Even if the shares are sold to the initial promoters through a third party, the transaction cannot be denied as genuine: ITAT Delhi
Facts:
- The assessee held 822,500 equity shares of M/s. Flexpack Technology Pvt. Ltd (FPTPL), purchased for Rs. 82,25,000/- at a face value of Rs. 10 per share.
- These shares were sold by the assessee during the year for Rs. 24,67,500/-, resulting in a declared long-term capital loss of Rs. 92,50,512/- after claiming the benefit of indexation.
- The AO noticed that the assessee had sold the shares to Smt Sunita Jain and Smt Jain had in turn sold shares back to the original promoter of the company from whom assessee had originally purchased shares.
- The AO concluded that the assessee sold the shares to the initial promoters of FPTPL at a loss through a third party, Smt. Sunita Jain.
- The AO disallowed the long-term capital loss, asserting that the sale of shares at a lesser price than the cost price was not genuine.
Delhi ITAT held as below:
- FPTPL was continuously incurring losses, and the shares were allotted to the assessee at par due to his friendship with one of the initial promoters.
- This is not an arranged transaction. The assessee, faced with a loss-making company has legitimately found a buyer in Smt. Sunita Jain.
- All relevant documentation and consideration were duly received by the assessee through banking channels.
- The AO should have examined Smt. Sunita Jain to verify the transaction’s veracity.
- Once the assessee has discharged its initial burden and no proper steps have been taken by the AO to counter the claim, the transaction cannot be denied as genuine.
- The long-term capital loss of Rs. 92,50,512/- is genuine and the AO is directed to allow set-off and carry forward as per the law.
