The ACIT, Circle-8, Ahmedabad V. Shri Ashish Navnitlal Shah, Ahmedabad

ITA 589/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9718 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-12-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JIGAR M PATEL
• Keywords: Capital asset; Business income; Salary income; Wrong claim

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD . . , ! '#$ , '%'& BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.589/AHD/2011 ( ' ( / ASSESSMENT YEAR : 2007-08) THE ACIT CIRCLE-8 AHMEDABAD ' / VS. SHRI ASHISH NAVNITLAL SHAH 401, GARDENIA APARTMENT 20, SHAHTISADAN SOCIETY B/H. DOCTOR HOUSE, ELLISBRIDGE AHMEDABAD-380 009 ./ ./ PAN/GIR NO. : ACEPS 6291 D ( )* / APPELLANT ) .. ( +)* / RESPONDENT ) )*, ' / APPELLANT BY : SHRI JAMES KURIAN, SR.DR +)*-,' / RESPONDENT BY : SHRI JIGAR M. PATEL, AR ! '.-/% / DATE OF HEARING 26/12/2016 0( -/% / DATE OF PRONOUNCEMENT 27/12/2016 ' / O R D E R PER PRADIP KUMAR KEDIA, AM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD [CIT(A) IN SHORT] DATED 18/11/2010 FOR THE ASSESSMENT YEAR(AY) 2008-09. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 2 - 2. THE REVENUE HAS RAISED THE FOLLOWING SOLITARY GR OUND IN ITS APPEAL:- THE LD.COMMISSIONER OF INCOME-TAX(A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSIN G OFFICER TO TAX THE SHORT TERM CAPITAL GAIN (STGC) AND LONG TERM CA PITAL GAIN (LTCG) AS CLAIMED BY THE ASSESSEE INSTEAD OF BUSINE SS INCOME. 3. BRIEFLY STATED, THE ASSESSEE IS A DIRECTOR OF WEALTH FIRST PORTFOLIO MANAGERS PVT.LTD. AND HAS DERIVED INCOME FROM SALAR Y, BUSINESS AND CAPITAL GAINS. THE ASSESSEE FILED ITS RETURN OF IN COME FOR THE AY 2007-08 DECLARING A TOTAL INCOME OF RS.1,01,26,583/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT ORDER UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT' ) WAS PASSED. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER (AO) TREATE D THE INCOME DECLARED UNDER THE HEAD SHORT TERM CAPITAL GAIN O F RS.81,99,593/- AND LONG TERM CAPITAL GAIN OF RS.35,18,354/- AS BUSIN ESS INCOME. THE AO NOTED THAT IN VIEW OF THE VOLUME FREQUENCY, CONT INUITY AND REGULARITY OF PURCHASE AND SALE TRANSACTIONS OF SHARES, THE AS SESSEE WAS NOT JUSTIFIED IN TREATING THE GAINS ARISING ON SALE OF SHARES UND ER THE HEAD CAPITAL GAINS. HE ACCORDINGLY CONCLUDED THAT IMPUGNED GAI N ARISING ON SALE OF SHARES IS THE SYSTEMATIC COURSE OF ACTIVITY OR COND UCT WITH SAID PURPOSE AND IS IN THE NATURE OF BUSINESS INCOME. CONSEQUE NTLY, THE AO TREATED THE LTCG & STCG AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 3 - 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), WHO AFTER EXAMINING THE RELEVANT FACTS AND REFERRING TO SEVERAL DECISIONS ON THE SUBJECT, REVERSED THE A CTION OF THE AO AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE R ELEVANT EXTRACT OF THE ORDER OF THE CIT(A) DEALING WITH THE ISSUE IS REPRO DUCED HEREUNDER FOR READY REFERENCE. 6. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE A.O. AND REASONS RELIED UPON BY HIM FOR TREATING THE STCG OF RS.81,9 9,593 AND LTCG OF RS.35,18,354 ARISING ON SALE OF SHARES AS BUSINESS INCOME OF THE APPELLANT, I HAVE ALSO GIVEN DUE CONSIDERATION TO THE ELABORATE SUBMISSIONS MADE BY THE APPELLANT BOTH BEFORE THE A.O. AND IN APPEAL BEFORE ME. ON CONSIDERATION OF THE TOTALITY OF THE FACTS OF THE APPELLANT'S CASE AND THE VARIOUS DECISIONS RELIED UPON BY THE A.O. AND THE APPELLANT, I AM OF THE VIE W THAT THE A.O. WAS NOT JUSTIFIED IN ASSESSING THE