GAURISHANKAR HARINARAYAN TAPADIYA,AURANGABAD vs. INCOME-TAX OFFICER, WARD - 2(3), AURANGABAD

आदेश / ORDER आदेश आदेश आदेश

PER SUSHMA CHOWLA, JM:

The appeal filed by the assessee is against the order of Commissioner of Income Tax (Appeals) – 2, Aurangabad dated 23.06.2017 relating to assessment year 2014-15 against order passed under section 143(3) of the Income Tax Act 1961 (in short ‘the Act’).

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“1. Honourble Commissioner of Income Tax (Appeals) has erred in treating the gain on Transfer of Shares as short term gain against appellants claim as Long term Gain and exempt u/s.10(38) of the Act. Appellant prays for deleting whole of the addition confirmed by CIT(A). 2. CIT(A) has erred in concluding that date of Invoice cannot be treated as date of purchase, appellant prays to hold the gain on sale of share Gain as Long term Gain. 3. Appellant prays for just and equitable relief. 4. Appellant prays for cancellation of levy of interest u/s.234B. 5. Appellant prays to add, alter, amend, modify, clarify and or withdraw the ground/s during appellate proceedings.”

appeal was adjourned to 26-12-2018. However, on the appointed date of

hearing, an adjournment application was moved which was refused in view of

the issue raised in the appeal.

shares of an unlisted public company which later got amalgamated and the

shares were dematted in the hands of the assessee on a later date. The

assessee sold the said shares after its Demat. The Assessing Officer was of

the view that it is a case of sale of penny stock. The Assessing Officer held the

transaction to be sham transaction and the same was treated as bogus and

added under section 68 of the Act.

various decisions and has come to a finding after looking into the chronology of

events of transaction that the AO had wrongly inferred certain facts and

accordingly held the conclusion of the Assessing Officer on such wrongly

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inferred facts was not correct. The CIT(A) held that merely because the broker

through whom the assessee had done the transaction had made wrong

dealings with other clients should not be a criteria to establish genuine

transaction of the assessee and the capital gains arising therefrom. The said

chronology of events are mentioned in Para No.46 at page 64 of the appellate

order and in Para No.47 at pages 64 and 65 of the appellate order, the CIT(A)

further goes on to hold that the Assessing Officer had wrongly inferred that

M/s.Intime Reality Pvt. Ltd. was the broker. Infact, the said firm was the seller

of the shares. The CIT(A) further held that the Assessing Officer had wrongly

stated that the assessee made payments for purchase in cash. In this regard,

reference was made to the bank statement provided by the assessee in which

there was debit of the amounts within two weeks of making purchases and

therefore, the CIT(A) held that the payment was made through regular banking

channels. He further observed that merely because there was delay in

converting the physical shares into electronic form, i.e, the Demat account

could not be a criteria to hold that the share transactions were arranged and

camouflaged. The next point noted by the CIT(A) that the original company

M/s. Swift IT Infrastructure and Services Ltd. was an unlisted public company,

the shares of the same could not have been routed through stock exchange

and hence, order number, trade date, trade time was not of any relevance for

the purpose of the said transaction. He further held that off-market transactions

was not an unlawful activity and there was no relevance in seeking details from

the stock market for making the additions in the hands of the assessee. The

CIT(A) further referred to the CBDT Circular No.704 dated 28-04-1995 which

lays down that the date of broker’s note should be treated as the date of

transfer in cases of sale of securities wherein such transactions are followed up

by delivery of shares and also the transfer deeds. The CIT(A) also notes that in

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the said circular the period shall be reckoned from the date of broker’s note for

purchase on behalf of the investors. The CIT(A) then refers to CBDT Circular

No.768 dated 24-06-1998 and held that in view of the two circulars which were

cleared that in case of securities, the date of purchase had to be taken from the

broker’s note/contract note and the period of holding was also to be reckoned

from the date of purchase and not from the date of dematerialization. The

CIT(A) concludes by holding that “however, the assessee has not been able to

justify that the said shares were held for more than 12 months by him”, vide

para No.48 of the appellate order. After considering all the aspects of the

transaction, the CIT(A) held that the transaction for purchase and sale of

shares by the assessee could not be held as bogus as no material was found

against the assessee directly. However, since the assessee had not submitted

the copies of share certificate which would indicate the date of its transfer to the

assessee’s account, the period of holding of the assessee in the said scrip

could not be found and in the absence of the same and even where the transfer

deeds were blank, the delivery of shares could not be found. Even he holds

that the date of holding share shall start from 02-08-2013, i.e. on conversion,

the shares of Parag Shilp Investments Limited were issued to the assessee.

Since the shares were sold on 13-03-2014, the period of assessee’s holding

was less than one year, therefore, the gains arising from sale of shares was to

be treated as short term capital gains. The assessee is in appeal against the

order of CIT(A) in this regard.

