Appeal Details
Counselvise Citation
7924514 RSA 2011
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 3 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-04-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
12-07-2012
Assessment Year
2006-2007
Appeal Filed On
17-01-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.79/PN/2011 (ASSESSMENT YEAR : 2006-07) GURUMUKH J SUKHWANI, SUKHWANI NIVAS, PLOT NO.350, ROAD NO.3, SINDH HOUSING SOCIETY, AUNDH, PUNE 411 007. PAN : ACEPS8693K . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), PUNE. . RESPONDENT ASSESSEE BY : MR. VIPIN GUJARATHI DEPARTMENT BY : MR. A. K. MODI & MR. S. P. WALIMBE DATE OF HEARING : 20-03-2014 DATE OF PRONOUNCEMENT : 30-04-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DA TED 06.07.2010 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.12.2008 PASSED BY THE ASSESSING OFFICER U/S 143(3) R.W.S. 153A OF THE INCOME-TAX AC T, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, ASSESSEE HAS RAISED FOLLOWING GR OUNDS OF APPEAL :- 1.) ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE HONOURABLE COMMISSIONER OF INCOME TAX (APPE ALS) - I, PUNE ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER TREATING THE SHORT TERM CAPITAL GAIN OF RS.66,60,887/- ON PURCHASE AND SALE OF SHARES OF COMPANIES AS PROFITS AND GAINS OF THE APPELLANT ON THE GROUND THAT THE APPELLANT IS TRADING IN SHARES WITHOUT APPRECIATING THE FACTS OF THE CASE. THE APPELLANT HEREBY PRAYS THAT THE SHORT TERM CAPITAL GAIN OF RS.66,60,887/- MAY PLEASE BE RESTORED AND ADDITION AS NORMAL BUSINESS INCOME MAY PLEASE BE DELETED.' 2.) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HONOURABLE COMMISSIONER OF INCOME TAX (APPEALS) - I , PUNE ERRED IN ITA NO.79/PN/2011 A.Y. 2006-07 CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFI CER TREATING THE LONG TERM CAPITAL GAINS OF RS.15,53,844/- ON PURCHASE AND SAL E OF SHARES OF COMPANIES AS PROFITS AND GAINS OF THE APPELLANT ON THE GROUND THAT THE APPELLANT IS TRADING IN SHARES WITHOUT APPRECIATING THE FACTS OF THE CAS E THAT THE SAME WERE INVESTMENTS IN LONG TERM SHARES AND THE PROFIT ON S ALE IS EXEMPT DUE TO STT PAID ON SUCH SALE. THE APPELLANT HEREBY REQUEST THAT THE ADDITION OF MAY PLEASE BE DELETED' 3. THE SOLITARY DISPUTE IN THIS APPEAL ARISES FROM THE ACTION OF THE ASSESSING OFFICER IN TREATING INCOME EARNED BY THE ASSESSEE FROM SALE AND PURCHASE OF SHARES AS INCOME FROM BUSINESS AS AGAIN ST ASSESSEES STAND OF THE SAME BEING TAXABLE AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING OF THE SHARES AN D SECURITIES. THE AFORESAID STAND OF THE ASSESSING OFFICER HAS SINCE BEEN AFFIRMED BY THE CIT(A) AND HENCE THE PRESENT APPEAL OF THE ASSESSEE BEFORE US. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S AN INDIVIDUAL WHO IS DERIVING INCOME UNDER VARIOUS HEADS, NAMELY, INCOME FROM HOUSE PROPERTY, PROFITS AND GAINS OF BUSINESS, LONG TERM AND SHORT TERM CAPITAL GAINS ON SHARES, INCOME FROM SPECULATION BUSINESS, OTHER SOU RCES AS WELL AS INCOME BY WAY OF SHARE OF PROFIT FROM THE PARTNERSHIP FIRMS W HEREIN ASSESSEE IS A PARTNER. THE PARTNERSHIP FIRMS WHERE ASSESSEE IS A PARTNER A RE ENGAGED IN THE BUSINESS OF PROMOTER AND BUILDERS. FOR THE ASSESSM ENT YEAR 2006-07, IT FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,1 7,52,980/-. SUBSEQUENTLY, ON ACCOUNT OF A SEARCH AND SEIZURE ACTION U/S 132 O F THE ACT IN THE ASSESSEES FAMILY GROUP OF CASES ON 14.06.2006, ASSESSEE FURNI SHED A RETURN OF INCOME ON 13.03.2008 IN PURSUANCE TO A NOTICE U/S 153A OF THE ACT WHEREIN ALSO THE TOTAL INCOME WAS DECLARED AT RS.1,70,52,980/-, AS W AS DECLARED IN THE ORIGINAL RETURN OF INCOME. THE RETURN SO FILED HAS BEEN SUB JECT TO A SCRUTINY ASSESSMENT U/S 143(3) R.W.S. 153A OF THE ACT WHEREI N THE ONLY DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO THE TREATMENT OF LONG TERM CAPITAL GAIN OF RS.15,53,844,/- AND SHORT TERM CAPITAL GAIN OF RS.66,60,887/- ON SALE OF SHARES, WHICH HAS BEEN TR EATED AS INCOME FROM BUSINESS. THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE WAS ENGAGED IN ITA NO.79/PN/2011 A.Y. 2006-07 THE TRADING OF SHARES HENCE THE PROFIT ON THE TRANS ACTIONS OF SALE AND PURCHASE OF SHARES WAS ASSESSABLE AS BUSINESS INCOME AND NOT AS CAPITAL GAINS. IN COMING TO SUCH CONCLUSION, HE HAS REFERRED TO THE C ONTENTS OF A STATEMENT OF THE ASSESSEE RECORDED DURING THE COURSE OF SURVEY U /S 133A OF THE ACT ON 15.06.2006. 5. BEFORE THE CIT(A), THE PLEA OF THE ASSESSEE WAS THAT THE ASSESSING OFFICER WAS WRONG IN SIMPLY RELYING ON THE STATEMEN T OF THE ASSESSEE RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS WITHOUT APP RECIATING THE ATTENDANT FACTS AND CIRCUMSTANCES. IT WAS POINTED OUT THAT T HE INVESTMENTS IN SHARES WERE OUT OF OWN FUNDS AND NO BORROWINGS WERE MADE B Y THE ASSESSEE FOR THE PURCHASE OF SHARES. IT WAS ALSO POINTED OUT THAT P URCHASE OR SALE OF SHARES WAS NOT THE MAIN ACTIVITY OF THE ASSESSEE BECAUSE A SSESSEE WAS A PARTNER IN A NUMBER OF PARTNERSHIP FIRMS AND HE WAS RECEIVING SHARE PROFITS TO THE TUNE OF RS.6,35,00,310/- AND THE CAPITAL GAINS EARNED ON SH ARES WAS MUCH LESS AND THEREFORE SUCH ACTIVITY WAS NOT THE MAIN ACTIVITY O F THE ASSESSEE. ASSESSEE ALSO POINTED OUT THAT THE SHARES WERE HELD BY THE A SSESSEE AS INVESTMENTS AND ARE REFLECTED AT COST IN THE BALANCE SHEET WH ICH SHOWED THE INTENTION OF THE ASSESSEE THAT HE WAS AN INVESTOR. THE AFORESAI D PLEAS RAISED BY THE ASSESSEE HAVE NOT FOUND FAVOUR WITH THE CIT(A) AND HE HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. AS PER THE CIT(A) , THE ASSESSEE HAD DECLARED SPECULATION PROFITS FROM TRADING IN SHARES ALSO DUR ING THE YEAR UNDER CONSIDERATION AS ALSO IN THE PRECEDING ASSESSMENT Y EARS. THE CIT(A) ALSO NOTED THAT CONSIDERING THE VOLUME, FREQUENCY, CONTI NUITY AND REGULARITY IT COULD BE SAID THAT THE INTENTION OF THE ASSESSEE WAS TO D EAL IN SHARES AND SECURITIES AS A TRADER. THE CIT(A) HAS ALSO NOTICED THAT THE MAJOR INCOME EARNED BY THE ASSESSEE WAS OUT OF TRANSACTIONS OF SALE AND PURCHA SE OF SHARES. IN-FACT, THE CIT(A) HAS SUMMED-UP HIS ARGUMENTS TO HOLD THAT THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES, ON WHICH ASSESSEE HAD DECLARED INCOME BY WAY OF LONG ITA NO.79/PN/2011 A.Y. 2006-07 TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN, WERE INDEED THE TRANSACTIONS