2012 (12) TMI 1186 - AT - Income Tax

Summary

Issues involved: Appeal against order of Ld.CIT(A) regarding Assessment Year 2008-09 on grounds related to classification of profit from sale of shares, setting off of short term capital gain, disallowance of loss due to changes in client codes, and approval stamp from SEBI and NSE.

Classification of profit from sale of shares: The Tribunal upheld the findings of Ld.CIT(A) that income from sale of shares was taxable under 'short term capital gain' and not 'business income'. The appellant had separate investment and trade portfolios, with no evidence of frequent trading. The holding period of shares ranged from three to ten months, indicating investment intent. The appellant used own funds for investments, with no borrowings, supporting the investment nature of the transactions.

Setting off of short term capital gain: The Tribunal dismissed the Revenue's argument regarding setting off of short term capital gain against business losses, stating it was a mere human error in client code punching rectified by the National Stock Exchange. The F&O transactions were legitimate, reflected with NSE, and carried out on a recognized stock exchange, justifying the allowance of the loss and its set off against income from short term capital gain.

Disallowance of loss due to changes in client codes: The Tribunal upheld Ld.CIT(A)'s decision to delete the disallowance of loss, emphasizing that the changes in client codes were rectified errors, known to NSE, and not indicative of fraud. NSE confirmed the transactions, and the changes were made to correct mistakes, not for tax evasion purposes. The loss incurred in F&O transactions was allowed as a business loss and set off against short term capital gain income.

Approval stamp from SEBI and NSE: The Tribunal rejected the Revenue's argument regarding the absence of inquiries by SEBI and NSE, stating that the changes in client codes were legitimate corrections, not warranting regulatory action. The transactions were conducted on a recognized stock exchange, NSE, and the loss incurred was allowed as a business loss, set off against short term capital gain income.

Conclusion: The appeal by the Revenue was dismissed, affirming the order of Ld.CIT(A) for Assessment Year 2008-09, with the Tribunal upholding the classification of income from sale of shares as short term capital gain, the legitimacy of setting off short term capital gain, and the allowance of loss due to changes in client codes as a business loss.