1. S. 2(1A) : Agricultural income – Income derived from sale of saplings and seedling grown in a nursery alone shall deemed to be agricultural income – subsequent operation, i.e., supply of fertilizer, supply of soil, engaging horticulturists, insuring the plant, making pits and other related activities carried out in assessee’s nursery but in client’s site cannot be termed as secondary operation and hence not agricultural income. [S. 10(1)]

    The Tribunal observed that the primary operation done in assessee’s nursery confine only with regard to growing of plants and saplings. The subsequent operation, i.e., supply of fertilizer, supply of soil, engaging Horticulturists, insuring the plant, making pits and other related activities even assuming it is secondary operation was never carried out in assessee’s nursery but in client’s site. Plants and saplings are planted in the client’s site and became the property of the client. Thereafter the assessee’s role is only to tend these plants and saplings. The services so performed are in the nature of maintenance and cannot be termed as secondary operation in the strict sense of the term. The Tribunal held that income derived by the assessee by activities other than sale of plants raised in its own nursery is not in the nature of agricultural income falling within the definition of section 2(1A) of the I.T. Act. (AY. 2016-17)

    Jayanti Botanical Gardens v. ITO (2021) 61 CCH 342/ 211 TTJ 15 (UO) (SMC) (Bang) (Trib.)

  2. S. 9(1)(i): Income deemed to accrue or arise in India – Business connection – If an Indian agent has been paid an arm’s length remuneration, nothing further could be taxed in hands of Assessee – DTAA- India – Mauritius [Art, 5(4)]

    The Assessee being a foreign telecasting company incorporated in Mauritius sold advertising time and collected subscription revenues through its Indian affiliates Zee Telefilms and El Zee. It is the claim of the Assessee that it did not have any permanent establishment in India, and so, no part of its income was taxable in India. Further on without prejudice basis the Assessee contended that if that Assessee was held to have a dependent agent permanent establishment, no further profits could be attributed in the hands of the Assessee as the agent had been paid arm’s length remuneration services rendered. Upon appeal by the revenue, the Hon’ble Tribunal observed that the case of the revenue is clearly confined to the existence of DAPE on the facts of this case. The existence of dependent agency permanent establishment is wholly tax-neutral, unless it is shown that the agent has not been paid an arm’s length remuneration, and when it is not the case of the AO, that the agents have not been paid an arm’s length remuneration, the question regarding the existence of dependent agency permanent establishment, i.e., under article 5(4), is a wholly academic question. (AY. 02-03,04-05,05-06)

    ADIT v. Asia Today Ltd (2021) 210 TTJ 8 (Mum) (Trib.)

  3. S. 10B: Export oriented undertakings – Production and Export of pasteurized crab meat – procurement of non-living dead crab and then process into chemical mixed pasteurized crab meat in a series of manufacturing process – Fall under the new definition of manufacture -Deduction allowable [S. 2(29BA)]

    The AO disallow deduction claimed u/s.10B stating that, the activities carried out by the assessee for production and export of pasteurized crab meat is not a manufacturing activity because the term ‘manufacture’ has been defined by insertion of new definition by the Finance Act, 2009 u/s.2(29BA) of the Act. Tribunal held that, the assessee is a newly established 100% export oriented undertaking, set-up a new manufacturing facility at Madras Export Processing Zone. The EOU set up by the assessee for manufacture and export of pasteurized crab meat was approved by the Development Commissioner, Govt. of India as a 100% export oriented unit for manufacture and export of goods or things. The assessee is also registered under the Central Excise Act, 1944 as a manufacturer and the goods manufactured by the assessee are treated as distinct commodities under Customs and GST laws. Activities carried out by the assessee as a manufacturing or production of goods or article or thing, which qualifies for deduction u/s.10B and there is no change in activities carried out by the assessee in the year 2004-05 when the deduction was first allowed and in the year 2009-10 when the deduction was rejected by the AO by virtue of new word ‘manufacture’ inserted under clause 2.(29BA) of section 2 of the Act. As per activities undertaken by the assessee, said activity was considered as manufacture or production for the purpose of deduction u/s.10B of the Act. There is no change in physical activities carried out by the assessee. The purpose of S.10B is to give effect to EXIM policy. Therefore, the statute has provided deduction all units established as 100% EOU as per EXIM Policy u/s 10B of the IT Act. (AY. 2010 – 2011)

    Handy Waterbase India Pvt. Ltd. v. Dy. CIT (2021) 211 TTJ 950 (Chennai)(Trib.)

  4. S. 11: Property held for charitable purposes- Amount spent on construction of buildings for its medical college would be treated as application of income for objects of trust and, hence, would qualify for exemption under section 11- factum of incurring such expenses by way of cash alone could not be a ground to hold that those expenses were related to non-specified purpose- Denial of exemption was held to be not justified – No violation. Section. 13 of the Act [S. 2(15), 12A, 13 69C, 132(4)]

    The assessee is a charitable trust registered under Section 12A of the Act. A search was carried out at the premises of the assessee on 18th July, 2013. It was held that:

    1. Amounts paid to contractors in cash or for other non-specified purposes cannot be added as unexplained expenditure under Section 69C of the Act simply because they have been paid in cash, and without any material to sustain the addition and merely if the assessee has not produced evidence in addition to the books of account, if the assessee has accounted for the expenditure in its books of account, and the same has been audited as genuine and the Assessing Officer has not rejected the books of account, the addition is to be deleted. Even if the expenditure is deemed to be for non-specified purposes, the assessee must have the benefit of the Explanation to Sections 11(1) and 11(2) of the Act.

    2. Information found during the course of search pertaining to amounts given as unsecured loans cannot be added to the income of the assessee since the CIT(A) has given a clear finding that the amounts do not belong to the assessee. Also, the matter was remanded to the Assessing Officer for the limited purpose of verifying the bank statement showing payments of the amounts not from the assessee but from an account of a third party viz. Hotel Solitaire.

    3. Amounts withdrawn by the assessee from the bank and alleged to have been made to three parties cannot form the basis of addition since additions cannot be made on surmises and conjectures. The amounts were recorded in the books of account and there was nothing to show that payments had been made to the three parties mentioned. Also, the break-up of payments were not provided the Assessing Officer. The Assessing Officer ought to have made an enquiry pursuant to the books of account but none was made and hence the addition is deleted.

    4. Amounts received as development fee over and above that prescribed by the government cannot be termed as capitation fee is the Assessing Officer has no material to show that the amounts received were not in the nature of voluntary donations. Reliance placed on statements of persons that the assessee collected capitation fee cannot be accepted since no opportunity of cross examination was provided to the assessee. Also, there was no evidence to show that payments were made de hors the books of account. Hence, the additions on account of capitation fee are to be deleted and exemption under Section 11 to be given.

    5. A statement made during course of search under Section 132(4) of the Act cannot form basis of addition even if the same is not retracted since neither the assessee nor the AO could justify the addition and in fact the assessee has produced evidence through books of account that the payment was made towards construction. It is the duty of the Assessing Officer to prove the same with corroborative documentary evidence and failure to do so would warrant deletion of addition. Also, the assessee had made the statement under a wrong notion of law and to buy peace with the department . (AY. 2010-2011,2011-20122012-2013 2013-2014, 2014-2015)

    Sri Srinivasa Educational & Charitable Trust v. ACIT (2021) 211 TTJ 663 / 182 ITD 554/ 204 DTR 265 (Bang) (Trib.)

  5. S. 32 : Depreciation -Biometric system’ is a ‘Computer’ and depreciation is to be allowed @60%

    The Hon’ble Tribunal held that, if the biometric system is detached from the computer, the same does not serve the purpose for which it is intended. Therefore, held that biometric system is a computer and the depreciation required to be allowed is at higher rate. (AY. 13-14)

    Instrument Technologies v. ACIT (2021) 209 TTJ 675 (Vishakha) (Trib.)

  6. S. 32 :Depreciation -Goodwill – Capitalized goodwill on account of excess consideration – Commercial rights – Eligible depreciation. [S. 32 (1)(ii)]

    The Hon’ble Tribunal relying on the SC decision of CIT v. Smifs Securities Ltd. (2012) 348 ITR 302 (SC) and Hyderabad Tribunal in case of M/s SKS Micro Finance Ltd held that depreciation could not be denied to the Assessee merely because the assets were classified as ‘goodwill’ in the books of account without appreciating the true nature of the assets if they can fall under the scope of ‘any other business or commercial rights of similar nature’. It was further held that the specified intangible assets acquired under slump sale agreement were in the nature of “business or commercial rights of similar nature” specified in section 32(1)(ii) of the Act and were accordingly eligible for depreciation under that section. (AY. 2015-16)

    JX Nippon Two lubricant India Pvt Ltd v. DCIT (2021) 210 TTJ 722 /202 DTR 59 (Delhi)(Trib)

  7. S. 32 : Depreciation – Westland Helicopters – Block of asset User of asset – The concept of user of assets has to apply upon block of asset as a whole instead individual assets – Denial of depreciation is held to be not valid . [ S. 2(11) ]

    Held that when a particular asset is part of block of assets even when that particular asset is not used in the relevant assessment year, the depreciation is allowable. Followed Sony India (P) Ltd v. CIT ( 2017) 88 taxmann.com 580 ( Delhi)( HC),CIT v. Oswal Agro Mills Ltd (2011 ) 341 ITR 467 ( Delhi)( HC) ( AY. 1995 -96)

    Pawan Hans Helicopters Ltd. v. DCIT (2021) 212 TTJ 1010 / 204 DTR 347 / (2022) 192 ITD 142 (Delhi) ( Trib)

  8. S. 36(1)(va) : Any sum received from employees – Where assessee deposited employee’s contribution to ESI after the due date under the respective Act but before the due date of filing the return of income under the Act, the same would not warrant any disallowance.[ S. 2(24)(x), 139(1)]

    During the year, the assessee deposited employee’s contribution to ESI amounting to Rs. 5,540 after the due date under the respective Act but before the due date of filing the return of income under the Act. The AO disallowed the same and the Ld. CIT(A), on further appeal, remanded the issue back to the AO to verify the claim and allow the same in case the payment was made before the due date of filing the return of income for the year. On appeal by the Department, the action of the Ld. CIT(A) was confirmed by the Hon’ble Tribunal. (AY. 2015-16)

    DCIT v. Saileela Synthetics Pvt. Ltd. (2021) 199 DTR 201/ 210 TTJ 763 (Jodhpur) (Trib)

  9. S. 37(1):Business expenditure – The expenditure necessary to maintain Assessee’s corporate personality would be an allowable expenditure even when no business was undertaken.

    Tribunal held that the expenditure which was quite necessary to maintain Assessee’s corporate personality would be an allowable expenditure since without incurring the same, the Assessee could not have remained into existence. Therefore, directed the learned AO to identify such expenditure and allow the same to that extent. (AY. 08-09 to 14-15)

    Sir Pratap Heritage Hotels (P) Ltd v. ACIT (2021) 209 TTJ 1 (UO) (Jodhpur) (Trib.)

  10. S. 40(a)(ia) : Amounts not deductible – Deduction at source – Contractor – Disallowance section is not warranted where the payee furnishes the return of income taking into account the sum(s) received from the payer, tax due on the return income has been paid and certificate of a Chartered Accountant to that effect has been furnished.[ S. 194C]

    Tribunal held that Pfizer Ltd. had taken into account the sum received from the assessee and has appropriately discharged it tax liability on its returned income. Further, it had also furnished a certificate from a Chartered Account to this effect. Accordingly, the Hon’ble Tribunal following the order of Assessee’s own case for AY 2009-10 and deleted the disallowance made by the AO by holding that the disallowance section 40(a)(ia) is not warranted in view of the second proviso read with the first proviso to section 201(1) inserted vide Finance Act, 2012 and which has been held to be retrospective by the Hon’ble Delhi High Court in CIT v. Ansal Land Mark Township (P.) Ltd ,ITA No. 160/ 2015 dt. 26 -8 -2015 . (AY. 2006-07)

    DCIT v. Pfizer Products (India) Pvt. Ltd. (2021) 198 DTR 273 / 210 TTJ 908 (Mum) (Trib)

  11. S. 43B : Certain deductions only on actual payment – Interest payable to Government of India is crystalized based on facts, even though not accounted in books due to comments of statutory auditor, and hence is allowed as expense on accrual basis even not accounted for in books.[S. 145]

    The Tribunal held that the liability to pay the interest amount payable to the Government of India is crystalized as evident from the waiver request of Aviation Ministry has been rejected by the Ministry of Finance and hence the deduction for the same cannot be disallowed on the grounds that it has not been accounted in the books of accounts when the same interest expenditure is allowed in the previous years. (AY. 1990-91)

    Pawan Hans Helicopters Ltd. v. DCIT (2021) 212 TTJ 1010/ 204 DTR 347/ (2022) 192 ITD 142 (Delhi) (Trib.)

  12. S. 45 : Capital gains – Amalgamation – sale of shares prior to transfer of business by way of slump sale and amalgamation – scheme of amalgamation approved by High Court and shareholders – allegation of scheme of amalgamation as an afterthought without any basis – capital gains already offered for tax by the amalgamating company – same cannot be taxed again in the hands of amalgamated company.

    In this case the Tribunal held that scheme of amalgamation was duly approved by two High Courts and shareholders, creditors and bankers of both the companies, Registrar of Companies, etc. at two places, after giving due notice by publication in newspapers and, therefore, it could not be said that the scheme of amalgamation was a colourable device and an afterthought. Therefore, consideration received on sale of share of another company by the amalgamating company prior to the scheme of amalgamation can be taxed in hands of amalgamating company only. (AY. 2003-04 to 2005-06).

    ACIT v. Investment trust of India Ltd. (2021) 211 TTJ 777 (Chennai) (Trib)

  13. S. 56: Income from other sources – Money kept in capital reserve account was invested in shares – Entire transactions were only in capital field no incidence of tax.[S. 2(47, 45(3) , 45(4), 56(2)(viia), 186]

    The Assessee was a partnership firm belonging to Shriram Group and held 100% shares in a group company Novus. Piramal Enterprises Ltd decided to acquire 20% stake in group company Shriram Capital Ltd (‘SCL’). However, since SCL could not allot shares to outsider directly due to restrictions from private equity investors, it decided to do so by joining assessee as a partner and infusing capital which was partly kept in capital reserve. The said money was utilized to make investment in the shares of Novus who inturn invested in shares of SCL and later got merged with SCL. As a result, SCL allotted shares to assessee.

    The AO held that Shriram group as a whole should have paid tax on the consideration received and the entire transaction was devised in order to avoid the tax liability and the same should be taxable under section 56(1) or section 56(2)(viia) of the Act.

    On assesses appeal the Ld. CIT(A) deleted the addition by holding that the capital reserves are created from capital receipts meant for capital investments and/or large anticipated expenses. As there was no income, section 56(1) is not applicable. The process adopted in assesses case was strategic and systematic investment by one industrial group in another group to synergise their mutual strengths and no colourable devise/tax planning was done.

    The Hon’ble Tribunal held that assessee firm even though had acted as an intermediate entity, it could not be construed as a conduit between the group companies and the whole transactions were to be understood in a holistic manner and could not be construed as a colorable device or a sham transaction. Accordingly, Hon’ble Tribunal held that the transaction was capital in nature and no addition under section 56(1) can be made. Further, since it is not the case of the AO that the money received is without any consideration or inadequate consideration, addition under section 56(2)(viia) could not be made. (AY. 2014 -15, 2015 -16)

    ITO v. Shrilekha Business Consultancy Pvt. Ltd (2021) 210 TTJ 34 / 202 DTR 361 (Hyd)(Trib)

  14. S. 56: Income from other sources – Not applicable where the sum has been received from non -resident -Addition was deleted. [S. 56(2)(viib), 68, Companies Act, 2013, S. 102]

    The Hon’ble Tribunal held that looking at the provisions u/s. 56 (2) (viib), it clearly applies to the resident and not to a sum received from a non-resident. Further looking at the various evidence produced by the Assessee, evidence obtained by the learned AO in terms of article 26 of the DTAA, the Tribunal held to not have found an iota of doubt about the creditworthiness and genuineness of the about transaction of allotment of compulsorily convertible redeemable shares resulting into allotment of shares from K start LLC of Mauritius. (AY. 16-17)

    Usekiwi Infolabs (P.) Limited v. ITO (2021) 209 TTJ 59/ 197 DTR 66 (Delhi) (Trib.)

  15. S. 56 : Income from other source – When the Assessee has adopted DCF method, one of the methods prescribed by the Act to determine fair value, then the AO cannot discard the same and adopt other method- The matter was restored back to the file of AO for afresh decision. [S. 56 (2)(vii)(b), R. 11UA]

    The Hon’ble Tribunal held that the AO could scrutinize the valuation report and if the AO is not satisfied with the explanation of the Assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the Assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the Assessee. But the basis has to be DCF method, and he cannot change the method of valuation which has been opted by the Assessee. For scrutinizing the valuation report, the facts, and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the Assessee as he has special knowledge, and he is privy to the facts of the company and only he has opted for this method. The matter is thus restored back to the file of the AO for a fresh decision with directions as above stated. (AY. 2014-15 )

    TSI Yatra (P.) Ltd v. ACIT (2021) 209 TTJ 596 (Delhi)(Trib.)

  16. S. 68 : Cash Credit – Addition not sustainable when the assessee has discharged its onus by filing necessary documentary evidences to prove genuineness of the transaction – no evidence brought on by AO to prove that the assessee has introduced its undisclosed income in the form of share application money.

    Assessee was asked to prove the genuineness and creditworthiness of the share applicants for which its inter-alia submitted complete details of share allotment including PAN of the applicants and relevant financial statements. However, the AO observed that some of the share applicants shared the same address while opining that neither of the share applicants carried out significant business activities and their profits as well as reserves were low. Further, notices under section 133(6) of the Act were issued to confirm the transaction but they did not elicit any satisfactory response. Even when the assessee filed affidavits of all share applicants and their latest communication address, the AO still made additions under section 68 of the Act. The Hon’ble Tribunal, ongoing through the facts and relying on the decision of the Hon’ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd. (216 CTR 195), concluded that the assessee had sufficiently proved the identity, genuineness, and creditworthiness of the share applicants while the Revenue failed to bring on record any evidence indicate malice on part of the assessee. The Hon’ble Tribunal, therefore, quashed the addition made under section 68 of the Act. (AY. 2015-16)

    DCIT v. M/s. Saileela Synthetics Pvt. Ltd. (2021) 199 DTR 0201(Jd) / (2021) 210 TTJ 0763 (Jd)

    Editorial: Due to divergence in approach adopted by coordinate benches, the Hon’ble Mumbai Tribunal in the case of Lotus Logistics & Developers Ltd (ITA Nos. 4057/Mum/2019) has proposed to constitute and refer the matter to the larger bench to adjudicate on the validity of the addition of share premium under section 68 of the Act where the identity, genuineness and creditworthiness of the party and the transaction has been established by the Assessee.

  17. S. 72: Carry forward and set off of business losses – Set off of loss returned by Assessee in subsequent assessment years could not be declined only for the reason that assessment for assessment year in which the losses arose, was in progress and pending. [S. 240]

    The Hon’ble Tribunal held that bearing in mind entirety of the case, the plea of the Assessee is upheld so far as set-off of loss returned by the Assessee cannot be declined by the AO in subsequent assessment years, only for the reason that the assessment for the assessment year 2014-15 is in progress. The AO is to be directed to allow, for the time being, the claim for set-off of loss brought forward, in the light of the above observations. The above direction, however, should not be construed as a direction for the grant of refund, if any is found admissible as a result of income computed as above, for the simple reason that a call will have to be taken by the AO as to whether, in the light of the discussions above, refund of taxes is permissible in such a situation in the light of first proviso to section 240. (AY. 16-17)

    Shelf Drilling Ron Tappmeyer Ltd. v. DCIT (2021) 209 TTJ 587/ 197 DTR 265 (Mum) (Trib.)

  18. S. 73 : Losses in speculation business – Share broker – Purchase and sale of shares – Loss incurred from error trades – Not speculative – Allowable as business loss [S. 28(i)]

    Hon’ble Tribunal held that assessee had carried out the transactions of purchase and sale of shares on account of a business exigency and not with an intention to earn profit, therefore, the same would not come within the purview of “Explanation” to section 73 of the Act. The loss on account of transaction in shares cannot be held to be speculation loss hence deleted the disallowance. (AY. 2003-04)

    CLSA India Private Limited v. ACIT (2021) 210 TTJ 484 (Mum) (Trib.)

  19. S. 92B : Transfer pricing – The term international transaction includes capital financing, which, in turn, also includes guarantee – effects of furnishing corporate guarantee directly percolated to the principal debtor, namely, AE for whom the assessee stood surety – thus, the department contention that the act of furnishing guarantee be treated as shareholder’s activity, is devoid of any merit. [S. 92C, 92CA]

    In the present case, the Appellate Tribunal held that on going through the ambit of “shareholder activity” as given in the OECD Guidelines on a general perspective, it becomes imminent that such activities are certain acts performed by a company solely because of its shareholding in other group companies, which is obviously not the case here. Au contraire, the effect of furnishing corporate guarantee directly percolated to the principal debtor, namely, the AEs for whom the assessee stood surety. Thus, the ground urging that the act of furnishing guarantee be treated as shareholder’s activity, is devoid of merits. Moreover, now with the statutory amendment specifically treating ‘guarantee’ as an international transaction, there remains no doubt whatsoever that the furnishing of corporate guarantee by an assessee is an international transaction. This ground is thus dismissed. (AY. 2014-15)

    Bilcare Ltd. v. ACIT (2021) 211 TTJ 429/ 207 DTR 257 (Pune) (Trib.)

  20. S. 92C: Transfer pricing – Arm’s length price – Depreciation adjustment can be allowed for computation of operating profit, only if there is variance in the depreciation rates applied with the comparable.[S. 32]

    The Tribunal held that, an adjustment in terms of sub-clause (iii) of rule 10B(1)(e) may be warranted when there is a difference in recording certain expenses on principle i.e., in the instant case, depreciation adjustment in the computation of Operating Profit can be allowed only when the rates at which the Assessee charged depreciation on fixed assets are at variance with rates at which the chosen comparables charged depreciation. It was for the verification of this, that the Tribunal had restored the matter earlier, and not to adjudicate the proposition already rejected. Further heeding to the plea of the Assessee for providing another opportunity to furnish this data, the Tribunal restored to the file of AO/TPO for deciding this issue afresh in the light of new calculation sheet(s). (AY. 07-08, 08-09)

    Vishay Components India (P.) Ltd v. ACIT (2021) 209 TTJ 664 / 198 DTR 102 (Pune) (Trib.)

  21. S. 92C : Transfer pricing – Arm’s length price – Transfer Pricing adjustment cannot extend to non-AE transactions and to that extent a proportionate adjustment is warranted.

    The Tribunal held that the transfer pricing adjustment cannot extend to non-AE transactions. The matter is remitted to the file of AO/TPO for restricting the transfer pricing adjustment only in respect of the AE transactions. (AY. 2015-16)

    Knorr Bremse Systems for Commercial Vehicles India (P.) Ltd v. DCIT (2021) 209 TTJ 1035 (Pune) (Trib.)

  22. S. 92C : Transfer pricing – Arms’ length price – safe harbour rules are optional for an eligible assessee – assessee has not exercised option for the safe harbour rules – entire set of rules from 10TA to 10TG cannot be operationalised. (ITR, 10B(1)€ & 10 TA)

    In this case the Appellate Tribunal held that if an assessee has not exercised option for the safe harbour rules, the entire set of rules from 10TA to 10TG cannot be operationalized in determining the Arm’s Length Price under the TNMM, or for that matter any other method under rule 10B, rule 10TA is not relevant. As such the TPO is not justified in applying the definition of ‘operating profit’ and ‘operating expense’ given under rule 10TA for the purposes of determining the Arm’s Length Price of the international transactions in the ‘manufacturing activity’ under the TNMM as enshrined in rule 10B((1)(e) of the Income Tax Rules, 1962. (AY.203-14)

    Dana India (P) Ltd v. DCIT (2021) 211 TTJ 271 (Pune) (Trib.)

  23. S. 115BB : Winning from lotteries – Irrespective of the head of the income, the winnings from lotteries shall be taxed at a special rate-The business loss incurred by the assesse after exclusion of prize money earned from the unsold lottery tickets is eligible for set off against such winnings from lotteries. [S. 2(24) (ix) 28(i), 56(2)(ib), 58(4), 71]

    The Tribunal held that the loss incurred by the area distributor from the unsold lottery tickets shall be eligible for set off against winnings from lotteries under Section 71 of the Act and the lottery winnings from lotteries shall be taxed under Section 115BB irrespective of the head to be taxed i.e., business income or income from other sources. (AY. 2014-15)

    Pooja Marketing v. PCIT (2021) 212 TTJ 306/ 204 DTR 1 (Mum) (Trib)

  24. S. 115BB : Winning from lotteries – Irrespective of the head of the income, the winnings from lotteries shall be taxed at a special rate-The business loss incurred by the assesse after exclusion of prize money earned from the unsold lottery tickets is eligible for set off against such winnings from lotteries.[S. 2(24) (ix) 28(i), 56(2)(ib), 58(4), 71]

    The Tribunal held that the loss incurred by the area distributor from the unsold lottery tickets shall be eligible for set off against winnings from lotteries under Section 71 of the Act and the lottery winnings from lotteries shall be taxed under Section 115BB irrespective of the head to be taxed i.e., business income or income from other sources. (AY. 2014-15)

    Pooja Marketing v. PCIT (2021) 212 TTJ 306/ 204 DTR 1 (Mum) (Trib)

  25. S. 147: Reassessment – After the expiry of four years – No allegation in the reasons recorded of any omission or failure on the part of the assessee in disclosing fully and truly all material facts necessary of assessment – Notice is void-ab-initio.[S. 148]

    It has been held by the appellate tribunal that the impugned notice is issued under section 148 of the Act after the expiry of four years from the end of the relevant assessment year and the AO nowhere stated in the reasons recorded that there was any omission or failure on the part of the assessee in disclosing fully and truly all material facts necessary for assessment under section 143(3) of the Act, impugned notice under section 148 as well as subsequent proceedings under section 147 of the Act is invalid. (AY. 2004-05)

    Bharti Cellular Ltd. v. DCIT (20221) 211 TTJ 760 (Delhi) (Trib.)

