The High Court · 2025

Judgment

4. Deputy Commissioner of lncome-tax, Central Circle - 3(4),Aayakar Bhawan, Opp. LB Stadium Basheer Bagh, Hyderabad - 500 004. Principal Commissioner of lncome-tax,(Central), Aayakar Bhawan, Basheer Bagh, Hyderabad - 500 004. The Secretary, Office of the Approving Panel for General Anti-Avoidance Rules, Room No 337C., CR Building, lP Estate, New Delhi-110002 Union of lndia, through tt/inistry of Finance North Block, New Delhi -110 001. ...RESPONDENTS Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a writ, order or direction particularly one in the nature of It/andamus or any other writ setting aside the lmpugned Order dated 23.01.2023 passed by the 3rd Respondent for the A.Y.2020- 21, being ex-facie arbitrary, illegal, erroneous and contrary to the scheme and provisions of the Act lA NO: 1 OF 2023 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to order stay of all further proceedings pursuant to the lmpugned Order of the 3rd Respondent, for the A.Y. 2020-21 lA NO: 1 OF 2025 Between:

1. Deputy Commissioner of lncome-tax, Central Circle - 3(4),Aayakar Bhawan, 2. Principal Commissioner of lncome-tax,(Central), Aayakar Bhawan, Basheer Opp. LB Stadium Basheer Bagh, Hyderabad - 500 004. Bagh, Hyderabad - 500 004. ....PETITIONERS/RESPONDENT Nos. 1 &2 AND

1. Smt. ANVIDA BANDI, Plot No.3B9, Spurthi Nivas, Road No.22B, Jubilee Hills, Hyderabad 500033. . ..RESPONDENT/PETITION ER

2. The Secretary, Office of the Approving Panel for General Anti-Avoidance Rules, Room No 337C., CR Building, lP Estate, New Delhi-110002

3. Union of lndia, through Ministry of Finance North Block, New Delhi -110

001. ...RESPONDENTS/RESPONDENT Nos. 3&4 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to vacate the interim order dated 07.O2.2023 in l.A. No. 1 of 2023 in W.P. No.3201 of 2023 as extended from time to time and dismiss the present writ petition in W.P. No. 3201 of 2023 with exemplary costs Counsel for the Petitioner: SRl. BOMMAREDY GANGADHARA REDDY Counsel for the Respondent Nos. 1to3: SRI N. PRAVEEN REDDY ( sENroR sc FoR rT DEPT) Counsel for the Respondent No.4:DY:SOLICITOR GENERAL OF INDIA The Court made the following: ORDER THE HONOURABLE SRI JUSTICE P.SAM KOSHY AI{D THE HONOTIRABLE SRI JUSTICE SUDDALA CHALAPATHI RAO ORDER: (trter Hon'ble Sri Justice P-S,AfrI KOSIIYi The instant writ petition has been filed by.the petitioner und'er Article 226 of the constitution of India praying the court to issue a writ, direction or order especially in the nature of a writ of Mandamus by setting aside the order dated 23.OL.2O23 passed by respondent No.3 under section L44BA(6) of the Income Tax Act, 1961 (for short the Act,) for the Assessment Year 2O2O-21, as being exfaciearbitrar5r, illegal, erroneous and contrarlr to the scheme and provisions. {for short, 'the imPugned ordert|

2. Heard Mr. B. Gangadhara Reddy, learned counsel for the petitioner; and Mr. N. Fraveen Reddy, learned Senior Standing Counsel for Income Tax Department, for tJre respondents'

3. Vtde ttre impugned ord.er, respondent No.3 had found certain material and evid.ence to declare an impermissible avoidance arrangement done by tl.e petitioner, ind a further direction was given to the Assessing Officer with regard to the impugned transactions of sale and purchase of equity shares carried out by the petitioner- assessee during the Finangi{ Year 2Ol9-2O resulting in short-term capital loss with a view to set-off the same against long-term capital gains on sale of unlisted shares and the tax to be determined thereon.

