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2019 (6) TMI 1414 - AT - Income TaxClaim of loss on share transactions - genuineness of sale and purchase of shares - AO was of the view that the assessee has incurred such loss to avoid the long-term capital gain income earned by it. Thus the AO treated such loss as generated using the colorable device. - CIT (A) after considering the submission of the assessee deleted the disallowance made by the AO Held that - the Revenue has taken the different stand by taxing the gain with respect the transaction for the sale of shares within the group but disallowed the loss with respect the transaction for the sale of shares within the group. Thus the stand of the Revenue was contradictory. ITAT in the own case of the assessee 2018 (12) TMI 1734 - ITAT AHMEDABAD involving identical issues pertaining to the assessment year 2010-11 has decided the issue in favour of the assessee and against the Revenue. Decided against the revenue.
Issues Involved:
1. Validity of the assessment order. 2. Disallowance of short-term capital loss on the sale of shares. 3. Disallowance of expenses under Section 14A of the Income-tax Act and Rule 8D of the Income-tax Rules. 4. Addition of disallowed amount while computing book profit under Section 115JB. 5. Levy of interest under Section 234B. 6. Levy of interest under Section 234C. 7. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Validity of the Assessment Order: The assessee raised a ground challenging the validity of the assessment order, but no argument was advanced by the counsel. Hence, this ground was dismissed as not pressed. 2. Disallowance of Short-Term Capital Loss: The assessee incurred a short-term capital loss of ?1,80,00,000 on the sale of shares of Anukul Investments Pvt. Ltd. (AIPL). The shares were bought at ?5000 per share and sold at ?500 per share within the same financial year. The AO disallowed the loss, treating it as a bogus loss generated using a colorable device, as the transactions were with related parties and lacked substantiation. The CIT(A) confirmed the AO's order, stating that the transactions were controlled and at artificial prices without any legal bindings or valuation support. For the short-term capital loss of ?2,93,33,942 on the shares of Anagram Stock broking Ltd. (ASBL), the AO disallowed the loss, treating it as a colorable device. However, the CIT(A) allowed the loss, noting that the transactions were with independent parties, and there was no manipulation or tax avoidance involved. The ITAT upheld the CIT(A)'s decision regarding the loss on ASBL shares but allowed the appeal regarding the loss on AIPL shares, stating that the AO's disallowance was not justified. 3. Disallowance of Expenses under Section 14A and Rule 8D: The AO disallowed ?10,62,041 under Section 14A read with Rule 8D, which was the total administrative expenses claimed by the assessee. The CIT(A) confirmed the AO's order, stating that the disallowance was as per the mandatory formula given in Rule 8D. The ITAT, however, restricted the disallowance to ?3,00,000, noting that the AO made the disallowance mechanically without referring to the actual expenses claimed by the assessee. 4. Addition of Disallowed Amount while Computing Book Profit under Section 115JB: The AO added the disallowed amount of ?10,62,041 while computing the book profit under Section 115JB. The ITAT, referring to the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., held that disallowances made under Section 14A read with Rule 8D cannot be used while determining the book profit under Section 115JB. The ITAT directed an ad-hoc disallowance of 1% of the exempted income under clause (f) to Explanation-1 of Section 115JB. 5. Levy of Interest under Section 234B: The CIT(A) summarily rejected the ground challenging the levy of interest under Section 234B. The ITAT dismissed this ground as infructuous. 6. Levy of Interest under Section 234C: The CIT(A) summarily rejected the ground challenging the levy of interest under Section 234C. The ITAT dismissed this ground as infructuous. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The CIT(A) dismissed the ground challenging the initiation of penalty proceedings under Section 271(1)(c) as premature. The ITAT dismissed this ground as infructuous. Conclusion: - The appeal of the assessee was partly allowed regarding the disallowance of short-term capital loss on AIPL shares and the administrative expenses under Section 14A. - The appeal of the revenue was dismissed regarding the deletion of the disallowance of the short-term capital loss on ASBL shares. - The penalty levied under Section 271(1)(c) was deleted as the quantum addition was deleted. - The ITAT directed an ad-hoc disallowance of 1% of the exempted income under Section 115JB.
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