Shri Dineshbhai P. Sorathia, RAJKOT-GUJARAT V. The Asstt. Commr. of Income Tax, Cen. Cir.-1, RAJKOT-GUJARAT

ITA 745/RJT/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0310 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Income from undisclosed sources; Corroborative evidences; Onus to prove
• Section: 143(3); 153A; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 744, 745, 746 AND 747/RJT/2014 / ASSESSMENT YEARS: 2007-08, 2008-09, 2009-10 AND 201 0-11 SHRI DINESHBHAI P. SORATHIA OPM KIRTI CONSTRUCTION P.LTD. 501-506,SHILP TOWER, TAGORE ROAD NR. KRISHNA COMPLEX, RAJKOT. VS ACIT, CENT.CIR.1 RAJKOT. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI P.C. YADAV, AR REVENUE BY : SHRI JITENDER KUMAR, CIT-DR / DATE OF HEARING : 02/08/2018 /DATE OF PRONOUNCEMENT : 18 /09/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : THESE FOUR APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST SE PARATE ORDERS OF THE LD.CIT(A)-IV, AHMEDABAD DATED 30.10.2014, 17.10.201 4, 30.10.2014 AND 30.10.2014 RESPECTIVELY FOR THE ABOVE ASSESSMENT YE ARS. SINCE ASSESSEE IS THE SAME AND ISSUES ARE IDENTICAL EXCEPT IN THE ASS ESSMENT YEAR 2008-09 FOR THE SAKE OF CONVENIENCE, WE PROCEED TO DISPOSE OF ALL THESE APPEALS BY THIS COMMON ORDER. 2. THE ASSESSEE HAS FILED APPLICATIONS FOR PERMISSI ON TO RAISE ADDITIONAL GROUNDS OF APPEAL IN ALL THESE YEARS. T HE ADDITIONAL GROUND SOUGHT TO BE PLEADED BY THE ASSESSEE IS COMMON IN T HESE YEARS, WHICH READS AS UNDER: ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 2 - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE OR DER OF ASSESSMENT FOR THE IMPUGNED YEAR, FOR WHICH O PROCEEDINGS WERE PEN DING ON THE DATE OF SEARCH, IS VOID-AB-INITIO AS THE SAME HAS BEEN PASSED WITHO UT REFERRING TO ANY INCRIMINATING MATERIAL FOUND AS A RESULT OF SEARCH. 3. ON THE STRENGTH OF HONBLE SUPREME COURT DECISIO N IN THE CASE OF CIT VS. VARAS INTERNATIONAL, 284 ITR 80(SC) AND NAT IONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (SC), IT WAS CO NTENDED BY THE LD.COUNSEL FOR THE ASSESSEE THAT IF A LEGAL ISSUE G OING TO EFFECT THE TAXABILITY OF AN ASSESSEE, THEN THE ASSESSEE CAN BE PERMITTED TO RAISE SUCH ISSUE AT ANY STAGE. HE FURTHER CONTENDED THAT LAW WITH REGARD TO JURISDICTION OF AO FOR PASSING ASSESSMENT ORDERS IN SEARCH CASE UNDER SECTION 153A HAS BEEN DEVELOPED SUBSEQUENT TO THE P ASSING SUCH ORDERS. HE MADE REFERENCE TO THE FOLLOWING DECISIONS: I) CIT VS. KABUL CHARWALA, 380 ITR 0183 (DEL) II) CIT VS. KURELE PAPERS, 380 ITR 571 (DEL) III) CIT VS. LATA JAIN, 384 ITR 543 (DEL) IV) CIT VS. SOMAYA CONSTRUCTION LTD. 387 ITR 529 (GUJ) 4. ACCORDING TO THE LD.COUNSEL FOR THE ASSESSEE, AL L THESE DECISIONS HAVE COME AFTER ADJUDICATION OF APPEAL BY THE LD.CI T(A). ON THE OTHER HAND, THE LD.DR OPPOSED PRAYER OF THE ASSESSEE AND CONTENDED THAT ENTERTAINING SUCH GROUND OF APPEAL WOULD TAKE DISCO VERY OF NEW FACTS AND FRESH INQUIRY REQUIRES TO BE MADE. 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. ASSESSMENTS IN ALL THESE YEARS H AVE BEEN MADE UNDER SECTION 143(3) R.W.S. 153A. JURISDICTION OF THE AO FOR FRAMING ASSESSMENT ORDER UNDER SECTION 153A HAS BEEN INFUSED BY VIRTUE OF SEARCH CARRIED ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 3 - OUT AT THE PREMISES OF THE ASSESSEE ON 25.2.2011. THUS, THE ISSUE WHETHER THE AO COULD TAKE COGNIZANCE OF SECTION 153A IN THE SE YEARS OR NOT, IS A LEGAL ISSUE WHICH ON THE BASIS OF INTERPRETATION GI VEN BY SUBSEQUENT DECISIONS OF VARIOUS HIGH COURTS INCLUDING DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SO MAYA CONSTRUCTION LTD., 387 ITR 529 (GUJ) REQUIRES TO BE TAKEN INTO C ONSIDERATION. IT IS PERTINENT TO OBSERVE THAT THE WELL SETTLED PROPOSIT ION OF LAW IN SUCH A SITUATION WOULD BE THAT COURTS USED TO DECIDE A DIS PUTE BETWEEN THE PARTIES, BECAUSE IT INVOLVES DECISIONS ON FACTS. I T CAN ALSO INVOLVE DECISION ON POINT OF LAW. BOTH MAY HAVE BEARING ON THE ULTIMATE RESULT OF DECISION. WHEN A COURT INTERPRETS A PROVISION, IT DECIDES AS TO WHAT IS THE MEANING OF PROVISION AND EFFECT OF THE WORDS US ED BY THE LEGISLATURE. IT IS A DECLARATION REGARDING THE STATUTE. IN OTHE R WORDS, JUDGMENT DECLARES AS TO WHAT IS THE LEGISLATIVE INTENT AT TH E TIME OF PROCLAMATION OF LAW. THE DECLARATION IS . THIS WAS THE LAW, THI S IS THE LAW AND THIS IS HOW PROVISION SHALL CONSTRUE. FOUR DECISIONS REFE RRED BY THE LD.COUNSEL FOR THE ASSESSEE (SUPRA) ARE SUBSEQUENT TO THE ORDE RS OF THE LD.CIT(A) IN ALL THESE YEARS. SCOPE OF SECTION 153A HAS BEEN EX PLAINED IN THESE FOUR DECISIONS THEREFORE, IT IS INCUMBENT UPON US TO TAK E COGNIZANCE ALL THESE DECISIONS AND TAKE NOTE OF ADDITIONAL GROUNDS OF AP PEAL. THEREFORE, WE ADMIT ADDITIONAL GROUNDS RAISED BY THE ASSESSEE AND PROCEED TO DECIDE THE GROUND ON MERIT. 6. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED DETAIL S OF FILING OF RETURNS IN THESE ASSESSMENT YEARS AND ALSO SUBMITTE D TIME LIMIT FOR ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT. SUCH DETAILS ARE AS UNDER: ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 4 - A.Y DATE OF FILING ORIGINAL RETURN PAGE NO OF PB TIME LIMIT FOR ISSUANCE OF NOTICE U/S143(2) 2007-08 31.08.2007 31.08.2008 2008-09 23.12.2008 30.09.2009 2009-10 25.09.2009 30.09.2010 2010-11 30.08.2010 30.09.2011 7. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT I N THE ASSTT.YEARS 2007-08, 2008-09 AND 2009-10 NO ASSESSMENT WAS PEND ING ON THE DATE OF SEARCH I.E. 25.2.2011. THE TIME LIMIT TO ISSUE NOT ICE UNDER SECTION 143(2) WAS ALSO EXPIRED, THEREFORE, ACCORDING TO THE DECIS ION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT S. KABUL CHAWALA, THE AO CAN ONLY SCRUTINIZE THE RETURN OF NON-ABATED YEARS WHEN SOME MATERIAL HAS BEEN FOUND IN SEARCH RETABLE TO THAT YEAR, AND IF THERE IS NO MATERIAL FOUND, THEN THE AO COULD NOT HAVE REOPENED THE ISSUE FOR T HESE YEARS. IN OTHER WORDS, ASSTT.YEARS 2007-08 , 2008-09 AND 2009-10, I F NO MATERIALS HAVE BEEN FOUND, THEN HE CANNOT TAKE COGNIZANCE UNDER SE CTION 153A OF THE ACT. 8. THE LD.DR ON THE OTHER HAND, CONTENDED THAT THIS ISSUE WAS RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL, WHICH REQUI RES EXAMINATION OF FACTS. 9. WE HAVE DIRECTED THE LD.DR TO SUBMIT THE DETAILS OF ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF S EARCH. IN RESPONSE TO OUR QUERY AFTER CONCLUSION OF HEARING, THE LD.CIT-D R GOT INFORMATION FROM THE AO AND PLACED ON RECORD THE DETAILS. THE LETTERS WRITTEN BY THE LD.AO AS WELL AS LD.CIT(A) TO THE TRIBUNAL READ AS UNDER: NO.CIT/DR/ITAT/E-BENCH/DAS/SEIZED MATERIAL/18-10 D T-01/09/2019 THE HON'BLE MEMBERS, ITAT E-BENCH, RAJKOT. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 5 - RESPECTED HON'BLE MEMBERS, SUB: APPEALS IN THE CASE OF SHRI DINESHBHAI P, SOR ATHIA FOR ITA/744/14 FOR A. Y, 2007-08, ITA/745/I4 FOR A. Y. 2008-09, ITA/74 6/14 FOR A.Y. 2009-10 PAN- AIOPS1567J AND ITA/96/15 IN THE CASE OF M/S, O M KIRTI CONSTRUCTION PVT, LTD. A. Y. 2011-12, PAN- AAACO248 4K-REG. KINDLY REFER TO THE ABOVE. 2. AT THE TIME OF HEARING IN THE ABOVE REFERRED APP EALS ON 02-08-2018, THE HON'BLE BENCH HAS DIRECTED THE DEPARTMENT TO SUBMIT THE PHO TOCOPIES OF THE SEIZED MATERIAL RELEVANT TO THE ABOVE REFERRED APPEALS AND AS REFER RED TO IN THE ASSESSMENT ORDERS IN THESE CASES BY THE ASSESSING OFFICER. 3. IN THIS REGARD 3 REPORT RECEIVED FRONT THE ITO W D, 1(2)(5), RAJKOT ALONGWITH PHOTOCOPIES OF THE RELEVANT SEIZED MATERIAL IS ENCL OSED HEREWITH FOR KIND CONSIDERATION PLEASE. THIS IS IN CONTINUATION OF AR GUMENTS AND SUBMISSIONS MADE BY THE DEPARTMENT WITH REGARD TO THE ABOVE REFERRED AP PEALS. THANKING YOU, YOURS FAITHFULLY, SD/- (JITENDER KUMAR) COMMISSIONER OF INCOME TAX (D.R.) TAT, RAJKOT. END.: AS ABOVE NO.ITO/WD.1(2)(5)/DPS/SEIZED.DOCU/2018-19 DATE:09. 08.2018 TO, THE COMMISSIONER OF INCOME-TAX (D.R), INCOME TAX APPELLATE TRIBUNAL, RAJKOT. SUB : APPEALS IN THE CASE OF SHRI DINESH P. SORATHIA FOR FLA/744/1 4 FOR A.Y.2007-08, ITA/745/14 FOR A.Y.2008-09 ITA /746/14 FOR A.Y.2009-10 PAN:AIOPS1567J-REG. REF: NO.CIT/DR/ITAT/ITO-2(L)(3)/DPS/SEIZED DOCU/18-19 DATED 02.08.2018 ************* KINDLY REFER TO THE ABOVE. 2. IN THIS CONNECTION, IT IS SUBMITTED THAT THE ABO VE REFERRED LETTER DATED 02.08.2018 HAS BEEN RECEIVED IN THIS OFFICE ON 09.0 8.2018 FROM ITO WD-2(L)(3) RAJKOT. IN THIS REGARD, I AM ENCLOSING HEREWITH XER OX COPY OF SEIZED MATERIAL AS PER ANNEXURE-AL (DAIRY, PAGE NO.L TO 8) AND ANNEXUR EA-2 (LOSSE PAPERS FILE, PAGE NO.1 TO 8), WHICH WAS SEIZED DURING THE SEARCH AT THE PREMISE OF M/S OM KIRTI CONSTRUCTION PVT. LTD AT '501-506 SHILP TOWER TAGORE ROAD RAJKOT' VIDE ANNEXURE A(L) DATED 25.02.2011. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 6 - YOURS FAITHFULLY, SD/- (BABLU MEENA) INCOME-TAX OFFICER WD-1(2)(5), RAJKOT ENCL: AS ABOVE INCOME-TAX OFFICER WD-L(2)(5), RAJKOT COPY FOR KIND INFORMATION PLEASE: 1. THE PR. COMMISSIONER OF INCOME-TAX-1, RAJKOT. 2. THE ADDL.CIT RANGE-1 (2) RAJKOT. 10. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS. KABUL CHAWLA (SUPRA) HAS EXAMINED SCOPE OF SECTION 153A. AFTER A DETAILED ANALYSIS HONBLE COURT HAS SUMMARIZED LEGAL PROPOSITION EMER GING OUT FOR APPLICATION OF SECTION 153A. SUCH PROPOSITION READ S AS UNDER: 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW EXPLA INED IN THE AFOREMENTIONED DECISIONS, THE LEGAL POSITION THAT E MERGES IS AS UNDER: I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF THE ACT, NOTICE UNDER SECTION 153 A(1) WILL HAVE TO BE MANDATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS F OR SIX AYS IMMEDIATELY PRECEDING THE PREVIOUS YEAR RELEVANT TO THE AY IN WHICH THE SEARCH TAKES PLACE. II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DATE O F THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH AYS W ILL HAVE TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RE SPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHICH THE SEARCH TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REA SSESS THE 'TOTAL INCOME' OF THE AFOREMENTIONED SIX YEARS IN S EPARATE ASSESSMENT ORD ERS FOR EACH OF THE SIX YEARS. IN OTHER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RESPECT OF EACH OF THE SIX AYS 'IN WHICH BOTH THE DISCLOSED AND THE UN DISCLOSED ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 7 - INCOME WOULD BE BROUGHT TO TAX'. IV. ALTHOUGH SECTION 153 A DOES NOT SAY THAT ADDITI ONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST- SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FO UND, IT DOES NOT MEAN THAT THE ASSESSMENT 'CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WITH THE SEIZED MATE RIAL. OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UNDER THIS S ECTION ONLY ON THE BASIS OF SEIZED MATERIAL.' V. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE COMPL ETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSMENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECT ION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PEND ING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETE D ASSESSMENT PROCEEDINGS. VI. INSOFAR AS PENDING ASSES SMENTS ARE CONCERNED, THE JURISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND THE ASSESSMENT UNDER SECTION 153A MERGES INTO ONE. ONLY ONE ASSESSMENT S HALL BE MADE SEPARATELY FOR EACH AY ON THE BASIS OF THE FIN DINGS OF THE SEARCH AND ANY OTHER MATERIAL EXISTIN G OR BROUGHT ON THE RECORD OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH BY THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153 A ONLY ON T HE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR REQUISITION OF DO CUMENTS OR UNDISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEARCH WHICH W ERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. IT IS ALSO PERTINENT TO NOTE THAT IN THE CASE OF C IT VS. KABUL CHAWLA (SUPRA) HONBLE COURT HAS OBSERVED THAT RETURN FOR ASSTT.YEARS 2002-03, 2005-06 AND 2006-07 WERE ACCEPTED UNDER SECTION 143 (1) OF THE ACT. THUS, HONBLE COURT HAS CONSIDERED THIS ACCEPTANCE OF RETURN AS AN ASSESSMENT MADE UNDER SECTION 143(1). IN CONCLUDIN G PARAGRAPH, THE HONBLE COURT HAS HELD THAT ON THE DATE OF SEARCH, ASSESSMENTS FOR A.YS. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 8 - 2002-03, 2005-06 AND 2006-07 ALREADY STOOD COMPLETE D AND NO INCRIMINATING MATERIAL WAS UNEARTHED DURING THE SEA RCH, THEREFORE, NO ADDITION SHOULD HAVE BEEN MADE TO THE INCOME OF THE ASSESSEE. 11. IN THE LIGHT OF THE ABOVE, LET US EXAMINE FACTS OF THE PRESENT CASE. THERE IS NO DISPUTE THAT IN THE ASSTT.YEARS 2007-08 TO 2009-10 TIME LIMIT TO ISSUE NOTICE UNDER SECTION 143(2) WAS EXPIRED. THE RETURNS OF THE ASSESSEE WERE ACCEPTED UNDER SECTION 143(1) OF THE ACT. THUS, IT IS TO BE CONSTRUED THAT THESE ASSESSMENTS WERE COMPLETED AND NOT PENDING ON THE DATE OF SEARCH. IN VIEW OF THE HONBLE DELHI H IGH COURT DECISION, THE ADDITIONS IN THESE YEARS CAN ONLY BE MADE IF DU RING THE COURSE OF SEARCH SOME INCRIMINATING MATERIALS WERE FOUND. 