2015 (10) TMI 317 - AT - Income Tax

Claim of exemption u/s 10(38) on long term capital gain from sale of shares - date of transaction to be considered - shares were transferred to assessee s D-mat account - CIT(A) held that the gain derived from transaction in shares cannot be treated as short term capital gain - also the conclusion drawn by AO that source of investment in shares on 15th nd 17/05/07 was not explained by assessee while making addition u/s 69A cannot be sustained - Held that - It may be a fact that the shares of M/s Jai Corporation Ltd. were transferred to assessee s D-mat account on 15 & 17/05/07, but, that alone cannot dilute the fact that assessee did purchase shares of M/s Jai Corporation through M/s Alliance Intermediateries & Network Pvt. Ltd. in April 06. This fact has been clearly demonstrated by assessee by producing adequate and cogent documentary evidences by way of contract note and other evidences including the return of income filed for AY 2007-08, which has not been controverted by the department. It is also a fact on record that sub-broker M/s Alliance Intermediateries & Network Pvt. Ltd. issued confirmation certificates acknowledging the fact that shares were held in its pool account on behalf of assessee till it is transferred to assessee s D-mat account. When assessee has produced all documentary evidences and has also submitted its explanation before AO as well as ld. CIT(A), there is no reason to disbelieve the same unless strong and positive evidence is brought on record to disprove the same. As it appears, AO only on extraneous considerations and presumptions & surmises has concluded that assessee has purchased the shares only on 15 & 17/05/07 while treating the gain derived from sale of shares as short term capital gain. See Jafferali K. Rattonsey Versus Deputy Commissioner of Income-tax, Central Circle 5 2012 (7) TMI 577 - ITAT MUMBAI In the present case, the contract note of purchase of shares clearly indicate the date of purchase as 04/04/2006. In the aforesaid view of the matter, finding no infirmity in the order of ld. CIT(A), we are inclined to uphold the same and dismiss the grounds raised by the department. - Decided against revenue

Summary

Issues Involved:
1. Withdrawal of Cross Objection by the Assessee.
2. Department's Appeal on the Claim of Exemption under Section 10(38) on Long Term Capital Gain from Sale of Shares.
3. Determination of the Nature of Capital Gain (Long Term vs. Short Term).
4. Addition under Section 69A for Unexplained Investment.

Detailed Analysis:

1. Withdrawal of Cross Objection by the Assessee:
The legal representative for the assessee submitted that the grounds raised in the Cross Objection were not being pressed and sought its withdrawal. Consequently, the Cross Objection was dismissed as withdrawn.

2. Department's Appeal on the Claim of Exemption under Section 10(38) on Long Term Capital Gain from Sale of Shares:
The department challenged the order of the CIT(A), arguing that the decision was erroneous and prejudicial to the interest of revenue. The CIT(A) was said to have erred by considering information from Intelligence Authorities and the failure of the assessee to furnish evidence supporting the purchase date of shares.

3. Determination of the Nature of Capital Gain (Long Term vs. Short Term):
The primary issue was whether the capital gain from the sale of shares of M/s Jai Corporation Ltd. should be treated as long-term or short-term. The assessee claimed exemption under Section 10(38) for long-term capital gain, asserting that the shares were purchased in April 2006 and held in a broker's pool account until transferred to the assessee's D-mat account in May 2007. The AO, however, treated the gain as short-term, based on the transfer date to the D-mat account.

The CIT(A) considered the documentary evidence provided by the assessee, including contract notes, balance sheets, and confirmation from the broker, which indicated that the shares were indeed purchased in April 2006. The CIT(A) noted that the shares were reflected in the assessee's balance sheet for AY 2007-08 and were not disputed by the AO. The CIT(A) concluded that the shares were purchased in April 2006, and thus, the gain should be treated as long-term.

4. Addition under Section 69A for Unexplained Investment:
The AO added Rs. 22,94,500 as unexplained investment under Section 69A, arguing that the source of investment was not declared when the shares were transferred to the D-mat account in May 2007. The CIT(A) found no evidence that the assessee paid cash equivalent to Rs. 22,94,500 on the transfer date and noted that the investment in shares was already reflected in the assessee's accounts for AY 2007-08. Thus, the CIT(A) held that the addition under Section 69A could not be sustained.

Conclusion:
The ITAT upheld the CIT(A)'s decision, dismissing the department's appeal. The ITAT agreed that the documentary evidence substantiated the assessee's claim of purchasing the shares in April 2006 and holding them for more than 12 months, thus qualifying for long-term capital gain exemption under Section 10(38). The addition under Section 69A was also deleted as the investment was already accounted for in the previous year.

Result:
The appeal of the department and the Cross Objection by the assessee were both dismissed.