2014 (3) TMI 625 - AT - Income Tax

Disallowance of capital loss Genuineness of the transaction - Increment in the value of land not proved - Held that - There was no evidence or basis for holding the sale of shares to assessee s wife as sham transaction - Merely because the transaction is between the relatives, it, per se, cannot be said to be sham or bogus transaction revenue contended that the company M/s Karma Lakelands Pvt. Ltd. has substantial agricultural land, its value has increased manifolds and, therefore, the sale of shares at book value is not correct but, there is no such reason is given either by the Assessing Officer or by the CIT(A) and, except the bald statement, no evidence is produced to point out that the market value of the assets was much more than what is shown in the balance sheet thus, there was no justification for the disallowance of capital loss thus, the order of the CIT(A) set aside Decided in favour of Assessee.

Summary

Issues: Disallowance of capital loss on sale of shares to wife.

In this case, the appellant appealed against the order disallowing a capital loss of Rs. 7,84,979 on the sale of shares to his wife. The Assessing Officer disallowed the loss, considering it a related party transaction where the shares were transferred between family members, leading to an artificial loss. The appellant argued that the sale was genuine, based on the breakup value of shares as per the company's balance sheet. The appellant contended that the sale price was logical as per the financial statements of the company. The appellant also highlighted the lack of dividend declaration by the company and the decrease in net book value of the shares. The CIT(A) rejected the appellant's submission, considering the transaction a sham to book an artificial loss. The CIT(A) found no logic in selling shares to a family member at a loss without a convincing reason. However, the ITAT Delhi disagreed with both the Assessing Officer and the CIT(A). The ITAT noted that the Assessing Officer provided no factual basis for disallowing the loss, while the appellant presented evidence supporting the sale price based on the company's financials. The ITAT found no evidence to support the claim that the sale of shares was a sham transaction. The ITAT concluded that there was no justification for disallowing the capital loss and directed the Assessing Officer to allow the same. Consequently, the appeal was partly allowed, and the decision was pronounced on 27th September 2013.