2012 (9) TMI 1045 - AT - Income Tax

Summary

Issues involved: The Revenue filed four appeals against the CIT(A)'s order for the assessment years 2004-05, 2005-06, 2008-09 & 2009-2010, with common grounds.

Issue 1: Whether the CIT(A) was right in directing the A.O. to treat the assessee as investor instead of trader based on the nature of the assessee's business as "General Trading" as per the Auditor's report on form No.3CD.

The assessee had been declaring shares as investment since 2001-02, valuing them at cost in the balance sheet. The shares were held for appreciation, not commercial motive, with no borrowings used for purchases. The frequency of purchase and sale did not change the nature of the transactions. The assessee's status as an investor was upheld based on various factors, including the nature of transactions and valuation methods.

Issue 2: Whether the CIT(A) was right in directing the A.O. to treat the assessee as investor instead of trader considering the expenses claimed in the P&L account indicating trading activity.

The consistent treatment of shares as investments, declaration of capital gains, and dividend income, along with valuation at cost, supported the assessee's status as an investor. The absence of loans for purchases and delivery-based transactions further reinforced this classification.

Issue 3: Whether the CIT(A) was right in directing the A.O. to treat the assessee as investor instead of trader based on the acceptance of the assessee's claim in earlier years and the subsequent rejection in a later assessment.

The department's inability to show any material change justifying a different view, coupled with the assessee's consistent treatment of shares as investments, led to the affirmation of the investor status. The decision in the assessee's favor was supported by the facts and legal precedents cited.

Issue 4: Whether the CIT(A) was right in directing the A.O. to treat the assessee as investor instead of trader considering the books of account and stock summary indicating trading motives.

The valuation of shares at cost, absence of borrowed funds for purchases, and holding period exceeding 30 days demonstrated the investment nature of the transactions. The lack of material changes in treatment over the years supported the assessee's classification as an investor.

Issue 5: Whether the CIT(A) was right in directing the A.O. to treat the assessee as investor instead of trader based on the frequency of share transactions suggesting stock-in-trade rather than investments.

The holding period, valuation method, absence of borrowed funds, and delivery-based transactions all pointed towards the assessee's status as an investor. The consistent treatment of shares as investments and the nature of transactions supported the decision in favor of the assessee.

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeals and the assessee's cross objections. The decision was based on the consistent treatment of shares as investments, valuation at cost, and other factors supporting the assessee's status as an investor.