The argument that as it is a transaction between closely related parties, there is no motive of tax evasion & s. 56 (2) does not apply is not acceptable.

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The argument that as it is a transaction between closely related parties, there is no motive of tax evasion & s. 56 (2) does not apply is not acceptable.

INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “F”: NEW DELHI
BEFORE SHRI BEENA A PILLAI, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER

ITA No. 2019, 2020/Del/2017
(Assessment Year: 2009-10, 2010-11)
Radhika Roy, Vs. DCIT,
C/o. RKACA & Associates LLP, Circle-18(1),
CA, E-186, Greater Kailash-I, New Delhi
New Delhi
PAN: AAHPR6038G
(Appellant) (Respondent)

ITA No. 2706/Del/2017
(Assessment Year: 2010-11)
DCIT, Vs. Radhika Roy,
Circle-18(1), C/o. RKACA & Associates
New Delhi LLP, CA, E-186,
Greater Kailash-I,
New Delhi
PAN: AAHPR6038G
(Appellant) (Respondent)

ITA No. 2021, 2022/Del/2017
(Assessment Year: 2009-10 and 2010-11)
Dr. Prannoy Roy, Vs. DCIT,
C/o. RKACA & Associates LLP, Circle-18(1),
CA, E-186, New Delhi
Greater Kailash-I,
New Delhi
PAN: AAHPR6037K
(Appellant) (Respondent)

ITA No. 2707/Del/2017
(Assessment Year: 2010-11)
DCIT, Vs. Dr. Prannoy Roy,
Circle-18(1), C/o. RKACA & Associates
New Delhi LLP, CA, E-186,
Greater Kailash-I,
New Delhi
PAN: AAHPR6037K
(Appellant) (Respondent)

Assessee by : Shri Sachit Jolly, Adv
Revenue by: Shri Girish Dave, Adv,
Page | 1
Date of Hearing 26/03/2019
Date of pronouncement 14/06/2019

ORDER
PER PRASHANT MAHARISHI, A. M.

  1. These are the six appeals of two assesses namely, Mr. Dr. Prannoy Roy [ Dr. Roy] and Mrs. Radhika Roy, emanating from transactions of purchase and sale of shares of NDTV Limited entered in to by both of them with M/s RRPR Holdings Pvt Ltd [ RRPR, Company] and also issues of income from house properties pertaining to two assessment years. Shri Sachit Jolly, Ld Advocate on behalf of assessees and Shri Girish Dave, Ld Advocate, special counsel for revenue put extensive, erudite arguments.

Thus, all these appeals were heard together on various dates fixed at the convenience and request of both the parties’ i.e. On 29/10/2018, 29/01/2019, 05/03/2019, 06/3/2019, and 19/3/2019 excluding request for adjournments moved. On 19/3/2019, bench asked certain details to be filed which were ultimately filed on 26/3/2019 and finally hearing was concluded on that date. Assessee has filed paper books and both the parties filed written notes. Further, both the parties relied up on several judicial precedents, which would be considered at the relevant point of time.

All these appeals are heard together and therefore, disposed of by this common order.

  1. First, we take up the appeals filed by assessee Mrs. Radhika Roy for AY 2009-10 in ITA NO. 2019/Del/2017 for AY 2009-10 raising following Grounds of appeals:-

“1. That the learned Commissioner of Income Tax (Appeals), 42, New Delhi has erred both in law and on facts in sustaining the initiation of proceedings under section 147 of the Act and, completion of Page | 2 assessment u/s 147/143(3) of the Act which were without jurisdiction and deserved to be quashed as such.

1.1 That while upholding the assumption of jurisdiction the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded were based on factually incorrect assumptions and had been mechanically prepared without independent application of mind on the basis of diktat issued by Investigation Wing. 1.2 That even otherwise the learned Commissioner of Income Tax (Appeals) having not disputed that in the return of income filed, the assessee had duly reflected the capital gain earned by the assessee has erred in upholding the initiation of proceedings on an assumption that, there was an incorrect disclosure of such capital gain as a long term capital gain instead of short capital gain as has been assessed. 1.3 That the learned Commissioner of Income Tax (Appeals) has further erred when he overlooked and failed to appreciate that basis recorded for the initiation of proceedings was that assessee had neither declared long term capital gain and nor declared short term capital gain; whereas said gain was duly disclosed and claimed as exempt which itself demonstrated that action was taken mechanically without reference to the return of income filed by the appellant and as such action u/s 148 was wholly misconceived, misplaced and untenable. 1.4 That the finding of the learned Commissioner of Income Tax (Appeals) that the learned Assessing Officer has clarified the context of non disclosure of long term capital gain and short term capital gain viz-a-viz para 2 of the reasons which duly captured the position of exempt capital gain overlooks the fact that this figure was not based on the return of income filed by the appellant but bodily lifted and adopted from the information received from the Investigation Wing. 1.5 That the learned Commissioner of Income Tax (Appeals) has otherwise too failed to appreciate that there was no tangible, relevant, specific and reliable material on record on the basis of which, it could be held that, there was any reason to believe with the learned Assessing Officer that income of the appellant had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable.

  1. That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in upholding an addition of Rs. 1,30,30,394/- representing alleged short term capital gain on sale of Rs. 6,25,000 shares of M/s. NDTV Ltd by the appellant in the year under consideration 2.1 That while upholding the addition the learned Commissioner of Income Tax (Appeals) has failed to appreciate the scope and ambit of provisions contained in section 45(2A) read with section 2(42A) of the Act and further incorrectly applied Circular no. 768 dated 24.6.1998 to the facts of the case of the appellant and as such addition made and sustained is untenable.

2.2 That the learned Commissioner of Income Tax (Appeals) having not disputed that the assessee held and owned 1,66,60,658 shares on Page | 3 19.6.2008 which were held since 28.2.1996, could not have arbitrarily reckoned the period of holding of shares from the date of shifting to the joint account and computed short term capital gain instead of long term capital gain as claimed by the appellant.

2.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that all what had happened was that shares held by the assessee and his wife and duly reflected in their individual demat account were shifted for the sake of convenience in a joint demat account and by so doing it did not amount to any transfer made and otherwise too for the purpose of determination of the period of holding such shares, the period of holding of shares is to be reckoned from the date as were “held” by them and were reflected in such demat accounts and not from the date of shifting in the joint demat account from the individual demat account.

2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that unless there was a transfer made, mere shifting of the shares is insufficient to restrict or reduce the period of holding of such shares so as to adopt the date of holding of shares, when they were shifted to the joint demat account and as such mechanical application of Circular No. 768 issued by Central Board of Direct Taxes to make the addition is wholly illegal, arbitrarily and unwarranted. 2.5 That various other adverse findings and conclusions recorded by the learned Commissioner of Income Tax (Appeals) are also factually and legally misconceived and are thus untenable. The addition made and sustained is based on fiction and could not be held as representing any income.

