2019 (12) TMI 251 - AT - Income Tax

Long term capital loss on sale of shares - cost of acquisition - off-market transaction - AO observed that the said transaction of purchase and sales of the shares within the group was a mere artifice or device so as to reduce the tax liability of the assessee-company - Held that - It appears that only because of the reason that the shares were sold to the related parties. The transaction has been held to be colorable devise in order to evade tax tough the entire books of accounts were placed before the authorities below where the entire transaction was reflected. The transaction has been levelled as ingenuine, manipulated without taking into consideration this particular aspect of the matter that there is no provision in the Act which would prevent the assessee from selling loss making share even in the present facts and circumstances of the case. - Additions made by the AO deleted.

Issues Involved:
1. Validity of the assessment order.
2. Disallowance of Long Term Capital Loss on the sale of shares.
3. Addition of expenditure disallowed under Section 14A while computing book profit under Section 115JB.
4. Adjustment by way of addition while computing book profit under Section 115JB in respect of provision for doubtful debts.
5. Levy of interest under Sections 234B and 234C.

Detailed Analysis:

1. Validity of the Assessment Order
- Issue: The appellant challenged the validity of the assessment order.
- Judgment: The court found this ground to be general and did not require a separate order.

2. Disallowance of Long Term Capital Loss
- Issue: The appellant contested the disallowance of Long Term Capital Loss of ?2,41,93,750/- incurred on the sale of shares of I Call India Pvt. Ltd.
- Facts: The appellant purchased shares at ?500 each and sold them at ?10 each, resulting in a significant loss. The transactions were off-market and within group companies.
- Contentions: The appellant argued that the shares were acquired to earn future profits but were sold due to adverse economic conditions. The valuation was based on negotiations considering the financial position and future prospects of the company.
- AO's Findings: The AO disallowed the loss, suspecting the transactions were a device to reduce tax liability due to the absence of formal agreements and the nature of the transactions within group companies.
- Appellant's Arguments: The appellant provided detailed financial statements and argued that the transactions were genuine and supported by evidence. They cited judgments from the Jurisdictional High Court and ITAT in similar cases.
- Court's Decision: The court found no reason for disallowance, relying on precedents that upheld the genuineness of similar transactions. The disallowance was deleted, and the ground was allowed.

3. Addition of Expenditure Disallowed Under Section 14A While Computing Book Profit Under Section 115JB
- Issue: The appellant contested the addition of expenditure disallowed under Section 14A while computing book profit under Section 115JB.
- Facts: The AO added back the disallowed expenditure while computing book profit under Section 115JB.
- Contentions: The appellant argued that the provision for doubtful loans represents a diminution in the value of assets, not an unascertained liability, citing the Supreme Court's decision in CIT Vs HCL Comnet Systems & Services Ltd.
- Court's Decision: The court referred to the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowances under Section 14A cannot be added back while computing book profit under Section 115JB. The addition was deleted, and the ground was allowed.

4. Adjustment by Way of Addition While Computing Book Profit Under Section 115JB in Respect of Provision for Doubtful Debts
- Issue: The appellant contested the adjustment made while computing book profit under Section 115JB concerning the provision for doubtful debts.
- Facts: The AO added back the provision for doubtful debts while computing book profit under Section 115JB.
- Contentions: The appellant argued that the provision represents a diminution in the value of assets, not an unascertained liability.
- Court's Decision: The court found no reason to sustain the disallowance and deleted the addition. The ground was allowed.

5. Levy of Interest Under Sections 234B and 234C
- Issue: The appellant contested the levy of interest under Sections 234B and 234C.
- Judgment: The court did not provide a detailed analysis for this ground, indicating it was consequential in nature and did not require a separate order.

Conclusion:
The appeal was allowed, with the court deleting the disallowances and additions made by the AO and confirming that the appellant's transactions were genuine and supported by evidence. The court relied on relevant precedents to substantiate its decisions.

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