Share transactions classified as Short Term Capital Gains not business income under Section 54F exemption upheld

ITAT Ahmedabad ruled in favor of the assessee on two issues. First, regarding classification of share transactions, the tribunal held that income should be treated as Short Term Capital Gains rather than business income, noting the assessee consistently showed shares as investments (not stock-in-trade) and returned similar income as capital gains in previous years, which was accepted by the Department. Second, concerning LTCG exemption under Section 54F, the tribunal confirmed CIT(A)'s deletion of disallowance, holding that exemption cannot be denied merely for not depositing unutilized capital gains in prescribed bank accounts, provided the basic condition of investing in new residential property within prescribed time is fulfilled.

---

---

Issues Involved:
1. Classification of income from share transactions as Short Term Capital Gain or business income.
2. Disallowance of exemption claimed u/s 54F of the Income-tax Act, 1961.

Summary:

Issue 1: Classification of Income from Share Transactions

The Revenue contested the treatment of Rs. 54,49,539/- as Short Term Capital Gain instead of business income. The Assessing Officer (AO) had reclassified the income from share trading as business income based on the assessee's previous year's declaration. However, the CIT(A) held that the assessee had consistently shown shares as investments and not as stock-in-trade, and the nomenclature in accounts should not determine the nature of income. The CIT(A) noted that the assessee had been investing in shares for over ten years, with the intention of earning dividend income, and had declared the resultant profit/loss under capital gains. The CIT(A) also found factual inaccuracies in the AO's assessment of the number of transactions. Relying on CBDT Circular No. 6 of 2016, the CIT(A) concluded that the income should be treated as Short Term Capital Gains. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.

Issue 2: Disallowance of Exemption u/s 54F

The Revenue challenged the deletion of disallowance of Rs. 2,50,24,909/- claimed u/s 54F. The AO had denied the exemption due to the assessee's failure to deposit the unutilized amount in the Capital Gains Accounts Scheme by the due date of filing the return. The CIT(A) held that the primary condition for exemption u/s 54F was the investment in a new residential house within two years of the sale of the original asset, which the assessee had fulfilled. The CIT(A) relied on decisions from the Bangalore and Chennai Benches of ITAT, which supported the view that the exemption could be claimed if the investment was made within the extended period of filing the return u/s 139(4). The Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion of the disallowance, dismissing the Revenue's ground.

Conclusion:

The appeal of the Revenue was dismissed in its entirety.

Order pronounced in the open Court on 10.05.2024 at Ahmedabad.

---