S. 145 : Method of accounting-Accrual of income-Sale of prepaid mobile cards-Matching concept & principles of Revenue Recognition as per Accounting Standards (AS-9, AS-22)-Amount received on sale of prepaid cards to the extent of unutilized talk time did not accrue as income in the year of sale. [S. 4, 5, AS. 9, AS. 22]

S. 143(3) : Assessment-Survey -Bogus expenditure- Statement- Retraction-A statement recorded u/s.133A under fear / coercion cannot be relied upon by the AO if it is not corroborated by documentary evidence- The assessee is entitled to retract such statement. The AO is bound to give the assessee an opportunity to controvert evidence and cross examine the evidence on which the department places its reliance-A failure in providing the same can result in the order being a nullity–Income is estimated on the basis of gross profit. [S. 133A]

S. 69A : Unexplained money–Discretionary Trust-Black money-If the assessee is a discretionary beneficiary of the HSBC Bank Account and is not the owner, addition u/s. 69A cannot be sustained-In the case of a discretionary trust, the income of the trust cannot be added in the hands of the beneficiary. The trustees are the representative assessees who are liable to be taxed for the income of the trust. [S. 5, 6 , 133A, 147]

S. 68 : Cash credits-Black Money in HSBC Bank Account (i) Non-residents are not required to disclose their foreign bank accounts and assets to Indian income-tax authorities (ii) The assessee cannot be asked to prove the negative that the credits found in HSBC Bank is not sourced out of income derived from India (iii) the Govt / legislature never intended to tax foreign accounts of non residents (iv) mere holding of an account outside India does not have led to the conclusion that the amount is tax evaded. [S. 5, 69A ]

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)]