April « 2023 « AIFTP

Tanu Priya

In this ever changing world, virtual currency has replaced all the various lucrative assets and investment products around the globe. However, this block-chain technology, which claims to be non-regulatory and decentralized, has unfortunately confused the masses. Even with ambiguous regulatory methods implied on the Crypto transactions, middle class investors did not back down from pooling their money it.

RBI, the national regulation authority, has not recognized VAs (Virtual asset) as a legal tender. This decision of government has directly affected the tax implications on the VAs. Prior to the Finance Bill 2022, income generated from VAs was taxed under the Capital Gains head or business income under Profits and Gains from Business and Profession (PGBP), based on the usage by the assessee. However, the central government has changed their stance by imposing a heavy levy of 30% on income earned from VA trading under the Other Sources head. This move is being praised for being the first step of government towards regulating Virtual Currencies like Crypto. We cannot overlook upon the intention of authorities behind the act. It is primarily to discourage masses from investing in crypto. This was done to decrease the huge number of young investors moving towards the industry.

The position under direct taxation can still be considered as great if we were compare it with the Indirect sector. Cyrptominning has still not been recognised by the statues. An effort was made by Central Economic Intelligence Bureau (CEIB) to impose 18% GST on Bitcoin Transaction. The classification of Crypto is the most crucial task for it to fall under the pursuit of GST. The virtual assets need to recognised either as a Good or Service under the statue. Furthermore, a rate of levy needs to be decided. Considering the rates under Income Tax, the government might settle on a GST slab of 18%. Trading Platforms like Wazirx and CoinDX to pay service tax on for facilities they provide in assisting the transactions.

Crypto is highly criticized for the role played by it in black market and funding terrorist activities. Government aims at promoting more reliable investment products like Stocks and securities mainly because they are covered by regulation authorities so any upcoming economic crises could be monitored and prevented. However, the wave of crypto has already hit the cities and staying in denial is not the right recourse. Positive attitude is the key. The volatile Indian market can be used in a way by authorities to directly help in increasing revenue and which will also help it in becoming a most suitable virtual trading hub.

INTRODUCTION

“Cryptocurrency is here to stay, so we hear on cryptosphere everyday. But there are some fundamental situations that needs to take place for this speculated ‘store of value’ to really have its foot to stand on, and that is, government’s ability to enforce taxation on businesses and individuals making gains with this currency.

So, either we like it or not, crypto taxation needs to be enforced for government to really entertain any form of adoption. Asian countries dominates the cryptocurrency spaces but the governments are finding it a bit hard to really tax crypto transactions.”

– Olawale Daniel, Founder – TechAtLast International

WHAT IS A VIRTUAL DIGITAL ASSET ?

A virtual asset is a virtual illustration of an item that has price in a specific surroundings. This medium of trade or assets may be digitally traded, transferred or used for price or investment purposes.1 The Supreme Court, in the case of Internet and Mobile Association of India v. Reserve Bank of India2 conducted a detailed analysis into the existing literature on the matter. It extensively quoted the Financial Action Task Force (“FATF”) report titled ‘Virtual Currencies Key Definitions and Potential AML/ CFT Risks’.3 The FATF in this report defines ‘virtual currency’ as a digital representation of value that can be traded digitally and functions as (i) a medium of exchange; (ii) a unit of account; and/or (iii) a store of value, but not having a legal tender status in any jurisdiction. It is not issued, nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. The report further distinguishes between e-money and virtual currency and defines the former as a digital representation of fiat currency used to electronically transfer value denominated in fiat currency. Due to this fundamental distinction between virtual currency and legal tender, many believe that the expression virtual “currency” can be misleading. The expression “payment tokens” is therefore often used to more precisely denote the concept of “virtual currencies” and can usually be interchangeably used.

VAs include things :

A. Crytpocurrrencies

B. NFTs – non fungible tokens

Both of these are one-of-a-kind software of blockchain technology. Cryptocurrencies wherein a finite set of ‘currency’ devices, known as cash, are used as an electronic coins machine. This may be connected to an underlying asset or have a few inherent fee.⁴

Non Fungible tokens, which are much like cash, may be sold and offered in a virtual form. Unlike cryptocurrencies where the coins are homogenous, NFTs are non-fungible, i.E., non- interchangeable by using nature such that every token is particular and has a fee this is wonderful from different tokens. NFTs are connected to one or greater underlying assets including artwork or actual estate, which offers it its price⁵

TAXES AND THEIR PURPOSE

Taxes are one of the number one resources of profits for the government through which it fulfils various tasks and tasks. Tax serves numerous functions and is crucial for any nation’s economic development, sustenance and development. Even as the tax cash is utilised for pleasing various initiatives, it’s also the primary supply of funding for numerous important authorities welfare schemes. It enables the authorities in enforcement of legal guidelines and the judicial system. The Indian Constitution under Article 246 enlists different taxations in the country between the Centre and the State.⁶

BLOCKCHAIN AND WORKING OF VDS

Both cryptocurrencies and NFTs are primarily based on blockchain or different dispensed ledger technology. Oversimplified, blockchain is a way of storage of statistics in a decentralised way such that nobody person (or institution) can exercise absolute control over the records. The term ‘blockchain’ refers to the manner in which new packets of records (referred to as blocks) whilst delivered are linked to the closing delivered block of facts, as a result forming a sequence of records blocks linked chronologically. A key feature of blockchain era is the way wherein facts blocks are proven and brought. This happens thru a community of computer systems running in parallel,⁷ without any one laptop regulating the blockchain or exercise advanced control over the management or storage of the data or the verification processes. Records once added to a blockchain cannot be deleted, modified or tampered with, for this reason a blockchain forms an correct and reliable chronologically organized report of all records that has been introduced to the blockchain. As a end result, despite the fact that there is any human error in the facts being added, the added facts cannot be edited to rectify the error; only a new block can be introduced to well-known and address the mistake.⁸

EVOLUTION OF VDAs IN INDIA

The crypto story in India started in 2013, when India’s primary bank, the Reserve financial institution of India (RBI), has warned residents of the dangers related to buying and selling virtual currencies, and how buying and selling of such currencies in overseas exchanges might also bring about violation of forex regulations (FEMA).

RBI has clarified that digital currencies might not be used as felony gentle in India. In that feel, a cryptocurrency could neither be handled as a foreign foreign money (as recognized under FEMA) or be used in lieu of the Indian Rupee. It may be inferred that the fee of attention with cryptocurrency for buy of goods or services would be handled as an trade in place of an outright sale.

In parallel, reacting to the pointy appreciation in value of Bitcoin and comparable traits with different cryptocurrencies, the income Tax department had in December 2017 issued half a million notices to high internet well worth individuals who personal cryptocurrencies seeking confirmation that there are not any unpaid taxes arising from their buying and selling of cryptocurrencies.

Having realized the underwhelming impact of such warnings, RBI adopted a one of a kind technique issuing a circular in April 2018⁹ restricting banks and different economic institutions from facilitating the buying and selling of cryptocurrencies on both Indian and distant places exchanges. These instructions rendered Indian cryptocurrency exchanges efficiently defunct in a single day.

This changed into challenged before the Indian ideally suited court in may also 2018 via the net and cell affiliation of India on the ground that this sort of round would tantamount to a denial of cryptocurrency investors’ constitutional proper to carry on any exchange or profession, and might therefore be violative of Article 19(1)

(g) of the Indian constitution. In its judgement of March 2020, the splendid court set aside the RBI round staring at that within the absence of any legislative ban at the shopping for or promoting of cryptocurrencies, RBI isn’t legal to impose disproportionate restrictions on Indian cryptocurrency exchanges. While maintaining that casual investors or those undertaking buying and selling of cryptocurrencies as a commercial enterprise could now not be entitled to a claim beneath the stated article, the supreme courtroom discovered that the round disconnected the banking area from cryptocurrency exchanges no matter the RBI no longer having located whatever wrong with the functioning of those exchanges. It became also stated that earlier than issuing the round, the RBI did now not discover the availability of alternative less intrusive measures consisting of regulating cryptocurrency buying and selling and cryptocurrency exchanges. The popularity of cryptocurrency in India is clear from the fact that it houses 10.07 crore crypto owners, which is more than every other country in the world.¹⁰

It is now a long-settled position that the legality of or manner of acquiring income has no bearing on its taxability.¹¹ Therefore, a lack of clarity with respect to its tax treatment is not only depriving the crypto community of certainty and stability, but it is also robbing the nation’s treasury of its fair share of tax revenue.

MONEY LAUNDERING AND TERROR FUNDING CONCERNS

The Cryptocurrency & regulation of legitimate virtual forex invoice, 2019 launched in December 2019 meant to prohibit and criminalise the maintaining, selling or trading of cryptocurrency, punishable with imprisonment of up to ten years, or a quality, or both. The bill in addition outstanding and accepted the other programs of the underlying disbursed ledger technology for experiments, research, or teaching. It moreover accredited RBI to roll out a government advocated virtual foreign money.

Presently, RBI continues to explicit its apprehensions in legalising cryptocurrency transactions, and its capacity to destabilise the Indian economy, and to pass government efforts to monitor and manipulate the waft of cash by illegal way and for illicit activities. In light of this, RBI indicates a hard-line technique by means of banning and criminalising all decentralised cryptocurrency transactions. This contrasts sharply with the critical government’s concept to give digital virtual assets criminal repute. As a result, this differing stance at the legality of virtual virtual property, coupled with the evolving view of courts, simply makes the future of digital virtual belongings unsure.¹² Virtual assets are at risk of being misused through criminals to launder money and fund terrorism as they allow extra ranges of anonymity, have international reach making it easier for go-border payments, and they can be traded effortlessly.¹³

PRE FINANCE BILL 2022 STATUS OF VDAs IN INDIA

Besides regulatory actions, there have also been concerted efforts to “ban all private cryptocurrency”. Most notably, a bill in this regard was set to be placed before the Parliament in its winter session in late 2021.¹⁴ Though this bill has not been made public yet and was never actually placed before the Parliament, it disrupted the crypto ecosystem in India. In parallel, other disincentives have continued. For instance, the Advertising Standards Council of India which is a self- regulatory organisation of the Indian advertising industry, came out with guidelines to regulate the advertising and promotion of cryptocurrencies.¹⁵ It noted that several crypto advertisements did not adequately disclose the risks associated with such products. The guidelines required all such advertisements to carry the disclaimer that “Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.” It also required the disclaimer to be carried in such a manner that it is prominent and unmissable by an average consumer. On the tax front too, there has been an immense lack of clarity. Back in 2021, Minister of State for Finance, Mr. Anurag Singh Thakur had said in response to a question in the Rajya Sabha that “the gains resulting from the transfer of cryptocurrencies/ assets are subject to tax under the head of income, depending upon the nature of holding of the same”. However, within a span of a year since this aforementioned statement, the Ministry of Finance took a completely different and classification agnostic approach to taxing cryptocurrencies. In the Budget for the Financial Year 2022-23, the Finance Minister made four key amendments to the Income-tax Act, 1961 (“IT Act”).¹⁶

The Finance Act 2022 inserted:

Section 2(47A) to define virtual digital assets;
Section 115BBH that specifies the rate at which transfer of these ‘virtual digital assets’ will be liable to income-tax, the rate pf tax being 30 percent;
An explanation under clause (x) of section 56(2) to the effect that property would include ‘virtual digital asset’; and (iv) Section 194S that provided for tax deduction at source on payment towards consideration for transfer of virtual digital assets.

FINANCE BILL 2022 AND 30% TAX IMPOSED

Profits bobbing up from transactions in cryptocurrencies have become taxable from April 1, 2022, following the Budget announcement to that effect by means of Union Minister of Finance Nirmala Sitharaman in February, 2022. She introduced a scheme of 30% taxation on virtual digital assets (VDAs), other than tax deducted at source (TDS) implications, which got here into effect from July 2022¹⁷

TAX ON INCOME FROM VIRTUAL DIGITAL ASSET

The IT Act defines the term “income” in a broad manner.¹⁸ It further stipulates “heads of income” under which all income needs to be classified for the purpose of charge of income- tax.¹⁹ This list inter alia includes ‘profits and gains from business or profession’, ‘capital gains’ and ‘income from other sources’.²⁰

The Supreme Court in Commissioner of Income- tax v. G.R. Karthikeyan²¹ has observed that the idea behind providing an inclusive definition of income under section 2(24) of the IT Act is not to limit its meaning but to widen its net and the word ‘income’ is of widest amplitude, and that it must be given its natural and grammatical meaning. Accordingly, any income earned from cryptocurrency would naturally fall within the ambit of the IT Act.

Section 28, Finanace Act, 2022 – Intersertion of new sections 115BBH and 115BBI

After section 115BBG of the Income-tax Act, the following sections shall be inserted with effect from the 1st day of April, 2023, namely:-

Section 115BBH, The Income Tax Act, 1961:

Where the total income of an assessee includes any income from the transfer of any virtual digital asset, notwithstanding anything contained in any other provision of this Act, the income- tax payable shall be the aggregate of,-
1. the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and
2. the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause
Notwithstanding anything contained in any other provision of this Act,-
1. no deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the income referred to in clause (a) of sub-section (1); and
2. no set off of loss from transfer of the virtual digital asset computed under clause (a) of sub-section (1) shall be allowed against income computed under any provision of this Act to the assessee and such loss shall not be allowed to be carried forward to succeeding assessment years.
For the purposes of this section, the word “transfer” as defined in clause (47) of section 2, shall apply to any virtual digital asset, whether capital asset or not.

Specified income of certain institutions Section (115BBI)²²

Where the total income of an assessee, being a person in receipt of income on behalf of any fund or institution referred to in sub-clause (iv) or any trust or institution referred to in sub- clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10 or any trust or institution referred to in section 11, includes any income by way of any specified income, notwithstanding anything contained in any other provision of this Act, the income-tax payable shall be the aggregate of,-
1. the amount of income-tax calculated at the rate of thirty per cent. on the aggregate of such specified income; and
2. the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i).
Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the specified income referred to in clause (i) of sub-section (1).

Explanation.-For the purposes of this section, “specified income” means,-

income accumulated or set apart in excess of fifteen per cent. of the income where such accumulation is not allowed under any specific provision of this Act; or
deemed income referred to in Explanation 4 to the third proviso to clause (23C) of section 10, or sub-section (1B) or sub-section (3) of section 11; or
any income, which is not exempt under clause (23C) of section 10 on account of violation of the provisions of clause (b) of the third proviso of clause (23C) of section 10, or not to be excluded from the total income under the provisions of clause (d) of sub-section (1) of section 13; or
any income which is deemed to be income under the twenty-first proviso to clause (23C) of section 10 or which is not excluded from the total income under clause (c) of sub-section (1) of section 13; or
any income which is not excluded from the total income under clause (c) of sub-section (1) of section 11.23

THE EFFECT OF INCOME TAX IMPLICATION

Though there is a lot of doubts and ambiguousness regarding the functionality of the new introduced changes, the crypto investor and the general public should keep in mind that The entire 30% tax on any crypto assets will be deducted from the profits earned via various crypto tokens in an entire financial year. The starting of this 30% tax will be from the Assessment of the FY 2023-24. The following points shall also be kept in mind

Income from the transfer of virtual digital assets such as crypto and NFTs will be taxed at 30% at the end of each financial year.
No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
Loss from digital assets cannot be set off against any other income.
The gifting of digital assets will attract tax in the hands of the receiver. Losses incurred from one virtual digital currency cannot be set off against income from another digital currency. 1% TDS point should also be mentioned in this list of pointers as it was announced in Budget 2022.²⁴

ASSETS SUBJECT TO TAX IMPLICATIONS

The earnings Tax Act turned into amended with effect from April 1, 2022 to provide for the taxation of profits and, or, profits derived from VDAs. Below the earnings Tax Act, VDAs are:

Cryptocurrencies not being Indian or foreign foreign money (the proposed virtual Rupee could seemingly be exempt as a end result) – the particular terminology used underneath the income Tax Act is “…any facts or code or range or token (now not being Indian forex or foreign foreign money), generated through cryptographic way or otherwise, through something call referred to as,²⁵ supplying a digital illustration of fee exchanged with or without attention, with the promise or representation of having inherent fee, or functions as a shop of cost or a unit of account which include its use in any monetary transaction or funding, but no longer restrained to investment scheme; and may be transferred, saved or traded electronically…”

NFTs or similar tokens as the critical government may additionally notify; and

Such other virtual property as the crucial government may additionally notify.

Interestingly, the income Tax Act does no longer point out either blockchain or DLT within the definition of VDAs. The relevant government has but to notify the NFTs, tokens or different VDAs to which the provisions of the profits Tax Act will observe. While it can, therefore, be argued that no NFTs are currently protected via the brand new tax regime, there is a opportunity that the tax authorities will select to tax NFTs under the cryptocurrency head as the definition consists of tokens and can be considered wide enough to consist of NFTs. It’d, therefore, be prudent for taxpayers to count on that the NFTs they accumulate, sell, and, or, otherwise address are in all likelihood to be taxable under the regime.

Under the Income Tax, there could be three scenarios. First, where if someone gets a VDA without attention and the fair market value of that VDA exceeds INR 50,000 – the entire truthful marketplace fee of the asset is taken into consideration taxable profits in the fingers of the individual that obtained the VDA. The applicable price of tax will depend upon the income tax bracket within that man or woman in most cases falls. Second, when someone gets a VDA for consideration lower than the fair marketplace price, and the truthful market price exceeds the consideration by using extra than INR 50,000 – the difference between the honest marketplace fee and the consideration paid is considered taxable earnings within the hands of the individual that obtained the VDA. The relevant rate of tax will rely on the profits tax bracket within that person by and large falls. Third, in which a person earns earnings from the switch of a VDA – the profits earned by using that character less the price of acquisition, if any, is problem to tax on the fee of 30%. Moreover, an equalization levy of 2% will be levied on the non-resident proprietor of the blockchain on which NFTs are traded.²⁶

1% TDS DEDUCTION AND SECTION 206AB

The earnings Tax Act in addition complicates subjects through requiring that, where a resident transfers a VDA for attention, the person liable for paying that attention must deduct 1% of the consideration at supply as earnings tax. The requirement to deduct 1% of the attention applies regardless of whether or not the consideration is in cash, in part in cash and in part in attention for another VDA, or in attention for only some other VDA.

The duty to withhold tax may also be imposed on the proprietor of the blockchain on which NFTs are traded (whether or not they’re resident in India) as they will be taken into consideration e-trade operators facilitating the trading of NFTs.

Tax does now not need to be deducted where:

The consideration is paid by a “specified person” and the aggregate value of the consideration being paid does not exceed INR 50,000 during the financial year; or
The consideration is paid by a person other than a “specified person” and the aggregate value of the consideration being paid does not exceed INR 10,000 during the financial year. A “specified person” is defined as an individual or Hindu undivided family:
whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed INR 1 crore in case of business or INR 50 lakhs in case of profession, during the financial year immediately preceding the financial year in which such VDA is transferred;
that does not have any income under the head “profits and gains of business or profession”.

As a consequence, tax will generally need to be deducted at source by most persons acquiring VDAs unless they fit the criteria of “specified persons” or only make purchases of VDAs infrequently and for small amounts.

Section 206AB, Income Tax Act, 1961:

If any user has not filed their Income Tax Return in the last two years and the amount of TDS is Rs. 50,000 or more in each of these two previous years, then the tax (TDS) to be deducted for Crypto related transactions will be at 5%.²⁷
If an order is placed before 1st July 2022, but the trade is executed on or after 1st July 2022, TDS provisions will apply.²⁸

Regarding the 1% TDS reduction on crypto assets According to the revised Income Tax regulations, it will applicable on all sell transactions of the crypto assets. This will be effective for 1 July, 2022. Whether there is any profit earned or not, TDS will be deducted irrespective of that.

SET-OFF OR CARRY FORWARD OF LOSSES NOT ALLOWED

The Income Tax Act expressly prohibits them set-off of losses from transfers of VDAs against profits or gains derived from other VDAs. Illustratively, if someone were to promote an NFT and incur a loss, the loss can’t be set-off against a benefit made on the transfer of another VDA. Illustratively, if A sells an NFT paintings for a loss of INR 10,000 after which sells units of Ethereum for a profit of INR 50,000, A could be prone to tax on the whole income of INR 50,000 from the sale of Ethereum and could not be able to set-off the lack of INR 10,000 at the NFT. Basically, beneath the earnings Tax Act, gains and profits from VDAs are taxable however no comfort is furnished within the event losses are incurred, and, to that extent VDAs are taxed otherwise than most different belongings in India.²⁹

CRYPTO AND THE CAPITAL ASSETS

Any earnings or profits springing up from the sale of capital property together with equity stocks, mutual finances, bonds, and different commodities are problems for short-term and long-term capital gains taxation. Capital assets that might be held for more than 36 months are called short-time period capital assets. In some cases, belongings like fairness or choice shares in a listed corporation, different listed securities, UTI gadgets, fairness-oriented budget gadgets, or 0-coupon bonds – held now for not more than one year also are categorized as short- term belongings. Within the case of unlisted shares and immovable belongings, those belongings held no longer extra than 24 months are also said to be short-time periods. In the meantime, capital belongings held for greater than 26 months or 24 months, or twelve months inside the above-cited cases – are referred to as long- term capital belongings.³⁰

Underneath short-term capital profits tax, if Securities Transaction Tax (STT) is not applicable – then the fast-term capital gains grow to be other earnings tax go back gadgets, and the taxpayer is taxed in step with the profits tax slab quotes. However, if STT is relevant then the short-term capital gains tax is 15%. With regard to long-term capital gains tax, a ten% tax rate is levied on the sale of equity stocks/devices of fairness-orientated budget on amounts above Rs. 1 lakh. The tax rate is 20% on belongings besides fairness stocks/equity-oriented price range.

Presently, there are not any TDS relevant to domestic buyers on their capital gains. However, NRIs are a problem to 30% TDS on short-time period capital profits and 20% over a long time. Form 15G /15H anyplace relevant is to be had and needed to be submitted to the IT branch to avoid TDS.³¹

From the above, it can be said that cryptocurrency gains or losses still have higher tax rates as compared to the quick term and long term capital profits taxation. Also, TDS is limited to NRIs in capital assets in contrast to the 1% on crypto belongings to be had for citizens.³²

Problems can also arise in figuring out a taxpayer’s taxable profits or profits from the receipt or switch of a VDA:

Where a VDA is received without attention or for a attention decrease than the fair market value, difficulties can also stand up in determining the character’s taxable earnings in recognize of the asset. Cryptocurrencies and NFTs are commonly extremely risky with valuations fluctuating on a ordinary foundation. Consequently, it could be difficult to pinpoint the honest market fee of the asset.
Where cryptocurrency is purchased on a crypto-change or an NFT is bought on a market, it is able to normally be argued that the truthful marketplace fee is the price winning on that change or marketplace on the time of the purchase.

However, this may no longer preserve water with the profits tax government as fair marketplace price under the profits Tax Act is to be determined in accordance with the income Tax regulations, 1962 (regulations). At the same time as the policies do prescribe mechanisms for determining the truthful market cost of numerous assets, they do no longer especially cope with the valuation of VDAs, as a consequence creating a lacuna.

Troubles might also stand up where someone is vulnerable to tax on transfer of a VDA. The handiest deduction permitted at the profits earned from the switch of a VDA is the fee of acquisition. In which a VDA is bought and offered for an recognized amount in INR or in a foreign forex, the income and the cost of acquisition are easily identifiable. However, if a VDA is acquired using, or offered in exchange for, another VDA (example an NFT is purchased using Bitcoin), the price of acquisition and, or, consideration for the switch of the VDA may be difficult to envision as a selected INR fee for the purchase and, or, switch will no longer be comfortably to be had.

The problems in valuing VDAs for the purpose of taxation may want to result in disputes with the tax authorities. The authorities have additionally confirmed that expenditure incurred in mining cryptocurrency is taken into consideration capital expenditure and no longer a cost of acquisition. Consequently, the full-size expenditure on the hardware required to mine cryptocurrency can’t be deducted from any earnings derived from the transfer of cryptocurrency. Whilst no rationalization is to be had in admire of the deduction of costs incurred to mint NFTs, those costs will probable be handled in the identical way as mining charges for cryptocurrencies.³³

IMPACT ON THE INDUSTRY- ECONOMICALLY AND SOCIALLY

Taxation has definitely made the enthusiasm of Indian crypto investors, cold. Trading volumes on WazirX and CoinDCX dropped by using as a minimum 80 in line with cent. According to data received from facts aggregator nomics. Com, change volumes on Indian cryptocurrency exchanges have considerably decreased after the 1 in keeping with cent TDS came into effect from July 1, 2022.³⁴

Some crypto finance experts consider that the big step by the government has been precise for traders, as it has reduced hypothesis and price manipulation inside the unsupervised cryptocurrency industry. The Industry expert, Mr. Gaurav Mehta, founder of Catax – a blockchain auditing and taxation start-up, in an interview had explained in great details the positive impact of the action. People at the moment are buying and maintaining virtual belongings, inclusive of Bitcoin and Ethereum for longer durations of time, with the intention to be high-quality for the crypto financial system in the end. Crypto investors appear to have widely widespread the imposition of a 30 percentage without a loss offset and made peace with it. Due to taxation on each transaction, pump-and-unload activities that prey on unsuspecting traders, are now not viable. Traders may also acquire a clean image of market participation, trading volume, and adaption, which changed into what formerly claimed to be billions at the greenback on a day basis and became normally driven by way of buying and selling bots and phony quantity that dazzled and enticed new traders into the unregulated and risky crypto asset elegance.³⁵

GST IMPLICATIONS ON CRYPTO

As for now, there is not GST implication on VDAs however; it is being predicted by the people of the industry that the government might soon move towards this direction. It can be deciphered from the steps the government had taken recently. Recently, The Central Economic Intelligence Bureau (CEIB), proposed to impose 18% GST on Bitcoin transactions. The CEIB told CBIC that Government could potentially gain Rs. 7,200 crores annually on bitcoin trading.

