ADDL CIT 25(3), MUMBAI V. JAGRUT P. GANDHI, MUMBAI

ITA 6432/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8455 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 08-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K G KUTTY
• Keywords: Capital asset; Gift; Deemed owner of house property; Business income; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER.. I.T.A. NO.6432/MUM/2009. ASSESSMENT YEAR : 2006-07. ADDL. COMMISSIONER OF JAGRUT P. GANDHI, INCOME-TAX-25(3), VS. 1603, CHALLENGER TOWER-1, MUMBAI. THAKUR VILLAGE, KANDIVALI(W), MUMBAI - 400101 PAN AACPG 3599A APPELLANT. RESPONDENT . APPELLANT BY : SHRI K.G .KUTTY. RESPO NDENT BY : SHRI K. SHIVRAM. DATE OF HEARING : 11-10-2012 DATE OF PRONOUNCEMENT : 23-10-2012. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-35, MUMBAI DATED 29-09-2009. 2. IN GROUND NO.1, REVENUE HAS CHALLENGED THE ACTIO N OF THE LEARNED CIT(APPEALS) IN DIRECTING THE AO TO ACCEPT THE CLAI M OF THE ASSESSEE OF SHORT TERM AND LONG TERM CAPITAL GAIN ARISING FROM PURCHASE AN D SALE OF SHARES INSTEAD OF TREATING THE SAME AS BUSINESS INCOME OF THE ASSESSE E AS DONE BY THE AO. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS OF SHARE TRADING. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 24-10-2006 DECLARING TOTAL INCO ME OF RS.2,13,60,603/-. IN THE 2 ITA NO.6432/MUM/2009. SAID RETURN, PROFIT ARISING FROM THE TRANSACTIONS I N PURCHASE AND SALE OF SHARES WAS DECLARED BY THE ASSESSEE UNDER THE FOLLOWING HEADS : I) SHARE TRADING PROFIT : RS. 9,388/- II) SHORT TERM CAPITAL GAIN : RS.2,19,66,817/- III) LONG TERM CAPITAL GAIN : RS.4,04,74,835/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD DESCRIBED THE NATURE OF HIS BUSINESS AS TRADING IN SHARES. HE ALSO FOUND THAT THE ASSESSEE WAS A MEMBER OF M/S JAGRUT GANDHI, AOP WHI CH WAS ENGAGED IN THE FULL TIME BUSINESS OF SHARE TRADING. ON ANALYSIS OF THE DETAILS OF TRANSACTIONS CARRIED OUT BY THE ASSESSEE IN SHARES, THE AO SUMMARIZED THE SA ME AS UNDER : SPECULATION STCG LTCG TOTAL NO. OF SCRIPS 17 46 12 75 NO. OF SHARES 139173 742735 142578 1024486 FREQUENCY 20 159 43 222 PURCHASE AMOUNT RS.1,92,48,525 RS.9,58,08,911 RS.1,71,23,728 RS.13,21,81,164 SALE AMOUNT RS.1,92,85,576 RS.11,78,07,935 RS.5,76,16,486 RS.19,47,09,997 PROFIT/GAIN RS. 37,055 RS. 2,19,99,024 RS.4,04,92,578 RS. 6,25,28,833 EXPENSES CLAIMED RS. 27,663 RS. 32,207 RS. 17,923 RS. 77,793 NET PROFIT/GAIN RS. 9,388 RS. 2,19,66,817 RS.4,04,74,835 RS. 6,24,51,040 ON THE BASIS OF THE ABOVE DETAILS AS SUMMARIZED BY HIM AND KEEPING IN VIEW THE AVERAGE PERIOD OF HOLDING OF SHARES, THE AO REQUIRE D THE ASSESSEE TO EXPLAIN AS TO WHY THE ENTIRE PROFIT ARISING FROM THE TRANSACTIONS IN SHARES SHOULD NOT BE TREATED AS 3 ITA NO.6432/MUM/2009. HIS BUSINESS INCOME. IN REPLY, ELABORATE SUBMISSIO N WAS MADE BY THE ASSESSEE BEFORE THE AO, THE GIST OF WHICH WAS AS UNDER : A) TRANSACTIONS WHERE DELIVERY HAS NOT BEEN TAKEN, IS TREATED AS SPECULATIVE IN NATURE AND SHOWN AS BUSINESS INCOME. B) TRANSACTIONS WHERE DELIVERY HAS BEEN TAKEN ARE FOR THE PURPOSES OF HOLDING THE SHARES AS INVESTMENTS. C) THE DEFINITION OF SHORT TERM CAPITAL ASSET REFERS T O THE DURATION OF LESS THAN 12 MONTHS. HENCE IT COULD BE ONE DAY, ONE WEEK , ONE MONTH OR ANY PERIOD LESS THAN 12 MONTHS. D) CBDT HAS EMPHASIZED THAT IT IS POSSIBLE FOR A TAX P AYER TO HAVE TWO PORTFOLIOS I.E. AN INVESTMENT PORTFOLIO AND A TRADI NG PORTFOLIO (REFER PAGE 9 OF ASSESSMENT ORDER). E) INVESTMENTS ARE MADE ONLY AFTER PROPER STUDY OF RES EARCH REPORTS AND IN MANY CASES THE INVESTMENTS HAVE BEEN HELD EVEN FOR A PERIOD OF THREE