2017 (8) TMI 746 - AT - Income Tax

Assessment of Business loss in Share trading as capital gains - not allowing the set off of Brought forward business losses - assessee is engaged in the business of transport and in share trading - Held that - The assessee has declared the business results for the assessment year 2008-09 as business loss and filed the return of income, which was accepted by the department u/s 143(1) of the Act. There was a clear identification of shares held as investment and shares held as stock in trade. This fact was not disputed by the revenue. It is for the assessee to treat a particular transaction as investment or stock in trade and whether the intention of the assessee was to make the business or as investment should be established with the financial statements and the conduct of the assessee. In the balance sheet by declaring stock in trade and accounting the purchases and sales in P&L A/c the assessee declared the intention as a business transaction but not as investments. The assessee is free to make certain assets as business assets and certain assets as investments. This view is upheld in the case of NSS Investments Vs. CIT 2005 (4) TMI 45 - MADRAS High Court . Therefore, we hold that the assessee is engaged in the business of share trading and resultant Profit or loss required to be assessed as a business income but not as capital gains. Accordingly, we set aside the order of the lower authorities and delete the addition made by the A.O. - Decided in favour of assessee.

Summary

Issues:
Assessment of business loss in share trading as capital gains and disallowance of set off of brought forward business losses.

Detailed Analysis:

Assessment of Business Loss as Capital Gains:
The appellant, engaged in transport and share trading, filed a return for A.Y. 2009-10 showing business loss from share trading and profit from transport business. The assessing officer treated the share trading loss as capital gains due to long-term holding and absence of derivative transactions, denying set off of losses. The CIT(A) upheld this decision, citing lack of new share purchases and reliance on CBDT circular No.4/2007. The appellant contended that the business nature was evident from audited accounts, stock declarations, and purchase/sale details. The Tribunal found the appellant actively traded shares for business, not investment, based on financial statements and conduct, overturning previous decisions.

Disallowance of Set Off of Brought Forward Losses:
The assessing officer disallowed set off of brought forward losses, treating current year losses as capital losses. The CIT(A) upheld this disallowance, emphasizing the nature of transactions. However, the Tribunal ruled in favor of the appellant, recognizing the business intent behind share trading activities and allowing the losses to be set off against business income. The Tribunal's decision was based on the appellant's active involvement in share trading as a business activity, as evidenced by financial records and conduct.

In conclusion, the Tribunal allowed the appeal, holding that the appellant's share trading losses should be treated as business income, not capital gains, and permitting set off of losses against business income. The decision emphasized the appellant's business intent, as reflected in financial statements and trading activities, overruling previous rulings that categorized the losses as capital in nature.