Saturday, December 31, 2016

CA can't exercise lien over client's documents for nonpayment of fees

As per decision of Ethical Standard Board (ESB) of ICAI, A chartered accountant cannot exercise lien over the client documents/records for non-payment of his fees. In this regards section 170 of the Indian Contract Act, 1872 reads as under: "Bailee's particular lien - Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.


(A) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.

(B) A gives cloth to B, a tailor, to make into a coat, B promises A to deliver the coat as soon as it is finished, and to give a three months' credit for the price, B is not entitled to retain the coat until he is paid." [Emphasis supplied]

The above view is based on the general principles of law under which any person having lawful possession of someone else's property may retain the property for non-payment of his dues. As section 170 uses the words 'goods' and not the word 'property' and as client's books of account and papers are not 'goods', lien under section 170, will not be available to lawyers/CAs/CWAs/CSs.

Therefore, withholding books and papers of the client for unpaid fees appears to be not legally tenable and even amounts to professional misconduct.

Tax collection isn’t valid if made from ‘tax illiterate person’ due to ignorance of law: ITAT

(a) The assessee filed return of income which was picked up for scrutiny where he was required to explain the deposits in his saving bank account. The AO made additions on account of unexplained cash deposits.

(b) The CIA (A) upheld the addition made by AO without considering fresh evidences filed by assessee. Evidences were considered as not admissible by the Commissioner (Appeals). Since as per record, no application seeking admission of fresh evidences under rule 46A was filed. ITAT held as under:

(1) The tax so collected on the foundation of the ignorances of a 'tax illiterate tax payer' could not be termed to be a collection of either 'just' nor 'due' taxes collected by the State in accordance with law. The assessee represented by an equally ignorant counsel, should have been appropriately guided by the First Appellate Authority. The fact that the Commissioner (Appeals) while exercising his discretion refused to admit evidence inspite of sufficient cause being shown as a matter of record was unwarranted and arbitrary.

(2) Since in the facts of the instant case due to his wife's illness the assessee was prevented by sufficient cause from producing the evidences in support of his claim, the impugned order was set aside and the issue to be restored back to the Commissioner (Appeals) with a direction to permit the assessee to produce the evidences in support of his claim.

Govt. approves ordinance, proposes jail term for people holding old notes

The Union Cabinet has approved an ordinance to impose penalty and a jail term for people holding demonetized notes of Rs 5,00 and 1,000. Only specified category of people will be allowed to keep demonetized notes. However, anyone can possess 10 old notes of Rs 5,00 or Rs 1,000 denominations.

The Government has prescribed penalty equivalent to higher of Rs 50,000 or five times of the amount of demonetized notes. The Union Cabinet has also approved an ordinance to amend RBI Act to extinguish the liability of the Government and Central bank on demonetized notes. The deadline for deposit of demonetized notes in banks is December 30, 2016. Thus, the ordinance should be cleared by the President before December 30, 2016.

(This document is prepared on basis of information gathered from sources.)

Benefit of vacancy allowance would be available even when house is under renovation: Bangalore ITAT

a) The Assessing Officer proposed to assess the annual letting value of the flat. The assessee has submitted that flats were vacant and therefore even if Annual Letting Value (ALV) has to be assessed, the vacancy allowance should be allowed. The Assessing Officer before the CIT (Appeals). The CIT (Appeals) confirmed the addition made by the Assessing Officer The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1. The assessee has explained that the house was under renovation and therefore, it could not be let out during the year under consideration. Further it was not intentionally kept vacant by the assessee. Thus, vacancy of the house was beyond the control of the assessee and, therefore, the benefit of vacancy is available to the assessee as per the provisions of section 23(1)(c).

2. The process of letting out may take some time in searching the suitable tenant and for settling the terms and conditions of the letting out. Therefore, even if it is presumed that the house is ready for occupation if it is not intentionally kept vacant by the assessee then it cannot be presumed that the assessee has deliberately not let out the house during the year under consideration.