TO FOUR YEARS (REFER PAGE 9 OF ASSESSMENT ORDER). F) HOLDING PERIOD OF LONG TERM CAPITAL ASSETS IS MORE THAN 12 MONTHS AND IN CASE OF SHORT TERM CAPITAL ASSET THE HOLDING PERIOD IS ON AN AVERAGE 6 MONTHS. G) RESPONDENT HAD HIMSELF SHOWN SHARES AS INVESTMENTS IN BOOKS OF ACCOUNTS (REFER PAGE 7). H) RESPONDENT HAS EARNED SUBSTANTIAL DIVIDEND ON SHARE S (REFER PAGE 119 TO 121). I) THE RESPONDENT HAS UTILIZED HIS OWN FUNDS FOR THE P URPOSES OF MAKING INVESTMENTS. J) RESPONDENT DOES NOT DEAL IN SHARE TRANSACTIONS REGU LARLY. IN CASE OF LONG TERM CAPITAL GAINS THE SHARES WERE HELD FOR A PERIO D OF 2 TO 3 YEARS AND NUMBER OF SCRIPTS ARE AROUND 8 TO 10 (REFER PAGE 5 OF ASSESSMENT ORDER). 4. THE SUBMISSION MADE BY THE ASSESSEE AS ABOVE WAS NOT FOUND ACCEPTABLE BY THE AO MAINLY FOR THE FOLLOWING REASONS : (I) MERE ENTRIES IN THE BOOKS OF ACCOUNT SHOWING S HARES AS INVESTMENT IS NOT DETERMINATIVE FACTOR TO DECIDE THE REAL NATU RE OF TRANSACTION. FOR 4 ITA NO.6432/MUM/2009. THIS PROPOSITION THE A.O. RELIED ON VARIOUS JUDGEME NTS INCLUDING THE DECISIONS OF THE SUPREME COURT IN A) TUTICORIN ALKALI CHEMICALSS CASE 227 ITR 172 B) CHOWRINGHEE SALES BUREAUS CASE 87 ITR 584 C) PUNJAB DISTILLING INDUSTRIES LTDS CASE 35 ITR 523 D) G. VENKATASWAMI NAIDU & CO.S CASE 35 ITR 594 E) BAZAPUR SUGAR FACTORYS CASE 172 ITR 330. (II) ASSESSEE IS UNDOUBTEDLY DEALING IN LARGE NUMBE R OF SHARES. IN FACT DEALING IN SHARES IS THE SOLE BUSINESS OF THE ASSES SEE. MOST OF THE SHARES ARE BOUGHT AND SOLD WITHIN SHORT PERIOD. WH ILE SOME ARE NOT SOLD DUE TO MARKET CONDITIONS AND THEIR HOLDING WIT H THE ASSESSEE REMAINS BEYOND FEW DAYS, IT WILL NOT CHANGE THE NAT URE OF TRANSACTIONS. THE ASSESSEE IS VERY WELL ENGAGED IN THE BUSINESS O F SHARE TRADING AND RUNS A FULL FLEDGED OFFICE FOR THIS PURPOSE. (III) THE A.O. RELIED ON CIRCULAR NO.4/2007 DATED 1 5.06.2007 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES: (IV) FOR TREATING THE PROFIT ON SALE OF INVESTMENT IN SHARES AS BUSINESS INCOME, THE A.O. RELIED UPON FOLLOWING JUDGEMENTS: A) LAXIMARAYAN RAM GOPAL VS. GOVT. OF HYDERABAD 25 ITR 449 (SC) B) DAMODAR SHENOY (A.P.) VS. CIT 26 ITR 650 (BOM). C) WERLE & CO. VS. COLQHOUN (1988) TC 402. D) CIT VS. MOTILAL HIRABHAI SPG. & WVG. CO.LTD. 117 IT R 173 (GUJ). E) RAJA BAHADUR VISHESHWARA SINGH VS. CIT 41 ITR 685 ( SC). F) BHARAT DEVELOPMENT (P) LTD. VS. CIT 4 TAXMAN 58 (DE L). G) PUNJAB CO-OPERATIVE BANK LTD. VS. CIT 81 ITR 635 (P C) AND H) SARDAR INDRA SINGH & SONS LTD. VS. CIT 24 ITR 514 ( SC). V) THE HOLDING PERIOD FOR MOST OF THE SCRIPS RANGES FROM FEW DAYS TO FEW MONTHS AND IN CERTAIN CASES, THE HOLDING PERIOD IS MORE THAN ONE MONTH BUT THE SCRIPS HAVE BEEN REPEATEDLY TRANSACTED. THE DIVIDEND EARNED IS ONLY INCIDENTAL AND VERY LESS COMPARED TO EARNING F ROM PURCHASE AND SALE OF SHARES. RELIANCE WAS PLACED BY THE A.O. ON THE D ECISION OF THE ITAT AHMEDABAD BENCH IN DCIT VS. DEEPA SHAH 99 ITD 219. VI) THE APPELLANT HAS BORROWED FUNDS AND PAID INTER EST ON THE SAME AND THE DIVIDEND INCOME RECEIVED BY THE APPELLANT IS NEGLIG IBLE. HE FURTHER HELD 5 ITA NO.6432/MUM/2009. THAT THE APPELLANT WAS RUNNING A FULL FLEDGED OFFI CE FROM HIS RESIDENCE WHICH WAS USED FOR THE PURPOSE OF SHARE TRADING. VII) THE A.O. FURTHER HELD THAT MOST OF THE SHARES ARE BOUGHT AND SOLD IN FEW DAYS WHILE SOME OTHER SHARES WERE HELD BEYOND F EW DAYS. IN VIEW OF THE ABOVE REASONS, THE A.O.ASSESSED BOTH SHORT T ERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN UNDER THE HEAD BUSINESS , WHICH IS CONTESTED IN THIS APPEAL. THE A.O. ALLOWED REBATE U /S 88E OF THE INCOME-TAX ACT, 1961. FOR THE REASONS GIVEN ABOVE, THE AO HELD THAT THE E NTIRE PROFITS ARISING OUT OF PURCHASE AND SALE OF SHARES WAS ASSESSABLE TO TAX I N THE HANDS OF THE ASSESSEE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 22-12-2008. 