ITO 2(1)(1), MUMBAI V. AKKADIAN COMMERCIAL & AGENCIES P. LTD, MUMBAI

ITA 891/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7932 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 31-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAYESH DADHIA
• Keywords: Capital asset; Business income; Business expenditure
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP, AM AND SHRI N.V. VASUDEV AN, JM I.T.A.NO. 891/MUM/2010 ASSESSMENT YEAR : 2006-07 THE INCOME-TAX OFFICER-2(1)(1), AAYAKAR BHAVAN, R.NO.575,5 TH FL., MMUMBAI 400 020. VS. M/S. AKKADIAN COMMERCIAL & AGENCIES P.LTD., 1905-06, STELLAR TOWER CO-OP. HOUSING, 2 ND CROSS SWAMI SAMART, ANDHERI (W), MUMBAI 400 053. PAN: AADCA 8859 R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PAVAN VED RESPONDENT BY : SHRI JAYESH DADHIA O R D E R PER P.M. JAGTAP, AM : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-IV MUMBAI, DAT ED 20.11.20098, AND THE GRIEVANCE OF THE REVENUE AS PROJECTED IN THE GROUND S RAISED THEREIN IS THAT THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT INCOME OF RS. 8,10,90,980/- EARNED BY THE ASSESSEE ON SALE OF SHARES WAS ON ACCOUNT OF LONG T ERM CAPITAL GAINS AND NOT ITS BUSINESS INCOME AS TREATED BY THE ASSESSING OFFICER . 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY IN CORPORATED FOR CARRYING ON THE BUSINESS OF TRADING IN SHARES AND SECURITIES. T HE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29.11.2009 D ECLARING A LOSS OF RS.1,51,9800/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, THE ASSESSEE HAD CREDITED AN AMOUNT OF RS. 3,09,66,908/- AS PROFIT O N SALE OF INVESTMENT AND ADMINISTRATIVE AND OTHER EXPENSES AMOUNTING TO RS. 1,53,460/- WERE DEBITED. IN THE COMPUTATION OF TOTAL INCOME, THE PROFIT ON SALE OF SHARES, HOWEVER, WAS CLAIMED BY THE ASSESSEE AS EXEMPT UNDER SECTION 10(38) BEING L ONG TERM CAPITAL GAINS AND LOSS WAS DECLARED MAINLY ON ACCOUNT OF ADMINISTRATIVE AN D OTHER EXPENSES INCURRED ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 2 DURING THE YEAR CONSIDERATION. THE CLAIM OF THE ASS ESSEE FOR EXEMPTION ON ACCOUNT OF PROFIT ON SALE OF SHARES BEING LONG TERM CAPITAL GAINS U/S.10(38) WAS EXAMINED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS. ON SUCH EXAMINATION, HE RECORDED THE FOLLOWING FINDINGS OF FACT: 1. THE DETAILS FILED ON RECORD SHOWS THAT THE COMPANY WAS INCORPORATED ON 6 TH JANUARY, 2000. 2. THE ASSESSEE STARTED TO HAVE PURCHASED 2,70,000 SHA RES OF ASIAN CERC FOR A CONSIDERATION OF RS. 5,40,000/- ON 26.01.2000 . 3. THERE IS NO ACTIVITY IN THE COMPANY FOR THE LAST SE VERAL YEARS. THE BALANCE SHEET REVEALS THAT THE ONLY OTHER INVESTMEN T IS IN THE SHARES OF M/S. NINE MEDIA & INFORMATION SERVICES LTD. (WHICH IS DELISTED FROM THE STOCK EXCHANGE) FOR A CONSIDERATION OF RS. 6,02,800 /- WHICH IS ALSO PURCHASED AT THE TIME OF INCORPORATION OF COMPANY I TSELF. 4. OTHER THAN THIS, THE ASSESSEE HAS SHOWN AN AMOUNT O F RS. 41,00,000/- AS SHARE APPLICATION MONEY AND AN AMOUNT OF RS. 1.1 7 CRORES AS LOANS AND ADVANCES TO VARIOUS PARTIES. BUT NO INCOME FROM THE SAME HAS BEEN DECLARED. THESE TRANSACTIONS HAVE BEEN UNDERTAKEN IN THE F.Y. UNDER REVIEW. 5. THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS OF PURCH ASE OF SHARES SOLD DURING THE YEAR. THE ONLY DETAILS GIVEN IS DATE OF PURCHASE AS 26.01.2000 WHICH IS A NON-TRADING DAY AS PER THE CO NFIRMATION RECEIVED FROM BSE. 6. DURING THE YEAR THE ASSESSEE CLAIMED EXPENDITURE UN DER THE HEADS AUDIT FEES OF RS.3,367/-, BANK CHARGES OF RS. 39,092/-, L EGAL AND PROFESSIONAL FEES OF RS.60,000/-, PRELIMINARY EXPENSES OF RS. 70 0/-, PREOPERATIVE EXPENSES OF RS. 1,481/- AND RATES AND TAXES OF RS. 48,821/-. 7. THE ASSESSEE HAS ALSO CLAIMED TO HAVE BEEN PAID THE STT, SERVICE TAX, CESSATION SERVICE TAX, STAMP CHARGES, TURNOVER CHAR GES AND BROKERAGE ON SALE OF SHARES MADE DURING THE YEAR. 8. IT IS OBSERVED FROM THE DETAILS OF LONG TERM CAPITA L GAINS FILED ON RECORD, THE ASSESSEE HAS SOLD THE SHARES, DURING THE YEAR I N EIGHT LOTS ON VARIOUS DATES WHICH ARE REPRODUCED AS UNDER: DATE OF SALE SCRIP NO OF SHARES SALE AMOUNT 23-12-2005 ASIAN CERC 100000 10762019 17-01-20065 ASIAN CERC 15000 1737100 10-02-2006 ASIAN CERC 50000 6063500 13-02-2006 ASIAN CERC 28960 3578587 14-02-2006 ASIAN CERC 56040 7011732 2,50,000 24-02-2006 ASIAN CERC 10000 671100 10-03-2006 ASIAN CERC 20000 1126000 10-03-2006 ASIAN CERC 10000 556870 40000 TOTAL 2,90,000 3,115,06,908/- ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 3 THE ASSESSEE HAS ALSO FILED BROKERS BILLS IN SUPPOR T OF THE ABOVE TRANSACTIONS. FOR EXAMINING THE SAID TRANSACTIONS INFORMATION WAS CAL LED FOR U/S.133(6) FROM BSE IN RESPECT OF ALL THE TRANSACTIONS DONE UNDER THE ASSE SSEE CLIENT CODE BY ITS BROKER VIZ. M/S. SUNIDHI CONSULTANCY SERVICES PVT. LTD. TH E BSE IN REPLY FURNISHED DATE WISE TRADE OF THE TRANSACTIONS ENTERED INTO BY THE BROKER ON BEHALF OF THE ASSESSEE AND IT IS FOUND FROM THE SAME THAT THE SAL E OF SHARES AS CLAIMED BY ASSESSEE ON 24-02-2006 RS.6,71,100/- ARE NOT REFLEC TED IN THE TRADING STATEMENT. KEEPING IN VIEW THE ABOVE FINDINGS RECORDED BY HIM, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO OFFER ITS EXPLANATION IN RESPECT OF THE SAID FINDINGS WHICH THE ASSESSEE DID BY FILING A DETAILED SUBMISSION IN WR ITING VIDE ITS LETTER DATED 1 ST SEPTEMBER, 2008. FURTHER SUBMISSION WAS ALSO MADE B Y THE ASSESSEE VIDE ITS LETTER DATED 22.12.2008, IN ORDER TO MEET THE VARIOUS OBJE CTIONS RAISED BY THE ASSESSING OFFICER DOUBTING THE GENUINENESS OF THE RELEVANT SH ARE TRANSACTIONS. THE ASSESSEE WAS ALSO CALLED UPON BY THE ASSESSING OFFICER TO EX PLAIN AS TO WHY THE ENTIRE LONG TERM CAPITAL GAINS SHOULD NOT BE TREATED AS ITS BUS INESS INCOME AND THE FOLLOWING EXPLANATION IN THIS REGARD WAS OFFERED BY THE ASSES SEE : WE ALSO UNDERSTAND THAT YOU PROPOSE TO TAX THE ENTIRE LONG TERM CAPITAL GAIN OF RS.3,09,66,908 AS BUSINESS INCOME. WITH DUE RESPECT, YOUR PROPOSED ACTION WOULD BE BAD IN LAW AND WOULD BE AP PARENTLY AGAINST THE DECISIONS OF VARIOUS HIGH COURTS INCLUDING THE APEX COURT AND IN CONTRADICTORY TO CBDTS OWN CIRCULAR NO.4 OF 2007 D ATED 15 TH JUNE, 2007. TO CONSTITUTE ANY TRANSACTION AS BUSINESS, THERE HA S TO BE A CONTINUOUS ACTIVITY OF PURCHASE AND SALES. THE TRANSACTION MUS T HAVE A VOLUME AND MAY BE CARRIED OUT WITH THE BORROWED FUNDS. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THERE IS NO PURCHASE OF SHARES A T ALL FOR THE YEAR UNDER ASSESSMENT. FURTHER, THE VOLUME IS ALMOST ZERO. FUR THER, THERE IS NO IS NO BORROWED FUNDS NOR ANY CLAIM OF INTEREST. IN FACT, THE SHARES WERE ACQUIRED AS PROMOTER ALMOST FIVE YEARS BACK. THEREAFTER THER E WAS NO PURCHASE OR SALE OF THOSE SHARES FOR A PERIOD OF FIVE YEARS. TH EREFORE, FROM ANY ANGLE, THE SHARE TRADING TRANSACTION DO NOT LOOK LIKE A BU SINESS TRANSACTION AT ALL. 3. IN SUPPORT OF ITS STAND THAT THE PROFIT ARISING FROM SALE OF SHARES DID NOT CONSTITUTE ITS BUSINESS INCOME AND IT WAS A CASE OF LONG TERM CAPITAL GAINS, RELIANCE WAS PLACED BY THE ASSESSEE ON THE FOLLOWING JUDICIA L PRONOUNCEMENTS: CIT VS. ESS JAY ENTERPRISES P.LTD. 173 TAXMAN 1 (D EL.) TRISHUL INVESTMENTS LTD. (305 ITR 434 (MAD.) RAMNARIAN SONS P.LTD. V. CIT (41 ITR 534)(SC) ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 4 RAJU BAHADUR KAMKHYA NARAIAN SINGH (77 ITR 253) (SC ) IN ADDITION TO THE AFORESAID JUDICIAL PRONOUNCEMENT S, THE ASSESSEE ALSO RELIED ON THE CIRCULAR NO. 4 OF 2007 ISSUED BY THE CBDT LAYING DO WN THE PRINCIPLE FOR CLASSIFICATION OF SHARES AS INVESTMENT AND STOCK IN TRADE WHEREIN IT WAS CLARIFIED BY THE BOARD THAT IT IS POSSIBLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E. AN INVESTMENT PORTFOLIO COMPRISING SECURITIES WHICH AR E TREATED AS CAPITAL ASSET AND TRADE PORTFOLIO COMPRISING OF STOCK IN TRADE WHICH ARE TO BE TREATED AS TRADING ASSETS. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE MUM BAI BENCH OF THE I.T.A.T IN THE CASE OF JANAK S. RANGWALA (11 SOT 627), WHEREIN IT WAS HELD THAT IF THE ASSESSEE IS HOLDING SHARES AS INVESTMENT FROM YEAR TO YEAR, THE N THE CIRCULARS ARISING ON SALE OF SUCH INVESTMENT IS NOTHING BUT CAPITAL GAINS. 4. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF HIS STAND THAT PROFIT ARISING FROM SALE OF SHARES IN THE YEAR UNDER CONSIDERATION WAS LONG TERM CAPITAL GAIN S AND REJECTING THE SAME, HE TREATED THE SAID PROFIT AS BUSINESS INCOME OF THE A SSESSEE FOR THE FOLLOWING REASONS: (I) THE ONLY RECEIPT IN ASSESSEES PROFIT AND LOSS A/ C. IS AN ACCOUNT OF PROFIT ON SALE OF SHARES. (II) THE ASSESSEES BALANCE SHEET AND VARIOUS DETAILS FI LED DURING THE COURSE OF ASSESSMENT PROCEEDINGS SHOWS THAT THE ISSUED, SUBSC RIBED AND PAID-UP CAPITAL OF THE COMPANY SINCE INCEPTION IS SHOWN AT RS. 1,00,000/-. RESERVES AND SURPLUS AT THE BEGINNING OF THE YEAR IS NIL AND AT THE YEAR END IS RS.3,08,13,447/- WHICH ARISES OUT OF THE PROFIT EAR NED ON SALE OF SHARES DURING THE YEAR. (III) THE UNSECURED LOANS OF THE ASSESSEE ARE SHOWN AT RS .13,20,000/- AT THE BEGINNING OF THE YEAR AND AT RS. 17,20,000/-. THE I NCREASE IS ON ACCOUNT OF ONLY ADDITION TO SECURED LOANS OF RS.4,00,000/-. (IV) THE ASSESSEES APPLICATION OF FUNDS SINCE INCEPTION IS IN SHARES OF THREE COMPANIES I.E. TWO IN QUOTED OUT OF WHICH ONE IS DE LISTED AS OF NOW AND ONE IN UNQUOTED SHARES. THE ASSESSEE HAS SOLD ENTIRE SH ARES I.E. OF M/S. ASIAN CERC INFORMATION TECHNOLOGY LTD. DURING THE YEAR. T HUS THE ASSESSEE HAS PURCHASED ALL THE SHARES OUT OF THE BORROWED FUNDS . (V) THE ASSESSEE COMPANY IS ONE OF THE PROMOTERS OF M/S . ASIAN CERC INFORMATION TECHNOLOGY LTD. AS PER ITS OWN SUBMISSI ON AND IS FURTHER EVIDENCED BY THE FACT THAT THE MOVEMENT IN SALE AND PURCHASES WERE DULY INTIMATED TO STOCK EXCHANGES AS PER SEBI GUIDELINES . ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 5 (VI) IN THE PROFIT AND LOSS A/C., THE ASSESSEE HAS DEBIT ED EXPENSES LIKE BANK CHARGES, AUDIT FEES, LEGAL AND PROFESSIONAL CHARGES , PRELIMINARY EXPENSES, PRE-OPERATIVE EXPENSES AND RATES AND TAXES ETC., WH ICH ARE AKIN TO THE BUSINESS EXPENSES FOR EARNING THE ALLEGED CAPITAL G AIN, DIVIDEND INCOME, INTEREST INCOME SHOWN BY THE ASSESSEE IN THE PROFIT AND LOSS A/C. (VII) THE ASSESSEES REPRESENTATIVE HAS GIVEN TO THE BELI EF THAT ONLY SALE AND PURCHASE OF SHARES THROUGH SECONDARY MARKET ONLY CO NSTITUTES BUSINESS ACTIVITY AND NOT THE SALE AND PURCHASES THROUGH IPO S ROUTE. THERE IS NO LIMIT ON HUMAN INGENUITY AND MENTAL CAPACITY. HENCE, THE ABOVE ARGUMENT IS BEST DESCRIBED AS ILLOGICAL. (VIII) THE SUBJECT MATTER HERE IS THE SELLING ACTIVITY OF THE ASSESSEE DURING THE P.Y.2005-06. JUST BECAUSE ASSESSEE HAS SOME SHARE H OLDING PRIOR TO THE PREVIOUS YEAR DOES NOT MAKE ALL HIS ACTIVITY IN SHA RE INVESTMENT. CBDT CIRCULAR NO. 4 OF 2007 ON THIS ISSUE ALSO CLEARLY M ENTIONS THAT A PERSON CAN HAVE BOTH INVESTMENT AND TRADING ACCOUNT. IN VIEW O F THIS, THE ABOVE EXPLANATION BECOMES IRRELEVANT. THIS EXPLANATION DO ES NOT APPLY (FACTUALLY) TO THE SHARE THAT HAVE BEEN SOLD TO ARRIVE AT GAINS AS THE ABOVE DISCUSSION OF FACTS AND CIRCUMSTANCES MAKES IT CLEAR THESE SHARES WERE PURCHASED TO SELL AT PROFIT. (IX) THE ASSESSEE MAY ALSO ARGUE THAT THE COMPANY DOES N OT HAVE ANY INFRASTRUCTURE OR STAFF OR DIRECTORS HAVING ANY KNO WLEDGE OF CARRYING OUT THE SHARE TRADING ACTIVITY AS A REGULAR BUSINESS. SINC E THE ASSESSEE DID ALL HIS TRANSACTIONS THROUGH INTERMEDIARIES/BROKERS, THE SA ME DOES NOT REQUIRE ANY INFRASTRUCTURE. IT REQUIRES ONLY A PHONE TO MAKE CA LL AND PLACE ORDERS. (X) THE ASSESSEE ALSO TAKES AN ARGUMENT THAT THEY HAVE BEEN INVESTING IN SHARES FOR SEVERAL YEARS AND BEEN TREATING AS INVESTMENTS AND NOT AS BUSINESS ACTIVITY. THIS ARGUMENT ALSO DOES NOT STAND GOOD I N VIEW OF THE FACT THAT ASSESSEE IS DOING THE SAID ACTIVITIES THROUGH BROKE RS, INTERMEDIARIES AND PROFESSIONALS. HERE ONE HAS TO UNDERSTAND IS WHETHE R THE ASSESSEE IS REALLY ACTING ON THE ADVICE. THE CIRCUMSTANCES OF THE CAS E AND LOOKING AT THE FACT THAT THE ASSESSEE IS A BUSINESS PERSON FOR LONG, TH AT THE ASSESSEE IS KNOWLEDGEABLE AND WELL AWARE OF THE COMMERCE AND TH E MARKET AND ECONOMIC CONDITIONS AND ALSO KEEPS ABREAST OF STATE OF ECONOMY AND ABOUT THE VARIOUS COMPANIES IN WHOSE SHARES THE ASSESSEE HAS DEALT WITHIN THE YEAR. THE PURCHASES HAVE BEEN MADE AFTER APPLYING M IND AND THE MAIN CRITERIA OF HOW MUCH THE SHARE WILL RISE/FETCH IN R ETURN ETC., AND SALES ARE MADE WHEN THE SHARES REACHED THE EXPECTED LEVELS. I N CASES WHERE THE SHARES APPEAR TO BE FALLING THEY ARE IMMEDIATELY SO LD. HENCE IT IS CLEAR THAT THE ASSESSEE IS NOT ENTIRELY ACTING ON ADVICE. EVEN IF THE ASSESSEE IS ACTING ON ADVICE; THE QUESTION HERE IS DID THE BROKERS ADVISE TO BUY AND SELL SO FREQUENTLY? DID THEY, ON THEIR OWN, KEEP TELLING EV ERY DAY TO BUY THIS OR SELL THAT OR HOLD THIS ETC. GENERALLY THIS IS NOT THE CA SE. IT IS THE CLIENTS WHO CALL UP THE BROKER AND ASK WHAT I SHOULD SELL AND WHAT S HOULD I BUY AND WHAT TO HOLD. THEY ALSO INQUIRE WHAT THE FUTURE OF THIS CO MPANY IS. IS THE SHARE LIKELY TO RAISE FAST ETC. AND THEN THEY PLACE THE ORDER. IT IS NOT THAT THE BROKER FORCES TO BUY AND SELL. ITS THE ASSESSEE WHO IS TH E ULTIMATE DECISION MAKER; DECISION AS TO BUY OR SELL ON ANY GIVEN DAY? MONITO RING THE HOLDING AND DECIDE WHETHER ANY SHARE IS NOT APPRECIATING ENOUGH ? THIRDLY, WHETHER TO FOLLOW THE ADVICE OR NOT? FOURTHLY, THE DECISION AS TO WHICH INTERMEDIARY/BROKER TO PLACE ORDER, OR TO TAKE ADVI CE FROM? HENCE, JUST BECAUSE IT IS DONE ON ADVICE DOESNT CHANGE ITS CHA RACTER FROM TRADE TO INVESTMENT. ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 6 (XI) IN THIS INSTANT CASE IT IS NOTEWORTHY THAT THE ASSE SSEE HELD THE SHARES IN PROMOTERS QUOTA SUBJECTED TO LOCK-IN PERIOD WHICH H AS A TYPICAL BUSINESS CHARACTER. (XII) THE ASSESSEE ALSO ARGUED ON THE LINES OF THE DYNAMI CS OF ECONOMY, WHICH ARE FAST CHANGING AND THE NEED TO MOVE OUT OF A SEC URITY ARISES TO PROTECT THE CAPITAL INVESTED AND NOT TO EARN ANY BUSINESS INCOM E. THIS ARGUMENT HARDLY EXPLAINS ANYTHING AND ALSO NOT RELEVANT IN THE QUAS I-JUDICIAL PROCEEDINGS LIKE THIS. IT MAY BE BETTER USED IN DISCUSSIONS ON ECON OMY OR SEMINARS ABOUT ECONOMY AND POLICY MAKING. 5. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3) TREATING THE PROFIT EARNED BY IT ON SALE OF SHARES AS BUSINESS INCOME AND NOT LONG TERM CAPITAL GAINS, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A), THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE MAINLY REITERATED ON BEHALF OF THE ASSESSEE IN SUPPORT OF HIS CASE THAT THE PROFIT EARNED BY IT ON SALE OF SHARES WAS LONG TERM CAPITAL GAINS AS THE SAID SHARES WERE ACQ UIRED AND HELD FOR MORE THAN FIVE YEARS AS INVESTMENT. AFTER TAKING INTO CONSIDERATI ON THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM, RELEVANT FACTS AND CIRC UMSTANCES OF THE ASSESSEES CASE AS BORNE OUT FROM THE RECORDS, THE LEARNED CIT(A) A CCEPTED THE STAND OF THE ASSESSEE THAT THE PROFIT ON SALE OF SHARES WAS A LO NG TERM CAPITAL GAIN EXEMPT U/S.10(38). THE REASONS GIVEN BY THE LEARNED CIT(A) TO COME TO THIS CONCLUSION IN PARA NO.4 OF HIS IMPUGNED ORDER ARE EXTRACTED BELOW : I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A.R. AND I FIND THAT THE A.O. IS NOT JUSTIFIED IN TREATING THE LONG TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. IN THIS CASE IT IS EVIDENT THAT THE A SSESSEE HAS INVESTED IN SCRIPS OF ASIAN CERC LONG BACK IN 2000. THESE SHAR ES WERE SOLD IN THIS YEAR IN 7 LOTS WHICH HAS RESULTED INTO LONG TERM CA PITAL GAIN. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS OF TRADING IN SHARES. BUSINESS IS A CONTINUOUS ACTIVITY COMPRISING OF SAL E, PURCHASE ETC. IT IS NOTED HERE THAT THE ASSESSEE HAS NOT PURCHASED OR S OLD ANY SCRIP IN LAST 5 YEARS. HENCE, THE SURPLUS IS TO BE TAXED AS LONG TE RM CAPITAL GAIN ONLY. RELIANCE IS PLACED ON THE DECISION OF I.T.A.T, MUMB AI, IN THE CASE OF JANAK S. RANGWALA 11 SOT 727(MUM) WHEREIN IT WAS HELD THA T MAGNITUDE OF THE TRANSACTION DO NOT CHANGE THE NATURE OF TRANSACTION . RELIANCE IS ALSO PLACED ON THE DECISION OF RAJKOT TRIBUNAL IN THE CASE OF P USHPABEN H. KOTHCA (88 TTJ 384). THIS GROUND OF APPEAL IS ALLOWED. ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 7 6. THE LEARNED CIT(A) THUS ALLOWED THE CLAIM OF THE ASSESSEE THAT PROFIT ARISING FROM SALE OF SHARES WAS A LONG TERM CAPITAL GAIN EXEMPT UNDER SECTION 10(38) AND AGGRIEVED BY THIS RELIEF ALLOWED BY THE LEARNED CIT(A) TO THE ASSESSEE, THE REVENUE HAS PREFERRED THIS APPEAL BEF ORE THE TRIBUNAL. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 6.01.2000 WITH THE MAIN OBJECT TO DEAL IN MERCHANDISE. HE SUBMITTED THAT THE SHARES ARE MERC HANDISE AND THE ONLY TRANSACTION MADE BY THE ASSESSEE COMPANY AFTER ITS INCORPORATION WAS TO PURCHASE THE SHARES. HE CONTENDED THAT OTHER THAN THIS TRANS ACTION, THERE WAS HARDLY ANY TRANSACTION ENTERED INTO BY THE ASSESSEE-COMPANY RI GHT FROM THE DAY OF ITS INCORPORATION TILL THE YEAR UNDER CONSIDERATION. HE CONTENDED THAT THE SAID TRANSACTION ENTERED INTO BY THE ASSESSEE THUS WAS A BUSINESS TRANSACTION AND THE SHARES PURCHASED BY THE ASSESSEE COMPANY WERE ITS S TOCK IN TRADE. HE CONTENDED THAT THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAI D SHARES IN ITS BOOKS OF ACCOUNT AS INVESTMENT IS NOT CONCLUSIVE IN THIS REGARD AND IF ALL THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE ARE TAKEN INTO CONSIDERATION , INCLUDING THE NATURE OF ITS BUSINESS, THE SHARES WERE CLEARLY PURCHASED AND HE LD AS STOCK IN TRADE, HE CONTENDED THAT THE PROFIT ARISING FROM SALE OF THE SAID SHARES IN THE YEAR UNDER CONSIDERATION THUS WAS A BUSINESS INCOME OF THE ASS ESSEE-COMPANY AS RIGHTLY HELD BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN TREATING THE SAME AS LONG TIME CAPITAL GAINS WITHOUT APPRECIATIN G THE FACTS OF THE CASE IN THE RIGHT PERSPECTIVE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, REITERATED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE T HE AUTHORITIES BELOW IN SUPPORT OF HIS CASE THAT THE SHARES HAVING BEEN PUR CHASED BY THE ASSESSEE IN THE YEAR 2000 IN ONE LOT AS INVESTMENT AND HAVING BEEN HELD AS INVESTMENT FOR A PERIOD OF FIVE YEARS, THE PROFIT ARISING FROM SALE, THEREOF AFTER A PERIOD OF SIX YEARS ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 8 WAS LONG TERM CAPITAL GAINS. HE, THEREFORE, STRONGL Y RELIED ON THE IMPUGNED ORDER OF THE LEARNED CIT(A) STATING THAT THE SAME IS WELL REASONED AND WELL DISCUSSED ON THE ISSUE UNDER CONSIDERATION. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE AS TO WHETHER THE PRO FIT ON SALE OF SHARES CONSTITUTES BUSINESS INCOME OF THE ASSESSEE OR LONG TERM CAPITA L GAINS DEPENDS ON WHETHER THE SAID SHARES WERE PURCHASED BY THE ASSESSEE AS I NVESTMENT OR STOCK IN TRADE. IN ORDER TO ASCERTAIN AS TO WHETHER THE SHARES WERE PU RCHASED BY THE ASSESSES AS INVESTMENT OR STOCK IN TRADE, THE MOST RELEVANT A SPECT WHICH IS TO BE SEEN IS THE INTENTION OF THE ASSESSEE BEHIND THE PURCHASE OF SH ARES AND SUCH INTENTION HAS TO BE GATHERED FROM THE FACTS OF THE CASE INCLUDING TH E CONDUCT OF THE ASSESSEE. EVEN THOUGH THE BUSINESS OF THE ASSESSEE IS THAT OF DEALING IN MERCHANDISE AND THE SHARES ARE ONE TYPE OF MERCHANDISE, THERE IS NO THING WHICH PROHIBITS THE ASSESSEE ENGAGED IN THE BUSINESS OF DEALING IN SHAR ES TO PURCHASE CERTAIN SHARES AS INVESTMENT. THIS POSITION HAS BEEN RECOGNIZED EV EN IN THE CIRCULAR ISSUED BY THE BOARD CLARIFYING THAT THE ASSESSEE CAN HAVE TWO POR TFOLIOS OF SHARES ONE AS INVESTMENT AND THE OTHER AS STOCK IN TRADE. IN THE PRESENT CASE, EVEN THOUGH THERE WERE NO SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE, THERE WAS NOTHING TO PROHIBIT THE ASSESSEE TO HOLD THE SHARES ONLY IN O NE PORTFOLIO I.E. INVESTMENT. IT IS PERTINENT TO NOTE IN THIS CONTEXT THAT THE SHARES W ERE PURCHASED WAY BACK IN THE YEAR 2000 BY THE ASSESSEE WITH THE INTENTION TO HOL D THE SAME AS INVESTMENT AS WAS EVIDENT FROM THE TREATMENT GIVEN IN ITS BOOKS O F ACCOUNT TO THE SAID SHARES. NOT ONLY IN THE INITIAL YEAR OF PURCHASE BUT EVEN I N THE SUBSEQUENT FIVE YEARS, THE ASSESSEE TREATED THE SAID SHARES AS INVESTMENT IN I TS BOOKS OF ACCOUNT AND THIS TREATMENT GIVEN BY THE ASSESSEE WAS ACCEPTED BY THE DEPARTMENT THOUGH OUT. IN THE CASE OF JANAK S. RANGWALA(SUPRA), THE CO-ORDINA TE BENCH OF THIS TRIBUNAL HAS HELD THAT WHEN THE ASSESSEE WAS HOLDING THE SHARES AS INVESTMENT FROM YEAR TO ITA NO.891/M/2010 .M/S. AKKADIAN COMMERCIAL & AGENCIES P. LTD. 9 YEAR, THEN THE SURPLUS ARISING ON SALE OF SUCH SHAR ES WAS NOTHING BUT CAPITAL GAINS. IN HIS IMPUGNED ORDER, THE LEARNED CIT(A) HAS PLACE D RELIANCE ON THE SAID DECISION OF THE TRIBUNAL TO ALLOW THE CLAIM OF THE ASSESSEE THAT PROFIT ARISING ON SALE OF SHARES HELD AS INVESTMENT IN THE EARLIER YEARS WAS LONG TERM CAPITAL GAINS AND ALTHOUGH IN THE GROUNDS RAISED IN THIS APPEAL, THER E IS A MENTION THAT THE SAID DECISION OF THE TRIBUNAL HAS BEEN CHALLENGED BY THE REVENUE BY FILING AN APPEAL UNDER SECTION 260A, NOTHING WAS BROUGHT ON RECORD B EFORE US TO SHOW THAT THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALA HAS BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT. AS SUCH CONSIDER ING ALL THE FACTS OF THE CASE AND KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE CASE OF JANAK S. RANGWALA (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF THE L EARNED CIT(A) TREATING THE PROFIT ARISING FROM SALE OF SHARES HELD BY THE ASSESSEE AS INVESTMENT TO BE A LONG TERM CAPITAL GAIN EXEMPT U/S.10(38) AND UPHOLDING THE SA ME, WE DISMISS THIS APPEAL FILED BY THE REVENUE. 10. IN THE RESULT, THE APPEAL FILED BY REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF MARCH, 2011. SD. SD. (N.V.VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED THE 25 TH MARCH, 2011. COPY TO: 1. THE ASSESSEE 2. THE ITO-2(1)(1), MUMBAI 3. THE CIT-2, MUMBAI 4. THE CIT(A)-4, MUMBAI 5. THE DR G BENCH, MUMBAI BY ORDER /TRUE COPY/ KN/ ASST. REGISTRAR, ITAT, MUMBAI