2018 (11) TMI 123 - AT - Income Tax

Gain on sale of shares - LTCG or STCG - Reckoning of date of purchase - shares transferred to DEMAT account - correct timimg of trade - Held that - Sole reliance placed by the AO and CIT(A) to draw adverse inference is with regard to the trade date and time of purchase of shares Sangotri Construction Ltd. from the Kolkata Stock Exchange. The broker has shown the trade timing at 13 19 hours. Simply based on this information of Kolkata Stock Exchange, it cannot be held that; firstly, the broker of the assessee had not trade in the purchase of shares or the shares were not available with the broker, when on the other hand, the broker has adduced ample evidence directly before the Department to prove not only the purchase but also the delivery of the shares to the assessee; secondly, the broker Bubna Stock Broking Ltd. was neither examined or inquired by the Department despite matter was restored back to the file of the AO, especially when, in response to one letter written by ACIT, Kolkata, the broker has furnished the copy of ledger account, DEMAT statement and also confirmation regarding purchases and sale. This information received by the Department from the said broker have neither been rebutted nor any crossexamining has been done from the broker to ascertain the fact about the correct timing of trade AO has not made any specific enquiry from the broker to ascertain the correct time and date of purchase after the information from the stock exchange even after second round of proceedings. The assessee can prove from the documents which are made available from the broker and if there is any discrepancy at the end of the broker regarding timing of purchase then broker alone could have clarified. Thus, in view of material on record, we hold that the purchases made by the assessee on 11.06.2003 cannot be disbelieved and accordingly the transaction of share is treated as Long Term Capital Gain. - Decided in favour of assessee.

Summary

Issues Involved:
1. Treatment of Long-Term Capital Gain on account of shares as Short-Term Capital Gain.
2. Verification of the purchase date of shares.
3. Validity of evidence provided by the assessee regarding the purchase of shares.

Detailed Analysis:

1. Treatment of Long-Term Capital Gain on account of shares as Short-Term Capital Gain:
The assessee challenged the treatment of Long-Term Capital Gain on shares as Short-Term Capital Gain by the authorities. The main issue revolved around the purchase of 14,000 shares of Sangotri Construction Ltd. (SCL) claimed to have been bought on 11.06.2003 through Bubna Stock Broking Ltd. and sold between August 2004 and January 2005. The Revenue contended that the purchase should be considered from the date the shares were transferred to the DEMAT account on 28.07.2004, thus treating the gain as Short-Term Capital Gain and denying the exemption under section 54.

2. Verification of the purchase date of shares:
The Tribunal had earlier remanded the issue back to the Assessing Officer (AO) to verify whether the shares were indeed purchased on 11.06.2003. The assessee provided several documents to support the purchase date, including a contract note, bill, ledger account, and other related documents. However, the AO, relying on information from the Calcutta Stock Exchange, concluded that the shares were not purchased on 11.06.2003 since the last recorded trade time was 12:33:49, whereas the broker's note showed a trade time of 13:19:00 and 13:19:19. The AO thus held that the shares were purchased only when transferred to the DEMAT account on 28.07.2004.

3. Validity of evidence provided by the assessee regarding the purchase of shares:
The assessee's counsel argued that the provided documents, including the broker's contract note and bill, ledger accounts, and confirmations, sufficiently proved the purchase date of 11.06.2003. The discrepancy in trade timing was not adequately explained by the AO, who did not conduct fresh inquiries despite the Tribunal's direction. The Tribunal noted that the AO should have sought clarification from the broker regarding the trade timing. The broker had provided ample evidence directly to the Department, which was not rebutted or cross-examined.

The Tribunal concluded that the evidence provided by the assessee, including the broker's contract note, bill, ledger accounts, and confirmations from the company and broker, sufficiently proved the purchase of shares on 11.06.2003. The AO's reliance on the trade timing discrepancy from the Calcutta Stock Exchange was not enough to disprove the purchase date. The Tribunal held that the transaction should be treated as Long-Term Capital Gain, not Short-Term Capital Gain, and allowed the appeal of the assessee.

Conclusion:
The appeal of the assessee was allowed, and the transaction of shares was treated as Long-Term Capital Gain. The Tribunal emphasized that the AO should have conducted a thorough inquiry with the broker to clarify the trade timing discrepancy and that the evidence provided by the assessee was sufficient to prove the purchase date of 11.06.2003. The order was pronounced in the open Court on 29th October 2018.