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THEREIN, INTER ALIA, THE ACTION OF THE AO IN TREATING THE CAPITAL GAINS ARIS ING FROM SALE OF SHARES AS HIS BUSINESS INCOME. DURING THE COURSE OF APPELLATE PRO CEEDINGS BEFORE THE LEARNED CIT(APPEALS), THE SUBMISSIONS MADE BEFORE THE AO WE RE REITERATED ON BEHALF OF THE ASSESSEE. CERTAIN CASE LAWS WERE ALSO CITED BY THE ASSESSEE IN SUPPORT OF HIS STAND THAT HE WAS TRADER AS WELL AS INVESTOR IN SH ARES AND THE PROFIT ARISING FROM THE TRANSACTION IN SHARES WAS RIGHTLY CLASSIFIED AND DE CLARED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CAPITAL GAI NS 6. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SUBM ISSION OF THE ASSESSEE AND DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE OF LONG TERM AND SHORT TERM CAPITAL GAIN ARISING FROM THE TRANSACTIONS IN SHARE S ON THE BASIS OF FOLLOWING FINDINGS/CONCLUSIONS GIVEN IN HIS IMPUGNED ORDER : 6 ITA NO.6432/MUM/2009. 5. DECISION WITH REASONING. 5.1 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRE SENTATIVE AND THE STAND TAKEN BY THE A.O. ADMITTEDLY, THE APPELLANT HAS DIV IDED THE SHARE TRADING INTO TWO CATEGORIES: (I) DELIVERY BASED AND (II) NON DELIVERY BASED AND TREATED THE 1 ST CATEGORY UNDER THE HEAD CAPITAL GAIN. IT IS ALSO S EEN THAT THE APPELLANT TRANSFERRED ALL THE SHARES IN RESPECT OF WHICH THE CAPITAL GAIN WAS ADMITTED IN THE NATURE OF THE APPELLANT AS PER THE DEMAT ACCOUNT AND PAID STT AT THE RATE APPLICABLE TO THE INVESTMENT. EVEN THOUGH THE APPELLANT HAS ADMITTED PROFIT FROM SHARE TRADING, THERE IS NO BAR FOR THE SAME ASSESSEE TO DO BUSINESS IN SHARES AND ALSO HOLD SOME SHARES AS INV ESTMENT AS HELD BY THE DECISION OF HONBLE HYDERABAD TRIBUNAL IN THE CASE OF SHAH-LA INVESTMENTS AND FINANCIAL CONSULTANTS PVT. LTD. VS. DY. CIY (2 SOT 371). FURTHER THE SAME VIEW WAS TAKEN BY THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF J.M. SHARE & STOCK BROKERS LIMITED VS. JCIT (FEB 2008) I TA NO. 2801/MUM/2000 DATED 30.11.2007. AS CONTENDED BY THE REPRESENTATIVE, EVEN SHARES PURCHASED AS INVESTMENT HAD TO BE SOLD WITHI N A SHORT TIME OF ITS PURCHASE ON ACCOUNT OF VARIOUS FACTORS LIKE CHANGE IN GOVERNMENT POLICY, CHANGE IN MANAGEMENT, CHANGE IN GLOBAL TREND AND TA KE OVER OR MERGER/AMALGAMATION NOT GOING THROUGH ETC. THUS, TH E SALE OF SHARES WAS ONLY WITH A VIEW TO PROTECT THE AMOUNT INVESTED BY THE APPELLANT WHICH WOULD NOT CONVERT THE INVESTMENT INTO STOCK-IN-TRAD E. REGARDING BORROWAL OF FUND AS CONTENDED BY THE REPRESENTATIVE, BORROWALS WERE TAKEN IN THE EARLIER YEARS AND IT IS SEEN THAT THE APPELLANT HAS NOT UTI LIZED ANY BORROWED FUNDS FOR THE PURPOSE OF SHARE TRADING BUSINESS. FURTHER AS C ONTENDED BY THE REPRESENTATIVE, THE ENTRIES IN THE BOOKS OF ACCOUNT AS INVESTMENT INDICATES THE INTENTION OF THE APPELLANT TO HOLD THEM AS INVESTME NT. REGARDING LONG TERM CAPITAL GAIN, IT IS SEEN THAT THE APPELLANT SOLD 8 SCRIPS AFTER A PERIOD OF 1 TO 11/2 YEARS, 5 SCRIPS AFTER A PERIOD OF 11/2 YEARS T O 2 YEARS AND 3 SCRIPS AFTER A PERIOD OF MORE THAN TWO YEARS. THUS THE APPELLANT S OLD 16 SCRIPS DURING THE YEAR ON WHICH LONG TERM CAPITAL GAIN WAS ADMITTED A ND ALL THE SHARES WERE HELD FOR MORE THAN ONE YEAR. AS CONTENDED BY THE RE PRESENTATIVE, THE NUMBER OF SCRIPS SOLD IS NEGLIGIBLE AS FAR AS LONG TERM CA PITAL GAIN IS CONCERNED. EVEN THE AOP IN WHICH THE APPELLANT IS A MEMBER IS CARRY ING ON ITS BUSINESS FROM RESIDENCE OF THE APPELLANT AND, THEREFORE, IT CANNO T BE SAID THAT THE APPELLANT WAS MAINTAINING A FULL FLEDGED OFFICE FOR THE PURPO SE OF SHARE TRADING. 