ASHOK KUMAR JAIN, Jaipur V. DCIT, Jaipur

ITA 802/JPR/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5156 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH CIT DHK
• Assessee Lawyers: M L BORAD
• Keywords: Capital asset; Business income; Depreciation; Question of law
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH HKKXPAN] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF;D LN L; DS LE{K BEFORE: SHRI BHAGCHAND, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO. 802/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 ASHOK KUMAR JAIN, PROP.- M/S ASHOK JEWELLERS, 4459, KGB KA RASTA, JOHARI BAZAR, JAIPUR. CUKE VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAWPJ 9712 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI M.L. BORAD (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SHRI RAJENDRA SINGH (ADDL.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/07/2016 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 14/07/2016 VKNS'K@ ORDER PER: LALIET KUMAR, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 01/09/2015 PASSED BY THE LD CIT(A)-I, JAIPUR FOR TH E A.Y. 2010-11. THE GROUNDS TAKEN BY THE ASSESSEE IN APPEAL ARE AS UNDE R:- 1 THAT THE LEARNED CIT (A) ERRED IN OBSERVING THAT THE ASSESSEE WAS DEALING IN SHARES AS A TRADER AND NOT A S AN INVESTOR AND THEREBY UPHOLDING THE FINDING OF TH E A.O. THAT INCOME FROM PURCHASE/SALE OF SHARES WAS INCOME FROM BUSINESS OR PROFESSION, WHICH OBSERVATI ON ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 2 OF THE LEARNED CIT(A) AND SUSTENANCE OF THE FINDING OF THE AO IS MOST ARBITRARY, UNJUST, UNTENABLE AND BAD IN FACT AND IN LAW. 2. THAT, THE LEARNED CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE IS A DEALER OF PRECIO US AND SEMI PRECIOUS GEMS AND STONES FROM LAST MORE THAN 3 DECADES AND HE IS NOT A DEALER OF SHARES AND SECURITIES BUT AN INVESTOR IN SHARES AND SECURITIES . 3. THAT, THE LEARNED CIT(A) ERRED IN CONFIRMING THE FINDING OF THE A.O. THAT THE PROFITS FROM THE SALE OF SHARES AND SECURITIES OF RS.26,64,279/- DECLARED AS SHORT TERM CAPITAL GAINS IS ASSESSED AS INCOME FROM BUSINESS AND PROFESSION AND TAXED AS PER THE RATES APPLICABLE, WHICH CONFIRMATION BY THE LEARNED CIT(A) OF FINDING OF THE A.O. IS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND UNDER THE LAW, MOST ARBITRARY, UNJUST AND UNTENABLE IN LAW. 4. THAT, THE LEARNED CIT(A) FAILED TO APPRECIATE TH AT THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENT IN HI S BOOKS OF ACCOUNTS AND VALUED THE SAME AT COST IN TH E BALANCE SHEET AND NOT AT THE MARKET VALUE OR REALIZABLE VALUE. 2. THE ASSESSEE E-FILED HIS RETURN FOR THE YEAR UNDE R CONSIDERATION ON 27/08/2010 DECLARING TOTAL INCOME OF RS. 69,53,480/ -. THE CASE WAS SELECTED FOR SCRUTINY U/S 143(3) OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT). THEREAFTER, NOTICES WERE ISSUED AND IN RESPONSE THERETO, THE ASSESSEE FILED HIS SUBMISSION. THE ASSESSEE DERIVED INCOME FROM MANUFACTURING AND TRADING, EXPORT AND IMPORT OF PRE CISION AND SEMI ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 3 PRECISION GEMS AND STONES IN NAME AND STYLE OF M/S ASHOK JEWLLERS, JAIPUR. ALL THE GROUNDS OF