baroda-icai.orgbaroda-icai.org/media/branch_events/ef953f20c0749... · Web viewWe have considered...
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Section 56 Share issue deemed income IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE I.T.A No.1290/Bang/2015 (Assessment Year : 2012-13) Dr. Rajan Pai, Pronounced on : 29.04.2016 06. We have perused the orders and heard the rival contentions. Section 56(1) and (2), in so far as it is relevant on the issue on hand, is reproduced below : 07. To answer the question raised before us, it is necessary to have a walk through the legislative history behind clause (v) to (vii) of section 56(2) reproduced above. The genesis for the introduction of the above clauses was apparently the abuse arising out of abolishment of tax on gift. By virtue of clause (3) to Section 3 of Gift-tax Act, 1958 inserted through Finance (No.2) Act, 1998, provisions of the Gift-tax Act ceased to apply on any gifts made after first October, 1998. Before this, taxable gifts made by a person was charged at the rate of 30% in the hands of the donor. Then, Kapil Goel Advocate (9910272806) [email protected]
baroda-icai.orgbaroda-icai.org/media/branch_events/ef953f20c0749... · Web viewWe have considered the rival contentions and perused the documents placed on record. As far as the facts
06. We have perused the orders and heard the rival contentions.
Section
56(1) and (2), in so far as it is relevant on the issue on hand, is
reproduced
below :
07. To answer the question raised before us, it is necessary to
have a
walk through the legislative history behind clause (v) to (vii) of
section
56(2) reproduced above. The genesis for the introduction of the
above
clauses was apparently the abuse arising out of abolishment of tax
on gift.
By virtue of clause (3) to Section 3 of Gift-tax Act, 1958 inserted
through
Finance (No.2) Act, 1998, provisions of the Gift-tax Act ceased to
apply on
any gifts made after first October, 1998. Before this, taxable
gifts made by
a person was charged at the rate of 30% in the hands of the donor.
Then,
there was a period of free for all, when neither the donor nor the
donee had
to pay tax on the gifts and the said period ran from October 1998
to
August, 2004. To redress the situation, Finance Act (No.2), 2004,
inserted
clause (v) to Section 56(2) with effect from 01.04.2005, and
clause (xiii) to
Section 2(24) of the Act, by virtue of which receipts without
consideration or inadequate consideration were made taxable in the
hands of the recipient
assessee Subsequent clause (vi) introduced by Taxation Laws
(Amendment) Act, 2006 w.e.f. 01.04.2007 and clause (vii) by
Finance
(No.2) Act, 2009 w.e.f.01.10.2009 were only extrapolation of the
above
intention, while widening its scope to ensure that where a person
received a
property without consideration, or for a consideration less than
its fair
market value, was levied tax on the value thereof, as a part of his
‘income
from other sources’.
08. Keeping in mind the above legislative history, we need to have
a
close look to clause (vii) to Section 56(2), for ascertaining
whether it could
be applied to bonus shares. Prior to the introduction of clauses
(v), (vi) and
(vii), and during the period Gift-tax Act was applicable, issue of
bonus
shares was never considered as gift by a company to its share
holder and
never subjected to gift-tax in the hands of the company considering
it to be
a donor. When clauses (v), (vi) and (vii), were introduced in
Section 56(2),
subsequent to the repeal of the Gift-tax Act, for redressing the
vacuum
created on account of such repeal, can we say that legislative
intention was
to include therein items which were not within the ambit of
Gift-tax Act
also ? The answer obviously is no.
09. A careful study of clause (c) of Section 56(2)(vii) of the
Act, would
show that two situations are considered therein. First is where a
property is
received without consideration and second where it is received for
a
consideration less than the fair market value. Situation can be
better
illustrated through an example. Let us consider the case of a
company
having 100 equity shares of Rs.10/- each, with a reserve and
surplus of
Rs.10,000/-. If the company considering its immense reserves and
surplus,
decides to issue bonus shares in the ratio of 1 : 1, how would its
balance
sheet look before and after such issue ? Hypothetically it should
be as
under :…
Value of one equity share before the issue of bonus shares will
be
Rs.11,000 ÷ 100 = __. 110. Value of the equity share after the
issue of
bonus share will be equal to Rs.11,000 ÷ 200 = __. 55. If
a person was
having 10 equity shares of the above company with him, after the
bonus
shares issue, it would become 20. However value of the ten equity
shares
(10 x Rs.110) is the same as value of 20 shares (20 x Rs.55) after
the bonus
shares issue. This in other words would mean that there is a
prorata
decrease in the value of equity shares when there is an issue of
bonus
shares. Thus when there is an issue of bonus shares there is a
detriment
suffered by the recipient share holder, through the depression in
the value
of the shares held by him. There is indeed a consideration flowing
out
which is exactly counter balanced by the value of the bonus
shares
received. The simple reason is that when bonus shares are issued
by
capitalising a portion of reserves and surplus, there is no
increase in the
asset value of a company, in any manner. What really happens is
that the
value of equity shares goes down prorata. Total value of equity
shares held
along with bonus shares remains the very same. Thus any profit
derived by
the assessee on account of receipt of bonus shares is theoretically
offset by
the depression in the value of the equity shares already held by
him. Bonus
shares does not result in recipient getting a property without
consideration or for inadequate consideration.
10. Hon’ble Apex Court in the case of CIT v. Dalmia Investment
Co.
Ltd [(1964) 252 ITR 567] had as early as 1964 held that bonus
shares if
they ranked pari passu with the original shares, had to be valued
at average
of both bonus and the original shares.
Hon’ble Apex Court not only held that bonus shares can never be
given nil
value but also held that its value has to be worked out by the
principle of
averaging. In any case, the principle enunciated is simple. It is
that for
every bonus share issued, there is a corresponding reduction in the
actual
fair market value of the equity share originally held. This being
the
situation we are of the opinion that an assessee who received bonus
shares
could never be considered as receiving something without
consideration or
for a consideration less than the fair market value of the
property. When
bonus shares are received, it is not something which has been
received free
or for a lesser fair market value. A consideration has flown out
from the
holder of the shares, may be unknown to him, which is reflected in
the depression in the intrinsic value of the original shares held
by him. Thus in
our view, Section 56(2)(v), (vi) and (vii) brought in to the
Act for
addressing the vacuum caused due to withdrawal of the Gift-tax Act
cannot
be used for the purpose of taxing the value of bonus shares
received by an
assessee. Valuation of unquoted shares set out in Rule 11 UA(B)
will have
applicability only on receipt of shares as gift or for
inadequate
consideration. Bonus shares can never be considered as received
without
consideration or for inadequate consideration calling for
application of subclause
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
ITA No. 3801/Mum/2011
(Assessment Year: 2005-06)
Ms. Farrah Marker
3.4.1 We have heard the rival contentions of both the parties and
perused
and carefully considered the material on record, including the
judicial
pronouncements cited. From a perusal of the Paper Book (pages i to
viii
and pages 1 to 72) containing copies of written submissions, copies
of
documents placed before the authorities below, we find that
documents
pertaining to the purchase and sale of shares of M/s Shukun
Constructions Ltd. such as contract notes of brokers, copies of
physical
share certificates, transfer of physical shares to the name of the
assessee
and consolidation by the company, the D-MAT account statement of
the
assessee with SHCIL confirming the said shares in the assessee’s
name,
bank statements and summary thereof and financial statements of
the
assessee, viz., Balance Sheet of earlier years showing that the
fact of
holding these shares were furnished before the AO from
16.07.2007
onwards, i.e. well before the assessment was concluded on
31.12.2007. It
is also seen that the show cause notice issued by the AO to the
assessee on 13.11.2007 as to why the transaction in the said shares
be not treated
as a bogus/arranged one was replied to by the assessee vide letter
dated
21.11.2007 addressed to the AO. In our considered view, after
an
appreciation of the material on record, we find that no proper
investigation
has been carried out by the AO to controvert the material evidence
brought
on record by the assessee. Even the statement recorded on
31.12.2007 by
the AO from one Sir Niraj Sanghvi, which was strongly relied upon
by the
AO, we find has no evidentiary or corroborative value as it is of a
person
who has no role in the said share purchase transactions. Further,
the said
statement, recorded on the day the order of assessment was
concluded, i.e.
31.12.2007, was recorded behind the back of the assessee and
neither
copy of the same was given to the assessee for rebuttal, nor was
the
assessee allowed due opportunity to cross-examine Shri Niraj
Sanghvi. It is
seen from the record that no statement was recorded from Smt.
