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DATE: November 29, 2018 (Date of pronouncement)
DATE: December 7, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 2(47) Transfer: The reduction of share capital of a company by way of reducing the face value of each share from Rs. 1,000 to Rs. 500 amounts to "extinguishment of rights" and is a "transfer" u/s 2(47) of the Act. The assessee is eligible to claim a capital loss therefrom (Kartikeya V. Sarabhai vs. CIT 228 ITR 163 (SC) & other judgements followed)

Sec. 2(47) which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. While, it is no doubt true that the appellant continues to remain a shareholder of the company even with the reduction of a share capital but it is not possible to accept the contention that there has been no extinguishment of any part of his right as a shareholder qua the company. It is not necessary that for a capital gain to arise that there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by s. 2(47) of the Act. Relinquishment of the asset or the extinguishment of any right in it, which may not amount to sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital asset is liable to be taxed under s. 45 of the Act

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DATE: November 26, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2003-04, 2004-05
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CITATION:
S. 254(1): The ITAT should give independent reasons showing consideration of the submissions made on behalf of the assessee. An appellate order which affirms the order of the lower authority need not be a very detailed order. Nevertheless, there should be some indication in the order passed by the appellate authority of due application of mind to the contentions raised by the asseseee in the context of findings of the lower authority which were the subject matter of the challenge before it

We find that while discussing various issues, the Tribunal has not given any independent reasons showing consideration of the submissions made on behalf of the assessee. We are conscious of the fact that an appellate order which affirms the order of the lower authority need not be a very detailed order, nevertheless, there should be some indication in the order passed by the appellate authority, of due application of mind to the contentions raised by the asseseee in the context of findings of the lower authority which were the subject matter of the challenge before it. In view of above, the interest of justice would be served if the impugned order is quashed and set aside and the appeals are restored to the Tribunal for fresh consideration

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DATE: November 16, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 47(xiiib) r.w.s 47A(4): The conversion of a company into a LLP constitutes a "transfer". If the conditions of s. 47(xiiib) are not satisfied, the transaction is chargeable to 'capital gains‘ u/s 45 (Texspin Engg 263 ITR 345 (Bom) distinguished). If the assets and liabilities of the company are vested in the LLP at 'book values‘ (cost), there is in fact no capital gain. The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with s. 47(xiiib) is not acceptable

We find from a perusal of the ‘memorandum‘ explaining the purpose and intent behind the enactment of sub-section (xiiiib) to Sec. 47, that prior to its insertion, the ‘transfer‘ of assets on conversion of a company into a LLP attracted levy of “capital gains” tax. The legislature in all its wisdom had vide the Finance Act, 2010 made Sec. 47(xiiib) available on the statute, with the purpose that the transfer of assets on conversion of a company into a LLP in accordance with the Limited Liability Partnership Act, 2008, subject to fulfilment of the conditions contemplated therein, shall not be regarded as a ‘transfer‘ for the purposes of Sec. 45 of the Act. In so far, the reliance placed by the ld. A.R on the judgment of the Hon‘ble High Court of Bombay in the case of CIT Vs. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bom) is concerned, the same in our considered view is distinguishable on facts.

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DATE: November 14, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2007-08
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CITATION:
S. 148/ 151: If the AO issues the notice for reopening the assessment before obtaining the sanction of the CIT, the reopening is void ab initio. The fact that the sanction was given just one day after the issue of notice makes no difference

No doubt in the present case, the ld.AO has applied for such approval which was granted on 29.3.2017, but before grant of approval, the ld.AO has already issued notice on 28.3.2014 which is without any jurisdiction. He can issue notice only after getting approval. Thus, the ld.CIT(A) has rightly quashed the assessment because the very foundation for issuance of notice under section 148 is the approval from the competent authority, i.e. Commissioner of Income Tax, and in the absence of such, such notice is void ab initio

