DHARMESH R. SHAH, MUMBAI V. ADDL CIT RG NO. 19(2), MUMBAI

ITA 6275/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3497 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 06-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 20-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAVED AKHTAR DT OF HEARING
• Assessee Lawyers: B V JHAYERI
• Keywords: Business income; Speculation loss; Tax effect
• Section: 14A; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL D DD D BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . . . !' !' !' !' , # # # # $% $% $% $% BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI . N.K.BILLAIYA N.K.BILLAIYA N.K.BILLAIYA N.K.BILLAIYA, AM , AM , AM , AM , , , , ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 6274 6274 6274 6274/MUM/201 /MUM/201 /MUM/201 /MUM/2010 00 0 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2005-06) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 6275/MUM/2010 6275/MUM/2010 6275/MUM/2010 6275/MUM/2010 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2006-07) & ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 2114/MUM/2011 2114/MUM/2011 2114/MUM/2011 2114/MUM/2011 ( & & & & ' ' ' ' / ASSESSMENT YEAR :2007-08) DHARMESH R. SHAH 2A, AIR VIEW APARTMENTS, NEHRU ROAD, VAKOLA BRIDGE, SANTACRUZ (EAST). MUMBAI-400 055 / VS. THE JOINT COMMISSIONER OF INCOME TAX, RANGE NO.19(2), MUMBAI. %( # ./ ) ./ PAN/GIR NO. : AAEPS0898Q ( (* / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( +,(* / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) (* (* (* (* - - - - / APPELLANT BY : SHRI B.V. JHAYERI +,(* +,(* +,(* +,(* . .. . - - - - /RESPONDENT BY : SHRI JAVED AKHTAR . .. . /# /# /# /# / DT. OF HEARING : 06.06.2013 01' 01' 01' 01' . .. ./# /# /# /# / DT.OFPRONOUNCEMENT: 19 TH JUNE 2013 $2 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED AG AINST THE RESPECTIVE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEARS 2005- 06, 2006-07 & 2007-08 RESPECTIVELY. 2. SINCE THE COMMON ISSUES INVOLVED IN ALL THESE AP PEALS OF THE ASSESSEE. THEREFORE THESE APPEALS ARE HEARD TOGETHER AND DISP OSED OF BY THESE COMPOSITE ORDER. 3. FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HA S RAISED FOLLOWING GROUNDS IN THIS APPEAL:- ITA NO.4522/MUM/2012 . 2 1) THE LD. A.O. HAS ERRED IN TREATING SHORT TERM CAPIT AL GAIN IN SHARES OF ` 28,77,661/- AND LONG TERM CAPITAL GAIN IN SHARES OF ` 1,88,815/- AS BUSINESS INCOME AND THE LD. CIT(A)-30 HAS ERRED IN CONFIRMING THE SAME.. 2) THE LD. A.O. HAS ERRED IN DISALLOWING THE DERIVATIV E LOSS OF ` 87,955/- AS BUSINESS LOSS INSTEAD OF WHICH HE HAS TREATED THE S AME AS SPECULATION LOSS AND NOT ALLOWED TO BE SET OFF