The assessee had obtained a loan from a financial services company and purchased units of mutual funds. It had earned dividend from the same and also redeemed the units. On redemption, it suffered a short term capital loss soon after earning dividend and set-off the same against the long term capital gains. The AO  considered that the assessee had connived with the financial services company and the mutual fund to form a colourable device to earn dividend as well as suffer short term capital loss for set-off. Accordingly, the AO disallowed the short-term capital loss claimed by the assessee and denied the exemption of dividend income u/s 10(33). Tribunal held that  the assessee had been regularly investing in mutual funds and all the documents were filed to rebut the colourable device or connivance alleged by the AO. The Tribunal also observed that the transaction went out of the purview of section 94(7) and the investment of the assessee was only 1.38% of the fund size. Further, the mutual fund was regulated. After taking into consideration all of the aforementioned, the Tribunal reached a conclusion that the assessee did not connive with the financial services company and mutual fund. Thus, the Tribunal directed the AO to allow the short term capital loss and exemption u/s 10(33). (AY. 2015-16)