Jalan Infosystem Pvt Ltd, Kolkata vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri B. P. Jain, AM]

I.T.A No.1376/Kol/2013 Assessment Year: 2006-07 Lal Chand Sharma Vs. I.T.O Wd-48(2), Kolkata (PAN: AMBPS7302J) (Appellant) (Respondent)

Date of hearing: 13.05.2015 Date of pronouncement: 29.06.2015

For the Appellant: Shri Subash Agarwal, Advocate For the Respondent: Shri K. L. Kanak, Sr. DR

ORDER Per Shri Mahavir Singh, JM:

This appeal by assessee is arising out of order of CIT(A)-XXX, Kolkata in Appeal No. 238/CIT(A)-XXX/Wd-48(2)/2009-10 dated 31.07.2012. Assessment was framed by ITO, Ward-48(2), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2006-07 vide his order dated 30.12.2009.

2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of AO in treating the profit arising out of sale of shares as undisclosed short term capital gain. For this, assessee has raised following two grounds:

"1. That Ld. CIT(a) has erred in confirming the finding of the Assessing Officer in not considering the gains on the sale of shares of Rs.24,16,994/- as long term capital gains.

2. That the Ld. CIT(A) has erred in confirming the finding of the Assessing Officer that the purchase of shares can be considered only on the date of dematerialization and payment and therefore the holding period being less than 12 months, the treatment of sale of shares be taxed as short term capital gains."

3. Briefly stated facts are that the AO during the course of scrutiny assessment proceedings noticed that the assessee in his return of income for AY 2006-07 declared Long Term Capital Gains at Rs.24,16,994/- and claimed exempt u/s. 10(38) of the Act. On investigation, the AO found that the assessee 2 ITA No.1376/K/2012 Lal Chand Sharma AY 2006-07

has purchased 2,50,000 shares of Polylink Polymers on 16.06.2004 as per contract note (order No.1734200 dt. 16.06.2004) of M. Prasad & Co. Ltd. Brokerage Firm and sale of those shares on higher rates between 04.10.2005 to 14.02.2006 through the broker of the assessee M. Prasad & Co. Ltd. Brokerage Firm Regd. Office Lyons Range, 3rd floor, Kolkata. The assessee explained that these shares were purchased in physical form and after transferring the shares in his name he sent the same to DEMAT to his depository participant. According to AO, after verification it was found that the shares have been transferred to DEMAT Account of the assessee on 03.10.2005 and the payment of these shares has been made after 03.10.2005. Hence, according to him, there is no question of any long term capital gains, the same is short term capital gains and that also undisclosed. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO by observing as under:

"3. The submission of the Appellant and the evidences as well as case laws relied upon by him have been considered. It is seen that issue is of treatment of income on sale of shares of M/s. Polylink Polymers Ltd. of Rs. 24,16,994/- in F.Y. 2005-06 which has been shown as LTCG by the Appellant and not accepted by the AO. The AO has considered the same as STCG on the basis of holding period of these shares. The dispute here is not of sale proceeds but the date of purchase of shares and consequently the holding period of the relevant shares to determine whether income from their sale was Long Term or Short Term Capital Gains. The issue is to be decide on the basis of the holding period of the shares sold in the Financial Year by the Appellant as the same would be considered as Long Term Capital Asset chargeable to LTCG only if their holding period would be more than 12 months. The AO has held that the shares transaction reflected in the Contract Note dated 16.06.2004 were not reflected in the stock exchange and that the payment for the purchase of the shares was made after 3.10.05, and further that these shares had been transferred in the Demat account of the Appellant only on 3.10.05 therefore there was no question of income from the sale of shares being considered as Long Term Capital Gain. The Appellant on the other hand claims that the shares had been purchased on 16.06.2004 has relied on the Contract Notes issued by the broker dated 16.6.04 and claimed that shares were purchased outside the Stock Exchange directly from the broker. Further that these shares were subsequently transferred to the dematerialized form on 3.10.05, after which 1,48,550 shares were sold on different dates in FY 2005-06 after 3.10.2005. Therefore the period of holding these shares should be considered from the date of the Contract Note which was 16.6.04 i.e. the holding period would qualify for treating the income as LTCG. The Appellant has also claimed that there was no bar in trading of shares in physical form directly outside the stock exchange and all evidences had been given to the A.O. in support of its claim including details of payments for purchase of shares, contract notes etc.

The dates on which these shares were sold are as under:

3 ITA No.1376/K/2012 Lal Chand Sharma AY 2006-07

"Date Qty.

04.10.2005 48,550 05.10.2005 51,450 06.10.2005 2,250 07.10.2005 20,000 04.01.2006 15,300 09.01.2006 1,450 10.01.2006 2,150 16.01.2006 4,900 14.02.2006 2,500 Total 1,48,550"

4. Since 1,48,550 shares had been sold between 4.10.2005 and 14.02.2006. Therefore, for these shares to qualify for LTCG they should have been held for more than 12 months before the above dates and should have been in the name of the Appellant prior to 04.10.2005 - 14.02.2006, whereas it is seen that the payment has been made to the Broker for these shares on 23.03.2005 and transferred in the name of the Appellant after 23.08.2005. It is also seen that in respect of the Contract Notes executed on 16.6.04 for off-market purchase of shares there is neither evidences of transfer shares at that time or immediately afterwards and the shares were entered in the Appellant's name only on 23.8.05 by the Registrar of Companies i.e. after a period of more than one year. The request for dematerialization of the shares had also been forwarded by the broker only on 15.9.05."

Aggrieved, now assessee is in appeal before us.

4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the entire premise of the lower authorities i.e. AO and the CIT(A) for treating the assessee's long term capital gains as short term capital gains for the reason that the payment for purchase of shares was made after dematerialization of shares. We find that the AO as well as CIT(A) admitted that these shares have been transferred in the DEMAT Account of the assessee on 03.10.2005, which is a categorical finding of the AO. Only the payment is made after the transaction of the shares to DEMAT Account on or after 03.10.2005. We find that the brokers have given contract notes for purchase of these shares dated 16.06.2004 and transferred in the name of the assessee on 23.08.2005. What is the material date for date of transaction here by way of contract note the shares were purchased on 16.06.2004 and i.e. the date to be reckoned for taking transaction of shares and if that date is taken as transfer date the shares are sold on 14.02.2006 which is more than 12 months. Once the shares are held by assessee for more than 12 months, the profit arising out of the same is to be assessed as LTCG. Accordingly, we allow the appeal of the assessee and 4 ITA No.1376/K/2012 Lal Chand Sharma AY 2006-07

reverse the orders of the lower authorities. The AO will assess the profit arising out of the sale of shares as LTCG. We order accordingly.

5. In the result, appeal of assessee is allowed.

6. Order is pronounced in the open court on 29/06/2015.

Sd/- Sd/- (B. P. Jain) (Mahavir Singh) Accountant Member Judicial Member

Dated : 29th June, 2015

Jd.(Sr.P.S.)/Dkp-PS

Copy of the order forwarded to:

1. APPELLANT -Shri Lal Chand Sharma, 2D, N. S. Road, Block-C, flat 401 & 403, Near Shanti Nagar, Liluah, Howrah-711204. 2 Respondent - ITO, Ward-48(2), Kolkata

3. The CIT(A), Kolkata

4. CIT Kolkata

5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Asstt. Registrar.