  26. S. 147: Reassessment- Initial year was AY 2010-11 wherein AO after detailed verification allowed the deduction – Subsequent year i.e. AY 2013-14 also deduction was allowed – Reopening is nothing but change of opinion and hence quashed. S.80IB(11C), 148]

    The Tribunal held that reopening of assessment was on the basis of information that was already available on record and no fresh information was received by the AO. Revisiting the same issue which was already considered in original assessment and taken the decision amounts to difference of opinion and on difference of opinion the reopening of assessment is not permissible. The Tribunal held that the reopening of assessment is bad in law and accordingly, quashed the notice issued u/s 148 and annul the assessment. (AY .2012-13)

    Ramya Hospitals v. ITO (2021) 62 CCH 29 / 211 TTJ 36 (UO)(Vishakha) (Trib.)

  27. S. 147: Reassessment – Value of sub-registrar on spot verification or value as returned by assessee to be taken into consideration. [S.50C, 148]

    The Assessing Officer must have some material and the material must be reliable before reopening the assessment. The valuation of the sub-registrar on spot verification showing an increase in the value of property for the purpose of addition under Section 50C of the Act is not supported by any revaluation order and no reference is made by the Director of Stamps to the sub-registrar and therefore no addition can be made.(AY. 2009-2010)

    Dhoot Stono Crafts Private Ltd. v. ACIT (2021) 212 TTJ 409 (Jaipur) (Trib.)

  28. S. 147: Reassessment – Reopening by issuing notice under Section 148 but no notice under Section 143(2)- Reassessment is bad in law. [S.143(2), 292BB]

    The reopening of an assessment cannot take place if only the notice under Section 148 of the Act is issued and no notice under Section 143(2) of the Act is issued prior to passing the reassessment order under Section 143 r.w.s 147 of the Act. The defect is not curable under Section 292BB of the Act.(AY. 2008-2009 )

    DCIT v. Board of Cricket Control in India (2021) 212 TTJ 937 (Mum) (Trib)

  29. S. 153A: Assessment – Search or requisition-No additions can be made in case of completed Assessments under search, without any incriminating evidence. [S. 132, 143(1), 143(3)]

    The Hon’ble Tribunal held that no assessment proceedings were pending against Assessee on the date of search, and it was not a case of abated assessment. Upon perusal of the assessment, it is evident that learned AO has not referred to any incriminating material against the Assessee and the additions made therein are also not based on any incriminating material. The business expenditure claimed that is sought to be disallowed was already claimed in the original return of income. Hence the additions are set aside. (AY. 08-09 to 14-15)

    Sir Pratap Heritage Hotels (P) Ltd v. ACIT (2021) 209 TTJ 1 (UO) (Jodhpur) (Trib)

  30. S. 153C : Assessment – Income of any other person – Search and seizure – loose paper in question was found from the possession of searched party – affidavit of searched person filed by the assessee to show that cash payment were made to landowners – deponent was not examined by the AO – No adverse inference can be drawn against the assessee.[S. 132]

    It has been held by the appellate tribunal that addition on account of on-money allegedly received by the assessee on sale of land could not be made in the assessment under s. 153C simply on the basis of some vague noting on a nondescript loose paper seized from the possession of the searched person (purchaser) and the statement of the said third party, without cross-examination, more so when the purchaser has filed an affidavit whereby he has affirmed on oath that the cash payments were not made to the assessee but to some old landowners/ Banakhat owners and others who were claiming ownership in the said land and the contents of the affidavit remain uncontroverted. (AY.2013-14)

    Kantibhai P. Patel v. DCIT (2021) 211 TTJ 187/ 208 DTR 54 (Ahd) (Trib)

  31. S. 154: Rectification of mistake apparent from record- No merger of order passed under Section 143(3) r.w.s 144C(1) with the reassessment order passed under section 147 if issues forming subject matter of assessment order not part of reassessment order which is quashed and assessment order can be rectified by AO with respect to those issues-Rectification cannot be made after CIT(A) has quashed assessment order [S. 115JB, 143(3)]

    If the addition was made under Section 115JB inadvertently, the same can be rectified under Section 154 by the AO and added under Section 143(3) instead of Section 115JB, the mistake being one apparent from the face of the record. It is settled law that there is no merger of the order of assessment with respect to issues not forming part of the reassessment order. Hence, the rectification of the assessment order to that extent is permissible .The rectification of the assessment order cannot be made after the appellate authority namely the Commissioner(Appeals) has quashed the assessment order in appeal. This would amount to acting contrary to the provisions of law and not rectifying but enhancing the assessment.(AY. 2009-2010)

    Intelenet Global Services (P) Ltd. v. ACIT (2021) 212 TTJ 182/ 202 DTR 169 (Mum) (Trib.)

  32. S. 195: Deduction of tax at source-Other sums- Tax at source(TAS) not liable to be deducted and no interest payable for failure to deduct TAS[S. 201(IA)]

    Where a transaction takes place between two foreign companies such that the shares of a third company being held by one the companies are purchased from that company and such that the third company is a parent of companies holding assets located in India, no deduction of tax at source ought to be made by the purchaser of the shares since the provision providing for deduction of tax was not in existence when the transaction took place making the deduction at source impossible. The transaction was effected on 11th July, 2008 and Explanation 2 to Section 195 was introduced w.r.e.f from 1st April, 1962 by the Finance Act, 2012. The deduction of tax at source was therefore held to be impossible. Consequentially no interest under Section 201(1A) is payable.(AY. 2009-2010)

    DCIT v. WNS Capital Investment Ltd (2021) 211 TTJ 641 (Mum) (Trib.)

  33. S. 240 : Refund –Refund due to the assessee as per the order passed by settlement commission – AO is bound to issue refund. [S. 199, 245C, 245D(4)]

    In this case the Hon’ble Appellate Tribunal held that order passed by the Income Tax Settlement Commission under S.245D(4) of the Act even de hors the filing of return under s. 139 is an order passed under ‘other proceedings un this A

    td (2021) 211 TTJ 907 (SMC) (Pune) (Trib.)

  34. S. 251 : Appeal – Commissioner (Appeals) – Powers – Additional evidence -Where the AO has not been provided adequate opportunity to go through the additional evidence, the admission and examination of the additional evidence by Ld. CIT(A) is completely inadequate. [S. 254(1), Rule 46A of Income-Tax Rules, 1962]

    During the year under consideration, the assessee issued shares at a premium by way of preferential and equity allotment which the AO held as unjustifiable due to the assessee’s negative earnings per share. Consequently, the AO made additions of the capital raised under section 68 of the Act. On appeal to the Ld. CIT(A), the assessee argued that it was not given a proper opportunity of being heard and submitted certain evidence which he could not before the AO. The Ld. CIT(A) accepted the additional evidence noting that the AO did not provide his comments despite the matter being remanded to him. The appellant proceedings were concluded with the Ld. CIT(A) deleted the additions relying on the additional evidence.

    On further appeal, the Hon’ble Tribunal observed that the AO was not provided with adequate time to provide his comments on the additional evidence. Further, the additional evidence provided to the AO for his comments consisted of bank statement along with the annual report and confirmation of the share subscribers but the Ld. CIT(A)’s order also mentioned of a share subscription agreement between the subscribers, the assessee company and its promoters being filed which was not provided to AO. This agreement was one of the basis of the Ld. CIT(A)’s favourable order and it was not provided to the AO for his comments. Accordingly, the Hon’ble Tribunal held that the admission of the share subscription agreement was in violation of Rule 46A of the Income-Tax Rules, 1962. The Hon’ble Tribunal further went on to hold that the rule of natural justice applies equally to Assessees and the Revenue and that the Ld. CIT(A) has committed an error by not affording the AO an opportunity of being heard and provide his comments. Finally, the Hon’ble Tribunal observed that the Ld. CIT(A) has neither effectively assessed the reasonability of the premium charged by the Assessee nor established the genuineness of the transaction. Accordingly, the matter was remanded back to AO for verification of the Assessee’s claim considering the additional evidence. ( (AY. 2009-10)

    DCIT v. Pipal Tree Ventures Pvt. Ltd. (2021) 210 TTJ 258 (Mum) (Trib.)

  35. S. 253 : Appellate Tribunal – Order of CIT(A) quashing the reassessment proceedings in the absence of valid sanction under section 151 not challenged before Appellate Tribunal – Appeal not maintainable on merits of the case. [S. 143(2), 147, 151, 253(2)]

    In this case the department did not challenge the order of the first appellate authority in quashing of reassessment proceedings in the absence of fresh tangible material and sanction under section 151 of the Act is invalid. Thus, the order of the Ld. CIT(A) on these questions becomes final and any result of department appeal cannot change the fate of departmental appeal. The revenue appeal would not be maintainable and is liable to be dismissed on this ground alone. (AY.2007-08 to 2010-11)

    ACIT v. SG Portfolio (P) Ltd (2021) 211 TTJ 970(Delhi)(Trib.)

  36. S. 254(1): Appeal to Appellate Tribunal-Powers – Request for adjournments of six months on account of COVID-19 pandemic was rejected – Lat opportunity was granted.

    Adjournments cannot be granted routinely but in view of the prevailing situation and the impact of COVID-19, a last chance/adjournment was granted to the Revenue. Adjournment of six months to be granted to the Revenue was rejected.(AY. 2014-2015)

    DCIT v. Saroj Kumar Poddar (2021) 212 TTJ 250 / 90 ITR 223 (Kol) (Trib.)

  37. S. 254(2) : Appellate Tribunal – Rectification of mistake apparent from the record – Order of the Tribunal, accepting the withdrawal of the appeals, passed on incorrect facts which were mistakenly represented and admitted by assessee’s counsel has resulted in an error in such Order and is liable for rectification [S. 263]

    The Tribunal held that the Order of the Tribunal having passed the Order accepting the request for withdrawal of appeals on the basis of mistaken representation made by the assessee’s counsel that the appeals did not survive under a wrong impression that the related assessment has been set aside by the CIT for de novo assessment in his order under Section 263, whereas the CIT had directed to examine specific issues, same has resulted in an error in the Order which is liable for rectification under Section 254(2) of the Act. Therefore, the Order of accepting the withdrawal has been recalled and the appeal needs to be adjudicated on merits. (AY. 2006-07 & 2008-09)

    Motia Construction Ltd. v. DCIT (2021) 212 TTJ 398 (Chd) (Trib.)

  38. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Depreciation – Lease hold rights- Revision is held to be valid [S. 32 (1)(ii)]

    The Hon’ble Tribunal held that in order to fall within the realm of ‘any other business or commercial rights of similar nature’ as contemplated in S. . 32(1)(ii) of the Act, and therein to be construed as an “intangible asset” eligible for depreciation under the said statutory provision, the ‘right’ under consideration would require to cumulatively satisfy a twofold test viz. (i). the right should be a business or commercial right; and (ii) the right though need not answer the description of the six specified intangible assets viz knowhow, patents, copyrights, trademarks, licenses, or franchises, but must be of a similar nature. The claim of the Assessee is thus rejected.. (AY. 12-13)

    Goldmohar Design and Apparel Park Ltd v . PCIT (2021) 209 TTJ 863 (Mum) (Trib.)

  39. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Limited scrutiny -The Revisional jurisdiction u/s 263 cannot be exercised for broadening the scope of jurisdiction that was originally vested with the A.O for limited scrutiny while framing the assessment and enlarging his scope of limited enquiry.[S. 143(3), 147]

    Held that the PCIT cannot invoke the jurisdiction under section 263 when there is no adverse finding in the limited scrutiny and in the absence of following the instructions No. 5/ 2016 dated 14-07-2016 issued by the CBDT, revisional jurisdiction under section 263 cannot be exercised. ((AY. 2015-16)

    Mahendra Singh Dhankar HUF v. ACIT (2021) 212 TTJ 902 / 204 DTR 377 (Jaipur)(Trib.)

  40. S. 263: Revision of orders prejudicial to Revenue- Twin conditions to be satisfied-Assessment order cannot be said to be erroneous in law- Revision was quashed.[S. 54F]

    Where the assessee, an individual, sold one property and purchased two properties, the disallowance with respect to 50% of the investment by the Assessing Officer cannot be said to be an erroneous decision. There must be some material with the Commissioner to revise the assessment order. Also, if the Assessing Officer has made all enquiries it cannot be said that there has been a lack of enquiry. Also, the proviso to Section 54F is not violated- the date of purchase vide registered sale deed and consequent possession is to be taken into consideration which is well beyond the period of one year, and not the agreement of sale.(AY. 2015-16)

    Virendra Singh Bhadauriya v. PCIT (2021) 211 TTJ 452/ 204 DTR 400 (Jaipur) (Trib.)

  41. S. 271(1)(c): Penalty for furnishing inaccurate particulars of income-Assessee intimated Assessing Officer well in advance of inadvertence of including receipt-Assessing Officer did not specify in notice whether notice is issued for concealing income or furnishing inaccurate particulars. [S. 143(2)]

    The Assessing Officer must clearly specify whether he is imposing penalty proceedings for inaccurate particulars of income or concealment of income. Also, when the assessee wrote to the Assessing Officer well in advance before the Section 143(2) notice was issued that the interest income was inadvertently not included then the Assessing Officer cannot initiate penalty proceedings against the assessee. (AY. 2009-2010)

    FCI Asia Pte Ltd. v. DCIT (2021) 212 TTJ 9 (UO) (Delhi)(Trib)

Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

  1. S. (11): Asset located outside India – Beneficial interest – Notice issued to assessee and order passed making addition on account of amount received in bank account where assessee is allegedly beneficial owner – Assessee not liable to be taxed. [S. 5, 10(3) Companies Act, 2013, S. 89(10), 90 (1)]

    The assessee cannot be held to be beneficial owner of the amounts lying in the bank account merely because its name appears as beneficial owner in the account opening form along with passport for identification. In the absence of corroborative evidence addition under the Act cannot be sustained. The money does not belong to the assessee but the son of the assessee on account of voluminous evidence produced in that regard. (AY. 2016-2017)

    ACIT v. Jatinder Mehra (2021) 212 TTJ 681 (Delhi) (Trib.)

Wealth-tax Act, 1957.

  1. S. 2(ea) : Asset- Lack of evidence to support the land being vacant as of the cut-off date and evidence to the contrary, issue set aside to the file of AO for verification, whether the particular asset can be brought to tax under the Wealth Tax Act [S. 16(3)]

The Assessee held immovable asset, the value of which during the relevant AY 2008-09 was more than Rs. 15 lakhs. The Assessee had not filed return of wealth for the AY 2008-09. Therefore, the assessment has been reopened under s. 16(3) of the WT Act, 1957 (hereinafter ‘the Act’).

The AO noticed that the Assessee is the owner of an asset on which a residential house originally existed. In the relevant AY, the Assessee entered into a joint development agreement (hereinafter JDA) and as a consequence, the building was demolished, and the asset became a vacant land as on 31st March 2008 and 31st March 2009.

The Assessee contended that there was a building on the land as on the valuation date i.e., on 31st March 2008 and 31st March 2009 and only after the JDA, the building was demolished between April 2009 to March 2010. Therefore, there was a building on the land as on 31st March 2008 and 31st March 2009 and hence, land cannot be included in the definition of asset as defined under s. 2(ea) of the Act. Upon further appeal to the CWT(A), the CWT(A)upheld the findings of the AO.

The Hon’ble Tribunal after much scrutiny observed that, for the impugned AY 2007-08 and 2008-09, the land was not a vacant urban land and the existing building was demolished, is not supported by any evidence. It restored the matter to the AO for his verification on whether building is used for own residential purpose or business purpose or the same has been let out during the relevant previous year. Further also held that simply on the ground that there was a building in the impugned land, the same cannot be excluded from the ambit of wealth-tax, & that the AO needs to verify above facts before concluding whether a particular asset comes under the definition of asset as defined under S. 2(ea) of the Act or not. (AY. 08-09; 09-10)

Giridhari Govindas (HUF) v. ACIT (2021) 209 TTJ 953 (Chennai) (Trib.)

  1. S. 2(14)(iii) : Capital asset – Agricultural land – Land continued to be agricultural land in the revenue records – located 20 kms. away from municipal corporation limits – Cutting and carrying away of rubber trees did not change classification of land from agricultural to non-agricultural land – User by buyer is not relevant for assessing the gain in the hands of the assesse – Not liable to be assessed as capital gains [S. 45]

    The assessee sold the agricultural land. As per the condition of MOA the assessee agreed to cut and carry away all rubber trees on said land at his own expenses before sale. Land continued to be agricultural land in the revenue records and the land is located 20 kms. away from municipal corporation limits. The Assessing Officer held that with cutting and carrying away of rubber trees land became barren land and a barren land could not be treated as agricultural land and, further, KSIDC, in due course of time, upon purchase from assessee, converted said land into an industrial Estate. The Assessing Officer assessed the gain on sale of said land as liable to capital gains tax. The Tribunal held that the sale of agricultural land cannot be assessed as capital gains. On appeal by the revenue land the Court held that the land in question was located 20 kms. away from municipal corporation limits. Assessee had demonstrated that classification of land continued to be an agricultural land in revenue records even as on date of sale. Land was put to use only for agricultural purposes by assessee. The assessee could not be expected to have control over activities of buyer once transfer was completed. Cutting and carrying away of rubber trees did not change classification of land from agricultural to non-agricultural land. Order of Tribunal was affirmed. (AY. 1996-97)

    CIT v. Cochin Malabar Estates & Industries Ltd. (2021) 208 DTR 119 / (2022) 440 ITR 121 / 324 CTR 246 / 134 taxmann.com 162 (Ker)(HC)

  2. S. 2(22)(e) : Deemed dividend – Advance against sale of commercial space – Addition cannot be made as deemed dividend.

    Dismissing the appeal of the revenue the Court held that Tribunal had given findings of fact that advance received by assessee from company was not in nature of loan or advances as contemplated in section 2(22)(e), but was trade advance against booking of commercial place being built by assessee. Deletion of addition was affirmed.

    PCIT v. Anumod Sharma (2021) 283 Taxman 564 (Delhi) (HC)

  3. S. 4 : Charge of income-tax-Capital or revenue-Non-compete fee-Sharing customer database and sharing of trained employees-Fee received is not taxable. [S. 28(i)]

    Held the non-compete fee was received for sharing the customer database and sharing of trained employees. The receipt towards the transfer was not attributable to transfer of any assets or right and from the mere fact that the receipt was not attributable to the non-compete covenant, it could not be automatically concluded that the receipt was either from business or income of an activity recurring in nature. The amount was not assessable. (AY.1997-98)

    CIT v. ABB Ltd. (2021)439 ITR 554 (Karn.)(HC)

  4. S. 4 : Charge of income-tax – Capital or revenue – Sale of emission reduction credit – Capital receipt [S. 28(i)]

    Dismissing the appeal of the revenue the Court held the sale of certified emission reduction credit, which the assessee had earned on the clean development mechanism in its wind energy operations, is a capital receipt and not taxable. (AY. 2009-10)

    CIT v. Wescare (India) Ltd. (2021) 439 ITR 657 (Mad.)(HC)

  5. S. 4 : Charge of income-tax – Capital or revenue – Sale of Certified Emission Reduction Credit – Not assessable as business income [S. 28(i)]

    Dismissing the appeal of the revenue the Court held that the proceeds realized by assessee engaged in wind power project on sale of Certified Emission Reduction Credit, which assessee had earned on Clean Development Mechanism in its wind energy operations was not an off-shoot of business, but an offshoot of environmental concerns and hence being a capital receipt would not be taxable. (AY. 2009-10)

    CIT v. Prabhu Spinning Mills (P) Ltd. (2021) 283 Taxman 89 (Mad.) (HC)

  6. S. 10(23C) : Educational institution – Computation of income -Receipt from education institution was less than 1 Crore – Entitle to exemption – Receipts of educational institution cannot be clubbed with other income of the society for the purpose of computing exemption u/s 10(23C)(iiiad) of the Act. [S. 10(23C)(iiiad), 12AA, IT Rules, 1962, 2BC]

    Assessee-society established an educational institution. Assessing Officer disallowed the exemption on ground that excess income over expenditure of said institution run by assessee was carried to account of society for taxation and other purpose and since aggregate of fee receipts of institution and receipts of society exceeded prescribed upper limit of Rs. 1 crore. The order of the Assessing was affirmed by the Tribunal. On appeal the Court held that the receipts of Institution were below Rs. 1 crore. In the computation of income Assessing Officer himself recognized and acknowledged difference between receipts of institution and receipts of society. Allowing the appeal the Court held that the receipts of institution could not be clubbed with other income of assessee-society for purpose of considering benefit of section 10(23C)(iiiad) of the Act.. The Court also observed that the Tribunal was erred in looking at the provisions of section 12AA of the Act. Exemption was allowed. (AY. 2007-08)

    Manas Sewa Samiti v. Add. CIT (2021) 323 CTR 737 / 208 DTR 41 (2022) 284 taxman 418 (All)(HC)

  7. S. 10(26B): Income of Body Corporation established or wholly financed by Central or State Government for promoting interests of Scheduled castes or Scheduled Tribes – Engaged in work of development of National Safai Karamcharis who were involved in upliftment of Safai Karamcharis and Manual Scavengers who belong to Scheduled Caste, Scheduled Tribe or Other Backward Classes and also in inhumane practice of scavenging and other sanitation activities-Entitle to exemption.

    Held that the assessee company was fully owned by Government of India and engaged in work of development of National Safai Karamcharis who were involved in upliftment of Safai Karamcharis and Manual Scavengers who belong to Scheduled Caste, Scheduled Tribe or Other Backward Classes and also in inhumane practice of scavenging and other sanitation activities, it would be entitled to claim benefit of section 10(26B) of the Act. (AY. 2017-18)

    CIT(E) v. National Safai Karamcharis Finance and Development Corporation (2021) 283 Taxman 576/ 323 CTR 816/ 208 DTR 57 (Delhi) (HC

  8. S. 10B : Export oriented undertakings-Manufacture-Blending of Tea does not constitute manufacture-Not entitled to exemption-Interpretation of taxing statute-Provision for exemption-In case of ambiguity in an exemption provision the benefit has to go to the revenue.

    The term “manufacture” was not defined in the substituted provisions as was available before its substitution to include even processing. Explanations to this section define certain terms used. Explanation 3 was added in the section which begins with the words “for the removal of doubts”. It is to treat the profits and gains derived from onsite development of computer software outside India as income deemed to be derived from export of computer. Explanation 4 was added by the Finance Act, 2003, with effect from April 1, 2004 to define “manufacture or produce” to include cutting and polishing of precious and semi precious stones. The insertion of Explanation 4 clearly establishes the fact that wherever the benefit was to be extended, the needful was done. It had been authoritatively held by the Supreme Court in CIT v. Tara Agencies (2007) 292 ITR 444 (SC) that mixing of different kinds of tea does not fall within the ambit of manufacturing. Court held that blending of tea does not amount to manufacture and the assessee was not entitled to the benefit of section 10B. Court also held that while interpreting the provision for exemption, in case of ambiguity in an exemption provision the benefit has to go to the revenue. Followed Commissioner Customs v. Dilip Kumar and Co. (2018) 6GSTR-OL-46 (SC). (AY.2002-03 to 2005-06)

    PCIT v. V. N. Enterprises Limited (2021) 439 ITR 624 (Cal.)(HC)

    CIT v. Tea Promoters (India) Pvt. Ltd. (2021) 439 ITR 624 (Cal.)(HC)

  9. S. 11 : Property held for charitable purposes-Improve public transport system in the country and the road safety standards-Revenue from laboratory testing and consultancy-Not to earn profit for share holders-Entitle to exemption-Proviso to section 2(15) is not applicable-No substantial question of law. [S. 2(15)]

    Dismissing the appeal of the revenue the Court held the association has not been earning any profit as the main object of the assessee-association is to improve the public transport system in the country and the road safety standards. Undoubtedly, the activities of laboratory testing and consultancy are bringing revenue to the assessee-association but the intent of such activities is not to earn profit for its shareholders/owners.. No question of law Followed Ram Kumar Aggarwal & Anr. vs. Thawar Das (through LRs), (1999) 7 SCC 303 has reiterated that under Section 100 of the Code of Civil Procedure the jurisdiction of the High Court to interfere with the orders passed by the Courts below is confined to hearing on substantial question of law and interference with finding of the fact is not warranted if it involves re-appreciation of evidence. there is no perversity in the findings of the ITAT. Referred State of Hryana & Ors v. Khalsa Motor Ltd (1990) 4 SCC 659, Hero Vinoth (Minor)) v. Thawar Das Through LRs (1999) 7 SCC 303.

    CIT (E) v. Association of State Road Transport Undertakings (2021) 208 DTR 313 /324 DTR 165 (Delhi) (HC)

  10. S. 11 : Property held for charitable purposes-Running a printing press and publishing a news paper-Profit generated was ploughed back to charitable activities-Entitle to exemption [S. 2(15) 10(23C)(vi), 12A, 80G]

    Dismissing the appeal of the revenue the Court held that object of the society is charitable in nature and the profit earned from running a printing press and publishing a news paper was ploughed back to charitable activities. The assessee is entitle to exemption. Proviso to section 2(15) is not applicable.

    PCIT v. Servants of People Society (2021) 208 DTR 409 (2022) 324 CTR 167 /133 taxmann.com 244 (Delhi) (HC)

  11. S. 11 : Property held for charitable purposes – Charitable purpose – Objects of general public utility – Improve public transport system – Revenue from testing automobile parts and consultancy charges – Entitle to exemption [S. 2(15)]

    Assessee is an apex co-ordinating body of all nationalized State Road Transport Corporation working under aegis of Ministry of Road Transport and Highways, Government of India.Its main object was to improve public transport system in country. It also earned revenue from laboratory testing of automobiles and consultancy services. Dismissing the appeal of the revenue the Court held that merely because the had receipts under head revenue from testing laboratory and consultancy receipts which were of commercial nature, it could not be said that activities of assessee did not fall under categories of education, medical relief, relief to poor, preservation of environment and, hence, assessee-association was charitable in nature.

