2014 (3) TMI 642 - AT - Income Tax

Disallowance of capital loss Revenue was of the view that the transaction is a sham to book an artificial loss Held that - The AO has rejected the assessee s claim of loss in share transactions by merely holding that assessee s reply in this regard was not satisfactory - He has not spelt out what was not satisfactory in the assessee s reply - AO has not brought out that the sale price recovered in this regard was not proper - No reasonable cause has been attributed whatsoever for holding that the transaction was not satisfactory - CIT(A) has also affirmed the AO s action without any basis. Nothing has been brought on record to show the share transaction was the sham. Just because the transaction is between the relatives, it cannot be said to be a sham - The decision in Ashwani Khurana vs. ACIT 2014 (3) TMI 625 - ITAT DELHI followed - no reason is given either by the AO or by the CIT(A) and except the bald statement, no evidence is produced to point out that the market value of the assets was much more than what is shown in the balance sheet thus, the order of the CIT(A) set aside Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of capital loss on share transactions.
2. Validity of jurisdiction.

Analysis:
1. Disallowance of capital loss on share transactions:
The appeal was against the order of the Ld. Commissioner of Income Tax (Appeals-XXXI), New Delhi, regarding the disallowance of a capital loss of Rs. 9,97,500 on share transactions. The Assessing Officer (AO) contended that the transaction was a sham to book an artificial loss as the shares were sold between family members. The Ld. CIT(A) affirmed the AO's action, stating the transaction was indeed a sham. However, the ITAT found that the AO and Ld. CIT(A) did not provide a valid basis for disallowing the loss. The ITAT noted that just because a transaction involves relatives, it does not automatically make it a sham. Citing a similar case precedent, the ITAT emphasized the need for concrete evidence to deem a transaction as sham. Consequently, the ITAT set aside the lower authorities' order and ruled in favor of the assessee, allowing the capital loss.

2. Validity of jurisdiction:
The issue of the validity of jurisdiction was not adjudicated upon as the appeal on the merits had already been allowed in favor of the assessee. The ITAT considered this issue to be of academic importance only, given the decision on the primary issue. Therefore, the ITAT did not delve into the jurisdiction matter, as the appeal had already been allowed based on the capital loss disallowance issue.

In conclusion, the ITAT overturned the lower authorities' decision and ruled in favor of the assessee regarding the disallowance of capital loss on share transactions. The jurisdiction issue was not addressed due to the favorable decision on the primary issue.