DOLLY KHANNA,CHENNAI vs. DCIT, NCC-3(1), CHENNAI

आयकर अपीलीय अधिकरण, ‘बी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI श्री एबी टी वर्की, न्याययर्क सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 3961/Chny/2025 निर्धारण वर्ा / Assessment Year: 2020-21 Dolly Khanna The Deputy Commissioner of 4C 4C, Oakwood Apartment vs. Income-tax 25, Anderson Road Non-Corporate Circle – 3(1) Nungambakkam – 600 006. Chennai. [PAN: ADOPD7812J] (अपीलधर्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलधर्थी की ओर से/Appellant by : Shri. S.Sridhar, Advocate & Shri. N.Arjun Raj, Advocate प्रत्यर्थी की ओर से/Respondent by : Ms.V.Supraja, Addl.CIT (Virtual) सुिवधई की तधरीख/Date of Hearing : 25.03.2026 घोर्णध की तधरीख/Date of Pronouncement : 01.06.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

This appeal by the assessee is directed against the order of the learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “the CIT(A)”), dated 17.12.2025 passed under Section (u/s.) 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for the assessment year 2020-21, which in turn arises out of the order of assessment dated 30.09.2022 passed u/s.143(3) read with Section (r.w.s.) 144B of the Act.

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:-4-: ITA. No:3961 /Chny/2025 transaction statements from Indusind Bank Ltd., Kotak Securities Ltd. and Emkay Global Financial Services Ltd., holding statements, copies of returns of income filed for the earlier assessment years from 2013-14 onwards along with the corresponding intimations and scrutiny assessment orders, and detailed explanations in support of the claim made under the head “Income from Capital Gains”. 5. During the course of the assessment proceedings, the AO observed that the assessee had reported a Short Term Capital Loss of Rs.54,23,30,150/- and a Long Term Capital Loss of Rs.37,35,40,767/- and called upon the assessee to justify as to why the ‘trading in shares’ should not be treated as business income/loss instead of capital gain/loss, on the premise that the assessee was into active trading of securities. The assessee, in response, drew attention to the rule of consistency, pointing out that for the past twenty-five years, the gains/losses on sale of shares had been consistently reported under the head “Income from Capital Gains” and accepted as such by the Department, and further relied upon Circular No. 6/2016 issued by the Central Board of Direct Taxes (CBDT) dated 29.02.2016. 6. The AO issued a show cause notice dated 07.09.2022 proposing to treat the Short Term Capital Loss of Rs. 54,23,30,150/- as “Business Loss”. The assessee filed replies dated 11.09.2022 and 12.09.2022 and was also heard through Video Conference on 15.09.2022, followed by a further reply on 15.09.2022. However, the AO, by order dated 30.09.2022 passed u/s.143(3) r.w.s 144B of the Act, proceeded to shift the Short Term Capital Loss of Rs.54,23,30,150/- from the head “Capital Gains” to the head “Profits and Gains of Business or Profession” by treating the same as “Business Loss to be carried forward”. Significantly, the Long Term Capital Loss of Rs.37,35,40,767/- was retained under the head “Capital Gains” without any change. The total income was assessed at Rs.14,24,70,442/-.

