Spectra Shares & Scripts Pvt.Ltd., Hyderabad V. DCIT, Cir-3(2), Hyderabad

ITA 748/HYD/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53520 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARNEET SINGH SACHDEV
• Assessee Lawyers: DR M V R PRASAD
• Keywords: Business income; Depreciation; Principle of natural justice; Rule of consistency; Earning of tax free income; Application of stay; Difference of opinion; Assessment record; Right to appeal; Change of opinion
• Section: 143(3); 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.748/HYD/2011 : A SSESSMENT YEAR 2006-07 AND S.A.NO.50/HYD/2011 (IN ITA NO.748/HYD/2011) : AS SESSMENT YEAR 2006-07 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERABAD ( PAN - AABCV 4969 M ) V/S. DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(2), HYDERABAD (APPLICANT/APPELLANT) (RESPONDENT) APPELLANT/APPLICANT BY : DR. M.V.R.PRASAD RESPONDENT BY : SHRI PARNEET SINGH SACHDEV O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2006-07 IS DIRECTED AGAINST THE ORDER UNDER SECTION 263 OF THE INCOME-T AX ACT, 1961 DATED 31.3.2011, PASSED BY THE COMMISSIONER OF INCOME-TAX III, HYDERABAD. THE ASSESSEE ALSO FILED A STAY PETITION SEEKING THE STA Y OF OPERATION OF REVISION ORDER PASSED BY THE CIT. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE -COMPANY IS CARRYING ON BUSINESS OF DEALING IN SHARES AND MUTUAL FUND UNITS . ITS ANCILLARY BUSINESS IS RUNNING A FUNCTION HALL AT VIJAYAWADA, FROM WHICH I T DECLARED GROSS RECEIPTS OF RS.4,37,315 AND NET PROFIT AT RS.1,72,292. FOR THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS FILED RETURN OF INCOME ON 13.11.20 06, DECLARING A TOTAL LOSS OF RS.45,38,701. SCHEDULE-I OF THE RETURN OF INCOME, CONTAINING COMPUTATION OF INCOME FROM BUSINESS, SHOWED THE ASSESSEES NET PRO FIT FROM THE PROFIT AND LOSS ACCOUNT AT RS.21,95,18,260, AGAINST WHICH, IN ITEM NO.10 OF SCHEDULE-I, ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 2 2 ASSESSEE CLAIMED EXEMPT INCOME AT RS.22,17,11,512. THE DETAILS OF INCOME CLAIMED AS EXEMPT ARE AS UNDER- ___________________________________________________ __________ DIVIDEND INCOME FROM COMPANIES RS. 47,19,169 INCOME FROM MUTUAL FUNDS RS.2,71,85,732 RS. 3,19,04,901 LONG TERM CAPITAL GAINS RS.18,98,06,611 RS.22,17,11,512 3. THE BREAK-UP OF THE AMOUNT OF LONG TERM CAPITAL GAINS OF RS.18,98,06,611, NOTED ABOVE, IS FURNISHED IN ADJUSTED STATEMENT OF COMPUTATION OF TOTAL INCOME ENCLOSED TO THE RETURN OF INCOME, WHICH INDICATES L ONG TERM CAPITAL GAINS FROM SALE OF QUOTED SHARES AT RS.13,56,48,478 AND LONG TERM CAPITAL GAINS FROM THE SALE OF MUTUAL FUND UNITS AT RS. 5,41,58,133. ASS ESSMENT THEREAFTER WAS COMPLETED UNDER S.143(3) DETERMINING THE TOTAL INCO ME OF THE ASSESSEE AT RS.21,32,002, VIDE ORDER OF ASSESSMENT DATED 16.12 .2008. 4. THE COMMISSIONER OF INCOME-TAX ON PERUSAL OF TH E RECORDS OF THE ASSESSEE UP TO ASSESSMENT YEAR 2009-10, FOUND TH AT IN THE TAX AUDIT REPORT FOR THE ASSESSMENT YEAR 2004-05, IT WAS MENTIONED B Y THE AUDITORS, M/S. BRAHMAYYA & CO. THAT THE NATURE OF THE ASSESSEES BUSINESS WAS INVESTMENT/TRADING IN SHARES AND SECURITIES. THE TRIBUNAL ALSO FOR THAT YEAR IN ITS ORDER DATED 3.10.2008 IN ITA NO.477/HYD/2008, F OUND THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF INVESTMENTS AND TRADING IN SHARES AND SECURITIES. THE COMMISSIONER OF INCOME-TAX FURTHER NOTED FROM T HE STATEMENT OF GAIN/LOSS ON QUOTED SHARES FILED BY THE ASSESSEE BEFORE THE A SSESSING OFFICER ON 29.8.2008 THAT THE ASSESSEE HAD BEEN BUYING AND SEL LING A LARGE NUMBER OF SHARES SEVERAL TIMES DURING THE YEAR. HE NOTED THA T THE TOTAL NUMBER OF SHARES OF 53 LISTED COMPANIES AND UNITS OF 121 MUTUAL FUND S WERE SOLD DURING THE YEAR AT 1,01,23,003 AND NET SALE CONSIDERATION OF RS. 21,21,98,8822 WAS RECEIVED IN RESPECT OF MUTUAL FUND UNITS. THE COMMISSIONER OF INCOME-TAX FURTHER NOTICED THAT FOR THE OTHER ASSESSMENT YEARS ALSO THE ASSESSEE HAS BEEN ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 3 3 SYSTEMATICALLY DOING HUGE VOLUMES OF PURCHASE AND S ALES ON A REGULAR BASIS, WITH A TURNOVER OF RS.50 CRORES, IN ABOUT 100 LISTE D COMPANIES AND ABOUT 100 MUTUAL FUNDS. IN ADDITION TO THIS, THE ASSESSEE HA D ALSO DECLARED NET SHORT TERM CAPITAL GAINS FROM SALE OF UNITS OF DEBT FUNDS AT RS.3,81,297 AND GAIN FROM SALE OF UNQUOTED SHARES AT RS.43,65,508. THE COMM ISSIONER OF INCOME-TAX ALSO NOTED FROM THE 43 RD ANNUAL REPORT FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ON 25.3.2008 THAT THE COMPANY REP ORTED THAT DURING THE YEAR THE MARKET WAS UPBEAT AND THE COMPANYS INVESTMEN TS IN SHARES AND MUTUAL FUNDS HAVE YIELDED GOOD RESULTS. 5. ON EXAMINATION OF THE ABOVE INFORMATION AVAILABL E BEFORE THE ASSESSING OFFICER AND IN ASSESSMENT RECORDS, THE COMMISSIONER OF INCOME-TAX FOUND THAT THE ASSESSEE COMPANY HAS BEEN CARRYING ON THE BUSIN ESS IN SHARES. HE ALSO FOUND FROM THE BALANCE SHEET FOR THE FINANCIAL YEAR 2005-06 THAT THE ASSESSEE HAD SOLD 6100 SHARES OF ITC LIMITED AND CLAIMED THE INCOME EARNED THERE FROM AS EXEMPT ON THE GROUND THAT THE GAIN CONSTITUTED L ONG TERM CAPITAL GAINS, THOUGH THE SHARES WERE ACQUIRED AND SOLD IN THE SAM E YEAR. THE ASSESSING OFFICER, ACCORDING TO THE COMMISSIONER HAD NOT EXAM INED THE ISSUE IN DETAIL AND ERRONEOUSLY ACCEPTED THE CLAIM OF THE ASSESSEE AS L ONG TERM CAPITAL GAINS. THE COMMISSIONER OF INCOME-TAX THEREFORE WAS OF THE OPINION THAT THOUGH THE ASSESSEE HAS BEEN CARRYING ON TRADING IN SHARES AND UNITS EXTENSIVELY AND REGULARLY IN HUGE VOLUMES AN HIGH FREQUENCY, BUT OF FERED THE PROFIT GENERATED THERE FROM AS CAPITAL GAINS AND CLAIMED EXEMPTION F ROM TAX OF AN AMOUNT OF RS.22,17,11,512. ACCORDINGLY, HE ISSUED A SHOW CAU SE NOTICE UNDER S.263 DATED 20.1.2010, CALLING UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ACTIVITY OF THE ASSESSEE SHOULD NOT BE TREATED AS T RADING IN UNITS AND SHARES AND TAX ITS PROFITS AS BUSINESS INCOME, SINCE THE ASSES SMENT ORDER DATED 16.12.208 PASSED UNDER S.143(3) OF THE ACT ACCEPTING THE CLAI M OF THE ASSESSEE TREATING IT AS CAPITAL GAINS AND SHORT TERM CAPITAL GAINS, ACCO RDING TO THE COMMISSIONER OF INCOME-TAX, WAS ERRONEOUS AND PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. AFTER ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 4 4 DETAILED CONSIDERATION OF THE SUBMISSIONS OF THE AS SESSEE IN RESPONSE THERETO, THE COMMISSIONER OF INCOME-TAX ULTIMATELY ARRIVED A T THE FOLLOWING CONCLUSIONS- (I) THE SCALE OF ACTIVITY OF BUYING AND SELLING SHA RES, MUTUAL FUND UNITS, DEBT FUNDS, ETC. IS SUBSTANTIAL. THE ASSESSE E SOLD 10123003 SHARES OF 53 LISTED COMPANIES DURING THE YEAR FOR A NET SALE CONSIDERATION OF RS.23,31,25,764/-. SIMILARLY, 976 4511 UNITS OF 121 MUTUAL FUNDS WERE SOLD FOR A SALE CONSIDERATION OF RS.21,21,98,822/-. (II) THE ASSESSEE HAS CARRIED OUT DAY-TRADING. IT HAS PURCHASED AND SOLD 500 SHARES OF RELIANCE INDUSTRIES LIMITED ON 0 8.08.2005 I.E. ON THE SAME DAY WITHOUT TAKING DELIVERY, BY SQ UARING THE ACCOUNT. (III) THE ASSESSEE MADE PURCHASE AND SALE TRANSACTI ONS IN SHARES AND UNITS CONTINUOUSLY AND REGULARLY DURING THE ENTIRE YEAR AS PER THE DETAILS MENTIONED ABOVE. THE ASSESSEE MADE REPETITI VE PURCHASES AND SALES OF THE SAME SHARES DURING THE Y EAR. (IV) THE PURCHASE AND SALE OF SHARES AND UNITS IS I TS MAIN BUSINESS ACTIVITY WHILE RUNNING A MARRIAGE HALL AT VIJAYAWAD A WITH GROSS RECEIPTS OF RS.4,37,315/- IS ONLY ITS ANCILLARY ACT IVITY. (V) THE ONLY AND SOLE OBJECTIVE OF PURCHASE AND SAL E OF SHARES IS TO DERIVE PROFITS AND NOT TO EARN DIVIDEND THEREFROM. THE PROFIT EARNED FROM BUYING AND SELLING OF SHARES IS RS.19,1 8,77,121/- WHICH CONSTITUTED LONG TERM CAPITAL GAINS SHOWN AT RS.18,98,06,611/- AND SHORT TERM CAPITAL GAINS SHOW S AT RS.20,70,510/- WHILE ITS DIVIDEND INCOME FROM COMPA NIES IS ONLY RS.47,19,169/- I.E. THE RATIO BETWEEN DIVIDEND AND PROFITS IS 2:40. IT SHOWS THAT THE DIVIDEND INCOME WAS MEAGRE COMPARED TO PROFIT ON SALE OF SHARES. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 5 5 6. IN VIEW OF THE ABOVE FINDINGS, THE COMMISSIONER OF INCOME-TAX CONCLUDED THAT THE SHARES IN RESPECT OF WHICH THE ASSESSEE A DMITTED INCOME UNDER THE HEAD SHORT TERM AND LONG TERM CAPITAL GAINS, ARE S TOCK-IN-TRADE OF THE ASSESSEE AND NOT INVESTMENTS AS CLAIMED BY THE AS SESSEE AND THE ACTIVITY OF THE ASSESSEE IN BUYING AND SELLING SHARES IS NOTHIN G BUT ITS BUSINESS ACTIVITY AND CONSEQUENTLY THE SURPLUS THEREFROM REPRESENTED ITS BUSINESS PROFIT ACCORDINGLY, THE COMMISSIONER OF INCOME-TAX CONCLUD ED THAT THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD LONG TERM C APITAL GAINS AMOUNTING TO RS.18,98,06,611 AND SHORT TERM CAPITAL GAINS AMOUN TING TO RS.20,70,510 TOGETHER AMOUNTING TO RS.19,18,77,121 IS THE ASSESS EES INCOME FROM BUSINESS. WITH THESE FINDINGS, THE COMMISSIONER OF INCOME-TAX, VIDE ORDER UNDER S.263 DATED 31.3.2011, DIRECTED THE ASSESSING OFFICER TO REVISE THE ASSESSMENT ORDER PASSED UNDER S.143(3). 7. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF IN COME-TAX PASSED UNDER S.263 OF THE ACT, THE ASSESSEE PREFERRED THE PRESEN T APPEAL BEFORE US. 8. LEARNED COUNSEL FOR THE ASSESSEE, AFTER NARRATIN G THE FACTS OF THE CASE IN BRIEF SUBMITTED THAT INITIALLY A SHOW CAUSE NOTICE UNDER S.263 WAS ISSUED TO THE ASSESSEE ON 20.1.2010 TO WHICH THE ASSESSEE HAS FIL ED ITS REPLY ON 29.1.2010. AFTER A LONG PAUSE, THE SUCCESSOR COMMISSIONER OF I NCOME-TAX ISSUED AGAIN A SHOW CAUSE NOTICE UNDER S.263 OF THE ACT ON 21.2.20 11 PROPOSING REVISION ON ENTIRELY DIFFERENT GROUNDS. THIS ACT OF SUCCESSOR COMMISSIONER OF INCOME-TAX AMOUNTS TO STARTING FRESH LITIGATION ON NEW VIEWS W HICH IS AGAINST THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF SYRUP PAPER MILLS LTD. V. ITO & ANR. (114 ITR 404). HE FURTHER SUBMITTED THA T THE ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDER S.263 IS ON LY AN ALTERNATIVE METHOD OF ASSESSMENT BASED ON HIS OWN STUDY AND REAPPRAIS AL OF THE SAME RECORD, WHICH AMOUNTS TO MERE SUBSTITUTION FOR THE ASSESSME NT ORDER, TAKING A DIFFERENT AND AN ALTERNATIVE VIEW. SUCH A REVISION MADE BY THE COMMISSIONER IS NOT SUSTAINABLE IN LAW. HE FURTHER SUBMITTED THAT THE ASSESSMENT IN THIS CASE WAS MADE AFTER THE ASSESSEE SUBSTANTIATED ITS CLAIM FOR EXEMPTION IN RESPECT OF LONG ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 6 6 TERM CAPITAL GAINS AND SHORT TERM CAPITAL GAINS BEF ORE THE ASSESSING OFFICER, AND THE ASSESSEE HAS CLARIFIED BEFORE THE ASSESSING OFF ICER THAT THE INVESTMENTS WERE ALL SHOWN UNDER THE HEAD INVESTMENT IN THE B ALANCE SHEET AND AS SUCH THERE WAS NO TRADING ACTIVITY, AND IT IS ONLY AFTER CONSIDERING ALL THE SUBMISSIONS OF THE ASSESSEE AND THE EVIDENCE ON RECORD THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION AS TO THE NATURE OF THE ASSESSEES A CTIVITY. AS SUCH, THE ASSESSMENT ORDER CANNOT BE SAID TO BE ERRONEOUS EI THER IN LAW OR ON FACTS AND THE COMMISSIONER WAS NOT CORRECT IN OBSERVING THAT THE ASSESSING OFFICER HAS FAILED TO APPLY THE CBDT CIRCULAR NO.4/2007. HE AL SO SUBMITTED IN THIS BEHALF THAT NOT ONLY IN THIS YEAR, BUT EVEN IN OTHER YEARS EARLIER AS WELL AS SUBSEQUENT- ASSESSMENTS WERE MADE BY THE ASSESSING OFFICER UNDER S.143(3) OF THE ACT, ACCEPTING THE CLAIM OF THE ASSESSEE THA T THE ITS ACTIVITY CONSTITUTED ONE OF INVESTMENT ONLY. RELYING ON PLETHORA OF DE CISIONS, INCLUDING THE DECISIONS OF THE HONBLE SUPREME COURT IN MALABAR I NDUSTRIAL CO. LIMITED (243 ITR 83); AND CIT V/S. MAX INDIA LTD. (295 ITR 282), LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AS A SETTLED POSITION OF LAW THA T WHEN THE ASSESSING OFFICER HAS TAKEN A CERTAIN VIEW ON THE BASIS OF EVIDENCE B EFORE HIM, IN THE SHAPE OF ACCOUNTS AND INFORMATION FURNISHED BY THE ASSESSEE REGARDING THE EXTENT AND NATURE OF ITS ACIDITY IN RESPONSE TO ENQUIRIES MADE BY THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME-TAX CANNOT SEEK TO REVISE TH E ASSET UNDER S.263 OF THE ACT BY TAKING A DIFFERENT VIEW. LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT WHILE THE COMMISSIONER HAS NOT DISCUSSED OR REFERRE D TO ANY OF THE DECISIONS RELIED UPON BY THE ASSESSEE, THE DECISIONS RELIED U PON BY THE COMMISSIONER IN THE IMPUGNED ORDER UNDER S.263, INCLUDING THE ONE O F THE GUJARAT HIGH COURT IN CT V/S. MM KHAMBHATWALA (198 ITR 144); AND OF THE A PEX COURT IN THE CASE OF SRI MANJUNATHEWARA PACKING PRODUCTS & CAMPHOR WORKS (231 ITR 335), ARE CLEARLY DISTINGUISHABLE FROM THE FACTS OF THE PRESE NT CASE, INASMUCH AS IN THE PRESENT CASE IT IS NOT A MERE CHANGE OF OPINION ON THE PART OF THE COMMISSIONER, BUT IT IS A QUESTION OF FINDING OF FA CT AS REGARDS THE NATURE ASSESSEES ACTIVITY GIVEN BY THE ASSESSEE BASED ON THE EVIDENCE ON RECORD. HE FURTHER RELIED ON FOLLOWING JUDGEMENTS: ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 7 7 I. MALABAR INDUSTRIAL CO. LTD. V. CIT (243 ITR 83) (SC) II. CIT VS. MAX INDIA LTD. (295 ITR PAGE 282) (SC) III. CIT VS. GABRIEL INDIA PVT. LTD. (203 ITR 108) (BOM) IV. CIT VS. ARVIND JEWELLERS (290 ITR 689) (GUJ.) V. CIT VS. DEVELOPMENT CREDIT BANK LTD. (323 ITR 20 6) (BOM) VI. CIT VS. VIKAS POLYMERS (194 TAXMAN 57) (DEL.) VII. CIT VS. ANIL KUMAR SHARMA (194 TAXMAN 504) (DE L.) 9. ON MERITS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX HAS ERRED IN NOT CONSIDE RING ALL THE FACTS CUMULATIVELY, VIZ. (A) THE ASSESSEE HAS NOT BORROWE D ANY FUNDS AND MADE ALL THE INVESTMENTS WITH ITS OWN FUNDS; (B) THE CLOSING STOCK IS VALUED IN THE BOOKS OF ACCOUNTS CONSISTENTLY AT COST AND NOT AT COST OR MARKET PRICE WHICHEVER IS LOWER; (C) THE SHARE HOLDERS OF THE COMPANY ARE ALL FAMILY MEMBERS AND FIRST DEGREE RELATIVES; (D) THE INTENTION OF THE ASSESSEE TO INDULGE ONLY IN THE ACTIVITY OF INVESTMENT. THE COMMISSIONER ACCORDING TO THE LEARNED COUNSEL CONSIDERED EACH OF THE ABOVE FACTS AS ONLY GROUNDS OF THE ASSE SSEE. HE FURTHER SUBMITTED RELYING ON CATENA OF DECISIONS, INCLUDING THOSE OF APEX COURT, THAT NEITHER THE NUMBER OF TRANSACTIONS NOR THE FREQUENCY IN AN YEAR CARRIED ON BY THE ASSESSEE AS AN INVESTOR IN THE COURSE OF SHIFTING OF INVESTM ENTS DEPENDING ON THE MARKET CONDITIONS, IS INDICATIVE OF THE FACT OF TRADING. REFERRING TO THE PURCHASE AND SALE OF 500 SHARES OF RELIANCE INDUSTRIES LIMITED O N THE SAME DAY WITHOUT TAKING DELIVERY, WHICH HAS BEEN SPECIFICALLY NOTED BY THE COMMISSIONER OF INCOME-TAX IN SUPPORT OF HIS CONCLUSION AGAINST THE ASSESSEE, LEARNED COUNSEL SUBMITTED THAT THIS WAS A SOLITARY TRANSACTION WHIC H HAPPENED BY MISTAKE ON THE PART OF THE BROKER. HE SUBMITTED IN THIS BEHALF T HAT WHEN THIS WAS INFORMED OF THE PURCHASE OF SHARES OF RIL, IT IMMEDIATELY TOLD THE BROKER TO CANCEL THE TRANSACTION, WHICH WAS DONE ACCORDINGLY, EVEN THOUG H THIS RESULTED IN A LOSS OF RS.1,197. AS FOR THE AVAILING OF THE SERVICES OF M ULTIPLE NUMBER OF BROKERS BY THE ASSESSEE, HE SUBMITTED THAT THERE WAS NOTHING W RONG IF THE ASSESSEE HAD AVAILED THE SERVICES OF THREE LEADING BROKERS FOR T HE PURPOSE OF INVESTMENT IN ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 8 8 SHARES AND THAT FACT HAS NO BEARING ON THE NATURE O F ACTIVITY. HE CLARIFIED IN THIS BEHALF THAT WHILE MORE THAN 90% OF THE TRANSACTION S WERE CARRIED OUT BY AVAILING SERVICES OF ONE BROKER WHO HAS ONLY NSE TE RMINAL, THE TRANSACTIONS RELATING TO SHARES LISTED ONLY IN BSE WERE BEING DO NE WITH THE HELP OF THE OTHER TWO BROKERS. AS FOR THE PURCHASE OF 20,00,000 UNQU OTED SHARES OF M/S. HINDUSTAN COCA COLA BEVERAGES P. LTD. (HCCBL FOR SH ORT), LEARNED COUNSEL SUBMITTED THAT THAT TRANSACTIONS IN RELATION THAT SCRIP HAVE TAKEN PLACE IN SPECIAL CIRCUMSTANCES. ELABORATING IN THIS BEHALF, IT WAS S UBMITTED THAT THE ASSESSEE COMPANY AS ONE OF THE FRANCHISEES OF HCCBL , WHICH OFFERED ITS SHARES TO ITS FRANCHISEES IN 2003, AND IT WAS UNDERSTOOD THAT HCC BL WOULD GO PUBLIC. THE ASSESSEE COMPANY ACQUIRED THE SHARES IN QUESTION AS IT FELT THAT WHEN HCCBPL WOULD GO PUBLIC, THERE WOULD BE GOOD APPRECIATION I N SHARE VALUE. HOWEVER, AS THE HCCBPL DID NOT GO PUBLIC, THE ASSESSEE THOUGHT IT WISE TO SELL THE SHARES TO THE COMPANY ITSELF, WHICH AGREED TO TAKE. FROM THE SE EVENTS, IT WAS SUBMITTED THAT THE INTENTION OF THE ASSESSEE IN ACQUIRING THE SHARES OF HCCBPL WAS TO INVEST IN SHARES WITH THE HOPE OF FUTURE APPRECIATI ON WHEN THE SHARES ARE LISTED, AND AS SUCH IT WAS A CLEAR CASE OF INVESTMENT. THO UGH EVIDENCE IN THIS BEHALF, AS FURNISHED BEFORE THE ASSESSING OFFICER ON SPECIF IC QUERY FROM HIM, WAS ALSO AVAILABLE IN THE PAPER-BOOK, THE COMMISSIONER FAILE D TO NOTICE THIS INFORMATION ON RECORD. AS REGARDS ACQUISITION OF 6,95,000 SH ARES OF 1$ EACH OF THE ASSESSEES SUBSIDIARY COMPANY FORMED IN USA, IT IS SUBMITTED THAT IT IS A PURE INVESTMENT AS OBSERVED BY THE COMMISSIONER HIMSELF. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DISPUTED THE OBSERVATION OF THE COMMISSIONER THAT THE ASSESSEE HAS SOLD MORE THAN 1 CRORE SHARES IN THE Y EAR UNDER CONSIDERATION, AND SUBMITTED THAT THE TOTAL NUMBER OF SHARES SOLD WAS ONLY 10,23,003. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DISPUTED THE FINDINGS OF THE COMMISSIONER WITH REGARD TO ASSESSEES TRANSACTIONS OF BUYING AND SELLING ON THE SAME DAY OF SHARES OF ANDHRA SUGARS LIMITED, BY SUBMITTING THAT THE TRANSACTION DATES RECORDED IN THE DEMAT ACCOUNT WER E DIFFERENT FORM THE ACTUAL DATES OF TRANSACTION AND CONSEQUENTLY, THE DATES RE CORDED IN THE DEMAT ACCOUNT WOULD NOT REFLECT THE CORRECT DATE OF EXECU TION OF TRANSACTION. HE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 9 9 CLARIFIED IN THIS BEHALF THAT ALL THE SHARES PURCHA SED WERE TAKEN DELIVERY AND ALL THE SHARES SOLD WERE GIVEN DELIVERY AND SAME IS THE CASE WITH REGARD TO ALL OTHER SCRIP WHERE THERE WERE NO TRANSACTIONS ON THE SAME DATE. 10. AS FOR THE ASSESSEES TRANSACTIONS IN UNITS OF MUTUAL FUNDS, DISPUTING THE OBSERVATION OF THE COMMISSIONER THAT ASSESSEES ACT IVITY IN RELATION TO THE UNITS TOO CONSTITUTED TRADING ACTIVITY, THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS NO ROLE TO PLAY AFTER THE INV ESTMENTS ARE MADE IN MUTUAL FUNDS, AS THE INVESTMENTS IN MUTUAL FUNDS ARE MANAG ED BY SEPARATE FUND MANAGERS WHO TAKE DECISIONS ON MAKING INVESTMENTS. WHENEVER THE ASSESSEE WANTS TO WITHDRAW ANY AMOUNT, IT HAS TO ONLY GIVE A REQUEST TO THE FUND, AND THUS THE ASSESSEE HAS NO ROLE TO PLAY AS FAR AS THE INVESTMENTS IN MUTUAL FUNDS ARE CONCERNED, EXCEPT TIMING THE ENTRY AND EXIT FRO M THE FUND DEPENDING ON THE MARKET CONDITIONS AS A PRUDENT INVESTOR. 11. LEARNED COUNSEL FURTHER SUBMITTED THAT COMPARE D TO EARLIER YEAR, THE NUMBER OF PURCHASE AND SALE TRANSACTIONS IN THE YEA R UNDER APPEAL, MORE PARTICULARLY IN THE MONTH OF MARCH, WAS SIGNIFICANT LY LARGE AND THIS FACT APPEARS TO HAVE LED THE COMMISSIONER TO TAKE THE VIEW THAT THE ASSESSEE WAS INDULGING IN TRADING ACTIVITY. ELABORATING IN THIS BEHALF, H E SUBMITTED THAT THE FINANCE ACT, 2006 PROVIDED THAT THE LONG TERM CAPITAL GAINS SHAL L FORM PART OF INCOME LIABLE FOR MAT(MINIMUM ALTERNATE TAX) AND THIS PROVISION W AS MADE EFFECTIVE FROM 1.4.2006. HENCE, IN ORDER TO AVOID THE INCIDENCE O F MAT, THE ASSESSEE BOOKED LONG TERM CAPITAL GAINS ON ITS HOLDINGS BY SELLING THEM IN THE MONTH OF MARCH AND AGAIN PURCHASING BACK. THIS ASPECT BESIDES BEI NG A TAX PLANNING MEASURE IS ALSO INDICATIVE OF THE ASSESSEES POSITI ON AS AN INVESTOR. REPURCHASE OF SHARES AFTER BOOKING LONG TERM CAPITA L GAINS ALSO CLEARLY SHOWS THE ASSESSEES INTEREST ON HOLDING ON TO ITS INVESTMENT. 