Disallowance of STCL was justified in case of drastic decrease in share rate

O3 Capital Global Advisory Pvt. Ltd. Vs DCIT (ITAT Bangalore)

Conclusion: Purchase and sale of shares were arranged transactions to create bogus capital short term capital loss in the garb of real transactions with the sole motive to claim short term capital loss so as to evade tax. Hence the same was not allowable under section 28.

Held: Assessee advanced a sum of Rs.5.64 crores to Morpheus Capital Advisors Pvt. Ltd. (MCAPL), a company incorporated by the assessee itself. The said company stated to be deriving its revenue primarily from the investment advisory and consultancy services provided to Morpheus Media Funds. Assessee had converted said advances of Rs.5.6 crores into shares and subsequently within a period of 7 days sold the very same shares of 79.54% stake for a lumpsum consideration of Rs.15 lakhs, thereby booked a short-term capital loss of Rs.4.48 crores. During the course of assessment proceedings, AO disallowed short term capital loss of Rs.4,43,24,751/- rejecting the submissions provided by assessee and completed the assessment. Against which assessee preferred appeal before the first appellate authority which upheld the disallowance. Assessee submitted that the short term capital loss incurred on sale of shares of M/s. Morpheus Capital Advisors Pvt. Ltd. needed to be allowed as capital loss, the pint investments in M/s. Morpheus Capital Advisors Pvt. Ltd. were purely on account of commercial expediency for enhancing the business activities of the assessee and therefore, loss incurred on sale of such shares represent business loss which was allowable under section 28. It was held that purchase and sale of shares were arranged transactions to create bogus capital short term capital loss in the garb of real transactions with the sole motive to claim short term capital loss so as to evade tax. Therefore, the shor term capital loss was not allowed as purchase and sale of shares of that company MCAPL was a bogus transaction so as to get the bogus short term capital loss at astronomical rate.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal by assessee is directed against the order of CIT(A) dated 8.12.2017 for the assessment year 2013-14. The assessee raised following grounds (revised):-

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