Trends Pharma Vs ITO (Bombay High Court)
Bombay High Court has dismissed an appeal filed by Trends Pharma Pvt. Ltd. against the disallowance of short-term capital loss amounting to Rs. 70.24 lakh for Assessment Year 2010–11. The High Court upheld the concurrent findings of the Assessing Officer (AO), Commissioner of Income Tax (Appeals), and the Income Tax Appellate Tribunal (ITAT), which had deemed the share transaction in question as a sham and a colourable device employed to evade tax. The court concluded that no substantial question of law arose for consideration.
The case involved a transaction where the assessee purchased shares of Trends Pharma Pvt. Ltd. in February 2010 at Rs. 100 per share and sold them a month later in March 2010 at Rs. 12.20 per share. The resultant short-term capital loss of Rs. 70.24 lakh was set off against capital gains. However, the AO, after examining the sequence and pricing of the transaction, concluded that the arrangement lacked commercial substance and was structured solely to generate an artificial loss. The AO, therefore, disallowed the loss on grounds of tax avoidance.
The first appellate authority, Commissioner (Appeals), upheld the assessment order, stating that the transaction was designed to give the illusion of genuine loss while actually being a colourable device. The Commissioner noted that the sale and purchase of shares occurred within a brief period without any economic rationale, reinforcing the view that the transaction was a sham.
