1. Bogus capital gains from penny stocks: sec 68

If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income u/s 68. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus.

Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same.

ITO vs. Arvind Kumar Jain HUF (ITAT Mumbai) ITA No. 4862/MUM/2014 ;A Y: 2005-06 ; dt 18/9/2017.

Arvind Kumar Jain HUF

2. Limitation period- For rectification application :S. 254(2)

The amendment to s. 254(2) to curtail the limitation period for filing rectification applications to six months from four years is prospective and applicable to appeal orders passed after 01/06/2016 and not the orders passed prior to 01/06/2016. The contrary view in Lavanya Land (Mum ITAT) is not good law in view of K. Ravindranathan Nair (SC) wherein Hon’ble Supreme Court observed that right to appeal is vested in the litigant at the commencement of Lis and therefore, such vested right cannot be taken away and cannot be impaired or made more stringent by any subsequent legislation unless the subsequent legislation said so either expressly or by necessary intendment. An intention in interfere or impair a vested right cannot be presumed unless such intention be clearly manifested by the express words or by necessary implication.

Lucent Technologies GRL LLC vs. ADIT (ITAT Mumbai) MA No.411/Mum/2016 to 414/Mum/2016 (Arising out of ITA No.7001/Mum/2010) (A Y :2003-04) dt 9/10/2017.

Lucent Technologies GRL LLC

3. Defaults on paying self assessment tax while filing the return of income is liable for penalty if he files a revised return of income and pays the tax thereon at the time of filing the revised return of income: S. 140A/ 221(1):

The Special Bench had to consider the following important question of law:

“Whether an assessee is liable to penalty under section 221(1) of the Act in a case in which though the assessee has not paid the self assessment tax under section 140A, while filing the return of income, but revises the income, by filing revised return of income, and pays the tax on the revised return of income at the time of filing the revised return of income?”

HELD by the Special Bench:

(i) As a plain reading of the above statutory provisions would show, the lapse, referred to in section 140A(1), is the failure “to pay such (admitted) tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return” and the lapses punishable under section 221(1) are the lapses in respect of “default in making a payment of tax”. The default triggering the penal liability under section 221(1) is the default in making payment of tax, and that the default in payment is tax is with reference to the filing of the income tax return. Viewed thus, default is committed at the point of time when a return of income is filed without making payment of the admitted tax liability. Clearly, therefore, the assessee committed a default in not paying the admitted tax liability when it filed the original income tax return, without payment of admitted tax liability, on 30th September 2008. To this extent, there is no dispute or ambiguity at all. The question then arises as to what is the impact of filing a revised income tax return. To the extent it pertains to the assessment proceedings, undoubtedly inasmuch as it is the validly revised return is the starting point for the assessment of income, the original income tax return ceases to be relevant. However, that substitution of income tax return is only for the purposes of assessment of income. Subsequent payment of tax, whether with or without revision of income tax return, is thus of no help to the assessee so far as penal consequences under section 221(1) are concerned.

Claris Life Sciences Limited vs. DCIT (ITAT Ahmedabad) (Special Bench) ITA No.498/Ahd/2011 ; A Y : 2008-09 dt 26/9/2017.

Claris Life Sciences Limited

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

Go to top