Loss on trading in shares can be set off against business income

The brief facts of the case are that the assessee is an advocate by profession and offers income for taxation mainly under the head income from profession. During the year and the consideration, the assessee had indulged in share trading activity and incurred a loss of 12,96,828/- which has been set off against his income from the profession by treating the same as business loss. However, the Ld Assessing Officer treated the said loss as a short-term capital loss on the ground that the shares were held as an investment as the assessee was not in the business of purchase and sale of shares and disallowed the claim of set-off of said loss against income from profession. While disallowing the said loss, the AO allowed the assessee to carry forward the short-term capital loss of 12,96,828/-.

The assessee filed an appeal before CIT (Appeals), against the aforesaid addition. However, CIT(A) not being satisfied with the submissions of the assessee dismissed the appeal. Aggrieved, the assessee preferred an appeal before the tribunal.

Before the tribunal, ld. AR submitted that the shares were not purchased for purpose of holding them as investment and the fact that most of the shares were sold by the assessee during the first itself indicates that the assessee intended to purchase and sell shares as business activity and not to hold shares on a long-term basis for earning capital gains or earning dividend income. The CBDT has also issued guidelines for assessing officers on tests for the distinction between shares held as stock-in-trade and shares held as investment vide office memorandum, dated 13.12.2005 [F. No. 149/287/2005-TPL] and one of the criteria mentioned therein is whether the purchase is made solely with the intention of resale at a profit or for long-term appreciation and/or for earning dividends and interest and also the typical holding period for securities bought and sold. Further, almost all the shares which the assessee purchased during the year were sold by him. As noted above, out of 34 stocks purchased during the year, the assessee sold 32 of those scripts, which is a clear indicator that the intention at the time of purchase of scripts was to sell them at a profit. ITAT relied on the decision of the Gujarat High Court in the case of CIT v Naishad I. Parikh [2013] 39 taxmann.com 191 (Gujarat) wherein it was held that where the assessee claimed share trading and future options losses and further, the assessee had substantiated the entire transactions by furnishing valid and statutorily accepted documents, merely debiting directly these items in the capital account instead of in profit and loss account and, not routing share trading account through an audited account under section 44AB, could not be a ground to disregard legally acceptable claim of the assessee. Accordingly, ITAT held that the Learned CIT (A) has erred in facts and law in holding that the loss from the sale of shares was short-term capital losses and hence not eligible for a set of against income from the profession of the assessee.

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