2024 (5) TMI 695 - AT - Income Tax

Correct head of income - transactions of dealing in shares - Short Term Capital Gain or business income - magnitude of transaction - HELD THAT - DR was unable to controvert the findings of the ld. CIT(A) that similar transactions in shares in earlier years was identically returned by the assessee as income from capital gains and accepted by the Department also, except for the immediately preceding year. He was unable to controvert the factual findings of the ld. CIT(A) that the assessee had shown all investments in shares under the head investments and not as stock-in-trade . It is also an admitted fact on record that the AO s findings treating the income earned as income from business was based merely on the fact that in the immediately preceding year, the assessee had returned the said income under the head business income and also on the basis of nomenclature given by the assessee in its books of accounts. We are in complete agreement with the CIT(A) that the above two cannot be the basis for determining the character of the income earned by the assessee - whether business or income from capital gains; and considering the fact noted by the ld. CIT(A) that the assessee had consistently from year to year shown shares as investments and not stock-in-trade in its books and returned income therefrom under the head income from capital gains , we are in complete agreement with the ld. CIT(A) that the income earned therefrom had been rightly returned by the assessee under the head capital gains , and there was no case with the AO for treating the same as income from business and profession. Decided in favour of assessee. LTCG - Exemption u/s 54F - investment of the capital gains in a residential house property - claim denied by AO as investment was not made within the time limit prescribed - CIT(A) deleted disallowance - HELD THAT -By requiring the assessee to claim deduction in the year of earning capital gain, by either investing the entire amount of net consideration in a new asset before the due date of filing of return of income or otherwise depositing the balance unutilized amount in the Capital Gains Accounts Scheme of the prescribed bank, the purpose is only to ensure that the net consideration so deposited is utilized for the purpose of investing in a new asset. As long as the basic criteria for claiming exemption of having invested in a new asset within the prescribed time is fulfilled, there can be no case for denying exemption merely for not having put aside the amount unutilized in the impugned year, for utilization subsequently. At the end of the prescribed time, when the assessee is found to have fulfilled the condition, the assessee admittedly is entitled to exemption. There cannot, therefore, be denial of exemption therefore merely for not having put aside the unutilized amount of capital gain in the Capital Gain account scheme of bank. CIT(A), we find, has followed the decision of Ramaiah Dorairaj ( 2020 (12) TMI 597 - ITAT BANGALORE and Smt M.K. Vithya ( 2018 (1) TMI 1738 - ITAT CHENNAI ) while allowing assessee s claim of exemption u/s 54F of the Act on the aforestated reasoning. The ld. DR was unable to distinguish the said case before us - order of the CIT(A), deleting the disallowance of deduction/exemption claimed u/s 54F confirmed - Decided against revenue.

Summary

Issues Involved:
1. Classification of income from share transactions as Short Term Capital Gain or business income.
2. Disallowance of exemption claimed u/s 54F of the Income-tax Act, 1961.

Summary:

Issue 1: Classification of Income from Share Transactions

The Revenue contested the treatment of Rs. 54,49,539/- as Short Term Capital Gain instead of business income. The Assessing Officer (AO) had reclassified the income from share trading as business income based on the assessee's previous year's declaration. However, the CIT(A) held that the assessee had consistently shown shares as investments and not as stock-in-trade, and the nomenclature in accounts should not determine the nature of income. The CIT(A) noted that the assessee had been investing in shares for over ten years, with the intention of earning dividend income, and had declared the resultant profit/loss under capital gains. The CIT(A) also found factual inaccuracies in the AO's assessment of the number of transactions. Relying on CBDT Circular No. 6 of 2016, the CIT(A) concluded that the income should be treated as Short Term Capital Gains. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.

Issue 2: Disallowance of Exemption u/s 54F

The Revenue challenged the deletion of disallowance of Rs. 2,50,24,909/- claimed u/s 54F. The AO had denied the exemption due to the assessee's failure to deposit the unutilized amount in the Capital Gains Accounts Scheme by the due date of filing the return. The CIT(A) held that the primary condition for exemption u/s 54F was the investment in a new residential house within two years of the sale of the original asset, which the assessee had fulfilled. The CIT(A) relied on decisions from the Bangalore and Chennai Benches of ITAT, which supported the view that the exemption could be claimed if the investment was made within the extended period of filing the return u/s 139(4). The Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion of the disallowance, dismissing the Revenue's ground.

Conclusion:

The appeal of the Revenue was dismissed in its entirety.

Order pronounced in the open Court on 10.05.2024 at Ahmedabad.