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June, 14th 2014

%                                                    DECIDED ON: 06.05.2014

+                          ITA 206/2014
                   Through: Ms. Suruchi Aggarwal, Sr. Standing
                   Counsel with Mr. Judy James, Jr. Standing


       SMT. KUSUM GUPTA                             .... Respondent
                    Through: Mr. Prakash Kumar, Advocate.


       1.    The Revenue claims to be aggrieved by an order of the Income
       Tax Appellate Tribunal (ITAT) dated 25.10.2013 and urges that the
       treatment of `70,77,375/- by it and the CIT (A) as long term capital
       gain in the facts of the case is erroneous.
       2.    The assessee filed the return of income declaring `6,16,070/- in
       respect of AY 2007-08.       In this, she had claimed `70,77,375/- as
       long term capital gain and, therefore, exempt under Section 10 (38) of
       the Income Tax Act. The Assessing Officer by his order holds that
       the assessee carried on the business of shares and securities and had a
       closing stock of shares valued at `2,19,15,145/- in that business and,

ITA 206/2014                                                            Page 1
     consequently, a sum of `70,77,375/- was in reality business income.
     The CIT (A) on being approached by the assessee reversed the
     findings of the AO after analyzing the nature of the share holdings,
     dates of purchase of shares, the respective dates on which they were
     sold as well as the sale price. The CIT (A) also noticed the law
     applicable on the issue and further took into consideration the fact
     that the shares were shown in a separate investment account having
     regard to the copy of the returns filed for the previous assessment
     years, i.e., 2001-02, 2002-03, 2003-04, 2004-05, 2005-06 and
     2006-07. These had consistently shown investments and closing stock
     separately. The CIT (A) noticed that in the balance sheet as on
     31.03.2006, the investment shown was `3,67,81,204/- and the closing
     stock was `1,59,75,712/-. The closing stock related to traded shares,
     whereas the investments related to house property, bank bonds and
     various shares that were sold during the year and for which capital
     gain had been claimed.         The CIT (A) further found that the
     assessment year was not the first time when the assessee has shown
     separate assessment in her balance sheet; he also verified the profit
     and loss account of the assessee for the previous 7 years. Thereafter,
     he applied the law declared by the Courts on the subject and also
     noticed the CBDT Circular No.4/2007 which carved out the principles
     applicable to determine whether a profit or income is to be
     characterized as business income or capital gain.       On a proper
     application of these, he held that the income was long term capital
     gain and directed it to be deleted.
     3.    The Revenue's appeal to the ITAT was dismissed by the

ITA 206/2014                                                         Page 2
     impugned order. The findings of the ITAT in this regard are as
     follows: -
           "7. We have heard the rival submissions and perused the
           material available on record. On a consideration of the same,
           we are of the view that in the peculiar facts and circumstances
           of the case and considering the case law relied upon by the
           Revenue and the assessee and considered by the AO and the
           CIT (A), the departmental ground deserves to be dismissed. The
           arguments based on the suspicion of the Ld. CIT DR which
           have been orally canvassed and also by way of write-up filed
           subsequently it is seen stands fully addressed by the assessee in
           the impugned order itself. The same are found reproduced in
           the order and have been taken into consideration by the CIT
           (A) while passing his order. These arguments addressing the
           departmental suspicion are reproduced in page 4, 5 & 6 of the
           impugned order and have also been extracted by us in paras
           3.2 to 3.4 in the earlier part of this order. Similarly it is seen
           that the facts taken into consideration qua the issue arising out
           of sale of 25,000 shares of OASASCIN purchased on
           08.01.2005 at the cost of Rs.1,68,875 and sold on specific
           different dates have not been disputed by the department as no
           evidence to the contrary has been relied upon. The number of
           shares, the date of purchase and dates of sale at the prices of
           specific number of shares as set out in the impugned order in
           para 3.1 at page 2 of the order extracted at page 6 of this order
           has not been shown to be incorrect by the Revenue.
           Considering the entire arguments advanced on behalf of the
           Revenue it is seen that none of these facts are disputed neither
           the dates are disputed nor the nos. of shares nor the price of
           sale or purchase. The department has also not attempted to
           upset the finding of the CIT(A) inasmuch as that the assessee
           was maintaining two separate portfolios one for Investment and
           one for business. Similarly the finding that there was no
           intermingling of shares in the two portfolios and that the two
           were separate and distinct has also not been shown to be
           incorrect on facts. The settled legal position permits the
           assessee to maintain two separate portfolios which admittedly

ITA 206/2014                                                          Page 3
           has been done. This findings is found recorded in para 3.3 of
           the impugned order which has been extracted in page 8 & 9 of
           this order. Similarly the fact that this was not the first year
           when the assessee has shown separate investment in her
           balance sheet has been taken into consideration by the CIT (A)
           who has considered the copies of the balance sheet for the last
           7 years which was found to support the facts that the assessee
           has regularly been maintaining two separate portfolios which
           finding is recorded in para 3.3.1 of the impugned order,
           nothing has been placed before us by the Revenue to upset this
           finding. It is also seen that the CIT (A) records that he has
           personally verified the position for the last 7 years from the
           P&L A/c of the assessee as well as the inventory of closing
           stock and then has come to a finding that neither during the
           year nor in the earlier years the assessee has ever traded in
           those shares which are kept as an investment. No attempt has
           been made by the Revenue to upset this finding as the line of
           argument adopted by the Ld. CIT DR is not supported by
           placing anything before us in order to canvass that a contrary
           view be taken. Thus it is seen that the finding that all along the
           assessee demonstrated that she had an intention to maintain
           two separate portfolios wherein there was no mixing up in the
           two portfolios remains unrebutted on record as nothing to the
           contrary has been placed by the Revenue before us. It is seen
           that none of these relevant facts have been assailed by the
           Revenue and only general arguments have been advanced. It is
           further seen that the finding that there is no intermingling of
           shares in the two portfolios has been verified by the CIT(A)
           after considering the balance sheets of the last 7 years and also
           the P&L A/c. Nothing has been placed before us by the Revenue
           in order to take a contrary view. In fact the CIT (A) takes into
           consideration the fact that the AO was himself contradicting his
           own action because if he was of the opinion that there was only
           one portfolio then he ought to have taken the entire investment
           in shares as appearing in the balance sheets towards the
           closing stock of shares at cost or market price whichever was
           less and worked out the profit of the trading business which the
           AO has not done. The finding is also recorded that the AO even

ITA 206/2014                                                          Page 4
           in the immediately preceding year i.e. 2006-07 assessment year
           when the investment in the said shares i.e. OASASCIN was
           shown for the first time in the balance sheet as it was
           purchased admittedly on 08.01.2005 has accepted the position
           and thereby accepted the position of two separate portfolios.
           Similarly the factum of maintaining two separate portfolio was
           found to be correct even on a perusal of the position emanating
           from the 143(3) order of the AO in 2002-03 assessment year.

           These findings found recorded in para 3.3.2 have not been
           assailed by the Revenue. No evidence to the contrary upsetting
           these findings as incorrect finding has been placed before us.
           Similarly the holding period has also not been argued to be
           incorrect which is more than one and a half year or more. The
           reliance placed on the assumption of the AO that earning of the
           dividend is the only acceptable criteria for making an
           investment does not have any relevance as investments can be
           made with the objective to earn profit on appreciation also and
           we find no good reason to interfere with the said conclusion.
           The general arguments advanced on behalf of the Revenue that
           the attitude to purchase in a falling market and sell in a rising
           market is a ground to interfere with the finding to our minds
           may have relevance if the case of the Revenue is that the
           assessee is manipulating the market which admittedly is not the
           case of the department. The judgements and the case laws
           relied upon by the Ld. CIT DR, it is seen operate on entirely
           distinct and separate peculiar facts and circumstances, the
           arguments that the AO is not fettered by technical rules of
           evidence is a settled legal position and it is an accepted legal
           position that all relevant circumstances which appear on the
           issue and the material which may not strictly be evidence under
           the Indian Evidence Act can be taken into consideration by the
           AO to inquire probe and consider however in order to lead to
           the conclusion that material which is not an evidence to justify
           the addition has been that material which has the sanctity of a
           fact. As such the judgements relied upon in the context of the
           said proposition addressing the settled legal position and
           cannot be read out of context. The judgements relied upon in

ITA 206/2014                                                         Page 5
           the context of the proposition that res judicata does not apply to
           income tax proceedings canvassing that a settled position can
           be changed are also distinguishable as in order to come to the
           said conclusion in each and every case facts have to be referred
           to for consideration of the Courts/Tribunals in order to justify
           interference and change from the settled position by
           demonstrating that facts as originally considered in some stray
           year may have not been correctly presented and a different
           conclusion is legally justified on facts. In the facts of the
           present case as observed no fact has been brought on record by
           the Revenue to justify that the past position of the last 7 years
           taken into consideration by the CIT (A) to show that the
           assessee was maintaining two separate portfolios one where
           shares were held in business portfolio and the other where
           separate portfolio reflecting shares held in the investment
           portfolio is not a correct fact. The mere argument that there is
           intermingling of shares in the two portfolios has to be
           demonstrated by facts and evidence which admittedly has not
           been attempted by the Revenue let alone done. Accordingly
           placing reliance on the judgements to take a contrary view
           where in the facts of those cases intermingling of the shares is
           an accepted fact is of no help to the Revenue as the basic fact to
           trigger the applicability of those principles is conspicuous by
           its absence. The very basic fact not having been established by
           the Revenue that there was intermingling of shares amongst
           other accepted facts as discussed earlier makes the attempt to
           rely on legal principles on different facts a wasted exercise. In
           the absence of any fact in contradistinction to the finding
           concluded in the impugned order. We find no good reason to
           deviate from the finding and conclusion arrived at the
           impugned order. Being satisfied by the reasoning and finding
           arrived at on the facts as they stand the departmental ground is

     4.    This Court has carefully considered the submissions.         The
     Revenue has essentially reiterated its contentions that were urged
     before the ITAT and pointed out what, at best, can be charitably

ITA 206/2014                                                          Page 6
     termed as prejudicial arguments.     The fact remains that for the
     concerned period, i.e., AY 2007-08, the findings of the CIT (A) -
     found in paragraph 3.2 to 3.5 were gone into by the ITAT in its
     elaborate order. The reasoning of the ITAT, in our opinion, is in
     conformity with the law declared by the Supreme Court in several
     decisions such as CIT v. Sutlej Cotton Mills Supply Agency Ltd. 100
     ITR 706 (SC) and Commissioner of Income Tax v. H. Holck Larsen,
     (1986) 160 ITR 67 (SC).
     5.    In this view of the matter, we hold that there is no substantial
     question of law for our consideration. The appeal being devoid of
     merit is, accordingly, dismissed.

                                                S. RAVINDRA BHAT

                                                 VIBHU BAKHRU

     MAY 06, 2014

ITA 206/2014                                                         Page 7
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