SRI SHANTILAL VIRA,KOLKATA vs. ACIT, CIRCLE - 45, KOLKATA, KOLKATA

The Assessee is an individual. For A.Y.2006-07 the assessee filed return of income on 31.10.2006 disclosing the total income of Rs.44,05,020/- which included income under the head Short Term Capital Gain (STCG) of Rs.39,58,972/- on purchase and sale of shares listed in Calcutta Stock Exchange Association Ltd. (CSEA). The dispute in this appeal which is raised in ground no.2 filed by the assessee is with reference to the short term capital gain earned by the assessee on sale of equity shares of a company by name Srinidhi Trading Ltd. The assessee claimed that the aforesaid shares were purchased and sold resulting in short term capital gain of Rs.35,52,162/- as per the following details :-

In an order of assessment u/s 143(3) of the Act dated 31.12.2008 the AO came to the conclusion that the short term capital gain on sale of shares of Srinidhi has to be taxed as follows :- (1) “Profit in respect of 800 shares of Shreenidhi is treated as speculation profit. (2) Profit in respect of 1,800 shares of Shreenidhi is considered as Short Term Capital Gain (S.T.T. paid) and taxed u/s 111A, at special rate. (3) Profit in balance 21,000 Shares of Shreenidhi is considered as Short Term Capital Gain (No STT paid/not through Stock Exchange) and taxed at normal rate.”

In this appeal the issue is only with regard to 21,000 shares of Shreenidhi which was treated as short term capital gain by the AO but was taxed at a normal rate. If Security Transaction Tax (STT) is paid, then the short term capital gain is taxed at a concessional rate. Since there was no evidence of STT having been paid, the AO treated the short term capital gain as liable to be taxed at a normal rate and not at a concessional rate.

The order of the AO was confirmed by the CIT(A). The assessee preferred further appeal before ITAT and in ‘A’ Bench of Kolkata vide its order dated 11.03.2011, the tribunal remanded the issue for fresh consideration with an opportunity to produce evidence by the assessee before the AO regarding payment of STT. The following were the relevant observations of the Tribunal : “6. After hearing the rival submissions and on careful perusal of the material available on record, we are of the view that for calculation of tax of short term capital gains in certain cases u/s. 111A, the assessee has to establish that he has paid Securities Transaction Tax. It is further observed, as pointed out by the Ld. Sri Shantilal Vira A.Y.2006-07 3

The AO passed an order of assessment dated 29.10.2012 giving effect to the above directions of the Tribunal. In the said order the AO referred to a letter from CSEA wherein it was claimed by the AO that CSEA denied any transactions having been executed through CSEA by the assessee through its broker M/s. Rajendra Prasad Shah. The AO, however, in the said order held that the assessee failed to prove the payment of STT on the transaction on sale of shares of Shrinidhi and he therefore taxed the short term capital gain on sale of 21,000 shares of Shrinidhi at Rs.31,61,584/- at normal rate of taxation.

The assessee was aggrieved by this order of the AO in as much as the AO had not provided the assessee with a copy of the communication received from CSEA. The assessee filed a writ petition before the Hon’ble Calcutta High Court in WP No.168/2012. The Hon’ble High Court in its order dated 11.04.2012 quashed the order of assessment dated 29.10.2012 and directed the AO to furnish a copy of the communication received from CSEA and thereafter decide the issue afresh after affording the assessee opportunity of being heard. The following were the relevant observations of the Hon’ble Calcutta High Court :- “Reliance on documents without opportunity to an assessee to make submissions on the same, most certainly contravenes principles of natural justice. The impugned assessment order cannot, therefore, be sustained and the same is set aside and quashed. The Assessing Officer shall, within 30 days from the date of communication of this order pass an order of reassessmnent after giving the petitioner further opportunity Sri Shantilal Vira A.Y.2006-07 4

Pursuant to the order of the Hon’ble Calcutta High Court the AO framed the assessment by an order dated 28.03.2013. In the proceedings before passing the order dt.28.03.2013, the AO furnished a copy of the communication dated 21.03.2013 received from CSEA. The said communication is given as Annexure to this order .

The AO in the impugned order concluded that the communication received from CSEA was unsatisfactory and did not prove the claim of the assessee. Accordingly short term capital gain of Rs.31,65,584/- was taxed at the normal rate and not at the concessional rate provided u/s 111A of the Act. 10. On appeal by the assessee the CIT(A) confirmed the order of the AO. Aggrieved by the order of CIT(A) the assessee has raised ground no.2 before the tribunal which reads as follows :- “2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the A.O. in taxing the income earned from the short term capital gains amounting to Rs.31,61,584/- at normal rate instead of specified rate u/s 111A. “

We have heard the rival submissions. A copy of the communication received from CSEA given as annexure to this order shows that on 23.09.2005 the assessee through M/s. Rajendra Prasad Shah had sold 10,000 equity shares of Shrinidhi and a quantity of 1800 shares of Shrinidhi. The communication further mentions that STT payment for the trades which were executed have been paid. Therefore it is clear from this communication that on the quantity of shares of 11,800 STT had been paid on sale of these shares by the assessee. Out of this 800 equity shares were already considered as speculative transaction by the AO and this was not disputed by the assessee. Therefore the evidence received from CSEA shows that on sale of 11,000 equity shares of Shrinidhi the assessee had paid STT and therefore to this extent the assessee is entitled to the Sri Shantilal Vira A.Y.2006-07 5 benefit of a concessional rate of tax of short term capital gain as provided u/s 111A of the Act. As far as the remaining 10,000 equity shares of Shrinidhi is concerned the communication from CSEA shows that since the order number and trade number are not legible in the information provided by the AO they are unable to confirm whether the trades were done by the assessee through M/s Rajendra Prasad Shah. Thus as far as the sale of 10,000 equity shares is concerned there was no evidence on record brought by the assessee except the confirmation from the broker. No doubt in the contract note for sale of these shares there is a reference to STT having been paid . These contract notes are at pages 9 and 10 of the asssess’s paper book. The broker namely M/s. Rajendra Prasad Shah has also confirmed in his letter to the AO dated 19.03.2013 that STT was paid on all the transactions on sale of shares of the assessee and a ledger copy of the assessee in his books has been annexed (copy at page 21 to 23 of Paper Book). But these documents were available even before the tribunal but the Tribunal found this evidence to be insufficient. Taking note of the evidence in the form of letter from CSEA dated 21.03.2013 we are of the view that on sale of 11,000 equity shares of Shrinidhi and the short term capital gain arising on such sale the assessee would be entitled to the benefit of concessional rate of tax as provided u/s 111A of the Act. To this extent the assessee gets relief on ground no.2. All other grounds were not pressed for adjudication.

In the result the appeal by the assessee is partly allowed.