2015 (4) TMI 793 - AT - Income Tax

Addition of income on sale and purchase of shares - Treating as Business income - Classification of shares held as Investment in books of accounts - Held that - We have heard rival parties and have gone through the material placed on record. We find that the assessee is engaged in the business of agro products and its total turnover from the said business is around ₹ 365 crores. We further find from the facts noted in Ld. CIT(A)'s order that assessee had carried out transaction in 5 scripts and holding period of which ranged from 8 days to 126 days. Moreover, it is observed that the assessee had classified the investment in the balance sheet as investment. We find that in previous years and in succeeding years, the income of assessee from similar activities has been held to be on account of capital gain and not on account of business income. Ld. CIT(A) has passed a detailed and exhaustive order in which we do not find any infirmity. - Decided against the revenue.

Issues Involved:
1. Classification of income from sale of shares as business income or short-term capital gain.
2. Consistency in treatment of similar income in previous and subsequent assessment years.

Issue-wise Analysis:

1. Classification of income from sale of shares as business income or short-term capital gain:
The primary issue in this case is whether the income from the sale of shares should be classified as business income or short-term capital gain. The assessee company, engaged in trading various commodities, declared a short-term capital gain of Rs. 43,31,685/-. The Assessing Officer (A.O.) reclassified this as business income, arguing that the shares were held for a brief period, indicating an intent to earn business income rather than capital gains. However, the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, noting that the shares were shown as investments in the balance sheet and were held for varying periods, with transactions being delivery-based. The CIT(A) emphasized that the assessee's main business was not trading in shares but in agricultural commodities and other goods, with a turnover of Rs. 365 crores. The CIT(A) also pointed out that the investments were made from surplus funds and not borrowed funds.

2. Consistency in treatment of similar income in previous and subsequent assessment years:
The CIT(A) highlighted that in previous assessment years (2005-06, 2006-07) and subsequent years (2008-09, 2009-10), the income from similar transactions was accepted as capital gains by the A.O. under section 143(3) of the Income Tax Act. The CIT(A) provided a detailed comparison showing that the nature of transactions and the treatment of income were consistent across these years except for the assessment year 2007-08, which was under dispute. This consistency was a significant factor in the CIT(A)'s decision to treat the income as short-term capital gain rather than business income.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The ITAT found no infirmity in the CIT(A)'s detailed and exhaustive order, agreeing that the assessee's classification of shares as investments in the balance sheet and the consistency in treatment of similar income in other years supported the conclusion that the income should be treated as short-term capital gain. The ITAT noted that the assessee's main business was not trading in shares and that the transactions were delivery-based, further reinforcing the CIT(A)'s decision.

Order:
The appeal filed by the Revenue was dismissed, and the CIT(A)'s order to treat the surplus received on the sale and purchase of shares as short-term capital gain was upheld. The ITAT directed the A.O. to delete the business income from the computation of income, as the short-term capital gain of Rs. 43,31,685/- was already included in the returned income. The order was pronounced in the open court on 25.02.2015.

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