ADDL CIT RG 19(1), MUMBAI V. GIRDHARILAL S. BHATIA, MUMBAI

ITA 5930/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9211 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 10-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-11-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gift; Business income; Source of fund; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 5930/MUM/2009 (ASSESSMENT YEAR: 2006-07) ACIT -19(1)-1, ROOM NO. 322, 3 RD FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI -400 012 VS SHRI GIRDHARILAL S. BHATIA, 202, 2 ND FLOOR, MORYA REGENCY, DR. BABASAHEB AMBEDKAR MARG, KHAR (W), MUMBAI -400 052 PAN: AAGPB 1699 K (APPELLANT) (RESPONDENT) APPELLANT BY : MR. MOHIT JAIN RESPONDENT BY : NONE DATE OF HEARING :10-12-2012 DATE OF PRONOUNCEMENT :19-12-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL HAS BEEN FILED BY THE DEPARTMENT AGAINST THE ORDER OF CIT(A) XX, MUMBAI DATED 28.08.2009, WHEREIN THE DEPARTMEN T HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO TREAT THE STC GAIN OF RS.12,37,89,137/- AS A STC GAIN INSTEAD OF BUSINESS INCOME MADE BY AO IN HIS ASSESSMENT ORDER, IGNORING THE FA CT THAT:- (A) THE ASSESSEE HAS DEPLOYED HIS FUND WITH AN INT ENTION OF EARNING PROFIT OF SUCH FUNDS AND THERE WAS NO INTEN TION OF THE ASSESSEE TO APPRECIATE THE INVESTMENT SO MADE DURIN G THE YEAR. (B) THE ASSESSEE HAD NO INTENTION TO HOLD HIS SHAR ES IN ORDER TO EARN REGULAR INCOME OUT OF SUCH PURCHASES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE IN DEPTH ANALYSIS MADE BY THE AO BEFORE TREATING THE GAINS AS BUSINES S INCOME AND THAT CIRCULAR NO.4 OF 2007 HAS BEEN TAKEN INTO CONSIDERATION TO DECIDE WHETHER THE GAINS AS BUSINESS INCOME AND THAT CIRCULAR NO.4 OF 2007 HAS BEEN TAKEN INTO CONSIDERA TION TO DECIDE WHETHER THE GAINS ARE TO BE TREATED AS SUCH OR AS BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ALSO ERRED IN IGNORING THE FACT THAT THE SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 2 ASSESSEES AVERAGE PERIOD OF HOLDING OF SHARES IS L ESS THAN ONE MONTH AND ALSO THAT THE ASSESSEE HAS ENTERED INTO 4 31 TRANSACTIONS OF PURCHASE AND SALE OF SHARES DURING THE CURRENT YEAR. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT TH AT THE TRANSACTION IS SHOWN WHETHER BY HIMSELF OR THOROUGH HIS AGENT HAS TO BE TREATED AS ASSESSEES OWN TRANSACTION AND THE MOTIVE BEHIND SUCH TRANSACTION WAS TO EARN MAXIMUM PROFIT AND NOT INVESTMENT. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED . 2. AS THERE WAS NOBODY ON BEHALF OF THE ASSESSEE NOR A NY ADJOURNMENT LETTER HAS BEEN RECEIVED BY US ON BEHALF OF THE ASSESSEE, WE PROCEED AND DECIDE THIS APPEAL EX-PARTE QUA THE ASSESSEE ON MERITS. 