3. Thus, the addition made by the Assessing Officer was to be deleted. - [2016] 76 278 (Bangalore - Trib.)

Tuesday, December 27, 2016

CBDT issues clarifications on ‘Direct Tax Dispute Resolution Scheme, 2016

The Direct Tax Dispute Resolution Scheme, 2016 incorporated as Chapter X of the Finance Act,
2016 provides an opportunity to tax payers who are under litigation to come forward and
settle the dispute. The provisions of the Scheme have been clarified vide Circular No.33 of 2016
dated 12.09.2016. Subsequently, further queries have been received from the field authorities
and other stakeholders. Now the Govt. has considered the queries and decided to clarify the
same in the form of questions and answers.

Click here to view clarifications on ‘Dispute Resolution Scheme, 2016’

Sellers shouldn’t aggregate all cash transactions to consider Rs 2 lakh limit of AIR reporting: CBDT

Provisions of Rule 114E(2) provides that persons liable to tax audit should report transaction of cash sales of goods or services to Income-Tax Department in AIR. Such reporting requirement is there only when receipt of cash payment exceeds two lakh rupees. Doubts were raised whether all cash transactions would be aggregated to consider the aforesaid limit of Rs 2 lakhs.

The CBDT vide Press Release, dated 22-12-2016 has clarified that aforesaid cash transactions did not require aggregation.The reporting requirement in AIR is on receipt of cash payment exceeding Rs 2 lakh for sale of goods or services per transaction.

Editor’s comment:

Seller is required to report details of cash sales in AIR only when transaction value of such sales exceeds Rs 2 lakhs. Suppose, if any seller has made cash sales of 20 transactions at Rs 20 lakhs then he is not required to report such transactions if value of each transaction does not exceed Rs 2 lakhs.

No disallowance of service tax just because it is paid by service provider out of its own pocket


a) Assessee was engaged in business of broking in Government and other securities. As clients of assessee did not pay service tax to it, assessee paid service tax out of its own resources and claimed deduction of same under section 37(1).

b) The Assessing Officer disallowed claim for deduction holding that obligation to pay service tax was on customer/client and same could not be shifted to assessee. The High Court held as under:

1) It is undisputed that the obligation under the Finance Act, 1994 to pay the service tax is on the assessee being the service provider. This obligation has to be fulfilled by the service provider whether or not it receives the service tax from its clients/customers.

2) Non-payment of such service tax into the treasury would normally result in demand and penalty proceedings under the Finance Act, 1994. Therefore, the payment is on account of expediency, exclusively and wholly incurred for the purposes of business, therefore, deductible under section 37(1). - [2016] 76 211 (Bombay)

Small traders accepting e-payments can save 46% tax under new presumptive tax regime: FinMin

If a small trader makes his transactions in cash on a turnover of Rs. 2 Crore, then his income under the presumptive scheme will then be presumed to be Rs. 16 lakhs @ 8% of turnover. After availing of Rs. 1.5 lakhs of deduction under Section 80C, his total tax liability will be Rs. 2, 67,800. However, if he shifts to 100% digital transactions under the new announcement made, his profit will be presumed to be at Rs. 12 lakhs @ 6% of turnover, and after availing of Rs. 1.5 lakhs under Section 80C, his tax liability now will be only Rs. 1,44,200. Here, digital transactionincludes payment received by Cheque or through any other digital means.

Apart from making a tax saving by migrating to banking mode, the small businesses would be able to build their books which may also help them get bank loans easily. Also, if transactions are carried out through banking channels, then anybody having annual turnover up to Rs. 66 lakhs will have zero tax liability after availing the benefit of Section 80C, after amendment of this new rate structure.

Wednesday, December 21, 2016

No dismissal of cheque bouncing complaint just because it is filed by partner in individual capacity

The Complainant, a partner in a firm has filed the complaint for dishonouring of cheque undersection 138 of the Negotiable Instrument Act. He filled the complaint in his individual capacity/ status without affixing seal or rubber stamp of partnership firm.Trial court dismissed thecomplaint filed by the complainant on the ground that he had not satisfied eligibility criteria and singed the complaint in individual capacity.

