S. 245BA : Settlement Commission – Chairman – Power -Jurisdiction- These Petitions have been filed challenging a somewhat curious and unforeseen development. We do not know in what circumstances the Chairman flew down to Mumbai and invited the members for discussion in relation to some cases or related issues. It would be highly risky if such discussions in relation to judicial orders and judicial matters are held in a close-door meeting or in the privacy of the chambers of the members of the Settlement Commission. There is a uncalled for interference in judicial proceedings and none including the Chairman can direct a particular course of action to be taken or a particular order being passed in pending judicial proceedings. Court also observed that ,to avoid an allegation of the nature made in these Writ Petitions, the Chairman would be well advised not to chart this course hereafter. We leave the matter entirely to his wisdom and say nothing more. Court also held that , apprehensions of assessee of adverse order , court will not interfere in ending proceedings . Assessee at liberty , if adverse order is passed to challenge it . [ Art, 226 , 227 ]

S.147: Reassessment- Bogus share capital- Reassessment is held to be valid – Addition is confirmed as cash credits on merit.[ S.148, 151 ]

S. 147: Reassessment- The revenue played a subterfuge in trying to cover up its omission and in ante dating the record. The court hereby directs the Chief Commissioner to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record, and take strict disciplinary action, according to the concerned rules and regulations. This inquiry should be in regard to the conduct of the concerned AO posted at the time, who issued the notice under S. 147/148 as well as the officers who filed the affidavits in these proceedings [ S.148 ]

S. 147 : Reassessment –With in four years- The assessment cannot be reopened on the ground that the AO lost sight of a statutory provision like 50C. This amounts to a review. A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC) distinguished on the basis that the reopening in that case was because the AO was unaware of a binding High Court judgement. Here it is not the case of the Revenue that the AO was not aware of S. 50C at the time of passing the S. 143(3) assessment order [ S.50C, 143(3), 148 ]

S.145: Method of accounting- Mercantile system- Accrual of liability- contingencies and events occurring after the balance sheet date- The manner in which the assessee recorded its liability in its books of accounts is not conclusive- The liability to pay tax on the income arises when it has arisen or accrued, and how the assessee deals with it subsequently does not affect that liability- (1).Provision made for increase in wages on the basis of Wage Board Award which became enforceable on the date of publication of the award on 20 -7 .1983 could be accepted as a liability having accrued on 19-5 1983 with in the previous year ended on 30-06 1983 , when the assessee agreed before the Arbitrators that the award shall come in to operation from an earlier date –Provision is held to be not allowable-(2).Business expenditure –Commission payment – Construction of agreement- liability to pay commission accrued when the orders were secured by the agents, and not when supplies were effected by the assessee- (3) .Insurance premium – The liability towards the insurance policy did not arise in the previous year 01.07.1982 to 30.06.1983, since the basic condition, relating to actual payment of insurance premium, had not been fulfilled by the assessee by then- Not allowable as deduction for the relevant year (4).Commission- The obligation to pay commission, in terms of Clause(1) of the agreement, is on the procurement of an order by the agent, and the agent had procured the order during the previous year 01.07.1982 to 30.06.1983. Notwithstanding the fact that the obligation to make payment of commission was dependent on receipt of payment from the client, the liability to pay commission arose on the date on which the order was procured by the agent.(5) Liquidated damages- Held to be allowable as business expenditure. [ S.37(1) , 145(2) ]

S. 92C; Transfer Pricing-(i) Chapter 10 presupposes the existence of “income” and lays down machinery provision to compute ALP of such income. S. 92 is not an independent charging section to bring in a new head of income or to charge tax on income which is otherwise not chargeable under the Act. If no income has accrued to or received by the assessee u/s 5, no notional income can be brought to tax u/s 92 of the Act (ii) It is a jurisdictional requirement that the AO has to record satisfaction that there is “income” or potential of income. The recording of ‘satisfaction’ about the existence of an “international transaction” is also essential. This is only within the jurisdiction of the AO and the CIT(A) cannot substitute his satisfaction for that of the AO. Such substitution of satisfaction is impermissible in law as it amounts to curing a jurisdictional defect. [ S.5, 92 ]

S. 92C: Transfer pricing -AMP Expenditure-In the absence of material to suggest that there was an “arrangement, understanding or action in concert” with respect of the AMP expenditure incurred by the assessee, the TPO is not justified in coming to the conclusion that there was an international transaction u/s 92B and that the assessee should have recovered an amount from its AE. The request of the Dept for a remand to the TPO is not acceptable. A remand to the assessment stage cannot be a matter of routine; it has to be so done only when there is anything in the facts and circumstances to so warrant or justify [ S.92B ]

S. 80IC : Special category States -An assessee who avails of deduction for a period of 5 years @ 100% of profits and gains is entitled to deduction on ‘substantial expansion’ for remaining 5 Assessment Years @ 25% (or 30% where the assessee is a company) and not @ 100% [.80IA ]

S. 68: Cash credits- Bogus share capital- A private limited co cannot say that it has no clue about the subscribers to its share capital. The genuineness of the transaction has to be determined by ground realities and not by documents like PAN cards, board resolutions, share certificates etc. Even shell cos have these documents. If the assessee is not able to produce the brains behind these companies and the documents with respect to their financials, the transaction cannot be regarded as genuine- Reassessment is held to be valid and addition is confirmed on merit.[ S.147, 148, 151 ]

S. 68: Cash credits- Share capital- If no cash is involved in the transaction of allotment of shares and it is a case of book adjustment, provisions of s. 68 treating it as unexplained cash credit are not attracted. Even if it were to be assumed that the subscribers to the increased share capital are not genuine, the amount of share capital would in no circumstances be regard as undisclosed income of the company