Cost of acquisition of listed shares substituted by market price on demat date denied; exemption under section 10(38) restored for assessee

Assessing officer could not substitute declared cost of acquisition of listed shares in a later assessment year by reference to market prices on dematerialisation dates where the purchase and payment were verified and accepted in an earlier scrutiny assessment; each previous year is a distinct unit and tax chargeable to the year in which income arose, so revisiting accepted consideration without cogent adverse evidence is impermissible. The AO also lacked material to treat the differential as income in the year of sale under income attribution principles. Result: substitution and denial of exemption under section 10(38) in the later year was disallowed, favouring the assessee.

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Issues: Whether the assessing officer could, in assessment for AY 2017-18, substitute the cost of acquisition of listed shares (paid in FY 2014-15 and accepted in AY 2015-16) with market prices on dematerialization dates and deny exemption under section 10(38) of the Income-tax Act, 1961.

Analysis: The admitted facts show purchase of shares in FY 2014-15 and sale in FY 2016-17, with the cost of acquisition having been verified and accepted in scrutiny assessment proceedings for AY 2015-16 after enquiries under section 133(6) of the Income-tax Act, 1961. Each previous year is a distinct unit for assessment and the charge to tax is on income of the relevant previous year as per sections 3 and 4 and definitions in sections 2(45) and 5 of the Income-tax Act, 1961. Absent a challenge to the purchase year or payment in the year of sale, revisiting and substituting the declared purchase consideration in a later assessment year, without bringing cogent adverse evidence, is impermissible. The assessing officer also lacked material to justify treating the differential as income under section 56(1) in the year of sale.

Conclusion: The substitution of the assessee's declared cost of acquisition by market prices on dematerialization dates and denial of exemption under section 10(38) in AY 2017-18 is not sustained; outcome is in favour of the assessee.

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