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The Income Tax Officer, Ward 1 (1) , Bangalore. Versus Shri Satyanarayana Vivek Kumar (HUF) ,

2015 (8) TMI 323 - ITAT BANGALORE

Claim of exemption u/s. 10(38) - 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 - CIT(A) allowed claim - Held that:- The 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) upheld the order of the AO holding that the sale of shares by the v .....

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ork 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(38) of the Act .....

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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 question was short term capital .....

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emption 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 Objection in which he has challenge .....

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77; 6,187 as income from other sources. In the said return the Assessee had claimed exemption u/s.10(38) of short term capital gain of ₹ 9,90,07,395 on sale of shares of BFSL. In the assessment proceedings concluded under Sec.143(3) of the Act by order dated 24.10.2008, 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 30.11.2011. The reassessment proceedings were initiated for d .....

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s ₹ 9,90,07,395. The assessee claimed the entire amount as exempt on the ground that the share in BFSL were held for a period of more than one year and that Security Transaction Tax, (for short STT ), was paid as provided u/s. 10(38) of the Act during the sale through Magadh Stock Exchange, Patna (MSE). The assessee claimed that the long term capital gains earned on sale of BFSL shares as exempt from taxation under section 10(38) of the Act since the shares transferred were quoted shares h .....

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the business of financial investment of the group. Except this, no other business was carried on by BFSL. On 16.06.2004 and on 30.06.2004, the company BFSL acquired land of 15 acres 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. 7. The promoters of BFSL sought permission from SEBI to exempt them from making public announcement in respect to sale of 1,98, .....

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were equity shares of M/s Bhoruka Power Corporation Ltd. During 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 ₹ 89.08 crores. By vi .....

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d liabilities belonging to BFSL would have remained as such and 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. T .....

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hat DLFCDL has made the payment not to just buy the shares of 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 transa .....

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BFSL and its promoters made deliberate attempt to structure deal 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 g .....

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tax on capital gain and therefore had to be ignored. The gain 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(Appeal .....

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