2010 (12) TMI 1217 - AT - Income Tax

Summary

Issues Involved:
1. Exemption u/s 10(38) for profits on sale of shares.
2. Addition u/s 69 for unexplained investment in National Housing Board bonds.

Summary:

Issue 1: Exemption u/s 10(38) for profits on sale of shares

The Revenue appealed against the CIT(A)'s decision allowing exemption u/s 10(38) of Rs. 44,21,282/- for profits on the sale of shares, contending that the profits should be treated as business income. The AO had treated the surplus from the sale of shares as business income, arguing that the shares were shown as stock-in-trade in the balance sheet and that borrowed money was used for their acquisition. However, the assessee demonstrated that the shares were held as investments and that the balance sheet consistently showed them as such. The CIT(A) found that the shares were held as investments and not for trading purposes, and thus the profits should be treated as long-term capital gains. The Tribunal upheld the CIT(A)'s decision, noting that the shares were acquired long back, there was no frequent trading, and the allegation of borrowed money usage was unsubstantiated. Consequently, Ground No.1 of the Revenue was rejected.

Issue 2: Addition u/s 69 for unexplained investment in National Housing Board bonds

The Revenue contested the deletion of an addition of Rs. 25 lakhs made u/s 69 for unexplained investment in National Housing Board bonds. The AO had added Rs. 25 lakhs as unexplained investment, claiming the source was not satisfactorily explained. The assessee argued that the investment was made from the redemption of debentures received under an MOU with Raymond Woolen Mills Ltd., and the transaction was duly accounted for. The CIT(A) accepted the assessee's explanation, noting that the investment was made by cheque and recorded in the books of accounts. The Tribunal found a contradiction in the AO's assessment order and computation of income, where no addition u/s 69 was made, but the exemption u/s 54EC was disallowed. The CIT(A) admitted additional evidence under Rule 46A, finding that the investment source was well explained and directed the AO to allow the claim u/s 54EC. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in admitting additional evidence and sustaining the deletion of the addition u/s 69. Consequently, Ground No.2 of the Revenue was rejected.

Conclusion:

The Revenue's appeal was dismissed, and the CIT(A)'s order was upheld on both issues. The Tribunal found no justification to interfere with the CIT(A)'s findings, and the grounds raised by the Revenue were rejected.