DCIT, Circle - 10, Kolkata, Kolkata V. M/s. Astrex Enterprises Pvt. Ltd., Kolkata

ITA 818/KOL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6644 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 11-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2010
• Court: TRIBUNAL
• Department Lawyers: L S NEGI
• Assessee Lawyers: VIKASH SURANA
• Keywords: Capital asset; Business income; Advance ruling; Question of law; Condonation of delay
• Section: 143(3); 14A

Judgement Text

1 , B , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B , KO LKATA [ . . . . . .. . , ,, , ! ! ! !, , , , '# ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI AKBER BASHA, ACCOUNTANT MEMBER $ $ $ $ / ITA NO. 818 (KOL) OF 2010 %& '( / ASSESSMENT YEAR 2006-07 DY.COMMISSIONER OF INCOME-TAX CIRCLE-10, KOLKATA. ASTREX ENTERPRISES PVT. LTD. KOLKATA. (PAN-AACCA5465H) (+, / APPELLANT ) - % - - VERSUS - (/0+,/ RESPONDENT ) C.O. NO. 149 (KOL) OF 2010 [ IN ITA NO. 818 (KOL)/2010 ] ASTREX ENTERPRISRES PVT. LTD. KOLKATA. (PAN-AACCA5465H) DY.COMMISSIONER OF INCOME-TAX CIRCLE-10, KOLKATA. ( CROSS-OBJECTOR ) - % - - VERSUS - ( RESPONDENT ) DEPARTMENT BY : SRI L.S. NEGI, CIT AS SESSEE BY : SRI VIKASH SURANA '! / ORDER ( . . . . . .. . ), (B.R.MITTAL), JUDICIAL MEMBER : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSME NT YEAR 2006-07 AGAINST THE ORDER OF LD. C.I.T.(A)-XII, KOLKATA DATED 27/01/201 0 ON THE FOLLOWING GROUNDS :- 1. THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD.CIT(A) HAS ERRED IN TREATING BUSINESS INCOME OF RS.2,18,77,327/- AS CAP ITAL GAINS. 2. THAT UNDER THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE, LD. CIT(A) HAS ERRED IN TREATING THE TRANSACTIONS IN SHARES AND MUTUAL FUND S AS CAPITAL GAIN WHEREAS THOSE WERE UNDERTAKEN WITH A PROFIT MOTIVE AND AT REGULAR INTERVALS. RELIANCE IS PLACED IN THE CASE OF CIT VS. DISTRIBUTORS BARODA REPORTED IN 83 ITR 377 WHERE HONBLE SUPREME COURT HELD THAT THE REAL, SUBSTANTIAL AND S YSTEMATIC OR ORGANIZED INVESTMENT WOULD CONSTITUTE BUSINESS. 2. THE ASSESSEE HAS FILED THE CROSS-OBJECTION ALON G WITH AN APPLICATION FOR CONDONATION OF DELAY OF 120 DAYS ON THE FOLLOWING G ROUNDS :- 1. FOR THAT THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,61,022 MADE BY THE LD. ASSESSING OFFICER U/S. 14A OF I.T. ACT, WHEN TH E ASSESSEE DENIED OF HAVING INCURRED ANY SPECIFIC EXPENSES FOR EARNING TAX FREE DIVIDEND INCOME. 2 2. FOR THAT THE DISALLOWANCE BE RESTRICTED TO 1% OF THE DIVIDEND INCOME RS.4,77,085. 2.1. AT THE TIME OF HEARING, THE LD. A/R COULD NOT EXPLAIN THE DELAY IN FILING THE CROSS-OBJECTION LATE BY 120 DAYS. CONSIDERING THE FACT THAT THE DELAY IS SUBSTANTIAL AND THE ASSESSEE HAS NOT BEEN ABLE TO GIVE THE SUFFICIE NT REASON TO EXPLAIN THE SAID DELAY, AFTER HEARING LD. REPRESENTATIVES OF THE PARTIES, T HE DELAY IS NOT CONDONED AND THE CROSS- OBJECTION FILED BY THE ASSESSEE IS DISMISSED BEING BARRED BY LIMITATION. 3. NOW COMING TO THE APPEAL FILED BY THE DEPARTMEN T, THE ONLY ISSUE INVOLVED IS WHETHER THE LD. C.I.T.(A) WAS JUSTIFIED IN ACCEPTIN G THE PROFIT SHOWN BY THE ASSESSEE OF RS.2,18,77,327/- ON TRANSACTIONS OF SHARES AND MUTU AL FUND AS CAPITAL GAIN OR WHETHER THE A.O. WAS JUSTIFIED IN TREATING THE SAID GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ITS NATUR E OF BUSINESS AS PER NATURE OF BUSINESS INDICATED IN THE ASSESSMENT ORDER IS LOANS AND INV ESTMENT COMPANY. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE F ILED THE RETURN SHOWING TOTAL INCOME OF RS.2,22,93,757/- AND CLAIMED THAT RS.2,18,77,327 /- WAS THE CAPITAL GAIN, THE DETAILS OF WHICH ARE INDICATED BY THE A.O. AT PAGE-1 OF THE AS SESSMENT ORDER AS UNDER :- (I) SHORT TERM CAPITAL GAIN RS. 74,04,670/- (II) SHORT TERM CAPITAL GAIN DEBT RS. 2,14 ,200/- (III) LTCG EXEMPT RS.1,42,58,457 /- TOTAL : RS.2,18,77,327 /- THE A.O. HAS STATED THAT THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT OF RS.2,18,77,327/- SHOULD NOT BE CONSIDERED AS BUSINE SS INCOME. THE ASSESSEE FILED THE REPLY ON 23/10/2008 STATING THAT IT INVESTED ITS OW N FUND IN VARIOUS SECURITIES, SUCH AS SHARES, MUTUAL FUNDS, RBI BONDS, BANK BALANCE ETC. TO OPTIMIZE THE EARNINGS. THE SAID ACTIVITY OF THE ASSESSEE IS PURELY INVESTMENT FOR J UDICIOUS DEPLOYMENT OF ITS SAVINGS TO GENERATE RIGHTFUL RETURN. HOWEVER, THE A.O. DID NO T ACCEPT THE SAID CONTENTION OF THE ASSESSEE AND TREATED THE SAID INCOME AS CLAIMED BY THE ASSESSEE TO BE CAPITAL GAIN AS BUSINESS INCOME. THE A.O. HAS STATED THE FOLLOWING REASONS TO CONSIDER THE SAID PROFIT IN THE NATURE OF BUSINESS TRANSACTIONS :- (A) THE ASSESSEE TRANSACTED IN SHARE AND MUTUAL FUNDS T O EARN PROFIT AND WHEREVER RISK PERCEIVED NECESSARY CONTROL, MANAGEMENT ETC. W ERE SKILLFULLY MADE TO OVERCOME THE RISK OR IN OTHER WORDS MAXIMIZE ITS GA IN/PROFIT. 3 (B) THE ASSESSEE HAD CARRIED OUT TRANSACTIONS IN A SYST EMATIC AND ORGANIZED MANNER. (C) NUMEROUS TRANSACTIONS OF BUYING AND SELLING OF SHAR ES AND UNITS IN MUTUAL FUNDS WERE MADE. THE ASSESSEE CARRIED OUT LARGE NUMBER O F TRANSACTIONS WITH LARGE VOLUMES. (D) SOME OF THE TRANSACTIONS ARE COMPLETED WITHIN THE V ERY SHORT PERIOD. 4. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFO RE THE LD. C.I.T.(A). ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THAT IT MADE INVESTME NTS IN EQUITY SHARES AND MUTUAL FUNDS THEREBY EARNING DIVIDEND AND LONG-TERM CAPITA L GAINS/SHORT-TERM CAPITAL GAINS. IT WAS CONTENDED THAT NO INVESTMENT HAD BEEN MADE FROM ANY BORROWED FUND AND THE ENTIRE INVESTMENT HAD BEEN MADE OUT OF OWN FUNDS. THAT THE ASSESSEE PURCHASED EQUITY SHARES OF ONLY 8 (EIGHT) COMPANIES RESULTING IN 16 TRANSACTIONS AND SOLD EQUITY SHARES OF ONLY 10 (TEN) COMPANIES BY WAY OF 22 TRANSACTIONS I N THE WHOLE FINANCIAL YEAR 2005-06. IT WAS ALSO CONTENDED THAT INVESTMENT WAS MADE IN 9 (NINE) MUTUAL FUNDS AND DISINVESTMENT OF 3 (THREE) MUTUAL FUNDS. THAT THERE WAS NOT A SINGLE MUTUAL FUND SOLD WHICH WAS FOR LESS THAN ONE YEAR. IT WAS ALSO CONT ENDED THAT NEW INVESTMENT WAS ALSO MADE INTO PORTFOLIO MANAGEMENT SCHEME OF M/S. KOTAK SECURITIES LTD. WHEREIN THE INVESTMENT WAS AGREED TO BE LOCKED IN FOR 17 MONTHS AND 21 MONTHS. THE ASSESSEE STATED THAT THE FACTUAL POSITION STATED BY THE A.O. THAT THERE WERE NUMEROUS TRANSACTIONS OF BUYING AND SELLING OF SHARES AND MUTUAL FUNDS RU NNING INTO 270 APPROXIMATELY FOR SHORT-TERM AND ABOUT 100 FOR LONG-TERM WAS INCORREC T. IN PARA 4.2.14, THE LD. C.I.T.(A) HAS TABULATED THE FACTS AS STATED IN THE ASSESSMENT ORDER VIS--VIS THE FACTS STATED BY THE A.O. IN RESPECT OF THE TRANSACTIONS ENTERED INTO IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, WHICH ARE AS U NDER :- SOME ERRONEOUS FACTS STATED IN THE ASSESSMENT ORDER. ACTUAL FACTS THE ASSESSEE IS A SALARIED INDIVIDUAL THE ASSESSEE IS A PRIVATE LIMITED CO. OPERATES THE INVESTMENTS WITH TARGET PRICE AND STOP LOSS PRICE TO MITIGATE RISK ETC. NO SUCH THING DONE. THE ASSESSEE EMPLOYED PROFESSIONAL PERSON FOR ITS SHARE TRANSACTIONS. NO SUCH PERSON EMPLOYED. THERE WERE 270 APPROX. SALES & PURCHASE TRANSACTIONS FOR THE SHORT TERM. 18 SALES TRANSACTIONS FOR THE SHORT TERM IN THE WHOLE YEAR 4 THERE WERE ABOUT 100 SALE & PURCHASE TRANSACTIONS