Sale of Shares as Long Term Capital Gains Upheld by ITAT

The ITAT upheld the CIT(A)'s decision that the gain from the sale of shares should be classified as long term capital gains (LTCG). The ITAT determined that the date of acquisition of shares as stock in trade should be considered for computing LTCG, rejecting the department's argument based on the holding period after conversion to investment. The appeal by the department was dismissed, affirming the classification of the gain as LTCG in favor of the assessee.

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Issues:
Whether the gain from the sale of shares should be classified as long term capital gains (LTCG) or short term capital gains (STCG).

Analysis:
The appeal was filed by the department against the order of CIT (A) X, Mumbai, regarding the classification of the gain arising from the sale of shares as LTCG or STCG. The assessee sold 7,20,992 equity shares of Lupin Limited, with part of the stock held as stock in trade and the rest as investment. The AO denied LTCG status on shares converted to investment due to the holding period being less than 12 months. The CIT(A) relied on previous court decisions and concluded that the date of first holding as stock in trade should be considered for computing LTCG.

The CIT(A) referenced the decision in the case of CIT vs. Jannhavi Investments Ltd. and ACIT vs. Bright Star Investment (P) Ltd., emphasizing that the cost of acquisition is crucial for determining capital gains tax. It was clarified that the date of acquisition of shares as stock in trade should be accepted for computing LTCG. The jurisdictional High Court's decision in Keshavji Karsondas vs. CIT was also highlighted to support this interpretation.

During the hearing, the department reiterated the AO's arguments, while the AR supported the CIT(A) order. The ITAT considered whether the date of acquisition or the date of conversion of shares from stock in trade to investment should be used to compute the holding period for LTCG. Citing previous court decisions, including Keshavji Karsondas vs. CIT and Jannhvi Investments Pvt. Ltd., it was concluded that the date of acquisition should be considered for determining LTCG. The ITAT upheld the CIT(A) decision, rejecting the department's appeal as all grounds were linked to the issue of LTCG classification, which was decided in favor of the assessee.

In conclusion, the appeal filed by the department was dismissed, and the decision of the CIT(A) regarding the classification of gain from the sale of shares as LTCG was upheld by the ITAT.

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