AGAINST OTHER INCOME AND THE LD. CIT(A)-30 HAS ERRED IN CONFIRMING THE SAME. 3) THE LD. A.O. HAS ERRED IN MAKING THE AD-HOC ADDITIO N OF ` 1,50,000/- ALLEGING LOW HOUSE-HOLD WITHDRAWALS AND THE LD. CIT (A)-30 HAS ERRED IN CONFIRMING THE SAME. 4. AT THE TIME OF HEARING THE LD. AR OF THE ASSESSE E STATED THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 2&3 AND THE SAME MAY BE D ISMISSED AS NOT PRESSED. THE LD. DR HAS NO OBJECTION IF GROUND NO.2 & 3 ARE DISMISSED AS NOT PRESSED. ACCORDINGLY THE GROUND NO.2 & 3 ARE DISMISSED BEING NOT PRESSED. 5. GROUND NO.1 REGARDING ASSESSMENT OF THE INCOME A RISING FROM THE SALE AND PURCHASE OF SHARE AS BUSINESS INCOME INSTEAD OF CAPITAL GAIN. THE ASSESSEE HAS DECLARED INCOME FROM SHORT TERM CAPITAL GAIN ON SALE OF SHARE OF ` 28,77,661/- AND LONG TERM CAPITAL GAIN ON SALE OF S HARE OF ` 1,88,815/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER TR EATED BOTH SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ON SALE OF SHARES A S BUSINESS INCOME AND TAXED ACCORDINGLY. ON APPEAL THE CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT FOR THE ASSESSMENT YEAR 2004-05 THE ASSESSEE HIMSELF HAS ACCEPTED THE TREATMENT OF LONG TERM CAPITAL GAI NS ARISING FROM SALE OF SHARES AS BUSINESS INCOME AND DO NOT GO IN APPEAL AGAINST THE ORDER OF THE CIT(A) WHO HAD CONFIRMED THE ORDER OF THE ASSESSING OFFICER TR EATING THE ENTIRE GAIN AS BUSINESS INCOME. 6. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT ASSESSEE HAS BEEN INVESTING IN SHARES SINCE THE ASSESSMENT YEAR 1997-98 AND TILL THE ASSESSMENT YEAR 2003-04 THE ASSESSEE HAD EARNED AND OFFERED SHORT TERM CAPITAL ITA NO.4522/MUM/2012 . 3 GAIN AND LONG TERM CAPITAL GAIN ON SALE OF SHARES W HICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND TAXED ACCORDINGLY. THE LD. AR HAS RE FERRED THE DETAILS OF INVESTMENT MADE BY THE ASSESSEE SINCE THE ASSESSMEN T YEAR 1997-98 TILL THE ASSESSMENT YEAR 2006-07 AT PAGE NO. 75 OF THE PAPER BOOK. HE HAS POINTED OUT THAT FOR THE ASSESSMENT YEAR 2001-02 THE ASSESSEE H AD INVESTED IN SHARES OF ` 1,24,33,007/- THE ASSESSEE INCURRED SHORT TERM CAPI TAL LOSS ON SALE OF SHARES TO THE TUNE OF ` 29,19,488/- AND THE ASSESSEE HAS EARNED LONG TERM C APITAL GAIN OF ` 37,99,409/- IN THE SAID ASSESSMENT YEAR. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-02 WAS SCRUTINIZED AND THE LONG TERM CAPI TAL GAIN AND SHORT TERM CAPITAL LOSS DECLARED BY THE ASSESSEE WERE ASSESSED ACCORDINGLY. IN SUPPORT OF HIS CONTENTION HE HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02 AT PAGE NO. 192 OF THE PAPE R BOOK. THE LD. AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT FOR THE ASSESSM ENT YEAR 2004-05 THE ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN OF ` 20,75,595/- AND LONG TERM CAPITAL GAIN OF ` 3,75,375/-. THE ASSESSING OFFICER TREATED THE LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN AS BUSINESS INCOME AND TAXE D ACCORDINGLY. HE HAS POINTED OUT THAT FOR THE ASSESSMENT YEAR 2004-05 SH ORT TERM CAPITAL GAIN WAS CHARGEABLE TO TAX AT THE RATE OF 30% AND THEREFORE THERE WAS NO TAX EFFECT AS FAR AS THE SHORT TERM CAPITAL GAIN WAS TREATED BY THE A SSESSING OFFICER AS BUSINESS INCOME. AS FAR AS THE LONG TERM CAPITAL GAIN OF ` 3,75,375/- THE SAME WAS CHARGEABLE TO TAX AT THE RATE OF 20% FOR THE SAID YEAR AND TREATING THE SAME AS BUSINESS INCOME BY THE ASSESSING OFFICER HAD ONLY 1 0% OF TAX EFFECT ON THE SAID INCOME. THOUGH THE ASSESSEE CHALLENGED THE ORDER OF THE ASSESSING OFFICER BEFORE THE CIT(A), BUT SINCE THE TAX EFFECT WAS ONL Y ` 37,538/-, THEREFORE THE ASSESSEE DID NOT PREFERRED FURTHER APPEAL DUE TO TH E SMALL AMOUNT OF TAX INVOLVED IN THE SAID YEAR. THE LD. AR OF THE ASSESS EE HAS FURTHER POINTED OUT THAT FROM 1 ST . APRIL.2004 THE ASSESSEE DECIDED TO CARRY ON BUSIN ESS ON TRADING IN SHARES AND SECURITIES. HOWEVER THE ASSESSEE HAD NOT CONVERTED HIS INVESTMENT IN ITA NO.4522/MUM/2012 . 4 THE SHARES INTO STOCK IN TRADE AND THEREFORE THE IN VESTMENT IN SHARE REMAINED AS INVESTMENT AS IT WAS TREATED ACCORDINGLY BY VALUING THEM AT COST. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS EARNED BU SINESS INCOME FROM THE SHARE TRADING OF ` 2,61,70,171/- WHICH WAS OFFERED AS BUSINESS INCOME IN THE RETURN OF INCOME. APART FROM BUSINESS INCOME THE AS SESSEE AHS ALSO SOLD SOME OF THE SHARES WHICH WERE ACQUIRED BY THE ASSESSEE PRIOR TO 31 ST MARCH.2004 AND THE SAID SHARES WERE HELD LESS THAN TWELVE MONTHS. THEREFORE THE PROFIT ARISING FROM SALE OF THOSE SHARES AT ` 27,77,661/- WAS OFFERED AS SHORT TERM CAPITAL GAIN. APART FROM THIS THE ASSESSEE HAS ALSO SOLD THE SHAR ES WHICH WERE HELD FOR MORE THAN 12 MONTHS AND THE PROFIT ARISING THERE FROM OF ` 1,89,698/- WAS DECLARED AS LONG TERM CAPITAL GAIN. THE LD. AR HAS REFERRED SEC TION 111 A AS INSERTED BY FINANCE ACT 2004 AND SUBMITTED THAT IT HAS BEEN PRO VIDED W.E.F. 1 ST OCTOBER.2004, THE SHORT TERM CAPITAL GAIN ON SALE O F SHARES ON WHICH THE SECURITY TRANSACTION TAX (STT) IS PAID WILL BE LIAB LE TO TAX AT 10%. THE FINANCE ACT 2004 ALSO INSERTED SUBSECTION 38 TO SECTION 10 OF THE INCOME TAX ACT, WHEREBY IT IS PROVIDED THAT ANY INCOME ARISING FROM TRANSFER OF LONG TERM CAPITAL GAIN BEING EQUITY SHARES ON WHICH STT IS PAID IS EX EMPT W.E.F. 01.10.2004. THE LD. AR HAS CONTENDED THAT IN VIEW OF THE AFORESAID AMENDMENT IN THE INCOME TAX ACT THE SHORT TERM CAPITAL GAIN EARNED UP