Month: December 2018

Archive for December, 2018


CIT vs. Shyam Telelink Ltd (Delhi High Court)

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DATE: November 15, 2018 (Date of pronouncement)
DATE: December 12, 2018 (Date of publication)
AY: 2009-10
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CITATION:
S. 4/ 145: Law on accrual on income, matching concept & principles of Revenue Recognition as per Accounting Standards (AS-9, AS-22) explained in the context of sale of prepaid mobile cards (All important judgements referred)

Matching Concept is based on the accounting period concept. The paramount object of running a business is to earn profit. In order to ascertain the profit made by the business during a period, it is necessary that “revenues” of the period should be matched with the costs (expenses) of that period. In other words, income made by the business during a period can be measured only with the revenue earned during a period is compared with the expenditure incurred for earning that revenue. However, in cases of mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of Deferred Tax Accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the Fair Valuation Principles. It may be noted that recognition, measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by provisions of the Companies Act

In Re Gabs Investments Pvt Ltd & Ajanta Pharma Ltd (NCLT Mumbai)

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DATE: August 30, 2018 (Date of pronouncement)
DATE: December 12, 2018 (Date of publication)
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CITATION:
GAAR: Objections of the Dept that the scheme of amalgamation is a deliberate measure to avoid tax burden and is an ‘Impermissible Avoidance Agreement’ because it results in avoidance of Divided Distribution Tax (DDT), tax on business profits and MAT u/s ll5JB etc has merit. The scheme is not in public interest & cannot be sanctioned

Since Income Tax department (IT) has raised strong objections about tax benefit, tax avoidance, tax loss as discussed above, we are of the opinion that it would be advisable to settle the important /crucial issue of huge tax liability before sanctioning the scheme by the Tribunal rather than disputing the same at a later stage after the scheme is sanctioned by the Tribunal. It is mandatory as per section 230 (5) of the Companies Act, 2013, a notice under sub section (3) along with all the documents in such form shall also be sent to central government , Income Tax Authorities, RBI, SEBI, ROC, stock exchanges, OL, CCI and other Sectoral regulators or Authorities for their representations. In response to the notice received as per above section the Income Tax Department has raised valid observation/objections as detailed above, we find merit in the objections raised by Income Tax Department and we are also inclined to agree with the objections raised

DCIT vs. Rakesh Saraogi & Sons (HUF) (ITAT Raipur)

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DATE: April 16, 2018 (Date of pronouncement)
DATE: December 8, 2018 (Date of publication)
AY: 2004-05
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CITATION:
S. 10(38) Bogus Capital Gains Penny Stocks: Assuming brokers may have done manipulation, assessee cannot be held liable when the entire transaction is done through banking channels duly recorded in Demat accounts with Govt depository and traded on stock exchange Nothing on record to suggest assessee gave cash and purchased cheque from broker (Sanjay Bimalchand Jain (Bom HC) distinguished)

There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account

ACIT vs. Janak Global Resources Pvt. Ltd (ITAT Chandigarh)

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DATE: October 16, 2018 (Date of pronouncement)
DATE: December 8, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 36(1)(iii): Dept's argument that Maxopp Investment/Avon Cycles 402 ITR 640 (SC) overrules the presumption that advances to sister concerns are made from own funds and not borrowed funds is not correct. Law on interpretation of judgements explained

It is evident from the above that the issue before the Hon’ble Apex Court was not whether the presumpt ion theory would apply or not where there are mixed funds and the assessee had demonstrated avai lability of sufficient own funds for making the investments . No discussion on this aspect has also been done by the Hon’ble Apex Court and merely not ing that the assessee had ut i l ized mixed funds, the Hon’ble Apex Court held that the principle of apport ionment would apply. Wi thout any discussion or del iberat ion on the presumpt ion theory, the proposi t ion laid down in the case of Avon Cycles Ltd. (supra) by the Hon’ble Apex Court has to be restricted to the extent of the issue before the Hon’ble Apex Court and facts before i t and not beyond that . And on that basis the decision of the Hon’ble Supreme Court in the case of Avon Cycles Ltd. (supra) can be read only to the extent of upholding the principle of apport ionment of expenses incurred in the context of the l imi ted fact of mixed funds avai lable wi th assessee and no further. The proposi t ion laid down cannot be stretched even logical ly to address the fact si tuat ion where suf f icient own interest free funds are avai lable wi th assessee, which fact was not there before the Hon’ble Apex court in the case of Avon Cycles (supra) , and to negate the presumpt ion that the own funds were used for making the investment , which was nei ther the quest ion raised before the apex court and therefore not addressed by i t also.

FIS Global Business Solutions India Pvt. Ltd vs. PCIT (Delhi High Court)

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DATE: November 16, 2018 (Date of pronouncement)
DATE: December 7, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 147/ 148: A report of the Revenue audit party is merely information and opinion. It is not new or fresh or tangible material. If the reassessment notice is solely based on an audit opinion, it means it is issued on change of opinion which is not permissible

We find that the arguments on behalf of the petitioner are well founded and it must succeed. The audit report merely gives an opinion with regard to the non-availability of the deduction both under section 80-IA was not deducted from the profits of the business while computing deduction under section 80HHC. Clearly, therefore, there was no new or fresh material before the Assessing Officer except the opinion of the Revenue audit party. Since it is settled law that mere change of opinion cannot form the basis for issuing of a notice under section 147/148 of the Act, therefore, we do not propose to burden out judgment with the said judgments

Ramprasad Agarwal vs. ITO (ITAT Mumbai)

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DATE: November 30, 2018 (Date of pronouncement)
DATE: December 7, 2018 (Date of publication)
AY: 2013-14, 2014-15
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CITATION:
S. 10(38) Bogus capital gains from penny stocks: If the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has also not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee. Once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee

The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee

Jupiter Capital Pvt. Ltd vs. ACIT (ITAT Bangalore)

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DATE: November 29, 2018 (Date of pronouncement)
DATE: December 7, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 2(47) Transfer: The reduction of share capital of a company by way of reducing the face value of each share from Rs. 1,000 to Rs. 500 amounts to "extinguishment of rights" and is a "transfer" u/s 2(47) of the Act. The assessee is eligible to claim a capital loss therefrom (Kartikeya V. Sarabhai vs. CIT 228 ITR 163 (SC) & other judgements followed)

Sec. 2(47) which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. While, it is no doubt true that the appellant continues to remain a shareholder of the company even with the reduction of a share capital but it is not possible to accept the contention that there has been no extinguishment of any part of his right as a shareholder qua the company. It is not necessary that for a capital gain to arise that there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by s. 2(47) of the Act. Relinquishment of the asset or the extinguishment of any right in it, which may not amount to sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital asset is liable to be taxed under s. 45 of the Act

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Cheryl J. Patel vs. ACIT (Bombay High Court)

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DATE: November 26, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2003-04, 2004-05
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CITATION:
S. 254(1): The ITAT should give independent reasons showing consideration of the submissions made on behalf of the assessee. An appellate order which affirms the order of the lower authority need not be a very detailed order. Nevertheless, there should be some indication in the order passed by the appellate authority of due application of mind to the contentions raised by the asseseee in the context of findings of the lower authority which were the subject matter of the challenge before it

We find that while discussing various issues, the Tribunal has not given any independent reasons showing consideration of the submissions made on behalf of the assessee. We are conscious of the fact that an appellate order which affirms the order of the lower authority need not be a very detailed order, nevertheless, there should be some indication in the order passed by the appellate authority, of due application of mind to the contentions raised by the asseseee in the context of findings of the lower authority which were the subject matter of the challenge before it. In view of above, the interest of justice would be served if the impugned order is quashed and set aside and the appeals are restored to the Tribunal for fresh consideration

ACIT vs. Celerity Power LLP (ITAT Mumbai)

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DATE: November 16, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 47(xiiib) r.w.s 47A(4): The conversion of a company into a LLP constitutes a "transfer". If the conditions of s. 47(xiiib) are not satisfied, the transaction is chargeable to 'capital gains‘ u/s 45 (Texspin Engg 263 ITR 345 (Bom) distinguished). If the assets and liabilities of the company are vested in the LLP at 'book values‘ (cost), there is in fact no capital gain. The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with s. 47(xiiib) is not acceptable

We find from a perusal of the ‘memorandum‘ explaining the purpose and intent behind the enactment of sub-section (xiiiib) to Sec. 47, that prior to its insertion, the ‘transfer‘ of assets on conversion of a company into a LLP attracted levy of “capital gains” tax. The legislature in all its wisdom had vide the Finance Act, 2010 made Sec. 47(xiiib) available on the statute, with the purpose that the transfer of assets on conversion of a company into a LLP in accordance with the Limited Liability Partnership Act, 2008, subject to fulfilment of the conditions contemplated therein, shall not be regarded as a ‘transfer‘ for the purposes of Sec. 45 of the Act. In so far, the reliance placed by the ld. A.R on the judgment of the Hon‘ble High Court of Bombay in the case of CIT Vs. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bom) is concerned, the same in our considered view is distinguishable on facts.

ITO vs. Ashok Jain (ITAT Surat)

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DATE: November 14, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2007-08
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CITATION:
S. 148/ 151: If the AO issues the notice for reopening the assessment before obtaining the sanction of the CIT, the reopening is void ab initio. The fact that the sanction was given just one day after the issue of notice makes no difference

No doubt in the present case, the ld.AO has applied for such approval which was granted on 29.3.2017, but before grant of approval, the ld.AO has already issued notice on 28.3.2014 which is without any jurisdiction. He can issue notice only after getting approval. Thus, the ld.CIT(A) has rightly quashed the assessment because the very foundation for issuance of notice under section 148 is the approval from the competent authority, i.e. Commissioner of Income Tax, and in the absence of such, such notice is void ab initio

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