Essar Teleholdings Case - Would it Pass the Test of GAAR?

The Mumbai bench of the Income Tax Appellate Tribunal (Tribunal), in the recent case of Essar Teleholdings Limited (Taxpayer), has allowed the Taxpayer's claim for set-off of short term capital loss (Loss) on sale of compulsory convertible debentures (CCDs) to its holding company (Hold Co) against long term capital gains earned on sale of shares. The Tribunal reversed the orders of the tax authorities who had denied the Taxpayer's claim by holding that the transaction was not bonafide and was a 'colourable device'.