:-5-: ITA. No:3961 /Chny/2025 7. Aggrieved, the assessee carried the matter in appeal before the ld.CIT(A). During the course of the appellate proceedings, the assessee filed elaborate written submissions on 04.10.2023, 14.02.2024, 06.04.2024, 23.09.2024, 04.04.2025, 23.05.2025 and 17.09.2025, demonstrating, inter alia, that for the preceding nine assessment years (from 2013-14 to 2019-20), the income from sale of shares had been consistently reported under the head “Income from Capital Gains” and accepted by the Department, including in three completed scrutiny assessments u/s.143(3) of the Act for assessment years 2014-15, 2015-16 and 2016-17, and that for the assessment year 2017-18, reassessment proceedings initiated u/s.147 of the Act were dropped. The assessee also placed reliance upon Circular No. 6/2016 dated 29.02.2016 issued by the CBDT and a long catena of judicial precedents. 8. The ld.CIT(A), however, by the impugned order dated 17.12.2025, dismissed the appeal in its entirety. The ld.CIT(A) sustained the action of the AO observing, inter alia, that “the appellant is a renowned stock market expert” and actively into the business of trading in stocks. This fact can be verified by a “simple google search”, that the volume and frequency of transactions indicated that the intent of the assessee was to earn profits through routine trading, and that the principle of res judicata does not strictly apply to income tax proceedings. The ld.CIT(A) accordingly upheld the re-characterisation of the Short Term Capital Loss as Business Loss. 9. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. 10. Before us, the learned Authorised Representative (hereinafter “the Ld. AR”) for the assessee took us through the orders of the lower authorities and the voluminous paperbook running into 2,528 pages and assailed the impugned order on multiple counts. The submissions advanced by the Ld.AR are summarised in the succeeding paragraphs.

:-6-: ITA. No:3961 /Chny/2025 11. The Ld. AR firstly argued that the assessee has consistently held shares, securities and mutual funds as investments and reported income/loss arising from their sale under the head “Income from Capital Gains” for over twenty-five years. Drawing our attention to the tabulation of the tax history of the assessee for nine assessment years from 2013-14 to 2020-21, the Ld.AR pointed out that the income under the head “Capital Gains” reported by the assessee has been consistently accepted by the Revenue, including in three completed scrutiny assessments u/s.143(3) of the Act for assessment years 2014-15 (vide order dated 20.12.2016), 2015-16 (vide order dated 08.12.2017) and 2016-17 (vide order dated 22.11.2018). Further, for the assessment year 2017-18, reassessment proceedings initiated u/s.147 of the Act were dropped vide order dated 30.06.2022, thereby impliedly accepting the head of reporting. The Ld.AR argued that there being no change in facts in the assessment year under consideration, the rule of consistency squarely applies, and the AO was not justified in taking a divergent view for this isolated assessment year. 12. In support of the rule of consistency, the Ld.AR placed strong reliance on the decision of the Hon’ble Supreme Court in Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321 (SC), wherein the Hon’ble Supreme Court held that though strictly speaking the doctrine of res judicata does not apply to income tax proceedings, yet where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The Ld. AR further relied upon the decisions of the Hon’ble Bombay High Court in CIT v. Gopal Purohit reported in (2010) 336 ITR 287 (Bom.), affirmed by the Hon’ble Supreme Court in Civil Appeal Diary No. 16802/2010, the Hon’ble Calcutta High Court in CIT v. Merlin Holding (P) Ltd. reported in (2015) 375 ITR 118 (Cal.), CIT v. Purvanchal Leasing Ltd., CIT v. Amitabh Sonthalia (G.A. No. 2877 of 2013, dated 08.01.2014), CIT v. Century Plywoods (I) Ltd., the Hon’ble Gujarat High Court in PCIT v. Bhanuprasad D.

:-7-: ITA. No:3961 /Chny/2025 Trivedi (HUF) reported in (2017) 87 taxmann.com 137 (Guj.), against which the Special Leave Petition filed by the Revenue was dismissed by the Hon’ble Supreme Court as reported in (2018) 94 taxmann.com 114 (SC), and several decisions of the co-ordinate Benches of the Tribunal including Sunil Kumar Ganeriwal v. DCIT reported in (2011) 16 taxmann.com 311 (Mum.) and Smt. Yamini Khandelwal v. ACIT reported in (2022) 142 taxmann.com 529 (Kol.). 13. The Ld.AR secondly drew our attention to Circular No.6/2016 dated 29.02.2016 issued by the CBDT, which expressly grants the assessee the option to treat its listed shares and securities either as “investment” giving rise to capital gains, or as “stock-in-trade” giving rise to business income, provided the assessee adopts a consistent stand in subsequent years. The Ld.AR contended that the assessee has scrupulously followed the said Circular by consistently treating her holdings as investments and offering income/loss therefrom under the head “Income from Capital Gains”, and accordingly, the AO could not have unilaterally shifted the head of income. He pointed out that paragraph 3(b) of the Circular places an embargo on the Revenue from disturbing the stand adopted by the assessee in subsequent years, in the same manner in which it places an embargo on the assessee from changing its stand. 14. The Ld.AR thirdly assailed the AO’s order on the touchstone of the intention of the assessee, which, he submitted, is the foremost and decisive criterion in determining whether the assessee is an investor or a trader. He pointed out that (i) the shares have been consistently treated as investments in the books of account of the assessee; (ii) no borrowed funds have been deployed by the assessee for making the investments, all investments being made out of own funds and accumulated savings; (iii) the assessee does not maintain any business set-up, family office or dedicated personnel for the conduct of any share-trading business; (iv) the assessee has not claimed any expenditure as deductible against the income/loss in question; and (v) the Securities Transaction Tax (STT) paid on the transactions has never been claimed as a business expenditure. The Ld. AR submitted that on a holistic appreciation of

:-8-: ITA. No:3961 /Chny/2025 these factors, the only inescapable conclusion is that the assessee is an investor and not a trader. 15. The Ld.AR fourthly submitted that the volume and frequency of transactions, which is the principal reason advanced by the AO and the ld.CIT(A), is not by itself a decisive criterion for determining whether the assessee is an investor or a trader. He placed reliance upon the decision of the Hon’ble Calcutta High Court in CIT v. Merlin Holding (P) Ltd. (supra), wherein it has been held that frequency alone cannot show that the intention was not to make an investment and that the legislature has not made any distinction on the basis of frequency of transaction. He also relied upon the decision of the Hon’ble Bombay High Court in PCIT v. Amrita P.Talwar, wherein it was held that the mere fact that the frequency of buying and selling shares may be higher would not by itself be a determinative factor. The Ld.AR further pointed out that the average period of holding of the entire portfolio of the assessee is 580 days, which by itself negates the inference of trading activity. 16. The Ld.AR fifthly explained the substantial volume of transactions entered into by the assessee in the month of March 2020. He submitted that the said transactions were occasioned by the unprecedented and exceptional circumstances brought about by the onset of the COVID-19 Pandemic, which caused a free-fall in the stock markets, leading to panic selling and a steep erosion in the value of the investment portfolio. The assessee, like any prudent investor, chose to sell certain securities to minimise losses and mitigate further capital erosion. The Ld.AR submitted a comparative analysis showing that, had the assessee retained the said securities until 31.03.2020, the total net losses would have been to the tune of Rs.393.87 crores as against the present total net losses of Rs.100.71 crores. He argued that this protective action, taken under force majeure conditions, cannot be construed as an indicator of trading activity, and that the AO and the ld.CIT(A) have failed to consider this explanation in proper perspective.

:-9-: ITA. No:3961 /Chny/2025 17. The Ld.AR sixthly assailed the order of the AO on the ground of internal inconsistency. He pointed out that the AO has accepted the Long Term Capital Loss of Rs.37,35,40,767/- as such under the head “Capital Gains”, while simultaneously shifting only the Short Term Capital Loss of Rs.54,23,30,150/- to the head “Profits and Gains of Business or Profession”. The Ld.AR submitted that having considered the assessee as an investor with respect to the transactions resulting in long term capital loss, then attempt to treat her as trader for transactions resulting in short term capital loss was untenable. He submitted that this internal inconsistency in the order itself demonstrates the unsustainability of the re-characterisation. 18. The Ld.AR seventhly assailed the impugned order of the ld.CIT(A) on the ground that the ld.CIT(A) has impermissibly relied upon extraneous material in the form of a “simple Google search” to fortify the finding that the assessee is “a renowned stock market expert”, without putting the said material to the assessee and affording an opportunity of rebuttal. Further, the reliance made on simple google search should be reckoned as bad in law. He submitted that this constitutes a clear breach of the principles of natural justice and renders the impugned order unsustainable on this count alone. 19. The Ld.AR finally argued that the question of revenue implication itself negates the finding of business activity. He submitted that even assuming but not conceding that the assessee had been carrying on the business of share trading, then she could have legitimately claimed deduction of various expenses, including the STT paid, and could have set off the business loss against the dividend income earned during the year, thereby securing a far more advantageous tax position. The fact that the assessee has done none of these things and has, year after year, consistently reported the income/loss under the head “Capital Gains” without availing of the more tax-advantageous treatment available to a trader, itself fortifies the bona fide intention of the assessee to be regarded as an investor. Accordingly, the Ld.AR pleaded that the impugned order be set aside and the AO be directed to assess the Short Term Capital

:-10-: ITA. No:3961 /Chny/2025 Loss of Rs.54,23,30,150/- under the head “Income from Capital Gains” as originally returned by the assessee. 20. Per contra, the learned Departmental Representative (hereinafter “the Ld. DR”) supported the orders of the lower authorities. The Ld.DR submitted that the volume, frequency and substantial nature of the transactions entered into by the assessee during the year under consideration are by themselves sufficient to characterise the activity as one of trading in shares and securities. He submitted that each assessment year is a separate and independent unit, and the principle of res judicata does not strictly apply to income tax proceedings, and accordingly the AO was well within his rights to take a divergent view notwithstanding the past assessments. The Ld.DR further submitted that the intention of the assessee, gathered from the conduct, frequency and magnitude of transactions, clearly points to a profit motive characteristic of trading activity, and that the ld.CIT(A) was justified in sustaining the action of the AO. He, accordingly, pleaded for dismissal of the appeal. 21. We have heard the rival contentions, perused the material available on record, and carefully gone through the orders of the lower authorities along with the paper books filed and judicial precedents relied upon. The solitary substantive issue arising for our consideration in this appeal is whether the Short Term Capital Loss of Rs.54,23,30,150/- declared by the assessee in her return of income for the assessment year 2020-21 has been rightly re- characterised by the AO, and sustained by the ld.CIT(A), as “Business Loss”, by re-characterising the assessee from an investor to a trader in shares and securities. 22. At the outset, it would be useful to record certain undisputed facts which emerge from the record and which, in our considered view, are dispositive of the controversy:

:-11-: ITA. No:3961 /Chny/2025 (i) The assessee is an individual who has been making investments in shares, securities and mutual funds for over two and a half decades. The shares and securities have throughout been treated by her as investments in the books of account and valued at cost, and have been so reflected in the balance sheet at the close of each financial year. (ii) For each of the assessment years from 2013-14 to 2019-20, the assessee has consistently reported the income/loss arising from the sale of shares and securities under the head “Income from Capital Gains”, and the said reporting has been accepted by the Revenue. (iii) For three of those assessment years, namely 2014-15, 2015-16 and 2016-17, the returns were subjected to complete scrutiny u/s.143(3) of the Act, and the head of reporting was specifically accepted by the AO vide assessment orders dated 20.12.2016, 08.12.2017 and 22.11.2018 respectively. (iv) For the assessment year 2017-18, reassessment proceedings initiated u/s.147 of the Act were dropped vide order dated 30.06.2022, thereby impliedly accepting the head of reporting once again. (v) In the assessment year under consideration itself, the AO has accepted the Long Term Capital Loss of Rs.37,35,40,767/- as such under the head “Capital Gains” and has only shifted the Short Term Capital Loss of Rs.54,23,30,150/- to the head “Profits and Gains of Business or Profession”. (vi) The assessee has not borrowed any funds for the purpose of making the investments, has not maintained any business set-up, dedicated personnel or family office for the conduct of any share- trading activity, has not claimed any expenditure as deductible in earning the income/loss in question, and has not claimed STT as a business expense. 23. With the above factual matrix in mind, we now proceed to examine the controversy on the touchstone of (a) the rule of consistency (b) Circular No.6/2016 issued by the CBDT (c) the test of intention (d) Panic Selling on account of COVID 19 Pandemic (e) Internal inconsistency (f) Reliance on Google search and (g)Conduct of Assessee.

