2011 (5) TMI 1051 - AT - Income Tax

Tribunal rules disputed sum as capital gain, not unexplained credit

The Tribunal upheld the ld. CIT(A)'s order, ruling in favor of the assessee that the disputed sum was capital gain and not unexplained credit. The AO's ... - Issues Involved: Appeal against order treating capital gain as unexplained credit u/s 68 of the I.T. Act, 1961 for AY 2006-2007.Summary:Issue 1: Treatment of Capital Gain as Unexplained CreditThe assessee, an individual, declared total income for AY 2006-2007 with short-term and long-term capital gains. The AO treated a sum as unexplained cash credit u/s 68 instead of capital gain. On appeal, the ld. CIT(A) directed the AO to accept the claim of the assessee as capital gain.Details:- The suspension of the broker was not a valid ground to treat the transactions as bogus, as the shares were purchased before the broker's suspension.- Usage of the code 'self' by the broker was permissible before 1.4.2005.- Transactions were confirmed to be done through the Calcutta Stock Exchange's online trading system.- Transactions were not done offline, and no agreement was mandated by SEBI guidelines.- Increase in share price does not automatically indicate a bogus transaction, especially when supported by documentary evidence.- AO lacked a basis to treat the sum as unexplained cash credit.Issue 2: Dispute Over Capital Gain TreatmentThe Revenue appealed the ld. CIT(A)'s decision, arguing that the transactions were doubtful and accommodative, citing discrepancies in broker statements and lack of client codes.Details:- Broker's suspension was due to long-standing malpractices, suggesting collusion with the assessee.- Sharp increase in share value was questioned, comparing it to international corporate standards.- Citing Supreme Court precedent, the Revenue argued that unexplained sums can be charged as income if the assessee's explanation is unsatisfactory.Issue 3: Upholding of CIT(A)'s OrderThe assessee's representative supported the ld. CIT(A)'s decision, providing evidence to substantiate the genuineness of the transactions and disputing the Revenue's claims.Details:- Transactions were explained to be genuine, with evidence including contract notes, bank statements, and confirmation from brokers.- The absence of a broker-client agreement did not invalidate the transactions' genuineness.- Increase in share price alone was not sufficient to doubt the transactions' legitimacy.- Case laws were cited to support the assessee's position.Conclusion:After considering submissions, the Tribunal upheld the ld. CIT(A)'s order, concluding that the sum in question was indeed capital gain. The AO's doubts were deemed insufficient to treat the declared capital gain as unexplained credit, leading to the dismissal of the Revenue's appeal and allowing the assessee's appeal.Order pronounced on 31.05.2011.