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2014 (9) TMI 423 - AT - Income TaxLong term capital loss disallowed – Redemption on preference shares – Whether the whole transaction can be said to be sham transaction with the sole purpose of transferring funds from one company to another and generating huge long term capital loss so as to avoid the tax - Held that:- The assessee had advanced huge sums from time to time to JPL - the loan was advanced at least six years before the redemption of RCPS during the year - The assessee as well as JPL both are regularly assessed to income tax and in the years in which loan was advanced, the genuineness of the loan was never doubted by the Revenue either in the case of the assessee or in the case of JPL - no significant event took place except the redemption of 2% RCPS - The AO has not brought on record an iota of evidence in holding the transaction to be a sham transaction or bogus transaction – relying upon McDowell And Co. Limited Versus Commercial Tax Officer [1985 (4) TMI 64 - SUPREME Court] - there is nothing on record to hold the series of the transactions as not genuine - all the transactions of the series have been accepted by the Revenue as genuine business transactions - in the year of redemption of the 2% RCPS, the transactions cannot be presumed to be sham or bogus merely because it has resulted into long term capital loss which may be adjusted against the long term capital gain, if any, arising in future to the assessee - the AO is directed to accept long term capital loss and carry forward the same – Decided in favour of assessee. Exemption u/s 14A disallowed – Held that:- Rule 8D is applicable for and from AY 2008-09 and not for earlier years – relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - there is no infirmity in the order of CIT(A) holding that Rule 8D was not applicable - the AO is required to examine the assessee's claim with regard to incurring of no expenditure or with regard to the amount of expenditure claimed to have been incurred by the assessee for earning of exempt income - Such expenditure is to be determined in accordance with such method as may be prescribed - the assessee has worked out the disallowance u/s 14A - The AO did not record any satisfaction that such working is wrong - for AY 2007-08, Rule 8D was not applicable and therefore, disallowance need not be computed as per Rule 8D - The AO has not recorded any satisfaction with regard to any mistake in the working of disallowance u/s 14A by the assessee - there was no justification to interfere with the order of CIT(A) – Decided against revenue.
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