The Income Tax Appellate Tribunal (ITAT), New Delhi Bench deleted the enhancement of income made by the CIT (A).
The assessee, Amit Kumar Dey received salary income and income from other sources. He filed a return of income on 31.08.2015 for Rs.1,28,09,820. The case of the assessee was selected for limited scrutiny as per notice dated 20th September 2016 for examination of deduction claimed under the head capital gains.
During the year the assessee has claimed deduction under Section 54 of the Income Tax Act, 1961 of Rs.60,10,487/- on profit on sale of fixed assets.
As the assessment proceedings continued, the Assessing Officer noted that the assessee had set off the short term capital loss earned on the sale of two scripts , namely, Tech Mahindra Ltd and Infosys Ltd with the short term capital gain on sale of the other securities such as mutual funds etc.
The AO noted that assessee has purchased these scripts with cum- bonus and sold ex-bonus and, therefore, has notionally de-valued the same as assessee has received the bonus shares having the ‘NIL’ value as cost.
Therefore, the loss amounting to Rs. 7,61,581/- claimed by the assessee against the profit from other transactions of sale of securities was disallowed. Accordingly, the total income of the assessee was assessed at Rs. 1,35,71,401 against the returned income of Rs. 1,28,09,820/- by the order under Section 143(3) of the Act.
Assessee aggrieved with the above order, preferred appeal before the CIT (Appeals) wherein it was held that the transactions of purchase and sale of Tech Mahindra and Infosys ltd is chargeable to tax under the head business income and not capital gain.
Therefore, he issued a show cause notice that why the income of the assessee may not be enhanced accordingly. According to the CIT (Appeals), assessee has earned business profit of Rs. 3,14,789/- on sale of 300 shares of Infosys and a profit of Rs. 1,25,336/- on sale of 225 shares of Tech Mahindra. The assessee objected and stated that the income from sale of those shares is chargeable to tax under the head capital gains in view of various Circulars of the CBDT.
The coram of Amit Shukla and Prashant Maharishi noted that drew a profit and loss account of the above transactions, displayed at page Nos. 12 and 13 of his order. The above transactions, if examined, based on CBDT Circular dated December 13, 2005, it is apparent that the assessee is an investor in the share and not a trader.
The ITAT said that the purchase and sale of the above isolated securities were not at all related to the business of assessee or show any trade activity. The transactions in the shares were merely an occasional independent activity. The scale of the activity is also not substantial, looking at the income offered by the assessee in the return of income at Rs. 1,28,09,820/-.
“In view of this, we do not find any merit in the findings of the ld. CIT (Appeals) that the above transactions are chargeable to tax under the head business income. In view of this fact, the enhancement of income made by the ld. CIT (Appeals) deserves to be deleted and hence deleted,” the ITAT ruled.
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