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DATE: March 1, 2019 (Date of pronouncement)
DATE: March 9, 2019 (Date of publication)
AY: 2015-16
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CITATION:
S. 10(38) Bogus Capital Gains from Penny Stocks: Though the AO did not find any mistake in the documentation furnished by the assessee, there is need for finding of fact on (i) the nature of the shares transactions; (ii) make-believe nature of paper work; (iii) Camouflage the bogus nature; and, (iv) the relevance of human probabilities etc (NDR Promoters 410 ITR 379 (Del) referred)

In the present case, it is beyond preponderance of probability that the fantastic sale price of a little known share i.e. Mishka Finance & Trading Ltd. without economic or financial basis, would increase from Rs.0.37/- to Rs.45/- per share. If one considers the fact that the assessee got 24,000/- shares against original 300 shares, the price increase is 120 times within 24 months which is evident from the fact that by investing Rs.9000/-, the assessee has got Rs.10,19,050/- (in respect of 22,500/- shares only) in a span of 24 months. There is no doubt that the capital gain was manipulated and bogus and was done only to claim exemption U/s 10(38). Once the entire transaction is viewed from the perspective of human probabilities, it definitely fails on all counts

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DATE: March 1, 2019 (Date of pronouncement)
DATE: March 7, 2019 (Date of publication)
AY: 2009-10
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CITATION:
S. 226 illegal Recovery - Strictures against DCIT: High Court was not justified in its remarks against the DCIT and in issuing directions that (i) ‘deadwood’ should be weeded out (ii) personal costs of Rs. 1.5 lakh should be imposed (iii) adverse entry should be made in the Annual Confidential Report (iv) Denial of promotion etc. The directions were wholly unnecessary to the lis before the Court & are expunged

We find merit in the submission which has been urged on behalf of the petitioner that the High Court was not justified in its remarks against the petitioner and in issuing the directions which it has issued. The High Court, in the course of its judgment has issued a slew of directions including: (i) The necessity of weeding out ‘deadwood’; (ii) imposition of costs of Rs. 1.5 lakhs which are to be apportioned among two officers, out of them being the petitioner; (iii) Making an adverse entry in the Annual Confidential Reports of the petitioner; and (iv) Denial of promotion including monetary benefits to the petitioner. Apart from the fact that these directions were issued without specific notice to the petitioner, we find that they were wholly unnecessary having regard to the lis before the High Court. We accordingly, expunge the adverse remarks made against the petitioner in the impugned judgment and order of the High Court as well as the directions issued against the petitioner

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DATE: March 1, 2019 (Date of pronouncement)
DATE: March 7, 2019 (Date of publication)
AY: 1979-80, 1980-81
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CITATION:
S. 80-HH/ 80-I/ 80-AB: There is a difference between 'income' referred to in s. 80-AB and 'profits & gains' referred in s. 80-HH/80-I. Deduction u/s 80-HH/ 80-I has to be computed on the ‘profits and gains’, without deducting therefrom ‘depreciation’ and ‘investment allowance’ & not from ‘income’ as computed under the Act. S. 80AB is prospective. Motilal Pesticides 243 ITR 26 (SC) reversed

Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act. It is correctly pointed out by Division Bench in the reference order that in Motilal Pesticides case, the Court followed the judgment rendered in the M/s. Cloth Traders (P) Ltd. which was a case under Section 80M of the Act, on the premise that language of Section 80HH and Section 80M is the same. This basis is clearly incorrect as the language of two provisions is materially different. We are, therefore, of the considered opinion that judgment of Motilal Pesticides is erroneous. We, therefore, overrule this judgment.

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DATE: March 5, 2019 (Date of pronouncement)
DATE: March 6, 2019 (Date of publication)
AY: 2009-10
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CITATION:
S. 68 Bogus share capital/ premium: The practice of conversion of un-accounted money through cloak of Share Capital/Premium must be subjected to careful scrutiny especially in private placement of shares. Filing primary evidence is not sufficient. The onus to establish credit worthiness of the investor companies is on the assessee. The Assessee is under legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee

The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.

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DATE: February 8, 2019 (Date of pronouncement)
DATE: March 1, 2019 (Date of publication)
AY: 2011-12
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CITATION:
S. 147 reopening for bogus share application money: Merely because AO examined the transactions does not preclude him from subsequent inquiry if additional material prime facie shows that disclosures made by assessee were not true. Requirement of true and full disclosure runs through the entire assessment and does not end on filing of return. Reasons have to read as a whole. Mere non recitation of allegation reg failure of full & true disclosure does not invalidate the reasons or the fact that the reasons are based on allegations of lack of true and full particulars

Merely because the Assessing Officer had examined the transactions during the original assessment proceedings, would not preclude him from subsequent inquiry it is shown on the strength of additional material establishing prime facie that the disclosures made by the assessee were not true. If the entire claim is bogus and so established to be, the assessee would fail the test of true and full disclosure. Requirement of true and full disclosure runs through the entire assessment and it does not end on filing of return

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DATE: December 14, 2018 (Date of pronouncement)
DATE: February 27, 2019 (Date of publication)
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CITATION:
S. 276C Prosecution: Prosecution should not be launched hurriedly by the Dept during the pendency of case before the ITAT. The law of limitation u/s 468 Cr.P.C. for criminal prosecution has been excluded by the Economic Offences (Inapplicability of Limitation) Act, 1974 & so there is no need for hasty action. Meaning of "wilful attempt to evade tax" explained (All imp judgements referred).

The very edifice on which the prosecution was launched against the accused, has crumbled like a pack of cards. There was no necessity for the Income Tax Department to have launched the prosecution hurriedly since the law of limitation under Section 468 Cr.P.C. for criminal prosecution has been excluded by the Economic Offences (Inapplicability of Limitation) Act, 1974. In fact, even in the complaint, the Income Tax Officer has stated that the accused has approached the Income Tax Appellate Tribunal. This shows that the Income Tax Officer was aware of the fact that the accused is agitating his case before the Income Tax Appellate Tribunal, which is the final fact-finding body

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DATE: February 22, 2019 (Date of pronouncement)
DATE: February 27, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 28(iv)/ 56(2)(viia)/ 47(vii): S. 56(2)(viia) is an anti-abuse provision which applies only to cases of bogus capital building and money laundering. It does not apply to an amalgamation where shares are allotted at alleged undervaluation. Increase in general reserves due to recording of assets of amalgamating company at FMV not give rise to any real income to the assessee. It is capital in nature. Amendment to s. 47(vii) by FA 2012 is clarificatory & retrospective

The question, therefore, before us is, Whether the provisions of section 47(vii) as amended by Finance Act 2012 is retrospective in nature ? It is a fact that existing provision of section 47(vii) was not possible to comply with when amalgamating company is the 100% subsidiary of the amalgamated company. This is, in fact, was a defect in Section 47(vii) prior to the amendment. The amendment was made to cure this defect. Therefore, the decisions relied upon by the Learned Counsel for the Assessee above squarely apply to this case as the provisions of section 47(vii) prior to the amendment if read clause-(a) thereof, was unworkable and could not have applied in case, where amalgamating company is the owner of 100% shares of the amalgamating company

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DATE: February 22, 2019 (Date of pronouncement)
DATE: February 26, 2019 (Date of publication)
AY: 1988-89
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CITATION:
Explanation to s. 37(1): Law on concept of "expenditure incurred for any purpose which is an offence or which is prohibited by law" explained in the context of customs redemption fine. Ratio laid down in Hazi Aziz 41 ITR 350 (SC) continues to hold the field even post decisions in the case of Prakah Cotton Mills 201 ITR 684 (SC) and Ahmedabad Cotton Mfg Co 205 ITR 163 (SC). In neither of these two decisions, the ratio laid down in Hazi Aziz, which was a decision of Bench of three Judges, has been diluted (Pannalal Narottamdas 67 ITR 667 (Bom) distinguished)

The Tribunal without adverting to the relevant facts and materials on record granted benefit to the assessee on the lines followed by this Court in the case of Pannalal (supra). The Tribunal without discussing the relevant materials compared the case of the assessee with the facts arising in the judgment of the Supreme Court in the case of Ahmedabad Cotton Mfg Co Ltd (supra) in which it was recorded that the fault or defect in the REP licence was not attributable to the assessee and therefore, the assessee was not to be blamed for indulging in any offence or having incurred any expenditure for the purpose which was prohibited by the law.

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DATE: June 19, 2018 (Date of pronouncement)
DATE: February 23, 2019 (Date of publication)
AY: 2009-10
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CITATION:
S. 68 Bogus transactions: The AO cannot treat losses from off market commodity transactions as bogus and inadmissible in the eyes of the law if the transactions through the broker are duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. To hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. The fact that the broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus

To hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus

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DATE: January 30, 2019 (Date of pronouncement)
DATE: February 23, 2019 (Date of publication)
AY: 2006-07, 2007-08
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CITATION:
S. 147 Reopening of s. 143(1) Intimation for Bogus share capital: The AO cannot reopen without establishing prima facie that assessee's own money has been routed back in form of share capital. While he can rely on the report of the Investigation Wing, he has to carry out further examination and analysis in order to establish the nexus between the material and formation of belief that income has escaped assessment. In absence thereof, the assumption of jurisdiction u/s 147 has no legal basis and resultant reassessment proceedings deserve to be set-aside

Based on perusal of the report of the DIT, Investigation Wing, New Delhi, the Assessing officer has formed not merely a prima facie belief but has reached a conclusion that the assessee has routed back his undisclosed income in the form of share capital. For reaching such a decisive finding that it is assessee’s undisclosed income which has reached the investor company and thereafter, the latter has invested the amount so received in the assessee’s company by way of share capital, there is nothing which has been stated in the reasons so recorded. As we have noted above, the satisfaction of the Assessing officer should be discernable from the reasons so recorded only and nothing can be added or supplemented to the reasons.

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