2024 (8) TMI 1117 - AT - Income Tax

Classification of sale of shares as short term capital asset instead of long term capital asset - Period of holding - exemption u/s 54F - HELD THAT - The undisputed fact is that the holding period of the impugned shares is around 31 months. It is true that provisions of Section 2(42A) of the Act has been amended to exclude the holding period of unlisted shares being held for 12 months to be treated as long term capital gain but the said amendment has come from AY 2015-16 and applicable therefrom and since the impugned AY is 2013-14, therefore, the amended provisions is not applicable. Respectfully following the decision of Exim Rajathi India (P) Ltd. 2021 (9) TMI 866 - MADRAS HIGH COURT we set aside the findings of the ld. CIT(A) and direct the AO to treat the gains arising from sale of shares as long term capital gains. Since we have held that the capital gains to the assessee are long term capital gain, therefore, we direct the AO to re-consider the claim of exemption u/s 54F of the Act and decide the issue afresh as per the provisions of law, after affording reasonable and adequate opportunity of being heard to the assessee. Thus, these grounds are accordingly allowed. Cash deposits - explanation of the assessee that the same has been received out of the petty loans given to friends and relatives, cannot be brushed aside lightly, considering the returned income of assessee being more than Rs. 50 Lakhs and sale consideration being more than Rs. 2 Crores. The returned income and the capital gain go on to show the status of the assessee and, therefore, deposit of petty sum of Rs. 3,08,600/- on different dates should not be looked upon adversely - we direct the AO to delete the impugned addition. This ground is also allowed.

Summary

Issues Involved:
1. Classification of sale of shares as short-term capital asset instead of long-term capital asset.
2. Disallowance of deduction under Section 54F of the Income Tax Act.
3. Addition of cash deposits under Section 69 of the Income Tax Act as unexplained investment.
4. Charging of interest under Sections 234B and 234C of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Sale of Shares:
The primary issue concerns the classification of the sale of shares as a short-term capital asset instead of a long-term capital asset. The assessee argued that the shares, held for 31 months, should be classified as long-term capital assets based on the unamended provisions of Section 2(42A) of the Income Tax Act, applicable for the assessment year 2013-14. The AO and CIT(A) had applied the amended provisions erroneously, which were effective from AY 2015-16. The Tribunal referred to the case of CIT vs. Exim Rajathi India (P) Ltd., where it was established that shares held for more than 12 months but less than 36 months should be treated as long-term capital assets as per the unamended provisions. Thus, the Tribunal directed the AO to treat the gains from the sale of shares as long-term capital gains and reconsider the claim of exemption under Section 54F accordingly.

2. Disallowance of Deduction under Section 54F:
The disallowance of deduction under Section 54F was a consequence of the AO treating the gains from the sale of shares as short-term capital gains. Since the Tribunal held that the gains are long-term capital gains, it directed the AO to re-evaluate the exemption claim under Section 54F. The AO was instructed to decide the issue afresh, providing the assessee a reasonable opportunity to be heard.

3. Addition of Cash Deposits under Section 69:
The AO had added Rs. 3,08,600/- as unexplained investment under Section 69, questioning the cash deposits made by the assessee. The assessee explained that these deposits were petty loans received from friends and relatives. Considering the assessee's returned income of over Rs. 50 Lakhs and sale consideration of more than Rs. 2 Crores, the Tribunal found the explanation plausible. It concluded that the deposit of Rs. 3,08,600/- should not be viewed adversely, given the assessee's financial status. Consequently, the Tribunal directed the AO to delete the addition.

4. Charging of Interest under Sections 234B and 234C:
Although the issue of charging interest under Sections 234B and 234C was raised, the Tribunal's decision on the primary issues rendered this point moot. The Tribunal's directions on reclassifying the gains and reconsidering the exemption under Section 54F implicitly addressed the interest charges, which would be recalculated based on the revised assessments.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to treat the gains from the sale of shares as long-term capital gains, reconsider the exemption under Section 54F, and delete the addition of Rs. 3,08,600/- under Section 69. The order was pronounced on 21st August 2024 at Mumbai.