12. DISPUTING THE OBSERVATION OF THE COMMISSIONER T HAT IN EARLIER YEARS THE ASSESSEE WAS TREATED AS INVESTOR AND INVESTMENT ACT IVITY WAS ACCEPTED IS NOT RELEVANT AND PRINCIPLE OF RES JUDICATA DOES NOT APPLY, LEARNED COUNSEL FOR THE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 10 10 ASSESSEE SUBMITTED THAT THE ASSESSEES CASE IS NOT BASED ON THE PRINCIPLE OF RES JUDICATA BUT ON PRINCIPLES OF CONSISTENCY, WHICH WAS STRESS ED IN A NUMBER OF DECISIONS, INCLUDING THOSE OF BOMBAY HIGH COURT IN THE CASE OF CIT V/S. GOPAL PUROHIT ( IN INCOME-TAX APPEAL NO.1121 OF 2009 DATED 6 TH JANUARY, 2010); AND OF THE DELHI HIGH COURT IN CITV/S. ESCORTS LIMI TED (IN INCOME TAX APPEAL NO.14 OF 1999 DATED 1.2.2011), BESIDES THE BOMBAY H IGH COURT DECISION IN CIT V/S. DARIUS PANDOLE (330 ITR 485). IT IS SUBMITTE D IN THIS BEHALF THAT THE COMMISSIONER HAS FAILED TO CONSIDER THE RELEVANT FA CT THAT THE ASSESSEE CONSISTENTLY VALUED THE INVESTMENTS AT THE END OF E ACH YEAR AT COST PRICE AND NOT AT COST/MARKET PRICE WHICHEVER WAS LOWER, WHICH IS A VERY IMPORTANT FEATURE OF A TRADER. THIS ASPECT HAS BEEN HIGHLIGHTED IN A NUMBER OF DECISIONS LIKE FIDELITY NORTH STAR & OTHERS IN RE (2007) 288 ITR 6 41(AAR) AND ARA TRADING AND INVESTMENTS PVT. LTD. VS, DCIT (ITAT PUNE IN IT A NO.499/PN/2008 DATED 31.2009), BESIDES THE CIRCULAR OF THE BOARD, BEING CIRCULAR NO.4 OF 2007. HE DISPUTED THE OBSERVATIONS OF THE COMMISSIONER OF IN COME-TAX THAT THE VERY NAME OF THE ASSESSEE-COMPANY AS ALSO ITS MEMORANDUM OF AND ARTICLES OF ASSOCIATION ARE INDICATIVE OF THE NATURE OF ACTIVIT Y OF THE ASSESSEE BEING BUSINESS AND TRADING IN SHARES, AND SUBMITTED THAT THESE OBSERVATIONS ARE IRRELEVANT AND ONE HAS TO LOOK INTO WHAT WAS DONE B Y THE ASSESSEE AND NOT WHAT COULD HAVE BEEN DONE. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT DIVIDEND INCOME OF THE ASSESSEE IS THE OUTCOME OF INVESTMENT AND DEPENDS UPON THE BUSINESS RESULTS OF THE COMPANIES CONCERNED AND IT HAS NOTHING TO DO WITH THE ACTIVITY OF AN INVESTOR IN A CQUIRING THE SHARES WITH A VIEW TO MAKE GAINS ON APPRECIATION OF VALUE OF THE SHARE S AND THEREBY ACCRETION TO WEALTH, AND THEREFORE, THE OBSERVATIONS OF THE COMM ISSIONER BASED ON THE RATIO OF DIVIDEND TO CAPITAL GAINS ARE MISPLACED AND NOT RELEVANT FOR THE PURPOSE OF DETERMINING THE NATURE OF ACTIVITY OF THE ASSESSEE. WHILE THE COMMISSIONER DREW AN ADVERSE INFERENCE AGAINST THE ASSESSEE FROM THE FACT THAT THE ASSESSEE DID NOT BORROW FUNDS FROM OUTSIDE FOR THE PURPOSE O F ITS ACTIVITY, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS IN FACT INDICA TES THAT THE ACTIVITY OF THE ASSESSEE IS ONE OF INVESTMENT AND NOT BUSINESS. IN THIS BEHALF HE REFERRED TO ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 11 11 AND RELIED ON A PLETHORA OF DECISIONS, NUMBERING AS MANY AS 18, INCLUDING THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V/S. SMK SHARES & STOCK BROKING PVT. LTD., MUMBAI IN ITA NO. 799/MUM/2009 FOR ASSESSMENT YEAR 2005-06 DATED 24.11.2010 AND THE DE CISION OF THE PUNE B BENCH OF THE TRIBUNAL IN THE CASE OF ARA TRADING & INVESTMENTS PVT. LTD. IN I.T.A. NOS. 499 & 500/PN/2008 DATED 31 ST AUGUST, 2009. 13. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO E LABORATELY ARGUED DISTINGUISHING THE CASE-LAW REFERRED TO AND RELIED UPON BY THE COMMISSIONER IN HIS ORDER UNDER S.263 OF THE ACT AND SUBMITTED THAT , THE ASSESSEE HAS ONLY REPLENISHED THE STOCK AFTER BOOKING THE LONG TERM C APITAL GAINS WHICH IS INDICATIVE OF ITS POSITION AS AN INVESTOR. HE SUBM ITTED THAT THE ASSESSEE HAS HELD ON TO ITS INVESTMENTS THROUGH ALL THE FLUCTUAT IONS OF THE STOCK MARKET, AND BEING A CORPORATE INVESTOR, NATURALLY THE NUMBER, V OLUME AND FREQUENCY OF TRANSACTIONS IS HIGH, WHICH INDICATES THE CARE AND WATCHFULNESS OF THE ASSESSEE COMPANY. HE SUBMITTED THAT THE SAME POSITION HOLDS GOOD EVEN IN THE ASSESSEE OF MANY FIIS AND PORTFOLIO MANAGEMENT SCH EMES AND THEREFORE, SIMPLY BECAUSE OF THE MAGNITUDE OF THE TRANSACTIONS , THE ASSESSEE DOES NOT CEASE TO BE AN INVESTOR. RECAPITULATING THE BACKGR OUND OF THE ASSESSEE COMPANY, WHICH WAS FLOATED IN 1963, IT WAS STATED T HAT IT WAS A FRANCHISEE OF COCA COLA COMPANY AND WAS IN BOTTLING BUSINESS UP T O DECEMBER, 1997 WHEN COCA COLA COMPANY TOOK OVER THE BUSINESS AS A GOING CONCERN, IT PAID SUBSTANTIAL AMOUNT BY WAY OF SLUMP PRICE AND WITH T HAT FUND, THE ASSESSEE COMPANY ENTERED THE STOCK MARKET AS AN INVESTOR. BE ING A FAMILY CONCERN, IT IS SUBMITTED, THE ASSESSEE COMPANY IS CONSERVATIVE AND CAUTIOUS AND IS INTERESTED IN THE SAFETY OF ITS CAPITAL AND WEALTH CREATION, AND IT HAS NEVER TAKEN THE RISKY PLUNGE INTO THE WATERS OF SHARE TRADING. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.477/HYD/2008, AND RELYING ON THE CONCLUSION OF T HE TRIBUNAL FOR THAT YEAR THAT ASSESSEE WAS ONLY AN INVESTOR AND NOT A TRADER , IT IS SUBMITTED THAT THERE IS NO SUBSTANTIAL VARIATION BETWEEN THE FACTS OF THAT YEAR AND THE FACTS OF THE YEAR ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 12 12 UNDER APPEAL, BUT FOR THE BOOKING OF SUBSTANTIAL CA PITAL GAINS IN THE YEAR UNDER APPEAL, MORE PARTICULARLY IN THE MONTH OF MARCH, WH ICH TOO ACCRUED OVER A NUMBER OF YEARS, AND THIS IS ALSO DUE TO THE IMPACT OF THE PROVISO OF S.10(38). IN THIS VIEW OF THE MATTER, IT IS PLEADED THAT FOR THE YEAR UNDER APPEAL ALSO, ASSESSEE SHOULD BE TREATED ONLY AS AN INVESTOR AND ACTIVITY SHOULD NOT BE TREATED AS BUSINESS. THE LEARNED COUNSEL FOR TH E ASSESSEE RELIED ON THE FOLLOWING CASE-LAW: I. CIT VS. MAX INDIA LTD. (268 ITR 128) (P&H). II. CIT V. MEHSANA DISTRICT CO-OPERATIVE MILK PRODU CERS UNION LIMITED (263 ITR 645) (GUJ.) III. CIT V. SIMON CARVES LTD. (105 ITR 212) (SC). IV. PIEM HOTELS LTD. VS. DCIT (ITA NO. 523/MUM/2009 DT. 13.8.2010). V. HINDUSTAN SHIPYARD LTD. VS. DCIT (130 TTJ (VISAK HA) (UO) 76) IN ITA NOS. 295 & 296/VIZAG/2005 DATED 2.3.2010. VI. SIRPUR PAPER MILLS LTD. V. ITO (1978) (114 ITR 404/407) (AP). VII. CIT VS. GOPAL PUROHIT (2010) (228 CTR 582) VIII. CIT VS. DARIUS PANDOLE (330 ITR 485 (BOM). IX. FIDELITY NORTH STAR & OTHERS IN RE (2007) 288 I TR 641 (AAR). X. ARA TRADING & INVESTMENTS PVT. LTD. VS. DCIT (IT AT PUNE) IN I.T.A. NOS. 499 & 500/PN/2008 DATED 31.8.2009. XI. DCIT VS. SMK SHARES & STOCK BROKING PVT. LTD. , MUMBAI (ITA NO. 799/MUM/2009 DATED 24.11.2010) XII. CIT VS. ESCORTS LTD. (ITA NO. 14 OF 1999 (DELH I) DATED 1.2.2011. XIII. RAJIV AGNIHOTRI VS. CIT (ITAT DELHI) ITA NO. 1253/DEL/2006 XIV. SHRI CHIMANLAL C. SHAH V. ACIT (ITAT MUMBAI) I TA NO. 185/MUM/2008 ORDER DATED 17.2.2010. XV. ITO VS. RADHA BIRJU PATEL (ITA NO. 5382/MUM/200 9 ORDER DATED 30.11.2010). XVI. NAGINDAS P. SHETH (HUF) VS. ACIT 21(3) (ITAT M UMBAI) ITA NO. 961/MUM/2010 DATED 5 TH APRIL, 2011. XVII. ACIT VS. NAISHADH V. VACHHARAJANI (ITAT MUMBA I) ITA NO. 6429/MUM/2009 DATED 25.2.2011. XVIII. SHRI RAMESH BABU RAO, MUMBAI VS. ACIT 17, MU MBAI (ITAT MUMBAI) ITA NO. 3719/MUM/2009 DATED 13THAPRIL,2011. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 13 13 XIX. SHRI SUNIL G. KHANDELWAL, MUMBAI VS. ITO MUMBA I (ITAT MUMBAI) ITA NO. 2768/MUM/2009 DATED 3.3.2010. XX. SARNATH INFRASTRUCTURE (P) LTD. VS. ACIT, (ITAT LUCKNOW) ITA NO. 301/LUCK/2006 DT. 20.12.2007. XXI. BHARAT KUNVERJI KENIA VS. ADDL. CIT (ITAT MUMB AI) ITA NO. 6544/MUM/2008 DT. 15.5.2009. XXII. PARESH D. SHAH VS. JOINT CIT (ITAT MUMBAI) IT A NO. 2232/MUM/2009 DT. 14.1.2010. XXIII. MANAGEMENT STRUCTURE & SYSTEMS (P) LTD. V. I TO 6(3)(2) ITAT MUMBAI ITA NO. 6966/MUM/2007 DT. 30.4.2010. 14. THE LEARNED DR SUBMITTED THAT IN ORDER TO APPRE CIATE THE NATURE OF ACTIVITY OF THE ASSESSEE IT IS NECESSARY TO ANALYSE THE TRANSAC TIONS CARRIED OUT BY THE ASSESSEE DURING THE YEAR. THE ASSESSEE HAS BEEN BU YING AND SELLING SHARES AND UNITS OF MUTUAL FUNDS THROUGHOUT THE YEAR THROU GH AN ORGANISED FULL TIME AND DAY-TO-DAY ACTIVITY. A STATEMENT OF SALE OF SH ARES OF 82 LISTED COMPANIES FURNISHED BY THE ASSESSEE SHOWS THE NUMBER OF SHARE S AND UNITS SOLD AT 10787514. SIMILARLY, THE UNITS SOLD OF 121 MUTUAL FUNDS WERE 9764511. AT LEAST EQUAL NUMBER OF SHARES AND UNITS HAVE BEEN PURCHASE D DURING THE YEAR. THESE DETAILS ARE ENUMERATED IN TABULAR FORM ON PAGE 7 OF THE CIT ORDER U/S. 263 OF THE ACT. THE ASSESSEE-COMPANY HAS PURCHASED AND SO LD 500 SHARES OF RELIANCE INDUSTRIES LIMITED ON 8.8.2005 I.E., ON TH E SAME DAY WITHOUT TAKING DELIVERY, BY SQUARING THE ACCOUNT. THIS IS A DAY T RADING TRANSACTION. THE ASSESSEE HAD AVAILED THE SERVICES OF THREE LEADING STOCK BROKERS FOR ITS TRADING ACTIVITY VIZ., SL. NO. NAME OF THE COMPANY PURCHASE & SALES (RS.) 1. M/S. EXCEL FINCAP PVT. LTD. 36,62,25,492 2. STANDARD CHARTERED SECURITIES 1,60,86,428 3. UTI SECURITIES 1,40,00,000 15. THE LEARNED DR FURTHER SUBMITTED THAT THE ABOVE TURNOVER COVERS ONLY PART OF THE YEAR. THE ASSESSEE HAS SOLD 2,00,000 UNQUOT ED SHARES OF M/S. HINDUSTAN COCA COLA BEVERAGES PVT. LTD. AND RECEIVE D RS. 2,66,08,493. THE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 14 14 ASSESSEE HAS INVESTED IN 6,95,000 SHARES OF 1 DOLLA R EACH OF ITS SUBSIDIARY COMPANY FORMED IN USA VIZ., VIJAYA FINVEST INC. AMO UNTING TO RS. 3,36,72,409. THE ASSESSEE HAS ALSO PURCHASED AND SOLD SHARES OF ANDHRA SUGARS LTD., THE DETAILS OF WHICH ARE GIVEN IN PARA 5.3.1 OF THE CIT ORDER. A CAREFUL ANALYSIS OF THE STATEMENT SHOWS THAT THE ASSESSEE IS BUYING AND SELLING SHARES IN THE SAME YEAR VERY FREQUENTLY. FOR EXAMPLE ON 31.1.2006 THE ASSESSEE BOUGHT 15500 SHARES AND SOLD 1500 SHARES ON THE SAME DAY. SIMIL ARLY ON 1.2.2006 THE ASSESSEE BOUGHT 1000 SHARES AND SOLD THE SAME ON TH E NEXT DAY. THE ASSESSEE BOUGHT 20000 SHARES ON 3.2.2006 AND SOLD 2 000 SHARES ON THE SAME DAY, 2000 ON THE NEXT DAY AND 10,000 SHARES ON THE FIFTH DAY. SIMILARLY THERE WAS SALE OF 20000 SHARES ON 1.3.2006 AND 20000 SHAR ES PURCHASED ON 8.3.2006. THERE WAS A SALE OF 13000 SHARES ON 9.3. 2006, THE NEXT DAY AND PURCHASE OF 11000 SHARES THE VERY NEXT DAY. SUCH C ORRELATION OF BUYING AND SELLING DAY AFTER DAY CAN BE SEEN FROM THE ABOVE TA BLE OF HUGE NUMBER OF SHARES OF THE SAME SCRIP. SIMILAR PATTERN WAS FOUN D ON ANALYSIS OF PURCHASE AND SALE OF SEVERAL OTHER SCRIPTS WHICH ARE NOT REP RODUCED HERE FOR BREVITY. 16. A SAMPLE STUDY OF THE SHARES PURCHASED AND SOLD IN APRIL, 2005 AND FEBRUARY, 2006 WAS DONE AS FURNISHED BY THE ASSESSE E. THE DATA SHOWS THAT DURING APRIL, 2005, THE ASSESSEE PURCHASED 64476 SH ARES OF 28 LISTED COMPANIES FOR RS. 1,39,82,193 AND IN THE SAME MONTH SOLD 29910 SHARES FOR RS. 33,80,617. SIMILARLY DURING THE MONTH OF FEBRU ARY, 2006, THE ASSESSEE PURCHASED 56769 SHARES OF 45 COMPANIES FOR RS. 1,01 ,40,444 AND SOLD DURING THE SAME MONTH 118806 SHARES FOR RS. 3,14,16,760. THIS DATA SHOWS THAT EACH MONTH THE ASSESSEE IS BUYING AND SELLING OVER 60,00 0 SHARES OF OVER RS. 3 CRORES. IN ORDER TO SEE THE TREND OF PURCHASES AND SALES MADE ON A SINGLE DAY THE DATA OF TWO DATES WAS COMPILED AND LISTED IN PA RA 5.5.1 OF THE CIT ORDER. 