Database NewsLetters

Taxsutra Database Bulletin : Relevance of ‘disposal of objections’ law u/s. 147 to Benami Act, Business expenses during liquidation, CBDT Updates and more…!

Issue No. 184th / August 26th, 2019

Key Takeaways from Handpicked rulings

1. [TS-5607-HC-2019(GUJARAT)-O] : Relevance of ‘disposal of objections’ law u/s. 147 to Benami Act : Proviso of sec. 24(2) of the Benami Act and 147 of IT Act are completely different, AO not bound to dispose by passing a separate speaking order to the objections raised - HC dismisses assessee's petition, holds holds claim of the assessee to pass a separate order dealing with the objections as not supported by any provision of law; Examines sec.24, 25 and 26 and notes that “Section 24 of the Benami Act and the subsequent provisions are for the purpose of coming to conclusion as to whether the property in question is to be treated as benami property whereas operation of Section 147 of the Income Tax Act and the subsequent provisions, viz. Sections 148 to 153 would be operating while the process for assessing or reassessing of the income is undertaken by the concerned officer”...

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2. [TS-6943-ITAT-2019(BANGALORE)-O] : Business expenses during liquidation : Running expenses incurred during liquidation of a company, allowable as a business expenditure - Bangalore ITAT allows assessee’s appeal for AY 2015-16, allows expenses (such as professional fees, audit fees etc.) as a deduction though the business of the assessee has come to a halt, observes that though the business came to a halt in the year 2010, the assessee was still liquidating its assets until the previous year; States that “All these expenses had to be incurred since the assessee was a company and it was required to maintain its legal status till the assets of the company are liquidated”, follows Karnataka HC judgment in Lawrence D’souza...

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3. [TS-6942-ITAT-2019(VISAKHAPATNAM)-O] : Completion Certificate vis-a-vis deduction u/s. 80-IB(10) : Completion Certificate mandatory requirement for claiming deduction u/s. 80-IB(10) - ITAT upholds CIT(A) order denying deduction u/s. 80-IB(10) absent completion certificate, evidence to establish that the project was completed in all respects as per the plan for AY 2007-08; Holds furnishing of completion certificate mandatory for purpose of claiming dedcution u/s. 80IB(10); Assessee’s case was reopened upon noting that though the assessee had claimed deduction u/sec. 80IB(10) during the pendency of the project, subsequently the assessee has not filed returns of income, thus, viewed that the assessee has not completed the project...

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4. [TS-6944-ITAT-2019(BANGALORE)-O] : Souharda co-operatives : Souharda co-operatives also a form of co-operative societies, eligible for deduction u/s. 80P(2)(a)(i) - ITAT rules in favour of assessee, allows deduction u/s. 80P(2)(a)(i) to a ‘souharda co-operative’; Refers to the definition of co-operative society and observes that any co-operative society registered under any other law of any State for registration of co-operative society is also regarded as co-operative society under the Act, states that ‘Souhardas’ also operate on the principle of co-operation and infers that “Cooperative Societies and Co-operatives are all founded on the principle of cooperation.”...

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5. [TS-6942-ITAT-2019(MUMBAI)-O] : Royalty Payments : Payments made for obtaining access to the information, not resulting in acquisition of any capital asset, are revenue in nature - ITAT allows assessee’s appeal, holds royalty expenditure to be revenue in nature and thus, allowable u/s. 37(1); Notes that the assessee made the payments only for obtaining access to the information, which does not become the property of the assessee as there is no purchase of technical know how and the title and ownership has not been transferred to the assessee, follows SC decision in Ciba of India; Observes that “under the agreement, the assessee did not become entitled exclusively, even for the period of agreement, to the patents and trademarks of the licensor, it had merely assessed to the technical knowledge and experience, which the licensor commanded and was a mere licence for a limited period of the technical knowledge with the right to use the patent and trademarks.”...

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CBDT Updates:

https://ci5.googleusercontent.com/proxy/cICQffTpQFTthn9CGLXCqLTzFer_Z4qyAIy5uUxuIWkIFdHxPkHeZ2egMZDwjgyfoEtqCU8vTxYfAyNrQYwGDp9hWUY=s0-d-e1-ft#https://ymlp8.com/imgz/f33j_unnamed--10.jpg

1. CBDT clarifies on eligibility of small startups to avail Sec. 80-IAC tax holiday

2. CBDT directs quoting of 'DIN' in all Departmental communication from October 1st

3. MOF : Government withdraws enhanced surcharge on tax payable on transfer of certain assets

4. CBDT rebuts incorrect reports about Income Tax notices to Durga Puja Committees

5. Income tax department unearths Rs 700 crore undisclosed income in Tamil Nadu

6. CBDT simplifies the process of assessment in respect of Startups

7. CBDT further enhances monetary limits for filing Departmental appeals before ITAT / Courts

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Taxsutra Database Bulletin : An appraisal of recent SC ruling in NRA Iron; Delay in filing application for condonation of delay in filing ROI and more…!

Issue No. 182nd / April 23rd, 2019

Expert Column:

“Critical appraisal of the recent SC ruling in NRA Iron and its impact”

Recently, the Supreme Court, in an ex-parte decision in the case of NRA Iron, ruled upon the applicability of Sec. 68 in the scenario of issue of shares at a high premium while reversing all the lower Courts decisions. The Apex Court held that if upon investigation, the AO comes to a conclusion that the identity, genuineness and creditworthiness of the investors is doubtful, then the onus of the assessee does not stand discharged by merely supplying the details pertaining to the identity, genuineness and creditworthiness of the investors. The author Mr. Prakash Sinha, Chartered Accountant, discusses this landmark ruling wherein SC has elucidated that the term “any sum found credited in the books” is widely worded and includes investments made by share capital or share premium. Regarding SC’s observation that creditworthiness of certain companies were not established, the author opines that “taxable income is not a correct parameter to check the credit worthiness of the creditor as the investor may have funds which is available in Balance sheet and not in Profit-loss accounts”. The author further opines that “Supreme Court should have tested the section 68 requirements on case to case basis (each investor wise) rather than painting all with the same color”. Speaking of the impact of the SC decision on subsequent assessments and decisions, the author discusses a recent and subsequent ruling of Kolkata ITAT in the case of Baba Bhoothnath wherein it has been held that where the entire detail of the source of source were furnished by the respective share subscribers and the directors themselves appeared before AO and explained all the transactions with evidence and AO has nothing adverse, then the NRA Iron ruling is factually distinguishable and cannot be applied.

Click here to read the article titled “Critical appraisal of the recent SC ruling in NRA Iron and its impact”

Key Takeaways from Handpicked rulings

1. [TS-5140-HC-2019(BOMBAY)-O] : Delay in filing application before CBDT for condonation of delay in filing ROI : HC dismisses assessee’s writ petition against CBDT’s order rejecting its plea for condonation of delay in filing the return of income for AY 2008-09; Observes that, quite apart from delay in filing the return, the assessee also had to demonstrate why the application for condonation of delay could not be filed for as long as six years, which it failed to demonstrate satisfactorily; Hence, opines that “the petitioner has not been prompt in pursuing the remedies on the ground of limitation and latches”;

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2. [TS-5141-HC-2019(MADRAS)-O] : Appeal dismissal by ITAT for want of prosecution : A legal and binding responsibility lies upon the Tribunal to decide an appeal on merits irrespective of the appearance of the assessee or his representative before it - HC allows assessee’s appeal, sets aside ITAT order and directs ITAT to decide the matter afresh on merits in accordance with law; Holds that ITAT erred in dismissing assessee’s appeal for want of prosecution without touching upon merits of the case and then further in dismissing the Miscellaneous Petition filed for recalling the ex parte order; Considering the enabling powers in the words 'as it thinks fit' employed in Section 254 read with Rule 24 of the ITAT Rules, explains that “Even if the assessee could not appear, the Tribunal could have decided the appeal only on merits, ex parte, after hearing the Revenue Side but, the dismissal of the appeal for want of prosecution is not only illegal but also entails further litigation”

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3. [TS-5798-ITAT-2019(MUMBAI)-O] : Reassessment / Issue of shares at premium : Mere issuing of shares on premium, cannot be a reason to believe for re-opening of assessment in absence of adverse allegation more particularly when the receipt is on capital account - ITAT holds reassessment for AY 2009-10 as bad in law; Noting that assessee had submitted all the relevant details which were examined by the AO in the original assessment proceedings, states that the reassessment is “nothing but a change of opinion on the same set of facts and cannot be resorted to u/s 147”; Also notes that the AO has recorded and proceeded on factually incorrect facts such as premium amount, no of shares etc. and thus, holds the reassessment proceeding as illegal and liable to be quashed; Follows precedents;

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4. [TS-5109-HC-2019(MADHYA PRADESH)-O] : Mere non-filing of Income Tax Return does not automatically dislodge the source of income of a person - HC in a criminal case under Negotiable Instruments Act while dealing with a dispute on a dishonoured cheque, examines the relevance of Income Tax Returns for establishing source of income of a person alleging to have granted a loan, holds that mere non-filing of Income Tax Return by itself would not mean that the person claiming to have granted a loan had no source of income; HC clarifies that whether there was any loan transaction between the parties or not and whether there was any legally recoverable debt or not, is the subject-matter which can be ascertained in the light of entire case led by the parties;

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5. [TS-5802-ITAT-2019(PUNE)-O] : Interest on NPAs, Depreciation on Investment of a Co-operative Bank : Interest on NPAs of a cooperative bank not chargeable to tax; Depreciation on investment is allowable as a deduction- ITAT dismisses Revenue’s appeal, observes that prudential norms issued by RBI are applicable to Co-operative Banks and that interest on sticky advances cannot be said to be accrued and are hence, not taxable, follows decisions of Bombay and Delhi HCs in the cases of Deogiri Nagari Sahakari Bank and Shri Mahila Seva Sahakari Bank; Further, allows depreciation on investment, follows Bombay HC decision in HDFC Bank wherein it was held that though they have been shown as investments in the balance sheet as per RBI Guidelines, they are stock in trade and hence, if the market value is less than the cost price, in law, assessee is entitled to deductions and it cannot be denied by the authorities under the pretext that it is shown as investment in the balance-sheet

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Taxsutra Database Annual Digest - A Compilation of 100+ important rulings of year 2018-19

Issue No. 181 / April 5th, 2019

Taxsutra Database Annual Digest - A Compilation of 100+ important rulings of year 2018-19

We at Orange from time to time, bring to our readers, latest and important rulings handpicked from our repository of over 100,500+ rulings through our weekly newsletters. As we mark the close of the financial year 2018-19, we present a compilation of 100+ important rulings reported on Orange during the year. We trust the compilation will serve as a handy and useful reference to all our readers.

Click here to read and download Taxsutra Database Annual Digest 2018

Taxsutra Database Bulletin : CIT(A)’s powers to adjudicate on issue(s) not dealt with by AO; Referral-fees paid by Indian-Branch to overseas-branch; CBDT updates and more…!

Issue No. 180 / March 28th, 2019

Key Takeaways from Handpicked rulings

1. [TS-5699-ITAT-2019(DELHI)-O] : CIT(A)’s powers to adjudicate on issue(s) not dealt with by AO : CIT(A) does not have jurisdiction to make an addition on an issue which was never considered by the AO - ITAT grant relief to assessee, deletes addition made by CIT(A) u/s 56(2)(viib) on account of share premium; Explains that although the powers of the CIT(A) are co-terminus with that of the powers of the AO, yet, he has jurisdiction only on those items which have been considered by the AO irrespective of the fact whether the issue is subject matter of appeal or not; States that “In case it is accepted that the ld.CIT(A) has power to consider an issue which was not considered by the Assessing Officer, then, the provisions of section 263 or 147 will become otiose”;

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2. [TS-5692-ITAT-2019(MUMBAI)-O] : Taxability of clients Referral-fees paid to overseas branch, Interest paid by India branch to overseas HO : Referral-fees paid by Indian-Branch of Credit Suisse to Dubai-Branch for referring clients not FTS; Interest paid by Indian-branch to overseas head-office is neither deductible in the hands of Indian Branch nor chargeable to tax in the hands of head office - ITAT rules in favour of assessee; Relies on coordinate bench decision in assessee’s own case for AY 2011-12 [TS-5573-ITAT-2018(MUMBAI)-O] and Special Bench decision in Sumitomo [TS-187-ITAT-2012(MUMBAI)-O]

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3. [TS-5701-ITAT-2019(MUMBAI)-O] : Sec.54-Use of sale proceeds for investment in new house property : Sec. 54 does not require that the sale proceeds from transfer of original capital asset must be used for meeting cost of new asset - ITAT allows assessee’s appeal appeal for AY 2005-06, allows deduction u/s. 54 to assessee rejecting AO’s reason for denying that the investment made towards purchase of new flats was not out of assessee’s own funds; Notes that assessee has made investment in a new property within the period stipulated u/s. 54(1) and states that “There being no pre–condition under section 54(1) of the Act providing for investment of the long term capital gain in purchase of new house for claiming deduction under section 54 of the Act, the departmental authorities cannot import such restriction/condition to the statutory provision”;

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4. [TS-5026-SC-2019-O] : Remuneration to Directors u/s. 40A(2)(b); Disallowance u/s. 14A : AO having accepted remuneration paid to directors in preceding year, cannot make disallowance u/s. 40A(2)(b) by comparing the payments made in earlier years; No deduction u/s. 14A when assessee is having enough surplus funds - SC dismisses Revenue’s SLP against HC order deleting addition u/s. 40A(2)(b) and Sec. 14A r/w Rule 8D

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CBDT Updates:

1. Income tax exemption for gratuity enhanced Up to Rs. 20 lakhs

2. Income Tax Department continues to hit at terror financing activities in J&K Region

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Taxsutra Database Bulletin : Essential Prerequisite For Invoking Section 14A: Satisfaction Of AO; Operation of stay by Courts; Deduction u/s 54/54F-Reference to DVO; CBDT updates and more…!

Issue No. 179 / March 18th, 2019

Key Takeaways from Handpicked rulings

1. [TS-5524-SC-2018-O] : Operation of stay by Courts; Civil and Criminal : Stay granted by Courts, in all the civil and criminal matters, shall come to an end after expiry of six months, unless the Court extends the same by way of a speaking order in exceptional circumstances - SC lays down law in respect of stay while dealing with criminal case; Rules that “In all pending matters before the High Courts or other courts relating to PC Act or all other civil or criminal cases, where stay of proceedings in a pending trial is operating, stay will automatically lapse after six months from today unless extended by a speaking order on above parameters. Same course may also be adopted by civil and criminal appellate/revisional courts under the jurisdiction of the High Courts”; Clarifies that to give effect to the legislative policy and the mandate of Article 21 for speedy justice in criminal cases, if stay is granted, matter should be taken on day-to-day basis and concluded within two-three months and where the matter remains pending for longer period, the order of stay will stand vacated on expiry of six months, unless extension is granted by a speaking order showing extraordinary situation where continuing stay was to be preferred to the final disposal of trial by the trial Court

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2. [TS-5611-ITAT-2019(MUMBAI)-O] : Deduction u/s 54/54F; Reference to DVO : Deduction u/s. 54/54F allowable on 2 flats comprising of two adjacent units, on the first and second floor of the same building ; Reference to DVO when FMV is alleged to be higher than claimed by assessee is bad in law - ITAT rules in favour of assessee for AY 2010-11; Explains that for the purpose of claiming deduction u/s 54/54F, there is no such requirement that, two units constituting of one residential house property, should not have separate main doors or they should be adjoined together or there should be inside staircase between two units, etc; Further, holds reference to DVO made by the CIT(A) u/s. 55A (upon opining that the value of the property as on 1.4.1981 declared by the assessee is higher than the FMV as on the date) bad in law, notes that prior to amendment vide finance act 2012, wherein the word “is less than its fair market value” is substituted by the word “is at variance with fair market value”, the AO could make a reference only when the AO is of the opinion that the value as claimed by the assessee is ‘less’ than fair market value and not in the case when in his opinion value claimed by assessee is ‘higher’ than actual fair market value

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3. [TS-5587-ITAT-2019(DELHI)-O] : Sec. 68 - credit of share capital/premium : Cheques issued for share capital and premium being backed by deposits in applicants’ bank accounts and absent creditworthiness and genuineness of transaction, addition u/s. 68 justified - Allows Revenue’s appeal, confirms AO’s addition of Rs.4.85 crores share application money received as unexplained credit u/s. 68; Opines that share applicant entities are paper entities created by some individuals for providing entries to the persons including the assessee, not having tax paid capital for promoting their venture; Takes note of issue of cheques backed by deposits in bank accounts of the share applicant and companies are not having creditworthiness for making such huge investment and the persons who invested were not produced before AO;

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4. [TS-5084-HC-2019(KERALA)-O] : Loss on revaluation of obsolete inventory : HC allows PSU-assessee’s appeal, allows its claim of loss on revaluation of inventory; Notes that the revaluation was made based on technical evaluation made by a Committee pursuant to audit objection on account of obsolescence of stores and spares; Observes that when the assets were put to use, the written off value was being debited to the P&L A/c and when they were stopped being used, they were being revalued which was as per accounting principles and though the same caused prejudice to Revenue, it cannot be the reason to disallow the loss on revaluation; Also observes that there is no change in accounting policy and the assessee had been consistently writing off the stores and spares when it actually become obsolete after having put it to use; Notes that the revaluation was in line with the AS-2 issued by ICAI; Relies on precedent and allows assessee’s claim;

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CBDT Updates:

1. CBDT directs CIT(e-verification) to exercise concurrent powers to call for information/statement u/s. 133/133C/285BA (75) - Notification No.19/2019

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Expert Column:

Ashish Chadha (Chartered Accountant) discusses one of the most recurrent and significant controversies surrounding the interpretation and application of Section 14A viz. ‘recording of satisfaction’ by the Assessing Officer (‘AO’) as to the incorrectness of claim made by an assessee. The author discusses latest rulings by High Courts and Supreme Court which have rendered the much needed clarity on the aspect. One of the most recent decisions is by Delhi HC in the case of Vedanta Ltd. [TS-7345-HC-2018(Delhi)-O] where, referring to the landmark decision of SC in Godrej & Boyce it was held that Rule 8D cannot be invoked unless AO records his dissatisfaction regarding the correctness of claim made by assessee in relation to expenditure incurred to earn exempt income. It was similarly held by Gujarat and P&H HCs in the cases of Shreno Ltd. [TS-7227-HC-2018(Gujarat)-O] and Punjab Tractors Ltd [TS-5087-HC-2017(Punjab & Haryana)-O] respectively. Author then refers to Delhi HC and Gujarat HC rulings in cases of Indiabulls Financial Services [TS-6361-HC-2016(Delhi)-O] and Devarsons Industries [TS-5782-HC-2017(Gujarat)-O] which have held that non-recording of dissatisfaction by AO about assessee’s calculation of disallowance could not be a ground for rejection of disallowance where the AO has carried out an elaborate analysis and followed the steps enacted in the statute in determining the disallowance. The author states that while most decisions provide relief to the taxpayers regarding the disallowance made by tax authorities u/s. 14A in the absence of recording of satisfaction, “the principles laid down by the High Courts in the cases of Devarsons and Indiabulls are still needed to be tested before the Supreme Court, which may entail further litigation on this aspect.”

Click here to read the article titled “Essential Prerequisite For Invoking Section 14A: Satisfaction Of Assessing Officer”

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