7 ITA NO.6432/MUM/2009. FURTHER IT IS SEEN THAT THE A.O. HAS ACCEPTED THE W ORKING OF LONG TERM CAPITAL GAIN OF RS.6,94,043/- AND SHORT TERM CAPITAL GAIN O F RS.24,85,262/- FOR A.Y. 2004-05 BY ORDER DATED 31.03.2006. IT IS TRUE THAT THE A.O. DID NOT ACCEPT THE CLAIM OF THE APPELLANT FOR A.Y. 2005-06 WHICH WAS C ONFIRMED BY CIT(A) BY ORDER DATED 10.06.2008 BUT THE CIT(A) DECIDED THE I SSUE BEFORE THE HONBLE MUMBAI TRIBUNAL RENDERED ITS DECISION IN THE CASE O F GOPAL PUROHIT (29 SOT 117) AND SUBSEQUENT TO THE ABOVE DECISION, THE SAME CIT(A) DECIDED THE SAME ISSUE IN THE CASE OF GOPAL PUROHIT FOR A.Y. 20 06-07 OTHERWISE BY ORDER DATED 18.06.2009 IN ITA NO. 534/08-09. THUS, THE ST AND OF THE A.O. THAT THE CIT(A) HAS CONFIRMED THE ORDER OF THE A.O. IS NOT LONGER VALID IN THE LIGHT OF THE DECISION OF HONBLE MUMBAI TRIBUNAL IN THE C ASE OF GOPAL PUROHIT. FURTHER THE WORKING OF SHORT TERM CAPITAL GAIN SHOW S THAT ONLY 22 SCRIPS WERE SOLD WITHIN A PERIOD OF LES THAN ONE MONTH. THE APP ELLANT HAS HELD SOME SHARES FOR MORE THAN 180 DAYS ON WHICH THE SHORT TE RM CAPITAL GAIN EARNED WAS RS.33,16,374/-. IT IS FURTHER SEEN THAT THE APP ELLANT EARNED SHORT TERM CAPITAL GAIN OF RS.49,92,043/- FROM SHARE HOLDINGS BETWEEN 120 TO 150 DAYS. THUS, THE MAJOR PORTION OF SHORT TERM CAPITAL GAIN WAS EARNED BY THE APPELLANT BY HOLDING SHARES FOR MORE THAN 90 DAYS. FURTHER, THE HONBLE ITAT IN THE CASE OF GOPAL PUROHIT HELD THAT THE DEL IVERY BASED TRANSACTIONS SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TR ANSACTIONS AND PROFIT THEREOF SHOULD BE ASSESSED UNDER THE HEAD CAPITAL G AIN AND THE HONBLE MUMBAI TRIBUNAL IN THE CASE OF JANAK S. RANGWALLA V S. ACIT (11 SOT 627) HELD THAT THE FREQUENCY AND MAGNITUDE OF TRANSACTIO N CANNOT BE THE CRITERIA FOR DETERMINING THE HEAD OF INCOME. THUS, THERE IS NO REASON TO TREAT THE SHORT TERM CAPITAL GAIN AS BUSINESS INCOME. FURTHER , THE HONBLE TRIBUNAL IN THE CASE OF GOPAL PUROHIT VS. JCIT (29 SOT 117) HEL D AS UNDER : WHEN WE COMPARE THE FACTS OF THE CASE WITH THAT CASE, WE FIND THAT THE FACTS OF BOTH ARE ALMOST IDENTICAL. IN THE PRES ENT CASE, THE ASSESSEE IS ALSO MAINTAINING SEPARATE RECORDS FOR BOTH TYPES OF TRAN SACTIONS. FURTHER, IN THE PRESENT CASE, IT IS IMPORTANT TO NOTICE THAT THE AS SESSEE HAS ENTERED INTO TWO DIFFERENT TYPES OF TRANSACTIONS, WHERE BOTH ACTIVIT IES ARE ENTIRELY DIFFERENT IN NATURE I.E. ONE ACTIVITY IS OF INVESTMENT IN NATURE ON THE BASIS OF DELIVERY AND SECOND ACTIVITY IS PURELY OF JOBBING (WITHOUT DELIV ERY) WHICH PUTS ASSESSEES CASE ON A MORE STRONG FOOTING. HENCE, IN OUR VIEW, THE RATIO OF THIS DECISION IS SQUARELY APPLIES TO THE FACTS OF THE PRESENT CAS E. ACCORDINGLY, WE HOLD THAT THE DELIVERY BASED TRANSACTION SHOULD BE TREATED AS OF THE NATURE OF INVESTMENT TRANSACTIONS AND PROFIT THEREFROM SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN DEPENDING UP ON THE PERIOD OF HOLDING. 8 ITA NO.6432/MUM/2009. TO CONCLUDE, WE HOLD THAT, IN THE FACTS AND CIRCUM STANCES OF THE PRESENT CASE, THE ASSESSEES CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL ON SHARE TRANSACTIONS WHERE THE DELIVERY HAS BEEN TAKEN OR G IVEN AND SECURITIES TRANSACTION TAX HAS BEEN PAID IS LIABLE TO ACCEPTED . ACCORDINGLY, WE REFERSE THE ORDERS OF REVENUE AUTHORITIES. 