ASSTT CIT Vs. JEHANGIR T NAGREE
LAWS(IT)-2008-4-16
INCOME TAX APPELLATE TRIBUNAL
Decided on April 10,2008

Appellant
VERSUS
Respondents

JUDGEMENT

Sunil Kumar Yadav, J.M. - (1.) THESE appeals are preferred by the revenue against respective orders passed by the Commissioner (Appeals) in the case of different assessees. Since common issue is involved in both these appeals, these were heard together and are being disposed off by this consolidated order.
(2.) For the sake of reference, we extract the grounds of appeal raised in both these appeals as under: ITA No. 7503/MUM./2004 - in the case of Firoz T. Nagree On the facts and in the circumstances of the case and in law, the learned Counsel for the assessee Commissioner (Appeals) erred in: (i) Directing the assessing officer to treat the loss on sale of shares as business loss as against the short-term capital gains treated by the assessing officer. (ii) Ignoring that as per Section 45(2) of the Income Tax Act the conversion of investment into stock-in-trade is allowable only if such business is carried on by the assessee before the conversion of investment into stock-in-trade and that the assessee was not engaged in the trading of shares before 1-4-2000. (iii) Ignoring that the conversion entries in the books of account of the assessee have not been passed as on 1-4-2000. (iv) Failing to appreciate the assessing officer's finding that the assessee treatment of short-term capital loss as business loss is a tax avoidance plan and nothing else. ITA No. 3927/MUM./2005 - in the case of Mr. Jehangir T. Nagree On the facts and in the circumstances of the case and in law, the learned Counsel for the assessee Commissioner (Appeals) erred in: (i) Directing the assessing officer to treat the loss on sale of shares amounting to Rs. 8,57,564 as business loss as against the short-term capital gains treated by the assessing officer. (ii) Ignoring that as per Section 45(2) of the Income Tax Act the conversion of investment into stock-in-trade is allowable only if such business is carried on by the assessee before the conversion of investment into stock-in-trade and that the assessee was not engaged in the trading of shares before 1-4-2000. (iii) Ignoring that the conversion entries in the books of account of the assessee have not been passed as on 1-4-2000. (iv) Failing to appreciate the assessing officer's finding that the assessee's treatment of short-term capital loss as business loss is a tax avoidance plan and nothing else. Since the order passed by the Commissioner (Appeals) in the case of Firoz T. Nagree has been followed in the case of Mr. Jehangir T. Nagree by the Commissioner (Appeals) while adjudicating the identical issue, we deal with the facts of the case and the issue raised in the case of Firoz T. Nagree as under.
(3.) THE facts with regard to the impugned issue borne out from the record are that the assessing officer has rejected the assessee's claim of business loss and holding the same to be short-term capital loss having observed that in assessment year 2000-01 the assessee had entered into large number of share transactions in respect of which, he has incurred the loss amounting to Rs 15,46,930, and the said loss was treated by the assessee as short-term loss on shares and taxed it under the head 'capital gain'.In the assessment year 2001-02, the year under appeal, the assessee, as on 1-4-2000 being the first day of the relevant year, converted the investment in shares brought forward from the assessment year 2000-01 into the stock-in-trade and had done the business in shares during the accounting year. THE share transaction activity which, according to the assessing officer, was exactly of similar nature of the previous assessment year, had resulted in a loss of Rs. 16,38,738. THE assessee had also incurred a loss of Rs. 66,11,154 in speculation of shares. According to the assessing officer by converting the capital asset being investment into stock in trade of which the scales resulted into the loss, the assessee was able to set off such loss against his income under the head salary, income from house property, long-term capital gain and income from other sources. THE assessing officer was of the opinion that the entire arrangement was made essentially to avoid tax and he called upon the assessee to show cause why the arrangement should not be rejected, and the loss should be treated as short-term capital loss.;


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