Reportable v. Ita/83/2010

ITA/83/2010 REPORTABLE IN THE HIGH COURT OF JUDICATURE AT CALCUTTA SPECIAL JURISDICTION (INCOME TAX) ORIGINAL SIDE RESERVED ON: 02.02.2023 DELIVERED ON:14.03.2023 CORAM: THE HON’BLE MR. JUSTICE T.S. SIVAGNANAM AND THE HON’BLE MR. JUSTICE HIRANMAY BHATTACHARYYA ITA/83/2010 COMMISSIONER OF INCOME TAX, KOLKATA-IV, KOLKATA VERSUS M/S. CENTURY PLYBOARDS (I) LTD. Appearance:- Mr. Om Narayan Rai, Adv. .….For the Appellant. Mr. J.P. Khaitan, Sr. Adv. Ms. Swapna Das, Adv. Mr. S. Bhowmik, Adv. …..For the Respondent. REPORTABLE JUDGMENT (Judgment of the Court was delivered by T.S.SIVAGNANAM, J.) 1. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated 04.09.2009 passed by the Income Tax Appellate Tribunal (C) Bench, Kolkata ITA No. 552 of 1060/Kol/2009 for the assessment year 2005-06. The appeal was admitted on 20[th] March, 2010 on the following substantial question of law: “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is correct in holding the profit of Rs. 4,32,09,144/- as long-term capital gain?” 2. We have heard Mr. Om Narayan Rai, learned Advocate for the appellant and Mr. J.P. Khaitan, learned Senior Advocate assisted by Ms. Swapna Das and Mr. S. Bhowmik, learned Advocates for the respondent. 3. The assessee filed its original return of income on 30[th] October, 2005 declaring a total income of Rs. 3,41,56,466/-. The return was processed under Section 143(1) on 13[th] July, 2006. The case was selected for scrutiny and notice under Section 143(2) was issued on 20[th] 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 20[th]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 REPORTABLE REPORTABLE 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-cause notice it was stated that looking at the frequency of the transactions it is prima facie clear that the assessee was transacting in shares as a business and they were required to justify as to why the investment should not be assessed under the head “income from business” instead of capital gains as has been shown by them. The assessee in their reply contended that the investment transactions were shown in the books of accounts under the head “investments” and they had invested idle funds within the limit prescribed under Section 372A of the Companies Acct, 1956 and the investments were with a long-term view which is evident from the fact that during the financial year in question the assessee has earned Rs. 406.51 lakhs as capital gain from investment activities out of which Rs. 432.09 lakhs was long-term capital gain. Further, the assessee stated that during the financial year under consideration they had made only a few investment transactions compared to several other normal business activities such as trading of plywood and other products etc. Therefore, the assessee requested that the investments should be assessed under the head “capital gain”. The Assessing Officer while considering the response given by the assessee referred to the memorandum and articles of association of the assessee and stated that it is clear that the main objects of the company was to undertake business in shares and securities. That during the year under consideration the assessee had carried on in a systematic and in an organized manner several transactions REPORTABLE of buying and selling of shares/ units which constituted its business activities. On perusal of the capital gain statement, it was pointed out that not only the assessee company carried out large number of transactions where the volumes were also large and some of the transactions were completed in very short span of time of 4 to 5 days or even on the same day. Further, the assessee has engaged professional manager to manage its portfolio under Portfolio Management Scheme which would clearly establish that assessee was buying and selling the shares/ units with an intention to earn profits. Further, the frequency of the transactions establish that they were business activities and not capital investments as claimed by the assessee. Thus, the Assessing Officer concluded that the transactions is impressed with the character 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.[1]and also the decision of the High Court of Madras in the case of CIT Versus Amalgamation (P) Ltd.[2]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 2108 ITR 895 (Mad) REPORTABLE K. S. Venkatasubbaiah Reddiar [3], 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 decision of the Hon’ble Supreme Court in State of A.P. Versus H. 2108 ITR 895 (Mad) REPORTABLE K. S. Venkatasubbaiah Reddiar [3], 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 decision of the Hon’ble Supreme Court in State of A.P. Versus H. Abdul Bakhi and Ors.[4]After referring to these decisions the Assessing Officer held that one of the main objects of the assessee as per the memorandum is to undertake the business of shares and securities, it acquired large quantity of shares and subsequently, disposed the same in a systematic manner to earn profits and these activities were carried out not only in the assessment year under consideration but also during the prior years and subsequent years in a systematic and organized manner. Further, these activities have yielded huge profits to the assessee and, therefore, it has to be held that the assessee is engaged in the business of dealing in shares. The explanation offered by the assessee company that they held the shares as investments to earn dividends was rejected and an inference was drawn that the transactions in buying and selling the shares amounts to business activity with the motive to earn profit and it was held that this conclusion is supported by the decision of the Hon’ble Supreme Court in Dalhousie Investment Trust Co. Ltd. Versus Commissioner of Income Tax [5]. 