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2017 (1) TMI 776 - AT - Income TaxPurchase-sale of securities - whether is a business profit or capital gain ? - Held that -On perusal of final accounts of the assessee, for the assessment year under consideration and immediately preceding assessment year 2004-05 we find that the assessee has been showing all the securities as investment in its books of accounts. The corresponding income on sale and purchase of securities has been offered under the head of capital gain by the assessee for both the years. The AO has merely treated the transaction of sale purchase of securities as an adventure in the nature of trade merely on the ground of magnitude and frequency of the transaction. The securities in the books of accounts maintained by the assessee were classified as investment. Thus in our considered view the AO cannot step into the shoes of the assessee to decide the business decisions for purchase and sale of securities. It is the discretion of the assessee to carry out the activity to the best of his wisdom. Therefore we do not find any substance in the case before us. We are of the opinion that the income shown by the assessee under the head of capital gain is consistent with the accounting treatment made in the books of accounts. Income from undisclosed source - Held that - As there was no fault on the part of the assessee we are inclined to reverse the order of lower authorities. Hence this ground of appeal of the assessee is allowed. Disallowance of dividend income from UTI master value fund wherein the amount was invested - Held that - We find that assessee has made investment on 07.02.2005 for ₹ 75,000/- and on same day the dividend income was received from UTI as evident from the account statement. We also find that the same amount of dividend is also reflecting in the bank statement of assessee and said amount was credited in the bank of assessee on 19.02.2005 through account payee cheque. To this point, Ld. DR for the Revenue has not brought anything on record to contradict the argument made by Ld. AR. Considering the facts and circumstances of the case, we reverse the order of Ld. CIT(A) and this ground of assessee is allowed.
Issues Involved:
1. Whether the purchase-sale of securities should be treated as business profit or capital gains. 2. Whether the addition of ?14,97,500/- should be treated as income from undisclosed sources. 3. Whether the dividend income of ?24,983/- from UTI Master Value Fund should be treated as income from undisclosed sources. Issue-wise Detailed Analysis: 1. Treatment of Purchase-Sale of Securities: The assessee, a Hindu Undivided Family (HUF), declared income from trading in shares and securities under "capital gains." However, the Assessing Officer (AO) treated this income as "business income" due to negligible dividend income, high frequency and magnitude of transactions, and the manner of recording transactions in the books. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the AO treated the income as from undisclosed sources under Section 68, not as business income. The Tribunal found that the CIT(A) misunderstood the facts, as the AO's order did not treat the income as from undisclosed sources. The Tribunal held that the AO cannot decide the business decisions of the assessee and that the intention of the assessee should be considered. Citing precedents, the Tribunal concluded that the income should be treated as capital gains, not business income, and allowed the assessee's appeal on this ground. 2. Addition of ?14,97,500/- as Income from Undisclosed Sources: The assessee purchased shares of M/s Rohon Financial and Securities Ltd. (RFSL) and later sold them to M/s Ahilya Commercial Pvt. Ltd. (ACPL), resulting in a capital gain. The AO treated the transaction as bogus and the income as from undisclosed sources, citing the sharp rise in share price, SEBI's directive against ACPL, and lack of financial statements from ACPL. The CIT(A) upheld the AO's decision, noting the involvement of the Karta of the HUF in both buying and selling and the failure to establish the identity and creditworthiness of ACPL. The Tribunal found that the AO did not provide concrete evidence to disallow the long-term capital gain and failed to issue necessary notices to RFSL and ACPL. The Tribunal held that the assessee cannot be penalized for ACPL's non-compliance and reversed the lower authorities' decisions, allowing the assessee's appeal on this ground. 3. Dividend Income of ?24,983/- from UTI Master Value Fund: The AO disallowed the dividend income, stating that the investment was not reflected in the previous year's balance sheet and that such a high dividend could not be earned in a short span. The CIT(A) upheld the AO's decision, doubting the authenticity of the investment and the dividend receipt. The Tribunal found that the investment and dividend receipt were evident from the account and bank statements. The Tribunal noted that the dividend was credited through an account payee cheque, and the Revenue did not contradict this evidence. Consequently, the Tribunal reversed the CIT(A)'s order and allowed the assessee's appeal on this ground. Conclusion: The Tribunal allowed the assessee's appeal on all grounds, treating the income from the sale of securities as capital gains, rejecting the addition of ?14,97,500/- as income from undisclosed sources, and accepting the dividend income of ?24,983/- from UTI Master Value Fund. The order was pronounced in the open court on 11/01/2017.
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