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DATE: December 4, 2020 (Date of pronouncement)
DATE: December 18, 2020 (Date of publication)
AY: 2014-15
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CITATION:
(i) A representative office of a foreign enterprise is not a taxable unit. The foreign enterprise is the taxable unit. A return of income filed in the name of the representative office, with the PAN of the enterprise, offering only the income of the representative office & excluding the other Indian income of the enterprise is not proper. However, as the error is inadvertent and without any consequences in terms of loss of revenue, a pragmatic approach must be adopted and the assessee should not be subjected to avoidable inconvenience (ii) As regards the taxability of interest income under the India-Germany DTAA, as the debt claim in question was not "effectively connected" to the alleged PE, the exclusion article 11(5) was not triggered and the taxability under article 7 does not come into play (Entire law discussed in detail)

It is an undisputed fact that the entire related interest income has been brought to tax in the hands of the foreign enterprise, even though on gross basis under article 11. In case any income is brought to tax on account of ALP adjustment, and bearing in mind the fact that such an income will also be relatable to earning the same interest income, it will indeed result in a situation that for revenue of ‘x’ amount earned from India, what will become taxable in India will be an amount more than ‘x’ amount- something which is clearly incongruous. The taxable amount in a tax jurisdiction cannot, under any circumstances, be more than the entire revenue itself in that jurisdiction. In this view of the matter, even an income on account of ALP adjustment for free rendition of services by the Indian representative office to the foreign enterprise itself- even if that be treated as an associated enterprise and a hypothetically independent entity, in the cases of banks where entire interest revenues are taxed on gross basis, is ruled out.

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DATE: December 1, 2020 (Date of pronouncement)
DATE: December 18, 2020 (Date of publication)
AY: 2015-16
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CITATION:
Section 40(a)(i) is a restriction on deductibility of expenses u/s 30 to 38. If the related expenditure is not claimed as a deduction u/s 30 to 38, this disallowance cannot be pressed into service at all. As the assessee is an advertisement agency and advertisements are placed by the assessee on behalf of its clients, there is ordinarily no occasion to claim the costs of advertisements as deduction in computation of its business income. The revenues, in the case of advertisement agencies, consist of only the commission received in respect of the advertisements so placed

Unless a claim for deduction in respect of payments made to Facebook Ireland Limited is made in the computation of business income, there cannot be any occasion for invoking section 40(a)(i) for its disallowance in computation of business income. As we have analyzed earlier also in this order, section 40(a)(i) acts as a restriction on the deductibility of expenses under section 30 to 38, and, as a corollary to this legal position, when the related expenditure is not claimed as deduction under section 30 to 38, this disallowance cannot be pressed into service at all

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DATE: September 10, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 1999-2000 to 2002-03
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CITATION:
S. 69/69A HSBC Bank Black Money: The AO has to prove that the money belongs to the assessee. If the assessee files necessary evidences to prove that the unexplained money does not belongs to him, the onus shift to the revenue to prove that the unexplained money in fact belongs to the assessee. Unless the AO proves that unexplained money is belongs to the person, he cannot make any addition in the hands of the assessee. The fact that the assessee is a joint holder of the bank account does not mean that the money belongs to him if the evidence suggests that the money belongs to the other holder

It is the case of the Ld. AO that account with HSBC bank , Geneva is opened by resident Indian and black money earned by such resident Indian has been stashed abroad without paying taxes/disclosing income in India. But, fact remains that in the instant case, the account was opened in 1998, when the assessee himself and Mr. Dipak Galani permanently resided in outside India for 30 years and had no intention to come to India at that time. Further, both of them have no source of income in India, during the course of their residence abroad. Therefore, we are of the view that entire motive as presented by the Ld. AO defines all logic of opening of a secret bank account in Geneva, by NRI to stash unaccounted income taxable in India fails. The ld. AO mechanically disregarding all explanations furnished by the assessee as to the ownership of the account along with the corroborative materials is contrary to the settled position of law, because, once assessee has provided a reasonable explanation about ownership, then the onus was on the Ld. AO to establish that account belongs to the assessee.

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DATE: September 15, 2020 (Date of pronouncement)
DATE: September 19, 2020 (Date of publication)
AY: 2015-16 to 2017-18
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CITATION:
S. 68 r.w.s. 115BBE: It is evident from entries found in cash book and from statement recorded from assessee in course of survey that assessee purchased gold in period of demonetization which was obviously for sale to persons on receiving cash from them as the same is normal practice of gold trade. The gold purchased in period of demonetization was towards agreed sale to persons on receiving amount therefor from those persons. Thus the source of payment for purchase of gold is out of amount received from its sales and so it is to be treated as properly explained. It is only profit on sale of said purchased gold which is income of assessee which was undisclosed income of assessee and the same could only be subjected to tax. It is settled law that in case of unaccounted sales only profit therefrom could only be taxed as income of assessee

The payment for purchase gold is not made by assessee from his own but the same is either settled by direct payment to seller by buyer and/or payment made from advance from customer or credit from sales as per normal trade practice. The assessee admitted such profit at Rs. 45,00,000/- and disclosed that income in PMGKY, 2016 and paid due tax thereon. The assessee has not noted name(s) of person(s) whom gold was sold by him. In unrecorded transactions neither the purchaser informs his name neither assessee require it as the dealing ins cash based and even if name and address is given the person will not be found there or will deny it. Thus when the entries clearly reveals that transactions are of unrecorded purchase and sale of gold which A.O. also admits in assessment order than simply that name & address of purchasers are not provided the entire amount of sale cannot in law betreated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax

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DATE: August 11, 2020 (Date of pronouncement)
DATE: August 14, 2020 (Date of publication)
AY: 2014-15
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CITATION:
S. 10(38)/68: Bogus Capital Gains from Penny Stocks: The AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee's position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue

As against the assessee’s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected

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DATE: July 28, 2020 (Date of pronouncement)
DATE: August 10, 2020 (Date of publication)
AY: 2014-15
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CITATION:
S. 56(2)(viib)/ Rule 11UA: The assessee has the choice to choose a prescribed method for ascertaining the market value of the shares transferred. If the assessee has chosen one method of valuation provided under Rule 11UA (i.e. DCF method), the AO has no power or jurisdiction to change that method to another method (All imp judgements referred)

Section 56 allows the assessees to adopt one of the methods of their choice. But, the AO held that the assessee should have adopted only one method for determining the value of the shares. In our opinion, it was beyond the jurisdiction of the AO to insist upon a particular system, especially the Act allows to choose one of the two methods. Until and unless the legislature amends the provision of the Act and prescribes only one method for valuation of the shares, the assessee are free to adopt any one of the methods

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DATE: July 22, 2020 (Date of pronouncement)
DATE: July 29, 2020 (Date of publication)
AY: 2012-13
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CITATION:
The disallowance under the Explanation to 37(1) of "freebies" to doctors by relying on CBDT Circular No. 5 dated 01.08.2012 & the IMC (Professional Conduct, Etiquettes & Ethics) Regulation, 2002 is not justified. The code of conduct prescribed by the Medical Council is applicable only to medical practitioners/ doctors registered with the MCI and does not apply to pharmaceutical companies & the healthcare sector in any manner. The CBDT has no power to extend the scope of the MCI regulation to pharmaceutical companies without any enabling provision either under the Income tax Act or the Indian Medical Regulations (Imp judgements referred/ distinguished)

We are of the considered view that the circulars which are issued by the CBDT must confirm to the tax laws and though are meant for the purpose of giving administrative relief or for clarifying the provisions of law, but the same cannot impose a burden on the assessee, leave alone creating a new burden by enlarging the scope of a regulation issued under a different act so as to impose any kind of hardship or liability on the assessee.

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DATE: July 16, 2020 (Date of pronouncement)
DATE: July 17, 2020 (Date of publication)
AY: 2006-07
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CITATION:
S. 68 Black Money: The sum of Rs 196 crore held by HSBC Pvt Bank, Switzerland, in the name of Tharani Family Trust, of which the assessee was a beneficiary, is assessable as the undisclosed income of the assessee. The assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering. HSBC Pvt Bank has also been indicted by several Governments worldwide and how it has even confessed to be being involved in money laundering (All imp judgements on preponderance of human probabilities and ground realities referred)

The assessee before us is closely involved with the transaction and it is inconceivable that the assessee will have no direct knowledge of the owners of the underlying company and settlors of the trust which has her, as she herself puts it, as beneficiary of such a huge amount. This inference is all the more justified when we take into account the fact that the assessee has been non-cooperative and has declined to sign the consent waiver. One of the arguments raised by the assessee that the assessee could not have performed the impossible act of signing consent waiver because she was not owner of the account is too naïve and frivolous to be even taken seriously. If the assessee was indeed not the owner of the account, there was all the more reason to sign the consent waiver form because it would have established that fact when the HSBC Private Bank (Suisse) Geneva was to decline the information on the basis of that consent waiver. A consent waiver signed by the assessee would have been infructuous in that case, and it could not have done any harm to the assessee. Consent waiver form does not prejudice the claim of the assessee that he does not own the account in question; all it does is, as can be seen from the extracts from consent waiver form format reproduced earlier, is that it waiver assessee‟s rights, if any, under the data protection and banking secrecy laws. The plea of the assessee, as noted earlier, is fit, if at all it is fit for anything, only to be rejected.

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DATE: June 29, 2020 (Date of pronouncement)
DATE: July 3, 2020 (Date of publication)
AY: 2011-12
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CITATION:
S. 10(38) Bogus capital gains from penny stocks: The assessee has produced contract notes, demat statements etc & discharged the onus of proving that he bought & sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. He ought to have examined a number of issues (which are enumerated in the order) and shown that the transaction is bogus. The capital gains are genuine and exempt from tax

All these information could have been obtained by the assessing officer by issue of 133 (6) notice to the depository as well as to the stock exchange and the respective broker. However, despite having the basic information available with the assessing officer he has chosen to sit and become a mute spectator. When the assessee has provided the complete information, which would have been available with the assessee in the documentary format, the role of the assessing officer starts as an investigator of the information furnished by the assessee, when he recorded the reason, he formed a prima facie reason to believe that there is an escapement of income. He should have converted his reason into the fact by making an investigation on the information provided by the assessee. For the reasons best known to the assessing officer, he did not do anything on the information provided by the assessee. He merely made the addition holding that assessee has not shown justification for purchase of shares at a very high price.

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DATE: June 24, 2020 (Date of pronouncement)
DATE: June 29, 2020 (Date of publication)
AY: 2013-2014
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CITATION:
S. 2(22)(e) is a deeming provision & should be construed strictly. The section uses the expression "by way of advances or loans" which shows that all payments received from the sister company cannot be treated as deemed dividend but only payments which bear the characteristics of loans and advances. Under the law, all loans and advances are debts, but all debts are not loans and advances. The term 'loans and advances' is not defined & has to be understood in the commercial sense. Advances given for purely temporary financial accommodation for business purposes does not attract the deeming fiction (All imp judgements referred)

After hearing both the parties and perusing the relevant records, it reveals that they are in the form of current and inter banking accounts and contain both types of entries i.e. giving and taking the amount and appear to be a current account and cannot be considered as loans and advances as contemplated u/s 2(22)(e) of the IT Act

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