Purchase of shares at premium and buy back at par -- Additions to long-term capital gains 

Facts: 

Assessee invested in the shares of a private limited company in F.Y. 2003-04 to 2005-06 at a share premium of Rs. 240 per share with purchase consideration at Rs. 250 per share. Subsequently during the year of appeal the company bought back the shares at par value of Rs. 10 per share. The company whose shares were bought back had 2 months prior to the sale had issued shares to Private Equity investors at a premium of Rs. 187-58 per share. Besides this a statement was recorded by the chairman of the company who confessed to have paid additional compensation for the bought back shares beyond the par value separately. Assessee did not seek cross-examination of the statement made. Lower authorities made additions to the long-term capital gain to which assessee appealed to ITAT -

Held against the assessee that the addition of LTCG needs to be sustained. For limited purpose of audi alteram partem the confessional statements are to be shared by revenue to assessee for their cross examination.

Ed. Note: Decision dates back to erstwhile buy back taxation regime where it was taxable in hands of investor. Now buy back tax is on the company doing the buy back. Reference be made to enough press clips on the present buy back taxation being detrimental to investors and beneficial to promoters more so on the tendered buy back route. It is expected that the upcoming budget will make changes to buy back taxation method.

Case: Chintalapati Holdings (P) Ltd. v. Dy. CIT 2023 TaxPub(DT) 538 (Hyd-Trib)