Case Details: Ashish Gupta vs. Income-tax Officer - [2024] 163 taxmann.com 739 (Delhi-Trib.)

Judiciary and Counsel Details

• Shamim Yahya, Accountant Member & Ms Madhumita Roy, Judicial Member
• Subodh Gupta & Mukesh Agarwal, CAs for the Appellant.
• Kanv Bali, Sr. DR for the Respondent.

Facts of the Case

The assessee, an individual, sold land that he treated as agricultural land and did not disclose the capital gains in his return of income. The Assessing Officer (AO) noted that the said land was situated within 5 km of the municipal limits of Ghaziabad and asked the assessee to furnish a computation of capital gain on the transfer of this property.

The assessee responded that the said land is agricultural and does not fall within the meaning of capital assets as per provisions of section 2(14). AO rejected the assessee’s contention and held that the said land is about 5 km from the municipal limits of Ghaziabad. The asset transferred by the assessee during the year is held to be a capital asset within the meaning of Section 2(14), which was chargeable to capital gain tax.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) upheld the AO’s order, and the matter then reached the Delhi Tribunal.

ITAT Held

The Tribunal held that the assessee’s argument that the distance of about 5 km from Dasna Flyover, Govindpuram, as confirmed by the Income Tax Inspectors and Tehsildars, was in February/March 2016. The assessee argued that the distance of the land in question should be reckoned as existing on Notification No. 9447 dated 06.01.1994, when the municipal limits were up to Hapur Chungi (near the Income Tax Office), from where the distance was 8.7 km approx. as per the IT Inspector’s report.

The assessee also referred to the response from Ghaziabad Nagar Nigam, which enclosed a Notification dated 31.08.1994 stating that municipal limits were extended to Govindpuram and Dasna Drain on 31.08.1994 after its upgrading from Municipal Council (Nagar Palika) to Municipal Corporation (Nagar Nigam) on the same date.

The Tribunal ruled that an exemption under section 2(14)(iii)(b) requires a mandatory notification by the Central Government. Since no notification was issued after January 6, 1994, the expansion of municipal limits from Hapur Chungi to Dasna Flyover on August 31, 1994, is irrelevant and should be disregarded.

Therefore, the land in question was undoubtedly beyond 8 km from the Municipal corporation’s limits. Accordingly, the assessee’s appeal was allowed.

List of Cases Reviewed

• Smt. (Dr.) Subha Tripathi v. Deputy Commissioner of Income Tax, Circle-6, Jaipur [2013] 34 taxmann.com 286 (Jaipur – Trib.)
• CIT v. Madhukumar-N.HUF, Karnataka High Court, ITA 396 of 2009 dated 29.03.2012
• ITO v. Akash Deep Farms Pvt Ltd, ITAT Ahmedabad, ITA 561/Ahd/2017 dated 10.12.2018 (para 8) – followed.

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Case Details: Deloitte Haskins and Sells LLP vs. National E Assessment Centre - [2024] 163 taxmann.com 717 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Girish Agrawal, Accountant Member & Sunil Kumar Singh, Judicial Member
  • J.D. Mistry & Niraj Sheth for the Appellant.
  • Ms Sanyogita Nagpal, CIT, DR for the Respondent.

Facts of the Case

The assessee is a limited liability partnership firm of chartered accountants that provides professional assurance and taxation services to domestic and international clients. The assessee follows a cash system of accounting. During the assessment proceedings, the Assessing Officer (AO) noticed certain payments were made to the retired partners.

For such payments, the assessee contended that income with respect to professional fees gets booked only on receipt of professional fees from the client. This practice results in a considerable amount of income, either unbilled or billed but not received, for which time was devoted and efforts were made when retired partners were active in the firm. Accordingly, the payments were made in terms of the clauses of the partnership deed and other relevant documents the assessee submitted by the assessee.

Unsatisfied by the reply, AO disallowed the expenses claimed by assessee and made additions to the income.

On appeal, CIT(A) upheld the AO’s order. Aggrieved by the order, the assessee filed an appeal before the Mumbai Tribunal.

ITAT Held

The Tribunal held that, in terms of the clauses of the partnership deed and other relevant documents, there was a prior charge in respect of payments due to the retired partners on the gross fees received by the continuing firm. Owing to the prior charge arising from the terms and provisions of the partnership deed, the sum payable to the retired partners is diverted by way of superior title.

The firm paid retired partners according to their partnership deed. The basis was that the partner would have rendered their professional services during their partner tenure but could not enjoy the fruits thereof because work had remained incomplete.

The identical issue was dealt by the co-ordinate Bench of ITAT wherein the addition so made was deleted because it was held to be an instance of the source of income being subject to an obligation. Thus, the outstanding fees paid to the retiring partners as per the terms of the deed of retirement were held and were not assessable as the firm’s income.

Considering the facts on record along with the documentary evidence, the assessee’s appeal was allowed.

List of Cases Referred to

• • CIT v. C.C. Chokshi & Co. ITA No.209 (para 7.6)
  • S.B. Billimoria & Co. v. Asstt. CIT [2010] 125 ITD 122 (Mumbai) (para 8)
  • ACIT v. Deloitte Haskins & Sells ITA No.2077/MDS/2016/ITA No. 1517/CHN/2017 (para 10)
  • C.C. Chokshi & Co. v. JCIT ITA No. 492-495/Mum/2003 (para 9.2)
  • CIT v. Mulla & Mulla & Craigie Blunt & Caroe [1990] 54 Taxman 192/190 ITR 198 (Bombay) (para 9.2)
  • CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC) (para 9.3).

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Case Details: Smt. Dhanashree Ravindra Pandit v. Deputy Director of Income-tax (Investigation) - [2024] 163 taxmann.com 695 (Karnataka)

Judiciary and Counsel Details

• M. Nagaprasanna, J.
• Sangram S. Kulkarni, Adv. for the Petitioner.
• Y.V. Raviraj & Tulajappa Kalaburgi, Advs. for the Respondent.

Facts of the Case

The assessee was the Directors of two British Virgin Island Companies. A complaint under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (‘BM Act’) was filed against the assessee for not disclosing the information of the assets located outside India, including financial interest in any entity, in the income tax return (ITR).

The complaint was filed under section 50 of the BM Act. Section 50 makes it an offence if the assessee fails to furnish any information about an asset located outside India, including financial interest. The section further provides for punishment with rigorous imprisonment, which shall not be less than 6 months but may extend to 7 years, and with a fine.

Assessee filed a writ petition to the Karnataka High Court contending that the complaint was filed for the act committed in 2009. The BM Act came into force on 01-07-2015. Thus, the said act does not fall within the ambit of Article 20(1) of the Constitution of India, which provides that no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence.

High Court Held

The High Court ruled that the Apex Court, in the case of Rao Shiv Bahadur Singh v. State of Vindhya Pradesh (1953 AIR 394), held that Article 20 of the Constitution of India grants a fundamental right to a person. This right ensures that a person cannot be convicted of an offence unless it violates the law in force at the time of the act, nor can they be subjected to a penalty greater than that which could have been imposed under the law in force at that time.

The Apex Court held that a legal fiction or a deeming fiction should not be extended beyond the purpose of the Act for which it is created or beyond the language deployed in the enactment. If the deeming section is given credence and criminal law is affirmed, it would defeat the tenor of Article 20 of the Constitution, as every post-facto law could be made retrospective.

In the present case, the assessee was prosecuted for the act committed before the BM Act came into force. The BM Act came into force on 01-07-2015, and the assessee was prosecuted for the act committed in 2009. Therefore, the assessee cannot be convicted of any offence except for violating the law in force at the time of committing the act charged as an offence.

List of Cases Referred to

• Union of India v. Gautam Khaitan (2019) 10 SCC 108 (para 14).

The post No Prosecution for Non-disclosure of Foreign Assets in ITR if It Occurred Before Enactment of Black Money Act | HC appeared first on Taxmann Blog.

Meenakshi Subramaniam – [2024] 163 taxmann.com 683 (Article)

Man to friend

“A strange thing has happened. Because time was running out, for capital gains exemption, I got my house constructed in great hurry. It’s now like no other house in world. On entering, you first land in kitchen. Then, a bedroom comes. Next, a store room is seen. Then, a swimming pool emerges. After that, a study room is built. Another bedroom appears. The back verandah is seen, next. The drawing room is last! “

Providing relief to many taxpayers, the Mumbai Tribunal has upheld in recent Sheela Ramchand Uttamchandani v. ITO [2024] 163 taxmann.com 265 (Mum.-Trib) case that only unspent amounts for under construction house would be subject to capital gains tax.

The only grievance of the assessee, in the present appeal, is against the denial of exemption claimed u/s 54 of the Act.

The assessee is an individual and for the year under consideration filed her original return of income on 25/07/2019 declaring a total income of Rs. 6,26,210/-. During the assessment proceedings, for assessment year 2013-14, it was observed that the assessee had sold a residential property, Flat No. 504, Tower No. 4, Raheja Tipco House CHS Ltd, on 31/07/2012 for a sale consideration of Rs. 1,80,00,000/-, which was purchased by assessee on 26/06/2008 for Rs. 54,73,095/-. It was observed that the assessee, in her return of income had not offered the Long Term Capital Gain of Rs. 99,35,840/- earned from the aforesaid sale transaction, claiming the same as exempt u/s 54 of the Act and deposited the entire capital gain in the Capital Gains Account Scheme on 29/07/2013. Further, it was noticed that the assessee purchased a new residential flat and had made certain payments. Since the construction of the project had not started till 31/07/2015, i.e. till the completion of a period of three years, the Assessing Officer (“AO”), vide assessment order disallowed the claim of the assessee u/s 54 of Act. The learned CIT(A) dismissed the appeal filed by the assessee and, inter alia, directed that remedial action may be initiated. Accordingly, proceedings u/s 147 of the Act were initiated for the year under consideration, and notice u/s 148 was issued. In response to notice, the assessee filed her return of income declaring total income similar to the original return. It was observed that the assessee had deposited an amount of Rs. 1 crore under the Capital Gains Account Scheme with the State Bank of India on 29/07/2013. It was further observed that though the assessee had partly invested the Long Term Capital Gain in buying a new house property, however, no construction has taken place and the money invested with the developer is still lying idle. Accordingly, the assessee was asked to show cause as to why the entire amount of Long Term Capital Gain of Rs. 99,35,840/- be not added to the total income of the assessee. In the absence of any response from assessee, the AO vide order dated 20/12/2019 passed order u/s 143(3) read with section 147 making an addition of the entire amount of Long Term Capital Gain of Rs. 99,35,840/- to the total income of the assessee on the basis that the assessee has neither purchased nor constructed any residential house/property as required for claiming relief u/s 54 of Act.

The learned CIT(A) dismissed the appeal of assessee and held that at the time of booking of the residential property on 10/09/2014, the assessee was under no doubt that the expected time period for completion of the project is 30 months, i.e. much beyond the time of three years permitted u/s 54 of the Act from the sale of original asset. Being aggrieved, the assessee made appeal before Tribunal.

During hearing, the learned AR submitted that for reasons beyond the control of the assessee the construction of the property got delayed, and due to the same, the assessee should not be denied exemption for which she is rightly eligible u/s 54 of Act.

The assessee had deposited the entire amount of capital gain under the Capital Gains Account Scheme and therefore, the amount can be withdrawn from the bank only for the purpose of purchase of the residential flat.

The AR also referred to correspondence between the assessee and the builder, wherein the assessee requested the builder to execute the agreement for sale and had refused to accept the refund of money paid by her.

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Case Details: Seo Lehenga House vs. DCIT - [2024] 163 taxmann.com 668 (Chandigarh - Trib.)

Judiciary and Counsel Details

• Aakash Deep Jain, vice president & Vikram Singh Yadav, accountant member
• Sudhir Sehgal, Adv. & Rishabh Marwah, CA for the Appellant.
• Smt. Kusum, CIT, DR for the Respondent.

Facts of the Case

During the survey, it was found that the assessee had made bogus purchases and bogus sales through a broker to whom a cash commission was paid on the total amount of bogus purchases and sales. The Assessing Officer (AO) issued a show cause notice to the assessee contending that the commission at the rate of 1% on the total amount of bogus purchases and sales should be treated as unexplained expenditure under section 69C of the Act.

The assessee submitted that it had itself shown a gross profit on bogus purchases and sales, which it never earned, @ 1.6% on the bogus sales of Knitted Cloth. Accordingly, the total alleged commission payment for declared bogus purchases and sales is duly covered by the gross profit shown in the books of account on bogus sales, which was never earned by them.

