Does not maintaining separate books with frequent transactions mean that gains from shares has to be accessed as business profits instead of as STCG?

Last updated: 02 May 2014

Court :
Delhi High Court

Brief :
The assesse who was engaged in the business of dealing in the auto spare pails andinvestment in bonds, mutual funds and other securities had claimed Rs. 31,13,006.51/- as LTCG and Rs. 26,82,115.35/- as STCG. The LTCG claim was permissible by AO but STCG claim was disallowed. The AO and CIT(A) observed that separate books were not used. Amounts were freely transferred from the profits gained to business and vice-versa.It was also observed that assesseehad been purchasing and selling a large number of shares of a few companies. It was also held that the transactions involved large or substantial sums of money. Whenever any share is purchased with the intention of investment, it cannot be sold off within a very short span of time, since the share market is always fluctuating. Having regard to the short duration of holding of the shares, and the lack of clarity in the account books, it was held that the said amount shall be treated as business income and notcapital gains. The question of law is accordingly answered in favour ofthe Revenue.

Citation :
Commissioner of Income Tax-IV – Appellant – Versus - M/S. D&M Components Ld. - Respondents