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TMI Blog2018 (10) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... of AO cannot be countenanced because AO being a quasi-judicial authority has to be fair and reasonable. - Set off allowed - Decided against the revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... gain which accrued on transfer of shares was an artificial loss or gain and whether for the purposes of income-tax assessment these transactions could be ignored by regarding them as fiscal nullity. In the impugned order the AO has stated that that the loss incurred was not assessable since the assessee had adopted a colourable device for avoidance of tax and therefore these transactions were required to be ignored for tax purposes. I however find that the conclusions reached by the AO are not well-founded. 6. During the relevant year the assessee carried out transactions in shares of 8 companies all of which belonged to RPG Group. In the impugned order the AO disbelieved and doubted the genuineness of purchase and sale transactions only in shares of 4 companies wherein loss was incurred. However, the material on record shows that during the same period the assessee also conducted transactions of purchase and sale of other 4 RPG Group companies where it had gain of ₹ 2,86,59,932/-. The transactional documents and evidences maintained by the assessee in relation to purchase and sale of all companies were identical. In all 8 cases securities transacted were of RPG group com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and brought to tax such gain. In the circumstances if the transactions with group companies under the identical circumstances resulting in gain were accepted by the AO to be genuine, then on the same set of circumstances it was not open to the AO to doubt the genuineness of the transactions which resulted in loss. 8. I further note that the AO disbelieved and doubted the genuineness of the transaction on the ground that the loss was artificially created to derive undue tax benefit. From the facts which are placed on record I however find that the loss which the assessee suffered during the relevant year was ₹ 34,96,09,895/-. During the FY 2009-10, the assessee had made gain of ₹ 2,86,59,932/- under the head short term capital gain (non-STT paid) and short term capital gain (SIT Paid) of ₹ 1,33,67,748/-. The non-STT paid short term capital gain was derived from the transfer of shares of group companies and these shares were transacted in the identical circumstances in which loss was incurred. As such one cannot say that the loss of ₹ 35 crores was required to be generated as artificial loss for claiming set-off against STT paid short term capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned with a case where during the year under consideration, the assessee had first earned substantial capital gain on sale of its land amounting to ₹ 49.72 crores. During the same year the assessee incurred a matching loss of ₹ 49.73 crores on account of transaction of trading in shares. The AO brought on record material to show that these transactions were colourable device adopted to avoid payment of tax on the capital gain derived on sale of land. The AO had therefore substantiated his finding that the assessee had actually derived undue gain by setting-off short term capital loss on sale of shares against long term capital gains on sale of land. In the present case however I find that that the total short term capital loss was ₹ 35 crores and short term capital gain was ₹ 2.86 crores and both of which were from transactions within group and of the group companies. The mode and manner of group transactions was identical and the AO doubted the genuineness of only transactions resulting in loss. As such it cannot be said that the assessee created artificial gain and loss for tax avoidance purposes. It is seen that the transactions which led to loss i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set-off either in AY 2010-11 or in any subsequent year and therefore the AO's conclusion that the loss was artificially created by the assessee by adopting a colourable device is bereft of any factual foundation. The AO's reliance on the judgement of the Supreme Court in case of Azadi Bachao Andolan (supra) is also factually and legally untenable. Rather the said decision advances the case of the assessee. In the later judgement in the case of Azadi Bachao Andolan, the Supreme Court specifically dissented from the view earlier expressed in the case of Mc Dowell & Co Ltd (supra) and reiterated that the Ramsey's principle laid by the House of Lords still holds field in the matter. 11. The A/R of the assessee in his submissions has relied on several judicial decisions in which the view has consistently been taken that the assessing authorities cannot doubt the genuineness of the transaction merely because the assessee has incurred loss on transfer of a capital asset or that the full value of consideration received by the assessee is not commensurate with the market value of the capital asset. The judgement of the Supreme Court in case of CIT vs George Henderson & Co Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time, proper explanation was not furnished by the assessee company as to why there was such difference between the purchase price and sale price. According to hi, since the entire transaction resulted in loss was carried out within the entities belonging to the RPG group and since the AO did not find any commercial rationale behind the prices at which the investments were purchased and sold. According to Ld. DR, the AO rightly concluded that the only motive for undertaking the sale transaction was to create an artificial loss which has partly set off by the assessee against the current year's gain realized on sale of short term investments and the balance was carried forward with a view to set off the same against the profits to be derived in coming years. In support of the aforesaid contention, the Ld. DR placed heavy reliance on the judgment of the Hon'ble Bombay High Court in the case of Killick Nixon Ltd. Vs. DCIT 208 Taxman 45 and urged before us that the AO's order needs to be upheld. 5. Per contra, the Ld. AR submitted that the STT paid short term capital gain of ₹ 1,33,67,748/- and non-STT paid short term capital gain of ₹ 2,86,59,932/- was also derived by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It was submitted before us that no prudent person would be created an artificial loss of this magnitude if the intention was to avoid payment of tax on an income which was barely 10% of the loss incurred on sale of investments. As regards the AO's allegation that loss was created with a view to provide tax shirked against profits of future years. The Ld. AR pointed out that the Ld. CIT(A) has recorded specific finding in para 9 that in following two years the assessee had claimed set off in respect of such loss only to the tune of ₹ 4.21 lacs and thereafter, the carry forward of loss lapsed on account of demerger of the assessee's investment division. The Ld. AR pointed out that no material has been placed by the Ld. DR to controvert this factual finding recorded by the Ld. CIT(A). The Ld. AR, therefore, submitted that the conclusion drawn by the AO that the assessee had created the artificial loss to gain undue tax advantage was, therefore, void with any factual foundation. Accordingly, the Ld. AR further submitted that on the facts of the case the law laid down by Hon'ble Bombay High Court in the case of Killick Nixon Ltd. (supra) was not applicable to the assessee's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find relevant and considering the totality of the circumstances, the intra-group transaction carried out by the assessee cannot be said to be bogus or colourable device adopted by the assessee to reduce its legitimate tax liability because it is a fact that Ld. CIT(A) has recorded that assessee has claimed set off in respect of such loss only of ₹ 4.21 lacs which fact has not been controverted before us and which fact distinguishes cases cited by ld DR. We also note that the income against which the loss was claimed by way of set off was also earned by the assessee by sale of intra group investments for which consideration was also received from other group companies. We, therefore, find that it was not a case where profits were earned by the assessee in respect of transaction with third parties and thereafter, the loss was artificially created to be set off against such income which is a distinguishing factor. We also take note that both the gain as well as the loss related to sale of shares by the assessee within the group and in respect of group entities and the principal purpose of such transaction was to achieve the restructuring of the RPG group and so cannot be ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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