2014 (6) TMI 217 - AT - Income Tax

Deletion of unaccounted purchases Exact period in which the shares were purchased Held that - The genuineness of the claim of the assessee of having purchased 14000 shares of M/s Orbit Corporation has not been disputed either by AO in the assessment order - the shares were not transferred to the D-mat account of the assessee, the assessee did not make any payment to the concerned brokers and when this matter was finally sorted out and the shares were transferred to the D-mat account of the assessee by the concerned brokers in the month of December, 2007, the assessee made the payment against the said shares immediately thereafter - The documentary evidence clearly established that the shares were purchased by the assessee in the month of May 2007 itself at the prevailing market rate and it was not a case of purchase of shares by the assessee in the month of December 2007 - there was not an iota of evidence brought on record by the AO to show that any consideration for the purchase of said shares over and above what was shown by the assessee in her books of account was paid by the assessee and the allegation of the AO that the assessee had paid consideration outside the books of account was based purely on surmises and conjecture as rightly held by the CIT(A) thus, there was no infirmity in the order of CIT(A) deleting the addition made by AO to the total income of the assessee Decided against Revenue. Treatment of income as STCG Income from Business Held that - The assessee had transacted only in 24 scrips during the year consideration out of which 12 scrips were allotted to her through IPOs It cannot be said that the frequency of transactions in shares of the assessee was high - Even the reasons for immediate sale of the shares allotted through IPOs were satisfactorily explained by the assessee - There were no repetitive transactions entered into by the assessee in the same scrips and the entire investment in shares was made by the assessee out of her own funds - The transactions in all the delivery based shares were consistently treated by assessee as investment transactions and this treatment given by assessee in the books of account was accepted by AO in the earlier years Relying upon CIT. Versus GOPAL PUROHIT 2010 (11) TMI 222 - Supreme Court of India - CIT(A) was fully justified in directing the AO to treat the profit derived by the assessee from the delivery based transaction as capital gain - there was no reason to interfere with the order of CIT(A) giving relief to the assessee Decided against Revenue.

Summary

Issues Involved:
1. Deletion of addition of unaccounted purchases.
2. Treatment of income as short-term capital gain versus income from business.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Unaccounted Purchases:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] that deleted the addition of unaccounted purchases. The Assessing Officer (AO) had observed that the assessee claimed to have purchased shares in May 2007, but inquiries with the Bombay Stock Exchange and National Stock Exchange revealed no such purchases. The AO concluded that the shares were actually bought in December 2007 at a higher price, and the difference of Rs. 84,24,629/- was treated as unaccounted income. The CIT(A) deleted this addition, noting that the transactions were off-market and there was no adverse material suggesting punitive action by BSE or NSE. The brokers confirmed the transactions were on behalf of the assessee in May 2007, and no evidence showed payment outside the books of accounts. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the addition.

2. Treatment of Income as Short-Term Capital Gain versus Income from Business:

The Revenue challenged the CIT(A)'s direction to treat the profit from share transactions as Short Term Capital Gain (STCG) instead of business income. The AO had treated the profit as business income, noting the frequency of transactions and short holding periods, suggesting an intention to trade rather than invest. The CIT(A) directed the AO to treat the profit as capital gains, relying on the decision in Gopal Purohit, where the treatment of shares as investments in the books was upheld. The Tribunal supported the CIT(A)'s decision, noting the assessee's consistent treatment of delivery-based transactions as investments, the low frequency of transactions, and the use of own funds for investment. The Tribunal found no reason to interfere with the CIT(A)'s order.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The order was pronounced in the open court on 22nd May 2014.