IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI P.M. JAGT AP, AM I.T.A. NO.785/MUM/2009 (ASSESSMENT YEAR : 2005-06) SMT. REKHA KHANDELWAL, A-2703, OBEROI WOODS, NEAR SAIBABA COMPLEX, GOREGAON(EAST), MUMBAI-400 067. PAN:ABTPK4148D VS. THE ASSISTANT COMMISSIONER OF INCOME TAX,25(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. RAJIV KHANDELWAL RESPONDENT BY : MR.ARUN S.BHARAT, DR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AND IT RELATES TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN SHARE DEALING. 2. THE FIRST DISPUTE IN THIS CASE, COVERED BY THE F IRST SIX GROUNDS, IS WHETHER THE PROFIT ON THE SALE OF SHARE S EFFECTED BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR ARE TO BE ASSESSED AS CAPITAL GAINS AS CLAIMED BY THE ASSESSEE OR AS BUSI NESS PROFITS AS ASSESSED BY THE ASSESSING OFFICER. THE RELEVANT FACTS RELATING TO THIS CONTROVERSY MAY BE NOTICED. IN THE RETURN O F INCOME, A COPY OF WHICH IS AT PAGE 10 OF THE PAPER BOOK, THE ASSESSEE DECLARED SHORT TERM CAPITAL GAINS OF RS.24,53,960/- AND CLAIMED THAT TAX AT THE RATE OF 10% THEREON WAS PAYABLE UN DER SECTION 111A OF THE INCOME TAX ACT, WHICH CAME INTO FORCE W ITH EFFECT FROM 1.4.2005 BY THE FINANCE (NO.2) ACT, 2004. IN S UPPORT OF THE CLAIM THAT THE PROFITS WERE ASSESSABLE AS SHORT TER M CAPITAL GAINS AND NOT AS BUSINESS PROFITS, THE ASSESSEE POI NTED OUT VARIOUS ASPECTS BEFORE THE ASSESSING OFFICER. SOME OF THESE POINTS WERE THAT THE SHARES WHICH WERE SOLD WERE SH OWN AS ITA NO.785/MUM/09 2 INVESTMENT IN THE BALANCE SHEET, THAT THEY WERE S HOWN AT COST PRICE WHICH WOULD NOT HAVE BEEN THE CASE IF THEY WE RE HELD AS STOCK-IN-TRADE, THAT HAD THEY BEEN HELD AS STOCK-IN -TRADE, THEY WOULD HAVE BEEN SHOWN AT COST OR MARKET PRICE WHIC HEVER IS LOWER, THAT THE COST PRICE OF THE SHARES SOLD CAME TO RS.54.63 LAKHS AS AGAINST THE MARKET VALUE OF RS.50.15 LAKHS , THAT THE ASSESSEE DID NOT TAKE ADVANTAGE OF THE FACT THAT TH E MARKET PRICE WAS LESS THAN THE COST PRICE ONLY BECAUSE SHE HAD HELD THOSE SHARES ON INVESTMENT PORTFOLIO AND THAT ALL T HESE FACTS, CUMULATIVELY CONSIDERED WOULD POINT TO THE CONCLUSI ON THAT THE ASSESSEE SOLD THE SHARES AS INVESTOR AND NOT AS STO CK-IN-TRADE. IN ADDITION, IT WAS ALSO POINTED OUT THAT THE ASSES SEE WAS NOT A TRADER IN SHARES AS CAN BE SEEN FROM THE FACT THAT THERE WERE NOT TOO MANY TRANSACTIONS OF HIGH FREQUENCY AND THAT E VEN THE SALE PROCEEDS OF THE SHARES WERE INVESTED IN FIXED DEPOS ITS WHICH WOULD NOT HAVE BEEN THE CASE IF THE ASSESSEE HAD HE LD THOSE SHARES AS STOCK-IN-TRADE. IT WAS SUBMITTED THAT THE YARDSTICK ADOPTED BY THE ASSESSEE WAS THAT SHE SHOULD ENJOY R EASONABLE RETURNS ON THE INVESTMENT AND FOR THIS PURPOSE IT W AS THE INTEREST PAYABLE ON THE FIXED DEPOSITS THAT WERE CO NSIDERED BY HER TO BE THE YARDSTICK. IT WAS ALSO POINTED OUT TH AT THE ASSESSEE DID NOT BORROW MONIES FOR THE PURPOSE OF ACQUIRING SHARES AND THIS IS SUFFICIENT INDICATION THAT THE SHARES WERE HELD ONLY AS INVESTMENT AND NOT AS STOCK-IN-TRADE. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES SUBMISSIONS. HE REJECTED THE SAME AND CAME TO THE F OLLOWING FINDINGS:- A) FROM THE DETAILS FILED BY THE ASSESSEE, IT IS SEEN THAT THE FREQUENCY OF THE SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WAS VERY HIGH. B) FROM THE BALANCE SHEET AS ON 31.03.2005, IT IS SEEN THAT THE ASSESSEE HAS UTILISED SUBSTANTIAL AMOUNTS OF ITA NO.785/MUM/09 3 BORROWED FUNDS TO EARN THE INCOME ARISING OUT OF SH ARE TRANSACTIONS. C) THE ASSESSEE HAS ALSO CARRIED OUT TRANSACTIONS IN F UTURES AND OPTIONS WHEREIN SHE HAD SUFFERED A LOSS OF RS.4,38,831/- D) FOR MOST OF THE SCRIPS THE PERIOD OF HOLDING WAS A FEW DAYS ONLY. IN THE CASE OF PROFITS ON SALE OF SHARES SHOWN AS BUSINESS INCOME, ALL THE SHARES WERE BOUGHT AND SOLD ON THE SAME DATE. THUS, THE ASSESSEE HERSELF HAS T REATED THE PROFITS ARISING OUT OF SHARE TRANSACTIONS WHERE NO DELIVERY WAS TAKEN AS BUSINESS PROFITS AND SHE HAS SHOWN THE PROFITS ON SALE OF SHARES HELD FOR JUST A FEW D AYS AS SHORT TERM CAPITAL GAINS. THE MAIN INTENTION OF THE ASSESSEE WAS THUS TO HOLD ALL THE SHARES ONLY AS ST OCK-IN- TRADE AND NO PART OF THE SHARES COULD BE GENUINELY SAID TO HAVE BEEN HELD AS INVESTMENT AS CLAIMED BY THE ASSESSEE. E) THE ASSESSEES RELIANCE ON CIRCULAR NO.4/2007 DATED 15.06.2007 ISSUED BY THE CBDT IS MISPLACED BECAUSE THE ASSESSEE IS DEALING IN LARGE VOLUMES AND MOST OF TH E SHARES WERE BOUGHT AND SOLD IN A FEW DAYS AND EVEN THOSE SHARES WHICH WERE ALLEGEDLY HELD AS INVESTMENT WERE HELD ONLY FOR A FEW DAYS. YEAR AFTER YEAR, THE ASSESSEE HAS BEEN DEALING IN LARGE