ADDL CIT 9(2), MUMBAI vs. THE BOMBAHY OIL INDUSTRIES P. LTD, MUMBAI

We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that the AO has treated the short term and long term capital gain so earned by the assessee on sale of shares as business income. The CIT(A) has deleted the same after observing that assessee has been consistently showing 2 the shares which have led to long term and short term capital gain as investments in its books of accounts. The assessee has also made profit out of shares held by portfolio managers. It was also brought to our notice that the AO himself has accepted profit on sales of shares under the head capital gains while framing the assessment u/s.143(3) for the immediately preceding assessment year. Recently the CBDT has also brought Circular No.6/2016, dated 29-2-2016 further clarify the position that shares held for more than 12 months and profit arising therefrom should be treated as capital gain instead of business profit. With regard to the shares held as investment and profit accruing thereon was allowable to capital gain tax, the CIT(A) given its finding as under :- “4. I have perused the assessment order and written submissions of the appellant. In this case Assessing Officer has not only treated the Short Term Capital Gains as business but also treated the Long Term Capital Gain as business activity. In doing, so he failed to take into account the material fact, the appellant has been consistently showing the shares which have led to Long Term Capital Gain and Short Term Capital Gains as investments in its books of accounts. Moreover, the appellant had appointed two companies as portfolio managers. The Hon'ble ITAT Pune in KRA Holding and Trading P.Ltd vs DClT (ITA.No.500/PN/2008) has held that gains made by the assessee on transactions made through portfolio managers are to be taxed as capital gains and not income from business as the object of Portfolio Management Services (PMS) was to maximize the value of portfolio. Appellant has effectively and comprehensively rebutted each and every point of the Assessing Officer in treating the Long Term Capital Gain and Short Term Capital Gains as business income and has made a convincing case of treating the sale of shares as Long Term Capital Gain and Short Term Capital Gains. It is also relevant to add that in immediate preceding year, the Assessing Officer had accepted the gains as capital gains u/s.143(3). Even though the principles of res-judicata do no strictly apply in Income-tax proceedings, it is well settled law that principles of consistency cannot be ignored. The present case is also covered by the decision of Hon'ble Mumbai Tribunal in Gopal Purhoit which has been subsequently upheld by the Hon'ble Bombay High Court