BUNKIM FINANCE & INVESTMENTS P. LTD,MUMBAI vs. ITO 10(3)(1), MUMBAI

आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member): - 1.1 Aforesaid cross appeals for Assessment Year [AY] 2006-07 contest the order of Ld. Commissioner of Income-Tax (Appeals)-22, Mumbai [CIT(A)], Appeal No. CIT(A)-22/ITO-10(3)-1/IT-78/2012-13 dated 01/08/2013. The grounds raised by assessee read as under: - 1. The Commissioner of Income-tax (Appeals) - 22, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income-tax Officer - 10(3)(1), Mumbai (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs.1,53,828 under section 14A of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance of Rs 1,53,828 as there is no expenditure incurred in relation to earning the income not forming part of the total income and as such, no disallowance can be made under section 14 A. 2. The CIT(A) erred in upholding the action of the Assessing Officer in treating short- term capital gains of Rs 53,27,430 as a business income. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in considering the capital gains arising on sale of short-term capital assets as business income. 3. The Assessing Officer erred in charging interest under sections 234B and 234C of the Act. The appellants contend that the Assessing Officer ought not to have charged interest under sections 234B inasmuch as the appellants, in terms of section 208, were not liable to pay advance tax.

The Grounds raised by Revenue read as under: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of expenditure made u/s.14A to Rs.1,53,828/- against Rs.7,93,802/- disallowed by the Assessing Officer. 2.1 On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in directing the Assessing Officer to assess the profit & gains on sale of shares under the head Capital Gains (Rs.16,56,89,573/- as LTCG & Rs.53,27,430/- as STCG) as against the Business Income assessed by the Assessing Officer.

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 2.2 Without prejudice, on the facts and in the circumstances of the case and in law, the profit & gains on sale of shares are required to be assessed as speculation income as per the Explanation of Sec. 73 of the I. T. Act." 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored.”

1.2 This is second round of appeal before us since initially the appeal of the assessee was dismissed by learned first appellate authority vide order dated 21/07/2010. However, upon further appeal, the Tribunal set-aside the impugned order and restored the matter back to the file of Ld. CIT(A) for re- adjudication vide ITA No. 6936/Mum/2010 order dated 27/01/2012. Pursuant to the aforesaid directions, the Ld. CIT(A) has re-adjudicated the issues vide impugned order dated 01/08/2013 which has given rise to present cross-appeals before us. 1.3 We have carefully heard the rival submissions, perused relevant material on record including documents placed in the paper book and deliberated on judicial pronouncements as cited before us. Our adjudication to various issues of cross-appeals is as given in succeeding paragraphs. 2. Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in trading and investment of shares and securities was assessed for year under consideration u/s.143(3) of the Act on 31/12/2008 at Rs.1713.64 Lacs after certain additions / adjustments as against Nil return e-filed by the assessee on 30/11/2006. In the quantum assessment order, the assessee has suffered two adjustments viz. (i) disallowance u/s 14A; and (ii) denial of exemption u/s 10(38) since

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 Long-Term Capital Gains as well as short-term capital gains were treated as business income. 3.1 Disallowance u/s 14A During assessment proceedings, upon perusal of Profit & Loss Account, it transpired that the assessee reflected exempt capital gain of Rs.1656.89 Lacs u/s 10(38) and exempt dividend income u/s 10(34) for Rs.15.38 Lacs which led Ld.AO to compute disallowance u/s 14A. The assessee was asked to file the relevant details and show-caused as to why interest as well as other expenditure should not be disallowed u/s 14A. In defense, the assessee submitted that it had already ignored claim of expenditure of Rs.4.46 Lacs as against Rs.3.79 Lacs worked out as per Rule 8D and therefore, further disallowance would not be warranted. However, not satisfied, Ld. AO worked out aggregate disallowance of Rs.8.72 Lacs in terms of Rule 8D, which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.4.92 Lacs and expense disallowance u/r 8D(2)(iii) for Rs.3.79 Lacs. Since total expenditure debited to Profit & Loss Account was Rs.7.93 Lacs, the aforesaid disallowance was restricted to Rs.7.93 Lacs. 3.2 The learned first appellate authority, while confirming the stand of Ld. AO in invoking the provisions of Section 14A, directed Ld. AO to restrict the disallowance to 10% of exempt income and deleted the balance disallowance of Rs.6.39 Lacs. The same has given rise to one of the grounds of cross-appeals. 3.3 Upon due consideration, we find that as per settled legal position, the provisions of Rule 8D were not applicable to the year under consideration.

