2017 (8) TMI 1744 - AT - Income Tax

Disallowance of capital loss - whether the transaction of sale and purchase of the shares in question are genuine as alleged by the assessee or the same is colorable device as has been held by the authorities below - HELD THAT - We notice that the assessee has claimed to have acquired shares of Trend Pharma Pvt. Ltd. @ Rs. 100 per share and sold the same within in one month @ 12.2 per share and has claimed loss of Rs. 70, 24, 000/-. The assessee has set off the said loss against the capital gain of Rs. 69, 59, 165/-. As observed by the AO the assessee and the Trend Pharma Pvt. Ltd. are controlled by the same persons. Transaction is required to be seen in the light of the law laid down in Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT and Sumati Dayal . 1995 (3) TMI 3 - SUPREME COURT where in it has been held that test of human probabilities should be applied to verify the genuineness of any transaction. We agree with the findings of the Ld. CIT(A) that the transaction of sale and purchase of the shares in question is a colourable device adopted by the assessee in order to avoid tax on the short term capital gain by purchasing the shares at unrealistic price and selling at substantially low prices within a period of one month. Hence in our considered opinion the order under challenge does not warrant any interference - Decided against assessee.

Summary

The appeal was filed by the assessee against an order passed by the Ld. CIT (Appeals)-34, Mumbai for the assessment year 2010-2011, where the Ld. CIT(A) dismissed the appeal against the assessment order passed by the AO u/s143(3) of the Income Tax Act, 1961. The core issue in this case was the disallowance of capital loss of Rs. 70,24,000 claimed by the assessee due to the sale and purchase of shares.The assessee had shown profits and gains of business, income from other sources, loss on the sale of shares, and short-term capital gain in its return of income. The AO disallowed the capital loss claimed by the assessee, considering it a sham transaction aimed at tax evasion. The Ld. CIT (A) affirmed this decision, relying on the judgment of the Hon'ble Supreme Court in the case of Mcdowell & Company Ltd vs. CTO (1985) 154 ITR 148.The assessee argued that the transaction was genuine and not a colorable device for tax evasion. The Ld. counsel for the assessee contended that the arms length rules do not apply to domestic transactions and that the AO cannot question the commercial judgment of the assessee. The Ld. Departmental Representative (DR) supported the decision of the authorities below.The Tribunal analyzed the facts and legal precedents. It noted that the assessee had acquired shares at an unrealistic price and sold them at substantially low prices within a short period, which raised suspicions of tax evasion. The Tribunal referred to the principles laid down by the Hon'ble Supreme Court in various cases, emphasizing that tax planning should be within the framework of the law and colorable devices to evade tax are not permissible.Based on the evidence and legal principles, the Tribunal agreed with the findings of the Ld. CIT(A) that the transaction of sale and purchase of shares was a colorable device to avoid tax on short-term capital gains. The Tribunal upheld the decision of the Ld. CIT(A) and dismissed the appeal of the assessee.In conclusion, the Tribunal held that the disallowance of the capital loss was justified as the transaction was deemed a sham aimed at evading legitimate taxes. The Tribunal emphasized the importance of adhering to tax laws and rejected the argument that tax planning can involve dubious methods. The appeal filed by the assessee for the assessment year 2010-2011 was dismissed.