2012 (4) TMI 666 - AT - Income Tax

Summary

Issues involved:
The appeal is filed against the order of the CIT(A)-XXV, Mumbai for the assessment year 2005-06. The main issues raised by the assessee include the treatment of long term capital gain as short term capital gain, lack of opportunity for cross-examination of a witness, and the period of holding of shares.

Treatment of Long Term Capital Gain:
The assessee declared long term capital gain on the sale of shares of Fast Track Entertainment Ltd. (FTEL) and invested the gain in NABARD Capital Gain Bonds under section 54EC of the Income-tax Act, 1961. However, the Assessing Officer raised concerns about the genuineness of the transaction, alleging that the shares were used for accommodation entries. The CIT(A) directed the AO to tax the gain as short term capital gain instead of long term, based on the date of purchase of shares and dematerialization.

Cross-Examination Issue:
The assessee argued that they were not given adequate opportunity to cross-examine a witness, Shri Vijay Bhagwandas Shah, whose statement was used against them. The AR submitted various documents to prove the purchase and holding of shares, challenging the AO's reliance on the broker's statement without providing a copy to the assessee.

Period of Holding of Shares:
The AO contended that the shares were not purchased through stock exchange and the payment was not through a bank account. The CIT(A) decided that the shares were purchased in June 2004 instead of April 2003, leading to the treatment of the gain as short term capital gain. The AR argued that the shares were held physically and off-market transactions were permissible, questioning the dematerialization date as proof of purchase.

Conclusion:
After considering the arguments and evidence presented, the ITAT Mumbai upheld the grievance of the assessee and reversed the order of the CIT(A), allowing the appeal. The tribunal found that there was insufficient evidence to support the view taken by the CIT(A) and held that the assessee was entitled to claim exemption under section 54EC for the long term capital gain. The decision highlighted the importance of providing a fair opportunity for the assessee to rebut incriminating material and emphasized the need for prima facie evidence in tax matters.