In several judgments of this Court, the parameters for the exercise of jurisdiction u/s 220(6) of the Act have been spelt out. In KEC International Ltd. v. B.R. Balakrishnan 251 ITR 158, the importance of reasoned orders being passed on the stay applications was emphasized. The AOs consistently refuse to follow the law laid down in the judgment of this Court. The AO & the appellate authorities are duty bound to act in accordance with binding precedent and there is no reason or justification to act in the manner in which the applications for stay have been disposed of in this case

The power which is vested in the AO u/s 220(6) and on the CIT (A) to grant a stay of demand is a judicial power. It is necessary for both the AO as well as the appellate authorities constituted under the Income-tax Act to have due regard to the fact that their function is not merely to act as tax gatherers, but equally as quasi judicial authorities, they owe a duty of fairness to the assessee. This seems to be lost sight of in the manner in which the authority has acted in the present case. The parameters for the exercise of the jurisdiction to grant a stay of demand has been set out in several judgments of this Court, including in KEC International vs. B.R.Balakrishnan 251 ITR 158. The assessee’s submissions on merits require consideration. The CIT (A) ought to have devoted a more careful consideration to the issue as to whether a stay of demand was warranted. As out of a total demand of Rs.1.18 crores, Rs.78 lakhs has been adjusted, the balance has to be stayed

The principal object of s. 80-I is to encourage setting up of new industrial undertakings by offering tax incentives. A reasonable and purposive construction should be adopted. There is no logic in the argument of the department that the true test would be as to whether a new industrial undertaking can function independently of the existing industrial undertaking. If this argument is accepted, it will amount to adding a new clause in s. 80-I of the Act. The fact that the new unit is not capable of independently producing the goods without taking the assistance of the existing plant and machinery of the old unit is no ground to reject the claim u/s 80-I. The test laid down in Textile Machinery Corporation 107 ITR 195 (SC), namely that the new unit should have a “separate and distinct identity” is not violated only because the new undertaking is to a certain extent dependent on the existing unit. It all depends on the nature of the technology and the mechanism of production. One cannot ignore the fact that new machinery and new plant have been installed at an investment of Rs.7 crore and the fact that production has gone from 34000 MT to 75000 MT (Associated Cement Company 118 ITR 406 & other judgements distinguished /explained)

S. 40A (3) & Rule 6 DD (j) have been incorporated in the Act to check the incurring of bogus and fictitious expenses to non existing parties. In the present case, there is no dispute on the identity of the payee and genuineness of the transaction. The only question is whether the assessee has been able to establish “exceptional or unavoidable circumstances” why the payment made in cash. The assessee was not doing well in its business and was facing liquidity and financial crunch. The assessee’s explanation that payments were made in cash as preparation of a bank draft or issue of cheque would have resulted in a missed opportunity or failure of a good business deal with third parties is acceptable because there were earlier cases of bounced cheques and when a party is facing liquidity problem, it can get difficult as third parties are reluctant to accept cheques and insist on cash payments. Arranging funds is also a problem and not easy. Also, the cash was obtained from a known party and the AO had not made any addition on that score. Accordingly, disallowance u/s 40A(3) was not justified.

The main reason for reopening the assessment was the insertion of the Explanation to s. 80-IB(10) by the FA (No. 2) Act 2009 w.r.e.f. 1.04.2000 which denies deduction to a contractor in respect of works contract awarded by any person and that at the stage of the original assessment, no opinion regarding the allowability or otherwise of deduction u/s 80IB (10) was given. of the Act. As regards the retrospective amendment, if an Explanation is added to a section for the removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the Explanation. It is not a case of introduction of a new provision of law by retrospective operation. As regards the formation of opinion, the assessee had disclosed all the material relevant for claiming s. 80-IB(10) deduction and there was no suppression of material. The fact that the AO in the s. 143(3) assessment did not give any opinion regarding the allowability or otherwise of deduction u/s 80IB (10) of the Act cannot be a ground for invoking s. 147.

