Issue No. 276 / July 5^th, 2023

Dear Professionals,

We are glad to present to you the 276^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!

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Key Takeaways from Handpicked Rulings 

1) HC: Absent ulterior motive in ITR-filing failure, directs prosecution settlement in Lok Adalat - HC disposes of Assessee’s writ petition, directs Special Judge, Economic Offences to explore the possibility of compromise between the Assessee and Revenue by referring the matter to Lok Adalat since the Assessee had complied with the show cause notices issued under Section 276CC and 278B; Observes that there is an element of settlement considering that Assessee has subsequently filed return of income for AY 2015-16 and inadvertently failed to provide the reason to the Revenue leading to non-filing of return of income; Assessee carrying on business of jewelry trading entered into transaction of Rs.1.29 Lac and failed to file income tax return for AY 2015-16; Revenue issued show cause notice which was responded by the Assessee, however, the fact that due to change of business from jewelleries to sand and mining contract, the income tax return for AY 2015-16 could not be filed and there was no ulterior motive…………..Click here to read and download HC Judgment

2) ITAT: Upholds Sec. 68 addition on share application money over failure to establish creditworthiness - ITAT upholds Sec.68 addition in respect of unexplained share capital contribution and share premium due to Assessee’s failure to discharge onus by proving the creditworthiness of two share subscribers who were sister concerns, despite being provided a sufficient opportunity; Holds that Assessee also failed to prove the genuineness of the transaction of equity share capital and share premium of Rs.190 per share received from two share subscribers who were not having any regular business but having meagre income; Notes that Assessee filed the financial statement and income tax return of the share subscribers, however, the financial statements clearly evidences that neither is any regular business nor any fixed assets appearing in balance sheet and prima facie the share subscriber companies looks shell companies in absence of representation by Assessee to discharge primary onus under Section 68 to explain nature and source of share capital; Negates CIT(A) ruling wherein share capital was treated as genuine merely on the basis of the financial statements of the share subscribers and observes that CIT(A) failed ……………….Click here to read and download ITAT Order

3) ITAT: Expenditure incurred on 'dabba trading’ prohibited by law, not allowable under Section 37(1) - ITAT holds that expenditure on dabba trading activities involving buying and selling of securities outside stock exchange which is prohibited under Securities (Regulation) Act, 1956 shall not be deemed to have been incurred for the purpose of business and profession, accordingly, no deduction or allowance can be allowed in terms of Explanation 1 of Section 37(1); Relies on SC ruling in Apex Labs and observes that Assessee should be disallowed the entire expenditure claimed to have incurred to earn the profits on dabba trading and entire value of transaction is taxable as business income; Assessment arose from search conducted at the premises of the Assessee wherein incriminating material pertaining to illegal trade of dabba trading, being undisclosed, was found which was confirmed by Assessee by disclosing ……………….Click here to read and download ITAT Order

4) ITAT: Absent explanation on source of demonetisation deposits, upholds Sec.69A addition - ITAT upholds addition made under Section 69A on deposits of Specified Business Notes (SBN) made by the Assessee during the demonetisation period due to failure to provide the source of such deposits; Opines that Assessee did not prove as to from whom he has received the SBN of Rs.28 Lac i.e., source of cash deposit during demonetisation period, thus, deposit of SBN has to be treated as the unexplained investment under Section 69A: Rejected Assessee’s contention that deposits of SBN pertains to realization of amount from debtors during demonetisation period in form of demonetised notes and observes that is an accepted fact that as on date of demonetisation except for specified persons no other persons were permitted to transact in demonetised currency and the Assessee does not fall within the exempted category of persons to deal with the demonetised currency and the source of deposit remained unexplained; Assessee-individual carrying on business of FMCG goods on wholesale basis deposited demonetized notes of ……………….Click here to read and download ITAT Order

5) ITAT: Cash received from ‘foreign patients’ with no banking access, reasonable; Deletes penalty - ITAT deletes the penalty under Section 271DA by holding that inability of the foreign nationals in making payment by cheque or debit card due to non-availability of bank facilities in India to would be considered as ‘reasonable cause’ to accept cash payment of more than Rs.2 Lac in contravention of Section 269ST; Relies on proviso to Section 271DA which provides that no penalty can be levied if there is a good and sufficient reason for the contravention and observes that  the contravention under Section 269ST is not even less than 0.1% of the total turnover of the Assessee and it is not the case of Revenue that transactions are not genuine and similarly, no transaction was noticed outside the books of account to levy penalty under Section 271DA; Assessee-Hospital, during AY 2018-19, showed cash receipts of Rs.2 Lac which was considered by the Revenue in contravention of Section 269ST and liable to attract penalty proceedings under Section 271DA; Assessee objected on the premise that only six transactions exceeded Rs.2 Lac since foreign nationals treated in the hospital did not have banking facilities in India and remitted the payment of foreign currency in cash which were duly recorded in the books of accounts and shown in return of income; Revenue rejected Assessee’s explanation and levied a penalty of Rs.15.29 Lac under Section 271DA which was upheld by CIT(A). ……………….Click here to read and download ITAT Order

Expert Column 

The Hon'ble Supreme Court in a recent judgment deleted Section 69A addition made in the hands of the transport contractor on the value of short-delivered 'bitumen'. The Supreme Court held that the bitumen is not a valuable article under Section 69A and the Assessee being a carrier of goods was not the 'owner' of the concerned bitumen for the purpose of Section 69A.

Mr. S. Ramanujam (Chartered Accountant) analyses the Supreme Court judgment in detail with its poetic overtones. The author apprises that in the impugned judgment Patna High Court confirmed the addition on account of short supply by holding the transport contractor to be ‘owner’ for the purpose of Section 69A. He states that with respect to the term 'owner' used in Section 69A the Supreme Court observed that the owner should have full rights in respect of any property including, power of enjoyment, right to possession, power to alienate inter vivos or to charge as security and power to bequeath the property. He highlights Supreme Court’s observation that the Assessee was entrusted with goods as a carrier, thus his possession began as a bailee and since a carrier has none of the rights or powers of an owner, the ownership was never vested with the carrier.

The author emphasises on the lyrics of a song extracted in the Judgment “…gold would not be precious if we all had gold to spare….”, to assert that the legislature while introducing Section 69A was concerned only with precious and aspirational articles like bullion and jewellery which are capable of being repositories of hidden earnings but were not really concerned about common place stuff like 'bitumen'.

Click here to read the article “SC Judgment on Sec.69A - A Lyrical Extravaganza...” 

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