VOLUMES WHICH ITSELF PROVES THAT S HE IS ENGAGED IN FULL SCALE SHARE BUSINESS. F) THE ASSESSEES CASE IS DIRECTLY COVERED AGAINST HER BY THE ORDER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. DEEPAK SHAH, 99 ITD 219 WHERE IT WAS HE LD THAT VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS IN SHARES MAKE IT THE BUSINESS IN SHAR ES AND THE SALE PROCEEDS OF THE SHARES CANNOT BE ASSESSED AS CAPITAL GAINS. ITA NO.785/MUM/09 4 G) IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2003- 04 AND 2004-05 SHE HAS HERSELF SHOWN ALL THE SHARE TRANSACTIONS AS BUSINESS INCOME AND IT IS ONLY IN THE PRESENT YEAR THE ASSESSEE HAS CONVENIENTLY SHOWN T HE SHARE TRANSACTIONS AS SHORT TERM CAPITAL GAINS JUS T TO TAKE ADVANTAGE OF THE LOWER RATE OF TAXATION PRESCR IBED BY SECTION 111A OF THE ACT. RELYING ON THE ABOVE FINDINGS, THE ASSESSING OFFICE R EVENTUALLY HELD THAT THE ASSESSEE WAS ENGAGED ONLY IN THE ACTI VITY OF EARNING PROFITS THROUGH PURCHASE AND SALE OF SHARES AND THAT THE ENTIRE PROFITS ARISING FROM THIS ACTIVITY SHOUL D BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AND NOT AS SHORT TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE . IN THIS VIEW OF THE MATTER, HE COMPUTED THE PROFITS AT RS.25,55, 597/- AND BROUGHT THE SAME TO TAX AS BUSINESS INCOME. 4. THE ASSESSEE APPEALED TO THE CIT(A) AND TOOK UP SEVERAL CONTENTIONS INCLUDING THE CONTENTIONS WHICH SHE TOO K BEFORE THE ASSESSING OFFICER. IT WAS ALSO POINTED OUT THAT THE ASSESSEE PURCHASED SHARES FROM BOTH PRIMARY AND SECONDARY MA RKETS AND WHEREVER DELIVERY OF SHARES WAS NOT TAKEN, THE PROFITS WERE SHOWN AS SPECULATIVE GAINS. IN ADDITION, IT WAS POI NTED OUT FROM THE FINANCIAL STATEMENTS THAT THE ASSESSEE WAS IN R ECEIPT OF DIVIDEND OF RS.33,586/- FROM SHARES HELD AS INVESTM ENTS. AS REGARDS THE PERIOD OF HOLDING THE SHARES, ON WHICH STRONG RELIANCE HAD BEEN PLACED BY THE ASSESSING OFFICER T O DEFEAT THE ASSESSEES CLAIM, THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT DURING THE YEAR ENDED 31.03.2005, THERE WAS A BULLI SH TREND IN THE SHARE MARKET AND AN INVESTOR IN SHARES COULD GE T GOOD RETURNS IN A FEW DAYS TIME AND THEREFORE THE ASSESS EE WAS ABLE TO SWITCH HER INVESTMENTS INSTEAD OF HOLDING ON TO THEM FOR A LONG PERIOD. AS REGARDS THE FINDING OF THE ASSESSI NG OFFICER THAT THE ASSESSEE INVESTED BORROWED FUNDS IN SHARES, TH E ASSESSEE ITA NO.785/MUM/09 5 POINTED OUT TO THE CIT(A) THAT THE ASSESSING OFFICE R MISREAD THE BALANCE SHEET AS ON 31.03.2005 INASMUCH AS THE WH OLE AMOUNT SHOWN AS OUTSTANDING WERE NOT LOANS BUT REPR ESENTED CREDITORS FOR SHARES PURCHASED. IT WAS ALSO POINTED OUT THAT EVEN THE LOANS WERE OBTAINED ONLY FROM FAMILY MEMBERS ON WHICH NO INTEREST WAS PAID. RELYING ON THE CIRCULAR CITED SU PRA, THE ASSESSEE ALSO SUBMITTED THAT IT IS PERMISSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS OF SHARES ONE AS INVESTMENT A ND THE OTHER AS STOCK-IN-TRADE. ON THE BASIS OF THESE SUBMISSION S, IT WAS CONTENDED THAT THE GAINS SHOULD BE ASSESSED ONLY AS SHORT TERM CAPITAL GAINS AND NOT AS BUSINESS PROFITS. 5. THE CIT(A) REJECTED THE ASSESSEES SUBMISSIONS A ND HIS FINDINGS CAN BE SUMMARISED AS BELOW:- A) THE ASSESSEE IS ENGAGED IN SHARE BUSINESS SINCE 200 0-01. THERE IS NO OTHER BUSINESS ACTIVITY. THEREFORE, TH E ASSESSEE CAN BE CONSIDERED TO BE A BUSINESS-WOMAN. B) THERE IS NO NEED FOR THE ASSESSEE TO HAVE A REGULAR OFFICE FOR THE PURPOSE OF CARRYING ON THE BUSINESS IN SHAR ES AS CLAIMED BY HER AFTER THE ADVENT OF THE DMATING RULE WHICH PERMITS THE SHARES TO BE HELD IN DMAT FORM. T HE ASSESSEE HERSELF IS DEALING IN SHARES IN DMAT FORM ONLY. C) THE ASSESSEE WAS ALSO BUYING SHARES BY UTILIZING BORROWED FUNDS AND ALSO BY ACQUIRING SHARES ON CRE DIT. D) JUST AS THE ASSESSEE CARRIED ON LARGE TRANSACTIONS IN SHARES WHEN THE MARKET WAS BULLISH IN THE YEAR 2005 , SHE HAS ALSO REDUCED HER ACTIVITY IN THE YEAR 2008 WHEN THE MARKET FELL. THIS SHOWS THAT THE ASSESSEE IS KEEPIN G A CLOSE WATCH ON THE SHARE MARKET WHICH IS A TRAIT OF A PERSON WHO IS DEALING IN SHARES AND NOT AS AN INVES TOR. E) JUST BECAUSE THE SHARES WERE HELD FOR A FEW DAYS, I T CANNOT BE SAID THAT THEY WERE HELD AS INVESTMENT, NOTWITHSTANDING THAT THEY WERE SHOWN IN THE BALANCE ITA NO.785/MUM/09 6 SHEET AS INVESTMENT. THE ENTRIES IN THE ACCOUNT BOO KS ARE NOT CONCLUSIVE OF THE QUESTION. F) THE EARLIER YEARS ASSESSMENTS WERE COMPLETED UNDER SECTION 143(1) WITHOUT ANY SCRUTINY AND THEREFORE, THOSE ASSESSMENT ORDERS CANNOT BE RELIED UPON TO CONTEND THAT THE DEPARTMENT HAS CONSCIOUSLY ACCEPTED THE ASSESSE ES CLAIM THAT SHE WAS PREDOMINANTLY AN