• The Taxation Laws (Amendment) Act, 2019, introduced two new sections, i.e., section 115BAA and section 115BAB to provide that an assessee, being a company, can opt for concessional tax rate regime subject to fulfilment of various conditions.
• On the similar lines, the Finance Act, 2020, has inserted two more sections i.e. section 115BAC and section 115BAD to provide that an assessee, being an Individual, HUF and Co-operative society, can opt for concessional tax rate regime subject to fulfilment of various conditions.
• One of the condition to opt concessional rate of tax under section 115BAA (domestic company 22%), 115BAC(individual and HUF) and 115BAD (cooperative society) is that the additional depreciation and unabsorbed depreciation with respect to additional depreciation shall be deemed to have been given full effect and no further deduction of such allowance/loss will be allowed in subsequent years.
• To provide adjustment on above case, the CBDT amends rule 5 providing to adjust the above allowance/losses to the opening WDV of the block of assets.
• CBDT has also notified adjustment of depreciation or allowance for unabsorbed depreciation, Form ITR-6 and Form 3CD have also been amended to furnish relevant information regarding such adjustments.
• CBDT further introduced rule 21AF and 21AH to provide the option to be exercised under form 10IE and form 10IF for section 115BAC and 115BAD.
• Section 115BAB provides that if the Assessing Officer (AO) is satisfied that due to close connection between the company and any other person, the course of business is so arranged that the company produces more than the ordinary profits then he shall compute reasonable profits and gains of such company.
• For this purpose, AO may invoke the provisions of Section 92BA pertaining to the specified domestic transaction.
• The Form 3CEB has been amended to provide details in respect of these transactions.
• In view of Covid-19 pandemic and resultant nationwide lockdown as well as disruption of transport and hospitality sector, Finance Minister Nirmala Sitaram has come out with a cash package for the CG employees.
• With a view to compensate and incentivize consumption by CG employees thereby giving a boost to consumption expenditure, it has been announced that- Cash equivalent of LTC comprising Leave Encashment and LTC fare will be paid by way of reimbursement if an employee opts for this in lieu of one LTC in the Block of 2018-21 subject to the certain conditions
• Amount to be spent by an employee = 100% of Leave encashment + 3 times the fare entitled
• The amount to be spent on purchase of items/services which carry a GST rate of 12% or above from GST registered vendors through digital mode.
• Amount to be spent on or before March 31, 2021
• TDS shall not be deducted on the reimbursement of deemed LTC fare.
• The Tax department has carried out multiple raids in the last week with seizure of documents and valuables worth hundreds of crores.
• The first search carried out on 22/10/2020 on a group of Assessee based in Srinagar.
• The search has led to a seizure of unaccounted cash amounting Rs. 1.82 Crores and Jewellery /bullion worth Rs.74 Lakhs, total undisclosed investments and cash transactions of Rs. 105 crore of the group, have been unearthed during the search.
• The Second search of 26.10.2020 was on a large network of individuals running the racket of entry operation and generation of huge cash through fake billing. The search operations have been conducted on 42 premises across Delhi- NCR, Haryana, Punjab, Uttarakhand and Goa
• The search has led to Documents accommodating around 500 crores entries also cash of Rs. 2.37 Crores and Jewellery worth 2.89 crores has been found along with 17 bank lockers, which are yet to be opened.
• The several shell firm/entities used by several operators for layering of black money and cash withdrawals against fake invoices have been investigated. The personal staff were made dummy directors. Statements of such entry operators, their dummy partners/employees, the cash handlers as well as the covered beneficiaries have also been recorded clearly validating the entire money trail.
• Govt. notifies December 31st as the cut-off date for filing declaration under the Vivad se Vishwas Act, 2020
• Also, extends timeline from December 31st, 2020 to March 31st, 2021 for making payment without additional amount.
• Further, as per the existing provision of VsV Scheme the payment of taxes should be within 15 days of the receipt certificate from the designated authority. In order to relax the genuine hardship on the tax payer CBDT has clarified that 15 days criteria won’t be applicable if the declarant has applied for Vsv Scheme on or before 31st December 2020 and paid the taxes on or before 31st March 2021.
• IT Dept releases updated schema for e-filing of Tax Audit Report in Form 3CD
• Provides new drop down for selection of new concessional regimes u/s 115BA/115BAA/115BAB, also updates schedule for depreciation to incorporate adjustment made to the written down value under section 115BAA (for AY 2020-21 only)
• Incorporates new field to disclose all losses/allowances not allowed u/s.115BAA and adjustment for withdrawal of additional depreciation for opting for tax u/s.115BAA in the schedule for brought forward of losses
• Further, adds new drop-down list for mode of payment/repayment for Sec.269SS/Sec.269T purposes to include payment modes such as Debit/ Credit card, net banking, RTGS, NEFT, BHIM, etc
• Also releases schema change document listing out the changes in Form 3CD schema from initial schema release in August 2014 till 22nd October 2020.
• In view of the challenges faced by taxpayer in meeting the statutory and regulatory compliances due to the outbreak of COVID-19, the government of India, Department of Revenue, Ministry of Finance and Central Board of Direct Taxes extended the due dates of filing of Income tax return and due date of furnishing of Audit report as follows.
• The Central Board of Direct Taxes (CBDT) had issued Equalisation levy Rules, 2016 (Rules) to lay down the procedural framework for compliances, forms for filing annual return and appeal process to be followed for equalisation levy.
• The Finance Act 2020 expanded the scope of equalisation levy, to include levy on consideration received or receivable by an ‘e-commerce operator’ from ‘e-commerce supply or services’.
• Now, CBDT has amended the Equalisation Levy Rules, 2016 as Equalisation levy (Amendment) Rules, 2020 to incorporate the amended provisions of equalisation levy on non-resident e-commerce operators. CBDT has also amended forms for filing annual statements and appeal before CIT (Appeals) and ITAT.
• The government on 28.08.2020 extended deadlines for furnishing various ITRs and audit reports as a relief to taxpayers from Covid-19 pandemic, but there is no clarification on the aspect of interest waiver.
• Taxpayers having tax outstanding exceeding Rs 1 lakh should not wait for the last date to file income tax returns (ITR) as they could be charged interest on the unpaid tax amount even as the government on 28.08.2020 extended the deadline for filing ITRs, officials and experts said.
• The CBDT (Central Board of Direct Taxes) has extended the due date for filing of the ITR for the Assessment Year 2020-21 to 31-12-2020 for non-audit cases and 31-01-2021 for audit cases, but no relief has been provided from the interest chargeable under Section 234A if the tax liability exceeds Rs. 1 lakh,”.
• “If self-assessment tax liability of a taxpayer exceeds Rs 1 lakh, he would be liable to pay interest under section 234A from the expiry of original due dates, i.e., 31-07-2020 or 31-10-2020. The interest under section 234A shall not be levied if the self-assessment tax liability of taxpayer does not exceed Rs 1 lakh and ITR is filed within the extended due date, i.e., 31-12-2020 or 31-01-2021
• Delhi ITAT rejects CIT(A)’s decision to refuse admission of additional evidence by assessee in the form of audited financial statements filed for the first time during the appellate proceedings for AY 2004-05.
The assessee’s case was taken up for scrutiny assessment and during the course of assessment proceedings, the Assessing Officer (AO) asked the Company to provide audited accounts and details of expenses incurred by the Company during the year.
• However, due to lack of available data, the Company was unable to provide the said details.
• AO assessed the income at an ad-hoc 12%mark-up on total cost of providing services by the Company to its parent company.
• CIT(A) helds that the evidences were new, hence can’t be accepted.
• ITAT notes that “…correct income of the assessee can be determined only on the basis of the audited financial results” and thus, opines that “it would be incorrect to shut out an assessee in the process of administration of justice from leading evidence to prove its case”;
• The above evidences could not be filed earlier due to change in management from time to time which was beyond assessee’s control and also that the Company Law Board had compounded assessee’s offence,
• ITAT directs AO to make the assessment after duly considering the same and after giving proper opportunity to the assessee.
• Delhi ITAT dismisses assessee’s appeal, holds outstanding receivables as a separate international transaction for Bharati Airtel Services for AY 2011-12
• In case of Kusum healthcare private limited, assessee has undertaken working capital adjustment for the comparable companies selected in its transfer pricing report which has not been disputed by the learned transfer pricing officer and therefore the differential impact of working capital of the assessee vis-à-vis is comparable had already been factored in pricing profitability and therefore the honourable High Court held that adjustment proposed by the learned TPO deleted by the ITAT is proper.
