Expl to s. 73: Speculation loss on transactions in derivatives can be set off against the gains of delivery shares

Under the Explanation to s. 73 where any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall, for the purposes of the section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. Therefore, the entire transaction carried out by the assessee was within the umbrella of speculative transaction. There was, as such, no bar in setting off the loss arising out of derivatives from the income arising out of buying and selling of shares.

S. 14A disallowance cannot be made if the assessee has no tax-free income in the year

From the reading of s. 14A of the Act, it is clear that before making any disallowance the following conditions are to exist:- a) That there must be income taxable under the Act, and b) That this income must not form part of the total income under the Act, and c) That there must be an expenditure incurred by the assessee, and d) That the expenditure must have a relation to the income which does not form part of the total income under the Act. Therefore, unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), s. 14A of the Act cannot be invoked (Hero Cycles 323 ITR 518 (P&H) and Winsome Textile 319 ITR 204 (P&H) followed)

S. 271(1)(c)/ 271(1B): If, in the assessment order, AO directs initiation of penalty on specific issues but not on others, he is not entitled to levy penalty on the other issues

S. 271(1)(c) empowers the AO, where he is satisfied in the course of any proceedings under the Act that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income, to direct the payment of penalty. Sub-section (1B) was inserted with retrospective effect from 01.04.1989 to provide that where any amount is added or disallowed in computing the total income or loss of an assessee and the assessment order contains a direction for initiation of penalty proceedings, such an order of assessment shall be deemed to constitute satisfaction of the AO for initiation of penalty proceedings under s. 271(1)(c). In order that the deeming fiction in sub-section (1B) must apply, two requirements must be fulfilled. The first requirement is that an amount must have been added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment. The second is that the order of assessment must contain a direction for the initiation of penalty proceedings under clause (c) of sub-section (1) of s. 271. Where both the conditions as aforesaid are fulfilled, the order of assessment must be deemed to constitute satisfaction of the AO for initiating penalty proceedings. In the present case, it is abundantly clear that in respect of those heads where the AO considered it appropriate to initiate penalty proceedings u/s 271(1)(c), he made a specific direction to that effect. In respect of the claim of interest on the SDF loan, there is no direction by the AO. The absence of a reference to the initiation of proceedings u/s 271(1)(c) is not an inadvertent omission since it is clear that in respect of several other heads, where the AO did consider it appropriate to initiate penalty proceedings, he made an observation to that effect. In fact, even in the concluding part of his order, the AO issued a direction for initiating penalty notice u/s 271(1)(c) “as discussed above”. The expression “as discussed above” is material because it refers to those heads in respect of which a specific direction was issued by him for initiating steps u/s 271(1)(c). Undoubtedly, as held in Mak Data 358 ITR 593 (SC), the AO has to satisfy himself whether penalty proceedings should be initiated or not during the course of assessment proceedings and he is not required to record his satisfaction in a particular manner or reduce it into writing. However, in the present case there is no direction whatsoever by the AO in respect of the specific head of interest on the SDF loan, on which the penalty was deleted by the Tribunal. This omission in the case of the SDF loan stands in sharp contrast to those items where the AO has specifically directed the initiation of penalty proceedings u/s 271(1)(c). Consequently, the Tribunal was justified in deleting the penalty u/s 271(1)(c) in respect of the SDF loan

S. 254: If a legal issue is raised (even for the first time) ITAT has the duty to deal with it and cannot remand it to lower authorities

The Tribunal should have answered the legal issue itself. The Tribunal was not prevented in any manner and in law from considering a purely legal issue for the first time, more so, if this legal issue goes to the root of the matter. The issue was an impact and legal effect of a order of amalgamation and winding up of the assessee thereto on the penalty proceedings have been initiated and were continuing. If they were initiated prior to the order of the winding up passed or the scheme of amalgamation being sanctioned, then, whether the subsequent act of a order sanctioning the scheme would permit continuation of the proceedings against an entity or company which is wound up and in terms of the provisions contained in the Act was, thus, a clear legal issue. It should have been answered by the Tribunal, particularly when it had admitted the question or ground and also the additional evidence filed by the assessee. The only two documents which required to be looked into were the scheme of amalgamation and the order passed in pursuance thereof by this Court. If that was the admitted factual position and based on which the legal issue was raised, then, the Tribunal was obliged to answer the legal question. Its omission to answer it, therefore, is vitiated in law. The Tribunal is a last fact finding Court and equally if it could have been approached by the assessee both on law and fact, then, in the given circumstances, the Tribunal should have answered this issue and its failure to do so can safely be termed as not performing its duty in law. The direction to remit and to remand it to the AO is not justified and in the peculiar facts and circumstances noted above

Assessee cannot be denied credit for TDS on the ground of Form 26AS mismatch because he is not at fault. Non-grant of TDS credit causes harassment, inconvenience & makes the assessee feel cheated. Dept to pay interest + costs of Rs. 25,000

(ii) On facts, no effort has been made by the AO to verify whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income-tax department has shown helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the Petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the Petitioner. The fault, if any, lay with the deductor. The mismatching is not attributable to the assessee. The department must refund the amount within 3 weeks with interest. The department must also pay costs of Rs. 25,000 to the Petitioner

Important guidelines laid down regarding procedure for promotion of ITAT Members to avoid arbitrariness. Suggestion made that there should be a mechanism to oversee the quality of orders passed by ITAT Members

(v) Members of tribunals such as the ITAT perform crucial judicial functions, which can have an adverse bearing on individuals, and at times, vast commercial and fiscal ramifications. In these circumstances, the Central Government should seriously consider continuous oversight through the concerned High Courts, given that High Courts exercise appellate (and supervisory writ) jurisdiction over the orders and proceedings of ITAT and its benches. Some reporting mechanism, preferably centralized, to oversee the quality of the orders of ITAT is essential because the President of ITAT’s powers over members of ITAT and Vice President are not appellate, they are administrative. Creation of this mechanism would result in adding a new and possibly crucial dimension to ensure greater scrutiny of ITAT and its orders and also provide a link in the decision making process of selection to senior judicial positions within ITAT.