CEIB has also suggested that Bitcoin be categorized as an ‘intangible assets’ by which GST could be imposed on all the transactions. It was also added that cryptocurrency could be treated as currents assets and GST be charged on the margins made when traded. The CBIC is still reflecting upon a proposal that is yet to be put forth the GST Council. The key points presented included definition of Cryptocurrency mining’ and how it will be treated as a supply of service since it generates cryptocurrency and involves rewards and transaction fees. Tax will be collected from the miner on transaction fees or reward. If the value of the reward exceeds Rs. 20 lakh, individual miners will need to register themselves under the Goods and Services Tax (GST). The proposal also considers Rs. wallets’ storing keys taxable. Wallet service providers should be registered under GST. Cryptocurrency exchanges need to register and pay tax on their earning. Trading may attract 18 percent GST. Buying and selling of crypto currencies will be considered under the category of supply of goods. Other related facilitating transactions will be counted under services and these would include supply, transfer, storage, accounting, among others. The transaction value in rupees or the equivalent of any freely convertible foreign currency will be used to determine the value of cryptocurrency. In a scenario where both buyer and seller are in India, a transaction would be treated, as a supply of software and the buyer’s location will be the place of supply. For transfer and sale, the location of the registered person will be the place of supply. However, in a scenario where sale has to be made to non-registered persons, the location of the supplier would be considered as the place of supply. Integrated GST would be applicable for transactions conducted beyond the Indian territory and would be considered as import or export of goods. IGST will be levied on cross- border supplies.³⁶

There is a debate regarding the classification of VDAs as a good or services however, it can be concluded there is a good chance that GST would become applicable on cryptocurrency and perhaps also on the mining services. But no stated rules and regulations with regard to cryptocurrency and the precipitous speed at which the blockchain technology is growing, it is high time taxation and regulatory principles are brought in to stabilize the current situation and clear off all the grey areas.³⁷

With the proliferation of cryptocurrencies, the concept of money is evolving at a rapid speed. While this evolution poses several pertinent threats, it also offers many valuable opportunities. Most of the challenges associated with cryptocurrencies can be effectively addressed by designing an appropriate regulatory framework. The taxation framework should thus be designed such that taxes do not factor into investment or business decisions. They should not be designed to disproportionately encourage or deter activity in this space. Their sole aim should be to earn revenue, without stifling innovation and development of the ecosystem. With this aim in mind, it is suggested that an assessment should be conducted on whether cryptocurrencies qualify as “goods” or “money” under the GST framework and the issue should be clarified. If it is concluded that they constitute “goods”, then an amendment should be made to the GST law specifically including cryptocurrencies to the definition of goods.

VDA TAXATION POLICIES AROUND THE GLOBE

Cryptocurrency transactions defined and taxed differently in many countries like Canada, USA, Germany, UK, and Australia. In June 2014, Canada is the first country in the world to establish a tax on virtual currencies. The Bank of Canada has expressed a willingness to acknowledge the developing virtual currency market, but currently recognizes cryptocurrencies as investments. Other countries, specifically, within the developed world, have adopted various tactics to the taxation of VDA. Their method seems to be predicated on how they classify VDAs.

Certain nations consisting of the U.S. Recall cryptocurrencies to be assets and tax profits derived from transfers. The fair price for the purposes of figuring out such profits is the fee at which the cryptocurrency turned into buying and selling on the trade while the transaction was finished. In Canada and the United Kingdom, despite the fact that the two countries classify cryptocurrencies in a different way (as commodities and capital assets, respectively), they’ll be challenge to both income tax and capital profits tax relying on the relevant statistics and circumstances – example, whether the cryptocurrency changed into obtained through professional mining or interest mining).³⁸

As NFTs are nonetheless a fairly new concept, many developed countries have not begun to formulate unique coverage for his or her taxation. At present, maximum evolved international locations, apart from Malta, appear to tax NFTs inside the equal way as cryptocurrencies. Malta has created a framework for DLT belongings — which it categorizes as coins and tokens — and taxes cash within the same way as fiat currencies and levies profits tax on returns earned from monetary tokens.

WAY FORWARD

The authorities has brought a simplified regime of levying a excessive, but widespread fee of tax on all kinds of transactions. Within the brief time period, a simple tax mechanism will probably assist in lowering ambiguity and providing fact to taxpayers. However, inside the longer run adopting a widespread price may additionally disrupt the cryptocurrency industry as a high tax rate could be relevant on every switch thereby substantially increasing the tax price.³⁹

Additionally, from 01 July 2022 onwards, any man or woman paying consideration to a resident of India in change for Cryptocurrency will be obligated to withhold tax on the charge of one per cent at the consideration so paid, issue to positive financial thresholds. The applicability of such withholding tax on every transaction will have a sizable unfavorable impact on the liquidity within the cryptocurrency ecosystem and discourage innovation in that space. In which the consideration payable is absolutely or partially in-kind, the payer ought to make certain that tax is paid in recognize of such transaction, before paying the consideration. Implementing this will be tough and might result in the payer being held in default. Hence, from a withholding tax compliance attitude, there may be positive practical challenges, in particular for investors of cryptocurrency, which includes maintaining a report of the identification or tax residence of sellers and so on. A withholding tax mechanism also does not serve any significant reason for the tax government because it does not add to the treasury’s sales, as an alternative it most effective will increase administrative fee. Such an hard requirement could be argued to theoretically help the authorities with obtaining statistics approximately transfers of cryptocurrencies but given that any such mechanism is almost not possible to implement at a peer-to-peer degree.⁴⁰

CONCLUSION

The brand new taxation regime delivered by using the authorities does not appear to recollect the nuances of cryptocurrencies and NFTs. Prior to the modification of the earnings Tax Act, experts in India and someplace else had raised questions as to how cryptocurrencies and NFTs have to be categorized – capital property,

foreign money, securities, etc. An analysis of the character of every class of VDAs is vital to the formula of a clear and powerful tax regime.

At present, the earnings Tax Act treats cryptocurrencies, NFTs and other VDAs homogeneously. Whilst both cryptocurrencies and NFTs use DLT and blockchain technology, the similarities cease there. Cryptocurrencies are, through their very nature, fungible whilst NFTs aren’t. Cryptocurrencies have restrained utility. NFTs, then again, can be deployed in some of approaches – as artwork, instruments, certificate of possession, and so on.

The fact that the income Tax Act does no longer deal with the traits of VDAs and how they may be acquired and utilized could lead to confusion. Illustratively, if cryptocurrency is acquired thru mining, is it considered to had been transferred to the recipient and, therefore, situation to the 30% tax? Instead, is it considered a receipt of a VDA without attention making the honest marketplace cost of that VDA taxable within the hands of the miner? At the same time as experts have differing views on how the receipt of VDAs pursuant to mining may be taxed, the fact remains that the law does no longer deal with or make clear the placement.⁴¹

The brand new taxes imposed on VDAs appear like geared toward discouraging funding in such belongings. The tax price of 30% – relevant no matter the income bracket of the taxpayer – is similar to that imposed on different belongings of which the authorities seems to disapprove consisting of lottery winnings. The refusal to permit any deductions other than fee of acquisition, or to permit the set-off of losses, and the requirement to deduct tax are in addition evidence of the purpose to deter investments in VDAs.

The government has not prescribed the way wherein VDAs should be valued regardless of linking the imposition of tax in positive cases to the truthful marketplace price of the applicable asset. This may invariably cause disputes and further lessen religion inside the Indian tax regime.

In the end, the choice to tax VDAs isn’t indicative of the legalization of cryptocurrencies or NFTs in India. In India, assets acquired via the proceeds of crime are problem to tax. In addition, belongings received in an unlawful style (benami assets or undisclosed overseas assets) also are taxed. The mere incidence of taxation can’t be interpreted as legitimization or legalization of VDAs.

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CA Istiyak Ahmad

1. Brief background of income escaping assessment

Income escaping assessment is also known as reassessment, reopening, 147 assessment etc. These words are used interchangeably in this article.
Under the scheme of the Income-tax Act, 1961 (‘the Act’), Tax Authorities (“TA”) has the general power the assess the income of the or the tax return (ITR) filed by the taxpayer u/s 143(2) of the Act.
Apart of general assessments, TA has also various other remedial measures viz. reopening, rectification and revision for taking appropriate actions to plug revenue leakages when they come to notice of TA. Reopening is perhaps the most preferred remedial measure.
The objective of carrying out reopening u/s 147 of the Act is to bring any income which has escaped assessment in the original assessment under the tax net.
It is well accepted that the proceedings u/s 147 are for the benefit of the revenue and not taxpayer¹. The same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the taxpayer.
The law governing reopening has more or less remained same since Prior to 1989, there were 3 distinct conditions which were required to be fulfilled before the TA could exercise jurisdiction to reopen viz.
1. TA must have reason to believe that income has escaped assessment;
2. TA must have reason to believe that such escapement is a result of failure on the part of the Assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for the relevant year;
3. Reason to believe should be in consequence of information received after the original assessment.
With effect from 1989, the law has undergone a major However, the spirit and substance of the provisions were retained. Under the amended provision, if the assessing officer has ‘reason to believe’ that any income chargeable to tax has escaped assessment, he could exercise the powers of reopening. Concept of information was discarded.
1. The scope of the expression ‘reason to believe’ has always been a subject matter of Generally, courts have taken a position that ‘change of opinion’ cannot be considered as valid reason to believe². Also, there should be some tangible material.
Under the erstwhile provision, there was no specific procedure included in the Act to be followed by the TA and taxpayer in relation to reassessment notice. However, the SC in the case of GKN Driveshafts India Ltd ITO3 has provided specific procedure to be followed by taxpayers and TA for reassessment proceedings. The Hon’ble SC has laid that when a notice for reopening of assessment u/s 148 of the Act is issued, the proper course of action for the assessee is to file the return and, if he so desires, to seek reasons for issuing the notices. The TA is bound to furnish reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file objections to issuance of notice and the TA is bound to dispose the same by passing a speaking order.
Further, reassessment proceedings, often, have been challenged in writ proceedings before the High Courts (HC) on the ground that the notice for reassessment lacks legal validity on account of failure by the TA to follow due process of law enshrined in the provisions and established under common Rather than the merits of concealment, courts are overwhelmed with cases to decide upon the sustainability of the core issue of initiation of reassessment i.e. whether the TA had ‘reasons to believe’, did he ‘record his reasons’ appropriately, did the assessee fail to ‘disclose fully and truly all material facts necessary for his assessment’, was proper ‘sanction’ of the appropriate authorities taken, ‘whether notice was issued in time’, etc.
Now, e.f. 01 April 2021, the law governing the provisions of reopening has been completely overhauled. Finance Act, 2021, introduced a new procedure for reassessment. These provisions were further modified by Finance Act, 2022 so as to expand its scope, take care of some anomalies and iron out some interpretational issues.
Under the new regime, out of other things,
1. the system of writing reasons of reopening before initiating the proceedings has been done away with.
2. Inquiries and proceedings prior to issuance of notice u/s 148 have been introduced.
3. “Reason to believe” is ommited.
4. Search cases are covered under the provisions of reopening.
5. Time limit to reopen is modified in a major way. Unlike the old regime, limitation period for reopening of the assessment is curtailed Now reopening is permitted generally for 3 years and in exceptional case fulfilling specified conditions, reopening can be made upto 10 years. However, reopening of assessment of past years upto AY 2021-22 is grandfathered to maximum 6 years as per old law.
6. Additional protection in the cases of scrutiny assessment not allowed to be reopened beyond a period of 4 years from the end of the relevant AY unless there is failure in disclosing fully and truly all material facts necessary is now taken away.
7. Information that could trigger reopening is specially defined.
8. New regime specifically provides for checks on TA actions. It require TA to obtain prior approval of specified authority at different stages of proceedings.
9. The above differences have been dealt in detail below.
10. Like in case of erstwhile regime, under the new regime as well, power to reassess is only in case where the income chargeable to tax has escaped
11. It may be noted that, law on the earlier provisions of reopening was to a great extent However, with the introduction of completely new provisions, lot of uncertainty is now created.

In the paper, I have tried to bring out the key differences and issues arising pursuant to introduction of new reassessment regime. It may be noted that as the topic for the paper is comparative analysis of the old v. new regime, I have restricted my analysis only of finding out the key differences. I have not analysed the new regime and issues arising under the new regime except wherever required for comparative analysis.

2. Comparison chart of erstwhile v. new regime (snapshot view)

Below table captures broad comparison of old v. new regime

*Particulars*	*Old regime*	*New regime*	*Para reference* *where the issue is* *dealt in detail*
Applicability date	Applicable for notice of reassessment issued on or before 31 March 2021	Applicable for notice of reassessment issued from 1 April 2021	Refer para 5
Relevant sections	ss. 147 to 153	ss. 147, 148, 148A, 148B, 149 and 151 (provisions of s. 150, 152 and 153 are unamended and will continue to apply as is)	–
Basis for reassessment	• TA has ‘reason to believe’ that income has escaped assessment	• TA should possess ‘information which suggests that income chargeable to tax has escaped assessment’	Refer para 3
Recording of reasons	• TA is required to record reasons for reopening before initiating the reassessment proceedings	• Technically, there is no requirement to record reasons separately. Order u/s 148A(d) of the Act itself will be treated as reasons.	Refer para 4
		• However, there may be internal requirement of recording reasons for seeking approval of higher authority at various stages of proceedings.
Procedure to be followed by TA before issuance of reassessment notice	• No formal provisions in the Act except that TA was required to issue notice to file ROI and record reasons for reopening. • However, SC in the case of GKN Driveshafts (Supra) has laid certain procedures viz a viz supply of information, disposal of objection by TA etc.	• Procedures are prescribed separately u/s 148A	Refer para 4
Time limit for issue of notice of reassessment	• 4 years – if escaped income is less than Rs. 1,00,000. • 6 years- if escaped income is more than Rs. 1,00,000 • 16 years – If escaped income is associated with any assets located outside India	• 3 years- if not covered below • 10 years – where quantum of escaped income is more than INR 50L and TA has in his possession books of accounts/ other documents /evidence which reveals that escaped income is represented in the form of assets/ expenditure/ entries in books.	Refer para 5
Prior approval from higher authority	• If reopening is for 4 years or less – JCIT • If reopening is for more than 4 years – PCCIT/ CCIT/ PCIT/ CIT	• If reopening is for 3 years or less – PCIT/ PDIT/ DIT • If reopening is for more than 3 years – PCCIT/ PDGIT (or in case where there is no PCCIT/ PDGIT, approval of CCIT/ DGIT) Above approval will be required at different stages as under- • For conducting pre – notice enquiry with respect to	–
		information in possession of TA which suggest that income has escaped assessment • While providing opportunity to taxpayer u/s 148A • Passing an order u/s 148A(d) • Before issuance of notice u/s 148
Is taxpayer required to furnish ROI in response to notice u/s 148?	Yes	Yes	–
Whether TA is required to provide the taxpayer reasons for reopening?	Yes. Taxpayer may demand reasons of reassessment from TA. The TA is duty bound to provide the copy of reason recorded within the reasonable time as per guidelines of Hon’ble SC. If such reasons are not demanded by the taxpayer, the TA can proceed to complete assessment.	Yes. TA is required to supply reasons as prescribed u/s 148A(b)	Refer para 4
Once reopening is validly made, can TA reassess items of income not indicated in reason so recorded by TA	Yes, but judicial conflict of view on whether reassessment will survive if no addition is made on primary issue identified for reassessment [explanation 3 to s. 147 of the erstwhile Act]	Yes. [explanation to s. 147 of the Act]	Refer para 6
Challenge of reopening notice or the order passed disposing the objections against the notice	Reopening notice u/s 148 was not made specifically an appealable order. Thus, writ before the HCs used to be filed against the notice/order. However, in case taxpayer fails to file writ, as a practice, taxpayer used to challenge the	Since order u/s 148A(d) is not an appealable order, only writ can be filed against such order. However, as per the previously followed practice, taxpayer may include as one of the ground in the appeal filed against the reassessment order.	Refer para 4
	notice by including as one of the ground in the appeal filed against the reassessment order.
Time limit for completion of reassessment	Within 12 months from end of the FY in which notice was served [s. 153(2) of the Act]	Same	–
Whether reassessment can be done where the taxpayer has disclosed all material necessary for the assessment u/s 143(3)?	• Proviso to s. 147 provided that no reassessment can be done beyond 4 years unless taxpayer fails to disclose fully and truly all material facts. • Proviso to s. 147 reads as under – “Providedthat where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section *after the expiry of four years* from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year” • Explanation 1 to s. 147 provided an exception to the above that mere production of books of accounts or other evidence from which	No such provision is there in the new regime. Thus, if the issue is highlighted under any of the limb of Explanation 1 to s. 148 then TA may reopen the case.	–
	material interference could have been drawn by the AO with due diligence will not necessarily amount to disclosure. • In respect of the above, following principles have been laid down by the courts o The onus on proving that the taxpayer has failed to disclose all material facts is on the tax authority⁴o The facts refer to only those facts within the knowledge of the taxpayer at the material time⁵ o Taxpayer has to only disclose the primary facts and he is not required to indicate what factual or legal interference should properly be drawn from the primary facts⁶ • Thus, reassessment was restricted under the old regime where the original assessment has been done u/s 143(3) and the taxpayer has disclosed all material necessary for the assessment.
Assessment in case of search, survey and seizure	• Under the erstwhile regime, search assessments were governed by separate scheme of provisions (s. 153A to s. 153D)	Where search, survey conducted after 01.04.2021, new regime provides for assessment/ reassessment under normal provisions of s/ 143(3)/147 of the Act. Operation of s. 153A to s. 153C are suspended.	Refer para 7
Maintenance of books of accounts	Before 01.04.2021, the taxpayers used maintain books for 7-8 years. Rule 6F Income-tax rules, 1962 also required to maintain the books for six years.	Now the taxpayer will be compelled to maintain the books and vouchers for ten years requiring him to incur expenditure on their maintenance and preservation.	–

3. Information required in possession with the TA to form the basis for valid reopening

Under the erstwhile regime, reassessment was permitted if TA had ‘reason to believe’ that income has escaped
1. The scope of the expression ‘reason to believe’ has always been a subject matter of litigation. Various courts⁷ have taken a position that
  - ‘change of opinion’ cannot be considered as valid reason to believe.
  - Subsequent judicial developments may be one of the reason for reopening
  - There should be some tangible material with the TA for exercising the power of reopening.
  - Further, the material should have ‘live link’ with the reason to believe that income has escaped assessment.
  - Reopening not permissible for roving and/or fishing inquiries
  - Reopening on the basis of assumption or surmise or conjectures was considered as bad-in-law.
  - Reopening cannot be made on mere suspicion, gossip or rumour.
Further, certain instances of deemed escapement was provided under explanation 2 to erstwhile 147 i.e.,
1. where no return of income has been furnished by the assessee although his total income exceeded the maximum amount which is not chargeable to income-tax;
2. where a return of income has been furnished but no assessment has been made and it is noticed by the TA that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
3. where the assessee has failed to furnish a report in respect of any international transaction u/s 92E;
4. where an assessment has been made, but—
  - income chargeable to tax has been underassessed ; or
  - such income has been assessed at too low a rate ; or
  - such income has been made the subject of excessive relief under the Act ; or
  - excessive loss or depreciation allowance or any other allowance has been computed;
  - reassessment basis information or document received from the prescribed income-tax authority u/s 133C(2)
5. where a person is found to have any asset (including financial interest in any entity) located outside India.
However, unlike reopening basis ‘reason to believe’ under the erstwhile regime, under new regime reopening is permissible if TA has information with him which suggest that income chargeable to tax has escaped assessment.
1. Perusal of the above would indicate that the concept of “reason to believe” has been given a complete go-bye and the entire emphasis for invoking section 147 of the Act is on “escapement of income”. Thus, as per the existing provisions, an TA has to prove beyond any shadow of doubt that there is “escapement of income”. Unless “escapement of income chargeable to tax” is proved, provisions of section 147 of the Act cannot be invoked.
2. Thus, now the burden is more on the revenue before issuance of notice u/s 148 of the Act to prove escapement of Income.
Further, the expression ‘information which suggest that income chargeable to tax has escaped assessment’ has now been defined in Explanation 1 to 148 in a restrictive manner to mean –
1. any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Central Board of Direct Taxes (CBDT) from time to time.
  - In this respect, CBDT has issued Instruction dated December 10, 2021 bearing no N0. 225/135/2021/TA-II
2. any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
  - It may be noted that underthe old regime, it was well settled that reassessment is not permitted merely on account of C&AG objections. This was on the ground that ‘reason to believe’ requires satisfaction of AO himself and not borrowed satisfaction from someone else⁸.
3. any information received under an agreement referred to in section 90 or section 90A of the Act; or
  - Information from leaks (such as Panama leaks etc.) may be considered as the same is received under 90/90A
  - Similarly, information from CbCR not being under section 90 or section 90A may not be covered
4. any information made available to the Assessing Officer under the scheme notified under section 135A; or
5. any information which requires action in consequence of the order of a Tribunal or a Court.
The phrase used in the first proviso i.e. information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment clearly indicates that the information is required to have live link with escapement of income. Further, mere listing in Explanation 1 may not suffice as such item shall carry with ‘income escaping assessment’ inherently in it.
Further, under the new scheme, there is no concept of deemed escapement as existed under Explanation 2 to S. 147 of the Act under the old scheme.

Deemed Escapement’ as defined in Explanation 2 to old 147 has the effect of presumption of escapement and since it was part of the old jurisdictional section, such presumption would confer jurisdiction on the TA. As against the same, Explanation 1 to S. 148 deals with specific information which suggests that an assessee has escaped assessment so reopening can be initiated if suggestive information can result into escapement of income.
Further, explanation 2 to 148 goes one step further and creates a deeming fiction in as much as whenever there is search/survey action, the existence of information suggestive of escapement of income would be presumed for all the years falling within the period of limitation. However, the same is not equal to deemed escapement. What is presumed by deeming fiction is availability of information suggestive of escapement of income for the entire period. But the same is not deemed escapement as existed under the old Act.

4. Procedure to be followed before proceeding with the reassessment

Under the erstwhile regime, there was no specific provision providing procedure to be followed by the TA for issuance of notice for reassessment except the following –
1. Before making any reassessment, the TA is required serve a notice to the taxpayer (after taking prior approval from specified authority) requiring him to file ROI [s. 148(1)].
2. Before issuing the above notice, the TA shall record his reasons for reopening.
3. Taxpayer is required to file ROI against the above notice.
Apart from the above, there were no other procedure prescribed under the However, certain procedures were laid down by the SC in its landmark judgement in the Case of GKN Driveshafts (India) Ltd. (Supra) which are as under-
1. When a notice u/s 148 is issued, taxpayer is required to file the ITR in response to such notice.
2. Taxpayer can seek the reasons recorded by the TA for reassessment after filing of ROI
3. On receipt of such request, TA is bound to furnish the reasons within a reasonable time
4. On receipt of such reasons, taxpayer may file objections
5. TA is required dispose off the taxpayer’s objections by passing a speaking order before proceeding for reassessment

It may be noted that there was no specific provision to file an appeal against the rejection order so passed by the TA. However, taxpayer may file writ petition against the same.

3. With the introduction of S. 148A of the Act, the law laid down by the SC in GKN Drive Shaft is more or less now legislated. The new provisions provide the following procedure to be followed by TA before issuing a notice for reassessment u/s 148.

Conduct any enquiry, if required, with prior sanction of the specified authority, with respect to the information suggesting escapement of income;
Provide the assessee an opportunity of being heard by serving a show cause notice (SCN) within such time (being not less than 7 days and not exceeding 30 days) as to why a notice under section 148 should not be issued on the basis of information suggesting escapement of chargeable income and results of enquiry conducted, if any;
SCN shall specifically indicate basis of information suggesting escapement of income and the result of inquiry (if conducted)
Consider the reply of assessee, if any, furnished and basis the material including reply of the assessee, decide whether a notice is to be issued by passing an order, with the prior approval of specified authority, within 1 month from the end of the month in which the reply referred to in received/ time allowed to furnish a reply expires⁹.

4. The above procedure can be summarised as under

Old law: Get a notice to file return, file a return, ask for reasons, get reasons, file objections and await order overruling objections
New law: Get a notice u/ 148A(b) along with reasons, respond to the same, get an order u/s 148A(d), get a notice u/s 148 and then file the return

5. The aforesaid procedure is not required to be followed in cases relating to search and seizure, or where books of account, other documents or any assets are requisitioned under section 132A, (i.e. situations where TA is deemed to have information suggesting escapement of assessment.).

It may be noted that this proviso does not cover survey cases and therefore 148A procedure needs to be followed in case of reopening as a result of survey.

