Section 50C and share-sale loss principles: pre-amendment transfer uses agreement consideration, and sham transaction must be proved with evidence.

For a pre-amendment transfer of agricultural land, section 50C could not be applied by importing the later word "assessable"; the consideration stated in the agreement to sell governed, and the stamp value in the registered deed could not be substituted for that earlier transaction. The note also states that a short-term capital loss on share sale could not be disallowed as non-genuine where the assessee produced primary purchase and sale records and the Revenue adduced no cogent evidence of higher consideration or a sham transaction. In both issues, the stated tax adjustments were deleted and the assessee's position was accepted.

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Issues: (i) Whether the addition made by substituting the consideration shown in the agreement to sell with the higher consideration recorded in the registered sale deed, and by applying section 50C, was sustainable in computing long-term capital gains on the agricultural land; (ii) Whether the disallowance of short-term capital loss arising from sale of shares as non-genuine was justified.

Issue (i): Whether the addition made by substituting the consideration shown in the agreement to sell with the higher consideration recorded in the registered sale deed, and by applying section 50C, was sustainable in computing long-term capital gains on the agricultural land.

Analysis: The dispute turned on two alternative factual positions. If the agreement to sell was treated as non-genuine, the registered conveyance deed pertained to a later assessment year and the impugned capital gain could not be assessed in the year under appeal. If the agreement to sell was treated as genuine, the consideration actually disclosed in that agreement governed the computation, and the deeming provision in section 50C could not be invoked for a transfer effected before the insertion of the word "assessable" with effect from 01.10.2009. The amendment was held to be prospective, and the stamp valuation basis could not be substituted for the earlier transfer.

Conclusion: The addition on account of long-term capital gain was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the disallowance of short-term capital loss arising from sale of shares as non-genuine was justified.

Analysis: The assessee had furnished primary material regarding purchase and sale of shares and the Revenue did not bring any cogent evidence to show that more consideration than that disclosed was received or that the transaction was a sham. In the absence of any applicable deeming provision for notional sale consideration and without adverse evidence disproving the transaction, the loss could not be denied merely on suspicion or on generalised inferences about the company's finances.

Conclusion: The disallowance of short-term capital loss was set aside and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive tax issues, with the impugned additions and disallowance deleted.

Ratio Decidendi: For a pre-amendment transfer, section 50C cannot be extended by the later insertion of "assessable", and a capital loss cannot be rejected in the absence of evidence disproving the stated sale consideration or showing the transaction to be sham.

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