2017 (9) TMI 1346 - AT - Income Tax

Treating the STCG and LTCG as Business Income - nature of income - Held that - Considering the fact, the assessee is allowed Capital Gain for AY 2007-08, on the basis of which ld. PCIT revised the assessment passed under section 143(3) rws 147 order for directing the AO to treat the Capital Gain as Business income. Further, the AO allowed Capital Gain for AY 2014-15in assessment order passed under section 143(3) dated 26.11.2016. Thus, respectfully following the decision of the coordinate bench of the Tribunal and the principle of consistency the Ground No. 2 & 3 are allowed. Addition u/s 68 - genuineness of claim - Held that - AO instead of identifying the discrepancy in the confirmation of gifts concluded that assessee has not been able to discharge her onus. The assessee filed copy of confirmations, copy of ITR returns and the details of transaction through banking channels. We have noted that the assesses has discharged her primary onus to prove the identity, capacity and genuinity of transaction. Considering the facts that the assessee has discharged its primary onus lie upon her. The AO has not disputed the identity of the person or the capacity of the donor. The AO has not brought any material on record. Thus, this ground of appeal is allowed in favour of assessee. Denying the benefit of set off of Short Term Capital Loss (STCL) against LTCG - assessee argued that the assessee is an Investor and is entitled for setting off of loss on STCL against STCG in accordance with section 74 - Held that - Considering the facts that we have allowed the appeal of the assessee and allowed the gain on sale of share as STCG or LTCG as the case may be instead of Business Income. Thus, the AO is directed to verify the loss and set off of the claim in accordance with law. Thus, this ground of appeal is allowed for statistical purpose. Addition on account of dividend stripping u/s 94(7) - Held that - AO disallowed the dividend without verifying the fact. The AO made the addition only on the observation of ld PCIT. Before us, the ld. AR of the assessee has placed on record the copy of statement showing the record and date of scripts (page No. 47-49) Considering the fact that the assessee has provided the specific details of shares of M/s Kamala Dials and M/s Hemadri Chemicals before the AO. Hence, this ground of appeal is restored to the file of AO to verify the facts and pass the order in accordance with law. Needless, to say that the AO shall provide opportunity to the assessee before passing the order. In the result this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Treatment of Short Term Capital Gain (STCG) as Business Income.
2. Treatment of Long Term Capital Gain (LTCG) as Business Income.
3. Addition on account of gifts as unexplained cash credit under section 68.
4. Addition on account of low withdrawals.
5. Denial of set off of short term capital loss against short term capital gain.
6. Addition on account of dividend stripping under section 94(7).
7. Addition under section 68 treating advances received as unexplained cash credits.

Detailed Analysis:

1. Treatment of STCG and LTCG as Business Income:
The assessee contested the treatment of STCG and LTCG as Business Income by the AO. The Tribunal noted that for AY 2007-08, the CIT(A) had reversed the AO's action of treating capital gains as Business Income, and this decision was affirmed by the Tribunal. The Tribunal emphasized the principle of consistency, noting that the assessee had been treated as an investor in shares in previous years and subsequent years, with capital gains consistently recognized. Therefore, the Tribunal allowed the appeals for all relevant assessment years, directing that STCG and LTCG be treated as capital gains rather than Business Income.

2. Addition on account of gifts as unexplained cash credit under section 68:
The AO had added ?21,50,000 as unexplained cash credits under section 68, treating the gifts received by the assessee as unexplained. The Tribunal found that the assessee had provided confirmations, ITRs, and passbooks of the donors, thus discharging the primary onus to prove the identity, capacity, and genuineness of the transactions. The AO had not brought any contrary material on record. Consequently, the Tribunal allowed this ground of appeal, deleting the addition.

3. Addition on account of low withdrawals:
The AO had added ?1,50,000 on account of low withdrawals, citing insufficient details provided by the assessee. The Tribunal observed that the AO made the addition without providing specific opportunity to the assessee during the reassessment proceedings. The Tribunal found that the AO had not conducted any inquiry or brought any material evidence to support the addition. Therefore, the Tribunal deleted the addition, allowing this ground of appeal.

4. Denial of set off of short term capital loss against short term capital gain:
The assessee argued for the set off of short term capital loss (STCL) against short term capital gain (STCG) as per section 74 of the Act. The Tribunal, considering that it had allowed the treatment of gains as capital gains, directed the AO to verify the loss and set off the claim in accordance with the law. This ground of appeal was allowed for statistical purposes.

5. Addition on account of dividend stripping under section 94(7):
The AO had disallowed ?20,799 under section 94(7) related to dividend stripping. The Tribunal found that the AO made the disallowance without verifying the facts and only based on the observations of the PCIT. The Tribunal restored this ground to the AO for verification of facts and passing an order in accordance with the law, providing an opportunity to the assessee.

6. Addition under section 68 treating advances received as unexplained cash credits:
The AO had added ?40,00,000 under section 68, treating advances received from friends as unexplained cash credits. The Tribunal noted that the assessee had provided ledger accounts, confirmations, bank statements, and statements recorded under section 131. The AO had not verified these documents. The Tribunal restored this ground to the AO for fresh consideration and verification of the evidence, directing the AO to provide an opportunity to the assessee before passing the order.

7. Addition on account of low withdrawals (AY 2009-10):
Similar to the previous years, the AO had added ?2,25,000 on account of low withdrawals. The Tribunal, following its earlier observations, deleted this addition, allowing the ground of appeal.

Conclusion:
The Tribunal allowed the appeals of the assessee on several grounds, emphasizing the principle of consistency and the necessity for the AO to verify facts and provide opportunities to the assessee before making additions. The Tribunal directed the AO to treat capital gains as such and not as Business Income, deleted additions under section 68 for gifts and low withdrawals, and restored certain issues for fresh consideration and verification.