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Issues:
1. Whether the claim of short-term capital loss was based on sham transactions. 2. Whether the claim of short-term capital loss should have been allowed in the hands of the assessee. Analysis: 1. The case involved seven assessees who purchased shares of a company at Rs. 100 per share and sold them at Re. 1 per share shortly after, incurring significant losses. The assessees claimed these losses as short-term capital losses. The Assessing Officer disallowed the losses, considering them as "dead" or "sham" losses due to lack of commercial expediency in the transactions. The CIT (Appeals) initially allowed the claim, stating no sham transaction was involved based on a remand report and assessments of the company involved. However, the ITAT noted that the CIT (Appeals) misinterpreted the remand report and reversed the decision, stating the losses were not genuine. 2. The ITAT further analyzed the facts, noting that the assessees were partners in firms related to the company whose shares were traded. The financial position of the company, including accumulated losses and debts, was known to the assessees before the share transactions. The ITAT highlighted the short time interval between purchase and sale, the private nature of transactions, and the significant losses incurred. Referring to a Delhi High Court judgment, the ITAT concluded that the transactions were akin to a gift rather than genuine investments, supporting the Assessing Officer's decision to disallow the losses. The ITAT emphasized the importance of considering surrounding circumstances to determine the reality of transactions, citing a Supreme Court judgment. In conclusion, the ITAT allowed the Revenue's appeal, stating that the transactions leading to short-term capital losses were not genuine and resembled sham transactions. The ITAT reversed the decision of the CIT (Appeals) and upheld the Assessing Officer's disallowance of the claimed losses.
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