2016 (8) TMI 999 - AT - Income Tax

Gain arising on sale of shares - business income OR short term capital gain - Held that - A perusal of Clause (b) reproduced above would show that where the shares are held for a period of more than 12 months, the Revenue shall not dispute the income offered by the assessee on transfer of shares as Capital Gain, provided the assessee consistently treat those shares as investment. However, in the present case we find that the shares on which the assessee has claimed Short Term Capital Gain are held by the assessee for the period less than 6 months and in some of the cases the holding period is even less than 10 days. Therefore, the assessee cannot take the shelter of this CBDT Circular. Thus, in view of the facts of the case, we do not find any merit in submissions of the assessee to treat the income from sale of shares as Short Term Capital Gain.

Summary

Issues Involved:
1. Whether the gain on sale and purchase of shares should be treated as business income or short term capital gain?
2. Whether the disallowance of interest expenditure should be upheld?

Analysis:

Issue 1:
The primary issue in this case is whether the gain on sale and purchase of shares, amounting to ?1,37,45,845, should be classified as business income or short term capital gain. The assessee contended that they maintained two separate portfolios for shares held as investment and stock in trade. However, the Assessing Officer observed that the assessee did not maintain separate bank accounts or demat accounts for the two portfolios. The Commissioner of Income Tax (Appeals) upheld the decision to treat the gain as business income. The Tribunal noted that maintaining separate accounts is crucial to substantiate the existence of two distinct portfolios. The Tribunal also highlighted that entries in the books of account alone are not conclusive in determining the nature of transactions. The Tribunal dismissed the appeal, stating that the assessee failed to provide sufficient evidence to support the claim of separate portfolios and upheld the decision to treat the gain as business income.

Issue 2:
The second issue pertains to the disallowance of interest expenditure amounting to ?3,78,499. The assessee chose not to press this ground during the hearing. Consequently, the Tribunal dismissed this issue as not pressed. Therefore, the decision to disallow the interest expenditure was upheld.

In conclusion, the Tribunal dismissed the appeal of the assessee, affirming the decision to treat the gain on sale and purchase of shares as business income and upholding the disallowance of interest expenditure. The judgment was pronounced on July 22, 2016, by the Appellate Tribunal ITAT Pune.