Friday, 31 August 2012


S.4: Charge of income‐tax‐Income‐ Accrual‐Retention money‐Retention money in the contract is assessable only in the year of receipt that too after clearance of the defect liability.(S.5 )

The issue referred for the consideration of Third Member was whether the retention money is accrued in the year of retention or in the year of actual receipt of the retention amount from the contractee s departments after the clearance of effect liability claims .The third member held that assessee had no right to receive the money by virtue of the contract between parties and the assessee also had no right to enforce the payment and therefore the assessing officer could not include the retention money in the assessment year when actually this amount had not been paid to the assessee. The Tribunal held that the retention money in the contract is assessable only in the year of receipt , that too after clearance of the defect liability.(A.ys.2003
04 to 200506)
ACIT v. Chandragiri Construction Co ( 2012) 147 TTJ 249/73 DTR 20(TM ) (Cochin)(Trib.).

Whether when society is once granted registration u/s 12A, same cannot be withdrawn with retrospective effect even if there is tangible evidence to establish that society has entered into commercial agreement with profit motive - YES: ITAT

THE issues before the Bench are - Whether when a society is once granted registration u/s 12A, the same cannot be withdrawn with retrospective effect even if there is tangible evidence to establish that the society has entered into commercial agreement with profit motive for a considerably long period - Whether the registration is once granted, it

S. 391-394 scheme of arrangement is not a “tax avoidance scheme”

Vodafone Essar Gujarat Ltd vs. Dept of Income-tax (Gujarat High Court)

Vodafone Essar Gujarat Ltd (“transferor”) filed a Petition u/s 391 to 394 of the Companies Act, 1956 to transfer its ‘Passive Infrastructure Assets’ to Vodafone Essar Infrastructure Ltd (“transferee”) free of liabilities and encumbrances. The corresponding liabilities were not to be transferred. No consideration was payable by the transferee nor were any shares to be allotted to the members of the transferor. Post de-merger, the transferee was to be made a substantially owned company of a new company to be formed by all or some of the shareholders of the transferee. Thereafter, the transferee was to be amalgamated/ merged into Indus Towers Ltd. The application was opposed by the income-tax

Taxation of Income Received for services contract spread over various years

Admittedly, the assessee has not served for the period of five years. The assessee has not rendered enough services to warrant emoluments of Rs. 1,21,83,494. It is assessee’s submission that during the year under consideration he has not created a debt or a right to receive the payment equivalent to Rs. 1,21,83,494. Hence, it cannot be said that the income equivalent to total emolument of Rs. 1,21,83,494 has accrued to the assessee. 

CBDT Releases Transfer Pricing “Advance Pricing Agreement Scheme” (“APA”)

Vide Notification No. 36 of 2012 dated 30.08.2012, the CBDT has inserted Rules 10F to 10T to introduce the “Advance Pricing Agreement Scheme”.

Thursday, 30 August 2012

India Taxes- Due Date Alert for the month September 2012


Sr No
Due Date
Related to
Compliance to be made
Service Tax
Payment of Service Tax for the Month of August 2012
(Income Tax)
·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of August 2012.
·        Deposit TDS from Salaries  deducted during the month of August 2012
•   Deposit TCS for collections made under section 206C including sale of scrap during the month of August 2012, if any
•    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of August 2012, if any
Income Tax
Payment of second instalment of advance tax (45%) for corporate
Payment of VAT & filing of monthly return for the month of August 2012
Income Tax
Income Tax  and Wealth Tax Return filing along with tax audit report excluding Transfer pricing

TDR Premium received by Co-op Hsg Society from its members is exempt on ground of “mutuality”

CIT vs. Jai Hind CHS Ltd (Bombay High Court)

The assessee, a Co-operative Housing Society formed of plot owners, passed a resolution to the effect that if any member desired to avail of the benefit of Transferable Development Rights (TDR) for carrying out construction or additional construction on his plot, he should apply for a No Objection Certificate which would be granted on payment of a premium calculated at the rate of Rs.250 per sq.ft. The Society received a premium of Rs.18.75 lakhs from its members for this purpose and claimed that the receipt was not chargeable to tax on the grounds of mutuality. The AO rejected this plea on the ground that the TDR premium was in reality a “profit sharing arrangement of commercial nature” and was chargeable to tax. The CIT (A) & Tribunal upheld the assessee’s plea. On appeal by the department to the High Court, HELD dismissing the appeal:

Low Tax Effect Circular has retrospective effect & applies to pending appeals

CIT vs. Sureshchandra Durgaprasad Khatod (HUF) (Gujarat High Court)

The department filed an appeal in the High Court where the tax effect was less than Rs. 10 lakhs. The assessee argued that in view of Instruction No. 3 of 2011 dated 9.2.2011, the appeal was not maintainable. The department argued that the said Instruction made it clear that it applied only to appeals filed the date of its issue and had no retrospective effect. HELD by the High Court dismissing the appeal:

Complete Procedure to upload e-TDS/e-TCS Return

Now a days all Quarter TDS/TCS Return submission is mandatory as Electronic Statements upload. In this matter most of TDS/TCS Deductor or collector did not know about how to submit quarterly returns and what is its procedure. Therefore the TIN-NSDL provides below most important point regarding this matter,

Claim relief u/s. 89(1) in Form 10E of previous year arrears

The salaried employee if got the lumsum arrears of previous year, in the current financial in this circumstance the assessee reached to limit of tax and due to this cause the Salaried Employee pay tax unnecessarily. Therefore, to avoid for paying tax, mostly employee bifurcate previous year(s) arrears which got in current financial year by the employee and put exemption in form 10E, and Tax relief claimed u/s. 89(1) of Income Tax Act.

In this regard prescribed Form 10E for Assessment year 2012-13 are issued for claiming Tax exemption and get relief u/s 89(1) from Income Tax as per Income Tax Law. For Download Form 10E for Assessment year 2012-13 Click Here.

Whether when AE pays higher rate of interest on delayed payment as compared to third parties, no fault can be found with AO for initiating reassessment for transfer of profits to assessee eligible for Sec 80IA benefits - YES: HC

THE issue before the Bench is - Whether when the AE pays higher rate of interest on delayed payment as compared to third parties, no fault can be found with AO for initiating reassessment for transfer of profits to assessee eligible for Sec 80IA benefits. And the verdict goes against the assessee.
Facts of the case
Assessee-petitioner is a company registered under the Companies Act. For the AY 1999-2000, the assessee filed its return

Status of Private Limited Company u/s 4(7) of Companies Act, 1956

Introduction: It is important to check the status of Private Limited Company, if the shareholder of such Private Limited is Body Corporate incorporated outside India. It is also important from the audit point of view since if the status of such Private Limited Company is established as Subsidiary of Public u/s 4(7) of Companies Act, 1956 then all the Compliances under Companies Act, 1956 has to be been taken care as it

Wednesday, 29 August 2012


TDS Deduction Rate 20% if PAN not Available on Annual Income u/s. 260AA of Income Tax Act

If the assessee or Salaried Employee did't have PAN, then the deductions of TDS by the Deductor, how to deduct TDS from Assessee or Salaried Employee. In this matter the Income Tax Department pass new section 260AA of Income Tax, the TDS Deductions Rate is 20% from assessee or Salaried Employee. The section 260AA of Income Tax Act provides to deduct TDS at higher end, 20% from TDS Deductee.

But what’s in the case when the deductee has the income below the exemption limit under income tax. If the

Whether when assessee invests capital gains in purchase of a new house and REC bonds, there is no restriction from claiming exemption under Sections 54F as well as 54EC

THE issues before the Tribunal are - Whether when assessee invests capital gains in purchase of a new house and REC bonds, there is no restriction from claiming exemption under Sections 54F as well as 54EC and Whether, for the purpose of claiming Sec 54F benefits, adjacent residential unit purchased can be considered as a single unit. And the verdict goes in favour of the assessee.
Facts of the case
A) Assessee is an individual. It had sold his ancestral property for a consideration of Rs 3.4 crores. The

