2021 (7) TMI 759 - AT - Income Tax

Loss on sale of investment - bonafide loss or not? - long term capital loss or business loss - HELD THAT - The assessee was owner of the shares on the date of transfer by it. It is also not in dispute that the assessee had held the investment for more than 12 months. It is not the case of the revenue that the entire purchase and sale of shares transaction is a sham transaction - When the statute has provided specific provisions then the same have to be construed strictly and must not extend beyond requirements of the language used. For this proposition we draw support from the decision of Hon ble Supreme Court in the case of Gillanders Arbuthnot Company Ltd.. 1968 (9) TMI 49 - CALCUTTA HIGH COURT No adverse inference have been drawn by either of the lower authorities in so far as the value of share of the company M/s. GRPL as on the date of transfer is concerned - As the assessee did purchase the shares from M/s. GRPL and have actually sold the shares and the shares have been subsequently transferred in the name HSIDC, we do not find any merit in the findings of the AO/ CIT(A). The loss incurred by the assessee on the said transaction is a bonafide loss and deserves to be allowed as such claimed by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the loss suffered by the assessee on the transfer of shares can be considered as long-term capital loss or business loss.
2. The justification for the loss suffered on the transfer of shares.
3. The validity of the transfer of shares at market price.
4. The correctness of the assessment made by the AO and CIT(A).

Issue-wise Detailed Analysis:

1. Long-term Capital Loss or Business Loss:
The assessee contended that the loss of ?2,20,43,350/- should be considered as either long-term capital loss or business loss. The CIT(A) upheld the assessment order, denying the loss as either long-term capital loss or business loss. The assessee argued that they held 32,68,620 shares since 31.03.2008, and the loss incurred on the transfer of 1,288,438 shares should be considered as long-term capital loss.

2. Justification for Loss on Transfer of Shares:
The assessee transferred shares to HSIDC to avoid delays that could result in the cancellation of land allotment and postponement of loans, which would have led to significant financial losses. The transfer was made at ?0.01 per share, which was argued to be a recovery of a portion of the loss.

3. Validity of Transfer at Market Price:
The CIT(A) found that the transfer was not made at market price, a conclusion the assessee disputed, arguing that the transfer was indeed at market price. The assessee provided a detailed valuation of the shares, showing a negative value of ?16.67 per share, against which they charged ?0.01 per share.

4. Assessment by AO and CIT(A):
The AO and CIT(A) dismissed the loss, arguing that the allotment of shares was void ab initio and the assessee was not the beneficial owner of the shares. They held that the transfer could only occur if the person transferring had a legal right to the property. The Tribunal found no merit in the AO/CIT(A)'s findings, emphasizing that the assessment should be based on facts, not surmises and conjectures. The Tribunal noted that the assessee held the shares for more than 12 months and there was no dispute over the ownership or the genuineness of the transaction.

Conclusion:
The Tribunal concluded that the loss incurred by the assessee was bona fide and deserved to be allowed as claimed. The appeal filed by the assessee was allowed, and the loss on the transfer of shares was recognized as legitimate. The judgment emphasized that statutory provisions must be construed strictly and based on the facts of the case. The Tribunal's decision was pronounced in the open court on 17.06.2021.