OF BUSINESS AS UNDER :- 5.13 IN THE LIGHT OF THE AFORESAID FACTS AND CIRCU MSTANCES OF CASE, LEGAL POSITION, AND HAVING REGARD TO THE FACT THAT (I) THE APPELLANT IS ENGAGED ITSELF IN SYSTEMATIC AND CONTINUOUS ACTIVITY OF PUR CHASE AND SALE OF SHARES (II) THE OBJECT OF PURCHASING SHARES BEING NOT OF EARNIN G DIVIDENDS AND MAXIMIZATION OF INVESTMENTS BUT AS A BUSINESS ACTIV ITY OF TRADING IN SHARES (III) HAVING SUBSTANTIAL NATURE OF TRANSACTIONS OF PURCHA SE AND SALE OF SHARES EVERY YEAR AND CONSIDERING CONDUCT AND INTENTION OF THE A PPELLANT ALL ALONG IN DABBLING IN SHARES AND SECURITIES, IT IS CONCLUDED THAT THE APPELLANT DEALT IN SHARES AS AN ADVENTURE IN THE NATURE OF TRADE AND T HE PROFITS FROM THE PURCHASES AND SALES OF SHARES, THOUGH SHOWN AS INVE STMENTS IN THE STATEMENT OF AFFAIRS OF THE APPELLANT, ARE IN THE NATURE OF B USINESS INCOME ASSESSABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. THE CONDUCT AND INTENTION OF THE APPELLANT OVER A PERIOD OF TIME CLEARLY SHOWS THAT THIS IS NOT THE CASE WHERE THE APPELLANT HAS SIMPLY ACTED TO MAXIMIZE TH E VALUE OF HIS WEALTH HOLDING IN THE SHAPE OF SHARES BUT INVOLVED IN A SY STEMATIC AND REGULAR BUSINESS ACTIVITY. 5.14 TO SUM UP, IN THE CASE OF APPELLANT, IT IS AMP LY DEMONSTRATED FROM THE FREQUENCY AND MAGNITUDE OF THE TRANSACTION S DURING THE YEAR AND EARLIER YEARS THAT THERE WAS A SYSTEMATIC, CONTINUO US AND ORGANIZED CARRYING ON OF BUSINESS ACTIVITY OF PURCHASE AND SALE OF SHA RES AND SECURITIES NOT ONLY IN THE YEAR UNDER APPEAL BUT ALSO IN EARLIER YEARS AND SUCH ACTIVITY CONSTITUTES AN ADVENTURE IN THE NATURE OF TRADE. THE ACTIVITY O F THE APPELLANT IS A PROFIT MAKING ACTIVITY OF A TRADER AND NOT PROFIT SEEKING ACTIVITY OF AN INVESTOR. IN SUCH A SITUATION, WHERE THE APPELLANT WAS CARRYING ON BU SINESS OF PURCHASE AND SALE OF SHARES SECURITIES, EVEN IF SUCH TRANSACTION S ARE RECORDED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AS INVESTMENT, THE ASS ESSING OFFICER IS JUSTIFIED IN LAW IN COMPUTING INCOME ON SALE OF SUCH SHA R ES UNDER THE HEAD 'BUSINESS'. 6. AGAINST THE AFORESAID DECISION OF THE CIT(A), AS SESSEE IS IN FURTHER APPEAL BEFORE US. APART FROM REITERATING THE ARGUM ENTS RAISED BEFORE THE CIT(A) ASSESSEE POINTED OUT THAT IT WAS WRONG ON TH E PART OF THE CIT(A) TO CONCLUDE THAT THERE WAS A SYSTEMATIC AND CONTINUOUS ACTIVITY OF PURCHASE AND SALE OF SHARES BEING CARRIED OUT BY THE ASSESSEE. IT HAS ALSO BEEN POINTED OUT THAT THE ASSESSEE WAS MERELY ACTING AS AN INVESTOR WHILE UNDERTAKING PURCHASE AND SALE OF SHARES AND HIS MAIN ACTIVITY W AS LOOKING AFTER THE BUSINESSES OF THE FIRMS WHERE THE ASSESSEE IS A PAR TNER. THE LEARNED COUNSEL REFERRED TO THE SUMMARY OF THE SHARE TRANSACTIONS A T PAGE 1 OF THE PAPER BOOK TO POINT OUT THAT IN RESPECT OF LONG TERM CAPI TAL GAIN OF RS.15,53,844/- THE TOTAL NUMBER OF SALE TRANSACTIONS WAS MERELY 25 AND THE PERIOD OF HOLDING OF SHARES RANGED FROM 1 TO 5 YEARS. IT WAS THEREFORE CONTENDED THAT SUCH ITA NO.79/PN/2011 A.Y. 2006-07 TRANSACTIONS COULD NOT BE SEEN FROM THE POINT OF VI EW A TRADER IN SHARES. SIMILARLY, EVEN IN RESPECT OF TRANSACTIONS RESULTIN G IN SHORT TERM CAPITAL GAIN