2015 (9) TMI 646 - AT - Income Tax

Genuity of loss on sale of shares - Held that - No reasons to reject the loss on sale of shares by the assessee. The prices at which shares are sold cannot be subjected to our scrutiny and determination, but then rejecting the loss in entirety ends up holding that the assessee ought to have sold the shares at the prices at which the same were purchased. That is beyond the plea of tax authorities to decide, and it is for the businessman as to how he conducts his business though within the framework of law and without any subterfuges. In view of the above discussions, and bearing in mind entirety of the case, we uphold the grievance of the assessee. Accordingly, the Assessing Officer is directed to delete the disallowance on account of sale of shares. The assessee gets the relief accordingly. - Decided in favour of assessee.

Summary

Issues:
Whether the learned CIT(A) was justified in upholding the action of the Assessing Officer in treating the loss on the sale of shares as not genuine.

Detailed Analysis:

1. Background and Assessment Proceedings:
The appeal is against the CIT(A)'s order for the assessment year 2007-08. The Assessing Officer noted that the assessee sold shares at prices lower than their purchase prices, raising concerns about the genuineness of the loss incurred. The Assessing Officer required justification for the transactions, which the assessee failed to provide satisfactorily. The AO observed that the sale prices were not based on market values and suspected manipulation to reduce tax liability.

2. Speculative Loss and CIT(A)'s Decision:
The Assessing Officer treated the loss as speculative, invoking Explanation to Section 73. However, the CIT(A) deleted this issue in favor of the assessee. The CIT(A) rejected the assessee's claim of financial crisis and lack of justification for selling shares at significant losses. The CIT(A) emphasized the need for substantiating claims and providing evidence, which the assessee failed to do, leading to the confirmation of the disallowance.

3. Appellate Tribunal's Decision:
The Appellate Tribunal referred to a Karnataka High Court case emphasizing that selling below purchase price does not automatically invalidate loss genuineness. In the absence of related party transactions and with unquoted shares involved, negotiations determine prices. The Tribunal noted that suspicion alone is insufficient to deem the loss as not genuine. Without specific factors indicating lack of bonafides, the loss incurred by the assessee was considered genuine. The Tribunal highlighted the need for concrete evidence to reject the claim.

4. Conclusion and Decision:
The Tribunal upheld the assessee's appeal, directing the deletion of the disallowance on the sale of shares. It emphasized that tax authorities cannot dictate sale prices and that the businessman's conduct should comply with the law. Rejecting the loss entirely would imply dictating selling prices, beyond the tax authorities' scope. The decision favored the assessee, granting relief by allowing the appeal and deleting the disallowance of the loss on the sale of shares.

In summary, the Appellate Tribunal ruled in favor of the assessee, emphasizing the need for concrete evidence to reject a claim and highlighting that suspicion alone is insufficient to deem a loss as not genuine. The decision underscored that tax authorities cannot dictate selling prices and upheld the genuineness of the loss incurred by the assessee in the sale of shares.