Category: Income Tax

1. In case of an individual (other than minors) not having any business income,no further verification is required to be made if total cash deposit is up to Rs. 2.5 lakh.
2. In case of taxpayers above 70 years of age, the limit is Rs. 5.0 lakh per person.
3. In non business cases, where the person under verification has filed return of Income, a reasonable quantum can be considered as explained while quantifying the undisclosed amount, if any
4. In case of persons engaged in business or requirement to maintain books of accounts, no additional information is required to be submitted by the person under verification if total cash out of earlier income or savings (sum of responses for all cash transactions) is not more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17
5. However, if the AO has reason to believe that the closing cash balance as on 31st March 2016 has been increased by revising the return or backdating transactions in the books of account, further verification may be carried out.
6. For cash received from identifiable persons without PAN, The AO needs to verify if the cash receipts are not in line with the normal practices of concerned business as mentioned in the earlier returns of Income after considering the remarks provided by the taxpayer, nature of business and earlier history before seeking additional information.
7. For Cash received from Unidentifiable persons, normal practice of business to be verified
8. AO may seek relevant information e.g. monthly sales summary (with breakup of cash sales and credit sales), relevant stock register entries, bank statement etc. to identify cases with preliminary suspicion of back-dating of cash sales or fictitious sales
9. Some indicators for suspicion of back dating of cash sales or fictitious sales could be :Abnormal jump in the cash sales during the period Nov to Dec 2016 as compared to earlier history.Abnormal jump in percentage of cash sales to unidentifiable persons as compared to earlier history.More than one deposit of specified bank notes in the bank account late in the demonetization period. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases.Transfer of deposited cash to another account/entity which is not in line with earlier history.
10. In cases where online response has not been submitted, AO shall generate a letter from the Verification portal on ITBA to the person under verification for submission of online response on the e-filing portal and ensure its service. This process should be completed within 7 days of availability of information on the portal.
11. The person under verification is not required to attend the Income-tax office personally under any circumstance and at any stage during the verification exercise.
12. The Assessing Officer will also be able to send a request for additional information, if required.
13. No independent enquiry or third party verifications are required to be made by the Assessing Officer outside the online portal. Whatever information is necessary during verification, the same has to be collected through the person under verification using online platform only
14. Even telephonic queries are to be avoided.
15. It should be ensured that the communications made online with the persons under verification should be in very polite language without containing any element of threat or warning. No show cause of any kind should be given.
16. In cases of non compliance to cash verification window, if the cash deposit is not in line with the earlier return or information profile of the person under verification, necessary facts may be collected inter-alia by exercising the powers under section 133(6) with the approval of prescribed authority.
17. In appropriate cases depending upon the online response or otherwise, survey action u/s. 133A can be considered. During survey, where there is suspicion of back dating or fictitious cash transactions, CCTV recording of the cash counter at relevant banks may also be checked, if necessary. Reference can also be sent to the Investigation wing in appropriate cases.

1. Commissioner of Income Tax v. Pulikkal Medical Foundation (P) Ltd. [1994] 210 ITR 299 (Ker) ” …merely  because  the  assessee  is  running  the  hospital  on commercial  lines, it will  not  be  disentitled  to  the  exemption under  section  10(22A) of  the  Act As  long  as  the  dominant purpose is a philanthropic one, the mere circumstance that the managing   director or   director   gets some   advantages or exercise some  patronage  while  running  the  institution ,  that  will  not  be  a  ground  to  hold  that  the  main  purpose  of  the institution is not philanthropic
2. Breach Candy Hospital Trust   Chief  CIT,  ITO  and  UOI

[2010]  322  ITR  246  (Bom)

“………..A hospital has many units and ultimately all receipts are used for  treatment.  In  the  absence  of  any  material  to  show  that generally there was a profit, it cannot be said that the petitioner does not exist solely for the philanthropic purpose but exists for the purpose of profit

3. Baun Foundation Trust v. CCIT &Anr (2012) 251 CTR (Bom.) 237 in which it was  held  that  one  has  to  consider  whether  the  overall  object  is  to  make profit. If after  meeting the expenditure any surplus results incidentally from the activity lawfully carried on by the institution, it will not cease to be one existing  solely  for  the  statutorily  stipulated  purpose  so  long  as  the  object  is not  to  make  a  profit.  The  dominant  nature  of  the  purpose  has  to  be considered.

1.Whether an ‘audit objection’ can be construed as ‘information’ [Para 17] 2.The issue is relevant to determine right of the state to reassess where upon information which has come into  possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer has, for any reason, escaped assessment. 3. According to the Oxford Dictionary, ‘information’ means facts told, heard or discovered about somebody/something. 4.The Law Lexicon describes the term ‘information’ as the act or process of informing, communication or reception of knowledge. 5. The expression ‘information’ means instruction or knowledge derived from an external source concerning facts or parties or as to law relating to and/or having a bearing on the assessment 6. We agree that a mere change of opinion or having second thought about it by the competent authority on the same set of facts and materials on the record does not constitute ‘information’ for the purposes of the State Act 7.It comprehends not only variety of factors including information from external sources of any kind but also the discovery of new facts or information available in the record of assessment not previously noticed or investigated. 8. Suppose a mistake in the original order of assessment is not discovered by the Assessing Officer, on further scrutiny, if it came to the notice of another assessor or even by a subordinate or a superior officer, it would be considered as information disclosed to the incumbent officer. 9.If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Officer in such circumstances is in one sense extraneous to the record 10.In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment or under-assessment or wrong assessment 11.There are a catena of judgments of this Court holding that assessment proceedings can be reopened if the audit objection points out the factual information already available in the records and that it was overlooked or not taken into consideration. 12.Similarly, if audit points out some information or facts available outside the record or any arithmetical mistake, assessment can be re-opened. 13. P.V.S. Beedies (SC) We are of the view that both the Tribunal and the High Court were in error in holding that the information given by internal audit party could not be treated as information within the meaning of Section 147(b) of the Income Tax Act. The audit party has merely pointed out a fact which has been overlooked by the Income Tax Officer in the assessment. The fact that the recognition granted to this charitable trust had expired on 22-9-1992 was not noticed by the Income Tax Officer. This is not a case of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent.” 14. Commissioner of Income Tax, U.P., Lucknow vs. M/s Gurbux Rai Harbux Rai (1971) 3 SCC 654: “…………….This Court has consistently held that the Income Tax Officer would have jurisdiction to initiate proceedings under Section 34(1)( b) of the Income Tax Act, 1922, which is in pari materia with Section 15 of the Act if he acted on information received from the decision of the superior authorities or the court even in the assessment proceedings. (See R.B. Bansilal Abirchand Firm v. CIT 1 and Assistant Controller of Estate Duty, Hyderabad v. Nawab Sir Osman Ali Khan Bahadur , H.E.H. The Nizam of Hyderabad and others…………….” 15. M/s Phool Chand Bajrang Lal and Another vs. Income Tax Officer & Another (1993) 4 SCC 77 “25….. He may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information…..” 16. Anandjiharidas & Co. vs. S.P. Kasture AIR 1968 SC 565 wherein it was held that a fact which was already there in records doesn’t by its mere availability becomes an item of “information” till the time it has been brought to the notice of assessing authority. Hence, the audit objections were well within the parameters of being construed as ‘information’ 17. If AO was not satisfied on the basis of information given by the audit party that any of the turnover of the appellant-Company had escaped assessment and the assessing officer had to issue notice on the ground of direction issued by the audit party and not on his personal satisfaction, the reassessment can not be made. Larsen & Toubro Ltd. (SC)[21-03-2017]

It was communicated by ICAI members that in cases where the original return has been treated as invalid by virtue of the provisions of section 139(9), the income tax portal is not accepting the new return being filed either as original return or belated return. The assessees were facing genuine difficulty as there being no other option in the filing status applicable in such cases. Continue reading “ICAI pro actively gets addressed the issue of Enhancing of E-Filing utility for filing return after the expiry of 15 days of issuance of notice under section 139(9) as original return or belated return (As available at ICAI Website)”

1. Operation launched on 31-01-2107
2. In first phase , online response was requested from 17.92 lakh persons
3. Response received from 9.46 lakh persons
4. Online queries raised from 35000 cases
5. Online verification completed in more than 7800 cases.
6. In cases where the cash deposit has been declared under Pradhan Mantri Garib Kalyan Yojna (PMGKY), the verifications would also be closed.
7. In next phase, high risk categories are :

a)businesses claiming cash sales as the source of cash deposits which is found to be excessive compared to their past profile or industry norms

b) large cash deposits made by government or PSU employees;

c) persons who have undertaken high value purchases

d) persons who have used shell entities for layering of fun

e) and where no responses were received

 

More than 60,000 persons, including 1300 high risk persons, have been identified for investigation into claims of during the demonetisation period.

 

More than 6000 transactions of high value property purchase and 6600 cases of outward remittances shall be subjected to detailed investigation

All the cases where no response is received shall also be subjected to detailed enquiries.

More than 2,362 search, seizure and survey actions have been conducted by ITD during 9th November 2016 to 28th February 2017, leading to seizure of valuables worth more than Rs.818 crore, which include cash of Rs.622 crore, and detection of un-disclosed income of more than Rs.9,334 crore.

More than 400 cases have been referred by ITD to the Enforcement Directorate and the CBI. Surveys have been conducted in more than 3400 cases by Assessment Units.

There is increase of 21.7 % in the returns of Income received in FY 2016-17;

There is 16% growth in Gross Collection, the highest in the last five years; 14% Growth in Net Collection – the highest in last three years and above 18%, 25% and 22% growth in Personal Income Tax, Regular Assessment Tax and Self-assessment Tax respectively.

The complete exercise of examining all the doubtful and non-tax compliant accounts may take more than one yearbut all the liable accounts will be brought to tax.

For PMGKY,  The effective date of opening of the Bonds Ledger Account shall be the date of receipt of deposits by the Reserve Bank of India from the authorized banks; wherein the due tax, surcharge and penalty has been received till 31st March, 2017; Provided further that the date of deposit shall in no case be extended beyond 30th April, 2017 Comments: Does not appear to be extension for deposit  of  bonds under  PMGKY  for public in general . Only internal instruction requiring banks to deposit PMGKY amount with RBI till 30-4-17. Further effective date which was earlier set at date of tender of cash or the date of realization of draft or cheque or transfer through electronic transfer has been postponed till date of receipt of deposit by RBI. It might result in delaying repayment period for maturity of such bonds.   [Notification dated 19-04-2017]

As per Circular No. 14/2017 dated 21-04-2017, date of making deposit in bonds had been extended to 30^th April 2017 vide Notification dated 19-04-2017, in cases where tax, surcharge and penalty has been paid up to 31^st March 2017

In such cases, declaration under PMGKY can be filed up to 10^th May 2017

Supreme Court Ends the “paid” vs . “payable”  controversy on section 40(a)(ia). Held that Disallowance u/s Section 40(a)(ia) for TDS default not to be restricted to amounts payable but also when it is paid. Punjab and Haryana High Court in PMS Diesel upholding the same view confirmed . Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd. did not decide the question of law correctly.

[Supreme Court Order dated 03-05-2017 in Palam Gas Service ]