When the AO called upon the assessee to produce evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions the assessee simply folded up and surrendered the sum of Rs. 40.74 lakhs by merely stating that it wanted to “buy peace“. In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation 1 to s. 271(1)(c) is attracted because the nature and source of the amount surrendered are facts material to the computation of total income. The absence of any explanation regarding the receipt of the money, which is in the exclusive knowledge of the assessee leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of the Explanation to s. 271(1)(c) and penalty has to be levied

The intent and purport of Circular No. 4 of 2007 dated 15.06.2007 is to demonstrate that a tax payer could have two portfolios, namely, an investment portfolio and a trading portfolio. In other words, the assessee could own shares for the purposes of investment and/or for the purposes of trading. In the former case whenever the shares are sold and gains are made the gains would be capital gains and not profits of any business venture. In the latter case any gains would amount to profits in business. This has been made clear by the CBDT circular in the remaining portion of the circular itself. On facts, the finding of the CIT(A) & Tribunal that the short term capital gains and long term capital gains were out of the investment account and were not related to the trading account does not call for any interference

S. 147 permits an assessment to be reopened if there is “reason to believe“. It makes no distinction between an order u/s 143(3) or an Intimation u/s 143(1). Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis s. 143(1) and s. 143(3). The department’s argument that the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of a s. 143(3) assessment cannot apply to a s. 143(1) Intimation is not acceptable because it would place an assessee whose return is processed u/s 143(1) in a more vulnerable position than an assessee in whose case there is a full-fledged s. scrutiny assessment u/s 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” between a case where a s. 143(3) assessment is made and one where an Intimation u/s 143(1) is made may lead to unintended mischief, be discriminatory & lead to absurd results. In Kelvinator 320 ITR 561 (SC) it was held that the term “reason to believe” means that there is “tangible material” and not merely a “change of opinion” and this principle will apply even to s. 143(1) Intimations. On facts, the AO reached the belief that there was escapement of income “on going through the ROI” filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the AO. There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the issue of the Intimation. It reflects an arbitrary exercise of the power conferred u/s 147 (Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC) distinguished)

There is nothing to suggest that the assessee acted in a manner such as to lead to the conclusion that she had concealed the particulars of her income or had furnished inaccurate particulars of income. As the amount of Rs.30,63,310 was shown by her in the return, it cannot be said that there was any concealment. As the amount was correctly mentioned, there is also nothing inaccurate in the particulars furnished by her. The only error that seems to have been committed was that it was not shown as a capital (sic) receipt. But as soon as this was pointed out, the error was accepted and the amount was surrendered to tax. This is not a fit case for imposition of penalty

Though in previous decisions (Lovely Exports) it was held that the assessee cannot be faulted if the share applicants do not respond to summons and that the Revenue authorities have the wherewithal to compel anyone to attend legal proceedings, this is merely one aspect. An assessee’s duty to establish the source of the funds does not cease by merely furnishing the names, addresses and PAN particulars, or relying on entries in the Registrar of Companies website. The company is usually a private one and the share applicants are known to it since the shares are issued on private placement basis. If the assessee has access to the share applicant’s PAN or bank account statement, the relationship is closer than arm’s length. Its request to such concerns to participate in income tax proceedings, would, from a pragmatic perspective, be quite strong. Also, the concept of “shifting onus” does not mean that once certain facts are provided, the assessee’s duties are over. If on verification, the AO cannot contact the share applicants, or the information becomes unverifiable, the onus shifts back to the assessee. At that stage, if it falters, the consequence may well be an addition u/s 68 (A. Govindarajulu Mudaliar 34 ITR 807 followed)

In Merilyn Shipping & Transports v. ACIT 146 TTJ 1 (Vizag), the Special Bench held by a majority that as s. 40(a)(ia) refers to “amount payable“, only the outstanding amount or the provision for expense as of 31st March (and not the amount already paid during the year) is liable for disallowance if TDS is not deducted. It was held that this interpretation was necessary as the Finance Bill proposed the disallowance to apply to any “amount credited or paid” but this was changed to “amount payable” in the Finance Act. On the department’s appeal to the High Court, the High Court has vide order dated 8.10.2012 directed “interim suspension” of the Special Bench’s verdict