17. THE LEARNED DR FURTHER SUBMITTED THAT THE ASS ESSEE-COMPANY HAS CARRIED OUT SUBSTANTIAL ACTIVITY OF PURCHASE AND SALE OF UNITS OF MUTUAL FUNDS. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 15 15 DURING THE YEAR, IT HAS SOLD UNITS OF 121 MUTUAL FU NDS. THE DETAILS OF UNITS SOLD DURING THE YEAR ARE AS UNDER: SL. NO. DETAILS AMOUNT (RS.) (I) NO. OF MUTUAL FUNDS TRADED IN 121 (II) NO. OF UNITS SOLD 9704511 (III) NET SALE CONSIDERATION RECEIVED RS. 21,21,98,996 (IV) LONG TERM CAPITAL GAINS CLAIMED RS. 5,41,58,133 (V) SHORT TERM CAPITAL GAINS CLAIMED RS. 8,27,498 (VI) SHORT TERM GAIN IN DEBT FUNDS RS. 3,81,297 18. THE LEARNED DR SUBMITTED THAT THE ASSESSEE-COMP ANY HAD REPEATEDLY PURCHASED AND SOLD MUTUAL FUND UNITS OF THE SAME FU ND THROUGHOUT THE YEAR. FEW INSTANCES OF REPETITIVE PURCHASE AND SALE OF UN ITS ARE AS UNDER: DATE PARTICULARS NO. OF MF UNITS SOLD/PURCHASED 8.3.2006 FRANKLIN INDIA PRIMA FUND 26011 9030 10.3.2006 FRANKLIN INDIA PRIMA FUND 22116 52734 35659 10.3.2006 TATA EQUITIES OPPORTUNITIES FUND 33814 97252 65221 3.10.2003 FRANKLIN INDIA PRIMA FUND 19586 20000 20000 19. THE LEARNED DR SUBMITTED THAT ON 27.03.2006, TH E ASSESSEE PURCHASED THROUGH ONE BROKER 23400 SHARES AND SOLD 28607 SHAR ES. SIMILARLY ON 28.3.2006, IT BROUGHT 43340 SHARES OF 17 COMPANIES AND SOLD 4750 SHARES OF FOUR COMPANIES. PER DAY MORE THAN 50 TRADE ORDERS ARE EXECUTED ON THE STOCK EXCHANGES COVERING PURCHASES AND SALES. A STUDY OF THE ABOVE DATA REVEALS THAT THE ASSESSEE HAS BEEN REGULARLY BUYING AND SEL LING SHARES AND MUTUAL FUND UNITS THOUGH VERY HIGH VOLUME OF TRANSACTIONS THROU GHOUT THE YEAR. THE FACT THAT THE ASSESSEE-COMPANY IS DOING BUYING AND SELLING OF SHARES ON DAY TO DAY ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 16 16 BASIS SHOWS THAT IT IS MONITORING THE STOCK MARKETS AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT F ROM THESE TRANSACTIONS. THE ASSESSEES EARNING DIVIDEND INCOME IS INCIDENTAL TO THE TRADING ACTIVITY AS STOCKS HELD BY IT THROUGH ROLLING AT ANY GIVEN POIN T OF TIME IS SO HUGE THAT ON THE RECORD DATES THE ASSESSEE HAS BEEN ABLE TO RECEIVE DIVIDEND INCOME ALSO. THE ACTIVITY OF BUYING AND SELLING SHARES IN A SYSTEMAT IC AND REGULAR MANNER WITH HIGH FREQUENCY AND VOLUMES, REPETITIVE PURCHASES AN D SALES OF THE SAME SCRIP AS SHOWN ABOVE SHOWS TRADING IN SHARES TO EARN PROF IT. SUCH AN ACTIVITY TO BE CONSIDERED AS BUSINESS AND PROFIT TO BE TAXED AS BU SINESS PROFIT. FOR THIS PURPOSE HE RELIED ON THE ORDER OF THE TRIBUNAL, MU MBAI BENCH, IN THE CASE OF WALL FORT FINANCIAL SERVICES LTD. VS. ADDL. CIT [(2 010) 134 TTJ 656]. FURTHER IN THE CASE OF SHRI PRATIK S. SHAH IN ITA NO. 883/MUM/ 2010 DT. 31.12.2010, ITAT MUMBAI BENCH WHERE THE ASSESSEE WAS DEALING IN SHAR ES AS AN ORGANISED ACTIVITY WITH HIGH VOLUME AND FREQUENCY, IT WAS HEL D TO BE CARRYING ON BUSINESS AND NOT INVESTMENT. 20. THE LEARNED DR FURTHER SUBMITTED THAT THE ASSES SEES CONTENTION THAT ITS CLAIM OF INVESTMENT ACTIVITY AND EXEMPTION OF ITS I NCOME AS CAPITAL GAIN WAS ACCEPTED IN EARLIER YEARS CANNOT BE CHANGED IN A SU BSEQUENT YEAR ON THE BASIS OF PRINCIPLE OF CONSISTENCY, IS NOT TENABLE BECAUSE ON PROPER ENQUIRY, THE TAX AUTHORITY IS ENTITLED TO DRAW A DIFFERENT CONCLUSIO N IN A DIFFERENT ASSESSMENT YEAR AS HAS BEEN DONE IN THIS CASE NOW. THE PRINCIPLE O F RES JUDICATA IS NOT APPLICABLE TO THE INCOME-TAX PROCEEDINGS. SURPLUS IN THE SALE OF SHARES WHERE REPEATED PURCHASES AND SALES ARE DONE IN THE SHARES IS HELD TO BE BUSINESS INCOME. FOR THIS PURPOSE HE RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF SRI UPENDRA P. DADIA IN I.T.A. NO. 485/MUM/09 DATED 18.2.2011. HE SUBMITTED THAT THE ASSESSEE HAD BEEN CONSISTENTLY INVESTING I N SHARES AND ROTATING THE FUNDS AGAIN AND AGAIN IN VARIOUS SCRIPS TO MAKE PRO FIT WITH AN INTENTION TO MAKE PROFIT IN THE SHARE MARKET AND IT HAS TO BE HELD CA RRYING ON BUSINESS ACTIVITY. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 17 17 21. THE DR FURTHER CONTENDED THAT THE ASSESSEES C ONTENTION THAT IT HAD SHOWN THE VALUE OF THE STOCKS AS INVESTMENTS IN IT BOOKS OF ACCOUNT AND NOT AS STOCK-IN-TRADE COULD GIVEN AN INDICATION OF ITS NAT URE BUT IT IS NOT CONCLUSIVE FACT TO SHOW THE INTENTION OF THE TRANSACTIONS. IN FACT , THE HONBLE A.P. HIGH COURT IN THE CASE OF CIT V. JD ITALIA (141 ITR 953) AND EVEN THE HONBLE SUPREME COURT IN THE CASE OF CIT V. BAZPUR CO. OPERATIVE SUGAR FA CTORY LTD. (172 ITR 330) HAS HELD THAT THE NAME OR LABEL GIVEN BY A PARTY TO A PARTICULAR AMOUNT IN ITS BOOKS OF ACCOUNT IS NOT CONCLUSIVE. THE HONBLE SU PREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. V. CI T (227 ITR 172) HELD THAT THE ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT THE DETERMI NING FACTOR REGARDING THE REAL NATURE OF TRANSACTION. THUS, THE ASSESSEES CONTEN TION THAT THE CLOSING STOCK WAS SHOWN AS INVESTMENT IN ITS BALANCE SHEET ARE HE LD TO BE CLOSING STOCK OF ITS BUSINESS AND NOT INVESTMENTS. 22. THE LEARNED DR FURTHER SUBMITTED THAT MERELY B ECAUSE BORROWED FUNDS WERE NOT USED IS NOT A CONCLUSIVE FACT IN UNDERSTAN DING THE TRUE NATURE OF TRANSACTIONS. ONE CAN DO BUSINESS WITH MORE EASE A ND HIGH PROFITS WITH OWN FUNDS. THAT IS NO CONCLUSIVE FACT TO SAY THAT IT W AS NOT DOING TRADING IN SHARES. SIMILARLY, THE FACT THAT A LARGE PART OF THE PROFIT WAS BECAUSE OF SOME SHARES SOLD AFTER SIX MONTHS OR ONE YEAR, IS ALSO NOT CONC LUSIVE AS TO THE INTENTION OF THE TRANSACTIONS. WHAT IS PERTINENT IS TO SEE AS T O HOW THE ASSESSEE IS REPEATEDLY BUYING AND SELLING SHARES OF THE SAME SC RIP AND TAKING ADVANTAGE OF THE DIPS AND HIGHS OF THE STOCK MARKET TO MAKE HIGH PROFITS, AS IS BEING DONE BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE THAT IT HAS PASSED A RESOLUTION IN THE BOARD OF DIRECTORS MEETING AUTHORISING THE DIR ECTORS TO MAKE INVESTMENTS AND THAT IT SHOWS THE INTENTION OF THE COMPANY TO M AKE INVESTMENT AND NOT TRADING CANNOT COME TO THE RESCUE OF THE ASSESSEE AS ALL THE DIRECTORS ARE FROM THE SAME FAMILY AND FIRST DEGREE RELATIVES AND THAT THERE IS NOT A SINGLE OUTSIDER ON THE BOARD OF DIRECTORS. THE ASSESSEE I S A CLOSELY HELD COMPANY WITH THE FAMILY MEMBERS OF THE CHAIRMAN RUNNING THE BUSINESS. SUCH BOARD ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 18 18 RESOLUTIONS OF CLOSELY HELD COMPANIES ARE INTENDED TO COVER UP ITS TRUE ACTIVITIES VIZ., TRADING IN SHARES. 23. THE LEARNED DR SUBMITTED THAT MERE FACT THAT TH E SHARES HAVE BEEN TREATED AS INVESTMENTS IN THE ACCOUNTS FROM THE VERY BEGINN ING AND THAT THE INVESTMENTS HAVE BEEN VALUED AT THE PURCHASE PRICE AND NOT MARKET PRICE OR COST PRICE WHICHEVER IS LOWER, DOES NOT IN ANYWAY H ELP THE CASE OF THE ASSESSEE. HAD IT BEEN THE SOLE INTENTION OF INVEST MENTS, THERE SHOULD NOT HAVE BEEN MUCH ADMINISTRATIVE SET UP WITH CONSIDERABLE A DMINISTRATIVE EXPENDITURE. THE INNUMERABLE PURCHASE AND SALE TRANSACTIONS MADE BY THE ASSESSEE ARE CLEARLY COVERED BY THE SITUATIONS CONTEMPLATED IN B OARDS CIRCULAR NO. 4/2007 DT. 25.06.2007 AND THE TESTS LAID DOWN IN THE HONB LE APEX COURTS DECISION IN THE CASE OF G. VENKATASWAMI NAIDU AND CO. [35 ITR 5 49 (SC)]. THE VERY NAME OF THE ASSESSEE COMPANY I.E., SPECTRA SHARES & SCRI PS PVT. LTD., IS CLEARLY INDICATIVE OF ITS BUSINESS ACTIVITY OF DEALING IN S HARES AND SCRIPS. THE ANNUAL REPORT FOR THE YEAR 2005-06 SHOWS THE INCOME OF THE COMPANY IN THE P & L ACCOUNT WHICH IS DRAWN ONLY FOR AN ENTITY CARRYING ON BUSINESS. IT ALSO SHOWS THE NET PROFIT BEFORE DEPRECIATION. THE DIRECTORS REPORT FOR THE YEAR 2005-06 STATES THAT DURING THE YEAR THE MARKET WAS UPBEAT A ND THE DIRECTORS WERE HOPEFUL OF GOOD RESULTS. 24. HE SUBMITTED THAT THE ASSESSEES CONTENTION THA T IT IS AN NBFC AND OBTAINED RBI PERMISSION FOR MAKING INVESTMENTS CANN OT BE A SHIELD FROM TAXING ITS PROFITS IN TRADING OF SHARES AND MUTUAL FUND UN ITS. WHAT IS MOST RELEVANT IN THIS REGARD IS THE REAL BUSINESS ACTIVITY UNDERTAKE N BY THE COMPANY RATHER THAN THE CATEGORY TO WHICH IT BELONGS VIZ., NBFC OR NOT. THE INCOME TAX AUTHORITY HAS THE POWER TO LIFT THE VEIL AND FIND THE TRUE NA TURE OF THE BUSINESS OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE HAS BEEN DOIN G TRADING IN SHARES AND UNITS AS SHOWN ABOVE AND NOT INVESTMENTS OR FINANCI NG OF OTHER BUSINESS ENTERPRISES. ON THE FACTS OF THE CASE, THE RATIO L AID DOWN BY THE SUPREME COURT IN THE CASE OF MCDOWELL & CO. LTD. (154 ITR 148) IS SQUARELY APPLICABLE AS THE ASSESSEE IS TRYING TO TAKE SHELTER OF ITS BEING AN NBFC TO CAMOUFLAGE ITS TRADING ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 19 19 ACTIVITY IN SHARES AND UNITS OF MUTUAL FUNDS. IN T HE MEMORANDUM OF ARTICLES OF ASSOCIATION OF THE COMPANY ONE OF THE OBJECTS CLAUS E STATES THAT: THE COMPANY WILL RAISE FUNDS TO ACQUIRE OR HOLD, S ELL, BUY OR OTHERWISE DEAL IN SHARES, DEBENTURES, BOND UNITS, O BLIGATIONS AND OTHER SECURITIES. 25. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS BEEN PRECISELY DOING BUYING AND SELLING OF SHARES, MUTUAL FUND UNITS, DE BT FUNDS, UNLISTED COMPANY SHARES, ETC. THESE ARE ALL REFLECTIVE OF THE ASSES SEES CLEAR BUSINESS ACTIVITY AND NOT INVESTMENT ACTIVITY. ON THE BASIS OF THE A BOVE FACTS AND ANALYSIS, HE SUBMITTED THAT THE FOLLOWING CONCLUSIONS ARE TO BE DRAWN: (A) THE SCALE OF ACTIVITY OF BUYING AND SELLING SHA RES, MUTUAL FUND UNITS, DEBT FUNDS, ETC., IS SUBSTANTIAL. THE ASSESSEE SOLD 101 23003 SHARES OF 53 LISTED COMPANIES DURING THE YEAR FOR A NET SALE CON SIDERATION OF RS. 23,31,25,764. SIMILARLY, 9764511 UNITS OF 121 MUTU AL FUNDS WERE SOLD FOR A SALE CONSIDERATION OF RS. 21,21,98,822. (B) THE ASSESSEE HAS CARRIED OUT DAY-TRADING. IT H AS PURCHASED AND SOLD 500 SHARES OF RELIANCE INDUSTRIES LTD., ON 8.8.2005 I.E., ON THE SAME DAY WITHOUT TAKING DELIVERY, BY SQUARING THE ACCOUNT. (C) THE ASSESSEE MADE PURCHASES AND SALE TRANSACTIO NS IN SHARES AND UNITS CONTINUOUSLY AND REGULARLY DURING THE ENTIRE YEAR A S PER THE DETAILS MENTIONED ABOVE. THE ASSESSEE MADE REPETITIVE PURC HASES AND SALES OF THE SAME SHARES DURING THE YEAR. (D) THE PURCHASE AND SALE OF SHARES AND UNITS IS IT S MAIN BUSINESS ACTIVITY WHILE RUNNING A MARRIAGE HALL AT VIJAYAWADA WITH GR OSS RECEIPTS OF RS. 4,37,315 IS ONLY ITS ANCILLARY ACTIVITY. (E) THE ONLY AND SOLE OBJECTIVE OF PURCHASE AND SAL E OF SHARES IS TO DERIVE PROFITS AND NOT TO EARN DIVIDEND THERE FROM. THE P ROFIT EARNED FROM BUYING AND SELLING OF SHARES IS RS. 19,18,77,121 WH ICH CONSTITUTED LONG TERM CAPITAL GAIN SHOWN AT RS. 18,98,06,611 AND SHO RT TERM CAPITAL GAINS SHOWN AT RS. 20,70,510 WHILE ITS DIVIDEND INCOME FR OM COMPANIES IS ONLY RS. 47,19,169 I.E., THE RATIO BETWEEN DIVIDEND AND PROFITS IS 2:40. IT SHOWS THAT THE DIVIDEND INCOME WAS MEAGRE COMPARED TO PROFIT ON SALE OF SHARES. 