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DATE: November 30, 2016 (Date of pronouncement)
DATE: January 4, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 143(2)/ 143(3): Proper service of the notice u/s 143(2) is mandatory and its failure renders the assessment order void. The fact that an unauthorized person appeared on behalf of the assessee before the AO does not mean that the notice was properly served

The contention of the AR was that Shri M.Sankar is not a concerned person representing the assessee to receive such notice and the notice was served on improper person. We also find from the assessment order that Shri Sanjib Sarkar being one of the partners appeared on 10-12- 2010 before the AO for first time and the order sheet at page no-1 of paper book supports the same. We further find that the AO recorded the issuance of notice u/s. 142(1) on 19-7-2010 for fixing the hearing on 02-08-2010 and thereafter, according to assessment order, probably, after 26-08-2010 another notice for initiation of penalty proceedings u/s. 271(1)(b)of the Act was issued. Therefore, it goes to show that a person claiming to be representing the assessee as partner appeared before the AO for the first time on 10-12-2010 in response to notice issued u/s. 271(1)(b) of the Act and it concluded that the service of notice u/sec 143(2) on 30-09-09 and issuance of notice thereafter u/sec 142(1) of the Act was not in the knowledge of the assessee and as rightly contended by the AR notice u/sec 143(2) of the Act was not properly served on the assessee

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DATE: December 21, 2016 (Date of pronouncement)
DATE: December 30, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 271(1)(c): The law in Dilip Shroff 291 ITR 519 (SC) & Kaushalya 216 ITR 660 (Bom) requires a show-cause notice u/s 274 to be issued after due application of mind. The non-specification in the notice as to whether penalty is proposed for concealment or for furnishing of inaccurate particulars reflects non-application of mind and renders it void. The fact that the assessee participated in the penalty proceedings does not save it u/s 292B/292BB

A combined reading of the decision rendered by Hon’ble Bombay High Court in the case of Smt. B Kaushalya and Others (216 ITR 660) and the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon’ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon’ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued

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DATE: October 31, 2016 (Date of pronouncement)
DATE: December 30, 2016 (Date of publication)
AY: 2008-09
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CITATION:
S. 14A/ Rule 8D disallowance applies also to dividends received from strategic investments in subsidiaries. S. 40A(2) disallowance is not applicable to co-operative societies. As per Circular No. 14 (XL-35) of 1955 dated 11.4.1955, the AO is obliged to assist the assessee and allow deduction even if not claimed

We are also of the considered view, that strategic investment made by the assessee in its subsidiary Saraswat Infotech Limited as well in the other securities which are capable of yielding exempt income i.e. by way of dividend etc. which are exempt from tax shall be included while computing disallowance u/s 14A of the Act as per the scheme of the Act as contained in provisions of Section 14A of the Act as the statute does not grant any exemption to the strategic investments which are capable of yielding exempt income to be excluded while computing disallowance u/s 14A of the Act and hence the investment made by the assessee in subsidiary company M/s Saraswat Infotech Limited and all other securities which are capable of yielding exempt income by way of dividend etc shall be included for the purposes of disallowance of expenditure incurred in relation to the earning of exempt income , as stipulated u/s 14A of the Act. Our decision is fortified by the recent decision of Hon’ble Karnataka High Court in the case of United Breweries Limited v. DCIT in ITA No. 419/2009 vide orders dated 31-05-2016 and also decision of the tribunal in the case of ACIT v. Uma Polymers Limited in ITA no 5366/Mum/2012 and CO No. 234/Mum/2013 vide orders dated 30-09-2015

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DATE: December 28, 2016 (Date of pronouncement)
DATE: December 29, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 73 Explanation (speculation loss): If the assessee manages his transactions of sale and purchase of shares in cash segment and in future segment as a composite business, the transactions cannot be segregated to arrive at profit or loss in each segment separately. The provisions of the Income-tax Act cannot be interpreted to the disadvantage of the assessee and to segregate the transactions in cash and future segment which will be against the spirit of the taxation law

The peculiarity of the business of the assessee is such that the transactions carried out by the assessee in cash segment and in future segment cannot be segregated. The business of the assessee survives on the ultimate resultant figure arrived at after setting off/adjusting of the profit and loss from each segment. It cannot be said that the transactions in each segment done by the assessee are independent of each other. Before parting we would like to further add that certain exceptions have been carved out under section 43(5) vide which certain transactions in derivative named as ‘eligible transactions,’ done on a recognized stock exchange, subject to fulfillment of certain requirements, are deemed to be non-speculative. The said provisions have been inserted in the Act for the benefit of the assessees keeping in view the fact that in such type transactions on recognized stock exchange, the chance of manipulating and thereby adjusting the business profits towards speculative losses by the assessee is negligible because such transactions are done on recognized stock exchange and there are less chances of manipulation of figures of profits and losses. These provisions have been inserted for the benefit of the assessee so that the assessee may be able to set off and adjust his profit and losses from derivatives in commodities against the normal business losses. These provisions are intended to ease out the assessee from the difficulties faced due to the stringent provisions separating the speculative transactions from the normal transactions