4. The brief facts of the case are that, petitioner herein is a tax payer and is involved in making investment in shares and securities for many years. As on 31.03.2020, petitioner was holding shares of value equivalent to Rs.3 1 ,88,8 L,428 I - and also had mutual funds worth Rs.47.59 crores. From the investment that was avaitable with the petitioner, petitioner had sold shares of one Company held by her as an investment prior to the sale and earned long-term capital gains of Rs.44, L4,O5,OO7 / -. With so much of funds available with the petitioner, petitioner thought of other investment for deployment of the said funds. Going by the market trend, petitioner dbcided to purchase shares of M/s.HCL Technologies hrt. Ltd. with an intention of earning short-term gains and thereafter to make long-term gains from subsequent disposal of investments. Further, the petitioner also invested in units of mutual funds worth Rs.32.92 crores during the same assessment year. Later on, petitioner sold shares of M/s.HCL Technologies hrt. Ltd. worth Rs. 17.35 crores in the same year and thereby petitioner was left with net investment of Rs. L7.66 crores. The cumulative effect of purchase of shares of M/s.HCL Technologies Pvt. Ltd. in the open market and sale of shares thereafter resulted in loss of Rs. L7.65 crores to the petitioner for the same Financial Year 2Ol9- ,/

20. However, the respondent-authorities found that the transaction of purchase and sale of shares of M/s.HCL Technologies Pvt. Ltd. undertaken by the petitioner during the year 2Ol9-2O amounted to lmpermissible Avoidance Arrangement (for short, 'IAA), and therefore the provisions of Chapter X-A, General Anti-Avoid.ance Rule (for short, ' the said transactions. 'GAAR'I would become applicabte to Accord.ingly, the matter, by way of a reference, was made to respondent No.3, i.e., the approving panel for GAAR which finally passed the impugned order on 21.03.2023 holding that the transactions undertaken by the petitioner so far as purchase and sale of shares of M/s.HCL Technologies Pvt. Ltd., particularly taking into consideration the period of time during which the sale and purchase was made arnounts to *impermissible avoidance arrangement".

5. Notices were issued to petitioner and petitioner submitted objections thereto so far as applicability of GAAR provisions to the transactions under consideration. However, respondent No.3 took a contrar5r view and passed the impugned order dated 23.01.2023 under Section 144B,A(6) of the of the Act holding that sale and purchase transactions resulted in short-term capital gain which was set off with long-term capital gain which is nothing but "impermissible avoidance arrangement" under the GAAR provisions.

6. Aggrieved, the instant writ petition has been filed by the petitioner.

7. Referring to the provisions of Section 96(1) of the Act, the petitioner contended that the respondent-authorities have not been able to meet any of the criteriawhich are envisaged in Section 96(1) of the Act so as to treat the transaction as "impermissible avoidance arrangement".

8. In support of his contention, learned counsel for the petitioner submitted that the respondent-Department has not been able to show any sort of arrangement entered into by the petitioner with any other party involved in the transaction so far as sale and purchase of shares of M/s.HCL Technologies Pvt. Ltd. is concerned. It was also the contention of learned counsel for the petitioner that the findings recorded by respondent No.3 in the impugned order a.re factually incorrect inasmuch as, according to respondent No.3, the petitioner did not furnish her reply before respondent No.1 to the notice issued under Sub-Rule 1 of Rule 10UB of the Act. Whereas, the petitioner had in fact filed a detaiied reply to respondent No.1 on 23.03 .2022 and had also obtained e-filing acknowledgment of the sarne, and for which reason also the impugned order is bad in law. According to the learned cou4sel for the petitioner, all the sale and purchase transactions were undertaken through the stock market arid the petitioner is totally unaware of the buyer and seller; and therefore, the said transactions would not be subjected to GAAR provisions. It was also the contention of learned counsel for the petitioner that even the 'report submitted by the expert committee constituted so far as GAAR provisions are concerned wherein the "o**ittee had specifically given an illustration also holding that the sale and purchase of shares through stock market transactions would not come under the GAAR provisions. According to him, since petitioner was carrying out investments from considerable period of time, the said sale and purchase of M/s.HCL Technologies Pvt. Ltd. was one of those normal transactions carried out by the petitioner and the fact that the said transactions were carried out through stock exchange and the petitioner not knowing anything about the.buyer, cannot under any circumstance be held to be an arrangement. According to him, these transactions were never carried out with an intention to avoid. tax but was a normal investment transactions that were undertaken, and at no point of time was there any abuse and misuse of the provisions of the Act rather the entire transactions were otherwise within tlee four corners of the Act and that the provisions of Chapter X-A are not attracted to the nature of transactions carried out by the petitioner; I and therefore, prayed for quashment of the impugned order dated

23.OL.2O23 passed by respondent No.3.

9. Learned Senior Standing Counsel for lncome Tax Department, for the respondents, on the other hand drew the attention of the Bench primarily so far as the timing of the purchase and sale of shares by the petitioner which according to him is the most important factor and which weighed in the mind of the Assessing Officer in applying the GAAR provision envisaged in Sub-Chapter X-A. According to him, it is a case where what was needed to be appreciated by the authorities was to look into the entire transaction and reach to the conclusion as to whether it was a normal routine purchase and sale of shares, or was, strategicalty a tax planning mechanism adopted by the petitioner with an intention of tax avoidance and off-set the gain.

10. On a query put by the Bench to the learned Senior Standing Counsel as to fuhether the respondent-authorities had collected any material other than the timing of purchase and sale of shares', he was not in a position to show Erny cogent material available in the course of passing of the impugned order while applying GAAR provisions on the transactions made by the petitioner at relevant point of time. t I

11. The entire stand of the Department was tleat the transactions undertaken by the petitioner were one which falls under impermissible avoidance arrangement as is envisaged under Section 96 of the Act. L2. Now to ascertain whether the provisions of Section 96 of the Act would be attracted to the transactions undertaken by the petitioner, we need to first look into the provisions itself. For ready reference, the relevant portion of Section 96 i.e. Sub-Section (1) of Section 96 is being reproduced hereurtder, viz., " Impe rmis sible avoidance arrclng ement-

96. (1) An tmpennissible auoidance arrangement means an aiTangement, the main purpose of which is to obtain a tax benefit, and it- (a) creates rights, or obligations, uhich are not ordinarilg created between persons dealing at armb lengtfu (b) results, directly or indirectlg, tn the misuse, or abuse, of the prouisions of this Act; (c) laclcs commercial substance or is deemed to lack commercial substance under section-97, in ulnle or in part; (d) is entered into, or carried out, bg means, or in a mantner, uthich are not ordinarilg emplogedfor bonafide putposes." On a plain reading of the aforesaid provision, what stands culled out is that, in order to hotd a tr€msaction of purchase and. sale of shares to be impermissible avoidance arrangement, first of all there has to be an arra.ngement arrived at between two or more pqSties and \a ,:-. Page 1O of 13 secondly, the said arrangement has the four ingredients those which are envisaged in clauses (a) to (d) of Sub-section (1) of Section 96.

13. The four ingredients which ',rrould constittrte an impermissible avoidance arrangement are: - a) The arrangement creating rights or obligations which are otherwise not ordinarily created between persons dealing at an arm's length; b) There has to be cogent proof of misuse or abuse of the provisions of the Income Tax Act either directly or indirectly; c) The transaction should either lack a commercial substance or it leads to a deemed lack of commercial substance in whole or in part; and d) The arrangement entered into would reflect on the face of it to have been not ordinarily employed for bonafid.e purposes. L4. What is a commercial substance or an arrangement which lacks commercial substance is that which is mentioned in Section 97 of the Act.

15. Learned Senior Standing Counsel for Income Tax Department referring to Sub-Section (21 of Section 95, contended that there is a presumption clause under this provision and that presumption has to be disproved by the assessee by leading cogent materials to prove that F /" the presumption drawn by the Department is unjustified, and also prove that the so-called arrangement has not been carried out with an intention of obtaining tax benefits.

16. For ready reference, the relevant portion of the presumption clause i.e. Sub-Section (2) of Section 96 of the Act, again for ready reference is reproduced hereund er, viz., "(2) An at'rclngement shall be presumed, unless it is proued to the contrary bg the assessee, to hnue been entered into, or carried out, for the main purpose of obtaining a tax beneftt, if the main putpose of a step in, or a part of, the arrangement is to obtain a tax benefit........"

17. Now we may proceed to check whether the so-called arrangement meets the requirement as is otherwise envisaged under Sub-Section (1) of Section 96 of the Act so as to bring the transaction holding it to be an impermissible avoidance arrangement. As has been already discussed, some of the admitted facts are that:- 1) The Department has not been able to show or has collected any material to prove that the purchase and sale of shares made by the petitioner was with any of their known persons. or entity; 2) There was no nexus which could be established between purchase and sale of shares of M/s.HCL Technologies Rrt. Ltd. made by tl e petitioner; 3) All the shares have been sold through stock exchange; 1 1 I : a) The petitioner is an investor and has been carrying on the sale and purchase of shares continuously which would establish that the so-called transaction of sale of M/s.HCL Technologies Pvt. Ltd. shares by the petitioner was not one of the isolated transaction specifically made to save taX; - 5) All the transactions i.e. the purchase and sale of shares have been made through the DMAT account of the petitioner; 6) These transactions are part of the investment portfolio and all the informations are part of the IT returns and that there was no new material available with the Department so as to hold that the so-called arrangement is hit by the provisions of Chapter X-A i.e. the GAAR provision; and 7) There is also no material to hold the transactions to be an impermissible avoidance arrangement except for the timing of the transactions

18. So far as the timing part is concerned, which perhaps was the strong point on which the authority concerned has passed the impugned order, it is necessarJr to take note of the report prepared by the expert committee under the Income Tax Act with regard to general anti-avoidance rules are concerned. The said report itself has categorically held that sale and purchase through stock market transactions would not come under the GAAR provisions. It was held that timing of a transaction or a taxpayer would not be questioned under the GAAR provisions on sale and purchase of shares made by the assessee.

19. In view of the aforesaid factual matrix of the case, we are of the considered opinion that the Department has not been able to show any arrangement to have been made by the petitioner in the course of selling its shares of M/s.HCL Technologies Pvt. Ltd., and it was a pure trading done by the petitioner with no knowledge of purchase and sale carried out by the petitioner. In the absence of any strong material made available by the Department meeting the requirements and ingredients that are reflected under Section 96(1) of the Act, we are of the considered opinion that the writ petition deserves to be and is accordingly allowed. The impugned order dated 23.01.2023 passed by respondent No.3 under Section 144B.A(6) of the Act for the Assessment Year 2O2O-21 is set aside. No costs 2o. Miscellaneous petitions, pe34ttg if_qly, s_b4l stand closed. SD/. U.SUDHA T REGISTRAR /TRUE COPY/ \ One fair copy to THE HON'BLE TtlE HONOURABLE KOSHY (For His Lordship's Kind Perusal) CTION OFFICER JUSTICE P.SAM AND One fair copy tO THE HONOURABLE SRI JUSTICE SUDDALA CHALAPATHI RAO (For His LordshiP's Kind Perusal) Pr0 l'. +lj t'fi:lit""r"trrf, union or rndia, Ministry or Law, Justice and: / New Delhi. -F_--

3. The Secretary, Telangana Advocates Association Library, High Court Buildings, Hyderabad

4. The Deputy Commissioner of lncome{ax, Central Circle - 3(4),Aayakar Bhawan, Opp. LB Stadium Basheer Bagh, Hyderabad - 500 004. 5. The Principal Commissioner of lncome{ax,(Central), Aayakar Bhawan, Basheer Bagh, Hyderabad - 500 004.

6. The Secretary, Office of the Approving Panel for General Anti-Avoidance Rules, Room No 337C., CR Building, IP .Estate, New Delhi-1 10002 7. The Union of lndia, through t\Iinistry of Finance North Block, New Delhi - 110 001.

8. One CC to SRl. BOMIVAREDY GANGADHARA REDDY, Advocate loPUCl

9. One CC to SRl. N. PRAVEEN REDDY ( SENIOR SC FOR lT DEPT IoPUCI

10. One CC to DY.SOLICITOR GENERAL OF INDIA [OPUC] 11.Two CD Copies \ \ i BM TKS CH(/ I I I t I I\ I HIGH COURT DATED:2210812025 \ \ ORDER WP.No 3201 of 2023 '{ yrL ST47 O 20 Brc 2u5 ' '' .t r,'', " ( I ALLOWING THE WRIT PETITION WITHOUT COSTS €