2013 (11) TMI 473 - AT - Income Tax

Classification of head of income to be Income under head Business & Profession or Income under head Capital Gains on sale of shares Principle of consistency - The assessee company is engaged in the business of investment and trading in shares and securities. It furnished its return of income for the Assessment Year under consideration by disclosing the total income of Rs. 20,60,73,429/- on 14.11.2006 - Revenue audit party has observed that the holding period in respect of 98% of the sale of shares is less than 12 months and therefore, raised an objection against the claim of STCG Contended by Revenue profits that profit earned from the activity amounting to Rs. 20.60 crores should be brought to tax as business income as against assessee s claim of STCG Held that - Average holding period is calculated from all the transaction to be more than 60 days in respect of the sale and purchase of the transaction giving rise to the STCG which indicates that there is no difference in the nature of transaction for the year under consideration from that of the earlier year as well as subsequent year. Further, the transaction of purchase and sale giving rise to the LTCG have been accepted by the authorities below, even in the reopening of the assessment, the assessee is treating the same as investment by showing in the books of account; these are delivery based transactions; therefore, having accepted similar transaction in the earlier years as well as in the subsequent year the Assessing Officer cannot take a different view in the absence of distinguishing material factors - In view of principles of consistency, accepted the claim of the assessee as the transaction of purchase and sale of shares and securities in question as investment and arising out of the transaction is capital gain and not business income Decided in favor of Assessee.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Classification of income from the sale of investments as business income versus short-term capital gains.
3. Granting credit for Securities Transaction Tax (STT) paid.
4. Charging of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee challenged the reopening of the assessment on the grounds that the Assessing Officer (AO) had already examined and accepted the nature of transactions as Short-Term Capital Gains (STCG) during the original assessment under Section 143(3). The AO reopened the assessment based on an audit objection, which pointed out that the majority of the shares were held for less than 12 months, suggesting trading activity rather than investment. The tribunal found that the AO had issued detailed questionnaires and received comprehensive responses during the original assessment, indicating a thorough examination of the transactions. The tribunal concluded that reopening the assessment based on the same set of facts and without new material constituted a mere change of opinion, which is not permissible under Section 147. The tribunal cited several judicial precedents, including the Supreme Court's decision in Commissioner of Income-tax v. Kelvinator of India Ltd., to support its conclusion that reopening based on a change of opinion is invalid.

2. Classification of Income from Sale of Investments:
The AO reclassified the income from the sale of shares as business income, arguing that the frequency and volume of transactions indicated trading activity. The tribunal, however, noted that the assessee had consistently shown these transactions as investments in its books, and the AO had accepted this classification in previous and subsequent assessments. The tribunal emphasized that the nature of transactions should be determined based on the assessee's intention and the manner of recording in the books of accounts. The tribunal also highlighted that the transactions were delivery-based and the assessee did not use interest-bearing borrowed funds for these investments. Therefore, the tribunal concluded that the income should be treated as capital gains, not business income.

3. Granting Credit for Securities Transaction Tax (STT) Paid:
The assessee argued that if the income from the sale of shares is treated as business income, credit for the STT paid should be granted. However, since the tribunal upheld the classification of the income as capital gains, this issue became moot. The tribunal did not provide a separate ruling on this issue.

4. Charging of Interest under Section 234B:
The assessee contested the charging of interest under Section 234B, which pertains to interest for defaults in payment of advance tax. The tribunal did not delve into the specifics of this issue, as the primary contention related to the classification of income and the validity of reopening the assessment. Since the tribunal ruled in favor of the assessee on the primary issues, the question of interest under Section 234B was not separately addressed.

Conclusion:
The tribunal allowed the appeal of the assessee, setting aside the notice issued under Section 148 and the subsequent reassessment under Section 147. The tribunal upheld the classification of the income from the sale of shares as capital gains, consistent with the treatment in previous and subsequent years. The tribunal emphasized the principles of consistency and the inadmissibility of reopening assessments based on a mere change of opinion without new material facts.

← Previous Next →