Genuine Short-Term Capital Loss From Sale Of Shares Can't Be Prevented From Being Set Off Against Long-Term Capital Gain: Mumbai ITAT

The Mumbai ITAT held that a taxpayer is not prevented from arranging her affairs within the legal framework and through legitimate means to reduce his tax liability.While pointing that the Income Tax Statute does not require the assessee to pay more tax, the Division Bench of Saktijit Dey (Vice President) and Amarjit Singh (Accountant Member) observed that “short-term capital loss derived by assessee from sale of shares cannot be prevented from being set off against the long-term capital gain by alleging adoption of colourable device”. The observation came by recording a finding that the transactions relating to purchase & sale of shares are not in the nature of sham transaction. Facts of the caseThe assessee/ respondent, a resident individual, filed its return declaring income of Rs.15.87 Crores. During assessment, the AO noticed that assessee had derived long term capital gain of Rs.16.81 Crores, from sale of 1,23,73,872 shares of Avendus Capital Pvt Ltd. Pursuant thereto, the assessee had set off short term capital loss of Rs.9.14 Crores from sale of shares of Mindtree Ltd. The AO found that during relevant period, Mindtree Ltd. had announced issuance of bonus shares, which led to reduction in price of shares almost to half its original price, and taking advantage of such reduction in shares price, the assessee sold the shares purchased earlier resulting in short term capital loss of Rs.9.11 Crores. The AO opined that assessee had adopted colourable device to derive maximum benefit by selling the shares purchased earlier at loss, to derive exempt long term capital gain. Thus, he disallowed the short-term capital loss and added back the same to the income of assessee. Observation of the TribunalThe Bench found that the AO did not dispute genuineness of the acquisition & sale of shares, rather, his only grievance is that after the issuance of bonus shares which resulted in reduction in the price of shares of Mindtree, the assessee derived short term capital loss and set it off against long term capital gain. The AO has further alleged that the assessee has deliberately deferred the sale of bonus shares to future dates to derive long term capital gain and claim exemption, added the Bench. The Bench found that the transactions relating to purchase & sale of shares are beyond doubt and are not in the nature of sham transaction, even there is no such allegation by the AO. Thus, the Bench observed that the short-term capital loss derived by assessee from sale of shares cannot be prevented from being set off against the long-term capital gain by alleging adoption of colorable device. When there is no evidence on record to doubt the genuineness of transactions entered into by the assessee, the resultant capital loss derived out of such transaction cannot be disallowed, added the Bench. Hence, while granting the benefit of short-term capital loss, the ITAT dismissed the Revenue's appeal.Counsel for Appellant/ Revenue: R.R. MakwanaCounsel for Respondent/ Assessee: Rahul SardaCase Title: ACIT versus Ranu VohraCase Number: ITA No.412/MUM/2024Click here to read/ download the Order

Genuine Short-Term Capital Loss From Sale Of Shares Can't Be Prevented From Being Set Off Against Long-Term Capital Gain: Mumbai ITAT

Pankaj Bajpai

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