2012 (9) TMI 1245 - AT - Income Tax

Summary

Issues Involved:

1. Whether the income from the purchase and sale of shares should be treated as 'short term capital gain' or 'business income'.
2. Application of the principle of consistency in assessment years.

Summary:

Issue 1: Treatment of Income from Shares

The Revenue contended that the assessee's income from the purchase and sale of shares should be treated as 'business income' due to the large scale and high frequency of transactions, and the short holding period. The Assessing Officer (AO) had reclassified the income from 'short term capital gain' to 'business income' for the assessment years 2005-2006 and 2006-2007. The CIT (A) directed the AO to accept the assessee's claim of short term capital gain, noting that the AO had accepted similar claims in previous years (2004-2005) and allowed set off u/s 74 and exemption u/s 54F. The CIT (A) relied on the decision of the Hon'ble jurisdictional High Court in the case of Gopal Purohit, which upheld the assessee's right to maintain separate portfolios for investment and business activities in shares.

Issue 2: Principle of Consistency

The learned DR argued that each assessment year is a separate unit and the principle of res judicata does not apply in taxation matters. However, the CIT (A) and the Tribunal emphasized the principle of consistency, stating that the AO cannot take a divergent view for different assessment years when the facts and circumstances are identical. The Tribunal noted that the AO had accepted the assessee's claims of short term and long term capital gains in some years while treating them as business income in others, despite similar transaction patterns. The Tribunal upheld the CIT (A)'s decision, citing the Hon'ble jurisdictional High Court's ruling in Gopal Purohit, which mandates uniformity in treatment and consistency when facts and circumstances are identical.

Conclusion:

The Tribunal dismissed the Revenue's appeals, affirming the CIT (A)'s orders that directed the AO to treat the income from the purchase and sale of shares as 'short term capital gain' rather than 'business income'. The Tribunal reinforced the principle of consistency in tax assessments, aligning with the precedent set by the Hon'ble jurisdictional High Court in Gopal Purohit.