26. THE LEARNED DR SUBMITTED THAT IN VIEW OF THE AF ORESAID DISCUSSION, THE SHARES IN RESPECT OF WHICH THE ASSESSEE ADMITTED IN COME UNDER THE HEAD SHORT TERM AND LONG TERM CAPITAL GAINS, ARE STOCK-IN-TRAD E OF THE ASSESSEE AND NOT INVESTMENTS AS CLAIMED BY THE ASSESSEE. THE ACTIVI TY OF THE ASSESSEE IN BUYING ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 20 20 AND SELLING SHARES IS NOTHING BUT A BUSINESS ACTIVI TY AND THE SURPLUS THERE FROM REPRESENTED ITS BUSINESS PROFITS. THE LEARNED DR, ACCORDINGLY, VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US AND ALSO GONE THROUGH ALL THE JUDG EMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP THE LEGAL ISSUE WITH R EFERENCE TO THE JURISDICTION OF INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT B Y THE LEARNED CIT. THE SCHEME OF THE IT ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENU E. IF DUE TO ERRONEOUS ORDER OF THE ASSESSING OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD., VS. CIT ( 243 ITR 83 (SC), THE COMMISSIONER CAN EXERCISE REVISION JURISDICTIONAL U/S 263 IF HE IS SATISFIED THAT THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS (I)ERRON EOUS; AND ALSO (II) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE WORD ERRONEOUS HAS NOT BEEN DEFINED IN THE INCOME TAX ACT. IT HAS BEEN HOWEVER DEFINED AT PA GE 562 IN BLACKS LAW DICTIONARY (SEVENTH EDITION) THUS; ERRONEOUS, ADJ. INVOLVING ERROR, DEVIATING FROM TH E LAW. THE WORD ERROR HAS BEEN DEFINED AT THE SAME PAGE IN THE SAME DICTIONARY THUS: ERROR NO. 1 : A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BRIEF TH AT WHAT IS FALSE IS TRUE OR THAT WHAT IS TRUE IS FALSE. AT PAGE 649/650 IN P. RAMANATHA AIYERS LAW LEXICO N REPRINT 2002, THE WORD ERROR HAS BEEN DEFINED TO MEAN- ERROR. A MISTAKEN JUDGEMENT OR DEVIATION FROM THE TRUTH IN MATTERS OF FACT, AND FROM THE LAW IN MATTERS OF JU DGEMENT ERROR IS A FAULT IN JUDGEMENT, OR IN THE PROCESS OR PROCEEDING TO JUDGEMENT OR IN THE EXECUTION UPON TH E ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 21 21 SAME, IN A COURT OF RECORD; WHICH IN THE CIVIL LAW IS CALLED A NULLITYIE (TERMES DE LA LEY) SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INADVERTENCE S.99 CPC AND S.215 CR.PC. ERROR, FAULT, ERROR RESPECTS THE ACT; FAULT RESPEC T THE AGENT, AN ERROR MAY LAY IN THE JUDGEMENT, OR IN THE CONDUC T, BUT A FAULT LIES IN THE WILL OR INTENTION. 28. AT PAGE 650 OF THE AFORESAID LAW LEXICON, THE S COPE OF ERROR, MISTAKE, BLUNDER, AND HALLUCINATION HAS BEEN EXPLAINED THUS: AN ERROR IS ANY DEVIATION FROM THE STANDARD OR COU RSE OF RIGHT, TRUTH, JUSTICE OR ACCURACY, WHICH IS NOT INTENTIONAL. A M ISTAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSION OF MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNOWLEDG E, A MISTAKE IS FROM INSUFFICIENT OR FALSE OBSERVATION. BLUNDER IS A PR ACTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KIND, COMMITTED THROUG H GLARING IGNORANCE, HEEDLESSNESS, OR AWKWARDNESS. AN ERROR MAY BE OVER LOOKED OR ATONED FOR, A MISTAKE MAY BE RECTIFIED, BUT THE SHAME OR R IDICULE WHICH IS OCCASIONED BY A BLUNDER, WHO CAN COUNTERACT. STRIC TLY SPEAKING, HALLUCINATION IS AN ILLUSION OF THE PERCEPTION, A P HANTASM OF THE IMAGINATION. THE ONE COMES OF DISORDERED VISION, T HE OTHER OF DISCARDED IMAGINATION. IT IS EXTENDED IN MEDICAL SCIENCE TO MATTERS OF SENSATION, WHETHER THERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN UNACCOUNTABLE ERROR IN JUDGEMENT OR FACT, ESPECIALLY IN ONE REMARKABLE OTHERWISE FOR ACCURATE INFORMATION A ND RIGHT DECISION. IT IS EXCEPTIONAL ERROR OR MISTAKE IN THOSE OTHERWISE NOT LIKELY TO BE DECEIVED. 29. IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUGHT TO BE REVISED UNDER SECTION 263 IS ERRONEOUS, IT SHOULD BE SEEN WHETHER IT SUFFERS FROM ANY OF THE AFORESAID FORMS OF ERROR. IN OUR VIEW, AN ORDER SOU GHT TO BE REVISED UNDER SECTION 263 WOULD BE ERRONEOUS AND FALL IN THE AFOR ESAID CATEGORY OF 'ERRORS' IF IT IS, INTER ALIA, BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON-APPLICATION OF MIND TO SO METHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 22 22 TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVENUE. 30. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO REMO VE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE AS SESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKES A WRONG DECISION WITHOUT CO NSIDERING THE MATERIALS AVAILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANT ED. THE COMMISSIONER WILL BE WELL WITHIN HIS POWERS TO REGARD AN ORDER AS ERR ONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICE R SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM MADE BY THE AS SESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, THE ROLE OF AN ASSESSING OFFICER UNDER THE INCOME-TAX ACT IS NOT ONLY THAT OF AN ADJUDICAT OR BUT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, W HICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. HE MUST DISCHARGE BO TH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOUSLY ON T HE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFOR E HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE PRESENT ASSESSMENT WAS MADE UNDER SE CTION 143(3) OF THE INCOME-TAX ACT. IN OTHER WORDS, THE ASSESSING OFFIC ER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER SECTION 143(3) AFTER SCRU TINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATED BY SUB-SECTION (1) OF SECTIO N 143. BULK OF THE RETURNS FILED BY THE ASSESSEES ACROSS THE COUNTRY IS ACCEPT ED BY THE DEPARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CAS ES ARE PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER IS THEREFORE, REQUI RED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSMENTS. HE SHOULD BE FAIR NOT ONLY TO THE ASSE SSEE BUT ALSO TO THE PUBLIC EXCHEQUER. THE ASSESSING OFFICER HAS GOT TO PROTECT , ON ONE HAND, THE INTEREST ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 23 23 OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECT ED TO ANY AMOUNT OF TAX IN EXCESS OF WHAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND, HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMATE T AX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MEC HANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCER TAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN TH E RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE IN QUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS BECAUSE AN ENQU IRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED W HERE THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHING WRONG WI TH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSUMED TO BE CORR ECT. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO B E ERRONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREO-TYPED ORDER WHICH SIMP LY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALLED FOR IN TH E CIRCUMSTANCES OF THE CASE. IN TAKING THE AFORESAID VIEW, WE ARE SUPPORTED BY T HE DECISIONS OF THE HON'BLE SUPREME COURT IN RAMPYARI DEVI SARAOGI V. CIT (67 ITR 84) (SC), SMT. TARA DEVI AGGARWAL V. CIT (88 ITR 323) (SC), AND MALABAR INDUSTRIAL CO. LTD'S CASE ( 243 ITR 83) (SC). 31. IN MALABAR INDUSTRIAL CO. LTD. CASE THE HON'BL E COURT HAS HELD AS UNDER: THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER , IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPT ION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERR ONEOUS. IN THE SAME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL J USTICE OR WITHOUT APPLICATION OF MIND. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 24 24 IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION-MAKI NG WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PREJUDIC E TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPL E CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJUDICE REMOVED. W HILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REVISIONAL JURISDICT ION OF THE COMMISSIONER UNDER SECTION 264 OR THROUGH APPEALS AND OTHER MEAN S OF JUDICIAL REVIEW, THE PREJUDICE CAUSED TO THE STATE EXCHEQUER CAN ALS O BE CORRECTED BY INVOKING REVISIONAL JURISDICTION OF THE COMMISSIONE R UNDER SECTION 263. ARBITRARINESS IN DECISION-MAKING CAUSING PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND AND STARE AT THE LEGA L SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS IN THE ACTIONS OF THE ASSESSING OFFICER. IT IS THE DUTY OF THE ASSESSING OFFICER TO ADEQUATE LY PROTECT THE INTEREST OF BOTH THE PARTIES, NAMELY, THE ASSESSEE AS WELL AS T HE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIRLY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS CAN ALWAYS BE CORRECTED EITHER AT THE INSTAN CE OF THE ASSESSEE, IF THE ASSESSEE IS PREJUDICED OR AT THE INSTANCE OF TH E COMMISSIONER, IF THE REVENUE IS PREJUDICED. WHILE MAKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. HE IS THE INVESTIGATOR, PROSEC UTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARBITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL M ATTER LIKE THE PRESENT ONE, HE MUST RECORD A FINDING ON THE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HIS REASONS THEREFOR. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1990 SC 1984, IT HAS BEEN OB SERVED BY THE HON'BLE SUPREME COURT AS FOLLOWS: REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTION BY THE APPELLATE OR SUPERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECORD REASONS FOR ITS DECISION ARE OF NO LESS SIGN IFICANCE. THESE CONSIDERATIONS SHOW THAT THE RECORDING OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXCLUDES CHANCES OR ARBITRARINESS AND EN SURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 25 25 ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHI CH ARE SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AU THORITY EXERCISING QUASI- JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY, HO WEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AND NATURE OF THE REASONS WOULD DEP END ON PARTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASON S ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CON SIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF REASONS IS G REATER IN A CASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. THE APPELLAT E OR REVISIONAL AUTHORITY, IF IT AFFIRMS SUCH AN ORDER, NEED NOT GIVE SEPARATE REASO NS IF THE APPELLATE OR REVISIONAL AUTHORITY AGREES WITH THE REASONS CONTAI NED IN THE ORDER UNDER CHALLENGE. 32. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE S UPREME COURT IN SIEMENS ENGG. & MFG. CO. LTD. V. UNION OF INDIA AIR 1976 SC 1785. IT IS SETTLED LAW THAT WHILE MAKING ASSESSMENT ON ASSESSEE, THE ITO ACTS I N A QUASI-JUDICIAL CAPACITY. AN ASSESSMENT ORDER IS AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NE CESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FO R THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HAVE HELD THAT ORDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST BE REGARDED AS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DON E IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BOUND TO SUFFER. I F WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AND MATERIALS ON RECORD, THE ASS ESSING OFFICER HAD MADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRONEOUS BY ANY APPELLATE AUTHORITY AS BEING VIOLATIVE OF THE PRINCIPLES OF NATURAL JUSTICE WHICH REQUIRE THAT TH E AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN AN ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER OF FACT SUCH ORDERS ARE PREJUDICIAL TO THE INTERESTS O F BOTH THE PARTIES, BECAUSE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 26 26 EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A P OSITIVE FINDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CAS E. 33. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN THE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON IN CORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NA TURAL JUSTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED I N HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES O R EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. 34. WE SHALL NOW TURN TO THE FACTS OF THE CASE TO S EE WHETHER THE CASE BEFORE US IS COVERED BY THE AFORESAID PRINCIPLES. PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DOES NOT SHOW ANY APPLICAT ION OF MIND ON HIS PART. HE SIMPLY ACCEPTED THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GAINS AS IT IS, THOUGH THE ASSESSEE C OMPANY HAS BEEN CARRYING ON THE BUSINESS IN SHARES. THE ASSESSING OFFICER NOT BOTHERED TO EXAMINE THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE THOUG H IT WAS MENTIONED IN THE TAX AUDIT REPORT THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF INVESTMENT/TRADING OF SHARES AND SECURITIES. IT WAS ALSO ON RECORD THAT THE TRIBUNAL FOR THE ASSESSMENT YEAR 2004-05 VIDE ORDER DATED 3.10.2008 IN ITA NO.477/H/2008 HAS HELD THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF INVESTMENTS AND TRADING ON SHARES AND SECURITIES. THIS IS A CASE WHERE THE ASSESSING OFFICER MECHANICALLY ACCEPTED WHAT THE AS SESSEE WANTED HIM TO ACCEPT WITHOUT ANY APPLICATION OF MIND OR ENQUIRY. THE EVIDENCE AVAILABLE ON RECORD IS NOT ENOUGH TO HOLD THAT THE CLAIM MADE BY THE ASSESSEE WAS ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 27 27 OBJECTIVELY EXAMINED OR CONSIDERED BY THE ASSESSING OFFICER. IT IS BECAUSE OF SUCH NON-CONSIDERATION OF THE ISSUES ON THE PART OF THE ASSESSING OFFICER THAT THE CLAIM BY THE ASSESSEE STOOD AUTOMATICALLY ACCEP TED WITHOUT ANY SCRUTINY. THE ASSESSMENT ORDER PLACED BEFORE US IS CLEARLY ER RONEOUS AS IT WAS PASSED WITHOUT PROPER EXAMINATION OR ENQUIRY OR VERIFICATI ON OR OBJECTIVE CONSIDERATION OF THE CLAIM MADE BY THE ASSESSEE. THE ASSESSING OF FICER HAS COMPLETELY OMITTED THE ISSUE IN QUESTION FROM CONSIDERATION AN D MADE THE ASSESSMENT IN AN ARBITRARY MANNER. HIS ORDER IS A COMPLETELY NON- SPEAKING ORDER. IN OUR VIEW, IT WAS A FIT CASE FOR THE LEARNED COMMISSIONER TO E XERCISE HIS REVISIONAL JURISDICTION UNDER SECTION 263 WHICH HE RIGHTLY EXE RCISED BY CANCELLING THE ASSESSMENT ORDER AND DIRECTING THE ASSESSING OFFICE R TO PASS A FRESH ORDER CONSIDERING THE INCOME DECLARED BY THE ASSESSEE UND ER THE HEAD LONG TERM CAPITAL GAINS AMOUNTING TO RS.18,98,06,611/- AND SHORT TERM CAPITAL GAINS AT RS.20,70,510/- TOGETHER AMOUNTING TO RS.19,18,77,12 1/- AS INCOME UNDER THE HEAD BUSINESS. IN OUR VIEW, THE ASSESSEE SHOULD HAVE NO GRIEVANCE IN THE ACTION OF LEARNED COMMISSIONER. 35. IT WAS HOWEVER CONTENDED BY THE LEARNED COUNSEL THAT THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW IN ACCEPTING THE RETURN OF THE ASSESSEE WITH REFERENCE TO HEAD OF INCOME AND HENCE, THE COMMISSI ONER WAS NOT JUSTIFIED IN ASSUMING THE REVISIONAL JURISDICTION UNDER SECTION 263. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE AFORESAID SUBMISSIO NS. AS ALREADY STATED EARLIER, AN ORDER BECOMES ERRONEOUS BECAUSE INQUIRIES, WHICH OUGHT TO HAVE BEEN MADE ON THE FACTS OF THE CASE, WERE NOT MADE AND NO T BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STAT ED OR THE CLAIMS MADE IN THE RETURN ARE ASSUMED TO BE CORRECT. THUS, IT IS MERE FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE THE NECESSARY INQUIRIES O R TO EXAMINE THE CLAIM MADE BY THE ASSESSEE IN ACCORDANCE WITH LAW, WHICH RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. NOTHING MORE IS REQUIRED TO BE ESTABLISHED IN SUCH A CASE. ONE WOUL D NOT KNOW AS TO WHAT WOULD HAVE HAPPENED IF THE ASSESSING OFFICER HAD MA DE THE REQUISITE INQUIRIES ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 28 28 OR EXAMINED THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. HE COULD HAVE ACCEPTED THE ASSESSEE'S CLAIM. EQUALLY, HE COULD HA VE ALSO REJECTED THE ASSESSEE'S CLAIM DEPENDING UPON THE RESULTS OF HIS ENQUIRY OR EXAMINATION INTO THE CLAIM OF THE ASSESSEE. THUS, THE FORMATION OF A NY VIEW BY THE ASSESSING OFFICER WOULD NECESSARILY DEPEND UPON THE RESULTS O F HIS INQUIRY AND CONSCIOUS, AND NOT PASSIVE, EXAMINATION INTO THE CLAIM OF THE ASSESSEE. IF THE ASSESSING OFFICER PASSES AN ORDER MECHANICALLY WITHOUT MAKING THE REQUISITE INQUIRIES OR EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE W ITH LAW, SUCH AN ORDER WILL CLEARLY BE ERRONEOUS IN LAW AS IT WOULD NOT BE BASE D ON OBJECTIVE CONSIDERATION OF THE RELEVANT MATERIALS. IT IS THEREFORE, THE MER E FAILURE ON THE PART OF THE ASSESSING OFFICER IN NOT MAKING THE INQUIRIES OR NO T EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW THAT PER SE RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. NOTHING ELSE IS REQUIRED TO BE ESTABLISHED IN SUCH A CASE TO SHOW THAT THE O RDER SOUGHT TO BE REVISED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. 36. WE ARE UNABLE TO ACCEPT THE SUBMISSION OF THE L EARNED COUNSEL FOR TWO OTHER REASONS ALSO. FIRST REASON IS THAT THE VIEW S O TAKEN BY THE ASSESSING OFFICER WITHOUT MAKING THE REQUISITE INQUIRIES OR E XAMINING THE CLAIM OF THE ASSESSEE WILL PER SE BE AN ERRONEOUS VIEW AND HENCE WILL BE AMENABLE TO REVISIONAL JURISDICTION UNDER SECTION 263. SECOND R EASON IS THAT IT IS NOT TAKING OF ANY VIEW THAT WILL TAKE THE MATTER UNDER THE SCOPE OF SECTION 263. THE VIEW TAKEN BY THE ASSESSING OFFICER SHOULD NOT BE A MERE VIEW IN VACUUM BUT A JUDICIAL VIEW. IT IS WELL ESTABLISHED THAT THE ASSE SSING OFFICER BEING A QUASI- JUDICIAL AUTHORITY CANNOT TAKE A VIEW, EITHER AGAIN ST OR IN FAVOUR OF THE ASSESSEE / REVENUE, WITHOUT MAKING PROPER INQUIRIES AND WITHOU T PROPER EXAMINATION OF THE CLAIM MADE BY THE ASSESSEE IN THE LIGHT OF THE APPL ICABLE LAW. AS ALREADY STATED EARLIER, WE ARE NOT ABLE TO APPRECIATE ON WH AT MATERIAL WAS PLACED BEFORE THE ASSESSING OFFICER AT THE ASSESSMENT STAGE TO TA KE SUCH A VIEW. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO LEAD ENOUGH EVID ENCE TO SHOW TO US THAT ANY INQUIRY WAS MADE BY THE ASSESSING OFFICER IN TH IS REGARD. THEREFORE MERE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 29 29 ALLEGATION THAT THE ASSESSING OFFICER HAS TAKEN A V IEW IN THE MATTER WILL NOT PUT THE MATTER BEYOND THE PURVIEW OF SECTION 263 UNLESS THE VIEW SO TAKEN BY THE ASSESSING OFFICER IS A JUDICIAL VIEW CONSCIOUSLY BA SED UPON PROPER INQUIRIES AND APPRECIATION OF ALL THE RELEVANT FACTUAL AND LEGAL ASPECTS OF THE CASE. THE JUDICIAL VIEW TAKEN BY THE ASSESSING OFFICER MAY PERHAPS PLA CE THE MATTER OUTSIDE THE PURVIEW OF SECTION 263 UNLESS IT IS SHOWN THAT THE VIEW SO TAKEN BY THE ASSESSING OFFICER CONTAINS SOME APPARENT ERROR OF R EASONING OR OF LAW OR OF FACT ON THE FACE OF IT. 37. THE LEARNED COUNSEL HAS STRONGLY RELIED UPON TH E FOLLOWING OBSERVATIONS MADE IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SU PRA) AND SUBMITTED THAT THE LEARNED COMMISSIONER WAS NOT JUSTIFIED IN SUBSTITUT ING HIS VIEW FOR THAT OF THE ASSESSING OFFICER: ... EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN O RDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME-TAX OFF ICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RE SULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE IN COME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIO NER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER P REJUDICIAL TO THE INTERESTS OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. 