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DATE: May 13, 2019 (Date of pronouncement)
DATE: August 3, 2019 (Date of publication)
AY: 2010-11
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CITATION:
Suppression of profit/ fictitious loss in stocks/ derivatives by way of Client Code Modification (CCM): CCM within 1% is absolutely normal. By no stretch of imagination can any AO consider a transaction on the Stock Exchange as income of a person other than the one who has either actually received monies in his bank account (in case of profit) and/or paid any monies from his bank account (in case of losses). The AO has to show that the losses were purchased and the party was given cheque or cash payment in view of such favours

The broker, through whom the assessee carried on share transactions, were also not imposed any penalty. No co-relation between the assessee on the one hand and the other parties on the other hand has been brought on record to co-relate that the parties to whom the alleged profits or loss is supposed to have been diverted to reduce the taxable income of the assessee, has been brought on record to show that there was any collusion with each other and were known to each, so that one party diverted its profit or loss to the other parties. Even nothing has been brought on record to suggest that the said losses were purchased and the party were given cheque or cash payment in view of such favour

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DATE: June 18, 2019 (Date of pronouncement)
DATE: June 19, 2019 (Date of publication)
AY: 2010-11
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CITATION:
Bogus F&O Loss: Unusual & sudden spurt in client code modifications undertaken by brokers was with an intention to evade taxes. In large number of client code modifications, there are no similarity between wrong code and correct code and secondly there are repetitive client code modifications. Thus, client code modifications are tainted with collusive action and manipulations & shall go out of the protection granted by the circulars of NSE/SEBI (Rakesh Gupta 405 ITR 213 (P&H) & Ninja Securities followed)

It came to notice of the Revenue that in FY 2009-10 many brokers had misused this facility of client code modifications to artificially create profits/losses which were passed on various clients/ beneficiaries with a view to defraud revenue. These brokers also benefitted by charging commission incomes for arranging these fictitious losses/profits for clients/beneficiaries. This also led to invocation of provisions of Section 131(1A) of the 1961 Act by Revenue against these brokers wherein these brokers admitted to be engaged in manipulations vide client code modifications in trade entered through stock exchanges wherein fictitious losses/profits were created which were passed on clients/beneficiaries to defraud Revenue. These brokers surrendered income by way of brokerage income earned by them on these fictitious profits/losses passed on to various clients/beneficiaries

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DATE: (Date of pronouncement)
DATE: September 26, 2018 (Date of publication)
AY: 2010-11
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CITATION:
Entire law on "real income theory" and distinction between "application of income" vs. "diversion of income by overriding title" explained with reference to case laws. Law on whether if an amount is not treated as "diversion of income", it can be allowed as "business expenditure" u/s 37(1) or as a "trading loss" u/s 29 also explained. Issue of “Base Erosion and Profit Shifting” (BEPS) also raised in the context of "tax avoidance vs. tax evasion" and diversion of income by a MNC

Courts and the Tax Authorities can look into the real purpose of the commercial arrangements and transactions to reach the truth and the transactions having the sole purpose of tax avoidance may be held to be having no effect on the actual tax liability of the tax payer. Book entries and Method of Accounting is not determinative and conclusive for deciding the computation of ‘taxable income’ in the hands of the Assessee though they may be relevant to be considered. “Diversion of income by transfer of overriding title at source” should normally have the support of the statutory requirements or some decretal binding character of Courts of law and even though the private contractual obligations can also bring about such “diversion of income at source” but in this last sphere of private contractual obligations, the Courts and the Income Tax Authorities have to examine such aspects carefully in comparison to the above two other categories of statutory requirements and the Court decrees and then examine the real purport and object of such private arrangements and Contracts

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DATE: January 30, 2017 (Date of pronouncement)
DATE: February 3, 2017 (Date of publication)
AY: 2007-08
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CITATION:
S. 28/29: There is a distiction between "setting up of business" and "commencement of business". All expenditure after "setting up" is deductible business expenditure even if the business has not commenced. A business is "set up" when steps are taken to recruit employees and take premises etc

A similar issue viz. distinction between setting up of business and commencement of business had come up for consideration before this Court in Western India Vegetable Products Ltd. vs. Commissioner of Income Tax 1954 Vol. 26 ITR Page 151. This Court had held that business is said to have been set up when it is established and ready to be commence. However, there may be an interval between a business which is set up and a business which is commenced. However, all expenses incurred during the interregnum between setting up of business and commencement of business would be permissible deductions

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DATE: July 31, 2015 (Date of pronouncement)
DATE: September 9, 2015 (Date of publication)
AY: 2009-10, 2010-11
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CITATION:
S. 29/37(1): Loss on account of forward contract entered into by the assessee to hedge against the loss arising on account of fluctuations in foreign exchange is an allowable deduction. Contrary view in Vinod Kumar Diamonds is not good law

The assessee was exposed to the risk arising in fluctuation out of exchange rate and as a prudent business man it would like to hedge its risk. Accordingly, the assessee had booked the forward contracts and utilised the same during the year or in the succeeding years. The pattern of the assessee reflected that it entered into forward contracts during the normal course of business and utilised the same for business allowing them to run upto the date of contract. The assessee was engaged in the export of diamonds and the forwards contract was entered into in respect of foreign exchange to be received as a result of export and the same was done to avoid the risk of loss due to foreign exchange fluctuations. The claim has to allowed after taking note of the claim of forward contracts and the accounting policies, i.e. AS-11 (revised) and applying the ratio laid down by the Apex Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. 294 ITR 451 (SC)

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DATE: February 18, 2015 (Date of pronouncement)
DATE: March 16, 2015 (Date of publication)
AY: 2008-09
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CITATION:
(i) Mark-to-market loss on interest rate swap contracts is not a notional loss, (ii) Benefit against s. 40(a)(ia) disallowance conferred in Kotak Securities 340 ITR 333 (Bom) has to be extended to cases where ROI was filed pre-delivery of the verdict

The Hon’ble High Court further observed that in these circumstances if both the parties for nearly a decade proceeded on the footing that section 194J is not attracted, then in the assessment year in question, no fault can be found with the assessee in not deducting tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) of the Act. As the Return of income for the year under consideration was filed on 14/08/2009 and this decision of the Hon’ble was pronounced on 21/10/2011. Thus, the assessee had already filed the return of income and the time period for deducting tax at source was also lapsed. Considering these peculiar facts, in our considered opinion no disallowance on this account should be made for the year under consideration

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DATE: February 18, 2015 (Date of pronouncement)
DATE: March 16, 2015 (Date of publication)
AY: 2005-06
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CITATION:
S. 29/37(1): Loss due to fraud & financial irregularities has to be allowed in the year of detection

Loss due to fraud and financial irregularities have to be allowed as a deduction in the year of detection. This is in line with the Board circular No.35D(XLVII- 20)(F.No.10/48/65-IT(A-I) dated 24.11.1965 and the judgement of the Hon’ble Supreme Court in the case of Associated Banking Corporation Of India Limited. vs CIT reported in 56 ITR 1(SC)

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DATE: November 5, 2014 (Date of pronouncement)
DATE: November 10, 2014 (Date of publication)
AY: 2009-10
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CITATION:
Purchases cannot be treated as bogus solely on the ground that suppliers are not traceable if the assessee has paid by a/c payee cheques and produced the income-tax and sales-tax documents and bank statements of the suppliers

(i) A perusal of the orders passed by the tax authorities would show that they have suspected the genuineness of the purchases only for the reason that the above said five parties were not available in the given addresses. It …

Ganpatraj A Sanghavi vs. ACIT (ITAT Mumbai) Read More »