ITAT Allows Set-Off of Capital Loss Against Slump Sale Gains

Case Details: Assistant Commissioner of Income-tax, LTU v. Prudential Sugar Corporation Ltd - [2025] 176 taxmann.com 832 (Chennai - Trib.) 

Judiciary and Counsel Details

• S.S. Viswanethra ravi, Judicial Member and
• S. R. RAGHUNATHA, Accountant Member
• Ms. E. Pavuna Sundari, CIT for the Appellant.
• D. Anand, Adv. for the Respondent.

The assessee was a public listed company engaged in agro commodities activities, particularly sugar manufacturing. During the relevant assessment year, the assessee made investments in preference shares of two unlisted companies. These investments were reflected in the audited financial statements of the assessee for the relevant assessment year.
During the year, the assessee sold the shares of the unlisted companies at a lower price, resulting in a long-term capital Loss. While furnishing the return of income, the assessee claimed the Long Term Capital Loss and set off the same against the Long Term Capital Gain arising from the slump sale of its undertaking.
The case was selected for scrutiny, and the Assessing Officer (AO) issued a show-cause notice to the assessee. Unsatisfied with the response, the AO made additions to the income of the assessee by treating the long-term capital Loss as bogus. The matter was referred to the CIT (A), and the CIT (A) deleted the additions made by the AO. Aggrieved by the order, an appeal was filed to the Chennai Tribunal.

Tribunal Held

The Tribunal held that the assessee was a listed company and had reported to SEBI the audited financials for the relevant assessment year. It was evident from the audited financials that the transactions were executed through proper banking channels and substantiated by share certificates, CA valuation reports, and accounting entries.
The assessee explained with documentary evidence that the Investment was made based on the financial data and business plans of the investee companies. The decision to liquidate the shares at a lower price was taken based on updated financials and diminished prospects of the companies. The loss on investment arose from genuine business decision, not from any sham arrangement.
The AO relied on the theory of “human probability” and the decisions in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 80 Taxman 89 (SC) to allege that the transactions were pre-planned to avoid tax. However, in the present case, there was no evidence of collusion or artificial inflation of sale/purchase value. The AO had not brought any evidence to prove that the transactions were fictitious or that the consideration was not actually paid. Therefore, the additions made by the AO were unjustified and liable to be deleted.

List Of Cases Reviewed

• CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 192 Taxman 211/326 ITR 1 (SC) and
•  S.A. Builders Ltd. v. CIT [2007] 158 Taxman 74/288 ITR 1 (SC) [Para 21 and 23 ] Followed

List Of Cases Referred To

• CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 192 Taxman 211/326 ITR 1 (SC) (para 21),
• S.A. Builders Ltd. v. CIT (Appeals) [2007] 158 Taxman 74/288 ITR 1 (SC) (para 23),
• CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) (para 24) and
• Sumati Dayal v. CIT [1995] 214 ITR 801/80 Taxman 89 (SC) (para 24).