ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3.3.1, MUMBAI, MUMBAI vs. SHAPOORJI PALLONJI SOLAR HOLDINGS PVT. LTD., MUMBAI

As could be seen from the grounds raised, the solitary issue arising for consideration is claim of long term capital loss (LTCL) of Rs.183,00,38,564/- on sale of shares. Briefly the facts are, the assessee is a resident corporate entity, stated to be engaged in business of generation and supply of Power and Energy. For the assessment year under dispute, the assessee filed its return of income on 15.03.2022, declaring loss of Rs.194,29,01,727/- under the normal provisions of the Act and book loss of Rs.171,28,11,497/- under the Minimum Alternate Tax (MAT) provisions. The return of income filed by the assessee was selected for complete scrutiny, primarily, to examine low profit ratio.

In course of assessment proceedings, from time to time, the Assessing Officer (A.O. for short) called upon the assessee to furnish various details. After examining them, he issued a show cause notice to the assessee proposing variation in respect of certain items. One amongst them being, claim of LTCL of Rs.183,00,38,564/-. From the details furnished by the assessee, the A.O. noticed that the assessee had not furnished any satisfactory reply in respect of claim of LTCL of Rs.183,00,38,564/-. He observed that apart from computation of loss on sale of shares, the assessee did not submitted proof regarding the share transaction such as contract notes, demat account, bank statements, etc. He further Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. observed that as per information available in the internet, the companies whose shares were sold by the assessee are non-existing. Thus, he observed that there was complete lack of details regarding the fixation of sale price of shares. Thus, alleging lack of supporting evidence, the A.O. disallowed the claim of LTCL of Rs.183.38 crores and its carry forward. Of course, the A.O. made couple of other additions and ultimately determined the total income at Rs.8,19,52,179/-.

Contesting the disallowance of LTCL and other additions made by the A.O., the assessee preferred an appeal before the first appellate authority.

In course of hearing before the first appellate authority, insofar as claim of LTCL of Rs.183.38 crores is concerned, the assessee submitted that without issuing any show cause notice, the A.O. has proceeded to disallow the claim of loss. However, on merits, the assessee furnished certain additional evidences along with his submissions in support of claim of LTCL. The first appellate authority forwarded the submissions and additional evidences furnished by the assessee for verification of the A.O. and submission of a remand report. The remand report furnished by the A.O. was again confronted to the assessee. In response to the said remand report, the assessee furnished further additional evidences including a valuation report on the market value of shares as on the date of sale. The fresh evidences furnished by the assessee were again forwarded to the A.O. seeking verification and comments. After verifying the valuation report and submissions of the assessee, the A.O. again furnished a remand report with his comments. Based on the submissions made by the assessee, evidences furnished and the remand reports of the A.O., the first appellate

Before us, learned Departmental Representative (ld. DR for short) while contesting the decision of first appellate authority relied on written submissions dated 01.12.2025, furnished to the bench. The gist of the submissions can be summarized as under: i. The First appellate authority has failed to correctly appreciate the reasoning of the A.O. while disallowing LTCL. ii. The assessee did not furnish the requisite documentary evidences at the time of assessment proceeding. Even, in course of remand, the assessee did not furnish complete documents called for by the A.O. The valuation report dated 22.02.2021 furnished by the assessee cannot be taken cognizance of as it was prepared after the completion of sale of shares and was not available at the time of assessment proceedings. iii. The valuation report is based on provisional balance sheet as on 22.10.2020, whereas, it should have been based on the balance sheets as on 31.03.2019 and 31.03.2020. iv. Between 31.03.2020 and 22.10.2020 there was disposal of assets which effectively reduced net worth of the company leading to depletion in value of shares. v. The valuation report should have proceeded the Agreement for sale of shares with Terra Asia Holdings. vi. The assessee has adopted a colorable device to generate LTCL. vii. The Tribunal being the last fact-finding authority should consider all aspects which even were not considered by the A.O.

The ld. Counsel appearing for the assessee, on the other hand, strongly relied upon the observations of the first appellate authority. He submitted, the companies whose shares were purchased by the assessee were all group companies and in existence. He submitted, the A.O. has ignored crucial facts and misdirected himself by considering irrelevant facts. He submitted, supporting documentary evidences could not be furnished before the A.O. as in the show cause notice, the A.O. has not specifically enquired about the sale of shares. However, he submitted, in course of proceedings before the first appellate authority, the assessee had furnished all necessary and relevant documentary evidences in respect of sale of shares including the valuation report. He submitted, all the documentary evidences were not only forwarded to the A.O. for verification, but in course of remand proceedings the A.O. himself had noticed the assessee to appear before him and explain the position. He submitted, to substantiate the claim of LTCL, the assessee has furnished all requisite documentary evidences such as demat account, both for purchase and sale of shares, agreements with the purchaser, valuation report and various other documentary evidences. He submitted, though the A.O. had ample time to go through the evidences, however, even after verifying the evidences, he did not make any adverse observations with regard to valuation of the shares at the time of sale. He submitted, the allegation of the A.O. that the assessee did not furnish the demat account indicating the purchase of shares by the assessee, is not borne out from record as the assessee did furnish such evidence. He submitted, the observations of the A.O. in the remand report are general in nature. Hence, Revenue’s case does not turn on such observations of the A.O.

Strongly objecting to various contentions of the ld. DR, the ld. Counsel submitted, the department is trying to provide a new dimension to the entire dispute by alleging use Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. of colorable device by the assessee to claim LTCL as the A.O. has never made such allegation, either in the assessment order or in the remand reports. He submitted, even the department is relying upon documents which the A.O. never considered. Thus, he submitted, the department cannot be permitted to make out altogether a new case to justify the disallowance made by the A.O., which was not even the case of the A.O at any point of time. He submitted, the purchaser is a Singapore based entity and part of a reputed group of companies located in USA. He submitted, since the purchaser is a completely unrelated party, no motive can be attributed to the assessee and the transaction cannot be treated as a colorable device to reduce tax liability. He submitted, the objection of the department regarding the valuation report is totally unacceptable, as it was only for the purpose of supplementing the price negotiated between two unrelated parties towards sale of shares. He submitted, inasmuch as, the A.O. has not made any adverse comments on the correctness of the valuation made in the valuation report. He submitted, even at this stage also the department has failed to furnish any computation indicating the value of share as on the date of sale. He submitted, the shares certainly carried a value, hence, the A.O. could not have disallowed the claim of the assessee without expressing what could have been market value of the shares as on the date of sale. Thus, he submitted, the order of ld. First appellate authority should be sustained.

We have carefully considered rival submissions and perused the materials on record, including the documents furnished in the paper books. Undisputedly, the assessee had acquired equity and preference shares in four group entities at an aggregate cost of Rs.202.18 crores. The details of which are as under:

In the year under consideration, the assessee along with its holding company decided to sale its entire ownership of shares in four group companies, namely, Shapoorji Pallonji Solar Pvt. Ltd. (SP Solar), TN Solar Power Energy Ltd., Solar Edge Power Ltd. and Universale Mine Development Ltd. After prolonged negotiations and due diligence the shares were sold to M/s Terra Asia Holdings Pte. Ltd., a company incorporated in Singapore and part of KKR group of USA, for a total consideration of Rs.230 crores, out of which the assessee received an amount of Rs.39.25 crores, as against the purchase cost of shares at Rs.202.19 crores. This resulted in LTCL of around Rs.183 crores. In the return of income filed for the assessment year under dispute, the assessee claimed such LTCL. It is evident, the A.O. has rejected assessee’s claim of LTCL primarily on the reasoning that the assessee failed to furnish the requisite documentary evidences for enabling the A.O. to verify the genuineness of the claim. However, before the first appellate authority, the assessee furnished voluminous documentary evidences to justify its claim of LTCL on sale of shares. The submissions made by the assessee and documentary evidences furnished were forwarded to the A.O. for verification and comments. Vide letter dated 05.03.2024, the A.O. furnished the first remand report which was confronted to the assessee. Based on the observations made in the first remand report, the assessee again made detailed Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. submissions and furnished documentary evidences including a valuation report determining the valuation of the shares as on the date of sale. The further documentary evidences furnished by the assessee were again forwarded to the A.O. for verification and comments. After verifying the documentary evidences and seeking clarification from the assessee, the A.O. furnished the second remand report on 20.06.2024. The chronology of proceedings before the first appellate authority have been mentioned in paragraph 5.4.1 of the order of the ld. First appellate authority, which are as under: 5.4.1 However, following principles of natural justice and directions of Hon’ble High Court during the appellate proceedings, the appellant has been given ample opportunities and time to file all the material in support of its claim of the said long term capital loss. The details of such opportunities is as under: (i) Notice u/s 250 was issued on 13.06.2023. (ii) The appellant filed its submissions on 20.06.2023. (iii) The appellant filed application for admission of additional evidence on 20.06.2023. (iv) A remand report was called for from the AO on 08.08.2023. (v) The AO issued letter dated 06.10.2023 to the appellant asking to file submissions. (vi) On 18.01.2024, notice u/s 250 was issued asking the appellant to file specific submissions with regard to additional ground of appeal. (vii) On 25.01.2024, the appellant filed the submissions. (viii) On change of incumbency, the AO issued another letter on 17.02.2024. (ix) The submissions filed by the appellant were considered and the AO submitted the remand report on 05.03.2024. (x) The said remand report was shared with the appellant. (xi) In response, the appellant filed part rejoinder on 27.03.2024 and sought for time to file complete submissions. (xii) The appellant filed complete submissions on 17.04.2024. (xiii) As new evidence/documents were filed which were not on record earlier, therefore, fresh remand report was asked for from the AO on 19.04.2024. (xiv) During the remand proceedings, the AO gave the opportunity to the appellant to file submissions. The appellant filed submissions on 24.06.2024 and the AO submitted the remand report on 26.06.2024. (xv) The appellant had requested for personal hearing through video conferencing. Considering the request of the appellant, VC was scheduled for 03.07.2024 at 3:30PM. This office on the scheduled date and time tried to conduct the personal hearing through VC. However, when the link provided for the same was opened, it kept showing technical error. Therefore, the VC could not be conducted despite several attempts as the technical error kept popping up. Accordingly, the VC was rescheduled for 08.07.2024. On 04.07.2024, the appellant submitted that it kept waiting for the VC to start on the scheduled date and time. Further, the appellant vide the said letter requested for copy of remand report dated 26.06.2024 and requested that VC be rescheduled only after sharing the remand report. In response, vide letter dated 04.07.2024, the appellant was informed about the technical issued faced while starting the VC. (xvi) Also as per the appellant’s request remand report dated 26.06.2024 was shared. The appellant was also given the option that if the VC needs to be rescheduled from 08.07.2024, the same be intimated. Thereafter, personal hearing was conducted through VC on 08.07.2024. In the personal hearing, the appellant reiterated the written submissions filed and also requested for time Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. to submit rejoinder to remand report dated 26.06.2024. Thereafter, vide letter dated 08.07.2024 link sharing the recording of personal hearing was sent to the appellant along-with a request to make any further submission of what was said in the VC within 5 working days. In response, the appellant has filed written submissions on 12.07.2024.

The facts noted above give an insight not only to the fair opportunities given by the first appellate authority to both the parties but the in-depth analysis of the facts and materials brought on record, which is generally found missing in faceless proceedings. A careful perusal of the first remand report dated 05.03.2024, a copy of which is placed at pg. no. 92 of the paper book, reveals that insofar as the issue of claim of LTCL concerned, the observations of the A.O. are as under: Observation:-On perusal of additional evidences filed before CIT(A), NFAC and submissions filed by assessee before this office, it is seen that the assessee has made off market sale of shares held in the following companies, S.No. Company Name 1 Shapoorji Pallonji Solar PV Private Limited 2 TN Solar Power Energy Private Limited 3 Solar Edge Power and Energy Private Limited 4 Universal Mine Developers and Service Providers Private Limited to M/s Terra Asia Holdings II PTE Ltd on 22.10.2020. In this regard, following observations were made:- 1) In its attempt to substantiate the laim forong Term Capital Loss of Rs. 183,00,38,564/-, the assessee provided copy of purchase agreement executed with the buyer with respect to sale of shares of the above mentioned companies. However, the agreement submitted by the assessee are unsigned and unexecuted. As the said agreement relied by the assessee for its claim is not authenticated and the veracity of the documents is not ascertainable. Hence, much credit cannot be given for authenticity of the purchase agreements. 2) The assessee stated that it has earned Long Term Capital Loss of Rs. 183,00,38,564/-on sale of shares of above mentioned companies. On examination of submission made by the assessee it is found that the assessee has purchased the shares on face value @ Rs.10 per share but has sold much below the purchase price. As per Computation Statement provided by assessee, it is seen that the assessee sold shares on 22.10.2020 at a very low price which is stated to be Net Asset Value as on date. The NAV value ranged from 1.48 to 2.66 which were substantially lower than the face value of the said shares. But the sale being an off market private sale, the onus was clearly on the assessee to prove the correctness or the adequacy of the consideration. However, the assessee has not provided documentary evidences which formed the basis for determining the share value at very low price. The valuation is also not backed by documentary evidences such as valuation report as required by Income Tax Act, 1961. The onus on the part of the assessee will not be deemed to Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. be discharged by merely filing certain documents before the tax authorities, but the assessee would have to go further to justify the rationale of such transactions in order to prove that the transaction has not been entered as a colourable device. 3) Regarding the proof for purchase of shares, the assessee has not submitted the bank statement copies of all the share transactions. However, on perusal of the available bank statements submitted by the assessee, it is found out that while purchasing shares of the above mentioned companies, the capital was funded by some other entity or in some cases the money was sent to another entity and from there it was funded for purchasing the shares. Lets say in the case of M/s TN Solar Power Energy Private Limited, the assessee ie. M/s Shapoorji Pallonji Solar Holdings Private Limited has not directly purchased the shares. (Relevant screenshot is taken for reference)

As could be seen from the aforesaid observations of the A.O., there are only two objections, firstly, the capital was funded by some other entity and, secondly, the assessee had furnished the demat account details only for the sale period and not for the purchase period. With regard to the aforesaid objections of the A.O., the assessee has demonstrated before us that the allegations are totally baseless as the earlier name of the assessee was M/s. Praddin Energy Private Limited, in whose account the parent company transferred the fund, which in turn, was utilized for purchase of shares of TN Solar Power Energy Ltd. The second allegation of the A.O. that demat account of the purchase period was not furnished is equally misplaced, as the said demat account was furnished before the first appellate authority and is part of the paper book submitted before us. On perusal of the said demat account, placed at pg. no. 172 of the paper book, it is evident that the purchase of shares from the group entities are clearly reflected. Thus, the allegations of the A.O. regarding non-furnishing of requisite documents is not borne out on record. After the assessee furnished the valuation report, the first appellate authority forwarded the same to the A.O. for verification and offering his comments. In the second remand report, filed by the A.O., the comments with reference to the valuation of shares are as under: 3. Disallowance of carry forward of Long Term Capital Loss to the tune of Rs. 1,83,00,38,564/-. Comments of the AO: In this regard, the erstwhile JAO, i.e. DCIT, Corporate Circle -3(1). Chennai has already submitted its comments and the undersigned is agreed with the comments of the erstwhile AQ i.e. DCIT Corporate Circle-3(1), Chennai. The submission filed by the assessee in respect of disallowance of carry forward of Long Term Capital loss has been considered but not found to be acceptable. During the course of the remand report proceedings, assessee has submitted unsigned copy of Amended and Restated Securities Subscription and Purchase Agreement vide letter dt. 24.06.2024, Thereafter, the undersigned has called for signed copy of the Amended and Restated Securities Subscription and Purchase Agreement, vide order sheet noting dt. 24.06.2024. Subsequently, the assessee, submitted Asst. CIT vs. Shapoorji Pallonji Solar Holdings Pvt. Ltd. a singed copy of the Amended and Restated Securities Subscription and Purchase Agreement vide letter dt. 25.06.2024. However, the assessee did not submit the original copy of the Amended and Restated Securities Subscription and Purchase Agreement to substantiate the genuineness of the agreement copy. After considering the above facts it is concluded that the Ld. CIT(A) may decide this issue on merit. The remand report is hereby submitted after getting approval from Range Head, Jt. CIT Range- 3(3), Mumbai. As could be seen from the aforesaid observation of the A.O., he has not made any adverse observations with reference to the value determined by the independent valuer.

As discussed earlier, the assessee had sold shares to a completely unrelated foreign entity. Therefore, it cannot be said that the sale of shares were made to generate loss as part of a premeditated arrangement. When transactions are between unrelated parties, cost of such transaction is determined based on negotiations, keeping in view various factors including net worth and profitability of the entity whose shares are transacted.

In course of hearing, ld. Counsel for the assessee has furnished the following tabular chart depicting the net asset value of the shares in terms with Rule 11UA and the actual sale value of shares. The said tabular chart is reproduced hereunder for better appreciation:

A careful analysis of the chart clearly demonstrates that the sale value per share of the companies are more than the NAV as on the date of sale. As discussed earlier, in the remand report, the A.O. has not specified any deficiency in determination of the value of shares by the independent valuer appointed by the assessee. Though, the department had enough opportunities to counter the valuation of shares as per assessee at various stages, such as, in course of first appellate authority and remand proceedings, the department failed to do so. Even, before us as well, the department has not furnished any material to demonstrate, what according to the department, would have been the value of shares as on the date of sale. Without doing his own home work, the A.O. cannot summarily reject the valuation of the assessee and the LTCL arising out of sale of shares. If the department is disputing the value at which the shares were sold, the department should have come up with its own valuation. The A.O. could not have simply rejected the transaction out of which the LTCL arose. At this point, it would be pertinent to mention, in the year under consideration, the assessee had sold substantial number of shares of Solar Edge Power and Energy Ltd. Solar to the same overseas entity at the pre share sale value of Rs.2.66, the same value as in case of LTCL, and suffered loss of Rs.6,83,51,278/-. Interestingly, the A.O. has accepted the loss without raising any demur. Thus, in our view, the A.O. cannot take contradictory position in respect of LTCL and STCL when factual position remains same. Therefore, upon consideration of rival contentions, over all factual position relating to the issue and well-reasoned analysis of learned first appellate authority, we are inclined to agree with the reasoning of the first appellate authority. Accordingly, we uphold his decision by dismissing the grounds.

In the result, the appeal is dismissed. Order pronounced in the open court on 23.01.2026 Sd/- Sd/- (Jagadish) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 23.01.2026 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,