DCIT 4(1)(2), MUMBAI V. APPROACH PROPERTIES P.LTD, MUMBAI

ITA 718/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8139 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MEENA; PADMA RAM M IRDHA DR SH
• Assessee Lawyers: IN CIRCUMSTANCES OF TH E CASE
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Transactions in derivatives
• Section: 143(3); 2(14); 142(1); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 718 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 11 - 12 ) DCIT - 4(10((2) 6 TH FLOOR, ROOM NO. 640, AAYAK AR BHAVAN, MUMBAI - 400020. / VS. M/S. APPROACH PROPERTIES P. LTD. 53, FREE PRESS HO U SE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI - 400021. ./ ./ PAN/GIR NO. : AAECA 7665 C ( / APPELLA NT ) .. ( / RESPONDENT ) / DATE OF HEARING : 14 . 1 2 .201 8 / DATE O F PRONOUNCEMENT : 26. 12. 201 8 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 05 . 11 .201 5 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 9 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT( A)] RELEVANT TO THE A.Y. 20 1 1 - 1 2 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - ' ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. CIT(A ) ERRED IN DIRECTING THE AO TO TREAT THE SALE OF PROPERTY AS LONG TERM CAPITAL GAIN IGNORING THE FACT THAT THE ASSESSEES REVENUE BY : SHRI R. P. MEENA & PADMA RAM M IRDHA (DR) ASSESSEE BY: SHRI SUNIL NAHTA & MAYANK CHAUHAN (AR) ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 2 BUSINESS AS PER THE MEMORANDUM OF ARTICLE OF ASSOCIATION IS TO CARRY ON IN INDIA OR ABOARD THE BUSINESS IS REAL - ESTATE, BUILDERS, DEVELOPERS, CONSTRUCTION, CONTRACTORS, DESIGNERS, ARCHITECTS, DECORATORS AND BROKERS OF ALL TYPE S OF RESIDENTIAL, NON - RESIDENTIAL BUILDINGS, STRUCTURES SUCH AS HOUSE, FLATS, APARTMENTS, DUPLEX, ROW HOUSES, TOWNSHIPS, OFFICE GODOWNS, WAREHOUSES, SHOPS, FACTORY, SHEDS, HOTEL, HOSPITAL, HOLIDAY RESORTS, SHOPPING CUM ENTERTAINMENT CENTERS AND TO DEVELOP, ERECT, CONSTRUCT, BUILD, ESTABLISH REPAIR, RENOVATE, RECONDITION, REPLACE, DEMOLISH, BUY, CONTROL COMMERCIALIZE ENTERTAINMENT CENTERS, CAFETERIA, MULTIPLEX, CENTRES, MASSAGE PARLORS, BEAUTY SALONS CLINICS, GYMNASIUM, SWIMMING POOLS, SPORTS CLUBS, RECREATI ON CENTERS, HEALTH CENTERS, POLYCLINICS, BLOOD BANKS, NATURE CARE CENTRES, DIAGNOSTIC CENTRES, AND ANY SUCH KIND OF SIMILAR ESTABLISHMENTS AND TO DEAL IN ALL SUCH KINDS OF MOVABLE AND IMMOVABLE PROPERTY FOR DEVELOPMENT OF REAL ESTATE . 2. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS IGNORED THE FACTS THAT THE ASSESSEE HAS REPORTED THE BUSINESS INCOME FROM SALE OF PROPERTY AS LONG TERM CAPITAL GAIN AND HAS EVADED TAX BY DOING SO. 3. THE APPELLANT CRAVES LEAVE TO AMEND TO AM END OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 27 .09.201 1 FOR THE A.Y. 2011 - 12 DECLARING TOTAL IN COME TO THE TUNE OF RS.15,95,85,800 / - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY HAS SHOWN INCOME MAINLY FROM INVESTMENT & LEASING OF PROPERTIES. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE SOLD MULTIPLE PR OPERTIES AT TWO LOCATIONS AT (I) PROPERTY AT TARDEO FOR CONSIDERATION OF RS.1400.00 LAKHS & (II) OFFICE UNITS SITUATED AT 3 RD , 4 TH & 5 TH FLOORS AT SHREEVALLABH SHOPPING COMPLEX, S.V. ROAD, BORIVALI FOR CONSIDERATION OF RS.7.00 LAKHS, 401.00 LAKHS RESPECTIV ELY. THE ASSESSEE OFFERED TO TAX THE PROFIT ON SALE OF SAID PROPERTY UNDER THE HEAD OF CAPITAL GAIN AS LONG TERM CAPITAL GAIN, CLAIMING THESE PROPERTIES HELD AS INVESTMENTS. THE ASSESSEE COMPANY WAS ALSO DRAWING INCOME FROM LEAVE & ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 3 LICENSE , COMMON AREA MAI NTENANCE & PROMOTIONAL EVENTS. THE ASSESSEE OFFERED THE SAID INCOME UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY AND OTHER INCOME AFTER CLAIM OF RELATED EXPENDITURE WAS OFFERED TO TAX AS BUSINESS INCOME. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.19,02,26,095/ - AND THE BOOK PROFIT U/S 115JB OF THE ACT WAS ALSO ASSESSED TO THE TUNE OF RS.19,82,73,058/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO TREATED THE SAID INCOME AS LONG TERM CAPITAL GAIN AND ACCORDINGL Y ORDERED TO BE TAXED. T HE REVENUE WAS NOT SATISFIED , THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 4. ALL THE ISSUES ARE IN CONNECTION WITH THE TREATMENT OF PROFIT ON SALE OF PROPERTY OF RS. 15,34,70,043/ - AS LONG TERM CAPITAL GAIN. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT IN VIEW OF THE MEMORANDUM OF ARTICLE OF ASSOCIATION, THE ASSESSEES BUSINESS IS REAL - ESTATE, BUILDERS, DEVELOPERS, CONSTRUCTION, CONTRACTORS, DESIGNERS, ARCHITECTS, DECORATORS AND BROKERS OF ALL TYPES OF RESIDE NTIAL, NON - RESIDENTIAL BUILDINGS, STRUCTURES SUCH AS HOUSE, FLATS, APARTMENTS, DUPLEX, ROW HOUSES, TOWNSHIPS, OFFICE GODOWNS, WAREHOUSES, SHOPS, FACTORY, SHEDS, HOTEL, HOSPITAL, HOLIDAY RESORTS, SHOPPING CUM ENTERTAINMENT CENTERS AND TO DEVELOP, ERECT, CON STRUCT, BUILD, ESTABLISH REPAIR, RENOVATE, RECONDITION, REPLACE, DEMOLISH, BUY, CONTROL COMMERCIALIZE ENTERTAINMENT CENTERS, CAFETERIA, MULTIPLEX, CENTRES, MASSAGE PARLORS, BEAUTY SALONS CLINICS, GYMNASIUM, SWIMMING POOLS, SPORTS CLUBS, RECREATION CENTERS, HEALTH CENTERS, POLYCLINICS, BLOOD BANKS, NATURE CARE CENTRES, DIAGNOSTIC CENTRES, AND ANY SUCH KIND OF SIMILAR ESTABLISHMENTS AND TO DEAL IN ALL SUCH KINDS OF MOVABLE AND IMMOVABLE PROPERTY FOR DEVELOPMENT OF REAL ESTATE, THEREFORE, IN VIEW OF THE SAID C IRCUMSTANCES, THE PROFIT ON SALE OF PROPERTY OF RS.15,34,70,043/ - IS LIABLE TO BE TREATED AS BUSINESS INCOME BUT ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 4 THE CIT(A) HAS WRONGLY TREATED THE CLAIM AS LONG TERM CAPITAL GAIN, THEREFORE, THE FINDING OF THE CIT(A) IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 5.3 1. I HAVE CONSIDERED THE STAND OF THE AO, THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS OF THE AR FILED DURING THE APPELLATE PROCEEDINGS AND THE ASSESSMENT ORDER. THE APPELLANT HAVE PURCHASED PROPERTY (WHICH IS SOLD DURING THE YEAR UNDER CONSIDERATION) IN FY 2004 - 05 AND FY 2005 - 06 BEING LAND AT TARDEO AND SHOPS AT BORIVALI RESPECTIVELY. THE SAID PROPERTIES WERE HELD AS INVESTMENT AND NOT AS STOCK IN TRADE. THIS FACT IS EVIDENT FROM THE SCHEDULE 5 OF THE BALANCE SHEET. FURTHER, IN THE ASSESSMENT ORDER FOR A.Y. 2006 - 07 DATED 19.12.2008, THE A.O. IN APPELLANT COMPANY'S OWN CASE HAS GIVEN A FINDING OF THE FACT THAT PROPERTIES WERE HELD AS INVESTMENT IN THE BALANCE SHEET AND NOT AS STOCK - IN TRADE. ACCORDINGLY, ON SUCH A FINDING IN THE ASSESSMENT ORDER FOR AY 2 006 - 07 THE AO HAS DISALLOWED EXPENDITURE TO THE EXTENT OF