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 Therefore, the disallowance was to be computed on some reasonable estimated basis keeping in view the assessee’s financials. The estimation of 10% as made by learned first appellate authority could not be said to be unfair or unreasonable, in any manner. From perusal of financial statements, it is observed that the assessee has debited administration and other charges for Rs.7.93 Lacs which would include routine expenditure viz. salary, telephone, conveyance, directors’ remuneration, demat charges, service tax etc. Most of the expenditure would be statutory in nature and would be necessary to maintain corporate personality of the assessee. Therefore, the estimation as made by Ld. CIT(A), in our considered opinion, was quite fair and the same would not require any interference on our part. Resultantly, the grounds raised in assessee’s appeal as well as in revenue’s appeal, on this issue, stands dismissed. 4.1 Long Term Capital Gains In its computation of income, the assessee claimed Long-Term capital gains of Rs.1656.89 to be exempt u/s 10(38). During assessment proceedings, the assessee was directed to file the details of sale and purchase of shares giving rise to aforesaid gains. However, the assessee could not file complete details including details of purchase / acquisition of shares. The perusal of demat account statement obtained by Ld. AO from Axis Bank Ltd., against summons u/s 131, revealed that as on 31/03/2004, the assessee had closing balance of 36593 shares of Ruchi Soya and 10552 shares of Ruchi infrastructure. Looking at the frequency of transaction from demat account, Ld. AO formed an opinion that the

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 assessee was actually involved in trading of shares rather than as an investor which was further strengthened by the fact that no other business activity was carried out by the assessee during the year under consideration. An opinion was also formed that the transactions were carried out with a profit motive and therefore, the resultant gains / losses were to be assessed as Business income and not as Capital Gains. The relevant observations of Ld. AO were as follows: - 5.8.2 Looking to the volume frequency, continuity and regularity purchase and sales in shares, it can be inferred that these transactions entered into by the assessee with a profit motive. This act of shows that the transactions were entered into with the intention to do business. It cannot be said that these transactions were entered into only for the purpose of Investment and there was no motive to earn profit. Though, the word business has not been defined in the taxing statute, yet it postulates the existence of certain elements in the activity of the assessee which would invest it with the character of the business. According to well-established interpretation of word ‘business’ as found in taxing statutes it is the sense of an occupation or profession which occupies the time, attention and labour of a person normally with the object of making profit. To record an activity as business there must be of course dealings either actually continued or contemplated to be continued with a profit motive. Whether or not a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and transaction must ordinarily be entered into with a profit motive. Such motive must pervade the whole series of transactions effected by the person in the course of his activity. Hence, in view of the above discussion the income is charged under the head "Business Income" and not as capital gain. 4.2 The stand of Ld. AO, upon confirmation by learned first appellate authority , in the first round, was assailed by assessee before Tribunal vide ITA No.6936/Mum/2010 order dated 27/01/2012 wherein the matter was restored back with following directions: - 15. We have carefully considered the orders of authorities below and submissions of Ld. Representatives of parties. We observe that AO vide summons u/s. 131 of the Act dt. 12.12.2008 asked certain documents from assessee, details of which are given in para 5.1 of assessment order. We observe that assessee furnished certain details in respect of shares on which assessee disclosed Long Term Capital Gain and claimed exemption

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 u/s. 10(38) of I.T. Act. It is a facts that assessee could not furnish certain details before AO, details of which are stated by AO at para 5.4 of assessment order and have also been mentioned herein above at para-9. We observe that assessee vide its letter dt. 22.2.2005, copy placed at pages 233-234 and addressed to Ld. CIT(A) filed details of purchase of shares, Demat Accounts and also explained that said shares were held earlier by assessee in physical form. Assessee also explained in said letter as to why assessee could not furnish details before AO and stated that on account of frequent changes in staff, details could not be retrieved from old records. The assessee also stated in the said letter that all the details like date of purchase, cost of acquisition etc. regarding purchase of shares on which assessee claimed Long Term and Short-Term capital gain were filed before AO. 16. We observe that assessee requested before Ld. CIT(A) to admit additional evidences in terms of Rule 46A of I.T. Rules. However, we observe that Ld. CIT(A) vide para 5.1 and 5.2 has stated that assessee was not prevented by any cause to produce said documents before AO and therefore did not admit said documents. During the course of hearing, Ld. DR has not disputed the fact that said documents go to the root of the issue involved. We also observe from pages 195 to 198 of Paper Book r.w. pages 199-200 that assessee claimed capital gain in assessment year 2005-06 and the department accepted the capital gain disclosed by assessee. Similarly, for assessment year 2008-09, copy placed at pages 356 -377 r.w. pages 358 of Paper Book, assessee disclosed capital gain and same was allowed by the department. The Hon’ble Jurisdictional High Court in the case of Smt. Prabhavati S. Shah v. CIT (supra) has held that the Appellate authority should not refuse to make enquiry in the case where facts and circumstances so demand. We observe that documents proposed to be filed by assessee are relevant and necessary to be considered to decide the issue as to whether shares were held by assessee as investment or stock-in-trade. It is relevant to state that Hon’ble Apex Court has held in the case of CIT Vs Prabhu Dayal 82 ITR 804 that question as to whether receipt is a capital receipt of income, has to be judged from the facts of each case and question of law can be drawn such facts. The Hon’ble Apex Court in the case of CIT Vs. H. Holck Larsen 160 ITR 67 also held that whether transaction of sale and purchase of share is a trading transaction or in the nature of investment, is a mixed question of law and facts. Therefore, to decide the question as to whether assessee has to be treated as investor in share or a trader or shares is to be considered, considering totalities of all facts. In view thereof, it is necessary that Ld. CIT(A) should have considered the evidences proposed to be filed by assessee to decide the issue fairly and judiciously. 17. In view thereof, we, in the interest of justice, set aside the order of Ld. CIT(A) and restore the issue to his file with a direction that he should decide it afresh after making proper enquiry and considering such evidences as may be filed by assessee before him. Needless to state that Ld. CIT(A) will give due opportunity of hearing to the parties in accordance with law. Hence ground No. 2 of appeal is allowed for statistical purposes by restoring the issue to Ld. CIT(A) for his fresh adjudication. 18. In ground No. 3 of appeal, Ld. AR submitted that AO without giving any reason has considered Short Term Capital Gain disclosed by assessee as business income.

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 19. Ld. AR referred to page 165 of Paper Book and submitted that assessee took an additional ground before Ld. CIT(A) vide letter dt. 24.11.2009 that AO treated Short Term Capital Gain of Rs. 53,27,430/- as business income without giving any reason. The Ld. CIT(A) has not adjudicated the said ground while deciding the appeal of assessee. He submitted that issue may be restored to Ld. CIT(A) to decide the above ground by a reasoned order. The Ld. Departmental Representative has not disputed above submission of Ld. AR. 20. We have considered submissions of Ld. Representatives of parties and have carefully perused order of authorities below as well as page 165 to 166 of Paper Book. We observe that AO has not given any reason while considering Short Term Capital Gain, disclosed by assessee as business income. We also observe that assessee took an additional ground vide letter dt. 24.11.2009 before Ld. CIT(A), copy placed at pages 165 to 166 of Paper Book. We agree with Ld.CIT(A) that while disposing of appeal of assessee has not objected this ground though at Page-3 of his order, he has stated that assessee submitted before him that AO has treated Short Term Capital Gain of Rs. 53,27,430/- as business income without giving any reason in the assessment order. Since Ld. CIT(A) has not adjudicated the above ground, we, restore this ground to Ld. CIT(A) with a direction to decide the same by a speaking order after giving due opportunity of hearing to the parties and also considering such evidences as may be filed before him in accordance with law. Hence, ground No. 3 of the appeal taken by assessee is allowed for statistical purposes

It is evident from the aforesaid directions that the matter of assessment of Long-Term Capital Gains as well as Short-Term Capital Gains was set- aside for fresh adjudication in the light of additional evidences submitted by the assessee. 4.3 Pursuant to aforesaid directions, Ld. CIT(A) re-examined the claim in the light of additional evidences furnished by the assessee which were already filed before Ld.AO during remand proceedings in the first round of appeal. With respect to Long-term capital gains, the assessee submitted that the shares of two entities under consideration were held since financial year (FY) 2002-03 & 2003-04 with an intention to earn dividend income. There was no regular sale or purchase of shares of these entities and the

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 investment were long term investment which was evident form the fact that the assessee never made provision for diminution in the value of shares in the books of accounts. Further, the shares were reflected as long-term non- trade investments in the Balance Sheet. In support of the said submissions, the assessee filed financial statement for various years along with copies of relevant purchase bills, delivery challans, ledger account copies, bank statements evidencing payments, confirmation from share transfer agents and demat statements. Regarding, Short-term capital gains of Rs.53.27 Lacs, the assessee submitted that the income has been treated as business income by Ld. AO without giving any reasons. 4.4 The learned first appellate authority, after considering the various remand reports wherein the genuineness of the above transactions was doubted by Ld. AO, came to a conclusion that just because the shares were purchased off-market, the purchases transactions could not be doubted. 4.5 Proceeding further, Ld. CIT(A) concurred with assessee’s submissions with respect to treatment of Long-Term capital gains in the light of evidences furnished by the assessee. The factual findings and conclusions drawn by Ld. CIT(A), were as follows: - 10.11 I have carefully considered the impugned assessment order, the submissions made along with the paper book and the materials available on record. Each case has its unique and peculiar set of facts. Numerous decisions of ITAT and High Court are available on this issue. All these decisions cannot be applied as a strait jacket fitting to the facts of the appellant's case. The Assessing Officer while analyzing various ingredients laid down by the judiciary and CBDT, in a general and routine manner but not with reference to the actual facts in the appellant's case. The various tests laid down will have to be analyzed with reference to the scrips actually purchased and sold by the assessee.

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 10.12 The acid test to judge the intention is as to whether one indulges in frequent buy and sell only to make quick money. If this ingredient is present then it can be clearly concluded that one is in the habit of trading in shares. The most important criteria is to ascertain the intention at the time of purchase but such intention has to be gathered from the subsequent conduct of the assesses in dealing with the shares. The investor is consistently not motivated to sell the shares on each and every rise in the value of shares. In fact, the attribute of the trader is that there should be frequent buying and selling. The investor is not barred from selling the shares after short holding period in order to reshuffle portfolio when a particular share is not doing well. Merely because the assessee liquidates its investment after a short period of holding, it should not lead to a conclusion that the intention was to trade. Large volume of purchase and sale of shares does not per-se means business activity. The volume and frequency cannot be sole criteria to arrive at the conclusion that the assessee is into trading. A prudent Investor always keeps a watch on the market trends. Thus, the intention can be proved only by way of conduct of the appellant after the purchase. The conduct of the appellant in the present case shows that the intention was to hold the shares for long before disposing off the same which is, discussed in the coming paras. 10.13 The main dispute in this case related to treatment involving 2 scrips viz. M/s.Ruchi Soya and M/s.Ruchi Infra. Page 39 and 40 of the paper book shows the detail of purchase and sale of these 2 scrips Ruchi soya and Ruchi infra during this assessment year. Table containing the details filed by the appellant is enclosed to this order (Enclosure 'A'). A careful analysis of the table reveals the following facts: Details of sale of Ruchi Soya Shares:- Month No of No Total shares transaction days sold

April 10 6 77,899

May 16 11 3,40,931

September 1 1 10,000

Total : 27 18 4,28,830

Details of sale of Ruchi Infra shares :- Month No of No days total shares sold transaction

April 6 6 1,410

May 15 14 5,25,000

June 19 8 13,45,000

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07

July 1 1 20,000

August 24 12 17,48,406

September 7 3 1,93,000

TOTAL : 72 44 38,32,816

Note : Multiple transactions on the same day is treated as one transaction only. 10.14 As far as the shares of Ruchi soya is concerned the appellant had visited the stock exchange only 18 days during the whole year and there were only 27 sale transactions. With regard to Ruchi infra there was 44 days of visit with total of 72 transactions. The perusal further reveals that sometimes the appellant had indulged in sale of both the scrips on the same day. If this is considered then the appellant had visited the stock exchange hardly 30 to 35 days in the whole year and the total number of transactions were less than 100 put together for both the scrips. This behaviour clearly shows though the volume is high but the frequency is less which is not an attribute of the trader. Hence at no stretch of imagination it can be said that the appellant is a trader. 10.15 The appellant had identified, the source of purchase of these shares as out of the stock held by it. The same is reproduced as under (actual details are available in enclosure- A) Ruchi Soya Date Quantity 15.09.2003 18,830 19.09.2003 1,50,000 23.09.2003 1,50,000 25.09.2003 1,00,000 06.07.2004 500 01.09.2004 2,000 7,500 4,28,830

Ruchi Infra Date Quantity 09.01.2004 1,410 09.01.2004 23,602 26.03.2004 3,33,500 26.03.2004 32,13,918 02.04.2004 2,60,386 38,32,816

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 The above clearly shows that the shares purchased during this assessment year are not part the shares sold and the investment made during the earlier year and held as stock in the investment portfolio only were sold by the appellant during this year. As mentioned above the physical shares purchased were demateriaiized and the appellant maintains it's D-Mat account with Axis Bank. When the dealings are through D-mat a/c the natural corollary is that the shares purchased first are sold first and effectively the FIFO method comes in to play/Hence the method adopted by the appellant is found acceptable It is worth to mention here the circular No.786 dtd.24.06.1998 issued by the CBDT in this regard. I find the method followed by the appellant is in consonance with the Board Circular. 10.16 Similar details with regard to purchase and sale of these two scrips during AY 2005-06 are available in page 38 of the paper book. A chart prepared indicating the date wise transaction was also furnished which is available in page 353 of the paper book. The scrutiny reveals the following: Ruchi soya sales month wise during FY 2004-05: July 100 September 35,235 October 171 December 10,656 January 6,630 February 2,400 March 63,700 1,18,882

The appellant had identified the date of purchase of the scrip also. The details are as under: Date Quantity 08/05/2002 3623 13/05/2002 688 31/03/2003 79,246 23/09/2003 35,235 1,18,882

10.17 The analysis of the details for both AY 2005-06 and 2006-07 shows that the scrips purchased during the year was not sold by the appellant. It was the stock held as investment in the earlier year held for more than a year only was disposed of during relevant year. The claim of investment made in these shares in the earlier years were never disputed by the AO. All the above shares sold are part of opening balance in the investment portfolio in the respective years. 10.18 The schedule attached to the Balance sheet under the head investment was filed by the appellant. The details of holding of these 2 scrips in the last 5 years produced by the appellant is available in page 373 of the paper book and for the sake of convenience the same is reproduced here under:- Ruchi Soya

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 March March March March March March 2000 2001 2002 2003 2004 2005 Quantity 81,300 14,38,020 14,32,551 39,636 5,37,712 4,51,190 Amount 2,06,76,858 11,33,19,105 11,36,31,239 12,46,760 2,19,11,251 2,14,15,358 Page No. 343 345 347 348 349 350 Paper book

Ruchi Infra March March March March March March 2000 2001 2002 2003 2004 2005 Quantity 14,38,120 89,900 77,050 2,39,350 4,06,352 7,78,709 Amount 11,33,26,724 2,20,77,169 1,87,62,283 3,95,09,478 2,67,90,779 4,16,88,350 Page No. 343 345 347 348 349 350 Paper book

10.19 The shares which were figuring in the opening balance and sold subsequently can never be considered as trading. The claim of the appellant that it is only an investor is found to be acceptable in light of the decision of the jurisdictional ITAT in the case of M/s. Kamlesh Real Estate Private Limited in ITA No. 1451/M/2010 dated 20/04/2011 for A.Y. 2006-07. The finding of the Hon'ble ITAT is in para 4.4 which is reproduced here under :- "4.4 We have considered the various aspects of the issue carefully. Whether the particular share transactions constitute investment activity or trading activity will depend upon facts and circumstances of each case. The factors such as entry in the books of account as investment, transactions being funded from own funds and not borrowed funds etc, are some of the relevant factors in deciding the true nature of transactions but none of these factors is conclusive. The intention at the time of purchases is the most important factor but such intention has .to be gathered from subsequent conduct of the assessee in dealing with these shares, and not from the entry in the books of accounts. An investor purchases a share with a view to earning income in the form of dividend and for appreciation In value over a long period of time and is not motivated to sell shares on each and every rise in the value of shares which are in fad the attributes of a trader. In the present case the assessee has been frequently purchasing and selling shares and the sales in all cases have been made after holding the shares for less than 3 months and the overall profit earned has also been small clearly suggesting that the assessee had been selling the shares motivated by profit. Even an investor sometimes may sell shares after holding for a short period in order to reshuffle the portfolio when a particular share is not doing well or in case of exceptional appreciation. Such selling after short holding has to be explained. In this case the assessee has not explained why it has been selling the shares after holding for a short term. The assessee has given general reasons such as government policy, management, market outlook etc. which is quite vague and does not explain satisfactorily the reason for frequently

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 selling the shares after holding for a short period. It has been argued that in earlier years similar transactions have been accepted as investment activity but it has not been shown how the transactions in earlier years were exactly identical and whether the same10 had been accepted after examination. The assessee has also cited some tribunal decisions which in our view are distinguishable as each case has its own peculiar features. In our view, on the facts of the case, the income arising from safe and purchase of shares within the three months period has to be treated as business income. However we make it clear that in case any part of the gain is in respect of sale of shares appearing in the opening balance which has been treated as investment in the earlier year, it has to be treated as capital gain and excluded from the business profit. Subject to above we confirm the order of CIT(A). Thus the ITAT came to a conclusion that shares held for less than 3 months cannot be considered as investment and at the same time shares which were part of opening balance needs to be treated as capital gain and excluded from business profits. 10.20 The ratio laid by the ITAT if applied to the facts in appellant's case then there cannot be a doubt that the appellant is only an investor and not a trader. As mentioned above, though these two scrips had resulted in profit but the habit of the assessee shows that shares bought in the earlier only was sold. Just because these scrips had resulted in a profit the appellant had not repeatedly bought and sold in quick succession, without holding it for too long a period. Thus the element of frequent purchase and sale is missing which is the key ingredient in the case of a trader and further the element of intention of making quick profit is not there in the appellants case. This behavior of the appellant clearly proves that it is an investor and not a trader. Large volume of purchase and sale of shares does not per-se means is a business activity. The volume and frequency cannot be sole criteria to arrive at the conclusion that the appellant is into trading. The overall conduct of the appellant shows that the intention at the time of purchase was to hold it for long as investment and as discussed above the subsequent behavior also did not show any attribute of a trader. 10.21 The appellant had submitted the assessment orders for 2005-06 and 2008-09 as a part of the paper book to show that consistently the claim of Long Term capital gain on sale of shares had been accepted by the Department after a thorough scrutiny u/s143(3).Copies of the order is available in pages 195 to 198 and 356 to 357 of the paper book. I have perused the copy of the order for AY 2005-06, the AO had accepted the claim of LTCG which he had discussed in para 3 of the order. The very same AO had passed the order for the current year. When the same Assessing Officer had accepted these shares as investment in earlier years, he cannot suddenly change the treatment and consider the profit arising out of the transaction as business activity during this year. Thus the appellant had consistently declared the gain arising out of sale of share as Long and short term capital gain which was accepted by the Assessing Officer u/s 143(3). Though the rule res-judicata is not applicable to I.T. proceedings but in the absence of change in facts, the principle of consistency cannot be ignored by the AO. The appellant had disclosed the shares as investment in the Balance Sheet and not as stock-in-trade. This fact has also been recognized by the AO. If the rule of consistency is considered along with the other facts discussed in the preceding

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 paragraphs, I am persuade to hold that the surplus on the sale of shares was rightly declared by the appellant as long term capital gains. ; 10.22 In the note below para 8.12, I have mentioned that multiple transaction on a single day is treated as one transaction. Simply there were multiple sale transactions on the same day, it cannot be construed that the appellant is frequently indulging in purchase and sale and hence, it is a trader. For this proposition I place my reliance on the jurisdictional ITAT in the case of Mr.Nehal V. Shah ITA. No. 2733/Mum/2009 dt 15/12/2010. The relevant portion of the finding different paras are reproduced here under :-

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 CIT(A) has observed that the assessee has considered all the purchase of shares only as investments and that they were classified as such in the Balance Sheet. He has also gone on to observe that the assessee had two portfolios, a trade portfolio and an investment portfolio. From the Balance Sheet as on 31.03.2005 it is difficult to find any shares held in the trade portfolio and to this extent the CIT(A) appears to be wrong - i.e., in saying that the assessee had two portfolios. According to the Balance Sheet .as on 31.03.2005 the shares costing Rs.12,59,85,603/- were shown as shares and the Balance Sheet also contained the list of the shares of the 26 companies held by the assessee. The Balance Sheet also disclosed Rs.3,79,80,707/- as "other investments" which consisted mainly of bonds and mutual funds. There were no shares which were shown in the Balance Sheet or the Profit and Loss Account as stock-in-trade. Surplus received on the shares sold during the year were shown as either short term capital gains or as long term capital gains. So far as the long term capital gain is concerned, we have already seen that the AO did not dispute the nature of the gains and made no attempt to treat them as business profits. It is only with regard to the short term capital gains that he has taken a view that they represent business profits apparently because of the period of holding. If the average investment made by the assessee in one scrip is taken, it comes to around Rs.45.00 lakhs as pointed out by the assessee, which appears to be too high for an individual to hold as stock-in-trade. The portfolio of the shares shows that many of the scrips are of blue chip companies, their shares in which are normally considered to be safe and sound investments. The list is attached to the Balance Sheet as on 31.03.2005 and it includes the shares of Madras Cements Ltd., Colgate Ltd., Lumax Industries, Bharat Electronics, Reliance Industries, Finolex, Mahindra & Mahindra, Appolo Tyre, TCS Ltd., NTPC, TISCO, Polaris, etc. The details of the short term capital gains a/so attached to the balance Sheet shows sale of shares of several blue chip companies besides 'the aforesaid companies. The assessee has not indulged in any dealings, in futures and options and the instances of share transactions involving no delivery are only two and the loss therein was only Rs.474/-. The AO appears to have been influenced more by the frequency of the transactions and he has cited the brokers' contract notes which show a number of orders placed for purchase of the shares on the same day at different rates. We have already referred to the argument of the learned representative for the assessee as to how the contract notes are issued by the share broker. He has also referred to pages 74 to 79 of the Paper Book which contains the contract notes issued by Falcon Brokerage Pvt. Ltd. on 1st February 2005. Though there are several orders for purchase of the shares of Man Industries Ltd. on the same day, the assessee appears to have intended to acquire 25000 shades in this company and the contract note merely exhibited the different times on the same day at which the broker acquired the shares in the Stock Exchange at different rates. Ultimately the broker had acquired 25000 shares of the company on behalf of the assessee for a total price of Rs. 26,80,890/- . Thus it is actually a single transaction for acquiring 25000 shares in a company and not several transactions of acquiring the same company's shares on a single day as assumed by the AO. The assessee has a/so explained in similar fashion the details of the short term capital gains furnished in pages 17 to 19 of the Paper Book, which has been explained along with the details

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 contained at page 30 of the Paper Book. These details show that the assessee sold 30 scrips during the year, which gave rise to the short term capita! gains of Rs,2,25,47,9927-. The sales on the same day but in different lots of the shares of the same company cannot be treated, in our opinion, as separate transactions of sale in order to judge the frequency of the sales We have already referred to the argument of the learned representative for the assessee that when the shares of Automo Cor were purchased on 25.11.2004 in three lots, they have to be treated as a single purchase transaction and similarly when the shares of the said company were sold on 29.11.2004 in three separate lots, they have to be taken as a single sale. It seems to us that this is a reasonable way of ascertaining the frequency of the transactions. This is the way in which the statement at page 30 of the Paper Book has been prepared from which it is seen that the transactions of purchases, counted month-wise, came to 49 in number during the year and transactions of sales reckoned in a similar manner came to 43 in number during the year. 12. It seems to us from the facts noted above that it is difficult to uphold the conclusion of the Departmental authorities that the assessee held the shares as her stock-in- trade. In the assessment year 2004-05 the assessee sold 30 scrips and earned capital gains of Rs.1.05 crores, which was accepted by the AO as short term capital gains under section 143(3) of the Act. Similarly in the assessment year 2007-08 also the capital gains of Rs. 0.08 crores on sale of 24 scrips was treated as snort term capital gains by the AO in the assessment completed under section 143(3) of the Act. The conduct of the AO attracts the rule of consistency and this principle considered along with the other facts found in the preceding paragraph, persuade us to hold that the surplus on the sale of shares was rightly declared by the assessee as short term capital gains. In addition to the same we find that the attempt of the CIT to assess the long term capital gains for the same year as business profits under section 263 of the Act, on the footing that the assessee is a regular trader in shares and securities was ultimately dropped by order dated 19.03.2010. In the notice issued on 26.11.2009, the CIT expressed the view that if the assessee is to be treated as a regular trader in shares and securities, the holding period of the shares does not alter the character of the income. In our opinion, the approach of the CIT, with respect, reflects the correct approach to be adopted in such cases and it is of fundamental importance to first ascertain whether the assessee is a dealer in shares or investor in shares. The character or the head of income under which the surplus is to be assessed for purposes of the Income Tax Act gets determined by the answer to this fundamental question. As we have already noted there are no strong materials to hold that the assessee traded in shares, whereas there is sufficient material to hold that she invested in shares as investor and never intended to carry on a business in shares. 13. For the above reasons we accept the contentions of the assessee and hold on the facts of the present case that the short term capital gains of Rs.2,25,47,992/- on the sale of shares and mutual fund units should be assessed as short term capital gains as declared by the assessee. The appeal of the assessee is allowed with no order as to costs".

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 10.23 I have also analysed the sources for purchase of these 2 scrips. It is also worth to mention here the letter filed by the appellant before the CIT(A)-10, Mumbai dated 08.06.2009 wherein it was clarified that the appellant company did not utilise any interest bearing borrowed funds for the purpose of investment in these shares and hence, it was prayed that the income earned should be treated as Long Term Capital Gain/Short Term Capital Gain and not Income from Business. It is the contention of the appellant that the original advances given to M/s.Anand Mangal Investments Pvt. Ltd. and M/s.Jil Investment were returned and these were the sources for the acquisition of these 2 scrips. Copy of the ledger extract of the above 2 concerns are available in pages 363 and 364 of the paper-book. As mentioned already, payment to Priyam Securities towards acquisition of the scrips of Ruchi Soya was made through State Bank of Indore and UTI Bank account maintained by the appellant. Page 52, 53, 78 and 79 of the paper-book clearly shows that, after the receipt of the advance from the above two concerns, the appellant, in turn, had made the payment to Priyam Securities. This shows that the interest bearing borrowed funds were never utilised by the appellant in purchase of the above two scrips. In the absence of borrowals the gain on the purchase and sale of shares cannot be treated as Income from Business. 10.24 Thus, the overall picture in the appellant's case reveals that: (i) frequency of the transaction is very less though the volume is high. (ii) No repetitive transaction with short period of holding. (iii) Absence of intention to make quick profit. (iv) The holding period was more than a year. (v) Consistently the AO had accepted the LTCG in the earlier years u/s 143(3). (vi) AO had never disputed the stocks shown as investment in the Balance sheet. (vii) The scrips are in Demat form and appellant rightly follows FIFO method, (viii) Shares in opening balance were only sold during the year. (ix) Interest bearing borrowed funds were not utilised by the appellant towards the investment in shares. Thus there are no strong materials to hold that the appellant is in to trading of shares, whereas there are overwhelming materials to hold that it had invested in shares as investor and never intended to carry on a business in shares. In view of the above discussion, I am of the firm view that the gain arising out of these 2 scrips constitute Long Term Capital Gain, and not business income as held by the AC. This ground of appeal is allowed.

4.6 However, the assessee’s plea that short-term capital gains were wrongly treated as business income could not find favor with Ld. CIT(A).

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 The factual findings of Ld. CIT(A), with respect to treatment of Short-term capital gains as business income were as follows: - 12. Additional Grounds Raised : The appellant had filed additional grounds vide letter dated 24.11.2009 before the CIT(A). However, he failed to adjudicate the above grounds connected to treating the Short Term Capital Gain on sale of shares as Business Income. The appellant has raised this issue in ground No.3 of the appeal filed before the Hon'ble ITAT. The finding of the Hon'ble ITAT is in para 20 of its order. Since the CIT(A) did not adjudicate the additional ground taken, this issue was restored to the CIT(A) with the direction to decide the issue of claim of Short Term Capital Gain, after giving due opportunity of hearing and to consider such evidences as may be filed. 12.1 The additional ground filed is available in page 165 and 166 of the paper-book. The Additional grounds raised are as under :- 1) That the learned Income-tax Officer ought to have considered the short term capital gains claimed by the assessee. 2) That the learned Income-tax Officer has treated short term capital gains of Rs.53,27,430/- as a business income without giving any reason which is quite illegal, arbitrary, unwarranted unjustified, and bad in law. 3) That the appellant further craves to leave to add and/or to amend aforesaid ground of appeals as and when necessary. 12.2 No new evidences were filed before me except the details already furnished before the AO during the course of remand proceeding. The AO did not give any reason in the assessment order as to why the Short Term Capital Gain disclosed by the appellant is treated as Business Income. The submission of the appellant is as under :- "9. Short-term Capital Gain of Rs.53,27,430/- The Id. A.O. has treated short-term capital gain as business income without giving any reason In the body of assessment order. During the course of assessment proceedings, the assesses company has filed complete details of short-term capital gain statement alongwith the copy of sale invoices." 12.3 I have carefully considered the submission of the appellant and the material available in the paper-book. The details connected to the Short Term Capital Gain/ loss earned during the year is available in pages 45 and 46 of the paper-book, which was part of the paper-book containing 141 pages filed before the AO during the remand proceeding. The perusal shows that the appellant had dealt with 30 scrips during the year on which, the net Short Term Capital Gain of Rs.53,27,437/- was admitted. During the course of hearing, the AR of the appellant was directed to file the number of days of holding of the above scrips before it was sold, by adding a column to the details already filed in page 45 and 46 of the paper-book which was filed on 11.07.2013. The perusal clearly shows that the period of holding ranges from 1 to 9 days in respect of the following scrips :-

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07

Sr. Name of the Scrip Period of No. holding

With regard to the following scrips, the period of holding was between 10 to 45 days :- Sr. Name of the Scrip Period of No. holding

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 6. MPhasis BFL Soft 12 days

12, Zenith Computers 45 days

12.4 Another feature noticed was all these scrips mentioned above have been bought and sold only once by the appellant. Since the holding period was less than 45 days, the claim of the appellant that gain arising out of these scrips are short term gain cannot be accepted. Further, I find with regard to the scrips of ABC India Ltd. (128 to 133 days), M.P.GIychem (122 to 194 days), Ramco Sys. (76 to 80 days), Ruchi Soya (45 to 185 days) and Ruchi Strips (137 to 159 days), though the average holding period was more, but the appellant had repeatedly carried out multiple transactions with short selling which is definitely the attribute of the trader and not that of the investor. In view of this, the entire, claim of Short-Term Capital Gain is treated as "Business income" of the appellant and accordingly, ground taken by the appellant, is dismissed. 13. In the result, appeal is partly allowed.

The aforesaid adjudication form subject matter of cross appeal before us. 5. We have carefully considered the factual findings of learned first appellate authority, as extracted above. So far as the treatment of long-term capital gains is concerned, the undisputed position that emerges is the fact that the stated investments were held by assessee since past many years. The investments were long term investments and reflected as such in the financial statements which is further evident from the fact that the assessee

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 never made provision for diminution in value thereof on the Balance Sheet date. In fact, similar gains were accepted by department as Long-Term Capital gains in AYs 2005-06 & 2008-09 in scrutiny assessments u/s 143(3). Therefore, rule of consistency favored assessee’s stand. It is also the factual findings of Ld. CIT(A) that the stated investments were not out of borrowed funds, which fact remain undisputed before us also. Further, the factual findings of Ld. CIT(A) at para 10.24 lead us to inevitable conclusion that the stated gains were rightly held to be assessable as Long-Term Capital gains rather than as business income. Therefore, we concur with the stand of learned first appellate authority, in this respect. Resultantly, the grounds raised by revenue stand dismissed. The revenue’s appeal stands dismissed. 6. So far as the treatment of short-term capital gains as business income is concerned, we find that Ld. CIT(A) has clinched this issue also in the right perspective. The average holding period of most of the scrips was found to be below 45 days. The assessee carried out multiple transactions with short selling which would be the attributes of a trader and not of an investor. The Ld. AR, in the course of hearing, has relied upon the decision of Hon’ble Bombay High Court rendered in Jaya Chheda V/s ACIT (89 Taxmann.com 152) to submit that the formula of holding period as adopted by Ld. first appellate authority would not be conclusive. However, we find that learned first appellate authority, in the present case, has elaborately examined the nature of the stated transactions and on the basis of assessee’s conduct, formed an opinion that the assessee acted as trader

ITA No.6166, 6491/Mum/2013 M/s. Bunkim Finance & Investments Pvt.Ltd. Assessment Year-2006-07 and not as an investor. We also find that Ld. AR is unable to controvert the factual findings of Ld. CIT(A). Therefore, we see no reason to interfere with the impugned order, in this regard. Hence, concurring with the same, we dismiss the ground raised by the assessee. Ground No. 3 of assessee’s appeal is related with interest u/s 234, which would not require our indulgence. 7. In the result, both the appeals stand dismissed.

Order pronounced in the open court on 17th December, 2019.

Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member

मुंबई Mumbai; िदनांकDated : 17/12/2019 Sr.PS:-Jaisy Varghese आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ�/ The Appellant 1. ��थ�/ The Respondent 2. आयकरआयु�(अपील) / The CIT(A) 3. आयकरआयु�/ CIT– concerned 4. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, मुंबई/ DR, ITAT, Mumbai 5. गाड�फाईल / Guard File 6.

आदेशानुसार/ BY ORDER,

उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai.