ACIT 33(2), MUMBAI V. MANISH P GANDHI, MUMBAI

ITA 7474/MUM/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1730 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV S KESARWANI
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Capital asset; Business income; Transactions in derivatives; Futures and options; Set aside
• Section: 143(3)

Judgement Text

1 ITA 7474/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO.7474/MUM/2014 (ASSESSMENT YEAR : 2006-07) ACIT-33(2), MUMBAI VS SHRI MANISH P GANDHI 2302, CHALLENGER TOWER-1, THAKUR VILLAGE, KANDIVALI EAST, MUMBAI 400 101 PAN : AACPG3600N APPELLANT RESPONDEDNT APPELLANT BY SHRI RAJEEV S KESARWANI RESPONDENT BY SHRI SANJAY R PARIKH DATE OF HEARING 12-04-2019 DATE OF PRONOUNCEMENT 24-05-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T ORDER OF THE CIT(A)- 35, MUMBAI DATED 26-09-2014 AND IT PERTAINS TO AY 2 006-07. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) ERRED IN FACT & LAW BY TREATING 'BUSINESS INCOME' AS 'CAPITAL GAIN'. THECI T(A) HAS FAILED TO APPRECIATE THAT: (A) 46% OF THE TOTAL SHARES WERE HELD FOR LESS THAN 30 DAYS (PAGE NO.9 OF CIT(A) ORDER). FREQUENCY/TURNOVER OF THE SCRIPTS WITHIN SHORT SPAN REFLECT NOTHING BUT INTENTION OF THE ASSESSEE WAS TO ENGAGE IN BUSINESS. ANALYSIS OF SHORT TERM CAPITAL GAIN- 2 ITA 7474/MUM/2014 NO, OF SHARES NO. OF SCRIPTS HOLDING PERIOD PROFIT/(LOSS) (AMOUNT IN RS.) 385691 21 UPTO30DAYS (4,80,662) 92792 9 OVER 30 DAYS BUT LESS THAN 60 DAYS 55,47,485 57448 8 OVER 60 DAYS BUT LESS THAN 90 DAYS 26,57,535 57631 9 OVER 90 DAYS BUT LESS THAN 120 DAYS 56,72,877 48000 5 OVER 120 DAYS BUT LESS THAN 150 DAYS 61,90,992 5442 2 OVER 150 DAYS BUT LESS THAN 180 DAYS 41,683 88864 10 OVER 180 DAYS BUT LESS THAN 365 DAYS 33,32,109 SHORT TERM CAPITAL GAIN: 2,29,62,019 DEMAT CHARGE (2,20,019) NET SHORT TERM CAPITAL GAIN 2,27,42,000 TOTAL 45 SCRIPTS SOLD DURING THE YEAR UNDER CONSIDE RATION. ANALYSIS OF LONG TERM CAPITAL GAIN- NO, OF SHARES NO. OF SCRIPTS HOLDING PERIOD PROFIT/(LOSS) (AMOUNT IN RS.) 52927 8 BETWEEN 1 YEAR TO 11/2 YEAR 1,33,49,868 25234 8 BETWEEN 1 AND X> YEAR TO 2 AND % YEAR 79,67,471 9455 2 BETWEEN 21/2 YEAR TO 4 YEAR 9,34,061 LONG TERM CAPITAL GAIN 2,22,51,400 DEMAT CHARGES (76,216) NET TERM CAPITAL GAIN: 2,21,75,184 TOTAL 11 SCRIPTS SOLD DURING THE YEAR UNDER CONSIDE RATION. (B) THE GROUPING/ACCOUNTING ENTRIES ARE NOT CONCLUS IVE ONE AS HELD IN THE CASE OF TUTICORIN ALKALI CHEMICAL & FERTILIZERS LTD. AND M/ S CHOWRINGHEE SALES BUREAU (P) LTD. (C) THE C1T(A) HAS FAILED TO OBSERVE THE FINDINGS O F HON'BLE HIGH COURT IN THE CASE OF CIT VS STOREWELL CREDITS & CAPITAL P. LTD. 1TXA.1408 OF 2012 WHILE ADMITTING THE APPEAL OBSERVED THAT THE RATIO OF GOPAL PUROHIT REQUIRES R ECONSIDERATION: (I) ASSESSEE WAS DEALING IN SHARES BOTH AS TRADER A S WELL AS HOLDING SHARE IN INVESTMENT (II) THE STOCKS HELD AS INVESTMENT ARE VALUED AT CO ST AND STOCK IN TRADE AT COST ON MARKET PRICE WHICHEVER IS LOW. 3 ITA 7474/MUM/2014 (III) NO DEDUCTION U/S88E CLAIMED IN RESPECT OF SAL ES HELD AS INVESTMENT. (IV) CBDT CIRCULAR NO.4 OF 2007 DATED-15.06.2007. 