Short term capital loss from sale of shares after Bonus cannot be prevented from being set off against the long term capital gain by alleging adoption of colorable device

Mindtree Ltd. announced bonus shares at the ratio of 1:1. As a result of issue of bonus shares, the price of share reduced almost to half its original price. Taking advantage of such reduction in price of shares, the assessee sold the shares purchased earlier resulting in short term capital loss of Rs.9,11,83,666/-. According to the AO, by adopting colorable device of selling the shares of Mindtree Ltd. having anticipated the reduction in price due to issuance of bonus shares, assessee arranged its affairs in a manner so as to derive maximum benefit by selling the shares purchased earlier at loss and deferring the sale of bonus shares to future dates so as to derive exempt long term capital gain. He concluded that adopting unfair means the assessee has reduced its tax liability on account of long term capital gain derived on sale of shares of Avendus Capital Pvt.Ltd. Accordingly, he disallowed the short term capital loss of Rs.9,11,83,666/- and added back to the income of the assessee as long term capital gain.

HELD by the Tribunal: The conclusion drawn by the AO is wholly irrational and unsustainable. When the transactions relating to purchase and sale of shares are beyond doubt and are not in the nature of sham transaction even there is no such allegation by the Assessing Officer, the short term capital loss derived by the assessee from sale of shares cannot be prevented from being set off against the long term capital gain by alleging adoption of colorable device. There is no requirement under the law that the assessee has to pay more tax. If the assessee arranges her affairs within the legal framework and through legitimate means to reduce its tax liability, the Assessing Officer cannot prevent her from doing so. When there is no evidence on record to doubt the genuineness of the transactions entered into by the assessee,the resultant capital loss derived out of such transaction cannot be disallowed. More so, when the Assessing Officer has not expressed any doubt or dispute regarding the nature of loss,being capital. Even, as rightly observed by the learned First Appellate Authority, the Assessing Officer has accepted the computation of short term capital loss made by the assessee.