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DATE: January 20, 2020 (Date of pronouncement)
DATE: January 25, 2020 (Date of publication)
AY: 2013-14
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CITATION:
S. 226(3): Undue haste in recovery of disputed demands by issue of s. 226(3) garnishee notices, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited the disposal of the stay petition. Interim stay granted and garnishee proceedings placed under suspension till the disposal of the stay petition

We have noted that the hearing of stay petition was concluded, as per information available to us, on 17th January 2020, but the order thereon has not been passed as yet since one of the Members constituting coram of the bench has gone on tour to Delhi benches due to unavoidable official exigencies. In the meantime, however, the revenue authorities have already issued garnishee notices, under section 226(3) of the Income Tax Act, 1961, to the bankers of the assessee on 17th January 2020 itself. Such an undue haste in recovery of the disputed demands, in respect of which the hearing of appeal as also the stay petition is already concluded, is indeed inappropriate. The revenue authorities should have at least waited for the disposal of the stay petition.

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DATE: December 6, 2019 (Date of pronouncement)
DATE: December 21, 2019 (Date of publication)
AY: 2008-09
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S. 68/ 69C: In case of bogus purchases where sales are accepted, the addition can be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases. The AO is directed to restrict the addition to the extent of lower GP declared by the assessee in respect of bogus purchases as compared to G.P. on normal purchases

It is clear from the above decisions that in case of bogus purchases where sales are accepted, the addition is required to be made only to the extent of difference between the GP declared by the assessee on normal purchases vis a vis bogus purchases

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DATE: November 15, 2019 (Date of pronouncement)
DATE: November 30, 2019 (Date of publication)
AY: 2018-19
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CITATION:
Static vs. Ambulatory interpretation of DTAAs: Entire law on whether the retrospective amendments to the definition of "royalty" in s. 9(1)(vi) of the Act can have bearing on the interpretation of the same term in the DTAAs explained with reference to the doctrine of "treaty override" and the Vienna Convention (Siemens AG 310 ITR 320 (Bom) explained)

That is a classic case of a subtle unilateral treaty override. While, in India, the expression ‘treaty override’ is often loosely used for the situations where the provisions of tax treaty prevails over any inconsistent provisions of domestic law, this approach seems to be at variance with the international practices wherein connotations of ‘treaty override’ refer to a situation in which domestic legislation of a treaty partner jurisdiction overrules the provisions of a single treaty or all treaties hitherto having had effect in that jurisdiction. That will be the end result of a domestic law amendment of an undefined treaty term, in departure from the current position, and import such amended meaning of that term, under article 3(2), in the treaty situations as well. Such an approach, on the first principles, is unsound inasmuch as it is well settled in law that the treaty partners ought to observe their treaties, including their tax treaties, in good faith. Article 26 of Vienna Convention on Law of Treaties provides that, “Pacta sunt servanda: Every treaty in force is binding on the parties to it and must be performed by them in good faith”. What it implies is that whatever be the provisions of the treaties, these provisions are to be given effect in good faith. Therefore, no matter how desirable or expedient it may be from the perspective of the tax administration, when a tax jurisdiction is allowed to amend the settled position with respect to a treaty provision, by an amendment in the domestic law and admittedly to nullify the judicial rulings, it cannot be treated as performance of treaties in good faith. That is, in effect, a unilateral treaty over-ride which is contrary to the scheme of Article 26 of Vienna Convention on Law of Treaties

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DATE: November 27, 2019 (Date of pronouncement)
DATE: November 30, 2019 (Date of publication)
AY: 2007-08
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CITATION:
Law on taxation under DTAAs of "transparent entities" & "representative assesseess" explained: When an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection (Linklaters LLP 9 ITR (Trib) 217 (Mum) followed)

The principle emerging out of this analysis of legal position is that when an assessee is a representative assessee of a tax transparent entity, it is the status of beneficiaries or constituents of tax transparent entities which is relevant for the purpose of determining treaty protection. Viewed thus, this is beyond doubt that the income in question has actually accrued to the taxable entities on the Netherlands, which, according to the approach adopted by the Assessing Officer, is sine qua non for tax treaty protection. It would thus appear that the treaty protection has indeed been wrongly declined to the assessee

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DATE: October 16, 2019 (Date of pronouncement)
DATE: November 9, 2019 (Date of publication)
AY: 2015-16
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CITATION:
S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01.04.2019) which defines "balance sheet‟ was not applicable to a foreign company. If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1.4.19 is prospective in nature (B. C. Srinivasa Shetty 128 ITR 294 (SC), Palai Central Bank Ltd (1985) 1 SCC 45 followed)

We hold that since the shares of a foreign company were acquired by the assessee company in the instant case, the ld AO ought to have relied on the balance sheet as audited by the auditor appointed under the Indian Companies Act. In the instant case, the ld AO had relied on the balance sheet of KNP Industries Pte Ltd, Singapore, which is prepared in accordance with Singapore Companies Act, which fact is not in dispute before us. Admittedly, the case of the assessee falls squarely on clause (ii) of the definition of “Balance Sheet‟ as defined in Rule 11U of the Rules supra. Hence it is mandatory to draw a balance sheet as on the valuation date i.e. 10.2.2015 /11.2.2015 (being the date of purchase of shares by the assessee company) and that the said balance sheet should have been audited by an auditor appointed under section 224 of the Companies Act, 1956. Hence it could be safely concluded that the ld AO had applied the valuation method on a different date which is not in accordance with law and that since the computation mechanism provided in Rule 11UA of the Rules is not applicable to the facts of the instant case, the provisions of section 56(2)(viia) of the Act also could not be invoked