INVESTOR IN SHA RES. G) THERE ARE LARGE VOLUME OF TRANSACTIONS IN SHARES. T HERE IS ALSO A PRIOR ASSOCIATION OF BUSINESS AND A SYSTEMAT IC COURSE OF BUSINESS OPERATIONS. THE ASSESSEE HAS AL L THE QUALITIES OF A TRADER IN SHARES, WHICH SHE HAS ACQ UIRED OVER A PERIOD OF TIME. THESE QUALITIES ARE THE ABIL ITY TO ASSESS RISK & UNCERTAINTIES AND FORESIGHTEDNESS TO VISUALIZE THE TRENDS IN THE SHARE MARKET. THESE QUA LITIES ACQUIRED BY THE ASSESSEE OVER A PERIOD OF YEARS HAV E PAID RICH PROFITS WHICH ARE ATTRIBUTABLE ONLY TO THE BUS INESS ACUMEN OF THE ASSESSEE AND NOT TO ANY INVESTMENT M ADE BY HER. IN THE LIGHT OF THE ABOVE FINDINGS, THE CIT(A) ENDO RSED THE DECISION OF THE ASSESSING OFFICER THAT THE GAINS ON THE SALE OF SHARES SHOULD BE ASSESSED AS BUSINESS INCOME SUBJE CT TO THE NORMAL RATES OF TAX AND NOT AS SHORT TERM CAPITAL G AIN ASSESSABLE TO CONCESSIONAL RATE OF TAX OF 10% UNDER THE PROVISIONS OF SECTION 111A. 6. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL TO REPEAT AND REITERATE THE CONTENTIONS RAISED BEFORE THE INCOME- TAX AUTHORITIES AND TO DRAW OUR ATTENTION TO THE RE LEVANT PAGES IN THE PAPER BOOK CONSISTING OF 90 PAGES IN SUPPORT OF THE CONTENTIONS. IN ADDITION TO THE CONTENTIONS ALREAD Y TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES, IT WAS CONTENDED THAT THE CASE IS COVERED BY THE ORDER OF THE MUMBAI BENCH OF THE TRI BUNAL IN THE CASE OF GOPAL PUROHIT IN ITA NO.4854/MUM/2008 DATED 10 TH ITA NO.785/MUM/09 7 FEBRUARY, 2009 AND THE COPY OF THE SAID ORDER WAS F ILED BEFORE US. HEAVY RELIANCE WAS PLACED ON THIS ORDER TO CONT END FIRSTLY THAT THE DEPARTMENTAL AUTHORITIES SHOULD FOLLOW THE RULE OF CONSISTENCY AND SHOULD NOT DISTURB THE BASIS OF ASS ESSMENTS WHICH HAS BEEN FOLLOWED CONSISTENTLY IN THE EARLIER YEARS AND SECONDLY, TO CONTEND THAT IN THIS ORDER THE TRIBUNA L HAS HELD THAT FREQUENCY OF TRANSACTIONS SHOULD BE IN THE SAM E SCRIP IN ORDER TO HOLD THAT THE GAINS ON THE SALE OF SCRIP S HOULD BE ASSESSED AS BUSINESS GAINS. IT WAS POINTED OUT THAT THIS ORDER OF THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT IN ITA NO.1121 OF 2009 VIDE ORDER DATED 6.1.2010. IT WAS ARGUED FURT HER THAT IN THE PAST FOUR YEARS, THE ASSESSEE HAS BEEN SHOWING ONLY SPECULATION PROFITS AND NOT BUSINESS PROFITS AND TH AT A PERSON CAN, AT THE SAME TIME, BE AN INVESTOR IN SHARES AS ALSO A SPECULATOR IN THEM AND THE ASSESSEE IN THE PRESENT CASE WAS BOTH AND THIS ASPECT HAS BEEN OVERLOOKED BY THE DEP ARTMENTAL AUTHORITIES. IT HAS ALSO BEEN CONTENDED THAT THE F INDING OF THE DEPARTMENTAL AUTHORITIES THAT THE ASSESSEE HAS USED BORROWED MONIES FOR THE PURPOSE OF ACQUIRING SHARES IS NOT B ASED ON PROPER APPRECIATION OF THE ACCOUNTS AND IN THIS CON NECTION, OUR ATTENTION WAS DRAWN TO PAGE 11 OF THE PAPER BOOK, W HEREIN THE ASSESSEE HAS FILED A BALANCE SHEET AS ON 31.3.2005 AND IT WAS POINTED OUT THERE FROM THAT THERE WERE NO LOANS SHO WN IN THE LIABILITIES SIDE AND WHAT WAS SHOWN WAS ONLY SUNDRY CREDITORS FOR RS.43,82,569/- REPRESENTING PURCHASE OF SHARES ON CREDIT, WHICH WAS MUCH DIFFERENT FROM SAYING THAT THE ASSES SEE BORROWED MONIES FOR ACQUIRING THE SHARES. OUR ATTEN TION WAS ALSO DRAWN TO PAGE 19 OF THE ORDER OF THE CIT(A), W HEREIN IN PARAGRAPH 3.14, THE CIT(A) HAS LISTED OUT 12 NAMES FROM WHOM THE ASSESSEE ALLEGEDLY TOOK LOANS FOR INTEREST. IN THIS CONNECTION, IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT 9 OU T OF THE 12 PARTIES WERE CREDITORS FOR PURCHASES AND ONLY 3 PAR TIES NAMELY ITA NO.785/MUM/09 8 ASHOK KHANDELWAL HUF, ASHOK KHANDELWAL AND MPS MERCHANDISERS P. LTD. WERE LOAN CREDITORS. EVEN OUT OF THESE THREE, SHRI ASHOK KHANDELWAL WAS THE HUSBAND OF THE ASSESSEE AND NO INTEREST WAS CHARGED ON THE LOAN OF RS.23,3 4,776/- TAKEN FROM HIM. NO INTEREST WAS ALSO CHARGED ON THE LOAN OF RS.5,50,400/- TAKEN FROM HUF OF ASHOK KHANDELWAL. T HE LEDGER ACCOUNTS OF THESE PARTIES ARE PLACED AT PAGES 16 & 17 OF THE PAPER BOOK AND THEY ALSO SHOW THAT NO CREDIT HAS BE EN GIVEN TOWARDS INTEREST. IT IS THUS SUBMITTED THAT ONE OF THE BASIC TRAITS OF CARRYING ON BUSINESS, NAMELY, BORROWING MONIES FOR INTEREST, IS MISSING AND THEREFORE SURPLUS ON THE SALE OF SHA RES CANNOT BE CONSIDERED AS PROFITS OF THE BUSINESS. 