TaxTMI 
TaxTMI 
2024 (5) TMI 695
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....he assessee. The assessee is involved in share trading activity and had returned Short Term Capital Gain on the same amounting to Rs. 65,49,765/-. The Assessing Officer, however, found that, in the preceding year i.e. AY 2015-16, the assessee had declared profit from business on account of the same substantially and only a small portion was returned as Short Term Capital Gain. The Assessing Officer accordingly treated the income of Rs. 54,49,539/- from the trading activity of shares as business income of the assessee, as opposed to Short Term Capital Gain returned by the assessee. The ld. CIT(A), however, deleted the said addition holding at paragraph Nos. 5.2 to 5.9 of his order as under:- "5.2 I have considered the submissions filed by the appellant. Before coming to the merits of this issue, it is worthwhile to note the contention of the appellant that it has been investing in share market since more than 10 years and the resultant profit/loss has been declared as income under the head Capital Gains/loss. It is maintaining personal books of a/cs and at all times. It is holding the said shares as "Investment" and not as "Stock in Trade". This treatment has always been accepted ....
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....efore in this year also it has to be considered as Business Income. In my opinion, this is no ground to treat income from sale of shares as Business Income especially when the appellaiM.in all years prior to A.Y. 2015-16 (including the year in appeal) has been consistently showing purchase of shares as "Investment" and not as "Stock in Trade". If at all the appellant had been showing as Stock in Trade in all these years, then the position would have been different. Moreover, the appellant categorically stated that it was because of oversight that only in that earlier year such gains were shown as Business Income. None other years have been treated differently. 5.6 The AO has gone by the nomenclature given in the accounts which shows the income as Short Term Share Profit (STT Paid). The AO disregarded the fact that in the very same accounts just as Long Term Share Profit (STT Paid) which was offered as LTCG and claimed as exempt was acceptable to him, the very same Profit and Loss account wherein the income is shown as Short Term Share Profit (STT Paid) is to be treated as Business Income. The nomenclature given in the books of accounts cannot be rejected for one item and acceptab....
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....ar but shown as investment, the same will give rise to capital gain only as opted by the appellant and same shall not be put to dispute by the AO. Precisely this is the stand taken by ITAT Jaipur Bench in the case relied by the appellant (supra). The Ld. Tribunal held that since the assessee has treated the securities as Investment and not stockin- trade, in view of CBDT Circular, the revenue is not permitted to take a contrary view. 5.9 For the reasons mentioned above, this ground is allowed. The income from sale of shares of Rs. 65,49,765/- is to be treated as Short Term Capital Gains as shown by the appellant and not as Business Income." 4. A perusal of the order of the ld. CIT(A) reveals that he deleted the addition, noting the fact that the assessee had been investing in the share market for more than 10 years, and declaring income therefrom under the head "capital gains". He noted the fact that the assessee had held the shares as 'investment' and not as 'stock-in-trade', which was accepted by the Assessing Officer also. He found that the only basis with the Assessing Officer for treating the income as business income was the fact that the assessee had returned the said inc....
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.... of Short Term Capital Gains was correct. 5. The ld. DR, before us, was unable to controvert any of the factual findings of the ld. CIT(A) based on which he held the transactions to have been rightly returned under the head "capital gains". The ld. DR was unable to controvert the findings of the ld. CIT(A) that similar transactions in shares in earlier years was identically returned by the assessee as income from capital gains and accepted by the Department also, except for the immediately preceding year. He was unable to controvert the factual findings of the ld. CIT(A) that the assessee had shown all investments in shares under the head 'investments' and not as 'stock-in-trade'. It is also an admitted fact on record that the Assessing Officer's findings treating the income earned as income from business was based merely on the fact that in the immediately preceding year, the assessee had returned the said income under the head 'business income' and also on the basis of nomenclature given by the assessee in its books of accounts. We are in complete agreement with the ld. CIT(A) that the above two cannot be the basis for determining the character of the income earned by the assess....
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....of income and not keeping the balance by way of deposit in the Capital Gains Account Scheme in the prescribed bank. The ld. CIT(A), however, did not agree with the Assessing Officer and held that as long as the assessee had fulfilled the basic condition of investing in a new asset the net consideration received on the sale of the original asset within the period prescribed as per law, i.e. within two years from the sale of the original asset, there was no case for disallowing the assessee's claim of exemption u/s 54F of the Act. In this regard, he relied upon the decision of the Bangalore Bench of the ITAT in the case of Ramaiah Dorairaj Vs. ITO, reported in [2021] 124 taxmann.com 243 (Bangalore - Trib.) and Chennai Bench of ITAT in the case of Smt. M.K. Vithya Vs. ITO, reported in [2018] 91 taxmann.com 102 (Chennai - Trib.). He also noted the fact that the assessee had invested the entire amount for the new asset under the extended period of filing of return of income u/s 139(4) of the Act and, therefore, also his claim for exemption u/s 54F of the Act was allowable as per law. He referred to various decisions of the Hon'ble High Courts holding that return filed u/s 139(4) of the ....
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....t in CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274/157 Taxman 398 and Karnataka High Court in Fathima Bai v. ITO, ITA No.435 of 2004 Decided on 17th October 2008. 6.6 In view of the findings above and the judgments relied upon, this ground is allowed. It is hereby directed to the AO to allow the deduction u/s 54F in respect of investment in new house of Rs. 3,93,16,750/- and calculate the deduction in accordance with law." 9. We have perused the order of the ld. CIT(A) and also that of the Assessing Officer. We do not find any infirmity in the order of the ld. CIT(A). It is not disputed that the assessee had fulfilled the basic condition for claiming exemption u/s 54F of the Act of investing the net consideration received on the sale of original asset, in a new asset/residential house within the prescribed period of two years of the sale of the original asset. Even the Assessing Officer admits to this fact and notes in his assessment order. Having fulfilled this basic condition, it is highly illogical to deny the claim of exemption during the impugned year, merely for the reason that the majority of the investment was made subsequent to the due date of filing of return of income ....