(1.) THE Revenue today impugns concurrent findings of the Commissioner of Income Tax (Appeals) ("CIT(A)") and the Income Tax Appellate Tribunal ("ITAT"). They had reversed the findings of the Assessing Officer ("AO"), who treated the assessee's income from sale of shares as business income, as opposed to Sort Term Capital Gain ("STCG"), as was original claimed in assessment proceedings. The assessee appealed the order of the AO on various grounds to the CIT(A), of which only the issue of income from sale of shares arises in this appeal. The following question of law arises for decision: Did the ITAT fall into error in upholding the assessee's contention that the latter earned Short Term Capital Gain on account of sale of shares.
(2.) DURING the course of assessment proceedings, the assessee had made a claim of STCG for Rs. 3,10,62,544. On the basis of details of the sale and purchase transactions, the AO reached the prima facie opinion that the income was business income, and so, on 18th October, 2010, the assessee was asked to explain reasons for claiming STCG. The assessee supplied reasons on 13 th December, 2010, which were rejected by the final assessment order made on 2nd August, 2012. The AO relied on various judgments of the Supreme Court to recount (a) whether the holding of shares is by way of investment or forms part of stock in trade is a matter within the knowledge of the assessee and depends on how it is shown in its accounts; (b) that res judicata does not apply to these proceedings and assessments in previous years as STCG is not conclusive; (c) there is no universal standard to determine whether the income is from business or STCG; this depends on the nature, frequency, volume of the transactions, ratio between sales and purchases, period for which shares are held, and whether dividend was earned before the sale; (d) nothing prevents the assessee from maintaining two portfolios, one for business and the other for investment. Based on these aspects, the AO recorded that the income in this case was business income:
(3.) ON appeal, the ITAT sustained findings, holding that in more than 90% of the cases there has been only one transaction of sale and purchase. Further, the share of dividend income to investment income was considered to be insufficient, by itself, to bracket the income as business income. On the basis of the frequency and volume of transactions, thus, the ITAT held that the income was STCG.