12. THE LD.DR HAS PLACED ON RECORD SEIZED MATERIAL CONTAINED IN ANNEXURE A/1 AND ANNEXURE A/2. A PERUSAL OF ANNEXU RE A/1 WOULD INDICATE THAT IT CONTAINED CERTAIN DETAILS REGARDIN G STEEL SCRAP ON PAGE NO.4 OF THE A/1, DETAILS OF CERTAIN RENTALS. SIMIL ARLY ANNEXURE A/2 CONTAINED BALANCE SHEET OF OM KIRTI CONSTRUCTION PV T.LTD. AND CERTAIN OTHER FINANCIAL STATEMENTS. BUT ALL THESE DETAILS ARE PERTAINED TO FINANCIAL YEAR 2010-11 OR RELATES TO OM KIRTI CONSTRUCTION. NONE OF THE DOCUMENTS IS RELATED TO ASSESSMENT YEARS 2007-08, 2 008-09 AND 2009-10. THEREFORE, DECISION OF HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT VS. SOMAYA CONSTRUCTION LTD., (SUPRA) IS FULLY APPLICAB LE IN THESE THREE ASSESSMENT YEARS. ASSESSMENT ORDERS IN THESE ASSES SMENT YEARS ARE NOT SUSTAINABLE. WE QUASH THEM. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 9 - 13. THOUGH WE HAVE QUASHED THE ASSESSMENT ORDERS IN THESE THREE YEARS ON THE ADDITIONAL GROUND OF APPEAL, STILL WE WOULD LIKE TO ADJUDICATE THE ISSUE ON MERIT ALSO. 14. IN THE ASSESSMENT YEARS 2007-08, 2009-10 AND 20 10-11 COMMON ISSUE RAISED RELATES TO TREATMENT OF PROFIT EARNED BY THE ASSESSEE FROM SALE OF LAND AS BUSINESS INCOME BY THE AO AND CONFI RMED BY THE LD.CIT(A) INSTEAD OF CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. AS OBSERVED EARLIER, SINCE THE ISSUE INVOLVED IS IDENTICAL IN A LL THESE THREE YEARS, TO ADJUDICATE THIS ISSUE, WE TAKE FACTS FROM THE ASSES SMENT YEAR 2007-08. 15. BRIEF FACTS LEADING TO THE PRESENT CASE, AS MER GES OUT FROM THE ORDERS OF THE REVENUE AUTHORITIES ARE THAT, ASSESSE E IS A PARTNER IN VARIOUS FIRMS AND ALSO DIRECTOR IN M/S.OM KIRIT CON STRUCTION P.LTD. ASSESSEE WAS HAVING INCOME FROM REMUNERATION FROM F IRM AND ALSO INCOME FROM SALE OF LAND AND SHARES. A SEARCH UNDER SECTION 132 OF THE INCOME TAX ACT WAS CARRIED OUT AT THE PREMISES OF T HE ASSESSEE ON 25.2.2011. PURSUANT TO THAT, NOTICE UNDER SECTION 153A OF THE ACT WAS ALSO ISSUED ON 18.7.2011 REQUIRING THE ASSESSEE TO FILE RETURN OF INCOME WITHIN THE STIPULATED TIME. ASSESSEE FILED RETURNS OF INCOME ON 7.9.2011 DECLARING TOTAL INCOME AT RS.5,83,410/-, RS.18,09,6 80/- AND RS.2,79,52,400/- FOR THE ASSESSMENT YEARS 2007-08, 2009-10 AND 2010-11 ON 7.9.2011 RESPECTIVELY. DURING THE ASSESSMENT PR OCEEDINGS, THE AO NOTICED THAT THE ASSESSEE WAS ENGAGED IN THE LAND T RADING ACTIVITIES, BUT NO SEPARATE ACCOUNTS WERE MAINTAINED FOR STOCK IN TRADE AND INVESTMENTS. THE ASSESSEE HAS ALSO DEBITED EXPEN SES LIKE STAMP DUTY CHARGES, LABOUR EXPENSES, GROUND FILLING EXPENSES T O THE PROFIT & LOSS ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 10 - ACCOUNT. ON THE BASIS OF INCRIMINATING MATERIALS F OUND DURING THE COURSE OF SEARCH, THE ASSESSEE HAD ADMITTED UNACCOU NTED INCOME OF RS.1.62 CRORES, WHICH COMPRISED OF DEBTORS FOR DIFF ERENT LANDS. THIS, ACCORDING TO THE AO, WAS RECEIVABLE FROM THE DEBTOR S RELATED TO SALE OF LAND, AND THEREFORE, THE AO ASSUMED THAT ASSESSEE W AS INDULGING IN LAND TRADING ACTIVITIES ON REGULAR BASIS, WHICH WAS ADVE NTURE IN THE NATURE OF TRADE. THUS, THE LD.AO MADE ADDITIONS OF RS.1,12, 005/-, RS.28,92,848/- AND RS.2,75,73,406/- FOR THE ASSESSMENT YEARS 2007- 08, 2009-10 AND 2010- 11 RESPECTIVELY. 16. IN THE ASSESSMENT YEAR 2007-08, THE LD.AO FURTH ER NOTICED THAT THE ASSESSEE HAS SHOWN EXEMPT LONG TERM CAPITAL GAIN OF RS.2,02,479/-ON SALE OF SHARES WITHOUT ANY SUPPORTING EVIDENCE. ON BEING SHOW CAUSED BY THE AO, THE ASSESSEE FILED COPIES OF INVOICES FO R PURCHASE AND SALES OF SHARES. THE AO CONSTRUED THAT ASSESSEE HAS ENGAGED IN THE BUSINESS OF TRADING IN SHARES BY LOOKING INTO THE SIZE OF TRANS ACTION AND TREATED PROFIT ON SHARE TRADING ACTIVITIES TO THE EXTENT OF RS.2,02,479/- AS BUSINESS INCOME AND ADDED TO THE TOTAL INCOME. 17. AGGRIEVED BY ACTION OF THE LD.AO IN TREATING BO TH INCOME FROM SALE OF LAND AND SALE OF SHARES AS BUSINESS INCOME, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. SO FAR AS FIRST ISSUE, I.E. INCOME FROM SALE OF LAND IS CONCE RNED, THE ASSESSEE INTERALIA PLEADED BEFORE THE LD.FIRST APPELLATE AUTHORITY TH AT THE LDAO WAS ERRED IN PRESUMING THAT ENTIRE LAND TRANSACTIONS WA S THE MAIN BUSINESS ACTIVITIES OF THE ASSESSEE, AND THEREFORE, THE INCO ME EARNED SHOULD BE TREATED AS BUSINESS INCOME. HOWEVER, FACT WAS THAT THE LD.AO FAILED TO ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 11 - CONSIDER BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH WO ULD REVEAL THAT THE ASSESSEE HAS MAINTAINED TWO SEPARATE PORTFOLIO VIZ. INVESTMENT; AND STOCK-IN-TRADE. IN THE BALANCE SHEET FOR A.Y.200 7-08 THESE LANDS WERE SHOWN AS INVESTMENT, AND THE LAND HELD AS STOCK-IN- TRADE WAS SHOWN SEPARATELY IN THE TRADING ACCOUNT, WHICH CLEARLY DE MONSTRATED THE INTENTION OF THE ASSESSEE. WHATEVER GAIN DIRECTLY CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT THE DECLARATION MADE DURING THE SEARCH WAS IN RESPECT OF TRANSACTIO N QUA REAL ESTIMATE, WHICH COULD NOT BE PRESUMED THAT ALL LAND DEALINGS WERE ON BUSINESS ACCOUNT. THE HOLDING PERIOD OF THE LAND WAS NOT TO O LOW. PARTICULARLY, IN THE ASSTT.YEAR 2009-10 AND 2010-11 THE HOLDING P ERIOD WAS MORE THAN THREE YEARS. THEREFORE, OVERALL PICTURE DEMONSTRAT ED THAT THE INTENTION OF THE ASSESSEE FOR HOLDING THE LAND WAS NOT OF BUS INESS BUT FOR INVESTMENT PURPOSE. CONTENTIONS OF THE ASSESSEE C OULD NOT FIND FAVOUR WITH THE LD.CIT(A). THE LD.CIT(A) WAS OF THE VIEW THAT THE PURCHASE AND SALE OF LAND WAS REGULAR AND YEAR TO YEAR BASIS; PL OTS WERE SUB-DIVIDED SO AS TO INDULGE IN COMMERCIAL ACTIVITIES AND EARN PROFIT. ACCORDINGLY, THE LD.CIT(A) CONFIRMED THE ACTION OF THE AO AND SU STAINED THE ADDITION. 18. SO FAR AS PROFIT FROM SALE OF SHARES IS CONCERN ED, THE ASSESSEE SUBMITTED BEFORE THE LD.FIRST APPELLATE AUTHORITY T HAT SHARES HELD BY THE ASSESSEE WERE IN THE NATURE OF INVESTMENT AND THE P ROFIT EARNED FROM SUCH SALES WAS DIRECTLY SHOWN THE CAPITAL ACCOUNT O F THE ASSESSEE. THE AO HAS MIXED BOTH THE SHARE TRANSACTIONS OF BUSINES S AND INVESTMENT AND HAS TREATED BOTH AS HELD FOR TRADING PURPOSES. HOWEVER, THE LD.CIT(A) DID NOT ACCEPT THIS SUBMISSIONS OF THE AS SESSEE AND OBSERVED THAT IN THE ABSENCE OF EVIDENCE TO PROVE THAT PURCH ASES WERE MADE FOR ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 12 - THE INVESTMENT PURPOSE AND NOT BUSINESS PURPOSE, TH E AO WAS JUSTIFIED IN HOLDING THAT ACTIVITIES OF SALE AND PURCHASE OF SHARE WERE IN THE NATURE OF REGULAR TRADING ACTIVITIES. HE CONFIRMED THE OR DER OF THE AO. 19. AGGRIEVED ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUNAL. 20. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE WHIL E REITERATING SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES FUR THER SUBMITTED THAT THE ASSESSEE HAS SHOWN THE LAND IN QUESTION AS INVE STMENT SINCE LONG. THE LD.AO CONSTRUED THAT THE ASSESSEE WAS DOING ACT IVITIES OF TRADING IN LAND AND DID NOT MAINTAIN SEPARATE ACCOUNTS. MOST OF THE LAND HOLDING BY THE ASSESSEE WAS FOR MORE THAN THREE YEARS, AND THEREFORE, THERE IS NO QUESTION OF DENYING LONG TERM CAPITAL GAIN FROM THE SALE OF THE LAND. PURCHASE OF LAND WAS SHOWN IN THE BALANCE SHEET AS INVESTMENT AND NOT AS STOCK-IN-TRADE. WHATEVER THE LOSS OR PROFIT ACC RUED, AS ALSO EXPENDITURE HAVE BEEN DEBITED AND CAPITALISED IN TH E ACCOUNT OF THE ASSESSEE, AND THEREFORE, THERE IS NO QUESTION OF DE NYING CLAIM OF THE ASSESSEE. ASSUMPTION DRAWN BY THE REVENUE AUTHORIT IES IS NOT BASED ON EVIDENCE, RATHER A NON-APPRECIATION OF FACTS ON REC ORD. 21. SO FAR AS PROFIT ON SALE OF SHARE IS CONCERNED, THE LD.COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS THAT PURCHASE O F SHARES WERE FOR THE PURPOSES OF INVESTMENT AND PROFIT, IF ANY, WAS DIRE CTLY CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE AND NOT ACCOUNTED I N TRADING ACCOUNT OF THE ASSESSEE. THE LD.AO WAS NOT RIGHT IN MIXING BO TH TRANSACTIONS AND TREATING THEM AS FOR TRADING PURPOSE. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF REVENUE AUTHORITIES. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 13 - 22. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. THE DISPUTE BEFORE US RELATES TO , WHETHER THE ASSESSEE WAS INVESTOR OR TRADER IN LAND. WHETHER AN ASS ESSEE IS AN INVESTOR OR TRADER IS AN OBJECTIVE CONSIDERATION TAKING INTO ACCOUNT VARIOUS ASPECTS. ACCORDING TO THE ASSESSEE, HE WAS MAINTAINING TWO P ORTFOLIOS I.E. TRADING IN LAND AS WELL AS MAKING INVESTMENT BOTH. BOTH AR E IDENTIFIABLE IN ACCOUNTS. EXPENDITURE INCURRED THEREOF HAS BEEN DE BITED SEPARATELY AND WHATEVER PROFIT EARNED OR LOSS SUFFERED HAS BEEN GI VEN EFFECT IN THE CAPITAL ACCOUNT OF THE ASSESSEE. MEANING THEREBY, WHATEVER INCOME EARNED AND EXPENDITURE INCURRED HAS BEEN CAPITALIZE D IN PERSONAL ACCOUNTS OF THE ASSESSEE, WHICH ESTABLISH THE INVES TMENT ATTITUDE OF THE ASSESSEE. THE DISCLOSURE MADE BY THE ASSESSEE AT THE TIME OF SEARCH WAS WITH REGARD TO BUSINESS ACTIVITIES OF THE ASSESSEE, BUT THE LD.AO MIXED UP BOTH TRANSACTIONS AND TREATED THEM AS BUSINESS A CTIVITIES. 23. IT IS PERTINENT TO OBSERVE THAT ITAT LUCKNOW BE NCH IN THE CASE OF SARNATH INFRASTRUCTURE (P) LTD. V. ACIT (2009) 120 TTJ 216 HAS ALSO CONSIDERED ISSUE WHETHER AN ASSESSEE DESERVES TO BE TREATED AS A TRADER OR INVESTOR. THOUGH THE ISSUE INVOLVED IN THAT CASE RELATES TO INVESTMENT/TRADING IN SHARES, BUT BROAD PRINCIPLE C ARVED OUT BY THE ITAT IS APPLICABLE ON ALL SORTS OF TRANSACTIONS, WH ERE ADJUDICATOR IS REQUIRED TO FIND OUT WHETHER TRANSACTION WAS ENTERE D INTO BY THE ASSESSEE WITH A PRE-DOMINANT INTENTION OF TRADING O R INVESTMENT. THE FOLLOWING TESTS ARE WORTH TO NOTE: 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 14 - (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED STOCK-IN-TRADE OR INVESTMENT. WHETHER S HOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISP OSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDI CATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FOR MER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE I S AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOU LD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTI ON HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 15 - 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHAR ES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITE S FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSES SEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE? 10. IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11. NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 24. THE HONBLE GUJARAT HIGH COURT HAD ALSO AN OCCA SION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TA X VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HONBLE COURT HAS MADE REFERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERE D IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 6 47. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTIO N, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 16 - (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STO CK-IN-TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE S HEET AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF H AS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, CAN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRANSACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED IN THE ABSEN CE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRA NSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CAS E WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. 25. IN THE LIGHT OF THE ABOVE, LET US EXAMINE ORDER OF THE LD.CIT(A). A PERUSAL OF THE IMPUGNED ORDER WOULD INDICATE THAT T HE LD.CIT(A) HAS OBSERVED ON A SIMILAR LINE AS THAT OF THE LD.AO AND RELIED UPON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. REWASHANKER A. KOTHARI, 283 ITR 338 (GUJ) WHERE GUI DELINES HAVE BEEN DRAWN TO DETERMINE WHETHER PROFIT ARISING ON SALE I S BUSINESS INCOME OR NOT. CONCLUSIONS BRIEFLY DRAWN BY THE CIT(A) ARE ON PAGE NO.35 OF THE IMPUGNED ORDER. IT READS AS UNDER: ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 17 - 6. PROFIT FROM SHARE TRADING ACTIVITIES :(AY 2007- 08) GROUND NUMBER 3 OF A.Y.2007-08 IS AGAINST THE ACTIO N OF THE AO OF CONSIDERING THE PROCEEDS FROM SALE OF SHARES AMOUNT ING TO RS. 2,02,479/- AS BUSINESS INCOME AND NOT LONG-TERM CAPITAL GAIN. APPELLANT HAS CLAIMED EXEMPT LONG-TERM CAPITAL GAIN ON SALE OF SHARES. TH E AO NOTED THAT APPELLANT, DURING THE YEAR, HAS PURCHASED SHARES WORTH RS. 31,62,927/- AND SOLD SHARES WORTH RS.15,78,706/-. SINCE THE APP ELLANT WAS INTO SHARE TRADING ACTIVITY, THE PROFIT EARNED ON SALE O F SHARES WAS HELD AS BUSINESS INCOME OF THE APPELLANT. 6.1 THE RELEVANT PORTION OF THE SUBMISSIONS FURNISH ED BY THE APPELLANT IS REPRODUCED AS UNDER: 'THE APPELLANT HAD SOLD SOME SHARES DURING THE YEAR UNDER CONSIDERATION PURCHASED BY IT IN THE YEAR 2006 AND HAD SHOWN LONG TERM CAPITAL GAIN OF RS. 2,02,479/- AS EXEMPT U/S 10(38) IN ITS RETURN O F INCOME. THE A.O. HAS TREATED THE SAME AS BUSINESS INCOME MAINLY ON THE G ROUND THAT THE ASSESSEE IS A TRADER IN SHARES. HOWEVER, IT IS SUBM ITTED THAT THE FIGURES SHOWN BY THE A.O. IN ITS ASSESSMENT ORDER OF PURCHA SE AND SALE OF SHARES ARE DIFFERENT FROM THE ONE WHICH HAS BEEN CLAIMED A S LONG TERM CAPITAL GAIN. THOSE WHICH WERE IN THE NATURE OF TRADE HAVE BEEN DIRECTLY SHOWN IN PROFIT AND LOSS ACCOUNT AND TREATED SEPARATELY AS B USINESS INCOME THE SHARES WHICH WERE IN THE NATURE OF INVESTMENT A ND NOT IN THE NATURE OF TRADE, PROFIT OF WHICH HAVE BEEN DIRECTLY SHOWN IN THE CAPITAL ACCOUNT OF THE APPELLANT. THE A.O. HAS MIXED BOTH THE SHARE TRANSA CTIONS OF BUSINESS AND INVESTMENT AND HAS TREATED BOTH AS HELD FOR TRADING PURPOSES. HENCE, AS THESE SHARES WERE HELD FOR THE PURPOSE OF INVESTMEN T, IT WAS CLAIMED AS LONG TERM CAPITAL GAIN. HENCE, THE SALE OF SAID SHA RES IS IN THE NATURE OF INVESTMENT AND NOT TRADE.' 