2. 'THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C IT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED.' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN SHARES AS WELL AS INV ESTMENT IN SHARE MARKET. THE ASSESSEE HAS FILED HIS RETURN OF INCOME FOR AY 2006 -07 ON 24-01-2006 DECLARING TOTAL INCOME OF RS.2,25,83,776. THE ASSESSEE ENTER ED INTO TRANSACTIONS IN SHARE MARKET IN THREE DIFFERENT CATEGORIES, I.E. (A ) TRANSACTIONS IN FUTURES & OPTIONS (F&O); (B) INTRA DATE SETTLEMENT WITHOUT DE LIVERY OF SHARE; AND (C) BUYING SHARES ON DELIVERY AND SELLING IN ANOTHER SE TTLEMENT BY GIVING DELIVERY OF SHARES. THE ASSESSEE HAS CONSISTENTLY BEEN SHOW ING INCOME FROM SHARES WHERE DELIVERY HAS BEEN TAKEN AS ITS INVESTMENT FRO M YEAR TO YEAR AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 22-12-2018 WHERE THE AO HAS ASSESSED INCOME DERIVED FROM SHARE TRANSACTIONS INCLUDING SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITA L GAIN UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS AGAINST ASS ESSEES ADMISSION UNDER THE HEAD INCOME FROM CAPITAL GAINS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE LD.CIT(A), FOR THE REASONS RECORDED IN HIS APPELLAT E ORDER, ALLOWED THE APPEAL IN PART AND DIRECTED THE AO TO ACCEPT THE CLAIM OF SHORT TERM AND LONG TERM 4 ITA 7474/MUM/2014 CAPITAL GAINS AS CLAIMED BY THE ASSESSEE; HOWEVER, DIRECTED THE AO TO WITHDRAW REBATE CLAIMED U/S 88E OF THE INCOME-TAX ACT, 1961. THE DEPARTMENT PREFERRED APPEAL AGAINST ORDER OF THE CIT(A) BEFORE THE ITAT AND THE ITAT HAS DISPOSED OF APPEAL FILED BY THE DEPARTMENT AND SET ASIDE THE ISSUE REGARDING TREATMENT OF INCOME FROM SHARE TO THE FILE OF THE A O TO DECIDE AFRESH IN THE LIGHT OF THE FINDINGS OF THE AO IN ORIGINAL ASSESSM ENT PROCEEDINGS AND PLEADING OF THE ASSESSEE BEFORE THE TRIBUNAL. 4. CONSEQUENT TO SET ASIDE PROCEEDINGS, THE AO CALL ED UPON THE ASSESSEE TO FURNISH COMPLETE SET OF DOCUMENTS INCLUDING SCRIP-W ISE SALE AND PURCHASES OF SHARES WITH HOLDING PERIOD. IN RESPONSE, THE ASSES SEE HAD FILED DETAILED SUBMISSION WHICH HAS BEEN REPRODUCED AT PARA 9 ON P AGES 4 TO 20 OF ASSESSMENT ORDER. THE AO, AFTER CONSIDERING SUBMIS SIONS OF THE ASSESSEE AND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS HE LD THAT THE ASSESSEE IS INVOLVED IN SYSTEMATIC ACTIVITY OF TRADING IN SHARE S IN ORDER TO MAXIMISE PROFIT. THEREFORE, PROFIT DERIVED FROM SUCH ACTIVITY SHOULD BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE AND ACCORDINGLY ANY INCOME F ROM SUCH ACTIVITY SHALL BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS BORROWED FUN DS AND ALSO A MEMBER OF JAGRUTI GANDHI GROUP WHICH IS ENGAGED IN THE BUSINE SS OF TRADING IN SHARES. THOUGH, ASSESSEE STATES THAT SHARES ARE SHOWN AS IN VESTMENTS IN BOOKS OF 5 ITA 7474/MUM/2014 ACCOUNT, BUT ENTRIES IN BOOKS OF