Charu
Sanghvi, Proprietor, Falgun Invest from whom the assessee purchased
the
said shares of M/s. Shukun Constructions Ltd. In this factual and
legal
matrix as discussed above, we find that the statement of Shri
Niraj
Sanghvi, which was so strongly relied upon to form the basis of the
AO’s
conclusion, is fatally flawed and has no corroboratory or
evidentiary value
since it was recorded behind the back of the assessee and was used
to
arrive at an adverse finding in respect of the assessee’s purchase
of the
‘said shares’ without putting the assessee on notice by affording
her
opportunity of rebuttal of the statement and/or cross-examination
of Shri
Niraj Sanghvi.
3.4.2 It is also seen that, as contended by the assessee, 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. We find from
the
details filed by the assessee on record in pursuance of the query
by the AO
in the course of assessment proceedings, that 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, in these factual circumstances, 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.
3.4.3 The addition under section 68 of the Act in the case on hand,
it
appears, has been made only because the AO presumed that the
purchases
of the ‘said shares’ of M/s. Shukun Constructions Ltd. were not
made on
the date as disclosed by the assessee, but was backdated and an
arranged
transaction, and not because there was any irregularity in the sale
of the
said shares. We find from the material on record that the purchases
of the
said shares were duly disclosed under the head investment in the
audited
Balance Sheet as on 31.03.2004 relevant to A.Y. 2004-05. In this
context we
concur with the averments of the learned A.R. for the assessee that
if there
was any adverse material in respect of the purchases of the ‘said
shares’,
the AO ought to have or would have proceeded to initiate
proceedings for reopening
the assessment for A.Y. 2004-05 while concluding the
assessment
for A.Y. 2005-06, the year under consideration, on 31.12.2007 or
thereafter
till 31.03.2011, which he has not done.
3.4.4 We also find that the decision of the ITAT, Chandigarh Bench,
in the
case of Somnath Mani (100 TTJ 917) relied on by the AO is
factually
different and not applicable to the facts of the assessee’s case.
In that case,
the facts were that the sale proceeds of the shares sold were not
reported
on the transaction date at the concerned Stock Exchange. Further,
the
said shares continued to appear in the name of that assessee for
quite a
long period after the sale and also the sale proceeds were received
by that
assessee only in instalments over a period of six to seven months
after the date of sale of shares. In the case on hand, however, we
find that the
factual matrix is quite different. In the case on hand the assessee
received
the full sale proceeds of the sales of the ‘said shares’ from the
stock broker
as and when they were sold; BSE has confirmed her sale transaction
on
the date shown and also the fact that the said shares on sale have
been
transferred to the buyer immediately is evident from her D-MAT
account.
In this factual matrix, we find that the decision in the case of
Somnath
Mani (supra) is factually different and distinguishable from the
case on
hand; is not applicable to reach an adverse finding in the case on
hand
and has been erroneously applied and relied on by the AO.
3.4.5 The assessee has placed before us a compilation of
judicial
pronouncements, the ratio of which has been placed reliance upon
in
furtherance of her case. In the case of Andaman Timber Industries
(2015) 281
CTR 214 (SC) the Hon'ble Apex Court has held that denial to the
assessee of
the right to cross-examine the witness whose statement was made the
basis of
the impugned order is a serious flaw which renders the order a
nullity in as
much as it amounted to violation of the principles of natural
justice because of
which the assessee was adversely affected. In our considered view,
this
judgement of the Hon'ble Apex Court supports the case of the
assessee in the
case on hand as she was not afforded any opportunity of
cross-examination of
Shri Niraj Sanghvi whose statement was a basis for the AO making
the
addition under section 68 of the Act. This finding of ours is in
addition to our
earlier finding (supra), that the statement of Shri Niraj Sanghvi
has no legal
sanctity or evidentiary value as he was not the person through whom
the ‘said
shares’ of M/s. Shukun Constructions Ltd. were purchased.
3.4.6 Another case relied upon by the assessee is of the Coordinate
Bench
of this Tribunal in the case of Jatin Chhadwa in ITA No.
8573/Mum/2010
dated 24.08.2012 for A.Y. 2005-06. In this case, on similar facts,
we find
that the Coordinate Bench has held that the claim of the assessee
cannot
be denied on the basis of presumptions and surmises in respect of
penny
stock without conducting any inquiry and by disregarding the
direct
evidences on record by the assessee. 3.4.7 In the decision of the
Coordinate Bench of this Tribunal in the case
of Harkhchand K. Gada (HUF) & Others in ITA Nos. 1772 to 1775,
1788 &
1789/Mum/2010 dated 08.08.2012 relied on by the assessee, on
similar
facts, the Coordinate Bench, following the judgements of the
Hon'ble
Bombay High Court in the case of Mukesh R. Manolia in ITA No. 456
of
2007 dated 07.07.2011 and of the Coordinate Bench in the case of
Sharda
Credit Pvt. Ltd. (ITA No. 3415/Mum/2007 dated 09.02.2009) held
that
shares purchased/sold off market cannot be considered illegal
transactions. It was also found that the assessee was not provided
the
opportunity to cross-examine a witness whose statement was relied
upon
to form the basis for taking an adverse view in that case,
overlooking the
direct documentary evidence placed on record of the
sale/purchase
transaction in shares such as brokers contract notes, confirmation
of
receipt of sale proceeds through regular banking channels,
reflection of
these transactions in the assessee’s audited financial statements
and
relevant returns of income and it was held by the Bench that in
these
circumstances, the sale of shares could not be held to be
non-genuine.
3.4.8 From the appreciation of the facts of the case, the material
evidence
placed on record by the assessee and in the light of the discussion
of the
factual and legal matrix of the case as discussed from para 3.1 to
3.4.7 of this
order (supra), we are of the considered opinion that the
authorities below, i.e.
AO/CIT(A) have made the addition under section 68 of the Act merely
on
presumptions, suspicions and surmises in respect of penny
stocks;
disregarding the direct evidences placed on record and furnished by
the
assessee in the form of brokers contract notes for purchases and
sales of the
‘said shares’ of M/s. Shukun Constructions Ltd., copies of the
physical share
certificates and her D-MAT account statement establishing the
holding of the
shares in her name prior to the sale thereof; confirmation of the
transactions
of buying and selling of the ‘said shares’ by the respective stock
brokers,
receipt of sale proceeds through banking channels, etc. As observed
earlier in
this order, we are of the view that the statement recorded from
Shri Niraj
Sanghvi on 31.12.2007, the day the order of assessment was passed,
would
have no evidentiary or corroborative value to be the basis for
coming to an adverse view in the case on hand, since it was
recorded behind the assessee’s
back, from a person who was not involved in the purchase of the
said shares
and also since the assessee was not afforded opportunity for
rebuttal of the
same and to cross-examine the said person. We are also of the view
that the
ratio and the factual matrix of the decisions in the cited case,
i.e. Jatin
Chhadwa (supra), Harkhchand K. Gada (HUF) & others (supra)
and
Andaman Timber Industries (supra) would be applicable and support
the
case of the assessee since no adverse finding has been rendered in
respect of
the direct material evidence placed on record in respect of her
transactions of
purchase and sale of the ‘said shares’ of M/s. Shukun Constructions
Ltd.
which stand duly disclosed in her audited Balance Sheets filed with
the
return of income of assessment years 2004-05 and the current year
under
consideration. In this factual and legal matrix of the case, as
discussed
above, we find that the addition of `95,12,812/- under section
68 of the Act
made and confirmed by the authorities below to be unsustainable
and
therefore direct the AO to delete the said addition and accept the
LTCG
income of `93,00,012/- shown as exempt under section 10(38) of
the Act.
Consequently, ground No. 1 of the assessee’s appeal is
allowed.
Section 50C held donot apply to proceeds from surrender of disputed
rights (right of ownership/limited rights)
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “B”, HYDERABAD
Additional Ground:
We have considered the rival contentions and perused the documents
placed on record. As far as the facts are concerned, there is no
dispute that assessee had purchased the property way back in 1984
but failed to mutate the property in his favour in the Revenue
records. Assessee purchased only Acr1.20 cents of land from Shri K.
Joseph Reddy, however, Shri Mundla Narayana Reddy, Proprietor,
Sudha Enterprises has purchased more land, about four acres, vide
the registered deed dt. 26-08-1996, got his name entered in the
Pahanis in 1999 itself and is in continuous possession of the land.
Assessee filed a petition before Special Grade Dy. Collector for
mutating the land in his favour. The Ld. Dy. Collector while
recording that assessee has prior claim over the land having been
registered in 1984, however, stated that there is a title dispute
between two parties and therefore, the entries made in the register
were set aside and aggrieved parties were directed to seek remedy
before the Civil Court. This order was issued in 15th March
2008. Subsequently, an appeal was filed before the Joint Collector
by Mr. Mundla Narayana Reddy. In those proceedings, a compromising
memo was undertaken wherein it is clearly stated that the
respondent (assessee) has received an amount of Rs. 5 Lakhs and
executed a registered sale deed bearing Document No. 8799/2008 dt.
