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DATE: January 24, 2017 (Date of pronouncement)
DATE: January 27, 2017 (Date of publication)
AY: 2006-07
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CITATION:
S. 45/48: The AO is not bound to accept the consideration stated in the sale deed. In a case where property is sold between arm’s length parties at a gross undervaluation, the onus is on the assessee to explain and if there is no explanation, the AO is entitled to draw an inference. The presumption against the value being understated (not undervalued) is greater where parties are connected or related. However, if the AO does not allege that the assessee received more consideration than is stated in the sale deed, he cannot made an addition to the stated consideration (George Henderson 66 ITR 622 (SC) & Gillanders Arbuthnot 87 ITR 407 (SC) explained)

The judgments in CIT v. George Henderson & Co. Ltd. (1967)66 ITR 622, Commissioner of Income Tax, Calcutta v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 undoubtedly hold that the expression “full value of the consideration” cannot be construed as the market value but as the price bargained for by the parties to the sale. It is necessary for the Assessing Officer to ascertain as to what was the price bargained for by the parties to the sale. The judgment, however, does not support the further submission of the assessee that the price stated in the sale-deed must irrespective of anything also be considered to be the sale price for the purpose of computing the capital gain. In our view this absolute proposition is not well founded. The Assessing Officer must determine whether the price stated in the agreement for sale is in fact the price bargained for by the parties thereto. In other words, the full value of the consideration is neither the market value nor necessarily the price stated in the document for sale but the price actually arrived at between the parties to the transaction. If therefore it is found that the price actually arrived upon between the parties is not the price reflected in the document, it is the price bargained for by the parties to sale that must be considered for determining the capital gain under section 48. The Supreme Court did not hold that inferences cannot be drawn by the Assessing Officer from the facts established. In fact in paragraph-5 the Supreme Court observed that there was no inferential finding that the shares were sold at the market price of ` 620/- per share. This read with the operative part of the order in paragraph-6 remanding the matter to record a finding as to the actual price received makes it clear that the finding can be based on inferences as well. In paragraph-6 the assessee is given an opportunity to explain the unusual nature of the transaction. It cannot be suggested that even if there was no explanation by the assessee, the Assessing Officer was bound not to draw an adverse inference

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DATE: November 6, 2015 (Date of pronouncement)
DATE: November 23, 2015 (Date of publication)
AY: 2007-08
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CITATION:
Rule 10A(d): Law on when multiple transactions can be regarded as a single composite transaction for determining arm’s length price explained. Fact that a transaction results in a profit or a loss has no bearing on whether it is at arm’s length price

The answer to the issue whether a transaction is at an arm’s length price or not is not dependent on whether the transaction results in an increase in the assessee’s profit. A view to the contrary would cause considerable confusion and lead to arbitrary, if not illogical, results. A view to the contrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm’s length price. A further question that may arise is whether the arm’s length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee’s claim, it is not determinative of the same

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DATE: July 31, 2015 (Date of pronouncement)
DATE: November 16, 2015 (Date of publication)
AY: 2009-10
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CITATION:
S. 36(1)(iii): In a case where advances for non-business purposes are made from mixed funds, neither the AO nor the assessee can claim that the funds have come from a particular source and so the disallowance should be worked out on the basis of the average interest rate

The judgment of this Court in Commissioner of Income Tax-I, Ludhiana vs. M/s Abhishek Industries, Ludhiana [2006] 286 ITR 1 (P&H) does not deal with the question of the rate of interest to be applied in cases where the assessee has mixed funds available with it. We also agree with the Tribunal’s view that where mixed funds are diverted towards interest free advances the disallowance should be made up to the level of the average cost of debt to the assessee. There is no justification in taking into consideration the rate of interest in respect of any particular transaction where under an assessee avails advances on interest. An assessee may avail several advances from the same lender or from different lenders and at varying rates of interest. In the absence of anything to indicate that the interest free advance was made only from a particular corresponding advance received by the assessee, the advance made by the assessee would obviously be from the common pool of money. Money lying in a common pool has no identity. The various amounts advanced to the assessee get merged into a common pool. There is no justification then either for the assessee or for the department to take into consideration the rate of interest in respect of a particular advance or advances to the assessee. The only logical approach is to take into consideration the average interest rate at which the assessee has availed of the advances

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DATE: May 15, 2015 (Date of pronouncement)
DATE: May 27, 2015 (Date of publication)
AY: 1994-95
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CITATION:
Where the agreement between the parties (for sale of shares) indicates that the lump-sum consideration was in respect of two or more promises (i.e. sale of shares & non-compete covenant), it is liable to be bifurcated and apportioned between each of the assets (Vodafone distinguished)

It is difficult to understand how the mere fact that the parties have not apportioned the consideration between the two assets which were being dealt with by this agreement can make any difference to the rights of the parties. The position might have been different if the market value of the shares could not be ascertained. Then it might be said that it is difficult to put a proper value upon the shares and to put a proper value for the consideration. But when the market value is available and when it is known for what price these shares could be purchased or sold, there is no difficulty whatsoever in the apportionment

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