ITAT uphold Addition since Share Transaction was used as a Colourable device to avoid Tax Liability [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld an income tax addition by holding that the share transaction was used as a colourable device to avoid capital gain tax liability.

The Assessee sold a property for a total consideration of Rs. 9.60 crores. On such sale, capital gain of Rs. 3,48,39,960/- was declared. The AO found that the said capital gain was set off against the claim of loss of Rs. 5,18,68,407/- incurred on the sale of shares. According to him, the purchase and sale of shares was nothing but a colourable device to generate loss to be set off against capital gain.

The Tribunal noted that the shares which were purchased for a consideration of Rs. 7.50 crores were sold/transferred for Rs. 3,09,37,500/- and the loss of sale of shares was generated. It was noted that though the premium is justified by a valuation report, but the same appears to be a self-serving document because a company which is incorporated in January 2011 cannot fetch a hefty premium of Rs. 190/- in a span of three months.

“No prudent person with some commercial prudence would pay a hefty premium of Rs. 190/- on a book value of Rs. 82/-, hold it for one year, and then sell the same shares at book value,” the bench observed.

Considering the sequence of events, in the light of the principles laid down by the Supreme Court and also by the Karnataka High Court, the Tribunal held that “the share transaction is nothing but a sham transaction, a colourable device to avoid capital gains tax liability and, therefore, has to be ignored. The first appellate authority has accepted the transaction without considering the fact that what is ‘apparent’ is not ‘real’ on the facts of the case in hand.”