· The Finance Act, 2018 has introduced a new Section 112A which provides that long-term capital gains arising from transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust, shall be taxed at 10% of such capital gains exceeding Rs. 1 lakh.
· Section 112A provides that the concessional rate of 10% shall be available if STT is paid both on acquisition and transfer of long-term capital asset, being listed equity shares. Therefore, in case STT is not paid at the time of acquisition of equity shares, the resultant long-term capital gains arising from its sale shall be governed by Section 112 and not by Section 112A.
· However, there are certain genuine off-market transactions which cannot be subject to STT at the time of acquisition. Therefore, in such scenario Section 112A(4) provides that the CG may notify the nature of acquisitions in respect of which the payment of STT at the time of acquisition shall not apply. Accordingly, CBDT has issued a draft notification under Section 112A.
· The exemption from payment of STT has been given for the following off-market transactions:
(a) Acquisition approved by the Supreme Court, High Court, National Company Law Tribunal, SEBI or RBI
(b) Acquisition by any non-resident in accordance with FDI guidelines
(c) Acquisition by an investment fund
(d) Acquisition through preferential issue to which Chapter VII of the SEBI Regulations does not apply
(e) Acquisition through an issue of share by a company
(f) Acquisition by scheduled banks, reconstruction or securitisation companies or public financial institutions during their ordinary course of business
(g) Acquisition under ESOP
(h) Acquisition under the SEBI Regulations 2011
(i) Acquisition from the Government
(j) Acquisition by mode of transfer if previous owner has acquired shares by any of the modes given in this list
(k) Acquisition by an investment fund referred to in clause (a) of the Explanation 1 to section 115UB or a venture capital fund referred to in section 10(23BF) or a Qualified Institutional Buyer
For further reading, refer the attachment.
Further Reading· The AO made an addition of Rs.18,46,600/- holding that the long-term capital gain earned by the assessee on its investment in the shares of M/s Unisys Software Holding Industries Ltd. was not genuine and represented the unaccounted income of the assessee.
· The CIT(A) stated that the rise in value of the shares was abnormal over a period of 13 to 14 months, and realization of such capital gain without any past experience in trading of shares raised a very strong suspicion so as to question the authenticity of the transaction. Thus, the CIT(A) also confirmed the addition made by the AO holding the said transaction of capital gain being a mere sham transaction.
· The Tribunal took note of the fact thatthe assessee has shown LTCG from sale of 8000 shares of M/s Unisys Software Holding Industries Limited and the same has been claimed as exempt u/s 10(38) of the Act. Tribunal further observed that the assessee had submitted all documentary evidences in support of sale and purchase of shares, which included the following:
(a) Copy of purchase bill
(b) Copy of share transfer form
(c) Copy of bank statement highlighting the payment made for purchase
(d) Transaction statement of stock broker, i.e. Pace Stock Broking Services (P) Ltd.
(e) Copy of bank statement in which sale proceeds were received
(f) Copy of calculation of long-term capital gain
· The ITAT also took note of the fact that the AO had not faulted any of the above documents and has merely relied upon the report of the Investigation Wing.
· ITAT further noted that the addition was made by the AO and upheld by the CIT(A) u/s 68 as unexplained credit, however, the source, identity and genuineness of the transaction was duly established by the assessee by providing documentary evidences.
· Therefore, relying upon the recent judgment of Hon’ble High Court of Punjab & Haryana in the case of Pr. CIT v. Prem Pal Gandhi in ITA No. 95 of 2017 dated 18.01.2018, the Tribunal concluded that considering the facts and circumstances in the case of assessee and the ratio laid down by the said judgment, the addition made by the AO and sustained by the CIT(A) was to be deleted.
For further reading, refer the attachment.
Further Reading
· The AO made an addition of Rs.31,10,915/- holding that the long-term capital gain earned by the assessee on its investment in the shares of M/s HPC Biosciences Ltd. was not genuine and represented the unaccounted income of the assessee.
· The CIT(A) stated that the rise in value of the shares was abnormal over a period of 13 to 14 months, and realization of such capital gain without any past experience in trading of shares raised a very strong suspicion so as to question the authenticity of the transaction. Thus, the CIT(A) also confirmed the addition made by the AO holding that the transaction was against human probability.
