2015 (9) TMI 1747 - AT - Income Tax

Reopening of assessment u/s 147 - Gain on sale of shares - Long term capital gains OR income from other sources - HELD THAT - Since the returns of income filed by the assessees have been processed u/s 143(1) only and since the assessing officer has reopened the assessments on the basis of report received from the Investigation wing of the department we are of the view that the AO had proper reasons with him for reopening of assessments. Accordingly we uphold the order of Ld CIT(A) on this issue. Gain on sale of shares - CIT(A) has held that the proof of delivery of shares are not sufficient to prove genuineness of sales when the purchases were found to be not genuine. We are unable to understand the said reasoning given by the Ld CIT(A). If the tax authorities require any other evidence apart from the evidences furnished by the assessees they could have asked the assessees to furnish the same. Instead they have proceeded to assess the long term capital as income under the head income from other sources. In our view the said action of the tax authorities is not justified. There should not be any dispute that the delivery of shares could not have been done without purchasing them. Reply given by M/s Interconnected Stock Exchange India cannot be considered to be the sole criteria to suspect the claim of purchase of shares. Barring this no material is brought on record to suspect the claim of the assessees that they have earned long term capital gains. Accordingly we are of the view that the Ld CIT(A) was not justified in confirming the additions made by the AO - we direct the AO to accept the claim of impugned Long term capital gain. Appeals filed by the assessees are partly allowed.

Summary

Issues:
Validity of reopening of assessment; Assessment of long term capital gains as income from other sources.

Validity of Reopening of Assessment:
The appeals were filed against the orders confirming the assessment of long term capital gains as income from other sources by the Ld CIT(A). The AO reopened the assessments based on information from a search and seizure operation revealing bogus transactions. The assessees challenged the validity of the reopening, but the Ld CIT(A) upheld it, stating that the AO had proper reasons. The ITAT upheld the Ld CIT(A)'s decision on this issue, as the returns had only been processed under section 143(1) and the reopening was based on valid information.

Assessment of Long Term Capital Gains:
The assessees purchased shares through a company linked to the group under investigation. The AO disbelieved the purchases as genuine, leading to the assessment of entire sale proceeds as income from other sources. The Ld CIT(A) upheld this decision, citing various reasons including lack of authenticity in payment, non-genuineness of purchases, and unbelievable price rise in shares. The ITAT disagreed with the tax authorities, noting that the assessees provided evidence of purchases and delivery of shares. They found the denial of trade transactions by the stock exchange insufficient to reject the claim. The ITAT also found the proof of delivery of shares sufficient to establish genuineness of sales. They concluded that there was no material to reject the assessees' claim of long term capital gains and directed the AO to accept the claim.

In conclusion, the ITAT partly allowed the appeals, setting aside the Ld CIT(A)'s orders and directing the AO to accept the claim of long term capital gains for the assessment year in question.