2011 (8) TMI 1360 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of loss on sale of shares.
2. Non-admission of additional evidence u/s Rule 46A of Income Tax Rules.

Summary:

1. Disallowance of Loss on Sale of Shares:
The assessee, a non-banking finance and investment company, appealed against the disallowance of a Rs. 28 lacs loss on the sale of shares by the Assessing Officer (AO). The AO disallowed the loss, suspecting it to be bogus, as the shares were sold at a significant loss without sufficient justification. The AO noted that the shares were of a closely held and unquoted company, and the transactions were potentially for tax evasion. The assessee argued that the sale was necessitated by business exigencies and was conducted through proper banking channels. The Tribunal observed that the AO did not conduct a thorough inquiry and relied on probabilities rather than concrete evidence. The Tribunal emphasized that the AO failed to provide specific reasons for disallowing the loss and did not consider the detailed explanations and evidence provided by the assessee. The Tribunal concluded that the transactions were genuine, supported by proper documentation, and the loss was a result of business necessity. Therefore, the disallowance of the loss was unjustified.

2. Non-admission of Additional Evidence u/s Rule 46A:
The assessee also contested the non-admission of additional evidence by the Commissioner of Income Tax (Appeals) [CIT(A)] under Rule 46A. The Tribunal noted that the CIT(A) had forwarded the additional evidence to the AO for comments, and the AO had the opportunity to respond. The Tribunal found that the additional evidence was merely supportive and did not constitute new information that was not previously available. Given that the appeal on the primary issue was allowed, the Tribunal deemed it unnecessary to delve into the matter of non-admission of additional evidence.

Conclusion:
The Tribunal allowed the appeal of the assessee, concluding that the disallowance of the loss on the sale of shares was not justified and the transactions were genuine. The issue of non-admission of additional evidence was rendered moot by the decision on the primary issue. The order was pronounced in the open Court on 18.8.2011.