2022 (11) TMI 1111 - AT - Income Tax

Revision u/s 263 - LTCG or business income - two portfolios of investment - difference between investment and trading in accordance with CBDT Circular No. 06/2016 since the transactions in shares and derivatives shown in different DMAT accounts were settled through single bill - HELD THAT - Admittedly, it is a fact on record that assessee has maintained two separate and distinct DMAT accounts for his two portfolios of investment and trading in shares for past several years. Also, assessee has transacted in the two portfolios in distinct manner from the respective DMAT accounts and has accordingly maintained his books of account based on which respective income has been reported in the return of income. As demonstrated evidently that there is no change in the material facts and circumstances as well as the applicable law in the year under consideration when compared with the preceding years, more particularly four assessment years from 2011-12 to 2014-15 wherein in the reassessment proceedings u/s. 147 the returned income has been accepted as the assessed income without any reclassification of income. In assessee s own case for the same four assessment years had quashed the order passed u/s. 263 on the same issue raised by the CIT in respect of reclassification of income from capital gains to business income. Reclassification of capital gains into profit and gains of business done by the department. We do not find any reason to interfere with the findings given by the CIT(A) and, therefore, uphold his order. Accordingly, grounds taken by the revenue are dismissed.

Issues Involved:

1. Treatment of Long Term Capital Gains (LTCG) and Short Term Capital Gain (STCG) as business income.
2. Delay in filing the appeal.
3. Distinction between trading and investment in shares.
4. Consistency in the treatment of similar issues in previous assessment years.

Detailed Analysis:

1. Treatment of Long Term Capital Gains (LTCG) and Short Term Capital Gain (STCG) as business income:

The primary issue in this appeal is whether the LTCG of Rs. 18,36,88,168/- and STCG of Rs. 22,898/- should be treated as profits and gains of business. The assessee, engaged in trading and investment of shares and securities, reported these gains as capital gains in their return of income. The Assessing Officer (AO) argued that the transactions were frequent and voluminous, indicating trading activity rather than investment. The AO observed that the assessee maintained three different DMAT accounts for long-term investment, short-term investment, and trading but settled transactions through a single bill, suggesting no real distinction between investment and trading.

2. Delay in filing the appeal:

There was a delay of 171 days in filing the appeal, which expired on 21.12.2018, while the appeal was filed on 10.06.2019. The delay was attributed to procedural compliances and time-barring assessment proceedings by the AO. The Tribunal condoned the delay, considering the administrative procedural requirements and the AO's occupancy in time-barring assessment orders.

3. Distinction between trading and investment in shares:

The assessee maintained separate DMAT accounts for trading and investment, arguing that the distinction was genuine and not artificial. The AO, however, doubted the intention behind the transactions, considering the frequency and volume of dealings. The assessee submitted detailed explanations, highlighting that shares held for investment were valued at cost, and no STT deduction was claimed, while trading shares were valued at lower of cost or market value, with STT deductions claimed.

4. Consistency in the treatment of similar issues in previous assessment years:

The assessee pointed out that for AYs 2011-12 to 2014-15, the AO accepted the returns without reclassifying the capital gains as business income. The Tribunal noted that the same AO had taken a different view for the current assessment year without any material change in facts or law. The Tribunal emphasized the principle of judicial consistency, referring to the decisions in Gopal Purohit Vs. JCIT and CIT Vs. Excel Industries Ltd., which support maintaining consistency in tax treatment unless there is a significant change in facts or law.

Conclusion:

The Tribunal upheld the CIT(A)'s order, which favored the assessee, maintaining the treatment of the gains as capital gains rather than business income. The Tribunal found no reason to interfere with the CIT(A)'s findings, considering the consistent treatment in previous years and the detailed explanations provided by the assessee. The appeal by the revenue was dismissed.

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