2018 (8) TMI 1487 - AT - Income Tax

Disallowance of assessee s claim of long term capital loss - as per AO purchase and sale of shares was nothing but a colourable device to generate loss to be set off against capital gain - Held that - The same property was the subject matter of two distinct transactions one with QIPL and the other with CRPL, though ultimately the property was sold to QIPL. This means that when the assessee received part consideration from QIPL, it was well aware that the transaction is going to result into capital gains and to avoid such capital gains liability the assessee used CRPL and VBPL as conduits to generate loss in shares to be set off against the capital gain. Thus, the surrounding circumstances and human probabilities are to be taken into account while considering the evidences emanating from the records. Considering the sequence of events discussed the share transaction is nothing but a sham transaction, a colourable device to avoid capital gains tax liability and, therefore, has to be ignored. The first appellate authority has accepted the transaction without considering the fact that what is apparent is not real on the facts of the case in hand. We, therefore, set aside the findings of the CIT(A) and restore that of the AO. The assessment order is upheld. The sole ground raised by the Revenue is allowed.

Summary

Issues:
Challenge to deletion of addition on account of disallowance of long term capital loss.

Analysis:
The Revenue challenged the deletion of a substantial amount on account of disallowance of the assessee's claim of long term capital loss. The facts revealed that the assessee sold a property and declared a capital gain, which was set off against the claimed loss on the sale of shares. The Assessing Officer (AO) deemed the sale of shares as a colorable device to generate loss. However, the first appellate authority accepted the transaction as genuine.

The Tribunal examined the principles established by the Supreme Court in the cases of Durga Prasad More and Sumati Dayal. These cases emphasized the need to probe apparent transactions to ascertain their genuineness. In this case, the assessee sold a property to one entity but engaged in subsequent transactions with related parties, leading to the generation of a loss to set off against capital gains. The Tribunal noted the surrounding circumstances and human probabilities, ultimately concluding that the share transaction was a sham to avoid tax liability.

Referring to the judgment of the Karnataka High Court in the case of WIPRO Ltd, the Tribunal highlighted that transactions aimed at evading tax through dubious methods are not legitimate. The High Court's stance on colorable devices to avoid tax liability was reiterated, emphasizing the need to distinguish between legitimate tax planning and schemes designed to evade taxes. The Tribunal held that the share transaction in this case was a colorable device and should be disregarded.

In light of the above analysis and legal principles, the Tribunal set aside the findings of the CIT(A) and upheld the AO's assessment order. The appeal filed by the Revenue was allowed, and the deletion of the addition on account of disallowance of long term capital loss was overturned. The judgment was pronounced on 23.08.2018.