TO 30 TH SEPT.2004 AMOUNTING TO ` 25,09,881/- ARE TAXABLE AT NORMAL RATE AS THEY FORM ED PART OF THE TOTAL INCOME AND THE REMAINING SHORT TERM CAPITAL GAIN OF ` 3,67,739/- EARNED AFTER 01.10.2004 IS TAXABLE AT THE RATE OF 10%. HE HAS RE FERRED THE DETAILS OF SHORT TERM CAPITAL GAIN EARNED UP TO 30TH SEPT.2004 AND A FTER 01.10.2004 AT PAGE 9 TO 17 OF THE PAPER BOOK. THUS THE LD. AR OF THE ASSESS EE HAS SUBMITTED THAT THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN EARNED BY THE ASSESSEE ON THE SHARES ACQUIRED PRIOR TO 31 ST MARCH.2004 WHICH WERE HELD AS INVESTMENT AND VALUED AT COSTS ON 31 ST MARCH.2004. THE HOLDING PERIOD IN RESPECT OF SHARE S ON WHICH THE ASSESSEE HAS EARNED CAPITAL GAIN IS VERY LONG AS IN RESPECT OF THE LONG ITA NO.4522/MUM/2012 . 5 TERM CAPITAL GAIN THE HOLDING PERIOD IS RANGING FRO M 432 DAYS TO 2000 DAYS, WHEREAS THE HOLDING PERIOD IN RESPECT OF SHORT TERM CAPITAL GAIN IN MOST OF THE CASES IS RANGING FROM 45 DAYS TO 357 DAYS. THE LD. AR OF THE ASSESSEE HAS POINTED OUT THAT THE ASSESSEE HAS USED ITS OWN FUND FOR THE PURPOSE OF INVESTMENT AS THE ASSESSEES OWN FUND ARE SUFFICIEN T. HE HAS REFERRED THE BALANCE SHEET AT PAGE 34 OF THE PAPER BOOK AND SUBM ITTED THAT ASSESSEES OWN FUND ARE MORE THAN THE INVESTMENT MADE BY THE ASSES SEE THEREFORE NO BORROWED FUND WAS USED FOR THE PURPOSE OF INVESTMENT. HE HAS FURTHER SUBMITTED THAT THERE IS NO REPETITIVE TRANSACTION AND ONCE THE ASSESSEE SOLD THE SHARES OF A SCRIPT HE HAS NEVER PURCHASED THE SAME SCRIPT AGAIN. THE LD. AR OF THE ASSESSEE HAS VEHEMENTLY ARGUED THAT IN VIEW OF THE FACT AS EXPLA INED, THE INTENTION OF THE ASSESSEE IS CLEAR THAT THE SHARES WERE PURCHASED AS INVESTMENT AND NOT AS STOCK IN TRADE. THE ASSESSEE HAS BEEN CONSISTENTLY TREATI NG THE SHARES AS INVESTMENT IN THE BOOKS OF ACCOUNT AND VALUED THE SAME AS ON 31 ST MARCH AT COST. FROM THE ASSESSMENT YEAR 2005-06 ONWARDS THE ASSESSEE HAS ST OP PURCHASING THE SHARES FOR INVESTMENT AND THEREFORE THE FREQUENCY OF PURCH ASE IS VERY LESS AND THE SHARES ALREADY HELD BY THE ASSESSEE AS INVESTMENT W ERE SOLD DURING THE YEAR. THUS THE MOTIVE OF THE PURCHASE AND SALE OF THE SHA RES IS CLEAR FROM THE HOLDING PERIOD OF THE SHARES WHICH IS RANGING FROM 45 DAYS TO 357 DAYS AS FAR AS THE SHORT TERM CAPITAL GAIN IS CONCERNED, WHEREAS THE L ONG TERM CAPITAL GAIN ARISES FROM THE SHARES WHICH WERE HELD BY THE ASSESSEE RAN GING FROM ONE YEAR TO MORE THAN SIX YEARS. THE LD. AR OF THE ASSESSEE HAS SUBM ITTED THAT THE ASSESSEE STARTED TRADING IN SHARE BUT HAD STRICTLY KEPT UNDE R SEPARATE PORTFOLIOS ONE FOR INVESTMENT AND ANOTHER FOR TRADING. THE SHARES WHIC H WERE ACQUIRED IN THE EARLIER YEARS AS INVESTMENT WERE REMAINED IN THE IN VESTMENT PORTFOLIO. THEREFORE THERE WAS NO PROFIT MOTIVE AS FAR AS THE SHARES HEL D BY THE ASSESSEE AS INVESTMENT. IN SUPPORT OF HIS CONTENTION HE HAS REL IED UPON THE DECISION OF THE ITA NO.4522/MUM/2012 . 