2016 (10) TMI 162 - AT - Income Tax

Share transactions - nature of income - business income or capital gain - Held that - First we come to Assessing Officer s reasoning that profits arising from sale of shares having less than a month holding period are to be treated as business income as per this tribunal decision in Sugamchand C. Shah vs. ACIT 2010 (1) TMI 942 - ITAT, Ahmedabad . It is evident to us that yet another co-ordinate bench has already expressed disagreement with the earlier tribunal s decision. The Assessing Officer s view is held as to be not sustainable in this factual and legal backdrop. We come to the CIT(A) s order to notice that he has enhanced Assessing Officer s action in treating Short Term Capital Gain as business income from ₹ 29,07,962 to ₹ 40,26,576/- (supra). We do not find any such enhance notice under section 251(2) of the Act to have been issued to the assessee at the instance of the lower appellate authority. Learned Departmental Representative fails to rebut this factual position. We observe in these peculiar facts and circumstances that this issue required to be examined afresh by the Assessing Officer as per law after affording adequate opportunity of hearing to the assessee. Ordered accordingly. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Assessment of short term capital gains as business income.

Analysis:
1. The appeal pertains to the assessment year 2008-09, challenging the treatment of short term capital gains as business income by the Assessing Officer and the subsequent enhancement by the CIT(A).
2. The Assessing Officer applied a tribunal decision to classify profits from shares held for less than a month as business income and computed a sum of &8377; 29,07,962 as such.
3. The CIT(A) further directed the entire short term capital gain of &8377; 40,26,576 to be treated as business income based on the appellant's trading activities and investment patterns.
4. The appellant contended that shares were shown as investments in the balance sheet and the main intention was long-term appreciation, citing a different case law for application.
5. The CIT(A's decision was based on the frequency of transactions, nature of investments, borrowing funds for share purchase, meager dividends, and the appellant's consistent gains from short-term trading.
6. The Tribunal found the Assessing Officer's reasoning unsustainable, noted the absence of a valid enhancement notice, and ordered a fresh examination by the Assessing Officer after providing the appellant with a hearing opportunity.
7. The appellant's substantive ground was accepted for statistical purposes, leading to the success of the appeal.

This judgment highlights the importance of assessing the nature of gains from share transactions based on various factors such as holding periods, investment patterns, trading frequency, and intention behind the transactions. It emphasizes the need for a thorough examination of facts and legal provisions before categorizing gains as business income or capital gains.