RAJAN R BAHL, MUMBAI V. JT CIT RG 20(2), MUMBAI

ITA 7333/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3570 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 02-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K SINHA
• Assessee Lawyers: S M GABHAWALA
• Keywords: Capital asset; Business income; Transactions in derivatives; Cost of acquisition; Futures and options
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI .. , ! '#$ % % % % &. '.'.. %( ) '#$ '* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM './ I.T.A. NO. 7333/MUM/2011 ( )( , %-, )( , %-, )( , %-, )( , %-, / / / / ASSESSMENT YEAR : 2008-09) SHRI RAJAN R. BAHL, SAKET, PLOT NO. 84, MIDC, 15 TH ROAD, ANDHERI (E), MUMBAI 400 093. ( ( ( ( / VS. JT. CIT, RANGE 20(2), PIRAMAL CHAMBERS, 4 TH FLOOR, LALBAUG, PAREL, MUMBAI 4000 12. $. ! './ PAN : AABPB9614L ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ' / APPELLANT BY : SHRI S.M. GABHAWALA 01./ 2 3 ' / RESPONDENT BY : SHRI D.K. SINHA '(% 2 ! / // / DATE OF HEARING : 01-05-2013 45- 2 ! / DATE OF PRONOUNCEMENT : 21-06-2013 # 6 / O R D E R PER P.M. JAGTAP, A.M . .. , ! '#$ : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) -31 MUMBAI DTD. 26-09-2011 WHEREBY HE UPHELD THE ACTION OF THE A.O. IN TREATING THE SHORT TERM CAPITAL GAINS OF RS. 4,4 4,26,913/- DISCLOSED BY THE ASSESSEE ARISING FROM THE SALE OF SHARES AS BUSINES S INCOME OF THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS OF TRADING IN FUTURES AND OPTIONS AS WELL AS ALLIED STOCK MARKET OPERATIONS. THE RETURN OF INCOME FOR THE YEAR UNDE R CONSIDERATION WAS FILED BY HIM ON 30-9-2008 DECLARING A LOSS OF RS. 21,45,8 3,411/-. IN THE SAID ITA 7333/MUM/2011 2 RETURN, PROFIT FROM THE TRANSACTIONS OF PURCHASE AN D SALE OF SHARES WAS DECLARED BY THE ASSESSEE UNDER THE HEAD SHORT TERM CAPITAL GAIN (STCG). KEEPING IN VIEW THAT THE SIMILAR PROFIT SHOWN BY TH E ASSESSEE AS STCG IN A.Y. 2006-07 WAS TREATED AS BUSINESS INCOME OF THE ASSES SEE AND THE ASSESSMENT MADE FOR THE SAID YEAR ON THIS ISSUE WAS UPHELD BY THE LD. CIT(A), THE A.O. PROCEEDED TO EXAMINE THE ISSUE RELATING TO THE ASSE SSEES CLAIM OF STCG ARISING FROM PROFIT ON SALE OF SHARES FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD, HE ANALYSED THE ENTIRE TRANSACTIONS OF PURC HASE AND SALE OF VARIOUS SCRIPS GIVING RISE TO THE PROFIT TO THE ASSESSEE AN D RECORDED HIS FINDINGS/OBSERVATIONS ON SUCH ANALYSIS AS UNDER :- (A) TRANSACTIONS ENTERED INTO ARE NUMEROUS, PERIOD IC, REPETITIVE, VOLUMINOUS WITH SUBSTANTIAL REGULARITY. B) FOR PERIOD OF HOLDING UPTO 30 DAYS THERE ARE 53 SCRIPS INVOLVING AS MANY AS 164 TRANSACTIONS THEREBY INDICATING A BR OAD SPECTRUM OF SCRIPS AND THE PENETRATION OF THE TRADE IN THE SHOR T SPAN OF 30 DAYS IN THE STOCK MARKET OPERATIONS IS WELL ENTRENCHED. C) NUMBER OF SHARES / UNITS INVOLVED I.E. THE NUMBE R OF SHARES/UNITS PURCHASED AND SOLD IS A SUBSTANTIALLY LARGE AMOUNT RANGING FROM THE QUANTUM OF APPROXIMATELY 96,98,333 NINETY SIX LACS NINETY EIGHT THOUSAND THREE HUNDRED THIRTY THREE ON LY. IT MAY BE APPRECIATED THAT IF FOR A 30 DAYS HOLDING PERIOD, T HE NUMBER OF SCRIPS/MUTUAL FUNDS TRADED IN FOR A HOLDING PERIOD OF 30 DAYS ALONE IS TO THE TUNE OF 27,22,735, ONE CAN ONLY IMAGINE AS T O WHAT WOULD BE THE TOTAL QUANTUM OF SCRIPS FOR THE ENTIRE PERIOD UNDER CONSIDERATION. THIS SHOWS THE GREAT MAGNITUDE OF THE TOTAL NUMBER OF SC RIPS/MUTUAL FUNDS TRADED IN. D) THE PURCHASE COST INCURRED IS IN THE VICINITY OF APPROXIMATELY RS.71.87 CRORES AND THE SALE PROCEEDS OBTAINED ARE APPROXIMATELY RS. 66.91 CRORES DEMONSTRATING THE HUGE QUANTUM OF TRAN SACTIONS. (30 DAYS HOLDING PERIOD). E) TO GIVE ONE CONCRETE EXAMPLE IN ONE SCRIP I.E. N AGARJUNA FERTILISERS THERE ARE 12 TRANSACTIONS IN THIS PERIO D OF ONE MONTH INVOLVING APPROXIMATELY 8,75,000 SHARES WITH PURCHA SE COST IN THE REGION OF APPROXIMATELY RS.3.81 CRORES. THIS WOULD CLEARLY SHOW THE SUBSTANTIAL NATURE AND QUANTUM OF TRANSACTIONS. SIM ILARLY, THERE ARE MULTIPLE TRANSACTIONS FOR SCRIPS SUCH AS RELIANC E, TATA STEEL, RELIGARE ETC. ITA 7333/MUM/2011 3 F) FOR THE ENTIRE YEAR, IT IS SEEN THAT IN ALL, THE RE ARE ABOUT 98 SCRIPS INVOLVING OVER 512 TRANSACTIONS, THEREBY CLE ARLY DEMONSTRATING HE EXTENSIVE TRANSACTIONS AND THEREBY NEGATING THE CLAIM FOR SO CALLED SHOT TERM CAPITAL GAINS. G) FURTHER, FOR THE ENTIRE YEAR THE NUMBER OF SHARE S / UNITS DEALT IN ARE ALMOST TO THE TUNE OF 96,68,933 WITH PURCHASE C OST INDICATED AT APPROXIMATELY RS.158.27 CRORES AND SALE PROCEEDS AT APPROXIMATELY RS.162.71 CRS. H) THE FREQUENCY OF TRANSACTIONS ARE AS HIGH AS 21 TRANSACTIONS FOR JAI CORP. LTD. 30 TRANSACTIONS IN KLG SYS TEL. I) THE VERY FACT THAT A WIDE RANGE OF SCRIPS ARE IN VOLVED AND FREQUENCY OF TRANSACTIONS IN THEM IS VERY SUBSTANTI AL GOES ON TO SHOW THAT THEY COULD NOT HAVE BEEN HELD AS ASSETS FOR AN Y KIND OF APPRECIATION AT ALL WHETHER IN THE NEAR FUTURE OR O THERWISE. IT IS THUS SEEN THAT THERE HAS BEEN SUBSTANTIAL QUANTUM INVOLV ED WITH PERIODIC, MULTIPLE AND FREQUENT TRANSACTIONS RANGING OVER A L ARGE NUMBER OF SCRIPS. IT CAN THUS BE SEEN THAT WHETHER CONSIDERED FOR THE HOLDING PERIOD OF ONE MONTH OR FOR THE ENTIRE S.T.C.G. PERI OD THE FACTS OF THE CASE CERTAINLY GIVE MORE CREDENCE TO THE VIEW THAT THE TRANSACTIONS ARE ENTERED WITH NOT ANY STEADY OR APPRECIATION VIEW PO INT BUT ARE RATHER INSTRUMENTS FOR EARNING QUICK PROFITS. J) THE FOLLOWING TABLE SHOWS HOLDING PERIOD OF SCRI PS, BASED ON THE ANALYSIS OF THE ENTIRE PORTFOLIO : SR NO. NOS OF TRANSACTIONS PERIOD OF HOLDING (DAYS) 1 21 1 2 59 2 TO 7 3 23 8 TO 15 4 61 16 TO 30 5 87 31 TO 60 6 76 61 TO 90 ANALYSIS OF THE ABOVE TABLE FURTHER REVEALS THAT UP TO HOLDING PERIOD OF 15 DAYS THERE ARE 103 TRANSACTIONS., 164 TRANSACTIO NS UP TO 30 DAYS AND FOR A HOLDING OF PERIOD OF 60 THERE ARE 251 TRA NSACTIONS AND UPTO 90 DAYS HOLDING PERIOD THERE ARE 327 TRANSACTIONS. K) THE REPETITIVE NATURE OF TRANSACTIONS FOR 30 DAY S HOLDING PERIOD CAN BE SUMMARIZED BELOW:- ITA 7333/MUM/2011 4 VIDEOIND NO OF SHARES DATE OF PURCHASE DATE OF SALE PURCHASE AMOUNT SALE AMOUNT GAIN/LOSS HOLDING PERIOD 28500 12/18/2007 12/19/2007 17,518,653.28 18,599,743.15 1,081,089.87 1 12000 12/18/2007 12/26/2007 7,376,275.06 7,644,105.10 267,830.04 8 8406 12/18/2007 12/26/2007 5,167,080.68 5,355,256.47 188,175.79 8 19000 12/18/2007 12/27/2007 11,679,102.18 12,848,488.85 1,169,386.67 9 17345 12/18/2007 12/27/2007 10,661,790.92 11,636,510.48 974,719.57 9 155 12/24/2007 12/27/2007 99,562.17 103,987.27 4,425.09 3 609 12/24/2007 1/2/2008 391,182.99 499,489.01 108,306.02 9 . RELIGARE NO OF SHARES DATE OF PURCHASE DATE OF SALE PURCHASE AMOUNT SALE AMOUNT GAIN/LOSS HOLDING PERIOD 40000 12/28/2007 12/31/2007 22,492,438.90 23,312,577.00 8210,138.10 3 24340 1/2/2008 1/3/2008 16,566,610.10 17,167,574.85 600,964.75 1 11600 1/2/2008 1/3/2008 7,936,182.16 8,203,569.86 267,387.70 1 20808 1/2/2008 1/3/2008 14,164,050.13 14,639,784.01 475,733.88 1 3532 1/2/2008 1/4/2008 2,404,239.96 2,486,072.22 81,832.26 2 9250 1/2/2008 1/4/2008 6,296,494.80 6,473,913.75 177,418.95 2 10 1/2/2008 1/22/2008 6,807.02 4,140.80 2,666.22 20 35576 1/7/2008 1/22/2008 24,887,486.56 14,731,310.08 10,156,176.48 15 36510 1/7/2008 1/22/2008 25,396,389.55 15,118,060.80 10,278,328.75 15 THE ABOVE TABLE REPRESENTS THE TRANSACTIONS FOR 30 DAYS HOLDING PERIOD. FURTHER ANALYSIS BEYOND THE SAID PERIOD INDICATES T HAT THE ABOVE DATA IS ONLY IN RESPECT OF A FEW OF THE TRADES EFFECTED BY THE ASSESSEE AND MANY MORE SUCH EXAMPLES ARE AVAILABLE TO INDICATE THE MU LTIPLE TRADES DONE IN RESPECT OF SHARES/MUTUAL FUND UNITS OF A SINGLE COMPANY OR ALTERNATIVELY REGULAR, MULTIPLE AND FREQUENT TRANSA CTIONS ACROSS THE BOARD. IT CAN ALSO BE OBSERVED THAT THERE HAS BEEN A SYSTEMATIC AND REGULAR TRADING PATTERN AND SHARES/MUTUAL FUND UNIT S HAVE BEEN PURCHASED AND SOLD AT VERY REGULAR INTERVALS. THIS FEATURE IS SEEN IN RESPECT OF BUYING OF SHARES/MUTUAL FUND UNITS OF A SINGLE COMPANY OR IN RESPECT OF BUYING AND SELLING OF SHARES/MUTUAL F UND UNITS OF MANY A COMPANIES ON THE SAME DAY OR FOR A VERY SHORT HOLDI NG PERIOD. IT IS WELL SETTLED THAT WHENEVER AN ACTIVITY IS PERIOD, SYSTEM ATIC AND REGULAR WITH A CLEAR PROFIT MOTIVE IT CAN CERTAINLY ASSUME THE C HARACTER OF A BUSINESS ACTIVITY AND THESE FEATURES ARE PRESENT IN THE ASSE SSEES CASE, AT LEAST FOR THE SHORT TERM CAPITAL GAIN. THE VOLUME OF THE SHARES/MUTUAL FUND UNITS TRADED IS ALSO SUBSTANTIALLY HIGH AND THE RAT IO OF THE SHARES/MUTUAL FUND UNITS PURCHASED TO THE SHARES/MU TUAL FUND UNIT SOLD IS QUITE HIGH. THE ABOVE INDICATES THAT THERE ARE MULTIPLE TRADES DONE IN RESPECT OF SHARES/MUTUAL FUND UNITS OF A SI NGLE COMPANY OR ALTERNATIVELY REGULAR, MULTIPLE AND FREQUENT TRANSA CTIONS ACROSS THE BOARD I.E CRISSCROSS TRANSACTIONS I.E. TO SAY SPECI FICALLY THAT THERE ARE MANY SCRIP WHICH HAVE BEEN TRADED ON A SINGLE DAY O R MULTITUDE OF TRANSACTIONS IN RESPECT OF A PARTICULAR SCRIP/MUTUA L FUND HAS BEEN DONE ON A SINGLE DAY OR FOR A VERY HOLDING PERIOD. ITA 7333/MUM/2011 5 IT IS A WELL SETTLED PRINCIPLE THAT WHENEVER AN ACT IVITY IS PERIOD, SYSTEMATIC AND REGULAR WITH A CLEAR PROFIT MOTIVE I T CAN CERTAINLY ASSUME THE CHARACTER OF A BUSINESS ACTIVITY AND THE SE FEATURES ARE PRESENT IN THE ASSESSEES CASE, AS REGARDS THE SO C ALLED SHORT TERM CAPITAL GAIN. 3. ON THE BASIS OF ABOVE FINDINGS/OBSERVATIONS, THE A.O. HELD THAT THE REAL INTENTION OF THE ASSESSEE WAS NOT TO HOLD THE SHARE S FROM ANY LONG TERM PERSPECTIVE OR TO ENJOY DIVIDEND THEREON AND IT WAS MAINLY TO EARN PROFIT FROM SALE OF SAID SHARES IN THE SHORT TERM. HE ALSO NOT ED THE GUIDELINES ISSUED BY THE CBDT VIDE ITS CIRCULAR NO. 4 OF 2007 DATED 15-6 -2007 AS WELL AS THE VARIOUS JUDICIAL PRONOUNCEMENTS LAYING DOWN CERTAIN GUIDELINES FOR DECIDING THE REAL NATURE OF TRANSACTIONS OF PURCHASE AND SAL E OF SHARES. APPLYING THE SAID GUIDELINES TO THE RELEVANT FACTS OF THE CASE O F THE ASSESSEE, THE A.O. FOUND THAT THE POSITION THAT EMERGED WAS UNDER :- I) THE TOTAL QUANTUM IN RESPECT OF ALL TRANSACTION S IS TO THE EXTENT OF APPROXIMATELY RS. 158.27 CRORES AND RS. 162.71 C RORES (APPROX.) FOR PURCHASES AND SALES RESPECTIVELY. IF THESE CANNOT BE CONSIDERED AS SUBSTANTIAL AND HUGE QUANTUM OF TRANSACTIONS, ONE W ONDERS AS TO WHAT QUANTUM COULD POSSIBLY QUALITY AS BEING SUBSTANTIAL ? II) THE ASSESSEE HAS DEALT IN 98 SCRIPS IN ALL WITH OVER 512 TRANSACTIONS AND FOR HOLDING PERIOD UPTO 30 DAYS TR ANSACTIONS ACROSS 53 SCRIPS. THIS INDICATES THAT THE TRANSACTIONS ARE FREQUENT AND INVOLVE A GREAT AMOUNT OF CHURNING AT REGULAR INTERVALS. III) THE TRANSACTIONS ARE INDEED EXTENSIVE AND FOR THE TOTAL NUMBER OF SCRIPS/UNITS INVOLVED ARE 96,98,333 FOR THE ENT IRE PERIOD AND 27,22,735 FOR UPTO 30 DAYS. THIS FACT BRINGS OUT TH AT THE TRANSACTIONS ARE EXTENSIVE AND WIDE SPREAD ACROSS A BROAD SPECTR UM OF SCRIPS. IV) THE AVERAGE HOLDING PERIOD IN MANY SCRIPS RANGE S FROM MERELY ONE DAY TO SEVERAL DAYS. THE HOLDING PERIOD UPTO 3 0 DAYS IS FOUND IN 53 SCRIPS AND MANY OF THESE SCRIPS HAVE A TYPICAL H OLDING PATTERN WHEREIN THERE IS FREQUENT TRANSACTIONS AT SHORT IN TERVALS. FOR HOLDING PERIOD UPTO 90 DAYS NUMBER OF TRANSACTIONS INCREASE D TO 78. V) AS TO THE ISSUE OF OWN FUNDS OR BORROWED FUNDS F OR FINANCING THE STOCK MARKET OPERATIONS ONE HAS TO SEE THE EXTENT O F LOAN/DEBT FUNDS SO AS TO DECIDE THE REAL INTENT OF THE ASSESSEE. NO PRUDENT PERSON WOULD ITA 7333/MUM/2011 6 RISK TAKING LOAN FUNDS AND PAYING INTEREST UNLESS T HERE IS INTENTION TO INDULGE IN SYSTEMATIC BUSINESS ACTIVITY. PERUSAL OF THE RETURN OF INCOME AND MATERIAL ON RECORD SHOWS THAT THE ASSESSEE HAS ACTIVELY AND SUBSTANTIALLY UTILIZED DEBT/BORROWED FUNDS TO FINAN CE HER STOCK MARKET OPERATIONS. THIS CAN BE GAUGED FROM THE FACT THAT THE TOTAL LOAN FUNDS APPEARING IN THE BALANCE SHEET AS ON 31.03.2008 ARE TO THE TUNE OF RS.22.44 CRS. THE TOTAL UNSECURED LOAN AS ON 31-3-2 007 WAS APPROXIMATELY RS.3.84 CRS. THIS MEANS THAT DURING T HE YEAR A NET AMOUNT OF APPROXIMATELY, RS.18.60 CRS HAS BEEN INDU CTED AND HAS GONE A LONG WAY IN FINANCING THE STOCK MARKET OPERA TIONS OF THE ASSESSEE. IN FACT THIS IS ONE OF THE IMPORTANT TEST S I.E. THAT OF UTILIZATION OF BORROWED FUNDS IN DETERMINING THIS ISSUE OF SO C ALLED SHORT TERM CAPITAL GAINS VS. BUSINESS INCOME. FURTHER, THIS I MPLIES DEPLOYMENT OF SUBSTANTIAL AMOUNT OF BORROWED FUNDS TO FINANCE THE STOCK MARKET OPERATIONS. THUS, IT COULD NOT HAVE BEEN THAT LOAN FUNDS HAVE NOT BEEN PLOUGHED FOR BUYING STOCKS. THIS SINGLE FACTOR OF PRESENCE OF NOT ONLY HUGE UNSECURED LOANS BUT ALSO THE FACT THAT DURING YEAR ALMOST RS.18.60 CRS WORTH OF LOANS WERE FRESHLY INDUCTED G OES ON TO SHOW THAT THE INTENTION WAS NOT ONE OF INVESTMENT BUT OF MAXI MUM BUSINESS GAIN. VI) IT CANNOT BE SAID CONSIDERING THE ASSESSEES FA CTS AND CIRCUMSTANCES THAT THE SCRIPS PURCHASED AND SOLD CO ULD HAVE BEEN HELD AS ASSETS. IT IS A FACT THAT THE ASSESSEE IS SHOWIN G REGULAR INCOME FROM SPECULATION AND FROM F & 0 ACTIVITY. SHE DEVOTES SU BSTANTIAL AMOUNT OF TIME AND ENERGY IN THE ARENA OF THE STOCK MARKET. N O OTHER INDEPENDENT ACTIVITY APART FROM STOCK MARKET OPERATIONS IS INDI CATED, AT LEAST IN ANY MEANINGFUL SCALE OR MANNER. THUS, THE SURROUNDING F ACTS AND CIRCUMSTANCES ALSO APPEAR TO BE AGAINST THE ASSESSE ES VIEW ON THE ISSUE OF SHORT TERM CAPITAL GAINS VIS--VIS BUSINES S INCOME. HERE ALSO, IT CAN BE SEEN THAT GIVEN THE BASIC NATURE OF THE ASSE SSEES ACTIVITY I.E. THE FUTURE AND OPTION ACTIVITY, IT IS CLEAR HAT THE ASS ESSEE IS ACROSS THE BOARD DEALING IN STOCK MARKET FOR MAXIMIZATION OF P ROFITS. 4. THE A.O. ALSO REFERRED TO THE VARIOUS TESTS APPL IED TO ASCERTAIN AS TO WHETHER THE TRANSACTIONS OF PURCHASE AND SALE OF SH ARES ARE IN THE NATURE OF TRADE OR INVESTMENT AND RECORDED HIS FINDINGS/OBSER VATIONS ON APPLICATION OF THE SAID TESTS TO THE FACTS OF THE ASSESSEES CASE AS UNDER:- (I) TIME DEVOTED : ON THIS PARTICULARS ISSUE IT IS VERY MUCH CLEAR THAT THERE IS NO INDEPENDENT OR ANTERIOR ACTIVITY W HEREIN THE ASSESSEES TIME IS EMPLOYED OTHER THAN FOR THE STOCK MARKET OP ERATIONS. THE ASSESSEE IS HAVING REGULAR BUSINESS ACTIVITY OF FUT URES AND OPTIONS FROM WHICH PROFIT OR LOSS IS BEING SHOWN. IN ADDITION, T HERE ARE SEVERAL STOCK MARKET OPERATIONS AND ALLIED STOCK MARKET ACTIVITIE S WHICH RESULT IN EARNING OF SO CALLED SHORT TERM CAPITAL GAINS, DIVI DEND, LONG TERM CAPITAL GAINS ETC. THEREFORE, IT IS SAFE TO CONCLUDE THAT A LMOST IN ENTIRETY, THE ITA 7333/MUM/2011 7 TIME DEVOTED BY THE ASSESSEE IS IN RELATION TO STO CK MARKET OPERATIONS IN ONE FORM OR THE OTHER. HAD THE ASSESSEE BEEN ENG AGED IN SOME OTHER ACTIVITY FROM WHICH INCOME IS BEING DERIVED IN A SU BSTANTIAL WAY, APART FROM VARIOUS INCOMES RELATING TO STOCK MARKET OPERA TIONS, THERE WOULD HAVE AT LEAST BEEN A CASE TO STATE THAT CERTAIN AMO UNT OF TIME IS DEVOTED OTHERWISE. (II) WHETHER THE TRANSACTION IS AN INDEPENDENT ACTI VITY OR RELATED TO NORMAL TRADE/BUSINESS OF THE ASSESSEE : HERE AGAIN THE TRANSACTIONS IN QUESTION ARE NOT AT ALL INDEPENDENT BUT ARE RATHER INTEGRALLY TO THE TRANSACTIONS FROM FUTURE AND OPTIONS WHICH IS THE M AIN ACTIVITY OF THE ASSESSEE. (III) MOTIVE/INTENTION : - THE ISSUE OF MOTIVE / INTENTION IS CLOSELY CONNECTED WITH THE FIRST TWO ISSUES I.E. THAT OF TI ME DEVOTED AND WHETHER THE ACTIVITY IN QUESTION IS AN INDEPENDENT ONE? IT HAS ALREADY BEEN DEMONSTRATED AS PER THE DISCUSSION IN THE FIR ST TWO POINTS THAT THE ENTIRE SPECTRUM OF THE ASSESSEES ACTIVITY REVO LVE ROUND THE STOCK MARKET OPERATIONS AS WELL AS THE QUANTUM OF TIME DE VOTED CLEARLY INDICATES THE MOTIVE AND IS AN IMPORTANT KEY OPENER IN REALIZING THE TRUE MENTAL MAKE UP OF THE ASSESSEE. THE ASSESSEE ARGUES THAT HER INTENTION IS FOR LONG TERM APPRECIATION AND EARNING DIVIDEND/INTEREST INCOME. THE ASSESSEE ON THIS MATTER BORDERS ON THE RIDICULOUS FOR IT IS AMPLY EVIDENT THAT REALITY OF THE SITUATION IS AT A TOTAL VARIANCE WITH THE FACTS OF THE CASE. THIS IS BECAUSE WHAT TO TALK OF LONG TERM APPRECIATION IN THE STOCKS HELD BY THE ASSESSEE, IT IS EVIDENT T HAT THE ASSESSEE IS NOT EVEN LOOKING FOR ANY KIND OF APPRECIATION OF INVEST MENTS BUT RATHER IS IN THE MARKET FOR MAXIMIZING PROFITS. THE INTENTION IS FURTHER UNDERSTOOD BY THE FACT THAT AS MENTIONED FOR SHORT HOLDING PER IOD OF 30 DAYS ITSELF, THERE ARE 164 TRANSACTIONS ACROSS 53 SCRIPS. THIS F ACT ALSO IMPORTANTLY SPEAKS A LOT ABOUT THE MOTIVE/INTENTION. (IV) SOURCE OF ACQUISITION : ANOTHER NOTABLE TEST TO DEDUCE THE REAL NATURE OF THE TRANSACTION, AS IS CLEAR FROM THE GUI DELINES ISSUED TO THE ASSESSING OFFICER IN THE C.B.D.T.S INSTRUCTION 4 O F 2007 AND VARIOUS JUDICIAL PRONOUNCEMENTS, IS THE SOURCE OF ACQUISITI ON OF FUNDS. IT IS BY FAR THE MOST IMPORTANT AND SINGULARLY SIGNIFICANT T ESTS FOR DETERMINING THE REAL NATURE OF THE SO CALLED SHORT TERM CAPITAL GAINS AND IS A EYE OPENER IN DEMONSTRATING THE REAL MOTIVE AND INTENT OF THE ASSESSEE. IN THE AFOREMENTIONED PARAS IT BEEN CLEARLY STATED HOW THERE IS UTILIZATION OF LOAN/DEBT FUNDS IN FUNDING THE STOCK MARKET OPER ATIONS. THIS WHOLE ISSUE HAS BEEN DISCUSSED IN DETAIL AT PARA 4(P)(V) OF THIS ORDER. IT IS A FACT THAT THE TOTAL AMOUNT OF LOANS TAKEN AS ON 31. 03.2008 IS RS.22.45 CRS. AND MORE SO THE FRESH INDUCTION OF UNSECURED/D EBT FUNDS IS A HUGE AMOUNT OF APPROX. RS.18.60 CRS THEREBY INDICAT ING A SUBSTANTIAL AND MASSIVE DEPLOYMENT OF DEBT FUND TO FINANCE THE STOCK MARKET OPERATIONS. THIS SINGLE ISSUE ALONE CLINCHES THE CA SE AGAINST THE RETENTION OF SO CALLED SHORT TERM CAPITAL GAINS AND CLEARLY DEMONSTRATES THAT THE INTENTION OF THE ASSESSEE BEYOND DOUBT IS TO BE IN THE STOCK ITA 7333/MUM/2011 8 MARKET FOR MAXIMIZATION OF GAINS. IT IS ALSO VERY C LEAR THAT ON THIS POINT THAT THE PREPONDERANCE OF EVIDENCE IS VERY MUCH AGA INST THE ASSESSEE. (V) PERIOD OF HOLDING : AS REGARDS THE PERIOD OF HOLDING, IT IS VERY MUC H CLEAR THAT THE PERIOD OF HOLDING IS AS SHORT AS ONE DAY FOR CERTAIN TRANSACTIONS. IN FACT, AS ALREADY MENTIONED, THE HO LDING PERIOD OF 53 SCRIPS RUNNING ACROSS 164 TRANSACTIONS IS LESS THAN 30 DAYS. THE TOTAL VALUE OF PURCHASE IN RESPECT OF ALL SUCH TRANSACTIO N IS AT RS.71.87 CRS. THERE HAVE BEEN 80 TRANSACTIONS WHEREIN HE HOLDING PERIOD IS UP TO 1 WEEK, 103 TRANSACTIONS UP TO 15 DAYS AND 164 TRANSA CTIONS HAVE BEEN SQUARED OFF IN A MONTH. FURTHER, THERE ARE 327 TRAN SACTIONS WHEREIN THE PURCHASE AND SALE HAVE BEEN COMPLETED WITHIN 90 DAYS I.E. ABOUT THREE MONTHS. IT CAN THUS BE SEEN THAT THE ASSESSEE S CONTENTION AS REGARD THE PERIOD OF HOLDING DO NOT STAND TO REASON AND THE OVERALL PATTERN OF THE HOLDING PERIOD INDICATES THAT THE SH ARE CANNOT BE INTENDED TO BE HELD AS ASSETS. NO INVESTOR WOULD OR DINARILY HAVE SUCH SHORT HOLDING PERIODS, AT LEAST IN A SUBSTANTIAL NU MBER OF TRANSACTIONS UNLESS THE INTENTION TO EARN MAXIMUM PROFIT. (VI) FREQUENCY OF TRANSACTIONS: - IN THE ASSESSEES CASE IT IS CLEAR THAT THERE HAS BEEN A VERY HIGH REGULARITY IN THE TRADIN G PATTERN AND SHARES HAVE BEEN PURCHASED AND SOLD AT VERY REGULAR INTERV ALS, WHETHER IT IS IN RESPECT OF BUYING OF SHARES OF A SINGLE COMPANY OR IN RESPECT BUYING AND SELLING OF SHARES OF MANY A COMPANY ON THE SAME DAY (CRISSCROSS HOLDING PATTERN). THIS POINTS OUT TO NOTHING BUT T HE HIGHLY FREQUENT TRANSACTIONS. THUS, ON THE ISSUE OF FREQUENCY AS WE LL, IT IS OBSERVED THAT THE TRANSACTIONS ARE CARRIED OUT AT SUBSTANTIAL FRE QUENCY WHICH WOULD NOT BE CASE, HAD THE ASSESSEE BEEN MERE INVESTOR AS HAS BEEN CLAIMED. (VII) NUMBER OF STOCKS INVESTED IN : BY NO STRETCH OF IMAGINATION COULD IT ARGUED THAT INVESTMENT IN 96 STOCKS IS A M EAGER NUMBER SO AS TO EXCLUDE THE ASSESSEE FROM FALLING IN THE GAMUT O F BEING A TRADER. HERE AGAIN, IT IS THE ASSESSEES OWN SELF SERVING L OGIC WHICH LEADS HER TO SAY THAT IN CASE OF NORMAL TRADER THE NUMBER OF STO CKS WOULD BE MUCH LOWER ALTHOUGH WITH VERY HIGH FREQUENCY. IN FACT, G IVEN THE NUMBER OF STOCKS TRADED IT WOULD NOT BE IMPROPER TO SAY THAT THE ASSESSEES MOTIVE IS NOT ONE THAT OF AN INVESTOR. (VIII) WHETHER INVESTMENT IN LISTED OR UNLISTED :- IT MAKES LITTLE DIFFERENCE TO THE OVERALL POSITION AS TO WHETHER TH E DEALINGS HAVE BEEN MADE IN LISTED SECURITIES TRADED IN RECOGNIZED STOC K EXCHANGES IN ANSWERING THE ULTIMATE QUESTION AS TO WHETHER STOCK S ARE HELD AS ASSETS OR USED FOR BUSINESS? (IX) TREATMENT IN BOOKS OF ACCOUNTS: IT MAY BE THAT A PARTICULAR TREATMENT IN BOOKS OF ACCOUNTS WILL NOT PRECIATED A LTER THE REAL POSITION. MOREOVER MERELY SHOWING OF STOCKS AS INV ESTMENT AND INVOKING THE ISSUE OF METHOD OF ACCOUNTING AS WELL AS REFERENCE TO PAST TREATMENT IS TO SKIRT THE ISSUE AND IS A MERE CAMOU FLAGE OF ASSESSEE REAL ITA 7333/MUM/2011 9 INTENT WHICH IS TRADING IN SHARES. AS WILL BE DEMO NSTRATED WITH THE HELP OF VARIOUS JUDICIAL PRONOUNCEMENTS IN THE LATE R PORTION OF THIS ORDER, TREATMENT UN BOOKS OF ACCOUNTS AS INVESTMENT , THOUGH HAS SOME EVIDENTIARY VALUE, CERTAINLY IT IS NOT A CONCLUSIVE EVIDENCE TO DEMONSTRATE THAT THE SHARES MUST HAVE BEEN HELD AS ASSETS, ESPECIALLY GIVEN THE CASE THAT FACTS AND CIRCUMSTANCES AND CON DUCT OF THE ASSESSEE SUGGEST OTHERWISE. A REFERENCE HAS ALREADY BEEN MADE IN THE EARLIER PARAS OF THIS ORDER THAT THE TREATMENT IN B OOKS OF ACCOUNTS AS INVESTMENTS AND ITS SUBSEQUENT ACCEPTANCE WOULD N OT IN ANY MANNER AT AS ESTOPPEL TO PRECLUDE THE DEPARTMENT FROM AP PRECIATING THE REAL POSITION. THE ASSESSEE CANNOT RELY ON HER OWN DISCR ETIONARY HEAD OF ACCOUNT AND NOMENCLATURE AS CONCLUSIVE PROOF THAT THE SHARE INVESTMENT MADE MUST HAVE YIELDED CAPITAL ASSETS ES PECIALLY WHEN ALL OTHER FACTS POINT TO THE CONTRARY. (X) WHETHER THE TRANSACTIONS WERE SETTLED BY ACTUAL DELIVERY/PAYMENT ETC: - IT IS VERY RELEVANT TO NOTE THAT THE SETTLEMENT O F TRANSACTIONS BY PAYMENT ON ACTUAL DELIVERY IS NO GU ARANTEE THAT THE DEALINGS HAVE NOT BEEN MADE WITH THE INTENTION OF M AXIMIZATION OF PROFIT. HAD THE DELIVERY BEEN THE ONLY CRITERIA IN DECIDING THAT ALL THE DELIVERY BASED TRANSACTIONS ARE BY WAY OF INVESTMEN T PURPOSE, THERE WOULD HAVE BEEN NO SITUATION WHEREIN DELIVERY BASED TRANSACTION CAN ALSO FORM PART OF BUSINESS ACTIVITY. IF TAKEN THIS WAY, IT WILL RESULT IN AN ABSURD SITUATION WHEREIN JUST BECAUSE DELIVERY IS T AKEN IT HAS TO BE THAT THE DEALING IN SHARES MUST RESULT IN INVESTMENT ACT IVITY. OBVIOUSLY, THIS CANNOT BE TRUE IN A SITUATION WHEREIN DELIVERY BASE D TRANSACTIONS ARE PRESENT WHICH ARE HIGHLY MULTIPLE, NUMEROUS AND FRE QUENT. IN SUCH CASES BUSINESS INTENT CAN VERY WELL BE DEDUCED. (XI) WHETHER THE ASSESSEE MAINTAINS TWO PORTFOLIOS ONE FOR INVESTMENT AND ANOTHER FOR TRADING : - ON HIS ISSUE ALSO ASSESSEES OWN CONVENIENT AND SELF SERVING CATEGORIZATION OF PORTF OLIOS INTO TRADING OR INVESTMENT WILL NOT AFFECT THE REALITY OF THE SITUA TION. CONVERSELY, JUST BECAUSE INVESTMENT PORTFOLIO IS BEING MAINTAINED TH AT IN ITSELF DOES NOT IN ANY MANNER PRECLUDE THE AUTHORITIES FROM ASCERTA INING THE REAL POSITION AS WELL AS THE REAL NATURE OF THE TRANSACT IONS. (XII) FACTS AND SURROUNDING CIRCUMSTANCES : IT IS MOST IMPERATIVE TO NOTE THAT THE FACTS AND SURROUNDING CIRCUMSTANCES O F THE ASSESSEES CASE, ESPECIALLY HER CLOSE CONNECTION WITH ALL MANN ER OF ACTIVITY IN THE STOCK MARKET, THE PRINCIPLE ACTIVITY BEING FUTURE A ND OPTION ACTIVITY, EXISTENCE OF BORROWED FUNDS, THE MULTIPLICITY OF TR ANSACTIONS ALL GO ON TO SHOW THE EXISTENCE OF INTENT TO TRADE IN STOCK AS A BUSINESS ACTIVITY. NO OTHER INDEPENDENT ACTIVITY APART FROM STOCK MARKET OPERATIONS IS INDICATED, AT LEAST IN ANY MEANINGFUL SCALE OR MANN ER. THUS, THE SURROUNDING FACTS AND CIRCUMSTANCES AS WELL ARE ALS O CLEARLY AGAINST THE ASSESSEE. ITA 7333/MUM/2011 10 5. ON THE BASIS OF ABOVE FINDINGS/OBSERVATIONS RECO RDED BY HIM ON APPLICATION OF THE VARIOUS GUIDELINES AS WELL AS TE ST LAID DOWN IN THE CBDT CIRCULAR AS WELL AS IN THE VARIOUS JUDICIAL PRONOUN CEMENTS, THE A.O. ARRIVED AT A CONCLUSION THAT THE RELEVANT TRANSACTIONS OF PURC HASE AND SALE OF SHARES WERE MADE BY THE ASSESSEE AS TRADER AND NOT AS INVE STOR. ACCORDINGLY, THE PROFIT ARISING FROM THE SAID TRANSACTION WAS TREATE D BY THE A.O. AS BUSINESS INCOME OF THE ASSESSEE AS AGAINST STCG CLAIMED BY T HE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX A CT, 1961 VIDE AND ORDER DTD. 30-12-2010. 6. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE ACTION OF THE A.O. IN TREATING THE PROFIT ARISING FROM SALE O F SHARES AS BUSINESS INCOME INSTEAD OF STCG. BEFORE THE LD. CIT(A), IT WAS SUBM ITTED ON BEHALF OF THE ASSESSEE THAT THE SHARES HELD AT THE END OF EACH FI NANCIAL YEAR WERE SHOWN IN THE BALANCE SHEET AS INVESTMENT AT THE COST PRICE. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS EARNING DIVIDEND INCOME AND THE PR OFIT OR LOSS ON SALE OF SHARES WAS DECLARED UNDER THE HEAD SHORT TERM AND L ONG TERM CAPITAL GAIN REGULARLY DEPENDING UPON THE PERIOD OF HOLDING. IT WAS SUBMITTED THAT THE ASSESSEE HAD INCURRED HEAVY LOSS FROM FUTURES AND O PTIONS TRADING WHICH WAS SEPARATELY DISCLOSED UNDER THE HEAD BUSINESS INCOME . IT WAS SUBMITTED THAT ALL THE DELIVERY BASED TRANSACTIONS IN SHARES, ON T HE OTHER HAND, WERE MADE BY THE ASSESSEE AS INVESTOR AND THE PROFIT ARISING FROM THE SAID TRANSACTION WAS RIGHTLY SHOWN UNDER THE HEAD CAPITAL GAINS. IT WAS CONTENDED THAT JUST BECAUSE THE ASSESSEE WAS TRADING IN FUTURES AND OPT IONS, HE COULD NOT BE DENIED THE ADVANTAGE AVAILABLE TO HIM AS AN INVESTO R BY AVAILING THE BENEFIT OF LOWER RATE OF TAX APPLICABLE TO STCG. IT WAS ALSO CONTENDED THAT MERELY BECAUSE SOME SHARE WERE SOLD ON A SHORT PERIOD, THE SAME WOULD NOT LOSE ITS BASIC CHARACTER OF INVESTMENT. IT WAS SUBMITTED TH AT THE LOANS WERE RAISED BY THE ASSESSEE FOR FUTURE AND OPTION BUSINESS AND THE Y HAD NO CONNECTION WITH ITA 7333/MUM/2011 11 THE PROFIT EARNED FROM THE SHARE TRANSACTIONS. AS REGARDS THE OBSERVATION OF THE A.O. REGARDING THE INVESTMENT MADE BY THE ASSES SEE IN 53 DIFFERENT SCRIPS TO DRAW AN ADVERSE INFERENCE AGAINST THE ASSESSEE O N THE ISSUE OF NATURE OF TRANSACTION, IT WAS SUBMITTED THAT THERE IS NO PROH IBITION IN THE ACT REGARDING THE MAXIMUM NUMBER OF SCRIPTS IN WHICH ONE CAN INVE ST. IT WAS CONTENDED THAT ALL THE TRANSACTIONS OF PURCHASE AND SALE OF S HARES HAD BEEN DULY REFLECTED IN THE D-MAT ACCOUNT MAINTAINED BY THE AS SESSEE SHOWING THAT THE SAME WERE DELIVERY BASED AND IT WAS THUS A CASE WHE RE THE ENTIRE PORTFOLIO OF SHARES WAS MAINTAINED BY THE ASSESSEE AS INVESTOR A ND NOT STOCK-IN-TRADE. 7. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDER OF THE A.O., THE LD. CIT(A) FOUND THAT THE SIMILAR ISSUE WAS DECIDED BY THE A.O. AS WELL AS BY THE LD. CIT(A) AGAINST THE ASSESSEE IN A.Y. 2006-07 TRE ATING THE STCG SHOWN BY THE ASSESSEE ON SALE OF SHARES AS BUSINESS INCOME A ND THE MATTER WAS SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE A.O. FOR D ECIDING THE SAME AFRESH BY APPLYING THE FOLLOWING PARAMETERS:- I. WHETHER ASSESSEE IS INDULGING IN SHARE TRANSACT IONS AS BUSINESS OR AS INVESTMENT IS TO CORRELATE WITH REFERENCE TO THE F & 0 ON THE SAME DAY THIS MAY INDICATE THAT THE NATURE OF TRANS ACTION IS THAT OF BUSINESS AS AN ADVENTURE; II. THE AO GIVES A FINDING THAT THE ASSESSEE HAS NO OTHER WORK EXCEPT SHARE RELATED TRANSACTIONS WHEREAS BEFORE THE CIT(A ) IT WAS CONTENDED THAT THE ASSESSEES MAIN ACTIVITY IS THAT OF MANUFA CTURING AND EXPORT OF GARMENTS IN WHICH HE IS ASSOCIATED AS DIRECTOR/PART NER IN VARIOUS CONCERNS AND ONLY IN THIS YEAR SHARE MARKET TRANSAC TIONS ARE MORE COMPARED TO EARLIER YEARS. SINCE THESE FACTS ARE NO T EXAMINED BY THE AC IN ITS CORRECT PERSPECTIVE, WE ARE OF THE OPINION T HAT THE AC SHOULD ANALYSE THE TRANSACTIONS A FRESH VIS--VIS THE INCO ME EARNED IN F & C SECTION, AND III. AS SEEN FROM THE STATEMENT OF INCOME IN THE EA RLIER YEARS THERE WERE ALSO SPECULATION TRANSACTIONS. IF THE ASSESSEE IS HAVING SPECULATION TRANSACTIONS IN SHARE MARKET (OTHER THA N F & C) THAT CAN BE AN INDICATION OF INDULGING IN BUSINESS TRANSACTI ONS. THE AC IS DIRECTED TO KEEP IN MIND THE FACTS OF THE CASE, ANA LYSE THE ISSUE, ITA 7333/MUM/2011 12 EXAMINE THE SOURCE OF INCOME VIS--VIS THE RECORD O F THE ASSESSEE IN EARLIER AND LATER YEARS AND ALSO THE TRANSACTIONS U NDERTAKEN IN SPECULATION AND F & C TRADING SO AS TO COME TO A CO NCLUSION WHETHER ASSESSEE IS AN INVESTOR OR TRADER). 8. IN VIEW OF THE DECISION OF THE TRIBUNAL FOR A.Y. 2006-07, THE LD. CIT(A) PROCEEDED TO APPLY THE PARAMETERS SUGGESTED BY THE TRIBUNAL TO THE FACTS OF THE ASSESSEES CASE AS INVOLVED IN THE YEAR UNDER C ONSIDERATION AND RECORDED HIS FINDINGS/OBSERVATIONS ON SUCH APPLICATION AS UN DER:- ON PERUSAL OF THE DETAILS FURNISHED BY THE APPELLA NT BEFORE THE AO AS WELL AS IN APPEAL, IT IS SEEN THAT THE APPELLANT HA S TRANSACTED IN SAME SCRIPTS/SHARES BOUGHT FOR THE PURPOSE OF DERIVATIV E TRADING ( F & C ) AND STCG ON SAME DAYS OR DATES; IN RESPECT OF BHEL (18.01.2008), BIOPAC (05.07.2007), DISHTV (28.05.2007), GRABAL (1 8.01.2008) HANUNG (10.07.2007), IBREALEST (14.05.2007), ICSA ( 26.12.2007) IFCI (29.05.2007, 08.10.2007, 09.10.2007 & 20.12.20 07), MUNDRA PORT LTD (28.12.2007) NAGARGUNA FERTILIZERS LTD. (14.08. 2007, 09.10.2007 & 15.10.2007), OPTOCIRCUI (22.06.2007), PSTL (31.12.2 007), REL CAP (14.01.2008), RIL (30.04.2007, 30.07.2007 & 09.10.2 007), RELIGARE (28.12.2007 & 02.01.2008), RNRL (29.10.2007), SBI ( 10.10.2007), TATA STEEL (29.10.2007) AND TRIL (31.12.2007) ETC. ON TH ESE DAYS THE APPELLANT HAS TRANSACTED IN THE SAME SCRIPTS OR DER IVATIVES IN THE DELIVERY BASED TRANSACTIONS AS WELL AS IN F & 0 OR SPECULATION TRANSACTIONS. REGARDING, THE MAIN ACTIVITY OF THE A PPELLANT, IT IS SEEN THAT ALTHOUGH TRADITIONALLY THE APPELLANT WAS ENGAG ED IN THE FAMILY BUSINESS OF MANUFACTURING AND EXPORT/TRADING OF GAR MENTS THROUGH VARIOUS FAMILY OWNED CONCERNS BUT DURING THE RELEVA NT ASSESSMENT YEAR, AS ADMITTED BY THE AR, THE SAID BUSINESS IS M ORE OR LESS STOPPED DUE TO HEAVY LOSSES INCURRED. HOWEVER, FOR THE LAST 2-3 ASSESSMENT YEARS THE APPELLANT HAS CARRIED OUT SUBSTANTIAL TRA NSACTIONS IN VARIOUS STOCK MARKET ACTIVITIES OF TRADING IN DERIVATIVES O R F & 0 TRANSACTIONS, DELIVERY AND NON DELIVERY BASED SHARE TRANSACTIONS. THEREFORE, ON ACCOUNT OF THE SAME THE MAIN ACTIVITY OF THE APPELL ANT FOR THE RELEVANT ASSESSMENT YEAR ARE ON ACCOUNT OF HIS PARTICIPATION IN VARIOUS STOCK MARKET OPERATIONS, AS DISCUSSED ABOVE. IN THIS REGA RD, IT WILL BE NOTED THAT THE TOTAL SHARE OF PROFITS AS A PARTNER FOR TH E RELEVANT ACCOUNTING YEAR FROM THE TWO PARTNERSHIP FIRMS IN WHICH HE IS A PARTNER, IS AS UNDER: I. M/S AARKAY FASHION GARMENTS RS.(-)10,04,894/- II. M/S EAST WEST HANDICRAFT ENTERPRISES RS. 2,33,0 38/- 2.3.6. THE INCOME EARNED AS WELL AS TURNOVER ACHIEV ED FROM THE GARMENTS BUSINESS IS MINISCULE IN COMPARISON TO THE SHARE TRADING ITA 7333/MUM/2011 13 ACTIVITY IN SHARE MARKET CARRIED OUT BY THE APPELLA NT DURING THE RELEVANT ACCOUNTING YEAR. THE APPELLANT HAS INCURRED A NET L OSS OF RS.25.91 CRORES ON TOTAL TURNOVER OF RS.941.11 CRORES IN F & 0 TRANSACTIONS AS AGAINST STCG OF RS.4.44 CRORES ON TOTAL TURNOVER OF RS.162.70 CRORES AND LTCG OF RS.5.77 CRORES ON TOTAL TURNOVER OF RS. 10.73 CRORES. THEREFORE, AS ADMITTED BY THE AR DURING THE RELEVAN T ACCOUNTING YEAR THE MAIN ACTIVITY OF THE APPELLANT WAS HIS PARTICIP ATION IN VARIOUS SHARE MARKET TRANSACTIONS, AS DISCUSSED ABOVE. IT IS AN A DMITTED FACT THAT THE APPELLANT IS ENGAGED IN THE SPECULATION TRANSACTION S OF DERIVATIVES (F&O) CONSISTENTLY DURING THE RELEVANT ACCOUNTING Y EAR AS WELL AS IN THE PRECEDING AND SUBSEQUENT ASSESSMENT YEARS. THE APPE LLANT TOO HAS SHOWN SPECULATIVE INCOME I LOSS OF (-)RS. 4,41,232/ - ON SHARE TRADING IN THE AY 2002-03, RS.22,71,077/- IN THE AY 2003-04 AN D RS.33,15,710/- IN THE AY 2004-05. THEREFORE, APPLYING THE VARIOUS PARAMETERS AS LAID DOWN BY THE HONOURABLE ITAT IN THE CASE OF THE APPE LLANT FOR THE ASSESSMENT YEAR 2006-07, AS DISCUSSED ABOVE, IT IS SEEN THAT THE SAME ARE DULY SATISFIED BY THE APPELLANT SO AS TO INFER THAT HE IS A TRADER IN THE SHARES/MUTUAL FUNDS ON WHICH STCG ARE SHOWN DUN G THE RELEVANT ASSESSMENT YEAR. 2.3.7. THEREFORE, THE APPELLANT HAS PURCHASED AND S OLD A PARTICULAR SHARE IN RESPECT TO SPECULATIVE TRANSACTION AS WELL AS IN RESPECT TO SHORT TERM CAPITAL GAIN TRANSACTION, ON THE SAME DATES IN RESPECT OF VARIOUS OR SCRIPS, AS DISCUSSED ABOVE. ALTHOUGH, THE AR CON TESTED THAT THE BORROWED FUNDS WERE UTILIZED ONLY FOR THE PURPOSE O F DERIVATIVE TRANSACTIONS OR F & 0, BUT HE HAS FAILED TO PROVE T HE SAME WHILE FURNISHING THE NECESSARY DOCUMENTARY EVIDENCES OR B OOKS OF ACCOUNT. FROM THE TRANSACTION ACCOUNT OF THE APPELLANT MAINT AINED WITH THE BROKERS AND RELATED BANK ACCOUNTS MAINTAINED IT IS SEEN THAT COMMON FUNDS ARE USED FOR ALL THE STOCK MARKET OPERATIONS OR TRANSACTIONS CARRIED OUT BY THE APPELLANT THROUGH THESE BROKERS. THEREFORE, THE CONTENTION OF THE AR, THAT THE BORROWED FUNDS ARE U TILIZED ONLY FOR SPECULATION OR DERIVATIVE TRANSACTIONS AND NOT FOR THE DELIVERY BASED TRANSACTIONS IS NOT SUBSTANTIATED. RATHER, CONSIDER ING TO THE COMMON ACCOUNT AND COMMON POOL OF FUNDS USED FOR ALL THESE STOCK MARKET TRANSACTIONS, IT IS PROVED THAT THE BORROWED FUNDS ARE USED FOR DELIVERY BASED TRANSACTIONS AS WELL AS FOR FUNDING NON DELIV ERY BASED TRANSACTIONS OR DERIVATIVE OR SPECULATION TRANSACTI ONS. THEREFORE, CONSIDERING TO THESE FACTS AVAILABLE IN THE CASE OF THE APPELLANT AS WELL AS DULY TAKING INTO CONSIDERATION THE SUBSTANTIAL O R LARGE VOLUME, CONSISTENT, REGULAR AND REPETITIVE TRANSACTIONS UND ERTAKEN IN THE SAME SCRIPTS BOTH FOR THE DELIVERY BASED TRANSACTIONS AN D NON-DELIVERY BASED TRANSACTIONS INCLUDING F & 0 TRANSACTIONS, AND CONS IDERING TO THE VARIOUS PARAMETERS LAID DOWN BY THE HONOURABLE ITAT , IN THE CASE OF THE APPELLANT (SUPRA), IT IS CLEAR THAT THE ONLY MO TIVE OF THE APPELLANT IN CARRYING OUT THESE DELIVERY BASED TRANSACTIONS ARE TO EARN QUICK PROFITS. THEREFORE, THESE TRANSACTIONS ARE IN THE NATURE OF HIS TRADING OR BUSINESS TRANSACTIONS AND NOT INVESTMENT TRANSACTIO NS. ITA 7333/MUM/2011 14 9. THE LD. CIT(A) THUS FOUND THAT AS PER THE PARAM ETERS SUGGESTED BY THE TRIBUNAL IN ITS ORDER FOR A.Y. 2006-07 WHILE RESTOR ING THE BACK THE SIMILAR ISSUE TO THE FILE OF THE A.O., THE ASSESSEE HAD MAD E DELIVERY BASED TRANSACTIONS IN SHARES TO EARN QUICK PROFIT AND SUC H TRANSACTIONS THUS WERE IN THE NATURE OF TRADING TRANSACTION. HE, THEREFOR E, UPHELD THE ACTION OF THE A.O. IN TREATING THE STCG DECLARED BY THE ASSESSEE ON ACCOUNT OF PROFIT FROM THE TRANSACTIONS IN SHARES AS BUSINESS INCOME. HE ALSO NOTED THAT SHRI KARAN R. BAHL, SON OF THE ASSESSEE HIMSELF HAD DISC LOSED SIMILAR PROFIT EARNED FROM THE TRANSACTION IN DELIVERY BASED SHARE AS BUS INESS INCOME UNDER THE IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE. AGG RIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE MAINLY REITERA TED BEFORE US THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE T HE LD. CIT(A) IN SUPPORT OF ASSESSEES CASE THAT THE PROFIT ARISING FROM DELIVE RY BASED TRANSACTIONS IN SHARES IS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS AS RIGHTLY CLAIMED IN THE RETURNS OF INCOME. HE CONTENDED THAT FUTURE AN D OPTION TRANSACTIONS ARE DIFFERENT FROM THE DELIVERY BASED TRANSACTIONS IN S HARES AND SINCE THE PROFIT/LOSS ARISING FROM F&O TRANSACTIONS WAS DECLA RED BY THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSIO N, THE PROFIT ARISING FROM DELIVERY BASED TRANSACTIONS IN SHARES SHOULD BE TRE ATED AS CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAIN AS THE PORTFOLIO OF T HE SAID SHARES WAS SEPARATELY MAINTAINED BY THE ASSESSEE AS INVESTMENT . HE POINTED OUT THAT THERE WERE NO SPECULATION TRANSACTIONS ENTERED INTO BY THE ASSESSEE OTHER THAN THE FUTURE AND OPTION TRANSACTIONS. 11. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIE D ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF REVENUES CASE ON T HIS ISSUE. HE CONTENDED THAT VARIOUS TESTS AND GUIDELINES LAID DOWN IN THE VARIOUS JUDICIAL PRONOUNCEMENTS AS WELL AS IN THE CIRCULAR ISSUED BY THE CBDT HAVE BEEN ITA 7333/MUM/2011 15 APPLIED BY THE A.O. TO THE FACTS OF THE ASSESSEES CASE TO COME TO THE CONCLUSION THAT THE TRANSACTIONS IN SHARES WERE MAD E BY THE ASSESSEE AS TRADER AND NOT AS AN INVESTOR. HE INVITED OUR ATTE NTION TO THE RELEVANT FINDINGS/OBSERVATIONS RECORDED BY THE A.O. IN THIS REGARD AND SUBMITTED THAT THE SAME ARE SUFFICIENT TO SHOW THE INTENTION OF TH E ASSESSEE WHICH WAS TO TRADE IN SHARES AND NOT TO HELD THE SHARES AS INVES TMENT. HE SUBMITTED THAT EVEN THE PARAMETERS SUGGESTED BY THE TRIBUNAL IN TH E ORDER PASSED IN ASSESSEES OWN CASE FOR A.Y. 2006-07 HAVE BEEN DULY TAKEN INTO CONSIDERATION BY THE LD. CIT(A) AND ON SUCH CONSIDERATION, HE HAS FOUND THAT THE ASSESSEE IS TRADER IN SHARES AND NOT INVESTOR. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN OUR OPINION, THE ISSUE AS TO WHETHER THE ASSESSEE HAS CARRIED OUT THE TRANSACTIONS IN SHARES AS TRADER OR INVESTOR MAINLY DEPENDS ON THE INTENTION OF THE ASSESSEE TO PURCHASE AND HOLD THE SHARES AND SUCH INTENTION HAS TO BE GATHERED FROM T HE FACTS AND CIRCUMSTANCES INVOLVED IN EACH CASE. THERE ARE SEV ERAL ASPECTS WHICH NEEDS TO BE TAKEN INTO CONSIDERATION COLLECTIVELY IN ORDE R TO ASCERTAIN THE INTENTION OF THE ASSESSEE. IN THE VARIOUS JUDICIAL PRONOUNCEM ENTS CERTAIN GUIDELINES HAVE BEEN LAID DOWN WHICH COULD BE APPLIED TO THE F ACTS OF THE GIVEN CASE TO ASCERTAIN WHETHER THE TRANSACTIONS IN SHARES ARE IN THE NATURE OF TRADE OR INVESTMENT. THE CBDT HAS ALSO ISSUED CERTAIN GUIDEL INES ON THE SIMILAR LINES WHICH ARE HELPFUL TO DECIDE THE ISSUE AS TO WHETHER THE SHARES ARE HELD BY THE ASSESSEE AS STOCK-IN-TRADE OR INVESTMENT. A PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE A.O. IN THE PRESENT CASE SHOWS THAT A FTER APPLYING THE SUCH GUIDELINES TO THE FACTS OF THE ASSESSEES CASE, IT WAS INFERRED BY THE A.O. THAT THE TRANSACTIONS IN SHARES ENTERED INTO BY THE ASSE SSEE WERE IN THE NATURE OF TRADE. THE RELEVANT PORTION OF THE A.O.S ORDER AN ALYZING THE RELEVANT FACTUAL POSITION OF THE ASSESSEES CASE IN THE LIGHT OF VAR IOUS CRITERIAS AND GUIDELINES HAS ALREADY BEEN REPRODUCED BY US IN THE FOREGOING PORTION OF THIS ORDER AND ITA 7333/MUM/2011 16 AS IS CLEARLY EVIDENT FROM THE FINDINGS/CONCLUSION RECORDED BY THE A.O. IN THIS CONTEXT, THE ASSESSEE WAS FOUND TO BE ENTERED INTO THE TRANSACTIONS OF SHARES AS TRADER IRRESPECTIVE OF THE TREATMENT GIVEN BY HI M TO THE SAID SHARES IN THE BOOKS OF ACCOUNT WHICH EVEN OTHERWISE IS NOT CONCLU SIVE TO DECIDE THIS ISSUE. 13. AS NOTED BY THE A.O., APART FROM THE TRANSACTIO NS IN DELIVERY BASED SHARES, THE ASSESSEE WAS INDULGED IN FUTURE AND OPT ION TRANSACTIONS IN SHARES SIMULTANEOUSLY AND THERE WAS NO OTHER ACTIVITY CARR IED ON BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION OTHER THAN THE STOCK M ARKET OPERATIONS. ALL THE RECEIPTS FROM FUTURE AND OPTIONS WERE CREDITED BY T HE ASSESSEE TO THE P&L ACCOUNT AND VARIOUS ESTABLISHMENT EXPENSES WERE DEB ITED IN THE SAID P&L ACCOUNT INDICATING THAT AN ORGANIZED AND SYSTEMATIC ACTIVITY WAS BEING CARRIED ON BY THE ASSESSEE. INCOME IN THE FORM OF DIVIDEND WAS EARNED BY THE ASSESSEE ONLY IN RESPECT OF FEW SCRIPS WHICH GAVE A VERY LOW RATE OF RETURN AS COMPARED TO THE VALUE OF SHARES HELD BY THE ASSESSE E. IN MAJORITY OF THE TRANSACTIONS IN SHARES, THE ASSESSEE DID NOT HOLD T HE SHARES BEYOND A PERIOD OF ONE MONTH. THE ASSESSEE WAS ALSO FOUND TO HAVE ENTERED REPEATEDLY IN THE SAME SCRIPS WHICH HE HAD ALREADY DISPOSED OF WHICH AGAIN GOES TO SHOW THAT THE MOTIVE OF THE ASSESSEE WAS TO MAXIMIZE THE PROF IT FROM THE SHARE TRANSACTION AND NOT TO REMAIN INVESTED FOR LONGER T IME. THE INVOLVEMENT OF THE ASSESSEE IN SHARE TRANSACTIONS WAS NOT AN OCCAS IONAL ONE BUT IT WAS ONLY THE ACTIVITY OF THE ASSESSEE WHICH WAS CARRIED ON R EGULARLY IN A SYSTEMATIC AND ORGANIZED MANNER. THE SHORT PERIOD OF HOLDING OF S HARES CLEARLY REVEALED THAT THERE WAS NO INTENTION OF THE ASSESSEE TO HOLD THE SHARES FOR LONGER TERM TO EARN DIVIDEND INCOME. THE ASSESSEE WAS ALSO FOUND TO HAVE INVESTED IN THE SHARES FROM THE SUBSTANTIAL BORROWED FUNDS AND THER E WAS HUGE FUNDS BORROWED BY THE ASSESSEE FOR THIS PURPOSE EVEN IN T HE YEAR UNDER CONSIDERATION. ITA 7333/MUM/2011 17 14. IN ADDITION TO THE VARIOUS ADVERSE FINDING RECO RDED BY THE A.O. ON APPLICATION OF THE RELEVANT GUIDELINES AND TESTS TO THE FACTS OF THE ASSESSEES CASE, THE LD. CIT(A) ALSO EXAMINED THIS ISSUE BY AP PLYING THE PARAMETERS SUGGESTED BY THE TRIBUNAL IN THE ORDER PASSED IN AS SESSEES OWN CASE FOR A.Y. 2006-07 WHILE RESTORING A SIMILAR ISSUE TO THE FILE OF THE A.O. ON SUCH EXAMINATION, HE FOUND THAT THE ASSESSEE HAD TRANSAC TED IN THE SAME SCRIPS/SHARES BOUGHT FOR THE PURPOSE OF DERIVATIVE TRADING (F&O) AND STCG ON SAME DATES. HE ALSO FOUND THAT THE MAIN ACTIVIT Y OF THE ASSESSEE WAS RELATING TO THE STOCK MARKET TRANSACTION NOT ONLY I N THE YEAR UNDER CONSIDERATION BUT EVEN IN THE IMMEDIATELY PRECEDING AS WELL AS SUCCEEDING YEAR. HE ALSO FOUND THAT THE STAND OF THE ASSESSEE OF HAVING USED THE BORROWED FUNDS ONLY FOR THE PURPOSE OF F&O TRANSACT IONS WAS NOT SUBSTANTIATED AND IT WAS A CASE OF COMMON POOL OF F UNDS MAINTAINED BY THE ASSESSEE WHICH WERE USED FOR ALL THE STOCK MARKET T RANSACTIONS INCLUDING THE DELIVERY BASED TRANSACTIONS. 15. HAVING REGARD TO ALL THE FINDINGS OF FACTS RECO RDED BY THE A.O. AS WELL AS BY THE LD. CIT(A) ON APPLICATION OF RELEVANT GUIDEL INES AND CRITERIAS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE POSITI ON THAT CLEARLY EMERGES IS THAT THE TRANSACTIONS OF PURCHASE AND SALE OF SHARE S ENTERED INTO BY THE ASSESSEE WERE IN THE NATURE OF TRADE AND IT WAS N OT A CASE WERE THE INTENTION OF THE ASSESSEE WAS TO PURCHASE AND HOLD THE SHARES AS INVESTMENT. THE PROFIT ARISING FROM THE TRANSACTIONS OF PURCHASE AN D SALE OF SHARES THUS WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION AS RIGHTLY HELD BY THE AUTHORITIES BELOW AND NOT UNDER THE HEAD CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. WE, THEREFORE, FIND NO MERIT IN THIS APPEAL FILED BY THE ASSESSEE AND DISMISS THE SAME. ITA 7333/MUM/2011 18 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. 7 8 )( ,7 2 !7 2 9: ORDER PRONOUNCED IN THE OPEN COURT ON 21-06-2013. . # 6 2 45- ! ;#(8 21-06-2013 5 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) '#$ JUDICIAL MEMBER ! '#$ / ACCOUNTANT MEMBER MUMBAI ; ;#( DATED 21-06-2013 %.)(.'./ RK , SR. PS # 6 2 0)<= > =- # 6 2 0)<= > =- # 6 2 0)<= > =- # 6 2 0)<= > =-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. ? () / THE CIT(A)31, MUMBAI. 4. ? / CIT 20, MUMBAI 5. =%B 0))( , , / DR, ITAT, MUMBAI D BENCH 6. , C / GUARD FILE. # 6(' # 6(' # 6(' # 6(' / BY ORDER, '1= 0) //TRUE COPY// D D D D/ // /'9 '9 '9 '9 ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI