2012 (7) TMI 395 - AT - Income Tax

Business income versus STCG - assessee claimed that he is an investor in the share - assessee is an investor in shares - share are regularly shown under the head Investment in Shares and are valued at cost in the books - assessee has earned a substantial dividend income - Funds used for the purpose of investment is owned funds and not borrowed funds Held that - There should be consistency in the approach of the Department - assessee s claim has been consistently accepted in all the preceding years - in this year also on the rule of consistency accept the claim of the assessee in respect of short-term capital gain - revenue s appeal is dismissed.

Summary

Issues:
Revenue challenging deletion of addition as business income, Criteria to determine nature of transactions, Application of principle of res judicata, Treatment of short-term capital gains as business income, Consistency in treatment by revenue authorities.

Analysis:
1. The appeal was filed by the revenue challenging the deletion of an addition made by the Assessing Officer (AO) as business income instead of short-term capital gains (STCG) declared by the assessee for the Assessment Year (A.Y.) 2006-07. The revenue contended that the nature of transactions should be determined based on factors like volume, frequency, and period of holding. The revenue sought to set aside the order of the Commissioner of Income Tax (Appeals) and restore the Assessment Order.

2. The assessee, an individual investor in shares, justified the claim of STCG by highlighting various factors. These included consistent investment in shares over the years, showing shares as investments in books, earning substantial dividend income, using owned funds for investments, holding shares for reasonably long periods, and actively monitoring investments. The AO rejected the claim of STCG, treating it as business income, except for long-term capital gains. The assessee appealed to the CIT (A) who allowed the claim based on previous ITAT decisions in favor of the assessee.

3. The ITAT noted that the assessee's claim for STCG had been consistently accepted by the AO in previous years except for one year, where the Tribunal ruled in favor of the assessee. The Tribunal emphasized the principle of consistency in treatment, citing previous ITAT decisions supporting the assessee's position. The Tribunal found the facts in the current year identical to preceding years and upheld the CIT (A)'s order based on the rule of consistency.

4. Referring to past ITAT decisions and the principle of consistency, the Tribunal dismissed the revenue's appeal, affirming the assessee's claim of STCG. The Tribunal highlighted the importance of maintaining consistent treatment by revenue authorities and upheld the order of the CIT (A) based on the factual and legal position established in previous years.

In conclusion, the ITAT, Mumbai upheld the assessee's claim of short-term capital gains over business income, emphasizing the significance of consistency in treatment by revenue authorities and citing past decisions supporting the assessee's position.