6.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE APPELLANT AND HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL. 6.2.1 ADMITTEDLY, THE APPELLANT IS IN THE BUSINESS OF SHARE TRADING. NO DETAILS HAVE BEEN FURNISHED TO SHOW THAT RELEVANT P URCHASES IN SHARES WERE SHOWN IN THE BALANCE SHEET OF EARLIER YEAR AS 'INVESTMENT' AND NOT STOCK. THERE ARE FREQUENT PURCHASE AND SALE TRANSAC TIONS OF SHARES CARRIED OUT BY THE APPELLANT. APPELLANT HAS NOT GIV EN ANY REASON OR EVIDENCE, EITHER DURING ASSESSMENT PROCEEDINGS DURI NG APPEAL PROCEEDINGS, TO SHOW THAT RELEVANT PURCHASES WERE M ADE FOR THE INVESTMENT PURPOSE AND NOT BUSINESS PURPOSE. IN THE CIRCUMSTANCES, THE AO WAS JUSTIFIED IN HOLDING THAT SALE AND PURCH ASE TRANSACTIONS OF SHARES CARRIED OUT BY THE APPELLANT WERE IN THE NAT URE OF BUSINESS ACTIVITY. THUS, THE PROFITS EARNED THERE FROM HAVE TO BE TREATED AS BUSINESS INCOME OF THE APPELLANT. THIS GROUND IS AC CORDINGLY DISMISSED ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 18 - ***** ***** 8. ADDITION ON ACCOUNT OF PROFIT FROM LAND TRADING ACTIVITIES : (AYS 2007-08. 2009-10 & 2010-11). GROUND NO. 2 OF A.Y. 2007-08, GROUND NO. 2 OF 2009- 10 AND GROUND NO. 1 OF 2010-11 RELATE TO ONE COMMON ISSUE OF TREATING THE PROFIT FROM SALE OF PLOTS OF LAND AS BUSINESS INCOME AND NOT CAPITAL GAIN. THE AO NOTED THAT APPELLANT WAS ENGAGED IN LAND TRADING ACTIVITI ES YEAR BY YEAR. APPELLANT WAS HAVING LAND AT VARIOUS LOCATIONS AND NO LAND WAS SHOWN AS 'STOCK IN TRADE' IN THE BALANCE SHEET FOR THE YE ARS UNDER CONSIDERATION. THE EXPENSES RELATED TO LAND LIKE ST AMP DUTY CHARGES, LABOUR EXPENSES, GROUND FILLING EXPENSES, GROUND LE VELLING EXPENSES, SITE SALARY ETC WERE DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE APPELLANT WAS NOT MAINTAINING SEPARATE ACCOUNTS FOR LANDS KEP T AS 'STOCK IN TRADE' AND LANDS PURCHASED FOR 'INVESTMENT 1 . THE AO RELIED ON CBDT INSTRUCTION NUMBER 1827 DATED 31.8.89 WHICH HAS LAI D DOWN CERTAIN CRITERIA TO DISTINGUISH BETWEEN SHARES HELD AS A 'S TOCK IN TRADE' AND SHARES HELD AS 'INVESTMENT'. AO HAS ALSO OBSERVED T HAT A SEARCH TOOK PLACE AT THE PREMISES ''OF THE APPELLANT AND DURING SEARCH, ON THE BASIS OF INCRIMINATING MATERIAL, APPELLANT HAD ADMITTED U NACCOUNTED INCOME OF RS. 1.62 CRORES COMPRISING OF DEBTORS FOR DIFFERENT LANDS. THUS THE UNACCOUNTED INCOME DISCLOSED BY THE APPELLANT WAS C OMPRISING RECEIVABLES FOR SALE OF LAND WHICH PROVED THAT APPE LLANT WAS ENGAGED IN LAND TRADING ACTIVITIES AND THIS ACTIVITY WAS IN TH E NATURE OF BUSINESS. IN VIEW OF ABOVE FACTS, THE AO TREATED THE PROFIT EARN ED BY THE APPELLANT FROM LAND TRADING ACTIVITIES AS BUSINESS INCOME INS TEAD OF CAPITAL GAINS AS CLAIMED BY THE APPELLANT. 8.1 THE RELEVANT PORTION OF THE SUBMISSIONS FURNISH ED BY THE APPELLANT IS REPRODUCED AS UNDER: 'THE ASSESSEE SOLD DURING THE YEAR AGRICULTURAL LAN D STYLED AS 292/5, 292/2 FOR RS.2,25,000/-. IT WAS PURCHASED IN F.Y. 2003-04 FOR RS. 1,12,885/- (INDEXED COST 1,26,853/-). THE ASSESSEE CLAIMED PROFIT ON SALE OF LAND OF RS. 1,12,005/- AS LONG TERM CAPITAL GAIN. THE A.O. HAS TREATED THE SAME AS BUSINESS INCOME MAINLY ON THE GROUND THAT THE ASSESSEE IS A DEALER IN REAL ESTATE . THE APPELLANT SUBMITS THAT IT HAS EVEN IN A.Y. 2005-06, SHOWN INCOME AS CAPITAL GAIN ON SALE OF REAL ESTATE SEPARATELY AND IN OTHER YEARS ALSO, INCOME FROM LAN D HELD AS BUSINESS ASSET IS SHOWN AS BUSINESS PROFITS. THE DECLARATION DURING S URVEY WAS IN RESPECT OF BUSINESS INCOME FROM REAL ESTATE AND IT CANNOT BE P RESUMED THAT ALL LAND DEALINGS ARE ON BUSINESS ACCOUNT. FROM THE BALANCE SHEET OF PRECEDING YEAR (31-03-200 6) (PB PAGE NO. 26 - 28), IT WILL BE SEEN THAT ALL LANDS ARE SHOWN AS INVESTMENT S AND THERE WAS NO DEALING IN LAND AND IT WAS NOT TREATED AS BUSINESS INCOME. THU S, THE HOLDING PERIOD IS MORE THAN THREE YEARS. THE ASSESSEE HAS NOT DEALT WITH, ANY LAND AS A TRADER. THE ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 19 - INCOMES ARE BY WAY OF MAINLY SHARE FROM FIRMS (NOT BEING REAL ESTATE FIRMS), INTEREST/REMUNERATION AS PARTNER, AGRICULTURE ETC. EVEN IN ACCOUNTS THE PROFIT WAS CREDITED TO CAPITAL ACCOUNT DIRECTLY. HENCE, THE CH ARACTER IS THAT OF INVESTMENT IN AGRICULTURAL LAND AND NOT THAT OF A BUSINESS ASSET. IN ANY CASE, ONE IS NOT ORDINARILY SUPPOSED TO DEAL IN AGRICULTURAL LANDS,' 8.1.1 FURTHER SUBMISSIONS WERE FILED BY THE APPELLA NT. THE RELEVANT PART OF THE SAME IS AS BELOW : 'WITH REGARD TO THE DISPUTE WHETHER INCOME FROM SAL E OF LANDS-FOR ALL YEARS IN APPEAL IS TO BE -CHARGED AS CAPITAL GAINS OR INC OME FROM BUSINESS, THE FACTS IN NUTSHELL ARE PRESENTED BY WAY OF A CHART A NNEXED. SUBMISSIONS IN THIS REGARD ARE AS UNDER: A.Y. 2007-08: 1. PLOT NO. 292/5 AND 292/2 WERE SOLD FOR RS. 2,25, 000/-. THE HOLDING IS ABOVE 3 YEARS. THERE IS NO CONVERSION OF THE LAND F OR NON-AGRICULTURAL USE AND THE HENCE, THE STATEMENT GIVEN BY THE A.O. THAT IT WAS PURCHASED AS AGRICULTURAL LAND, THEN GOT CONVERTED INTO NON-AGRI CULTURAL ONE IS INCORRECT, 2. IN THE BALANCE SHEET (PB -1, PAGE 28), IT WAS TREATED AND DISCLOSED AS INVESTMENT. 3. IN THE TRADING ACCOUNT, LANDS HELD AS STOCK HAVE BEEN SHOWN AND TREATED SEPARATELY (PB - I, PAGE 29) WHICH CLEARLY ESTABLIS HES THE INTENT OF THE ASSESSEE. 4. HOLDING PERIOD IS NOT TOO SHORT. - 5. GAIN ON SALE IS DIRECTLY CREDITED TO CAPITAL ACC OUNT OF ASSESSEE -INDIVIDUAL AND DISCLOSED SEPARATELY (PB -1, PAGE 31) A.Y. 2009 - 10: 1. PLOTS OF LAND SITUATED AT MAVDI - 177 WERE SOLD FOR RS. 33,92,2007-. THE HOLDING IS ABOVE 3 YEARS. IT WAS A NON-AGRICULTURAL LAND AT TH E TIME OF PURCHASE OF THE PROPERTY BY THE ASSESSEE AND IT WAS NOT CONVERTED BY ASSESSE E AFTER ITS PURCHASE. HENCE, STATEMENT GIVEN BY THE A.O. THAT IT WAS FIRST PURCH ASED AS AGRICULTURAL LAND AND THEN GOT CONVERTED INTO NON-AGRICULTURAL ONE IS INCORREC T. 2. IN THE BALANCE SHEET (PB -1, PAGE 35), IT WAS TREATED AND DISCLOSED AS INVESTMENT. 3. IN THE TRADING ACCOUNT, LANDS HELD AS STOCK HAVE BEEN SHOWN AND TREATED SEPARATELY (PB - II, PAGE 28) WHICH CLEARLY ESTABLISHES THE INTENT OF THE ASS ESSEE. 4. HOLDING PERIOD IS NOT TOO SHORT. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 20 - 5. GAIN ON SALE IS DIRECTLY CREDITED TO CAPITAL ACC OUNT OF ASSESSEE - INDIVIDUAL AND DISCLOSED SEPARATELY (PB - II, PAGE 31). A.Y. 2010-11: 1. PLOTS OF LAND SITUATED AT MAVDI - 177 WERE SOLD FOR RS. 21,90,5007- AND PLOT OF LAND AT RAIYA SURVEY NO. 157/1 WAS SOLD FOR RS. 2,67,01,6507-. THE HOLDING IS ABOVE 3 YEARS. IN RESPECT OF PLOT AT MAVDI - 177 , IT WAS A NON-AGRICULTURAL LAND AT THE TIME OF PURCHASE OF THE PROPERTY BY THE ASSESSEE AND IT WAS NOT CONVERTED BY ASSESSEE AFTER ITS PURCHASE AND IN RES PECT OF PLOT AT RAIYA NO 157/1, IT WAS CONVERTED INTO NON-AGRICULTURAL IN TH E YEAR 2008-09, HENCE IT CAN BE SEEN THAT THE INTENTION OF THE ASSESSEE WAS TO K EEP THE RAIYA PLOT AS INVESTMENT ONLY AS THE ASSESSEE HAD KEEP THE SAID L AND AS AGRICULTURAL FOR THREE YEARS AND MORE AND THEN GOT CONVERTED INTO NON-AGRI CULTURAL ONE. 2. IN THE BALANCE SHEET (PB - II, PAGE 32), BOTH WERE TREATED AND DISCLOSED AS INVESTMENT. 3. IN THE TRADING ACCOUNT, LANDS HELD AS STOCK HAVE BEEN SHOWN AND TREATED SEPARATELY (PB - II, PAGE 28) WHICH CLEARLY ESTABLI SHES THE INTENT OF THE ASSESSEE. 4. HOLDING PERIOD IS NOT TOO SHORT. 5. GAIN ON SALE IS DIRECTLY CREDITED TO CAPITAL ACC OUNT OF ASSESSEE - INDIVIDUAL AND DISCLOSED SEPARATELY (PB - II, PAGE 36). FROM THE ABOVE FACTUAL ANALYSIS WHICH IS ON RECORD, IT MAY KINDLY BE APPRECIATED THAT (I) LARGE PAN OF ACTIVITIES OF ASS ESSEE IS BY WAY OF PARTNER OF FIRMS CARRYING ON STEEL BUSINESS, (II) THERE IS NOT HING ON RECORD BROUGHT OUT BY THE A.O. TO SHOW THAT THE INTENTION WAS TO DEAL IN LANDS AT THE TIME OF PURCHASE THEREOF. THE SUPREME COURT IN CASE OF H. HOLCK LARSEN IN (1986) 160 ITR 67 HAS PROPOUNDED THAT INTENTION OF THE ASSESSEE IS RE LEVANT AT THE TIME OF PURCHASE OF AN ASSET AND NOT AT THE TIME OF SALE THEREOF. (H I) THE ASSESSEE HAS ACCORDED SEPARATE AND RESPECTIVE TREATMENT IN BOOKS TO LAND ACQUIRED FOR INVESTMENT AND ACQUIRED FOR TRADING. THE BOARD CIRCULAR IN RESPECT OF SHARE DEAL ING ALSO RECOGNIZES AND ACCEPTS THAT BOTH INVESTMENT AND TRA DING ASSET CAN CO-EXIST. 8.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE APPELLANT AND HAVE GONE THROUGH THE ASSESSMENT ORDERS AS WELL. 8.2.1 FIRST COMING TO THE FACTS OF THE CASE, DURING APPEAL PROCEEDINGS, APPELLANT WAS DIRECTED TO SUBMIT DETAILS OF LAND DE ALINGS CARRIED OUT IN DIFFERENT YEARS. THE RELEVANT DETAILS ARE AS BELOW: ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 21 - SR. NO PROPERTY YEAR OF PURCHASE (F.Y.) NATURE OF ASSET WHETHER CONVERTED INTO N/A YEAR OF SALE REMARKS 1 VAVDI PLOT 1998-99 NON-AGRI - - HOLDING CONTINUES 2 PLOT NO. 292/5 292/2 2003-04 AGRI LAND NO 2006-07 HOLDING SOLD 3 PREMISES 12005-06 (NON-AGRI - (HOLDING CONTINUES 4 BAPUNAGAR DELA I BEFORE 1993-94 NON-AGRI - - HOLDING CONTINUES 5 THORALA WADI (2004-05 AGRI - - HOLDING CONTINUES 6 - LODHIKA (1996-97 (NON-AGRI - 2004-05 (HOLDING SOLD 7 RAIYA PLOT - 1 57/1 J2003-04 AGRI LAND YES 2009-10 2010-11 HOLDING CONTINUES 8 NANA MAVA/ MAVDI-43 2001-02 AGRI LAND YES 2003-04 2005-06 2006-07 2008-09 2009-30 STOCK SOLD 9 MAVDI - 1 77 2005-06 NON-AGRI LAND 2008-09 2009-10 2010-11 HOLDING SOLD ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 22 - FROM THE ABOVE DETAILS IT IS CLEAR THAT APPELLANT H AS BEEN PURCHASING PIECES OF LAND ALMOST EVERY YEAR. SIMILARLY, IN ALM OST ALL THE YEARS, RIGHT FROM THE YEAR 2003-04 APPELLANT HAS BEEN SELLING PI ECES OF LAND. THE APPELLANT HAS PURCHASED MOSTLY NON-A GRICULTURAL LANDS. ONLY THREE PIECES OF LANDS AT SERIAL NUMBER 5, 7 AND 8 WERE (PURCHASE D AS AGRICULTURAL LAND OUT OF WHICH, IN TWO CASES THE LAND HAS BEEN C ONVERTED INTO NONAGRICULTURAL LAND. AS NOTED BY THE AO, THE LAND WAS DIVIDED INTO VARIOUS PLOTS AND THESE PLOTS WERE SOLD TO THE BUYE RS. THE LAND AT NANA MAVA 43 WAS PURCHASED BY THE APPELLANT IN THE YEAR 2001-02 AND IT WAS SOLD IN PIECES IN THE YEARS BETWEEN 2003-04 AND 200 9-10. SIMILARLY, THE LAND AT MAVDI 177 WAS PURCHASED BY THE APPELLANT IN THE YEAR 2005-06 AND WAS SOLD IN THE YEARS 2008-09, 2009-10 AND 2010 -11. 8.2.2 AS NOTED BY THE AO, IN ORDER TO DECIDE WHETHE R THE TRANSACTION IS IN THE NATURE OF BUSINESS ACTIVITY OR SALE OF ASSET S, SOME OF THE CRITERIA REQUIRED TO BE EXAMINED ARE AS UNDER: 1. WHETHER THE PURCHASE AND SALE WAS ALLIED TO USU AL TRADE OR BUSINESS/WAS INCIDENTAL TO IT OR WAS AN OCCASIONAL INDEPENDENT ACTIVITY 2. WHETHER THE PURCHASE WAS MADE SOLELY WITH THE INTENTION OF RESALE AT A PROFIT OR FOR LONG-TERM APPRECIATION 3. WHETHER SCALE OF ACTIVITY IS SUBSTANTIAL 4. WHETHER TRANSACTIONS WERE ENTERED INTO CONTINUO USLY AND REGULARLY DURING THE YEAR 5. WHETHER THE PURCHASES ARE MADE OUT OF OWN FU NDS OR BORROWINGS 6. RATIO OF SALES TO PURCHASE 7. TIME DEVOTED TO THE ACTIVITY AND THE EXTENT TO WHICH IT IS THE MEANS OF LIVELIHOOD. 8.2.3 AS CLEAR FROM THE FACTS OF THIS CASE, THE TRA NSACTIONS OF PURCHASE AND SALE OF LAND HAVE BEEN CONTINUOUSLY CARRIED OUT BY THE APPELLANT, YEAR BY YEAR. THESE ARE NOT OCCASIONAL INDEPENDENT ACTIVITIES. THE PIECES OF LAND ARE NOT SOLD AS SUCH BUT ARE SUBDIVI DED INTO PLOTS AND THEN SOLD TO THE BUYERS REFLECTING A PURE COMMERCIA L ACTIVITY. THIS SHOWS THAT THE INTENTION FOR PURCHASING THE LAND WAS ALWA YS TO EARN MAXIMUM PROFIT BY SELLING PARTS OF LAND IN SUBSEQUENT YEARS OTHERWISE THE LAND WOULD HAVE BEEN SOLD AT ONE GO IN ONE YEAR. THE SCA LE OF ACTIVITY IS ALSO SUBSTANTIAL. APPELLANT HAS BEEN EARNING REGULAR PRO FITS FROM LAND SELLING ACTIVITY AND THESE PROFITS AS MEANS OF LIVELIHOOD. REGARDING SOURCES OF FUNDS USED FOR PURCHASE OF LAND, IT IS SEEN THAT APPELLANT HAS BEEN ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 23 - REGULARLY BORROWING FUNDS FROM ATE PARTIES. THIS IS EVIDENT FROM THE DETAILS FURNISHED BY THE APPELLANT RELATED TO AROUND OF DIS ALLOWANCE OF INTEREST. THEREFORE THE PURCHASES WERE MADE BY USING RE BORRO WED FUNDS AND WERE NOT OUT OF OWN FUNDS OF THE APPELLANT. 8.2.4 AS STATED ABOVE, THE APPELLANT HAS DEBITED VA RIOUS EXPENSES RELATED TO LAND LIKE STAMP DUTY CHARGES, LABOUR EXPENSES, G ROUND FILLING EXPENSES, GROUND LEVELLING EXPENSES, SITE SALARY. THESE TYPE OF EXPENSES ARE USUALLY INCURRED FOR MAKING THE LAND COMMERCIALLY SALEABLE. MOST IMPORTANTLY, DURING SEARCH, APPELLANT HAS MADE DISCLOSURE OF UNA CCOUNTED INCOME OF RS. 1.62 CRORES COMPRISING OF DEBTORS FOR VARIOUS P IECES OF LAND. THIS PROVES THAT APPELLANT WAS ENGAGED IN THE COMMERCIAL ACTIVITY OF PURCHASE AND SALE OF LAND AND THE PROFITS EARNED THERE FROM WERE NOT FULLY DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS. ONLY A PART OF SU CH SALE CONSIDERATIONS WERE REFLECTED IN THE REGULAR BOOKS AND THE BALANCE CONSIDERATION WAS RECEIVED AS UNACCOUNTED INCOME. 8.2.5 THERE ARE SEVERAL JUDICIAL PRONOUNCEMENTS AS PER WHICH ABOVE TYPE OF TRANSACTIONS ARE REQUIRED TO BE TREATED AS BUSIN ESS TRANSACTIONS AND RESULTANT PROFITS AS BUSINESS INCOME. AS PER CBDT'S RECENT CIRCULAR NO.4 OF JUNE, 2007, AN ASSESSES CAN HAVE BOTH PORTFOLIOS , ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT MAINTAINS SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE I S NO INTERMINGLING OF HOLDINGS IN TWO PORTFOLIOS. IN CASE OF APPELLANT, A BOVE CONDITIONS ARE NOT SATISFIED. NO SEPARATE ACCOUNTS ARE MAINTAINED FOR TWO TYPES OF LAND. IF THERE WERE DISTINCT PORTFOLIOS, THE APPELLANT MAY H AVE INCOME UNDER BOTH HEADS. THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V. REWASHANKER A. KOTHARI [2006] 283 ITR 338 (GUJ) LAID DOWN THE FOLL OWING GUIDELINES IN ORDER TO DETERMINE WHETHER PROFITS ARISING ON SALE IS BUSINESS INCOME (PAGE 343): **** **** ***** 8.2.6 IN VIEW OF ABOVE FACTUAL AND JUDICIAL MATRIX, IT IS HELD THAT AO WAS JUSTIFIED IN TREATING THE PROFIT FROM LAND TRA DING ACTIVITY AS BUSINESS INCOME OF THE APPELLANT. ACCORDINGLY, THE RELATED GROUNDS ARE DISMISSED FOR ALL THE RELEVANT ASSESSMENT YEARS. 26. THOUGH, THE LD.CIT(A) HAS TAKEN COGNIZANCE OF L AND HOLDING IN PARA 8.2.1, BUT AT THE COST OF REPETITION, WE WOULD LIKE TO MENTION THAT DURING THE COURSE OF HEARING, THE LD.COUNSEL FOR TH E ASSESSEE PLACED ON RECORD COMPLETE DETAILS OF LAND OWNED BY THE ASSESS EE AND TREATMENT GIVEN TO THIS LAND I.E. WHETHER IN THE INVESTMENT PORTFOLIO OR TRADE PORTFOLIO. THE LD.CIT(A) HAS ALREADY TAKEN NOTE OF NINE PIECES OF LAND ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 24 - WHICH WE HAVE REPRODUCED WHILE TAKING COGNIZANCE OF CIT(A)S FINDING CONTAINED IN PARA 8.2.1. THE REMAINING LAND WHOSE DETAILS HAVE BEEN SUBMITTED BY THE LD.COUNSEL FOR THE ASSESSEE READS AS UNDER: A.Y. 2005-06 GIDC PLOT AT LODHIKA COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 317463.00 2003-04 178878.00 2002-03 179589.00 196503.00 266349.00 241194.00 2001-02 2000-01 1999-00 1998-99 2124360.00 THIS PLOT SHOWN AS FIXED ASSETS IN THE B/S. THIS PLOT SOLD DURING A.Y. 2005-.06 AND INDEX COST OF THIS PLOT IS RS. 3220588.00 93090.00 1997-98 934768.00 1996-97 A.Y. 2006-07 COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 11.09.2001 11.09.2001 85518.00 83419.00 THIS PLOT SHOWN AS STOCK IN THE B/S. FURTHER THIS PLOT IS SITUATED AT NANA MAVA SR NO.43/4 A.Y. 2007-08 COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 11.09.2001 11.09.2001 11.09.2001 11.09.2001 71265.00 71502.00 270900.00 286000.00 THIS PLOT SHOWN AS STOCK IN THE B/S. FURTHER THIS PLOT IS SITUATED AT NANA MAVA SR NO.43/4 112885.00 14.08.2003 225000.00 THIS PLOT SHOWN AS ASSETS IN THE B/S AND SOLD DURING THE A.Y 2007-08. SR NO.292/2 ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 25 - A.Y.2009-10 COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 19.09.2001 951000.00 THIS PLOT SHOWN AS STOCK AND IT IS SITUATED AT NANA MAVA SR. NO. 43/4 06.10.2005 224400.00 06.10.2005 224400.00 06.10.2005 390200.00 06.10.2005 673200.00 06.10.2005 30000.00 499352.00 06.10.2005 28.10.2005 06.10.2005 468000.00 561000.00 234000.00 THIS PLOT SHOWN AS ASSETS AND IT IS SITUATED AT MAVDI SR. NO. 1 77 06.10.2005 125200.00 06.10.2005 125200.00 06.10.2005 112200.00 06.10.2005 112200.00 06.10.2005 112200.00 A.Y. 2010-11 COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 2919917 06.10.2005 2190500.00 THIS PLOT SHOWN AS ASSETS AND IT IS SITUATED AT MAVDI SR. NO. 177 1026827.00 2003-04 26701650.00 THIS PLOT SHOWN AS ASSETS AND IT IS SITUATED AT RAIYA 157/1 1748640.00 SOLD FROM STOCK SITUATED AT NANA MAVA 43/4 ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 26 - A.Y. 2011-12 COST OF PURCHASE DATE/YEAR OF PURCHASE SALES CONSIDERATION PLACE AT WHERE IT SHOWN 2005-06 220000.00 THIS PLOT SHOWN AS ASSETS AND IT IS SITUATED AT MAVDI SR. NO. 177 128530.00 2003-04 3410000.00 76691.00 123839.00 17577.00 2003-04 2003-04 2003-04 2035000.00 2900000.00 467000.00 THIS PLOT SHOWN AS ASSETS AND IT IS SITUATED AT RAIYA 157/1 27. THUS, A PERUSAL OF ORDER OF REVENUE AUTHORITY W OULD INDICATE THAT THE MAIN FORCE WHICH WEIGHED IN THE MIND OF REVENUE AUTHORITIES TO TREAT THE INCOME OF THE ASSESSEE AS BUSINESS INCOME AND NOT CAPITAL GAIN ARE THAT (I) TRANSACTIONS OF PURCHASE AND SALE WERE CONTINUOUS AND SUBSTANTIAL, (II) PLOTS OF LAND SUB-DIVIDEND WITH I NTENT TO MAKE TRADING ACTIVITIES AND EARN PROFIT, AND (III) THE ASSESSEE HAS BORROWED FUNDS FOR PURCHASES. IN OTHER WORDS, THESE THREE FACTORS PER SUADED THE LD.CIT(A) TO HABOUR A BELIEF THAT THE LAND PURCHASED IN THE Y EAR OF 2004 AND HELD FOR MORE THAN THREE YEARS IS TO BE TREATED AS A TRA DE ASSET. ACCOUNTS FURNISHED BEFORE US SHOW THAT THE ASSESSEE WAS DEAL ING IN LANDS BOTH AS A TRADER AS WELL AS INVESTOR. HE HAD KEPT SEPARATE ACCOUNTS FOR BOTH TYPES OF DEALINGS. INCOME EARNED AND EXPENDITURE IN CURRED HAS BEEN ACCOUNTED IN THE CAPITAL ACCOUNT OF THE ASSESSEE. P ERIOD OF LAND HOLDING IS MORE THAN THREE YEARS. THEY WERE REFLECTED IN TH E BALANCE SHEET AS INVESTMENT. WE FIND THAT THE FREQUENCY OF SUCH PURC HASE OR SALE IN SAID PORTFOLIO WAS NOT LARGE ENOUGH TO DOUBT THAT THIS P ORTFOLIO WAS ONLY AS ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 27 - COLOURABLE DEVICE TO PAY LESSER TAXES. BASIS FOR T REATING THE TRANSACTIONS OF THE ASSESSEE AS BUSINESS ACTIVITIES BY THE REVEN UE AUTHORITIES ARE NOT BASED ON SOME COGENT EVIDENCE RATHER BASED ON SOME PRESUMPTION. WE ARE NOT CONVINCED WITH THE REASONING GIVEN BY THE R EVENUE AUTHORITIES FOR TREATING THE INCOME OF THE ASSESSEE AS BUSINESS INCOME, AND THEREFORE, WE DIRECT THE AO TO TREAT THE INCOME EARNED BY THE ASSESSEE FROM SALE OF LAND AS CAPITAL GAIN AND NOT BUSINESS INCOME. THIS GROUND OF APPEAL IS ALLOWED. 28. SO FAR AS INCOME EARNED FROM THE SALE OF SHARES IS CONCERNED, WE HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORI TIES, AND FIND THAT BOTH THE AUTHORITIES BELOW IN SIMILAR MANNER OBSERV ED THAT INCOME FROM SALE OF SHARES WAS TO BE TREATED AS BUSINESS INCOME , SINCE THE ASSESSEE TRADING IN SHARES. THOUGH THE ASSESSEE HAS SUBMITT ED THAT HE WAS MAINTAINING SEPARATE PORTFOLIO FOR INVESTMENT AND T RADE, THE REVENUE AUTHORITIES HAVE CLUBBED BOTH THE ACCOUNTS INTO ONE AND TREATED ALL THE SALES AS REGULAR TRADING ACTIVITIES AND ACCORDINGLY TREATED AS BUSINESS INCOME. IT WAS ALSO SUBMITTED BY THE ASSESSEE ALL THE TRANSACTIONS WERE REFLECTED IN THE CAPITAL ACCOUNT OF THE ASSESSEE, A ND THEREFORE, IT COULD NOT BE TREATED AS BUSINESS INCOME, WHICH WAS NOT APPREC IATED BY THE REVENUE AUTHORITIES. IN OUR VIEW, THE LD.REVENUE AUTHORITIES, IN A SWEEPING MANNER, TREATED THE ENTIRE TRANSACTIONS OF SALE OF SHARES AS REGULAR BUSINESS WITHOUT ANY BASIS AND JUSTIFICATIO N. THERE IS NO SPECIFIC FINDING TO THE EFFECT THAT THE ENTIRE SALE OF SHARE S IS PART OF BUSINESS ACTIVITIES OF THE ASSESSEE AND IS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THERE IS NO DISCUSSION AS TO THE PERIOD OF HOLDING, AND WHETHER THE TRANSACTIONS ARE INTRA-DAY OR DELIVERY BASED AND/OR SIZE OF ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 28 - THE TRANSACTION, SO AS TO DETERMINE WHETHER INCOME EARNED FROM THE INVESTMENT OR THROUGH REGULAR COURSE OF TRADING. I N THE ABSENCE OF THE SAME, WE ARE NOT CONVINCED WITH OBSERVATION OF THE REVENUE AUTHORITIES ON THIS ISSUE, WHICH WE REVERSE AND DIRECT THE AO T O TREAT THE GAIN FROM SALE OF SHARES AS LONG TERM CAPITAL GAIN. THIS GRO UND OF APPEAL IS ALLOWED. CONSEQUENTLY, GROUND NO.1, 2 OF THE ASSTT .YEAR 2007-08, GROUND NO.1 OF THE ASSTT.YEAR 2009-10 AND GROUND NO .1 OF THE ASSTT.YEAR 2010-11 ARE ALLOWED. 