ITAT held that a related-party transaction cannot be treated as a colourable device merely due to the relationship between parties when supported by proper valuation reports and documentary evidence.
Khush Dharmeshkumar Trivedi | May 28, 2026 |
Relationship Alone Does Not Make a Transaction Suspect: ITAT Bangalore in Boyance Infrastructure
Case Details
| Case Reference | ITA 2097 & 2098/Bang/2025, ITAT Bangalore, Bench A |
| Appellant | DCIT, Central Circle-2(2), Bengaluru (Department) |
| Respondent | Boyance Infrastructure Private Ltd., Bengaluru |
| Date of Order | 22-May-26 |
| Outcome | Both departmental appeals DISMISSED |
Background of Assessee
Boyance Infrastructure Private Ltd is a Bengaluru-based company incorporated on 29 September 2008. Its business activities include holding and dealing in immovable properties and investments in funds. It got possession of Township property through the amalgamation of M/s Domus Infra Pvt. Ltd. effective from the appointed date of 1 April 2010, under a Scheme of Amalgamation approved by the Hon’ble High Court of Karnataka.
It also holds investments in SEBI registered AIFS (Alternate investment Funds) & BNF (Bharat Nirman Fund)
ITA No 2098/B/2025 (AY 22-23)
Background and Facts
The assessee filed its return of income for AY 2022-23 on 29 October 2022. The assessment was completed under Section 143(3) at total income of Rs. 69,09,35,930
The disputed addition pertains to a short-term capital loss of Rs. 4,00,81,200 arising from the sale of units of Bharat Nirman Fund (BNF) an alternate Investment Fund (AIF) registered with SEBI.
On 15-06-2021, the assessee purchased 17,88,000 units of BNF from GMR Infra Developer Ltd. at Rs. 83.89 per unit valued by SKA Business Advisory Services Pvt. Ltd a registered Valuer (NAV method adopted)
On 30-09-2021 approximately 3.5 months after the purchase the assessee transferred 6,35,000 units of BNF to its wholly-owned subsidiary Malkhed Real Estate Pvt. Ltd. (MREPL), at Rs. 20.77 per unit valued by registered valuer Vikas Goel.
The assessee claimed a short-term capital loss of Rs. 4,00,81,200 on the transaction
AO’s Submission
The AO disallowed the claimed short-term capital loss of Rs. 4,00,81,200 and treated the entire transaction as a non-genuine, colourable device designed to create an artificial tax loss by claiming that:
Assessee’s Submission
On methodology: The AO had fundamentally misread the valuation reports. Both the purchase valuation (by SKA) and the sale valuation (by Vikas Goel) were in fact based on the same NAV methodology. The AO had selectively extracted unrelated paragraphs from the reports and formed a wrong conclusion about the methodologies used.
On the NAV decline: The fall in NAV from Rs. 83.89 to Rs. 20.77 was not unexplained. The second valuation report contained a detailed explanation covering erosion in net worth, resolution proceedings, negative NAV, and operational difficulties in investee companies. He also submitted the reports & financials of BNF to AO.
On the related party allegation: He submitted that all related party transactions are not meant to be made with purpose of personal benefits where the valuations are conducted by registered valuer using appropriate methods hence due to such relationship transactions with supporting evidences can’t be denied.
Tribunal Holding
The ITAT dismissed the departmental appeal and upheld the CIT(A)’s order
On the valuation methodology issue: The tribunal confirmed that both valuations at the time of purchase and at the time of sale were based on the NAV method.
On the NAV decline: Tribunal noted that the record contained details of BNF’s investments as on both dates and that the AIF had reported a reduction of Rs. 57.79 crores in the value of its investment portfolio, with the fair market value of several underlying companies. Which is undoubtedly reason of this significant decrease.
On Related Party: It held that merely because the transaction was between related parties, it could not be regarded as a colourable device unless there was some other indication of tax avoidance.
Tribunal also held that since the AIF is a SEBI-regulated entity, the loss suffered by BNF during this period could not be doubted in the absence of contrary material.
ITAT upheld the deletion of the addition of Rs. 4,00,81,200 and dismissed the departmental appeal for AY 2022-23.
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