India: GAAR could not be invoked merely because taxpayer’s losses offset gains (High Court decision)
Tax authority failed to establish transactions constituted an “arrangement” with main purpose of obtaining a tax benefit.
The Telangana High Court held that the general anti-avoidance rule (GAAR) could not be invoked merely because short-term capital losses from transactions in listed shares undertaken around a bonus issue offset long-term capital gains from the slump sale of a business.
The court found that the tax authority failed to establish that the transactions constituted an “arrangement” with the main purpose of obtaining a tax benefit. The court noted that the taxpayer had purchased and sold listed shares through recognized stock exchanges at prevailing market prices, in a transparent manner, at arm’s-length. The gains or losses depended on market movements and were not predetermined.
The case is: EKGE Retail LLP v. ACIT (WP No. 21210 of 2022)
Read an October 2026 report prepared by the KPMG member firm in India