ACIT, New Delhi V. M/s. Shri Hari Investment, New Delhi

ITA 6063/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4291 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Capital asset; Business income; Earning of tax free income; Avoidance of tax; Benefit of exemption
• Section: 69C; 14A; 10

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6062 AND 6063 /DEL/2014 (ASSESSMENT YEAR: 2010 - 11 AND 2011 - 12 ) ACIT, CIRCLE - 31(1), NEW DELHI VS. SHRI HARI INVESTMENT, B - 47, 2 ND FLOOR, SHIV MAHAL, CONNAUGHT PLACE, NEW DELHI PAN: ABEFS8112L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SS RANA, CIT DR ASSESSEE BY: NONE DATE OF HEARING 24/10 /2017 DATE OF PRONOUNCEMENT 0 2 / 0 1 / 2 0 1 8 O R D E R PER PRASHANT MAHARISHI, A. M. 1. TH ESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT(A) - XXVI, NEW DELHI DATED 11.08.2014 FOR THE ASSESSMENT YEAR 2010 - 11 AND 2011 - 12. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2010 - 11: I. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS PROFIT OF RS. 11,98,02,135/ - FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME DESPITE THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND IT WAS THE SOLE ACTIVITY OF THE ASSESSEE WHICH IS ALSO AN ADMITTED OBJECT OF ASSESSEE FIRM AS PER PARTNERSHIP DEED. II. THE CIT (A) HAS ERRED IN NOT CORRECTLY APPRECIATING THE FACTS OF THE CASE THAT THE STATEMENT OF PURCHASE AND SALE AND ALSO ACTIVITY OF THE ASSESSEE PROVED THAT HE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SECURITIES IN AN ORGANIZED AND REGULAR MANNER AND SHOWING INCOME THEREFROM UNDER A DIFFERENT HEAD IS JUST A S TRATEGY TO AVOID TAX. III. THE CIT(A) HAS NOT APPRECIATED THAT THE TURNOVER OF THE ASSESSEE WAS RS. 72.74 CRORES AND IN THE LIGHT OF GUIDELINES PROVIDED BY CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007, THE SUBSTANTIAL NATURE PAGE | 2 OF TRANSACTIONS ENTERED INTO BY THE ASS ESSEE CAN BE CLASSIFIED AS BUSINESS ACTIVITY ONLY. IV. THE CIT(A) HAS ERRED IN RELYING ON THE ORDER OF THE PREDECESSOR IN A.Y. 2008 - 09 WITHOUT APPRECIATING THAT THE DEPARTMENT HAS NOT ACCEPTED THAT ORDER AND APPEAL HAS BEEN FILED IN ITAT WHICH IS STILL PENDING . 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2011 - 12: - 1. THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ASSESS PROFIT OF RS. 7,38,81,893/ - FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAIN INSTEAD OF BUSINESS INCOME DESPI TE THE FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES AND IT WAS THE SOLE ACTIVITY OF THE ASSESSEE WHICH IS ALSO AN ADMITTED OBJECT OF ASSESSEE FIRM AS PER PARTNERSHIP DEED. 2. THE CIT (A) HAS ERRED IN NOT CORRECTLY APPRECIATING TH E FACTS OF THE CASE THAT THE STATEMENT OF PURCHASE AND SALE AND ALSO ACTIVITY OF THE ASSESSEE PROVED THAT HE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SECURITIES IN AN ORGANIZED AND REGULAR MANNER AND SHOWING INCOME THEREFROM UNDER A DIFFERENT HE AD IS JUST A STRATEGY TO AVOID TAX. 3. THE CIT(A) HAS NOT APPRECIATED THAT THE TURNOVER OF THE ASSESSEE WAS RS. 225 CRORES AND IN THE LIGHT OF GUIDELINES PROVIDED BY CBDT CIRCULAR NO. 4/2007 DATED 15.06.2007, THE SUBSTANTIAL NATURE OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE CAN BE CLASSIFIED AS BUSINESS ACTIVITY ONLY. 4. THE CIT(A) HAS ERRED IN RELYING ON THE ORDER OF THE PREDECESSOR IN A.Y. 2008 - 09 WITHOUT APPRECIATING THAT THE DEPARTMENT HAS NOT ACCEPTED THAT ORDER AND APPEAL HAS BEEN FILED IN ITAT WHI CH IS STILL PENDING. 4. BOTH THE ABOVE APPEAL INVOLVES COMMON ISSUE OF TAXATION OF PROFIT DERIVED BY THE ASSESSEE CHARGEABLE TO TAX WHETHER AS CAPITAL GAIN OR BUSINESS INCOME. THE ASSESSEE HAS OFFERED THE INCOME ON SALE OF THE SHARES AND SECURITIES CHARGEABL E TO TAX AS CAPITAL GAIN AND ALSO CLAIMED EXEMPTION WITH RESPECT TO THE LONG - TERM CAPITAL ASSETS UNDER SECTION 10 (38) OF THE ACT AND ALSO PAID LOWER RATE OF TAXATION IN SHORT - TERM CAPITAL GAIN. THE LD. ASSESSING OFFICER FOR BOTH THE YEARS FOR IDENTICAL RE ASONS HAS HELD THAT INCOME IS CHARGEABLE TO TAX UNDER THE HEAD BUSINESS INCOME. FOR BOTH THE YEARS THE LD. CIT (A) BY A COMMON ORDER DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THE PROFITS DERIVED ON SALE OF SHARES AS LONG TERM OR SHORT TERM CAPITAL GAIN. AS THE FACTS AND CIRCUMSTANCES OF PAGE | 3 THE CASE FOR BOTH THE YEARS ARE IDENTICAL , WE DISPOSE OF TH ESE APPEALS BY THIS COMMON ORDER BY RECORDING THE FACTS FOR ASSESSMENT YEAR 2010 11. 5. BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE IS A PARTNERSHIP FIRM CONSTITUTED ON 14/3/2006 AND IT WAS RECONSTITUTED ON 13/12/2006, WHEREIN SOME OF THE PARTNERS RETIRED A ND NEW PARTNERS WERE TAKEN IN. THE ASSESSEE FIRM WAS FORMED MAINLY WITH THE OBJECT OF INVESTMENT FOR LONG - TERM APPRECIATION INTO ALL KINDS OF SALES AND SECURITIES, STOCKS, DEBENTURES, BONDS, MUTUAL FUNDS, REAL ESTATE AND UNITS OF VENTURE CAPITAL FUNDS. IT WAS ALSO ENTITLED TO CARRY ON THE BUSINESS OF DEALING IN SHARES AND SECURITIES. 6. FOR ASSESSMENT YEAR 2010 11 PARTNERSHIP CARRIED OUT INVESTMENT ACTIVITIES. FROM THE BALANCE SHEET AND PROFI T AND LOSS ACCOUNT OF THE FIRM, IT WAS SEEN THAT AT THE BEGINNING O F THE YEAR RELEVANT TO A Y 2010 11 ASSESSEE HAD INVESTMENT IN SHARES AND SECURITIES OF RS. 6 3558 3427 AND AT THE CLOSE OF THE YEAR IT HAS INVESTMENT OF RS. 885609456. DURING THE YEAR THE ASSESSEE ACQUIRED FRESH INVESTMENT OF RS. 8 5871 2486 AND REALISED THE INVESTMENT OF RS. 7 2848 8592/ . ON SALE OF THIS INVESTMENT ASSESSEE EARNED GAIN OF RS. 11 98 02135/ AND SHOWN AS LONG TERM AND SHORT TERM CAPITAL GAINS. IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME ASSESSEE DECLARED LONG - TERM C APITAL GAIN OF RS. 112262709/ AND CLAIMED EXEMPTION UNDER SECTION 10 (38 ) PAYING SECURITY TRANSACTION TAX AND ALSO DISCLOSED LONG TERM CAPITAL LOSS OF RS. 1 59123/ . IT ALSO DISCLOSED SHORT - TERM CAPITAL GAIN OF RS. 1 271939/ WHICH WAS CHARGEABLE TO TAX AT THE RATE OF 15% AND SHORT - TERM CAPITAL GAIN OF RS. 6 4 TO 6610/ TAXABLE AT THE RATE OF 30%. THE PARTNERS CONTRIBUTED MANY OF THE STOCKS AND SHARES AS CAPITAL CONTRIBUTION IN THE FIRM. 7. FOR ASSESSMENT YEAR 2010 11, ASSESSEE FILED RETURN ON 28/7/2010 SH OWING INCOME OF RS. 7 863720/ WITH CURRENT YEAR LOSS OF RS. 1 59123/ . AS DURING THE YEAR THE ASSESSEE HAS EARNED PROFIT ON SALE OF INVESTMENT AMOUNTING TO RS. 119802135/ AND DIVIDEND OF RS. 1 348 2870/ AND OTHER INCOME OF RS. 1 73081/ . THE LD. ASSESSI NG OFFICER SOUGHT THE DETAILS OF BUSINESS ACTIVITIES OF THE ASSESSEE. ASSESSEE PAGE | 4 REPLIED ON 8/11/2012 HOLDING THAT INCOME EARNED BY THE ASSESSEE IS CHARGEABLE TO TAX UNDER THE HEAD LONG - TERM CAPITAL GAIN AND SHORT - TERM CAPITAL GAIN. IT WAS FURTHER STATED T HAT THE TAXABLE INCOME OF RS. 1 64789/ HAD BEEN SHOWN AS INCOME FROM SPECULATIVE TRANSACTION AND SAME IS ASSESSABLE AS BUSINESS INCOME. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT THE APPELLANT PARTNERSHIP FIRM WAS CONSTITUTED MAINLY WITH THE OBJECT OF I NVESTMENT FOR LONG - TERM APPRECIATION IN SALES AND SECURITIES. IT WAS FURTHER STATED THAT DURING THE ASSESSMENT YEAR 2010 11 ASSESSEE DID NOT DEAL IN SHARES AND SECURITIES AND IT HAD ONLY ONE PORTFOLIO THAT WAS INVESTMENT PORTFOLIO AND THE ALL THE SHARES WERE HELD BY IT IN THAT PORTFOLIO. IT FURTHER RELIED ON SEVERAL JUDGMENTS WHEREIN SUCH KIND OF ACTIVITY WAS HELD TO BE INVESTMENT ACTIVITIES. 8. THE LD. ASSESSING OFFICER HELD THAT IN THE PRESENT CASE THE ASSESSEE FIRM HAS USED A COLOURABLE DEVICE TO AVOID TAX OR PAID TAX AT LOWER RATE BY CLAIMING EXEMPTION UNDER SECTION 10 (38) FOR SHORT - TERM CAPITAL GAIN AT LOWER TAX RATES. FURTHER WHATEVER IS TH E AMOUNT EARNED BY THE PARTNERSHIP FIRM IF DISTRIBUTED TO THE PARTNERS WOULD ALSO BE TAX - FREE IN THEIR HANDS. THEREFORE, HE STATED THAT THERE IS NO EXPLANATION BY THE ASSESSEE THAT IF THE FIRM IS NOT DOING ARE ENGAGED IN THE BUSINESS, THEN THE QUESTION ARI SES AS TO WHY AND WHAT FOR THE FIRM WAS CONSTITUTED. ACCORDING TO HIM IN THE PRESENT CASE 8 PARTNERS HAVE COME TOGETHER TO PUT THEIR FUND IN A COLLECTIVE MANNER FOR ITS BETTER UTILISATION WHICH IS NOTHING ELSE BUT BUSINESS OR ADVENTURE. HE FURTHER HELD THA T THE TRANSACTIONS MENTIONED BY THE ASSESSEE SHOWS THAT THE ASSESSEE HAS SOLD SECURITIES FOR VALUE OF RS. 7 1744 2884/AS COST OF WHICH WERE RS. 5 976407 FOR 8/ AND THE NUMBER OF SHARES ALONE SOLD DURING THE YEAR ARE 243 8663. THEREFORE ACCORDING TO HIM TH E VOLUME OF THE TRANSACTION MADE BY THE ITS ASSESSEE DURING THE YEAR ITSELF SHOWS THAT IT IS ENGAGED IN THE BUSINESS OF SECURITIES. HE FURTHER HELD THAT IF THE PARTNERS IN THE FORM OF A COMPANY SHOW THE PROFITS , THEN THEY ARE LIABLE TO PAY MINIMUM ALTERNAT E TAX UNDER SECTION 115 JB OF THE INCOME TAX ACT AND THEREFORE THE ASSESSEE HAS USED THE COLOURABLE DEVICE AND AVOIDED THE PAYMENT OF TAX TO THE TUNE OF RS. 3.40 CRORES. HE FURTHER STATED THAT AS ALL THE 8 PAGE | 5 PARTNERS ARE THE PRIVATE LIMITED COMPANIES AND BAS ED ON THE DETAILS OF ADDITION AND WITHDRAWAL OF CAPITAL BY THE PARTNERS IT IS PROVED THAT THESE SHARES WERE ACTUALLY HELD BY THE PARTNER COMPANIES IN THEIR NAMES WHO HAS MADE THE INVESTMENT BUT WERE SHOWN IN THE HANDS OF THE FIRM. I MAKING CORRESPONDING BO OK ENTRY IN THEIR CAPITAL ACCOUNT. HE FURTHER HELD THAT THOUGH THE PARTNERSHIP WAS RECONSTITUTED HOWEVER, CERTAIN EARLIER PARTNERS CONTROLLING THE PARTNER COMPANIES THROUGH MAJORITY OF SHAREHOLDING. HENCE, HE STATED THAT PARTNERSHIP FIRM IS BEEN CREATED AS A COLOURABLE DEVICE FOR EVASION OF TAX. HE FURTHER HELD THAT AS THE MAIN BUSINESS OBJECT OF THE ASSESSEE FIRM WAS THAT TO CARRY ON THE BUSINESS OF DEALING IN SHARES AND SECURITY , STATEMENT OF PURCHASE AND SALE OF SHARES ALSO SHOWS THE ACTIVITY OF THE ASS ESSEE AND PROVE THAT IT IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SECURITIES IN AN ORGANISED AND REGULAR MANNER AND SHOWING INCOME THEREFROM UNDER A DIFFERENT HEAD IS JUST A STRATEGY TO AVOID TAXATION. HENCE, HE HELD THAT ASSESSEE IS ENGAGED IN TH E BUSINESS. FURTHER, HE STATED THAT LOOKING TO THE VOLUME, FREQUENCY OF THE TRANSACTION AND ALSO THE QUANTUM OF INVESTMENT AND THE ADMITTED INTENTION OF THE ASSESSEE CONFIRMED THAT THE INCOME EARNED BY IT ON PURCHASE AND SALE OF SECURITIES ARE NOT INCOME F ROM INVESTMENT. HE AFTER RELYING ON THE SEVERAL DECISIONS AND HELD THAT MAIN MOTIVE OF PURCHASING AND SELLING OF THE SHARES AND SECURITY IS TOO ON PROFIT AND CLAIMING BENEFIT OF EXEMPTION OR TAXATION AT A LOWER RATE BY SEWING THE SAME INCOME UNDER THE HEAD CAPITAL GAINS. HE FURTHER HELD THAT DURING THE YEAR ASSESSEE HAD SOLD 243 8663 SHARES IN ADDITION TO MORE THAN ONE CRORE UNIT OF MUTUAL FUNDS AND VALUE OFF FRESH PURCHASE OF SECURITIES DURING THE YEARS RS. 85.87 CRORES. HE THEREFORE HELD THAT THE TRANSAC TIONS ARE ENTERED INTO CONTINUOUSLY AND REGULARLY IN AN ORGANISED MANNER. CONSEQUENTLY , HE ASSESSED THE TOTAL INCOME EARNED BY THE ASSESSEE FROM SPECULATIVE TRANSACTION OF THE SECURITIES, PROFIT ON SALE OF SECURITIES SHOWN AS SHORT - TERM CAPITAL GAIN TAXAB LE AT THE RATE OF 15%, PROFIT ON SALE OF SECURITIES SHOWN AS SHORT - TERM CAPITAL GAIN TAXABLE AT THE RATE OF 30%, PROFIT ON SALE OF SECURITIES CLAIMED EXEMPT UNDER SECTION 10 (38) AND LOSS ON SALE OF SECURITIES SHOWN AS LONG TERM CAPITAL LOSS AMOUNTING IN A LL TO PAGE | 6 RS. 119966924 / - AS INCOME FROM BUSINESS. CONSEQUENTLY, ASSESSMENT ORDER UNDER SECTION 143 (3 OF THE ACT WAS PASSED ON 6/2/2013 DETERMINING THE TOTAL TAXABLE INCOME OF THE ASSESSEE AT RS. 119967308/ . 9. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSES SING OFFICER PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), NEW DELHI. THE LD. CIT (A) PASSED AN ORDER ON 11/8/2014 WHEREIN HE ALLOWED THE APPEAL OF THE ASSESSEE B ASED ON THE DISCUSSION MADE BY HIM IN THE ORDER, FINDING AND REASONS GI VEN BY THE CIT (A) IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2008 09 AND FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS AVINASH JAIN 30 TAXMANN.COM 133, CIT VERSUS VINAY MITTAL 22 TAXMANN.COM 151 AND CIT VERSUS ASOK WADIA 45 TAXMANN.COM 182. THEREFORE, REVENUE, AGGRIEVED BY THE ORDER OF THE LD. C IT (A) HAS PREFERRED APPEAL BEFORE US. 10. THE LD. DR VEHEMENTLY Y CONTESTED THE ORDER OF THE LD ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT APPEAL HAS INCORRECTLY ALLOWED THE CLAIM OF THE ASSESSEE. HE SUBMITTED A WRITTEN NO TE WHEREIN HE SUBMITTED THE SE VERAL DECISIONS. 11. DESPITE NOTICE, NONE APPEARED ON BEHALF OF THE ASSESSEE. THEREFORE WE PROCEED TO DECIDE THIS APPEAL ON MERITS OF THE CASE, AS PER INFORMATION AVAILABLE ON THE RECORD. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDER S OF THE LOWER AUTHORITIES. IDENTICAL ISSUE AROSE IN THE CASE OF THE ASSESSEE FIRM FOR ASSESSMENT YEAR 2008 09 IN ITA NO. 1263 DEL 2011 DATED 04/03/2015 WHEREIN THE COORDINATE BENCH IN APPEAL OF THE REVENUE HAS HELD AS UNDER: - (I) I.T.A.NO. 839/DEL/201 2: (ASSESSEE'S APPEAL): '1. THAT THE LEARNED CIT(APPEALS) HAS ERRED IN NOT GRANTING RELIEF IN RESPECT OF THE ADDITION OF RS.12 LACS MADE BY THE ASSESSING OFFICER U/S 69C OF THE INCOME TAX ACT,1961. 