2014 (1) TMI 332 - AT - Income Tax

Tribunal directs re-examination of Long Term Capital Loss disallowance, criticizes AO's treatment.

The Tribunal allowed the appeal for statistical purposes, directing the CIT (A) to re-examine the disallowance of Long Term Capital Loss. The Tribunal ... Disallowance of Long Term Capital Loss – Held that:- The purchase and sale of the shares were done through banking channels - there is no evidence in passion of the Assessing Officer that the assessee received higher amount of consideration than what is disclosed by the assessee -the Revenue cannot disturb the computation of capital loss filed before the Assessing Officer – Following KP Varghese Versus Income-Tax Officer, Ernakulam, And Another [1981 (9) TMI 1 - SUPREME Court] - the onus is on the Revenue - Assessing Officer accepted the sale price of the same shares where computation of short term capital gains was furnished - He has not given any reasons why the assessee’s stand was accepted in case of short term capital gains while he was rejecting the same for long term capital loss - such dichotomous and divergent approach by the AO is unsustainable in law as it raises issues relating to principle of consistency - Only sale price is accepted and allowing of indexation benefits is consequential issue and the assessee is rightly entitled to such benefits legally – Thus, the loss emanated is legally allowed. CIT(A) have not dealt with the issues in details after obtaining replies of the assessee and after considering the arguments of the assessee – the reasoning is just adequate enough to create a suspicion but inadequate to sustain the additions as done by the CIT(A) - On such inadequate reasons, the transactions of sale of shares to Mrs. Manorama Rathi cannot be considered as ingenuine transactions - CIT(A) should have analysed why AO accepted the same sale price when comes to computation of short term capital gains, where the benefits of indexation are not available and reject for computation of LTCG - AO cannot accept the sale price for purpose of computation of STCG and reject for computation of LTCG - CIT(A) is silent on this divergence/ inconsistency – Order of the CIT(A) set aside and the matter remitted back to the CIT(A) for re-adjudication – Decided in favour of Assessee. Issues:Assessment of Long Term Capital Loss disallowed by AO for the assessment year 2008-2009.Analysis:The appeal filed by the assessee challenged the order of the CIT (A)- 39, Mumbai regarding the disallowance of Long Term Capital Loss of Rs. 7,24,177. The assessee earned long term capital gains on the sale of shares of private companies and also incurred capital loss on the sale of shares to his wife. The AO disallowed the loss on sale of shares, leading to the dispute. The assessee claimed that the shares were sold to his wife due to lack of buyers and at the purchase price, resulting in losses with indexation benefits. However, the CIT (A) held the transaction as not genuine and a colorable device, confirming the addition made by the AO.During the proceedings, the assessee argued that the shares had no buyers, being private company shares, and had to be sold at par value to his wife. The counsel relied on legal precedents to support the claim that the Revenue lacked evidence to show the sale price was undervalued. The Revenue contended that selling shares at par value to reduce tax liabilities constituted artificial loss generation.The Tribunal found that the purchase and sale of shares were legitimate, done through banking channels, with no evidence of undisclosed higher consideration received by the assessee. The AO's divergent treatment of short term and long term capital gains computations raised issues of consistency. The Tribunal emphasized the Revenue's onus to prove understated consideration and rejected the AO's suspicions. The Tribunal directed the CIT (A) to re-adjudicate the issue, considering all relevant facts and providing a reasonable opportunity for the assessee to be heard.In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a detailed re-examination of the case by the CIT (A) to address the inconsistencies and inadequacies in the previous decision-making process.