2012 (8) TMI 973 - AT - Income Tax

Summary

Issues involved:
The issues involved in this judgment are:
1. Treatment of share trading business as short term capital gains.
2. Determination of income from business or profession versus short term capital gains.
3. Consideration of principles and aspects of substantial nature of transaction in determining the nature of transactions.
4. Application of principles of consistency in cases where no scrutiny was made in earlier years.
5. Impact of terms and conditions of the employer on the nature and character of transactions and heads of income.
6. Appeal against the order of the CIT(A) and restoration of the Assessing Officer's order.

Issue 1: Treatment of share trading business as short term capital gains:
The Revenue filed an appeal against the CIT(A)'s decision to treat the share trading business of the assessee as short term capital gains. The CIT(A) observed that the appellant, a full-time employee, engaged in delivery-based transactions using personal funds for share investments. The CIT(A) concluded that the appellant earned capital gains, not business income, based on consistent treatment in previous years and relevant legal precedents. The ITAT upheld the CIT(A)'s decision, stating that the Assessing Officer's treatment as business income was unjustified.

Issue 2: Determination of income nature - business/profession vs. short term capital gains:
The Assessing Officer treated the surplus on sale of shares as business income due to bulk turnover and substantial income earned by the assessee. However, the CIT(A) disagreed, considering the nature of transactions, source of funds, and consistent treatment in previous assessments. The ITAT concurred with the CIT(A)'s reasoning, upholding the treatment of capital gains instead of business income.

Issue 3: Consideration of principles in determining transaction nature:
The CIT(A) considered various factors, including the substantial nature of transactions, magnitude of purchase and sale, and circular guidelines, in determining the nature of the assessee's share transactions. The ITAT supported the CIT(A)'s decision, emphasizing that all relevant facts must be considered to determine whether the transactions result in business income or capital gains.

Issue 4: Application of principles of consistency:
The issue of consistency in treatment of income was raised concerning the Assessing Officer's decision to treat short term capital gains as business income. The CIT(A) and ITAT relied on legal precedents and consistent treatment in earlier years to support the conclusion that the capital gains should not be treated as business income.

Issue 5: Impact of employer's terms and conditions on transaction nature:
The impact of the employer's terms and conditions on the nature and character of the assessee's transactions was discussed. The CIT(A) and ITAT considered the assessee's employment status, source of funds, and treatment of investments to determine that the income should be classified as capital gains, not business income.

Issue 6: Appeal against CIT(A) order and restoration of Assessing Officer's decision:
The Revenue's appeal against the CIT(A)'s order to treat the share trading business as short term capital gains was dismissed by the ITAT. The ITAT upheld the CIT(A)'s decision, emphasizing the consistent treatment of income, source of funds, and legal precedents in determining the nature of the transactions.