Genuine transactions involving long-term capital losses should not be deemed colorable devices for tax evasion when supported by appropriate documentation and consistent accounting practices.

ORDER

Manoj Kumar Aggarwal (Accountant Member)

1. Aforesaid appeal by revenue is a recalled matter since the appeal was disposed-off by Tribunal vide order dated 22.11.2023. However, the assessee sought recall of the order vide MA No.13/Chny/2024 which was allowed vide order dated 02.04.2024 wherein the order was recalled. In the order dated 22.11.2023, the revenue raised two issues i.e., disallowance of bad debts and deletion of capital gains on sale of certain shares. The first ground was dismissed whereas the second ground was allowed. The assessee preferred MA on second issue which was allowed. The bench allowed MA, inter-alia, on the ground that another decision of Tribunal in ITA No.329/Mds/2016 on similar facts, was distinguished with a cryptic finding without assigning proper reason as to why that judgment as followed by Ld. CIT(A) was not applicable to the facts of the present case. Therefore, the order was recalled on the second issue as agitated by the assessee in its misc. application. Accordingly, the appeal has been placed before this bench for fresh adjudication of second issue.

Proceedings before lower authorities

2.1 The material facts as noted in earlier order dated 22.11.2023 are not in dispute. During the year the assessee sold certain land and computed Long Term Capital Gains. It also transpired that the assessee sold 704349 number of equity shares of an entity by the name M/s. TVS Finance and Services Limited (TFSL) to another entity i.e., M/s. TVS Motors Company Ltd. (TMCL) on various dates starting from 15.01.2010 to 02.03.2010 @ Rs. 31.19 per share for total sale consideration of Rs.219.68 Lacs. The assessee also sold 19577915 numbers of similar shares to another entity i.e., M/s. TVS e-Access India Ltd. (TIL) on 02.03.2010 @ 1 paise per share for a total consideration of Rs.1.95 Lacs. The assessee computed Long term capital loss from such sale and set-off this loss against Long term capital gains derived from sale of land. Since the shares were sold at different rates on same date, Ld. AO doubted the loss claim of the assessee on sale of shares.

2.2 The assessee justified the same on the ground that TFSL was incurring huge losses and had negative net-worth of Rs.85.50 crores. The book value per share was negative at Rs. 20.65 per share. TFSL was in the process of restructuring their business and for this purpose it required huge funding. However, the assessee was not in a position to infuse additional capital as required for restructuring of the business. Since the restructuring plan could not be implemented, the assessee decided to sell the shares @ Rs. 1 paise per share considering the fact that the book value of shares was negative at Rs. 20.65 per share. It was pointed out that TFSL was a registered NBFC and due to heavy loss, it stooped its activities from October, 2007 onwards. TFSL was a listed company and as per listing agreement with stock exchange, the public holding was required to be kept at minimum of 25%. As against this, the public shareholding was only 10.23%. Therefore, to delist the company, the shares held by public were purchased in an open offer and cost of said purchase was at Rs. 31.19 per share. The same has been shared by the assessee as well as TMCL, being promoter entities of TFSL. In accordance with the agreement between the assessee and TMCL, the assessee sold shares of TFSL at a consideration of Rs. 31.19 per share and the balance equity shares were sold to TIL @ Rs. 1 paise per share. The assessee has also justified sale of shares at Rs.1 paise per share with the help of valuation report from an independent valuer, where the valuer had arrived at negative share price as on the date of sale. Therefore, the assessee submitted that sale of shares at different rates to two different rela