3. THE SOLITARY ISSUE IN THE IMPUGNED APPEAL IS WITH REGARD TO THE DELETION OF RS. 12,37,89,137, TREATED AS BUSINESS INCOME BY T HE AO, INSTEAD OF TREATING THE SAME AS STCG. 4. THE ASSESSEE IS IN THE BUSINESS OF SHARE TRADING. IN T HE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DECLARED STCG AT RS. 12,37,89,137 AND LTCG AT RS. 8,94,924 AND BUS INESS INCOME OF RS. 30,60,776 AND INCOME FROM OTHER SOURCES. IT WAS NOTICE D THAT THE ASSESSEE HAD SHOWN TWO SEPARATE PORTFOLIOS OF INVESTMENTS AND TRADING. IN INVESTMENT PORTFOLIO, THE ASSESSEE HAD SH OWN OPENING STOCK AT RS 3,63,44,809 AND CLOSING STOCK AT RS 1,66,71,59 6, WHEREAS IN THE TRADING PORTFOLIO, THE AO NOTICED THAT THERE WERE S ALE TRANSACTIONS OF RS 1,08,75,93,068 AND PURCHASE TRANSACTION S OF RS 96,38,03,937. 5. WHILE CONDUCTING THE ENQUIRY, THE AO NOTICED THAT IN THE INVESTMENT PORTFOLIO, THE ASSESSEE HAD 413 TRANSACTIONS OF SALE, AND IN THESE TRANSACTIONS, 231 TRANSACTION PERTAINED TO SCRIPS, WHERE HOLDING PERIOD WAS LESS THEN 3 MONTHS BESIDES HAVING REPETITIVE T RANSACTIONS IN THE SAME SCRIPS. ON THE BASIS OF THESE FACTUAL ASPEC TS, THE AO, SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 3 CONCLUDED THAT THOUGH THEY WERE IN THE INVESTMENT PORT FOLIO, THEY WERE ACTUALLY TRADING TRANSACTIONS AND THEREFORE, HELD THAT ST CG WAS ACTUALLY BUSINESS PROFITS OF THE ASSESSEE AND ADDED IT TO THE INCOME OF THE ASSESSEE. THE AO ALSO GAVE NAMES OF THE SCRIPS, WHER E THERE WERE REPETITIVE TRANSACTIONS, IT IS SEEN THAT YOU HAVE ENTERED IN REPETITIVE TRA NSACTIONS I.E. A SCRIP HAS BEEN PURCHASED, THEN SOLD, THEN AGAIN PURCHASED AND THEN AGAIN SOLD. THIS IS A SURE SIGN OF TRADING. SUCH TRANSA CTIONS HAVE BEEN CONDUCTED IN FOLLOWING 17 SCRIPS AIA ENGINEERING, CYBER MEDIA, DR. BECK & CO., EVEREADY INDUSTRIES, FORTUNE INFORMATIC S, GOVIND RUBBER, JINDAL PHOTO, LIBERTY SHOES, MULTI ARC, SASKEN LTD. , SAKSOFT LTD., SHREE GANESH FORGING, SIYRAM SILKS, SUNIL HITECH, TULIP L TD., VIVIMED LABS, ZENITH INFO. D. IT IS SEEN THAT AS ON 31.03.2005, YOU ARE HAVING SECURED LOANS OF RS 7,03,46,002/-, UNSECURED LOANS OF RS. 59,35,000/- A ND CURRENT LIABILITIES OF RS. 1,59,18,304/-. YOUR OWN CAPITAL IS 36,35,451/- WHILE INVESTMENT IN SHARES IS RS. 3,63,44,809/-. HENCE, I T IS CLEAR THAT SUBSTANTIAL BORROWED FUNDS HAVE BEEN USED FOR PURCH ASE OF SHARES. SINCE, THE INVESTMENT ARE MAINLY FROM BORROWED FUND S, THIS FACTOR ALSO POINTS TOWARDS TRADING. THE AO ALSO NOTICED THAT THE ASSESSEE HAD BEEN UTILIZING SECURED & UNSECURED LOANS TO THE TUNE OF RS. 7,62,81,002 (RS. 7,03,46,0 02 & RS. 59,35,000 RESPECTIVELY). 6. THE ASSESSEE PLEADED WITH THE AO THAT THERE WERE SE VERAL JUDGMENTS, WHICH DESCRIBED FREQUENT PURCHASE/SALE OF SHAR ES CONSTITUTES INVESTMENT ACTIVITY OR TRADING, SOME OF THEM WERE POINTED TO THE AO WHICH ARE, S.NO NAME OF THE PARTY CITATION 1 RAMNARAIN SONS (PR.) LTD. VS. CIT 41 ITR 534 (SC) 2 RAJA BAHADUR VISHESHWAR SINGH VS. CIT 41 ITR 685 (SC) 3 RAJPUTANA TEXTILES (AGENCIES) LTD. VS. CIT 42 ITR 743 (SC) 4 DALHOUSIE INVESTMENT TRUST LTD. VS. CIT 42 ITR 74 3 (SC) 5 NEW ERA AGENCIES (PVT.) LTD. VS. CIT 