Frequency, Magnitude of Transaction in Systematic Manner not a Criteria to treat Share Transaction a Business Activity: ITAT [Read Order]

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The Income Tax Appellate Tribunal ( ITAT ), Ahmedabad bench has held that the frequency, magnitude of the transaction in a systematic manner cannot be the criteria to hold that the assessee is engaged in the business activity of shares.

The assessee, in his return, has made 162 transactions of purchase and sale of shares for earning such income under the head capital gain. The transactions for the purchase and sale of the shares were very frequent and period of holding of these shares was also very less.

The Assessing Officer held that the assessee has been carrying on a business of sale and purchase of the shares and therefore, the assessee is liable to offer the income as discussed aforesaid under the head business and profession.

Analyzing the CBDT Circulars, the Tribunal observed that the assessee can maintain two portfolios one for trading in the shares and the other one is for the investment in shares.

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“The only requirement of the circular, both the activities of the assessee should be clearly demarcated in the books of accounts. As the assessee has not shown any activity from the trading of shares and there was no closing stock shown in the financial statement, therefore, we are of the view that the assessee is dealing only in the investment activity as evident from the classification shown by the assessee under the head investments,” the Tribunal said.

It was observed that from the balance sheet submitted by the assessee, it is clear that the assessee has demarcated its shares under the head investment.

“Therefore, the Circular issued by the CBDT applies to the instant facts of the case. Therefore, keeping in view the provision of the Circular issued by the CBDT we are inclined to hold that the income from the investment of share on account of sale purchase should be liable to tax under the head capital gain,” the Tribunal added.

Allowing the appeal of the assessee, the Tribunal held that “the frequency, magnitude of the transaction in a systematic manner cannot be the criteria to hold that the assessee is engaged in the business activity of shares. Therefore, we are inclined to set aside the order of Learned CIT(A) and direct the AO to treat the income from investment activity under the head capital gain.”

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