2017 (10) TMI 931 - AT - Income Tax

Computation of LTCG - admission of additional evidence - Held that - When Ld. CIT(A) could have admitted the additional evidences in preceding A.Y. 2008-09 though on some other issue, the assessee would have the reason to explain that the additional evidence were necessary for disposal of the appeals and no sufficient opportunity have been given to the assessee to produce these documents at assessment stage. The above reason clearly apply to the facts and circumstances of the case. We, therefore, set aside the order of the Ld. CIT(A) and admit the additional evidence for the purpose of disposal of the appeal of assessee, with regard to computation of long term capital gains. Since these additional evidences have not been admitted by Ld. CIT(A) and A.O. has no occasion to examine the same in accordance with law, we are of the view that the entire matter of issue of long term capital gains and the claim of acquisition of indexed cost for long term capital gains, be restored to the file of the A.O. for deciding the issue afresh, in accordance with law. Appeal of assessee is allowed for statistical purposes. Income from transaction of sale of shares - Capital gain or business income - Held that - A.O. in preceding assessment year 2008-09 has assessed the income from sale of share transaction as business income. Therefore, on rule of consistency, the A.O. should not take a different view on identical facts. The Ld. CIT(A) in detail considered this issue by considering various tests i.e., intention of the assessee at the time of purchase of shares, borrowed funds used by assessee, frequency of the transaction in assessment year under appeal and holding of the shares as stock-in-trade etc., and thus, he has come to the conclusion that transactions are in the nature of business transactions and the income as business income. The cumulative effect of the fact was thus, for treatment of income from transaction in shares, as business income.

Summary

Issues Involved:
1. Treatment of share trading loss as business loss or capital loss.
2. Computation of long-term capital gains from the sale of property.
3. Admission of additional evidence under Rule 46A of the I.T. Rules, 1962.

Detailed Analysis:

1. Treatment of Share Trading Loss:
The assessee declared a share trading loss of ?2,18,10,060 from equity shares and sought to set it off against the profit from his liquor trading business. The A.O. treated the share trading as an investment activity rather than a business, thus categorizing the loss as a short-term capital loss, which cannot be set off against business income. The Ld. CIT(A) reversed this decision, citing the principle of consistency, as the A.O. had treated similar transactions as business income in the preceding A.Y. 2008-09. The Ld. CIT(A) examined the nature of transactions, frequency, and intention, concluding that the transactions were business activities. The Tribunal upheld the Ld. CIT(A)’s decision, emphasizing the rule of consistency and the detailed analysis provided by the Ld. CIT(A).

2. Computation of Long-Term Capital Gains:
The assessee declared long-term capital gains of ?3,66,69,217 from the sale of property, but the A.O. computed it as ?4,95,00,000, taking the cost of acquisition as NIL due to the absence of supporting documents. The Ld. CIT(A) upheld the A.O.'s decision, rejecting the assessee's application under Rule 46A for admitting additional evidence. The Tribunal, however, found that the A.O. did not provide sufficient time for the assessee to furnish the necessary documents and that the additional evidence was crucial for determining the correct taxable income. Consequently, the Tribunal set aside the Ld. CIT(A)’s order and remanded the matter back to the A.O. for fresh consideration, directing the A.O. to admit the additional evidence and re-compute the long-term capital gains.

3. Admission of Additional Evidence:
The assessee argued that the A.O. did not grant sufficient time to produce documents proving the cost of acquisition of the property. The Tribunal agreed, noting that the A.O. only provided 11 days for document submission, which was insufficient. Citing precedents, the Tribunal emphasized that additional evidence should be admitted if it is crucial for justice and affects the quantum of taxable income. The Tribunal directed the A.O. to re-examine the issue of long-term capital gains, considering the additional evidence.

Conclusion:
The Tribunal allowed the assessee’s appeal for statistical purposes, directing the A.O. to re-evaluate the long-term capital gains issue with the additional evidence. The Revenue’s appeal was dismissed, upholding the Ld. CIT(A)’s decision to treat the share trading loss as a business loss. The Tribunal emphasized the principles of consistency, sufficient opportunity for evidence submission, and the necessity of additional evidence for fair adjudication.