BINDU PARAG MODY,PUNE vs. ASST. CIT, CIRCLE - 1, MARGAO
What did the Tribunal hold?
The Tribunal found the CIT(A)'s order to be not a speaking order, lacking specific reasoning for the disallowance of the short-term capital loss on shares. Therefore, the issue was restored to the CIT(A) for fresh adjudication.
What were the facts?
The assessee claimed a short-term capital loss on the sale of shares. The Assessing Officer disallowed the entire loss, but the CIT(A) allowed the loss on mutual funds while disallowing the loss on shares, deeming the share transactions as sham and tax planning.
What were the issues?
Whether the CIT(A) erred in confirming the disallowance of short-term capital loss on sale of shares without providing a speaking order and proper reasoning, and whether the transactions were indeed sham.
Which sections of the Income-tax Act were involved?
Section 143(3),Section 250(6),Section 94(8)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PANAJI BENCH, ‘DB’ PANAJI
Before: DR.MANISH BORAD & SHRI PAVAN KUMAR GADALE
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2015-16 is directed against the order dated 29.07.2025 framed by National Faceless Appeal Centre, Delhi arising out of Assessment Order dated 29.12.2017 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
Assessee has raised following grounds of appeal :
“The following grounds are taken without prejudice to each other - On facts and in law, 1] The Id. CIT(A) erred in confirming the disallowance of short- term capital loss of Rs. 6,16,36,637/- on sale of shares on the ground that the said loss incurred by the assessee was sham and hence, the same could not be set off against income chargeable under the head capital gain. 2] The Id. CIT(A) erred in holding that the assessee had resorted to tax planning by claiming short term capital loss on sale of shares of companies of Rs.6,16,36,637/- and in view of the decision of Hon'ble Supreme Court in the case of Mc Dowell & Co. Ltd. [154 ITR 148], the assessee was not entitled to set off the said short term capital loss against income chargeable under the head capital gain. 3] The Id. CIT(A) failed to appreciate that the assessee had purchased and sold the shares through recognised stock exchange and there was no reason to hold that the said transactions of sale of shares as sham transactions and accordingly, there the disallowance of the short-term capital loss of Rs.6,16,36,637/- was not justified and the same may kindly be allowed. 4] The Id. CIT(A) erred in disallowing the short-term capital loss on sale of shares amounting to Rs. 6,16,36,637/- by holding that the assessee had resorted to tax planning without appreciating that the assessee was justified claiming the said loss and the decision of Hon'ble Supreme Court in the case of Mc Dowell & Co. Ltd. [154 ITR 148] was not applicable to the facts of the present case and accordingly, the disallowance made ought to have been deleted. 5] The Id. CIT(A) erred in confirming the disallowance of short- term capital loss on sale of shares amounting to Rs.6,16,36,637/- without appreciating that he himself had accepted that the provisions of section 94(8) were not applicable to sale of shares and thus, there was no reason to confirm the said disallowance. 6] The Id. CIT(A) ought to have appreciated that the provisions of bonus stripping on sale of shares was introduced subsequently and was not applicable to the year under consideration and hence, there was no reason to confirm the disallowance of the short term capital loss and accordingly, the same may kindly be allowed to the assessee while computing her income. The appellant craves leave to add, alter. amend or delete any of the above grounds of appeal.”
Brief facts of the case are that the assessee is an individual and filed return of income for A.Y. 2015-16 on 31.08.2015 declaring income of Rs.1,79,71,570/- which is processed u/s.143(1) of the Act on 22.02.2017. Thereafter, case selected for Limited Scrutiny under CASS followed by validly servicing statutory notices and assessment proceedings u/s.143(3) of the Act carried out wherein ld. Assessing Officer after considering the submissions of the assessee disallowed the claim of short term capital loss of Rs.10,47,63,827/- and assessed income at Rs.12,27,35,397/-. Aggrieved assessee preferred appeal before ld.CIT(A) but partly succeeded. Now the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee vehemently argued referring to the paper book running into 107 pages stated that ld.CIT(A) grossly erred in sustaining the disallowance of short term capital loss on sale of Equity shares invoking section 94(8) of the Act which is not applicable to Equity shares for the relevant assessment year. He submitted that Revenue authorities have incorrectly made allegation for sham transaction, commercial expediency cannot be questioned by the Revenue authorities, section 94(8) of the Act is not applicable, loss has been incurred as a bonafide investor, disallowance based on suspicion without any nexus and incorrect application of colourable device doctrine by the revenue authorities.
On the other hand, ld.DR supported the order of ld.CIT(A) and opposed the contentions made by ld. Counsel for the assessee.
We have heard the rival submissions and perused the record placed before us. The sole grievance of the assessee is that ld.CIT(A) erred in confirming the action of the Assessing Officer disallowing short term capital loss of (-) Rs.6,16,36,637/- without appreciating that he himself has accepted that provisions of section 94(8) of the Act are not applicable to sale of Equity shares. We note that ld.Assessing Officer has disallowed short term capital loss of Rs.10,47,63,827/- however, ld.CIT(A) allowed the loss on sale of mutual funds incurred at Rs.4,31,27,190/- and for the remaining loss incurred from sale of Equity shares of Infosys, Tech Mahindra, HCL Technologies, ld.CIT(A) has not allowed the claim of short term capital loss observing as follows :
“5. Discussion and appellate decision: The contention of the appellant have been examined. It is a common thing that investors mainly indulge in bonus stripping as a mechanism to evade income taxes. Bonus stripping is a situation when purchase or sale of units of a mutual fund is transacted in a manner, which would result in short term capital loss that can be adjusted against any other capital gains. The Hon'ble Apex Court has held in the celebrated judgement of Mc Dowell and Co. Ltd Vs. CTO (SC) 154 ITR 148 that tax authorities need to pierce the corporate veil and colourable device is not part of tax panning. In view of the surrounding circumstances, I have no hesitation to hold these transactions as "sham transaction" and the entire sale amount need to be taxed. It is important to note that the provisions of Section 94(8) is applicable only in case of mutual fund units. It is not applicable with respect to shares of a company. However, in the instant case the assessee has claimed short term capital loss of Rs. 10,47,63,637/-. Out of which Rs.6,16,36,637/- on sale of shares of companies and remaining amount of Rs.4,31,27,190/- on sale of mutual funds. I have considered the entire material and found that actually the appellant has eligible for the benefit of short term capital loss of Rs.4,31,27,190/-, which is the actual loss on sale of mutual fund and remaining amount of Rs.6,16,36,637/- is taxable. In view of this, I order to delete the differential amount of Rs.4,31,27,190/- (10,47,63,6374,31,27,190) and sustain the disallowance to the extent of Rs.6,16,36,637/- which is the short term capital loss on sale of shares other than mutual funds. In view of this, ground of appeal is partly allowed.”
From going through the above finding of ld.CIT(A) we find that the said finding cannot be considered as a speaking order and that ld.CIT(A) has summarily dealt with the issue without giving any specific finding disallowing the alleged short term capital loss. Further ld.CIT(A) has not given any reasoning as to why the alleged short term capital loss deserves to be disallowed and has also alleged that these transactions are sham transactions and the entire sale amount needs to be taxed. In view thereof, we deem it appropriate to restore the issue to the file of ld.CIT(A) for afresh adjudication. Needless to mention that ld.CIT(A) in the course of set-aside proceedings shall afford a reasonable opportunity of being heard to the assessee, consider the details filed in the paper book and pass a speaking order as contemplated u/s.250(6) of the Act in light of judgment of Hon’ble Bombay High Court in the case of PCIT (C) vs. Premkumar Arjundas Luthra (HUF) (2017) 297 CTR 614 (Bombay). Assessee is directed to update email id and contact detail on ITBA portal. Assessee is also directed to remain vigilant and not to take adjournment unless otherwise required for reasonable cause. Impugned order is set aside and the effective grounds of appeal raised by the assessee are allowed for statistical purposes.
In the result, appeal of the assesssee is allowed for statistical purposes.
Order pronounced on this 30th day of June, 2026. (PAVAN KUMAR GADALE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Panaji/Pune; दिन ांक / Dated : 30th June, 2026. Satish Satish Kumar Madishetty आदेश की प्रतिलिपि अग्रेपिि / Copy of the Order forwarded to : अपील र्थी / The Appellant. 1. प्रत्यर्थी / The Respondent.
The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, Panaji 4. ‘DB’ Bench / DR, ITAT, Panaji ‘DB’ Bench ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,
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