2014 (1) TMI 1499 - AT - Income Tax

Revision u/s 263 of the Act Profits from sale of short term capital gain Held that - Whether it can be said that the treatment given by the assessee to the profits arising from sale of shares as short term capital gain was accepted by the A.O. without making proper and adequate enquiry Held that - The order passed by the AO u/s 143(3) of the Act without making proper and adequate enquiry, as required in the facts of the given case, is one which is erroneous and prejudicial to the interest of the Revenue and the CIT has the power to revise the same u/s 263 of the Act - The assessee had furnished the details and documents required by the A.O. which were inclusive of the details of short term capital gain arising from the shares sold after 1-10-2004 liable to tax at special rate. The details were sufficient to ascertain the number of transactions, frequency of transaction, the period of holding, the volume of transactions etc. for the purpose of deciding whether the treatment given by the assessee to the profit arising from purchase and sale of shares was business income or short term capital gain - The CIT had come to a prima facie conclusion on the merit of the issue on the basis of the details already brought on record by the AO during the course of assessment proceedings and this fact by itself shows that proper and sufficient enquiry on the issue was duly made by the AO before accepting the treatment given by the assessee to the profits arising from sale of shares as short term capital gain - there was no error in the order of the AO passed u/s 143(3) of the Act as alleged by the CIT calling for revision u/s 263 of the Act the order of the CIT(A) set aside and the matter remitted back to the AO Decided in favour of Assessee.

Summary

Issues:
1. Whether the profit from the sale of shares should be treated as short term capital gain or business income.
2. Whether the assessment order passed by the Assessing Officer (A.O.) under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of the Revenue.

Issue 1: Profit from Sale of Shares - Short Term Capital Gain or Business Income

The case involved an individual, a doctor specializing in Nephrology, who declared short term capital gains from the sale of shares in his income tax return. The Assessing Officer (A.O.) accepted this treatment in the assessment under section 143(3) of the Income Tax Act. However, the Commissioner of Income Tax (CIT) initiated proceedings under section 263, contending that the profit should be treated as business income. The CIT argued that the doctor was engaged in large-scale share transactions, including intraday and speculative trading, indicating a business activity. The doctor, on the other hand, defended his position, stating that his primary objective was long-term investment, not trading. He highlighted factors such as low transaction frequency, long holding periods, significant capital, and lack of borrowing. The CIT set aside the A.O.'s order, citing insufficient scrutiny. The Tribunal, after reviewing the details provided by the doctor during assessment, concluded that the A.O. had adequately examined the issue. The Tribunal found no error in treating the profit as short term capital gain and overturned the CIT's decision.

Issue 2: Erroneous Assessment Order

The CIT alleged that the A.O.'s assessment order was erroneous and prejudicial to Revenue's interest due to inadequate enquiry. The doctor's representative argued that all necessary details and documents were provided during assessment, supporting the short term capital gain treatment. The representative pointed out that the CIT's conclusion was based on the information already on record. The Deputy Registrar (D.R.) supported the CIT's stance, citing Supreme Court precedent and CBDT guidelines. The Tribunal emphasized that an assessment order lacking proper enquiry allows revision under section 263. However, after examining the details furnished by the doctor during assessment, the Tribunal found that the A.O. had conducted a satisfactory inquiry. The Tribunal concluded that the A.O.'s decision to accept the short term capital gain treatment was based on adequate information, and there was no error warranting revision under section 263. Consequently, the Tribunal allowed the doctor's appeal, setting aside the CIT's order.

In conclusion, the Tribunal ruled in favor of the doctor, upholding the treatment of profit from the sale of shares as short term capital gain and overturning the CIT's decision to revise the assessment order under section 263 of the Income Tax Act.