Relationship Alone Does Not Make a Transaction Suspect: ITAT:

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:

• Related party transaction: Both the seller (Boyance) and the buyer (MREPL) are related parties a parent company and its wholly-owned subsidiary & due to this relation ship transaction done to made artificial loss.
• Different valuation methodologies: The AO contended that the two valuation reports adopted different methodologies. He stated that SKA's purchase valuation was based on the NAV method whereas Vikas Goel's sale valuation was based on the Market Approach and Cost Approach which makes it incompatible.
• Unexplained NAV decline: The NAV fall from Rs. 83.89 per unit on 15-06-2021 to Rs. 20.77 per unit on 30-09-2021 a decline of approximately 75% in 3.5 months which the AO found unacceptable and unexplained.
• Non-compliance with Rules 11U and 11UA: He also contended that the valuation report dated 30-9-2021 does not comply with Rules 11U and 11UA of the Income-tax Rules, as it relies on undated financial statements of several companies in which the AIF had invested.

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.