SHRI LALITKUMAR OMDEV GUGLANI,,BARODA vs. THE DY.CIT, CIRCLE-8,, BARODA

The assessee has raised following grounds of appeal:- “1. The learned Commissioner of Income Tax (Appeals) -III, Baroda ["the CIT(A)"] erred in fact and in law in confirming the action of Deputy Commissioner of Income Tax, Circle- 8, Baroda ("the AO") in taxing the transactions in securities/ shares/ mutual funds under the head "Income from Business or Profession" instead of "Income under the head Capital Gains" as claimed by the Appellant.

The brief facts of the case is that return of income declaring income of Rs. 10,53,920/- was filed on 18th Sep, 2009. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 19th August, 2009. On scrutiny it was discerned to the assessing officer that the assessee had shown short term capital gain of Rs. 5,64,114/- out of which Rs. 3,74,470/- pertained to share trading and Rs. 1,89,644/- pertained to HDFC Asset Management Ltd. The assessing officer also observed that assessee has entered into 140 purchase transactions and 163 sale transactions of shares of various companies therefore he was of the view that the assessee has carried out trading activity in the shares. Consequently, he has assessed the short term capital gain of Rs. 3,74,470/- as profit and gain out on trading of shares.

Aggrieved assessee filed appeal before the ld. CIT(A). The Ld.CIT(A) has dismissed the appeal of the assessee on the ground that the frequency of transaction and the period of holding the shares demonstrate that assessee has carried trading activity. The Ld. CIT(A) has also made enhancement by treating the short term capital gain of Rs. 1,89,644 from HDFC Asset Management Company Ltd. as business income.

During the course of appellate proceedings before us, the ld. counsel has furnished paper book containing acknowledgement of return of income, notice u/s. 142(1) and submission made before the ld. CIT(A) etc. He has also placed reliance on the judicial pronouncement Y. Brahmiah Vs. ITO (2014) 52 taxman.com 169 (Andhra Pradesh). He contended that the ld. CIT(A) is not justified in sustaining the addition made by the assessing officer as the assessee has correctly shown the income under the head income from sale and purchase of shares as short term capital gain. He has reiterated the submission made before the ld. CIT(A). On the other hand, ld. departmental representative has supported the order of ld. CIT(A). He has also placed reliance in the case of Radials International vs. ACIT (2012) 18 taxman.com 20 (Delhi).

We have heard both the sides and perused the material on record carefully. We have noticed that assessee has carried out 140 purchase transactions and 163 sale transactions of various shares reporting short term capital gain of Rs. 3,74,470/-. As stated by the Ld.CIT(A) during the course of appellate proceedings the assesse has not furnished the detail of period of holding of shares etc. for the purpose of examination of his claim of short term capital gain on transactions in shares . Even during the course of appellate proceedings before us no such detail was furnished. In respect of enhancement of business income by treating the short term capital gain of Rs. 1,89,644/- from PMS as business income we find force in the contention of the assessee that ld. CIT(A) has made enhancement to the income without giving any notice u/s. 251(2) of the act . In the judicial pronouncement as referred supra the hon’ble high court of Andhra Pradesh held that before making enhancement a notice as provided u/s. 251(2) must be issued requiring assessee to show cause as to why such a course of action be not taken.

Ground no. 4 of the assesee regarding charging of interest u/s 234 B is dismissed as charging of interest is mandatory as per section 234B of the act. Ground no. 5 of the assessee regarding initiating penalty proceedings u/s. 271(1)(c) of the act is premature at this stage, therefore, the same stands dismissed.

In the result, ground no. 1 to 3 of appeal of the assesse are allowed for statistical purposes and ground no. 4 and 5 are dismissed.