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TMI Blog2017 (3) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on the judgment of in the case of Union of India versus Azadi Bachao Andolan and another ( 2003 (10) TMI 5 - SUPREME Court) has held that merely because the transaction is entered into by the assessee with the motive to save the tax, the transaction cannot be regarded as colourable device so long as the transaction is valid in law - Decided in favour of assessee Brokerage expenses while computing the capital gain on sale of apartment - Held that:- assessee submitted explanation about the general role of brokers in sale deals of properties and stated that the broker played a role in negotiating the deal. The learned Commissioner of Income-tax (Appeals) on the basis of said explanation, allowed the appeal of the assessee. We have perused the order of the Assessing Officer as well as the impugned order of the learned Commissioner of Income-tax (Appeals). In our opinion, no documentary evidences in support of services of negotiating the deal by the broker Sh. Rajeev Mathur, in the present deal of surrendering the flat back to the builder, were submitted by the assessee either before the Assessing Officer or before the learned Commissioner of Income-tax (Appeals). In the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. 2. Facts in brief of the case are as follows: (i) that during the year under consideration the assessee, who is an individual, sold 3,00,000/- preference shares of three companies, i.e., 1,00,000 preference shares each of M/s. Medicare Investment Ltd., M/s. Maxopp Investment Ltd. and M/s. Cheminvest Ltd. on 17/08/2005 to M/s. Trophy holding private limited at the rate of ₹ 100 per share. The assessee purchased these preference shares in the year 1996 at the face value of ₹ 100 per share. The assessee recorded long-term capital loss of ₹ 2,30,60,499/- on sale of shares due to indexation of the cost of acquisition. (ii) During the year, the assessee also transferred the apartment at Aralias DLF City, Gurgaon on 01/03/2006, which was acquired in February 2003, to M/s. DLF Ltd. and earned long-term capital gain of ₹ 2,09,90,799/-on transfer of the apartment. (iii) The assessee claimed set off of long-term capital loss of ₹ 2,30,60,499/- arisen on transfer of shares, against the long-term capital gain of ₹ 2,09,90,799/- from transfer of aforesaid apartment. (iv) In Scrutiny proceedings, the Assessing Officer observed that, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not result in denying the claim of set off of long-term capital loss to the assessee. (vi) In view of above observations, the learned Commissioner of Income Tax (Appeals), set-aside the order of the Assessing Officer and directed to allow the long-term capital loss claimed by the assessee. On the issue of brokerage expenses, he was of the view that said expenditure was bonafide and supported by the brokers receipt, payment by cheque etc. and, therefore, he allowed the said expenses while computing the capital gain on sale of the apartment. 2.1 Aggrieved with the above finding of the learned Commissioner of Income-tax (Appeals), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 3. In ground No. 1 and 2, the Revenue has contested the allowing set off of long-term capital loss on sale of preference shares against the long term capital gain earned on sale of apartment by the Ld. CIT(A). 3.1 Before us, the learned Senior Departmental Representative relied on the order of the Assessing Officer and submitted that the transaction of sale of preference shares was arranged only to reduce the tax liability on sale of the apartment and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities private limited reported in 345 ITR 64 (iii) decision of the Chennai bench of the Tribunal in the case of DCIT versus Parry and company limited in ITA No. 2139/Mds/2007 3.4 We have heard the rival submission of the parties and perused the relevant material on record including the decisions cited by the learned counsel of the assessee. 3.5 In the case of DCIT Vs. Parry and Company Limited (supra), the assessee sold equity shares of M/s Parrys Confectionery Ltd. to sister concern and claimed long-term capital loss. The Assessing Officer disallowed the capital loss treating the transaction to be shame in nature. The Tribunal, however, held that merely because transactions entered into by an assessee with the motive to save tax, the transaction cannot be regarded or called as a colourable device so long as the transaction is valid in law. The Tribunal after considering the facts of the case held as under: 5. After hearing the rival contentions and perusing the record, we note that the Assessing Officer rejected the claim of the assessee as regards setting off of carry forward loss on sale of equity shares of M/s. PCL on the ground that there was a control of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gards purchase of shares from the assessee company at a price of ₹ 3.90 per share on 29.5.02. The parties entered into an agreement for transfer of shares on 6.6.02. Therefore it is clear that the Assessing Officer has imagined beyond stretch that the assessee was having knowledge of sale of shares of M/s. Bush Boake Allen (I) Ltd. because the sale of PCL shares look place even before grant of permission by the Government of India to M/s. Bush Boake Allen (I) Ltd. Moreover, we are in agreement with the contention of the learned counsel of the assessee that the assessee was not a party or had influence in the decision taken by M/s. Bush Boake Allen (I) Ltd. for purchase of shares. Even for the sake of argument., if it is presumed that the assessee sold the PCL shares to save tax on capital gains arising out of sale of shares of M/s. Bush Boake Allen the said transaction could not be considered as fraudulent or colourable device, as far as the transaction is valid in law. Before the Commissioner (A) the assessee relied on the judgment of the Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan and Another (263 ITR 706). The Hon ble Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare stands explained by the fact admitted by the AO that the said company was in red. The CIT(A) also noted that even in case the second transaction had not taken place, the long-term capital loss would have been accepted by the AO and the company would have been allowed to carry forward the said loss. The learned C1T(A) has also noted that where transactions were genuine, such long-term capital loss can be allowed to be set, off. In the appeal preferred before the Tribunal, the said findings of facts arrived at by the CIT(A) have been upheld and it has been held that the learned CIT(A) has given cogent reasons for coming to the conclusion that both the transactions were genuine and that it is not the case of the Department that the shares of Hede Navigation Ltd., had a higher price than the price at which it has been sold. In the present appeal, we find that there is no challenge by the appellants to the findings of the Tribunal that the transactions were genuine and that the price at which the shares were sold were not inflated. In such circumstances, the contention of Shr. Y.V. Nadkarni, learned counsel appearing for the respondents, that as the genuineness of the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble after the expiry of ten years from the date of allotment. During the course of Assessment Year 2001-02, the assessee redeemed three lakh shares at par and claimed a long term loss of ₹ 2.73 crores after availing of VBC 4 itxa5372.10-27.4 the benefit of indexation. The Assessing Officer disallowed the claim of set off of long term capital loss that arose on redemption against long term capital gain on the sale of other shares on the ground that (i) Both the assessee and the Company in which the assessee held the preference shares, were managed by the same group of persons; and (ii) There was no transfer and that the assessee was not entitled to indexation on the redemption of non-cumulative redeemable preference shares. The CIT(A) on the other hand, allowed the benefit which was claimed by the assessee. The Tribunal has affirmed the view of the CIT(A) holding that the genuineness and credibility of the capital transaction was not disputed for the previous ten years. Both the Companies were juridical entities; the fact that the Companies were under common management would not indicate that the transfer was sham and that the view of the Appellate Authority was purely based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the transaction of sale of shares was done prior to sale of apartment and assessee was aware of increasing prices of the apartment. The assessee can plan to reduce its tax liability through legitimate means. Before the Commissioner of Income Tax (Appeals), the assessee relied on the judgment of the Hon ble Supreme Court in the case of union of India versus Azadi Bachao Andolan and another (263 ITR 706). The Hon ble Supreme Court in the said judgment has held that merely because the transaction is entered into by the assessee with the motive to save the tax, the transaction cannot be regarded as colourable device so long as the transaction is valid in law. We have observed that similar finding has been given by the Tribunal in the case of Parry and Co. Limited (supra). In the case of Hede Consultancy Company Private Limited (supra), the Hon ble Bombay High Court has observed that merely capital loss preceded before the capital gain, cannot be a ground for holding the transaction as a colourable. The Ld. Commissioner of Income-tax (Appeals) has decided the issue in dispute with the observations, as under: j. I have considered the submissions made by the appellant and also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the actual cost of ₹ 3,00,000/- was indexed and indexed cost of acquisition of ₹ 5,30,60,499/- was arrived at by the annellant which resulted in long term capital loss. m. It is further the case of the assessing officer that the set off of the long term capital loss arising on sale of preference shares against the long term capital gain on sale of apartment was a calculated device to generate the capital losses for being set off against the capital gain income. There is no dispute that the gain arising on sale of flat resulted in long term capital gains to the appellant. The only dispute is whether the long term capital loss arising on sale of the above preference shares was genuine or not; if not the same could not be set off against long term capital gains as has been done by the appellant. On a careful consideration of facts, it has been noticed that the appellant had sold the flat in DLF city in March, 2006 while the shares in respect of which the loss was incurred were transferred on 17.08.2005. Therefore, the capital loss was incurred first in point of time and capital gains were arrived at much later date. The assessing officer could have, if at all, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the sale, negotiating the rate terms of sale etc and it was only as a result of the efforts of the broker, the transaction resulted in sale of flat to M/s DLF Universal Ltd. The learned Commissioner of income tax allowed the ground of the assessee. 4.2. Before us, the learned Sr. Departmental Representative relied on the order of the Assessing Officer whereas the learned counsel of the assessee relied on the order of the leather Commissioner of Income-tax (Appeals). 4.3 We have heard the rival submission of parties and perused the relevant material on record. The revenue has challenged that the expenditure was not actually incurred on account of brokerage. We find from the order of the learned Commissioner of Income-tax( Appeals) that the assessee submitted the documents in support of the claim, which included broker s receipt and payment by cheque etc. The learned Commissioner of Income-tax (Appeals) observed that the appellant could not have negotiated the transaction on her own and the information regarding the market rate, etc was required to get the best deal. The learned Commissioner of Income-tax( Appeals) further agreed with the contention of the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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