Friday, April 21, 2017

Govt. extends due date for deposit under PMGKY to April 30, 2017

Government has extended date for making interest-free deposits for declarants who have paid tax and penalty under the Pradhan Mantri Garib Kalyan Yojna (PMGKY).

Under the PMGKY scheme, declarants had to deposit 25% of amount declared, in a bank for 4 years without interest. Due date for deposit such amount was March 31, 2017 which has now been extended till April 30, 2017.

Earlier, CBDT had also notified that if an assessee had made payment of tax, surcharge, penalty and deposit in the banks by the closing hours of 31st March, 2017, he shall be allowed to file declaration under the Scheme by the 10th of April, 2017.

Sec. 69A additions upheld as assessee failed to prove that bedroom from where cash was seized belonged to his sister


a) Search action was carried out at the residence of the assessee. During search, some unexplained cash was found and seized from bedroom of assessee's sister.

b) Assessee contended that cash received from the bedroom of sister belonged to his sister who came to stay with him few days back and, therefore, the same could not be included as unexplained cash in the hands of the assessee.

c) Assessing Officer (AO) did not accept the contention of the assessee and added entire amount of cash found as unexplained under section 69A.

d) CIT(A) and ITAT confirmed the order of AO. Aggrieved-assessee filed instant appeal before the High Court.

High Court held in favour of revenue as under:

1) Assessee failed to bring on any record that the bedroom was in exclusive possession of the sister. Even, there were contradiction in the statement of assessee recorded under section 132(4) and the affidavit of the sister.

2) Assessee had stated that out of amount found in cash, Rs. 2,50,000 lakh belonged to his sister whereas sister in her affidavit stated to had cash possession of Rs. 6,38,800 which was received by her from in-laws being Stridhan.

3) There were material contradiction in the statement of assessee and his sister with respect to ownership of actual amount in cash. Further no evidence was produced with respect to any share received from her in laws.

4) Therefore, seized cash was rightly included in income of assessee as unexplained money under section 69A. - [2017] 80 175 (Gujarat) 

AO's participation in raid doesn’t make reassessment void when he isn’t biased against assessee

The issue before the High Court was as under:

Whether ITAT fell into error in concluding that there was no infirmity in the framing of the assessment by an Officer who was involved in the search and seizure operations?

High Court held in favour of revenue as under:

1) Assessing Officer (AO) has been given the power under the Act to gather information for the purposes of assessment. The mode of gathering such information may vary from the mere issuance of a notice under Section 142 to the more intrusive method of entry and search/seizure envisaged under Section 133A, Section 133B and Section 132.

2) There is nothing inherently unconstitutional in permitting AOto gather the information and to assess the value of the information himself. It was not open to the High Court to have disabled AO from discharging his statutory functions.

3) If the assessee would establish that AO was in fact biased in the sense that he was involved in his personal capacity in the outcome of the assessment, it would be a good ground for setting aside the assessment order.

4) But to hold that bias was established only because the authorised officer under Section 132 and AO were the same person was an incorrect approach.

5) Assessee has, in addition to relying on the circumstance that the AO was a participant in the raiding party, not placed any other material to substantiate the allegation of bias.

6) No personal bias or malice or past history with the said official was alleged, much less proved. Thus, the argument that assessment was void on account of bias was unsustainable and had to be rejected. - [2017] 80 257 (Delhi)

Grant of scholarship to deserving students to pursue higher studies was charitable in nature: HC


a) The assessee was a society registered under Societies Registration Act, 1860 and was running several educational institutions in the State of U.P.

b) Assessing Officer (AO) disallowed payment of scholarship to the incumbent on the ground that it was not for charitable purpose and it would be considered as income of assessee.

c) On appeal, CIT (Appeals) deleted additions made by AO which was affirmed by the Tribunal on further appeal. Revenue filed instant appeal before the High Court

High Court held in favour of assessee as under:-

1) Scholarship to the incumbent was granted for pursuing Engineering course from University of California, Los Angeles, USA. The candidate was selected after a thorough process of selection and finding him most deserving candidate, scholarship was granted to the said incumbent.

2) This was in the process of charitable object of assessee Society for advancement of higher technical education to deserving students. It could not be doubted that advancement of education was a 'charitable purpose'.

3) The candidate, beneficiary, was directly or indirectly not related to Members of Society nor otherwise had any bearing or connection with the Society Members. Financial status of the said student or other things were immaterial so far as purpose for which scholarship to said incumbent was concerned.

4) Therefore, CIT (Appeals) was justified that grant of scholarship to deserving students to pursue higher studies was charitable in nature. [2017] 80 96 (Allahabad) 

Monday, April 17, 2017

AO rightly treated bank as an assessee -in-default for allowing LTA claim to its employee travelling abroad


a) A survey was conducted on nationalized bank under section 133A to verify the TDS compliance in the case of salary and perquisite payments made to its employees. 

b) Assessing Officer (AO) noticed that bank had allowed LTC exemption to its employeesfor the foreign travel. AO treated bank as an 'assessee-in-default' under section 201(1) for making short-deduction of tax.

c) CIT(A) confirmed the order of AO, aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) As per the provisions of section 10(5), only the reimbursement of expenses which are incurred on travel of employees and their families to any place in India are exempt. Since the employees of the Bank had travelled to foreign countries, the benefit of exemption available under section 10(5) should not have been granted.

2) Though bank may not have been aware of the details of the employees' places visited or destination at the time of advancement of LTC amounts. Yet, at the final settlement of the claims of the employees under LTC, bank should have obtained all the relevant details, such as the places of visits (destinations), etc.

3) Thus, the bank was aware of the fact that its employees had visited foreign countries by availing of LTC concession. So they were not entitled for to reimbursement of LTC.Thus, bank was under an obligation to deduct tax at source treating such an amount as not exempt.

4) Since the bank had failed to enforce its duty to deduct tax at source under section 192, AO correctly treated Bank as an 'assessee-in-default'. - [2017] 80 179 (Bangalore - Trib.)

‘Taxmann’ invites taxpayers to submit their practical difficulties faced in case of ITRs and TDS matters

‘All Gujarat Federation of Tax Consultants’ felt an urgent need for effective resolution of practical issues being faced by the taxpayers. Thus, it is organizing an open house at Ahmedabad to have meaningful interactions with concerned CPC authorities with a view to achieve effective resolution of several practical difficulties being faced by the taxpayers in relation to following activities:

A) Filing of e-returns, processing of ITRs and rectifications, issue of tax refunds, computation of interest, adjustment of tax demands against refunds, etc., handled by CPC (ITD) Bengaluru.

B) Filing and processing of TDS returns, grant of due credit and reconciliation of TDS or TCS and related issues dealt with by CPC (TRACES) Ghaziabad. 

The taxpayers and tax practitioners are requested to send their practical difficulties faced by April 17, 2017 at which can be placed before CPC authorities at the open house.

Following departmental authorities will deal with such practical difficulties at the open house:

DGIT (System) – Shri S.S. Rathor

CIT-CPC (ITR) – Shri R. K. Mishra

CIT-CPC (TDS) – Shri Sunil C. Sharma

Delay in payment under IDS due to demonetization unacceptable- HC dismisses writ


a) The petitioner had filed a declaration under the Income Declaration Scheme, 2016 (IDS) declaring total undisclosed income of Rs.11.59 crores.

b) He was unable to deposit the amount of Rs.1.19 crores being 25% of income declared which he was required to deposit before 30th November, 2016 under IDS in view of the demonetization of Rs.500/- and Rs.1000/-currency notes on 8th November, 2016.

c) Thus, he filed writ before the High Court seeking a direction to the Revenue to accept Rs.1.19 crores which he was unable to deposit on or before 30th November, 2016.

High Court held as under:

1) There was no provision under the IDS or in the rules made there under which would permit the revenue to accept payment of tax after due date.

2) High Court couldn’t issue any such directions as the revenue authorities were obliged to act in accordance with the Income Declaration Scheme, 2016 which was a part of the Finance Act, 2016

3) It must be borne in mind that the IDS was optional and the dates of payment were known at the time of filing the declaration. Therefore, filing writ seeking direction to accept payment of tax after due date wasn’t maintainable. [2017] 80 167 (Bombay)

CBDT introduces digitally signed E-PAN card for applicants

Central Board of Direct Taxes (CBDT) has introduced the electronic PAN Card (E-PAN) which would be sent by email to all applicants in addition to issue of the physical PAN Card.

E-PAN would be digitally-signed which can be submitted by applicant as a proof of identity to other agency electronically directly or by storing in the government's Digital Locker.

Further, in order to improve the Ease of Doing Business for newly incorporated companies, CBDT has tied up with Ministry of Corporate Affairs (MCA) to issue PAN and TAN in one day.

Applicant companies have to submit a common application form SPICe (INC 32) on MCA portal. Once the data of incorporation is sent to CBDT by MCA, the PAN and TAN would be issued immediately without any further intervention of the applicant. Till 31st March 2017, 19,704 newly incorporated Companies were allotted PAN in this manner. During March, 2017, out of the 10,894 newly incorporated companies, PAN was allotted within 4 hrs in 95.63% cases and within 1 day in all cases. Similarly, TAN was allotted to all such companies within 4 hrs in 94.7 % cases and within 1 day in 99.73% cases, CBDT clarified.

Press Release dated 11-08-2017

Power of attorney holder can also file a complaint for dishonoring of cheque: HC

In general, a person who is entitled to prefer a complaint for dishonoring of cheque under the Negotiable Instrument Act, 1881 must be a “payee or a holder in due course” but law does not insist on that payee or holder in due course should personally file a complaint. His duly authorized power of attorney can also file a complaint on his behalf if cheque is issued in discharge of a legally enforceable debt.

Therefore, filing of complaint in respect of an offence under section 138 of the Negotiable Instrument Act is permissible through holder of power of attorney. - [2017] 80 72 (Madras)

Bar Council of India can’t remand disciplinary proceedings transferred to it from State Bar Council: SC

The Disciplinary Committee of Gujarat Bar Council of India (BCI) could not complete its proceedings within a year as mandated under the provision of the Advocacy Act, 1961, as a consequence of which disciplinary proceeding had been transferred to the Bar Council of India. However, the BCI’s Disciplinary Committee got back the case to the State Bar Council with a direction to dispose of the matter within a stipulated period of time.

Being aggrieved by the action of Bar Council of India, Appellant filed a case before the Apex Court. It was held that when a disciplinary proceeding before a State Bar Council gets transferred to Bar Council of India (BCI) under the provision of the Advocates Act, 1961, the BCI cannot send it back to the State Bar Council with a direction to decide it within a stipulated time. - [2017] 80 54 (SC)

‘Quasi-capital’ loan not to be compared with ‘loan’ for ALP computation


a) Assessee had advanced an optionally convertible loan to its associated enterprise (AE). The tenure of loan was five years and the lender had the option for repayment or for conversion of loan into equity at par with the company at any time during the tenure of the loan.

b) Assessee did not provide for any interest on said loan. TPO was of the view that merely because loan was convertible into equity, it did not alter its character as loan at the relevant point of time, and once that was so, the benchmarking of loan was to be done as per the prevailing market rate.

c) TPO made addition to assessee's ALP in respect of interest on loan to AE. 

d) The DRP confirmed said addition. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:-

1) The transaction in question was not of the transaction of lending money to AE. Amount advanced to the AE was attached with the obligation of the AE to issue share capital, in case the assessee exercised option for the same, on certain conditions, which were admittedly more favourable, and at an agreed price, which was admittedly much lower, vis-à-vis the conditions and price which independent enterprise would normally agree to accept.

2) The lending was thus in the nature of quasi-capital in the sense that substantive reward, or true consideration, for such a loan transaction was not interest simplictor on amount advanced but opportunity to own capital on certain favourable terms. 

3) Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor. For example, a non-refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi-capital, are treated differently than the normal loan transactions.

4) However, what the authorities had held that a quasi-capital transaction can be compared with a simple loan transaction where sole motivation and consideration for the lender is the interest on such loan.

5) Keeping in mind these factors, as also entirety of the case, it was fit and proper to delete the arm's length price adjustment in respect of interest which, according to the revenue authorities, assessee should have charged on the optionally convertible loan granted to the AEs. - [2017] 80 24 (Ahmedabad - Trib.)

Thursday, April 6, 2017

Unutilized Foreign Tax Credit isn’t a tax deductible expenditure: Ahmedabad ITAT


a) Assessee pointed out that in terms of the Explanation 1 to Section 40(a)(ii), bar on deduction under section 40(a)(ii) is confined to only such income tax paid abroad in respect of which tax credit is granted under section 90 or 91. There is no bar on deduction under section 40(a)(ii) in respect of foreign tax for which no tax credit is available.

b) The issue before the Tribunal was as under:

‘Whether deduction under section 37(1) could be allowed in respect of foreign tax credit for which only partial credit was allowed in the current year?’ 

Tribunal held in favour of revenue as under:-

1) As per Explanation 1 to section 40(a)(ii), any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91 and as per Explanation 1 to section 40(a)(ii) any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;

2) The scope of Explanations to Section 40(a)(ii), on which assessee had relied upon so much, it may be noticed that if the main provision does not cover the taxes paid abroad, there cannot be any occasion to include under Explanations to Section 40(a)(ii), taxes in respect of which relief under section 90 and 91 is not admissible. 

3) These Explanations do not extend the scope of the Section 40(a)(ii) but rather explain the scope of the said section. If something is covered by the Explanation, it cannot be said that it is not covered by the main provision. If taxes in respect of which tax credit under section 90 or 91 are covered by the proviso, these are covered by the scope of Section 40(a)(ii) as well. And if these taxes are covered by Section 40(a)(ii), the theory that meaning of 'tax' under section 40(a)(ii) must remain confined to the taxes levied under Income Tax Act, 1961 comes to a naught since the taxes in respect of which credits are available under section 90 or 91 cannot be, under any circumstances, imposed under the Indian Income Tax Act.

4) Therefore, in the event of assessee being allowed only partial tax credit in respect of taxes withheld abroad, he could not be allowed any deduction in respect of the balance of the taxes so withheld abroad under section 37(1). - [2017] 80 6 (Ahmedabad - Trib.)

