2018 (10) TMI 241 - AT - Income Tax

Short term capital loss disallowed - non-genuine claim - admission of additional evidence - Held that - The claim of assessee-company is supported by the documents on record. Therefore, Ld. CIT(A) rightly came to the finding that the assessee-company has genuinely entered into purchase and sale of shares and if any, loss have been suffered by the assessee-company, A.O. cannot treat the same as non-genuine due to extraneous considerations or irrelevant reasons in the assessment order. The assessee-company has given scientific reasons for investment in these companies which are supported by documentary evidences. The Revenue has only contended that Ld. CIT(A) has not seen whose shares are sold by the assessee-company. However, complete details of purchase and sales are mentioned in the orders of the authorities below supported by documentary evidences. Therefore, nothing could be attributed against the assessee-company in this regard. Considering the totality of the facts and circumstances of the case in the light of finding of fact recorded by the Ld. CIT(A), we do not find any merit in the Departmental Appeal. - Decided against revenue

Issues Involved:
1. Disallowance of short-term capital loss claimed by the assessee.
2. Admission of additional evidence under Rule 46A.
3. Applicability of Explanation to Section 73 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Short-term Capital Loss Claimed by the Assessee:
The primary issue in this case was the disallowance of a short-term capital loss amounting to ?30,14,64,010/- claimed by the assessee. The Assessing Officer (A.O.) disallowed the loss on the grounds that the transactions appeared to be abnormal and with an intent to create a loss. The A.O. noted that the assessee-company had invested in shares of related parties and sold them within a short period, creating a short-term capital loss to offset long-term capital gains. The A.O. concluded that the transactions were a sham and a colorable device to evade taxes.

The assessee challenged this disallowance before the Commissioner of Income Tax (Appeals) [CIT(A)], submitting detailed written submissions and documentary evidence. The CIT(A) found that the transactions were genuine, supported by purchase bills, allotment advice, and bank statements. The CIT(A) also noted that the A.O. had not pointed out any irregularity in the transactions and had not disputed the documentary evidence provided by the assessee. The CIT(A) concluded that the short-term capital loss represented genuine transactions and deleted the disallowance.

2. Admission of Additional Evidence under Rule 46A:
The assessee filed additional evidence under Rule 46A, which included statements showing the market value of equity shares and audited balance sheets of the companies whose shares were sold. The CIT(A) admitted the additional evidence, noting that the documents were crucial for computing the value of the shares and were already in the possession of the A.O. The CIT(A) found that the additional evidence was essential for the disposal of the appeal and admitted it under Rule 46A.

The CIT(A) called for a remand report from the A.O., but the A.O. did not file the report despite multiple reminders. The CIT(A) verified the assessment file and found that the necessary documents were already filed by the investee companies in response to notices issued under section 133(6) by the A.O. The CIT(A) concluded that the additional evidence was crucial for the disposal of the appeal and admitted it.

3. Applicability of Explanation to Section 73 of the Income Tax Act:
The A.O. contended that the loss on the purchase and sale of shares would amount to speculation loss within the meaning of Explanation to Section 73 of the Income Tax Act. However, the CIT(A) disagreed, noting that the assessee-company was engaged in investment activities and not in the business of trading in shares. The CIT(A) held that the Explanation to Section 73 applies only when the assessee is engaged in share transactions as a business activity and not as an investment activity. The CIT(A) concluded that the Explanation to Section 73 was not applicable to the assessee-company.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the findings of the CIT(A) and dismissed the appeal of the Revenue. The ITAT noted that the assessee-company had provided all requisite documents to support its claim of genuine transactions. The ITAT found no merit in the Revenue's appeal and confirmed the CIT(A)'s decision to delete the disallowance of the short-term capital loss. The ITAT also agreed with the CIT(A) that the Explanation to Section 73 was not applicable to the assessee-company, as it was engaged in investment activities and not in the business of trading in shares.

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