2003 (2) TMI 160 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of capital loss of Rs. 1,68,12,637 on sale of shares.
2. Disallowance of interest of Rs. 12,31,941 paid to Infrastructure Leasing & Financial Services Ltd.
3. Denial of benefit of brought forward capital loss for set off against capital gain.

Summary:

Issue 1: Disallowance of Capital Loss
The assessee-company claimed a capital loss of Rs. 1,68,12,637 on the sale of 12,32,000 shares of Keventer Agro Ltd. to its sister companies at Rs. 2.50 per share. The shares were later repurchased by the assessee at the same price. The Assessing Officer disallowed the loss, concluding that the transactions were arranged to claim a book loss for future set-off benefits. The CIT(A) upheld this view, noting that the transactions lacked bona fides and were designed to book losses for potential future gains. The Tribunal agreed, stating that the transactions were sham, make-believe, and collusive, intended to acquire tax benefits. The Tribunal emphasized that the transactions were not bona fide commercial transactions but artificial arrangements within the same group of companies.

Issue 2: Disallowance of Interest
The assessee claimed an interest expense of Rs. 12,31,941 paid to Infrastructure Leasing & Financial Services Ltd. for delayed payment of purchase consideration under a buy-back agreement for Keventer Agro Ltd. shares. The Tribunal referred to its earlier decision in the assessee's case for the assessment year 1992-93, where a similar issue was decided against the assessee. Following the same reasoning, the Tribunal upheld the disallowance of the interest expense.

Issue 3: Denial of Benefit of Brought Forward Capital Loss
For the assessment year 1995-96, the assessee sought to set off the brought forward capital loss of Rs. 1,68,12,637 against capital gains. The CIT(A) denied this benefit, and the Tribunal upheld the decision, reiterating the reasons discussed in the context of the 1993-94 assessment year. The Tribunal concluded that the transactions leading to the claimed loss were not genuine and thus, the set-off was not permissible.

Conclusion:
The Tribunal dismissed both appeals, confirming the disallowance of the capital loss and interest expense, and denying the benefit of brought forward capital loss for set-off against capital gains.