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2024 (7) TMI 842 - AT - Income TaxCorrect head of income - Gain on sale of shares - capital gain or business income - principal of consistency - assessee has submitted that assessees National Stock Exchange ticket was surrendered in May 2001 and Assessee has shown shares in investment and valued these on cost at the end of the year - HELD THAT - The objective of the assessee of the investment was to drive income by way of dividend yield capital gain and not the business profit. When the assessee has filed the return of income from the business for the AY 2004-05 the AO assessed the income from capital gain, similarly for the AY 2008-09 2010-11 assessee has filed the return of income from the capital gain, the AO has treated income from business and the CIT(A) allowing the appeal, has accepted the version of the assessee and treated the income from capital gain which became final. There was no change in circumstances or method of accounting. Assessee had held the shares for the period ranging from 5 months to 12 months. The investor may buy or sell the shares everyday but that will not be considered such frequent as to lead to the inference of trading thus the motive of investment of the assessee was to derive income by way of dividend. The principal of consistency was not adopted by the AO. The revenue itself accepted the income of the assessee from the purchase of shares as capital gain for the A.Y 2004-05, 2005-06, 2007-08, 2008-09 2010-11 thus adopting the principal of consistency the income of the assessee should have been accepted as income from capital gain, so the addition made by AO treating as business income and confirmed by CIT(A), to be taxed under the head of capital gain. Appeal of the assessee is liable to be allowed.
Issues Involved:
1. Treatment of Short-Term Capital Gain as Business Income. 2. Applicability of Section 234B. 3. Violation of the Principle of Consistency. Issue-Wise Detailed Analysis: 1. Treatment of Short-Term Capital Gain as Business Income: The primary issue in the appeal was whether the short-term capital gain (STCG) of Rs. 67,87,654/- should be treated as business income or as capital gain. The assessee argued that the income should be treated as capital gain, while the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated it as business income. The Tribunal noted that the assessee was engaged in financial services, including investment in shares, stocks, debentures, and other securities. The assessee had shown income under three heads: business income, long-term capital gain, and short-term capital gain, along with dividend income claimed as exempt. The Tribunal referred to its earlier order, which emphasized the need to distinguish between shares held as investments and those held as stock-in-trade. The Tribunal observed that the shares in question were valued at cost in the books of account, indicating they were held as investments. However, the Tribunal also noted that the frequency and volume of transactions suggested a business motive. The Tribunal directed the AO to verify whether the dividend income was derived from the shares on which the STCG was earned and to ascertain the objective behind the transactions. If the motive was to earn profit through trading, the income should be treated as business income. If the objective was to earn dividend, it should be treated as capital gain. Upon reassessment, the AO again treated the income as business income, and the CIT(A) upheld this decision. The Tribunal, however, found that the principle of consistency was not followed, as the revenue had accepted similar transactions as capital gains in previous and subsequent assessment years. The Tribunal relied on judicial precedents, including the cases of Commissioner of Income Tax vs. Gopal Purohit and Commissioner of Income Tax vs. Niraj Amidhar Surti, which supported the principle of consistency. 2. Applicability of Section 234B: The assessee contended that the provisions of Section 234B, which pertain to interest for defaults in payment of advance tax, were not applicable in their case. However, the Tribunal did not provide a detailed analysis on this issue, as it was not the primary focus of the appeal. 3. Violation of the Principle of Consistency: The Tribunal emphasized the importance of the principle of consistency, citing the case of Commissioner of Income Tax vs. Gopal Purohit, where it was held that there should be uniformity in treatment and consistency when facts and circumstances are identical. The Tribunal noted that the revenue had consistently treated similar transactions as capital gains in other assessment years, and there was no justification for adopting a different approach for the assessment year in question. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the orders of the CIT(A) and the AO. The Tribunal held that the income from the sale of shares should be treated as capital gain, not business income, in line with the principle of consistency. The Tribunal's decision was based on the facts of the case, the treatment of similar transactions in other assessment years, and relevant judicial precedents. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 12.07.2024.
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