While the AO is both an investigator and an adjudicator, a distinction has to be drawn between a case where the AO has not conducted any enquiry or examined any evidence whatsoever (“lack of inquiry”) from one (i) where there is enquiry but the findings are erroneous; and (ii) where there is failure to make proper or full verification or enquiry (“inadequate inquiry”). The fact that the assessment order does not give any reasons for allowing the claim is not by itself indicative of the fact that the AO has not applied his mind on the issue. All the circumstances have to be seen. A case of lack of enquiry would by itself render the order being erroneous and prejudicial to the interest of the Revenue. In a case where there is inquiry by the AO, even if inadequate, the CIT would not be entitled to revise u/s 263 on the ground that he has a different opinion in the matter. Also, in a case where the AO has formed a wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry before passing the s. 263 order. The CIT is entitled to collect new material to show how the order of the AO is erroneous. The CIT cannot remand the matter to the AO for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the AO implies that the CIT has not decided whether the order is erroneous but has directed the AO to decide the aspect which is not permissible. On facts, as the CIT had doubts about the valuation and sale consideration received, he ought to have examined the said aspect himself and given a finding on the merits on how the consideration was understated (Gee Vee Enterprises 99 ITR 375 (Del), Sunbeam Auto 332 ITR 167 (Del) & Gabriel 203 ITR 108 (Bom) followed).

Whenever there are reasons to believe that the apparent is not real; then the taxing authorities are entitled to look into surrounding circumstances to find out the reality and applying the test of human probabilities. The judgement of the Supreme Court in Vodafone International vs. UOI makes it clear that a colourable device cannot be a part of tax planning. Where a transaction is sham and not genuine, it cannot be considered to be a part of tax planning or legitimate avoidance of tax liability. It was clarified that there is no conflict between McDowell 154 ITR 148 (SC), Azadi Bachao Andolan 263 ITR 706 (SC) & Mathuram Agarwal. On facts, as the purchase and sale of shares was found to be a sham, the loss cannot be allowed (Sumati Dayal 214 ITR 801 (SC) followed)

The CA’s explanation that the assessee had taken away the file and that he suffered a paralytic stroke does not inspire any confidence because the relevant documents and information were supplied to him. The assessee accepted the fact that the s. 80HHC claim was not maintainable during the assessment proceedings. Once it is established that no payment was received against the export, the certificate issued by the CA was false. It is a bogey raised by the CA that he has verified all the documents and only then issued the certificate. On the quantum of punishment, on the one hand, the CA pleads his sickness, has an otherwise unblemished practice of 21 years and the incident is old. On the other hand, the misconduct is of serious nature because submitting a false/bogus certificate to the client to enable him to make false claim of deduction under the Income-tax Act, is of serious offence. That the CA made an attempt to dupe the tax authorities and help the assessee to avoid the tax to that extent such a conduct has to be taken seriously. He accordingly cannot be let off merely by giving him reprimand. Some penalty needs to be imposed so that it acts as deterrent and such professional misconduct are not committed. Weighing the circumstances, the ends of justice would be subserved by removing his name from the Register of Members for a period of six months

S. 54F is a beneficial provision for promoting the construction of residential house & requires to be construed liberally for achieving that purpose. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. The condition precedent for claiming benefit u/s 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does not disentitle the assessee to claim s. 54F relief (Sardarmal Kothari 302 ITR 286 (Mad) followed)

Jurisdiction under Section 263 can be exercised whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the Revenue. Not holding such inquiry as is normal and not applying mind to relevant material would make the assessment ‘erroneous’ warranting exercise of revisional jurisdiction. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being ‘erroneous’. Non application of mind and omission to follow natural justice is in same category. Daga Entrade 327 ITR 467 (Gau) lays down the correct law and is not in conflict with Rajendra Singh 1979 STC 10 (Gau)