5. Time limits for reopening

Under erstwhile regime, the notice of reassessment was required to be issued-
1. within 4 years from the end of the relevant AY, if the escaped income is less than 1,00,000.
2. If the income which is escaped is equal to or more than Rs. 1,00,000 then notice can be issued for up to 6 years from end of the relevant AY.
3. If escaped income is associated with any assets located outside India, then notice can be issued up to 16 years from the end of the relevant AY.
Now under the new regime, time limit to reopen is modified in a major way. Now reopening is permitted
1. generally for 3 years from end of the relevant AY; and
2. in exceptional cases, reopening can be made upto 10 years where TA has in his possession books of account or other documents or evidence which reveal that escaped assessment amount is INR 50 Lakh or more and the income chargeable to tax is represented in the form of
3. an asset; or
  - “Asset” is defined in an inclusive manner to include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account [Explanation to 149 provides].
  - There is no attached conditions with asset meaning thereby that if books of accounts or documents or other evidence show that there is outflow of escaped income in an asset, it will satisfy the There is no limit of amount of outflow, it can be in one year or it can be in several years in the same asset. Also, there is no restrictions as to the number of assets wherein there is outflow of escaped income in several years¹⁰.
  - expenditure in respect of a transaction or in relation to an event or occasion; or
  - For satisfying this condition, the AO has to only identify an expenditure either in a transaction or in an event or on an Such expenditure may be either in one or two or all the three, it can be one transaction or more than one transaction, it can be one event or more than one event, it can be one occasion or more than one occasion, it can be in one year or more than one year. So, the spectrum is very wide and accordingly the AO is empowered to carry out arithmetical exercise to make-up aggregation above Rs. 50 lakhs and then reopen the assessment for all the ten years. One cannot stop the AO to add up Rs. 10,000/- of any innocuous outflow in a transaction to make up the aggregate amount to Rs. 50 lakhs or more. One may not surprise that this small amount of Rs. 10,000 of alleged escaped income is found in year ten enabling the AO to reopen the assessment for year ten for that petty sum and this may be compulsive action as if this amount is excluded, the aggregate will fall below Rs. 50 lakhs and as a result reopening of all the other assessment years will fail¹¹.

an entry or entries in the books of account
- in the long line at the beginning of the provision, reference is made to books of accounts, documents or evidence, whereas in this clause only books of accounts are referred, therefore, for invoking this clause initial long line is qualified by the attachment with this clause i.e. such entry has to be only in the books of accounts. But here also spectrum is very wide i.e. whether it is entry for credit or for debit or is a journal entry, all will be covered. But the entries found in the documents or in other evidence will be outside the scope of this clause¹¹.

3. It may be noted that the 16 years time limit for reopening in cases of foreign assets has been deleted under the new regime and accordingly, reopening even in such cases shall be restricted to 10 years at the most. However, this is subject to Black money (undisclosed foreign income and assets) and imposition of tax Act, 2015.

4. Where the escaped income represented in the form of (i) an asset; or (ii) expenditure in respect of a transaction or in relation to an event or occasion; has been made/ incurred in more than 1 year then notice us/ 148 shall be issued for every such year.

5. While determining period of limitation for issuance of notice u/s 148 under the new regime, following period is required to be excluded

Time allowed to taxpayer to reply to SCN u/s 148A
Time period for which 148A proceedings are stayed by court order / injunction

6. Further, if the time left to pass an order u/s 148A(d) after above exclusion is less than 7 days, then such remaining period for passing an order is extended to 7 days and period of limitation u/s 149 shall be deemed extended till the end of 7 days.

7. Moreover, 1st proviso to s. 149 provides grandfathering benefit to past It provides that the years which have already become time barred under the old regime, cannot be reopened due to change in the law which provides extended limitation period of 10 years. The new provision grandfather issuance of notice for reopening of assessment till FY 20-21 This would imply that reassessment upto FY 2011-12 cannot be reopened as the 6 year time period under old law got expired on 31.03.2019. FY 2012-13 and 2013-14 also cannot be reopened as 6 year time period expired as on 31.03.2021, however, CBDT has granted general extension of time upto 30 April 2021 for issue of notice vide Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31 March 2020¹². Hence, the cases of these years can be reopened under the extended time period.

8. Following table captures comparative time limit available to TA for issue of notice under old and new [For simplicity, period considered for reopening under old regime is 6 years and under new regime is 3 years. The principle can be applied even for other years available under old and new regime]

AY	*Last date for issue of notice* *under old regime*	*Last date for issue of notice* *under new regime*	*Comments*
Upto AY 2012-13	31.03.2019	–	Time barred under old regime itself
2013-14	31.03.2020	–	• These years got time barred before the effective date of new regime. • However, on account of COVID -19, TA was given general extension of time upto 30 April 2021 by the Central Govt. through the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31 March 2020¹³. • The Delhi HC in the case of Touchstone Holdings Pvt. Ltd¹⁴ upheld the validity of notice for AY 2013- 14 which was issued post 01.04.2021. o In the present case, the Taxpayer contended that as per the new scheme of reassessment which is effective from 1 April 2021 a notice cannot be
2014-15	31.03.2021	–
			issued for reassessment of given AY on or after 1 April 2021 if the time period for issuance of notice under the old regime of reassessment has already expired on the date of issuance of such notice. o The tax authority, however, rejected the Taxpayer ’s contention citing the CBDT Instruction 1/2022 which was issued in the matter of implementation of said SC ruling in Ashish Agarwal’s case and passed an order together with notice of reassessment dated 20 July 2022 which was challenged by the Taxpayer before HC in Writ. o The HC held that since the reassessment proceedings were initiated during the time extended by the Relaxation Act and were undisputedly within time, the Grandfathering Provision is not attracted in the facts of this case
2015-16	31.03.2022	31.03.2019	• This is strange situation as reopening turns time barred under new regime on 01.04.2021 while it was very much alive as on 31.03.2021. • It seems that TA has forfeited its right to reopen the case • It is to be seen whether court can provide some reasonable time limit to TA after 31.03.2021 basis theory of vested right?¹⁵
2016-17	31.03.2023	31.03.2020
2017-18	31.03.2024	31.03.2021
2018-19 onwards	31.03.2025	31.03.2022	These years are alive as on the effective date of new regime. Hence, notice can be issued under the new regime.

5.9 Further, s. 149 under the old as well new regime prescribes time limits for issuance of notice u/s 148 of the Here the legislature uses the word ‘issued’ and not ‘served’. In this respect, following may be noted –

In interpreting the word ‘issued’ courts have held that notice can be said to have been issued when the same is given to independent agent for service. Gujarat High Court in the case of Kanubhai M. Patel HUF v. Hiren Bhatt16 has held that if notice is not given to post department for service before expiry of limitation period, the same is time barred.
In a recent decision, Delhi HC in the case of Suman Jeet Agarwal17 laid down the following principles with regard to point of time of issuance of notice:
- For reassessment proceedings to be valid, what is relevant is the issuance of notice within the limitation period. The date mentioned on the notice or the date on which the notice is served on the taxpayer is irrelevant.
- Reassessment notices need not be digitally signed for being valid, as long as the notice mentions the name, designation and the jurisdiction of the relevant tax authority issuing the notice.
- Nonetheless, in a case where the tax authority has opted for digitally signing the notice, the date on which the digital signature is affixed may be said to be the date of the notice (irrespective of the date which is mentioned on the said notice). In such case, it may be suggested that a notice cannot be issued prior to the date of digital signature.
- For valid issuance of notice, the tax authority must make an overt act to ensure due dispatch of notice to the It is only on due dispatch, that is beyond the control of the jurisdictional tax officer (JTA), can the notice be said to have been issued. Accordingly, neither the act of generation of the notice nor the date of affixing digital signature on the notice will signify issuance of notice.
- In case of electronic mode of sending notices, such notices may be said to be dispatched (and, therefore, issued) when the email leaves the last server of the ITBA system and enters a computer resource over which the tax authorities have no control.
- Separately, mere uploading of reassessment notices on the taxpayer’s e-filing account, in the absence of any dispatch through email, will not be considered as valid service of reassessment notice.

5.10 Validity of notices issued after 1 April 2021 under old regime

As stated above, the new regime of reassessment is made effective from 1 April Amongst other changes, the new regime of reassessment provides a separate mechanism to be followed by the tax authority before issuing the notice for reopening assessments and is materially different than the procedure laid down under the old regime of reassessment applicable till 31 March 2021.
Due to onset of the COVID-19 pandemic, the parliament had promulgated an ordinance¹⁸ in March 2020, which was succeeded by the Relaxation Act in September 2020 (w.e.f. March 2020) to relax various compliances under various laws, including the income tax law, both for taxpayers and the tax authority. Pursuant to the powers granted by the Relaxation Act, the central government has extended the period for issuance of reassessment notice till 30 June 2021 in respect of tax years which were getting time barred as on 31 March 2020 or 31 March 2021 as per the old regime.
The validity of notices issued after 1 April 2021 under the erstwhile reassessment regime pursuant to the time extended under the Relaxation Act, despite the introduction of the new regime, was questioned before various HCs.
The HCs generally ruled in favor of the taxpayers and quashed the reassessment notices issued from April to June 2021 for past tax year/s, which followed the old procedure of The HCs unanimously held that the old provisions of reassessment were substituted and repealed vide FA 2021 w.e.f. 1 April 2021 and, in the absence of any saving provisions, the same cannot be resurrected by the tax authority under the guise of the Relaxation Act and various notifications issued thereunder. One of the roles of the Relaxation Act (enacted due to the onset of the COVID-19 pandemic) was held to be limited to extend the time limit for initiation of proceedings as per the law.
Upon appeal, the SC¹⁹ has upheld the validity of reassessment notices issued between 1 April 2021 and 30 June 2021 following the old reassessment regime, by exercising its extraordinary power under Article 142 of the Constitution of India for complete According to the SC, its order will strike a balance between the rights of the taxpayer and the tax authority and will avoid detrimental consequences to the tax authority (and ultimately, the public exchequer) which acted under the bona fide belief that amendments to the reassessment regime were not effective on the date of issue of such notice in view of subsequent extensions provided by The Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (Relaxation Act) till 30 June 2021. The SC directed to treat notices so issued as show-cause notices issued under the pre-notice inquiry procedure enunciated under the new regime of reassessment, while preserving all rights and defenses available to taxpayers, including application of limitation period as per the new reassessment regime.
In terms of SC order, for the tax years covered by the Relaxation Act under reference, the Tax Authority was required to issue fresh notice for reassessment during tax year 2022-23 after completion of pre notice inquiry as directed by the Consequently, the period for passing of order of reassessment will stand extended till 31 March 2024 instead of 31 March 2023.

5.11 After the above ruling, CBDT has introduced Instruction²⁰ dated 11 May 2022 explaining tax authority’s understanding of the SC’s ruling in the case of Ashish Agarwal and the way forward in the matter of cases reopened The CBDT, amongst others, clarifies that for AY 2013-14 to 2015-16, notices for reassessment cannot be issued unless the conditions for invoking the extended time limit of 10 years from the end of the AY under the new regime of reassessment are satisfied. Similarly, for AY 2016-17 and 2017- 18, the fresh notices for reassessment can be issued considering the 4 year time limit from the end of the AY as per the new regime reassessment, read with the extensions granted under Relaxation Act.

6. Validity of items of additions in a reassessment without adding the very item which was the ground for reopening

The erstwhile 147 reads as under – “If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)
The pre-amended 147 of the Act was in two parts viz (a) reassessment of income which Tax Authority has ‘reason to believe’ that it has escaped assessment; ‘and’ (b) any other income which has escaped assessment and comes to Tax Authority’s notice in the course of reassessment.
Further, Explanation 3 was inserted by Finance (No. 2) Act 2009 which reads as under. “Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”
Prior to insertion of Explanation 3, there was conflict of views on TA’s ability to take up new issues in reassessment without recording reasons and issuing This aspect was settled by inserting Explanation 3. But another facet related to the controversy was if the TA does not make addition in respect of issues identified for initiating reassessment, whether he can still go ahead and make additions in respect of other issues coming to his notice in the course of reassessment. This limb of controversy survived even after insertion of Explanation 3.
Majority of the HCs²¹ have taken view that if the TA does not make addition on identified issue, he cannot make addition on new issues. The lead decision taking this view is the Bombay HC ruling in Jet Airways case. This view is primarily supported on the interpretation that the phrase “and also” separating first and second parts of s. 147 of the TA is conjunctive in Therefore, unless addition is made on identified issue, TA cannot make addition on new issue. The logic of favourable view has been extended to situations where the addition made on identified issue is deleted in appeal.
On the other hand, P&H²² and Karnataka HCs²³ have taken view against the taxpayer once the reassessment is validly initiated based on ‘reason to believe’ but Tax Authority does not make addition on identified issue, nevertheless, he is entitled to make additions on other issues. As per this view, the reassessment proceedings are for the benefit of Tax Department and the phrase “and also” is both conjunctive and disjunctive.
The new s. 147 post amendment by FA 2021 does not carry reference to second part ‘and also any other income chargeable to tax which has escaped assessment and comes to his notice subsequently in the course of proceedings under this section’. But old Explanation 3 to s. 147 of the TA is continued in the form of Explanation to new s. 147 of the TA.
As discussed above, the premise of favourable rulings was on the phrase “and also” as appearing in the old 147 is separating first and second parts of s. 147 and the phrase “and also” is conjunctive in nature. Once the second part of s. 147 is deleted, the foundation on which favourable rulings were rendered, is taken away. Thus, the safeguard of the favourable case laws that no addition can be made on additional issues unless addition is made on the primary issue seems to be taken away by omitting the second part from main s. 147 of the Act. Mere continuance of Exp 3 may not be sufficient for the taxpayer to rely on the favourable rulings.

7. Reassesment in case of search, seizure, requisition, survey.

Under erstwhile regime

Under the erstwhile regime, search assessments were governed by separate scheme of provisions (s. 153A to 153D)
If any search was conducted, the TA was required to issue notice of assessment/ reassessment for last 6 years in addition to the year of search
Notice can be issued for additional 4 years (making it to 10 years in all) if-
1. TA has in possession books of accounts or other document or evidence which reveal that the income (represented in the form of asset) which has escaped assessment is more than INR 50 lakh; and
2. Income covered above or part thereof has escaped assessment; and
3. Search was conducted on or after 1 April 2017
If during the course of search proceedings, any information in relation to some other taxpayer is also unearthed, TA is empowered to assess or reassess the income of such other person for last 6/10 years as the case may be [s. 153C].

Under new regime

Any assessment/ reassessment pursuant to search conducted on or before 31 March 2021 shall be continued to be governed by pre amendment provisions.
In case search initiated on or after 1 April 2021, new regime provides for assessment/ reassessment under normal provisions of the Act. Operation of 153A to s. 153C are suspended. In other words now assessment/ reassessment proceedings in relation search will be carried under normal provision of s. 143(3) / 147 of the Act.
The procedure discussed above in case of reassessment proceedings will also apply to in case of search/survey cases with some modification.
In case of search u/s 132, requisition u/s 132A, survey u/s 133A (other than TDS survey u/s 133(2A)) and third party search and requisition (falling under earlier provisions of 153C of the Act) taking place after 1 April 2021, explanation 2 to s. 148 provides deeming fiction as per which the above event itself will constitute information which suggests that the income chargeable to tax has escaped assessment.
Further, the procedure as prescribed u/s 148A is not required to be followed in cases relating to search, requisition and third-party search & requisition before issuance of reassessment notice [proviso to s. 148A]. In other words, there is no requirement on TA to make pre notice inquiry or give an opportunity to taxpayer to object to reopening basis evidence given etc. However, this proviso does not cover survey cases and therefore 148A procedure needs to be followed in case of reopening as a result of survey.
It may be noted that between 01.04.2021 to 03.2022, such deemed information under Explanation 2 to s. 148 was available only for a period of 3 years immediately preceding the assessment year relevant to the previous year in which search is initiated. However, after 01.04.2022, the presumption as regards deemed information is not restricted to 3 years. It could be for as long as 10 years. What is worse is the fact that search cases are excluded from the purview of S.148A of the Act and therefore even for the years covered u/s 149(1)(b) (i.e. 4 to 10 year), where reopening is subject to fulfilment of certain conditions, there would be automatic reopening without any order u/s 148A(d). So, technically the taxpayer would not even know the reason for reopening for these years.
It may further be noted that explanation 2 does not dilute the requirement for there being a nexus of such search with escapement of Mere search, without any indication of escapement of income may not suffice to trigger reassessment.

8. Principles of Merger after deletion of 3rd proviso to old s.147

3rd Proviso to old 147 of the Act provided for exclusion of matters which are subject matters of any appeal, reference or revision from the purview of reassessment
3rd Proviso to old 147 reads as under- “Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.”
It is well accepted principle that the order of higher authority gets merged with lower authorities order such that it is the order of the higher authority that holds the filed and continues to subsist. However, the issue was whether entire assessment order stands merged with the order of superior authority (full merger) or only portion of the order which was subject matter of challenge before such superior authority (partial merger).
The language of above 3rd proviso takes a position of partial merger²⁴e. issues which are not subject matter of challenge can be taken up for reassessment.
There is no similar provision under the new Thus, under the new regime the issue will arise whether the assessments which are subject matter of appeal/revision can be taken up for reassessment.
While presence of specific provision along the lines of 3rd proviso to erstwhile s. 147 would have avoided the controversy, but absence of provision would not mean that TA has power to reassess issues which subject matter of challenge.
Based on the logical conclusion, position may be taken that the law followed under the erstwhile regime (partial merger) may be applied to the new regime as well e. issues which are not subject matter of challenge can be taken up for reassessment. When an issue is challenged in appeal or by way of revision, the original order merges into the order of the appellate or revisionary authority upon passing of the order by respective authority and hence beyond the scope of reopening by TA.

9. Penalty under new regime for reassessment

Under the erstwhile regime, taxpayer was not aware of ‘reasons’ for reopening until it filed ITR against the notice u/s 148.
However, under the new regime, the reasons are provided prior to filing of ROI in the notice issued u/s 148.
In case where taxpayer include the alleged income in the ROI filed in repose to notice under new 148, issue may arise whether mere inclusion of income in ROI, penalty u/s 270A is defensible?
Per the 270A(2), under reporting of income covers a case where the income reassessed is greater than the income assessed or reassessed immediately before such reassessment. The amount of under reported income shall be the difference between the amount of income reassessed or recomputed and the amount of income assessed, reassessed or recomputed in a preceding order.
However, taxpayer may claim the benefit of s. 270A(6) where bona fide explanation is provided to the satisfaction of TA and all material facts have been suitably disclosed. This is on the assumption that the case of taxpayer does not fall within the scope of mis-reporting of income as defined u/s 270A(8)/(9) of the Act.
Further, in case of wilful attempt for evasion of tax, risk of prosecution u/s 276C cannot be ruled However, immunity u/s 270AA for penalty and prosecution may be available also in case of reassessment order u/s 147 provided the case is not of mis-reporting of income.

10. Faceless assessment of income escaping assessment.

151A of the Act provides that entire process of reassessment including proceedings u/s 148A and issuance of notice u/s 148 and the entire reassessment proceedings shall be carried out in faceless manner. CBDT has issued Notification No.18/2022 dated 29.03.22 which prescribes scheme for reassessment.
As per clause (b) of section 3 of the said notification, issuance of notice under section 148 of the Act shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee. Thus, notice under section 148 of the Act has to be issued by the “National Faceless Assessment centre” Such notice cannot be issued by “jurisdictional AO”. Many cases have come to light where such notices have been issued by the “jurisdictional AO” who did not have jurisdiction to issue such notice and therefore, validity of such notices would be questioned.

Abbreviations

*Abbreviation*	*Full name*
The Act	Income-tax Act, 1961
TA	Tax Authorities
ITR	Income tax return
AY	Assessment Year
FY	Financial Year
HC	High Court
SC	Supreme Court
CBDT	Central Board of Direct Taxes
AO	Assessing officer
SCN	Show Cause Notice
FA	Finance Act
w.e.f.	with effect from

Bibliography

Kanga and Palkhivala’s The Law and Practice of Income Tax, 11th edition
Sampath Iyengar’s Law of Income Tax
Taxmann and Taxsutra for case law search
CA firms tax alerts on reassessment related amendments
Articles

https://www.mondaq.com/india/income- tax/1035508/income-escaping-assessment- a-revamped-law-on-reassessment- proceedings
https://TAtonline.org/digest/articles/ clause-by-clause-analysis-of-provisions- of-reassessment-under-the-income-tax- act-1961/
https://www.taxmann.com/budget/ budget-story/349/whether-proposal-in- finance-bill-2022-for-reassessment-are- retrograde

(Source: The Padma Vibhushan N. A. Palkhivala Memorial National Moot Court (Virtual) Competition and research paper writing Competition, 2022 was held on November 24 to 27, 2022 CA Istiyak Ahmad won Second Prize in the research paper writing competition for Professional)

CIT v. Sun Engg Works 198 ITR 297 (SC); Sudhakar v. ITO 241 ITR 865
Illustratively refer Phoolchand v. ITO 196 ITR 302; Pancharatna Cement P. Ltd. v. UOI 317 ITR 259; Siemens Information System Ltd v. ACIT 295 ITR 333; CIT v. Eicher Ltd 294 ITR 310; Transworld International Inc. v. JCIT 273 ITR 242; ICICI Prudential Life Insurance Co. Ltd. v. ACIT 325 ITR 471;
(2002) 125 Taxman 963
Illustratively refer, Tantia Construction Co Ltd [2002] 129 taxman 971 (Calcutta)
Illustratively refer, Canara Sales Corpn. Ltd (1989) 176 ITR 340 (Kar)
Refer Calcutta Discount Co. Ltd (1961) 41 ITR 191 (SC)
Refer illustratively Gujrat HC decision in Desai Bros. (240 ITR 121); SC decision in Barium Chemicals Ltd. v. Company Law Board AIR 1967 SC 295; CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC); Krupesh Ghanshyambhai Thakkar v. DCIT 77 taxmann.com 293 (Guj); MP Inds v. ITO 57 ITR 637 (SC), on final appeal 77 ITR 268 (SC); Chhugamal v. Chaliha 79 ITR 603 (SC); Bhimraj v. CIT 32 ITR 289, affirmed in 41 ITR 221 (SC); Kantamani v. ITO 64 ITR 516.
Refer Mobis India Ltd. (2018) 90 taxmann.com 389 (Mad HC); PCIT v. Lalit Bagai (2019) 111 taxmann.com 71 (Del HC); CIT v. Rajan A. Aswani (2018) 403 ITR 0030 (Bom HC)
It may be noted that there is no safeguard how the AO will frame the order u/s 148A(d). He has to simply decide, every order u/s 148A(d) will be a decision against which there is no appeal.
https://www.taxmann.com/budget/budget-story/349/whether-proposal-in-finance-bill-2022-for-reassessment-areretrograde
https://www.taxmann.com/budget/budget-story/349/whether-proposal-in-finance-bill-2022-for-reassessment-areretrograde
Ordinance was succeeded by the Relaxation Act in September 2020 (w.e.f. March 2020)
Ordinance was succeeded by the Relaxation Act in September 2020 (w.e.f. March 2020)
WPC 13102/2022, [TS-726-HC-2022(DEL)] dated 9 September 2022
Refer Sadhu Singh Hamdard Trust (2013) 263 CTR 77 (P&H HC)
334 ITR 25
[TS-752-HC-2022(DEL)]
The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31 March 2020
Union of India & Others v. Ashish Agarwal – Civil Appeal No. 3005/2022
Instruction No 01/2022
Illustratively refer Commissioner of Income-tax v. Jet Airways Ltd. (2011) 331 ITR 236 (Bom HC); Ranbaxy Laboratories Ltd. v. Commissioner of Income tax [2011] 336 ITR 136 (Delhi HC); Commissioner of Income tax-II v. Mohmed Juned Dadani [2014] 355 ITR 172 (Gujarat HC); Assistant Commissioner of Income-tax, Raipur v. Major Deepak Mehta [2012] 24 taxmann.com 147 (Chhattisgarh HC)
Majinder Singh Kang v. CIT (2012)(344 ITR 358)(SLP dismissed by SC on 19 August 2011); Commissioner of Income tax v. Mehak Finvest (P.) Ltd. [2014] 367 ITR 769 (Punjab & Haryana HC)
N. Govindraju v. ITO (2015)(377 ITR 243)
Refer Bom HC ruling in Sakseria Cotton Mills Ltd 124 ITR 570