Service tax on vocational education/training course – Clarification

Circular No. 164/15/2012-ST,   New Delhi, 28th August, 2012
Subject:  service tax – vocational education/training course  — regarding.
            Clarification has been sought in respect of levy of service tax on certain vocational education/training/ skill development courses (VEC) offered by the Government (Central Government or State Government) or local authority themselves or by an entity independently established by the Government under the law, as a society or any other similar body.
2.         The issue has been examined. When a VEC is offered by an institution of the Government or a local authority, question of service tax does not arise. In terms of section 66D (a), only specified services

Tuesday, 28 August 2012

Supreme Court Relief for Builders in VAT case till 31 st October 2012

Supreme Court of India had instructed Builders to pay VAT accrued on real estate transactions in Maharashtra on or before 31 Oct 2012.
 All the concerned parties and builders have to register with VAT authority by 15th Oct 2012. The Hoble Court had also said that the VAT has to be paid without any interest or penalty in protest. If the government looses, the VAT so paid will be refunded to the concern registered dealers / builders.


  1. What is a Digital Signature? Answer: A digital signature authenticates electronic documents in a similar manner a handwritten signature authenticates printed documents. This signature cannot be forged and it asserts that a named person wrote or otherwise agreed to the document to which the signature is attached. The recipient of a digitally signed message can verify that the message originated from the person whose signature is attached to the document and that the message has not been altered either intentionally or accidentally since it was signed. Also, the signer of a document cannot later disown it by claiming that the signature

Sandik Asia 280 ITR 643 (SC) is not correct and should be reconsidered

CIT vs. Gujarat Flouro Chemicals (Supreme Court)

The Supreme Court had to consider whether interest is payable by the Revenue to the assessee if the aggregate of instalments of Advance Tax/TDS paid exceeds the assessed tax? The assessee relied upon Sandvik Asia Limited vs. CIT 280 ITR 643 where it was held that the assessee was entitled to be compensated by the Revenue for delay in paying to it the amounts admittedly due. HELD by the Supreme Court:

Additional depreciation is statutory allowance, can't be limited to 50% by condition of usage of asset for 180 days

During preceding assessment year, the assessee bought some assets on which it was eligible for additional depreciation. However, it claimed only 50 per cent of additional depreciation in the preceding assessment year because assets were put to use in second half of the year. Accordingly, the balance additional depreciation was claimed by the assessee in succeeding assessment year, i.e., instant assessment year. The AO denied the claim of assessee and made addition accordingly. On appeal, the CIT(A) confirmed the action of AO.
On appeal, the Tribunal held in favour of assessee as under:
1) There is no such restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year; and
2) The assessee is entitled to the benefit of additional depreciation as soon as he purchases the new eligible assets.
Therefore, the unclaimed additional depreciation in the preceeding year was allowed in instant assessment year - DCIT v. COSMO FILMS LTD. [2012] 24 189 (Delhi - Trib.)

S. 147 Reopening on “change of opinion” is not permissible

ACIT vs. ICICI Securities Primary Dealership Ltd (Supreme Court)

For AY 1999-2000, the assessee claimed a deduction for Rs. 19.86 crores which was allowed by the AO in s. 143(3) assessment. Subsequently, after the expiry of 4 years, the AO reopened the assessment u/s 147 on the ground that the said loss was a “speculative loss” and could not be allowed as a deduction. The assessee filed a Writ Petition to challenge the reopening which was allowed by the High Court (file included) on the ground that though the AO was justified in his analysis that there was escapement of income, there was “nothing new” which had come to the notice of the revenue and that reopening was based on a “mere relook” which was not permissible. On appeal by the department to the Supreme Court, HELD dismissing the appeal:

Monday, 27 August 2012

Latest Quarterly e-TDS/TCS Utility (FVU) Free Download

Latest File Validation Utility Version 3.5 has been lanched by NSDL TIN for e-TDS/e-TCS quarterly Statement preparation for Financial Year 2011-12 and onwards. FVU is generally an ".exe" file which validates the TDS/TCS statements and the final assessment of tds/tcs is prepared with the help of FVU.

Section 54F available even if borrowed funds used for investment

The capital gains earned by the assessee can be utilized for other purposes, and as long as the assessee fulfils the condition of investment of the equivalent amount in the asset qualifying for relief under section 54F, by securing the money spent out of the capital gains from other sources available to it, either by borrowal or otherwise, it is eligible for relief under section 54F in respect of the entire amount of capital gains realized. In the circumstances, there is merit in the contentions of the assessees that inasmuch as they have made deposits of the amounts equivalent to the capital gains

Capitalization And Amortization Of Software Cost

In general, the software industry is viewed as having several sectors, including packaged applications (shrink-wrapped software); operating systems for individual and networked computers; administration tools for networks; enterprise software for large-scale data handling; and customized software to meet specific company and industry requirements. The software industry is unique, and its special characteristics should be understood by the accountant practicing in this field. Only with a clear understanding of the industry can the accountant properly apply the software industry’s specialized accounting practices.
Through this post I discuss about capitalization and amortization of software cost.
This discussion assumes that the reader has some familiarity with computers, computer hardware, and computer software, and provides the information necessary to allow the accountant to actively participate in discussions affecting the accounting treatment of events occurring in the subject business.

No TDS even if the Rent collected exceed limit whether the property is owned jointly

Income Tax Act provides for TDS on collected Rent u/s. 194-I. Accordance with this section 194-I, any person any person (other than individual/HUF with turnover less than the limit specified in section 44AB in immediately preceding financial year), who is responsible for paying to a resident any income by way of rent is required to deduct tax at sources at the prescribed rates. Before 01.07.2010 the Limit of exemption for deducting TDS on collected Rent u/s. 194-I is Rs. 1,20,000/- and after this the Income Tax exceed exemption limit by Rs. 1,80,000/-.

Rates of TDS on Rental Payments:
  • @ 2% for payment towards the use of any machinery or plant or equipment.
  • @ 10% for the use of any land or building or furniture or fittings for all persons.
  • @ 20% in all cases, if PAN is not quoted by the deductee with effect from 01-04-1010.
What is the provision for non-deduction of TDS on Rent?
Though the property is owned by two or more person then the income from such property shall not be assessed as income of association of person (AOP) exempted to deduct TDS u/s. 26 from tenant. Instead, the share of each such person in the income from the property shall be included in his total income, if the following condition are satisfied:
  • The property consists of buildings or buildings and land appurtenant thereto, and
  • Respective shares of such persons are definite and ascertainable.
Clarification on non-deduction of TDS on Rent by CBDT:
Whether the limit of Rs, 120,000 per annum would apply separately for each co – owner of a property ?
Under section 194–I, the tax is deductible from payment by way of rent if such payment to the payee during the year is likely to be Rs. 120,000/- or more. If there are a number of payees, each having a definite and ascertainable share in the property, the limit of Rs. 120,000/- (Now Rs. 180,000/- per annum) will apply to each of the payees/co – owners separately. The Payers and payee are however, advised not to enter into sham agreements to avoid TDS provisions.”

Unabsorbed depreciation of AYs 1997-98 to 2001-02 is eligible for relief granted by amended s. 32(2) in AY 2002-03

General Motors India Pvt. Ltd vs. DCIT (Gujarat High Court)

In AY 2006-07, the assessee claimed a set-off of the unabsorbed depreciation brought forward from AY 1997-98, 1999-2000, 2000-01 & 2001-02. The AO allowed the claim u/s 143(3). Subsequently, within four years from the end of the AY he reopened the assessment on the ground that pursuant to the amendment to s. 32(2) by the Finance Act No.2 of 1996 w.e.f. AY 1997-98, the unabsorbed depreciation for AY 1997-98 could be carried forward up to a maximum period of 8 years from the year in which it was first computed and this period expired in AY 2005-06 and could not be allowed in AY 2006-07. The assessee filed a Writ Petition to challenge the reopening in which it claimed (a) that the reopening was based on a “change of opinion” and (b) that as s. 32(2) was amended in AY 2002-03 to remove the time period of 8 years, the claim for unabsorbed depreciation of AY 1997-98 was allowable without any time limit. HELD by the High Court upholding the assessee’s plea:

Saturday, 25 August 2012

Tips to reduce Business Travel Cost

There are many travel “perks” out there beyond frequent-flyer miles and credit card points. Many hotels, airlines, car rental companies and travel sites offer travel rewards, exclusive benefits and discounts that are

No deemed dividend on loan given to director for providing collateral & giving personal guarantee to bank

In order to attract the provisions of section 2(22)(e), the important consideration is that there should be loan/advance by a company to its shareholder. Every amount paid must make the company a creditor of the shareholder of that amount. At the same time, it is to be borne in mind that every payment by a company to its shareholders may not be loan/advance. In the present case, the amount

“Goodwill” is an intangible asset eligible for depreciation u/s 32

CIT vs. Smifs Securities Ltd (Supreme Court)

Pursuant to an amalgamation of another company with the assessee, the difference between the consideration paid by the assessee and the net value of assets of the amalgamating company was treated by the assessee as “goodwill” and depreciation of Rs. 54 lakhs was claimed thereon u/s 32(1)(ii). The AO rejected the claim on the ground that (i) “goodwill” was not an “intangible asset” as defined in Explanation 3 to s. 32(1) and (ii) the assessee had not paid anything for the same. The Tribunal and High Court upheld the assessee’s claim. On appeal by the department to the Supreme Court, HELD dismissing the appeal.

Friday, 24 August 2012

Capital contributed by a partner and remuneration paid or payable

1. Introduction
Partnership transactions (viz., transactions between firm and its partners) were not liable to service tax under the law existing prior to 1-7-2012, as the same were not specified taxable services under section 65(105) of the Finance Act, 1994. Under the present law, section 65B(44) of the Finance Act, 1994 defines 'service'

Whether when assessee resorts to multiple agreements for sale of each tangible and intangible individual item, they can still be read as a whole, to establish a slump sale u/s 50B - YES: ITAT

THE issues before the Tribunal are - Whether when the entire line of business, including all tangible and intangible assets are sold off as a going concern and on an irrevocable basis, the same amounts to "slump sale" in terms of section 50B; Whether when there are multiple agreements for sale of each individual item, still they can be read as a whole, to establish the sale of "lock, stock and barrels" and Whether merely relying upon provisions of section 2(42C) can serve any purpose, when there is no valuation report required in terms of section 50B, for supporting the claim of itemised sale. And

CPC To Conduct Workshop To Reconcile/ Rectify Arrear Demands

The CIT, CPC, has informed vide letter dated 21.08.2012 that an amount of Rs. 4800 crores has been collected in respect of disputed demands by way of adjustment of refunds and that there is a need to rectify/ reconcile the said arrear demand. For this purpose, the CPC has arranged a workshop on 28.08.2012 and

S. 147: If claim not considered by AO, there is no “change of opinion”

Gujarat Power Corporation Ltd vs. ACIT (Gujarat High Court)

For AY 2002-03, the AO issued a notice u/s 148 to reopen the assessment (within 4 years) on the ground that the assessee had been wrongly allowed exemption u/s 10(23G) on certain bonds that had been acquired out of surplus funds and not by way of loans & advances. The assessee filed a Writ Petition to challenge the reopening on the ground that the issue had been considered at the stage of the original assessment and that the reopening was based on a “change of opinion”. HELD by the High Court after a comprehensive review of the law on the subject:

Article 9: Income from “slot charter” is exempt as income from “operation of ships”

DIT vs. Balaji Shipping UK Ltd (Bombay High Court)

The assessee, a UK company, engaged in the international transportation of goods by sea, entered into Slot Hire Agreements with Orient Express Lines Mauritius (“OEL”), under which OEL provided container slot spaces to the assessee on its ships. Availing the slot hire facility, the assessee arranged for the transportation of the goods from ports in India to their international destinations. The assessee claimed that the income from the “slot hire charges” was exempt under Article 9 of the India-UK DTAA. The AO rejected the claim on the ground that Article 9 dealt with “income from the operation of ships” and that slot hire charges were not covered. However, the CIT(A) and the Tribunal allowed the claim. On appeal by the department to the High Court, HELD dismissing the appeal:

S. 143(1) intimation cannot be reopened u/s 147 in absence of “tangible material”

Inductotherm (India) Pvt. Ltd vs. DCIT (Gujarat High Court)

For AY 2002-03, the AO issued an Intimation u/s 143(1) accepting the return. Subsequently, based on objections raised by the audit, he issued a s. 148 notice to reopen the assessment. The AO set out four issues in the recorded reasons and for two he stated that the reopening was to “verify” the expenditure. The assessee filed a Writ Petition to challenge the reopening inter alia on the ground that there was no reason to believe that income had escaped assessment. HELD by the High Court:

Thursday, 23 August 2012

How to get full TDS Credit, when Form 26AS or PAN Ledger not display your Tax Credits?

