2014 (8) TMI 805 - AT - Income Tax

STCG on sale of flat - Taxability u/s 28(iv) or section 17 - Held that - The papers were submitted before both the lower authorities - the assessee purchased the flat from DSD Builders and Developers through its director Mr. K. Narayanan - the revenue authorities erred in observing that the assessee bought the flat from Mr. K. Narayanan and sold the same flat to Mr. K. Narayanan - the company though a separate entity for all legal aspects, but it acts through its directors - Mr. K. Narayanan acting for the assessee, purchased the flat from DSD Builders and Developers as the primary transaction - the assessee sold the flat to its director as secondary transaction. Any trace of any connection of Mr. K Narayanan to be associated with the primary seller, i.e. DSD Builders and Developers, to give even a faint hint that the transaction was a collusive transaction - when the assessee sold the property to its director or there was a downward valuation - treading only on macro-economic theory would be unjustified - The burden is squarely on the assessee to prove as to how a loss is justified and acceptable - The assessee sold the property to its director, who actually retained the same and that it did not get eclipsed from the assessee, or its director clearly shows that the impugned flat was meant to be retained thus, the order of the CIT(A) is set aside and the AO is directed for verification of claim of loss on sale of property Decided in favour of Assessee.

Summary

Issues: Disallowance of short-term capital loss claimed on the sale of a flat.

Analysis:
1. Issue of Disallowance of Short-Term Capital Loss:
- The assessee claimed a short-term capital loss of Rs. 62,73,440 on the sale of a flat.
- The AO disallowed the claim, suspecting it to be a device to reduce taxable profits.
- The CIT(A) sustained the disallowance, questioning the rationale behind selling the flat at a loss and highlighting the lack of evidence supporting the economic crisis impact on property prices.
- The ITAT observed that the assessee purchased the flat from a builder through its director and later sold it to the same director, emphasizing that the transaction was not collusive.
- The ITAT found no evidence linking the director to the primary seller, indicating a genuine sale.
- Lack of proof regarding the property market slump at the time of sale led the ITAT to set aside the CIT(A) order and direct the AO to verify the genuineness of the loss claim.

2. Verification of Loss Claim:
- The ITAT directed the AO to re-examine the claim, emphasizing the burden on the assessee to demonstrate the genuineness of the loss.
- The ITAT highlighted the need for evidence supporting the justification of the claimed loss, especially in the absence of concrete macroeconomic impact data.
- The retention of the property by the director post-sale indicated a genuine transaction, warranting further verification of the loan repayment to the director.

3. Conclusion:
- The ITAT allowed the appeal for statistical purposes, setting aside the CIT(A) order and instructing the AO to conduct a thorough verification of the loss claim, ensuring the assessee is given a fair opportunity to substantiate their position.

This detailed analysis of the judgment showcases the progression of the case from the initial disallowance of the short-term capital loss to the ITAT's decision to remand the matter for further examination, emphasizing the importance of substantiating claims in tax matters.