Section 131

Section 131 — the law in short

What the courts have decided on section 131, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Mansarovar Commercial P Ltd v CIT Supreme CourtHelps department
  My company is registered outside the taxable territory but run from Delhi. Where is it resident?
  Where it is actually run. The Supreme Court held that the residence of a company turns on de facto control and management, not on the place of registration: five companies incorporated under the Registration of Companies (Sikkim) Act, 1961 were resident in India because the management and control of all five was wholly situated in Delhi, at the office of a chartered accountant. The appeals were dismissed and the Delhi High Court's decision affirmed.
• CIT v Orissa Corporation (P) Ltd Supreme CourtHelps taxpayer
  I gave the lenders' names, addresses and PAN and filed their confirmations, but I cannot produce them and the summonses came back unserved. Can the loans still be added under section 68?
  Not on these facts. The Supreme Court declined to disturb the Tribunal's finding that the assessee had discharged its burden. The assessee had given the names and addresses of the creditors, the Revenue knew they were income-tax assessees and had their index numbers on its own files, and beyond issuing summonses under section 131 at the assessee's request the Revenue did nothing - it never examined the creditors' sources to see whether they were creditworthy, and made no effort to pursue them. In those circumstances the assessee could do no more, and the Tribunal's conclusion was neither unreasonable, perverse nor without evidence.
• PCIT v Smt Krishna Devi High CourtHelps taxpayerHigh Courts differ
  The Assessing Officer has added my long-term capital gain on a share whose price rose 4,849%, relying on the Investigation Wing's penny-stock report. Is the price rise by itself enough?
  No. The Delhi High Court accepted that the price movement and the company's financials were odd, and still refused to sustain the addition. The assessee had bought online, paid through a bank, held the shares in demat form and sold through the demat account with sale proceeds received by banking channel. The officer issued notices under ss.133(6)/131 to the company and to the entity that had paid for the shares; they produced nothing and came back unserved, and he then went no further. On that record the Court held the finding that there was an arrangement to convert unaccounted money was an assumption based on conjecture, and that suspicion is not proof. Read it with the contrary Calcutta line in PCIT v Swati Bajaj, which the library also carries.
• Smt Tharakumari v ITO High CourtHelps department
  The officer refused me cross-examination of the person whose statement he used. Does that alone get the addition deleted?
  Not by itself, and this case shows why. The assessee's counsel argued in the Madras High Court that she had been denied the opportunity to cross-examine Shri Deepak Patwari, on whose sworn statement before the Investigation Wing the addition rested. The Court did not reject the principle. It dismissed the appeal because she had not co-operated in the assessment, had not appeared before the CIT(A) on any of five hearing dates, and had put no evidence on record to show that the statement was wrong or to explain how she came to identify and sell the scrip. The concurrent findings that the transaction was sham and taxable under s.68 were therefore not perverse.
• PCIT v N.C. Cables Ltd High CourtHelps taxpayerValidity unconfirmed
  The sanction for my reassessment notice is just the word approved on the file. Is that enough under section 151?
  No. The Delhi High Court held that section 151 requires the competent authority to apply his mind and form an opinion, and that the mere appending of the expression approved says nothing. He need not record elaborate reasons, but satisfaction must be recorded, which can be reflected in the briefest possible manner; here the exercise was ritualistic and formal rather than meaningful, which defeats the rationale of the safeguard of approval by a higher ranking officer. The Court also upheld the concurrent findings that the Assessing Officer had made only a perfunctory inquiry before adding Rs 1.35 crore under section 68. Both questions were answered in the assessee's favour.
• CIT v Nova Promoters & Finlease (P) Ltd High CourtHelps departmentValidity unconfirmed
  I have given the Assessing Officer PAN, bank statements and ROC records for every share applicant — does Lovely Exports mean the addition under section 68 must go?
  No, not where the department holds material linking you to admitted entry operators. The Delhi High Court held on 15 February 2012 that Lovely Exports applies where the assessee furnishes complete particulars and the Assessing Officer neither enquires into them nor holds material showing them to be false. It does not apply where the Assessing Officer has the statements of self-confessed accommodation entry providers whose companies are the very subscribers, and the assessee blocks every attempt to examine them. The Court also held the Tribunal wrong in law in requiring the Assessing Officer to prove the money came out of the assessee's own coffers. The addition of Rs.1,18,50,000 and the commission addition were restored.
• L.R. Gupta v Union of India High CourtHelps taxpayer
  I did not return a receipt because I believe it is not taxable yet. Can the Department search me on the footing that I have undisclosed income?
  No, not on that basis alone. The Delhi High Court quashed a search authorisation and everything done under it. Undisclosed income means income liable to tax which the assessee has kept back in an effort to escape assessment, knowing it to be taxable. A failure to file a return or to disclose what the Department believes is taxable is not enough. The satisfaction note said only that the family had not been disclosing their true income and wealth, which answers neither clause (b) nor clause (c) of section 132(1). The cash, jewellery and documents seized were ordered returned within two weeks.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.