S.68 – Assessee, engaged in the business of trading in shares and securities, sold certain shares during the year at loss which was disallowed by AO after invoking S.68 of the Act on the pretext that the underlying transaction was an accommodation entry. ITAT found that (1) purchase of shares was not disputed by AO, (2) transactions were carried out through proper regulatory channels, (3) assessee’s main business was that of trading in shares and securites, (4) loss incurred on sale of the very same shares in earlier year was accepted by AO and (5) AO had not established assessee’s dealing with the so-called accommodation entry provider. Under such circumstances, ITAT held that assessee had rightly claimed the business loss on sale of shares in question. Accordingly, addition made by AO was deleted

S.68 – Once the underlying amount is recorded in the books of accounts as ‘sales’, ‘profit element’ embedded therein has been offered for tax and such ‘income’ has been accepted by AO, the very same amount cannot be once again added u/s 68 of the Act especially when AO has not doubted the corresponding ‘purchase / quantitative details’.

S.37 – ESOP (Employees’ Stock Option Plan) expenses incurred by the assessee and claimed at the time of actual exercise of option by its employees are allowable u/s 37 of the Act.

S.37 – Assessee, in order to earn ‘commission income’ from Max Life Insurance Company Ltd., entered into a ‘contractual arrangement’ with Max Life whereby, assessee agreed to share 50% of ‘service tax’ payable by Max Life on such Insurance Auxiliary Services on ‘reverse charge mechanism’. Accordingly, the assessee received only ‘net commission’ from Max Life after deduction of assessee’s share in service tax liability of Max Life. Such expense with respect to 50% share in ‘service tax liability’ was disallowed by AO u/s 37 of the Act since Max Life failed to deposit amount so collected from the assessee with the Government as per law. ITAT held that the expense in question was incurred by assessee purely out of a ‘contractual arrangement’ with Max Life in order to generate ‘commission income’ and in absence of such contractual arrangement, assessee could not have secured work from Max Life. Further, such sum would not partake the character of ‘service tax liability’ since under the law, such service tax liability was that of ‘Max Life’ and not that of the ‘assessee’. Also there is no specific provision which prohibits assessee from entering into any such ‘contractual arrangement’ for sharing service tax liability and hence, such ‘contractual arrangement’ cannot be held to be an offence, as envisaged under the Explanation to S.37 of the Act. Under such facts and circumstances, disallowance made by AO u/s 37 of the Act was deleted by the ITAT.

S.263 – Ex-parte revision order u/s 263 of the Act passed within a short span of 12 days from the date of issuance of show cause notice u/s 263 of the Act despite the fact that more than one year’s time was available with the PCIT for passing such revision order is not tenable in the eye of law. In addition to showing ‘undue haste’ in passing the revision order, the PCIT had also not pointed out as to how there was lack of inquiry on the part of AO. Even the observation with respect to cash payment in excess of Rs.20,000/- in a single day for making disallowance u/s 40A(3) of the Act (i.e. subject matter of revision u/s 263 of the Act) was factually incorrect. Under such circumstances, the matter was restored to the file of the PCIT.

S.36(1)(iii) – ‘LC discounting charges’ would not fall within the ambit of ‘interest’ and hence, ‘section 36(1)(iii)’ of the Act cannot be pressed into service for disallowing such LC discounting charges. Further, ‘advances given for purchase of material’ cannot be treated as ‘interest-free advances’ so as to invoke the provisions of S.36(1)(iii) of the Act.

S.11 – Requirement of filing of Form 10B (i.e. Audit Report) is directory in nature and hence, even if such form is filed belatedly (i.e. after filing of return of income), claim u/s 11 of the Act cannot be denied. Here, assessee filed ITR on 17.10.2018 whereas Form 10B was filed on 13.04.2019 and hence, while passing intimation u/s 143(1) of the Act, claim u/s 11 was denied since the assessee had filed Form 10B belatedly.

S.270A – Order passed in the name of a ‘non-existent entity’ is a nullity in the eye of law. Here, penalty order u/s 270A of the Act was passed in the name of a ‘non-existent entity’ despite the fact that AO was duly intimated about the factum of merger at the stage of assessment itself.

S.32 – Once the scheme of amalgamation is approved by the High Court after receiving no objection from the Income-tax Department, consideration for value of ‘goodwill’ cannot be taken as Nil in terms of 6^th proviso to S.32(1), Explanation 7 to S.43(1), Explanation 2(b) to S.43(6)(c), S.55(2)(a)(ii) and S.49(1)(iii)(e) since these sections apply only to the assets actually transferred from the amalgamating company to amalgamated company whereas ‘goodwill’ arising consequent to amalgamation is not an asset which is transferred from amalgamating company to the amalgamated company. Accordingly, ‘depreciation’ on such ‘goodwill’ is allowable u/s 32 of the Act.

S.263 – Revision order u/s 263 of the Act passed on the basis of incorrect assumption of facts is liable to be set-aside. Here, proceedings u/s 263 of the Act were initiated on incorrect presumption of fact that the assessee had received an accommodation entry in the form of loan during the year in question whereas there was nothing on record to demonstrate that the assessee had received any such accommodation entry in the form of loan during the year in question. Further, the said issue was threadbare examined by AO while framing the assessment, there was neither any lack of inquiry on the part of AO insofar the issue on hand was concerned, nor any incorrect view was taken by AO so as to make the assessment order erroneous insofar as the same is prejudicial to the interest of the revenue.

S.194C r.w.s. 194J r.w.s. 40(a)(ia) – Payments in respect of channel carriage fees, up-linking charges and bandwidth charges made by an assessee in the business of media broadcasting would be governed by the provisions of S.194C and not S.194J. Since assessee had complied with TDS provisions u/s 194C, disallowance u/s 40(a)(ia) is unwarranted.

S.28 – Loss on account of cancellation of lease is “business loss”. Here, lease deposit of Rs.60 lakhs was made in the normal course of carrying on business of textiles and jewellery by opening a shop. As per the leave and license agreement, landlord was to carry out construction and obtain necessary approvals. Landlord failed to get electricity connection and assessee could not agree to landlord’s request to operate using generator. Hence, lease was cancelled and a compromise was arrived at pursuant to which, assessee could recover only Rs.30 lakhs from landlord and balance 30 lakhs was written off. Such loss, being incidental to carrying on business, was allowable u/s 28 of the Act.

S.80P(2)(d) – “Interest income” earned by a co-operative society on investments with “co-operative bank” is eligible for deduction u/s 80P(2)(d) of the Act.

S.4 – “Unutilized Government grant” received for some specific purpose and subject to refund obligation is a “capital receipt” and will partake the character of “income” only when utilized by assessee for the intended purpose.

S.282 r.w.s. 148 – Service of notice u/s 148 directly through “affixture” without exhausting ordinary attempt of “postal service” is invalid. This is not a mere procedural requirement but is mandatory.