2019 (11) TMI 102 - HC - Income Tax

Bogus Long Term Capital Loss arising from the transfer of preference shares - Tribunal on facts found that purchase of the preference shares was shown in the balace-sheet as on 31st March, 2001 filed along with return of income for the Assessment Year 2001-02 - HELD THAT - We note that the impugned order of the Tribunal on finding of fact has come to the conclusion that the transaction for claiming short term loss was genuine. Nothing has been shown to us which would indicate the above finding of fact by the Tribunal is perverse. Therefore, the question as proposed being one of finding of fact, does not give rise to any substantial question of law. - Decided against revenue.

Summary

Issues:
Challenge to Tribunal's order regarding Long Term Capital Loss on transfer of preference shares.

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 challenges the order passed by the Income Tax Appellate Tribunal (Tribunal) relating to Assessment Year 2002-03.

2. The main question raised by the Revenue is whether the Tribunal was correct in holding that the Long Term Capital Loss from the transfer of preference shares was not a sham transaction.

3. The respondent had claimed a long term capital loss on the sale of preference shares in their income tax return. The shares were allotted by specific companies and later sold to other companies. The Assessing Officer raised concerns about the transaction being a sham due to alleged suppression of consideration and funds received from group companies without receiving dividends.

4. The Commissioner of Income Tax (Appeal) dismissed the respondent's appeal against the Assessing Officer's decision.

5. The Tribunal, upon further appeal, found that the purchase of preference shares was genuine based on documentary evidence, including allotment letters, share certificates, and consideration paid. The non-deduction of dividends was not considered sufficient to deem the transaction as not genuine. The Tribunal also noted that the loss from the sale of shares was due to indexed cost of acquisition and set off against profits, indicating no motive for a sham transaction.

6. The High Court observed that the Tribunal's finding on the genuineness of the transaction was based on facts and not shown to be perverse. As it was a question of fact, no substantial question of law arose, leading to the dismissal of the appeal.

7. Consequently, the High Court dismissed the appeal challenging the Tribunal's decision regarding the Long Term Capital Loss arising from the transfer of preference shares, upholding the Tribunal's finding that the transaction was genuine based on the evidence presented.