ACCOUNT ARE NOT DE TERMINATIVE IN ORDER TO DETERMINE TRUE NATURE OF INCOME. THE ASSESSEE DERI VES MOST OF HIS INCOME FROM TRANSACTING IN STOCK MARKET IN THE FORM OF F&O PROFIT OR DELIVERY BASED TRANSACTIONS. THE HOLDING PERIOD OF SHARES IN SOME CASES IS LESS THAN 30 DAYS. THE ASSESSEES CONTENTION THAT HE HAS TWO PORTFOLIO S IS NOT ENTIRELY CORRECT, BECAUSE ALTHOUGH HE CLAIMS TO HAVE SHOWN INVESTMENT IN SHARES OF KIRLOSKAR PNEUMATIC AS INVESTMENT IN HIS BOOKS OF ACCOUNT, BU T THE SAID SHARES ARE NEITHER APPEARING IN BALANCE-SHEET OR PROFIT ON SAL E OF SAID SHARES IS SHOWN AS CAPITAL GAIN. ACCORDINGLY, HE CAME TO THE CONCLUSI ON THAT THE CLAIM OF THE ASSESSEE THAT INCOME FROM SALE OF SHARES, WHERE DEL IVERY HAS BEEN TAKEN IS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN S IS INCORRECT, BECAUSE TO DECIDE THE HEAD OF INCOME UNDER WHICH A PARTICULAR INCOME IS ASSESSABLE, THE WHOLE CIRCUMSTANCES HAS TO BE LOOKED INTO IN TOTO W ITHOUT CONSIDERING A SINGLE ITEM IN ISOLATION MANNER. THEREFORE, WHEN YOU CON SIDERED OVERALL FACTS AND CIRCUMSTANCES OF THE ASSESSEE, IT IS VERY CLEAR THA T THE ASSESSEE IS INVOLVED IN SYSTEMATIC ACTIVITY OF TRADING IN SHARES AND HENCE, ANY INCOME DERIVED FROM SUCH ACTIVITY IS TO BE ASSESSED UNDER THE HEAD INC OME FROM BUSINESS OR PROFESSION. THE AO HAS ALSO DISTINGUISHED VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE, INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT 222 CTR 582 (BOM). 6 ITA 7474/MUM/2014 5. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON EACH AND EVERY OBSERVATIONS MADE BY THE AO IN OR DER TO ASSESS INCOME DERIVED FROM PURCHASE AND SALE OF SHARES UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND THE WRITTEN SUBMISSION FILED BY THE ASSESSEE HAS BEEN REPRODUCED AT PARA 2 ON PAGES 2 TO 8 OF THE OR DER OF LD.CIT(A). THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFORE T HE CIT(A) WERE THAT THE AO WAS ERRED IN ASSESSING INCOME FROM SHARE TRANSAC TIONS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WITHOUT APPREC IATING THE FACT THAT THE ASSESSEE IS CONSISTENTLY DECLARING PROFIT FROM SALE OF SHARES WHERE DELIVERY HAS BEEN TAKEN UNDER THE HEAD INCOME FROM CAPITAL GAIN S AND ALSO TREATED SAID INVESTMENTS UNDER THE HEAD INVESTMENTS IN HIS BOO KS OF ACCOUNT. THE ASSESSEE NEITHER UTILISED BORROWED FUNDS NOR INVOLV ED IN REPETITIVE TRADING OF SHARES IN ORDER TO MAXIMISE PROFIT. MERELY BECAUSE THE HOLDING PERIOD OF SHARES IS LESS THAN 365 DAYS, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE WHEN THE LEGISLATURE ITSELF HAS PROVIDED F OR HOLDING PERIOD OF LESS THAN 365 DAYS IN CASE OF SHORT TERM CAPITAL GAIN AND MOR E THAN 365 DAYS IN CASE OF LONG TERM CAPITAL GAIN. THE ASSESSEE FURTHER CONTE NDED THAT THE CBDT ITSELF HAS CLARIFIED THE POSITION OF ASSESSMENT OF INCOME FROM SHARE MARKET BY ITS CIRCULAR NO.4 OF 2007 WHERE IT EMPHASISE ON THE POI NT OF MAINTENANCE OF TWO 7 ITA 7474/MUM/2014 PORTFOLIOS BY A TAXPAYER. THEREFORE, THE AO WAS ER RED IN NOT CONSIDERING ALL THESE ASPECTS INCLUDING THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA) WHERE THE HONBLE C OURT HAS SETTLED THE LEGAL POSITION OF DISPUTE BETWEEN THE PARTIES IN RESPECT OF INCOME FROM SHARE MARKET. 