JUDGMENT :

T.S. Sivagnanam, J.

(Prayer: Appeal under Section 260A of the Income Tax Act, 1961 against the order dated 07.04.2014 made in I.T.A.No.1584/Mds/2012 on the file of the Income Tax Appellate Tribunal 'D' Bench, Chennai for the assessment year 2007-08.)

This appeal, by the Revenue, filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) is directed against the order dated 07.04.2014 made in I.T.A.No.1584/Mds/2012 on the file of the Income Tax Appellate Tribunal 'D' Bench, Chennai (for brevity “the Tribunal”) for the assessment year 2007-08.

2. The appeal was admitted on 02.02.2016, on the following substantial question of law:-

“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the shares/debentures not listed in the recognized stock exchange could be treated as a long term capital asset as per Section 2(42A) read with its proviso?”

3. We have heard Mr. M. Swaminathan, learned Senior Standing Counsel assisted by Ms. V. Pushpa, learned Standing Counsel for the appellant-Revenue and Mr. B. Ramanakumar, learned counsel appearing for the respondent-assessee.

4. The assessee is an exporter of agricultural commodities and also dealing in iron ore. The assessee filed their return of income for the assessment year 2007-08 on 31.10.2007, declaring total income of Rs.7,93,48,354/-. The return was duly processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny, the assessee was called upon to furnish details and the case was discussed with the Authorized Representative of the assessee.

5. On going through the books of accounts and other documents produced by the assessee, the Assessing Officer pointed out various issues and ultimately, the assessment was completed under Section 143(3) of the Act by order dated 30.12.2009. The Commissioner of Income Tax-II, Tiruchirappalli (for brevity “the CIT”) exercised his power under Section 263 of the Act on the ground that the Assessing Officer failed to find out how many shares were acquired by the assessee from a hotel, which is a company registered under the Indian Companies act and how many shares were acquired by another company, which owned a hotel in Trichy. Further, the Assessing Officer has not ascertained at what price and when the shares were acquired. After noting certain facts, the CIT was of the opinion that the order of assessment is erroneous and prejudicial to the interest of Revenue and accordingly, proceeded with the matter under Section 263 of the Act. After hearing the assessee, an order was passed by the CIT dated 15.02.2011 by directing the Assessing Officer to workout the short term capital gains keeping in mind the rate of interest. The said order was given effect to by the Assessing Officer by order dated 30.12.2011. Aggrieved by the same, the assessee preferred appeal to the Commissioner of Income Tax (Appeals), Tiruchirappalli (for brevity “the CIT(A)”). The assessee contended that the Revenue has made a mistake by treating the shares held for more than twelve months as short term capital assets whereas, the proviso to Section 2(42A) clearly defines an asset as a long term capital asset and therefore, the gain should be taxed at the special rate of 20%. The CIT(A) after taking into consideration the factual and legal submissions made by the assessee, noted that the shares need not be one of a company, which is listed in its stock exchange and even shares of private limited companies are eligible to be treated as long term asset, if it is held for more than twelve months. Accordingly, the appeal was partly allowed by order dated 25.05.2012, directing the Assessing Officer to treat the sale of shares as long term capital asset, allowing the indexation and tax the resultant capital gain at the special rate of 20%. Aggrieved by the same, the Revenue was on appeal before the Tribunal contending that the proviso to Section 2(42A) of the Act would apply only to s