TRIDENT COMMERCE(P)LTD,KOLKATA vs. ITO, KOLKATA

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ITA 360/KOL/2023Status: DisposedITAT Kolkata22 August 2023AY 2010-115 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee's classification of shares into investment and trading portfolios, as maintained in its books of accounts, should be respected. The mere fact that shares were held for a short period does not automatically convert capital gains into business income.

What were the facts?

The assessee showed short-term capital gains from the sale of shares, which were purchased and sold within a short period. The Assessing Officer treated these gains as business income, arguing that the frequency and volume of transactions indicated a trading activity. The CIT(A) upheld the AO's decision.

What were the issues?

Whether short-term capital gains from share transactions, held for a short period but classified as investments in the books, should be treated as business income or capital gains.

Which sections of the Income-tax Act were involved?

Section 12,Section 45

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA

Before: SRI RAJESH KUMAR & SONJOY SARMA

order

: August 22nd, 2023 ORDER

Per Rajesh Kumar, Accountant Member:

1.

This is an appeal preferred by the assessee against the order of Learned Commissioner of Income-tax (Appeals)- NFAC, Delhi [hereinafter referred to Ld. ‘CIT(A)’] dated 13.03.2023 for the Assessment Year (in short ‘AY’) 2010-11.

I.T.A. No.: 360/KOL/2023 Assessment Year: 2010-11 Trident Commerce Pvt. Ltd.

2.

Ground no. 1 is general in nature and needs no specific adjudication.

3.

The issue raised in ground no. 2 is against the order of Ld. CIT(A) confirming the addition of Rs. 20,66,939/- made by The Assessing Officer (in short ld. 'AO') wherein the amount was treated as business income as against short term capital gain shown by the assessee from sale of shares.

4.

The facts in brief are that Ld. AO observed from the details furnished by the assessee that the assessee has shown income from long term capital gain, short term capital gain and speculation profit from sale of shares in the return of income. Ld. AO issued notice to the assessee to show cause as to why the short term capital gain shown on sale of shares during the financial year 2009-10 which were purchased during the year itself and sold within a period of one to two months should not be treated as business income. The aggregate short term capital gain on sale of shares was to the tune of Rs. 20,66,939/- and a complete detail was given in the assessment order at page 3 & 4. The assessee replied to the show cause notice by submitting that the assessee is maintaining two portfolios; one is investment portfolio and the second is trading portfolio and accordingly showing the earning the income from investment portfolio as well as trading portfolio in the return of income. The assessee submitted that full and complete books of accounts were being maintained showing all these transactions and it is the assessee’s decision to treat a particular purchase of shares as investment or under trading account and accordingly, the profit earned from these portfolios have been dealt I.T.A. No.: 360/KOL/2023 Assessment Year: 2010-11 Trident Commerce Pvt. Ltd. with. The reply of the assessee did not find favour and Ld. AO treated the short term capital gain of Rs. 20,66,939/- as business income.

5.

In the appellate proceedings, Ld. CIT(A) deleted the addition by observing and holding as under:

“5.2.1 Grounds 2 & 3: Rs. 20,66,939 held as Business Profit:- These grounds pertain to the income of Rs. 20,66,939/- shown by the appellant as Short Term Capital Gain, which has been considered as Business profit by the Assessing Officer. The appellant had shown Rs. 78,44,950/- as Short Term Capital Gain. The Assessing Officer analyzed the transactions in detail and observed that in respect of 30 transactions, the shares were held for very short period, i.e. only one or two months. Looking at the frequency, magnitude and volume of the transactions, the Assessing Officer held that these transactions were to be considered as Business Profit and not Short Term Capital Gain. Hence, profit of Rs. 20,66,939/- was held as Business Profit. This amount was reduced from the Short Term Capital Gain shown. 5.2.2 The appellant has given detailed arguments as to why the profit should be considered as Short Term Capital Gain and not business profit. The appellant has claimed that the purchase of these shares had been shown in the books as investments and not stock-in-trade. It had followed AS-13 of ICAI and has considered the value at cost instead of AS-2 required to be followed for ‘stock-in-trade’. In the Audit Report also these have been shown as investments. The appellant has relied upon various judicial decisions to support his claim. 5.2.3 I have carefully considered the facts of the case. The Assessing Officer has given detailed reasoning for holding that the transactions were in the nature of business activity. The appellant has claimed that the Assessing Officer has made an artificial classification in respect of shares held for 60 days. On the other hand, the frequency of the transactions clearly show that the appellant did not intend to hold these shares as investment, but to earn profit by way of purchase and sale. Hence, how the valuation has been done and how these shares are shown in the Audit Report is immaterial. The action of the Assessing Officer is scientific and supported by proper logic and detailed analysis. The action by the Assessing Officer in holding these Page 3 of 5 I.T.A. No.: 360/KOL/2023 Assessment Year: 2010-11 Trident Commerce Pvt. Ltd. transactions as business activity and not short term capital gain is upheld. These grounds are rejected.”

6.

After hearing rival contentions and perusing the material on record, we find that the assessee has categorized the purchases of shares/securities in two categories; one is investment portfolio and the second is trading portfolio and has shown the gain/income these shares under these two sections as and when the shares were sold. The income is shown according to the classification made in the books of accounts. We have examined the records placed before us and find that the assessee has clearly maintained the purchases between the two portfolios. In our opinion, it is the decision of the assessee as to which purchase to be treated as investment and which to be treated in trading section. The mere fact that the assessee has purchased shares and disposed them off within a short span of time will not justify the gain to be treated as business income while the same was shown in the investment portfolio in the books of the assessee. In our opinion, the decision of both the authorities below is not sustainable as this being a factual issue and the assessee has maintained the books clearly maintaining the dichotomy in the purchase of securities in the books of accounts. The case of the assessee finds support from the decision of Hon'ble Calcutta High Court in the case of CIT Vs. HK Financers Pvt. Ltd. reported in [2015] 375 ITR 577 (Cal) and PCIT Vs. Purvanchal Leasing Ltd. reported in 2022 (2) TMI 437 (Cal). In all these decisions the Hon'ble Court has the issue has been decided in favour of the assessee under similar facts and circumstances. Accordingly, we set aside the order of Ld. CIT(A) and direct Ld. AO to treat Rs. 20,66,939/- as short term capital gain.

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