2015 (7) TMI 1425 - AT - Income Tax

Disallowance of loss incurred on sale of shares - AO opined that there was no reasonable basis to justify the sale of shares worth Rs. 3 crore for a sum of Rs.75, 000/- only and further the transaction was not with an independent party at fair market value - CIT-A deleted the addition - HELD THAT - AO was fully justified in rejecting the genuineness of the transaction of purchase and sale of shares on the test of human probability. The entire story concocted by the assessee and its group concerns is aimed at defrauding the Revenue with ulterior motive. Such a course of action adopted by the assessee which is nothing more than a camouflage cannot be accepted. Our conclusion is fortified by the very fact that when the AO examined the entire position in detail and found out the irregularities as discussed above the assessee came out with a proposal before the AO that he could assess the loss at Nil attributing any reason but not by way of disallowance attracting penalty u/s 271(1)(c) - The same submission was reiterated before the CIT(A) as well which has been incorporated. Despite all these goings-on CIT(A) chose to delete the addition was not justified - we overturn the impugned order and restore the action of the AO on this issue. Disallowance of loss claimed to have been incurred by the assessee on sale of shares - As it is again a non-genuine transaction entered into with the object of depriving the Revenue of legitimate tax due to the exchequer. It is totally unacceptable that a person who has sold shares for Rs.8 crore will sit quietly for more than 2 years and will get payment only when his buyer in turn sells such shares. Considering these off market transactions of purchase and sale of the shares of M/s Solaris relation between the buyer assessee seller and companies whose shares were transacted all being group concerns and the further fact that the seller did not claim payment from the assessee for more than 2 years coupled with the other related facts lead me to an irresistible conclusion that the transactions in the shares of M/s Solaris Holdings Ltd. were not genuine. The reasons noted above while discussing the long term capital loss from the shares of M/s Pioneer Ltd. apply with full force to this transaction as well. CIT(A) was not justified in deleting the addition - therefore restore the view taken by the AO. Appeal filed by the Revenue is allowed.

Summary

Issues Involved:
1. Deletion of disallowance of loss claimed on sale of shares of M/s Pioneer Ltd.
2. Deletion of disallowance of loss claimed on sale of shares of M/s Solaris Holdings Ltd.

Analysis:

Issue 1: Deletion of disallowance of loss claimed on sale of shares of M/s Pioneer Ltd.
The appeal by the Revenue contested the deletion of disallowance of a loss claimed by the assessee on the sale of shares of M/s Pioneer Ltd. The AO disallowed the long-term capital loss of Rs.3.35 crore, as he found no reasonable basis to justify the sale of shares at a significantly lower price to a related party. The CIT(A) deleted the addition, but the ITAT Delhi disagreed. The ITAT noted that the shares were transacted between related entities at a substantial loss, indicating a lack of genuineness in the transaction. The ITAT referred to the Sumati Dayal case to emphasize the need to consider surrounding circumstances to determine the reality of transactions. The ITAT concluded that the transaction was aimed at defrauding the Revenue and overturned the CIT(A)'s decision.

Issue 2: Deletion of disallowance of loss claimed on sale of shares of M/s Solaris Holdings Ltd.
The second ground of appeal concerned the deletion of disallowance of a loss claimed on the sale of shares of M/s Solaris Holdings Ltd. The AO disallowed the loss of Rs.97.35 lac, as the payment for the purchase of shares was claimed to have been made only after the sale. The CIT(A) reversed the AO's decision, but the ITAT Delhi disagreed. The ITAT found the transaction to be non-genuine, as the payment was received after a significant delay and the parties involved were related entities. The ITAT concluded that the transaction was aimed at evading legitimate tax dues, similar to the first issue. Therefore, the ITAT allowed the Revenue's appeal and restored the AO's decision.

In conclusion, the ITAT Delhi allowed the Revenue's appeal in both issues, emphasizing the lack of genuineness in the transactions involving the sale of shares of M/s Pioneer Ltd. and M/s Solaris Holdings Ltd. The judgment highlighted the need to consider surrounding circumstances and human probabilities to determine the reality of transactions, ultimately upholding the AO's disallowance of losses claimed by the assessee.