Short Term Capital Gain disposed off within a Short Span of time will not justify the Gain to be treated as Business Income: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) held that the short-term capital gain disposed off within a short span of time will not justify the gain to be treated as business income.

The assessee has shown income from long-term capital gain, short-term capital gain, and speculation profit from the sale of shares in the return of income. Thereafter the Assessing Officer issued notice to the assessee to show cause as to why the short-term capital gain shown on the sale of shares purchased and sold within a period of one to two months should not be treated as business income. The aggregate short-term capital gain on the sale of shares was to the tune of Rs. 20,66,939/- and a complete detail was given in the assessment order.

The assessee replied to the show cause notice by submitting that the assessee is maintaining two portfolios; one is an investment portfolio and the second is a trading portfolio and accordingly shows the earning of the income from the investment portfolio as well as a trading portfolio in the return of income.

It was further submitted that full and complete books of accounts were being maintained showing all these transactions and it is the assessee’s decision to treat a particular purchase of shares as an investment or under-trading account and accordingly, the profit earned from these portfolios has been dealt with. The reply of the assessee did not find favour and the Assessing Officer treated the short-term capital gain of Rs. 20,66,939/- as business income.

The Two-member bench comprising of Rajesh Kumar (Accountant member) and Sonjoy Sarma (Judicial member) held that the assessee has purchased shares and disposed of them within a short span of time will not justify the gain to be treated as business income while the same was shown in the investment portfolio in the books of the assessee.

Therefore, the decision of both the authorities below is not sustainable as this was a factual issue and the assessee has maintained the books clearly maintaining the dichotomy in the purchase of securities in the books of accounts. Thus, the order of the Commissioner of Income Tax (Appeal) [CIT(A)] was set aside and the Assessing Officer was directed to treat Rs. 20,66,939/- as short-term capital gain. The appeal of the assessee was allowed.

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