2012 (8) TMI 1064 - AT - Income Tax

Tribunal grants appeal, deems share gains long-term capital, rejects AO's short-term classification.

The tribunal allowed the appeal, determining that the gains on the sale of shares were long-term capital gains eligible for exemption under section 10(38) ... Gains on the sale of shares - computation of Long Term Capital Gains (LTCG) / Short Term Capital Gains (STCG) on sale of shares of a few companies - Held that:- CBDT Circular No.768 dtd. 24.6.1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the 'date of transfer' and 'period of holding' does not change when securities are held in the dematerialized form. Therefore in view of the above two circulars of CBDT it is clear that in case of securities the 'date of purchase' has to be taken from the broker's note/contract note and the period of holding is also to be reckoned from the 'date of purchase' and not from the 'date of dematerializatjon'. Since the holding period of the shares as per the broker's note and its subsequent sale after demateialjzatjon is Smt. Hamida J. Rattonsey, snore than 12 months, therefore, the shares become long term capital asset and the assessee's claim of long term capital gain is correct. In this view of the matter we set aside the order of the Id. CIT(A) and direct the A.O. to accept the long term capital gain declared by the assessee. Issues Involved:1. Classification of gains on the sale of shares as long-term capital gains (LTCG) or short-term capital gains (STCG).2. Determination of the date of purchase of shares.3. Consideration of the purchase value of shares as unexplained investment.4. Validity of transactions and evidence provided by the appellant.Detailed Analysis:1. Classification of Gains on Sale of Shares:The appellant contested the CIT(A)'s decision to confirm the Assessing Officer's (AO) finding that the gains on the sale of shares amounting to Rs. 4,89,18,734/- should not be considered as LTCG and thus not eligible for exemption under section 10(38) of the Income-tax Act, 1961. The AO had determined that the shares were dematerialized only on the date of sale or a few days before, making the holding period less than 12 months. Consequently, the gains were taxed as STCG. However, the tribunal found that the transaction in question resulted in LTCG and not STCG as held by the FAA, and the appellant was entitled to exemption under section 10(38) of the Act.2. Determination of the Date of Purchase of Shares:The AO considered the date of dematerialization as the purchase date, thereby reducing the holding period to less than 12 months. The tribunal, however, referred to the CBDT Circular No. 704 dated 28.4.1995 and Circular No. 768 dated 24.6.1998, which clarified that the date of the broker's note should be treated as the date of transfer in sale transactions of securities. Thus, the tribunal concluded that the holding period should be reckoned from the date of the broker's note, not the date of dematerialization, making the shares a long-term capital asset.3. Consideration of Purchase Value as Unexplained Investment:The AO invoked section 68 of the Act, treating the entire transaction of sale and purchase of shares as manipulated and the sale proceeds as unaccounted income. The CIT(A) upheld the AO's alternate proposition that the purchase value on the date of dematerialization was unexplained investment. The tribunal, however, found that the investment made by the appellant in shares could not be treated as unexplained investment under section 68 of the Act. The tribunal noted that the appellant had provided sufficient evidence, including contract notes, bank statements, and demat account details, to substantiate the purchase and sale of shares.4. Validity of Transactions and Evidence Provided:The AO doubted the genuineness of the purchase from MSPL based on the statement of Shri Mukesh Choksi, who initially denied selling the shares to the appellant but later confirmed accepting checks during cross-examination. The tribunal observed that the AO did not prove any of the evidences provided by the appellant to be false. The tribunal also noted that Mr. Mukesh Choksi's statements were inconsistent and unreliable. The tribunal referred to the case of the appellant's husband, where similar facts and circumstances led to a favorable decision for the assessee, and found no difference in the facts of both cases.Conclusion:The tribunal allowed the appeal filed by the appellant, directing the AO to accept the long-term capital gain declared by the appellant and granting the exemption under section 10(38) of the Income-tax Act, 1961. The tribunal's decision was based on the consistency of evidence provided by the appellant, the unreliability of Mr. Mukesh Choksi's statements, and the clarification provided by CBDT circulars regarding the determination of the date of purchase and holding period of securities.