SHORT TERM AND LONG TERM CAPITAL GAINS DECLARED BY THE APPELLANT AS HIS BUSINESS INCOME. IN ARRIVING A T THE SAID VIEW, I HAVE BEEN GUIDED BY THE FOLLOWING IMPORTANT FACTUAL ASPECTS O F THE CASE: (A)THE APPELLANT IS ENGAGED IN FULL TIME EMPLOYMENT AS A DIRECTOR OF A COMPANY DRAWING SALARY INCOME AND HAS RECEIVED SALA RY OF RS.15,00,717/- DURING THE YEAR UNDER CONSIDERATION. HE DERIVES BUSINESS INCOME AS AN INSURANCE AGENT AND SUCH INCO ME FOR THE YEAR IS RS.6,02,917. THE APPELLANT HAS BEEN INVESTING IN SH ARES OVER THE PAST SEVERAL YEARS. SUCH INVESTMENT HAS BEEN MADE NOT W ITH THE SOLE INTENTION TO RESALE AT PROFIT. THIS IS ALSO DULY S UPPORTED BY THE FACT THAT THE DIVIDEND INCOME EARNED BY THE APPELLAN T ON HIS SHARE INVESTMENT, AS DULY REFLECTED IN HIS TAX RETURN FOR THE YEAR IS NEARLY R.S.4,46,578. 1 FIND FORCE IN THE CONTENTION OF THE APPELLANT THAT .IT IS BUT NATURAL FOR ANY INVESTOR TO EARN A DECENT RETUR N-BY WAY OF CAPITAL GAINS THROUGH THE CHURNING OF HIS PORTFOLIO. AS CON TENDED BY THE APPELLANT, HE HAS CHURNED HIS PORTFOLIO, ADJUSTING IT FOR THE COMING YEARS AND ALLOCATING MONEYS FOR MUTUAL FUND INVESTM ENTS. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 4 - (B)FROM THE DATA SUBMITTED BY THE APPELLANT BEFORE THE A.O., I FIND THAT THE APPELLANT HAS EARNED SUBSTANTIAL SHORT TERM AND LON G TERM GAINS RIGHT FROM A.Y.2000-01. THIS FACTUAL DATA HAS NOT BEEN CONTROV ERTED BY THE A.O. DURING A.Y.2000-01 TO A.Y.2002-03; THE LONG TERM GAIN EARN ED BY THE APPELLANT RANGED BETWEEN RS. L .1 TO RS.2.7 CRORES PER YEAR. IN THE PRECEDING A.Y.2005- 06 THE SHORT TERM GAIN EARNED BY THE APPELLANT WAS RS.8.7 LAKHS. I FIND THAT THE STATUS OF THE APPELLANT HAS BEEN ACCEPTED AS AN INV ESTOR IN SHARES ALL ALONG THESE YEARS, BOTH IN RESPECT OF HIS EARNING LONG TE RM AND SHORT TERM CAPITAL GAINS AND IN NONE OF THE PRECEDING YEARS HE HAS BE EN TREATED AS A TRADER IN SHARES. IN FACT, EVEN DURING THE YEAR UNDER CONSIDE RATION THE APPELLANT HAS EARNED LONG TERM CAPITAL GAINS OF RS.6,40,470/- WHI CH WERE CLAIMED AS EXEMPT U/S.10(38) AND THE SAME HAVE BEEN ACCEPTED AS SUCH BY THE A.O. (C)THE A.O. SEEMS TO HAVE BEEN GUIDED BY THE REASON THAT MAJOR PART OF THE APPELLANT'S INCOME FOR THE YEAR HAS BEEN DERIVED FR OM SALE OF SHARES. THE- APPELLANT HAS LOGICALLY EXPLAINED; THAT HE IS NEARI NG 60 YEARS AND HAS BUILT HIS INVESTMENTS OVER THE PAST 20 YEARS. MOST OF HIS INVESTMENTS ARE IN STOCKS AND MUTUAL FUNDS, SINCE THESE ARE MEANT .FOR HIS CHILDREN D LONG TERM PERSPECTIVE. DUE TO BUILDING OF INVESTMENTS OVER A LONG PERIOD OF NEARLY 20 YEARS, HE HAS A PORTFOLIO OF AROUND RS.3 CRORES IN SECURITIES. UNDER THESE CIRCUMSTANCES, IT IS BUT NATURAL THAT THE INCOME FR OM THESE SAVINGS FORMS A LARGE PERCENTAGE OF HIS ANNUAL INCOME. 1 AM OF THE VIEW THAT THE APPELLANT IS JUSTIFIED IN ARGUING THAT JUST BECAUSE THE CAPITAL GAIN EARNED BY AN ASSESSEE IS HIGHER THAN HIS INCOME FROM SALARY, IT CANNOT LEAD TO THE CONCLUSION THAT HIS INCOME FROM INVESTMENTS SHOULD BE CLASSIFIED AS BUS INESS INCOME. (D)WITH REFERENCE TO THE REASONING OF THE A.O. THAT THE APPELLANT HAD UTILIZED BORROWED FUNDS FOR INVESTMENT IN SHARES, IT HAS BEE N DULY CLARIFIED ON BEHALF OF THE APPELLANT THAT THE OVERDRAFT ACCOUNT WAS USE D VERY SPARINGLY ONLY FOR TWO MONTHS DURING 1 THE WHOLE YEAR AND THE INTEREST PAID WAS A NEGLIGI BLE RS.2,000/-. THUS, THE APPELLANT SEEMS TO BE QUITE J USTIFIED IN CONTENDING THAT THIS CANNOT LEAD TO ANY ADVERSE CONCLUSION ON THE F ACTS OF HIS CASE. 7. DEALING WITH THE CASE LAW RELIED UPON BY THE A.O . AND THE APPELLANT; I FIND THAT THE RATIO OF THE RELEVANT DECISIONS GO TO SUPPORT T HE CASE OF THE APPELLANT. THE REASONING FOR THE SAME IS ANALYZED AS UNDER: (A) I FIND THAT THE RATIO OF THE TWO SUPREME COURT DECISIONS RELIED UPON BY THE A.O. TO JUSTIFY HIS ACTION CANNOT BE APPLIED AGAINS T THE APPELLANT ON THE FACTS ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 5 - OF HIS CASE. INTACT, THE DECISION OF H.HOLCK LARS EN (SUPRA), THE APEX COURT HAS NOTED THAT 'WHETHER THE TRANSACTIONS OF SALE AN D PURCHASE OF SHARES WERE TRADING TRANSACTIONS OR IN THE NATURE OF INVESTMENT MUST BE VIEWED IN THE LIGHT OF THE INTENTION OF THE ASSESSEE'. EVEN IN THE CASE OF CIT V/S. ASSOCIATED INDUSTRIAL CO. PVT. LTD. THE SUPREME COURT HAS CLEA RLY HELD THAT 'WHETHER HOLDING OF SHARES IS BY WAY OF INVESTMENTS OR FORMS PART OF THE STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF ASSESS EE WHO HOLDS THE SHARES.' (B) IN MY VIEW, THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF JANAK S. RANGWALLA (SUPRA) IS VERY PERTINENT AND NEEDS TO BE APPLIED TO DECIDE THE CONTROVERSY UNDER CONSIDERATION. IN THE SAID CASE B EFORE THE ITAT, MUMBAI BENCH, THE ASSESSEE HAD EARNED SHORT TERM CAPITAL G AINS AMOUNTING TO RS.1.47 CRORES. THE MAIN THRUST OF THE DEPARTMENT IN CONTEN DING THAT THE SAID GAIN SHOULD BE TAXED AS BUSINESS INCOME WAS BASED ON THE REASONING THAT THE VOLUME OF TRANSACTIONS AND THE MAGNITUDE OF THE RES ULTING GAINS WERE VERY LARGE. AFTER DUE CONSIDERATION OF THE CASE, THE ITA T HELD AS UNDER. 6. 'WE HAVE HEARD THE RIVAL SUBMISSIONS AND P ERUSED THE RECORDS. THE FACTS OF THE PRESENT CASE ARE THAT THE ASSESSEE HA D EARNED INCOME FROM SHORT TERM CAPITAL GAINS AMOUNTING TO RS. 1, 47,15,196 ON SALE OF SHARES IN THE YEAR UNDER CONSIDERATION, WHICH WAS CLAIMED TO BE ADJUSTED AGAINST LONG TERM CAPITAL LOSS. THE ASSESSEE HAS ALSO DECLA RED INCOME FROM SPECULATION GAINS/LOSS WHICH ARE ON ACCOUNT OF SALE AND PURCHASE OF SHARES WITHOUT DELIVERY OF THE SHARES. DURING THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAD ALSO CLAIMED LONG TERM CAPITAL LOSS OF RS.1,02,31,691 ON SALE OF SHARES WHICH WERE HOLD BY THE ASSESSEE AS INVEST MENT AND DULY REFLECTED IN HIS BALANCE SHEET AS INVESTMENT. SIMILAR TRANSACTIO N OF SALE AND PURCHASE OF SHARES ARE BEING CARRIED OUT BY THE ASSESSEE IN PRE CEDING YEARS, DETAILS OF WHICH HAVE BEEN FILED ON RECORD. IN ADDITION TO THE CAPITAL GAINS RECEIVED FROM SALE OF SHARES THE .ASSESSEE HAD DECLARED INCO ME FROM DIVIDEND RECEIVED FROM THE SAID SHARES BEING HELD AS INVESTMENT BY TH E ASSESSEE. THE MERE VOLUME OF TRANSACTION TRANSACTED BY THE ASSESSEE WO ULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAK EN INTO CONSIDERATION AND THE MAGNITUDE OF THE TRANSACTION DOES NOT AFTER THE NATURE OF TRANSACTION. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 6 - THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY, IT IS A JUDICIALLY A CCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UN LESS THERE IS A MATERIAL CHANGE IN THE FACTS. THEIR LORDSHIPS OF HON'BLE SUP REME COURT IN THE RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 HAVE C ATEGORICALLY HELD AS UNDER: '. . . STRICTLY SPEAKING, RES JUDICATA DOES NOT APP LY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR; WHERE A FUND AMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS B EEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSI TION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' THE SAME VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI H IGH COURT IN CIT V. NEO POLY PACK (P.) LTD. [2000] 245 ITR 492. 7. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE I S HOLDING THE SHARES AS INVESTMENT FROM YEAR TO YEAR. IT IS THE INTENTION O F THE ASSESSEE WHICH IS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCT ED BY THE ASSESSEE. THOUGH THE INVESTMENT IN SHARES IS ON A LARGE MAGNITUDE BU T THE SAME SHALL NOT DECIDE THE NATURE OF TRANSACTION. SIMILAR TRANSACTIONS OF SALE AND PURCHASE OF SHARES IN THE PROCEEDING YEARS HAVE BEEN HELD TO BE INCOME FROM CAPITAL GAINS BOTH ON LONG TERM AND SHORT TERM BASIS. THE TRANSACTION IN THE YEAR UNDER CONSIDERATION ON ACCOUNT OF SALE AND PURCHASE OF SHARES IS SAME AS IN THE PRECEDING YEAR S AND THE SAME MERITS TO BE ACCEPTED AS SHORT TERM CAPITAL GAINS. THERE IS N O BASIS FOR TREATING THE ASSESSEE AS A TRADER IN SHARES, WHEN HIS INTENTION WAS TO HOLD THE SHARES IN INDIAN COMPANIES AS AN INVESTMENT AND NOT AS STOCK- IN-TRADE. THE MERE MAGNITUDE OF THE TRANSACTION DOES NOT CHANGE THE NA TURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS.' (C) THE ITAT DECISION IN THE .CASE OF PURNIMA K. S HAH (SUPRA) RELIED UPON BY THE A.O. IS ALSO CLEARLY DISTINGUISHABLE, SINCE IT WAS SO RENDERED ON THE PECULIAR FACTS OF THE CASE. INTACT, IN THIS CASE THE GAINS WERE DERIV ED BY THE ASSESSED, THROUGH LARGE ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 7 - BORROWED FUNDS ON WHICH HEAVY, INTEREST WAS PAID AN D THE BEHAVIOUR OF THE ASSESSEE CLEARLY DEMONSTRATED THAT SHE WAS NOT AN I NVESTOR WHO HAD USED HER CAPITA! FOR MAKING ANY INVESTMENT. (D) THE RATIO OF THE AAR RULING IN THE CASE OF FIDE LITY NORTHSTAR FUND AND OTHERS REPORTED IN 288 ITR 641 WHICH HAS BEEN REFERRED TO IN C.BDT CIRCULAR NO.4 OF 2007 CAN ALSO BE USEFULLY RELIED UPON. THE SAID CAS E RELATES TO THE INCOME ARISING FROM THE PURCHASE AND SALE OF SECURITIES BY FIIS. A LTHOUGH SUCH INCOME AMOUNTING TO CRORES OF RUPEES WAS EARNED BY THE FIIS, IT WAS HELD TO BE IN THE NATURE OF CAPITAL GAINS AND NOT AS BUSINESS INCOME. THE SAID VIEW WAS ARRIVED AT BY THE AAR ON THE BASIS THAT SINCE THE PROVISIONS OF SEBI DID NOT PER MIT A FII TO TRADE IN SECURITIES IN INDIA AND THE INCOME HAD BEEN SHOWN BY THE FII IN I TS INCOME TAX RETURN AS CAPITAL GAINS, IT WAS REQUIRED TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. IN THIS CONTEXT THE FOLLOWING OBSERVATIONS OF THE AAR ARE SIGNIFICANT: 'IF WOULD BE PREPOSTEROUS TO IMPUTE AN INTENT/ON TO FIIS, WHO RESPONDED TO THE OFFER OF INVESTMENT IN SECURITIES IN RESPONSE T O GUIDELINES, GOT THEMSELVES REGISTERED UNDER THE SEBI REGULATIONS AND UNDERTOOK TO ABIDE BY THOSE REGULATIONS, THAT THEY WOULD, IN THE VERY FIRST STE P ITSELF, HAVE INTENDED TO VIOLATE ALL THE LEGISLATIVE REQUIREMENTS WHICH PROV IDE THEM AN OPPORTUNITY TO ENTER THE CAPITAL MARKET IN INDIA. THAT THE FIIS CO ULD NOT HAVE INTENDED TO TRADE IN THE FIRST STEP OF PURCHASE OF SHARES, IS A LSO STRENGTHENED BY THE FACT THAT IN THE IT RETURNS FILED BY THEM, IN CONSONANCE WITH THE LEGISLATIVE PROVISIONS, THEY HAVE SHOWN THEIR INCOME AS CAPITAL GAINS.' IN THIS CONTEXT, THE APPELLANT APPEARS TO BE QUITE JUSTIFIED IN CONTENDING THAT APPLYING THE RATIO OF THE AFORESAID AAR RULING ON THE FACTS OF HIS CASE, IF A FII IS REQUIRED TO BE TAXED ON CAPITAL GAINS AS SUCH (THOUGH IT EARNS SUC H GAINS IN CRORES OF RUPEES), EQUITY, JUSTICE AND GOOD CONSCIENCE DEMAND THAT HE CANNOT BE PLACED ON A DIFFERENT FOOTING AND BE CHARGED TO TAX AS A TRADER, MORE PA RTICULARLY, WHEN HE IS SERVING AS A DIRECTOR OF A COMPANY EARNING SALARY INCOME. MOREOV ER, IN HIS CASE, THE NUMBER, FREQUENCY AND MAGNITUDE OF TRANSACTIONS GIVING RISE TO CAPITAL GAINS ARE SUBSTANTIALLY MINISCULE AS COMPARED TO A FII. 8. THUS, KEEPING IN VIEW THE TOTALITY OF THE FACTS AS ALSO THE LEGAL PRINCIPLES IN THIS REGARD, I HOLD THAT THE ASSESSING OFFICER WAS NOT J USTIFIED IN TAXING THE SHORT TERM AND LONG TERM CAPITAL GAINS EARNED BY THE APPELLANT AS BUSINESS INCOME. THE A.O. IS THEREFORE DIRECTED TO ALLOW THE APPELLANT'S CLAIM A S PER HIS RETURN OF INCOME. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 8 - 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US. 6. THE LD.DR RELIED UPON THE ORDER OF THE AO AND SU BMITTED THAT IN VIEW OF THE REGULARITY, FREQUENCY AND HIGH VOLUME, THESE TRANSACTIONS OF SHARE BEAR TRAPPING OF BUSINESS ARE ADVENTURE IN TH E NATURE OF TRADE OR COMMERCE ETC. AND THUS GAINS ARISING THEREFROM IS R EQUIRED TO BE TAXED AS BUSINESS TRANSACTION AS PER SECTION 2(13) OF THE AC T. HE THEREFORE PLEADED THAT ORDER OF THE CIT(A) IS REQUIRED TO BE REVERSED AND ORDER OF THE AO IS REQUIRED TO BE RESTORED. 7. THE LD.AR MR.JIGAR M. PATEL, ON THE OTHER HAND, SUBMITTED THAT THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE IMPU GNED SHARES RESULTING FOR LONG TERM CAPITAL GAINS (LTCGS) OR SHORT TERM C APITAL GAINS (STCGS) HAVE BEEN DECLARED AS INVESTMENT IN ITS B OOKS OF ACCOUNTS. THE GAIN ARISING IN SHARES HELD AS LONG TERM CAPIT AL ASSET WERE CARRIED FORWARD FROM THE EARLIER YEARS AND DECLARED AS INVESTMENT. SIMILARLY, AS REGARDS STCGS, THE SHARES WERE ALSO H ELD FOR A FAIRLY LONG TIME PRIOR TO ITS SALE RANGING BETWEEN 90 DAYS TO 3 51 DAYS BARING VERY FEW INSTANCES WHERE SHARES WERE HELD FOR LESS THAN ONE MONTH. THE LD.AR THEREAFTER SUBMITTED THAT THE IMPUGNED TREATM ENT OF CAPITAL GAINS HAVE BEEN ACCEPTED BY THE REVENUE IN THE EARLIER YE AR AND LTCGS & ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 9 - STCGS DECLARED HAS BEEN TAXED AS SUCH AND THEREFORE NO PERCEPTIBLE REASON EXISTS TO TAKE A DIFFERENT STAND IN THIS YEA R. THE LD.AR THEREAFTER REFERRED TO THE BALANCE-SHEET OF THE ASSESSEE AND S UBMITTED THAT OWN CAPITAL HAS BEEN DEPLOYED FOR THE ACQUISITION OF SH ARES AS INVESTMENTS AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR THE INVEST MENT PURPOSES. THIS ALSO REFLECTS THE INTENTION OF THE ASSESSEE TO ACT AS INVESTOR WITH REGARD TO THE SHARES WITH A VIEW TO ENJOY CAPITAL ACCRETION. THE LD.AR THEREAFTER REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF DEEPABEN AMITBHAI SHAH VS. DY.CIT REPORTED IN [2016 ] 72 TAXMANN.COM 202 (GUJ.) AND SUBMITTED THAT IN THE SIMILAR CIRCUM STANCES, HONBLE GUJARAT HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE LD.AR ALSO RELIED UPON THE DECISION OF THE PUNE BEN CH OF TRIBUNAL IN THE CASE OF SURESH BABULAL SHAH (HUF) REPORTED IN [2016 ] 75 TAXMANN.COM 105 (PUNE TRIB.) AND SUBMITTED THAT THE COORDINAT E BENCH OF TRIBUNAL HAVING INTERPRETED THE EFFECT OF CBDT CIRCULAR NO. 6/2016 DATED 29/12/2016 HAS DECIDED THE ISSUE IN FAVOUR OF ASSES SEE IN THE SIMILAR CIRCUMSTANCES AS EXISTING IN THE PRESENT CASE. THE LD.AR THEREAFTER REFERRED TO THE DECISION OF THE AHMEDABAD BENCH OF TRIBUNAL IN ITA NO.3437/AHD/2009 FOR AY 2006-07 IN THE CASE OF DY.C IT VS. PROF. BASTIRAM H.JAJOO, ORDER DATED 07/07/2016, AND SUBMI TTED THAT IN THIS CASE ALSO, ITAT DID NOT FIND ANY REASON TO DISTURB THE D ECLARED