7. IN ADDITION TO THE ABOVE ARGUMENTS, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE ALSO DREW OUR ATTEN TION TO CERTAIN OMISSIONS MADE BY THE ASSESSING OFFICER, FI RST BEING THAT HE DID NOT INITIATE ANY PENALTY PROCEEDINGS UNDER S ECTION 271B WHICH HE WOULD HAVE IF HE HAD CONSIDERED THE SALE O F SHARES AS FORMING PART OF THE ASSESSEES BUSINESS, BECAUSE UN DER SECTION 44AB OF THE ACT, IF THE GROSS SALES FROM THE BUSINE SS EXCEEDS RS.40 LAKHS, THE ASSESSEE IS BOUND TO GET THE ACCOU NTS AUDITED WHICH WAS NOT DONE. THE ARGUMENT IS THAT SINCE THE ASSESSING OFFICER DID NOT LEVY ANY PENALTY, IT MUST BE ASSUME D THAT HE DID NOT CONSIDER THE SALE OF SHARES AS BUSINESS TRANSAC TIONS. THE SECOND OMISSION OF THE ASSESSING OFFICER, ACCORDING TO THE LEARNED REPRESENTATIVE FOR THE ASSESSEE IS THAT THE ASSESSING OFFICER, ASSUMING HE WAS RIGHT IN TAKING THE STAND THAT THE GAINS REPRESENTED BUSINESS PROFITS, OUGHT TO HAVE C ONSIDERED THE STOCK ON HAND ALSO, INSTEAD OF TAKING INTO ACCOUNT ONLY THE SHARES WHICH WERE SOLD AND THAT HE SHOULD HAVE ALLO WED THE LOSS SUFFERED BY THE ASSESSEE ON ACCOUNT OF VALUATI ON OF THE CLOSING STOCK CONSISTENT WITH HIS VIEW THAT THE ASS ESSEE IS CARRYING ON BUSINESS IN SHARES. THIS ARGUMENT IS AL SO ONE OF THE ITA NO.785/MUM/09 9 ALTERNATIVE PLEAS OF THE ASSESSEE. THE THIRD ASPECT HIGHLIGHTED ON BEHALF OF THE ASSESSEE IS THAT IN ANY CASE, EVEN IF THE ASSESSING OFFICER CONSIDERS THE PROFITS AS BUSINESS PROFITS, HE SHOULD HAVE ALLOWED REBATE FOR SECURITIES TRANSACTION TAX AS EN VISAGED BY SECTION 88E OF THE ACT. THIS IS ALSO ONE OF THE ALT ERNATIVE PLEAS OF THE ASSESSEE. 8. IN SUPPORT OF THE ABOVE SUBMISSIONS, IN ADDITION TO THE ORDER OF THE TRIBUNAL IN THE CASE OF GOPAL PUROHIT (SUPRA) AND THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE SAME CASE (SUPRA), THE LEARNED REPRESENTATIVE FOR THE AS SESSEE ALSO RELIED ON THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. MADAN GOPAL RADHEY LAL, (1969) 73 ITR 652(SC) I N WHICH IT WAS HELD THAT BONUS SHARES ISSUED BY A COMPANY TO T HE ASSESSEE DID NOT BECOME PART OF THE STOCK-IN-TRADE MERELY BECAUSE THE SHARES WERE RECEIVED BY THE ASSESSEE IN RESPECT OF THE SHARES HELD AS STOCK-IN-TRADE OR AS ACCRETION T HERETO AND THAT THE BONUS SHARES WERE RECEIVED AS CAPITAL AND THEY COULD BE CONVERTED BY THE ASSESSEE INTO STOCK-IN-TRADE OR RETAINED AS CAPITAL ASSET. THIS JUDGEMENT WAS STRONGLY RELIED U PON TO CONTEND THAT EVEN IN RESPECT OF SHARES OF THE SAME COMPANY, THE ORIGINAL SHARES COULD BE HELD AS STOCK-IN-TRADE AND THE BONUS SHARES COULD BE HELD AS INVESTMENT OR CAPITAL ASSET . THE OTHER JUDGEMENT RELIED UPON WAS THAT OF MADRAS HIGH COURT IN CIT VS. TRISHUL INVESTMENTS LTD., (2008) 305 ITR 434(MAD). IN THIS CASE, THE ASSESSEE WAS CARRYING ON THE BUSINESS OF INVEST MENT IN SHARES AND SECURITIES WITHOUT ANY INTENTION TO TRAD E IN THEM. HE PURCHASED SOME SHARES AND LATER SOLD THEM. FOR A CQUIRING SHARES, HE HAD BORROWED MONIES ON WHICH INTEREST WA S PAID. IT WAS HELD BY THE MADRAS HIGH COURT THAT THE SHARES W ERE PURCHASED AS INVESTMENT AND NOT AS BUSINESS ASSET A ND THAT THE INTEREST PAID ON THE MONIES BORROWED FOR ACQUIR ING SHARES SHOULD BE CAPITALIZED ALONG WITH THE COST OF ACQUIS ITION OF THE ITA NO.785/MUM/09 10 SHARES. THE OTHER DECISION RELIED UPON WAS THAT OF THE ORDER OF THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF SA RANATH INFRASTRUCTURE(P) LTD. VS. ACIT., (2009), 120 TTJ 2 16. IN THIS CASE ALSO, ACCORDING TO THE LEARNED REPRESENTATIVE FOR THE ASSESSEE, THE TRIBUNAL HELD THAT THE SURPLUS ON SAL E OF THE SHARES SHOULD BE TREATED AS CAPITAL GAINS EVEN THOU GH THE ASSESSEE WAS CARRYING ON BUSINESS IN SHARE DEALINGS , SINCE IT WAS PERMISSIBLE FOR AN ASSESSEE TO HOLD SHARES BOTH AS STOCK-IN- TRADE AND AS INVESTMENT. THESE THREE AUTHORITIES WE RE STRONGLY RELIED UPON ON BEHALF OF THE ASSESSEE IN SUPPORT O F ITS CLAIM. 9. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS ALSO FILED CERTAIN DETAILS CALLED FOR BY US DURING THE HEARING UNDER COVER OF LETTER DATED 21 ST JANUARY, 2010 AND THESE HAVE ALSO BEEN TAKEN INTO CONSIDERATION BY US. BASICALLY THESE ARE DETAI LS OF SHARE INVESTMENTS ON THE CUT OFF DATE OF 31.03.2005 GIVIN G MARKET VALUATION ON THAT DATE, STATEMENT GIVING DETAILS OF SHORT TERM CAPITAL GAINS GIVING THE ACTUAL DATE OF PURCHASE OF SHARES SO THAT THE PERIOD OF HOLDING CAN BE ASCERTAINED AND CONNEC TED DETAILS. 