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DATE: January 31, 2018 (Date of pronouncement)
DATE: February 1, 2018 (Date of publication)
AY: 2003-04
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CITATION:
S. 14A/ Rule 8D: Entire law on whether the computation provisions of Rule 8D is retrospective explained in the light of established principles of interpretation of statutes read with verdicts in Vatika Townships 367 ITR 466 (SC), Gold Coin Health 304 ITR 308 (SC) and other verdicts

There is no indication in Rule 8D to the effect that Rule 8D intended to apply retrospectively. Applying the principles of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of subsection (2) and subsection (3) of Section 14A as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Finance Bill, 2006 and the departmental understanding as reflected by Circular dated 28.12.2006, we are of the considered opinion that Rule 8D was intended to operate prospectively.

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DATE: January 18, 2018 (Date of pronouncement)
DATE: January 29, 2018 (Date of publication)
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S. 2(22)(e) Deemed Dividend: The term “shareholder”, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. The moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Prima facie, Ankitech/ Madhur Housing is wrongly decided and should be reconsidered by larger bench

The whole object of the provision is clear from the Explanatory memorandum and the literal language of the newly inserted definition clause which is to get over the two judgments of this Court referred to hereinabove. This is why “shareholder” now, post amendment, has only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It is clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the Section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner is not only mutually contradictory but is plainly incorrect. Also, what is important is the addition, by way of amendment, of such beneficial owner holding not less than 10% of voting power. This is another indicator that the amendment speaks only of a beneficial shareholder who can compel the registered owner to vote in a particular way, as has been held in a catena of decisions starting from Mathalone vs. Bombay Life Assurance Co. Ltd., [1954] SCR 117

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DATE: December 22, 2017 (Date of pronouncement)
DATE: January 29, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 145(2): Law on how revenue should be recognized by a developer of property under the “percentage completion method” in the light of Accounting Standards AS-1, AS-7 & AS-9, the Guidance Note on Accounting for Real Estate Transactions issued by the ICAI and several judgements on the issue explained

As per AS 7, the recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed

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DATE: January 23, 2018 (Date of pronouncement)
DATE: January 27, 2018 (Date of publication)
AY: -
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S. 279(2): Entire law on the compounding of offenses u/s 276C, 277 read with S. 278D explained in the context of whether the CBDT Guidelines on compounding of offenses dated 23.12.2014 prescribing eligibility conditions and the formula for calculating the compounding fee are valid or unreasonable

The petitioner having voluntarily agreed and undertaken to the department to pay the compounding charges and to withdraw his appeal, ought to be directed to be bound down by the same. It is a settlement process voluntarily invoked by the petitioner in order to escape criminal prosecution under the Act. Since an accused may have to suffer severe consequences for non-payment of tax, if he is held to be guilty, it is not open to him to challenge the reasonableness of the same. The petitioner had consciously undertaken to abide by the decision of the Committee constituted for compounding the offences

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DATE: January 18, 2018 (Date of pronouncement)
DATE: January 25, 2018 (Date of publication)
AY: 2008-09
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CITATION:
Bogus capital gains from Penny stocks: The fact that the appreciation in the value of the shares is high does not justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income if (a) the shares are traded on the Stock Exchange, (b) the payments and receipts are routed through the bank, (c) there is no evidence to indicate it is a closely held company and (d) the trading on the Stock Exchange was manipulated in any manner

The assessee purchased shares of a company during the assessment year 2006-2007 at Rs 11/- and sold the same in the assessment year 2008-2009 at Rs 400/- per share. The Assessing Officer added the appreciation to the assessees’ income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees’ income from undisclosed sources. The Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner

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DATE: October 11, 2017 (Date of pronouncement)
DATE: January 25, 2018 (Date of publication)
AY: -
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S. 127(2) Transfer of case: The existence of agreement between two jurisdictional Commissioners is a condition precedent for passing the order of transfer. The agreement cannot be implied because S. 127(2) (2) (a) contemplates a positive state of mind of the two jurisdictional CsIT. Absence of disagreement cannot tantamount to agreement

The existence of such agreement between two jurisdictional Commissioners is a condition precedent for passing the order of transfer. Except for the request which came from the investigation office, Chennai of transferring the case, there is no reference whatsoever to any such agreement. Clause (b) of subsection (2) of section 127 provides for consequences when there is no such agreement. When the jurisdiction to pass an order of transfer under clause (a) of subsection (2) of Section 127 can be exercised only when there is such an agreement, the fact that such an agreement exists ought to have been stated in the the show cause notice as the same is a jurisdictional fact. Apart from the failure to mention the same in the show cause notice, the only stand of the revenue is that there is an agreement by implication

