DCIT 21(3), MUMBAI V. PRADIP U. PATEL, MUMBAI

ITA 8686/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9045 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J B SHAH
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 8686/MUM/2011 ASSESSMENT YEAR 2008-09 ASST. C.I.T. CIRCLE 21(1), 6 TH FLOOR, ROOM NO. 601, PRATYAKSHAKAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. VS. MR. PRADIP U. PATEL, VASANI COTTAGE, VILE PARLE (W), MUMBAI 400 056. PAN: AABPP 4564 D (APPELLANT ) (RESPONDENT) REVENUE BY : SHRI RAJARSHI DWIVEDY ASSESSEE BY : SHRI VIJAY MEHTA & SHRI J.B. SHAH DATE OF HEARING : 12-12-2012 DATE OF PRONOUNCEMENT : 28-12-2012 O R D E R PER B.R. MITTAL, J.M. THE DEPARTMENT HAS FILED THIS APPEAL FOR THE ASSESSMENT YEAR (AY) 2008-09 AGAINST THE ORDER OF LD. CIT(A) DT. 30-10-2 011 DISPUTING THE ORDER OF LD. CIT(A) TO DIRECT THE ASSESSING OFFICER (AO) TO ASSESS PROFIT ON SALE OF SHARES AMOUNTING TO RS. 29,04,561 /- AS SHORT TERM CAPITAL GAIN AS AGAINST BUSINESS INCOME CONSIDERED BY THE AO. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL ARE T HAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 24-07-2008 INTER-ALIA SHOWING SHORT TERM CAPITAL GAIN OF RS. 29,04,561/-, LONG TERM CAP ITAL GAIN OF RS. 36,83,915/- AND INTEREST INCOME OF RS. 38,89,28 0/-. THE AO ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 2 ENQUIRED AS TO WHETHER THE SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE IS TO BE CONSIDERED AS CAPITAL GAIN OR BUS INESS INCOME OF ASSESSEE. THE ASSESSEE VIDE LETTER DT. 18-10-2010 SUBMITTED AS UNDER: 1.ASSESSEE HELD THE SHARES AS INVESTMENT ONLY AND NOT AS STOCK-IN-TRADE. HE HAS BEEN INVESTING IN SHARES OF VARIOUS COMPANIES SINCE LAST MORE THAN 30 YEARS. 2. IN ALL THE EARLIER ASSESSMENT HIS INVESTMENT IN SHARES HAS BEEN TREATED AS INVESTMENTS ONLY AND NOT AS STOCK-IN-TRADE. 3. THE ASSESSEE HAD NEVER CLAIMED ANY EXPENDITURE A GAINST SHORT TERM CAPITAL GAINS AS IT IS NOT ALLOWED UNDER LAW, EVEN THOUGH HE MADE LOTS OF EXPENDITURE ON RESEARCH & ANALYSIS OF SHARES OF COMPANIES, CONTRIBUTION TO MAGAZINES RELATED TO INVESTMENTS ETC. 4. OPTION IS GIVEN TO THE ASSESSEE ABOUT TREATMENT OF SHARES IN THE BOOKS. 5. ASSESSEE HAS BEEN SHOWING PURCHASE OF SHARES, AS INVESTMENT IN THE PAST AND NEVER SHOWN THEM AS BUSINESS ASSET OR STOCK-IN-TRADE. 6. IN EARLIER YEARS NO CONTRARY VIEW HAS BEEN TAKEN BY THE DEPARTMENT IN HIS INCOME TAX ASSESSMENTS OF EARLIER YEARS IN RESPECT OF TREA TMENT GIVEN FOR PURCHASE OF SHARES. 7. THE ASSESSEE HAS BEEN ALWAYS VALUING HIS SHARES AT COST AT THE END OF THE YEAR. 3. BESIDES ABOVE, ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. GOPAL PUROHIT IN THE ITA NO. 1121/2009 DT. 06-01-2010 AND DECISION OF ITAT AHMEDABAD BENC H IN THE CASE OF SUGAMCHAND C. SHAH VS. ACIT [37 DTR (AHMD.)