2.6 That the learned Commissioner of Income while computing the aforesaid addition made by the learned Assistant Commissioner of Income Tax has failed to comprehend that if on shifting the shares from individual account to the joint account there was a transfer made then obviously shares resulting into accrual of gain could not be held to be income of the assessee and as such the amount of capital gain ought to have been deleted altogether.

  1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining addition in respect of alleged income under the head house property from following properties:] Sr. No. Property Amount (Rs.) \
  2. i) B-13, Greater Kailash-I, New Delhi 34,268
  3. ii) One House at Dehradun 35,469

iii) Property at Mussorie 2,19,542 Total 2,89,279 3.1 That there is no material or valid basis adopted by the learned Commissioner of Income Tax (Appeals) to enhance the annual value declared by the appellant and in absence thereof, addition sustained is illegal, invalid and untenable.

3.2 That while upholding the addition the learned Commissioner of Income Tax (Appeals) has failed to appreciate written submissions filed by the Page | 4 appellant wherein it was stated that comparable instances adopted are non comparable and inspector’s report is without jurisdiction and otherwise too has no evidentiary value.

3.3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that annual value of property cannot exceed the municipal valuation and as such addition sustained is not in accordance with law, more particularly in respect of Mussorie property.

  1. That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that municipal value of property at Hauz Khas was Rs. 1,53,586/- and such a value represents annual value of the property u/s 23(1) of the Act and thus e ought to have followed the judgment of Full Bench of Hon’ble Delhi High Court in the case of CIT v. Moni Kumar Subba reported in 333 ITR 38 logically directed the Assessing officer to adopt the annual value at Rs. 1,53,586/- instead of Rs. 3,60,000/-.

It is therefore, prayed that it be held that assessment made by the learned Assessing Officer, and sustained by the learned Commissioner of Income Tax (Appeals) is without jurisdiction. It be further held that additions made of Rs. 1,33,19,673/- and upheld by the learned Commissioner of Income Tax (Appeals) deserves to be deleted and appeal of the appellant is thus prayed to be allowed.”

  1. Bothe the parties admitted that facts are identical in case of Dr. Prannoy Roy, he has raised following grounds of appeal in ITA No. 2021/Del/2017 for the Assessment Year 2009-10 which are identically worded as Grounds of appeals in case of Mrs. Radhika Roy for A Y 2009-10 :-

“1. That the learned Commissioner of Income Tax (Appeals), 42, New Delhi has erred both in law and on facts in sustaining the initiation of proceedings under section 147 of the Act and, completion of assessment u/s 147/143(3) of the Act which were without jurisdiction and deserved to be quashed as such.

1.1 That while upholding the assumption of jurisdiction the learned Commissioner of Income Tax (Appeals) has failed to appreciate that reasons recorded were based on factually incorrect assumptions and had been mechanically prepared without independent application of mind on the basis of diktat issued by Investigation Wing. 1.2 That even otherwise the learned Commissioner of Income Tax (Appeals) having not disputed that in the return of income filed, the assessee had duly reflected the capital gain earned by the assessee has erred in upholding the initiation of proceedings on an assumption that, there was an incorrect disclosure of such capital gain as a long term capital gain instead of short capital gain as has been assessed. 1.3 That the learned Commissioner of Income Tax (Appeals) has further erred when he overlooked and failed to appreciate that basis recorded for the initiation of proceedings was that assessee had neither declared long term capital gain and nor declared short term capital gain;

Page | 5 whereas said gain was duly disclosed and claimed as exempt which itself demonstrated that action was taken mechanically without reference to the return of income filed by the appellant and as such action u/s 148 was wholly misconceived, misplaced and untenable. 1.4 That the finding of the learned Commissioner of Income Tax (Appeals) that the learned Assessing Officer has clarified the context of non disclosure of long term capital gain and short term capital gain viz-a-viz para 2 of the reasons which duly captured the position of exempt capital gain overlooks the fact that this figure was not based on the return of income filed by the appellant but bodily lifted and adopted from the information received from the Investigation Wing. 1.5 That the learned Commissioner of Income Tax (Appeals) has otherwise too failed to appreciate that there was no tangible, relevant, specific and reliable material on record on the basis of which, it could be held that, there was any reason to believe with the learned Assessing Officer that income of the appellant had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable.

  1. That the learned Commissioner of Income Tax (appeals) has further erred both in law and on facts in upholding an addition of Rs. 1,30,30,394/- representing alleged short term capital gain on sale of Rs. 6,25,000/- shares of M/s. NDTV Ltd by the appellant in the year under consideration 2.1 That while upholding the addition the learned Commissioner of Income Tax (Appeals) has failed to appreciate the scope and ambit of provisions contained in section 45 (2 A) read with section 2(42A) of the Act and further incorrectly applied Circular no. 768 dated 24.6.1998 to the facts of the case of the appellant and as such addition made and sustained is untenable.

2.2 That the learned Commissioner of Income Tax (Appeals) having not disputed that the assessee held and owned 1,66,60,658 shares on 19.6.2008 which were held since 28.2.1996, could not have arbitrarily reckoned the period of holding of shares from the date of shifting to the joint account and computed short term capital gain instead of long term capital gain as claimed by the appellant.

2.3 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that all what had happened was that shares held by the assessee and his wife and duly reflected in their individual demat account were shifted for the sake of convenience in a joint demat account and by so doing it did not amount to any transfer made and otherwise too for the purpose of determination of the period of holding such shares, the period of holding of shares is to be reckoned from the date as were “held” by them and were reflected in such demat accounts and not from the date of shifting in the joint demat account from the individual demat account.

2.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that unless there was a transfer made, mere shifting of the shares is insufficient to restrict or reduce the period of holding of such Page | 6 shares so as to adopt the date of holding of shares, when they were shifted to the joint demat account and as such mechanical application of Circular No. 768 issued by Central Board of Direct Taxes to make the addition is wholly illegal, arbitrarily and unwarranted. 2.5 That various other adverse findings and conclusions recorded by the learned Commissioner of Income Tax (Appeals) are also factually and legally misconceived and are thus untenable. The addition made and sustained is based on fiction and could not be held as representing any income.

2.6 That the learned Commissioner of Income while computing the aforesaid addition made by the learned Assistant Commissioner of Income Tax has failed to comprehend that if on shifting the shares from individual account to the joint account there was a transfer made then obviously shares resulting into accrual of gain could not be held to be income of the assessee and as such the amount of capital gain ought to have been deleted altogether.

  1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining addition in respect of alleged income under the head house property from following properties:

Sr. No. Property Amount (Rs.)
i) B-13, Greater Kailash-I, New Delhi 34,268
ii) One House at Dehradun 35,469
iii) Property at Mussorie 2,19,542
Total 2,89,279

3.1 That there is no material or valid basis adopted by the learned Commissioner of Income Tax (Appeals) to enhance the annual value declared by the appellant and in absence thereof, addition sustained is illegal, invalid and untenable.