Sukhsagar Syal, Advocate

Background
1. Justice Khanna had the following to remark¹ on what the connotations of reopening a concluded assessment are “We have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” Similarly, it was held in ITO v. Lakhmani Mewal Das² that reopening a concluded assessment is a ‘serious matter’ and should not be resorted to unless the prescribed conditions are fulfilled.
2. The underlying principle in both the judgements is that finality of an assessment is the norm, and reopening it constitutes an exception, and one which must not be lightly resorted to. As the provisions are extraordinary in nature, they must be strictly construed3. Therefore, the language of the section, its scope and more importantly, the restrictions to be imposed while invoking these provisions calls for a thorough analysis.
A brief history-
1. The provisions relating to reassessment are codified in sections 147 to 152 of the Income-tax Act, 1961 (‘the Act’). Although susceptible to frequent amendments, these provisions have seen three major phases, each marked with transformative changes.
2. The provisions as originally introduced in the Income-tax Act, 1961 permitted Assessing Officers to reopen assessments in only two situations. The Assessing Officers either had to have a reason to believe that any income chargeable to tax had escaped assessment on account of a failure on the part of the assessees to disclose truly and fully all material facts or the Assessing Officers had to have such a reason to believe in consequence of ‘information’ received after the original assessment.
3. The provisions then underwent drastic amendments by the Direct Tax Laws (Amendment Act), 1989. The resultant provisions inter alia gave a go-by to the concept of ‘information’ and placed the defense of the Assessing Officer having to show an assessee’s ‘failure to disclose’ if he wished to reopen an assessment after a period of four years from the end of the relevant assessment year in the proviso. These provisions, in substance, stood largely in the same manner for more than two decades. During this period, the law on reassessments was judicially sculpted and streamlined. One crucial judgement was that of the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO4, wherein a new procedure for how reassessments were to be done was put in place. The procedure so prescribed required the assessees to file a return of income in response to the notice issued under section 148 of the Act; to then ask the Assessing Officer for a copy of the reasons recorded by him prior to the issuance of the notice; the assessees would then be eligible to file their objections to the reasons; and the Assessing Officers were expected to dispose of such objections before proceeding with the actual assessment.
4. A plethora of amendments which were ushered in by the Finance Act, 2021 and then some ‘corrective’ amendments by the Finance Act, 2022 marked the beginning of the last of the three phases of the provisions. The breadth of these amendments and their departure from the provisions in the two earlier phases is the subject matter of this research paper.
Amendments by the Finance Act, 2021 and 2022-The transition-
1. The transition of the provisions to how they stand today was anything but smooth. In March, 2020, almost an year before the amendments were made by the Finance Act, 2021, the country washit by the COVID-19 pandemic that saw nationwide lockdowns. Understandably, tax compliances could not be made either by the assessees or by the Assessing Officers. This led to the promulgation of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘the Relaxation Act’) whereby certain limitations and due dates were relaxed and the Central Government was empowered to continue to grant such relaxations by way of notifications after taking stock of the prevailing circumstances.
2. Such extensions continued to come well into the second half of 2021, by which time the Finance Act, 2021 had also been promulgated and had brought about a sea change in the provisions dealing with reassessments. These amendments, per the Finance Act, 2021, were to take effect from 1st April, 2021. The Department took the view that in view of the extensions carried out pursuant to the Relaxation Act, the provisions of the erstwhile regime continue to stay in vogue till 30th June, 2021 (i.e., till the last of the extensions). On the other hand, it was argued by the assessees, that all notices issued under section 148 of the Act after 1st April, 2021 had to have been issued in terms of the law, as it stood, after the amendments by the Finance Act, 2021. This disharmony saw an unprecedent litigation as to the correctness of the 90,000 notices issued by the Department in the period beginning from 1st April, 2021 and ending on 30th June, 2021. Finally, the Supreme Court, in the case of UOI v. Ashish Agarwal5 brought the issue to rest by holding that although, in law, the notices should have been issued in terms of the amended A comparative analysis of the old reassessment regime vis-à-vis the new reassessment regime provisions, nevertheless, a one-time concession could be granted to the Department by holding that the notices issued under section 148 of the Act in this period should be deemed to be notices issued under section 148A(b) of the Act.Intention behind the amendments-
3. Looked at broadly, the amendments seek to achieve two broad objectives. Firstly, in view of the increasing use of automation in collecting and disseminating information in carrying out income- tax assessments, even the reassessment provisions are sought to be made information-driven, which can be sourced in line with certain pre-defined criteria. Secondly, having regard to the large scale litigation which ensued as a result of following the procedure prescribed in GKN (supra), the law, now seeks to modify that procedure and pre-pone it to a stage, prior to the issuance of the notice under section 148 of the Act. The aforesaid twin objectives are brought out in the Memorandum explaining the provisions of the Finance Bill, 2021 as well as in the judgement of the Hon’ble Supreme Court in the case of Ashish Agarwal (supra).Fate of the provisions/principles of the erstwhile sections-
4. With the above background, the nature of these amendments can now be considered. The provisions as they stood prior to the Finance Act, 2021 (‘the erstwhile regime’) had certain key elements. Some of these have been retained in the Act as it stands today (‘the new regime’) and some have been omitted. The following analysis contains a discussion on these key elements.I. Reason to believe (erstwhile section 147) –
5. As per section 147 of the erstwhile regime, an assessment could be reopened by an Assessing Officer only if he had a ‘reason to believe’ that any income chargeable to tax had escaped assessment. The import of the expression ‘reason to believe’ was understood in two ways. Firstly, it was held in Lakhmani Mewal Das (supra) and followed in a series of judgements thereafter, that this expression is used in contradistinction to the expression ‘reasons to suspect’ so as to suggest that an assessment cannot be reopened on the basis of a surmise and that the Assessing Officer issuing a notice must at least reach a prima facie conclusion that some income chargeable to tax has escaped assessment. Secondly, it was held in ACIT v. Rajesh Jhaveri Stock Brokers6 that at the stage of issue of the notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage.
6. This expression has not been used in the new regime. Such an omission could be interpreted in two ways. It could be argued by the assessees that since these words did not require the Assessing Officer to establish escapement of income at the stage of issuance of notice, the absence thereof, must be meant to now cast an obligation on the Assessing Officers to establish, as a matter of fact, that some income chargeable to tax has escaped assessment. On the other hand, the Department could argue that the absence of this expression in the new regime would suggest that an Assessing Officer need not even show a prima facie escapement of income at the stage of issuance of notice and that such escapement may only be established in the course of the assessment. In the opinion of the author, the former view seems more reasonable. In view of the fact that the Assessing Officers are now empowered to carry out an exhaustive enquiry under section 148A (the details whereof will be discussed in the ensuing paragraphs), should come with a responsibility that at the end of such enquiry, the Assessing Officers would be in a position to conclude whether or not any income has escaped assessment, and not defer such conclusion to the very end of assessment.II. Failure to disclose truly and fully all material facts (first proviso to erstwhile section 147)-
7. Under the erstwhile regime, where an assessment was reopened beyond a period of four years from the end of the relevant assessment year, an assessee would be entitled to call upon the Assessing Officer to demonstrate as to what was the failure of disclosure on the part of such assessee before the Assessing Officer could reopen its assessment. This defense has now been done away with in the new regime.
8. It is interesting to note, that of all the arguments available to the assessee under the old regime, this was the only argument which hinged on the conduct of the assessee itself, as opposed to other arguments which hinged on the conduct of the Assessing Officer. With the new regime now dropping this proviso, the intention is made clear that the manner in which the assessee participates in an assessment will not be determinative of whether or not an Assessing Officer will be entitled to reopen a concluded assessment.III. Change of opinion (erstwhile section 147)-
9. While interpreting the erstwhile section 147 of the Act, the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India7 held that the concept of ‘change of opinion’ must be considered as an in- built test to check abuse of power by the Assessing Officer, failing which Assessing Officers would be reviewing their assessments, in the garb of reopening, something which they cannot do. In the opinion of the author, the defense of alleging change of opinion is still very much available to the assessees. This is for the reason that at the foundation of this concept, as propounded by the Hon’ble Supreme Court, was the use of the word ‘reassess’, as opposed to ‘review’ in the erstwhile section 147. Since the amended section 147 continues to use the word ‘reassess’, there is no good reason to hold that such defense can no longer be pressed into service.
10. In fact, while dealing with a case of reassessment under the new regime, the Hon’ble Delhi High Court in the case of Ernst and Young LLP v. ACIT8 has held that the defense of change of opinion was not available to the Petitioner as the original assessment in that case was completed with the issuance of an intimation under section 143(1) of the Act. A reasonable inference that can be drawn from the above would be that the defense of change of opinion would be available even under the new regime, provided the original assessment is completed under section 143(3) of the Act. The Hon’ble Supreme Court has also dismissed the SLP9 against the High Court’s judgement.
11. In another case10 dealing with reassessment under the new regime, the Delhi High Court held that the since the issue, which was the subject matter of reassessment was examined in the course of the original proceedings, the same amounted to a case of change of opinion. However, interestingly, the Court remanded the matter back to the file of the Assessing Officer to proceed afresh. In the humble opinion of the author, such an approach perhaps needs reconsideration. Once the Court had come to the conclusion that it was a case of change of opinion, it ought to have either held that the test of change of opinion is not relevant under the new regime and dismissed the writ petition, or it should have held that the test is relevant and quashed the proceedings. Remanding the issue to the Assessing Officer’s file, perhaps, did not serve any purpose.IV. Tangible material (erstwhile section 147)-
12. Another test propounded in the case of Kelvinator (supra) in the context of the erstwhile section 147 was that of ‘tangible material’, which is closely connected with the concept of change of opinion. It has been held in a series of judgements that the existence of ‘tangible material’ is a pre-requisite to reopening a concluded assessment. In the opinion of the author, this defense also continues to survive in the new regime since its genesis is in the concept of change of opinion.
13. In fact, while dealing with reassessment under the new regime, the Courts11 seem to concur that the test is still relevant.V. Principle of merger (third proviso to the erstwhile section 147 of the Act)-
14. Under the erstwhile regime, an Assessing Officer was precluded from reopening an assessment on an issue which was the subject matter of any appeal, reference or revision. The new regime has not retained the same. However, in the opinion of the author, an assessee may still be entitled to argue that if a higher authority, appellate or revisional, is seized of an issue, then applying the general principle of merger/ judicial discipline, an Assessing Officer may not be competent to comment upon/ assess the same.VI.Cases of deemed escapement (Explanation 2 to erstwhile section 147)-
15. In a major departure from the erstwhile regime, the Legislature has chosen to not retain Explanation 2 to erstwhile section 147, which set out a series of cases in which it would be deemed that income chargeable to tax had escaped assessment. Again, this could be looked at in two ways. It could be argued by the assessees that cases of deemed escapement did not represent escapement in the real sense, so an Explanation had to be brought in and in the absence of such Explanation, it must be presumed that such deemed escapement cases are no longer within the purview of the reassessment regime. On the other hand, it could be argued by the Department that the Explanation was only clarificatory in nature and its absence does not take away from the power of the substantive provision to bring such cases within its fold. In the opinion of the author, the second view seems more reasonable because the erstwhile Explanation also covered those cases of escapement which clearly fall within the contours of the substantive provision. For instance, clause a) of the Explanation provided that where an assessment was made but income chargeable had been under assessed or excessive loss, depreciation or other allowance had been claimed, it would be deemed to be a case of income chargeable to tax having escaped assessment. Similarly, clause b) provided that where a return of income had been furnished by the assessee but no assessment was made and it was noticed by the Assessing Officer that the assessee had understated the income or had claimed excessive loss, deduction, allowance or relief in the return, it would be deemed to be a case of income chargeable to tax having escaped assessment. Other clauses had the same tenor. It would not be unreasonable to say that in the absence of the aforesaid clauses, cases involving such circumstances would in any event have been covered under section 147. Therefore, the absence of the Explanation in the amended section 147 cannot be taken to mean that such cases are now outside the realm of reassessment.VII. Discovery of new issues in the course of the reassessment (Explanation 3 to erstwhile section 147)-
16. The erstwhile section 147, read with Explanation 3 thereto, permitted the Assessing Officer to ‘also’ assess any income chargeable to tax which came to his notice in the course of the assessment, notwithstanding the fact that the recorded reasons did not allude to the same. Under the new regime, an Explanation to a similar effect can be found in section 147. However, it differs from the earlier provision in one significant manner inasmuch as the words ‘and also’ in the erstwhile section 147 are not to be found in the amended section. These words, in the erstwhile section 147, were interpreted by several High Courts12 to mean that if the Assessing Officer accepts the contention of the assessee that the income which he had initially believed to had escaped assessment has, in fact, not escaped assessment, it is not open to him to independently assess another source of income. The absence of these words is suggestive of the fact, that under the new regime, an Assessing Officer’s assessment of a new source of income is completely independent of his assessment of the income which formed the subject matter of the initial show cause notice issued under section 148A(b) of the Act.VIII. No reassessment to carry out enquiries (erstwhile section 147)-
17. Dealing with reopening under the erstwhile regime, the Courts13 have held that reassessment proceedings cannot be initiated to carry out fishing and roving enquiries. In the author’s opinion, the position under the new regime remains the same. The Assessing Officer must first ascertain for himself whether any income chargeable to tax has escaped assessment, and only then can he proceed with the reassessment. The contrary, i.e., initiating reassessment proceedings with the intent of carrying out enquiry with the hope of discovering an escaped assessment should not be permissible. The Hon’ble Rajasthan High Court14 has held to the same effect.
18. However, the Delhi High Court in the case of Divya Capital One P. Ltd. v. ACIT15 has held that reopening can be done for carrying out verification, however, before doing so, a preliminary enquiry under clause (a) of section 148A must first be done.IX. Independent satisfaction of the Assessing Office (erstwhile section 147)-
19. In the context of the erstwhile section 147 of the Act, Courts16 have held that the material which leads to reopening an assessment may come to the Assessing Officer form any source, but it is the Assessing Officer who is required to form an independent belief that any income chargeable to tax has escaped assessment. He cannot reopen an assessment at the diktat of another authority, as the same would amount to a borrowed satisfaction, something which is not permissible under the reassessment regime.
20. In the opinion of the author, this principle will continue to hold the field even under the new regime of reassessment. Although, section 148 of the new regime defines what is information for the purpose of reassessment, and that information may come from the prescribed sources, however, the Assessing Officer having regard to such information must carry out the necessary enquiries before forming an independent belief that any income chargeable to tax has escaped assessment. The information, without independent satisfaction of the Assessing Officer, cannot ipso facto lead to a valid reassessment.The new provisions-
21. Having examined the elements of reassessment under the erstwhile regime and their possible fate under the new regime, it may be apposite to now consider the elements which have been introduced under the new regime.I. Preliminary enquiry under 148A(a)-
22. As discussed hereinabove, the new regime seeks to codify the procedure set out in GKN (supra) inasmuch as the Assessing Officer is now expected to carry out a pre-notice enquiry before determining whether the case is fit for the issuance of a notice under section 148 of the Act. The first step in such pre-notice enquiry is that provided under clause (a) of section 148A of the Act. Under this clause, the Assessing Officer, having regard to the information which suggests that the income chargeable to tax has escaped assessment, conducts an independent enquiry without issuing a notice to the assessee. The provision, however, does not mandate the Assessing Officer to carry out such preliminary enquiry and the decision is left to his discretion.II. Granting the assessee an opportunity of being heard-
23. Having carried out an independent preliminary enquiry the Assessing Officer is required to provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment. The assessee, in response thereto, under clause (c) of section 148A is entitled to oppose the initiation of the proceedings and submit as to why a notice under section 148 of the Act should not be issued. With the introduction of these provisions, the legal position17 under the erstwhile regime that no opportunity of being heard is required to be given at the time of issuance of the 148 notice has been done away with.III. Passing of an order under section 148A(d)-
24. The Assessing Officer, has to then decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order to the above effect. This order, if passed against the assessee, becomes a precursor to the issuance of the notice under section 148 of the Act and the validity or otherwise of the Assessing Officer ’s jurisdiction to carry out reassessment would stand and fall on the basis of the validity of this order, as it is the last step in the proceedings before issuance of the notice under section 148 of the Act.
25. An interesting question which arises is whether, while passing the order under this clause, is the Assessing Officer restricted to dealing only with the assessee’s rebuttal to his initial show cause notice issued under clause (b) or can he allege in the order, something which was not the subject matter of the initial notice. In this regard, the Calcutta High Court18 has held that the Assessing Officer’s powers while passing an order under section 148A(d) are circumscribed to the extent of his allegations in the initial show cause notice. He does not have jurisdiction, at this stage, to venture into any issue, which was not the subject matter of the initial notice. Similar is the finding of the Rajasthan High Court19 which holds that as the order has to be passed on the basis of the ‘material available on record’, a fetter has been put on the powers of the Assessing Officer from referring to anything but the material on record, which would comprise only of the initial notice and the assessee’s response thereto.
26. Experience would show that the Assessing Officers often argue that at the stage of passing a 148A(d) order, they need not comment upon the escapement of income as at this stage the only question to be decided is whether or not a 148 notice is to be issued. In the opinion of the author, this stand of the Assessing Officers is misaligned with the scheme of section 148A. It is submitted that at every stage of the proceeding, right from the enquiry under 148A(a) to the passing of the assessment order under section 147 read with section 143(3), regard has to be had to the escapement of income chargeable to tax. Under clause (a) of section 148A, an Assessing Officer conducts enquiry with respect to the information which suggests that the income chargeable to tax has escaped assessment. Under clause (b), the Assessing Officer provides an opportunity of being heard to the assessee as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment. After considering the assessee’s reply, the Assessing Officer passes an order under clause (d) to decide on the basis of material available on record whether or not it is a fit case to issue notice under section 148 and then the assessment is completed bringing such income to tax. The Assessing Officers’ assertion that they need not have regard to escapement of income at the stage of section 148A, would reduce these proceedings to an empty ritual. This sentiment has also been echoed by the Rajasthan High Court in the case of Abdul Majeed (supra).
27. It is also important to note that the aforesaid procedure set out in section 148A of the Act is mandatory in nature, as evidenced from the usage of the word ‘shall’. In the opinion of the author, not following the same should vitiate the proceedings and not be considered a curable defect. In order to bolster this argument, one may draw support from the judgements of various High Courts20, which, in the context of the erstwhile regime, had held that not following the GKN (supra) procedure would be fatal to the assessment.Exceptions to 148A proceedings-
28. The proviso to section 148A has carved out two categories of cases, where the proceedings under section 148A will not have to be carried out, and a notice under section 148 can be issued, subject to the satisfaction of other conditions.IV. Information to suggest (section 148)-
29. Perhaps, one of the most significant facets of the new regime is the revival of the concept of ‘information’ as it stood in section 147 of the Act, prior to its amendment by Direct Tax Laws (Amendment Act), 1989. Having said so, it is important to note that the context in which ‘information’ was used in the first phase of section 147 and the context in which it is used in the present regime are entirely different. In the first regime, the provisions did not contain any definition of the word ‘information’. The only requirement was that it must come after the completion of the original assessment. On the hand, the new regime, gives a precise definition of the word and does not specify as to at what stage should such information emerge. The components of the definition of the word ‘information’ are discussed hereunder-
30. The definition contemplates five categories of ‘information’.
  1. Information in accordance with the risk management strategy for the relevant assessment year formulated by the Board from time to time- The precise outline of what would constitute a risk management strategy (‘RMS’) is yet to be made available by the Board. However, the fact that there would be different RMS for each year, and that the same would be formulated from time to time gives a touch of dynamism to the provision. Having said so, this also gives unregulated and unbridled powers to the Board to prescribe by itself, without any legislative control, as to what information is, and basis such prescription, assessments can be reopened. Perhaps, the constitutional validity of this provision would, at some stage, have to tested before the High Court.The limited guidance on the contours of RMS comes from Instruction No. 225/135/2021/ ITA-II dated 10th December, 2021, wherein it was stated that for effective implementation of risk management strategy, the Assessing Officers would identify the following categories of information pertaining to Assessment Year 2015- 16 and Assessment Year 2018-19, which may require action under section 148 of the Act, for uploading on the Verification Report Upload (VRU) functionality on Insight portal- Information from any other Government Agency/Law Enforcement Agency; Information arising out of Internal Audit objection, which requires action u/s 148 of the Act; Information received from any Income-tax Authority including the assessing officer himself or herself; Information arising out of search or survey action; Information arising out of FT&TR references; Information arising out of any order of court, appellate order, order of NCLT and/or order u/s 263/264 of the Act, having impact on income in the assessee’s case or in the case of any other assessee; Cases involving addition in any assessment year on a recurring issue of law or fact.
  2. Audit objection- In complete repugnancy to the erstwhile regime, wherein the Supreme Court in the case of Indian and Eastern Newspaper Society vs. CIT21 had held that an audit objection cannot form the basis of reassessment, the new regime, explicitly provides to the contrary. Therefore, under the new regime, any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act would constitute information for the purpose of reassessment.
  3. Information received under an agreement referred to in section 90 or section 90A of the Act- This category would cover information received under both, Tax Information Exchange Agreements (TIEAs) as well as the information received under the Article dealing with ‘Exchange of Information’ under a Double Taxation Avoidance Agreement (‘DTAA’). It may be worthwhile to note that the scope of exchange of information under these agreements is quite wide. A typical agreement would permit the competent authorities of the Contracting States to exchange any information, which is foreseeably relevant for carrying out the provisions of either the agreement or for the administration or enforcement of the domestic laws concerned taxes of every kind and description.
  4. Information made available to the Assessing Officer under the scheme notified under section 135A of the Act- Section 135A of the Act empowered the Central Government to make a scheme for the purpose of calling for information from various sources in a faceless manner. Such scheme, titled ‘e-verification scheme, 2021’ was notified vide notification no. 137/2021 dated 13th December, 2021 which permits gathering of information in a faceless manner by taking recourse to sections 133, 133B, 133C, 134 and 135 and to corroborate it with the information received from certain other reporting agencies. In case there is a mismatch, the information can be used to initiate reassessment proceedings.
  5. Information which requires action in consequence of the order of a Tribunal or a Court- The last category of information is that which would require action in consequence of an order passed by a Tribunal or a Court. Some possible instances which could attract this limb are if the Tribunal or a Court in the appeal for a particular assessee gives a direction for the income to be assessed in the hands of another assessee, or where in an appeal arising out of a particular assessment year, it gives a direction for the income to be assessed in a different assessment year.
31. A very crucial aspect, which is often lost sight of by the Assessing Officers is that the existence of information, by itself, is not sufficient for issuing a notice under section 148A(b). In the proviso to section 148, the word ‘information’ is qualified by the words ‘which suggests that the income chargeable to tax has escaped assessment’. In the opinion of the author, given the scheme of section 148A, the proper course of action to be adopted by the Assessing Officers on receipt of information would be to apply their mind and conduct enquiry under clause (a) to determine whether the information is suggestive of escapement. If the answer is in the affirmative, only then should a notice under clause (b) be issued. However, one would see in practice, that notice under clause (b) is issued immediately upon receipt of information, completely disregarding the requirement of establishing a nexus of some degree with the escapement of any income. In this light, the Delhi High Court22 has held that “whether it is “information to suggest” under amended law or “reason to believe” under erstwhile law the benchmark of “escapement of income chargeable to tax” still remains the primary condition to be satisfied before invoking powers under section 147 of the Act.”General principles of ‘information’-
32. While Explanation 1 to section 148 defines ‘information’, there is sufficient obscurity in the definition which has necessitated the Courts to set out the parameters in line with which the definition has to be considered. The Hon’ble Delhi23 and Calcutta High Court24 have held that the definition of information in Explanation 1 cannot be lightly resorted to so as to reopen an assessment. If so done, it would give unbridled powers to the Department.
33. Further, the Hon’ble Orissa High Court25 has adopted the meaning of the word ‘information’ from the judgement of the Hon’ble Supreme Court in the case of Larsen & Toubro Limited v. State of Jharkhand26 for the purpose of Explanation 1. In the aforesaid judgement, the Hon’ble Supreme Court had held that the word ‘information’ is of the widest amplitude and should not be construed narrowly. Therefore, there is an apparent dichotomy between the Delhi and Calcutta High Court on the one hand, and the Orissa High Court on the other.
34. Although, in the context of section 147, as it originally stood in the 1961 Act, the Hon’ble Supreme Court in Lakhmani Mewal Das (supra) has held that ‘information’ cannot be wholly vague, indefinite, far-fetched or remote. These parameters, in the opinion of the author, would apply with equal force while construing the definition of ‘information’ under Explanation 1.Cases of deemed information-
35. Explanation 2 to section 148 carves out certain exceptional circumstances, wherein reassessment can be done without having ‘information’ as defined in Explanation 1. Such exceptions can be put in two categories- a) where a search under section 132 or a survey under section 133A is initiated in the case of an assessee on or after 1st April, 2021 or b) where in the course of a search on any other person on or after 1st April, 2021, the Assessing Officer is satisfied that any money, bullion, jewelry or other valuable article or thing or any books of account or documents, seized or requisition pertain to or relate to the assessee.Assessments pursuant to search subsumed in reassessments-
36. A very crucial aspect of the new regime is the unification of assessments pursuant to a search under section 132 of the Act with reassessment under sections 147 to 152 of the Act. To ensure such merger, a spate of amendments was made by the Finance Act, 2021. Firstly, sections 153A and 153C were amended to provide that nothing contained therein will apply in a case where a search is initiated on or after 31st March, 2021 (‘the cut off date’). Secondly, as mentioned hereinabove, in a case where search is initiated on or after the cut-off date, the Assessing Officer would be deemed to have ‘information’ for the purposes of section 148 of the Act. Thirdly, second proviso to section 148A carves out cases of search after the cut-off date from having to go through the procedure of pre-notice enquiry prescribed under section 148A of the Act. Finally, the second proviso to section 149 states that the provisions of that section will not apply in a case where a notice under section 153A or 153C is required to be issued in relation to a search initiated before the cut-off date. A combined effect of all these amendments is that the assessments pursuant to a search initiated after the cut-off date has to be done in terms of sections 147 to 152 of the Act. Additionally, two relaxations have also been provided to such search cases inasmuch as they do not require ‘information’ and the procedure under section 148A does not have to be followed.
37. The rationale for the above merger as borne out from the Memorandum explaining the provisions of the Finance Bill, 2021 is that the procedural issues in the provisions of sections 153A/153C were resulting in a lot of litigation. However, it is interesting to note that the Finance Act, 2021 has done more than just move the search assessments from sections 153A/153C to sections 147 to 152. A series of substantive changes have also been made in the process. Unlike the assessments under sections 153A/153C which recognised the concept of abated (pending) and unabated assessments, no such distinction is drawn in the new regime, which would mean that the defense of the existence of ‘incriminating material’ is also sought to be legislatively derecognized. The second major difference is that unlike assessments under sections 153A/153C which mandated the assessment of 6 years, extendable to 10 years in specified circumstances, there is no such compulsion in the new regime. Under the new regime, it is for the Assessing Officer to decide which assessment years are to be reopened pursuant to a search. Furthermore, Explanation 2 to section 148 which deems the existence of ‘information’ in search cases does not say that the search should result in the discovery of any income that has escaped assessment. In terms of the said explanation, the very factum of search is deemed to be ‘information which suggests that income chargeable to tax has escaped assessment’. Therefore, wider powers are sought to be conferred on the Assessing Officers carrying out assessments pursuant to a search under the new regime.VI. Changes in limitation under section 149-
38. The standard limitation under the erstwhile 149 of the Act was 4 years from the end of the relevant assessment year, which could be extended to 6 years if the income escaping assessment was more than Rs. 1 lac, and further extendable to 16 years where the income was in relation to an asset located outside India. As opposed to the quantitative test of limitation in the earlier regime, the new regime has an amalgam of quantitative and qualitative tests. The standard limitation is reduced to 3 years from the end of the relevant assessment year, which is extendable to 10 years in case the income that has escaped assessment is more than Rs. 50 lacs and the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax is represented in the form of i) an asset, ii) expenditure in respect of a transaction or in relation to an event or occasion, or iii) an entry or entries in the books of account. Section 149, as amended by the Finance Act, 2021 only covered representation in the form of an asset, the other two categories were inserted only by the Finance Act, 2022.
39. In order to appreciate the import of the extended period of limitation provided in section 149(1)(b), it may be appropriate to consider the legislative history of the provision. Section 149(1) (b) as amended by the Finance Act, 2021 used the same language as the fourth proviso to section 153A which extended the limitation from 6 years to 10 years in search cases. The said fourth proviso was introduced by the Finance Act, 2017. While introducing the proviso, late Mr. Arun Jaitley, the then Finance Minister explained the rationale behind the proviso in his budget speech, wherein he stated that he proposed to omit section 197(C) of the Finance Act, 2016 which provided for assessment of undisclosed income relating to any period prior to commencement of the Income Declaration Scheme, 2016. However, in search cases, it was proposed to provide that in case tangible evidence is found during the search, the Assessing Officer can assess income upto ten years preceding the year in which search took place. The same rationale was echoed in Circular no. 2 of 2018, which contains the Board’s explanatory notes to the provisions of the Finance Act, 2017 and the Memorandum explaining the provisions of the Finance Bill, 2017 wherein it was stated that where tangible evidence(s) are found during a search or seizure operation (including 132A cases) and the same is represented in the form of undisclosed investment in any asset, assessment under section 153A can be made. It can be gleaned from aforesaid legislative history, that extension of limitation to ten years as well representation in the form of an asset, the two elements of the fourth proviso to section 153A which are also present in section 149 are meant to cover only those cases where certain undisclosed income is discovered. It is trite law that amending provisions may be considered in the light of the previous history of the legislation. Justice Cardozo in Duparquet Co. v. Evans27 said that in questions relating to construction, “history is a teacher that is not to be ignored”. In a similar vein, Chief Judge Learned Hand said that “statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning”28. [Quoted with approval in ACIT v. Ahmedabad Urban Development Authority (2022) (143 taxmann.com 278)]
40. There is also a transitionary provision, i.e., the first proviso to section 149 which states that for the A.Y. 2021-22 and earlier years (‘the earlier assessment years’), if a notice under sections 148 or 153A or 153C could not have been issued in terms of the provisions of the respective sections as they stood prior to the amendments, then a notice can also not be issued in terms of the amended law. This recognizes the taxpayer ’s vested right of finality of assessment, which was hitherto recognised only in judgements. In this regard, it was held in KM Sharma v. ITO29 and SS Gadgil v. Lal & Co.30 that when limitation is extended by an amendment, the amended provision will not apply to those cases where the limitation under the erstwhile provision had come to an end. In view of the above legal position, the limitation for the earlier assessment years will be determined in this manner. If the conditions of the amended section 149(1)(b) (which extends the limitation to ten years) are not met, then the limitation would be three years under section 149(1)(a) and the proviso will not apply. On the other hand, if the conditions of section 149(1)(b) are met, then the proviso will spring into action and put a ceiling of six years (i.e., limitation under the erstwhile 149) as opposed to ten years provided in 149(1)(b). In fact, when the erstwhile section 149 was amended by the Finance Act, 2012 to extend the limitation of 6 years to 16 years where escapement of income was related to assets located outside India, it was clarified by way of an Explanation that the amended provisions providing for an extended period of limitation will also apply to assessment years beginning on or before 1st April, 2012, which is principally contrary to what the first proviso now provides.
41. By way of the third and fourth proviso, the section also provides that while computing the limitation under section 149, the time granted to the assessee under clause (b) of section 148A and the period during which the proceedings under section 148A were stayed by a Court are to be excluded and if after such exclusion, the period available to an Assessing Officer to issue a 148 notice is less than 7 days, the limitation would be extended to seven days.
42. Sub-section (1A) provides that for the purposes of section 149(1)(b), where the investement in asset or expenditure in relation to an event or occasion of more than Rs. 50 lacs is spread over more than 1 previous year within the period prescribed under section 149(1)(b), then the 148 notice is to be issued for each of those years.
43. The new regime retains as it is section 150 of the erstwhile regime which gives a go by to limitation under section 149 in cases where a notice under section 148 is to be issued in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act by way of appeal, reference or revision or by a Court in any proceeding under any other law.VII. Sanction of the prescribed authority-
44. Under the erstwhile section 151, where a notice was issued within a period of four years from the end of the relevant assessment year, sanction of Joint Commissioner of Income-tax was required to be obtained and if it was to be issued after the end of four years, sanction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner of Income-tax was required to be obtained.
45. Under the new regime, where a notice is to be issued within a period of three years from the end of the relevant assessment year, sanction of Principal Commissioner or Principal Director or Commissioner or Director is required to be obtained and where a notice is to be issued after a period of three years, sanction of Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General is required to be obtained.
Parting comments-