68 ITR 585 ( SC) 6 JUGGILAL KAMLAPAT VS. CIT 75 OTR 186 (SC) 7 RAJA BHADUR KAMAKHYA NARAIN SINGH VS. CIT 77 ITR 253 (SC) 8 CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD. 10 0 ITR 706 (SC) 9 CIT VS. HOLCK LARSEN 160 ITR 67 (SC) 10 CIT VS KARAM CHAND THAPAR & SONS LTD. 115 ITR 25 0 (CAL) 11 BHARAT DEVELOPMENT (P.) LTD. VS. CIT 133 ITR 470 (DEL) 12 JAIPURIA BROS. LTD. VS. CIT 180 ITR 208 (CAL) 13 CIT VS. RAWASHANKER A. KOTHARI 283 ITR338 (GUJ) SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 4 14 SYZ/ABC EQUITY FUND, IN RE. 250 ITR 194 (AAR) 15 FIDELITY ADVISOR SERIES VIII, IN RE 271 ITR 1 (A AR) 16 ASSOCIATED TECHNO PLASTICS (P) LTD. VS. DY.CIT 6 2 ITD 212 (DEL) 17 BURNSIDE INVESTMENTS & HOLDINGS LTD. VS. DY.CIT 61 ITD 501 (MAD) 18 ATLAS CORPORATION VS. ITO 57 ITD 139 (BOM) 19 ITO VS. HINDUSTAN COMMERCIAL BANK LTD. 30 ITD 16 5 (DEL) 20 INDIAN ENGG. & COMML. CORPN. (P) LTD. VS. ITO 37 TTJ (DEL) 533 21 HIND MARKETING CORPN. (P) LTD. VS. ITO 40 ITD 47 6 (CAL) 22 SMT. NEERJA BIRLA VS. ACIT 62 ITD 39 (MUM) 23 SMT. NEERJA BIRLA VS. ACIT 66 ITD 148 (MUM) 24 ACIT VS. B.N. RATHI SECURITIES LTD. 71 ITD 31 (H YD) 25 SMT. DIVYABEN C. SHAH VS. DY. CIT 117 TAXMAN 188 (RJKOT) 26 DY. CIT VS. A.T.N. INTERNATIONAL LTD. 4 SOT 239 (KOL) 27 DY. CIT VS. SMT. DEEPABEN AMITBHAI SHAH 99 ITD 2 19 (AHD.) BASED ON THESE JUDGMENTS, CBDT HAS ALSO ISSUED INST RUCTIONS NO. 1827 DATED 31 ST AUGUST 1989 FOR THE OFFICERS AND CIRCULAR NO 4/200 7 DATED 15.06.2007 FOR THE OFFICERS AND TAXPAYERS. BASED O N ANALYSIS OF FACTORS IN THESE JUDGMENTS, INSTRUCTIONS AND CIRCULAR, BCAS IN ITS PUBLICATIONS TRANSACTION IN SHARES & SECURITIES TAXATION & AC COUNTING HAS LISTED FOLLOWING FACTORS WHICH WILL HELP DECIDE WHETHER PURCHASE/ SALE TRANSACTIONS CONSTITUTED INVESTMENT OR TRADING : 1. MOTIVE FOR THE ORIGINAL PURCHASE AS PERCEIVED AT TH E TIME OF SALE 2. THE LENGTH OF PERIOD OF HOLDING OF THE SHARES 3. THE FREQUENCY OF SALE OF SHARES 4. THE CIRCUMSTANCES RESPONSIBLE FOR THE SALE OF SHARE S 5. THE PRESENCE OF A CLEARLY DISCERNIBLE MOTIVE FOR PU RCHASE OF SHARES 6. THE RELATION OF THE SHARE TRANSACTIONS TO THE NORMA L BUSINESS OF THE ASSESSEE 7. TREATMENT OF SHARES AND PROFIT/LOSS ON THEIR SALE I N THE ACCOUNTS OF ASSESSEE 8. THE SOURCE OF FUNDS OUT OF WHICH THE SHARES WERE AC QUIRED BORROWED OR OWN 9. IN THE CASE OF COMPANY, EXISTENCE OF OBJECTS CLAUSE PERMITTING IT TO TRADE IN SHARES 10. THE MANNER OF ACQUISITION OF SHARES 11. THE INFRASTRUCTURE EMPLOYED FOR THE SHARE TRANSACTI ONS 12. MARKETABILITY OF THE SHARES. BESIDES, ABOVE FACTORS FOLLOWING FACTORS ALSO EMERG E FROM THE STUDY OF ABOVE JUDGMENTS/INSTRUCTIONS/CIRCULAR: 13. MAGNITUDE OF PURCHASE/SALE OF SHARES 14. DIVIDEND INCOME IN RELATION TO HOLDING 7. THE AO GAVE HIS FINDING BASED ON 1. THE MOTIVE FOR THE PURCHASE AS PERCEIVED AT THE TIM E OF SALE SINCE, THE ASSESSEE HAS SOLD MOST OF THE SHARES WIT H A PERIOD RANGING FROM ONE MONTH TO THREE MONTHS, THE MOTIVE IS CLEARLY TO EARN QUICK PROFIT AS THERE IS NO QUESTIO N OF EARNING DIVIDEND ETC. FOR HOLDING THE SHARES FOR SUCH A SHO RT PERIOD. 