Genuine capital losses from documented transactions in commercial distress, even if imprudent, cannot be disallowed as colourable devices without evidence of sham; set-off against gains allowed if supported by banking channels and independent valuation.

ORDER

PER ANUBHAV SHARMA, JM:

These appeals preferred by the Revenue against the order of the Ld. NFAC, Delhi, (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) arising out of the assessment orders u/s 143(3) r.w.s 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Further details of the appeal is as under:

2. These are the two appeals filed by the Revenue for AY. 2020-21 against the respective orders passed by the Ld. CIT(A) in the case of Shri Subhash Chander Aggarwal (ITA No. 4604/Del/2025) and Smt. Shanti Devi (ITA No. 182/Del/2025).

3. The appeals were heard together and are being disposed of together as they arise out of common set of facts and involve common issues. In both cases, the Ld. CIT(A) has deleted the disallowance of Short-term Capital Loss arising on sale of 1,25,000 Compulsory Convertible Debentures (CCDs) of M/s MKY Constructions Pvt. Ltd. (formerly known as M/s Action Bridgegap Constructions Pvt. Ltd.), which loss had been set off against Long- Term Capital Gain arising from sale of residential property bearing no. 48/78, West Punjabi Bagh, New Delhi. Since the facts, transactions and issues involved in both appeals are identical and interconnected, taking the case of Shri Subhash Chander Aggarwal as the lead case the issues shall be discussed.

4. On hearing both the sides we find that the whole case of department tis that the subscription to Convertible Debenture and generating loss was a colourble arrangement to reduce the tax liability arising out of capital gains earned on sell of property held jointly by the two assesse.

5. It is countered by assessee by asserting certain facts giving rise to investment in CD and sale of same leading to loss and subsequent sale of the house generating capital gains but which was adjusted against the loss suffered in CD transaction. As per ld. Counsel, the assessee Subahsh Chand Aggarwal, and his son Tarun Agarwal were promoters and directors of M/s Action Bridgegap Constructions Pvt. Ltd., presently known as M/s MKY Constructions Pvt. Ltd.The said company was engaged in the business of road construction as contractor/sub-contractor. That the company has undertaken a road contract of Haryana State Roads and Bridges Development Corporation Ltd. at Hodel district for four kilo meters stretch at a total value of Rs. 135.20 crores. In order to execute this project, the said company had availed credit facilities from Axis Bank Ltd. and State Bank of India. The company executed the said project and its turnover in that respect is duly recorded in its financials for the year ended 31.03.2015, where Revenue operation was Rs. 96.72 crores. However, the payment against the work executed ran into litigation as Haryana State Roads and Bridges Development Corporation Ltd. did not release the payment.Consequent to the dispute, the liability of interest went on, with the result that the company was unable to serve the interest on the loan raised from Axis Bank and State Bank of India. Consequently, Axis Bank and State Bank of India recalled their credit facilities. The bank also issued notices under Securities and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI). The assessee, being a guarantor and its liability to pay the whole liability towards the bank borrowings in order to protect himself and his family from coercive recovery proceedings and to enable the company to settle bank dues, the assessee and his wife decided to infuse funds in the company. As for this purpose, they raised loan from Indiabulls Commercial Credit Ltd. by mortgaging their jointly owned residential property bearing N