While the new regime is certainly well intentioned, but given the fact that the principles under the erstwhile regime had become well settled and that the new regime puts in place an entirely new procedure, it is only natural to expect that it would lead to even more litigation, in its formative years at the very least.
The Hon’ble Supreme Court in the case of Ashish Agarwal (supra) lauded the new regime and observed that the same is ‘a game changer’ with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation. Only time will tell how far will this statement hold good.(Source: The Padma Vibhushan N. A. Palkhivala Memorial National Moot Court (Virtual) Competition and research paper writing Competition, 2022 was held on November 24 to 27, 2022 Sukhsagar Syal, Advocate won First Prize in the research paper writing competition for Professional)

1. Parashuram Pottery Works Co. v. ITO (1977) (106 ITR 1
2. (1976) (103 ITR 437) (SC)
3. New Kaiser I Hind Spg. v. CIT (1977) (107 ITR 760) (Bom)
4. (2003) (259 ITR 19)
5. (2022) (444 ITR 1)
6. (2007) (291 ITR 500) (SC)

(2010) (320 ITR 561)
(2022) (WPC 11862/2022)
SLA no. 17235/2022
Seema Gupta v. ITO (2022) (140 taxmann.com 463) (Del)
Ernst and Young LLP (supra), Abdul Majeed Son of Shri Ali Mohammed v. ITO (2022) (140 taxmann.com 485) (Raj)
CIT v. Jet Airways (I) Ltd. (2011) (331 ITR 236) (Bom), Ranbaxy Laboratories Ltd. v. CIT (2011) (336 ITR 136) (Del)
Vipin Khanna v. CIT (2000 (7) TMI 2 (P&H)), Amrinder Singh Dhiman v. ITO (2003 (9)(TMI 19)
Abdul Majeed (supra)
(2022) (445 ITR 436)
Aroni Commercials Ltd. v. DCIT (2014) (362 ITR 403) (Bom), PCIT v. Shodiman Investments P. Ltd. (2020) (422 ITR 337) (Bom)
CIT v. Mahaliram Ramjidas (1940) (8 ITR 442) (PC)
Excel Commodity and Derivative Pvt. Ltd. v. UOI (2022) (APOT 132/22)
Abdul Majeed (supra)
Bayer Material Science P. Ltd. v. DCIT (2016) (382 ITR 333) (Bom), KSS Petron Pvt. Ltd. v. ACIT (2016) (ITA 224/14), Fomento Resorts & Hotels Ltd. v. ACIT (2019) (TA no. 63 of 2007)
(1979) (119 ITR 996)
Divya Capital One (supra)
Divya Capital One (supra)
Excel Commodity (supra)
Stewart Science College v. ITO (2022) (143 taxmann.com 80) (Orissa) and Auroglobal Comtrade Pvt. Ltd. v. The Chairman, CBDT (2022) (143 taxmann.com 120) (Orissa)
(2017) 13 SCC 780
(297 U.S. 216 (1936)) 105
Cabell v. Markham (1945) 148 F 2d 737106
(2002) (254 ITR 772)
(1964) (53 ITR 231)

K.K. Singla, Advocate

Legislative History

Summary assessment was introduced through Income Tax Act 1961 w.e.f. 01/04/1962 with the insertion of Section 143(1) which read as under:-

143(1) Assessment:-

Where a return has been made under section 139 and the Income Tax Officer is satisfied without requiring the presence of the assesse or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assesse, and shall determine the sum payable by him or refundable to him on the basis of such return.

This provision corresponds to section 23(1) of the 1922 Act.

As it evident from wording of the section the ITO was not empowered to make any adjustments even for apparent errors rather he was to determine the tax payable or refundable to the assesse on the basis of such return.

Section 143(1) was amended by the Taxation Laws (Amendment) Act 1970 w.e.f. 01/04/1970 with a view to authorize the officer to make adjustments to income or loss declared in the return. The adjustments could be by way of:-

Rectifying any arithmetical errors in the return and the accounts and documents, if any, accompanying it;
Allowing any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents is, prima facie, admissible though not claimed in the return; and
Disallowing any deduction, allowance or relief claimed in the return but which, on the basis of the information available in such return, accounts and documents, is prima facie, inadmissible.

This section was subsequently amended from time to time as per following Acts:-

Finance Act 1974, Finance Act 1976, Finance (No 2) Act 1980, Finance Act 1987, The Direct Tax Laws (Amendment) Act 1987, The Direct Tax Laws (Amendment) Act 1989, The Direct Tax Laws (Second Amendment) Act 1989, Finance Act 1990, Finance Act 1992,

Finance Act 1993, Finance Act 1994,

Finance Act 1997, Finance Act 1999,

Finance Act 2001, Finance Act 2008,

Finance Act 2012, Finance Act 2016,

Finance Act 2021.

Finally as section 143(1) to 143(1D) which relate to summary assessment and processing of returns stands as on today is reproduced as under:-

Assessment.

143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return

shall be processed in the following manner, namely:—

the total income or loss shall be computed after making the following adjustments, namely:—
1. any arithmetical error in the return;
2. an incorrect claim, if such incorrect claim is apparent from any information in the return;
3. disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section of section 139;
4. disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;
5. disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or
6. addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:
  
  Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:
  
  Provided further that the response received from the assessee, if any,
  
  shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:
  
  Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;
the tax, interest and fee, if any, shall be computed on the basis of the total income computed under clause (a);
the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax, interest and fee, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under section 89, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax, interest or fee;
an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and
the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax, interest or fee is payable by, or no refund is due to, him:

Provided further that no intimation under this sub-section shall be sent after the expiry of [nine months] from the end of the financial year in which the return is made.

Explanation.—For the purposes of this sub-section,—
1. “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,—
  1. of an item, which is inconsistent with another entry of the same or some other item in such return;
  2. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or
  3. in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;
2. the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).
(1A) For the purposes of processing of returns under sub-section (1), the Board may make a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required under the said sub- section.

(1B) Save as otherwise expressly provided, for the purpose of giving effect to the scheme made under sub-section (1A), the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, 2012.

(1C) Every notification issued under sub- section (1B), along with the scheme made under sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament.

(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2):

Provided that the provisions of this sub- section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017.

The returns are processed according to the Central Processing of Return Scheme, 2011, vide Notification No. S 016(E) Dt. 04/01/2012, as per the scheme the following points are worth consideration:-

Rule 13. Service of notice or communication.
1. The service of a notice or order or any other communication by the Centre may be made by
  1. sending it by post;
  2. delivering or transmitting its copy thereof, electronically to the person sent by the Centre’s e-mail;
  3. placing its copy in the registered electronic account of the person on the official website ; or
  4. any of the modes mentioned in sub- section (1) of section 282 of the Act.
2. The date of posting of any such communication on official website, email or other electronic medium shall be deemed to be the date of service.
3. The intimation, orders and notices shall be computer generated and need not carry physical signature of the person signing it.

Rule 6. Invalid or defective return.

The Commissioner may declare-
1. a return invalid for non- compliance of procedure for using any software not validated and approved by the Director General.
2. a return defective under sub- section (9) of section 139 of the Act on account of incomplete or inconsistent information in the return or in the schedules or for any other reason.
In case of a defective return, the Centre shall intimate this to the person through email or by placing a suitable communication on the e-filing website.
A person may comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.
The Commissioner may, in order to avoid hardship to the person, condone the delay in uploading of rectified return.
In case no response is received from the person in reply to the notice of defective return, the Commissioner may declare a return as not having been uploaded at all or process the return on the basis of information available.

Rule 9. Rectification of mistake.

With a view to rectifying any mistake apparent from the record under section 154 of the Act, the Centre, on its own or on receiving an application from the person may amend any order or intimation passed or sent by it under the provisions of the Act.
An application for rectification shall be filed electronically to the Centre in the format prescribed and will be processed in the same manner as a return of income-tax.
Where the rectification order results in a demand of tax, the order under section 154 of the Act passed by the Centre shall be deemed to be a notice of demand under section 156 of the Income-tax Act.
In case of error in processing due to an error in data entry or a software error or otherwise, resulting in excess refund being computed or reduction in demand of tax, the same will be corrected on its own by the Centre by passing a rectification order and the excess amount shall be recovered as per the provisions of the Act.
Where a rectification has the effect of enhancing an assessment or reducing the refund or otherwise increasing the liability of the person, intimation to this effect shall be sent to the person electronically by the Centre and the reply of the person has to be furnished through electronic mode only.

Rule 10. Adjustment against outstanding tax demand.

The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer.

Further a notification No. SO 17(E) Dt.04/01/2012 was also issued regarding application of provisions of act relating to processing of returns.

Practical problems faced by the tax payer’s and Tax Professionals and resolution thereof:-
1. Issue of Notice/Communication
  
  The service of notice or communication to the assesse sometimes remains unnoticed. If the communication is made by way of placing its copy in the registered electronic account of the person on the official website (ITBA), the same is most likely to go unnoticed because it is not possible for the assesse to login the account on daily basis and sometimes the Email Id is not updated on the portal. The problem can be resolved if the communication is made in more than one modes i.e. through email/SMS etc.
2. Adjustments to the returned income
  
  Sometimes the adjustments are made for the lack of evidence in support of the claim of any deduction/allowance or exempt income. It appears that CPC is not empowered to make such adjustments and the adjustments are not within the scope of section 143(1)(a). CBDT had been issuing instructions from time to time. In a recent case of Anita Sethi VS DCIT, CPC Banguluru decided on 18/04/2022 (ITA No. 109/Kol/2022 A/Y 2017-18). It was held that AO has wrongly assumed jurisdiction under the Act and no adjustment could be made.
3. Response filed by assesse ignored
  
  Most of the times the response filed by the assesse is not considered. CBDT has been issuing circulars from time to time regarding procedure to be followed at the time of processing of the returns. In this regard Circular No. 1/2018 Dt. 10/01/2018 is relevant, wherein the Board has instructed that based upon response of the taxpayer and the information so available with the CPC-ITR. Such return shall be taken up for processing by CPC as per provisions of section 143(1). 143(1) read with instruction No. 9 and 10/2017 of CBDT.
4. Same income cannot be taxed twice
  
  Income declared under one head of income is again taxed under another head of income by way of adjustment U/S 143(1)(a). This is done in spite of the proper response filed by the assesse in response to notice U/S 143(1)
  
  (a). It is trite law that same income cannot be taxed under different heads or in the hands of two different persons. It was so held by Honorable ITAT Chandigarh Bench A in the case of Haryana Financial Corporation v. Deptt. of Income Tax Dt. 25/07/2014 in ITA No. 353,411&412.
5. Brought forward losses
  
  Certain cases have come to notice where carried forward losses in the previous return filed U/S 139(1) have been either not adjusted or were disallowed without giving any notice for making the adjustment. This is again the case of exceeding the jurisdiction by CPC and such mistakes should be avoided at end of CPC
6. Defective Return
  
  Rule 6 of the Centralized Processing of return Scheme 2011 provides that the return can be declared defective U/s 139(9) of the Act on account of incomplete or inconsistent information in the return or in the schedules or by any other reason. The assesse is required to comply with the notice regarding defective return by uploading the rectified return within the period of time mentioned in the notice.
7. Updation on the portal

Sometimes the assesse receives certain information/notice through SMS and Email id but the information is not updated on the portal for months together. In this regard Grievances raised with the Web Manger or e filing website are not responded.

Portal updation should be prompt and simultaneously.

Conclusion

From the discussion in the foregoing paragraphs of this article it can be inferred that filing of return of income tax is very technical process and the return should be filed by a qualified person very carefully, keeping in view the following points:-

The information in the return should be complete in respect of all the declared sources of income and the schedules relating thereto should also be filled up properly. The attachments wherever required should be made.
Before preparing the return the information available on the portal relating to the assesse should be thoroughly checked and considered. In case of any inconsistency with the facts of the case in form 26AS, AIS and TIS, a proper feedback should be furnished on the portal.
In case of any wrong adjustment in the intimation order, an appeal or rectification should be filed within the permissible time. In my view an appeal should be preferred.
In case the notice U/s 143(1)(a) is based on any improper or wrong information in the Audit report then we should obtain a revised audit report after correction and should be approved before submitting the response to the notice.
In case the assesse is in receipt of any notice proposing to declare the return defective U/S 139(9), the response should be submitted after removing the defect depending upon the facts and circumstances of each case.
As per third proviso to Section 143(1)

(a) no adjustment/addition of income can be made on the basis of Form 26AS or Form 16A

or Form 16 in relation to a return furnished for the Assessment year commencing on or after the 1st day of April 2018.
It is also worth noting that no intimation under this sub section can be sent after the expiry of nine months from the end of the financial year in which the return is made.

DISCLAIMER

While every care has been taken in the preparation of this article to ensure its accuracy. The author will not be responsible for any error despite all precautions may be found herein. The contents of this article are purely for information purpose.

(Source : Article published in Souvenir released at National Convention 2022 held at Jaipur on 17th & 18th December, 2022)

CA. Rajesh Mehta

Who is liable to deduct TDS u/s 194R ?Any person being Individual/HUF/Company/ Firm/LLP etc. providing any benefit or perquisite whether convertible into money or not, is liable w.e.f. 1-7-2022 to deduct TDS U/s 194R @ 10% on the value or aggregate value of such benefit or perquisite.Any individual or HUF whose turnover or gross receipts in business in the immediately preceding previous year was not more than Rs. 1 crore or in case of professional whose gross receipts in profession were not exceeding Rs. 50 Lakh will not be liable to deduct tax U/s 194R.
From whom to deduct TDS U/s 194R ?TDS U/s 194R is to be deducted from any resident on any benefit or perquisite arising in business or profession of such resident.
Whether any person providing any benefit or perquisite to an end user/ultimate consumer is liable to deduct TDS U/s 194R ?No, if such benefit or perquisite has not arisen in the business or profession of such end user. Say for example any consumer purchases one Refrigerator for personal purposes, from an electronic shop for Rs. 2.90 Lakh and also given one refrigerator worth of Rs.21000 free of cost to the said end user /consumer, or provided one Goa tour worth of Rs. 21000/- as free of cost to such end user then such benefit or perquisite is not liable to TDS U/s 194R, because such benefit or perquisite has not arisen in business or profession of such end user.
Was TDS deductible prior to amendment of Finance Act 2022, if any benefit in kind is provided?Prior to introduction of Sec. 194R there was no provision to deduct TDS on benefit provided in kind. Because all other TDS provisions states the words, “any sum payable”, “any sum of money”, “responsible for paying”, “responsible for paying any sum”, i.e. TDS provision applies in most of the cases if any sum is payable, any money is payable and not for kind.In a movie, “Billu Barber” produced by Shah Rukh Khan, there were special appearances of Heroines Kareena Kapoor, Priyanka Chopra and Deepika Padukone for songs, the Ld. AO during the course of assessment of Red Chiilies Entertainment observed that major item of gift amounting to Rs. 45 lakh was given to two actors for participating in some song sequences in the movie. Hence made disallowance U/s 40(a) (ia) for violation of 194J for not deducting TDS on providing gifts in kind. Subsequently in the appeal ITAT Mumbai in the said case of Red Chillies Entertainment P. Ltd. V. ACIT vide ITA No. 1577/Mum/2013 dt. 31-5-2016 AY 09-10 allowed in favour of the assessee stating that, “The expression “any sum” used in section 194J, whether should mean payment made in money terms or also in kind requires to be examined. It is the contention of the assessee that “any sum” as referred to in section 194J, would only relate to payment made in money term. It is observed, in case of Shri H.H. Sri Rama Verma v. CIT [1990] 187 ITR 308 (SC), the Hon’ble Supreme Court while referring to the expression “any sum paid” used in section 80G, held that “any sum” referred to in the provision would only mean cash amount of money”.
Therefore earlier any gifts in kind were not covered under TDS provisions therefore now Section 194R will attract, if any gifts in kind are given if other conditions of Section 194R are applicable.
If any manufacturing company sells its products to distributors and also provides free gifts to further pass on to end user/ consumer then is it liable to TDS U/s 194R ?Yes. Even if the distributor is acting like conduit in providing such benefit or perquisite to end user/consumer, but as per CBDT guideline vide circular No. 12/2022 dated 16-6-2022 issued in this regard it is not required to check whether benefit is taxable or not in the hands of recipient. Say for example a Car manufacturing company is selling 300 cars to distributor at a cost of Rs. 23 Lakh per car and also providing seat cover free of cost for each car (each seat cover having value of Rs. 22000), such seat cover are to be passed on free of cost to end user/ consumer, the said manufacturer is required to deduct TDS u/s 194R on aggregate value of such seat covers.However the said issue of circular seems not in accordance with act, because Section 4 states that TDS can be done only on income chargeable to tax.
Section 4(2) of the income tax act states that,

“(2) In respect of income chargeable under sub- section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act”.

Section 4(2) of the act as above states that the TDS is to be deducted on income chargeable U/s 4(1). Therefore any amount which is not an income in the hands of recipient, it may not be subject to TDS. But now until the circular 12/2022 is supplemented by suitable amendment, the TDS has to be done on this value deeming it as benefit.

If 3 cars would have been given free of cost on sale of 300 cars to the distributor then it will not be subjected to TDS U/s 194R because it is covered in the exact example given in Question No. 4 of the circular No. 12/2022.
In the above example whether the car distributor can claim value of these free seat covers as an allowable expenses, as and when passed on free of cost to the end users/consumers ?Yes. To claim it as an expenditure the said distributor will have to maintain a detailed working with proof that such seat covers have been distributed/given to the end users/ consumers and the distributor has not charged any money from any consumer for such free seat covers.
If a company gives New year diaries and calendar and pen set or gift items given to dealer for further distribution to retailers or end users etc. whether liable for TDS U/s 194R?Yes, it will be subject to TDS by the company because the company has given benefits in kind even if these are not to be retained by the distributor or retailer because finally to be given to end consumer, due to the fact that the circular 12/2022 has specified that the person providing is not required to check whether person receiving the gift etc. is, his income or not, will be subject to TDS, until any further clarification comes from CBDT.
Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?In this regard circular No. 12/2022 states that, “No. The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient under clause (iv) of section 28 of the Act. The amount could be taxable under any other section like section 41(1) etc. Section 194R of the Act casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @10%. There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable.”As per the guideline the scope of TDS U/s 194R has also been extended to Section 41(1) etc.
However it seems from the memorandum explaining the provisions of the Finance Bill the intention was not so.

Which can be inferred from the fact that while presenting the budget,2022 Honorable Finance Minister in her budget speech stated that, “Rationalizing TDS Provisions:- It has been noticed that as a business promotion strategy, there is a tendency on businesses to pass on benefits to their agents. Such benefits are taxable in the hands of the agents. In order to track such transactions, I propose to provide for tax deduction by the person giving benefits, if the aggregate value of such benefits exceeds Rs. 20,000 during the financial year.”

Honorable FM has stated that benefits are passed on to agents and it is taxable in hands of agents, to track these TDS is provided. It means such benefits are not through banking channel nor through book entries nor through credit notes, therefore there may remain chances of not recording in books of agents, therefore TDS is being provided. Further here in the above para the word used is, “aggregate value of such benefit”, i.e. benefit is to be converted into value, if the scope was to cover cash benefits also then the word, “aggregate amount or aggregate value of such benefit”, would have been used here.

Further the same can be inferred from the memorandum to Finance Bill,2022:- “TDS on benefit or perquisite of a business or profession

As per clause (iv) of section 28 of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite.

However, in many cases, such recipient does not report the receipt of benefits in their return of income, leading to furnishing of incorrect particulars of income.
1. Accordingly, in order to widen and deepen the tax base, it is proposed to insert a new section 194R to the Act to provide that the person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from carrying out of a business or exercising of a profession by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite.For the purpose of this section, the expression ‘person responsible for providing’ has been proposed to mean a person providing such benefit or perquisite or in case of a company, the company itself including the principal officer thereof.
  1. Further, in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit of perquisite shall, before releasing the benefit or perquisite, ensure that tax has been paid in respect of the benefit or perquisite.
  2. No tax is to be deducted if the value or aggregate value of the benefit or perquisite paid or likely to be paid to a resident does not exceed twenty thousand rupees during the financial year.
  3. Further, the provisions of the said section shall not apply to an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided.
2. This amendment will take effect from 1st July, 2022.[Clause 58].”In the first para above reference has been made for Section 28(iv) only, nothing else. From the above paras of the memorandum the words used are, “value or aggregate value”, “person providing such benefit or perquisite”, “person responsible for providing such benefit or perquisite”, etc. from the phrases it is clear that nowhere in above phrases the word or words, “amount or aggregate of amounts”, or “person responsible for paying”, or “person paying such benefit or perquisite” have been used.
  It seems that wrongly in the para 2.2 of the memorandum as above the word, “paid or likely to be paid” was used, because benefit or perquisite is not “paid”, it is “provided”, therefore it has been correctly removed in the Finance Bill and the Finance Act, under Second proviso to Sec. 194R(1).,
  
  Section 194R(1) : Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:
  
  As per second proviso to Section 194R(1) of the act, “Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed twenty thousand rupees:”
If any cash discount or sales discount is given to customer whether it is liable to TDS U/s 194R ?As per Q. 4 of guideline circular No. 12/2022,“Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite? Answer: Sales discounts, cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of the customer is also reduced. Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/ perquisite, tax is required to be deducted. However, it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty it is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.”
In the said answer CBDT has further stated that, “There could be another situation, where a seller is selling its items from its stock in trade to a buyer. The seller offers two items free with purchase of 10 items. In substance, the seller is actually selling 12 items at a price of 10 items. Let us assume that the price of each item is Rs 12. In this case, the selling price for the seller would be Rs 120 for 12 items. For buyer, he has purchased 12 items at a price of 10. Just like seller, the purchase price for the buyer is Rs 120 for 12 items and he is expected to record so in his books. In such a situation, again there could be difficulty in applying section 194R provision. Hence, to remove difficulty it is clarified that on the above facts no tax is required to be deducted under section 194R of the Act.

It is clarified that situation is different when free samples are given and the above relaxation would not apply to a situation of free samples.

Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale.

To illustrate, the following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act (the list is not exhaustive):
- When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc.
- When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets
- When a person provides free ticket for an event
- When a person gives medicine samples free to medical practitioners. The above examples are only illustrative. The relaxation provided from non-deduction of tax for sales discount and rebate is only on those items and should not be extended to others”.
From the above it can be inferred that any items given free out of the stock in trade alongwith item sold out of stock in trade, is not liable to TDS i.e. if any item has been in the nature of expenses and has been claimed as an expenditure in the profit and loss account by the person providing the benefit then it will

be liable for TDS because it is not treated as purchases and not sold i.e. given without tax invoice and not out of and alongwith stock in trade.
CBDT guideline Question 7: Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/ perquisite? CBDT guideline Answer: Any expenditure which is the liability of a person carrying out business or profession, if met by the other person – “X”, is in effect benefit/perquisite provided by the second person-“X”, to the first person in the course of business/profession.If the invoice is not in the name of “X” and the payment is made by “X” directly or reimbursed, it is the benefit/perquisite provided by “X” to the consultant for which deduction is required to be made under section 194R of the Act.
As clarified by CBDT additional guideline vide circular No. 18/2022 dated 13-9-2022 in the case of “pure agent”, if the GST input credit is allowed to the recipient and it is not considered as supply of the pure agent, it is clarified that amount incurred by such “pure agent” for which he is reimbursed by the recipient would not be treated as benefit/perquisite for the purpose of section 194R of the Act.
CBDT circular Q. No. 8 :- If there is a dealer conference to educate the dealers about the products of the company – Is it benefit/ perquisite?CBDT guideline Answer: The expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite for the purposes of section 194R of the Act in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects: (i) new product being launched (ii) discussion as to how the product is better than others (iii) obtaining orders from dealers/customers (iv) teaching sales techniques to dealers/customers addressing queries of the dealers/customers reconciliation of accounts with dealers/ customers However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section 194 R of the Act:- (i) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference. (ii) Expenditure incurred for family members accompanying the person attending dealer business conference (iii) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference (excluding the day of conference and its just preceding day and its just following day)
When to deposit the TDS deducted U/s 194R ?Within 7 days from the end of the month in which the TDS deducted and within 30 days for any TDS done in the month of March. And furnish the said information in TDS statement to be filed quarterly in form 26Q.
Whether recipient can apply for lower rate U/s 197 ?No, lower rate application cannot be applied for 194R.
What is the threshold of 194R TDS liability ?If benefit or perquisite provided to a resident is not more than Rs. 20000 during the year then there is no need to deduct TDS U/s 194R.
Since when the liability to deduct TDS U/s 194R going to arise ?TDS U/s 194R is applicable w.e.f. 1-7-2022. If any benefit or perquisite during the year exceeds Rs. 20000/- then liability to TDS will arise.Any benefit or perquisite provided between 1-4-2022 to 30-6-2022 will be considered to determine the aggregate benefit during the year, however any benefit or perquisite before 1-7-2022 (between 1-4-2022 to 30-6-2022) will not be liable to TDS U/s 194R, i.e. will only be considered for determining threshold – aggregate of benefit or perquisite during the year.
If any benefit or perquisite provided in the form of money only i.e. in cash or cheque or by way of credit note or journal entry then whether is it liable to TDS ?Any benefit or perquisite if only in the form of money i.e. either by cash or cheque or by credit note or journal entry is not liable to TDS U/s 194R, because Section 28(iv) nowhere uses the word, “in the form of money” or “in cash” exclusively.Also Section 194R(1) states that, “any benefit or perquisite whether convertible into money or not”, it means U/s 194R only those benefit or perquisite are covered which is not in the form of money, but which has to be convertible in money or not capable to convert into money”, therefore any benefit or perquisite which is directly in money is excluded U/s 194R.
However circular has stated that any incentive in cash is also liable for TDS.

However there is one controversy here, that as per Section 28(iv) benefit or perquisite directly in the form of money i.e in cash or cheque or banking channel or Credit note is not liable to be covered U/s 28(iv), because it is directly and clearly in the form of money, then any

benefit in cash or cheque or RTGS should have been kept out of purview of 194R by the CBDT guideline, because cash/cheque/RTGS/journal entry/credit notes are already accounted for in the books of account. Therefore any benefit or perquisite in kind whether convertible into money or not, any cash benefit which is not through book entry can only to be treated as income U/s 28(iv).

Hon’ble Madras High Court in the case of Iskraemeco Regent Ltd. v. Commissioner of Income-tax-I [2011] 196 Taxman 103 (Mad.) held that the reserve and surplus is brought in financial terms having monetary value and not through any fixed assets. In fact, section 28(iv) has not application to any transactions which involves money.

Further, in the case of CIT v. Alchemic (P) Ltd. [1981] 130 ITR 168 (Guj), it has been held that under sec. 28(iv), the question of including the value of the benefit or perquisite would arise only if the benefit or the perquisite is not in cash or money.

Madras High Court in the case of Instalment Supply P. Ltd. v. Commissioner Of Income-Tax, on 14 May, 1984 in para 16. “In CIT v. Venkatraman [1978] 111 ITR 444, had occasion to consider a similar provision as contained in s. 2(6C) (iii) of the Indian I.T. Act, 1922, which defined income as including “the value of any benefit or perquisite, whether convertible into money or not obtained from the company”. It was held that “from this language it is clear that the benefit or perquisite” contemplated cannot be money itself. If it is money, the question of its value being taken into account or the benefit or perquisite being converted into money will not arise.”

In CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340, the Karnataka High Court was of the view that the expression “whether convertible into money or not”, occurring in s. 40(a)(v), is something apart from money such as something in kind, which may be convertible into money or not and that this expression would not be appropriate when one considers a payment in cash. It, therefore, held that payment of bonus to its employees in cash was not a perquisite and could not be disallowed under s. 40(a)(v).

In the case of Yoshio Kubo v. Commissioner Of Income Tax on 31 July, 2013 before Honorable Delhi High Court vide ITA No. 441/2003 which was held in favour of assessee, it was quoted in the judgment, “Counsel submit that the term “provided for” means to keep something ready, in order to perform or do it. Under Section 10(10CC) the monetary payment should be provided for the employee. It should be employee who is provided for by way of monetary payment within the meaning of Clause (2) of Section 17. In other words, payment of actual money to the employee (and not the equivalent of that, or the money’s worth) is what the legislature contemplated by provision of by way of monetary payment. If some benefit is directly or indirectly received by the assessee which has money’s worth, it is not a “monetary payment”.

Honorable Gujarat High Court in the case of Commissioner Of Income-Tax, … v. Alchemic Pvt. Ltd. on 19 August, 1980 (1981) 130 ITR 168 (Guj.) held that, “9. It is obvious that if what is received either by way of benefit or perquisite is money, there is no question of considering the value of such monetary benefit or perquisite under clause (iv) and including the value of such benefit or perquisite under the head “Profits and gains of business or profession.” It is only if the benefit or the perquisite is not cash or money but is non-monetary benefit or non-monetary perquisite that the question of including the value of such benefit or perquisite would ever arise. Under these circumstances, the Tribunal was right in rejecting the contention urged on behalf of the revenue that the amount of Rs. 15,964 should be brought to tax as value of any benefit or perquisite within the meaning of s.28(iv). The tribunal doubted whether the amount of Rs. 15,964 was any benefit – “It may or may not be a benefit”. Another question is whether the phrase “whether convertible into money or not” would normally mean something else than money. In our opinion, the conclusion of the Tribunal that s. 28(iv) would not apply when the amount received is cash or is considered in terms of money, is correct, and the provisions of s. 28(iv) can never be made applicable to the facts of the present case, where excise refund was received by the assessee.

10. The three contentions urged on behalf of the revenue were on the basis of s. 28(iv), s. 41(1) and on general commercial principles and on each of these three grounds we are of the opinion that the contentions urged on behalf of the revenue must be rejected. The conclusions of the Tribunal, both regarding s. 28(iv) and regarding the decision not to go into the question of s. 41(1), was correct and in accordance with law.

We, therefore, answer the question referred to us in the affirmative, that is, the favour of the assessee and against the revenue.”

In the case of N. K. Poddar v. ACIT vide TC(A) No. 812 of 2010 dated 23-11-2010 Honorable Madras High Court, held in favour of the assessee that waiver of loan by bank in one time settlement scheme in neither covered u/s 28(iv) nor u/s 41(1) of the act. In support of his contention, the learned senior counsel placed reliance upon the following judgments:-

COMMISSIONER OF INCOME TAX v. GANESA CHETTIAR (P.) [(1982) 133 ITR 103],

COMMISSIONER OF INCOME TAX v. A.V.M. LTD. [(1984) 146 ITR 355],

COMMISSIONER OF INCOME TAX v. ALCHEMIC PVT. LTD. [(1981) 130 ITR 168],

COMMISSIONER OF INCOME TAX v. MAFATLAL GANGABHAI AND CO. (P.) LTD. [(1996) 219 ITR 644], and

DEPUTY COMMISSIONER OF INCOME TAX (ASSESSMENT) v. GARDEN SILK MILLS

LTD. [(2010) 320 ITR 720] and submitted that Section 28(iv) has no application to a money transaction and therefore, the orders passed by the authorities cannot be sustained”.

Therefore in view of above judgments CBDT guideline is not in accordance with judicial precedents. Until any further clarification through any circular present guideline is to be followed.
If any benefit in kind is provided and tax invoice is raised for it, not for the full amount or not of the fair value but for Rupee one only, say for example a dealer who deals in FMCG goods and on purchase of certain minimum quantity the buyer dealer has been given a refrigerator of Rs. 30000/- but in the tax invoice the amount charged for the refrigerator is shown of Rupee one only for the refrigerator then how and why the value is to be determined ?Section 194R(1) of the act states that, “(1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite”.From the above it is clear that the section provides that TDS is to be deducted @ 10% of the value or aggregate of value of such benefit or perquisite.
As per Q. 5 of the circular 12/2022, “Question 5. How is the valuation of benefit/perquisite required to be carried out? Answer: The valuation would be based on fair market value of the benefit or perquisite except in following cases:- (i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. In that case the purchase price shall be the value for such benefit/perquisite. (ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite. It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act”.
Whether provisions of Sec. 206AB will be applicable to TDS U/s 194R ?As per Section 206AB, “(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, [194-IA, 194-IB, 194LBC, 194M or 194N] on any sum or income or amount paid, or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the following rates, namely”.From the above provisions of Sec. 206AB it is clear that higher TDS is to be deducted under section 206AB on any sum or income or amount paid, or payable or credited, by a person to a specified person.
Since any sum or amount or income is not being paid nor payable nor credited U/s 28(iv) nor covered under 194R, therefore nothing is liable U/s 206AB, if cash amount is going to be covered under section 194R in view of CBDT guideline, then only it can be treated to be covered under section 28(iv) and 194R, which will only be liable to be covered under 206AB.

Since benefit or perquisite is only “provided”, not “paid or payable nor credited” hence it is not covered under section 206AB.

Other TDS provisions uses the word, “person responsible for paying any sum or any income”, whereas section 194R states the word, “providing benefit or perquisite”, therefore it is clear that in case of non-monetary transaction but convertible into money, Section 206AB will not be applicable to 194R because CBDT guideline is also silent on this issue.
Whether provisions of Section 40(a)(ia) of the act are applicable if benefit or perquisite provider has failed to deduct or deposit TDS U/s 194R ?No, because Section 40(a)(ia) of the act states that, “thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub- section (1) of section 139”Since under section 28(iv) and 194R word “sum payable” is nowhere used, the words used are only “benefit or perquisite provided”, therefore no disallowance can be there U/s 40(a)(ia), in case of default in deducting TDS or in case of default in depositing TDS after due date specified U/s 139(1) of the act. Other consequences of TDS default in case of delay deposit may have to face.
If any benefit is in the form of money/cash/any sum of money, then in that case if TDS is not deducted then it will attract disallowance U/s. 40(a)(ia) of the act.
As per CBDT circular 12/2022:- “Question 3. Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is in the form of capital asset?CBDT Answer: As has been stated in response to question no 1, there is no requirement to check whether the perquisite or benefit is taxable in the hands of the recipient and the section under which it is taxable.Further, courts have held many benefits or perquisites to be taxable even though one can argue that they are in the nature of capital asset. The following judgments illustrate this point:
- Assessee entered into an agreement with ‘1’ for purchase of a plot of land and certain amount was paid as earnest money. However, possession of land was not given to assessee and seller entered into another agreement with a third party to develop the said plot. Assessee filed suit in which a consent decree was passed and in pursuance of same certain amount as paid to assessee. On appeal it was held that such sum received in pursuance of consent decree was liable to tax as business income under section 28(iv). Ramesh Babulal Shah v CIT (2015) 53 taxmann.com 277 (Bom)
- The amount representing principal loan waived by bank under one time settlement scheme would constitute income falling under section 28(iv) relating to value of any benefit or perquisite, arising from business or exercise of profession. CIT v Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad)
- Value of rent free accommodation, furniture and fixtures given to director was held as taxable under section 28(iv). CIT v Subrata Roy (2016) 385ITR 547 (All) • Where a car was given to an assessee by his disciple, who had been benefited from his preaching, the value of car was held to be taxable in the hands of the assessee being a receipt from the exercise of the vocation carried on by him. CIT (Addl) v Ram Kripal Tripathi (1980) 125 ITR 408 (All)
- The assessee was a director of a company. In terms of an agreement with the promoters, shares were allotted to the director. On these facts, it was held that the shares received by the director were benefit or perquisite received from a company by the director and it was a benefit assessable to tax. D. M. Neterwala v CIT (1986) 122 ITR 880 (Born)
- Value of gift of land was held as a receipt by the assessee in carrying on of his vocation and was
held as taxable. Amarendra Nath Chakraborty v CIT (1971) 79 ITR 342 (Cal) Thus, it can be seen that the asset given as benefit or perquisite may be capital asset in general sense of the term like car, land etc but in the hands of the recipient it is benefit or perquisite and has accordingly been held to be taxable.

In any case, as stated earlier, the deductor is not required to check if the benefit or perquisite is taxable in the hands of recipient. Thus, the deductor is required to deduct tax under section 194 R of the Act in all cases where benefit or perquisite (of whatever nature) is provided.”

In the above answer CBDT has failed to have a look that the judgment of CIT v. Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad) has already been reversed by Honorable Supreme Court vide [2018] 404 ITR 1 (SC) dated 24-4-2018 alongwith case of Mahindra & Mahindra, and in the case of Ramesh Babulal Shah the assessee had received sum of money therefore no capital asset was received by that assessee and that assessee had received money due to consent decree against and during the course of trading of land, except these two case laws in all other case laws cited above the assessees had received benefit in kind, any capital asset received is also in kind, therefore it can be inferred that any benefit in kind is only liable to TDS and not the monetary benefit. But as per the CBDT guideline monetary benefit/ cash/any sum of money is also covered U/s 194R of the act.
How to deduct TDS if benefit is in kind only, whether and when to receive/collect TDS amount from beneficiary, if beneficiary has deposited tax how provider will report in 26Q ?First proviso to section 194R(1) of the act states, “Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing suchbenefit or perquisite shall, before releasing the benefitor perquisite, ensure that tax required to be deductedhas been paid in respect of the benefit or perquisite”.The interpretation of above proviso can be, that the person providing benefit or perquisite will collect deductible amount from the person who has been provided benefit or perquisite, then benefit provider will deposit the TDS, before releasing benefit or perquisite.
In case of benefit in kind provider shall ensure that recipient has deposited tax. Such recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/ perquisite has been deposited. This would be then required to be reported in TDS return statement along with challan number. This year Form 26Q has included provisions for reporting such transactions.

As per section 2(24)(vd) any benefit or perquisite covered U/s 28(iv) is included in income.
Since this is non-financial transaction whether it will be entered in books of person who has been provided benefit ?Even if this is non-financial transaction, it is advisable to enter value of benefit or perquisite to be entered in books as business income U/s 28(iv), rather than directly offering as income under the computation of income. It is advisable that the said entry need not be passed through party ledger but directly taken to income ledger.
44AD/44ADA beneficiary will have to include this benefit or perquisite in his turnover or gross receipts ?No, Section 44AD states that 6% or 8% percentage income is to be computed on total turnover or gross receipts and Sec. 44ADA states that 50% income is to be computed on total gross receipts. Benefit or perquisite is not a receipt nor turnover. As per Section 28(iv) or 41(1) this is income, but cannot be assumed to be part of turnover or gross receipts, therefore it can be advised not to include the benefit or perquisite in turnover or gross receipt for the purpose of Section 44AD/44ADA.
If any resident who has been provided benefit or perquisite does not offer income in the return of income due to the reason that he assumes that it is not taxable in his hands then how such resident will be able to claim credit of TDS thereon in his return ?As per Sec. 199 of the act TDS credit can be claimed by the person in the year in which such income is offered in the return of income and in the hands of person who has offered such income.It is advisable that to follow Section 199 of the act the value or aggregate value of benefit or perquisite is first offered in profit and loss account/relevant ledger account/return of income as income and then any expenditure or outgoing in that respect is claimed as an expense in profit and loss account/ledger account/return of income.
In case of 44AD/44ADA there is no need to separately add this amount as income or expenses, because this will be covered in deemed income and deemed expenses, if any.
Whether CBDT has power to issue guideline to remove difficulty ?As per Section 194R(2) & (3) :- “(2) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.(3) Every guideline issued by the Board under sub- section (2) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite”.
Who is the, “person responsible for paying” or who will be the person responsible in case of any default U/s 194R ?Section 194R has nowhere used the word, “person responsible for paying”, therefore Section 204 of the act has no application to Section 194R, therefore Section 194R itself has specified, “person responsible for providing”.As per Explanation to Section 194R —”For the purposes of this section, the expression “person responsible for providing” means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.”
Whether proviso can expand the scope of Main section ?A proviso cannot expand the scope of Section, when the main content itself does not depict anything, that cannot be construed to be there by a proviso appended to the main section.“Section 194R. (1) Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite:”
From the reading of above sub-section (1) it can be inferred that the section has nowhere used the word, “any sum payable”, or “any money”, or “any amount”, which clearly reflect that the amount or money or any sum was intended to be kept out of purview of TDS under this section, but proviso has expanded the scope of section by inserting the phrase, “wholly in kind or partly in cash and partly in kind”, which can be inferred from the following proviso :-

“Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite:”

From reading of above proviso it depicts and reflects that the sub-section 1 comprises payments wholly in cash, and the proviso talks about payments in kind or partly in cash and partly in kind, whereas the fact is that the sub- section 1 which is the main section itself does nowhere comprise the words, “any sum of money or any amount”, then how the proviso can be said to expand the scope of sub-section.

Further the CBDT guideline has also expanded the scope of section, whereas the sub-section 2 empowers to issued guidelines only to remove the difficulty and not to expand the scope of section. Therefore the proviso and CBDT guideline needs to be further looked into to align with law and intention of the law and nothing authorised beyond the law.
How to reflect transactions covered under 194R in the TDS statement 26Q ?

In form 26Q these transactions shall be reflected as follows :-

In the form 26Q format there is a column at S.No. 424 which requires the information, “Reason for non-deduction / lower deduction/ Higher Deduction/ Threshold/ Transporter etc. (See notes 1 to 16)”, If any benefit or perquisite provided is not more than Rs. 20000/- during the year then as per Note No. 6 to format of 26Q mention “Write “Y” if no deduction is on account of payment below threshold limit specified in the Income-tax Act, 1961”, this is same as applicable to other TDS sections. If benefit has been provided in kind and recipient has paid advance tax then it has to be reflected as advance tax paid by recipient in form 26Q as per First Proviso to sub-section (1) of section 194R – “Benefits or perquisites of business or profession where such benefit is provided in kind or where part in cash is not sufficient to meet tax liability and tax required to be deducted is paid before such benefit is released” showing the code 94R-P, details of Advance tax deposited, BSR code, date of deposit, Challan serial No. will have to be mentioned in 26Q.

Conclusion

The discussion on 194R is very wide and vast and unending, however in nutshell it is advisable to follow the provisions of the act and guideline until any further amendments or suitable CBDT guidelines. The discussion made above in the form of questions and answers is very limited and indicative only and to be followed as per prevalent law.

(Source : Article published in Souvenir released at National Convention 2022 held at Jaipur on 17th & 18th December, 2022)

Upendra Bhatt, Advocate

PreambleSection 271AAD was included in Chapter XXI which starts with section 270 and ends with section 275.
Section 271AAD was inserted by the Finance Act 2020 wef 01/04/2020. As explained in the memorandum by the Honorable Finance Minister that several cases were found of fraudulent ITC claimed which were caught by the GST authorities. The suppliers obtained fake invoices from the fake dealers who obtained GST number but who do not actually carry on business or profession. The invoices were issued without supply of goods or services. Such racketeers actually who do not carry any business or profession. They issue invoices without supply of goods or services. In the invoices GST was charged which was neither paid nor intended to be paid. Nowadays it is noticed that GST number or PAN obtained in the name of servant or a person having no source of income. If assessment was made on such person there was no chance of recovery of tax.

To deal with such activity, A penal provision is introduced to penalise a person who passes false entries. Any other person who causes in any manner to make a false entry or omits such entry shall also be liable to penalty. Penalty in both the cases will be equal to the amount of invoice.

In some cases, it is noticed that either accountants or even tax practitioners entered into such unhealthy practice. It is advised to the dealers, accountants, professional friends or mediators not to enter in to such activity which will harm them

as almost all the information is received from different agencies by the Government.
SECTION 271AAD PENALTY FOR FALSE ENTRY, ETC., IN BOOKS OF ACCOUNT
1. Without prejudice to any other provisions ofthis Act, if during any proceeding under this Act, it is found that in the books of account maintained by any person there is—
  1. a false entry ; or
  2. an omission of any entry which is relevant for computation of total income of such person, to evade tax liability, the Assessing Officer may direct that such person shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.
2. Without prejudice to the provisions of sub- section (1), the Assessing Officer may direct that any other person, who causes the person referred to in sub-section (1) in any manner to make a false entry or omits or causes to omit any entry referred to in that sub-section, shall pay by way of penalty a sum equal to the aggregate amount of such false or omitted entry.2.1 Explanation For the purposes of this section, “false entry” includes use or intention to use—
  1. forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence ; or
  2. invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both ; or
  3. invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.
Extract of Notes on Clauses annexed to Finance Act, 2020 – Clause 98Clause 98 of the Bill seeks to insert a new section
271AAD in the Income-tax Act relating to penalty for false or omission of entry in books of account. It is proposed to insert a new section 271AAD, under which penalty shall be levied on a person who is required to maintain books of account, if it is found that the books contain a false entry or that any entry has been omitted which is relevant for the computation of his total income. Such person shall be liable to pay by way of penalty a sum equal to the aggregate amount of such false and omitted entries. Penalty shall also be levied on any other person who causes the person required to maintain books of account to make or causes to make any false entry or omit or cause to omit any entry in books of account. The false entries shall include use or intention to use forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods; or invoice in respect of supply or receipt of goods or services or both to or from a person who does not exist.

This amendment will take effect from 1st April, 2020.
Extract of Memorandum to Finance Act, 2020 – Section 271AADPenalty for fake invoice. In the recent past after the launch of Goods & Services Tax (GST), several cases of fraudulent input tax credit (ITC) claim have been caught by the GST authorities. In these cases, fake invoices are obtained by suppliers registered under GST to fraudulently claim ITC and reduce their GST liability. These invoices are found to be issued by racketeers who do not actually carry on any business or profession. They only issue invoices without actually supplying any goods or services. The GST shown to have been charged on such invoices is neither paid nor is intended to be paid. Such fraudulent arrangements deserve to be dealt with harsher provisions under the Act. Therefore, it is proposed to introduce a new provision in the Act to provide for a levy of penalty on a person, if it is found during any proceeding under the Act that in the books of accounts maintained by him there is a (i) false entry or (ii) any entry relevant for computation of total income of such person has been omitted to evade tax liability. The penalty payable by such person shall be equal to the aggregate amount of false entries or omitted entry. It is also propose to provide that any other person, who causes in any manner a person to make or cause to make a false entry or omits or causes to omit any entry, shall also pay by way of penalty a sum which is equal to the aggregate amounts of such false entries or omitted entry. The false entries is proposed to include use or intention to use – (a) forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence; or (b) invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both; or (c) invoice in respect of supply or receipt of goods or services or both to or from a person who do not exist. This amendment will take effect from 1st April, 2020.
Meaning of certain words used in this section
1. Prejudice : causing harm
2. Books of accounts Section 2(12A) :“books or books of account” includes ledgers, day-books, cash books, account- books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro magnetic data storage device.
3. False : Artificial not genuine
4. Falsified : To present falsely or to misrepresent
5. Omission :To fail or neglect to do something
6. Entry :Item written in diary list and account book
7. Forged : Copy of something in order to deceive people
8. Invoice :List of goods sold with the price charged especially send as a bill
9. Document :To prove or support something with document
10. Cause to omit : To inspire for not disclosing income
11. Turnover :Amount of business done by a company within a certain period of time
Issues arises out of this section are replied in question answer form
1. 1. From which date / assessment year this section will be applicable?
    1. 1. This section will be applicable from 01/04/20 means from FY 2020- 21.Thus, it will be applied for AY 2021-22 and onwards. In the notes and clauses in the Finance Bill 2020 wherever it was necessary, the assessment year is mentioned, while in this section the assessment year is not mentioned but in clause 98 it is mentioned that this section will be effective from 01/04/20. Thus, if the offence is committed after 01/04/20 this section will be applicable and it cannot be applicable for AY 2020-21.
  2. This section starts with the wording, “without prejudice to any other provisions of this act….” What is the meaning of this?
    1. 1. The meaning of this word is, it overrides the other provisions of this act.So, this is an independent section. Thus, if penalty proceedings under any other section is initiated or the income is taxed either at normal rate or special rate, still the provision of this section will be applicable because the intention of the legislature is clear to penalise persons who are involved in receiving and issuing fake or bogus invoices.Thus, even if the amount of bogus entry is considered for addition in the returned income, still this penalty will be leviable. Even if there is penalty leviable under any other section, still penalty under this section will be leviable.
        Assessee cannot take plea that as he is liable to pay tax or penalty under any other provision, no penalty is leviable under this section because the intention of the legislature is to curb use of bogus or fake invoices.
  3. What is the meaning of, “during the proceedings under this act”?
    1. 1. During the proceedings under this act means it may be assessment proceedings, reassessment proceedings, appellate proceedings etc.When there is assessment or reassessment proceedings, penalty proceedings will be initiated by the assessing officer because it will be satisfaction of the assessing officer. When in the appellate proceedings it is noticed by CIT(A) regarding breach of this section, notice of penalty should be issued by the CIT(A) and penalty will be also levied by CIT(A).
        
        It was held in the case of CIT v. Shadiram Balmukund reported in 84 ITR 183 Allahabad that the income tax officer has no jurisdiction to impose penalty when addition is made in the assessed income by appellate authority or CIT. Thus, penalty order of the assessing officer was quashed.
        
        Similar issue arose in the case of CIT v. Manjunath Cotton and Ginning Factory reported in 359 ITR 565 Karnataka and 263 CTR 153 Karnataka.In this case addition on account of undisclosed investment was deleted by CIT(A) but addition was made on the ground of under valuation of stock. Thus, penalty proceedings should be initiated by CIT(A). As the penalty order was passed by assessing officer, the same was cancelled on the ground that the notice was not in accordance with law as the subject matter of penal proceedings was the order of appellate authority and the order was passed by the assessing officer, order of penalty was cancelled.
        A question arises if the proceedings in the case of the assessee is not pending, still whether the AO can initiate penal proceedings under this Act?
        
        According to my view the AO can initiate penal proceedings under this Act because in the case of an individual assessee who is involved in issuing fake invoices who does not have taxable income and who does not file return, still penalty under this section can be levied because this section is a separate section and introduced in the statute book with the intention to punish entry providers which is explained in detail in the memorandum of this section.
  4. What is the meaning of books of accounts maintained?
    1. 1. Definition of books of accounts is given in section 2(12A). It ordinarily means a collection of sheets of paper or other material, blank, written or printed, fastened or bound together so as to form a material whole, loose sheets or scrapes of paper cannot be termed as “book” as it can be easily detached and replaced (reference from the judgement Sunilkumar Sharma v. DCIT 448 ITR 485 Karnataka).
  5. What is meaning of any person?
    1. 1. Word person is defined in section 2(31) which includes
        
        an Individual
        
        a Hindu Undivided Family
        
        a Company
        
        a Firm
        
        an Association of Person
        
        a Local Authority etc.
  6. What is the meaning of false entry?
    1. 1. This section is included in the statute book with regard to false entry. Explanation regarding false entry is also given in this section. Kindly see sr.no.2 of this article.
  7. What is an omission of entry?
    1. 1. As per this section, omission of entry has direct nexus with computation of total income with the intention to evade tax liability.
  8. Who can levy penalty?
    1. 1. As per this section, either the assessing officer or CIT(A) may direct to pay penalty.
  9. What is the quantum of penalty?
    1. 1. Amount of penalty shall be a sum equal to the aggregate amount of such false or omitted entry.
  10. Any other person is also responsible to pay penalty as per the provision of this section?
    1. 1. Yes, as per section 271AAD(2) any other person who causes the person referred in section(1) in any manner to make a false entry or omits any entry shall also be liable to penalty a sum equal to the aggregate amount for false or omitted entry.This section was introduced even for the person other than the assessee to levy penalty for issuing fake invoice. Thus accountant, tax practitioner etc. being an abettor is also liable to pay penalty under this section.
        A question will arise regarding jurisdiction to levy penalty. For example, if the entry provider is situated at Calcutta and the assessee is situated in Bombay, assessing officer of Calcutta will issue notice for penalty under this section if he is satisfied on the basis of the information received from assessing officer of Bombay that a person from Calcutta was involved in providing fake entry and will levy penalty if satisfied.
  11. When the penalty is deleted in appeal, what will happen as far penalty in the case of other person is concern?
    1. 1. According to my view if penalty is cancelled in the case of the assessee, penalty in the case of other person cannot survive because the basis on which the penalty notice was issued on assessee is deleted consequentially the penalty in the case of another person shall be deleted.
  12. Like old section 271(1)(c) penalty was leviable either for concealment of income or furnishing inaccurate particulars of income, similarly as per section 270A penalty is leviable for under reporting of income or misreporting of income, whether similar provision is there in section 271AAD?
    1. 1. Yes, in the notice under this section, charge should be specific. Whether the notice was issued for false entry or on account of an omission of any entry. If the charge is not specific, penalty cannot survive as held by Honorable Supreme Court and various High Courts dealing with penalty leviable u/s.271(1)(c).
  13. During any proceeding under this act, if it is noticed by AO or CIT(A) that assessee is liable for false entry relating to previous year whether he can issue notice for the year for which the proceedings are before him?
    1. 1. No, for the year for which the proceedings are going on he cannot issue notice u/s.271AAD. For levy of penalty for previous year, proceedings for reassessment may be initiated within the time prescribed as per amended section 148A applicable wef 01/04/2022.
  14. As per this section, “during any proceedings under this act from the books of account it is noticed that there is false entry or omission of any entry”, what will happen when the books of accounts are not maintained by the assessee and assessee has shown the income u/s.44AD etc.?
    1. 1. This is a penal provision and it is to be strictly interpreted. When the books of account are not maintained, no penalty under this section is leviable. If the assessee is liable to maintain books of account as per section 44AA of the act, separate proceedings may be initiated for not maintaining books of account but penalty under this section cannot be levied looking to the wording of this section.While filing return on presumptive basis certain details like cash on hand, sundry debtors, sundry creditors, stock in trade is required to be disclosed while uploading the return but it cannot be presumed that the books of account are maintained because the details are maintained for the purpose of collecting the amount from the debtors or payment to creditors. The details are maintained because in the subsequent year if the assessee is liable to compulsory audit, the balance sheet can be drawn.
  15. When false invoices issued consisting of GST and other charges including the cost of material, on which amount penalty shall be levied? On the amount of material supplied or on the amount of entire invoices?
    1. 1. Word invoice means, “List of goods sold with the price charged especially send as a bill”. Thus, the amount of other charges cannot be segregated. Thus penalty will be leviable on the amount of invoice.In the case of CHOWRINGHEE SALES BUREAU P. LTD. v. COMMISSIONER OF INCOME-TAX, WEST BENGAL-I reported in 110 ITR 385 Calcutta, the issue was in relation to trading receipt. When the sales tax realised was credited in separate account, it was held in this case that sales tax collected was part of trading receipts. Similarly amount of invoice will be including of GST etc.
  16. An entry operator who issued fake invoices but does not file return as the income was below the taxable limit and who does not maintain books of accounts, whether the penalty will be leviable on such entry operator?
    1. 1. Yes, Penalty will be leviable on such person because in this section the word written is any other person. Thus, it has nothing to do with the income of any other person.
  17. When the assessee received fake invoices and some of the invoices are shown as goods return, whether the penalty will be levied on entire amount of invoices or only on the invoices other than goods returned?
    1. 1. As per intention of the legislature to bring this section fake invoices were issued including GST but though the GST was collected but not paid for such transactions. When the goods are returned, no question of penalty arises. As per this section the omission of entry should relate to computation of total income to evade tax liability. By showing goods returned, there will not be any effect on computation of total income and it cannot be termed as omission of an entry.
  18. What is the distinction between false entry and omission of entry?
    1. 1. Meaning of false entry is, “artificial not genuine invoice”. Thus, in case of false invoice penalty shall be leviable because it has nothing to do with the income of the assessee.Omission of entry means, “to fail or neglect to do something” and as per this section and the intention of omission should be to evade tax liability. Thus, when it is proved that the intention was not to evade any tax but it was a purely omission, penalty is not leviable.
  19. When invoice for bogus salary or commission is entered in the books by the assessee, whether penalty will be leviable?
    1. 1. Yes, penalty will be leviable because as per explanation of false entry in (b), there is mention of receipt of goods or services without supply of goods or services. Thus, when the services are not received and simply false entry is passed in the books of accounts. There may be other view in favour of the assessee.
  20. There is provision in this section to levy penalty when the invoice is issued in the name of person who does not exist. How the assessee can know whether the bill issued by any person is alive or not?
    1. 1. To levy penalty under this provision, the assessing officer has to prove that the invoice issued was in the name of non- existing person. For the assessee it will become difficult to ascertain, whether the person was alive or not when the bill was issued because he is a buyer. In genuine cases also if the bill is issued in the name of the person who is not live, the assessee may be requires to face legal proceedings.
  21. In case of entry provider for fake invoice, how he will be assessed for income tax purpose and whether penalty will be levied in relation to income assessed or invoices issued?
    1. 1. As per income tax act income is to be assessed on the basis of concept of real income. As per section 5 of the Income Tax Act which deals with scope of total income, income tax is payable on the real income either it is accrued, receive or receivable. Thus, the racketeers who issued fake invoices will be liable to pay tax on the amount of real income earned but as per this section penalty on such person will be to the tune of fake invoices issued.The intention to bring this section in the statute book was with the intention that fake invoices were issued in the names of persons who were paid token amount but fake invoices of crores of rupees were generated and issued in the name of such poor people. To warn such people, this provision is introduced. Still it will be a difficult task for the Government to catch hold of the real culprits.
  22. How the burden will be discharged by the AO / CIT(A) to prove that the invoice is fake?
    1. 1. The burden is always on the department to prove that the invoice is fake or bogus. For this purpose, cogent evidences will be required to be gathered by the I T Authorities. If the notice at the address shown or summons is issued which is not served or there is report of I T Inspector that the party is not available will not serve the purpose unless something more is gathered by the assessing officer.It is very well known that any confession during survey has no evidential value because that statement is not recorded on oath. Thus, when the penalty is to be levied, cogent and acceptable evidences are required to be gathered before penalty is levied. This will be applicable even in case of levy of penalty on any other person or deceased person.
  23. Penalty is not leviable as per section 273B? If the assessee proves that there was a reasonable cause for the said default. Whether this benefit will be available in case of penalty leviable under this section?
1. 1. No, if the sections mentioned in this section 273B are looked into, after section 271AA, there is mention of section 271B. Thus, section 271AAD is intentionally not included in this section to deal harshly with such entities.
Conclusion

This is the recent section and there are many grey areas which were not considered while introducing this section. Certain clarifications are also required to avoid future litigation. The view expressed by me in this paper is my personal view and there may be other possible view.

Hope that this paper may be useful to my professional friends.

I am thankful to Shri Pankaj Ghia President of All India Federation of Tax Practitioners for giving me this opportunity to write a paper on the burning issue which may invite litigation.

(Source : Article published in Souvenir released at National Convention 2022 held at Jaipur on 17th & 18th December, 2022)

CA Anilkumar Shah

Part -A

Now let us discuss the landmark judgment in the case of

New Noble Educational Society v. CCIT, [2022] 143 taxmann.com 276 (SC), judgment dt. 19-10-2022.

1. Facts in brief and background

The case is of an Educational institution seeking approval u/s 10(23C)(vi) of the Act which is rejected for two reasons that-

the trust was not created solely for the purpose of education; and
it is not registered under the local act The Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act,

The facts given in the Hon. H.C. judgment are important and are as under-

The assessee trust/society contended before Hon. High Court that-

10(23C)(vi) places emphasis on receipts and, since the amounts are received by the petitioner-societies on behalf of the educational institution, it is only the objects of the educational institution which should be taken into consideration, and not that of the society;
approval, under s. 10(23C)(vi), is sought only for the educational institution, and not for the society/ educational agency;
that 10(23C)(vi) of the Act makes a distinction between the educational institution and the society/educational agency running it;
the society, which runs the educational institution, is entitled to pursue objects other than those relating exclusively for educational purposes;
at the stage of grant of approval, under s. 10(23C)(vi), only the objects of the society are required to be examined, and not the manner of application of funds by it;
the words “solely” in s. 10(23C)(vi) is redundant;
and the other objects of the petitioners are also ancillary to “education”.

The assessee trust/society applied for approval only for one of its institutions and not the entire society. There was surplus of this educational institution. The objects of the trust/society as a whole included objects other than education, which are contended as ancillary to education. The assessee contended that the approval is sought only for the educational institution and not for other institutions and also not for the entire trust/society.

The revenue contended that-

it is immaterial whether the society pursues all its objects as enumerated in its trust deed;
even if an object is not pursued in real terms in a particular year, the society can pursue it in any other year as it has the mandate under the objects mentioned in its trust deed;
such objects of a trust fall foul of the conditions specified in 10(23C)(vi);
exemption is granted to a society and not to any limb of a society engaged in a particular activity;
it is, therefore, necessary that all the aims and objects mentioned in the trust deed are exclusively for education, and not for any other purpose;
the clauses in the trust deed should not be ambiguous allowing the society a wide scope to indulge in any other activity which are strictly not for promotion of education;
in its Instruction No. 1112 dt. 29th Oct., 1977, the Central Board of Direct Taxes had explicitly prohibited spending of “surplus” of an educational institution for non-educational purposes;
violation thereof implied that the society did not exist solely for educational purposes;
even if no amount is spent for non- educational purposes, the society would not be entitled for exemption under the Act if its existence is not solely for educational purposes;
the surplus, which societies seeking approval make, should again be ploughed back for educational purposes, and not utilized for any other object; and
diversion of funds to achieve objects, which are not solely for educational purposes, would disentitle the society from being granted

as the assessee had objects other than education, in its trust, which are not pursued at present, but it is always possible that the funds and/ or surplus of educational institution may be utilised for those objects in future. Hence, the trust/society did not exist solely for educational purpose.

2. The objects causing rejection

In W. P. No. 12374 of 2010 the objects of the petitioner-society include

“to maintain unity among members of the society”,

“to organize sports, games and cultural activities”, and

“to solve problems of the members on social grounds”.

In W. P. No. 21248 of 2010 the objects of the petitioner society include

“providing employment among educated people”.

In W. P. No. 21251 of 2010 the objects of the petitioner-society include

“promotion of the economic and educational needs of Christians in particular and others in general”.

In W. P. No. 21257 of 2010 the objects of the applicant society include

“to strive for the upliftment of socially, economically and educationally weaker sections of the society in general and of the Christian community in particular”, and

“to meet all the above aims and objectives for the Christian minority community”.

In W. P. No. 21266 of 2010 the objects of the petitioner-society include

“to establish associate organizations, such as orphanages, hostels for needy students,

home for the aged and disabled, hospitals for the poor etc.”

The above objects were treated as not educational. However, Hon. HC has held following objects as educational –

35. Publication of journals, magazines, or other media for diffusion of useful knowledge for promotion of education is incidental and ancillary to the primary object of the society e., to run an educational institution. It is the applicant’s case that publication of journals and magazines is to provide knowledge to students and the teaching staff. Inasmuch as the petitioner is an educational institution, the mere fact that the object of publication of journals and magazines for promotion of education is not restricted, in so many words, only for the benefit of students and teaching staff is of no significance. It is not even the case of the prescribed authority that publication of these journals and magazines was for anyone else. The prescribed authority was, therefore, not justified in rejecting the application on this ground.

36.The objects of the petitioner-society included “to conduct seminars, symposiums, workshops and invite experts from India and abroad to improve the quality of education and to support students to elevate themselves to international standards”. This object was held not to be “solely educational” in nature.

…………

37. The aforesaid object, which the prescribed authority held not to be for the purposes of education, is incidental and ancillary to the primary object of carrying on educational activities by the educational The Chief Commissioner was, therefore, not justified in rejecting the petitioner’s application on this ground.

Under these circumstances the Hon. High Court delivered its judgment stating that-

16. We, accordingly, hold that in cases where approval, under s. 10(23C)(vi) of the

Act, is initially sought, the objects in the memorandum of association of a society/trust are conclusive proof of such a trust existing solely as an educational institution entitled for the benefits, and as being eligible for approval, under s. 10(23C)(vi) of the Act.

In addition, an application in the prescribed proforma should be submitted to the prescribed authority within the time stipulated and the specified documents should be enclosed thereto.

However, in cases where an application is submitted, seeking renewal of the exemption granted earlier, the prescribed authority shall, in addition to the conditions aforementioned, also examine whether the income of the applicant-society has been applied solely for the purposes of education in terms of s. 10(23C)(vi) of the Act, the provisos thereunder, the Income-tax Rules, and the documents enclosed to the application submitted in Form 56D.

26. We, accordingly, hold that the certificate signed by the Commissioner of Endowments, as the appropriate authority under s. 43 of the A. P. Act No. 30 of 1987, is but one of the factors, and not conclusive proof, of an assessee under the Income-tax Act being a charitable institution existing solely for the purposes of education. Even in case the assessee produces a certificate of registration under s. 43 of A.P. Act No. 30 of 1987, the Chief Commissioner has to independently examine the objects of the applicant-society, their application seeking approval under s. 10(23C)(vi), and the prescribed documents enclosed thereto, and satisfy himself, in the light of the provisions of s. 10(23C)(vi), the provisos thereto, r.2CA and Form 56D, that the existence of the educational institution is solely for the purposes of education and not for the purpose of profit and, only if he is so satisfied, to grant approval. Registration under s. 43 of the A. P. Act 30 of 1987 is not a condition precedent for seeking approval under s. 10(23C)(vi) of the Act. The Chief Commissioner can, however, prescribe registration under A. P. Act 30 of 1987 as a condition subject to which approval is granted under s. 10(23C)(vi) of the Act. Questions Nos. 2, 3 and 4 are answered accordingly.

Please see – New Noble Educational Society & Ors. vs. CCIT, (2011) 334 ITR 303 (AP): (2011) 242 CTR (AP) 266: (2011) 201 TAXMAN 33 (AP).

3. Questions before Hon. Supreme Court

Questions before Hon. Supreme Court

Whether the objects in the memorandum of association of a society/trust are conclusive proof of such a trust existing solely as an educational institution entitled for the benefits, and being eligible for approval, under 10(23C)(vi) of the Act?
Whether registrations under the state laws was required to be checked and required in the process of approval u/s 10(23C) (vi)?

4. Decision by Hon. Supreme Court

Hon. Court framed the questions as follows-

34. The issues which require resolution in these cases are –

firstly, the correct meaning of the term solely in Section 10 (23C) (vi) which exempts income of university or other educational institution existing solely for educational purposes.

Secondly, the proper manner in considering any gains, surpluses or profits, when such receipts accrue to an educational institution, i.e., their treatment for the purposes of assessment, and

thirdly, in addition to the claim of a given institution to exemption on the ground that it actually exists to impart education, in law, whether the concerned

tax authorities require satisfaction of any other conditions, such as registration of charitable institutions, under local or state laws.

72. What then is incidental business activity inrelation to education? Imparting education throughschools, colleges and other such institutions wouldbe per se charity. Apart from that there could beactivities incidental to providing One example is of text books. This court in a previous ruling in Assam State Text Book Production & Publication Corpn. Ltd. v. Commissioner of Income Tax ((2009) 17 SCC 391) has held that dealing intext books is part of a larger educational activity. The Court was concerned with State established institutions that published and sold text books. It was held that if an institution facilitated learning of its pupils by sourcing and providing text books, such activity would be incidental to education. Similarly, if a school or other educational institution ran itsown buses and provided bus facilities to transportchildren, that too would be an activity incidentalto education. There can be similar instances suchas providing summer camps for pupil specialeducational courses, such as relating to computersetc., which may benefit its pupils in their pursuit oflearning.

73. However, where institutions provide theirpremises or infrastructure to other entities, trusts, societies , for the purposes of conducting workshops, seminars or even educational courses (which the concerned trust is not actually imparting) and outsiders are permitted to enrol in such seminars, workshops, courses etc., then the income derived from such activity cannot be characterised as part of education or incidental to the imparting education. Such income can properly fall under the other heads of income.

74. In R.R.M. Educational Society’s appeal before this court, the charitable status of the appellant within Section 10(23C) was denied inter alia on the ground that the institution was not merely imparting education but also was running hostels. It is clarified that providing hostel facilities to pupils would be an activity incidental to imparting education. It is unclear from the record whether R.R.M. Educational Society was providing hostel facility only to its students or to others as well. If the institution provided hostel and allied facilities (such as catering etc.) only to its students, that activity would clearly be incidental to the objective of imparting education.

76. The conclusions of this court are summarized as follows:

It is held that the requirement of the charitable institution, society or trust , to solely engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannothave objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities.
Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT At the same time, where surplus accrues in a given year or setof years per se, it is not a bar, provided suchsurplus is generated in the course of providingeducation or educational activities.
The seventh proviso to Section 10(23C), aswell as Section 11(4A) refer to profits whichmay be incidentally generated or earned by the charitable institution. In the present case, the same is applicable only to those institutions which impart education or are engaged in activities connected to education.
The reference to business and profits inthe seventh proviso to Section 10(23C) andSection 11(4A) merely means that the profitsof business which is incidental to educationalactivity as explained in the earlier part ofthe judgment e., relating to education suchas sale of text books, providing school busfacilities, hostel facilities, etc.
The reasoning and conclusions in American Hotel (supra) and Queen’s Education Society (supra) so far as they pertain to the interpretation of expression “solely” are hereby disapproved. The judgments are accordingly overruled to that extent.
While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The observations made in American Hotel (supra) suggest that the Commissioner could not the records and that the examination of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts the proviso under Section 10(23C) is not confined to newly set up trusts it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure.
It is held that wherever registration of trustor charities is obligatory under state or locallaws, the concerned trust, society, otherinstitution seeking approval under Section10(23C)shouldcomplywith provisionsof such state laws.This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021.

5. Effects on existing trusts/ societies/institutions/educational institutions

The trust/societies etc. having any other activity in its object clause, which is not educational activity or incidental to education or educational activity, shall have to amend their object clauses to make them solely for education by removing such clauses in the light of this judgment.

Upon changes in the object clauses, the approvals u/s 10(23C)(vi) and/or registrations u/s 12A will have to be sought again by updating the changes.

Henceforth, any amount spent on such non educational activities shall not be allowed as expenditure on the object and in counting the 85% amount for the purpose of exemption u/s 11, 12 and 10(23C)(vi).

6. Education

It may be noted that the term “Education” is not examined by Hon. Apex Court in the present case.

However, the case of Lok Shikshana Trust is referred in the discussion which defined education. The relevant para from the present case are as follows-

32. Education ennobles the mind and refines the sensibilities of every human It aims to train individuals to make the right choices. Its primary purpose is to liberate human beings from the thrall of habits and preconceived attitudes14. It should be used to promote humanity and universal brotherhood. By removing the darkness of ignorance, education helps us discern between right and wrong. There is scarcely any generation that has not extolled the virtues of education, and sought to increase knowledge.

33. The subject of education is vast, even Yet, it is not the broad meaning of the expression which is involved in this case. As was held in T.M.A Pai Foundation (supra), education in the narrower meaning of the term as scholastic structured learning is what is meant in Article 21-A, Articles 29-

30 and Articles 45-46 of the Constitution. As to what is education in the context of the IT Act, was explained in Loka Shikshana Trust v. Commissioner of Income Tax [1975, 101 ITR 234 (SC)] in the following terms:

“5. The sense in which the word “education” has been used in section 2(15) is the instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word “education” has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. All this in a way is education in the great school of life. But that is not the sense in which the word “education” is used in clause (15) of section

2. What education connotes in that clauseis the process of training and developingthe knowledge, skill, mind and character ofstudents by formal schooling.”

Thus, education i.e., imparting formal scholastic learning, is what the provides for under the head “charitable” purpose in Sec.2(15).

It may kindly be noted that the Lok Shikshana Trust case pertains to AY 1962-63. The trust was engaged in the business of printing and publication of newspaper and journals and making profits, and claimed exemption u/s 11 of the 1961 Act. The trust’s object clause amongst other was –

“2. The object of the Trust shall be to educate the people of India in general and of Karnatak in particular by

establishing, conducting and helping directly or indirectly institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare:
founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaf lets, pamphlets, magazines etc., in Kannada and other languages, all these activities being started, conducted and carried on with the object of educating the people…….

Based on the object clauses, the trust claimed that its purpose was charitable u/s 2(15) and claimed exemption u/s 11.

It was in this background that the Hon. Supreme Court made the observations in para 5 and quoted by the Hon. SC as stated above in the present judgment under discussion.

Hon. Supreme Court has opened the present judgment under discussion, with the following lines-

1. It has been said that education is the key that unlocks the golden door to freedom. (quoted from Ravindranath Tagore’s Gitanjali). In Avinash Mehrotra v Union of India ((2009) 6 SCC 398), this court underlined the object and value of education in the following words:

9. Education today remains liberation – a tool for the betterment of our civil institutions, the protection of our civil liberties, and the path to an informed and questioning citizenry. Then as now, we recognize education’s “transcendental importance” in the lives of individuals and in the very survival of our Constitution and Republic.”

In the opening paragraph itself the Hon. Apex court has recognised the wide definition and meaning of education and the objective precisely in one word i.e. liberation.

But in the judgment relied only on the 1962 judgment. Much water has flown under the bridge since 1962.

The system of communication which is an essential part of learning process has undergone tremendous changes. The invent of computers, in fact, is referred to as the “third wave” by the famous writer Alwyn Toffler.

With due respect to Hon. Supreme Court, I am in doubt about whether, for the purpose of the definition of “education” as stated in Lok Shikshana trust still holds good?

What would happen to various institutions working in various fields to impart education to its members without holding a formal classroom?

Let us ask the question about the Tax Consultants’ Associations working across the nation, nay, across the globe. Do these institutions not impart education through journals, seminars, symposiums and various residential and non-residential courses?

In Marathi there is a saying that

केल्याने देशाटन, पंडित मैत्री, सभेत संचार, शास्त्रग्रंथविलोकत मनुजा येतसे चातुर्य फार..

Meaning – by travelling, friendship of intellectuals, talk as a speaker before a gathering and by reading analytical books earns one the intellect. I agree that, this meaning is too wide but it is in our culture to train ourselves from whatever we come across. This is the reason that they say education is an ongoing process.

There are numerous institutions working to train people on field. e.g. Agricultural, farming, horticulture, vermiculture, permaculture etc. etc. and the like. Are these activities not education? What would happen to them?

Wikipedia gives the definition of Education as under-

Education is a purposeful activity directed at achieving certain aims, such as transmitting knowledge or fostering skills and character traits. These aims may include the development of understanding, rationality, kindness, and honesty. Various researchers emphasize the role of critical thinking in order to distinguish education from indoctrination. Some theorists require that education results in an improvement of the student while others prefer a value-neutral definition of the term. In a slightly different sense, education may also refer, not to the process, but to the product of this process: the mental states and dispositions possessed by educated people. Education originated as the transmission of cultural heritage from one generation to the next. Today, educational goals increasingly encompass new ideas such as the liberation of learners, skills needed for modern society, empathy, and complex vocational skills.

Types of education are commonly divided into formal, non-formal, and informal education. Formal education takes place in education and training institutions, is usually structured by curricular aims and objectives, and learning is typically guided by a teacher. In most regions, formal education is compulsory up to a certain age and commonly divided into educational stages such as kindergarten, primary school and secondary school. Non-formal education occurs as addition or alternative to formal education. It may be structured according to educational arrangements, but in a more flexible manner, and usually takes place in community-based, workplace-based or civil society-based settings. Lastly, informal education occurs in daily life, in the family, any experience that has a formative effect on the way one thinks, feels, or acts may be considered educational, whether unintentional or intentional. In practice there is a continuum from the highly formalized to the highly informalized, and informal learning can occur in all three settings. For instance, home-schooling can be classified as non-formal or informal, depending upon the structure.

Public libraries are now acknowledged to be an indispensable part of community life as promoters of literacy, providers of a wide range of reading for all ages, and centres for community information services. Yet, although the practice of opening libraries to the public has been known from ancient times, it was not without considerable opposition that the idea became accepted, in the 19th century, that a library’s provision was a legitimate charge on public funds. It required legislation to enable local authorities to devote funds to this cause.

Public libraries now provide well-stocked reference libraries and wide-ranging loan services based on systems of branch libraries. They are further supplemented by traveling libraries, which serve outlying districts.

In Maharashtra the public libraries are governed under the Education Dept. of State Govt.

After giving a thorough thought to the narrow definition ruled by Hon. Supreme Court, under the Income Tax Act, 1961, do we not need to redefine the word Education?

7. Comparison between 10(23C) and Section 11

For the sake of convenience, the four provisions are reproduced as under-

Section 10(23C)

(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government;

(iiiad) any university or other educational institution existing solely for educational purposes and not for the purposes of profit if the aggregate annual receipts of the person from such university or universities or educational institution or educational institutions do not exceed five crore rupees;

(vi) any university or other educational institution existing solely for educational

purposes and not for purposes of profit, other than those mentioned in sub-clause (iiiab) or sub-clause (iiiad) and which may be approved by the prescribed authority.

Section 11

(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.

Hon. Supreme Court has referred to clause (4A) of Section 11 and has observed that,

71. This reasoning equally applies especially in Section 11(4A) which speaks of profits incidental which specifies that exemption in relation to income or trust of an institution which are profits or means of business cannot be exempted unless the business is incidental, trust or as the case may be institution and separate books of accounts are maintained by such trusts or institution in respect of such business. Thus, the underlying objective of seventh proviso to Section 10(23C) and of Section 11(4A) are identical. These have to be read in the light of the main provision which spells out the conditions for exemption under Section 10(23C) – the same conditions would apply equally to the other sub-clauses of Section 10(23C) that deal with education, medical institution, hospitals etc.

In my personal view, the parameters for exemption u/s 11 are not affected by this judgment as far as the educational institutions are concerned. As per section 11(4A) the business, if any, is carried out then it must be incidental to education.

However, it is advisable for all the educational trust/societies to revisit their object clauses and

realign the same with the principles enunciated by this judgment.

If the educational trust/society etc. is carrying out any activity which cannot be called educational or incidental to education, will have to hive off that part either to other trust/society or form a new trust/society and carry out the same separately under the new entity.

Otherwise the existing trust is certainly going to face the music in the years to come.

8. What needs to be done?

The spears of education always keep To define the term too narrowly to only cover the scholastic academic education, other fields which have developed beyond the scholastic education will suffer very harshly and the effects are disastrous.
What is meaning of the term “solely” is defined and interpreted narrowly as against the same was defined widely with the parameter of “predominant object”. For the educational trusts/societies/ institutions, the predominant object test which was hitherto ruled the scenario is overruled now and the objects have to be aligned with education only.
No parent would ever permit the pupil to be admitted to an institution with an inadequate To maintain a high standard of service, the educational trusts/societies will have to maintain their infrastructure and continuously upgrade it to keep in tune with the time.
As the word “solely” is very narrowly defined by Hon. Supreme Court to cover only the scholastic academic education, the basic clauses (iiiab), (iiiad) and (vi) of Section 10(23C), these provisions certainly need to be revisited and redefined to make it wide enough to cover the entire spectrum of education under the same, if India wishes to improve its educational sector infrastructure.
At present the provisions focus on monitoring the One of the suggestion is to monitor the spending instead of creating an artificial and highly debatable and subjective limits or cap on the receipts.

Drafting of the Object clause – Draftsmen try to make it all inclusive as the amendment of the same poses a long and tedious procedure under the state and central laws in addition to those under the Income Tax Act, which makes it compulsory to get it approved from the proper authorities for exemptions u/s 11, 12 and 10(23C). This will have to change drastically.

9. Stanford University’s tax system

I am not an expert in international taxation. But for this subject searched the taxation of Stanford University as I have visited this University personally and have some contacts.

The income of the University is exempt. The definition of exemption gives an interesting insight to the other income which is not exempt.

The words used are “unrelated business” to make the income taxable.

It is defined as under-

For most organizations, an activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements:

It is a trade or business,
It is regularly carried on, and
It is not substantially related to furthering the exempt purpose of the organization.

There are, however, a number of modifications, exclusions, and exceptions to the general definition of unrelated business income.

It means if the activity is substantially related to the exempt purpose the same is also exempt. This is quite wide and sufficient to cover the allied, but not necessarily incidental, activities of any educational trust/society.

This is too similar to the predominant object theory which prevailed hitherto.

This is just a sample and is given with only primary look into the taxation of that university. An in-depth comparative study of other countries would certainly throw more light on the issue. We as a country can be guided in the light of the same.

Is it not possible for our country to incorporate the wordings or the like to stop the menace of using the word “solely”?

10. Conclusion

The judgment has disastrous effects.

To usher India’s educational sector especially in its infrastructure, with the advancement of technology and tremendous changes since the “third wave”, is it not possible to align the definitions in section 2(15) and exemption sections to make the scope of Education enough wide and clear to avoid any confusion and avoid the costs of litigation?

Part –B

Now let us discuss the landmark judgment in the case of

ACIT (Exemptions) v. Ahmedabad Urban Development Authority, (2022) 115 CCH 0156 ISCC, (2022) 449 ITR 0389 (SC), [2022] 143 taxmann.com 278 (SC), dt. 19-10-2022.

It is a big judgment in every respect. The case covers a wide spectrum of assessees and as many as thirteen senior counsels argued for various parties to the case. The judgment delivered runs into 150 pages and is styled like a book with proper page wise Index to subjects.

The Advancement of any other object of general public utility (GPU) category is always treated different from the per se purposes of medical relief, education, relief to poor, to which are added preservation of environment, preservation of monuments or places or objects of artistic or historic interest, and yoga, states the Court.

“Advancement of any other object of general public utility” (GPU) is the subject of interpretation of this case, says Hon. Supreme Court.

The cases mainly relate to assessment years subsequent to amendment in S. 2(15) and the primary question before the Supreme Court was the correct interpretation of the proviso to Section 2(15), which defines ‘Charitable purpose’.

Hon. Supreme Court has clarified that an assessee advancing GPU cannot engage itself in any trade, commerce, or business or provide service in relation thereto for any consideration. In the course of achieving the object of GPU, the concerned organisation can carry on trade, commerce, or business or provide services in relation thereto for consideration, provided that:

The activities of trade, commerce, or business are connected to the achievement of its objects of GPU; and
The receipt from such business or commercial activity or service in relation thereto does not exceed the quantified limit of 20% of total receipts of the previous year.

Charging an amount towards consideration for such an activity (advancing GPU), which is on a cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto.

Only when the consideration is significantly above the cost incurred by the assessee, it would fall within the mischief of “cess, or fee, or any

other consideration” towards “trade, commerce or business”.

Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities should be conducted in the course of achieving the GPU object, and the income, profit, or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15) has not been breached.

The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee’s activities amount to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in proviso to Section 2(15), has been breached, thus disentitling them to exemption.

Hon. Court has also observed that the Central Govt. would have to decide on a case to case basis whether and to what extent exemption can be awarded to bodies that are notified under S.10(46).

1. On the issue of binding nature of Circulars

Hon. Court first went through and analysed the history of the sections right from the Act of 1922 which did not define charitable purpose, till the 1961 Act and amendments under the same.

On the issue of binding nature of circulars, it ultimately quoted excerpts from Ratan Melting and Wire Industries case:

6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions They are not binding upon the court It is for the Court to declare what the particular provision of statute says and it is not for the Executive Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.”

And concluded that

123. In the opinion of this court, the views expressed in Keshavji Ravji [(1990) 183 ITR 0001], Indian Oil Corporation [(2004) 267 ITR 272], and Ratan Melting and Wire Industries, [(2008) 220 CTR 0098], (though the last decision does not cite Navnit Lal Jhaveri), reflect the correct position, i.e. that circulars are binding upon departmental authorities, if they advance a proposition within the framework of the statutory provision. However, if they are contrary to the plain words of a statute, they are not binding Furthermore, they cannot bind the courts, which have to independently interpret the statute, in their own terms. At best, in such a task, they may be considered as departmental understanding on the subject and have limited persuasive value. At the highest, they are binding on tax administrators and authorities, if they accord with and are not at odds with the statute; at the worst, if they cut down the plain meaning of a statute, or fly on the face of their express terms, they are to be ignored.

2. Interpretation of Section 2(15)

The court analysed the provisions since its insertion and its journey till amendments by F. Act 2015.

The Hon. Apex Court has thoroughly analysed the term “unless the context otherwise requires”, “in the nature of”, “business”, “in relation to” occurring in S. 2(15) and its provisos and the changes in the section, and how the judicial thinking has shaped it.

It has analysed the term “any other object of general public utility” and the sentence “not being charitable purpose “if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.”

It states that:

138. Parliamentary endeavour, was to alter the regime applicable to taxation of GPU category charities, under the IT Act. The absolute bar imposed on GPU charities from carrying on activities in the nature of trade, commerceor business, or of rendering any service inrelation to any trade, commerce or business,for a cess or fee or any other consideration, evidences this intent. The original Section 2(15) did not allude to trade, commerce or business, or any service in relation to such activities. It only enjoined the GPU charities from involving themselves from carrying on of any activity for profit (which was interpreted in Surat Art Silk). This substantial change brought about by the amendments of 2008-2012 and 2015 is the prohibition from engaging in any kind of activity in thenature of business, commerce, or trade or any rendering any service in relation thereto, and earning income by the way of cess, fee or consideration. In the opinion of this court, the express deletion of the reference to ‘activity for profit’ on the one hand, and the enactment of an expanded list of what cannot be done by GPU charities if they are to retain their characteristic as charities, is an emphatic manner in which Parliament wished to express itself.

It, after taking note of the arguments in brief by the parties on the ground of the term business and analysing it, the Court concluded that:

142. What then is the true meaning of the expressions “fee, cess or consideration”? The careful analysis of the amended proviso to Section 2(15), reveal that the prohibition applies in a four-fold manner-

The bar to engaging in trade, commerce or business,
The bar to providing any service in relation to trade, commerce or business,
Wherein “for a fee, cess or any other consideration” is the controlling phrase for both (a) and (b) (which are collectively referred to as “prohibited activities” for brevity)
irrespective of the application of the income derived from such ‘prohibited activities’.

After analysing terms “cess”,“fee”and“consideration”, the Hon. Court has summarised the interpretation of S.2(15) as under:

152. Section 2(15) – in the wake of its several amendments between 2008 and 2015 – can be juxtaposed with the interpretation of the un-amended Section 2(15) by this Court. In Surat Art Silk [(1980) 121 ITR 0001] the principle enunciated was that so long as the predominant object of GPU category charity is charitable, its engagement in a non-charitable object resulting in profits that are incidental, is The court also declared that profits and gains from such activities which were non-charitable had to be deployed or “fed” back to achieve the dominant charitable object.

153. The paradigm change achieved by Section 2(15) after its amendment in 2008 and as it stands today, is that firstly a GPU charity cannot engage in any activity in the nature of trade, commerce, business or any service in relation to such activities for any consideration (including a statutory fee etc.). This is emphasized in the negative language employed by the main part of Section 2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso which carves out the condition by which otherwise prohibited activities can be engaged in by GPU charities. The conditions are:

That such activities in the nature of trade, commerce, business or service (in relation to trade, commerce or business for consideration) should be in the course of “actual carrying on” of the GPU object, and
The quantum of receipts from such activities should be exceed 20% of the total receipts
Both parts of the proviso: (i) and (ii) (to Section 2 (15)) have to be read conjunctively-given the conscious use of “or” connecting the two of This means that if a charitable trust carries on any activity in the nature of business, trade or commerce, in the actual course of fulfilling its objectives, the income from such business, should not exceed the limit defined in sub- clause (ii) to the proviso.

3. Hon. Supreme Court divided it into five groups as under:

Authorities, Corporations or bodies established by statutes,
Statutory Regulators
Trade Promotion bodies
Sports Associations; and
Private Trusts

and has summarised the judgment for each of them in separate paragraphs. However, the underlying principle for all of them stated is that:

Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto.

It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”.

4. What is nominal or mark-up limit?

Hon. Court has although emphatically mentioned about the nominal or mark-up limit over the cost, but has not defined or clarified what it is. This is left to the legislature to define it and insert in the law, else the revenue is certain to create and make the lacunae a big chaos. An officer working in the field is not likely to have a judgment of what is markedly excess and what is nominal. Without any guiding factor, every officer will have his own judgment, leading the entire situation to sheer chaos.

Best examples are stay applications and Reassessment cases. Although Hon. Supreme Court itself has laid down the principle that it will be open to the authorities, on the facts of individual case, to grant deposit orders of a lesser amount that 20 per cent, pending appeal. [Principal CIT v. LG Electronics India (P) Ltd. (2018) 303 CTR (SC)]. But, practically the authorities do not even wish to read the judgments quoted and given with the stay applications.

Similar is the scenario in reassessment cases. There are cases where Hon. High Court has stayed further proceedings u/s 148A, still the officers have taken further steps in the matter conveniently ignoring, the Hon. High Court’s stay orders, for reasons best known to them.

5. Hon. Supreme Court’s duty

What Hon. Supreme Court has done is, interpreted the law passed by the legislature, as it stands in the statute books.

While reading these judgments, I am reminded of the words of Hon. First Chief Justice Harilal J. Kania, on the occasion of opening of the Supreme Court of free India on 28th January, 1950:

It is not the function of the court to supervise or correct the laws passed by the legislature as an overriding authority. It is its function and duty to point out, when examining the acts of individuals or of the executive authority purporting to be done under some act of the legislature, the lacunae or the loopholes only with the object that, if so desired, the legislative authority may put matters right.

Through various judgements discussed in the series, Hon. Supreme Court has pointed out the lacunae and the loopholes of the law relating to charitable trusts and institutions. Now it is the legislature to put the matters right through corrective amendments to make the functions smooth and to set right the path of growth in the right direction and perspective of the entire charitable sector.

The judgments discussed underline the need as never before, for the law makers, to take utmost care while drafting the law and check all the possible effects of the same before passing and putting it on the statute books.

Let us hope the amendments on a positive side in the coming budget and Finance Bill.

Friends,

The year 2023 is an year of hope, optimism, joy, affection, innovation, artificial intelligence and looking to futuristic trends in life. After almost two year of Covid related issues we are hopeful that 2023 would be a year which would be free of diseases and will bring new buoyancy in the economy.

The New team has taken charge from 1st January, 2023 and we had our first program at Hotel Lalit at New Delhi on 6th January, 2023 which was organized by AIFTP North Zone and West Zone together with Maharashtra Tax Practitioner Association and Sales Tax Bar Association, New Delhi. There was gathering of almost 400 Tax Professionals from throughout India. Credit goes to Mr. Narendra Sonawane of MTPA and Mr. Sripad Bedarkar of MTPA. The special credit goes to Mr. O.P. Shukla, Chairman, North Zone for his efforts and getting registration of around 300+ Members. Sh. Ashvin Acharya, Chairman, West Zone also deserves appreciation for the efforts and Coordinating for the program. My thanks to my dear friend Mr. Sanjay Sharma, President, Sales Tax Bar Association. New Delhi for all the support and encouragement.

The next program for month of January is being organized by AIFTP East Zone on 20th – 22nd of January at Kolkata with WBNUJS. It is a National Evaluative Conference on GST @ 5 which will be discussing impact of GST on Central – State physical and the structural and working of GST Law. Office bearer meeting is also called at Kolkata on 20th January, 2023.

We are working to celebrate 26th January i.e. the Republic Day and also planning to organized some programmes in South.

The National Tax Conference and the NEC will be held on Puri on 3rd – 5th February, 2023. The Conference will be organized on a large scale and Speakers from all over India are the star attraction of the NTC. My request to all Members to participate in large number in the Puri NTC & NEC. Special efforts are being done by the AIFTP Eastern Zone Chairman Mr. Bibekanand Mohanti and the National Vice President, Eastern Zone Mr. Vivek Agarwal for the Conference. Mr. Pradosh Patnaik, Joint Secretary, AIFTP, Eastern Zone if Coordinative for the success of the NTC.

In between of the programmes the budget talk on virtual platform is being organized on 1st & 2nd Feb., 2023 by all Zones. Details of the Budget talks will be circulated shortly.

We are working on connecting the Members of AIFTP to the global world. Accordingly we had decided to launch “AIFTP Global Connect”. It will be a search facility on the website of the AIFTP wherein any person can search the presence of AIFTP Member in any city and can connect with him for the professional work etc. Initially we are making it available to all AIFTP Members and shortly the Members who will verify their data and correct the same on the website of the AIFTP will be given priority and will be said to be the AIFTP verified.

I convey my thanks and gratitude to all the Members for electing me as the National President for the year 2023. It will be my endeavour to work for the tax fraternity and to spread the knowledge and to follow the motto of Ethics, Education and Excellence.

On behalf of AIFTP I convey my best wishes for the happy and prosperous New year, 2023 and a very happy Republic Day.

Regards,

Pankaj Ghiya

National President, 2023

Dear Friends,

Wish you all a very happy, prosperous and eventful year 2023. The Hon’ble Supreme Court, on 2nd January, 2023, upheld the validity of the notification dated 8th, November, 2016, through which the currency notes of Rs. 500/- and Rs.1000/- were scraped. As per court the said notification cannot be termed to be unreasonable and struck down on the ground of decision – making process. However, Hon’ble Justice Nagarathna, differed with the majority judgement on the point of the Central Government’s powers under section 26(2) of the RBI, Act. As per the Hon’ble Justice Nagarathana the Parliament should have discussed the law on demonetization, the process should not have been done through a Gazette notification. Parliament cannot be left aloof on an issue of such critical importance for the country. The Apex Court was the view that “There has to be great restraint in matters of economic policy. Court cannot supplant wisdom of executive with its wisdom. “The Apex Court held that demonetization has a reasonable nexus with the objectives i.e. eradicating black marketing, terror fending, etc. sought to be achieved. It is not relevant whether the objective was achieved or not.

I have a very interesting quote of Mildred Aldrich, who in an American Journalist, lived during 1853 to 1928, passed away in France, once said “There is a law which decrees that two objects may not occupy the same place at the same time-result: two people can not see things from the same point of view, and the slightest

difference in angle changes the thing seen” This statement is correct, especially in the contest of divergence views of courts on the same issue.

In this issue of the Journal eminent professionals have contributed articles on important and relevant issues for we professionals. I am grateful to all the esteemed professionals for sparing their valuable time for the Journal.

K. Gopal,

Editor

Sr. No.	Name of Members	Profession	Zone
1	Kumar Kundan	Adv.	East
2	Punit Kesarwani	Adv.	North
3	Sanjay Kumar Murarka	CA.	East
4	Anjali Rathi	CA.	East
5	Anil Agrawal	Adv.	Central
6	Aarti Jain	CA.	Central
7	Aditya Sharma	GSTP	South
8	Amit Kumar Upadhyay	Adv.	North
9	Rajat Agrawal	CA.	East
10	Hemant Kumar Sahu	Adv.	East
11	Bhavik Bhatia	CA.	Central
12	Lokeshs Singh	Adv.	East
13	Sitaram Agrawal	Adv.	North
14	Kancharla Satish	Adv.	South
15	Rajendra Kumar Tripathi	Adv.	North
16	Atul Kumar Gupta	Adv.	Central
17	Vikas Mittal	CA.	North
18	Hemchand Kumawat	Adv.	Central
19	H. V. Vasanth Kumar	CA.	South
20	Kishor C. Gupta	Adv.	West
21	Anil Kumar Agrawal	CA.	East
22	S. Mahboob Basha	GSTP	South
23	Mahesh Kumar Dudeja	Adv.	North
24	Yashasvi Bansal	Adv.	Central
25	Rohit Sharma	CA.	North
26	Rajesh Kumar Khurana	Adv.	North
27	Adarsh Gupta	CA.	East
28	Tarun Modi	CA.	Central
29	Chetan Agarwal	CA.	North
30	Indra Pal Pandey	Adv.	North
31	Vasu Goyal	Adv.	North
32	Abhinay Singh	CA.	East
33	Revathi Babu	Adv.	South
34	R. Ramachandran	CA.	South
35	Manish Kanth	Adv.	North
36	Bakkiya Narayanan	GSTP	South
37	Ruchita Dhoot	CA.	Central
38	Divesh Chawla	Adv.	West
39	Pramod Kumar Bhatia	CA.	Central
40	Somnath Ghosh	CA.	East
41	Sudhanshu Dwivedi	Cost Accountant	North
42	Manish Binani	CA.	West
43	Vidyadhar S. Apte	Adv.	West
44	Narendra Kumar Sharma	Adv.	North
45	Utkarsh Singhal	Adv.	North
46	Rounak Kothari	Adv.	Central
47	Prem Singh	Adv.	Central
48	Vijay Kumar Gupta	CA.	North
49	Rupak Kapoor	Adv.	North
50	Gulab C. Gupta	Adv.	North
51	Ravindra Tripathi	Adv.	North
52	Pranjal Shukla	Adv.	North
53	Manju Agarwal	Adv.	East

Monthly Archives: April 2023

Digital Virtual Assets and its Tax Implications

A comparative analysis of the old reassessment regime vis-a-vis the new reassessment regime

A comparative analysis of the old reassessment regime vis-à-vis the new reassessment regime

Adjustments u/s 143(1)(a) of Income Tax Act – An avoidable litigation

Liability to Deduct Tax – TDS u/s 194R on Benefit or Perquisite in Business or Profession

Professional Friends Beware and Be careful of Penal Provision u/s. 271AAD of The Income Tax Act

Taxation of Trusts: Recent Judgments-2

President’s Communique

From the Editor

List of New Members Admitted In NEC held on 18-03-23 at Lucknow