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Capital Loss From Valid Transaction To Set Off Capital Gains Allowed

In in Madhu Sarda vs. Income Tax Officer, the Assesse sold 900 of her shares to her son at fair market value. On such sale, the assessee suffered considerable long-term capital loss. In the same year, she sold his property and earned a capital gain. The assessee filed the return of her income and claimed set off of the loss on account of long-term capital loss suffered by the assessee on sale of shares against the profit of long-term capital gain earned on the sale of the immovable asset. The Assessing Officer and on appeal the CIT (A) both disallowed such set-off and treated the sale of shares by the assessee to his son as a ‘sham transaction’.

The two-member bench of Income Tax Appellate Tribunal at Mumbai relied on the case of Union of India vs. Azadi Bachao Andolan in which the Supreme Court had held that an act which is otherwise valid in law cannot be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the notional interest as perceived by the revenue and allowed the appeal of the assessed.

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