· The Tribunal took note of the fact thatthe assessee has shown LTCG from sale of 6000 shares of M/s HPC Biosciences Limited and the same has been claimed as exempt u/s 10(38) of the Act. Tribunal further observed that the assessee had submitted all documentary evidences in support of sale and purchase of shares. The ITAT also took note of the fact that the entire transaction was through banking channel and the rejection by the AO as well as the CIT(A) treating the transaction as bogus long-term capital gain was without any basis.
· ITAT further noted that the AO and the CIT(A) relied upon the statement recorded by the Investigation Wing, Kolkata, which had no nexus with the case of assessee.
· Therefore, relying upon the recent judgment of Hon’ble High Court of Punjab & Haryana in the case of Pr. CIT v. Prem Pal Gandhi in ITA No. 95 of 2017 dated 18.01.2018, the Tribunal concluded that considering the facts and circumstances in the case of assessee and the ratio laid down by the said judgment, the addition made by the AO and sustained by the CIT(A) was to be deleted.
For further reading, refer the attachment.
Further Reading· During the course of assessment, AO asked the assessee to file details in respect of share capital of Rs.3,26,00,000/- raised during the year from 19 parties.The assessee submitted the details thereof along with evidences.
· AO not being satisfied with the reply and evidences submitted by assessee, added a sum of Rs.86 Lakhs, being the share capital received from 4 shareholders during the year.
· CIT(A) also not being satisfied with the explanation and evidences of the assessee confirmed the addition made by the AO.
· The ITAT took note of the fact that the assessee duly filed the following evidences before the lower authorities:
(a) Confirmation
(b) Acknowledgement of income tax return
(c) Share application form
(d) Bank statement to demonstrate that there is no cash deposits in the bank account
(e) Audited Balance Sheet of each of the 4 shareholders to demonstrate that the net worth of each of the shareholders was substantial
· The Tribunal further took note of the fact that out of the total share capital of Rs.3.26 Crores received by the assessee company from 19 shareholders, the AO drew adverse inference only against 4 parties, from whom he did not receive replies in response to notices issued u/s 133(6) of the Act.
· Thus, the Tribunal was of the view that the assessee having discharged its onus, it was upon the AO to bring material or evidence to discredit the same, which has not been done in the case of assessee.
· ITAT further stated that the AO might have been justified in a circumstance where notice could not be served or when an adverse reply would have been received in response to notice issued by him u/s 133(6), but merely non-receipt of reply cannot be a justification for drawing adverse inference against the assessee.
· Therefore, the Tribunal concluded that the assessee had fully discharged its onus u/s 68 of proving the identity and creditworthiness of the parties and genuineness of the transaction, and accordingly directed to delete the addition made by the AO, and thus, allowed the appeal of the assessee.
For further reading, refer the attachment.
Further Reading1. No change in Tax Rate. All persons including Individuals, HUFs, Firms and Companies to pay same tax. However, education cess is being increased from 3% to 4%, to be known as Health & Education Cess.
2. For Domestic Companies having total turnover or gross receipts not exceeding Rs.250 Crores in Financial Year 2016-17 shall be liable to pay tax at the rate of 25%, as against the present ceiling of Rs.50 Crores in Financial Year 2015-16.
3. Long-term Capital Gain exemption under section 10(38) in respect of listed STT paid shares being withdrawn in case of gain exceeding Rs.1,00,000/-. However, capital gain up to 31.01.2018 shall not be taxed, as cost of acquisition will be taken as Fair Market Value as on 31.01.2018.
4. Tax on STT paid Long-term Capital Gain will be 10% under Section 112A. Further, such tax will be liable for TDS.
5. Standard Deduction of Rs.40,000/- for salaried employees. However, benefit of transport allowance of Rs.19,200/- and Medical Reimbursement of Rs.15,000/- under Section 17(2) are being withdrawn. Thus, the net benefit to salaried class is only Rs.5,800/-.
6. Provisions of Section 43CA, 50C and 56(2)(x) being amended to allow 5% variation from sale consideration vis-a-vis stamp duty value, on account of location, disadvantage etc.
7. Provisions of section 40(ia), 40A(3) and 40A(3A) are being made applicable to Charitable Trusts. Hence, expenditure incurred without deduction of tax or in cash exceeding Rs.10,000/- will not be eligible as application of income under section 10(23C) and section 11(1)(a).
