2020 (10) TMI 89 - AT - Income Tax

Capital gain computation - allowable expenses u/s 48(1) - CIT(A) accepted gain on sales of shares as long-term capital gain and allowed deduction u/s 54EC but expenses claimed on sale of such shares on account of litigation and travelling expenses was rejected on the ground that the assessee could not substantiate the incurring of such expenses - HELD THAT - CIT(A) rejected the claim of the assessee on the ground that the assessee could not substantiate its claim that the travel and litigation expenses should be deducted for computing long term capital gain. It is the submission of the ld. counsel that various details furnished before the CIT(A) were not properly gone through by him and he has not passed any comments on that - assessee also filed certain additional evidences and submitted that these evidences go to the root of the matter of the issue in hand. In the interest of justice we admit the additional evidences and restore the issue to the file of the AO with a direction to adjudicate the issue relating to allowability of deduction of such traveling and litigation expenses from the long term capital gain earned by the assessee. AO shall decide the issue afresh in accordance with the law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The ground raised by the assessee is accordingly allowed for statistical purposes. Disallowing the Long Term Capital Loss incurred by the appellant on sale of Preference Shares held by it for more than 12 months - HELD THAT - Perusal of the assessment order shows that the AO nowhere has confronted the assessee regarding the sale of such shares at ₹ 10/- per share which were purchased at a price of ₹ 100/-. The order of the CIT(A) is also silent on this issue - restore the issue to the file of the AO with the direction to go through the various evidences including the additional evidence filed before the Tribunal which are admitted by us and decide the issue afresh and in accordance with the law - Ground No.2 by the assessee is accordingly allowed for statistical purposes.

Summary

Issues:
1. Allowability of legal and traveling expenses in connection with transfer of shares under Capital Gains.
2. Disallowance of Long Term Capital Loss on sale of Preference Shares.

Issue 1: Allowability of Legal and Traveling Expenses:
The appeal concerned the rejection of expenses claimed by the assessee on the transfer of shares for the assessment year 2010-11. The Assessing Officer (AO) treated long-term capital gain as short-term, denying the benefit of deduction under section 54EC. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the long-term capital gain but rejected the claimed expenses of &8377; 1,69,18,142 due to lack of substantiation. The Tribunal admitted additional evidence and directed the AO to re-examine the allowability of these expenses, emphasizing the need for proper consideration of evidence and due process.

Issue 2: Disallowance of Long Term Capital Loss on Preference Shares:
The AO disallowed the long-term capital loss on the sale of preference shares, considering it a sham transaction to book losses. The CIT(A) upheld this decision, relying on the principle of examining surrounding circumstances to determine the reality of transactions. The Tribunal allowed additional evidence submitted by the assessee, highlighting the lack of opportunity given by the AO to explain the sale of shares at a lower price. The issue was remanded to the AO for a fresh decision, emphasizing the importance of affording due opportunity to the assessee for a fair assessment.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a reevaluation of both the claimed expenses related to share transfer and the disallowed long-term capital loss on preference shares. The decisions underscored the significance of evidence substantiation, fair assessment procedures, and adherence to legal principles in determining tax liabilities and deductions.