Investments Converted into Stock-in-Trade can avail exemption u/s 10(38): ITAT [Read Order]

The Pune bench of Income Tax Appellate Tribunal ( ITAT )comprising Shri Inturi Rama Rao, Accountant Member and Shri S S Viswanethra Ravi, Judicial Member has held that investment converted into stock in trade can avail exemption u/s 10(38)of Income Tax Act 1961 and upholds the order passed by the Commissioner of Income Tax (Appeals)

The appeal filed by revenue contended that CIT(A) has erred in allowing the claim of exemption u/s 10(38) of the Income Tax Act, 1961 when shares held as an investment are converted into stock in trade is chargeable to tax u/s 45(2) of the Income Tax Act, 1961. The appellant revenue stated that exemption u/s 10(38) is available only when the investment is sold in the recognized stock exchange on payment of Securities Transaction Tax and argued that the sale of stock in trade is taxable as business receipts after allowing the expenses relating to Securities Transaction Taxes.

The respondent-assessee is engaged in the manufacturing of Solvent Cement for which filed a return declaring a loss of Rs.32,50,240/-. Commissioner of Income Tax passed order u/s 143(3) of the Income Tax Act, 1961 at a total loss of Rs.30,68,070/-.The Assessing Officer denied the exemption claimed u/s 10(38) of Rs.1,20,34,601/-

Commissioner of Income Tax-II, Nashik in the revision order u/s 263 held that the assessee is not eligible for exemption u/s 10(38) of the Act. The appellant contended that the exemption u/s 10(38) is available only when the shares are held as investments and sold in recognized stock-in-trade and the order of CIT(A)cannot be sustained. The respondent-assessee contended that the investments were converted into stock-in-trade and sold the shares costing Rs.60,12,515/- for Rs.1,06,78,267/- before 30.11.2007 on which there are long term capital gains of Rs.46,65,552/-. CIT accepted and held the assessee as eligible for exemption. 

The Tribunal upheld the order of CIT(A) and held that the respondent-assessee is entitled to the exemption on capital gains u/s 10(38). The appeal filed by revenue was dismissed. Shri M. G. Jasnani appeared on behalf of the revenue and Smt. Deepa Khare appeared on behalf of the assessee.

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