Issue No. 245 / September 1st, 2021

Dear Professionals, 

We are glad to present to you the 245^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!

Status of Journals Updated 

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Expert Column 

The recent judgment by the Hon'ble Supreme Court in M.M. Aqua, which was also the last judgment by the legendary Justice R.F. Nariman, brings us to delve deeper into the legal position on declaratory statutes. The retrospective applicability of declaratory statutes, typically inserted as an Explanation with the words "for the removal of doubts", enjoys a rather notorious status in the tax framework. Such statutory amendments have often been used to alter the settled legal position and saddle the taxpayers with an unanticipated liability. 

Mr. A. Sekar (Chartered Accountant) traces India's experience with the declaratory statutes in the light of plethora of judgments delivered across the board. He discusses the time-tested case laws with divergent views to demonstrate the expanse and the impact of the quintet - for the removal of doubts. He lays emphasis on the legal position that declaratory statutes meant only to explain the pre-existing legal provision cannot be retrospective in its effect.

Mr. Sekar is of the view that the draftsmen need to go beyond the words "for the removal of doubts", to bring an end to the controversy inexorably arresting the judicial minds due to its repetitive usage in the legislations and mostly leading to the conclusion that favours the taxpayers.

Click here to the article titled "Removing Doubts on Amendments Meant - For The Removal of Doubts"

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Key Takeaways from Handpicked Rulings

1) ITAT: Upholds disallowance on export commission paid for TDS default - ITAT upholds CIT(A)’s order restricting disallowance on exports, further allows deduction of interest on advance paid from interest free funds; Assessee filed its return of income declaring nil income for AY 2015-16 and his case was picked up for scrutiny assessment; Revenue disallowed commission on exports of Rs. 23.84 lakhs on the ground that no tax deduction was made on the same; Revenue further held that Assessee had failed to substantiate the rendering of services by commission agents with supporting evidences; On appeal, CIT(A) restricted the disallowance to Rs.5.42 lakhs; ITAT observes CIT(A) sustained the disallowance on Assessee’s failure to submit supporting detail to substantiate the payment; Follows co-ordinate bench ruling in Assessee’s own case for earlier year and dismisses appeal; Assessee made certain advances for intangible assets but did not receive the same during the year; Revenue held that Assessee did not provide .............. Click here to read and download ITAT order

2) ITAT: Expenditure on development of designs and tools, capital in nature - ITAT holds expenditure of Rs. 3.75 Cr incurred on development of tools and designs to be capital in nature; Assessee-Company engaged in the manufacture of automotive switch gears claimed Rs. 3.75 Cr incurred on development of tools and designs used for Assessee’s business as revenue expenditure which was claimed as a deduction; Assessee had written off such expenditure over a tenure of 10 years in accounts; Revenue disallowed the expenditure holding it to be capital in nature, which order was reversed by the CIT(A); ITAT reverses the CIT(A)’s order and remarks that the CIT(A)without examining the true nature of expenditure and the judicial precedents has allowed Assessee’s claim; Allows Revenue’s appeal and restores the addition.............. Click here to read and download ITAT order

3) ITAT: Non-issuance of notice u/s 143(2) on change of jurisdiction renders assessment null and void - ITAT allows Assessee’s appeal on jurisdictional ground whereby notice of assessment was issued by one ITO, whereas assessment orders were passed by non-jurisdictional Assessing Officer; Assessee-Individual filing returns with ITO Ward-3(1) submitted application for change of address with the PAN services unit which was confirmed and  the new address was within Ward-3(1); Notice u/s 143(2) was issued by ITO-1(1), whereas the order was passed by ITO, Ward 3(5) who was non jurisdictional Assessing Officer; Assessee relied on the Allahabad HC ruling in Mohd. Rizwan and submitted that since assessment order has been passed by AO who has not given notice u/s 143(2); the order  is null and void; Revenue submitted during issuance of notice u/s 143(2), Assessee’s PAN was with ITO-1(1) and not ITO 3(5), which was subsequently transferred; Further the assessment order passed by ITO Ward 3(5) is in continuation of notice issued by AO, Ward 1(1); ITAT finds Form 26AS issued by the Revenue u/s 143(2) should have been issued by the AO having jurisdiction over the Assessee which has not been done, and orders should be passed by the same AO who issued notice u/s 143(2).............. Click here to read and download ITAT order

4) ITAT: Restricts disallowance u/s 14A on availability of non-interest-bearing funds – Ahmedabad  ITAT restricts Revenue’s disallowance u/s 14A on availability of non-interest-bearing funds with the Assessee;Assessee-Company filed its return of income declaring total income at Rs. 12.28 Cr and claimed exemption of Rs. 1.26 Cr as dividend in computation of income, disallowing Rs. 4.75 lakhs being the only disallowance u/s 14A since non-interest-bearing funds were available with Assessee; Revenue held that no reason was furnished for non-allocation of common management expenses, and thus determined the disallowance u/s 14A at Rs.46.54 lakhs, which was confirmed by CIT(A); ITAT follows its co-ordinate bench ruling and restricts the disallowance to Rs. 14 lakhs as against Rs. 46.54 lakhs disallowed by Revenue; In computation of deduction u/s 80-IC, Revenue found financial expenses pertaining to domestic sales were not allocated to eligible unit u/s 80-IC, and on the basis of allocation rate of 58.69% reduced Rs. 27.89 lakhs from deduction claimed by Assessee u/s 80-IC, which was confirmed by the CIT(A); ITAT observes Assessee did not .............. Click here to read and download ITAT order

5) ITAT: Amendment to Sec. 40(a)(ia) clarificatory, restricts to 30% disallowance - Ahmedabad ITAT upholds CIT(A)’s order restricting disallowance u/s 40(a)(ia) to 30% of total expenditure towards interest payment for AY 2012-13; Holds the amendment to section 40(a)(ia) brought in by Finance Act, 2014 is clarificatory in nature and thus, applicable retrospectively; Assessee had filed a loss return and was issued notice u/s 263 by Pr. CIT for disallowing payment of interest to various parties without complying with TDS provisions; Revenue, on noting that the interest of Rs. 74.54 lacs have been debited to P&L A/C on which Assessee was liable to deduct tax u/s 194A, rejected Assessee’s submission of being under bonafide belief that the recipients of interest were not subject to TDS provisions; Further, Revenue rejected Assessee‘s explanation that the recipients were all operating as banking companies whose accounts are audited and returns are filed and respective taxes have been duly deposited; Thus, disallowed entire interest payment of Rs. 74.54 lacs holding the amendment to section 40(a)(ia) to be prospectively applicable from April 01, 2015 onwards; ITAT refers to Allahabad ITAT bench ruling in M.K. Agrawal & Co. wherein it was held “…once the recipient of the interest amount has included the same as part of their income and filed the return of income in that case the provision of section 40(a)(ia) is not required to invoked”; Observes that the Assessee failed to substantiate its submission of taxes .............. Click here to read and download ITAT order

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Lot's more at Taxsutra Database 

CBDT notifies Rule 9D for calculation of taxable interest on PF contributions; Prescribes monetary thresholds 

CBDT issues Circular on extension of various e-filing deadlines 

CBDT notifies extended timelines under Direct Tax Vivad se Vishwas Act, 2020 (3 of 2020) 

Access all “Taxsutra Database Newsletters”, in case you have missed any! 

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