2016 (1) TMI 165 - AT - Income Tax

Eligibility for concessional tax treatment u/s.111 - CIT(A) directing to consider the business income from share trading of ₹ 1,15,01,549/- as short term capital gain - Held that - The intention of the assessee has to be seen and in the facts of the case it has been strongly pleaded that the intention of the appellant was to make investments and to make gain on sale of shares and it was not to do share trading. Even in earlier year, ie. A.Y.2005-06 the appellant has shown short term capital gain which has been accepted by the A.O. as short term capital gain in assessment made u/s.143(3) of the I.T. Act on 7/12/2007. Considering these facts hold that the appellant has earned short term capital gain and not business income and so direct the AO to treat the income as short term capital gain taxable at concessional rte of 10% - Decided against revenue Computation of income from long term capital gain - CIT(A) confirming the order of AO as to the value adopted for the purpose of payment of Stamp Duty shall be deemed to be the full value of the consideration as per the provisions of Section 50C - Held that - In the present case, the assessee has demonstrated that before the AO the Valuation adopted by the Stamp Valuation Authority was disputed, therefore, the AO ought to have refer the issue to the Valuation Officer (DVO) in terms of provisions of Section 50C(2) of the Act . Thus restore this issue to the file of AO to decide the issue afresh after obtaining the report from the DVO in the light of the decision of the Coordinate Bench rendered in the case of Manjula Singhal vs. ITO (2011 (2) TMI 48 - ITAT, JODHPUR ). Thus, this ground of assessee s appeal is allowed for statistical purposes

Issues Involved:
1. Classification of income from share trading as business income or short-term capital gain (STCG).
2. Application of Section 50C of the Income Tax Act regarding the computation of Long Term Capital Gain (LTCG) on the sale of property.
3. Disallowance under Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Income from Share Trading:
The primary issue in the Revenue's appeal was whether the income from share trading should be classified as business income or STCG. The Assessing Officer (AO) had treated the surplus from the sale and purchase of shares amounting to Rs. 1,15,01,549/- as business income. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed this finding, directing the AO to treat the income as STCG eligible for concessional tax treatment under Section 111A at a 10% rate.

The CIT(A) observed that in the previous assessment year (AY 2005-06), the AO had accepted the treatment of similar income as STCG. The CIT(A) also noted that the assessee was involved in full-time employment in the construction business, and the share transactions were not connected to his employment. The CIT(A) concluded that the transactions were investments rather than business activities, supported by several judicial decisions and a Press Note issued by the Central Board of Direct Taxes (CBDT).

The Tribunal upheld the CIT(A)'s decision, noting that the Revenue had not demonstrated any difference in facts from the previous year. Additionally, a similar issue in the case of the assessee's brother had been decided in favor of the assessee by the Tribunal. Therefore, the Tribunal dismissed the Revenue's appeal.

2. Application of Section 50C:
The issue in the assessee's appeal was the application of Section 50C of the Income Tax Act regarding the computation of LTCG on the sale of property. The AO had adopted the Jantri value (stamp duty value) of the property as the sale consideration, which was significantly higher than the declared sale price. The assessee argued that the AO should have referred the valuation issue to the Valuation Officer (DVO) as per Section 50C(2) since the value adopted by the Stamp Valuation Authority was disputed.

The Tribunal referred to the decision of the ITAT Jodhpur Bench in the case of Manjula Singhal vs. ITO, which held that if the stamp duty valuation is disputed, the AO must refer the matter to the DVO. The Tribunal set aside the orders of the authorities below and restored the issue to the AO to obtain a report from the DVO and decide the matter afresh.

3. Disallowance under Section 14A:
The AO had made a disallowance of Rs. 30,146/- under Section 14A of the Income Tax Act. The CIT(A) confirmed this disallowance, and there was no further discussion on this issue in the Tribunal's order, indicating that the disallowance was upheld.

Conclusion:
The Tribunal dismissed the Revenue's appeal regarding the classification of income from share trading, upholding the CIT(A)'s decision to treat it as STCG. The Tribunal allowed the assessee's appeal for statistical purposes, directing the AO to refer the valuation issue to the DVO as per Section 50C(2). The disallowance under Section 14A was confirmed.

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