2015 (10) TMI 1871 - AT - Income Tax

Profit arising out of sale of shares - AO treated it as undisclosed short term capital gain confirmed by CIT(A) - Held that - The entire premise of the lower authorities i.e. AO and the CIT(A) for treating the assessee s long term capital gains as short term capital gains for the reason that the payment for purchase of shares was made after dematerialization of shares. We find that the AO as well as CIT(A) admitted that these shares have been transferred in the DEMAT Account of the assessee on 03.10.2005, which is a categorical finding of the AO. Only the payment is made after the transaction of the shares to DEMAT Account on or after 03.10.2005. We find that the brokers have given contract notes for purchase of these shares dated 16.06.2004 and transferred in the name of the assessee on 23.08.2005. What is the material date for date of transaction here by way of contract note the shares were purchased on 16.06.2004 and i.e. the date to be reckoned for taking transaction of shares and if that date is taken as transfer date the shares are sold on 14.02.2006 which is more than 12 months. Once the shares are held by assessee for more than 12 months, the profit arising out of the same is to be assessed as LTCG. Accordingly, we allow the appeal of the assessee and reverse the orders of the lower authorities. The AO will assess the profit arising out of the sale of shares as LTCG. Decided in favour of assessee.

Summary

Issues:
1. Treatment of profit from sale of shares as undisclosed short term capital gain.

Analysis:
The appeal arose from the order of CIT(A) confirming the AO's treatment of profit from the sale of shares as undisclosed short term capital gain. The only issue in the appeal was the classification of the profit arising from the sale of shares. The assessee contended that the profit should be considered as long term capital gains, while the authorities treated it as short term capital gains based on the holding period of the shares.

The AO observed that the shares in question were sold between October 2005 and February 2006. The dispute revolved around the date of purchase of the shares and the holding period to determine the nature of the gains. The AO argued that since the shares were transferred to the demat account only in October 2005, the income should be treated as short term capital gains. On the other hand, the assessee claimed that the shares were purchased in June 2004 and subsequently transferred to demat form in October 2005 before being sold. The assessee provided contract notes and other evidence to support this claim.

The Tribunal analyzed the facts and found that the shares were indeed purchased in June 2004, as evidenced by the contract notes, and held for more than 12 months before being sold. Therefore, the profit from the sale of shares qualified as long term capital gains. The Tribunal allowed the appeal, reversing the lower authorities' orders and directing the AO to assess the profit as long term capital gains.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the profit from the sale of shares should be treated as long term capital gains. The decision was based on the holding period of the shares, which exceeded 12 months, despite the payment for the shares being made after the dematerialization process.