2017 (2) TMI 732 - AT - Income Tax

Income from share transaction - business income or capital gain - Held that - As decided in Hitesh Doshi (2011 (6) TMI 102 - ITAT Mumbai ) held that when an assessee maintains similar number of companies and only number of shares therein increase or decrease he is only a prudent investor. The assessee is an investor not engaged in the business of sale purchase of shares and mutual funds. The question is accordingly decided against the Revenue both assessment years. The A.O. is directed to treat her income from sale of shares and mutual funds in the two assessment years as short term capital gains and matter decided in favour of the assessee. Validity of reopening of assessment - Held that - A.O. during the course of assessment proceedings u/s.143(3) of the Act the AO was well within his right in re-opening the assessment on the ground. The A.O. has come to the conclusion that there was escapement of income from assessment. The notice has also been issued within the prescribed time. Therefore we uphold the validity of reopening of the assessment u/s.147 and notice u/s.148 of the Act. These grounds of appeal challenging the validity of the reassessment are thus dismissed. - Decided against assessee.

Summary

Issues:
1. Reopening of assessment for multiple assessment years.
2. Treatment of income from sale of investment in shares and securities as business income.
3. Disallowance under section 14A of the Income Tax Act.

Analysis:

Issue 1: Reopening of assessment for multiple assessment years
The appeals were against the orders of the Ld. Commissioner of Income Tax(Appeals) for the Assessment Years 2005-06, 2006-07, 2007-2008, and 2008-09. The assessments were reopened under section 147 of the Income Tax Act, and the reasons for reopening were provided to the assessee. The assessee contested the reopening, but the Assessing Officer proceeded with the reassessment. The Tribunal upheld the validity of the reopening, citing the judgment in the case of CIT vs. Kelvinator of India Ltd. The appeals challenging the validity of the reassessment were dismissed.

Issue 2: Treatment of income from sale of investment in shares and securities as business income
The assessee derived income from trading and investment in shares and securities. The Assessing Officer treated the income from the sale of investments as business income instead of capital gains. The assessee contended that the income should be treated as capital gains and not business income. The Tribunal analyzed various judgments and held that the assessee was an investor and not engaged in the business of sale and purchase of shares and mutual funds. Consequently, the income from the sale of shares and mutual funds was treated as short-term capital gains in favor of the assessee.

Issue 3: Disallowance under section 14A of the Income Tax Act
The disallowance under section 14A of the Income Tax Act amounting to a small sum was not pressed by the assessee due to the insignificance of the amount. The Tribunal did not delve into this issue further due to the negligible nature of the disallowance.

The Tribunal allowed all four appeals, directing the Assessing Officer to treat the income from the sale of investments as capital gains and not business income. The reassessment for the respective assessment years was upheld, and the additions made by the Assessing Officer were deleted. The judgments cited and the distinction between investment income and business income played a crucial role in determining the outcome of the appeals.