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DATE: December 14, 2016 (Date of pronouncement)
DATE: December 29, 2016 (Date of publication)
AY: 2010-11
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CITATION:
S. 69C Bogus Purchases: Though S. 133(6) notices were returned unserved and the assessee could not produce the alleged bogus hawala suppliers, the entire purchases cannot be added as undisclosed income. The addition has to be restricted by estimating Gross Profit ratio on the purchases from the alleged accommodation entry providers

The A.O. has doubted the purchases from these four alleged accommodation entry providers being hawala dealers as concluded by Sales Tax Department of Government of Maharashtra to be bogus purchases, that these four parties only provided accommodation bills and the goods were never supplied by these parties and the assessee allegedly made purchases from some other parties for which payments were made through undisclosed income. Thus, the A.O. observed that the assessee has purchased the material from someone else while bogus bills were organized by these hawala dealers, hence, section 69C of the Act was invoked by the AO and additions were made by the AO

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DATE: December 2, 2016 (Date of pronouncement)
DATE: December 23, 2016 (Date of publication)
AY: 2005-06
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CITATION:
Penny Stocks: The fact that the stock is thinly traded and there is unusually high gain is not sufficient to treat the long-term capital gains as bogus when all the paper work is in order. The revenue has to bring material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money

When purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through demat accounts maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money

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DATE: December 9, 2016 (Date of pronouncement)
DATE: December 23, 2016 (Date of publication)
AY: 2010-11
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CITATION:
S. 2(47)/ 54EC/54F: U/s 108 of the Companies Act read with CBDT Circular No. 704 dated 28.04.1995, a mere agreement for transfer of shares does not cause effective transfer of shares unless it is accompanied with delivery of share certificate and duly signed and stamped share transfer form. An agreement to transfer share merely gives an enforceable right to the parties

The word transfer of shares is an act of the parties, i.e. transferor and transferee by which title to share is transferred from one person to another for a consideration or otherwise. Share transfer is governed by section 108 of the Companies Act, 1956. As per section 108 of the Companies Act, 1956 registration of transfer of shares is possible only if a proper transfer deed in form no. 7B duly stamped and signed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any of the transferee and has been delivered to the company along with share certificates and endorsed by the Company by changing such details in the share holder register maintained under the Companies Act. In the case of shares of listed companies, effective transfer would take place when title to share is transferred from one person to another through demat account in recognized stock exchange. In the case of shares of unlisted companies, transfer would take place, only when valid share transfer form in form no. 7B is delivered to the company and endorsed by the Company. Therefore, for effective transfer of shares a mere agreement for transfer of shares is not sufficient, unless it is physically transfer shares by delivery of share certificate along with duly signed and stamped share transfer form

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DATE: October 14, 2016 (Date of pronouncement)
DATE: December 12, 2016 (Date of publication)
AY: 2006-07, 2007-08
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CITATION:
S. 147 reopening opens a "Pandora's box" and cannot be done in a casual manner. The reasons cannot be based on mere doubts or with a view to verify basic facts. If the AO takes the view that the income referred to in the reasons has not escaped assessment, he loses jurisdiction to assess other escaped income that comes to his notice during reassessment

The Reasons have been recorded on the basis of mere doubts. There were no bases with the AO to allege that too with the support of any cogent material that impugned income was not included by the assessee in its income offered to tax. Reopening of an assessment is not permitted merely on the basis of some notions or presumptions. Nor it is allowed merely for making verification of some basic facts. There must be existence of some tangible material indicating escapement of income. Then only, an AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of the Act. Because, once an assessment is reopened on valid basis, entire pandara’s box is open before the AO. Therefore the AO may then bring to tax not only income escaped from tax which was mentioned in the Reasons recorded, but also any other escaped income that may come to his notice during the course of reassessment proceedings. Reopening of an assessment attacks and pierces the concept of finality of litigation. Therefore, an invalid reopening done in the casual manner and without following parameters of law may cause undue hardship to the taxpayers

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DATE: May 27, 2016 (Date of pronouncement)
DATE: December 7, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 282: Entire law on pre-requisites for valid service of notice and drawing of a presumption that the notice has been validly served explained

The presumption of valid service of notice can only be made if the Revenue successfully established that the aforementioned four conditions have been categorically and cumulatively fulfilled and complied. At the same time, we may also point out that the said presumption is not permissible which demolished the case of the Revenue based on presumption of valid service of notice at any of the four stages mentioned above

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DATE: November 18, 2016 (Date of pronouncement)
DATE: November 26, 2016 (Date of publication)
AY: -
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CITATION:
Taxability of software license fees as royalty: Non-consideration of the verdict of the Tribunal in Solid Works Corporation (51 SOT 34) and misreading of the Delhi High Court's verdict in Ericsson AB constitutes a mistake apparent from the record u/s 254(2) and the orders have to be recalled

In the instant appeals, the Tribunal admittedly did not consider the decision rendered by co-ordinate bench in the case of Solid Works Corporation (supra), even though it was relied upon by the assessees herein. The assessees have contended that the non-consideration of the decision of co-ordinate bench, when it was specifically relied upon by the assessee would result in a mistake apparent from record and would warrant recall of the order. In support of this contention, the assessees have placed their reliance on the decision rendered by Hon’ble Supreme Court in the case of Honda Siel Power Products Ltd (supra), wherein the Hon’ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record

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