- S. 68: Cash Credit – Long-Term Capital Gain on the sale of shares cannot be treated as unexplained cash credit when the genuineness of the transaction is proved.
The controversy involved is that the capital gain earned on the sale of shares can be unexplained cash credit.? The Commissioner (Appeals) & Tribunal considering the facts of the assessee observed that, the relevant evidence which includes the purchase bill, payment consideration through the bank, dematerialization of shares, and allotment of the shares amalgamated new entity in lieu of earlier company. There is no contrary evidence to doubt the correctness of the evidence produced by the assessee. Hence held that the capital gain is not unexplained credit.
The Revenue against the said decisions of the Tribunal filed an appeal before the High Court. The high court held that, all the facts established the genuineness of the transaction done by the assessee. There is no error or illegality in deleting the addition made under section 68 by treating the Long Term Capital Gain on the sale of shares as unexplained cash credit. Pr. CIT Shri Gaurav Bagaria, ITA No.13/2020 dt.09/05/2022 (Raj)(HC) (Jaipur)
The revenue filed a SLP, the Honorable Supreme Court dismissed the same by holding that the transaction of purchase and sale could not be treated as a sham because the assessee had produced all the relevant documentary evidence to establish the genuineness of the transaction
and there was no contrary evidence to doubt the correctness.
Pr. CIT v. Gaurav Bagaria, S. L. P. (C) No. 21251 of 2022 dt.21/11/2022.  452 ITR (Stat) 1
- S.115JB: book profits is not applicable to the banking company.
The issue involved is that, the provisions of section 115JB will not be applicable to the assesse even when the assessing authority invoked the said provision, as the tax payable under the normal provisions was lesser when compared to tax payable on the book profit under section 115JB of the Act ?”. The Court observed that, the character of the computation provisions in each case bears a relationship to the nature of the charge. The charging section and computation provisions together constitute an integrated code. When there is a case to which computation provisions cannot apply at all, such a case was not intended to fall within the charging section. The machinery provisions provided in sub-section (2) of section 115JB would be rendered wholly unworkable in the case of a banking company. The Companies Act, 1956 excluded insurance, banking companies or companies engaged in the generation or supply of electricity from the purview of section 211(1) of the Companies Act, 1956 and resultantly from the purview of section 115JB of the Act. The provisions of section 115JB of the Act have been amended with effect from April 1, 2013. The amendment was made in order to bring into line the provisions of the Income-tax Act, 1961 with those of the Companies Act, 1956. Pr. CITv. Atria Power Corporation Ltd.  452 ITR 290 (Kar)(HC)The revenue filed a SLP, the Honourable Supreme Court granted leave to appeal against this decision whether the provisions applicable to banking companies.
PR. CIT v. Atria Power Corporation Ltd. C. A. No. 8182 of 2022 dt.0/11/2022  452 ITR (Stat) 1
S.115JB: Provisions whether applicable to electricity companies
The Controversy involved is that, whether the company engaged in the generation of power and has been established under the provisions of the Damodar Valley Corporation Act, 1948., eligible for provisions of section 115JB of the Income- tax Act, 1961. The honorable high court while deciding the issue observed that, the assessee is incorporated under the Act of Parliament known as the Damodar Valley Corporation Act, 1948. In terms of section 3(2) of the said Act, the Assessee Corporation is a body corporate having perpetual existence and common seal. The revenue’s case is that in terms of section 43 of the Corporation Act, the tax liability of the assessee has been clearly stipulated and in terms of sub-section (1) of section 143 the Assessee Corporation is liable to pay any tax on income levied by the Central Government in the same manner and in the same extent as a company. Therefore, the revenue contending that the stand taken by the assessing officer to be sustained and the contention of the assessee that section 115JB would not apply and has to be rejected. The honorable High Court by placing reliance on Kerala State Electricity Board v. Dy. CIT  329 ITR 91 held that, Kerala State Electricity Board is a statutory corporation constituted by the notification of the State of Kerala pursuant to the power vested in it by virtue of section 5 of the Electricity Supply Act, 1948. In terms of section 12 of the said Act, Kerala State Electricity Board was declared to be a body corporate having perpetual existence and a common seal with power to acquire and hold property both movable and immovable. Section 80 of the said Act could be relevant which declares the Kerala State Electricity Board to be a company within the meaning of the Income-tax Act, 1922 (old Act.) and further declares that the Board is liable to pay income tax and super-tax on its income, profits, and gins. Section 80 of the said Act is pari materia with section 43 of the DVC Act, 1948. The assessee is not obliged either to convene an annual general meeting or place its profit and loss account in such general meeting. Further, the Court pointed out that the legislature took note of the fact that the number of companies paying marginal tax and also “zero-tax” has grown and such companies earn substantial book profit and pay handsome dividends to the shareholders without paying any tax to the exchequer. Further, it was pointed out that CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of the amendment (Section 115JA) for the reason that such a policy would promote the Infrastructural development of the country. The circular issued by the CBDT, observed that the same is binding on the department. Therefore, Court held that the provisions namely, sub-section (2) of section 115JB would not stand attracted and consequently, the charging provision, namely, sub-section (1) of section 115JB would not stand attracted. Pr. CIT > v. Damodar Valley Corporation, IA NO. GA/1/2021, ITAT NO. 12 OF 2021 dt.03/12/2021 (Cal)(HC)
The revenue filed a SLP, the Honourable Supreme Court granted special leave to the Department to appeal against this decision for Provisions whether applicable to electricity companies.
Pr. CIT v. Damodar Valley Corporation, C. A. No. 9101 of 2022 dt.05/12/2022 (SC) (2023) 452 ITR
On Direct Taxes
S. 147: Reassessment – Change of Opinion – not permissible
The Assessing Officer issued a notice under section 148 to reopen the assessment under section 147 for the assessment year 2012-13 and within the period of four years for the assessment year 2013-14, on the ground that the advertisement and marketing expenditure incurred by the assessee was not deductible under section 37 since the assessee was prohibited from advertising under the provisions of the Indian Medical Council Act, 1956, read with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The objections raised by the assessee were rejected. The honourable high court observed that, in the original assessment the AO was aware of the issue of expenses incurred on advertisement and marketing by the assessee. Once the AO had applied his mind in the regular assessment proceedings having incurred advertisement and marketing expenditures, it was not open for the Assessing Officer to reopen the assessment under section 147. Rich Feel Health and Beauty P. Ltd. v. ITO  440 ITR 41 (Bom)(HC)
The revenue filed a SLP, the Honourable Supreme Court dismissed the department’s special leave petition holding that once the Assessing Officer had applied his mind in the regular assessment proceedings of the assessee having incurred advertisement and marketing expenditure, it was not open to AO to reopen the assessment merely on a change of opinion.
ITO vs. Rich Feel Health and Beauty Pvt. Ltd. S. L.P. (C) No. 21073 of 2022 dt.18/11/2022  452
ITR (Stat) 2
- S. 245F: Powers & Procedure Settlement Commission
The application before the Settlement Commission, The Settlement Commission has accepted the assessee’s application, and directed it to submit its consolidated profit and loss accounts and balance sheets for the relevant assessment years before the Assessing Officer.
The Settlement Commission also opined that the accounts were complex and that it was in the interest of the revenue that the special audit be ordered. And consequently, the Settlement Commission directed that the special audit be carried out.
The honorable high court held that, since the requirement of a special audit falls under the procedure for assessment which is distinct and different from settlement proceedings, the Settlement Commission would not have jurisdiction to direct a special audit as it does not have any nexus with the settlement proceedings. The method of computation of the tax liability of the assessee is set out in section 245C and in particular in sub-sections (1A) to (1D) thereof. If the Settlement Commission is of the view that an assessee has not made a full and true declaration of the undisclosed income then the application is liable to be rejected. The honorable High Court also observed that, if the accounts put forth by the assessee before the Commission are found by the Commission on the basis of the available records or the reports of the Commissioner to be neither full nor true then the only option available with the Commission is to reject the application for settlement and relegate the assessee to the normal provisions of assessment under the Act. The Commission could not, by itself, enter upon an assessment and step into the shoes of an Assessing Officer for the purposes of making an assessment. Agson Global Pvt. Ltd. and Others vs. ITSC (2016) 380 ITR 342 (Del)(HC)
The revenue filed a SLP, the Honourable Supreme Court disposed of the special leave petition stating that on account of the abolition of the Income-tax Settlement Commission, nothing survived for adjudication in the matter to the Department. Therefore, the Power of the Settlement Commission to direct special audits is now no more issue for litigation.
ITSC v. Agson Global Pvt. Ltd. S. L. P. (C) No. 3541 of 2017 dt.23/11/2022.  452 ITR (Stat) 2