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2018 (12) TMI 1734 - AT - Income TaxLong term capital loss - Genuineness - sale of listed shares to a group company at a price less than the market price. - off market transactions - Revenue submitted that, had the assessee sold these shares through the stock exchange then the impugned loss could have been avoided. Accordingly, the learned DR contended that the loss claimed by the assessee is nothing but generated through the use of a colorable device. Held that - if the assessee would have sold these shares through the network of the stock exchange, the possibility of the reduction in the value of shares in the market would not have been avoided. It is because at that relevant time the daily average number of shares traded in the stock exchange namely BSE NSE were 4,87,085 and 9,56,701 respectively. The relevant details showing the average number of shares traded in the stock exchange is placed on pages 54 to 55 of the paper book. Thus the sudden supply of 30 lacks shares, that too by the promoter of the assessee company in the stock exchange would have adversely affected the price of the shares of Arvind Ltd. There is no provision under the Act prescribing the guidelines for pricing of the shares unlike the provisions contained under section 50C of the Act concerning immovable properties under the head capital gain. - As per the provisions of section 50CA of the Act, the sale price of shares other than quoted shares shall be the fair market rate which shall be determined as prescribed under the rule 11UAA of the Income Tax Rule. - the lawmakers have not brought any mechanism to determine the sale price of quoted shares if sold off-market. Thus it is transpired that the sale price of the quoted shares shall be the price as agreed between two parties if it is sold off-market. Whether this transaction is a colorable device to reduce its future tax liability - Held that - whenever assessee has two options, any layman will always go for one which reduces its tax liability but to hold that the transaction as a colorable device Revenue needs to see it in entirety, as held by the Hon ble Gujarat high court 1995 (12) TMI 12 - GUJARAT HIGH COURT We are not inclined to uphold the finding of authorities below. Accordingly, we set aside the order of learned CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. - Decided in favor of assessee. Short-term capital loss - sales of shares and forfeiture of share warrants were carried out among the related parties and belonging to the same group - AO was of the view that the loss claimed by the assessee is a colorable device - Held that - section 50CA is applicable w.e.f. 01st April 2018, therefore, for the assessment year under consideration there was no mechanism under the law to determine the sale price of unquoted shares. Additions u/s 56(2)(x) r.w.s 68 - Held that - the person being the recipient is subject to tax if it acquires anything at a value lesser than the fair market price. These provisions have been brought under the statute with effect from 01.04.2017. We also note that the same provision was also there in the old provision under clause (vii) to section 56(2) of the Act. However, on reading the same, we note that the tax liability, if any arises will be applicable in the hands of the recipient and no liability, can be imposed on the transferor. Therefore, we are of the view that the assessee being the transferor of shares cannot be subject to tax in the instant case. - the investment made by the assessee at such a high premium and subsequent sale at a loss cannot be the basis holding that such loss is bogus in the given facts circumstances. Colorable device to claim short term loss - Held that - had there been any malafide intention of the assessee then it could have booked such loss in the more planned manner so that there should not have been any doubt. We are forming our view on the basis that the assessee did not set off such loss till the date of passing the order by the learned CIT-A. Had there been any malafide intention of the assessee, then it could have claimed the set off of such loss in the same financial year or the subsequent financial year. Similarly, we also note that the future income under the head capital gain cannot be predicted for claiming the set off of such loss. Moreover, there was no allegation of the Revenue that such loss was created to claim the set off of the future income. The future income is unseen and unpredictable and it was not possible to design the same in the relevant year. Therefore, we are of the view that such loss cannot be disallowed keeping in mind the future income of the assessee. The above the loss of ₹ 3,50 crores cannot be treated as generated through the use of colrable decvice. - Decided in favor of assessee.
Issues Involved:
1. Disallowance of long-term capital loss on the sale of shares. 2. Disallowance of short-term capital loss on the sale of shares and forfeiture of share warrants. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of depreciation on BMW Motorcar. 5. Short charging of interest on advances. 6. Disallowance under Section 35D. 7. Disallowance under Section 40(a)(ia). Issue-wise Detailed Analysis: 1. Disallowance of Long-Term Capital Loss on Sale of Shares: The assessee claimed a long-term capital loss of ?1,49,70,000 on the sale of shares of Arvind Ltd. The shares were sold off-market at ?28.31 per share, below the market price of ?33.30 per share. The Assessing Officer (AO) disallowed the loss, treating the transaction as a colorable device. The CIT(A) upheld the AO's decision. However, the Tribunal found that there was no provision under the Income Tax Act to determine the sale price of shares unlike Section 50C for immovable properties. The Tribunal held that the transaction was genuine and directed the AO to delete the addition. 2. Disallowance of Short-Term Capital Loss on Sale of Shares and Forfeiture of Share Warrants: The assessee claimed a short-term capital loss of ?3.50 crores on the sale of shares of Anagram Knowledge Academy Ltd. (AKAL) and ?36,19,050 on the forfeiture of share warrants. The AO disallowed the losses, treating them as colorable devices. The CIT(A) upheld the disallowance of ?3.50 crores but allowed the loss on forfeiture of share warrants. The Tribunal found that the transactions were genuine and not colorable devices, directing the AO to delete the additions. 3. Disallowance Under Section 14A Read with Rule 8D: The AO disallowed ?58,77,294 under Section 14A read with Rule 8D, but the CIT(A) restricted the disallowance to ?11,82,418. The Tribunal noted that the assessee's own funds exceeded the investments and held that no disallowance of interest expenses could be made. The Tribunal also found that the disallowance of administrative expenses could not exceed the actual expenses claimed by the assessee. The Tribunal upheld the CIT(A)'s order, restricting the disallowance to ?11,82,418. 4. Disallowance of Depreciation on BMW Motorcar: The AO disallowed ?16,03,792 as depreciation on a BMW car, following the order of the previous assessment year. The CIT(A) partly upheld the disallowance, restricting it to ?13,63,244. The Tribunal, following its decision in the previous year, directed the AO to allow the depreciation, finding that the car was used for the business of the assessee. 5. Short Charging of Interest on Advances: The AO made an addition of ?17,01,370 for short charging of interest on advances given to Radiant Urja Ltd. The CIT(A) deleted the addition, noting that the assessee's own funds exceeded the advances, and there was no evidence of diversion of borrowed funds. The Tribunal upheld the CIT(A)'s order, citing precedents that if interest-free funds are sufficient to cover the advances, no disallowance can be made. 6. Disallowance Under Section 35D: The AO disallowed ?97,224 claimed as demerger expenses under Section 35D, stating that the assessee had not provided documentary evidence. The CIT(A) deleted the addition, noting that the expenses were allowed in earlier years under Section 35DD and the AO could not deny the deduction merely because it was claimed under the wrong section. The Tribunal upheld the CIT(A)'s order. 7. Disallowance Under Section 40(a)(ia): The AO disallowed ?12,25,908 as credit card commission expenses for non-deduction of TDS under Section 194H. The CIT(A) deleted the addition, holding that the charges were in the nature of bank charges, not commission. The Tribunal upheld the CIT(A)'s order, citing precedents that payments to banks for credit card facilities are bank charges, not commission. Conclusion: The Tribunal allowed the appeal of the assessee and dismissed the appeals of the Revenue, directing the AO to delete the additions made on various grounds. The Tribunal's decisions were based on the genuineness of transactions, sufficiency of own funds, and proper application of legal provisions.
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