26-07-2008 in favour of the Managing Partner of Sudha Enterprises,
transferring his right of ownership.
10.1. Thus, it is clear that even though the sale deed is stating
that assessee had full ownership and transferred in favour of Shri
Mundla Narayana Reddy, what actually transpired between the parties
and the claims made before the authorities is that assessee has a
title over the property but not complete ownership and possession
of the property. It is alleged by the other party i.e., Mundla
Narayana Reddy that the documents are fabricated. Whatever may be
the contentions before the authorities, the fact is that assessee
had indeed settled the issue by accepting the consideration of Rs.
5 Lakhs and parted with the claim of ownership on the said
property. The record indicates that assessee is not complete owner
of the property as in the Govt. records Shri Mundla Narayana Reddy
was already shown as owner of the property and continues to be in
possession of the property by virtue of registered sale deed in his
favour dt. 26-08-1996. In view of this, we agree with the
contentions that assessee has transferred only a right of ownership
but not the land and building. 11. Similar facts were considered in
the decision of the Co-ordinate Bench decision in the case of D.
Anitha in ITA No. 394/Hyd/2014 / 373/Hyd/2014 dt. 24-12-2014
(supra), wherein assessee was also not the owner of the property
and had only limited rights over the property. It was held that the
provisions of Section 50C are not applicable. 11.1. Not only that,
in the Co-ordinate Bench decision in the case of Atul G. Puranik
Vs. ITO [132 ITD 499], it was considered as under:… 11.2. In view
of the principles laid down by the Co-ordinate Benches and also on
the facts, we are of the opinion that the provisions of Section 50C
are not applicable in the given case. Accordingly, AO is directed
to compute the capital gains on the value received only. Assessee’s
grounds are allowed accordingly.
12. In the result, appeal of assessee is allowed.
Gujarat high court on section 133A & related aspect of
reopening
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION
NO.19694 of 2015
SHREE SIDHNATH ENTERPRISE....Petitioner(s) Versus ASSISTANT
COMMISSIONER OF INCOME TAX....Respondent(s)
============================================
Date : 28/03/2016
It may be noted that in the affidavit-in-reply filed by the
respondent, it is the case of the respondent that the petitioner is
engaged in the business of cheque discounting and shroff. The firm
charges commission for cheque discounting facility provided to its
customers. The firm receives cash from the beneficiary and gives
cheque in lieu thereof. The cheque is drawn in favour of the
beneficiary. For arranging this transaction, the firm charges
commission. Reference has been made in the reply to instances where
the petitioner has received cash from parties and has issued
cheques in lieu thereof which were deposited by such parties in its
account and the cheques were cleared at Rajkot. Based on this, the
Assessing Officer had stated that she had reason to believe that
income chargeable to tax has escaped assessment on account of the
failure on the part of the petitioner to disclose fully and truly
all material facts. Thus, while it is the case of the espondent
that it is the business of the petitioner to accept cash and issue
cheques in lieu thereof, it is also the case of the respondent on
the basis of the instances cited in the affidavit, that the cash
deposits received by the petitioner are in the nature of
undisclosed income, despite it being the specific case of the
respondent that the petitioner had issued cheques in lieu of cash
received by it which had been encashed by the concerned party by
depositing the same in its bank account. It may be noted that it is
not the case of the respondent that the beneficiary after encashing
such amount had returned the same to the petitioner nor has any
material been unearthed in this regard. Insofar as the petitioner
is concerned, as stated in the affidavit-in-reply, it is its
business to receive cash and issue cheques in lieu thereof for
which it charges commission. Under the circumstances, in the
absence of any material to show that the cash in respect of which
the cheque had been issued travelled back to the petitioner, one
fails to understand as to how such amount may be said to be the
undisclosed income of the petitioner. Under the circumstances, on
the facts as recorded in the reasons as well as in the
affidavit-in-reply, in the opinion of this court, the Assessing
Officer could not have formed the belief that income chargeable to
tax has escaped assessment.
In the opinion of this court, in case of a survey under section
133A of the Act, what is material are the suppressed transactions,
if any, which are discovered as a result of the survey. In the
present case, no material has been discovered during the survey
warranting any further inquiry by the survey party. If consequent
upon the survey, the survey party discovers any incriminating
material, it may call upon the assessee to explain the same, but
when no incriminating material is found, the survey party cannot
assume the jurisdiction of the Assessing Officer and call for
information in relation to the material which is already on record.
In case any concealed income has been discovered, it may justify
reopening the assessment. In the present case, no concealed income
has been discovered by the survey party, but the assessment is
sought to be reopened for the purpose of verification of
facts.
Gujarat high court on sec.145A, interest on enhanced compensation
ass Fav order
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO.17944 of 2015
MOVALIYA BHIKHUBHAI BALABHAI....Petitioner(s)
Date : 31/03/2016
of India, the petitioner has challenged the communication
dated 9th February, 2015 issued by the Income Tax
Officer,
TDS-1, Surat as well as the action of the second respondent
of
deducting and depositing an amount of Rs.2,07,416/- towards
10% TDS from the total amount of interest and further seeks a
direction to the second respondent to pay the amount of TDS,
that is, Rs.2,07,416/- to the petitioner. The facts as emerging
from the record are that the
petitioner’s agricultural lands came to be acquired under the
provisions of the Act of 1894 for the public purpose of the
Ozat-2 Irrigation Scheme. The award passed by the Collector
came to be challenged by the petitioner before the learned
Principal Senior Civil Judge, Junagadh (hereinafter referred
to
as the “Reference Court”), who by an order dated
20th March,
2011 awarded additional compensation of Rs.5,01,846/- in
favour of the petitioner together with other statutory
benefits.
Pursuant to such award, the second respondent calculated the
amount payable to the petitioner and in terms of the
statement showing the amount of compensation to bedeposited in the
court, computed an amount of Rs.20,74,157/-
as payable to the petitioner by way of interest under section
28 of the Act of 1894. In support of such statement, the
second
respondent has also issued a communication dated 12th
October, 2015 certifying that the interest shown in Columns
No.13 and 14 indicates the interest under section 28 of the
Act
of 1894. It may be noted that Column No.15 is comprised of
the total amount of interest under Columns No.13 and 14 of
the above statement. Undisputedly, therefore, the amount of
interest from which the income tax is sought to be deducted
at
source, is interest payable under section 28 of the Act of 1894.
The above referred decision in the case of
Ghanshyam (HUF) came to be followed by the Supreme
Court in the case of Commissioner of Income Tax, Rajkot
v. Govindbhai Mamaiya, (2014) 16 SCC 449, wherein
the
court after referring to the above decision in the case
of C.I.T.
v. Ghanshyam (HUF) (supra) held that it is clear that
whereas
interest under section 34 of the Act of 1894 is not treated as
a
part of income subject to tax, the interest earned under
section 28, which is on enhanced compensation, is treated as
an accretion to the value and, therefore, part of the
enhanced
compensation or consideration making it exigible to tax under
section 45(5) of the Income Tax Act. Thus, the Supreme Court in the
case of
Commissioner of Income Tax, Faridabad v. Ghanshyam
(HUF) (supra) has held that the interest under section 28
of
the Act of 1894 unlike interest under section 34 is an
accretion
to the value and hence, it is a part of the enhanced
compensation or consideration which is not the case with
interest under section 34 of the 1894 Act. Therefore,
interest
under section 28 of the Act of 1894 would form part of the
enhanced compensation and would be exigible to capital gains
under section 45(5) of the I.T. Act. In other words, in case of
a
transaction which is otherwise exigible to capital gains tax
under section 45 of the I.T. Act, the interest received under
section 28 of the Act of 1894 being an accretion to the
value,
would form part of the compensation and would be exigible to
tax under section 45(5) of the I.T. Act, whereas the interest
received under section 34 of the Act of 1894 would be
“interest” within the meaning of such expression as envisaged
under section 145A of the I.T. Act and would be deemed to be
the income of the year under consideration, chargeable to tax
as income from other sources under section 56 of the I.T. Act. It
has been vehemently contended on behalf of the
first respondent that the above decision has been rendered
prior to the substitution of section 145A of the I.T. Act by
Finance (No.2) Act, 2009 with effect from 1st April, 2010,
andhence, would have no applicability to the facts of the
present
case. The scope and effect of the substitution (with effect
from
1st April, 2010) of section 145A, as also amendment made
in
section 56(2) by Act 33 of 2009 have been elaborated in the
following portion of the departmental circular No.5/2010,
dated
3.6.2010,… Thus, the substitution of section 145A by Finance (No.2)
Act,
2009 was not in connection with the decision of the Supreme
Court in Ghanshyam (HUF) (supra) but was brought in
to
mitigate the hardship caused to the assessee on account of
the decision of the Supreme Court in Smt. Rama Bai v.
CIT,
(1990) 181 ITR 400 (SC) whereby it was held that arrears of
interest computed on delayed or enhanced compensation shall
be taxable on accrual basis. Therefore, when one reads
the
words “interest received on compensation or enhanced
compensation” in section 145A of the I.T. Act, the same have
to be construed in the manner interpreted by the Supreme
Court in Ghanshyam (HUF) (supra).
The upshot of the above discussion is that since
interest under section 28 of the Act of 1894, partakes thecharacter
of compensation, it does not fall within the ambit of
the expression “interest” as contemplated in section 145A of
the I.T. Act. The first respondent - Income Tax Officer was,
therefore, not justified in refusing to grant a certificate
under
section 197 of the I.T. Act to the petitioner for non-deduction
of
tax at source, inasmuch as, the petitioner is not liable to
pay
any tax under the head “income from other sources” on the
interest paid to it under section 28 of the Act of 1894. character
of compensation, it does not fall within the ambit of
the expression “interest” as contemplated in section 145A of
the I.T. Act. The first respondent - Income Tax Officer was,
therefore, not justified in refusing to grant a certificate
under
section 197 of the I.T. Act to the petitioner for non-deduction
of
tax at source, inasmuch as, the petitioner is not liable to
pay
any tax under the head “income from other sources” on the
interest paid to it under section 28 of the Act of 1894. For the
foregoing reasons, the petition succeeds
and is accordingly allowed. The second respondent having
wrongly deducted an amount of Rs.2,07,416/- by way of tax
deducted at source out of the amount of Rs.20,74,157/-
payable to the petitioner under section 28 of the Act of 1894
and having deposited the same with the income-tax
authorities, taking a cue from the decision of the Punjab
andHaryana High Court in Jagmal Singh v. State of
Haryana
(supra), the first respondent is directed to forthwith
deposit
such amount with the Reference Court, which shall thereafter
disburse such amount to the petitioner herein. Rule is made
absolute accordingly with costs.
Delhi high court on capital receipt non chargeable amount from
cancellation of sale deed
IN THE HIGH COURT OF DELHI AT NEW DELHI .
ITA 136/2004
GIRISH BANSAL
% 28.04.2016
Present appeals
12. While admitting the present appeals on 14th February 2005, the
Court framed the following question of law for consideration in ITA
136 of 2003: “Whether in the facts of the case the amount received
covered under Section 10(3) of the IT Act, 1961 deals with receipts
which are of a casual and non-recurring nature, or not?” 12.1 This
court also framed a similar question in ITA 138 of 2003 by an order
also dated 14th February 2005: “Whether in the facts of the case
the amount receive by the Assessee under a compromise recorded by
the Supreme Court is a receipt of a casual and non-recurring nature
within the meaning of Section 10(3) of the Income Tax Act, 1961?”
13. At the outset, it must be observed that learned counsel for
both the parties have agreed that the above questions require to be
reframed. Accordingly, the question that arises for determination
in both appeals is reframed as under: “What is the nature of the
receipt of Rs.10,00,000 each in the hands of the two Assessees and
whether the AO, the CIT and the ITAT were justified in treating it
as a receipt of a casual and non-recurring nature which could be
brought to tax under Section 10(3) of the Act?”
New plea cannot be permitted
21. Be that as it may, the Court finds that the Revenue cannot be
permitted to shift its stand from one forum to another. The
consistent case of the Revenue is to be tested at various levels
for its correctness. It is possible that in the interregnum there
might be decisions of the Supreme Court which might support or
negate the case of the Revenue. That would then have to be taken to
its logical end. In the circumstances, the Court is not prepared to
permit the Revenue to urge a new plea for the first time in this
Court.
Not a receipt taxable under Section 10 (3)
23.1 The settled legal position is that all receipts do not
constitute income. For a receipt sought to be taxed as income, the
burden lies upon the Revenue to prove that it is within the taxing
provision. Among the earlier decisions of the Supreme Court is
Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC).
31. Examined in light of the legal position explained in the above
decisions, the Court is of the view that as far as the present case
is concerned, the sum of Rs.20 lakhs received by the Assessees was
in the context of the cancellation of the sale certificate and the
sale deed executed in their favour in relation to an immovable
property and neither Assessee was dealing in immovable property as
part of his business. While it could if at all be said to be in the
nature of a capital receipt, what is relevant for the present case
is that the Revenue has been unable to make out a case for treating
the said receipt as of a casual and non-recurring nature that could
be brought to tax under Section 10(3) read with Section 56 of the
Act. Conclusion 32. In the light of the clear enunciation of the
law in the aforementioned decisions of the Court, it is plain that
as far as the present case is concerned, the AO was in error in
proceeding on the basis that a sum of Rs.20,00,000 received by the
Assessee was in the nature of a casual and non-recurring receipt
which can be brought to tax under Section 10(3) of the Act. Having
held that it could not be in the nature of capital gain it was not
open to the Revenue to seek to bring it to a tax under the revenue
receipt. Following the decision in Cadell Weaving Mill (supra),
there can be no manner of doubt that what is in the nature of
capital receipt, cannot be sought to be brought to tax by resorting
to Section 10(3) read with Section 56 of the Act.
33. The question framed by the Court is accordingly answered in
favour of the Assessee and against the Revenue. Consequently, the
impugned orders of the AO, CIT as well as the ITAT are hereby set
aside. The appeals are allowed but in the circumstances with order
as to costs.
Section 143(2) Mechanical issuance
1.
06.04.2016
6. Under Section 143 (2) (ii) of the Act, an AO can serve on the
Assessee a
notice requiring him to attend his office and produce any evidence
on which
the Assessee seeks to rely in support of return if the AO
"considers it
necessary or expedient to ensure that the Assessee has not
understated the
income or has not computed excessive loss or has not underpaid the
tax in
any manner'. Therefore, the scope of the enquiry that an AO can
undertake
in terms of Section 143 (2) (ii) is a wide ranging one. What is
relevant for
the present case is that prior to issuance of the notice under
Section 143(2) (ii) the AO has to form an opinion that it is
'necessary or expedient' to ensure
that an Assessee has not (i) understated the income or (ii) has not
computed
excessive loss, or (iii) has not underpaid the tax in any manner.
The AO is,
therefore, not expected to issue a notice under Section 143 (2)
(ii) in a
routine or casual or mechanical manner…. There appears to be
no
prescribed format for issuance of the notice under Section 143
(2)(ii) of the
Act. This notice, in any event, does not set out the opinion of the
AO that he
considers it necessary or expedient to issue such notice for any of
the
reasons specified in Section 143(2)(ii)….
Section 263 Deemed explanation Finance Act, 2015 interpreted by
Mumbai ITAT
IN THE INCOME TAX APPELLATE TRIBUNAL
“B” Bench, Mumbai
I.T.A. No. 2690/Mum/2016
(Assessment Year 2007-08)
I.T.A. No. 2691/Mum/2016
(Assessment Year 2008-09)
Shri Narayan Tatu Rane
Date of Pronouncement 6.5.2016
19. The law interpreted by the High Courts makes it clear that the
Ld Pr. CIT,
before holding an order to be erroneous, should have conducted
necessary
enquiries or verification in order to show that the finding given
by the assessing
officer is erroneous, the Ld Pr. CIT should have shown that the
view taken by
the AO is unsustainable in law. In the instant case, the Ld Pr. CIT
has failed to
do so and has simply expressed the view that the assessing officer
should have
conducted enquiry in a particular manner as desired by him. Such a
course of
action of the Ld Pr. CIT is not in accordance with the mandate of
the provisions
of sec. 263 of the Act. The Ld Pr. CIT has taken support of the
newly inserted
Explanation 2(a) to sec. 263 of the Act. Even though there is a
doubt as to
whether the said explanation, which was inserted by Finance Act
2015 w.e.f.
1.4.2015, would be applicable to the year under consideration, yet
we are of the
view that the said Explanation cannot be said to have over ridden
the law
interpreted by Hon’ble Delhi High Court, referred above. If that be
the case,
then the Ld Pr. CIT can find fault with each and every assessment
order, without
conducting any enquiry or verification in order to establish that
the assessment
order is not sustainable in law and order for revision. He can also
force the AO
to conduct the enquiries in the manner preferred by Ld Pr. CIT,
thus prejudicing
the independent application of mind of the AO. Definitely, that
could not be the
intention of the legislature in inserting Explanation 2 to sec. 263
of the Act, since
it would lead to unending litigations and there would not be any
point of finality
in the legal proceedings. The Hon’ble Supreme Court has held in the
case of Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1)
that there must
be a point of finality in all legal proceedings and the stale
issues should not be
reactivitated beyond a particular stage and the lapse of time must
induce repose
in and set at rest judicial and quasi-judicial controversies as it
must in other
spheres of human activity.
