Adar Poonawalla, Pune V. Addl. CIT Rg-7 Pune, Pune

ITA 764/PUN/2012

• Counselvise Citation: 76424514 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: S N INAMDAR; R S ABHYEENKAR
• Keywords: Capital asset; Gift; Business income; Question of law; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.764/PN/2012 (ASSESSMENT YEAR : 2007-08) ADAR POONAWALLA, SAROSH BHAVAN, 16-B/1, DR. AMBEDKAR ROAD, PUNE 411 001. PAN : AFEPP9955N . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE- 7, PUNE. . RESPONDENT ITA NO.824/PN/2012 (ASSESSMENT YEAR : 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(1), PUNE. . APPELLANT VS. SHRI ADAR CYRUS POONAWALLA, 11, GIDNEY PARK, PUNE 411 037. PAN : AFEPP9955N . RESPONDENT ASSESSEE BY : MR. S. N. INAMDAR & MR. R.S. ABHYEENKAR DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 01-12-2014 DATE OF PRONOUNCEMENT : 30-01-2015 ORDER PER G. S. PANNU, AM THE CAPTIONED ARE CROSS-APPEALS, EACH BY THE ASSESS EE AND THE REVENUE, PERTAINING TO THE ASSESSMENT YEAR 2007-08, WHICH WERE HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CON SOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE CAPTIONED CROSS-APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATE D 28.02.2011 WHICH, IN ITA NO.764/PN/2012 ITA NO.824/PN/2012 TURN, HAS ARISEN FROM AN ORDER DATED 22.12.2009 PAS SED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3. IN BRIEF, THE FACTS RELEVANT TO APPRECIATE THE C ONTROVERSY IN THE RESPECTIVE APPEALS CAN BE SUMMARIZED AS FOLLOWS. T HE ASSESSEE IS AN INDIVIDUAL WHO FILED A RETURN OF INCOME FOR ASSESSM ENT YEAR 2007-08 DECLARING TOTAL INCOME OF RS.5,51,54,026/- WHICH, INTER-ALIA, INCLUDED A NET LONG TERM CAPITAL GAIN OF RS.2,24,68,231/- AS DETAILED HEREUN DER :- LONG TERM CAPITAL GAIN 17,32,46,580 SHORT TERM CAPITAL LOSS SET OFF OF B/F (14,95,84,93 5) - LONG TERM CAPITAL LOSS (7,41,504) - SHORT TERM CAPITAL LOSS (4,51,910) ---------------------- NET LONG TERM CAPITAL GAINS 2,24,68,231 4. THE ASSESSING OFFICER NOTED THAT THE LONG TERM C APITAL GAIN OF RS.17,32,46,580/- WAS IN RESPECT OF SALE OF SHARES OF CITY PARK PVT. LTD., TO M/S PENINSULA LAND LTD.. THE SHORT TERM CAPITAL LO SS OF RS.14,95,84,935/- WAS MAINLY ON ACCOUNT OF SALE OF SHARES OF ONE COMPANY, NAMELY, HCL TECHNOLOGIES LTD.. THE DISPUTE IN THE CAPTIONED AP PEALS REVOLVES AROUND THE AFORESAID TRANSACTIONS. 5. IN SO FAR AS THE TRANSACTION OF SALE OF SHARES O F CITY PARK PVT. LTD. IS CONCERNED, THE ASSESSING OFFICER TREATED THE SAME A S INCOME FROM BUSINESS OF TRADING IN SHARES. THE SAID BUSINESS INCOME WAS WORKED OUT BY THE ASSESSING OFFICER AS UNDER :- B. PROFIT ON SALE OF CITY PARK PVT. LTD. SHARES SALE OF 66,70,000 SHARES @ RS.270/- PER SHARE RS. 18,00,90,000/- PURCHASE OF 66,70,000 SHARES @ RS.10 PER SHARE R S. 66,70,000/- ------------------------- RS.17,34,20,000/- ITA NO.764/PN/2012 ITA NO.824/PN/2012 6. WITH RESPECT TO THE OTHER TRANSACTION BY WAY OF SALE OF SHARES OF HCL TECHNOLOGIES LTD., ASSESSING OFFICER NOTICED THAT T HE SAID COMPANY HAD ANNOUNCED BONUS ISSUE OF 1:1 ON 12.02.2007 AND THE RECORD DATE WAS FIXED ON 16.03.2007, AS PER INTIMATION TO THE STOCK EXCHA NGES. THE ASSESSEE PURCHASED 4,71,517 EQUITY SHARES OF HCL TECHNOLOGIE S LTD. FROM 28.02.2007 TO 13.03.2007 I.E. WITHIN A SPAN OF TWO WEEKS, WITH AN AVERAGE PURCHASE PRICE OF RS.622/- PER SHARE, WHICH WAS CUM-BONUS. BONUS SHARES WERE ISSUED BY THE INVESTEE COMPANY ON 16.03.2007 AND ACCORDINGLY ASSESSEE RECEIVED 4,71,517 BONUS SHARES. THEREFORE, ASSESSEE EFFECTE D SALE OF 4,71,500 SHARES OUT OF THE ORIGINAL SHARES AT EX-BONUS RATES BETWEE N 15.03.2007 TO 28.03.2007 AT AN AVERAGE SELLING RATE OF RS.303/- PER SHARE, W HICH RESULTED IN A SHORT TERM CAPITAL LOSS OF RS.14,95,84,935/-, WHICH WAS CLAIME D IN THE COMPUTATION OF INCOME. IN THIS CONTEXT ALSO, ASSESSING OFFICER CO NCLUDED THAT THE FREQUENCY OF PURCHASE AND SALE CARRIED OUT BY THE ASSESSEE IN DICATED THAT ASSESSEE WAS A TRADER IN SHARES AND NOT AN INVESTOR. AS PER THE ASSESSING OFFICER, THE DEALINGS IN THE SHARES OF HCL TECHNOLOGIES LTD. IND ICATED A PRE-MEDIATED INTENTION TO SET-OFF THE LOSS INCURRED ON ACCOUNT O F BONUS STRIPPING OF HCL TECHNOLOGIES LTD.S SHARES AGAINST THE LONG TERM CA PITAL GAIN EARNED ON THE SALE OF UNLISTED EQUITY SHARES OF CITY PARKS PVT. L TD.. 7. IN SUM AND SUBSTANCE, THE TRANSACTIONS OF SALE O F EQUITY SHARES OF M/S CITY PARK PVT. LTD. AS WELL AS THE PURCHASE AND SAL E OF HCL TECHNOLOGIES LTD.S SHARES WERE CONSIDERED BY THE ASSESSING OFFI CER TO BE A TRADING ACTIVITY DONE BY THE ASSESSEE IN SHARES. THE PROFIT/LOSS ON SALE OF 4,71,500 EQUITY SHARES OF HCL TECHNOLOGIES LTD. WAS WORKED OUT BY T HE ASSESSING OFFICER AS UNDER :- COMPUTATION OF BUSINESS INCOME : A. PROFIT ON SALE OF HCL TECHNOLOGIES SHARE PARTICULARS AMT.(RS) PARTICULARS AMT.(RS) OPENING STOCK NIL SALE OF 471500 14,28,67,804 ITA NO.764/PN/2012 ITA NO.824/PN/2012 SHARES* PURCHASE OF 471517 SHARES * 471517 BONUS SHARES 29,36,28,768 NIL CLOSING STOCK 471534 SHARES ** 14,68,19,677 PROFIT (-) 39,41,287 * PURCHASE COST AND SALES ARE INCLUSIVE OF BROK ERAGE AND OTHER CHARGES. ** COST BASED ON AVERAGE PRICE RS.311.37 PER SHAR E INCLUSIVE OF BONUS SHARES. 8. AS A CONSEQUENCE OF THE AFORESAID ACTION, ASSESS ING OFFICER WORKED OUT THE NET INCOME FROM BUSINESS BY WAY OF TRADING IN SHARES OF RS.16,94,78,713/- [I.E. (-) RS.39,41,287/- + RS.17, 34,20,000/-]. 9. BOTH THE AFORESAID STANDS OF THE ASSESSING OFFIC ER WERE CARRIED IN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSES SEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN LAW AND ON FACTS. THE CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE THAT SO FAR AS THE GAIN ARISING ON THE TRANSFER OF SHARES IN CITY PARK PVT. LTD. IS CONCERNED, IT WAS ASSESSABLE AS CAPITAL GAINS AND NOT BUSINESS INCOME, AS DONE BY THE ASSESSING OFFICER. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDED BEFORE THE CIT(A). 10. FURTHER, WITH REGARD TO THE TRANSACTION IN THE SHARES OF HCL TECHNOLOGIES LTD., THE CIT(A) TREATED THE SAME AS A TRADING ACTIVITY; AND, HE ALSO UPHELD THE METHODOLOGY ADOPTED BY THE ASSESSIN G OFFICER IN COMPUTING THE PROFIT/LOSS ON SALE OF 4,71,500 SHARES. CONSEQ UENTLY, THE CIT(A) HAS UPHELD THE ACTION OF THE ASSESSING OFFICER IN WORKI NG OUT THE LOSS ON PURCHASE AND SALE OF 4,71,500 SHARES OF HCL TECHNOLOGIES LTD . AS A BUSINESS LOSS AT RS.39,41,287/-, AS AGAINST ASSESSEES STAND OF DETE RMINING A SHORT TERM CAPITAL LOSS ON SALE OF SUCH SHARES AT RS.14,95,84, 935/-. 11. IN THE ABOVE BACKGROUND, ASSESSEE IS IN APPEAL BEFORE US CHALLENGING THE ORDER OF THE CIT(A) WITH RESPECT TO THE TREATME NT OF THE TRANSACTION OF ITA NO.764/PN/2012 ITA NO.824/PN/2012 PURCHASE AND SALE OF SHARES OF HCL TECHNOLOGIES LTD . WHEREAS THE REVENUE IN ITS CROSS-APPEAL IS CHALLENGING THE ACTION OF TH E CIT(A) IN TREATING THE GAIN ARISING FROM SALE OF SHARES OF CITY PARK PVT. LTD. AS CAPITAL GAIN AND NOT AS PROFITS AND GAINS OF BUSINESS. 12. IN THIS BACKGROUND, BOTH THE PARTIES HAVE ADVAN CED THEIR SUBMISSIONS. FIRST, WE SHALL TAKE-UP THE APPEAL OF THE REVENUE, WHEREIN THE GROUNDS OF APPEAL READ AS UNDER :- 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT (A) WAS JUSTIFIED IN HOLDING THAT THE PROFI T ON SALE OF SHARES OF M/S CITY PARKS PVT. LTD. AS CAPITAL GAIN WHEN THERE WAS A CLEAR CUT ADVENTURE IN THE NATURE OF TRADE ON THE PART OF THE ASSESSEE. 2) WITHOUT PREJUDICE TO THE ABOVE GROUND, WHETHER O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) W AS JUSTIFIED IN HOLDING THAT THE CAPITAL GAIN ON ACCOUNT OF SALE OF SHARES OF M/S CITY PARKS PVT. LTD. IS LONG TERM CAPITAL GAIN WHEN THE UNDERLYING ASSET WHICH GOT TRANSFERRED DUE TO SALE OF SHARES WAS 'LAND' AND HOLDING PERIOD OF WHICH WAS LESS THAN 36 MONTHS. 3) WITHOUT PREJUDICE TO THE FIRST GROUND, WHETHER O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (A) W AS JUSTIFIED IN HOLDING THAT THE CAPITAL GAIN ON SALE OF SHARES OF M/S CITY PARKS PVT. LTD. AS LONG TERM CAPITAL GAIN IGNORING THE PROVISIONS OF SECTIO N 2(47)(VI), AS THE UNDERLYING ASSET IN THIS CASE IS 'LAND' AND HOLDING PERIOD OF WHICH WAS LESS THAN 36 MONTHS. 13. IN THE CONTEXT OF THE APPEAL OF THE REVENUE, TH E LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT AS PER ANALYSIS OF THE ASSESSING OFFICER THE EARNING OF A HUGE CAPITAL GAIN ON SALE AND PURCHASE OF SHARES OF AN UNLISTED COMPANY I.E. CITY PARK PVT. LTD. WAS AN UNUSUAL TRA NSACTION. IN SUPPORT, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO THE FOLLOWING DISCUSSION IN THE ASSESSMENT ORDER :- A. CITY PARK WAS FORMED AS A PARTNERSHIP FIRM IN D ECEMBER 2004 WITH DR. CYRUS POONAWALLA AND ADAR POONAWALLA REPRE SENTING POONAWALLA GROUP THROUGH APOORVA REALTORS PVT. LTD., A CLOSELY HELD COMPANY WITH ONLY DR. CYRUS POONAWALLA AND SHRI. ADAR POONAWALLA AS THE SHAREHOLDERS. B. THE FIRM CITY PARK WAS CONVERTED TO A PRIVATE LI MITED COMPANY ON 17-1-2006 AND APOORVA REALTORS PVT. LTD. OWNED AND HELD BY DR. CYRUS POONAWALLA AND SHRI. ADAR POONAWALLA, HELD 50% OF SHARES OF CITY PARK PVT. LTD. ITA NO.764/PN/2012 ITA NO.824/PN/2012 C. APART FROM OWNERSHIP OF 50% INTEREST IN CITY PAR K PVT. LTD., THROUGH SHARE HOLDING OF APOORVA REALTORS PVT. LTD. , DR. CYRUS POONAWALLA IN HIS INDIVIDUAL CAPACITY, AND DR. CYRUS POONAWALL A AND ADAR POONAWALLA AS BENEFICIAL OWNER OF CLOSELY HELD POONAWALLA GROU P COMPANIES ADVANCED INTEREST FREE LOANS TO M/S. CITY PARK AND LATER CIT Y PARK PVT. LTD. TO THE TUNE OF RS. 25 CRORES, INDICATING THEIR DEEP INTEREST. A PASSIVE INVESTOR WOULD NOT ADVANCE UNSECURED LOANS INTEREST FREE UNLESS HE IS A PROMOTER OF THE BUSINESS, A FACT ACKNOWLEDGED BY SHRI. DESHPANDE. D. CITY PARK PVT. LTD. PURCHASED LANDS EXCEEDING 10 0 ACRES AND DEVELOPED IT THEREBY RAISING THE VALUE OF THE COMPA NY. YET ADDITIONAL SHARES WERE ALLOTTED TO DR. CYRUS POONAWALLA IN HIS INDIVIDUAL CAPACITY AT FACE VALUE. THIS IS CLEARLY IN THE NATURE OF REWARD TO A PROMOTER RATHER THAN ALLOTMENT OF SHARES TO A PASSIVE INVESTOR. OF COURS E, THE FACT THAT 50% INTEREST IN CITY PARK P. LTD. WAS HELD BY THE POONA WALLAS, ALLOTMENT OF SHARES AT FACE VALUE ONLY REFLECTED HIS DEFACTO AND DEJURE CONTROL OVER THE AFFAIRS OF CITY PARK PVT. LTD. D. AFTER HAVING DONE ALL THE HARD WORK, DR. CYRUS P OONAWALLA, GIFTED THE SHARES IN CITY PARK