IT WAS POINTED OUT THAT THE TOTAL NUMBER OF TRANSACTIO NS WERE 347, AND IN THE CASE OF 294 SUCH TRANSACTIONS THE PERIOD OF HOLDING WAS MORE THAN 30 DAYS. THE LEARNED COUNSEL POINTED OUT THAT ASSESSEE HAD I NDEED DECLARED CERTAIN INCOME FROM SPECULATION ACTIVITY IN SHARES AS BUSIN ESS INCOME IN THE CURRENT YEAR AS WELL AS IN THE PAST YEARS; HOWEVER, ACCORDI NG TO HIM, IT WAS PERMISSIBLE FOR THE ASSESSEE TO MAINTAIN TWO PORTFO LIOS, ONE THAT OF AN INVESTOR IN SHARES AND OTHER THAT OF A TRADER IN SHARES, A P OSITION WHICH HAS ALSO BEEN ACKNOWLEDGED BY THE CBDT IN ITS CIRCULAR NO.4 OF 20 07 DATED 15.06.2007. IT WAS THEREFORE CONTENDED THAT SO FAR AS THE PRESENT TRANSACTIONS ARE CONCERNED THE SAME HAVE BEEN RIGHTLY TREATED BY THE ASSESSEE AS GIVING RISE TO CAPITAL GAINS AS THE SAID ACTIVITY HAS BEEN UNDERTAKEN AS A N INVESTOR; AND, IN SUPPORT RELIANCE HAS BEEN PLACED ON THE JUDGEMENT OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT, (2011) 336 IT R 287 (BOM) AND ALSO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. NAISHADH V. VACHHARAJANI VIDE INCOME TAX APPEAL (L) NO.1042 OF 2011 ORDER DATED 22.09.2011. 7. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS REITERATED THE STAND OF THE LOW ER AUTHORITIES BY REFERRING TO THE RESPECTIVE ORDERS AND ACCORDINGLY HE HAS SUBMIT TED THAT THE IMPUGNED TRANSACTIONS OF SALE AND PURCHASE OF SHARES HAVE BE EN RIGHTLY ASSESSED AS BUSINESS INCOME. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THERE IS NO GAINSAYING THAT THE QUESTION OF ASCERTAINING WHETHE R SALE AND PURCHASE OF SHARES IN QUESTION IS LIABLE TO BE TAXED AS CAPITAL GAINS OR BUSINESS INCOME IS A MIXED QUESTION OF LAW AND FACT; AND, EACH CASE IS LIABLE TO BE DECIDED HAVING REGARD TO ITS OWN FACTUAL MATRIX. NEVERTHELESS, IT IS ALSO AN ACCEPTED POSITION ITA NO.79/PN/2011 A.Y. 2006-07 THAT THERE IS A PLETHORA OF JUDICIAL PRONOUNCEMENTS ON SUCH ISSUES WHICH PROVIDE GUIDING PRINCIPLES IN ORDER TO DETERMINE TH E DISPUTE IN A PARTICULAR CASE. IN THE PRESENT CASE, IT IS QUITE EVIDENT THA T THE MAIN STREAM OF INCOME OF THE ASSESSEE IS BY WAY OF SHARE OF PROFITS FROM THE PARTNERSHIP FIRMS WHERE HE IS A PARTNER BECAUSE IN THE YEAR UNDER CONSIDERATIO N ASSESSEE HAS RECEIVED HIS SHARE OF PROFITS FROM THE PARTNERSHIP FIRMS OF RS.6,35,00,310/-, WHICH IS QUITE SUBSTANTIAL IN COMPARISON TO THE OTHER INCOME S DECLARED IN THE RETURN OF INCOME. THEREFORE, FACTUALLY SPEAKING, WE DO NOT F IND ANY JUSTIFICATION FOR ASSERTION MADE BY THE CIT(A) IN PARA 5.3 OF HIS ORD ER TO THE EFFECT THAT MAJOR INCOME EARNED BY THE APPELLANT IS OUT OF TRANSACTIO NS OF SALE AND PURCHASE OF SHARES ONLY .. . 9. ANOTHER ASPECT WHICH HAS WEIGHED WITH THE LOWER AUTHORITIES IS THAT ASSESSEE HAS DECLARED CERTAIN INCOME FROM THE DEALI NG IN SHARES AS BUSINESS INCOME ALSO. IN THE PAST YEARS ALSO THE SAID SITU ATION PREVAILED. IN PARA 5.2 OF THE IMPUGNED ORDER, THE CIT(A) HAS NOTED THAT DURIN G THE YEAR UNDER CONSIDERATION, ASSESSEE HAS ADMITTED RS.24,00,527/- AS SPECULATION PROFITS AND IN THE PRECEDING ASSESSMENT YEAR ASSESSEE HAD I N-FACT SPECULATION LOSS OF RS.1,79,823/- ON SALE OF SHARES. SO HOWEVER, IN SO FAR AS THE IMPUGNED INCOME ON SALE AND PURCHASE OF SHARES (I.E. LONG TE RM AND SHORT TERM CAPITAL GAIN OF RS.15,53,844/- AND 66,60,887/- RESPECTIVELY ) ARE CONCERNED, IT HAS BEEN DECLARED BY THE ASSESSEE AS CAPITAL GAINS ON T HE PREMISE THAT THE SAME HAS BEEN EARNED AS AN INVESTOR AND NOT AS A TRADER. IN-PRINCIPLE, THERE CANNOT BE A DISPUTE TO THE PROPOSITION THAT IT IS OPEN FOR AN ASSESSEE TO TRADE IN THE SHARES AS WELL AS TO INVEST IN THE SHARES AND WHE REVER THE SHARES ARE HELD AS INVESTMENT THEN THE INCOME ARISING ON THE SALE OF S UCH SHARES IS LIABLE TO BE ASSESSED AS LONG TERM OR SHORT CAPITAL GAINS, DEPEN DING ON THE PERIOD OF HOLDING OF SHARES. THE SAID PROPOSITION HAS BEEN R ECOGNIZED BY THE CBDT IN ITS CIRCULAR DATED 15.06.2007 (SUPRA) AND HAS ALSO BEEN UPHELD BY THE HONBLE BOMBAY HIGH IN THE CASE OF GOPAL PUROHIT (SUPRA). THEREFORE, THE PRESENCE OF ITA NO.79/PN/2011 A.Y. 2006-07 CERTAIN TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AS A TRADING ACTIVITY CANNOT IPSO FACTO LEAD TO A CONCLUSION THAT FOR THE IMPUGN ED TRANSACTIONS ALSO, ASSESSEE WAS ACTING AS A TRADER. NO DOUBT THE DE CLARATION OF BUSINESS INCOME FROM CERTAIN TRANSACTIONS BY THE ASSESSEE WO ULD LEAD TO A NATURAL QUESTION AS TO WHETHER THE OTHER TRANSACTIONS OF SA LE AND PURCHASE WHICH ARE CLAIMED TO BE CARRIED OUT AS AN INVESTOR, ARE REALL Y SO? FOR THE SAID PURPOSE THE TRANSACTIONS OF SALE AND PURCHASE CONSIDERED BY THE ASSESSEE TO BE IN NATURE OF AN INVESTMENT ACTIVITY GIVING RISE TO INC OME BY WAY OF CAPITAL GAINS, ARE LIABLE TO BE EXAMINED INDEPENDENTLY. 10. THE ASSESSING OFFICER HAS EXTRACTED A PORTION O F THE STATEMENT OF THE ASSESSEE RECORDED DURING THE SURVEY 14.06.2006, AND ON THAT BASIS HE HAS CONCLUDED THAT ASSESSEE WAS ENGAGED IN THE TRADING OF SHARES. WE FIND IT APPROPRIATE TO REPRODUCE HEREINAFTER THE EXTRACT OF ASSESSEES STATEMENT WHICH HAS BEEN RELIED UPON BY THE ASSESSING OFFICER :- Q.2 PLEASE EXPLAIN THE QUANTUM OF TRADING AND THE I NCOME EARNED BY YOU FROM YOUR BUSINESS OF SHARE TRADING? ANS. OFF HAND I CANNOT GIVE YOU THE EXACT FIGURE B UT I MUST HAVE TRADED IN AROUND 100 SCRIP'S. THE NET PROFIT EARNED BY ME DUR ING THE YEAR 2005- 06 WAS AROUND RS.80-85 LAKHS. SIMILARLY, WE EARNED GOOD PROFITS IN THE SHARES TRADED IN THE NAMES OF MY OTHER FAMILY M EMBERS. FOR EXACT DETAILS, I SHALL HAVE TO REFER TO THE BOOKS OF ACCO UNTS. Q.3 WHO ARE YOUR SHARE BROKERS AND WHY DID YOU CHOO SE THEM TO BE YOUR SHARE BROKERS? ANS. MY SHARE BROKERS ARE : (I) RIFCO (II) KOTAK SECURITIES (III) SAJJAD SECURITIES (IV) KAYMET (V) ANGEL SECURITIES APART FROM THE ABOVE NAMED BROKERS, I DO NOT HAVE A NY OTHER SHARE BROKER AT PRESENT. I CHOSE THEM AS MY SHARE BROKERS BECAUSE THEY ARE MEMBERS OF BSE / NSE AND THEY ARE DIRECT BROKERS, I .E. THEY ARE NOT SUB-BROKERS. THEY ENJOY A GOOD REPUTATION. MORE OVER SINCE THEY ARE NOT SUB BROKERS, THEY CHARGE A LESS COMMISSION. Q.4 SINCE WHEN ARE YOU TRADING IN SHARES? DURING THIS PERIOD, WHO ELSE WERE YOUR SHARE BROKER? ANS. I AM TRADING IN SHARES SINCE 1980-81. THERE H AVE BEEN MANY SHARE BROKERS DURING THIS TIME PERIOD. I DO NOT REMEMBER ALL THEIR NAMES. Q.5 PLEASE EXPLAIN THE WHOLE PROCESS INVOLVED IN YO UR SHARE TRADING BUSINESS. ITA NO.79/PN/2011 A.Y. 2006-07 ANS. WE KEEP IN A VERY FREQUENT TOUCH WITH OUR BROK ERS. WE MAKE TELEPHONE CALLS TO THEM ALMOST 3-4 TIMES A DAY TO K EEP A TRACK OF THE MOVEMENT OF SCRIPS. AS PER THE SITUATION IN MARKET, WE DECIDE TO EITHER SELL OR PURCHASE A CERTAIN SCRIP. IF I HAVE TO PURC HASE A SCRIP I ASK MY BROKER TO DO SO. THE BROKERS BUY THE SCRIPS FOR ME AND SEND A BILL. FOR PURCHASE, THE SAID SCRIPT GETS TRANSFERRED TO THE D EMAT ACCOUNT OF THE BROKER. WHEN I MAKE HIM THE PAYMENTS, HE TRANSFERS THESE SHARES FROM HIS DEMAT ACCOUNT TO MINE. SIMILARLY, WHEN I A SK THE BROKER TO SELL SOME SCRIPS OWNED BY ME, HE DOES SO AND INFORMS ME. THEREAFTER, I TRANSFER THOSE SCRIPS FROM MY DEMAT ACCOUNT TO THAT OF MY BROKER. I RECEIVE A CHEQUE FROM MY BROKER AGAINST THE SALES M ADE. 11. ON THIS ASPECT, THE LEARNED COUNSEL SUBMITTED THAT QUESTIONS THAT WERE PUT TO THE ASSESSEE WERE LEADING QUESTIONS INASMU CH AS ASSESSEE BEING A NON-PROFESSIONAL WOULD NOT UNDERSTAND THE DIFFERENC E BETWEEN BUSINESS OF SHARE TRADING AND INVESTMENT IN SHARES. IT WAS POINTED OUT THAT BY WAY OF QUESTION NO.2, THE ASSESSING OFFICER REQUIRED THE A SSESSEE TO EXPLAIN THE QUANTUM OF TRADING AND THE INCOME EARNED FROM THE B USINESS OF SHARE TRADING BY PRESUMING THAT ASSESSEE WAS INDULGING IN BUSINES S OF SHARE TRADING. AT NO STAGE, THE ASSESSEE WAS PUT A QUESTION AS TO WHETHE R HE WAS INDULGING IN SALE AND PURCHASE OF SHARES AS AN INVESTOR OR AS A TR ADER IN SO FAR AS THE PRESENT TRANSACTIONS ARE CONCERNED. WE HAVE EXAMINED THE A FORESAID ASPECT AND FIND THAT THE QUESTIONS PUT BY THE ASSESSING OFFICER AND THE REPLIES OF THE ASSESSEE MERELY SPEAK ABOUT THE MECHANICS OF THE SALE AND PU RCHASE OF SHARES BEING CARRIED OUT BY THE ASSESSEE. IN-FACT, WHETHER AN A SSESSEE CARRIES OUT SALE AND PURCHASE OF SHARES AS AN INVESTOR OR AS A TR ADER, THE MECHANICS OF SALE AND PURCHASE WOULD BE SIMILAR. IN-FACT, THE QUESTI ONS PUT TO THE ASSESSEE CLEARLY SHOW THAT IT WAS FAR FROM THE MIND OF THE A SSESSING OFFICER THAT ASSESSEE WAS DECLARING INCOME ON SALE AND PURCHASE OF SHARES AS CAPITAL GAINS ALSO, OTHERWISE THE ASSESSEE WOULD HAVE BEEN PUT TO QUESTION. THUS, THE ANSWERS TO THE QUESTIONS PUT TO THE ASSESSEE DU RING THE SURVEY ACTION, CANNOT BE THE SOLE BASIS FOR THE ASSESSING OFFICER TO SAY THAT THE IMPUGNED CAPITAL GAINS ARE TO BE ASSESSED AS BUSINESS INCOME . IN ANY CASE, THE ANSWERS TO THE QUESTIONS PUT BY THE ASSESSING OFFIC ER DOES HELP TO CONCLUDE EITHER WAY. THE OTHER POINT RAISED BY THE ASSESSIN G OFFICER IS THAT IN THE PAST, ITA NO.79/PN/2011 A.Y. 2006-07 ASSESSEE HAS SHOWN PROFIT ON SALE TRANSACTIONS AS B USINESS PROFITS. OSTENSIBLY, WE HAVE ALREADY EXAMINED THE AFORESAID ASPECT IN EARLIER PARAS AND FOUND THAT ASSESSEE HAS DUAL PORTFOLIO, NAMELY, ONE THAT OF INVESTOR AND ANOTHER OF TRADER IN SHARES. NOW, COMING BACK TO T HE TRANSACTIONS OF SALE AND PURCHASE OF SHARES FOR THE YEAR UNDER CONSIDERATION WHICH HAVE BEEN OFFERED TO TAX AS LONG TERM AND SHORT TERM CAPITAL GAINS. AT PAGE 1 OF THE PAPER BOOK IS THE SUMMARY OF SALE AND PURCHASE TRANSACTIONS. THE TOTAL NUMBER OF TRANSACTIONS OF SHARES PURCHASED ARE 173 AND THE TO TAL NUMBER OF SCRIPTS INVOLVED ARE 93. THE TOTAL TRANSACTIONS OF SALE DU RING THE YEAR ARE 347 INVOLVING 93 SCRIPTS. OUT OF THE SAME, IN RESPECT OF LONG TERM CAPITAL GAIN THE TOTAL NUMBER OF SALE TRANSACTIONS ARE 25 AND THE TO TAL NUMBER OF SCRIPTS ARE 22 AND WE FIND THAT THE SHARES HAVE BEEN HELD FOR A FA IRLY LONG PERIOD OF TIME. AT PAGES 3 TO 4 OF THE PAPER BOOK IS PLACED A SUMMARY OF THE TRANSACTIONS GIVING RISE TO LONG TERM CAPITAL GAIN AND WE FIND THAT THE PERIOD OF HOLDING RANGES FROM ONE TO FIVE YEARS, AS POINTED OUT BY THE LEARNED CO UNSEL FOR THE ASSESSEE. FOR INSTANCE IN THE CASE OF ADLABS FILMS LTD. 2000 SHAR ES WERE PURCHASED ON 19.12.2003 WHICH WERE SOLD ON 05.05.2006 THEREBY RE FLECTING A HOLDING PERIOD OF 502 DAYS. IN THE CASE OF ESCORTS LTD. 1000 SHAR ES WERE PURCHASED ON 27.11.2003 AND SOLD ON 20.03.2006 THEREBY GIVING A HOLDING OF PERIOD OF 844 DAYS. EVEN IN RELATION TO THE SALE OF HDFC LTD. AN D HFCL SHARES THE HOLDING PERIOD RANGES FROM 410 DAYS TO 498 DAYS. SIMILARLY , WITH RESPECT TO THE INDUSLAND BANK THE HOLDING PERIOD RANGES FROM 1687 TO 1755 DAYS. OTHER TRANSACTIONS ALSO REFLECT A SUBSTANTIAL HOLDING PER IOD. THEREFORE, CONSIDERING THE PERIOD OF HOLDING, WE DO NOT FIND ANY REASON TO SAY THAT INVESTMENT IN SUCH SHARES WAS MADE BY THE ASSESSEE WITH THE INTENTION OF TRADING IN SHARES. WE ARE COMING TO THE AFORESAID PREMISE ALSO FOR THE RE ASON THAT THE ASSESSEE HAS MADE SUCH INVESTMENTS OUT OF OWN SOURCES WITH NO BO RROWINGS AND ALSO BECAUSE OF THE FACT THAT THERE IS NOTHING TO SAY TH AT ASSESSEE HAS ANY FORMAL PARAPHERNALIA WHICH WOULD SHOW THAT THERE WAS ANY I NTENTION OF TRADING. THE DEPICTION IN THE BALANCE SHEET OF SUCH SHARES AS I NVESTMENTS OVER THE PERIOD ITA NO.79/PN/2011 A.Y. 2006-07 OF TIME IS ALSO REFLECTIVE OF ASSESSEES INTENTION OF BEING AN INVESTOR IN SUCH SHARES. THEREFORE CONSIDERING THE FACTUAL MATRIX A ND THE AFORESAID DISCUSSION IN SO FAR AS THE INCOME OF RS.15,53,844/- DECLARED AS LONG TERM CAPITAL GAIN IS CONCERNED, WE ARE UNABLE TO UPHOLD THE ASSERTION OF THE REVENUE THAT SUCH TRANSACTIONS WERE IN THE NATURE OF BUSINESS. THUS, ASSESSEE SUCCEEDS ON THIS ASPECT. 12. NOW, IN SO FAR AS THE TRANSACTIONS GIVING RISE TO SHORT TERM CAPITAL GAINS IS CONCERNED, THE FACTUAL MATRIX THEREIN IS AS FOLL OWS. AT PAGES 5 TO 21 OF THE PAPER BOOK IS PLACED THE DETAILS OF SUCH TRANSACTIO NS. THE TOTAL NUMBER OF TRANSACTIONS ARE 322 INVOLVING 71 SCRIPTS. THE LEA RNED COUNSEL AT THE TIME OF HEARING POINTED OUT THAT INASMUCH AS 294 TRANSACTIO NS OF SALE, THE PERIOD OF HOLDING WAS MORE THAN 30 DAYS AND FOR THE BALANCE O F THE TRANSACTIONS, THE PERIOD OF HOLDING WAS LESS THAN 30 DAYS. IN THE PR ESENT CASE, ASSESSEE IS ENGAGED IN THE ACTIVITY OF SPECULATION IN SHARES, W HICH IS A BUSINESS ACTIVITY. CONSIDERED IN THIS BACKGROUND, IT IS DIFFICULT TO A CCEPT THE PLEA OF THE ASSESSEE THAT EVEN IN TRANSACTIONS WHICH INVOLVE SMALL PERIO D OF HOLDING OF SHARES PRIOR TO SALE, THE SAME HAVE BEEN UNDERTAKEN AS AN INVEST OR. SUCH LIKE TRANSACTIONS ARE INDEED AKIN TO TRADING IN SHARES. 13. HOWEVER, IT IS A VEXED QUESTION TO LAY DOWN AN ABSOLUTE YARDSTICK ON THE BASIS OF PERIOD OF HOLDING OF SHARES TO DETERMI NE WHETHER THE SAME IS TO BE ASSESSED AS A BUSINESS INCOME OR CAPITAL GAINS, ESPECIALLY IN THE PRESENT CASE WHEN ASSESSEE IS MAINTAINING DUAL PORTFOLIO, I .E. AS AN INVESTOR AS WELL AS A TRADER IN SHARES. AT THE TIME OF HEARING, T HE LEARNED COUNSEL HAS REFERRED TO A DECISION OF THE AHMADABAD BENCH OF TH E TRIBUNAL IN THE CASE OF SUGAMCHAND C SHAH VS. ACIT, 139 TTJ 610 (AHD) TO EM PHASIZE THAT IN A SOMEWHAT SIMILAR SITUATION, THE TRIBUNAL HELD THAT THE PROFIT ON SALE OF SHARES HELD FOR MORE THAN 30 DAYS BUT LESS THAN ONE YEAR B E TREATED AS SHORT TERM CAPITAL GAIN WHEREAS PROFIT ON SALE OF SHARES HELD FOR LESS THAN 30 DAYS WAS ITA NO.79/PN/2011 A.Y. 2006-07 LIABLE TO BE TREATED AS BUSINESS INCOME. THE LEA RNED COUNSEL SUBMITTED THAT THE BENCH MAY CONSIDER THE AFORESAID PRECEDENT. WE ARE CONSCIOUS THAT THE THRESHOLD OF 30 DAYS CONSIDERED BY THE COORDINATE B ENCH, CANNOT BE CONSIDERED AS AN ABSOLUTE RULE, BUT THE INSTANT CAS E BEING A CASE WHERE ASSESSEE IS A TRADER AS WELL AS AN INVESTOR IN SHAR ES, SOME YARDSTICK HAS TO BE DEVISED TO DISTINGUISH BETWEEN TRADING AND INVESTME NT ACTIVITY. FOR THE SAID PURPOSE, WE ARE INCLINED TO GO BY THE YARDSTICK DEV ISED BY THE AHMADABAD BENCH OF THE TRIBUNAL IN THE CASE OF SUGAMCHAND C S HAH (SUPRA), WHICH IS BASED ON THE PERIODICITY OF HOLDING. THUS, FOLLOWI NG THE NORM ADOPTED BY OUR CO-ORDINATE BENCH IN THE CASE OF SUGAMCHAND C SHAH (SUPRA), WE HOLD THAT SO FAR AS THE PRESENT CASE IS CONCERNED WHERE THE S HARES HAVE BEEN HELD FOR MORE THAN 30 DAYS THE PROFIT ON SALE THEREOF BE TRE ATED AS SHORT TERM CAPITAL GAIN AND FOR THE SHARES HELD FOR LESS THAN 30 DAYS THE PROFIT ON SALE THEREOF BE TREATED AS BUSINESS INCOME. IN THIS CONTEXT, THE L EARNED COUNSEL HAS REFERRED TO THE SUMMARY OF TRANSACTIONS OF SHORT TERM CAPITA L GAIN PLACED AT PAGE 21 OF THE PAPER BOOK. AS PER THE SUMMARY, THE DETAILS AR E AS UNDER :- SCRIPTS SALES PURCHASE SUMMARY SHORT TERM PROFIT-HOLDING MORE THAN 30 DAYS 666,990 47,250,872 40,510,270 6,740,600 SHORT TERM PROFIT-HOLDING LESS THAN 30 DAYS 62,548 3,342,916 3,004,616 338,300 SUB TOTAL 729,538 50,593,788 43,514,886 7,078,900 LESS: BROKERAGE 412,730 LESS: INT ON DELAYED PAYMENT 5,283 6,660,887 14. IN VIEW OF THE AFORESAID, THE ASSESSING OFFICER IS DIRECTED TO REWORK THE SHORT TERM CAPITAL GAINS ON THE BASIS OF SHARES WHI CH HAVE BEEN HELD FOR MORE THAN 30 DAYS AND UPTO ONE YEAR; AND, THE BALANCE OF THE PROFIT BE ASSESSED AS BUSINESS INCOME. THUS, ON THIS ASPECT ASSESSEE PAR TLY SUCCEEDS. 15. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET-ASI DE AND THE ASSESSING OFFICER IS DIRECTED TO RE-WORK THE TOTAL INCOME AS PER OUR AFORESAID DISCUSSION. ITA NO.79/PN/2011 A.Y. 2006-07 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH APRIL, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE
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1:1 Consultation on Business Valuations
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1:1 Consultation on Legal Requirements
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Declaration of Gift
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