Taxsutra Database Bulletin : Delay in payment under IDS, 2016, Expenses in foreign currency by Trust; CBDT updates and more…!
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Issue No. 177 / Feb 23rd, 2019
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Key Takeaways from Handpicked rulings
1. [TS-5373-ITAT-2019(MUMBAI)-O] : Share application money/ Unaccounted money: Sec 68 addition unsustainable absent evidence indicating that unaccounted money was routed as share application; Proviso to Sec. 68 prospective, applicable from AY 2013-14 - ITAT deletes addition of share application money received by assessee for AY 2011-12, notes that Revenue did not bring anything on record to indicate that cash got exchanged between the assessee and the investor to suggest that the unaccounted money belonging to the assessee was routed in the accounts as Share Application Money; Refers to the documents submitted by assessee to hold that assessee has established the identity of the investor and genuineness of the transaction, further considering no immediate cash deposits in the bank account of the share applicant, negates Revenue’s stand that the investor does not have creditworthiness to make those investments;
Click here to read the Ruling Copy 2. [TS-5030-HC-2019(CALCUTTA)-O] : Delay in payment under IDS, 2016: Calcutta HC dismisses assessee’s writ challenging order of the IT Authorities refusing to regularise the delay in payment of the third installment under Income Declaration Scheme, 2016; Notes the authorities reasoning that in the event, the regularisation is allowed, the same will demotivate compliant taxpayers; Notes assessee’s plea for regularisation on the ground of his mother’s illness; Finds that the assessee did not make true and correct disclosure of his income during the relevant period prior to the scheme which was brought about to allow non-compliant assessees one opportunity to make true and correct disclosure;
Click here to read the Ruling Copy.
Editorial Note :- Recently, SC has issued a notice to the Department upon assessee’s SLP against HC order rejecting assessee’s plea for extension of time for payment of the third instalment stating no extraordinary case has been made out by the assessee and mere involvement in office work and marketing activities cannot be a good justification and ground to seek extension of time. SC has listed the case for hearing after two weeks of the above order and is due for hearing soon.
3. [TS-5374-ITAT-2019(MUMBAI)-O] : Govt. directed expenditure by PSU: Expenditure incurred by assessee-PSU (engaged in business of mining of Rare Earth Minerals) for running a school as per Govt Directive deductible business expenditure - ITAT dismisses Revenue’s appeal, notes that assessee was incurring expenses on running and maintenance of a school for children of its employees and local residents as per the directives of the department of atomic energy; Observes that “We find ourselves to be in agreement with the view taken by the CIT(A) that as the obligation to bear the aforesaid expenses for running the school was pursuant to a government directive, therefore, the assessee being a public sector undertaking (PSU) had to mandatorily abide by the said direction, and the expenditure incurred for maintenance of the said Central school was clearly in the nature of a revenue expenditure that was to be allowed as a deduction while computing the income of the assessee”;
Click here to read the Ruling Copy
4. [TS-5310-ITAT-2019(BANGALORE)-O] : Expenses/Application of income by a Trust: Foreign travel expenses incurred in foreign currency in furtherance of assessee-trust’s objectives to be considered as application for charitable purpose in India; Prior to 2014, depreciation allowable on assets, acquisition of which was also claimed as application of income; Assessee-trust entitled to carry forward expenditure incurred in excess of its income for setting off against income of the succeeding years
Click here to read the Ruling Copy
5. [TS-5016-SC-2019-O] : Treatment of customs duty payable/provision in accounts: SC dismisses Revenue’s appeal against HC upholding ITAT order wherein it was held that Sec. 43B can be invoked only when the assessee claims deduction for any amount payable by way of a tax or duty; ITAT had observed that the assessee had merely included the total customs duty provision in the cost of raw material and customs duty payable in the value of the closing stock ;Thus, noting that the customs duty got reflected on both the debit and credit side of the account, ITAT had held that this treatment did not in any way reduce assessee’s profits since the assessee himself did not claim deduction of the customs duty liability from the taxable profits;
Click here to read the Ruling Copy
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CBDT Updates:
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1. CBDT clarifies the correct position of admissibility of deduction u/s. 80TTB - Circular 275/19212018-IT(B)
 2. CBDTprovides definition of a 'Startup' and procedure for application u/s. 56(2)(viib) - Notification 5(91)/2015-BE-I , 5(4)/2018-SI, 5(4)/2018-SI
3. Ministry of Finance : Equalisation levy collection exceeded Rs.550 Cr, further tax collection expected by significant economic presence introduction
4. IT Dept reminds PAN holders to complete PAN - Aadhaar linking by 31.03.2019
5. Commerce Ministry proposes comprehensive proposal to ease angel tax pain
Click here to read more latest news.