1.2 THAT THE LEARNED CIT(APPEALS) HAS ERRED IN NOT ADJUDIC ATING UPON THE ISSUE, THOUGH TAKEN NOTE OF ON PAGES 12 AND 20 OF HER ORDER IN PARAS 7, 23 AND 24. PAGE | 7 1.3 THAT THE ADDITION OF RS.12 LACS MADE BY THE ASSESSING OFFICER DESERVES TO BE DELETED. (II) I.T.A.NO. 1263/DEL/2012: (REVENUE'S APPEAL): (A) WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, CIT(A) WAS JUSTIFIED IN TREATING RS. 5,27,93,412/ - AS INCOME FROM CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY AO WHEN THE SOLE INTENTION OF THE ASSESSEE WAS TO EARN PROFIT?' 2. THE BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF SHARES, SECURITIES AND MUTUAL FUNDS AND APART FROM BUSINESS INCOME, THE ASSESSEE HAD ALSO DECLARED INCOME FROM CAPITAL GAIN IN THE RETURN OF INCOME. THE A.O. DURING ASSESSMENT PROCEEDINGS OBSERVED THAT AS PER TAX AUDIT REPORT, THE ASSESSEE WAS INTO THE BUSINESS OF TRADING IN SHARES AND SECURITIES AND, THEREFORE, AFTER RELYING IN A NUMBER OF CASE LAWS, THE A.O. HELD THAT INCOME DECLARED AS CAPITAL GAIN TO BE AS INCOME FROM BUSINESS. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENSES FOR EARNING OF INCOME THEREFORE HE ESTIMATED AN AMOUNT OF RS.12 LACS AS ESTIMATED EXPENSES AND MADE THE ADDITION OF SUCH AMOUNT U/S69C OF THE ACT. THE RELEVANT PORTION OF THE ASSESSMENT ORDER FOR MAKING THESE ADDITIONS IS REPRODUCED BELOW: '3.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SEEN THAT THE PARTNERSHIP FIRM COMPRISES OF EIGHT CORPORATE ASSESSEES AS PARTNERS AND THEY HAVE CONTRIBUTED CAPITAL AMOUNTING TO RS.42.32 CRORES AS OPENING CAPITAL AN D RS.61.64 CRORES AS CLOSING CAPITAL FOR THE YEAR. THE ADDITION IN CAPITAL IS THROUGH CONTRIBUTION OF SHARES BY THE COMPANIES WHO ARE PARTNERS IN THIS FIRM. 3.3 THE MAIN BUSINESS OF THE FIRM AND ITS PARTNER COMPANIES IS TO INVEST IN EQUITY AND MUTUAL FUNDS . 3.4 THE PROFIT AND LOSS A/C DRAWN BY THE ASSESSEE SHOWS THE INCOME FROM SALE OF SECURITIES AND PROFIT ON SALE OF INVESTMENTS. THE ASSESSEE HAS ALSO FURNISHED HIS TAX AUDIT REPORT WHEREIN IT HAS BEEN MENTIONED 'DURING THE YEAR ASSESSEE HAS ALSO TRADED IN SHARES AND SECURITIES'. 3.5 FURTHER, IT IS SEEN THAT LAST YEAR THE ASSESSEE HAS SHOWN PURCHASE AND SALE OF SHARES AS HIS BUSINESS BUT THIS YEAR HE HAS CHANGED THE TRADING ACTIVITY AND SHOWN THE SALE/PURCHASE AS PROFIT ON SALE OF INVESTMENT ON WHICH LOWER R ATE OF TAX AS CAPITAL GAINS HAS BEEN SHOWN. 3.6 THE ASSESSEE'S VOLUME OF TRANSACTIONS DURING THE YEAR RUNS INTO CRORES OF RUPEES WHEREAS NO EXPENDITURE ON ACCOUNT OF ANY EMPLOYEE, RENT, TELEPHONE AND OTHER DAILY EXPENSES HAVE BEEN INCURRED TO RUN THE FIRM WHICH GOES TO SHOW THAT THE FIRM HAS BEEN USED AS A VEHICLE TO AVOID PAYING TAX BY THE CORPORATE PARTNERS. PAGE | 8 3.7 THE ASSESSEE WAS ASKED TO SUBMIT AS TO WHY ITS INCOME BE NOT TREATED AS INCOME FROM BUSINESS INSTEAD OF CAPITAL GAINS DECLARED BY THE ASSESSEE. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED VIDE HIS LETTER DATED 10 - 12 - 2010 AS UNDER: 'WITH REFERENCE TO THE ABOVE ASSESSMENT PROCEEDINGS AND WITH REFERENCE TO YOUR QUERY AS TO WHY CAPITAL GAINS DECLARED BE NOT TREATED AS BUSINESS INCOME, WE WOULD LIKE TO SUBMIT THAT PARTNERSHIP WAS FORMED WITH A VIEW TO CARRY ON ACTIVITY OF INVESTMENT IN SHARES AND SECURITIES AND HAS BEEN CARRYING OUT ONLY THESE ACTIVITIES. FROM THE COPY OF THE BALANCE SHEET ALREADY SUBMITTED IT WILL KINDLY BE SEEN THAT IN THE BALANCE SHEET INVESTMENT IN MUTUAL FUNDS AND SHARES AND SECURITIES ARE REFLECTED AS INVESTMENT AND VALUE OF SUCH INVESTMENT AS ON 31 - 03 - 2007 WAS RS.42,19,89,570/ - . DETAILS OF INVESTMENT IN SHARES AND SECURITIES ARE GIVEN IN SCHEDULE 2 ATTACHED TO THE BALANCE SHEET .' FROM THE DETAILS LONG TERM CAPITAL GAINS CLAIMED TO BE EXEMPT U/S 10(38) OF THE INCOME TAX ACT , 1961, IT WILL KINDLY BE SEEN THAT THE HOLDING PERIOD IN RESPECT OF SHARES WHICH HAVE BEEN SOLD AND GAINS I N RESPECT OF WHICH HAS BEEN CLAIMED TO BE EXEMPT U/S 10(38) OF THE INCOME TAX ACT , 1961 IS MORE THAN ONE YEAR. DATES OF ACQUISITION OF THESE SHARES IS' FROM DECEMBER, 2006 TO MARCH, 2007 AND THE DATES OF S ALE IS BETWEEN JANUARY TO MARCH, 2008. UNDER THE INCOME TAX ACT , 1961, IF THE SHARES ARE HELD FOR MORE THAN 12 MONTHS PERIOD THEY ARE TO BE TREATED AS LONG TERM ASSETS. AS SUCH PROFIT ON SALE OF THESE SHAR ES CANNOT BE TREATED AS BUSINESS INCOME. EVEN IN RESPECT OF SHORT TERM CAPITAL GAINS THE PERIOD OF HOLDING OF THE SHARES RANGES FROM TWO TO SIX MONTHS AND SOMETIMES EVEN MORE. THEREFORE, PROFIT ON REALIZATION OF THESE SHARES ELSE CANNOT BE TREATED. AS BUSI NESS INCOME. IT IS FURTHER SUBMITTED THAT IN MOST OF THE CASES THE SHARES SOLD HAVE BEEN RECEIVED AS CAPITAL CONTRIBUTION FROM THE PARTNERS. ACCORDINGLY, THESE SHARES HAVE TO BE TREATED AS INVESTMENT ONLY. BESIDES, THE SHARES SOLD OUT OF OPENING STOCK WERE HELD AS INVESTMENT, WHICH IS CLEAR FROM THE BALANCE SHEET AS ON 31 - 03 - 2007. ACCORDINGLY, PROFITS ARISING FROM SALE OF THESE SHARES CANNOT BE TREATED AS BUSINESS INCOME.' 3.8 THE ASSESSEE FIRM WAS CREATED ON 13 - 12 - 2006 WITH ALL ITS PARTNERS BEING INVESTMENT COMPANIES. THE PARTNERSHIP DEED WAS REGISTERED ON 05 - 01 - 2007. HOWEVER, A PERUSAL OF ITR - V SHOWS THAT THE ASSESSEE HAS WRONGLY FILLED UP THE DATE OF REGISTRATION AS 14 - 03 - 2006 WHICH IS PATENTLY WRONG. 3.9 THE ASSESSEE FIRM CANNOT BY ITSELF OPEN A ND TRADE IN SHARES AND SECURITIES AND HENCE ONE OF THE PARTNER COMPANIES NAMELY M/S RAGHU INVESTMENTS IS OPERATING THE D - MAT ACCOUNT. PAGE | 9 3.10 ALL THESE COMPANIES HAVE CONTRIBUTED SHARES AS CAPITAL INSTEAD OF CASH. ALL THE COMPANIES COULD HAVE TRADED IN THESE SHARES BY THEMSELVES AS THEY ARE REGULARLY DOING DURING THE COURSE OF THEIR DAY - TO - DAY BUSINESS. IT IS IMPORTANT TO UNDERSTAND THE MOTIVE OF INFUSION OF THE SHARES AS CAPITAL IN THE FIRM. IT APPEARS THAT THE FIRM HAS BEEN CREATED FOR THE EXPRESS PURPOSE OF AVOIDING TAX LIABILITIES IN RESPECT OF THE PROMOTERS PARTNER COMPANIES BY TAKING ADVANTAGE OF LOWER RATE OF TAX IN RESPECT OF CAPITAL GAINS INSTEAD OF BUSINESS INCOME WHICH THE TRANSACTIONS ACTUALLY ARE. FURTHER, THERE IS NO PARITY IN THE CAPITAL CONTRI BUTION OF SHARES WITH THE PROFIT SHARING RATIOS. 3.11 FURTHER, THE FINANCE ACT , 2006 AMENDED THE PROVISIONS OF SECTION 14A W.E.F. 01 - 04 - 2007 WITH WHICH THE AO WAS EMPOWERED TO DISALLOW EXPENSES RELATING TO EARNING OF TAX FREE INCOME. ALL THE PARTNER COMPANIES HAVE HUGE EXPENSES, WHEREAS IN THE FIRM NO EXPENSE HAS BEEN CLAIMED TO EARN THE DIVIDEND INCOME. THIS APPEARS TO BE ONE OF THE MAIN MOTIVE FOR CREAT ION OF THIS FIRM ON 13 - 12 - 20006. 3.12 THE FIRMS INDEPENDENT OPERATIONS ARE NOT IN CONFORMITY WITH THE OTHERS ARRANGEMENTS OF THE FIRM BECAUSE SUCH HIGH VOLUMES OF TRANSACTIONS HAVE NOT ONLY BEEN OPERATED BUT SUCCESSFULLY INTO HUGE PROFIT. IT IS DIFFICULT T O UNDERSTAND AS TO HOW THE FIRM IS OPERATING WITHOUT ANY ADMINISTRATIVE & PERSONAL EXPENDITURE LIKE EMPLOYEE, RENT, TELEPHONE AND OTHER DAILY EXPENSES ON ACCOUNT OF STATIONERY, PAYMENT OF STAMP DUTY ETC. THE FIRM ALSO DOES NOT HAVE ANY FIXED ASSET. THE TOT AL EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING THE HUGE AMOUNT INCOME OF RS.5.32 CRORES IS ONLY RS.5,01 ,701/ - WHICH COMPRISES OF AUDITORS REMUNERATION OF RS.11 ,236/ - , DEPOSITORY CHARGES RS.2,664/ - , STT OF RS.4,85,558/ - AND BANK CHARGES OF 2,250/ - WHI CH IS HARDLY 1 % OF THE NET PROFIT EARNED. THE CASH IN HAND AS ON 01 - 04 - 2007 AND 31 - 03 - 2008 IS NIL. 3.13 THE ASSESSEE FIRM IN ITS PROFIT & LOSS A/C FOR THE PERIOD ENDING 31 - 03 - 2007 WAS SHOWING SALE AND PURCHASE OF SHARES AS PER SCHEDULE 5 AND 6 OF THE ACCO UNTS WHICH HAS BEEN CHANGED TO PROFIT ON SALE OF INVESTMENTS DURING THE CURRENT YEAR WHICH GOES TO SHOW THAT THE BASIC ACTIVITY IS IN TRADING OF SHARES AND MUTUAL FUNDS. HENCE, THE SHARES/MUTUAL FUNDS WERE NOT INVESTMENT AS ON 01 - 04 - 2008 BUT RATHER 'STOCK IN TRADE' AS THEY HAVE BEEN SOLD DURING THE YEAR FOR EARNING PROFIT. 3.14 THE ASSESSEE'S SUBMISSION THAT THE SHARES AND MUTUAL FUNDS ARE REFLECTED AS INVESTMENT DOES NOT HOLD TRUE AS THEY ARE BASICALLY THE PARTNERS CAPITAL IN THE FIRM IN THE SHAPE OF SHARE S AND MUTUAL FUNDS INSTEAD OF CASH' CAPITAL. THE PARTNER COMPANIES THEMSELVES ARE TRADING IN SHARES AND MUTUAL FUNDS AND HENCE THIS COLOURFUL DEVICE HAS BEEN USED TO EVADE TAX LIABILITY OF THE PARTNER COMPANIES. 3.15 THE ASSESSEE FIRM HAS IN ITS COMPUTATIO N OF INCOME FIRST DECLARED ITS PROFIT & LOSS A/C AND HAS ALSO GOT COMPLETED ITS TAX AUDIT PAGE | 10 REPORT UNDER SECTION 44AB WHICH IS REQUIRED FOR EVERY PERSON 'CARRYING ON BUSINESS'. THE REQUIREMENT OF AUDIT U/S 44AB IS ONLY IF THE TOTAL TURNOVER OF THE BUSINESS EXCEEDS RS.40 LACS AND IS REFLECTED IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS APPARENTLY GOT THE AUDIT DONE TO AVOID THE PENAL PROVISIONS ON THE INCO ME TAX ACT , 1961 FOR LEVY OF PENALTY IN THE EVENT OF FAILURE TO GET THE AUDIT DONE BUT DUE TO MALAFIDE INTENTION FOR NOT OFFERING TAX ON THE TOTAL INCOME AS THE TURNOVER OF THE SALE PURCHASE HAS NOT BEEN DISCLOSED IN THE PROFIT & LOSS ACCOUNT. IT IS ALSO I MPORTANT TO HIGHLIGHT THAT THE AUDIT WAS CONDUCTED BY M/S M. L. DUJARI & CO. WHO IS ALSO THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. FURTHER, IN THE TAX AUDIT REPORT THE AUDITOR HAS CERTIFIED THAT CASH BOOK IS BEING MAINTAINED BY THE ASSESSEE AS PER COL UMN 9(B) WHEREAS NO CASH BOOK IS BEING MAINTAINED BY THE ASSESSEE RATHER, JOURNAL IS MAINTAINED AS THE ASSESSEE HAS NIL CASH BALANCE. THIS WAS CLARIFIED & VERIFIED DURING THE PROCEEDINGS WHILE VERIFYING THE BOOKS OF ACCOUNT ON 24/12/2010. THE SAME COUNSEL WHO HAS CONDUCTED THE TAX AUDIT OF THIS BUSINESS IS NOW AGITATING THE TAXABILITY OF THE SAME AS BUSINESS INCOME. IF THE AUDITOR DID NOT CONSIDER THE ASSESSEE'S ACTIVITY TO BE IN THE NATURE OF BUSINESS, THEN WHY THE TAX AUDIT WAS CONDUCTED CANNOT BE FATHOME D. 4. THE APEX HON'BLE SUPREME COURT IN THE CASE OF M/S MC. DOWELL & CO. LTD VS. CTO (1985 ) 154 ITR 148 HAS OBSERVED THAT TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE A PART OF TAX PLANNING AND IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY. IN THE CASE OF MC. DOWELL & CO. LIMITED VS. CIT 154 ITR 148 (SC) AND UNION OF INDIA VS. PLYWOOD ELECTRONICS ( 1990) 184 ITR 308 (SC), HON'BLE SUPREME COURT HAS HELD THAT WHEN TWO INTERPRETATION S ARE POSSIBLE, ONE LEADING TO AVOIDANCE OR EVASION OF TAX SHOULD BE AVOIDED AND THAT WHICH PREVENTS SUCH AVOIDANCE OR EVASION SHOULD BE ADOPTED. IN THE CASE OF THE ASSESSEE, THE INTERPRETATION BY THE ASSESSEE LEADS TO AVOIDANCE OF TAX ON FACTS AND ON MERI TS IT LEADS TO INCORRECT INTERPRETATION OF LAW ALSO. 5. THEREFORE, IT IS CLEAR THAT THE NOMENCLATURE IN THE BALANCE SHEET. PROFIT & LOSS A/C AND ITR WOULD NOT ALTER THE COLOUR OF TRANSACTION AND I AM SATISFIED THAT THE ASSESSEE HAS WILLFULLY AND DELIBERATE LY AVOIDED PAYMENT OF TAXES ON HIS BUSINESS INCOME. 6. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCE AND AFTER CONSIDERING THE SUBMISSIONS PLACED ON RECORD, I AM FULLY CONVINCED THAT THE ENTIRE ARRANGEMENT IS BUSINESS CARRIED OUT FOR THE SOLE INTENTION OF EA RNING PROFIT AND IN NO WAY SUCH TRANSACTION CAN BE ATTRIBUTED AS SHORT TERM AND LONG TERM CAPITAL GAIN. ACCORDINGLY, I HOLD THE CAPITAL GAINS OF THE ASSESSEE FIRM AS INCOME FROM BUSINESS AND ACCORDINGLY ASSESS THE SAME AT RS.5,27,93,412/ - . 7. CONSEQUENTLY, I AM SATISFIED THAT THE ASSESSEE HAS WILLFULLY FURNISHED INACCURATE PARTICULARS OF ITS INCOME WITHIN THE MEANING OF SECTION 271 (1 )(C) OF THE INCOME TAX ACT , 1961 AND THEREBY HAS PAGE | 11 SUPPRESSED ITS TAXABLE INCOME. THEREFORE, PENALTY PROCEEDINGS U/S 271 (1 )(C) OF THE INCOME TAX ACT , 1961 HAVE BEEN INITIATED SEPARATELY. 8. FURTHER, AS DISCUSSED ABOVE, AS THE F IRM HAS NOT CLAIMED ANY EXPENSE ON EARNING OF THIS INCOME RUNNING INTO CRORES AND CONSIDERING THE MINIMUM REQUIRED SET UP FOR CONDUCTING DAY - TO - DAY BUSINESS ACTIVITY, I ESTIMATE AN EXPENSE OF RS. 12 LACS (ESTIMATED OF RS 1 LAC PER MONTH) HAVING BEEN INCURR ED FOR THIS PURPOSE U/S 69C OF THE INCOME TAX ACT, 1961 AS BEING A MOST REASONABLE ESTIMATE CONSIDERING THE FACTS DISCUSSED ABOVE IN PARA 3.12.' 3. AGGRIEVED, THE ASSESSEE FIELD APPEAL BEFORE LD. CIT(A) AND SUBMITTED VARIOUS SUBMISSIONS AND PLACED RELIANCE ON VARIOUS CASE LAWS FOR THE PROPOSITION THAT THE INCOME EARNED BY ASSESSEE WAS NOT A BUSINESS INCOME BUT WAS CAPITAL GAIN. LD. CIT(A) AFTER GOING THROUGH THE SUBMISSIONS, HELD THAT THE CLAIM OF ASSESSEE WITH REGARD TO CAPITAL GAIN WAS CORRECT AND THEREFO RE, HE DIRECTED THE A.O. TO RECOMPUTED THE INCOME OF THE ASSESSEE TREATING THE SAME UNDER CAPITAL GAIN INSTEAD OF BUSINESS INCOME. HOWEVER HE DID NOT ADJUDICATE ON THE OTHER ADDITION OF RS.12 LACS. THE RELEVANT FINDINGS OF LD. CIT(A) ARE REPRODUCED BELOW: '6.7 THE AR OF THE APPELLANT VEHEMENTLY ARGUED THAT MERELY BECAUSE IN THE TAX AUDIT REPORT THE ACTIVITIES CONTEMPLATED BY THE APPELLANT WAS STATED, IT DOES NOT MEAN THAT THE NATURE OF THE TRANSACTIONS RELATING TO CAPITAL GAINS WOULD CHANGE INTO BUSINESS. S INCE THE APPELLANT DID NOT CARRY ON THE BUSINESS ACTIVITY WHERE THE TURNOVER EXCEEDS THE LIMIT SPECIFIED BY THE INCOME - TAX ACT , I FIND THAT THERE WAS NO NEED FOR THE AUDIT. HOWEVER, SINCE THE PARTNERS OF T HE FIRM ARE ALL COMPANIES, THE AUDIT IS MANDATORY IN THEIR CASES. THEREFORE, IT IS SEEN THAT AUDIT IS NOT THE CRITERIA THAT CAN DECIDE WHETHER THE NATURE OF TRANSACTIONS PERTAINING TO SALE PURCHASE OF SHARES ARE INVESTMENT OR MEANT FOR BUSINESS. 6.8 I FIND FORCE A MERIT IN THE ARGUMENTS PUT FORTH BY THE APPELLANT FOR THE REASONS GIVEN BELOW: A) THE BALANCE SHEET FILED BEFORE THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS THE UNDERSIGNED IN THE COURSE OF THE APPELLATE PROCEEDINGS SH OWED THE INVESTMENTS AT RS.42, 19,89,569/ - AS ON 31.3.2007. B) IT WAS CATEGORICALLY STATED BY THE AR THAT DURING THE A.Y. 2007 - 08, THE APPELLANT HAD TWO PORTFOLIOS, ONE AN INVESTMENT PORTFOLIO AND ANOTHER TRADING PORTFOLIO. THE APPELLANT IN THIS YEAR TRADE D IN SHARES AS TRADING ACTIVITY AND HENCE NO STOCK WAS CARRIED FORWARD. C) DURING THE ASSESSMENT YEAR 2008 - 09 THE APPELLANT HAS NOT TRADED IN SHARES AS THERE WAS NO STOCK AND ONLY SOLD INVESTMENTS OUT OF THE INVESTMENT PORTFOLIO. D) TO SUBSTANTIATE THE ABO VE TRANSACTIONS, THE AR OF THE APPELLANT FILED DETAILS OF SHARES IN THE INVESTMENT PORTFOLIO WHERE THE PAGE | 12 INVESTMENTS WERE HELD FOR MORE THAN 12 MONTHS AND ALSO FOR LESS THAN 12 MONTHS. THEREFORE, THE COMPUTATION OF CAPITAL GAINS THEREFROM WAS ACCORDINGLY SHO WN IN THE STATEMENT OF INCOME AS 'LONG TERM CAPITAL GAINS' AND 'SHORT TERM CAPITAL GAINS'. IN THIS REGARD I PLACE RELIANCE ON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ROHIT ANA ND REPORTED IN 327 ITR 445 WHERE IT WAS HELD AS UNDER: 16. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS NARRATED HEREINABOVE, VIEWING THE MATTER IN TOTALITY NO INFERENCE OTHER THAN ONE THAT THE ASSESSEE HAS EARNED CAPITAL GAINS IN ITS INVESTMENT PORTFOLIO AS DECLARED BY IT IN THE COMPUTATION OF INCOME CAN BE DRAWN. 17. ASSESSING OFFICER'S ALLEGATION THAT THE ENTIRE ACTIVITIES OF THE COMPANY IS A COLOURABLE DEVICE, IS WITHOUT ANY BASIS AS IN ANY CASE THE APPLICABLE TAX RATES TO PARTNERSHIP FIRM AND TO THE P ARTNERS WHO ARE CORPORATE ENTITIES IS ONE AND THE SAME. 18. RELIANCE OF THE ASSESSING OFFICER ON ME DOWELL & CO. VS. CTO (SUPRA) IS OF NO RELEVANCE IN VIEW OF THE DECISION OF THE SUPREME COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN & OTHERS (2003) 263 ITR 706 (SC), WHEREIN THE COURT HELD THAT AN ACT, WHICH IS OTHERWISE VALID IN LAW, CANNOT BE TREATED AS NON - EST, MERELY ON THE BASIS OF SOME UNDERLYING MOTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIME NT OR PREJUDICE TO THE NATIONAL INTEREST AS PER PERCEPTION OF THE REVENUE. WHEN THE PRINCIPLES LAID DOWN IN THIS CASE ARE APPLIED TO THE FACTS OF THE PRESENT CASE, WHERE CAPITAL IS CONTRIBUTED BY ITS PARTNERS IN THE FORM OF SHARES AND SECURITIES WHICH WERE HELD BY THE FIRM FOR A PERIOD OF MORE THAN TWELVE MONTHS AFTER HOLDING THE SAME IN INVESTMENT PORTFOLIO AND REALIZED THEREAFTER IT HAS TO BE TREATED ON INVESTMENT ACCOUNT RESULTING IN CAPITAL GAINS RATHER THAN BUSINESS INCOME. THIS POSITION HAS SINCE BEEN REITERATED BY THE SUPREME COURT IN CIT VS. WALLFORT SHARE & STOCK BROKERS (P) LTD . (2010) 326ITR 1 (SC).' 6.9 AFTER ANALYZING THE ISSUE AND CONSIDERING THE JUDGMENTS OF VARIOUS COURTS, AND ALSO ON THE B ASIS OF EVIDENCE FILED BY THE APPELLANT I FIND THE INTENTION OF THE APPELLANT IS TO HOLD THE INVESTMENT FOR A CERTAIN PERIOD AND TO REAP THE PROFITS AT AN APPROPRIATE TIME. IT IS ALSO SEEN THAT THE ASSESSING OFFICER HAS NOT BROUGHT SUFFICIENT EVIDENCE TO P ROVE THAT THE ACTIVITY OF THE APPELLANT SHOULD BE TREATED AS BUSINESS INCOME. A PRUDENT INVESTOR ALWAYS KEEPS A WATCH ON THE MARKET TRENDS AND THERE IS NO BAR UNDER LAW FROM LIQUIDATING THE INVESTMENT IN SHARES. THE LAW ITSELF HAS RECOGNIZED THIS FACT BY TAXING THESE TRANSACTIONS UNDER THE HEAD CAPITAL GAINS. SECTION 111A STIPULATES THAT SCRIPTS AND MUTUAL FUNDS THAT SUFFER SECURITIES TRANSACTIONS TAX AND HELD FOR 12 MONTHS ARE TO BE TREATED AS SHORT TERM CAPITAL GAINS. AN INTENTION IS PAGE | 13 AN ANTICIPATED OUTCOME THAT IS GUIDED THROUGH A PROCESS AND A PURPOSE TO OBTAIN AN END RESULT. IN THE CASE OF THE APPELLANT, SUCH INTENTION TO MAKE QUICK AND HIGH PROFITS WERE NOT CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE DISCUSSION THE TRANSACTIONS UNDER TAKEN BY THE APPELLANT WERE FOUND TO BE CORRECT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO RE - COMPUTE THE INCOME OF THE APPELLANT TREATING THE SAME UNDER CAPITAL GAINS ONLY AND NOT UNDER BUSINES S INCOME.' 4. AGGRIEVED, BOTH THE PARTIES ARE IN APPEAL BEFORE US. REVENUE IS AGGRIEVED WITH THE RELIEF ALLOWED TO ASSESSEE WHEREAS THE ASSESSEE IS AGGRIEVED FOR NOT ADJUDICATING ON THE ADDITION OF RS.12 LACS. 5. AT THE OUTSET, LD. D.R. TOOK UP THE APPEAL OF REVENUE AND INVITED OUR ATTENTION TO FINDING OF A.O. AND ARGUED THAT THE INCOME DECLARED BY ASSESSEE WAS RIGHTLY HELD BY A.O. TO BE THE INCOME FROM BUSINESS AND HE HEAVILY PLACED HIS RELIANCE ON THE ASSESSMENT ORDER. 6. LD. A.R. INVITED OUR ATTENTION TO THE GROUND TAKEN BY REVENUE AND SUBMITTED THAT THE GROUNDS RAISED BY REVENUE ITSELF WERE WRONG IN VIEW OF THE FACT THAT REVENUE HAS TAKEN THE AMOUNT OF RS.5,27,93,412/ - WHEREAS THE AMOUNT SHOULD HAVE BEEN RS.4,14,73598/ - AS REMAINING INCOME WAS ON ACCOUNT OF DIVIDEND WHICH IS EXEMPT UNDER THE PROVISIONS OF ACT. EXPLAINING THE FACTS OF THE CASE LD. A.R. SUBMITTED THAT ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF CORPORATE PARTNERS AND IT WAS FORMED IN MARCH 2006 AND WAS RECONSTITUTED IN DECEMBER 2006. IT WA S SUBMITTED THAT PARTNERS HAD CONTRIBUTED TOWARDS CAPITAL OF ASSESSEE FIRM IN THE FORM OF SHARES AND NO CASH WAS INTRODUCED. IT WAS SUBMITTED THAT ASSESSEE DURING THE YEAR HAD SOLD INVESTMENTS AND HAD NOT DEALT INTO TRADING OF SHARES. OUR ATTENTION WAS INV ITED TO PAPER BOOK PAGE 13 WHERE THE INVESTMENT IN SHARES WERE CLASSIFIED UNDER THE HEAD 'INVESTMENT'. OUR ATTENTION WAS ALSO INVITED TO PAPER BOOK PAGES 24 - 36 WHERE A CHART SHOWING SCRIPT WISE DETAILS OF PURCHASES AND SALES OF VARIOUS SHARES ALONG WITH NU MBER OF DAYS OF HOLDING WAS PLACED. LD. A.R. SUBMITTED THAT FROM ITEM SL. NO.1 TO 282, THE SCRIPTS MENTIONED WERE HELD FOR A PERIOD EXCEEDING 365 DAYS AND, THEREFORE, THEY WERE CLAIMED AS LONG TERM CAPITAL GAIN AND FOR SCRIPTS MENTIONED AT SL. NO. 283 ONWA RDS, WERE HELD FOR LESS THAN 365 DAYS AND INCOME FROM THEM WAS CLAIMED TO BE AS SHORT TERM CAPITAL GAIN. LD. A.R. INVITED OUR ATTENTION TO RELEVANT FINDINGS OF LD. CIT(A) AND ARGUED THAT LD. CIT(A) HAD CORRECTLY ARRIVED AT THE CONCLUSION AND, THEREFORE, LD . CIT(A)'S ORDER NEEDS TO BE UPHELD. 7. LD. D.R. IN HIS REJOINDER INVITED OUR ATTENTION TO PAPER BOOK PAGE 24 ONWARDS AND SUBMITTED THAT LONG TERM CAPITAL GAIN CLAIMED BY ASSESSEE CONSISTS OF ONLY 8 SCRIPTS WHICH CAN BE CLASSIFIED AS INVESTMENT BUT THE RES T OF SHARES CANNOT BE CLASSIFIED AS INVESTMENT. ARGUING UPON ASSESSEE'S APPEAL, LD. A.R. SUBMITTED THAT THE A.O. HAS MADE ADDITION OF RS.12 LACS ON ACCOUNT OF ESTIMATED EXPENSES PAGE | 14 WHICH HAS BEEN MADE ON THE BASIS OF ASSUMPTIONS AND SURMISES ONLY. HE SUBMITTE D THAT THE ASSESSEE CONSISTED OF CORPORATE PARTNERSHIP AND CORPORATES MIGHT HAVE CONTRIBUTED TOWARDS EXPENSES. LD. D.R. ON THE OTHER HAND HEAVILY RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT LD. CIT(A) HAS EXHAUSTIVELY AND EXTENSIVELY DEALT WITH THE ISSUE AND AFTER VERIFICATION OF FACTS AND CIRCUMSTANCES, HAS ARRIVED AT THE CONCLUSION ABOUT THE HEAD OF INCOME UNDER WHICH THE INCOME NEEDED TO BE ASSESSED. FROM TH E FACTS, WE FIND THAT ASSESSEE HAD CLASSIFIED THE SHARES IN ITS BALANCE SHEET AS INVESTMENT. THE HOLDING PERIOD FOR A NUMBER OF SCRIPTS EXCEEDS 365 DAYS. THE SHARES WERE NOT PURCHASED BUT WERE CONTRIBUTED BY PARTNERS AS THEIR PART OF CAPITAL. IN VIEW OF TH E ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THEREFORE, APPEAL FILED BY REVENUE IS DISMISSED. 13. LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DEVIATION IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE COMPARED TO THE ISSUE DECIDED BY THE COORDINATE BENCH. THEREFORE, WE CONFIRM THE FINDING OF THE LD. CIT (A), RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE DISMISS BOTH THE APPEALS OF THE REVENUE FOR ASSESSMENT YEAR 2010 - 11 AND ASSESSMENT YEAR 2011 12. 14. IN THE RESULT APPEAL OF THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 0 2 / 0 1 / 2 0 1 8 - S D / - - S D / - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 2 / 0 1 / 2 0 1 8 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI