Saturday, 30 June 2012

S. 147: Non-supply of recorded reasons before passing reassessment order renders the reopening void. Subsequent supply does not validate reassessment order

Tata International Ltd vs. DCIT (ITAT Mumbai)

After completing the s. 143(3) assessment, the AO received information from the Volcker Committee report that the assessee had paid “illegal” commission for supply of goods to Iraq under the “Oil for Food Programme” of the UN. The AO issued a s. 148 notice to disallow the commission and supplied the assessee with only the “gist” of the recorded reasons. The complete recorded reasons were furnished only after the passing of the reassessment order. In the reassessment order, the AO disallowed the commission. The CIT (A) upheld the reassessment. On appeal by the assessee to the Tribunal, HELD allowing the appeal:

CBEC gives relief to Exporter of goods from Service Tax

CBEC has issued notifications no. 41 and 42 to provide relief to exporter of goods. Notification No. 41 grants rebate of service tax paid on the taxable services utilized by an exporter of goods for export. As per Notification No. 42, specified taxable services received by an exporter of goods and used for export of goods are exempt from payment of service tax subject to fulfillment of specified conditions and to the extent specified.

Friday, 29 June 2012

Subject: Applicability of provisions of the Finance Act, 2004 relating to education cess and the Finance Act, 2007 relating to secondary and higher education cess– regarding.

Circular No. 160/11/2012-ST dated 29.06.2012


There has been some doubt regarding the applicability of provisions of the Finance Act, 2004 relating to education cess and the Finance Act, 2007 relating to secondary and higher education cess as the concerned Acts make reference to section 66 of the Finance Act, 1994, which shall cease to have effect from July 1, 2012.  In this connection, as also in general, you may kindly refer to the sub-section (1) of section 8 of the General Clauses Act, 1897 which reads as under:

“Where this Act, or any Central Act or Regulation made after reference to the commencement of this Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as references to the provisions so re-enacted.”

Thus any reference to section 66 of the Finance Act, 1994 shall be construed as reference to the newly re-enacted provision i.e. section 66B of the same Act.  Despite the stated position of law, the matter has been settled by the issue of Removal of Difficulties Order No. 2/2012 dated 29.06.2012.


House Rent allowance (HRA) exemption calculation is most easiest calculation in income tax For me,yet it is most complicated for many.But now I have decided to make it simple.I have prepared a set of FAQ on HRA exemption calculation and hope it will definately helpful for many to understand the topic in simple way.

HRA exemption calculation is dependent on Four variable.

  1. House rent allowance received
  2. House rent paid
  3. Salary
  4. Location of the house.
as per section 10(13A) read with rule 2A ,least of following three will be exempted

Rebate No. 11/2005-ST Withdrawn

W.e.f. 01/07/2012, Rebate of service tax paid on export of services under Notification No. 11/2005-ST has been withdrawn.

Now the service providers has to claim refund of tax/duty paid input services, inputs used for export of service under Notification no. 39/2012-ST or claim refund under rule 5 of Cenvat Credit Rules, 2004.

Taxes- Due Date Alert for the month July 2012

Your kind attention is invited to the table given below which contains the due date for Tax compliance in respect of TDS/TCS, IT/WT, ST/VAT on different dates during the month July 2012.

Sr No
Due Date
Related to
Compliance to be made
Service Tax
Payment of Service Tax for the Month of June 2012
(Income Tax)
·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of June 2012.

·        Deposit TDS from Salaries  deducted during the month of June 2012

•   Deposit TCS for collections made under section 206C including sale of scrap during the month of June 2012, if any

•    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of June 2012, if any
(Income Tax)
Furnish quarterly statement of tax deducted at source (TDS) and tax collected at source (TCS) for the quarter ended June 2012 in Form 24Q / 26Q / 27Q / 27EQ.
Payment of VAT & filing of monthly return for the month of June 2012
(Income Tax)
Issue of TDS Certificate - Non Salary for Q1 FY 2012-13
31.07. 2012
Income Tax
Filing of return of income tax by non –corporate assesses

Download Report of Standing Committee On Finance On Companies Bill 2011

The Standing Committee on Finance in the Lok Sabha has delivered a comprehensive report on the Companies Bill 2011. The report was presented to the Hon’ble Speaker of the Lok Sabha on 26.06.2012

Download Report of Standing Committee On Finance On Companies Bill 2011

Download Draft General Anti-Avoidance Rules (GAAR) Guidelines

Vide letter dated 28.06.2012, the Director General of Income-tax has issued draft guidelines in respect of the General Anti-Avoidance Rules (GAAR). GAAR is scheduled to become applicable w.e.f. 1.4.2013. The guidelines contain illustrations to explain how the GAAR provisions will apply together the draft of the forms required to be filled in. Comments can be forwarded till 20.07.2012

Download GAAR Draft Guidelines dated 28.06.2012

S. 271(1)(c) penalty not levaiable for breach of s. 50C

Chimanlal Manilal Patel vs. ACIT (ITAT Ahmedabad)

The assessee sold land of which he was the owner for Rs.36 lakhs and offered capital gains on that basis. The AO reopened the assessment u/s 147 on the ground that the assessee ought to have taken the consideration at the market value of the land as per s. 50C. The assessee accepted and offered capital gains as per s. 50C. The AO levied penalty u/s 271(1)(c) which was confirmed by the CIT (A) on the ground that the assessee’s action of offering capital gains u/s 50C was after the s. 148 notice and not voluntary. On appeal by the assessee to the tribunal, HELD allowing the appeal:

Whether pre-operative legal expenses incurred for expansion of same line of business but with a new production facility can be said to be revenue in nature - YES:

THE issues before the Tribunal are - Whether pre-operative legal expenses incurred for expansion of the same line of business but with a new production facility can be said to be revenue in nature - Whether expenditure incurred on product Registration, Trade-mark Registration fees and Patent Registration creates any intangible asset and hence it is capital in nature not allowable as deduction u/s 37(1) – Whether clinical trial expenditure incurred by the assessee is eligible for weighted deduction u/s 35(2AB) even if it was incurred outside the approved R&D facility - Whether, for the purpose of deduction u/s 80IC, the profit of the eligible Undertaking has to be worked out by excluding the indirect cost incurred towards exploitation and free usage of the marketing network established by the assessee over a number of years and also the value of the self-generated brand and allocating such cost to the said Unit. And the verdict partly goes against the assessee.
Facts of the case

Accounting And Reporting For Foreign Currency

FASB statement related with foreign currency translation, important term in foreign currency topic you should familiar with, how to determine the functional currency, foreign currency translation, steps to do in foreign currency translation process, Journal entry for foreign currency transactions with case example. Also some additional useful topic related with foreign currency, i.e., forward exchange contract and its journal entry, how to hedge foreign currency exposure to reduce risk with example.
FASB Statement No. 52 (Foreign Currency Translation) applies to foreign currency transactions such as exports and imports denominated in other than a company’s functional currency. It also relates to foreign currency financial statements of branches, divisions, and other investees incorporated in the financial statements of a U.S. company by combination, consolidation, or the equity method.
An objective of translation is to provide information on the expected effects of rate changes on cash flow and equity. Translation also provides data in consolidated financial statements relative to the financial results of each individual foreign consolidated entity.
FASB 52 covers the translation of foreign currency statements and gains and losses on foreign currency transactions.
The translation of foreign currency statements is usually required when the statements of a foreign subsidiary having a functional currency other than the U.S. dollar are to be included in the consolidated financial statements of a domestic enterprise. In general, the foreign currency balance sheet should be translated using the exchange rate at the end of the reporting year. The income statement should be translated using the average exchange rate for the year. The resulting translation gains and losses are shown as a separate component in the stockholders’ equity section.
Any gains or losses arising from transactions denominated in a foreign currency are presented in the current year’s income statement.

Some Important Terms In Foreign Currency
Some key terms that you should be familiar with are:
Conversion: An exchange of one currency for another
Currency Swap: An exchange between two companies of the currencies of two different countries according to an agreement to re-exchange the two currencies at the same rate of exchange at a specified future date.
Denominate: Pay or receive in that same foreign currency. It can only be denominated in one currency (e.g., lira). It is a real account (asset or liability) fixed in terms of a foreign currency regardless of exchange rate.
Exchange Rate: The ratio between a unit of one currency and that of another at a specified date. If there is a temporary lack of exchangeability between two currencies at the transaction date or balance sheet date, the first rate available thereafter is used.
Foreign Currency: A currency other than the functional currency of the business (e.g., the dollar could be a foreign currency for a foreign entity).
Foreign Currency Statements: The financial statements using a functional currency as the unit of measure.
Foreign Currency Transactions: Transactions whose terms are denominated in a currency other than the entity’s functional currency. Foreign currency transactions occur when a business (a) buys or sells on credit goods or services whose prices are denominated in foreign currency, (b) borrows or lends funds and the amounts payable or receivable are denominated in foreign currency, (c) is a party to an unperformed forward exchange contract, or (d) acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency.
Foreign Currency Translation: The expression in the reporting currency of the company those amounts that are denominated or measured in a different currency.
Foreign Entity: An operation (e.g., subsidiary, division, branch, joint venture) whose financial statements are prepared in a currency other than the reporting currency of the reporting entity.
Functional Currency: What is the functional currency? An entity’s functional currency is the currency of the primary economic environment in which the business operates. It is usually the currency of the foreign country that the company primarily obtains and uses cash.
Before translation, the foreign country figures are re-measured in the “functional currency“. For example: if a company in France is an independent entity and received cash and incurred expenses in France, the franc is the functional currency. However, if the French company was an extension of an Italian parent, the functional currency is the lira. The functional currency should be consistently used except if unusual material economic changes occur.
However, previously issued financial statements are not restated for a change in the functional currency. If a company’s books are not kept in its functional currency, re-measurement into the functional currency is required. The re-measurement process occurs before translation into the reporting currency. When a foreign entity’s functional currency is the reporting currency, re-measurement into the reporting currency obviates translation. The re-measurement process generates the same result as if the company’s books had been kept in the functional currency.

Thursday, 28 June 2012

Fly Bangalore-London-Amsterdam @ Rs 999 and you, the pilot

Frequently Asked Questions on Revised Schedule VI to the Companies Act 1956. - (22-05-2012)

The Link of the FAQ on the revised Schedule - VI issued by ICAI is given below:

Frequently Asked Questions on Revised Schedule VI to the Companies Act 1956. - (22-05-2012)

What is Journal Entry For Foreign Currency Transactions

Foreign currency transactions are denominated in a currency other than the company’s functional currency. Foreign currency transactions may result in receivables or payables fixed in the amount of foreign currency to be received or paid. A foreign currency transaction requires settlement in a currency other than the functional currency! A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. This change in expected functional currency cash flows is a “foreign currency transaction gain or loss” that typically is included in arriving at earnings in the income statement for the period in which the exchange rate is changed. An example of a transaction gain or loss is when an Italian subsidiary has a receivable denominated in lira from a British customer.
Similarly, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction usually should be included in determining net income for the period in which the transaction is settled.

An exchange gain or loss occurs when the exchange rate changes between the purchase date and sale date. Merchandise is bought for 100,000 pounds. The “exchange rate” is 4 pounds to 1 dollar. The journal entry is:
[Debit]. Purchases = 25,000
[Credit]. Accounts payable = 25,000
(Note: 100,000/4 = $25,000)
When the merchandise is paid for, the exchange rate is 5 to 1. The journal entry is:
[Debit]. Accounts payable = 25,000
[Credit]. Cash = 20,000
[Credit]. Foreign exchange gain = 5,000
(Note: 100,000/5 = $20,000)

The $20,000 using an exchange rate of 5 to 1 can buy 100,000 pounds. The transaction gain is the difference between the cash required of $20,000 and the initial liability of $25,000.
Note that a foreign transaction gain or loss has to be determined at each balance sheet date on all recorded foreign transactions that have not been settled.

Another example:
A U.S. company sells goods to a customer in England on 11/15/X7 for 10,000 pounds. The exchange rate is 1 pound is $0.75. Thus, the transaction is worth $7,500 (10,000 pounds × 0.75). Payment is due two months later. The entry on 11/15/X7 is:
[Debit]. Accounts receivable—England = 7,500
[Credit]. Sales = 7,500

Accounts receivable and sales are measured in U.S. dollars at the transaction date employing the spot rate“. Even though the accounts receivable is measured and reported in U.S. dollars, the receivable is fixed in pounds. Thus, a “transaction gain or loss” can occur if the exchange rate changes between the transaction date (11/15/X7) and the settlement date (1/15/X8).
Since the financial statements are prepared between the transaction date and settlement date, receivables that are denominated in a currency other than the functional currency (U.S. dollar) have to be restated to reflect the spot rate on the balance sheet date. On December 31, 20X7, the exchange rate is 1 pound equals $0.80. Hence, the 10,000 pounds are now valued at $8,000 (10,000 × $.80). Therefore, the accounts receivable denominated in pounds should be upwardly adjusted by $500. The required journal entry on 12/31/X7 is:
[Debit]. Accounts receivable—England = 500
[Credit]. Foreign exchange gain = 500

The income statement for the year-ended 12/31/X7 shows an exchange gain of $500. Note that sales is not affected by the exchange gain since sales relates to operational activity.
On 1/15/X8, the spot rate is 1 pound = $0.78. The journal entry is:
[Debit]. Cash = 7,800
[Debit]. Foreign exchange loss = 200
[Credit]. Accounts receivable—England = 8,000

The 20X8 income statement shows an exchange loss of $200.

Which Transaction Gain Or Loss Should Not Be Reported In The Income Statement?
Gains and losses on the following foreign currency transactions ARE NOT included in earnings but rather are reported as translation adjustments:
  1. Foreign currency transactions designated as economic hedges of a net investment in a foreign entity, beginning as of the designation date.
  2. Inter-company foreign currency transactions of a long-term investment nature (settlement is not planned or expected in the foreseeable future),when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting company’s financial statements
  3. A gain or loss on a forward contract or other foreign currency transaction that is intended to hedge an identifiable foreign currency commitment (e.g., an agreement to buy or sell machinery) should be deferred and included in the measurement of the related foreign currency transaction.

Losses should not be deferred if deferral is expected to result in recognizing losses in later periods. A foreign currency transaction is deemed a hedge of an identifiable foreign currency commitment if both of these conditions are met:
  1. The foreign currency transaction is designated as a hedge of a foreign currency commitment.
  2. The foreign currency commitment is firm.

Sec 560 – Defunct Company

A company after receiving Certificate of Incorporation from the Registrar is required to commence its business & other operations. But if a company after obtaining Certificate of Incorporation (COI) does not start its operations within 1year then such Company becomes Defunct Company and the Registrar after inquiring is required to strike off the name of the Company from the Registers of Companies.
Defunct Company is a Company which has not commenced its business within 1year after receiving certificate of incorporation without any sufficient cause. Also, if a company does not file its Balance Sheet for many years it will be treated as a Defunct Company in the eyes of law.
Conditions under which ROC can strike off the name:
The ROC is authorized to strike off the name of Company from the registers only if –
a)      The company is wound up and no liquidators are acting.
b)      The affairs of the company have been completely wound up.
c)      No returns have been filed for 6 consecutive months.
Procedure for striking off the name of Companies by the Registrar
The Registrar can strike off the name of Companies u/s 560 of Companies Act after being satisfied that the Company is not functioning from at least 1year after incorporation. Striking off can be done in 2types –
1)  Striking off by the Registrar in its own motion : The Registrar can strike off the name after satisfying the following conditions –
  • Letter of Enquiry – If Registrar has reason to believe that the Company is not functioning he will send a letter of enquiry to enquire whether the Company is in operation or not.
  • Notice threatening striking off – If within 1 month after sending letter of enquiry no reply is received from the Company, then the Registrar shall send a second notice stating that if reply is not received within 1month then a notice shall be published to the official gazette to strike off the name of the Company.
  • Final Notice – If again no reply is received after second notice also the Registrar shall believe that the Company is no more in operation and shall strike off the name from the registers. It can strike off the names in 2ways –
 a)  A notice is send to the official gazette that with the expiration of 3months from the date of notice, the name of the Company is strike off.
 b)  The above notice will be send to the Company as well as to the Income Tax Department. Similar procedure for publication of notice in the official gazette is being conducted.
  • Strike off Completely – After the expiry of 3months from the notice if no reason has been shown by the Company, then the name of the Company shall be strike off from the Registers and shall be published in the official gazette.
2)      Striking off on Company’s application: The name of Company’s may be strike off from the registers on an application by the Company itself. The following procedure needs to be followed –
  • Board Resolution – If a Company itself wants to strike off the name then it needs to pass a resolution in the Board Meeting and mention the same in the resolution. Also the resolution to be sent to the ROC with an application for the same.
  • Documents required – The following documents should be attached with the application –
a)  An affidavit signed by the Directors and he confirms that the company has no assets or liabilities and the Company is no more in operation.
b)  Indemnity from the Director, in case any liability is there it needs to be paid off by the Director before striking the name form the registers of Companies.
  • Striking off the names – If the Registrar is satisfied with the above formalities regarding the application and other formalities, then the Registrar shall proceed to strike off the names from the registers and shall publish the same in the official gazette.
In this way a defunct company’s name get strike off from the registers by the Registrar or by the Company itself

here: Home / Court Rulings / Decisions / Transfer Pricing & Cost Contribution Agreements

Dresser-Rand India Pvt Ltd vs. ACIT (ITAT Mumbai)
The assessee entered into a ‘Cost contribution agreement’ with its parent company pursuant to which it paid a sum of Rs. 10.55 crores as its share of the costs. The Transfer Pricing Officer (TPO), AO & DRP disallowed the expenditure on the ground that (i) the ALP was ‘Nil’ as no real services had been availed by the assessee and the arrangement was not genuine, (ii) the cost sharing could not be on the basis of head count but on the basis of actual services availed by the assessee, (iii) the expenditure was “excessive & unreasonable” u/s 40A(2) and (iv) as there was no TDS, the disallowance u/s 40(a)(i) had to be made. The assessee also rendered field services to its associated enterprises where it granted a discount of 10% over the price charged to third parties on the basis that such discount was a part of reciprocal global policy. It was held that the ALP had to be computed by ignoring the discount. On appeal by the assessee, HELD:
As reported by ITAT.ORG:
(i) The Transfer Pricing Officer was not entitled to determine the ALP under the cost contribution agreement at “Nil” on the basis that the assessee did not need the services at all. How an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not. The Transfer Pricing Officer went beyond his powers in questioning the commercial wisdom of the assessee’s decision to take benefit of its parent company’s expertise. Further, the Transfer Pricing Officers argument that the assessee did not benefit from the services is irrelevant because whether there is benefit or not has no bearing on the ALP of the services. The fact that similar services may have been granted in the past on gratuitous basis is also irrelevant in determining the ALP. The argument that no evidence of services having been rendered was produced is not acceptable because the assessee did produce voluminous evidence before the DRP which was not dealt with. The DRP ought to have dealt with the material and given reasons. Matter remanded to the AO to determine actual rendering of services (Vodafone Essar Ltd vs. DRP 240 CTR 263 (Del) followed);
(ii) A cost contribution arrangement has to be consistent with the arm’s length principle. The assessee’s share of overall contribution to costs must be consistent with the benefits expected to be received, as an independent enterprise would have assigned to the contribution in hypothetically similar situation. The TPO’s objection that the cost should be shared in the ratio of actual use of services and should be charged as per Indian employee costs is not acceptable. There is no objective way in which the use of services can be measured and as is the commercial practice even in market factors driven situation, the costs are shared in accordance with some objective criterion, including sales revenues and number of employees. The question of charging as per domestic employee costs cannot be a basis of allocating the costs because such an allocation will deal with some hypothetical pricing whereas the allocations are to be done for the actual costs incurred;
(iii) The disallowance of payment under the ‘cost contribution agreement’ u/s 37(1) & 40A(2) is not justified because the payment did not involve mark-up and was at arms length price. The services were for furtherance of the assessee’s business interests;
(iv) The disallowance of payment u/s 40(a)(i) for want of TDS is not justified because the payment was not taxable in the AE’s hands under Article 5 & 12 of the India-USA DTAA as the AE did not have a PE and the services did not constitute “fees for included services”. (GE India Technology Centre 327 ITR 456 (SC) followed);
(v) The TPO’s argument that in charging for the services rendered to the AE, a 10% discount could not be given is not acceptable because (i) the assessee had followed the TNMM for determination of ALP which had not been disputed as the appropriate method, (ii) Even under CUP, all sales need not be at the same price and there can be variations of prices for the same product or services on grounds such as quantum of business, risk factors, etc. Discount is a normal occurrence even in independent business situations. The material factor is whether the 10% discount is an arm’s length discount and there is nothing on record to suggest that it is not so

Statutory Audiotors now required tp PAY ROC fees on their appointment

Ministry of Corporate affairs has vide its General Circular No. 14/2012, dated 21-6-2012 imposed  fees on various forms which were free of cost. One such form was E-form-23B which in an Intimation to ROC by statutory auditors regarding their appointment. So now fee shall be payable based on Authorised Capital of the Company. Additional fee provisions shall also apply in case of delay. It shall be applicable from 21st July 2012.

Wednesday, 27 June 2012

Whether when assessee enters into financial lease agreement to virtually use entire productive life span of an asset, it can capitalise lease payments made towards principal sum paid for taking asset on lease - if not, whether depreciation can be claimed - NO, rules ITAT

Income tax -  THE issues before the Tribunal are - Whether when assessee enters into a financial lease agreement to virtually use entire productive life span of an asset, and lease charges calculated to cover full cost with interest, it amounts to disguised purchase of asset - Whether assessee can capitalise lease payments made towards principal sum paid for taking vehicles on lease - Whether assessee is entitled to make alternate claim for depreciation - Whether assessee's contribution to building fund of Federation of Indian Mining Industries is revenue expenditure - Whether any commercial expediency is involved in such a donation. And the verdict partially goes against the assessee.
Facts of the case
A) The assessee, belonging to an international mining group of companies, is engaged in providing services for the development of the mining sector in India. The assessee filed its return of income, which was selected for scrutiny. The assessee had taken certain vehicles on financial lease for its use, which were registered in its name. The insurance policy was also in the name of the assessee. The assessee had entered into a lease agreement with M/s LeasePlan India (LPIN) for a lease period of 48 months, under which it had made the principal payment under the financial lease besides making payments on account of interest. In its books of account, the assessee had capitalized these assets acquired in the financial lease agreement, as required under Accounting Standard 19 on leases. In accordance with the CBDT circular, the assessee had not claimed depreciation under section 32. Though the depreciation on capitalized leased vehicles was debited to its profit and loss account, it was added back in the computation of income. The assessee had claimed deduction on the principal amount paid to LPIN under the lease agreement

“Education cess” is “additional surcharge” & is included in “tax” under DTAA. If DTAA caps the rate of “tax” payable, cess is not payable by foreign assessee

DIC Asia Pacific Pte Ltd vs. ADIT (ITAT Kolkata)

The assessee, a Singapore company, offered interest and royalty income to tax at the rate of 15% & 10% as specified in Articles 11 & 12 of the India-Singapore DTAA respectively. The AO held that the assessee was also liable to pay surcharge and education cess in addition to the tax. The CIT (A) upheld the assessee’s claim that surcharge was not leviable though he rejected the claim with regard to cess. On further appeal by the assessee, HELD allowing the appeal:

The Law On Taxability Of Non-Compete Fees Explained

Payment received as non-compete fee was treated as a capital receipt till the assessment year 2003-04. Through the Finance Act, 2002, the said receipt were made taxable under section 28(va) of the Income Tax Act, 1961 with an exception is found under proviso clause (i) to section 28(va)(a), which provides that any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head ‘Capital gains’ would not be taxed under section 28(va). Further the Finance Act, 2002 also amended section 55(2)(a) to provide for ‘cost of acquisition’ in case of transfer of ‘right to manufacture, produce or process any article or thing’ or ‘right to carry on any business’. These amendments have brought about a dichotomy in the taxability of non-compete fees, with regards to taxability as ‘Business income’ under section 28(va), or as ‘Capital gains’ covered by the proviso (i) to Section 28(va)(a). From the decisions of the Income Tax Appellate Tribunal (‘ITAT’) and the High Courts it can be seen that the taxability of non-compete fee would depend on the factors such as the position of the recipient of the non-compete fee with regards to the business before and after the non-compete covenant coming to operation, his relation with the payer of non-compete fee, the type of asset transfer taking place, and the terms of the non-compete covenant. Some of these factors influencing the taxability of non-compete fee have been discussed below:

What to do when credit of TDS not reflected in Form 26AS

The TDS (Tax) Deductor is bounded to issue TDS Certificate as well as deposit Deducted TDS (Tax) into Central Government Treasury through Bank by appropriate Challan. Secondly TDS Deductor is also mandatory to file TDs Return in respect to deduct TDS by fining of Return Quarterly within Due Date.

For non
compliance of each and every part mentioned above, there is a separate penalty and consequences under the Income Tax Act-1961 as under:
  1. For non issuance of TDS Certificate within a prescribed time, penalty is imposable u/s 272A (2) @ Rs. 100/- per day during which the failure continues. However, the amount of penalty cannot exceed the amount of tax deductible/deducted.
  2. For non filing of TDS Return also, there is a penalty provision of Rs 100 per day. The recent Finance Act-2012 has imposed a fee of Rs. 200/- per day for late filing of TDS Return. Besides, a penalty of Rs. 10,000/- to Rs. 1,00,000/- is there for non filing or inaccurate filing of TDS return. The amendment is w.e.f 01.07.2012.
Without Quarterly TDS Return being filed by the Deductor, you will not be entitled for the Tax Credit in respect of TDS done from payment made to you. Also, unless and until the TDS return is filed by the Deductor, deductee will not be able to view the TDS Credit in Form No. 26AS.

There is a general grievance that in many cases the Bank and other Tax Deductor are either not filing the quarterly TDS return (or are not issuing the TDS certificate) despite many requests & reminders by the Deductees.
In such cases, Deductee can follow the following approach:
Write a letter to the Deductor incorporating:
  • he details of payments done and the tax deducted therefrom.
  • Provision of Section 203 which requires the Deductor for issue of tax certificate within one month from the date of tax deduction
Keep the proof of letter issued to the Deductor

If despite this,
the certificate is not issued, write a letter to Joint Commissioner or Addl. CIT of TDS wing who has jurisdiction over the Deductor mentioning the detailed facts elaborated above.

In this regard tax payee must check their Tax Credit in Form No. 26AS by registering your PAN at In the absence of availability of TDS in form No. 26AS it would be difficult for the Assessing Officer to grant the TDS Credit.

Whether when genuineness of transaction is not in doubt, even then 20% disallowance is warranted for violation of Sec 40A(3) - YES: ITAT

THE issues before the Bench are - Whether when the genuineness of the transaction is not in doubt, even then 20% disallowance is warranted for violation of Sec 40A(3) and Whether the disallowance made u/s 40a(ia) can be made only on the amounts payable by the assessee. And the answers go against the assessee.
Facts of the case

The assessee is engaged in the business of forming layouts on turnkey basis for housing co-operative societies. As the assessee could not furnish any plausible explanation as to why the payments other than the account payee cheques should not be disallowed u/s 40A(3), the AO disallowed 20% of such payment and added back to the total income of the assessee. The CIT(A) observed that the payments were made by bearer cheques, so that cheques were encashed in the banks and, therefore, the facility of banks were utilized. Therefore, according to him, the assessee had not proved the necessity of making the payments in cash other than by account payee cheques. The CIT(A) held that where the genuineness of the transactions was not proved, then the entire amount was not to be allowed and even if the transactions were genuine, the disallowance u/s 40A(3) was to be made if the payment was not made by account payee cheque except in the circumstances mentioned in sec. 40A(3) r.w Rule 6DD and upheld the disallowance made by the AO. The AO made the disallowance of commission payment and interest on vehicle finance u/s 40a(ia) on the ground that the assessee had failed to make deduction of tax at source on these payments. The CIT(A) confirmed the order of the AO.


We are in the month of June wherein the last financial year (FY) 2011-12 has gotten over and due date to file Return of Income stares in the face and also it is time to submit your Investment declaration for FY 2012-13.
Article Aims to provide solutions for tax savings and awareness of tax benefits for FY 2011-12 and steps to be taken before hand for tax planning of FY 2012-13.

Most of the tax planning for Salary income can be done at the Salary Structuring (deciding the components of your Salary in most tax efficient manner) stage itself i.e. at the time when one receives his employment letter. Unfortunately, it is not a normal practice to allow employees to choose their Salary components. Nevertheless, let’s take a look at the advantageous methods to reduce your tax liability and a brief insight relating to the issues of Income-tax on Salary.
What is Form 16?
Form 16 is a Certificate of TDS (Tax deducted at Source) i.e. tax deducted on your Salary by your Employer and deposited with the Government on your behalf.
It reflects the details of your Gross Salary, the exempt allowances, your Other Income if any, details of Investments made and deductions availed. Thereafter, your tax liability, TDS made, and tax payable/refundable (If any).
Form 16 needs to be compulsorily issued if tax is deducted on your Salary. It is the responsibility of the Employer to issue Form 16.
As per law, Form 16 for FY 2011-12 needs to be issued to employees by 30th May 2012 (Being within 15 days of filing of Quarter IV Etds Return).
How do I confirm the TDS shown in my Form 16 is actually correct?
It is the prime responsibility of the Employer to furnish accurate details in Form 16, failure of which attracts penalty to the employer.
Nevertheless, tax authorities recently have empowered the deductees (Employee on whose Salary TDS is made) to cross-verify the TDS details against the records available with the Government.
Tax Information Network (TIN; a division of the Income-tax department) has introduced in recent years, the Form 26AS wherein any tax deducted at source on any of your income is reflected. Thus, you can cross-verify whether the tax that has been deducted is actually paid to the government or not?
It is compulsory to file my Return of Income?
Yes. As per the Income-tax Act, every person whose Gross Total Salary exceeds the basic exemption limit (Rs. 1,80,000/2,10,000/2,50,000) has to file a Return of Income
(ROI). Failure to file the Return of Income can expose to a penalty of Rupees Five Thousand.
Also, the laws do not permit payments of your Refunds (If any) when the Income Tax Return is not filed.
It is a good policy and a willful conduct to keep your financial and tax records updated so that you do not have to face hurdles while applying for Business loans, Home loans, Insurance policies, etc. Filing of Income tax Return should be seen as a good habit and not as compliance burden.
By when I have to file my Return of Income?
For salaried individuals the due date of filing of Tax Return is 31st July, 2012 for the FY 2011-12. 
I have not filed my earlier years Income-tax Return. Can I file them now?
Yes. You can file Income-tax Returns of earlier years as well. That means if you had not claimed your Refund of last year due to non-filing of Income-tax Return, you can still do it now!
I had not submitted few Investment proofs to my Employer. What do I do now?
The Employer is under obligation to consider all Investment proofs provided by you. However, if you miss on providing any details/proofs you can always claim the investments in your Income-tax Return and claim your Refund, since your Employer has already deducted the extra tax on the investment-portion for which you had not provided the proofs.
How do I reduce my tax liability?
There are many many Investment options which reduce your tax liability.
Section 80C provides you relief till Rs. 1 lac. Various Investments/expenses enumerated under Sec. 80C. They are listed below:
  • Life Insurance premiums ( of self and family)
  • Provident Fund contributions (of self and family)
  • Mutual Fund contributions
  • Public Provident Fund (PPF)
  • Tuition Fees (of self and family)
  • Principal portion of EMI of the Housing loan
  • Fixed Deposit with Banks for 5 years
  • NABARD and other Bonds / Certificates as specified from time to time.
Following are additional deductions which are over and above the Rs.1 lac limit as mentioned above:
  • Health Insurance premium up to Rs.15,000/- (under section 80D)
  • Full Interest on Education loan u/s 80E
  • Donations u/s 80G
  • Interest portion of EMI of Housing loan up to Rs.1.5 lacs (section 24). (Consequently, benefit can be availed on the principal and the interest expenses.)
How do I get maximum benefit of HRA?
House Rent Allowance is exempt the least of the following:
  • HRA actually received
  • Rent paid in excess of 10% of Salary
  • 50% of Salary (Rent paid in Metro City) or 40% of Salary (Non-metro city)
How does my House Property Loan help me in tax savings?
Repayment of house loan can be bifurcated in 2 parts:
  • Principal amount allowed till Rs. 1 lac u/s 80C
  • Interest amount allowed till Rs. 1.5 lacs u/s 24
If you have House loan on more than one property, the interest repaid on second home is exempt without any limit.
I had switched my employment during the year. What about my TDS made by earlier Employer?
It is the responsibility of the employee to furnish to the new employer the details of Salary and TDS made thereon by the previous employer. Only if such details are furnished, the new employer shall take into account the salary and TDS details and calculate TDS to be made in future accordingly.
 How do I file my Return of Income?
People having only Salary and/or House Property and/or Other Income need to file their Income-tax Return in Form ITR-1.
This may be submitted either physically or online. The benefit of submitting the Return online is that the Return gets processed quickly, thereby reducing your wait for Refund amount.

Tuesday, 26 June 2012

Notification Exempting Advocates From Service-tax

The Ministry of Finance has issued a Notification No. 25/2012 dated 20.6.2012 exempting services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to, (i) an advocate or partnership firm of advocates providing legal services; (ii) any person other than a business entity; or (iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year.

No s. 14A disallowance if tax-free investments capable of taxable income

Avshesh Mercantile P. Ltd. vs. DCIT (ITAT Mumbai)

The assessee, an investment company, issued optionally convertible premium notes which entitled the holder thereof to a premium on redemption. The proceeds of the issue was invested by the assessee in acquiring the shares of Reliance Utilities and Power Ltd (“RUPL”), the income whereof was exempt u/s 10(23G). The assessee claimed a deduction of the premium paid to the holders of the notes which was rejected by the AO & CIT (A) on the ground the expenditure was incurred in respect of tax-free income and so deduction could not be allowed u/s 14A. Before the Tribunal, the assessee argued that s. 14A could not apply because (a) though the dividends and LTCG on the shares of RUPL were exempt u/s 10(23G), the STCG & stock-lending income were not exempt and (b) the assessee had in fact not received any tax-free income on the shares. HELD upholding the assessee’s plea:

Consultancy fees, if not taxable as “fees for technical services”, is not taxable as “other income”

DCIT vs. Andaman Sea Food Pvt Ltd (ITAT Kolkata)

The assessee paid consultancy fees to a Singapore company on which tax was not deducted at source. The AO held that the said consultancy fees were assessable as “fees for technical services” u/s 9(1)(vii) and that the failure to deduct TDS meant that the amount had to be disallowed u/s 40(a)(ia). This was reversed by the CIT (A). On appeal by the department to the Tribunal, HELD dismissing the appeal:

TDS on salary- always resort to deduction on projected calculations- avoid irregular or casual deductions

If the employer resort to deduction of tax at source on casual basis/lump sum basis during the earlier months of the Financial Year, by not deducting the tax correctly as required u/s 192(1), then the AO can infer that employer has not deducted the whole or any part of the tax as required by or under the Act being the condition to be satisfied before charging interest u/s 201(1A). This is what is stated by Ahmedabad bench of ITAT in Madhya Gujarat Vij Co. Ltd. v. Income-tax Officer, Ward 3(4) & TDS, Petlad (2011) 133ITD89. The bench held that the AO has to see what was the deficiency in different months from deduction of tax i.e. what was actually required to be deducted as per section 192(1), and what has been actually deducted, whether the deficiency is substantial and continues to percolate in subsequent months in which situation onus would be on the assessee employer to show his bona fides. And if no such bona fide is shown then he would be liable to pay interest u/s 201(1A) for the deficiency so continued.

The bench further held that section 192(3) does not authorize employer to make deduction casually from payments of salary in different months and resorts to lump sum deduction at the end of the Financial Year for making good the deficiency. The employer has to find out immediately at the time of subsequent payment to the employee whether there was deficiency of deduction of tax in the preceding month. He has to make good such deficiency in the subsequent following month or otherwise has to show his bona fide

31st July is Due Date of Income Tax Return for Salaried Employee Assessee.

As you know very well the month of end of July is the due Date of Income Tax Return for Salaried Employee Assessee for Assessment year 2012-13. In Which form is applicable for Salaried Employee for submission of Income Tax Return for the Financial Year 2012-13. For any other assessees Like Salaried Income, Person having Income from House property, Interest income, Business Income where accounts are not required to be audited.

Free Softwares to file your Income Tax Return Online/Offline.
Income Tax Department has been published Softwares for Income Tax Return Preparation for Assessment Year 2012-13. These are Excel Based Software (version 1.0). This utility is useful for Employee Assessee, Business Assessee for Annual Income Tax Return purpose.

Free ITR Software Sahaj & Sugam:

Sl. No.
Form Name
Return Preparation Software
System Requirements
New Release
MS Excel
New Release
MS Excel
New Release
MS Excel
New Release
MS Excel
New Release
MS Excel

How to Work in this Software?
To work in excel based utility all above Softwares are mandatory to enable macros. After enable macros this software is working properly in
Microsoft Office 2003, 2007 and 2010.
How to Enable Macros in MS Excel for Return Preparation Utility?

It is necessary to ENABLE the execution of macros in Return-Preparation-Utility in order to enter, validate and generate an .XML file for upload. Follow these steps to ENABLE execution of macros depending on the version of [Microsoft Office Excel] being used to open the Return-Preparation-Utility :
[Microsoft Office Excel 2003]
Navigate through the following excel menu option to reduce the level of security in executing macros :
Tools --> Macros --> Security --> Low
Tools --> Macros --> Security --> Medium
Save the excel-utility and re-open it.
[Microsoft Office Excel 2007]
Navigate through the following excel menu options to reduce the level of security in executing macros :
Excel Options --> Trust Centre --> Trust Centre Settings --> Macro Settings --> Enable all macros
Excel Options --> Trust Centre --> Trust Centre Settings --> ActiveX Settings --> Enable all controls without restriction and without prompting
Save the excel-utility and re-open it.
[Microsoft Office Excel 2010]
When you open the EXCEL-UTILITY, the yellow Message Bar appears with a shield icon and the Enable Content button.
Click on the Enable Content to enable the macros.

Download Free Software ITR-1 (SAHAJ) (Click Here)