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DATE: August 16, 2019 (Date of pronouncement)
DATE: October 26, 2019 (Date of publication)
AY: 2003-04, 2004-05
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CITATION:
S. 2(7A)/ 120(4): Though, by virtue of the retrospective amendment to s. 2(7A), the Addl CIT is an "Assessing Officer", he can act as such only if there is a notification issued by the CBDT u/s 120(4)(b) or if there is an order u/s 127 transferring jurisdiction from the DCIT to the Addl CIT. In the absence of either, the assessment order is without jurisdiction and has to be quashed as null and void. The fact that the assessee co-operated is irrelevant because there is no estoppel. The argument of the Dept that as the order is passed by a higher officer, there is no prejudice to the assessee is not acceptable. The matter also cannot be remanded back (All imp judgements referred)

In view of the legal discussion made above and facts of the case, it is clear that impugned assessment order has been passed without authority of law in as much as Revenue has not been able to demonstrate that the Additional Commissioner of Income tax who had passed the assessment order had valid authority to perform and exercise the powers and functions of an Assessing Officer of the assessee and to pass the impugned assessment order. Under these circumstances, we have no other option but to hold the same as nullity and, therefore, the impugned assessment order is quashed having been passed with out authority of law

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DATE: June 11, 2019 (Date of pronouncement)
DATE: October 21, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus Share Capital: As the share applicant companies were controlled by an infamous accommodation entry provider, it was incumbent on the part of the authorities to have carried out an in-depth verification of the genuineness of the transaction of receipt of share application money by the assessee from the said parties. However, the authorities have not done even the bare minimum for verifying the genuineness of the transaction. Such a casual approach cannot be subscribed on our part (NRA Iron & Steel 412 ITR 161 (SC) followed)

As held by the Hon’ble Apex Court in the case of NRA Iron Traders 412 ITR 161 (SC), the A.O is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and also ascertain whether the transaction is genuine or was backed by merely bogus entries of name-lenders. In the totality of the facts of the case before us, we are of the considered view, that neither the assessee had discharged the obligation that was cast upon it to substantiate the identity of the subscribers, their credit-worthiness, and also the genuineness of the transaction of receipt of share application money from the aforesaid six share applicants, as per the mandate of law, nor the lower authorities had in discharge of their statutory obligation carried out the necessary verifications

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DATE: October 1, 2019 (Date of pronouncement)
DATE: October 19, 2019 (Date of publication)
AY: 2012-13
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S. 10(38)/ 68: Bogus LTCG from penny stocks: The fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid cash and in return received exempt LTCG gains (Sanjay Bimalchand Jain 89 TM 196 (Bom) distinguished)

An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the parry alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee’s action giving his involvement in the scam should be established. The allegation implies that cash was paid by the assessee and in return the assessee received LTCG, which is exempt from income tax, by way of cheque through banking channels. This allegation that cash had changed hands has to be proved with evidence, by the revenue.

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DATE: September 5, 2019 (Date of pronouncement)
DATE: October 5, 2019 (Date of publication)
AY: 2010-11
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S. 48 Capital Gains: The payment towards discharge of outstanding loan liability out of the sale proceeds of mortgaged property is a mere application of income and not a diversion of sale proceeds by overriding title. The assessee cannot claim such application as deduction for the purpose of computing Capital Gain in terms of s. 48 of the Act. The legal position prevailing prior to SARFAESI Act is also germane even after the enactment of SARFAESI Act

I thus agree with the view taken by the learned Judicial Member that the consideration from sale of property to the extent of principal component of loan adjusted by the bank cannot be treated as ‘diversion of income by overriding title’ and was thus not deductible from the total consideration accrued to the assessee from sale of property. In my considered opinion, so far as the instant dispute is concerned, the legal position prevailing prior to SARFAESI Act is also germane even after the enactment of SARFAESI Act

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DATE: August 22, 2019 (Date of pronouncement)
DATE: October 5, 2019 (Date of publication)
AY: 2013-14
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CITATION:
S. 56(2)(viib)/ Rule 11UA: The assessee has the option to determine the fair market value of shares either under the DCF method or the NAV method. The assessee's choice is binding on the AO. While the AO can scrutinize the working, he cannot discard the assessee's method and substitute another method (Vodafone M-Pesa Ltd vs. PCIT [2018] 92 taxmann.com 73 (Bom) referred)

While valuing the share premium and to determine the fair market value of shares in terms of section 56(2)(viib) of the Act, the assessee has option for adoption of valuation method and the basis of valuation has to be DCF method. The Hon’ble Bombay High court in Vodafone M-Pesa Ltd vs. PCIT [2018] 92 taxmann.com 73 (Bombay) has held that in view of the Income Tax Rules, the method of valuation namely NAV method or DCF Method to determine the fair market value of share in terms of section 56(2)(viib) of the Act has to be done or adopted at the assessee’s option. AO was undoubtedly entitled to scrutinize the valuation report and can tinker or determine a fresh valuation after confronting the assessee. However, the basis of valuation had to be DCF method and it is not open to the AO to change the method of valuation which the assessee has duly opted

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