38. WE HAVE CAREFULLY GONE THROUGH THE AFORESAID OB SERVATIONS. 'ADOPTING' ONE OF THE COURSES PERMISSIBLE IN LAW NECESSARILY REQUI RES THE ASSESSING OFFICER TO CONSCIOUSLY ANALYSE AND EVALUATE THE FACTS IN THE L IGHT OF RELEVANT LAW AND BRING THEM ON RECORD. IT IS ONLY THEN THAT HE CAN BE SAID TO HAVE 'ADOPTED' OR CHOSEN ONE OF THE COURSES PERMISSIBLE IN LAW. THE ASSESSIN G OFFICER CANNOT BE PRESUMED OR ATTRIBUTED TO HAVE 'ADOPTED' OR CHOSEN A COURSE PERMISSIBLE IN LAW WHEN HIS ORDER DOES NOT SPEAK IN THAT BEHALF. SIMIL ARLY, 'TAKING' ONE VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE ALSO NECESSARILY IMP ORTS THE REQUIREMENT OF ANALYSING THE FACTS IN THE LIGHT OF APPLICABLE LAW. THEREFORE, PROPER EXAMINATION OF FACTS IN THE LIGHT OF RELEVANT LAW IS A NECESSAR Y CONCOMITANT IN ORDER TO SAY THAT THE ASSESSING OFFICER HAS ADOPTED A PERMISSIBL E COURSE OF LAW OR TAKEN A ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 30 30 VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IT IS ON LY AFTER SUCH PROPER EXAMINATION AND EVALUATION HAS BEEN DONE BY THE ASS ESSING OFFICER THAT HE CAN COME TO A CONCLUSION AS TO WHAT ARE THE PERMISSIBLE COURSES AVAILABLE IN LAW OR WHAT ARE THE POSSIBLE VIEWS ON THE ISSUE BEFORE HIM . IN CASE HE COMES TO THE CONCLUSION THAT MORE THAN ONE VIEW IS POSSIBLE THEN HE HAS NECESSARILY TO CHOOSE A VIEW, WHICH IS MOST APPROPRIATE ON THE FAC TS OF THE CASE. IN ORDER TO APPLY THE AFORESAID OBSERVATIONS TO A GIVEN CASE, I T MUST THEREFORE FIRST BE SHOWN THAT THE ASSESSING OFFICER HAS 'ADOPTED' A PE RMISSIBLE COURSE OF LAW OR, WHERE TWO VIEWS ARE POSSIBLE, THE ASSESSING OFFICER HAS 'TAKEN' ONE SUCH POSSIBLE VIEW IN THE ORDER SOUGHT TO BE REVISED UND ER SECTION 263. THIS REQUIRES THE ASSESSING OFFICER TO TAKE A CONSCIOUS DECISION; ELSE HE WOULD NEITHER BE ABLE TO 'ADOPT' A COURSE PERMISSIBLE IN LAW NOR 'TA KE' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE. IN OTHER WORDS, IT IS THE ASSES SING OFFICER WHO HAS TO ADOPT A PERMISSIBLE COURSE OF LAW OR TAKE A VIEW WHERE TW O OR MORE VIEWS ARE POSSIBLE. IT IS DIFFICULT TO COMPREHEND AS TO HOW T HE ASSESSING OFFICER CAN BE ATTRIBUTED TO HAVE 'ADOPTED' A PERMISSIBLE COURSE O F LAW OR 'TAKEN' A VIEW WHERE TWO OR MORE VIEWS ARE POSSIBLE WHEN THE ORDER PASSE D BY HIM DOES NOT SPEAK IN THAT BEHALF. WE CANNOT ASSUME, IN ORDER TO PROVI DE LEGITIMACY TO THE ASSESSMENT ORDER, THAT THE ASSESSING OFFICER HAS AD OPTED A PERMISSIBLE COURSE OF LAW OR TAKEN A POSSIBLE VIEW WHERE HIS ORDER DOE S NOT SAY SO. THE SUBMISSIONS MADE BY THE LEARNED COUNSEL, IF ACCEPTE D, WOULD REQUIRE US TO FORM, SUBSTITUTE AND READ OUR VIEW IN THE ORDER OF THE ASSESSING OFFICER WHEN THE ASSESSING OFFICER HIMSELF HAS NOT TAKEN A VIEW. IT COULD HAVE BEEN A DIFFERENT POSITION IF THE ASSESSING OFFICER HAD 'AD OPTED' OR 'TAKEN' A VIEW AFTER ANALYSING THE FACTS AND DECIDING THE MATTER IN THE LIGHT OF THE APPLICABLE LAW. HOWEVER, IN THE CASE BEFORE US, THE ASSESSING OFFIC ER HAS NOT AT ALL EXAMINED AS TO WHETHER ONLY ONE VIEW WAS POSSIBLE OR TWO OR MORE VIEWS WERE POSSIBLE AND HENCE, THE QUESTION OF HIS ADOPTING OR CHOOSING ONE VIEW IN PREFERENCE TO THE OTHER DOES NOT ARISE. THE AFORESAID OBSERVATION S OF THE HON'BLE SUPREME COURT DO NOT, IN OUR VIEW, HELP THE ASSESSEE; AND R ATHER THEY ARE AGAINST THE ASSESSEE. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 31 31 39. IN THE CASE OF PADMASUNDARA RAO V. STATE OF TAM IL NADU (255 ITR 147), THE HON'BLE SUPREME COURT HAS HELD THAT '... THERE IS ALWAYS PERIL IN TREATING THE WORDS OF A SPEECH OR JUDGMENT AS THOUGH THEY ARE WORDS IN A LEGISLATIVE ENACTMENT, AND IT IS TO BE REMEMBERED THAT JUDICIAL UTTERANCES ARE MADE IN THE SETTING OF THE FACTS OF A PARTICULAR CASE, SAID LOR D MORRIN IN HARRINGTON V. BRITISH RAILWAYS BOARD [1972] 2 WLR 5 37 (HL). CIRCUMSTANTIAL FLEXIBILITY, ONE ADDITIONAL OR DIFFE RENT FACT MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUSIONS IN TWO CA SES....' THEREFORE, THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD'S CASE (SUPRA) ON WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL CANNOT BE READ I N ISOLATION. THE JUDGMENT DESERVES TO BE READ IN ITS ENTIRETY TO CULL OUT THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT. IF SO READ, IT IS QUITE EVIDENT THAT THE ORDERS PASSED ON AN INCORRECT ASSU MPTION OF FACTS OR INCORRECT APPLICATION OF LAW OR WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE. IF THE ORDER SOUGHT TO BE REVISED UNDER SECTION 263 SUFFERS FROM ANY OF THE AFORESAID VICES , IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS 'ADOPTED', IN S UCH AN ORDER, A COURSE PERMISSIBLE IN LAW OR 'TAKEN' A VIEW WHERE T WO OR MORE VIEWS ARE POSSIBLE. 40. IT WAS NEXT CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT THE ASSESSING OFFICER HAD CONSIDERED ALL THE RELEVANT A SPECTS OF THE CASE CAREFULLY WHILE PASSING THE ORDER. ACCORDING TO HIM, THE MERE FACT THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WAS SHORT WOU LD NEITHER MEAN FAILURE ON HIS PART IN NOT EXAMINING THE MATTER CAREFULLY NOR WOULD RENDER HIS ORDER ERRONEOUS SO LONG AS THE VIEW TAKEN BY HIM WAS A PO SSIBLE VIEW. IN OUR VIEW, THE AFORESAID SUBMISSION OF THE ASSESSEE MUST FAIL FOR THE REASONS ALREADY EXPLAINED IN THE FOREGOING PARAS OF THIS ORDER AS T HE ORDER, WHICH IS SOUGHT TO BE REVISED UNDER SECTION 263 REFLECTS NO PROPER APPLIC ATION OF MIND BY THE ASSESSING OFFICER AND THUS BE AMENABLE TO REVISION UNDER SECTION 263. IN THIS CASE BEFORE US, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER LACKS JUDICIAL STRENGTH TO STAND. IT IS NOT A CASE WHERE THE ORDER IS SHORT BUT IS NOT SUPPORTED BY JUDICIAL STRENGTH. IT IS IN THIS VIEW OF THE MATTER THAT WE FEEL THAT THE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 32 32 LEARNED COMMISSIONER HAS CORRECTLY EXERCISED HIS RE VISIONAL JURISDICTION UNDER SECTION 263. 41. IN OUR OPINION, THE ASSESSING OFFICER HAS BEEN ENTRUSTED THE ROLE OF AN INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR UND ER THE SCHEME OF THE INCOME- TAX ACT. IF HE COMMITS AN ERROR WHILE DISCHARGING T HE AFORESAID ROLES AND CONSEQUENTLY PASSES AN ERRONEOUS ORDER CAUSING PREJ UDICE EITHER TO THE ASSESSEE OR TO THE STATE EXCHEQUER OR TO BOTH, THE ORDER SO PASSED BY HIM IS LIABLE TO BE CORRECTED. AS MENTIONED EARLIER, THE A SSESSEE CAN HAVE THE PREJUDICE CAUSED TO HIM CORRECTED BY FILING AN APPE AL; AS ALSO BY FILING A REVISION APPLICATION UNDER SECTION 264. BUT THE STA TE EXCHEQUER HAS NO RIGHT OF APPEAL AGAINST THE ORDERS OF THE ASSESSING OFFICER. SECTION 263 HAS THEREFORE BEEN ENACTED TO EMPOWER THE COMMISSIONER TO CORRECT AN ERRONEOUS ORDER- PASSED BY THE ASSESSING OFFICER WHICH HE CONSIDERS TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE COMMISSIONER HAS ALSO BEEN EMPOWERED TO INVOKE HIS REVISIONAL JURISDICTION UNDER SECTION 264 AT TH E INSTANCE OF THE ASSESSEE ALSO. THE LINE OF DIFFERENCE BETWEEN SECTIONS 263 A ND 264 IS THAT WHILE THE FORMER CAN BE INVOKED TO REMOVE THE PREJUDICE CAUSE D TO THE STATE THE LATER CAN BE INVOKED TO REMOVE THE PREJUDICE CAUSED TO THE AS SESSEE. THE PROVISIONS OF SECTION 263 WOULD LOSE SIGNIFICANCE IF THEY WERE TO BE INTERPRETED IN A MANNER THAT PREVENTED THE COMMISSIONER FROM REVISING THE E RRONEOUS ORDER PASSED BY THE ASSESSING OFFICER, WHICH WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN FACT, SUCH A COURSE WOULD BE COUNTER PRODUCTIVE AS IT WOULD HAVE THE EFFECT OF PROMOTING ARBITRARINESS IN THE DECISIONS OF THE ASS ESSING OFFICERS AND THUS DESTROY THE VERY FABRIC OF SOUND TAX DISCIPLINE. IF ERRONEOUS ORDERS, WHICH ARE PREJUDICIAL TO THE INTEREST OF THE REVENUE, ARE ALL OWED TO STAND, THE CONSEQUENCES WOULD BE DISASTROUS IN THAT THE HONEST TAX PAYERS WOULD BE REQUIRED TO PAY MORE THAN OTHERS TO COMPENSATE FOR THE LOSS CAUSED BY SUCH ERRONEOUS ORDERS. FOR THIS REASON ALSO, WE ARE OF T HE VIEW THAT THE ORDERS PASSED ON AN INCORRECT ASSUMPTION OF FACTS OR INCOR RECT APPLICATION OF LAW OR WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND OR ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 33 33 WITHOUT MAKING REQUISITE INQUIRIES WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE WITHIN THE MEANING OF SECTION 263. 42. FURTHER THE ASSESSEES COUNSEL TAKEN A PLEA THA T CONSISTENCY HAS TO BE FOLLOWED. IN OUR OPINION, IN THE CASE OF INCOME TA X MATTERS EACH ASSESSMENT YEAR IS AN INDEPENDENT ASSESSABLE DISTINCT UNIT IN WHICH PRINCIPLES OF RES JUDICATA ARE NOT APPLICABLE. THE INCOME OF EACH ASSESSMENT YEAR AND ADMISSIBLE EXPENSES ARE DETERMINED IN EACH YEAR CON SIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE PREVAILING DURING THE YEA R. AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE IF THERE IS A CHANGE IN T HE FACTS AND CIRCUMSTANCES, A DIFFERENT VIEW AS PER THE CHANGED FACTS AND CIRCUMS TANCES IS REQUIRED TO BE TAKEN, IN THIS CASE, ON ENQUIRY THE CIT CAME TO CONCLUSION THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND INCOME ARISING OUT OF THESE TRANSACTIONS HAS TO BE CONSIDERED AS I NCOME FROM BUSINESS INSTEAD OF CONSIDERING THE SAME AS INCOME FROM CAPITAL GAIN . ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT. THE SA ME IS CONFIRMED. . 