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DATE: September 15, 2020 (Date of pronouncement)
DATE: November 7, 2020 (Date of publication)
AY: 2006-07
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CITATION:
Interpretation of statutes & DTAAs: The substitution of a provision results in repeal of earlier provision and its replacement by new provision. When a new rule in place of an old rule is substituted, the old one is never intended to keep alive and the substitution has the effect of deleting the old rule and making the new rule operative. Though Notification dated 18.07.2005 (which substitutes paragraph 12 of Article 12 of the DTAA to provide for levy of tax on the royalties or fees for technical services at a rate not exceeding 10%) issued u/s 90 came into force with effect from 01.08.2005, it applies to the entire fiscal year

Before proceeding further, we may advert to well settled rules of Interpretation with regard to taxing statutes. The substitution of a provision results in repeal of earlier provision and its replacement by new provision. [See: U.P.SUGAR MILLS ASSN. VS. STATE OF U.P.’, (2002) 2 SCC 645]. The aforesaid principle of law was reiterated by the Supreme Court in WEST UP SUGAR MILS ASSOCIATION V. STATE OF UP (2012) 2 SCC 773 and by this Court in GOVARDHAN M V. STATE OF KARNATAKA (2013) 1 KarLJ 497. When a new rule in place of an old rule is substituted, the old one is never intended to keep alive and the substitution has the effect of deleting the old rule and making the new rule operative.

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DATE: October 14, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 2006-07
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CITATION:
S. 68 Bogus Cash Credits: The Revenue can examine the source of the source. Merely pointing out to a source and the source admitting that it has made the payments is not sufficient to discharge the burden placed on the assessees by s. 68. Otherwise, it would be sufficient for assessees to simply persuade some credit-less person to own up having made such huge payments and thereby evade payment of tax on the specious plea that the Revenue can always recover the tax from such credit-less source. The explanation has to be plausible and backed by reliable evidence. 'Fantastic or unacceptable' explanations are not acceptable (All imp verdicts on s. 68 referred)

If the ITAT were to have considered the aforesaid circumstances, which, according to us, the ITAT was duty-bound to, we are quite sure that the ITAT would not have, nevertheless, found the so-called explanation of the assessees acceptable or in compliance with the provisions of Section 68 of the said Act. Rather we are inclined to believe, that the ITAT too, would have found the so-called explanation of the assessees too fantastic to deserve any acceptance. In Mussadilal Ram Bharose 1987(2) SCC 39, the Hon’ble Supreme Court has cautioned against acceptance of any ‘fantastic’ or ‘unacceptable’ explanations in tax matters

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DATE: September 10, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 1999-2000 to 2002-03
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CITATION:
S. 69/69A HSBC Bank Black Money: The AO has to prove that the money belongs to the assessee. If the assessee files necessary evidences to prove that the unexplained money does not belongs to him, the onus shift to the revenue to prove that the unexplained money in fact belongs to the assessee. Unless the AO proves that unexplained money is belongs to the person, he cannot make any addition in the hands of the assessee. The fact that the assessee is a joint holder of the bank account does not mean that the money belongs to him if the evidence suggests that the money belongs to the other holder

It is the case of the Ld. AO that account with HSBC bank , Geneva is opened by resident Indian and black money earned by such resident Indian has been stashed abroad without paying taxes/disclosing income in India. But, fact remains that in the instant case, the account was opened in 1998, when the assessee himself and Mr. Dipak Galani permanently resided in outside India for 30 years and had no intention to come to India at that time. Further, both of them have no source of income in India, during the course of their residence abroad. Therefore, we are of the view that entire motive as presented by the Ld. AO defines all logic of opening of a secret bank account in Geneva, by NRI to stash unaccounted income taxable in India fails. The ld. AO mechanically disregarding all explanations furnished by the assessee as to the ownership of the account along with the corroborative materials is contrary to the settled position of law, because, once assessee has provided a reasonable explanation about ownership, then the onus was on the Ld. AO to establish that account belongs to the assessee.

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DATE: February 3, 2020 (Date of pronouncement)
DATE: September 21, 2020 (Date of publication)
AY: 2007-08, 2008-09
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CITATION:
Transfer Pricing: (i) The OECD guidelines recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them. The examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. The guidelines discourage restructuring of legitimate business transactions (ii) The finding by the Tribunal regarding the adoption of TNMM as the Most Appropriate Method of arriving at ALP cannot be termed as perverse or contrary to the evidence on record. Difference of opinion as to the appropriateness of one or the other method cannot be gone into in a s. 260A appeal

The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage restructuring of legitimate business transactions. The reason for characterisation of such restructuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured.

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DATE: September 15, 2020 (Date of pronouncement)
DATE: September 19, 2020 (Date of publication)
AY: 2015-16 to 2017-18
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S. 68 r.w.s. 115BBE: It is evident from entries found in cash book and from statement recorded from assessee in course of survey that assessee purchased gold in period of demonetization which was obviously for sale to persons on receiving cash from them as the same is normal practice of gold trade. The gold purchased in period of demonetization was towards agreed sale to persons on receiving amount therefor from those persons. Thus the source of payment for purchase of gold is out of amount received from its sales and so it is to be treated as properly explained. It is only profit on sale of said purchased gold which is income of assessee which was undisclosed income of assessee and the same could only be subjected to tax. It is settled law that in case of unaccounted sales only profit therefrom could only be taxed as income of assessee

The payment for purchase gold is not made by assessee from his own but the same is either settled by direct payment to seller by buyer and/or payment made from advance from customer or credit from sales as per normal trade practice. The assessee admitted such profit at Rs. 45,00,000/- and disclosed that income in PMGKY, 2016 and paid due tax thereon. The assessee has not noted name(s) of person(s) whom gold was sold by him. In unrecorded transactions neither the purchaser informs his name neither assessee require it as the dealing ins cash based and even if name and address is given the person will not be found there or will deny it. Thus when the entries clearly reveals that transactions are of unrecorded purchase and sale of gold which A.O. also admits in assessment order than simply that name & address of purchasers are not provided the entire amount of sale cannot in law betreated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax

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DATE: September 11, 2020 (Date of pronouncement)
DATE: September 12, 2020 (Date of publication)
AY: 1976-77
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CITATION:
(i) To decide whether a particular source is business income, one has to look to the notions of what is the business activity. The activity must have a set purpose. The fact that the assessee does not carry on business activity for profit motive is not material as profit making is not an essential ingredient (ii) The Act requires determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off. Every application of income towards business objective of the assessee is a business expenditure and nothing else (iii) Mediation inter se the Government authorities or Government departments is an efficacious remedy. A Committee of legal experts presided by a retired Judge can give its imprimatur to the settlement (iv) A vibrant system of Advance Ruling can go a long way in reducing taxation litigation. This is true even of disputes between the taxation department and private persons, who are more than willing to comply with the law of the land but find some ambiguity.

In the case of a business, the profits must be arrived at on ordinary commercial principles. The scheme of the IT Act requires the determination of ‘real income’ on the basis of ordinary commercial principles of accountancy. To determine the ‘real income’, permissible expenses are required to be set off. There is, thus, a clear distinction between deductions made for ascertaining real profits and thereafter distributions made out of profits.The distribution would be application of income. There is also a distinction between real profits ascertained on commercial principles and profits fixed by a statute for a specific purpose. Income tax is a tax on real income.

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DATE: August 25, 2020 (Date of pronouncement)
DATE: August 26, 2020 (Date of publication)
AY: 1971-1972
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S. 45 Capital Gains: In matters relating to compulsory acquisition of land under the Act of 1894, completion of transfer with vesting of land in the Government essentially correlates with taking over of possession of the land under acquisition by the Government. However, where possession is taken over before arriving of the relevant stage for such taking over, capital gains shall be deemed to have accrued upon arrival of the relevant stage and not before. To be more specific, in such cases, capital gains shall be deemed to have accrued: (a) upon making of the award, in the case of ordinary acquisition referable to Section 16; and (b) after expiration of fifteen days from the publication of the notice mentioned in Section 9 (1), in the case of urgency acquisition under Section 17 (All imp judgements referred)

For chargeability of income-tax, the income ought to have either arrived or accrued. In the matter of acquisition of land under the Act of 1894, taking over of possession before arrival of relevant stage for such taking over may give rise to a potential right in the owner of the property to make a claim for compensation but, looking to the scheme of enactment, it cannot be said that transfer resulting in capital gains is complete with taking over of possession, even if such taking over had happened earlier than the point of time of vesting contemplated in the relevant provisions.

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DATE: August 11, 2020 (Date of pronouncement)
DATE: August 14, 2020 (Date of publication)
AY: 2014-15
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S. 10(38)/68: Bogus Capital Gains from Penny Stocks: The AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee's position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue

As against the assessee’s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected

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DATE: August 11, 2020 (Date of pronouncement)
DATE: August 12, 2020 (Date of publication)
AY: -
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CITATION:
(i) S. 6 of the Hindu Succession Act, 1956 confers status of coparcener on daughters born before or after amendment in the same manner as son with the same rights and liabilities, (ii) The rights can be claimed by the daughter born earlier with effect from 9.9.2005 with savings as provided in Section 6(1) as to the disposition or alienation, partition or testamentary disposition which had taken place before 20th day of December, 2004, (iii) Since the right in coparcenary is by birth, it is not necessary that father coparcener should be living as on 9.9.2005 (Entire law on family settlements under Hindu Law (HUFs) explained)

The object of preventing, setting up of false or frivolous defence to set at naught the benefit emanating from amended provisions, has to be given full effect. Otherwise, it would become very easy to deprive the daughter of her rights as a coparcener. When such a defence is taken, the Court has to be very extremely careful in accepting the same, and only if very cogent, impeccable, and contemporaneous documentary evidence in shape of public documents in support are available, such a plea may be entertained, not otherwise. We reiterate that the plea of an oral partition or memorandum of partition, unregistered one can be manufactured at any point in time, without any contemporaneous public document needs rejection at all costs. We say so for exceptionally good cases where partition is proved conclusively and we caution the courts that the finding is not to be based on the preponderance of probabilities in view of provisions of gender justice and the rigor of very heavy burden of proof which meet intendment of Explanation to Section 6(5). It has to be remembered that courts cannot defeat the object of the beneficial provisions made by the Amendment Act

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DATE: July 28, 2020 (Date of pronouncement)
DATE: August 10, 2020 (Date of publication)
AY: 2014-15
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S. 56(2)(viib)/ Rule 11UA: The assessee has the choice to choose a prescribed method for ascertaining the market value of the shares transferred. If the assessee has chosen one method of valuation provided under Rule 11UA (i.e. DCF method), the AO has no power or jurisdiction to change that method to another method (All imp judgements referred)

Section 56 allows the assessees to adopt one of the methods of their choice. But, the AO held that the assessee should have adopted only one method for determining the value of the shares. In our opinion, it was beyond the jurisdiction of the AO to insist upon a particular system, especially the Act allows to choose one of the two methods. Until and unless the legislature amends the provision of the Act and prescribes only one method for valuation of the shares, the assessee are free to adopt any one of the methods

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