Despite large volume etc of share transactions, AO bound by Rule of Consistency to treat share gains as STCG
The assessee, engaged in the business of trading/investment in shares and securities offered STCG of Rs. 1.54 crores and LTCG of Rs. 2.91 crores. The assessee also traded in intra-day stocks without delivery and in derivatives, the gain or loss from which was offered as business income. While the LTCG was accepted, the AO & CIT (A) held that the STCG was assessable as business profits on the ground that (a) the purchases of Rs. 1098 lakhs and sale of Rs. 1241 lakhs during the year showed that the transactions were on a regular basis and on a substantially high scale, (b) The assessee had traded in as many as 85 scrips in 188 transactions and in as many as 1631852 shares during the year with frequency and regularity, (c) only in 21 scrips there have been some opening balances. The rest of the scrips had all been purchased and sold during the year, (d) the holding period in several shares has been merely a few days and in a few cases the purchase and sale had been on the same day and there is even one instance of forward sales, (e) there were no details regarding delivery of shares, (f) the assessee had not proved that the purchases were not out of borrowed funds and (g) there were no separate bank accounts. On appeal to the Tribunal, HELD allowing the appeal:
Though it is the case of the revenue that due to volume, magnitude, frequency, continuity, regularity, the ratio between purchase and sale clearly indicate that income on account of purchase and sale of shares should be treated as income from business and not as income from STCG, the AO has, from AY 2003-04 to 2008-09 (except for the impugned year 2006-07), consistently accepted the income as being STCG. In these circumstances, the Rule of consistency as propounded by the Bombay High Court in Gopal Purohit 228 CTR 582 (Bom) is squarely applicable and the income has to be treated as STCG.