2019 (2) TMI 1577 - AT - Income Tax

Disallowance of loss under the head capital gains - chargeability of the capital gains - sale of shares of SQL Star International Limited, being long-term capital asset - addition on the ground that the transaction of sale of such shares is not genuine - HELD THAT - As already concluded that the sale took place in the impugned AY itself, the impugned transaction, in terms of charging Section 48, were chargeable to tax in impugned AY only irrespective of the fact that sale consideration was actually received by the assessee or merely accrued to the assessee in impugned AY. The chargeability of the capital gains, in our opinion, was not dependent upon factum of actual receipt of sale consideration by the assessee and therefore, the stand of lower authorities, in this regard, could not be sustained. So far as the valuation of shares is concerned, it is notable that the SQL was a listed entity whose trading was suspended from BSE during the month of December, 2013 when the last traded price of the Share was ₹ 1.08 per share - the said entity was loss making entity and there was no ready buyer of its share upon its suspension from trading on stock exchange. The price of listed shares, in our opinion, are governed more by demand-supply factors and therefore, the sale consideration could not be rejected by revenue merely by suspecting the same without bringing on record any material to corroborate the fact that the price of the shares at relevant time was on the higher side. We are of the considered opinion that the stand of first appellate authority in rejecting the assessee s Long Term Capital Loss could not be sustained. - Decided in favour of assessee.

Summary

Issues:
Appeal against disallowance of long-term capital loss on sale of shares due to transaction genuineness.

Analysis:
1. The appeal contested the disallowance of long-term capital loss incurred by the assessee during the Assessment Year (AY) 2014-15. The assessee sold shares of a listed company in an off-market transaction, claiming a loss of &8377; 11,87,26,561. The Assessing Officer (AO) disallowed the loss, considering the transaction as not genuine due to lack of documentary evidence and non-receipt of payment during the AY.

2. During assessment proceedings, it was revealed that the shares were sold to an individual at a discounted price after the company got suspended from the stock exchange. The AO treated the transaction as fabricated due to insufficient evidence and non-receipt of payment. The assessee submitted documentary evidence to prove the transaction's genuineness, but the AO remained unconvinced.

3. The assessee contested the AO's decision before the Commissioner of Income Tax (Appeals) [CIT(A)], providing additional documentary evidence. Despite the submission of sale note, delivery instruction slips, and demat account details, the CIT(A) upheld the AO's decision, citing non-receipt of sale consideration and lack of valuation report as reasons for disallowance.

4. In the appeal before the Appellate Tribunal, the assessee's representative argued that the transaction was supported by valid documents and the sale had taken place during the AY, making the capital gains taxable regardless of immediate receipt of consideration. The Tribunal noted that the transaction was supported by documentary evidence, and the ownership transfer was recognized by both parties, leading to the allowance of the long-term capital loss.

5. The Tribunal emphasized that the chargeability of capital gains was not dependent on actual receipt of consideration during the AY. The valuation of shares was justified considering the company's suspension from trading and lack of demand for its shares. The Tribunal concluded that the CIT(A)'s decision to disallow the long-term capital loss was not sustainable, and hence, allowed the appeal.

6. A stay application filed by the assessee became infructuous due to the Tribunal's decision on the quantum appeal and was dismissed accordingly.

7. In conclusion, the Tribunal allowed the quantum appeal, overturning the disallowance of the long-term capital loss, while dismissing the stay application.