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DATE: January 16, 2018 (Date of pronouncement)
DATE: January 25, 2018 (Date of publication)
AY: 2008-09
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CITATION:
S. 68: If an admission of undisclosed income is made by the assessee after reference to the material found during search and seizure, it cannot be said that the admission is not based on incriminating material. The retraction of such admission of undisclosed income is not permissible especially when the retraction is by the mother and not by the assessee

As evident in the material obtained by the Revenue during search and seizure, it was only with reference to the search and seizure material that Smt. Madhu Chopra gave a specific amount to various heads wherein the undisclosed income had been utilized. The assessee had also separately accepted the same. Hence, it cannot be said that this addition is not based upon any incriminating material found or searched. Furthermore, the so called retraction is by the mother of the assessee and the Assessing Officer is correct in finding that there is no retraction whatsoever by the assessee

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DATE: January 23, 2018 (Date of pronouncement)
DATE: January 24, 2018 (Date of publication)
AY: 2012-13
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CITATION:
Transfer Pricing: Important law explained on whether termination of Option rights under an agreement can be treated as a "deemed international transaction" under section 92B(2) of the Act read with Rule 10B (4) in the light of the judgements in Vodafone's own cases of the Supreme Court (341 ITR 1) and the Bombay High Court (385 ITR 169).

When we interpose the aforesaid statutory definition in Section 92C(1), we find that the expression ‘international transaction’ means “an arrangement, understanding or action in concert etc between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other an arrangement, understanding or action in concert having a bearing on the profits, income, losses or assets of such enterprises ……..”. Therefore, in order to ascertain whether a particular transaction or not is an international transaction or not, the necessary preconditions which are to be satisfied are (a) that it is in the nature “an arrangement, understanding or action in concert etc”; (b) that it is between two or more associated enterprises, either or both of whom are non-residents; and (c) that it has a bearing on the profits, income, losses or assets of such enterprises

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DATE: January 16, 2018 (Date of pronouncement)
DATE: January 24, 2018 (Date of publication)
AY: 2012-13
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CITATION:
S. 271(1)(c) penalty: Though capital gains was not disclosed in the return, if tax on the same is paid after the s. 147 assessment order is passed, there is no loss to the Revenue and it also shows the bona fides of the assessee and penalty cannot be levied. The fact that if the s. 148 notice was not issued, the assessee would have got away with tax evasion does not mean that his action was not bona fide

At the very outset, we observe that as appearing on record, in the return filed by the assessee the tax on sale of immoveable property was not paid or entered into. However, when notice under section 148 of the Act was issued, assessee himself attended the proceedings and thereafter paid the entire tax on the same date when the assessment order was finalized. This element of behaviour on the part of the assessee shows that when he had filed the return, there was some omission on the part of the assessee to include the tax on the sale of property. However, when he received notice under section 148 of the Act, he was very eager to know what mistake has been committed by him and, therefore, he himself attended the hearing before the Assessing Officer and on coming to know about the amount of tax payable, has immediately paid tax on the same date. He has not even challenged the assessment order and has accepted the assessment as passed by the Assessing Officer and paid due tax. Therefore, there is no loss to the Revenue.

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DATE: January 19, 2018 (Date of pronouncement)
DATE: January 23, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 271(1)(c) penalty: If the AO has not recorded any satisfaction in absolute terms whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income, the levy of penalty is invalid. The judgement of the Bombay High Court in Maharaj Garage cannot be read out of context or in a manner to mean that there is no need for mentioning the specific limb of section 271(1)(c) of the Act for which the penalty was intended to be imposed, as such issue never came up for consideration before the High Court

As far as the judgment of the Hon’ble Jurisdictional High Court in Maharaj Garage dated 22nd August 2017 in ITA no. 21 of 2008 relied upon by the learned Departmental Representative, on a careful reading of the said judgment, we are of the view that it will have no application to the facts of the case. As could be seen, the basic issue arising out of the reference application which fell for consideration of the Hon’ble Jurisdictional High Court was, while granting previous approval by Inspecting Assistant Commissioner of Income–tax as per provisions of section 271(1)(c)(iii) of the Act whether the assessee was required to be given an opportunity of being heard. While considering this issue, the Hon’ble Jurisdictional High Court observed that provisions of section 271(1)(c)(iii) does not attract rule of presumption of mens rea as the penalty imposable under the said provision is for the breach of civil obligation. The observations of the Hon’ble Court against issuance of show cause notice appears to be in the context of quantum of penalty proposed to be imposed and not with reference to the doing away with the issuance of show cause notice as contemplated under section 274 of the Act. Therefore, the judgment of the Hon’ble Court cannot be read out of context or in a manner to mean that there is no need for mentioning the specific limb of section 271(1)(c) of the Act for which the penalty was intended to be imposed, as such issue never came up for consideration before the Hon’ble High Court. That being the case, the aforesaid decision cannot be applied for rebutting the proposition that in the absence of recording of satisfaction regarding the exact nature of offence, no penalty under section 271(1)(c) can be imposed

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