2. THE LENGTH OF PERIOD OF HOLDING OF THE SHARES THE TRANSACTIONS IN THE SHORT TERM CAPITAL GAIN STATEME NT WERE SORTED ON THE BASIS OF HOLDING PERIOD. THE COPY OF STATEMENT IS ENCLOSED AS ANNEXURE-1 TO. THE ORDER. IT CAN BE SEE N FROM THE SAME THAT OUT OF 413 TRANSACTIONS OF SALE OF SHARES , IN 231 SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 5 TRANSACTIONS HOLDING PERIOD IS LESS THAN A MONTH AN D IN ANOTHER 87 TRANSACTION, IT IS LESS THAN 3 MONTHS. THE ASSESSEE HAS NOT BEEN ABLE TO REPLY TO THE CONTENTION THAT I N LARGE PROPORTIONOF THESE TRANSACTIONS, THE HOLDING PERIO D IS LESS THAN ONE MONTH AND THREE MONTHS. BASED ON THE SAME AND ALSO BASED ON THE FACTS THAT THIS HAS BEEN THE MOST IMPORTANT FACTOR TAKEN IN CONSIDERATION BY THE HONBLE COURTS (JUDGMENTS AT S.NO.2, 6, 10, 12, 15, 17, 18, 20, 25 & 27), THE TRANSACTIONS ARE CLEARLY TRADING TRANSACTIONS. 3. THE FREQUENCY OF SALE OF SHARES - IT IS SEEN FROM THE TRANSACTIONS OF SHARES THAT TRANSACTIONS OF PURCHAS E/SALE ARE REGULAR. THEY HAVE BEEN MADE THROUGH OUT THE YEAR A LMOST ON EVERYDAY BASIS. STATEMENT GIVING THE DATES ON WHICH THE ASSESSEE MADE PURCHASE TRANSACTIONS IS ENCLOSED AS ANNEXURE- 2 TO THE ORDER. AS PER THIS, THE ASSESSEE MADE PURC HASE TRANSACTIONS ON 152 DAYS. STATEMENT GIVING THE 4TES ON WHICH THE ASSESSEE MADE SALE TRANSACTIONS IS ENCLOSED AS ANNEXURE-3 TO THE ORDER. AS PER THIS, THE ASSESSEE MADE SALE T RANSACTIONS ON 126 DAYS. TOTAL TRADING DAYS DURING THE YEAR WER E 240 DAYS APPROXIMATELY. HENCE, THE ASSESSEE PURCHASED AND SO LD SHARES E ASSESSEE HAS MADE REPETITIVE TRANSACTIONS IN FOLL OWING 17 SCRIPS AIA ENGINEERING, CYBER MEDIA, DR. BECK & C O., EVEREADY INDUSTRIES, FORTUNE INFORMATICS, GOVIND RU BBER, JINDAL PHOTO, LIBERTY SHOES, MULTI ARC, SASKEN LTD. , SAKSOFT LTD., SHREE GANESH FORGING, SIYRAM SILKS, SUNIL HIT ECH, TULIP LTD., VIVIMED LABS, ZENITH INFO. IN THESE SCRIPS TH E ASSESSEE HAS PURCHASED THEN SOLD AND THEN AGAIN PURCHASED AN D THEN AGAIN SOLD THE SHARES IN THE SAME SCRIP. REGULARITY AND CONTINUITY OF TRANSACTIONS MAKE IT C LEAR THAT TRANSACTIONS ARE IN THE NATURE OF TRADING. THIS FAC TOR HAS BEEN CONSIDERED IN THE JUDGMENTS AT S.NO.2, 11, 16, 17,2 5 & 26. 4. THE CIRCUMSTANCES RESPONSIBLE FOR THE SALE OF S HARES IF THE SALE OF SHARES HAD BEEN MADE BECAUSE OF THE NEE D FOR FUNDS, THE SAME CAN BE REGARDED AS INVESTMENT. IN T HE ASSESSEES CASE, THERE IS NO SUCH CIRCUMSTANCE. THE ASSESSEE IS ENGAGED IN PURCHASE! SALE OF SHARES ON REGULAR BASI S. 3. THE PRESENCE OF A CLEARLY DISCERNIBLE MOTIVE F OR PURCHASE OF SHARES IF THE ASSESSEE COULD PROVE THAT THE PURCHASE WAS NECESSITATED NOT MERELY BY MOTIVES OF PROFITS BUT. WAS UNDERTAKEN ON A/C OF OTHER MOTIVES E.G FOR ACQUIRIN G CONTROLLING INTEREST ETC.; THE TRANSACTION CAN BE R EGARDED AS INVESTMENT. THERE IS NO SUCH FACTOR IN ASSESSEES C ASE. 4. THE RELATION OF THE SHARE TRANSACTIONS TO THE N ORMAL BUSINESS OF THE ASSESSEE THE ASSESSEE IS TRADING IN SHARES AND HAS ALREADY OFFERED THE INCOME FROM TRADING IN SHARES. IN FACT, THE ASSESSEE HAS NOT BEEN ABLE TO GIVE ANY BA SIS FOR CLASSIFYING THE SHARES AS INVESTMENT OR STOCK-IN-TR ADE. SOME OF THE SCRIPS ARE APPEARING BOTH AS INVESTMENT AND STO CK- IN- TRADE. HENCE, EVEN THIS FACTOR POINTS OUT THAT ASSE SSEE IS TRADING IN SHARES. 5. TREATMENT OF SHARES AND PROFIT/LOSS ON THEIR SA LE IN THE ACCOUNTS OF ASSESSEE IT IS SEEN THAT THE ASSESSEE HAS SHOWN SOME SHARES AS INVESTMENTS AND SOME OTHER AS STOCK- IN-TRADE. HOWEVER, THE ASSESSEE HAS NOT BEEN ABLE TO GIVE ANY BASIS FOR CLASSIFYING THE SHARES AS INVESTMENT OR STOCK-IN-TR ADE. HOWEVER, THIS IS A FACTOR WHICH IS CLEARLY AT THE D ISCRETION OF THE ASSESSEE AND SHARES WILL ALWAYS BE SHOWN AS INV ESTMENTS BECAUSE OF PREFERENTIAL TAX TREATMENT AVAILABLE FOR CAPITAL GAIN. SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 6 BESIDES, IN SEVERAL CASES, THE HONBLE COURTS HAVE HELD THE TRANSACTIONS AS TRADING EVEN THOUGH THE SAME WERE S HOWN AS INVESTMENTS IN ASSESSEES BOOKS AND RETURN OF INCOM E. 6. THE SOURCE OF FUNDS OUT OF WHICH THE SHARES WER E ACQUIRED IT IS SEEN THAT AS ON 31.03.2005, ASSESSEE WAS HA VING SECURED LOANS OF RS.7,03,46,003/-, UNSECURED LOANS OF RS.59,35,O00/- AND CURRENT LIABILITIES OF RS.1.59,1 8,304/-. ASSESSEES OWN CAPITAL WAS RS.36,35,451/- WHILE INV ESTMENT IN SHARES WAS RS.3,63,44,809/-. HENCE, IT IS CLEAR THA T SUBSTANTIAL BORROWED FUNDS HAVE BEEN USED FOR PURCH ASE OF SHARES. THE ASSESSEE HAS CLAIMED INTEREST OF RS.56, 67,429/- IN HIS INCOME & EXPENDITURE ACCOUNT. SINCE, THE INVES TMENT ARE MAINLY FROM BORROWED FUNDS, THIS FACTOR ALSO POINTS TOWARDS TRADING. HONBLE COURTS HAVE CONSIDERED THIS AS AN IMPORTANT FACTOR IN JUDGMENTS AT S.NO.4, 6, 8, 14,18, 23 & 25 AND HAVE HELD THAT PURCHASE FROM BORROWED FUNDS POINT TOWARD S TRADING. 7. IN THE CASE OF COMPANY, EXISTENCE OF AN OBJECTS CLAUSE PERMITTING IT TO TRADE IN SHARES THIS FACTOR IS NOT APPLICABLE IN ASSESSEES CASE. 8. THE MANNER OF ACQUISITION OF SHARES IF THE SHARES WERE NOT PURCHASED, BUT WERE INHERITED OR RECEIVED AS GIFT O R PURCHASED FROM PRIMARY MARKET FOR LONG TERM HOLDING, THE PRES UMPTION WOULD GENERALLY BE THAT OF INVESTMENT. IN ASSESSEE CASE, THE SHARES HAVE BEEN PURCHASED FROM SECONDARY MARKET. H ENCE, EVEN THIS FACTOR POINTS TOWARDS TRADING IN SHARES I N ASSESSEES CASE. 9. THE INFRASTRUCTURE EMPLOYED FOR THE SHARE TRANS ACTIONS THE ASSESSEE IS HAVING SUFFICIENT INFRASTRUCTURE AN D CLAIMING INTEREST, SALARY, CONVEYANCE, TELEPHONE AND OTHER MISCELLANEOUS EXPENSES. THE ASSESSEE HAS EMPLOYED REASONABLE INFRASTRUCTURE THOUGH NOT VERY SUBSTANTI AL FOR TRANSACTING IN SHARES. 