1. Sec. 45 - Capital gains v. Business income - Consistency - Earlier years' position - No change of facts in current year.

Assessee earned income from short term capital gain of Rs. 32,82,775/-. AO treated assessee as trader and taxed the capital gains as business income. Held, that in previous years, the assessee was accepted as investor by the Revenue including assessment made u/s 143(3). Since the assessee dealt with only 38 scrips in 58 transactions, the same cannot be the only criteria for terming the assessee as 'trader'. The claim of the assessee was accepted by the revenue authorities in the earlier years as well as in the subsequent year, therefore AO was not permitted to take a different view on a particular issue in the absence of any change in the facts and circumstances of the case, even otherwise to maintain the principle of consistency, the claim of the assessee cannot be denied 'until and unless', there is a material change in the facts and circumstances of the case. Therefore, the order of the AO and CIT (A) was set aside and amount was taxed under the head capital gains.

Usha Singhania v. ACIT, ITA No. 30/M/2015 dated 7/10/2016 (ITAT Mumbai)

2. Sec. 68 - Cash credits - Transactions in shares doubted - Statement on which reliance placed not provided to assessee.

The assessee contested validity of reopening of the assessment and also assessment of long term capital gain of Rs. 11.27 lakhs as his undisclosed income us/ 68. After processing the return of the assessee u/s 143(1), the AO received information from DDIT(Investigation) that search action conducted in Mr. M group has revealed that the said group companies were engaged in providing bogus bills for generation of short term/long term capital gains and the assessee had entered into transactions with Mr. M group. Therefore, the assessee's assessment was reopened after four years but before six years. On merits, the Tribunal observed that the AO disbelieved the claim of long term capital gains only on the basis of the statement given by Mr. M and a copy of the same was also not given to the assessee despite repeated requests. The assessee had furnished the details of purchase of shares, copies of share certificates, the details of sale of shares and the details of receipt of money towards the sale consideration. Also, the sale of shares had taken place through Ahmedabad Stock Exchange none of the documents submitted by the assessee were examined by the AO. The AO merely relied on the alleged information received and statement of Mr. M without confronting the same with the assessee. Therefore, it was held that there was no justification in disbelieving the claim of the assessee and the order of the lower authorities was set aside.

Sudhanshu Suresh Pandhare v. ITO, ITA No. 5185/M/2012 dt. 5/10/2016 (ITAT Mumbai)

3. Section -2(47) Transfer of capital assets-when transfer takes place-Mere advance against such transfer, when defacto transfer didnt take place-Not taxable- Section 145A-valuation of closing stocks -Didnt follow AS-2. Increased by the tax element without giving corresponding effect on opening stocks-Not allowed.

Where the assessee had received an advance to transfer its equity holdings in a different company, which ultimately couldnt take place due to dispute, and, the AO levied the Capital Gain tax considering the date of receipt of advance as a transfer of share u/s. 2(47). The assessee contended that there was no de-facto or de-jure transfer of share but just on advance against such proposed transfer, which ultimately could not fructify and there was no contrary finding of revenue .The Tribunal allowing the appeal relied on the argument placed and ruling in the case of Excel Industries ( SC) ( 2014) (13 SCC 459), Shoorji Vallabhdas 46 ITR 144 and held that the tax cannot be levied on the hypothetical income. Further relying on Morvi Industries (1972) 4 SCC 451, the tribunal held that income accrues when there arises a corresponding liability of the other party from whom the income due to pay that amount.

Further as the revenue agitated through cross-appeal, against the order of CIT(A) allowing the appeal of assessee, where the addition was made by AO enhancing the valuation of closing stock to the extent of VAT and Excise duty under Section 145A and without providing corresponding adjustment in the opening stock and purchase , even though assessee had submitted that the effect of such adjustment will be NIL following the AS-2. The Tribunal relying on the ICAI guidelines and Mahavir Aluminum 297 ITR 77 held that if there is any change in the closing stock u/s. 145A, there must be corresponding adjustment in the opening stock and other accounts and accordingly didnt interfere in the order of CIT (A), accordingly rejected the appeal of revenue and in favour of assessee.

(Supreme Industries vs. DCIT Ghaziabad & cross appeal. ITA NO -431/DEL /2016. AY 2011-12. ITAT Delhi).

4. Section 147- Reassessment - reason to believe - Reopening the assessment on the basis of AIR report in mechanical way without application of mind-Not allowed.

Invocation of section 147, where the satisfaction note prepared on the basis of the AIR report of purchase of immovable property of ? 35 lakh and mechanical approval of Higher Authorities of such satisfaction note, the Tribunal relying on the order of Delhi High Court in the case of N. C. Cables Limited as reported in 98 CCH 0018 dated 11/1/2017 held that where the approving authority has not applied their mind while approving, will be a mechanical approval and thereafter assuming the jurisdiction by AO will be nullity. The Tribunal has further relied on S. Goyana Lime & Chemicals and held that mechanical approval is not a proper approval and thereafter the assumption of jurisdiction u/s. 147 is without the sanction of law and hence quashed the assessment order and allowed the appeal of assessee.

(Mohd Raees vs. ITO Delhi. ITA NO 3763/DEL/2017. AY 2008-09. Delhi ITAT)

5. Section 54 -Relief from tax on reinvestment of proceeds from transfer of long term capital asset- substantial relief- Procedural sub-section(2) not complied-Relief cannot be denied.

On the issue of relief under Section 54, allowing the appeal in the favour of assessee held that sub-Section (1) is the substantial provision which provides the substantial benefit to the assessee, whereas sub-section (2) is the enabling provision, which cannot abridge or modify the substantive right to the assessee in terms of sub section (1). The assessee after transfer of residential house paid the amount to the builder /developer of the new assets within 2 years however as per the agreement, new assets were to construct within a period of four years. By doing so, she has not parked the fund in the capital gains deposit scheme in terms of sub-section 2 of 54. The AO rejected the claim of Section 54 and CIT(A) upheld the AO order and rejected the assessee appeal.

On the first point wherein the payment has been made within 2 years of transfer but new assets has to be delivered after four years, the ITAT relying on the case of Madhu Kaul (P&H High Court), Bharti Kothari (2000) 160 CTR165 (Kol HC) held that if agreement for purchase of residential flat is made and the entire amount has been paid within three years from the date of sale, the basis requirement of section 54(1) is fulfilled. On the second issue of nondepositing the fund with the deposit account as per sub section (2) of 54, the ITAT relying on K Ramachandra of the Karnataka HC held that the section 54F(4) is pari-materia to 54(2) and held that what matters is the intention of the assessee to purchase/construct the new house. The HC had held that if there is no intention to retain cash but to invest construction /purchase of new assets and if such investment is made within the period stipulated therein, section 54F(2) is not at all attracted.

(Seema Sabharwal Vs ITO Panchkula. ITA No 272 /CHD/ 2017) AY 2013-14 ITAT Chandigarh)

Compiled from-Unreported Decisions- Chamber of Tax Consultants