4.Aggrieved by such order the assessee preferred appeal before the Commissioner of Income Tax (Appeals), XI, Kolkata {CIT(A)}. The assessee 3 221 ITR 18 41964 15 STC 644 41964 15 STC 644 5(1968) 68 ITR 486 (SC) REPORTABLE contended that the mention of the business of share trading was one of the main objects in the memorandum and articles of association of the assessee company is not sufficient to lead to the conclusion that such business was actually carried on by the assessee and the fact being that no such business was done. Referring to Clause 18 of the memorandum which dealt with ancillary objects, it was stated that the same permits the assessee to invest and deal with the monies of the company not immediately required, in securities and such manner as may from time to time be determined. It was stated that the surplus funds of the business which were not immediately required were invested in terms of Clause 18 of the memorandum in order to maximize the value for share holders. It was further submitted that the question whether the gains of profits or business or capital gains depends upon whether the shares were held as stock -in-trade or investment. For such proposition, reliance was placed on the decision of the Hon’ble Supreme Court in Raja Bahadur Kamakhya Narain Versus CIT [6]. 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 REPORTABLE REPORTABLE 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 made in a systematic and organized manner, cannot make them as a business activity. Business is something which occupies time, attention and labour of a person. However, since, the assessee was busy with its plywood business and other related items it had engaged services of a professional portfolio manager to handle its share portfolio. Further, it was contended that the existence of profit motive in transaction alone does not make it a business as even in the case of investment there can be a motive that an assessee should be able to sell such investment at a premium. The assessee further contended that they have been investing their surplus funds in shares, it is an on-going activity and consequently investments were also made on an on-going basis and there was no intention to do business in shares. It is further contended that the number of transaction is not determinative and does not make it a business activity and it is the intention of the assessee which is important. For such contention, reliance was placed on the decision in the case of CIT Versus Trishul Investments Ltd.[7] Further, it was contended that short period of holding of shares is not a determinative factor in concluding that the assessee was doing business of shares, the statute itself prescribes that 7 215 ITR 96, Madras REPORTABLE a capital was held for less than 12 months is a short-term capital asset and capital gains arising on transfer thereof is short-term capital gain. Hence, any period of less than 12 months or few days or few months of holding of shares does not make any difference as in any case the transaction would result in short-term capital gains. Further, it was contended that earlier short-term capital gains were taxed at normal rate and the deductions available in computation thereof were very limited. Even at that point of time the assessee showed the same as short-term capital gains and had the assessee shown the gain as its business income the rate of tax would have been same but the assessee would have been able to claim many more deduction. However, this was not done as such shares were held as investment and not as stock-in-trade. Further, the department having treated the shares as investments and the gains as capital gains in the past, there is no justification for the Assessing Officer to take a different view in the assessment year under consideration. Though the findings in 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 REPORTABLE REPORTABLE 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 and holding and held that all ingredients which makes the transaction a business transaction are found in the assessee’s case. It was observed that the entries in the books of accounts are not determinative of the real nature of the transactions and when the apparent is not the real, the revenue authorities are to go for the substance and ignore the apparent. The CIT(A) agreed with the contention that once the department has given a particular treatment to a particular type of transaction, it should not normally deviate from such treatment in a subsequent year. However, it is a settled law that finding for one previous year does not operate as res judicata for another previous year and that even though the department has expected to maintain consistency in assessment, different views can be taken if some fresh material comes on record and the facts and circumstances justify such departure. The CIT(A) then proceeded to analyze the source of funds, and held that the assessee did not have any savings or surplus funds of its own which it could invest in shares and securities. The share capital was raised for purposes of doing business