2019 (6) TMI 1097 - HC - Income Tax

Capital loss - sale of shares to sister concern when the transaction for sale to an outside buyer for a much higher price is being processed - Whether the, tribunal was right in holding that the capital loss arising out of sale of shares to sister concern when the transaction for sale to an outside buyer for a much higher price is being processed is genuine and ought to be allowed? - HELD THAT - The parties entered into an agreement for transfer of shares on 06.06.2002. After noting these facts, the Tribunal observed that the Assessing Officer has imagined beyond stretch that the assessee was having knowledge of sale of shares of M/s.Bush Boake Allen India Ltd., because sale of PCL shares took place even before grant of permission by the Government of India to M/s.Bush Boake Allen Ltd. Tribunal agreed with the contention of the assessee that the assessee was not a party or had influence in the decision taken by the M/s.Bush Boake Allen India Ltd., for the purchase of shares. Furthermore, on facts, the Tribunal found that the transaction is neither fraudulent nor a colourable device. Ultimately, the Tribunal held that when the transaction is within the parameters of law, then the Income Tax Authorities cannot enter into the shoe of the assessee to decide the prudence of commercial expediency of a particular transaction. With the above reasons, the Tribunal dismissed the appeal filed by the Revenue. There is no substantial question of law arising for consideration in this case. We cannot be called upon to re-appreciate the evidence which was made available with the CIT(Appeals) and the Tribunal which in our considered view, has elaborately considered the factual matrix. So far as decision in the case of Commissioner of Income Tax Vs. Ashini Lease Finance Private Ltd., 2008 (5) TMI 673 - SUPREME COURT we find that on facts, the Court found that it is a clear case of circular transaction. The Revenue does not dispute before us that there is a third party involved in the present transaction, it is a Government of India company - no substantial question of law .

Summary

Issues:
- Appeal against order disallowing capital loss on sale of shares to sister concern.
- Validity of transaction and motive behind the sale.
- Interpretation of law regarding capital loss and commercial expediency.

Analysis:
1. The appeal was filed against the order disallowing a capital loss on the sale of shares to a sister concern. The Revenue contended that the transaction was a sham due to pending negotiations with another buyer. The Assessing Officer treated the transaction as questionable, leading to the disallowance of the capital loss.

2. The CIT(Appeals) allowed the appeal, highlighting that the sale of shares occurred before the negotiations with the outside buyer. The transaction was supported by a valuation report and executed at a price higher than the prevailing market rate. The CIT(Appeals) emphasized that no ulterior motive could be attributed to the assessee.

3. The Tribunal upheld the CIT(Appeals) decision, emphasizing that the Assessing Officer's suspicion lacked substantial evidence. The Tribunal found that the sale of shares to the sister concern was not influenced by the subsequent sale to the outside buyer. It concluded that the transaction was valid and not a colorable device.

4. The High Court concurred with the Tribunal's findings, stating that there was no substantial question of law to consider. It noted that the evidence had been thoroughly evaluated by the lower authorities. The Court referenced a previous case involving a circular transaction but distinguished the present case, where a third party (a Government of India company) was involved.

5. Ultimately, the High Court dismissed the appeal, emphasizing that the transaction was within legal parameters and that tax authorities should not assess the commercial expediency of such transactions. No costs were awarded in the judgment.

This detailed analysis covers the issues raised in the appeal, the arguments presented by both parties, and the rationale behind the decisions of the lower authorities and the High Court.