The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench held that the Unusual price rise/ fall in the shares of a company cannot be a basis to draw an inference that capital loss generated is bogus.
The assessee, M/s.Ganesh Plantation Ltd. is engaged in the business of financing and granting of loans and advances. The assessee for the year under consideration filed its return of income declaring total income of Rs. 7,40,330 dated 30th September 2009 which was assessed under Section 143(3) of the Act at Rs. 25,92,480 vide order dated 27th December 2011.
The AO on one hand has recorded his finding with respect to the shares of certain companies that its face value stands at Rs.10 but the assessee has purchased the same at a higher value. The basis of arriving at the conclusion that the assessee has purchased the shares at a higher value was the non-availability of shares valuation.
In other words, the AO himself has admitted the value of the shares of certain companies at Rs.10 but he has not given any benefit of such value while working out the loss with respect to purchase and sale of shares.
As such the AO has treated the entire loss on the purchase and sale of shares as not genuine which is contrary to the observations made by him during the assessment proceedings. In fact, the AO, in the given facts and circumstances, was under the obligation to determine/ work out the valuation of the shares before rejecting the claim of the assessee.
All the parties with whom the assessee carried out such transactions were identifiable and there was also a consideration among such parties. Admittedly, the price of the shares in the market is not always based on the company’s financial position, profit/growth rather its value/price is determined on the demand and supply of the script/shares and various other factors.
The coram headed by the Vice President, Rajpal Yadav and Waseem Ahmad noted that it is not the case of the Revenue that there was some inflow of money from the buyer of the shares to the assessee which is unaccounted. As there is no dispute about the nature of the transaction and the consideration received by the assessee against the sale of shares, therefore the transaction cannot be termed as a sham transaction.
The ITAT held that the onus is on Revenue to establish that assessee has received some benefit over and above the actual sales consideration.
“We are of the view that the high profit/taxable income cannot be a criteria to decide the price of the share/script. Thus any unusual price rise/ fall in the shares of the company cannot be a basis to draw an inference that capital loss generated by the assessee is bogus in nature,” the ITAT said.
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