2016 (1) TMI 852 - AT - Income Tax

Penalty levied u/s 271(1)(c) - whether the gains arising on sale of shares constitute business income or capital gains - Held that - The average holding period was reasonably good. The repetition of transactions were very minimal, i.e, upto a maximum of four transactions only. The assessee has not borrowed funds for purchasing the shares. The assessee has held major shares for more than one year and has declared long term capital gains. We notice that the assessing officer has ignored all other factors, which are in favour of the assessee and has decided the issue against the assessee by considering only two factors. We have seen that even the two factors that were considered by the assessing officer works out in favour of the assessee only. Hence, in our view, the decision taken by the assessing officer in AY 2006-07 is not correct in the facts and circumstances of the case and hence the assessment orders passed in other years by following the decision rendered in AY 2006-07 would consequently rendered incorrect. Under these set of facts, we are of the view that there is merit in the contentions of Ld A.R that the assessing officer was not justified in assessing the gains arising on sale of shares as business income of the assessee. In view of the foregoing discussions, we are of the view that the Ld CIT(A) was justified in directing to assess the Long term capital gains under the head Capital gains only. In respect of Short term capital gains, we set aside his order for the reasons discussed in the previous paragraphs and direct the assessing officer to assess the same under the head Capital gains only for all the years under consideration. Thus the penalty order passed by the assessing officer will not survive. - Decided in favour of assessee.

Summary

Issues:
1. Assessment of short term capital gain as Business income.
2. Assessment of long term capital gain as Capital gains.
3. Cancellation of penalty levied u/s 271(1)(c) for AY 2007-08.

Analysis:
1. The appeals filed by the assessee raised the issue of short term capital gain being assessed as Business income. The assessee, a doctor by profession, argued that she purchased shares as investments, using her own and interest-free funds, holding most shares long term, and not engaging in repetitive transactions. The assessing officer's decision was criticized for lack of proper support and failure to consider various criteria in favor of the assessee. The revenue contended that the high frequency and volume of transactions indicated trading intent. The Tribunal considered various factors, including the intention at purchase, funding, holding period, and other activities, concluding that the gains should be assessed under the head Capital gains.

2. The revenue challenged the assessment of long term capital gain as Capital gains instead of Business income. The Tribunal observed the assessee's profession, funding sources, treatment of shares as investments, and holding periods. It noted the minimal repetitive transactions, lack of profit and loss account, and absence of staff or setup for share activities. The assessing officer's decision in AY 2006-07 was analyzed, highlighting the high volume but reasonable holding periods and minimal repetitions. The Tribunal found the assessing officer's decision incorrect and directed all short term capital gains to be assessed as Capital gains.

3. The revenue appealed the cancellation of penalty for AY 2007-08. As the Tribunal ruled in favor of the assessee regarding the assessment of gains, the penalty order was deemed unnecessary and dismissed. Consequently, all appeals by the assessee were allowed, and those by the revenue were dismissed. The decision was pronounced on 4th Nov., 2015.