2015 (3) TMI 879 - AT - Income Tax

Income declared under the head capital gain was held to be non-genuine and the entire sale proceeds were to be assessed as undisclosed income - bogus and fraudulent - it was noted that the contract notes, bills issued by the brokers were found to be bogus on verification from the stock exchange - Penalty levied under section 271(1)(c) - Held that - In the totality of the above said facts and circumstances, where the assessee has placed on record the complete evidence of purchase and sale of shares, merely because the shares were Dematted in July, 2004 and thereafter, were sold in the month of August, 2004, does not establish the case of authorities below, in view of the circumstantial evidence produced by the assessee. In the totality of said evidences, we hold that once the assessee had taken the delivery of shares by way of share certificates, which in turn, were forwarded to the company along with transfer deeds on 04.07.2003 itself establishes the case of the assessee of having purchased the said shares during that period. Further, the said shares were converted into Jumbo Certificates vide communication dated 16.02.2004 and thereafter, there was de-materialization of the shares on 26.07.2004. In the entirety of the above said facts and circumstances, we hold that the gain arising on transfer of shares is to be assessed as income from long term capital gain in the hands of the assessee. - Decided in favour of assessee. No merit in the levy of penalty under section 271(1)(c) of the Act and the same is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Computation of income from capital gains on the sale of shares.
3. Levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal in ITA No.372/PN/2014 was filed after a delay of 1260 days. The assessee moved an application for condonation of delay, attributing the delay to the sudden demise of her husband, who managed all tax and legal matters. The Tribunal considered the affidavit submitted by the assessee, detailing the circumstances that led to the delay. It was noted that there was no malafide intention in the delay, and the reasons were beyond the control of the assessee. The Tribunal referenced several judicial precedents, including the Supreme Court's rulings in *Collector, Land Acquisition v. Mst. Katiji* and *N. Balakrishnan v. M. Krishnamurthy*, emphasizing a liberal approach towards condonation of delay when substantial justice is at stake. Consequently, the delay was condoned, and the appeal was admitted for hearing on merits.

2. Computation of Income from Capital Gains on Sale of Shares:
The issue on merits was whether the income from the sale of shares of M/s. Fast Track Entertainment Ltd. should be treated as long-term capital gains or as income from other sources. The Assessing Officer and CIT(A) had treated the transaction as bogus and fraudulent, classifying the income under "income from other sources" based on information from the ADIT (Investigation) Unit and findings from search operations indicating manipulations in share transactions.

The Tribunal, however, examined the detailed evidence provided by the assessee, including contract notes, transfer deeds, jumbo certificates, and D-Mat statements. It was noted that the shares were purchased in June 2003, transferred to the assessee's name, and subsequently de-materialized and sold in August 2004. The Tribunal found no merit in the authorities' conclusions, emphasizing that the complete evidence supported the genuineness of the transactions. The Tribunal referenced the Bombay High Court's decision in *CIT v. Shri Mukesh Ratilal Marolia*, which upheld the genuineness of similar share transactions. Consequently, the Tribunal held that the gains from the sale of shares should be assessed as long-term capital gains.

3. Levy of Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The penalty under section 271(1)(c) was levied based on the addition made by the Assessing Officer, treating the income from the sale of shares as income from other sources. Since the Tribunal concluded that the income should be assessed as long-term capital gains, it found no basis for the penalty. The Tribunal held that the assessee had correctly furnished the income under the head "capital gains" in the return of income, and thus, there was no concealment or furnishing of inaccurate particulars. Consequently, the penalty was deleted.

Conclusion:
The Tribunal allowed both appeals in favor of the assessee. The delay in filing the appeal was condoned, the income from the sale of shares was directed to be assessed as long-term capital gains, and the penalty under section 271(1)(c) was deleted.