CA could demand higher remuneration if he produced good quality audit report


a) Petitioner-Chartered Accountant (CA) was engaged by the revenue authorities to conduct a special audit of a company. Audit Report was submitted and a huge addition of Rs. 720 crore was made.

b) CA submitted bill to the revenue for his professional services detailing 1315 man hours spent by his team. A total bill of more than Rs. 1 crore was raised taking average rate of manhour at Rs. 7500 per hour.

c) AO was of the view that time spent on lunch, refreshments, etc. should have been proportionately discounted from the bill. 85 per cent of the billed hours were considered by him as reasonable and accordingly reduced the average rate from Rs. 7500/hour to Rs. 4000/hour.

d) CIT(A) upheld the order of the AO. CA filed writ before the High Court: 

High Court held as under:-

1) Unlike employees, professionals do spend 9 to 10 hours a day on their work, even at odd hours, and attend to their basic necessities in the remaining hours of the day. Exclusion of such necessary recess for consumption of food and refreshment, etc. for a person to render quality work was illogical.

2) It was noteworthy that the quality of the report had been assessed as 'very good' by the AO.

3) Audit work was rendered by the CA’s four partners, Chartered Accountants and other personnel i.e. by qualified assistants and semi-qualified assistants. 

4) Notably, the work experience of the partners ranged from 3 to 27 years while the range permissible billing rate was between Rs. 3,500/- to Rs. 7,500/- and the rate of sitting could be correspondingly adjusted as per their regular sitting hours; instead it had arbitrarily been reduced to an average rate of Rs. 4,000/- per hour.

5) What the revenue was to assess was whether the special audit report was (i) within time, (ii) of the desired quality (iii) the billing was commensurate with the nature of inquiry and the quantum of the records to be looked into; etc.

6) If the audit report was of good quality and, inter alia, authored by a qualified professional having a fair number of years of experience then he/she might well be entitled to ask for the highest prescribed billing rate. [2017] 79 415 (Delhi) 

No Sec. 195 TDS on crediting income to payee when it is taxable on receipt basis under treaty: ITAT


a) The assessee was liable to make royalty payment, to Saira Europe SPA, Italy. Liability was duly accounted for in the books of account, though payment was made a bit later.

b) Assessing Officer (AO) raised demand on the assessee by treating the due date for depositing tax deductible at source as being 7 days from the end of the month in which amount was credited in the books of account.

c) Assessee contended before AO that as per article 12(3) of India Italy DTAA, royalty payment was taxable only at the point of time when it was actually paid and not at the point of time of credit. AO, on the contrary rejected the contention of assessee.

d) On appeal, CIT(A) upheld order of AO. Aggrieved-assessee filed instant appeal before tribunal:-

Tribunal held in favour of assessee as under:-

1) It is only elementary that the TDS liability under Section 195 is a vicarious liability in the sense that it's survival in the hands of tax-deductor is wholly dependent on existence of tax liability in the hands of recipient of income.

2) When a credit or a payment made by an Indian resident to a non-resident does not trigger the taxability of that income in the hands of recipient, the tax deduction liability does not come into play at all.

3) The provisions of Section 195 are to be read in conjunction with the charging provisions under the statue, as also in conjunction with the relevant double taxation avoidance agreements which override these charging provisions.

4) Section 195(1) states that any person responsible for paying to a non-resident any sum chargeable under the provisions of this Act, shall, at the time of credit of such income to the account of the payee or at the time of payment deduct tax at source.

5) As per Article 13 of India-Italy DTAA, the term "royalties" means payments of any kind “received”. Therefore, royalty payment was not liable to be taxed at the point of time when account of the non-resident was credited, in view of the fact that under the related DTAA, tax liability can only arise at the point of a subsequent event, i.e., payment.

6) Since, income embedded in the payment was not taxable at that point of time of crediting the amount, there could not be any occasion for deduction of withholding of the tax on such income. – [2017] 79 460 (Ahmedabad - Trib.)

Saturday, April 1, 2017

New ITR forms for AY 2017-18: Which ITR form you should opt for?

Every year CBDT notifies new income-tax return (ITR) forms. In 2016 the CBDT hadnotified the ITR Forms at the end of March, 2016 and it deviated from its past practice ofnotifying ITR Forms in the month of May or June. This time also the CBDT has notifiedthe ITR forms in the month of March, 2017.

As per the assurance given by the Finance Minister in his Budget Speech the CBDT had finally prescribed simplified ITR 1 Form with fewer columns. However, such ITR 1 is applicable only for individuals having income up to Rs 50 lakhs. Further, Individual taxpayers either having dividend income above 10 lakhs or having unexplained credit (taxable at 60% under Section 115BBE) can't opt for ITR-1.

The CBDT has scrapped ITR- 2A. Now all assessees (other than those earning salary income and business income) would be required to file ITR-2 only. Earlier taxpayers opting for presumptive taxation were required to file ITR-4S. But now they are required to file 'ITR-4 SUGAM' for presumptive income. Taxpayer earning income from business or profession are now required to file ITR-3 instead of old ITR-4.

Friday, March 31, 2017

Utilization of refund of TDS by company in liquidation would amount to contempt of court: Apex court

Contempt of Courts Act: Company in liquidation received money from National HighwayAuthority of India (NHAI) on account of acquisition of company's land.High Court had directed NHAI to deposit said amount with Registrar of High Court andNHAI deposited said amount after deducting TDS.

Thereafter, company has filed its return and claimed refund of the entire amount coveredby the TDS. Such amount was utilized for various purpose by the company. The ApexCourt held that utilization of TDS refund would amount to Contempt of order of High Court,as refund was actually compensation in respect of land acquired from company and itwas that amount which High Court wanted to protect by its order. - [2017] 79 463 (SC)

Share premium isn’t part of capital employed for computing Sec. 35D deduction of preliminary exp: SC

The issue before the Supreme Court was as under:

Whether "Premium" collected by Company on its subscribed share capital was to be treated as "capital employed in the business of the Company" within the meaning of Explanation(b) of sub-section(3) to Section 35D so as to enable the Company to claim deduction of preliminary expenses as prescribed under Section 35D?Supreme Court held in favour of revenue as under:

The "premium amount" collected by the Company on its subscribed issued share capital could not be said to be the part of "capital employed in the business of the Company" inview of the following reasons:-

1) If the intention of the Legislature was to treat the amount of "premium" collected by theCompany from its shareholders while issuing the shares to be the part of "capitalemployed in the business of the company", then it would have been specifically said so inthe Explanation(b) to sub-section(3) of Section 35D of the Act. It was, however, not said so.

2) Section 78 of the Companies Act which deals with the "issue of shares at premium anddiscount" requires a Company to transfer the amount so collected as premium from theshareholders and to keep the same in a separate account called "securities premiumaccount". It does not anywhere say that such amount should be treated as part of capitalof the company employed in the business for one or other purpose, even under the
Companies Act.

