COMMISSIONER OF INCOME TAX Vs. ARAVIND PRAKASH MALPANI

JUDGEMENT

(1.) THE Revenue has preferred this appeal challenging the order passed by the Tribunal which has held that the assessee was engaged in the business of shares and therefore, he is entitled to claim deduction by way of business expenditure and thus setting aside the orders passed by the assessing authority as well as the first appellate authority.

(2.) THE assessee claimed transactions of shares as business and also claimed deduction of interest paid by him. Consequently, he claimed deduction towards business expenditure. However, the AO held that it is an investment in shares and that the shares were not treated as stock-in-trade and, therefore, it is a capital asset and the assessee is not entitled to deductions towards business expenditure and also towards payment of interest. Aggrieved by the said order, the assessee preferred an appeal to the CIT(A) who upheld the order of the AO and dismissed the appeal. Against the said order the assessee preferred an appeal to the Tribunal. The Tribunal on reappreciation of the material on record held that the assessee has been claiming from the year 1997-98 the transactions in shares as a business and claimed deductions which were allowed by the Department for three consecutive years. It is only for the asst. yr. 2000-01 the said deductions were not allowed on the ground that in the balance sheet, shares were treated as an investment coupled with the fact that a part of the shares held by the assessee are of family concerns. On a careful examination of the material on record it held that, looking into the volume, frequency and regularity of transactions, it is clear that the transactions were made with a profit motive and not for investment. The principles of accountancy do not override the provisions of the IT laws and, therefore, merely on the basis of an entry in the balance sheet for the year 2000-01 where the shares are shown as an investment, the AO was not justified in holding that the assessee was not in the business of shares and the shares held by him were only as an investment and, therefore, it set aside the order and allowed the deductions towards business expenditure. Aggrieved by the said order, the Revenue is before this Court.

(3.) THE learned counsel for the Revenue assailing the impugned order contended that, when the assessee has shown in the balance sheet for the asst. yr. 2000-01 the shares held by him as an investment and not as stock-in-trade, it constitutes a capital asset and, therefore, the assessee is not entitled to deduction under the heading of business expenditure. Therefore, the Tribunal was in total error in interfering with the well considered order passed by the AO as well as the first appellate authority.