2015 (10) TMI 2734 - AT - Income Tax

Gain on sale of shares - long term capital gains OR short term capital gains - Held that - In the case of the appellant the transaction is real, all legal formalities have been complied with and what is transferred is the shares and not immovable property. The findings of the Assessing Authority that it is a transaction of immovable property is contrary to law and contrary to the material on record. The Karnataka High Court held that if the veil of the company is lifted, what appeared to them is transaction of immovable property. Such a finding is impermissible in law. In the case of M/s. Bhoruka Engineering Industries Ltd (2013 (7) TMI 543 - KARNATAKA HIGH COURT), the assessee traded the shares in Magadh Stock Exchange and paid the transaction fee and claimed the Long Term Capital Gains as exempt. In the case of the assessee, she paid the Long Term Capital Gain on the sale of shares as per the requirement of law. Reopening of assessment - calculation of capital gains on sale of equity shares - Held that - As noted that the calculation of capital gains on sale of equity shares of Ganesar Ginning Mills Ltd has been verified by the then Assessing Officer based on the relevant facts and materials submitted by the assessee and the Assessing Officer has accepted the stand of the assessee in respect of calculation of capital gains on sale of shares. In such an eventuality in an assessment u/s.143(3) where there has been no failure on the part of the assessee in disclosing truly and materially all facts relating to the case, the assessment cannot be reopened after 4 years time limit which was completed on 31.03.2012 as per the proviso to section 147 of the Act. There was no allegation by AO that there was failure on the part of the assessee to disclose the materials, facts truly and correctly for the period of assessment. Being so, since the assessment was reopened after four years from the end of the relevant assessment year when the original assessment was completed u/s.143(3), this issue is squarely covered by the judgment of Supreme Court in the case of CIT vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT OF INDIA . AO precluded from reopening the assessment - Reopening of assessment is invalid - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeals.
2. Treatment of the sale of shares as long-term capital gains versus short-term capital gains.
3. Validity of reopening the assessment.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeals:
The appeals were filed with a delay of 7 days. The department submitted affidavits requesting the condonation of this delay. Upon reviewing the reasons provided, the Tribunal found the cause for delay to be reasonable and condoned the delay, thereby admitting the appeals for adjudication.

2. Treatment of the Sale of Shares as Long-term Capital Gains versus Short-term Capital Gains:
The primary issue was whether the sale of shares should be treated as long-term capital gains (LTCG) or short-term capital gains (STCG). The assessee had declared the gains from the sale of shares of M/s. Ganesar Ginning Company Pvt. Ltd. as LTCG. The Revenue contended that the transaction was a colorable device aimed at acquiring the land owned by the company, not its business, and thus should be treated as STCG due to the holding period being less than three years.

The Commissioner of Income Tax (Appeals) relied on the judgment of the Karnataka High Court in the case of Bhoruka Engineering Industries Ltd vs. DCIT, which held that if the transaction is within the legal framework, it cannot be deemed a colorable device. The Tribunal upheld this view, noting that the assessee had complied with all legal formalities and that the transaction involved the sale of shares, not immovable property. Thus, the gains were rightly treated as LTCG, and the Revenue's appeal on this ground was dismissed.

3. Validity of Reopening the Assessment:
In ITA No.1601/Mds/2015, the Revenue challenged the reopening of the assessment. The original assessment was completed under section 143(3) after examining the books of accounts. The Tribunal noted that there was no failure on the part of the assessee to disclose material facts fully and truly. Since the reopening was attempted after four years from the end of the relevant assessment year, it was barred by the proviso to section 147 of the Act and the Supreme Court's judgment in CIT vs. Kelvinator of India Ltd. Consequently, the reopening of the assessment was deemed invalid, and the order of the Commissioner of Income Tax (Appeals) was confirmed.

Conclusion:
Both appeals by the Revenue were dismissed. The Tribunal upheld the treatment of the sale of shares as long-term capital gains and confirmed that the reopening of the assessment was invalid. The judgments emphasized adherence to legal formalities and the proper interpretation of capital gains taxation laws.