The Income Tax Appellate Tribunal (ITAT), Delhi bench has annulled the disallowance of a long-term capital loss arising from the sale of shares of a private company to its initial promoters.
In this case, the individual assessee, Paramjit Gandhi, receives remuneration from M/s Progressive Tools and Components Pvt. Ltd, where he serves as one of the Directors. Additionally, the assessee earns interest income and short-term and long-term capital gains.
For the Assessment Year (AY) 2013-14, the assessee filed the income tax return on July 31, 2012, declaring a total income of Rs. 54,49,160.
The assessing officer (AO) noted short-term capital gains from the sale of plots and observed that the assessee had sold 822,500 equity shares of M/s. Flexpack Technology Pvt. Ltd (FPTPL) during the year, resulting in a declared long-term capital loss of Rs. 92,50,512 after claiming the benefit of indexation.
The AO, on investigating the transaction, concluded that Smt. Sunita Jain, acting on behalf of the assessee, sold the shares to the original FPTPL proprietors at a loss. The AO deemed the sale below the cost price as not genuine, leading to the disallowance of the long-term capital loss.
The assessee appealed to the CIT(A), who upheld the AO’s decision. Subsequently, the assessee approached the tribunal with a second appeal.
During the proceedings, the counsel for the assessee, Dr. Rakesh Gupta, argued that the shares were sold at a negotiated price to mitigate losses incurred by the continuous loss-bearing FPTPL.
The counsel emphasized the submission of all relevant documents supporting the genuineness of the purchase and sale of shares, along with the income tax returns for AY 2013-14 to 2017-18, demonstrating that the assessee derived no benefit from the declared long-term capital loss in subsequent years.
On the other hand, the Revenue’s counsel, Kanv Bali, contended that the transaction was arranged with known parties, and the shares were eventually transferred to the initial promoters through Smt. Sunita Jain.
After careful consideration, the two-member bench, consisting of M. Balaganesh (Accountant Member) and Anubhav Sharma (Judicial Member), found that the assessee, facing challenges, had genuinely sold the shares to Sunita Jain at a negotiated price of Rs. 3 per share, considering FPTPL’s significant losses.
The tribunal, based on its review of facts and records, deleted the disallowance of the long-term capital loss incurred on the sale of shares to the initial promoters.
Consequently, the tribunal allowed the appeal of the assessee.
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