2019 (3) TMI 136 - HC - Income Tax

Tribunal Decision Upheld on Capital Loss Claim Dispute

The Commissioner of Income Tax-III, Coimbatore Versus Shri K.P.D. Sigamani, Shri K.P. Ramasamy And Shri P. Nataraj

The High Court upheld the tribunal's decision regarding the admissibility of a short term capital loss claim related to the forfeiture of shares. It found ... Bogus forfeiture of shares - amount invested in the forfeited shares - Short Term Capital Loss - HELD THAT:- Taking note of the factual situation into consideration, the Tribunal held that the decision taken by the assessee cannot obviously be treated as a sham or colourable devise. We are in agreement with the finding recorded by the Tribunal which was rendered on re-appreciation of the factual details. Furthermore, the Tribunal had noted that there is no whisper or any allegation that the amount invested in the forfeited shares has come back to the assessee in any form whatsoever. Tribunal noted that the forfeiture are not claimed to be bogus nor it has been shown to be a fraud or colourable devise. Thus, on facts the Tribunal convinced that the forfeited shares cannot be treated to be a fraudulent transaction or colourable device. As perused the order passed by the CIT(A) and we find that the CIT(A) has not given any positive finding as to how the transaction to be termed as a colourable device or fraudulent transaction. In fact the order proceeds on surmises and conjunctures and there is no finding to the effect that a colourable device was conceived by the assessee to defraud the revenue. Thus, for the above reasons, there is no ground made out to interfere with the factual finding rendered by the Tribunal. - Decided against the revenue Issues:1. Admissibility of short term capital loss claim due to forfeiture of shares.2. Validity of the tribunal's decision directing the assessing officer to accept the claim.3. Analysis of the transaction and nature of forfeiture.4. Comparison with relevant legal precedents.5. Evaluation of the tribunal's findings against the revenue's arguments.6. Lack of evidence supporting the claim of a fraudulent transaction.Issue 1: Admissibility of Short Term Capital Loss ClaimThe tax case appeals revolve around the admissibility of a short term capital loss claim by the revenue under Section 260-A of the Income Tax Act, 1961. The claim pertains to the forfeiture of partly paid up shares of M/s.KPR Sugar Mills P.Limited for the assessment year 2007-2008.Issue 2: Validity of Tribunal's DecisionThe primary contention in the appeals is whether the Income Tax Appellate Tribunal was correct in directing the assessing officer to accept the claim of the assessee regarding the forfeiture of shares as a valid short term capital loss. The tribunal's decision is challenged by the revenue, raising substantial questions of law for consideration.Issue 3: Transaction Analysis and Nature of ForfeitureThe tribunal analyzed the transaction involving the establishment of M/s.KPR Sugar Mills by the assessees. It noted that the forfeiture of capital should not be considered a sham transaction, especially in circumstances where the investment was hindered by external factors like litigation. The tribunal found no evidence to suggest that the forfeited amount returned to the assessees, indicating a genuine loss.Issue 4: Comparison with Legal PrecedentsThe tribunal referenced legal precedents and highlighted that the forfeiture was not fraudulent or a colorable device. It compared the case to relevant decisions, emphasizing the absence of fraudulent intent or deceptive practices in the transaction.Issue 5: Evaluation of Tribunal's FindingsThe High Court reviewed the tribunal's findings and agreed with its assessment of the factual details. It noted that the Commissioner of Income Tax (Appeals) failed to establish the transaction as a colorable device or fraudulent. The court upheld the tribunal's decision based on a lack of evidence supporting the revenue's claims.Issue 6: Lack of Evidence of Fraudulent TransactionThe court emphasized the lack of findings supporting the revenue's argument that the transaction was a colorable device to defraud the revenue. It dismissed the tax case appeals, affirming the tribunal's decision and answering the substantial questions of law against the revenue, citing insufficiency of grounds to interfere with the factual findings.