• In the present case there is no working capital adjustment made by the assessee as well as granted by the learned TPO.
• Karnataka HC holds that the preference u/s. 90(2) for beneficial treaty rate shall applies separately to each royalty agreement entered pre & post June 2005; The assessee bifurcated the income based on the date of agreement and applied beneficial DTAA rate [15%] for royalty agreements dated prior to 1st June 2005 and tax-rate u/s.115A w.r.t for royalty agreements entered pre 1st June 2005.
• However, AO had taxed the entire royalty income at 15% on ‘aggregate’ basis without allowing assessee’s bifurcation based on agreement dates. Held that the income received by virtue of 2 different royalty agreements cannot be bifurcated for the purpose of computation of Income.
• HC also refers to CBDT Circular No.3/2014 explaining the amendment to Sec.115A(1)(b) vide Finance Act 2013, which corrected the “anomaly prevalent in Section 115A with regard to rates of taxes in case of non-resident taxpayer”.
• The assessee is a Private Limited Company engaged in the business of manufacturing, dealing in exporting of incense sticks and allied products. The assessee succeeded to, in the business of partnership firm viz., in terms of section Section 47(xiii).
• Before the firm was converted into private limited company, the partnership firm had revalued all its intangible assets at Rs.65 cr. which was transferred to assessee in consideration of share allotment at a premium.
• However while allowing depreciation to assessee, AO ignored the revalued figure and allowed it with respect to WDV.
• HC finds and rules that the aforesaid transaction is squarely covered u/s. 47(xiii) and therefore, was entitled for depreciation with reference to actual cost incurred by it with reference to intangible assets.
• On invocation of 6th proviso to section 32(1) (erstwhile 5th proviso) by Revenue, HC observes that until and unless it is the case of aggregate deduction, the proviso has no role to play. Moreover, HC holds that the 5th proviso in any case will apply only in the year of succession (i.e. 2005) and not in subsequent years.
• HC also overrules the applicability of Explanation 3 to Sec. 43(1) [which defines ‘actual cost’] as AO failed to establish that the main purpose of the transfer of such asset was reduction of liability to income tax by claiming extra depreciation on enhanced cost.
• The assessee company is engaged in stock exchange operations. During the relevant assessment year, the assessee had made payment of Rs.11,34,836/- to MCX-SX Stock Exchange towards admission fees and processing charges. Assessee had claimed this as a revenue expenditure.
• The AO treated this fee as a capital expenditure and disallowed the same. The CIT(A) agreed with the view taken by the AO, however it allowed the depreciation on the admission fee paid.
• The Assessee argued that the fees paid as admission fees in a stock exchange is only a permission to do trading in shares and no capital asset is acquired by the assessee.
• In view of various SC cases, Bangalore ITAT concluded that the admission fee paid was a right or a license owned by the assessee and was used by him as an asset.
• Therefore, CIT(A) has rightly treated the admission fee as a membership of the stock exchange capital asset and allowed alternative plea of assessee that depreciation is to be granted on the same.
Just for Laughs..
• The assessee engaged in manufacture and sale of bidis, sent its whole-time director to a forest area for purchase of tendu leaves. There, the director was kidnapped by dacoits and the assessee paid ransom of Rs. 5.50 lakhs to secure his release after the police failed to rescue.
• The AO disallowed the claim for deduction of the said amount u/s 37(1) though the CIT (A) and Tribunal upheld the claim on the ground of commercial expediency. Before the High Court, the department relied on the Explanation to section 37(1) and argued that expenditure incurred for any purpose which is an offence or which is prohibited by law is not allowable as a deduction.
• While kidnapping for ransom is an offence u/s 364A of the IPC, the payment of ransom to secure the release of a kidnapped person is not an offense. The payment of ransom is not prohibited by law. Accordingly, the Explanation of to section 37 (1) is not applicable and the ransom is deductible as business expenditure.
• Bangalore ITAT upholds disallowance u/s. 37 of cost of samples distributed by Nike India (assessee-company)
• Burden of incurring expenditure on samples was on the parent co. [i.e. Nike Inc.];
• Notes that Nike Inc. introduced new products and in order to create an awareness supplied the samples of such products to the assessee for distribution amongst the distributors;
• Holds that “The assessee herein is merely an intermediary between M/s Nike Inc and the public.”;
• Sample expenses are related to brand promotion and marketing initiatives of the parent company of the assessee and such expenditure is not meant for the assessee’s business;
• Further opines that in trade circles, it is known fact that the expenditure on samples are borne by the manufacturers only
• Indore ITAT deletes penalty levy u/s. 271C in respect of TDS wrongly deducted u/s 194-IA @1% instead of Sec. 195 @ 20.6% on purchase of property from a Non Resident considering no documentary evidence provided by the seller except PAN
• ITAT remarks that merely having a local address in USA [in the sale deed] cannot be a sufficient evidence to show that the person is an NRI;
• Observes that subsequently when the assessee were brought to the notice that the seller is an NRI pursuant to TDS default proceedings u/s. 201, “they as law abiding citizens immediately deposited the correct amount of TDS @20.6% …. along with interest….”,
• “It would have made no difference for them to deduct tax @1% or 20.6% since it was to be withheld from the purchase consideration.”
• A search was conducted and books of account of the assessee was seized.
• On the due date of filing of return in the year in which search was conducted, the books didn’t handover to the assessee and accordingly, assessee filed the belated return and paid entire demand made by DCIT and acknowledged the same.
• Assessee voluntarily disclosed the undisclosed income on the search conducted under section 132
• Therefore, there was no intention to wilful evade the payment of taxes. Admittedly, the DCIT had seized the relevant books of account and assessee could not able to file the return of income on or before the due date.
• Therefore, the offence under section 276C(2) was not attracted at all. The entire criminal proceedings pending against the assessee was nothing but clear abuse of process of law.
• Writ petition seeking a direction to grant an opportunity of hearing to all taxpayers and should not be at the discretion of the Chief Commissioner (CC) or the Director-General (DG) as proposed in the Faceless Appeal Scheme, 2020.
• Faceless Appeal Scheme, 2020, is discriminatory, arbitrary and illegal to the extent it provides a virtual hearing as per the circumstances to be approved by the administrative authorities.
• Taxpayers may or may not provide a right of personal hearing in the matter.
• This mechanism violates Article 14 of the Constitution of India
• The right to provide or not to provide a hearing in the matter is also against the principle of audi alteram partem, i.e., no person should be judged without a fair hearing in which each party is given an opportunity to respond to the evidence against them. The Faceless appeal scheme is contrary to sub-sections (1), (2) and (5) of Section 250 which specifically state that the right of hearing shall be granted to an assessee at the appeal stage.
• Bangalore ITAT rules on TP-adjustment in respect of trade receivables, treatment of foreign exchange (FOREX) gains
• “non-charging or undercharging of interest on the excess period of credit allowed to the AE, for the realization of invoices amounts to an international transaction and the ALP is required to be determined”.
• Outstanding receivable partake the character of “capital financing” included in the definition of “international transaction” and consequently, overdue outstanding is an international transaction.
• ITAT directs PLI computation by treating FOREX gains having nexus with international transaction as part of operating income, follows coordinate bench decision in e4e Business Solutions.
• The Assessee is engaged in the business of rendering project, engineering and polyolefins product related services. During AY 2009-10 it had filed its return of income and the same was selected for scrutiny and then transferred to TPO for benchmarking the transaction with AE.
• The Assessee while preparing the TP documentation relied on the prowess data base for 4 companies as audited financials were not available at that juncture. During the course of hearing the Assessee submitted the audited financials of 4 comparables and asked to revise the OP/OC margin. The TPO rejected Assessee’s contention and also conducted fresh search process with 15 new comparable and made 1.2 cr adjustment accordingly the AO passed the order with adjustment.
• The CIT –A removed 2 companies from AO’s comparable of 15 companies and granted relief of only around 26 Lakhs.
• The Assessee filed appeal with ITAT for change in OP/OC of 4 comparables and inclusion of 4 New comparable as CIT-A have agreed that insurance broking companies is closely comparable with the Assessee Business.
• ITAT in the order has accepted assessee contention of Audited financials as against prowess data base and inclusion of 4 new companies based on the new search process.