    CIT (E) v. Association of State Road Transport Undertakings (2021) 283 Taxman 555 (Delhi) (HC)

  12. S. 11 : Property held for charitable purposes-Engaged in promotion of rapid and orderly establishment, growth and development of industries in State and provided for industrial infrastructural facilities-Object of general public utility, proviso to section 2(15) was not applicable-Entitle for exemption [S. 2(15, 12AA]

    Dismissing the appeal of the revenue the Court held that the asseessee which is engaged in promotion of rapid and orderly establishment, growth and development of industries in State and provided for industrial infrastructural facilities. Object of general public utility, proviso to section 2(15) was not applicable. Entitle for exemption. Followed Karnataka Industrial Areas Development Board v. ADDIT(E) (2020) 277 Taxman 36 (Karn)(HC) (AY. 2013-14)

    PCIT(E) v. Karnataka Industrial Areas Development Board (2021) 130 taxmann.com 407 (Karn) (HC)

    Editorial : SLP is granted to the revenue, PCIT(E) v. Karnataka Industrial Areas Development Board (2021) 283 Taxman 10(SC)

  13. S. 11 : Property held for charitable purposes-Construction of building for Government-Commission from Government-Involves carrying on of activity in the nature of trade commerce or business-Denial of exemption is held to be justified [S. 2(15), 12A]

    One of the objects of the assessee is to take up construction work of any nature to establish a chain of retail outlets. In the relevant financial year the assessee completed 34 building projects. The Assessing Officer denied the exemption which was affirmed by the Tribunal. On appeal the Court held that purpose of construction of building for Government cannot be accepted as an activity coming within the meaning of advancement of any other object of general public utility. Denial of exemption was held to be justified. (AY. 2019 10, 2013-14)

    Nirmithi Kendra v. Dy. CIT (E) (2021) 323 CTR 865 (Ker) / 208 DTR 249 (Ker) (HC)

  14. S. 11 : Property held for charitable purposes-Construction of building for Government-Commission from Government-Involves carrying on of activity in the nature of trade commerce or business-Denial of exemption is held to be justified [S. 2(15), 12A]

    One of the objects of the assessee is to take up construction work of any nature to establish a chain of retail outlets. In the relevant financial year the assessee completed 34 building projects. The Assessing Officer denied the exemption which was affirmed by the Tribunal. On appeal the Court held that purpose of construction of building for Government cannot be accepted as an activity coming within the meaning of advancement of any other object of general public utility. Denial of exemption was held to be justified.(AY. 2019 10,, 2013-14)

    Nirmithi Kendra v. Dy. CIT (E) (2021) 323 CTR 865 (Ker) / 208 DTR 249 (Ker) (HC)

  15. S. 17(2) : Perquisite-Permission for providing COVID treatment-Show cause notice-Revocation of permission was lifted-Order was set aside [S. 15, 17(ii)(b),ITATR, 1962, R. 3A, Art, 226]

    Petitioner-hospital filed application seeking renewal of approval under clause (ii)(b) of proviso to section 17(2)(viii) of the Act. Revenue issued show cause notice and rejected the application on ground that State Government had cancelled permission granted to petitioner for providing COVID treatment. On writ allowing the petition the Court held that since revocation of permission was later lifted by the State Government and petitioner was permitted to provide treatment, very basis of show cause notice stood removed order was to be set aside.

    Park Health System (P) Ltd v. P CIT (2021) 323 CTR 628 / 208 DTR 12 (Telangana) (HC)

  16. S. 28(i) : Business income-Sale of technical know how – Cost was claimed as revenue expenditure-Receipt assessable as business income. [S. 56]

    Court held that in the first round of litigation, after rejecting the claim of the assessee that the transaction was a slump sale, the Tribunal held that if the assessee treated the cost and expenses relating to acquisition and improvement and development of intangible non-depreciable assets in the revenue field the gains arising as a result of sale thereof would have to be necessarily treated in the revenue field either under section 28 or section 56. The order passed by the Tribunal at the first instance had reached finality. Hence the amount was assessable. (AY.1997-98)

    CIT v. ABB Ltd. (2021) 439 ITR 554 (Karn.)(HC)

  17. S. 28(i) : Business income-lease rent-Scheme sanctioned by BIFR-Assessable as business income. [S. 14]

    Dismissing the appeal of the revenue the Court held that the assessee was obligated to work under a statutory approved scheme; the lease of eight years was to ATL, which was in the same business and the lease was for utilising the plant, machinery, etc. for manufacturing tyres; the actuals were reimbursed to assessee by ATL; the work force of the assessee had been deployed for manufacturing tyres; the total production from the assessee unit was taken over by ATL; over all affairs of assessee company were made viable by entering into settlement; coupled with all other primary circumstances, the assessee employed commercial assets to earn income. The scheme was for providing a solution to the business problem of the assessee. The claim of lease rental receipt as income of business was justifiable for the assessment years. (AY.1996-97 to 2003-04)

    CIT v. Premier Tyres Ltd. (2021) 439 ITR 346 (Ker.)(HC)

    CIT v. PTL Enterprises Ltd. (2021) 439 ITR 346 (Ker.)(HC)

  18. S. 28(i) : Business income-Income from lease-Exploitation of property and not exploitation of business assets-Assessable as income from other sources-Quality loss-No business carried on-Not allowable as deduction. [S. 2(14), 56]

    Assessee continuing lease agreement and renewing it every year. The assessee claimed the income from lease as business income. the assessing Officer treated the income from other sources. Appellate Tribunal affirmed the view of the Assessing Officer. On appeal the High Court affirmed the order of the Tribunal and held that lease rental was rightly assessed as income from other sources. The court observed that the assessee exploited the property and not exploitation of business assets. Relied on Universal Plast Ltd v. CIT (1999) 237 ITR 454 (SC). Claim of quality loss was not allowed as there was no business was carried on during the relevant years. (AY.2004-05 to 2009-10)

    PTL Enterprises Ltd. v. Dy. CIT (2021) 439 ITR 365 (Ker.)(HC)

  19. S. 28(i) : Business loss-Recording notional loss or profit – Method of accounting – Current assets – Loss on revaluation and sale of bonds-Consistent method-Allowable as business loss. [S. 37(1), 145]

    Dismissing the appeal of the revenue the Court held that the assessee had got cash only upon sale of the bonds. Till such time the bonds could not be treated as capital asset and not even as stock-in-trade. The assessee had recorded notional loss or profit on revaluation of the earlier years and had followed such procedure in the subject assessment year 1996-97 also. There was consistency in the pattern followed by the assessee and considering the nature of business it was doing the bonds were rightly treated as current assets. The findings of facts recorded by the Tribunal were proper and correct. The option of treating the receivables converted as bonds realisable at a future point of time was tenable and running out of cash reserves the decision to treat the bonds also as receivables had been taken. On the facts, the treatment of an entry in a particular method needed to be appreciated. (AY.1996-97)

    CIT v. Bhageeratha Engineering Ltd. (No. 1) (2021) 439 ITR 704 283 Taxman 110 (Ker.)(HC)

  20. S. 32 : Depreciation-Roads-Improvement and development of State Highways-Entitle was entitled depreciation prescribed to building.

    Dismissing the appeal of the revenue the Court held that the Tribunal is justified in holding that although road is certainly not a plant or machinery, it can still be eligible for depreciation as a building, as per Appendix prescribing rate of depreciation which says building includes roads. Followed whether following CIT v. Tamil Nadu Road Development Co Ltd (2021) 279 Taxman 125 (Mad) (HC) (AY. 2002-03 to 2005-06)

    CIT v. Tamil Nadu Road Development Co. Ltd. (2021) 283 Taxman 168 (Mad.)

    Editorial: Tamil Nadu Road Development Co. Ltd. v. ACIT (2009) 120 ITD 20 (Chennai) (Trib) is affirmed.

  21. S. 32 : Depreciation-Plant and machinery-Ponds and reservoirs-Pollution control equipments-Depreciation allowable at 25% as against 100% claimed by the assessee-Approach road, drainage, borewells, reservoirs etc-Depreciation allowable at 10 % as against 25% claimed by the assessee.

    The assessee is in the business of prawn cultivation. The assessee claimed depreciation on ponds and reservoirs at 100% treating the same as pollution control equipments. Tribunal affirmed the order of Assessing Officer who allowed the depreciation at 25%. High Court affirmed the order of Tribunal. The assessee also claimed depreciation at 25% on approach road, drainage, borewells, reservoirs etc. The Assessing Officer allowed the depreciation at 10%. The Tribunal affirmed the order of the Assessing Officer. On appeal High Court affirmed the order of Tribunal. (AY. 1994-95, 1995-96)

    Industrial Incubators (P) Ltd v. Dy. CIT (2021) 323 CTR 1001 / (2022) 209 DTR 277 (Orissa)(HC)

  22. S. 37(1): Business expenditure-Interest-Prepayment premium-Corporate debt restructuring-Allowable as deduction.

    Held that one time payment made by assessee towards pre-payment premium and interest compense to banks for agreeing to reduce rate of interest on loan pursuant to Corporate Debt Restructuring was business expenditure to be allowed deduction as revenue expenditure. (AY. 2007-08)

    CIT v. Thiru Arooran Sugar Ltd. (2021) 283 Taxman 156 (Mad.)(HC)

  23. S. 37(1): Business expenditure-Discount on issue of ESOP-Allowable as deduction.

    Held that discount on issue of ESOP was not a contingent liability but an ascertained liability hence the discount on issue of ESOP was an allowable deduction under section 37(1) as same was to be treated as remuneration to employees for their continuity of service. (AY. 2003-04)

    CIT(LTU) v. Biocon Ltd. (2021) 131 taxmann.com 187 (Karn) (HC) Editorial : Notice is issued in SLP filed by the revenue, CIT(LTU) v. Biocon Ltd. (2021) 283 Taxman 290 (SC)

  24. S. 35D : Amortisation of preliminary expenses-Share premium expenses-Not part of capital employed-Cost of acquisition does not constitute cost of project-cost of acquisition of companies could not be treated as asset for allowing deduction under section 35D.

    Dismissing the appeal the Court held that the Tribunal was right in holding that the share premium collected on the issue of share capital by the assessee could not be taken as part of the capital employed for allowing deduction under section 35D. Followed Berger Paints India Ltd. v. CIT (2017) 393 ITR 113 (SC). Court also held that there is a vast difference between expansion and extension. The Tribunal was right in law in holding that the cost of acquisition of companies could not be treated as asset for allowing deduction under section 35D. (AY.2008-09)

    Subex Ltd. v. CIT (2021) 439 ITR 495 (Karn.)(HC)

  25. S. 37(1) : Business expenditure –Capital or revenue – Expenditure for raising floor height of Godown – Expenditure incurred to run the business profitably is revenue expenditure.

    Where the assessee had incurred expenditure to conduct its business more efficiently and to increase its profits, while no new asset was brought into existence, it would be a revenue expenditure. (AY. 1991 -92)

    Jetha Properties Pvt. Ltd. v. CIT (2022) 440 ITR 524 / 209 DTR 201/ 324 CTR 326 (Bom) ( HC)

  26. S. 37(1) : Business expenditure-Penalty-Not compensatory in nature-Not allowable as deduction. [Kerala General Sales tax Act, 1963, S. 45A]

    Dismissing the appeal of the assessee the Court held that in the absence of any material to show that any element of compensation was involved in the penalty imposed under section 45A of the Kerala Act the amount of Rs. 52 lakhs could not be termed as an expenditure for the year 2004-05. (AY. 2004-05)

    PTL Enterprises Ltd. v. Dy. CIT (2021) 439 ITR 365 (Ker.)(HC)

  27. S. 37(1): Business expenditure-Statutory obligation-Contribution to common good fund-Special assistance fund-Allowable as deduction.

    Dismissing the appeal of the revenue the Court held that the amounts had been spent only out of statutory obligation, amount expended on funds will be allowable as deduction while computing income of assessee co-operative bank, even when said expenditure did not come under section 37(1) of the Act. (AY. 2007-08)

    PCIT v. Karnataka State Co-op. Apex Bank Ltd. (2021) 283 Taxman 106 (Karn) (HC)

  28. S. 40(a)(i) : Amounts not deductible-Deduction at source-Non-resident-Commission charges to overseas agents-Service rendered outside India-Cannot be considered as fes for technical services-Not liable to deduct tax at source-Art, 12-OECD Model convention [S.9(1)(vii)), 195]

    Dismissing the appeal of the revenue the Court held that the assessee had paid commission charges to overseas agents for services rendered outside India and not any lump sum consideration for rendering managerial, technical or consultancy services, such payments could not be considered as fees for technical services under section 9(1)(vii) of the Act. Not liable to deduct tax at source. (AY.2013-14, 2014-15)

    PCIT v. Gopakumaran Nair (2021) 283 Taxman 173 (Mad.) (HC)

  29. S. 40(a)(ia): Amounts not deductible-Deduction at source-Payment of freight and carriage charges for previous year 2006-07 (1-4-2006 to 31-3-2007)-Disallowance is held to be not valid-Commission payment disallowance is held to be justified. [S.194C]

    Assessing Officer had disallowed the payment of freight and carriage charges for failure to deduct tax at source. The Order was affirmed by the Tribunal. on appeal the Court held that since liability for deducting tax at source for payments made to individual contractors above monetary limits arose only with effect from 1-6-2007, for failure to deduct tax at source for previous year 2006-07, (i.e. 1-4-2006 to 31-3-2007), assessee should not be made liable to deduct TDS and, consequently, disallowance made under section 40(a)(ia) for non-payment of TDS under section 194C was to be deleted. As regards commission and brokerage and claimed deduction for same but failed to furnish record or material to show that commission or brokerage was paid to different individuals and each one of such payment was less than monetary limit of Rs. 20,000, said sum was to be disallowed for non-deduction of TDS under section 194H of the Act. (AY. 2007-08)

    Sudarsanan P.S. v. CIT (2021) 283 Taxman 84 (Ker.)(HC)

  30. S. 43B: Deductions on actual payment-Tax paid under Kerala Agricultural Income-tax Act-Not allowable as deduction [S. 10(1), 37(1), Kerala Agricultural Income-tax Act, 1991]

    Dismissing the appeal of the assessee the Court held that Agricultural income is excluded from the scope of s. 10(1) of Cent Act. Agricultural income does not form part of computation under Section 14 of the IT Act. Tribunal was justified is holding that agricultural income being exempt from taxation under the Central IT Act, the agricultural income tax paid by the assessee under Kerala Agricultural income Tax Act cannot be allowed as a deduction under the Income tax Act. (AY. 2007-08 to 2010-11, 2012-13)

    Oil Palm India Ltd v. Dy. CIT (2021) 208 DTR 345 (Ker.)(HC)

  31. S. 48 : Capital gains-Computation-Full value of consideration-Retention of money in Escrow account-Possession was handed over-Amount of money in Escrow account has to be considered while computing the capital gain for the purpose of full consideration. [S. 45]

    Assessing Officer held that amount which was kept in escrow account would only constitute an application of its income and whole consideration had to be deemed to accrue to assessee on execution of agreement for sale. Accordingly, capital gain was recomputed. Order of the Assessing Officer was affirmed by the Tribunal. On appeal the Court affirmed the order of Tribunal. (AY. 2003-04)

    Caborandum Universal Ltd v. ACIT (2021) 283 Taxman 312 (Mad.) (HC)

  32. S. 54F : Capital gains – Investment in a residential house – Relevant is date of acquisition of property and not on date of payment – It is not necessary that same sale consideration should be used for construction of a new house property – Allowed exemption . [ S.45 ]

    Assessee transferred shares held by him in two companies on 21-8-2008 and claimed exemption under section 54F on account of purchase of new residential house property for which sale deed was executed on 28-3-2011. Tribunal held that the payment were made prior to one year before date of transfer of shares and, therefore, assessee was not entitled to claim exemption. On appeal the Court held that since sale deed was executed in favour of assessee within a period of three years from date of transfer of shares, finding recorded by Tribunal that payments were made prior to one year before date of transfer of shares was not entitled to claim exemption under section 54F was perverse .Court also observed that for claiming exemption under section 54 of the Act is dependent on date of acquisition of property and not on the date of payment and it is not necessary that same sale consideration should be used for construction of a new house property . (AY. 2009-10)

    M. George Joseph v. Dy. CIT (2021) 282 Taxman 386/ 206 DTR 51/ 322 CTR 563/ ( 2022 ) 440 ITR 589 (Karn)(HC)

  33. S. 68 : Cash credits-Share application money-Shell companies-Share holders could not explain their source-Addition is held to be justified.

    Allowing the appeal of the revenue the Court held that the Assessing Officer clearly brought out as to how so-called investors, who were either shell companies or without any financial capacity, had brought in such monies for purpose of investment. Assessee had not established creditworthiness and genuineness of transaction and thus, failed to discharge primany onus cast upon it. Assessing Officer was justified in making addition under section 68 of the Act. (AY. 2003-04)

    CIT v. Midas Golden Distilleries (p) Ltd. (2021) 283 Taxman 395 (Mad) (HC)

  34. S. 69C : Unexplained expenditure-Failure to explain the source-Justified in confirming the disallowance.

    Dismissing the appeal the court held that the assessee had failed to furnish relevant details to prove source in respect of claim for deduction, Assessing Officer was justified in holding that amount was incurred out of undisclosed sources and making addition. (AY. 2007-08)

    Sudarsanan P.S. v. CIT (2021) 283 Taxman 84 (Ker.)(HC)

  35. S. 80HHB : Projects outside India-Gross total income-Additional deduction to be computed on the basis of recomputed gross total income.

    Allowing the appeal of the revenue the Court held that by virtue of the decision of the Tribunal the claim of the assessee for loss on revaluation and sale of Government bonds had been accepted. In accounting parlance, these items were to be deleted from the gross total income of the assessee. The quantification under section 80HHB should have been done correspondingly. The deduction under section 80HHB under the quantifying order dated July 28, 2003 was correct. (AY.1996-97)

    CIT v. Bhageeratha Engineering Ltd. (No. 2) (2021) 439 ITR 713 (Ker.)(HC)

  36. S. 80HHC : Export business-Deduction granted under section 80IB must be excluded. [S. 8IA(9), 80IB]

    Dismissing the appeal of the assessee the Court held that, the provisions are explicit that if any deduction is claimed and allowed under section 80-IA as an eligible business, the assessee cannot claim deduction to the extent of such profits and gains coming under other heads of deduction of Chapter VI-A of the Act. Section 80HHC which relates to deductions in respect of the profits and gains from export business falls under the heading “C” of Chapter VI-A. There is no ambiguity in section 80-IA(9) of the Act. The intention of the Legislature is clear that there cannot be a simultaneous deduction under section 80-IA and under section 80HHC. The profits and gains allowed as deduction under section 80-IA have to be excluded while computing the deduction under section 80HHC.(AY.2000-01, 2002-03, 2003-04, 2004-05)

    Kanam Latex Industries Pvt. Ltd. v. CIT (2021) 439 ITR 218 (Ker.)(HC)

  37. S. 80P : Co-operative societies – Society formed for enabling financial and social welfare of toddy tappers and workers for tapping and selling toddy — Could not be considered co-operative society engaged in collective disposal of labour of its members — Eligibility of assessee for deduction as society engaged in marketing of agricultural produce grown by its members — Matter remitted to Tribunal.[S.80P(2)(a)(vi)]

    The assessee, a registered co-operative society formed in the year 2001 for enabling financial and social welfare of toddy tappers and workers for tapping and selling toddy within the Hosdurg jurisdiction, claimed exemption under section 80P(2)(a)(vi) of the Income-tax Act, 1961. The AO denied the said exemption on ground that assessee-society was granted registration as a miscellaneous society and, thus, could not be treated as a society engaged in collective disposal of labour of its member. On appeal, the assessee contended that toddy vending by members of assessee-society was for marketing agricultural produce grown by its members which was dealt in sub-clause (iii) of section 80P(2)(a), therefore, its claim for deduction of income earned by society under section 80P(2)(a) was legitimate. The Tribunal merely upheld the decision of the AO. On appeal to the High Court:

    HELD:

    (i) that the Tribunal was right in holding that the assessee-society could not be considered a co-operative society engaged in the collective disposal of labour of its 2016 members as contemplated under section 80P(2)(a)(vi) of the Act and therefore was not eligible for deduction under section 80P of the Act. Decision in Peravoor Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT (2016) 380 ITR 34 (Ker) was followed.

    (ii) That on the issue of eligibility of the assessee for deduction under section 80P(2)(a)(iii) of the Act the matter was to be remitted to the Tribunal for consideration and disposal, in accordance with law. (AY. 2009 -10, 2010 -11, 2011 -12)

    Hosdurg Range Kallu Chethu Thozhilali Vyavasaya Sahakarana Sangham v. CIT (2022) 440 ITR 65 (Ker) (HC)

  38. S. 92C : Transfer pricing-Arm’s length price-TNM method-Transaction of buying services for sourcing garments in India-Addition made to ALP by applying cost plus 5 per cent mark-up on FOB value of exports among third parties was not supported under rule 10B(1)(e) and was liable to be deleted. [R. 10B(1)(e)]

    Assessee, a subsidiary of a Mauritius based company, had entered into an international transaction of buying services for sourcing garments, leather etc. in India for its AE and computed ALP of said transaction by adopting TNM method.Assessing Officer accepted application of TNMM by assessee as most appropriate method however addition made by TPO in assessee’s ALP by applying cost plus 5 per cent mark-up on FOB value of exports among third parties. Tribunal deleted the addition which was affirmed by the High Court. (AY. 2011-12)

    PCIT v. Li & Fung (India) P. Ltd. (2021) 130 taxmann.com 438 (Delhi) (HC)

    Editorial : SLP is granted to the revenue ; PCIT v. Li & Fung (India) P. Ltd. (2021) 283 Taxman 4 (SC)

  39. S. 92C : Transfer pricing-Arm’s length price-Functionally different-Justified in directing for exclusion of ABCL from the list of comparables-Interest receivable-Notional interest for relating to alleged delayed in collecting receivable-No substantial question of law-Question as to whether in a given case transfer pricing adjustment on delayed receivable could apply even to a debt-free company or not. does not arise on facts and is left open [S. 260A]

    Dismissing the appeal of the revenue the Court held that the Tribunal is justified in directing for exclusion of ABCL from the list of comparables. Court also held that there can be no notional computation of delayed receivables’ only ignoring the receivables received in advance. Appeal was dismissed. Question as to whether in a given case transfer pricing adjustment on delayed receivable could apply even to a debt-free company or not. does not arise on facts and is left open.(AY. 2014-15)

    PCIT v. Mckinsey Knowledge Centre India (P) Ltd. (2021) 323 CTR 360/ 207 DTR 60 (Delhi) (HC)

  40. S. 115JB : Book profit-Provision for bad and doubtful debts-Corresponding amount reduced from loans and advances on assets side of balance sheet-Net provision is shown-Provision not to be added in computing book profit. [S. 36(1)(vii)]

    The Tribunal held that since the assessee had simultaneously obliterated the provision from its accounts by reducing the corresponding amount from the loans and advances on the assets side of the balance-sheet and consequently, at the end of the year shown the loans and advances on the assets side of the balance sheet as net of the provision for bad debts, it would amount to a write-off and such actual write-off would not be hit by clause (i) of the Explanation to section 115JB. On appeal dismissing the appeal the Court held that the Tribunal was right in deleting the addition on account of the provision for bad and doubtful debts in the computation of the book profits for computation of minimum alternate tax liability in the light of clause (i) of the Explanation to section 115JB.(AY.2004-05)

    PCIT v. Narmada Chematur Petrochemicals Ltd. (2021) 439 ITR 761 (Guj.)(HC)

  41. S. 127 : Power to transfer cases – Assigning of reasons in notice — Search proceedings showing that assessee residing in Nagaland and had financial interests in Kerala — Transfer for purposes of co-ordinated investigation — Cogent and credible reasons assigned in notice — notice sent to registered office in Kerala and received by Assessee — Order for transfer valid [Rule 127 of the Income-tax Rules]

    The S group of companies was promoted by the assessee, MKRP and the other assessees were his wife, sons and daughter. The entities of the S group were located in Nagaland and in Kerala. Subsequent to a search and seizure conducted under section 132 in their business and residential premises, assessment and reassessments were made. Thereafter, notices were issued and the cases were transferred under section 127 from Dimapur, Nagaland to Kollam, Kerala. Writ petitions were filed by all the assessees before the High Court. The assessees alleged that the transfer had been done without proper notice and without assigning any reasons as to why such transfer was being made, thus in violation of section 127. Further, it was argued that since the notice itself was not served upon the assessee as was liable to have been done under the provisions contained in the Income-tax Act and the rules framed therein, it was also violative of section 282 as well as rule 127 of the Income-tax Rules.

