2021 (10) TMI 1099 - AT - Income Tax

Correct head of income - assessment of income earned from investment made in mutual funds under the head business income or Short Term Capital Gain - second round of litigation - whether the assessee acted as an investor or a trader while dealing with sale and purchase of shares and mutual funds? - HELD THAT - In the second round of litigation, we found that the basic issue i.e. the business income or investment income was confined to the gain from the mutual funds only whereas on the contrary, the entire matter was restored back for a fresh decision which comprises of the income from sale of shares and also redemption of mutual funds. The lower authorities completely ignored the specific ground taken by the assessee before the ITAT and had confined its findings only to the redemption of mutual funds and that too was decided against the assessee on the ground that no evidence of investment in the mutual fund was furnished by the assessee. Whereas on the contrary, the ld. AR strongly relied upon his submissions made before the lower authorities and drawn our attention to the fact that the assessee had already placed on record the various evidences which were sufficient to reach to a conclusion by the revenue authorities but as per the ld. AR, all the evidences filed by the assessee were ignored by the lower authorities by giving a finding that no evidence to corroborate the investment in mutual funds was furnished by the assessee. We restore the matter back to the file of the A.O. with direction to decide the same afresh by taking into consideration the transactions in the mutual funds as well as shares carried out by the assessee. Appeal of the assessee is allowed for statistical purposes only.

Summary

Issues:
1. Jurisdiction and additions/disallowances made under Income Tax Act for A.Y. 2007-08.
2. Treatment of income earned from investment in mutual funds as business income instead of Short Term Capital Gain.
3. Charging and withdrawal of interest under various sections of the Income Tax Act.

Analysis:
1. The appeal was filed against the order of the CIT(A) for the assessment year 2007-08 under the Income Tax Act, challenging the additions and disallowances made. The appellant raised grounds questioning the jurisdiction and validity of the additions. The hearing was conducted via video conference due to the Covid-19 pandemic situation.

2. The core issue revolved around whether the assessee acted as an investor or a trader in dealing with shares and mutual funds. Initially, the matter was sent back to the Assessing Officer (A.O.) for fresh decision by the ITAT. The A.O. and CIT(A) treated the gains from investments in shares and mutual funds as business income instead of Short Term Capital Gain declared by the appellant. Despite the appellant's submissions that the income was from investments and not business, the authorities upheld the additions. The ITAT observed discrepancies in the treatment of the entire amount and directed the A.O. to reconsider the issue, taking into account all transactions in mutual funds and shares.

3. The A.O. and CIT(A) charged interest under various sections of the Income Tax Act and withdrew interest under another section, which the appellant denied liability for. The appellant's request to amend or alter the grounds of appeal was also noted. The ITAT allowed the appeal for statistical purposes only, restoring the matter to the A.O. for fresh consideration, emphasizing that the decision does not reflect on the merits of the dispute, which will be independently adjudicated by the A.O. in accordance with the law.

This detailed analysis covers the jurisdictional issues, treatment of income from investments, and the charging of interest under different sections of the Income Tax Act as addressed in the judgment by the Appellate Tribunal ITAT Jaipur.