6. THE LD.CIT(A) AFTER CONSIDERING FACTS AND ALSO B Y FOLLOWING CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA) HELD THAT IN ORDER TO DETERMINE THE NATURE OF INCOME UNDER WHICH IT IS ASSESSABLE, ANY ONE FACTOR CANNOT BE CONSIDERED ESPECIALLY IN THE CASES WHERE THE ASSESSEE IS INVOL VED IN INVESTMENT AS WELL AS TRADING ACTIVITY. IN THE PRESENT CASE, THE ASSESSE E HAS MAINTAINED TWO PORTFOLIOS AND ACCORDINGLY, TREATED INVESTMENTS IN SHARES UNDER THE HEAD INVESTMENTS IN HIS BOOKS OF ACCOUNT WHEREAS SHARE S WERE HELD FOR TRADING, THE SAME HAVE BEEN TREATED AS STOCK IN TRADE AND VALUED ACCORDINGLY BY FOLLOWING THE ACCOUNTING STANDARDS PRESCRIBED FOR VALUATION O F INVENTORIES. THE ASSESSEE ALSO PROVED OTHER ASPECTS INCLUDING BORROWED FUNDS AND FREQUENCY WHERE IT WAS CATEGORICALLY PROVED THAT NO BORROWED FUNDS HAV E BEEN USED FOR MAKING INVESTMENT IN SHARES AND ALSO THE FREQUENCY OF BUYI NG AND SELLING IS VERY MINIMUM. ALTHOUGH CERTAIN SCRIPS WERE HELD FOR LES SER PERIOD, I.E. LESS THAN 30 DAYS, BUT THAT BY ITSELF WOULD NOT GIVE RISE TO AN OCCASION TO HOLD THAT THE 8 ITA 7474/MUM/2014 ASSESSEE IS IN THE BUSINESS OF TRADING ACTIVITIES, THAT RESULTS INTO INCOME ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE RELEVANT FINDINGS OF THE LD.CIT(A) ARE AS UNDER:- I HAVE GONE THROUGH THE FACTS OF THE CASE, CONTENTI ON OF THE AO AND SUBMISSIONS OF THE APPELLANT. IT IS AN UNDISPUTED F ACT THAT THE ASSESSEE WAS DEALING IN SHARES BOTH A T TRADER5 AS WELL AS HOLDING SHARE IN INVESTMENT. IT IS ALSO UNDISPUTED THAT THE ASSESSEE HAD KEPT BOTH POR TFOLIOS SEPARATELY AND THE MODE OF VALUATION OF STOCK HELD AS INVESTMENT AND S TOCK HELD AS STOCK IN TRADE HAS BEEN TREATED DIFFERENTLY. THE INVESTMENT WAS VALUED AT COST AND IT IS SHOWN IN THE BALANCE SHEET WHEREAS THE STOCK IN TRA DE WAS VALUED AT COST OR MARKET PRICE WHICH EVER WAS LOWER AND THE LOSS WAS ACCORDINGLY CLAIMED IN THE P&L ACCOUNT. FURTHER IT IS ALSO NOT DISPUTED I N RESPECT OF SHARES HELD AS INVESTMENT OF SHARES SOLD BY IT AND WAS NOT CLAIMED U/S.88E OF THE I.T. ACT. WHILE NO DOUBT THE_ SEQUENCE OF TRADE IN SHARES IS HIGH HOWEVER THE FACT OF THE QUANTUM BEING HIGH IN ABSOLUTE TERM ALSO CANNOT BE THE FACTORS TO TREAT THE PORTFOLIO AS BUSINESS INCOME..THE CBDT CIRCULAR NO.4 OF 2007 DATED 15- 06-2007 IN FACT ALSO PROVIDES FOR A SITUATION WHERE IN TAX PAYER MAY HOLD BOTH PORTFOLIOS, TRADING IN INVESTMENT IN SHARES AT THE SAME TIME. PARA 10 OF CBDT CIRCLULAR NO.4 WHICH READS AS UNDER: 'CBDT ALSO WISHES TO EMPHASIS THAT IT IS POSSIBLE F OR A TAX PAYER TO HAVE TWO PORTFOLIO I.E. AN INVESTMENT PORTFOLIO COM PRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADI NG PORTFOLIO COMPRISES OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADIN G ASSETS. WHERE AN ASSESSEE HAS TWO PORTFOLIO THE ASSESSEE MAY HAVE IN COME UNDER BOTH HEADS I.E. CAPITAL GAIN AS WELL AS BUSINESS INCOME. ' THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS MAD AN GOPAL RADHYALAL 73 ITR 62 HAS HELD THAT THERE CANNOT BE A PRESUMPTION THT EVERY ACQUISITION BY A DEALER IN A PARTICULAR COMMODITY IS AN ACQUISITIO N FOR THE PURPOSE OF HIS BUSINESS. IN EACH CASE THE INTENTION )S TO BE SEEN FROM THE FACTS OF THE CASE AND ALSO FROM THE CONDUCT OF ACQUIRING THE COMMODIT Y AND ITS DEALINGS IN THE SAME. AS CAN BE SEEN FROM THE TABLE DRAWN ON PAGES 02 TO 07OF THIS ORDER,- IT CANNOT BE SAID THAT THE APPELLANT HAD BORROWED FUND S FOR TRADING IN SHARES. THE APPELLANT HAS BEEN TREATING THE SAID SHARES AS INVESTMENT. AS REGARDS THE HOLDING PERIOD, IT IS SEEN THAT NO DOUBT 46%. O F THE TOTAL SHARES WERE HELD FOR LESS THAN 30 DAYS, HOWEVER, I FIND MERIT IN THE ARGUMENTS ADVANCED BY THE APPELLANT THAT THIS FACT IS NOT SUFFICIENT TO CLASS IFY THIS SEGMENT OF TRADING AS BUSINESS SINCE BUYING AND SELLING AT SHORT INTERVAL S IS ALSO A PRUDENT DECISION DEPENDING ON THE PERFORMANCE OF THE MARKET. IN THE PRESENT CASE, THE APPELLANT IS MAINTAINING TWO PORTFOLIOS AND IS GIVI NG SEPARATE TREATMENT TO BOTH THE PORTFOLIOS IN HIS BOOKS OF ACCOUNTS. THEREFORE, THE INTENTION THAT EMERGES IS AT THE OUTSET IN TERMS OF WHETHER A PARTICULAR S HARE IS TO BE CLASSIFIED AS STOCK-IN-TRADE OR AS AN INVESTMENT OPTION. THE FACT S OF THE CASE VIS-A-VIS REFERENCE RAISED BY THE CBDT'S CIRCULAR REFERRED TO ABOVE, CLEARLY BRING THE FACT THAT IN THE CASE OF THE APPELLANT, THERE ARE T WO DISTINCT INCOMES - INCOME FROM TRADING IN SHARES WHICH IS CLASSIFIED AS BUSIN ESS INCOME AND OTHER WHICH 9 ITA 7474/MUM/2014 WOULD BE CLASSIFIED AS CAPITAL GAINS. THE ANALYSIS OF THE TABLE OF THE SHORT TERM CAPITAL GAINS INFACT SHOWS THAT A HOLDING PERI OD OF UPTO 30 DAYS IS HIGH IN TERMS OF THE NUMBER OF SCRIPTS PERCENTAGE WISE. HOWEVER, THE QUANTUM TRADED IS VERY SMALL- THE MAJOR COMPONENT IS FALLIN G BETWEEN 30 DAYS TO 150 DAYS. THEREFORE, IT CANNOT BE SAID THAT IN LIGHT OF THE FACTS OF THE PRESENT CASE, THE SAME SHOULD BE TREATED AS BUSINESS INCOME. . I HAVE GONE THROUGH THE FACTS IN THE CASE OF BROTHER OF THE APPELLANT WHEREIN THE HON'BL E BOMBAY HIGH COURT HAVE ALREADY HELD THAT THE SAME SHOULD BE CLASSIFIED AS CAPITAL GAINS AND FOUND THAT THE FACTS IN THIS CASE ARE SIMILAR. TAKING GUIDANCE FROM THE SAID DECISION IN THE PRESENT CASE ALSO, IT IS HELD THAT THE INCOME OF TH E APPELLANT SHOULD BE TREATED AS INCOME FROM CAPITAL GAINS AND NOT BUSINESS INCOME. 7. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 8. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DIRECTING THE AO TO ASSESS PROFIT DERIVED FROM SALE OF SHARES UNDER THE HEAD CAPITAL GAINS AS AGAINST INCOME FROM BUSINESS OR PROFESSION ASSESS ED BY THE AO WITHOUT APPRECIATING THE FACT THAT OUT OF TOTAL TRANSACTION S CARRIED OUT BY THE ASSESSEE, 46% OF TRANSACTIONS WERE HELD FOR LESS THAN 30 DAYS AND SUCH FREQUENCY / TURNOVER WITHIN SHORT SPAN REFLECTS NOTHING BUT INT ENTION OF THE ASSESSEE TO ENGAGE IN BUSINESS. THE LD.DR FURTHER SUBMITTED TH AT THE GROUPING / ACCOUNTING ENTRIES ARE NOT CONCLUSIVE ONE AS HELD I N THE CASE OF TUTICORIN ALKALIES CHEMICAL LTD VS CIT 141 CTR 387(SC) AND TH AT WHAT IS RELEVANT IS THE NATURE OF INCOME WHICH IS TO DECIDE THE HEAD OF INC OME UNDER WHICH IT IS TAXABLE. THE LD.CIT(A) HAS FAILED TO OBSERVE THE F INDINGS OF HONBLE HIGH COURT IN THE CASE OF CIT VS STOREWELL CREDITS AND CAPITAL PVT LTD IN INCOME TAX APPEAL NO.1048 OF 2012 WHERE IT WAS OBSERVED THAT WHILE AD MITTING THE APPEAL, THE COURT OBSERVED THAT THE RATIO OF JUDGEMENT OF GOPAL PUROHIT (SUPRA) NEEDS 10 ITA 7474/MUM/2014 RECONSIDERATION. THE LD.CIT(A), WITHOUT APPRECIATI NG THESE FACTS, SIMPLY DIRECTED THE AO TO ACCEPT INCOME UNDER THE HEAD CA PITAL GAINS AS CLAIMED BY THE ASSESSEE. 9. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, S UBMITTED THAT THE LD.CIT(A) HAS RIGHTLY APPRISED THE FACTS IN LIGHT O F VARIOUS EVIDENCES FILED BY THE ASSESSEE AS PER WHICH, THE ASSESSEE HAS CATEGORICAL LY PROVED THAT NEITHER BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT IN SHARES NOR INVOLVED IN ANY REPETITIVE TRADING OF SHARES WITHOUT TAKING DELIVERY. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS CONSISTENTLY DECLAR ED PROFIT UNDER THE HEAD CAPITAL GAIN WHERE SHARES ARE TAKEN DELIVERY. TH E ACCOUNTING ENTRIES PASSED BY THE ASSESSEE IS ALSO DETERMINATIVE TO DECIDE THE NATURE OF INCOME BECAUSE THE ASSESSEE HAS CONSISTENTLY BEEN SHOWING INVESTME NTS IN SHARES UNDER THE HEAD, INVESTMENTS AND THIS HAS BEEN ACCEPTED BY T HE DEPARTMENT IN EARLIER YEARS. THE LD.AR FURTHER SUBMITTED THAT THE BOARD VIDE ITS CIRCULAR NO.4 OF 2007 DATED 15-06-2007 REITERATED THE LEGAL POSITION WHERE IT HAS BEEN CLARIFIED THAT A TAXPAYER CAN MAINTAIN TWO PORTFOLIOS DEPENDI NG UPON THE NATURE OF ACTIVITIES CARRIED OUT IN SHARE MARKET AND RESULTAN T INCOME FROM ACTIVITY CAN BE SHOWN IN RESPECTIVE HEAD OF INCOME. THE LD.AR FURT HER SUBMITTED THAT THE BOARD VIDE ITS CIRCULAR NO.6 OF 2016 DATED 29-02-20 16 CLARIFIED THAT LONG TERM CAPITAL GAIN SHOULD NOT BE DISTURBED BY THE DEPARTM ENT WHERE THE ASSESSEE IS 11 ITA 7474/MUM/2014 DECLARING INCOME UNDER THE HEAD CAPITAL GAINS MER ELY FOR THE REASON THAT THERE IS BORROWED FUNDS AND ALSO REPETITIVE TRANSAC TIONS. IN THIS REGARD, THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA) AND OTHER CASE LAWS TO JUSTIFY THE CLAIM OF INCOME UNDER THE HEAD CAPITAL GAINS. THE LD.AR F URTHER SUBMITTED THAT WHEN THE DEPARTMENT HAS ACCEPTED THE DECLARATION OF INCO ME UNDER THE HEAD LONG TERM CAPITAL GAIN / SHORT TERM CAPITAL GAIN WITHOU T ANY CHANGE IN LAW, DIFFERENT VIEW CANNOT BE TAKEN FOR SUBSEQUENT YEAR. ALTHOUGH , THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO TAX PROCEEDINGS, BUT WHEN CONSISTENT VIEW IS FOLLOWED, THE SAME SHOULD NOT BE DISTURBED OR DEVIA TED. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF RADHASOAMY SATSANG VS CIT (1992) 193 ITR 321 (SC). 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE FACT WITH REGARD TO THE INVESTMENT IN SHARES AS WELL AS TRADING IN S HARES BY MAINTAINING TWO SEPARATE PORTFOLIOS IS NOT DISPUTED BY THE AO. THE ASSESSEE IS MAINTAINING TWO PORTFOLIOS, ONE INVESTMENT PORTFOLIO AND ANOTHER I S TRADING PORTFOLIO. THE ASSESSEE HAS CONSISTENTLY FOLLOWED THIS METHOD OF A CCOUNTING AND DECLARED INCOME ACCORDINGLY UNDER RESPECTIVE HEAD OF INCOME. THE ASSESSEE HAS CONSIDERED SHARES AS INVESTMENTS WHERE THE DELIVERY HAS BEEN TAKEN ON EACH 12 ITA 7474/MUM/2014 SETTLEMENT, WHEREAS WHERE THERE IS NO DELIVERY OF S HARES AND THE SETTLEMENT HAS BEEN DONE ON THE SAME DAY, THE SAME HAS BEEN CO NSIDERED AS FUTURES AND OPTIONS AND RESULTANT INCOME HAS BEEN TREATED EITHE R AS SPECULATION PROFIT OR LOSS OR INCOME FROM BUSINESS OR PROFESSION. THE AO DISTURBED INCOME DECLARED UNDER THE HEAD CAPITAL GAINS FOR THREE REASONS, I.E . (I) THE ASSESSEE HAS UTILISED BORROWED FUNDS FOR INVESTMENT IN SHARES; (II) THE H OLDING PERIOD OF SCRIPS IN SOME CASES IS LESS THAN 30 DAYS AND ALSO IN MAJORIT Y OF CASES, IT IS LESS THAN SIX MONTHS, AND (III) THE ASSESSEE IS INVOLVED IN REPET ITIVE TRADING OF SHARES AND FREQUENCY OF TRADING IS MORE. THEREFORE, HE OPINED THAT THE ARGUMENTS OF THE ASSESSEE THAT THE PRINCIPLES OF CONSISTENCY AS WELL AS MAINTENANCE OF TWO SEPARATE PORTFOLIOS IS NOT CORRECT AND HENCE, THE R ESULTANT INCOME FROM THE SHARE TRADING ACTIVITY NEEDS TO BE ASSESSED UNDER T HE HEAD INCOME FROM B1 11. IT IS THE CONTENTION OF THE ASSESSEE THAT IN TH IS CASE THERE IS NO CHANGE IN FACTS OR LAW. THEREFORE, CONSISTENT METHOD OF ACCO UNTING FOLLOWED BY THE ASSESSEE IN ORDER TO DETERMINE INCOME FROM SHARE TR ADING ACTIVITY CANNOT BE DISTURBED. WE FIND THAT THE ASSESSEE IS IN THE BUS INESS OF SHARE TRADING ACTIVITY FOR QUITE SOME YEARS. ALL ALONG, THE ASSESSEE HAS FOLLOWED A METHOD OF ACCOUNTING, WHERE THE SHARE TRANSACTIONS WITH DELIV ERY OF SHARES HAVE BEEN TREATED AS INVESTMENTS IN ITS BOOKS OF ACCOUNT AND ACCORDINGLY VALUED AT COST, WHEREAS BUYING AND SELLING OF SHARES WITHOUT ACTUAL DELIVERY HAS BEEN TREATED 13 ITA 7474/MUM/2014 AS TRADING ACTIVITY AND ACCORDINGLY, THE CLOSING ST OCK HAS BEEN VALUED AT COST OR MARKET RATE, WHICHEVER IS LESS BY FOLLOWING ACCOUNT ING STANDARD ISSUED BY ICAI. THIS METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOL LOWED BY THE ASSESSEE AND THE DEPARTMENT HAS ACCEPTED THE SAME IN THE EARLIER YEARS. WHERE DEPARTMENT HAS ACCEPTED A PARTICULAR METHOD OF ACCO UNTING AND ASSESSED THE INCOME AS SUCH FOR EARLIER YEAR, UNLESS THERE IS NO CHANGE IN FACTS AND LAW, THE SAME CANNOT BE DISTURBED. THIS LEGAL PROPOSITION I S SUPPORTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RADHASAOMY SATSANG (SUPRA) WHERE IT WAS HELD THAT WHEN THERE IS NO CHA NGE IN FACTS OR LAW, THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE CANNO T BE DISTURBED EVEN THOUGH THE PRINCIPLES OF RES JUDICATA HAS NO APPLIC ABILITY TO INCOME-TAX PROCEEDINGS. 