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Taxsutra Database Insight - Demonetization (OCM): Cash Deposits/ Receipts/ Advances and Presumptive Tax u/s 44AD - Part 3

 

  Issue No. 189 / January 22nd, 2020

Dear Patrons,

Continuing our series relevant for the first assessment after demonetisation (OCM) at Taxsutra Database Insight, we have compiled recent 15 cases that operate at the intersection of presumptive taxation, assessment of cash deposits after demonetization and additions u/ss. 68 to 69C. Some important principles that emerge are listed below in brief:

1. When case was selected for limited scrutiny of cash deposits in bank account, other disallowances like u/s. 43B for non-payment of VAT (in one case) not permissible.

2. Assessee opting for s. 44AD is not obliged to explain individual entry of cash deposit in bank unless such entry has no nexus with gross receipts.

3. Cash in hand cannot be ascribed to bogus sales without bringing evidence on record, when assessee had filed sales & purchase details which AO had not enquired into.

4. That the assessee opting for presumptive taxation filed a balance sheet (in one case) and appearance of Accountant or CA before AO (in another case) does not prove that he maintained books of account.

5. Ss. 28 to 43C (including s.40A(3) not applicable if assessee assessed u/s 44AF.

6. Where assessee declared income u/s 44AD, AO’s invoking s. 69 for cash deposits (in one case) or s.69A (in another case) or S. 69C (in a third case) not justified.

7. Once assessee’s option to be taxed u/s 44AD is accepted, additions u/s. 68 (in one case) and u/s 69A (in another case) not permissible without proving why s.  44AD inapplicable.

8. Assessee filing u/s 44AD cannot be asked to prove that 92% of his receipts have been expended.

9. Sale value of large no. of gold bars to undisclosed customers in cash held taxable u/s. 68 as story of business of sale of gold bars appeared non-genuine – assessee had no infrastructure for, and no experience in handling such large quantities of gold.

10. Merely because option to offer income u/s 44AD is not present in Form ITR-2 was no reason for rejecting appellant’s return.

11. Onus to prove genuineness of creditors is on assessee. AO justified in rejecting book results, estimating NP rate u/s 44AD and making additions u/s 68 for unexplained cash credits, in absence of proof that creditors represented income from already taxed source.

12. AO rejected assessee’s books, applied s. 69, and made other additions. Held that once AO has rejected books, he cannot use them to make additions/ disallowances.

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Click here to read and downloadTaxsutra Database Insight: Demonetization (OCM) - Cash Deposits/ Receipts/ Advances and Presumptive Tax u/s 44AD - Part 3

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Taxsutra Database Insight series on Demonetisation (OCM)  

1) Click here to read and download Taxsutra Database Insight: Demonetisation (OCM) Cases:  Explanation for Duration/ Link between Cash Deposits & Withdrawal - Part 2 

2) Click here to read and download Taxsutra Database Insight: Demonetisation (OCM) - “Unexplained Cash Credits and GP-Rate additions” – Part 1

3) Click here to read and download Taxsutra Database Insight: Compendium of Recent Rulings on Undisclosed Income, Unexplained Credits, Unexplained Expenditure & Unexplained Investments - Part II

4) Click here to read and download Taxsutra Database Insight: Compendium of recent rulings on undisclosed income, unexplained credits, unexplained expenditure & unexplained investments – Part 1

5) Click here to read and download Taxsutra Database Insight: Compendium of Rulings Impacting ‘Unexplained Money’ Taxation u/s. 69A

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About  Taxsutra Database!

Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves.  Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:

  • Over 105500+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling with VECS summary
  • Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience 
  • Search results supported by active filters around Court Level, Location, Case Numbers and Citation
  • Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"

The Taxsutra Database comes at a very special Annual Subscription price of 3400 + GST AND includes a annual license to the Taxsutra Library.

Click here to sign up, make payment and join the Taxsutra Family.  

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Taxsutra Database Insight - Demonetisation (OCM) Cases: Explanations for Duration/ Link between Cash Deposits & Withdrawal - Part 2

  Issue No. 188 / January 15th, 2020

Dear Patrons,

Continuing our series relevant for the first assessment after demonetisation, we look at 21 cases, of which 3 were decided in Revenue’s favour. Most cases are culled from cases arising out of earlier instances of demonetisation in India.

All cases discussed below have as an important factor the time gap between cash withdrawals and deposits in different factual circumstances where the withdrawals have been cited as source of deposits. This Taxsutra Database Insight on cases related to demonetisation also includes a recent ITAT ruling distinguishing a landmark ruling Bhaichand N. Gandhi to holds, that bank pass book could be treated as a book of the assessee; and an ITAT 5-member Special Bench ruling that held, that even if sec.  68 is not applicable, the assessee can be asked to explain cash deposit in bank account u/s 69 or sec. 69B of the Act.

Two important principles discussed are – on/ to whom the onus lies/ shifts, and the tests to be applied to decide whether the onus has been discharged or not. 

Important Rulings on Duration/ Link between Cash Withdrawals & Deposits

Taxsutra database Citation

Duration between Cash Deposit & Withdrawal

Observation

In Favour

[TS-8479-ITAT-2019(Delhi)-O]

Over 3 FYs - Cash in hand

Cash deposit after date of demonetization

Assessee

[TS-6606-ITAT-2015(Bangalore)-O]

 

Within 14 months

Addition of account cash withdrawn from a cash credit account

Revenue

[TS-5363-HC-2017(Punjab & Haryana)-O]

 

Within 3 Months

Addition in absence of link between cash withdrawn from bank and the cash deposit

Revenue

[TS-5175-HC-2018(Delhi)-O]

Within 8 Months

Test of preponderance of probability is to be applied and is sufficient to discharge onus

Assessee

[TS-5893-ITAT-2008(Delhi)-O]

Within 6 Months

Time gap between cash withdrawals and cash deposits, explanation of the assessee cannot be rejected

Assessee

[TS-5480-ITAT-2015(Chandigarh)-O]

Within 10 days

Onus on AO to examine and to show that explanation offered by assessee should not be accepted

Assessee

[TS-9022-ITAT-2017(Delhi)-O]

Within 12 months

Non-cooperation of assessee on submitting explanation for cash deposit

Revenue

[TS-10298-ITAT-2018(Lucknow)-O]

Within 4 months

There is no law in the country which prevents a citizen from frequently withdrawing and depositing his own money

Assessee

[TS-5908-ITAT-2011(Delhi)-O]

Within 5 months

Mere existence of a time gap between cash withdrawal & cash deposits cannot be made basis for addition u/s 68

Assessee

[TS-6605-ITAT-2015(Ahmedabad)-O]

Within 11 months

Addition on account of speculation that amount might have been utilized for any other purpose

Assessee

[TS-6767-ITAT-2014(Mumbai)-O]

Within 11 months

No provision in the Act requiring that cash once withdrawn has to be re-deposited immediately if not utilized

Assessee

[TS-6602-ITAT-2015(Delhi)-O]

Within 5 months

AO demonstrates that the amount in question has been utilized  for any other purpose

Assessee

[TS-5045-HC-1951(PATNA)-O]

Period of 7 Years

Encashment of high denomination notes

Assessee

Click here to read and download Taxsutra Database Insight: Demonetisation (OCM) Cases: Part 2 – Explanation for Duration/ Link between Cash Deposits & Withdrawal

Click here to subscribe, make payment and join the Taxsutra Family!

About  Taxsutra Database!

Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves.  Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:

·  Over 105000+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling with VECS summary

· Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience 

· Search results supported by active filters around Court Level, Location, Case Numbers and Citation

·  A Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"

The Taxsutra Database comes at a very special Annual Subscription price of 3400 + GST AND includes a annual license to the Taxsutra Library.

Click here to sign up, make payment and join the Taxsutra Family.  

Copyright © TAXSUTRA. All Rights Reserved

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Taxsutra Database Bulletin: Demonetization (OCM) Cases ; Unexplained Cash Credits and GP-Rate additions - Part 1

 

 Issue No. 187 / January 9th, 2020

Dear Patrons,

A very common reason for litigation involving unexplained cash credits is that the AOs often reject books of accounts and apply Gross Profit (GP) rate based addition to business income, and also an addition on account of unexplained cash credits. The assessee invariably strenuously objects, saying this will amount to taxing the same (presumed) income twice. SC has held as early as in 1963, that there is no bar against both, unexplained cash and GP Rate-based addition to business income being taxed. SC in another case has held that the burden of proving that the unexplained cash credits were either not income or not taxable is on the assessee.

However, the Patna HC has ruled that no estimated profits could be added on unaccounted cash credits as such profits are connected, and therefore included in the unexplained income.

Taxsutra Database Insight powered by Taxsutra Library showcases other important cases where this controversy about whether addition of unexplained cash credits was valid or not, took centre stage. These might be useful in Operation Clean Money (OCM) cases where additions have been made of demonetized cash deposited, among other situations.

Taxsutra Database Insight titled as Unexplained Cash Credits and GP-Rate additions covers

1) Where the assessee merely claimed that cash credits were genuine without proving that GP-based addition was the source of the unexplained cash credits, AO’s taxing both was held justified. (AP HC)

2) Cash credits explained as deposits from various persons were squared off before close of accounting year, but AO disbelieved assessee’s explanation, and also made a GP rate-based addition. Assessee’s argument that this year’s cash credits were sourced from past years’ intangible additions was upheld by Raj HC.

3) AO’s reliance on rejected books of account to make additions u/s.40A(3) as well as for peak credit u/s.68 rejected by Tribunal. (Delhi ITAT). In another similar case, AO initially rejected books of account during assessment, but applied book GP margins as basis for unexplained cash credits. This too was rejected (AP HC).

4) Where AO used random estimation of other cigarette companies to estimate sales and margins and an elaborate set of presumptions described as wild speculation, far-fetched and implausible to justify additions made in asessee’s case, AO’s additions quashed. (Mumbai ITAT)

5) AO rejected account books and applied s.69. Later, AO made additions based on unexplained differences in creditors account balances, and credits in bank accounts. Holding that deposits into bank accounts were also application of income, and hence no separate addition was called for. (Ahmedabad ITAT)

Click here to read and download Taxsutra Database Insight Unexplained Cash Credits and GP-Rate additions”

Taxsutra Database Insight Part -2 will focus on cases related to “Frequent deposits and withdrawals of cash”

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An article authored by Dr. CA Abhishek Murali titled as Demonetization (OCM) Cases –   Is Addition of Cash Credit u/s 68 Void? analyses the implications of Section 68 and   visits the loaded question of who bears the onerous burden of proving its contention – the assessee, or the revenue. He also discusses whether Section 68 can apply when books are rejected, or a best judgment assessment u/s 144 is made.

Click here to read the article titled as Demonetization (OCM) Cases – Is Addition of Cash Credit u/s 68 Void?

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About  Taxsutra Database!

Access to a strong repository of Tax Rulings is a key requirement of tax professionals like yourselves.  Taxsutra Database is a brand new addition to the Taxsutra bouquet of services. Largely known for its world class real time news and updates service, Taxsutra brings to you a comprehensive, easy to use Database service which offers the following features:

·  Over 105000+ Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR(Trib) and which also includes recent unreported handpicked ruling with VECS summary

· Completely integrated service with all the latest cases powered by an advanced search engine to provide a seamless user experience 

· Search results supported by active filters around Court Level, Location, Case Numbers and Citation

·  A Unique Bulls Eye application to further enhance search by including "Exact words", "Any of these", "none of these"

The Taxsutra Database comes at a very special Annual Subscription price of 3400 + GST AND includes a annual license to the Taxsutra Library.

Click here to sign up, make payment and join the Taxsutra Family.  

The Taxsutra Library:

Full updated text of over 150 Acts, including all major and many minor tax and corporate laws, in addition to the Rules, Forms Circulars, Instructions, Orders, etc. under most of these laws, full updated text of all DTAAs (Comprehensive and Limited) and TIEAs signed by India; and full updated text of all Ind AS Accounting Standards.

Copyright © TAXSUTRA. All Rights Reserved

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Taxsutra Database Bulletin : Ordinance : Economic Turnaround by sweeping reforms; DVO reference vis-a-vis Sec. 56(2)(vii)(b)(ii); Interest on delayed payment of VRS and more!!

 

 

Issue No. 186th / September 24th, 2019  

 
Expert Column:
 
https://ci5.googleusercontent.com/proxy/cICQffTpQFTthn9CGLXCqLTzFer_Z4qyAIy5uUxuIWkIFdHxPkHeZ2egMZDwjgyfoEtqCU8vTxYfAyNrQYwGDp9hWUY=s0-d-e1-ft#https://ymlpsend8.net/imgz/f33j_unnamed--10.jpg

Recently the Government announced certain major tax concessions in an attempt to revive the Indian economy. Authors Vinay Deshmane (Director, TRS, BDO India LLP) & Dhwanil Shah, (Assistant Manager) discuss the amendments brought about by way of an ordinance viz. the Taxation Laws (Amendment) Ordinance 2019. The authors elaborate on the salient features of the Concessional Tax Regime (CTR), for existing and new manufacturing companies along with the relevant conditions to avail the same, rollback of enhanced surcharge and grandfathering Buyback Tax in case of listed shares. Comparing the CTR with the existing tax rates, the authors opine that “Reduction in tax rates will make India an attractive jurisdiction for making investments”. Thereafter the authors bring out how the CTR would have an impact on the preference of choice of entity from a LLP form to a corporate form. Speaking of the unavailability of MAT Credit to entities opting for the CTR, the authors suggest that “ since no timeline has been prescribed for exercising the option under section 115BAA, a domestic company having credit of MAT, may opt for CTR after utilising the said credit against the regular tax payable.” They further bring out that while the domestic Transfer Pricing provisions shall be applicable to new manufacturing companies opting for CTR, it is not applicable to other existing companies opting for the same. The authors sign off listing the benefits of the regime such as boost to foreign investments, higher profits being distributed to the stakeholders, stimulus to ‘Make in India’ initiative, etc.

Click here to read the article titled “Economic Turnaround by sweeping reforms: Taxation Aspects and Issues”
 
Key Takeaways from Handpicked rulings
 
1. [TS-7656-ITAT-2019(Kolkata)-O] :DVO reference vis-a-vis Sec. 56(2)(vii)(b)(ii) : DVO reference mandatory before adopting stamp duty valuation for purpose of Sec. 56(2)(vii)(b)(ii) - ITAT rules in favour of assessee; Holds that AO is duty bound to make a reference to the DVO before adopting the value of assets determined by the Stamp Valuation Authority for the purpose of bring to tax u/s. 56(2)(vii)(b)(ii), the difference between the market value of the property purchased by assessee (as determined by the Stamp Valuation Authority) and the actual purchase price; Notes that the addition made by the AO was confirmed by the CIT(A) holding that in the absence of any objection raised by the assessee to the valuation determined by the Stamp Valuation Authority, the AO was not required to make any reference to the Valuation Officer; Relies on Calcutta HC ruling in case of Sudhir Kumar Agarwal [TS-5281-HC-2014(Calcutta)-O]
 
Click here to read the Ruling Copy
 
2. [TS-7770-ITAT-2019(Pune)-O] : Sale of sugar at concessional rates, Excessive sugarcane price paid : Sale price of sugar only to extent it is below cost price is ‘appropriation of profit’, taxable in hands of assessee; Directs to bifurcate sugarcane purchase price and tax only to extent of component of distribution of profit embedded in the price paid under clause 5A Sugar Cane (Control) Order : ITAT rules on taxability of deduction for payment of excessive price for purchase of sugarcane to suppliers and sale of sugar at concessional rates to members / shareholders by assesses who are engaged in the business of manufacturing of white sugar;
 
Click here to read the Ruling Copy.
 
3. [TS-5800-HC-2019(Delhi)-O] : Expenditure on Director’s daughter’s higher education : Funding the education expenses of the daughter of a director, when the underlying facts revealed that the expenditure was purely personal in nature and not intended for the purpose of the business of the assessee company, could not be allowed to be claimed as a deduction u/s. 37 - HC disallows expenditure on higher education of daughter of the director of the assessee-company; Observes that the agreement between the company and the director’s daughter defied logic, whereunder the company undertook payment of over Rs. 70 lakhs for her higher education and sought a commitment of only 1 year’s employment from the date of completion of her education;
 
Click here to read the Ruling Copy
 
4. [TS-7649-ITAT-2019(Bangalore)-O] : Allowability of interest on delayed payment of VRS u/s. 35DDA : Deduction over 5 years u/s. 35DDA applicable to interest on delayed payment of VRS also - ITAT dismisses assessee’s appeal against AO’s allowance of only 1/5th amount of interest incurred and disallowance of the remaining amount for AY 2009-10; Holds that “ section 35DDA is applicable to any payment in connection with VRS payment to employees and since, the interest expenditure in dispute in the present case is in connection with VRS payment of employees, this amount is also hit by the provisions of section 35DDA of the IT Act and therefore, in the present year, only 1/5th is allowable as already allowed by the AO”;
 
Click here to read the Ruling Copy
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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”... 

Click here to read the Ruling Copy.
 
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...
 
Click here to read the Ruling Copy
 
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...
 
Click here to read the Ruling Copy
 
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.”...
 
Click here to read the Ruling Copy
 
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.”...
 
Click here to read the Ruling Copy
 
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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