Tribunal Grants Relief on Business Loss & Capital Gains Disallowance

The Tribunal allowed the assessee's appeal, granting relief on disallowance of business loss, business expenses, cost price of shares, computation of capital gains, and addition under Section 68. The Tribunal dismissed minor grounds due to the small amount. The order was pronounced on 20/07/2018.

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Issues Involved:
1. Disallowance of Business Loss
2. Disallowance of Business Expenses
3. Disallowance of Cost Price of Shares
4. Computation of Capital Gains on Sale of Shares
5. Addition under Section 68 of the Income Tax Act
6. Addition of Bogus Liability

Detailed Analysis:

1. Disallowance of Business Loss:
The Assessing Officer (AO) disallowed the business loss claimed by the assessee amounting to Rs. 91,08,921/-, which included trading loss of Rs. 66,99,200/- and business expenses of Rs. 30,09,721/-. The AO questioned the genuineness of the sale of unquoted shares and the related expenses, suspecting manipulation due to the involvement of the assessee in all entities involved. The First Appellate Authority accepted the documentation provided by the assessee but still found the transactions suspicious, applying the theory of "suspicious transactions" and citing relevant case laws such as CIT vs. P. Mohankala, Sumati Dayal vs. CIT, and Sajjan Das & Sons vs. CIT. The Tribunal, however, found that the transactions were well-documented, the shares were part of the stock-in-trade, and the books of accounts were not rejected. The Tribunal allowed the business loss claimed by the assessee, stating that the conclusions of the AO and CIT(A) were based on conjecture and surmises.

2. Disallowance of Business Expenses:
The AO disallowed the business expenses claimed by the assessee amounting to Rs. 30,09,721/-. The Tribunal found the disallowance arbitrary and without proper reasoning. It held that since the assessee was engaged in share trading, the related expenses were allowable under the Act. Even in the absence of business activity during the year, the expenses were still allowable as per the rulings in Ganga Properties Ltd and Kesha Appliances Pvt Ltd vs. ITO. The Tribunal directed the AO to allow the expenses.

3. Disallowance of Cost Price of Shares:
The AO disallowed the cost price of Rs. 26,77,500/- for shares purchased from the assessee's wife, doubting the genuineness of the transaction. The Tribunal found that proper documentation, including share certificates and transaction records, was provided. Both parties involved were income tax assessees, and the transactions were reported. The Tribunal held that if the sale was accepted, the purchase should also be accepted, and disallowed the addition made by the AO.

4. Computation of Capital Gains on Sale of Shares:
The assessee claimed that the shares were received as a gift from his father and sought indexation of cost from AY 1991-92. The Tribunal agreed with the assessee, citing precedents like DCIT v. Manjuta J. Shah and Smt. Mina Deogum v. ITO, and directed the AO to grant indexation from AY 1991-92.

5. Addition under Section 68 of the Income Tax Act:
The AO added Rs. 1,64,84,148/- under Section 68, suspecting the sale of a residential flat to the assessee's daughter and wife as a suspicious transaction. The Tribunal found that the identity, creditworthiness, and genuineness of the transaction were not doubted. The sale was made at market value, and the consideration was paid by cross account payee cheques. The Tribunal held that no addition could be made under Section 68 as the transaction was genuine and supported by evidence.

6. Addition of Bogus Liability:
The AO added Rs. 31,13,200/- as bogus liability, which pertained to the assessee's mother and was inherited by the assessee. The Tribunal found that the liability continued to be reflected in the books of accounts, and there was no remission or cessation of the liability. Citing the case of CIT vs. Sugauli Sugar Works (P) Ltd, the Tribunal held that Section 41(1) could not be invoked and deleted the addition.

Conclusion:
The Tribunal partly allowed the assessee's appeal, providing relief on the major issues of disallowance of business loss, business expenses, cost price of shares, computation of capital gains, and addition under Section 68, while dismissing grounds 7 and 8 due to the smallness of the amount. The order was pronounced in open court on 20/07/2018.

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