(TRIB) 3 45] . HOWEVER, THE AO DID NOT ACCEPT THE CONTENTION OF TH E ASSESSEE. HE NOTICED THAT THE ASSESSEE HAS DEALT IN THE TRANSACT IONS OF SHARES IN ALL 50 SCRIPTS AND THERE ARE IN ALL 91 TRANSACTIONS OF PURCHASE OF SHARES AND 65 TRANSACTIONS OF SALES EFFECTED OUT OF SUCH S HARES. HE STATED THAT THE NUMBER OF SHARES PURCHASED AS WELL AS SOLD ARE VOLUMINOUS AND QUANTUM THEREOF IS QUITE SUBSTANTIAL. AO HAS F URTHER STATED THAT OUT OF TOTAL 65 TRANSACTIONS OF SALE OF SHARES, THE PERIOD OF HOLDING IN RESPECT OF 27 TRANSACTIONS IS LESS THAN ONE MONTH. THE AO AFTER CONSIDERING THE CASES RELATING TO THE FACT THAT ENT RIES IN THE BOOKS OF ACCOUNTS ARE NOT CONCLUSIVE AND ALSO REFERRING TO C BDT CIRCULAR NO. 04/2007 DT. 15-06-2007 HELD THAT THE SHORT TERM CAP ITAL GAIN OF ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 3 RS. 29,04,560/- SHOWN BY THE ASSESSEE IS THE BUSINE SS INCOME AND ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. BEING AGGRIEVED, ASSESSEE FILED BEFORE THE FIRST AP PELLATE AUTHORITY (FAA). 4. THAT ASSESSEE MADE HIS SUBMISSIONS BEFORE LD. CIT(A ) WHICH ARE REFERRED BY HIM IN PARA 3.2 OF THE IMPUGNED ORDER A S UNDER: 3.2 BEFORE ME THE APPELLANT HAS FURNISHED WRITTEN S UBMISSIONS AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO. IT HAS BEEN STATED THAT THE ASSESSEE HAS HELD THE SHARES OF VARIOUS COMPANIES AS INVESTMENTS ONLY AND IT IS ENGAGED IN THE INVESTMENT IN SHARES FOR THE LAST 30 YEARS. IT HAS BEEN FURTHER STATED THAT FOR A . Y . 2006-07 TH E ASSESSMENT HAS BEEN COMPLETED U/S.143(3) WHEREIN AL SO THE PROFITS ON SALE OF SHARES HAS BEEN ASSESSED AS SHORT TERM CAPI TAL G A IN AND NOT AS BUSINESS INCOME. THE APPELLANT HAS RELIED ON THE DE CISION OF THE BOMBA Y HIGH COURT IN THE CASE OF GOPAL PUROHIT 228 C T R 582(BOM) AS WELL AS IN THE CASE OF SUGAMCHAND C SHAH 37 DTR 345 (AHD) , SARNATH INFRASTRUCTURE P . LTD. 120 TTJ 216 (LKO) , NEHAL V SHAH (ITAT , MUMB A I) ETC T O SUPPORT HIS CONTEN T IONS THAT THE GAIN ON SALE OF SHAR E S HELD F OR LESS THAN 1 Y EAR SHOULD BE ASSESSED AS SHORT TERM CAPITAL G A IN ONL Y. IT HAS BEEN FURTHER CONTENDED THAT THE ASSES SE E HAS CAPITAL BALANCE O F RS.10.99 CRORES WHEREAS THE INVESTMENT IN SHARES AS ON 31.3 . 2008 W AS ONLY RS . 4.24 CRORES AND THE REMAINING CAPITAL WAS INVESTED IN OTHER ASSETS WHICH SHOWS THE INTENTION OF THE ASSESSEE TO BE AN INVESTOR AND NOT AS A TRADER . IT IS ALSO STATED THE ASSESSEE HAS NOT BORROWED AN Y MONEY AND PURCHASES HAS BEEN MADE OUT OF OWN FUNDS ONLY . TH E NUMBER OF 65 TRANSACTIONS OF SALES INVOLVING 50 SCR IPTS CANNOT BE SAID T O BE HIGH FREQUENCY OR VOLUM E . THE ASSESSEE HAS EARNED SUBSTANT IAL DIVIDEND OF RS.8 , 55,430/- WHICH ALSO SHOWS THE INTENTION OF THE ASS E S SEE TO EARN THE DIVIDEND ALSO. THE SHARES HAVE BEEN SHO WN AS INVESTM E N T AND THE Y H A VE BEEN VALUED AT . COST ONLY AND NOT ON TH E BA S IS OF COST O R MARKET VALUE WHICHEVER IS LESS . THE DELIVERY IS TAKEN FOR A LL THE SH ARES PURCHASED DURING THE YEAR . THE ASSESSEE HAS ALSO EARNED SUBSTANTI A L LONG TERM CAPITAL GAIN OF RS. 36,83,915/ - WHICH HAS BEE N ACCEPTED B Y THE AO ALSO, WHICH GOES TO PROVE THAT THE BASIC INT ENTION OF TH E ASSESSEE IS INVESTMENT IN SHARES AND THEREFORE THERE IS NO R EASON T O T RE A T T H E ASSESSEE AS A TRADER IN SHARES IN RESPECT OF ONLY THOSE SHAR ES W HI C H HAVE BEEN HELD FOR LESS THAN ONE YEAR . ON THE PRINCIPLES OF CO N S ISTE N CY A L S O , IT HAS BEEN PLEADED THAT THE APPELLANT SHOULD BE TR EATED A S INVE ST O R O NL Y. IN THE LAST , IT HAS BEEN CONTENDED THAT THE DECISION OF SADHAN A NA BERA RELIED BY THE AO IS DISTINGUISHABLE AS IN THAT CASE MOST OF T HE TRANSACTIONS WERE DONE WITHOUT DELIVERY AND THE LOANS WERE ALSO TAKEN FOR THE PURCHASE OF SHARES. 5. LD. CIT(A) AFTER CONSIDERING ABOVE SUBMISSIONS OF T HE ASSESSEE AND CBDT CIRCULAR NO. 04/2007 (SUPRA), AND THE CASES OF THE HONBLE APEX COURT OF G. VENKTASWAMI NAIDU & CO (35 ITR 584 (SC); PM MOHD MIRZA KHAN [73 ITR 735 (SC)] , AS ALSO CASE OF AHMEDABAD BENCH OF ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 4 ITAT OF SUGANDH P. SHAH [37 DTR 345 (AHD)(TRIB)] ETC., HAS HELD THAT THE PROFIT OF RS. 29,04,561/- IS LIABLE TO BE ASSES SED AS SHORT TERM CAPITAL GAIN ONLY VIDE PARA NOS. 3.4 AND 3.5 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 3.4 IF THE ABOVE PARAMETERS ARE APPLIED TO THE FACT S OF THE APPELLANTS CASE THEN IT IS CLEAR THAT TOTAL 65 TRANSACTIONS OF SALE DURI NG THE YEAR CANNOT BE SAID TO BE VOLUMINOUS OR OF HIGH FREQUENCY TO PUT THE APPELLAN T IN THE CATEGORY OF TRADER IN SHARES. FROM THE DETAILS OBTAINED DURING THE AS SESSMENT PROCEEDINGS, IT IS NOTED THAT OUT OF THE 65 TRANSACTIONS ONLY 27 TRANS ACTIONS ARE SUCH WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS AND ONLY 30% OF THE SHORT TERM CAPITAL GAIN HAS BEEN EARNED ON THE TRANSACTIONS WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS. THIS SUGGESTS THAT A MAJORITY OF SHARES AR E HELD FOR LONGER PERIODS AND MAJORITY OF STCG HAS BEEN EARNED ON SHARES HELD FOR LONGER PERIOD. HENCE MERE FACT THAT SOME SHARES HAVE BEEN LESS THA N 30 DAYS WILL NOT BY I TSELF MAKE THE APPELLANT A TRADER . SINCE THE APPELLANT HAS EARN E D SUBSTANTIAL LTCG ALSO, THEREFORE IF THE PERIOD OF H OLDING FOR STCG AND LTCG SHARES ARE SEEN TOGETHER THAN ALSO IT WILL IND ICATE THAT THE PRIMARY INTENTION OF THE ASSESSEE IS TO PURCHASE SHARES FOR HOLDING THEM FOR LONG E R PERIOD FOR PURPOSES OF APPRECIATION