6 TRIBUNAL IN THE CASE OF HITESH SATISH CHANDRA DOSHI VS. JCIT REPORTED IN 46 SOT 336, MUMBAI. THE LD. AR HAS ALSO RELIED UPON TH E FOLLOWING DECISIONS. 1. ITA NO. 3661/MUM/2010 AY-2006-07 ACIT 14(3) VS. SHR I MANISH D. DESAI. 2. ITA NO. 3774/MUM/2004 AY-2000-01 DCIT RANGE 8(3) AA YAKAR BHAVAN VS. M/S VRUSCHIK CONSULTANCY SERVICES PVT. L TD. 3. ITA NO. 1163/MUM/2004 AY-2000-01 SHRI JANAK S. RANG WALA VS. ACIT, RANGE12(2) AAYAKAR BHAVAN M.K. ROAD, MUMBAI. 7. ON THE OTHER HAND THE LD. DR HAS HEAVILY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND CIT(A) HAD SUBMITTED THAT WHE N THE ASSESSEE HAS ACCEPTED THE TREATMENT OF PROFIT ARISING FROM SALE AND PURCHASE OF THE SHARE AS BUSINESS INCOME FOR THE ASSESSMENT YEAR 2004-05 THE N THE ASSESSING OFFICER IS JUSTIFIED IN TREATING THE SAME AS BUSINESS INCOME F OR THE YEAR UNDER CONSIDERATION. APART FROM THIS THE ASSESSEE HIMSELF HAS STARTED TRADING IN SHARES WHICH SHOWS THE INTENTION OF THE ASSESSEE TO EARNED PROFIT BY PURCHASE AND SALES OF SHARE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THERE ARE VARIOUS GUID ELINES AND PRINCIPLES TO BE TAKEN INTO CONSIDERATION FOR DETERMINATION OF THE N ATURE OF TRANSACTION WHETHER TRADING OR INVESTMENT. NO SINGLE FORMULA OR PRINCIP AL CAN BE A DETERMINATIVE FACTOR FOR DECIDING THE NATURE OF TRANSACTION IN TR ADING OR INVESTMENT. BROADLY THE FACTORS WHICH ARE RELEVANT TO DETERMINE THE NAT URE OF TRANSACTION FOR SALE AND PURCHASE OF SHARES AS INVESTMENT OR TRADING ARE TH E INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES, THE HOLDING PERIOD OF THE SHARES BEFORE THE SALE, OWN FUND OR BORROWED FUNDS USED BY THE ASSESSEE FOR PURCHASE OF THE SHARES, FREQUENCY OF THE PURCHASE AND SALE OF SHARES THE MO TIVE OF THE TRANSACTION ON PURCHASE AND SALE OF SHARES WHETHER FOR REALIZATION OF PROFIT OR FOR RETENTION AND APPRECIATION OF ITS VALUE, THE VALUATION OF THE SHA RES AS TAKEN IN THE BALANCE ITA NO.4522/MUM/2012 . 7 SHEET ETC. THEREFORE NO SINGLE FACTOR OR PRINCIPAL CAN BE A DECISIVE FACTOR TO DETERMINE THE NATURE OF TRANSACTION I.E. TRADING AC TIVITY OR INVESTMENT. EACH CASE HAS TO BE DECIDED BASED ON THE PECULIAR FACTS OF TH E SAID CASE, HENCE THE ISSUE CAN BE DETERMINE ONLY BE TAKING INTO ACCOUNT ALL RE LEVANT FACTS AND VARIOUS FACTORS. THE MAIN GROUND ON WHICH THE AUTHORITIES B ELOW HAVE REJECTED THE CLAIM OF THE ASSESS AND TREATED THE CAPITAL GAIN AS BUSIN ESS INCOME IS THE TREATMENT OF THE CAPITAL GAIN AS BUSINESS FOR THE ASSESSMENT YEA R 2004-05. WE FIND THAT THE TAX EFFECT FOR THE ASSESSMENT YEAR 2004-05 WAS ONLY ` 37,538/- WHICH WAS BECAUSE THE ENTIRE SHORT TERM CAPITAL GAIN WAS TAXA BLE AT THE RATE OF 30% AND ONLY THE LONG TERM CAPITAL GAIN WAS SUBJECTED TO TA X AT THE RATE OF 10%,. THEREFORE, NOT PREFERRING THE APPEAL AGAINST THE OR DER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2004-05 DOES NOT OPERATE AS ESTOPPE L BECAUSE IN THE MATTER OF TAXATION THE RULE OF ESTOPPEL AND RESJUDICATA ARE N OT APPLICABLE. FURTHER WE FIND FROM THE UNDISPUTED FACT THAT THE ASSESSEE HAS NOT CONVERTED THE SHARES SHOWN AS INVESTMENT AS ON 31 ST MARCH.2004 IN TO STOCK IN TRADE AND THE TREATMENT OF THE SHARES CONTINUED AS INVESTMENT AND VALUED AT COST. WE FIND THAT THERE IS A CONSISTENT TREATMENT BY THE ASSESSEE OF THE SHARES WHICH WERE PURCHASED AS INVESTMENT. THE HOLDING PERIOD FOR LONG TERM CAPITA L GAIN IS RANGING FROM 1 YEAR TO 6 YEARS WHICH ITSELF SHOWS THE INTENTION OF THE ASSESSEE THAT THE SHARES WERE ACQUIRED BY THE ASSESSEE AS INVESTMENT AND RETAIN T HE SAME FOR ENHANCEMENT OF THE VALUE OF THE ASSET AND NOT FOR EARNING THE PROF IT AT THE EARLIEST POSSIBLE OCCASION BY TAKING THE ADVANTAGE OF VOLATILE CONDIT ION OF MARKET. WHEN THE ASSESSEE HAS RETAIN THE SHARES AS LONG AS 6 YEARS A ND WAS NOT INFLUENCED BY THE FREQUENT UP AND DOWNS OF THE MARKET, THEN THERE IS NO IOTA OF DOUBT ABOUT THE INTENTION OF THE ASSESSEE TO ACQUIRE THOSE SHARES. THE HOLDING PERIOD OF THE SHARES GIVING RISE TO THE SHORT TERM CAPITAL GAIN I N MOST OF THE CASES IS RANGING FROM 45 DAYS TO 357 DAYS WHICH CLEARLY SHOWS THAT T HOSE SHARES WERE HELD BY THE ASSESSEE WITH THE INTENTION TO RETAIN FOR A LON GER PERIOD FOR APPRECIATION OF ITA NO.4522/MUM/2012 . 8 THE VALUE OF THE ASSET. THE AVERAGE HOLDING PERIOD IN RESPECT OF THE SHARES RESULTING SHORT TERM CAPITAL GAIN IS MORE THAN 100 DAYS AND IN OUR VIEW WHICH CANNOT BE IN THE CASE OF REGULAR TRADING ACTIVITY W HEN THE ASSESSEE IS MAINTAINING A SEPARATE PORTFOLIO FOR TRADING, WHERE IN MORE THAN 2.61 CRORES HAVE BEEN OFFERED AS INCOME FROM BUSINESS. IT IS NOW SET TLED PROPOSITION OF LAW THAT THE ASSESSEE CAN HAVE TWO SEPARATE PORTFOLIOS ONE F OR INVESTMENT AND ONE FOR TRADING AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. GOPAL PUROHIT 188 TAXMAN 140. THE ASSESSEE HAS ALSO SHOWN THE SHORT TERM CAPITAL LOSS OF ` 3,67,738/- AND THE HOLDING PERIOD OF THE SHARES ON WHICH THE ASSESSEE INCURRED THE LOSS IS MORE THAN 250 DAYS AN D EVEN UP TO 360 DAYS. IT IS PERTINENT TO NOTE THAT IF THE ASSESSEES INTENTION WAS TO AVOID THE TAX THEN THE LOSS ARISING FROM THE SHARES WHICH WERE HELD FOR MO RE THAN AVERAGE PERIOD OF 250 DAYS MIGHT HAVE BEEN SHOWN AS BUSINESS LOSS. TH US THE ASSESSEE HAS MADE A CLEAR DEMARCATION BETWEEN THE INVESTMENT AND THE TR ADING ACTIVITY OF THE SHARES SOLD DURING THE YEAR WHICH WERE PURCHASED IN THE EA RLIER YEARS. THEREFORE THERE IS NO CONFUSION REGARDING THE SHARES PURCHASED FOR TRADING PURPOSE AND SHARES RETAIN AS INVESTMENT. THERE IS NO DISPUTE THAT THE ASSESSEES OWN FUND AS ON 31 ST MARCH.2005 IS ` 5,32,54,850/- WHEREAS THE INVESTMENT IN SHARE IS ` 1,32,16,407/- . THEREFORE THE ASSESSEES OWN FUND I S MORE THAN THE INVESTMENT IN SHARES AND NO BORROWED FUND WAS USED FOR THE PURPOS E OF INVESTMENT. 9. WE FURTHER NOTE THAT SINCE ASSESSMENT YEAR 1997- 98 THE ASSESSEE HAS BEEN SHOWN THE INVESTMENT AND UP TO THE ASSESSMENT YEAR 2003-04 THE REVENUE ACCEPTED THE INVESTMENT IN SHARES. THEREFORE AS FAR AS THE ASSESSEES TREATMENT OF INVESTMENT IN THE BOOKS OF ACCOUNT THERE IS NO C HANGE AS IT IS CLEAR THAT EVEN IN CASE OF CAPITAL LOSS THE ASSESSEE IS SHOWING THE SAME UNDER THE HEAD CAPITAL LOSS. THERE IS NO REPETITIVE TRANSACTION AND THE SH ARES ACQUIRED FOR INVESTMENT HAS BEEN CONSISTENTLY SHOWN AS INVESTMENT, THEREFOR E IN VIEW OF THE FACT AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS ITA NO.4522/MUM/2012 . 9 BEEN HOLDING THOSE SHARES AS INVESTMENT AND NOT STO CK IN TRADE AND THEREFORE THE PROFIT ARISING OUT OF THE SALE OF THE SHARES WOULD BE CAPITAL GAIN AND NOT BUSINESS INCOME. ACCORDINGLY WE SET-ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE CLAIM OF THE ASSESSEE. FOR THE ASSESSMENT YEAR 2006-07 10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1 THE LD. A.O. HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 14A AND MADE THE ADDITION OF ` 3,90,295/- OF THE INCOME TAX ACT, 1961 AND THE LD. CIT(A)-30 HAS ERRED IN CONFIRMING THE SAME. 2 THE LD. A.O. HAS IN DISALLOWING THE INTEREST EXPEND ITURE OF ` 51,320/- AND THE LD. CIT(A)-30 HAS ERRED IN CONFIRMING THE S AME. 3 THE LD. A.O. HAS ALSO ERRED IN TREATING THE SHORT T ERM CAPITAL GAIN OF ` 17,383/- AND LONG TERM CAPITAL GAIN OF ` 15,55,397/- IN SALE OF SHARES AS BUSINESS INCOME AND THE LD. CIT(A)-30 HAS ERRED IN CONFIRMING THE SAME. 11. AT THE TIME OF HEARING THE LD. AR OF THE ASSESS EE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1&2 AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD. DR HAS NO OBJECTION IF GROUND NO.1 & 2 ARE DISMISSED AS NOT PRESSED. ACCORDINGLY WE DISMISS GROUND NO.1 & 2 BE ING NOT PRESSED. 12. THE ONLY GROUND LEFT FOR OUR CONSIDERATION AND ADJUDICATION IS GROUND NO.3 REGARDING TRADING THE SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ARISING FROM SALE OF SHARES TREATED AS BUSINESS INC OME. WE HAVE HEARD THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED RELEVANT MA TERIAL ON RECORD. THE FACTS FOR THIS ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE ASSESSMENT YEAR 2005- 06, EXCEPT THE AMOUNT OF CAPITAL GAIN. THE SHORT TE RM CAPITAL GAIN FOR THE YEAR UNDER CONSIDERATION IS ` 17,383/- WHEREAS THE LONG TERM CAPITAL GAIN IS ` 15,55,397/- IN VIEW OF OUR FINDING FOR THE ASSESSME NT YEAR 2005-06 WE DECIDE ITA NO.4522/MUM/2012 . 10 THIS ISSUE IN FAVOUR OF THE ASSESSEE AND HOLD THAT THE PROFIT ARISING FROM SALE OF SHARE IS SHORT TERM CAPITAL GAIN AND LONG TERM CAPI TAL GAIN NOT AS BUSINESS INCOME. FOR THE ASSESSMENT YEAR 2007-08 13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1 UNDER THE FACTS AND THE CIRCUMSTANCES OF THE CASE O F YOUR APPELLANT, THE LD. A.O. HAS ERRED IN CHARGING NOTIONAL INTERES T OF ` 3,45,633/- AND LD. CIT(A)-30 CONFIRMING THE SAME. 2 THE APPELLANT ALSO ERRED IN TREATING THE LONG TERM CAPITAL GAIN ON SALE OF EQUITY SHARES OF ` 1,17,82,668/- AS BUSINESS INCOME. 14. AT THE TIME OF HEARING THE LD. AR OF THE ASSES SEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 AND THE SAME M AY BE DISMISSED AS NOT PRESSED. THE LD. DR HAS NO OBJECTION IF GROUND NO.1 IS DISMISSED AS NOT PRESSED. ACCORDINGLY WE DISMISS GROUND NO.1 BEING NOT PRESSED. 15. GROUND NO.2 IS REGARDING TREATMENT OF LONG TERM CAPITAL GAIN AS BUSINESS INCOME. THIS GROUND IS COMMON AS IN THE AS SESSMENT YEAR 2005-06 AND 2006-07. WE HAVE HEARING THE LD. AR AS WELL AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIALS. FROM THE DETAILS OF THE PURCHAS E AND SALE OF SHARE GIVING RISE TO THE LONG TERM CAPITAL GAIN, WE FIND THAT MOST OF THE SHARES WERE ACQUIRED BY THE ASSESSEE DURING THE FINANCIAL YEAR 1997 TO 2004 . IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2005-06 WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND HOLD THAT THE LONG TERM CAP ITAL GAIN ARISING FROM SALE OF SHARE SHALL BE TREATED AS LONG TERM CAPITAL GAIN AN D NOT AS BUSINESS INCOME. ITA NO.4522/MUM/2012 . 11 16. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE P ARTLY ALLOWED. 3 /4 & 3/ . 6 72 %/ 8 . / 9! ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 9 TH JUNE 2013 $2 . 01' # 6 :$4 19 1 . ; SD/- SD/- ( . . !' !' !' !' ) # $% ( N.K. BILLAIYA ) ACCOUNTANT MEMBER ( ) & $% (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 19TH JUNE 2013 . & . /- ASHISH , PS $2 $2 $2 $2 . .. . +&/7 +&/7 +&/7 +&/7 <'/ <'/ <'/ <'/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. = ( ) / THE CIT(A)-30 4. = / CIT-19 5. >; +&/& , , / DR, ITAT, MUMBAI 6. ; ? / GUARD FILE. $2 $2 $2 $2 / BY ORDER, ,/ +&/ //TRUE COPY// @ @@ @ / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI