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DATE: July 1, 2019 (Date of pronouncement)
DATE: August 31, 2019 (Date of publication)
AY: 2013-14
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S. 10(38): The fact that "long-term capital gains" on listed shares are exempt from tax does not mean that "long-term capital loss" on such shares is not available for set-off against taxable income. While the gains are exempt, there is no bar against claiming set-off of the loss (J.H. Gotla 156 ITR 323 (SC) distinguished, CBDT Circular No.7/2013 dated 16.07.2013 referred, Raptakos Bret 69 SOT 383 (Mum) followed)

If one carefully analyzes various sub-sections of Section 10 then it is evident that each sub-section enlists specific specie of receipt to which exemption from tax is granted if certain conditions are fulfilled. We therefore find that Section 10 enlists various species of receipts which are otherwise revenue in nature but they are granted exemption from income-tax by the Legislature. The Legislature can grant exemption only when there is a positive income and not where there is a ‘loss’ or negative income on which admittedly there cannot be any charge of income-tax.

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DATE: August 9, 2019 (Date of pronouncement)
DATE: August 17, 2019 (Date of publication)
AY: 2014-15
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S. 50C + S. 10(38) Bogus Penny Stocks Capital Gains: (i) Though the 3rd Proviso to s. 50C, which provides a safe harbour of 5%, applies w.e.f. 01.04.2019, it must be interpreted to apply since the insertion of s. 50C (01.04.2003) because it is curative and removes an incongruity and avoids undue hardship to assesseess (ii) LTCG from penny stocks cannot be treated as bogus if the documentation is in order and no fault is found by the AO

The insertion of third proviso (noted above) to Section 50C of the Act is declaratory and curative in nature. That is, the third provisoto Section 50C of the Act relates to computation of value of property as explained by us above, hence it is not a substantive amendment, it is only a procedural amendment therefore the Coordinate Benches of the ITAT used to ignore the variation up to 10%, therefore, the said amendment should be retrospective.Quite clearly therefore, even when the statute does not specifically state so, such amendments, in the light of the detailed discussions above, can only be treated as retrospective and effective from the date related statutory provisions was introduced. Viewed thus, the third proviso to Section50C should be treated as curative in nature and with retrospective effect from 1st April 2003, i.e. the date effective from which Section 50C was introduced.

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DATE: May 1, 2019 (Date of pronouncement)
DATE: May 11, 2019 (Date of publication)
AY: 2008-09 to 2013-14
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Natural Justice: The assessee cannot be kept in the dark. Adverse statements or materials cannot be kept away from his eyes. If the AO intends to use it to draw adverse inference/finding, the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material. Failure to do so is a serious flaw which renders the assessment a nullity (All imp judgements referred)

It has to be kept in mind that the AO is empowered to collect materials behind the back of the assessee, however if he intends to use it adversely against the assessee, then it is incumbent upon him to furnish a copy of the materials/statements to the assessee and the assessee should be provided an opportunity to rebut/cross examine the provider/maker of the adverse material. The assessee cannot be kept in the dark and the adverse statements or materials cannot be kept away from his eyes, and if the AO was intending to use it against the assessee to draw adverse inference/finding, then the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material, which is a natural right of the assessee and we find that it has not been done in this case, resulting in violation of natural justice. We are therefore of the considered view that the general statements recorded from the alleged entry operators by themselves with the legal infirmities pointed out, supra, did not constitute incriminating material for the purposes of Section 153A of the Act

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DATE: April 5, 2019 (Date of pronouncement)
DATE: April 10, 2019 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus Share Capital: The judgement in PCIT vs. NRA Iron & Steel 103 TM.com 48 (SC) is distinguishable on facts & does not apply to a case where the assessee has discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants by producing the PAN details, bank account statements, audited financial statements and Income Tax acknowledgments and the investors have shown the source of source & personally appeared before the AO in response to s. 131 summons

The ld DR placed reliance on the recent decision of the Hon’ble Apex Court in the case of Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 103 taxmann.com 48 (SC) wherein the decision on addition made towards cash credit was rendered in favour of the revenue. We have gone through the said judgement and we find in that case, the ld AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent which is not the case before us. Certain investor companies did not produce their bank statements proving the source for making investments in assessee company, which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon’ble Apex Court, whereas in the instant case, the entire details of source of source were duly furnished by all the respective share subscribing companies before the ld AO in response to summons u/s 131 of the Act by complying with the personal appearance of directors

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DATE: October 15, 2018 (Date of pronouncement)
DATE: October 16, 2018 (Date of publication)
AY: 2010-11
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S. 147/ 92: The information given by DIT (Inv) can only be a basis to ignite/ trigger "reason to suspect". The AO has to carry out further examination to convert the "reason to suspect" into "reason to believe". If the AO acts on borrowed satisfaction and without application of mind, the reopening is void (All judgements considered)

Allegations leveled by DIT (Inv.) can only raise suspicion in the mind of the AO which is not the sufficient/requirement of law for reopening of assessment. The ‘reasons to believe’ is not synonymous to ‘reason to suspect’. ‘Reason to suspect’ based on an information can trigger an enquiry to find out whether there is any substance or material to substantiate that there is merit in the information adduced by the DIT(Inv.) and thereafter the AO has to take an independent decision to re-open or not. And the AO should not act on dictate of any other authority like in this case DIT(Inv.) because then it would be borrowed satisfaction

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DATE: September 7, 2018 (Date of pronouncement)
DATE: September 13, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 2(47)/ 54: Though an unregistered agreement to sell does not entitle the parties to seek part performance u/s. 53A of the Transfer of Property Act, 1882, it can be a basis for a suit for specific performance in view of s. 49 of the Registration Act. Consequently, even an unregistered agreement creates a right in favour of the buyer and constitutes a "transfer" of the old property u/s 2(47) for purposes of determining whether the purchase of the new property is within one year of the date of "transfer" of the old property

Thus, a right in respect of the capital asset (old residential property in question) has been transferred by the assessee in favour of the vendee/transferee on 16.09.2011 and, therefore, since purchase of the new property on 04.10.2010 which fact has been disputed by the AO/Ld. CIT(A) the purchase of the property is well within one year from the date of transfer as per sec. 2(47) of the Act, therefore, we allow the appeal of the assesse

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DATE: June 14, 2018 (Date of pronouncement)
DATE: June 15, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 68 Bogus share premium: Addition cannot be made on the ground that the directors of the share subscribers did not turn up before the AO. The assessee can be required to prove only such facts which are in his knowledge. Creditworthiness of the subscriber cannot be disputed by the AO of the assessee but by the AO of the subscriber. If the assessee has discharged its onus to prove identity, creditworthiness & genuineness of the share applicants, the onus shifts to AO to disprove the documents furnished by assessee. In absence of any investigation, much less gathering of evidence by the AO, an addition cannot be sustained merely based on inferences drawn by circumstance (all judgements considered)

To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO’s record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified

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DATE: January 11, 2017 (Date of pronouncement)
DATE: January 14, 2017 (Date of publication)
AY: 2005-06
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CITATION:
Bogus capital gains from penny stocks: Long-term capital gains claimed exempt u/s 10(38) cannot be treated as bogus unexplained income if the paper work is in order. The fact that the Company whose shares were sold has violated SEBI norms and is not traceable does not mean that the assessee is at fault

The lower authorities have not brought on record any concrete evidence for disallowing the long term capital gain of the assessee. The AO should have issued notices and summons to M/s RFL and ACPL under section 133(6) and 131 of the Act for the production of the necessary financial information before rejecting the claim of the assessee. We find that all the necessary information which were available with the assessee had been brought on record by the assessee before the lower authorities. In case ACPL has not filed the financial statements with the stock exchange then the assessee for the fault of ACPL cannot be held guilty under the income tax proceedings. The assessee in the instant case has made the transactions for the sale and purchase of the shares through a valid stock broker who was in existence at the relevant time with the stock exchange and this fact has not been doubted by the lower authorities. In view of the above we hold that the lower authorities had not brought on record sufficient reasons for disallowing the claim of the assessee

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DATE: January 4, 2017 (Date of pronouncement)
DATE: January 14, 2017 (Date of publication)
AY: 2012-13
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CITATION:
S. 9(1)(vii)/ Article 12: There is a difference between a 'contract of work' and a ‘contract of service’. In a 'contract of work', the activity is predominantly physical while in a 'contract of service', the dominant feature of the activity is intellectual. Fees paid with respect to a ‘contract of work’ does not constitute "fees for technical services" and consequently the assessee is not liable to deduct TDS u/s 195

There is a difference between ‘Contract of work and ‘Contract of service’. The two words convey different ideas. In the ‘Contract of work’ the activity is predominantly physical; it is tangible. In the activity referred as ‘Contract of service’, the dominant feature of the activity is intellectual, or at least, mental. Certainly, ‘Contract of work’ also involves intellectual exercise to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contrast, in the case of rendering any kind of ‘service’, intellectual aspect plays the dominant role. In the case under consideration, the scope of work mentioned in the agreement clearly explains that it is ‘contract of work’ to dismantle the machinery, therefore, it is not a ‘contract of service’ hence payment by the assessee is not for technical services, therefore, the assessee company is not liable to deduct TDS

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DATE: May 2, 2016 (Date of pronouncement)
DATE: May 7, 2016 (Date of publication)
AY: 2006-07, 2007-08, 2008-09
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S. 92(2): Important principles of law laid down with regard to the “Need Test”, “Evidence Test” or “Rendition Test” to evaluate the ALP of intra-group services rendered by an Associated Enterprise and whether the TPO has the right to determine the ALP at ‘Nil’

Rendering of services must be seen from the view point of the assessee and further assessee cannot be asked to keep and maintain evidences of services rendered by AE higher than which is expected from a businessman receiving services from an unrelated provider. Therefore, we reject the view point of Ld. TPO and Ld. DRP that assessee has not shown the receipt of the services. In view of above we are of the view that assessee has justified the receipt of services and satisfied the rendition test

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