2016 (4) TMI 586 - AT - Income Tax

Treatment of shares purchased - LTCG - holding period - claim exemption under section 10 (38) - Held that - Date of allotment is the date of acquisition of the shares in question and not date on which the same were credited to demat account. It has come on record that assessee s holding period in question is of more than one year. Acquisition of Equity shares can be from public issue, purchase from the market or preferential allotment as per Sebl guidelines. Mature of acquisition of shares will not change the characters of Equity shares. Since assessing officer denied appellant the said exemption only on the ground that assessing officer did not sale Equity shares, such denial of exemption is based on wrong interpretation of facts and accordingly not sustainable. Equity shares allotted on preferential basis will not become preference shares. Preference shares are separate class of shares as per company s act and the same cannot be confused with preferential allotment of Equity shares. Accordingly the very basis of assessing officer s action of denying exemption to the assesse is wrong, therefore it is held that appellant is entitled to claim exemption under section 10 (38) since what was sold was Equity shares. Accordingly the addition made by the assessing officer is deleted. See Aditi J. Vyas 2011 (7) TMI 1201 - ITAT AHMEDABAD . The Revenue is unable to draw a distinction on facts or law. We accordingly decide the issue in assessee s favour on merits.

Summary

Issues:
1. Challenge to CIT's order directing de-novo assessment of long term capital gains.
2. Dispute over treatment of long term capital gains as exempt.
3. Jurisdiction of CIT under section 263 regarding regular assessment.
4. Interpretation of lock-in period for shares sold.
5. Appeal against CIT's order in section 263 proceedings.
6. Revenue's appeal on addition of long term capital gains.
7. Nature of shares purchased and holding period.
8. Determination of date of acquisition for shares.

Analysis:

1. Challenge to CIT's order directing de-novo assessment of long term capital gains:
The assessee contested the CIT's order in section 263 proceedings, which directed the Assessing Officer to conduct a de-novo assessment regarding the long term capital gains. The Revenue's appeal argued against the treatment of these gains as exempt.

2. Dispute over treatment of long term capital gains as exempt:
The dispute centered around the CIT(A)'s decision to treat the long term capital gains as exempt in consequential proceedings. The assessee's reply highlighted the acquisition and sale details of shares, emphasizing the period of holding and lock-in period for the shares sold.

3. Jurisdiction of CIT under section 263 regarding regular assessment:
The CIT invoked section 263 jurisdiction, considering the regular assessment erroneous, leading to the revision of the assessment due to the alleged lack of inquiry by the Assessing Officer regarding the lock-in aspect of the shares sold.

4. Interpretation of lock-in period for shares sold:
The assessee explained the acquisition of shares, emphasizing the date of allotment and the conversion of equity shares, arguing that the lock-in period should be reckoned from the date of allotment, not the date when shares were credited to the DEMAT account.

5. Appeal against CIT's order in section 263 proceedings:
The CIT's order in section 263 proceedings was challenged by the assessee in appeal ITA 1117/Ahd/2011, focusing on the treatment of shares purchased in M/s Nagarjuna Construction Company and the holding period.

6. Revenue's appeal on addition of long term capital gains:
In response to the CIT's direction, the Assessing Officer added the long term capital gains amount in question. The CIT(A) accepted the assessee's arguments, emphasizing the nature of shares allotted and the eligibility for exemption under section 10(38).

7. Nature of shares purchased and holding period:
The issue revolved around the treatment of shares acquired in M/s Nagarjuna Construction Company and the determination of the holding period. A previous judgment in a similar case favored the assessee, emphasizing the date of allotment as the date of acquisition for shares.

8. Determination of date of acquisition for shares:
The decision highlighted the importance of the date of allotment as the date of acquisition for shares, emphasizing the period of holding for eligibility under relevant tax provisions. The judgment favored the assessee, dismissing the Revenue's appeal.

In conclusion, the appeals were decided in favor of the assessee, emphasizing the correct interpretation of the holding period for shares and the eligibility for exemption under relevant tax provisions. The Revenue's appeal was dismissed, and the assessee's appeal was rendered infructuous.