3.2 That while upholding the addition the learned Commissioner of Income Tax (Appeals) has failed to appreciate written submissions filed by the appellant wherein it was stated that comparable instances adopted are non comparable and inspector’s report is without jurisdiction and otherwise too has no evidentiary value.

3.3 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that annual value of property cannot exceed the municipal valuation and as such addition sustained is not in accordance with law, more particularly in respect of Mussorie property.

  1. That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that municipal value of property at Hauz Khas was Rs. 1,53,586/- and such a value represents annual value of the property u/s 23(1) of the Act and thus he ought to have followed the judgment of Full Bench of Hon’ble Delhi High Court in the case of CIT v. Moni Kumar Subba reported in 333 ITR 38 logically directed the Assessing officer to adopt the annual value at Rs. 1,53,586/- instead of Rs. 3,60,000/-.

It is therefore, prayed that it be held that assessment made by the learned Assessing Officer and sustained by the learned Commissioner of Income Tax (Appeals) is without jurisdiction. It be Page | 7 further held that additions made of Rs. 1,33,19,673/- and upheld by the learned Commissioner of Income Tax (Appeals) deserves to be deleted and appeal of the appellant is thus prayed to be allowed.”

  1. As the facts are identical in case of both these assesses for AY 2009-10, we cull out the facts in case of Mrs. Radhika Roy, record the arguments of the parties in that case, provide our decision and reasons for that appeal and apply it in case of Dr Prannoy Roy.
  2. Facts for assessment year 2009 – 10 in case of Mrs. Radhika Roy shows that assessee is an individual who filed her return of income for Rs.

1,66,61,534/- on 31/7/2009 and it was processed on 22/2/2011 under section 143 (1) of the Act at the returned income.

  1. Subsequently, notice u/s 148 of The Income Tax Act [the Act] was issued on 25/7/2011. Reasons recorded shows that reopening is on perusal of return of income based on information received per letter dated 6/6/2011 from The Deputy Director of Income Tax (Investigation) Unit -II, New Delhi [DDIT] holding that assessee has not disclosed long-term capital gain[ LTCG]/short-term capital gain [STCG] in her return of income. Case was reopened because of this non-disclosure resulting into escapement of income u/s 147 of the act.
  2. The assessee submitted a letter dated 3/8/2011 that return of income originally filed on 31/7/2009 might be treated as return in pursuance of notice u/s 148 of The Income Tax Act.
  3. The office of the Deputy Director of Income Tax (Investigation), Unit – II (2), New Delhi, vide forwarding letter dated 6/6/2011 reference number F. NO.

DCIT (INV)/unit – II(2)/2011 – 12/92 referred the report on Dr Prannoy Roy and Mrs. Radhika Roy on account of certain allegations forwarded by Shri Yashwant Sinha, Member Of Parliament and Chairman, standing Page | 8 committee on Finance. During the course of investigation into the allegations, the details of capital gains claimed by Dr Prannoy Roy and Mrs. Radhika Roy, promoters of the NDTV limited were also examined. During the investigation proceedings, it was found that Dr Prannoy Roy and Mrs. Radhika Roy were required to submit details of shares purchased, sold/transferred of NDTV limited. It was gathered that they were maintaining three different Securities Dematerialization account [demat] accounts i.e. One joint demat account and two individual demat accounts.

These demat accounts were maintained in different depositories over the period. The various transactions undertaken by them in these accounts were also tabulated as under:-

Annexure-A Prannoy Roy Date Particulars Whether No. of shares Cost of Cost Total LTCG/ Cumulative through Acquisition per consideration (LTCL) Balance Stock share received Exchange or off market 01/04/07 O.B. 1,66,53,300 54,512 0.00 1,66,53,300 22/01/08 Transferred toStock 4,75,500 00 1,61,77,800 Joint account Exchange 17/03/08 Transferred toStock 1,50,000 00 1,60,27,800 Joint account Exchange 17/04/08 Transferred to Stock 24,10,417 7,890 434 1,04,51,04,669 1,04,50,96,779 1,36,17,383 Joint account Exchange 05/06/08 Sold Stock 150 00 434 65,036 65,036 1,36,17,233 Exchange 03/07/08 Purchase d in As per SEBI 12,77,437 59,52,85,642 466 1,48,94,670 open offer open offer process 03/08/09 Sold to RRPR Off 57,81,842 18,926 4.00 2,31,27,368 2,31,08,442 91,12,828 market 09/03/10 Purchase d from Off 34,78,925 1,39,15,700 4.00 1,25,91,753 RRPR market 09/03/10 Sold to RRPR Off 23,14,762 7,577 140.00 32,40,66,680 32,40,59,103 1,02,76,991 market Ms. Radhika Roy Date Particulars Whether No. of shares Cost of Cost Total LTCG/ Cumulative through acquisition per consideration (LTCL) Balance Stock share received Exchange or off market 01/04/07 O.B. 1,66,53,300 0 0.00 1,66,53,300 22/01/08 Transfer Stock 4,75,000 0 1,61,77,800 Page | 9 Exchange 17/03/08 Transfer Stock 1,50,000 0 1,60,27,800 Exchange 17/04/08 Sold Stock 25,03,259 8194 434 1,08,53,58,953 1.08,53,50,759 1,35,24,541 Exchange 03/07/08 Purchased in As per 16,17,386 79,09,01,754 489 1,51,41,927 open offer SEBI open offer process 03/08/09 Sold to RRPR Off 57,81,842 18,926 4.00 2,31,27,368 2,31,08,438 93,60,086 market 09/03/10 Purchased Off 34,78,925 1,39,15,700 4.00 1,28,39,011 from RRPR Market 09/03/10 Sold to RRPR Off 23,14,762 7,577 140.00 32,40,66,680 32,40,59,103 1,05,24,249 market Jointly held by Dr. Pronnoy Roy & Dr. Radhika Roy Date Particulars Whether No. of shares Cost of Cost Total LTCG/ (LTCL) Cumulative through acquisition per consideration Balance Stock share received Exchange or off market 26/12/07 Purchase d in Stock 48,35,850 2,07,95,93,242 430 48,35.850 open offer Exchange 22/01/08 Transferred Stock 9,51,000 3,113 0 57,86,850 from Exchange individual account 17/03/ 08 Transferred Stock 1,50,000 491 0 59,36,850 from Exchange individual account 17/03/08 Transferred Stock 1,50,000 491 0 60,86,850 from Exchange individual account .

19/06/ 08 Sold Stock 12,50,000 4,092 450 56,28,39,983 56,28,35,892 48,36,850
Exchange
09/03/10 Sold to RRPR Off 48,36,850 2,07,95,93,242 140.00 67,71,59,000 (1.40,24,34,242 0
market )

  1. In that report, it was further noted that Dr Roy & Radhika Roy have

opened joint demat account. The first lots of 4835850 shares of NDTV

limited were purchased on 26/12/2007 in open offer through/exchange at

  1. 430/- per share resulting into cost of acquisition of Rs.