20. Further clause (a) of Explanation states that an order shall be
deemed to
be erroneous, if it has been passed without making enquiries or
verification,
which should have been made. In our considered view, this provison
shall
apply, if the order has been passed without making enquiries or
verification
which a reasonable and prudent officer shall have carried out in
such cases,
which means that the opinion formed by Ld Pr. CIT cannot be taken
as final one,
without scrutinising the nature of enquiry or verification carried
out by the AO
vis-à-vis its reasonableness in the facts and circumstances of the
case. Hence,
in our considered view, what is relevant for clause (a) of
Explanation 2 to sec.
263 is whether the AO has passed the order after carrying our
enquiries or
verification, which a reasonable and prudent officer would have
carried out or
not. It does not authorise or give unfettered powers to the Ld Pr.
CIT to revise
each and every order, if in his opinion, the same has been passed
without
making enquiries or verification which should have been made. In
our view, it is
the responsibility of the Ld Pr. CIT to show that the enquiries or
verification
conducted by the AO was not in accordance with the enquries or
verification that
would have been carried out by a prudent officer. Hence, in our
view, the
question as to whether the amendment brought in by way of
Explanation 2(a)
shall have retrospective or prospective application shall not be
relevant. 21. In the instant case, as noticed earlier, the AO has
accepted the
explanations of the assessee, since there is no fool proof evidence
to link the assessee with the document and M/s RNS Infrastructure
Ltd, from whose hands
it was seized, also did not implicate the assessee. Thus, the
assessee has been
expected to prove a negative fact, which is humanely not possible.
No other
corroborative material was available with the department to show
that the
explanations given by the assessee were wrong or incorrect. Under
these set of
facts, the AO appears to have been satisfied with the explanations
given by the
assessee and did not make any addition. We have noticed that the
Hon’ble
Supreme Court has held in the case of Central Bureau of
Investigation Vs. V.C.
Shukla and Others (supra) that the entries in the books of account
by
themselves are not sufficient to charge any person with liability.
Hence, in our
view, it cannot be held that the assessing officer did not carry
out enquiry or
verification which should have been done, since the facts and
circumstances of
the case and the incriminating document was not considered to be
strong by the
AO to implicate the assessee. Thus, we are of the view that the
assessing
officer has taken a plausible view in the facts and circumstances
of the case.
Even though the Ld Pr. CIT has drawn certain adverse inferences
from the
document, yet it can seen that they are debatable in nature.
Further, as noticed
earlier, the Ld Pr. CIT has not brought any material on record by
making
enquiries or verifications to substantiate his inferences. He has
also not shown
that the view taken by him is not sustainable in law. Thus, we are
of the view
that the Ld Pr. CIT has passed the impugned revision orders only to
carry out
fishing and roving enquiries with the objective of substituting his
views with that
of the AO. Hence we are of the view that the Ld Pr. CIT was not
justified was
not correct in law in holding that the impugned assessment orders
were
erroneous. 23. In view of the foregoing discussions, we are of the
view that the Ld Pr.
CIT has failed to show that the impugned assessment orders passed
by the
assessing officer were not only erroneous but also prejudicial to
the interests of
the revenue. It is a well established proposition that both the
above said
conditions are required to be satisfied before invoking the
revisional power given u/s 263 of the Act. In the instant case, we
are of the view that the Ld Pr.
CIT has failed to show that both the conditions exist in the
instant case.
Accordingly we find merit in the contentions of the assessee that
the revision
orders passed by Ld Pr. CIT for the years under consideration are
beyond the
scope of sec. 263 and hence not valid. Accordingly we set aside the
revision
orders passed by Ld CIT for the two years under
consideration.
Supreme court on section 263 in case of Amitabh Bachnan
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO.5009 OF 2016 [Arising out of S.L.P.(C) No.11621 of
2009]
AMITABH BACHCHAN ...RESPONDENT(S)
At this stage, it may be appropriate to reproduce hereunder the
provisions of Section 263 of the Act to appreciate the arguments
advanced and to understand the contours of the suo motu revisional
power vested in the learned C.I.T. by the aforesaid provision of
the Act. Under the Act different shades of power have been
conferred on different authorities to deal with orders of
assessment passed by the primary authority. While Section 147
confers power on the Assessing Authority itself to proceed against
income escaping assessment, Section 154 of the Act empowers such
authority to correct a mistake apparent on the face of the record.
The power of appeal and revision is contained in Chapter XX of the
Act which includes Section 263 that confer suo motu power of
revision in the learned C.I.T. The different shades of power
conferred on different authorities under the Act has to be
exercised within the areas specifically delineated by the Act and
the exercise of power under one provision cannot trench upon the
powers available under another provision of the Act. In this
regard, it must be specifically noticed that against an order of
assessment, so far as the Revenue is concerned, the power conferred
under the Act is to reopen the concluded assessment under Section
147 and/or to revise the assessment order under Section 263 of the
Act. The scope of the power/jurisdiction under the different
provisions of the Act would naturally be different. The
power and jurisdiction of the Revenue to deal with a concluded
assessment, therefore, must be understood in the context of the
provisions of the relevant Sections noticed above. While doing so
it must also be borne in mind that the legislature had not vested
in the Revenue any specific power to question an order of
assessment by means of an appeal.
Reverting to the specific provisions of Section 263 of the Act what
has to be seen is that a satisfaction that an order passed by the
Authority under the Act is erroneous and prejudicial to the
interest of the Revenue is the basic precondition for exercise of
jurisdiction under Section 263 of the Act. Both are twin conditions
that have to be conjointly present. Once such satisfaction is
reached, jurisdiction to exercise the power would be available
subject to observance of the principles of natural justice which is
implicit in the requirement cast by the Section to give the
assessee an opportunity of being heard. It is in the context of the
above position that this Court has repeatedly held that unlike the
power of reopening an assessment under Section 147 of the Act, the
power of revision under Section 263 is not contingent on the giving
of a notice to show cause. In fact, Section 263 has been
understood not to require any specific show cause notice to be
served on the assessee. Rather, what is required under the said
provision is an opportunity of hearing to the assessee. The two
requirements are different; the first would comprehend a prior
notice detailing the specific grounds on which revision of the
assessment order is tentatively being proposed. Such a notice is
not required. What is contemplated by Section 263, is an
opportunity of hearing to be afforded to the assessee. Failure to
give such an opportunity would render the revisional order legally
fragile not on the ground of lack of jurisdiction but on the ground
of violation of principles of natural justice. Reference in this
regard may be illustratively made to the decisions of this Court in
Gita Devi Aggarwal vs. Commissioner of Income Tax, West Bengal and
others1 and in The C.I.T., West Bengal, II, Calcutta vs. M/s
Electro House2 . Paragraph 4 of the decision in The C.I.T., West
Bengal, II, Calcutta vs. M/s Electro House (supra) being
illumination of the issue indicated above may be usefully
reproduced hereunder: ...
It may be that in a given case and in most cases it is so done a
notice proposing the revisional exercise is given to the assessee
indicating therein broadly or even specifically the grounds on
which the exercise is felt necessary. But there is nothing in the
section (Section 263) to raise the said notice to the status of a
mandatory show cause notice affecting the initiation of the
exercise in the absence thereof or to require the C.I.T. to confine
himself to the terms of the notice and foreclosing consideration of
any other issue or question of fact. This is not the purport of
Section 263. Of course, there can be no dispute that while the
C.I.T. is free to exercise his jurisdiction on consideration of all
relevant facts, a full opportunity to controvert the same and to
explain the circumstances surrounding such facts, as may be
considered It may be that in a given case and in most cases it
is so done a notice proposing the revisional exercise is given to
the assessee indicating therein broadly or even specifically the
grounds on which the exercise is felt necessary. But there is
nothing in the section (Section 263) to raise the said notice to
the status of a mandatory show cause notice affecting the
initiation of the exercise in the absence thereof or to require the
C.I.T. to confine himself to the terms of the notice and
foreclosing consideration of any other issue or question of fact.
This is not the purport of Section 263. Of course, there can be no
dispute that while the C.I.T. is free to exercise his jurisdiction
on consideration of all relevant facts, a full opportunity to
controvert the same and to explain the circumstances surrounding
such facts, as may be considered
Insofar as the first question i.e. findings contained in the order
of the learned C.I.T. dated 20th March, 2006 beyond the issues
mentioned in the show cause notice is concerned the learned
Tribunal taking note of the aforesaid admitted position held as
follows: .... The above ground which had led the learned
Tribunal to interfere with the order of the learned C.I.T. seems to
be contrary to the settled position in law, as indicated above and
the two decisions of this Court in Gita Devi Aggarwal (supra) and
M/s Electro House (supra). The learned Tribunal in its order dated
28th August, 2007 had not recorded any finding that in course of
the suo motu revisional proceedings, hearing of which was spread
over many days and attended to by the authorized representative of
the assessee, opportunity of hearing was not afforded to the
assessee and that the assessee was denied an opportunity to contest
the facts on the basis of which the learned C.I.T. had come to his
conclusions as recorded in the order dated 20th March, 2006.