FOR THE LONG TERM. 8 SALES TRANSACTIONS FOR THE LONG TERM IN THE WHOLE YEAR. .THESE FREQUENT TRANSACTIONS RUNNING IN TOTAL NUMBERS OF ABOUT 380 . TOTAL OF ALL SALES & PURCHASE TRANSACTIONS IN SHARES IS ABOUT 38 AND IN MUTUAL FUNDS ABOUT 12. IN THE ASSESSEES CASE ALSO THERE IS ALSO A USUAL LINE OF BUSINESS IN THE FORM OF MANUFACTURING AND SALE OF TIMBER. NO SUCH BUSINESS EXISTS. THE ASSESSEE HAS ALSO ACQUIRED LARGE QUANTITY OF SHARES AND SUBSEQUENTLY DISPOSED THE SAME IN A SYSTEMATIC MANNER SHARES HELD IN ONLY 18 COMPANIES. NO SYSTEMATIC MANNER OF DISPOSAL. SALES TRANSACTIONS WERE DONE ON ONLY 23 DAYS IN THE WHOLE YEAR. THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS BEFO RE THE LD. C.I.T.(A) TO SUBSTANTIATE ITS SUBMISSION THAT THE PROFIT SHOWN BY THE ASSESSEE WA S CAPITAL GAIN AND NOT BUSINESS INCOME :- JANAK S. RANGWALLA VS. ACIT [11 SOT 627 (MUM)] CIT VS. NSS INVESTMENTS P. LTD. [277 ITR 149 (MAD )] THE LD. C.I.T.(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASES CITED BY THE ASSESSEE AS WELL AS A.O. HELD THAT THE GAINS ON ACCOUNT OF SALE OF SHARES/MUTUAL FUND BE TREATED AS CAPITAL GAINS AS AGAINST BUSINES S INCOME ASSESSED BY THE A.O. HENCE THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 5. ON BEHALF OF THE DEPARTMENT, THE LD. D.R. SUPPO RTED THE ORDER OF THE A.O. HE SUBMITTED THAT THERE WERE NUMBER OF TRANSACTIONS CA RRIED OUT BY THE ASSESSEE IN RESPECT OF PURCHASE AND SALE OF SHARES IN AN ORGANIZED AND SYSTEMATIC WAY. HE SUBMITTED THAT THE ASSESSEE ITSELF STATED BEFORE THE A.O. VIDE HIS LETTER DATED 23/10/2008 THAT IT INVESTED ITS OWN FUNDS TO OPTIMIZE THE EARNINGS. HE SUBMITT ED THAT IN THE EARLIER ASSESSMENT YEARS, THE RETURNS FILED BY THE ASSESSEE WERE ACCEP TED WITHOUT SCRUTINY. HENCE THE RETURNS FILED BY THE ASSESSEE IN THE PRECEDING YEAR S IS NOT AN ESTOPPEL TO LOOK INTO THE FACTS AND TO TREAT THE INCOME SHOWN BY THE ASSESSEE AS INCOME FROM BUSINESS. HE FURTHER SUBMITTED THAT IF THERE IS ANY INCOME EARNED FROM P ORTFOLIO MANAGEMENT, IT IS AN ADVENTURE IN THE NATURE OF TRADE. 6. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. C.I.T.(A). HE SUBMITTED THAT THE A.O. DID NOT CONS IDER THE FACTS CORRECTLY. HE FURTHER SUBMITTED THAT THE NUMBER OF TRANSACTIONS AS INDICA TED BY THE A.O. ARE WRONG AND TO 5 SUBSTANTIATE HIS SUBMISSION, HE REFERRED TO PARA 4. 2.14 OF THE ORDER OF LD. C.I.T.(A). HE FURTHER REFERRED PAGE 24 OF THE PAPER BOOK WHICH CO NTAINED LIST OF SHARES OF THE COMPANIES, DETAILS OF SHORT-TERM CAPITAL GAINS/LOSS AND SUBMITTED THAT THERE WERE ONLY 7 (SEVEN) COMPANIES WHICH WERE DEALT WITH IN THE FINA NCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. HE ALSO REFERRED PAGE 25 OF THE PAPER BOOK WHICH CONTAINS THE DETAILS OF LONG-TERM CAPITAL GAINS AND SUBMITTE D THAT THE ASSESSEE SOLD SHARES OF ONLY 5 (FIVE) COMPANIES AND 3 (THREE) MUTUAL FUNDS. HENC E THE ASSESSEE DID NOT ENTER INTO LARGE NUMBER OF TRANSACTIONS SO AS TO SAY THAT THE ASSESSEE CARRIED ON ITS ACTIVITY IN THE NATURE OF TRADE OR BUSINESS. HE SUBMITTED THAT THE ASSESSEE ALSO INVESTED IN SHARES/ MUTUAL FUNDS OUT OF ITS OWN FUNDS ONLY. THE LD. A/ R ALSO REFERRED PAGES 49 & 50 OF THE PAPER BOOK AND SUBMITTED THAT IT IS THE ASSESSMENT ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WHICH WAS PASSED U/S. 143(3) OF THE ACT AND THE LONG-TERM CAPITAL GAIN SHOWN BY THE ASSESSEE WAS ACCEPTED BY THE DEPARTMEN T. THE LD. A/R SUBMITTED THAT SINCE ASSESSMENT YEAR 1995-96 THE ASSESSEE HAS BEEN SHOWI NG PROFITS AS CAPITAL GAINS ON SALE OF SHARES & MUTUAL FUNDS AND THE SAME HAS BEEN ACCE PTED BY THE DEPARTMENT. THE LD. A/R REFERRED PAGE 10 OF THE PAPER BOOK WHICH IS A L IST OF CASES AND SUBMITTED THAT THE FACTS OF THOSE CASES ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE AND HENCE THE PROFIT SHOWN BY THE ASSESSEE HAS RIGHTLY BEEN ACCEP TED AS CAPITAL GAIN BY THE LD. C.I.T.(A). HE ALSO SUBMITTED THAT RECENTLY THE TRIB UNAL ON SIMILAR FACTS VIDE ITS ORDER DATED 8/4/2011 IN ITA NO. 817 (KOL)/2010 IN THE CAS E OF DCIT VS. ETERNA STEEL & INVESTMENTS PVT. LTD. HAS CONFIRMED THE ORDER OF TH E LD. C.I.T.(A) AND DISMISSED THE APPEAL OF THE DEPARTMENT BY HOLDING THAT THE PROFIT SHOWN BY THE ASSESSEE BE ASSESSED AS CAPITAL GAIN AND NOT AS BUSINESS PROFIT. TO SUBSTA NTIATE HIS SUBMISSION, HE FILED A COPY OF THE SAID ORDER AT THE TIME OF HEARING. HE, THER EFORE, SUBMITTED THAT THE ORDER OF THE LD. C.I.T.(A) BE CONFIRMED BY REJECTING THE GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. 6 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL PLACED BEFORE US, INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN RES PONSE TO LETTER ISSUED BY THE A.O. TO EXPLAIN THE CLAIM OF CAPITAL GAIN, THE ASSESSEE STA TED BEFORE THE A.O. THAT IT INVESTED ITS OWN FUND IN SHARES, SECURITIES, RBI BONDS ETC. FOR JUDICIOUS DEPLOYMENT OF ITS SAVINGS TO GENERATE RIGHTFUL RETURN BY WAY OF DIVIDEND AND LON G-TERM & SHORT-TERM CAPITAL GAINS. THE A.O., HOWEVER, WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE. HE THUS TREATED THE CAPITAL GAIN SHOWN BY THE ASSESSEE AT RS.2,18,77,32 7/- AS BUSINESS INCOME BY MAINLY BY HOLDING THAT THE ASSESSEE DURING THE ASSESSMENT YEA R UNDER CONSIDERATION HAD UNDERTOOK NUMEROUS TRANSACTIONS OF BUYING AND SELLING OF SHAR ES/MUTUAL FUNDS OF LARGE VOLUME IN AN ORGANIZED AND SYSTEMATIC WAY TO MAXIMIZE ITS GAI N/PROFIT AND SOME OF THE TRANSACTIONS WERE DONE WITHIN THE VERY SHORT PERIOD . WHILE HOLDING SO, THE A.O. HAS STATED THAT THERE WERE APPROXIMATELY 270 TRANSACTIO NS OF PURCHASE & SALE OF SHARES/ MUTUAL FUNDS FOR THE SHORT PERIOD AND 100 SUCH TRAN SACTIONS FOR THE LONG TERM AND FREQUENT TRANSACTIONS RAN ABOUT 380 IN NUMBER. IN T HIS CONNECTION WE OBSERVE THAT THE LD. C.I.T.(A) IN PARA 4.2.14 OF HIS APPELLATE ORDER HAS CLEARLY STATED THAT THIS INFORMATION AS RECORDED IN THE ASSESSMENT ORDER IS TOTALLY INCORRE CT AND HE HAS TABULATED IN THE SAID PARA ERRONEOUS FACTS STATED IN THE ASSESSMENT ORDER AND SIMULTANEOUSLY THE ACTUAL FACTS FOUND BY HIM ON RECORD DURING APPELLATE PROCEEDINGS. ACCO RDING TO LD. C.I.T.(A), THE ACTUAL FACTS AS FOUND BY HIM WERE THAT THERE WERE 18 AND 8 SALE TRANSACTIONS FOR SHORT-TERM AND LONG-TERM RESPECTIVELY IN THE WHOLE YEAR AND TOTAL OF ALL SALES AND PURCHASE TRANSACTIONS IN SHARES WAS ABOUT 38 AND IN MUTUAL FUNDS ABOUT 12 . THIS OBSERVATION OF LD. C.I.T.(A) COULD NOT BE CONTROVERTED BY THE LD. DEPARTMENTAL R EPRESENTATIVE BY PRODUCING ANY EVIDENCE THEREOF. THEREFORE, IT IS MANIFEST THAT T HE ACTION OF THE A.O. IN FINDING THE ASSESSEE BEING INVOLVED IN FREQUENT TRANSACTIONS OF SHARES AND MUTUAL FUNDS IS BASED ON INCORRECT ASSUMPTION OF FACTS. WE FURTHER OBSERVE T HAT AS PER DETAILS OF SHORT-TERM CAPITAL GAIN/LOSS FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON, PLACED AT PAGE 24 OF THE PAPER BOOK, THERE WERE 18 TRANSACTIONS OF SALE OF SHARES OF SEVEN COMPANIES SHOWING SHORT- TERM CAPITAL GAIN OF RS.33,58,321/-. SIMILARLY FOR LONG-TERM CAPITAL GAINS, PLACED AT PAGE 25 OF THE PAPER BOOK, THERE WERE 6 TRANSACTION S OF SALE OF SHARES OF FIVE COMPANIES SHOWING LONG-TERM CAPITAL GAIN OF RS.47,84,668/- AN D 3 TRANSACTIONS OF SALE OF THREE MUTUAL FUNDS SHOWING LONG-TERM CAPITAL GAIN OF RS.4 9,78,674/-. THE DEPARTMENT DID NOT 7 DISPUTE THE AUTHENTICITY OF THESE DETAILS FOUND REC ORDED IN PAGES 24 AND 25 OF THE PAPER BOOK. WE FURTHER OBSERVE THAT NEW INVESTMENT WAS AL SO MADE BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION INTO PORTFOLIO MANAGEMENT SCHEME OF M/S. KOTAK SECURITIES LTD. WHEREIN THE INVESTMENT WAS AGREED T O BE LOCKED IN FOR 17 MONTHS AND 21 MONTHS. IN THE BOOKS OF THE ASSESSEE, THESE INVEST MENTS WERE SHOWN BY THE ASSESSEE UNDER INVESTMENT HEAD AND THE ENTIRE INVESTMENTS TO ACQUIRE SUCH CAPITAL ASSET WAS MADE OUT OF ITS OWN FUNDS. IN THE ABOVE CIRCUMSTANCES, W E DO NOT FIND ANY PLAUSIBLE GROUND TO ENDORSE THE VIEW OF THE A.O. THAT THE ASSESSEE TRAN SACTED SHARES AND MUTUAL FUNDS IN AN ORGANIZED AND SYSTEMATIC MANNER TO EARN PROFIT, MOR E SO, AS STATED ABOVE, WHEN SUCH FINDING OF THE A.O. IS BASED ON WRONG ASSUMPTION OF FACTS. 7.1. THE INTENTION OF THE ASSESSEE BEHIND PURCHASE AND SALE OF CAPITAL ASSETS IS ONE OF THE CONSIDERATIONS TO FIND OUT THE EXACT NATURE OF TRANSACTION, WHETHER IT WAS PROFIT ON SALE OF SUCH CAPITAL ASSETS AND THUS ASSESSABLE UND ER THE HEAD CAPITAL GAIN. THE AUDITED ACCOUNTS FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N AND DETAILS OF LONG-TERM CAPITAL GAINS, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK , MADE IT CLEAR THAT PURCHASE OF SHARES & MUTUAL FUNDS WERE SHOWN AT COST FROM EARLI ER YEAR WITH AN INTENTION TO EARN DIVIDEND INCOME IN ADDITION TO THE PROSPECT OF MAKI NG PROFIT ON SALE OF SUCH INVESTMENTS AT AN APPROPRIATE OPPORTUNE MOMENT. FURTHER, THERE IS NO EVIDENCE ON RECORD BEING BROUGHT OUT BY THE DEPARTMENT THAT THERE HAD BEEN A NY TRANSFER OF STOCK-IN-TRADE TO INVESTMENT. AS POINTED OUT BY THE LD. A/R, THE A.O. IN THE ASSESSMENT FRAMED U/S. 143(3) OF THE ACT FOR THE IMMEDIATELY EARLIER ASSES SMENT YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION, COPY PLACED AT PAGES 49-50 OF THE PAPER BOOK, HAS UNDER SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE ACCEPTED THE AS SESSEES CLAIM OF LONG-TERM CAPITAL GAIN OUT OF SALE OF SHARES & MUTUAL FUNDS. IT WAS F URTHER CONTENDED BY THE LD. A/R THAT SINCE ASSESSMENT YEAR 1995-96 THE ASSESSEE HAS BEEN SHOWING PROFITS AS CAPITAL GAINS ON SALE OF SHARES & MUTUAL FUNDS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. THEREFORE, THERE WAS CONSISTENCY IN SO FAR AS THE A SSESSEES CLAIM IS CONCERNED IN RESPECT OF CLAIMING AND ASSESSING BY THE A.O. THE PROFIT ON SALE OF SHARES & MUTUAL FUNDS UNDER INVESTMENT HEAD. IN OUR CONSIDERED OPINION, THERE FORE, FOR JUDGING WHETHER PROFIT ON SALE OF SHARES & MUTUAL FUNDS WAS TO BE TAKEN AS CA PITAL GAIN OR BUSINESS PROFIT, ONE HAS TO SEE THE BASIC INTENTION OF THE ASSESSEE IN THE BOOKS TO DISTINGUISH WHETHER THE 8 ACTIVITY IS IN THE NATURE OF TRADING OR INVESTME NT. ONCE THIS IS ESTABLISHED THE OTHER FEATURES LIKE FREQUENCY, MAGNITUDE, VOLUME ETC. DO NOT ALTER THE CHARACTER OF TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE MAINTAINING CONSI STENCY HAD SHOWN THE TRANSACTIONS IN SHARES & MUTUAL FUNDS UNDER THE HEAD INVESTMENTS AND TREATED ACCORDINGLY. WE OBSERVE THAT THERE WAS NO CHANGE IN MODUS OPERANDI OF THE ASSESSEE FROM EARLIER YEARS. THEREFORE, THE OBSERVATION OF THE A.O. THAT THE ASS ESSEE HAS BEEN TRANSACTING SHARES & MUTUAL FUNDS FREQUENTLY AND HENCE PROFIT ON SALE OF SUCH INVESTMENTS WAS BUSINESS PROFIT OF THE ASSESSEE DOES NOT CARRY MUCH WEIGHT. IN OUR CONSIDERED OPINION, THEREFORE, THE DEPARTMENT HAS FAILED TO ESTABLISH THE INTENTIO N OF THE ASSESSEE TO INVEST ITS CAPITAL WITH THE ONLY MOTIVE OF EARNING A PROFIT BY PURCHAS E AND SALE OF SHARES & MUTUAL FUNDS TO JUSTIFY ITS STAND THAT THE PROFIT ON SALE OF SHA RES HELD UNDER INVESTMENT PORTFOLIO WAS ASSESSEES BUSINESS PROFIT. 7.2. THE LD. A/R DURING COURSE OF HEARING FILED A COPY OF DTPA JOURNAL, PART-I CONTAINING THE ORDER OF THE TRIBUNAL, MUMBAI DATED 24/11/2010 VIDE ITA NO. 799 (MUM)/2009 IN THE CASE OF DCIT VS. M/S. SMK SHARES & STOCK BROKING PVT. LTD., WHEREIN THE I.T.A.T., MUMBAI HAS HELD AS UNDER :- 14. .. IT IS TRUE THAT PRINCIPLES OF RES JUDICAT A DO NOT STRICTLY APPLY TO INCOME- TAX PROCEEDINGS BUT AT THE SAME TIME IT IS A WELL S ETTLED LAW THAT THE PRINCIPLES OF CONSISTENCY SHOULD NOT BE IGNORED. THE UNIFORMITY I N TREATMENT AND CONSISTENCY UNDER THE SAME FACTS AND CIRCUMSTANCES IS ONE OF TH E FUNDAMENTALS OF THE JUDICIAL PRINCIPLES WHICH CANNOT BE BRUSHED ASIDE WITHOUT PR OPER REASON. WHEN APPROXIMATELY ` 10,00,000 WAS OUT OF THE EARLIER INVESTMENT THEN IF THE MODUS OPERANDI OF THE ASSESSEE REMAINED THE SAME IN REGAR D TO OTHER SHARES PURCHASED DURING THE YEAR, THEN THE ASSESSEES CLAIM COULD NO T BE NEGATED ONLY ON THE BASIS OF FREQUENCY OF THE TRANSACTION. THIS IS A CASE FOR A SSESSMENT YEAR 2005-06 AND POSSIBLY UNDER CONSIDERATION WHICH WEIGHED THE ASSE SSING OFFICERS CONCLUSION WAS ON ACCOUNT OF THE INTRODUCTION OF SECURITIES TRANSA CTIONS TAX BY FINANCE ACT, 2004, CONSEQUENT TO WHICH THE SHORT TERM CAPITAL GAINS WE RE TAXED AT A CONCESSIONAL RATE OF TAX I.E., 10%. FURTHER, SINCE THERE WAS NO CHAN GE IN THE MODUS OPERANDI OF THE ASSESSEE FROM EARLIER YEAR, THERE WAS NO REASON TO DEVIATE FROM EARLIER YEARS CONCLUSIONS. THE ASSESSEE HAS MAINTAINED SEPARATE INVESTMENT PORTFOLIO AND ALL THE SALES OUT OF THIS PORTFOLIO ARE IDENTIFIABLE TO PUR CHASES MADE IN THE SAID PORTFOLIO. ASSESSEES CLAIM REGARDING LONG TERM CAPITAL GAIN H AS NOT BEEN DISPUTED BY THE ASSESSING OFFICER AND, THUS, ASSESSING OFFICER HIMS ELF HAS ACCEPTED THAT THE ASSESSEE WAS INVESTOR IN SHARES ALSO. ALL THESE FACTORS OUT WEIGH THE TEST OF FREQUENCY OF TRANSACTION BEING UNDERTAKEN BY THE ASSESSEE IN DEC IDING THE TRUE INTENTION OF ASSESSEE. WE, THEREFORE, CONFIRM THE ORDER OF THE LEARNED CIT(A). 9 7.3. THE LD. A/R ALSO RELIED ON THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT [228 CTR 582 (MUM)], WHEREIN ON IDENTICAL FACTS OF THE CASE, THE CONCLUSION ARRIVED BY THE I.T.A.T., MUMBA I HAS BEEN AFFIRMED BY HOLDING AS UNDER :- THE TRIBUNAL HAS ENTERED A PURE FINDING OF FACT THA T THE ASSESSEE WAS ENGAGED IN TWO DIFFERENT TYPES OF TRANSACTIONS. THE FIRST SET OF TRANSACTIONS INVOLVED INVESTMENT IN SHARES. THE SECOND SET OF TRANSACTIONS INVOLVED DEALING IN SHARES FOR THE PURPOSES OF BUSINESS. THE TRIBUNAL HAS CORRECTLY AP PLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESS EE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO INVESTMENT IN SHARES AN D ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. THE TRIBUNA L HELD THAT THE DELIVERY BASED TRANSACTIONS IN THE PRESENT CASE, SHOULD BE TREATED AS THOSE IN THE NATURE OF INVESTMENT TRANSACTIONS AND THE PROFIT RECEIVED THE REFROM SHOULD BE TREATED EITHER AS SHORT-TERM OR, AS THE CASE MAY BE, LONG-TERM CAP ITAL GAIN, DEPENDING UPON THE PERIOD OF THE HOLDING. THE TRIBUNAL HAS OBSERVED IN ITS JUDGMENT THAT THE ASSESSEE HAS FOLLOWED A CONSISTENT PRACTICE IN REGARD TO THE NATURE OF THE ACTIVITIES, THE MANNER OF KEEPING RECORDS AND THE PRESENTATION OF S HARES AS INVESTMENT AT THE END OF THE YEAR, IN ALL THE YEARS. THE TRIBUNAL CORRECT LY ACCEPTED THE POSITION THAT THE PRINCIPLE OF RES JUDICATA IS NOT ATTRACTED SINCE EA CH ASSESSMENT YEAR IS SEPARATE IN ITSELF. THE TRIBUNAL HELD THAT THERE OUGHT TO BE UN IFORMITY IN TREATMENT AND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE ID ENTICAL, PARTICULARLY IN THE CASE OF THE ASSESSEE. THIS APPROACH OF THE TRIBUNAL CANN OT BE FAULTED. THE REVENUE DID NOT FURNISH ANY JUSTIFICATION FOR ADOPTING A DIVERG ENT APPROACH FOR THE ASSESSMENT YEAR IN QUESTION . THERE CANNOT BE ANY DISPUTE ABOUT THE BASIC PROPO SITION THAT ENTRIES IN THE BOOKS OF ACCOUNT ALONE ARE NOT CONCL USIVE IN DETERMINING THE NATURE OF INCOME. THE TRIBUNAL HAS APPLIED THE CORRECT PRI NCIPLE IN ARRIVING AT THE DECISION IN THE FACTS OF THE PRESENT CASE. THE FIND ING OF FACT DOES NOT CALL FOR INTERFERENCE IN AN APPEAL UNDER S. 260A. NO SUBSTAN TIAL QUESTION OF LAW IS RAISED. [EMPHASIS SUPPLIED]. 7.4. THE LD. A/R ALSO RELIED ON A RECENT ORDER OF THE COORDINATE BENCH OF I.T.A.T., KOLKATA IN THE CASE OF DCIT VS. ETERNA STEEL & INVE STMENTS PVT. LTD. (SUPRA), WHEREIN THE TRIBUNAL ON IDENTICAL FACTS AND CIRCUMSTANCES O F THE CASE DISMISSED THE REVENUES APPEAL BY HOLDING THAT THE LD. C.I.T.(A) HAS RIGHTL Y TREATED THE GAIN OF RS.33,85,463/- AS CAPITAL GAIN AND NOT AS BUSINESS PROFIT. THE FINDI NG OF THE TRIBUNAL IN THE SAID CASE IS REPRODUCED BELOW :- 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES, ORDERS OF AUTHORITIES BELOW AND THE CA SES CITED BY THE AUTHORITIES BELOW AS ALSO RELIED BEFORE US (SUPRA). WE OBSERVE THAT T HE STRESS OF THE LD. D.R. TO JUSTIFY THE ORDER OF THE ASSESSING OFFICER THAT THE SHORT-T ERM/LONG-TERM CAPITAL GAIN CLAIMED BY THE ASSESSEE IS TO BE CONSIDERED AS BUSINESS INC OME ONLY BECAUSE THERE ARE LARGE NUMBER OF PURCHASE AND SALE OF SHARES BY THE ASSESS EE IN A SYSTEMATIC AND ORGANIZED MANNER. HOWEVER, WE OBSERVE THAT IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY PURC HASED EQUITY SHARES OF ONLY 7 10 COMPANIES, BY WAY OF 9 TRANSACTIONS AND THERE WERE 11 TRANSACTIONS TO SALE SHARES OF ONLY 6 COMPANIES. THE ASSESSEE MADE INVESTMENT IN M UTUAL FUNDS AND THERE WAS NOT A SINGLE MUTUAL FUND SOLD. THAT THE ASSESSEE-COMPAN Y NEVER CARRIED OUT ANY BUSINESS ACTIVITY SUCH AS TRADING IN FUTURES & OPTIONS, HEDG ING TRANSACTIONS, SHORT-SELLING ACTIVITY, ETC. THAT THE ASSESSEE EMPLOYS PEOPLE TO ASSIST IN ITS S HARE ANALYSIS ACTIVITIES AND ALWAYS TREATED ITS SHARE TRANSACTIONS AS INVEST MENT BY THE DEPARTMENT IN THE PRECEDING ASSESSMENT YEARS AS WELL AS IN SUCCEEDING ASSESSMENT YEARS RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THE LAST 10 ASSESSMENT YEARS, ALL ALONG THE PROFIT FROM THE SALE OF INVESTMENT WAS ASSESSED BY THE DEPARTMENT AS CAPITAL GAINS. THE DEPARTMENT HAS NOT DISPUTED THAT THE TAX TREATM ENT GIVEN TO A PORTFOLIO MANAGEMENT SCHEME INVESTOR IS THE SAME AS THAT GIVE N TO A MUTUAL FUND INVESTOR. FROM THE RECORD, IT IS ALSO FOUND THAT AS PER STATE MENT OF SHORT-TERM CAPITAL GAINS AND LONG-TERM CAPITAL GAINS, FILED BEFORE THE LD. CIT(A PPEALS), THE ASSESSEE PURCHASED EQUITY SHARES/ MUTUAL FUNDS AT ONE INSTANCE, I.E. A T ONE GO AND SUBSEQUENT SALES WERE MADE AFTER A REASONABLE TIME PERIOD AND THE WEIGHTE D AVERAGE PERIOD OF HOLDING FOR EQUITY SHARES IN THE CATEGORY OF SHORT-TERM CAPITAL GAIN WAS 3.06 MONTHS AND IN THE LONG-TERM CAPITAL GAINS CATEGORY, THE WEIGHTED AVER AGE LENGTH OF HOLDING WAS 41 MONTHS. IT IS ALSO OBSERVED THAT NO INVESTMENTS HAV E BEEN MADE FROM ANY BORROWED FUNDS AND THE ENTIRE INVESTMENT HAD BEEN MADE OUT O F OWN FUNDS. THE INTENTION OF THE ASSESSEE WAS TO INVEST ITS OWN MONEY INTO EQUIT Y OF LISTED COMPANIES, MUTUAL FUNDS, ETC. THEREBY EARNING DIVIDEND INCOME, BESIDE S BONUS, ETC. FURTHER IT IS OBSERVED THAT THE CASES RELIED UPON BY THE ASSESSIN G OFFICER HAVE BEEN CONSIDERED BY THE LD. CIT(APPEALS) AT PAGES 12 TO 14 OF THE IM PUGNED ORDER AND AT THE TIME OF HEARING, THE LD. D.R. COULD NOT DISPUTE THE OBSERVA TIONS OF THE LD. CIT(APPEALS) THAT THE SAID CASES DO NOT FIT TO THE FACTS OF THE CASE OF THE ASSESSEE AS ON RECORD. WE ALSO OBSERVE ON PERUSAL OF THE DETAILS OF THE TRANSACTIO NS OF SALE AND PURCHASE OF SHARES, PLACED AT PAGES 23 & 24 OF THE PAPER BOOK, THERE WE RE NOT MUCH NUMBER OF TRANSACTIONS TO ESTABLISH THAT THE ASSESSEE MADE PU RCHASES OF THE SHARES UNDER CONSIDERATION AS STOCK-IN-TRADE. WE OBSERVE THAT SO ME OF THE SHARES WERE PURCHASED IN THE PRECEDING ASSESSMENT YEAR AND THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT THOSE SHARES WERE SHOWN AS AN INVESTMENT AS ON 31.0 3.2005. WE ARE OF THE CONSIDERED VIEW THAT WHEN THE DEPARTMENT HAS ACCEPT ED THOSE SHARES AS INVESTMENT IN THE PRECEDING ASSESSMENT YEAR, THE SAME VERY SHA RES COULD NOT BE CONSIDERED AS STOCK-IN-TRADE IN THE ASSESSMENT YEAR UNDER CONSIDE RATION MERELY BECAUSE THERE WAS PROFIT WHEN THE SHARES WERE SOLD BY THE ASSESSEE. T HE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF FIDELITY NORTHSTAR FUND & OT HERS IN RE (2007) 288 ITR 641 HAS HELD THAT WHILE DISTINGUISHING A TRADING COMPAN Y WITH THAT OF AN INVESTMENT COMPANY, THE INTENTION OF THE INVESTOR IS AN IMPORT ANT FACTOR TO DETERMINE THE QUESTION OF TRADER OR INVESTOR. THE HONBLE MADRAS HIGH COURT HAS ALSO HELD IN THE CASE OF CIT VS.- N.S.S. INVESTMENTS (PVT.) LTD. (S UPRA) THAT WHEN SHARES IN QUESTION WERE NEVER TREATED BY THE ASSESSEE AS STOCK-IN-TRAD E AND THE SHARES WERE HELD FOR EARNING DIVIDEND, GAIN ARISING ON SALE WAS A CAPITA L GAIN. IN THE CASE BEFORE US ALSO, THE LD. A.R. CONTENDED THAT THE SHARES WERE PURCHAS ED BY THE ASSESSEE WITH AN INTENTION TO EARN DIVIDEND AND/OR BONUS SHARES AND NOT TREATED AS STOCK-IN-TRADE AT ANY POINT OF TIME. SINCE THE DEPARTMENT HAS FAILED TO BRING ANY EVIDENCE ON RECORD TO CONTRADICT THE ABOVE SUBMISSION OF THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(APPEALS) HAS RIGHTLY HELD THAT THE SUM OF RS.33,85,463/- SHOWN BY THE ASSESSEE IS TO BE ASSESSED AS CAPITAL GAIN AND NOT AS BUSINESS PROFIT. HENCE, WE 11 UPHOLD THE ORDER OF THE LD. CIT(APPEALS) AND REJECT THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT. 8. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE SEVERAL JUDICIAL PRONOUN CEMENTS DISCUSSED ABOVE, WE HOLD THAT THE LD. C.I.T.(A) WAS JUSTIFIED IN DIRECTING T HE A.O. TO ACCEPT THE GAINS SHOWN BY THE ASSESEE UNDER THE HEAD CAPITAL GAINS. THE ORDER OF LD. C.I.T.(A) ON THIS ISSUE IS, THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE DEPARTMENT RAISED IN THIS REGARD ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS-OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. 1 '! #2' 3 2% 4 15 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.5. 2011. SD/- SD/- ( ! ! ! ! ) '# ( . . . . . .. . ) (AKBER BASHA) , ACCOUNTANT MEMBER (B.R.MITTAL) , JUDICIAL MEMBER ( (( (6# 6# 6# 6#) )) ) DATE: 13-05-2011 '! 7 /8 9'8':- COPY OF THE ORDER FORWARDED TO: 1. +, / THE APPELLANT : D.C.I.T., CIRCLE-10, KOLKATA. 2 /0+, / THE RESPONDENT : M/S. ASTREEX ENTERPRISES PVT. LTD. , 11-C, BURDWAN ROAD, KOLKATA-700 027. 3. !% () : THE CIT(A)-XII, KOLKATA. 4. !%/ THE CIT, KOL- 5 >4 /% / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 GUARD FILE . 08 // TRUE COPY, '!%2/ BY ORDER, (DKP) ? @ / DY/ASSTT. REGISTRAR .