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DATE: December 5, 2016 (Date of pronouncement)
DATE: December 6, 2016 (Date of publication)
AY: 1978-79
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CITATION:
S. 10(19A): Though principles of res judicata do not apply, the Dept should not endlessly pursue matters which have attained finality in earlier years. Principles of interpretation of statutes explained. Interplay between s. 10(19A), s. 23 of the Income-tax Act & s. 5(iii) of the Wealth-tax Act explained

Though principle of res judicata does not apply to income-tax proceedings and each assessment year is an independent year in itself, yet, in our view, in the absence of any valid and convincing reason, there was no justification on the part of the Revenue to have pursued the same issue again to higher Courts. There should be a finality attached to the issue once it stands decided by the higher Courts on merits. This principle, in our view, applies to this case on all force against the Revenue

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DATE: November 21, 2016 (Date of pronouncement)
DATE: December 6, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 14A Rule 8D: The fact that the AO did not expressly record his dissatisfaction with the assessee's working does not mean that he cannot make the disallowance. The AO need not pay lip service and formally record dissatisfaction. It is sufficient if the order shows due application of mind to all aspects

Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted

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DATE: October 24, 2016 (Date of pronouncement)
DATE: December 5, 2016 (Date of publication)
AY: 2007-08
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CITATION:
S 50C does not apply to transfer of land and building, being leasehold property

The Revenue has not preferred any appeal against the decision of the Tribunal in the case of Atul Puranik (supra). Thus, it could be inferred that it has been accepted. Our Court in DIT vs. Credit Agricole Indosuez 377 ITR 102 (dealing with Tribunal order) and the Apex Court in UOI vs. Satish P. Shah 249 ITR 221 (dealing with High Court order) has laid down the salutary principle that where the Revenue has accepted the decision of the Court/Tribunal on an issue of law and not challenged it in appeal, then a subsequent decision following the earlier decision cannot be challenged

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DATE: November 23, 2016 (Date of pronouncement)
DATE: December 5, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 147: It is a regular practice for the broker to make modifications in the client code after the purchase and sale of securities. The mere fact that there is a client code modification prima facie does not mean that any income has escaped assessment. it appears to be case of 'reason to suspect' and not 'reason to believe'

We note that the reasons in support of the impugned notice accept the fact that as a matter of regular business practice, a broker in the stock exchange makes modifications in the client code on sale and / or purchase of any securities, after the trading is over so as to rectify any error which may have occurred while punching the orders. The reasons do not indicate the basis for the Assessing Officer to come to reasonable belief that there has been any escapement of income on the ground that the modifications done in the client code was not on account of a genuine error, originally occurred while punching the trade. The material available is that there is a client code modification done by the Assessee’s broker but there is no link from there to conclude that it was done to escape assessment of a part of its income. Prima facie, this appears to be a case of reason to suspect and not reason to believe that income chargeable to tax has escaped assessment

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DATE: November 24, 2016 (Date of pronouncement)
DATE: November 30, 2016 (Date of publication)
AY: 1989-90
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S. 55(2): In determining the cost of acquisition as on 01.04.1974 (or 01.04.1981), the value declared in the wealth-tax return as well as the comparable sales, even if later in point of time, have to be considered. The High Court should not interfere with findings of fact, unless palpably incorrect

A declaration in the return filed by the Assessee under the Wealth Tax Act would certainly be a relevant fact for determination of the cost of acquisition which under Section 55(2) of the Act to be determined by a determination of fair market value. Equally relevant for the purposes of aforesaid determination would be the comparable sales though slightly subsequent in point of time for which appropriate adjustments can be made as had been made by the learned Tribunal (from Rs.70/- per square yard to Rs.50/- per square yard). Comparable sales, if otherwise genuine and proved, cannot be shunted out from the process of consideration of relevant materials. The same had been taken into account by the learned Tribunal which is the last fact finding authority under the Act. Unless such cognizance was palpably incorrect and, therefore, perverse, the High Court should not have interfered with the order of the Tribunal. The order of the High Court overlooks the aforesaid severe limitation on the exercise of jurisdiction under Section 260A of the Act

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DATE: November 17, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: 2007-08
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Interplay between Article 9 of the DTAA and Transfer Pricing law in the Act explained. While Article 9 is an enabling provision, the TP mechanism under the domestic law is the machinery provision. There is no occasion to read Article 9 as confined to enabling ALP adjustment in respect of only domestic entities. The mere fact that the OECD Commentary etc give examples related to economic double taxation situations does not imply that the Article 9 (1) cannot be applied to other situations

