Paresh Manubhai Desai Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) in Mumbai has ruled in favor of a taxpayer, Paresh Manubhai Desai, allowing him to claim a long-term capital gains (LTCG) exemption under Section 10(38) of the Income Tax Act, 1961. The tribunal set aside a penalty that treated the sale of inherited shares as a short-term capital gain (STCG). This decision was based on the evidence presented by the assessee, which demonstrated that the shares had been held for a period of over one year, even before he inherited them.
The case originated from the assessment year 2015-16, when the assessee’s tax return was selected for scrutiny. The Assessing Officer (AO) noted that the assessee had received sale proceeds of over Rs. 2.09 crore from the sale of equity shares. Lacking sufficient documentation, the AO treated the entire amount as STCG and completed the assessment. The assessee appealed the order, arguing that the shares were inherited from his parents and had been held for a long-term period. He stated that the shares were transferred to his demat account after their demise, and a reconciliation of the transaction would prove the long-term holding period.
During the appellate proceedings, the Commissioner of Income Tax (Appeals) [CIT(A)] sought a remand report from the AO, who confirmed that without specific documentary evidence, it was not possible to ascertain the holding period. As the assessee failed to furnish the necessary transmission certificate at the time, the CIT(A) upheld the AO’s addition. However, before the ITAT, the assessee presented a copy of the transmission certificate from HDFC Securities and a fresh reconciliation chart. After reviewing the documents, the ITAT concluded that the shares had indeed been received from his parents and were held for a period exceeding one year. The tribunal therefore ruled that the assessee was entitled to the LTCG exemption and deleted the short-term capital gains addition. This ruling reaffirms the principle that the holding period for inherited assets includes the period during which the previous owner held them, thereby making them eligible for LTCG benefits. The appeal was allowed, confirming the assessee’s position.
