Tax Tribunal Allows Set-off of Capital Loss from Share Sale Against Capital Gain

The Tribunal found that the sale of shares by the assessee to her son was genuine and not a sham transaction to avoid tax. The assessee was allowed to set off the long-term capital loss from the share sale against the long-term capital gain from the sale of immovable property. The Tribunal directed the Assessing Officer to verify the computation of the indexed cost of acquisition of the shares and allow the correct amount of long-term capital loss to be set off against the long-term capital gain. The appeal by the assessee was allowed.

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Issues Involved:
1. Whether the transaction of sale of shares by the assessee to her son was genuine or a sham transaction aimed at avoiding tax.
2. Whether the assessee was entitled to set off the long-term capital loss from the sale of shares against the long-term capital gain from the sale of immovable property.

Issue-wise Detailed Analysis:

1. Genuineness of the Share Transaction:
The assessee sold 900 shares of National Tiles & Industries Private Ltd (NTPL) to her son at Rs. 100 per share, which was their fair market value. The shares were held since 1991, and the transaction was executed through proper channels, including share transfer forms, paying requisite stamp duty, and passing a Board Resolution by NTPL. The consideration was effected through banking channels. The assessee argued that the transaction was genuine and not a colourable device to avoid tax, supported by various case laws, including CIT Vs George Henderson & Co Ltd and Union of India versus Azadi Bachao Andolan, which emphasized that a genuine transaction cannot be deemed non-est merely due to an underlying motive of tax avoidance.

2. Set-off of Long-term Capital Loss Against Long-term Capital Gain:
The assessee claimed a set-off of long-term capital loss of Rs. 29,14,440 from the sale of shares against the long-term capital gain from the sale of immovable property. The Assessing Officer (AO) disallowed this set-off, treating the share transaction as a sham, primarily because the shares were sold to a related party (the assessee's son) and the company’s worth was negative at the time of sale. However, the assessee provided a detailed valuation of the shares as per Wealth Tax Rules, 1957, which was not disputed by the lower authorities. The Tribunal referred to several precedents, including CIT Vs Hede Consultancy Co. (P.) Ltd. and CIT Vs Special Prints Ltd, which upheld that genuine transactions traded at proper valuation, even if entered with a motive to avoid tax, should not be disqualified.

The Tribunal also noted that the lower authorities did not dispute the genuineness of the transaction or the valuation of the shares. The sale was conducted through proper legal and procedural channels, and the assessee’s son had declared the investment in his income tax return. The Tribunal emphasized that the mere fact that the transaction involved related parties and coincided with a period allowing set-off of losses did not automatically render it a colourable device.

Conclusion:
The Tribunal concluded that the share transaction was genuine and conducted at fair market value. It held that the assessee was entitled to set off the long-term capital loss against the long-term capital gain. The AO was directed to verify the computation of the indexed cost of acquisition of the shares and allow the correct amount of long-term capital loss to be set off against the long-term capital gain. The appeal filed by the assessee was allowed.

Order Pronouncement:
The order was pronounced in the open court on the 9th day of March 2018.

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