Despite the absence of any such finding in the order of the
learned Tribunal, before holding the same to be legally
unsustainable the Court will have to be satisfied that in the
course of the revisional proceeding the assessee, actually and
really, did not have the opportunity to contest the facts on the
basis of which the learned C.I.T. had concluded that the order of
the Assessing Officer is erroneous and prejudicial to the interests
of the Revenue. The above is the question to which the Court,
therefore, will have to turn to. If the revisional authority
had come to its conclusions in the matter on the basis of the
record of the assessment proceedings which was open for scrutiny by
the assessee and available to his authorized representative at all
times it is difficult to see as to how the requirement of giving of
a reasonable opportunity of being heard as contemplated by Section
263 of the Act had been breached in the present case. The order of
the learned Tribunal insofar as the first issue i.e. he
revisional order going beyond the show cause notice is concerned,
therefore, cannot have our acceptance. The High Court having failed
to fully deal with the matter in its cryptic order dated 7th
August, 2008 we are of the view that the said orders are not
tenable and are liable to be interfered with.
It appears that thereafter the Assessing Officer issued a notice to
show cause as to why the provisions of Section 69-C should not be
invoked and the expenses claimed should not be treated as
unexplained expenditure. In reply, the assessee by letter dated
24th March, 2004 submitted that the claim was made as a standard
deduction and that the assessee had been wrongly advised to make
the said claim and as the same has been withdrawn, Section 69-C
will have no application. The record of the assessment proceedings
disclose that the said stand was accepted by the Assessing Officer
and the matter was not pursued any further. An argument has
been made on behalf of the assessee that notice under Section 69-C
was issued by the Assessing Officer and thereafter on withdrawal of
the claim by the assessee the Assessing Officer thought that the
matter ought not to be investigated any further. This, according to
the learned counsel for the assessee, is a possible view and when
two views are possible on an issue, exercise of revisional power
under Section 263 would not be justified. Reliance in this regard
has been placed on a judgment of this Court in Malabar Industrial
Co. Ltd. vs. CIT3 which has been approved in Commissioner of
Income-tax vs. Max India Ltd. 4 21. There can be no doubt that so
long as the view taken by the Assessing Officer is a possible view
the same ought not to be interfered with by the Commissioner under
Section 263 of the Act merely on the ground that there is another
possible view of the matter. Permitting exercise of revisional
power in a situation where two views are possible would really
amount to conferring some kind of an appellate power in the
revisional authority. This is a course of action that must be
desisted from. However, the above is not the situation in the
present case in view of the reasons stated by the learned C.I.T. on
the basis of which the said authority felt that the matter needed
further investigation, a view with which we wholly agree. Making a
claim which would prima facie disclose that the expenses in respect
of which deduction has been claimed has been incurred and
thereafter abandoning/withdrawing the same gives rise to the
necessity of further enquiry in the interest of the Revenue. The
notice issued under Section 69-C of the Act could not have been
simply dropped on the ground that the claim has been withdrawn. We,
therefore, are of the opinion that the learned C.I.T. was perfectly
justified in coming to his conclusions insofar as the issue
No.(iii) is concerned and in passing the impugned order on that
basis. The learned Tribunal as well as the High Court, therefore,
ought not to have interfered with the said conclusion. 22. In
the light of the discussions that have preceded and for the reasons
alluded we are of the opinion that the present is a fit case
for exercise of the suo motu revisional powers of the learned
C.I.T. under Section 263 of the Act. The order of the learned
C.I.T., therefore, is restored and those of the learned Tribunal
dated 28th August, 2007 and the High Court dated 7th August, 2008
are set aside. The appeal of the Revenue is allowed.
Attachments area
SPECIAL JURISDICTION (INCOME TAX)
Judgement delivered on:13th May 2016.
(21) After hearing the learned advocates, we are of the opinion
that the
following questions arise for consideration:-
(a)Whether in the light of the views expressed in the case of
Lovely Exports
(supra) & Steller Investment (supra) the order under Section
263 directing
further investigation is legal?
(b) Is the finding of the Commissioner of Income Tax that
unaccounted
money was or could have been laundered as clean share capital by
creating
facade of paper work, routing the money through several bank
accounts and
getting it the seal of statutory approval by getting the case
reopened under
Section 147 suo motu perverse?
(c) Whether the order passed by the assessing officer under
Section
143(3)/147 of the Income Tax Act is erroneous and also prejudicial
to the
interest of the revenue?
(d)Whether the impugned judgement of the learned Tribunal is
perverse?
(28) We have indicated above the pieces of evidence which go to
show that
the Commissioner had reasons to entertain the belief that this was
or could be a
case of money laundering which went unnoticed because the assessing
officer
did not hold requisite investigation except for calling for the
records. The
evidence which we have tabulated above and the prima facie
inference drawn by us is deducible from the documents also
submitted before the assessing officer.
The fact that the assessing officer did not apply his mind to those
pieces of
evidence would be evident from the assessment order itself which
reads as
follows:-
“During the Financial Year the assessee company has issued
792737 No. of equity share with a face value of Rs.10/- along
with
a premium of Rs.390/-.
Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were
also issued to verify the transactions of the assessee on
test
check basis. The case is discussed and heard. Issue relevant
for
determination of total income of the assessee is discussed as
under:”
The issues relevant according to the assessing officer were a
receipt of a
sum of Rs.61,000/- on account of consultancy charges and the
preliminary
expenses written off amounting to a sum of Rs.60,000/-. He,
therefore,
completed the assessment after making addition of a sum of
Rs.1,21,000/-.
When is an order erroneous in so far as the same is prejudicial to
the interest of
the revenue was considered by this Court in the case of CIT –Vs-
Maithan
International reported in (2015) 375 ITR 123 (Cal) to which one of
us (Girish
Chandra Gupta, J.) was a party… The persons behind the assessee
company and the persons behind the
subscribing companies were not interrogated which was essential to
unearth the
truth. Reference may also be made to the judgement of this Court in
the case of
CIT –Vs- Active Traders Pvt. Ltd. (supra).
The question for consideration is whether in the presence of
materials
discussed above the Commissioner was justified in treating the
assessment
order erroneous and prejudicial to the interest of the revenue.
That question in
the facts and circumstances has to be answered in the
affirmative.
[28] We find no substance in the submission that the order of the
learned
Tribunal is perverse, after examining all the submissions advanced
by Mr.
Poddar.
[29] 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 Actwas 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. The judgement in the case
of Leisure
Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no
applicability
because the evidence furnished by the assessee in this case does
suggest a cover
up. We also have held prima facie that neither the transaction
appears to be
genuine nor are the applicants of share are creditworthy.
The judgement in the case of Omar Salay Mohamed Sait (supra) cited
by
Mr. Poddar has no application for reasons already discussed. It is
not true that
the Commissioner in this case has merely on the basis of suspicion
held that
this was or could be a case of money laundering. We as a matter of
fact have
discussed this issue in great detail and need not reiterate the
same. The order
passed by the Commissioner is by no means an act of substituting
his own views
to that of the assessing officer. It is true that the assessing
officer had
requisitioned the necessary details by his notice u/s.142(1) but he
thereafter did
not apply his mind thereto. The judgement in the case of J. L.
Morrison (India)
Ltd. has no manner of application because in that case the question
essentially
was whether the receipt was of a capital or revenue nature. The
facts and
circumstances were not in dispute. Moreover the view taken by the
assessing
officer was not shown nor was held by the Court to be an erroneous
view.
Whereas in this case we have demonstrated in some detail as to why
is the order
of the assessing officer erroneous and prejudicial to the
revenue.
The judgement in the case of Malabar Industrial Co. Ltd. (supra)
and Max
India Ltd. do not apply to the facts of this case for reasons
already discussed by
us. From the judgement of the learned Tribunal in the case of
Subholaxmi, placed before us in great detail by Mr. Poddar, we find
that all important issues
placed for consideration by no other than Mr. Poddar himself were
duly
considered by the learned Tribunal.
[30] For reasons already discussed we answer the issue No. (a) and
(c) in
the affirmative and the issue No. (b) and (d) in the negative. In
the result the
appeal fails and is dismissed. It is clarified that the views
expressed herein are
for the purpose of disposal of this appeal and shall not preclude
the statutory
authority from arriving at its own conclusion in accordance with
law.
