TMI Blog2011 (8) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... The short-term capital gains with respect to the shares held for one month to three months worked out to be Rs. 2,37,744. However, only in respect of a transaction entered into intra-trade, short-term capital gain of Rs. 23,475 was earned. By applying any test as discussed by the learned Commissioner of Income-tax, it cannot be said that such transactions were in the nature of business and trade - Furthermore, acquisition of shares with the help of borrowed fund is no more decisive of the true nature of transaction and dominant motive of the assessee - Following decision of H. Holck Larsen v. CIT [1971 (8) TMI 56 - BOMBAY High Court] - Decided in favour of assessee. Jurisdiction of CIT u/s 263 - Held that:- The power of suo motu revision under sub-section (1) of section 263 is in the nature of supervisory jurisdiction and the same can be exercised only if both the circumstances specified therein exist, viz., (i) the order is erroneous ; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. An order cannot be termed as erroneous unless it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from business'. 5. That the learned Commissioner of Income tax ought to have further considered that the assessee was deriving income from salary and is holding the equity shares of various companies as 'investment' as evident from books. Income earned on share transaction was being regularly and consistently assessed to tax as short-term/long-term capital gain in the earlier years. The intention as based on principals of consistency, the assessment order passed under section 143(3) of the Act cannot be treated as erroneous and prejudicial to the interests of the Revenue in any manner order, so passed under section 263 of the Act therefore, deserves to be quashed." The facts, in brief, are that the return filed by the assessee was selected for scrutiny, wherein the assessment was framed at income of Rs. 75,63,825 under section 143(3), as against returned income of Rs. 73,20,225. The long-term and short-term capital gains offered by the assessee was scrutinised by the Assessing Officer and thereafter the same was accepted. The assessee derives income from salary and was holding equity shares of various companies as investment and the same were held in the books of account also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also challenged the validity of the notice under section 263 of the Income- tax Act, 1961, based on various decisions. No doubt the assessee has earned on investments the long-term capital gain with dividend income, but the assessee has traded in shares by effecting purchases on the same date and these are the transactions which are the moot point of treatment under the relevant head of income, i.e., whether from the statement of short-term capital gain that the purpose of sale was to encash the appreciation in the short-term profit was also earned out of the sale of shares which were purchased during the previous year itself. The assessee is maintaining the portfolio of investment but at the same time is also trading in shares to encash the appreciation in their value. Therefore, in view of these facts some of the decisions relied upon which relate to investment only are not applicable in the case of the assessee because of the peculiar facts of this case. Accordingly, the ratio of the decisions relied upon, i.e., CIT v. Gopal Purohit 14 ITJ 282 (Bom) and Arjun Kapur v. Deputy CIT [1999] 70 ITD 161 (Delhi), in view of the facts of the case does not help the case of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing was also not claimed as business expenditure nor claimed or allowed as set-off against the interest income. We have carefully gone through the year wise history of transactions entered into by the assessee with respect to sale of shares, which were held as investment and found that in the assessment years 2003-04, 2004-05 and 2005-06, the total number of transactions of sales were only 2, 6, 54 respectively. During the year, the total number of transactions were 37. Out of the total short-term capital gains of Rs. 66,87,198, about 90 per cent. of shares were held for six months and above. The short-term capital gains with respect to the shares held for one month to three months worked out to be Rs. 2,37,744. However, only in respect of a transaction entered into intra-trade, short-term capital gain of Rs. 23,475 was earned. By applying any test as discussed by the learned Commissioner of Income-tax, it cannot be said that such transactions were in the nature of business and trade. The hon'ble Supreme Court, vide its order dated November 15, 2010 dismissed the special leave petition against the judgment of the Bombay High Court in the case of CIT v. Gopal Purohit [2011] 336 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isite to exercise of jurisdiction by the Commissioner of Income-tax suo motu under it is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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