ASHOK P. KARVAT (HUF), MUMBAI V. DCIT RG 14(3), MUMBAI

ITA 6442/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8063 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEEVAN LAL LAVADIYA
• Assessee Lawyers: KETAL L VAJANI
• Keywords: Capital asset; Business income
• Section: 2(14)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , ! , ' BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.6442/MUM/2010 (A.Y.2006-07) SHRI ASHOK P. KARVAT (HUF) 39, POPATWADI, KALBADEVI ROAD MUMBAI-400 002. # # # # / VS. DCIT, RANGE-14(3) EARNEST HOUSE, NARIMAN POINT MUMBAI-400 021. ( %& / // / APPELLANT) ( '(%& / RESPONDENT) %& ) * ) * ) * ) * /APPELLANT BY : SHRI KETAL L. VAJANI '(%& ) * ) * ) * ) * /RESPONDENT BY : SHRI JEEVANLAL LAVADIYA # ) +, / / / / DATE OF HEARING : 11.09.2014 -./ ) +, / DATE OF PRONOUNCEMENT : 19.09.2014 0 0 0 0 / / / / O R D E R PER JOGINDER SINGH (JM)/ : THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 16.6.2010 OF THE LD. FIRST APPELLATE AUTHORITY ON THE GROUND THAT THE LD. CIT(A) ERRED IN CONFIRMING THE TREATMENT OF SHORT TERM CAP ITAL GAIN ON SALE OF SHARES AMOUNTING TO RS.19,66,173/- AS BUSINESS INCO ME OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS. 2. DURING HEARING OF THIS APPEAL SHRI KETAN L. VAJAN I, LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT ALL THE MEMBERS OF HUF ARE IN INSURANCE BUSINESS WHO ARE HAVING SUBSTANTIAL INCOME FROM SUC H BUSINESS. IT WAS CONTENDED THAT FOR EARLIER AND LATER YEARS, IDENTIC ALLY, THE CLAIM OF THE ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 2 ASSESSEE WAS ALLOWED. ON QUESTIONING FROM THE BENCH WHETHER THE ASSESSMENT WAS FRAMED U/S.143(3) OF THE ACT IT WAS FAIRLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT IT WAS NOT A SCRUTINY ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE MAJOR GAIN OF RS.6,42,299/- WAS FROM THE TRANSACTIONS MADE BETWEE N 150 TO 250 DAYS AND MAJORITY OF THE SCRIPS HAVE ONLY ONE TRANSACTIO N DURING THE YEAR EXCEPT FEW SCRIPS. BROADLY IT WAS CONTENDED THAT 32 .67% OF THE GAINS IS OUT OF THE GAINS WHERE SALES WAS KEPT BETWEEN 150 T O 25 DAYS. IT WAS FURTHER EXPLAINED, THAT IT WAS SHOWN AS INVESTMENT IN BOOKS AND FUNDS ARE FROM FAMILY MEMBERS. IT WAS ALSO SUBMITTED THAT NO BORROWED FUNDS WERE UTILIZED AND NO INTEREST WAS PAID TO THE FAMIL Y MEMBERS. ON THE OTHER HAND THE LD. DR STRONGLY DEFENDED THE CONCLUS ION DRAWN BY THE LD. CIT(A) BY SUBMITTING THAT THE VOLUME, FREQUENCY OF TRANSACTION HAS TO BE CONSIDERED AND THUS THE LD. AO WAS VERY MUCH RIGHT IN OBSERVING THAT THE ASSESSEE MADE MANY TRANSACTIONS AND IT IS NOT E SSENTIAL THAT THERE SHOULD BE SERIES OF TRANSACTIONS AND EVEN A SINGLE ISOLATED TRANSACTION MAY CONSTITUTE BUSINESS. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF AR E THAT THE ASSESSEE HUF DECLARED TOTAL INCOME OF RS.19,78,823/- IN ITS RETURN FILED ON 20/10/2006 ACCOMPANIED BY STATEMENT OF TOTAL INCOME , CAPITAL ACCOUNT, ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 3 BALANCE SHEET AND AUDITED REPORT IN FORM NO.3CB AND 3CD ETC. IN RESPONSE TO NOTICES ISSUED TO THE ASSESSEE THE ASSE SSMENT PROCEEDINGS WERE ATTENDED AND NECESSARY DETAILS WERE FILED. IN ITS COMPUTATION OF INCOME THE ASSESSEE SHOWED INCOME OF RS.12,650/- AS SPECULATION INCOME, RS.19,66,173/- AS SHORT TERM CAPITAL GAINS AND RS.7,95,956/- AS LONG TERM CAPITAL GAINS EXEMPT U/S.10(36)/10(38) OF THE ACT. FROM THE STATEMENT OF SHORT TERM CAPITAL GAINS IT WAS NO TICED BY THE AO THAT THE ASSESSEE PURCHASED SHARES AMOUNTING TO RS.57,44 ,955/- . THE CLAIM OF THE ASSESSEE, TO TREAT THE SHARE TRANSACTION AS CAPITAL GAINS, WAS DENIED BY THE AO ON THE PLEA THAT THE TRANSACTIONS ARE CARRIED OUT REGULARLY AND FREQUENTLY, QUANTITIES OF PURCHASE /S ALES ARE VERY LARGE, ASSESSEE HAS CONTACTS, ACCESS TO INFORMATION AND NE CESSARY QUALIFICATION AND COMPETENCE TO CARRYON BUSINESS OF ITS OWN OR TH ROUGH OTHER PERSONS, HAVING INTENTION TO EARN PROFIT WITH AN IN TENTION TO MINIMIZE THE COST OF INVESTMENT AND TO EARN REGULAR DIVIDEND THERE FROM. THE LD. AO TREATED THE SHORT TERM CAPITAL GAIN OF RS.19,66, 173/- AS PROFIT AND GAINS OF BUSINESS. 3.1 THE AGGRIEVED ASSESSEE CARRIED THE MATTER BEFOR E THE LD. CIT(A) WHEREIN THE VIEW TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AND THUS THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBU NAL. ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 4 3.2 IF THE TOTALITY OF FACTS AVAILABLE ON RECORD, R EASON OF DENIAL FOR CLAIMING THE GAINS AS INVESTMENT AND TREATMENT BY T HE AO AS BUSINESS INCOME, AFFIRMATION BY THE LD. CIT(A) AND THE ASSER TIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF, KEPT IN JUXTAPOSITION AND A NALYSED THE INCOME OF ALL THE MEMBERS OF HUF ALONG WITH THEIR NATURE OF J OB IS SUMMARIZED HEREUNDER :- NAME OF THE MEMBER PRINCIPAL BUSINESS TAXABLE INCOME FOR A.Y. 2006- 07(RS.) BUSINESS INCOME FOR THE YEAR (INCOME EARNED FROM PRINCIPAL ACTIVITY OF THE MEMBER) ASHOK PRATAPRAI KARVAT (KARTA) INSURANCE AGENT 7,70,060/- 6,67,249/- VARSHA ASHOK KARVAT (WIFE OF KARTA) INSURANCE AGENT 5,24,760/- 6,04,755/- DEV ASHOK KARVAT (SON OF KARTA) INSURANCE AGENT 49,56,550/- 36,96,219/- 3.3 WE ARE ALSO SUMMARIZING HEREUNDER THE SHARE INV ESTMENT AT THE END OF EACH YEAR AND DIVIDEND EARNED FOR EACH YEAR: - ASST. YEAR SHARE INVESTMENT (CLOSING BALANCE) DIVIDEND INCOME FOR THE YEAR LONG TERM CAPITAL GAIN(LOSS) SHORT TERM CAPITAL GAIN(LOSS) 2004-05 27,34,027(22,16,025 + 5,18,002) 68,997 86,250 4,53,195 2005-06 50,83,755 1,21,114 5,58,564 4,24,226 2006-07 69,47,432 1,66,110 7,95,956 19,66,175 2007-08 83,76,645 2,14,681 3,12,854 4,92,802 2008-09 70,25,251 2,59,822 12,85,677 (5,13,394) 2009-10 68,44,897 1,55,190 2,09,380 (21,880) ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 5 3.4 IF THE CHART SHOWING SALE INVESTMENT AT THE END OF EACH YEAR AND CONSEQUENT EARNING OF DIVIDEND ARE ANALYSED WE NOTE THAT FOR ASSESSMENT YEAR 2004-05 THE DIVIDEND INCOME WAS RS. 68,997/- AND LONG TERM CAPITAL GAINS WAS RS.86,250/- WHEREAS SHO RT TERM CAPITAL GAIN WAS RS.4,53,195/- WHICH WAS ACCEPTED BY THE DEPART MENT THOUGH U/S.143(1) OF THE ACT. FOR THE IMPUGNED ASSESSMENT YEAR THE SHARE INVESTMENT WAS RS.69,47,432/- WHEREAS THE DIVIDEND INCOME IS RS.1,66,110/- AND LONG TERM CAPITAL GAIN IS RS.7,95 ,956/- WHEREAS SHORT TERM CAPITAL GAIN IS RS.19,66,175/-. FOR A CO MPARATIVE STUDY OF 2009-10 THE INVESTMENT IN SHARES IS RS.68,44,897/- AGAINST WHICH THE DIVIDEND INCOME IS RS.1,55,190/- AND LONG TERM CAPI TAL GAIN IS RS.2,09,380/- WHEREAS THE SHORT TERM CAPITAL GAIN I S ONLY RS,21,880/-, MEANING THEREBY THE ASSESSEE IS A REGULAR INVESTOR IN SHARES. IF THIS ISSUE IS ANALYSED WITH A VIEW TO PERIOD-WISE SHORT TERM CAPITAL GAINS IT IS SUMMARISED AS UNDER :- PERIOD RANGE STCG % OF TOTAL STCG (%) CUMULATIVE PERCENTAGE MORE THAN 250 DAYS 33,931 1.73 1.73% BETWEEN 150 TO 250 DAYS 6,42,299 32.67 34.40% BETWEEN 100 TO 150 DAYS 3,19,086 16.23 50.63% BETWEEN 60 TO 100 DAYS 3,58,912 18.25 68.88% BETWEEN 30 TO 60 DAYS 4.90,217 24.93 93.81% LESS THAN 30 DAYS 1,21,728 6.19 100% ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 6 TOTAL 19,66,173 100 3.5 FROM THE ABOVE CHART, (SUMMARIZED IN PARA 3.4) WE NOTE THAT ABOUT 32.67% OUT OF TOTAL SHORT TERM CAPITAL GAINS THE HO LDING OF SHARES WAS BETWEEN 150 TO 250 DAYS AND THE CUMULATIVE PERCENTA GE COMES TO 34.40% . ONLY 6.19% OF SHORT TERM CAPITAL GAINS IS OUT OF LESS THAN 30 DAYS WHEREAS 16.23% IS OUT OF 100 TO 150 DAYS AND O NLY 1.73% IS OUT OF MORE THAN 250 DAYS. THUS, IT CANNOT BE SAID THAT TH E GAIN OOZES OUT