2018 (6) TMI 1057 - HC - Income Tax

Disallowance of loss on sale of debentures - guinity of claim - set off of loss - Held that - Court delivered its judgement in case of Deepak Nitrite Ltd. vs. CIT 2008 (5) TMI 233 - GUJARAT HIGH COURT in the cross references filed by the assessee and the department against the Tribunal s judgement where court said that it is open to Tribunal to decide the ground of appeal raised by the Revenue and determine, whether the loss in question was a genuine transaction or not - thus pursuant to such decision Tribunal passed a fresh order holding that the commercial rationale of the transaction, when viewed in totality, cannot be adjudged to be unjustified. The transactions are real and true and do not violate any provisions of law. They cannot be said to be artificial, counterfeit, feigned or a contrivance - since assessee has sold a capital asset which has resulted in a capital loss of ₹ 24,43,750/ - thus as per the provisions of section 71 the loss suffered on the sale of capital asset has to be set off against the income chargeable to tax under other heads of income. There cannot be any escape from giving this effect to the transactions entered into by the assessee - thus the loss is allowed - Decided against the revenue.

Summary

Issues:
Challenge to the disallowance of loss on sale of debentures

Analysis:
The Tax Appeal was filed by the assessee challenging the judgment of the Income Tax Appellate Tribunal regarding the disallowance of loss on the sale of debentures. The history of the litigation dates back to the assessment year 1989-90 when the Assessing Officer initially passed the assessment order, which was later challenged and remanded by the Tribunal. Subsequently, the Assessing Officer disallowed the claim of loss of a specific amount in the remanded proceedings, leading to a series of appeals and orders by the CIT(A) and the Tribunal.

The High Court's judgment in another case directed the Tribunal to determine whether the loss in question was a genuine transaction or not. Following this directive, the Tribunal re-evaluated the case and concluded that the transaction involving the sale of debentures to UTI was genuine and conducted in the normal course of business. The Tribunal found no indication of any colorable device or violation of law in the transaction. It emphasized the commercial viability and legitimacy of the transaction, resulting in a capital loss that needed to be set off against income chargeable to tax under other heads as per the Income Tax Act.

Considering the developments and the Tribunal's fresh order in light of the High Court's directive, it was established that the issue under challenge in the appeal was no longer valid. The Tribunal had already re-examined and decided the issue as per the High Court's guidance. Consequently, the appeal was deemed infructuous and disposed of accordingly. The judgment highlighted the importance of genuine transactions, commercial rationale, and adherence to legal provisions in determining the tax implications of capital asset sales.