Query No. 1: (Applicability of Section 115BBE)

Whether Section 115BBE would come into operation when the assessee has himself declared in his original Return of Income (or voluntarily through revised return) any income which could have been brought to tax by the Assessing Officer u/ss. 68, 69, 69A and 69B etc? In other words, if the assessee himself declares any income in the Return without specifying the source thereof as other income he should be liable to pay tax at the normal applicable rate and not necessarily at 30% specified u/s. 115BBE.


This section is on statute since assessment year 2013-14. The object for introducing this section has been explained in Memorandum explaining the provisions of the Finance Bill, 2012, as under:

"Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF etc.; no tax is levied up to the basic exemption limit. Therefore, in these cases, no tax can be levied on these deemed income, if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at lower slab rate.

In order to curb the practice
of laundering of unaccounted money by taking advantage of basic
exemption limit, it is proposed to tax unexplained credits, money,
investment, expenditure etc., which has been deemed as income under
section 68, section 69, section 69A, section 69B, section 69C or
section 69D at the rate of 30% (plus surcharge and cess as
applicable). It is also proposed to provide that no deduction in
respect of any expenditure or allowance shall be allowed to the
assessee under any provision of the Act in computing deemed income
under the said sections."

Thereafter, the Finance Act, 2016 w.e.f. April 1, 2017 i.e., from assessment year 2017-18 amended the said section to provide that even set-off any loss shall also be not allowed against the income under the aforesaid sections.

Thus, even though the assessee declares voluntarily income under sections 68, 69, 69A and section 69B etc., shall be liable to pay tax @ 30% plus surcharge and cess as may be applicable, under section 115BBE.

Query No. 2: (Disallowance u/s. 40A(3) in case of succession of business)

Mr. A has taken over the running business of  Mr. B with all its assets and liabilities w.e.f. April 1,2014. He makes a cash payment of &#8377 40,000/- on June 1, 2014 to one of the trade creditors of the predecessor, Mr. B., deduction in respect of which obviously not claimed by the Mr. A. Can there be any disallowance in the hands of Mr. A in the assessment year 2015-16?


The requisites of succession, as the Supreme Court laid down in CIT v. K. H. Chambers [55 ITR 674] are:

i) There shall be a change of ownership.

ii) The integrity of the business shall remain
– the whole business should devolve upon the successor.

iii) The identity and continuity of the business should be substantially preserved. The same business shall be carried on by the person succeeding.

Further the Delhi High Court in
Oriental Fire and General Insurance Co. Ltd. v. CIT [244 ITR 631] has observed that succession implies that there is an end of entity carrying on the business and its place has been taken by a new entity to run in continuity and as a going concern, the same business. Substantial identity and continuity of the business must be preserved. The tests of change of ownership, integrity, identity and continuity of a business have to be satisfied before it can be said that a person
"succeed"  to the business of another.

Now, from the facts, it is clear that Mr. A has succeeded to the running business of Mr. B and stepped into the shoes of Mr. B and paid his liability (creditors) in cash whose business he has succeeded.

So sub-section (3A) of section 40A of the Act clearly applies which provides that where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income tax as income of the subsequent year of the payment or aggregate of payments made to a person in a day exceeds twenty thousand rupees.

Query No. 3: (Will would prevail over nomination)

When my father was alive not only he prepared the will & bequeathed the residential flat to me exclusively, but also added my name in the share certificate of the society. So on his death the society deleted his name and my name which was second became first. After few days I added my wife’s name as second and then both of us nominated our only child (i.e. married daughter), Now in above situation on my death who will become owner of the flat?


When your father added your name in share certificate along with him, you were admitted by the Housing Society as
"associate member". Now on his death you became the "member"  as per his Will.

So, now your wife along with you is "associate member"  and both of you have nominated your married daughter. There is difference between assignment and nomination. From the fact it is clear that you have nominated your daughter
but you have not assigned your flat to your daughter.

To avoid any complication in future, it would be advisable that you should make a
"Will"  clarifying your intention. On your death "Will’ would prevail over your nomination [see
Sarbati Devi v. Usha Devi (55 Comp Cases 214 (SC)] and Vishin Khanchandani v. Vidya Khanchandani [246 ITR 396 (SC)]

Query No. 4:

Amount paid to tenants for vacating the house against compensation (Pagidi). Can I treat the entire compensation which was paid to the tenant while calculating capital gains?


Yes, the Bombay High Court in
CIT v. Shakuntala Kantilal [190 ITR 56] has held that the expression
"full value of consideration"  in our view has contemplated both additions as well as deduction from the apparent value. What it means is the real and effective consideration. That apart so far as clause (i) of section 48 is concerned, we find that the expression used by the Legislature in its wisdom is wider than the expression
"for the transfer". The expression used is "the expenditure incurred wholly and exclusively in connection with such transfer". The expression
"in connection with such transfer"  is, in our view, certainly wider than the expression
"for the transfer". Here again, we are of the view that any amount the payment of which is absolutely necessary to effect the transfer will be an expenditure covered by this clause. In other words, if without removing any encumbrance including encumbrance of the type involved in this case, sale or transfer could not be effected the amount paid for removing that encumbrance will fall under clause (i). Accordingly, we agree with the Tribunal that the sale consideration is required to be reduced by the amount of compensation.

Similar view has been reiterated by the Bombay High Court in
CIT v. Abrav Alvi [247 ITR 312] and Madras High Court in CIT v. Bradford Trading Co. (P) Ltd. [261 ITR 222]. Even the Bombay High Court in CIT v. Miss Piroja C. Patel [ 242 ITR 582]
has held that the compensation paid by assessee to the hutment dwellers for vacating land before its sale is
"cost of improvement"  deductible u/s. 48(ii).

So, amount paid to tenants for vacating the house can be deducted while calculating capital gains tax under section 48 of the Act.

Query No. 5:

During the financial year 2015-16 charitable trust has given donation directly to the hospitals with instructions that this particular amount should be used only for the treatment of a particular patient and there are certain cheques issued in favour of the patients for outside treatment and the necessary medical bills and hospital reports are taken and kept on record. Besides the above in all cases the trust takes a printed application form duly filled and signed by patient or his kin and in the said form the complete address is available. In no case the copy of PAN card of patient or his relative or AADHAR card is taken. While finalizing the audit, the auditors have demanded the copies of AADHAR card or PAN card of patient which is not possible to obtain now because majority of the patients come from outside Mumbai. Of course all the patients shall be available at given address. Whether the auditors are correct in asking the trustees to obtain PAN card or ADHAR card?&#8377


The auditors have great responsibilities while attesting the financial statements. Paragraphs 38 and 39 of Frame-work of Assurance Engagement reads as under:

38. "The practitioner plans
and performs an assurance engagement with an attitude of
professional skepticism to obtain sufficient appropriate evidence
about whether the subject matter information is free of material
misstatement. The practitioner considers materiality assurance
engagement risk, and the quantity and quality of avoidable evidence
when planning and performing the engagement, in particular, when
determining the nature, timing and extent of evidence gathering

39. The practitioner plans and performs an assurance engagement with an attitude of professional skepticism recognising that circumstances may exist that cause the subject matter information to be materially misstated. An attitude of professional skepticism means the practitioner makes a critical assessment, with a questioning mind, of the validity of evidence obtained and is alert to evidence that contradicts or bring into question the reliability of documents or representations by the responsible party. For example, an attitude of professional skepticism is necessary throughout the engagement process for the practitioner to reduce the risk of overlooking suspicious circumstances of overgeneralising when drawing conclusion from observations, and of using faulty assumptions in determining the nature, timing and extent of evidence gathering procedures and evaluating the results thereof"

Therefore, it would be advisable for trust to obtain AADHAR card or PAN card of the patients to prove that they are genuine.

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