2017 (6) TMI 951 - AT - Income Tax

ITAT reclassifies income as capital gains based on investment pattern and consistency

The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, directing the Assessing Officer to treat the amount of Rs. 25,28,437/- as short ... Income from share trading - nature of income - Capital gain or business income - volumes of transaction - Held that:- AO was not justified in recording the finding of fact against the assessee for the purpose of holding that the assessee was indulged in trading activities only. The assessee has been dealing in shares in earlier and in subsequent years and on the identical transaction has shown capital gains which have been accepted by the AO in the scrutiny assessment u/s 143(3) in assessment years 2006-07 and 2009-10 by accepting the claim of the assessee of capital gains. The assessee has been able to prove that the assessee made investment with objective to earn income by way of dividend. There are no transactions conducted by the assessee during the shorter period, therefore, authorities below should have followed the principle of consistency and should have accepted the claim of the assessee of capital gains instead of business income. - Decided in favour of assessee. Issues:1. Whether the addition of Rs. 25,28,437/- as business income instead of short term capital gains by the authorities below is justified.Analysis:The case involved an appeal by the assessee against the order of Ld.CIT(A)-18, New Delhi for A.Y.2008-09, challenging the addition of Rs. 25,28,437/- as business income instead of short term capital gains. The Assessing Officer (AO) determined the nature of the transactions based on principles such as magnitude of purchase and sales, holding period, and motive of earning income. The AO concluded that the assessee was engaged in trading activities rather than investment, particularly highlighting the 'day trading' nature of transactions without delivery. The assessee contended that the transactions were investments, not trades, citing consistency in previous assessments where capital gains were accepted by the AO. The assessee provided detailed evidence to support the investment nature of the transactions, including holding shares from previous years and subsequent sales.The counsel for the assessee emphasized the principle of consistency and referred to a case where the ITAT directed treating short term capital gains as claimed by the assessee. The Revenue argued that the profit motive behind the transactions indicated an adventure in the nature of trade. The ITAT analyzed the evidence presented by both parties and found that the assessee's transactions demonstrated an investment pattern rather than a trading activity. The ITAT noted the substantial shareholdings from previous years and subsequent sales, indicating an investment objective to earn income through dividends. The ITAT highlighted the acceptance of capital gains in previous assessments on identical facts, emphasizing the principle of consistency. Consequently, the ITAT set aside the orders of the authorities below and directed the AO to treat the amount of Rs. 25,28,437/- as short term capital gains as claimed by the assessee in the return of income.In conclusion, the ITAT allowed the appeal of the assessee, emphasizing the investment nature of the transactions supported by consistent treatment in previous assessments. The ITAT's decision rested on the evidence provided by the assessee, demonstrating an investment objective rather than a trading motive, leading to the reversal of the addition of business income and acceptance of the amount as short term capital gains.