2013 (10) TMI 1037 - HC - Income Tax

Loss of sale of shares (long term loss) - set off with the long term capital gains - genuineness of transaction - As per AO sale was a colourable transaction considering the fact that the assessee purchased the selfsame scrip after some time and the sale to the group company was financed by the assessee himself - Strong suspicion to replace the evidence Held that - On the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact, suspicion can never take the place of proof - The finding arrived at by the Tribunal was not even alleged by Mr. Dutta to have not been based on evidence. In the teeth of the aforesaid findings made by the Tribunal on the basis of evidence, it is difficult, if not impossible, to hold that the transaction of buying and selling of shares of Hindustan Development Corporation Ltd. was a colourable transaction or was resorted to with any ulterior motive of reducing the tax payable for long term capital gain Decided against the Revenue. Decision in the case of CIT vs. Shekhawati Rajputana Trading Co. (P) Ltd. 1998 (4) TMI 106 - CALCUTTA High Court distinguished.

Summary

Issues:
1. Disallowance of set off of loss against long term capital gains.
2. Genuine nature of purchase and sale of shares.
3. Allegations of colorable transaction and ulterior motive.
4. Appeal against Tribunal's decision.

Disallowance of Set Off:
The case involved an assessee company purchasing shares and subsequently selling them at a loss, seeking to set off this loss against long term capital gains. The Assessing Officer disallowed this set off, leading to an appeal by the assessee. The CIT (Appeal) upheld the disallowance citing the sale as a colorable transaction, while the Tribunal found both the purchase and sale to be genuine transactions. The Tribunal provided various factual findings supporting the genuineness of the transactions, such as contract notes, market rate transactions, payment proofs, confirmations, and absence of evidence for alleged parking of shares. The Tribunal's decision to allow the set off was based on these findings.

Genuine Nature of Transactions:
The Tribunal's findings emphasized the genuine nature of the purchase and sale transactions, supported by documentary evidence and confirmations. The Tribunal refuted allegations of parking shares and financing, highlighting that the transactions were conducted at market rates with proper documentation. The Tribunal's detailed analysis of the transaction process and confirmations from brokers and inspectors reinforced the authenticity of the transactions, leading to the conclusion that the purchase and sale were genuine.

Allegations of Colorable Transaction and Ulterior Motive:
The department raised concerns regarding the genuineness of the transactions, alleging them to be colorable and motivated by reducing tax liability. However, the Tribunal's findings, based on concrete evidence and confirmations, dismissed these allegations. The judgment emphasized that suspicion alone cannot replace proof, and the specific circumstances of the case were crucial in determining the genuineness of the transactions. The Tribunal's detailed reasoning and factual analysis countered the department's suspicions, establishing the genuine nature of the transactions.

Appeal Against Tribunal's Decision:
The department appealed against the Tribunal's decision, citing lack of evidence and alleging perversity in the judgment. However, the High Court found no merit in the department's grounds of appeal. The Court highlighted that the Tribunal's findings were based on evidence and factual analysis, refuting the department's claims of perversity. Moreover, the Court addressed the applicability of a previous judgment, emphasizing the distinctions in the cases and supporting the Tribunal's decision. Ultimately, the Court refused to admit the appeal, concluding that it did not raise any legal questions and lacked merit.

This comprehensive analysis of the judgment highlights the key issues of disallowance of set off, the genuine nature of transactions, allegations of colorable transaction, and the appeal process, providing a detailed insight into the legal proceedings and decisions made by the authorities.