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2017 (2) TMI 908 - AT - Income TaxTransaction of shares - treating the assessee as an investor of shares as against trader of shares - Held that - the assessee had been consistently showing the amount invested in shares and mutual funds under the head investments in its books of accounts and there are no borrowings in the balance sheet filed by the assessee for the earlier years. These facts are not controverted by the revenue before us. We find that the revenue had already accepted the assessee to be an investor in the earlier years even in the scrutiny assessments framed u/s 143(3) of the Act for the Asst Years 2004-05 and 2005-06. Though the principle of resjudicata is not applicable in income tax proceedings, the principle of consistency cannot be ignored in the absence of any changed circumstances. CIT-A had rightly classified the assessee as an investor and treated the gains received on sale of shares and mutual funds as short term capital gains as against business income and granted relief to the assessee. Accordingly, the grounds raised by the revenue are dismissed.
Issues Involved:
1. Delay in filing appeals by the revenue. 2. Classification of the assessee as an investor or trader of shares. 3. Treatment of short-term capital gains (STCG) as business income or capital gains. 4. Consistency in the treatment of the assessee's transactions in previous years. Issue-wise Detailed Analysis: 1. Delay in Filing Appeals by the Revenue: The revenue filed the appeals with a delay of about 13 days. The tribunal considered the reasons provided in an affidavit and found them to be due to reasonable and sufficient cause. Consequently, the delay was condoned. 2. Classification of the Assessee as an Investor or Trader of Shares: The primary issue was whether the assessee should be classified as an investor or trader of shares. The assessee had reported STCG and long-term capital gains (LTCG) and claimed exemption under section 10(38) of the Income Tax Act. The Assessing Officer (AO) treated the STCG as business income, arguing that the frequency and volume of transactions indicated trading activity. The AO noted that the assessee dealt with a large number of scrips and mutual fund schemes, suggesting systematic and organized activity with a profit motive, rather than investment intent. 3. Treatment of Short-Term Capital Gains (STCG) as Business Income or Capital Gains: The AO observed that the assessee had transacted in 44 companies and 9 mutual fund schemes, earning substantial dividend income. The AO concluded that the assessee's main activity was dealing in shares, and the gains should be taxed as business income. The assessee countered that the holding period of shares was longer than stated by the AO and that substantial dividend income indicated an investment intent. The CIT(A) accepted the assessee's contention, relying on Supreme Court decisions, and treated the gains as capital gains. The revenue appealed, arguing that the CIT(A) overlooked the CBDT Instruction No. 4/2007 and the frequency of transactions. 4. Consistency in the Treatment of the Assessee's Transactions in Previous Years: The assessee argued that in previous years, the revenue had accepted their status as an investor in scrutiny assessments for AYs 2004-05 and 2005-06. The principle of consistency, as upheld by the Supreme Court in Radhasaomi Satsang, was invoked. The tribunal found that the assessee consistently showed investments in shares and mutual funds in their books and had no borrowings, indicating an investment intent. The tribunal also noted that the AO accepted the assessee as an investor for LTCG but not for STCG, which was inconsistent. Tribunal's Findings: The tribunal reviewed the facts and previous assessments, finding that the assessee held shares for periods ranging from 13 to 356 days, contradicting the AO's claim of short holding periods. The tribunal emphasized the substantial dividend income as evidence of investment intent. The tribunal also noted the consistent treatment of investments in the assessee's books and the absence of borrowings. The tribunal concluded that the assessee's activity was consistent with an investor's behavior and not that of a trader. Conclusion: The tribunal upheld the CIT(A)'s decision to treat the assessee as an investor and the gains as capital gains, dismissing the revenue's appeals. The principle of consistency and the assessee's historical treatment as an investor were key factors in the tribunal's decision. Order: The appeals of the revenue were dismissed, and the order was pronounced on 27.01.2017.
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