and has been applied fully for that purpose. The average funds of share capital as reserves and surplus combined was Rs. 41.37 crores which was grossly inadequate compared to the application of Rs. 68.94 crores in fixed and net current REPORTABLE assets. Therefore, the CIT(A) opined that even for it is normal business transaction of plywood and related items, the assessee had to resort to borrowing to the tune of Rs. 27.57 crores. Further, it was observed that the fund flow took place mainly through a bank account with State Bank of India which is a cash credit account in which there was a debit balance of Rs. 6.36 crores as on 31[st] March, 2005 which clearly shows that the funds were not the assessee’s own but were borrowed, that there is no truth in the assertion of the assessee that surplus funds of business were invested in shares and securities. Further, it was observed that the assessee had incurred substantial expenditure by way of interest on borrowed fund and the said expenditure has been consistently claimed as business expenditure, suggesting thereby that they were utilized wholly and exclusively for purposes of business. Therefore, the CIT(A) held that the interest on borrowed capital has been claimed as expenditure against business 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 REPORTABLE REPORTABLE 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. Dealing with the argument of the assessee that 95% of its gains were by way of long-term capital gains, the CIT(A) held that the motive of those transactions was to earn profit on turnover rather than return on investment and the period of holding of more than 12 months was also part of the strategy to make high profits tax free. Further, the CIT(A) commented that the assessee was dealing with as many as 12 brokers/ intermediaries and the bulk of the transactions were done through them and the assessee has a full-fledged share department. With regard to the plea of the assessee that it could have claimed various deductions, had the share transactions being shown as business activity was rejected by the CIT(A) stating that deductions which could be claimed under the head “profits and gains of business” have actually been claimed by the assessee in connection with its main business of plywood and related items and not relating to share transactions. Thus, the CIT(A) held that on an overall analysis of facts and circumstances of the case leads to the clear and inevitable conclusion that the intention of the assessee in the subject transactions was to earn profit from turnover and not by way of return on investment. The transactions were done in a systematic and organized manner with an intention to make profit. The assessee had no savings or surplus fund which could be invested in shares; the source of fund deployed in share transaction is directly seen REPORTABLE to the borrowed fund of the business, volume and frequency of the transactions, the number of varieties of scrip transacted, the number of intermediaries through whom transactions were done and the stock-to-turnover ratio too were too high for an investor. It is further stated that the profit from business from plywood and related items has been shown as Rs. 2,27,43,483/- while the gains from shares transactions is Rs. 4,51,37,343/- . Thus, the CIT(A) affirmed the order passed by the assessing officer treating the profits arising from transactions of shares and units as profits and gains of business. 5. Aggrieved by such order, the assessee preferred appeal before the Tribunal. The assessee contended that during the year under consideration the assessee had disclosed the total capital gains of Rs. 4,51,37,343/- which included long term capital gains of Rs. 4,32,09,144/- and short-term capital gain of Rs. 19,28,199/- 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 REPORTABLE REPORTABLE 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 companies was made during the year under consideration and the assessee only sold shares. Therefore, it was contended that the allegations of the revenue that there was frequency of transactions is factually incorrect. The assessee referred to the balance sheet as on 31.03.2004 and pointed out that the capital and reserve of the assessee was Rs. 31.62 crores while as on 31.03.2005 it increased to Rs. 51.11 crores, on the other hand the total investment of the assessee was Rs. 5.01 crores as on 31.03.2004 and it reduced to Rs. 2.18 crores as on 31.03.2005. Thus, it was contended that the capital and reserve of the assessee was several times more than the investment in shares which will show that the investment in shares was out of assessee’s own funds and it has not been pointed out by the revenue that borrowed money was utilized for investment in shares. Further it was submitted that in the immediate preceding year the assessee had received the dividend income of Rs. 3.80 crores and in the year under consideration it was Rs. 14.25 lakhs. With regard to the short-term capital gains, the assessee stated that they engaged the services of a portfolio manager who would indulge in day to day purchase and sale of shares and it is not done by the assessee themselves. Therefore, it was submitted that the surplus received by the assessee during the year under consideration from the realization of the investments should not be treated as business income. It was further contended that the REPORTABLE Memorandum and Articles of Association of the assessee company are very widely couched and merely because the memorandum permits the assessee to undertake business in shares does not mean that the investment in shares should be treated as adventure in the nature of trade. It was further contended that it has to be decided on facts of the case as to whether transactions of purchase and sale of shares was business of the assessee or investment in shares and realization thereof. However, referring to clause 18 of the Memorandum and Articles of Association, it was submitted that it permits the assessee to make investment in shares. Further it was pointed out that the CIT(A) in his order has accepted that the capital and free reserve of the assessee is much more than investment in shares. With regard to the frequency of transactions and the number of scripts transacted, it was stated that the figures 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 REPORTABLE that the CIT(A) has also pointed out the shares wherein capital gain was disclosed were penny stocks. REPORTABLE 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 noting dates of purchase, names of the companies, the quantity of the shares and the amounts the tribunal held that the purchase of shares was of four companies that to was made in the preceding financial year (i.e.) F.Y.- 2002-2003. The purchase of shares of each of the companies was made in one block and during the year under consideration the entire shares of three such companies were sold out of which 50,000 shares of one of the companies 46,600 shares were sold and only 3400 shares remained in stock. Therefore, the tribunal held that the claim of the revenue that there was regular systematic and organized activity with regard to the purchase and sale of shares of the assessee is not applicable in the case of the purchase and sale of shares of those three companies as also, the findings of the CIT(A) that there was frequency in transactions that to in large numbers is also incorrect. Further the tribunal noted that the total investment in the shares is less than Rs. 50 lakhs while the capital and reserve of the assessee as on 31.03.2004 (preceding year) was Rs. 31.62 crores and as on 31.03.2005, it was Rs. 51.11 crores. The net profit of the assessee as per the profit and loss account for the year ended on 31.03.2004 was Rs. 9.01 crores while for the year ended 31.03.2005, it was Rs. 9.47 crores. Thus, the tribunal came to the conclusion that the capital and reserve of the assessee was many more times more than the investment in the shares in respect of which STT was paid and even the REPORTABLE profit of one year was several times more than the investment. Further the tribunal held that no evidence has been brought on record by the revenue that any borrowed funds were utilized for investment in shares. In the light of the above factual conclusion, the tribunal opined that the investment in shares was out of the assessee’s own capital and not out of borrowed money. The turnover of the assessee from the manufacturing and trading activities was noted by the tribunal to be Rs. 128 crores for the year ended 31.03.2004 and Rs. 167.06 crores for the year ended on 31.03.2005. Further it was noted that the Memorandum and Articles of Association permitted the assessee to carry on business of purchase and sale of shares and also make investment therein. Taking note of the main business of the assessee and considering the facts relating to purchase and sale of shares, the tribunal 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. REPORTABLE REPORTABLE 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 consideration and having found the transactions to be similar to the transactions with regard to the purchase and sale on which STT was paid, it was held that the findings with regard to the long term capital gains on which STT was paid would be squarely applicable for long term capital gains on which STT was not paid and accordingly it held that the sum of Rs. 1,01,07,784/- should be treated as long term capital gains. With regard to the short-term capital gains, the learned tribunal noted the large number of transactions of purchase and sale and the facts that the services of an expert was utilized and that the shares/mutual funds were sold after short duration of its purchase, the number of companies and mutual funds whose shares were purchased and sold during the year under consideration held that the short term capital gain offered by the assessee at Rs. 19,28,199/- cannot be accepted as short-term capital gains but it should be assessed as business income of the assessee. This finding of the learned tribunal has not been challenged by the assessee and therefore we are not required to examine the correctness of such findings. 8. Mr. Om Narayan Rai, learned senior standing counsel appearing for the appellant revenue contended that the learned tribunal has accepted the assessee’s assertion that it purchased the shares out of his own funds and while doing so, the learned tribunal glossed over the pertinent finding of the REPORTABLE CIT(Appeals) as regards the application of funds by the assessee in the business of investment and therefore the learned tribunal fell in error in not adverting to the findings rendered by the CIT(Appeals) on the said issue. It is submitted that the tribunal has observed that no evidence has been brought on record by the revenue that any money borrowed had been utilized for investment ignoring the findings of the CIT(A) that the bank account through which transactions were made was a cash credit account which will clearly show the funds were not the assessee’s own funds but were borrowed funds. It is further submitted that since the assessee has sought for exemption from payment of tax the burden would be on the assessee to prove that they are entitled for exemption. The CIT(A) having clearly pointed out that the funds from the cash credit account had been utilized for the purpose of purchasing shares, the burden is on the assessee to show 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 [8] and also the decision of the division bench of this Court in C.E.S.C. Limited Versus Commissioner of REPORTABLE 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 REPORTABLE 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 namely : (a)the profit of entire business including the sale proceeds should be deposited in the mixed overdraft accounts and(b) the investment should be less than the amount of profit earned or which could reasonably be deemed to have been earned, regard being to the date of expenditure. It is submitted that in the instant case, it has not been averred nor shown that the profits have been deposited in the cash credit account were from borrowing/withdrawals had been done for purchasing shares. It is further submitted that the assessee had relied upon the decision of the Hon’ble Supreme Court in South Indian Bank Limited Versus Commissioner of Income Tax [9] however the facts of the said case are strikingly different from that of the present case in as much as it was a case were the source of funds for investment had not been identified or was not identifiable contrary to the categorical un-rebutted findings rendered by the CIT(A) that the fund flow took place through a cash credit account. Further it is contended that the CIT(A) while using the expression mixed account has explained it further to mean that it is the regular business transactions of plywood and other products as well as transactions routed through the said cash credit account. Therefore, the expression mixed account which was mentioned in the decision of the Hon’ble Supreme 92021 438 ITR Page 1 (SC) REPORTABLE Court in South Indian Bank Limited is different from the expression to be employed in the instant case which has been clearly brought out by the CIT(A). It is further contended that it is the duty of the assessee to demonstrate before the tribunal that the factual findings rendered by the CIT(A) was incorrect. More so when CIT(A) has taken this as one of the grounds to hold that the assessee had not purchased the shares by way of investment and the learned tribunal misdirected itself in not even remotely alluding to the aforesaid aspect and holding against the revenue. With regard to the principles of consistency, it is submitted that no firm conclusion can be drawn from the method of keeping of accounts and description of a commodity under a particular head which is not a decisive factor. In this regard, reliance was placed on the decision of the Hon’ble Supreme Court in M/s. Investment Limited Versus Commissioner of Income Tax, Kolkata [10]. Reliance was also placed on the decision of this Court in Shyam Burlap Company Limited Versus Commissioner of Income Tax, Central – 1, Kolkata [11]. 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 [12] 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 101970 3 SCC 333 112016 380 ITR 151 (Kolkata) 122018 SCC Online Delhi 7907 REPORTABLE Kumar Gupta Versus Commissioner of Income Tax-XIII and Another [12] 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 101970 3 SCC 333 112016 380 ITR 151 (Kolkata) 122018 SCC Online Delhi 7907 REPORTABLE 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 the facts of the case which was considered by the Hon’ble Supreme Court, in the case of Commissioner of Income Tax, Nagpur Versus M/s. Sutlej Cotton Mills Supply Agency Limited [13]. Reliance was placed on the decision of the Hon’ble Supreme Court in Dalhousie Investment Trust Company Limited Versus Commissioner of Income Tax (Central), Calcutta [14] wherein the Hon’ble Supreme Court after noting the facts pertaining to the share transactions held that the income derived by the assessee from the sale of its shares and securities was a revenue receipt. Reliance was also placed on the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Versus Dilip Kumar and Company and Others [15] for the proposition that if the benefit which accrues in favour of the assessee is in the nature of an exemption the onus is on the assessee to establish that they are entitled to the benefit. With the above submission, the learned senior standing counsel prayed for restoring the order passed by the CIT(A). 131975 2 SCC 538 141968 68 ITR 486 (SC) 152018 9 SCC Page 1 REPORTABLE 9. Mr. J.P. Khaitan, learned senior advocate appearing for the respondent assessee submitted that the only question involved in the appeal is as to whether the tribunal was correct in holding the profit of Rs. 4,32,09,144/- on the sale of shares of six companies held over from earlier years as long-term capital gains. It is submitted that in the previous assessment years as well as the subsequent years, the assessee’s activities in respect of shares and securities were treated as investment activities and gains from sale thereof were treated as capital gains. Shares and securities purchased by the assessee are shown in its books of accounts as investments and accounted for accordingly. For the assessment year under consideration, A.Y. 2005-2006, the assessee claimed that the gains of Rs. 4,51,37,343/- from the sale of shares and securities were capital gains comprising long term capital gains of Rs. 4,32,09,144/- and net short term capital gains of Rs. 19,28,199/-.The assessing officer treated the entire capital gains as business income which order was upheld by the CIT(A). On further appeal to the tribunal, it agreed with the authorities below that having regard to the number of scrips transacted, the number of transactions made, the frequency of transactions, sale of shares within a short duration from 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 REPORTABLE 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 REPORTABLE 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 year 2004-2005 relevant to the assessment year 2005-2006 (year under consideration) resulting in gain of Rs. 4,32,09,144/-. Some of the shares were sold before October 01, 2004 giving rise to long term capital gains of Rs. 1,01,07,784/- chargeable to tax at 10% inserted by the Finance (No. II) Act, 2004 on Securities Transaction Tax (STT) introduced by the Finance (No. II) Act, 2004 with effect from October 01, 2004. It is submitted that though the assessing officer referred to the assessee’s activities in the earlier, current and subsequent years did not separately examin the activities of the assessee in respect of long term shares. However, CIT(A) had considered this aspect which would be evident from the various paragraphs of the order passed by the CIT(A). It is submitted that the CIT(A) in his order has stated that the shares which were traded, were highly illiquid and were so called penny stocks. However, no material has been cited or referred to come to such a finding. The learned tribunal while examining the correctness of the same had rightly held that the CIT(A) has not doubted the genuineness of the transactions and REPORTABLE therefore the only question would be whether the transaction is in the nature of investment in shares or trading in shares. Further the findings of the CIT(A) that there was no likelihood of the companies declaring dividend in future is based on presumptions and merely because the companies were not shown to have declared dividend, it cannot be presumed that there was no likelihood of the companies declaring dividend in future. However, as a matter of fact the assessee was in receipt of the dividend on its investment and a sum of Rs. 3.80 crores was received in the preceding year i.e. 2003-2004 and Rs. 14.25 lakhs during the previous year, 2004-2005. Thus, it is submitted that the assessee made the investments expecting return by way of dividend and capital appreciation. The CIT(A) committed an error in holding that if dividend is not declared by a company it shares cannot be treated as investment and such findings/approach of the CIT(A) cannot be considered as reasonable. Furthermore, the findings of the CIT(A) that the only motive of the assessee was not to earn dividend but to earn profit is not based on any material and such findings was not accepted by the tribunal in the impugned order. The other observations made by the CIT(A) were 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 REPORTABLE REPORTABLE 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 in holding that whether the assessee was doing business or not was required to be decided by the overall transactions and not scrip wise transactions. The CIT(A) sought to term the transactions in long term shares as “isolated transactions”. This view of the CIT(A) is contrary to the settled law. In support of such contention, reliance was placed on the decision of the Hon’ble Supreme Court in Commissioner of Income Tax Versus Associated Industrial Development Company Private Limited [16]. It is submitted that the said decision was followed by this Court in Jet Age Securities Private Limited Versus Commissioner of Income Tax in [17]dated September 15, 2022 in which, the court considered Circular No. 04 of 2007 dated June 15, 2007 where the CBDT emphasized that it is possible for a taxpayer to have two portfolios i.e. an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets and consequently when the assessee has two portfolios, the assessee may have 161971 82 ITR 586 (SC) 17ITA No. 79 of 2010 REPORTABLE income under both the heads i.e. capital gains as well as business income. Therefore, the CIT(A) committed an error in not considering the transactions in long term shares separately from the other transactions. Further it is submitted that the transactions in long term shares held over from earlier years were required to be separately considered on their own merit to decide whether the same were on investment account and it was not permissible to treat the sale as business transactions merely because the transaction of purchase of shares and securities and the sale thereof made during the previous year relevant to the assessment year 2005-2006 were held to be on business account. It is further submitted that the learned tribunal separately examined the transactions in respect of long-term shares to determine whether the same were on investment account or business account. In this regard, the learned senior advocate has drawn our attent