10. ON THE BASIS OF THE ABOVE SUBMISSIONS, IT WAS C ONTENDED ON BEHALF OF THE ASSESSEE THAT THE DEPARTMENTAL AUT HORITIES OUGHT TO HAVE ACCEPTED THE ASSESSEES CLAIM THAT TH E SURPLUS ON THE SALE OF SHARES HELD AS INVESTMENT SHOULD BE ASS ESSED AS SHORT TERM CAPITAL GAINS UNDER SECTION 111A. 11. ON THE OTHER HAND, SHRI ARUN BHARAT, LEARNED DR , STRONGLY SUPPORTED THE ORDERS OF THE DEPARTMENTAL A UTHORITIES AND THEIR STAND THAT THE SURPLUS SHOULD BE ASSESSED ONLY AS BUSINESS PROFITS AND SUBMITTED THAT HAVING REGARD T O THE VOLUME OF THE TRANSACTIONS IN SHARES AND THEIR FREQUENCY, THE INTENTION OF THE ASSESSEE CAN BE SAID TO BE ONLY TO EARN PROF ITS ON SALE OF SHARES AND NOT TO HOLD THEM AS INVESTMENT AND IF DU E REGARD IS ITA NO.785/MUM/09 11 HAD TO MAIN ACTIVITY OF THE ASSESSEE WHICH IS THAT OF DEALING IN SHARES, IT CANNOT BE SAID THAT THE VIEW TAKEN BY TH E DEPARTMENTAL AUTHORITIES WAS ERRONEOUS OR UNSUSTAIN ABLE. HE POINTED OUT THAT THE ASSESSEE HERSELF HAS ADMITTED THAT SHE WAS INDULGING IN SPECULATIVE DEALINGS ALSO. THIS IMPORT ANT FACT CANNOT ALSO BE LOST SIGHT OF, ACCORDING TO THE LEAR NED DR. HE DREW OUR ATTENTION TO PARAGRAPH 3.3 OF THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE FACTS OF THE PRESENT CASE WE RE STRONGER THAN THE DECIDED CASES WHICH WERE RELIED UPON BY TH E ASSESSEE AND THEREFORE THERE WAS SUFFICIENT MATERIAL BEFORE THE DEPARTMENTAL AUTHORITIES ON THE BASIS OF WHICH THEY COULD COME TO THE CONCLUSION THAT THE ASSESSEE WAS ONLY DEALIN G IN SHARES AND NOT INVESTING IN THEM. IN PARAGRAPH 3.3 OF THE ORDER OF THE CIT(A) DETAILS HAVE BEEN GIVEN AS FOLLOWS:- NO. OF SHARES BOUGHT 5,77,300 PURCHASE AMOUNT 4,51,73,472 NO. OF SHARES SOLD 4,94,505 SALES AMOUNT 4,22,69,155 NO.OF TRANSACTIONS 280 SHORT TERM CAPITAL GAINS 24,57,185 SPECULATION PROFIT 1,01,635 STOCK IN HAND 54,63,139 THE LEARNED DR, BESIDES THE ABOVE DETAILS, ALSO STR ONGLY RELIED ON THE FINDINGS OF THE CIT(A) IN PARAGRAPH 3.12 OF HIS ORDER. BESIDES THESE FACTUAL SUBMISSIONS, HE STRONGLY REL IED ON THE JUDGEMENTS OF THE SUPREME COURT IN THE FOLLOWING CA SES:- 1. G.VENKATASWAMI NAIDU & CO. VS. CIT., 35 ITR 594 2. CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT CO. LTD., 82 ITR 586 3. CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD., 100 ITR 706 ITA NO.785/MUM/09 12 BESIDES, HE POINTED OUT THAT BOTH IN THE CASES OF G OPAL PUROHIT (SUPRA) AND SARNATH INFRASTRUCTURE (P) LTD.(SUPRA), RELIED UPON BY THE ASSESSEE, THE SHARES WERE HELD FOR TWO OR TH REE YEARS BEFORE BEING SOLD WHICH WOULD PROBABLY INDICATE THE INTENTION TO HOLD THE SHARES RATHER THAN TURN THEM INTO PROFIT, WHICH FEATURE WAS MISSING IN THE PRESENT CASE, WHERE THE SHARES W ERE HELD ONLY FOR A FEW MONTHS. HE THUS PLEADED THAT THE ORD ERS OF THE DEPARTMENTAL AUTHORITIES SHOULD BE UPHELD. 12. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENT IONS, WE ARE OF THE VIEW THAT NO STRONG GROUNDS HAVE BEEN MADE O UT BY THE ASSESSEE TO DISTURB THE CONCLUSION OF THE DEPARTMEN TAL AUTHORITIES. THERE IS NO DISPUTE THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN SHARES IN THE PAST. AS STATED BY HE R SHE HAS ALSO BEEN INDULGING IN SPECULATION IN SHARES IN THE PAST FOUR YEARS AND HAS DISCLOSED SPECULATION PROFITS. HER CASE HOW EVER IS THAT SHE HELD SOME SHARES AS INVESTMENT AND ALSO SHOWED THEM AS SUCH IN HER BALANCE SHEET AND THE PROFIT ON THE SAL E OF THESE SHARES SHOULD BE ASSESSED AS SHORT TERM CAPITAL GAI NS AND NOT AS PART OF HER SHARE DEALING BUSINESS. HAVING REGAR D TO THE BACKGROUND OF THE ASSESSEE, IT REQUIRES VERY STRONG EVIDENCE TO PROVE THAT THE SHARES SOLD WERE HELD AS INVESTMENT NOT MERELY IN THE BOOKS OF ACCOUNT OR IN THE BALANCE SHEET BUT ALSO IN REALITY AND IN TRUTH. IN ADDITION TO THE BACKGROUND OF THE ASSESSEE, IT MUST BE REMEMBERED ALSO THAT SHARES AR E COMMODITIES WHICH ARE NORMALLY BOUGHT AND SOLD FOR GAINS. THIS IS NOT TO SAY THAT THEY CANNOT BE HELD AS INVE STMENT. HOWEVER, THE FACTS OF THE PRESENT CASE DO NOT PERSU ADE US TO HOLD THAT THE SHARES WERE HELD AS INVESTMENT BECAUS E AS PER THE DETAILS FILED BY THE ASSESSEE UNDER COVER OF LETTER DATED 21.01.2010, AT OUR INSTANCE, IN MOST OF THE CASES T HEY WERE HELD ONLY FOR A FEW MONTHS. THE ASSESSEE HAS MARKED THE SHARES HELD AS INVESTMENTS IN PINK FROM WHICH WE ARE ABLE TO FI ND OUT THE ITA NO.785/MUM/09 13 DATES OF PURCHASE AND SALE AND FROM THESE DETAILS W E DO NOT FIND ANY SHARES BEING HELD FOR SUCH A LONG PERIOD SO AS TO SAY THAT THEY WERE HELD AS INVESTMENT. ONLY THE SHARES IN T ATA VASHISTI ARE SEEN TO HAVE BEEN HELD FOR LITTLE MORE THAN SIX YEARS. THESE WERE ONLY 1200 SHARES. IN THE CASE OF SHARES OF CER TAIN BANKS SUCH AS ANDHRA BANK, BANK OF BARODA, BANK OF INDIA, IDBI BANK AND INDUSIND BANK AND COMPANIES SUCH AS ONGC A ND SKF BEARINGS IT IS SEEN THAT THEY HAVE BEEN HELD FO R PERIODS EXCEEDING ONE YEAR BUT LESS THAN TWO YEARS. THE LEA RNED REPRESENTATIVE FOR THE ASSESSEE HAD ARGUED THAT THE ASSESSEES YARDSTICK IS INTEREST ON FIXED DEPOSITS AND SO LON G AS THE APPRECIATION IN THE CAPITAL VALUE OF THE SHARES APP ROXIMATES TO BANK INTEREST, IT SHOULD BE TAKEN THAT THEY WERE HE LD AS INVESTMENTS. HE HAD ALSO ARGUED THAT THE SALE PROC EEDS WERE INVESTED IN FIXED DEPOSITS WHICH WOULD FORTIFY THE SUBMISSIONS. FIRSTLY, IT MAY NOT BE POSSIBLE TO JUDGE THE QUESTI ON WHETHER SHARES WERE HELD AS STOCK-IN-TRADE OR INVESTMENT BY REFERRING TO THE CONDUCT OF THE ASSESSEE POST SALE BECAUSE WE AR E REQUIRED TO EXAMINE THE INTENTION OF THE ASSESSEE AT THE TIME O F ACQUIRING THE SHARES. EVEN IN THE CASE OF SHARES OF BANKS, TH E ASSESSEE DID NOT ACQUIRE HUGE VOLUMES SO THAT IT CAN BE SAID THAT SHE INTENDED TO HOLD THEM AS INVESTMENT LOOKING FOR CON SISTENT RETURNS BY WAY OF DIVIDEND AND MORE FOR CAPITAL AP PRECIATION WHICH A NORMAL INVESTOR WOULD DO. FOR EXAMPLE, IN THE CASE OF BANK OF BARODA, SHE MERELY ACQUIRED 10 SHARES AT RS .100/- EACH AT A TOTAL COST OF RS.1,000/- ON 19.9.2003 AND SOLD THEM ON 28.12.2004 FOR RS.2,289/-, THUS REAPING A PROFIT OF RS.1,289/-. IN THE CASE OF SHARES OF BANK OF INDIA, SHE INVESTED ONLY RS.1500/- ON 29.3.2003 TO BUY 30 SHARES @ RS. 50/- EACH AND SOLD THEM ON 28.12.2004 FOR RS.92.27 PER SHARE, ENJOYING THE PROFIT OF RS.1,268/-. SIMILAR FEATURES ARE EXHI BITED WITH REGARD TO THE SHARES OF OTHER BANKS AND ALSO SHARES OF ONGC, SKF BEARINGS AND TATA VASHISTI. THIS IS THE CASE I N RESPECT OF ITA NO.785/MUM/09 14 SHARES WHICH THE ASSESSEE HELD FOR MORE THAN ONE YE AR. IN RESPECT OF THE OTHER SHARES THE FREQUENCY OF THE TR ANSACTIONS AND THEIR VOLUME JUDGED IN THE BACKGROUND OF THE AS SESSEES BUSINESS GIVES US AN IMPRESSION THAT THE ASSESSEE D ID NOT INTEND TO ACQUIRE THE SHARES AS INVESTMENT. WE MAY CLARIFY THAT THE ASSESSEE MAY NOT HAVE PAID INTEREST ON THE AMOU NTS BORROWED FROM HER HUSBAND AND HIS HUF, BUT THE FACT REMAINS THAT SHE HAD BORROWED MONIES. IT WOULD BE SOMEWHAT UNUSUAL TO SAY THAT A PERSON WOULD BE MAKING INVESTMENTS OU T OF MONIES BORROWED; THE WORD INVESTMENT WOULD MAKE S ENSE ONLY IF THE MONIES BELONG TO ONESELF. THE ACT OF BORROWI NG FOR THE PURPOSE OF ACQUIRING SHARES WHETHER FOR INTEREST OR NOT, WOULD CERTAINLY INDICATE A BUSINESS MOTIVE RATHER THAN IN VESTMENT MOTIVE. THE DISCLOSURE OF THE SHARES AS INVESTMENT IN THE BALANCE SHEET IS CERTAINLY A FACTOR TO BE RECKONED WITH BUT IF THERE ARE OTHER FACTS OR CIRCUMSTANCES WHICH THROW DOUBT ON THE MOTIVE OF THE ASSESSEE IN ACQUIRING SHARES, THE ENT RY IN THE BALANCE SHEET OR THE BOOKS OF ACCOUNT CANNOT OVERRI DE THEM AND BE TAKEN AS DECISIVE OF THE ASSESSEES INTENTION. 13. IT MAY BE RECALLED THAT THE ASSESSEE HAD HEAVIL Y RELIED ON THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF GOPAL PUROHIT TO CONTEND THAT MERE FREQUENCY OF THE SHARE TRANSACTIONS IS NOT INDICATIVE OF A BUSINESS MOTIVE UNLESS SUCH FREQUENCY IS IN RESPECT OF THE SAME SCRIP. WE HAVE CAREFULLY PERUSED THE AFORESAID ORDER OF THE TRIBUNAL. THE FA CTS OF THAT CASE APPEAR TO US TO BE STRONGER FOR THE ASSESSEE B ECAUSE IN THAT CASE IN SOME OF THE ASSESSMENTS FOR THE EARLIE R YEARS COMPLETED UNDER SECTION 143(3) OF THE ACT, THE ASSE SSEE HAS BEEN CONSIDERED TO BE AN INVESTOR IN SHARES AND THE ASSESSMENTS HAD BEEN COMPLETED ON THAT BASIS AND TH E MAIN GROUND ON WHICH THE ASSESSING OFFICER REFUSED TO AC CEPT THE ASSESSEES CLAIM FOR THE ASSESSMENT YEAR IN APPEAL BEFORE THE ITA NO.785/MUM/09 15 TRIBUNAL WAS THAT THE PRINCIPLE OF RES-JUDICATA WAS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS. THE TRIBUNAL HELD THAT THERE SHOULD BE UNIFORMITY AND CONSISTENCY IN TREAT MENT UNDER THE SAME FACTS AND CIRCUMSTANCES. NOT ONLY THIS, T HE TRIBUNAL HAD ALSO NOTICED THAT THE DEPARTMENTAL AUTHORITIES HAVE TAKEN A DIFFERENT VIEW OF THE MATTER ONLY BECAUSE OF AMENDM ENT MADE BY THE FINANCE ACT, 2004 EXEMPTING LONG TERM CAPITAL G AINS FROM THE LEVY OF TAX AND CONFERRING A CONCESSIONAL RATE OF TAX ON SHORT TERM CAPITAL GAINS UNDER SECTION 111A, SUGGESTING T HAT THE ONLY GROUND OF THE DEPARTMENT WAS TO DENY THE ASSESSEE T HE BENEFIT OF CONCESSIONAL RATE OF TAX ON SHORT TERM CAPITAL G AINS. IN OTHER WORDS, IT APPEARED TO THE TRIBUNAL THAT THERE WAS N O JUSTIFICATION FOR THE DEPARTMENTAL AUTHORITIES TO M AKE A DEPARTURE FROM THE EARLIER ASSESSMENTS MERELY BECA USE THE ASSESSEE WAS CLAIMING CONCESSIONAL RATE OF TAX ON S HORT TERM CAPITAL GAINS WHICH WAS AVAILABLE TO HIM UNDER STAT UTE. THE TRIBUNAL HAD ALSO FOUND THAT THE DEPARTMENTAL AUTHO RITIES WERE NOT ABLE TO ESTABLISH ANY NEXUS BETWEEN THE INTERES T BEARING FUNDS AND THE INVESTMENT IN SHARES. IN THE PRESENT CASE, IT MAY BE RECALLED, THE ASSESSEE HAS NOT DISPUTED THE POSI TION THAT BORROWED FUNDS, THOUGH NOT BEARING ANY INTEREST, WE RE USED TO ACQUIRE SHARES AND WE HAVE DEALT WITH THIS ASPECT E ARLIER. THE FINDINGS OF THE TRIBUNAL