2006 (9) TMI 163 - HC - Income Tax

Sale of shares by assessee to sister concern disallowance of loss on the sale of shares - only a part of the sale price was received by Assessee - even though the sale of shares took place in Feb. 1996 & physical delivery given, the entries in the books were made only on 31 March, 1996 - Assessing Officer is justified in concluding that the sales didn t represent genuine transactions & that they were manipulated by the Assessee with its sister concerns with a view to reduce its tax liability

Summary

Issues: Disallowance of loss claimed on the sale of investments

The judgment pertains to an appeal against an order passed by the Income Tax Appellate Tribunal regarding the disallowance of a loss claimed on the sale of investments by the Assessee. The Assessee sold shares in a company to its sister concerns at a loss, with the transactions being questioned for their genuineness by the Assessing Officer. The Commissioner of Income Tax (Appeals) disagreed with the Assessing Officer, but the Tribunal upheld the original view. The key contention was that the transactions were manipulated to reduce tax liability. The Tribunal analyzed the facts comprehensively, noting that the sale of shares seemed dubious as they were sold at a loss, received on credit, and the sale price was not promptly paid. Moreover, the sister concerns were closely related to the Assessee. The Tribunal concluded that the transactions were not genuine, a view supported by the High Court. The Court referenced the Supreme Court's criteria for determining substantial questions of law and found none applicable in this case. Consequently, the appeal was dismissed.

In essence, the judgment revolves around the disallowance of a loss claimed by the Assessee on the sale of investments due to questionable transactions with sister concerns, raising concerns about the genuineness of the sales and the motive behind them to reduce tax liability. The Tribunal and the High Court concurred that the transactions appeared contrived, considering the delayed payment of sale proceeds, the familial connections between the parties involved, and the unusual timing of entries in the books. The legal analysis included a reference to the Supreme Court's criteria for substantial questions of law, ultimately determining that none were present in this case. As a result, the appeal was dismissed, upholding the Tribunal's decision.