2017 (12) TMI 653 - AT - Income Tax

Treatment of the transaction of purchase and sale of shares - capital gains or business income - CIT(A) erred in treating the Short Term Capital Gain as Business Income - Held that - We find that the ld. Commissioner of Income Tax (Appeals) has duly followed the ITAT decision in the assessee s own case which is in appeal before the Hon ble jurisdictional High Court. As rightly pointed out by the ld. Departmental Representative the ld. Commissioner of Income Tax (Appeals) has correctly followed the ITAT order with respect to the short term capital gain shown by the assessee and has already granted relief in respect of the long term capital gain the facts about which were different. Accordingly we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals). Accordingly we uphold the same.- Decided against assessee

Summary

Issues Involved:
1. Treatment of Short Term Capital Gain as Business Income.
2. Consistency in the treatment of share transactions across different assessment years.
3. Set-off of brought forward losses from earlier years.

Issue-wise Detailed Analysis:

1. Treatment of Short Term Capital Gain as Business Income:
The primary issue in this case revolves around whether the Short Term Capital Gain (STCG) of Rs. 3,51,66,426/- should be treated as business income. The assessee, a professional consultant in the oil exploration and drilling sector, argued that the STCG should be considered as investment income, as it had been in previous years. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated the STCG as business income. The CIT(A) noted several factors indicating trading activity rather than investment, such as the frequency and volume of transactions, the short holding period of shares, and the high turnover ratio compared to the investment. The ITAT upheld the CIT(A)'s decision, emphasizing that the nature of transactions, including repetitive trading in the same scrips and intraday transactions, supported the classification of STCG as business income.

2. Consistency in the Treatment of Share Transactions Across Different Assessment Years:
The assessee contended that the department's treatment of share transactions as capital gains in earlier years should be consistently applied. However, the CIT(A) and ITAT highlighted that the nature of transactions in the assessment year 2012-13 was significantly more pronounced in terms of trading activity compared to previous years. The CIT(A) also pointed out that the returns for some of the earlier years were not scrutinized, and in years where scrutiny occurred, the facts differed. Thus, the principle of consistency did not apply due to the differing nature of transactions in the current assessment year.

3. Set-off of Brought Forward Losses from Earlier Years:
The assessee also challenged the AO's decision not to allow the set-off of brought forward losses from earlier years. However, the judgment does not provide a detailed discussion on this issue, implying that the primary focus remained on the classification of STCG as business income. The ITAT upheld the CIT(A)'s order, which did not find merit in the assessee's claim regarding the set-off of losses.

Conclusion:
The ITAT confirmed the CIT(A)'s decision to treat the STCG of Rs. 3,51,66,426/- as business income, based on the nature and frequency of the share transactions. The ITAT also upheld the CIT(A)'s decision to grant relief regarding long-term capital gains, distinguishing them from short-term transactions. The appeal by the assessee was dismissed, and the order pronounced on 04.12.2017 reaffirmed the findings of the lower authorities.