THE DCIT, (CENTRAL)-1, Indore V. M/s. Pumarth Credit And Capital Ltd., Indore

ITSSA 203/IND/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6231 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 24-01-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 09-01-2019
• Assessment Year: 2011-2012
• Appeal Filed On: 13-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: AYUSH GUPTA
• Keywords: Capital asset; Business income; Search and seizure; Advance ruling; Question of law
• Section: 143(3); 142(1); 153A; 132

Judgement Text

PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE HON'BLE KUL BHARAT, JUDICIAL MEMBER AND HON'BLE MANISH BORAD, ACCOUNTANT MEMBER ITA (SS) NO.202&203/IND/2016 ASSESSMENT YEAR 2010-11 & 2011-12 REVENUE BY S MT. ASHIMA GUPTA, CIT ASSESSEE BY S/SHRI SUMIT NEMA, SR.ADV & AYUSH GUPTA, ADV. DATE OF HEARING 09 .01.2019 DATE OF PRONOUNCEMENT 24 .01.2019 O R D E R PER MANISH BORAD, AM. THE ABOVE CAPTIONED TWO APPEALS ARE FILED AT THE IN STANCE OF REVENUE PERTAINING TO ASSESSMENT YEAR 2010-11 AND 2011-12 AND ARE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-III (IN SHORT LD.CIT(A)], INDORE DATED 27.07.2016 WHICH IS ARISING OUT OF THE ORDER U/S 153A R.W.S. 143(3) OF THE INCOME TAX DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)-1 INDORE VS. M/S. PUMARTH CREDIT & CAPITAL LTD, 5/5A, NAVRATAN BAGH, OPP. GEETA BHAWAN SQUARE, BEHIND VISHESH HOSPITAL, INDORE ( APPELLANT ) (RESPONDENT ) PAN NO. AA B CP 8823F PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 2 ACT 1961(IN SHORT THE ACT) DATED 16.03.2015 FRAME D BY DCIT(CENTRAL), INDORE. 2. REVENUE HAD RAISED FOLLOWING GROUNDS OF APPEAL; ASSESSMENT YEAR 2010-11 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.1,09,16,692/- MADE BY THE A.O. ON ACCOUNT OF TREATING THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS PROFIT TAXABLE AT NORMAL RATE WITHOUT APPR ECIATING THE FACTS AND EVIDENCES BROUGHT INTO LIGHT BY THE A.O DURING ASSE SSMENT PROCEEDINGS. THE APPELLANT RESERVES THE RIGHT TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE; THE APPEAL IS FINALLY HEARD FOR DISPOSAL. ASSESSMENT YEAR 2011-12 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.89,48,740/- MA DE BY THE A.O. ON ACCOUNT OF TREATING THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES AS BUSINESS PROFIT TAXABLE AT NORMAL RATE WITHOUT APPR ECIATING THE FACTS AND EVIDENCES BROUGHT INTO LIGHT BY THE A.O DURING ASSE SSMENT PROCEEDINGS. THE APPELLANT RESERVES THE RIGHT TO ADD, AMEND OR ALTER THE GROUNDS OF APPEAL ON OR BEFORE THE DATE; THE APPEAL IS FINALLY HEARD FOR DISPOSAL. 3. AS THE ISSUES RAISED IN BOTH THESE APPEALS ARE C OMMON, THESE WERE HEARD TOGETHER AND BEING DISPOSED OFF BY THIS COMMON ORDER PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 3 FOR THE SAKE OF CONVENIENCE AND BREVITY. 4. FOR THE PURPOSE OF ADJUDICATION, WE WILL TAKE UP TAKE UP THE FACTS FOR THE ASSESSMENT YEAR 2010-11. 5. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE & STOCK BROKER AND DEPOSITORY PARTICIPANT. THE RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS.36,61,040/-. WAS FILED U/S 139(1) OF THE ACT ON 29.9.2011. SEARCH AND SEIZURE OPERATIONS U/S 132 WERE CARRIED OUT ON 21.9.2012 AT THE BUSINESS AS WELL AS RESIDENTIAL P REMISES OF THE APOLLO(PUMARTH) GROUP OF INDORE OF WHICH THE ASSESS EE COMPANY IS ONE OF THE GROUP COMPANY ALONG WITH OTHER CONCERNS/ BUSINESS ASSOCIATES. SINCE THE SEARCH OPERATIONS WERE CARRI ED OUT SIMULTANEOUSLY AND MOST OF THE CONCERNS AND INDIV IDUALS ARE INTERCONNECTED AND HAVE BUSINESS CONNECTIONS, THEY HAVE BEEN CLUBBED UNDER THE OVERALL NAME APOLLO (PUMARTH) GRO UP OF INDORE. THE ASSESSEE COMPANY IS ONE OF THE COMPANIES OF PUM ARTH GROUP OF INDORE. THE COMPANY WAS INCORPORATED ON 13/01/1995 AND AS PER MEMORANDUM OF ASSOCIATION, THE COMPANY IS A REGISTE RED SHARE & STOCK BROKER AND DEPOSITORY PARTICIPANT. CONSEQUEN T TO SEARCH PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 4 NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASSES SEE TO FILE THE RETURN. ASSESSEE FILED RETURN U/S 153A OF THE ACT O N 12.7.2013 DECLARING THE SAME INCOME OF RS.36,61,040/- AS WAS DECLARED AT THE TIME OF ORIGINAL RETURN OF INCOME. THEREAFTER NOTIC E U/S 143(2) AND 142(1) OF THE ACT WERE DULY SERVED UPON THE ASSESSE E. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD. A.O OBSERVED T HAT THE ASSESSEE HAS SOLD THE SHARE OF M/S. FCS SOFTWARE LT D WHICH WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET AND GAIN F ROM THE SALES OF THESE SHARE WAS OFFERED AS LONG TERM CAPITAL GAI N AT RS.1,09,16,692/- WHICH WAS CLAIMED EXEMPT U/S 10(38 ) OF THE ACT. ON 30.12.2014 SHOW CAUSE NOTICE WAS ISSUED TO THE A SSESSEE AS TO WHY THE CLAIM OF LONG TERM CAPITAL GAIN SHOULD NOT BE REJECTED AND THE IMPUGNED AMOUNT SHOULD BE TAXED AS INCOME FROM SHARE TRADING BUSINESS. IN REPLY ASSESSEE SUBMITTED THAT IT IS CONSISTENTLY MAINTAINING TWO PORTFOLIOS, ONE FOR INVESTMENT PURP OSE AND ANOTHER FOR SHARE TRADING AND DETAILS OF THE TRANSACTIONS U NDER BOTH THE HEADS ARE REGULARLY MAINTAINED IN THE BOOKS OF ACCO UNTS. THE REPLY OF THE ASSESSEE THOUGH CONSIDERED BUT WAS NOT FOUND SATISFACTORY BY THE LD. A.O AND HE LOOKING TO THE VOLUME AND FR EQUENCY OF THE TRANSACTION OF SHARES OF M/S. FCS SOFTWARE LTD FRAM ED A VIEW THAT PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 5 THE MOTIVE OF THE ASSESSEE IS NOT INVESTMENT AND E ARN DIVIDEND INCOME BUT TO EARN PROFIT. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) AND SUCCEEDED. 7. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED AND S UPPORTED THE ORDERS OF LD. A.O BUT COULD NOT CONTROVERT THIS FAC T THAT THE ASSESSEE WAS CONSISTENTLY MAINTAINING TWO PORTFOLIO S FOR INVESTMENT AND TRADING PURPOSE. 8. PER CONTRA LD. SENIOR COUNSEL FOR THE ASSESSEE M R. SUMIT NEMA THOUGH RELIED ON THE FINDING OF LD. CIT(A) BU T FURTHER SUBMITTED THAT IT HAS BEEN CONSISTENTLY HELD BY VAR IOUS HON'BLE COURTS THAT EVEN THE SHARE TRADER MAY HAVE TWO PORT FOLIOS OUT OF WHICH ONE RELATES TO CLIENTS IN THE COURSE OF BUSIN ESS CARRIED OUT AND OTHER AS INVESTMENT PORTFOLIOS. THE SHARES ARE CLASSIFIED AS STOCK IN TRADE AND INVESTMENT. 9. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE CO PY OF TRANSACTION STATEMENT OF CDSL RELATING TO M/S. FCS SOFTWARE PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 6 SOLUTIONS LTD SINCE ITS INCEPTION, MENTIONED THAT T HE TRANSACTION ARE VERY LIMITED (AROUND 4 TO 5 IN A YEAR) IN THE I NVESTMENT PORTFOLIO SEPARATELY MAINTAINED BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS AND ALSO REFLECTED IN THE AUDITED BALANCE SHEET . TWO SEPERATE DMAT ACCOUNTS ARE MAINTAINED BY THE ASSESSEE FOR INVESTM ENT AND TRADING PORTFOLIO. REFERENCE WAS ALSO MADE TO CBDT CIRCULAR NO.4/2017 DATED 15.6.2017 IN SUPPORT OF THE PLEA T HAT TWO PORTFOLIO CAN BE MAINTAINED BY THE ASSESSEE. RELIA NCE PLACED ON FOLLOWING JUDGMENTS; (I) CIT V/S OM PRAKASH SURI (2014) 46 TAXMAN 242 (M P) (II) CIT V/S GOPAL PUROHIT SLP (CIVIL)/2010 (CC1680 2/2010) (III) CIT V/S GOPAL PPUROHIT (2010) 188TAXMAN 140 ( BOMBAY) (IV) GOPAL PUROHIT VS JOINT COMMISSIONER OF INCOME TAX, 25(3), MUMBAI (2009) 29 SOT 117 (MUMBAI) (V) ACIT V/S SHRI OM PRAKASH SURI (2010) 16 ITJ 185 (I.T.A.T.- INDORE) PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 7 10. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORDS PLACED BEFORE US AND ALSO GONE THROUGH THE CASES RE FERRED AND RELIEF BY THE LD. COUNSEL FOR THE ASSESSEE. REVENUES SO LE GRIEVANCE IS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE GAIN OF RS.1,09,16,692/- FROM THE SALE OF SHARES OF M/S. FC S SOFTWARE LTD HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE AS LONG TE RM CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT. REVENUE HAS CONTEND ED THAT THE ALLEGED GAIN SHOULD BE TAXABLE AS BUSINESS PROFIT A S THE MOTIVE OF THE ASSESSEE WAS NOT INVESTMENT TO EARN DIVIDEND BU T THE ACTUAL MOTIVATION WAS TO EARN MAXIMUM PROFITS. 11. IT IS NOT DISPUTED THAT THE ASSESSEE COMPANYS MAIN OBJECT IS OF TRADING IN EQUITY SHARES AND NSE DERIVATIVES. D URING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SOLD THE SHARES OF M/S. FCS SOFTWARE LTD WHICH WAS SHOWN AS INVESTMENT IN BALA NCE SHEET. LD. CIT(A) HELD THE GAIN FROM SALE OF SHARES OF M/S. F CS SOFTWARE LTDD AS LONG TERM CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT OBSERVING AS FOLLOWS; 3.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE APPELLANT'S WRITTEN SUBMISSIONS AND VERBAL SUBMISSIONS MADE IN THE APPEAL PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 8 PROCEEDINGS. IT IS SEEN THAT THE SHARES OF M/S FCS SOFTWARE LTD. WERE PURCHASED IN F.Y. 2006-07 AND 2007-08. THE SHARES W ERE SPLIT ON 15.10.2009 AND BONUS SHARES WERE RECEIVED ON 26.02. 2010. THE DETAILS OF THE PURCHASE AND SALE OF SHARES OF M/S FCS SOFTW ARE LTD. ARE AS UNDER:- DATE PURCHASE QTY DATE SALE QTY 24.03.2008 359977 11.12.2009 300000 08.03.2007 74758 04.01.2010 40601 434735 06.01.2010 3150000 02.03.2010 119700 SPLIT ON 15.10.2009 4347350 20.04.2010 130 1782 BONUS (26.02.2010) 1808741 27.04.2010 1244008 6156091 6156091 3.4 FROM THE ABOVE DETAILS IT IS CLEAR THAT THE APP ELLANT PURCHASED THE SHARES OF M/S FCS SOFTWARE LTD. ONLY IN F.Y. 2006-0 7 AND 2007-08. THERE WERE 4 TRANSACTIONS OF SALE IN THE PERIOD UND ER CONSIDERATION AND THE PROFIT ON THE TRANSACTIONS HAS BEEN CLAIMED AS SHORT TERM CAPITAL .GAIN. THE APPELLANT IS MAINTAINING AN INVESTMENT P ORTFOLIO IN ITS BOOKS OF ACCOUNTS WHICH IS DULY REFLECTED IN THE AUDITED BALANCE SHEET. THE SHARE OF M/S FCS SOFTWARE LTD. HAVE BEEN SHOWN AS I NVESTMENT IN THE BALANCE SHEET OF THE APPELLANT COMPANY. FURTHER, IT IS MAINTAINING TWO DEMAT ACCOUNTS, ONE FOR TRADING IN SHARES AND SECUR ITIES ON ITS OWN BEHALF AND FOR ITS CUSTOMERS AND OTHER ACCOUNT FOR INVESTMENT IN SHARES AND SECURITIES. THEREFORE, IT IS N THAT THE OBSERVA TIONS OF THE ASSESSING PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 9 OFFICER ARE CONTRARY TO THE FACTS THE CASE. 3.5 HON'BLE ITAT MUMBAI BENCH IN THE MATTER OF GOPA L PUROHIT (122 TTJ 117)(MUM) HELD IN THE CASE OF A ASSESSEE WHO WAS A SHARE TRADER THAT THE ASSESSEE CAN HAVE TWO PORTFOLIOS AND INCOME FROM IN VESTMENT PORTFOLIO CANNOT BE TREATED AS BUSINESS INCOME OF THE ASSESSE E. ON DEPARTMENTAL APPEAL, HORT'BLE BOMBAY HIGH COURT UPHELD THE DECIS ION OF ITAT MUMBAI REPORTED AT 228 CTR 582 (BORN). EVEN SLP FILED BY T HE DEPARTMENT BEFORE THE HON'BLE SUPREME COURT AGAINST THE ORDER OF BOMB AY HIGH COURT HAS BEEN DISMISSED. ALSO THE DECISION OF THE HON'BLE IT AT, INDORE IN THE CASE OF ACIT VS. OM PRAKASH SURI (2010) 16 ITJ 185 WHICH HAS BEEN AFFIRMED BY HON'BLE M.P. HIGH COURT (2013) 359 ITR 0039 (MP) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. 3.6 IN VIEW OF THE FACTS OF THE CASE AND THE JUDICI AL DECISIONS REFERRED TO ABOVE, THE ADDITION OF RS. 89,48,740/_ MADE ON ACCO UNT OF TREATING THE SHORT TERM CAPITAL GAIN ON SALE OF SHARES OF M/S FC S SOFTWARE LTD. AS BUSINESS INCOME IS DELETED. GROUND NOS. 1 AND 2 ARE ALLOWED. 12. BEFORE EXAMINING THE FACTS WE WILL FIRST LIKE T O REFER THE JUDGMENTS OF HON'BLE HIGH COURT OF BOMBAY IN THE CA SE OF CIT V GOPAL PUROHIT (SUPRA ) WHEREIN HON'BLE HIGH COURT UPHELD THE VIEW TAKEN BY THE TRIBUNAL THAT IT HAS CORRECTLY APPLIED THE PRINCIPLE OF LAW IN ACCEPTING THE POSITION THAT IT IS OPEN TO AN ASSESSEE TO MAINTAIN TWO SEPARATE PORTFOLIOS, ONE RELATING TO I NVESTMENT IN SHARES AND ANOTHER RELATING TO BUSINESS ACTIVITIES INVOLVING DEALING IN SHARES. HON'BLE COURT ALSO HELD THAT THE DELIVE RY BASED PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 10 TRANSACTIONS SHOULD BE TREATED AS INVESTMENT TRANS ACTIONS AND THE PROFIT RECEIVED THERE FROM SHOULD BE TREATED EITHER AS SHORT-TERM CAPITAL GAIN OR AS THE CASE MAY BE, LONG TERM CAPIT AL GAIN DEPENDING UPON THE HOLDING OF THE PERIOD. AGAINST THIS JUDGME NT OF HON'BLE HIGH COURT OF BOMBAY DECIDING IN FAVOUR OF THE ASSE SSEE, REVENUE FILED A SPECIAL LEAVE PETITION BEFORE THE APEX COUR T WHICH WAS DISMISSED VIDE ORDER DATED 15.11.2010. 13. IT IS PERTINENT TO, NOTE HERE THAT THE APPELLAN T HAS PURCHASED AND CARRIED OVER THE SCRIP OF M/ S. FCS SOFTWARE SO LUTIONS LTD. IN ITS INVESTMENT PORTFOLIO, SINCE FY 2006-07 AND 2007 -08 AND FURTHER RECEIVED SPLIT SHARES AND BONUS SHARES IN THE FY 20 09-10 AND HAVE SOLD THE SAME SCRIP IN THE AY 2011-12. APPELLANT HA S NOT AT ALL PURCHASED THE SCRIP OF M/S. FCS SOFTWARE SOLUTIONS LTD. IN THE RELEVANT A Y. THE TURNOVER OF SALES IN THE INVESTME NT PORTFOLIO WAS OF RS. 63,86,566 (RS. 64 LAKHS APPROX) IN CONTRAST TO TURNOVER OF SALES IN TRADING PORTFOLIO WAS RS. 1536,20,35,400 ( RS. 1536 CRORES APPROX). AS CAN BE SEEN THAT THE TURNOVER IN TRADIN G PORTFOLIO WAS ALMOST TWENTY FOUR HUNDRED (2400) TIMES THE TURNOVE R IN INVESTMENT PORTFOLIO. IN OTHER WARDS THE APPELLANT ON AN AVERAGE PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 11 BASIS HAS ENTERED AT LEAST 2400 SHARE TRADING TRANS ACTION EVERY DAY IN ITS TRADING PORTFOLIO FOR EVERY SINGLE TRANSACTI ON OR LESS IN INVESTMENT PORTFOLIO THEREFORE, THE OBSERVATION OF LD. AO THAT THERE WERE HUGE TRANSACTIONS IN THE INVESTMENT PORTFOLIO OF THE APPELLANT IN THE RELEVANT AY IS CONTRARY TO THE FACTS OF THE CASE. THE ABRIDGED SUMMARY OF SALES TURNOVER IN INVESTMENT PORTFOLIO A ND SALES TURNOVER IN TRADING PORTFOLIO, CLEARLY SHOWS THAT I N INVESTMENT PORTFOLIO, OF FCS SOFTWARE SOLUTIONS LTD. ONLY 4-5 SALES TRANSACTIONS DURING THE YEAR HAS OCCURRED IN CONTRAST TO COMPARA TIVELY INNUMERABLE SALE AND PURCHASE TRANSACTIONS IN THE T RADING PORTFOLIO THAT TOO WHEN THE SCRIP OF FCS SOFTWARE SOLUTIONS L TD WERE CARRIED OVER BY THE APPELLANT IN ITS BOOKS SINCE FY 2006-07 IN ITS INVESTMENT PORTFOLIO AND THEREFORE THE INTENTION OF THE APPELLANT WAS ALWAYS TO HOLD THE SCRIP OF FCS SOFTWARE SOLUTI ONS LTD AS AN INVESTMENT ONLY. THE OBSERVATIONS OF LD. AO, THEREF ORE, ARE CONTRARY TO THE FACTS OF THE CASE. 14. FURTHER, WE FIND THAT THE CBDT CIRCULAR NO. 4/2 007 DATED 15.06.2007 STATES THAT 'CBDT THROUGH INSTRUCTION NO . 1827 DATED 31.08.1989 HAD BROUGHT TO THE NOTICE OF THE ASSESSI NG OFFICERS THAT PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 12 THERE IS A DISTINCTION BETWEEN SHARES HELD AS INVES TMENT (CAPITAL ASSET) AND SHARES HELD AS STOCK-IN-TRADE (TRADING A SSET). IN THE LIGHT OF A NUMBER OF JUDICIAL DECISIONS PRONOUNCED AFTER THE ISSUE OF THE ABOVE INSTRUCTIONS, IT IS PROPOSED TO UPDATE THE AB OVE INSTRUCTIONS FOR THE INFORMATION OF ASSESSEES AS WELL AS FOR GUI DANCE OF THE ASSESSING OFFICERS.' 15. HON'BLE SUPREME COURT IN THE CASE OF CIT V/S AS SOCIATED INDUSTRIAL DEVELOPMENT COMPANY(P) LTD, 82 ITR 586 O BSERVED THAT 'WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WIT HIN THE KNOWLEDGE OF THE ASSESSEE WHO HOLDS THE SHARES AND IT SHOULD, IN NOR MAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM ITS RECORDS AS TO WHETHER IT HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHARES WHI CH ARE ITS STOCK-IN- TRADE AND THOSE WHICH ARE HELD BY WAY OF INVESTMENT . ' 16. HONBLE SUPREME COURT IN THE CASE OF CIT VS H HOLCK LARSEN, 160 ITR 67 OBSERVED THAT; 'THE HIGH COURT, IN OUR OPINION MADE A MISTAKE IN O BSERVING WHETHER TRANSACTIONS OF SALE AND PURCHASE OF SHARES WERE TR ADING TRANSACTIONS OR WHETHER THESE WERE IN THE NATURE OF INVESTMENT WAS A QUESTION OF LAW. THIS WAS A MIXED QUESTION OF LAW AND FACT. ' THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN TH E ABOVE TWO CASES AFFORD ADEQUATE GUIDANCE TO THE ASSESSING OFFICERS. PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 13 THE AUTHORITY FOR ADVANCE RULINGS (AAR) (288 ITR 64 1), REFERRING TO THE DECISIONS OF THE SUPREME COURT IN SEVERAL CASES, HA S CULLED OUT THE FOLLOWING PRINCIPLES:- '(I) WHERE A COMPANY PURCHASES AND SELLS SHARES, IT MUST BE SHOWN THAT THEY WERE HELD AS STOCK-IN-TRADE AND THAT EXISTENCE OF THE POWER TO PURCHASE AND SELL SHARES IN THE MEMORANDUM OF ASSOC IATION IS NOT DECISIVE OF THE NATURE OF TRANSACTION; (II) THE SUBSTANTIAL NATURE OF TRANSACTIONS, THE MA NNER OF MAINTAINING BOOKS OF ACCOUNTS, THE MAGNITUDE OF PURCHASES AND SALES A ND THE RATIO BETWEEN PURCHASES AND SALES AND THE HOLDING WOULD FURNISH A GOOD GUIDE TO DETERMINE THE NATURE OF TRANSACTIONS; (III) ORDINARILY THE PURCHASE AND SALE OF SHARES WI TH THE MOTIVE OF EARNING A PROFIT, WOULD RESULT IN THE TRANSACTION BEING IN TH E NATURE OF TRADE/ ADVENTURE IN THE NATURE OF TRADE; BUT WHERE THE OBJ ECT OF THE INVESTMENT IN SHARES OF A COMPANY IS TO DERIVE INCOME BY WAY OF D IVIDEND ETC. THEN THE PROFITS ACCRUING BY CHANGE IN SUCH INVESTMENT (BY S ALE OF SHARES) WILL YIELD CAPITAL GAIN AND NOT REVENUE RECEIPT 17. EXAMINATION THE FACTS IN THE LIGHT OF JUDGMENTS AND FINDING OF FACT BY LD. CIT(A) WHICH HAS NOT BEEN REBUTTED BY D EPARTMENTAL REPRESENTATIVE, WE AFTER GOING THROUGH THE BALANCE SHEET AS ON 31.3.2010 PLACED AT PAGE-4 OF THE PAPER BOOK, FIND THAT THE ASSESSEE HAS SHOWN INVESTMENTS AS ON 31.3.2009 AS W ELL AS 31.3.2010 SEPARATELY. INVESTMENT DETAILS FOR FINAN CIAL YEAR 2006-07 TO 2010-11 WERE PLACED ON RECORD. SEPARATE DMAT AC COUNT HAVE PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 14 BEEN MAINTAINED FOR WHICH ONE IS FOR THE PURPOSE OF CLIENTS AND THE SHARES TRADED DURING THE YEAR ANOTHER DMAT ACCOUNT IS PURELY FOR THE TRANSACTIONS OF PURCHASE AND SALES OF SHARES HE LD UNDER THE HEAD INVESTMENT ACCOUNT. THIS FACT IS VERIFIABLE F ROM THE COPY OF DEMAT ACCOUNT PLACED AT PAGE 17 TO 31 WHICH SHOWS T HE QUANTITY OF SHARES HELD BY THE ASSESSEE AS INVESTMENTS. THE ASSESSEE PURCHASED THE SHARES OF M/S. FCS SOFTWARE LTD DURI NG THE FINANCIAL YEAR 2006-07 AND 2007-08 WHICH WERE SPLIT SHARES OF M/S. FCS SOFTWARE SOLUTIONS LTD IN THE FINANCIAL YE AR 2009-10 AND BONUS SHARES WERE ALSO ALLOTTED ON 26.2.2010. THE PURCHASE AND SALE OF EQUITY SHARE OF M/S. FCS SOFTWARE LTD HAS B EEN CARRIED OUT THROUGH THE RECOGNISED STOCK EXCHANGE AND DMAT ACCO UNT MAINTAINED BY THE ASSESSEE FOR THE PURPOSE OF INVES TMENT PORTFOLIO. 17. OUR VIEW IS FURTHER SUPPORTED BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S COMMISSIONER OF I NCOME TAX VS OM PRAKASH SURI (2014) 46 TAXMAN 242 (MP) WHEREIN HONBLE COURT HELD THAT A TAX PAYER CAN USE TWO PORTFOLIOS WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND TRADING PORTFOLIO COM PRISING THE SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSET S AND PORTFOLIO PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 15 COMPRISING OF STOCK IN TRADE HAS TO BE TREATED AS T RADE ASSETS. 18. WE THEREFORE IN THE GIVEN FACTS AND CIRCUMSTA NCES OF THE CASE AS WELL AS RESPECTFULLY FOLLOWING THE JUDGMENTS REF ERRED ABOVE FIND NO REASON TO INTERFERE IN THE FINDING OF LD. CIT(A) THAT THE GAIN FROM SALE OF EQUITY SHARES OF M/S. FCS SOFTWARE LTD AT R S.1,09,16,692/- HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE AS LONG TE RM CAPITAL GAIN EXEMPT U/S 10(38) OF THE ACT AS THE ASSESSEE IS CON SISTENTLY CARRYING OUT SUCH TRANSACTIONS OF PURCHASE AND SALE AND EQUITY SHARES UNDER THE INVESTMENT PORTFOLIO AND SEPARATE DETAILS ARE MAINTAINED FOR THE TRADING OF SHARES ON BEHALF OF T HE CUSTOMERS. WE THEREFORE FIND NO MERIT IN THE APPEAL RAISED BY THE REVENUE AND THE SAME DESERVES TO BE DISMISSED FOR THE ASSESSMEN T YEAR 2010- 11. 19. NOW WE TAKE UP THE APPEAL RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2011-12. BOTH THE PARTIES HAVE N OT DISPUTED THE FACT THAT THE ISSUES RAISED FOR ASSESSMENT YEAR 201 1-12 IS SIMILAR TO THAT OF 2010-11 WHICH RELATES TO TAXABILITY OF C APITAL GAIN FROM SALE OF EQUITY SHARES OF M/S. FCS SOFTWARE LTD. AS THE FACTS AND AS ISSUES REMAIN THE SAME, WE ARE OF THE CONSIDERED OP INION THAT THE PUMARTH CREDIT & CAPITAL LTD ITA (SS)NO.202 & 203/IND/2016 16 DECISION GIVEN BY US IN PRECEDING PARA WHILE ADJUDI CATING THE ISSUE FOR 2010-11 IN THE CASE OF ASSESSEE SHALL APPLY MUTATIS MUTANDIS ON THE APPEAL FOR ASSESSMENT YEAR 2011-12. THEREFO RE NO INTERFERENCE IS CALLED FOR IN THE FINDING OF LD. CI T(A) HOLDING THAT THE GAIN OF RS.89,48,740/- HAS BEEN RIGHTLY SHOWN BY T HE ASSESSEE AS SHORT TERM CAPITAL GAIN AND IS NOT TAXABLE AS BUSIN ESS PROFIT. THE APPEAL RAISED BY THE REVENUE FOR ASSESSMENT YEAR 20 11-12 ALSO DESERVES TO BE DISMISSED. 20. IN THE RESULT BOTH THE APPEALS OF THE REVENUE S TANDS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 24.01.20 19. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 24 JANUARY, 2019 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ASSTT.REGISTRAR, I.T.A.T., INDORE