43. NOW WE WILL TURN TO THE MERIT OF THE CASE WITH REGARD TO TREATMENT OF THE INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. FOR THIS PURPOSE, WE HAVE TO SEE THE NATURE OF THE ACTIVITY CARRIED ON BY THE AS SESSEE WHICH IS ENUMERATED HEREIN BELOW S.N. NAME OF THE SCRIP PURCHASED DURING 2005-06 (NO. OF TIMES) SOLD DURING 2005-06 (NO. OF TIMES) 1 ANDHRA SUGARS LTD 26 29 2 AMARA RAJA BATTERIES 12 25 3 BLOW PLAST LTD. 33 1 4 COROMANDEL FERTILIZERS 1 15 5 KIRLOSKAR CUMMINS LTD 3 13 6 DABUR INDIA LTD. 3 13 7 GUJARAT NRE COKE 25 36 ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 34 34 8 HINDAL CO. 28 13 9 INDIAN HOTELS 1 12 10 ITC LTD. 15 10 11 IPCL 12 9 12 JAIN IRRIGATION 0 30 13 L&T LTD. 3 16 14 LIC HOUSING 11 3 15 MATRIX LABS 4 29 16 NALCO 26 13 17 RELIANCE INDUSTRIES 33 12 18 SAIL 12 13 19 TELCO (TATA MOTORS) 9 31 20 TISCO (TATA STEEL) 18 19 21 VIP INDUSTRIES 14 1 44. FURTHER, THE ASSESSEE SOLD 2 LAKHS UNQUOTED SHA RES OF M/S HINDUSTAN COCOA COLA BEVERAGE LTD. AND RECEIVED RS.2,66,08,49 3/-. THE ASSESSEE HAS INVESTED IN 6,95,000 SHARE OF 1$ EACH OF ITS SUBS IDIARY COMPANY FORMED IN USA VIZ. VIJAYA FINVEST INC. AMOUNTING TO RS.3,36,7 2,409/-. THE ASSESSEE HAS ALSO PURCHASED AND SOLD SHARES OF ANDHRA SUGAR LTD. WHICH ARE AS FOLLOWS : PURCHASE OF SALE OF SHARES OF ANDHRA SUGARS LIMITED S.NO DATE ANDHRA SUGAR EQ OPENING BALANCE 163000 NO.OF SCRIPS PURCHASED (CREDIT) NO. OF SCRIPS SOLD (DEBIT) 1 1/9/2005 2000 2 2/9/05 413 3 29/9/05 1000 4 10/1/06 587 5 12/1/06 1000 6 12/1/06 2000 7 13/1/06 1000 8 16/1/06 1500 9 18/1/06 4000 10 20/1/06 1500 11 21/1/06 10123 12 24/1/06 2377 13 25/1/06 15500 14 31/1/06 1500 ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 35 35 15 31/1/06 1000 16 1/2/06 1000 17 2/2/06 18000 18 3/2/06 2000 19 3/2/06 2000 20 4/2/06 2000 21 7/2/06 10000 22 8/2/06 1000 23 18/2/06 5000 24 18/2/06 400 25 18/2/06 5444 26 18/2/06 1678 27 22/2/06 3210 28 22/2/06 3000 29 23/2/06 1000 30 1/3/06 20000 31 6/3/06 10000 32 8/3/06 20000 33 9/3/06 2000 34 9/3/06 110000 35 10/3/06 9900 36 10/3/06 1000 37 10/3/06 100 38 11/3/06 10000 39 13/3/06 12000 40 13/3/06 10000 41 16/3/06 5618 42 16/3/06 5000 43 17/3/06 10000 44 21/3/06 2000 45 21/3/06 5000 46 22/3/06 5382 47 22/3/06 2000 48 23/3/06 5000 49 23/3/06 6500 50 25/3/06 9000 51 28/3/06 13768 52 28/3/06 11000 53 31/3/06 350 TOTAL:149500 54 31/3/06 100 55 31/3/06 19550 TOTAL: 158000 BALANCE 158000 ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 36 36 45. A CAREFUL ANALYSIS OF THE STATEMENT SHOWS THAT THE ASSESSEE IS BUYING AND SELLING SHARES IN THE SAME YEAR VERY FREQUENTLY. F OR EXAMPLE ON 31.1.2006 THE ASSESSEE BOUGHT 15500 SHARES AND SOLD 1500 SHARES O N THE SAME DAY. SIMILARLY ON 1.2.2006 THE ASSESSEE BOUGHT 1000 SHAR ES AND SOLD THE SAME ON THE NEXT DAY. THE ASSESSEE BOUGHT 20000 SHARES ON 3.2.2006 AND SOLD 2000 SHARES ON THE SAME DAY, 2000 ON THE NEXT DAY AND 10 ,000 SHARES ON THE FIFTH DAY. SIMILARLY THERE WAS SALE OF 20000 SHARES ON 1 .3.2006 AND 20000 SHARES PURCHASED ON 8.3.2006. THERE WAS A SALE OF 13000 S HARES ON 9.3.2006, THE NEXT DAY AND PURCHASE OF 11000 SHARES THE VERY NEXT DAY. SUCH CORRELATION OF BUYING AND SELLING DAY AFTER DAY CAN BE SEEN FROM T HE ABOVE TABLE OF HUGE NUMBER OF SHARES OF THE SAME SCRIP. SIMILAR PATTER N WAS FOUND ON ANALYSIS OF PURCHASE AND SALE OF SEVERAL OTHER SCRIPS WHICH ARE NOT REPRODUCED HERE FOR BREVITY. 46. A SAMPLE STUDY OF THE SHARES PURCHASED AND SOLD IN APRIL, 2005 AND FEBRUARY, 2006 WAS DONE AS FURNISHED BY THE ASSESSE E. THE DATA SHOWS THAT DURING APRIL, 2005, THE ASSESSEE PURCHASED 64476 SH ARES OF 28 LISTED COMPANIES FOR RS. 1,39,82,193 AND IN THE SAME MONTH SOLD 29910 SHARES FOR RS. 33,80,617. SIMILARLY DURING THE MONTH OF FEBRU ARY, 2006, THE ASSESSEE PURCHASED 56769 SHARES OF 45 COMPANIES FOR RS. 1,01 ,40,444 AND SOLD DURING THE SAME MONTH 118806 SHARES FOR RS. 3,14,16,760. THIS DATA SHOWS THAT EACH MONTH THE ASSESSEE IS BUYING AND SELLING OVER 60,00 0 SHARES OF OVER RS. 3 CRORES. IN ORDER TO SEE THE TREND OF PURCHASES AND SALES MADE ON A SINGLE DAY THE DATA OF TWO DATES WAS COMPILED AS FOLLOWS: DETAILS OF PURCHASE AND SALE OF SHARES MADE ON 27.0 3.2006 & 28.03.2006 PURCHASE OF SHARES ON 27.03.2006 SALE OF SHARES ON 27.03.2006 NAME OF THE SCRIP QUANTITY NAME OF THE SCRIP QUANTITY ANDHRA SUGARS LTD. 20300 AMARA RAJA BATTERIES 1464 GUJARAT NRE COKE LTD. 2000 CUMMINS INDIA LTD. 3500 KSB PUMPS LTD. 500 HINDUSTAN ALUMINIUM CO. LTD. 3000 L & T LTD. 600 INDIAN PETRO CHEMICALS 8000 ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 37 37 ONGC 580 RELIANCE INDUSTRIES LTD. 750 TATA STEEL LTD. 1000 TELCO 10313 TOTAL 23400 TOTAL 28607 PURCHASE OF SHA RES ON 28.03.2006 SALE OF SHARES ON 28.03.2006 NAME OF THE SCRIP QUANTITY NAME OF THE SCRIP QUANTITY BLOW PLAST INDIA LTD. 1500 HINDUSTAN ALUMINIUM LTD. 3000 CUMMINS INDIA LTD. 11700 NATIONAL ALLUMINIUM CO. 1500 GAIL 4500 TATA STEEL 250 GRUH FINANCE LTD. 1000 GUJARAT NRE COKE 1000 GVK POWER & INFRA 900 MURUDEESWARA CERAMICS 1000 RELIANCE COMMUNICATIONS LTD. 500 RELIANCE INDUSTRIES LTD. 750 RELIANCE NATURAL RESOURCES LTD. 5000 TELCO 10250 VARUN SHIPPING LTD. 1000 VIP INDUSTRIES LTD. 1000 AMARA RAJA BATTERIES 1000 VIP INDUSTRIES LTD. 240 KSB PUMPS LTD. 500 MATRIX LABS LTD. 1500 TOTAL 43340 TOTAL 4750 47. FURTHER, THE ASSESSEE-COMPANY HAS CARRIED OUT S UBSTANTIAL ACTIVITY OF PURCHASE AND SALE OF UNITS OF MUTUAL FUNDS. DURING THE YEAR, IT HAS SOLD UNITS OF 121 MUTUAL FUNDS. THE DETAILS OF UNITS SOLD DURING THE YEAR ARE AS UNDER: SL. NO. DETAILS AMOUNT (RS.) (I) NO. OF MUTUAL FUNDS TRADED IN 121 (II) NO. OF UNITS SOLD 9704511 (III) NET SALE CONSIDERATION RECEIVED 21,21,98,996 (IV) LONG TERM CAPITAL GAINS CLAIMED 5,41,58,133 (V) SHORT TERM CAPITAL GAINS CLAIMED 8,27,498 (VI) SHORT TERM GAIN IN DEBT FUNDS 3,81,297 ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 38 38 48. THE ASSESSEE-COMPANY HAD REPEATEDLY PURCHASED A ND SOLD MUTUAL FUND UNITS OF THE SAME FUND THROUGHOUT THE YEAR. FEW IN STANCES OF REPETITIVE PURCHASE AND SALE OF UNITS ARE AS UNDER: DATE PARTICULARS NO. OF MF UNITS SOLD/PURCHASED 8.3.2006 FRANKLIN INDIA PRIMA FUND 26011 9030 10.3.2006 FRANKLIN INDIA PRIMA FUND 22116 52734 35659 10.3.2006 TATA EQUITIES OPPORTUNITIES FUND 33814 97252 65221 3.10.2003 FRANKLIN INDIA PRIMA FUND 19586 20000 20000 49. IT IS NOTED THAT ON 27.03.2006, THE ASSESSEE PU RCHASED THROUGH ONE BROKER 23400 SHARES AND SOLD 28607 SHARES. SIMILARLY ON 2 8.3.2006, IT BROUGHT 43340 SHARES OF 17 COMPANIES AND SOLD 4750 SHARES OF FOUR COMPANIES. PER DAY MORE THAN 50 TRADE ORDERS ARE EXECUTED ON THE STOCK EXCHANGES COVERING PURCHASES AND SALES. A STUDY OF THE ABOVE DATA REV EALS THAT THE ASSESSEE HAS BEEN REGULARLY BUYING AND SELLING SHARES AND MUTUAL FUND UNITS THOUGH VERY HIGH VOLUME OF TRANSACTIONS THROUGHOUT THE YEAR. THE FA CT THAT THE ASSESSEE- COMPANY IS DOING BUYING AND SELLING OF SHARES ON DA Y TO DAY BASIS SHOWS THAT IT IS MONITORING THE STOCK MARKETS AND BUYING AT DIPS AND SELLING AT HIGHS WITH AN INTENTION TO MAKE PROFIT FROM THESE TRANSACTIONS. THE ASSESSEES EARNING DIVIDEND INCOME IS INCIDENTAL TO THE TRADING ACTIVI TY AS STOCKS HELD BY IT THROUGH ROLLING AT ANY GIVEN POINT OF TIME IS SO HUGE THAT ON THE RECORD DATES THE ASSESSEE HAS BEEN ABLE TO RECEIVE DIVIDEND INCOME A LSO. THE ACTIVITY OF BUYING AND SELLING SHARES IN A SYSTEMATIC AND REGULAR MANN ER WITH HIGH FREQUENCY AND VOLUMES, REPETITIVE PURCHASES AND SALES OF THE SAME SCRIP AS SHOWN ABOVE SHOWS TRADING IN SHARES TO EARN PROFIT. ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 39 39 50. LOOKING INTO THE VOLUME, FREQUENCY, CONTINUITY AND REGULATORY OF THE TRANSACTIONS OF PURCHASE AND SALES IN SHARES, IT CA N BE INFERRED THAT THESE TRANSACTIONS MUST HAVE BEEN ENTERED INTO BY THE ASS ESSEE WITH A PROFIT MOTIVE. THE ASSESSEE MIGHT HAVE INTENTION THEREBY TO CARRY ON BUSINESS. IT CANNOT BE SAID THAT THESE TRANSACTIONS WERE ENTERED INTO ONLY FOR THE PURPOSE OF INVESTMENT AND THERE WAS NO MOTIVE OF THE ASSESSEE TO EARN PROFIT. THOUGH THE WORD BUSINESS HAS NOT BEEN DEFINED IN THE TAXING STATUTE AT IT POSTULATES THE EXISTENCE OF CERTAIN ELEMENTS IN THE ACTIVITY OF AN ASSESSEE WHICH WOULD INVEST IT WITH THE CHARACTER OF BUSINESS. ACCORDING TO WELL ESTABLISHED INTERPRETATION OF WORD BUSINESS AS FOUND IN TAXING STATUTES IT IS T HE SENSE OF AN OCCUPATION OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND L ABOUR OF A PERSON NORMALLY WITH THE OBJECT OF MAKING PROFIT. TO RECORD AN ACT IVITY AS BUSINESS THERE MUST BE OF COURSE OF DEALING EITHER ACTUALLY CONTINUED OR C ONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE AND NOT FOR SUPPORT OR PLIER . 51. IN OUR OPINION, WHETHER OR NOT A PERSON CARRI ED ON BUSINESS IN A PARTICULAR COMMODITY MUST DEPEND UPON VOLUME, FREQ UENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE IN A CLASS OF GOODS AND THE TRANSACTION MUST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SUCH MOTIVE MUST PERVADE THE WHOLE SERIES OF TRANSACTION EFFEC TED BY THE PERSON IN THE COURSE OF HIS ACTIVITY. TO INFER FROM A COURSE OF TRANSACTIONS THAT IS INTENDED THEREBY TO CARRY ON BUSINESS ORDINARILY THE CHARACT ERISTICS OF VOLUME, FREQUENCY AND REGULARITY INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON THE TRANSACTION MUST EXIST. LOOKING INTO THE VOLUME , FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE IN SHARES BY THE ASSESSEE, IT CANNOT BE SAID THAT THE ASSESSEE ENTERED INT O THIS ACTIVITY NOT WITH A PROFIT MOTIVE. THEREFORE, ONLY INFERENCE WHICH CAN BE DRAWN IS THAT THE INCOME EARNED BY THE ASSESSEE OUT OF SALE AN D PURCHASE OF THESE SHARES WAS AN INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. WE SEE NO JUSTIFICATION IN LENG THY ARGUMENT OF THE ASSESSEES COUNSEL THAT THE PROFIT ARI SING TO ASSESSEE ON SALE ITA NO.748/H/2011 AND SA NO.50/HYD/2011 M/S. SPECTRA SHARES & SCRIPTS (P)LTD., HYDERA BAD 40 40 OF SHARES ACQUIRED BY IT WAS ASSESSABLE AS INCOME F ROM CAPITAL GAIN. IN OUR CONSIDERED OPINION, AFTER CONSIDERING THE CUMULATIV E EFFECT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT IS JUSTIFIED IN TREATING THE PROFIT ARISING OUT OF SALE OF SHARES ACQUIRED BY THE ASSESSEE AS INCOME F ROM BUSINESS. 52. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE A SSESSEE IS DISMISSED. S.A.NO.50/HYD/2011 (IN ITA NO.748/HYD/2011) A.Y. 20 06-07: 53. SINCE THE VERY APPEAL OF THE ASSESSEE GIVING R ISE TO THE PRESENT STAY APPLICATION HAS BEEN DISPOSED OFF IN THE FOREGOING PARAS OF THIS ORDER, STAY APPLICATION OF THE ASSESSEE HAS BECOME INFRUCTUOUS. IT IS DISPOSED OFF ACCORDINGLY. ORDER PRONOUNCED IN THE COURT ON 5 TH AUGUST, 2011. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE _5 TH AUGUST, 2011 COPY FORWARDED TO: 1. M/S. SPECTRA SHARES & SCRIPTS (P)LTD., 104/105 PANCOM BUSINESS CENTRE, AMEERPET, HYDERABAD 2. DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(2), HYD ERABAD 3. COMMISSIONER OF INCOME-TAX-III, HYDERABAD. 4. THE D.R., ITAT, HYDERABAD. B.V.S/ NP