2010 (4) TMI 1208 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of short-term capital gain and exemption u/s 10(38) of the I.T. Act, 1961.
2. Deletion of disallowance under the head 'Long Term Capital Gain'.

Summary:

Issue 1: Treatment of Short-Term Capital Gain and Exemption u/s 10(38) of the I.T. Act, 1961

The revenue contended that the ld. CIT(A) erred in law by treating the capital gain as short-term and allowing exemption u/s 10(38) of the I.T. Act, 1961. The AO scrutinized the evidences and found discrepancies in the dematerialized (D-mat) account transactions. The AO argued that the shares were not held for more than 12 months and thus should be treated as short-term capital gain. The assessee claimed that the period of holding should be calculated from the date of the contract note as per Board's Circular No.704 dated 28-4-1995. The ld. CIT(A) accepted the assessee's explanation and held that the shares were long-term capital assets, thus eligible for exemption u/s 10(38).

Issue 2: Deletion of Disallowance under the Head 'Long Term Capital Gain'

The AO disallowed Rs. 56,81,483/- under the head 'Long Term Capital Gain' on the grounds that the shares were transferred through an off-market transaction and not through the stock exchange. The ld. CIT(A) reversed this disallowance, stating that the shares were initially transferred to the HUF's D-mat account by mistake and later corrected. The ld. CIT(A) held that the date of the contract note should be taken as the date of purchase, making the capital gain long-term and exempt u/s 10(38).

Tribunal's Findings:

The Tribunal noted that the assessee did not furnish sufficient evidence to support the claim that the shares were delivered on 12-2-04. The Tribunal referred to Circular No.768 dated 24-6-98, which clarified that Circular No.704 is applicable only to physical share scripts and not dematerialized shares. The Tribunal concluded that the date of acquisition should be the date when the dematerialized shares were entered in the assessee's D-mat account. As the shares were entered in the D-mat account on 22-5-04, the Tribunal held that the capital gain should be treated as short-term. The Tribunal reversed the ld. CIT(A)'s finding and restored the AO's decision.

Conclusion:

The appeal of the revenue was allowed, and the Tribunal held that the capital gain of Rs. 56,81,483/- should be treated as short-term capital gain, not eligible for exemption u/s 10(38) of the I.T. Act, 1961.

Order Pronounced on 23.04.2010