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2015 (5) TMI 890 - ITAT BANGALORE

2015 (5) TMI 890 - ITAT BANGALORE - TMI - Exemption u/s. 10(38) of long term capital gain - genuineness of transaction in shares - CIT(A) allowed the claim - Held that:- Issue raised by the AO in the order of assessment has already been decided in the case of Bhoruka Engineering Industries Ltd. (2013 (7) TMI 543 - KARNATAKA HIGH COURT). The Hon’ble ITAT in the case of Bhoruka Engineering Industries Ltd. [2013 (7) TMI 646 - ITAT BANGALORE] had upheld the order of the AO holding that the sale of s .....

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hin the framework of law. Consequently, exemption u/s. 10(38) of the Act had to be allowed.

It is not in dispute that the facts in the case of assessee are identical with that of the case of Bhoruka Engineering Industries Ltd., (supra) and therefore the decision of the Hon’ble High Court of Karnataka will squarely apply to the facts of the present case. We are therefore of the view that the order of the CIT(Appeals) has to be upheld and the claim of the assessee for exemption u/s. 10( .....

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of the revenue is that the CIT(A) wrongly allowed the claim of exemption u/s. 10(38) of the Act in respect of income arising from transfer of capital asset viz., equity shares of a listed company by name Bhoruka Financial Services Ltd. (BFSL) on sale of which securities transaction tax had been paid. The further grievance of the revenue is that the CIT(A) treated the capital gain in question as long term capital gain on sale of shares as against the stand of the AO that the capital gain in quest .....

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fused to accept the claim of exemption of capital gain u/s.10(38) of the Act and had proceeded to treated the capital gain in question as Short term capital gain on identical reasons as are given in the case of the Assessee in the present appeal. According to the Revenue the decision of the Hon ble Karnataka High Court has not been accepted by the Revenue and an SLP has been preferred before the Hon ble Supreme Court against the said decision. Incidentally, the assessee has also filed Cross Obje .....

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s.10(38) of long term capital gain of ₹ 49,83,11,717 on sale of shares of BFSL. In the assessment proceedings concluded under Sec.143(3) of the Act by order dated 8.12.2008, the claim of the Assessee for exemption was accepted by the AO. 4. Thereafter, the case was reopened and notice u/s. 148 of the Act was served on the assessee on 29.7.2011. The reassessment proceedings were initiated for disallowing the claim for exemption u/s.10(38) of the Act viz., on the long term capital gain on sa .....

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, through whom the shares of BFSL were sold on MSEA s online terminal. The assessee claimed the long term capital gains of ₹ 49,83,11,717/- earned on sale of BFSL shares as exempt from taxation under section 10(38) of the Act since the shares transferred were quoted shares and having suffered Securities Transaction Tax and further the shares having been held for more than 12 months, exemption under section 10(38) was claimed. 6. In the reassessment proceedings, the AO found that BFSL belon .....

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for ₹ 3.75 crores from M/s. Bhoruka Steel Ltd. This land appeared at ₹ 4.21 crores in the Balance Sheet as at 31.03.2005, which is inclusive of development expenses on the land. The promoters of BFSL were having 1,98,850 equity shares whereas 2,01,400 shares were held by other public shareholders. 7. The promoters of BFSL sought permission from SEBI to exempt them from making public announcement in respect to sale of 1,98,850 equity shares to M/s DLFCDL, New Delhi. The promoters of B .....

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ng the FY 2005-06, BFSL sold even the investments of ₹ 3.85 crores. As aforesaid, BFSL had acquired 15 acres of land situated at Whitefield, Bangalore, during the FY 2004-05. BFSL purchased this land at a nominal price of ₹ 3.75 crores from Bhoruka Steel Ltd. During August 2005, M/s DLFCDL purchased the shares of BFSL at a negotiated rate of ₹ 4,490/- per share for a total consideration of ₹ 88.97 crores. By virtue of this deal the promoters of BFSL have sold their stakes .....

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d no change would have taken place in the Balance Sheet of BFSL. The sale of all other investments and reduction of loans and advances was possible to BFSL since these transactions were done with the group companies. DLFCDL could not have bought the shares of BFSL at a substantial rate of ₹ 4,490/- per share if BFSL was not having the land of 15 acres as the asset. The area where the land is situated has huge commercial value. This proves beyond doubt that DLFCDL has in fact purchased the .....

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BFSL but to acquire the underlying asset. The shares of the company were listed in the Bangalore Stock Exchange. Without making full and complete efforts to transact through Bangalore Stock Exchange, it has chosen to carry out the transaction from Magadh Stock Exchange. When the assessee company could have transacted through any other recognized stock exchange since Magadh Stock Exchange was not permitted to carry out the share transactions for a long time. The company, BFSL and its promoters ha .....

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eal to avoid tax implication. 11. For all the above reasons, the AO held that the assessee was not eligible for claim of exemption u/s. 10(38) of the Act and that the transaction in question in substance attracts tax invoking the ruling of the Hon ble Supreme Court in the case of McDowell & Co., 154 ITR 148 (SC). The AO held that gain on sale of shares of BFSL by the assessee to DLFCDL was chargeable to tax as short term capital gain and accordingly brought the same to tax as short term capi .....

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on sale of shares was treated as short term capital gain and brought to tax. The AO made a reference to the aforesaid decision of the Tribunal to fortify his conclusions that the transaction of sale of shares by the assessee which was identical in all aspects to the sale of shares by Bhoruka Engineering Industries Ltd., was to be ignored and only substance of the transaction taken note of. 12. On appeal by the assessee, the CIT(Appeals) following the decision of the Hon ble Karnataka High Court .....

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