2011 (5) TMI 983 - AT - Income Tax

Summary

Issues Involved:

1. Treatment of Short-Term Capital Gain as Business Income.
2. Disallowance of Claim of Loss on Share Transactions.
3. Disallowance of Loss on Derivatives by Treating it as Speculative Loss.

Summary:

Issue 1: Treatment of Short-Term Capital Gain as Business Income

The primary issue was whether the short-term capital gain of Rs. 68,87,173/- should be treated as business income. The Assessing Officer (AO) treated the gain as business income based on several factors: the high frequency of transactions (533 transactions in 275 scrips), short holding periods (75% of scrips held for less than 45 days), and the use of unsecured loans for share transactions. The AO argued that these factors indicated a business motive rather than investment intent. The CIT(A) upheld the AO's decision, emphasizing that the volume and frequency of transactions, along with the use of borrowed funds, pointed to a business activity.

However, the Tribunal found that in previous assessment years, the assessee's short-term capital gains had been accepted as such by the AO, including in assessments u/s 143(3). The Tribunal cited the principle of consistency as upheld in the case of CIT-vs Gopal Purohit and the decision of the Hon'ble Gujarat High Court in CIT-vs- Niraj Amidhar Surti, which supported the assessee's claim. Consequently, the Tribunal directed the AO to accept the short-term capital gain as declared by the assessee.

Issue 2: Disallowance of Claim of Loss on Share Transactions

The second issue involved the disallowance of a loss on share transactions amounting to Rs. 20,500/-. The assessee did not press this ground of appeal during the hearing, and it was dismissed as not pressed.

Issue 3: Disallowance of Loss on Derivatives by Treating it as Speculative Loss

The third issue was the disallowance of a loss on derivatives amounting to Rs. 26,14,405/-, which the AO treated as speculative loss. The Tribunal noted that this issue was covered against the assessee by the decision of the ITAT Special Bench, Kolkata, in Shree Capital Services Ltd. -vs- ACIT. Therefore, the Tribunal upheld the CIT(A)'s decision to treat the loss as speculative.

Conclusion:

The appeal was partly allowed. The Tribunal directed the AO to accept the short-term capital gain as declared by the assessee, dismissed the ground related to the small loss on share transactions, and upheld the disallowance of the loss on derivatives as speculative.