My client's shares were bought back at less than the price the company issued them at, so it made a loss. The Assessing Officer says buy-back income is exempt under section 10(34A), so the loss cannot be carried forward — and he has levied concealment penalty. Is the loss really lost?
On a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Delhi held that where the buy-back consideration is lower than the price at which the company issued the shares there is no "distributed income", so s.115QA "per se cannot be applied", and that s.10(34A) — which exempts income on a buy-back "as referred to in section 115QA" — "also consequentially would not have any application". The very basis on which the officer had denied the carry-forward of the long-term capital loss was therefore "legally incorrect". Because the denial of the loss was itself unsustainable, no penalty for furnishing inaccurate particulars could stand on it, and in any event the claim was at worst an incorrect claim on a question of interpretation with all the figures already on the record; the s.271(1)(c) penalty of Rs.57,98,464 was directed to be deleted.
Decided by the ITAT (Shri Vimal Kumar, Judicial Member and Shri M. Balaganesh, Accountant Member) on 2024-08-29, reported as ITA No. 5481/Del/2019 (assessment year 2015-16); order dated 29 August 2024; appeal against the order of the Commissioner of Income Tax (Appeals)-38, New Delhi in Appeal No. 340/2018-19 dated 22 April 2019. It bears on section 115QA, section 10(34A), section 46A, section 48, section 271(1)(c), section 143(3) of the Income Tax Act 1961, in Capital Gains, Penalty and Capital Gains Exemptions matters.
The reasoning is the useful part, and it runs in a direction most readers will not expect: the s.10(34A) exemption is not a blanket rule that buy-back results are outside the computation. It attaches only where the buy-back is one "referred to in section 115QA", and s.115QA has a charge only where there IS distributed income — consideration paid less the amount the company received on issue. Where the shares were issued at Rs.310 and bought back at Rs.125.75, nothing is distributed, the section has nothing to bite on, and the shareholder is back in the ordinary s.46A and s.48 computation with a real capital loss. That is worth having in writing for any pre-October-2024 buy-back done at a loss. Two limits must be stated. First, the Tribunal reached this in a PENALTY appeal: the quantum assessment denying the carry-forward had been accepted and not appealed, so the finding that the denial was legally incorrect was the route to cancelling the penalty and did not restore the loss in the quantum proceedings. A reader whose quantum order is still open should take the point in the quantum appeal, where it belongs. Second, the order is a Tribunal decision on AY 2015-16 and the whole framework changed for buy-backs from 1 October 2024, when s.115QA was switched off and s.2(22)(f) took over. The subsidiary point on penalty is orthodox and travels well: where the underlying disallowance is legally unsustainable, and where the claim turns on the interpretation of a provision with every figure already before the officer in the computation, there is no furnishing of inaccurate particulars.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee company manufactured MS wires and bright steel bars and traded in iron and steel. It held 65,450 equity shares of Kansil Alloys Pvt Ltd, which it had acquired on original allotment on 31 March 2008 at Rs.310 per share (face value Rs.10 plus share premium Rs.300). On 20 February 2015 the investee company offered to buy back shares at Rs.125.75 per share, being its book value as on 31 December 2014, and the assessee tendered 62,500 shares out of that allotment. The transaction produced a book loss of Rs.1,15,15,625, which after indexation became a long-term capital loss of Rs.2,81,47,885 that the assessee sought to carry forward in its return filed on 27 September 2015 declaring total income of Rs.11,000. The Assessing Officer took the view that because income arising to a shareholder on buy-back is exempt under s.10(34A), the loss could not be allowed; he denied the carry-forward in the assessment under s.143(3) dated 30 November 2017 and initiated penalty. The assessee pleaded that it had computed its income under s.46A and had been unaware of s.115QA, which had been introduced with effect from 1 June 2013. The quantum assessment was not appealed. Penalty of Rs.57,98,464 was levied under s.271(1)(c) by order dated 25 March 2018 for furnishing inaccurate particulars of income and was confirmed by the Commissioner (Appeals).
The appeal was partly allowed — grounds 2, 3 and 5 were dismissed as not pressed and the penalty grounds were allowed, the Tribunal directing the Assessing Officer to delete the penalty levied under s.271(1)(c). The Tribunal held that because the buy-back consideration of Rs.125.75 per share was less than the issue price of Rs.310 per share there could be no distribution of income, so s.115QA could not be applied to the transaction; that s.10(34A), which exempts income on a buy-back as referred to in s.115QA, consequentially had no application; that the very basis on which the Assessing Officer had denied the carry-forward of the long-term capital loss was therefore legally incorrect; and that as the denial was unsustainable there could be no furnishing of inaccurate particulars, the claim being at worst an incorrect claim on a question of interpretation with all the details for determining the loss already on record in the computation sheet before the officer.
The Tribunal set out the Explanation to s.115QA defining "distributed income" as the consideration paid on buy-back reduced by the amount received by the company for issue of the shares, compared the issue price of Rs.310 with the buy-back price of Rs.125.75, and concluded that the consideration was less than the issue price so that there could be no distribution of income and the section could not be applied. It then reproduced s.10(34A) and reasoned that since the exemption is confined to a buy-back "as referred to in section 115QA", and s.115QA could not be applied, the exemption had no application either. Turning to penalty, it held that as the denial of the loss was itself unsustainable no inaccurate particulars could be said to have been furnished, and that in any event the question was one of interpretation of law where all the details were already before the officer, so that at best there was an incorrect claim, on which no penalty could be levied, relying on the Supreme Court's decisions in CIT v. Reliance Petro Products Private Limited and Price Waterhouse Coopers (P) Ltd. v. CIT.
Hence, it could be seen that the consideration paid to the shares is less than issue price. Hence, there cannot be any distribution of income. Accordingly, provisions of Section 115QA of the Act per se cannot be applied to the facts of the instant case.
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Handle my notice → Ask a CA on WhatsAppOn a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Delhi held that where the buy-back consideration is lower than the price at which the company issued the shares there is no "distributed income", so s.115QA "per se cannot be applied", and that s.10(34A) — which exempts income on a buy-back "as referred to in section 115QA" — "also consequentially would not have any application". The very basis on which the officer had denied the carry-forward of the long-term capital loss was therefore "legally incorrect". Because the denial of the loss was itself unsustainable, no penalty for furnishing inaccurate particulars could stand on it, and in any event the claim was at worst an incorrect claim on a question of interpretation with all the figures already on the record; the s.271(1)(c) penalty of Rs.57,98,464 was directed to be deleted. This was decided by the ITAT (Shri Vimal Kumar, Judicial Member and Shri M. Balaganesh, Accountant Member) and bears on section 115QA, section 10(34A), section 46A, section 48, section 271(1)(c), section 143(3) of the Income Tax Act 1961. It is reported as ITA No. 5481/Del/2019 (assessment year 2015-16); order dated 29 August 2024; appeal against the order of the Commissioner of Income Tax (Appeals)-38, New Delhi in Appeal No. 340/2018-19 dated 22 April 2019. The reasoning is the useful part, and it runs in a direction most readers will not expect: the s.10(34A) exemption is not a blanket rule that buy-back results are outside the computation. It attaches only where the buy-back is one "referred to in section 115QA", and s.115QA has a charge only where there IS distributed income — consideration paid less the amount the company received on issue. Where the shares were issued at Rs.310 and bought back at Rs.125.75, nothing is distributed, the section has nothing to bite on, and the shareholder is back in the ordinary s.46A and s.48 computation with a real capital loss. That is worth having in writing for any pre-October-2024 buy-back done at a loss. Two limits must be stated. First, the Tribunal reached this in a PENALTY appeal: the quantum assessment denying the carry-forward had been accepted and not appealed, so the finding that the denial was legally incorrect was the route to cancelling the penalty and did not restore the loss in the quantum proceedings. A reader whose quantum order is still open should take the point in the quantum appeal, where it belongs. Second, the order is a Tribunal decision on AY 2015-16 and the whole framework changed for buy-backs from 1 October 2024, when s.115QA was switched off and s.2(22)(f) took over. The subsidiary point on penalty is orthodox and travels well: where the underlying disallowance is legally unsustainable, and where the claim turns on the interpretation of a provision with every figure already before the officer in the computation, there is no furnishing of inaccurate particulars. If it applies to you, the first step is this: For any pre-October-2024 buy-back done at a loss, compare the buy-back price with the amount the company received on ISSUE of the shares under Rule 40BB — not with the shareholder's cost. If the buy-back price is lower, argue that there is no distributed income and s.115QA never applied.
The assessee company manufactured MS wires and bright steel bars and traded in iron and steel. It held 65,450 equity shares of Kansil Alloys Pvt Ltd, which it had acquired on original allotment on 31 March 2008 at Rs.310 per share (face value Rs.10 plus share premium Rs.300). On 20 February 2015 the investee company offered to buy back shares at Rs.125.75 per share, being its book value as on 31 December 2014, and the assessee tendered 62,500 shares out of that allotment. The transaction produced a book loss of Rs.1,15,15,625, which after indexation became a long-term capital loss of Rs.2,81,47,885 that the assessee sought to carry forward in its return filed on 27 September 2015 declaring total income of Rs.11,000. The Assessing Officer took the view that because income arising to a shareholder on buy-back is exempt under s.10(34A), the loss could not be allowed; he denied the carry-forward in the assessment under s.143(3) dated 30 November 2017 and initiated penalty. The assessee pleaded that it had computed its income under s.46A and had been unaware of s.115QA, which had been introduced with effect from 1 June 2013. The quantum assessment was not appealed. Penalty of Rs.57,98,464 was levied under s.271(1)(c) by order dated 25 March 2018 for furnishing inaccurate particulars of income and was confirmed by the Commissioner (Appeals). The matter was decided on 2024-08-29 by the ITAT (Shri Vimal Kumar, Judicial Member and Shri M. Balaganesh, Accountant Member). On those facts the ITAT held as follows. The appeal was partly allowed — grounds 2, 3 and 5 were dismissed as not pressed and the penalty grounds were allowed, the Tribunal directing the Assessing Officer to delete the penalty levied under s.271(1)(c). The Tribunal held that because the buy-back consideration of Rs.125.75 per share was less than the issue price of Rs.310 per share there could be no distribution of income, so s.115QA could not be applied to the transaction; that s.10(34A), which exempts income on a buy-back as referred to in s.115QA, consequentially had no application; that the very basis on which the Assessing Officer had denied the carry-forward of the long-term capital loss was therefore legally incorrect; and that as the denial was unsustainable there could be no furnishing of inaccurate particulars, the claim being at worst an incorrect claim on a question of interpretation with all the details for determining the loss already on record in the computation sheet before the officer.
The Tribunal set out the Explanation to s.115QA defining "distributed income" as the consideration paid on buy-back reduced by the amount received by the company for issue of the shares, compared the issue price of Rs.310 with the buy-back price of Rs.125.75, and concluded that the consideration was less than the issue price so that there could be no distribution of income and the section could not be applied. It then reproduced s.10(34A) and reasoned that since the exemption is confined to a buy-back "as referred to in section 115QA", and s.115QA could not be applied, the exemption had no application either. Turning to penalty, it held that as the denial of the loss was itself unsustainable no inaccurate particulars could be said to have been furnished, and that in any event the question was one of interpretation of law where all the details were already before the officer, so that at best there was an incorrect claim, on which no penalty could be levied, relying on the Supreme Court's decisions in CIT v. Reliance Petro Products Private Limited and Price Waterhouse Coopers (P) Ltd. v. CIT. In the words reproduced by the source cited on this page: "Hence, it could be seen that the consideration paid to the shares is less than issue price. Hence, there cannot be any distribution of income. Accordingly, provisions of Section 115QA of the Act per se cannot be applied to the facts of the instant case." The decision followed or applied CIT v. Reliance Petro Products Private Limited, reported in 322 ITR 158 (SC) — relied on for the penalty conclusion; Price Waterhouse Coopers (P) Ltd. v. CIT, reported in 348 ITR 306 (SC) — relied on for the penalty conclusion.
It was decided by the ITAT on 2024-08-29 and is reported as ITA No. 5481/Del/2019 (assessment year 2015-16); order dated 29 August 2024; appeal against the order of the Commissioner of Income Tax (Appeals)-38, New Delhi in Appeal No. 340/2018-19 dated 22 April 2019. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 115QA, section 10(34A), section 46A, section 48, section 271(1)(c), section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was partly allowed — grounds 2, 3 and 5 were dismissed as not pressed and the penalty grounds were allowed, the Tribunal directing the Assessing Officer to delete the penalty levied under s.271(1)(c). The Tribunal held that because the buy-back consideration of Rs.125.75 per share was less than the issue price of Rs.310 per share there could be no distribution of income, so s.115QA could not be applied to the transaction; that s.10(34A), which exempts income on a buy-back as referred to in s.115QA, consequentially had no application; that the very basis on which the Assessing Officer had denied the carry-forward of the long-term capital loss was therefore legally incorrect; and that as the denial was unsustainable there could be no furnishing of inaccurate particulars, the claim being at worst an incorrect claim on a question of interpretation with all the details for determining the loss already on record in the computation sheet before the officer. It arises in Capital Gains, Penalty and Capital Gains Exemptions matters, on section 115QA, section 10(34A), section 46A, section 48, section 271(1)(c), section 143(3) of the Income Tax Act 1961, and was decided by Shri Vimal Kumar, Judicial Member and Shri M. Balaganesh, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Then take the consequential step in terms: if s.115QA does not apply, the buy-back is not one "referred to in section 115QA", so s.10(34A) cannot exempt anything and cannot be used to deny the loss. Take the point in the QUANTUM appeal. Here it succeeded only on penalty because the quantum order had been accepted; do not let a quantum order go unappealed on the assumption that the point can be recovered later. Where the officer has both denied a loss and levied penalty, argue the penalty on two independent legs — that the disallowance is legally unsustainable, and that a claim resting on interpretation with all particulars disclosed in the computation is not inaccurate particulars. Keep the original allotment record. The whole argument turns on proving the price at which the company issued the shares, including premium.
Still good law. Validity check could only be partly completed. No decision doubting, distinguishing or following this order was located, and I did not run a systematic later-treatment search; there is no indication either way of a Revenue appeal under s.260A. The reasoning is confined to the regime in force for buy-backs before 1 October 2024, and the holding on the shareholder's capital loss was made in a penalty appeal where the quantum order had become final, so it is persuasive rather than a decision restoring the loss. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The appeal before the Tribunal was against a penalty order, not against the quantum assessment: paragraph 6 records that the quantum assessment denying the carry-forward "was accepted by the assessee by not preferring any further appeal". The holding on s.115QA and s.10(34A) was therefore reached in the course of deciding whether penalty could stand, and the order does not restore the long-term capital loss. Grounds 2, 3 and 5 were dismissed as not pressed, which is why the disposal at paragraph 13 is "partly allowed" and not "allowed" — an earlier fetch of this document described the disposal as "allowed", and the transcribed paragraph 13 is what this entry follows. The order has thirteen numbered paragraphs and the disposal was reached. Paragraphs 4 to 6 recite the facts and the lower authorities' reasoning and paragraph 5 reproduces the assessee's own written submission, which contains a reference to "Section 18" that appears to be a transcription error in the source; the Tribunal's own reasoning is at paragraphs 7 to 12 and the propositions quoted in this entry are from paragraphs 9, 10 and 11. The assessee company here was the SHAREHOLDER — it held shares in Kansil Alloys Pvt Ltd, the investee company that bought them back. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was partly allowed — grounds 2, 3 and 5 were dismissed as not pressed and the penalty grounds were allowed, the Tribunal directing the Assessing Officer to delete the penalty levied under s.271(1)(c). The Tribunal held that because the buy-back consideration of Rs.125.75 per share was less than the issue price of Rs.310 per share there could be no distribution of income, so s.115QA could not be applied to the transaction; that s.10(34A), which exempts income on a buy-back as referred to in s.115QA, consequentially had no application; that the very basis on which the Assessing Officer had denied the carry-forward of the long-term capital loss was therefore legally incorrect; and that as the denial was unsustainable there could be no furnishing of inaccurate particulars, the claim being at worst an incorrect claim on a question of interpretation with all the details for determining the loss already on record in the computation sheet before the officer.
TaxSphere, “Rukmani Wires Pvt Ltd v DCIT (ITAT Delhi) — where the buy-back price is BELOW the issue price there is no "distributed income", so s.115QA cannot apply and s.10(34A) cannot be used to deny the shareholder's capital loss”, https://taxnotice.vittsphere.com/caselaw/case/rukmani-wires-buyback-below-issue-price-no-distributed-income-so-115qa-and-10-34a-do-not-apply/ (validity last checked 2026-09-09)
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My client claimed the buy-back proceeds as exempt under section 10(34A). The Assessing Officer says the company paid too little buy-back tax, so he has denied the exemption and assessed the whole gain under section 46A. Can he do that?
For a buy-back completed before 1 October 2024 my client claimed the whole receipt as exempt under section 10(34A). The officer says the company got its section 115QA computation wrong, so the exemption goes. Is that right — and does the exemption still exist for a buy-back done now?
My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024?
My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