IN VALUE OF H IS INVESTMENT. THE DELIVERY OF SHARES HAS BEEN TAKEN SHARES ON ALL OCC ASIONS. THERE IS NOT MUCH REPEATED PURCHASE AND SALE OF SHARES OF SAME C OMPANY DURING THE YEAR . THE TOTAL NUMBER OF SHORT TERM SHARES PURCHASED IS 450184 AND TOTAL NUMBER OF SHARE SOLD IS 369578 ONLY . THE TOTAL SALES TURNOVER FOR SHORT TERM SHARES IS RS 7.24 CR WHICH IS MAINLY DUE TO HIGH PRICE VALUE OF THE SHARES OF THE COMPANIES INVESTED BY APPELLANT AS THE NUMBER OF SA LE TRANSACTIONS ARE ONLY 65. FURTHER THE TURNOVER OF 7.24 CR TO THE HOLDING O F SHARES OF RS 4.24 CRORES SHOWN IN BALANC E S HE E T A T THE END OF THE YEAR SUGGESTS THAT TURNOVER OF THE APPELLANT IS NOT EVEN TWICE THE VALUE OF SHARES HEL D AT THE CLOSE OF THE YEAR . IN CASE OF INVESTOR ALSO THE RATIO OF TURNOVER TO HOLD ING IS NOT VERY HIGH. A TRADER WOULD NO R MALLY ROTATE THE STOCK OR HIS CAPITAL SEVERAL TIMES IN A YEAR TO ACH I EVE T H E HI GH TURNOVER WITH LOW CAPITAL OR LOW INVESTMENT IN S TOCK IN TRADE WHICH I S NOT THE CASE WITH THE APPELLANT . THE ASSESSEE HAS BEEN REGULARLY EARNING LONG TERM CAPITAL GAIN AS WELL AS SHORT TER M CAPITAL GAIN ON S A L E OF SHARES SINCE PAST SEVERAL YEARS AND IN EACH OF THE YEARS TH E LO NG T ERM CAPITAL GAIN HAS BEEN HIGHER THAN THE SHORT TERM CAPITAL GA IN WHICH WILL BE EVIDENT FROM THE CHART GIVEN AS UNDER:- S . NO A.Y. SHORT TERM CAPITAL GAIN LONG TERM CAPITAL GAIN 1 2003-04 360,901 . 00 1,847,198 . 00 2 2004-05 4,379, 328.00 4,812,844 . 00 3 2005-06 5,096,044.00 5 , 807 , 565.00 4 2006-07 7,637 , 325.00 14 , 545 , 943 . 00 5 2007-08 4,985,2 20.00 13,860 , 367 . 00 6 2008-09 2 , 904,561 . 00 3,694 , 619 . 00 ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 5 THE A BOVE CHART CLEAR LY PROVES THAT THE ASSESS EE H A S INT E NTI O N OF ENJOYING THE APPRECIATION IN VALUE OF SHARES AND MERELY THAT SOM E SHARES HAVE BEEN SOLD IN LESS THAN 1 YEAR, CANNOT LEAD TO CONCLUSION THAT HE HAD A DIFFERENT INTENTION IN RESPECT OF SUCH SHARES. THE INTENTION OF BEING AN I NVESTOR IS FURTHER STRENGTHENED BY THE FACT THAT IN EACH OF THE PAST YEARS ALSO THE APPELLANT HAS BEEN SHOWING LTCG AND STCG AND EVERY YEAR , THE LTCG IS HIGHER THAN STCG . IN ALL THE YEARS THE APPELLANT HAS BEEN VALU I NG THE SHARES AT COST ONLY AND MENTIONED THE SHARES HELD IN BALANCE SHEE T AS INVESTMENTS ONLY . THE APPELLANT HAS E ARNED SUBSTANTIAL DIVID E ND A LSO IN EACH Y EARS. THE ASSESSEE H A S BEEN BU Y ING AND SELLIN G SHAR E S ON DELIVERY BASIS FOR THE LAST SEVERAL Y E A RS AND PROFITS SHOWN AS SHORT TERM C APITAL GAIN HAD BEEN DULY ACCEPTED BY THE DEPARTMEN T . EV E N IN T H E A.Y. 2006-07, T HE SHOR T T E RM CAPI TA L GAIN TO TH E TUNE OF RS . 