2016 (5) TMI 618 - AT - Income Tax

Sale of shares - TLCG OR STCG - Held that - Taking into consideration the documentary evidence which establishes that the assessee was in possession of shares since 1994-95 and the same were being sold in 2005-06 therefore the income from the sale of shares is clearly a Long Term Capital Gain which is exempt from Tax u/s 10(38). Accordingly we are of the view that the AO has failed both in law and on facts in disallowing the claim of Long Term Capital Gain - Decided in favour of assessee

Issues:
1. Disallowance of long term gain on sale of shares
2. Estimation of short term gain on sale of shares
3. Making own estimates and presumptions regarding sale and purchase dates of shares
4. Making own assumptions regarding value of shares
5. Relying on outside documents without providing opportunity to examine them
6. Not providing proper opportunity to the appellant
7. Upholding the order of the Assessing Officer by the CIT(A)

Analysis:

Issue 1: Disallowance of long term gain on sale of shares
The Appellant challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of long term gain on the sale of shares. The Appellant claimed Long Term Capital Gain of ?3,48,842 from the sale of shares of a company. The Assessing Officer treated this transaction as Short Term Capital Gain, resulting in additions to the total income of the Assessee. The Appellant contended that the shares were held for a significant period, qualifying for long term gain treatment under section 10(38) of the Income Tax Act. The Tribunal, after reviewing the documentary evidence and submissions, concluded that the shares were indeed held for a long duration, and the transaction should be treated as Long Term Capital Gain. The Tribunal directed the Assessing Officer to delete the additions, thereby accepting the Appellant's appeal on this ground.

Issue 2: Estimation of short term gain on sale of shares
The Assessing Officer estimated the short term gain on the sale of shares without providing an opportunity for the Appellant to explain the facts or discrepancies. The Tribunal noted that the shares were held by the Appellant for around eight years, making the exact date of acquisition less relevant once it was established that the shares were held for more than three years. The Tribunal found that the Assessing Officer had not adequately considered the documentary evidence provided by the Appellant and had not sought clarification before making assumptions. Ultimately, the Tribunal ruled in favor of the Appellant, determining the transaction as Long Term Capital Gain based on the evidence presented.

Issue 3: Making own estimates and presumptions
The Assessing Officer made his own estimates and presumptions regarding the sale and purchase dates of the shares, leading to the incorrect treatment of the transaction as Short Term Capital Gain. The Tribunal emphasized the importance of considering the actual holding period of the shares and the documentary evidence provided by the Appellant. The Tribunal found that the Assessing Officer's assumptions were unfounded and directed the deletion of the additions made based on those incorrect presumptions.

Issue 4: Relying on outside documents without opportunity
The Appellant raised concerns about the Assessing Officer relying on outside documents without providing an opportunity to examine or explain them. The Tribunal noted that the Assessing Officer failed to inform the Appellant or seek clarification on the discrepancies identified. The Tribunal highlighted the importance of giving the Appellant a fair opportunity to address any concerns or discrepancies before making judgments based on external documents.

Issue 5: Not providing proper opportunity
The Appellant argued that they were not provided with a proper opportunity to present their case and clarify any misunderstandings regarding the sale of shares. The Tribunal acknowledged the Appellant's submissions and the documentary evidence supporting the long term holding of the shares. The Tribunal concluded that the Assessing Officer's failure to provide a fair opportunity to the Appellant resulted in incorrect treatment of the transaction as Short Term Capital Gain.

Issue 6: Upholding the order of the Assessing Officer
The Appellant contested the order of the Assessing Officer, which was upheld by the Commissioner of Income Tax (Appeals). The Tribunal, after thorough examination of the facts, submissions, and documentary evidence, concluded that the Assessing Officer erred in treating the transaction as Short Term Capital Gain. The Tribunal overturned the previous decisions and ruled in favor of the Appellant, directing the deletion of the additions made by the Assessing Officer.

In conclusion, the Appellate Tribunal ruled in favor of the Appellant, accepting the appeal and directing the Assessing Officer to delete the additions made on the grounds of incorrectly treating Long Term Capital Gain as Short Term Capital Gain.

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