Investment made in share cannot be treated as trading activity without fulfilling the condition for trading

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
The facts in brief are that the assessee is an AOP, engaged in the business of trading in dyes and chemicals and derive income therefrom filed return of income declaring an income of Rs. 9,39,492/-. During the course of assessment proceedings, the AO noticed that the assessee had claimed long term and short term capital gains on shares and mutual funds as this is in contrast to the assessee’s own policy of treating the transactions in shares and mutual funds up till 2004-05 as a trading activity. On being asked by the AO to explain as to why the transactions in shares and mutual funds as capital gains be treated as trading activity and taxed accordingly, the assessee submitted that investments made in shares and mutual funds as an investment and not stock-in-trade. He further explained that the above investments made by the assessee were from its own funds and the intention of the assessee is only investment and not trading. The said explanation of the assessee was not found favour with the AO for the reason that during the course of assessment proceedings for the AY 2004-05, the assessee had claimed its share transactions as trading activity. The AO, therefore, denied the short term capital gains claim of the assessee. On appeal, the CIT(A) upheld the action of the AO on the grounds that a) the appellant has been treating the dealings in shares and mutual funds as business activities in earlier year, b) during the year the very same transactions are shown as investment from 01/10/2004 for no apparent reason, c) there is no withdrawal from the capital account as observed by the AO and business funds have been used for these transactions and d) the number of transactions are many. With the above observation, the CIT(A) confirmed the addition made by the AO. Aggrieved, the assessee carried the matter in appeal before the Tribunal.

Citation :
Gulabray Dhanji Trust, Prop. Bhuta Enterprises A-364, Antop Hill Waterhousing Co.Barkat Ali Road, Wadala,Mumbai – 400 037 (PAN – AAATG0209K)(Appellant) Vs.Jt. Commissioner of Income-tax-17(2), Piramal Chambers, Mumbai.(Respondent)