29. ONE MORE GROUND LEFT IN ASSTT.YEAR 2007-08 IS G ROUND NO.3. IN THIS GROUND, ASSESSEE IS AGGRIEVED BY THE ACTION OF LD.C IT(A) IN UPHOLDING ADDITION OF RS.1,29,949/- MADE BY THE AO. 30. AFTER HEARING BOTH THE SIDES, WE HAVE GONE THRO UGH THE RECORD CAREFULLY. WE FIND THAT AN AMOUNT OF RS.1,29,949/- WAS FOUND CREDITED TO THE CAPITAL ACCOUNTS OF THE ASSESSEE. NO EXPLAN ATION OR DETAILS WERE FURNISHED AT THE TIME OF ASSESSMENT BY THE ASSESSEE , THEREFORE, THE SAME WAS TREATED AS UNEXPLAINED CREDIT AND ADDED TO THE INCOME OF THE ASSESSEE. THOUGH THE ASSESSEE HAS NOT FURNISHED BE FORE US ANY DETAILS THEREOF, HOWEVER, SUBMITTED THAT SINCE THE ASSESSEE HAS DISCLOSED AN AMOUNT OF RS.1.62 CRORES DURING THE SEARCH, ADDITIO N MAY BE DELETED BY GIVING TELESCOPING EFFECT. IN ORDER TO ENSURE THAT THE ASSESSEE IS NOT TAXED TWICE FOR THE SAME SOURCE OF INCOME, THE AO I S DIRECTED TO GIVE BENEFIT OF TELESCOPING AGAINST THE ADDITION MADE ON ACCOUNT OF DISCLOSURE OF RS.1.62 MADE DURING THE COURSE OF SEA RCH. THUS, THIS ADDITION OF RS.1,29,949/- IS DELETED. 31. IN THE RESULT, ITA NO.744/RJT/2014 IS ALLOWED. ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 29 - 32. NOW WE SHALL DEAL WITH OTHER COMMON ISSUE REGAR DING DISALLOWANCE OF INTEREST ON LOAN. THIS ISSUE IS RA ISED IN GROUND NO.2 IN THE ASSTT.YEARS 2009-10, 2010-11 AND GROUND NO.1 I N THE ASSTT.YEAR 2008- 09. THE AMOUNTS INVOLVED ARE OF RS.15,10,642/- AND RS.15,85,240/- IN ASSTT.YEARS 2009-10, 2010-11 AND RS.37,143/- (INTER EST EXPENSES) AND RS.1,27,757/- (PROCESSING CHARGES) IN THE ASSTT.YEA R 2008-09. 33. BRIEF FACTS IN THIS REGARD ARE THE ASSESSEE HAS TAKEN LOAN FROM ICICI BANK. THE ASSESSEE DEBITED INTEREST PAYMENT OF THE LOAN IN THE PROFIT & LOSS ACCOUNT OF THE RELEVANT YEARS. THE LD.AO OBSE RVED THAT THE LOAN WAS TAKEN FOR PERSONAL USER OF THE ASSESSEE, AND THEREF ORE, THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTEREST. THE LD.CIT(A) C ONFIRMED THE ACTION OF THE AO ON ISSUE IN ALL THESE YEARS. THE ASSESSEE S UBMITTED BEFORE THE LD.CIT(A) THAT IT HAS SUFFICIENT INTEREST FREE FUND S TO COVER THE ADVANCES MADE. IT WAS SUBMITTED THAT NO INTEREST FREE FUNDS ARE DIVERTED FOR NON- BUSINESS PURPOSE. 34. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIR CUMSTANCES, AND A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE FOR TH E YEAR 2010-11, IT REVEALS THAT THE ASSESSEE HAS CAPITAL OF MORE THAN RS.4.82 CRORES WHICH IS SUFFICIENT TO MEET THE INTEREST FREE ADVANCES. THE RE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE HAS DIVERTED ITS CAPIT AL FOR NON-BUSINESS PURPOSE AND THEREFORE FOLLOWING THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWERS LTD., 313 ITR 340 NO DISALLOWANCE IS WARRANTED ON THIS COUNT. AC CORDINGLY ALL THESE GROUNDS ARE ALLOWED. SIMILARLY, IN ASSTT.YEAR 2008 -09, ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS THEREFORE, NO INTERE ST EXPENDITURE OR ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 30 - PROCESSING CHARGES DESERVES TO BE DISALLOWED ON THE GROUND THAT INTEREST BEARING FUNDS WAS USED FOR NON-BUSINESS PURPOSE. 35. NOW ONLY GROUND LEFT FOR ADJUDICATION IS GROUND NO.2 RAISED IN THE ASSTT.YEAR 2008-09, WHEREBY THE ASSESSEE HAS AGITAT ED UPHOLDING THE ACTION OF THE HE AO IN CONSTRUING JEWELLERY OF RS.1 ,93,006/- BELONGING TO SMT.ANJANABEN JOSHI, AS BELONGED TO THE ASSESSEE. 36. BRIEF FACTS OF THE CASE ARE THAT DURING THE COU RSE OF SEARCH AT THE RESIDENCE OF THE ASSESSEE A BILL/ RETAIL INVOICE NO .1500 DATED 21.11.007 OF JP JEWELLERS FOR PURCHASE OF JEWELLERY VALUE AT RS.1, 93,006/- WAS FOUND AND SEIZED. THIS INVOICE WAS IN THE NAME OF ONE SM T. ANJANABEN JOSHI. SINCE THIS BILL WAS FOUND IN THE PREMISES OF THE AS SESSEE, THE AO PRESUMED THAT INVESTMENT IN JEWELLERY WAS MADE BY T HE ASSESSEE AND ONUS TO PROVE OTHERWISE WAS ON THE ASSESSEE. THE A SSESSEE EXPLAINED THAT BILL WAS IN THE NAME OF SMT.ANJANABEN JOHSHI A ND JEWELLERY BELONGED TO HER. SHE LEFT THE BILL AT THE PREMISE S OF THE ASSESSEE, AND THE ASSESSEE WAS NOTHING TO DO WITH THE ALLEGED INVESTM ENT. SINCE NO FURTHER EVIDENCE WAS WITH THE REVENUE, ADDITION IF AT ALL TO BE MADE, THE SAME SHOULD BE IN THE HANDS OF THE SMT.ANJANABEN JOS HI AND NOT IN THE HANDS OF THE ASSESSEE. BOTH THE REVENUE AUTHORITIE S DID NOT ACCEPT THE EXPLANATION AND MADE THE ADDITION. 37. AFTER HEARING BOTH THE SIDES AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THE ADDITION BASED ON THE ALLE GED BILL BELONGED TO THIRD PARTY FOUND AT THE PREMISES OF THE ASSESSEE I S NOT SUSTAINABLE IN THE EYES OF LAW, BECAUSE THE BILL DOES NOT MENTION THE NAME OF THE ASSESSEE NOR BEAR SIGNATURE OF THE ASSESSEE NOR ANY JEWELLER Y WAS FOUND AND ITA NO.744/RJT/2014 WITH 3 OTHERS APPEALS SHRI DINESHBHAI P. SORATHIA VS. ACIT, RAJKOT - 31 - SEIZED AT THE PREMISES OF THE ASSESSEE. SIMPLY BEC AUSE THE ALLEGED BILL WAS FOUND AT THE PREMISES OF THE ASSESSEE IT CANNOT BE PRESUMED, WITHOUT ANY CORROBORATIVE EVIDENCE THAT THE SAME WA S BELONGED TO THE ASSESSEE AND THE ADDITION SHOULD BE MADE IN THE HAN DS OF THE ASSESSEE. THEREFORE, WE ARE NOT CONVINCED WITH REASONING GIVE N BY THE REVENUE AUTHORITIES FOR MAKING SUCH ADDITION IN THE HANDS O F THE ASSESSEE. DURING THE HEARING BEFORE US, THE LD.COUNSEL FOR TH E ASSESSEE SUBMITTED THAT EVEN IF THE ADDITION IS TO BE SUSTAI NED, THEN DISCLOSURE OF RS.1.62 CRORES MADE BY THE ASSESSEE DURING THE SEAR CH WOULD SUFFICE TO MEET THE ALLEGED UNEXPLAINED INVESTMENT IN JEWELLER Y. THEREFORE, IT IS SUBMITTED THAT BY APPLYING TELESCOPIC EFFECT THIS A DDITION MAY BE DELETED. CONSIDERING ALL THESE FACTS, SINCE NO COR ROBORATIVE MATERIAL WAS AVAILABLE TO PROVE THE CASE OF THE REVENUE, WE DELE TE THE IMPUGNED ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN JE WELLERY AND ALLOW THIS GROUND. 38. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2018. SD/- (WASEEM AHMED) ACCOUNTANT MEMBER SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 18/09/2018