2023 (5) TMI 482 - HC - Income Tax

Capital gain or business income - conversion of the subject shares from stock-in-trade to investment - HELD THAT - The error pointed out by the CIT(A) and the Tribunal in the approach of the AO was correct. The error in the AO s approach was that he had based the addition in the respondent/assessee s taxable income on the presumption that business income had arisen in its favour. Clearly, there is no finding of fact returned by the AO that there was a sale of the shares. The quantification of business income i.e., the sum referred to hereinabove was not, as noticed both by the Tribunal and the CIT(A), respondent/assessee s real income. To our minds, as and when the subject shares are sold, as per the provisions of the Act, income arising from sale, if they are still held as investment, will, perhaps, be amenable to tax as capital gains. We find that there is no error either in law or on facts in the approach adopted by the CIT(A) and the Tribunal. Therefore, the second issue is also decided against the appellant/revenue and in favour of the respondent/assessee.

Summary

Issues involved:
The judgment involves the condonation of delay in re-filing an appeal and the appeal concerning Assessment Year 2008-09, focusing on two main issues: (i) business income arising from the conversion of shares from stock-in-trade to investment by the assessee, and (ii) the restriction imposed on disallowance under Section 14A of the Income Tax Act.

Condonation of Delay:
An application was filed seeking condonation of a 255-day delay in re-filing the appeal, which was granted based on the reasons provided in the application. The delay was condoned, and the application was disposed of accordingly.

Appeal Concerning AY 2008-09:
The appeal challenged the Tribunal's decision on two issues. Firstly, it addressed the business income arising from the conversion of shares into investments by the assessee. Secondly, it questioned the restriction on disallowance under Section 14A of the Income Tax Act to the amount earned as exempt income by the assessee.

Business Income from Share Conversion:
The Assessing Officer concluded that business income had arisen due to the conversion of shares into investments by the assessee. The AO calculated the business income based on the difference between the cost of shares and the market value on the date of conversion. However, the Tribunal and CIT(A) found errors in the AO's approach as there was no finding of fact regarding the sale of shares. They determined that the quantification of business income was not the assessee's real income and suggested that any income from the sale of shares held as investments would be subject to tax as capital gains.

Dispute Resolution:
The Tribunal and CIT(A) did not find any errors in the approach taken regarding both the business income and the disallowance under Section 14A. Consequently, no substantial question of law was found to arise for consideration, and the appeal was closed in favor of the respondent/assessee.

This summary provides a detailed breakdown of the legal judgment, addressing the issues involved and the resolution provided by the court.