The Bangalore Bench of Income Tax Appellate Tribunal presided by Mr. Chandra Poojari, Accountant Member and Mr. George George K, Judicial Member has held that assessee fails to explained drastic decrease of share rate from Rs.5.6 Crore to Rs.15 lakhs and holds transaction as bogus and uphold disallowance of short-term capital loss.
The appellant, O3 Capital Global Advisory Pvt. Ltd., is a private limited Company engaged in the Investment banking business. It renders wide range of services including raising of capital, mergers & acquisitions, private equity and restructuring advisory services to multinational corporates in the domestic and international markets.
The 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 has 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, the AO disallowed short term capital loss of Rs.4,43,24,751/- rejecting the submissions provided by the assessee and completed the assessment. Against which assessee preferred appeal before the first appellate authority which upheld the disallowance. Aggrieved, assessee filed appeal before ITAT.
The counsel for the appellant submitted that the short term capital loss incurred on sale of shares of M/s. Morpheus Capital Advisors Pvt. Ltd. needs 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 is allowable under section 28 of the Act under the facts and circumstances of the case.
The Tribunal observed that purchase and sale of shares are 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.
The Tribunal held that “we are of the considered view that purchase and sale of shares of that company MCAPL is a bogus transaction so as to get the bogus short term capital loss at astronomical rate. Accordingly, we uphold the order of lower authorities on this issue and dismiss all the grounds taken by the assessee before us”.
Mr. G.S. Prashanth and Smt. Priyadarshini Basaganni, appeared for the appellant and respondent respectively.
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