PVT. LTD., IMPREGNAT ED WITH VALUE FROM DEVELOPMENT OF LAND IN THE COMPANY, TO HIS SON. THE FRUITS OF HIS LABOR WERE DROPPED BY THE FATHER IN THE LAP OF HIS SON. E. ADAR POONAWALLA WAS ALSO ACTIVELY INVOLVED IN CI TY PARK PVT. LTD. IN AS MUCH AS HE IS THE CONTROLLING SHAREHOLDE R OF APOORVA REALTORS PVT. LTD., CO-OWNED WITH THIS FATHER. AS MENTIONED EARLIER, APOORVA REALTORS HELD 50% INTEREST IN CITY PARK PVT. LTD. TILL DR. C YRUS POONAWALLA WAS ALSO ALLOTTED SHARES. F. THE ENTIRE COMPANY, CITY PARK PVT. LTD. ALONG WI TH ITS 100 ACRES OF DEVELOPED LAND WITH SEZ NOTIFICATION, WAS SOLD TO PENINSULA LAND LTD., THEREBY ENCASHING THE UNDISTRIBUTED VALUE AND PROFITS FROM THE COMPANY. THE COMPANY, CITY PARK P. LTD., WAS SOLD L OCK STOCK AND BARREL THROUGH SALE OF ENTIRE SHARES FOR ABOUT RS.65 CRORE S WHEN THE VALUE OF LAND AS PER BOOKS OF CITY PARK P. LTD. WAS ABOUT RS.15 C RORES. IT IS NOTED THAT CITY PARK PVT. LTD. NEVER ISSUED ANY DIVIDENDS TO T HE SHAREHOLDERS NOR PAID ANY TAXES ON DEVELOPMENT OR SALE OF LAND. SHARES ALLOTTED AT FACE VALUE OF RS.10/- WERE SOLD FOR RS.270/- PER SHARE. 14. ON THE BASIS OF DISCUSSION, THE LEARNED DEPARTM ENTAL REPRESENTATIVE SOUGHT TO POINT OUT THAT THE REAL INTENT BEHIND SAL E OF UNLISTED EQUITY SHARES OF CITY PARK PVT. LTD. WAS TO TRANSFER THE LAND ACQUIR ED AND DEVELOPED BY THE SAID INVESTEE COMPANY, AND SUCH AN ACTIVITY HAS TO BE RE CKONED AS AN ADVENTURE IN NATURE OF TRADE IN THE HANDS OF THE ASSESSEE SHAREH OLDER. ON THIS POINT, IT IS ALSO SOUGHT TO BE EMPHASIZED BY THE LEARNED DEPARTM ENTAL REPRESENTATIVE THAT THE PURCHASE AND SALE OF SHARES OF HCL TECHNOL OGIES LTD. WAS ALSO DONE BY THE ASSESSEE IN THE PROXIMATE PERIOD WITH THE MO TIVE OF CREATING AN APPARENT LOSS IN ORDER TO SET-OFF THE SAME AGAINST THE GAIN FROM SALE OF SHARES ITA NO.764/PN/2012 ITA NO.824/PN/2012 OF CITY PARK PVT. LTD.. THUS, THE SHARE HELD IN CI TY PARKS PVT. LTD. AND HCL TECHNOLOGIES LTD. WERE TO BE UNDERSTOOD AS STOCK-IN -TRADE AND THEREFORE BOTH THE TRANSACTIONS WERE TO BE VIEWED AS BUSINESS TRAN SACTIONS. 15. ON THE ASPECT OF ASSESSABILITY OF THE GAIN ON T HE SALE OF SHARES IN CITY PARK PVT. LTD., THE LEARNED COUNSEL FOR THE ASSESSE E HAS DEFENDED THE ORDER OF THE CIT(A). IT WAS POINTED OUT BY THE LEARNED COUN SEL THAT SO FAR AS THE SHARES OF CITY PARK PVT. LTD. ARE CONCERNED, ASSESSEE RECE IVED THE SAME AS A GIFT FROM HIS FATHER, AN ASPECT WHICH HAS NOT BEEN DISPU TED BY THE ASSESSING OFFICER, AND THEREFORE ANY SALE THEREOF CANNOT BE V IEWED AS A TRADING ACTIVITY. IN SUM AND SUBSTANCE, RELIANCE HAS BEEN PLACED ON T HE FINDINGS OF THE CIT(A) IN TERMS OF WHICH THE GAIN ON SALE OF SHARES OF CIT Y PARK PVT. LTD. HAS BEEN ACCEPTED TO BE ASSESSABLE AS CAPITAL GAINS. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. FACTUALLY SPEAKING, SHARES OF CITY PARK PVT. LTD. SOLD BY THE ASSESSEE WERE NEITHER PURCHASED AND NOR ACQUIRED BY THE ASSESSEE ON HIS O WN VOLITION, BUT THE SAME HAVE BEEN RECEIVED AS GIFT FROM HIS FATHER. NOTABL Y, OUT OF THE TOTAL OF 6,67,000 SHARES, THE INVESTEE COMPANY ALLOTTED 6,66,333 SHAR ES TO CYRUS S. POONAWALLA (ASSESSEES FATHER) ON 27.01.2006 ON PAR (@ RS.10/- EACH) AND THE BALANCE 667 SHARES WERE ALLOTTED TO HIM ON 09.0 6.2006 ON PAR. THESE SHARES WERE RECEIVED BY THE ASSESSEE AS A GIFT FROM HIM FATHER (I.E. CYRUS S. POONAWALLA) IN THE PRECEDING YEAR, I.E. ON 01.09.20 06. THE FACT-POSITION EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW R EVEALS THAT SUCH SHARES WERE INDEED HELD BY ASSESSEES FATHER AS AN INVESTM ENT. IN SUCH A SCENARIO, ESPECIALLY IN THE ABSENCE OF ANY NOTABLE INSTANCES OF OTHER PURCHASE AND SALE OF SHARES OF CITY PARK PVT. LTD. BY THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION, IN OUR VIEW, THE ONUS WAS ON THE REV ENUE TO DEMONSTRATE THAT THE SALE OF SHARES OF CITY PARK PVT. LTD. BY THE AS SESSEE WAS A TRANSACTION AKIN TO AN ADVENTURE IN THE NATURE OF TRADE. ITA NO.764/PN/2012 ITA NO.824/PN/2012 17. THE CIT(A) HAS OBSERVED THAT THE INVESTEE COMPA NY I.E. CITY PARK PVT. LTD. IS AN UNLISTED PVT. LTD. COMPANY AND THEREFORE ITS SHARES ARE NOT FREELY MARKETABLE OR TRADABLE. ACCORDING TO THE CIT(A), S HARES OF AN UNLISTED PRIVATE LIMITED COMPANY DO NOT HAVE THE BASIC CHARACTERISTI CS OF A MARKETABLE PRODUCT, THAT ARE ASSOCIATED WITH THE SHARES OF A STOCK EXCH ANGE LISTED COMPANY. ON THIS ASPECT, WE FIND NO REASON TO DIFFER WITH THE O BSERVATIONS OF THE CIT(A). THE INVESTEE COMPANY, CITY PARK PVT. LTD. WAS IN TH E BUSINESS OF DEALING IN PROPERTY, DEVELOPMENT OF LAND, CONSTRUCTION OF BUIL DING, DEVELOPMENT OF INDUSTRIAL PARK, INFORMATION TECHNOLOGY PARK, ETC.. IT IS EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW THAT DURING THE PER IOD WHEN ASSESSEE HELD THE SHARES OF THE SAID COMPANY AND EVEN DURING THE PERI OD HELD BY THE ASSESSEES FATHER, THE SAID COMPANY ACQUIRED LAND/OTHER ASSETS AND UNDERTOOK ACTIVITIES WHICH ENHANCED THE VALUE OF LANDS/OTHER ASSETS OF T HE INVESTEE COMPANY, WHICH DID RESULT IN APPRECIATION IN THE VALUE OF SH ARES OF THE SAID INVESTEE COMPANY. IT IS, FOR THIS REASON ASSESSEE CANVASSED BEFORE THE LOWER AUTHORITIES THAT HE WAS OFFERED A BETTER PRICE OF T HE SHARES AND THEREFORE HE DECIDED TO SELL THE SHARES HELD BY HIM TO PENINSULA LAND LTD., WHEN THE SAID CONCERN APPROACHED HIM. TO THE CONTRARY, THE PLEA OF THE REVENUE IS THAT THE SALE OF SHARES OF CITY PARK PVT. LTD. BY THE ASSESS EE WAS INTENDED TO TRANSFER THE LANDS ACQUIRED BY THE INVESTEE COMPANY. THEREF ORE, ACCORDING TO THE REVENUE, THE SHARES OF CITY PARK PVT. LTD. WERE HEL D BY ASSESSEE AS STOCK-IN- TRADE AND ANY SALE THEREOF CONSTITUTES AN ADVENTURE IN NATURE OF TRADE. WE ARE UNABLE TO ACCEPT THE AFORESAID PLEA OF THE REVENUE BECAUSE THE BUSINESS AND ASSETS OF A CORPORATE ENTITY ARE NOT BUSINESS AND A SSETS OF ITS SHAREHOLDERS, AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MR S. BACHA F. GUZDAR VS. CIT, (1955) 27 ITR 01 (SC). THE CIT(A), IN OUR VIE W, MADE NO MISTAKE IN DISREGARDING THE AFORESAID PLEA OF THE ASSESSEE BY RELYING ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MRS. BACHA F. GUZDAR (SUPRA). THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CASE OF MRS. ITA NO.764/PN/2012 ITA NO.824/PN/2012 BACHA F. GUZDAR (SUPRA) IS WORTHY OF NOTICE, AND WH ICH CLEARLY SUPPORT THE CONCLUSION OF CIT(A) :- THAT A SHAREHOLDER ACQUIRES A RIGHT TO PARTICIPATE IN THE PROFITS OF THE COMPANY MAY BE READILY CONCEDED BUT IT IS NOT P OSSIBLE TO ACCEPT THE CONTENTION THAT THE SHAREHOLDER ACQUIRES ANY INTERE ST IN THE ASSETS OF THE COMPANY. A SHAREHOLDER HAS GOT NO INTEREST IN THE P ROPERTY OF THE COMPANY THOUGH HE HAS UNDOUBTEDLY A RIGHT TO PARTICIPATE IN THE PROFITS IF AND WHEN THE COMPANY DECIDES TO DIVIDE THEM. THE INTEREST OF A SHAREHOLDER VIS-A-VIS THE COMPANY WAS EXPLAINED IN THE SHOLAPUR MILLS CAS E [1950] SCR 869 AT 904. THAT JUDGMENT NEGATIVES THE POSITION TAKEN UP ON BEHALF OF THE APPELLANT THAT A SHAREHOLDER HAS GOT A RIGHT IN THE PROPERTY OF THE COMPANY. IT IS TRUE THAT THE SHAREHOLDERS OF THE COMPANY HAV E THE SOLE DETERMINING VOICE IN ADMINISTERING THE AFFAIRS OF THE COMPANY A ND ARE ENTITLED, AS PROVIDED BY THE ARTICLES OF ASSOCIATION, TO DECLARE THAT DIVIDENDS SHOULD BE DISTRIBUTED OUT OF THE PROFITS OF THE COMPANY TO TH E SHAREHOLDERS BUT THE INTEREST OF THE SHAREHOLDER EITHER INDIVIDUALLY OR COLLECTIVELY DOES NOT AMOUNT TO MORE THAN A RIGHT TO PARTICIPATE IN THE P ROFITS OF THE COMPANY. THE COMPANY IS A JURISTIC PERSON AND IS DISTINCT FR OM THE SHAREHOLDERS. IT IS THE COMPANY WHICH OWNS THE PROPERTY AND NOT THE SHA REHOLDERS. 18. ON THIS ASPECT, WE MAY ALSO REFER TO THE DISCUS SION BY THE CIT(A) IN PARA 5.1.3 OF HIS ORDER WHEREIN HE HAS REFERRED TO THE CBDT CIRCULAR DATED 15.06.2007. AS PER THE CIT(A), FOLLOWING THE CRITE RIA LAID DOWN IN THE CBDT CIRCULAR, THE SHARES IN QUESTION ARE TO BE UNDERSTO OD AS INVESTMENT THEREBY GIVING RISE TO CAPITAL GAIN ON ITS SALE. THE AFORE SAID FINDING OF THE CIT(A) HAS NOT BEEN NEGATED BY THE REVENUE BEFORE US AND IS AC CORDINGLY AFFIRMED. 19. ANOTHER ASPECT RAISED BY THE ASSESSING OFFICER WAS THAT ASSESSEE OR HIS FATHER WERE NOT MERELY PASSIVE INVESTORS IN CIT Y PARK PVT. LTD. BUT WERE ACTIVELY INVOLVED IN THE BUSINESS OPERATIONS OF THE COMPANY AND THEREFORE THE SHARES HELD BY THEM IN CITY PARK PVT. LTD. ATTAIN T HE CHARACTER OF STOCK-IN- TRADE. IN OUR CONSIDERED OPINION, WHETHER A SHAREH OLDER IS AN ACTIVE OR A PASSIVE INVESTOR IN AN INVESTEE COMPANY IS OF NO CO NSEQUENCE TO EXAMINE THE NATURE OF THE SHARES HELD BY HIM. IN OUR VIEW, THE CIT(A) WAS JUSTIFIED IN NEGATING THE AFORESAID PLEA OF THE ASSESSING OFFICE R IN THE PROCESS OF DETERMINING THE NATURE OF THE SHARE HOLDING OF ASSE SSEE IN CITY PARK PVT. LTD.. ITA NO.764/PN/2012 ITA NO.824/PN/2012 20. BEFORE PARTING, WE MAY ALSO REFER TO A PLEA OF THE ASSESSING OFFICER THAT ASSESSEE HAD ADOPTED A COLOURABLE DEVICE TO AVOID T AX AND IN THIS CONTEXT RELIANCE WAS PLACED ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO, 154 ITR 148 (SC). THIS OBJECTION OF THE ASSESSING OFFICER HAS BEEN DEALT WITH BY THE CI T(A) IN PARA 5.1.5 OF HIS ORDER, WHICH READS AS UNDER :- 5.1.5 THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE JU DGMENT OF HON'BLE SUPREME COURT IN CASE OF MC. DOWELL & CO . LTD. AND OTHER AUTHORITIES AND OBSERVED THAT A COLORABLE DEVICE WA S ADOPTED BY THE APPELLANT TO AVOID TAX. HOWEVER, IN THIS CASE, THE ISSUE INVOLVED IS TAXABILITY OF GAINS ARISING ON SALE OF IMPUGNED SHARES UNDER T HE HEAD 'CAPITAL GAINS' OR AS 'PROFITS OF BUSINESS'. THE CONVERSION OF ERST WHILE PARTNERSHIP FIRM INTO PRIVATE LIMITED COMPANY, HOLDING OF SHARES BY APPEL LANT'S FATHER IN CITY PARK, RECEIPT OF SHARES BY THE APPELLANT WAY OF GIF T, SUBSEQUENT SALE OF SHARES, GENUINENESS OF THE TRANSACTIONS ARE NOT DOU BTED BY THE ASSESSING OFFICER. IT CANNOT ALSO BE GLOSSED OVER THAT 50% OF THE SHARES IN THE COMPANY WERE HELD BY OTHER PROMPTERS, NAMELY MR. AN IRUDHA DESHPANDE, MR. VITHAL MANIYAR, NAMRATA FILM ENTERPRISES LTD. I N SUCH CIRCUMSTANCES, IN SO FAR AS ACQUISITION AND SALE OF SHARES OF CITY PAK ARE CONCERNED, IT IS DIFFICULT TO SAY THAT THE APPELLANT ADOPTED COLORAB LE DEVICE TO AVOID TAX. THE MANNER IN WHICH THE TRANSACTION IN SHARES OF CITY P ARK HAS BEEN ENTERED INTO BY THE APPELLANT'S FATHER AND APPELLANT CAN AT BEST BE TERMED AS TAX PLANNING, BUT IT CANNOT BE REGARDED AS TAX EVASION. TAX PLANNING IS PERMISSIBLE AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHAO ANDOLAN 263 ITR 706. 