5.2 FURTHER, THE HONBLE TRIBUNAL IN THE CASE OF J ANAK S. RANGWALLA VS. ACIT (11 SOT 627) HELD THAT THE FREQUENCY AND MAGNI TUDE OF TRANSACTION CANNOT BE THE CRITERIA FOR DETERMINING THE HEAD OF INCOME. IT WAS HELD AS UNDER : THE MERE VOLUME OF TRANSACTION TRASACTED BY THE ASSESSEE WOULD NOT ALTER THE NATURE OF TRANSACTION. IT IS AN ESTABLISH ED PRINCIPLE THAT INCOME IS TO BE COMPUTED WITH REGARD TO THE TRANSACTION. THE TRA NSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND THE MAGNITUDE OF TH E TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION. THOUGH THE PRINCIP LE OF RES JUDICATA DOES NOT APPLY TO THE INCOMEPTAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR OF THE ASSESSMENT BUT IN ORDER TO MAINTAIN CONSISTENCY , IT IS A JUDICIALLY ACCEPTED PRINCIPLE THAT SAME VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS, UNLESS THERE IS A MATERIAL CHANGE IN THE FAC TS. THEIR LORDSHIPS OF HONBLE SUPREME COURT IN THE RADHASOAMI SATSAND V. CIT [1992] 193 ITR 321 HAVE CATEGORICALLY HELD AS UNDER: . STRICTLY SPEAKING, RESJUDICATA DOES NOT APPL Y TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR, WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEA RS HAS BEEN FOND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NO CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YE AR. THE SAME VIEW HAS BEEN TAKEN BY THE HONBLE DELHIC OURT IN CIT V. NEO POLY PACK (P) LTD. [2000] 245 ITR 492. FURTHER THE HONBLE MUMBAI TRIBUNAL IN THE CASE O F GOPAL PUROHIT (29 SOT 117) HELD THAT THE DELIVEYR BASED TRANSACTI ONS ARE TO BE TREATED AS INVESTMENT AND THERE CAN BE TWO TYPES OF TRANSACTIO NS I.E. ONE ACTIVITY OF INVESTMENT AND OTHER ACTIVITY OF JOBBING WITHOUT DE LIVERY. 9 ITA NO.6432/MUM/2009. 7. THE LEARNED DR RELIED ON THE ORDER OF THE AO IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. THE LEARNED COUNSEL FOR THE ASS ESSEE, ON THE OTHER HAND, MADE THE FOLLOWING SUBMISSIONS : 1) RESPONDENT HAS CONSISTENTLY CONSIDERED SHARES W HERE DELIVERY HAS BEEN TAKEN/GIVEN AS INVESTMENTS AND SAID ACTION OF RESPONDENT HAS BEEN ACCEPTED BY DEPARTMENT FROM YEAR TO YEAR (REFE R PAGES 47 TO 100) 2) INVESTMENTS HAVE BEEN VALUED AT COST. 3) WHERE SEPARATE INVESTMENT ACCOUNT WAS MAINTAINED , DOMINANT INTENTION WAS TO HOLD AS INVESTMENTS. PROFIT ON SAL E OF SUCH SHARES IS TAXABLE AS CAPITAL GAINS AND NOT BUSINESS INCOME. 4) RESPONDENT HAS NOT CONVERTED INVESTMENTS INTO ST OCK-IN-TRADE. 5) DEPARTMENT HAS ACCEPTED PROFIT ON SALE OF INVEST MENTS IN EARLIER YEARS AS CAPITAL GAINS (REFER PAGES 98 TO 100). THOUGH PR INCIPLE OF RES JUDICATA IS NOT APPLICABLE TO TAX PROCEEDINGS, WHER E THERE IS NO CHANGE IN FACTS OR IN LAW, A DECISION TAKEN IN EARLIER YEA RS SHOULD NOT BE DEVIATED FROM RADHASOAMI SATSANG V. CIT (1992) 19 3 ITR 321 (SC) AND BHARAT SANCHAR NIGAM LTD. AND ANOTHER V. UNION OF INDIA AND OTHERS (2006) 282 ITR 273 (SC). 6) DEPARTMENTS APPEAL WAS DISMISSED BY THE HONBLE BOMBAY HIGH COURT (COPY ENCLOSED). 7) LONG TERM CAPITAL ASSETS ARE HELD FOR AT LEAST O NE YEAR AND MAJORITY SHORT TERM CAPITAL ASSETS ARE HELD FOR AN AVERAGE P ERIOD OF MORE THAN 6 MONTHS. 8) INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS (REFER PAGE 10 OF ASSESSMENT ORDER). ) 9) RESPONDENT HAD EARNED SUBSTANTIAL DIVIDEND INCOM E FROM YEAR TO YEAR: ASSESSMENT YEAR DIVIDEND RECEIVED (RS.) PAGE NO. 2001-02 85,25,890 58 2002-03 2,54,248 72 2003-04 42,820 81 2004-05 73,398 119 10 ITA NO.6432/MUM/2009. 2005-06 3,35,644 120 2006-07 13,46,957 121 2007-08 17,20,643 58 10. SOME OF A SHARES SOLD DURING THE YEAR WERE PURC HASED IN THE EARLIER YEARS WHEREIN APPELLANTS CLAIM OF INVESTMENT HAS B EEN ACCEPTED. 11. MERE STUDY OF RESEARCH REPORTS, NEWSPAPERS, MAG AZINES, ETC. DOES NOT TURN AN INVESTMENT ACTIVITY INTO A BUSINESS ACTIVIT Y SHRI GOPAL PUROHITS CASE. 12. BOARD HAS VIDE CIRCULAR NO. 4 CLARIFIED THAT AN ASSESSEE CAN HAVE TWO PORTFOLIOS I.E. INVESTMENT PORTFOLIO AND TRADING PO RTFOLIO. PROFIT ON SALE OF SHARES HELD IN INVESTMENT PORTFOLIO IS TAXABLE A S CAPITAL GAINS. 13. DECISIONS RELIED ON BY AO HAVE BEEN CONSIDERED BY THE HONBLE TRIBUNAL IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA) AND AFTER ELABORATE DISCUSSION HELD IN THE SAID CASE ON IDENTICAL FACTS THAT THE PROFIT ON SALE OF SHARES RESULTED IN CAPITAL GAINS. 14. DEFINITION OF SHORT TERM CAPITAL ASSET REFER S TO A PERIOD OF HOLDING OF LESS THAN 12 MONTHS IN RESPECT OF SHARES. SIMILA RLY, DEFINITION OF LONG TERM CAPITAL ASSET REFERS TO PERIOD OF HOLD OF MORE THAN 12 MONTHS FOR SHARES. IN THE PRESENT CASE, PERIOD OF H OLDING IS LESS THAN/MORE THAN 12 MONTHS. HENC, PROFIT TAXABLE AS S HORT TERM CAPITAL GAINS/LONG TERM CAPITAL GAINS. WHERE THERE IS NO IRREGULARITY OR ILLEGALITY IN TRANSACTION, TRANSACTION SHOULD BE AC CEPTED CIT V. WALFORT SHARE & STOCK BROKERS (P) LTD. (2008) 310 I TR 421 (BOM). 15. RELIANCE IS ALSO PLACED ON THE DECISION OF THE HONBLE DELHI TRIBUNAL IN THE CASE OF D & M COMPONENTS LTD. V. ACIT (2012) 49 SOT 224 (DEL) WHEREIN THE HONBLE DELHI TRIBUNAL HAS HELD T HAT IF THE INVESTMENT IS NOT OUT OF BORROWED FUNDS, IF THE ASS ESSEE HAS VALUED THE INVESTMENTS AT COSTS AND IF THE SAME HAVE BEEN ACCE PTED AS INVESTMENTS IN THE EARLIER YEARS, THE SAME SHOULD B E TREATED AS CAPITAL GAINS. 16. CIT VS. GOPAL PUROHIT (2011) 336 ITR 287 (BOM). (SLP REJECTED (2011) 334 ITR 308 (ST). AS THE FACTS ARE IDENTICAL THE ORDER OF TRIBUNAL F OR EARLIER YEARS WHICH WAS APPROVED BY HIGH COURT MAY BE FOLLOWED. 11 ITA NO.6432/MUM/2009. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SIMILAR I SSUE INVOLVING IDENTICAL FACTS HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN AS SESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 200 5-06 AND THE SAME HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE, INTER ALIA, FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 9 OF ITS ORDER DATED 21 ST DEC., 2009 PASSED IN ITA NO. 5291/MUM/2009 : IT IS SEEN THAT THE ASSESSEE HAS INVESTED IN SHAR ES FOR THE LAST 10 YEARS AND THE PURCHASES WERE MADE FROM SURPLUS FUNDS AVAI LABLE WITH THE ASSESSEE AS THERE IS NO CLAIM FOR INTEREST ON BORROWINGS FOR THE PURPOSE OF INVESTMENT. SHARES PURCHASED HAVE BEEN CONSISTENTLY DECLARED UN DER THE HEAD CAPITAL GAINS TREATING THEM AS INVESTMENT PORTFOLIO SINCE I NCEPTION OF THIS ACTIVITY. THE SHARES SOLD AFTER LONG PERIOD HAVE BEEN TREATED UNDER THE HEAD LONG TERM CAPITAL GAINS AND SHARES WHICH ARE PURCHASED AND S OLD IN SHORT TERM INTERVALS HAVE BEEN TREATED UNDER THE HEAD SHORT TERM CAPITAL GAINS WHICH SYSTEM IS CONSISTENTLY FOLLOWED YEAR AFTER YEAR. EVEN THOUGH THERE ARE MANY TRANSACTIONS OF PURCHASES AND SALES, THE QUANTUM OF PURCHASE ON A PARTICULAR DATE AND SUBSEQUENT SALE THEREAFTER DO INDICATE THA T THE ASSESSEE HAS TAKEN DELIVERY OF SHARES AND SUBSEQUENTLY SOLD IN SMALLER LOTS AND THE SHARES SOLD UNDER TH HEAD LONG TERM CAPITAL GAINS INCLUDES SOME OF THE SHARES WHICH HAVE BEEN HELD AS EARLY AS OCTOBER 1996 INCLUDING S OME BONUS SHARES ALSO. THE SHARES OF E.I.H. LTD., LUPIN LTD. AND RAMCO SYS TEMS WERE PURCHASED IN THE YEAR 2003. SOME OF THE LONG TERM CAPITAL GAINS CLAIMED EXEMPT WAS ALSO ON SALE OF SHARES OF J.K. CHEMICALS PURCHASED IN OC TOBER 1996. THESE TRANSACTIONS DO INDICATE THAT ASSESSEE IS HOLDINGTH E SHARES FOR A LONG PERIOD AS INVESTMENT