10. MARKETABILITY OF THE SHARES THE SHARES PURCHASED AND SOLD BY THE ASSESSEE ARE LIQUID SHARES AND TRADED O N BSE/ NSE. THEY ARE EASILY MARKETABLE AND LIQUID. THIS AL SO LEADS TO PRESUMPTION OF TRADING. 11. MAGNITUDE OF PURCHASE/SALE OF SHARES THIS FACTOR HAS BEEN CONSIDERED IN JUDGMENTS AT S.NO.2, 14, 15, 18, 26 & 27. IT IS SEEN THAT THE ASSESSEE HAS PURCHASED/ SOLD SH ARES IN LARGE AMOUNTS. IN RESPECT OF INVESTMENTS, THE ASSES SEE HAS OPENING STOCK OF RS. 3,63,44,809/-.- AND CLOSING ST OCK OF RS. 1,66,71,596/-. IN THE SHORT TERM CAPITAL GAIN STATE MENT, THE ASSESSEE HAS SOLD SHARES OF RS. 108,75,93,068/- AND PURCHASED SHARES OF RS. 96,38,03,931/-. THE MAGNITU DE OF TRANSACTIONS WAS ALSO FOUND TO BE VERY LARGE. THE S ALES ARE 41 TIMES THE AVERAGE INVESTMENT OF RS.2,65,08,203/-. H ENCE, MAGNITUDE OF TRANSACTIONS IS VERY LARGE EVEN WITH R EFERENCE TO ASSESSEES AVERAGE STOCK OF SHARES. HENCE, THIS FAC TOR ALSO POINTS TOWARDS TRADING IN SHARES. 12. DIVIDEND INCOME IN RELATION TO HOLDING THIS FACTOR HAS BEEN CONSIDERED IN JUDGMENTS AT S.NO.4; 8, 15 & 23. THE ASSESSEE HAS STATED THAT HE HAS RECEIVED DIVIDEND O F RS.8,46,9501-. BUT IT HAS NOT BEEN STATED HOW MUCH DIVIDEND HAS BEEN EARNED FROM THE SHARES SOLD ON WHICH SHORT TERM CAPITAL GAIN HAS BEEN SHOWN AS EARNED. IT IS UNLIKE LY THAT THERE WAS ANY CHANCE TO EARN DIVIDEND ON THESE SHARES AS THEY WERE RETAINED BY THE ASSESSEE FOR A VERY SHORT PERIOD. B ESIDES, THE DIVIDEND EARNED IS QUITE LOW IN COMPARISON TO INTER EST RATE SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 7 BEING PAID BY THE ASSESSEE. HENCE, THIS FACTOR POIN TS TOWARDS TRADING IN RESPECT OF SHARES WHICH HAVE BEEN HELD F OR A PERIOD OF LESS THAN A YEAR THE AO, AFTER CONSIDERING ALL THE ABOVE CHECK POINTS TREAT ED THE STCG AS BUSINESS PROFITS, WHILE DOING SO, HE ALSO REFERRED TO A N UMBER OF DECISIONS. 8. AGGRIEVED, THE ASSESSEE, APPROACHED THE CIT(A), WHO, DELV ED ON EACH ARGUMENT OF THE EITHER SIDE AND CONCLUDED, 5.3.26 IN VIEW OF THE ABOVE, I FIND THAT THE AO IS ABSOLUT ELY JUSTIFIED IN HIS CONTENTION THAT THE APPELLANT HAS ADJUSTED HIS BUSINESS INCOME AS PART OF HIS STCG WHICH IS NOT OTHERWISE A LLOWABLE AS PER THE SPECIFIC PROVISIONS OF THE ACT, AS MENTIONE D ABOVE. THE ENTIRE ADJUSTMENTS AS NOTED ABOVE ARE FOUND TO BE D ELIBERATELY CARRIED OUT BY THE APPELLANT AT THE TIME OF COMPILA TION OF HIS FINAL ACCOUNTS AND PREPARATION OF HIS RETURN OF INCOME. THE SAME, ACCORDING TO MY CONSIDERED OPINION IS UNDERTAKEN ON LY TO REDUCE HIS TAX LIABILITY BY SHOWING HIGHER INCOME UNDER TH E HEAD SHORT TERM CAPITAL GAINS AND CORRESPONDINGLY LESSER INCO ME TO THIS EXTENT UNDER THE HEAD BUSINESS INCOME. THE CIT (A), THUS, ON THE BASIS OF HIS FINDINGS HEREINABOVE, CONCLUDED, 5.3.28 ACCORDINGLY, THE AO IS DIRECTED TO RE-WORK OUT SHO RT TERM CAPITAL GAINS ON SALE OF SHARES HELD AS INVESTMENT BY THE A PPELLANT UNDER THE HEAD SHORT-TERM CAPITAL