1. Section 68 – Share Application Money – Reassessment not justified merely on statement of an entry operator – Dismissal of SLP by the Supreme Court

The assessee had received share application money from certain companies. During the assessment, the assessee disclosed all relevant information about the companies from whom the share application money was received. The assessing officer did not doubt the transactions. Later on the case of the assessee was proposed to be reopened on the basis of statement of an entry operator that the companies in question were paper companies. The assessee filed a writ petition against the proposed reassessment. The High Court held that the reassessment on the basis of a mere statement of the entry operator was not valid unless assessing officer, after making further inquiries in the matter, had further information that those companies were non-existent. {See SABH Infrastructure Ltd. v. Asst. CIT [2018] 99 taxmann.com 409 (Del.)}

On SLP filed by the revenue, the Supreme Court by a speaking order held that the court was not inclined to interfere with the judgment of the High Court. Accordingly the SLP was dismissed.

Asst. CIT v. SABH Infrastructure Ltd. [2024] 159 taxmann.com 184(SC)

2. Revision Proceedings u/s. 263 – Not justified for mere failure on the part of the assessing officer to issue notices u/s. 133(6) – Dismissal of SLP by Supreme Court

The assessee had claimed deduction in respect of the Job-work charges paid. During the course of the assessment proceedings the assessing officer had raised specific query with regard to the same. The assessee filed party-wise details and also filed relevant bills and vouchers including payment made through account payee cheques, withholding of tax and confirmation from parties. After considering all these documents the claim was allowed by the assessing officer. The CIT exercised his powers under section 263 of the Act and proposed to make a revision of the order on the ground that the assessing officer had failed to issue notices u/s. 133(6) to the recipients. The High Court held that mere failure to issue notice u/s. 133(6) did not warrant exercise of jurisdiction u/s. 263. High Court also held that the Pr. CIT had not concluded that the said charges were bogus or non-genuine or inflated. But he had only attempted a re-appreciation of material placed before the assessing officer. Under such a situation, the High Court held that the revision proceedings u/s. 263 were not valid. {See PCIT v. R. K. Jain Infra Projects P. Ltd. [2023] 150 taxmann.com 313 (Del.)}

On SLP filed by the revenue against the judgment of the High Court, the Supreme Court, after hearing the plea of revenue, held that having regard the facts of the case, they are not inclined to interfere in the matter. Accordingly the SLP was dismissed.

Pr. CIT v. R. K. Jain Infra Projects P. Ltd. [2024] 159 taxmann.com 387 (SC)

3. Share Premium – Applicability of Section 68 – Addition not justified merely for Violation of provisions of Companies Act

Assessee issued shares to its promoters at premium, one of which was an Indian entity and other was a foreign promoter. The assessing officer treated entire share premium received as unexplained cash credit under section 68 on ground that there was violation of provisions of section 78(2) of Companies Act, 1956. There was nothing on record in balance sheet of assessee which showed that share premium was utilized for purposes other than what is prescribed in section 78(2) of the Companies Act, 1956. On appeal by the assessee, the High Court held that share premium is a capital receipt and therefore cannot be governed by the provisions of section 68 of the Act. The High Court further held that Income-tax Act does not stipulate that non-compliance of any provision of other Act would result in turning a capital receipt into a revenue receipt. Accordingly, even assuming for sake of argument that assessee had breached provisions of section 78(2) of Companies Act, 1956, it would not turn share premium amount received into a revenue receipt. The provisions of section 56(2)(viib) were not on statute for the relevant assessment year and hence there was no addition called for.

Shendra Advisory Services P. Ltd. v. Dy. CIT [2024] 159 taxmann.com 557 (Bom.)

4. New scheme for Reassessment as amended by Finance Act 2021 – Extension of time under TOLA 2020 not available – Reassessments for AY 2013-14 and 2014-15 initiated after 31-3-2021 time barred

Reassessment proceedings were initiated in respect of assessment year 2013-14 and 2014-15 under the new scheme of reassessment as amended by the Finance Act 2021. The department argued that the timelines in respect of the reassessment provisions will get extended on the basis of Taxation and Other Laws (Relaxation and Amendment of certain Provisions) Act, 2020. Post the judgment of the Hon’ble Supreme Court in the case of Ashish Agarwal, the notice issued earlier were treated as notice u/s. 148A. The proposed reassessment was challenged before the High Court in writ proceedings.

The High Court held that provisions of Taxation and Other Laws (Relaxation and Amendment of certain Provisions) Act, 2020 applied to pre-amended law as applicable till 31-3-2021 and erstwhile regime of Section 148 of the Act (applicable up to 31-03-2021) had been repealed by Parliament without any savings and exception clause and was substituted with an altogether new regime vide the Finance Act, 2021 with effect from 01.04.2021. In view of this, the notices issued on or after 1-4-2021, relating to assessment years 2013-14 and 2014-15, under Section 148 (old) by converting/treating same as under newly inserted Section 148A by Finance Act, 2021 which came into effect from 1-4-2021 and all subsequent proceedings on the basis of aforesaid notices will not be sustainable in law as the same will be time-barred under the provisions of section 149 of the Act. The notices were accordingly quashed.

Arati Marketing Pvt. Ltd. v. Union of India [2024] 159 taxmann.com 322 (Calcutta)

5. New scheme of Reassessment – Reassessment not justified in absence of Fresh Tangible Information available with the assessing officer

Assessee held shares in company MISL. NCLT approved demerger of facility management services of MISPL into QCL. In consideration of this demerger, assessee was allotted shares in QCL. Assessee sold these shares. He filed its return of income and showed profits on sale of shares as LTCG and claimed same as exempt. A notice under section 148A(b) was issued upon assessee on ground that as per information available with department, scheme of arrangements between QCL and MISPL had resulted in allotment of shares taxable under provisions of section 56(2)(x)(c) and since shares were sold before 31.3.2018, same was liable to tax as short term capital gains. Reply filed by the assessee u/s. 148A were not considered by the assessing officer and order u/s. 148A(d) was passed by the assessing officer.

On writ petition filed by the assessee, the High Court observed that reopening notice merely mention that information was received in line with risk management strategy. It did not disclose what kind and content of information it was. The annexure to notice talked of section 56 and long term capital gains versus short term capital gains. The High Court also observed that the assessee had already showed such LTCG as exempt, therefore, this was a clear case of issuing notices based on disclosure in existing return of Income filed by assessee but on incorrect premise of nondisclosure. There was no new information whatsoever that had come into his domain. Further, replies filed by assessee against notice under section 148A(b) were not considered by Assessing Officer. Since Assessing Officer had come to a definitive conclusion that there was avoidance of tax liability through independent verification but had not disclosed reasons or materials based on which such findings could be rendered and had not given an opportunity to assessee to put his case clearly, there was a gross violation of principles of natural justice. Accordingly, on facts, impugned order under section 148A(d) and further notice under section 148 were required to be quashed.

Smt. Vasanthi Ramdas Pai v. ITO [2024] 159 taxmann.com 392 (Karnataka)

6. Payment of Minimum Guarantee Charges to Hotels – Applicability of section 194-I or 194C of the Act – Disallowance u/s. 40(a)(ia)

Assessee entered into merchant agreement with various hotels for facilitating reservation/booking of hotel rooms through platform of assessee. Hotel conducted its operations in terms of providing lodging and accommodation services whereas assessee provided technology, sales and marketing services to hotels relating to provision of lodging and accommodation services through its platform. Assessee assured minimum benchmarks/occupany of hotel and in case such benchmark was exceeded then service fee was payable by hotel and in case of shortfall assessee was required to meet same. During scrutiny assessment, addition of Rs.1.09 crores was made under section 40(a)(ia) for non-deduction of tax at source either under section 194-I or 194C on minimum guarantee expense of Rs.3.62 crores. The Commissioner (Appeals) held that such payments were not rent, however, upheld disallowance for non-deduction tax under section 194C.

On further appeal by the assessee, the Tribunal held that provisions of section 194C provide that any person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between contractor and a specified person shall deduct tax on sum paid or credited to account of contractor. ‘Carrying out any work’ is the sine quanon for applicability of this provision. However, the assessee was merely compensating shortfall pursuant to agreement and no work had been carried out, therefore, assessee would not be liable for TDS under section 194C on minimum guarantee payments made to hotels.

Oravel Stays Pvt Ltd. v. Asst. CIT [2024] 159 taxmann.com 423 (Del. Trib.)

7. Capital Gains on sale of Shares – Date of Sale of such shares where sale was conditional

Assessee entered into a share purchase agreement for sale of shares of a company to ‘I’ for a consideration of USD 115.13 million. The sale was subject to terms and conditions of that agreement which included conditions precedent to sale. Non-fulfilment of conditions conferred right on the parties to rescind contract. Assessee considered the date of receipt of sale consideration as the date of sale as against the earlier date of execution of share purchase agreement. Accordingly, the capital gain was treated as long term capital gains. Assessing Officer treated the date of execution of share purchase agreement as date of transfer of shares and since shares were held for period less than one year, he treated gain on transfer of shares as short-term capital gain. This was upheld by the Commissioner (Appeals).

On further appeal to Tribunal, the Tribunal noted that the share purchase agreement stipulated conditions precedent to sale and non-fulfilment of the conditions gave right to parties to rescind contract. Accordingly, the transfer was not complete till the conditions are fulfilled. Therefore, the effective date of transfer would be date of receipt of sale consideration and delivery of shares and not the date of execution of share purchase agreement. Thus, assessee having held shares for more than 12 months i.e., from 30-6-2005 upto 30-6-2006, shares were to be treated as long-term capital assets and gain on transfer of shares was long-term capital gain.

Citicorp International Finance Corporation v. Addl. DIT (Int. Tax) [2024] 159 taxmann.com 574 (Mum. Trib.)

8. Exercise of powers u/s. 263 of the Act in respect of assessments made under Faceless Regime

The assessee had challenged the exercise of powers by the jurisdictional commissioner u/s. 263 of the Act where the assessment was made under the Faceless Assessment regime. One of the reason for such challenged was that the faceless assessment is team based assessment and Pr. Commissioner in the faceless assessment unit is part of the team making the assessment.

The Tribunal held that it is evident from provision of section 144B that once after completion of assessment, faceless assessment unit transfer all electronic record of case to Assessing Officer having territorial jurisdiction thereafter for all other action jurisdiction is vested with Assessing Officer having territorial jurisdiction and Principal Commissioner having such territorial jurisdiction. Faceless assessment unit does not pass assessment order after obtaining approval of Principal Commissioner and Principal Commissioner in faceless assessment system has only administrative supervisory on functioning of faceless assessment unit till completion of faceless assessment. Therefore, once record are transferred to jurisdictional Assessing Officer on completion of assessment, jurisdictional Principal Commissioner assumes jurisdiction therefore can exercise power under section 263 over order passed by faceless assessment unit.

RDC Ventures v. Pr. CIT [2024] 159 taxmann.com 395 (Mumbai Trib.)

9. Computation of Long Term Capital Gains on sale of shop premises – Cost of Improvement

Assessee sold his shop. While computing the Long Term Capital Gains, benefit of cost improvement with respect to a concrete bridge constructed on culvert in front of shop was claimed on the ground that concrete bridge on culvert in front of shop was constructed so that customers could have direct access to shop in order to increase business turn over. Assessing Officer denied said benefit of improvement cost on ground that assessee had been conducting business since earlier years and the bridge was not essential for the business.

On appeal filed by the assessee, the Tribunal held that there was no dispute as regards the cost incurred by the assessee. Further, the purpose of the construction was to provide easy access to the shop of the assessee which was transferred. Accordingly the cost of construction is to be held as the cost of improvement to shop while computing the capital gains on transfer of the shop.

Joginder Singh v. ACIT [2024] 159 taxmann.com 425 (Amritsar Trib.)