2015 (4) TMI 1246 - AT - Income Tax

Assessment of income on account of purchase and sale of shares - income from business or income from other sources - assessee had failed to establish the genuineness of the transactions with documentary evidence and also Bombay Stock Exchange had confirmed that no transaction as mentioned in the contract notes had been executed on the Stock Exchange - Held that - The perusal of details annexed in annexure A to the assessment order also reflects the transaction to have happened in over 1 3 days and in the absence of the assessee having established that it had taken delivery of the said shares, the gain arising on such transfer cannot be assessed as income from capital gains or income from business. We find merit in the order of Assessing Officer that since the assessee had failed to explain with documentary evidence, the introduction of unaccounted / undisclosed income to the tune of ₹ 65,51,352/- in the guise of short term capital gains on sale of shares, the same is to be assessed in the hands of the assessee as income from other sources. In the absence of assessee having furnished the details of said shares and establishing the factum of transfer of shares, we reverse the order of CIT(A) and uphold the order of Assessing Officer. - Decided against assessee. Addition of revenue expenditure - acquisition of capital asset - Held that - The assessee before us has failed to establish its case and where the intention of the assessee was to acquire a capital asset, the payment of advance money of ₹ 25 lakhs being paid on capital account and its forfeiture would result into capital loss and the same cannot be allowed as revenue expenditure.- Decided against assessee.

Summary

Issues Involved:

1. Classification of income from the sale of shares.
2. Treatment of forfeited advance for purchasing an industrial plot.

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Shares:

The primary issue in the appeal by the Revenue was whether the income of Rs. 65,51,352/- from the sale of shares should be classified under "Income from Business" or "Income from Other Sources." The Revenue contended that the assessee failed to establish the genuineness of the transactions with documentary evidence. Specifically, the Bombay Stock Exchange confirmed that no transactions, as mentioned in the contract notes, had been executed on the Stock Exchange, and the assessee was not a registered client of the share broker.

The facts revealed that the assessee declared income from short-term capital gains on the sale of equity shares, conducted through M/s. Mahesh Kothari Share & Stock Brokers (Pvt.) Ltd. However, the assessee did not provide details regarding the demat account. The Assessing Officer found that the share broker was not operating from the given address and was not active according to the Bombay Stock Exchange. Furthermore, the contract notes were unsigned, and there was no evidence of the delivery of shares. The Assessing Officer concluded that the transactions were not genuine and assessed the income under "Income from Other Sources."

Before the CIT(A), the assessee argued that the broker was registered, and the transactions were supported by contract notes and banking channels. The CIT(A) observed that some contract notes were signed while others were not. Considering the magnitude of transactions and the absence of investment in shares, the CIT(A) treated the surplus as business income.

However, the Tribunal found that the assessee failed to provide evidence of the delivery and transfer of shares. The Tribunal upheld the Assessing Officer's decision, stating that the assessee introduced unaccounted income in the guise of short-term capital gains. Hence, the income was correctly assessed under "Income from Other Sources."

2. Treatment of Forfeited Advance for Purchasing an Industrial Plot:

The Cross Objection by the assessee involved the treatment of an advance of Rs. 25 lakhs paid for purchasing an industrial plot, which was forfeited by the seller. The assessee claimed this as revenue expenditure, arguing that their business involved land development and trading.

The Assessing Officer disallowed the claim, noting that the agreement was for acquiring a capital asset, specifically non-agricultural land for industrial purposes. The CIT(A) upheld this view, citing clause 9 of the agreement, which indicated that the land was intended for setting up an industry. Therefore, the advance payment was on capital account, and its forfeiture resulted in a capital loss, not allowable as revenue expenditure.

The Tribunal agreed with the CIT(A), finding that the assessee's intention was to acquire a capital asset. Consequently, the payment of Rs. 25 lakhs was on capital account, and its forfeiture could not be allowed as revenue expenditure.

Conclusion:

The Tribunal allowed the Revenue's appeal, classifying the income from the sale of shares under "Income from Other Sources." The Cross Objection filed by the assessee was dismissed, confirming that the forfeited advance was a capital loss and not allowable as revenue expenditure.