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TMI Blog2011 (11) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... OTAIAH, VIJAY PAL RAO, JJ. J.P. Bairagra for the Appellant. G.P. Trivedi for the Respondent. ORDER Vijay Pal Rao, Judicial Member The appeal in ITA No. 4276/M/2008 is by the assessee against the order dated 8th May 2008 for the Assessment Year 2005-06 and the appeal in ITA No.4143/M/2009 is by the revenue against the order dated 20th April 2009 of the CIT(A) for the Assessment Year 2006-07. 2. Since a common issue has been raised in both these appeals; therefore, we heard these appeals together and disposed of by this composite order. 3. The only issue arises for our consideration and adjudication is whether the income earned by the assessee on purchase and sale of shares is business income or short term capital gain? 4. The brief facts of the case are that the assessee is an individual and a partner in family run firms as well as director in family run company. The assessee has been purchasing and selling shares since Assessment Year 2002-03. The assessee has admitted short term capital gain on sale of shares since beginning i.e. Assessment Year 2002-03 and the same was accepted by the department except for the two AYs under consideration. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derivatives transactions of shares as business income amounting to 2,28,36,122/-. 4.3 The ld AR submitted that the assessee was a partner in some of the concerns run by family members and also director in a few family run companies along with other family members. There was a partition in the family and the assessee has received liquid funds in the AY 2002-03. He has referred the year wise details of capital, share investments and other investments, capital gain and dividend income placed at page 25 of the paper book. It was further submitted that for the Assessment Year 2006-07, the CIT(A) followed the decision in the case of Gopal Purohit v. Jt. CIT [2009] 29 SOT 117 (Mum.) and allowed the claim of the assessee. It was further submitted that from the above position, for the Assessment Year prior to and after the assessment years 2005-06 and 2006-07, it is clear that just because of change in the provision for taxing the capital gains w.e.f 1.10.1994, the Assessing Officer has treated the short term capital gains for asst years 2005-06 and 2006-07 as business income, though he has accepted the long term capital gains as exempt as per the amended provisions. Further, for the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 26-3-2010] (ii) Smt. Rakha Khandelwal v. ACIT [IT Appeal No.785/M/2009, order dated 17-3-2010] (iiii) Rakesh J. Sanghvi v. Dy. CIT [IT Appeal No. 4607/M/2008, order dated 31-8-2010] (iv) Shailesh L. Shah HUF v Dy. CIT [IT Appeal Nos. 3991 3992/M/2008, order dated 13-1-2010] 5. We have considered the rival contention and carefully perused the relevant material on record. The Assessing Officer treated the short term capital gain as business income in both the years on the ground of magnitude, frequency and holding period of shares. The CIT(A) confirmed the action of the Assessing Officer for the AY 2005-06 on similar line as of the Assessing Officer. However, for the AY 2006-07 the CIT(A) allowed the claim of the assessee by following the decision of the Tribunal in the case of Gopal Purohit (supra). The reason for taking a different view by the CIT(A) is that for the AY 2005-06, the claim of the assessee was rejected because the decision in the case of Gopal Purohit (supra) was not available at that point of time. Undisputedly, the claim of short term capital gain was accepted by the Assessing Officer for the AYs 2003-04, 2004-05 before disallowing the same f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. Question (b), therefore, does not also raise any substantial question." 5.1 Now, the Hon'ble Supreme Court has also confirmed the decision of the Hon'ble High Court reported in 334 ITR 308 (statute). Thus, on threshold, the issue deserves to be decided on the basis of rule of constancy in favour of the assessee and against the revenue. 6. On merit, both the parties placed reliance on a series of decisions; but the issue of capital gain or business income has to be decided on the basis of the facts of each case. Therefore, the rule of pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord that the Assessing Officer even treated the purchase of shares in public issue as business transaction though shown by the assessee as investment that apart the short term capital gain from the share held for less than 30 days is loss whereas the gain from share held for 60 days is about 25% of the total gain and gain generated from the share held for 90 days is 50% of the total gain, which shows that the motive of the assessee is not to earn profit at the shortest possible occasion. We further note that the assessee has purchased 76 scrips and sold 74 scrips during the period relevant to AY 2005-06 which shows that the assessee has purchased selective and limited scrips but in large/bulk purchases which led the Assessing Officer to observe turnover as large. The sale turnover is more than Rs. 44 crores from 74 scrips and purchase consideration is more than Rs. 42 crores on 76 scrips which show that the purchase and sale of few scrips in large volume. The CIT(A) for AY 2006-07 has analyzed the fact as under: "The above observations and findings of the Hon'ble ITAT is squarely applicable to the facts of the appellant's case as well. Further on merit also the Hon'ble Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier year. This practice would create serious conflicts and cannot be permitted unless the assessee convert the investment into stock in trade and such conversion is separately treated under the provisions of law. 9. In order to decide the question of nature of transaction as trading or investment, what is foremost important and relevant is the intention of the assessee at the time of purchase of shares and the subsequent conduct and treatment of transaction in the books of account of the assessee. The other relevant factors are to be taken into consideration while determining the nature of transaction and intention of the assessee are whether the assessee has borrowed money to purchase the shares and paid the interest thereon. Further, the frequency of such purchases and sale of shares and particularly in the same scrips is also an important factor to judge the motive of the assessee whether the purchase and sale is for realization profit or purchases are made for retention and appreciation in its value. The valuation of the shares as taken in the balance sheet at the end of the year is also relevant to see the intention and treatment of the transaction by the assessee. The ..... 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