By Devendra Jain, Chartered Accountant

1. S.68: LTCG on sale of shares often called as Penny stocks cannot be added as taxable u/s. 68 where the assessee has submitted documentary evidence for purchase and sale of shares and AO relied solely on investigation wing’s report.

Assessee claimed exemption under Section 10(38) of ₹ 18,46,600/- in respect of Long Term Capital Gain earned during the financial year 2013-14. He had purchased ₹ 45,000/- shares of Unisys Software Holding Industries Ltd. amounting ₹ 9,38,600/- at a premium of ₹ 20.85 per share in physical form and out of those shares, he sold 8000 Shares only i.e. 17.77%. Thus, the major part of the Shares i.e., 82.33% were in hand’s of the assessee. AO and CIT(A) disbelieved the genuineness of the transaction by relying on the report of the investigation wing.

However, ITAT observed that all the transactions were made through account payee cheque / banking channel and assessee had sold these shares in financial year 2013-14, which were purchased in financial year 2009-10. Assessee had submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which included a copy of purchase bill, a copy of share transfer form in favour of the assessee; copy of bank statement highlighting the payment made against the share purchased; Transaction statement of the stock broker, copy of bank statement in which sale proceed from the sale of shares received; copy of calculation of long term capital gain, and all these were not faulted by the AO.

Reliance placed by Revenue on various decisions including recent Bombay High Court decision in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs. PCIT in ITA No. 18/2017, was rejected by the ITAT by distinguishing those decisions mainly on the ground that in those cases the assessee had not tendered cogent evidence with regard to share transactions. ITAT held that where the assessee has documentary evidences in respect of share transactions, the ratio of decision of Hon’ble High Court of Punjab & Haryana in the case of PCIT (Central), Ludhiana vs. Prem Pal Gandhi passed in ITA No. 95 of 2017 is applicable and hence exemption u/s 68 cannot be denied to the assessee.

[Meenu Goel vs. ITO, ITA No. 6235/Del/2017 dated 19/3/2018, (ITAT-Delhi)]

Meenu Goel

2. S.143(3) – Assessment – Where notice u/s. 143(2) is issued by non-jurisdictional AO, the assessment is void ab initio

The assessee regularly filed its return of income with ITO at Delhi. Notice u/s. 143(2) was issued by ITO at Faridabad within the limitation period. On receipt of this notice, the assessee informed him that it has been regularly filing return at Delhi. Hence ITO at Faridabad transferred the file to ITO at Delhi having jurisdiction over the assessee. Jurisdictional ITO at Delhi again issued notice u/s. 143(2) which was beyond the period of limitation. ITO at Delhi completed the assessment and made certain additions. On appeal, CIT(A) held that the assessment is null and void. On department’s appeal, ITAT held that ITO at Faridabad had no jurisdiction to issue notice u/s. 143(2). The plea of the Revenue that notice was issued based on PAN and case was selected through computer system of department was rejected by the ITAT. Further the subsequent notice issued by ITO at Delhi was barred by limitation. The entire assessment proceedings were vitiated because of non-service of jurisdictional notice under section 143(2) within the period of limitation by the A.O. having jurisdiction over the case of the assessee.

Hence there was no error in the CIT(A)’s finding that the assessment was null and void.

[ITO vs. NVS Builders Pvt. Ltd., ITA No. 3729/Del./2012 dt. 8/3/2018, (ITAT-Delhi)]

NVS Builders Pvt. Ltd.

3. S. 47(iv) – Transactions not regarded as transfer: A subsidiary of a subsidiary, is also a subsidiary of the holding company. Hence transfer between a holding company and its step down subsidiary is also not regarded as transfer as per section 47(iv)

The assessee M/s. Emami Infrastructure Ltd. sold equity shares of M/s. Zandu Realty to M/s. Emami Rainbow Niketan Pvt. Ltd. M/s. Emami Rainbow Niketan was a 100% subsidiary of M/s. Emami Realty Ltd., and M/s. Emami Realty Ltd. was a 100% subsidiary of assessee.

Section 47(iv) of the Act provides that any transfer of a capital asset by a holding company to its wholly owned Indian subsidiary company is not regarded as transfer. ITAT observed that there are divergent views in respect of transactions with step down subsidiary company. The Bombay High Court in the case of Petrosil Oil Co.Ltd vs. CIT 236 ITR 220 (Bom.) held that since the term ’subsidiary company’ has not been defined under the Income-tax Act, 1961, the definition of subsidiary under the Companies Act, 1956 should be followed and hence a second step down 100% subsidiary company is also a subsidiary of the assessee company. However, Gujarat High Court in the case of Kalindi Investments Pvt. Ltd. 256 ITR 713 (Guj.) held that the definition under the Companies Act should not be applied under the Income-tax Act. After analysing both the contradicting decisions, ITAT preferred to follow the decision of Bombay High Court. Therefore, it held that step down subsidiary is also a subsidiary of the holding company and hence the transfer between them is not regarded as transfer as per section 47(iv).

M/s. Emami Infrastructure Ltd. vs. ITO, ITA No. 880/Kol/2014 dated 28/02/2018 (ITAT-Kolkata)

M/s. Emami Infrastructure Ltd.

4. S.271(1)(c): Penalty – Concealment of particulars of income and furnishing of inaccurate particulars of income have different connotations. Where penalty proceeding is initiated for one of the two charges but penalty is levied for both the charges, such a penalty order is not sustainable in law.

In the course of assessment proceedings the AO recorded his satisfaction that the assessee had furnished inaccurate particulars of its income. However ultimately the penalty was levied on both the charges i.e. furnishing of inaccurate particulars of income as well as concealing the particulars of income. Penalty was confirmed by CIT(A). On further appeal, ITAT held that AO cannot levy the penalty on both the charges i.e. for furnishing of inaccurate particulars of income as well as for concealing the particulars of income. The AO must be sure about specific charge for which the assessee is in default. In the absence of a specific charge, the penalty levied by AO was deleted following the decision of Hon’ble Bombay High Court in the case of CIT vs Samson Perinchery (2013) 392 ITR 4 (Bom).

Makcon vs. ITO, ITA No. 1940/M/2016 dated 28/02/2018, (ITAT-Mumbai)


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

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