RS.16,82,935/ - BY TREATING THE SAME AS RELATED TOWARDS INVESTMENT IN PROPERTIES. THE AO HAD DISALLOWED THE SAID EXPENDITURE BEING NOT ALLOWABLE AS BUSINESS EXPENSES. THE AO IN PAST HAVE ACCEPTED THE FACT AND HAS GIVEN THE FINDINGS THAT THE SAID PROPERTIES WERE HELD AS INVESTMENT. FURTHER, ONE OF THE SHOP AT BORIVALI WAS SOLD IN A.Y. 2009 - 10 AND OFFERED AS SHORT TERM CAPITAL GAIN, WHICH HAS ALSO BEEN ACCEPTED BY THE AO. THE AR ALSO STATED THAT THE APP ELLANT COMPANY HAVE ALSO PURCHASE SHOPS AT PUNE AND HAS LET - OUT THE SAME. THE SAID RENTAL INCOME HAS BEEN OFFERED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' IN ALL YEARS. FURTHER, DEDUCTION FOR DEPRECIATION ALLOWANCE HAS NOT BEEN CLAIMED BY THE APPELLANT COMPANY ON ANY OF THE PROPERTIES SHOWN AS INVESTMENTS. INTEREST PAID ON BORROWINGS FOR SUCH PROPERTIES HAS BEEN CLAIMED UNDER SECTION 24(B) OF THE ACT AND NOT AS BUSINESS EXPENDITURE. FOR ALL THE ASSESSMENT YEARS BEGINNING FROM A.Y. 2008 - 09 UPTO 2012 - 13 TH E RENTAL INCOME HAS BEEN OFFERED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND THE SAME HAVE ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 5 BEEN ACCEPTED BY THE AO IN THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT. FROM, THE ABOVE, IT IS EVIDENT THAT THE INTENTION OF THE APPELLANT COMPANY IS ALWA YS TO HOLD THE SAID PROPERTIES AS INVESTMENT AND NOT AS STOCK - IN - TRADE. THE FINANCIALS ALSO SUPPORTS THE FINDINGS WHICH ARE AUDITED BY THE AUDITORS. ONCE THE PURCHASE OF THE PROPERTIES HAVE BEEN HELD AS INVESTMENT BY THE AO IN A.Y. 2006 - 07, AND THE GAIN/PR OFIT ON SALE OF SAID PROPERTIES HAVE BEEN ACCEPTED UNDER THE HEAD CAPITAL GAIN, THEN IN THE YEAR UNDER CONSIDERATION PROFIT /GAINS ON THE SAID INVESTMENTS CANNOT BE CONSTRUED AS BUSINESS INCOME AND NO CONTRARY VIEW WITHOUT ANY CHANGE IN FACTS AND IN CIRCUM STANCES OF THE CASE CAN BE TAKEN IN THE INSTANT CASE. THE AO IN THE ASSESSMENT ORDER HAS REFERRED TO THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT COMPANY. THE MAIN OBJECT CLAUSE OF THE APPELLANT COMPANY IS TO DEAL IN PROPERTY. ACCORDINGLY, HE TREATED PRO FIT ON SALE OF PROPERTY AS BUSINESS INCOME. IN THIS REGARD, THE AR VEHEMENTLY ARGUED THAT EVEN THOUGH MAIN OBJECTS OF THE APPELLANT COMPANY AS STIPULATED IN ITS MEMORANDUM OF ASSOCIATION SHOWS THAT THE APPELLANT IS IN THE BUSINESS OF REAL ESTATE, BUILDERS DEVELOPERS ETC. IT DOES NOT DEBARRED THE APPELLANT COMPANY TO HELD THE PROPERTIES AS INVESTMENT. WHETHER A PARTICULAR ASSET IS STOCK - IN - TRADE OR CAPITAL ASSET DOES NOT DEPEND UPON THE NATURE OF THE ARTICLE, BUT THE MANNER IN WHICH IT IS HELD. FURTHER, AS S TATED ABOVE, THE AO HIMSELF IN AY 2006 - 07 HAS GIVEN THE FINDINGS THAT THE PROPERTIES HAVE BEEN HELD AS INVESTMENTS AND NOT AS STOCK - IN - TRADE. IT ALSO DEPENDS UPON THE INTENTION FOR WHICH OF THE TRANSACTION IS CARRIED OUT. HE HAS PLACED RELIANCE IN THE CASE OF FELSPAR CREDIT AND INVESTMENT P. LTD. VS. CIT (2012) 346 ITR 121(MAD). THE AR ALSO INVITED ATTENTION TO THE CIRCULAR NO. 4/2007, DATED 15 - 6 - 2007, WHEREIN IT IS STATED THAT IT IS POSSIBLE FOR A TAXPAYER TO HAVE TWO PORTFOLIOS, I.E., AN INVESTMENT PORTFO LIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTFOLIO COMPRISING OF STOCK - IN - TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIOS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS, I.E. , CAPITAL GAINS AS WELL AS BUSINESS INCOME. IN THE INSTANT CASE, THERE IS NO SEPARATE PORTFOLIO. THE APPELLANT IS HAVING ONLY ONE PORTFOLIO I.E. INVESTMENT PORTFOLIO. FURTHER, THE AR HAS ALSO RELIED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS IN HIS SUBMISSION TO SUPPORT THE CONTENTIONS IN THE MATTER. ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 6 5.3.2.1 HAVE FURTHER CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE AND FIND THE MERIT ON THE CONTENTION OF THE APPELLANT WITH REGARD TO THE ISSUE RAISED BY THE AO RELATING TO MEMORANDUM AND ARTICLES OF THE COM PANY. THE MEMORANDUM OF ASSOCIATION BY ITSELF WOULD NOT BE CONCLUSIVE MATERIAL TO HOLD THAT PROPERTIES WERE PART OF STOCK - IN - TRADE. IN FACT THE PATTERN OF TRANSACTION, THE TREATMENT GIVEN BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS, THE MANNER IN WHICH IT IS HELD AND THE INTENTION FOR WHICH THE TRANSACTION IS CARRIED OUT ARE MORE RELEVANT FACTORS. FOR EXAMPLE, DEALER IN REAL ESTATE MAY HOLD A PIECE OF LAND OR HOUSE PROPERTY AS STOCK - IN - TRADE. BUT IT WILL BE A CAPITAL ASSET IN THE HANDS OF A SAME PERSON IF HE HOLDS IT AS AN INVESTMENT AND DERIVES INCOME FROM RENTING OF THE PROPERTY. THUS, THE OF FACT DEPENDS UPON THE INTENTION AND CONDUCT OF THE APPELLANT COMPANY SUPPORTED BY THE EVIDENCES. IT IS UNDISPUTED FACT IN THE APPELLANT'S CASE THAT IT ALWAYS HELD AND T REATED THE PROPERTIES PURCHASED BY IT AS INVESTMENT WHICH EVIDENCE IS SUPPORTED FROM THE FINANCIALS. THE FOLLOWING FACTS ARE UNDISPUTED: I. THE AO HAS GIVEN A FINDING OF FACT THAT THE SAID PROPERTIES WERE HELD AS INVESTMENTS AND ACCORDINGLY DISALLOWED EXPE NDITURE FOR A.Y. 2006 - 07. II. NO DEPRECIATION ALLOWANCE HAS BEEN CLAIMED BY THE APPELLANT ON THE SAID PROPERTIES SHOWN AND HELD AS INVESTMENTS. III. THE RENTAL INCOME HAS BEEN OFFERED AND ASSESSED AS 'INCOME FROM HOUSE PROPERTY'. IV. INTEREST PAID ON UNSEC URED LOANS HAS BEEN ALLOWED AS DEDUCTION U/S. 24(B) WHILE COMPUTING THE INCOME UNDER THE 'INCOME FROM HOUSE PROPERTY'. V. CAPITAL GAIN ON SALE OF PROPERTY HAS BEEN OFFERED UNDER THE HEAD 'CAPITAL GAIN' AND ACCEPTED. IN THIS REGARD THE PROVISIONS OF SEC.2(1 4)(I) AND SEC.45(L) OF THE INCOME TAX ACT, 1961 ARE RELEVANT. UNDER SECTION 45(1) ANY PROFITS AND GAIN ARISING FROM TRANSFER OF A CAPITAL ASSETS IS DEEMED TO BE INCOME TAXABLE UNDER THE HEAD 'CAPITAL GAIN'. SECTION 2(14) (I) OF THE ACT DEFINES A CAPITAL AS SET AS NOT INCLUDING STOCK IN TRADE. IN THE INSTANT CASE THE APPELLANT COMPANY HAS HELD THE PROPERTIES AS CAPITAL ASSETS AND NOT AS STOCK - IN - TRADE. ACCORDINGLY, SUCH PROPERTIES SHOULD BE CONSIDERED AS CAPITAL ASSETS AND PROFIT EARNED ON THE SALE OF SUCH PR OPERTIES THEREFORE WOULD BE EXIGIBLE ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 7 TO TAX AS 'LONG TERM CAPITAL GAIN' AND NOT AS 'PROFITS AND GAINS FROM BUSINESS' IN THE CASE OF FELSPAR CREDIT AND INVESTMENT P. LTD. VS. CIT (2012) 346 ITR 121(MAD) IT HAS BEEN HELD AS UNDER (PAGE 122 HEAD NOTE): - '(II) THAT THE EXTENT OF INCOME EARNED FROM THE SALE OF SHARES COULD NOT BE THE CRITERIA TO HOLD THAT THE ASSESSEE WAS DEALING IN SHARES AS A BUSINESS VENTURE. WHEN THE REVENUE HAD NO GRIEVANCE ON THE SAME PATTERN OF TRANSACTION IN THE PRECEDING YEARS AND IN