2011 (10) TMI 581 - AT - Income Tax

Computation of capital gain - Held that - Assessee has sold the shares of the same company on the same date and at the same price. Thus we are of the view that for computation of capital gain in the present case, the AO shall work out the capital gain/capital loss on the basis of consideration received by the assessee. We direct the AO accordingly.

Summary

Issues:
1. Dispute over reduction of business loss on sale of shares.
2. Classification of loss on sale of shares as capital loss.
3. Alleged failure to appreciate evidence and submissions during appeal.
4. Justification of penalty proceedings under section 271(1)(c).

Issue 1: Reduction of Business Loss on Sale of Shares
The appellant contested the AO's decision to reduce the business loss claimed on the sale of shares, arguing that the actual transaction price was &8377; 0.26 per share, not the higher value used by the AO. The appellant emphasized the lack of market availability for such a significant deal and the necessity to disinvest the shares at an appropriate price. The ld. CIT(A) upheld the AO's decision, deeming the transaction collusive and confirming the disallowance of &8377; 419505 as business loss. The Tribunal, citing previous judgments, ruled in favor of the appellant, directing the AO to calculate the capital gain/loss based on the consideration received by the assessee.

Issue 2: Classification of Loss on Sale of Shares
The appellant challenged the classification of the loss on the sale of shares as capital loss instead of business loss. The ld. CIT(A) determined that the appellant, being a trading company, incurred a business loss, not a capital loss. The Tribunal, aligning with previous decisions, emphasized that for capital gain computation, the consideration received by the assessee should be the basis, not the alleged market value. Consequently, the AO was directed to compute the capital gain/loss based on the actual consideration received by the assessee.

Issue 3: Failure to Appreciate Evidence and Submissions
The appellant contended that the ld. CIT(A) failed to appreciate the evidence and submissions presented during the appeal process. The ld. CIT(A) based the decision on the discrepancy between the actual sale price and the market value, deeming the transaction collusive. However, the Tribunal, following precedents, emphasized the necessity to calculate capital gain/loss based on the consideration received by the assessee, ultimately ruling in favor of the appellant.

Issue 4: Justification of Penalty Proceedings
The appellant questioned the initiation of penalty proceedings under section 271(1)(c). While this issue was not explicitly addressed in the detailed analysis provided, the Tribunal's decision to allow the appeal indicates that the penalty proceedings might not have been justified, as the Tribunal ruled in favor of the appellant on the primary issues related to the reduction and classification of the loss on the sale of shares.

In conclusion, the Tribunal's judgment favored the appellant, directing the AO to compute the capital gain/loss based on the consideration received by the assessee, thereby overturning the decisions of the ld. CIT(A) and the AO. The Tribunal's reliance on previous judgments and legal provisions underscored the importance of accurately determining capital gain/loss and highlighted the necessity to consider actual transaction details rather than alleged market values.