BHAGIRATH C. ARYA, MUMBAI V. ADDL CIT 14(3), MUMBAI

ITA 5767/MUM/2010

• Counselvise Citation: 576719914 RSA 2010
• Duration Of Justice: 3 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 16-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GANESH BARE
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Capital asset; Business income
• Section: 143(3)

Judgement Text

, CH CHCH CH INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5766/MUM/2010, ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 MR. BHAGIRATH C.ARYA, C/O JBF INDUSTRIES LTD., 8 TH FLOOR, EXPRESS POWER, NARIMAN POINT MUMBAI-400021 VS. ADDL. CIT- 14(3), EARNEST HOUSE, NARIMAN POINT, MUMBAI-400021 PAN: AADPA1498F ( $% / ASSESSEE ) ( &'$% / RESPONDENT) /. ITA NO. 5767/MUM/2010, ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 MR. BHAGIRATH C.ARYA, C/O JBF INDUSTRIES LTD., 8 TH FLOOR, EXPRESS POWER, NARIMAN POINT MUMBAI-400021 VS. ADDL. CIT- 14(3), EARNEST HOUSE, NARIMAN POINT, MUMBAI-400021 PAN: AADPA1498F ( $% / ASSESSEE ) ( &'$% / RESPONDENT) $% $% $% $% ( (( ( ) ) ) ) / ASSESSEE BY :DR. K. SHIVARAM &'$% ( ) / RESPONDENT BY :SHRI GANESH BARE ' ' ' ' ( (( ( *+ *+ *+ *+ / DATE OF HEARING : 11 . 12 .2013 ,-# ( *+ / DATE OF PRONOUNCEMENT : 08 . 01 .201 4 ' ' ' ' , 1961 ( (( ( 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDERS OF THE CIT(A)-25,MUMBAI,ASSE SSEE HAS FILED FOLLOWING GROUNDS OF APPEAL FOR THE AY-2006-07 AND 2007-08: ITA NO. 5766/MUM/2010- AY-2006-07 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSE SSEES CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMENT OF THE SUM OF RS 10,73,360/- AS INCOME FROM BUSINESS, FROM SHARE TRADING AS AGAINST SHORT TERM CAPITAL GAIN SHOWN IN THE RETURN OF INCOME FILED BY THE ASSESSEE. 2.THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR ITA NO. 5767/MUM/2010-AY-2007-08 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPE LLANTS CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMENT OF THE SUM OF RS 19,27,179/- AS INCOME FROM BUSINESS, FROM SHARE TRADING AS AGAINST SHORT TERM CAPITAL GAIN SHOWN IN THE RETURN OF INCOME FILED BY THE APPELLANT. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPE LLANTS CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMENT OF THE SUM OF RS 61,67,584/- AS INCOME FROM BUSINESS, AS AGAINST LONG TERM CAPITAL GAIN ON SALE OF SHARES SHOWN IN THE RETURN OF INCOME FILED BY THE APPELLANT HELD FOR MORE THAN ON E YEAR. 3.THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THES E SHARES WERE HELD AS INVESTMENTS AND NOT AS STOCK IN TRADE. FURTHER THESE INVESTMENTS WE RE HELD AS INVESTMENT IN THE EARLIER YEARS,HENCE SALE OF SHARES AND MUTUAL FUNDS CANNOT BE TREATED AS BUSINESS INCOME. 