TaxTMI 
TaxTMI 
2026 (8) TMI 1777
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....he genuineness of the transaction was not doubted by the A.O. 4. That the appellant craves the right to add, append, amend or delete any or all grounds of appeal." 3. Brief Facts of the Case are that the assessee, an individual and resident, filed her return of income for Assessment Year 2022-23 dated 29.07.2022 declaring total income of Rs.84,96,597. The return was selected for scrutiny under CASS, inter alia, on account of the substantial difference noticed between the sale consideration of securities/mutual funds as reflected in the departmental database and the amount appearing in the return of income, as well as the claim of substantial capital loss against capital gains. 4. During the course of assessment proceedings, the Ld. AO noticed from the departmental database that the assessee had received sale consideration of Rs.38.82 crore, whereas the mutual fund transactions initially examined by the Ld. AO reflected a lower figure. The assessee explained that the alleged difference of Rs.10.57 crore represented the sale consideration of units of Edelweiss Arbitrage Fund and had already been duly disclosed in the return of income, including in Schedule 112A. The ag....
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....le transactions were duly supported by banking records, executed transfer documents and corresponding disclosures in the books and income-tax returns of the parties concerned. The assessee therefore contended that the transaction could not be disregarded merely because it resulted in a capital loss or had the effect of reducing the overall tax liability. 10. The Ld. AO, however, was not satisfied with the explanation. Although the actual occurrence of the transaction was not disputed, the Ld. AO questioned the manner in which the transaction had been structured which according to the Ld. AO, the purchase of unquoted shares at a high price followed by their sale to the assessee's husband within a short period indicated that the transaction was undertaken with the objective of generating a capital loss for adjustment against the capital gains earned during the year. Having regard to the surrounding circumstances, the Ld. AO concluded that the transaction was a pre-arranged and closed-circuit arrangement lacking genuine commercial purpose and was primarily intended to create an artificial short-term capital loss. Accordingly, the entire loss of Rs.1,57,82,685/- was disallowed. Pena....
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....challenged the said addition before the Ld.CIT(A) contending, inter alia, that the transactions were genuine, supported by documentary evidence, undertaken through normal banking channel and could not be disregarded merely because they resulted in tax loss, the Ld.CIT(A) rejected the assessee's contention. The assessee further pointed out that her son had also acquired shares of CEPL from the major shareholder at Rs. 6,270/- per share whereas the assessee had subsequently transferred her share to her husband at Rs. 6,505/- per share, which, according to the assessee demonstrated that the value of shares had not been artificially rigged. The Ld. CIT(A) rejected this contention of the assessee as well. 13. Before us, the Ld. AR for the assessee argued that the transaction of purchase and sale of share was a legally permissible transaction and was not a colourable device for the reason that the Ld. AO has not found any discrepancy in the purchase price of the shares or the sale price of the shares and has also not disputed the fact that the shares were owned by the assessee which has been subsequently transferred by way of sale for which the sale consideration has also been receive....
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....e of acquiring the company, the assessee had purchased the shares at a high price and, subsequently, when the shares of Cafenoir Estates Private Limited came into the hands of the assessee, the price of the said shares were regulated by the assessee and her son where there was a sudden fall in the price to accommodate the assessee's husband to buy the shares at Rs. 6,505/- per share. The ld. AO also observed that the assessee had no funds to buy the shares except for the fund of Rs. 1,20,00,000/- received from Cafenoir Estates Private Limited. The Ld. AO treated the impugned transaction to be a colourable device for the purpose of setting off the capital gain with the artificially created capital loss. The ld. AO relied on the decision of the Hon'ble Apex Court in the case of CIT vs. T.N. Aravinda Reddy (1979) 120 ITR 46; the decision of the Hon'ble Punjab & Haryana High Court in the case Porrits & Spencer (Asia) Ltd. Vs. Commissioner of Income-tax, Faridabad [2010] 190 TAXMAN 174 (P & H); the Apex Court decisions in the case Mc Dowell & Co. Ltd. Vs. Commercial tax Officer [1985] 154 ITR 148 (SC) and in the case CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) in support of the Ld. ....
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....ept that the shares were sold only for the purpose of reducing the tax liability. The Tribunal has placed reliance on the judgement of Hon'ble the Supreme Court rendered in the case of Union of India v. Ajadi Bachao Andolan (2003) 263 ITR 706 which has explained in detail its earlier judgement in the case of McDowell & Company Ltd. v. CTO (1985) 154 ITR 148. The aforementioned issue was considered by a Division Bench of this Court in the case of M/s Porrits & Spencer (Asia )Ltd v. The Commissioner of Income Tax, Faridabad (ITA No.10 of 2004 decided on 31.3.2010) and it was concluded that once the transaction has been found to be genuine by the Tribunal then it cannot be dubbed as colourable device. It was further held that if the transaction was otherwise valid in law and a part of tax planning then merely because it has resulted in reduction of tax it cannot be ignored on the ground that the underlying motive of entering into such a transaction by the assessee was to reduce its tax liability to the State. The evasion of tax is substantially different than the planning concerning tax. Accordingly a tax payer will be within his right to resort to a device to divert the income be....