:-12-: ITA. No:3961 /Chny/2025 (A) Rule of Consistency 24. It is by now well-settled that though, strictly speaking, the doctrine of res judicata does not apply to income tax proceedings and each assessment year is a separate and independent unit, yet the rule of consistency must be observed where a fundamental aspect permeating through different assessment years has been consistently accepted by the Revenue, in the absence of any change of facts. The locus classicus on the subject is the decision of the Hon’ble Supreme Court in Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321 (SC), wherein, at paragraph 13, the Hon’ble Apex Court held as under: “We are aware of the fact that, strictly speaking, res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year, but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” 25. The same principle has been applied in the precise context of re- characterisation of capital gains as business income (or vice versa) by the Hon’ble Bombay High Court in CIT v. Gopal Purohit reported in (2010) 336 ITR 287 (Bom.), which decision has been affirmed by the Hon’ble Supreme Court by dismissal of the Special Leave Petition. The Hon’ble Bombay High Court, while concurring with the view of the Tribunal that the principle of consistency must be applied where the assessee has followed a consistent practice in regard to the nature of activities, the manner of keeping records and the presentation of shares as investment, observed that the Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. 26. The Hon’ble Calcutta High Court has consistently taken the same view. In CIT v. Merlin Holding (P) Ltd. reported in (2015) 375 ITR 118 (Cal.), the Hon’ble High Court observed that the frequency of transaction is not decisive on either

:-13-: ITA. No:3961 /Chny/2025 side and that frequency alone cannot show that the intention was not to make an investment. In CIT v. Purvanchal Leasing Ltd., the Hon’ble High Court held that where similar transactions were accepted by the Department for the previous year and the subsequent assessment year as giving rise to capital gain and not as business income, “a solitary stand cannot be taken for the assessment year under consideration alone”. In CIT v. Amitabh Sonthalia (G.A. No. 2877 of 2013, dated 08.01.2014), the Hon’ble Calcutta High Court further observed that once the assessee has consistently maintained the distinction in books of account between investments and stock-in-trade, and the said distinction has been accepted by the Revenue in earlier years, the Revenue cannot “take a u-turn and change the head of income without any basis”. 27. The Hon’ble Gujarat High Court, in PCIT v. Bhanuprasad D. Trivedi (HUF) reported in (2017) 87 taxmann.com 137 (Guj.), held that the intention of the assessee at the time of the purchase of shares is paramount, and if the assessee has the clear intention of being an investor and has shown the shares as investments, there is no reason to disturb the said intention. The Special Leave Petition filed by the Revenue against the said decision has been dismissed by the Hon’ble Supreme Court as reported in (2018) 94 taxmann.com 114 (SC). 28. Applying the aforesaid principles to the facts of the present case, we find that the assessee has consistently reported the income/loss from sale of shares and securities under the head “Income from Capital Gains” for over twenty-five years, and the said reporting has been consistently accepted by the Revenue, including in three completed scrutiny assessments u/s.143(3) of the Act for assessment years 2014-15, 2015-16 and 2016-17, and impliedly in the dropping of reassessment proceedings for the assessment year 2017-18. There is no allegation, much less a finding, by the AO or the ld.CIT(A) that there has been any change in the facts of the case in the assessment year under consideration. In the absence of any change in facts, there could be no basis for the Revenue to depart from its consistent stand and to recharacterise the

