1995 (3) TMI 154 - AT - Income Tax

Capital Gains, Capital Loss, Deduction In Respect, Market Value, Profit On Sale, Right Shares

Summary

Issues involved:
1. Computation of chargeable capital gain arising on the sale of house property.
2. Disallowance of loss on sales of shares.

Summary:

Issue 1: Computation of chargeable capital gain arising on the sale of house property

The assessee sold a house property for Rs. 1.18 crores and claimed various exemptions u/s 48(2), 53(b), 54E, and 54F of the Income-tax Act. The Assessing Officer (AO) allowed an exemption of Rs. 8 lakhs for the purchase of a flat at Kailash Hills but rejected the exemption claims for the NOIDA property under sections 54 and 54F, citing incomplete construction within three years. The CIT (Appeals) upheld the AO's decision and further enhanced the assessment by Rs. 14,20,400, referencing legal precedents and commentary on the necessity of completing construction within three years.

The Tribunal examined the application of sections 45, 48, 53, 54, and 54F. It was held that the computation of capital gains should be made under section 48(1)(a) before applying any exemptions. The Tribunal agreed with the CIT (Appeals) that the computation must consider deductions under sections 53 and 54 before applying section 48(2) deductions. The Tribunal also rejected the claim under section 54F as it applies to non-residential properties. However, the Tribunal allowed the assessee's claim for the NOIDA property under section 54, emphasizing the importance of investment in a residential house rather than the completion of construction within three years.

Issue 2: Disallowance of loss on sales of shares

The assessee claimed a short-term capital loss of Rs. 12,07,010 on the sale of shares of M/s AMF International Ltd. The AO disallowed the claim, suspecting the transactions as non-genuine and a device to avoid tax, referencing the McDowell & Co. Ltd. case. The CIT (Appeals) upheld the AO's decision, noting irregularities in share allotment and sale transactions.

The Tribunal reviewed the evidence, including contract notes, payments through account payee cheques, and share quotations from the Delhi Stock Exchange. Despite the irregularities in share allotment, the Tribunal found no concrete evidence from the revenue to prove the transactions were fake. The Tribunal, referencing the Arvind Narottam case, allowed the assessee's claim for the short-term capital loss as genuine.

Conclusion:

The appeal was partly allowed. The Tribunal directed the AO to re-compute and allow deductions under section 54 for the NOIDA property and to allow the claimed short-term capital loss on the sale of shares.