The High Court held thatTrial Court erred in holding that complainant had not guilty for offence under section 138 of Negotiable Instrument Act. An opportunity has to be provided to complainant to file unregistered partnership deed and matter has to be remanded to trial court for fresh consideration. [2016] 76 255 (Madras)

Click here to read full document

Govt. aims to reduce Presumptive Tax Rate to 6% for digital receipts during FY 2016-17

Recent demonetization drive of the Government has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payments, no financial transactions would remain undisclosed and, consequently, an enhanced turnover of business might get reflected in the books of account.The existing provisions of section 44AD provide that 8% of turnover would be deemed as presumptive profit in case of certain assesses having a turnover of Rs 2 crore or less.

In order incentivise small traders to proactively accept payments by digital means, Govt. has decided to reduce the existing rate of deemed profit under Section 44AD from 8% to 6% in respect of the turnover or gross receipts through digital means for the Financial Year 2016-17. However, the existing rate of deemed profit of 8% referred to in section 44AD, shall continue to apply in respect of total turnover or gross receipts in cash. Such changes would be effective once amendments are brought to Section 44AD by the Finance Act, 2017.

Saturday, December 17, 2016

Govt. to open 3.5 month’s window for declaring black Money under PMGKY from Dec. 17, 2016

The Government has given around 3.5 month’s period for filing declaration under Pradhan Mantri Garib Kalyan Yojana (‘PMGKY’) from December 17, 2016 till March 31, 2017. All declarations under PMGKY shall be furnished to Principal Commissioner or the Commissioner, in any of the following modes:

i) Electronically under digital signature, or

ii) Electronically through EVC, or

iii) In physical Form

Government has also notified ‘Form 1’ for declaring unaccounted income in the form of cash or bank deposits. Declarant needs to specify the following details in Form 1:

a) Name, address and PAN;

b) Status of declarant (whether resident, Non-resident, individual, HUF, Firm, etc.)

c) Amount held in cash and bank deposits.

d) Details of taxes paid before filing of declaration (i.e., date of deposit, Challan Number, etc.)

e) Details of amount deposited in PM Garib Kalyan Deposit Scheme (i.e., minimum deposit amount is 25% of unaccounted income) An option is also given to revise the declaration till March 31, 2017 if there is any omissions or wrong statement. After filing of declaration, the Principal CIT or CIT shall issue a certification in Form-2 to the declaration within 30 days from the end of the month in which declaration has been furnished.

Friday, December 16, 2016

Service receiver has no locus standi to challenge service-tax circular; SLP dismissed

Service-Tax: If the person to whom the burden of service tax is ultimately passed on is
entitled to challenge levy of service-tax, it would lead to disastrous consequence. Millions of
consumers would come and challenge such levy of taxes. Thus, service receiver has no locus
standi to challenge service-tax circular on Joint Development Agreement.

Click here to read Supreme Court Judgement

No revised return to show black money as income of past years; Tax dept. cautions taxpayers

Under the existing provisions of section 139(5), revised return can be filed only if original return contains any omission or any wrong statement. Post demonetization of the currency, some taxpayers may misuse this provision to revise the return-of-income of earlier Assessment Years, for manipulating the figures of income, cash-inhand, profits, etc. with an intention to show the current year’s undisclosed income in the earlier return.

Thus, the CBDT has clarified that the provision to file a revised return of income has not been stipulated for making changes in the income initially declared so as to drastically alter the form, substance and quantum of the earlier disclosed income. Any instance coming to the notice of Income-tax Department which reflects manipulation in the amount of income, cash-in-hand, profits, etc. may necessitate scrutiny of such cases so as
to ascertain the correct income. It may also attract penalty or prosecution in appropriate cases.

‘No Reassessment circulars’ aren’t Amnesty Scheme for past sins

Demonetization has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.

