“Section 38(1)”

Tax authorities are entitled to examine surrounding circumstances and apply the test of human probabilities to determine the genuineness of long-term capital gains arising from the sale of manipulated penny stock, even if prima facie documents appear to support the transaction.

The gain from delivery-based share transactions, where shares are consistently treated as investments and valued at cost in the books, is assessable as capital gains and not business income. An assessee's consistent stand on classifying share transactions should generally be followed by the assessing officer in subsequent years.

The exemption for long-term capital gains on share transactions is unavailable if the assessee fails to discharge the onus of proving the genuineness of gains arising from dubious share transactions designed to convert unaccounted income into tax-exempt capital gains. Courts will uphold an assessment based on the Revenue's evidence of price rigging or penny stock manipulation if the assessee cannot provide cogent evidence for the abnormal rise in share value.

Reassessment proceedings are invalid if the reasons recorded for initiating action under section 148 are not served on the assessee within the limitation period prescribed by section 149. Furthermore, reassessment cannot be based on a mere change of opinion without tangible material, particularly when the assessee has made a full and true disclosure of material facts.

Under Section 153A, for completed assessments (under Section 143(1) or 143(3)) where no incriminating material is found during a search under Section 132, the Assessing Officer cannot make additions to the income already assessed. Additions are only permissible if based on undisclosed income or assets discovered during the search.

The Supreme Court holds that for income tax purposes, the term 'income' includes 'loss,' allowing for the set-off of a spouse's or minor child's business losses when their income is clubbed with the assessee. This decision emphasizes interpreting tax statutes, especially benevolent provisions, by considering the legislative scheme over a strict literal construction.

Section 14A(2) and (3) read with Rule 8D are constitutionally valid. Rule 8D applies prospectively from Assessment Year 2008-09, and for prior assessment years, the Assessing Officer must determine the expenditure related to exempt income under Section 14A(1) using a reasonable basis.

An addition to income based on statements recorded during search operations under Section 132(4) is valid, and the assessee bears the burden of proving such statements incorrect to justify their deletion. The Assessing Officer can rely on such statements, a proposition affirmed by the Supreme Court's dismissal of the SLP.