3) Column III of the Form of Annual Return prescribed under the Companies Act whichdeals with capital structure of the company, provides "issued shares capital break up".This column does not include in it the "premium amount collected by the company from itsshareholders on its issued share capital". This is indicative of the fact that such amount isnot considered as a part of the capital, unless it is specifically provided for in the relevantsection. - [2017] 79 450 (SC)

Lessee can’t claim depreciation on reimbursement of construction cost to lessor: Apex Court


a) Mother Hospital Private Ltd. (Assessee)entered into an agreement with a partnership firm for construction of hospital building on land belonged to the firm.

b) It wasagreed that the firm will complete the construction of the building on the condition that the entire cost of construction should be borne bythe assessee. Since the ownership of the land had to remain with the firm, it was also agreed that the land would be given on lease.

c) Assessee filed its return in which it claimed depreciation on the building portion on the ground that it was deemed owner of building as per Explanation 1 to section 32. 

d) Assessing Officer (AO) rejected claim of depreciation which was upheld by the CIT(A) and High Court on further appeals.

e) Aggrieved by the order of High Court, assessee filed the instant appeal before the Supreme Court.

Supreme Court held in favour of revenue as under:

1) As per explanation 1 to section 32:

“Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes ofthe business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to the building, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."

2) As is clear from the plain language of the aforesaid Explanation, it is only when the assessee holds a lease right and any capital expenditure on the construction to the building is incurred by the assessee, that assessee would be entitled to depreciation to the extent of any such expenditure incurred.

3) If construction is carried out by lessor and expenditure is reimbursed by lessee, Explanation 1 would not come to the aid of the lessee.

4) In the instant case, construction was made by the firm and not by the assessee. It was a different thing that the assessee had reimbursed the amount to the lessor.

5) Since construction was not carried out by the assessee himself, therefore Explanation 1 to section 32 could not be applied and, accordingly, assessee couldn’t claim deprecation on building. [2017] 79 375 (SC) 

Mere signing of 'Sauda Chitthi' wouldn't prove that assessee had received consideration from sale of land: HC


a) Assessee received re-assessment notice on the ground that a document was seized from the residence of Mr. RV, one of the partners of the firm in which assessee was also a partner.

b) This was a copy of 'Sauda Chitthi' entered into between the assessee and Mr. V on one hand as seller and Mr. PK and Mr. RV on other side of the deal as buyers for purchase of land.

c) According to the Assessing Officer (AO), the total sale consideration for above land, according to 'Sauda Chitthi', came to Rs. 18.80 crores and subsequently a sale deed was executed for a consideration of Rs. 56.39 lakhs and balance amount of Rs. 18.23 crores was received by assessee in cash as on-money. He held that the differential amount must be added to income of assessee.

d) Assessee filed writ petition before High Court against such re-assessment notice. High Court held in favour of assessee as under:-

1) It was an admitted position that the assessee had never executed any sale deeds. Merely on the basis of the 'Sauda Chitthi' signed by the assessee (signed and executed though, admittedly they were not owners of land for which the 'Sauda Chitthi' was executed/signed), it couldn’t be said that any amount was received by him.

2) Considering the statement of Mr. RV, he had categorically stated that the ‘Sauda Chitthi’ dated 12-03-2008 was subsequently had cancelled. It also didn’t appear that Mr. RV had stated that he had paid any amount to the assessee.

3) There was no other tangible material available with the AO other than ‘Sauda Chitthi’ to form a reasonable belief that the amount of Rs. 18.23 crores had been received by the assessee in cash.

4) Thus, formation of opinion by the AO seemed to be on surmises and conjectures, which couldn’t be the basis for reopening the assessment, in exercise of powers under section 147. [2017] 79 237 (Gujarat)

Monday, March 27, 2017

CBDT issues guidelines for waiver of interest of assesseein- default

CBDT via Circular No. 11/2017 dated 24-03-2017 has issued guidelines to reduce or waived off the interest charged under section 201(1A)(i) in case of assessee’s failure to deduct tax at source in some specified cases.

The cases in which the reduction or waiver of interest under section 201(1A)(i) can be considered are as follows:

1) In case where books of account and other documents necessary for making TDS were seized by the department due to which assessee was not able to deduct tax within due time.

2) Where no tax was deducted on any sum paid or payable on the basis of any order passed by the jurisdictional High Court and subsequently such order was reversed by any retrospective amendment or by a decision of Supreme Court or by a larger bench of jurisdictional High Court.

3) In respect of payment made to non-resident, where: 

a) dispute regarding the tax payable in India in respect of the said payment had been referred to the Competent Authority in India as mentioned in Rule 44H.

b) such reference had been received within a period of two years of the date on which the notice of demand determining the tax payable was received by the assessee;

c) the dispute has been settled by way of a resolution arrived at under the Mutual Agreement Procedure (MAP) provided in the said agreement; and 

d) the assessee has given his acceptance to the resolution and has withdrawn his appeal(s) pending on the issue within one month of the date on which the resolution is communicated to him.

In cases where assessee has already paid interest under section 201(1A)(i), assessee is entitled to get refund of such interest amount if the waiver order has been passed by the authority.

Payment for usage of ICC marks to promote Reebok brand can’t be held as royalty: ITAT

The issue before the Tribunal was as under:

Whether payment made by Reebok to ICC as 'Rights fee' for use of Marks of ICC for purposes of promotion and advertisement was in nature of 'Royalty' or 'Fees for technical services'?

Tribunal held in favour of Reebok as under:-

Reebok India Company (assessee) had entered into an agreement with ICC. As per terms of agreement ICC allowed Reebok to associate with it as 'Official Partner of ICC' to advertise its products during the ICC events.

ICC had agreed to grant to the assessee certain 'promotional, advertising, marketing and other commercial rights' on a worldwide basis in connection with the ICC events. In all, there were two types of payments, which the assessee was supposed to make under the Agreement, namely, 'Rights fee' and 'Royalty' Payment made by assessee as “Right fee’ exclusively for use of Marks of ICC for purposes of promotion and advertisement couldn’t be said as ‘Royalty’ asICC did not provide any technical, industrial, commercial or scientific knowledge to assessee for use of ICC marks on his product for promotion in ICC events.

There was a separate clause provided in the agreement for payment of royalty on the manufacture and sale of licensed products using the Marks of ICC which was in nature of 'Royalty' duly covered under clause(iii) of Explanation 2 to section 9(1)(iii). Thus, payment madeexclusively for use of Marks of ICC for purposes of promotion and advertisement and not for manufacture and sale of licensed products couldn’t be treated
as 'Royalty' - [2017] 79 271 (Delhi - Trib.)

Excise dept. can’t blame advocate for its own failure to remove office objections in appeal: HC

Excise department (Revenue) filed the appeal before the High Court with the plea to quash order passed by Registry dismissing its appeal seeking time to remove office objections.

High Court held as under: -

1) All the appeals filed by the revenue were entertained by condoning delay and there was enough time to remove office objections, but those were not removed.

2) Revenue officials were playing a blame-game. To cover up their lapses and deficiencies, they turned around and blamed their Advocates. They were of the opinion that their Advocates ought to have informed them and at every stage of the matter, particularly as to which office objections had to be complied with or were to be removed.

3) If the officers were unaware of legal procedures, then they had to be in touch with their Advocates. They could not expect that the Advocate himself would come to their office and apprise them as to what further had to be done after the filing of an appeal.

4) While allowing the appeal, we are expecting that this blame game will not be played further and Revenue officials must communicate with their Advocates periodically or rather regularly apprise themselves on the stages their Appeals have to go through. - [2017] 79 268 (Bombay)

SRK wins tax case; ITAT allows Rs 10 cr. deduction for securing IPL team sponsorship for Star India


a) Shah Rukh Khan (SRK) had entered into a service agreement with Star India Pvt. Ltd. (‘Star India’) for hosting of ‘KBC’.SRK had received advance of Rs.72 crores for two seasons of KBC and the same had also been offered to tax on receipt basis.

b) After the production of the episodes for first season of KBC, the Star India decided not to produce the second season for commercial reasons. So, it wanted to recover the value of the unutilized amount from the SRK for non-shooting of the second season of KBC.

c) SRK agreed to secure for Star India a sponsorship association with KKR IPL Team. For securing such sponsorship, he paid Rs.10 crores to Knight Riders Sports Pvt. Ltd. and in return sponsorship rights were awarded to Star India

d) SRK claimed deduction of such expenditure while computing his business income while Assessing Officer (AO) disallowed such expenditure as he was of the view that SRK was under no obligation to refund any amount to Star India.

e) CIT (Appeals) affirmed order of AO, aggrieved by the order of CIT, SRK filed the instant appeal before the Tribunal.

Tribunal held in favour of SRK as under:

1) It is not the legal necessity to spend the expenditure which is determinative of its allowability; rather, it is the existence or otherwise of commercial expediency which guides the allowability of expenditure under Section 37(1).

2) From the point of view of commercial expediency, it is abundantly clearly that assessee had a long-standing professional relationship with Star India Pvt. Ltd. and there is a nexus between the impugned expenditure and the purpose of business.

3) It was not for the Revenue to prescribe what expenditure should an assessee incur and under what circumstances.

4) In the instant case, there was no challenge to the bonafides of the expenditure incurred. Therefore, same could be understood to had been incurred wholly and exclusively for the purposes of business.

5) Accordingly, the order of the CIT(A) was set-aside and the AOwas directed to delete the addition of Rs.10 crores. - [2017] 79 227 (Mumbai - Trib.) 

Cabinet approves GST Bills to implement GST from July 1

On Monday, the Union Cabinet gave its nod for four crucial GST Bills to usher in the country's biggest-ever tax reform. The meeting was chaired by Prime Minister Narendra Modi. This meeting was conducted to understand and approve the four Bills - Central GST, IGST, UT GST and Compensation Bills.

Now the Government will introduce these Bills in the ongoing Budget session of Parliament itself. It is expected to be tabled in Parliament this week as Money Bills. The Government hopes to get them passed in the ongoing session to ensure the tax is implemented from July 1, 2017.

However, the State GST Bill will be taken up by State Cabinets and introduced in each State Assembly. The GST Council, in its previous two meetings, had given approval to the four legislations as also the State-GST (S-GST) bill.

Once GST is implemented, a composite tax will be levied on sale of goods or rendering of services. After the new indirect tax regime is rolled out, the revenue would be split between Centre and states in almost equal proportion. This because central taxes like excise and service tax and state levies like VAT will be subsumed in the GST. While the CGST will give powers to the Centre to levy GST on goods and services after Union levies like excise and service tax are subsumed, the I-GST is to be levied on interstate supplies. The SGST will allow states to levy the tax after VAT and other state levies are subsumed in the GST. The UT-GST will also go to Parliament for approval.

Monday, March 20, 2017

Reimbursement of salary of seconded employees held as FTS; ITAT relies on HC’s ruling of Centrica


a) Assessee, a swiss company was engaged in providing operations and management services to airports. It had entered into an agreement with Bangalore International Airport Ltd. (BIAL) for secondment of its skilled personnel.

b) Assessing Officer (AO) held that the payment received by the assessee from BIAL was in the nature of Fees for Technical Services (FTS) and, accordingly, chargeable to tax in India.

c) Assessee claimed that the seconded personnel work under the direct control and supervision of BIAL as it had the right to issue directions to the seconded employees. Therefore, aforesaid receipts cannot be considered as FTS.

d) CIT(A) upheld the order of AO, aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) Secondees were holding high managerial position and also holding the position in the management as CEO and CCO. This clearly establish the fact that they were not ordinary employees but having the expertise in the field of management. Therefore, the purpose of assignment was to avail the services of highly qualified personnel.

2) The Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. DCIT [2014] 44 300 (Delhi) had held that where employees used their technical knowledge and skills while assisting in conducting business of quality control and management, sum reimbursed to overseas companies towards salaries of seconded employees amounted to FTS.

3) Therefore following the decision of Hon'ble Delhi High Court in the case of Centrica (Supra),amount received in terms of secondment agreement was in nature of FTS, chargeable to tax under section 9 as well as under article 12 of India-Switzerland DTAA. – [2017] 79 199 (Bangalore - Trib.)

Reshuffling of specified investment by a trust doesn't lead to denial of sec. 11 exemption


a) The assessee-trust was running an educational institution, registered under section 12AA. It was collecting moderate fees from the students and expenses of the Institution were always more than educational receipts, which were met out of dividend/interest income of its investment made as per section 11(5).

b) In the course of assessment, the Assessing Officer opined that assessee was carrying on its activities on commercial lines and there was sale of mutual funds in violation of provisions of section 11(5). He, thus, rejected assessee's claim for exemption of income under section 11.

c) The Commissioner (Appeals) allowed the assessee's claim by holding that there was no violation of the provision of section 11(5) for making investment and, moreover, profits derived from sale of mutual fund and dividend income were again re-invested into the specified mode of investment, i.e., mutual funds as per section 11(5).

d) The aggrieved-revenue filed the instant appeal.

The ITAT held in favour of assessee as under:

1) Under the provisions of section 11, there is no lock-in period nor there is any stipulation that investments so made cannot be reshuffled during the outer limit of five years' period. In this context, the Assessing Officer's observation that one set of mutual funds were divested of within the period of sixty days would be untenable.

2) During the year, the assessee-trust had reshuffled one set of investments only with the purpose of safeguarding interest of the trust and in the view of the apprehension that value of said mutual fund was fast declining. By doing so, the trustees of the trust had acted, in the best and paramount interests of the trust and not for the purpose of any benefit or a pecuniary gain to any person specified under sub-section (3) of section 11.

3) Again by doing so, the trust had not violated any stipulation or conditions, as a matter of fact there was no stipulation under section 11(5) placing restriction on the reshuffle of specified investment. Thus, assessee-trust was entitled to exemption under Section 11. – [2017] 79 97 (Mumbai - Trib.)

Date of allotment letter to be considered and not date of sale deed registration to compute holding period of asset


a) The assessee sold her office unit and claimed that she had earned long-term capital gain as the office unit was held for more than 36 months.

b) The Assessing Officer noted that though allotment of the said office was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement. Accordingly, he held that the said asset was 'short-term capital asset'. Consequently, the resultant gain was assessed as short-term capital gain.

c) The Commissioner (Appeals) upheld the order of Assessing Officer. The aggrievedassessee filed the instant appeal before the Tribunal.

The Tribunal held as under:

a) A perusal of definition of section 2(42A) shows that the legislature has used the expression 'held'. It is further noted that in various other allied or similar sections, the Legislature has preferred to use the expression 'acquired' or 'purchased', e.g., in section 54/54F. Thus, it shows that the Legislature was conscious while making use of this expression.

b) The expression like 'owned' has not been used for the purpose of determining the nature of asset as short-term capital asset or long-term capital asset. Thus, the intention of the Legislature is clear that for the purpose of determining the nature of capital gain, the Legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis.

c) The Legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, one has to ascertain the period of holding of asset from which it can be said that assessee started holding the asset on de facto basis.

d) Thus, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.

e) Therefore, holding period of office unit should be computed from the date of issue of allotment letter and not from the date of registration of sale deed. - [2017] 79 67 (Mumbai - Trib.)

