What is under challenge is only the show-cause notice issued u/s 195 … it may be necessary for the fact finding authority to lift the corporate veil to look into the real nature of transaction to ascertain virtual facts. It is also to be ascertained whether the assessee, as a majority shareholder, enjoys the power by way of interest and capital gains in the assets of Sesa Goa and whether transfer of shares in the case on hand includes indirect transfer of assets and interest in Sesa Goa

S. 43(5) defines the expression ‘speculative transaction’ to mean a transaction in which a contract for the purchase or sale of any “commodity” including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the “commodity” or scrips. The expression ‘commodity’ is not defined and so has to be given the meaning as understood in common parlance i.e. an article of trade or commerce which is tangible in nature. As futures contracts are articles of trade and commerce which are legally permitted to be traded on the stock exchange, transactions in futures are transactions in a “commodity” as contemplated by s. 43(5). Transactions in futures contracts like transactions in stocks & shares if settled otherwise than by actual delivery would be speculative transactions u/s 43(5)

The law is well settled that the jurisdiction to reopen a proceeding depends upon issue of a valid notice. If the notice is not properly issued, the proceedings are ultra vires. A notice issued on a non-existent person is void. The fact that the assessee has filed a return in response to the notice makes no difference

On facts, there is no reason to disbelieve the assessee that the deduction u/s 194C was being done on the misconceived professional advice given by the CAs. Since the payment were to be deducted from CFA no benefit was to be derived by the assessee for making lesser or inaccurate deductions. No malafide intention of any kind can be attributed to the assessee for deducting tax under one provision of law than the other. This was neither the case of malafide intention nor that of negligent intention or want of bonafide, but a case of misconceived belief of applicability of one provision of law. It cannot be said judiciously that the assessee failed to comply with s. 194-I & 194-J without reasonable cause

The assessee has sufficiently explained that a majority of the investment in the tax-free security was made before the borrowing. The assessee had demonstrated that it had other sources of investment and that no part of the borrowed fund could be stated to have been diverted to earn tax free income. As borrowed funds were not used for earning tax-free income, applying s. 14A was not justified

S. 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. S. 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration goes beyond s. 40(b)(v). The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remuneration provided in the Act is valid and deduction is admissible

S. 23 (1)(a) requires determination of the “fair rent” being “the sum for which the property might reasonably be expected to let from year to year”. The AO has to make an inquiry as to what would be the possible rent that the property might fetch. If he finds that the actual rent received is less than the “fair/market rent‟ because the assessee has received abnormally high interest free security deposit, he can undertake necessary exercise in that behalf. However, by no stretch of imagination, the notional interest on the interest free security can be taken as determinative factor to arrive at the “fair rent‟. S. 23(1)(a) does not mandate this