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2015 (5) TMI 890 - AT - Income TaxExemption 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 shares by the various entities of Bhoruka group was a colorable device to evade tax and the capital gain on sale of shares was to be regarded as short term capital gain and exemption u/s.10(38) of the Act was not to be allowed. The assessee had carried the matter to the Hon ble High Court of Karnataka. The Hon ble High Court of Karnataka was pleased to set aside the order of the Tribunal and held that the transaction of sale of shares were real, genuine and for valuable consideration and were within 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(38) of the Act has to be allowed. - Decided in favour of assesse.
Issues: Appeal by Revenue against CIT(A) order allowing exemption u/s. 10(38) for capital gain on sale of shares as long term capital gain, Challenge to initiation of reassessment proceedings u/s. 147 by Assessee.
Analysis: 1. Exemption u/s. 10(38) - Capital Gain on Sale of Shares: The Revenue contested the CIT(A)'s decision granting exemption u/s. 10(38) for the capital gain on the sale of shares as long term capital gain. The Revenue argued that the CIT(A) relied on a decision of the Hon'ble Karnataka High Court related to a similar case involving another shareholder of the same company. The Revenue claimed that the decision was not accepted and an SLP was filed before the Supreme Court. The AO contended that the transaction was a tax planning device to avoid legitimate tax and invoked the ruling in McDowell & Co. The AO treated the gain as short term capital gain based on the ITAT decision in another case involving the same group. However, the CIT(A) upheld the Assessee's claim for exemption u/s. 10(38) following the High Court's decision in the other case. The Tribunal found the facts identical to the previous case and upheld the CIT(A)'s decision, allowing the exemption. 2. Initiation of Reassessment Proceedings u/s. 147: The Assessee challenged the validity of the initiation of reassessment proceedings u/s. 147. The case was reopened to disallow the exemption claimed for the capital gain on the sale of shares. The AO contended that the transaction was structured to avoid tax implications and the true nature of the transaction needed to be understood. The AO concluded that the payment made was not just for the shares but to acquire the underlying asset. The AO referred to the ITAT decision in a related case to support the disallowance of the exemption. However, since the Tribunal upheld the exemption claim, the issue of reassessment proceedings was not adjudicated upon, as the appeal was dismissed on merits. In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the exemption u/s. 10(38) for the capital gain on the sale of shares as long term capital gain. The Tribunal found the facts similar to a previous case where the High Court had allowed the exemption. As a result, the Tribunal did not address the challenge to the initiation of reassessment proceedings raised by the Assessee, leaving that issue open without adjudication.
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