THE APPEAL ARE INTERLINK ED. THE ASSESSEE DURING THE YEAR 2007-08, 2008-09, 2009-10 AD 2010-11 HAD M ADE INVESTMENT IN THE SHARES AND AS A RESULT THEREOF, THE CAPITAL GAI NS AND DIVIDEND INCOME ACCRUED TO THE ASSESSEE. AFTER THE ISSUANCE OF NOTI CE, THE ASSESSEE WAS CALLED UPON BY THE ASSESSING OFFICER TO FILE THE RE PLY AND GIVE THE REPLY TO THE QUESTIONS. THE LD ASSESSING OFFICER WAS NOT SATIS FIED WITH THE REPLY AND THEREFORE HE HAS HELD THAT THE SHORT TERM PROFI T ACCRUED TO THE ASSESSEE WAS BUSINESS INCOME INSTEAD OF SHORT TERM C APITAL GAIN AND ON THE BASIS OF THE REASONING GIVEN IN THE ASSESSMENT ORDER ,MORE PARTICULARLY IN PARAGRAPH NO. 3.5, 3.6 AND 3.7 MADE THE ADDITIONS ,TO THE TUNE OF RS. 26,64,279/- AS AN INCOME FROM BUSINESS AND PROFESSION AND TO BE TAXED AS PER APPLICABLE RATE. FOR THE PURPOSE S OF CLARITY, WE MAY LIKE TO REPRODUCE PARAGRAPH NO. 3.5 AND 3.6 OF THE ASSESSMENT ORDER, WHICH IS AS UNDER:- 3.5 I HAVE CONSIDERED THE ABOVE SUBMISSIONS CAREF ULLY (A) & (B) GOES ON TO PROVE THE ASSESSEE TO BE AN ESTABLIS HED MERCHANT RAISING ITS GRAPH OF TURN OVER YEAR AFTER YEAR, LOGICALLY IT IS NOT ACCEPTABLE THAT A PERSON WOULD T HINK OF LIQUIDATION OF SUCH REGULAR BUSINESS AS SUBMITTED A T (D) . AT (E) LD A/R HAS ARGUED WITH REFERENCE TO NUMBER OF DAILY SHARE TRANSACTIONS. HERE IT IS TO BE POINTED OUT THAT ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 4 DETAIL OF SHORT TERM PROFIT FURNISHED BY THE ASSES SEE RUNS IN 87 PAGES AND FOR SAKE OF CLARITY COPIES OF PAGE 01 TO 05 ONLY ARE ENCLOSED WITH THIS ORDER AS ANNEXURE FROM WHICH IT CAN BE SEEN THAT THERE ARE 50 TRANSACTIONS OF SALE ON ONE SINGLE DAY I.E 02/04/2009. THIS WILL MAKE AMP LY CLEAR THAT INTENTION OF THE ASSESSEE WAS NOT INVESTM ENT BUT TRADE WHICH IS DONE IN VERY PROFESSIONAL AND TIM E TAKING MANNER. IT MAY BE APPRECIATED THAT A PARTICU LAR TREATMENT IN THE BOOKS OF ACCOUNTS WILL NOT ALTER TH E REAL POSITION. MOREOVER, MERELY SHOWING OF STOCKS AS INVESTMENT AND INVOKING THE ISSUE OF METHOD OF ACCOUNTING AS WELL AS REFERENCE TO PAST TREATMENT IS TO HIDE THE ISSUE AND IS A MERE CAMOUFLAGE OF ASSESSEES REAL INTENT WHICH IS TREADING IN SHARES. AS WILL BE DEMONSTRATED WITH THE HELP OF FOLLOWING JUD ICIAL PRONOUNCEMENTS IN THE LATER PORTION OF THIS ORDER, TREATMENT IN BOOKS OF ACCOUNTS AS INVESTMENT, THOUG H HAS SOME EVIDENTIARY VALUE, CERTAINLY IT 'IS NOT A CONC LUSIVE EVIDENCE TO DEMONSTRATE THAT THE SHARES MUST HAVE B EEN HELD AS ASSETS, ESPECIALLY GIVEN THE CASE THAT FACT S AND CIRCUMSTANCES AND CONDUCT OF THE ASSESSEE SUGGEST OTHERWISE. THE ASSESSEE CANNOT RELY ON HIS OWN DISCRETIONARY HEAD OF ACCOUNT AND NOMENCLATURE AS CONCLUSIVE PROOF THAT THE SHARE INVESTMENT MADE MUS T HAVE YIELDED CAPITAL ASSETS ESPECIALLY WHEN ALL OTHE R FACTS POINTS TO THE CONTRARY. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 5 3.6 THUS MERE FACT OF ASSESSEE TREATING THESE SHARES AS INVESTMENTS DOES NOT COME TO ANY KIND OF RESCUE FOR THE ASSESSEE. ALL THE ABOVE FACTS PROVE THAT THE PURCHA SE OF UNITS & SHARES WAS MADE EXCLUSIVELY AND SOLELY WITH T HE INTENTION TO RESALE AT PROFIT. THE FREQUENCY OF PUR CHASE & SALE OF SHARES AND UNITS IN LARGE NUMBERS IN QUICK SUCCESSION WITH OTHER FACTS MENTIONED ABOVE AND WITH THE INTENTION TO EARN PROFIT LEADS TO THE ONLY CONCLUSI ON THAT SHARES & UNITS WERE THE STOCK IN TRADE OF THE ASSESS EE AND ANY PROFIT ON THEIR SALE IS TO BE CONSIDERED AN INC OME FROM BUSINESS & PROFESSION. THEREFORE, ACTIVITY SO CARRIE D OUT BY THE ASSESSEE CLEARLY SUBSTANTIATE THAT THE ASSESSEE HAS BEEN INDULGED IN THE ACTIVITIES OF BUSINESS OR PROF ESSION BY VIRTUE OF TRADING IN SHARES, MUTUAL FUNDS, DEBENTUR ES ETC.; THUS DURING THE YEAR UNDER CONSIDERATION INCOME FRO M SHARES IS HELD AS BUSINESS ACTIVITY OF THE ASSESSEE . 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD CONFIRMED THE ADDITION MADE BY THE LD ASSESSING OFFICER BY HOLDIN G THAT THE ACTIVITIES OF THE ASSESSEE IN SHARE WAS A BUSINESS ACTIVITY. THE CO NCLUSION OF THE LD CIT(A) IS REPRODUCED AS UNDER:- THUS, IN VIEW OF THE ABOVE DISCUSSION AND LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING THAT THE ASSESSEE HAS SYSTEMATICALLY WITH THE INTENTION TO RE SALE AT PROFIT MADE THE TRANSACTIONS IN SHARES/UNITS, THE F REQUENCY ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 6 OF PURCHASE AND SALE OF SHARES/UNITS IN LARGE NUMBE RS IN QUICK SUCCESSION, THE USE OF BUSINESS FUNDS IN ITS SHARE TRANSACTIONS, NON DELIVERY OF SHARES AND NON TRANSF ER OF SHARES IN ITS DEMAT ACCOUNT LEADS TO THE CONCLUSION THAT THE ASSESSEE WAS DEALING IN THE SHARES AS A TRADER A ND NOT AS AN INVESTOR. HENCE, ITS INCOME FROM DEALING IN S HARES WAS RIGHTLY ASSESSED AS INCOME FROM BUSINESS OR PROFESSION BY THE A.O. THEREFORE, THESE GROUNDS OF A PPEAL OF THE ASSESSEE ARE REJECTED. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED AND DRAWN OUR ATTENTION TO THE RECENT CIRCULAR ISSUED BY THE CBDT DATED 29/02/2016 BEARING NO. 2/2016. THE SAI D CIRCULAR PROVIDES AS UNDER:- 3. DISPUTES, HOWEVER, CONTINUE TO EXIST ON THE APP LICATION OF THESE PRINCIPLES TO THE FACTS OF AN INDIVIDUAL CASE SINCE THE TAXPAYERS FIND IT DIFFICULT TO PROVE THE INTENTION IN ACQUIRING SUCH SHARES/SECURITIES. IN THIS BACKGROUND, WHILE RECOGNIZING THAT NO UNIVERSAL PRINCIPAL IN ABSOLUTE TERMS CAN BE LAID DOWN TO DECIDE THE CHARACTER OF INCOME F ROM SALE OF SHARES AND SECURITIES (LE. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME), CBD T REALIZING THAT MAJOR PART OF SHARES/SECURITIES TRAN SACTIONS TAKES PLACE IN RESPECT OF THE LISTED ONES AND WITH A VIEW TO REDUCE LITIGATION AND UNCERTAINTY IN THE MATTER, IN PARTIAL MODIFICATION TO THE AFORESAID CIRCULARS, FURTHER IN STRUCTS ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 7 THAT THE ASSESSING OFFICERS IN HOLDING WHETHER THE S URPLUS GENERATED FROM SALE OF LISTED SHARES OR OTHER SECUR ITIES WOULD BE TREATED AS CAPITAL GAIN OR BUSINESS INCOME, SHALL TAKE INTO ACCOUNT THE FOLLOWING- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO T REAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FROM THE TRANSF ER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAN D, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSME NT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT B E ALLOWED TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION ( I.E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN OR BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPING IN VIEW THE AFORESAID CIRCULARS ISSUED BY TH E CBDT. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 8 HE HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN TREATING THE INVESTMENT MADE IN SHARES AS AN ASSET AND IS NOT TR EATING IT AS STOCK IN TRADE, THEREFORE, IN VIEW OF THE CIRCULAR, THE CASE OF THE ASSESSEE IS COVERED AND THE DECLARATION GIVEN BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT TO THE EXTENT OF INVESTMENT AS ASSET IS REQ UIRED TO BE ACCEPTED. BESIDES THAT THE LD AR HAS ALSO SUBMITTED AS UNDER: - (A) THE APPELLANT SHRI ASHOK KUMAR JAIN, AGED ABOUT 57 Y EARS, IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADIN G AND EXPORT OF PRECIOUS AND SEMI PRECIOUS STONES UNDER T HE NAME AND STYLE OF M/S ASHOK JEWELLERS AT 4459, K.G.B. KA RASTA, JOHARI BAZAR, JAIPUR FROM LAST MORE THAN 3 DECADES. THE TURNOVER OF PRECIOUS AND SEMI PRECIOUS STONES IN AS SESSEES SOLE PROPRIETORY CONCERN ASHOK JEWELLERS IN LAST 4 ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR IN A PPEAL ARE AS UNDER: (B) THAT KEEPING IN VIEW HIS GROWING AGE THE ASSESSEE STARTED MAKING SOME INVESTMENT IN SHARES OF LISTED COMPANIE S SO THAT WHEN HIS BODILY ORGANS DO NOT REMAIN FULLY FIT FOR DOING REGULAR BUSINESS HE COULD ENJOY FRUITS OF INVESTMEN T IN ASSESSMENT YEAR EXPORT TURNOVER LOCAL TURNOVER TOTAL TURNOVER 2007-08 2,88,08,478 80,31,524 3,68,40,002 2008-09 2,52,10,493 60,79,797 3,12,90,290 2009-10 2,72,34,077 52,27,428 3,24,61,505 2010-11 6,34,81,924 30,49,159 6,65,31,083 ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 9 SHARES IN THE FORM OF DIVIDEND AND ENJOY A PEACEFUL LIFE. IN OTHER WORDS IT HAS NEVER BEEN THE INTENTION OF THE A SSESSEE TO DO REGULAR BUSINESS IN SHARES AND SECURITIES BUT TO RESTRICT HIMSELF IN MAKING INVESTMENT IN SHARES ONLY. IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS ONLY INVESTOR AND MA KES THE INVESTMENT THROUGH THE BROKER AND HE HIMSELF IS NOT A BROKER NOR A SUB-BROKER OF BSE OR NSE. THE DETAILS O F QUANTUM OF INVESTMENT IN SHARES, CAPITAL GAINS, IF ANY, EARNED AND INCOME FROM DIVIDEND, IF ANY, EARNED IN IMMEDIATELY PRECEDING THREE ASSESSMENT YEARS AND ASSESSMENT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2 010-11 ARE AS UNDER: (C) THAT TO KNOW THE INTENTION OF THE ASSESSEE BEHIN D MAKING INVESTMENT IN SHARES THE ASSESSEE CRAVES LEAVE TO R EFER TO AND RELY ON THE FACT THAT AS AGAINST ASSESSEES INV ESTMENT IN ITS STOCK IN TRADE OF REGULAR BUSINESS OF PRECIOUS AND SEMI- PRECIOUS GEMS AND STONES AT RS. 4,40,53,131/- THE INVESTMENT IN SHARES IS AT RS. 58,54,781/-, WHICH I S EVEN LESS THAN 15% OF ASSESSEES INVESTMENT IN THE STOCK OF HIS ASSESSMENT YEAR HOLDING OF SHARES OF PUBLIC LIMITED COMPANIES AS ON THE CLOSE OF THE RELEVANT PREVIOUS YEAR ON 31 ST OF MARCH C APITAL GAINS DIVIDEND INCOME 2007 - 08 1,54,720/ - NIL NIL 2008 - 09 8,68,488/ - NIL 415/ - 2009 - 10 24,57,933/ - LOSS 7,358/ - 14,931/ - 2010 - 11 58,04,781/ - 26,70,971/ - 98,055/ - ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 10 REGULAR BUSINESS OF PRECIOUS AND SEMI-PRECIOUS GEMS AND STONES. (D) THAT FROM THE PERUSAL OF COMPARATIVE FIGURES OF QUANTUM OF INVESTMENT, CAPITAL GAIN AND DIVIDEND INCOME MENTIO NED ABOVE YOUR HONOURS WILL PLEASE SEE THAT THE ASSESSEE HAS SLOWLY AND SLOWLY INCREASED HIS INVESTMENTS IN SHARES AND SECURITIES I.E. FROM RS.1,54,720/- IN A.Y. 07-08 TO RS.58,04,781/- IN ASSESSMENT YEAR 2010-11 SO THAT H IS REGULAR BUSINESS OF PRECIOUS AND SEMI-PRECIOUS GEMS AND STONES MAY NOT SUFFER. (E) YOUR HONOURS WILL ALSO PLEASE FIND THAT IN THE P REVIOUS YEARS RELEVANT TO ASSESSMENT YEAR 2007-08 AND 2008-09 THE ASSESSEE DID NOT MAKE ANY SALE OF SHARES AND SECURI TIES. FIRST TIME IN A.Y. 2009-10 I.E. IN IMMEDIATELY PREC EDING ASSESSMENT YEAR HE SOLD SOME SHARES AND INCURRED A LOSS OF RS.7,358/- AND THEREAFTER ON ACCOUNT OF SUDDEN RISE IN SHARE INDEX HE SOLD SOME PART OF HIS SHARES AND EARNED SH ORT TERM CAPITAL GAINS AT RS. 26,18,783/-. (F) THAT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL I.E. A.Y. 2010-11 THERE WAS A SUDDEN RISE IN SHARE INDEX AND ASSESSEE SOLD A PART OF SHARES AND EARNED NET INCOME FROM SHORT TERM CAPITAL GAIN AT RS.26,18,783 /- [GROSS TOTAL OF SHORT TERM CAPITAL GAIN AT RS.26,64 ,279/- MINUS DEMATE CHARGES RS.45,496/-] AND FROM LONG TER M CAPITAL GAIN AT RS.52,188/-. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 11 (G) THAT THE LEARNED CIT(A) FAILED TO APPRECIATE THA T INVESTMENT IN SHARES AND SECURITIES HAS BEEN MADE OUT OF OWN FU NDS I.E. ASSESSEES OWN CAPITAL AND NOT OUT OF BORROWED F UNDS AND NO CONTRA MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO COME TO A DIFFERENT CONCLUSION. THE ASSES SEES OWN CAPITAL IS RS.4,08,90,832/- AND INVESTMENT IN SH ARES IS ONLY RS.58,54,781/-, WHICH IS EVEN LESS THAN 15% OF ASSESSEES OWN CAPITAL. (H) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T THE ASSESSEE IS NOT REGISTERED WITH ANY AUTHORITY OR BOD Y SUCH AS THE SECURITY EXCHANGE BOARD OF INDIA (SEBI), NAT IONAL STOCK EXCHANGE, BOMBAY STOCK EXCHANGE ETC REGULATIN G BUSINESS OF TRADING IN SHARES. (I) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IN E ARLIER YEARS THE ASSESSEE HAS SHOWN SHARES AND SECURITIES AS CAPI TAL INVESTMENTS AND DEPARTMENT HAS ACCEPTED THE SAME. N OW THE DEPARTMENT CANNOT CHANGE ITS STANDS IN SUBSEQUE NT YEARS. (J) THAT THE LEARNED A.O. AS WELL AS LEARNED CIT(A) FA ILED TO APPRECIATE THAT TRANSACTIONS OF PURCHASE AND SALE O F SHARES HAS ALWAYS BEEN DELIVERY BASED AND FOR EVERY TRANSAC TION I.E. FOR PURCHASE AND SALE, THE TRANSACTION HAS BEE N SETTLED BY TAKING THE DELIVERY AND MAKING PAYMENT AND VICE- VERSA. THE PRICE HAS ALWAYS BEEN PAID AND RECEIVED IN FULL. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 12 (K) THAT THE CLAIM OF THE REVENUE THAT THE ASSESSEE IS DOING BUSINESS IN SHARES AS STOCK IN TRADE IS WITHOUT ANY BASIS AND NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE HAD BEEN VALUING THE HOLDING OF SHARES AS AT THE END OF EACH YEAR ON FIRST IN, FIRST OUT (FIFO) METHOD. THE FACT IS THAT THE INVESTMENT IN SHARES AND SECURITIE S HAS BEEN SHOWN BY THE ASSESSEE AT COST. (L) THAT THE LEARNED A.O. AS WELL AS LEARNED CIT(A) FA ILED TO APPRECIATE THAT HOLDING OF SHARES IN THE YEAR UNDER APPEAL RANGED FROM 2 MONTHS TO 11 MONTHS AND ALL TRANSACTI ONS OF SHORT TERM CAPITAL GAIN ARE DELIVERY BASED. HOLDING OF SHARES FOR A DURATION OF 2 MONTHS TO 11 MONTHS CANNOT BE T ERMED AS INSIGNIFICANT AND SMALL. IT IS FURTHER SUBMITTED THAT QUANTUM OR TOTAL NUMBER CANNOT BE DETERMINATIVE BUT IN A GIVEN CASE PERIOD OF HOLDING MAY INDICATE INTENTION TO MAKE INVESTMENT. (M) THE LEARNED A.O. AS WELL AS LEARNED CIT(A) FAILED TO APPRECIATE THAT THE VALUE OF THE SHARES AT THE CLOS E OF THE YEAR HAS BEEN TAKEN AT COST AND NOT AT MARKET PRICE NOR AT LOWER OF THE TWO. IT CLEARLY INDICATES THAT THE SHARE S AVAILABLE WITH THE ASSESSEE WERE NOT TREATED AS STOCK IN TRADE BY THE ASSESSEE BUT WERE TREATED AS INVESTMENT . IN THE PRECEDING ASSESSMENT YEARS TOO THE INVESTMENTS IN SHARES HAVE NOT BEEN TREATED AS STOCK IN TRADE BY T HE ASSESSEE AND THIS STAND OF THE ASSESSEE HAS BEEN AC CEPTED BY THE DEPARTMENT IN EARLIER YEARS. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 13 (N) IN THE PRESENT CASE UNDER APPEAL BEFORE YOUR HO NOUR, THE ASSESSEE ALWAYS VALUED THE INVESTMENT IN SHARES AND SECURITIES AT COST AND NEVER VALUED THEM AT MARKET PRICE. (O) FROM THE PERUSAL OF THE BALANCE SHEET, IT IS CR YSTAL CLEAR THAT ASSESSEE HAS SHOWN STOCK-IN-HAND OF RS.4,41,53,131/- OF ASSESSEES REGULAR BUSINESS OF PRECIOUS AND SEMI PR ECIOUS STONES UNDER THE HEAD INVENTORY' BUT SHARES HELD B Y HIM OF RS.58,04,781/- AS ON 31.3.2010 ARE SHOWN BY HIM AS A PART OF INVESTMENT UNDER THE HEAD INVESTMENTS OF RS. 1,54,20,242/- [DETAILS BY WAY OF SCHEDULE VI ARE EN CLOSED WHICH INTER ALIA CONTAIN INVESTMENT IN SHARES AT RS.54,04,781/-] - AND AS SUCH REQUIREMENT OF ABOVE CIRCULAR IS DULY COMPLIED WITH BY THE ASSESSEE IN THE CASE UN DER APPEAL. (P) THAT THE ASSESSEE HAS EARNED A TOTAL DIVIDEND O F RS.98,054.89 WHICH IS ABOUT 1.7% OF TOTAL INVESTMEN T OF RS.58,54,781/- AS ON 31.3.2010 IN SHARES AND SECURI TIES. (Q) INCOME FROM PRECIOUS AND SEMI PRECIOUS GEMS ST ONES BUSINESS IS SHOWN AS BUSINESS INCOME AND INCOME FROM INVESTMENT IN SHARES HAS BEEN SHOWN AS CAPITAL GAIN S, BOTH LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAIN AND THERE IS NO BUSINESS INCOME OF SHARES & SECURITIES. THE LD AR FURTHER SUBMITTED THAT THE AO FAILED TO AP PRECIATE THAT A SPECIAL TREATMENT HAS BEEN GIVEN TO SHARE TRANSACTI ONS UNDER INCOME TAX ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 14 ACT BY GIVING ON STATUE BOOK I.E. INCOME TAX ACT DE FINITIONS OF SHORT TERM CAPITAL ASSET [SECTION 2(42A), SHORT TERM CAPITAL G AIN (SECTION 2(42B), LONG TERM CAPITAL ASSET [SECTION 2(29A), LONG TERM CAPITAL GAIN (SECTION 2(29B) INCORPORATING IN THE ACT ITSELF THE DEFINITI ONS OF SHORT TERM CAPITAL GAIN IN ONE SIDE AND DEFINITION OF BUSINESS IN OTHE R SIDE I.E. IN SECTION 2(13) OF THE INCOME TAX ACT WHICH DEFINE THE TERM BU SINESS AS ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE. IT IS RESPECTFULLY SUBMITTED THAT AS PER THE PROV ISIONS OF THE I.T. ACT 1961 BUSINESS INCOME AND CAPITAL GAINS ARE SUBJECT TO TAX AT DIFFERENT RATE OF TAX. THE MAXIMUM RATE OF TAX ON BU SINESS INCOME IS 30% BUT RATE OF TAX ON SHORT TERM CAPITAL GAINS FRO M PURCHASE/SALE OF SHARES OF LISTED COMPANIES IS 15%. ON ACCOUNT OF TH IS DIFFERENCE IN RATES THE TAXABILITY OF CAPITAL GAIN HAS ALWAYS BEEN A MAT TER OF CONTROVERSY. EARLIER IN 1989 VIDE INSTRUCTION NUMBER 1827 DATED AUGUST 31, 1989 CERTAIN TESTS WERE LAID DOWN BY THE CBDT TO DISTINGUI SH BETWEEN SHARES HELD AS STOCK IN TRADE AND SHARES HELD AT INVESTMEN TS. AFTER ABOUT 18 YEARS THE CBDT ISSUED A CIRCULAR NO.4/2007 DATED JUN E 15, 2007 IN THIS REGARD. THIS CIRCULAR, ISSUED AS A SUPPLEMENT TO THE EARLIER INSTRUCTION OF 1989, REITERATES THE PRINCIPLES LAID DOWN IN THE EAR LIER JUDICIAL DECISIONS ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 15 AND MORE SPECIFICALLY REPRODUCES CERTAIN OBSERVATIO NS MADE IN THE TWO DECISIONS OF THE HONBLE SUPREME COURT GIVEN IN THE CASES OF (1) COMMISSIONER OF INCOME TAX (CENTRAL), CALCUTTA VS. A SSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD. REPORTED IN 82 ITR 586 AND (2) COMMISSIONER OF INCOME TAX, BOMBAY VS. H.HOICK LARS EN REPORTED IN 160 ITR 67, THESE OBSERVATIONS ARE TO THE EFFECT THAT WH ETHER THE TRANSACTIONS OF SALE AND PURCHASE OF SHARES ARE TRA DING TRANSACTIONS OR WHETHER THESE ARE IN THE NATURE OF INVESTMENT IS A M IXED QUESTION OF LAW AND FACT AND THAT WHETHER A PARTICULAR HOLDING OF S HARES IS BY WAY OF INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE [TAX PAYER] WHO HOLDS T HE SHARES AND WHO SHOULD, IN NORMAL CIRCUMSTANCES, BE IN A POSITION T O PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHICH ARE ITS STOCK-IN-TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT. IMPORTANTLY THE ABOVE CIRCULAR RECOGNIZES THAT A T AX PAYER COULD HAVE TWO PORTFOLIOS VIZ., INVESTMENT PORTFOLIO, COMP RISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADIN G PORTFOLIO, COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 16 THE LD AR HAS FURTHER SUBMITTED THAT THE ASSESSEE A SHOK KUMAR JAIN ALWAYS VALUED THE INVESTMENT AT COST AND NEVER VALUED AT MARKET PRICE OR REALIZED VALUE. FROM THE PERUSAL OF THE BALANCE SHEET OF THE ASSE SSEE ASHOK KUMAR JAIN IT IS CRYSTAL CLEAR THAT ASSESSEE HAS SH OWN STOCK-IN- HAND OF RS.4,41,53,131/- OF ASSESSEES REGULAR BUSINESS OF PRECIOUS AND SEMI PRECIOUS STONES UNDER THE HEAD INVENTORY BUT SHAR ES HELD BY HIM OF RS.58,04,781/- AS ON 31.3.2010 ARE SHOWN BY ASSESSEE AS A PART OF INVESTMENT UNDER THE HEAD INVESTMENTS OF RS.1,54,2 0,242/- [DETAILS BY WAY OF SCHEDULE VI ARE ENCLOSED WHICH INTER ALIA CONT AIN INVESTMENT IN SHARES AT RS.54,04,781/-] - AND AS SUCH REQUIREMENT OF ABOVE CIRCULAR IS DULY COMPLIED WITH BY THE ASSESSEE IN THE CASE UNDER APPEAL. THE TOTAL INVESTMENT IN SHARES AND SECURITIES ARE OF RS.58,04,781/- . OUT OF THIS TOTAL INVESTMENT OF RS.58,04,781/- TH E INVESTMENT IN LISTED SHARES AND SECURITIES ARE OF RS.57,54,781/-, WHICH IS 99.14% OF THE TOTAL INVESTMENT IN SHARES AND SECURITIES. THIS MEETS OUT THE REQUIREMENT OF RECENT CIRCULAR DATED 29.2.2016 REFERRED ABOVE. THAT THE ENTIRE SHORT TERM CAPITAL GAINS OF RS. 26, 64,279/- HAVE ARISEN TO ASSESSEE FROM PURCHASE AND SALE OF LISTED SHARES AND SECURITIES ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 17 AND NOT OTHERWISE. IN OTHER WORDS DURING THE PERIOD 0 1.04.2009 TO 31.03.2010 THE ASSESSEE PURCHASED AND SOLD SHARES A ND SECURITIES OF LISTED COMPANIES ONLY. NO PURCHASE SALE OF SHARES O F UNLISTED COMPANIES WAS EVER EFFECTED. HE RELIED ON THE FOLLOWING CASE LA WS:- (I) CIT VS. SMAA ENTERPRISES PVT.LTD. (2016)382 ITR 175(J&K). (II) RAJPUTANA TEXTILES (AGENCIES) LTD. VS. CIT [196 1] 42 ITR 743(SUPREME COURT) (III) DIVECHA V/S CIT REPORTED IN 48 ITR 222, 232(S. C.) (IV) CIT VS. S. RAMAAMIRTHAN [2008] 306 ITR 239 (MAD. ) HE FURTHER SUBMITTED THAT IN THE PREVIOUS YEAR RELE VANT TO AY 2010-11 I.E. YEAR UNDER APPEAL THE ASSESSEE EARNED A VERY HIGH D IVIDEND INCOME I.E. AT RS.98,054.89/-. THIS MUCH OF DIVIDEND INCOME COU LD NOT HAVE BEEN RECEIVED BY THE ASSESSEE WITHOUT HOLDING A SCRIPT FO R A LONGER DURATION. HE HAS ALSO DRAWN OUR ATTENTION TO THE PAGE NO. 28 O F THE PAPER BOOK WHEREIN THE SCHEDULE FORMING PART OF P&L ACCOUNT HAS BEEN REFERRED. IN THE SAID P&L ACCOUNT UNDER THE HEADING INDIRECT INC OME FROM THE DIVIDEND, LONG TERM CAPITAL GAIN, PROFIT FROM M/S C HORDIA BROTHERS AND SHORT TERM CAPITAL GAIN HAS BEEN SHOWN. ON THE BASIS OF THE ABOVE, IT IS CONTENDED THAT THE APPEAL OF THE ASSESSEE IS REQUIR ED TO BE ALLOWED. 5. AT THE OUTSET, THE LD DR HAS DRAWN OUR ATTENTION ON PAGE NO. 24 OF THE PAPER BOOK WHEREIN THE P&L ACCOUNT FOR THE YEAR ENDING ON 31/3/2010, THE NET PROFIT LOSS AFTER DEPRECIATION H AS BEEN MENTIONED AS ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 18 RS. 80,72,674/-. THEREFORE LD DR CONTENDED THAT THE ASSESSEE HIMSELF HAS BEEN SHOWING THE INVESTMENT AS STOCK IN TRADE AN D THE AUTHORITIES BELOW WERE RIGHT IN TREATING THE INCOME AS BUSINESS I NCOME INSTEAD OF THE DIVIDEND INCOME OR LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS PE R CIRCULAR, IF THE ASSESSEE HAS BEEN TREATING INVESTMENT IN SHARES AS ASSET/INVESTMENT AND IS NOT TREATING IT AS STOCK IN TRADE, THEN THE LD A SSESSING OFFICER SHOULD ACCEPT THE STAND TAKEN BY THE ASSESSEE. 6.1 FROM BARE READING OF THE CIRCULAR, IT IS CLEAR THAT IF THE ASSESSEE HAS BEEN TREATING THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSI NG OFFICER AND THE ASSESSING OFFICER SHALL ACCEPT THE STAND OF THE ASS ESSEE. IN THE PRESENT CASE, AS REPRODUCED HEREINABOVE, THE ASSESSING OFFI CER HAS RECORDED THAT THE ASSESSEE HAS BEEN SHOWING THE STOCK AS AN INVEST MENT/ ASSET IN THE METHOD OF ACCOUNTING IN PAST AS WELL AS IN THE PRES ENT ASSESSMENT YEAR, THEREFORE, IN OUR VIEW, THE LD ASSESSING OFFICER SHO ULD HAVE ACCEPTED THE STAND TAKEN BY THE ASSESSEE IN THE RETURN OF INCOME . IN VIEW THEREOF AND IN VIEW OF THE CBDT CIRCULAR, WE ARE OF THE VIEW THAT THE INCOME ACCRUED TO THE ASSESSEE ON ACCOUNT OF SHORT TERM CAPITAL GA IN OR DIVIDEND IS NOT ITA 802/JP/2015_ ASHOK KUMAR JAIN VS DCIT 19 REQUIRED TO BE TREATED AS BUSINESS INCOME. ACCORDIN GLY, APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/07/2016. SD/- SD/- HKKXPAN YFYR DQEKJ (BHAGCHAND) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14 TH JULY, 2016 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI ASHOK KUMAR JAIN, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE DCIT, CIRCLE-2, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 802/JP/2015) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR