Telangana HC: Stock Market Trades Cannot Be Branded as GAAR Without Proof of Arrangement

 

Anvida Bandi vs DCIT, W.P. No. 3201 of 2023

Facts of the Case:

Assessee:

Smt. Anvida Bandi, long-time investor in shares & mutual funds.

As on 31.03.2020 he had shares worth ₹31.88 crore and mutual funds worth ₹47.59 crore.

Transaction in Question (AY 2020–21):

Sold unlisted company shares and earned LTCG of ₹44.14 crore.

Invested proceeds in:

HCL Technologies shares (~₹35 crore).

Mutual funds (~₹32.92 crore).

Sold part of HCL shares within the same year and incurred a STCL of ₹17.65 crore.

This loss was set off against LTCG, reducing tax liability.

Revenue’s Action:

AO invoked GAAR (Chapter X-A, Section 96–102), saying trades were an Impermissible Avoidance Arrangement (IAA).

Approving Panel under Section 144BA(6) upheld AO’s view on 23.01.2023.

Petitioner’s Challenge:

Transactions were through stock exchange with no “arrangement” with known parties.

She was a regular investor, not a one-time tax planner.

GAAR Expert Committee Report had clarified stock market trades are outside GAAR.

Department wrongly recorded that she hadn’t replied to notices, though she had.

High Court’s Order

Department relied only on timing of the transactions but could not produce any other material showing collusion/arrangement.

For GAAR to apply, all 4 ingredients of Section 96(1) must be met (arrangement, misuse, lack of substance, not bona fide)

Here there is no arrangement between related parties. All the trades are via demat & stock exchange.

Assessee was a continuous investor. Losses were disclosed in return and there was no new incriminating material.

Expert Committee said timing alone is not enough under GAAR.

Transactions were genuine market trades, not impermissible avoidance.

The impugned GAAR order (23.01.2023) under Section 144BA(6) was set aside.

The copy of the order is as under:

206300032012023_23