OF FREQUENT SHARE TRADING AS HAS BEEN OBSERVED IN THE ASSESSMENT ORDER OUT OF A VERY SHORT DURATION PERIOD. THE NUMBER OF TRANSACTIONS PER SCRIP IS NOT VERY LARGE AND IN MOST OF THE CASES TH ERE ARE FEW TRANSACTIONS IN PARTICULAR SCRIP. THERE ARE 145 SCR IP WHERE THERE IS ONLY A SINGLE TRANSACTION DURING THE YEAR AND PERIODICIT Y OF HOLDING OF SHARES IS REASONABLY LONG . UNDISPUTEDLY THE SHARES ARE SH OWN AS INVESTMENT IN THE BALANCE SHEET OF THE ASSESSEE AND SUCH INVESTME NT ARE MADE MAINLY OUT OF OWN CAPITAL OF THE ASSESSEE AND PARTLY INTER EST FREE LOAN FROM THE MEMBER OF HUF. ONE OF THE REASON FOR DENIAL OF CLAI MED BENEFIT BY THE AO IS THAT THE INVESTMENT WAS MADE OUT OF BORROWED FUNDS HOWEVER, AS SUMMARIZED IN THE ABOVE CHART FIRSTLY THE FUNDS WER E BORROWED FROM THE MEMBERS OF HUF ITSELF WHICH ARE INTEREST FREE. THE REFORE, THE OBSERVATION OF THE LD. AO IS NOT SUBSTANTIATED. THE ASSESSEE EARNED SHORT TERM CAPITAL GAIN OUT OF 148 SCRIPS OF SHARES AND MAXIMUM ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 7 FREQUENCY OF TRANSACTION IN SUCH SHARES PER SCRIP I S MAXIMUM TWO. SHARES OF EACH COMPANY ARE SEPARATE AND THE INVESTM ENT IS DISTINCT. THE TRANSACTION PER SCRIP ARE VERY NOMINAL. OUT OF 148 SCRIPS THERE ARE 145 SCRIPS WHERE THERE IS ONLY ONE TRANSACTIONS AND 3 S CRIPS WHERE THERE ARE 2 TRANSACTIONS. THE OBSERVATION BY THE AO THAT INTE RVAL BETWEEN PURCHASE AND SALE OF SHARES IS ALSO VERY LESS IS NO T SUBSTANTIATED AS SUMMARIZED IN THE AFORESAID TABLE FROM WHICH IS EVI DENT THAT THERE ARE MANY TRANSACTIONS WHERE PERIOD OF HOLDING IS MORE T HAN 250 DAYS, 150 DAYS, 100 DAYS AND 60 DAYS. AS MENTIONED EARLIER 32 .67% OF THE TOTAL GAIN HAS BEEN EARNED IN THE TRANSACTION WHERE THE H OLDING PERIOD IS MORE THAN 100 DAYS AND THERE ARE VERY FEW HOLDINGS WHEN THE GAIN IS FROM LESS THAN 30 DAYS. IT IS PERTINENT TO MENTION HERE THAT OUT OF SOME OF THE TRANSACTIONS THERE IS LONG TERM CAPITAL GAIN S ALSO. IN THE CASE OF GOPAL PUROHIT VS. JCIT (29 SOT 117) (MUM) , THE MUMBAI BENCH OF THE TRIBUNAL HAS CONSIDERED THE PERIOD OF HOLDING AND V OLUME OF TRANSACTIONS HOLDING THAT THESE ARE NOT RELEVANT FA CTORS IN DETERMINING THE NATURE OF TRANSACTIONS WHICH WAS AFFIRMED BY HO N'BLE BOMBAY HIGH COURT. SO FAR AS THE CONTENTION OF THE LD. DR AND ALSO OBSERVED BY THE AO THAT THE INVESTMENT WAS MADE MAINLY OUT OF OWN FUNDS AND ALSO FROM BORROWED FUNDS WE ARE OF THE VIEW THAT HUF IS AN ARTIFICIAL PERSON AND THE MEMBERS OF THE HUF WHO PROVIDED INTEREST FR EE FUNDS CANNOT BE SAID TO BE OUTSIDER. THE RATIO LAID DOWN IN THE CAS E OF JANAK S. ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 8 RANGWALA VS. ACIT 11 SOT 627(MUM.) FURTHER SUPPORTS THE CASE OF THE ASSESSEE. THE INTENTION TO MAKE THE INVESTMENT IS THE GUIDING FACTOR. THESE DAYS THE INFORMATION TECHNOLOGY IS SO ADVANCE D AND THE INFORMATION FOR MAKING THE INVESTMENT IS AVAILABLE ON INTERNET AND OTHER MATERIAL AVAILABLE ON THE MARKET. EVEN OTHERWISE TH E MEMBER OF THE HUF ARE PROFESSIONALLY SOUND TO TAKE A DECISION OF BUYING AND SELLING OF SHARES. THE VOLUME OF TRANSACTIONS ARE SUCH ON THE BASIS OF WHICH IT CAN BE SAID THAT THE ASSESSEE MADE THE INVESTMENT BY RE INVESTING THE AMOUNT OF CAPITAL GAINS IN SHARES, THEREFORE, THE C LEAR FACT IS OOZING OUT THAT THE ASSESSEE IS AN INVESTOR. MAJORITY OF THE S HARES WERE HELD FOR A LONGER PERIOD AS IS EVIDENT FROM THE AFORESAID TABL E. SO FAR AS THE CONTENTION OF THE REVENUE, THAT THE ASSESSEE MADE T HE INVESTMENT OUT OF BORROWED FUNDS IS ALSO NOT SUBSTANTIATED AS THE INV ESTMENT WAS MADE FROM THE MEMBERS OF HUF THAT TOO INTEREST FREE. SO FAR AS THE CONTENTION OF THE REVENUE THAT THE ASSESSEE SHOWED THE PROFIT ON PURCHASE AND SALE OF SHARES AS SHORT TERM CAPITAL GAINS/LONG TERM CAP ITAL GAINS, SIMPLY TO REDUCE TAX LIABILITY IS ALSO NOT CORRECT AS IS EVID ENT FROM THE FACTS AVAILABLE ON RECORD. 3.6 NOW WE SHALL DEAL WITH EACH AND EVERY OBJECTION S, RAISED BY THE REVENUE ON THE BASIS OF WHICH A PARTICULAR CONCLUSI ON WAS ARRIVED AT. THE FIRST REASONING CONTAINED IN THE ASSESSMENT ORD ER AND IDENTICALLY ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 9 ASSERTED BY THE LD. DR IS FREQUENCY OF TRANSACTION. WE NOTE FROM THE DETAILS OF SHORT TERM CAPITAL GAINS THAT THE ASSESS EE EARNS THE GAINS IN RESPECT OF 148 SCRIPS OF SHARES. THE FREQUENCY OF B UYING AND SELLING OF SHARES, PER SCRIP, IS MAXIMUM TWO AND THUS, THE FRE QUENCY OF TRANSACTION HAS TO BE SEEN IN THE LIGHT OF EACH SCR IP AND NOT IN A GLOBAL MANNER. SHARES OF EACH COMPANY ARE SEPARATE AND DIS TINCT INVESTMENT AND THUS, THE FREQUENCY CANNOT BE CONSIDERED BY TAK ING TOTAL PURCHASE OR SALE TRANSACTION. MERELY MAKING INVESTMENT IN MA NY COMPANIES THE INVESTOR DOES NOT BECOME A TRADER IN SHARES. OUT OF 148 SCRIPS THERE ARE 145 SCRIPS WHERE THERE IS ONE TRANSACTION AND THREE SCRIPS WHERE THERE ARE TWO TRANSACTIONS. THE MAXIMUM TRANSACTION IN AN Y SCRIP IS TWO IN A YEAR AND THAT ALSO JUST IN THREE SCRIPS. IN VIEW OF THE MATTER THE DECISION IN JANAK S. RANGWALA VS. ACIT (SUPRA) , CLEARLY COMES TO THE RESCUE OF THE ASSESSEE WHERE IT WAS HELD THAT MERE VOLUME OF TRANSACTIONS TRANSACTED BY THE ASSESSEE WOULD NOT ALTER THE NATU RE OF TRANSACTION. IT IS AN ESTABLISHED PRINCIPLE THAT INCOME IS TO BE CO MPUTED WITH REGARD TO THE TRANSACTION. THE TRANSACTION IN WHOLE HAS TO BE TAKEN INTO CONSIDERATION AND MAGNITUDE OF TRANSACTION DOES NOT ALTER THE NATURE OF TRANSACTION . MEANING THEREBY THE INTENTION OF THE ASSESSEE HAS TO BE SEEN TO DETERMINE THE NATURE OF TRANSACTION C ONDUCTED BY THE ASSESSEE. THEREFORE FROM THIS ANGLE WE ARE NOT IMPR ESSED WITH THE REASONING CONTAINED IN THE ASSESSMENT ORDER. ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 10 3.7 THE NEXT GROUND ON WHICH THE CLAIM WAS DENIED I S SHORT INTERVAL BETWEEN PURCHASE AND SALE OF SHARES. FROM THE ABOVE TABLE WE FIND THAT THERE ARE MANY TRANSACTIONS WHERE PERIOD OF HOLDING IS MORE THAN 250 DAYS, 150 DAYS, 100 DAYS AND 60 DAYS ETC. THE MAXIM UM GAIN I.E. 32.67% OF THE TOTAL GAIN IS THE TRANSACTION RANGING FROM 150 TO 250 DAYS, AND THERE IS ONLY RS.1,21,728/- (OUT OF RS.19 ,66,173) WHICH IS 6.19% OF THE TOTAL GAINS WHICH IS EARNED FROM THE T RANSACTION WHERE HOLDING IS LESS THAN 30 DAYS. IT IS FURTHER NOTED T HAT MANY OF THE TRANSACTIONS ARE RESULTING IN LONG TERM CAPITAL GAI N ALSO, WHERE THE GAIN IS RS.7,95,956/- AND IF THE TOTAL OF BOTH I.E., LON G TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN THEN OUT OF CAPITAL GAIN OF RS.27,62,129/- ONLY A SUM OF 1,21,728/- IS EARNED FROM 30 DAYS HOLDING. I T IS WORTH NOTING THAT THE LD. AO WITH RESPECT TO LONG TERM CAPITAL G AIN ACCEPTED THE CLAIM OF THE ASSESSEE BUT WHEN IT COMES TO SHORT TERM CAP ITAL GAINS HE TREATED THE SAME IN THE NATURE OF BUSINESS. THE TERM CAPITA L ASSET IS DEFINED IN SEC. 2(14) OF THE ACT WHICH DOES NOT PROVIDE FOR AN Y MINIMUM QUALIFYING PERIOD AS CAPITAL ASSET. AS PER SECTION 2(42A) SHOR T TERM CAPITAL ASSET IS DEFINED AS WHICH IS HELD BY AN ASSESSEE FOR NOT MOR E THAN 36 MONTH (12 MONTHS IN THE CASE OF SHARES) MEANING THEREBY, THOU GH OUTER LIMIT HAS BEEN PROVIDED BUT THERE IS NO MENTION ABOUT THE MIN IMUM PERIOD FOR WHICH AN ASSET IS HELD FOR QUALIFYING TO BE A CAPIT AL ASSET. HOWEVER, THE PERIOD OF HOLDING AND VOLUME OF TRANSACTION HAS BEE N CONSIDERED IN ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 11 GOPAL PUROHIT VS. JCIT (29 SOT 117) (MUM) HOLDING THAT THE PERIOD OF HOLDING IS NOT A RELEVANT FACTOR. 3.8 ANOTHER REASONING MENTIONED IN THE ASSESSMENT O RDER IS THAT THERE WAS NO BUSINESS ACTIVITY EXCEPT SPECULATION INCOME. WE NOTE THAT IN THE ASSESSEE HUF ALL THE MEMBERS ARE ENGAGED IN THE ACT IVITY OF INSURANCE AND ARE EARNING SUBSTANTIAL INCOME. IN THE ASSESSME NT ORDER THE LD. DR TO DISTINGUISH INSURANCE ACTIVITIES WHICH AS PER TH E DEPARTMENT DOES NOT NEED MUCH TIME AND EFFORTS. HOWEVER, THIS REASONING IS NOT BASED UPON FACTS AS THE BUSINESS OF INSURANCE IS HIGHLY COMPET ITIVE. THUS, THERE IS NO MUCH SUBSTANCE IN THIS ASPECT ALSO. 3.9 ANOTHER PLEA RAISED BY THE AO IS THAT THE DIVI DEND EARNED DURING THE YEAR IS NOT VERY HIGH. WE NOTE THAT THE DIVIDE ND HAS BEEN EARNED CONSTANTLY OVER A PERIOD OF YEARS AND CANNOT BE THE SOLE CRITERIA FOR DENYING THE RELIEF AND SOMETIMES THE INVESTMENTS AR E BASED O EXPECTED GROWTH IN THE MARKET. 3.10 ANOTHER REASONING IS THAT INVESTMENT WAS MADE OUT OF BORROWED FUNDS. WE FIND THAT THE BORROWING IS ONLY FROM MEMB ERS OF HUF AND NOT FROM OUTSIDERS AND NO INTEREST HAS BEEN PAID TO SUC H MEMBERS. THUS, THE REASONING OF BORROWED FUNDS IS ALSO NOT SUBSTAN TIATED . ANOTHER REASONING CONTAINED IN THE ASSESSMENT ORDER IS THAT THE ASSESSEE HAS ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 12 PREFERRED TO BOOK THE PROFIT AND NOT HELD THE SHARE S FOR LONGER TIME. THIS REASONING WE HAVE DISCUSSED IN EARLIER PARA OF THIS ORDER. WE CANNOT IGNORE THE PAST HISTORY AND FUTURE EVENTS IN THE CA SE OF THE ASSESSEE AS IN EARLIER AND LATER YEARS THE CLAIM OF THE ASSESSE E HAS BEEN ACCEPTED BY THE DEPARTMENT. ADMITTEDLY, PRINCIPLE OF RES-JUDICATA MAY NOT BE APPLICABLE STRICTLY IN INCOME TAX MATTERS, HOWEVER, THE DECISION OF HON'BLE APEX COURT IN RADHA SWAMI SATSANG VS. CIT (193 ITR 321)(SC) AND CIT VS. NEO POLYPACK PVT. LTD. (245 ITR 495)(DEL.) FINDS PLACE IN THE CASE OF THE DECISION IN JANAK S. RANGWALA (SUPRA), BY THE TRIBUNAL, SUPPORTS THE CASE OF THE ASSESSEE . 3.11 SO FAR AS THE RELIANCE BY THE LD. AO IN THE CASE OF G. VENKATASWAMI NAIDU AND CO. VS. CIT (35 ITR 594)(SC) IS CONCERNED IS A CASE WHERE THE ASSESSEE WAS DEALING IN PLOTS OF LAN D AND THUS THE TRANSACTION OF LAND AND SHARES CANNOT BE CONSIDERED ON IDENTICAL FOOTING. THE BROAD PRINCIPLE LAID DOWN BY THE HON'B LE APEX COURT WAS WHETHER THE PURCHASER WAS A TRADER AND WERE THE PUR CHASE OF COMMODITY AND ITS RESALE ALLIED TO ITS USUAL TRADE OR BUSINESS OR INCIDENTAL TO IT WHEREAS IN THE ASSESSEE HUF THE ME MBERS ARE ENGAGED IN BUSINESS OF INSURANCE AND TRANSACTION OF SHARES IS NOT ALLIED TO BUSINESS OF INSURANCE AGENCY. THE MOST RELEVANT FAC TOR DETERMINING THE ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 13 CORRECT NATURE OF ANY TRANSACTION IS THE ORIGINAL I NTENTION AT THE TIME OF INVESTMENT. IN THE BALANCE SHEET OF THE ASSESSEE TH E SHARES ARE REFLECTED AS INVESTMENT WHICH ARE VALUED AT POST THUS WE FIND SUBSTANCE IN THE CLAIM OF THE ASSESSEE AND THUS HOLD THAT THE INVEST MENT SO MADE IS ASSESSABLE TO TAX AS CAPITAL GAINS. OUR VIEW FINDS SUPPORT FROM THE RATIO LAID DOWN IN KARAMCHAND THAPER AND BROS. PVT. LTD. VS. CIT (82 I TR 899)(SC) , WHEREIN THE HON'BLE APEX COURT OBSERVED AS UNDER :- THE TRIBUNAL ALSO RELIED ON THE CIRCUMSTANCES THAT THE ASSESSEE WAS ALSO SHOWING THESE SHARES AS INVESTMEN T SHARES IN ITS BOOKS AS WELL AS IN THE BALANCE SHEET . IT IS TRUE THAT CIRCUMSTANCES BY ITSELF IS NOT A CONCLUSIVE CIRCUMSTANCE, IT CANNOT BE DENIED THAT THERE IS A R ELEVANT CIRCUMSTANCE ON WHICH THE TRIBUNAL COULD HAVE RELIE D FOR DRAWING THE INFERENCE IT DID. IN ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY PVT. L TD. (82 ITR 586) THE HON'BLE APEX COURT OBSERVED AS UNDER : - WHETHER A PARTICULAR HOLDING IS BY WAY OF INVESTME NT OR AS STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOW LEDGE OF THE ASSESSEE WHO HOLDS THE SHARE. IN NORMAL CIRCUMS TANCES, HE SHOULD BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORD AS TO WHETHER HE HAS MAINTAINED ANY DISTINCT ION BETWEEN THOSE SHARES WHICH ARE HIS STOCK-IN-TRADE A ND THOSE WHICH ARE HIS INVESTMENT. IN THE PRESENT CASE ALL THE SHARES ARE HELD AS INVE STMENT AND WERE CONSISTENTLY SHOWN AS SUCH. THUS, THERE IS A SUBSTA NCE IN THE CONTENTION OF THE ASSESSEE .IN VIEW OF THE CLEAR FA CT WE ARE OF THE CONSIDERED OPINION THAT THE LD. AO WAS NOT JUSTIFIE D TO TREAT THE CLAIMED ITA NO.6442/MUM/2010 (A.Y.2006-07 ) 14 SHORT TERM CAPITAL GAINS OF RS.19,66,173/- AS BUSIN ESS INCOME. THUS WE ALLOW THE APPEAL OF THE ASSESSEE AND REVERSE THE ST AND OF THE LD. CIT(A). 4. FINALLY THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DAY OF SEPTEMBER, 2014 . 0 ) -./ 1 #2 19 .09.2014 . ) 9 SD/- SD/- (RAJENDRA) (JOGINDER SINGH) ! ! ! ! / ACCOUNTANT MEMBER ! ! ! ! / JUDICIAL MEMBER MUMBAI; 1 # DATED : 19 TH SEPT. 2014. JV. 0 ) '+: ;:/+ 0 ) '+: ;:/+ 0 ) '+: ;:/+ 0 ) '+: ;:/+/ COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. < ( ) / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. :?9 '+# , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. 0# 0# 0# 0# / BY ORDER, (:+ '+ //TRUE COPY// B BB B/ // /C C C C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI