AO Cannot Reject Share Valuation and LTCL Without Basis | ITAT

Case Details: Asst. CIT, Circle 3.3.1 vs. Shapoorji Pallonji Solar Holdings (P.) Ltd. [2026] 182 taxmann.com 788 (Mumbai-Trib.)

Judiciary and Counsel Details

• Saktijit Dey, Vice President & Jagadish, Accountant Member
• Dharmesh Shah & Ms Mitali Parekh, Advs. for the Appellant.
• Arun Kranti Datta, CIT DR for the Respondent.

Facts of the Case

The assessee company was engaged in the business of generating and supplying power and energy. Along with its holding company, the assessee decided to sell its entire shareholding in four group companies to a Singapore-incorporated company, part of the KKR group in the USA. The assessee received a total consideration of Rs. 39.25 crores, as against the purchase cost of shares at Rs. 202.19 crores. This resulted in a long-term capital loss (LTCL) of around Rs. 183 crores.

The assessee furnished voluminous documentary evidence to justify its claim of LTCL on the sale of shares, including a valuation report determining the valuation of the shares as on the date of sale. However, the Assessing Officer (AO) rejected the assessee’s claim of LTCL primarily on the reasoning that the assessee failed to furnish the requisite documentary evidence. On appeal, the CIT(A) allowed the LTCL claim. Aggrieved by the order, the AO filed the instant appeal before the Tribunal.

ITAT Held

The Mumbai Tribunal held that the assessee had sold shares to a completely unrelated foreign entity. Therefore, it cannot be said that the sale of shares was made to generate a loss as part of a premeditated arrangement. When transactions are between unrelated parties, the cost of such transactions is determined through negotiation, taking into account various factors, including the net worth and profitability of the entity whose shares are transacted.

In this case, a careful analysis of the chart clearly demonstrated that the sale value per share of the companies exceeds their Net Asset Value (NAV) as of the date of sale. Further, the AO had not made any adverse observations with reference to the value determined by the independent valuer appointed by the assessee. Although the department had ample opportunities to challenge the assessee’s share valuation at various stages, it failed to do so. Even the department had 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 homework, the AO cannot summarily reject the valuation of the assessee and the LTCL arising out of the sale of shares. Therefore, the impugned LTCL claim of the assessee was to be allowed.