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DATE: May 29, 2019 (Date of pronouncement)
DATE: July 6, 2019 (Date of publication)
AY: 2012-13
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Capital vs. Revenue Receipt: Damages received for breach of development agreement are capital in nature & not chargeable to tax. The only right that accrues to the assessee who complains of breach is right to file a suit for recovery of damages from the defaulting party. A breach of contract does not give rise to any debt. A right to recover damages is not assignable because it is not a chose-in-action. Such a mere 'right to sue' is neither a capital asset u/s 2(14) nor is it capable of being transferred & is therefore not chargeable under u/s 45 of the Act (All imp judgements referred)

Despite the definition of the expression capital asset in the widest possible terms in section 2(14), a right to a capital asset must fall within the expression ‘property of any kind’ and must not fall within the exceptions. Section 6 of the Transfer of Property Act which uses the expression ‘property of any kind’ in the context of transferability makes an exception in the case of mere right to sue. The decisions there under make it abundantly clear that the right to sue for damages is not an actionable claim. It cannot be assigned and its transfer is opposed to public policy. As such it will not be quite correct to say that such a right constituted capital asset which in turn has to be an interest in ‘property of any kind.’

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DATE: September 26, 2018 (Date of pronouncement)
DATE: January 29, 2019 (Date of publication)
AY: 2009-10
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S. 147 Reopening for taxing Bogus share capital: Even in a s. 143(1) intimation, the AO is not entitled to reopen on the ground that the assessee has received "huge share premium" which was not "examined" by the AO. The AO cannot reopen in the absence of tangible material that shows income has escaped assessment

The assessment was processed under section 143(1). The assessment was reopened on 29.03.2014 without four year from the end of relevant Assessment Year. We have noted that the Assessing Officer nowhere mentioned in the reasons recorded that any tangible material either from assessment record or from other source has come in the notice of Assessing Officer for his reason to believe that any income has escape assessment. Therefore, the basic requirement of reopening of the assessee i.e. reason to believe was not fulfilled at the time of recording the reasons of reopening

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DATE: November 16, 2018 (Date of pronouncement)
DATE: December 3, 2018 (Date of publication)
AY: 2011-12
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S. 47(xiiib) r.w.s 47A(4): The conversion of a company into a LLP constitutes a "transfer". If the conditions of s. 47(xiiib) are not satisfied, the transaction is chargeable to 'capital gains‘ u/s 45 (Texspin Engg 263 ITR 345 (Bom) distinguished). If the assets and liabilities of the company are vested in the LLP at 'book values‘ (cost), there is in fact no capital gain. The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with s. 47(xiiib) is not acceptable

We find from a perusal of the ‘memorandum‘ explaining the purpose and intent behind the enactment of sub-section (xiiiib) to Sec. 47, that prior to its insertion, the ‘transfer‘ of assets on conversion of a company into a LLP attracted levy of “capital gains” tax. The legislature in all its wisdom had vide the Finance Act, 2010 made Sec. 47(xiiib) available on the statute, with the purpose that the transfer of assets on conversion of a company into a LLP in accordance with the Limited Liability Partnership Act, 2008, subject to fulfilment of the conditions contemplated therein, shall not be regarded as a ‘transfer‘ for the purposes of Sec. 45 of the Act. In so far, the reliance placed by the ld. A.R on the judgment of the Hon‘ble High Court of Bombay in the case of CIT Vs. Texspin Engg. & Mfg. Works (2003) 263 ITR 345 (Bom) is concerned, the same in our considered view is distinguishable on facts.

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DATE: November 10, 2017 (Date of pronouncement)
DATE: September 19, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 263(1) obligates the CIT to give the assessee an opportunity of being heard before passing of his order. While the CIT is entitled to consider a point which is not stated in the show-cause notice, he cannot pass the revision order unless the assessee is given the opportunity of being heard. Such an order is untenable in the eyes of law (Amitabh Bachchan 384 ITR 200 (SC) followed)

Notably, section 263(1) of the Act obligates the Commissioner to give the assessee an opportunity of being heard before passing of his order. No doubt the Commissioner is not disentitled to consider a point which is not stated in the notice so issued. However, the obligation to given an opportunity to the assessee of being heard on the point on the basis of which he finds it expedient to treat the assessment order erroneous in so far as it is prejudicial to the interests of the Revenue, is definitely cast on the Commissioner, as opined by the Hon’ble Supreme Court in the case of Amitabh Bachchan 384 ITR 200

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DATE: June 20, 2018 (Date of pronouncement)
DATE: August 4, 2018 (Date of publication)
AY: 2010-11
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S. 2(22)(e) Deemed Dividend: The argument of the Dept, based on Gopal and Sons (HUF) vs CIT 77 TM.com 71 (SC), that even though the assessee-recipient of money is neither the registered nor the beneficial shareholder of the payer company, the money should be assessed as "deemed dividend" is not correct (Scope of Gopal and Sons (HUF) vs CIT explained)

So far as the reliance placed by the Revenue on the judgment of the Hon’ble Supreme Court in the case of Gopal and Sons (HUF) (supra) is concerned, the same, in our view, is quite inapplicable to the facts of the present case. Firstly, the assessee before the Hon’ble Supreme Court was a HUF and the issue was as to whether the loans and advances received by the HUF could be treated as ‘deemed dividend’ within the meaning of Sec. 2(22)(e) of the Act. Notably, in the case before the Hon’ble Supreme Court, the payment was made by the company to the HUF and the shares in the company were held by the karta of the HUF. It is in this context that the Hon’ble Supreme Court upheld the addition in the hands of the HUF as factually the HUF was the beneficial shareholder

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DATE: June 13, 2018 (Date of pronouncement)
DATE: July 18, 2018 (Date of publication)
AY: 2008-09
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S. 269SS/ 271D Penalty: It is not enough for the assessee to show that the transaction of taking loan/ deposit by cash is genuine or bona fide. It has also to be shown that there was reasonable cause u/s 273B for the assessee being unable to take the loan/deposit by account payee cheque or account payee bank draft

There is no dispute between the parties that bonafide nature of transactions alone would not be sufficient to escape the clutches of sec. 271D of the Act. As per the decision rendered by Hon’ble Supreme Court in the case of Kum. A.B. Shanthi (supra), it is required to be established that there was some bonafide reasons for the assessee for not taking or accepting loan or deposit by account payee cheque or account payee bank draft, so that the provisions of sec.273B of the Act will come to the help of the assessee. Only in such cases, the AO is precluded from levying penalty u/s 271D of the Act

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DATE: February 23, 2018 (Date of pronouncement)
DATE: April 14, 2018 (Date of publication)
AY: 2006-07
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S. 133A: An admission of estimated income made during survey has no evidentiary value and is not binding on the assessee. The income has to be assessed as per the return of income and books of account. Hiralal Maganlal 97 TTJ Mum 377 distinguished. CBDT Circular No. 286/2/2003 (Inv.) II dated 10.03.2003 referred

The Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. vs State of Kerala & Anr., 91 ITR 18 (SC) recognised the trite law that it was open to the assessee who made the admission to show that it was incorrect. As per the Hon’ble Supreme Court, it was imperative that in such a situation assessee ought to be given a proper opportunity to show the correct state of facts. In fact, in the case before the Hon’ble Supreme Court, assessee was attempting to show that the entries made by it in the account books did not disclose the correct state of facts. The Hon’ble Supreme Court recognised the right of the assessee to do so on the premise that it was open to the assessee who made the admission to show that the same was incorrect. In other words, as per the Hon’ble Supreme Court, the admission made on an anterior date, which was not based on correct state of facts, was not conclusive to hold the issue against the assessee

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DATE: September 1, 2017 (Date of pronouncement)
DATE: October 28, 2017 (Date of publication)
AY: 2005-06, 2006-07
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CITATION:
S. 271(1)(c)/ 292BB: "concealment of particulars of income" and "furnishing of inaccurate particulars of income" referred to in s. 271(1)(c) denote two different connotations. It is imperative for the AO to make the assessee aware in the notice issued u/s 274 r.w.s. 271(1)(c) as to which of the two limbs are being put-up against him. The failure to do so is fatal to the penalty proceedings. The argument that the assessee was made aware of the specific charge during the proceedings is of no avail. S. 292BB does not save the penalty proceedings from being declared void

Notably, Sec. 292BB of the Act has been inserted w.e.f. 01.04.2008 and is understood basically as a rule of evidence. The implication of Sec. 292BB of the Act is that once the assessee appears in any proceedings or has co-operated in any inquiry relating to assessment or reassessment, it shall be deemed that any notice under any provisions of the Act that is required to be served has been duly served upon him in accordance with the provisions of the Act and under these circumstances, assessee would be precluded from objecting that a notice that was required to be served under the Act was either not served upon him or was not served in time or was served in an improper manner. In our considered opinion, the provisions of Sec. 292BB of the Act have no relevance in the context of the impugned examination of the efficacy of the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act. Notably, the issue before us is not about the service of notice but as to whether the contents of the notice issued meets with the requirements of law. Therefore, the said argument of the ld. CIT-DR is also rejected

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DATE: April 26, 2017 (Date of pronouncement)
DATE: May 20, 2017 (Date of publication)
AY: 2011-12
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CITATION:
S. 54/ 54F: There is no requirement that the investment in the new residential house should be situated in India prior to the amendment by the Finance (Nos.2) Act, 2014 w.e.f. 01/04/2015

A similar situation, though in the context of section 54F of the Act, has been considered by the Hon’ble Gujarat High Court in the case of Smt.Leena J. Shah (supra); notably, so far as the impugned issue is concerned, the requirement of sections 54F & 54F of the Act is pari-materia, inter-alia, requiring the assessee to make investment in a new residential house in order to avail the exemption on the capital gains earned. As per the Hon’ble High Court, prior to the amendment the only stipulation was to invest in a new residential property and that there was no scope for importing the requirement of making such investment in a residential property located in India

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DATE: April 28, 2017 (Date of pronouncement)
DATE: May 11, 2017 (Date of publication)
AY: 2008-09
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CITATION:
S. 271(1)(c) penalty proceedings are “quasi-criminal” and ought to comply with the principles of natural justice. The non-striking of the irrelevant portion in the show-cause notice means that the AO is not firm about the charge against the assessee and the assessee is not made aware as to which of the two limbs of s. 271(1)(c) he has to respond. The fact that the assessment order is clear about the charge against the assessee is irrelevant (Samson Perinchery (Bom) followed, Kaushalya 216 ITR 660 (Bom) distinguished)

Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond

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