SHRI BHIM SAI JAIN,BALLABGARH FARIDABAD vs. ITO,WARD 1(1)FARIDABAD, HARYANA FARIDABAD

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ITA 1640/DEL/2021Status: DisposedITAT Delhi14 October 2022AY 2014-20156 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the long-term capital gain from share sales cannot be added under Section 68. The issue of whether the gain qualifies as long-term capital gain was restored to the Assessing Officer for verification of the holding period.

What were the facts?

The assessee offered long-term capital gains from share sales, claiming exemption. The Assessing Officer treated the transaction as sham and added the amount as unexplained cash credit under Section 68. The Commissioner (Appeals) upheld this.

What were the issues?

Whether the long-term capital gain from share sale can be treated as unexplained cash credit under Section 68, and whether the gain qualifies for exemption under Section 10(38) based on the holding period.

Which sections of the Income-tax Act were involved?

Section 68,Section 10(38)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC’ NEW DELHI

For Appellant: Shri Vijay K. Gupta, Adv
For Respondent: Shri Om Parkash, Sr. DR
Hearing: 19.07.2022Pronounced: 14.10.2022

ORDER This is an appeal by the assessee against order dated 30.09.2021 passed by National Faceless Appeals Centre (NFAC), Delhi for the assessment year 2014-15.

2.

The dispute in the present appeal is confined to addition of an amount of Rs.23,70,761 as unexplained cash credit under Section 68 of the Income-Tax Act,1961.

3.

Briefly, the facts are, the assessee is a resident individual. For the assessment year under dispute, assessee had filed his return of income on 29.09.2014 declaring income of Rs.17,85,350. In the return of income so filed, the assessee had offered long term capital gain of Rs.23,25,961 from sale of shares of M/s. Pawansut Holdings Ltd. At the same time, he claimed such income to be exempt under Section 10(38) of the Act.

4.

In course of assessment proceedings, the assessing officer called upon the assessee to furnish the details relating to sale of shares of Pawansut Holdings Ltd. After verifying the material available on record, the assessing officer ultimately concluded that the so called share transaction relating to sale of shares of Pawansut Holdings Ltd. is a sham transaction aimed only to bring unaccounted money in the guise of exempted long term capital gain. Accordingly, he added back the amount of Rs.23,70,761 to the income of the assessee as unexplained cash credit under Section 68 of the Act. The addition so made was upheld by learned Commissioner (Appeals).

5.

Against the order of first appellate authority, the assessee preferred an appeal before the Tribunal. While deciding the appeal, the Tribunal restored the issue to the file of the assessing officer to decide assessee’s claim of long term capital gain after verifying the period of holding of shares by the assessee. While giving effect to the order of the Tribunal, the assessing officer repeated the addition made earlier by alleging that the assessee did not furnish audited balance sheet to establish the period of holding of shares. The addition was sustained by Commissioner (Appeals), as well.

6.

I have considered rival submissions and perused the material available on record.

7.

As could be seen, while deciding assessee’ appeal contesting the addition of long term capital gain as unexplained cash credit under Section 68 of the Act, the Tribunal in dated 11.01.2019 restored the issue to the assessing officer with following observations:

“11.1 It is an admitted fact that the 12700 shares of M/s Pawansut Holdings Ltd. were sold on 10th March, 2014 for a total consideration of Rs.23,74,138/-. The shares were sold through recognized stock exchange and STT has been paid. The amount has been received by cheque. It is also an admitted fact that the shares were dematerialized prior to its sale. Thus, the sale of shares is not in dispute and, therefore, the amount cannot be added u/s 68 of the IT Act. However, the question that arises in the instant case is regarding the date of purchase of the shares. It is the allegation of the Assessing Officer that the shares were purchased off market and the payment has been made in cash. Although the assessee has filed a voluminous paper book, however, the balance sheet or statement of affairs for the year ending 31st March, 2013 has not been filed. Therefore, it is not discernible from the records as to whether the assessee has shown such purchase of shares in the balance sheet or statement of affairs as on 31.03.2012. If the assessee has shown the shares in the balance sheet or statement of affairs as on 31st March, 2013, then, it can be safely presumed that the shares were purchased in financial year 2012-13. Since the shares were sold on 10th March, 2014, therefore, the shares can be held to be for a period of more than 12 months and accordingly exemption u/s 10(38) of the IT Act can be allowed to the assessee. Since the balance sheet or statement of affairs for the year ending 31st March, 2013 is not available in the paper book, therefore, considering the totality of the facts of the case and in the interest of justice, I deem it proper to restore the matter to the file of the Assessing Officer for the limited purpose of verifying the balance sheet or statement of affairs of the assessee as on 31st March, 2013 to find out if the shares are appearing in the balance sheet or statement of affairs of the assessee as on 31st March, 2013 to allow the claim of the long-term capital gain u/s 10(38) of the IT Act. In absence of the same he can also ask the assessee to prove to his satisfaction by any other evidence that the shares were in fact purchased during F.Y. 2012-13. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.”

8.

A reading of the aforesaid observations of the Tribunal would clearly reveal that, in so far as, the issue whether the long term capital gain can be added under Section 68 of the Act, the Tribunal has given a categorical finding that the long term capital gain offered by the assessee cannot be added under Section 68 of the Act. The only aspect which the Tribunal directed the assessing officer to verify is, whether the gain derived by the assessee from sale of shares qualifies as long term capital gain. For this purpose, the Tribunal had directed the assessing officer to verify the balance sheet of the assessee or statement of affairs of the assessee as on 31.03.2013. The aforesaid being the specific direction of the Tribunal, the departmental authorities cannot again make the addition under Section 68 of the Act.

9.

As regards the issue, whether the gain derived from sale of shares can be treated as long term capital gain, it is observed, before the assessing officer, the assessee had furnished personal balance sheet to demonstrate that the shares were held as on 31.03.2013.

However, the assessing officer has disbelieved the claim of the assessee on the ground that the balance sheet is not audited. This, in my view, is unacceptable. While restoring the issue, the Tribunal has clearly directed that the assessee can prove the period of holding of shares by furnishing either balance sheet or statement of affairs.

Nowhere, the Tribunal has directed the assessee to furnish any audited balance sheet. Therefore, the assessing officer could not have insisted upon an audited balance sheet to accept assessee’s claim.

10.

In view of the aforesaid, I delete the addition made by the assessing officer.

11.

In the result, the appeal is allowed.

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