ARE CONTAINED IN PARAGRAPH 8 ONWARDS OF THE SAID ORDER, BUT WE WERE UNABLE TO LOCATE THE FINDING THAT FREQUENCY OF TRANSACTIONS, UNLESS THEY ARE IN THE SAME SCRIP OR SHARE, IS NOT INDICATIVE OF A BUSINESS MOTIVE. EAC H CASE HAS TO BASICALLY TURN ON ITS OWN FACTS AND CIRCUMSTANCES, ESPECIALLY IN CASES OF THOSE TYPE WHERE IT IS A QUESTION OF GATHE RING THE INTENTION OF THE ASSESSEE. WE SHOULD RESIST THE TEM PTATION TO MATCH THE COLOUR OF ONE WITH THE OTHER. FROM PARAGR APH 5.3 OF THE ORDER CITED ABOVE, WE FIND THAT IT WAS NO DOUBT CONTENDED BEFORE THE TRIBUNAL THAT FREQUENCY OF THE TRANSACTI ONS SHOULD BE SEEN SCRIP-WISE AND NOT ON THE BASIS OF SHARES OF V ARIOUS ITA NO.785/MUM/09 16 COMPANIES AND IF THIS IS DONE THERE WAS LITTLE FREQ UENCY IN THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IN THAT CASES. HOWEVER, WE DO NOT FIND ANY FINDING REC ORDED BY THE TRIBUNAL ON THIS ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE. IT IS THEREFORE NOT CORRECT TO SAY THAT THE TRIBUNA L IN THE CASE OF GOPAL PUROHIT (SUPRA) HAS HELD THAT FREQUENCY OF TR ANSACTIONS SHOULD BE SEEN SCRIP-WISE AND NOT ON TOTAL BASIS. 14. IN THE COURSE OF HIS ARGUMENTS, THE LEARNED REP RESENTATIVE FOR THE ASSESSEE HAD GIVEN THE EXAMPLE OF THE SHARE S OF RUCHI SOYA LTD. AT PAGE 30 OF THE PAPER BOOK. THERE ARE F IVE TRANSACTIONS IN THESE SHARES. ALL OF THEM WERE PURC HASED BETWEEN 3 RD & 8 TH FEBRUARY, 2005 AND WERE SOLD ON 8 TH & 10 TH MARCH, 2005. THERE WERE HANDSOME GAINS ON THE SALE OF THESE SHARES IN SUCH A SHORT PERIOD. SIMILARLY IN THE CAS E OF SHARES OF KARUTURI LTD. ALSO THERE WERE GAINS OF ALMOST 40% I N RESPECT OF THE SHARES PURCHASED ON 22.02.2005 AND SOLD ON 14.0 3.2005. WE ARE NOT AT ALL CONVINCED THAT SUCH A SHORT PERIO D OF HOLDING COULD BE SAID TO BE INDICATIVE OF THE ASSESSEES IN TENTION TO INVEST IN THEM. IF ANYTHING IT APPEARS TO US THAT T HE INTENTION WAS TO MAKE A QUICK BUCK BY TURNING THE SHARE INTO PROFIT EXPLOITING THE BULLISH TREND IN THE MARKET. ALMOST 40% GAIN ON THE SALE OF SHARES OF KARUTURI LTD. ON 14.03.2005 A LSO GOES CONTRARY TO THE ASSESSEES CONTENTION THAT HER YARD STICK WAS INTEREST ON FIXED DEPOSITS, WHICH WAS MUCH MUCH BEL OW THE RATE OF 40%. TO REITERATE, A PERUSAL OF DETAILS FILED BY THE ASSESSEE FROM PAGES 27 TO 31 READ WITH THE ADDITIONAL DETAIL S FILED ON 21.01.2010 DO GIVE US AN IMPRESSION THAT THE ASSESS EE DID NOT ACQUIRE SHARES FOR THE PURPOSE OF HOLDING THEM AS I NVESTMENT. 15. THE ASSESSING OFFICER HAS ACTUALLY INITIATED PE NALTY PROCEEDINGS UNDER SECTION 271B AS SEEN FROM THE EN D OF THE ASSESSMENT ORDER. EVEN OTHERWISE, THE FACT THAT THE ASSESSING ITA NO.785/MUM/09 17 OFFICER DID NOT INITIATE PENALTY PROCEEDINGS UNDER SECTION 271B DOES NOT ADVANCE THE ASSESSEES CASE FURTHER. IT MA Y BE AN OMISSION ON THE PART OF THE ASSESSING OFFICER BUT T HAT HAS NO IMPACT ON THE ASSESSEES CASE. 16. WE NOW TURN TO THE OTHER AUTHORITIES CITED ON B EHALF OF THE ASSESSEE. THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF MADAN GOPAL RADHEY LAL (SUPRA) DOES NOT SUPPORT TH E ASSESSEES CONTENTION AT ALL. IN THAT CASE, THE SUP REME COURT DID HOLD THAT THE BONUS SHARES, BY THE VERY FACT THAT T HEY WERE RECEIVED BY THE ASSESSEE IN RESPECT OF SHARES HELD AS STOCK-IN- TRADE AND AS ACCRETION THERETO, DID NOT BECOME PART OF STOCK-IN- TRADE AND THAT THEY WERE RECEIVED ONLY AS CAPITAL W HICH COULD BE CONVERTED BY THE ASSESSEE INTO STOCK-IN-TRADE. IN T HE SAME DECISION, THE SUPREME COURT HAS HELD THAT THE TRIBU NAL HAD FOUND THAT THE SALE PROCEEDS OF THE BONUS SHARES WE RE RECEIVED IN THE COURSE OF AND AS PART OF ASSESSEES BUSINESS IN SHARES AND THEREFORE, THEY WERE TAXABLE AS REVENUE RECEIPT . WHAT IS RELEVANT HOWEVER IN THIS CASE IS THAT THE SUPREME C OURT HELD THAT THERE IS NO PRESUMPTION THAT EVERY ACQUISITION BY A DEALER IN A PARTICULAR COMMODITY IS AN ACQUISITION FOR THE PURPOSE OF HIS BUSINESS AND IT IS POSSIBLE THAT HE MAY ACQUIRE THE COMMODITY IN WHICH HE IS DEALING FOR HIS OWN PURPOS ES AND HOLD IT APART FROM STOCK-IN-TRADE. HOWEVER, IN EACH CASE THE QUESTION IS ONE OF INTENTION TO BE GATHERED FROM THE EVIDENC E OR CONDUCT BY THE ACQUIRER AND HIS DEALINGS WITH THE COMMODITY . IF THIS TEST IS APPLIED TO THE PRESENT CASE, AS WE HAVE ALREADY SEEN, THE FACTS AND SURROUNDING CIRCUMSTANCES CLEARLY POINT TO THE CONCLUSION THAT THE ASSESSEE ONLY INTENDED TO TRADE IN SHARES AND NOT TO HOLD THEM AS INVESTMENT. THE JUDGEMENT OF THE MADRA S HIGH COURT IN TRISHUL INVESTMENTS LTD.