2016 (11) TMI 1242 - AT - Income Tax

Disallowance of loss on share transaction - Held that - We find during the impugned assessment year the assessee has shown the purchase of share and sale of shares in the profit and loss account. As mentioned earlier, in the preceding year the shares were shown under the head loans and advances and not under the head investment . No dividend or other income was received by the assessee from Western Medical Solutions Pvt. Ltd. It is also an admitted fact that none of the Directors of the assessee company are in no way related to the Directors of Western Medical Solutions Pvt. Ltd. or M/s. Dev Constructions Pvt. Ltd. It is also noticed from the submissions made by the assessee that during A.Y. 2009-10 the assessee had claimed loss in futures and options share trading at ₹ 7,79,122/- as per page 64 of the paper book which is the profit and loss account for the year ended 31-03-2009. We find the AO in the order passed u/s.143(3) dated 15-12-2011 has accepted such loss as business loss and nothing was brought on record that any action either u/s.147 or 263 has been taken. Therefore, we find merit in the argument of the Ld. Counsel for the assessee that the loss incurred by the assessee on sale of shares cannot be treated as non-genuine loss. It has been held in various decisions that AO cannot enter into the shoes of the assessee and it is the businessman who knows better how to conduct its business. The Hon ble Bombay High Court in the case of CIT Vs. Salitho Ores Ltd. (2010 (9) TMI 849 - Bombay High Court ) has held that an expenditure incurred for purpose of business cannot be refused on the ground that the expenditure was imprudent. The Hon ble High Court held that when it was not the case of the revenue that the expenditure was not bonafide or that it was incurred by way of diversion of profits to a related person or a sister concern of the assessee the revenue could not have gone into the question of expediency of expenditure incurred and/or expediency of hiring of 4 dozers that was a matter of commercial expediency and the assessee was the best judge of it. It was accordingly held that the expenditure was an allowable expenditure. So far as the argument of the AO without prejudice that the loss can be allowed as a long term capital loss since buying and selling of shares is not the business of the assessee company is concerned, we have already noted from clause 19 of the memorandum of association of the assessee company that the assessee can acquire, take up and hold shares, stocks, debenture stock bonds, obligations and securities or guaranteed by any company constituted or carrying on business in India etc. etc. Since the shares are of unlisted company and have been held for less than 36 months, therefore, it is not a capital asset. In view of the above discussion, we are of the considered opinion that the CIT(A) was not justified in disallowing the claim of business loss - Decided in favour of assessee. Revaluation of stock of land at Hyderabad at net realizable value rejected - Held that - Additional documents were not produced before the AO and the CIT(A) and since these documents go to the root of the matter, we admit the same. Considering the totality of the facts of the case, we are of the considered opinion that the matter requires a revisit to the file of the AO in view of the above additional evidences. The AO shall decide the issue afresh

Issues Involved:
1. Disallowance of loss on share transaction.
2. Revaluation of stock of land at Hyderabad.

Issue-wise Detailed Analysis:

1. Disallowance of Loss on Share Transaction:

The primary issue revolves around the disallowance of a loss of ?3,28,00,000/- claimed by the assessee on the sale of shares of Western Medical Solutions Pvt. Ltd. The assessee company, engaged in civil construction, had initially invested ?4.10 crores in equity shares of Western Medical Solutions Pvt. Ltd. in FY 2008-09. These shares were later sold to Dev Construction Pvt. Ltd. at a negotiated price of ?82,00,000/- in FY 2009-10, resulting in the claimed loss.

The AO disallowed the loss, questioning the genuineness of the transaction, and suggested that the transaction was a sham designed to reduce taxable income. The AO further argued that if the loss were to be allowed, it should be treated as a capital loss rather than a business loss.

Upon appeal, the CIT(A) upheld the AO's decision, reiterating that the loss was non-genuine and the transaction was a sham. The CIT(A) noted that the assessee had full control over Western Medical Solutions Pvt. Ltd., and there was no justification for selling the shares at such a low price.

The Tribunal, however, found merit in the assessee's arguments. It noted that the shares were shown under "loans and advances" rather than "investment" in the balance sheet, indicating the intention to resell. The Tribunal also observed that the assessee had provided all necessary documents and evidence to substantiate the transactions, and there was no relationship between the assessee and the other companies involved in the transaction. The Tribunal concluded that the loss should be allowed as a business loss, setting aside the CIT(A)'s order.

2. Revaluation of Stock of Land at Hyderabad:

The second issue concerns the revaluation of stock of land at Hyderabad. The assessee had shown the opening stock of land at ?90,63,325/- as on 01-04-2009, which was reduced to ?1,000/- as the closing stock as on 31-03-2010. The AO disallowed the claimed loss, arguing that the assessee failed to provide documentary evidence proving the title issues or litigation concerning the land.

The CIT(A) upheld the AO's decision, emphasizing the lack of evidence supporting the assessee's claims about the defective title and litigation.

The Tribunal, however, considered additional evidence submitted by the assessee, including notices and orders from the Government of Andhra Pradesh, which indicated that the registration of the land in the assessee's name was canceled due to title issues. The Tribunal admitted these additional documents and remanded the matter back to the AO for fresh consideration, directing the AO to decide the issue afresh after giving due opportunity to the assessee.

Conclusion:

The Tribunal allowed the appeal partly, directing the AO to allow the claimed business loss on the sale of shares and to reconsider the revaluation of the stock of land at Hyderabad based on the additional evidence provided.

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