TH E SUBSEQUENT YEARS, THE MERE FACT THAT THE ASSESSEE HAD A PROFIT IN THE ASSESSMENT YEARS 1992 - 93 AND 1993 - 94 BY ITSELF COULD NOT CHANGE THE NATURE OF BUSINESS OF HIRE PURCHASE TO DEALING IN SHARES. THE MEMORANDUM OF ASSOCIATION BY ITSELF WOULD NOT BE CONC LUSIVE MATERIAL TO HOLD THAT THE SALE OF SHARES WAS OF SHARES HELD AS STOCK - IN - TRADE. THUS, THE PROFIT THAT THE ASSESSEE MADE ON THE SALE OF SHARES WAS ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME.' IN THE CASE OF SHRI JIGNESHINDULAL PATEL V. ITO 4(1)(2), THE HON'BLE MUMBAI TRIBUNAL HAS HELD THAT IF THE PURCHASE IS A MERE INVESTMENT, THEN THE RESULT ON THE SALE MUST NECESSARILY BE TAKEN TO THE LOGICAL END TO TREAT IT AS AN ASSET YIELDING TO CAPITAL GAINS. IT FURTHER HELD AS UNDER: '24. IN THE BACK GROUNDS OF THE ABOVE DECISIONS, WHEN WE ANALYSE THE FACTS OF THIS CASE WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE IS MAINTAINING TWO SEPARATE PORTFOLIOS I.E. INVESTMENT PORTFOLIO AND TRADING PORTFOLIO. THE A.O. HAS ADMITTED THE SAID POSITION CONSI STENTLY IN THE PAST. IT IS POINTED OUT THAT THE SHARES IN QUESTION WHICH ARE SUBJECT MATTER OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN ARE PART OF THE INVESTMENT PORT FOLIOS AND WERE NOT PART OF THE TRADING PORTFOLIO. SINCE THE ASSESSEE HAS LONG TERM AND SHORT TERM CAPITAL GAIN OUT OF THE INVESTMENT PORTFOLIO AND IT IS NOT THE CASE OF THE REVENUE THAT ANY POINT OF TIME THE ASSESSEE HAS MIXED UP THE ABOVE TWO PORTFOLIO AND MERELY BECAUSE THE ASSESSEE HAD SOLD THE SHARES IN THE RELEVANT YEAR AND MA DE SUBSTANTIAL GAIN DOES NOT MEAN THAT TRANSACTIONS OF INVESTMENT PORTFOLIO WERE NOT AS AN INVESTOR BUT AS A TRADER. THE RATIO OF SALES AND PURCHASES MAY BE RELEVANT IN A PARTICULAR CASE BUT WHEN THE ASSESSEE LIQUIDATES ANY INVESTMENT THE SAID RATIO WILL A LWAYS BE TERMED AS LONG TERM AND SHORT TERM CAPITAL GAINS. THE ID. D.R. FROM THE RECORDS COULD NOT DEMONSTRATE THAT ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 8 THERE WERE LARGE NUMBER OF TRANSACTIONS WHICH HAD FREQUENCY, VOLUME, CONTINUITY AND REGULARITY AND FELL WITHIN THE TESTS LAID DOWN BY THE HO N'BLE GUJARAT HIGH COURT (SUPRA). IN THIS VIEW OF THE MATTER WE ARE OF THE VIEW THAT THE ID. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE A.O. IN TREATING THE LONG TERM AND SHORT TERM CAPITAL GAINS AS BUSINESS INCOME. THE A.O. IS DIRECTED TO EXCL UDE THE LONG TERM AND SHORT TERM CAPITAL GAINS FROM THE BUSINESS INCOME AND TAX THE SAME SEPARATELY UNDER THE HEAD LONG TERM/SHORT TERM CAPITAL GAINS. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED.' IN THE CASE OF NARENDRAGEHLAUT VS. JCIT (ITA NO . 1648 AND 2762/DE1/2010 FOR A.Y. 2006 - 07 ORDER DTD. 30 - 4 - 2012) THE TRIBUNAL HAS HELD AS UNDER: '5.5. IN THE CASE OF 2 PORTFOLIOS, AN EVENTUALITY MAY ARISE, LIKE AN ASSESSEE DEALS IN THE SHARES OF TELCO, SOME ARE CREDITED TO TRADING ACTIVITY AND SOME MAY HE ACCOUNTED FOR ON CAPITAL INVESTMENT. THE LAW AND CBDT CIRCULAR PERMITS THAT IN SUCH CASES ACCOUNTING ENTRY WILL DETERMINE THE NATURE OF ASSESSEE'S INCOME. WHEN THE CBDT CIRCULAR AND VARIOUS CASE LAWS ALLOW SUCH TYPE OF EVENTUALITY, IN OUR VIEW THE ASSES SEE HAS A STRONGER CASE. LOOKING AT THE ACCOUNTING TREATMENT, LIMITED NUMBER OF COMPANIES DEALT IN AND LIMITED NUMBER OF TRANSACTIONS PER MONTH, IN OUR CONSIDERED VIEW THE ASSESSEE'S CLAIM OF CAPITAL INVESTMENT CANNOT BE DENIED. 