2014 (1) TMI 926 - AT - Income Tax

Tribunal allows appeal, remits for fresh adjudication on cost of acquisition.

The appeal was partly allowed. The tribunal remitted the matter back to the AO for fresh adjudication regarding the verification of documentary evidence ... Rejection of long term capital loss on shares – Documentary evidences not filed – Held that:- The swapping of shares was approved by an agency of Govt. of India i.e. FIPB and it had approved the ratio of shares to be swapped - to challenge the prudence of the transaction was not proper - even if the transaction was not approved by the Sovereign and it was carried out by the assessee in normal course of its business AO/DRP could not question the prudence of the transaction - Genuiuness of a transaction can be definitely a subject of scrutiny by revenue authorities, but to decide the prudence of a transaction is prerogative of the assessee. A decision as whether to do /not to do business or to carry out / not to carry out a certain transaction is to taken by a businessman - If it is proved that a transaction had taken place, then resultant profit or loss has to be assessed as per the tax statutes – Relying upon Commissioner of Income Tax Versus Salitho Ores Ltd. [2010 (9) TMI 849 - Bombay High Court] - thus, by casting doubt about the prudence of the transaction, members of the DRP had stepped in to an exclusive discretionary zone of a businessman and it is not permissible - Any claim made by the assessee has to be proved by him and assessee cannot escape from the scrutiny by the AO – the AO had given sufficient opportunities to the assessee, but assessee did not furnish requisite information – the matter remitted back to the AO for fresh adjudication – Decided partly in favour of Assessee. Disallowance of set-off of short term capital loss - Transaction Security Transaction Tax paid against short term capital gain arising from non STT transactions – Held that:- The decision in DEPUTY DIRECTOR OF INCOME TAX Versus M/s DWS INDIA EQUITY FUND [2012 (5) TMI 55 - ITAT MUMBAI] followed - Under the provisions of section 70(2), short term capital loss arising from any asset can be set off against short term capital gain arising from any other asset under a similar computation made - merely because the two set of transactions are liable for different rate of tax it cannot be said that income from these transactions does not arise from similar computation made as computation in both the cases has to be made in similar manner under the same provisions – Decided in favour of assessee. Issues Involved:1. Rejection of Long Term Capital Loss (LTCL) claim2. Documentary evidence for cost of acquisition of shares3. Prudence of the transaction resulting in LTCL4. Valuation of shares and regulatory compliance5. Validity of the valuation report by Chartered Accountants6. Entitlement to carry forward LTCL7. Disallowance of set-off of short term capital loss against short term capital gains8. Non-grant of credit for tax deducted at source9. Non-grant of credit for regular assessment tax paidIssue-wise Detailed Analysis:1. Rejection of Long Term Capital Loss (LTCL) Claim:The appellant challenged the AO's order dated 18.12.2009, which disallowed the claim of LTCL amounting to Rs. 52,34,57,196 on the grounds of insufficient documentary evidence regarding the cost of acquisition of shares. The assessee argued that the AO did not provide adequate time to furnish the necessary documents, as the request was made on December 15, 2009, and the draft order was passed on December 18, 2009.2. Documentary Evidence for Cost of Acquisition of Shares:The AO found that the assessee failed to file the required documentary evidence to substantiate the cost of acquisition of shares in SET Singapore. Despite multiple opportunities and adjournments, the assessee did not produce the necessary documents before the AO by the assessment order date. Consequently, the AO disallowed the LTCL claim.3. Prudence of the Transaction Resulting in LTCL:The DRP questioned the rationale behind the transaction that led to a significant LTCL, stating that no prudent businessman would engage in such a transaction. The panel also noted that the swap ratio was not determined by a competent authority, such as a merchant banker, and the valuation report by the Chartered Accountants had several limitations.4. Valuation of Shares and Regulatory Compliance:The DRP further argued that the valuation of SET Singapore shares did not comply with the Indian regulatory framework. This regulatory non-compliance was used as a basis to deny the appellant's tax claim for LTCL.5. Validity of the Valuation Report by Chartered Accountants:The DRP rejected the appellant's tax claim, citing that the valuation report from M/s R.L. Rawani & Co., Chartered Accountants, was qualified by numerous limiting conditions. The panel deemed this report insufficient to support the LTCL claim.6. Entitlement to Carry Forward LTCL:The appellant requested the tribunal to direct that it is entitled to carry forward the LTCL incurred from the transfer of shares from SET Singapore to SET India, computed at Rs. 56,23,51,295. The tribunal found that the transaction was approved by the FIPB, Government of India, and thus questioning the prudence of the transaction was not appropriate. However, the tribunal remitted the matter back to the AO for verification of documentary evidence regarding the cost of acquisition, clarifying that the prudence of the transaction should not be decided by the AO.7. Disallowance of Set-off of Short Term Capital Loss Against Short Term Capital Gains:The AO disallowed the set-off of short term capital loss (subject to Securities Transaction Tax) of Rs. 539 against short term capital gains (not subject to Securities Transaction Tax), citing different tax rates for STT and non-STT transactions. The tribunal, referencing the case of DWS India Equity Fund, ruled in favor of the assessee, allowing the set-off as per the provisions of section 70(2) of the Act.8. Non-grant of Credit for Tax Deducted at Source:The appellant did not press this ground during the hearing. Consequently, the tribunal dismissed this ground as not pressed.9. Non-grant of Credit for Regular Assessment Tax Paid:Similarly, the appellant did not press this ground, and it was dismissed as not pressed.Conclusion:The appeal was partly allowed. The tribunal remitted the matter back to the AO for fresh adjudication regarding the verification of documentary evidence for the cost of acquisition of shares, while upholding the appellant's right to set off short term capital loss against short term capital gains. The grounds concerning tax credits were dismissed as not pressed.