ITAT Mumbai Validates ₹183 Crore Long-Term Capital Loss on Group Share Divestment: Detailed Analysis of ACIT Vs Shapoorji Pallonji Solar Holdings
In a significant judicial development concerning corporate taxation and the valuation of unquoted equity shares, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a decisive ruling in the case of ACIT Vs Shapoorji Pallonji Solar Holdings Pvt. Ltd. The Tribunal dismissed the appeal filed by the Revenue Department, thereby upholding the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which allowed the assessee’s claim of Long-Term Capital Loss (LTCL) amounting to approximately ₹183.00 crore.
This detailed analysis explores the factual matrix, the contentions raised by the Assessing Officer (AO), the appellate proceedings, and the critical legal principles established by the Tribunal regarding the genuineness of share transactions, valuation methodologies under Rule 11UA, and the evidentiary burden on the Revenue when alleging a "colourable device."
Factual Matrix of the Case
The dispute pertains to the Assessment Year (AY) 2021-22. The assessee, Shapoorji Pallonji Solar Holdings Pvt. Ltd., is a resident corporate entity primarily engaged in the business of power and energy generation.
The Transaction in Question
During the relevant financial year, the assessee, in conjunction with its holding company, made a strategic commercial decision to divest its entire shareholding in four specific group entities:
- Shapoorji Pallonji Solar Pvt. Ltd.
- TN Solar Power Energy Ltd.
- Solar Edge Power Ltd.
- Universale Mine Development Ltd.
The assessee had originally acquired equity and preference shares in these entities at an aggregate cost of Rs. 202.18 crores. Following extensive negotiations and due diligence processes, these shares were sold to an independent, unrelated foreign entity named M/s Terra Asia Holdings Pte. Ltd., a company incorporated in Singapore and a constituent of the renowned KKR Group, USA.
The total consideration received by the assessee for this divestment was Rs. 39.25 crores. Consequently, the transaction resulted in a substantial capital loss. Specifically, the assessee claimed a Long-Term Capital Loss (LTCL) of Rs. 183,00,38,564/- in its return of income filed on 15.03.2022. The return declared a total loss of Rs. 194,29,01,727/- under normal provisions and a book loss of Rs. 171,28,11,497/- under Minimum Alternate Tax (MAT) provisions.
The Assessment Proceedings and Disallowance
The return was selected for complete scrutiny. During the assessment proceedings, the Assessing Officer raised significant objections regarding the claimed LTCL.
The AO's Primary Objections
The AO disallowed the entire claim of Rs. 183.38 crores based on several grounds:
- Lack of Documentary Evidence: The AO alleged that the assessee failed to furnish concrete proof regarding the share transactions, specifically citing the absence of contract notes, demat account statements, and bank statements.
- Valuation Concerns: The AO noted that the shares were sold at prices significantly lower than their face value. The officer contended that the rationale for such a low valuation was not substantiated.
- Existence of Companies: The AO remarked that, based on internet searches, the companies whose shares were sold appeared to be non-existing.
- Allegation of Colourable Device: Implicit in the AO's order was the suspicion that the transaction was a "colourable device" engineered solely to book artificial losses to reduce tax liability.
Consequently, the AO computed the total income at Rs. 8,19,52,179/-, rejecting the loss carry-forward.
Appellate Proceedings before CIT(A)
Aggrieved by the assessment order, the assessee preferred an appeal before the National Faceless Appeal Centre (NFAC).