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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 ..... by Ms. Swapna Das and Mr. S. Bhowmik, learned Advocates for the respondent. 3. The assessee filed its original return of income on 30th October, 2005 declaring a total income of Rs. 3,41,56,466/-. The return was processed under Section 143(1) on 13th July, 2006. The case was selected for scrutiny and notice under Section 143(2) was issued on 20th October, 2006 subsequently, notice under Section 142(1) was issued. The assessee is in the business of manufacture and sale of plywood and related products having its registered office in Kolkata and four regional offices and seventeen branches. Several issues were discussed with the assessee and the assessment was completed under Section 143(3) by order dated 20th December, 2007. In this appeal we are concerned with only one issue namely, whether the profit of 4,33,09,144/- should be treated as long-term capital gains or business profit. The Assessing Officer pointed out that the assessee has shown long-term and short-term capital gains from sale and purchase of shares and units of mutual funds. The assessee issued show-cause notice to justify as to why the profit of the sale of shares/ units be treated as business profit. In the show-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of commercial transactions entered into with a view to earn profits, the transactions were numerous, carried out in a planned, systematic and organized manner and, therefore, the profits arising therefrom should be treated as profits from business and not capital gains. In support of such conclusion the Assessing Officer referred to the decision of the Hon'ble Supreme Court in CIT Versus Distributors (Baroda) (P) Ltd. 183 ITR 377 (SC) and also the decision of the High Court of Madras in the case of CIT Versus Amalgamation (P) Ltd. 108 ITR 895 (Mad) wherein it was held that the only requirement is that there must be a real substantial and systematic or organized course of activity or conduct with the purpose of earning profit which is the test for a business. Reliance was placed on the decision of the High Court of Madras in the case of Commissioner of Income Tax Versus K. S. Venkatasubbaiah Reddiar 221 ITR 18, wherein it was held that the two essential requirements for an activity to be considered as business are (i) it must be a continuous course of activity, and (ii) it must be carried on with a profit motive. To explain the expression "business" reference was made to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amakhya Narain Versus CIT 77 ITR 253 (SC). Further, it was contended that whether the shares were held as investment or stock-in-trade is a mixed question of fact and law, it is a matter which is within the knowledge of the assessee who should be in a position to produce evidence as to whether he has maintained any distinction between those shares which are stock-in-trade and those which are held by way of investment. It was further contended that the assessee held the shares as investment which is evident from the facts that they are consistently shown as investment in the balance-sheet and the gains of transfer of the same are shown as capital gains year after year. Further, it was submitted that out of the total capital gains, the income by way of long-term capital gains was Rs. 4.39 crores that is about 95% and it cannot be said that the period of holding was small. Further, it was contended that the assessee being a listed company are expected to carry each and every activity in a systematic and organized manner, it is not expected to sit idle and watch the hard-earned money being washed away because of unsystematic investments and therefore, merely because investments were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the previous assessment years do not operate as res judicata, does not mean that in every assessment year the Assessing Officer will take a different view. Further, it was contended that the distinction between "investment" and "stock-in-trade" and consequently the one between "capital gains" and "profits and gains of business" is very thin. It was contended that the intention behind the investment is to earn return for the same and not to earn profit from its turnover, though investments are also reshuffled once in a while. Further, it was contended that the intention at the time of purchase of the shares is of material significance. If an asset was purchased not with the intention to earn return but to earn profit from its turnover, it would be a business transaction. An asset which was acquired as an investment may subsequently be converted into stock-in-trade. The CIT(A) referred to the main objects of the assessee company, the source of funds, the frequency of transactions, number of transactions, number of scrips transacted, the number of brokers/ intermediaries through whom transactions were done, the manner of maintaining books of accounts and ratio between purchase/sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss income but income from share transactions is being shown as capital gains and this is incorrect in law and even if the department had accepted in the past, the same cannot be a bar to take a correct decision in the assessment year under consideration. The CIT(A) next dealt with the substantial part of the gains which was shown as the long-term capital gains which pertained to scrips of six companies and stated that these gains resulted from transfer of shares of companies which were thinly traded and were highly illiquid and they are called as penny stocks. The period of holding of the shares is just above 12 months and the appreciation in price during this period was phenomenal. On an average transaction in the shares are shown to have been yielded 1129% returns during the period of just above 12 months and none of the companies is shown to have declared any dividend. Thus, the only motive in effecting such transactions was not to earn dividend but to earn profit on the appreciation of the share price. Further, the volume and frequency of transactions also leads to the conclusion that it is apparent that the transactions are not one of investment but it is that of trading. Dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- that the assessee is a listed company which derives income from the manufacturing of plywood and the other related items and the turnover of the assessee from manufacture is more than Rs. 160 crores during the year under consideration. The assessee has made investments in shares and mutual funds and on the realization of investment, whatever profit or loss was incurred by the assessee was offered as long term/short term capital gains/loss. The assessee referred to a chart of long-term capital gain which was prepared for the transaction in respect of which the Security Transactions Tax (STT) was paid and in respect of transactions for which STT is not paid. It is pointed out by referring to the capital gains where STT is paid that the entire gains of Rs. 3,31,01,360/- arose from the sale of shares of four companies. No shares were purchased by the assessee during the year under consideration. It was further contended that in respect of long-term capital gains wherein STT was not paid, the capital gains of Rs. 1,01,07,784/- arose out of the sale of shares of two companies namely Arihant Enterprises Limited and Limtex Investment Limited and no purchase of shares of any of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gures mentioned in the order passed by the CIT(A) are factually incorrect and such observations is related to only short-term capital gain disclosed by the assessee and not long-term capital gains and therefore the capital gains as disclosed by the assessee should be accepted. The revenue placed reliance on the findings and observations in the order passed by the CIT(A) with particular reference to the paragraphs where the CIT(A) has summarized the reasons why the purchase and sell of shares was treated as business of the assessee. Further it was contended that the CIT(A) has considered the main object of the assessee as per Memorandum and Articles of Association, the source of funds, the frequency of transaction, number of scripts dealt with maintenance of books of accounts etc. and has come to the conclusion that the assessee was engaged in the business of trading in shares and units. Further it was contended that the CIT(A) has also pointed out the shares wherein capital gain was disclosed were penny stocks. 6. The learned tribunal proceeded to examine the facts of the case. Firstly, with regard to the long-term capital gains amounting Rs. 3,31,01,360/- were STT was paid. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal opined that the same was investment in shares and realization thereof cannot be said to be business income of the assessee. Further while dealing with the observations of the CIT(A) stating that the shares were penny stocks, the tribunal observed that the CIT(A) has not doubted the genuineness of transactions and therefore the limited issue would be whether the transactions is in the nature of investment in shares or trading in shares. After considering the facts of the case, the tribunal was convinced to hold that the transactions were the investment in shares and the realization thereof and any surplus arising out of the sale of the shares has to be treated as capital gains and not business income. Accordingly, the tribunal held that the sum of Rs. 3,31,01,360/- should be assessed as long-term capital gains. 7. Nextly, the tribunal proceeded to consider the long-term capital gains of Rs. 1,01,07,784/- on which the STT was not paid. The details of the purchase and sale of the shares were noted and the tribunal held that there was no purchase during the year under consideration and the entire shares were sold during the accounting year relevant to the assessment year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the funds utilized for purchase were not borrowed fund. However, the learned tribunal had mistakenly treated the cash credit account to be a current account. Further it is submitted that the assessee having purchased shares by employing the borrowed funds, that is, by withdrawing sums from the cash credit account as found by the CIT(A), the learned tribunal could not have held that as profit of one year was several times more than investment, the shares could not have been purchased by borrowed funds. In this regard, reliance was placed on the decision of the Hon'ble Supreme Court in East India Pharmaceuticals Works Limited Versus Commissioner of Income Tax, West Bengal 1997 4 SCC 96 and also the decision of the division bench of this Court in C.E.S.C. Limited Versus Commissioner of Income Tax, Kolkata-II in ITA No. 105 of 2004 dated 26.11.2004 which was relied on by the learned senior advocate appearing for the respondent assessee. Thus, it is submitted that the judgment in East India Pharmaceuticals Works Limited and also C.E.S.C. Limited concluded that for the purpose of assuming that the investments have been made from out of the profits the twin conditions must be namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court in Shyam Burlap Company Limited Versus Commissioner of Income Tax, Central - 1, Kolkata 2016 380 ITR 151 (Kolkata). It is argued that the principle of consistency would mean happening of same set of events periodically or successively during a span of time and accordingly the law will have to be applied and if not the principle of consistency is not applicable. Reliance was also placed on the decision of the High Court of Delhi in Shri Rakesh Kumar Gupta Versus Commissioner of Income Tax-XIII and Another 2018 SCC Online Delhi 7907 wherein it was the case where the assessee maintained a separate portfolio for business and investment and the court held in favour of the revenue. It is further submitted that both the assessing officer and the CIT (A) have referred to and relied upon the main objects of the business of the assessee company as provided in the Memorandum and Articles of Association and in fact, the CIT(A) has analyzed the source for the purchase of shares and found it to be flowing from a cash credit account, further the CIT(A), found that the companies whose shares were purchased had not declared any dividend and these facts will be more or less identical to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the purchase thereof and transactions through portfolio manager, the assessee had engaged itself in an adventure in the nature of trade in a systematic and organized manner in so far as the activities resulting in net gains of Rs. 19,28,199/- were concerned and the said amount was business income. The assessee's activities in respect of long-term shares held over from the earlier years were separately examined by the tribunal and it accepted the contention of the assessee that gains of Rs. 4,32,09,144/- from the sale of long-term shares were long term capital gains. Aggrieved over such findings, the revenue has preferred this appeal. 10. It is submitted that the shares in three companies were purchased during the financial year 2002-2003 relevant to the assessment year 2003-2004 and shares in other three companies were purchased during the financial year 2003-2004 relevant to the assessment year 2004-2005 and the total cost was Rs. 38,86,896/-.The long-term shares were listed on the stock exchange. It is submitted that all the shares in the five companies and most of the shares in the sixth company totally costing approximately Rs. 38,00,000/- were sold during the financial ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re uncalled and unreasonable which were rightly rejected by the learned tribunal. Furthermore, the CIT(A) failed to take note of the fact that long term shares were purchased during the financial years 2002-2003 and 2003-2004 when long term capital gains were taxable. STT and exemption in respect of long-term capital gains came into effect only from October 01, 2004. It cannot be disputed that the assessee sold long term shares in two of the companies prior to October 01, 2004 giving rise to long term capital gains of Rs. 1,01,07,784/- which was chargeable to tax at the rate of 10%.It was only the long-term shares which the assessee sold on or after October 01, 2004 that enjoyed tax exemption. The CIT(A) failed to consider that in terms of clauses 29A, 29B, 42A and 42B of Section 2 of the Act, shares held for more than 12 months were long term capital assets giving rise to long term capital gains and those held for not more than 12 months were short term capital assets giving rise to short term capital gains and the assessee cannot be put to prejudice or faulted for availing exemption in accordance with the statutory provisions. It is submitted that the CIT(A) mis-directed itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the shares. It is submitted that on a perusal of the order passed by the CIT(A) it would clearly show that the cash credit account is a mixed/composite account through which the regular business transactions of plywood and allied products as well as shares transactions were routed. Though the CIT(A) has mentioned that the cash credit account had a debit balance of Rs. 6.36 crores as on March 31, 2005 no mention has been made of any debit balance on any other day. Thus, the CIT(A) proceeded on the assumption that the average of share capital and reserves and surplus of Rs. 41.37 crores was entirely used for funding the fixed and net current assets of Rs. 68.94 crores and the assessee had to resort to borrowing to the tune of Rs. 27.57 crores even for its normal business transaction of plywood and allied products. The CIT(A) completely mis-directed itself in arriving at the aforementioned finding. It is not in dispute that the assessee's shares, capital and reserves amounted to Rs. 41.37 crores on an average whereas the amount invested in long term shares was less than Rs. 50 lakhs. Further it is not in dispute that not only during the assessment year 2005-2006 even for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that it would be impermissible for the revenue to contend that the shares which were held as investment and accepted as such for the assessment years 2003-2004 and 2004-2005 were not investments when it came to the assessment year 2005-2006 (year under consideration). There is no new or fresh material in respect of long-term shares on the basis of which the consistent finding of the earlier years in respect of such shares can be reversed for the assessment year under consideration. To support such contention, reliance was placed on the decision in Commissioner of Income Tax Versus Srideb Enterprises 1991 192 ITR 165 (Kar). Further it is submitted that the gains from the remaining long-term shares of the 6th company sold during the previous year relevant to the assessment year 2006-2007 were treated by the assessing officer as business income but this order was reversed on appeal. The revenue's appeal before the tribunal against the said order was dismissed by order dated February 11, 2011 in ITA No. 134/Kol/2010.For the assessment years 2007-2008 and 2008-2009,the assessing officer treated the income from sale of shares as business income but this order was reversed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f by the assessee even at this stage. 13. It is further submitted that the decision to be taken in such matters depends on the facts of each case and it is not possible to evolve a single legal test or formula which could be applied in determining whether the transaction was an adventure in the nature of trade or not and the answer to the question would depend in each case on the relevant factors and circumstances proved therein which will determine the character of the transactions. In support of such contention, reliance was placed on the decision of this Court in Gyan Traders Limited Versus Commissioner of Income Tax, 2022 143 Taxman.com 42 (Cal). It is submitted that in the decision in Gyan Traders Limited this Court has considered its previous decision in Commissioner of Income Tax Versus Merlin Holding Private Limited 2015 375 ITR 118 (Cal), Jet Age Securities Private Limited Versus Commissioner of Income Tax in ITA No. 79 of 2010 dated September 15, 2022 and Principal Commissioner of Income Tax Versus Purvanchal Leasing Limited 2022 287 Taxman 20 (Cal). 14. Adverting to the decisions relied on by the revenue in case of Dalhousie Investment Trust Company and Investment Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Narain Rai, learned senior standing counsel by way of reply submitted that the CIT(A) had clarified that he has taken a holistic view of all the shares dealings with the same wholesomely and merely because at the end of one of the sentences, the CIT(A) has referred to the then obtaining debit balance in the account, there is no reason to discredit the CIT(A) earlier observation where he has rendered a specific finding. It is reiterated that since the assessee was claiming exemption, the burden is on the assessee to establish the case. It is further submitted that the assessee had contended that the question as to whether a transaction is an investment or business is required to be decided script wise and not holistically may be relevant in a case where the assessee maintains two portfolios and in the instant case, the assessee has maintained a single portfolio in respect of all shares which fell for consideration before the authorities. On this ground, the learned senior standing counsel sought to distinguish the decision in Associated Industrial Development Company. With regard to the argument that both the circulars are to apply retrospectively, it is submitted that the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as investment and as to why the same should not be assessed under the head "income from business" and not as long term capital gains as claimed by the assessee in the return of income. 17. The assessee in their reply contended that they have accounted for the transactions as investment transactions in its books of accounts and has been specifically shown as such in the schedule. That the assessee has been investing idle funds within the limit prescribed under section 372A of the Companies Act, 1956. That the assessee has been investing funds with long-term view which is evident from the fact that during the financial year in question the assessee has yearned Rs. 460.09 lakhs as capital gains from the investment activities out of which Rs. 432.09 lakhs was long-term capital gain. That during the whole financial year the assessee has made only a few investments in shares compared to several other transactions relating to its normal business activities namely trading of plywood and other products and therefore requested that the investment income should be assessed under the head capital gains. 18. The assessing officer after taking note of the stand taken by the assessee in the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and not with the object of investing its capital in the shares in order to derive income from that investment. Further the assessing officer held that the volume of transactions, the frequency of transactions, the systematic and organised manner of undertaking the transactions strongly lead to the conclusion that the shares could not have been purchased as an investment to earn income from dividends and that the purchase of the shares were with the object of selling them subsequently at profit and in fact the shares were sold at considerable profits subsequently. The assessing officer rejected the stand taken by the assessee that the shares were held as investment to earn dividends. 19. Aggrieved by the assessment order dated 28th of December 2007 the assessee filed appeal before the Commissioner of Income Tax (Appeals)-X I, Kolkata [CIT(A)] contending that the assessing officer committed gross error in assessing the gains arising from the purchase and sale of shares/units under the head business. The assessee contended that mention of business of share trading as one of the main objects in the Memorandum and Articles of Association of the company is not sufficient to lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rising on transfer thereof is short-term capital gains. Hence any period of less than 12 months, be it a few days or few months is of holding the shares does not make any difference, in any case, the transaction would result in short-term capital gains. Further the assessee contended that short-term capital gains tax at normal rate and the deduction is available in computation thereof where limited and even at the relevant time the assessee showed such gains as short-term capital gains and the assessee would have benefited if they had shown it as business income as they would have been able to claim several other deductions but the same was not done as the shares were held by the assessee as investment and not as stock-in-trade. The assessee further contended that the department having treated the shares as investment and the gains as capital gains in the past there is no justification for the assessing officer to take a different view in the year under consideration and the assessing officer ought to have maintained consistency. Further the assessee contended that the intention of the assessee at the time of purchase of the shares is of material significance as, if the shares were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) drew adverse inference against the assessee noting the volume and frequency of the transactions. The CIT(A) came to the conclusion that the assessee was actually engaged actively in share transactions, they had a full-fledged shares Department and it is the assessee who has been taking decisions in respect of high-volume, high frequency as well as high-stakes transactions. With regard to the plea of the assessee that if they had shown the share transactions as business activity they could have claimed various deductions, the CIT(A) rejected such a plea as lacking in substance because all the deductions which could be claimed under the head profits and gains of business have actually been claimed by it in connection with the business of plywood and related items and not a single instance of deduction relating to share transactions has been shown which could be claimed as additional deductions, had the income been shown as profits of business, but has not been claimed. Thus the CIT(A) concluded that on the overall assessment of the facts and circumstances of the case leads to the clear and inevitable conclusion that the intention of the assessee was clear in making profit fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the long-term capital gains on which STT was paid will be equally applicable to the long term capital gains where STT was not paid and accordingly decided the issue in favour of the assessee. The correctness of the orders passed by the learned tribunal is being questioned by the revenue in this appeal. The of the case of the revenue was that findings rendered by the CIT(A) that the account being a current account and set aside the order passed by the CIT(A) which is incorrect as it is factually wrong. It is no doubt true that the learned tribunal committed a mistake in referring to the said account as a current account, the fact being it is a cash credit account. The question would be whether if it is a cash credit account, will it lead to the automatic presumption that the funds which were utilised were borrowed funds. While we examine the issue, it has to be borne in mind that the long-term capital gains amounting to Rs. 3,31,01,360/- wherein STT was paid arose out of sale of shares of four companies and the purchase of those shares of the four companies were made in the preceding financial year i.e. 2002-2003. This is an important fact which needs to be borne in mind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 2005 but there was no mention made of any debit balance on any other day. The revenue does not dispute that the assessee's share capital and reserve is Rs. 41.37 crores on an average whereas the amount invested in long term shares was less than Rs. 50,00,000/- and it was disputed only during the assessment year 2005-2006. The learned senior advocate for the assessee referred to the assessment order dated 31.03.2006 for the assessment year 2003-2004 which was a scrutiny assessment under Section 143 (3) of the Act wherein the assessee's total income was Rs. 7,08,30,550/-. Similarly, by referring to the assessment order dated 14.02.2014 for the assessment year 2004-2005, it was shown that the total income of the assessee was Rs. 4,38,22,890/-. As already pointed out the tribunal also noted that as per the Profit and Loss Account for the year ended 31.03.2004, the profit was Rs. 9.01 crores and for the year ended March 31, 2005, it was Rs. 9.47 crores. These undisputed facts should enure in favour of the assessee. More or less an identical question was considered by the Hon'ble Division Bench of this court in the case of C.E.S.C Limited Versus Commissioner of Income Tax, Kolkata - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited. The question of law which arose for consideration before the Hon'ble Supreme Court was whether proportionate disallowance of interest paid by the banks is called for under Section 14A of the Act for investments made in tax free bonds/securities which yield tax free dividend and interest to assessee banks when the assessee had sufficient interest free own funds which was more than the investment made? The assessee's before the Hon'ble Supreme Court were scheduled banks and in the course of their banking business, they also engaged in business of investments in bonds, securities and shares which earn interest for the assessee. While completing the assessment, the assessing officer made proportionate disallowance of interest attributable to the funds investment to earn tax free income as separate accounts for investment was not maintained. The order was affirmed by the CIT(A). The tribunal considered the absence of separate identifiable funds utilised by the assessee for making investments in tax free bonds and shares but found that the assessee bank is having indivisible business and considering their nature of business, the investment made in tax free bonds and shares were he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of law of the Bombay High Court would now be appreciated in the following discussion. 19. In HDFC Bank Ltd. v. Deputy Commissioner of Income Tax MANU/MH/0208/2016 : (2016) 383 ITR 529 (Bom), the Assessee was a Scheduled Bank and the issue therein also pertained to disallowance Under Section 14A. In this case, the Bombay High Court even while remanding the case back to Tribunal for adjudicating afresh observed (relying on its own previous judgment in same Assessee's case for a different Assessment Year) that, if Assessee possesses sufficient interest free funds as against investment in tax free securities then, there is a presumption that investment which has been made in tax free securities, has come out of interest free funds available with Assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT v. Suzlon Energy Ltd. MANU/GJ/0279/2013 : (2013) 354 ITR 630 (Guj), CIT v. Microlabs Ltd. MANU/KA/0526/2016 : (2016) 383 ITR 490 (Karn) and CIT v. Max India Ltd. MANU/PH/1743/2016 : (2016) 388 ITR 81 (P & H) Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant year and all other germane factors. It is an argument of the revenue that in both the decision namely in East India Pharmaceuticals Works Limited and C.E.S.C Limited for the purpose of presuming that investments have been made from out of the profits, two conditions are to be satisfied that the profit of the entire business including the sale proceeds should be deposited in the mixed overdraft account and investment should be less than the amount of profits earned or which could reasonably be deemed to have been earned, regard being had to the date of expenditure. The revenue's case before us is that the assessee has not shown that profits have been deposited in the cash credit account wherefrom borrowing/withdrawals had been done for purchasing shares. In the preceding paragraphs, we have noted that the CIT(A) came to the conclusion that borrowed funds were utilised for the purchase of shares for the sole reason that the funds flow was from a cash credit account. The question would be whether such a presumption can be drawn without noting the facts. Admittedly there is nothing on record that borrowed funds were utilised for the purpose of investment in shares. As already po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the long-term shares were held over for earlier years and were shown as investments in the books of account. This was accepted by the department in the years in which the shares were purchased namely 2003-2004 and 2004-2005. The assessment orders were placed which shows that for those years 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 were shown as investment and profits were shown as capital gains and consistently the department meted out the same treatment to the said investment and the case of the assessee was accepted. The CIT(A) does not dispute the facts that in the previous years, the transactions was shown as an investment and accepted by the department as an investment. But would state that different view can be taken if some fresh material comes on record and facts and circumstances justifies such a departure. Thus, the principle of consistency required to be firmly maintained has been accepted by the CIT(A) but would state that a departure can be made if there are some fresh materials. Thus, it is to be seen that any fresh materials as brought on record by the CIT(A) or even the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the orders dated 11.05.2011 and 18.08.2011 and those orders have attained finality. Therefore, for the solitary year, the year under consideration, a departure from the consistent manner in which the department viewed the transactions, cannot be disturbed. The decision in the case of Gyan Traders Limited would also aid and assist the case on hand wherein it was pointed out as under: The legal principle that is deduceable from the above decisions are that in considering whether a transaction was or was not an adventure in the nature of trade, the problem must be approached in the light of the intention of the assessee having regard to the legal requirements which were associated with the concept of trade or business. That is not possible to evolve a single legal test or formula which could be applied in determining whether a transaction was an adventure in the nature of trade or not and the answer to the question would depend in each case on the relevant factors and circumstances proved therein which will determine the character of the transaction. Further the distinction between the two types of transactions is not always easy to make. 27. In the absence of any doubt raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is a main criteria to be judged. 28. Circular No. 4 of 2007 dated 15.06.2007 was issued with regard to the distinction between shares held as stock-in-trade and shares held as investment and the tests for such a distinction were laid down. The following paragraphs of the circular would be relevant:- 10. CBDT also wishes to emphasise that it is possible for a tax payer 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. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. 11. Assessing officers are advised that the above principles should guide them in determining whether, in a given case, the shares are held by the assessee as investment (and therefore giving rise to capital gains) or as stock-in-trade (and therefore giving rise to business profits). The assessing officers are further advised that no single principle would be decisive and the total effect of all the principles should be considered to determine whether, in a given ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of existing Circulars issued by the CBDT on this subject. Similarly, for determining the tax-treatment of income arising from transfer of unlisted shares for which no formal exists for trading, a need has been felt to have a consistent view in assessments pertaining to such income. It has, accordingly been decided that the income arising from transfer of unlisted shares would be considered under the head 'Capital Gain', irrespective of period of holding, with a view to avoid disputes/litigations and to maintain uniform approach. It is, however, clarified that the above would not be necessarily applied in the situations where: (i) the genuineness of transactions in unlisted shares itself is questionable; or (ii) the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or (iii) the transfer of unlisted shares is made along with the control and management of underlying business. And the Assessing Officer would take appropriate view in such situations. 31. It is the argued by Mr. Roy that the circulars cannot be applied ipso facto when the matter has a cascading effect. We are of the view that there can be no quarrel as to such propos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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