Can the person chargeable with tax pay the amount of demand along with interest before the service of show cause notice under sub-section 73(1) or statement under section 73(3)?

Yes. The person chargeable with tax can pay the amount of tax along with interest under section 50 based on his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment in Form GST DRC-03. On receipt of such information, the proper officer shall issue an acknowledgement for accepting the payment made by the said person in Form GST DRC-04 and shall not serve any notice or statement with respect to the tax so paid.

(ICAI FAQ PUBLICATIONS : 12-09-2017- DEMANDS AND RECOVERY: FAQ NO.  4)

Whether proper officer can issue similar show cause notice for any periods other than those covered under section 73(1)?

Yes. The proper officer may serve a statement under section 73(3) along with a summary electronically in Form GST DRC-02 containing details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized where the grounds relied upon by the proper officer for such periods are the same as are mentioned in the earlier notice issued under section 73(1). The service of such statement shall be deemed to be service of show cause notice on the person chargeable with tax.

(ICAI FAQ PUBLICATIONS : 12-09-2017- DEMANDS AND RECOVERY: FAQ NO.  3)

What is the time limit for issue of show cause notice by the proper officer under section 73(2)?

The proper officer shall issue show cause notice at least 3 months prior to the time limit of 3 years for issuance of order i.e.
 Before completion of 3 years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to, or
 within 3 years from the date of erroneous refund, as the case may be.

(ICAI FAQ PUBLICATIONS : 12-09-2017- DEMANDS AND RECOVERY: FAQ NO.   2)

Under what circumstances, the proper officer shall invoke provisions of section 73(1) to serve show cause notice on the person chargeable with tax?

The proper officer shall serve notice under the provisions of Section 73(1) along with a summary, electronically in Form GST DRC-01 (as per Chapter XVIII-Demands and Recovery of the CGST Rules) on the person chargeable with tax for any reason other than:
 fraud
 willful misstatement
 suppression of facts,
when he has reasons to believe that tax has not been paid or short paid or erroneously refunded or input tax credit has been wrongly availed or utilized.

(ICAI FAQ PUBLICATIONS : 12-09-2017- DEMANDS AND RECOVERY: FAQ NO.   1)

Request to furnish ITR without adhaar number turned down by Madras High Court in Thiagarajan Kumararaja

High Court held in Thiagarajan Kumararaja [2017] 87 taxmann.com 125 (Madras) 06-11-2017 that :

 

Supreme Court in Binay Viswam has not stayed the Proviso to Sub-Section (2) of Section 139AA of the Act and the partial stay would be applicable only to facilitate the other transactions, which are mentioned in Rule 114B of the Rules, which pertains to transactions, in relation to which, PAN is to be quoted in all documents for the purpose of Clause (C) of Sub-Section (5) of Section 139A of the Act. Therefore, to state that the partial stay granted by the Hon’ble Supreme Court would enure to the benefit of the petitioner even for filing income tax returns is a plea, which is not sustainable and is liable to be rejected

Supreme Court Binoy Viswam 396 ITR 66 stays quoting of Adhaar number in respect of transactions mentioned in R. 114B on touchstone of sufferance in day to day dealings till the Constitution Bench authoritatively determines the argument of Article 21 of the Constitution.

Supreme Upholding the  validity of section 139AA  has held in Binoy Viswam held that the purpose behind the Act namely the Income Tax Act, 1961 is entirely different and the purpose being to curb black money, money laundering and tax evasion, etc. It has been further held that for achieving such objects, if the Parliament chooses to make the provision mandatory under the Act, the competence of the Parliament cannot be questioned on the ground that it is impermissible only because under the Aadhaar Act, the provision is directory in nature. The Hon’ble Supreme Court also held that it is the prerogative of the Parliament to make a particular provision directory in one Statute and mandatory/compulsory in the other and that by itself cannot be a ground to question the competence of the Legislature.

 

“……………………………………………………………………………………….

While considering the aforesaid submission of the petitioners, one has to keep in mind the aforesaid purpose of the impugned provision and what it seeks to achieve. The provision is aimed at seeding Aadhaar with PAN. We have already held, while considering the submission based on Article 14 of the Constitution, that the provision is based on reasonable classification and that has nexus with the objective sought to be achieved. One of the main objectives is to de-duplicate PAN cards and to bring a situation where one person is not having more than one PAN card or a person is not able to get PAN cards in assumed/fictitious names. In such a scenario, if those persons who violate Section 139AA of the Act without any consequence, the provision shall be rendered toothless. It is the prerogative of the Legislature to make penal provisions for violation of any law made by it. In the instant case, requirement of giving Aadhaar enrolment number to the designated authority or stating this number in the income tax returns is directly connected with the issue of duplicate/fake PANs.

 

 “124. Therefore, it cannot be denied that there has to be some provision stating the consequences for not complying with the requirements of Section 139AA of the Act, more particularly when these requirements are found as not violative of Articles 14 and 19 (of course, eschewing the discussion on Article 21 herein for the reasons already given). If Aadhar number is not given, the aforesaid exercise may not be possible.

Having said so, it becomes clear from the aforesaid discussion that those who are not PAN holders, while applying for PAN, they are required to give Aadhaar number. This is the stipulation of sub-section (1) of Section 139AA, which we have already upheld. At the same time, as far as existing PAN holders are concerned, since the impugned provisions are yet to be considered on the touchstone of Article 21 of the Constitution, including on the debate around Right to Privacy and human dignity, etc. as limbs of Article 21, we are of the opinion that till the aforesaid aspect of Article 21 is decided by the Constitution Bench a partial stay of the aforesaid proviso is necessary. Those who have already enrolled themselves under Aadhaar scheme would comply with the requirement of sub-section (2) of Section 139AA of the Act. Those who still want to enrol are free to do so. However, those assessees who are not Aadhaar card holders and do not comply with the provision of Section 139(2), their PAN cards be not treated as invalid for the time being. It is only to facilitate other transactions which are mentioned in Rule 114B of the Rules. We are adopting this course of action for more than one reason. We are saying so because of very severe consequences that entail in not adhering to the requirement of sub-section (2) of Section 139AA of the Act. A person who is holder of PAN and if his PAN is invalidated, he is bound to suffer immensely in his day to day dealings, which situation should be avoided till the Constitution Bench authoritatively determines the argument of Article 21 of the Constitution. Since we are adopting this course of action, in the interregnum, it would be permissible for the Parliament to consider as to whether there is a need to tone down the effect of the said proviso by limiting the consequences.”

Audit Report for 80IC filed in time but return filed late: 80-IC allowed by ITAT

ITAT Relied upon following decisions:

  • Jagriti Aggarwal (P&H): Due date for furnishing the return of income as per Section 139(1) of the Act is subject to the extended period provided under sub-section (4) of Section 139 of the Act

 

  • Hansa Dalakoti (ITAT Del): Audit Report for 80IC filed in time but return filed late: 80-IC

 

 

  • Fiberfill Engineers(ITAT Del):. Section 139(4) is to be allowed as proviso to Section 139(1)

 

  • Bajaj Tempo Ltd.(SC): incentive provision has to be interpreted in a manner so as to advance the objects of economic activities in the country and not to deny the claim merely on technical grounds

 

 

  • Poddar Pigments Ltd (Del HC): Claim u/s 80IB had not been made in the original return and the time period for filing of the revised return had also lapsed. The assessee preferred an application u/s 264 for condoning the delay. The Court held that “delay occurred due to bona fide reasons and there is no mala fide intent of the assessee in delaying in filing of the revised return”.

 

  • Venktiah(Hyd Bench) Delay in filing of return due to loss of computer data condoned and 80-Ic deduction allowed. Confirmed by the Hon’ble High Court of Andhra Pradesh vide order dated 26.06.2013

 

 

  • Dhir Global Industries (P.) Ltd.(ITAT Delhi): claim of deduction u/s 10B, the claim had been allowed by the ITAT holding that delay in late filing the return is reasonable.

 

  • Rajwinder Kaur Maha (ITAT Chd): Heera Moti Agro Industries: Delay in filing of return because copies of seized documents were not made available to the assesse. Hence 80-IC deduction should be allowed

Symbiosis Pharmaceuticals (P.) Ltd. [2017] 87 taxmann.com 32 (Chandigarh – Trib.) 04-10-2017

Delay of 21 days on wrong advice of CA condoned by ITAT

Appeal was handed over to the Chartered Accountant Shri Sumit Aggarwal. The said counsel advised that four months time was available for filing the appeal before the ITAT and since he was not appearing before the ITAT, he would engage some other professional for filing of the appeal. The said Chartered Accountant on his visit to a professional in Ambala for filing of the appeal, it was submitted, then learnt that the time limit for filing the appeal before the ITAT was infact 60 days from the date of the order and not 120 days as understood by him. Acting on the said information, the assessee was accordingly advised who promptly filed the appeal. The said appeal, it was submitted, was late by 21 days solely on account of the ignorance of the counsel. Relying upon; (a) Improvement Trust Ludhiana v. Ujagar Singh Civil Appeal No. 2395 of 2008 of June 9, 2010, (b) Jayvantsinh N Vaghela v. ITO [2013] 40 taxmann.com 491 (Gujarat) and (c) Paras Rice Mills Kurukshetra v. CIT ITA No. 657 of 2009 (Punj. & Har.), prayer for condoning the delay was made.

Symbiosis Pharmaceuticals (P.) Ltd. [2017] 87 taxmann.com 32 (Chandigarh – Trib.) 04-10-2017

Supreme Court in Madhur Housing and Development Co. on 05-10-2017 has held that loan/advance by closely held company to another company in which shareholder of closely held company having more than 10% voting power also had substantial interest in the borrowing company, although is taxable as deemed dividend income but the income is taxable in the hands of shareholder and not the borrowing company

Presumption underlying the deeming provision is that that the loans or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The legal fiction in s. 2(22)(e) enlarges the definition of dividend but does not extend to, or broaden the concept of, a “shareholder”.

ITAT Ahmedabad’s applaudable initiatives for paper less Court mandated with effect from 31-12-2017

1.    Copies of ITAT orders to be sent to DRs, CIT A and DRP to be sent through e mail

2.    Registery of ITAT not to accept paper-books containing copies of any of the documents, copies of which are statutorily required to be filed anyway along-with the appeal itself, e.g. assessment order, CIT(A)’s order, DRP order, form 35, form 35A, form 36, grounds of appeal etc. The inclusion of these documents in paper-books is a common practice but it results in wholly avoidable wastage of paper, and is, therefore, discouraged.

 

3.    The registry will also not accept any paper book containing copies of judicial precedents reported in recognized journals and databases. The parties, however, may file copies of such reported judicial precedents when bench concerned, at the time of hearing, may specifically permit or require so.

4.    Paper to be used on both sides. o the extent possible and practicable to do so. Any document or paper-book, wherein paper is used only on one side and wilfully left unused on the other side, will not ordinarily be accepted by the Registry.

5.    Any document specifically prepared for the use of the Tribunal, including any applications and any written submissions, to be filed in our office, shall use the paper on both the sides, will use the font size of no more than 12.5 and will have an internal spacing of no more than 1.5 lines. Any documents or paper books, in violation of these guidelines, will not ordinarily be accepted by the Registry

 

6.    In all the internal functioning of this office, including in the judicial orders, the use of paper will be minimized to the extent possible by, inter alia, ensuring (i) that paper will henceforth be used on both the sides, ordinarily with a maximum font size of 12.5 and internal spacing of no more than 1.5 line.; (ii) that internal guard files for the judicial orders will henceforth be maintained only in digital mode; and that (iii) that use of email is required to be made, through secure official email accounts, as much as possible in all official communications. These requirements, however, do not restrict any officer of the Tribunal from making such exceptions to these general rules, as, in his considered opinion, may be justified or warranted on a case to case basis

7.    The hard copies of constitution of benches and the cause lists shall only be used for limited internal communications. However, a soft copy of the constitution of benches and the cause lists, in addition to being placed on the official website https://www.itat.gov.in and, with effect from today, in the twitter handle at https://twitter.com/itat_amd

 

8.    A guidance note on paperless operation of Court to be issued on or before 15-12-2017

A proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole

R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) The Division Bench of Delhi High Court followed the aforesaid decision in the case of CIT v. Rajinder Kumar [2014] 362 ITR 241/220 Taxman 3/[2013] 39 taxmann.com 126 (Delhi) and held that the amendment in the proviso to Section 40(a)(ia) of the Act is retrospective in nature.

Supreme Court Decisions on Income diverted at source before it accures to the assessee cannot be regarded as an income

1.    CIT v. Sitaldas Tirathdas [1961] 41 ITR 367 (SC),

2.       Provat Kumar Mitter v. CIT [1961] 41 ITR 624 (SC),

3.        Moti Lal Chhadami Lal Jain v. CIT [1991] 190 ITR 1/56 Taxman 49 (SC),

4.       CIT v. Sahara Investment India Ltd. [2004] 266 ITR 641/136 Taxman 61 (SC),

5.       CIT v. Chamanlal Mangaldas & Co. [1960] 39 ITR 8 (SC),

6.       Dalmia Cement Ltd. v. CIT [1999] 237 ITR 617/104 Taxman 97 (SC),

CIT v. Sunil J. Kinariwala [2003] 259 ITR 10/126 Taxman 161 (SC)

Renting out of counters to counter holders executing the sale and purchase of goods and provision of cash collection counters, staff facility is business Income

Renting out of counters to counter holders executing the sale and purchase of goods and provided facility of collection counter of sales proceeds manned by its own staff, packaging and delivery facility using its own staff, further counters were furnished by assesse, is  not a case of exploiting the property simpliciter, but a case where the objective of earning profits by conducting of the department store was merely facilitated by the use of the property. Hence assessable as business income and not income from house property.

Asiatic Stores & Soda Fountain[2017] 86 taxmann.com 211 (Mumbai – Trib.) SEPTEMBER  27, 2017

Mere fact that one donation received by it may be bogus would not establish that activities of trust were not genuine or that activities were not being carried out in accordance with objects of trust, just as one swallow does not make the summer

However, if there were multiple bogus transactions of similar kind, it would lead to conclusion that activities of trust were not genuine and, in such a case, registration granted to it could be cancelled under section 12AA(3)

 

Jagannath Gupta Family Trust[2017] 86 taxmann.com 104 (Calcutta) SEPTEMBER  18, 2017

Deduction under section 54B is allowable on purchase of agricultural lands not through registered sale deed and another through an agreement to sell

Anil Bishnoi[2017] 86 taxmann.com 217 (Chandigarh – Trib.) SEPTEMBER  27, 2017

If someone has sold a property, consequently the other person has purchased the said property. If the transfer of property is complete as per the definition of transfer u/s 2(47) of the Act, the assessee is made labile to pay tax on the capital gains earned by him, on the same analogy, the transfer is also complete in favour of the purchaser also. The provisions cannot be interpreted in a manner to say that transfer vis-a-vis selling is complete but vis-a-vis purchase is not complete in respect of same transaction. In view of this, the word ‘Purchase’ cannot be interpreted and detached from the definition of word ‘transfer’ as given u/s 2(47) of the Act. When the transfer takes effect as per the provisions of section 2(47) of the Act, if a liability to pay tax arise in the case of the seller, the consequent right to get deduction on the purchase of property accrues in favour of the purchaser, if he otherwise is so eligible to claim it as per the relevant provisions of the Act.

For the claim of deduction u/s 54 of the Act, the registration of sale deed is not necessary. It is enough if the assessee has paid the consideration, acquired the possession with full rights and has fulfilled other requirements of the provisions of the Act:-

1. Sh. Sanjeev Lal etc. v. CIT 269 CTR 001(SC) 2014
2. CIT v. T.N. Aravinda Reddy [1979] 12 CTR 0423 (SC)
3. CIT v. K. Jelani Basha [2002] 256 ITR 0282 (Madras)
4. CIT v. Ram Gopal [2015] 372 ITR 498 (Delhi)
5. Balraj v. CIT [2002] 254 ITR 22 (Delhi)
6. CIT v. R.L. Sood [2000] 245 ITR 727 (Delhi)
7. CIT v. Dr Laxmichand Narpal Nagda, [1995] 211 ITR 804 (Bom.)
8. CIT v Mrs. Shahzada Begum, [1988]73 CTR 0229 (A.P.)
9. S. Dabir Singh, Jalandhar v. Department of Income TaxITA No. 27 (Asr.)/2015

Where assessee-trust’s hospital availed services of some doctors, since there did not exist employer-employee relationship between parties, assessee was justified in deducting tax at source under section 194J while making payments of professional fee to doctors

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

Chandigarh ITAT in the case of IVY Health Life Sciences where the facts are almost identical to the case of the appellant, in that case also, the professional doctors were paid on the basis of fees received from the patients. Their remuneration was not fixed and they were also free to render services to the patients as they considered appropriate in terms of time or duration. Such professional doctors were also not entitled to PF, ESI, LTC and any other perquisites or retirement benefits. In these circumstances therefore, it was held by Hon’ble Chandigarh ITAT that there was no employer and employee relationship between the assessee and the professional doctors. Hence the assessee had rightly deducted tax at source under section 194J from the payments made to the professional doctors

Where assessee hospital had sold old medical equipments, under buyback arrangement, to its vendors against purchase of new machinery, such sale could not be categorized as ‘scrap sale’; therefore, no TDS was to be deducted under section 206C

The word ‘scrap’ itself in ordinary parlance presupposes manufacture, processing or industrial activity.

In running a medical hospital question of generation of scrap is inconceivable. Therefore provisions of s.206C of the Act, ‘Prima Facie’ are not applicable to the assessee.

 

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

TDS for Maintenance Contracts for technical equipments is covered by S.194C and not 194J

Dr. Balabhai Nanavati Hospital[2017] 86 taxmann.com 107 (Mumbai – Trib.) SEPTEMBER  8, 2017

AMC was necessary to keep medical equipments and other hospital equipments in good working condition and this process was normally carried out by skilled mechanics and not any qualified technician. Through these AMCs, the assessee was carrying out routine normal maintenance which was covered by the provisions of section 195C and these were not technical services covered under section 194J.

 

As per Q. No. 29 of CBDT Circular No 7 dated 8-8-1995, Routine, normal maintenance contracts which includes supply o spares will be covered tinder Section 194C. However, where technical services are rendered, the provision of Section 1 94J will apply in regard to the deduction at source.

 

Held in  Ultra Entertainment Solutions Ltd  where in the election was regarding the nature of payments made by the assessee to another person ,  who was engaged by the assessee is to carry out all operations connected with the selling of online lottery tickets on behalf of the assesse, that tax is deductible u/s 194J

 

ITAT, Ahmedabad in the case of Gujarat State Electricity Corporation Ltd. vs. ITO, 3 SOT 468 (Ahd), wherein it was held that the payments made by the assessee company to Gujarat Electricity Board for entire operation and maintenance 6r’Power plant under a comprehensive contract could not be treated as payment “fees for professional services as contemplated in section 194J but were covered by section 194C of the Act”.

 

 

Decision dated 30.09.2011 in ITA Nos. 3059 to 3061 & 3081/Ahd./2009 of Ahmedabad Tribunal in the case of Nuclear Power Corporation Ltd, it has been held that repairs and annual maintenance of computers do not involve services of technical nature so as to be assessable as “fees for technical services” u/s 9(1)(vii) of the Act and hence the assessee was required to deduct TDS under Section 194C of the Act and not under Section 194J of the Act.

 

 

Hon’ble Madras High Court in the case of Skycell Communications Ltd. 251 ITR 53 (where it was held that the installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee)

 

Similar decisions by the Bench of Mumbai Tribunal in the case of Dy. CIT v. Asian Heart Institute & Research Centre (P.) Ltd. [2017] 82 taxmann.com 250

Unscrupulous elements conducting unauthorized/illegal searches: PRESS RELEASE, DATED 22-9-2017

The tax payers is well within his rights to seek & inspect the warrant of authorisation, confirm the identities of authorized Income Tax Authorities mentioned on the warrant. The assessee can seek the telephone numbers of immediate supervisory officers of the search/survey party for the purpose of verification of genuineness.

In case, any doubts still persists then the Income Tax Department can be contacted on the following number 9013850099 for the specified purpose of confirmation of identities of officers/officials working in the Delhi region.

1.25 CRORES “new return filers” targeted to be added during 2017-18 as per CBDT letter dated 27-09-2017

 

A ‘new return filer’ for this purpose is defined as a person who has not filed return in the previous three Financial Years (2014-15 to 2016-17) but has filed return in the current financial year.

Region wise targets are as under:

:

Region Target for new return filers for FY 2017-18 Region Target for new return filers for FY 2017-18
JAIPUR 580261
AHMEDABAD 941123 KANPUR 616725
BANGALORE 876846 KOCHI 362156
BHOPAL 620925 KOLKATA 697685
BHUBHNESWAR 234850 LUCKNOW 620651
CHANDIGARH 1041948 MUMBAI 740741
CHENNAI 1047702 NAGPUR 211922
DELHI 727367 PATNA 502132
GUWAHATI 254948 PUNE 1182532
HYDERABAD 1239486 Total 12500000

in cases where on receiving the intimation u/s 143(1l)(a)(vi) of the Act, the concerned assessee has already filed a revised return, such returns shall be treated as valid and handled accordingly

As per section 143(1)(a)  while processing return the total income or loss shall be computed after making the adjustments for

  • any arithmetical error in the return or [S.143(1)(a)(i)]
  • an incorrect claim, if such incorrect claim is apparent from any information in the return. [S.143(1)(a)(ii)] As per Explanation to 143(1) an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return
  1. of an item, which is inconsistent with another entry of the same or some other item in such return
  2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished;
  3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction

 

 

WEf AY 2017-18 Now adjustment u/s 143(1)(a) in return of income can also be made for

  1. disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139 [S.143(1)(a)(iii)]
  2. disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return[S.143(1)(a)(iv)]
  3. disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC,80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139 [S.143(1)(a)(v)]
  4. addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return [S.143(1)(a)(vi)]

 

Intimation of Adjustment to Assessee:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

 

Response of the assessee to be awaited for 30 days

 

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made

As per Above Instructions No. 9/2017, In returns filed in ITR-1 Form, information about a particular head/item of income is only on net basis and thus, complete data/information may not be available therein which may enable comparison with the data/information as contained in the three Forms [F.16,16A and 26AS]  in a meaningful manner. Therefore, in exercise of its powers under section 119 of the Act, the Board hereby directs that provision of section 143(1)(a)(vi) of the Act would not be invoked to issue intimation proposing adjustment to the income/loss so filed in ITR-1 Form in such situations.

 

  • However, where any head/item of income has been altogether omitted to be included in the return of income filed in ITR-1 while the three Forms contain specific detail in this regard pertaining to that item/head of income, section 143(1)(a)(vi) of the Act shall continue to apply.

 

  • Further, for purpose of section 143(1)(a)(vi) of the Act, only the three Forms specified therein would be taken into consideration

 

  • The pending intimations proposing adjustments under section 143(1)(a)(vi) wherein the taxpayer has tendered an explanation without revising the return or has not tendered any response till now shall be dealt with in accordance with the above direction.

 

In cases where on receiving the intimation u/s 143(1l)(a)(vi) of the Act, the concerned assessee has already filed a revised return, such returns shall be treated as valid and handled accordingly

INTEREST ON MONEY BORROWED FOR HOUSE PROPERTY IS TO BE ALLOWED ONLY IN RESPECT OF FIRST OR SECOND LOAN AND NOT FOR ANY SUBSEQUENT LOAN

SATYA CO. LTD [1986] 19 ITD 596 (CAL.)

 

The words ‘such capital’ used in section 241)(vi) definitely refers to the borrowed capital and as such the section confines the benefit to the borrowed capital, i.e., original loan only. The language is not capable of being extended to any second or subsequent loan. No doubt, that the aforesaid Board’s circular refers to the second loan to which the provision of the section was extended by this Board’s circular. But it could not be extended to subsequent loans as contended by the assessees. Therefore, the Commissioner (Appeals) was incorrect in holding that the test laid down in section 24(1)(vi) was that the loan should have been taken to acquire the property and it did not say whether it was the first loan or second loan or subsequent loans.

For Computation of profit linked deductions under Chapter VI-A, depreciation has to be mandatorily reduced even for assessment years prior to Finance Act 2001 inserting Explanation 5 to Section 32

Supreme Court’s own judgment in Mahindra Mills 243 ITR 56 which was sought to be nullified by above amendment can not help assesse in escalating profits because

(Para 18)”………….. Mahendra Mills was rendered while construing the provisions of Section 32 of the Act, as it existed at the relevant time, whereas we are concerned with the provisions of Chapter VI-A of the Act. Marked distinction between the two Chapters, as already held by this Court in the judgments noted above, is that not only Section 80-IA is a code by itself, it contains the provision for special deduction which is linked to profits. In contrast, Chapter IV of the Act, which allows depreciation under Section 32 of the Act is linked to investment. This Court has also made it clear that Section 80-IA of the Act not only contains substantive but procedural provisions for computation of special deduction. Thus, any device adopted to reduce or inflate the profits of eligible business has to be rejected. The assessees/appellants want 100% deduction, without taking into consideration depreciation which they want to utilise in the subsequent years. This would be anathema to the scheme under Section 80-IA of the Act which is linked to profits and if the contention of the assessees is accepted, it would allow them to inflate the profits linked incentives provided under Section 80-IA of the Act which cannot be permitted………………”

Plastiblends India Ltd. [2017] 86 taxmann.com 137 (SC) 09-10-2017

Sale proceeds of agricultural land and conversion of land by cutting trees into housing plots, brought asset in as stock-in-trade attracts capital gain being transfer u/s 2(47)(iv) rws 45(2)

Synthite Industrial Ltd.[2017] 86 taxmann.com 138 (Kerala)

Where assessee whose business included real estate development purchased a rubber estate to utilize land for non-agricultural purpose and converted said land by cutting trees into housing plots, thus, brought asset in as stock-in-trade and sold those plots to several people for construction of villas, it was held that though property was once an agricultural land, its acquisition was for non-agricultural purposes, assessee did not carry on any agricultural activity in land and at relevant date, viz. date of sale, land had ceased to be an agricultural land, if that be so, assessee could not have claimed that income gained from sale of land was from sale of agricultural land entitling it to exemption from levy of capital gains

There can be no STCG u/50 if assesse is having balance in the block of assets

“……There is no dispute that even after the transfer of the said assets the assessee was still having balance in the block of assets of plant and machinery. Therefore the conditions as stipulated under Section 50 of the Act have not been satisfied so that any capital gain arising in the hand of the assessee can be deemed as per the provisions of Section 50 of the Act. ……….”

ITAT Banglore Bench in Makino India (P.) Ltd. [2017] 86 taxmann.com 139 (Bangalore – Trib.)

Amalgamation taking place retrospectively before transfer of assets to amalgamated company by amalgamating company, No capital gains u/s 50 arise in hands of amalgamating co.

Para 6“…………..though the transfer of block of assets by the erstwhile entity Makino Asia Pte Limited had resulted STCG in the hand of the said entity but it exists only so long there was no merger/amalgamation. Once the merger / amalgamation was effected from 1.4.2002 (vide High Court order dated 19-12-2003)ail the transactions thereafter would be treated as transactions of the new entity post amalgamation. Thus when there is no extinguishment of block of assets of plant and machinery in the hand of the assessee then the transfer of assets in question after 1.4.2002 would not result in deemed capital gain under Section 50 of IT Act. “

 

Hence with drawl of income offered for STCG pre amalgamation through revised return was held valid by ITAT Banglore Bench in Makino India (P.) Ltd. [2017] 86 taxmann.com 139 (Bangalore – Trib.)

Assessee following cash system of accounting had reflected tds as income u/s 198 is entitled to claim full credit of tds in the year of deduction itself although corresponding income not reflected in the year of deduction.

Issue of allowing TDS to assesses following cash system of accounting: As per section 198, sum deducted is deemed to be income received. Further Rule 37BA(3)(ii) allowing tds credit in the proportion of income assessable is applicable where income is received over number of years. However, if income is not received at all, Rule 37BA(3)(ii) shall not apply. Again Rule 37BA(i) allowing credit of TDS in the assessment year for which tax is assessable shall have effect of not at all allowing the credit of TDS if no amount is received. Hence Rule 37BA (3) is not applicable to cash system of accounting. Hence where assessee following cash system of accounting had reflected tds as income u/s 198 is entitled to claim full credit of tds in the year of deduction itself although corresponding income not reflected in the year of deduction. Held by ITAT Delhi in Chander Shekhar Aggarwal [2016] 67 taxmann.com 62 (Delhi – Trib.) pronounced on 11-01-2016 following Sadhbhav Engineering (Ahd Trib) and Vishakhapatnam Trib in Peddu Srinivasa Rao

Cases of Agriculture Income more than 1 crore to be probed [CBDT letter 10-03-2016]

CBDT instructs officers to verify cases of agriculture Income more than one crore in resposne a PIL matter pending before Hon’ble Patna High Court wherein concerns have been raised that a few assesses may be engaged in routing their unaccounted/illegal money in the garb of agricultural income thereby not only claiming exemptions on such income but also engaged in the money laundering activities. Also CBDT has advised that there may be data entry errors also resulting in income being reflected more than one crores. List of cases where agiculture income is more than one crore has been made available to officers. In Amritsar 26 cases have been reported [CBDT Letter dated 10-03-2016]

Monetary limits for filing appeals shall also apply to Cross Objections u/s 253(4), says CBDT

CBDT vide letter dated 08-03-2016 has clarified that the monetary limit of Rs. 10 lakhs imposed vide Circular No. 21/2015 dated 10-12-2015 for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/not pressed. Filing of cross objections below the monetary limit may not be considered henceforth i.e. wef 08-03-2016

The issue of deductibility of Subsidies as profits derived from undertaking stands resolved by Supreme Court in its Landmark Judgment in Meghalya Steels on 09-03-2016

Exemption available under Chapter VI-A in respect of profits of industrial undertakings is available only in respect of income qualifying the litmus test of “profits or gain derived from undertaking”. The revenue and assessees have been locking their horns over the issue of Subsidies for years together as to whether or not they are covered by term ““profits or gain derived from undertaking”

In this article while an attempt has been made to construe real meaning of words “profit derived from”, it also deals with purpose test of subsidy and its relevance after recent amendments in Finance Act 2015 and Finance Bill 2016.

 

It will be relevant to look into the issue through a few court rulings:

  1. Cambay Electric Supply Industrial Company Limited v. Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644 (Supreme Court)

In this case Court had to construe Section 80-E of the Income Tax Act, which referred to “profits and gains attributable to the business” of generation or distribution of electricity. It was held that the expression “attributable to” is certainly wider in import than the expression “derived from”. Sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. Whenever the Legislature wanted to give a restricted meaning it has used the expression “derived from” to cover receipts from sources other than the actual conduct of the business.

  1. Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98 (Supreme Court)

The issue is this case was whether income derived by the assessee undertaking engaged in export of processed sea food by sale of import entitlements was profit and gain derived from the industrial undertaking .This Court referred to its judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression “attributable to” as contrasted with “derived from”. Supreme also stated the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Hence the source of the import entitlements can not said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. whereunder the export entitlements become available. There must be for the application of the words “derived from”, a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The assessee is entitled to import entitlements under export promotion scheme, which it can sell. The sale consideration therefrom cannot be held to constitute a profit and gain derived from the assessees’ industrial undertaking.

  1.  Pandian Chemicals Limited v. Commissioner of Income Tax, 262 ITR 278(Supreme Court)

The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the appellant’s industrial undertaking should be treated as income derived from the industrial undertaking. Supreme Court held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself.

  1. Liberty India v. Commissioner of Income Tax, (2009) 9 SCC 328(Supreme Court)

The question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from an eligible business. Again Supreme Court first made the distinction between “attributable to” and “derived from” stating that the latter expression is narrower in connotation as compared to the former. The court further went on to state that by using the expression “derived from” Parliament intended to cover sources not beyond the first degree. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. Therefore  DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business.

  1. Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994],

It was held that transport subsidies were inseparably connected with the business carried on by the assessee. Transport expenditure is an incidental expenditure of the assessee’s business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business

In CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], however Calcutta High Court arrived at an opposite conclusion in considering whether a deduction was allowable under in respect of transport subsidy without noticing its own judgment in Merino Plywood(supra). A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in Meghalya Steels which is  the subject matter of discussion in this Article.

  1. Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. – I, Hyderabad, (1997) 7 SCC 764 (Supreme Court)

It was held by the apex Court on power subsidy that  subsidy on power was confined to ‘power consumed for production’. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given.

On refund of sales tax it was held that  Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State by making the business of production and sale of goods in the State more profitable

  1. Delhi High Court in Dharampal Prem Chand  317 ITR 353

It was held by Delhi High Court that refund of excise duty should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction under Section 80-IB of the Act. SLP of the department against this decisions has been dismissed by Supreme Court.

  1. Contrary Judgements of Himachal Pradesh High Court in Kiran Enterprises (2010) 327 ITR 520 and Supriya Gill [ITA 27 & 28/2010 dtd 16-6-2010]

The question was whether the freight subsidy is income derived from the business of the industrial undertaking and can be included in the profit eligible for deduction under section 80-IA. The Court held that the source of transport subsidy is not the business of the assessee but the scheme framed by the Central Government. Held that the subsidy received by the assessee was not a profit derived from the business since it was not an operational profit and that the source of the subsidy is not the business of the assessee but the scheme of the Government

  1. Adverse Judgement of Punjab and Haryana High Court in H.M. Steels Ltd. [ITA 352/2013 dated 04-08-2015]

P&H High Court expressed agreement with view taken by Himachal High Court and also held that sales tax rebate  is not profit derived from eligible business and hence entitled for deduction.

  1. Purpose Test of Subsidy
  2. a)Ponni Sugars & Chemicals Ltd. [2008] 174 TAXMAN 87 (SC [16-09-2008](Supreme Court)

The assessee-company had received subsidy under the incentive subsidy scheme, 1980. The incentives conferred under the scheme were two fold; first, in nature of a higher free sale sugar quota and second, in allowing the manufacturer to collect excise duty on the sale price of the free sale sugar in excess of the normal quota, but to pay to the Government only the excise duty payable on the price of levy sugar. As per the scheme, the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by it for setting up new units/expansion of existing business.

Held by apex Court  that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases one has to apply the ‘purpose test’. The point of time when the subsidy is paid is not relevant. The source is immaterial; the form of subsidy is also immaterial. The main eligibility condition in the scheme in the instant case was that the incentive must be utilized for repayment of loans taken by the assessee for setting up of new units or for substantial expansion of its existing units. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then the receipt was on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand its existing units, then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant.

In the instant case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by it for setting up of new units/expansion of its existing business.

  1. b)Jammu and Kashmir High Court in Shree Balaji Alloys

The assessee, pursuant to the New Industrial Policy announced for the State of J&K, received excise refund and interest subsidy, etc which it claimed to be a capital receipt. In the alternative, it was claimed that the same was eligible for deduction u/s 80-IB. The AO, CIT (A) and Tribunal rejected the claim and held the receipts to be revenue on the ground that the subsidy (i) was for established industry and not to set up a new one, (ii) it was available after commercial production, (iii) it was recurring in nature, (iv) it was not for purchasing capital assets and (v) it was for running the business profitably. On appeal by the assessee, HELD reversing the lower authorities:

 If the object of the subsidy scheme is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the subsidy scheme is to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. It is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy.The form or the mechanism through which the subsidy is given is irrelevant; Since the object of the subsidy scheme was (a) to accelerate industrial development in J&K and (b) generate employment in J&K. Such incentives, designed to achieve a public purpose, cannot, by any stretch of reasoning, be construed as production or operational incentives for the benefit of assesses alone. It cannot be construed as mere production and trade IncentivesThe fact that the incentives were available only after commencement of commercial production cannot be viewed in isolation.

Question whether the subsidy receipts are eligible u/s 80-IB as being derived from industrial undertaking was not decided.

Purpose Test is no longer relevant

As per clause (xviii) inserted in section 2(24) by Finance Act 2015 wef AY 2016-17, definition of income includes:

assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee

other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43;

Finance Bill 2016 further excludes the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government from the scope of 2(24)(xviii)

Hence wef AY 2016-17, all subsidies except specifically excluded shall be revenue in nature and shall no longer retain capital character.

Hence the issue whether subsidy is derived from eligible business for determining its eligibility for deduction under Chapter VI-A becomes all the more important for assessee.

  1. Supreme Court in Meghalya Steels decided on 09-03-2016

In this case the issue before apex court was whether transport subsidy, interest subsidy and power subsidy can be said to be “ profits derived from industrial undertaking”

It was held by apex court confirming the decisions of Gauhati High Court that all these subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However Revenue stressed   the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing.  However it was held by apex Court that So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The “profits and gains” spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned.

Head of Income for Subsidies also decided by Supreme Court in Meghalya Steels decided on 09-03-2016

It is also held by Supreme Court in Meghalya Steels that Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head “profits and gains of business or profession”. If cash assistance received or receivable against exports schemes are included as being income under the head “profits and gains of business or profession”, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head “profits and gains of business or profession”, and not under the head “income from other sources”.

Comments on Himachal Pradesh High Court Judgement [Supreme Court in Meghalya Steels decided on 09-03-2016]

The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided.

Comments on Delhi, Calcutta and Gauhati High Court Judgements:[Supreme Court in Meghalya Steels decided on 09-03-2016]

The Supreme Court in its concluding para has said that following judgements have correctly construed section 80-IB and Section 80-IC

  1. i)Delhi High Court in Dharam pal Prem Chand [Thus the isuue of excise subsidy also attains finality]
  2. ii)Calcutta High Court in Merino Ply and Chemicals [Transport Subsidy]

iii)              Gauhati High Court in Meghalya Steels [Interest, Power, Transport Subsidy]

 

Conclusion: The Judgment of Supreme Court shall put to rest the long drawn controversy over reletability of subsidies to profits derived from eligible business. Since Finance Act 2015 has defied the purpose test of subsidies wef AY 2016-17, the judgement in author’s view is shot in the arm  just before the commencement of AY 2016-17 before planning for last installment of AY 2016-17.

Issue of deduction of Housing Loan Interest in case of co-owners decided by Punjab and Haryana High Court in Priya Mahajan [ITA 384/2015 dtd 26-11-2015

Facts: Plot purchased in the name of four cowners. Also they were co-borrowers of housing loan for construction of house. The assessee solely repaid entire interest and principal since the date of borrowing. While assessee claimed 100% deduction on housing loan interest, the AO restricted it to 25% having regard to assessee’s share of ownership Section 45 of Transfer of Property Act 1882 on Joint transfer for consideration.— Where immoveable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property. Held that : In present case though assessee has claimed to have paid entire consideration for purchase of plot/construction, no evidence has been produced. In the sale deed since shares of individuals are not specified. Section 45 of Transfer of Property Act shall apply. In the case of Saiyed Abdullah v. Ahmad AIR 1929 All. 817, the Hon’ble Allahabad High Court held that ‘in the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares. In present case, since the individual shares were not specified in the sale deed, the logical conclusion is that everyone had equal share in the property. Hence allowance of 25% of Housing Loan to assessee borrower is correct even if the assessee solely repaid entire interest and principal since the date of borrowing.

Supreme Court in Kathiroor Service Cooperative Bank Ltd.[August 27, 2013.] on Scope of 133(6)

The appellant-assessee is a Service Co-operative Rural Bank. The Income Tax Officer to the assessee under Section 133(6) of the Act calling for general information regarding details of all persons (whether resident or non-resident) who have made (a) cash transactions (remittance, transfer, etc.) of Rs. 1,00,000/- and above in any account and/or (b) time deposits (FDs, RDs, TDs, etc.) of Rs. 1,00,000/- or above for the period of three years between 01.04.2005 and 31.03.2008, dated 02.02.2009. It was expressly stated therein that failure to furnish the aforesaid information would attract penal consequences. The assessee objected to the said notice on grounds, inter alia, that such notice seeking for information which is unrelated to any existing or pending proceeding against the assessee could not be issued under the provisions of the Act and requested for withdrawal of the said notice

Section 133 provides for the power of authorities under the Act to call for information for the purposes prescribed therein. Sub Section (6) of Section 133 of the Act, as it stood originally, had provided for calling for information in relation to such points or matters which would be useful for or relevant to any proceeding under the Act from any person including a banking company or any officer thereof. It was settled law that unless a proceeding is pending, the powers under Section 133(6) could not be exercised by the Assessing Authorities. In such circumstances, an amendment was made by the Finance Act, 1995 (Act 22 of 1995), with effect from 01.07.1995, inserting the words “enquiry or” before “proceeding” in Section 133(6) and the second proviso to the said provision

The addition of the word “enquiry” expanded the ambit of exercise of powers by the authorities under Section 133(6) to seek for information which would be useful for or relevant to any enquiry besides proceeding under the Act. The second proviso to Section 133(6), specified that the power in respect of an enquiry, in case where no proceeding is pending, shall not be exercised by any income tax authority below the rank of Director or Commissioner without the prior approval of the said authorities.

The effect of the amendments made by the Finance Act (Act 22 of 1995) was explained by the CBDT in the Circular No. 717, dated 14th Aug., 1995 (See Taxmann ’s Direct Taxes Circulars, Vol. 4, 2002 Ed., p. 2.1759, 2.1782) as follows :

At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or a restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act.

41.3 With a view to having a clear legal sanction, the existing provisions to call for information have been amended. Now the income-tax authorities have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any person. The Assessing Officer would, however, continue to have the power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner.

Since the language of the Section 133(6) is wholly unambiguous and clear, reliance on interpretation of statutes would not be necessary. Before the introduction of amendment to Section 133(6) in 1995, the Act only provided for issuance of notice in case of pending proceedings. As a consequence of the said amendment, the scope of Section 133(6) was expanded to include issuance of notice for the purposes of enquiry. The object of the amendment of section 133(6) by the Finance Act, 1995 (Act 22 of 1995) as explained by the CBDT in its circular shows that the legislative intention was to give wide powers to the officers, of course with the permission of the CIT or the Director of Investigation to gather general particulars in the nature of survey and store those details in the computer so that the data so collected can be made use of for checking evasion of tax effectively. The assessing authorities are now empowered to issue such notice calling for general information for the purposes of any enquiry in both cases: (a) where a proceeding is pending and (b) where proceeding is not pending against the assessee. However in the latter case, the assessing authority must obtain the prior approval of the Director or Commissioner, as the case maybe before issuance of such notice. The word “enquiry” would thus connote a request for information or questions to gather information either before the initiation of proceedings or during the pendency of proceedings; such information being useful for or relevant to the proceeding under the Act

Powers u/s 131(1) can not be exercised without pendancy of proceedings

Powers regarding discovery, and production of evidence given to the IT authority under s. 131 are the same powers as vested in a Court under CPC while trying a suit—Existence of a suit or a proceeding is a sine qua non for exercise of such power under CPC—Therefore, power mentioned in sub-s. (1) of s. 131 can be exercised only if a proceeding is pending before the concerned officer and not otherwise—This interpretation is consistent with the scheme of the sub-s. (1A) of s. 131 according to which it is competent for Asstt. Director of Inspection to exercise powers under s. 131(1) under certain circumstances even in absence of any pending proceedings [JAMNADAS MADHAVJI & CO. & ANR. vs. J.B. PANCHAL, INCOME TAX OFFICER & ANR ) 162 ITR 0331 HIGH COURT OF BOMBAY]

Reimbursement of Expenses not a part of gross receipts of the assessee for audit purpose-ITAT Pune

Whether reimbursement of actual expenditure on which the payer has deducted TDS ought to be considered by the assessee as a gross receipts or the assessee was under a bona fide impression that reimbursement of expenditure does not involve element of income and not required to be considered as a part of gross turnover. After perusing various invoices raised by the assessee on its clients which are placed in the paper-book, we are of the view that the assessee remained under a bona fide impression that the expenditure incurred on behalf of its clients regarding payment of customs duty, transportation/freight charges, forklift charges, etc. were not required to be retained by the assesse [Aasita International-ITAT Pune 19-011-2015]

Scheme of Taxation for Provident Funds, Approved Super Annuation Funds and New Pension Fund revisited after amendments proposed in Finance Bill 2016

Feb 2016 witnessed a few important changes for salaried class assessee enjoying their provident fund bounties. While vide Government Notification dated 10-02-2016   withdrawl of employer contributions till 58 years of age was prohibited,  Finance Bill 2016 created mayhem over taxability on withdrawl of entire provident fund accumulations. The amendment  was made to move to the regime of EET (i.e. Exempt, Exempt, Tax) from present regime of (Exempt, Exempt and Exempt). Although Finance Minister has announced the retraction of its proposal to tax provident fund withdrawl, there are other large number of other amendments also with regard to employee benefits, which have gone unnoticed in this buzz.

 

In this article an attempt has been made to discuss the taxability of provident funds, approved superannuation funds and new pension scheme after taking into account the amendments proposed by Finance Bill 2016. The taxability of each of these employee benefit scheme has been discussed with regard to employee contributions, employer contributions and treatment on maturity/withdrawl.

  1. Recognized Provident Funds

What is Recognised Provident Fund ?

As per Section 2(38) “recognised provident fund” means a provident fund which has been and continues to be recognised by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in accordance with the rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds Act, 1952 (19 of 1952)

  1. a)Taxability of Employees Contribution to Recognized Provident Fund
  2. i)As per Rule 7 of Schedule IV-A

An employee participating in a recognised provident fund shall, in respect of his own contributions to his individual account in the fund in the previous year, be entitled to a deduction in the computation of his total income of an amount determined in accordance with section 80C

  1. ii)Under Section 80C(2)(vi), there is deduction for contribution by an employee to a recognised provident fund. Contributions by government employees under Provident Fund Act 1925 is eligible for deduction u/s 80C(2)(iv). Contribution to Public Provident Fund under PPF Act 1968 is eligible for deduction u/s 80C(2)(v) rws 80C(4) whether made in name of assessee or spouse or child. Deduction u/s 80C is available up to Rs. 150000. Hence no deduction for contributions exceeding Rs. 150000/-. No deduction u/s 80C is available for contribution to unrecognized provident fund.
  1. b)Taxability of Employer’s Contribution to Recognized Provident Fund
  2. i)As per Section 7 the annual accretion in the previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule  shall be deemed to be income received by employee
  3. ii)Extent of Employer’s annual contributions deemed to be income received by employee as per Rule 6 of Schedule IV-A

That portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognised provident fund as consists of—

(a) contributions made by the employer in excess of  twelve per cent of the salary of the employee [or Rs. 1,50,000 whichever is less was proposed to be inserted Wef AY 2017-18 has been rolled back],

Note : Finance Bill 2016 therefore proposed to tax employer’s  contribution to recognized provident fund in excess of Rs. 1,50,000 . Hence employees whose salary exceeded Rs. 12,50,000 would have been effected by this amendment. [150000 x (12/100)=1250000]. However this proposal has also been rolled back .

(b) interest credited on the balance to the credit of the employee in so far as it is allowed at a rate exceeding such rate as may be fixed by the Central Government in this behalf by notification in the Official Gazette,

[Rate fixed is 9.5% w.e.f. 1-9-2010 – Notification No. SO 1046(E), dated 13-5-2011.]

shall be deemed to have been received by the employee in that previous year and shall be included in his total income for that previous year, and shall be liable to income-tax .

iii)        Head of Income for taxability of Employers’ Contribution

The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule shall be chargeable as salary as per Section 17(1)(vi)

  1. iv)In case of statutory provident funds and unrecognized provident funds, contribution of employer is not treated as income received.
  1. c)Taxability of Withdrawls of Accumulated Balance from Recognized Provident Fund
  2. i)As per section 10(12) the accumulated balance due and becoming payable to an employee participating in a recognized provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule  is exempt

Amendment Proposed in Finance Bill 2016 but dropped by Finance Minister

Provided that nothing contained in this clause shall apply in respect of any amount of accumulated balance, attributable to any contributions made on or after the 1st day of April, 2016 by an employee other than an excluded employee, exceeding forty per cent. of such accumulated balance due and payable in accordance with provisions of rule 8 of Part A of the Fourth Schedule.

Explanation.—For the purposes of this clause, the term “excluded employee” means an employee whose monthly salary does not exceed such amount, as may be prescribed;’;

  1. ii)Extent of Withdrawl from recognized provident fund  as per Rule 8 Schedule IV-A

The accumulated balance due and becoming payable to an employee participating in a recognized provident fund shall be excluded from the computation of his total income—

(i) if he has rendered continuous service with his employer for a period of five years or more, or
(ii) if, though he has not rendered such continuous service, the 63service has been terminated by reason of the employee’s ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the control of the employee, 64[or]
64[(iii) if, on the cessation of his employment, the employee obtains employment with any other employer, to the extent the accumulated balance due and becoming payable to him is transferred to his individual account in any recognised provident fund maintained by such other employer.
iv) if the entire balance standing to the credit of the employee is transferred to his account under a pension scheme referred to in section 80CCD and notified by the Central Government (Inserted by Finance Bill wef AY 2017-18)

Explanation.—Where the accumulated balance due and becoming payable to an employee participating in a recognised provident fund maintained by his employer includes any amount transferred from his individual account in any other recognised provident fund or funds maintained by his former employer or employers, then, in computing the period of continuous service for the purposes of clause (i) or clause (ii) the period or periods for which such employee rendered continuous service under his former employer or employers aforesaid shall be included.]

iii) Calculation of Tax on premature withdrawl of accumulated balance.as per Rule 9 of Schedule IV-A

Where the accumulated balance due to an employee participating in a recognised provident fund is included in his total income owing to the provi-sions of rule 8 not being applicable, the Assessing Officer shallcalculate the total of the various sums of tax which would have been payable by the emp-loyee in respect of his total income for each of the years concerned if the fund had not been a recognised provident fund, and the amount by which such total exceeds the total of all sums paid by or on behalf of such employee by way of tax for such years shall be payable by the employee in addition to any other 66[tax] for which he may be liable for the previous year in which the accumulated balance due to him becomes payable.

Note: It means that tax shall be computed for respective years without giving effect to deduction for contribution to EPF under section 80C.

Iv )Deduction at source of tax payable on accumulated balance as per Rule 10 of Sch IV-A.

The trustees of a recognised provident fund, or any person authorised by the regulations of the fund to make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of rule 9 applies, at the time an accumulated balance due to an employee is paid, deduct therefrom the amount payable under that rule and all the provisions of Chapter XVII-B shall apply as if the accumulated balance were income chargeable under the head “Salaries”.

  1. v)TDS on Payment of accumulated balance due to an employee. As per Section 192A inserted wef 01-06-2015

Notwithstanding anything contained in this Act, the trustees of the Employees’ Provident Fund Scheme, 1952, framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of the accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent :

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees:

Provided further that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

  1. vi)Facility of Form 15G/15H

However wef 01-06-2015, the assessee can file form 15G if total income including premature withdrawl of PF abalance does not exceed exemption limit. Senior Citizens can file Form 15H where tax payable is NIL even after inclusion of premature withdrawl of PF balance

vii)       In case of Unrecognized provident Fund or WIthdrawl from provident fund  with in five years as per Section 17(3)

Section 17(3) is applicable to payments other than covered by S.10(12). Section 10(12) applies to accumulated balance due or payable to employee participating in recognized provident fund to the extent provided in Rule 8 of Schecule IV-A. Hence section 17(3) shall apply to following situations:

1)    Amount becoming due or payable from unrecognized provident fund

2)    Amount from recognized provident fund not covered by Rule 8 of SCh-IV-A

As per Section 17(3) profits in lieu of salary” includes any payment (other than any payment referred to in clause(12) of Section 10) due to or received by an assessee from an employer or a former employer or from a provident or other fund  to the extent to which it does not consist of contributions by the assessee or interest on such contributions

Note:

  1. On payment of employee’s own contribution, since it will be return of investment by employee without enjoying any deduction u/s 80C, there shall be no tax implication.
  2. Interest on employee’s contribution shall be taxable as Income from Other Sources.
  3. Employer’s Contribution as well as interest on employer’s contribution shall be taxable as profits in lieu of salary.

viii)     Withdrawl from Stautory Provident Fund for Government Employees or Public Provident Fund

As per Section 10(11) any payment from provident Fund to which provident Fund Act 1925 applies [It applies to Government Employees] or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette i.e. Public Provident Fund under PPF Scheme 1968 is exempt from tax.

  1. Approved Superannuation Fund

What is Approved Super Annuation Fund:?

As per section 2(6) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund which has been and continues to be approved by the Principal Chief Commissioner or Chief Commissioner or  Principal Commissioner or Commissioner in accordance with the rules contained in Part B of the Fourth Schedule

  1. a)Contribution by an employee to an approved superannuation fund

U/s 80C(2)(vii) deduction up to Rs. 150000 is available for contribution to approved superannuation fund.

  1. b)Taxability of Employer’s Contribution to approved superannuation Fund

As per Section 17(2) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees is chargeable as perquisites

The Limit being enhanced to Rs.1.50 lacs wef AY 2017-18 to bring parity with section 80C.

  1. c)Withdrawl from approved Superannuation Fund

Section 10(13) exempts

any payment from an approved superannuation fund made—
(i) on the death of a beneficiary ; or
(ii) to an employee in lieu of or in commutation of an annuity on his retirement at or after a specified age or on his becoming incapacitated prior to such retirement ; or
(iii) by way of refund of contributions on the death of a beneficiary ; or
(iv) by way of refund of contributions to an employee on his leaving the service in connection with which the fund is established otherwise than by retirement at or after a specified age or on his becoming incapacitated prior to such retirement, to the extent to which such payment does not exceed the contributions made prior to the commencement of this Act and any interest thereon

Amendment Proposed wef AY 2017-18

Section 10(13) further proposes to exempt  transfer to the account of the employee under a pension scheme referred to in section 80-CCD and notified by the Central Government

60% of Commuted annuity in respect contribution after 01-04-2016 made taxable by adding proviso

Provided that any payment in lieu of or in commutation of an annuitypurchased out of contributions made on or after the 1st day of April, 2016, where it exceeds forty per cent. of the annuity, shall be taken into account in computing the total income;

  1. New Pension Scheme u/s 80CCD:
  1. a)Employees Contribution

Section 80CCD(1)

Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or,

being an individual employed by any other employer,

or any other assessee, being an individual]

has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified  by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—

(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.]

[(1A) The amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees.]Omitted by Finance Act 2015

Following sub-section (1B) has been inserted after sub-section (1A) of section 80CCD by the Finance Act, 2015, w.e.f. 1-4-2016 :

(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, [whether or not any deduction is allowed under sub-section (1)], of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:

Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).

  1. b)Employer’s Contribution

80CCD(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.

Note: As per Section 7(iii) the contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD is deemed to be income received Further As per Section 17(1)(viii) salary includes the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;

Hence Contributions by employer in excess of 10% shall become taxable.

