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DATE: April 27, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2005-06
FILE: Click here to view full post with file download link
CITATION:
S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity

There is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the ‘said shares’ received by the assessee through regular banking channels from stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker. In our considered view, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness of the transaction

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 26, 2016 (Date of publication)
AY: 2009-10
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CITATION:
S. 263: Even if the AO has conducted an inquiry into the taxability of share capital receipts u/s 68, the CIT is entitled to revise u/s 263 if the AO has not applied his mind to important aspects. Law in Lovely Exports 299 ITR 268, Sophia Finance 205 ITR 98 etc does not apply as they are prior to the Money Laundering Act 2002. Qs whether receipt towards share capital is taxable pre s. 56(2)(viib) & whether proviso to s. 68 is retrospective are left open

Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of Rs.1.36 crores raised nearly a sum of Rs.32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Reference in this regard may be made to the judgement in the case of Sumati Dayal –Vs- CIT (supra) wherein Their Lordships held that any sum “found credited in the books of the assessee for any previous year, the same may be charged to income tax….”. We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that “the use of the words “any sum found credited in the books” in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of CIT –Vs- Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of CIT –Vs- Precision Finance Pvt. Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that “the ITO may even be justified in trying to ascertain the source of depositor”. Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us

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Posted on by itatbar — 2 Comments ↓
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DATE: February 29, 2016 (Date of pronouncement)
DATE: May 21, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Bogus purchase and sale of shares: Law explained as to on whom the onus is to show that the purchase and sale of shares are bogus and the circumstances required to be proved by the AO

The purchase of shares in the immediately preceding year was accepted by the Department in an order u/s 147 r.w.s 143(3) of the Act. The shares were evidenced by entries in the demat statement and consideration was received through banking channel. There was no clinching material to say that the impugned transaction was bogus. Also, the statement recorded during the search on M/s Alliance Intermediaries & Network Pvt. Ltd. does not contain any infirmity qua the impugned transaction. Therefore, the addition as income from undisclosed income was liable to be deleted

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Posted on by Brettlee — No Comments ↓
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DATE: March 30, 2016 (Date of pronouncement)
DATE: April 10, 2016 (Date of publication)
AY: 2007-08
FILE: Click here to view full post with file download link
CITATION:
S. 68: Share application money received from an associate concern cannot be assessed as cash credits if assessee has discharged its initial onus to prove the identity, creditworthiness and genuineness of the transaction

CIT(A) dealt with issue all the objections raised by the AO and after considering the documents placed on record, recorded a categorical finding to the effect that amount payable and receivable by the assessee was squared off which was in accordance with the provisions of Companies Act. Further finding was recorded to the effect that these companies were assessed with I.T. Department for several years. The identity and genuineness of the transaction was duly accepted. The detailed finding recorded by CIT(A) are as per material on record

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Posted on by bhavikshah — No Comments ↓
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DATE: March 15, 2016 (Date of pronouncement)
DATE: March 31, 2016 (Date of publication)
AY: 2007-08
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CITATION:
AO framed the assessment in a hypothetical way putting the assessee to enormous harassment and inconvenience . Similarly, the CIT(A) confirmed the addition without looking into the merits and facts of the cases which are very clear and apparent from the records produced.

We find that the third party transactions were added in the hands of the assessee without without any basis or material and thus, the AO framed the assessment in a hypothetical way putting the assessee to enormous harassment and inconvenience. Similarly, the ld. CIT(A) confirmed the addition without looking into the merits and facts of the cases which are very clear and apparent from the records produced

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Posted on by Brettlee — No Comments ↓
COURT:
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DATE: February 24, 2016 (Date of pronouncement)
DATE: March 30, 2016 (Date of publication)
AY: 2009-10
FILE: Click here to view full post with file download link
CITATION:
Section 68- Cash Credit

In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further

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Posted on by Michael Gonsalves — No Comments ↓
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DATE: March 21, 2016 (Date of pronouncement)
DATE: March 28, 2016 (Date of publication)
AY: 2008-09
FILE: Click here to view full post with file download link
CITATION:
S. 68: Law on when share application moneys and share premium from private companies can be treated as bogus and assessed as cash credits explained

The Assessing Officer had not considered the evidence filed by the assessee during the course of assessment proceedings i.e. affidavits confirming the transaction, PAN number, complete addresses of creditors, copy of balance sheet, ITR for A.Y. 2008-09, bank statement and form No. 18. The assessee had discharged its onus by providing the requisite evidences to prove the identity, genuineness and creditworthiness of the cash creditors. The Assessing Officer herself had accepted the remaining cash creditors to the tune of Rs. 3.95 crores explained on the basis of similar evidences produced by the assessee as genuine. The loan/share capitals were received from the private limited companies. They also are filing return under the company’s law and all information is available on MCA website. The ADIT report was not conclusive to held that the cash creditors were not genuine. It is not required under the law to prove the source of source U/s 68 of the Act. Primary burden lies on the assessee has been discharged by filing the requisite evidences before the Assessing Officer and shifted on the Assessing Officer to disprove the cash creditors’ transactions are not genuine or bogus. The share application money was received by the appellant and subsequently returned though banking channel. In case of 7 companies, the notices were served on it on given addresses. There is no evidence directly or indirectly with the Assessing Officer that the assessee had routed undisclosed money in the guise of share application money or loan

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DATE: February 29, 2016 (Date of pronouncement)
DATE: March 11, 2016 (Date of publication)
AY: 2001-02 to 2007-08
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CITATION:
S. 68/ 69/69A: Law relating to assessment of undisclosed income, based on disputed documents found in the premises of the assessee during search explained. Also, the law on admission of additional evidence sourced from foreign countries, onus of the assessee and onus of the revenue and law on 'telescoping' of additions also explained

The Revenue, to proceed against the assessee, must have definite information with regard to the assessee being in possession of monies or holding investment. This is in view of the salutary principle of common law jurisprudence, embodied u/s.110 of the Evidence Act, i.e., that possession implies ownership, so that the onus of proving that the possessor is not the owner is on the person so alleging. This principle is also applicable to tax proceedings, incorporated in the Act (under Chapter VI), so that the principle would be attracted to a set of circumstances that satisfies its conditions. The expression ‘income’ under the Act, a term of wide import, is applicable to section 69A, among others, of the Act (refer: Chuharmal vs. CIT [1988] 172 ITR 250 (SC)). The assessee, claiming to have no foreign bank accounts, concedes subsequently (on the basis of a report by UBS AG, Zurich – which has been taken as part of the record) to have a limited banking relationship with UBS AG, Zurich. The said report, for the reasons afore-discussed, cannot be considered as completely reliable.

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COURT:
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DATE: November 30, 2015 (Date of pronouncement)
DATE: December 3, 2015 (Date of publication)
AY: 2007-08
FILE: Click here to view full post with file download link
CITATION:
S. 68 (bogus share capital): Despite statement of Mukesh C. Choksi & Jayesh Sampat admitting bogus share capital, addition cannot be made in assessee-company's hands

If the share application money is received by the assessee company from alleged bogus share holders who’s name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company

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Posted on by editor
COURT:
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DATE: November 27, 2015 (Date of pronouncement)
DATE: November 29, 2015 (Date of publication)
AY: 2007-08, 2008-09
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CITATION:
S. 68 (share capital): (i) It is a fallacy to assume that a company which has not commenced business has unaccounted money, (ii) Fact that investors have a common address is not relevant, (iii) Fact that shares were subsequently sold at reduced rate is not relevant

There is a basic fallacy in the submission of the Revenue about the precise role of the Assessee, Five Vision. The broad sweeping allegation made is that “the Assessee being a developer is charging on money which is taken in cash”. This, however, does not apply to the Assessee which appears to be involved in the construction of a shopping mall. In fact for the AYs in question, the Assessee had not commenced any business. The construction of the mall was not yet complete during the AYs in question. The profit and loss account of the Assessee for all the three AYs, which has been placed on record, shows that only revenue received was interest on the deposits with the bank. Assessee is, therefore, right in the contention that the basic presumption of the Revenue as far as the Assessee is concerned has no legs to stand. Correspondingly, the further allegation that such ‘on money’ was routed back to the mainstream in the form of capital has also to fail

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