Capital gains

The assessee filed its return of income disclosing agricultural income, salary income and income from capital gains from sale of shares of Indian Companies. Before the AO, the assessee furnished copies of contract notes, stock-holding statement, and instruction to depository participant and copy of bank account in support of the genuineness of the transactions with regard to the capital gains. These documents were not disputed by the AO. The Department did not accept the transactions as genuine transactions because the assessee failed to furnish the identity of the alleged purchaser of the shares. The AO rejected the claim of the assessee so far as capital gain was concerned. In an appeal, the CIT(A) confirmed the order of the AO. The Tribunal accepted the claim of the assessee with regard to the capital gains, holding that the assessee has filed relevant evidence such as purchase bills, contract notes, delivery instructions to DP, demat account with M/s. NSDL withholding statement, bank statements regarding sales, bills of brokers for purchase of shares, copies of accounts of the assessee in books of the brokers and the details about the valuation of the shares on the date of the transfer through the Calcutta Stock Exchange, which establishes the assessee’s case. The Tribunal set aside both the orders and accepted the claim of the assessee with regard to the capital gains. Being aggrieved, the revenue has filed the present appeal.

The issue is whether the share transactions declared by the assessee can be doubted merely on the ground that the shares were of lesser known companies and their value cannot appreciate to the level claimed by the assessee.

The assessee produced all the possible documentary evidence before the AO to substantiate his claim with regard to capital gains. The AO was obsessed with a view that the shares of M/s P.K. Leasing were purchased on 17 August 2002 at the rate of Rs. 2.72 per share and were sold on 18 September 2003 at the rate of Rs. 75.92 per share. Similarly, the shares of M/s Mohan Finance Ltd. which were purchased in the month of September 2001 at the rate of varying between Rs. 3.02 to 4.52 per share and were sold at the rate of varying from Rs. 54.45 to Rs. 40.14 per share. He was of the view that the possibility of appreciation in the price of shares of lesser known companies in such a short period appears to be remote. On this premise, the benefit of capital gains was denied. Evidently, in the absence of any contrary material, it is but obvious that the assessment order was framed on presumptions and assumptions. The other aspect of the case is that at no stage, except doubting the sale transactions, the Department doubted the documents which were produced by the assessee to substantiate his claim with regard to capital gains. This being so, the Tribunal on appreciation of evidence has rightly found that the transactions in question are genuine transactions. It is a finding of fact based on appraisal of evidence.

Share transactions declared by assessee cannot be doubted merely on ground that shares were of lesser known companies and their value cannot appreciate to the level claimed by the assessee — as held by AllHC in CIT v Atma Ram Tulsyan and Others — In favour of: The Assessee ; Income Tax Appeal Defective Nos. 232, 233, 132, 135, 136, 213, 231 of 2009

Decided on: 10 May 2011