Once it is not in dispute that the arms length standards are, therefore, to be applied in computation of taxable profits, as is specific mandate of article 9, it is only axiomatic that the manner in which arm’s length standards are to be applied is something which has not been defined by the treaties and the mechanism provided under the domestic law, therefore, must hold good. Article 9(1) does not, and cannot, provide the basis of the ALP adjustments as tax treaties restrict application of domestic law of taxation rather than create independent rights of taxation. Article 9(1) is thus, in a way, an enabling provision, and the TP mechanism under the domestic law is the machinery provision. The provisions of article 9(1) permit ALP adjustment in all situations in which the arm’s length standards require higher profits in the hands of any “one of the enterprises, but by reason of those conditions, have not so accrued” to be “included in the profits of that enterprise and taxed accordingly”. The provisions are clear and unambiguous. There is no occasion to read this provision as confined to enabling ALP adjustment in respect of only domestic entities

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DATE: November 18, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: -
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CITATION:
Taxability of software license fees as royalty: Non-consideration of the verdict of the Tribunal in Solid Works Corporation (51 SOT 34) and misreading of the Delhi High Court's verdict in Ericsson AB constitutes a mistake apparent from the record u/s 254(2) and the orders have to be recalled

In the instant appeals, the Tribunal admittedly did not consider the decision rendered by co-ordinate bench in the case of Solid Works Corporation (supra), even though it was relied upon by the assessees herein. The assessees have contended that the non-consideration of the decision of co-ordinate bench, when it was specifically relied upon by the assessee would result in a mistake apparent from record and would warrant recall of the order. In support of this contention, the assessees have placed their reliance on the decision rendered by Hon’ble Supreme Court in the case of Honda Siel Power Products Ltd (supra), wherein the Hon’ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record

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DATE: November 23, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: 2007-08
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S. 50C: If the difference between the sale consideration of the property shown by the assessee and the FMV determined by the DVO u/s 50C(2) is less than 10%, the AO is not justified in substituting the value determined by the DVO for the sale consideration disclosed by the assessee. Unregistered sale agreements prior to 01.10.2009 are not subject to s. 50C as per CBDT Circular No.5/10 dated 03.06.2010

We are also inclined to agree with learned AR Mr. Shashank Dandu that in view of the decision of Co-ordinate Bench in case of Rahul Constructions vs. DCIT (Pune) (Trib.) 38 DTR 19 (2010) ITA No.1543/Pn/2007 since the difference between the sale consideration of the property shown by the assessee and the FMV determined by the DVO under Section 50C(2) being less than 10 per cent, AO was not justified in substituting the value determined by the DVO for the sale consideration disclosed by the assessee

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DATE: August 24, 2016 (Date of pronouncement)
DATE: November 14, 2016 (Date of publication)
AY: 2007-08
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CITATION:
Bogus share capital: Interplay between s. 56(2)(viib) and s. 68 explained. Amendment to s. 68 casting onus on assessee and requiring it to explain source of source of share subscription is clarificatory and retrospective. Law in Lovely Exports 299 ITR 268, Sophia Finance 205 ITR 98 etc does not apply as they are prior to the Money Laundering Act 2002

A conjoint reading of proviso to section 68 and section 56(2)(viib) divulges that where a closely held company receives, inter alia, some amount as share premium whose genuineness is not proved by the assessee company or its source etc. is not proved by the shareholder to the satisfaction of the AO, then the entire amount including the fair market value of the shares, is chargeable to tax u/s 68 of the Act. If however, the genuineness of the amount is proved and the shareholder also proves his source, then the hurdle of section 68 stands crossed and the share premium, to the extent stipulated, is chargeable to tax u/s 56(2)(viib) of the Act. It shows that only when source of such share premium in the hands of a shareholder is properly explained to the satisfaction of the AO, that the provisions of section 56(2)(viib) gets triggered

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DATE: August 24, 2016 (Date of pronouncement)
DATE: November 14, 2016 (Date of publication)
AY: 2008-09
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S. 41(1): Amounts shown as liabilities in the Balance Sheet cannot be deemed to be cases of "cessation of liability" only because the liabilities are outstanding for several years. The AO has to establish with evidence that there has been a cessation of liability with regard to the outstanding creditors

When the Assessing Officer was of the view that there was cessation of liability in the case on hand, it was incumbent upon him to cause necessary enquiries to be made in order to bring on record material evidence to establish the requirement for invoking the provisions of section 41(1) of the Act. The very fact that the assessee reflects these amounts as creditors in his Balance Sheet as on 31/3/2007, is an acknowledgement of his liability to these creditors and this also automatically extends the period of limitation under section18 of the Limitation Act. Once the assessee acknowledges that the debts to creditors are outstanding in his Balance Sheet, that he is liable to pay his creditors, Revenue cannot suo-moto conclude that the creditors have remitted their liability or that the liability has otherwise ceased to exist, without bringing on record any material evidence to the contrary

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