2016 (4) TMI 733 - AT - Income Tax

Taxability head for income from sale of shares - capital gain or income from business - CIT(A) confirming the action of the ld. AO in treating the capital gain as income from business - Held that - From going through the record, we find that the assessee company is mainly dealing in pharmaceuticals, laboratory works and research and development since last many years and coupled with these activities assessee company has also earned income from investments in the form of long term and short term capital gain. Further from going through the computation of income we find that assessee company has also suffered loss from F & O transactions while dealing in shares and has shown it as a speculation loss. The varieties of income from long term capital and short term capital gain from shares, dividend income and speculation loss in F & O transactions shows that assessee has been regularly involved in shares related activities in the year under appeal as well as in past also. Assessee s investments in shares have increased from ₹ 3.54 crores in FY 2002-03 to ₹ 5.43 crores in FY 2005-06; whereas business turnover has drastically decreased from ₹ 3 crores in FY 2002-03 to ₹ 0.64 crores in FY 2005-06. We further observe that major portion of net profit which was flowing out of the business activities upto FY 2002-03 have shifted to the investments income so much so that in the year under appeal net profit of the assessee is ₹ 0.44 crores which is equivalent to the other income and there is hardly any income from business activities. From going through the order of ld. CIT(A) we find the same to be a non-speaking order because no evidence/documents were filed by the assessee to rebut the findings of the Assessing Officer before ld. CIT(A) and no analysis was made by ld. CIT(A) from the available assessment records. We hereby set aside the issue in the appeal relating to this ground to pass a speaking order - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance under section 14A
2. Treatment of capital gain as income from business

Issue 1: Disallowance under section 14A
The appellant challenged the disallowance under section 14A made by the Assessing Officer, which was confirmed by the CIT(A) to the extent of Rs. 10,000. The appellant contended that the disallowance was erroneous.

Issue 2: Treatment of capital gain as income from business
The Assessing Officer treated the short term and long term capital gain from the sale of shares as business income. The appellant argued that the income from the sale of shares should be taxed as capital gains, not as business income, citing past favorable decisions. The CIT(A) upheld the treatment of capital gain as business income, leading to the appeal before the Tribunal.

The Tribunal analyzed the financial data of the appellant, noting the increase in investments in shares over the years while business turnover decreased significantly. The Tribunal observed a shift in net profit from business activities to investment income, indicating a change in the nature of income. The Tribunal emphasized the need to consider facts and figures from financial statements rather than past decisions as benchmarks.

The Tribunal criticized the CIT(A) for issuing a non-speaking order, highlighting the lack of evidence filed by the appellant and the absence of analysis from the available assessment records. Consequently, the Tribunal set aside the issue related to the treatment of income from the sale of shares as capital gain/business income, instructing the appellant to provide relevant details to the CIT(A) for a comprehensive review.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, emphasizing the importance of a well-reasoned and evidence-based decision-making process in tax matters.