DY.C.I.T. - 22(1), NAVI MUMBAI V. SMT. MONICA BIMAL SHAH, MUMBAI

ITA 5655/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55756 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 12-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REENA JHA TRIPATHI
• Keywords: Capital asset; Business income; Rule of consistency
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX, SMT. MONICA BIMAL SHAH, 22(1), MUMBAI. VS. 1401-F KUKREJA PALACE, VALLABH BUNG LANE EXTN., GHATKOPAR (E), MUMBAI 400 077. PAN AAQPS 4225F. APPELLANT. RESPONDENT. APPELLANT BY : SMT. REENA JHA TRIPATHI. RESPONDENT BY: SHRI SATISH MODY. DATE OF HEARING : 12-10-2011. DATE OF PRONOUNC EMENT : 04-11-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-XXII, MUMBAI DATED 09-07-2009 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME IS WHETHER IN THE FACTS AND CIRCUMSTANC ES OF THE CASE THE LEARNED CIT(APPEALS) IS JUSTIFIED IN DIRECTING THE AO TO TR EAT THE PROFITS ON SALE OF SHARES AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 16-10-20 06 DECLARING TOTAL INCOME OF RS.2,91,69,761/-. THE SAID INCOME COMPRISED OF SHOR T TERM CAPITAL GAINS OF 2 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. RS.2,28,16,373/- AND INCOME FROM F & O AND SPECULAT IVE TRANSACTION OF RS.64,29,182/-. THE ASSESSEE HAD ALSO DECLARED LONG TERM CAPITAL GAINS OF RS.1,17,41,141/- ARISING FROM SALE OF SHARES WHICH WERE CLAIMED TO BE EXEMPT U/S 10(38). THE INCOME EARNED BY THE ASSESSEE FROM THE DEALING IN FUTURE AND OPTION TRANSACTIONS WAS DECLARED BY HER AS BUSINESS INCOME AND THE PROFIT EARNED FROM DELIVERY BASED TRANSACTION IN SHARES WAS DECLARED A S CAPITAL GAINS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPON BY THE AO TO EXPLAIN AS TO WHY THE PROFIT ARISING FROM TRANSACTI ONS IN SHARES SHOWN UNDER THE HEAD CAPITAL GAINS SHOULD NOT BE TREATED AS HER B USINESS INCOME. IN REPLY, ELABORATE SUBMISSION WAS MADE ON BEHALF OF THE ASSE SSEE, THE GIST OF WHICH AS SUMMARIZED BY THE AO ON PAGE NO.2 OF HIS ORDER WAS AS UNDER : I) INVESTMENT IN SHARES HAS BEEN MADE BY THE ASSE SSEE OUT OF HER OWN FUNDS. II) THE SHARES PURCHASED FROM TIME TO TIME HAVE B EEN SHOWN IN THE BOOKS OF ACCOUNT BY THE ASSESSEE AS HER INVESTMENT ALL THROU GHOUT. III) INVESTMENT MADE BY THE ASSESSEE WAS SPREAD OUT IN DIFFERENT SHARES TO SAFEGUARD HER INTEREST, IV) ALL THE TRANSACTIONS OF PURCHASE AND SALE OF SH ARES WERE ROUTED THROUGH BSE AND NSE AND THE SAME WERE DELIVERY BASED. V) INTENTION OF THE ASSESSEE IN MAKING THE TRANSACT IONS OF SHARES HAS TO BE SEEN AND NOT VOLUME OR FREQUENCY OF SUCH TRANSACTIONS TO DETERMINE THE NATURE THEREOF. IN SUPPORT OF HER CASE, RELIANCE WAS ALSO PLACED BY THE ASSESSEE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I) ARJUN KAPUR VS. DCIT 70 ITD 161 (DEL.) II) ACIT VS. KETHAN KUMAR SHAH 242 ITR 83/108. III) MOTILAL OSWAL VS. ADDL. CIT 8 SOT 771. IV) DIVYABEN SHAH VS. DCIT 33 SCL 443. 3 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. 3. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FO UND ACCEPTABLE BY THE AO FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NOS. 2 .2.1 TO 2.2.8 OF HIS ASSESSMENT ORDER : 2.2.1 THE ASSESSEE IS ENGAGED IN SOME REAL, SUBSTA NTIAL AND SYSTEMATIC ACTIVITY WITH THE SOLE PURPOSE OF EARNING INCOME. T HE TRANSACTIONS IN SHARES ARE DONE ON HER BEHALF BY BROKER FIRM NAMELY M/S VE NTURA SECURITIES P. LTD. THE TRANSACTIONS IN SHARES WERE MADE WITH SPEC IFIC TARGET OF MAKING )FIT AND NOT FOR APPRECIATION IN VALUE. FROM THE VOLUME AND FREQUENCY OF THE TRANSACTIONS APPEARING IN THE LEDGER ACCOUNT MAINTA INED ON BEHALF OF THE ASSESSEE BY THE BROKER FIRM REVEAL THE FACT THAT TH E BUSINESS WAS CONDUCTED IN VERY SYSTEMATIC AND ORGANIZED MANNER. SHE DEALS IN CASH SEGMENT AND DERIVATIVE SEGMENT THROUGH THE SAME BROKER I.E. M/S VENTURA SECURITIES P. LTD. DEALING IN DERIVATIVE SEGMENT OF THE SHARE SIM PLY CONFIRMS THE INTENTION OF THE ASSESSEE THAT SHE WISHES TO EARN A S MUCH AS PROFIT FROM SHARE DEALING BY MAXIMIZING THE INCOME WITH LESS AND LESS FUND PARKED INTO THE BUSINESS. 2.2.2 THE ASSESSEE PURCHASES AND SELLS SHARES OF SE VERAL COMPANIES IN LARGE VOLUME. THE REAL INTENTION AND MOTIVE OF THE ASSESS EE HAS TO BE SEEN BEHIND SUCH INVESTMENTS. IT IS TO FIND OUT THE BUSINESS MO TIVE BEHIND THE VEIL OF THE ALLEGED INVESTMENT. 2.2.3 FROM THE SUBMISSIONS MADE BY ASSESSEE HERSELF DURING THE YEAR SHE TRADED IN MORE THAN TWO HUNDRED DIFFERENT SCRIPS. FURTHERMORE, SHE MADE A NUMBER OF TRANSACTIONS IN ONE PARTICULAR SCRIP ON D IFFERENT DATES. FROM FORM NO.10DB (STT PAYMENT CERTIFICATES) IT IS OBVIOUS TH AT SHE PURCHASED AND SOLD SHARES OF RS.36.77 CRORE AND RS.36.27 CRORE RE SPECTIVELY IN THE CASE OF WHICH DELIVERY WAS MADE. SHE ALSO MADE SPECULATIVE TRANSACTIONS TO THE EXTENT OF RS.6.68 CRORE. THE AMOUNT INVOLVED IN FUT URE AND OPTION TRANSACTIONS MADE BY ASSESSEE IS MORE THAN 7O CRORE . NO PERSON HAVING INTENTION OF INVESTMENT PARKS HIS MONEY IN MORE THA N 200 DIFFERENT SCRIPS AND FREQUENTLY CHANGES HIS PORTFOLIO. FROM THE BALA NCE SHEET IT IS NOTICED THAT THE TOTAL FUND INCLUDING CAPITAL OF RS.5.62 CRORE A ND LOAN OF RS.72.87 LAKHS AVAILABLE WITH ASSESSEE IS RS.6.35 CRORE OUT OF WHI CH RS.6.05 CRORE WHICH IS 4 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. ALMOST 95% OF TOTAL FUND HAS BEEN INVESTED IN SHARE S ONLY. THUS FROM THE VOLUME AND NATURE OF SHARE TRANSACTIONS IT CAN BE S AFELY CONCLUDED THAT THE ASSESSEE ENGAGED HERSELF IN SYSTEMATIC BUSINESS OF SHARE TRADING. 2.2.4ASSESSEES ANOTHER CONTENTION THAT THE INVESTM ENT HAS NEVER BEEN OUT OF THE BORROWED FUNDS IS ABSOLUTELY WRONG AND MISLEADI NG. AS PER BALANCE SHEET THE AMOUNT OF LOAN TAKEN IS RS.72.87 LAKH. TH IS IS CLOSING BALANCE AS ON 31ST MARCH, 2006. HOWEVER, ON PERUSAL OF ANNEXUR E 3 TO FORM 3CD IT APPEARS THAT DURING THE YEAR SHE ACCEPTED LOAN OF R S.4.03 CRORE WHICH UTILIZED MOSTLY FOR THE PURPOSE OF PURCHASING SHARE S. ONLY MEAGER AMOUNT WAS USED FOR FUTURE & OPTION TRANSACTIONS. FOR THE LOANS TAKEN A SUBSTANTIAL AMOUNT OF RS.9.15 LAKH WAS PAID AS INTEREST. IN PRO FIT & LOSS A/C SHE HAS DEBITED ENTIRE AMOUNT OF INTEREST AGAINST FUTURE AN D OPTION PROFIT WHICH IS ONLY A DISTORTION OF FACT. THE FACT IS THAT A MAJOR PART OF LOAN TAKEN WAS UTILIZED FOR DELIVERY BASED PURCHASE & SALE OF SHAR ES AND SPECULATIVE TRANSACTION. THEREFORE, THE CONTENTION OF ASSESSEE THAT THE INVESTMENT IN SHARES HAS NEVER BEEN MADE OUT OF THE BORROWED FUND S IS FACTUALLY WRONG AND CANNOT BE ACCEPTED. HERE, IT ALSO DESERVES TO BE POINTED OUT THAT FOR E ARNING THE BUSINESS INCOME IT IS NOT NECESSARILY REQUIRED TO DO THE BUSINESS F ROM THE BORROWED FUNDS. SO THE BORROWED FUND FACTOR IS ALSO NOT RELEVANT FOR T REATING ANY INCOME UNDER A PARTICULAR HEAD. IT IS THE NATURE OF THE INCOME WHI CH IS RELEVANT TO CHARGE ANY INCOME UNDER A PARTICULAR HEAD. 2.2.5 IN THIS CASE, THE INTENTION AND MOTIVE BEHIND PURCHASE AND SALE OF SHARES IS MORE FOR EARNING INCOME BY WAY OF SALE OF SHARES OR BY TRADING IN THESE SHARES AND LESS BY WAY OF EARNING OF DIVIDEND INCOME. IT IS FURTHER CORROBORATED BY THE RATIO OF INCOME EARNED OUT OF P URCHASE AND SALE OF THE SHARES AND DIVIDEND RECEIVED. IT IS NOTICED FROM SC HEDULE A OF BALANCE SHEET THAT ONLY RS.5,40,860/- WAS RECEIVED AS DIVIDEND. B UT THE PROFIT DERIVED FROM SALE AND PURCHASE OF SHARE IS RS.3,45,57,514/-. IT CLEARLY SUBSTANTIATES THAT THE MOTIVE OF ASSESSEE IS TO EARN PROFIT FROM SHARE DEALING AND NOT TO RECEIVE DIVIDEND FROM SHARES BY KEEPING THEM AS INVESTMENT. DRIVEN BY THIS MOTIVE 5 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. SHE INSTEAD OF WAITING FOR DIVIDEND OR APPRECIATION OF INVESTMENT SHE USED TO SELL SHARES WITHIN A SHORT TIME FROM THE DATE OF TH EIR PURCHASE ONLY FOR THE SOLE PURPOSE OF EARNING PROFIT FROM SHARE DEALING. 2.2.6 THE FACT THAT SHARES HAVE BEEN TRADED IN HUGE VOLUME ON ALMOST WORKING DAY OF THE YEAR BY HOLDING THEM FOR VERY SH ORT PERIOD TENDS TO ELIMINATE THE POSSIBILITY THAT THE SHARES WERE HELD AS AN INVESTMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS DAY TO DAY TR ANSACTIONS OF SHARES WAS SUBMITTED FROM WHICH IT IS EVIDENT THAT THE ASSESS EE MADE PURCHASE AND SALE OF SHARES AS ON 262 WORKING DAYS OF THE YEAR HAVING MANY TRANSACTIONS OF MANY SHARES ON EACH DAY. A PERSON HAVING INTENTION OF INVESTMENT IS NOT EXPECTED TO INVOLVE HIMSELF ON DAILY BASIS IN SHARE DEALING. FURTHERMORE, IT IS ALSO NOTICED THAT MOST OF THE SHARES WERE SOLD W ITHIN SHORT TIME FROM THE DATE OF THEIR PURCHASE. IT IS ALSO NOTICED THAT THERE IS FREQUENT CHURNING OF SCRIPS ON REGULAR BASIS. THE SHARES OF SAME COMPANY WERE PURCHASED AND SOLD MANY TIMES DURING THE YEAR BY CLOSELY FOLLOWING THE MOVEMENT OF STOCK PRICES. FOR EXAMPLE, SHE PURCHASED AND SOLD THE SHARES OF CENTURY ENKA 1 2 TIMES DURING THE YEAR. IT IS TRUE THAT SOME OF THE SHARES WERE HELD FOR A LONGER PERIOD BUT THAT TOO MOTIVATED BY BUSINESS INTENTION. DURING THE YEAR, S HE MADE MORE THAN 1700 TRANSACTIONS OF PURCHASE AND SALE OF SHARES. IT IS ALSO TO BE HIGHLIGHTED THAT THE ASSESSEE HAS GOT NO OTHER BUSINESS OR SOURCE OF INCOME EXCEPT DEALING IN SHARES AND FUTURE & OPTIONS. IT HAS ALREADY BEEN PO INTED OUT THAT MORE THAN 95% OF FUND AVAILABLE WITH HER HAS BEEN INVESTED IN SHARES ONLY. IT MEANS THAT THE ASSESSEE UTILIZE HER ENTIRE FUND TIME AND INFRASTRUCTURE TO EARN PROFIT FROM SYSTEMATIC BUSINESS OF SHARE TRADING. 2.2.7 IN THE PARAGRAPH ABOVE AND FURTHER DISCUSSION AS BELOW, ALL ASPECTS HAVE BEEN CONSIDERED BEFORE CONSIDERING THE TRANSAC TION IN SHARES AS ADVENTURE IN THE NATURE OF TRADE. IT HAS ALSO BEEN MADE CLEAR IN DEPARTMENTAL CIRCULAR NO.4/2007 DATED 15.06.2007 THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE. 6 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. 2.2.8 THE ASSESSEES ARGUMENT THAT THE SHARES WERE SHOWN AS INVESTMENT AND NOT AS STOCK-IN-TRADE IN THE BOOKS HAS GOT NO EVIDE NTIAL VALUE. IT HAS BEEN REPEATEDLY HELD BY THE HONBLE SUPREME COURT THAT I T IS THE NATURE OF THE TRANSACTION THAT IS MORE RELEVANT RATHER THAN THE N AME OR THE MANNER OF ENTRIES IN THE BOOKS OF ACCOUNTS. A CLASSIFICATION OF PARTICULAR SCRIP IN THE BOOKS OF ACCOUNTS CAN ONLY BE INDICATIVE BUT NOT CO NCLUSIVE TO PROVE THE NATURE OF ENTRY. EVEN THOUGH THE ASSESSEE MAY BE CL ASSIFYING THE SHARES AS INVESTMENTS, THE FACT REMAINS THAT THERE HAS BEEN F REQUENT AND VOLUMINOUS DEALINGS IN SHARES IN A REGULAR AND SYSTEMATIC MANN ER UTILIZING 95% OF AVAILABLE FUND INCLUDING LOANS FROM VARIOUS PARTIES . FOR THE REASONS GIVEN ABOVE, THE ASSESSEE WAS TREAT ED BY THE AO AS TRADER IN SHARES AND THE PROFIT ARISING FROM THE TRANSACTIONS OF PUR CHASE AND SALE OF SHARES DECLARED BY THE ASSESSEE AS SHORT TERM AND LONG TERM CAPITAL GAINS AGGREGATING TO RS.3,45,57,514/- WAS TREATED BY HIM AS HER BUSINESS INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 30-12-2008 . 4. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THE DECISION OF THE AO IN TREATING THE CAPITAL GAINS AS HER BUSINESS INCOME. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(APPEALS), ELABOR ATE SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN WRITING IN SUPPORT OF HER CASE THAT THE SHARES WERE PURCHASED AND SOLD BY HER AS INVESTMENT AND THE PRO FIT ARISING FROM THE TRANSACTIONS IN SHARES WAS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SAID SUBMIS SIONS AND ACCEPTED THE SAME AFTER DISCUSSING EACH AND EVERY ASPECT OF THE MATTE R IN DETAIL IN PARAGRAPH NOS. 4 TO 4.6 OF HIS IMPUGNED ORDER WHICH ARE REPRODUCED HERE UNDER : 4 I HAVE CAREFULLY CONSIDERED THE ORDER OF THE AS SESSING OFFICER AND THE SUBMISSION MADE BY THE APPELLANT ALONG WITH THE JUD GMENTS CITED AND THE 7 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. DOCUMENTS SUBMITTED. I FIND THAT THE MAJOR DISPUTE IS REGARDING THE DETERMINATION OF THE HEAD OF INCOME UNDER WHICH THE INCOME OF THE APPELLANT IS TO BE TAXED. SECTION 14 OF THE INCOME TAX ACT 1961 PRESCRIBES 5 HEADS OF INCOME UNDER WHICH THE INCOME NEEDS TO BE CLASSIFIED TO BE TAXED. EACH HEAD CONTAINS INDIVIDUAL COMPUTATIONAL PROVISI ONS AND THEREFORE IT IS ABSOLUTELY NECESSARY TO CLASSIFY THE CORRECT HEAD T O THE INCOME DECLARED. IN THIS CONTEXT, THE FOLLOWING APPEAL NEEDS TO BE DISC USSED. TO SUPPORT HER CONTENTION, THE APPELLANT HAS MADE AN ELABORATE SUB MISSIONS RELYING ON FACTS OF THE CASE AND THE CASE LAWS APPLICABLE. I FIND TH AT MAJORITY OF THE CASES RELIED UPON BY THE APPELLANT IS APPLICABLE IN HER C ASE. NOTWITHSTANDING THE SAME EVEN IF EXAMINED INDEPENDENTLY, IT IS APPARENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER DECIDED THE CASE W ITHOUT INVESTIGATION AND WITHOUT ANALYZING ALL THE FACTS OF THE CASE IT HAS BEEN HELD BY THE HBLE ALLAHABAD HIGH COURT IN DEEP CHANDRA & CO 107 ITR 7 16, THE BURDEN LIES ON THE REVENUE TO ESTABLISH THAT THE PROFIT EARNED ON A TRANSACTION WAS REVENUE REALIZATION AND NOT CAPITAL GAINS. THIS ONU S CANNOT BE DISCHARGED BY SURMISES AND BY MERELY REJECTING THE EXPLANATION OF APPELLANT ASSESSEE. THE APPELLANT HAS FILED A RETURN OF INCOME DECLARING BO TH BUSINESS INCOME AND CAPITAL GAINS (BOTH LONG TERM AND SHORT TERM) FROM SALE OF SHARES. THE APPELLANT HAS CLAIMED TO HAVE EARNED RS.64,29,1821- FROM BUSINESS OF SALE OF SHARES FOR WHICH BORROWED CAPITAL HAS BEEN USED. THE BUSINESS INCOME HAS BEEN DECLARED ON F & 0 TRANSACTION ALONG WITH S PECULATION INCOME. SECURITIES TRANSACTION TAX (STT) HAS BEEN PAID ON T HE ON DELIVERY SHARES AT 0.015 PAISA. THIS HAS BEEN ACCEPTED BY THE ASSESSIN G OFFICER IN TOTALITY. THE APPELLANT HAS ALSO DECLARED LONG TERM CAPITAL GAIN OF RS.1,17,41,141/- AND SHORT TERM CAPITAL GAIN OF RS.2,28,16,373/- ON PROF IT MADE ON SALE OF CERTAIN SHARES HELD BY HIM AS PERSONAL INVESTMENT. THESE SHARES STOOD PERSONALLY DELIVERED TO THE APPELLANT ON WHICH STT PAID IS 0.15 PAISA AS PER CERTIFICATE AND THEY STOOD VALUED AT COST. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THIS DECLARATION OF THE APPELLANT AND HA S TAKEN A VIEW THAT APPELLANT IS A DEALER IN SHARES AND AS SUCH THE SHA RES ARE TO BE TREATED AS STOCK IN TRADE AND THE PROFIT RECEIVED ON THEIR TRA NSACTION AS BUSINESS INCOME. THE ASSESSING OFFICER BASED HIS FINDING ON THE FOL LOWING GENERAL POINTS AND 8 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. TREATED THE INCOME DECLARED AS CAPITA GAINS BY THE APPELLANT AS BUSINESS INCOME: 1. THERE WAS BUSINESS INCOME ALSO DECLARED BY THE A PPELLANT 2. THE TRANSACTION IN SHARES WERE MADE MAINLY TO EA RN PROFIT AND NOT FOR APPRECIATION IN VALUE. 3. THE VOLUME AND FREQUENTLY MADE TRANSACTION CLEAR LY POINTED TO BUSINESS ACTIVITY. 4. THE BROKERS HELP IS TAKEN. 5. THE ASSESSING OFFICER EXAMINED THE BALANCE SHEET OF THE APPELLANT AND DISAGREED WITH THE STATEMENT THAT BORROWED FUNDS WE RE NOT USED FOR INVESTMENT PURPOSE. 6. THE DIVIDEND RECEIVED WAS MINIMAL AND THE INTENT ION WAS EARNING OF PROFIT. 7. 95% OF THE FUNDS AVAILABLE HAS BEEN INVESTED IN SHARES ONLY TO EARN PROFIT. HOWEVER, ON DETAILED PERUSAL OF THE FACTS OF THE CA SE, IT IS SEEN THAT THE ACTION OF THE ASSESSING OFFICER CANNOT BE JUSTIFIED . IT IS SEEN THAT IN THE PAST YEARS THE APPELLANTS INCOME DECLARED UNDER THE HEA D CAPITAL GAIN HAS BEEN ACCEPTED BY THE DEPARTMENT. THERE IS NOTHING TO SHO W THAT IN THE CURRENT YEAR UNDER CONSIDERATION THE APPELLANTS STYLE AND METHO D. OF EARNING INCOME HAS CHANGED AND THE APPELLANT HAS BECOME A DEALER IN SH ARES. THE METHODOLOGY OF FILING THE RETURN OF INCOME REMAINS CONSTANT WHE RE THE APPELLANT IS CONCERNED IN ALL THE YEARS AND THAT THE DEPARTMENT HAS BEEN ACCEPTING THE SAME WITHOUT QUESTION. THE APPELLANT HAS BEEN DECLA RING BOTH BUSINESS INCOME AND CAPITAL GAINS REGARDING SHARES. IN FACT, RECORDS REVEAL THAT FOR ASSESSMENT YEAR 2004- 05, THE DEPARTMENT ASSESSED T HE CASE OF THE APPELLANT U/S 143(3) OF THE L.T. ACT 1961 AND ACCEPTED THE LO NG TERM CAPITAL GAINS (LTCG) AND SHORT TERM CAPITAL GAINS (STCG) DECLARED IN THE RETURN OF INCOME FILED. FOR ASSESSMENT YEAR 2005- 06, THE CAS E HAS BEEN PROCESSED U/S 143(1) OF THE L.T ACT 1961 AND RETURN OF INCOME ACCEPTED AS DECLARED. 9 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. THEREFORE, THERE SEEMS NO JUSTIFICATION IN THE ACTI ON ADOPTED BY THE ASSESSING OFFICER IN THE YEAR UNDER CONSIDERATION A S THE FACTS OF THE CASE REMAIN THE SAME. 4.1 THERE IS NO LAW OR PRACTICE THAT A DEALER IN A PARTICULAR COMMODITY CANNOT HOLD THAT VERY COMMODITY AS INVESTMENT. IN FACT, TH E HONBLE CBDT ITSELF VIDE CIRCULAR NO. 4 DATED 15/6/2007 AND INSTRUCTION NO.1827 DT 31.8.89 HAS HELD THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TW O PORTFOLIOS, I.E., AN INVESTMENT PORTFOLIO TO BE TREATED AS CAPITAL ASSET S AND A TRADING PORTFOLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING ASSETS. WHERE AN APPELLANT ASSESSEE HAS TWO PORTFOLIOS, THE APPEL LANT ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E., CAPITAL GAINS AS WELL AS BUSINESS INCOME. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINC IPLES SHOULD GUIDE THEM IN DETERMINING INCOME HEAD. THE ASSESSING OFFICERS ARE FURTHER ADVISED THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EF FECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETERMINE CHARACTER OF THE ASSET. THE ASSESSING OFFICER, I FIND, HAS DISREGARDED THESE GUIDELINES I SSUED IN TOTALITY AND HAS PRESUMED THAT ALL INCOME IS FROM BUSINESS ONLY. THE PRESUMPTION OF THE ASSESSING OFFICER, I FIND, HAS BEEN SUCCESSFULLY RE BUTTED BY THE APPELLANT IN HIS SUBMISSIONS REPRODUCED EARLIER IN DETAIL WHICH STANDS FULLY PROVED BY WAY OF ACCOUNTS MAINTAINED. 4.2 I AM IN AGREEMENT WITH THE CONTENTION OF THE AP PELLANT WHEN HE SAYS THAT AM ASSET ACQUIRED BY THE APPELLANT CANNOT ALW AYS BE TREATED AS BUSINESS ASSET IT IS FOR THE ASSESSING OFFICER TO PROVE T HAT THE SAME IS STOCK IN TRADE IF THE APPELLANT CONTENDS THAT IT IS AN INVESTMENT . I FIND IN THIS CASE BESIDES STATING THAT THE CONTENTION OF THE APPELLANT CANNOT BE ACCEPTED, THE ASSESSING OFFICER HAS MADE NO INVESTIGATION TO PROVE THAT THE CONCERNED SHARES QUALIFY UNDER THE HEAD STOCK IN TRADE AND THAT IT WAS INVO LVED UNDER ANY BUSINESS ACTIVITY OF THE APPELLANT. IN FACT, IT IS SEEN TH AT ONE MAJOR ISSUE I.E. METHOD OF VALUATION OF CLOSING STOCK WHICH COULD HAVE CLAS SIFIED THE SAID SHARES AS STOCK IN TRADE HAS NOT BEEN DISCUSSED. ON THE OTHER HAND, THE APPELLANT HAS WITH EVIDENCE PROVED THAT THE SHARES HAVE NOT BEEN VALUED AS STOCK IN TRADE AT THE END OF THE FINANCIAL YEAR. I FIND THAT THE A SSESSING OFFICER HAS BESIDES MAKING A GENERAL STATEMENT, NO WHERE ESTABLISHED TH AT THE SHARES IN QUESTION 10 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. WERE PURCHASED WITH BORROWED FUNDS ON WHICH THERE W AS INTEREST LIABILITY WHICH WOULD CLASSIFY THE INCOME AS BUSINESS INCOME. IN HIS ORDER, THE ASSESSING OFFICER HAS DISMISSED THE APPELLANTS CONT ENTION THAT BORROWED FUNDS WITH INTEREST LIABILITY WERE NOT USED FOR INV ESTMENT PURPOSE IN A GENERAL MANNER WHEREAS THE APPELLANT HAS MAINTAINED REGULAR BOOKS OF ACCOUNTS DISCLOSING 2 PORTFOLIOS I.E INVESTMENT AND TRADING. IN THIS, THE INTEREST LIABILITY IS DEBITED TO THE TRADING PORTFO LIO WHEREBY DECLARING BORROWED FUNDS WERE UTILIZED FOR BUSINESS PURPOSE. THE ASSESSING OFFICER HAS ACCEPTED THIS ACTIVITY IN TOTALITY. HE HAS NOWH ERE ARGUED THAT THE INTEREST LIABILITY ON BORROWED FUNDS ARE NOT ALLOWABLE UNDER THE TRADING ACCOUNT DECLARED. AS SUCH THERE IS A DICHOTOMY IN THE ASSES SMENT ORDER, IF IT IS ALSO HELD THAT BORROWED FUNDS WERE NOT USED FOR F & 0 BU SINESS DECLARED BUT TO INVEST IN SHARES SHOWN AS INVESTMENT. THE APPELLANT ON THE OTHER HAND HAS ESTABLISHED THAT LOANS WERE NOT USED TO BUY SHARES TREATED AS INVESTMENT. THE ASSESSING OFFICER HAS JUST BASED HIS CASE ON THE VO LUME OF TRANSACTION DONE AND THE FACT THAT THE APPELLANT IS ALSO DERIVING IN COME FROM BUSINESS OF SHARES. IT IS A WELL-KNOWN FACT THAT BUSINESS ENTER PRISE CAN HAVE TWO TYPES OF ASSETS AND THERE IS NO BAR ON BUSINESS ENTERPRISES TO INVEST IN IMMOVABLE ASSETS THROUGH SURPLUS GENERATED FROM THE BUSINESS. IT IS NOT NECESSARY THAT THE ASSET ACQUIRED IF IT IS SIMILAR TO THE PROPERTY USED AS STOCK IN TRADE WOULD AUTOMATICALLY FAIL UNDER THE CATEGORY STOCK IN TRAD E. FOR EG: A PERSON DEALING IN THE BUSINESS OF JEWELLERY CAN ALSO INVEST IN JEW ELLERY. IF THE ASSETS SO ACQUIRED ARE A DISPUTED ASSETS TO EXPLAIN UNDER WHI CH CATEGORY IT WOULD FALL IT IS FOR A PERSON RAISING THE DISPUTE TO DISCHARGE THE ONUS OF ESTABLISHING THE CLAIM. IN THIS CASE, IT WAS FOR THE ASSESSING OFFIC ER TO DISCHARGE THE ONUS TO ESTABLISH THAT THE SALE OF SHARES WAS ACTUALLY STOC K IN TRADE IN THE HANDS OF THE APPELLANT AND NOT A BUSINESS ASSET. SIMPLY BY DENYI NG THE CONTENTION OF THE APPELLANT THE ONUS IS NOT DISCHARGED. IT IS VERY NE CESSARY TO EXAMINE EACH CASE SEPARATELY AND TO DETERMINE THE CHARACTER OF T HE ASSET BEFORE ARRIVING AT ANY CONCLUSION REGARDING THE HEAD OF INCOME UNDER W HICH THE INCOME OF SUCH SHARES WOULD FALL. IT WAS FOR THE ASSESSING OF FICER TO ESTABLISH THAT IT WAS A BUSINESS INCOME AND THAT HAS NOT BEEN DONE. I FIND THAT ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANYTHING TO SAY T HAT THE APPELLANT WAS ONLY INVOLVED IN TRADING OF SHARES FROM WHICH BUSINESS P ROFITS COULD BE 11 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. GENERATED. IT IS A UNIVERSALLY ACCEPTED RULE OF ACC OUNTANCY THAT A PERSON CAN HOLD ASSETS AS STOCK IN TRADE AS WELL AS LONG TERM INVESTMENT IN THEIR BALANCE SHEET. 4.3 THE HONBLE SUPREME COURT IN THE CASE OF G. VEN KATSWAMI NAIDU & CO. 35 ITR 594 THE HONBLE COURT HAD SET PARAMETERS TO DECIDE THE HEAD OF INCOME WHEREIN IT HAD BEEN STATED THAT DISTINCTIVE CHARACTER NEEDS TO BE CONSIDERED AND NO PRESUMPTION CAN BE MADE, I FIND I N THIS CASE THE ASSESSING OFFICER HAS STRONGLY PRESUMED THE HEAD OF INCOME WITHOUT CONSIDERING ANY OF THE DISTINCTIVE CHARACTER OF THE TRANSACTION. IT IS A WELL KNOWN, FACT THAT ALL PROPERTIES ACQUIRED BY AN APPE LLANT ASSESSEE NEED NOT NECESSARILY BE STOCK IN TRADE. A PERSON CAN HOLD PR OPERTY IN DUAL CAPACITY I.E. AS A BUSINESSMAN OR AS A INVESTOR. THERE IS NO BAR ON THIS AND WHERE AN APPELLANT HAS TWO PORTFOLIOS THE INCOME CAN BE FROM BOTH HEADS I.E. BUSINESS AND CAPITAL GAINS. IN VSRM FIRM V. CIT. (1963) 47 I TR 720(MAD) IT HAS BEEN HELD THAT IT WOULD NOT BE JUSTIFICATION TO INF ER THAT THE CAPITAL ASSET HAS ACQUIRED THE CHARACTER OF STOCK IN TRADE MERELY FRO M THE FACT THAT THE APPELLANT ASSESSEE HAS DEALT WITH THE SIMILAR PROPE RTY AS A TRADING COMMODITY. THOUGH THE TESTS FOR DETERMINING THE ISS UE HAVE BEEN LAID DOWN BY VARIOUS JUDICIAL DECISIONS IT HAS ALSO BEEN SAI D THAT EACH CASE NEEDS TO BE DECIDED ON FACTS PECULIAR TO IT. 4.4 IT IS SEEN FROM THE FACTS SUBMITTED THAT SOME OF THE SHARES SOLD HAVE BEEN ACQUIRED SEVERAL YEARS BACK AND HAVE BEEN HEL D FOR A LONG PERIOD CLEARLY INDICATING THAT THEY WERE NOT STOCK IN TRAD E OF THE APPELLANT. IN FACT, THESE ARE DELIVERY BASED TRANSACTIONS WHICH CLEARLY INDICATES THAT THE INTENTION OF THE APPELLANT WAS TO HOLD THEM FOR A C ERTAIN PERIOD AND THIS BY ITSELF CLARIFIES THEM AS INVESTMENTS VIS--VIS THE HONBLE CBDT CIRCULAR AND INSTRUCTIONS MENTIONED ABOVE. FROM THE RECORDS, IT IS ALSO SEEN THAT SOME SHARES HAVE BEEN HELD FOR A CONSIDERABLY LONGER PER IOD AND IN SOME TRANSACTIONS LOSS HAS RESULTED. IF THIS. ACTIVITY W AS BUSINESS ACTIVITY, THE APPELLANT LIKE ANY PRUDENT BUSINESS PERSON WOULD HA VE ENSURED THAT SALE OF SHARES DO NOT RESULT IN LOSSES AND THEIR TURNOVER W AS QUICK. THERE IS NOTHING ON RECORD TO PROVE OR TO COME TO THE CONCLUSION THA T THE APPELLANT HAD CONVERTED THE CAPITAL ASSET INTO STOCK IN TRADE. ME RELY BECAUSE THERE HAS BEEN 12 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. PROFIT IN A TRANSACTION, IT CANNOT BE SAID THAT BUS INESS HAS BEEN DONE AND THE TRANSACTION COVERED IS ONE OF BUSINESS. THE INCOME FROM SUCH TRANSACTION UNLESS PROVED OTHERWISE CAN ONLY BE TAXED UNDER THE HEAD CAPITAL GAINS. THIS MORE SO EVER AS THE APPELLANT HAS BEEN SHOWING THES E SHARES AS A PERSONAL INVESTMENT IN HER BOOKS OF ACCOUNTS SEPARATELY FROM BUSINESS STOCK AND AS THERE IS NOTHING TO SHOW THAT THESE SHARES WERE ACQ UIRED IN THE COURSE OF APPELLANTS BUSINESS, THE PROFIT FROM THE SALE OF T HESE SHARES CAN ONLY BE TAXED UNDER THE HEAD CAPITAL GAINS. FROM THE DETAIL S FILED, IT IS CLEAR THAT THE APPELLANT HAS YEAR AFTER YEAR BEEN INDULGING IN BUS INESS IN SHARES FROM SHARES HELD AS STOCK IN TRADE AND ALSO EARNING PROF IT AS CAPITAL GAINS FROM SHARES HELD AS PERSONAL INVESTMENT. I FIND THAT NO INTERFERENCE HAS BEEN MADE IN THE RETURN OF INCOME IN THE PAST BY THE ASSESSIN G OFFICER. DETAILS OF ASSESSMENT YEAR 2004-05 WERE PRODUCED, WHEREIN IT I S SEEN THAT T HE CASE OF THE APPELLANT WAS CONCLUDED U/S 143(3) OF THE I.T A CT 1961 AND THE HEADS OF INCOME DECLARED THEREIN ACCEPTED. AS NO CHANGE HAS BEEN EFFECTED BY THE APPELLANT IN THE CURRENT YEAR FROM ACTION TAKEN IN THE PAST YEARS AND THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL TO T HIS EFFECT ON RECORD, I FIND THERE IS NO JUSTIFICATION FOR INTERFERING WITH THE DECLARATION OF THE APPELLANT REGARDING THE HEAD OF INCOME DECLARED. FOR THIS, RE LIANCE IS PLACED ON THE PRONOUNCEMENT OF THE JODHPUR TRIBUNAL IN THE CASE O F ACIT VS KRISHNA KUMAR BANGUR (2005) 2 (11) ITCL 569 (JODH TRIB). JU ST BECAUSE THE APPELLANT HAS SOLD SHARES WITHIN A SHORT TIME GAP F ROM ITS PURCHASE, IT CANNOT BE HELD THAT THERE WAS BUSINESS DONE. THE APPELLANT HAS ALL THE RIGHTS TO SELL SHARES AND EARN INCOME IF THOUGHT CORRECT. ONE CANN OT EXPECT THE APPELLANT TO HOLD ON TO THE SHARES MERELY BECAUSE IT IS AN IN VESTMENT. BESIDES IN SHARES WHEREIN LONG TERM CAPITAL GAINS HAS BEEN DECLARED, IT IS SEEN THAT THERE IS A LARGE TIME GAP BETWEEN DATES OF ACQUISITION AND SAL ES AND THUS IT DEFINITELY CANNOT BE SAID THAT THE SHARES WERE PURCHASED AS ST OCK IN TRADE WITH INTENTION OF BUSINESS. REGARDING THE ISSUE OF DIVIDENDS, IT I S SEEN THAT THE APPELLANT HAS SHOWN DIVIDEND INCOME AND THERE SEEMS NO REASON TO DISAGREE WITH THE STATEMENT THAT IN SOME CASE DIVIDENDS WERE NOT DECL ARED BY THE CONCERNED COMPANY AND HENCE THERE WAS NO INCOME FROM DIVIDEND ON THESE SHARES. THE ASSESSING OFFICER HAS NOT CONSIDERED THIS ISSUE AT ALL. 13 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. 4.5 THE APEX COURT HAS CLEARLY STATED THAT IN EACH CASE THE RELEVANT FACTORS AND CIRCUMSTANCES THAT NEED TO BE SEEN AND EXAMINED TO DETERMINE CHARACTER OF TRANSACTION. IN ORDER THAT INCOME CAN BE BROUGHT TO TAX UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION, IT IS ES SENTIAL THAT THE ACTIVITIES OF THE PERSON MUST CONSTITUTE THE CARRYING ON BUSINESS . MERE MOTIVE TO DERIVE INCOME BY APPRECIATION IN THE VALUE OF INVESTMENT W OULD NOT CONSTITUTE BUSINESS ACTIVITY. IN THIS CASE, IF THE INVESTMENT IN SHARES HAVE BEEN CONVERTED AS STOCK IN TRADE BY THE APPELLANT, THEN SECTION 28 OF THE I.T ACT 1961 WOULD HAVE TO BE ATTRACTED. IT IS SEEN THAT TH E APPELLANT HAS CLEARLY DISTINGUISHED BETWEEN THE SHARES HELD AS STOCK IN T RADE AND THAT HELD AS INVESTMENT AND THE ASSESSING OFFICER HAS NOT BROUGH T ON RECORD TO STATE THAT THE INVESTMENT IN SHARES HAVE BEEN CONVERTED INTO S TOCK IN TRADE. THE APPELLANT HAS ALL THE LIBERTY TO EARN INCOME FROM B OTH THE HEADS OF INCOME I.E. BUSINESS AND CAPITAL GAINS AND ONE CANNOT BE M ERGED WITH THE OTHER ON PRESUMPTION AND ASSUMPTIONS. THE NUMBER OF TRANSACT IONS AND THE VOLUME OF TRANSACTIONS CANNOT ALTER THE NATURE OF TRANSACT ION UNLESS THE SURROUNDING CIRCUMSTANCES SUPPORT THE SAME AS PROPOUNDED BY THE HONBLE RABAD BENCH A, IN THE CASE OF SHAH-LA INVESTMENTS AND FINANCI AL CONSULTANT PVT LTD VS DOLT 2005 (002) SOT, 0371, (HYD). IN THE CASE OF TH E APPELLANT THE ASSESSING OFFICER HAS BROUGHT NOTHING ON RECORD TO JUSTIFY THE ALTERATION IN THE NATURE OF TRANSACTION. ON THE OTHER HAND, THE A PPELLANT HAS ARGUED HER CASE STATING THAT (1) THE APPELLANT MAINTAINS A SEP ARATE INVESTMENT PORTFOLIO FROM THAT OF BUSINESS (2) THERE HAS BEEN NO CHANGE IN THE HOLDING PATTERN SINCE THE BEGINNING AND NO CONVERSION OF INVESTMENT INTO STOCK IN TRADE HAS BEEN DONE. (3) THE ASSESSING. OFFICER HAS MADE A DE PARTURE FOR THE ASSESSMENT YEAR UNDER APPEAL WITHOUT ADDUCING ANY C ONCRETE REASONS J EVIDENCE IN SUPPORT THEREOF. (4) FOR THE INVESTMENT IN SHARES, NO BORROWED FUNDS HAS BEEN USED (5) STT HAS BEEN PAID AS PER CA LCULATION DONE ON SHARES INVESTED AND PHYSICALLY HELD (6) VOLUME OF TRANSACT ION IS NO INDICATION OF BUSINESS AND THE FREQUENT SALE WHEREIN SHORT TERM C APITAL GAINS HAVE BEEN DECLARED HAS BEEN DONE TO EARN GOOD PRICE. THESE S HARES ARE DELIVERY BASED TRANSACTIONS AND ARE IN THE NATURE OF INVESTMENT PR OFITS FROM THESE SHARES WOULD QUALIFY UNDER THE HEAD CAPITAL GAINS. (7) THE RE IS NO ORGANIZED ACTIVITY INVOLVED AND NO INFRASTRUCTURE EMPLOYED IN THESE TR ANSACTIONS. ONLY HELP 14 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. RECEIVED IN FORM OF HER HUSBAND WHO IS A CHARTERED ACCOUNTANT (8) AS SUCH THE INCOME DECLARED UNDER THE HEAD LONG TERM CAPITA L GAINS AND SHORT TERM CAPITAL GAINS SHOULD BE ACCEPTED. 4.6 I FIND THE CONTENTION OF THE APPELLANT IS ACCE PTABLE. THERE IS A FUNDAMENTAL AND BASIC DIFFERENCE BETWEEN BUSINESS A SSET AND INVESTMENT, THOUGH BOTH ARE ACQUIRED WITH PROFIT IN MIND. PROFI T ON ANY BUSINESS ASSET IS DERIVED BY PUTTING IN ENTREPRENEURSHIP, LABOUR AND SKILL. ON THE OTHER HAND, THE PROFIT ON INVESTMENT IS DEPENDENT UPON TIME AND FAVOURABLE MARKET CONDITIONS. THE DISPUTED SHARES BEING DELIVERY BASE D AS PROVED BY THE APPELLANT QUALIFY AS CAPITAL ASSET OR INVESTMENT. U SING HELP TO KEEP TRACK OF THE GAINS THAT MAY BE RECEIVED FROM SALE OF THESE S HARES BY WAY OF EMPLOYMENT OF BROKERS ETC CANNOT IN ANYWAY TURN THE SE INVESTMENTS INTO BUSINESS ACTIVITY / INCOME. BESIDES THIS, IT IS TO BE CONSIDERED THAT THE APPELLANT AS AN INVESTOR HAS ALSO EARNED A RETURN F ROM THE INVESTMENT MADE IN FORM OF DIVIDENDS. THE APPELLANT, I FIND, HAS PRODU CED EVIDENCE FROM HER RECORDS TO CLEARLY CLASSIFY THESE SHARES AS CAPITAL ASSETS / INVESTMENTS. I FIND THAT THE ASSESSING OFFICER HAS HIMSELF ADMITTED THA T EACH CASE IS TO BE DECIDED INDIVIDUALLY TO CLASSIFY HEAD OF INCOME AND ALL FACTS AND CIRCUMSTANCES NEED TO BE CONSIDERED. HOWEVER, I ALS O FIND THAT THIS HAS NOT BEEN DONE BY THE ASSESSING OFFICER BUT A GENERAL AP PROACH ADOPTED. UNDER THE CIRCUMSTANCES, THE INCOME OF RS.1,17,41,144/- D ECLARED AS LONG TERM CAPITAL GAIN BY THE APPELLANT DEFINITELY NEEDS TO B E CLASSIFIED UNDER THE HEAD AS DECLARED BY THE APPELLANT AND NOT BUSINESS INCOM E AS DONE BY THE ASSESSING OFFICER. THIS IS BECAUSE THESE ARE SHARES BOUGHT WITH THE INTENTION OF HOLDING THEM FOR A LONG PERIOD I.E. MORE THAN 12 MONTHS AND THIS IS A CLEAR INDICATION THAT THE TRANSACTION WAS INTENDED AS AN INVESTMENT. REGARDING SHORT TERM CAPITAL GAIN DECLARED AT RS.2,28,16,373/ -, THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE CLEARL Y INDICATE THAT THE INCOME HAS BEEN CORRECTLY CLASSIFIED BY THE APPELLANT AND SHOULD BE ACCEPTED AS SUCH. THIS IS MORE SO EVER, AS THE APPELLANT HAS DE CLARED INCOME UNDER F& 0 CONSISTING OF SPECULATION SEPARATELY AND RIGHTLY AS BUSINESS INCOME IN WHICH NO PHYSICAL DELIVERY OF SHARES WERE TAKEN. IN VIEW OF THE ABOVE, SEEING TO THE HISTORY OF THE CASE AND THE FINDING THAT THE CASE I S COVERED UNDER THE PRONOUNCEMENT OF THE HONBLE COURTS INCLUDING THE J URISDICTIONAL COURTS, I 15 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. HAVE NO HESITATION IN SAYING THAT SALE OF SHARES BY THE APPELLANT WOULD CLASSIFY AS AN CAPITAL ASSET AND SURPLUS ARISING FR OM ITS SALE WOULD SQUARELY FALL UNDER THE HEAD CAPITAL GAINS AS DECLARED BECAU SE THE APPELLANT HAS DECLARED THE SURPLUS REALIZED ON SALE OF INVESTMENT IN SHARES AS CAPITAL GAINS IN THE PREVIOUS ASSESSMENT YEARS AND HAVE BEEN ASSE SSED BY THE ASSESSING OFFICERS ACCORDINGLY AND NO FRESH FACT OR EVIDENCE HAVE BEEN BROUGHT ON RECORD TO SUGGEST A DEPARTURE IN THIS ASSESSMENT YE AR. 5. KEEPING IN VIEW THE ABOVE FINDINGS/OBSERVATIONS RECORDED BY HIM AS WELL AS RELYING INTER ALIA, ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF GOPAL PUROHIT VS. DCIT REPORTED IN 20 DTR 99, THE LEARNED CIT(APPEALS) HELD THAT THE TRANSACTIONS IN PURCHASE AND SALE OF SHARES WERE MA DE BY THE ASSESSEE AS INVESTOR AND THE PROFIT ARISING FROM THE SAID TRANSACTIONS W AS CHARGEABLE TO TAX AS LONG TERM AND SHORT TERM CAPITAL GAINS AS DECLARED BY THE ASS ESSEE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL CHALLENGING THE ACTION OF THE LEARNED CIT( APPEALS) IN DIRECTING THE AO TO TREAT THE BUSINESS INCOME OF RS.2,28,16,373/- AS SH ORT TERM CAPITAL GAINS. 6. THE LEARNED DR AT THE OUTSET, INVITED OUR ATTENT ION TO THE FINDINGS/OBSERVATIONS RECORDED BY THE AO IN PARAGRA PH NO. 2.2.1 TO 2.2.8 OF HIS ORDER TO HOLD THAT THE PROFIT EARNED BY THE ASSESSE E FROM THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES CONSTITUTED HER BUSINES S INCOME AND NOT CAPITAL GAINS. SHE STRONGLY RELIED ON THE SAID FINDINGS/OBSERVATIO NS IN SUPPORT OF THE REVENUES CASE THAT THE SHARES WERE PURCHASED AND HELD BY THE ASSESSEE IN THE CAPACITY OF A TRADER AS STOCK IN TRADE AND THE PROFIT ARISING FRO M SALE THEREOF CONSTITUTED HER BUSINESS INCOME. SHE CONTENDED THAT THE LEARNED CIT (APPEALS), HOWEVER, HAS ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAID PROFITS AS CAPITAL GAINS WITHOUT PROPERLY APPRECIATING THE FINDINGS/OBSERVAT IONS RECORDED BY THE AO TO JUSTIFY THE TREATMENT GIVEN BY HIM TO THE PROFIT EA RNED BY THE ASSESSEE FROM 16 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. PURCHASE AND SALE OF SHARES AS HER BUSINESS INCOME. SHE SUBMITTED THAT AS CLEARLY MADE OUT BY THE AO REFERRING TO THE RELEVANT FACTS OF THE ASSESSEES CASE, THE PRIMARY MOTIVE OF THE ASSESSEE TO UNDERTAKE THE TRA NSACTIONS IN SHARES WAS TO MAKE PROFIT. SHE CONTENDED THAT THE LEARNED CIT(APPEALS) , HOWEVER, SIMPLY RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROH IT (SUPRA) AND FOLLOWED THE RULE OF CONSISTENCY TO GIVE RELIEF TO THE ASSESSEE ON TH IS ISSUE. SHE RELIED ON THE FOLLOWING DECISIONS OF THE TRIBUNAL STATING THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES AS INVOLVED IN THE ASSESSEES CASE, P ROFIT ARISING FROM PURCHASE AND SALE OF SHARES HAS BEEN HELD TO BE BUSINESS INCOME OF THE ASSESSEE: I) SHAILESH L. SHAH VS. DCIT ITA NO. 3991 & 3992/M UM/2008 DATED 13 TH JULY, 2010. II) ACIT VS. MR. V. NAGESH ITA NO. 5410/MUM/2008 DA TED 24 TH SEPT., 2009. III) SMT. SADHANA NABERA VS. ACIT ITA NO. 2586/MUM/ 2009 DATED 26 TH MARCH, 2010. IV) SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT 120 TT J (LUCKNOW) 216. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, SUBMITTED THAT THE PROFIT ARISING FROM SALE OF SHARES WAS DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN DEPENDING ON THE PE RIOD OF HOLDING. HE SUBMITTED THAT THE SHORT TERM CAPITAL GAINS AS WELL AS LONG T ERM CAPITAL GAINS DECLARED BY THE ASSESSEE WAS TREATED BY THE AO AS HER BUSINESS INCO ME AND THE LEARNED CIT(APPEALS) WHILE DISPOSING OF THE APPEAL OF THE A SSESSEE VIDE HIS IMPUGNED ORDER HAS DIRECTED THE AO TO ACCEPT THE TREATMENT G IVEN BY THE ASSESSEE TO THE PROFITS ARISING FROM SALE OF SHARES AS SHORT TERM C APITAL GAINS AND LONG TERM CAPITAL GAINS. HE CONTENDED THAT THE DEPARTMENT IN THE PRES ENT APPEAL HAS CHALLENGED THE 17 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. ACTION OF THE LEARNED CIT(APPEALS) ONLY IN RESPECT OF DIRECTION GIVEN TO THE AO TO TREAT THE BUSINESS INCOME AS SHORT TERM CAPITAL GAI NS AND THE DECISION RENDERED BY THE LEARNED CIT(APPEALS) DIRECTING THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAINS HAS NOT BEEN CHALLENGED BY THE DEPARTMENT. HE CONTENDED THAT THE DEPARTMENT THUS HAS ACCEPTED THE ASSESSEE AS INVESTOR IN SHARES WHEN IT COMES TO SELL THEREOF GIVING RISE TO LONG TERM CAPI TAL GAINS AND THERE WAS NO REASON OR JUSTIFICATION TO TREAT HER AS A TRADER ONLY IN R ESPECT OF SHARES, THE PROFITS ON SALE OF WHICH GAVE RISE TO SHORT TERM CAPITAL GAINS. HE CONTENDED THAT THE INTENTION OF THE ASSESSEE CANNOT BE DECIDED MERELY ON THE BASIS OF PERIOD OF HOLDING OF SHARES. HE SUBMITTED THAT THE ASSESSEE HAS ALL ALONG MAINTA INED TWO PORTFOLIOS ONE IN RESPECT OF F & O TRANSACTIONS AND TRANSACTIONS IN S HARES WITHOUT DELIVERY AND OTHER IN RESPECT OF DELIVERY BASED TRANSACTIONS. HE SUBMI TTED THAT THE INCOME ARISING FROM F & O AND SPECULATIVE TRANSACTION WAS OFFERED BY THE ASSESSEE AS HER BUSINESS INCOME AND THE INCOME FROM DELIVERY BASED SHARE TRA NSACTIONS WAS OFFERED AS CAPITAL GAINS. HE CONTENDED THAT ANY PRUDENT INVES TOR WILL NOT PUT ALL HIS EGGS IN ONE BASKET AND HOLDING PERIOD OF SHARES AND FREQUEN CY OF SHARE TRANSACTIONS WOULD DEPEND ON MARKET CONDITION. ACCORDING TO HIM, THE M OTIVE IS CAPITAL APPRECIATION OF INVESTMENT MADE IN SHARES. HE SUBMITTED THAT THE ENTIRE LOAN AMOUNT WAS USED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION FOR F & O TRANSACTIONS AND THE INVESTMENT IN DELIVERY BASED SHARES WAS MADE BY THE ASSESSEE OUT OF HER OWN FUNDS. HE SUBMITTED THAT ALL THE DELIVERY BASED SHA RES PURCHASED BY THE ASSESSEE WERE TREATED AS INVESTMENT IN THE BOOKS OF ACCOUNT IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEARS AND THE SAID TREATMENT WAS ACC EPTED BY THE DEPARTMENT. HE SUBMITTED THAT THE MARKET VALUE OF SHARES ACQUIRED BY THE ASSESSEE FOR RS.5.99 CRORES HAD BECOME RS.9.30 CRORES AS ON 31-03-2006. ACCORDING TO HIM, IF THE ASSESSEE WAS A TRADER IN SHARES, HE WOULD HAVE CERT AINLY SOLD ALL THE SHARES TO BOOK 18 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. THE PROFIT, BUT THE FACT THAT HE STILL PREFERRED TO HOLD THE SHARES CLEARLY SHOWS THAT HE WAS INVESTOR IN SHARE AND NOT A TRADER. AS REGARDS THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT RELIED UPON BY THE LEARNE D CIT(APPEALS) TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE, HE SUBMITTED THAT THE SAID DECISION HAS BEEN UPHELD EVEN BY THE HONBLE BOMBAY HIGH COURT AND EVEN THE SLP FILED BY THE DEPARTMENT IN THAT CASE HAS BEEN DISMISSED BY THE H ONBLE SUPREME COURT. HE CITED VARIOUS DECISIONS OF THE TRIBUNAL STATING THA T A SIMILAR ISSUE HAS BEEN DECIDED THEREIN IN FAVOUR OF THE ASSESSEE FOLLOWING THE RUL E OF CONSISTENCY. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE INVOLVED IN THE PRESE NT APPEAL IS WHETHER THE SHARES SOLD BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION GIVING RISE TO SHORT TERM CAPITAL GAINS WERE PURCHASED AND HELD BY HER AS INV ESTMENT OR STOCK IN TRADE. IF THEY WERE PURCHASED AND HELD BY THE ASSESSEE AS INV ESTMENT, THE PROFIT ARISING FROM SALE THEREOF WOULD BE CHARGEABLE TO TAX IN THE HAND S OF THE ASSESSEE UNDER THE HEAD CAPITAL GAINS WHEREAS IF THE SAME WERE HELD BY HE R AS STOCK IN TRADE, THE PROFIT ARISING FROM SALE THEREOF WOULD BE CHARGEABLE TO TA X IN THE HANDS OF THE ASSESSEE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROF ESSION. IT IS, THEREFORE, NECESSARY TO ASCERTAIN WHETHER THE SHARES WERE PURC HASED AND HELD BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE AND THIS WILL DEPEN D UPON THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF RELEVANT SHARES . IT IS WELL SETTLED THAT SUCH INTENTION IS TO BE GATHERED FROM THE RELEVANT FACTS OF EACH CASE AND AS SUBMITTED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, THER E ARE CERTAIN GUIDELINES LAID DOWN IN THE CIRCULARS/INSTRUCTIONS ISSUED BY THE CBDT FR OM TIME TO TIME. THE COORDINATE BENCHES OF THIS TRIBUNAL HAVE ALSO SUMMARIZED SOME OF THE IMPORTANT ASPECTS WHICH ARE RELEVANT TO ASCERTAIN THE INTENTION OF TH E ASSESSEE SO AS TO DECIDE WHETHER THE TRANSACTIONS IN SHARES ARE UNDERTAKEN BY THE AS SESSEE AS INVESTOR OR AS A TRADER. 19 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRE SENTATIVES OF BOTH THE SIDES HAVE ARGUED THEIR RESPECTIVE CASES IN THE LIGHT OF THESE GUIDELINES. HOWEVER, BEFORE WE EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE SAID GUIDELINES, THERE IS ONE PECULIAR FACT INVOLVED IN THE PRESENT CASE WHICH, I N OUR OPINION, HAS A MATERIAL BEARING ON THE ISSUE INVOLVED IN THE PRESENT APPEAL . 9. IT IS OBSERVED THAT THE CLAIM OF THE ASSESSEE RI GHT FROM THE BEGINNING WAS THAT ALL THE SHARES WERE BEING PURCHASED AND HELD BY H ER AS INVESTOR AND THERE WAS NO INTENTION ON HER PART TO TRADE IN THE DELIVERY BASE D SHARES. ACCORDINGLY THE PROFIT ARISING FROM SALE OF SHARES WAS OFFERED BY THE ASSE SSEE AS CAPITAL GAINS, EITHER SHORT TERM OR LONG TERM, DEPENDING UPON THE PERIOD FOR WH ICH THE RESPECTIVE SHARES WERE HELD BY HER. THE AO, HOWEVER, TREATED SHORT TERM AS WELL AS LONG TERM CAPITAL GAINS DECLARED BY THE ASSESSEE AS HER BUSINESS INCOME. ON APPEAL, THE LEARNED CIT(APPEALS) TREATED THE ASSESSEE AS INVESTOR IN SH ARES AND DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE FOR SHORT TERM AND LONG TERM CAPITAL GAINS. IN THE PRESENT APPEAL, THE DEPARTMENT HAS CHALLENGED THE D ECISION OF THE LEARNED CIT(APPEALS) ONLY TO THE EXTENT IT IS IN RESPECT OF SHORT TERM CAPITAL GAINS. IN SO FAR AS THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAINS IS CONCERNED WHICH HAS BEEN ACCEPTED BY THE LEARNED CIT(APPEALS), THE DEPARTMEN T HAS NOT CHALLENGED THE DECISION OF THE LEARNED CIT(APPEALS) AND THIS IS A PECULIAR FACT INVOLVED IN THE PRESENT CASE HAVING MATERIAL AND DIRECT BEARING O N THE ISSUE UNDER CONSIDERATION. THIS IS BECAUSE IF THE DEPARTMENT HAS ACCEPTED THAT SOME OF THE SHARES WERE PURCHASED AND HELD BY THE ASSESSEE AS INVESTMENT WH ILE ACCEPTING THE DECISION OF THE LEARNED CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR LONG TERM CAPITAL GAIN ARISING FROM SALE THEREOF, THERE IS NO JUSTIFI CATION FOR THEM TO CONTEND THAT THE ASSESSEE HAD PURCHASED AND HELD OTHER SHARES AS STO CK IN TRADE MERELY BECAUSE THEY WERE SOLD WITHIN A PERIOD OF ONE YEAR ESPECIALLY WH EN OTHER FACTS RELEVANT THERETO 20 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. ARE ALMOST SIMILAR. FOR INSTANCE, IF ONE LOT OF 100 0 SHARES OF A PARTICULAR COMPANY WAS PURCHASED BY THE ASSESSEE IN THE EARLIER YEAR A ND 500 SHARES OF THE SAID LOT WERE SOLD BY HER IN THE YEAR UNDER CONSIDERATION BE FORE A PERIOD OF ONE YEAR AND THE BALANCE 500 SHARES WERE SOLD AGAIN IN THE YEAR UNDER CONSIDERATION BUT AFTER THE PERIOD OF ONE YEAR, IT CANNOT BE SAID THAT THERE WE RE TWO DIFFERENT INTENTIONS OF THE ASSESSEE BEHIND PURCHASE OF THE SAME LOT OF SHARES. THE INTENTION OF THE ASSESSEE IN SUCH CASE CANNOT BE DIFFERENT AND THE SAME IN ANY C ASE, CANNOT BE DECIDED MERELY ON THE BASIS OF PERIOD OF HOLDING ESPECIALLY WHEN O THER MATERIAL FACTS RELEVANT TO THE ISSUE ARE SIMILAR. MOREOVER, THE ASSESSEE WAS C ONSISTENTLY TREATED AS INVESTOR IN SHARES BY THE DEPARTMENT AND AS RIGHTLY HELD BY THE LEARNED CIT(APPEALS) RELYING ON THE DECISION IN THE CASE OF GOPAL PUROHIT (SUPRA ), THERE WAS NO REASON TO CHANGE THE SAID TREATMENT IN THE YEAR UNDER CONSIDERATION AS PER THE RULE OF CONSISTENCY ESPECIALLY WHEN THERE WAS NO CHANGE IN THE RELEVANT FACTS. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT( APPEALS) TREATING THE ASSESSEE AS INVESTOR IN SHARES AND DIRECTING THE AO TO BRING TO TAX THE PROFIT ARISING FROM THE TRANSACTIONS OF SHARES UNDER THE HEAD CAPITAL GAIN S AS SHORT TERM AND LONG TERM CAPITAL GAINS DEPENDING ON THE PERIOD OF HOLDING. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 4 TH DAY OF NOV., 2011. SD/- SD/ - (V. DURGA RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 4 TH NOV., 2011. WAKODE 21 ITA NO. 5655/MUM/2009 ASSESSMENT YEAR : 2006-07. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI.