Though the shares were pledged with IDBI and the assessee did not have physical possession of the share certificates and had also undertaken to IDBI that the shares would not be transferred, there was still a “transfer” u/s 2(47). While there would be a serious question of validity of such transaction in so far as the assessee’s relationship with IDBI is concerned, and the purchaser would not be entitled to transfer the shares in its’ name, these issues were not relevant because the assessee did transfer whatever rights it had in the shares to the purchaser. The Revenue’s argument that the transaction was a “colourable device” and a “paper arrangement” is not acceptable because (i) there is no provision which prevents an assessee from selling loss making shares with a view to offset the loss against other gains and (ii) the transaction with the group company was at the fair value. The fact that the shares were pledged and could not be registered in the purchaser’s name did not establish that transaction was a contrived one (Sakarlal Balabhai 69 ITR 186 (Guj), Azadi Bachao Andolan 263 ITR 706 (SC) & Vodafone 341 ITR 1 (SC) followed)

The Scheme cannot be said to have no purpose or object and that it is a mere device/subterfuge with the sole intention to evade taxes. While it is true that the Scheme may result into tax avoidance, it cannot be said that the only object of the Scheme is tax avoidance. In Vodafone International Holdings B.V 341 ITR 1 (SC) it was held that the Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the “look at” test to ascertain its true legal nature. The corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device. Tax planning may be legitimate provided it is within the framework of law though a “colourable device” cannot be a part of tax planning. It cannot be said that all tax planning is illegal/illegitimate/impermissible. A similar scheme of arrangement involving demerger of passive infrastructure assets of the Company has been sanctioned by the Delhi High Court

The question about applicability of Instruction No.3 of 2011 has been considered in several judgements including Smt. Vijaya V. Kavekar (Bom) and Ranka & Ranka (Kar) and the view is that Instruction No.3 of 2011 dated 9.2.2011 would also apply to pending appeals. We are in agreement with this view and so tax appeals filed by the department which are below the tax effect of Rs.10 lakhs are not maintainable

In Mittal Court Premises Co-op Society 320 ITR 414 (Bom) it was held in the context of non-occupancy charges that the principle of mutuality would apply to a co-op society. The same principle applies to the TDR premium paid by a member to the Society of which he is a member as consideration for being permitted to make an additional utilization of FSI on the plot allotted by the Society. There is a complete mutuality between the Society and its members and the TDR premium is not chargeable to tax

Prior to the Finance Act No.2 of 1996 unabsorbed depreciation could be carry forward indefinitely. The Finance Act No.2 of 1996 restricted the period of carry forward & set-off of unabsorbed depreciation to 8 years from AY1997-98. Circular No.762 dated 18.2.1998 clarified that the brought forward depreciation for the earlier years would be added to the depreciation for AY 1997-98 and the period of 8 years would begin from AY 1997-98 onwards. S. 32 (2) was amended by Finance Act, 2001 w.e.f. AY 2002-03 to restore the position as it was prevailing prior to the Finance Act No. 2 of 1996 and the period of 8 years was done away with. In Circular No.14 of 2001, the CBDT clarified that the removal of the 8 year time period was “with a view to enable the industry to conserve sufficient funds to replace plant and machinery“. The effect of the amendment is that the unabsorbed depreciation available to an assessee on 1.4.2002 (AY 2002-03) has to be dealt with in accordance with the s. 32(2) as amended by the Finance Act, 2001 and not by s. 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow unabsorbed depreciation allowance worked out in AY 1997-98 only for eight subsequent assessment years even after the amendment of s. 32(2) by Finance Act, 2001 it would have incorporated a provision to that effect. However, it does not contain any such provision and so a purposive and harmonious interpretation has to be taken. Therefore, the unabsorbed depreciation pertaining to AY 1997-98 can be carried forward for set-off indefinitely

The assessee’s argument that as the Full Bench judgement in Kelivinator 256 ITR 1 (Del) (FB) was approved by the Supreme Court 320 ITR 561, the observations made by the Full Bench must be regarded as the ratio of the Supreme Court is not correct because the question before the Supreme Court was whether the concept of “change of opinion” stands obliterated with effect from 1.4.1989 or not. The Supreme Court did not hold that the tangible material must be that which did not form part of the original record of the assessment proceedings. The ratio of the decision of the Supreme Court is what the judgement lays down and not what the decisions of the High Court under challenge held. Further, it is doubtful whether even the Full Bench in Kelvinator meant to convey that a certain claim which has not been examined by the AO in the original assessment, cannot be a subject matter of reopening on the basis of material already on record. Now, the Delhi High Court has itself referred the matter for reconsideration to another Full Bench in Usha International

Even in a case where only a s. 143(1) Intimation is passed, the power to reopen can be exercised only where there is “reason to believe that income has escaped assessment” and not merely to “scrutinize” the return or “verify” the expenditure. Further, even in case of reopening of an assessment which was previously accepted u/s 143(1) without scrutiny, the AO would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. Such reason to believe need not necessarily be a firm final decision of the AO. This safeguard is necessary to prevent arbitrary exercise of powers u/s 147 to circumvent the scrutiny proceedings which could not be framed in view of notice u/s 143(2) having become time barred. On facts, in respect of two issues, the AO reopened the assessment to verify the claims. For mere verification of the claim, power of reopening of assessment cannot be exercised. The AO in the guise of power to reopen an assessment cannot seek to undertake a fishing or roving inquiry and seek to verify the claims as if it were a scrutiny assessment