Existence of undisclosed bank deposits non-mandatory on date of PMGKY payment: CBDT

PMGKY scheme has commenced and it is open for declarations till March 31, 2017. Representations have been received from various stakeholders seeking clarification as to whether the deposits made in bank account or cash in hand which are eligible for declaration should exist on the date of filing of declaration under PMGKY.

The CBDT vide Circular No. 8/2017 has clarified that, it is not necessary that the said undisclosed deposits should exist on the date of making payments under PMGKY. However, undisclosed cash should exist on the date of making payment of tax, surcharge and penalty under PMGKY.

Works contractor not eligible for sec. 80-IB deduction


a) The land owner sold undivided co-ownership rights in the property to various individual purchasers. These purchasers further entered into construction agreement with assessee-firm for construction of flats.

b) Assessee filed return of income and claimed deduction under section 80-IB on construction receipts.

c) Assessing Officer (AO) held that the assessee though called developer was only a contractor and was not eligible to claim deduction under section 80-IB. 

d) On appeal, the CIT(Appeals) confirmed the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) In the instant case, assessee had entered into an agreement with the land owner for development of vacant land into the multi-storied residential complex.

2) The main activity was construction of flats by virtue of the agreement into with the buyers.

3) Assessee's job included only controlling and directing the work of building construction as per plan and design by the landlord and hand over the constructed flats on behalf of the landlord to the eligible flat owners who have got registered undivided right in the property.

4) Assessee had only performed the work as a contractor and its job was not related to designing the project and selling of the project. Further, itwas not entitled to get any share in the constructed area and in the undivided property.

5) Since, it was a case of mere 'works contract', assessee was not eligible for deduction under section 80-IB. - [2017] 79 10 (Chennai - Trib.) 

AO cannot examine sec. 37 conditions on “Privilege fees” paid for renewal of liquor Licence: HC


a) Assessee-company was an undertaking of the Government of Karnataka engaged in the business of canalization of liquor, beer and rectified spirit.

b) It had entered into agreement with the Government of Karnataka to pay ‘Privilege Fee’ for renewal of lease related to its liquor licence.

c) Assessing Officer (AO) while making assessment disallowed privilege fee by holding that it was not an expenditure incurred towards earning of income.

d) He further held that the Government Order to levythe privilege fee was nothing but the appropriation of the income.

e) Aggrieved-assessee filed writ petition before the High Court against the order of AO. High Court held in favour of assessee as under:

1) In the instant case, the character of liability to pay privilege fee was not only by virtue of the contract but was by way of a statutory obligation once lease was granted in favour of the assessee-company.

2) It was on account of the lease so granted, Company was in a position to undertake the business of the liquor as per the terms and conditions of the licence.

3) If any businessman or a professional had incurred expenses by way of discharge of statutory obligation to get a licence to do business, it can be termed as an expenditure on account of necessity of the business or profession.

4) AO have power to examine the commercial expediency for the expenditure incurred but it cannot be said that he will have jurisdiction to disallow the expenditure incurred for necessity or with a view to have a direct benefit in the business of liquor.

5) AO being a statutory authority is bound to respect all the laws may be made by the Parliament or may be made by the State Legislature. He had no jurisdiction to examine the constitutional validity of any Act or the statute or a subordinate legislation which creates statutory liability upon the assessee to make the payment by way of an expenditure incurred.

6) Therefore, disallowance of the expenditure for payment of privilege fees was without jurisdiction and ultravires to the power of AO. - [2017] 79 125 (Karnataka) 

No TP adjustment for AMP exp. just because incidental benefit accrued to foreign AE


a) Assessee-company had entered into an agreement with Widex, Denmark for distribution of digital hearing aids manufactured by it.

b) TPO noted that assessee had incurred huge AMP expenses which were disproportionate to that spent by comparable companies. He concluded that excess AMP expenses benefited AE only, for which assessee should be adequately compensated.

c) Accordingly, he applied Bright Line Test for determining non-routine spend on AMP by assessee. DRP confirmed said addition. Aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) In the instant case, the AMP spend had been treated as an international transaction since it was found to be benefitting the foreign AE of assessee.

2) There was no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.

3) The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE had not been demonstrated. Further, TPO had not been able to prove that the AMP expenses incurred was not for the benefit of the assessee.4) Merely because there was incidental benefit to foreign AE, it could not be said that AMP expenses incurred was for promoting brand of foreign AE. - [2017] 78 348 (Chandigarh - Trib.)

2-year ban on practicing CA as he was actively involved in business through companies and trust


a) Punjab National Bank filed complaint before council of the Institute of Chartered Accountant (ICAI) alleging that the respondent: a practicing chartered accountant (CA), had incorporated three companies, a trust and had diverted funds to companies and firms in which CA was associated with directly as a director or as a partner.

b) Council held that the CA was guilty of professional misconduct under Chartered Accountants Act, 1949 and recommended to the High Court that the name of the CA be removed from the Register of Members for a period of two years.

The High Court held as under:

1) There was evidence on record that CA was signing the balance sheet of various companies in the capacity as a director and was also operating the bank accounts and signing various applications submitted to the bank.

2) There was also evidence that CA had acted as the introducer when accounts of other companies were opened and significantly the addresses of these other companies were the same from where CA carried on his profession as a Chartered Accountant. 

3) A Chartered Accountant registered with the ICAI as practicing chartered accountant cannot be a director of a company without the permission of the ICAI. In the instant case, being a chartered accountant the respondent was actively carrying on business through companies, trusts and firms.

4) Thus, removal of CA’s name from the Register of Members of the Institute of Chartered Accountants for a period of two years was affirmed. - [2017] 79 9 (Delhi) 

Ahmedabad ITAT imports make available clause in India- Belgium DTAA from India-USA DTAA


a) Assessee made remittances to companies located at USA, Canada and Belgium towards technical consultancy and professional services without withholding tax in terms of section 195

b) Assessing Officer observed that the payments made to the foreign parties were in nature of included services/technical services and, thus, were taxable in India. AO held that assessee was liable to pay tax under section 201(1).

c) CIT (Appeals) held that the services would not fall within the purview of fees for technical services and, hence, there was no liability to withhold tax at source. Aggrievedrevenue filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) Because of the MFN clause, the scope of fees for technical services under the India- Canada DTAA and the India-USA DTAA was more restricted than that under India- Belgium DTAA. The language of article 12 of the aforesaid two treaties shall apply to the DTAA between India and Belgium.

2) After importing make available clause in India-Belgium DTAA, services provided by the non-resident parties would not fall within the purview of included services/technical services and, hence, there was no liability on the assessee to deduct TDS under section 195. [2017] 78 330 (Ahmedabad - Trib.)

SC to decide whether minor delay in furnishing Form 27C would make seller liable for no-collection of TCS; admits SLP

Assessing Officer made additions on the ground that the assessee had breached section 206C(1) as he failed to timely submit buyer’s declaration for non-collection of TCS in Form-27C. CIT(A) and the Tribunal ruled in favour of assessee.

