2015 (7) TMI 766 - AT - Income Tax

Computation of long-term-capital-gains - contention raised by the Department is that purchase date should be treated from the date of dematerialization i.e. when the shares were entered into D mat Account - Held that - Before the CIT(A), the assessee have contended that the shares of M/s. Buniyaad Chemicals Ltd. were transferred in the name of the assessee in April, 2001. This fact is also supported by certificate/letter dated 1st April, 2001 issued by M/s. Buniyaad Chemicals Ltd. through the assessee, wherein, 30,000 shares have been transferred in favour of the assessee. This inter-alia means that the assessee was in possession of the shares in April, 2001. Once the source of purchase have not been disputed and long-term-capital-gain is treated as short-term merely on the date of acquisition, then on strength of the certificate itself it goes to show that the assessee was the owner of the shares in the month of April, 2001 and hence, the sale of shares after June, 2002 is nothing but longterm- capital-gain, therefore, treating the gain on sale of shares as short-term-capital-gain by the AO as well as CIT(A) is not correct. The other observations that the source of purchase out of speculation profit is not proved may not be very significant as ultimately nothing has been brought on record as the shares were purchased only in the month of April, 2002 and transfer certificate by the company is not genuine. Accordingly, on merits itself we hold that that the gain in sale of shares is assessable under the head long-term-capital-gain. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening the case under section 147 by the Assessing Officer.
2. Treatment of Long Term Capital Gain as Short Term Capital Gain.

Issue 1: Validity of Reopening the Case (Section 147):
The assessee filed a return for AY 2003-04, declaring income including long-term-capital-gain on the sale of shares. The case was reopened under section 147 due to information from a search action revealing potential bogus capital gains. The Assessing Officer (AO) treated the long-term-capital-gain as short-term, citing lack of evidence on purchase details and speculative profit. The CIT(A) upheld the AO's decision on both procedural and merit grounds. The appellant challenged the reopening, arguing no income escaped assessment and factual errors in the reasons recorded. The Tribunal found the shares were transferred to the assessee in April 2001, establishing ownership before the sale, thus rejecting the AO's treatment of the gain as short-term.

Issue 2: Treatment of Long Term Capital Gain:
The dispute centered on whether the shares were purchased in 2001 or 2002, affecting the capital gain classification. The AO and CIT(A) considered the shares dematerialized in 2002 as the purchase date, leading to short-term capital gain treatment. The assessee presented a letter from the company showing share transfer in April 2001, supporting long-term capital gain status. The Tribunal accepted the assessee's position, emphasizing ownership in 2001 based on the transfer certificate. The Tribunal concluded that the gain on the sale of shares should be assessed as long-term-capital-gain, rejecting the short-term classification by the AO and CIT(A).

In conclusion, the Tribunal allowed the appeal, holding the gain on the sale of shares as long-term-capital-gain based on the established ownership in April 2001. The validity of reopening the case under section 147 was rendered academic due to the merit-based decision. The Tribunal's detailed analysis emphasized the factual evidence of share ownership to determine the capital gain treatment, ultimately ruling in favor of the assessee.