7 6 , 37 , 325/ - HAS BEEN ACCEPTED BY THE AO AS SHORT TERM CAPITAL GAIN IN THE ORDE R P A SSED U/ S. 143(3) . HENCE FOLLOWING THE PRINCIPLE OF CONSISTEN CY ALSO , T H E INCOME OFFERED HAS TO BE TAXED UNDER THE HEAD SHORT TE R M CAPITA L GAIN AS THERE IS NO MATERIAL CHANGE IN THE CURRENT Y EAR A L S O . I N THE CASE OF JANAK S RANGWALLA 11 SOT 627(MUM.) ALSO IT H A S B EEN H E LD THAT M E RE VOLUME AND MAGNITUDE OF TRANSACTIONS DOES NOT ALT ER THE NATURE OF TRANSACTION WHICH ARE BEING ASSESSED AS CAP I TAL I N PAST SEVERAL YEARS UNLE S S THERE IS A MATERIAL CHANGE ON THE FACTS . TH E R AT IO O F T HE DECISION OF ITAT MUMBAI IN CASE OF GOPAL PUROHIT 122 TTJ 87 (MUM) WHICH HAS BEEN CONFIRMED BY BOMBAY HIGH COURT ALSO, ARE APPLICABLE TO THE FACTS OF THE APPELLANT AS THE APPELLANT HAS ALS O SHOWN THE LTCG AS WELL AS STCG ON SHARES AND IN PAST THE ASSESSEE HAS BEEN AC CEPTED AS AN INVESTOR. THE ASSESSEE HAS NOT USED BORROWED FUNDS FOR PURCHASE O F THE SHARES. HE HAS RATHER EARNED SUBSTANTIAL INTEREST ON SURPLUS FUNDS WHICH SHOWS THAT IT IS THE SURPLUS FUNDS WHICH ARE BEING INVESTED IN SHARES ALSO. THE ASSESSEE IS A CIVIL ENGINEER AND PARTNER IN THE FIRM M/S. SHRISHTI CONSTRUCTION COMPANY FROM WHICH THE SHARE OF PROFIT HAVE BEEN RECEIVED. HENCE, IT IS N OT CORRECT TO SAY THAT THE ASSESSEE HAS ONLY THE ACTIVITY OF BUYING AND SELLIN G OF SHARES. 3.5 THE CUMULATIVE EFFECT OF ALL THE FACTS OF THE A PPELLANT AS DISCUSSED ABOVE LEAD TO CONCLUSION, THAT THE APPELLANT IS AN INVESTOR IN SHARES FOR THIS YEAR. UNDER THESE CIRCUMSTANCES, THE APPELLANT CANNOT BE TREATE D TO BE TRADER IN SHARES AND HENCE THE PROFIT OF RS. 29,04,561/- IS LIABLE TO BE ASSESSED AS SHORT TERM CAPITAL GAIN ONLY. THE AO IS DIRECTED ACCORDINGLY. HENCE, THIS APPEAL. 6. ON BEHALF OF THE DEPARTMENT, LD. DEPARTMENTAL REPRE SENTATIVE (DR) CONTENDED THAT ASSESSEE IS A CIVIL ENGINEER BY QUAL IFICATION AND IS ALSO A PARTNER IN THE FIRM OF M/S. SHRUSHTI CONSTRUCTION COMPANY WHICH DERIVED INCOME FROM INVESTMENT ONLY FOR THE RELEVAN T FINANCIAL YEAR. HE SUBMITTED THAT THE ASSESSEE IS MAINTAINING AN OF FICE AND CARRIED OUT SUBSTANTIAL NUMBER OF SHARE TRANSACTIONS I.E., 91 TRANSACTIONS IN 50 SCRIPTS OF PURCHASE AND 65 TRANSACTIONS OF SALES . THEREFORE, THE ASSESSEE HAS CARRIED OUT SYSTEMATIC COURSE OF ACTIV ITY THROUGH-OUT THE YEAR AND THE PERIOD OF HOLDING IS ALSO LOW. THE LD . DR SUBMITTED THAT ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 6 THE AO CONSIDERED THE CASE OF ITAT MUMBAI BENCH OF SMT. SADHANA NABERA VS. ACIT (ITA NO. 2485/M/09 DT. 26-03-2010) AND ALSO THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF SHRI V. NAGESH (ITA NO. 5410/M/2008) WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE IS ENGA GED IN SHARE BUSINESS ON FULL SCALE BASIS, THE ASSESSEE CANNOT TREAT PROFIT/LOSS AS SHORT TERM CAPITAL GAIN/LOSS. THE L D. DR SUBMITTED THAT THE AO HAS RIGHTLY CONSIDERED THE SHARE PROFIT AS INCOME FROM BUSINESS ACTIVITY AND THE ORDER OF LD. CIT(A) BE R EVERSED. 7. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTATIV E (AR) SUPPORTED THE ORDER OF THE LD. CIT(A). HE SUBMITTE D THAT THE ASSESSEE HAS A CAPITAL BALANCE OF RS. 10.99 CRORES, BUT THE INVESTMENT IN SHARE AS ON 31-03-2008 WAS ONLY RS. 4.24 CRORES AND THE R EMAINING CAPITAL WAS INVESTED BY THE ASSESSEE IN OTHER ASSETS. HE F URTHER SUBMITTED THAT THE ASSESSEE IS MAKING INVESTMENT IN SHARES FO R THE LAST 30 YEARS AND THE PROFIT ON SALE OF SHARES HAS BEEN ASSESSED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN EVEN IN THOS E ASSESSMENT WHICH WERE COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (ACT). THE LD. AR SUBMITTED THAT ALL THE SHARE TRANSACTION S ENTERED INTO BY THE ASSESSEE ARE DELIVERY BASED AND ARE THROUGH DEM AT A/C OF THE ASSESSEE. HE SUBMITTED THAT THERE ARE NO DERIVATIVE , SPECULATIVE AND TRADING TRANSACTIONS ENTERED INTO BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE DEPLOYED HIS OWN FUNDS FOR THE PURCHASE OF INVESTMENT IN SHARES AND THERE WAS NO BORROWING OF FUNDS. HE FURTHER SUBMITTED THAT ALL THE SHARES HAVE BEEN SHO WN BY THE ASSESSEE UNDER THE HEAD INVESTMENT ADDED IN THE BOOKS OF A CCOUNTS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS VALUED THE SHARES AT COST AND NOT AT COST OF MARKET PRICE WHICH-EVER IS LOWER. L D. AR FURTHER SUBMITTED THAT THE ASSESSEE IS NOT MAINTAINING ANY FULFLEDGED ORGINISATION, STAFF ETC., FOR THE PURPOSE OF TRANSA CTIONS IN SHARES. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO SHOWN A LONG TERM CAPITAL GAIN OF RS. 36,83,915/- WHICH HAS BEEN ACC EPTED BY THE AO. ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 7 HE SUBMITTED THAT THE LD. CIT HAS RIGHTLY CONSIDERE D THE SHARE PROFIT OF THE ASSESSEE AS SHORT TERM CAPITAL GAIN. 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE P ARTIES. WE HAVE ALSO CONSIDERED THE CASES WHICH HAVE BEEN REFERRED TO BY THE AUTHORITIES BELOW IN THEIR RESPECTIVE ORDERS. WE H AVE ALSO PERUSED THE RELEVANT PAGES OF THE PAPER BOOK AND PARTICULARLY P G. NOS. 18 TO 21 OF THE PAPER BOOK WHICH IS A SHARE HOLDING CHART IN TE RMS OF NUMBER OF DAYS OF THE SHARES HELD BY THE ASSESSEE AND THE COM PANIES OF WHICH THE ASSESSEE PURCHASED/SOLD SHARES IN THE FINANCIAL YEAR RELEVANT TO THE AY UNDER CONSIDERATION. ON PERUSAL OF THE DETA ILS OF THE SAID SHARES, WE OBSERVE THAT THERE ARE NO REPETITIVE TRA NSACTIONS IN SHARES OF THE SAME SCRIPT IN THE FINANCIAL YEAR RELEVANT T O THE AY UNDER CONSIDERATION. FURTHER, IT IS A FACT THAT THE ASSE SSEE HAS USED HIS OWN FUNDS FOR THE PURCHASE OF SHARES AND NO BORROWED FU ND WAS USED BY THE ASSESSEE. THE LD. DR HAS ALSO NOT DISPUTED THE FACT THAT THE ASSESSEE HAS BEEN SHOWING ITS HOLDINGS OF SHARES IN ITS BOOKS OF ACCOUNTS IN THE PRECEDING AYS AS WELL AS IN THE AY UNDER CONSIDERATION UNDER THE HEAD INVESTMENT. FURTHER , IT IS ALSO NOT DISPUTED THAT THE ASSESSEE HAS VALUED ITS SHARES AT COST AND NOT VALUED AT COST OF MARKET PRICE WHICH-EVER IS LOWER . THE DEPARTMENT HAS ALSO NOT DISPUTED THE FACT THAT IN THE PRECEDIN G AYS, THE DEPARTMENT HAS CONSIDERED THE PROFIT ON SALE OF SHA RES AYS UNDER THE HEAD CAPITAL GAIN/LOSS. WE OBSERVE THAT THE LD. CIT(A) HAS STATED THAT OUT OF 55 TRANSACTIONS, ONLY 27 TRANSACTIONS A RE SUCH WHERE THE HOLDING PERIOD IS LESS THAN 30 DAYS AND IT IS 30% O F THE SHORT TERM CAPITAL GAIN THAT HAS BEEN EARNED BY THE ASSESSEE. THEREFORE, MAJORITY OF THE SHARES ARE HELD BY THE ASSESSEE FOR A LONGER PERIOD AND THE MAJORITY OF SHORT TERM CAPITAL GAIN HAS BEEN EA RNED THEREON. THEREFORE, WE AGREE WITH LD. CIT(A) THAT THE FACT T HAT SOME SHARES HAVE BEEN HELD FOR LESS THAN 30 DAYS, WILL NOT MAKE THE ASSESSEE, A TRADER IN SHARES. WE OBSERVE FROM THE TABLE AT PG. NO. 10 OF THE ORDER ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 8 OF THE LD. CIT(A), THAT THE ASSESSEE HAS BEEN REGUL ARLY EARNING LONG TERM CAPITAL GAIN AS WELL AS SHORT TERM CAPITAL GAI N IN THE PRECEDING AYS ON SALE OF SHARES AND THE SAME HAS BEEN ACCEPTE D BY THE DEPARTMENT NOT ONLY U/S. 143(1) BUT ALSO IN THE ASS ESSMENTS COMPETED U/S. 143(3) OF THE ACT, AS IS OBSERVED FRO M THE FACT SHEET PLACED BEFORE US BY THE LD. AR AT THE TIME OF HEARI NG. THE LD. DR HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS EARNED SUBSTANTIAL DIVIDEND OF RS. 9,25,018/- DURING THE YEAR. THE HO NBLE APEX COURT HAS HELD IN THE CASE OF CIT VS. H. HOLCK LARSEN (160 ITR 67) THAT IT IS RELEVANT TO SEE THE INTENTION OF THE ASSESSEE AS TO WHETHER THE ACTIVITY AMOUNTS TO TRADING ACTIVITY OR INVESTMENT ACTIVITY AND FOR WHICH ONE COULD NOT LOOK THE END OF THE TRANSACTION BUT AT TH E FIRST PURCHASE TO JUDGE EACH CASE. SINCE WE HAVE MENTIONED THAT THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES HAD ENTERED THE SAME IN ITS BOOKS OF ACCOUNTS AS INVESTMENT AND HAS ALSO SHOWN IN BALANC E SHEET UNDER THE HEAD INVESTMENT, THE INTENTION OF THE ASSESSE E IS FORTIFIED THAT THE SAME ARE HELD AS INVESTMENT AND NOT AS STOCK IN TRA DE. THE HONBLE GUJARAT HIGH COURT HAS LAID DOWN THE FOLLOWING TEST IN THE CIT VS. REWASHANKAR A KOTHARI [201 CTR 510] TO DECIDE WHETHER THE ASSESSEE WAS A DEALER IN SHARES OR A MERE INVESTOR. (1) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT MATTER OF THE TRANSACTION WAS WITH THE INTENTION OF DEALING IN TH E ITEM OR WITH A VIEW TO FINDING ON INVESTMENT. IF THE TRANSACTION, SINCE INCEPTION APPEARS TO BE IMPRESSED WITH A CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A CHARACTER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDE LINE; (2) THE SECOND TEST IS TO HOW THE ASSESSEE DEALT WITH T HE SUBJECT MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS WITH THE ASSESSEE WHE THER IT HAS BEEN TREATED AS STOCK-IN-TRADE, ARE BEING SHOWN IN THE BOOKS OF ACC OUNT AND BALANCE SHEET AS AN INVESTMENT; (3) THE THIRD IS HOW THE ASSESSEE HIMSELF HAS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN T HE COURSE OF PRECEDING AND SUCCEEDING ASSESSMENT. THIS FACTOR, CAN AFFORD GOO D AND COGENT EVIDENCE TO JUDGE THE NATURE OF TRANSACTION. THE HONBLE APEX COURT HAS OBSERVED IN THE CASE OF CIT VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMPANY (P) LTD., (82 ITR 58 6) THAT WHETHER A ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 9 PARTICULAR HOLDING OF SHARE IS BY WAY OF INVESTMENT OR FORMS PART OF STOCK IN TRADE IS A MATTER WHICH IS WITHIN THE KNOW LEDGE OF THE ASSESSEE, WHO HOLDS SHARES AND IT SHOULD IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AND WHETHER IT HAS MAINTAINED DISTINCTION BETWEEN THOSE SHARES WHICH A RE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . MUMBAI BENCH OF ITAT IN THE CASE OF JANAK S RANGWALLA [11 SOT 627 (MUM)] HAS HELD THAT IT IS THE INTENTION OF THE ASSESSEE WHICH IS T O BE SEEN TO DETERMINE THE NATURE OF TRANSACTION CONDUCTED BY THE ASSESSEE . THOUGH THE INVESTMENT IN SHARE WAS AT A LARGE MAGNITUDE, BUT T HE SAME WOULD NOT DECIDE THE NATURE OF TRANSACTION. IT WAS ALSO STAT ED IN THE ABOVE CASE THAT THE MERE MAGNITUDE OF THE TRANSACTIONS DOES NO T CHANGE THE NATURE OF TRANSACTION, WHICH ARE BEING ASSESSED AS INCOME FROM CAPITAL GAINS IN THE PAST SEVERAL YEARS. 9. CONSIDERING THE FACTS OF THE CASE AND THE CASES CIT ED (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY HELD THAT THE ASSESSEE HAS TREATED THE SHARES AS INVESTMENT AND N OT STOCK IN TRADE. THEREFORE, WE AGREE WITH THE LD. CIT(A) THAT THE VO LUME OF TRANSACTIONS, FREQUENCY OF TRANSACTION AND PERIOD O F HOLDING ETC., WOULD NOT ALTER THE NATURE OF TRANSACTION FROM INVE STMENT TO TRADING AND THE SHARE PROFIT SHOWS BY THE ASSESSEE IN THE A Y UNDER CONSIDERATION OF RS. 29,04,561/- IS ASSESSABLE AS SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. HENCE, WE UPHO LD THE ORDER OF THE LD. CIT(A) BY REJECTING THE GROUNDS OF APPEAL T AKEN BY THE DEPARTMENT. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DECEMBER,2012 SD/- SD/- (N.K. BILLAIYA) (B.R. MITTAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 28 TH DECEMBER, 2012 TNMM ITA NO. 8686/MUM/2011 MR. PRADIP U. PATEL 10 COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI