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TaxTMI 
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TaxTMI 
2026 (4) TMI 189
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....1 NFAC, Delhi DIN & Order No. ITBN/NFAC/S/250/2024-25/1069962367(1) Dated 25.10.2024 Assessment Unit, Income Tax Department Dated 27.09.2022 2. These are the two appeals filed by the Revenue for AY. 2020-21 against the respective orders passed by the Ld. CIT(A) in the case of Shri Subhash Chander Aggarwal (ITA No. 4604/Del/2025) and Smt. Shanti Devi (ITA No. 182/Del/2025). 3. The appeals were heard together and are being disposed of together as they arise out of common set of facts and involve common issues. In both cases, the Ld. CIT(A) has deleted the disallowance of Short-term Capital Loss arising on sale of 1,25,000 Compulsory Convertible Debentures (CCDs) of M/s MKY Constructions Pvt. Ltd. (formerly known as M/s Action Bridgegap Constructions Pvt. Ltd.), which loss had been set off against Long- Term Capital Gain arising from sale of residential property bearing no. 48/78, West Punjabi Bagh, New Delhi. Since the facts, transactions and issues involved in both appeals are identical and interconnected, taking the case of Shri Subhash Chander Aggarwal as the lead case the issues shall be discussed. 4. On hearing both the sides we find that the whole case of depa....
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....tible Debentures (CCDs) of face value Rs. 1,000/- each aggregating to Rs. 25 crores vide the debenture subscription agreement dated 06.09.2018.The funds infused through CDs were utilized by the company towards repayment of loans of Axis Bank and State Bank of India. However, despite infusion of funds, the financial position of the company did not improve due to continued adverse circumstances. Accordingly in order to reduce the further stress, the assessee along with his wife sold their jointly owned residential property at 48/78, West Punjabi Bagh, New Delhi. The assessee and her wife paid the loan from Indiabulls out of the proceeds from sale of residential property. The assessee's 50% share in sale consideration was Rs. 17 crores. After reducing indexed cost of acquisition, the assessee declared Long Term Capital Gain of Rs. 10,38,72,609/-.That the assessee sold CCDs on 21.03.2020 for Rs. 1,25,000/-, resulting in Short Term Capital Loss of Rs. 12,48,75,000/-. As per valuation report, the fair market value of CCD was negative. The CCDs were sold above the fair market value determined by the valuer. Against the Long-Term Capital Gain of Rs. 10,38,72,609/-, the assessee set-off....
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....f Long-Term Capital Gains (LTCG) on sale of residential property? 2. Whether on the facts and circumstances of the case and in law, the Ld. C(A) has failed to appreciate that the entire transaction of investment in CCDs, their transfer, and sale lacked commercial substance and was orchestrated solely to evade tax by creating artificial capital losses.? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the genuineness of the CCD investment and sale transaction without verifying OR requiring the assessee to produce a valuation report prepared at the time of subscription, justifying the subscription at Rs. 1,000 per CCD, despite the company's negative net worth and acknowledged financial distress.? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in relying merely on the assessee's narrative and principle of preponderance of human probability while ignoring glaring circumstantial evidence indicating that the transaction was a pre-planned colorable device designed for tax avoidance.? 5. Whether on the facts and circumstances of the case and in law....
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....l substance and was a pre-ordained colourable device for tax avoidance * The facts, as noted in the assessment order, clearly highlight that the assessee made investment on 06.09.2018 in CCDs at a face value of Rs. 1,000/ each and within a short span transferred the same on 21.03.2020 for a meagre consideration, thereby claiming a Short-Term Capital Loss of Rs. 12,48,75,000/-. * This loss was immediately utilized to wipe off the Long-Term Capital Gain arising on 08.05.2019 from sale of residential property at West Punjabi Bagh, Delhi. * The Ld. AO, after issuing notices under sections 142(1) and after examining all the documents on record recorded a categorical finding that at the time of investment the company had already lost its status as a 'going concern as per the Auditor's Report for F.Y. 2018-19 and the same adverse remarks continued in F.Y. 2019-20. No prudent investor would invest Rs. 25 crores in unsecured CDs of a company whose net worth stood eroded and which was facing severe financial distress, unless the investment was backed by collateral benefit or ulterior objective. * The Ld. CIT(A) was further not justified in acceptin....
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....CG. * The Ld. CIT(A) has ignored the binding principles laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. and Sumati Dayal, wherein it has been held that the authorities are entitled to look at the substance of the transaction and apply the test of human probabilities to determine the real nature of the arrangement. The Ld. CIT(A), however, wrongly relied upon judgments cited by the assessee without appreciating the applicability of the above Supreme Court decisions to the present facts. * The assessee has contended that at the time of investment in 2018 there was no occasion to foresee capital gain in 2020 and therefore no motive of tax avoidance can be attributed. This argument overlooks the fact that the relevant assessment is for A.Y. 2020-21 when both LTCG and STCL were claimed and the tax effect crystallized in the same year. * In view of the above factual matrix and the categorical findings recorded in the assessment order that the arrangement lacked commercial substance and was a preordained device for tax avoidance, it is respectfully submitted that the Ld. CIT(A) erred in deleting the disallowance. The order of the Ld....
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....aken by the banks to declare the assessee as wilful defaulter is too short sight as being declared defaulter assessee would only have lost credibility and future prospects even so this assertion is misconceived, as such action was avoided precisely because the assessee mortgaged his property and settled the dues. 10. Thus it needs to be appreciate that the investment in CCDs was not a case of parking surplus funds for earning return but was a case of financial compulsion arising out of guarantee obligations as the family enterprise M/s Action Bridgegap Constructions Pvt. Ltd. had availed credit facilities from Axis Bank and SBI and due to heavy losses the banks had recalled the loans and initiated coercive proceedings. The assessee Subhash Chandra was a guarantor of such loans and his liability was co-extensive. Therefore, in order to protect himself and his family from recovery proceedings and to settle the bank liabilities, if funds vide CD, were infused in the company it cannot be compared with a situation where an individual having surplus fund makes investments for making an earning on the surplus funds. The Id. AO has observed has gone on the basis that the percentage shar....