INTENTION OF ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 10 - HOLDING THE SHARES AS INVESTMENTS BEFORE ITS SALE. HE THEREFORE SUBMITTED THAT NO INTERFERENCE WITH THE ORDER OF THE CIT(A) I S CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE-LAWS CITED. THE LIMITED CONTROVERSY IN HAND IS WHETHER THE LTCGS AM OUNTING TO RS.35.18 LAKHS RS.81.99 LAKHS EARNED BY THE ASSESSEE IS IN THE NATURE OF CAPITAL GAIN AS DECLARED BY THE ASSESSEE OR A BUSINESS INC OME AS SOUGHT TO BE HELD BY THE AO. IT IS THE CASE OF THE ASSESSEE T HAT SHARES WERE HELD AS CAPITAL ASSET AND NOT AS A TRADING ASSET PRIOR TO ITS SALE. THE INTENTION OF THE ASSESSEE IN THIS RESPECT CAN BE GAUGED FROM THE FACT THAT THE ASSESSEE IS DRAWING SALARY INCOME AND THEREFORE NOT OCCUPIED PRIMARILY AS A TRADER. SECONDLY, THE ACQUISITION OF CAPITAL ASSET ARE FROM OWN FUNDS WHICH ARE TO THE TUNE OF RS.5.15 CRORES. THIRDLY, THE SHARES WERE DECLARED TO HAVE BEEN HELD AS CAPITAL ASSET IN TH E EARLIER YEARS WHICH HAVE BEEN SOLD DURING THE YEAR GIVING RISE TO LTCGS . SIMILARLY, THE SHARES HOLD AS SHORT TERM CAPITAL ASSET WERE ALSO H ELD FOR FAIRLY LONG TIME PRIOR TO ITS SALE GIVING RISE TO STCGS. ON TH E TOTALITY OF THESE FACTS, WE FIND NO REASON TO DISTURB THE CONCLUSION REACHED BY THE CIT(A). MERE FACT THAT THE ASSESSEE HAS ALSO QUICKLY SOLD SHARES IN SOME INSTANCES WITHIN SHORT INTERVAL WOULD NOT IPSO FACTO LEAD TO CONCLUSION THAT THE ASSESSEE WAS A TRADER IN THE SHARES. WE FIND THAT THE ISSUE IS SQUARELY ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 11 - COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF PU NE BENCH OF TRIBUNAL IN THE CASE OF SURESH BABULAL SHAH (HUF)[SUPRA]. T HE RELEVANT PORTION OF THE IMPUGNED ORDER IS EXTRACTED HEREUNDER:- 7. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SHRI HITENDRA NINAWE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A) AND SUBMITTED THAT IN VIEW OF THE REGULARITY, FREQUENCY, VOLUME OF THE TRANSACTIO NS, THESE TRANSACTIONS OF SHARES BEARS TRAPPINGS OF BUSINESS OR ADVENTURE IN THE NATURE OF TRADE OR COMMERCE, ETC. AND THUS GAIN ARISING THEREFORE IS R EQUIRED TO BE TAXED AS BUSINESS TRANSACTION AS PER SECTION 2(13) OF THE AC T. HE, THEREFORE, PLEADED THAT NO INTERFERENCE WITH THE ORDER OF THE CIT(A) I S CALLED FOR. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS DECLARED GAIN A RISING ON PURCHASE AND SALE OF SHARES TO THE TUNE OF RS. 13,59,6697- AS SH ORT TERM CAPITAL GAIN ASSESSABLE UNDER THE HEAD CAPITAL GAINS. AS PER THE SCHEME OF THE ACT, THE ASSESSEE IS ENTITLED TO BENEFICIAL TREATMENT IN TAX ATION ON SHORT TERM CAPITAL GAINS AND LONG TERM CAPITAL GAINS ON SALE OF SHARES AND SECURITIES LISTED ON A RECOGNIZE STOCK EXCHANGE. ACCORDINGLY, THE ASSESSEE HAS SOUGHT TO AVAIL THE CONCESSIONAL TAX TREATMENT IN RESPECT OF CAPITAL GA INS OFFERED THAT AROSE TO HIM. THE REVENUE, ON THE OTHER HAND, HAS TAKEN A VI EW THAT THE GAIN ARISING ON IMPUGNED PURCHASE AND SALE OF SHARES IS NOTHING BUT A BUSINESS ACTIVITY AND THEREFORE TAXABLE UNDER THE HEAD 'BUSINESS INCO ME'. BY DOING SO, THE REVENUE HAS SOUGHT TO FORFEIT THE CONCESSIONAL TAX TREATMENT AVAILABLE TO THE ASSESSEE WHERE INCOME IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS'. 