2015 (11) TMI 176 - AT - Income Tax

Surplus from share transactions - business income OR capital gains - Held that - We find that the frequency of transactions does not really matter and what is to be seen is the intention of the assessee whether he wants to penetrate into the capital market for the purpose of investment or for making speculative gains by doing day trading and dealing in futures and options. It is also seen that the Learned AO had clearly stated in his assessment order that the interest on borrowings were paid by the assessee only for trading in shares and this itself goes to prove that the assessee had clearly bifurcated his activities into two parts one towards investment in shares out of own funds of the assessee and other towards trading in shares out of own and borrowed funds of the assessee. It is also seen that the assessee has been doing this activity consistently. It is also seen from the balance sheet filed by the assessee that the assessee had clearly classified the share transactions under the head Investments. This itself clearly proves the intention of the assessee that he is only interested in share market only as an investor and not otherwise. No hesitation to treat the assessee as an investor and direct the Learned AO to treat the gains arising out of share transactions as returned by the assessee as capital gains. - Decided in favour of assessee. Addition towards loan received from Sri Ram Niranjan Saraogi u/s 68 - Held that - The assessee had duly discharged his onus in full in terms of section 68 of the Act by furnishing all the details and creditworthiness of the loan creditors. Nothing prevented the Learned AO from making verification of these transactions and details filed by the loan creditor with the concerned assessing officer of the loan creditor. We also find that the concerned loan creditor Sri Ram Niranjan Saraogi had got sufficient cash balance as per his books which he had deposited in his bank account and this conduct cannot be doubted with in the facts and circumstances of the case. These facts are quite evident from the cash flow statement of Sri Ram Niranjan Saraogi and Sri Naresh Kumar Bharech filed by the Learned AR before us. Hence we have no hesitation in directing the Learned AO to delete the addition made u/s 68 of the Act.- Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of income from share transactions as business income or capital gains.
2. Addition of Rs. 1,00,000 towards loan from Sri Ram Niranjan Saraogi under Section 68 of the Income Tax Act.
3. Disallowance of interest of Rs. 25,751 on the loan from Sri Ram Niranjan Saraogi.
4. Addition of Rs. 2,55,000 towards loan from Sri Naresh Kumar Bharech under Section 68 of the Income Tax Act.
5. Disallowance of interest of Rs. 65,230 on the loan from Sri Naresh Kumar Bharech.

Issue 1: Classification of Income from Share Transactions
The first issue was whether the surplus of Rs. 1,01,095 from share transactions should be treated as business income or capital gains. The assessee argued that he was an investor in shares and reported the income as capital gains. The Assessing Officer (AO) treated it as business income based on several grounds, including the lack of separate books for share investment and business, regularity of share trading, and interest payments on loans for trading shares. The Tribunal noted that the assessee had bifurcated investment and trading transactions in his books and had consistently treated share transactions as investments in previous years. Citing the Bombay High Court's decision in CIT vs Gopal Purohit, the Tribunal held that the assessee's intention and presentation in books should be considered. The Tribunal directed the AO to treat the gains as capital gains, allowing the assessee's appeal on this ground.

Issue 2: Addition of Rs. 1,00,000 towards Loan from Sri Ram Niranjan Saraogi
The second issue was the addition of Rs. 1,00,000 received as a loan from Sri Ram Niranjan Saraogi under Section 68 of the Income Tax Act. The AO added the amount as unexplained cash credit, questioning the creditworthiness of the loan creditor. The assessee provided details including the PAN, income tax particulars, and confirmation from the loan creditor. The Tribunal found that the loan creditor had sufficient cash balance and had deposited Rs. 75,000 in his bank account before issuing the loan. The Tribunal held that the assessee had discharged his onus under Section 68 and directed the AO to delete the addition, allowing the assessee's appeal on this ground.

Issue 3: Disallowance of Interest of Rs. 25,751 on Loan from Sri Ram Niranjan Saraogi
The third issue was the disallowance of interest of Rs. 25,751 on the loan from Sri Ram Niranjan Saraogi. The AO and CIT(A) had disallowed the interest as the loan itself was added under Section 68. Since the Tribunal allowed the loan as genuine in the previous ground, it also allowed the interest payment, noting that the assessee followed the mercantile system of accounting.

Issue 4: Addition of Rs. 2,55,000 towards Loan from Sri Naresh Kumar Bharech
The fourth issue was the addition of Rs. 2,55,000 received as a loan from Sri Naresh Kumar Bharech under Section 68. The AO questioned the creditworthiness of the loan creditor. The assessee provided details including the PAN, income tax particulars, and confirmation from the loan creditor. The Tribunal found that the loan creditor had sufficient sources and bank balances to advance the loan. The Tribunal held that the assessee had discharged his onus under Section 68 and directed the AO to delete the addition, allowing the assessee's appeal on this ground.

Issue 5: Disallowance of Interest of Rs. 65,230 on Loan from Sri Naresh Kumar Bharech
The fifth issue was the disallowance of interest of Rs. 65,230 on the loan from Sri Naresh Kumar Bharech. The AO and CIT(A) had disallowed the interest as the loan itself was added under Section 68. Since the Tribunal allowed the loan as genuine in the previous ground, it also allowed the interest payment, noting that the assessee followed the mercantile system of accounting.

Conclusion:
The Tribunal allowed the assessee's appeal on all grounds, directing the AO to treat the gains from share transactions as capital gains, delete the additions under Section 68 for loans from Sri Ram Niranjan Saraogi and Sri Naresh Kumar Bharech, and allow the interest payments on these loans. The order was pronounced on 23.09.2015.