21. IN OUR VIEW, THE AFORESAID DISCUSSION BY THE CI T(A) IS FAIR AND APT, HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND WE FIND NO REASON TO INTERFERE WITH THE SAME. IN ANY CASE, TH ERE IS NO MATERIAL TO SUGGEST THAT ANY COLOURABLE DEVICE HAS BEEN ADOPTED BY THE ASSESSEE TO AVOID TAX WHILE CARRYING ON THE TRANSACTION OF SALE OF SHARES OF CITY PARK PVT. LTD. TO PENINSULA LAND LTD.. 22. IN VIEW OF THE AFORESAID DISCUSSION, WE HEREBY AFFIRM THE ORDER OF THE CIT(A) HOLDING THAT THE SURPLUS ARISING ON THE SALE OF SHARES IN CITY PARK PVT. LTD. IS ASSESSABLE AS CAPITAL GAIN AND NOT AS PROFI TS AND GAINS OF BUSINESS. THUS, ON THIS ASPECT, REVENUE FAILS. ITA NO.764/PN/2012 ITA NO.824/PN/2012 23. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE WHICH RELATES TO THE NATURE AND QUANTIFICATION OF LOSS INCURRED BY THE A SSESSEE ON SALE OF SHARES OF HCL TECHNOLOGIES LTD.. 24. TO RECAPITULATE, THE BACKGROUND OF THE DISPUTE IN ASSESSEES APPEAL CAN BE SUMMARIZED AS FOLLOWS. THE ASSESSEE BEFORE US I S AN INDIVIDUAL, WHO IS EXECUTIVE DIRECTOR OF SERUM INSTITUTE OF INDIA LTD. . IN THE PERIOD FROM 28.02.2007 TO 13.03.2007, ASSESSEE PURCHASED 4,71,5 17 EQUITY SHARES OF HCL TECHNOLOGIES LTD. FOR A TOTAL CONSIDERATION OF RS.29,36,28,768/- (INCLUSIVE OF BROKERAGE, ETC.). THE AVERAGE PURCHASE PRICE OF ABOVE PURCHASE WAS RS.622 PER SHARE. ON 12.02.2007, HCL TECHNOLOGIES LTD. ANNOUNCED BONUS ISSUE OF SHARES IN THE RATIO OF ONE SHARE FOR EVERY ONE SHARE HELD AND THE RECORD DATE WAS FIXED AS 16.03.2007. CONSEQUENTLY, ON ACCOUNT OF HIS PURCHASE OF 4,71,517 EQUITY SHARES, ASSESSEE RECEIV ED 4,71,517 BONUS SHARES ALSO. SUBSEQUENTLY, BETWEEN 15.03.2007 TO 2 8.03.2007 ASSESSEE SOLD 4,71,500 SHARES OF HCL TECHNOLOGIES LTD. OUT OF THE ORIGINAL 4,71,517 SHARES ACQUIRED BY HIM. SUCH SHARES WERE SOLD FOR A CONSI DERATION OF RS.14,28,67,804/- WHICH REFLECTED AN AVERAGE SALE P RICE OF RS.303 PER SHARE. ASSESSEE DECLARED A SHORT TERM CAPITAL LOSS ON SALE OF SUCH SHARES OF RS.15,01,80,424/-. 25. THE ASSESSING OFFICER HAS DIFFERED WITH THE ASS ESSEE ON THE TREATMENT OF THE AFORESAID TRANSACTION. AS PER THE ASSESSING OFFICER, THE AFORESAID TRANSACTION REFLECTED ACTIVE INVOLVEMENT OF THE ASS ESSEE AS A TRADER, RATHER THAN AS AN INVESTOR. AS PER THE ASSESSING OFFICER, ASSESSEE REGULARLY DEALT IN THE SHARES OF HCL TECHNOLOGIES LTD. WHICH REFLECTED A TRADING INTENTION. SECONDLY, THE STAND OF THE ASSESSING OFFICER WAS TH AT THE MOTIVE FOR CARRYING OUT THE AFORESAID SET OF TRANSACTIONS IN THE SHARES OF HCL TECHNOLOGIES LTD. WAS TO INCUR LOSS ON ACCOUNT OF BONUS STRIPING AND THEN SET-OFF SUCH LOSS AGAINST THE LONG TERM CAPITAL GAIN ACCRUING TO THE ASSESSEE ON SALE OF SHARES ITA NO.764/PN/2012 ITA NO.824/PN/2012 OF CITY PARK PVT. LTD.. AS PER THE ASSESSING OFFIC ER, THE MOTIVE OF THE ASSESSEE IN DEALING IN THE SHARES OF HCL TECHNOLOGI ES LTD. WAS TAX AVOIDANCE AND A DUBIOUS TAX PLANNING. ULTIMATELY, THE ASSESSING OFFICER DISAGREED WITH THE ASSESSEE WITH NATURE AND THE QUA NTIFICATION OF LOSS ON THE SALE OF 4,71,500 EQUITY SHARES OF HCL TECHNOLOGIES LTD.. THE ASSESSING OFFICER COMPUTED THE LOSS AT RS.39,41,287/- AS PER THE TABULATION WHICH WE HAVE REPRODUCED EARLIER IN THIS ORDER. THE POINT O F DIFFERENCE ON THIS ASPECT BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER WAS WITH REGARD TO THE COST OF THE SHARES SOLD. THE ASSESSING OFFICER FOLLOWED THE METHODOLOGY OF SPREADING THE COST OF ORIGINAL SHARES TO TOTAL SHAR ES I.E. THE ORIGINAL SHARES PLUS BONUS SHARES. IN OTHER WORDS, THE TOTAL SHARES HEL D BY THE ASSESSEE (I.E. ORIGINAL SHARES 4,71,517 + BONUS SHARES 4,71,517) W ERE CONSIDERED TO HAVE BEEN ACQUIRED FOR AN AMOUNT OF RS.29,36,28,768/-, I .E. THE PRICE ORIGINALLY INCURRED BY THE ASSESSEE. THE ASSESSING OFFICER TR EATED THE SHARES OF HCL TECHNOLOGIES LTD. AS STOCK-IN-TRADE AND THEREFORE T HE LOSS OF RS.39,41,287/- TREATED AS A BUSINESS LOSS. THE CIT(A) HAS AFFIRME D BOTH THE STANDS OF THE ASSESSING OFFICER, NAMELY, THAT THE TRANSACTION IN THE SHARES OF HCL TECHNOLOGIES LTD. WAS A BUSINESS TRANSACTION, AND, SECONDLY THAT THE METHODOLOGY OF LOSS COMPUTED BY THE ASSESSING OFFIC ER WAS CORRECT. 26. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE VEHEMENTLY ARGUED THAT THE LOWER AUTHORITIES HAVE ERRED IN TREATING T HE ACTIVITY OF DEALING IN THE SHARES OF HCL TECHNOLOGIES LTD. AS A BUSINESS ACTIV ITY. ACCORDING TO THE LD. REPRESENTATIVE, ASSESSEE WAS WHOLE-TIME INVOLVED AS EXECUTIVE DIRECTOR OF SERUM INSTITUTE OF INDIA LTD.; AND, THAT THERE WAS NEITHER AN ORGANIZED ACTIVITY OF TRADING IN SHARES AND NOR WAS THERE ANY ORGANIZA TIONAL SUPPORT IN THIS REGARD. WITH REGARD TO THE PROFIT MOTIVE, IT HAS B EEN CONTENDED BY THE LD. REPRESENTATIVE THAT BE IT BE A BUSINESS TRANSACTION OR AN INVESTMENT TRANSACTION, PROFIT MAXIMIZATION IS AN ELEMENT WHIC H IS ALWAYS PRESENT. IT HAS ALSO BEEN CONTENDED THAT THE LOWER AUTHORITIES HAVE ERRED IN CONFIRMING THAT ITA