2017 (10) TMI 1004 - HC - Income Tax

High Court upholds capital loss deduction, emphasizes legitimate tax planning.

The High Court affirmed the Tribunal's decision to delete a substantial long term capital loss on the sale of shares. The Court emphasized that legitimate ... Addition on long term capital loss on sale of shares - proof of colourable device to evade tax - Held that:- Though the shares were sold offmarket, the Assessing Officer also confirmed that the sale prices were the same as those prevailing in the listed market. Thus there was no element of doubt about the correctness of the sale price of the shares. The volume of shares acquired through gifts by relatives has not been brought on record. These being the facts we are in agreement with the view of the Tribunal that merely because the shares were sold during the said period when the land was also sold, the former leading to long term capital loss and the later to long term capital gain, would not by itself establish colourable device to evade tax. As is held by this Court as well as by the Supreme Court on large number of occasions, commercial expediency and legitimate tax planning is always open to an assessee. The Revenue cannot question the timing of shares only because effect thereof would be to reduce the assessee's capital gain arising out of sale of immovable property. - Decided against revenue Issues:1. Whether the ITAT erred in confirming the deletion of long term capital loss on sale of shares.Analysis:The case involved an appeal by the Revenue against the Income Tax Appellate Tribunal's judgment regarding the deletion of a substantial amount on account of long term capital loss on the sale of shares. The main contention was whether the assessee's claim of long term capital loss, set off against capital gain from property sale, was a legitimate tax planning strategy or a means to evade tax. The Assessing Officer argued that the shares were sold off-market, acquired as gifts, and used to offset the gain on land sale, suggesting a deliberate tax evasion scheme.The CIT(A) had deleted the additions, leading to the Revenue's appeal before the Tribunal. The Tribunal upheld the deletion, emphasizing the genuineness of the transactions and the absence of dispute regarding sale prices. The Tribunal rejected the Revenue's argument of tax evasion, stating that simultaneous sale of shares and land did not automatically imply illegitimate tax planning. The Tribunal's decision was based on the lack of doubt about the shares' sale price and the absence of evidence regarding the volume of gifted shares.Upon reviewing the case, the High Court concurred with the Tribunal's findings. It noted that even though the shares were sold off-market, their prices matched the listed market rates, indicating no pricing discrepancies. The Court highlighted the principle that legitimate tax planning and commercial expediency are permissible for taxpayers. It emphasized that reducing capital gains through share sales does not inherently signify tax evasion. The Court cited previous judgments to support the stance that the Revenue cannot challenge the timing of share transactions solely to prevent a reduction in capital gains from property sales.Ultimately, the High Court dismissed the tax appeal, affirming the Tribunal's decision to uphold the deletion of the substantial long term capital loss on the sale of shares. The judgment underscored the importance of distinguishing between legitimate tax planning strategies and unlawful tax evasion schemes, emphasizing the taxpayer's right to engage in lawful tax planning practices.