2014 (5) TMI 1145 - AT - Income Tax

Addition made u/s 94(7) - profit earned by the assessee from the sale of shares held for a period of less than six months - short term capital gain or business income - treated by the AO as the business income - Held that - It is observed that the profit earned by the assessee from the sale of shares held for a period of less than six months has been treated by the ld. CIT(A) as short term capital gain in the hands of the assessee and as submitted by the ld. counsel for the assessee, the department has not filed an appeal before the Tribunal against the order of ld. CIT(A) on this issue. It therefore, follows that the entire profit/loss arising to the assessee on sale of shares has been finally taxed in the hands of the assessee under the head capital gains and consequently in addition/disallowance u/s 94(7) of the Act is liable to be made under the head capital gains as rightly claimed by the assessee and not under the head profit and gains of the business or profession as held by the AO and ld. CIT(A). We, therefore, set aside the impugned of the ld. CIT(A) and direct the AO to make addition/disallowance u/s 94(7) of the Act under the head capital gains . - Decided in favour of assessee.

Summary

Issues involved:
Addition under section 94(7) of the Income Tax Act.

Analysis:
The appeal was filed against the order of the ld. CIT(A)-30, Mumbai, regarding the addition of Rs. 228,477 made by the AO under section 94(7) of the Income Tax Act. The assessee, an individual engaged in the medical profession, had filed the return of income declaring various sources of income, including capital gains, futures trading income, and dividend income. The AO treated short-term capital gains as business income and added dividend income under section 94(7) to the business income. The ld. CIT(A) upheld the addition under section 94(7) but treated the short-term capital gains correctly. The Tribunal observed that the profit/loss from the sale of shares had been rightly taxed as capital gains. Therefore, any addition/disallowance under section 94(7) should be made under the head of "capital gains," not "profit and gains of the business or profession." The Tribunal set aside the decision of the ld. CIT(A) and directed the AO to make the addition/disallowance under the correct head.

The Tribunal's decision clarified that the entire profit/loss from the sale of shares by the assessee should be taxed under the head of "capital gains." The Tribunal emphasized that since the department did not appeal the treatment of short-term capital gains as such, the addition under section 94(7) should also fall under the same head. This ruling ensures consistency in the taxation treatment of the assessee's income from share transactions and aligns with the correct classification of income under the Income Tax Act.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the correct classification of income under the head of "capital gains." The order was pronounced in open court on 28th May 2014, providing clarity on the taxation treatment of the assessee's income from share transactions and ensuring adherence to the provisions of the Income Tax Act.