4.THE ASSESSEE CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE, AN INDIVIDUAL,IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHARES.DETAILS OF DATES OF FILING OF RETURNS, INCOMES RETURNED, DATES OF ASSESSMENT,ASSESSED INCOMES,DATES OF ORDERS OF THE CIT(A)CAN BE SUMMARISED AS UNDER : DT.OF FILING OF RETURN RETURNED INCOME (RS.) DATE OF ASSESSMENT ASSESSED INCOME DT. OF ORDERS OF CIT(A) AY2006-07 20.10.2006 1,71,65,366/- 25.11.2008 1,74, 17,120/- 03.06.2010 AY2007-08 30.10.2007 1,94,52,343 24.09.2009 2,59,25 ,670/- 03.06.2010 ITA NO. 5766/MUM/2010- AY-2006-07 EFFECTIVE GROUND OF APPEAL PERTAINS TO ASSESSING IN COME UNDER THE HEAD INCOME FROM BUSINESS IN PLACE OF UNDER THE HEAD INCOME FROM CAPITAL GAINS .DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT DURING THE YEAR THE ASSESSEE HAD SHOWN SHORT T ERM CAPITAL GAINS (STCG)OF RS.19, 27,L79/- ,LONG TERM CAPITAL GAINS (LTCG)OF RS.61,67,5841/-AN D LOSS ON TRADING IN DERIVATIVES OF RS 54,736/-. AO WAS OF THE OPINION THAT THE SOLE ACTIV ITY OF EARNING INCOME,IN WHICH THE ASSESSEE WAS INVOLVED DURING THE YEAR UNDER CONSIDERATION, AS WE LL AS IN EARLIER/SUBSEQUENT YEARS, WAS FROM SHARES TRANSACTIONS.THEREFORE,HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE CAPITAL GAIN INCOME SHOULD NOT BE TREATED AS BUSINESS INCOME.AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT THE ASSESSEE WAS HAVING A SYSTEMATIC AND REGULAR COURSE OF SHARE TRANSACTING ACTIVITY, THAT THERE WAS A CONTINUITY OF THE SHARE TRANSACTIO NS ACTIVITY OVER A PERIOD OF TIME,THAT THERE WAS A CLEAR PROFIT MOTIVE IN THE TRANSACTIONS TAKEN UP BY THE ASSESSEE,THAT THAT IN NONE OF THE YEARS THE ASSESSEE HAD EVER SUFFERED ANY NET LOSS,THAT CAREFU L PERUSAL OF THE DETAILS OF STCG DISCLOSED BY THE ASSESSEE PROVED THAT THE QUANTITY OF SHARES TRANSAC TED AND THE QUANTUM OF AMOUNTS INVOLVED WAS HUGE,THAT THE HOLDING PERIOD OF SHARES IN MOST OF THE CASES WAS LESS THAN EVEN A MONTH AND IN SOME OF THE CASE IT WAS ONLY FOR A FEW DAYS.AO CITE D MORE THAN TEN EXAMPLES WHERE SHARES WERE HELD FOR A PERIOD LESS THAN 30 DAYS,THAT HE HAD BEE N INDULGING IN SHARE TRANSACTION ACTIVITY ON FREQUENT BASIS AND WAS DEALING IN SAME SHARE OR SCR IP MANY TIMES DURING THE YEAR,THAT DELIVERY OR NON-DELIVERY OF SHARES MADE NO DIFFERENCE TO DECIDE THE ISSUE. 3. AGAINST THE ORDER OF THE AO,ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT DURING THE YEAR UNDER APPEAL,THERE WERE FREQUENT TR ANSACTIONS IN SHARES AND SECURITIES AND THE 3 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR ASSESSEE HAD MANY A TIMES HELD THE SHARES FOR A FEW DAYS BEFORE SELLING THEM AND LIST OF SUCH SHARES OR SCRIPS WHERE THE SHARE HOLDING PERIOD WAS RANGING FROM ONE DAY TO MAXIMUM TWENTY TWO DAYS WERE GIVEN IN THE ASSESSMENT ORDER,THAT T HOUGH IN THE CLOSING BALANCE THE INVESTMENT IN SHARES FOR THE YEAR UNDER CONSIDERATION WAS SHOWN A T RS.3.30 CRORES AGAINST THE CLOSING BALANCE OF SHARES AT RS.4.72 CRORES IN THE IMMEDIATELY PREC EDING YEAR BUT ON CLOSURE SCRUTINY OF THE DETAILS REVEALED THAT AN AMOUNT OF RS.14,08,57,219/ - WAS THE INVESTMENT CLAIMED HAVING ALREADY MADE IN THE EARLIER YEARS INCLUDING SUBSTANTIAL PUR CHASE OF SHARES OF ONE COMPANY VIZ. JBF INDUSTRIES LTD. OF WHICH THE ASSESSEE WAS ONE OF TH E PROMOTER-DIRECTOR,THAT NOMINAL AMOUNT WAS FOUND HAVING INVESTED IN OTHER SHARES THAT TOO DURI NG THE FAG END OF THE FINANCIAL YEAR,THAT THE RATIO OF INVESTMENTS AS COMPARED TO THE EARLIER YEARS INV ESTMENTS IS VERY MARGINAL BARRING INVESTMENT IN ASSESSEES OWN COMPANY WHEREIN SUBSTANTIAL PURCHASE S OF SHARES WERE MADE DURING THE YEAR,THAT EXCEPT SEVEN SCRIPTS WHICH WERE PERTAINING TO THE P URCHASE OF EARLIER YEARS REMAINING 30 SCRIPS WERE PURCHASED AND SOLD DURING THE YEAR,THAT THE C LAIM OF THE ASSESSEE THAT AVERAGE PERIOD OF HOLDING OF THOSE SHARES WERE FOUR MONTHS WAS DECEPT IVE AS WELL AS FACTUALLY INCORRECT,THAT IF THE HOLDING PERIOD OF THE SEVEN SCRIPTS WERE NOT CONSID ERED THEN THE AVERAGE PERIOD OF HOLDING WOULD BE LESS THAN THIRTY DAYS,THAT FROM THE DETAILS OF P URCHASES AND SALE OF SHARES-REFLECTING DATE WISE TRANSACTIONS-IT WAS EVIDENT THAT THE SAME WAS CLEAR LY IN THE NATURE OF TRADING ACTIVITY AND NOT AS INVESTMENT AS CLAIMED BY THE ASSESSEE,THAT THE ASSE SSEE HIMSELF HAD AGREED THAT WHERE SHAREHOLDING WAS FOR TRADING FREQUENCY OF PURCHASE AND SALE SCRIP-WISE WAS VERY HIGH AND THE PERIOD OF HOLDING OF A PARTICULAR LOT WAS MINIMAL,T HAT FACT WAS PROVED AND EVIDENTLY ESTABLISHED IN THE DETAILS OF PURCHASES AND SALES IN RESPECT OF ST CG FURNISHED BY THE ASSESSEE,THAT THE TRANSACTIONS DURING THE YEAR COULD NOT BE HELD AS I NVESTMENTS EVEN THOUGH IN THE EARLIER YEARS THE PURCHASES OF SHARES WOULD HAVE BEEN HELD AS INVESTM ENTS,THAT MERELY ON THE BASIS OF EARLIER YEARS HOLDING OF SUCH TRANSACTION AS INVESTMENTS AND DELI VERY BASED TRANSACTIONS ETC., THE NATURE OF TRANSACTIONS CANNOT BE DEBARRED TO BE HELD AS TRADI NG IN NATURE UNDER SUCH FACTS WHICH WERE FALLING UNDER CERTAIN CRITERIAS.HE FURTHER HELD THAT IF THE TRANSACTIONS IN SHARES WERE SUBSTANTIAL,IT WAS AN INDICATION TO TRADE AND THEREFORE INCOME FROM IT CO ULD BE IDENTIFIED AS BUSINESS INCOME,THAT HIGH TRANSACTION AND LOW HOLDINGS INDICATED TRADE,THAT L OW TRANSACTION AND HIGH HOLDING WAS INDICATION OF INVESTMENTS AND HENCE CAPITAL GAIN,THAT IF THE P URCHASE AND SALE WAS FOR PROFIT-MAKING IT INDICATED TRADING BUT IF PURCHASE AND SALE WAS FOR RETENTION AND APPRECIATION IN VALUATION IT HAD BE TREATED AS CAPITAL GAINS.IN SHORT,HE HELD THAT FACT ORS;LIKE FREQUENCY OF PURCHASE AND DISPOSAL OF SHARES,RATIO BETWEEN PURCHASE,SALES AND HOLDING PER IOD OF SHARES,INTENTION OF THE ASSESSEE;WERE RELEVANT FOR DECIDING THE ISSUE AS WHETHER A PARTIC ULAR TRANSACTION WAS AN INVESTMENT OR BUSINESS.HE FINALLY HELD THAT TRANSACTIONS CARRIED OUT BY THE ASSESSEE FOR THE YEAR UNDER APPEAL WERE TO BE HELD AS BUSINESS TRANSACTIONS AND NOT IN VESTMENT.HE RELIED UPON THE CASES OF V NAGESH(ITA54L0/MUM/2008 AY 2005-06 DATED 24-9-2009) AND SMT. SADHANA NABERA(ITA-2586 MUMBAI/2009 DATED 26.03.2010) DELIVERED BY THE F AN D J BENCHES OF MUMBAI TRIBUNAL RESPECTIVELY .HE ALSO REFERRED TO THE DECISION OF S UGAMCHAND. C.SHAH (37 DTR 345)OF AHMEDABAD BENCH AND HELD THAT IN ALL THESE CASES MA TTER OF GOPAL PUROHIT WAS CONSIDERED AND DISTINGUISHED. 4. AUTHORISED REPRESENTATIVE(AR)SUBMITTED THAT THE ASS ESSEE WAS AN INVESTOR IN SHARES AND SECURITIES SINCE LAST SEVERAL YEARS,THAT HE REGULAR LY MADE INVESTMENTS IN SHARES FOR SEVERAL YEARS, THAT THE ASSESSEE HAD MAINTAINED REGULAR BOOKS OF A CCOUNTS WHEREBY HE HAD SHOWN THE PORTFOLIOS AS AN INVESTMENT COMPRISING OF SECURITIES WHICH WER E TREATED AS CAPITAL ASSETS,THAT THE INVESTMENTS HAD CONSISTENTLY BEEN VALUED AT COST,THAT ALL THE I NVESTMENTS WERE STRICTLY DELIVERY BASED,THAT FOR THE LONG TERM CAPITAL GAINS,THE TOTAL SCRIPTS PERTA INED TO SIX COMPANIES AND THE TOTAL NUMBER OF TRANSACTIONS WERE SIX,THAT THE AO HAD ACCEPTED THE LONG TERM CAPITAL TRANSACTIONS,THAT TOTAL SCRIPTS PERTAINED TO THIRTY SEVEN COMPANIES AS REGARDS TO S HORT TERM CAPITAL GAINS, THAT THE SHARES PURCHASED BY THE ASSESSEE HAD NOT BEEN SOLD IMMEDIA TELY AND THE HOLDING PERIOD ON AN AVERAGE WAS 6 MONTHS IN CASE OF STCG AND FOR LTCG IT WAS MO RE THAN A YEAR,THAT THE ASSESSEE DID NOT DEAL IN SHARE TRANSACTIONS REGULARLY AND ON AN AVER AGE ONLY THREE TO FOUR TRANSACTIONS HAD BEEN 4 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR CARRIED OUT IN A MONTH, THAT THE ASSESSEE WAS HAVIN G INCOME FROM STCG AND LTCG IN EARLIER YEARS,THAT THE ASSESSEES ASSESSMENT WAS ACCEPTED U /S 143(3) IN AY.2003-04 AND 2004-05, THAT IN FEW CASES THE SHARES WERE HELD FOR ONE DAY TO TWENT Y TWO DAYS FROM WHICH ASSESSEE IMMEDIATELY COME OUT BECAUSE OF UNKNOWN SCRIPTS AND NOT TRADED ACTIVELY IN THE MARKET AND ALSO TO MINIMISE THE LOSS DUE TO EROSION IN THE VALUE OF INVESTMENTS ,THAT THE ASSESSEE HAD ONLY DIVERSIFIED HIS INVESTMENTS,THAT DIVERSIFICATION DID NOT MEAN THAT THE ASSESSEE HAS TREATED INVESTMENTS AS STOCK-IN- TRADE AND HAD ENTERED INTO THE BUSINESS,THAT THE TO TAL NUMBER OF SALES TRANSACTIONS WAS AROUND SIXTY SIX,THAT THERE WERE NO SPECULATIVE TRANSACTIONS,THA T THE INTENTION OF THE ASSESSEE WAS TO INVEST AND NOT TO TRADE,THAT FREQUENCY AND VOLUME OF TRANSACTI ONS COULD NOT BE THE ONLY CRITERIA FOR DETERMINING THE NATURE ACTIVITIES CARRIED ON,THAT T HE ASSESSEE DID NOT HAVE ANY INFRASTRUCTURE FOR DOING A BUSINESS IN THE STOCK TRADING ON A LARGE SC ALE COMMERCIAL BASIS.THAT THE ASSESSEE HAD TAKEN LOAN ONLY FOR INVESTMENTS IN M/S JBF INDUSTRIES LTD . OF WHICH ASSESSEE IS A PROMOTER.HE REFERRED TO THE CASE OF GOPAL PUROHIT (20 DTR 99-MUMBAI-TRIB ),THAT THE CASE LAWS RELIED BY THE FAA WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE.HE REFERRED TO PAGE NO. 20,23,29-32OF THE PAPER BOOK.HE RELIED UPON THE CASE DELIVERED BY THE C BENCH OF ITAT MUMBAI IN THE CASE OF PRADIP U. PATEL (ITA/ 8688/MUM/2011DTD.28/12/2012). 8.WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE A UTHORITIES 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 RESPE CTIVE ORDERS. WE HAVE ALSO PERUSED THE RELEVANT PAGES OF THE PAPER BOOK AND PARTICULARLY P G. NOS. 18 TO 21 OF THE PAPER BOOK WHICH IS A SHARE HOLDING CHART IN TERMS OF NUMBER O F DAYS OF THE SHARES HELD BY THE ASSESSEE AND THE COMPANIES OF WHICH THE ASSESSEE PU RCHASED/SOLD SHARES IN THE FINANCIAL YEAR RELEVANT TO THE AY UNDER CONSIDERATION. ON PER USAL OF THE DETAILS OF THE SAID SHARES,WE OBSERVE THAT THERE ARE NO REPETITIVE TRAN SACTIONS IN SHARES OF THE SAME SCRIPT IN THE FINANCIAL YEAR RELEVANT TO THE AY UNDER CONSIDE RATION. 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 DISPU TED THE FACT THAT THE ASSESSEE HAS BEEN SHOWING ITS HOLDINGS OF SHARES IN ITS BOOKS OF ACCO UNTS IN THE PRECEDING AYS AS WELL AS IN THE AY.UNDER CONSIDERATION UNDER THE HEAD INVESTME NT. FURTHER,IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS VALUED ITS SHARES AT COST A ND NOT VALUED AT COST OF MARKET PRICE WHICH-EVER IS LOWER.THE DEPARTMENT HAS ALSO NOT DI SPUTED THE FACT THAT IN THE PRECEDING AYS, THE DEPARTMENT HAS CONSIDERED THE PROFIT ON SA LE OF SHARES AY5 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 PER IOD IS LESS THAN 30 DAYS AND IT IS 30 PERCENT OF THE SHORT TERM CAPITAL GAIN THAT HAS BEE N 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. TH EREFORE, WE AGREE WITH LD. CIT(A) THAT THE FACT THAT SOME SHARES HAVE BEEN HELD FOR L ESS THAN 30 DAYS, WILL NOT MAKE THE ASSESSEE, A TRADER IN SHARES. WE OBSERVE FROM THE T ABLE AT PG. NO. 10 OF THE ORDER OF THE LD. CIT(A), THAT THE ASSESSEE HAS BEEN REGULARLY EA RNING 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 SH EET PLACED BEFORE US BY THE LD. AR AT THE TIME OF HEARING.THE LD. DR HAS NOT DISPUTED THE FAC T THAT THE ASSESSEE HAS EARNED SUBSTANTIAL DIVIDEND OF RS. 9,25,018/-DURING THE YE AR. THE HONBLE APEX COURT HAS HELD IN THE CASE OF CIT VS. H. HOLCK LARSEN(160 ITR 67) THA T 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 TRA NSACTION BUT AT THE FIRST PURCHASE TO JUDGE EACH CASE.SINCE WE HAVE MENTIONED THAT THE AS SESSEE AT THE TIME OF PURCHASE OF SHARES HAD ENTERED THE SAME IN ITS BOOKS OF ACCOUNT S AS INVESTMENT AND HAS ALSO SHOWN IN BALANCE SHEET UNDER THE HEAD INVESTMENT, THE INTE NTION OF THE ASSESSEE IS FORTIFIED THAT 5 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR THE SAME ARE HELD AS INVESTMENT AND NOT AS STOCK IN TRADE. THE HONBLE GUJARAT HIGH COURT HAS LAID DOWN THE FOLLOWING TEST IN THE CIT V S. 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 ACQUISITIO N OF THE SUBJECT MATTER OF THE TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM OR WI TH 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 COMM ERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GU IDE LINE; (2)THE SECOND TEST IS TO HOW THE ASSESSEE DEALT WIT H THE SUBJECT MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS WITH THE ASSESSEE WHE THER 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 RETURN ED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE C OURSE OF PRECEDING AND SUCCEEDING ASSESSMENT.THIS FACTOR, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF TRANSACTION. THE HONBLE APEX COURT HAS OBSERVED IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD.,(82ITR 586) THAT WHETH ER A PARTICULAR HOLDING OF SHARE IS BY WAY OF INVESTMENT OR FORMS PART OF STOCK IN TRAD E 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 A ND THOSE WHICH ARE HELD BY WAY OF INVESTMENT.MUMBAI BENCH OF ITAT IN THE CASE OF JANA K S RANGWALLA [11 SOT 627(MUM)] HAS HELD THAT IT IS THE INTENTION OF THE ASSESSEE W HICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE. THOUGH TH E INVESTMENT IN SHARE WAS AT A LARGE MAGNITUDE, BUT, THE SAME WOULD NOT DECIDE THE NATUR E OF TRANSACTION.IT WAS ALSO STATED IN THE ABOVE CASE THAT THE MERE MAGNITUDE OF THE TRANS ACTIONS DOES NOT CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FR OM CAPITAL GAINS IN THE PAST SEVERAL YEARS. 9.CONSIDERING THE FACTS OF THE CASE AND THE CASES C ITED (SUPRA),WE ARE OF THE CONSIDERED VIEW THAT LD.CIT(A) HAS RIGHTLY HELD THAT THE ASSES SEE HAS TREATED THE SHARES AS INVESTMENT AND NOT STOCK IN TRADE. THEREFORE, WE AGREE WITH TH E LD. CIT(A) THAT THE VOLUME OF TRANSACTIONS, FREQUENCY OF TRANSACTION AND PERIOD O F HOLDING ETC.,WOULD NOT ALTER THE NATURE OF TRANSACTION FROM INVESTMENT TO TRADING AN D 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 DEP ARTMENT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.IT IS SAID THAT EVERY ASSESSMENT YEAR IS A SEPARATE UNIT AND CAN HAVE SIM ILAR OR DISSIMILAR FACTS AND CIRCUMSTANCES. TREATMENT GIVEN BY THE ASSESSEE TO PARTICULAR TRANS ACTIONS IN HIS BOOKS OF ACCOUNTS CAN BE ONE OF THE INDICATORS,BUT SAME IS NOT THE SOLE DECISIVE FA CTOR TO ARRIVE AT FINAL CONCLUSION. PROCEEDINGS OF EARLIER AND SUBSEQUENT YEARS ALSO PROVIDE SOME HELP TO TAKE A DECISION,BUT THEY ARE ALSO SECONDARY FACTORS.PRIME OR THE DECISIVE THING IS THE FACTS OF THE CASE OF A PARTICULAR ASSESSMENT YEAR.IN OTHER WORDS FACTS AND FACTS ALONE OF DECIDE THE ISSUE AS WHETHER SHARE TRANSACTION CARRIED OUT BY THE ASSESSEE IN A YEAR WERE IN THE NATURE OF INVESTMENT OR TRADE.NO SINGLE FACTOR HAS BEEN PRESCRIBED BY THE COURTS IN THIS REGARD-AO HAS TO DECIDE VARIO US FACTORS CUMULATIVELY.CIRCULAR ISSUED BY THE CBDT HAS ALSO MENTIONED INDICATIVE FACTORS.NOW WE W OULD LIKE TO DISCUSS THE FACTS OF THE CASE.WE FIND THAT SHARES OF 21 CENTURY LTD., CHOLA MANDALAM LTD.,GLOBAL BOARD LTD., G.K.W. LTD., ARROW WEB LTD.,PACIFIC COTSPIN LTD. , ESAB IN DIA LTD., RATHI ISPAT LTD., G.E.SHIPPING LTD.,RIDHI SIDHI GLUCO BIOLS LTD.,PSL HOLDING,GOVIN D RUBBER LTD.,MARICO INDUSTRIES LTD. AND UTV SOFTWARE(PAGES 29-32 OF THE PB)WERE SOLD BY HIM WITHIN THE PERIOD OF 30 DAYS,THAT IN MANY A CASES THERE WERE REPETITIVE TRANSACTIONS,THAT IN TWO CASES SHARES WERE SOLD ON THE SAME DAY,THAT 6 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR THE STCG,AMOUNTING TO RS. 10.32 LACS,WAS EARNED BY THE ASSESSEE FROM THE SHARES SOLD WITHIN A PERIOD OF 30 DAYS,THAT ASSESSEE HAD SUFFERED LOSSES IN THE SHARES WHICH WERE HELD BETWEEN THE 30 DAYS TO 365 DAYS, THAT THE NET STCG WAS RESULT OF T HE SHARES HELD FOR LESSER PERIOD OF TIME.CONSIDERING THESE FACTS, WE ARE OF THE OPINION THAT ASSESSEE CANNOT BE HELD AN INVESTOR FOR THE SHARES SOLD DURING THE YEAR UNDER CONSIDERATION,AS THE ACTIVITIES CARRIED OUT HIM FOR THE YEAR BEFORE US CLEARLY INDICATE THAT HE WANTED TO MAXIMISE THE PROFIT AND NOT TO MAKE LONG TERM INVESTMENTS.IF THE PARAMETERS DRAWN BY THE CBDT CIRCULAR ARE TAKEN INTO CONSIDERATION AND THE CASE LAWS RELIED UPON BY THE FAA ARE ANALYSED IT BECOMES CLEAR THAT ASSESSEE WAS CARRYING OUT BUSINESS OF SHARES IN A SYSTEMATIC AND ORGANISED MANNER.SHORT HOLDING PERIOD,VOLUME OF THE SCRIPS AND FREQUENCY OF THE TRANSACTIONS ARE MEASURE FACTORS TO DECIDE THE ISSUE AS WHETHER AN ASSESSEE IS AN INVESTOR OR DOING A BUSINESS OF SHARES AND SECURITIES. CONSIDER ING THE PECULIAR FACTS OF THE YEAR BEFORE US,WE ARE OF THE OPINION THAT ORDER OF THE FAA DOES NOT S UFFER FROM ANY INFIRMITY. WE FIND THAT IN THE CASE OF PRADIP U PATEL(SUPRA)TR IBUNAL HAD FOUND THAT THAT THERE WERE NO REPETITIVE TRANSACTIONS IN SHARES OF THE SAME SCRIP T IN THE FINANCIAL YEAR RELEVANT TO THE AY. UNDER CONSIDERATION,THAT THE ASSESSEE HAD USED HIS OWN FU NDS FOR THE PURCHASE OF SHARES,THAT NO BORROWED FUND WAS USED BY THE ASSESSEE,THAT MAJORIT Y OF THE SHARES WERE HELD BY THE ASSESSEE FOR A LONGER PERIOD AND THE MAJORITY OF STCG HAD BEEN EAR NED THERE ON.ONE MORE RELEVANT FACT IN THAT CASE WAS EARNING OF DIVIDEND INCOME OF RS.9,25,018/ -BY THE ASSESSEE WHICH WAS TERMED SUBSTANTIAL BY THE BENCH.THUS,THE FACTS OF THE CA SE OF PRADIP U PATEL ARE CLEARLY DISTINGUISHABLE FROM THE PRESENT CASE,SO THAT MATTER IS OF NO HELP. IN SHORT, CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE UNDER CONSIDERATION WE ARE INCLINED TO UPHOLD THE ORDER OF THE FAA AND DECIDE THE EFFEC TIVE GROUND OF APPEAL AGAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS DISMISSED. ITA NO. 5767/MUM/2010-AY-2007-08: 6. FIRST GROUND OF APPEAL FILED BY THE ASSESSEE IS IDE NTICAL TO THE GROUND FILED BY HIM FOR THE LAST AY I.E. IT IS ABOUT TREATING THE INCOME ON SALE OF SHARES AS BUSINESS INCOME INSTEAD OF TREATING IT AS STCG.DURING THE YEAR ASSESSEE HAD SHOWN STCG OF RS. 19.27 LACS,LTCG OF RS.61.67 LACS AND LOSS ON TRADING OF DERIVATIVES OF RS.54,736/-.FOLLO WING THE ORDER OF THE LAST ASSESSMENT YEAR HE HELD THAT THE ASSESSEE WAS TRADING IN SHARES AND WA S NOT AN INVESTOR.HE CITED THE TRANSACTIONS WHERE THE SHARES WERE HELD BY THE ASSESSEE FROM ONE DAY TO 27 DAYS.HE AGAIN REFERRED TO THE INSTRUCTION OF THE CBDT DATED 16.05.2006 AND HELD T HAT ALL THE SHARE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE TO BE TAXED UNDER THE HEAD INCOME FROM BUSINESS. 6.