2021 (8) TMI 901 - AT - Income Tax

Addition of short term capital gain - LIFO v/s FIFO method - Addition in respect of L T shares by following the LIFO method for calculating the short term capital gain - HELD THAT - ICICI Bank securities statement had a mistake wherein the sale of shares were shown out of bonus shares considering the cost at nil. The assessee also produced correct statement before CIT(A). CIT(A) failed to consider the same and confirmed the order of AO. Similarly, there are several other mistakes which were pointed out by the Ld. Counsel of the assessee before us. Under these circumstances, we are of the opinion that the capital gain of the assessee should be computed on the basis of method followed by the assessee consistently which is stated to be FIFO method. We note this was the contention of the assesse before the first appellate authority. The capital gain is required to be computed on the basis of FIFO method and not on LIFO method as has been done by the AO. In other words, the capital gain on sale of shares by the assessee is to be computed by taking the cost of shares on LIFO basis meaning thereby that bonus shares issued on 17.07.2013 are not to be taken following the FIFO method. It is for this reason, we are not in agreement with the conclusion drawn by the CIT(A) and accordingly we restore the matter back to the file of the AO with the direction to compute the short term capital gain on FIFO method after allowing reasonable opportunity of hearing given to the assessee. Appeal of the assessee is allowed for statistical purposes

Issues:
1. Calculation of short term capital gain using FIFO method.
2. Consideration of bonus shares in computing short term capital gain.
3. Error in computation of income by AO.
4. Appeal against CIT(A)'s order upholding AO's addition of short term capital gain.

Issue 1: Calculation of short term capital gain using FIFO method
The assessee contended that the short term capital gain should be computed using the First In First Out (FIFO) method, considering the shares held prior to a specific date for the calculation. The ICICI Bank statement erroneously showed the sale of shares from bonus shares at nil cost. The assessee provided correct statements, but the CIT(A) dismissed the appeal, citing the accountant's oversight. The ITAT found that the capital gain should be computed using the FIFO method consistently followed by the assessee, not the Last In First Out (LIFO) method used by the AO. The ITAT directed the AO to recompute the short term capital gain using the FIFO method after granting a reasonable opportunity of hearing to the assessee.

Issue 2: Consideration of bonus shares in computing short term capital gain
The assessee argued that the cost of acquisition for computing short term capital gain should exclude the bonus shares received after a specific date and should be based on the FIFO method. The ICICI Bank statement inaccurately reflected the sale of shares from bonus shares at nil cost. Despite the correct statement presented to the CIT(A), the appeal was dismissed due to the accountant's oversight. The ITAT held that the capital gain should be calculated based on the FIFO method, excluding the bonus shares issued, contrary to the LIFO method used by the AO.

Issue 3: Error in computation of income by AO
During the assessment proceedings, the AO added an amount to the income of the assessee for speculation income and short term capital gain on shares, alleging non-disclosure. The AO contended that the addition was necessary due to the accountant's mistake, as acknowledged by the assessee. The CIT(A) upheld the addition, emphasizing the accountant's oversight. However, the ITAT found that the capital gain computation should adhere to the FIFO method consistently followed by the assessee, overturning the AO's decision.

Issue 4: Appeal against CIT(A)'s order upholding AO's addition of short term capital gain
The assessee challenged the addition of short term capital gain upheld by the CIT(A) based on the LIFO method used by the AO. The CIT(A dismissed the appeal, attributing the discrepancy to the accountant's error. The ITAT, after considering the submissions and evidence, directed the AO to recompute the short term capital gain using the FIFO method, emphasizing the exclusion of bonus shares in the calculation.

This judgment by the ITAT Mumbai addressed the dispute regarding the calculation of short term capital gain using the FIFO method, exclusion of bonus shares in the computation, error in the AO's income assessment, and the appeal against the CIT(A)'s decision. The ITAT ruled in favor of the assessee, directing the AO to reevaluate the short term capital gain based on the FIFO method and granting a fair hearing opportunity.

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