Dept cannot change status of Assessee to Trader when it had accepted him as Investor in previous year merely because he made some profit on shares: ITAT

While dismissing the cross-appeals filed by both the Revenue and Assessee, the Mumbai ITAT ruled that the Revenue cannot change the status of Assessee to the trader when it had accepted him as the investor in previous year merely because he made some profit on shares.

While considering the details of period of holding share and drawn a conclusion that the Assessee dealt in the share of Core Projects Ltd. from which the income from short-term capital gains and long-term capital gains had arisen and the magnitude of dealings in the shares revealed that Assessee engaged in such business with complete knowledge and timing of the market.

Hence, the AO treated the Assessee as a Trader, not as the investor and assessed income of Rs. 7,02,69,2369/- which was brought to tax as income under the head Income from business and profession.

The assessee carried the matter in appeal before the learned CIT(A)who allowed the appeal of the assessee and observed regarding the part of the shares have been held as the investment and there appears to be no reason to treat the same as business income. The Appellate authority held that merely making the profit on the sale of shares cannot be held in the nature of trade since investment portfolios are created and held with the spirit of multiplying the value of the money.

Revenue is aggrieved by the treatment given by CIT(A) by holding that profit/loss from sale/purchase of shares are to be treated as capital gains and not as business income as already concluded by the A.O. in its assessment order.

Revenue contended before the Tribunal bench including Accountant Member Ramit Kochar and Mahavir Singh Judicial Member that the Assessee had a larger dealing with shares of Core Projects Ltd and complete knowledge regarding the market which itself shows that assessee is the trader and not an investor. Revenue also added that Assessee undertakes this activity to earn more profit and rendering consultancy services in the field of investment.

On the counter-part, the counsel for Assessee argued that Assessee doing such activity with a view to earning the long term and short-term capital gains wherein STT was duly paid on the sales/purchase of shares.

The Tribunal bench heard the rival submissions and observed the fact that “assessee is also dealing in the past in the securities wherein the Revenue has accepted income earned from sale and purchase of shares on delivery basis to be capital gains (losses) while income (loss) from F & O transactions was assessed as income under the head income from business or profession”.

The bench directed to follow the principles of consistency instead of the principle of Res-judicata and held that Assessee is a trader according to the past years’ treatment.