BANGALORE BENCH 'C', BANGALORE
 
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