GAINS AS WELL AS BUSINESS INCOME OF THE APPELLANT FROM VARIOUS SOURCES DULY TAKING INTO CONSIDERATION MY DIRECTIONS GIVEN IN THE PRECEDING PARAGRAPHS OF THIS ORDER. HOWEVER, AT THE SAME THE AO IS DIRECTED TO RE-VERIFY, ALL THE FIGURES MENTIONED ABOVE FOR THE COMPUTATION OF THE BUSINESS INCOME AND STCG FROM THE RECORDS OF THE AP PELLANT, AS DISCUSSED ABOVE, WHILE GIVING EFFECT TO THIS ORDER. THE ADDITION MADE TO TREAT HIS STCG AS BUSINESS INCOME TO THE EX TENT AS DIRECTED ABOVE IS, THEREFORE, CONFIRMED AND THE BAL ANCE ADDITION MADE AS BUSINESS INCOME IS DIRECTED TO BE DELETED, WHICH SHALL BE ASSESSED AS HIS STCG AS PER THE VARIOUS PROVISIO NS OF THE ACT. THE ADDITIONAL GROUND RAISED BY THE APPELLANT AS MENTIONED ABOVE IS NOT ADJUDICATED SEPARATELY, SINCE DUE CONS IDERATION THEREOF IS ALREADY GIVEN WHILE DECIDING HIS MAIN GR OUND OF APPEAL, AS DISCUSSED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED . 9. AGAINST THE ORDER, THE DEPARTMENT IS IN APPEAL. 10. BEFORE US, THERE WAS NO ATTENDANCE FROM THE ASS ESSEE, THOUGH THE NOTICE OF HEARING WAS GIVEN WELL IN ADVANCE. NEITHER ANYONE A TTENDED NOR THERE WAS ANY LETTER SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 8 FOR ADJOURNMENT WAS FILED. WE, THEREFORE, DECIDED T O PROCEED EX PARTE, ON THE BASIS OF MATERIAL ON RECORD. 11. WE HAVE SEEN FROM THE ORDER OF THE REVENUE A UTHORITIES THAT THE MOVEMENT PATTERN IN THE INVESTMENT PORTFOLIO HAS BEEN EXAMIN ED, BUT THE SCRIP WISE/TRANSACTION WISE HOLDING PERIOD PATTERN HAS NOT BEEN EXAMINED B Y EITHER OF THE REVENUE AUTHORITIES. THE ISSUE WHETHER THE SHARE TRANSACTIONS IN A PARTI CULAR CASE SHOULD BE TREATED AS INVESTMENT ACTIVITY OR TRADING ACTIVITY HAS BEEN HI GHLY A DEBATABLE ISSUE. THERE ARE DECISIONS OF THE TRIBUNAL ON BOTH THE SIDES. EACH C ASE WILL DEPEND ON ITS OWN FACTS AND CIRCUMSTANCES. THERE ARE VARIOUS FACTORS SUCH AS FR EQUENCY, VOLUME, ENTRY IN THE BOOKS OF ACCOUNTS, NATURE OF FUNDS USED, HOLDING PERIOD E TC. WHICH ARE RELEVANT IN DECIDING THE TRUE NATURE OF TRANSACTIONS AND NO SINGLE FACTO R IS CONCLUSIVE. THE MOST IMPORTANT FACTOR IS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE WHICH HAS TO BE GATHERED FROM THE ACTUAL CONDUCT OF THE ASSESSEE WHILE DEALI NG WITH THE SHARES SUBSEQUENTLY AND NOT ONLY ON THE BASIS OF ENTRY IN THE BOOKS OF ACCO UNT OR THE OBJECTS IN THE MEMORANDUM OF ASSOCIATION. THIS VIEW IS SUPPORTED B Y THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MADANGOPAL RAD HEYLAL (73 ITR 642). THE ACTUAL CONDUCT HAS TO BE EVALUATED BY ANALYZING OF THE HOL DING PERIOD ETC. AN INVESTOR MAKES PURCHASES WITH LONG TERM GOAL OF EARNING INCOME FRO M THE INVESTMENT AND HE IS NOT TEMPTED TO SELL THE SHARES ON EVERY RISE AND FALL I N THE MARKET WHICH ARE THE ATTRIBUTES OF A TRADER. SINCE INCOME FROM INVESTMENT IN SHARES WHICH IS IN THE FORM OF DIVIDEND IS RECEIVED ANNUALLY, NORMALLY AN INVESTOR IS EXPECTED TO HOLD THE SHARES FOR MORE THAN A YEAR. HOWEVER THERE MAY BE SITUATIONS WHEN THE INVE STOR MAY ALSO SELL THE SHARES AFTER SHORT HOLDING IN ORDER TO RESHUFFLE PORTFOLIO WHEN PRICES ARE FALLING OR TO ENCASH INVESTMENT IN CASE OF EXCEPTIONAL GAIN OR FOR SOME PERSONAL EXIGENCIES. EACH CASE IS REQUIRED TO BE EXAMINED CAREFULLY TO ASCERTAIN THE TRUE NATURE OF TRANSACTIONS. 12. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA), BUT WE FIND THAT THERE IS NO UNIVE RSAL FINDING IN THAT CASE THAT ALL DELIVERY BASED TRANSACTIONS HAVE TO BE TREATED AS I NVESTMENT. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN CASE OF GOPAL PUROHIT (SUPRA), HAD DECIDED THE CASE FOLLOWING THE DECISION OF TRIBUNAL IN CASE OF SARNATH INFRASTRUCT URE PVT. LTD VS. ACIT (2009) 120 TTJ 216 HOLDING THAT FACTS IN THE CASE OF SARNATH I NFRASTRUCTURE PVT. LTD (SUPRA), WERE SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 9 IDENTICAL. HOWEVER, IT IS NOTED THAT IN SARNATH INF RASTRUCTURE PVT. LTD (SUPRA), THE SHARES SOLD OUT OF INVESTMENT ACCOUNT HAD BEEN HELD THAT 2 -3 YEARS AND REVENUE COULD NOT SHOW ANY SHARES SOLD WHICH HAD BEEN PURCHASED DURIN G THE YEAR OR IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, ONLY IN RESPECT OF SUCH CASES, THE DECISION IN CASE OF GOPAL PUROHIT (SUPRA), COULD BE APPLIED. THE HONBLE HIGH COURT OF BOMBAY HAD UPHELD THE DECISION OF THE TRIBUNAL IN THE CASE OF GOPAL PUROH IT (228 ITR 582), ON THE GROUND THAT THERE WAS NO SUBSTANTIAL QUESTION OF LAW INVOLVED. EVEN BEFORE HONBLE HIGH COURT THERE WAS NO QUESTION RAISED THAT ALL DELIVERY BASE D TRANSACTIONS HAVE ALWAYS TO BE TREATED AS INVESTMENT ACTIVITY. THUS THE DECISION O F THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT IN CASE OF GOPAL PUROHIT (SUPRA ), CANNOT BE CONSIDERED AS A PRECEDENT FOR THE PROPOSITION THAT ALL DELIVERY BASED SHARES HAVE TO BE TREATED AS INVESTMENT ACTIVITY. THE ASSESSEE CAN ALSO BE A TRADER IN CASE OF DELIVE RY BASED PURCHASES AND SALES, WHICH IS A NORMAL FEATURE OF ANY TRADING ACTIVITY. THEREF ORE, IN OUR VIEW COMPLETE RELIANCE PLACED ON THE DECISION IN THE CASE OF GOPAL PUROHIT (SUPRA), THAT TOO WITHOUT GOING INTO THE INDIVIDUAL FACTS IS MISPLACED. EACH CASE HAS TO BE DECIDED BASED ON ITS OWN FACTS. 13. WE, THEREFORE, ARE UNABLE TO SUSTAIN THE ORD ER OF THE CIT(A). THE ORDER IS SET ASIDE AND THE ISSUE IS RESTORED TO THE CIT(A) FOR P ASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OUR OBSERVATIONS MADE I N THIS ORDER, AFTER ALLOWING ADEQUATE OPPORTUNITY TO THE ASSESSEE TO PRESENT HIS CASE. 14. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI : 19 TH DECEMBER, 2012 SHRI GIRDHARILAL S. BHATIA ITA NO. 5930/MUM/2009 10 COPY TO: 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT (A)-XX, MUMBAI. 4) THE CIT -19, MUMBAI 5) THE DR, G BENCH MUMBAI 6) COPY TO GUARD FILE BY ORDER / / TRUE COPY / / ASST. REGISTRAR, ITAT, MUMBAI *CHAVAN