  1. c) Taxability of Withdrawl/Maturity

80CCD(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1) or sub-section (1B); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,

the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

Following proviso proposed to be inserted wef AY 2017-18

Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee

Conversion into Annuity Plan

(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

40% Receipts from New Pension Scheme Exempted by inserting clause 10(12A)  wef AY 2017-18 as under:

(12A) any payment from the National Pension System Trust to an employeeon closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed forty per cent. of the total amount payable to him at the time of such closure or his opting out of the scheme;”;

Explanation.—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

Conclusion: 60% of Withdrawl from recognized provident fund sought to be taxed by Finance Bill 2016 has been dropped and hence shall continue to enjoy tax exempt status. Employer’s contribution to recognized fund in excess of Rs. 150000 was also proposed to be taxed has also been rolled back. Employer’s Contribution to approved superannuation fund has been exempted till Rs. 150000 to bring it in parity with deduction for employees contribution.  In investment in New Pension Scheme also still there is no cap for exemption in absolute terms of monetary limit except percentage limit of 10%. While conversion from new pension scheme to annuity was already tax exempt, the conversion from recognized provident fund and approved superannuation fund to new pension scheme has also been exempted. 40% of amount receivable under new pension scheme and commuted annuity is also proposed to be exempted from tax. Amount received by nominee under new pension scheme on death of the contributor has been provided albeit exemption. Contributors of New Pension scheme already enjoys the benefit of additional deduction of Rs. 50,000/- u/s 80CCD(1B) over  and above normal aggregate deduction of Rs. 150000 u/s 80C  and 80CCD(1).

Conversion of bonds or debentures, debenture-stock or deposit certificates into shares

Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company is not regarded as transfer u/s 47(x). As per Rule 8AA inserted vide Notification dated 17-03-2016 , In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.

MES Contractor be assesses at 7.5% says Jodhpur Tribunal

Assessee was engaged in business of contract work of military engineering services – Assessing Officer having found that assessee disclosed lower gross profit rate 7.20 per cent in relevant year, in comparison to 10.25 per cent in immediately preceding year despite three fold increase in gross receipt and assessee had not maintained salary register, payment register etc., rejected books of account of assessee and estimated income of assessee by applying net profit rate of 12.5 per cent – Whether since explanations of assessee that gross receipts had substantially increased by three times for which assessee had to reduce margin, and that contract works were executed in military and air force areas where working hours were lesser in comparison to normal civil work and that cost of various expenses and material had also been increased, was not rebutted by revenue, gross profit rate applied by Assessing Officer could not be sustained – Held, yes – Whether on facts, it would be fair and reasonable if net profit rate of 7.50 per cent was applied subject to interest to third parties, depreciation, interest to partners and salary to partners – Held, yes-Shri Ram Traders [2013] 37 taxmann.com 427 (Jodhpur – Trib.)

Exemption from income-tax to disability pension, i.e., “disability element” and “service element” of a disabled officer of the Indian Armed Forces

  1. Reference have been received in the Board regarding exemption from income-tax to disability pension, i.e. “disability element” and “service element” of a disabled officer of the Indian Armed Forces.
  2. It appears that field formations in certain cases are not uniformly allowing disability, pension in spite of Board’s Instruction No.136 dated 14th January, 1970 [F. No. 34/3/68-IT(A-I)].
  3. The matter has been re-examined in the Board and it has been decided to reiterate that the entire disability pension, i.e.“disability element” and “service element” of  a disabled officer of the Indian Armed Forces continues to be exempt from income-tax.

Instruction : No. 2, dated 2-7-2001.

Important Changes in ITR Forms wef AY 2016-17

Where total Income of assessee is more than 50 lacs, the Individual/ HUF  assessee is required to disclose cost of Immovable Assets viz. Land and Building and Movable Assets viz. Cash in Hand, Jewellery Bullion etc., Vehicle, Yatches, Boats and Aircrafts and also Liability in relation to Immovable and Movable assets in case amounts not disclosed in Balance Sheet. Earlier assesses having total Income exceeding 25 lacs were required to disclose this information. In ITR-3 and ITR-4.

Provision  for  availing TCS credit by the buyer for cash purchase of jewellery and bullion exceeding Rs. 5 lacs and Rs. 2 lacs respectively.[Introduced since Finance Bill 2012]

Partnerships firms going for presumptive Income can now file 4S instead of ITR-5. They can also claim deduction of interest and salary to partner.

Provision made in ITRsfor availing additional deduction of Rs. 50,000/- in respect of New Pension Scheme u/s 80CCD(1B) introduced by Finance Act 2015.

Disclosure of exempt share income of partner from firm/AOP/BOI done away.

Impact of ICDS to be disclosed.

Trusts to disclose percentage of commercial recipts visa vis total receipts, because as per Finance Act 2015, if commercial receipts exceed 20% OF TOTAL RECEIPTS of trust advancing objects of general public utility, it shall not be charitable and shall lose exemption u/s 11 and 12.

The Finance Act, 2015 has amended the provisions of Section 139 to provide that  universities or educational institutions, hospitals or other institutions which are wholly or substantially financed by the Government, shall be mandatorily required to file their returns of income. Now such universities, hospitals, educational institutions, etc., have to disclose their name and annual receipts in new ITR 7. Further, they are also required to disclose the amount eligible for exemption in ITR 7.

In new ITR forms there is a separate row for disclosure of following details if taxpayer is liable for audit under any Act [other than the Income Tax Act]:  1) Act and Section under which taxpayer is liable for audit   2) Date of furnishing of Audit Report.

 

Finance Act 2015 extended the benefit of section 80JJAA for 30% of additional wages to new and regular workmen for three asstt years to non corporate assessee also. Hence ITRs 4 and ITR-5 amended to extend benefit to non corporate assesses.

“Require” before you aspire the assessee to afford the facility for conducting survey says ITAT Amritsar

ITAT Amritsar Bench in an interesting decision of Smt. Kailash Devi ITA 347/ASR/ 2015 pronounced on 05-04-2016 on conduct of survey had an occasion to ponder over the obligations cast upon Income Tax Authorities under the law. Often assessee and income tax authorities are at logger-heads for assessee not acting as “required” but before authorities allege the assessee for not doing his part of obligation,  a line has to be drawn from where assesse’s  part of obligations  commence, because it is easy to tell a person how best to carry his pack  until the burden is on one’s own back.

Facts of the case:

A survey was conducted on the assessee and stock of cotton was found in excess by 155.39 quintals. The stock was valued at Rs. 6,85,270/- after allowing 10% relief for non weighment by scale.

Plea of the assess:

Since the stock has not been weighed on the standardized scale , no addition for excess stock can be made.

Argument of the department and CIT A

It is obligation cast by law on the assessee to afford necessary facility for checking of stock and hence assessee has failed to provide weighment facility for checking of the stock of cotton. Had the survey team stubbornly refused to take inventory of stock by standardized scale provided by asseessee , only then the stand of the assessee had been tenable.

Judgement of the Court

Relevant Extract of Section 133A

As per Section 133A (1) “ ……an income authority may enter any place……at which a business or profession is carried on, ……………………………, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession……………….to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein

As per Section 133(6)” If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made

Weighment has to be done as per Standards of Weighment and Measurement Act

The ITAT in para 6 of its Judgement has mentioned that it is not in dispute that weighment has to be done in accordance with provisions of Standards of Weights and Measurement Act 1976 (Now Legal Metrology Act 2009). As per section 3 of the said Act, its provisions override the provisions of any other law.

What is Mandate of section 133A

The Hon’ble Court also noted that provisions of section 133A are marked times and again by words “require” , “is required”. Thus the mandate of section 133A is that it is the surveying authority who is to “require” the person attending the business to afford necessary facility to check or verify the stock. It is only on such requirement having been expressed by the surveying authority that the said authority shall essentially be afforded such facility for checking or verification of the stock found in the survey. Hence it was obligatory on surveying authority to “require” assessee to make available standardized scales for weighment . The assessee is not obliged to provide what he is not “required”

Section 133A is based on principles of Natural Justice

The Hon’ble bench of ITAT Amritsar also elaborated that use of word “require” in the section is clearly based on natural justice principle that nobody , muchless a person as referred to in the section can be presumed to know the law. Rather, in such a situation like one at hand, the person needs must be aware, by statutory authority i.e. Income tax authority, that the stock found in the survey is to be weighed as per provisions of Standards of Weights and Measurement Act 1976 for which necessary facility is to be provided by the person to the authority.

The Bench also held that it is also trite that Income tax authority must help the assessee.  The authority can not withhold such legal requirement from the assessee prejudicially and then on the contrary hold the assesssee liable for not making good such legal requirement.

This it is amply clear that it is “first” for the surveying authority to “require” the person attending the premises to afford the necessary facility.

 

Conclusion:  A closed mouthed frog can not catch any flies. Hence the income tax authorities must “first “ require assessee to provide standardized scales under the law before they aspire or expect the assesee to provide necessary facility to check or verify stock. The Judgement also casts duty on the knowledgeable one to enlighten the ignorant ones. In this case survey team abstained from requiring and educating the assessee about need to provide standard weighment scales inspite of express provisions of Standards of Weights and Measuresment Act, 1976.  And the Judgment propounds that law can forgive a child who is afraid of dark but not the men afraid of light.

Loss from assigning the amount recoverable from Indian entity is short term capital loss which can be set off against capital gain Income of the assessee non resident company

Amount recoverable from wholly owned Indian subsidiary was assigned to another company by non resident company assessee for loss. Held by ITAT Mumbai that even though an advance, a debt or a recoverable amount is a ‘current asset’ from an accountant’s perspective, as long as such an advance, debt or recoverable amount satisfies the requirements of Section 2(14), it will have to be treated as a ‘capital asset’ for the purposes of computation of capital gain. The concept of ‘current asset’ is alien to the law on taxation of capital gains, or, for that purpose, to the law on taxation of income. Further as per Section 9(1)(i) any income, “through the capital asset situated in India” is deemed to accrue or arise in India, the debt being recoverable from company in India is a capital assets in India. As a corollary to this taxability of income, the loss through the capital asset situated in India is also required to be taken into account. Also the transaction satisfies the definition of term “transfer” u/s 2(47) as it is sale of debt. The sale of trade debts, or even loans, is a part of day to day trade and commerce. Hence loss from assigning the amount recoverable from Indian entity is short term capital loss which can be set off against capital gain Income of the assessee non resident company

Siemens Nixdorf Informationssysteme GmbH [2016] 68 taxmann.com 113 (Mumbai – Trib.)MARCH  31, 2016

Hotel providing accomodation on daily basis is assessable under Business Income and not Income from House property merely because tds is deducted u/s 194-I

TDS of the assessee is deducted u/s 194-I for providing accommodation on daily basis. However assessee’s memorandum of association indicates that main object of the company is to carry on the business of hotels, resorts, boarding, lodges, guest houses, etc. However no property was let out and assessee received only rentals for occupation of the premises on a daily basis. Assessing Officer’s contention that income has to be assessed under ‘house property’ because TDS is deducted u/s 194-I is not correct because Even if machinery was leased, the consequent rent comes under the definition of rent u/s 194-I. But machinery lease cannot be considered under ‘income from house property’. That indicates that just because TDS was made under section 194-I, it cannot be treated as ‘house property income’ as the rent definition includes lease of equipment, lease of furniture, fittings which cannot be considered as ‘house property Moreover, even if assessee has let out property but when the memorandum of association permits the business of letting out of properties as such, the income cannot be brought to tax as ‘income from house property’ as held in the case of Chennai Properties & Investments Ltd. 373 ITR 673. It was held by Supreme Court that where in terms of Memorandum of Association, main object of the assessee-company was to acquire properties and earn income by letting out the same, the said income is to be brought to tax as ‘income’ from business and not as ‘income from house property’ ITAT Hyderabad in Heritage Hospitality Limited [2016] 68 taxmann.com 150 (Hyderabad – Trib.) JANUARY 22, 2016

Reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off: Held by SC in Vijaya Bank

Whether it is imperative for the assessee-Bank to close the individual account of each of it’s debtors in it’s books or a mere reduction in the Loans and Advances or Debtors on the asset side of it’s Balance Sheet to the extent of the provision for bad debt would be sufficient to constitute a write off

SC in the case of Vijya Bank vs. CIT 323 ITR 168 has held that

What is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee-Bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under Section 36(1)(vii) of 1961 Act……..because the Assessing Officer apprehended that the assessee-Bank might be taking the benefit of deduction under Section 36(1)(vii) of 1961 Act, twice over.

In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under Section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of it’s debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of Section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor’s account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years.

There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against it’s debtors. If individual accounts are to be closed, then the Debtor/Defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed.

Further Held by Supreme Court that if amount is recovered subsequently and it is more than difference between debt and amount so allowed , the balance can be taxed u/s 41(4).

How to Write off a debt as per provisions of Section 36(1)(vii)

Held by Supreme Court in Southern Technologies Ltd. [320 ITR 577]

If an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor’s account, it would constitute a write off of an actual debt.

However, if an assessee debits `provision for doubtful debt’ to the profit and loss account and makes a corresponding credit to the `current liabilities and provisions’ on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction

Held by Supreme Court in Vijya Bank 323 ITR 168 

upholding the order of Tribunal and reversing the decision of High Court that besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee-Bank had correspondingly/simultaneously obliterated the said provision from it’s accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision “for impugned bad debt”.

 

In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under Section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in it’s Books, as indicated above

Where assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law

Delhi High Court judgment in the case of CIT vs. Zoom Communication (P) Ltd. 191 Taxman 179 (Del.). The Delhi High Court has held as under:- “It was held that so long as assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty u/s. 271(1)(c), even if claim made by him is unsustainable in law, provided that he either substantiate explanation offered by him or explanation, even if not substantiated, is found to be bona fide.

Taxability of Damages for breach of contract received by the buyer of Immovable property discussed by ITAT Amritsar

The law under section 51 and 56(2)(ix) provides for the taxability of forfeiture of advance money received in the hands of seller. Till AY 2014-15, the forfeited sum was deductible from the cost and even the excess of forfeited money over cost was capital receipt not taxable by virtue of Supreme Court Judgment in Travoncore Rubbers. In the hands of buyer the forfeiture of amount by reason of failure on the part of buyer was not treated as capital loss by virtue of Bombay High Court Judgement in Sterling Investment Corporation 123 ITR 441. However wef AY 2015-16, the forfeited amount is taxable in the hands of seller as Income from other Sources and no reduction from cost of the asset has to be made.

 

However Income tax law is silent about the treatment of compensation received by the buyer of immovable property for breach of contract by the seller. ITAT Amritsar has in a recent decision in Rajesh Mayor ITA 571/ASR/2014 pronounced on 04-05-2016 has revisited the law on the subject:

Facts of the case: The assessee entered into agreement with proposed seller for the purchase of a house for 4.04crores. Biana of 50 lacs was paid by the buyer. The seller however backed out of the agreement. The buyer filed a suit in civil court. The Court ordered return of biana of 50 lacs to buyer and also ordered to pay 54 lacs as compensation to the buyer. By way of two cheques of 27 lacs each. While payment against one of cheques was honored, other cheque got bounced and the buyer could recover the amount only by filing suit u/s 138 of Negotiable Instrument Act. The AO assessed the receipt of 54 lacs as capital gains. CIT A dismissed the assessee’s appeal.

The development of the law on the subject may be discussed as under:

  1. Tata Services Limited  [1979] 1 Taxman 427 (Bom.)It was held by Bombay High Court that:

“………..Under an agreement to purchase a plot of land, assessee paid Rs. 90,000 as earnest money. Vendor failed to obtain requisite permission within stipulated time. Assessee, however, obtained permission and parties agreed to register the plot on a specified date. Parties thereafter came to an arrangement under which assessee received the earnest money of Rs. five lakhs and assigned right, title and interest under the agreement to third party. Held that assessee owned a capital asset under the agreement and Rs. five lakhs was liable for capital gains tax…..”

  1. Delhi High Court in J. Dalmia (1984)149 ITR 215 : It was held by Delhi High Court :

9.…………………..There was a breach of contract and the assessee received damages in satisfaction thereof. He had a mere right to sue for damages. Assuming the same to be ‘property’ this could not be transferred under s. 6(e) of the Transfer of Property Act. The relevant provision may be reproduced:

“6. Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force:…..

(e) A mere right to sue cannot be transferred.”

We do not find any exception under the IT Act though the word ‘transfer’ in relation to capital asset has been defined in s. 2(47) of the Act which includes ‘sale, exchange or relinquishment of the asset or the extinguishment of any right therein’. The damages which were received by the assessee cannot be said to be on account of relinquishment of any of his assets or on account of extinguishment of his right of specific performance under the contract for sale.

  1. Under s. 5 of the Transfer of Property Act, ‘transfer of property’ means an act by which a person conveys property to another and ‘to transfer property’ is to perform such act. A mere right to sue may or may not be property but it certainly cannot be transferred. There cannot be any dispute with the proposition that in order that a receipt or accrual of income may attract the charge of tax on capital gains the sine qua non is that the receipt or accrual must have originated in a ‘transfer’ within the meaning of s. 45 r/w s. 2(47) of the Act. Since there could not be any transfer in the instant case, it has to be held that the amount of Rs. 1,02,500 received by the assessee as damages was not assessable as capital gains.”

In above case, the decision of Tata teleservices(supra) was distinguished on the facts that the right to specific performance had been specifically given up by the assessee J. Dalmia and what was left was a mere right to sue for damages. While in Tata Teleservices, the buyer had assigned his rights to purchase the property to third party.

Hon’ble Supreme Court has dismissed the SLP of the department against the Delhi High Court decision in J.Dalmia(supra) in 189 ITR 22(ST.)

  1. Vijay Flexible Containers (1990) 186 ITR 693 (Bom) & Laxmi Devi Rattani (296 ITR 363)(MP)

In this case the buyer was constrained to file suit for specific performance/ damages for breach due to seller’s failure to comply agreement. Consent terms were arrived at in the suit and a decree was passed in favour of the assessee for the sum of Rs. 1,17,500 and interest.Dissenting J. Dalmia (supra) held by Mumbai High Court that :

“………..Having regard to the statutory provisions and the authorities which we have cited above, we cannot, with respect, agree that the right acquired under an agreement to purchase immovable property is a mere right to sue. The assessee acquired under the said agreement for sale the right to have the immovable property conveyed to him. He was, under the law, entitled to exercise that right not only against his vendors but also against a transferee with notice or a gratuitous transferee. He could assign that right. What he acquired under the said agreement for sale was, therefore, property within the meaning of the IT Act and, consequently, a capital asset. When he filed the suit in this Court against the vendors he claimed specific performance of the said agreement for sale by conveyance to him of the immovable property and, only in the alternative, damages for breach of the agreement. A settlement was arrived at when the suit reached hearing, at which point of time the assessee gave up his right to claim specific performance and took only damages. His giving up of the right to claim specific performance by conveyance to him immovable property was a relinquishment of the capital asset. There was, therefore, a transfer of a capital asset within the meaning of the IT Act………….”

In Laxmi Devi Ratani, facts were found similar to Vijay Flexible Containers(supra) and hence decision was given accordingly.

  1. K.R. Sri Nath  (Madras) 268 ITR 436:

Held that

“……………10. As seen already, the assessee had a right to insist on specific performance, gave up the right readily and received a sum referred to supra. There can be no doubt that by termination of the earlier agreement and by allowing the vendor to sell the said property to any person at any price, the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6,00,000. The right, title and interest acquired under the agreement of sale clearly fall within the definition of capital asset [s. 2(14)]. Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of transfer in s. 2(47) is wide enough to include relinquishment of an asset.

  1. With regard to the contention that there was no cost of acquisition incurred by the assessee for obtaining the rights under the agreement dt. 3rd April, 1986, and consequently there could be no capital gains assessable, it is to be noted that at the time of agreement of sale the assessee paid Rs. 40,000. That payment was made pursuant to the agreement. Only by paying the said amount the assessee acquired the right to get the sale deed executed in his favour. At this juncture, we may refer to the observation in the decision of the Bombay High Court in CIT vs. Tata Services Ltd. (supra), where it is observed as under :

“The assessee had paid at the time of the execution of the agreement of sale Rs. 90,000. He had then acquired a right to obtain a sale deed. When he gave up that right or assigned it in favour of M/s Advani and Batra, he received Rs. 5,90,000 and Rs. 90,000 was treated as refund of consideration. Therefore, actual cost to the assessee of the right to obtain the sale deed on the date of the agreement of sale was Rs. 90,000.”

Even in the other case referred to in CIT vs. Vijay Flexible Containers(supra), the Bombay High Court held that the capital asset had been acquired at a cost of Rs. 17,500 paid as and by way of earnest money. In that case also the Court observed as follows :

“We may, at this stage, also deal with the further argument that there was no consideration for the acquisition of the capital asset. In our view, this Court was right in the view that it took that the payment of earnest money under the agreement for sale was the cost of acquisition of the capital asset.”

  1. Now that we have come to the conclusion that the assessee incurred Rs. 40,000 for acquiring the right to acquire the sale deed, the contention of learned counsel for the assessee that there is no cost of acquisition and so there could be no assessment of capital gain on the transfer of the capital asset falls to the ground.
  2. It has been held by Supreme Court in Saurashtra Cement Ltd 325 ITR 422 that compensation received for delay in procurement of capital asset is capital receipt not chargeable tax.
  1. Mumbai High Court in Kumarpal MohanLal Jain 41 Taxmann.com 55 held that compensation of Rs. 15000/- awarded for failure of builder to hand over possession to the buyer is tax exempt.

Two Views Theory :It has been held by Supreme Court in  :

  1. a) CIT v. Poddar Cement (P.) Ltd. [1997] 226 ITR 625 (SC) –

Where there are two possible interpretations of a particular section which is akin to a charging section, the interpretation which is favourable to the assessee should be preferred while construing that particular provision. Reiterating the same view, in the case of CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 (SC) it has been held that in interpreting a fiscal statute, the Court cannot proceed to make good the deficiencies if there be any. The Court must interpret the statute as it stands and in case of doubt, in a manner favorable to the taxpayer.

(b)        CIT v. Vegetable Products Ltd [1973] 88 ITR 192 –

It has been held that if the Court finds that the language of taxing provision is ambiguous or capable of more meaning than one, then the Court has to adopt the interpretation which favours the assessee.

ITAT Amritsar after consideration of the law on the subject

held that compensation received by the buyer of property for breach of agreement is not taxable in the hands of buyer.

 

Conclusion: The dispute on the issue in centered around the issue whether breach of contract by seller gives buyer a right to sue or something more. The issue whether giving up of right of specific performance in lieu of compensation for breach in itself constitutes transfer under section 2(47). Till the legislature comes out with some solution, following a view favorable to the assesee seems to be the only rational solution.

Non consideration of certain arguments before SC does not make its judgement lesser binding

The binding effect of a decision of Supreme Court does not depend upon whether. a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided.

SmtSomavanti v. State of Punjab [1963] 2 SCR 774 and T. Govindraja Mudaliar v. State of Tamil Nadu [1973] 3 SCR 222.

Comprehansive Analysis of Income Computation and Disclosure Standads

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Assessment proceedings in cases getting time barred on 31-12-2017: Instruction 8/2017 dated 29-09-2017

  • AO shall issue a communication to assesses having e filing accounts and also having their cases pending for scrutiny assessment by 8th October 2017

 

  • These Assessee to send his consent for E-assessment till 15-10-2017

 

 

  • Mannual Scrutiny to be kept at hold till 15-10-2017 or till the consent of these assesse, whichever is earlier

 

  • E-proceedings can be opted out subsequently under intimation to AO

 

 

  • Proceedings of assesses not having e filing accounts, assesses opting for manual scrutiny, search assessments, transfer pricing assessments, Cases before Range Head u/s 144A shall continue to be assessed manually.

 

  • Notices/communications/orders through e proceedings to be digitally signed by AO

 

 

  • Mannual issue of notice to Assessee shall be done only after providing reason to Range Head

 

  • Online response to AO can be made only till the conclusion of office hours of the day fixed for response

 

 

  • Response for electronic proceedings to be closed by seven days before time barring date i.e. 24-12-2017. An exception can be allowed with permission of Range Head only.

 

  • Manual production of response can  be allowed in following cases
  1. Where manual books or original documents have to be examined
  2. Where summons are issued to assesse or for third party enquiries
  3. Where examination of witness is required by assesse.
  4. Where show cause notice is issued drawing any adverse inference and assesse requests personal appearance

 

  • In appeal proceedings documents shall be produced in two parts : Manual-Part A & Electronic-Part B

In case of reconstitution of partnership firm who will be liable to pay tax, interest or penalty

Without prejudice to the provisions of section 90, all the partners of the firm prior to the date of reconstitution and after the date of reconstitution shall jointly and severally, be liable to pay tax, interest or penalty due from firm which is reconstituted, for any period before its reconstitution.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in other cases : FAQ NO. 18)

Liability in case of discontinuation of business by HUF / AOP / firm

Where a taxable person is a firm or an association of persons or a Hindu Undivided Family and such firm, association or family has discontinued business—
1. the tax, interest or penalty payable under this Act by such firm, association or family up to the date of such discontinuance may be determined as if no such discontinuance had taken place; and                                                                            2. every person who, at the time of such discontinuance, was a partner of such firm, or a member of such association or family, shall, notwithstanding such
discontinuance, jointly and severally, be liable for the payment of tax and interest determined and penalty imposed and payable by such firm, association or family, whether such tax and interest has been determined or penalty imposed prior to or after such discontinuance and subject as aforesaid, the provisions of this Act shall, so far as may be, apply as if every such person or partner or member were himself a taxable person.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in other cases : FAQ NO. 17)

Liability in case where HUF / AOP/ firm where the property is partitioned/dissolved amongst the members

In case where the property of HUF/AOP is partitioned amongst the various members or groups of members, then each member or group of members shall jointly and severally, be liable to pay tax, interest or penalty pertaining to the period prior to the date of partition. Similarly, all the partners of the partnership firm shall be jointly and severally liable to pay tax, interest or penalty for the period prior to the date of dissolution. Such unpaid amount of tax, interest or penalty is determined either prior to partition / dissolution or otherwise.

(ICAI FAQ PUBLICATIONS 06-09-2017 Special provisions regarding liability to pay tax, interest or penalty in certain cases: FAQ NO. 16)

Who will be held liable for payment of tax, interest or penalty after the death of the taxable person

In terms of Section 93(1) of the CGST Act, 2017, after the death of the taxable person, the tax, interest or penalty remaining unpaid either determined before the death or otherwise, shall be recovered in the following manner:
1. if a business carried on by the person is continued after his death by his legal representative or any other person, such legal representative or other person, shall be liable to pay tax, interest or penalty due from such person under this Act; and
2. if the business carried on by the person is discontinued, whether before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such person under this Act.

(ICAI FAQ PUBLICATIONS 06-09-2017 Special provisions regarding liability to pay tax, interest or penalty in certain cases: FAQ NO. 15)

Whether the director of a private limited company is liable for the payment of tax in respect of the supply made by or to such private company

Yes. Every director of the private company during the period for which. tax, interest or penalty due in respect of any supply of goods or services or both, is not recovered shall jointly and severally be liable for the payment of such tax, interest or penalty, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the Company.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability of directors of private company : FAQ NO. 9)

Whether in an amalgamation, the companies shall be treated as separate entities for the period starting from effective date and ending on the date of order of the Court

Yes, for the purposes of this Act, the two or more companies amalgamated or merged in pursuance of an order of Court or of Tribunal or otherwise, shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of amalgamation /merger of Companies: FAQ NO. 6)

In case of an amalgamation, supplies effected for the period from effective date till the date of order of the Court between the companies inter-se is liable to tax

Yes. In terms of Section 87(1) of the CGST Act, 2017, the supplies between the
companies inter-se for the period starting from effective date and ending with the date of order of the Court is liable to tax and supply and receipt shall be included in the turnover of supply or receipt of the respective Companies.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of amalgamation /merger of Companies : FAQ NO. 5)

In case of transfer of business, the transferor will be liable for the payment of tax, interest and penalty

Yes, the transferor and the transferee shall be jointly and severally, be liable to wholly or to the extent of such transfer, to pay the tax, interest or penalty which was due for the period prior to the date of transfer. Such tax liability, interest and penalty may be determined either prior to the date of transfer or thereafter.

(ICAI FAQ PUBLICATIONS 06-09-2017 Liability in case of transfer of business : FAQ NO. 1)

Introduction of a new entry and inclusion of certain services in that entry would pre-suppose that there was no earlier entry covering the said services

Bombay High Court in the case of Indian National Shipowners’ Association-v.-Union of India, 2009 (14) STR 289, at paragraph 38 of the judgment, held in the context of the Finance Act, 1994 that introduction of a new entry and inclusion of certain services in that entry would pre-suppose that there was no earlier entry covering the said services

ITAT Asr: Disallowance for higher consumable stores without rejection of books or declaring expenditure bogus where stock register is not maintained is not sustainable

Shivam Metal Shaper :I.T.A No. 123/(Asr)/2017: 15-09-2017

 

Cases Followed

P&H High Court in KS Bhatia 269 ITR 577

Chhattisgarh High Court in Roop Chand Tharani 249 CTR 326

ITAT Asr Harpreet Singh Gulati ITA 317/ASR/2013

PMS Diesel ITA 317/ASR/2013

Kashmir Steel Rolling Mills ITA 509/Asr/2016 dtd 04-09-2017

 

P&H High Court in KS Bhatia 269 ITR 577

“……………..in the absence of a definite finding that the case of assessee comes within the provisions of section 145(1) that it was not possible for Assessing Officer to make additions to the gross profit. It has been further held that mere fact that profits as compared to earlier year were lower does not warrant an addition…………………….”

 

Chhattisgarh High Court in  Roop Chand Tharani 249 CTR 326

“………………without pointing out any specific mistake in the books of account, the Assessing Officer cannot reject the books of account………………..”

 

Kashmir Steel Rolling Mills ITA 509/Asr/2016 dtd 04-09-2017

“……….the assessee was not able to produce some of the expenditure vouchers…………… a disallowance @ 1/10 of these expense is being made………………….. The Assessing Officer in its assessment order dated 28.12.2006 had not rejected the books of account of the assessee and there is no finding given by the Assessing Officer in its assessment order that the books of account are not reliable or unverifiable…………………. there is no question of making any ad-hoc disallowance towards consumption of bagasse…………………….”

ITAT Asr : Abhishek Industries 286 ITR 1 is not applicable where disallowance u/s 36(1)(iii) is made inspite of availability of owned capital

M/s. N.R.C. Industries Ltd.:ITA No.139/(Asr)/2017 dtd 31/08/2017

 

Followed :

1.Punjab and Haryana High Court in the case of The Dy. CIT, Central Circle-II, Jalandhar. Versus of M/s Holy Faith International Pvt. Ltd., ITA no. 87/2017 O & M, decided on 24-07-2017

2. CIT-1, Ludhiana Vs. Rakesh Gupta, ITA No.37-2014, dated 2.07.2015

3. ACIT Vs. Omax Bikes Limited’ ITA No.l085/Chd/2013 dated 06.08.2015.

If refund is made based on the order of appellant authority, then would interest be paid

Yes, interest (at a rate not exceeding 9%) would be computed and paid for the period starting from expiry of 60 days from the date of application consequent to the order till the date of actual refund of tax. It is pertinent to note that the Government vide Notification No. 13/2017 – Central Tax dated June 28,2017, has prescribed the rate of interest @ 9%.

(ICAI FAQ PUBLICATIONS 06-09-2017 INTEREST ON DELAYED REFUNDS: FAQ NO. 31)

Would interest be paid on the amount of refund sanctioned

Yes, in terms of section 56, interest would be paid at a rate not exceeding 6%, if the refund is not sanctioned with 60 days from the receipt of refund application. It is pertinent to note that the Government vide Notification No. 13/2017 – Central Tax dated June 28,2017 has prescribed the rate of interest @ 6%.

(ICAI FAQ PUBLICATIONS 06-09-2017 REFUNDS: FAQ NO. 29)

Is there any other case apart from those covered in Section 54, wherein refund can be claimed under GST

Yes, as per Section 55 of the CGST Act, the Government may, on the
recommendations of the Council, by notification, specify any specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries and any other person or class of persons as may be specified in this behalf, who shall, subject to certain conditions and restrictions, be entitled to claim a refund of taxes paid on the notified supplies of goods or services or both received by them.

(ICAI FAQ PUBLICATIONS 06-09-2017 REFUND IN CERTAIN CASES: FAQ NO. 28)

What will be the amount of bond furnished for exports and how will the bond be secured

The bond would cover the amount of tax involved in the export based on estimated tax liability as assessed by the exporter himself. FORM RFD -11 under rule 96A of the CGST Rules requires furnishing a bank guarantee with bond as a security. The bank guarantee should normally not exceed 15% of the bond amount. If Commissioner is satisfied with the track record of an exporter then furnishing of bond without bank guarantee would suffice. [Refer Circular No. 4/4/2017-GST dated July 7, 2017].

(ICAI FAQ PUBLICATIONS 06-09-2017 QUESTIONS ON NOTIFICATIONS AND CIRCULARS: FAQ NO. 26)

What are the categories of persons eligible for submitting a Letter of Undertaking in place of a Bond

According to Notification No. 16/2017 – Central Tax dated July 7, 2017, following registered person shall be eligible for submission of Letter of Undertaking in place of a bond:
(a) a status holder as specified in paragraph 5 of the Foreign Trade Policy 2015- 2020; or
(b) who has received the due foreign inward remittances amounting to a minimum of 10% of the export turnover, which should not be less than one crore rupees, in the preceding financial year,
(c) has not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

(ICAI FAQ PUBLICATIONS 06-09-2017 QUESTIONS BASED ON NOTIFICATIONS AND CIRCULARS :FAQ NO. 25)