NO.764/PN/2012 ITA NO.824/PN/2012 BONUS SHARES RECEIVED FORMED PART OF THE STOCK-IN-T RADE AND TAKING THE COST OF SHARES SOLD ON AVERAGE BASIS WAS ALSO WRONG. IN TH IS CONTEXT, RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. MADAN GOPAL RADHYEY LAL, 73 ITR 652 WHEREIN THE SUPREME COURT HELD THAT IN THE HANDS OF THE DEALER OF SHARES, ANY BONU S SHARES RECEIVED CONSTITUTE A CAPITAL ASSET UNLESS SPECIFICALLY CONVERTED INT O STOCK-IN-TRADE. BASED ON THE AFORESAID JUDGEMENT, IT IS CONTENDED THAT THE ASSES SEE RECEIVED THE BONUS SHARES AS A CAPITAL ASSET AND NEVER CONVERTED THE BONUS SHARES INTO STOCK-IN- TRADE. IT IS SUBMITTED THAT IN THE SUBSEQUENT ASSE SSMENT YEARS, THE SALE PROCEEDS IN RESPECT OF BONUS SHARES SOLD WERE OFFER ED TO TAX UNDER THE HEAD CAPITAL GAIN AFTER CONSIDERING THEIR COST OF ACQU ISITION AS NIL AND SUCH A TREATMENT HAS BEEN ACCEPTED BY THE ASSESSING OFFICE R IN SCRUTINY ASSESSMENTS. IT WAS THEREFORE CONTENDED THAT THE Q UANTITY OF BONUS SHARES COULD NOT BE CONSIDERED WHILE DETERMINING THE COST OF THE ORIGINAL SHARES SOLD DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. REPRESENTATIVE, THIS IS ALSO ON PAR WITH SECTION 55(2)(AA)(IIIA) OF THE ACT WHEREIN THE COST OF BONUS SHARES IS TO BE TAKEN AS NIL AND THE ENTIRE COST IS LIABLE TO BE ADJUSTED ON THE ORIGINAL SHARES. 27. AT THE TIME OF HEARING, IT HAS ALSO BEEN POINTE D OUT THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD SOLD OTHER SHARES AND UNITS OF MUTUAL FUNDS, AND PROFIT ARISING FROM SUCH TRANSACTIONS HA VE BEEN ACCEPTED BY THE ASSESSING OFFICER TO BE ASSESSABLE AS CAPITAL GAIN S. FURTHERMORE, IT WAS POINTED OUT THAT IN THE PRECEDING ASSESSMENT YEARS AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEARS, THE ASSESSING OFFICER HAS ASSESSED THE GAIN ON SALE OF SHARES AS AN INCOME ASSESSABLE UNDER THE HEAD CAPITAL GAINS, EVEN IN THE COURSE OF SCRUTINY ASSESSMENT. FOR ALL THE AFORESAID REASONS, IT HAS BEEN CANVASSED THAT THERE WAS NO SCOPE FOR TREATING THE IMPUGNED TRANSACTION AS BUSINESS TRANSACTIONS. IT WAS ALSO VEHEMENTLY A RGUED THAT THERE WAS NO MATERIAL TO IMPEACH THE GENUINENESS OF THE TRANSACT IONS AND THAT AT BEST THE ITA NO.764/PN/2012 ITA NO.824/PN/2012 TRANSACTION CAN BE TERMED AS A USE OF THE PROVISIO NS OF LAW AND IT CANNOT BE SAID TO BE A ABUSE OF LAW, AS WAS OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS ( P.) LTD., 326 ITR 1 (SC) IN A SOMEWHAT SIMILAR SITUATION. 28. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE HAS REITERATED THAT THE MAGNITUDE AND F REQUENCY OF THE TRANSACTIONS IN THE HCL TECHNOLOGIES LTD. SHARES WA S QUITE SUBSTANTIAL WHICH REFLECTS THAT THE INTENTION OF THE ASSESSEE WAS TO TRADE IN SUCH SHARES. WITH REGARD TO ASSESSEES INTENTION, IT WAS POINTED OUT THAT AT THE TIME OF UNDERTAKING TRANSACTIONS IN HCL TECHNOLOGIES LTD. S HARES, ASSESSEE WAS AWARE THAT HE WAS CONSIDERING THE SALE OF SHARES OF CITY PARK PVT. LTD., WHICH WAS TO YIELD HIM SUBSTANTIAL AMOUNT OF CAPITAL GAIN AND THEREFORE HE UNDERTOOK THE IMPUGNED TRANSACTION IN SHARES OF HCL TECHNOLOG IES LTD. IN ORDER TO INCUR A LOSS. ACCORDING TO THE LD. DEPARTMENTAL REPRESEN TATIVE, IT IS A COMMON KNOWLEDGE THAT SHARE PRICES COME DOWN AFTER THE ISS UE OF THE BONUS SHARES, SINCE THE BONUS SHARES ARE ALLOTTED AFTER CAPITALIZ ING THE FREE RESERVES OF A COMPANY. THEREFORE, ASSESSEE BOUGHT THE SHARES OF HCL TECHNOLOGIES LTD. ON CUM BONUS BASIS AND AFTER HAVING RECEIVED THE BO NUS SHARES, THE ORIGINAL SHARES WERE SOLD IN THE MARKET AT THE REDUCED PRICE S. ACCORDING TO THE LD. DEPARTMENTAL REPRESENTATIVE, SEQUENCE OF EVENTS CLE ARLY INDICATE THAT THE PURCHASE AND SALE OF SHARES WAS UNDERTAKEN WITH THE SOLE INTENTION OF BOOKING A LOSS SO AS TO SET-OFF THE SAME AGAINST THE GAIN F ROM SALE OF SHARES OF CITY PARK PVT. LTD. AND TAKE THE BENEFIT OF PROVISIONS O F SECTION 10(38) OF THE ACT, THEREBY CLAIMING THE CAPITAL GAIN ON SALE OF BONUS SHARES AS EXEMPT ON A LATER DATE. 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THE PRESENT CASE, THE FUNDAMENTAL ASPECT WHICH IS PERMEATING TH ROUGH THE ENTIRE EXERCISE CARRIED OUT BY THE ASSESSING OFFICER IS THAT THE SH ORT TERM CAPITAL LOSS INCURRED ITA NO.764/PN/2012 ITA NO.824/PN/2012 BY THE ASSESSEE ON SALE OF 4,71,500 SHARES OF HCL T ECHNOLOGIES LTD. HAS BEEN SET-OFF AGAINST THE LONG TERM CAPITAL GAIN EAR NED BY THE ASSESSEE ON THE SALE OF SHARES OF CITY PARK PVT. LTD.. THE APPELLA NT PURCHASED 4,71,517 EQUITY SHARES OF HCL TECHNOLOGIES LTD. AT AN AVERAGE PRICE OF RS.622 PER SHARE BETWEEN 28.02.207 TO 13.02.2007. AFTER RECEIPT OF 4,71,517 BONUS SHARES, ASSESSEE SOLD 4,71,500 SHARES OUT OF ORIGINAL SHARE S BETWEEN 16.03.2007 TO 28.02.2007 AT AN AVERAGE SELLING PRICE OF RS.303 PE R SHARE. OSTENSIBLY, AFTER THE ISSUE OF BONUS SHARES, THE PRICE OF HCL TECHNOL OGIES LTD. DECLINED IN THE MARKET AND THEREFORE THE SALE PRICE REALIZED BY THE ASSESSEE WAS ONLY RS.303 PER SHARE AS AGAINST AS THE PURCHASE PRICE OF CUM-B ONUS SHARES OF RS.622 PER SHARE. THE RESULTANT LOSS WAS CANVASSED TO BE A SH ORT CAPITAL LOSS. IN THE SUBSEQUENT YEARS, ASSESSEE SOLD THE BALANCE SHARES REMAINING WITH HIM I.E. BONUS SHARES OF 471517 AND THE 17 OUT OF THE ORIGIN AL 471517 SHARES. AS THE PERIOD OF HOLDING THAT WAS IN EXCESS OF 12 MONTHS, IN SUBSEQUENT YEARS THE GAIN ON SALE OF SUCH SHARES HAS BEEN ACCEPTED BY TH E ASSESSING OFFICER AS LONG TERM CAPITAL GAIN, WHICH WAS EXEMPT U/S 10(38) OF THE ACT. NOTABLY, WHILE COMPUTING SUCH CAPITAL GAIN, THE COST OF ACQUISITIO N OF THE BONUS SHARES WAS TAKEN AS NIL BY APPLICATION OF THE PROVISIONS OF SECTION 55(2)(AA)(IIA) OF THE ACT. THE AFORESAID POSITION HAS BEEN ACCEPTED BY T HE ASSESSING OFFICER IN SCRUTINY ASSESSMENT, AS ASSERTED BY THE ASSESSEE IN THE COURSE OF THE HEARING BEFORE US, AND THIS MATERIAL HAS NOT BEEN REPUDIATE D FROM THE SIDE OF THE REVENUE. 30. IN THE CURRENT YEAR, ASSESSEE COMPUTED THE LOSS ON SALE OF 4,71,500 ORIGINAL SHARES BY CONSIDERING THE AVERAGE ACQUISIT ION COST OF RS.622 PER SHARE. OSTENSIBLY, IT RESULTED IN A LOSS BECAUSE T HE SALE PRICE REALIZED WAS ONLY RS.303 PER SHARE. FIRST OF ALL, THE ASSESSING OFFICER VIEWED THE WHOLE TRANSACTION AS A DUBIOUS TAX PLANNING. IN THIS CO NTEXT, A REFERENCE HAS BEEN MADE TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P.) LTD. (SUPRA). IN THE CA SE BEFORE THE HONBLE ITA NO.764/PN/2012 ITA NO.824/PN/2012 SUPREME COURT, ASSESSEE PURCHASED MUTUAL FUND UNITS ON 24.03.2000 AND BECAME ENTITLED TO DIVIDEND ON THE UNITS @ RS.4 PER UNIT AND EARNED A DIVIDEND OF RS.1,82,12,862/-. AS A RESULT OF THE D IVIDEND PAYOUT THE VALUE OF THE UNITS REDUCED FROM RS.17.23 TO RS.13.23 PER UNI T ON MARCH 27, 2000, WHEN ASSESSEE SOLD ALL THE UNITS AND COLLECTED AN AMOUNT OF RS.5,90,55,207/- AS WELL AS OTHER INCENTIVES OF RS.23,76,778/-. IN ALL , ASSESSEE RECEIVED BACK RS.7,96,44,847/- AS AGAINST INITIAL PAYOUT OF RS.8, 00,00,000/-. IN THE RETURN OF INCOME, ASSESSEE CLAIMED DIVIDEND OF RS.1,82,12,862 /- AS EXEMPT U/S 10(33) OF THE ACT AND ALSO CLAIMED A SET-OFF RS.2,09,44,79 3/- AS LOSS INCURRED ON SALE OF UNITS. THE REVENUE DISALLOWED THE SET-OFF OF LO SS CLAIMED WHICH WAS NEGATED BY THE TRIBUNAL AND THEREAFTER THE HONBLE SUPREME COURT. AS PER THE HONBLE SUPREME COURT, IT STOOD ESTABLISHED THAT TH ERE WAS A SALE AND THAT ASSESSEE RECEIVED A DIVIDEND, WHICH WAS TAX-FREE. IN THIS CONTEXT, THE HONBLE SUPREME COURT NOTED THAT THE ENTIRE TRANSACTION COU LD NOT BE SEEN AS ABUSE OF LAW BUT THE ASSESSEE HAD MADE USE OF THE PROVISIONS OF SECTION 10(33) . THE HONBLE SUPREME COURT OBSERVED THAT EVEN IF IT WAS TO BE ASSUMED THAT THERE WAS A PRE-PLANNED ACTION YET THERE WAS NOTHIN G TO IMPEACH THE GENUINENESS OF THE TRANSACTION. ADVERTING TO THE P ROVISIONS OF SECTION 94(7) OF THE ACT, THE HONBLE SUPREME COURT NOTED THAT IN TH E CASE OF ASSESSMENT, BEFORE 01.04.2002 I.E. BEFORE INSERTION OF SECTION 94(7) OF THE ACT, LOSSES PERTAINING TO THE EXEMPTED INCOME COULD NOT BE DISA LLOWED. THE ASSESSMENT YEAR BEFORE THE HONBLE SUPREME COURT WAS BEFORE TH E INSERTION OF SECTION 94(7) OF THE ACT. IT HAS ALSO BEEN OBSERVED BY THE HONBLE SUPREME COURT THAT EVEN AFTER APPLYING SECTION 94(7) TO CASES FOR ASSE SSMENT YEARS AFTER 01.04.2002, THE LOSS TO BE IGNORED WOULD BE ONLY TO THE EXTENT OF THE DIVIDEND RECEIVED AND NOT THE ENTIRE LOSS. IN OTHER WORDS, THE LOSSES OVER AND ABOVE THE DIVIDEND RECEIVED WOULD STILL BE ALLOWED TO BE SET-OFF. CONSIDERING THE AFORESAID SCHEME OF THE ACT, THE HONBLE SUPREME CO URT HELD THAT THE PARLIAMENT HAS NOT TREATED THE DIVIDEND STRIPPING T RANSACTION AS SHAM OR BOGUS. ITA NO.764/PN/2012 ITA NO.824/PN/2012 31. IN OUR CONSIDERED OPINION, THE PARITY OF REASON ING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P.) LTD. (SUPRA) IS DEFINITELY ATTRACTED IN THE PRESENT CASE TOO. IN THE PRESENT CASE, EVEN IF IT IS TAKEN THAT THE TRANSACTION IN THE SHA RES OF HCL TECHNOLOGIES LTD. WAS PRE-PLANNED, BUT THE INFERENCE DRAWN BY THE ASS ESSING OFFICER THAT IT WAS A DUBIOUS TAX PLANNING CANNOT BE UPHELD BECAUSE THE RE IS NOTHING TO IMPEACH THE GENUINENESS OF THE TRANSACTION CARRIED OUT BY T HE ASSESSEE. IN THE CASE BEFORE THE HONBLE SUPREME COURT ALSO, SIMILAR SITU ATION PREVAILED AND THE REVENUE HAD CAST DOUBT ON THE TRANSACTION BECAUSE O F PRE-PLANNED NATURE OF THE TRANSACTION. THE HONBLE SUPREME COURT NEGATED THE STAND OF THE REVENUE, AS NOTED BY US EARLIER. APPLYING THE SIMI LAR PARITY OF REASONING IN THE PRESENT CASE, THE STAND OF THE ASSESSING OFFICE R THAT THE TRANSACTION WAS PRE-MEDITATED WITH THE INTENTION OF INCURRING LOSS AND SETTING-OFF AGAINST CAPITAL GAINS INCOME IS AN ABUSE OF LAW CANNOT BE AFFIRME D. 32. WE MAY ALSO REFER TO SECTION 94(8) OF THE ACT, WHICH HAS BEEN INSERTED BY THE FINANCE (NO.2) W.E.F. 01.04.2005, AND IT PRO VIDES THAT LOSS ARISING ON BONUS STRIPPING OF UNITS IS TO BE IGNORED AFTER 01. 04.2005. THE PHRASEOLOGY OF SECTION 94(8) OF THE ACT ITSELF REVEALS THAT THE PA RLIAMENT IN ITS WISDOM RESTRICTED THE SCOPE OF BONUS STRIPPING U/S 94(8) O F THE ACT ONLY TO THE UNITS AND DID NOT EXTEND IT TO THE SHARES WHILE THE SCOPE OF THE DIVIDEND STRIPPING CONTAINED IN SECTION 94(7) OF THE ACT APPLIED BOTH TO SHARES/SECURITIES AS WELL AS UNITS. THEREFORE, ON THE STRENGTH OF SECTION 94 (8) OF THE ACT ALSO AND HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE WALFORT SHARE & STOCK BROKERS (P.) LTD. (S UPRA), THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES OF HCL TECHNOLOGIES LTD . ARE TO BE UNDERSTOOD AS A GENUINE TRANSACTION AND ARE NOT COVERED BY THE PROVISIONS OF SECTION 94(8) OF THE ACT. ITA NO.764/PN/2012 ITA NO.824/PN/2012 33. NOW, WITH REGARD TO THE STAND OF THE ASSESSEE T HAT HE HAS ACTED AS AN INVESTOR AND NOT AS A TRADER WHILE CARRYING OUT THE AFORESAID TRANSACTION IN THE SHARES OF HCL TECHNOLOGIES LTD.. IN THIS CONTEXT, THE SUM AND SUBSTANCE OF THE CASE MADE OUT BY THE REVENUE IS THAT WITHIN A S HORT PERIOD OF TIME ASSESSEE HAS CARRIED OUT SUBSTANTIAL PURCHASE/SALE TRANSACTIONS IN THE SHARES OF HCL TECHNOLOGIES LTD.. AS PER THE ASSESSING OFF ICER, THE TRANSACTION HAS BEEN CARRIED OUT IN A SYSTEMATIC AND ORGANIZED MANN ER AND THE INTENT WAS TO INCUR A LOSS, WHICH COULD BE SET-OFF AGAINST THE CA PITAL GAINS INCOME. THEREFORE, ACCORDING TO THE REVENUE, THE TRANSACTIO NS HAVE TO UNDERSTOOD AS A BUSINESS ACTIVITY. 34. IT IS TRITE LAW THAT WHETHER A PARTICULAR TRANS ACTION IS AN ADVENTURE IN THE NATURE OF TRADE OR IS AN INVESTMENT SIMPLICITOR IS A MIXED QUESTION OF LAW AND FACTS. IT IS ALSO EVIDENT THAT THERE IS A PLETHORA OF JUDICIAL RULINGS ON THIS ASPECT. NEVERTHELESS, A COMMON THREAD WHICH EMERGES FROM VA RIOUS JUDICIAL RULINGS IS THAT NO SINGLE TEST IS CONCLUSIVE BUT THE ENTIRE CO NSPECTUS OF FACTS AND CIRCUMSTANCES OF A GIVEN CASE HAVE TO BE CUMULATIVE LY APPRECIATED IN ORDER TO DETERMINE AS TO WHETHER THE TRANSACTION IN QUESTION IS AN ADVENTURE IN THE NATURE OF TRADE OR IS AN INVESTMENT SIMPLICITOR. I N THIS BACKGROUND, WE MAY EXAMINE THE FACTUAL MATRIX OF THE PRESENT CASE. AT THE OUTSET, THE LD. REPRESENTATIVE POINTED OUT THAT THE GAIN DERIVED ON SALE OF OTHER SHARES AND MUTUAL FUNDS IN THIS YEAR HAS BEEN ACCEPTED BY THE ASSESSING OFFICER TO BE ASSESSABLE UNDER THE HEAD CAPITAL GAINS. IT HAS ALSO BEEN POINTED OUT THAT IN THE SCRUTINY ASSESSMENT FOR THE PRECEDING ASSESSMEN T YEARS AS WELL AS FOR THE SUBSEQUENT ASSESSMENT YEARS THE PROFIT ON SALE OF S HARES EARNED BY THE ASSESSEE HAS BEEN ACCEPTED AS ASSESSABLE UNDER THE HEAD CAPITAL GAINS. NOTABLY, EVEN WITH REGARD TO THE GAIN ON SALE OF BO NUS SHARES OF HCL TECHNOLOGIES LTD., IT WAS STATED AT BAR THAT IN SUB SEQUENT ASSESSMENT YEARS IT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER AS AN IN COME ASSESSABLE UNDER THE HEAD CAPITAL GAINS. ON ALL THESE ASPECTS, TH E REVENUE HAS NOT ITA NO.764/PN/2012 ITA NO.824/PN/2012 CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE ASSESSEE. IN THIS BACKGROUND, IN OUR CONSIDERED OPINION, THE ONUS WAS ON THE REVENUE TO ESTABLISH THAT THE TRANSACTION IN THE SHARES OF HCL TECHNOLOGIES LTD. WAS NOT ASSESSABLE UNDER THE HEAD CAPITAL GAINS, AS DECLA RED BY THE ASSESSEE IN THE RETURN OF INCOME. THE MOOT POINT IS AS TO WHETHER OR NOT, HAVING REGARD TO THE DISCUSSION IN THE ORDERS OF THE AUTHORITIES BELOW, SUCH AN ONUS HAS BEEN DISCHARGED BY THE REVENUE. 35. THE ONLY POINT MADE BY THE REVENUE IS THAT MAGN ITUDE AND FREQUENCY OF THE TRANSACTION IN HCL TECHNOLOGIES LTD. IS SUBS TANTIAL. IN OUR CONSIDERED OPINION, IN THE PRESENT CASE, THE NATURE OF THE ASS ESSEES DEALING IN SHARES AS AN INVESTOR STANDS ESTABLISHED IN PAST AS WELL AS A LSO IN FUTURE YEARS. THE ASSESSEE IS FULL TIME INVOLVED IN OTHER ACTIVITY OF BEING EXECUTIVE DIRECTOR OF SERUM INSTITUTE OF INDIA LTD.. THERE IS NO MATERIA L TO SUGGEST THAT ANY ORGANIZATIONAL STRUCTURE OR INFRASTRUCTURE IS POSSE SSED BY THE ASSESSEE TO UNDERTAKE TRADING IN SHARES AS A BUSINESS ACTIVITY. THERE IS NO MATERIAL TO SAY THAT ASSESSEE ACTED AS A FREQUENT DEALER IN SHARES OVER AN EXTENDED PERIOD OF TIME. NO DOUBT, FOR A SHORT SPELL OF TIME IN THE M ONTHS OF FEBRUARY AND MARCH, ASSESSEE HAS UNDERTAKEN TRANSACTIONS IN THE SHARES OF HCL TECHNOLOGIES LTD.. BUT THE SAME BY ITSELF CANNOT BE CATEGORIZED AS A BUSINESS ACTIVITY, AS IT IS NOT A CONTINUOUS ACTIVITY. MOREOVER, WE ALSO FI ND WEIGHT IN THE PLEA SETUP BY THE LD. REPRESENTATIVE BEFORE US THAT IF THE INTENT ION WAS TO INCUR LOSS, AS CANVASSED BY THE ASSESSING OFFICER, THEN OBVIOUSLY SUCH AN ACTIVITY CANNOT BE CATEGORIZED AS BUSINESS. IT IS WELL UNDERSTOOD T HAT NO BUSINESS IS CARRIED OUT WITH AN INTENTION OF MAKING A LOSS, RATHER THE INTE NTION IS ALWAYS TO MAKE PROFITS. THEREFORE, BY TAKING AN OVERALL VIEW OF T HE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE UNABLE TO UPHOLD THE STAND OF THE LOWER AUTHORITIES THAT THE TRANSACTION IN THE SHARES OF HCL TECHNOLOG IES LTD. IS A BUSINESS TRANSACTION. WE HEREBY SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ASPECT AND DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE CAPI TAL GAIN/LOSS ON THE SALE OF ITA NO.764/PN/2012 ITA NO.824/PN/2012 SHARES OF HCL TECHNOLOGIES LTD. CONSIDERING IT TO B E ASSESSABLE UNDER THE HEAD CAPITAL GAINS AS PER LAW. THUS, ON THIS ASPEC T ASSESSEE SUCCEEDS. 36. RESULTANTLY, WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 30 TH JANUARY, 2015. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 30 TH JANUARY, 2015. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE