALL THE INVESTMENTS WITH ITS OWN FUNDS. (IN THE ASSESSEE'S CASE, THERE IS NO BORROWING). B) THAT THE CLOSING STOCK WAS VALUED IN ITS BOOKS OF ACCOUNT CONSISTENTLY AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER. (IT IS SIMILAR IN THE ASSESSEE'S CASE). C) ALL THE TRANSACTIONS OF PURCHASE AND SALE WERE DELIVERY BASIS EXCEPT THE SOME INSTANCE OF RELIANCE INDUSTRIES LTD. (EXACTLY SIMILAR IN THE CASE OF THE ASSESSEE). D) THE ASSESSEE WAS REGISTERED AS NBFC WITH THE RBI AND THE ASSESSEE HAD NEVER CLAIMED SET OFF OF THE LOSSES ARISING FROM SALE OF INVESTMENTS AGAINST OTHER INCOMES. (THERE IS NO SUCH SITUATION IN THE CASE OF THE ASSESSEE). E) MERELY BECAUSE OF LARGE FREQUENCY AND VOLUME OF TRANSACTIONS, A CONCLUSION THAT AN ASSESSEE IS A TRADER CANNOT BE DRAWN. (THIS OBSERVATION HOLDS GOOD IN THE CASE OF THE ASSESSEE). F) THE FACT THAT THE ASSESSEE IS MONITORING THE STOCK MARKETS AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT FROM THESE TRANSACTIONS IS NOT CONCLUSIVE OF THE FACT THAT THE ASSESSEE IS A TRADER BECAUSE EVEN AN INVESTOR WOULD NOT BUY OR SELL BLINDLY AND TAKE THE RISK OF SUFFERING LOSSES.(AS SUBMITTED, THE ASSESSEE CHANGES THE SHARES CONTAINED IN THE INVESTMENT PORTFOLIO SO THAT THE CAPITAL IS PRESERVED). G) THE ASSESSEE HAS AN ADMINISTRATIVE SET UP AND INCURS CONSIDERABLE ADMINISTRATIVE COST ALSO IS NOT A FACTOR TO HOLD THAT THE ASSESSEE IS A TRADER.(THE ASSESSEE IS IN A BETTER SITUATION. NO SUCH ESTABLISHMENT EXISTS). 17 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= H) THE FACT THAT THE ASSESSEE IS MAKING REPETITIVE PURCHASES AND SALES OF THE SAME SHARES IS A FACTOR IN FAVOUR OF HOLDING THAT THE ASSESSEE IS AN INVESTOR. (THE OBSERVATION SUPPORTS THE CLAIM OF THE ASSESSEE). I) THE REVENUE HAD ACCEPTED THAT THE ASSESSEE WAS AN INVESTOR WHOSE INCOME IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' FOR A NUMBER OF YEARS. (THIS FACT ALSO IS TRUE WITH THE ASSESSEE. THE ASSESSMENTS FROM 2004-05 AND 2005-06 WERE ACCEPTED). 26. THE ABOVE FACTORS IF CONSIDERED IN THE CASE OF THE ASSESSEE WILL SUPPORT THE ASSESSEE'S CONTENTION THA T HE IS AN INVESTOR AND NOT A TRADER. ALL THE FACTORS MENTI ONED ABOVE ARE IN FAVOUR OF THE ASSESSEE. 27. IN THE CASE OF ACIT VS. PRADIP U PATEL IN ITA NO. 8686/MUM/2011 ORDER DATED 28.12.2012 THE MUMBAI BENCH OF THIS TRIBUNAL HELD AS FOLLOWS: '8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CONSIDERED THE CASES WHICH HAVE BEEN REFERRED TO BY THE AUTHORITIES BELOW IN THEIR RESPECTIVE ORDERS. WE HAVE ALSO PERUSED THE RELEVANT PAGES OF THE PAPER BOOK AND PARTICULARLY PG. NOS. 18 TO 21 OF THE PAPER BOOK WHICH IS A SHARE HOLDING CHART IN TERMS OF NUMBER OF DAYS OF THE SHARES HELD BY THE ASSESSEE AND THE COMPANIES OF WHICH THE ASSESSEE PURCHASED/SOLD SHARES IN THE FINANCIAL YEAR RELEVANT TO THE AY UNDER CONSIDERATION. ON PERUSAL OF THE DETAILS OF THE SAID SHARES, WE OBSERVE THAT THERE ARE NO REPETITIVE TRANSACTIONS IN SHARES OF THE SAME SCRIPT IN THE FINANCIAL YEAR RELEVANT TO THE AY UNDER CONSIDERATION. FURTHER, IT IS A FACT THAT THE ASSESSEE HAS USED HIS OWN FUNDS FOR THE PURCHASE OF SHARES AND NO BORROWED FUND WAS USED BY THE ASSESSEE. THE LD. DR HAS ALSO NOT DISPUTED THE FACT THAT THE ASSESSEE HAS BEEN SHOWING ITS HOLDINGS OF SHARES IN ITS BOOKS OF 18 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= ACCOUNTS IN THE PRECEDING AYS AS WELL AS IN THE AY UNDER CONSIDERATION UNDER THE HEAD 'INVESTMENT'. FURTHER, IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS VALUED ITS SHARES AT 'COST' AND NOT VALUED AT 'COST OF MARKET PRICE WHICH-EVER IS LOWER'. THE DEPARTMENT HAS ALSO NOT DISPUTED THE FACT THAT IN THE PRECEDING AYS, THE DEPARTMENT HAS CONSIDERED THE PROFIT ON SALE OF SHARES AYS UNDER THE HEAD 'CAPITAL GAIN/LOSS'. WE OBSERVE THAT THE LD. CIT(A) HAS STATED THAT OUT OF 55 TRANSACTIONS, ONLY 27 TRANSACTIONS ARE SUCH WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS AND IT IS 30% OF THE SHORT TERM CAPITAL GAIN THAT HAS BEEN EARNED BY THE ASSESSEE. THEREFORE, MAJORITY OF THE SHARES ARE HELD BY THE ASSESSEE FOR A LONGER PERIOD AND THE MAJORITY OF SHORT TERM CAPITAL GAIN HAS BEEN EARNED THEREON. THEREFORE, WE AGREE WITH LD. CIT(A) THAT THE FACT THAT SOME SHARES HAVE BEEN HELD FOR LESS THAN 30 DAYS, WILL NOT MAKE THE ASSESSEE, A TRADER IN SHARES. WE OBSERVE FROM THE TABLE AT PG. NO. 10 OF THE ORDER OF THE LD. CIT(A), THAT THE ASSESSEE HAS BEEN REGULARLY EARNING LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN IN THE PRECEDING AYS ON SALE OF SHARES AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT NOT ONLY U/S. 143(1) BUT ALSO IN THE ASSESSMENTS COMPETED U/S. 143(3) OF THE ACT, AS IS OBSERVED FROM THE FACT SHEET PLACED BEFORE US BY THE LD. AR AT THE TIME OF HEARING. THE LD. DR HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS EARNED SUBSTANTIAL DIVIDEND OF RS. 9,25,018/- DURING THE YEAR. THE HON'BLE APEX COURT HAS HELD IN THE CASE OF CIT VS. H. HOLCK LARSEN (160 ITR 67) THAT IT IS RELEVANT TO SEE THE INTENTION OF THE ASSESSEE AS TO WHETHER THE ACTIVITY AMOUNTS TO TRADING ACTIVITY OR INVESTMENT ACTIVITY AND FOR WHICH ONE COULD NOT LOOK THE END OF THE TRANSACTION BUT AT THE FIRST PURCHASE TO JUDGE EACH CASE. SINCE WE HAVE MENTIONED THAT THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES HAD ENTERED THE SAME IN ITS BOOKS OF ACCOUNTS AS INVESTMENT AND HAS ALSO SHOWN IN BALANCE SHEET UNDER THE HEAD 'INVESTMENT', THE INTENTION OF THE ASSESSEE IS FORTIFIED THAT THE SAME ARE HELD AS INVESTMENT AND NOT AS STOCK 19 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= IN TRADE. THE HON'BLE GUJARAT HIGH COURT HAS LAID DOWN THE FOLLOWING TEST IN THE CIT VS. REWASHANKAR A KOTHARI [201 CTR 510] TO DECIDE WHETHER THE ASSESSEE WAS A DEALER IN SHARES OR A MERE INVESTOR. (1) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION OF THE SUBJECT MATTER OF THE TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM OR WITH A VIEW TO FINDING ON INVESTMENT. IF THE TRANSACTION, SINCE INCEPTION APPEARS TO BE IMPRESSED WITH A CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDE LINE; (2) THE SECOND TEST IS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS WITH THE ASSESSEE WHETHER IT HAS BEEN TREATED AS STOCK-IN-TRADE, ARE BEING SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE SHEET AS AN INVESTMENT; (3) THE THIRD IS HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENT. THIS FACTOR, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF TRANSACTION. THE HON'BLE APEX COURT HAS OBSERVED IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD., (82 ITR 586) THAT WHETHER A PARTICULAR HOLDING OF SHARE IS BY WAY OF INVESTMENT OR FORMS PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE, WHO HOLDS SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AND WHETHER IT HAS MAINTAINED DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK- IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. MUMBAI BENCH OF ITAT IN THE CASE OF JANAK S RANGWALLA [11 SOT 627 (MUM)] HAS HELD THAT IT IS THE INTENTION OF THE 20 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARE WAS AT A LARGE MAGNITUDE, BUT THE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. IT WAS ALSO STATED IN THE ABOVE CASE THAT THE MERE MAGNITUDE OF THE TRANSACTIONS DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS 'INCOME FROM CAPITAL GAINS' IN THE PAST SEVERAL YEARS. 9. CONSIDERING THE FACTS OF THE CASE AND THE CASES CITED (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENT AND NOT STOCK IN TRADE. THEREFORE, WE AGREE WITH THE LD. CIT(A) THAT THE VOLUME OF TRANSACTIONS, FREQUENCY OF TRANSACTION AND PERIOD OF HOLDING ETC., WOULD NOT ALTER THE NATURE OF TRANSACTION FROM INVESTMENT TO TRADING AND THE SHARE PROFIT SHOWS BY THE ASSESSEE IN THE AY UNDER CONSIDERATION OF RS. 29,04,561/- IS ASSESSABLE AS 'SHORT TERM CAPITAL GAIN' AND NOT AS 'BUSINESS INCOME'. HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) BY REJECTING THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT.' 28. FURTHER, THE DECISION OF THE HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF SPECTRA SHARES & SCRI PS PVT. LTD., IS SIMILAR TO THE FACTS OF THE ASSESSEE' S CASE. HENCE CONSIDERING THE TOTALITY OF THE FACTS, WE ALL OW ASSESSEE'S APPEAL. 29. IN THE RESULT, ASSESSEE'S APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER, 2014 SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 5 TH SEPTEMBER, 2014 TPRAO 21 ITA NO. 563/HYD/2012 SRI NIRUDHODDI JAYA SRINIVASWULU ========================= COPY TO: 1. SRI NIRUDHODDI JAYA SRINIVASULU, C/O. SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, H. NO. 3-6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD- 500 029. 2. THE ASST. CIT, CIRCLE - 6(1), HYDERABAD. 3. THE CIT(A) - I V , HYDERABAD. 4. THE CIT - III , HYDERABAD. 5. THE DR, B - BENCH, ITAT, HYDERABAD.