S. 40(a)(ia) can be invoked only when the two conditions, namely, that tax is deductible at source and such tax has not been deducted is satisfied. Where tax is deducted by the assessee under a wrong provisions of TDS and there is a shortfall, s. 40(a)(ia) disallowance cannot be made

S. 158BE prescribes a time limit of two years from the end of the month in which the last of the authorisations for search u/s 132 was executed. Explanation 2 provides that the authorisation shall be deemed to have been executed on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued. The panchnama referred to in Explanation 2 refers to a search u/s 132. S. 132 refers to authorisation to enter and search. Once a search is conducted and premises are the subject-matter of prohibitory or restraint order, no authorisation is required to enter the premises for the purposes of inspection. So, there can be only one authorisation and a panchanama drawn as regards the conduct of the search. Once when the search is concluded and the party leaves the premises, the authorisation for the search is fully implemented upon and execution completed. There afterwards, if the Department desires to enter the premises again for purposes of search, fresh authorisation is required. If the department desires to enter the premises merely for inspection of the seized materials, fresh authorisation is not required. A panchnama drawn up during such inspection will not extend the search. The result is that merely because more than one panchanama is drawn in the given case on one authorisation, it does not mean that the last of the panchanama is the one referred to in Explanation 2 to s. 158BE. The limitation period begins as soon as the search party draws the panchnama of the search and leaves the premises. The postponement of the seizure of the articles and issuance of prohibitory order does not extend limitation. On facts, the search was completed on 13.12.2001 with drawing of the panchanama and the search party leaving the premises. The fact that the panchanama contained the observation that “search continues” did not mean that the search was kept in suspended animation so as to extend the limitation to the date when the last panchanama was drawn [C. Ramaiah Reddy 339 ITR 210 (Kar) & Anil Minda 328 ITR 320 (Del) followed]

The mere fact that a revised return was filed withdrawing a claim or offering additional income before issue of a formal notice by the AO does not necessarily mean that the return is voluntary. The filing of a revised return does not expatiate the contumacious conduct, if any, on the part of the assessee in not having disclosed the true income in the original return. At the same time, it cannot be said that the revised return is of no consequence at all. The original return cannot be considered in isolation without reference to the conduct of the assessee subsequent to the filing of the original return. The question whether a revised return is “voluntary” or not has to be decided in the light of the entire material brought on record and whether the revised return was filed when the assessee is cornered by the evidence or material collected by the revenue authorities or before that stage. On facts, the revised return was filed by the assessee only when it was cornered and the income tax authorities had collected material on the basis of which it could be said that the claim for deduction was false or bogus. The filing of the revised return is thus an act of despair and the assessee can gain nothing from it (Qammar-Ud-Din 129 ITR 703 (Del), Sarvaria 158 ITR 803 (Del), Ramdas Pharmacy 77 ITR 276 (Mad) & S.A.S. Pharmaceuticals 335 ITR 259 (Del) referred)

The non-compete rights cannot be treated as an “intangible asset” u/s 32(1)(ii) because (a) the nature of the rights mentioned in the definition of “intangible asset” spell out an element of exclusivity which enures to the assessee as a sequel to the ownership. But for the ownership of the intellectual property or know-how or license or franchise, it would be unable to assert the right “in rem”, as against the world. In the case of a non-competition agreement, it is a right “in personam” where the advantage is restricted & does not confer an exclusive right to carry-on the primary business activity. (b) Another way of looking at the issue is whether such rights can be treated or transferred. Every species of right spelt-out such as know-how, franchise, license etc. and even those considered by Courts, such as goodwill, can be said to be alienable. Such is not the case with an agreement not to compete which is purely personal (Techno Shares & Stocks 327 ITR 323 (SC), Hindustan Coco Cola Beverages 331 ITR 192 (Del) & B. Ravindran Pillai 332 ITR 531 (Ker) distinguished)