Issue No. 237 / July 1^st, 2021

Dear Professionals, 

“Taxsutra Database”, a true Income-tax research tool, is an archive of over 112490+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’. It is a completely integrated service with the following features:  

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We are glad to present to you the 237^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

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Key Takeaways from Handpicked Rulings

1. HC: Sufficiency of “reasons to believe” u/s 147 is not for Court to judge, dismisses Assessee’s petition - HC dismisses Assessee’s appeal stating it to be devoid of merit,  holds AO had ‘reasons to believe’ for reopening assessment u/s 147;Assessee-petitioner, a private limited company, was issued notice u/s 148 related to AY 2012-13 in the year 2019; One of the creditors of the Assessee was subjected to survey by the Investigation Wing basis which Revenue claimed it had“reasons to believe” that income for the AY has escaped assessment; HC holds “The sufficiency of reasons for forming the belief is not for the Court to judge, but it is open to the assessee to establish that there, in fact, existed no belief or that the belief was not bona fide or that the belief was based on vague or irrelevant information”; HC states that since the ‘reason to believe’ in the instant case are the documents recovered during the course of survey action, therefore, there was tangible material available with the Revenue which had a prima facie link with the Assessee; Refers to SC ruling inM/s. Kelvinator of India Limitedwherein it was held “…Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is an escapement of income from assessment and that reasons must have a live link with the formation of the belief”; Also HC notes that the Assessee was the beneficiary of accommodation entries provided by the other assessee on whom survey action was conducted, thus rejects Assessee’s contention that there was non-application of mind by the Revenue, and dismisses the petition........... Click here to read and download HC Judgment

2. ITAT: Withdrawal of exemption u/s 10(23C)(vi) by Pr.CIT before CBDT Notification on Rule 2C, bad in law- ITAT sets aside Pr. CIT order holds that the show cause notice (SCN) itself suffered from inherent lack of jurisdiction as the CBDT’s notification 60/2019was issued much later on Nov 5, 2019 which empowers Pr.CIT for revoking approval granted u/s 10(23C);Pr CIT had erred in law and on the facts not only in assuming jurisdiction u/s 10(23C)(vi) on Sep 16, 2019 but also he had wrongly withdrawn the assessee’s approval with effect from the date it had been granted the approval since the search was carried out almost a decade on Mar 23, 2018 whereas the approval was granted on Mar 27, 2008; The order withdrawing the approval was not sustainable for want of the Pr. CIT jurisdiction at the threshold itself which could not be made good in latter stages. Notes that the Pr CIT had withdrawn the assessee’s approval from the day from which was granted the very relief which was well beyond the period of the SCN itself, and that too, without even indicating how the assessee had violated the conditions of its approval granted earlier in all these intervening assessment years wherein it had also been assessed without any violation of the approval’s conditions; ITAT hold that Pr.CIT(Central) herein has erred in law and as on facts in withdrawing the assessee’s approval granted u/s 10(23C)(vi) of the Act; The assessee’s impugned approval is restored as a necessary corollary.........Click here to read and download ITAT order

3. ITAT upholds exemption u/s 56(2)(viib), finds Assessee deemed public company - ITAT upholds CIT(A)’s order deleting the addition made u/s 56(2)(viib),finds Assessee qualifies to be a company eligible for Sec. 56(2)(viib) exemption since it is covered under the clinching legislative expression “where a company, not being a company in which the public are substantially interested” as per section 2(18)(b)(B)(c) of the Act since the said other company was a listed one holding more than 50% of its stake in the relevant previous year”; Revenue contended that for AY 2014-15, CIT(A) has erred in concluding that assessee company is a deemed public limited company and hence provisions of Sec. 56(2)(viib) are not applicable without giving an opportunity to verify Assessee’s claim with regard to NCC Limited holding more than 40% shares of NCC Infrastructure Holding Limited; ITAT accepts CIT(A)’s view stating that the AO has carried the addition u/s 56(2) with the predetermined mindset to tax the realization over and above the value per share as worked out as per one of the methods prescribed under referred section; Refers to the provisions of Sec. 56(2)(viib) and remarks “The expression 'may' used in explanation to section 56(2)(viib) of the Act clearly indicates that income accrued under section 56(2)(viib] of the Act is not automatic”; Refers to Kolkata ITAT ruling in ASG Leather Pvt Ltd “wherein the court has laid down that the Assessing Officer should have given an opportunity to the assesse to exercise its options as per Explanation (a)(ii) to section 56(2)(viib)”..............Click here to read and download ITAT order

4. HC: Allows Sec. 54F exemption in individual capacity, notes Assessee’s family never taxed as HUF - HC dismisses Sec. 263 notice under a writ petition filed by Assessee, allows exemption u/s 54F; Assessee-Individual inherited an agricultural land and a house form his parents shared among other siblings,orally recorded in a memorandum; On sale of the land, each person divided the share in the sale proceeds in a certain percentage as decided orally and claimed Sec. 54F exemption on the long-term capital gains, which treatment was accepted by Revenue; Pr. CIT issued notice u/s 263 on the grounds that there was no physical division of the property and therefore the exemption u/s 54F appeared to be contrary to Sec. 171; Thus contending that capital gains should have been assessed in the hands of the HUF and not under individual capacity; HC finds that the assessment order for AY 2008-09 for the petitioner’s other brother was never assessed in the status of HUF, thus, in his case as well Sec. 54F benefit is to be allowed; Further observes Sec. 171 which contains a deeming provision under which partition of the property of HUF is accepted only if there has been actual physical division of the property, in the absence of any such proof, the HUF shall be deemed to continue for the purpose of assessment of tax; However, it also mentions “A reading of sub- section 171 of the Income Tax Act, 1961 makes it very clear that it is applicable only where a Hindu family was already assessed as an Hindu Undivided Family (HUF).”; Holds that since the petitioner’s family was never assessed as HUF, allows the exemption in individual hands.............. Click here to read and download HC Judgment

5. HC restores the appeal dismissed on non-prosecution, directs ITAT to re-adjudicate on merits - HC restores appeal filed by Assessee-petitioner to ITAT for consideration on merits;Appeal filed by Assessee for AY 2009-10 was earlier disposed due to non-prosecution; Assessee-individual was engaged in transportation business, Revenue had made additions towards undisclosed transportation receipts and TDS towards excess of assets over liabilities, on appeal the additions were upheld by CIT(A) except additions towards undisclosed transportation; Assessee failed to appear on the day of hearing , and ITAT dismissed the appeal for want of prosecution; Assessee, without filing a restoration appeal, filed a writ petition with the HC and claimed “…even if the petitioner was not present before the Tribunal when the appeal was taken up for hearing, it could not have been dismissed for want of prosecution as Section 254 (1)…”;HC takes note of Article 265 of the Constitution that states “No assessing authority can refuse to assess the tax fairly and legally, merely because the taxpayer is not participating in the proceeding”;  HC refers to the SC ruling in S. Chenniappa Mudaliar wherein it was held that u/s 33(4) of the 1922 Act, “the Tribunal was bound to dispose of the appeal on merits, whether the Petitioner was present or not”; remarks that  “it follows from all this that the Appellate Tribunal is bound to give a proper decision on questions of fact as well as law which can only be done if the appeal is disposed of on the merits and not dismissed owing to the absence of the appellant”, referring to a catena of decisions; HC further takes note of Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, observing that “the said Rule articulates that, where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent”, Thus, allows the writ petition and directs the ITAT to restore the appeal and decide the same on merits............. Click here to read and download HC Judgment

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