2020 (4) TMI 264 - AT - Income Tax

Correct head of income - Income from sale of shares - short term capital gain OR business income - HELD THAT - The assessee is regularly trading in shares over the years and, therefore, there is no justification for treating the transaction as disposal of investments. It is the submission of the Ld. Counsel for the assessee that out of 72 transactions 41 transactions relate to transactions out of opening stock and whatever shares have been purchased during the year have not been sold. It is the submission of the Ld. Counsel for the assessee that it trades only in mutual funds and not in shares. Further the assessee has also paid security transaction tax on all the shares that have been purchased. Since the above submissions of the Ld. Counsel for the assessee is contrary to the findings given by the lower authorities, therefore, considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the AO with a direction to adjudicate the issue afresh in the light of the submissions made by the assessee. AO shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. While doing so he is also directed to examine the treatment given by him in the preceding and subsequent year on similar transactions carried on by the assessee - Assessee appeal allowed for statistical purposes.

Summary

Issues:
1. Treatment of short term capital gain as business income.
2. Disallowance of expenditure on account of fees paid for increase in capital.

Issue 1: Treatment of short term capital gain as business income

The appellant, a company engaged in financial services, filed an appeal against the order of the CIT(A) confirming the AO's treatment of short term capital gain as business income for A.Y. 2011-12. The AO noted that the appellant categorized some shares as investments and others as stock in trade, maintaining a common accounting system for both. The AO observed that the shares in question were not part of the opening or closing stock, indicating intra-year stock transactions. The CIT(A) upheld the AO's decision. The appellant argued that the shares were held for capital appreciation, not trading, citing the average holding period, separate books for investments, and payment of security transaction tax on purchases. The Tribunal found discrepancies in the lower authorities' findings and directed the AO to reexamine the issue, considering the appellant's submissions and past treatment of similar transactions. The Tribunal allowed the appeal for statistical purposes, restoring the issue to the AO for fresh adjudication.

Issue 2: Disallowance of expenditure on account of fees paid for increase in capital

The AO disallowed an expenditure of &8377; 2,67,847 claimed by the appellant as revenue expenditure on filing fees paid to the ROC for increasing the share capital. The CIT(A) upheld this disallowance. During the appeal before the Tribunal, the appellant did not argue on this issue. Consequently, the Tribunal dismissed the ground raised by the appellant regarding this disallowance.

In conclusion, the Tribunal partially allowed the appeal filed by the appellant, directing the AO to reconsider the treatment of short term capital gain as business income while dismissing the ground related to the disallowance of expenditure on account of fees paid for an increase in capital.