8. Agriculture Commodity Derivates income/loss also not to be considered as speculative under section 43(5).
9. Income Computation and Disclosure Standards (ICDS) being given statutory backing in view of decision of Delhi High Court.
10. Marked-to-market loss computed as per ICDS to be allowed under section 36.
11. Gain or loss in Foreign Exchange as per ICDS to be allowed under new section 43AA.
12. Construction Contract income to be computed on percentage of completion method (POCM) as per ICDS.
13. Valuation of Inventory including Securities to be as per ICDS.
14. Interest on compensation, enhanced compensation, claim or enhancement claim and subsidy, incentives to be taxed in the year of receipt only as per new Section 145B.
15. Conversion of stock-in-trade to capital asset to be charged as business income in the year of conversion on the basis of Fair Market Value on the date of conversion.
16. Section 54EC benefit of investment in Bonds to be restricted to Capital Gain on land and building only. Further, period of holding being increased from 3 years to 5 years.
17. PAN to be obtained by all entities including HUFs, other than individuals, in case aggregate of financial transactions in a year is Rs.2,50,000/- or more. All Directors, Partners, Members of such entities also to obtain PAN.
18. All companies, irrespective of income, to file returns, and in case it is not filed, such companies will be liable for prosecution, irrespective of the fact weather it has tax liability of Rs.3,000/- or not.
19. Assessments to be e-assessments under new section 143(3A).
20. No adjustment under section 143(1) while processing on account of mismatch with Form 26AS and Form 16A.
21. Deemed dividend to be taxed in the hands of the company itself as Dividend Distribution Tax @ 30%.
22. Penalty for non-filing financial return as required under section 285BA being increased to Rs.500/- per day.
· Assessee society was registered u/s 12A and was claiming exemption u/s 11 of the Act.
· The AO did not allow assessee the exemption claimed u/s 11 vide its order passed u/s 143(3) of the Act, and further levied penalty of Rs.1,00,000/- on the assessee u/s 271B, stating that the assessee failed to get its accounts audited u/s 44AB of the Act.
· The CIT(A) further dismissed the appeal filed by the assessee.
· The Tribunal observed that the assessee society was registered u/s 12A for imparting education through its colleges and has been claiming exemption u/s 11 of the Act.
· The Tribunal, referring to the provisions of section 44AB of the Act, observed that the provisions of said section are applicable to the person carrying on business or profession. However, the assessee was undisputedly a charitable society and was not carrying out any business and has been claiming exemption u/s 11 of the Act. Thus, the penalty u/s 271B could not have been levied on the assessee.
· The Tribunal, thus, concluded that even if the exemption claimed by the assessee society u/s 11 was not granted by the AO in its assessment order, it could not burden the assessee to get its accounts audited with retrospective effect.
· Therefore, the Tribunal deleted the penalty imposed on the assessee u/s 271B of the Act.
For further reading, refer the attachment.
Further Reading· Assessment was completed in assessee’s case u/s 153C pursuant to a search conducted in another premises on 27.12.2007.
· Thereafter, assessment was suo motu revised by the CIT u/s 263, and the matter was remanded to AO for fresh consideration, vide order dated 12.03.2010.
· In consequence to above, fresh assessment was made by AO for all the years, vide its order dated 30.12.2010.
· The assessee contended that order was passed by the AO beyond the period of limitation. In this regard, assessee further referred to the provisions of section 153B, wherein limitation is provided w.r.t. assessments to be completed u/s 153A and 153C of the Act.
· The assessee argued that the 21 month period from the end of the F.Y. in which the search was authorized had expired by the time an order was passed u/s 263 by the CIT. It was further contended that on remand, if the limitation had already expired, then the AO would be disabled from going ahead with the assessment.
· The Court, in this regard, observed as under:
(a) The original order was passed within the limitation period, i.e. on 27.12.2007, within 21 months from the end of the F.Y. in which the search was conducted (which would have been over on 31.12.2007).
(b) If the argument of the appellant is accepted that limitation has to be u/s 153B itself, even for fresh assessment, the power of the CIT to make a remand would be curtailed and ineffective always, rendering the provision useless.
(c) The legislature having specifically conferred the power on the CIT to revise an order suo motu within 2 years from the date of assessment, it cannot be said that when such a remand is made, the fresh assessment also has to be completed within the limitation period as provided for the original assessment.If this argument is accepted, then there could be no remand, and it can only be understood as the legislature having conferred a power, which is ineffective and unworkable, which cannot be.
(d) If the limitation provisions have not been made u/s 153B, then, it cannot be said that the assessment on remand being ordered by the CIT have to be completed within a period provided u/s 153B or that provided u/s 263.
(e) The limitation provided u/s 153B is for completing the original assessment and as regards the fresh assessment directed by the CIT, if there is no limitation provided, then it has to be completed within a reasonable time.
· The Court further took note of the fact that the fresh assessment order was passed on 30.12.2010, a little more than 9 months from the order of revision passed by CIT. Considering the fact that there was requirement for a fresh notice and hearing, and that too of 7 years, the Court was of the opinion that the fresh assessment made u/s 153C was within reasonable time.
For further reading, refer the attachment.
Further Reading· Assessee purchased shares of a company in A.Y. 2006-07 at Rs.11/- and sold the same in A.Y. 2008-09 at Rs.400/-.
· The AO added the appreciation to assessee’s income alleging that these were fictitious transactions and the appreciation actually represented assessee’s income from undisclosed sources.
· CIT(A) and Tribunal deleted the impugned addition holding that the AO had not produced any evidence in support of its suspicion.
· The High Court took note of the fact that though the appreciation was very high, the shares under consideration were traded on the NSE, and the payments and receipts were routed through bank accounts.
· The Court further took note of the fact that there were no evidences to indicate that the company whose shares were traded was a closely held company and that the trading on NSE was manipulated in any manner.
· Thus, the Court relied upon its earlier judgment in the case of Pr. CIT v. Hitesh Gandhi in ITA No. 18 of 2017 dated 16.02.2017, wherein the findings of the Court were as under:
(a) The Court in this case observed that the shares were sold through a stock broker which was registered under SEBI and the payments for sale of shares were through banking channels. The Court also took note of the fact that STT was paid on sale of shares and said shares had been sold through stock exchange.
(b) The Court was of the view that just because assessee had earned huge amount of long-term capital gain on sale of shares, the transaction could not be held to be sham transaction merely on the ground of same being unlikely.
· Therefore, in view of the above findings in the case of Hitesh Gandhi (supra), the Court concluded that no substantial question of law arose in the present appeal.
For further reading, refer the attachment.
Further Reading· During the course of assessment proceedings, assessee was asked to explain as to why expenditure attributable to earning exempt income should not be disallowed.
· Assessee submitted before the AO that it has not done any investment during the year other than the investment in capital account of the joint venture, and income earned by assessee during the year is interest income from the joint venture, which has been offered to tax. Thus, it was submitted that assessee has not earned any exempt income during the year to suffer disallowance u/s 14A. Further, assessee submitted that since it has voluntarily made a disallowance of Rs.1,08,00,000/- u/s 14A, no further disallowance out of the interest expenditure should be made.
· The AO rejected the claim of assessee and made the impugned addition u/s 14A by adopting Rule 8D.
· The CIT(A), after considering the submissions of assessee, though, agreed that the AO has not recorded any satisfaction on the correctness or otherwise of assessee's claim of expenditure attributable to earning of exempt income, however, at the same time, he expressed the view that such lapse or omission on the part of the AO was a procedural lapse, and could be corrected by the first appellate authority, since, his powers are co-terminus with that of the AO.
· The Tribunal observed that section 14A(2) of the Act, which has been introduced to the statute w.e.f. 1st April 2007 by Finance Act, 2006, mandates recording of satisfaction by the AO on the correctness of assessee's claim having regard to its accounts. The Tribunal further observed the fact that Rule 8D(1) also postulates similar recording of satisfaction by the AO.
· The Tribunal was, therefore, of the view that when the statutory provisions mandate a particular act to be done by a particular Authority in a particular manner, it has to be done by that authority in that manner only or not at all. The satisfaction to be recorded by the AO u/s 14A(2) cannot be substituted by the satisfaction recorded by the first appellate authority, even, accepting the fact that his power is co-terminus with that of the AO.
· Thus, the Tribunal concluded that the AO could not have made any further disallowance u/s 14A read with Rule 8D.
For further reading, refer the attachment.
Further ReadingPlease see attached Presentation.
Further Reading