2011 (10) TMI 645 - AT - Income Tax

Assessee's appeal allowed, gains treated as long-term capital gains. Departmental appeal dismissed.

Smt. Kantadevi Sarawagi, Versus The Assistant Commissioner of Income Tax., Cent. Cir-4 Surat

The Tribunal allowed the appeal of the assessee, directing the AO to treat the gains as long-term capital gains and deleted the addition of Rs. ... Addition u/s 68 - unexplained cash credit - Held that:- Evidence and explanation of the assessee support the case of the assessee that the assessee entered into genuine transaction. The details noted above clearly prove the sources of sales of the shares; therefore, no addition was required to be made u/s 68 of the IT Act. CIT(A) rightly deleted the addition on account of unexplained cash credit u/s 68 of the IT Act. Nature of gain - STCG OR LTCG - Held that:- Instead of considering the transaction noted in the demat account the revenue authorities should have followed the above circular of the Board and according to the same the date of contract shall be treated as the date of transfer. Since the revenue department did not dispute purchase of the shares from M/s. Swan Securities Pvt. Ltd. in the scrutiny assessment of preceding assessment year 2006-07, therefore, the assessee is able to establish that shares have been purchased in April, 2005. Therefore, instead of short term capital gains, the learned CIT(A) should have treated the gains as long term capital gains. The order of the learned CIT(A) to that extent is, therefore, liable to be set aside. The order of the learned CIT(A) to that extent holding transaction to be short term capital gain is set aside and we direct the AO to accept the claim of the assessee for long term capital gains. Issues Involved:1. Addition of Rs. 32,21,302/- as unexplained cash credit under Section 68 of the IT Act.2. Treatment of gains from sale of shares as long-term capital gains versus short-term capital gains.Issue-Wise Detailed Analysis:1. Addition of Rs. 32,21,302/- as Unexplained Cash Credit under Section 68 of the IT Act:The assessee challenged the addition of Rs. 32,21,302/- on account of unexplained cash credit under Section 68 of the IT Act, claiming long-term capital gain of Rs. 27,93,559/- on the sale of shares, which was claimed exempt. The shares were purportedly purchased from M/s. Swan Securities Pvt. Ltd. in April 2005 and sold through M/s. Motilal Oswal Securities Ltd. in March 2007. The Assessing Officer (AO) called for various details and issued a letter under Section 133(6) of the IT Act to verify the purchase claim. Although M/s. Swan Securities Pvt. Ltd. confirmed the purchase, they did not provide sufficient details to prove the transfer of shares. Consequently, the AO treated the transaction as a sham and added the amount as unexplained cash credit under Section 68.Before the CIT(A), the assessee submitted various documents including bills for the sale of shares, payment receipts through account payee cheques, and the demat account showing the purchase and sale of shares. The assessee argued that the burden of proving the transactions as bogus lay on the AO, which was not fulfilled. The CIT(A) considered the facts and submissions, directing the AO to reduce the addition as short-term capital gain instead of unexplained cash credit, as the evidence showed that the amount was received from the sale of shares through M/s. Motilal Oswal Securities Ltd.The Tribunal found that the assessee provided sufficient evidence to prove the genuine purchase and sale of shares. The sales were not in doubt, and the sources of the sale proceeds were explained through identified parties. The Tribunal referenced several case laws and concluded that the addition under Section 68 was not justified, as the transactions were genuine and documented. The Tribunal upheld the CIT(A)'s decision to delete the addition on account of unexplained cash credit.2. Treatment of Gains from Sale of Shares as Long-Term Capital Gains versus Short-Term Capital Gains:The assessee contended that the gains should be treated as long-term capital gains, as the shares were purchased in April 2005 and sold in March 2007. The CIT(A), however, held that the shares were purchased in March 2007 based on the demat account, and thus treated the gains as short-term capital gains.The Tribunal considered the CBDT Circular No. 704 dated 28-04-1995, which clarifies that the date of the broker's note should be treated as the date of transfer for off-market transactions, provided it is followed by actual delivery of shares and transfer deeds. The Tribunal noted that the broker M/s. Swan Securities Pvt. Ltd. confirmed the purchase of shares in April 2005, supported by various documents including the balance sheet for the preceding assessment year and the scrutiny assessment order.The Tribunal concluded that the gains should be treated as long-term capital gains, as the assessee was able to establish the purchase of shares in April 2005. The Tribunal set aside the CIT(A)'s order to the extent that it treated the transaction as short-term capital gains and directed the AO to accept the claim of the assessee for long-term capital gains.Conclusion:The Tribunal allowed the appeal of the assessee, directing the AO to treat the gains as long-term capital gains and deleted the addition of Rs. 32,21,302/- as unexplained cash credit under Section 68. The departmental appeal was dismissed.