9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (5) TMI 78 - AT - Income TaxAllowing capital loss claimed by the assessee on the debts - HELD THAT - We are in agreement with the argument advanced by the Ld. A. R. that merely because the assignee company had not disclosed business income in their income tax returns for subsequent years in the year of recovery of debts, that would not prejudice the right of the assessee company to claim capital loss in the year of extinguishment of their right in favour of the assignee company. We find that CIT(A) had given a categorical finding in page- 22 of his order that MCC Finance Ltd., came out of liquidation by an order of Madras High Court dated 09. 11. 2012, Mr. Rajamani became a director in MCC Finance Ltd., only on 15. 11. 2012. We find that Mr. Rajamani upon becoming a Director in MCC Finance Ltd., had signed the share certificates which were allotted to the assignee company M/s. Golden Star Asset Consultants (P) Ltd. It is normal practice that the lender company would propose a Director to the board of borrowing company. The borrowing company in the instant case would be MCC Finance Ltd., pursuant to the assignment of debt. Hence, the event that had happened after the date of assignment of debt, cannot be used to judge the transaction, which had happened on the date of assignment in assessment year 2011-12. Accordingly, the argument of the Ld. D. R. is dismissed. To sum up, the transactions in respect of assignment of debt recoverable from API, is remitted back to the file of A. O. and transactions in respect of debt recovery from MCC Finance Ltd., is decided in favour of the assessee. Accordingly, the grounds raised by the Revenue are disposed off in the aforesaid manner. - Appeal of Revenue is allowed for statistical purposes.
Issues Involved:
1. Whether the CIT(A) was justified in allowing the capital loss claimed by the assessee on the debts amounting to ?56,48,55,180. Issue-wise Detailed Analysis: 1. Allowability of Capital Loss on Debts: The primary issue in this appeal is the justification of the CIT(A) in allowing the capital loss claimed by the assessee on debts amounting to ?56,48,55,180. The assessee, engaged in various businesses, had sold shares and immovable property, disclosing long-term capital gains. The assessee also claimed a capital loss on the sale of debts, which was sought to be set off against the long-term capital gains. 2. Transaction Background and Assignment of Debts: The assessee had assigned debts worth ?57,01,55,180 to M/s. Golden Star Asset Consultants (P) Ltd. for ?53 lakhs, incurring a capital loss of ?56,48,52,180. The debts included inter-corporate deposits (ICDs) and loans to five parties, including Automobile Products of India (API) and MCC Finance Ltd. 3. Revenue's Argument and AO's Observations: The AO questioned the validity of the capital loss, arguing that the assignee company did not reflect the debts in its books and did not admit any business income from the recovery of debts. The AO concluded that the transaction was not a valid transfer under Section 2(47) of the Act and was a sham arrangement to evade capital gains tax. 4. CIT(A)'s Findings and Assessee's Defense: The CIT(A) allowed the capital loss, stating that the assignment of debts was a valid transaction supported by board resolutions and valuation reports. The CIT(A) noted that the debts were transferred at arm's length and the consideration was duly paid. The CIT(A) also highlighted that the debts were recorded in the books of the assignee company and the transaction was within the framework of law. 5. Analysis of API and MCC Finance Ltd. Debts: - API Debts: The AO argued that API was no longer a sick company and the debt was taken over by its earlier promoters, M/s. South India Travels P Ltd. The CIT(A) countered that the debt was transferred to the assignee before the change in promoters and the financial hardship of API justified the assignment. - MCC Finance Ltd. Debts: The AO contended that the assignment was premeditated, as MCC Finance Ltd. allotted shares to the assignee shortly after the transfer, and Mr. Rajamani, a director of the assignee, became a director in MCC Finance Ltd. The CIT(A) found that the events occurred after the assignment and did not affect the validity of the transaction. 6. Tribunal's Decision: The Tribunal agreed with the CIT(A) that the assignee's failure to disclose business income in subsequent years did not affect the assessee's right to claim capital loss. However, the Tribunal remitted the issue of API debts back to the AO for verification of the date when the debt was taken over by M/s. South India Travels P Ltd. The Tribunal upheld the CIT(A)'s decision regarding MCC Finance Ltd. debts, dismissing the AO's arguments. Conclusion: The Tribunal allowed the Revenue's appeal for statistical purposes, remitting the issue of API debts back to the AO and deciding in favor of the assessee regarding MCC Finance Ltd. debts. The Tribunal emphasized the importance of factual verification and the legitimacy of transactions within the framework of law.
|