Under the circumstances, an apprehension has been raised that increased turnover in the current year may lead to reopening of earlier years' cases causing undue harassment to tax payers. Thus, CBDT and CBEC (vide Circular No. 40/2016 and Circular No. 137/155/2012-Service tax) have advised tax officials not to re-open past assessments in income-tax and indirect tax cases only because increased turnover is reflected in books of accounts of business on account of increased use of digital means of payment.

It would be incorrect to construe the above Circulars as giving any amnesty to taxevaders. Nor do the above circulars say that any spurt in turnover reported in books of account of businesses of current financial year (and consequently in their ITRs or indirect taxes returns) would not need to be explained.

The Circulars do not give businessmen a license to show their accumulated black money in the form of demonetized notes as current year’s turnover and get away scot-free without any interest or penalty and by paying normal tax for current year. If such a license is given by the circulars, the proposed PMGKY Scheme and proposed amendments to section115BBE of Income-Tax Act and proposed new section 271AAC of that Act would be redundant. The Circulars are innocuous and merely caution tax o􀁹icials to adopt systematic approach under the law to enquire into sudden jumps and reopen past assessment only if enquiry
throws up reason to believe that past turnovers/incomes escaped assessment.

Tuesday, December 13, 2016

Banks to request customers to indicate old and new currency in deposit slips: FinMin

Maintenance of records regarding deposit of old demonetized currency and new currency is essential both in the bank record as well as the customer’s record. Though most banks providing correct information to the customers yet to ensure that it is done in 100% of cases without fail, all the bank branches in the country be alerted to reflect correctly the cash deposit in old and new currency and inform the customers about the same. Thus, the Government has directed banks to display a prominent sign requesting their customers to fill-up deposit slips clearly indicating old and new currency and the denomination of notes.

Click here to read full document

Mere increase in sales due to acceptance of digital payment won’t trigger reassessment of past years

Recent initiatives of the Government to curb the black economy in the country has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.

Thus, the CBDT has clarified that mere increase in turnover, because of use of digital means of payment or otherwise, in a particular year cannot be a sole reason to believe that income has escaped assessment in earlier years. Hence, Assessing Officers are advised not to reopen past assessments in cases merely on the ground that the current year's turnover has increased.

Click here to view press release

Publication would have profit element which would be missing on reproduction of work by Teacher: HC

Copyright Act: Publication need not be for the benefit of or available to or meant for reading by all the members of the community. A targeted audience would also be a public. But, a publication would have the element of profit, which would be missing in the case of reproduction of work by teacher to be used in the course of instruction while imparting education to pupils. - [2016] 76 157 (Delhi)

Click here to read full document

New institute formed by Praveen Sharma for CA/CS aspirants doesn’t amount to cartelization: CCI


a) Mr. Praveen Sharma and Mr. R.K. Mehta, renowned faculty, were running coaching classes for CA/CS aspirant under the Faculty Arrangement Agreement (‘FAA’) with coaching Institute ‘ETEN CA’. They shared all the confidential information under the agreement with each other.

b) ETEN CA alleged that Mr. Praveen Sharma and Mr. R.K. Mehta made certain illegal demands and threatened to discontinue ongoing batches if their demands were not fulfilled.

c) Further, it alleged that Mr. Praveen sharma had starteda new coaching institute in the name of ‘Adline Ventures’ and Mr. R.K. Mehta and others as faculty members were appointed in this new institute

d) ETEN CA filed complaint with CCI that Mr. Praveen Sharma and other faculty members abused their dominant position by influencing the students and misusing the confidential information provided by ETEN CA. Further, it alleged that they indulged in anti-competitive agreement by cartelizing and adopting unfair trade practices.

The Competition Commission held as under:

1) Many other coaching centers such as CA club India, J.K. Shah Classes, Institute of grooming, etc., were also providing similar online and offline coaching services for CA/CS aspirants. With the presence of other players in the market, it did not appear that Adline Ventures enjoyed a dominant position.

