Delayed transfer of shares from physical to Demat form – not a ground for denial of 10(38) benefit

ITO v Ajay Shantilal Lalwani (2012) 145 TTJ511 (Pune)  

Facts of the case

The assessee had purchased shares of a company in physical form and transferred to the demat account on a later date as the assessee was not having demat account at the time of purchasing the shares. When the assessee decided to sell the shares, he sent the shares for de-materialisation. He claimed exemption under section 10(38) for long term capital gains on sale of the said shares. During the assessment proceedings, copies of share certificates held by the assessee in physical form were also provided to the A.O, which contained complete relevant details viz address of Registered Office of the Company, signatures of the authorized signatory along with 2 directors’ signature, value of shares with paid up amount of shares purchased in each Company, date of issue of Certificate, Certificate No., Registered Folio, number of shares with their distinctive numbers, date of transfer of shares in the name of assessee and also copies of contract notes along with bills issued by share broker S.B. Buthra & Company.

The A.O denied claimed exemption u/s. 10(38) of the Act in respect of Long Term Capital Gain mainly on the basis that there was a substantial delay in transferring the shares into D-MAT A/c. from the date of purchase, transactions stated to have been mentioned on the contract notes were not routed through the Calcutta Stock Exchange, the assessee was unable to give any satisfactory explanation about the genuineness of the contract notes issued by the share broker and acquisition or delivery of shares, and sufficient proof regarding the possession of shares as on the date of purchase was not there.


  • The assessee all along displayed the characteristics of an investor and there was nothing on record to suggest that the assessee had ever indulged in any manipulation in the market.
  • The assessee could not be penalized for not opening D-MAT A/c. when he had purchased shares in the physical form.
  • Merely because there was substantial delay in transferring the shares into D-MAT A/c. from the date of purchase and the transactions not routed through Calcutta Stock Exchange , the A.O was not justified in doubting the declared date of purchase of the shares ignoring the above evidences.

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