SHRI. ASHOK SHANKAR CHITNIS,MUMBAI vs. ITO 21(1)(2), MUMBAI

The present appeal has been preferred by the Revenue against the order dated 31.12.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2014-15.

The assessee has raised the following grounds of appeal:

The only effective issue raised by the assessee in the various grounds of appeal is against the order of Ld. CIT(A) upholding the order of AO confirming the addition of short term capital gain of Rs.23,44,217/- as made by the AO in respect of L&T shares by following the LIFO method for calculating the short term capital gain.

The facts in brief are that the assessee filed the return of income on 27.10.2015 declaring total income of Rs.6,01,080/- which was processed under section 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. During the course of assessment proceedings, the AO asked the assessee to submit the computation of income along with Demat account in respect of share transactions which were duly furnished by the assessee before the AO. After examining the information furnished by the assesse, the AO came to conclusion that assessee has not offered to tax the speculation income and short term capital gain on many scripts in the return of income and accordingly issued a show cause notice dated 07.12.2016 to explain the same which was replied by the assessee. The AO after considering the reply of the assessee added to the income of the assesse Rs.78,934/- on account of 3 Shri Ashok Shankar Chitnis speculation income and Rs.23,44,217/- on account of short term capital gain on sale of shares on the ground that assessee himself accepted during the assessment proceedings that this has happened due to mistake of the accountant.

In the appellate proceedings the assesse, challenged only the addition of Rs.23,44,217/- which was dismissed by observing that the assessee has himself admitted that this short term capital gain could not be offered to tax due to mistake of the accountant of the assesse. While dismissing the appeal the Ld. CIT(A) brushed aside the contentions of the assessee qua the fact that the computation of capital gain on the sale of share should be computed by taking the cost of shares on the basis of first come first out. The ld AR submitted before the ld CIT(A) that there was an error on the part of ICICI Bank in reporting the facts with which the assessee maintained his Demat account. The assessee argued before the Ld. CIT(A) that assessee was holding 8450 shares and later on received bonus share of 4225 in respect of L & T Ltd . According to the counsel of the assesse the sale of 3200 shares was to be shown from the share held on the principle of first come first out and therefore the cost of acquisition should have been considered out of 8450 equity shares and not out of bonus shares. However, the Ld. CIT(A) dismissed the appeal by citing the reason that assessee himself accepted before the AO that this has happened due to an oversight of an accountant and thus dismissed the appeal.

After hearing both the parties and perusing the material on record, we find that the assessee had a Demat account with 4 Shri Ashok Shankar Chitnis ICICI Bank in which the assessee held 8450 shares of L&T prior to 12.06.2013. Thereafter, assessee was issued 4225 bonus shares on 17.07.2013. The assessee also sold 5250 shares up to 12.06.2013 and further sold 3200 shares after bonus shares were credited in the Demat account. Therefore, according to the assessee the calculation of short term capital gain should be made by following FIFO method and thus the shares held by the assessee prior to 17.07.2013 should be considered for computing short term capital gain and not the bonus shares. However, the ICICI Bank securities statement had a mistake wherein the sale of shares were shown out of bonus shares considering the cost at nil. The assessee also produced correct statement before ld CIT(A). However, the Ld. CIT(A) failed to consider the same and confirmed the order of AO. Similarly, there are several other mistakes which were pointed out by the Ld. Counsel of the assessee before us. Under these circumstances, we are of the opinion that the capital gain of the assessee should be computed on the basis of method followed by the assessee consistently which is stated to be FIFO method. We note this was the contention of the assesse before the first appellate authority. In our opinion, the capital gain is required to be computed on the basis of FIFO method and not on LIFO method as has been done by the AO. In other words, the capital gain on sale of shares by the assessee is to be computed by taking the cost of shares on LIFO basis meaning thereby that bonus shares issued on 17.07.2013 are not to be taken following the FIFO method. It is for this reason, we are not in agreement with the conclusion drawn by the Ld. CIT(A) and accordingly we restore the matter back to the file of the AO with the direction to

In the result, the appeal of the assessee is allowed for statistical purposes.