2017 (5) TMI 1048 - AT - Income Tax

Income from share transactions - capital gain or business income - Held that - The Assessing Officer was not justified in changing the treatment of income of the appellant from short term capital gains to income from business. We uphold the order of the Ld.CIT(A) as far as treatment of aforesaid amount of 45, 51, 746/- as short term capital gain is concerned. As far as the balance amount of 45, 761/- is concerned the assessee has accepted its treatment as business income and there is no dispute before us regarding this amount. Hence there is no need for us to adjudicate on the amount of 45, 761/-. For statistical purposes first ground of appeal is dismissed Income from undisclosed sources - amount shown as long term capital gain by assessee - Held that - To substantiate his claim for long term capital gain on sale of shares; the assessee needs to furnish conclusive evidence that the shares (of Reliance Capital ) claimed to have been sold are exactly the same shares (of Reliance Capital ) having regard to corresponding distinctive numbers of shares. Convincing materials can also be presented with the help of corresponding order no. order time trade no. and trade time. From the materials presently available before us it is not possible to conclude whether the shares claimed to have been sold by the assessee are exactly the same as the shares claimed to have been purchased by the assessee as far as assessee s claim of long term capital gain is concerned. As relevant facts for adjudication of this issue are not presently available; in the fitness of things we set aside the orders of Ld.CIT(A) and AO on this issue and restore the issue in dispute in the second ground of appeal to the file of the AO with the direction to pass a fresh order denovo after carrying out necessary inquiries and after providing opportunity to the assessee. For statistical purposes the second ground of appeal is partly allowed.

Summary

Issues Involved:
1. Treatment of ?45,97,508/- as short term capital gain or business income.
2. Deletion of addition of ?80,32,765/- treated as income from undisclosed sources.

Detailed Analysis:

1. Treatment of ?45,97,508/- as Short Term Capital Gain or Business Income:
The primary issue was whether the amount of ?45,97,508/- should be treated as short term capital gain or as business income. The Assessing Officer (AO) treated this amount as business income, citing the high magnitude and frequency of transactions, short holding periods, and the motive to realize profits. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed this view, directing the AO to treat ?45,51,746/- as short term capital gain and only ?45,761/- as business income. The CIT(A) provided a detailed analysis based on various factors and case laws, including the intention of the assessee at the time of purchase, the treatment of shares in books of account, the frequency of transactions, and whether the assessee borrowed money for these transactions.

The CIT(A) noted that the shares were shown as investments in the assessee's books, no money was borrowed, and the transactions were delivery-based. Additionally, the assessee was not a share broker and used surplus funds for investing in shares. The CIT(A) also considered the case of Gopal Purohit vs JCIT, which provided principles to differentiate between capital gains and business income. The CIT(A) concluded that the purchase and sale of shares by the assessee were investment activities and not trading activities. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, agreeing that the treatment of ?45,51,746/- as short term capital gain was justified and in accordance with the law. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal on this ground.

2. Deletion of Addition of ?80,32,765/- Treated as Income from Undisclosed Sources:
The second issue involved the addition of ?80,32,765/- treated as income from undisclosed sources by the AO. The CIT(A) had deleted this addition, holding that the AO was not justified in treating the long term capital gains declared by the assessee as income from undisclosed sources. However, the ITAT found that both the AO and CIT(A) had failed to carry out necessary inquiries to substantiate whether the amount was genuinely long term capital gain or income from undisclosed sources. The ITAT noted that relevant facts, such as whether the distinctive numbers of the shares purchased and sold matched, were not available.

The ITAT emphasized the need for the assessee to furnish conclusive evidence, such as distinctive numbers of shares, order numbers, and trade times, to substantiate the claim of long term capital gain. Due to the lack of necessary facts, the ITAT set aside the orders of the CIT(A) and AO on this issue and restored the matter to the AO for a fresh order after carrying out the necessary inquiries and providing an opportunity to the assessee. The appeal on this ground was partly allowed for statistical purposes.

Conclusion:
For statistical purposes, the appeal of the Revenue was partly allowed. The order was pronounced in open court on 19th May 2017.