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TMI Blog2023 (3) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... es especially when it is a specific case of the assessee that it is a mixed account which has not been shown to be wrong by the revenue. Correctness of the observations of the CIT(A) that the shares were thinly traded and highly illiquid and that the companies have not declared dividends - It is only when the genuineness of the transactions is doubted, there would be an occasion to examine whether the shares were penny stocks or not, what was the percentage of appreciation, the period during which the appreciation took place and was the appreciation beyond the normal person s expectations etc. Thus, in the absence of any doubt raised either by the assessing officer or by the CIT(A) as regards the genuineness of the transactions, the CIT(A) could not have held that the transaction was in the nature of business transaction as the companies have not declared dividend. Such finding rendered by the CIT(A) in our opinion was rightly reversed by the tribunal. Principle of consistency - The gains from the remaining long-term shares of the sixth company sold during the previous year relevant to the assessment year 2006-2007 was treated as business income by the assessing officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal nothing prevents the assessee from referring to the circulars and the theory of prospectivity or retrospectivity loses its significance. Thus, we hold that the circulars can be referred to by the assessee and they being at least partially beneficial to the assessee has to be held to be retrospectively applicable in so far as the instructions/clarifications which enure in favour of the assessee s. - ITA/83/2010 - - - Dated:- 14-3-2023 - HON BLE MR. JUSTICE T.S. SIVAGNANAM AND HON BLE MR. JUSTICE HIRANMAY BHATTACHARYYA Appearance:- For the Appellant : Mr. Om Narayan Rai, Adv. For the Respondent : Mr. J.P. Khaitan, Sr. Adv. Ms. Swapna Das, Adv. Mr. S. Bhowmik, Adv. JUDGMENT (Judgment of the Court was delivered by T.S.SIVAGNANAM, J.) 1. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated 04.09.2009 passed by the Income Tax Appellate Tribunal (C) Bench, Kolkata ITA No. 552 of 1060/Kol/2009 for the assessment year 2005-06. The appeal was admitted on 20th March, 2010 on the following substantial question of law: Whether on the facts and in the circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent transactions compared to several other normal business activities such as trading of plywood and other products etc. Therefore, the assessee requested that the investments should be assessed under the head capital gain . The Assessing Officer while considering the response given by the assessee referred to the memorandum and articles of association of the assessee and stated that it is clear that the main objects of the company was to undertake business in shares and securities. That during the year under consideration the assessee had carried on in a systematic and in an organized manner several transactions of buying and selling of shares/ units which constituted its business activities. On perusal of the capital gain statement, it was pointed out that not only the assessee company carried out large number of transactions where the volumes were also large and some of the transactions were completed in very short span of time of 4 to 5 days or even on the same day. Further, the assessee has engaged professional manager to manage its portfolio under Portfolio Management Scheme which would clearly establish that assessee was buying and selling the shares/ units with an intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and selling the shares amounts to business activity with the motive to earn profit and it was held that this conclusion is supported by the decision of the Hon ble Supreme Court in Dalhousie Investment Trust Co. Ltd. Versus Commissioner of Income Tax (1968) 68 ITR 486 (SC). 4. Aggrieved by such order the assessee preferred appeal before the Commissioner of Income Tax (Appeals), XI, Kolkata {CIT(A)}. The assessee contended that the mention of the business of share trading was one of the main objects in the memorandum and articles of association of the assessee company is not sufficient to lead to the conclusion that such business was actually carried on by the assessee and the fact being that no such business was done. Referring to Clause 18 of the memorandum which dealt with ancillary objects, it was stated that the same permits the assessee to invest and deal with the monies of the company not immediately required, in securities and such manner as may from time to time be determined. It was stated that the surplus funds of the business which were not immediately required were invested in terms of Clause 18 of the memorandum in order to maximize the value for share holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business activity and it is the intention of the assessee which is important. For such contention, reliance was placed on the decision in the case of CIT Versus Trishul Investments Ltd. 215 ITR 96, Madras. Further, it was contended that short period of holding of shares is not a determinative factor in concluding that the assessee was doing business of shares, the statute itself prescribes that a capital was held for less than 12 months is a short-term capital asset and capital gains arising on transfer thereof is short-term capital gain. Hence, any period of less than 12 months or few days or few months of holding of shares does not make any difference as in any case the transaction would result in short-term capital gains. Further, it was contended that earlier short-term capital gains were taxed at normal rate and the deductions available in computation thereof were very limited. Even at that point of time the assessee showed the same as short-term capital gains and had the assessee shown the gain as its business income the rate of tax would have been same but the assessee would have been able to claim many more deduction. However, this was not done as such shares wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. The CIT(A) then proceeded to analyze the source of funds, and held that the assessee did not have any savings or surplus funds of its own which it could invest in shares and securities. The share capital was raised for purposes of doing business and has been applied fully for that purpose. The average funds of share capital as reserves and surplus combined was Rs. 41.37 crores which was grossly inadequate compared to the application of Rs. 68.94 crores in fixed and net current assets. Therefore, the CIT(A) opined that even for it is normal business transaction of plywood and related items, the assessee had to resort to borrowing to the tune of Rs. 27.57 crores. Further, it was observed that the fund flow took place mainly through a bank account with State Bank of India which is a cash credit account in which there was a debit balance of Rs. 6.36 crores as on 31st March, 2005 which clearly shows that the funds were not the assessee s own but were borrowed, that there is no truth in the assertion of the assessee that surplus funds of business were invested in shares and securities. Further, it was observed that the assessee had incurred substantial expenditure by way of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood and related items and not relating to share transactions. Thus, the CIT(A) held that on an overall analysis of facts and circumstances of the case leads to the clear and inevitable conclusion that the intention of the assessee in the subject transactions was to earn profit from turnover and not by way of return on investment. The transactions were done in a systematic and organized manner with an intention to make profit. The assessee had no savings or surplus fund which could be invested in shares; the source of fund deployed in share transaction is directly seen to the borrowed fund of the business, volume and frequency of the transactions, the number of varieties of scrip transacted, the number of intermediaries through whom transactions were done and the stock-to-turnover ratio too were too high for an investor. It is further stated that the profit from business from plywood and related items has been shown as Rs. 2,27,43,483/- while the gains from shares transactions is Rs. 4,51,37,343/-. Thus, the CIT(A) affirmed the order passed by the assessing officer treating the profits arising from transactions of shares and units as profits and gains of business. 5. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the immediate preceding year the assessee had received the dividend income of Rs. 3.80 crores and in the year under consideration it was Rs. 14.25 lakhs. With regard to the short-term capital gains, the assessee stated that they engaged the services of a portfolio manager who would indulge in day to day purchase and sale of shares and it is not done by the assessee themselves. Therefore, it was submitted that the surplus received by the assessee during the year under consideration from the realization of the investments should not be treated as business income. It was further contended that the Memorandum and Articles of Association of the assessee company are very widely couched and merely because the memorandum permits the assessee to undertake business in shares does not mean that the investment in shares should be treated as adventure in the nature of trade. It was further contended that it has to be decided on facts of the case as to whether transactions of purchase and sale of shares was business of the assessee or investment in shares and realization thereof. However, referring to clause 18 of the Memorandum and Articles of Association, it was submitted that it permits the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect. Further the tribunal noted that the total investment in the shares is less than Rs. 50 lakhs while the capital and reserve of the assessee as on 31.03.2004 (preceding year) was Rs. 31.62 crores and as on 31.03.2005, it was Rs. 51.11 crores. The net profit of the assessee as per the profit and loss account for the year ended on 31.03.2004 was Rs. 9.01 crores while for the year ended 31.03.2005, it was Rs. 9.47 crores. Thus, the tribunal came to the conclusion that the capital and reserve of the assessee was many more times more than the investment in the shares in respect of which STT was paid and even the profit of one year was several times more than the investment. Further the tribunal held that no evidence has been brought on record by the revenue that any borrowed funds were utilized for investment in shares. In the light of the above factual conclusion, the tribunal opined that the investment in shares was out of the assessee s own capital and not out of borrowed money. The turnover of the assessee from the manufacturing and trading activities was noted by the tribunal to be Rs. 128 crores for the year ended 31.03.2004 and Rs. 167.06 crores for the year ended on 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be accepted as short-term capital gains but it should be assessed as business income of the assessee. This finding of the learned tribunal has not been challenged by the assessee and therefore we are not required to examine the correctness of such findings. 8. Mr. Om Narayan Rai, learned senior standing counsel appearing for the appellant revenue contended that the learned tribunal has accepted the assessee s assertion that it purchased the shares out of his own funds and while doing so, the learned tribunal glossed over the pertinent finding of the CIT(Appeals) as regards the application of funds by the assessee in the business of investment and therefore the learned tribunal fell in error in not adverting to the findings rendered by the CIT(Appeals) on the said issue. It is submitted that the tribunal has observed that no evidence has been brought on record by the revenue that any money borrowed had been utilized for investment ignoring the findings of the CIT(A) that the bank account through which transactions were made was a cash credit account which will clearly show the funds were not the assessee s own funds but were borrowed funds. It is further submitted that since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified or was not identifiable contrary to the categorical un-rebutted findings rendered by the CIT(A) that the fund flow took place through a cash credit account. Further it is contended that the CIT(A) while using the expression mixed account has explained it further to mean that it is the regular business transactions of plywood and other products as well as transactions routed through the said cash credit account. Therefore, the expression mixed account which was mentioned in the decision of the Hon ble Supreme Court in South Indian Bank Limited is different from the expression to be employed in the instant case which has been clearly brought out by the CIT(A). It is further contended that it is the duty of the assessee to demonstrate before the tribunal that the factual findings rendered by the CIT(A) was incorrect. More so when CIT(A) has taken this as one of the grounds to hold that the assessee had not purchased the shares by way of investment and the learned tribunal misdirected itself in not even remotely alluding to the aforesaid aspect and holding against the revenue. With regard to the principles of consistency, it is submitted that no firm conclusion can be drawn from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is in the nature of an exemption the onus is on the assessee to establish that they are entitled to the benefit. With the above submission, the learned senior standing counsel prayed for restoring the order passed by the CIT(A). 9. Mr. J.P. Khaitan, learned senior advocate appearing for the respondent assessee submitted that the only question involved in the appeal is as to whether the tribunal was correct in holding the profit of Rs. 4,32,09,144/- on the sale of shares of six companies held over from earlier years as long-term capital gains. It is submitted that in the previous assessment years as well as the subsequent years, the assessee s activities in respect of shares and securities were treated as investment activities and gains from sale thereof were treated as capital gains. Shares and securities purchased by the assessee are shown in its books of accounts as investments and accounted for accordingly. For the assessment year under consideration, A.Y. 2005-2006, the assessee claimed that the gains of Rs. 4,51,37,343/- from the sale of shares and securities were capital gains comprising long term capital gains of Rs. 4,32,09,144/- and net short term capital gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which were traded, were highly illiquid and were so called penny stocks. However, no material has been cited or referred to come to such a finding. The learned tribunal while examining the correctness of the same had rightly held that the CIT(A) has not doubted the genuineness of the transactions and therefore the only question would be whether the transaction is in the nature of investment in shares or trading in shares. Further the findings of the CIT(A) that there was no likelihood of the companies declaring dividend in future is based on presumptions and merely because the companies were not shown to have declared dividend, it cannot be presumed that there was no likelihood of the companies declaring dividend in future. However, as a matter of fact the assessee was in receipt of the dividend on its investment and a sum of Rs. 3.80 crores was received in the preceding year i.e. 2003-2004 and Rs. 14.25 lakhs during the previous year, 2004-2005. Thus, it is submitted that the assessee made the investments expecting return by way of dividend and capital appreciation. The CIT(A) committed an error in holding that if dividend is not declared by a company it shares cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to have two portfolios i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets and consequently when the assessee has two portfolios, the assessee may have income under both the heads i.e. capital gains as well as business income. Therefore, the CIT(A) committed an error in not considering the transactions in long term shares separately from the other transactions. Further it is submitted that the transactions in long term shares held over from earlier years were required to be separately considered on their own merit to decide whether the same were on investment account and it was not permissible to treat the sale as business transactions merely because the transaction of purchase of shares and securities and the sale thereof made during the previous year relevant to the assessment year 2005-2006 were held to be on business account. It is further submitted that the learned tribunal separately examined the transactions in respect of long-term shares to determine whether the same were on investment account or business account. In this regard, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit earned, it had to be presumed that the investment was from out of the profits. Reliance was placed on the decision of the Hon ble Supreme Court in South Indian Bank Limited Versus Commissioner of Income Tax 2021 438 ITR (page 1) (SC) wherein it was held that in a situation where the assessee had mixed funds and payment is made out of that mixed funds the investment must be considered to have been made out of the interest free funds. In the assessee s case the profits as well as interest free funds in the form of capital and reserves where far in excess of the amount invested and therefore the investment must be taken to have been made out of the assessee s own funds. It is further submitted that it is not in dispute that the long-term shares held over from the earlier years were shown as investments in the assessee s books of accounts. It was accepted in the assessment years 2003-2004 and 2004-2005 during which period the shares were purchased to be long term shares held as investments. The assessment orders for those years show that the assessee was charged to tax in respect of long-term capital gains. The CIT(A) accepted the assessee s stand that long-term shares we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-in-trade and such made have income under the head capital gains as well as business income. In the Circular No. 6 of 2016, the Board directed that in respect of listed shares and securities held for a period of more than twelve months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from transfer thereof as capital gains, the same shall not be put to dispute by the assessing officer. However, this stand once taken by the assessee in a particular assessment year, shall remain applicable in subsequent assessment years also and the tax payers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. It is submitted that the circulars being beneficial circulars to the assessee have to be given retrospective effect and would apply to the assessment years under consideration. In support of such contention, reliance was placed on the judgment of the Hon ble Supreme Court in Director of Income Tax Versus SRMB Dairy Farming Private Limited 2018 400 ITR Page 9 (SC). It is further submitted that if for any reason any matter for a year prior to the issue of the said circulars is remanded for a fresh dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the revenue and sought to distinguish the same. With regard to the decision in Sri Rakesh Kumar Gupta, relied on by the revenue, it is submitted that the assessee had purchased and sold shares either the same day or after a few days and in most cases they were intra-day transactions not involving delivery of shares and the said assessee s plea based on past assessment was not accepted as it was not shown that the transactions were identical. With regard to the decision in Shyam Burlabh Company Limited, relied on by the revenue, the principle of consistency was held not applicable in view of the changed fact situation. However, such is not the position in the assessee s case as there is no change in the facts in so far as the long-term shares are concerned. Further in Shyam s Burlabh s case claim for assessment under the head business was made for the first time in the assessment year 1996-1997 because it entailed a lower tax liability and there was no prior claim for adjudication with regard to the said head. In so far as the assessee s case is concerned, in the past the assessee claimed, the claimed assessment under the head capital gains which entailed lower taxation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior standing counsel prayed for allowing the appeal and answering the substantial questions of law in favour of the revenue. 16. The assessee company filed their return of income on 31 October 2005 declaring a total income of Rs 3,41,56,466/- for the assessment year 2005-2006. The return was processed under section 143 (1) on 13 July 2006. The case was selected for scrutiny and notice under section 143 (2) was issued on 20 October 2006. Thereafter notices under section 142 (1) was issued on several dates and the case was discussed with the authorised representative of the assessee. During the course of assessment proceedings several queries were raised by the assessing officer and in this appeal we are concerned about the issue as to whether the profit of Rs 4,32,09,144/- on sale of shares in six companies was long-term capital gains or was it business income. In this regard a show cause notice was issued to the assessee stating that on going through the return of income it was found that the assessee had entered into numerous transactions in a systematic and organised manner of buying and selling shares and securities and units of mutual fund during the assessment year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss activities. Assessing officer further held that some of the transactions are completed in a very short period, within 4 to 5 days or even on the same day, the assessee company has also engaged professional manager to manage its portfolio under portfolio management scheme which clearly indicates the motive of the assessee while buying and selling the shares was only with a view to earn profits. Therefore it was held that the frequency of transactions carried out by the assessee are in the nature of business activities and not investment as claimed by them. Further the assessing officer opined that the transactions undertaken by the assessee is impressed with the character of commercial transactions entered into with a view to earn profits, the transactions were numerous and carried out in a planned, systematic and organised manner and therefore the profits arising to the assessee company from purchase and sale of shares should be treated as profits from business and not capital gains. In support of such conclusion the assessing officer referred to certain decisions of the Hon'ble Supreme Court and proceeded to hold that it is beyond doubt that the transactions done by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depends upon whether the shares were held as stock in trade or investment. The assessee held the shares as investment which is evident from the fact that they are consistently shown as investment in the balance sheet and the gains on transfer of the same are shown as capital gains year after year. Further by referring to the computation of capital gains it was submitted that it is about 95% and the same cannot be said that the period of holding was small. Further with regard to the opinion of the assessing officer that the assessee conducted its activities in a systematic and organised manner, the assessee stated that they being a listed company are expected to carry on their activities in a systematic and organised manner and therefore the same cannot be construed to be a business activity. Further the assessee contended that existence of profit motive in transactions cannot be the sole determinative factor to treat the same as a business transaction. The assessee has been investing its surplus funds in shares. The said business was an ongoing activity, surplus therefrom also arose on an ongoing basis and consequently, investments were also made on an ongoing basis and there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of scripts transacted the number of brokers who were involved, the manner in which the assessee had maintained its accounts and the ratio between purchase/sale and holding and proceeded to form his opinion that all the ingredients to make the transaction as business transaction was found in the assessee's case. While analysing the source of funds the CIT(A) held that the fund flow took place mainly through its bank account with State Bank of India which was a cash credited account in which there was a debit balance of Rs 6.36 crores as on 31 March 2005 which would show that the funds were not the assessee's own funds but where borrowed funds and disbelieved the stand taken by the assessee that they have utilise the surplus funds for investment in shares and securities. The CIT(A) partially agree with the assessee that intention of the assessee is material factor but however held that the issue is not tax neutral and that taxation of capital gains on shares and securities is highly subsidised as compared to profits and gains of business. Thereafter the CIT(A) examined as to how the services of a prominent share broker was utilised by the assessee and other transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Tribunal further segregated the issues under two heads namely where the assessee had paid STT and where STT was not paid. The first issue which was considered was with regard to the long-term capital gain on which STT was paid. 21. The tribunal examined the facts of the case and found that the capital gains arose from the sale of shares of four companies and the purchase of those shares were made in the preceding financial year namely the financial year 2002-2003. The number of shares purchased was considered the total investment made, net profit of the assessee and held that there is no evidence brought on record by the revenue that any borrowed money was utilised for investment in the shares. The tribunal was of the view that the transactions were done through the assessee s current account which is maintained for the purpose of its plywood business and opined that the shares were not purchased out of the borrowed funds. The turnover of the assessee s main business was taken note of, the relevant clause in the Memorandum and Articles of Association of the assessee and considering the totality of the facts held that the purchase and sale of shares was an investment in shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tematic and organised activity. That apart, there was nothing on record to show that there was frequency in transactions, large number of shares were purchased and sold. The tribunal noted that the total investment in the shares of those four companies is less than Rs. 50,00,000/-, while the capital and reserve of the assessee as on 31.03.2004 was Rs. 31.62 crores and as on 31.03.2005, it was Rs. 5.11 crores. The net profit of the assessee as per Profit and Loss Account for the year ended 31.03.2004 was Rs. 9.01 crores while for the year ended on 31.03.2005, it was Rs. 9.47 crores. Thus, noting these undisputed facts, the tribunal concluded that not only the capital and reserve of the assessee was many times more than the investment in shares in respect of which STT was paid, but even the profit of one year, was several times more than the investment. The tribunal held that there is no evidence brought on record by the revenue that any borrowed money was utilised for investment in the abovementioned shares. We fully agree with such a finding rendered by the tribunal as the CIT(A) concluded that the borrowed funds had been utilised solely for the reason that the funds flow was fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish or prove that the investment was made in shares by the assessee has been made out of the profits generated by the assessee company. The said order of the tribunal was subject matter of challenge in the appeal before this court, and reliance was placed on the decision of the Division Bench in the case of Woolcombers of India Limited Versus Commissioner of Income Tax 134 ITR 219. In the said case, the payment of advance tax from an overdraft account was held to be not business expense and the assessing officer disallowed the same. When the matter reached the Division Bench of this court, it was noted that the profits were sufficient to meet the advance tax liability, the profits were deposited with the overdraft account and it should be presumed that in its essence and true character the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. After taking note of the decision, the Division Bench in the case of C.E.S.C Limited held that where the profits of the entire business including the sale proceeds were deposited in the mixed overdraft account and in the case the investment is less than the amount of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is made out of the mixed funds. The said question was answered by the Hon ble Supreme Court holding that when the assessee has mixed funds and payment is made out of that mixed funds, the investment must be considered to have been made out of the interest free funds. The following paragraphs of the said judgment would be relevant: 17. In a situation where the Assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the Assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd.1 where the answer was in favour of the Assessee on the question, whether the Tribunal was justified in deleting the disallowance Under Section 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27 and 28 of the decision the Hon ble Supreme Court held that the proportionate disallowance of interest is not warranted under Section 14A of the Act. It was pointed out that the said conclusion is reached because nexus has not been established between expenditure disallowed and earning of exempt income. The revenue failed to substantiate their argument that the assessee was required to maintain separate accounts and that the revenue has failed to refer to any statutory provisions which obligate the assessee to maintain separate accounts which might justify proportionate disallowance. Thus, holding that in taxation regime there is no room for presumption and nothing can be taken to be implied. The issue was answered in favour of the assessee and against the revenue. In the case on hand, the revenue does not state that the assessee was bound to maintain separate accounts. In such circumstances, the decision will assist the case of the respondent assessee. At this juncture, it would be of relevance to take note of the decision cited by the revenue in the case of East India Pharmaceuticals Works Limited wherein the Hon ble Supreme Court held that the question whether a presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation has been clearly brought on record by the tribunal which was failed to be taken into consideration by the CIT(A). Therefore, the conclusion arrived at by the tribunal in this regard cannot be faulted. Consequently, we hold that the CIT(A) would not have drawn a presumption that merely because the fund flow was from a cash credit account, it pre-supposes that borrowed funds were utilised for the purchase of shares especially when it is a specific case of the assessee that it is a mixed account which has not been shown to be wrong by the revenue. 24. The next issue would be as regards the correctness of the observations of the CIT(A) that the shares were thinly traded and highly illiquid and that the companies have not declared dividends. In our view, these aspects need not be gone into as the assessing officer did not doubt the genuineness of the transactions. It is only when the genuineness of the transactions is doubted, there would be an occasion to examine whether the shares were penny stocks or not, what was the percentage of appreciation, the period during which the appreciation took place and was the appreciation beyond the normal person s expectations etc. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to tax in respect of long-term capital gains. The CIT(A) also accepted the assessee s stand that long term shares were shown as investment and profits were shown as capital gains consistently. Thus, when the shares were held to be investments and accepted as such for the assessment years 2003-2004 and 2004-2005, can it be held to be not an investment when it comes to the assessment year under consideration 2005-2006. On a careful reading of the orders passed by the assessing officer as well as the CIT(A), there is nothing to indicate that there was any fresh material to come to a different conclusion. If such fresh material was available with the department, the same should have been brought on record. The observations of the CIT(A) to get over the consistent view of the department is by making an observation which at best can be treated to be a statement of law namely if there are fresh materials a departure from a consistent view is permissible. However, to apply such legal principle, facts have to be brought on record, and in the absence of facts or fresh materials the conclusion of the CIT(A) has to be termed as perverse. 27. Interestingly, the gains from the remaining lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further held that the volume of transactions can only be an indicative factor but it cannot be a determinative factor in analysing any transactions. The decision in Merlin Holding Private limited was followed in Principal Commissioner of Income Tax, Central-1, Kolkata Vs. Purvanchal Leasing Limited MANU/WB/0052/2022 : (2022) 287 Taxman 20/137 taxmann.com 253 (Calcutta) wherein it was held as follows: The second submission is with regard to the volume of transaction which, according to the revenue, is to be noted to ascertain the intention of the assessee. It was pointed out by the learned senior counsel for the respondent that only less than 1/3rd of the total transactions was held for a short period. That apart, the volume of transaction cannot have any impact to consider as to whether the transaction would give rise to short-term capital gain or not. ......... in the case of CIT v. Merlin Holding (P.) Ltd. MANU/WB/0417/2015 : [2016] 65 taxmann.com 37/[2015] 375 ITR 118 (Cal.). In the said case the Court found that the frequency cannot alone go to show the intention was not to make an investment. 12. At this juncture, it will be useful to refer to the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued and the following would be relevant:- (a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income, (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. 30. The circular dated 02.05.2016 was with regard to the consistency and taxability of income/loss arising from transfer of unlisted shares under the Act and the following instructions was issued:- Regarding characterisation of income from transaction in listed shares and securities, Central Board of Direct Taxes (CBDT) had issued a clarificatory C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains, the same shall not be put to dispute by the assessing officer. It is further stated that once such stand is taken by the assessee in a particular assessment year, shall remain applicable in subsequent assessment years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. In the instant case, the assessee had treated the income arising from transfer thereof as capital gains consistently, accepted by the department. In terms of the circular the assessee s precluded from taking a contrary stand in the subsequent years. If that be so, the same embargo can also be placed on the department, by holding that the department cannot take a different view in the subsequent years in the absence of any fresh materials warranting such departure. Reading the circular in its entirety will show that on account of dispute which had arisen while interpreting the directions issued by the courts and tribunal the Board thought fit to issue appropriate instructions to the field formation. Therefore, it is to be understood that the circular would be retrospective in operation. In any event, as rightly contended by the learned senior adv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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