2016 (5) TMI 16 - AT - Income Tax

Estimation of income - LTCG - purchase of shares - Held that - Since we have held that the shares have been purchased by the assessee on 27.04.2005 i.e., on the date on which the shares were transferred to his Demat account consequently assessment is required to be made in the following manner - (a) The difference between the market value of shares as on 27.04.2005 and the cash balance available with the assessee as on that date is required to be assessed as unexplained investment. It is pertinent to note that the assessee should be in a position to prove the availability of cash balance as on that date to the satisfaction of the assessing officer. We may also add that, if the assessee does not maintain regular cash book and the explanation offered by him was not satisfactory, then the entire amount of market value of shares is required to be assessed as unexplained investment. (b) The difference between the sale consideration of shares and the market value of shares as on 27.04.2005 is required to be assessed as short term capital gain. (c) The AO has estimated the commission expenses @ 5% for procuring long term capital gains. Since we have held that the assessee could not prove the claim of purchase of shares in April, 2004, we are of the view that the Ld CIT(A) was justified in confirming the assessment of commission expenses. Claim of agricultural income - Held that - Since the assessee has furnished documents with regard to the ownership of lands and confirmation letters supporting the sales, we are of the view that the claim of agricultural income cannot be rejected altogether. At the same time, we notice that the assessee has not furnished the details relating to agricultural operations. Under these set of facts, we are of the view that the agricultural income is required to be estimated in order to put this issue at rest. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 40% of the agricultural income reported by the assessee and accept the agricultural income to the extent of 60% of the amount reported by the assessee.

Summary

Issues Involved:
1. Assessment of long term capital gain as income from other sources.
2. Assessment of estimated expenses in procuring long term capital gains.
3. Rejection of claim of agricultural income.

Analysis:

Issue 1: Assessment of Long Term Capital Gain as Income from Other Sources
The appellant contested the decision of the assessing officer to assess the long term capital gain as income from other sources. The appellant reported a long term capital gain from the sale of shares and claimed it as exempt. However, the assessing officer found discrepancies in the purchase and sale transactions of the shares. The appellant failed to provide essential documents such as share certificates and transfer forms. The assessing officer concluded that the appellant had procured bogus long term capital gains. The appellant argued that the tax authorities disbelieved the claim based on suspicion and relied on various documents to support the gains. The Tribunal observed that the appellant could not substantiate the purchase of shares in physical format as claimed. Consequently, the Tribunal held that the shares were purchased on the date they were transferred to the Demat account. The Tribunal directed the assessment based on the market value of shares and cash balance available with the appellant.

Issue 2: Assessment of Estimated Expenses
The assessing officer estimated expenses at 5% for procuring long term capital gains. Since the appellant could not prove the purchase of shares as claimed, the Tribunal upheld the assessment of commission expenses. The Tribunal reasoned that without satisfactory proof of share purchase, the commission expenses assessment was justified.

Issue 3: Rejection of Claim of Agricultural Income
The appellant declared agricultural income generated from the sale of teak trees but failed to provide evidence of agricultural operations. The assessing officer rejected the claim of agricultural income, which was upheld by the CIT(A). The appellant produced confirmation letters for the sale of teak trees but could not demonstrate the agricultural operations. The Tribunal acknowledged the documents supporting ownership of lands and sale confirmation letters but noted the lack of details on agricultural operations. Consequently, the Tribunal modified the CIT(A) order and directed the assessing officer to estimate agricultural income, allowing 60% of the reported amount.

In conclusion, the Tribunal partially allowed the appeal, directing the assessment of long term capital gain based on the market value of shares and cash balance, upholding the commission expenses assessment, and estimating agricultural income at 60% of the reported amount.

This detailed analysis provides a comprehensive understanding of the judgment, addressing each issue involved in the case.