    The single judge allowed the petitions and gave an opportunity to the Revenue to proceed afresh against the assessees by giving fresh notices under section 127 and accordingly fresh notices were issued. The notice issued to the assessee, MKRP stated that the assessees were either partners or directors in the various firms and companies of the S group which were all based in Kerala, that over several years he had directed the transfer of sums of money from several bank accounts in Nagaland to his family businesses and family members who were all based in Kerala, that it was manifest from the modus operandi followed by him that although the source of funds lay in Nagaland, its ultimate destination was in assets in Kerala belonging to him or his family members and to the businesses controlled and managed by him or his family members in Kerala, that his financial interests were centered largely in Kerala, and the undisclosed investments admitted by the assessee were also in Kerala and that therefore, the cases were transferred to Assistant Commissioner, Kollam, Kerala so as to facilitate the assessments. The order further stated that when nobody made representation before the concerned authority which had passed the transfer order, another notice was sent which was returned with a remark “Addressee unclaimed – return to sender” and thereafter, the order of transfer of cases were passed. The single judge dismissed the writ petitions filed against the fresh transfer orders. On appeals:

    Held, dismissing the appeals, that cogent and credible reasons were assigned in the notices issued by the authorities as required under section 127 for transfer of the cases. Such transfer of cases had to be made on administrative exigencies and for better assessment by the Revenue and the authorities were the best judge in such matters. As far as the service of the notices was concerned, the single judge had examined in detail in his order wherein he had held that notices were sent twice. It was admitted that the first notice was served at the assessees’ address in Kerala. It was not the case that the notices were sent to the wrong address. The notices were sent at the registered address of the company in Kerala which had also been received by the assessees, a fact which had been reiterated over and again by the Revenue and had not been negated by the assessees. It was therefore sufficient compliance under rule 127 of the Income-tax Rules, 1962 as the notices were sent at the registered office of the assessees’ company. Since no response was filed, notices were sent again. Unlike the first time, the second time it came with an endorsement of the postal authority that it was “unclaimed”. A presumption could be drawn that when the first time notices were received at the same address, the second notices could not remain “unclaimed” and therefore, the plea of the assessees that the second time notices were never received by them had been rightly rejected by the single judge. The only requirement of the law was that while passing an order of transfer, the reasons must be assigned. The orders of transfer of cases need not be interfered with.

    Varun Raj Pillai v. PCIT (2022) 440 ITR 47 (Gau)( HC)

  42. S. 127 : Power to transfer cases – Assigning of reasons in notice — Search proceedings showing that assessee residing in Nagaland and had financial interests in Kerala — Transfer for purposes of co-ordinated investigation — Cogent and credible reasons assigned in notice — Notice sent to registered office in Kerala and received by Assessee — Order for transfer valid [S. 132 ITR Rule 127, Art. 226]

    Held, dismissing the appeals against the order of single judge the Court held that cogent and credible reasons were assigned in the notices issued by the authorities as required under section 127 for transfer of the cases. Such transfer of cases had to be made on administrative exigencies and for better assessment by the Revenue and the authorities were the best judge in such matters. As far as the service of the notices was concerned, the single judge had examined in detail in his order wherein he had held that notices were sent twice. It was admitted that the first notice was served at the assessees’ address in Kerala. It was not the case that the notices were sent to the wrong address. The notices were sent at the registered address of the company in Kerala which had also been received by the assessees, a fact which had been reiterated over and again by the Revenue and had not been negated by the assessees. It was therefore sufficient compliance under rule 127 of the Income-tax Rules, 1962 as the notices were sent at the registered office of the assessees’ company. Since no response was filed, notices were sent again. Unlike the first time, the second time it came with an endorsement of the postal authority that it was “unclaimed”. A presumption could be drawn that when the first time notices were received at the same address, the second notices could not remain “unclaimed” and therefore, the plea of the assessees that the second time notices were never received by them had been rightly rejected by the single judge. The only requirement of the law was that while passing an order of transfer, the reasons must be assigned. The orders of transfer of cases need not be interfered with.

    Varun Raj Pillai v. PCIT (2022) 440 ITR 47 (Gauhati)( HC)

  43. S. 132(4) : Search and seizure-Statement on oath-Undisclosed income-Retraction-Failure to produce any evidence contrary to the statement-Order of Tribunal is affirmed [S. 132]

    On the basis of statement recorded in the course of search and seizure action addition was made in the assessment. The addition was affirmed by the Tribunal. On appeal the High Court set aside the order of the Tribunal and directed to decide in accordance with law. The Tribunal once again passed the order confirming the addition on the ground that the assesee has not produced any evidence contrary to the material placed before the Tribunal. On appeal the High Court affirmed the order of the Tribunal. (BP. 1989-90 to 22nd June 1998.)

    Nayaar Patel v. ACIT (2021) 323 CTR 1005 (Ker)(HC)

  44. S. 132B : Application of seized or requisitioned assets-Jewellery seized-Failure to pass an order within period of 120 days on which last authorisation of search was executed-Entire jewellery seized was directed to be released [S. 132, Art, 226]

    In the course of search jewellery and cash of certain amount was seized. The Assessee filed an application under section 132B for release of seized jewellery.No action was taken by revenue on said application filed by assessee within stipulated period of 120 days from date on which last authorisation for search was executed under section 132 of the Act.On writ the Court held that provisions of section 132B got triggered, once period of 120 days from date of last of authorisation for search under section 132 expired,therefore, entire seized jewellery was to be released to assessee. (AY.2015-16, 2018-19)

    Kamlesh Gupta v. UOI (2021) 283 Taxman 237 (Delhi) (HC)

  45. S. 139 : Return of income-Voluntary retirement scheme-Bank employee-Claimed exemption after by filing the letter after passing of assessment order-Filing the revised return-Delay was not condoned by CBDT-High Court directed the CBDT to condone the delay and grant refund without interest. [S. 10(10C), 89(1), 119(2)(b), 139(5), 143(1), Art. 226]

    The assessee did not claim exemption under section 10(10C) of the Act the on the superannuation benefit amount. An assessment order was passed/s 143(1) of the Act, wherein the Assessing Officer stated that no exemption under section 10(10CC) was claimed but only relief under section 89(1) was claimed. The assessee filed rectification application to the Assessing Officer by a letter dated March 18, 2008 stating that the amount of superannuation benefit was not taken into consideration for tax exemption. As no response was received the assessee filed a revised return and filed an application seeking condonation of delay under section 119(2)(b)of the Act. The application was rejected as time barred on the ground that Circular No. 9 of 2015 dated June 9, 2015 ([2015] 374 ITR (St.) 25) of the Central Board of Direct Taxes did not permit condoning the delay beyond the period of six years. On writ the Court held that the assessee’s entitlement to exemption under section 10C) was noticed by the Assessing Officer. The Assessing Officer’s observation in his assessment order regarding exemption under section 10(10C) indicated that he was aware of non-claiming of the exemption by the assessee. Prima facie an order considering the letter of the assessee, dated March 18, 2008, as a rectification application and passing an order would be a legally justifiable order. As no order was passed, the assessee had decided to explore the possibility of filing a revised return. In view of Circular No. 014 (XL-35) dated 11-4-1955 and the peculiar facts of the case, including that letter that could be construed to be a rectification application was not decided, on the merits of the claim for exemption, the revised return could be considered. The reasons assigned while seeking condonation of delay were satisfactory. The order rejecting the condonation of delay under section 119(2)(b) was set aside and the delay was condoned. As regards the grant of refund, eventually on account of the delay, there would be exclusion of interest on the amount of refund. The court made it clear that the order had been passed in view of the peculiar facts and circumstances of the case and accordingly, could not be considered to have laid down the law as regards the aspect of condonation of delay under section 119(2)(b) or on other issues dealt with. (AY.2004-05)

    Devendra Pai v. ACIT (2021) 439 ITR 532 (Karn.)(HC)

  46. S. 143(3) : Assessment –Show cause notice granting time of only four days – Assessment order passed in violation of principles of natural justice to be set aside. [Art , 226]

    Where the show cause notice issued by the Assessing Officer only granted a period of four days for filing the details and the assessee requested for an accommodation of fifteen days. As the limitation for passing the assessment order was not expiring for another two months, and yet, the Assessing Officer passed the assessment order without granting an adjournment and without even referring to the request for adjournment, the order was to be set aside. (AY. 2018-19)

    Deepak Garg v. UOI [2022] 440 ITR 575 (Delhi) (HC)

  47. S. 143(3): Assessment-Cash credits-Natural justice-COVID-19-Failure to grant reasonable opportunity for furnishing details-Assessment order was set aside [S. 68, 132 Art, 226]

    In notice, several details were asked from assessee which were to be produced within two or three days which was not complied within such short possible time during COVID-19 pandemic period. The Assessment was completed by making huge additions. On writ allowing the petition the Court held that it could not be reasonably expected that assessee would be able to collect all documents and produce before revenue within 2 to 3 days. The order was set aside with the direction to grant some more opportunity produce those documents. Matter was remanded. (SJ)

    Manickam Subramanian v. ACIT (2021) 283 Taxman 32 (Mad.) (HC)

  48. S. 144B : Faceless Assessment-Principle of Natural justice is violated-Cash credits-Order was passed without giving an opportunity of hearing-Order was set aside [S. 68, 142(1), 143(3), Art, 226]

    The assessment order was passed making addition u/s 68 of the Act, without issuing the show cause notice. On writ the Court held that the issuance of show cause notice is the preliminary step is required to be understanding. The purpose of show cause notice is to enable a party effectively deal with the case made out by the respondent. On the facts the addition was made without issue of show cause notice, the order was quashed and set aside. Followed Om shri Jigar Association v.UOI,1994 SCC Online.Guj 77.

    Shreji Investment & Advisory Services v. NFSC (2021) 207 DTR 357/ 323 CTR 505 (Bom)(HC)

  49. S. 144B : Faceless Assessment-Principle of Natural justice is violated-Cash credits-Order was passed without giving an opportunity of hearing-Order was set aside [S. 68, 142(1), 143(3), Art, 226]

    The assessment order was passed making addition u/s 68 of the Act, without issuing the show cause notice. On writ the Court held that the issuance of show cause notice is the preliminary step is required to be understanding. The purpose of show cause notice is to enable a party effectively deal with the case made out by the respondent. On the facts the addition was made without issue of show cause notice, the order was quashed and set aside. Followed Om shri Jigar Association v. UOI, 1994 SCC Online.Guj 77.

    Shreji Investment & Advisory Services v. NFSC (2021) 207 DTR 357/ 323 CTR 505 (Bom)(HC)

  50. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without giving a reasonable opportunity-Order was quashed and directed to pass appropriate orders on merits in accordance with law [S. 143(3), Art, 226]

    Allowing the petition the Court held that the order has been passed without following the principles of natural justice is liable to be quashed. The respondents are directed to pass appropriate orders on merits and in accordance with law within a period of 45 days from the date of receipt of a copy of this order. The assessee is also directed to file reply within a period of 30 days from the date of receipt of a copy of this order. (SJ)

    Sathya Jyothi Films v. NFAC (2021) 208 DTR 102 (Mad) (HC)

  51. S. 144B : Faceless Assessment-Violation of principle of natural justice-Issue of show cause notice and draft assessment order is mandatory-Assessment order, notice of demand and penalty notice was quashed-Matter was remanded back to Assessing Officer, who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law [S.143(3), 144B(7) 156, 271AAC, Art, 226]

    Assessment order was passed without issue of show cause notice and draft assessment order. On writ the Court held that there was a blatant violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme. The assessment order, notice of demand and notice of penalty were set aside and matter was remanded back to Assessing Officer who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law. (AY. 2018-19)

    Akashganga Infraventures India Ltd. v. NFAC (2021) 283 Taxman 37 (Delhi) (HC)

  52. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing a mandatory draft assessment order-Assessment order, notice of demand and penalty notice was quashed-Revenue was given an opportunity to pass a fresh assessment order in accordance with law. [143(3), 156, 270A,271AAC, Art, 226]

    Assessment order was passed without issuing a mandatory draft assessment order or a show cause notice to assessee. On writ the Court held that order passed without issuing a mandatory draft assessment order and show cause notice being contrary to statutory scheme, as provided in section 144B of the Act, the assessment order issued under section 144, read with section 144B as well as demand notice issued under section 156 and notice for initiating penalty proceedings issued under sections 270A and 271AAC(I) were set aside. Revenue was given an opportunity to pass a fresh assessment order in accordance with law. (AY. 2018-19)

    Anju Jalaj Batra v. NEAC (2021) 283 Taxman 81 (Delhi) (HC)

  53. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order was set aside-Liberty to Assessing Officer to continue assessment proceedings from stage at which they were positioned when show cause notice was issued [S. 143(3), Art, 226]

    Allowing the petition the court held that the assessment order having been passed without providing adequate opportunity to submit reply in response to notice to show cause-cum-draft assessment order as time frame set out in show cause notice was extremely narrow and e-filing portal was allegedly dysfunctional, impugned assessment order was to be set aside with liberty to Assessing Officer to continue assessment proceedings from stage at which they were positioned when show cause notice was issued.

    Centum Finance Ltd v. NFAC(2021) 283 Taxman 232 (Delhi) (HC)

  54. S. 144B : Faceless Assessment-Violation of principles of natural justice-Reply filed to show cause notice was not considered-Order was quashed-Assessing Officer was directed to re do the assessment afresh [Art, 226]

    Against the order passed u/s 144B of the Act, the assessee filed writ before the High Court. Allowing the petition the Court held that the order was bad on account of violation of principles of natural justice and, consequently, assessment order was to be quashed and Assessing Officer was directed to re-do assessment afresh. (AY. 2018-19)

    Ezhome Service Co-op. Bank Ltd. v. ITO (2021) 283 Taxman 567 (Ker) (HC)

  55. S. 144B : Faceless Assessment-Violation of principle of natural justice-Portal was not working-Failure to file reply-Order was passed without giving reasons-Order was set aside [Art, 226]

    A notice-cum-draft assessment order was served upon the assessee proposing an addition of huge amount against return income. Assessee failed to file its reply to said notice-cum-draft assessment order as portal of assessee was not working between 1-6-2021 and 17-6-2021 i.e. last date for filing reply to said notice-cum-draft assessment order. Assessing Officer passed a final assessment order copying such proposed additions to income of assessee without giving any reason. On writ the Court held that the assessment order passed by Assessing Officer was in violation of principal of natural justice inasmuch as assessee did not have a reasonable opportunity to file a reply to notice-cum-draft assessment order and, thus, same was to be set aside. (AY. 2018-19)

    Faqir Chand v. NEAC(2021) 283 Taxman 51 (Delhi) (HC)

  56. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order set aside [S. 144B(9), Art, 226]

    Allowing the petition the court held that the final assessment order had been passed without issuing a show-cause notice and draft assessment order, department’s action was violative of principles of natural justice and provisions of section 144B of the Act. The assessment order was set aside and matter was remanded back to Assessing Officer. (AY. 2018-19)

    Floral Realcon (P) Ltd. v. National Faceless Assessment Centre (2021) 283 Taxman 488 (Delhi) (HC)

  57. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order was set aside and remanded with the direction too pass a reasoned order in accordance with law [S. 143(3), 144B(7), Art, 226]

    Allowing the petition the Court held that section 144B (7) mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing final assessment order. When there was no prior show cause notice as well as draft assessment order had been issued before passing assessment order in faceless manner, there was a violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme’ and stipulated in section 144B of the Act. The order was set aside and directed the Assessing Officer to pass a reasoned order in accordance with law. (AY 2018-19)

    Globe Capital Foundation v. National E-assessment Centre. (2021) 283 Taxman 411 (Delhi) (HC)

  58. S. 144B : Faceless Assessment-Violation of principle of natural justice-No draft assessment order was passed-Order was set aside [S. 143(3), Art, 226]

    Allowing the petition the Court held that the assessment proceeding had been completed in violation of principle of natural justice and no draft assessment order was passed. Assessment order was set aside. along with notice of demand arising therefrom were to be set aside. (AY. 2017-18)

    International Management v. NFAC (2021) 283 Taxman 78 (Delhi) (HC)

  59. S. 144B : Faceless Assessment-Violation of principle of natural justice-Order passed without issuing show cause notice and draft assessment order-Order was set aside and remanded [Art, 226]

    Allowing the petition the Court held that the Assessing Officer passed a final assessment order without issuing a show cause notice and passing a draft assessment order, the assessment order was to be set aside and matter remanded. (AY. 2014-15)

    Javin Construction (P) Ltd v. NFAC(2021) 283 Taxman 42 (Delhi) (HC)

  60. S. 144B : Faceless Assessment-Violation of principle of natural justice-No show cause notice and draft assessment order was issued-Assessment order was set aside and remanded back to Assessing Officer [Art, 226]

    Allowing the petition the Court held that the order passed without issue of show cause notice and draft assessment order is violation of principles of natural justice as well as mandatory procedure prescribed under Faceless Assessment Scheme. The assessment order was set aside and matter was remanded back to Assessing Officer. (AY. 2018-19)

    Novelty Merchants (P) Ltd v. NFAC (2021) 283 Taxman 385 (Delhi) (HC)

    Pooja Singla Builders and Engineers (P) Ltd v. NAFC (2021) 440 ITR 413/ 283 Taxman 491 (Delhi) (HC)

    Religare Enterprises Ltd. v. NFAC (2021) 283 Taxman 408 (Delhi) (HC)

  61. S.144B : Faceless Assessment-Violation of principle of natural justice-Without affording personal hearing-COVID-19-Order was set aside and remanded back for adjudication a fresh [S. 143(3), Art, 226]

    Assessment order was passed without granting an opportunity of filing objections against notices-cum-draft assessment orders as State of Delhi was under lockdown due to second wave of Covid-19 Pandemic between date of notices and date by which replies had to be filed. On writ High Court set aside the matter and remanded back to Assessing Officer for taking appropriate steps in accordance with law. (AY. 2018-19)

    Ramprastha Buildwell (P) Ltd v. NEAC (2021) 283 Taxman 235 (Delhi) (HC)

  62. S. 144B : Faceless Assessment-Violation of principle of natural justice-Opportunity of personal hearing was not granted-Order was set aside-Directed the Assessing Officer to pass a reasonable order in accordance with law [S. 143(3), 144B(7) Art, 226]

    Assessing order was passed without granting opportunity of personal hearing. On writ the High Court held that there was no hearing had been granted to assessee before passing impugned assessment order passed under section 143(3) read with section 144B, there was a violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme, assessment order as well as demand notice and all proceedings initiated pursuant thereto were to be set aside and matter was to be remanded back to Assessing Officer for adjudication afresh. (AY. 2018-19)

    Umkal Healthcare (P) Ltd. v. NFAC (2021) 283 Taxman 504 (Delhi) (HC)

  63. S. 144B : Faceless Assessment-Cash credits-Violation of principle of natural justice-Two days time was not granted-Draft assessment order was not provided-Assessment order was set aside [Art, 226]

    The assessment order was passed making addition of Rs 29, 51, 28, 460 under section 68 of the Act, without giving a reasonable opportunity of hearing also not providing the draft assessment order. The assessee filed the writ petition. High Court set a side the order of the Assessing Officer for violation of natural justice and not providing draft assessment order. (AY. 2018-19)

    Setu Securities (P) Ltd v. NFAC (2021) 323 CTR 646 / 207 DTR 425 (Bom) (HC)

  64. S. 144C : Reference to dispute resolution panel-Power of enhancement-Any matter relating to assessment-Writ was dismissed. [S.92C, 144C(8), Art, 226]

    Dismissing the petition the Court held that DRP being a specialised Panel is provided with power to propose variations relating to any matter arising out of assessment proceedings and Explanation to sub-section (8) of section 144C stipulates that enhancement is to be made with reference to matter arising out of assessment proceedings relating to draft assessment order. Court also held that there is no impediment as such for DRP to consider any matter arising out of assessment proceedings relating to draft assessment order and no matter, such an issue was discussed in draft assessment order or not, but it should not be totally unconnected with assessment proceedings or draft assessment order. (AY. 2013-14) (SJ)

    Delphi-TVS Diesel Systems Ltd. v. ITO (2021) 323 CTR 508 /207 DTR 329 (Mad) (HC)

  65. S. 144B : Faceless Assessment-Principle of natural justice-Cash credits-Order was set aside. [S. 68, 143(3), Art. 226]

    The assessment order was passed making addition of cash credits of more than 40 Crores. On writ the assessee contended that no reasonable opportunity of hearing was given. Allowing the petition the Court observed that before going into the merits of the issue whether the income of the assessee was taxable under section 68 or not, though the assessee had not sought a personal hearing, it became incumbent on his part to seek a personal hearing to explain with the documents already submitted to the Department to establish the genuineness of the transaction under which the assessee had accepted the sum from the lender through the bank. The order was set aside and the matter was remitted back to the assessing authority with directions to give one day personal hearing to the assessee. (AY.2018-19)

    Nagalinga Nadar M. M. v. Add. CIT (2021) 439 ITR 147 / 207 DTR 241 / (2022) 284 Taxman 244 / 324 CTR 195 (Mad.)(HC)

  66. S. 144B: Faceless Assessment –Assessment order without complying with the procedure- Assessing Officer was directed to pass a fresh order, after complying with requirement of section 144B.[S. 143 (3), Art , 226]

    Where the assessment order was passed without first issuing a show cause notice on the assessee as provided for in section 144B, such an assessment order was bad in law and was to be set aside. However, opportunity was to be given to the Assessing Officer to pass a fresh order after complying with the requirements of section 144B. (AY. 2017-18)

    Sribasta Kumar Swain v .UOI [2022] 440 ITR 545 (Orissa) (HC)

  67. S. 144B : Faceless Assessment – Contention of denial of opportunity of personal hearing requested by Assessee — Assessment order stayed.[Art , 226]

    On a writ petition contending that the assessment made under section 144B of the Income-tax Act, 1961 could be examined by the High Court without insisting upon filing of an appeal and no personal hearing was provided. The High Court directed issue notice of the writ petition and stay application and stayed the effect and operation of the assessment order in the meanwhile.

    Inder Prasad Mathura Lal v. NEAC (2022) 440 ITR 73 (Raj) ( HC)

  68. S. 147: Reassessment-After the expiry of four years-Seeking clarification-Retention money-No failure to disclose material facts-Reassessment is bad in law [S. 148, Art, 226]

    The assessment was completed u/s 143(3) of the Act. The notice for reassessment was issued after the expiry of four years for seeking clarifications. The assessee filed writ challenging the issue of notice u/s 148 of the Act. Single judge dismissed the writ petition. On appeal allowing the petition the Court held that there appears to be no power vested with the AO to seek such clarifications-Nevertheless, the assessee has furnished the reply and the reply specifically stated that the retention money has already been offered to tax in the subsequent period. There is no allegation against the assessee of any failure on his part to disclose full particulars at the time of original assessment, nor there is any fresh tangible material brought out by the AO on record justifying his exercise of power under section 147 read with section 148 of the Act. Notice was quashed. (AY. 2011-12)

    Subrahmanyan Constructions Co. (P) Ltd v. A CIT (2021) 207 DTR 289 (Mad) (HC)

  69. S. 147: Reassessment-After the expiry of four years-Interest expenses-No failure to disclose material facts-Reassessment notice was quashed [S. 57, 148, Art, 226]

    The assessment was completed u/s 143(3) of the Act. The Reassessment notice was issued on the ground that the interest paid to HDFC bank was not allowable as deduction u/s 57 of the Act. The assessee filed the writ petition to quash the reassessment notice, allowing the petition the Court held that there is no failure on the part of the assessee to truly and fully disclose all primary facts necessary for the purpose of assessment. Accordingly the reassessment notice was quashed. Followed Calcutta Discount Co Ltd v. ITO (1961) 41 ITR 191 (SC), Ananta Land Mark Pvt. Ltd v. Dy.CIT (2021) 439 ITR 168 (Bom) (HC). (AY. 2012-13)

    Kalpataru Plus Shrayans v. Dy. CIT (2021) 207 DTR 138 /323 CTR 747 (Bom) (HC)

  70. S. 147 : Reassessment-After the expiry of four years-Objections to notice-Order disposing the objections must be passed by passing speaking order-Order disposing the objection was set aside. [S. 148, Art. 226]

    The assessee challenged the issue of notice u/s 148 of the Act and order disposing the objection. Allowing the petition the Court held that the Assessing Officer had to pass a speaking order taking into consideration the objections raised by the assessee. The cryptic manner of dealing without any semblance of reasons necessitated a remand. (AY.2013-14)

    Shilp Realty Pvt. Ltd. v. ITO (2021) 439 ITR 478 (Guj.)(HC)

  71. S. 147 : Reassessment-Arithmetical mistake-Issue subject matter of appeal before CIT(A)-Reassessment invalid-Electricity duty short provision of interest on Government loan-Deletion of addition is held to be justified. [S. 43B, 148]

    Dismissing the appeal of the revenue the Court held that the reassessment proceedings had been initiated contrary to the second proviso to section 147(1). What was pending before the Commissioner (Appeals) was the very same subject matter for which notice under section 148 was issued. Court also held that the Tribunal was right in confirming the decision of the Commissioner (Appeals) and quashing the order thereby deleting the additions made on account of electricity duty and short provision of interest on Government loan, made under section 43B, relying on the court’s decision in the assessee’s own case for earlier assessment years. Followed Kerala State Electricity Board v. Dy CIT (2010) 329 ITR 91 (Ker.)(HC) (AY. 2005-06)

    PCIT v. Kerala State Electricity Board (2021)439 ITR 323 (Ker.) (HC)

  72. S. 147: Reassessment – After the expiry of four years –Shipping Reserve — Amendment in law with effect from 1.4.1996 restricting deduction to 50% of income derived from operation of ships — Amendment not applicable in respect of earlier AY — Failure to furnish reasons recorded as requested by assessee — No failure on part of assessee to disclose all material facts fully and truly – Reassessment was quashed. [S. 33AC , 148, Art , 226 ]

    For the AY 1994-95, the assessee’s income was revised at nil after allowing deduction under section 33AC. After a period of four years, the assessee received a notice under section 148 to reopen the assessment under section 147. On a writ petition:

    Held, allowing the petition, that the Finance Act, 1995 amended the provisions of section 33AC with effect from April 1, 1996 and restricted the deduction to be allowed at 50% of the profits derived from the business of operation of ships (computed under the head “profits and gains of business or profession” before making a deduction under the section). The deduction under section 33AC as it stood in the AY 1994-95 was to be allowed on the basis of the total income. The period of limitation of four years had expired and the reasons for reopening of the assessment did not disclose any finding that the assessee had failed to disclose fully and truly all material facts necessary for assessment. The reasons for re-opening showed that the conclusion had been drawn from the case record of the assessee itself. The entire reasons proceeded on the basis of “perusal of details” and on “perusal of records” and stated that the assessee had wrongly claimed certain deductions which had been accepted by the Assessing Officer. Therefore, the fact that the assessee had been allowed a deduction under section 33AC in respect of income from dividends, long-term capital gains and interest was no ground for issuing notice under section 148 to initiate reassessment proceedings. (AY. 1994-95)

    Great Eastern Shipping Company Limited v. K. C. Naredi, Addl. CIT (2022) 440 ITR 59 (Bom) ( HC )

  73. S. 147: Reassessment – After the expiry of four years – Condition Precedent — Notice not specifying failure to disclose any material facts truly and fully by assessee — Notice and subsequent order invalid [S. 148, Art. 226]

    For the AY 1998-99, the assessee filed a second revised return declaring a loss as a result of demerger of its bottling division. The AO issued notices under sections 143(2) and 142(1) along with a questionnaire. The assessee furnished the reasons for filing the revised returns of income and provided clarifications in response to the various queries raised and the balance sheet and the profit and loss account. Thereafter, the AO passed an order under section 143(3) computing the total income of the assessee at Nil after making certain disallowances and after setting off earlier years’ losses. Aggrieved, the assessee filed an appeal before the Commissioner (Appeals).

