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 taxmann.com 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 taxmann.com 304 (Delhi)

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

Background:

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.

Held:

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.

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

Facts:

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 taxmann.com 286 (Delhi)

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

Facts:

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 taxmann.com 206 (Delhi)

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

Facts:

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 taxmann.com 228 (CCI)

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

Facts:

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 taxmann.com 230 (Andhra Pradesh)

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

Facts:

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 taxmann.com 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.

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