• CBDT relaxes the requirement of remunerating fund managers of certain offshore funds in view of amended Rule 10V for availing the special taxation regime u/s. 9A: “for the financial years 2019-20 and 2020- 21 in cases where the remuneration paid to the fund manager is lower than the amount of remuneration prescribed under sub-rule (12) of rule 10V of the Rules but is at arm’s length, it shall be sufficient compliance to clause (m) of sub-section (3) of section 9A of the Act.”
• Takes note of the representations received expressing inability to comply with Rule 10V [amended w.e.f. April 1, 2019, vide CBDT notification 29/2020] regarding the amount of remuneration to be paid by the fund to a fund manager for FY 2019-20 as the said Notification was notified after the financial year got over
• Lastly, makes it clear that the remuneration to be paid to the fund manager for FY 2021- 22, shall be in accordance with Rule 10V(12) and that the application for lower remuneration in terms of 2nd proviso for this year, if any, may be filed not later than 15 February 2021.
• CBDT has launched an e-portal for filing complaints regarding tax evasion/Benami properties/Foreign undisclosed assets.
• This step is taken towards encouraging participation of citizens in curbing tax evasion.
• Public can now file complaint using e-filing portal and there will be a unique number provided to each complaint.
• The complainant will be able to view the status of the complaint on the Department’s website.
• Income tax department carried out search and survey at 29 locations in Assam.
• And the same are carried out on renowned Doctors/Medical professionals.
• The allegations were that they have grossly understated their medical receipts and turnover.
• Due to the search and survey, Unexplained investments / income / expenses worth of more than ₹ 100 Cr. were found.
• Income tax department carried out a search and survey in Hyderabad.
• The search carried out on a prominent civil contractor generating cash using bogus subcontracts and bogus billers.
• The search has also covered a network of individuals running the racket of entry operation and generation of huge cash through fake billing.
• So far, documents evidencing accommodation entries of more than ₹ 160 Cr. have been found and seized.
• Income tax department carried out search and survey in Kolkata on real estate and stockbroking groups.
• The search is based on the available data in the departmental database, analysis of their financial statements, on market intelligence and field enquiries.
• So far, the unaccounted cash worth of ₹ 3.02 Cr. and jewellery worth of ₹ 72 L were found in search and survey.
• The Income Tax Department carried out search and survey operations on 19 January 2021 in Jaipur on one jeweller and two real-estate colonizers and developers.
• During the search, a plethora of incriminating documents and digital data in the form of unaccounted receipts, unexplained development expenses, unexplained assets, undisclosed incomes, cash loans & advances, on-money receipts, benami property, etc were found from hidden basements and cavities in the main premises of these groups.
• In all, unaccounted & unrecorded transactions exceeding ₹ 1400 Cr. have been unearthed due to the search & seizure operation conducted on these 3 groups.
• The search operations are continuing, and further investigations are under progress.
• The Income Tax Department carried out search and survey operations on 12 January 2021 in the cases of leading builders located in Borivali-Mira Road-Bhayander Area of Thane.
• The search action has resulted in the seizure of unaccounted cash of ₹ 10.16 Cr. and unaccounted income of earlier years amounting to ₹ 520.56 Cr. was detected.
• Further, the unrecognized sales revenue of ₹ 514.84 Cr. for FY 2019-20 has been accepted by the group during the search action and the group has agreed to pay Self Assessment Tax on the same.
• Further investigations are in progress.
• Karnataka HC dismisses Revenue’s appeal, confirms Tribunal’s deletion of TP-adjustment on account of interest on External Commercial Borrowings (ECBs) paid to the AEs
• In case of GE India Technology Centre (assessee) for AY 2006-07; Assessee had obtained 2 ECBs at the interest rates of 7.5% and 8.49% respectively, however, the TPO recomputed and scaled the interest rate down to 5.67%;
• HC notes that RBI has given the approval in respect of rate of interest on the ECBs obtained by the assessee and observes that “approval given by the RBI with regard to the rate of interest is a relevant factor while the determination of rate of interest”.