On further appeal by the revenue, the High court held as under:-

a) Section 206C(1A) provides that the liability to collect TCS u/s 206C(1) does not arise if the buyer has furnished tax declaration in Form-27C to the Commissioner.

b) Section 206C(1A) itself does not provide for any time limit within which, such declaration is to be made. The main thrust of sub-section (1A) of section 206C is to make a declaration as prescribed, upon which the liability to collect tax at source under sub-section (1) would not apply.

c) When there was no dispute about such a declaration being filed in a prescribed format and there was no dispute about the genuineness of such declaration, mere minor delay in filing the said declaration would not defeat the very claim. Aggrieved by the order of the High Court, revenue filed Special Leave Petition (SLP)
before the Supreme Court. Now, the apex court has admited SLP against High Court's ruling. [2017] 78 295 (SC)

5-year ban on CA for issuing incorrect certificate of share application money

A Chartered Accountant (CA) issued certificates to company for listing of its shares for trading in stock exchange, without verifying same with statement of accounts issued by bank to company. On basis of report submitted by SEBI on unusual price movement of company's shares, Disciplinary Committee of ICAI found CA guilty of professional misconduct as he failed to render any explanation as to why he did not cross-check with the statement of account issued by bank to company. Accepting the report of the Disciplinary Committee, the Council (ICAI) at its meeting recommended removal of the name of the CA from the Register of Members of the ICAI for a period of 5 years.

The Delhi High Court sustained the decision of removal of the name of CA from the Register of Members of the ICAI for a period of 5 years. [2017] 78 304 (Delhi)

Saturday, March 4, 2017

CBDT to issue legal notice to taxpayers who haven’t responded to cash deposit verifications

The Govt. had demonetized Rs500 and Rs1,000 notes on 8 November 2016. Taxpayers were required to deposit the demonetized note till 30 December 2017 in their bank accounts.

Central Board of Direct taxes (CBDT) had sent emails and text messages to around 1.8 million taxpayers whose cash deposits looks suspicious. They were given time till 10 February 2017 to submit their response online; this was later extended to 15 February 2017.

However, many taxpayers have not submit their response even by such extended time. Now, CBDT will issue legal notice under section 133(6) to the taxpayers who haven’t responded to cash verifications within time. However, such notice shall be issued after obtaining the prior approval of Pr. CIT/CT/PR. DIT/DIT.

Notice shall be issued online and tax payers are required to submit online response within the time specified in such notice. If no response was submitted by the taxpayer within specified timeframe then AO couldinitiate action in accordance with the procedure prescribed in the Standard Operating Procedures.

Instruction No.4 of 2017 Dated 03 March 2017

Reimbursement for promoting Microsoft and Intel logo on assessee's products not liable to Service Tax


Assessee was engaged in the manufacture of personal computers and used the products of Intel and Microsoft for such manufacture. A specified percentage was paid by these two companies on the condition of including their logos on publicity material of the assessee. The reimbursements were mode from a fund created out of a contribution of the two entities that was directly linked to purchases effected in the past by the assessee. The Department raised demand on the ground that displays were for a consideration and the said consideration was liable to Service Tax.


On appeal to tribunal, tribunal held that the assessee was manufacturer of branded products and by no stretch of imagination, could it be inferred that in the process of promoting its own products, the components in the personal computers were also marketed for a consideration paid by Intel and Microsoft. A question that arose was whether the two suppliers benefited in any manner from the inclusion of their logos in the advertisement and publicity material deployed by the assessee. In scale and reputation, the assessee was incomparable with the two global giants.

It was difficult to conceive that the products of these two entities would find additional acceptability in the market owing to the inclusion of their respective logos. The products themselves were amenable to utilization only by computer manufacturers and the publicity, if any, among the potential customers of the assessee was unlikely to derive any economic benefits to the suppliers.

The tribunal pointed that reimbursement was from funds added in proportion to the procurements effected by the assessee from the two suppliers and not from enhanced sales attributed. The tribunal held that the scheme incentivized the assessee to procure more products from the two suppliers and to enhance the sales of the computers manufactured by the assessee. Such a benefit to the assessee would not qualify as promotion of product of client.

CA guilty of professional misconduct as he failed to highlight suspicious book entries during audit


a) The respondent (CA) was a partner of the partnership firm which was the Statutory Auditor of Pertech Computers Ltd (PCL). CA was incharge of the audit team.

b) A complaint was received by the Council from the Assistant General Manager, State Bank of India, against CA alleging that while carrying out the audit the respondent was guilty of various acts of commission and omission and, thus, action was to be taken against the CA for professional misconduct.

c) Council of ICAI noted that huge payments were made by PCL on behalf of its subsidiary, Altos India Ltd. (AIL) but no disclosure of the same was made by the auditor. Further, there were suspicious adjustment entries between AIL and PCL which ought to have raised a doubt about the genuineness of the transactions and ought to have been detected and reported by the CA.

d) Council held CA guilty of professional and other misconduct and removed his name from the register of members of the ICAI for a period of 5 years.

e) CA filed appeal before the High Court.

High Court held as under:

1) In its report the Committee highlighted the modus operandi adopted by PCL and AIL to form a loop with no cash flow coming in, but sales, stocks and receivables increasing.

2) It was the obligation of the auditor to comment on the internal control procedures of the company. The duty to enquire into whether the transactions were prejudicial to the interest of the company being not discharged by the auditors.

3) Keeping in view the scam which had taken place and the seriousness of the indictment of the CA the recommendation of the Council was accepted and the penalty of removing the name of the CA from the register of members of the ICAI for a period of 5 years was levied. - [2017] 78 286 (Delhi)

Appeal against order of DRAT can't be entertained when pre-deposit isn't made: HC


i. Writ petition was filed against an order passed by the Debt Recovery Appellate Tribunal (DRAT), Delhi where by it dismissed an appeal of petitioner on the ground of noncompliance of pre-deposit.

The High Court held as under:

a) Section 21 of the ‘Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ provides that an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution. Such appeal would not be entertained by the Appellate Tribunal unless such person has deposited with the Appellant Tribunal 75% of the amount of debt due from borrower as determined by the Tribunal.

b) An appeal cannot be entertained on ground of non- deposit of amount which is mandatory for an appeal to DRAT.

c) Thus, the instant writ petition couldn’t be entertained and the same was to be dismissed. - [2017] 78 206 (Delhi)

No abuse of dominance by manufacturer of Range Rover due to existence of others brands like, Audi, Ferrari, BMW


1. Lexus Motors Ltd (Lexus) is authorized dealer of cars manufactured by Jaguar Land Rover India Ltd. for sale and purchase of luxurious cars in the eastern region of India.

2. Informant had purchased one 'Range Rover Evoque Dynamic Car' ('Car') for personal use from Lexus. Soon after the purchase, the informant noticed many problems and defects in the car, such as gear problem, pick up, over heating of the gear nob, etc. After that, the car was sent to the service center of Lexus.

3. Due to the exclusive dealer in the eastern region of India, Informant alleged that the Lexus was abusing their dominance in the market for sale of high - end luxury cars.

The Competition Commission held as under:

a) There are many brands of luxury passenger cars which are available in India including Mercedes Benz, Ferrari, BMW, Audi, Porsche Volvo, Mitsubishi, Aston Martin, Maserati, etc., with a variety of models. The presence of a large number of players indicates that the market is competitive. Further, there are no significant barriers for other players to enter into the relevant market.

b) Thus, the Lexus did not hold a position of strength in the market of sale and purchase of luxurious car in India. [2017] 78 228 (CCI)

Monday, February 27, 2017

TPO couldn't apply 'benefit test' while determining ALP of royalty payments: HC


a) Assessee had entered into an agreement with its UAE based Associated Enterprise (AE) for payment ofroyalty equivalent to 3% of the net ex-factory sale price of the products on both domestic and export sales.

b) Transfer pricing (TP) study by the assessee in relation to this component was by adoption of Transaction Net Margin Method.

c) Transfer Pricing Officer (TPO) found that substantial expenditure had been incurred by the assessee on advertisement and marketing and it were these efforts which had yielded increased revenue and profit. Thus, he held that assessee had to satisfy the 'benefit test' to justify payment of royalty and as it had failed to do so, royalty payment was pegged at 2% instead of at 3%.

d) On appeal, the Tribunal rejected the application of the 'benefit test' adopted by the TPO. Revenue filed instant appeal before the High Court.

The High Court held in favour of assessee as under:-

1) TPO did not undertake any analysis in fixing the arm's length price of the royalty payment made by the assessee to the AE. TPO had also not adopted any of the methods prescribed under Section 92CA of the Act of 1961, read with Rule 10B of the Income Tax Rules, 1962.

2) TPO determined that the reason for the improvement in the net sales and profit of the assessee was increased marketing along with offer of discounts. Thus, there was no justification for payment of royalty at 3% to the AE by the assessee.

3) This reasoning was without legal basis of law as it was not for the TPO to decide the best business strategy. It was not for the TPO to determine as to what could be the other reasons for increase in the assessee's sales and profit.

4) Therefore, TP additions made on account of royalty payment by reducing rate of payment amounted to an arbitrary and unbridled exercise of power by TPO. - [2017] 78 230 (Andhra Pradesh)

No FTS when global telecom facility provided to shipping agents helped them to discharge their functions


a) The foreign shipping company had 3 agents in India who were acting as clearing agents.

b) In order to help agents, assessee had set up and was maintaining a global telecommunication facility called “Maersk Net”. Agents were paying for said facility on pro-rata basis to the assessee.

The issue before the Supreme Court was as under:

Whether the income from the use of Global Telecommunication Facility called 'Maersk Net' can be classified as fees for technical services?

The Supreme Court held in favour of assessee as under:-

1) “Maersk Net” was a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other information.

2) Maersk Net System was an integral part of the shipping business which was allowed to be used by agents in order to enable them to discharge their role more effectively.

3) Neither the AO nor the CIT (A) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India.

4) It was in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems.

5) Therefore, payments made by the agents for use of that Maersk Net System could not be treated as “Fees for Technical Services”. - [2017] 78 287 (SC)

No response for suspicious deposits may invite tax dept. at your doorstep – 10 things to know

The Income-Tax department had identified around 18 lakh taxpayers in its first phase who had made cash deposits during demonetization. These taxpayers were required to submit online response till 15th February 2017.

Now, the tax department has initiated verification of such accounts. It has issued the following Standard Operating Procedure for verification of cash transactions of taxpayers. 

1) In case of individuals, not having any business income, no verification shall be made by Assessing Officer ('AO') if the cash deposits do not exceed Rs 2,50,000.

2) In case of taxpayers above 70 years of age, the threshold limit shall be Rs 5,00,000. The source of such deposits can be either household savings or savings from the past. 

3) Wherein online response has not been submitted the tax authorities may initiate survey. During survey, tax dept. can check CCTV recording at cash counters of banks where there is suspicion of back dating transaction or fictitious cash transactions.

Thursday, February 23, 2017

No sec. 54F relief if newly acquired house is instantly demolished: Chennai ITAT


a) Assessee sold two shops and a residential building for certain amounts. These amounts were deposited in the capital gains scheme account in a nationalized bank. Later on, the assessee withdrew this amount and purchased a residential plot and claimed the benefit of section 54F.

b) Assessing Officer (AO) disallowed claim of the assessee on the ground that the new asset purchased was instantly demolished by the assessee and, further, he had proceeded to construct a shopping complex.

c) CIT (Appeals) affirmed the order of the AO. Aggrieved assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) The Parliament in its wisdom had enacted section 54F in the Finance Act, 1982 with a view to encourage housing construction. Thus, the intention of the legislation was not for destruction of residential building but for promoting the construction of the residential housing units.

2) If the benefit of section is extended where the new residential building is demolished without constructing another residential building within the time limit prescribed under the Act, then the purpose of the Act is defeated.

3) In the case CIT v. V. Pradeep Kumar [2006] 153 Taxman 138 (Madras), it had been categorically held that "the burden is on the assessee to prove that he had actually constructed a new residential house for the purpose of the exemption under section 54F. Section 54F emphasizes construction of residential house. The construction must be a real one. It should not be a symbolic construction. Mere construction by way of extension of the old existing house would not mean constructing a residential house as contemplated under section 54F."

4) Since assessee had demolished the newly acquired residential house instantly for the purpose of construction of a six floored shopping complex, exemption under section 54F was rightly disallowed. - [2017] 78 177 (Chennai - Trib.)

Limitation of Relief clause can’t be invoked to deny tax exemption to Singaporean Shipping Company


a) Singapore based company was engaged in the business of operation of ships in international waters. It had a shipping agent in India in the form of a wholly owned subsidiary ‘ALP India Pvt. Ltd.’

b) In return of income, assessee sought to claim benefit of article 8 of India-Singapore DTAA for its gross freight earnings collected from India.

c) Assessing Officer (AO) noted that the assessee could not produce ship registration certificates and copies of charter party agreements of few ships so he denied benefit of article 8 of DTAA in respect of such operating ships.

d) Further, CIT (Appeals) denied entire benefit by invoking the limitation clause of article24 of India-Singapore DTAA. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) As per the remittance basis of taxation under Singapore law, income arising outside the country is taxable only when that income is remitted to and received in the Singapore. However, any income accruing in or derived from Singapore is taxable on accrual basis under Singapore law.

2) For applicability of limitation of benefit clause, two conditions needs to be satisfy, firstly, income earned from the source state (here in this case, India) is exempt from tax or is taxed at a reduced rate; and secondly, under the laws in force of the resident State (Singapore), such income is subject to tax by reference to the amount thereof which is remitted to or received in the resident State and not by reference to the full amount  thereof. If both the conditions are satisfied, then only the exemption is allowed or the reduced rate of tax is levied on the amount so remitted.

3) In the instant case, the income of assessee-company from shipping operations was not taxable on remittance basis under the laws of Singapore, albeit it was liable to be taxed in-principle on accrual basis by virtue of the fact that this income under the income tax laws of Singapore is regarded as 'accruing in or derived from Singapore'.

4) Thus, the condition of article 24 couldn’t be satisfied in the present case. Therefore, CIT (Appeals) was not justified in denying the benefit of article 8 by invoking the limitation of benefit clause. - [2017] 78 240 (Mumbai - Trib.)