Dolly Khanna Wins: ITAT Upholds ₹54 Cr Capital Loss
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- ITAT rejected the Income Tax Department's bid to reclassify Dolly Khanna's ₹54.23 crore short-term capital loss as a business loss, ruling that transaction volume alone cannot determine whether a taxpayer is an investor or a trader.
- The case pertains to assessment year 2020-21, during which Khanna also reported a long-term capital loss of ₹37.35 crore from share sales.
- The tax department argued that the frequency and volume of Khanna's transactions indicated share trading rather than investing, and pushed to treat the short-term capital loss as a business loss.
- The tribunal found the average holding period of the shares was around 580 days, a factor it said supported the investment nature of the activity.
- The ITAT flagged an inconsistency in the department's approach: it sought to treat the short-term loss as a business loss while still treating the long-term loss from the same portfolio as a capital loss.
- Several sales occurred during the sharp March 2020 COVID-19 market correction, and the tribunal observed that rebalancing or booking losses during extreme volatility cannot automatically be treated as evidence of a trading business.
- The tribunal emphasized consistency, noting the department had accepted Khanna's investor status in earlier years and finding no material change in circumstances to justify a departure from that position.
Why it matters: For active investors who frequently buy and sell shares, the ruling offers reassurance that high transaction volume alone won't recharacterize a portfolio as a trading business, preserving the ability to claim capital losses under the capital gains framework. Khanna had invested for over two decades using her own funds, and the ITAT held that none of the department's cited factors — volume, frequency, or even a single sharp year of activity — could override that broader context.
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