(SUPRA) ALSO DOES NOT FURTHER THE ASSESSEES CASE. THAT WAS A CASE WHERE THE ASSE SSEE WAS IN THE BUSINESS OF INVESTMENT IN SHARES AND HAD EXHIBI TED NO ITA NO.785/MUM/09 18 INTENTION TO TRADE IN SHARES. IT WAS THEREFORE HELD THAT A FRESH PURCHASE OF SHARES EVEN OUT OF BORROWED MONIES ON W HICH INTEREST WAS PAID CANNOT BE CONSIDERED AS A BUSINES S TRANSACTION. IN THIS JUDGEMENT, THE RATIO LAID DOWN , IN OUR HUMBLE OPINION IS THAT IT IS THE INTENTION OF THE A SSESSEE AT THE TIME OF ACQUIRING THE SHARES WHICH IS RELEVANT. AS WE HAVE ALREADY SEEN IN THE CASE BEFORE US THE ASSESSEES I NTENTION DOES NOT SEEM TO BE TO HOLD THE FRESH ACQUISITION OF SHA RES AS INVESTMENT AND IT SEEMS TO BE HER INTENTION TO DO B USINESS IN THEM. 17. THE ORDER OF THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF SARANATH INFRASTRUCTURE (P)LTD.(SUPRA) IS D IFFERENT ON FACTS. THERE THE POINTS IN FAVOUR OF THE ASSESSEES CLAIM THAT THE SHARES WERE ACQUIRED FOR INVESTMENT PURPOSE ONLY, W ERE THAT (A) THE TURNOVER TO STOCK RATIO IN INVESTMENT PORTFOLI O WAS VERY LOW AS COMPARED TO THAT IN TRADING PORTFOLIO, (B) FREQU ENCY OF PURCHASE AND SALE IN THE INVESTMENT PORTFOLIO WAS N OT LARGE ENOUGH TO RAISE ANY DOUBT THAT IT IS ONLY A DEVICE TO PAY LESSER TAXES BY PARKING THE STOCK-IN-TRADE IN THE INVESTME NT PORTFOLIO AND (C) THE SALE OF SHARES IN INVESTMENT PORTFOLIO WAS MADE AFTER HOLDING THEM FOR TWO TO FOUR YEARS. THESE WERE FACT S WHICH REALLY TURNED THE DECISION IN FAVOUR OF THE ASSESSEE AND I TS CLAIM THAT THE SALE OF SHARES GAVE RISE TO SHORT TERM CAPITAL GAINS. IN THE PRESENT CASE, THESE FACTS ARE NOT PRESENT. IN FACT, THE FREQUENCY OF THE TRANSACTIONS, TAKEN AS A WHOLE, WAS VERY HIG H AND THE SHARES, BARRING VERY FEW EXCEPTIONS, AS IN THE CASE OF SHARES IN THE BANK, WERE HELD JUST FOR A PERIOD OF FEW MONTHS ONLY OR LESS. NO SHARE WAS HELD LONG ENOUGH TO RAISE A POSSIBILIT Y THAT IT COULD HAVE BEEN HELD AS INVESTMENT. THUS THIS ORDER DOES NOT ALSO HELP THE ASSESSEE. ITA NO.785/MUM/09 19 18. FOR THE AFORESAID REASONS, WE UPHOLD THE CONCLU SION OF THE DEPARTMENTAL AUTHORITIES THAT THE SALE OF SHARE S MUST BE TREATED AS BUSINESS TRANSACTIONS AND THAT THE PROF ITS MUST BE ASSESSED AS BUSINESS PROFITS AND NOT AS SHORT TERM CAPITAL GAINS. HOWEVER, THE SECURITIES TRANSACTION TAX PAI D BY THE ASSESSEE IS ALLOWABLE AS A DEDUCTION UNDER SECTION 88E, WHILE COMPUTING THE BUSINESS PROFITS. THE ASSESSING OFFI CER IS DIRECTED TO ASCERTAIN THE DETAILS OF THE PAYMENT, I F ANY, AND ALLOW THE SAME AS A DEDUCTION. SIMILARLY, THE ASSES SING OFFICER IS ALSO DIRECTED TO EXAMINE AND TAKE AN APPROPRIATE DECISION VIS- A-VIS THE ASSESSEES PLEA THAT THE ASSESSING OFFIC ER OUGHT TO HAVE CONSIDERED THE STOCK ON HAND ALSO, INSTEAD OF TAKING INTO ACCOUNT ONLY THE SHARES WHICH WERE SOLD, CONSISTENT WITH HIS VIEW THAT THE ASSESSEE IS CARRYING ON BUSINESS IN S HARES. THE ASSESSEE SHALL BE GIVEN SUFFICIENT OPPORTUNITY TO A DDUCE EVIDENCE IN SUPPORT OF THIS ALTERNATIVE PLEA WHICH SHALL BE CONSIDERED BY THE ASSESSING OFFICER BEFORE TAKING A DECISION ON THIS ALTERNATIVE PLEA. THUS, THE FIRST SIX GROUNDS ARE PARTLY ALLOWED. 19. GROUND NOS. 7 & 8 ARE TO THE EFFECT THAT THE IN COME-TAX AUTHORITIES OUGHT TO HAVE ADJUSTED THE FUTURE AND O PTION LOSS OF RS.4,38,831/- WHILE COMPUTING THE TOTAL INCOME SINC E THE LOSS SUFFERED IN TRADING DERIVATIVES CANNOT BE CONSIDER ED AS SPECULATIVE LOSS. 20. IN THE SPECIAL BENCH CASE OF SHREE CAPITAL SER VICES LTD. VS. ACIT., (2009) 318 ITR (AT) 1(SB) IT WAS HELD TH AT CLAUSE (D) OF SECTION 43(5) IS PROSPECTIVE IN NATURE AND WILL BE APPLICABLE TO ASSESSMENT YEAR 2006-07 ONWARDS. THIS APPEAL RELATE S TO THE ASSESSMENT YEAR 2005-06. THE SPECIAL BENCH DECISION IS THEREFORE IN FAVOUR OF THE REVENUE. THE LOSS IN FUT URES AND OPTIONS WILL THEREFORE BE SPECULATION LOSS FOR THE YEAR UNDER ITA NO.785/MUM/09 20 APPEAL AND CAN BE ADJUSTED ONLY AGAINST SPECULATION PROFIT OF RS.1,01,636/- WHICH THE ASSESSEE CLAIMS TO HAVE INC LUDED IN THE TOTAL INCOME. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM AND ALLOW RELIEF IF THE CLAIM IS FOUND CORRECT. THE GROUND NOS. 7 & 8 ARE ALLOWED. 21. GROUND NOS. 9 & 10 ARE IN EFFECT IN ELABORATION OF GROUND NOS.1 TO 6 ONLY AND THEREFORE, NEED NOT BE SEPARATE LY CONSIDERED. 22. GROUND NO.11 RELATING TO LEVY OF INTEREST IS CO NSEQUENTIAL. GROUND NO.12 IS GENERAL AND NO DECISION IS REQUIRED . 23. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 17 TH DAY OF MARCH, 2010. SD/- ( P.M. JAGTAP ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 17 TH MARCH , 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-MC-25, MUMBAI. 4. THE CIT(A)-XXV, MUMBAI 5. THE DR D BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI