2014 (7) TMI 170 - AT - Income Tax

Treatment of income - Sale of shares as Business Income instead of Capital Gains Held that - The transactions entered into by the assessee cannot be treated to be transactions giving rise to income under the head profit and gains from business or profession - The shares have been shown under the head investment revenue has accepted LTCG shown by the assessee in respect of similar transactions giving rise to income under the head capital gain - gain earned by the assessee from transactions of shares upon which assessee has earned gain of ₹ 2,08,775/- cannot be assessed as income under the head profit and gains of business or profession Decided in favour of Assessee.

Summary

Issues:
1. Treatment of income from sale of shares as Business Income instead of Capital Gains
2. Invocation of provisions of sections 44AA and 44AB for penalty
3. Grounds for appeal regarding treatment of transactions as business income

Issue 1: Treatment of income from sale of shares as Business Income instead of Capital Gains

The appellant contested the treatment of income from the sale of shares as business income instead of capital gains. The AO noted multiple sale transactions of shares within short periods and concluded these transactions as business activities. The CIT(A) upheld this decision, considering the volume of transactions, intra-day trading, and the motive to earn a profit. However, the appellant argued that similar transactions yielding long-term capital gains were accepted, citing precedents. The ITAT held that the shares were shown as investments, not stock-in-trade, and ruled in favor of the appellant, stating the transactions did not qualify as business income.

Issue 2: Invocation of provisions of sections 44AA and 44AB for penalty

The CIT(A) invoked sections 44AA and 44AB to levy penalties based on the turnover exceeding the prescribed limit. The ITAT found this premature, stating that the penalty provisions should be considered only during the penalty imposition stage under sections 271A and 271B. Thus, the ITAT vacated the CIT(A)'s decision, indicating that the penalty assessment should be examined at the appropriate penalty imposition stage.

Issue 3: Grounds for appeal regarding treatment of transactions as business income

The appellant raised grounds of appeal against the CIT(A)'s decision. The ITAT dismissed Ground No.1(a) as uncontested by the appellant. Ground No.1(b) was decided in favor of the appellant, emphasizing that the transactions did not qualify as business income. Ground No.1(c) was dismissed as infructuous due to the decision on Ground No.1(b. Ground No.2 was partially allowed, with the ITAT ruling that the CIT(A)'s decision on the applicability of sections 44AA and 44AB for penalties was premature and should be considered during the penalty imposition stage.

In conclusion, the ITAT partially allowed the appeal, ruling in favor of the appellant regarding the treatment of transactions as business income and the premature invocation of penalty provisions. The judgment emphasized the distinction between capital gains and business income based on the nature of the transactions and the intention behind them.