High Court Slams Dept For Mindlessly Filing Appeals + Imp Verdicts On s. 43B, 56(2)(viib)/ Rule 11UA And S. 260A

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The following important updates are available at itatonline.org:

CIT vs. Gujarat Cypromet Ltd (Supreme Court)

S. 43B: The conversion of outstanding interest into loan does not amount to "actual payment" of the interest in order to qualify for deduction in view of the retrospective insertion of Explanation 3C to s. 43B (Eicher Motors 315 ITR 312 (MP) & Pennar Profiles (T&AP) approved)

Expln. 3C has now in clear terms provided that such conversion of interest amount into loan shall not be deemed to be regarded as “actually paid” amount within the meaning of Section 43B. In view of clear legislative mandate removing this doubt and making the intention of legislature clear in relation to such transaction, it is not now necessary for this Court to interpret the unamended Section 43B in detail, nor it is necessary for this Court to take note of facts in detail as also the submissions urged in support of various contentions except to place reliance on Expln. 3C to Section 43B and answer the questions against the assessee and in favour of Revenue

PCIT vs. Yes Bank Ltd (Supreme Court)

S. 260A: The High Court cannot hear the appeal bipartite without framing any substantial question of law. It should either dismiss the appeal in limine on the ground that the appeal does not involve any substantial question or hear the parties after framing a question (see also PCIT vs. A. A. Estate Pvt. Ltd (SC)

The High Court did not frame any substantial question of law as is required to be framed under Section 260A of the Act though heard the appeal bipartite. In other words, the High Court did not dismiss the appeal in limine on the ground that the appeal does not involve any substantial question of law; Second, the High Court dismissed the appeal without deciding any issue arising in the case saying that it is not necessary

PCIT vs. Bank Note Paper Mill India Pvt Ltd (Karnataka High Court)

S. 260A: Dept directed to "bonafide apply mind" before filing appeals to the High Court. Concern & anguish expressed at the tendency of the Dept to file unnecessary appeals even though the issues are ex facie covered by decisions of the jurisdictional High Courts or even the Supreme Court. CBDT & Ministry of Finance directed to take needful action

We express our concern and anguish at the tendency of the Revenue Department to file unnecessary appeals u/s. 260-A of the Act even though the issues are ex facie covered by the decision of the jurisdictional High Courts or even the Hon’ble Supreme Court of India. The substantial question of law essentially means that a question of law which is not already settled by the Constitutional Courts can only fall within the ambit of Section 260-A of the Act and therefore repetitive filing of such appeals by the Tax Department who are expected to be serious and bonafide litigants in the Constitutional Courts is a matter of concern

India Today Online Pvt. Ltd vs. ITO (ITAT Delhi)

S. 56(2)(viib)/ Rule 11UA: Law on how to determine the "FMV" (Fair Market Value) of shares issued by a closely held company explained. The fact that the company is loss-making does not mean that shares cannot be allotted at premium. The DCF method is a recognised method though it is not an exact science & can never be done with arithmetic precision. The fact that future projections of various factors made by applying hindsight view cannot be matched with actual performance does not mean that the DCF method is not correct 

Rule 11UA will apply only if option is exercised in sub-clause (i), but if the assessee has been able to substantiate the fair market value in terms of sub-clause (ii), then valuation done by the assessee cannot be rejected simply on the ground that it does not stand the test of method provided in 11U and 11UA. Here the assessee has been able to show that the aggregate consideration received and the shares which were issued does not exceed FMV and has demonstrated the value as contemplated in Explanation (a) and therefore, the working of the assessee as per Explanation (a) sub clause (ii) has to be accepted. Section 56(2)(viib) provides for fair market value to be opted whichever is higher either under sub-clause (i) or sub-clause (ii). Since the working of FMV so substantiated by assessee company as per sub-clause (ii) is higher than value prescribed u/s 11UA, then same should be adopted for the purpose of valuation of the shares of the assessee company

See Also: Digest of case laws (updated regularly) containing latest judgements reported in BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Chamber's Journal, SOT, Taxman, TTJ, BCAJ, ACAJ, www.itatonline.org and other journals 

Regards,

 

Editor,

 

itatonline.org

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Latest:

PCIT vs. Mohommad Haji Adam (Bombay High Court)

S. 68/69 Bogus Purchases: Even if the purchases are bogus, the entire purchase amount cannot be added. As the department had not disputed the assessee's sales & there was no discrepancy between the purchases and the sales, the purchases cannot be rejected without disturbing the sales in case of a trader. The addition has to be restricted to the extent of the G.P. rate on purchases at the same rate of other genuine purchases (N.K .Industries 292 CTR 354 (Guj), N. K. Proteins 250 TM 22 (SC) distinguished)