2017 (1) TMI 1031 - HC - Income Tax

Dividend Stripping Transaction - Transaction Transactions entered into with the Mutual Fund - whether represented business transactions - Loss arising in the course of Dividend Stripping - Held that - This very issue has been dealt by Hon ble Apex Court in the case of Commissioner of Income-Tax v. Walfort Share and Stock Brokers P. Ltd. reported in (2010 (7) TMI 15 - SUPREME COURT ) held that losses over and above the amount received as dividends still be allowed in a case where it was established that there was a sale and the assessee had received the dividend and the dividend was tax free. This question is, therefore, decided in favour of the assessee and against the department. Addition u/s 68 - unexplained money in the guise of share transactions - Held that - This question answered in favour of the assessee as the Tribunal has recorded detailed findings of fact confirming the earlier findings of the CIT stating that the transactions of shares that was made by the assessee in respect of blue chip companies and the rates at which purchases and sales had been made could not be shown to be manipulated. The department was unable to discharge the burden that was on it to prove that the transactions were in any manner bogus or fictitious.

Summary

Issues:
1. Whether transactions with Mutual Fund represented business transactions or were designed to avoid taxation?
2. Legality of deleting the addition made by AO regarding unexplained money in share transactions.

Analysis:
1. The first issue revolved around the nature of transactions with Mutual Fund. The court referred to a previous judgment by the Apex Court in the case of Commissioner of Income-Tax v. Walfort Share and Stock Brokers P. Ltd. The Apex Court ruled that losses beyond dividends received could still be allowed if there was a genuine sale and the dividends were tax-free. The court upheld the decision of the Bombay High Court in the Walfort Share case, concluding in favor of the assessee against the department.

2. The second issue involved the deletion of the addition made by the Assessing Officer regarding unexplained money in share transactions. The Tribunal had previously affirmed the CIT's findings, stating that the share transactions involving blue-chip companies were genuine and not manipulated. The burden of proof was on the department to show that the transactions were bogus, which they failed to do. Consequently, the Tribunal's decision was in favor of the assessee.

The court disposed of the appeal in favor of the assessee, emphasizing that the other questions were academic and did not require further consideration. No costs were awarded in the case.