Case Law Details
Chandra Ramesh Vs ACIT (ITAT Chennai)
ITAT Chennai held that income from listed shares and securities which had been treated as stock in trade by assessee is taxable under the head income from business and profession and not under the head capital gain.
Facts- The assessee is an individual and engaged in the business of trading in shares and securities and also rendering consultancy services in the financial sector. The assessee was a member of Bangalore Stock Exchange in individual capacity and a director of CFRS, a member of NSE. The assessee had filed his return of income for the assessment year in question and declared profit/loss arising from purchase and sale of shares and securities, under the head income from business and profession. AO, assessed profit/loss derived from trading in shares and securities under the head capital gains.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- Held that the CBDT, vide Circular No. 6/2016 dated 29.02.2016, has clarified the issue of taxability of surplus on sale of shares and securities and as per said Circular, it had been very well explained that “where the assessee itself, irrespective of the period of holding of the listed shares and securities opted to treat them as stock in trade, the income arising from transfer of such shares/securities would be treated as business income. Since, the CBDT itself accepted the position of taxation of profit arising from purchase and sale of shares under the head income from business or profession, wherever the assessee wants to do so, in our considered view the Assessing Officer ought to have accepted the claim of the assessee when the assessee has claimed the income under the head business or profession.
In the present case, if you go by the business carried out by the assessee, there is no dispute whatsoever, with regard to nature of income earned by the assessee from purchase and sale of shares. Further, this position is also clear from the Circular no. 06/2016 issued by the CBDT. Therefore, we are of the considered view, that the Assessing Officer and ld. CIT(A), are completely erred in assessing profit/loss from share trading activity under the head income from capital gains as against the assessee’s admission under the head income from business and profession.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. These three appeals filed by the assessee are directed against separate, but identical orders of Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 31.01.2023 and pertains to assessment years 1998-99, 1999-00 & 2000-01. Since, facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off by this consolidated order.
2. The assessee has more or less raised common grounds of appeal for all three assessment years. Therefore, for the sake of brevity grounds of appeal filed for assessment year 1998-99 are reproduced as under:
“1. The order of the learned CIT (appeals) is contrary to law and opposed to the facts of the case.
2. The learned CIT (Appeals) has erred in confirming the addition by stating that the appellant was unable to produce the relevant particulars to substantiate its claim of loss from share business during the course of the assessment proceedings. The learned CIT (appeals) has ignored the fact that the appellant had produced broker account copies for the relevant period which clearly indicated that the appellant was engaged in buying and selling shares. The ledger account showed the volume of transactions and was proof of appellant having traded in shares extensively. Mere categorization in Balance Sheet, that too of a proprietary concern, is no proof to reject claim of diminution since it was practiced every year.
3. The learned CIT (appeals) had erred in relying on the remand report of the assessing officer ignoring the fact that the appellant had furnished full details of the shares traded, the profit and loss arising from the trade and the quantitative information as evidence for the shares traded.
4. The learned CIT (appeals) has also not considered the circular no 6/2016 dated 29/02/2016 issued by CBDT which clearly states that “where the assessee itself irrespective of the period of holding of the listed shares and securities opts to treat them as stock in trade, the income arising from transfer of such shares/securities would be treated as business income. The appellant had consistently been treating the income arising from shares as a business income and treated the investments as stock in trade by providing for diminution in the value of investments. The appellant therefore deserved for the provision for diminution in the value of investments to be allowed.
5. For these reasons and for any other reason that may be taken up at the time of hearing it is prayed that the order of the learned assessing officer be set aside and relief as prayed for may be granted. The appellant also craves permission to adduce further grounds of appeal at the time of hearings.”
3. The brief facts of the case are that, the assessee is an individual and engaged in the business of trading in shares and securities and also rendering consultancy services in the financial sector. The assessee was a member of Bangalore Stock Exchange in individual capacity and a director of CFRS, a member of NSE. The assessee has filed his return of income for the assessment year in question and declared profit/loss arising from purchase and sale of shares and securities, under the head income from business and profession. The Assessing Officer, assessed profit/loss derived from trading in shares and securities under the head capital gains. The assessee carried the matter in appeal before the Tribunal and the ITAT, Chennai Benches has set aside the issue to the Assessing Officer for fresh examination. In pursuant to directions of the Tribunal, the Assessing Officer taken up the case for verification and called upon the assessee to file necessary details to justify income declared under the head profit and gains from business and profession towards purchase and sale of shares. Since, the assessee could not substantiate the claim with relevant evidences, the Assessing Officer assessed the income under the head capital gains. The assessee carried the matter in appeal before the first appellate authority, but could not succeed. The ld. CIT(A), for the reasons stated in their appellate order dated 31.01.2023, rejected arguments of the assessee and sustained assessment of profit/loss under the head capital gains. Aggrieved by the CIT(A) order, the assessee is in appeal before us.
4. None appeared for the assessee. We have heard the ld. DR, perused the material available on record and gone through the orders of the authorities below. The ld. DR present for the revenue, vehemently argued the issue in light of facts brought out by the Assessing Officer and contended that the Assessing Officer has rightly assessed profit/loss from share trading under the head income from capital gains, because the assessee could not file necessary evidences including books of accounts and tax audit report to prove his case. We find that the assessee is basically a member of Bangalore Stock Exchange and engaged in the business of purchase and sale of shares for many years. The assessee has declared income under the head income from business or profession and also filed relevant details including ledger extract to prove quantity of purchase and sale of shares along with frequency, quantity and value. From the above, it is very clear that the assessee has filed necessary evidences to substantiate his claim of income declared under the head income from business or profession, towards trading in shares and securities. Further, the CBDT, vide Circular No. 6/2016 dated 29.02.2016, has clarified the issue of taxability of surplus on sale of shares and securities and as per said Circular, it has been very well explained that “where the assessee itself, irrespective of the period of holding of the listed shares and securities opts to treat them as stock in trade, the income arising from transfer of such shares/securities would be treated as business income.” Since, the CBDT itself accepted the position of taxation of profit arising from purchase and sale of shares under the head income from business or profession, wherever the assessee wants to do so, in our considered view the Assessing Officer ought to have accepted the claim of the assessee when the assessee has claimed the income under the head business or profession. Further, entries in books of accounts are not determinative to decide the nature and head of income, but what is relevant to see is the nature of income based on transactions. In the present case, if you go by the business carried out by the assessee, there is no dispute whatsoever, with regard to nature of income earned by the assessee from purchase and sale of shares. Further, this position is also clear from the Circular no. 06/2016 issued by the CBDT. Therefore, we are of the considered view, that the Assessing Officer and ld. CIT(A), are completely erred in assessing profit/loss from share trading activity under the head income from capital gains as against the assessee’s admission under the head income from business and profession. Thus, we set aside the orders of the ld. CIT(A) for all three assessment years and direct the Assessing Officer to assess income derived from purchase and sale of shares under the head income from business and profession as claimed by the assessee.
5. In the result, appeals filed by the assessee for all three assessment years are allowed.
Order pronounced in the court on 23rd August, 2023 at Chennai.
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