2,07,95,15,500/-. Thereafter, total 1250000 shares of NDTV limited were transferred from their individual demat account to the joint demat account on 22/1/2008 (475000 shares from each individual accounts) and 17/3/2008 (transactions of the same date when 150000 shares were Page | 10 transferred from both individual accounts). [625000 shares from each individual demat account of Dr. Roy and Mrs. Radhika Roy] cost of acquisition for these 1250000 shares has been taken at Rs. 4092/- only.

Thereafter, from this joint account, on 19/6/2008, 1250000 shares were sold through stock exchange at the rate of Rs. 450/- per share with net realization of Rs. 562,800,000. As the assessee has taken the cost of acquisition of these 1250000 shares as nil, therefore, it has recognized Rs.

562,800,000 as a long-term capital gain for financial year 2008 – 09. It was further noted that the board’s circular number 768/ 1998 clearly mentions that FIFO method should be applied to individual demat accounts in order to compute the cost of acquisition and capital gain arising thereupon. In other words, shares that first entered into demat account will be sold first.

In light of this circular, cost of acquisition for these 1250000 shares would be taken at RS. 430/- per share being the cost of shares acquired through open offer on 26/1/2007 instead of Rs. 4092/- taken by the assessee.

Further the date of acquisition of these shares would be recognized from the date on which initial lot of 4835850 shares were credited into this demat account i.e. 26/12/2007. Therefore, in the report it was mentioned that :-

  1. assessee has earned short-term capital gain instead of long-term capital gain and ii. Cost of acquisition of the shares sold would be at the rate of Rs. 430 per share.

Accordingly, the report suggests that the computation of the capital gain would be as under:-

serial particulars amount in Rs.
number
Page | 11
1 Net realization of 1250000 shares at the Rs. 56,28,00,000
rate of Rs 450/- per share

2 Less cost of acquisition of 1250000 Rs. 537,500,000
shares at the rate of Rs 430/- per share

3 Short-term capital gain Rs. 253,00,000

4 Short-term capital gain to be allocated RS. 12,700,000
to individual’s i.e. Dr Prannoy Roy and
Mrs Radhika Roy for assessment year
2009 – 10 in equal ratio

Therefore the report show that the long-term/short-term capital gain accrued to Mrs. Radhika Roy for FY 2008 – 09 would be modified as under:-

serial particulars amount in Rs.
number
long-term capital gain disclosed in the RS. 1,085,300,000 return of income short-term capital gain to be assessed RS. 12,700,000 It is further stated in the report that the long-term capital gain and short-

term capital gain accrued to Dr Prannoy Roy for financial year 2008 – 09 would also be modified accordingly in similar manner. The report further stated that assessing officer is advised that necessary proceeding should be initiated in the case of Dr Prannoy Roy and Mrs. Radhika Roy for AY 2009 –

10 in order to tax short-term capital gain of RS. 12,700,000/- in each case and to take further applicable actions such as levy of interest and penalty.

  1. Based on this information received and on perusal of return of income filed by the assessee, the learned AO recorded the reasons for reopening extracted from page no 43 of the paper book as under:-

“1. The assessee has filed E- return declaring total income of Rs. 1,67,64,284/-. A detailed information regarding wrong disclosure of capital gains have been received from The DDIT (Investigation) Unit –
Page | 12 I, New Delhi, vide letter dated 9/6/2011, intimating that Dr Prannoy Roy and Mrs. Radhika Roy have opened a jointly held demat account.
The first lot of 48,35,850 shares of NDTV limited were purchased on 26/12/2007 in an open offer through stock exchange @ Rs. 430/-

per share resulting into cost of acquisition of RS. 207.96 Crore.

Therefore, total 1250000 shares of NDTV limited were transferred from their individual demat account to this account on 22/1/2008 and 17/3/2008. The costs of acquisition for these 1250000 shares have been taken as Rs. 4,092/- only. Thereafter, on 19/6/2008, 1250000 shares were sold through stock exchange @ Rs. 450 per share with net realization of Rs. 56.28 crores.

  1. The assessee has taken cost of acquisition of these 1250000 shares as NIL. Therefore, it has recognized RS. 56.28 crores as LTCG for FY 2008 – 09. On this issue, the board’s circular number 768 of 1998 clearly mentioned that FIFO method should be applied to individual demat account in order to compute cost of acquisition and capital gain arising thereupon. In other words, shares first entered into demat account will be sold first. In light of the circular cost of acquisition for these 12,50,000 shares would be taken at @ RS. 430 per share instead of RS. 4,092/- as taken by the assessee. Moreover, date of acquisition of the same should be recognized from the date on which initial lot of 48,35,850 shares were credited into this demat account i.e. 26/12/2007. Therefore, assessee has earned short-term capital gain instead of long-term capital gain and cost of acquisition for the shares sold would be @ Rs. 430 per share. The computation is given below-

Page | 13 serial particulars amount in Crore number Rs.
1 Net realization of 1250000 shares @ Rs. 56.28
Rs. 450/- per share

2 Less cost of acquisition of 1250000 Rs. 53.75
shares @ Rs. 430 per share

3 Short-term capital gain Rs. 2.53

4 Short-term capital gain are located to RS. 1.27
individuals for Prannoy Roy and Mrs
Radhika Roy for assessment year
2009 – 10 in equal ratio to both

The long-term capital gain/short-term capital gain accrued to Mrs Radhika Roy for FY 2008 – 09 needs to be modified as under:-
Particulars amount in Crore Rs.
serial
number
long-term capital gain disclosed RS. 108.53

in the return of income
short-term capital gain to be RS. 1.27

assessed

  1. The perusal of the return indicates that neither long-term capital gain nor short-term capital gain has been disclosed. I, therefore, have reason to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for the above assessment year, the short-term capital gain income of RS. 1.27 crores (as discussed above) chargeable to tax, has escaped assessment within the meaning of provision of section 147 of the act. No assessment u/s 143 (3) was completed. Therefore notice u/s 148 is being issued to the assessee.”
    11. Thereafter, on 8/2/2013, assessee was asked to show cause as to why income from shares sold out of the joint demat account of the assessee with Page | 14 her husband on 19/6/2008 should not be treated as short-term capital gain. To this, assessee filed her reply dated 27/2/2013 and submitted that to facilitate sale of 1250000 shares jointly on 19/6/2008, equal number of shares i.e. 625000 shares from individual account of assessee and her husband were transferred to the joint demat account wherein total shares 1250000 were transferred. It was further submitted that the assessee is having several demat accounts, which are held by her in her individual capacity. Besides these accounts, she opened demat account jointly with her husband and purchased 4835850 shares of NDTV limited on 26/12/2007 at RS. 430 per equity share in an open offer through Bombay stock exchange in that account. Thereafter, on 22/1/2008 and 17/3/2008 assessee and her husband transferred 951000 and 300000 (total 1251000) equity shares of NDTV limited. Thus, 625500 equity shares (475500+150000) were transferred by each of them to this joint account out of their individual accounts. On 19/6/2008, they sold jointly 1250000 equity shares of NDTV limited in the market and claimed that the 12,50,000 shares were sold out of share transferred from their individual demat account as against FIFO method prescribed under the act. It was further stated that transfer routed to the joint demat account for onward sale should not get hit by the FIFO rule. It was stated that there is no ambiguity about which lot of shares were sold and FIFO is only to be applied in case of any ambiguity. It was further submitted that at the time of transferring, the shares from individual accounts to joint demat account, shares acquired on 26/12/2007 were pledged to India Bulls and so it was deemed necessary that the additional 1251000 shares be transferred to this joint account. It was further submitted that since sale of shares took place in two lots can be Page | 15 clearly identified with the corresponding number of shares purchased, therefore the fiction of the FIFO method is not required to be applied in the present case. Therefore, the assessee stated that there is no error in the return of income filed.
  2. The learned assessing officer considering the reply filed by the assessee rejected the same mainly for the following reasons:-
  3. according to board’s circular number 768 of 1998, FIFO method should be applied to demat account in order to compute cost of acquisition and capital gain ii. according to provisions of section 45 (2A) of the act, cost of acquisition and the period of holding of the security shall be determined on the basis of First- in – First- out method (FIFO) when beneficial interest on securities is held by the assessee.

iii. Assessee submitted that at the time of transfer of shares from individual account to joint demat account, shares purchased on 26/12/2007 were pledged, but according to AO , Demat statement showed that 40,00,000 shares were pledged as on 1/1/2008. Further on 30/4/2008 there was unpledged of 37,30,000 shares, thus , on 30/4/2008 only 2,70,000 shares were pledged out of 48,35,850 equity shares. Further actual sale of 1250000 equity shares was transacted on 19/6/2008. Therefore on the date of sale of shares of 12,51,000 shares on 19/6/2008 , there were 45,65,850 (48,35,850 –

2,70,000) free shares were available. Hence, the submission of the assessee was found to be incorrect.

Page | 16 iv. The shares would have been sold from the individual demat accounts.

Hence, there was no need to transfer shares from individual demat accounts to Joint account by both the assesses.

  1. Assessee has not declared any short-term capital gain in return of income and long-term capital gain of RS. 132,65,14,725/- is claimed as exempt. Therefore AO noted that the assessee has manipulated the ‘cost of acquisition’ and ‘period of holding’ of these shares to claim the capital gain as exempt and assessee has adopted dubious means under the garb of tax planning.
  2. The learned AO applied the decision of the honourable Supreme Court in case of McDowell & Co Ltd vs CTO 22 taxmann 11 and held that the transaction shown as long-term capital gain are nothing but Sham transactions which have been manipulated to avoid the tax arising on the transfer of shares of NDTV limited.

vii. That assessee is a director of NDTV limited and holding a substantial stake and is in a position that she can influence the decision of the company. Therefore, the actual matter of transaction has to be examined by lifting the corporate veil, which would reveal that the assessee and NDTV are not distinct entities as far as the camouflage is concerned and that both acted in connivance to evade the tax on capital gains.

  1. Accordingly the learned assessing officer computed the short-term capital gain and the long-term capital gain in the hands of the assessee as under:-

Amount ( In Rs) Sale consideration on 19/6/2008 (STT) 56,35,46,732/- 12,50,000 shares (excluding STT as per proviso to section 48) Page | 17 Less cost of acquisition dated 26/12/2007 53,75,45,944/- for 48,35,850 shares amounting to RS.
207,95,93,242/- therefore cost of
acquisition for 1250000 shares is
Total short-term capital gain 2,60,00,788

Share of the assessee at the rate of 50% 1,30,00,394/-

Further, learned assessing officer considered that 25,03,259 shares sold

on 17/4/2008 amounting to RS. 1,08,53,58,953/- and STT thereon of RS.
13,61,460/- resulting into total sale consideration of RS. 1 ,08,67,20,413/-

has the cost of acquisition of RS. 8,194/- and therefore the long-term capital gain which is exempt u/s 10(38) of the act is amounting to RS. 1, 08,67,12,219/-.

  1. Further the learned assessing officer asked details of the immovable properties owned by the assessee and found that the property at Mussoorie is acquired by the assessee and her husband in the year prior to financial year 2007 – 08 and the cost of property to the assessee as per the statement of affairs is RS. 65,33,315/-. The learned AO assumed that the rent of the above property should be at least 0.8% of the cost of property per month as share of the assessee and accordingly he assumed the monthly rent of RS.

5000/- of that property. So he made an addition of deemed rent of that property of RS. 6,24,000/-. Further it was found that the rent of two properties at Dehradun was also considered by the learned assessing officer and deemed let out value equivalent to the Mussoorie property and therefore the addition of RS. 12,48,000/- was made further with respect to the above two properties at Dehradun. Further the assessee owns a property at B –

213, GK – 1, New Delhi that in the statement of affairs is shown as deemed to be let out and the ratable value of the same is shown to be RS. 43,664 Page | 18 resulting into fair rental value of Rs. 2,16,000/-. Assessee treated 50% of the same and determined annual value of RS. 1,08,000/- in the hands of the assessee. The learned assessing officer noted that since the property is located in one of the posh colonies of Delhi where actual rent is quite high, therefore, he determined the minimum property rent of the property at RS. 2,00,000/- per month, considering 50% share of the assessee determined at RS. 1,200,000 and therefore the net addition of RS.

10,92,000/- was made as assessee has only declared RS. 108000/- as income from that property. The learned AO granted 30% deduction under section 24 of the income tax act and determined additional income under the head income from house property of RS. 2074800/-. Another disallowance of RS. 2750/- u/s 80 (G) was made. Consequently, the total income of the assessee was determined at RS. 3,17,39,478/- against the returned income of RS. 1,66,61,534/- an assessment order u/s 143 (3) read with section 147 of the income tax act was passed on 30/3/2013.

  1. Assessee, aggrieved with the order of the learned AO, preferred an appeal before the learned CIT (A) – 42, New Delhi, raising several issues. Assessee challenged the action of the learned assessing officer u/s 148 of the income tax act. The learned CIT – A held that the learned assessing officer did apply his mind before recording the reasons to reopen the case, so he upheld the action of the learned assessing officer. Assessee further challenged the addition made of RS. 1,00,30,395/- on sale of 6,25,000 shares of NDTV limited considered by the learned assessing officer as short-

term capital gain, The learned CIT – A , after elaborate discussion in para number 7 of his order, confirmed action of learned assessing officer holding that RS. 1.30 crore is earned by the assessee is short-term capital Page | 19 gain on sale of the above shares. On the addition of Rs. 20,74,800/- under the head ‘Income from House Property,” the learned CIT – A granted substantial relief to the assessee with respect to each of the properties.

Accordingly, the appeal of the assessee was partly allowed. The assessee is now aggrieved, with the actions of the learned assessing officer in reopening the assessment and additions confirmed by the learned CIT – A.