2) Further, new entity (i.e., Adline Ventures) formed for competing with ETEN-CA doesn’t amount to cartelization as Mr. Parveen Sharma and other faculty members used their experience and expertise to operate their own business in the area of providing coaching classes. - [2016] 76 140 (CCI)

Click here to read full document

Latest updates from RBI

1. Unchanged Repo Rate: On the basis of an assessment of the current and evolving macroeconomics situation, the monetary policy committee of RBI has decided to keep the policy repo rate unchanged at 6.25 %. [Press Release : 2016-2017/1442, Dated 07-12-2016]

2. Relaxed norms for card payment: RBI has decided to relax authentication norms for card payment up to Rs. 2000. [Circular no. DPSS.CO.PDNo.1431/02.14.003/2016-17, Dated 06-12-2016]

3. Additional Point of Sale Terminals: To expand the digital payments eco-system and facilitate the move towards cashless transactions, the Govt. has directed banks to install an additional one million Point of Sale terminals by March 31, 2017. [Press Release, Dated 06-12-2016]

4. Re-activate Dormant bank account: Many customer are approaching banks for reactivation of dormant bank account. Thus, RBI has directed bank to follow the due-diligence procedure while re-activating dormant account of the customers. [Circular no. DBR.AML.BC.No.44/14.01.001/2016-17, Dated 06-12-2016]

Wednesday, December 7, 2016

Income-Tax Dept. found Rs 1.64 cr. black money deposited in Jan-Dhan Accounts

The Income-Tax Department conducted investigation across India due to sudden surge in cash deposits in Jandhan accounts. Investigation revealed undisclosed moneys of approximately Rs.1.64 Crore deposited into Jan-Dhan Accounts. Such deposits have been made by persons who have never filed returns of income and whose income is below the taxable limits.

Such Jan-Dhan accounts have been detected at Kolkata, Midnapore, Ara (Bihar), Kochi and Varanasi. Rs. 40 Lakh has been seized from one such account in Bihar. Undisclosed income so detected will be brought to tax as per the provisions of the Income Tax Act, apart from other actions depending upon the outcome of investigations.

The CBDT has again urged the account holders not to consent to any kind of misuse of their accounts which would expose them to the dangers of being held responsible for the tax evasion by unscrupulous elements.

Currency Notes printed for RBI held as goods : Madhya Pradesh HC

Assessee was a company, engaged in the business of printing of currency notes for Government of India. The VAT department raised demand on assessee on the ground that currency notes were goods. The assessee filed writ before the High Court and argued that it was performing the sovereign functions of the Govt. of India and could not be said to be a dealer engaged in any business activities.The currency notes could not be termed as goods and the sale and supply of currency was out of the definition of goods.

Monday, December 5, 2016

FAQs on Pradhan Mantri Garib Kalyan Yojana

The Government has announced demonetization of existing currency of Rs. 500/1000 with effect from the 9th November, 2016. However, concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 ('Act') could possibly be used for concealing black money. So, the Government has introduced Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha to amend the provisions of Income-Tax Act. The Bill was also cleared in the Lok Sabha.

The Government has announced Pradhan Mantri Garib Kalyan Yojana 2016 (PMGKY) in the Taxation Laws (Second Amendment) Bill, 2016. As per this PMGKY black money deposited in banks or held in cash can be offered for taxation at 49.9% (i.e., 30% tax, 9.9% surcharge and 10% penalty).

Saturday, December 3, 2016

Cap on employees share in Public Offer raised from Rs 2 lacs to Rs 5 lacs

SEBI has amended the ICDR Regulation enabling employees to apply for shares beyond the specified limit of Rs. 2 lakh under employee reservation quota. SEBI has raised the limit of maximum shares that employees can bid in their Company’s IPO to Rs. 5 lakhs from existing limit of Rs. 2 lakhs with a view to increase investor base in listed companies. The application for shares of the value in excess of Rs 2 lakh shall be considered only in the event of undersubscription in the employee reservation portion. Further, the value of total allotment to an employee under the employee reservation portion, including the additional allotment shall
not exceed Rs 5 lakh.

No restriction on deposits in current account; Fake RBI instruction circulating in social media

Fake Circular No. RBI/2016-17/166 provides that in case of genuine deposits in Current Account banks are advised to take certificate of cash balance as on Nov. 8, 2016 duly attested by tax authorities along with details of deposits from Nov. 10, 2016 till date.

Actual Circular No. RBI/2016-17/166 provides that banks should not rely on instructions issued on unofficial channels like social media and rely on instructions uploaded on RBI’s website.

Thursday, December 1, 2016

Taxation Second Amendment Bill, 2016: 11 things to know for disclosure of black money

The Government has announced demonetization of existing currency of Rs. 500/1000 with effect from the 9th November, 2016. However, concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 ('Act') could possibly be used for concealing black money. So, the Government has introduced Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha to amend the provisions of Income-Tax Act.

The Government has announced Pradhan Mantri Garib Kalyan Yojana 2016 (PMGKY) in the Taxation Laws (Second Amendment) Bill, 2016. As per this PMGKY black money deposited in banks or held in cash can be offered for taxation at 49.9% (i.e., 30% tax, 9.9% surcharge and 10% penalty).

The Revenue Secretary, Hasmukh Adhia said that Income-tax department will not ask for the source of funds deposited in banks if the entire income is declared under PMGKY. From bare reading of this statement of Revenue Secretary, doubts arise as to whether any corrupt official or corrupt member of political party or any criminal can also come clean by paying 49.90% tax under PMGKY. No, any criminal or corrupt person cannot avail of benefit of this PMGKY as he is specifically excluded from purview of PMGKY.

Taxation Second Amendment Bill, 2016: 11 things to know for disclosure of black money

The Government announced demonetization of existing currency of Rs 500/1000 as a step forward to curb black money with effect from the 9th November, 2016. However, concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 (‘Act’) could possibly be used for concealing black money. It is, therefore, important to plug these loopholes within Act so as to prevent misuse of the provisions. Thus, the Govt. has introduced Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha which proposes to make some changes in the Act to ensure that defaulting assessees are subjected to tax at a higher rate with stringent penalty provision.

Disclosure of black money held in banks or cash

1.Black money deposited in banks or held in cash can be offered for taxation at concessional rate under Pradhan MantriGaribKalyanYojna, 2016 (‘PMGKY’). This income would be taxed at 49.9% (i.e., 30% tax, 9.9% surcharge and 10% penalty).

CBEC releases revised version of GST Model Law

The Draft GST model law was released on June 14, 2016.On Nov. 26, 2016 the CBEC has released the revised version of draft GST model law after considering the suggestions of the stakeholders. It has also released the draft law for compensating the States. The Central Govt. would compensate the States for the revenue loss in the first five years of GST implementation.

The Compensation payable to the States for any financial year would be the difference between actual revenue (i.e., SGST + apportioned IGST) and projected revenue. The GST compensation payable to a State shall be provisionally calculated and released at the end of every quarter, and shall be finally calculated for every financial year a􀁺er the receipt of final revenue figures, as audited by the CAG.

To fund this compensation, there would be a levy of GST compensation Cess on specified goods and services. However, no cess would be levied on assessees opting for composition scheme. We will shortly provide our viewers the detailed summary of new version of GST law.

Media reports: Proposal to tax demonetized notes at 60%! Whether legally sound?

There are news reports in media saying that Union Cabinet approved a proposal to amend section 270A of the Income-Tax Act,1961 to provide that unaccounted cash deposited in bank account during the demonetization period(09-11-2016 to 30-12-2016) would be taxed at 50% if voluntarily disclosed in income-tax return. The amounts so deposited and disclosed will have lock-in-period of 4 years.

If not so disclosed and the same is detected by the Income-Tax department, the amounts would attract 60% tax and penalty. There is no Bill or Ordinance or Press Release or CBDT Circular to this effect So to give credence to these news reports in planning one’s tax affairs may be risky. Secondly, assuming the proposal to be true, whether it is a legally and morally sound proposal?