×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals)- Jamnagar, vides Appeal No.CIT(A)/Jam/158/09-10/121 dated. 20.07.2011 for the Assessment Year (A.Y.) 2007-08 with the following grounds:
“1. That the ld CIT(A), Jamnagar erred and was not justified in coming to the conclusion that Rs.13,57,857/- is a business income, on transaction of purchase and sale of shares with thirty days, out of total short term gain of Rs.16,37,389/- declared by the appellant but held by assessing officer as business income, on the facts and circumstances of the case.
2. That the appellant carves leave to and/or to amend and/or to alter to and/or to substitute to all or any of the grounds of appeal up to the hearing of appeal.”
2. The only issue raised by the assessee is that Ld. CIT(A) erred in treating the purchase/ sale of shares completed within 30 days as business income amounting to Rs. 13,57,857/-.
3. Briefly stated facts are that the asses ee in the present case is a HUF and engaged in the business of trading in shares and securities under the name and style of M/s. Pratish Enterprises. The assessee during the year has shown following incomes:
3.1 The AO during the assessment proceedings observed certain facts as detailed under:
i. The assessee has been carrying on the investment in shares activity in a systematic manner.
ii. The assessee has carried out sale purchase of shares in investment activity in 55 companies.
iii. The time gap between the purchase and sale of shares is varying between few days to few months.
In view of above, the AO after considering the magnitude of the transaction was of the view that the assessee is carrying out a trading activity which is wrongly being classified by the assessee as investment activity. Accordingly, the AO was of the view that the assessee should not have shown income under the head Short Term Capital Gain and Long-Term Capital Gain. Accordingly, an explanation was sought from the assessee vide letter dated 10.08.2009. The assessee in compliance to it vide letter dated 02.11.2009 and 15.11.2009 submitted as under:
i. It has classified delivery based transaction under the head investment activity whereas non-delivery based transactions were classified as share trading activity.
ii. The shares held as an investment were for the purpose of dividend income. As and when there was a better price available in respect of investment in shares, it uses to sell the shares in the market and accordingly, it was declaring Long Term & Short Term Capital Gain.
3.2 The assessee also submitted that the Revenue accepted the method adopted by it for showing the activity of sale purchase of shares in the earlier years.
3.3 The shares classified under the head investment were always valued at cost. Had the assessee been engaged in the trading activity of shares then it should have valued the investment in shares at market price or cost of acquisition whichever was lower. The basis adopting for the valuation of shares was duly accepted by the Revenue on a regular basis year after year.
3.4 Had the assessee been shown the investment activity in the nature of trading then it should have claimed deduction of the securities transaction tax paid by it as rebate u/s 88E of the Act.
3.5 The assessee alternatively submitted that if the AO wishes to treat the income from investment activity as trading in nature, then it should be allowed rebate u/s 88E of the Act.
However, the AO disagreed with the contention of the assessee by observing that the intention was to earn the profit from the sale purchase of shares which was carried out systematically. As such, the assessee has carried out substantial transactions for the purchase and sale of shares. Therefore the AO after considering the frequency and magnitude of transactions held that the assessee has carried out trading activity in the purchase and sale of shares. Accordingly, the AO held the Short Term and Long Term Capital Gain income as income under the head business and profession.
3.6 Aggrieved, the assessee preferred an appeal to Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that it had been allowed to maintain two portfolios one for share trading activities and another one for investment in shares activity as per the CBDT Circular No.4/2007 dated 15.06.2007.