Long-Term Capital Loss on Unlisted Shares Allowed Against Slump Sale Gain Under Section 50B

The ITAT Chennai upheld the CIT(A)'s order allowing the assessee to set off Long-Term Capital Loss on sale of unlisted shares against Long-Term Capital Gain from a slump sale under section 50B. The tribunal found the transactions genuine, supported by audited financials, share certificates, CA valuation reports, and proper banking channels. There was no evidence of collusion, accommodation entries, or fictitious transactions. The loss arose from bona fide commercial decisions based on updated financial data and business prospects. The Revenue's addition of Rs. 24 crores was held unjustified and deleted. The appeal filed by the Revenue was dismissed.

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ISSUES:

Whether the Long-Term Capital Loss (LTCL) claimed on sale of unlisted shares is genuine and allowable for set-off against Long-Term Capital Gain (LTCG) arising from slump sale under Section 50B of the Income Tax Act.Whether the transactions involving purchase and sale of shares at high premium in closely held companies lacking genuine business activity constitute sham transactions or a colourable device to evade tax.Whether the test of "preponderance of human probability" as laid down in CIT v. Durga Prasad More and Sumati Dayal applies to determine genuineness of the transactions.Whether the Revenue has discharged the burden of proving that the transactions are bogus or accommodation entries.Whether penalty proceedings under Section 270A are justified on the ground of underreporting or misreporting due to bogus LTCL claims.

RULINGS / HOLDINGS:

The Long-Term Capital Loss of Rs. 24.00 Crores claimed on sale of shares is held to be genuine and allowable for set-off against LTCG arising from slump sale under Section 50B of the Act, as the transactions were supported by proper documentation, audited financials, share certificates, and executed through banking channels.The transactions involving purchase of shares at high premium in the two closely held companies are not held to be sham merely on the basis of high premium paid or the companies' financial losses; commercial expediency and business decisions of the assessee were upheld.The application of the test of "preponderance of human probability" by the Assessing Officer (AO) was found to be misplaced in the absence of any credible evidence of collusion, accommodation entries, or artificial inflation of share values.The Revenue failed to discharge the burden of proving that the transactions were colourable devices or bogus; mere suspicion or speculative inferences without evidentiary support were insufficient to disallow the claim.Penalty proceedings under Section 270A for underreporting due to bogus LTCL claims are not sustained as the LTCL claim was held genuine.

RATIONALE:

The Court applied the statutory framework under the Income Tax Act, particularly provisions relating to capital gains and slump sale under Section 50B, and principles governing burden of proof in tax proceedings.Judicial precedents were considered, including CIT v. Walfort Share & Stock Brokers (P.) Ltd., which held that a transaction valid under law and supported by documentation cannot be treated as sham merely due to tax advantage.The Court distinguished the facts from cases involving accommodation entries where identity, creditworthiness, and genuineness of transactions were not established, emphasizing that the assessee was a listed company complying with SEBI and Companies Act requirements, and investments were disclosed in statutory filings.The Court underscored that commercial expediency must be judged from the businessman's perspective, relying on apex court decisions such as S.A. Builders Ltd. v. CIT, and rejected the AO's reliance on the "test of human probability" in absence of concrete evidence of collusion or fraud.The Court reaffirmed that the burden to prove a transaction as a colourable device lies on the Revenue, which was not met in the present case, thus supporting the deletion of the addition and dismissal of the Revenue's appeal.

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