Neelam Jadhav, Advocate

1. S. 10(38): Capital gains – Income arising from transfer of long- term securities – AO cannot deny exemption claimed u/s. 10(38) on long term capital gain for sale of shares simply on the basis of statement of entry operators, as the statement recorded on various dates in some other proceedings not connected with assess, failed to provide opportunity to cross- examine of entry providers.

The Assessee filed a revised return claiming exemption u/s. 10(38) on long-term capital gain on the sale of shares. The AO rejected the same, however, the CIT (A) allowed the claim. The tribunal confirmed the order of the first appellate authority by allowing the claim of the Assessee. Revenue filed an appeal before the High Court, the honorable High Court observed that, the purchase of liquid shares had been made through Account Payee Cheques, and shares themselves were held in Demat Account for more than 12 months and then sold through a recognized stock exchange after payment of security transaction tax. The AO is simply based on a statement of entry operators u/s. 68 and 69 recorded on various dates in some other proceedings not connected with the assessee and no opportunity to cross- examine so-called entry providers was given to the assessee. The High Court found that both the grounds i.e. claim for benefit of s. 10(38) and denial of an opportunity to cross- examine entry providers, turned on facts of the case. Therefore, held that the Tribunal was justified in accepting the plea of the assessee that failure to adhere to principles of natural justice was the root of the matter and the CBDT circular that permitted the assessee to file revised returns if he omitted to make a claim was also not noticed by AO. Pr. CIT vs. Kishore Kumar Mohapatra [2024] 162 taxmann.com 4 (Orissa)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court, that statement of entry operators recorded on various dates in some other proceedings were not connected with the assessee as well as no opportunity to cross-examine the entry providers was given.

Pr. CIT v. Kishore Kumar Mohapatra S.L.P. (CIVIL) DIARY NO(S). 10281 OF 2024 dt.05/04/2024 (SC)

2. S. 11: Charitable or religious trust – exemption claimed u/s.11 cannot be denied on grounds that the assessee had not furnished proper information to the Charity Commissioner and there was a shortfall in making provision for Indigent Patients Fund (IPF), the shortfall in the creation of IPF was due to certain confusion regarding the amount to be provided for the said fund, however, the assessee had made provision for the shortfall in IPF.

The AO denied the exemption u/s.11 on the ground that the assessee-trust had not furnished proper information to the Charity Commissioner and there was a shortfall in making provisions of the Indigent Patients Fund (IPF). Further denied exemption on the ground that assessee had generated huge surplus and therefore, the intention of trust was profit-making, also denied exemption on the ground that assessee was running a canteen in hospital with the profit motive and was not providing free meals. The CIT (Appeals) while deciding the issue noted that the facts in the year under appeal, i.e., for assessment year 2010-2011 were identical to the earlier assessment years 2008-09 and 2009-10, hence followed the orders of the predecessor for assessment years 2008-09 and 2009-10 and decided the issue in favour of assessee. The Revenue challenged the order of the CIT(A), and the Tribunal upheld the order of the CIT (Appeals) by following its co-ordinate Bench. The High Court held that since there was nothing on record before the ITAT or even before the High Court that the order of ITAT had been set aside or overruled in any manner by the High Court, the ITAT found no reason to interfere with the order of CIT (A). Therefore, the view of the Tribunal was confirmed. CIT (Exemptions) v. Lata Mangeshkar Medical Foundation ITA no. 671 AND 1144 OF 2018. Dt.30/08/2023 (Bom)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court that where assessee trust running a hospital was denied exemption under section 11 on the ground that the assessee had not furnished proper information to the Charity Commissioner and there was shortfall in making provision of Indigent Patients Fund (IPF), however, shortfall in creation of IPF was due to certain confusion regarding amount to be provided for said fund and assessee had made provision for shortfall in IPF, exemption under section could not be denied.

CIT vs. Lata Mangeshkar Medical Foundation S.L.P. (CIVIL) DIARY NO(S). 13478 OF 2024. Dt. 05/04/2024

3. S. 37 (1): Business expenditure – capital or revues – purchase of software – revenue sought to raise before the Court was the very same issue which the Tribunal contended with in the previous assessment year

The Assessee claimed expenditure for the purchase of software as revenue expenditure, however, the AO took the view that the assessee had not started any effort to earn income and was just in the process of making a brand for future utilization and when there was no income chargeable u/s. 28, no expenses u/s. 30 to 37 could be claimed further noted that assessee had not earned any revenue from its business and hence treated expenditure as capital expenditure. The Tribunal relying upon its order passed in own case for the previous year reversed the view taken by AO and allowed a claim. The High Court held that, the proposition put forth by AO that when there was no income chargeable u/s. 28, no expenses could be claimed by an assessee u/s.30 to 37 was completely unsustainable. Since issue that revenue sought to raise before the Court was the very same issue which the Tribunal grappled with in the previous assessment year. (ITA No. 499 and 500 of 2023) Pr. CIT v. Hike (P.) Ltd. [2024] 158 taxman.com 162 (Delhi)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court. Since the issue that revenue sought to raise before the Court was the very same issue that the Tribunal grappled with in the previous assessment year, no substantial question of law arose for consideration. (SLP (Civil) Diary No(S). 12711 of 2024, 22/04/2024 Pr. CIT v. Hike (P.) Ltd. [2024] 162 taxmann.com 192 (SC)

4. S. 9: Not to apply in certain cases – declaration under DTVSV Act, 2020 for resolving disputed tax arrears – delayed filing of income tax returns could not be construed to be a ‘tax arrears’ within the meaning of s. 2(1)(o) of DTVSV Act, 2020, rejection of declaration was to be set aside.

The assessee filed its returns after the due date for filing of returns u/s. 139 (1). However, it was contended that the returns were filed within the same assessment years as permitted u/s. 139 (4). A show cause notice was issued directing the assessee to show cause as to why prosecution should not be initiated against it under section 276 CC for failing to furnish returns under a notice issued under section 153A. The assessee replied to the show cause notice requesting the revenue to drop the proceedings u/s. 276 CC. The assessee was unable to file the returns and to pay the tax on the additional income within the prescribed period as it was facing a severe financial crunch. However, the assessee had already paid taxes amounting on the admitted additional income and that it had no intention to delay the filing of returns. However, revenue filed complaints u/s. 276 CC and s. 278B against the Assessee for wilful default in filing of returns pursuant to the notice issued u/s. 153A. The assessee had submitted declarations under the Vivad se Vishwas scheme for the assessment years 2011-12 to 2015-16, but those were not being considered since the offenses had not been compounded. Declarations made by the assessee under the DTVSV scheme were also not considered by the revenue on the grounds of the pendency of the complaint against the assessee. High Court held that that revenue rejected said declaration on the ground that prosecution proceedings u/s. 276CC were pending against delayed filing of income tax returns, since such delayed filing of income tax returns could not be construed to be a ‘tax arrears’ within the meaning of section 2(1)(o) of Vivad se Vishwas Act, 2020. Rejection of declaration was to be set aside. VPR Mining Infrastructure (P.) Ltd. v. Union of India, WP No. 8078 OF 2021, 29/04/2022 (Telangana)(HC)

The Revenue filed an SLP, and the Honorable Supreme Court dismissed the same affirming the view of the High Court that since such delayed filing of income tax returns could not be construed to be a ‘tax arrears’ within the meaning of section 2(1)(o) of DTVSV Act, 2020.

Pr. CIT v. VPR Mining Infrastructure (P.) Ltd. S.L.P. (CIVIL) DIARY NO(S). 2323 OF 2023, 09/04/2024 (SC)