2016 (4) TMI 456 - AT - Income Tax

Disallowance of claim of short term capital gain/loss on purchase and sale of shares by treating the same as sham transaction - Held that - The purchase transaction in the case of the assessee is genuine. The assessee has produced complete evidence requires to substantiate the genuineness of the claim of the assessee in respect of purchase transaction. We find that the authorities below have erred in treating the purchase transaction as non-genuine or sham. Since the transaction was off market transaction, it could not be carried through CSE rather it is carried through registered broker which was confirmed. The payment was also made and shares were routed through demat account of the assessee. Even evidences clearly proves that the purchase transaction is genuine transaction and consequential loss cannot be denied - Decided in favour of assessee.

Summary

Issues:
- Disallowance of short term capital gain/loss on shares as sham transaction.

Detailed Analysis:

Issue 1: Disallowance of Short Term Capital Gain/Loss
The appeal pertains to the disallowance of a short term capital loss claimed by the assessee on the purchase and sale of shares, treated as a sham transaction by the Assessing Officer (AO) and confirmed by the CIT(A). The AO disallowed the loss based on the suspicion that the purchase of shares was not genuine, as confirmed by Calcutta Stock Exchange (CSE). The CIT(A) upheld the disallowance, concluding that the transaction was designed to avoid tax payment. However, the assessee contended that the purchase was routed through a registered broker, supported by documentary evidence, and the sale was executed on the CSE floor. The Tribunal noted that the AO's premise for treating the gain as bogus was solely based on doubting the purchase's genuineness. The Tribunal cited precedents emphasizing that payment through account payee cheques and broker confirmation are crucial, and mere suspicion is insufficient to deny the claim. The Tribunal found the purchase genuine, supported by contract notes, demat account details, and stock market quotations, allowing the appeal and overturning the disallowance.

This detailed analysis highlights the core issue of disallowance of short term capital gain/loss on shares, emphasizing the importance of evidence, precedents, and legal principles in determining the genuineness of transactions. The judgment showcases the Tribunal's meticulous examination of facts and legal precedents to arrive at a just decision in favor of the assessee.