The DCIT, Central Circle-2(2), Ahmedabad V. Smt. Swati Anilbhai Shah, Ahmedabad

ITSSA 57/AHD/2010

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 1782 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 19-05-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 22-01-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIBHA BHALLA
• Keywords: Business income; Search and seizure; Opportunity of being heard; Assessment record; Revised return
• Section: 143(3); 142(1); 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI SHAILENDRA YADAV, JM, & SHRI MANISH BORAD, AM. IT(SS)A NOS.56 AHD/2010 ASST. YEAR: 2007-08 DY. CIT, CEN. CIRCLE-2(2), AHMEDABAD. VS. SHRI ATUL BHACHUBHAI SHAH, 27, SARITKUNJ SOCIETY INSIDE SHARDAKUNJ, SHAHPUR, AHMEDABAD. APPELLANT RESPONDENT PAN ALJPS 4966M IT(SS)A NOS.57/AHD/2010 ASST. YEAR: 2007-08 DY. CIT, CEN. CIRCLE-2(2), AHMEDABAD. VS. SMT. SWATI ANILBHAI SHAH, 36, AMRASHIRISH BUNGLOW, NR. PRAHLANDNAGAR GARDEN, S.G. HIGHWAY, AHMEDABAD. APPELLANT RESPONDENT PAN ALHPS 1798K IT(SS)A NOS.58/AHD/2010 ASST. YEAR: 2008-09 DY. CIT, CEN. CIRCLE-2(2), AHMEDABAD. VS. SMT. SWATI ANILBHAI SHAH, 36, AMRASHIRISH BUNGLOW, NR. PRAHLANDNAGAR GARDEN, S.G. HIGHWAY, AHMEDABAD. APPELLANT RESPONDENT PAN ALHPS 1798K IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 2 APPELLANT BY SMT. VIBHA BHALLA, CIT, DR RESPONDENT BY SHRI MANISH RAJVAIDYA, AR DATE OF HEARING: 12/5/2016 DATE OF PRONOUNCEMENT: 19/5/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THESE THREE APPEALS BY REVENUE OUT OF WHICH IT(SS) A NO.56/AHD/2010 IN THE CASE OF ATUL B. SHAL FOR ASST . YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) III, AHME DABAD, DATED 27/10/2009, PASSED AGAINST ORDER U/S 153A R.W.S. 14 3(3) OF THE IT ACT, 1961 (IN SHORT THE ACT), FRAMED BY DCIT-CC-2(2 ), AHMEDABAD ON 11.6.2009 AND OTHER TWO APPEALS IN IT(SS)A NOS.57 & 58/AHD/2010 IN THE CASE OF SWATI A. SHAH FOR ASST. YEAR 2007-08 & 2008-09 ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-III, AHMED ABAD BOTH PASSED VIDE COMMON ORDER DATED 28.10.2009 AGAINST ASSESSME NT U/S 153A R.W.S. 143(3) OF THE ACT WAS FRAMED 5 TH MAY, 2009 FOR BOTH THE YEARS I.E. ASST. YEAR 2007-08 & 2008-09 BY DCIT, CC-2(2), AHMEDABAD. AS THESE THREE APPEALS ARE INVOLVING SIMILAR ISSUE AND PART OF THE SAME GROUP, THEY HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 3 2. FIRST WE TAKE UP IT(SS)A NO.56/AHD/2010 FOR ASST . YEAR 2007- 08. 3. BRIEFLY STATED FACTS OF THE CASE AS CULLED OUT F ROM THE ASSESSMENT RECORDS ARE THAT ASSESSEE IS AN INDIVIDU AL ENGAGED IN THE BUSINESS OF SHARE TRADING. A SEARCH AND SEIZURE ACT ION U/S 132 OF THE ACT WAS CONDUCTED IN THE GROUP CASES OF SHRI ATUL S HAH ON 7.2.2008 AND POST SEARCH CASE WAS CENTRALIZED WITH CENTRAL C IRCLE. NOTICE U/S 153A OF THE ACT WAS ISSUED ON 1.8.2008 AND DULY SER VED ON ASSESSEE ON 2.8.2008. IN RESPONSE TO THIS NOTICE RETURN OF I NCOME WAS FILED ON 30 TH SEPTEMBER, 2008 DECLARING TOTAL INCOME AT RS.65,21 ,290/- AND FURTHER REVISED RETURN WAS FILED ON 23.1.2009 DECLA RING TOTAL INCOME AT RS.2,88,37,110/-. NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 29.1.2009 AND SERVED ON THE ASSESSEE ON 2.2.2009 FO LLOWED BY NOTICE U/S 142(1) OF THE ACT ALONG WITH QUESTIONNAI RE WAS SERVED ON 10.2.2009 TO FURNISH CERTAIN DETAILS/DOCUMENTS. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER OBSERV ED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF SHARE TRADI NG ON A LARGE SCALE AND TOTAL TURNOVER FROM SHARE TRADING BUSINES S IN THE YEAR UNDER APPEAL STOOD AT RS.63.04 CRORES. IN THE COMPUTATION OF INCOME ASSESSEE HAS SHOWN SHORT TERM CAPITAL GAIN OF RS.78 ,93,389/- SUBJECT TO CONCESSIONAL RATE OF TAX U/S 111A OF THE ACT @ 1 0% AND ON EXAMINING THE TRANSACTIONS LEADING TO THIS SHORT TE RM CAPITAL GAIN LD. ASSESSING OFFICER OBSERVED THAT THE SAME HAS ARISEN FROM PURCHASE/SALE OF SHARES OF ONE COMPANY NAMELY SGL P P WHEREIN DURING THE YEAR ASSESSEE PURCHASED 4,09,355 SHARES OF SGL PP ON A SINGLE DAY I.E. 10.4.2006 AND ANOTHER 1435 SHARES ON 4..5.2006 IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 4 AND ALL THESE SHARES WERE SOLD DURING THE YEAR ITSE LF AND GAIN WAS SHOWN UNDER SHORT TERM CAPITAL GAIN. LD. ASSESSING OFFICER WAS OF THE VIEW THAT AS THE ASSESSEE IS MAINLY DEALING WITH IN SHARES AND SHORT TERM CAPITAL GAIN OF RS.78,93,389/- HAS BEEN SHOWN JUST TO AVOID HIGHER INCOME-TAX AND ASSESSEE DID NOT HAVE ENOUGH FUNDS BUT HAS BORROWED FROM OUTSIDERS BY PAYING SUBSTANTIAL INTER EST AND THE INITIATION INTENTION AT THE TIME OF BUYING THE SHAR ES WAS OF BUSINESS IN NATURE AND ACCORDINGLY ASSESSED THE INCOME BY TREAT ING RS.78,93,389/- AS BUSINESS INCOME AND WITHOUT MAKIN G ANY OTHER ADDITION INCOME WAS ASSESSED AT RS.2,88,37,110/-. A GGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CIT(A) AND GOT R ELIEF AS THE LD. CIT(A) HELD THAT THE LD. ASSESSING OFFICER HAS WRON GLY TREATED THE DISCLOSED SHORT TERM CAPITAL GAIN AS BUSINESS INCOM E BY JUST APPLYING HOLISTIC CONSIDERATION. IN ALLOWING THE GROUND OF A SSESSEE, LD. CIT(A) OBSERVED AS UNDER :- AT THIS STAGE IT IS RELEVANT TO POINT OUT THAT AS PER THE PROVISIONS OF SEC.111A THE FOLLOWING CONDITIONS ARE REQUIRED TO BE SATISFI ED: A) THE TRANSACTION OF SALE OF SUCH EQUITY SHA RE OR UNIT IS ENTERED AFTER 01-10- 2 004. B) SUCH TRANSACTION IS CHARGEABLE' TO .SECURI TY .TRANSACTION TAX. IN THE CASE OF THE APPELLANT, BOTH THE CONDITIONS ARE SATISFIED WH ICH IS NOT DISPUTED BY THE AO. THE TRANSACTIONS IN QUESTION HAVE BEEN ENTE RED AFTER 01-10-2004 AND SECURITY.TRANSACTION TAX HAS ALSO BEEN PAID ON SALE OF TRANSACTION. THE AO HAS ALSO VERIFIED THE AFORESAID FACT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THERE IS NO OBJECTION OR QUERY RAISED REGARDING THE AFORESAID ISSUE. SINCE THE APPELLANT IS SQUARELY COVERED AS PER THE PROVISIONS OF SEC. 111A THERE IS NO REASON TO DENY THE BENEFIT OF CONCESSIONAL RATE OF TAX AS SHORT TERM CAPITAL GAIN MERELY BECAUSE HE IS ACTING IN A DUAL CAPACITY OF BOTH THE INVESTOR & BU SINESSMAN. IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 5 THEREFORE, FROM THE ABOVE DISCUSSION IT BECOMES CLE AR THAT THE AO HAS CONSIDERED THE ENTIRE ASPECT OF TREATMENT OF SHARES HELD AS INVESTMENT AS STOCK ON FAULTY PREMISES AND INCORRECT PRESUMPTION. THE A O HAS TAKEN A VERY NARROW AND MYOPIC OUTLOOK WHILE REACHING THE CONCLUSION TH AT THE SHORT TERM CAPITAL GAIN SHOWN BY THE APPELLANT IS BUSINESS INCOME. VAR IOUS PREMISES ON WHICH THIS INFERENCE .HAS BEEN PROVED TO BE INCORRECT AND ERRONEOUS. WHEN THE BASIC FOUNDATIONS ON WHICH THESE PREMISES HAVE BEEN DRAWN DO NOT SURVIVE THE ENTIRE ADDITION, STANDS CRUMBLED. IT IS CLEAR THAT THE ADM INISTRATIVE CIRCULAR ISSUED BY CBDT IS BINDING UPON THE DEPARTMENT. THE AO HAS WIT HOUT EXAMINING THE CIRCUMSTANCES AND WITHOUT ISSUING A SHOW CAUSE NOTI CE CHOSEN TO COMPLETELY DISREGARD THE SAID CIRCULAR WHICH IS BINDING UPON H I,. NO REASON WHATSOEVER HAS BEEN ASSIGNED WHILE REACHING THE CONCLUSION EXCEPT WHAT HAS BEEN STATED IN PARA 2 OF THE ASSESSMENT ORDER. FROM THE ON GOING D ISCUSSION MADE, ON THE BASIS OF WHICH SUCH CONCLUSION HAS BEEN REACHED HAV E BEEN FOUND TO BE INCORRECT AND THEREFORE THE TREATMENT OF SHORT TERM CAPITAL GAIN AS BUSINESS INCOME DOES NOT SURVIVE. THE VARIOUS JUDICIAL PRONO UNCEMENTS ALSO SUPPORT THE FACTS THAT THE FREQUENCY OR MAGNITUDE OF THE TRANSA CTION- BY ITSELF IS NOT DETERMINED FACTOR FOR TREATING THE INCOME AS CAPITA L GAIN OR BUSINESS INCOME. EVEN OTHERWISE THE NUMBER OF TRANSACTIONS ARE RELAT ED TO INVESTMENT ARE FEW AND HAS COMPARED TO THE MAGNITUDE OF VOLUME OF BUSI NESS TRANSACTIONS CONDUCTED BY THE APPELLANT. THE AO HIMSELF HAS ALSO ACCEPTED THE FACT THAT THE APPELLANT IS INVESTOR IN THE NATURE OF BUSINESS MEN TIONED AT IN THE .ASSESSMENT ORDER. 6. THE CONTENTIONS/ DECISIONS CITED/DETAILS ON RECO RD WERE CAREFULLY CONSIDERED. THE AO HAS TREATED THE SHORT TERM CAPIT AL GAINS AS BEING INCOME FROM BUSINESS BY OBSERVING THAT 'THE SAID PROFIT/GAIN HAS BEEN EARNED ON PURCHASE-SALE OF SHARES OF SGL PP. THE ASSESSEE HAS PURCHASED 4,09,355 SHARES ON A SINGLE DAY I.E. 10-4-2006 AND ANOTHER 1 435 SHARES ON 4-5-2006. THE ASSESSEE HAS SOLD ALL THE SHARES ON VARIOUS DAT ES AND EARNED PROFIT. TOTAL NUMBER OF TRANSACTIONS OF PURCHASE IS ONLY TWO AND OF SALE IS FOURTEEN. OBVIOUSLY, THE ASSESSEE DOES NOT HAVE HIS OWN FUNDS BUT HAS BORROWED FUNDS FROM OUTSIDERS ON WHICH SUBSTANTIAL INTEREST HAS BE EN PAID. OTHER THAN THE SHARES OF 'SGL PP. THE ASSESSEE HAS ALSO DEALT IN O THER SHARES ON A LARGE SCALE AND TOTAL TURNOVER OF SHARE TRADING BUSINESS IS RS. 63,03,86,378. THE ASSESSEE HAS ALSO SHOWN CLOSING STOCK OF OTHER SHARES AT RS, 1,99,45,180/-. IT IS JUDICIALLY HELD THAT THE INITIAL INTENTION AT THE TIME OF BUYI NG THE ASSET IS DECISIVE WHETHER GAIN IS BUSINESS PROFIT OR CAPITAL GAIN. H. HOLCK L ARSEN 160 1TR 67 (1986)(S.C.). SO IT IS CLEAR THAT ASSESSEE'S CLAIM FOR SHORT TERM CAPITAL GAIN IS ONLY A LEGALLY UNTENABLE AFTER THOUGHT. IT IS THERE FORE HELD THAT THE GAIN EARNED IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 6 ON PURCHASE SALE OF SGL PP SHARE IS TO BE TREATED A S BUSINESS PROFITS CHARGEABLE AT REGULAR RATES.' 7. .APPARENTLY, THE AO HAS NOT MADE QUERY/SOUGHT EX PLANATION FROM THE APPELLANT IN RESPECT OF THE SURMISE DRAWN BY HIM. T HERE IS NO BASIS FOR ASSUMING THAT THE ASSESSEE HAD BORROWED FUNDS. IT H AS NOT BEEN EXPLAINED AS TO HOW THE RATIO OF THE DECISION CITED BY THE AO, IN C ASE OF H. HOLCK LARSEN, WAS APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANT. THE NUMBER OF TRANSACTIONS, THOUGH NOT OUT RELEVANT BY THEMSELVES , IN ANY CASE, WERE NOT UNNATURAL. THE DECISIONS EKED BY THE APPELLANT IN T HIS REGARD ARE RELEVANT. THE INTENTION OF THE APPELLANT TO HOLD THESE SHARES AS AN INVESTOR WAS ALSO DISCERNIBLE FROM THE DETAILS FILED IN THE RETURN FI LED ORIGINALLY ON 7/11/2007, THE DIVIDEND INCOME EARNED, ETC. THUS ON A HOLISTIC CON SIDERATION, THE ACTION OF THE AO IN TREATING THE DISCLOSED SHORT, TERM CAPITAL GA INS AS BUSINESS INCOME, IN THE FACTS OF THE APPELLANT, CANNOT BE UPHELD. THE GROUN D OF APPEAL IS, THEREFORE, ALLOWED. 4. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 5. LD. DR SUPPORTED THE ORDER OF LD. ASSESSING OFFI CER. 6. LD. AR RELYING ON THE ORDER OF LD. CIT(A) SUBMIT TED THAT- (1) THE ASSESSEE IS IN THE BUSINESS OF INVES TMENT IN SHARES AS WELL AS TRADING THEREOF. THE AFORESAID FACT HAS ALS O BEEN ACCEPTED BY THE AO IN COLUMN 10 OF THE ASSESSMENT ORDER. A SEAR CH TOOK PLACE AT THE BUSINESS AS WELL AS THE RESIDENTIAL PREMISES OF THE APPELLANT ON 07-02-2008. (2) THE ASSESSEE HAD ORIGINALLY FILED THE RE TURN OF INCOME U/S 139(1) FOR THE YEAR UNDER APPEAL ON 07-11-2007 DECL ARING THE TOTAL INCOME OF RS. 1,17,56,060/-. SUBSEQUENT TO THE FILI NG OF THE RETURN OF INCOME, A SEARCH TOOK PLACE ON 07-02-2008. IT MAY B E BROUGHT TO YOUR KIND ATTENTION THAT THE ORIGINAL RETURN OF INC OME WAS FILED PRIOR TO IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 7 THE SEARCH PROCEEDINGS. THE ASSESSEE HAD DECLARED I NCOME UNDER THE HEAD OF 'SHORT TERM CAPITAL GAINS' WITH RESPECT TO CERTAIN SHARES HELD BY HIM IN THE PORTFOLIO OF 'INVESTMENT' IN THE ORIGINAL RETURN OF INCOME FILED. (3) SUBSEQUENTLY, IN RESPONSE TO NOTICE U/S 153A DATED 01-08- 2008 THE ASSESSEE FILED THE RETURN OF INCOME ON 30- 09-2008 DECLARING THE TOTAL INCOME OF RS.65,21,290/- THE PRIMARY REAS ON FOR THE MODIFICATION IN INCOME WAS THAT THE ASSESSEE HAD PA ID/RECEIVED INTEREST FROM VARIOUS PARTIES FROM WHOM LOANS HAD B EEN RECEIVED/GIVCN. THIS INTEREST WAS NOT BOOKED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS SO MAINTAINED ON THE BASIS OF WHI CH THE RETURN OF INCOME WAS FILED. HOWEVER, SUBSEQUENT TO THE FILING OF THE ORIGINAL RETURN OF INCOME, THE AFORESAID FACT WAS NOTICED AN D THE INCOME WAS DULY MODIFIED. THIS FACT WAS ALSO CROSS VERIFIED FR OM THE CONTRA ACCOUNTS OF THE CORRESPONDING PARTIES WITH WHOM SUC H LOANS/ADVANCES TRANSACTIONS HAD TAKEN PLACE. ACCORD INGLY APPROPRIATE ADJUSTMENTS WITH RESPECT TO THE INTERES T PAID/RECEIVED WERE MADE IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME. THE OTHER REASON FOR THE MODIFICATION OF IN COME WAS THE TREATMENT OF SHARES HELD AS 'INVESTMENT' AND THE RE SULTANT SHORT TERM CAPITAL GAIN THEREOF BEEN TREATED AS BUSINESS INCOM E. HOWEVER, AT THIS STAGE IT MAY BE BROUGHT TO YOUR KIND ATTENTION THAT THE SHARES WHICH HAD BEEN TREATED AS INVESTMENT WAS ONLY ONE S CRIP OUT OF THE VARIOUS SCRIPS/SHARES DEALT WITH BY THE ASSESSEE. T HE ASSESSEE IS DOING BUSINESS IN SHARES AND SECURITIES AND HAVING HUGE TURNOVER OF RS.63,03.86.378/-. THIS HAS BEEN ACCEPTED BY THE AO IN THE IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 8 ASSESSMENT ORDER SUBJECT TO THE APPEAL. THE OTHER R EASON FOR MODIFICATION IN INCOME WAS ON ACCOUNT OF METHOD OF VALUATION OF CLOSING STOCK WHERE IN THE RETURN OF INCOME THE SHA RES HELD AS STOCK IN TRADE WERE VALUED 'AT COST OR MARKET VALUE WHICH EVER IS LOWER' INSTEAD OF 'AT COST' SHOWN IN THE BOOKS OF ACCOUNTS . AT THIS STAGE IT IS PERTINENT TO POINT OUT THAT THE MODIFICATION IN THE VALUATION OF CLOSING STOCK OF THE SHARES HELD AS STOCK IN TRADE DOES NOT AFFECT THE SUBJECT MATTER OF APPEAL AS THE AO HIMSELF HAS ACCEPTED OUR BASIS OF VALUATION OF TRADING STOCK AND FURTHER THERE IS NO SUCH STOCK OR OUTSTANDING INVENTORY IN RESPECT OF SHARES HELD BY WAY OF INVESTMENT WHICH IS THE SUBJECT MATTER OF APPEAL. 7. LD. AR FURTHER SUBMITTED THAT SUBSEQUENT TO THE FILING OF ORIGINAL RETURN ASSESSEE REALIZED THAT LESSER CLAIM OF INTER EST EXPENSES WAS MADE IN THE AUDITED ACCOUNT AND SUBSEQUENTLY WHEN R ETURN WAS FILED U/S 153A OF THE ACT THE ACTUAL EXPENDITURE WAS CLAI MED BY WAY OF DEDUCTION. 8. LD. AR FURTHER SUBMITTED THAT THE INTENTION OF T HE ASSESSEE WAS TO EARN SHORT TERM CAPITAL GAIN AT THE TIME OF PURC HASE OF SHARES OF SGL PP AND, THEREFORE, LD. CIT(A) HAS RIGHTLY HELD IT TO BE SHORT TERM CAPITAL GAIN. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE RAISED IN THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF LD. CIT(A) IN DIRECTING THE LD. ASSESS ING OFFICER TO TREAT THE INCOME FROM SHARE TRADING TRANSACTION OF RS.78, 93,389/- AS SHORT IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 9 TERM CAPITAL GAIN AS AGAINST TREATING THE SAME AS B USINESS INCOME. FROM GOING THROUGH THE ASSESSMENT ORDER, WE OBSERVE THAT LD. ASSESSING OFFICER WHILE FRAMING ASSESSMENT U/S 153A R.W.S 143(3) OF THE ACT DID NOT ACCEPT THE CLAIM OF SHORT TERM CAPI TAL GAIN AT RS.78,93,389/- AND ASSESSED THE INCOME AT BUSINESS INCOME AND THERE WAS NO OTHER ADDITION OR DISALLOWANCE AND RET URNED INCOME WAS ASSESSED. 10. WE FURTHER OBSERVE THAT ASSESSEE IS REGULARLY D EALING IN PURCHASE/SALE OF SHARES AND BOOKS OF ACCOUNTS UNDER THE NAME AND STYLE OF M/S CHARMI INVESTMENT (PROPRIETOR ATUL B. SHAH) ARE AUDITED U/S 44AB OF THE ACT. DURING THE YEAR UNDER APPEAL A SSESSEE DISCLOSED SHORT TERM CAPITAL GAINS FROM SALE OF EQU ITY SHARES OF SGLPP CO. AND THE ISSUE IN THIS APPEAL ORIGINATED D UE TO THIS REASON THAT AS M/S CHARMI INVESTMENT IS CARRYING ON BUSINE SS OF PURCHASE/SALE OF SHARES, FUNDS HAVE BEEN BORROWED A ND REPAID AND INTEREST OF RS.1,15,20,343/- HAS BEEN SHOWN IN THE AUDITED PROFIT AND LOSS ACCOUNT AND LOOKING TO THE FACT THAT HUGE SUM OF RS.78,93,389/- WAS EARNED FROM SALE OF SINGLE SCRIP EVEN WHEN ASSE SSEE HAS BEEN DEALING IN MANY SCRIPS AS A BUSINESSMAN AND WAS ABL E TO EARN ONLY RS.30,55,321/- FROM TOTAL TURNOVER OF RS.63.04 CROR ES AS AGAINST SHORT TERM CAPITAL GAIN OF RS.78.93 LACS FROM SALE VALUE OF RS.1.99 CRORES RAISED QUESTION IN THE MIND OF LD. ASSESSING OFFICE R THAT THIS TRANSACTION SHOWING SHORT TERM CAPITAL GAIN AT RS.7 8,93,389/- WAS JUST TO PAY INCOME-TAX @ 10% U/S 111A OF THE ACT RATHER THAN PAYING INCOME-TAX AT GENERAL RATE I.E. 30%. IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 10 11. WE FURTHER FIND THAT THERE ARE LOTS OF JUDICIAL PRONOUNCEMENTS AND DECISIONS WHEREIN IT HAS BEEN HELD THAT ASSESSE E CAN EARN INCOME FROM INVESTMENT AND SIMULTANEOUSLY CAN CARRY ON SHARE TRADING BUSINESS THEREBY SHOWING INCOME FROM CAPITA L GAIN FROM PURCHASE/SALE OF SHARES AND INCOME FROM BUSINESS OF SHARE TRADING. CERTAINLY THE FACTS OF THE CASES VARY FROM CASE TO CASE AND IT IS UPON THE ASSESSEE TO DEMONSTRATE THAT HIS INTENTION FOR EARNING INVESTMENT INCOME AND SHARE TRADING INCOME ARE WELL DIFFERENTI ATED IN THE BOOKS OF ACCOUNT AND CERTAINLY THE CASES OF THE ASSESSEE GET MORE STRONG IF HE IS ABLE TO PROVE THAT NO BORROWED FUNDS HAVE BEE N TAKEN SPECIFICALLY FOR BUYING OF SHARES WHICH HE INTENDS TO SHOW AS INVESTMENT INCOME. 12. FROM GOING THROUGH THE ASSESSMENT PROCEEDINGS B Y THE LOWER AUTHORITIES WE FIND THAT THIS ISSUE HAS NOT BEEN EX AMINED IN DEPTH BY LD. ASSESSING OFFICER THAT WHETHER AT THE TIME OF P URCHASE OF SHARES OF SGLPP ASSESSEE HAS BORROWED FUNDS SPECIFICALLY TO B UY THE SHARES, WHICH COULD HAVE BEEN VERIFIED FROM THE BANK ACCOUN T OF THE ASSESSEE AND SECONDLY WHETHER ASSESSEE HAS MAINTAIN ED SEPARATE DEMAT ACCOUNT TO DEMARCATE THAT AT THE TIME HE BOU GHT THE SHARES, HIS INTENTION WAS TO HOLD THEM AS INVESTMENT AND TO EARN CAPITAL GAIN (SHORT TERM/ LONG TERM) THEREFROM. THESE ARE VERY R ELEVANT IN THIS CASE BECAUSE ASSESSEES MAIN BUSINESS IS OF SHARE TRADIN G AND SHORT TERM CAPITAL GAIN OF RS.78.93 LACS HAS BEEN EARNED WHICH BECOMES FURTHER RELEVANT BECAUSE THE TOTAL NET PROFIT IN THE AUDITE D PROFIT AND LOSS ACCOUNT IS SHOWN AT 1.09 CRORES WHICH IS INCLUSIVE OF THE SHORT TERM CAPITAL GAIN OF RS.78.93 LACS WHICH MEANS THAT SUBS TANTIAL TURNOVER IS IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 11 OF BUSINESS BUT THE SUBSTANTIAL PROFIT PORTION IS C OMING FROM SHORT TERM CAPITAL GAIN. 13. WE FURTHER OBSERVE THAT LD. AR REFERRED IN HIS SUBMISSIONS THAT ASSESSEE FIRST FILED HIS RETURN OF INCOME ON 7.11.2 007 DECLARING TOTAL INCOME AT RS.1,17,56,060/- THEREAFTER POST SEARCH W HICH TOOK PLACE ON 7.2.2008, RETURN OF INCOME IN RESPONSE TO NOTICE U/S 153A OF THE ACT WAS FILED ON 30.09.2008 DECLARING TOTAL INCOME AT RS.65,21,290/- WHICH WAS FURTHER REVISED ON 23.1.2009 DECLARING TO TAL INCOME AT RS.2,88,37,110/-. AS PER LD. AR THE BASIC REASON FO R THESE REPETITIVE MODIFICATIONS IN THE INCOME DECLARED WAS THAT THE I NTEREST EXPENDITURE/INCOME WAS NOT BOOKED BY THE ASSESSEE C ORRECTLY IN THE BOOKS OF ACCOUNT AND SO MUCH SO THAT EVEN POST TAX AUDIT, THERE WERE VARIOUS TRANSACTIONS OF LOAN TAKEN AND GIVEN H AVING IMPLICATIONS ON THE FIGURES OF INTEREST PAID/RECEIVED WHICH WERE INCORPORATED BY THE ASSESSEE IN THE REVISED COMPUTATION OF TOTAL IN COME AND THERE ALSO STANDS FILED IN THE PAPER BOOK DETAILED WORKIN G OF INTEREST INCOME IN CHARMI INVESTMENT DEPICTING THE MISTAKES MADE IN ACCOUNTING THE INTEREST EXPENSES IN THE ORIGINAL RE TURN AND THE CORRECT POSITION AT THE TIME OF FILING REVISED RETURN. BY G OING THROUGH THESE SUBMISSIONS, WHEN WE LOOK UP TO THE ASSESSMENT ORDE R, WE OBSERVE THAT LD. ASSESSING OFFICER HAS NOT DEALT WITH THE I SSUE RELATING TO INTEREST EXPENDITURE NOR HAS HE CO-RELATED SPECIFIC ALLY THE BORROWINGS OF FUNDS WITH THE IMPUGNED PURCHASE TRANSACTION FOR BUYING OF EQUITY SHARES OF SGLPP. IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 12 14. THEREFORE, LOOKING TO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ORDER OF L D. ASSESSING OFFICER IS CRYPTIC TO THE EXTENT THAT PROPER VERIFICATION O F BOOKS OF ACCOUNT WAS NOT MADE BEFORE MAKING OBSERVATION THAT THE ASSESSE E IS DEEMED TO HAVE TAKEN BORROWED FUNDS FOR ENTERING INTO THE TRA NSACTIONS OF PURCHASE/SALES OF SHARES SHOWN IN THE SHORT TERM CA PITAL GAIN AND FURTHER LD. ASSESSING OFFICER HAS ALSO NOT GONE THR OUGH THE BOOKS OF ACCOUNT TO SEE AS TO WHETHER ASSESSEE HAS MAINTAINE D SEPARATE DEMAT ACCOUNT WHICH CAN PROVE THE VERY INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES THAT THEY ARE INTEND ED TO BE HELD AS INVESTMENT AND SURPLUS OR DEFICIENT, IF ANY, ARISIN G IN FUTURE WILL BE SHOWN AS CAPITAL GAIN. THEREFORE, WE ARE OF THE VIE W THAT THE MATTER SHOULD BE SET ASIDE TO THE FILE OF LD. ASSESSING OF FICER TO RE-ASSESS AND FRAME FRESH ASSESSMENT ORDER KEEPING IN VIEW TH E FINDING GIVEN ABOVE AND TO CALL NECESSARY INFORMATION AND DOCUMEN TS FROM THE ASSESSEE TO SATISFY AS TO WHETHER FUNDS WERE BORROW ED FOR PURCHASE OF SHARES OF SGLPP AND WHETHER ANY SEPARATE DEMAT A CCOUNT WAS OPENED OR MAINTAINED TO PRESCRIBE IN THE PURCHASE/S ALE OF THE SHARES AND ACCORDINGLY PASS THE ASSESSMENT ORDER. NEEDLESS TO SAY PROPER OPPORTUNITY OF BEING HEARD MAY BE GIVEN TO THE ASSE SSEE BEFORE PASSING THE FRESH ASSESSMENT ORDER. THEREFORE, THIS APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 15. NOW WE TAKE UP IT(SS)A NO.57 FOR ASST. YEAR 20 07-08 GROUND OF THE APPEAL IS AS UNDER :- I) THE ID. CIT(A) HAS ERRED IN LAW AND FACT S AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO TREAT THE INCOME FROM SHARE TRADING TR ANSACTIONS OF IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 13 RS.1,40,01,808 /- AS CAPITAL GAIN AS AGAINST TREATI NG THE SAME AS BUSINESS INCOME 16. FROM GOING THROUGH THE GROUNDS OF APPEAL, WE FI ND THAT FACTS AND CIRCUMSTANCES OF THIS CASE ARE SIMILAR TO THOSE DISCUSSED ABOVE IN IT(SS)A NO.56/AHD/2010, FOR ASST. YEAR 2007-08 A ND THE ASSESSEE IS ALSO PART OF THE ATUL B. SHAH GROUP WHEREIN SEAR CH ACTION WAS CARRIED OUT ON 7.2.2008. IN BOTH THESE APPEALS LD. ASSESSING OFFICER HAS TREATED THE SHORT TERM CAPITAL GAIN DISCUSSED B Y THE ASSESSEE AS BUSINESS INCOME WITHOUT PLACING NECESSARY INFORMATI ON IN THE ASSESSMENT ORDER TO SUPPORT HIS OBSERVATIONS THAT T HE ASSESSEE DID NOT HAVE HER OWN FUNDS BUT HAS BORROWED FUNDS FROM OUTSIDERS BY PAYING SUBSTANTIAL INTEREST AND HE ALSO DID NOT VER IFY THAT SEPARATE DEMAT ACCOUNT HAS BEEN MAINTAINED BY THE ASSESSEE F OR INVESTING IN SHARES TO EARN LONGTERM/SHORTTERM CAPITAL GAINS. IN THESE CIRCUMSTANCES WE OBSERVE IT WOULD BE JUST AND PROPE R TO SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO FRAME DE NOVO ASSESSMENT. THIS APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 17. NOW WE TAKE UP IT(SS)A NO.58/AHD/2010 FOR ASST. YEAR 2008- 09. GROUND OF THE APPEAL IS AS UNDER :- I) THE ID. CIT(A) HAS ERRED IN LAW AND FACT S AND CIRCUMSTANCES OF THE CASE IN DIRECTING TO TREAT THE INCOME FROM SHARE TRADING TR ANSACTIONS OF RS.27,62,917/- AS CAPITAL GAIN AS AGAINST TREATING THE SAME AS BUSINESS INCOME 18. WE OBSERVE FROM THE ASSESSMENT ORDER THAT LD. A SSESSING OFFICER HAS TREATED THE SHORT TERM CAPITAL GAIN DIS CLOSED BY ASSESSEE IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 14 ARISING OUT OF SHARES PURCHASED DURING THE ASSESSME NT YEAR 2007-08 AND THE CAPITAL GAIN DISCLOSED IN ASST. YEAR 2008-0 9 WAS ONLY OF SHARES REMAINING UNSOLD AND THE GAIN FROM SALE OF T HESE SHARES HAVE BEEN SHOWN AS SHORT TERM CAPITAL GAIN IN THIS YEAR. CERTAINLY THE FATE OF THIS APPEAL WILL HEAVILY DEPEND ON THE FRESH ASS ESSMENT ORDER TO BE PASSED BY LD. ASSESSING OFFICER FOR ASST. YEAR 2 007-08 WHICH WE HAVE DECIDED IN IT(SS)A NO.57/AHD/2010 AND THEREFOR E, IF THE LD. ASSESSING OFFICER OBSERVES IN HIS FRESH ASSESSMENT ORDER POST TRIBUNAL ORDER FOR ASST. YEAR 2007-08 THAT THE CAPI TAL GAIN FROM SALE OF SHARES SHOWN BY ASSESSEE TO BE TAXED AS BUSINESS IN COME THEN THE SAME DECISION WILL APPLY TO ASST. YEAR 2008-09 ALSO . THEREFORE, THE ISSUE ARISING IN THIS APPEAL IS ALSO SET ASIDE TO T HE FILE OF LD. ASSESSING OFFICER. THIS APPEAL IS ALSO ALLOWED FOR STATISTICA L PURPOSES. 19. IN THE RESULT, ALL THE THREE APPEALS FILED BY R EVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MAY, 2016 SD/- SD/- (SHAILENDRA YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 19/5/2016 MAHATA/- IT(SS)A NO.56 TO 58-AHD-2010 ASST. YEAR 2007-08 & 2008-09 15 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 17/05/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 18/05/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 19/5/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: