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DATE: February 6, 2020 (Date of pronouncement)
DATE: February 22, 2020 (Date of publication)
AY: 2011-12
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CITATION:
S. 2(47)/45: A reduction of capital results in an "extinguishment of rights" in the shares and constitutes a "transfer‟. The fact that the percentage of shareholding remains unchanged even after the reduction is irrelevant. The loss arising from the cancellation of shares is entitled to indexation and is allowable as a long-term capital loss (Bennett Coleman 133 ITD 1 (Mum)(SB) distinguished, all imp verdicts referred)

The ld DR vehemently argued that the percentage of shareholding remains the same because reduction of shares had happened for all shareholders. We find that the ld DR relied on para 24 of the judgement of Special Bench of Mumbai Tribunal in 133 ITD 1 supra to support his proposition. In this regard, we hold that the percentage of shareholding has got no bearing for chargeability of capital gains under the Act. We further find that the provisions of section 55(2)(v) of the Act were applied in the Mumbai Special Bench decision also in para 28 thereon. We find that in the case before us, the provisions of section 55(2)(v) of the Act will have no application at all and if the assessee is not given the benefit, it will never get it and none of the clauses of section 55(2)(v) of the Act would be applicable to the assessee in the instant case. Hence reliance placed on para 28 of the judgement of Special Bench of Mumbai Tribunal does not advance the case of the revenue

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DATE: June 11, 2019 (Date of pronouncement)
DATE: February 15, 2020 (Date of publication)
AY: 2014-15
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CITATION:
Transfer Pricing: (i) If the "arms length‟ principle is satisfied qua the relevant transaction between the assessee and its Indian subsidiary, no further profits can be attributed to the assessee in India even if it was to be held that the latter had a PE in India (ii) If the subsidiary has subsequently entered into an "APA‟ with the CBDT & the FAR analysis and overall functions remain unchanged, the "APA‟ would have a bearing on the ALP of the earlier years

The Indian subsidiary of the assessee had for A.Y. 2015-16 to A.Y 2019-20 entered into an “APA‟ with the CBDT. As is discernible from the “APA‟, the functions of the subsidiary company inter alia included “marketing and sale of various software solutions” of the assessee company. As per the “APA‟ the operating profit margin up to its revenue of Rs. 50 crore was to be taken at 7% of its “Operating revenue‟. Admittedly, the FAR analysis and overall functions of the subsidiary company had remained the same during the period covered by the “APA‟ and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT (ITA No. 581/Mum/2015, dated 16.09.2016), a subsequent “APA‟ would also have a bearing on the earlier years

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DATE: October 16, 2019 (Date of pronouncement)
DATE: November 9, 2019 (Date of publication)
AY: 2015-16
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CITATION:
S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01.04.2019) which defines "balance sheet‟ was not applicable to a foreign company. If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1.4.19 is prospective in nature (B. C. Srinivasa Shetty 128 ITR 294 (SC), Palai Central Bank Ltd (1985) 1 SCC 45 followed)

We hold that since the shares of a foreign company were acquired by the assessee company in the instant case, the ld AO ought to have relied on the balance sheet as audited by the auditor appointed under the Indian Companies Act. In the instant case, the ld AO had relied on the balance sheet of KNP Industries Pte Ltd, Singapore, which is prepared in accordance with Singapore Companies Act, which fact is not in dispute before us. Admittedly, the case of the assessee falls squarely on clause (ii) of the definition of “Balance Sheet‟ as defined in Rule 11U of the Rules supra. Hence it is mandatory to draw a balance sheet as on the valuation date i.e. 10.2.2015 /11.2.2015 (being the date of purchase of shares by the assessee company) and that the said balance sheet should have been audited by an auditor appointed under section 224 of the Companies Act, 1956. Hence it could be safely concluded that the ld AO had applied the valuation method on a different date which is not in accordance with law and that since the computation mechanism provided in Rule 11UA of the Rules is not applicable to the facts of the instant case, the provisions of section 56(2)(viia) of the Act also could not be invoked

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DATE: August 16, 2019 (Date of pronouncement)
DATE: October 26, 2019 (Date of publication)
AY: 2003-04, 2004-05
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CITATION:
S. 2(7A)/ 120(4): Though, by virtue of the retrospective amendment to s. 2(7A), the Addl CIT is an "Assessing Officer", he can act as such only if there is a notification issued by the CBDT u/s 120(4)(b) or if there is an order u/s 127 transferring jurisdiction from the DCIT to the Addl CIT. In the absence of either, the assessment order is without jurisdiction and has to be quashed as null and void. The fact that the assessee co-operated is irrelevant because there is no estoppel. The argument of the Dept that as the order is passed by a higher officer, there is no prejudice to the assessee is not acceptable. The matter also cannot be remanded back (All imp judgements referred)

In view of the legal discussion made above and facts of the case, it is clear that impugned assessment order has been passed without authority of law in as much as Revenue has not been able to demonstrate that the Additional Commissioner of Income tax who had passed the assessment order had valid authority to perform and exercise the powers and functions of an Assessing Officer of the assessee and to pass the impugned assessment order. Under these circumstances, we have no other option but to hold the same as nullity and, therefore, the impugned assessment order is quashed having been passed with out authority of law

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DATE: August 22, 2019 (Date of pronouncement)
DATE: October 5, 2019 (Date of publication)
AY: 2013-14
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CITATION:
S. 56(2)(viib)/ Rule 11UA: The assessee has the option to determine the fair market value of shares either under the DCF method or the NAV method. The assessee's choice is binding on the AO. While the AO can scrutinize the working, he cannot discard the assessee's method and substitute another method (Vodafone M-Pesa Ltd vs. PCIT [2018] 92 taxmann.com 73 (Bom) referred)

While valuing the share premium and to determine the fair market value of shares in terms of section 56(2)(viib) of the Act, the assessee has option for adoption of valuation method and the basis of valuation has to be DCF method. The Hon’ble Bombay High court in Vodafone M-Pesa Ltd vs. PCIT [2018] 92 taxmann.com 73 (Bombay) has held that in view of the Income Tax Rules, the method of valuation namely NAV method or DCF Method to determine the fair market value of share in terms of section 56(2)(viib) of the Act has to be done or adopted at the assessee’s option. AO was undoubtedly entitled to scrutinize the valuation report and can tinker or determine a fresh valuation after confronting the assessee. However, the basis of valuation had to be DCF method and it is not open to the AO to change the method of valuation which the assessee has duly opted

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DATE: July 1, 2019 (Date of pronouncement)
DATE: August 31, 2019 (Date of publication)
AY: 2013-14
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CITATION:
S. 10(38): The fact that "long-term capital gains" on listed shares are exempt from tax does not mean that "long-term capital loss" on such shares is not available for set-off against taxable income. While the gains are exempt, there is no bar against claiming set-off of the loss (J.H. Gotla 156 ITR 323 (SC) distinguished, CBDT Circular No.7/2013 dated 16.07.2013 referred, Raptakos Bret 69 SOT 383 (Mum) followed)

If one carefully analyzes various sub-sections of Section 10 then it is evident that each sub-section enlists specific specie of receipt to which exemption from tax is granted if certain conditions are fulfilled. We therefore find that Section 10 enlists various species of receipts which are otherwise revenue in nature but they are granted exemption from income-tax by the Legislature. The Legislature can grant exemption only when there is a positive income and not where there is a ‘loss’ or negative income on which admittedly there cannot be any charge of income-tax.

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DATE: May 10, 2019 (Date of pronouncement)
DATE: June 8, 2019 (Date of publication)
AY: 2016-17
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CITATION:
S. 9(1)(vi) Royalty: Payment for 'bandwith services' is not assessable as 'royalty' if the assessee only has access to services and not to any equipment. The assessee also did not have any access to any process which helped in providing of such bandwith services. All infrastructure & process required for provision of bandwith services was always used and under the control of the service provider and was never given either to the assessee or to any other person availing the said services

The assessee pursuant to the terms of the “agreement‟ had only received standard facilities i.e bandwith services from RJIPL. In fact, as observed by the CIT(A), the assessee only had an access to services and did not have any access to any equipment deployed by RJIPL for providing the bandwith services. Apart there from, the assessee also did not have any access to any process which helped in providing of such bandwith services by RJIPL. As a matter of fact, all infrastructure and process required for provision of bandwith services was always used and under the control of RJIPL, and the same was never given either to the assessee or to any other person availing the said services

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DATE: May 1, 2019 (Date of pronouncement)
DATE: May 11, 2019 (Date of publication)
AY: 2008-09 to 2013-14
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CITATION:
Natural Justice: The assessee cannot be kept in the dark. Adverse statements or materials cannot be kept away from his eyes. If the AO intends to use it to draw adverse inference/finding, the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material. Failure to do so is a serious flaw which renders the assessment a nullity (All imp judgements referred)

It has to be kept in mind that the AO is empowered to collect materials behind the back of the assessee, however if he intends to use it adversely against the assessee, then it is incumbent upon him to furnish a copy of the materials/statements to the assessee and the assessee should be provided an opportunity to rebut/cross examine the provider/maker of the adverse material. The assessee cannot be kept in the dark and the adverse statements or materials cannot be kept away from his eyes, and if the AO was intending to use it against the assessee to draw adverse inference/finding, then the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material, which is a natural right of the assessee and we find that it has not been done in this case, resulting in violation of natural justice. We are therefore of the considered view that the general statements recorded from the alleged entry operators by themselves with the legal infirmities pointed out, supra, did not constitute incriminating material for the purposes of Section 153A of the Act

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DATE: April 5, 2019 (Date of pronouncement)
DATE: April 10, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus Share Capital: The judgement in PCIT vs. NRA Iron & Steel 103 TM.com 48 (SC) is distinguishable on facts & does not apply to a case where the assessee has discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants by producing the PAN details, bank account statements, audited financial statements and Income Tax acknowledgments and the investors have shown the source of source & personally appeared before the AO in response to s. 131 summons

The ld DR placed reliance on the recent decision of the Hon’ble Apex Court in the case of Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 103 taxmann.com 48 (SC) wherein the decision on addition made towards cash credit was rendered in favour of the revenue. We have gone through the said judgement and we find in that case, the ld AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent which is not the case before us. Certain investor companies did not produce their bank statements proving the source for making investments in assessee company, which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon’ble Apex Court, whereas in the instant case, the entire details of source of source were duly furnished by all the respective share subscribing companies before the ld AO in response to summons u/s 131 of the Act by complying with the personal appearance of directors

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DATE: January 27, 2017 (Date of pronouncement)
DATE: January 30, 2017 (Date of publication)
AY: 2006-07, 2009-10
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CITATION:
S. 10(38): If the AO has accepted the claim for exemption for long-term capital gains and conceded that the assessee is an "investor", he cannot change his stand and treat the assessee as a "trader" in respect of the claim of short-term capital gains alone

The AO having accepted the claim of exemption u/s 10(38) of the Act for long term capital gains of the assessee had conceded the claim of assessee to be an investor and the AO cannot take a different stand by treating the assessee as a trader in respect of short term capital gains alone

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