I refer to the chronology of events in the transaction resulting in capital gains on

sale of equity shares in the hands of the assessee. The relevant details are

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tabulated in Para No.46 at page 64 of the appellate order and for ready

reference the same are reproduced herein below :

Date Event Evidences • 24/08/2012 Purchase of shares of Swift IT Brokers’ Note i.e., Infrastructure & Services Ltd. Invoice of Intime Reality Pvt. Ltd.,; • Copy of Bank statement evidencing payment on 04/09/2012; • Shares transfer form 03/05/2013 Amalgamation of Swift IT Order of High Court Infrastructure & Services Ltd. into approving the scheme of Parag Shilpa Investments Ltd. amalgamation 02/08/2013 Allotment of shares of Parag Shilpa Share certificate of Parag Investments Ltd., Shilpa Investments Ltd. 20/01/2014 Shares of Parag Shilpa Dmatted in Transaction Statement of assessee’s Name NSDL 12/03/2014 Sale of shares of Parag Shilpa Contract note of Nirmal Bang Investments Ltd. Securities Pvt. Ltd., 20/03/2014 Sale of shares of Parag Shilpa Contract note of Nirmal Bang Investments Ltd. Securities Pvt. Ltd.,

non-appreciation of the factual aspects had held the share transaction to be

sham. The CIT(A) had accepted the purchase of the shares of M/s. Swift IT

Infrastructure and Services Ltd. by the assessee from concern M/s. Intime

Reality Pvt. Ltd. In Para No.47, the CIT(A) observed that the AO was wrong in

stating that the assessee had made the payments for purchase of shares in

cash and has also observed that the concern M/s. Intime Reality Pvt. Ltd. was

not the broker but was the actual seller of the shares. The CIT(A) also notes

that the entries in assessee’s bank account wherein the amount had been

debited within a week of making the purchase and observed that the same was

through regular banking channel. Another point which was considered by the

CIT(A) was the delay in converting the physical shares into dematted form and

has observed that the same cannot be the criteria to hold that the share

transactions were arranged and camouflaged. The CIT(A) has accepted the

plea of the assessee that it is a transaction of sale of shares and assessed the

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income under the head ‘income from short term capital gains as against the

claim of the assessee of assessing the same under ‘income from long term

capital gains. The Revenue is not in appeal against the order of CIT(A) and

hence, the observation of the Assessing Officer in holding the transaction to be

sham, do not stand.

capital gain or short term capital gain. The CIT(A) has taken the allotment of

shares of Parag Shilp Investments Ltd. on 02-03-2013 as the date of purchase

in the hands of the assessee. It may be noted that the aforesaid allotment was

made since M/s. Swift IT Infrastructure & Services Ltd. had amalgamated into

Parag Shilp Investments Ltd. by the order of Hon’ble High Court approving the

case of amalgamation on 03-05-2013. In other words, the assessee would be

entitled to the aforesaid allotment of shares of Parag Shilp Investments Ltd., if it

was originally holding the shares of M/s. Swift IT Infrastructure & Services Ltd.

The assessee has paid for the said purchase of shares of M/s. Swift IT

Infrastructure & Services Ltd. by cheque on 04-09-2012. The invoice of

purchase is dated 24-08-2012. The CBDT in its Circular dated 28-04-1995 has

laid down that the date of broker’s note should be treated as date of transfer

provided the transaction of securities are followed up by delivery of shares. In

case, the shares were delivered to the assessee, then he would not be entitled

to the scheme of amalgamation which culminated on 03-05-2013. In such a

scenario, I find no merit in the findings of CIT(A) in this regard and hold that

where the assessee had made the payment for acquisition of the said shares

through banking channel, the shares stand transferred on 04-09-2012, Merely

because the shares transfer form were blank does not mean that the shares

were not delivered to the assessee. The delivery of shares did take place. In

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case, they were not delivered to the assessee, then under the amalgamation scheme, the assessee could not have been entitled to allotment of shares of said amalgamating entity, i.e. Parag Shilp Investments Ltd. In the entirely of the facts and circumstances, I hold that the assessee has made the aforesaid investment on 24-08-2012 or at best on 04-09-2012 and since the shares were sold on 20-03-2014, then the gains arising from sale of the shares is to be assessed as ‘income from long term capital gains. Thus, I allow the claim of the assessee. The grounds of appeal raised by the assessee are thus allowed.

Order pronounced on this 28th day of December, 2018.

Sd/- (SUSHMA CHOWLA) �याियक सद�य �याियक सद�य / JUDICIAL MEMBER �याियक �याियक सद�य सद�य

पुणे / Pune; �दनांक Dated : 28th December, 2018 Satish आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

स�यािपत �ित //TRUE COPY// Senior Private Secretary, आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune

8 ITA No.2093/PUN/2017 Gaurishankar H. Tapadia

Date 1. Draft dictated on 26-12-18 Sr.PS 2. Draft placed before author 28-12-18 Sr.PS 3. Draft proposed & placed before the AM second member 4. Draft discussed/approved by Second AM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.