    The Commissioner by an order under section 263 directed the AO to pass a fresh assessment order after considering the issues identified in his order. Thereafter, an order under section 143(3) read with section 263 was passed.

    After the expiry of four years the AO issued a notice under section 148 to reopen the assessment under section 147. On a writ petition:

    Held, allowing the petition, that the reasons recorded for reopening of the assessment did not state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the AY 1998-99. The notice issued under section 148 after a period of four years for reopening the assessment under section 147 and the consequential order passed were quashed and set aside. (AY. 1998-99)

    Coca-Cola India P. Ltd. v. DCIT (2022) 440 ITR 20 (Bom) ( HC)

  74. S. 147: Reassessment – Two assessment years reopened – One with in four years – One after the expiry of four years – Condition Precedent — Primary facts necessary for assessment fully and truly disclosed — AO had applied his mind – Not open for the AO to reopen assessment based on very same material and to take a different view – Notices for reopening on change of opinion – Invalid [S. 148, Art , 226 ]

    The assessee sold beauty care products and provided consultancy services. It declared income from sale of products and income from provision of services. The AO issued a notice under section 142(1) and the assessee furnished the details of advertisement expenses as sought for. Thereafter, an order under section 143(3) was passed accepting the return of income. After a period of four years, a notice under section 148 was issued to reopen the assessment under section 147 for the AY 2012-13 and within period of four years for AY 2013-14, on the ground that the advertisement and marketing expenditure incurred by the assessee was not deductible under section 37 since the assessee was prohibited from advertising under the provisions of the Indian Medical Council Act, 1956 , read with Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. The objections raised by the assessee were rejected. On writ petitions :

    Held, allowing the petitions, that in the original assessment the AO was aware of the issue of expenses incurred on advertisement and marketing by the assessee. Once he had applied his mind in the regular assessment proceedings of the assessee having incurred advertisement and marketing expenditure, it was not open for him to reopen the assessment under section 147. In the original assessment the assessee was called upon to differentiate between the nature of expenses shown under the head depreciation and amortization vis-a-vis advertisement and marketing expenses shown in the profit and loss account. The requisite details, including a copy of agreement, actual advertising invoices, were filed and the issue was discussed with the Assessing Officer at length before he passed the order under section 143(3). The notices under section 148 for reopening the assessment under section 147 were issued merely on change of opinion and therefore, set aside. Followed Aroni Commercial Ltd v. Dy CIT (2014) 362 ITR 403 (Bom) (HC), Marico Ltd v. ACIT (2019) 111 taxmann.com 53 ( Bom) (HC) (AY. 2012-13, 2013-14)

    Rich Feel Health and Beauty Private Limited v. ITO (2022) 440 ITR 41/ 284 Taxman 286 (Bom) ( HC)

  75. S. 147 : Reassessment – Reason to believe – Sanction for issue of notice – Recording of separate reasons not necessary – Reassessment notice is held to be valid. [S. 148 , 151 Art , 226]

    The sanctioning authority is not required to separately record his reasons for granting a sanction if he approves the reasons recorded by the AO. In such a case, it cannot be said that the sanction has been granted in a mechanical manner and, therefore, the proceedings are bad in law. Further, since in this case, no questions were asked on the issue in which reassessment was sought to be done, it would not constitute a case of change of opinion. (AY. 2014-15)

    Premlata Soni ( Smt.) v. NEAC (2022) 440 ITR 578 (MP) (HC)

  76. S. 147 : Reassessment – With in four years- Where the necessary details were disclosed, reopening is not valid. [S. 54, 148, Art. 226]

    The Assessing Officer initiated reassessment proceedings on the ground that the assessee had failed to file several details pertaining to its claim of deduction under section 54 of the Act such as proof of cost of improvement etc. Held that the assessee’s computation of capital gains after considering the deduction claimed under section 54 of the Act was on record. Further, the details regarding the cost were also filed. Therefore, the Assessing Officer proceeded on a wrong presumption that the details were not on record. Accordingly, he could not have recorded a reason to believe that income chargeable to tax had escaped assessment and the proceedings were to be quashed. (AY. 2012-13)

    Bankim Bhagwanji Chaauhan v. ITO (2022) 440 ITR 485 (Guj) ( HC)

  77. S. 147 : Reassessment –With in four years- Where the necessary details were disclosed, reopening is not valid. [S. 148, Art. 226]

    The Assessing Officer sought to reopen an assessment on the ground that due to delay in submission of TP study, the arm’s length price of the transaction could not be examined. Quashing the proceedings, the High Court held that Form 3CEB as well as the TP study were filed in time and that it was apparent from the record that the Assessing Officer had decided to neither refer the matter to the Transfer Pricing Officer nor did he himself examine the transactions. Having done so, he could not change his opinion and reopen a concluded assessment. (AY .2013-14)

    JRS Pharma and Gujarat Microwax Pvt. Ltd. v. Dy.CIT (2022) 440 ITR 557 (Guj) ( HC)

  78. S. 153A : Assessment-Search or requisition-Warrant of Authorisation-Effect of amendment of Section 132(1) by Finance (No. 2) Act, 2009-Amendment has retrospective effect from June 1, 1994 and is clarificatory-Additional Director of Income-Tax had Authority to issue warrant of authorisation-Without incriminating material proceedings u/s 153A is not valid. [S. 132]

    Court held that Section 132(1) of the Income-tax Act, 1961, was amended by the Finance (No. 2) Act, 2009 authorizing the Additional Director or the Additional Commissioner or the Joint Director or the Joint Commissioner to issue a search warrant. This provision was given retrospective effect from June 1, 1994. In terms of the clarification issued by the Central Board of Direct Taxes the amendment is clarificatory. Warrant of Authorisation issued by the Additional Director of Income-tax was held to be valid. Court also held that there being absolutely no incriminating materials found or seized at the time of search, there was no justification for the initiation of assessment proceedings under section 153A. The assessment proceedings were not valid. (AY.2002-03 to 2008-09)

    Smrutisudha Nayak (Smt.) v. UOI (2021) 439 ITR 193 / 208 DTR 1 / 323 CTR 617 (Orissa)(HC)

  79. S. 154 : Rectification of mistake-Loss return-One day delay in filling of return-Mistake must be obvious-Assessment order passed without considering the delay in filing of return-Mistake which could be rectified-Liberty given to the assessee to file an application before CBDT. [S. 80, 119(2)(b), 139(3)]

    Dismissing the appeal the Court held that the return claiming loss had been submitted with a delay of just one day and even that was caused by a bona fide error. The mistake could be rectified. Court gave liberty to the assessee to file an application under section 119(2)(b) of the Act before the competent authority seeking condonation of delay in filing returns and thereafter carry forward of loss to the subsequent assessment year which were incurred during the assessment year 2004-05.(AY.2006-07)

    Kolar and Chickballapur District Co-Op. Bank Ltd. v. A CIT (2021) 439 ITR 678 (Karn.)(HC)

  80. S. 154 : Rectification of mistake-Expenditure on account of stores and spares-Omission to make addition in the assessment order-Income assessed as income from other sources and not as business income-Rectification is held to be valid. [S. 28(1), 37(1), 56]

    Affirming the order of the Tribunal the Court held that the assessee had not been carrying on any manufacturing activity for the assessment year 2004-05, and the rental income received by the assessee for that year could not be treated as business income. In view of the finding, the disallowance of the expenditure on stores and spares by the Assessing Officer was correct. The omission of the Assessing Officer to make the addition while computing the total income was liable to be rectified. The order of rectification was valid. (AY.2004-05)

    PTL Enterprises Ltd. v. Dy.CIT (2021) 439 ITR 365 (Ker.)(HC)

  81. S. 226 : Collection and recovery-Modes of recovery-Stay of recovery-Pendency of appeal before CIT(A)-Alternative remedy-Directed to approach the Assessing Officer for stay-Writ is not maintainable. [S. 220(6), 246, 246A, Art. 226]

    The assessee filed an appeal before the CIT(A) which was pending for final disposal. For stay of recovery the assesee filed writ before the High Court. Dismissing the petition the Court held that the assessee could approach the Assessing Officer under section 220(6) of the Act. Merely because of some apprehensions in the minds of the assessee, it cannot be stated that the Assessing Officer would not decide the issue in the proper perspective. The Assessee directed to file application under section 220(6) of the Act. (AY.2018-19)

    Aiman Education and Welfare Society v. NFAC (2021) 439 ITR 651 (Mad.)(HC)

  82. S. 226 : Collection and recovery-Garnishee proceedings-Criminal proceedings against assessee with reference to particular amount-Money in excess in Bank can be adjusted towards tax dues of assessee. [S. 226(4), Code of Criminal Procedure code, 1973, S. 451, 457, Indian Penal Code 1860, S 120B, 420, Art. 226]

    The petition was filed before the Court to transfer money in excess in Bank which can be adjusted towards tax due of the assessee. Court held that according to the status report filed by the Bureau, the amounts transferred by the Russian company to the assessee in the London account, in relation to the transaction totalled to a sum of USD 2,15,71,843.90. However, the amount which was frozen and received in India was beyond the amount in relation to transaction with the Russian company. The amount received in excess of the amount received from the Russian company by the assessee qua the transaction could not be prima facie termed as case property or the proceeds of the crime liable to be confiscated or for compensation in case the assessee were charged and convicted. Consequently the Special Judge was to retain the amount received in lieu of the frozen amount of USD 2,15,71,843.90 along with the interest accrued thereon from the date of receipt till date and transfer the balance amount along with the interest accrued thereon received in the account to the Income-tax Department.

    Ravina and Associates Pvt. Ltd. v. Central Bureau of Investigation (2021) 439 ITR 667 / 208 DTR 25 / 323 CTR 908 (Delhi)(HC)

  83. S. 192 : Deduction at source-Salary-Credit for tax deducted-Collection and recovery of tax-Bar against direct demand on assessee-Failure to deposit the tax in Government treasury by the employer-Credit cannot be denied to the employee-Directed to give credit [S.199, 201, 205, Art, 226]

    Assessee was an employee of Kingfisher Airlines. Airlines deducted TDS on salary made to assessee but did not deposit same in Government treasury.The credit was not given by revenue and demand has been raised with interest. On writ the Court held that TDS having been deducted by employer of assessee, it will always been open for department to recover same from said employer and credit of same could not have been denied to assessee. Court also held that if tax had been recovered the assessee is entitle to refund with the interest.Followed Devarsh Pravinbhai Patel v. ACIT (SCA Nos. 12965 /12966 of 2018 dt. 24-9 2028, ACIT v. Om Prakash Gattani (2000) 242 ITR 638 (Delhi)(HC) (AY. 2009-10, 2011-12)

    Kartik Vijaysingh Sonavane v. Dy. CIT (2021) 208 DTR 441 / 324 CTR 111/ 132 taxmann.com 293 / (2022)) 440 ITR 11/ 284 Taxman 278 (Guj.) (HC)

  84. S. 194H : Deduction at source-Commission or brokerage-Sale of prepaid SIM cards to distributors-Discounts given by assessee-telecommunication company on sale of prepaid SIM cards to distributors-Not liable to deduct tax at source

    Dismissing the appeal of the revenue the Court held that that no TDS provisions under section 194H were attracted on discounts given by assessee-telecommunication company on sale of prepaid SIM cards to distributors.

    CIT(TDS) v. Vodafone Cellular Ltd. (2021)131 taxmann.com 191 (Bom) (HC)

    Editorial : Notice is issued in SLP filed by the revenue, CIT(TDS) v. Vodafone Cellular Ltd. (2021) 283 Taxman 292 (SC)

  85. S. 201 : Deduction at source-Survey-Failure deduct tax at source-Payment to non-residents-Appeal pending before two earlier assessment years-Writ was dismissed-Directed to pursue alternative remedy of appeal. [S. 133A, 201 (1), 201(IA) Art, 226)

    Dismissing the petition the Court held that the assessee has already availed of its remedies of appeal in relation to two assessment years hence the writ was dismissed and directed to avail the appeal proceedings in accordance with law.

    BT (India) (P) Ltd v. ITO 323 CTR 661/ 207 DTR 377 (Delhi) (HC)

  86. S. 234B : Interest-Advance tax-Tax deducted at source-Non-resident-Payer deducted tax at source-Levy of interest is held to be not justified.

    Dismissing the appeal of the revenue the Court payer, who was required to make payments to assessee-non-resident, had deducted tax at source, question of payment of advance tax by assessee (payee) would not arise and, therefore, it would not be permissible for revenue to levy interest under section 234B upon assessee. Followed DIT (IT) v. Texas Instruments Incorporated (2020) 275 Taxman 614 (Ker)(HC) AY. 2011-12)

    CIT v. IBM Singapore (P) Ltd. (2021) 131 taxmann.com 189 (Karn) (HC)

    Editorial : Notice issued in SLP filed by the revenue against High Court order, CIT v. IBM Singapore (P) Ltd. (2021) 283 Taxman 288 (SC)

  87. S. 234E : Fee – Default in furnishing the statements – Provision for levy of late fee for delay in filing — Valid — Intimation calling for payment of late fee for delaying filing of return — Not sustainable for periods prior to June 1, 2015 [S. 200A, Art, 226]

    During FY 2012-13 and 2013-14, TDS was timely deducted and deposited by Petitioner companies, however, there was delay in filing quarterly returns. Revenue processed belated quarterly returns under section 200A and issued intimation that Petitioner was under statutory obligation under section 234E to pay late fee for delayed filing of TDS return. On writ petitions against the said intimations, a single judge declared the intimations illegal. On appeal before the Division Bench:

    Since provisions of section 200A were amended to enable computation of fee payable under section 234E at time of processing of return and said amendment came into effect from 1-6-2015 (in view of CBDT Circular No. 19 of 2015 dtd. 17-11-2015), intimations issued under section 200A dealing with fee for belated filing of TDS returns for period prior to 1-6-2015 were invalid and were to be set aside.

    Olari Little Flower Kuries (P.) Ltd. v. UOI (2022) 440 ITR 26 (Ker) (HC)

  88. S. 234E : Fee – Default in furnishing the statements – Provision for levy of late fee for delay in filing — Valid — Intimation calling for payment of late fee for delaying filing of return — Not sustainable for periods prior to June 1, 2015 [S. 200A, Art, 226]

    During FY 2012-13 and 2013-14, TDS was timely deducted and deposited by Petitioner companies, however, there was delay in filing quarterly returns. Revenue processed belated quarterly returns under section 200A and issued intimation that Petitioner was under statutory obligation under section 234E to pay late fee for delayed filing of TDS return. On writ petitions against the said intimations, a single judge declared the intimations illegal. On appeal before the Division Bench:

    Since provisions of section 200A were amended to enable computation of fee payable under section 234E at time of processing of return and said amendment came into effect from 1-6-2015 (in view of CBDT Circular No. 19 of 2015 dtd. 17-11-2015), intimations issued under section 200A dealing with fee for belated filing of TDS returns for period prior to 1-6-2015 were invalid and were to be set aside.

    Olari Little Flower Kuries (P.) Ltd. v. UOI (2022) 440 ITR 26 (Ker) (HC)

  89. S. 244A : Refund-Interest on refunds-Interest granted earlier-Directed not to charge the interest. [S. 220(2)]

    Held that the interest under section 244A of the Act was paid by the Department for the delay caused in giving refund due to the assessee. Interest on the interest paid under section 244A of the Act not being provided under the statute, the Tribunal rightly held that the Assessing Officer shall recompute the interest chargeable under section 220(2) of the Act by reducing only the principal amount of tax from the refund granted earlier and not charge interest on the interest granted earlier under section 244A. (AY.1997-98)

    CIT v. ABB Ltd. (2021) 439 ITR 554 (Karn.)(HC)

  90. S. 245D : Settlement Commission-No procedural error committed by Settlement Commission-Order of single judge allowing the writ petition of the revenue was set aside-Order of settlement commission was affirmed. [S. 245D(4), Art. 226]

    Single judge allowed the writ petition of the revenue. On appeal allowing the appeal the Court held that the findings rendered by the Settlement Commission was not a concession extended by the Commissioner (Departmental representative), but in fact, accepting the verification report which was submitted. Therefore, the Department, on a wrong premise that the Settlement Commission had recorded that a concession was given, had filed a writ petition which was unnecessary, as the Commission had not recorded any concession, but taken up the matter, considered the case of the assessee as well as the Department, and settled the case based upon the increased offer made by the assessee. On a cumulative reading of the order, it was clear that one of the disputes which was subject matter of the settlement proceedings was unaccounted excess stock. On account of the stand taken by the Department as well as the assessee the Commission had directed verification of the data from the impounded computer server. There was no procedural error committed by the Settlement Commission, warranting interference by the court. The order of the Settlement Commission was not to be construed as a concession given by the Commissioner (Departmental representative), but a finding rendered by the Commission with regard to the verification of the data from the impounded computer server. Therefore, when there was no procedural irregularity the order of the Settlement Commission, which had attained finality and given effect, it need not be interfered with. The order allowing the writ petition filed by the Department was set aside.

    G. Rajam Chetty and Sons v. CIT (2021) 439 ITR 687 (Mad.)(HC)

    Editorial : Decision of single judge in CIT v. ITSC (2021) 439 ITR 684 (Mad)(HC) set aside.

  91. S. 246A : Appeal – Commissioner (Appeals) – Writ against assessment order – Non-interference of court in view of the availability of the alternate remedy.[S. 143(3), 248, Art, 226]

    Where the assessee challenged an assessment order by way of a writ petition, the assessee was to be relegated to the alternate remedy of appeal since the exceptions to the alternate remedy, i.e., (i) a breach of fundamental rights; (ii) a violation of the principles of natural justice; (iii) an excess of jurisdiction; or (iv) a challenge to the vires of the statute or delegated legislation were not present. Writ petition was dismissed. (AY. 2014 -15 )

    Sree Krumariamman Granites v. ACIT (2022) 440 ITR 537/ 209 DTR 283/ 324 CTR 418 (Mad) (HC)

  92. S. 254(1) : Appellate Tribunal-Powers-Remand of case-Power to be used only in exceptional cases-Order of remand was set aside.

    Allowing the appeal of the revenue the Court held that on the facts of the case, the Tribunal was not right in setting aside the well reasoned order passed by the Assessing Officer for re-examination, especially when the Assessing Officer had duly examined all the material placed while passing the assessment order which was affirmed by the Commissioner (Appeals). Order of Commissioner (Appeals) is restored. (AY.2015-16)

    PCIT v. Prabha Jain (2021) 439 ITR 304 (Mad.)(HC)

  93. S. 254(2) : Appellate Tribunal-Rectification of mistake apparent from the record-Additional grounds-Order can be rectified on account of mistake of the counsel for the parties. [S. 253, Art. 226]

    At the time of hearing the counsel for the assessee inadvertently, failed to bring to the notice of the Tribunal that issue raised inn ground no Nos. 6 and 7 of the grounds of appeal. The assessee filed the miscellaneous application which was rejected on the ground that there was no mistake in the order of the Tribunal. On writ allowing the petition the Court held that, the amendment to the order of the Tribunal under section 254(2) could also be made, if it was triggered on account of a mistake of the counsel for the parties. This power would also extend to a situation where the assessee’s counsel withdrew the appeal, for the reason that, the issue concerning the transfer pricing adjustment in respect of the assessment year 2011-12 stood resolved. The order passed by the Tribunal in the miscellaneous application was to be set aside. The Tribunal was directed to adjudicate the issues pertaining to the additional grounds raised by the assessee. Relied on CIT (Asst) v. Saurashtra Kutch Stock Exchange Ltd (2003) 305 ITR 227 (SC), S.Nagaraj v. State of Karnataka (1993 Suppl. 4SCC 595 (AY.2011-12)

    Federal Mogul Goetze (India) Ltd. v. ACIT (2021) 439 ITR 204 (Delhi)(HC)

  94. S. 254(2): Appellate Tribunal-Rectification of mistake apparent from the record-lease rent-Tribunal followed order of earlier year and not followed the Judgement of Supreme Court-Miscellaneous application was dismissed-Order rejecting miscellaneous application was set aside-Non-consideration of judgement of Supreme Court is a mistake apparent on record-Matter remanded to Tribunal to decide on merits in accordance with law [S. 37 (1)), 200A]

    The assessee claimed deduction of lease rental paid on cars taken on financial lease as revenue expenditure. The AO disallowed the expenditure. CIT (A) allowed the appeal. On appeal by the revenue the assessee relied on the decision of Supreme Court in I.C.D.S Ltd v. CIT (2013) 350 ITR 527 (SC). The Tribunal allowed the appeal of the revenue following the earlier order of the Tribunal in assesse’s own case for the Assessment year 2013-14. The assessee filed miscellaneous application and relied on the judgment of Supreme Court in CIT v. Saurashtra Kutch Stock Exchange Ltd (2008) 305 DTR 227 (SC) for the proposition that non-consideration of a decision of the Jurisdictional High Court or the Honourable Supreme Court is a mistake apparent from records. Tribunal dismissed the miscellaneous application. On appeal High Court held that The Tribunal can take a stand that the issue is debatable and for doing so the Tribunal should record the reasons as to what are the other decisions on the very same point which may not support the case of the assessee. Accordingly the order rejecting the miscellaneous application filed by the assessee was held to be not justified. Order of Tribunal was set aside and Directed the Tribunal to decide on merit in accordance with law. (AY. 2004-05)

    Philips India Ltd v. PCIT (2021) 323 CTR 992 / 208 DTR 211 (Cal) (HC))

  95. S. 254(2): Appellate Tribunal-Rectification of mistake apparent from the record – Delay of 1924 days (Eight years) – Condonation of delay was dismissed. [S. 260A]

    Where there was a delay of around eight years in filing a miscellaneous application before the Tribunal and the reason for the delay was mentioned to be the reason that the concerned officers of the assessee and its tax consultants had retired/changed, the Tribunal was right in concluding that the same was not a sufficient reason to entertain the appeal and condone the delay. Accordingly, dismissal of the miscellaneous application by the Tribunal was correct and does not call for interference. (AY. 2007-08)

    South Eastern Coalfields Ltd. v. PCIT (2022) 440 ITR 568 (Chhattisgarh) (HC)

  96. S. 260A : Appeal-High Court-Central Board of Direct Taxes Circulars-Question was not argued before Tribunal-Appeal is not maintainable. [S. 80IC, 268A]

    Dismissing the appeal the Court held that once the Department had not raised the plea of applicability of clause 10(c) of the Board’s Circular No. 3 of 2018, dated July 11, 2018 it could not be allowed to raise such plea in the appeal before the court. No such ground was raised by the Department before the Tribunal requiring it to decide the matter on the merits in view of clause 10(c) of Circular No. 3 of 2018, July 11, 2018. The Tribunal had correctly held that the appeal was not maintainable in view of the mandate of Circular No. 17 of 2019, dated August 8, 2019. No question of law arose. (AY. 2012-13)

    PCIT v. Surya Textech (2021) 439 ITR 215 (HP)(HC)

  97. S. 260A : Appeal-High Court-Territorial jurisdiction of High Court-Transfer of case-Pendency of proceedings-Ahmadabad Tribunal decided the appeal-Appeal was filed at Allahabad High Court-Jurisdiction vest with Gujarat High court-Appeal was dismissed. [S. 120, 127(2)]

    The case of the assessee was transferred from Ahmadabad to Noida by order dated 29 th December 2020. The appeal of the assessee for the assessment year 2012-13 was decided by the Appellate Tribunal on 12 th November, 2020 Assessment order was passed on 28th Dec. 2017 CIT (A) decided the appeal on 31st Jan., 2019. Appellate Tribunal decided the appeal on by the Tribunal on 12th Nov., 2020. On the dt. 29th Dec, 2020, the assessment case of the assessee for asst. yr. 2012 13 was not pending Even if one were to apply the principle of appeal being continuation of the assessment, the fact that the Revenue has chosen to file the instant appeal in June, 2021, it cannot be relied to contend that proceeding was pending on 29th Dec, 2020. Therefore jurisdiction to hear the appeal would continue to vest with the Gujarat High Court and not before the Allahabad High Court. The appeal has been wrongly instituted before Allahabad High Court. Accordingly the appeal was dismissed (AY. 2012-13)

    PCIT v. Dileep Kumar (2021) 323 CTR 998 / 208 DTR 110 (All)(HC)

  98. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Order passed without providing adequate opportunity to the assessee was held to be not valid-Revision order which was affirmed by the Tribunal was set aside-directed the Commissioner to pass the order in conformity with the provisions of the Act. [S. 254(1)]

    Allowing the appeal of the assessee the Court held that the Commissioner is duty bound to give an opportunity of being heard, while exercising the revisionary jurisdiction, to the assessee while enhancing or modifying the assessment or cancelling the assessment or directing for fresh assessment in conformity with the provisions contained under section 263. Accordingly the order passed by the Commissioner, without giving reasonable opportunity to the assessee which was affirmed by the Tribunal was set aside. Directed the Commissioner to pass the order in conformity with the provisions of the Act in conformity with the provisions of the Act. (AY.2014-15)

    Ashoka Ispat Udyog v. PCIT (2021) 439 ITR 391 (Orissa)(HC)

  99. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Violation of principles of Natural justice-Matter remanded to PCIT [S. 143(3), Art. 226]

    Allowing the petition the Court held that when the law specifically requires the giving of an opportunity of being heard, that must be followed lest such failure render the order legally fragile on the anvil of breach of principles of natural justice. The procedure followed by the Principal Commissioner in passing the order without giving an opportunity of hearing to the assessee was in violation of section 263 and in breach of principles of natural justice. The order was set aside and the matter was remitted to the Principal Commissioner.