5.10. IN VIEW OF THE FOREGO INGS, WE ARE OF THE VIEW THAT GROUND IN RESPECT OF DELIVERY BASED SHARE TRANSACTIONS, INVESTMENT AND CAPITAL LOSS IN RESPECT OF COMMODITY TRANSACTIONS ON DELIVERY BASIS BOTH ARE TO BE HELD ON ACCOUNT OF SHORT TERM CAPITAL GAIN INCOME AND SHORT TERM CAPITAL LOSS RESPECTIVELY THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED.' IN CASE OF SHREYANS INDUSTRIES LTD. V FT. CIT (2005) 277 ITR 433 (P&H)WHERE IT WAS AN ADMITTED POSITION THAT THE LAND IN QUESTION WAS HELD AS A CAPITAL ASSET BY THE ASSESSEE AND NOT AS A BU SINESS ASSET AND IT HAD ALSO BEEN NOTICED THAT THE ASSESSEE HAD RELINQUISHED THE LAND IN LIEU OF FOREST DEPARTMENT ALLOWING USE OF THEIR LAND FOR LAYING DOWN THE DRAINAGE AND THE QUESTION WAS AS TO WHETHER LOSS ARISING ON SUCH TRANSFER COULD BE ALLOWED AS A BUSINESS LOSS, IT WAS HELD THAT THE LOSS ARISING ON ACCOUNT OF TRANSFER OF LAND TO THE FOREST DEPARTMENT IN LIEU OF THE USE OF ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 9 FOREST LAND FOR LAYING THE DRAINAGE FOR DISCHARGE OF EFFLUENT, WAS CAPITAL LOSS AND COULD NOT BE ALLOWED AS A BUSINESS LOSS. IN SHRIDEV ASHOK KARVAT VS. DCIT (ITA NO. 6345/MUM/ 2010 VIDE ORDER DTD.18.1.2012) WHEREINHELD AS UNDER: '8. SECTION 2(14) OF THE ACT DEFINES 'CAPITAL ASSET' TO MEAN PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROF ESSION. THE DEFINITION OF 'CAPITAL ASSET' DOES NOT, HOWEVER, INCLUDE 'STOCK - IN - TRADE' HELD FOR THE PURPOSE OF BUSINESS. SECTION 2(22) OF THE ACT DEFINES 'DIVIDEND' TO INCLUDE ANY DISTRIBUTION BY A COMPANY OF ACCUMULATED PROFITS, WHETHER CAPITALIZED OR NOT. SECTION 2(42 - A) DEFINES 'SHORT - TERM CAPITAL ASSET' TO MEAN A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER. SECTION 2(42 - B) DEFINES 'SHORT TERM CAPITAL GAIN' TO MEAN CAPITAL GAIN ARISI NG FROM THE TRANSFER OF A SHORT TERM CAPITAL ASSET. UNDER SECTION 28(I) OF THE ACT, THE PROFITS AND GAINS OF ANY BUSINESS CARRIED ON BY THE ASSESSEE, AT ANY TIME DURING THE PREVIOUS YEAR, IS CHARGEABLE TO INCOME TAX UNDER THE HEAD ''PROFITS AND GAINS OF BU SINESS OR PROFESSION'. UNDER SECTION 45(1) OF THE ACT ANY PROFITS OR GAINS, ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR, IS DEEMED TO BE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. SECTION 111 - A, INSERTED BY FINANCE ACT, 2004, RELATES TO TAX ON SHORT TERM CAPITAL GAINS IN CERTAIN CASES AND, UNDER SUB - SECTION (1) THEREOF, WHERE THE TOTAL INCOME OF AN ASSESSEE INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS', ARISING FROM THE TRANSFER OF A SHORT TE RM CAPITAL ASSET BEING AN EQUITY SHARE IN A COMPANY AND SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSACTION TAX, THE TAX PAYABLE BY THE ASSESSEE SHALL BE THE AGGREGATE OF THE AMOUNT OF INCOME TAX CALCULATED, ON SUCH SHORT TERM CAPITAL GAINS, AT THE RA TE OF FIFTEEN PER CENT. 9. IF THE SHARES PURCHASED BY THE ASSESSEE ARE HELD TO BE CAPITAL ASSETS, SALE OF SUCH SHARES COULD FALL WITHIN THE AMBIT OF SECTION 111A OF THE ACT, AND SUCH CAPITAL GAINS WOULD BE SUBJECT TO TAX AT A LOWER RATE. IF THE SHARES ARE HELD BY THE ASSESSEE AS STOCK IN TRADE, PROFIT ON THE SALE OF SUCH SHARES WOULD CONSTITUTE BUSINESS INCOME, AND HE SUBJECT TO TAX AT A HIGHER RATE. AS NOTED HEREINABOVE, SECTION 2(14) (I) OF THE ACT DEFINES A CAPITAL ASSET AS NOT INCLUDING STOCK IN TRADE. IF THE ASSESSEE HAD HELD THE SHARES AS 'STOCK IN TRADE', AND NOT AS INVESTMENT, THEN SUCH SHARES WOULD ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 10 STAND EXCLUDED FROM THE DEFINITION OF 'SHORT TERM CAPITAL ASSET', AND THE PROOF IT EARNED ON THE SALE OF SUCH SHARES WOULD NOT BE EXIGIBLE TO TAX AS 'SHO RT TERM CAPITAL GAIN', BUT AS 'PROFITS AND GAINS FROM BUSINESS'. 10. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PURCHASED BY THE ASSESSEE AS INVESTMENT OR STOCK IN TRADE, THE MOST RELEVANT ASPECT WHICH IS TO BE SEEN IS THE INTENTION OF THE ASSESSE E BEHIND THE PURCHASE OF SHARES AND SUCH INTENTION HAS TO BE GATHERED FROM THE FACTS OF THE CASE INCLUDING THE CONDUCT OF THE ASSESSEE.' '16. APPLYING THE RATIO OF THE ABOVE DECISIONS TO THE FACTS OF THE PRESENT CASE IT BECOMES ABUNDANTLY CLEAR THAT THE TR ANSACTIONS IN THE SHARES AND MUTUAL FUNDS WERE MADE BY THE ASSESSEE AS INVESTOR AND NOT AS A TRADER, THEREFORE, THE PROFIT EARNED FROM THE SAID TRANSACTIONS IS SHORT TERM CAPITAL GAIN, NOT BUSINESS INCOME AND ACCORDINGLY, WE WHILE REVERSING THE ORDERS OF T HE AO AND THE ID. CIT(A) ON THIS ACCOUNT DIRECT THE AO TO TREAT THE PROFIT FROM PURCHASE AND SALES OF SHARES AND MUTUAL FUNDS OF RS.10,52,1371 - AS INCOME FROM SHORT TERM CAPITAL GAINS AND NOT BUSINESS INCOME. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFOR E, ALLOWED.' THE SUPREME COURT WHILE DISMISSING THE DEPARTMENT'S SUP AGAINST THE JUDGMENT OF BOMBAY HIGH COURT IN CIT VS. GOPAL PUROHIT 228 CTR 582 (BORN) HELD THAT: (A) IT WAS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVEST MENT AND ANOTHER RELATING TO BUSINESS OF DEALING IN SHARES, (B) THAT A FINDING OF FACT HAD BEEN ARRIVED AT BY THE TRIBUNAL AS REGARDS THE TWO DISTINCT TYPES OF TRANSACTIONS NAMELY, THOSE BY WAY OF INVESTMENT AND THOSE FOR THE PURPOSES OF BUSINESS, (C) THAT THERE SHOULD BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTICULARLY IN THE CASE OF THE ASSESSEE AND (D) THAT ENTRIES IN BOOKS OF ACCOUNT ALONE ARE NOT CONCLUSIVE IN DETERMINING THE NATURE OF INCOME THOUGH THEY H AVE A BEARING. IN THE INSTANT CASE, THE AO HAS ADMITTED AND ACCEPTED THE POSITION OF HOLDING OF INCOME ON SALE AS SHORT TERM CAPITAL GAIN AND RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN FACT NO DEPRECIATION ALLOWANCE DEDUCTION ON SUCH PROPE RTIES HAS BEEN ALLOWED AS DEDUCTION U/S 32(1) OF THE INCOME TAX ACT, 1961. ACCORDINGLY, APPLYING THE RATIO OF THE ABOVE DECISION TO THE FACTS OF THE PRESENT CASE IT BECOMES CRYSTAL CLEAR THAT THE TRANSACTIONS ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 11 IN THE PROPERTIES WERE MADE BY THE ASSESSEE AS INVESTOR AND NOT AS A DEALER, THEREFORE, THE PROFIT EARNED FROM THE SALE OF SUCH PROPERTIES IS LONG TERM CAPITAL GAIN AND NOT BUSINESS INCOME. ACCORDINGLY, I DIRECT THE AO TO TREAT THE PROFIT ON SALE OF PROPERTIES AS INCOME FROM LONG TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. THEREFORE, APPELLANTS THESE GROUNDS OF THE APPEAL ARE ALLOWED. 5 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE ASSESSEE HELD THE PROPERTY AS INVESTMENT AND NOT AS STOCK IN TRADE . S CHEDULE 5 OF THE BALANCE - SHEET SP EAKS ABOUT THE INVESTMENT. THE AO WHILE ASSESSING THE INCOME OF THE ASSESSEE FOR THE A.Y. 2006 - 07 DATED 19.12.2008 TREATED THE PROPERTY AS INVESTMENT IN THE BALANCE - SHEET AND NOT AS STOCK IN TRADE. THE AO ALSO DISALLOWED THE EXPENDITURE TO THE TUNE OF RS. 1 6,82,935/ - BY TREATING THE SAME AS RELATED TOWARDS INVESTMENT PROPERTY. THE AO IN THE PAST HAS ACCEPTED THE SAID PROPERTY AS INVESTMENT. THE AO ALSO ASSESSED THE INCOME FROM THE SALE OF THE SHOPS SITUATED AT BORIVALI IN THE A.Y. 2009 - 10 AS SHORT TERM CAPIT AL GAIN. THE RENTAL INCOME HAS BEEN SHOWN BY THE ASSESSEE AS INCOME FROM HOUSE PROPERTY FOR THE A.Y. 2008 - 09 TO 2012 - 13 IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT . S O IT IS CLEAR THAT THE ASSESSEE COMPANY WAS HOLDING THE SAID PROPERTY AS INVESTME NT AND NOT AS STOCK IN TRADE. SINCE, THE PROPERTY IN QUESTION HAS BEEN TREATED THE INVESTMENT IN THE ASSESSMENT ORDER IN A.Y. 2006 - 07, THEREFORE, THE INCOME FROM SALE OF THE SAID PROPERTY IS LIABLE TO BE TREATED AS LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN AS THE CASE MAY BE. THE MEMORANDUM OF ARTICLE OF ASSOCIATION NOWHERE DEBAR THE APPELLANT TO HELD THE PROPERTY AS INVESTMENT . T HE ASSESSEE CAN MAINTAIN TWO PORT - FOLIO SUCH AS INVESTMENT AND TRADING. THE AO HAS ALREADY GIVEN THE TREATMENT OF THE PROPER TY IN THE A.Y. 2006 - 07 AS INVESTMENT. THE ASSESSEE DID NOT CLAIM ANY DEPRECIATION . ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 12 R ENTAL INCOME WAS OFFERED AS INCOME FROM HOUSE PROPERTY AND INTEREST PAID ON UNSECURED LOAN WAS ALLOWED AS DEDUCTION U/S 24(B) OF THE ACT WHILE COMPUTING THE INCOME FROM HOU SE PROPERTY. THE CAPITAL GAIN ON SALE OF THE SAID PROPERTY HAS BEEN OFFERED TO TAX AS CAPITAL GAIN . THE ASSESSEE TREATED THE SAID PROPERTY AS CAPITAL ASSETS AND AFTER THE ALIENATION CLAIMED LONG TERM CAPITAL GAIN. THE CIT(A) HAS RELIED UPON THE CASE LAW TI TLED AS FELSPAR CREDIT AND INVESTMENT P. LTD. VS. CIT (2012) 346 ITR 121 (MAD), SHRI JIGNESH INDULAL PATEL VS. ITO 4(1)(2), NARENDRA GEHLAUT VS. JCIT (ITA. NO. 1648 AND 2762/DEL/2010, SHREYANS INDUSTRIES LTD. VS JT. CIT (2005) ITR 433 (P&H), SHRI DEV ASHOK KARVAT VS. DCIT (ITA. NO. 6345/M/2010 & CIT VS. GOPAL PUROHIT 228 CTR 582 (BOM). IN BRIEF, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE SPECIFICALLY, IN THE SAID CIRCUMSTANCES WHEN THE AO IN THE A.Y. 2006 - 07 HAS ACCEPTED THE SAID PROPERTY AS INVESTMEN T OF THE ASSESSEE AND INCOME ON SALE AS SHORT TERM CAPITAL GAIN . NO DEPRECIATION WAS ALLOWED U/S 32(1) OF THE ACT, THEREFORE, IN THE SAID CIRCUMSTANCES, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. NO LAW CONTRARY TO THE LAW RELIED BY THE CIT(A) HAS BEEN PRODUCED BEFORE US. TAKING INTO ACCOUNT, ALL THE FAC TS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE FINDING OF THE CIT(A) IS CORRECT AND IN ACCORDANCE WITH LAW WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THESE ISSUE S ARE BEING DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA NO. 718 /M/201 6 A.Y.20 1 1 - 1 2 13 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE D ISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 26. 12 . 201 8 . SD/ - SD/ - ( R . C. SHARMA ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 26. 12 . 2018 . V IJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI