2013 (5) TMI 99 - AT - Income Tax

Income earned from sale of shares as long term capital gain - Business income or capital gains - intention of the assessee - Held that - the Assessing Officer as well as the CIT(A) have not examined the issue from this angle. The lower authorities have also rejected the assessee s claim under a misconception that share transactions were not routed through Demat account, which the assessee has proved to be wrong by producing the copy of the Demat account before us. Considering the fact that the revenue authorities have not properly dealt with the facts, we deem it fit and proper to remit the matter back to the file of the Assessing Officer, who shall examine all the documents submitted before him in this regard and consider the issue afresh keeping in view the parameters laid down by the Hon ble Jurisdictional High Court in case of PVS Raju and Anr. V. Additional CIT, 2011 (7) TMI 818 . Needless to mention the Assessing Officer shall afford a reasonable opportunity of being heard to the assessee before finalizing the proceedings.

Summary

Issues:
Rejection of claim for treating income from sale of shares as long term capital gain.

Analysis:
The appeal was filed against the CIT(A)-V, Hyderabad order for the assessment year 2006-07. The main issue was the rejection of the assessee's claim to treat the income from the sale of shares as long term capital gain. The assessee had initially raised 17 grounds but later presented concise grounds for appeal. The key argument was that the deceased assessee had sold only 4500 shares out of 6500 and retained 2000 shares, indicating a long term investment. The Assessing Officer found that the transaction was not routed through a demat account and concluded that the intention was for business profit rather than investment. The CIT(A) also held that the transaction lacked necessary details like the annual report of the company, suggesting inside information and a business motive. The assessee contended that the shares were held for over a year, sold on different dates, and the transactions were indeed through a demat account with supporting documents provided.

The lower authorities emphasized the lack of annual report, absence of demat account routing, and sudden rise in share price as indicators of a business transaction. However, the Tribunal noted that the shares were held for over a year, only a single transaction was found, and the demat account evidence was produced later. The Tribunal highlighted the need to establish the intention behind share transactions - whether for investment or trading - considering factors like dividend earnings and profit motive. The Assessing Officer and CIT(A) failed to analyze the issue comprehensively, leading the Tribunal to remit the matter back to the Assessing Officer for a fresh examination. The Tribunal directed the Assessing Officer to review all documents, consider relevant parameters, and provide a fair opportunity for the assessee to present their case before concluding the proceedings.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of a thorough analysis of the intention behind share transactions and the necessity to consider all relevant factors before categorizing income from share sales as either long term capital gain or business income.