2016 (11) TMI 1601 - AT - Income Tax

Earning on sale of shares of Talent Infoway Ltd - change of head of income - disputes under the head of income from other sources - Held that - The option of the assessee in matters of the claim relating to the profits / gains on sale of shares based on the entries in the books of accounts, assumes significance. The Officers are prevented from changing the head of income for taxing the said gains arbitrarily and without having contrary evidence against the assessee. The said Circular No. 6/2016 enlists certain conditions and the Revenue Authorities are required to examine the said Circular (supra) closely and adjudicate this issue after grating a reasonable opportunity of being heard to the assessee. For this purpose, we remand this matter to the file of the AO. Prima facie, we find, the contents of para 3(a) and other paragraphs of the said Board Circular do not permit the Revenue Authorities to change the head of income from business income to the capital gains or vice versa, unless the conditions specified in para 4 of the said Circular (supra) ie bogus claims or sham transactions / questionable transactions are involved. The Revenue Authorities are required to honour the books of account and the entries therein pertaining to the shares - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Taxation of earnings on the sale of shares of Talent Infoway Ltd under the head income from other sources.

Analysis:
The appeal was filed against the order of the CIT (A)-32, Mumbai for the assessment year 2006-07. The main issue revolved around the decision of the AO / CIT (A) in taxing the earnings on the sale of shares of Talent Infoway Ltd under the head income from other sources. The assessee contended that the decision was based on a statement that was later retracted, and thus, the claim should be accepted as per the return of income. The assessee also highlighted the significance of the claim in the books of accounts in light of CBDT Circular no.6/2016. On the other hand, the Revenue argued for a remand to the AO for fresh adjudication considering the Circular.

Upon hearing both parties and examining the relevant material, the Tribunal found that the option of the assessee regarding the claim of profits/gains on the sale of shares based on entries in the books of accounts was significant. The Tribunal noted that the Revenue Authorities cannot arbitrarily change the head of income for taxing the gains without contrary evidence against the assessee. Referring to the Circular, the Tribunal emphasized that the Revenue Authorities must closely examine the Circular and provide a reasonable opportunity for the assessee to be heard. The Tribunal highlighted that unless conditions like bogus claims or sham transactions are involved, the head of income cannot be changed from "business income" to "capital gains" or vice versa. The Tribunal stressed the importance of honoring the books of account and the entries therein related to shares. If the assessee treats certain transactions of purchase and sale of shares as stock-in-trade in the books of account, business income should be the appropriate head of income, and the AO should not disturb it. Consequently, all grounds raised by the assessee were allowed for statistical purposes.

In conclusion, the appeal of the assessee was allowed for statistical purposes, and the matter was remanded to the file of the AO for fresh adjudication in accordance with the Circular and the principles outlined in the judgment.