AND HIS INTENTION WAS NEVER BEEN TO T RADE IN THE SHARES. SINCE THE ASSESSEE HAS NO CLAIM FOR LOSSES ON VALUATION I N ANY OF THE YEARS IT CANNOT BE CONSIDERED THAT THE ASSESSEE IS HOLDING THEM IN TRADING PORTFOLIO. SINCE THE ASSESSEE IS CONSISTENTLY INVESTING IN SHARES FROM S URPLUS FUNDS AND IS ALSO EARNING VERY HIGH AMOUNT OF DIVIDEND AS CAN BE SEE N FROM THE TABLE EXTRACTED ABOVE, THE TRANSACTIONS CAN ONLY BE CONSI DERED AS INVESTMENT TRANSACTIONS. THE CONTENTION OF THE LEARNED COUNSEL THAT THE CAPITAL GAINS WAS TREATED AS ASSESSEES NET BUSINESS INCOME FOR THE R EASON THAT DURING THE YEAR UNDER CONSIDERATION THE SHORT TERM CAPITAL GAINS WA S ASSESSABLE AT 10% AND LONG TERM CAPITAL GAIN AT NIL% DOES HAVE A BEARING IN CHARGING HEAD OF THE INCOME BY THE A.O. AS BUSINESS PROFIT ASSESSABLE AT 30%. THIS REASON OF THE 12 ITA NO.6432/MUM/2009. A.O. FOR CHANGING THE HEAD OF INCOME IS, IN OUR VI EW, WAS NOT CORRECT AND THE A.O. HAS NOT BEEN ABLE TO ESTABLISH HOW THE TRA NSACTIONS CAN BE TREATED AS BUSINESS TRANSACTIONS. THE REASONS ASSIGNED BY THE A.O. ARE NOT SUPPORTED BY THE FACTS ON RECORD AND THE INCOME SHOWN BY THE ASS ESSEE CAN NOT BE ASSESSED UNDER THE HEAD BUSINESS INCOME. AS NOTED A BOVE, THERE ARE CERTAIN SHARES WHICH ARE HELD FOR MORE THAN 8 YEARS AND SO IT CANNOT BE CONSIDERED THAT THE ASSESSEE IS IN THE BUSINESS OF PURCHASE AN D SALE OF SHARES. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO FU RNISHED A STATEMENT GIVING COMPARATIVE ANALYSIS OF THE RELEVANT FACTS TO SHOW THAT THE MATERIAL FACTS RELEVANT TO THE ISSUE UNDER CONSIDERATION FOR ASSESSMENT YEARS 2005-06 AND 2006-07 ARE SIMILAR. KEEPING IN VIEW THIS POSITION AS WELL AS T HE RULE OF CONSISTENCY, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RE NDERED IN ASSESSEES OWNCASE FOR THE EARLIER YEAR ON A SIMILAR ISSUE AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) DIRECTING THE AO TO ACCEPT THE CLAIM O F THE ASSESSEE OF SHORT TERM AND LONG TERM CAPITAL GAIN ARISING FROM THE TRANSAC TIONS OF PURCHASE AND SALE OF SHARES. GROUND NO.1 OF THE REVENUES APPEAL IS ACCO RDINGLY DISMISSED. 10. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN RESTRICTING THE DISALLOWANCE OF RS. 77,793/- MADE BY THE AO U/S 14A TO RS.27,663/-. 11. DURING THE YEAR UNDER CONSIDERATION, INCOME FRO M DIVIDEND AND INTEREST ON RBI BONDS AMOUNTING TO RS.13,46,957/- AND RS.3,10,0 00/- WAS EARNED BY THE ASSESSEE AND THE SAME WAS CLAIMED TO BE EXEMPT. APP LYING RULE 8D, THE EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME WERE COMPUTED BY THE AO AND A DISALLOWANCE OF RS.77,793/ - WAS MADE BY HIM U/S 14A.ON APPEAL, THE LEARNED CIT(APPEALS) RESTRICTED THE SAID DISALLOWANCE TO RS.27,663/- AFTER HAVING NOTICED THAT THE BALANCE A MOUNT OF EXPENDITURE OF RS.50,130/- WAS CLAIMED BY THE ASSESSEE AGAINST INC OME FROM CAPITAL GAINS. 13 ITA NO.6432/MUM/2009. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS FOUND BY THE LE ARNED CIT(APPEALS) ON VERIFICATION OF THE RELEVANT EXPENSES CLAIMED BY TH E ASSESSEE, EXPENSES ONLY TO THE EXTENT OF RS.27,663/- WERE DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT AND HE, THEREFORE, HELD THAT THE DISALLOWANCE U/S 14A C OULD BE MADE ONLY TO THAT EXTENT. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR HA S NOT BEEN ABLE TO REBUT OR CONTROVERT THIS FINDING GIVEN BY THE LEARNED CIT(AP PEALS) AND THIS BEING SO, WE FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IM PUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE HOLDING THAT THE DISALLOWANCE U/S 14A COULD NOT BE MADE AT HIGHER FI GURE THAN THE EXPENSES ACTUALLY CLAIMED BY THE ASSESSEE. GROUND NO.2 OF RE VENUES APPEAL IS ACCORDINGLY DISMISSED. 13. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN RESTRICTING THE ADDITION MADE BY TH E AO ON ACCOUNT OF INTEREST ON 8% GOI BONDS OF RS.1,09,151/- TO RS.80,000/-. 14. DURING THE YEAR UNDER CONSIDERATION, A SUM OF R S.20 LAKHS WAS GIFTED BY THE ASSESSEE TO HIS WIFE ON 26-07-2005 WHICH WAS INVEST ED BY HER IN 8% GOI BONDS. INVOKING THE PROVISIONS OF SECTION 64(1)(IV), THE A O HELD THAT INTEREST ON THE SAID BONDS WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASS ESSEE. ACCORDINGLY, HE WORKED OUT SUCH INTEREST AT THE RATE OF 8% FOR THE PERIOD FROM 26-07-2005 TO 31-03-2006 AT RS.1,09,151/- AND ADDITION TO THAT EXTENT WAS MADE BY HIM TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNED CIT(APPEALS) FOUND THAT INTEREST ON GOI BONDS WAS DUE TWICE IN THE YEAR ON 30 TH JUNE AND 31 ST DECEMBER. HE, THEREFORE, HELD THAT INTEREST ACCRUED ON SUCH BONDS OF RS.20 L AKHS DURING THE YEAR UNDER CONSIDERATION WAS ONLY TO THE EXTENT OF RS.80,000/- AND ACCORDINGLY THE ADDITION MADE BY THE AO ON THIS ISSUE WAS RESTRICTED BY HIM TO RS.80,000/-. 14 ITA NO.6432/MUM/2009. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE. AS PER THE TERMS OF THE ISSUE OF GOI BO NDS, INTEREST WAS TO BE ACCRUED HALF YEARLY ON 30 TH JUNE AND 31 ST DECEMBER EVERY YEAR. IN THE YEAR UNDER CONSIDERATION, SUCH INTEREST ON THE BONDS PURCHASED ON 26-07-2005 HAD ACCRUED AT THE RATE OF 8% ONLY ONCE I.E. ON 31 ST DECEMBER, 2005 AND THE SAME BEING TO THE EXTENT OF RS.80,000/-, ADDITION MADE BY THE AO, IN OUR OPINION, WAS RIGHTLY RESTRICTED BY THE LEARNED CIT(APPEALS) TO RS.80,000 /-. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. 16. IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF DEEMED HOUSE PROPERTY INCOME. 17. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE WAS THE OWNER OF TWO FLATS NO. 1603 AND 1604 IN THE BUILDING KNOWN AS CHALLENG ER I AT KANDIVALI. ACCORDING TO THE AO, ONLY ONE OF THE SAID TWO FLATS I.E. FLAT NO. 1603 WAS OCCUPIED BY THE ASSESSEE FOR HIS RESIDENCE AND FLAT NO. 1604 WAS VA CANT. HE, THEREFORE, ADDED NOTIONAL INCOME OF THE SAID FLAT WORKED OUT AT RS.1 ,10,000/- TO THE TOTAL INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PRO PERTY. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE SAID ADDITION MADE BY THE AO ACCEPTING THE PLEA OF THE ASSESSEE THAT BOTH THE ADJACENT FLATS WERE COMBINED BY THE ASSESSEE AND THE SAME WERE USED FOR HIS OWN RESIDENCE AS ONE UNIT. 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THA T A SIMILAR ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 HAS BEEN RESTORED BY THE TRIBUNAL VIDE ITS ORDER 15 ITA NO.6432/MUM/2009. DATED 21 ST DEC., 2009 (SUPRA) TO THE FILE OF THE AO DIRECTING HIM TO VERIFY WHETHER BOTH THE FLATS ARE ADJACENT TO EACH OTHER AND THEY ARE USED BY THE ASSESSEE FOR SELF OCCUPATION AND DECIDE THE ISSUE ACCORDINGLY ON THE BASIS OF SUCH VERIFICATION. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06, WE RESTORE THE SIMILAR ISS UE INVOLVED IN THE YEAR UNDER CONSIDERATION TO THE FILE OF THE AO FOR DECIDING TH E SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN BY THE TRIBUNAL IN ASSESSMENT YE AR 2005-06. GROUND NO.4 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS ACC ORDINGLY TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 23 RD DAY OF OCT. , 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 23 RD OCT., 2012. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY) BY ORD ER ASSTT. REGI STRAR, ITAT, MUMBAI BENC HES, WAKODE MUMBAI.