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2012 (3) TMI 175 - HC - Income TaxTransaction being sham and not genuine cannot be considered to be a part of tax planning - Assessee borrowed Rs. 48 crores from the G. K. Rathi group and bought shares in four 100% subsidiary companies – shares purchased at unreasonable premium price (at Rs 150 per share when average value is less than Rs 25 per share) - amount received by the said subsidiary companies was transferred back to another company of the G.K. Rathi group – said shares sold for Rs. 5 each in subsequent A.Y. - short-term capital loss claimed – set-off of such loss against other long-term capital gains – AO, CIT (A) & Tribunal rejected the transaction of investment into, and sale of, shares as a sham – dis-allowance of capital loss and its set off – dis-allowance of loss arising out of the business of providing guarantees – Held that:- Whenever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality and apply the test of human probabilities. Supreme Court in case of Vodafone International vs. UOI (2012 - TMI - 208574 - Supreme Court Of India) made it clear that a colourable device cannot be a part of tax planning. Where a transaction is sham and not genuine, it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. In the present case the purchase and sale of shares, so as to take long term and short term capital loss was found as a matter of fact by all the three authorities to be a sham. See (Sumati Dayal vs CIT (1995 - TMI - 5469 - Supreme court) – Decided against the assessee. In respect of guarantees – Held that:- The surrounding circumstances can be looked at, but not without considering the evidence led by the party in support of its stand. Hence, it would be proper to remand the matter to the Tribunal to reconsider the issue in respect of loss on account of business of providing guarantees and pass an appropriate orders thereon.
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