Law:

Section:

Section 28(i) of the Income-tax Act, 1961 - Business loss - Allowable as - Assessment year 1996-97 - Assessee-firm sold a large number of shares, in company to its sister concerns, having directors who were partners or relatives of partners of assessee, at a loss of Re. 1 on credit basis and received only a part of sale price - Assessing Officer observed that entire sale price of shares had not yet been received by assessee; even though transactions were credit transactions, no entries were made in books of assessee and concluded that sale of shares in question did not represent genuine transactions and that they were manipulated by assessee with its sister concerns, with a view to reduce its tax liability - Assessing Officer accordingly, disallowed assessee's claim of loss on sale of its investments in shares - Whether, on facts, Assessing Officer was justified in holding so - Held, yes FACTS The assessee-firm sold a large number of shares in the company to six of its sister concerns, having directors who were partners or relatives of the partners of the assessee. The said shares were sold at a loss, though of only Re. 1 per share, but they were sold on a credit basis sometime in February, 1996 and the assessee received only a part of the sale price. The assessee claimed a loss on the sale of its investments, being the shares in the company. The Assessing Officer observed that the entire sale price of the shares had not yet been received by the assessee; even though the transactions were credit transactions, no entries were made in the books of the assessee, and held that the sales did not represent genuine transactions and that they were manipulated by the assessee with its sister concerns, with a view to reduce its tax liability. Assessing Officer, accordingly, disallowed the claim of the assessee. On appeal, the Commissioner (Appeals) allowed the assessee's claim. On the revenue's appeal, the Tribunal affirmed the order of the Assessing Officer. On appeal : HELD The various facts of the instant case suggested that the transaction of sale of shares was, more or less, a make-believe affair. It is unlikely that a prudent businessman would first of all sell…

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