Registration of agreement must for taxation of joint development
agreement
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
Before S/Shri Amit Shukla (Judicial Member) &
Ramit Kochar (Accountant Member)
I .T.A. No. 1038/Mum/2013
We have also observed that there has been an amendment in Section
17 of the
Registration Act,1908 whereby Section 17A was introduced and added
to the
statute w.e.f. 24.9.2001 by the Registration and Other Related
laws
(Amendment) Act, 2001, whereby it is clearly stipulated that a
contract to be a
valid contract under section 53A of the Transfer of the Property
Act, 1882, it has to be agreement in writing which is to be an
registered agreement and
otherwise the same shall have no effect for the purposes of the
said section
53A of the Transfer of Property Act,1882 . The said section 17(1A)
of the
Registration Act , 1908 as added and introduced to the statute
w.e.f.
24.9.2001 by the Registration and Other Related laws (Amendment)
Act, 2001
is reproduced hereunder:…. As per Section 49 of the Registration
Act,1908 , in the absence of registered
agreement as contemplated u/s 17 of the Act of 1908, the same shall
not affect
any immovable property comprised there-in or confer any power to
adopt or be
received in evidence of any transaction affecting such property or
conferring
such power. The said section 49 of the Registration Act,1908 is
reproduced
hereunder : In this instant case , the MOU dated 29.12.2004 entered
with GCB is not
registered and hence it does not convey any title or ownership
rights u/s. 53A
of the Transfer of Property Act,1882 in respect of the property as
per the newly
inserted section 17(1A) of the Registration Act,1908. Thus with
regard to the
transfer of the property in the instant case as per factual matrix
of the case as
set out above, there is no valid transfer u/s. 53A of the Transfer
of Property
Act,1882 had taken place as contemplated u/s. 2(47) of the Act as
the MOU
dated 29.12.2004 is an unregistered document , no title has been
transferred
in part performance of the contract as it had not affected the
immovable
property comprised there-in, hence capital gain cannot be brought
to tax. The
similar view has been taken in the case of C.S. Atwal (supra) by
the Hon’ble
Punjab and Haryana High Court. We have also noticed in the instant
case
that possession is handed over for the limited purpose of
demolition and
reconstruction of the property for constructing seven storey’s of
residential
building on this property , and it is not that the assessee and the
other coowners
of the property in execution of the MOU have handed over the
possession of the property in lieu of the part consideration
received from GCB
in the capacity of the buyer of the said property, rather the
possession of the
afore-stated property was handed over to GCB as licensee only for
limited
purpose of demolition of the existing bungalow and for
reconstruction of the
said property by constructing seven storey’s residential building
on the said
property. The assessee and the co-owners continue to enjoy the
possession as
and in the capacity as the owners of the afore-stated property
while concurrent
possession was with GCB as licensee for limited purposes of
demolition of
bungalow and for construction of seven stories and hence in our
considered
view, income there-of cannot be brought to tax in the hands of the
assessee
and the co-owner during the impugned assessment year as transfer
as
contemplated u/s 2(47) of the Act read with Section 53A of the
Transfer of
Property Act ,1882 is not been effected as the possession in fact
was never
been transferred from the assessee and the co-owners to the GCB in
its capacity as buyer of the fourth and fifth floor to be
constructed in lieu of
constructing rest of five floors for the assessee and the other
co-owners as
also on payment of Rs.1.65 crores by GCB to the assessee and other
co-owners
as per facts and circumstances of the case as set out above. The
agreement
has already been terminated by the assessee and the co-owners
on15.10.2007
for deficiency and discrepancies in performance by GCB in terms of
the MOU
dated 29.12.2004 with respect to the quality of construction and
time of
completion and the matter being sub-judice whereby Hon’ble Bombay
High
Court is seized of the suit no. 189 of 2008 filed by GCB with
respect to the
dispute between the assessee and co-owners on the one hand and the
GCB on
the other hand. Complete performance of the MOU has not allegedly
been done
by the builder as it is also on record that only 90% of the work
was claimed to
have been finished by GCB and no conveyance deed or registered
agreement
for sale has been registered in favour of GCB by the assessee and
the other coowners.
The additions made by the AO and as confirmed by the CIT(A) in
view
of our above reasoning and discussions as set out above are not
sustainable ,
the same is ordered to be deleted. We order accordingly.
Re-registration application u/s 12AA Held impermissible
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “A”, HYDERABAD
5. After considering the rival contentions and perusing the
orders on record and case law relied upon by the parties, we are of
the opinion that DIT(E) has rightly rejected the application. First
of all, as admitted during the hearing itself, assessee has neither
changed the objects of the Trust nor changed the persons in the
management. On the same set of trust deed and its committee,
assessee sought re-registration of the trust. The question for
consideration is whether the registration having been cancelled can
be granted again? There are no precedents on the subject and there
is no specific provision in the Act to grant registration again
once it is cancelled. Therefore, it is to be examined in the
context of the existing provisions and law on the subject. Section
12AA provides for a procedure to be followed by the Commissioner
for the grant of registration to a trust or an institution.
According to this procedure, the Commissioner shall call for
documents and information and conduct enquiries to satisfy about
the genuineness of the activities of the trust or institution. It
is on the basis of this satisfaction that the Commissioner is
required to grant registration. The phraseology of Section 12AA of
the Act prescribes the scope and ambit of the enquiry that the
Commissioner is authorized to carry out at the time of grant of
registration to a trust or institution, The scope and ambit of the
enquiry revolves around the nature of the objects being charitable
or religious, and the genuineness of the activities of the trust or
institution. On the other hand, cancellation of registration u/s
12AA(3) follows the satisfaction of the Commissioner that the
activities of the trust are not genuine or not in accordance with
its objects. The satisfaction of the Commissioner regarding the
genuineness of the activities of the trust or institution forms the
basis for both the grant of registration and its cancellation.
Having held as a finding of fact, while cancelling the
registration, that the activities of the trust were not genuine or
not in accordance with its objects, it would be illogical and
self-contradictory for the Commissioner to hold that the activities
of the trust were genuine, which is a pre-requisite for granting
registration. The refusal to grant registration after it has been
cancelled is, therefore, a natural corollary of the cancellation
itself.
In our opinion, on the basis of the same trust deed and the
activities of the trust, registration cannot be granted by the
authority, who has earlier cancelled the registration. Even though
not a directly related case but on similar situation, the Hon'ble
Madhya Pradesh High Court, Indore Bench in the case of CIT Vs.
Shyamlal M Sony [276 ITR 156] has considered that when an appeal
arising out of the same order of the Tribunal has been dismissed,
then, it necessarily follows that all appeals from that order are
to be disposed of on the same lines. It is of no significance
whether the dismissal was by a speaking or otherwise. It was held
that the court was bound by the order passed by the earlier
Divisional Bench dismissing the appeal which arose out of this very
same order. Taking support from the principles laid down by the
Hon'ble High Court in the above said case, we are of the opinion
that DIT/CIT cannot take a decision against its own decision
cancelling the registration earlier, now registering the trust
again so as to confer certain benefits which assessee trust was not
found entitled earlier. In view of that, we are of the opinion that
re-registration on the same trust deed cannot be considered by the
authorities which may amount to review of earlier decision
cancelling the registration. The statute also should specifically
provide for re-registration. Under the company’s law
re-registration was provided whenever a Private Limited company
converts itself into a Public Limited Company. If the Legislature
intended to grant registration to the trust to which registration
was already cancelled, then there should be specific provisions to
that extent provided in the IT Act. There are no such provisions
made so far. One cannot infer such right when the cancellation of
registration already granted has become final. Therefore, there
cannot be any second innings by way of registration of the same
trust with the same objects. When there is no specific right
provided in the Act for re-registration of the trust, assessee
cannot seek such registration. It may be different scenario/case if
assessee has modified its objects, or changed its committee who
were governing the trust or handed over the ‘property of the trust’
to another trust for its proper maintenance, then, fresh
registration of the new trust could be examined by the DIT/CIT as
per the law. At present there is no provision either
in Sec.12A or in Sec. 12AA allowing the assessee
registration for the second time. Ld. Counsel relied on certain
cases in support of contentions The issue in appeal in those cited
cases arose from the refusal of the CIT to condone the delay in
filing the application or refusal to revise his own order granting
registration. There was no cancellation of registration nor a
finding that the activities of the assessee were not genuine or not
in accordance with the objects. Therefore, these decisions cannot
be considered as precedent in the present appeal. Ld CIT-DR rightly
distinguished the cases with which we agree.
9. In the given facts, we are of the opinion that assessee cannot
apply for re-registration, once the registration granted was
cancelled validly, having found that that the trust is not genuine
and has not been carrying out its activities in accordance with the
objects of the trust. We are of the opinion that the CIT was
correct in refusing to entertain the application. In view of this,
the grounds raised by assessee are dismissed.
Time bound section 12AA decision : deemed registration ass fav
recent order
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “B”, KOLKATA [Before
Shri Mahavir Singh, JM & Shri M.Balaganesh, AM]
ITA No.647/Kol/2013
The delay in passing the original order on 30.8.2012 which is
beyond six months was also brought to the notice of the Learned CIT
by the assessee which has not been taken into cognizance by the
Learned CIT even in the second round of proceedings. We find that
the Central Board of Direct Taxes had issued Instruction No.
16/2015 dated 6.11.2015 specifically addressing the impugned issue
under dispute which is reproduced hereinbelow :- Instruction
No.16/2015 F.No.197/38/2015-ITA.1 Government of India Ministry of
Finance, Department of Revenue (Central Board of Direct Taxes)
(ITA-1 Division) North Block, ITA.I Division Dated, the 6th
November, 2015 To All the Principal Chief Commissioners of
Income-tax All the Chief Commissioners Income-tax Chief
Commissioner of Income-tax (Exemptions) All Directors General of
Income-tax Sub : Following the prescribed Time limit in passing
order u/s 12AA of the Incometax Act, 1961 Sub-section(2) of Section
12AA of the Income-tax Act, 1961 prescribes that every order
granting or refusing registration under clause(b) of sub-section
(1) of that Section shall be passed before the expiry of six months
from the end of the month in which the application was received
under clause (a) or clause (aa) of the sub-section (1) thereof.
Thus while processing the application u/s 12AA of the Act, the time
limit of six months has to be adhered to by the Commissioner of
Income Tax (Exemptions). However, it has been brought to the notice
of the Board that the said time limit has not been observed in some
cases. 2. The undersigned is directed to convey that the aforesaid
time limit of six months is to be strictly followed by the
Commissioner of Income tax (Exemptions) while passing order u/s
12AA. The CCIT (Exemptions) may monitor the adherence of prescribed
time limit and initiate suitable administrative action in case any
laxity in adhering to the same is noticed.” We also find that
the Hon’ble Supreme Court in the case of CIT vs Society for the
Promotion of Education , Allahabad in Civil Appeal No. 1478 of 2016
dated 16.2.2016 had categorically held as below:- 3. The short
issue is with regard to the deemed registration of an application
under section 12AA of the Income Tax Act. The High Court has taken
the view that once an application is made under the said provision
and in case the same is not responded to within six months, it
would be taken that the application is registered under the
provision. 4. The learned Additional Solicitor General appearing
for the appellants, has raised an apprehension that in the case of
the respondent, since the date of application was of 24.02.2003, at
the worst, the same would operate only after six months from the
date of the application. 5. We see no basis for such an
apprehension since that is the only logical sense in which the
Judgement could be understood. Therefore, in order to disabuse any
apprehension, we make it clear that the registration of the
application under section 12AA of the Income Tax Act in the case of
the respondent shall take effect from 24.08.2003. We find that the
aforesaid judgement had emanated out of the order passed by the
Hon’ble Allahabad High Court reported in (2008) 171 Taxman 113
(Allahabad) wherein it was held that : “Admittedly, after the
statutory limitation, the Commissioner would become functus
officio, and he could not thereafter pass any order either allowing
or rejecting the registration. It is obvious that the application
cannot be allowed to be treated as perpetually undecided.
Therefore, the key question arises whether upon lapse of the six
months period without any decision, the application for
registration should be treated as rejected or it should be treated
as allowed. [Para 6] Taking the view that non-consideration of the
registration application within the time fixed by section 12AA (2)
would result in deemed registration, may, at the worst, cause loss
of some revenue or income-tax payable by that individual assessee.
This would be similar to a situation where the assessing authority
fails to make the assessment or reassessment within the limitation
prescribed for the same. That also leads occasionally to loss of
revenue from that individual assessee. [Para 10] On the other hand,
taking the contrary view and holding that not taking a decision
within the time fixed by section 12AA(2) was of no consequence
would leave the assessee totally at the mercy of the income-tax
authorities, inasmuch as the assessee had not been provided with
any remedy under the Act against non-decision. [Para 11] Besides,
the said view would not create any irreversible situation, because
under section 12AA(3), the registration can always be cancelled by
the Commissioner, if he is satisfied that the objects of such trust
or institution are not genuine or the activities are not being
carried out in accordance with the objects of the trust or
institution. The only drawback is that such cancellation would
operate only prospectively. Therefore, if a view is taken that
non-consideration of the registration application within the time
fixed by section 12AA(2) would amount to deemed grant of
registration, the only adverse consequence likely to flow from such
a view, in respect of any case of that assessee arising in future
would, at best, be some loss of revenue from that individual
assessee from the date of expiry of the limitation under section
12AA(3) till the date of cancellation of that registration, if such
cancellation is called for. [Para 12] For the interpretation of a
statute, purposive construction' of the enactment, which gives
effect to the legislative purpose/intendment, if necessary, must be
followed and applied. [Para 13] Considering the pros and cons of
the two views, by far the better interpretation would be to hold
that the effect of non-consideration of the application for
registration within the time fixed by section 12AA (2) would be
deemed grant of registration. There is no good reason to make the
assessee suffer merely because the Income-tax Department is not
able to keep its officers under check and control, so as to take
timely decisions in such simple matters, such as consideration of
applications for registration even 'within the large six months
period provided by section 12AA(2). ,[Para 18] Therefore, the writ
petition was to be allowed. [Para 20].”
5.6. In view of the aforesaid findings and judicial precedents
relied upon hereinabove, to sum up, we hold that :- (a) Sufficiency
or some irregularities in bringing the initial corpus fund would
not automatically make the trust as not to have come into existence
; (b) The charitable objects of the trust are not disputed by the
Learned CIT ; (c) What is to be seen at the time of granting
registration by the Learned CIT is only whether the objects of the
trust are charitable and activities carried out are genuine in
nature , which conditions have been duly satisfied by the assessee
in the instant case ; (d) In any case, the order passed by the
Learned CIT refusing registration u/s 12AA of the Act is beyond the
stipulated period of six months as per section 12AA(2) of the Act
and hence the assessee cannot be denied the benefit of registration
u/s 12AA of the Act .
N THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE
ITA Nos.1379, 1380 & 1381/Bang/2014 (Assessment year: 2005-06,
2006-07 & 2007-08)
Rajkumar C (HUF)
Date of pronouncement : 27/04/2016
8. We heard rival submissions and perused material on record. At
the outset, we shall deal with the preliminary ground challenging
the very validity of the re-assessment proceedings as it goes to
the root of the jurisdiction of the assessment proceedings.
Indisputedly, Shri Rajkumar made a statement before ADIT,
Investigation Wing of the Department on 26/8/2008 and subsequently
by letter dated 24/12/2008 that income was earned from real estate
activities in the hands of HUF of which he was a kartha. However,
no returns were filed. Returns were filed in the individual
capacity. He also admitted the sale of land of ancestral property
situated at Sy.No.85 & 186 situated at Doddathimmasandra
village, Sy.No.32 at Medahally village, Sy.No.310 at Sarjapura
Hobli and Sy.No.24 at Medahally village. He made an admission that
all these transactions took place in the hands of HUF of which he
was a kartha. But the AO has chosen to tax them in his individual
hands and the CIT(A) accepted the submission of the assessee that
profits on account of sale of agricultural land as well as profits
earned from purchase and sale of property were taxable in the hands
of HUF. This order of the CIT(A) came to be affirmed by the
Tribunal. The CIT(A), while dealing with the appeal filed by
C.Rajkumar, in his individual capacity, had directed the AO to take
necessary steps for assessing impugned income in the hands of
Rajkumar, C, (HUF). Pursuant to these directions, the AO had
initiated reassessment proceedings in the hands of the appellant.
9. In these circumstances, we are required to adjudicate the
validity of the re-assessment proceedings in the present case. The
condition precedent for initiating re-assessment proceedings is
that the AO should have reason to believe that income chargeable to
tax had escaped assessment. Whether this condition is satisfied by
the AO or not is to be judged from th reasons recorded by the AO
u/s 148 for issuance of notice for reassessment proceedings. It is
trite law that validity of reassessment is to be judged only on the
touch-stones of reasons recorded for issuance of notice u/s 148 of
the AcT. The principle of law therefore is well settled that
the question as to whether there was a reason to believe within the
meaning of section 147 that income escaped assessment must be
determined with reference to the reasons recorded by the AO. From
the reasons recorded by the AO, it is clear that reassessment
proceedings were initiated pursuant to directions of the CIT(A)
only. From the reasons recorded (extracted supra), the AO mentioned
that the appellant was in the business