  1. As per ground number 1 of the appeal, action of the learned assessing officer in reopening the assessment is challenged. As per ground number 2 the determination of the short-term capital gains of RS. 1,30,30,394/- on sale of 6,25,000 shares of M/s NDTV limited is contested. As per ground number 3 and 4 the additions sustained by the learned CIT – A under the head income from property is challenged.
  2. At time of commencement of the hearing, the learned authorised representative did not press an addition of RS. 34,268/- and RS. 35,469/-

sustained by the learned CIT – A under the head Income from House Property with respect to the property at New Delhi and Dehradun. The learned authorised representative also did not press the addition of RS.

1,53,586/- made by the learned assessing officer and sustained by the learned CIT – A with respect to the Hauz Khas property.

  1. Coming to the first ground of appeal challenging the action of the learned assessing officer in reopening the assessment u/s 148 of the income tax act, the learned authorised representative, Shri Sachit Jolly, referred to the paper book filed by the assessee. He referred to page number 7 of the paper book wherein in ‘schedule EI’ of the income tax return form ITR – 2, assessee has disclosed at serial number 3 long-term capital gain from transactions on which security transaction taxes are paid amounting to Page | 20 RS. 1,36,67,68,705/-. He further referred to page number 2 which is the 1st page of ITR – 2 in part B – TI , the long-term capital gain is shown as Nil for the reason that such long-term capital gain is exempt. He further referred to page number 9 of the paper book, which is the computation of the total income, wherein assessee has disclosed the long-term capital gain on sale of shares of New Delhi television limited of RS. 1,36,67,68,704.42 as exempt under section 10 (38) of the act. He further referred to page number 10 of PB, where the calculation of the capital gain for assessment year 2009 – 10 was given where under the heading ‘B’ the assessee has disclosed sale consideration of 625000 shares sold on 19/6/2008 holding that same is a long-term capital gain and therefore exempt. He further referred to the notice u/s 148 of the Act dated 15/7/2011 issued for assessment year 2009

– 10. He further referred to the report of the investigation dated 6/6/2011 placed at page number 28 of the paper book written by The Deputy Director Of Income Tax Investigation, New Delhi to the Assessing Officer wherein it is stated that the sale of 1250000 shares was made from joint demat account of the assessee and her husband. He further referred to page number 29 of the paper book where it is mentioned in the report of the investigation wing which advices to the AO that necessary proceeding should be initiated in the case of the assessee and her husband for assessment year 2009 – 10 in order to tax short-term capital gain of RS.

1.27 crore in each of the cases. He further referred to page number 43 of the paper book where reasons recorded are placed. Assessee submitted that Learned-assessing officer stating that para number 1 and 2 are the copy paste of the report of the investigation wing and para number 3 of reasons recorded shows that the assessee has failed to disclose the long-term capital Page | 21 gain/short-term capital gain in the return of income. The learned authorised representative stating the above facts submitted that the reasons recorded are factually incorrect and are having inherent contradictions and lack of application of mind by the learned assessing officer. He further submitted that the only material on which the learned assessing officer has relied to reopen the case of the assessee is report of the investigation wing.

He further submitted that the report of the investigation wing is an advisory, which advised the learned assessing officer to initiate the reopening of the assessment of the assessee for the impugned year, which is not permissible in law. He further submitted that the investigation wing could not give legal inferences to the learned assessing officer to initiate reassessment. He further stated that the investigation wing report does not speak about any factual issues but legal advice for initiating the reassessment proceedings, which is not permitted under the law.

  1. He relied upon the decision of the honourable Delhi High Court in case of Meenakshi overseas Ltd (395 ITR 677) and Signature Hotels Pvt. Ltd. v.

ITO [2011] 338 ITR 51 (Delhi) to show that there is no application of mind by the learned assessing officer, nothing more than DDIT report is recorded in the reasons. He further referred to the decision of CIT V Atul Jain 299 ITR 383 and submitted that there should be a live link between the reasons recorded. He further submitted that though the assessment is concluded under section 143 (1) of the act but there has to be a cogent reason which must exist and the borrowed reasons cannot be a basis for reopening of the assessment proceedings. He submitted that the facts in the case of the assessee are showing that assessee has disclosed long-term capital gain and particulars are shown in the return of income as well as the computation of Page | 22 total income furnished by the assessee. He further stated that on looking at the return of income filed by the assessee, learned officer has not applied his mind in saying that the no long-term capital gain was disclosed by the assessee. He stated that in fact the assessee has disclosed the long-term capital gain. He further stated that the reasons are copy paste from para number 1 and 2 from the report of the investigation wing and therefore such reasons are borrowed reasons and cannot be sustained in the eye of the law.

He further stated that as the reopening has been made at the instance of the investigation wing and the dictate of the higher authorities, is not sustainable in law. To support his contentions, he further relied upon the decision of Honourable supreme court in CIT v. Greenworld Corporation [2009] 314 ITR 81 (SC) and Munjal Showa Corpo 382 ITR 555. Even otherwise, he submitted that the report of the investigation wing directing the learned assessing officer to initiate the reassessment proceedings is a question of law and not of a fact. The reasons are required to be recorded as per the reason to believe of the assessing officer and not of any other person. In view of this, he submitted that the reopening of the assessment u/s 147 of the income tax act made by the learned assessing officer and sustained by the learned CIT – A is devoid of any merit and the appeal of the assessee should succeed on this count itself.

  1. On the merits of the case, he referred to the statement of the facts and submitted that provisions of section 2 (47) does not apply to the facts of the case when an assessee puts her share from individual demat account to joint demat account along with her husband, as it does not result into transfer. He submitted that any way it is exempt transfer. He further referred to the provisions of section 45 (2A) and stated that it applies to the Page | 23 depositories and a person not to demat account, according to him it works assessee -wise. He further referred to the decision of honourable Supreme Court in CONTROLLER OF ESTATE DUTY v. MRS. KAMALA PANDALAI 105 ITR
  2. He submitted that the shares have been transferred in the joint account of the assessee and/or husband and law could not failed to take note of the personal relationship of the parties and demanded literal application of the provisions, so as to require the husband to leave away from his wife. Therefore, he submitted that it is a joint account with the spouse of the assessee and therefore the ratio laid down of this decision is squarely applicable to the facts of the present case. He then referred to circular number 704 dated 28/4/1995 which is an instruction regarding dematerialization of the ‘date of transfer’ and ‘holding period’ for purposes of capital gains related to transactions in securities. He submitted that the circular applies to a person but cannot be made applicable to each account of the person. According to him, circular is not to be construed account basis but a person basis. He further referred to circular number 768 dated 24 – 6 – 1998 with respect to the ‘date of transfer’ and the ‘period of holding’ of securities held in dematerialized form under section 45 (2A) of the Act for transaction in securities and submitted that FIFO method be applied account wise. He otherwise submitted that because of the transfer from the individual account to the joint account of the shares of NDTV limited , period of holding and the cost of shares cannot change. He also referred to para number 9 and 10 of the decision of the coordinate bench wherein the above circular has been considered in ITO vs DeepChan G Shah 128 ITD 488 (Mumbai). He also referred to the decision of the coordinate bench in case of the Jafferali K Rattonsey V DCIT 23 taxmann.com21 (Mumbai) Page | 24 wherein the above circular number 704 and 768 has been considered. He further referred to the decision of the honourable Delhi High Court in case of Arvind Sungloo trust vs Commissioner Of Income Tax 249 CTR (del) 294 (2012) and referred to para number 12 of that decision to show that when the securities are held by the assessee, it should be the 1st year in which the assets were held by the assessee. In view of this, he submitted that assessee has correctly treated the cost of acquisition of the shares as well as the period of holding of the shares. He therefore submitted that according to the assessee the computation of long-term capital gain made by the assessee is correct and in accordance with the law. Therefore the order passed by the learned Assessing Officer and sustained by the learned CIT –

A holding that the sale of shares has resulted in short term capital gain and tweaking the cost of acquisition on such gains earned by the assessee is devoid of any merit.

  1. The learned special Counsel on behalf of revenue vehemently referred to the letter dated 6/6/2011 written by Deputy Director of Investigation to the Deputy Commissioner of Income Tax. He further referred to page number 35 – 36 of the paper book of the assessee, which is the summary of the joint account (demat of the assessee and her spouse). He co-related page no number 20 which is the transaction statement of the joint account to show that on 01/1/2008, there was a pledge on 40,00,000 shares of NDTV limited. Further, on 30/4/2008, 3730000 shares were unpledged. He submitted that on 19/06/2008, the transaction of sale of 1250000 shares has been entered into. After stating these facts, he referred to the arguments raised by the learned authorised representative stating that the that it is an instruction or advice from a higher authority to reopen the Page | 25 case, is devoid of any merit. He submitted that letter has been written by office of The Deputy Director Of Income Tax, Investigation, New Delhi to The Deputy Commissioner Of Income Tax, New Delhi who both are having the same rank. Therefore, there was no advice from the higher authorities but merely an exchange of information between two similarly placed authorities.

With respect to the application of mind, he referred to page number 43 of the paper book. He submitted that it has been specifically mentioned that in reasons recorded that learned assessing officer before recording the reasons, has perused return of the total income filed by the assessee, compared the same with the information, it was noted by him that assessee has not shown any long-term capital gain and short-term capital gain in the return of income, therefore, he after application of the proper mind on the issue having regard to the return of income and information received has reopened the case of the assessee. He therefore submitted that the allegation and the argument of the learned authorised representative that there is no application of mind by the learned assessing officer are devoid of any merit. He further referred to the return filed by the assessee at page number 10 of the paper book, which shows that the computation of total income is made, by the assessee. However, in the return of income, he stated that assessee has shown only the exempt income under section 10 of RS. 1,36,67,68,705/- but has not shown the computation of the total income vis a vis cost of acquisition and basis of the same and period of holding of such shares. He referred to schedule no – 1, which is placed at page number 7 of the paper book being return of income and compared it with schedule BTI at page number 2 and stated that it is ‘blank’. He further referred to page number 10 of the computation of the total income. He Page | 26 submitted that with respect to the sale of shares of NDTV of 25, 03,259 shares on 17/4/2008 , there is no dispute, however, only dispute is with respect to the sale of 6,25,000 shares on 19/6/2008, where there is no evidence about the holding period and the cost of acquisition of those shares. He, therefore, stated that the learned assessing officer has compared the report of the investigation wing submitted by the Deputy Director of investigation of Income Tax, Compared it with the return of Income filed by the assessee . Thereafter he found that there is no such prima facie indication that the correct disclosure has been made in the return of income qua holding period and cost of acquisition of those shares.

Therefore, he submitted that ld AO has ‘reason to believe’ that there is a failure on part of the assessee to fully and truly disclose the material facts relating to the income. He further stated that subsequent to the assessment u/s 143 (1) of the income tax act, if thereafter any information comes to the knowledge of the assessing officer, which prima facie shows that income has not been disclosed correctly therein, then only option available with the assessing officer is to reopen the case of the assessee. He further referred to the decision of the honourable Delhi High Court in case of Sonia Gandhi 407 ITR 594 (Delhi) and in particular para number 70 of that decision to support his claim. He further countered the argument on the issue of advice from the another officer, he submitted that there is no control with the learned assessing officer that how other officers should write an information report and it cannot go against the revenue, if the informing officer, has used particular language / words which does not suit the purpose of the assessee. He referred to the decision of Surendrakumar Jain V DCIT 85 TTJ 285 (Nagpur) on the issue of Page | 27 reopening of assessment. He submitted that in that particular case there was a clear mandate to the learned assessing officer to reopen the case of assessee, even then the coordinate bench has upheld the reopening proceedings. He further referred to letter dated 6/6/2011 in stating that in the present case the assessing officer was advised to take the necessary proceedings in the case of the assessee , it did not says that reopening is required to be done by the assessing officer. If possible, the assessing officer could have initiated some other proceedings also. Therefore, there is no direction or advice given by the Deputy Director of Income Tax (Investigation), New Delhi to the Assessing Officer to reopen the case of the assessee. Even otherwise, he submitted that the AO was not at all aware and made known about how the assessee has computed the capital gain arising on the sale of the share what is the cost of acquisition. He further stated that according to the dematerialization rules as per the depositories act, the identification of individual sets of lots are lost, moment they are dematrealised. He referred to the relevant provisions of the demat rules and stated that they became fungible and identification of individual share is not permissible as well as not visible. He further referred to the decision of the coordinate bench in ACIT vs Nawal Kishore Kejriwal ITA No.1391/Kol/09 dated 23/4/2010 wherein it has been held that when shares are deposited for Demat, , they loses their identity such as distinctive numbers and share certificates nos. The significant feature of the dematerialized securities is that they are fungible i.e. all the holding of a particular security will be identical and inter- changeable and they will have no unique characteristic such as distinctive number, certificate number, folio number, etc. As the holdings of any securities in dematerialized, form is represented only by the Page | 28 account with the Depository and all transfers are affected through book entries in the accounts maintained by the Depository, under this system it is not possible to link the purchase of a security with its sale by means of its distinctive number, etc. It is for this reason that sub-section (2A) has been inserted in section 45 of the act to provide for the computation of capital gains in respect of securities held in dematerialized form. This sub-section provides that for the purposes of calculating the date of transfer and period of holding in respect of shares held in dematerialized form, the FIFO method would apply. Clarifications have been sought on the manner of application of the FIFO system for the determination of the date of transfer and the period of holding. He therefore submitted that there is a complete application of mind by the assessing officer and he has not relied merely on the information received from the Deputy Director of Investigation. He further stated that there is no dictate of the superior authority but information received from authority of the similar rank to the learned assessing officer, it was also not for reopening of the assessment but was to take necessary action and the learned assessing officer could have taken any action according to the law, if it is permitted to be taken. Therefore, it cannot be stated that the assessing officer acted on the advice of the higher forum. He further stated that there is a live nexus between the information received and the reasons recorded by the learned assessing officer by verifying the return of the income of the assessee and ld AO found that the cost of acquisition and the holding period taken by the assessee for the purpose of the computation of the capital gain on sale of the assessee is incorrect. He otherwise submitted that the assessee has shown capital gain on sale of these shares as long-term capital gain and exempt from taxation Page | 29 whereas according to the assessing officer on examination of the information he prima facie found that the transaction of the sale of shares resulted into the short-term capital gain. Hence, he submitted that there is a live nexus between the information received and reasons recorded by the learned assessing officer.

  1. On the merits of the addition he stated that the decision relied upon by the learned authorised representative of 105 ITR 531 is pertaining to the Estate Duty Provisions and does not apply to the provisions of Income Tax Act. He further referred to the circular and stated that the learned assessing officer has correctly computed the capital gain arising on sale of 625000 shares as short-term capital gain. He extensively referred to the order of the learned CIT – A and ld AO to support his claim. He further referred to the provisions of section 55 (2) (a) of the income tax act and the provisions of section 45 (2A) of the act to support the order of the learned AO and CIT – A.

He also referred to the applicability of circular and submitted that when the shares are transferred from the individual account to the joint account, assets become property of joint owners. He further submitted that on reading of the circular where the reference is made to multiple demat accounts, it is held that same applies to account wise, therefore there is no merit in the argument of the ld AR that, circular applies person wise and not account wise. He further submitted that numbers of shares available with Joint account for sale was much higher than the number of shares sold, therefore, explanation of pledge given by the assessee is incorrect.

  1. In rejoinder, the learned authorised representative referred to page number 29 of the paper book showing the letter dated 6/6/2011, which clearly shows that the assessing officer was advised that necessary proceedings Page | 30 should be initiated in the case of the assessee and therefore there is no option left with the assessing officer except to reopen the assessment proceedings. He therefore submitted that the reopening has been made on the dictate of the other officers. He further referred to the reasons recorded by the learned assessing officer and stated that para number 1 and 2 of the reasons are merely the copy paste of the information received from the investigation wing and further in para number 3 it is indicated that no short-term capital gain or long-term capital is disclosed by the assessee whereas the revenue itself has accepted part A of the calculation of the capital gain placed at page number 10 of the paper book amounting to RS.

1,085,300,000/- as long-term capital gain. Referring to the decision of 85 TTJ 285 referred by the learned departmental representative, he stated that in para number 15 nothing was conveyed to the assessing officer in that particular case, therefore there was no dictate in that decision. However in the case of the assessee there is a direct dictate of The Deputy Director Of Income Tax to initiate the proceedings. Further with respect to the decision of Sonia Gandhi referred to by the learned departmental representative, he referred to para number 47 of the decision and stated that it was an issue of stale information and para number 17 related to the nondisclosure of taxing event. There is no such disclosure failure in the case of the assessee in the impugned appeal. He therefore submitted that both these decisions relied upon by the learned departmental representative does not apply to the facts of the case.

  1. Coming to the merits of the case he stated that the decision relied upon by the learned departmental representative of Nawal Kishor Kejriwal was with respect to the broker’s contract note and no documents were produced in Page | 31 that particular case, therefore it does not apply in the impugned appeal.

Even otherwise, he submitted that in the dematerialization of the shares, only the distinctive number of the shares are lost, but the period of holding and the cost of acquisition does not change at all. Therefore, he submitted that the orders passed by the authorities below are not sustainable.

  1. We have carefully considered rival contentions and perused orders of authorities below. We have also perused the communication received by the Deputy Commissioner of income tax (AO) from the Deputy Director Of Income Tax (Investigation), New Delhi. We have also perused the reasons recorded by the learned AO reproduced in earlier paragraphs. We have also considered the various judicial precedents relied upon by rival parties. On careful consideration we found that as per ground number 1 of the appeal revolves around following dispute:-
  2. Whether the ld AO has correctly initiated the reassessment proceedings u/s 147 of the income tax act.
  3. If, the reassessment proceedings are correctly initiated, whether the shares held by the assessee in the joint demat account are short-term capital asset or long-term capital asset and what is the ‘cost of acquisition’ and ‘period of holding’ of those shares for computation of capital gain.
  4. We address the first issue that whether the learned assessing officer has correctly initiated the reassessment proceedings under section 147 of the income tax act or not. Undoubtedly, the Deputy Commissioner Of Income Tax received a letter dated 6/6/2011 from the Deputy Director Of Income Tax, investigation, New Delhi wherein it is stated that there were certain allegations which were forwarded by Shri Yashwant Sinha , M P and the Member Of Parliament and Chairman Standing Committee Of Finance stating that assessee along with her husband is having 3 different demat accounts. One demat account is in the name of the assessee and her husband individually. The third demat account is the joint demat account of assessee and her husband. The facts clearly shows that assessee transferred 475000 shares on 22/1/2008, 1,50,000 shares on 17/3/2008 Page | 32 to the joint demat account with her husband from her individual demat account. Similarly, her husband also transferred the identical number of shares on those dates in the joint account from his individual demat account. Therefore, both assessee and her husband transferred 625000 shares of NDTV limited to the joint demat account from their individual demat accounts and subsequently on 19/6/2008 these shares were sold by the assessee along with her husband from her joint demat account and claimed that it has resulted into exempt long-term capital gain. The communication received from the Deputy Director Of Investigation, New Delhi claims that assessee has not disclosed that it has earned short-term capital gain but has shown it as a long-term capital gain. It was further stated in the above letter that the cost of acquisition for the shares sold would be RS. 430/- per share being the cost of acquisition of 4835850 share acquired in the joint demat account on 26/12/2007 from stock exchange and not only RS 4092/- as claimed by the assessee. Therefore the allegation was that assessee has shown the sale of 1250000 shares of NDTV limited as ‘long-term capital asset’ instead of ‘short-term capital asset’ by claiming wrong holding period of those shares and further has also shown the ‘cost of acquisition’ of the share wrongly and not showing correct ‘cost of acquisition’ of the share at RS. 430/- per share. The letter was also accompanied by the 3 annexure titled as annexure A wherein date wise analysis of the shares held in all the 3 demat account including the joint demat account of the assessee was tabulated. As per that letter the detailed working of the capital gain on sale of short-term capital asset was worked out and stated that short short-term capital gain of RS. 12,700,000 have accrued to the assessee and the identical amount to the other joint owner, i.e. husband of the assessee. The letter also advised the assessing officer that necessary proceedings should be initiated in the case of the assessee as well as her husband in order to tax short-term capital gain in each of these cases. Based on this informational AO verified the return of income. Thereafter, learned assessing officer recorded the reasons for reopening of the assessment. While recording the reasons for reopening, the learned AO reproduced the information received from the DDIT in para number 1 – 3. In para number 4 the assessing officer stated tha

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