M/S. CHIMANLAL C SHAH, MUMBAI v. THE CIT CIR 19(2), MUMBAI

ITA 185/MUM/2008 | 2004-2005
Pronouncement Date: 17-02-2010 | Result: Allowed

Appeal Details

RSA Number 18519914 RSA 2008
Assessee PAN AAFPS2389M
Bench Mumbai
Appeal Number ITA 185/MUM/2008
Duration Of Justice 2 year(s) 1 month(s) 8 day(s)
Appellant M/S. CHIMANLAL C SHAH, MUMBAI
Respondent THE CIT CIR 19(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 17-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 17-02-2010
Date Of Final Hearing 21-12-2009
Next Hearing Date 21-12-2009
Assessment Year 2004-2005
Appeal Filed On 08-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH MUMBAI BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 185/MUM/2008 (ASSESSMENT YEAR: 2004-05) SHRI CHIMANLAL C. SHAH ACIT CIRCLE 19(2) 603 SHREEATH NIWAS PODAR ROAD PIRAMAL CHAMBERS P AREL SANTACRUZ (W) MUMBAI 400051 VS. MUMBAI 400012 PAN - AAFPS 2389 M APPELLANT RESPONDENT APPELLANT BY: SHRI VISHWAS MEHENDALE RESPONDENT BY: SHRI ANILKUMAR MISRA O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A) XIX MUMBAI DATED 06.11.2007. 2. THE ONLY ISSUE CONTESTED IN VARIOUS GROUNDS BY T HE ASSESSEE IS ABOUT THE TREATMENT GIVEN TO THE SHORT TERM CAPITAL GAINS EARNED BY THE ASSESSEE AS BUSINESS INCOME BY THE A.O. AND DISALLOWANCE OF THE CONSEQUENTIAL BENEFIT IN TAX RATE CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 28.06 .2004 DECLARING A TOTAL INCOME OF RS.16 96 500/- WHICH COMPRISED OF CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE CAPITAL GAINS DECLARED BY THE AS SESSEE WAS CLAIMED TO BE ARISING FROM SALE OF SHARES AND DEPENDING ON THE PE RIOD OF HOLDING OF THE SHARES SOLD THE SAME WAS SHOWN AS SHORT TERM AND L ONG TERM CAPITAL GAIN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE A.O. THAT THERE WERE NUMEROUS TRANSACTIONS MADE BY THE A SSESSEE ON DAILY BASIS FOR LARGE QUANTITY OF SHARES. LOOKING INTO THE FREQ UENCY AND VOLUME OF TRANSACTIONS THE ASSESSEE WAS CALLED UPON BY THE A .O. TO EXPLAIN AS TO WHY SHORT TERM CAPITAL GAIN SHOULD NOT BE TREATED AS PR OFIT FROM SHARE TRADING ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 2 BUSINESS. IN REPLY THE FOLLOWING SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE A.O. : - EXPLANATION VIDE LETTER DATED 31.05.2005: PURCHASE AND SALE OF SECURITIES PERTAINS TO INVESTM ENT ON SHARES: I AM NOT PURCHASING AND SELLING SHARES AS MY BUSIN ESS TRANSACTION. I AM NOT IN THE BUSINESS OF PURCHASING AND SELLING OF SECURITIES. WHATEVER PURCHASE EFFECT BY MET IS ON ACCOUNT OF IN VESTMENT IN SHARES. I AM OF 79 YEARS OLD (AS AT YEAR ENDING 31.03.2004 ) RETIRED PERSON. I AM INVESTING MY CAPITAL IN SHARES/SECURITIES. I AM MANAGING MY PORT FOLIO OF INVESTMENT IN SHARES AND INVESTMENT IN SHA RES IN WITH MOTIVE OF TO EARN DIVIDEND INCOME AND TO HAVE CAPITAL APPRECI ATION. THE FOLLOWING POINTS TO BE CONSIDERED FOR DETERMIN ING THAT PURCHASE AND SALE OF SHARES AND SECURITIES IS ON ACCOUNT OF INVESTMENT ACTIVITY AND NOT TRADING ACTIVITY. (A) THE PURCHASE AND SALE OF SHARE TRADING ACTIVITY IS NOT MY USUAL TRADE BUSINESS. (B) THE PURCHASE IS MADE SOLELY WITH THE INTENTION OF E ARNING DIVIDENDS AND LONG TERM APPRECIATION. THE FACT OF THE INTENTION IS TO PURCHASE THE SHARES WITH INTENTION FOR LONG TERM APPRECIATION IS VERIFIABLE FORM THE FACT THAT I AM HOLDING SHARES FOR LONG PERIOD SAY MORE THAN 5 YEARS OR EVEN MORE THAN 7 TO 8 YEARS FROM THE STATEMENT OF LONG TERM CAPITAL GAIN. (C) THE SCALE OF PURCHASE AND SALE OF SHARES IS MODERAT E. (D) THE TRANSACTION IS NOT ENTERED INTO CONTINUOUSLY AN D REGULARLY. (E) PURCHASES ARE MADE OUT OF MY OWN FUNDS. (F) TYPICAL HOLDING PERIOD FOR SECURITIES BOUGHT AND SO LD IS SAY AROUND 3 TO 5 YEARS IN MOST OF THE CASES. (G) AS I AM RETIRED PERSON MOST OF THE TIME I SPEND FOR HOUSE HOLD ACTIVITY LEISURELY STAYING AND TAKING REST. I HARD LY SPEND FEW HOURS IN WEEK TO LOOK AFTER MY INVESTMENT PORT FOLIO. I AM S TAYING WITH MY SONS. MY SONS ARE TAKING CARE OF JOINT FAMILY HOUSEHOLDS EXPENSES. I AM NOT REQUIRED TO INDULGE IN PURCHASE AND SALE OF SHARES TO EARN LIVELIHOOD. (H) IN MY BOOKS OF ACCOUNT FOR SHARES WHOSE DELIVERY HA S BEEN SHOWN AS INVESTMENT IN SHARES. (I) THE SECURITY PURCHASE OR SOLD ARE LISTED SECURITIES . (J) INVESTMENT IN SHARES OF INDEPENDENT COMPANY. (K) FOR ALL PURCHASE AND SALE TRANSACTIONS OF SHARES M ONEY HAS BEEN PLACED AND RECEIVED FROM BROKERS AND IT IS NOT BOOK ENTRY. ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 3 (L) FOR LAST SO-MANY YEARS I HAVE TREATED PURCHASE AND SALE OF SHARES AS MY INVESTMENT ACTIVITY AND ACCORDINGLY IN MY BOO KS OF ACCOUNTS AND IN MY RETURN OF INCOME THE SAME HAS BEEN SHOWN AS S HORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN EXCEPT WHERE PURCHAS E AND SALE TRANSACTIONS ARE SQUARED UPON THE SAME DAY THE SAME HAS BEEN TREATED AS PROFIT AND LOSS ON SALE OF SHARES. CONSIDERING ALL OTHER FACTS FACTS AND CIRCUMSTANC ES THE PURCHASE AND SALE OF SHARES SHOULD BE CONSIDERED AS INVESTME NT ACTIVITY AND NOT AS MORE BUSINESS ION SHARE TRADING. EXPLANATION VIDE LETTER DATED 04/10/2006: I WOULD LIKE TO SUBMIT FURTHER THAT FOR TREATING A NY TRANSACTION AS AN INVESTMENT TREATMENT 3 CRITERIA SHOULD BE COMPLIED WITH. (1) PAYMENT CONSIDERATION SHOULD BE PAID IN FULL. (2) DELIVERY OF THE SHARES MUST BE RECEIVED. (3) THE INTENTION OF THE PURCHASER SHOULD AS INVEST OR AND NOT AS TRADER. IN MY CASE I HAVE FULFILLED ALL THE 3 CRITERIA AS INVESTOR I HAVE MADE THE FULL PAYMENTS AND TAKEN DELIVERY F THE SHARES A ND RECORDED THE TRANSACTION IN MY BOOKS OF ACCOUNT AS INVESTMENT CL EARLY SHOWING THAT I HAVE THE INTENTION TO MAKE THE INVESTMENT. NOW FOR THE INCOME TAX PURPOSE INVESTMENTS ARE HE LD FOR A PERIOD LES THAN ONE YEAR THEN IT IS SHORT TERM CAPITAL GA IN/LOSS AND IF THE INVESTMENT IS HELD FOR MORE THAN A YEAR THEN IT IS A LONG TERM CAPITAL GAIN/LOSS. THERE IS NO CONDITION THAT INVESTMENTS SHOULD BE H ELD FOR A MINIMUM PERIOD TO PROVE IT AS AN INVESTMENT. ONCE T HE PAYMENT IS MADE DELIVERY IS TAKEN AND IN THE BOOKS OF ACCOUNT IT I S RECORDED AS INVESTMENT IT IS CLEARLY AN INVESTMENT ACCOUNT. IN TENTION IS ALWAYS DECIDED BY THE INVESTOR WHO IS MAKING THE INVESTMEN T AND THAT INTENTION CAN BE PROVED HOW HE HAS RECORDED THE TRANSACTION I N HIS BOOKS OF ACCOUNT. FROM THE FACTS AND CIRCUMSTANCES OF MY CASE YOU W ILL KINDLY OBSERVE AND APPRECIATE THAT I AM AN INVESTOR FOR A VERY VERY LONG PERIOD MAKING THE INVESTMENT IN SHARES FOR THE LAST SEVERA L DECADES. NOW I AM 80 YEARS OLD SO I CANNOT THINK OF ANY BUSINESS ACTI VITY. INVESTMENTS MAY BE SOLD CONSIDERING THE PERSONAL NEEDS FLUCTUATION S IN THE CAPITAL MARKET EVENTS HAPPENING AND AFFECTING THE CAPITAL MARKET AND DEVELOPMENT IN THE COMPANYS PERFORMANCE. NOW INDIA ECONOMY IS LINKED WITH THE GLOBAL ECONOMY SO AS THE FORTUNES O F THE INDIAN CAPITAL MARKET AND COMPANYS LISTED ON THE EXCHANGE ALSO CH ANGE VERY FREQUENTLY. SO ONE HAS TO BE VERY CAUTIONS WHILE MA KING THE INVESTMENT AND DECIDING THE PERIOD HOW TO HOLD. IF THE INVESTM ENT IS HELD FOR LESS THAN A YEAR WE ARE PAYING SHORT TERM CAPITAL GAIN T AX SO THE REVENUE IS NOT LOSING FOR HOLDING THE INVESTMENT FOR A SHORTER PERIOD. ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 4 4. THE AFORESAID SUBMISSIONS MADE BY THE ASSESSEE W ERE NOT FOUND ACCEPTABLE BY THE AO. FOLLOWING THE PRINCIPLES LAID DOWN IN CIT VS. H. HOLCK LARSEN 160 ITR 67 (SC) AND OTHER CASES OF G. VENKAT ASWAMI NAIDU AND COMPANY VS. CIT 35 ITR 594 (SC) RAJPUTANA TEXTILE (AGENCIES) LIMITED VS. CIT 42 ITR 743 (SC) AND THE DECISION OF THE ITAT AH MEDABAD BENCH IN THE CASE OF DCIT VS. SMT. DEEPABEN AMITBHAI SHAH 99 ITD 219 HE HELD THAT THE SHARE TRADING TRANSACTIONS DONE BY THE ASSESSEE WAS DONE WITH A SOLE INTENTION OF BUSINESS AND WHETHER THE DELIVERY OF A PARTICULAR SCRIP WAS TAKEN OR NOT IS INCIDENTAL TO ITS MAIN BUSINESS ACT IVITY OF SHARE TRADING AND BROUGHT TO TAX AN AMOUNT OF RS.16 41 169/AS BUSINES S INCOME WHILE ACCEPTING THE LONG TERM CAPITAL GAIN DECLARED. 5. THE CIT(A) ALSO CONFIRMED THE DECISION OF THE AS SESSEE. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT A SIMILAR ISSUE INVOLVING IDENTICAL FACTS HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF ASSESSEE IN THE CASE OF SHRI KUNVARJI NANJI KENI A VS. A.C.I.T. VIDE ITS ORDER DATED 28.4.2009 IN ITA NO. 6545/M/08 AND ALSO IN TH E CASE OF DHIRAJ DEVJI KENIA VS ACIT 13(3) DT.18-08-09. IN THIS REGARD H E INVITED OUR ATTENTION TO THE COPY OF THE SAID ORDERS PLACED ON RECORD AND AL SO TO THE COMPARATIVE CHART PREPARED AND FURNISHED BY HIM IN THE PAPER BO OK SHOWING THAT THE FACTS INVOLVED IN THE PRESENT CASE ARE SIMILAR TO T HAT CASE. HE ALSO RELIED ON THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE O F SHRI GOPAL PUROHIT VS. JCIT VIDE ITS ORDER DATED 10.2.09 IN ITA NO. 4854/M UM/08 STATING THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN T HE SAID CASE ALSO IN FAVOUR OF THE ASSESSEE. HE THEN TOOK US THROUGH THE FINANCIAL STATEMENTS OF THE ASSESSEE PLACED IN THE PAPER BOOK TO SHOW THE T REATMENT GIVEN BY THE ASSESSEE TO THE RELEVANT SHARES AS INVESTMENT. HE ALSO POINTED OUT THAT THERE WERE NO FUNDS BORROWED BY THE ASSESSEE FOR MA KING THE SAID INVESTMENT AND THE SHARES WERE ENTIRELY PURCHASED B Y THE ASSESSEE FROM HIS OWN FUNDS. HE SUBMITTED THAT THE ASSESSEE IS A PAR TNER IN THE PARTNERSHIP FIRM AND THAT IS HIS MAIN OCCUPATION AND NOT THE TR ADING OF SHARES AS ALLEGED BY THE AUTHORITIES BELOW. REFERRING TO PAG E 1 OF HIS PAPER BOOK HE ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 5 ALSO POINTED OUT THAT DIVIDEND INCOME FROM INVESTME NT IN SHARES OF RS.4 35 871- WAS EARNED BY THE ASSESSEE IN THE SHAR ES AND GOING BY SUBSTANTIAL INCOME EARNED IN THE FORM OF DIVIDEND THERE WAS NO REASON FOR THE AUTHORITIES BELOW TO REJECT HIS CLAIM THAT SHAR ES WERE HELD BY HIM AS INVESTMENT AND NOT STOCK IN TRADE. IT WAS ALSO SUBM ITTED THAT THE ASSESSEE IS 79 YEARS OLD AND HAS BEEN INVESTING IN SHARES FOR T HE LAST 20-25 YEARS. THE SHARES SOLD ALSO INCLUDE BONUS SHARES ON LONG TERM HOLDINGS BUT SOLD IMMEDIATELY ON RECEIPT HENCE SHORT TERM CAPITAL GA IN. IT WAS FURTHER SUBMITTED THAT THE A.O.S FINDING THAT ASSESSEE HAS DONE BUSINESS CANNOT BE ACCEPTED TO THE EXTENT OF SHORT TERM CAPITAL GAIN A LONE WHILE ACCEPTING THE LONG TERM CAPITAL GAIN ON THE SAME SET OF FACTS. 7. THE LEARNED D.R. ON THE OTHER HAND SUBMITTED T HAT THE ISSUE AS TO WHETHER SHARES WERE HELD BY THE ASSESSEE AS INVESTM ENT OR STOCK IN TRADE AND PROFIT ARISING FROM THE SALE THEREOF WAS ITS BU SINESS INCOME OR CAPITAL GAIN IS PURELY A FACTUAL ISSUE WHICH NEEDS TO BE DE CIDED ON THE FACTS INVOLVED IN EACH YEAR. HE ALSO SUBMITTED THAT THE PRINCIPLE S OF RES-JUDICATA ARE NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS. HE CONTE NDED THAT EVEN THE TREATMENT GIVEN BY THE ASSESSEE TO THE SHARES IN TH E BOOKS OF ACCOUNT FOR EARLIER YEARS WILL NOT BE A CONCLUSIVE FACTOR TO AS CERTAIN THE NATURE OF THE SAID SHARES BEING INVESTMENT. HE SUBMITTED THAT SI MILARLY THE QUANTUM OF DIVIDEND INCOME EARNED BY THE ASSESSEE IS NOT A REL EVANT FACTOR TO DECIDE WHETHER THE RELEVANT SHARES WERE HELD BY THE ASSESS EE AS INVESTMENT OR STOCK IN TRADE. HE CONTENDED THAT WHAT IS TO BE SE EN IS THE MOTIVE OR INTENTION OF THE ASSESSEE BEHIND THE ACQUISITION AN D HOLDING OF THE RELEVANT SHARES AND SUCH MOTIVE OR INTENTION HAS TO BE GATHE RED TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS IN ENTIRETY. HE SUBMITTED THAT A CASE IN THIS REGARD WAS MADE OUT BY THE A.O. TO SHOW THE IN TENTION OF THE ASSESSEE BY FREQUENCY OF TRANSACTIONS OF PURCHASE AND SALE O F SHARES ENTERED INTO BY HIM AS WELL AS REGULARITY OF SUCH TRANSACTION. HE SUBMITTED THAT THE VERY FACT THAT THE SHARES WERE SOLD BY THE ASSESSEE ON M ANY OCCASIONS WITHIN THE VERY SHORT PERIOD FROM THE DATE OF THEIR ACQUISITIO N WAS SUFFICIENT TO SHOW THAT HIS INTENTION WAS NOT OF HOLDING SUCH SHARES A S INVESTMENT BUT IT WAS TO TRADE IN THOSE SHARES FOR EARNING PROFIT. HE PO INTED OUT THAT MULTIPLE ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 6 TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE IN A SINGLE DAY WHICH AGAIN GOES TO SHOW HIS INTENTION TO PURCHASE AND SALE THE SHARES AS A REGULAR ACTIVITY TO EARN PROFIT. AS REGARDS THE SIMILAR CL AIM OF THE ASSESSEE HAVING BEEN ACCEPTED BY THE A.O. IN THE EARLIER YEARS HE SUBMITTED THAT THERE WAS NO APPLICATION OF MIND ON THE PART OF THE A.O. TO T HE RELEVANT FACTUAL ASPECTS WHILE ACCEPTING THE TREATMENT GIVEN BY THE ASSESSEE TO SHARES AS INVESTMENT IN THE EARLIER YEARS. HE SUBMITTED THAT MAJOR CAPI TAL OF THE ASSESSEE WAS UTILIZED BY HIM FOR PURCHASE OF SHARES WHICH AGAIN GOES TO SHOW THAT THE PURCHASE AND SALE OF SHARES WAS THE MAIN ACTIVITY B EING CARRIED ON BY THE ASSESSEE AS HIS BUSINESS ACTIVITY. HE CONTENDED TH AT THE IMPUGNED ORDER OF THE LD. CIT(A) PASSED ON THIS ISSUE IS THUS WELL FO UNDED AND URGED THAT THE SAME MAY BE UPHELD. 8. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE REJ OINDER SUBMITTED THAT THE FACTS OF EACH CASE ARE CERTAINLY RELEVANT TO DECIDE THE ISSUE UNDER CONSIDERATION. HE CONTENDED THAT SUCH FACTS INVOLVED IN THE YEAR U NDER CONSIDERATION HOWEVER ARE EXACTLY SIMILAR WITH THAT OF THE EARLIER YEARS AND THE LD. D.R. HAS NOT BEEN ABLE TO POINT OUT ANY DISTINGUISHING FEATURES. HE CONTENDED THAT THE RULE OF CONSISTENCY IS THEREFORE REQUIRED TO BE APPLIED TO DECIDE THE ISSUE IN FAVOUR OF ASSESSEE AS WAS DONE IN THE EARLIER YEARS. AS REGA RDS THE ASPECTS OF FREQUENCY OF TRANSACTIONS AND PERIOD OF HOLDING OF SHARES HIGHLI GHTED BY THE LD. D.R. HE CONTENDED THAT SIMILAR WAS THE POSITION INVOLVED IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA) DECIDED BY THE TRIBUNAL IN ITA NO. 4854/MUM/08 WHEREIN THE SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE ACCEPTING THE TREATMENT GIVEN TO THE SHARES AS INVESTMENT. HE SUB MITTED THAT THE INCOME DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN WAS MAINLY THE PROFIT EARNED BY HIM ON SHARES PURCHASED IN THE EARLIER YEARS WHI CH WERE SHOWN AS INVESTMENT BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT AND THE SAID TREATMENT WAS ACCEPTED BY THE DEPARTMENT IN THAT YEAR. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E SHARES IN QUESTION THE PROFIT ON SALE OF WHICH IS THE SUBJECT MATTER OF DI SPUTE IN THE PRESENT CASE WERE SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT FOR THE YEAR UNDER ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 7 CONSIDERATION AS WELL AS FOR THE EARLIER YEARS AS I NVESTMENT AND THE TREATMENT SO GIVEN WAS NOT QUESTIONED BY THE A.O IN ANY OF THE ASSESSMENTS COMPLETED FOR THE EARLIER YEARS. ON THE OTHER HAND THE PROFIT ARISING FROM SALE OF THE SAID SHARES TREATED AS INVESTMENT WAS O FFERED BY THE ASSESSEE TO TAX UNDER THE HEAD SHORT TERM CAPITAL GAIN AND TH E SAME WAS ACCEPTED BY THE A.O. I.E. THE EARLIER YEARS INCLUDING THE IMMED IATELY PRECEDING YEAR I.E. A.Y. 2004-05. AT THE TIME OF HEARING BEFORE US TH E LD. D.R. HAS NOT BEEN ABLE TO POINT OUT ANY MATERIAL DIFFERENCE IN THE FA CTS INVOLVED IN THE YEAR UNDER CONSIDERATION VIS--VIS THE FACTS INVOLVED IN THE IMMEDIATELY PRECEDING YEAR. IN FACT THE AO HAS ACCEPTED PART OF THE SAME SET OF TRANSACTIONS AS SUCH AND ACCEPTED THE LONG TERM CAPITAL GAINS WITH OUT ANY MODIFICATIONS. THE LEARNED DR COULD NOT EXPLAIN WHY THE AO DID NOT PREPARE A TRADING ACCOUNT IF HE CONSIDERS THE SAME AS BUSINESS INCOM E. THE OPENING STOCK OF SHARES AND CLOSING STOCK OF SHARES SHOULD ALSO REQU IRE ADJUSTMENTS IF THE AO CHANGES THE HEAD OF INCOME AND TREATS DIFFERENTL Y. THE PATTERN OF PURCHASE AND SALE OF SHARES BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS ALMOST SIMILAR TO THAT OF THE PRECEDING YEAR. IN THE CASE OF SHRI GOPAL PUROHIT VS. DCIT DECIDED BY THE TRIBUNAL VIDE ORDER DATED 10.2.09 PASSED IN ITA NO. 4854/M/08 (SUPRA) A SIMILAR ISSUE WAS INVO LVED IN THE LIGHT OF THE IDENTICAL FACTS AND CIRCUMSTANCES AND IT WAS HELD B Y THE TRIBUNAL THEREIN THAT WHERE THE NATURE OF ACTIVITIES MODUS OPERANDI OF THE ASSESSEE MANNER OF KEEPING RECORDS AND PRESENTATION OF SHARES AS IN VESTMENT WAS THE SAME IN ALL THE YEARS THERE WAS NO JUSTIFICATION IN TH E ACTION OF THE A.O. IN GIVING A DIFFERENT TREATMENT TO THE PROFIT ARISING FROM TH E SALE OF SHARES BY BRINGING THE SAME TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AS AGAINST SHORT TERM CAPITAL GAIN SHOWN BY THE ASSESSEE. IT WAS ALSO HELD BY THE TRIBUNAL THAT RULE OF CONSISTENCY MUST BE APPLIED I N SUCH CASES AND ON THE BASIS OF THE SAID RULE ALONE THE ACTION OF THE REV ENUE AUTHORITIES TO GIVE SUCH DIFFERENT TREATMENT WAS NOT SUSTAINABLE. 10. IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA) THE TRIBUNAL ALSO CONSIDERED AND DECIDED ON MERIT THE ISSUE RELATING TO THE EXAC T HEAD UNDER WHICH PROFIT ARISING FROM SALE OF SHARES WAS CHARGEABLE TO TAX. IN THIS CONTEXT THE TRIBUNAL NOTED THAT THE OPENING AND CLOSING BALANCE OF INVESTMENT IN SHARES ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 8 MADE BY THE ASSESSEE WAS ABOUT RS. 90 LACS AND RS. 46 LACS WHEREAS THE SALE OF SHARES WAS ONLY TO THE TUNE OF RS. 32 LACS. IT WAS HELD BY THE TRIBUNAL THAT THE TURNOVER TO STOCK RATIO IN INVEST MENT PORTFOLIO OF THE ASSESSEE THUS WAS VERY LOW AS COMPARED TO THAT IN T RADING PORTFOLIO. IN THE PRESENT CASE ALSO THE VALUE OF INVESTMENT HELD BY THE ASSESSEE IN SHARES AS ON 31.3.04 AND 31.3.05 WAS TO THE EXTENT OF RS. 1.0 9 CRORES AND RS. 1.33 CRORES WHEREAS THE VALUE OF SHARES SOLD DURING THE YEAR UNDER CONSIDERATION WAS ONLY TO THE TUNE OF RS. 1.31 CRORES. THE TURNOV ER TO STOCK RATIO IN INVESTMENT PORTFOLIO THUS WAS VERY LOW AS COMPARED TO THAT IN ANY TRADING PORTFOLIO. MOREOVER THE SHARES TREATED AS INVESTM ENT IN HIS BOOKS OF ACCOUNT WERE ALWAYS VALUED BY THE ASSESSEE AT COST WITHOUT THERE BEING ANY REFERENCE TO THE MARKET VALUE THEREOF WHICH AGAIN G OES TO SHOW THE INTENTION OF THE ASSESSEE TO HOLD THE SAID SHARES AS INVESTME NT AND NOT STOCK IN TRADE. 11. THE FREQUENCY OF TRANSACTION OF SHARES ENTERED INTO BY THE ASSESSEE WAS NOT SUCH THAT ON THAT BASIS ALONE IT COULD BE HELD THAT THE TRANSACTIONS IN PURCHASE AND SALE OF SHARES WERE ENTERED INTO BY TH E ASSESSEE AS BUSINESS ACTIVITY. IN THE CASE OF SHRI KUNVARJI NANJI KENIA VS. ACIT (ITA NO. 6545/M/08 DATED 28.4.09) CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE THE ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE H OLDING THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN TREATING THE PROFIT ON SALE OF SHARES DECLARED BY THE ASSESSEE AS SHORT TERM CAPITAL GAIN TO BE HIS BUSIN ESS PROFIT. IN THE SAID DECISION THE TRIBUNAL ALSO TOOK NOTE OF THE FACT T HAT THE INVESTMENT IN SHARES WAS MADE BY THE ASSESSEE FROM HIS OWN FUNDS AND THE RE WERE NO BORROWED FUND DEPLOYED BY HIM FOR MAKING SUCH INVESTMENT WHI CH IS THE FACTUAL POSITION EVEN IN THE PRESENT CASE. THE TRIBUNAL ALSO TOOK N OTE OF THE FACT THAT SUBSTANTIAL DIVIDEND INCOME WAS EARNED BY THE ASSES SEE ON THE SHARES TREATED AS INVESTMENT WHICH IS AGAIN SIMILAR TO THE FACTUAL POSITION PREVALENT IN THE PRESENT CASE. KEEPING IN VIEW ALL THESE RELEVANT AS PECTS OF THE MATTER AS WELL AS RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF SHRI GOPAL PUROHIT (SUPRA) IT WAS HELD BY THE TRIBUNAL IN THE CASE OF SHRI KUNVARJI NANJI KENIA (SUPRA) THAT PROFIT ON SALE OF SHARES WAS CHARGEABL E TO TAX UNDER THE HEAD SHORT TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. AS T HE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELE VANT THERETO ARE SIMILAR TO THAT ITA NO. 185/MUM/2008 SHRI CHIMANLAL C. SHAH 9 OF THE CASES OF SHRI KUNVARJI NANJI KENIA AND SHRI GOPAL PUROHIT (SUPRA) WE RESPECTFULLY FOLLOW THE ORDERS OF THE TRIBUNAL PASS ED IN THE SAID CASES AND SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) WITH A D IRECTION TO THE A.O. TO ASSESS THE PROFIT ON SALE OF SHARES UNDER THE HEAD SHORT TERM CAPITAL GAIN AS OFFERED BY THE ASSESSEE. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 13. KEEPING IN VIEW OUR DECISION RENDERED ABOVE WHI LE DISPOSING OF GROUND NO. 1 THE ISSUE RAISED BY THE ASSESSEE IN G ROUND NOS. 2 & 3 OF HIS APPEAL CLAIMING THE BENEFIT OF CARRIED FORWARD OF L OSSES HAS BECOME INFRUCTUOUS. HOWEVER THE A.O. IS DIRECTED TO ALLO W THE SET OFF ACCORDING TO LAW AFTER EXAMINING THE PAST RECORD OF THE ASSESSEE . THIS GROUND OF ASSESSEES APPEAL IS ACCORDINGLY DISMISSED HAVING B ECOME INFRUCTUOUS. 14. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS . 4 & 5 RELATING TO LEVY OF INTEREST U/S. 234A 234B 234C & 234D ARE C ONSEQUENTIAL. THE A.O. IS ACCORDINGLY DIRECTED TO GIVE CONSEQUENTIAL RELIE F TO THE ASSESSEE. 17. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH FEBRUARY 2010. SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 17 TH FEBRUARY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIX MUMBAI 4. THE CIT XIX MUMBAI CITY 5. THE DR K BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.