2020 (11) TMI 594 - AT - Income Tax

Correct head of income - income arising from sale of equity shares - Income from business or income from short term capital gain - HELD THAT - It is quite evident that the assessee has classified the equity shares purchased by it as investments and not as stock-in-trade as on 31/3/2006 and as on 31/3/2005 in the Balance Sheet. Therefore, the assessee is right in its rem to treat the gain resulting from the sale of its investment in equity shares under the head income from short term capital gains as per the provisions of the Act. Error committed by the Chartered Accountant in his audit report will not alter the intention of the assessee for holding the equity shares purchased by it as investment which is evident from the statement of accounts/Balance Sheet of the assessee. Thus direct the Ld. AO to treat the income earned by the assessee during the relevant assessment year as Short Term Capital Gain or Long Term Capital Gain as the case may be. - Decided in favour of assessee.

Summary

Issues:
- Discrepancy in treatment of income from sale of equity shares as "Income from business" by Ld. AO and "Income from short term capital gain" by the assessee.
- Classification of equity shares as "investment" or "stock-in-trade" by the assessee.

Analysis:
1. The appellant challenged the order of Ld. CIT (A) upholding the Ld. AO's decision to treat income from the sale of equity shares as "Income from business" instead of "Income from short term capital gain."

2. The Ld. AO observed that since the nature of the assessee's business was trading in shares, the income should be categorized as "Income from business." The Ld. CIT (A) agreed with this view based on the audit report of the Chartered Accountant.

3. The appellant argued that the shares were treated as "investment" in the audited financial statement, not as "stock-in-trade." The appellant provided evidence from the audited financial statement to support this claim.

4. The Tribunal examined the audited statement of account and confirmed that the equity shares were classified as "investments" in the Balance Sheet. The Tribunal noted that the intention of the assessee was clear from the Balance Sheet, despite confusion in the P & L Account.

5. The Tribunal directed the Ld. AO to treat the income from the sale of equity shares as "Short Term Capital Gain" or "Long Term Capital Gain" based on the assessee's classification of the shares as investments.

6. The Tribunal acknowledged the delay in pronouncing the order due to the Covid-19 lockdown but justified it by referring to a similar decision by the Mumbai Bench of the Tribunal. The appeal of the assessee was allowed, and the decision was pronounced on 8th July 2020.