2010 (4) TMI 765 - AT - Income Tax

Land valuation accepted, shares loss not speculative. Majority directs final decision.

The Third Member of the court agreed with the Judicial Member on both issues, accepting the assessee's computation of long-term capital gain based on the ... Addition of income - AO did not agree with the assessee and computed the capital gain at Rs. 11,33,690 by taking the fair market value of the land as on 1st April, 1981 @ Rs. 4/ per sq. mtr. against the capital gain declared by the assessee at Rs. 1,45,199 - The learned Authorised Representative before me has vehemently contended that the assessee has computed the capital gain by taking the fair market vahie as on 1st April, 1981 @ Rs. 20 per sq. mtr. while the AO has taken the fair market value @ Rs. 4.108 per sq. mtr - This is apparent from the record that the Inspector has brought out the rate of the agricultural land and not of the commercial land - If the AO did not agree with the land rate as estimated by the assessee, in my opinion the onus is on the AO to bring evidence on record in respect of the comparable land so that the land rate estimated by the assessee can be rejected – It is decided in the favour of assessee Capital loss or business loss - The AO, as is apparent from the finding as reproduced hereinabove, held that the assessee has done speculative business in shares and allowed the said loss as speculation loss, not as short-term capital loss - The learned Departmental Representative, on the other hand, relied on the order of the learned AM and contended that the genuineness of the transaction entered into by the assessee are required to be looked into and for that purpose the matter be restored to the file of the AO – It was held that the matter will now go before the regular Bench for deciding the appeal in accordance with the majority opinion Issues Involved:1. Confirmation of addition made on account of long-term capital gain.2. Treatment of loss on shares' transaction as speculative loss instead of short-term capital loss.Issue-wise Detailed Analysis:1. Confirmation of Addition on Account of Long-term Capital Gain:The primary issue revolved around the computation of long-term capital gain from the sale of a cold storage unit. The assessee, a partnership firm, sold its cold storage unit and computed the long-term capital gain by taking the fair market value of the land as on 1st April 1981 at Rs. 20 per sq. mtr. The Assessing Officer (AO) disagreed and computed the capital gain by taking the fair market value at Rs. 4 per sq. mtr., based on the Inspector's report which considered the land as agricultural. The CIT(A) confirmed the AO's addition.The Judicial Member (JM) sided with the assessee, stating that the land was used for commercial purposes, and agricultural rates were not applicable. The Accountant Member (AM) disagreed, suggesting a remand to the CIT(A) for further investigation. The Third Member (P.K. Bansal) agreed with the JM, emphasizing that the AO's reliance on agricultural land rates was inappropriate. The Third Member concluded that the fair market value of Rs. 20 per sq. mtr. as estimated by the assessee was justified and accepted the long-term capital gain computation by the assessee, negating the need for further investigation by the CIT(A).2. Treatment of Loss on Shares' Transaction as Speculative Loss:The second issue concerned the treatment of a short-term capital loss of Rs. 41,27,145 from the purchase and sale of shares. The AO treated the transaction as speculative, citing the absence of distinctive share numbers and the demat account being in the name of a partner, not the firm. The CIT(A) upheld this view.The JM argued that the transactions involved actual delivery of shares, supported by contract notes and bank statements, and thus did not fall under speculative transactions as per Section 43(5) of the IT Act. The AM, however, questioned the genuineness of the transactions and suggested a remand for further verification.The Third Member (P.K. Bansal) supported the JM's view, emphasizing that the AO had not doubted the genuineness of the transactions but had merely treated them as speculative. The Third Member noted that the demat account in the partner's name was permissible under NSDL guidelines and that the transactions were settled through actual delivery. Therefore, the loss on share transactions was to be treated as a short-term capital loss and not speculative loss.Conclusion:The Third Member agreed with the JM on both issues, leading to the acceptance of the assessee's computation of long-term capital gain and the treatment of the loss on shares' transaction as short-term capital loss. The matter was directed to the regular Bench for a final decision in accordance with the majority opinion.