AO did not accept the assessee’s contentions and made additions under section 69C.

On appeal, CIT(A) upheld the additions made by the AO. Aggrieved by the order, an appeal was filed to the Chandigarh Tribunal.

ITAT Held

The Tribunal held that the assessee had been contending right from the assessment proceedings that it disclosed and offered to tax gross profit on bogus sales, which was accounted for in its books of accounts. The commission payment to the broker was, therefore, duly covered by the quantum of gross profit already offered to tax.

Upon reviewing the records, it was noted that the assessee reported a gross profit of 1.60% on fictitious sales of knitted cloth, amounting to approximately Rs 14 lakhs. Consequently, the commission for arranging the bogus purchases and sales, which was approximately Rs 5 lakhs as determined by the AO, is included within the reported gross profit of Rs 14 lakhs. Therefore, no separate addition should be made in this regard.

Therefore, the addition relating to the commission sustained by the CIT(A) was directed to be deleted.

List of Cases Referred to

• Anantharam Veerasinghaiah & Co. v. CIT [1980] 16 CTR 189/123 ITR 457 (SC) (para 22).

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CA S. Krishnan – [2024] 163 taxmann.com 660 (Article)

1. Introductory Remarks

The Income-tax Act (the Act) is an exhaustive enactment dealing with set of rules and regulations upon which the Income-tax Department levies, administers, collects and recovers taxes. Income-tax is a form of direct taxes that needs to be borne by the taxpayer. It cannot be transferred to another individual.

The Madras High Court in the case of CIT v. Indian Express (Madurai) (P.) Ltd. [1983] 140 ITR 705/13 Taxman 441 had firmly observed that the primary purpose of the Income-tax Act is to levy and collect Income-tax and the purpose of the statutory provisions, especially those relating to the administration and management of Income Tax, is to ascertain the tax liability correctly. These relevant observations made by the Hon’ble Judges at para.22 are extracted below-

“The primary purpose of the I.T. Act, 1961, is to levy and collect income-tax and as the purpose of the statutory provisions especially those relating to the administration and management of I.T. is to ascertain the tax liability correctly, the various provisions relating to appeal and reference, etc., cannot be equated to a lis or dispute arising between two parties as in a civil litigation. Although the I.T. statute makes the Department and its officers figure as parties in appeal proceedings, they are not in the strict sense what are called by American writers as parties to “adversary proceedings” because the very object of the appeal is not to decide a point raised as a dispute but any point which goes into the adjustment of the taxpayer’s liability and hence the authorities sitting in appeal in a tax case cannot be regarded as deciding a lis. They are only engaged in an administrative act of adjusting the taxpayer’s liability. Even though the appellate authorities exercise quasi-judicial functions, the proceedings before them lack the basic elements of adversary proceedings. In a case where the Revenue is a party, at the same time being an authority vested with the responsibilities of drawing up the assessment and determining the correct tax liability, it would not be in accord with the scheme of the Act to impose restrictions on the ambit and power of the Tribunal by notions such as finality, subject-matter of the appeal, etc.”

The term “lis” means “a piece of litigation, a controversy or dispute “[ Black’s Law Dictionary (8th Edition) as cited in Namit Sharma v. Union of India [2013] 1 SCC 745 (para.78.1)

[Source- Page 1120 from P. Ramanatha Aiyar’s The Law of Lexicon -Fifth Edition]

The Act has fixed time limits for levy and collection of taxes, penalties etc. The Act has also set certain time limits for filing tax returns and obtaining refunds. Sometimes inaction on the part of the assessees or their representatives may result in loss of income/money by the assessees. One such term, in this regard, which one frequently comes across is “Acquiesce” which means to give silent or passive assent to; to tacitly agree to; resting satisfied with any state of things. [ Section 23 of the Indian Trusts Act, 1882 and Section 20(b) of Civil Procedure Code, 2008] In simple language it also means to accept something reluctantly but without protest. The noun part of the verb is “acquiescence”.

In the ensuing paragraphs let us understand the definition of the term “acquiescence” as explained in English dictionaries, by authorities on law and how it has been understood and explained by various judicial authorities. Let us also analyse a few important cases in income-tax explaining the doctrine of “acquiescence”

2. Acquiescence – As defined in dictionaries

1. Cambridge Dictionary – the act of accepting or agreeing to something often unwillingly
2. Oxford Learner’s Dictionaries – the fact of being willing to do what somebody wants and to accept their opinions, even if you are not sure that they are correct.
3. Merriam-Webstar – passive acceptance or submission;
4. Vocabulary.com – Acquiescence is an agreement, usually a willingness to go along with what someone else suggests

3. Acquiescence – As explained by authorities on law

3.1 Acquiescence is the common element in a somewhat indefinite group of equitable estoppels, constituted by the fact that the person entitled has, as it is said,” slept upon his rights” and by his conduct at the time of a breach of them, or subsequently thereto, has with full knowledge, both of his own rights and the acts which infringe them, led that person responsible for the infringement to believe that he has waived or abandoned his rights. The Term “laches”,” acquiescence”, “standing by” and “delay” are frequently associated together, and they do not appear to be capable of distinct definitions. (Encyclopaedia of the Laws of England)

However, it is to be understood that while the words “laches” and “acquiescence” are often used as similar in meaning, the distinction in their import, is both great and important. The term “Laches” imports a merely passive, while the term “acquiescence” implies active, assent.

3.2 Acquiescence is to be distinguished from avowed consent, on one hand, and from open discontent or opposition, on other hand. It amounts to a consent which is impliedly given by one or both parties to a proposition, a clause, a condition or to any act whatever [Bouvier Law Dictionary]

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Case Details: Tata Autocomp Gotion Green Energy Solutions (P.) Ltd. vs. Central Board of Direct Taxes - [2024] 163 taxmann.com 643 (Bombay)

Judiciary and Counsel Details

• • Dr Neela Gokhale & K. R. Shriram, JJ.
  • P.J. Pardiwalla, Sr. Adv., Madhur Agrawal & Upendra Lokegaonkar for the Petitioner.
  • Ahileshwar Sharma for the Respondent.

Facts of the Case

Tata Autocomp Gotion Green Energy Solutions Private Limited (the petitioner) was a joint venture between Tata Autocomp Systems Ltd. and Hefei Guoxuan High-Tech Power Energy Co. Ltd. (GOTION CHINA). Petitioner was to be owned 60% by Tata Autocomp and 40% by GOTION China.

The petitioner stated that the commercial production started at the end of the Financial Year 2022-23, and the first bill for sale was raised on 31 March 2023. For AY 2020-21 and 2021-22, the petitioner had not exercised the option to be governed by Section 115BAB of the Act, which it thought of exercising for AY 2022-23.

Therefore, the petitioner filed an application under Section 119(2)(b) to condone delay in filing Form 10-ID to avail of the beneficial rate of tax of 15% under Section 115BAB of the Act for reasons mentioned in the application.

The matter was heard by Member (IT&R), CBDT, and subsequently, the Additional Commissioner of Income Tax (ITA Cell), CBDT, New Delhi, passed an order rejecting the application. Aggrieved by the order, the petitioner filed a writ petition to the Bombay High Court.

High Court Held

The High Court held that the order was challenged on various grounds. Still, two points stand out: first, the order has not been passed or signed by the Member who gave a personal hearing. Second, the order relies on the report of the Field Authorities, which the petitioner stated has not been provided.

CBDT received such a report and considered it only when the petitioner received the impugned order. The petitioner’s officers were called by the ‘Field Authorities’. Their explanations were sought after, but nothing was received by the petitioner. Further, the order says, “This issues with the approval of Member (IT&R), Central Board of Direct Taxes” and is signed by Virender Singh, Additional Commissioner of Income Tax (ITA Cell), CBDT, New Delhi.

If the Member (IT&R) has granted a personal hearing, the order should have been passed by him. The contention that there could be file notings was not made available to the petitioner. Therefore, on these grounds alone, the High Court quashed and set aside the impugned order and remanded the matter to CBDT.

The Member/Members shall make available to the petitioner all Field Reports/documents/instructions received by the CBDT from the Field Authorities. Within two weeks of receiving the same, the petitioner shall file, if advised, further submissions in support of its application for condonation of delay.

The post CBDT to Provide All Relevant Documents to Assessee Before Rejecting Its Application for Condonation of Delay | HC appeared first on Taxmann Blog.

Mayank Mohanka – [2024] 163 taxmann.com 562 (Article)

1. Introduction

Friends, I have always felt that,

“General anti-abuse measures are good as long as they don’t become specific tools for abuse themselves.”

With the advent of ‘General Anti Avoidance Rules’ (GAAR), in the Indian Income Tax Act, with the incorporation of a new Chapter X-A containing sections 95-102, w.e.f. AY 2018-19, it seems that the thin dividing line between the “legitimate tax planning” and the “illegitimate tax evasion”, has gotten blurred and shrunk even further. Infact, looking at the language of these sections, one would really wonder, if legitimate tax planning, even within the four corners of Law, as upheld by the hon’ble Supreme Courts in UK and India in the landmark judgements of Duke of Westminster and Azadi Bachao Andolan, respectively, is still considered legitimate?

In my earlier published article with Taxmann, on GAAR, titled ‘Colourful Devices vs. GAAR’ [2019] 103 taxmann.com 255 (Article), I have discussed and analysed the legalities and nitty-gritties of the GAAR enabling Chapter X-A in the Income Tax Act and the critical need to strike a fine balance between the ratios emerging out of the landmark judgements of the “Ramsay/Mc Dowell” and the “Duke of Westminster/Azadi Bachao Andolan”.

In my second published piece titled ‘Can GAAR Override DTAA?’ [2022] 135 taxmann.com 156 (Article), I have analysed the interplay between domestic GAAR and International Tax Treaties and have tried to arrive at a conclusion that GAAR should not override DTAA. The reasoning is that section 90(2A) of the Income Tax Act, providing for the overriding nature of GAAR over DTAA’s benefits and as conferred by Article 246 of the Constitution of India, can’t override section 90(2) of the Income tax Act, mandating the overriding nature of more beneficial Treaty benefits and as conferred by Article 253 of the Constitution of India, which infact contains a non-obstante clause. A law made under Article 253 of the Constitution of India, such as section 90(2) of the Income Tax act, cannot be amended by a subsequent statute, which has been ordinarily made pursuant to the powers conferred under Article 246, such as section 90(2A) of the Income Tax Act. It is necessary to maintain the sanctity of international obligations because otherwise, domestic law would routinely alter the country’s international obligations.

2. Recent Telangana High Court Judgement on the Interplay of GAAR vs. SAAR

With the pronouncement of the much talked about recent Writ Petition Order of the hon’ble Telangana High Court in the case of ‘Ayodhya Rami Reddi Alla v. Pr. CIT‘ [2024] 163 taxmann.com 277, in Writ Petition Nos. 46510 & 46467 of 2022, dated 7.6.2024, I consider it worthwhile to pen down this third current piece on the interplay of domestic GAAR and domestic Special Anti-Avoidance Rules (SAAR).

Since much has already been written about the facts and merits of the said judgement, I will restrict my present piece to the more practical and critical aspects and issues arising out of this judgement, and to analyse as to whether GAAR can indeed override SAAR, or are we reading too much into the said judgement.

3. Facts of the Case

The learned ASG representing the revenue has drawn the attention of the hon’ble Karnataka High Court to the events of the case that had transpired within a short span of time, entailing multiple transactions undertaken by the petitioner’s group of entities. The facts as mentioned in paras 20-24 of the judgement, include increase of authorised share capital of M/s Ramky Estate & Farms Ltd (REFL) in the AGM held on 27.2.2019 and the allotment of 7,64,40,100 shares to Shri Alla Ayodhya Rami Reddy (the petitioner) and 5,56,52,175 shares to M/s Oxford Ayyapa Consulting Services Pvt Ltd, on a private placement basis. Immediately thereafter, in a short span of time, the petitioner purchased the aforementioned 5,56,52,175/- of REFL. Subsequently, on 04.03.2019, REFL declared bonus shares in the ratio of 1:5 (correct ratio should be 5:1). As a consequence of bonus shares declaration, the value of the shares got declined from Rs.115/- per share previously to Rs.19.20/- per share. On 14.03.2019, the petitioner in turn further sold Rs.5,56,521/- shares to another firm i.e. ADR on the rate of Rs.19.20/- per share, thereby, resulting in a short-term capital loss of approximately Rs.462 crores in the hands of the petitioner, and which has been adjusted/offset by the petitioner against the long-term capital gains arising out of sale of some other shares in another transaction. (Here also, there seems to be some typo error in the judgement, as sale of 5,56,521 shares, at a loss of Rs. 95.80 per share (115-19.20) comes at around Rs. 5.33 crores and not Rs. 462 crores. Even if the entire lot of purchased shares of 5,56,52,175 is considered, then the short-term capital loss comes at around 533 crores and not 462 crores.)

It has been further contended by the revenue and accepted by the hon’ble High Court that the purchaser i.e. ADR did not have sufficient sources of funds to buy the shares of REFL from the petitioner. Funds in this regard were provided by M/s. Oxford Ayyapa Consulting Services India Private Limited to ADR. Thus, the money which was funded by M/s Oxford Ayyapa Consulting Services India Private Limited was returned by way of rotation of funds from within the group itself in the form of transfer from one group concerned to another. This entire exercise has been carried out with a sole motive of evading tax. Thus, the aforesaid transaction is nothing but round stripping of funds with no commercial substance. Moreover, the entire exercise has been done only with a mala fide intention of avoiding the payment of tax by creating losses. The entire transaction was made in the creation of a loss to the tune of Rs.462 crores without any economic, rational and commercial substance.

Petitioner’s Contention: In the said Writ Petition, the petitioner has contended that the transaction in question falls under the mischief of a Specific Anti Avoidance Rule (SAAR), pertaining to bonus stripping, stipulated under section 94(8) in Chapter X, of the Income Tax Act. Therefore, such SAAR provision should take precedence over the General Anti Avoidance Rule (GAAR), provided under sections 95-102 in Chapter X-A of the Act. Thus, the issuance of the impugned notice under Section 144BA invoking GAAR under Chapter X-A of the Act, is without jurisdiction and unsustainable in the eyes of Law.

It is pertinent to mention here that in the subject AY 2019-20, the SAAR provision u/s 94(8) aimed at curbing the abuse of bonus stripping covered only transactions of mutual funds units and didn’t cover ‘shares and securities’ within its scope. Shares and securities have been included in the scope of section 94(8) only w.e.f. 1.4.2023.

According to the petitioner, the Parliament while enacting Section 94(8) never had the intention of including shares and security within the scope of bonus tripping. If the Parliament would had intended the same, they would have included it within the rigors of Section 94(8) of the Act.

Therefore, what has been specifically excluded from the provisions curbing bonus stripping by way of SAAR cannot be indirectly curbed by applying GAAR. This was nothing but expansion of the scope of a specific provision in the Income Tax Act which is otherwise impermissible under the law.

Revenue’s Contention: The learned ASG representing the revenue has contended that the subject matter transactions could not be construed as the isolated case of bonus stripping, but the entire arrangement involved multiple transactions, undertaken by the petitioner deliberately within a very short span of time and aimed primarily to create artificial losses without any economic, rational and commercial substance, and as such the invocation of GAAR to consider the entire arrangement as an impermissible avoidance agreement was justified and lawful.

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Case Details: Shivdeep Tyagi vs. ITO - [2024] 163 taxmann.com 614 (Delhi-Trib.)

Judiciary and Counsel Details

• Kul Bharat, judicial member & Avdhesh Kumar Mishra, accountant member
• Sahil Sharma & Sanjay Parashar, Advs. for the Appellant.
• Anuj Garg, Sr. DR for the Respondent.

Facts of the Case

Assessee, an individual, was a salaried employee. He filed his return of income for the relevant assessment year and declared income. The return of income was processed under section 143(1). Subsequently, the Assessing Officer (AO) reopened the assessee’s case based on AIR information that the assessee sold a right in a leasehold property for Rs. 60,00,000 but did not offer the capital gains tax.

Reassessment was completed at an income of Rs. 75,94,850 for stamp duty purposes against the actual sale consideration of Rs. 60,00,000. On appeal, the CIT(A) upheld the reassessment proceedings, and the matter reached before the Delhi Tribunal.

ITAT Held

The Tribunal held that the leasehold right in a plot of land is neither ‘land or building or both’ as such nor can be included within the scope of ‘land or building or both’. The distinction between a capital asset being ‘land or building or both’ and any ‘right in land or building or both’ is well recognised under the Act.

Section 54D of the Act deals with certain cases in which capital gains on the compulsory acquisition of land and buildings are charged to tax. Section 54D(1) opens with: “Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking…..”. Thus, it is palpable from section 54D that ‘land or building’ is distinct from ‘any right in land or building’.

Section 50C states that the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted for stamp valuation authority in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

Relying upon the decision of the Hon’ble Supreme Court in the case of Amarchand N. Shroff [1963] 48 ITR 59 (SC), the Tribunal held that a deeming provision could be applied only in the scope of the law and not beyond the explicit mandate of the section. Hence, the provisions of Section 50C of the Act are applicable only with respect to ‘land or building or both’. If the capital asset under transfer cannot be described as ‘land or building or both’, then Section 50C will not apply.

Accordingly, the provisions of Section 50C do not apply to the transfer of leasehold rights in land.

List of Cases Referred to

• Atul G. Puranik v. ITO [2011] 11 taxmann.com 92/132 ITD 499/11 ITR(T) 120 (Mumbai) (para 5),
• Ritz Suppliers (P.) Ltd. v. ITO [2020] 113 taxmann.com 349/182 ITD 227 (Kolkata – Trib.) (para 5),
• Smt. Sowmya Sathyan v. ITO [2021] 124 taxmann.com 74/187 ITD 149 (Bangalore – Trib.) (para 5),
• CIT v. Amarchand N. Shroff [1963] 48 ITR 59 (SC) (para 9),
• CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 23 Taxman 8/155 ITR 711 (SC) (para 9),
• CIT v. Greenfield Hotels & Estates (P.) Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/389 ITR 68 (Bombay) (para 11)
• Noida Cyber Park (P.) Ltd. v. ITO [2021] 123 taxmann.com 213/186 ITD 593 (Delhi – Trib.) (para 11).

The post Sec. 50C Not Applicable on Transfer of Leasehold Rights in Land and Building | ITAT appeared first on Taxmann Blog.

Case Details: Umesh Sumanlal Shah vs. Income Tax Officer - [2024] 163 taxmann.com 578 (Ahmedabad-Trib.)

Judiciary and Counsel Details

• • Ms Suchitra Kamble, Judicial Member & Narendra Prasad Sinha, Accountant Member
  • Parin S. Shah, AR for the Appellant.
  • C.S. Sharma, Sr. DR for the Respondent.

Facts of the Case

Assessee filed its return of income for the relevant assessment year and declared long-term capital gains (LTCG) arising from the sale of a property. During the assessment proceedings, the Assessing Officer (AO) observed that the assessee did not purchase any residential property against the capital gain arising from the sale of the property. Accordingly, he disallowed the deduction claim under Section 54 of the Income Tax Act and added the same to Long Term Capital Gain.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) dismissed the appeal, and the matter reached the Ahmedabad Tribunal.

ITAT Held

The Tribunal held that the assessee showed consideration in his return of income under Capital Gain. The assessee made an investment in new residential property, paid full consideration for the property, and took possession of it. The assessee furnished the bank statement and Municipal Tax bill, which specifically showed the assessee’s name as the occupier. The payment of Municipal Tax and the bill to that extent is sufficient evidence of possession by the assessee.

The observation of the AO that the deed of conveyance must be duly stamped and registered by law will support the conduct of the assessee regarding the actual consideration paid by the assessee as well as the investment made by the assessee in the relevant Assessment Year and which is duly reflected in the return of income as well as books of the assessee.

Further, in Sanjeev Lal v. CIT, 365 ITR 389, the Supreme Court ruled that if an assessee executes an agreement to sell a house and buys a new residential property within a year of that agreement, and the sale deed is delayed due to an order by a competent authority, a valid transfer under Section 2(47) of the Act is recognized.

Thus, the assessee was eligible for relief under Section 54 for purchasing the new property, provided other conditions were met.

List of Cases Referred to

• • Sanjeev Lal v. CIT [2014] 46 taxmann.com 300/269 CTR 1/365 ITR 389/225 Taxman 239 (SC) (para 7).

The post Relief u/s 54 Allowable Even if Sale Deed Wasn’t Registered if Assessee Had Executed Agreement to Sale | ITAT appeared first on Taxmann Blog.