• Also observes that “… the rate of interest should be determined on the basis of rate of interest prevailing at the time of availing the loan”
• Further, noting that the rate of interest has been accepted by the AO for the AYs 2002-03 to 2008-09 except for the impugned year i.e., AY 2006-07, affirms ITAT’s observation that “Revenue cannot be allowed to make a departure in case of rate of interest for AY 2006-07”, refers to SC ruling in Radhasoami Satsang
• Mumbai ITAT allows set-off of business loss in AY 2016-17 and 2017-18, pertaining to AY 2014-15, despite the pendency of de novo assessment remanded by ITAT, but clarifies that it “should not be construed as our direction for the grant of refund…”
• Assessee, resident of Cayman Islands, engaged in providing drilling services for exploration and production of mineral oil furnished business loss of ₹ 80 Cr. which was disallowed by Revenue and remanded by ITAT for de novo consideration;
• Revenue denied the set-off of business loss carried forward from AY 2014-15 due to pending assessment proceedings;
• Holds that during the pendency of assessment on remand, assuming that loss was incorrectly determined for AY 2014-15 is premature and uncalled for
• Holds that refund of taxes for the subject AYs could await finalization of assessment for AY 2014-15;
• However, directs Revenue to allow set-off of losses and exercise discretion for granting refund since remanded assessment are to be finalized within three months.
• The assessee has filed a return declaring zero income and the same is been selected for scrutiny.
• AO noticed that the assessee had shown interest expense during the year, hence asked for the loan agreement/sanction of loan and other relevant documentary evidence to prove the genuineness of the interest.
• Assessee had submitted respective lender’s ledger, however told that it is taken on mutual terms, therefore there is no documentary evidence.
• AO also noticed that there was interest credited in the books however no actual bank payment is made and there is no unsecured loan was received by the assessee in the year under appeal.
• AO issued notice to the lender to get the information under section 133(6) of the IT Act, however there was no reply received.
• The assessee provided a detailed reply to the AO that part of the loan taken had been invested in the company for business purpose. Also, it is keeping books on mercantile basis, hence actual interest payable or paid should not be the matter for taking allowance.
• He also requested that in case both of the parties not responded to the notice of AO, AO should summon them under section 133 of the act.
• AO did not accept the contention of the assessee and noted that assessee could not prove the terms of the loan and only the verbal agreement can not be sufficient to claim and hence disallowed the interest expense under section 37(1).
• Assessee challenged it before LD. CIT(A).CIT(A) dismissed the contention of the assessee and directed the AO to take remedial action against the lender for obtaining the loans.
• LD counsel of the assessee submitted that the loans taken in the earlier years and allowed interest in the earlier years, also had shown the ledgers and confirmation from the lender taken in the earlier years. And, since there was no appeal is pending of preceding year in which the loan was taken , there should be no need to take remedial actions for that.
• Taking the help of the case of CIT vs. Sri Dev Enterprises 192 ITR 165, he concluded that the Income-tax authorities shall follow the rule of consistency and definiteness of approach in dealing the matter. In the earlier years, the loan was there in the books and interest was paid on that, that time it was not a case of dispute and now also it should on not be.
• Uttarakhand HC disposes off Dehradun Chartered Accountants Society’s (petitioner) writ petition on lines similar to Gujarat HC decision which had declined to interfere on tax audit, return filing due-dates extension
• While Gujarat HC had issued directions to CBDT to leniently view the consequences of late-filing arising from Sec 271B, petitioner herein submits that , there are other provisions which equally have consequences flowing in case the Income Tax Returns are not filed on time
• HC permits the petitioner to submit a fresh representation before CBDT, voicing all their grievances, with regard to the consequences which would flow from different provisions of the Act
• Accordingly, directs CBDT to leniently consider the said representation after giving an opportunity of hearing to the petitioner
• Revenue had held that the tolerance limit envisaged in the proviso to Sec.50C was applicable prospectively and declined to ignore the variation of 6.55% between sale consideration declared by assessee and the stamp duty value;
• Rejects Revenue’s submission that the amendments can only be prospective in nature as the law states so specifically, refers to Delhi HC ruling in Ansal Landmark Township holding that a curative amendment is to be treated as retrospective in nature even though it may not state so specifically;
• ITAT explains that the rigour of Sec.50C(1) was relaxed to take bonafide cases of small variations between sale consideration vis-à-vis stamp duty valuation attributable to various factors such as location of property, near-by public amenities, size of land and building out of the scope of adjustments u/s 50C,
• Thus opines that the amendment is a curative one to take care of unintended consequences of Sec.50C; States that “….just because there is a small variation between the stated sale consideration of a property and stamp duty valuation of the same property, one cannot proceed to draw an inference against the assessee….this insertion of the third proviso to Section 50C(1) is in the nature of a remedial measure….”;
• Explaining the reason for insertion of third proviso to Sec.50C, holds that “Once legislature very graciously accepts, by introducing the legal amendments in question, that there were lacunas in the provisions of Section 50C…..there is no escape from holding that these amendments are effective with effect from the date on which the related provision, i.e., Section 50C, itself was introduced.
• Bangalore ITAT dismisses the suo moto rectification by Revenue, of the issue not raised in the appellate proceedings for AY 2002-03, holds it time-barred u/s 154(7); Revenue calculated the period of limitation from the date of order passed after ITAT’s remand order instead of the date of assessment order initially passed by applying the doctrine of merger
• ITAT rejects the applicability of the doctrine of merger by relying upon SC ruling in Alagendran Finance Ltd. where it was held “..doctrine of merger applies only in respect of such items which were the subject matter of appeal and not which were not…”
• Also relies upon Karnataka HC ruling in Kothari Industrial Corporation Limited to explain that if the matter of the dispute is same in two rectification orders passed then the period of limitation would be calculated from the date of first rectification, otherwise the date of original assessment order would need to be considered
• The Assessee, Chempsec Chemicals P. Ltd., had opted for settlement under Direct Tax Vivad se Vishwas Act, 2020 (“VsV Act”) for AYs 1988-89, 1999-00, 2000-01, 2001-02 and filed declaration for the same under VsV Act. The designated authority issued certificates under VsV Act and these amounts were paid by the assessee on 23.12.2020.
• However, for passing of final order, any pending appeal for the Assessment years is required to be withdrawn. The VsV Act and the clarifications of CBDT via circular No. 7 /2020, is silent regarding withdrawal of appeal by the income tax department.
• However, from the answers given to question Nos. 21 and 48 of the above circular and based on the intent of the VsV Act for settlement of pending disputes, the HC ruled in favor of the Assessee.
• The HC held that if the assessee has paid the said amount of tax and the same is accepted by the designated authority, it would be unjust to allow an appeal under such a case and thus, the income tax department would be under an obligation to withdraw the appeal.
• The Assessee is a power generation company which was assessed u/s 143(3) on February 19, 2005 for AY 2002-03 which was revised by CIT(A) by making certain disallowances of capital expenditure. On an appeal by the assessee, ITAT remanded a specific matter back to the CIT(A). On October 10, 2011 an assessment order was passed against the assessee and the assessee appealed with the CIT(A). During the pendency of original appeal, Revenue passed a rectification order u/s 154 on March 28, 2012 after realizing its own mistake, apparent from record, and disallowed the deduction u/s 80IA.
• Being aggrieved by the rectification order, which reduced the brought forward loss of ₹ 80.55 crores, assessee approached CIT(A) with a plea of limitation against the rectification order under section 154 of the act to 4 years of the order. CIT(A) upheld the rectification order.
• ITAT held that as per the doctrine of merger, two appeals cannot be merged unless their subject matters are same/similar. Further, based on Karnataka HC ruling in case of M/s Kothari Industrial Corporation Limited, where it was held that “period of limitation for a second rectification should be reckoned from the date of original order, if subject matter of second rectification is different from subject matter of the first rectification” , the Bangalore ITAT held that rectification order dated 28.03.2012 would be barred by limitation u/s 154(7) against the original assessment order dated 10.02.2005.
• Pune ITAT deletes disallowance u/s 40(a)(ia) for TDS non-deduction u/s 194J on leased line charges paid by Assessee-company during AY 2012-13;
• Acknowledges that the leased line charges paid by the Assessee was in the nature of `Royalty’ under the terms of Explanation 6 to Sec.9(1)(vi), inserted by the Finance Act, 2012 w.r.e.f. 1 June 1976;
• However noting that the Finance Act, 2012 was enacted somewhere after the close of the F.Y. 2011-12 (i.e. AY 2012-13), explains that the liability to deduct tax at source can be fastened only under the law prevailing at the time of payment and if no liability exists at the time of payment, any subsequent retrospective amendment cannot be enforced against the payer; Remarks that “even though the amount became chargeable to tax as royalty in the hands of the recipient the same did not fasten an obligation to deduct tax at source as the Assessee could not have activated its sixth sense to ascertain beforehand that an obligation to deduct tax at source was in offing.”; Rules that as the scope of “Royalty” came to be expanded after the close of the financial year, the same could not have triggered disallowance u/s.40(a)(ia);
• Further, on the disallowance of expenditure on purchase of RSA tokens, accepts Assessee’s submission that the amount repaid by its AE at cost plus 15% was considered as part of income and deletes the disallowance; Holds that “Once the amount of expenditure, debited to the Profit and loss account, gets specifically credited to the Profit and loss account with a certain mark-up, there can be no question of disallowing the expenditure so charged while continuing to treat the amount credited as income.”
• Mumbai ITAT rules that the routine and mandatory expenses incurred by assessee co. (engaged in acquiring property on lease and sub-leasing) for maintaining its corporate identity would be eligible as regular business loss, allows consequential set off of the same with house property income arising from subletting.
• Following the co-ordinate bench ruling in assessee’s own case in earlier years, the assessee had offered income from sub-lease of property under the head ‘income from house property’ during subject AYs 2013-14 & 2014-15
• ITAT takes note of the nature of assessee’s business, being taking property on lease and sub-leasing the same and derive rental income thereon
• ITAT opines that “The rental income derived out of sub-leasing activity may get taxed under the head ‘income from house property’ as per certain provisions of the Act and judicial precedents. But it cannot be denied that the assessee had indeed carried on its business of sub-leasing the property.
• Thus, holds assessee would be eligible for set off of the same with the house property income
• The ruling was delivered by the Mumbai Bench of ITAT comprising Shri M. Balaganesh and Shri Ravish Sood.
• Mumbai ITAT deletes Sec.68 made for Assessee-individual during AY 2014-15, holds that Sec.68 cannot be invoked where the Assessee has filed return of income u/s 44AD without maintaining books of accounts.
• Revenue had made additions u/s 68 w.r.t Assessee ’s cash deposit into his bank account treating as unexplained cash.
• Perusing Sec.68, ITAT states that the section “makes explicitly clear that the addition can be made under the section if, any sum is found credited in the books maintained by the Assessee”
• Rejects Revenue’s contention that passbook of Assessee ’s bank account constitutes books of account
• Opines that “Since section 44AD does not obligates the Assessee to maintain books, the provisions of section 68 cannot be invoked where the Assessee has filed return of income under the provisions of section 44AD.”
• IT Dept. assures that no late fees will be calculated by CPC while processing the returns filed before the updated ITR filing utility is deployed;
• Updates that “The changes as a result of due date extension will be made available shortly.”
• Foreign Tax & Tax Research Division of CBDT has circulated a Breach Protocol prepared as per the international standards and approved by Information Security Committee (ISC) to all the offices of Income Tax Department (ITD) handling information exchanged under a treaty
• The Protocol shall get triggered in the event of an incident of inappropriate access, disclosure, use of confidential information, or failure to safeguard data
• The Protocol details a three-step approach to handle a breach:
(i) ‘Governance of a Breach’ that highlights the precautions to be taken and the evidence to be collected prior to activation of breach protocol by ISC,
(ii) ‘Breach Management’ that involves identifying the source of the breach viz., internal or external, containing the immediate impact of the breach by removing the attackers access to the system, eradicating the key component of the risk and mitigating the vulnerabilities that were exploited, and taking remedial actions to ensure that adequate security measures are instituted so as to prevent security incidents of similar nature, and
(iii) ‘Communication Protocol’ that lays down the course of communication to be undertake in the event of a breach.
• In exercise of power conferred under para 3 of the Faceless Penalty Scheme, 2021, the Central Board of Direct Taxes (CBDT) has directed that all the penalty cases, pending as well initiated subsequently, is assigned to the National Faceless Penalty Centre to be disposed of by the National Faceless Assessment Centre (NeAC) in accordance with Faceless Penalty Scheme 2021.
• However, penalty proceedings under the following circumstances shall not be subject to faceless penalty scheme:
a) Penalty proceedings in cases assigned to Central Charges
b) Penalty proceedings in cases assigned to International Tax Charges; and
c) Penalty proceedings arising in TDS Charges.