2008 (3) TMI 689 - AT - Income Tax

Long-term capital gain - sale proceeds of shares - Claim Exemption u/s 54F - Income from undisclosed sources - Genuine transaction or not - HELD THAT - The evidences submitted by the assessee are not proved to be bogus false or incorrect. Assessee has no other source of income except rental income and share from partnership firm. The Revenue too has not brought on record any source from which the assessee could have earned this alleged undisclosed income and there is no material on record to establish or even suggest that cash actually flowed from the assessee to purchase the demand drafts as alleged by the Revenue. On the other hand the broker has categorically confirmed that he made the payment of sale proceeds. After lifting the veil Department s enquiry should have gone to establish logically from the records that sale consideration was actually the money of the assessee converted under the guise of share transaction. Similarly here there was no tax planning for which any colourable device or collusion could have been used. It was a simple transaction of sale of shares at the most opportune time which is perfectly in tune with the human nature. As a matter of fact the entire approach and findings of the lower authorities are based on suspicion surmises and conjectures and badly affected by various other cases which have no application to the assessee s case. In our view the action of the Revenue authorities in concluding that the sale value of shares is income of the assessee from undisclosed sources cannot be accepted. Thus the income declared by the assessee under the head long-term capital gain is directed to be assessed as such. In the result appeal by the assessee is allowed.

Summary

Issues:
1. Taxability of sale proceeds of shares as income from undisclosed sources versus long-term capital gain.

Analysis:
The judgment pertains to an appeal by an individual assessee against the order of the CIT(A)-II, Agra regarding the assessment year 2001-02. The main issue at hand was whether the Revenue authorities were justified in treating a sum of Rs. 5,67,265, being the sale proceeds of shares of M/s Parnami Habitat Developers Ltd., as income from undisclosed sources instead of accepting the assessee's claim of Rs. 5,37,740 as long-term capital gain from the sale of the shares.

The assessee initially filed a return of income including the long-term capital gain, which was claimed as exempt under section 54F. However, due to certain circumstances related to the builder's project, the assessee later revised the return, withdrawing the claim under section 54F. The Revenue authorities during scrutiny raised questions regarding the genuineness of the transaction and the assessee's ability to prove the essential elements of the sale.

The Assessing Officer (AO) rejected the evidence provided by the assessee, stating that crucial aspects of the sale were not established, such as the identity of the buyer, passage of consideration, and transfer of rights over the shares. The AO also highlighted discrepancies in share price increase and suggested the existence of a possible racket in similar transactions during that period.

Upon further proceedings, the CIT(A) upheld the AO's decision based on departmental inquiries and statements indicating potential non-genuineness of the transaction. The CIT(A) emphasized the authority of the Department to unveil the true nature of transactions and disapproved of colorable tax planning schemes.

However, the ITAT, in its judgment, disagreed with the Revenue authorities' conclusion. The ITAT found that the assessee had cooperated by providing evidence, including confirmations from the broker involved in the share sale. The tribunal noted that the assessee had no connection with the company's directors or any influence on share prices. It also highlighted the normalcy of significant fluctuations in share prices and the lack of concrete evidence linking the transaction to undisclosed income sources.

Ultimately, the ITAT ruled in favor of the assessee, directing the assessment of the income under the head of long-term capital gain. The tribunal criticized the lower authorities' reliance on suspicions and conjectures from unrelated cases, emphasizing the lack of concrete evidence to support the Revenue's position.

In conclusion, the ITAT allowed the appeal by the assessee, rejecting the Revenue's assertion of undisclosed income and affirming the treatment of the declared income as long-term capital gain.