By TIOL News Service

AHEMDABAD, OCT 25, 2017: THE ISSUE BEFORE THE BENCH IS - Whether merely because shares were sold during same financial year when the land was also sold, so as to offset losses incurred from sale of shares against gain from sale of land, by itself, would mean that Assessee indulged in tax evasion device. NO is the verdict.

Facts of the case: The Assessee, an individual, had claimed long term capital loss in sale of shares of two companies namel,y M.H. Mills and Industries Ltd and M.H. Packaging Pvt. ltd. The assessee set off such loss against the long term capital gain earned in sale of immovable property. The AO objected to the loss mainly on the grounds that the shares were sold offmarket though the companies were listed companies. The assessee had acquired the shares from relatives as gifts so that loss arising out of the sale of shares could be offset against the gain on sale of land. The assessee had thus chalked out a plan to evade tax. On appeal, the CIT(Appeals) deleted the additions. On further appeal, the ITAT confirmed the view of CIT(A) holding that there was no dispute about the genuineness of the transactions or the sale price of the shares. That being the position, merely because the shares were sold during the same financial year when the land was also sold, by itself, would not mean that the assessee indulged in tax evasion device.

High Court held that,

++ we notice that though the shares were sold offmarket, the AO also confirmed that the sale prices were the same as those prevailing in the listed market. Thus there was no element of doubt about the correctness of the sale price of the shares. The volume of shares acquired through gifts by relatives has not been brought on record. These being the facts we are in agreement with the view of the Tribunal that merely because the shares were sold during the said period when the land was also sold, the former leading to long term capital loss and the later to long term capital gain, would not by itself establish colourable device to evade tax. As is held by this Court as well as by the Supreme Court on large number of occasions, commercial expediency and legitimate tax planning is always open to an assessee. The Revenue cannot question the timing of shares only because effect thereof would be to reduce the assessee's capital gain arising out of sale of immovable property.

(See 2017-TIOL-2223-HC-AHM-IT)