2012 (11) TMI 224 - AT - Income Tax

Addition on account of capital gain u/s 45 - Can assessee holds two portfolios for investment & trading for dealing in shares Book business income from trading portfolio & capital gains from investment portfolio AO treat capital gain as business income Held that - As per CBDT stated in circular and confirm possibility for a tax payer to have two separate portfolios. Where an appellant has two portfolios and have income under both heads i.e. capital gains as well as business income. Whereas assessee s separate activities in share are further supported and endorsed by the fact that separate demat accounts, bank accounts are being maintained and separate trading account and investment accounts are maintained in the books. The department has earlier accepted the assessee s practice and treatment under heads of capital gains and business. Appeal decides in favour of assessee.

Summary

Issues:
Revenue's appeal against CIT(A)'s order dated 26-4-2010 relating to A.Y. 2007-08.

Analysis:
1. The appellant, engaged in sale and purchase of shares through investment and trading accounts, disclosed profits separately. The Assessing Officer proposed treating capital gains as business income, but the appellant maintained separate portfolios with distinct entries and de-mat accounts. The appellant cited CBDT Circular no. 4 of 2007, emphasizing the possibility of having two portfolios.

2. The CIT(A) relied on judicial pronouncements and circulars, accepting the appellant's explanation. The CIT(A) observed that the appellant maintained separate portfolios with no intermingling, and the balance sheet discrepancies pointed out by the AO were unjustified. The CIT(A) also addressed the treatment of long-term capital gains as short-term, supporting the appellant's claims with evidence and legal precedents.

3. The DR argued that the frequency of share transactions indicated a trading business, but the appellant maintained distinct trading and investment portfolios consistently. The Board Circular allowed the maintenance of two portfolios, and the appellant's practices were in line with CBDT circulars and case laws. The appellate tribunal upheld the CIT(A)'s decision, emphasizing the long-standing acceptance of the appellant's separate treatment of trading and investment income.

4. The tribunal concluded that the appellant's practice of maintaining separate trading and investment portfolios, supported by separate accounts and consistent treatment in earlier years, justified the treatment of capital gains as distinct from business income. The tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order.

This detailed analysis highlights the key arguments, evidence, and legal principles considered in the judgment, providing a comprehensive overview of the case and its resolution.