12. COMING TO THE OTHER ISSUES QUESTIONED BY THE AO . THE AO HAS BROUGHT OUT VARIOUS REASONS TO ASSESS INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. WE FIND THAT THE AO HAS BROUGHT OUT V ARIOUS REASONS INCLUDING PERIOD OF HOLDING, FREQUENCY OF TRANSACTIONS, VOLUM E OF BUSINESS AND SOURCE OF INVESTMENT, IN ORDER TO DECIDE THE HEAD OF INCOME. WE FIND THAT THIS ISSUE HAS BEEN SETTLED BY THE JUDGEMENT OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA), WHERE THE COURT HELD THAT IN ORDER TO DETERMINE THE HEAD OF INCOME, THE OVERALL FACTS AND CIRCUMSTA NCES OF THE CASE NEEDS TO 14 ITA 7474/MUM/2014 BE CONSIDERED INSTEAD OF CONSIDERING ONE ISOLATED I NSTANCE OF FREQUENCY OR VOLUME OF TRANSACTIONS. WE FURTHER NOTE THAT THE C O-ORDINATE BENCH OF ITAT, MUMBAI BENCH IN ASSESSEES BROTHERS CASE IN JAGRUT I GANDHI HAS CONSIDERED IDENTICAL ISSUE IN THE LIGHT OF DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA) AND HELD THAT THE PERIOD O F HOLDING, FREQUENCY OF TRANSACTIONS AND VOLUME ALONE WILL NOT DECIDE THE H EAD OF INCOME AND WHAT IS RELEVANT IS THE INTENTION OF THE ASSESSEE TO BUY AN D SELL SHARES. IN THIS CASE, THE ASSESSEE HAS MADE OUT A CASE WITH NECESSARY EVIDENC E THAT IT HAS ACQUIRED SHARES WITH AN INTENTION TO MAXIMISE ITS INVESTMENT S AND ACCORDINGLY DISCLOSED SUCH SHARES UNDER THE HEAD INVESTMENTS IN ITS FINAN CIAL STATEMENTS. THE ASSESSEE HAS ALSO PROVED THE FACT THAT NO BORROWED FUNDS HAVE BEEN USED FOR MAKING INVESTMENT. THEREFORE, WE ARE OF THE CONSID ERED VIEW THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOPAL PUROHIT (SUPRA) A ND ALSO ASSESSEES BROTHERS CASE IN THE CASE OF JAGRUTI P GANDHI. FURTHER, THI S IS SUPPORTED BY THE CIRCULAR ISSUED BY THE BOARD VIDE ITS CIRCULARS NO.4 OF 2007 AND 6 OF 2016 WHERE THE BOARD CLARIFIED THE POSITION OF ASSESSMENT OF INCOM E DERIVED FROM SHARE TRANSACTION ACTIVITY AND DIRECTED THE FIELD OFFICER S WITH CERTAIN GUIDELINES AS PER WHICH A TAXPAYER CAN HAVE TWO PORTFOLIOS. THE BOAR D FURTHER CLARIFIED THAT IN CASE OF LONG TERM CAPITAL GAIN, ONCE THE ASSESSEE W ISHED TO DECLARED INCOME 15 ITA 7474/MUM/2014 UNDER THE HEAD CAPITAL GAINS AND SUCH DECLARATION H AS BEEN ACCEPTED IN EARLIER YEARS, THE DEPARTMENT CANNOT DISTURB IN SUBSEQUENT YEARS UNLESS THERE IS CHANGE IN FACTS OR LAW. THE LD.CIT(A), AFTER CONSI DERING RELEVANT FACTS, HAS RIGHTLY DIRECTED THE AO TO ASSESS INCOME DERIVED FR OM SHARE TRANSACTION ACTIVITY UNDER THE HEAD CAPITAL GAINS AS DECLARED BY THE ASSESSEE. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AN D DISMISS APPEAL FILED BY THE REVENUE. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24-05-2019 . SD/- SD/- (SANDEEP GOSAIN) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 24 TH MAY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI