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2013 (9) TMI 448 - AT - Income TaxBusiness income or capital gain - Sale and purchase of shares - Held that - Assessee picked up the six common scrips for business of F&O as well as the STCG. This is the area of dispute between the parties and there is no issue on change of classification of STCG as LTCG or vice versa before us. There is no clarity on what basis certain transactions involving the same scrip are treated as business and others as STCG and the assessee has no explanation in this regard except relying on the book entries, which we rejected already for detailed reasons given above. In the process, the assessee got an unfair advantage of lower tax rates applicable to the STCG. Such advantage is allowable unless the onus cast on the assessee is demonstrated. Assessee could not demonstrate the reasons for such treatment, which turned out to be prejudicial to the interest of the revenue. Considering the failure of the assessee, we are of the opinion the decision of the AO becomes sustainable. Quick realization of the profits - Held that - Assessee maintains uniformly the closing stock worth Rs 17- Rs 18 lakhs in all recent AYs. The same is case with opening stocks of shares too. In fact, the opening and closing values are more or less equal. The number of scrips, transactions of purchase and sales also suggests the increasing trends for making quick business profits. Thus, the decision of the Tribunal in the case of Mukeshbhai Babulal Shah (2013 (9) TMI 151 - ITAT RAJKOT) which is relevant for the proposition that where intention of the assessee behind purchase and sales of the shares was quickly to realize profits and not to earn dividend from them, the income would be assessable as business income , helps the revenue. The intention of acquiring the shares as investment for capital appreciation is not translated and instead the symptoms of going for quick profits are evident. The stock turnover ratio at 1 16 does against the claims of the assessee. Other data relating to opening stocks and closing stocks on one side and the assessee s final exiting from the so called claim of STCG at the end of 2011-12 indicates the assessee s conduct for quick profits and not for investment. Of course, the holding period particulars also confirm the AO s conclusions. - Decided in favour of Revenue.
Issues Involved:
1. Classification of income from the purchase and sale of shares as Short Term Capital Gains (STCG) versus business income. Issue-wise Detailed Analysis: 1. Classification of Income from Shares: The primary issue in this appeal is whether the income from the purchase and sale of shares should be classified as Short Term Capital Gains (STCG) or business income. The Revenue contends that the transactions should be treated as business income, while the assessee argues they should be classified as STCG. Facts and Submissions: The assessee, an individual, filed a revised return declaring STCG of Rs. 2,17,24,104/-, income from other sources of Rs. 1,70,071/-, business income of Rs. 60,03,269/-, dividend income of Rs. 9,68,732/-, and Long Term Capital Gains (LTCG) of Rs. 8,65,373/-. The Assessing Officer (AO) treated the STCG as business income, citing reasons such as the short holding period of shares, the nature of the assessee's business in derivatives and F&O, and the commonality of scrips in both business and capital gains transactions. The AO relied on the Tribunal's decision in the case of Smt. Harsha N Mehta and Circular No.4/2007 of the CBDT. CIT(A) Proceedings: During the proceedings before the CIT(A), the assessee argued against the AO's classification, emphasizing the intent to hold shares as investments and the use of own funds for purchasing shares. The CIT(A) accepted the assessee's claim for STCG but confirmed the AO's finding for Rs. 21,50,410/- related to re-entered scrips as business income. The assessee did not appeal this partial disallowance. Revenue's Arguments: The Revenue argued that the entire STCG should be treated as business income, emphasizing the assessee's acceptance of Rs. 21,50,410/- as business income. The Revenue highlighted the high volume of transactions, the short holding period, and the lack of balance sheet evidence to support the assessee's claim of investment intent. The Revenue relied on various judicial precedents, including the ITAT, Rajkot Bench decision in Mukeshbhai Babulal Shah. Assessee's Arguments: The assessee contended that the transactions were consistent with previous years, where STCG was accepted by the Revenue. The assessee argued that the investments were made with own funds, and the transactions were entered in the books as investments. The assessee relied on the CBDT Circular No.4/2007 and judicial precedents supporting the classification of such transactions as STCG. Tribunal's Decision: The Tribunal analyzed the facts and submissions, noting the significant increase in the volume and frequency of transactions in the assessment year 2008-09 compared to previous years. The Tribunal observed that the assessee's conduct, including re-entering the same scrips and the high turnover ratio, indicated a business intent rather than investment. The Tribunal also noted the lack of balance sheet evidence to support the assessee's claim of investment intent. The Tribunal concluded that the assessee's transactions exhibited traits of business activity aimed at quick profits rather than investment for capital appreciation. The Tribunal upheld the AO's classification of the entire STCG as business income, reversing the CIT(A)'s decision on the balance of the STCG. Conclusion: The Tribunal allowed the Revenue's appeal, holding that the income from the purchase and sale of shares should be classified as business income rather than STCG. The order of the AO was restored, and the CIT(A)'s decision was reversed. The Tribunal emphasized the importance of the assessee's intent and conduct in determining the nature of the transactions. The appeal was pronounced in the open court on 10.07.2013.
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