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Taxsutra Database Bulletin : An inquest into the proposed amendment to Sec. 54; HC’s Writ Jurisdiction when issue pending before CIT(A); CBDT Updates and more...
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Issue No. 176 / Feb 14th, 2019
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Expert Column:
Budget 2019 has left the stake-holders perplexed as to applicability of some of the proposed amendments. Mr. J V Kodhandapani, FCA and CWA (Pani & Associates), in this article, evaluates one such amendments viz., benefit of re-investment of capital gains in two residential houses. Probing into some of the moot questions in the stake-holders’ minds, the author evaluates the retrospective application or otherwise of the amendment and opines that “The amendment being a substantive amendment and takes effect from AY 2020-21 and cannot be treated as procedural amendment giving retro effect replacing the earlier provisions of law allowing investment in one property only”. Further, in case where a person chooses to buy one house and construct another, the author warns that care should be taken to adhere to the separate time limits specified for purchase and construction. Another interesting scenario that author discusses is when there is increase in capital gains amount beyond Rs 2 Cr in the course of assessment owing to disallowance of expenses etc.In such situation, the author cites various implications like huge capital gains tax liability, consequential interest u/s 234B, etc.
Click here to read the article titled “An inquest into the proposed amendment to Sec. 54”
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Key Takeaways from Handpicked rulings
1. [TS-5007-SC-2019-O] : HC’s Writ Jurisdiction when issue pending before CIT(A): Issue pertaining to the taxability of anonymous donations received being pending adjudication before CIT(A) for AY 2015-16, HC was justified in denying exercise of writ jurisdiction against Sec. 148 notice for AY 2013-14 - SC affirms HC order disposing off assessee’s writ petition against Sec. 148 notice, denying to exercise jurisdiction under Article 226 and keeping it open to be raised in appropriate legal proceedings; HC had observed that any expression of opinion on the reopening of the assessment will affect the pending appeal before the CIT(A) as the issue pertaining to the taxability of anonymous donations received in Hundies maintained by the temple trust u/s.115BBC was pending determination before the CIT(A) for AY 2015-16; Click here to read the Ruling Copy
2. [TS-7319-HC-2018(MADRAS)-O] : Delay in filing ROI/Sufficient cause : Change of auditors and non-receipt of NOC from erstwhile auditors sufficient cause for delay in filing returns; CBDT should have condoned the delay - HC allows assessee-company’s writ, sets aside CBDT order refusing to condone the delay of 37 days in filing the return of income for AY 2014-15; Notes that assessee had to change its auditors due to disagreement on issue of valuation of business transfer made during the year post which it had to change it auditors; Notes that assessee could not file its returns until the erstwhile auditors issued a NOC which resulted in delay of 37 days in filing its returns; HC states that “When once the authority has been conferred with discretion to condone the delay, the application seeking condonation of the delay of 37 days cannot be rejected for such reasons as are assigned by the 1 st respondent. The 1 st respondent should exercise its discretion in a proper manner.”;
Click here to read the Ruling Copy
3. [TS-6076-HC-2009(KARNATAKA)-O] : Interest-free loans to sister concerns/Commercial expediency : AO is required to verify the business expediency of interest-free loans to sister concerns before making disallowance of interest u/s. 36(1)(iii) - HC sets aside ITAT order upholding disallowance u/s. 36(1)(iii)/37 and remits the matter to AO to consider whether the amount claimed by the assessee comes within the four corners of business expediency or otherwise after providing opportunity to assessee; Observes that SC in the decision of SA Builders has held that Revenue has to step in the shoes of the assessee to decide whether the expenditure incurred was out of commercial expediency or not; AO having not done such exercise of verifying commercial expediency of assessee’s interest-free loans to sister concerns, HC sets aside ITAT order and remits the matter to the AO.
Click here to read the Ruling Copy
4. [TS-5275-ITAT-2019(Panaji)-O] : Diversion/Application of Income: ITAT allows Revenue’s appeal, remits the case back to AO to consider the issue afresh; Notes that all the members of the assessee-society purchasing a property from the society have contributed a similar amount to a Trust and states that “It will be too much of a coincidence that almost all the purchasers of the property in the society have suddenly developed interest in yoga and meditation and have voluntarily agreed to contributing to the trust in which the Chief Promoter of the society is sadhak.”; Notes AO’s stand that the payments were mandatory and not in the nature of ‘donations’ to the trust, and the arrangement amounts to application of income by assessee to the Trust and hence taxable as assessee’s income for the year;
Click here to read the Ruling Copy
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CBDT Updates:
1. CBDT clarifies official assignee's status as 'artificial juridical person' for return filing & tax computation - Circular No. 4/2019
2. CBDT circular revising appeal-filing monetary limits applicable ‘mutatis mutandis’ to wealth-tax appeals - Circular No. 5/2019
3. CBDT notifies new Centralized Verification Scheme u/s 133C in supersession of earlier scheme - Notification No. 5/2019
4. CBDT recognizes BSE as 'recognized association' u/s 43(5) for commodity derivatives transactions - Notification No. 8/2019
5. CBDT modifies ‘angel tax’ exemption notification pursuant to revised DIPP notification of Jan'19 - Notification No. 9/2019
6. CBDT : Addition made u/s 68 and not u/s 56(2)(viib) of the IT Act, in case of Travel Khana
7. Ministry of Finance : Net Tax Collections during the FY 2017-18 and FY 2018-19 (up to January, 2019)
8. Cabinet approves Abolition of Institution of Income-Tax Ombudsman and Indirect Tax Ombudsman
Click here to read more latest news
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Taxsutra Database Special: Proposed amendment to Sec. 54, Retrospective or Prospective; Analysis of Interim Budget 2019 proposals and more...!!
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Issue No. 175 / Feb 2nd, 2019
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The Interim Budget 2019 announced on 1st of February 2019, witnessed some unprecedented proposals such as rebate for individual taxpayers having taxable income upto Rs. 5 lakhs and increase in standard deduction for salaried taxpayers to Rs. 50,000, TDS threshold for rent to Rs. 2.4 lakhs and bank interest to Rs. 40,000, exemption from on notional rent on second self occupied house property and exemption on purchase of two house properties out of capital gain upto 2 Crores.
In this Budget special edition of Orange Bulletin, we bring to you articles by three authors discussing the important proposals of the Budget.
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Expert Columns on Interim Budget 2019!
 Mr. Prakash Sinha, CA (Partner, Prakash Sachin & Co.) discusses the amendment proposed in Sec. 54 i.e., benefit of re-investment of capital gains in two residential houses and examines a critical question viz., whether this amendment is prospective or retrospective. The author states that the fact that the amendment is brought out by way of a proviso would have its repercussions in its interpretation and states that an amendment which affect the existing rights or creating new obligations to be applied prospectively only. He brings out the law in respect of retrospectivity of amendments as laid down by SC in Vatika Township wherein it was held that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Accordingly, the author signs off opining that the amendment “is not clarificatory or declaratory but a substantial provision and in the case of the substantial provision ...even though it is beneficial provision may not be applied retrospectively”
Click here to read the article titled “Proposed amendment to Sec. 54 - Retrospective or Prospective?”
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 Mr. Mukesh Kumar.M, CA (Partner, M2K Advisors P Ltd) discusses the ‘sops’ proposed in the interim budget such as the direct income support to farmers having cultivable land upto 2 hectare under Pradhan Mantri Kisan Samman Nidhi of Rs. 6000 p.a., extension of interest subvention of 2% to farmers pursuing animal husbandry and fisheries on loan availed through Kisan Credit Card and 3% additional subvention in case of timely repayment of loan, monthly pension for unorganised sector workers of Rs. 3,000 under Pradhan Mantri Shram Yogi Maandhan etc. Stating that the Central Government seems to have used the Interim Budget to woo voters, author opines that “Overall, the reliefs proposed in the interim budget are certainly welcome and would bring cheers to the common man.”
Click here to read the article titled “An “unconventional” Interim Budget 2019”
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 Mr. Mahesh Chhajed, CA (Partner, M. S. Chhajed & Co) classifies and highlights the important proposals in the areas of real estate and residential houses, small and medium income earners, TDS and income tax assessments. Author highlights exemption from notional interest on 2nd self occupied property and properties held as stock-in-trade during the 2nd year, extension of time limit for approval of affordable housing projects, enjoying tax exemption u/s. 80IBA and benefit of re-investment of capital gains u/s. 54 in two residential houses. He further points out Government’s aims for electronic scrutiny assessments with anonymity, restricting human interface within two years. Appreciating the Budget to be favourable to small and middle class families, the author signs off with a suggestion that “instead of proposing rebate, tax slabs may be changed so that the benefit is passed on to the general public at large rather than to a restrictive category”
Click here to read the article titled “Interim Budget, 2019 - Impact on Real Estate, Small earners, TDS and Assessments” |
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Important Budget Documents:
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Taxsutra Database Bulletin : Analysis on Penny Stock/Shell Companies-Part II; Forfeiture of advance on property purchase; CBDT Updates and more...
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Issue No. 174 / Jan 25th, 2019
Expert Column:
One of the most significant developments in 2017 and 2018 has been the nation-wide investigation into Shell Companies and Penny Stock companies. Several thousands of cases have been re-opened citing bogus capital gains and penny stocks. This has even led to the Government introducing a provision that Sec 10(38) can only be enjoyed if STT has been paid on purchase of the share, as well, with certain exceptions. Dr. Abhishek Murali (Chartered Accountant, Partner, Victor Grace & Co.) in his 2-part article makes a comprehensive analysis of taxation of Penny Stocks and Shell Companies. The author points out that the Department has three significant assessment points in the process viz., (i) Issue of shares at a premium by Shell companies, (ii) Benefit of business loss on sale of shares purchased at inflated prices and (iii) Benefit of Capital gains exemption on sale of shares at a high price.
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Issue of shares at a premium by Shell companies
After discussing the nitigrities of the first limb i.e., Issue of shares at a premium by Shell companies in Part-I, the author discusses the nuances of the other two limbs. While discussing circumstances which the AO must consider before denying the benefit of business loss on sale of shares holding it as bogus, the author refers to 2 recent ITAT decisions in cases of Late Ugama Kavar and Abhimanyu Soin and points out that the number of years of assessee’s engagement, history of profits/losses, Income Tax Returns and genuineness of the transactions must be considered. Further, author contemplates that in 2019, taxation of Shell Companies will be a priority. The author also discusses the recent decision in case of Shaan Constructions wherein while rejecting assessee’s stand that assessee is not required to prove ‘source of the source’, Delhi ITAT concluded that depositors were mere entry providers and the balance sheets and income tax returns of depositor companies do not inspire any confidence in the whole transaction. Further discussing the basics of spot transactions, the author signs off with a remark that “It appears there is no quick solution for Penny Stock cases and only a detailed order of the Supreme Court will help in settling the matter.”
Click here to read the article titled “Comprehensive Analysis of Taxation of Penny Stocks and Shell Companies-Part II”
Click here to read the Part-I of the article
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Key Takeaways from Handpicked rulings
1. [TS-5052-ITAT-2019(JAIPUR)-O] : Forfeiture of advance on property purchase : Forfeiture of amount advanced for purchase of property by assessee engaged in real estate, is an allowable business loss - ITAT allows assessee’s claim of forfeiture of advance as a an allowable claim u/s 37 as it is a business loss occurred during the course of business activity of the assessee being business of real estate; Stating that the law provides Sec. 51 as a safeguard against the loss of revenue on account of such forfeiture, ITAT observes that “the said claim of forfeiture of Rs. 7.00 crores is not a revenue affecting transaction but it will be taken into consideration at the time of sale of the property by the seller” and hence, it is only a matter of different assessment year when finally the properties in question are to be sold by the seller;
Click here to read the Ruling Copy
2. [TS-5013-HC-2019(BOMBAY)-O] : Reopening-Reasonable belief : Although AO is entitled to rely upon subsequent year assessment order as tangible material to initiate reassessment proceedings, the same must be ‘processed’ as to its applicability for the subject AY so as to form a reasonable belief that income chargeable to tax has escaped assessment - HC allows assessee’s writ, quashes Sec. 148 notice for AY 2011-12 issued to bring to tax assessee’s expenditure of Rs. 3.24 crores under the head “Colour Idea Concept” holding it to be capital in nature; Rejects AO’s reasoning based on assessment for AY 2015-16, where, on perusal of the agreement for the expenditure on “Colour Idea Concept”, it emerged that the agreement was for creation of 'fixed assets' for promoting their business interest under the concept of “Colour Idea Store” and so the expenditure was held to be capital in nature and capitalised under furniture and fixture; Noting that the agreement was entered in year 2014, i.e., subsequent to the year under consideration, states that though the AO is entitled to rely upon the order passed in assessment proceedings for the subsequent year as tangible material to initiate reassessment proceedings, “the tangible material so obtained must be processed i.e. its applicability to the assessee for the subject assessment year is to be examined so as to form a reasonable belief that income chargeable to tax has escaped assessment”;
Click here to read the Ruling Copy
3. [TS-5003-SC-2019-O] : Penalty u/s. 271D for breach of Sec. 269SS - Reasonable cause : SC dismisses Revenue’s appeal against HC ruling reported in [TS-7278-HC-2018(BOMBAY)-O] wherein penalty u/s. 271D was deleted, upholding ITAT order that assessee had reasonable cause as provided u/s. 273B for non-compliance of Sec. 269SS; HC had referred to co-ordinate bench ruling in Triumph International wherein it was observed that “journal entries constituted a recognized modes of recording of transactions and in the absence of any adverse finding by the authorities that the journal entries were made with a view to achieve purposes out side the normal business operations or there was any involvement of money, then, in these facts there was a reasonable cause for not complying with Section 269SS of the Act”; Rejecting Revenue’s submission for distinguishing the decision in Triumph International in view of the large number of entries in this case as compared to only one entry in the case, HC had clarified that “If there was a reasonable cause for making the journal entries, then, the number of entries made, will not make any difference.”;
Click here to read the Ruling Copy
4. [TS-5006-ITAT-2019(BANGALORE)-O] : Sec. 68-Cash deposits/Unexplained credits : Absent evidence to substantiate KSRTC employee’s claim of agricultural income to be the source of cash deposits, addition u/s. 68 is sustained - ITAT upholds addition of unexplained credits u/s 68 in case of a KSRTC employee for AY 2014-15; Notes that assessee had made a cash deposit of Rs. 10 lakhs in his bank account, states that “except for making claims, the assessee has not been able to file any proof like copies of sale bills of agricultural produce to evidence that the assessee was carrying on agricultural operations”; Grants part relief to the extent of 5 lakhs considering assessee’s claim of cash deposit out of savings from salary for earlier and current years.
Click here to read the Ruling Copy
5. [TS-5051-ITAT-2019(PUNE)-O] : Transfer u/s. 2(47)(v) : No transfer absent handover of possession and receipt of complete consideration, mere Deed of Assignment does not suffice - ITAT allows assessee’s appeal, deletes the addition of tax on long term capital gains made by AO, sustained by CIT(A); Noting that a Deed of Assignment was entered into by assessee for sale of property during the subject year, but possession was not handed over and complete consideration was not given, states that “There may be a document by which certain rights were transferred but once the possession of property has not been handed over, the assessee does not become liable to pay capital gains tax on such transaction as the conditions laid down in section 2(47)(v) of the Act have not been fulfilled”; Referring to the provisions of Sec. 2(47)(v), ITAT explains that “So, the requirement is that the transfer in relation to capital asset which takes cognizance of sale, exchange or relinquishment of any asset or extinguishment of any right, also recognizes any transaction, under which possession of any immovable property is given or retained by the buyer”
Click here to read the Ruling Copy |
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CBDT Updates:
1. CBDT takes third shot at Sec. 56(2)(viia) cherry, directs officers to ignore 'incorrect' view- Circular No. 3/2019
2. CBDT issues Corrigendum to annual TDS circular for salary for FY 2018-19 (issued vide Circular No. 1/2019)- Circular 275/192/2018-IT(8)
3. CBDT identifies non-filers, gives 21 days time to file online-response
4. CBDT clarifies regarding issue of Prosecution Notices
5. Ministry of Finance - Withdrawal from New Pension Scheme
6. Shri Piyush Goyal appointed interim Finance Minister in addition to his existing portfolios
7. CBDT identifies non-filers, gives 21 days time to file online-response Click here to read more latest news
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