Off-market share sale loss was treated as bona fide and allowed for set-off despite sale price below book value.

Off-market sale of listed shares not routed through a recognised stock exchange was treated as outside the securities transaction tax charge, so the transaction did not fail merely because no STT was paid. The assessee's intra-group sale to meet loan obligations and preserve shareholding was treated as a bona fide business decision, not a sham or colourable device, and the fact that the sale price was below book value did not by itself justify disregarding the loss. On that basis, the loss was allowable to be set off against long-term capital gains from unquoted shares, and the remaining loss could be carried forward.

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Issues: Whether loss arising from off-market sale of listed shares, on which no securities transaction tax was paid, could be set off against long-term capital gains from sale of unquoted shares, and whether the transaction could be treated as a colourable device merely because the sale price was below book value.

Analysis: The applicability of section 10(38) of the Income-tax Act, 1961 depends on whether the transaction is chargeable to securities transaction tax under section 88 of the Finance (No. 2) Act, 2004. The Court held that listed shares may be sold either through a recognised stock exchange or by way of an off-market transaction, and if the sale is not routed through the stock exchange, no securities transaction tax is chargeable. The Court further held that the assessee's decision to sell within the group to settle loan obligations and preserve group shareholding was a business decision, not a sham or colourable device. The mere fact that the sale price was below book value did not justify ignoring the loss.

Conclusion: The off-market loss on sale of listed shares was allowable for set-off against long-term capital gains from unquoted shares, and the balance loss was allowable to be carried forward. The findings of the lower authorities were reversed.

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