JUDGMENT :

T.S. Sivagnanam, J.

1. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated 04.09.2009 passed by the Income Tax Appellate Tribunal (C) Bench, Kolkata ITA No. 552 of 1060/Kol/2009 for the assessment year 2005-06. The appeal was admitted on 20th March, 2010 on the following substantial question of law :

“Whether on the facts and in the circumstances of the 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 30th October, 2005 declaring a total income of Rs. 3,41,56,466/-. The return was processed under Section 143(1) on 13th July, 2006. The case was selected for scrutiny and notice under Section 143(2) was issued on 20th October, 2006 subsequently, notice under Section 142(1) was issued. The assessee is in the business of manufacture and sale of plywood and related products having its registered office in Kolkata and four regional offices and seventeen branches. Several issues were discussed with the assessee and the assessment was completed under Section 143(3) by order dated 20th December, 2007. In this appeal we are concerned with only one issue namely, whether the profit of 4,33,09,144/- should be treated as long-term capital gains or business profit. The Assessing Officer pointed out that the assessee has shown long-term and short-term capital gains from sale and purchase of shares and units of mutual funds. The assessee issued show-cause notice to justify as to why the profit of the sale of shares/ units be treated as business profit. In the show-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 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 th