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DATE: November 1, 2018 (Date of pronouncement)
DATE: November 30, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 254(1)/ Rule 34(5)(c): An order passed by the Tribunal even one day after the prescribed period of 90 days from the date of hearing causes prejudice to the assessee and is liable to be recalled and the appeal posted for fresh hearing

Since, in the present case, the order has been pronounced one day beyond 90 days prescribed under the Rules, we respectfully following the order of the Hon’ble High Court discussed above, recall the order dated 09.11.2017 without going into the merits of the other grounds raised in the application, for fresh hearing

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DATE: November 14, 2018 (Date of pronouncement)
DATE: November 28, 2018 (Date of publication)
AY: 2011-12
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CITATION:
Bogus expenditure: A statement recorded u/s 133A under fear/ coercion cannot be relied upon by the AO if it is not corroborated by documentary evidence. The assessee is entitled to retract such statement. The AO is bound to give the assessee an opportunity to controvert evidence and cross examine the evidence on which the department places its reliance. A failure in providing the same can result in the order being a nullity (All judgements considered)

Retraction being on affidavit was legal and valid and was not belated. Further retraction was supported by explanation of impounded documents to the Survey team. The impounded document did not contain any information which was not recorded in the books of accounts. Hence, in view of retraction and such retraction based on concrete evidence, no addition can be made on the basis of statement taken during survey without bringing on record some corroborative materials

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DATE: November 26, 2018 (Date of pronouncement)
DATE: November 28, 2018 (Date of publication)
AY: 2014-15
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CITATION:
Bogus Capital gains: Reliance by the AO on statements of third parties without giving the assessee an opportunity of cross-examination is a gross failure of the principles of natural justice and renders the assessment order a nullity

Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected

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DATE: November 16, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: -
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CITATION:
Professional Misconduct of CAs: A Chartered Accountant can be held guilty of professional misconduct even when he is acting as an individual in commercial dealings and is not acting as a CA nor discharging any function in relation to his practice as a Chartered Accountant. Under the CA Act, any action which brings disrepute to the profession or the Institute is misconduct whether or not related to professional work

The Disciplinary Committee has, on facts, found the Chartered Accountant guilty of a practice which was not in the Chartered Accountant’s professional capacity. This, it was entitled to do under Schedule I Part-IV subclause (2) if, in the opinion of the Council, such act brings disrepute to the profession whether or not related to his professional work

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DATE: November 16, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus share premium: If the overwhelming evidence in the form of audited accounts, ROC Form 2 & ROC Form 20B shows the 'nature' of receipt to be share premium, it has to be taken to be so. If the Department wants to contend that what is apparent is not real, the onus is on it to prove that it was the assessee's own money which was routed through a third party. S. 68 does not (before & after the 2012 amendment) envisage the valuation of share premium. Consequently, the AO has no jurisdiction to determine whether the share premium is reasonable or not (Pratik Syntex (P.) Ltd. vs. ITO 94 taxmann.com 12 (Mum) distinguished)

Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further evident from a parallel amendment in section 56(2) of the Act which brings in its ambit so much of the share premium as charged by a company, not being a company in which the public are substantially interested, as it exceeds the fair market value of the shares. If one accepts the Ld CIT-DR’s contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time

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DATE: October 31, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: 2007-08
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CITATION:
Gains on exercise of ESOP: ESOP options provide valuable right to the assessee to exercise and have allotment of shares. They are thus 'capital asset' held by the assessee from the date of grant. If the assessee transfers the option itself, the capital gains will have to be assessed as long-term capital gains if the options have been held for more than three years (All relevant judgements considered and followed/ distinguished)

It is not in dispute that ESOP options provided valuable right to the assessee to exercise and have allotment of shares. They were thus ‘capital asset’ held by the assessee from the date of grant i.e., 28.02.2003 and 02.02.2004 for which a consideration was paid to the assessee under the option Transfer Agreement. The contention that the assessee cannot exercise option in the absence of vesting is not relevant as the options were transferred without any exercise in the case on hand

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