2014 (11) TMI 1090 - AT - Income Tax

Transaction of shares - Long term capital gain OR business income - Held that - We notice that the assessee has proved the sources for the purchase of shares of M/s Ramakrishna Fincap Ltd and also furnished broker bill and Contract note in support of the same. The brokers have also confirmed the fact of purchase. Since it was an off market transaction, the purchases were not available with the Stock exchange. Thereafter, the assessee has demated the shares in Sep, 2004 and started selling the shares in installments from 4.11. 2004 to 25.4.2005. All the sale have been carried through stock exchange. The Ld CIT(A) have also noticed that the purchase of shares have been duly accounted for in the Balance sheet filed along with the return of income pertaining to assessment year 2004-05 on 1.11.2004. The sale transactions have also been accounted for in the books. The assessee has pointed out that the share price of the above said company has gone up further after its sale by the assessee. Under these set of facts, the Ld CIT(A) held that the assessing officer has merely disbelieved the evidences furnished by the assessee only on surmises and suspicion. Accordingly he allowed the appeal of the assessee in respect of this ground.

Summary

Issues:
- Assessment of long-term capital gain as business income.
- Dispute regarding the categorization of shares as "Penny stock."
- Evaluation of evidence provided by the assessee for share transactions.
- Consideration of additional evidence by the CIT(A) and its impact on the decision.

Analysis:
1. Assessment of long-term capital gain as business income: The appeals by the revenue challenged the deletion of long-term capital gain assessed as business income by the Ld CIT(A). The AO had treated the gain as business income due to the designation of shares as "Penny stock" and the significant increase in share prices. However, the Ld CIT(A) disagreed and held that the gain should be assessed as long-term capital gain, emphasizing the evidence provided by the assessee regarding the purchase and sale transactions.

2. Dispute regarding the categorization of shares as "Penny stock": The shares of M/s Ramakrishna Fincap Ltd were designated as "Penny stock," leading the AO to question the validity of the transactions. Despite this, the Ld CIT(A) found the evidence provided by the assessee, including broker bills and contract notes, to be sufficient in proving the genuineness of the transactions. The Ld CIT(A) highlighted that the AO's doubts were based on surmises and suspicion rather than concrete evidence.

3. Evaluation of evidence provided by the assessee for share transactions: The assessee successfully demonstrated the sources for purchasing the shares, supported by broker bills and contract notes. Additionally, the dematerialization of shares and subsequent sale through stock exchanges were meticulously documented. The Ld CIT(A) noted that the purchase and sale transactions were appropriately reflected in the balance sheet and books of accounts, further strengthening the credibility of the transactions.

4. Consideration of additional evidence by the CIT(A) and its impact on the decision: The Ld CIT(A) considered additional evidence presented by the assessee and sought a remand report to address any discrepancies. After thorough examination, the Ld CIT(A) ruled in favor of the assessee, emphasizing the importance of the documents filed. The absence of contradictory material from the Ld D.R during the hearing further supported the decision to uphold the orders in favor of the assessee for both assessment years.

In conclusion, the Appellate Tribunal upheld the Ld CIT(A)'s decision, dismissing the appeals by the revenue. The judgment emphasized the significance of substantiated evidence in determining the nature of income and highlighted the importance of thorough documentation in supporting transactions, especially in cases involving disputed categorizations like "Penny stock."