:-14-: ITA. No:3961 /Chny/2025 assessee as a trader for this isolated assessment year alone particularly for Short term capital loss claimed by accepting the Long term capital loss declared by the assessee. 29. The observation of the ld.CIT(A), to the effect that “the principle of res judicata does not strictly apply to the income tax proceedings and every assessment year is different”, is, with respect, a partial and incomplete reading of the law. While it is true that each assessment year is a separate unit, the rule of consistency, as enunciated by the Hon’ble Supreme Court in Radhasoami Satsang (supra) and applied by various Hon’ble High Courts, requires that in the absence of change in facts, the position consistently accepted in earlier years cannot be disturbed in a subsequent year. The ld.CIT(A) has failed to apply this well-settled position to the facts of the present case. (B) CBDT Circular No. 6/2016 dated 29.02.2016: 30. The CBDT, recognising the persistent disputes between the assessees and the Revenue on the issue of characterisation of income from sale of listed shares and securities, issued Circular No.6/2016 dated 29.02.2016, expressly granting the assessee the option to treat its holdings of listed shares and securities either as investments (giving rise to capital gains) or as stock-in-trade (giving rise to business income), provided the assessee adopts a consistent stand in subsequent years. Even though the said circular is issued in the context of long term investments, the substance of the circular would squarely apply to investor’s portfolio irrespective of the period of holding. 31. In the present case, the assessee has, for over twenty-five years, consistently treated her holdings as investments and offered income/loss arising therefrom under the head “Income from Capital Gains”. Having so adopted a consistent stand, the assessee was, in terms of the said Circular, entitled to expect that the said stand would not be disturbed by the AO. The Circular, having been issued by the CBDT, is binding on the income tax authorities u/s.119 of the Act. We are, therefore, of the considered view that the

:-15-: ITA. No:3961 /Chny/2025 AO and the ld.CIT(A) have, in disregarding the binding effect of the said Circular, fallen into clear error. The principle of natural justice, which mandates that the embargo placed on the assessee from changing its stand must equally apply to the Revenue, has been judicially recognised by the Hon’ble Calcutta High Court in CIT v. Century Plywoods (I) Ltd. (supra) and the Pune Bench of the Tribunal in Satish Madanlal Gupta v. ACIT, where it has been held that once the assessee has adopted a stand consistent with the Circular, the Revenue cannot take a different view in subsequent years without any fresh material. (C) Test of Intention: 32. It is well-settled by a long line of judicial authorities that the foremost test in determining whether the assessee is an investor or a trader in shares and securities is the intention of the assessee at the time of acquisition of the shares, as evidenced by the conduct of the assessee, the treatment in the books of account, and the surrounding circumstances. The Hon’ble Madras High Court in CIT v. Trishul Investments Ltd. reported in (2008) 305 ITR 434 (Mad.) and CIT v. Ramamirtham reported in (2008) 306 ITR 239 (Mad.), both of which decisions have attained finality with the dismissal of the Special Leave Petitions by the Hon’ble Supreme Court, has held that the intention of the assessee is the decisive criterion for determining whether the transaction is an investment or a trade. 33. Applying the said test to the facts of the present case, we find that several telling factors point unequivocally towards an investor’s intention: (i) Treatment in books of account: The shares and securities have throughout been treated as investments in the books of account of the assessee and valued at cost, not as stock-in-trade valued at lower of cost or market value. This treatment has been consistently followed for over twenty-five years. (ii) Own funds: The assessee has admittedly not deployed any borrowed funds for making the investments. The entire investment

:-16-: ITA. No:3961 /Chny/2025 corpus has been built out of own funds, accumulated savings and reinvestment of the proceeds. (iii) Absence of business set-up: The assessee does not maintain any office, dedicated personnel, family office or any other business infrastructure for the conduct of any share-trading business. The investment decisions are taken by her spouse, who himself is engaged in the dairy industry, with the assistance of publicly available information. (iv) No business expenditure claimed: The assessee has not claimed any expenditure (including STT) as deductible against the income/loss in question. Had the assessee been a trader, she would have been legitimately entitled to claim such deductions, the foregoing of which strongly indicates the absence of any business intention. (v) Multiple sources of income: The assessee has multiple sources of income, including dividend income of Rs. 13.50 crores during the year under consideration, share of profit from a partnership firm, and is also not the principal earner in the family. The contention of the AO/CIT(A) that the assessee has no other source of income apart from share trading is factually erroneous. (vi) Average period of holding: The average period of holding of the entire portfolio of the assessee is 580 days, which is far in excess of one year and is wholly inconsistent with any inference of routine trading activity. (vii) Exclusively delivery-based: The assessee deals exclusively in delivery-based transactions and does not engage in futures and options, intra-day trading or speculative transactions, which are the hallmark of a trader. 34. The conjoint reading of the foregoing factors leaves us in no matter of doubt that the assessee is, and has always been, an investor in shares and securities and not a trader. The contrary inference drawn by the AO and sustained by the ld.CIT(A), based solely on the volume and frequency of transactions, cannot stand scrutiny. As held by the Hon’ble Calcutta High Court in CIT v. Merlin Holding (P) Ltd. (supra), frequency alone cannot show that the intention was not to make an investment, and the legislature has not made any

:-17-: ITA. No:3961 /Chny/2025 distinction on the basis of frequency of transaction. The Hon’ble High Court has emphasised that the question essentially is a question of fact, and the various indicia of intention must be examined cumulatively rather than in isolation. (D) Substantial Transactions in March 2020 – Force Majeure: 35. We now turn to the contention of the Revenue that the substantial volume of transactions undertaken by the assessee during the month of March 2020 is indicative of trading activity. The assessee has placed before us a detailed explanation that the said transactions were occasioned by the unprecedented and exceptional circumstances brought about by the onset of the COVID-19 Pandemic, which caused a free-fall in the stock markets, leading to panic selling and a steep erosion in the value of the investment portfolio. As a prudent investor, the assessee chose to sell certain securities to minimise losses and mitigate further capital erosion. The comparative analysis placed on record shows that had the assessee retained the said securities until 31.03.2020, the total net losses would have been to the tune of approximately Rs.393.87 crores as against the present total net losses of approximately Rs.100.71 crores. 36. We find merit in the said explanation. The decision of a prudent investor to liquidate a portion of the investment portfolio during a period of exceptional market volatility, with a view to preserving the value of the investments, is wholly consistent with investment intention and is not, by itself, indicative of a profit- motive characteristic of trading activity. The very fact that the legislature has provided for taxation of short term capital gains/losses, with a permissible holding period as short as a single day, demonstrates that an investor is well within his/her rights to liquidate the investment within twelve months, and such liquidation does not by itself convert the investor into a trader. We find that the AO and the ld.CIT(A) have failed to consider this explanation in any meaningful manner, which itself vitiates the re-characterisation.

:-18-: ITA. No:3961 /Chny/2025 (E) Internal Inconsistency in the Order of the AO: 37. There is yet another and equally compelling reason why the re- characterisation cannot be sustained. A bare perusal of the assessment order dated 30.09.2022 discloses that the AO has accepted the Long Term Capital Loss of Rs.37,35,40,767/- as such under the head “Capital Gains”, while simultaneously shifting only the Short Term Capital Loss of Rs.54,23,30,150/- to the head “Profits and Gains of Business or Profession”. This selective re- characterisation suffers from a fundamental internal inconsistency. If, on the AO’s own reasoning, the assessee was a trader carrying on the business of buying and selling securities, then both the Long Term and the Short-Term losses ought to have been characterised as business losses, since both flowed from the same activity of dealing in the same pool of shares and securities. Conversely, if the assessee was, in truth, an investor (as the AO has impliedly conceded by accepting the Long Term Capital Loss as such), the same character must extend to the Short Term Capital Loss as well, since both have arisen from the same source and from the same investment portfolio. 38. The AO has not even attempted to explain this internal inconsistency in his own order. The ld.CIT(A), unfortunately, has not addressed this issue either. We are of the considered view that this internal inconsistency alone is sufficient to demonstrate that the re-characterisation made by the AO is arbitrary, devoid of any rational basis and not sustainable in law. (F) Reliance by the CIT(A) on a “Google Search” – Breach of Natural Justice: 39. We are constrained to observe that the ld.CIT(A), in paragraph 6.3.2 of the impugned order, has fortified his finding by stating that “the appellant is a renowned stock market expert and actively into the business of trading in stocks. This fact can be verified by a simple Google search. A simple Google search indicates that the appellant is among the most admired stock experts in India and she is known for her sharp eye in spotting small and mid-cap companies.” It is settled law that an adjudicating authority cannot rely upon

:-19-: ITA. No:3961 /Chny/2025 material gathered behind the back of the assessee without putting the said material to the assessee and affording an opportunity of rebuttal. The ld.CIT(A) has clearly traversed beyond the four corners of the record by relying upon the results of a private internet search, without disclosing the content of the said search to the assessee and without affording any opportunity of rebuttal. This is a clear breach of the principles of natural justice and renders the impugned order unsustainable on this count alone. 40. Apart from the breach of natural justice, the said reasoning of the ld.CIT(A) is also legally untenable. Whether or not a person is popularly perceived as a “renowned stock market expert” has no legal bearing on the question of whether the income/loss arising from the sale of shares and securities is to be assessed under the head “Capital Gains” or “Profits and Gains of Business or Profession”. The said characterisation must turn upon the application of well-settled legal tests to the facts of the case, including the intention of the assessee, the treatment in the books of account, the use of borrowed funds, the existence of a business set-up and the period of holding, and not upon popular perception garnered from an internet search. (G) Conduct of the Assessee Disproves the Allegation of Trading Activity: 41. A final consideration which we cannot lose sight of is the conduct of the assessee herself. Had the assessee in truth been carrying on a business of share trading, it would have been substantially more advantageous to her, from a tax perspective, to so declare. As a trader, she could have legitimately claimed deduction of various expenses, including STT, brokerage, depository charges, and other costs; she could have set off the business loss against the dividend income of Rs.13.50 crores earned during the year; and she could have availed of other ancillary benefits. The fact that the assessee has scrupulously refrained from doing any of these things and has, year after year, consistently reported the income/loss under the head “Capital Gains”, notwithstanding that doing so is materially less advantageous in tax terms itself fortifies the bona fide intention

:-20-: ITA. No:3961 /Chny/2025 of the assessee to be regarded as an investor. The CBDT, in its Circular No. 6/2016, has expressly recognised that an assessee may, having regard to its overall position, choose to adopt one stand or another, and the Circular accords the assessee that choice. The assessee, in this case, has chosen and consistently maintained her stand as an investor, and we see no reason to disturb that choice. 42. For all the foregoing reasons, we hold that the assessee, Smt. Dolly Khanna, is an investor in shares and securities, and not a trader, and that the income/loss arising from the sale of the shares and securities held by her must be assessed under the head “Income from Capital Gains” and not under the head “Profits and Gains of Business or Profession”. The Short Term Capital Loss of Rs.54,23,30,150/- as quantified by the assessee must accordingly be accepted under the head “Capital Gains” and not re-characterised as a Business Loss. The AO is directed to give effect to this order accordingly and to permit to carry forward of the said Short Term Capital Loss to the tune of Rs.54,23,30,150/- under the head “Capital Gains” in accordance with the provisions of the Act. 43. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 01st June, 2026 at Chennai.

Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुिधर्थध) (ABY T VARKEY) (S.R.RAGHUNATHA) न्याययर्क सदस्य/Judicial Member लेखधसदस्य/Accountant Member चेन्िई/Chennai, ददिधंक/Dated, the 01st June, 2026. Devadas

:-21-: ITA. No:3961 /Chny/2025 आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलधर्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभधगीय प्रनतनिधर्/DR 5. गधर्ा फधईल/GF

DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.06.08 11:36:15 +05'30'