9. THE CONTROVERSY, IN ESSENCE, IS IN A NARROW COMP ASS I.E. WHETHER THE IMPUGNED TRANSACTIONS OF PURCHASE OF SHARES AND SAL E THEREOF TANTAMOUNTS TO AN INVESTMENT ACTIVITY OR A TRADING ACTIVITY. IN OR DER TO ADDRESS THE AFORESAID CONTROVERSY, THE FACTS AS DISCERNIBLE ON RECORD HAS BEEN NOTED. IT IS SEEN THAT THE ASSESSEE HAS DECLARED THE PURCHASE OF SHARES AN D HOLDING THEREOF AT THE END OF THE YEAR UNDER THE HEAD 'INVESTMENTS' WHICH CONNOTES CAPITAL TRANSACTION UNLIKE WHERE THESE SHARES STOCK HELD AS TRADING ASSET AND IS DECLARED UNDER THE HEAD 'CURRENT ASSET' IN CASES WH ERE THE ASSESSEE INTEND TO CARRY ON A BUSINESS ACTIVITY. WE ALSO NOTICE THAT T HE ASSESSEE AT THE BEGINNING ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 12 - OF THE YEAR WAS BARELY HOLDING FEW SCRIPS UNDER THE HEAD 'INVESTMENTS'. IT IS ALSO BORNE OUT FROM THE RECORD THAT SEVERAL TRANSAC TIONS GIVING RISE TO GAIN ARE ACQUIRED BY WAY OF INITIAL PUBLIC OFFERING WHIC H WERE RE-SOLD AFTER THE SAME WERE LISTED IN THE STOCK EXCHANGE. WE ALSO NOT ICE THAT THE ASSESSEE WAS HOLDING BARELY 16 SCRIPS AT THE END OF THE FINANCIA L YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09. THIS KIND OF FACTUAL DATA DOES NOT SUPPORT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS INDULGING IN A NY SORT OF SYSTEMATIC OR ORGANIZED BUSINESS ACTIVITY. 10. NOTABLY, THE ASSESSEE HAS REPORTEDLY PAID SECURITIE S TRANSACTION TAX (STT) TOWARDS SALE OF IMPUGNED SHARES. 11. ALSO, PERTINENT HERE TO NOTE THE REFERENCE MADE TO CBDT CIRCULAR (SUPRA) WHICH READS AS UNDER :- 'SUB-SECTION (14) OF SECTION 2 OF THE INCOME-TAX AC T, 1961 ('ACT') DEFINES THE TERM 'CAPITAL ASSET' TO INCLUDE PROPERT Y OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSI NESS OR PROFESSION, BUT DOES NOT INCLUDE ANY STOCK-IN-TRADE OR PERSONAL ASSETS SUBJECT TO CERTAIN EXCEPTIONS. AS REGARDS SHARES AND OTHER SEC URITIES, THE SAME CAN BE HELD EITHER AS CAPITAL ASSETS OR STOCK-IN-TR ADE/TRADING ASSETS OR BOTH. DETERMINATION OF THE CHARACTER OF A PARTICULA R INVESTMENT IN SHARES OR OTHER SECURITIES, WHETHER THE SAME IS IN THE NATURE OF A CAPITAL ASSET OR STOCK-IN-TRADE, IS ESSENTIALLY A F ACT-SPECIFIC DETERMINATION AND HAS LED TO A LOT OF UNCERTAINTY A ND LITIGATION IN THE PAST. 2. OVER THE YEARS, THE COURTS HAVE LAID DOWN DIFF ERENT PARAMETERS TO DISTINGUISH THE SHARES HELD AS INVESTMENTS FROM THE SHARES HELD AS STOCK-IN-TRADE. THE CENTRAL BOARD OF DIRECT TAXES ( 'CBDT) HAS ALSO, THROUGH INSTRUCTION NO. 1827, DATED AUGUST 31, 1989 AND CIRCULAR NO.4 OF 2007 DATED JUNE 15, 2007, SUMMARIZED THE SA ID PRINCIPLES FOR GUIDANCE OF THE FIELD FORMATIONS. 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE AP PLICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSA L PRINCIPAL IN ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 13 - ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARA CTER OF INCOME FROM SALE OF SHARES AND SECURITIES (I.E. WHETHER TH E SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME)., CBDT R EALIZING THAT MAJOR PART OF SHARES/SECURITIES TRANSACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATIO N AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESA ID CIRCULARS, FURTHER INSTRUCTS THAT THE ASSESSING OFFICERS IN HOLDING WH ETHER THE SURPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECUR ITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL T AKE INTO ACCOUNT THE FOLLOWING)- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PER IOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SEC URITIES WOULD BE TREATED AS ITS BUSINESS INCOME, (B) IN RESPECT OF LISTED SHARES AND SECURITIES HEL D FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF IT S TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FR