2011 (9) TMI 107 - AT - Income Tax

ITAT Decision: Income Classification for Shares

Assistant Commissioner of Income-tax, Circle-6, Jaipur Versus Smt. Kavita Devi Agarwal

The ITAT allowed the appeals of the revenue and cross objections of the assessee for statistical purposes. It directed the AO to reassess the ... Income from share dealing as business income or capital Gain. - Allowance of deduction unless the same is claimed in the return of income or in the revised return of income. However, the assessee can claim deduction before the appellate authorities by filing an additional ground or not. Income from Share dealing - held that:- the capital gain or profit from shares can be ascertained if one ascertains the cost. AO will make an exercise to ascertain the income which is to be taxed under the head capital gain, profit or loss or speculative business or profit from shares. Remand back to for Statistical Purpose. Allowance of deduction not claimed before. - held that:- This claim will be considered by the AO as we had already restored the computation of income before the AO. decided in Assessee but remand back to AO for statistical purpose. Issues Involved:1. Classification of income from share dealing as business income or capital gains.2. Validity of the revised computation of income by the assessee.Issue-wise Detailed Analysis:1. Classification of Income from Share Dealing:- The primary grievance of the revenue was that the CIT(A) erred in directing the AO not to treat the income from share dealing as business income. The assessee had filed returns for assessment years 2003-04, 2004-05, and 2005-06, which were scrutinized by the AO.- The AO received a report from DDIT (Inv.)-II, Jaipur, alleging that the assessee earned unaccounted money from share dealing, rental income, and interest income. The investigation revealed multiple D-MAT accounts in the names of the assessee and her family members.- The AO required evidence for the acquisition of shares, but the assessee failed to provide it. Consequently, the AO treated the transactions as business income based on factors such as the volume, frequency, and regularity of transactions, and the substantial amounts involved.- The AO relied on several judicial decisions to support the classification of income from share transactions as business income.- Before the CIT(A), the assessee provided additional evidence, including statements of shareholding and billing statements, to establish her claim as an investor. The CIT(A) concluded that the assessee was an investor in shares and directed the computation of capital gains.- The CIT(A) noted that the assessee did not maintain books of account, had been investing in shares since 1974, and earned significant dividend income, indicating an intention to derive income by way of dividends.- The CIT(A) also observed that the assessee did not maintain an office or staff, did not use borrowed funds for investment, and had not dealt in futures or options, further supporting the classification of shareholding as investment.- The ITAT held that shares held for more than a year should be treated as investments, and profits from such sales should be considered as capital gains. For transactions on the same day, the profits were to be treated as speculative business income. Shares held for more than 30 days were to be considered as short-term capital gains, while those held for less than 30 days were to be treated as business income.2. Validity of the Revised Computation of Income:- The assessee filed a revised computation of income before the CIT(A), which included additional evidence and recalculations of income for the relevant assessment years.- The CIT(A) called for a remand report from the AO, who objected to the revised computation, particularly the manner in which the date and cost of acquisition of shares were taken.- The CIT(A) ultimately directed the AO to consider the revised computation and additional evidence provided by the assessee.- The ITAT noted that while the AO cannot allow deductions not claimed in the original or revised return, appellate authorities can consider such claims. Therefore, the ITAT restored the computation of income before the AO for reconsideration.Conclusion:- The appeals of the revenue and the cross objections of the assessee were allowed for statistical purposes. The ITAT directed the AO to re-examine the classification of income from share transactions and to consider the revised computation of income submitted by the assessee.