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.BEFORE HIM,ASSESSEE HAD RAISED THE ISSUES OF STCG AS WELL AS LTCG THAT WERE ASSESSED UNDER THE H EAD BUSINESS INCOME.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R HE CONFIRMED THE ORDER OF THE AO. 6.2. BEFORE US,AR SUBMITTED THAT ARGUMENTS MADE FOR THE EARLIER YEAR WERE TO BE CONSIDERED FOR THE YEAR UNDER CONSIDERATION AS FAR AS STCG WAS CONCERN ED.WITH REGARD TO THE LTCG,HE SUBMITTED THAT FAA WAS NOT JUSTIFIED IN TREATING THE INCOME A RISING OUT OF SALE OF SHARES HELD FOR MORE THAN 365 DAYS AS BUSINESS INCOME,THAT SUCH SHARES WERE I NVESTMENTS OF THE ASSESSEE.DR SUPPORTED THE ORDER OF THE FAA. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSE D THE MATERIAL BEFORE US.WE ARE OF THE OPINION THAT PROFIT EARNED BY THE ASSESSEE FROM THE SHARES SOLD WITHIN THE PERIOD OF THIRTY DAYS HAS BEEN RIGHTLY ASSESSED UNDER THE HEAD BUSINESS INCOM E.DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SOLD THE SHARES OF CAIRN INDIA,ESSAR O IL LTD.,DIVIS LAB LTD.,J K INDUSTRIES,JYOTI STRUCTURE,SUN TV LTD.,SESAGOA,VARUN SHIPPING WITHIN AN INTERVAL OF THIRTY DAYS.WE FIND THAT MOST OF THE STCG IS RESULT OF THE SALE OF SHARES THAT WE RE HELD FOR SHORTER DURATION.AS THE FACTS AND 7 ITA NOS. 5766 & 5767/MUM/2010 MR. BHAGIRATH C.ARYAR CIRCUMSTANCES FOR THE YEAR UNDER APPEAL ARE ALMOST IDENTICAL TO THE FACTS OF THE PREVIOUS YEAR,SO,FOLLOWING THE ORDER TO THAT YEAR WE DECIDE GROUND NO.1 AGAINST THE ASSESSEE. 6.4. AS FAR AS ISSUE OF LTCG IS CONCERNED ,WE FIND THAT NEITHER THE AO NOR THE FAA HAD ANALYSED THE PATTERN OF HOLDING PERIOD OF SHARES THAT WERE H ELD FOR MORE THAN ONE YEAR.ASSESSEE HAD A SPECIFIC CLAIM THAT SOME OF THE SHARES WERE HELD S INCE FY.2002-03.WE FIND THAT FAA HAS COMPLETELY IGNORED THE SUBMISSIONS MADE BY THE ASSE SSEE IN THIS REGARD.WITHOUT ASSIGNING ANY REASONS FOR TREATING THE INCOME OF LTCG AS BUSINESS INCOME,HE HAS CONFIRMED THE ORDER OF THE AO.THEREFORE,WE ARE OF THE OPINION THAT MATTER NEED S FURTHER VERIFICATION.IN THE INTEREST OF JUSTICE WE ARE RESTORING THE MATTER TO THE FILE OF THE FAA TO DECIDE THE ISSUE OF LTCG AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.G ROUND NO. 2 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE FOR THE AY .2006-07 IS DISMISSED AND APPEAL FOR THE AY.2007-08 STANDS PARTLY ALLOWED. 0 1 '0* 2 FU/KKZJ.K O'KZ 2006-07 DS FY, 3 ( . '* ( * 45 OGHA FU/KKZJ.K O'KZ 2007-08 DS FY, 3 ( . VKAFKD :I LS LOHDWR DH TKRH GSA ORDER PRONOUNCED IN THE OPE N COURT ON 8 TH JANUARY, 2014. / ( ,-# 6 8 TUOJH] TUOJH] TUOJH] TUOJH] 2014 - ( . . SD/- SD/- ( . . . B.R.MITTAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7' /DATE: 08.01.2014 SK / / / / ( (( ( &*8 &*8 &*8 &*8 9 8#* 9 8#* 9 8#* 9 8#* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ : ; , 4. THE CONCERNED CIT / : ; 5. DR B BENCH, ITAT, MUMBAI / 8<. &*' . CH CHCH CH , . . . 6. GUARD FILE/ . > . '8* &* //TRUE COPY// /' / BY ORDER, ? / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI.