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TMI Blog2018 (4) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as the 'Act'), dated 01.03.2013. 2. The grounds of appeal raised by the Revenue read as under: 1. That on the facts and circumstances of the case, the Ld. CIT(A) has erred by ignoring that the assessee kept on changing as per its own liberty to convert stock-in-trade to investment and vice versa year to year as per its convenience specially, when the assessee failed to adhere to any reasonable basis and fails to apply any definite method of categorizing the income whereas the provisions on I.T. Act are differently applicable on business and on investment. 2. That on the facts and circumstances of the case, the Ld. CIT(A) has erred by ignoring that the motive of the assessee was not bona fide and it carried out its activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-07 and 2008-09. It is further seen that Brought forward loss/depreciation was not adjusted with the assessed income resulting in excess carry forward of loss/depreciation." At the time of reassessment proceedings, the AO asked the assesseeto explain as to why the following income shall not be considered business income: a) STCG on Mutual Fund Rs. 71,60,368 b) STCG on Share Rs. 7,37,097 c) LTCG on Shares Rs. 37,57,174 d) LTCG on Mutual Fund Rs. 17,10,257 The assessee replied to the AO stating that assessee company is a NBFC Company and such shares and mutual funds were held by the assessee as investment only and hence the gain has to be treated as capital gain. These investments were purchased by the company out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,52,92,647/- respectively. The difference of investments was Rs. 19,16,054/- (Rs.12,72,08,701-12,52,92,647). Therefore, AO made addition of Rs. 19,16,054/-. 4. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A) who has allowed the appeal of the assessee. The CIT(A) noted that assessee`s case was fully covered in the assessee`s own case by the jurisdictional ITAT in ITA No.783/Kol/2009 for A.Y.2005-06, dated 01.07.2015.The CIT(A) noted that jurisdictional ITAT on the same issue having made a threadbare discussion on the matter, the income arising from investments was to be treated as income under the head 'Capital Gains'. It was the contention of the assessee that profits arising out of the transactions in shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in converting the closing stock under that head into 'investment' in the AY 2005-06 under consideration amounts to a clear change of intention depending on the circumstances. The Hon'ble Tribunal noticed separate ledger accounts in respect of conversion of stock-in-trade into investment. By converting the stock-n-trade into investment, it does not alter the character, nature and intention of that particular transaction especially in the context of capital gain versus business income. By bringing in stock-in-trade under the head investment the assessee could reduce the tax incidence considerably. Subsequent conversion and treatment given in the books of accounts do not alter the character of commercial transaction. Accordingly, the profit th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not a business income but on account of capital gain. To decide whether a transaction is in the nature of 'investment' or 'trading' the crucial test that laid down by various courts is that the 'intention' of the assessee at the time of purchase of shares. The AO on the other hand, was on the conduct of the business of the assessee which according to him carried out in a systematic and organized manner involving large volumes of transactions in shares. As seen from the principles laid down by various courts, the main test prescribed is the 'initial intention' of the assessee to decide whether an activity amounts to 'trading activity' or 'investment activity'. As seen from the above facts, the assessee is justified in its argument that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent conversion and treatment given in the books of accounts do not alter the character of commercial transaction. Accordingly, the profit that has been attributable to this trading activity corresponding to conversion of stock-in-trade into investment is to be treated as 'business income' and accordingly to be taxed. In view of the above findings of CIT(A) that the income from investment is to be taken as 'capital gains' and conversion of stock-in-trade to investment is to be taken as 'trading income', which is based on facts of the case and need no disturbance. In addition to this, the assessee`s case under consideration is fully covered by the Jurisdictional ITAT Kolkata, in ITANo.783/Kol/2009, A.Y 2005-06 (supra). Thus, respectfull ..... X X X X Extracts X X X X X X X X Extracts X X X X
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