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DATE: May 24, 2018 (Date of pronouncement)
DATE: May 26, 2018 (Date of publication)
AY: 2008-09
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CITATION:
S. 147/ 151: If the AO reopens on the basis of information received from another AO without further inquiry, it means he has proceeded "mechanically" and "without application of mind". If the CIT does not give reasons while according sanction, it implies that he has also not applied his mind. Both render the reopening void (All imp judgements referred)

Section 151 of the Act clearly stipulates that the CIT(a), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT(A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer

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DATE: March 19, 2018 (Date of pronouncement)
DATE: March 24, 2018 (Date of publication)
AY: 2014-15
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Bogus Capital gains from penny stocks: Capital gains from penny stocks cannot be assessed as unexplained cash credit u/s 68 if the assessee has produced documentary evidence to prove the source, identity and genuineness of the transaction and the AO has not found any fault with it. The fact that the investigation dept has alleged that there is a modus operandi of bogus LTCG scheme is not relevant if the same is not substantiated

I further note that the addition in dispute made by the AO and upheld by the Ld. CIT(A) u/s 68 as unexplained credit instead of long term capital gain as claimed by the assessee, however, the source, identity and genuineness of the transaction having been established by documentary evidences and there is no case for making addition u/s 68 of the Act, hence, the same deserve to be deleted. I note that in most of the case laws of the Hon’ble High Courts referred by the Ld. DR the reason on the basis of addition was confirmed was that the assessee had not tendered cogent evidence with regard to share transaction, however, in the present the case assessee has submitted all the documents / evidences, therefore, the case laws relied by the Ld. DR are based on distinguished facts and circumstances

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DATE: September 21, 2017 (Date of pronouncement)
DATE: September 29, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 271(1)(c) penalty: The quantum of returned income (Rs. 34.94 crore) and tax paid (Rs.10.85 crore) vis-a-vis the addition/ disallowance (Rs. 13 lakh) indicates whether there was a mala fide intention to conceal. Deferral of depreciation allowance does not result in concealment of income or furnishing of furnishing of any inaccurate particulars. No penalty can be levied for a sheer accounting error of debiting loss incurred on sale of a fixed asset to the P&L A/c instead of reducing the sale consideration from the WDV of the block

The claim for depreciation only gets deferred to subsequent Years by claiming it for half year. In our view the deferral of depreciation allowance does not result into any concealment of income or furnishing of furnishing of any inaccurate particulars. However, it was a sheer accounting error in debiting loss incurred on sale of a fixed asset to profit and loss account instead of reducing the sale consideration from wdv of the block under block concept of depreciation. There was a sheer accounting error in debiting loss incurred on sale of a fixed asset to profit & loss account instead of reducing the sale consideration from wdv of the block under block concept of depreciation. There was a separate line item indicated loss on fixed asset of RS.1,69,429/- in the Income & Expenditure Account which was omitted to be added back in the computation. The error went un-noticed by the tax auditor as well as the same was overlooked while certifying the Income & Expenditure Account 12 and by the tax consultant while preparing the computation of income. Hence, there was no intention to avoid payment of taxes

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DATE: March 9, 2017 (Date of pronouncement)
DATE: March 10, 2017 (Date of publication)
AY: 2007-08
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CITATION:
S. 9(1)(i): The capital gains arising on transfer by a foreign company of shares in another foreign company holding assets in India is liable to tax in India. The argument that the transfer is a mere re-organisation of assets within the group and that there is no “real income” is not acceptable. The argument that the India-UK DTAA should be given a “static” interpretation and that the retrospective amendment to s. 9 by the Finance Act 2012 should be ignored is also not acceptable. Where the DTAA provides that the income shall be chargeable to tax in accordance with the provision of the domestic law, the said domestic law has to be the amended law

Coming to the decision of the Hon’ble Delhi High Court in case of DIT Vs. New Skies Satellite BV wherein the Hon’ble High court has held that in relation to applicability of Article 3(2) of the relevant DTAAs, that it can apply only to terms not defined in the DTAA. Since the relevant DTAAs in the case before them defined ‘royalty’, Article 3(2) could not be applied. For terms which are defined under the DTAA, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA. Further, the court has held that neither act of parliament supply or alter the boundaries of DTAA or supply redundancy to any part of its. Similarly, according to us, the provisions of DTAA where it simply provides that particular income would be chargeable to tax in accordance with the provisions of domestic laws, such article in DTAA also cannot the limit the boundaries of domestic tax laws. In view of this, we do not find any force in the argument of the assessee and dismiss ground No. 3.12 of the appeal

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DATE: January 17, 2017 (Date of pronouncement)
DATE: January 30, 2017 (Date of publication)
AY: 2002-03, 2003-04
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CITATION:
S. 9(1)(i)/ 9(1)(vi)/ 9(1)(vii)/ 40(a)(i): Law on whether payment by the assessee to non-resident parties for “call transmission services through dedicated bandwidth” is assessable as income accruing in India, royalty or fees for technical services and whether a disallowance can be made for failure to deduct TDS explained

In the instant case also, the undersea cable for providing dedicated bandwidth to the assessee was installed beyond the territory of India and no operations were carried out by the non-resident party M/s Kick Communication in India. It was responsible for restoring connectivity and Managing faults in connectivity etc in respect of data transmitted through undersea cable only. Similarly, the operations carried out by M/s. IGTL Solutions are also in USA and not in India. Since operations by both the non-resident parties are carried out beyond the territory of India, we thus hold that section 9(1)(i) is of the Act is not attracted in case of above two non-resident parties

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DATE: October 4, 2016 (Date of pronouncement)
DATE: October 18, 2016 (Date of publication)
AY: 2010-11
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CITATION:
Article 7: There is a difference between "effectively connected" with the permanent establishment and "legally connected" with it. Only those activities necessary for the functioning of the PE are "effectively connected" with the PE. Article 13: Concept of "make available" technical knowledge etc explained

In the present case certain activities are carried out by the appellant which are not even concerned with the functioning of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not “effectively connected” with the permanent establishment. We are also of the view that the term “effectively connected” should not be understood to mean the opposite of “legally connected” but rather something in the sense of “really connected”. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is “effectively connected” with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant.

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DATE: June 2, 2016 (Date of pronouncement)
DATE: June 28, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 30/ 37(1): Expenditure on repairs of rented premises, even if huge and accumulated, are allowable as revenue expenditure. Fact that CIT(A) admitted additional evidence is no justification for seeking a set aside to the AO if the CIT(A) called for a remand report from the AO: Savarana Spinning mills Limited 293 ITR 201 (SC) distinguished

The contention of the revenue that Hon’ble Supreme Court has held in CIT vs. M/s. Saravana Spinning Mills Pvt. Ltd. 293 ITR 201 pleading that the most of the expenditure are not in the nature of current repair expenditure but accumulated repairs so even though the expenditure is revenue in nature, same is not allowable. We find that the reliance on this decision by the revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building is also not owned by the assessee but is a rented premises. The expenditure would be dealt with by the provision of section 30. On reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current

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DATE: June 3, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2001-02
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CITATION:
S. 147/ 148: The AO is duty bound to provide to the assessee the reasons recorded for reopening the assessment within a reasonable time. Failure to do so renders the reassessment order unsustainable in law

On the request of the Assessee, the AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the assessee could file its objections thereto and the AO was to dispose of the same by passing a speaking order thereon, which the AO has not done. We also note that even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of which the AO has formed an opinion that income assessable to tax has escaped assessment. The furnishing of reasons to the assessee is to enable/facilitate it to present its defence and objections to the initiation of proceedings under section 147/148 of the Act. Therefore, we are of the considered opinion that there was no justifiable reasons for the AO to deprive the assessee of the recorded reasons by him for initiating proceedings under section 147/148 of the Act

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DATE: April 22, 2016 (Date of pronouncement)
DATE: April 25, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 147/ 148, 151: Law on validity of reopening where S. 148 notice is issued in a mechanical manner, based on information received from another AO, and sanction is accorded by the CIT in a mechanical explained

The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi. Keeping in view of the facts and circumstances of the present case and the case law applicable in the case of the assessee, we are of the considered view that the reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Even otherwise, a perusal of the above demonstrates that the Addl. CIT has written “Approved” which establishes that he has not recorded proper satisfaction / approval, before issue of notice u/s. 148 of the I.T. Act. Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income Tax (Investigation), New Delhi

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DATE: March 30, 2016 (Date of pronouncement)
DATE: April 10, 2016 (Date of publication)
AY: -
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CITATION:
S. 147: Reopening in the absence of fresh material and merely on change of opinion is nor permissible

Assessee had made full and true disclosure during the original assessment proceedings. We are also of the view that reopening had been done merely on change of opinion in as much as that in the original assessment made u/s. 143(3) of the I.T. Act. We also find that AO has no fresh material to form his opinion regarding escapement of assessment and he has also not found any tangible material to record the reasons for reopening of the assessment of the assessee. It is a settled law that merely change of opinion is not permissible under the law

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