S. 68 : Cash credits-Share premium-If the overwhelming evidence in the form of audited accounts, ROC Form 2 & ROC Form 20B shows the ‘nature’ of receipt to be share premium, it has to be taken to be so-If the Department wants to contend that what is apparent is not real, the onus is on it to prove that it was the assessee’s own money which was routed through a third party. S. 68 does not (before & after the 2012 amendment) envisage the valuation of share premium- Consequently, the AO has no jurisdiction to determine whether the share premium is reasonable or not.

S. 56 : Income from other sources-S. 56(2)(vii), is a counter evasion mechanism to prevent money laundering of unaccounted income & does not apply to bona fide business transaction done out of business exigency. The difference between alleged fair market value of share and the subscribed value of shares cannot be assessed as income u/s. 56(2)(vii)(c). [S. 56 (2)(vii)(c)]

S. 47(xiiib) : Capital gains-Transaction not regarded as transfer- Conversion of firm in to LLP–The conversion of a company into a LLP constitutes a “transfer”-If the conditions of S. 47(xiiib) are not satisfied, the transaction is chargeable to ‘capital gains‘-If the assets and liabilities of the company are vested in the LLP at ‘book values‘ (cost), there is in fact no capital gains-The argument that u/s 58(4) of the LLP Act, the LLP is entitled to carry forward the accumulated losses & unabsorbed depreciation of the company, notwithstanding non-compliance with S. 47(xiiib) is not acceptable-CIT(A) has rightly admitted the ‘audit report‘ filed by the assessee in ‘Form 10CCB‘ during the course of the appellate proceedings, and therein allowed the claim of deduction raised by the assessee under S. 80IA, thus uphold his order in context of the issue under consideration. [S. 5, 45, 47A, 48, 49(1), 72A(6), 80IA, 170, Limited Liability Partnership Act, 2008, 56, 58(4)]

S. 45 : Capital loss-Transfer-The reduction of share capital of a company by way of reducing the face value of each share from Rs. 1,000 to Rs. 500 amounts to “extinguishment of rights” and is a “transfer” u/s 2(47) of the Act- The assessee is eligible to claim a capital loss therefrom followed (Kartikeya V. Sarabhai v. CIT (1998) 228 ITR 163 (SC). [S. 2(47)]

S. 45 : Capital gains–Long term capital gains from penny stocks-Tribunal held that, it cannot be inferred that the assessee has manipulated the share price merely because it moved up sharply-The AO has to produce material/evidence to show that the assessee/brokers did price rigging/manipulation of shares- The AO must also show that the relevant evidence produced by the assessee in the form of bills, contract notes, demat statement, bank account etc to prove the genuineness of the transactions are false or fictitious or bogus. [S. 10(38), 68, 115BBE]

S. 45 : Capital gains-Long term capital gains on shares -Natural justice- Reliance by the AO on statements of third parties without giving the assessee an opportunity of cross-examination is a gross failure of the principles of natural justice and renders the assessment order a nullity. [S. 10 (38), 131, 143(3)]

S. 45 : Capital gains-Transfer-Conversion of Cumulative preference shares( CCPS) into equity shares does not constitutes a “transfer” – Not laible to capital gais tax. [S. 2(47), 41(2), 45(4), 48, 55(2)(b)(v)(e)]

S. 45 : Capital gains–Capital asset-ESOP options provide valuable right to the assessee to exercise and have allotment of shares- They are thus ‘capital asset’ held by the assessee from the date of grant- If the assessee transfers the option itself, the capital gains will have to be assessed as long-term capital gains ,if the options have been held for more than three years. [S.2(14), 2(42A), 45, 48]

S. 45 : Capital gains- Salaries- Perquisite-Gains arising to an employee from sale of shares allotted under ESOP (Employees Stock Option Plan) by foreign parent company cannot be assessed as “salaries” – It is assessable as “capital gains”-.Fact that employer has shown the gains as “perquisite” in Form 16 is irrelevant. [S. 15, 17(2)(v)]

S. 45 : Capital gains- Cash credits – Share transactions- Bogus capital gains-Penny stocks-If the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has also not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee. Once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. [S. 10(38), 68]