OM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLI CABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; (C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME ) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULA RS ISSUED BY THE CBDT. 4. IT IS, HOWEVER, CLARIFIED THAT THE ABOVE SHALL NOT APPLY IN RESPECT OF SUCH TRANSACTIONS IN SHARES/SECURITIES WHERE THE GENUINE NESS OF THE TRANSACTION ITSELF IS QUESTIONABLE, SUCH AS BOGUS CLAIMS OF LO NG TERM CAPITAL GAIN / SHORT TERM CAPITAL LOSS OR ANY OTHER SHAM TRANSACTI ONS. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 14 - 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAV E BEEN FORMULATED WITH THE SOLE OBJECT OF REDUCING LITIGATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM TRANS FER OF SHARES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVING TRANSFER OF SHARES AND SECUR ITIES.' 12. WITH A VIEW TO DILUTE CONTROVERSY CONTINUOUSLY CROP PING UP ON THE SUBJECT, THE CBDT HAS UNRAVELED THE GUIDELINES IN THIS REGAR D. THE CBDT CIRCULAR (SUPRA) CLARIFIES THAT ONCE A PARTICULAR STANDS HAS BEEN TAKEN BY THE ASSESSEE TO SUCH PURCHASES IN A PARTICULAR ASSESSMENT YEAR I T SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYE RS SHALL NOT BE ALLOWED TO ADOPT DIVERGENT STAND IN DIFFERENT ASSESSMENT YEARS . CLEARLY, THE CBDT CIRCULAR (SUPRA) ATTEMPTS TO TONE DOWN THE ONGOING CONTROVERSY ON THE ISSUE IN FAVOUR OF THE ASSESSEE. WE FIND ON FACT THAT THE ACTION OF THE ASSESSEE IS CONSISTENT WITH THE AFORESAID CBDT CIRCULAR. CONSEQ UENTLY, GAINS ARISING ON SALE IS REQUIRED TO BE TAXED UNDER THE HEAD 'CAPITA L GAINS' ONLY. WE ALSO TAKE NOTE OF THE AVERMENTS MADE ON BEHALF OF THE ASSESSE E THAT SEVERAL PURCHASES MADE IN THE EARLIER YEAR AND DECLARED AS 'CAPITAL I NVESTMENT' IN THE BALANCE SHEET OF THE EARLIER YEAR WERE ALSO SOLD AND GAIN A RISING THEREFROM FORMED PART OF THE IMPUGNED CAPITAL GAINS ARISING IN THIS YEAR. WE, THUS, FIND NO REASON TO IMPUGNE THE DECLARED INTENTION OF THE ASS ESSEE THAT THE SHARE WERE ACQUIRED AS CAPITAL ASSET. IN THE AFORESAID VIEW OF THE MATTER, WE FIND CONSIDERABLE MERIT IN THE ARGUMENTS RAISED ON BEHAL F OF THE ASSESSEE. HENCE, IN OUR VIEW, THE ASSESSEE IS ENTITLED TO TREAT THE GAINS ARISING ON PURCHASE AND SALE OF SHARES IN THE IMPUGNED ASSESSMENT YEAR AS S HORT TERM CAPITAL GAINS AS CLAIMED. ACCORDINGLY, THE ACTION OF THE REVENUE ON THE ISSUE REQUIRES TO BE REVERSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. 9. IN THE LIGHT OF FACTS NOTED ABOVE AND HAVING REG ARD TO VARIOUS JUDICIAL PRECEDENTS QUOTED ON THE ISSUE, WE FIND T HAT THE APPEAL OF RE4VENUE IS DEVOID OF MERITS. ITA NO.589/AHD/2011 ACIT VS. ASHISH NAVNITLAL SHAH ASST.YEAR 2007-08 - 15 - 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 27/12/2016 SD/- SD/- ( . . ) ( ! '#$ ) '% ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 27/ 12 /2016 2 . . ' , . ' . ./ T.C. NAIR, SR. PS '- /345'4(/ / COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. +)* / THE RESPONDENT. 3. / ! 6/ / CONCERNED CIT 4. ! 6/ ( ) / THE CIT(A)-XIV, AHMEDABAD 5. 47 /' , , / DR, ITAT, AHMEDABAD 6. $8. / GUARD FILE. '' ! / BY ORDER, +4/ / //TRUE COPY // / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..26/27.12.16 (DICTATION-PAD 18 -PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.12.2016 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S .27.12.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 27.12.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER