2012 (7) TMI 542 - AT - Income Tax

Capital gains - denial of the deemed exemption under s. 10(38) of the Act - Assessee had purchased the shares outside stock exchange directly from the broker in physical form - he was not having D-mat account - alleged that purchase contract notes are not genuine and that the shares were not purchased by the assessee - Held that - Before the AO copies of the share certificates held by assessee in physical form were provided which contained complete relevant details - merely because there was substantial delay in transferring the shares into D-mat account from the date of purchase and the transactions not routed through Stock Exchange, the AO was not justified in doubting the declared date of purchase of the shares ignoring the evidences - AO directed to allow the claimed exemption under s. 10(38) of the Act on the long-term capital gain shown by the assessee on those shares In favor of assessee

Issues Involved:
1. Treatment of income from undisclosed sources as capital gains.
2. Acceptance of the cost of purchase/acquisition of shares.
3. Genuineness of the purchase contract notes.
4. Applicability of the decision of the Hon'ble High Court of Punjab & Haryana in a distinguishable case.
5. Determination of the date of purchase of shares for tax purposes.
6. Proof of ownership and acquisition of shares in the relevant financial year.
7. Validity of off-market share transactions.

Detailed Analysis:

1. Treatment of Income from Undisclosed Sources as Capital Gains:
The Revenue argued that the CIT(A) erred in treating the income from undisclosed sources as capital gains. The CIT(A) had accepted the cost of purchase/acquisition of shares as stated by the assessee despite finding the purchase contract notes to be non-genuine. The tribunal found that the assessee had provided sufficient evidence to support the declared date of acquisition and ownership of the shares, thereby justifying the treatment of the income as long-term capital gains exempt under section 10(38) of the Act.

2. Acceptance of the Cost of Purchase/Acquisition of Shares:
The Revenue contended that the CIT(A) contradicted its own findings by accepting the cost of purchase/acquisition of shares as stated by the assessee. The tribunal upheld the CIT(A)'s decision, noting that the assessee had provided comprehensive documentation, including share certificates and broker confirmations, to substantiate the cost of acquisition.

3. Genuineness of the Purchase Contract Notes:
The AO had denied exemption under section 10(38) based on doubts about the genuineness of the contract notes issued by the sharebroker and the acquisition or delivery of shares. The tribunal found that the assessee had addressed these doubts by providing detailed documentation and explanations, including the physical share certificates and the process of dematerialization, thereby proving the genuineness of the transactions.

4. Applicability of the Decision of the Hon'ble High Court of Punjab & Haryana:
The Revenue argued that the CIT(A) erred by applying the decision of the Hon'ble High Court of Punjab & Haryana in a distinguishable case. The tribunal found that the facts of the present case were sufficiently similar to warrant the application of the cited decision, supporting the assessee's claim of genuine long-term capital gains.

5. Determination of the Date of Purchase of Shares for Tax Purposes:
The assessee contested the CIT(A)'s decision to treat the date of transfer of shares to the D-mat account as the date of purchase. The tribunal found that the shares were purchased in physical form before the D-mat account was opened and that the delay in dematerialization did not affect the date of acquisition. The tribunal directed the AO to accept the declared dates of purchase and allow the exemption under section 10(38).

6. Proof of Ownership and Acquisition of Shares in the Relevant Financial Year:
The tribunal noted that the assessee had provided sufficient evidence, including physical share certificates and entries in the balance sheet, to prove ownership and acquisition of the shares in the relevant financial year. The tribunal found that the AO's doubts were not justified given the comprehensive documentation provided by the assessee.

7. Validity of Off-Market Share Transactions:
The tribunal addressed the AO's concern about the transactions not being routed through the Calcutta Stock Exchange. It was found that the shares were purchased through off-market transactions, which were valid and supported by the necessary documentation. The tribunal referenced similar cases where off-market transactions were accepted as genuine.

Conclusion:
The tribunal set aside the first appellate order to the extent that it questioned the declared dates of purchase and directed the AO to allow the claimed exemption under section 10(38) on the long-term capital gains. The tribunal upheld the CIT(A)'s acceptance of the cost of purchase/acquisition of shares and dismissed the appeals preferred by the Revenue, while allowing those preferred by the assessee.

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