Capital loss set-off and documentary proof in share-swap transactions under the capital gains computation scheme.

Commercial prudence in a share-swap transaction approved by the FIPB cannot be rejected merely on a subjective view, but the assessee must still substantiate the long-term capital loss claim with documentary evidence; the matter was remanded for limited verification of the cost of acquisition evidence. For set-off of capital losses, short-term capital loss from STT-paid transactions was held comparable with short-term capital gains from non-STT transactions because the statutory phrase "under similar computation made" refers to computation under the capital gains scheme, not to the rate structure. The set-off claim was allowed.

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Issues: (i) Whether the assessee's claim of long-term capital loss on the share-swap transaction could be denied on the ground that the transaction lacked prudence and documentary support. (ii) Whether short-term capital loss arising from STT-paid transactions could be set off against short-term capital gains from non-STT transactions.

Issue (i): Whether the assessee's claim of long-term capital loss on the share-swap transaction could be denied on the ground that the transaction lacked prudence and documentary support.

Analysis: The assessee's share swap had been approved by the FIPB, and the ratio of shares to be issued was also approved. On that basis, the commercial prudence of entering into the transaction could not be questioned by the Revenue. At the same time, the assessee was required to substantiate the claim with documentary evidence, and the record showed that the required documents were not produced before the Assessing Officer despite opportunities being granted. The proper course, therefore, was to verify the evidence and decide the claim afresh.

Conclusion: The issue was decided partly in favour of the assessee, and the matter was remanded to the Assessing Officer for limited verification of the cost of acquisition evidence.

Issue (ii): Whether short-term capital loss arising from STT-paid transactions could be set off against short-term capital gains from non-STT transactions.

Analysis: The Tribunal followed its earlier view that the expression "under similar computation made" in the set-off provision refers to computation of income under the capital gains provisions, not to the rate structure applicable to the transactions. Since the computation of capital gains is governed by the same statutory scheme, the difference in tax treatment of STT and non-STT transactions did not prevent set-off.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded in part: the long-term capital loss issue was restored for fresh verification, while the set-off claim for short-term capital loss was allowed.

Ratio Decidendi: Commercial prudence of a genuine business transaction cannot be substituted by Revenue's subjective view, but the assessee must prove the claim with evidence; for set-off purposes, STT and non-STT short-term capital items remain comparable where the statute requires similar computation.

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