    Narayanachetty Roja v. PCIT (2021) 439 ITR 104 / 323 CTR 861 (AP)(HC)

  100. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Amortisation of preliminary expenses-Granted in initial year of expenditure-Deduction cannot be withdrawn in subsequent year. [S. 35D]

    Allowing the appeal the Court held that Amortisation of preliminary expenses granted in initial year of expenditure cannot be withdrawn in subsequent year without disturbing the decision in the initial year. Followed, Dy. CIT v. Gujarat Narmada Valley Fertilizers co. ltd (2013) 356 ITR 460 (Guj.)(HC). (AY.2008-09)

    Subex Ltd. v. CIT (2021) 439 ITR 495 (Karn.)(HC)

  101. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Limitation-Reassessment-Issue which was not subject matter of reassessment limitation has to be computed from the original assessment-Revision was held to be barred by limitation [143(3), 147, 263 (2)]

    The assessment was completed u/s 143(3) of the Act on 28 th December 2006. The reassessment was completed on 30 the December 2011. The revision order was passed on 26 th March 2014. The Tribunal held that the issue which was not subject matter of reassessment while computing the limitation the issue which was was not subject matter of reassessment limitation has to be computed from the original assessment-Revision was held to be barred by limitation. Relied on CIT v. Alagendran Finance Ltd (2007)) 293 ITR 1(SC), Asoka Buildcon Ltd v. ACIT (2010) 325 ITR 574 (Bom) (HC), CIT v. ICICI Bank Ltd (2012) 252 CTR 85 (Bom)(HC) (AY. 2004-05)

    CIT v. Indian Overseas Bank (2021) 207 DTR 202 (Mad) (HC)

  102. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Merger-Subject matter of appeal-Investments written off-Book profit-Issue was not subject matter of appeal-Revision was quashed [S.115JB]

    Dismissing the appeal of the revenue the Court held that the revision was held to be bad in law though the issue of investments written off whether allowable deduction or not was not subject matter of appeal. Revision order was quashed. Followed ITA No. 18/2004 dt 16-1-2020 and ITA No. 142 / 2016 dt.22-1.2020 (AY. 2006-07)

    CIT, LTU v. Vijaya Bank (2021) 131 taxmann.com 136 (Karn) (HC)

    Editorial : SLP is granted to the revenue, CIT, LTU v. Vijaya Bank (2021) 283 Taxman 295 (SC)

  103. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Dispute resolution panel-Draft assessment order-No notice of demand attached-Order cannot be revised-No loss to revenue [S.144C]

    Dismissing the appeal of the revenue the Court held that the draft assessment order is only a proposed assessment order and there is no demand notice attached to draft assessment order and draft assessment order by itself cannot levy tax on assessee. Revision of draft assessment order is bad in law. (AY. 2010-11)

    PCIT v. Apollo Tyres Ltd. (2021) 283 Taxman 388 (Ker.)(HC)

  104. S. 263 : Commissioner-Revision of orders prejudicial to revenue-Prima facie satisfaction was not arrived by the Commissioner-Interim order-Matter was adjourned to 26-8 2021. [Art, 226]

    Writ petition was filed against the revision order Whether where there was no prima facie satisfaction recorded by Principal Commissioner on basis of materials available on record that order of Assessing Officer which was sought to be reviewed under section 263 was an erroneous order as Principal Commissioner was yet to arrive at his prima facie conclusion and wanted matter to be examined further in-depth, no action could have been taken against assessee pursuant to proceeding initiated under section 263. Interim order was passed. The matter was adjourned to 26-8-2021 (SJ)

    CMJ Breweries (P) Ltd v. UOI (2021) 283 Taxman 226 (Gauhati) (HC)

  105. S. 263 : Commissioner – Revision of orders prejudicial to revenue – Matter to be remanded to Commissioner where evidence was not considered by him.[ S.153A, 254(1), 260A]

    Where the Commissioner revised an assessment and the Tribunal accepted the assessee’s contention that the Commissioner had not examined the submissions and evidence, the Tribunal should have either examined the matter itself or remanded the matter back to the Commissioner. Since the Tribunal accepted the assessee’s contentions without following either of the two options, the matter was to be remanded to the Commissioner to consider the issue afresh. ( AY. 2008 -09,to 2011-12, 2013 -14)

    PCIT v. Shalimar Pellet Feeds Ltd. (2022) 440 ITR 530 (Cal) (HC)

  106. S. 271(1)(c) : Penalty-Concealment-Non striking off of irrelevant portion-Order of Tribunal confirming the penalty notice was set aside [S. 274]

    Allowing the appeal the Tribunal held that validity of the order of penalty must be determined on the basis of the initiation of penalty proceedings. Notice was issued in the printed format without non-striking off irrelevant portion. Defects being ex facie apparent in the notices issued, the ignition of proceedings being vitiated, the order of the Tribunal confirming the order of the authorities was set aside. (AY.2003-2004-05)

    P.M. Abdulla v. ITO (2021) 323 CTR 1077 / 208 DTR 93 (Karn)(HC)

  107. S. 271(1)(c) : Penalty – Concealment – On money – Survey – Income voluntarily offered- Deletion of penalty is held to be justified [S. 131(IA), 133A]

    Where pursuant to survey proceedings, the assessee had voluntarily offered certain income to tax, the same would not be liable to penalty. These facts are different from a case where income is offered in a revised return of income after the addition is discovered by the Assessing Officer. (AY. 2012-13)

    PCIT v. Shreedhar Associates (2022) 440 ITR 547 (Guj) ( HC)

  108. S. 279 : Offences and prosecutions-Sanction-Chief Commissioner-Failure to file return within stipulated time-Issue of summons was only for one year-Reasons Remanded to the Commissioner for fresh consideration. [S. 139(1), 279(2), Art. 226]

    The commissioner proposed for launching prosecution for delay in filing of return. The assessee moved application for compounding which was rejected. On writ allowing the petition the court held that the reason stated by the assessee for failure in filing the return of income under section 139(1) in time by the assessee for the assessment year 2013-14 had not been considered in the proper perspective by analysing before rejecting the reasons.. The reason cited by the assessee, after giving him an opportunity, could once again be considered in the proper perspective and accordingly, a fresh order could be passed by the Chief Commissioner. The order was set aside and the matter was remanded back to the Chief Commissioner for reconsideration. (AY.2013-14)

    Mahalingam Chandrasekar v. CCIT (2021) 439 ITR 698 (Mad.)(HC)

  109. S. 281B : Provisional attachment-Mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient-Attachment of fixed deposit was quashed. [S.153A, Art, 226]

    The fixed deposits of petitioner was attached invoking section 281B of the income-tax Act. On the ground that huge tax demands are likely to be raised. The assessee challenged the order by filing writ petition. Allowing the petition the Court held that mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional order of attachment. Exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Revenue. Before the order of provisional attachment, the CIT must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfill the demand payment of tax and it is therefore necessary to do so for the purpose of protecting the interest of the Revenue-Radha Krishan Industries vs State of Himachal Pradesh & Ors (2021) SCC Online SC 334 followed. Order passed by the respondent was quashed.

    Indian Minerals & Granite Co. v. Dy. CIT (2021) 323 CTR 352 / 207 DTR 164(Karn) (HC)

Direct Tax Vivad Se Vishwas Act, 2020

  1. S. 2(1)(a)(i): Appellant-Pending appeal-Appeal was filed on 29th March 2013 and numbered-High court condoned the delay-The Rejection of application was quashed-Entitle to file Form No-4 in response to Form No 3 [S. 260A, Art, 226]

    The appeal before the High court was filed on 29 th March 2013. The application of the petitioner was rejected referring to FAQ No. 59 of the CBDT Circular No 21 of 2020, dt. 4th Dec, in respect of the taxpayer in whose case, the time limit for sing an appeal has expired before 31st Jan., 2020, but an application for condonation of delay has been filed and whether such an assessee is eligible to avail DTVSV Scheme. First of all, the question No. 59 cannot be applied to the assessee’s case, since while condoning the delay in representation, the Court has held that the appeals were filed before this Court on 29th March, 2013 and the crucial date shall be reckoned as 29th March, 2013 for all purposes Therefore, the assessee’s case cannot be brought under the ambit of the case dealt with in question No. 59. Therefore, the order of cancellation of Form 3 dt. 17th Sept, 2021, is not sustainable in law. This order was passed when the miscellaneous petitions were pending before this Court and the matter was adjourned to 15th Sept, 2021 at the instance of the Revenue by order dt. 1st Sept 2021 Thereafter, on earlier occasion, i.e., on 15th Sept, 2021, once again, at the instance of the Revenue, it was adjourned to 21st Sept., 2021 Thus, the order dt. 17th Sept, 2021 rejecting assessee’s declaration having been issued when the matter was pending before this Court, that too, without seeking leave of this Court, the order dt. 17th Sept, 2021 is quashed. As a consequence, the assessee would be entitled to file Form 4 in response to Form 3. Delay in filing the appeal was condoned by the High Court.

    Precot Meridian Ltd v. Dy. CIT (2021) 323 CTR 272 / 207 DTR 173(Mad)(HC)

    Precot Meridian Ltd v. Dy. CIT (2021) 323 CTR 279/ 207 DTR 179 (Mad)(HC)

Securities Transaction Tax-Finance (No. 2) Act, 2004

  1. S. 98 : Securities Transaction tax-Short collection of tax-Interest and penalty-Purchase or sold through a broker registered with the stock exchange-Stock exchange was not liable to any interest and penalty. [S. 15, 99, 104, Securities Transaction Tax Rules, 2004, R. 3]

    The Tribunal held that the STT is collected through a member broker under a particular client code. The client code is provided by the brokers and not by the stock exchange. Responsibility of the stock exchange is to ensure firstly that STT is collected as per s. 98, secondly, it has been determined in accordance with s. 99 read with r. 3 and Explanation thereto, and lastly, such STT collected from the purchaser or seller is credited to the Central Government as provided under s 100 Tribunal further held that the stock exchange can only ensure determination of the value of taxable securities transaction purchased and provided sold through a client code at the prescribed rate. However, there is no mechanism provided enabling the stock exchange to collect STT beyond the client code. If a broker had not taken any separate client code then the stock exchange cannot be held responsible. Such failure could not be ascribed to the stock exchange because the client codes were not provided by the stock exchange but by the member brokers. Dismissing the appeal of the revenue the Court held that under the statute stock exchange was not liable for any alleged short deduction of STT and therefore, no fault can be prescribed to the stock exchange and to hold the stock exchange to be in default for short collection of STT. (FY. 2005-06)

    PCIT v. National Stock Exchange (2021) 323 CTR 1025 (Bom.) (HC)

Research Team

  1. S. 40 (a)(iib) : Amounts not deductible- Gallonge fee , licence fee and shop rental (Kist) with respect to EL-9 and E.L -I licence granted will fall within the purview of section and hence disallowable – Surcharge on Sales tax and turnover tax is not fee or charge hence not disallowable. [S. 37(1))]

    Gallonage fee, license fee and shop rental payable by the assessee, which is a state government undertaking is not deductible. The exclusivity referred to in the section is not to be seen in terms of the number of entities which are covered by the policy but the nature of the undertakings which are covered. However, surcharge on sales tax and turnover tax are not disallowable under the section as the same is not a fee or a charge. (AY. 2014-15)

    Kerala State Beverages Manufacturing and Marketing Corporation Ltd. v. ACIT (2022) 440 ITR 492 / 209 DTR 257/ 324 CTR 209 (SC)

  2. S. 254(2) : Appellate Tribunal-Rectification of mistake apparent from the record – Powers under section 254(2) are only to rectify / correct any mistake apparent from record – Tribunal was not required to re-visit its original order and go in details on merits and completely recall its order. [S. 195(2)]

    The Appellate Tribunal upheld the order passed by the Assessing Officer on grounds that payments made for purchase of software were in nature of royalty and tax at source was to be deducted on such payment. The assessee filed a miscellaneous application for rectification under section 254(2) before the Tribunal. The assessee had also filed an appeal before the High Court. The Tribunal recalled its original order and passed an order in favour of the assessees. The revenue filed a writ petition against order of the Tribunal on miscellaneous application. The High Court dismissed said writ petition. Revenue approached the Supreme Court, held:

    The Tribunal recalling its earlier order is beyond the scope and ambit of the powers under section 254(2). While allowing the application under section 254(2) and recalling its earlier order, it appears that the Tribunal has re-heard the entire appeal on merits as if the Tribunal was deciding the appeal against the order passed by the Commissioner (Appeals). In exercise of powers under section 254(2), the Appellate Tribunal may amend any order passed by it under section 254(1) with a view to rectifying any mistake apparent from the record only. The powers under section 254(2) are akin to order XLVII – Rule 1 – Code of Civil Procedure. While considering the application under section 254(2), the Tribunal is not required to revisit its earlier order and to go into detail on merits. The powers under section 254(2) are only to rectify/correct any mistake apparent from the record. Merely because the Revenue might have in detail gone into the merits of the case before the Appellate Tribunal and merely because the parties might have filed detailed submissions during the miscellaneous proceedings, it does not confer jurisdiction upon the Tribunal to pass the order de hors section 254(2)

    CIT v. Reliance Telecom Ltd. (2021) 208 DTR 113 / 323 CTR 873 / (2022) 440 ITR 1 / 284 Taxman 517 (SC)

It was a beautiful start of 2022 with a very glorious and well organized National Tax conference at Kolkata on 26th to 28th February, organized by the Eastern Zone Team. Exemplary Team work filled with hospitality, Time management, Technical sessions full of substance, which could be judged from the satisfaction of the Delegates on being well blessed after returning from Ganga Sagar.

Immediately after the Kolkata Conference, a RRC was organized by Central Zone on 10th to 12th March in Gwalior Orchha and Jhansi which was very eventful, refreshing and rejuvenating for all the participants. As Covid phases out, Physical Conferences are in demand and need of the hour but at the same time “Be safe, be smart, be kind”

During the course of the pandemic, we have learnt that Work from home gives ample opportunities to learn more, to read more. Which all of us have taken as a positive step by organizing on line educational webinars which are being all the Zones as required and I request all to continue to do the same in time to come. It helps in reaching people at no Cost.

With the advent of More and More amendments in GST law and Income Tax It seems that the basic idea of the Government is to plug the alleged loopholes of tax evasion. Introduction of Faceless Proceedings under Direct Tax Laws is glaring example and I want to share with my friends that now only those persons will flourish into practice who had a strong support of knowledge in their tax practice. Our endeavor is to educate Members of our fraternity and to help them remain active in the profession by acquiring continuous knowledge to become more successful in providing good quality service to their clients and to make them contributory to the society and country by their services to the profession in a strong way. The tax profession is one of those professions which is always likely to flourish. Whatever changes in the system of tax may be made but the importance of tax practitioners is not going to be reduced or diminished, its dimensions may be changed in Technological era therefore we cannot take things easy and have to work and strive hard to prove ourselves as A tax Professional community at its best in time to come.

Recent judgments of the Supreme Court / High court are to be appreciated on STRIKING OFF the section 148 of Income Tax Act and on Limitation UNDER Taxation Laws are of significant importance and very recent Judgement Of Guwahati High court has a far reaching impact on the point of applicability of Limitation Act where specific denial of this Act is there in special Acts. This requires applauds and accolades and opening of debate amongst all.

The Holi festival is being celebrated throughout the country and AIFTP wishes all its Members a very Happy and colorful Holi. Holi depicts the triumph of good over evil. We expect that the spirit of Holi travels down to all and the good wins and the country moves forward for a new height in the next Financial Year. Coupled with happy Navratri in April 2022.

D. K. Gandhi
National President, AIFTP

Dear friends

Wish you all a very happy Financial Year 2021-22 ending and wish you all a very happy Financial Year 2022-23. I pray to the almighty to give wisdom to the concerned authorities to reduce the Burden of Compliance both on assesses as well as we professionals.

As the world was limping back to normalcy from the devastating COVID-19 pandemic, the global economy was hit hard by the Russia – Ukraine war. The world is yet again staring at an uncertain future as this action of one of the Big Brothers will prompt the others to follow suit if the smaller neighbor doesn’t oblige the Big Brother by accepting its hegemony. I am reminded of the words of Leo Tolstoy in Christianity and Patriotism “ In all history there is no war which was not hatched by the governments, the governments alone, independent of the interest of the people to whom war is always pernicious event even when successful.” No doubt our Government and the concerned officials deserve appreciation for the efforts put in to evacuate our students and citizens from the conflict zone. The policy makers should seriously consider why the young generation is opting for education at foreign destinations, especially for medical education. They should seriously reconsider the admission policy for professional education. The Government should consider as case study the professional course conducted by the Institute of Chartered Accountants. The Institute is grooming world class Chartered Accountants year after year.

This issue of the AIFTP-Journal is ‘Tax Companion’ eminent professionals have contributed to same. I thank them for sparing their valuable time for the journal. Before parting I am tempted to share wisdom of Leo Tolstoy once again “I have now understood that though it seems to men that they live by care for themselves, in truth it is love alone by which they live. He who has love, is in God, and God is in him, for God is love.”

K. Gopal,
Editor

 

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Sr. No.

Name of Members

Profession

Zone

1

Aman Poddar

CS

East

2

Rabindra Kumar Sahu

Adv.

East

3

J. Maruti Prasad

GSTP

South

4

Rajesh Gupta

CA.

Central

5

Vipin Natani

CA.

Central

6

Hemant Kumar Gupta

Adv.

Central

7

Richa Gulati

CA.

North

8

Bharat Prasad

Adv.

East

9

Rohini Aggarawal

CA.

North

10

B. C. Babel

Adv.

Central

11

Kandarp Gajjar

T.P

West

12

Dhruv Amit Soni

GSTP

West

13

Ravi Harivadan Shah

CA.

West

14

Manish Kumar Choudhary

Adv.

East

15

Punit Gupta

Adv.

Central

16

Deepak Kumar Ruia

Adv.

East

17

Rahul Kumar Singhania

CA.

East

18

Ripunjai Sahai

GSTP

North

19

Neelesh Kushwaha

Adv.

Central

20

Neel Shah

CA.

West

21

Deepak Kumar

Adv.

North

22

Jatin S. Patel

STP

West

23

Arvind Kumar Madhukar

Adv.

East

24

Gopinath M. Renake

GSTP

South

25

Pavan Kumar Aggarwal

Adv.

North

26

Naveen Kumar Bindal

Adv.

North

27

Avinash Kumbhaj

Adv.

Central

28

Peush Nag

Adv.

Central

29

Nagarmal Agarwal

Adv.

East

30

M. Naga Deepak

Adv.

South

31

Sajjan Kumar Naredi

TP.

East

32

Ajay Kumar Bajesaria 

CA.

East

33

Anand Harnathka

CA.

East

34

Rahul Naredi

CA.

East

35

Uttam Kumar Naredi

T.P

East

36

Harish S. G.

CA.

South

37

Somashekharaiah N

GSTP

South

38

Vineet Gaurav

Adv.

East

39

D. Sree Lakshmi Valli

CA.

South

40

V. M . Ssamy

T.P

South

41

Debasish Mondal

Adv.

East

42

Lokesh Bothra

CA.

East

43

Surajit Mahisal

Adv.

East

44

Samadhan Madhavrao Apsunde

T.P

West

45

Haneesh Kumar

CA.

North

46

Abhishek Raja

GSTP

North

 

Introduction

Even though God rules in the affairs of men, yet the earth is not God’s jurisdiction. It is man’s jurisdiction. This quote is apt to set the tone to this piece relating to “jurisdiction” of the “proper officer” of DRI. It is a much debated question. However, in my humble opinion, a self inflicted injury by the Government. The true reason for this debate is the sheer arrogance of the bureaucracy in creating red tapes, class distinctions amongst officers and defining boundaries which do not per se exist.

Officer of DRI is “proper officer” or not is a vexed question of law. The issue is one relating to jurisdiction. The Courts have taken one view. However, the parliament seems to think otherwise and has since brought about series of retrospective amendments. The Finance Bill, 2022 is yet another attempt. Before we proceed to analyze the proposed amendments, let us, briefly, dive into the development of the law on this issue.

Syed Ali’s Case

The Hon’ble Apex Court in Commissioner vs. Syed Ali1 held that a demand notice can only be issued by the so called ‘proper officer’ who had the jurisdiction to assess the goods at the time when the same were being imported and cleared and not any other officer. In order to overcome this ruling, in 2011, the Legislature brought an amendment in the said Act by way of an Explanation to section 28(11) of the Customs Act, which gave all Customs Officers, en masse, power to issue show cause notices.

The said Explanation was, yet again, a matter of challenge before the Delhi High Court. The Delhi High Court in Mangali Impex v. Union of India2, clarified that the validating amendment brought in 2011 will apply prospectively and not retrospectively. SLP against the said judgment is pending before the Apex Court.

Canon India Pvt Ltd’s case

In March, 2021, a three-judge bench of the Apex Court in Canon India Pvt Ltd v. Commissioner of Customs3 followed its earlier decision in Syed Ali supra and held that that an officer of the DRI is not a “proper officer” to issue Show Cause Notices or raise a customs duty demand against importers. It is the officer who had undertaken the original assessment of imports or his successor, who would be the “proper officer” to issue Show Cause Notices and demand customs duty. In the words of the Hon’ble Apex Court:

“Where the statute confers the same power to perform an act on different officers, as in this case, the two officers, especially when they belong to different departments, cannot exercise their powers in the same case. Where one officer has exercised his powers of assessment, the power to order re-assessment must also be exercised by the same officer or his successor and not by another officer of another department though he is designated to be an officer of the same rank. In our view, this would result into an anarchical and unruly operation of a statute which is not contemplated by any canon of construction of statute.”

The Apex Court, further, went on to hold that the Notification No. 40/2012-Cus. (N.T.) relied by the Revenue department was ‘ill-founded’. The notification was issued under Section 2(34) of the said Act which merely defines a ‘proper officer’ and does not confer any powers on any authority to entrust any functions to officers. Also, if it was intended that officers of the DRI should be entrusted with functions of the Customs officers, it was vital that the Government should have done so in exercise of its power under Section 6 of the said Act. A review petition filed by the Revenue against the said judgment is pending before the Supreme Court.

In Unik Traders v. Additional CC4, the Madras High Court followed the above law expounded by the Hon’ble Supreme Court. Following this, the Bombay High Court, Madras High Court and Karnataka High Court have quashed Show Cause Notices issued by DRI officers saying that though review is pending before the Apex Court, it will not act as a bar from following the Apex Court judgment in the Canon India case.

However, recently, the Apex Court has admitted SLP filed by Revenue against judgment of the High Court in Godrej And Boyce Manufacturing Company Ltd v. UoI5. The Revenue contended that review petition is moved on the ground that Explanation to Section 28 (11) was not noticed by the three judge Bench in Canon India case. Thus, the controversy is still far from over.

Finance Bill, 2022

However, in the mean time, the Finance Bill, 2022 has proposed the following amendments:

Section 2: The assignment of functions to an officer of Customs by the Board or the Principal Commissioner shall be governed by the proposed Section 5(1A) and (1B) of the Customs Act.

Section 3: DRI6, Audit and Preventive Officers, etc. will be included as ‘Proper Officers’ under the said Act.

Section 5: Sub-section 1A and 1B shall be inserted to Section 5 to empower the Principal Commissioner of Customs or Commissioner of Customs to explicitly provide powers and functions of assignment of functions to the officers of Customs. It has been provided that two or more officers of customs can concurrently exercise powers and functions.

Section 14: The Board to specify the additional obligations of the importer whose value is not being declared correctly, the criteria of selection of such goods, and the checks in respect of such goods.

Section 110AA: When an original function has been duly executed by the officer of customs and subsequently, an inquiry, investigation, audit has been initiated by any other officer of customs, then, the officer, who originally exercised the functions shall have the sole authority to exercise further action like reassessment, adjudications, etc.

The Bill seeks to expand the scope of the definition of the term ‘proper officer’ under Section 2(34) of the said Act to expressly allow assignment of functions to an officer of Customs by CBIC7 or the Principal Commissioner of Customs or the Commissioner of Customs. Further, sub-section (1A) and (1B) of Section 5 proposes to empower the CBIC or the Principal Commissioner/Commissioner of Customs to assign functions to Custom officers. Section 3 proposes to include officers of DRI and Customs Audit/Preventive wing as ‘proper officers’ to empower them to investigate/enquire and issue Show Cause Notices.

Clause 96 of the Bill also seeks to retrospectively validate any action taken or duties performed by officers of DRI or Customs before the enactment of the Bill, notwithstanding the decisions of the Courts, Tribunals or Authorities. Any proceeding arising out of action taken under the clause and pending on the date of commencement of the Finance Act will be disposed of under the amended provisions. This retrospective amendment may have an overriding effect on the outcome of pending SCNs/Petitions/ Appeals, where the jurisdiction of the DRI officer is under challenge.

From the above amendments, it can be easily discerned that the Parliament seems to bestow all powers under the Customs Act on the officers of DRI. The said attempts are clearly an attempt to nullify the judgment of the Apex Court in the Canon India case.

Retrospective Amendment

Though the power of the Legislature to amend retrospectively undoubtedly cannot be questioned, we must refer to the observations of the Apex Court in Commissioner of Income Tax v. Essar Teleholdings Ltd.8, whereby it was held that the legislature cannot scrap out any judgment of the court by giving a retrospective amendment of the concerned law as this will confer excessive power on the hands of a particular organ of the government suppressing the other two. Therefore, the question whether the retrospective amendment being constitutionally legitimate or not remains a question as this kind of amendment has received partial legitimacy and not a complete one which thus keeps it under observation. Thus, the above proposed amendments would have to pass the test of judicial scrutiny.

However, the moot question remains i.e. assuming the retrospective amendment is valid, whether the proposed amendments nullify the ruling of the Apex Court in Canon India case. In other words, the lacuna pointed out by the Apex Court, has it been cured? I think not. The essence of the Apex Court judgment was that the “reassessment” can be done by the same officer who had done the original assessment. This aspect of the matter seems to have been lost sight of.

The other question that arises is whether Clause 96 would revive the dead? The answer is in the negative. All show cause notices which have been quashed and all appeals which have been allowed setting aside assessment orders will not and cannot stand revived, unless there is a challenge to those orders. Else, those orders have become final and binding. By a retrospective amendment, statutory orders cannot be annulled.

Closing remarks

A retrospective amendment is the most powerful tool in the hands of the legislature. However, in recent times, it is only intended to overrule judgments of courts than to iron out creases in the law. It is a sign of a bad loser. However, the Government seems to suggest that heads I win, tails you lose.

 

  1. 2011 (265) ELT 17 (SC)

  2. 2016 (335) ELT 605 (Del)

  3. 2021-TIOL-123-SC-CUS-LB

  4. TS-548-HC-2021(MAD)-CUST

  5. CWP No.19871 of 2020

  6. Directorate of Revenue Intelligence

  7. Central Board Indirect Taxes and Customs

  8. (2018) 3 SCC 253

In this Article pertaining to Finance Bill 2022 as presented with the National Budget 2022- 23 in Parliament on 1st Feb. 2022, we have endeavored to provide the comprehensive analysis with critical examination of each of the 14 proposed amendment in GST law through Clause 99 to 113 of the Finance Bill, 2022 as well as 9 proposed amendments in the existing GST Notifications through Clause 114 to 123 along with my brief comments explaining the effect of the proposals for better and quick understanding.

The proposals for amendments in CGST Act or IGST Act or UTGST Act if adopted in the same shape by the Parliament than they can be implemented after the Hon’ble President of India grants his assent i.e. on the date of its enactment, in accordance to the empowering Notifications issued by the Government in coordination with all the State Governments for corresponding amendment in respective SGST Acts. Thus, we need to keep a watch on the effectivity date as per the respective Notification for the amendments made through the prospective Finance Act 2022. Further, the retrospective effectivity for the existing Notifications as proposed through Clause 114 & 115 relating to CGST, Clause 118 &121 relating to IGST and Clause 122 and 123 relating to UTGST of Finance Bill 2022 will come into effect on the date of its enactment.

The main emphasis of proposed amendments in GST law are based on the previous recommendations of the GST Council so as to align the legal provisions in the Act with the aim to improve the system of filing Returns primarily in consonance with presently adopted interim return filing system of GSTR-1 and GSTR-3B which was actually implemented in the initial period but as per the understanding of GST Council the Tax- Payers are now well conversed with and feel comfortable by this interim system. Few improvements has been provided with an objective to make it more trade friendly on one side and on the other side to make it further robust so that only the valid claim of ITC could be availed as automatically offered on the ‘Common Portal’ based on the timely declarations made by the tax-payers; the accurate compliance has been made much more significant and stringent.

Trade-friendly amendments has been proposed in Section 49 for allowing transfer of excess cash available in the Electronic Cash Ledger ensuring better availability of liquid cash for the dealers having multiple registrations in different states as well as another very reasonable amendment with retrospective effect from 1st July, 2017 is proposed in Section 50 (3) for levy of interest at the reduced rate of 18% and that too only on that portion of amount actually utilised from the Electronic Cash Ledger.

Another trade facilitation measure has been taken by proposing amendments in Section 16(4), 34(2), 37(3), 39(9) and 52(6) which prescribes similarity in time period till 30th November of the succeeding year for required compliance by the above referred Sections. The last date of respective compliance have been de-linked from the date of filing of the return. It will help in making the compliance timeline static, single and synchronised across various Sections of the Act as well as it will provide additional time to the taxpayers for issuance of credit notes or for availing ITC or rectification of errors in GSTR-1/ GSTR-3B/ GSTR-8 thus making compliance little easier.

Now, we may one by one take each of the proposed amendment in CGST Act through the Finance Bill 2022.

Amendment by Clause 99 of Finance Bill 2022 in Section 16 of CGST Act, 2017 through Finance Bill, 2022 – Claim of ITC

Through introduction and insertion of new Clause (ba) an additional condition for availment of ITC u/s 16(2) has been introduced which is further against the ‘principal of seamless credit’ as strongly propagated in the beginning by this Government, now ITC can be availed only if the same is not restricted in auto-populated GSTR-2B as communicated to the registered person under newly introduced Section 38. Here, it is important to keep in mind that newly envisaged GSTR-2B shall provide eligible and ineligible Input Tax Credit for each month similar to GSTR-2A, but ITC in GSTR-2B remains constant or unchanged for some specified period of time. Through introduction of this clause a situation may arise that claim of ITC by the taxpayer may be restricted even when the ITC is otherwise legally eligible according to unique or specific facts and documentation but the same may be restricted by the Common Portal in auto- generated GSTR-2B based on the digital logic generally applied in the software as there is no opportunity of application of law by human brain to the specific facts and circumstances of the unique transection.

Combined reading of newly inserted clause (ba) of subsection (2) of Section 16 with clause (aa) of the same subsection (2) of Section 16 which was made applicable w.e.f. 1st January, 2022 gives the total effect of new restrictions on ITC, thus it is an interplay of multiple clauses as well as multiple sections of the CGST Act under which the amount of ITC is closely scrutinised as per conditions and restrictions provided therein. This will certainly be an ambiguous and difficult proposition to be followed by the taxpayers for a valid claim of ITC. This may not only lead to enormous litigation but will make the life of genuine taxpayer very difficult and complicated.

Further, it is good that through amendment in section 16(4) the time-limit to avail ITC u/s 16(4) has now been extended to earlier of the two events of either till the date of filing of the Annual Return as per Section 39 or 30th November of subsequent year instead of the previously prescribed date upto 20th October (prescribed date of filing September return) of the subsequent year.

Amendment by Clause 100 of Finance Bill 2022 in Section 29(2)(b)/(c) – Cancellation of GST Registration of Composition Dealer & Other Dealers due to continuous Non-filing of Returns by defaulting Registered Dealers

Through this amendment in Clause (a) the Composition Tax-Payer’s Registration can be cancelled if they have not filed their GSTR- 4 Return for the Financial Year beyond 3 months from the due date, thus Govt will wait and allow only for three mounts to file the return by Composition Dealer otherwise his Registration may be cancelled. This provision will bring discipline amongst small tax-payer paying GST under Composition Scheme u/s 10 of CGST Act.

By proposed amendment in Clause (b) the powers have been taken by the Government to prescribe the time period of the continuous default by all other normal category of dealers other than composition dealers for cancellation of their GST Registration. This provision may create confusion because of the possible frequent changes in the prescribed period as the leverage is available with the Government instead of the prerogative of the Parliament. The Central Government is taking more and more powers under the law without further required to approach the Parliament, resulting in centralised and concentrated powers to administer the GST law in its own hands by issuing Notifications as and when the Government deem fit.

Amendment by Clause 101 of Finance Bill 2022 in Section 34 – Time Period for Issue of Credit Notes pertaining to a Financial Year now extended till 30th November of subsequent Financial Year

Through this amendment, now the Credit Notes in respect of supply made in a financial year can be issued by 30th November of the subsequent financial year, currently this was allowed till 20th October which is the prescribed limitation for filing of monthly return of September, thus effectively the taxpayers shall have 40 more days for making this compliance.

This provision has extended the time limit to issue ‘credit notes’ and make amendments through ‘credit notes’ pertaining to any outward supply in a previous financial year which can now be made till 30th November of next financial year as well as rectification pertaining to outward liability of the previous year can also be done up to 30th November of the subsequent year, which is a welcome step to keep sometime (30 days) in between before filing of the Annual Return, this will make the compliance little easier. It is to be clarified that ‘commercial credit note’ without effecting the GST can be issued beyond this date also.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – Furnishing details of Outward Supplies – Extension of Time Period for making Rectifications in Returns for a FY till 30th November of subsequent FY

Through this proposed amendment in sub-section (1) of Section 37 any rectification of error in outward supplies, invoices, debit notes, credit notes and revised invoices to be reported in GSTR-1/ GSTR-3B is now permitted till 30th November of the subsequent financial year, it was currently allowed till 20th October which is the prescribed limitation for filing of monthly return of September, thus effectively the taxpayers shall have 40 more days for making this compliance. The powers of prescribing the procedure and making the rule has been taken by the Government.

The effect of this proposal could both be good and bad, good because the taxpayer have got opportunity to make the declarations till 30th November of the subsequent financial year and bad because unless the error is corrected by the outward supplier, the inward supplier shall not get the corresponding benefit of ITC and the amount of ITC could not be fixed and validated. This may create problems for the inward supplier, he may have to wait and pursue for earliest possible rectification of the error in the declarations made by the outward supplier.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 –Furnishing details of Outward Supplies-Ease of Doing Business as Regular Engagement all through the Month in Filing of GST Returns is Not Required

Through this proposed amendment the Proviso 1 of Sub-Section (1) of Section 37 and Sub-Section (2) of Section 37 has to be omitted, effectuating the removal of the requirement of confirming the ‘inward supply transaction’ in the earlier prescribed GSTR-2A by the ‘inward supplier’ between 15th and 17th day of the succeeding month as appearing in the auto-populated GSTR-2A based on GSTR-1 of the outward supplier. This will do away with the requirement of two-way digital communication as earlier envisaged in the procedure for filing of monthly GST Returns. The responsibility of the outward supplier for declaring the supply transactions correctly within the prescribed time has increased, the amount of ITC available shall become static for the inward supplier. This provision shall certainly be a positive action for ease of doing business for the registered dealer (inward supplier) as there is no requirement of regular engagement in the system of filing, confirming and then lastly depositing the due tax every month in accordance to the prescribed GST returns.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – the Scope of Rectification of any Error or Omission is Enhanced as well as Extension of Time Period for making Rectifications in Returns for a FY till 30th November of next FY

Through this amendment the scope of rectification of any error or omission has been enhanced which was earlier confined to the errors or omissions of ‘unmatched transactions’ under Section 42 or 43, this amendment is also necessary as the provisions of Section 42 and 43 have been omitted.

The time-period for rectification of error or omission has been extended by 40 days from 20th October (prescribed date of filing September return) to 30th November of the subsequent year, thus making the compliance little easier.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – Furnishing details of Outward Supplies – Timely Compliance for all Previous Tax Periods is Essentially Required for a Fully Compliant Dealer

Through this proposed amendment no outward supply could be filed in GSTR-1/ GSTR-3B for the current tax period until the outward supply or due amount of tax for all the previous tax periods has been duly reported in GSTR–1/GSTR-3B. The relaxation in such strict conditions can be granted by the Government under special conditions and restrictions for specified class of registered dealers.

The proposed amendments in Section 37 as discussed in 4 previous sub-topics has also been made with aim to alien the existing legal provisions {Section 39 (10) and Rule 59 (6) as applicable for GSTR-3B} relating to system of filing the returns as well as to provide for a tax period-wise sequential filing of GSTR-1/ GSTR-3B to make the smooth system of GST return filing in accordance to the prescribed time limit which is very essential element of successful implementation of GST.

This will also remove the earlier requirement of continuous/repeated communication between the inward and outward supplier after filing the data in GSTR-1 for verification of outward supply as reported by outward supplier and the inward supply as received/recorded by inward supplier. The GST Council after many rounds of discussion is trying to make the system of GST return filing little easier for the taxpayer but actual benefit could be assessed once this new system on GSTN platform is digitally implemented.

Substitution of fresh Section 38 by Clause 103 of Finance Bill 2022 – Claim of ITC to be made as per auto- generated GSTR-2B, old provisions completely deleted in place of which new provision substituted – ITC could be availed by the recipient on the basis of communication based on furnishing of details by outward supplier

Under the new system of GST return filing and reporting of the supply transactions, Sub section (1) seeks to provide for prescribing outward supplies furnished by a registered person in GSTR-1 and also such other supplies as may be prescribed in such form and manner, within prescribed time, subject to conditions and restrictions for communication of details of inward supplies and input tax credit available to the recipient by means of an auto-generated statement GSTR-2B and to do away with earlier required two-way communication process in return filing. This is a step for ease of doing business with an aim to provide comfort and safety on one hand to the inward supplier but on the other hand to make the system more robust for allowing/availability of ITC in accordance to the conditions and restrictions and that too after close monitoring in accordance to the procedure which may be prescribed by making Rules which shall also provide better clarity on this very important issue of availment of ITC.

Substitution of fresh Section 38 by Clause 103 of Finance Bill 2022 – Claim of ITC to be made as per GSTR-2B – Six additional restrictions for availing ITC has been prescribed making life of inward supplier much more difficult

This provision is very damaging and against the basic spirit of GST law viz seamless availability of input tax credit in the chain of transactions till the goods or services are finally consumed in the economy. These additional 6 restrictions shall certainly result in the ‘cascading effect’ of tax on tax in the chain of transactions. The restrictions for availing the benefit of ITC in brief are:-

  1. Within specified initial period of taking registration by a new registered dealer and invoices which were issued earlier (within 30 days) to the grant of new registration;

  2. A registered dealer has short paid or defaulted in payment of tax for a specified period or the supplier failed to file the GSTR-1 return;

  3. The output tax payable by the registered dealer as per GSTR-1 exceeds the output tax paid as per GSTR-3B by a specified percentage;

  4. The registered dealer, during specified period availed credit of an amount that exceeds the credit that can be availed till the specified percentage i.e. if the supplier has defaulted in compulsorily cash payment of tax under Rule 86A/86B;

  5. The registered dealer who has defaulted in discharging tax liability in accordance with Section 49(12);

  6. On account of the details being furnished under Section 37(1) by such other class of persons as may be prescribed.

Fresh insertion of these six clauses of Sub- section (2) provides for the details of inward supplies and nature of transactions in respect of which input tax credit may be availed and the details of supplies on which input tax credit cannot be availed by the recipient, as communicated in auto generated statement.

In times to come the inward supplier i.e. the buyer of the goods or recipient of service needs to be much more vigilant in choosing the outward supplier, even though self- policing mechanism has been tried to be put in place which will make the business difficult for a non-compliant vendor but maintaining distance and not performing any transaction with a non-compliant supplier shall be the basic responsibility of the inward supplier. Self-Regulation shall be the key for ease of doing business in the era of GST.

By these proposed amendments, it seems that the Government thinks that the administrative machinery of GST officers is failing in its duty for ensuring proper compliance by a registered dealer for the outward supply, that is why the burden is being tried to be shifted by these provisions on to another dealer who is just doing business without any legal power under GST law to exercise over the outward supplier who has made default in spite of the fact that the inward supplier is absolutely genuine and innocent. The Government or its officers cannot the absolved from their legal duty as entrusted on them under the GST law, a businessman (inward supplier) cannot himself enforce the law on an independent dealer (outward supplier).

Why the primary burden which is legally casted upon the ‘outward supplier ’ in the scheme of GST law is being shifted onto the ‘inward supplier ’ during the chain of transactions? Why should a genuine and innocent ‘inward supplier’ be responsible for the default of the ‘outward supplier’ who is a registered dealer under the control of the jurisdictional/proper officer having authority to monitor and collect tax under the GST law?

This shall certainly become the most controversial and litigated provision of GST law as these amendments are nothing but extension to controversial provision of existing Section 16 (c) which provides that the inward supplier can only get the benefit of ITC when the outward supplier had already deposited the tax. The GST Council rather than shifting the burden onto the ‘inward supplier’ shall use their authority of law through its officers all across the country so that the ‘outward supplier’ who is primary liable for payment of GST should comply the law in its true spirit, this will make a conducive atmosphere of business which will flourish the economy. The present provisions of the GST law seems to be in-sufficient to check the fake registrations and consequent fraudulent chain of transactions to befool the genuine and innocent registered dealers; the consequent loss of revenue and the faith in the attribute of self-policing in GST is fast diminishing. The Government and its administrative machinery must take concrete measures to catch hold-of the real beneficiary to the evasive tactics of the fraudulent business instead of unreasonably and unjustifiably harassing the genuine registered dealers. The officers must truthfully apply their mind to distinguish between genuine and fraudulent dealers rather than just the collection of revenue loss, unless the administrators identify the real beneficiary as already provided in the GST law this tendency of fraudulent transaction and failed billing will not stop.

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of Return

The proposed amendment in subsection (5) ensures that the non-resident taxable person should file its return within 13 days of the close of the previous month instead of 20 days as earlier provided to synchronise the date with GSTR-2B.

The purpose of substitution of first proviso to subsection (7) has been mentioned in the memorandum of the Finance Bill: “It further seeks to substitute the first proviso to sub- section (7) so as to provide an option to the persons furnishing return under proviso to sub-section (1) to pay either the self-assessed tax or an amount that may be prescribed.

However, the language of this proviso does not provide any ‘option’ to the registered person but is making it mandatory through the use of word ‘shall‘ for the requirement to deposit the ‘amount determined‘, clause (b) of this proviso does not speak about the payment of ‘due amount of tax‘ in lieu of the amount referred to in clause (a). There is in clear difference in the ‘amount determined‘ and ‘amount due’ as distinctively used in this substituted proviso.

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of Return

The amendment in subsection (9) ensures that this provision should be independent of section 37 and section 38 which makes this provision for ‘suo-moto correction/ rectification’ in the return practically possible, usable and friendly to the dealers who had by mistake filed their return with some incorrect particulars or some omission has happened.

The amendment in the proviso is to coincide with the same time period as provided in other similar provisions for rectification of errors or omissions in the Returns by 30th November of the succeeding year

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of the return

As per the earlier provisions of subsection (10) no Return could be furnished for the current tax period until the Return for all the previous tax periods have been furnished.

Through this amendment /insertion no outward supply could be filed in GSTR-1/ GSTR-3B for the current tax period until the outward supply has been reported in GSTR–1 for all the previous tax periods.

The relaxation in such strict conditions can be granted by the Government under special conditions and restrictions for specified class of registered dealers. This provision has made it discretionary for the government machinery to favourably allow any dealer or class of dealers with the relaxation, which is against the principal of transparency & equity in the provisions of GST law. This may create confusion and unnecessary representation before the Government.

Amendment by Clause 105 of Finance Bill 2022 in Section 41 – Old provisions of provisional acceptance of ITC completely substituted

Through this amendment Section 41 of the CGST Act is being substituted so as to do away with the concept of “claim” of ITC on a “provisional” basis and to provide for availment of self-assessed input tax credit.

Here again due to this conceptual change the inward supplier has been made responsible for the default of the outward supplier even inspite of the fact that the inward supplier is absolutely genuine and innocent. The reversal of availed ITC has been required in the circumstances when the outward supplier has defaulted in making the timely payment of tax which is not in the control of the inward supplier. Why the burden of interest for delayed deposit be on the inward supplier for availment of such ITC which have been duly reflected in the Tax Invoice issued by a registered dealer-outward supplier? Why not the Government machinery be robust enough that the outward supplier must comply the law and the burden casted upon him for payment of the due amount of GST we fulfilled by outward supplier?

Omission of Section 42, 43 and 43A by Clause 106 of Finance Bill 2022 – Provisions pertaining to Matching, Reversal and Reclaiming of ITC

Through this amendment Legislature intends to omit Section 42 of the Central Goods and Services Tax Act relating to matching, reversal and reclaiming of input tax credit so as to do away with the concept of “claim” of eligible input tax credit on a “provisional” basis and subsequent matching, reversals and reclaim of such credit.

It further seeks to omit Section 43 relating to matching, reversal and reclaim of reduction in output tax liability so as to do away with two-way communication process in return filing as discussed in detail in the above paragraphs.

It also seeks to omit section 43A which earlier provided Procedure for furnishing Returns and availing ITC.

These amendments in the shape of omission of these three sections of the GST law is to remove the unnecessary provisions for the reason of insertion of new provisions (Section 38) as well as here and there prescribing new system of filing and verification of GST returns.

Amendment by Clause 107 of Finance Bill 2022 in Section 47 pertaining to levy of late fee

Through this amendment legislature intends to provide for levy of late fee for delayed filing of GSTR-8 for TCS return also under section 52 and to remove reference of section 38 as now there is no requirement under the new provisions introduced in the Finance Bill 2022 of furnishing details of inward supplies by the registered person under the said section 38. This is to keep harmony among the different provisions which have been newly introduced.

Amendment by Clause 108 of Finance Bill 2022 in Section 48 pertaining to GST Practitioners

With an aim to actually understand the effect of this simple amendment in subsection (2) of section 48, we need to understand the real purpose of existing Section 48 which provides that a registered dealer can authorise the ‘GST Practitioner’ only for the specified functions as prescribed in the specified sections of the GST law. Now as per clause 108 of Finance Bill 2022 after omission of the words ‘the details of inward supplies under section 38′, the GST practitioner cannot be authorised by the registered person for the purpose of newly introduced provisions of section 38 which certainly curtails the scope of work and consequent responsibility for a ‘GST Practitioner ’. In my opinion, it actually means that the GST practitioner of a registered dealer shall now not be entitled to receive the communication on behalf of the registered person comprising of the details of inward supplies and the availability of input tax credit for any tax period. The effect of this amendment is far-reaching as the responsibility of verification & regulation of the communication of inward supply and available ITC shall now solely rests with the registered person itself.

Amendment by Clause 109 of Finance Bill 2022 in Section 49 pertaining to payment of tax, interest, penalty and other amounts

Proposed amendment in sub-section (4) of section 49 of the CGST Act provide for prescribing restrictions for utilizing the amount available in the electronic credit ledger.

These amendments are introduced as now there is no requirement of the reference of omitted provisions after insertion of new subsections and provisions introduced in the Finance Bill 2022. This is to keep harmony among the different provisions which have been newly introduced.

Amendment by Clause 109 of Finance Bill 2022 in Section 49 pertaining to payment of tax, interest, penalty and other amounts

Being the highlight of this Finance Bill 2022, it is an important and trade friendly proposal which seeks to amend sub-section (10) so as to allow transfer of amount available in electronic cash ledger under the CGST or IGST of a registered person to the electronic cash ledger under CGST or IGST of a distinct person under same PAN which is registered under GST in another state. This will be treated as claim of refund through RFD-01 after following the procedure prescribed under Section 54.

This proposal has met a long-standing demand of trade and industry, now a registered person having excess amount available in the electronic cash ledger can transfer such excess amount to the electronic cash ledger of a ‘distinct person as defined in the provisions of GST law’ who is registered person in another State. It will entitle the registered person to use excess amount without it being lying unutilised in his electronic cash ledger, this will result a better control on cash flow and increase the liquidity of the registered dealer under the same PAN.

It also seeks to insert Sub-Section (12) so as to provide for prescribing the maximum proportion of output tax liability which may be discharged through the ‘electronic credit ledger ’. This proposal has been placed to validate Rule 86 B which was a big legal question under challenge before the Hon’ble High Courts, the Government had removed this deficiency from the GST law.

It has been clarified by the senior officers of CBIC that the genuine taxpayers who are un-intentionally facing the adverse effect of Rule 86B may utilise the option to make an application before the Commissioner vested with the powers to waive such condition of deposit through Electronic Cash Ledger in spite of the available ITC in Electronic Credit Ledger. The effect of Notification No. 94/2020 CT dated 22nd December, 2021 which had made this provision mandatory w.e.f. 1/1/2022 needs to be analysed in the light of the amended provisions.

This provision shall certainly create confusions and will be a great hindrance in seamless availability of input tax credit through the chain of transactions which is not only the commitment of the Government but also one of the main elements of introduction of GST as assured by the Government in the Parliament.

It is important to note that nothing has been mentioned in the memorandum for introduction of this provision in the GST law which certainly creates doubt about the real purpose and aim of the Revenue Department. If the GST Council empowers the Government to only allow any specified proportion of output tax liability to be adjusted from the input tax credit available with the registered person, then the Government may use such power for its advantage at its WILL consequently detrimental to the trade and industry which will certainly adversely affect the economy of the country.

Amendment by Clause 110 of Finance Bill 2022 in Section 50 pertaining to Interest on delayed payment of tax

Another highlight of this Finance Bill 2022 is being achieved through this amendment whereby a new sub-section is to be substituted for erstwhile sub-section (3) of section 50 of the CGST Act with a retrospective effect from 1st July, 2017, so as to provide for levy of interest only on that portion of input tax credit which was wrongly availed and utilised. Earlier, it was not necessary for imposition of interest on that portion of ITC which has not been actually utilised for payment of outward tax liability by a taxpayer, only wrong or invalid ‘claim or availment of ITC’ in Electronic Credit Ledger was enough for attracting the liability of interest even in spite of the fact that the amount has not been utilised. Now, the twin conditions of availment and utilisation of ITC is necessary for imposition of interest.

If any taxpayer has already deposited the interest under protest due to pressure of demand of interest made under the erst-while provision of Section 50(3), then such taxpayer may now claim refund of the differential amount of interest paid under protest by him through filing of refund application, as this provision has been placed on statute since beginning of GST.

Amendment by Clause 111 of Finance Bill 2022 in Section 52 pertaining to Collection of Tax at Source (TCS)

Through this proposal it is sought to amend proviso to sub-section (6) of section 52 of the Central Goods and Services Tax Act providing the provisions relating to TCS, so as to provide for 30th day of November following the end of the financial year, or the date of furnishing of the relevant annual statement of TCS, whichever is earlier, as the last date upto which the rectification of errors shall be allowed in the TCS statement furnished under sub-section (4).

Amendment in Section 16(4), 34(2), 37(3), 39(9) and 52(6) Provided Same Time Period for Compliance to maintain Similarity

It will help in making the compliance timeline synchronised across various sections of the Act as well as it will provide additional time to the taxpayers for rectification of errors in GSTR-1/ GSTR-3B/ GSTR-8 or for availing ITC etc making compliance little easier.

Amendment by Clause 112 of Finance Bill 2022 in Section 54 – Refund of Tax

As per the amended proviso to subsection (1) now any taxpayer i.e. ISD or TDS or TCS or Non-Resident Taxable Person, Composition Dealer or Casual Taxable Dealer can also file refund application for excess deposit of cash in cash ledger maintained on Common Portal in the prescribed form. The transfer of excess amount to another registered dealer as provided recently in Section 49(10) shall also be governed under this provision.

As per the amended subsection (2) now UN or Embassy having UIN registrations can also file refund application for ITC before expiry of 2 years from the last date of the quarter in which inward supply was received, earlier they could file refund application within 6 months only.

As per the amended subsection (10) now the scope of the said sub-section has been extended to all types of refund claims consequent to which the GST officer can exercise its powers to withhold the refund unless all the requirements are fulfilled by the claimant of the refund.

As per the new insert sub-clause (ba) in Explanation the relevant date has been provided as a clarification for filing refund claim in respect of supplies made to a Special Economic Zone developer or a Special Economic Zone unit.

Amendment by Clause 113 of Finance Bill 2022 in Section 168 pertaining to issuance of instructions or directions Through this amendment Legislature seeks to omit Sub-Section (2) of Section 168 of the Central Goods and Services Tax Act so as to remove reference to Section 38 therefrom.

Since Subsection (2) of Section 38 provides for the auto-generated statement of Input Tax Credit available to the recipient of goods or services on the basis of the declarations made by outward suppliers, so there was no need of maintaining the reference of subsection (2) of section 38 in the present provisions of section 168 which relates to the powers of Central Board of Indirect Taxes and Customs for issuing an Order, Instructions or Directions.

Amendment by Clause 114 of Finance Bill 2022 of Notification issued under Section 146 – Common Portal

Through this amendment Legislature sought to amend notification number G.S.R. 58(E), dated the 23rd January,2018 to notify www.gst. gov.in, retrospectively, with effect from 22nd June, 2017 i.e. from the very beginning, as the ‘Common Goods and Services Tax Electronic Portal’, for all functions provided under Central Goods and Services Tax Rules, 2017, save as otherwise provided in the Notification issued vide number G.S.R. 925 (E), dated the 13th December, 2019

Amendment of Notification issued under Sub- Sections (1) and of Section 50, Sub-Section (12) of Section 54 and Section 56 as applicable in CGST, IGST & UTGST Acts by Clause 115 for CGST, 118 for IGST & 121 for UTGST of Finance Bill 2022

Through this amendment Legislature sought to amend Notification number G.S.R. 661(E), dated the 28th June, 2017 for CGST and Notification No. G.S.R. 698(E), dated the 28th June, 2017 for IGST as well as under UTGST Act, so as to notify rate of interest under sub- section (3) of section 50 of the Central Goods and Services Tax Act as 18%, retrospectively, with effect from the 1st day of July, 2017.

If any taxpayer has deposited any amount of excess interest under protest due to pressure of demand made under the erst- while provision of Section 50(3), then such taxpayer may now claim refund of at-least the differential amount of interest of 6% through filing of refund application, as the notified applicable rate of interest is 18% from 1st July 2017 i.e. since beginning of GST instead of 24% as the highest limit mentioned in the erstwhile provision of Section 50 subsection (3).

Retrospective exemption from, or levy or collection of Central Tax in certain cases – Unintended waste generated during the production of fish meal by Clause 116 for CGST, 119 for IGST & 122 for UTGST of Finance Bill 2022

Through this amendment Legislature seeks to provide retrospective exemption from central tax in respect of supply of unintended waste generated during the production of fish meal (falling under heading 2301), except for fish oil, during the period from the 1st day of July 2017 upto the 30th day of September 2019 (both days inclusive).

It further seeks to provide that no refund shall be made of the said tax which has already been collected.

Retrospective effect to Notification issued under sub-section (2) of section 7 by Clause 117 for CGST Act, Clause 120 for IGST Act Clause 123 for UTGST Act of Finance Bill 2022

This proposal seeks to give retrospective effect to the Notification number G.S.R. 746(E), dated the 30th September, 2019 for CGST Act & Notification number G.S.R. 745(E), dated the 30th September,2019 for IGST Act with effect from the 1st day of July, 2017.

The effect of this Notification is that the ‘Service by way of grant of alcoholic liquor license against the consideration or license fee or application fee (by way of whatever name it is called by the State Governments) has been declared as an activity which is neither supply of goods nor of services’ vide earlier Notification No. 25/2019-CT (R) dated 30th September, 2019. This Notification shall now be applicable from the retrospective effect w.e.f. 1st July, 2017. It means that the specified service for grant of alcoholic liquor license by the state government shall not be liable to tax under GST since very beginning. The analogy for granting the exemption is reasonable and in line with the provisions of the GST law, liquor as such is not covered under GST as yet, so the license fee taken by the State Government for allowing the license to manufacture or sale of liquor being a directly related activity should also be exempt from GST.

It further seeks to provide that no refund shall be made of the Central Tax or Integrated Tax or Union Territory Tax which has already been collected.

Conclusion

The proposals for amendment as presented before the Parliament in the Finance Bill 2022 are of far-reaching effects as the system of filing of GST returns is going to be changed so as to make it not only easier but at the same time to check the evasion of tax by unscrupulous dealers who are not properly and completely declaring the supply transactions. Some of the proposals needs through discussion in the Parliament as they effect the very philosophy at the root of GST, the hindrance and restrictions with more and more conditions imposed in the way of availment of Input Tax Credit shall adversely affect the dream of ‘seamless credit all through the chain of supply transactions’ in the newly introduced regime of GST. Further, the measures which shall be necessary for application of this proposed law will certainly have ‘cascading effect of tax on tax’ in the economy which needs to be fully eradicated by implementation of a near ideal GST. It is surprising to note that Hon’ble Finance Minister has not uttered a single word in the Parliament during her Budget Speech on 1st February, 2022 about these far-reaching proposals for amendment in the GST law through the Finance Bill 2022, we the stakeholders expect a purposeful discussion on the proposals before they be adopted for amendments. Hopefully the Parliament may not approve all the proposals in the same shape and form, just on the basis of the recommendations of GST Council, the taxpayers have full faith in the Parliament that the proposals shall only be adopted after proper application of mind and detailed discussion on every aspect of each such proposal as deliberated in this article.

Abstract

The Finance Bill 2022 (Bill) 440 ITR 59 (St) proposed several amendments pertaining to penalties, prosecution and recovery of taxes, inter alia. This article aims at addressing the amendments pertaining to rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Income-tax Act, 1961 (Act) (Clause 73, 74 & 75), section 272A of the Act relating to penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. (Clause 78), section 179 of the Act relating to Liabilities of Directors (Clause 55), section 13 of the Act relating to cases where section 11 of the Act does not apply (Clause 76), Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act (Clause 77, 79, 80, 82 and 83), and section 276CC of the Act relating to failure to furnish returns of income (Clause 81).

This Article is relevant to Lawyers, Charter Accountants, Tax Practitioners, Income- tax Authorities and Taxpayers. The Article segregates the amendments proposed in the Bill vis-à-vis the Act pertaining to penalties, prosecution and recovery of taxes into six categories and explains the existing law, the proposed amendment, the reason for the proposed amendment and the effective date for the amended provision.

Table of Contents

Abstract

  1. Introduction

  2. Proposed amendments in the Bill

    1. Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act.

    2. Section 272A of the Act relating to Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

    3. Section 179 of the Act relating to Liabilities of Directors

    4. Section 13 of the Act relating to cases where section 11 of the Act does not apply.

    5. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act.

    6. Section 276CC of the Act relating to failure to furnish returns of income

  3. Dénouement

1. Introduction

After almost two years of the Nationwide pandemic and the subsequent lockdown, the stakeholders had a high expectation from the Budget 2022. Relatively, this budget had fewer substantial amendments. However, several amendments have been proposed vis-à-vis penalties, prosecution and recovery of taxes under the scheme of Income-tax Act, 1961 viz. amendments pertaining to rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act (Clause 73, 74 & 75), section 272A of the Act relating to penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. (Clause 78), section 179 of the Act relating to Liabilities of Directors (Clause 55), section 13 of the Act relating to cases where section 11 of the Act does not apply (Clause 76), Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act (Clause 77, 79, 80, 82 and 83), and section 276CC of the Act relating to failure to furnish returns of income (Clause 81). The Article segregates the said amendments into six categories and explains the existing law, the proposed amendment, the reason for the proposed amendment and the effective date for the amended provision.

2. Proposed amendments in the Bill

  1. Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act. [Clause 73, 74 & 75]

Sections 271AAB, 271AAC and 271AAD of the Act under Chapter XXI contain provisions which give powers to the Ld. Assessing Officer to levy penalty in cases involving undisclosed income in cases where search has been initiated under section 132 of the Act or otherwise, or for false entry etc. in books of account.

Section 271AAB of the Act relates to penalty where search has been initiated, section 271AAC of the Act relates to penalty in respect of certain income i.e., where the income determined includes, any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D of the Act, and section 271AAD of the Act relating to penalty for false entry, etc. in books of account, enables the Ld. Assessing Officer to levy penalty in cases where, during any proceeding, it is found that in the books of account maintained by any person there is a false entry or an omission of any entry which is relevant for computation of total income of such person, to evade tax liability.

As per Chapter XXI of the Act which deals with penalties, Commissioner (Appeals) has concomitant powers with Assessing Officer to levy penalty in eligible cases under section 270A, section 271, section 271A, section 271AA, section 271G, section 271J of the Act which deal with deliberate concealment, non-disclosure and omission by an assessee to evade tax.

As sections 271AAB, 271AAC, 271AAD of the Act penalise actions pertaining to undisclosed income, unexplained credits or expenditures, or deliberate falsification or omission in books of accounts; in order to improve deterrence against non-compliance among tax payers, it is proposed to amend the sections 271AAB, 271AAC and 271AAD of the Act by enabling the Commissioner (Appeals) to levy penalty under these sections to the along with Assessing Officer.

The said amendment will be effective from April 01, 2022

  1. Section 272A of the Act relating to Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

Section 272A of the Act provides for penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections etc.

At present, the amount of penalty for failures listed section 272A (2) of the Act is one hundred rupees for every day during which the failure continues.

Section 272A of the Act was introduced to ensures compliance with various obligations under the scheme of Income-tax Act by penalising non-compliance and acting as a deterrent. However, the penalty of one hundred rupees had been commented upon by the CAG in their report as being too low and does not have an adequate deterrence value.

Therefore, it is proposed to increase the amount of penalty for failures listed section 272A (2) of the Act to five hundred rupees from the existing sum of one hundred rupees.

This amendment will take effect from April 01, 2022.

  1. Section 179 of the Act relating to Liabilities of Directors

Section 179 of the Act contains provisions which enables Income tax authorities to recover tax due from a private company from its directors, under certain circumstances where such tax cannot be recovered from the company itself. The section makes each director of the private company jointly and severally liable for the payment of such tax with certain conditions. However, the title of the section inadvertently refers to the liability of directors of private company in liquidation.

The Hon’ble High Court of Allahabad in the case of Roop Chandra Sharma v. DCIT [1998] 229 ITR 570 (All)(HC) held that there is nothing in sub-section (1) of section 179 of the Act to indicate that it refers to a private company which is under liquidation. Therefore, directors of a private company though not under liquidation, may be liable for dues outstanding against company.

Au contraire, the Hon’ble Supreme Court in the case of S. Hardip Singh v. ITO [1979] 118 ITR 57 (SC) held that there are three stages when a company goes into liquidation, namely, (i) the commencement of the winding-up of the company; (ii) the continuation of the proceeding or the steps for winding-up; and
(iii) the final winding-up and dissolution of the company. If all the three stages were completed before the Act came into force on and from April 01, 1962, obviously section 179 of the Act will not be attracted. However, the section will be attracted if any one or more of the three events occurred after the commencement of the Act even though the first or the first and second events had happened earlier.

To avoid any confusion and to give legislative backing to the case of Roop Chandra Sharma (Supra) which was also the intention of the legislature that the liability of directors of a private company under this section is not conditional upon the company being in liquidation and the section makes no reference to liquidation. Therefore, to make the title of the section uniform with its provisions, it is proposed to amend the title of the section to “Liability of directors of private company”.

Further, Explanation to the section clarifies that the expression “tax due” in the section includes penalty, interest of any other sum payable under the Act. In order to avoid unnecessary litigation and to provide further clarity, it is also proposed to insert the word “fees” in the scope of the expression “tax due” under Explanation to the section.

Thus, fees such as compounding fee, appeal fee et cetera can be recovered from the directors of the defaulting company.

This amendment will take effect from April 01, 2022.

  1. Section 13 of the Act relating to cases where section 11 of the Act does not apply.

Under section 13 of the Act, trusts or institution under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. In order to discourage such misuse of the funds of the trust or institution by specified persons, it is proposed to insert a new section 271AAE in the Act to provide for penalty on trusts or institution under both the regimes which is equal to amount of income applied by such trust or institution for the benefit of specified person where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is notice again in any subsequent year.

The proposed section seeks to operate without prejudice to any other provision of chapter XXI. Thus, if any penalty is leviable under any of the other provisions of this chapter, in addition to the proposed penalty, that penalty would also be applicable.

The proposed new section seeks to provide that, if during any proceeding under the Act, it is found that a person, being any trust or institution under the first or the second regime, has violated the provisions of twenty-first proviso to of section 10(23C) of the Act or of section 13(1)(c) of the Act, as the case may be, the Ld. Assessing Officer may direct that such person shall pay by way of penalty:

  • A sum equal to the aggregate amount of income applied, directly or indirectly, by such person, for the benefit of any person referred to in section 13(3) of the Act where the violation is noticed for the first time during any previous year; and

  • A sum equal to two hundred percent of the aggregate amount of income of such person applied, directly or indirectly, by such person, for the benefit of any person referred to in section 13(3) of the Act, where violation is noticed again in any subsequent previous year.

The proposed tax rate for such excessive payments is at the rate of 30 per cent under section 115 BBI of the Act. Therefore, the first violation will result in payment of 30 per cent of the excessive payment as tax under section 115BBI of the Act and 100 per cent of the excessive payment under 271AAE of the Act. Subsequently the penalty will increase to 200 per cent of the excessive payment. Further such excessive benefits i.e., payments not applied for the objects of the trust can result into cancellation of the registration of the Trust. Therefore, the intention of the legislature to strictly penalise such excessive payments are evident.

However, a new issue would arise as what amounts to unreasonable and excessive benefit. The Hon’ble Gujrat High Court in the case of Shree Kamdar Education Trust v. ITO [2016] 74 taxmann.com 253 (Gujarat) held that mere payment of lease rent or interest on borrowed funds to trustees, without there being any element of such payments being excessive or unreasonable, would not disentitle assessee exemption under section 13(1)(c) of the Act.

The Hon’ble High Court of Bombay in the case of CIT v. Sri Balaji Society [2019] 101 taxmann. com 52 (Bombay) held that in order to invoke provisions of section 13(2)(c) of the Act, it is essential to prove that amount paid to person referred to in sub-section (3) of section 13 of the Act is in excess of what may be reasonably paid for services rendered.

The Hon’ble Madras High Court in the case of CIT v. Angels Educational Trust [2021] 129 taxmann.com 305 (Madras) held that where Commissioner had not brought on record any material to show that assessee educational trust was motivated by earning profit and that trustees had applied monies of trust for their personal benefit or for any other purpose other than education, mere excess of income over expenditure for four financial years by itself was not a reason to hold that assessee-trust was not engaged in charitable activities so as to deny it registration under section 12AA of the Act.

Similarly, the Hon’ble Income-tax Appellate Tribunal – Delhi Bench in the case of Career Launcher Education Foundation v. ITO [2020] 116 taxmann.com 493 (Delhi – Trib.) held that merely because there is a payment to a related party by a trust, it cannot be inferred that there is ‘benefit’ to that specified person and to ascertain benefit one has to arrive and ascertain market value of services rendered by that person and if payment is found in excess of market value, then only it can be said that there is a benefit ensuring to specified person; unless this exercise is carried out, it is not possible to ascertain as to whether there is any violation of provision of section 13(1)(c) of the Act.

Therefore, in light of a catena of judicial pronouncements it can be observed that the primary onus is upon the Ld. Assessing Officer to establish what amounts to being excessive or unreasonable.

These amendments will take effect from April 01, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

  1. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act.

Sections 269UC/UE/UL of the Act along with other provisions of Chapter XX-C have been made inapplicable with effect from July 01, 2002. Section 269UP was introduced vide Finance Act, 2002 providing that the provisions of the Chapter shall not apply to, or in relation to, the transfer of any immovable property effected on or after July 01, 2002. Consequently, prosecution provisions under section 276AB are not relevant, as launching prosecution against offences committed more than twenty years ago, that is prior to 2002 would be beyond reasonable time.

Since such cases involve transfer of immovable property, it is not improbable that prosecution cases launched previously while the relevant provisions were still in effect might be ongoing. Therefore, in order to take those cases to logical conclusion without any interpretational issue arising on applicability of the section or otherwise, it is proposed to amend section 276AB of the Act to align it with the provisions of the Act that have been made inapplicable, by providing a sunset clause.

Hence, it is proposed that no fresh prosecution proceeding shall be initiated under section 276AB of the Act on or after April 01, 2022.

Section 276B of the Act provides for prosecution for a term ranging from three months to seven years with fine for failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B. Under this section, a person shall be punishable for failure to a) deduct the tax as required under the provisions of Chapter XVII-B which deals with deduction of tax at source, or b) to pay the tax, as required by or under–– (i) sub-section (2) of section 115-O or (ii) the second proviso to section 194B.

Section 194B of the Act was amended vide Finance Act 1999 with effect April 01, 2000 by which the first proviso to the section was omitted and the section currently has only one proviso. Therefore, to avoid ambiguity among the sections 276B and 194B of the Act, it is proposed to substitute the sub-clause (ii) of clause (b) of section 276B of the Act with “proviso to section 194B”. Similar amendment is proposed in Section 271C of the Act.

Further sections 278A and 278AA of the Act are related to punishment with prosecution against persons for failure to pay tax to the credit of Central Government under Chapter XVIIB for tax deducted at source. However, similar provisions for offence with respect to tax collected at source under Chapter XVII-BB, providing for punishment with prosecution against persons failing to pay tax collected at source is not there under sections 278A and 278AA of the Act. Therefore, it is proposed to include section 276BB of the Act under sections 278A and 278AA of the Act owing to the similar nature of offences that are punishable under section 276B and section 276BB of the Act.

These amendments will take effect from April 01, 2022.

  1. Section 276CC of the Act relating to failure to furnish returns of income

The Finance Bill 2022 has proposed a new beneficial provision i.e., section 139(8A) of the Act for filing an updated return beyond the due date for a revised/belated return. This has been introduced with a view to avoid unnecessary litigation and give the assessee a chance to avoid a dispute. A new section i.e., 140B of the Act has been proposed to provide for the tax required to be paid for opting to file a return under the proposed provisions i.e., section 139(8A) of the Act.

As per these provisions, where a return is updated before completion of period of twelve months from the end of the relevant assessment year, the taxpayer would have to pay an additional tax of 25 per cent along with interest. However, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty- four months from the end of the relevant assessment year, the additional tax payable shall be fifty per cent of aggregate of tax and interest payable.

Now, section 276CC of the Act relates to failure to furnish returns of income. The proviso to the said section, inter alia, provides that a person shall not be proceeded against under the said section, for failure to furnish the return of income in due time, if a return is furnished by such person before the expiry of the assessment year or the tax payable by such person, not being a company, on the total income determined on regular assessment does not exceed rupees ten thousand.

To harmonise these provisions, a consequential amendment is proposed to be carried out in section 276CC of the Act, to provide that a person shall not be proceeded against under the said section for failure to furnish in due time the return of income under section 139 (1) of the Act, if such a person has furnished return under section 139(8A) of the Act for the relevant assessment year.

3. Dénouement

Most of the amendments pertaining to penalty and prosecution relate to rationalising of provisions and consequential amendments. The proposed amendments seem to well drafted and with a clear intention to make the statute water tight. The proposed amendment pertaining to recovery i.e., section 179 of the Act widens the scope of tax dues to even include fees thereby not leaving any form of Government dues out of the scope recovery. The proposed Penalty on benefits given by a Charitable Trust to its trustees or specified persons is a welcoming provision as it will be a deterrent on such malicious payments.

1. Introduction

GIFT City is being developed as a global financial and IT Services hub, a first of its kind in India, designed to be at par or above with globally benchmarked financial centres. GIFT’s Master Plan facilitates Multi Services Special Economic Zone (SEZ) with International Financial Services Centre (IFSC) status, Domestic Finance Centre and the associated Social infrastructure. “GIFT SEZ Limited” has been formed by Gujarat International Finance Tec-City Company Limited (GIFTCL) for the development of Multi Services SEZ at Gandhinagar with the prime focus being the development of IFSC and allied activities in SEZ.

The purpose of setting up the GIFT City is to develop a world-class smart city that becomes a global financial hub with the development of an IFSC. GIFT City is a central business hub with state-of-the-art infrastructure and first of its kind operational smart city in India. GIFT City is home to domestic and international, financial services and IT/ ITES sectors.

It is the intention of the City to attract the offshore service provider/s who are employed by the Indian multinationals, Overseas Offices of the Indian Residents or their Branches and the International Players who has an appetite for such Services. Also in few cases International Regulator’s compliance will also be accepted. A complete treatment available to these service seekers will be established in Gift City under the legal and the regulatory framework.

Thus if one is engaged in the financial Sector then such a unit in the Gift City will also require approval under the regulator ’ s guideline as applicable in their case and if it is engaged in to information Technology Services then they will be subjected to SEZ regulations only.

To bolster activities in IFSC and to promote it as a global financial hub, additional measures have been introduced which should make the IFSC proposition further attractive.

2.1 Tax proposals

  1. Amendment to Section 10 ( 4 E): Currently, exemption is provided to non- residents from income from transfer of non-deliverable forward contracts entered into with an offshore banking unit. It is now proposed to extend the exemption under the said clause to non-residents on transfer of offshore derivative instruments or over- the-counter derivatives entered into with an Offshore Banking Unit of an IFSC, referred to in subsection (1A) of section 80LA

  2. Amendment to Section 10(4F): Similar to exemption from income from royalty or interest on account of aircraft leasing as currently available, it is now proposed to extend the exemption to income earned by a non-resident in the nature of royalty or interest on account of lease of ship from IFSC unit as referred to in sub- section (1A) of Section 80LA, if the unit has commenced its operations on or before the 31st March, 2024. It is also proposed to define “ship” to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.

  3. Proposed insertion of new clause (4G) in Section 10 : This clause proposes to provide exemption to any income received by a non- resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any IFSC, referred to in subsection (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India

    Sec 80 LA is the main provision according the benefits to the unit in Gift City, the tax exemption for 10 consecutive financial years out of 15 years as selected by the Unit Holder.

  4. Amendment to Section 80LA(2)(d): In addition to the income arising from the transfer of an asset being an aircraft, income arising from transfer of ships which was leased by an IFSC unit is proposed to be exempted subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.

  5. Amendment to the Explanation to clause (viib) of Section 56: Presently, specified fund means Category I or Category II AIF which is regulated under the SEBI (AIF) Regulations, 2012. With the setting up of the IFSCA, it is now proposed to provide that specified fund shall also include Category I or a Category II AIF which is regulated under the International Financial Services Centres Authority Act, 2019.

2.2 Other key announcements in FM’s speech during Budget 2022 presentation

  1. World- class foreign universities and institutions will be allowed in the GIFT City to offer courses in Financial Management, Fin Tech, Science, Technology, Engineering and Mathematics free from domestic regulations, except those by IFSCA to facilitate availability of high- end human resources for financial services and technology. Presently, a large number of Indian students seek education abroad thereby utilizing precious foreign exchange. Availability of world class universities in GIFT City may instead help such students to access quality education from within India and also lead to the development of a large pool of qualified academicians imparting knowledge in India.

  2. An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence. The centre could be on the lines of the Singapore International Arbitration Centre, or the London Commercial Arbitration Centre. Currently, a large number of arbitration cases involving Indian entities or businesses are adjudicated in Singapore, London or similar which could instead utilize the services of the proposed International Arbitration Centre. This development would also usher in world-class legal services in India and improve India’s image as provider of best-in-class arbitration services.

  3. Services for global capital for sustainable & climate finance in the country will be facilitated in the GIFT City. This is going to provide further thrust for ‘Green Finance’ at the IFSC. Climate finance refers to local, national or transnational financing, drawn from public, private and alternative sources of financing, which seeks to support mitigation and adaptation actions that will address climate change. Major financial resources and large-scale investments are required to significantly reduce emissions. To address this need, the Budget announces the Government’s intention to facilitate the presence in IFSC of global players in ‘green’ projects and climate finance.

3. Conclusion

It is a herculean task to attract International Service Providers who are serving Indian Business Houses abroad. The task therefore requires modifications to the existing policy framework to adjust to the flexibility accorded by the overseas regime where International Service Providers are operating. It is also intended to allow Indian Business Houses in IT Sector and Financial Service Providers to operate in an Internationally flexible regime to provide them the level playing field. It is an effort first to attract all and one where Indian needs such services and then make that available to Indian Players.

In time to come the regulatory regime may be made flexible for each sector in a manner that International Service Provider has the same legal and regulatory regime as they are used to it in another competitive jurisdiction and in few sector even compliances to International regulator may be considered as sufficient to operate from Gift city.