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DATE: April 27, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2005-06
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S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity

There is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the ‘said shares’ received by the assessee through regular banking channels from stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker. In our considered view, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness of the transaction

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 16, 2016 (Date of publication)
AY: 2010-11
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S. 50C/ 54F: In allowing exemption u/s 54F, the deemed consideration u/s 50C has to be taken into consideration and it cannot be restricted to the consideration mentioned in the sale deed

The ultimate object and purpose of section 50C of the I.T. Act is to see that the undisclosed income of capital gains received by the assessee should be taxed and that the law should not encourage and permit the assessee to peg down the market value at their whims and fancy to avoid tax, but when the capital gain is assessed on notional basis, whatever amount is invested in the new residential house within the prescribed period under section 54 of the I.T. Act, the entire amount invested, should get benefit of deduction irrespective of the fact that the funds from other sources are utilised for new residential house

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DATE: January 12, 2016 (Date of pronouncement)
DATE: February 28, 2016 (Date of publication)
AY: 2009-10
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S. 14A/ Rule 8D: The disallowance of expenditure cannot exceed the amount of tax-free dividend

The income from dividend had been shown at Rs. 1,11,564/- whereas disallowance under Section 14A read with Rule 8D of the Rules worked out by the Assessing Officer came to Rs. 4,09,675/-. Thus, the Assessing Officer disallowed the entire tax exempt income which is not permissible as per settled position of law. The window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. The disallowance under section 14A read with Rule 8D as worked out by the Assessing officer is not in accordance with law and as such working is not sustainable

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 15, 2016 (Date of publication)
AY: 2008-09
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CITATION:
Argument that transfer pricing adjustment cannot be made if the assessee's income is deductible u/s 10A/ 10B is not acceptable. Contrary view in TCS cannot be followed as it is obiter dicta & contrary to law laid down in Aztech Software 107 ITD 141 (SB)

No exception has been carved out by the statute for non-determination of the ALP of an international transaction of an assessee who is eligible for the benefit of deduction section 10A/10B or any other section of Chapter- VIA of the Act. Section 92(1) clearly provides that any income arising from an international transaction is required to be computed having regard to its arm’s length price. There is no provision exempting the computation of total income arising from an international transaction having regard to its ALP, in the case of an assessee entitled to deduction u/s 10A or 10B or any other relevant provision. Section 92C dealing with computation of ALP clearly provides that the ALP in relation to an international transaction shall be determined by one of the methods given in this provision. This section also does not immune an international transaction from the computation of its ALP when income is otherwise eligible for deduction. On the contrary, we find that sub-section (4) of section 92C plainly stipulates that where an ALP is determined, the AO may compute the total income of the assessee having regard to the ALP so determined. This shows that the total income of an assessee entering into an international transaction, is required to be necessarily computed having regard to its ALP without any exception

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DATE: January 11, 2016 (Date of pronouncement)
DATE: January 26, 2016 (Date of publication)
AY: -
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CITATION:
Transfer of shares of an Indian Co by a Mauritius entity to a Singapore entity due to group reorganization is not a scheme for avoidance of tax. The capital gains are exempt under India-Mauritius DTAA. Treaty shopping is permissible. A ROI u/s 139(1) need not be filed if income is exempt from tax

Dow IMEA Group was dismantled in 2010 and that is how the need for realignment of the group arose whereby DAS entity was to be shifted from an entity which falls under Europe region to an entity which would fall in the Asia-Pacific region. This was to be done with a view to achieve better control. Singapore is one of the upcoming countries in Asia-Pacific region in the opinion of the applicant and therefore, the Dow group contemplated to shift the share holding of DAS India from Mauritius to Singapore. All this exercise is also more than 5 years old from the date of the last acquisition of the shares. Thus, it cannot be said that the proposed transfer of shares was amounting to a scheme to avoid payment of taxes in India. It was clearly for the business considerations. We, therefore, reject the contention of the Revenue that this amounting to a scheme to avoid payment of taxes in India. We accept the contention raised by the applicant about its not having a PE in India

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DATE: December 18, 2015 (Date of pronouncement)
DATE: December 26, 2015 (Date of publication)
AY: 2007-08
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S. 10A: Even undisclosed income surrendered by assessee is eligible for s. 10A exemption if dept does not show that the assessee has any other source

The decision of the Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son (2008) 300 ITR 157 is of no help to the assessee because the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered Rs.11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. In view of the above we uphold the addition made by the AO and sustained by the CIT(A), however, the AO is directed to allow the deduction u/s 10A of the Act

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DATE: September 1, 2015 (Date of pronouncement)
DATE: November 26, 2015 (Date of publication)
AY: 2009-10
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S. 14A/ Rule 8D: The AO must give reasons before rejecting the assessee's claim. He must establish nexus between the expenditure & the exempt income. The disallowance cannot exceed the exempt income

The AO has neither recorded his satisfaction nor given reasons as to how the claim of expenditure in relation to tax free income has not been correctly made by the assessee as envisaged under section 14A(2). The AO has mechanically invoked Rule 8D. The AO has not established any nexus between the investments made and the expenditure incurred under the head interest expenditure and administrative expenses, before disregarding the disallowance suo moto made by the assessee. disallowance u/s.14A cannot exceed the amount of exempt income

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DATE: October 14, 2015 (Date of pronouncement)
DATE: October 20, 2015 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A Rule 8D does not apply to shares held as stock-in-trade. AO cannot apply Rule 8D to make a disallowance without showing how the assessee's disallowance is wrong

The AO has not examined the accounts of the assessee and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value

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DATE: September 23, 2015 (Date of pronouncement)
DATE: October 8, 2015 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D: (i) Presumption laid down in HDFC Bank 366 ITR 505 (Bom) and Reliance Utilities 313 ITR 340 (Bom) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom)

In our view, it was incumbent on the parties to have brought its’ decision in the case of Godrej & Boyce to the notice of the Hon’ble Court in HDFC Bank Ltd.. We are conscious that we are deciding an appeal in the case of the same assessee. So, however, we are deciding a purely legal issue, i.e., whether, in view of the statutory presumption cast by section 14A, a non obstante provision, a presumption on facts could obtain, or that the assessee shall have to establish the same with reference to its accounts, in terms of section 14A(2) r/w s. 14A(3), leading to a satisfaction or otherwise of the assessing authority, arrived at objectively, only to find the earlier decision in Godrej & Boyce (supra) as having addressed the said issue. Further, that the facts in Reliance Utilities and Power Ltd., which was even otherwise in respect of allowance of expenditure u/s.36(1)(iii) – a provision which does not mandate any apportionment per se, stood established, with in fact the said decision having been considered in Godrej & Boyce. As such, there being no estoppel against law, we consider ourselves as legally justified in following the said decision by the Hon’ble jurisdictional High Court, address as it does, in our opinion, the issue at hand, and is thus squarely applicable, even as found in Dhanuka & Sons (supra), D. H. Securities (P) Ltd. (supra); and Damani Estates & Finance (P.) Ltd. (supra). These also constitute the binding reasons for not following the decision by the tribunal in Dy. CIT (OSD) vs. Shri Durga Capital Ltd. (in ITA No. 7405/Mum/2011 dated 03.08.2015/copy on record), also relied upon before us, in-as-much as we find no statement of law ascribed to India Advantage Securities Ltd. (supra); the Hon’ble Court therein holding the appeal before it to not raise any substantial question of law. Further, there is, no reference to the binding decision by the Hon’ble jurisdictional High Court in Godrej & Boyce (supra), or by the tribunal in D. H. Securities (P) Ltd. (supra) as well as Damani Estates & Finance (P.) Ltd. (supra), explaining the said decision, as well as its bearing on the decision by the larger bench of the tribunal in Daga Capital Management Pvt. Ltd. (infra), in Shri Dura Capital Ltd

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DATE: September 24, 2015 (Date of pronouncement)
DATE: October 8, 2015 (Date of publication)
AY: 2009-10
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CITATION:
S. 14A/ Rule 8D cannot be automatically invoked. It cannot be invoked if the AO does not record satisfaction as to why the assessee’s voluntary disallowance is not proper

The Court disapproves of the AO invoking Section 14A read with Rule 8D (2) of the Rules without recording his satisfaction. The recording of satisfaction as to why “the voluntary disallowance made by the assessee was unreasonable and unsatisfactory” is a mandatory re-quirement of the law

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