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.

5% Tolerance in Arm’s Length Pricing For Asst Yr 2012-13

Transfer pricing experts and companies with international operations and subsidiaries trading with each other got a pleasant surprise when they find a CBDT notification fixing tolerance level for Assessment Year 2012-13 at 5 % in case of variation in Arm’s Length Pricing . Significant to note that as per Finance Act 2012 , the tolerance level is fixed at 3% i.e for Assessment Year the tolerance level is just 3 % .
Here is the notification 5% Tolerance in Arm’s Length Pricing
NOTIFICATION NO. 31/2012 [F.NO. 500/185/2011-FTD I], DATED 17-8-2012
In exercise of the powers conferred by the second proviso to sub-section (2) of section 92C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where the variation between the arm’s length price determined under section 92C and the price at which the international transaction has actually been undertaken does not exceed five per cent of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm’s length price for assessment year 2012-13

No capital gain on indirect transfer of Indian shares if no consideration accrued to transferor

In the decision of the High Court of Bombay in Forbes Forbes Campbell & Co. Ltd. v. CIT(150 ITR 529) what was involved was amalgamation. In the case on hand, the question to be considered is whether what has taken place is amalgamation as defined in section 2(1B) of the Act. To satisfy that definition, three conditions have to be satisfied. Conditions (i) and (ii) are satisfied in this case but, condition no..(iii) is not satisfied as the shareholders of the applicant merging with ‘company C’ do not or cannot become shareholders of company ‘C’ as company ‘C’ is the only shareholder of the applicant. It is argued by

Income taxable under both FTS and PE would be taxable as FTS – AAR

The services rendered by the applicant are technical in nature and do not fall within the exception provided in the definition of FTS since the applicant has not actually carried out any mining or like project.  It can at best be said that the services were rendered “in connection with” the mining activity undertaken by the Indian Companies.  The applicant cannot be taxed under section 44BB since it had merely contracted to render some prospecting services through a sub-contractor in India.
C.A.T. Geondata GmbH, In re
AAR NO. 1119 OF 2011
JULY 31, 2012

No s. 271(1)(c) penalty even if revised ROI filed after detection but before issue of s. 148 notice

Radheshyam Sarda vs. ACIT (ITAT Indore)

For AY 2005-06, the assessee filed a return in which he offered long-term capital gains on sale of shares. An inquiry pursuant to a survey u/s 133A was conducted. Because the assessee was unable to furnish the documents called for by the department, it filed a revised return on 22.5.2008 in which the LTCG was offered as normal income and tax was paid. The AO thereafter issued a s. 148 notice, completed the assessment on the basis of the revised ROI without any addition. The AO levied s. 271(1)(c) penalty on the ground that the revised ROI was filed after detection by the department. The assessee argued that as the revised ROI was filed prior to the issue of the s. 148 notice, penalty was not leviable. HELD by the Tribunal:

Wednesday, 22 August 2012

New Provision on Rent under Sec. 194I when Owner deduct TDS

TDS  u/s. 194I of Income Tax from Tenancy by the Property Owner on collected "Rent" from tenant, the TDS  on 'rent' u/s. 194I deduct only when payment is for use of specified area of land under an agreement having the character of lease or tenancy.

Income tax - Whether when proceedings u/s 153A are initiated, AO is empowered to assess or reassess even 'total income' and no time-limit applies for sending notice u/s 148 - YES: Delhi HC

THE issues before the Bench are - Whether when the proceedings u/s 153A are initiated, AO is empowered to assess or reassess even the 'total income'; Whether, under the new scheme of things, there would be only one assessment order for both undisclosed as well as returned income; Whether the provisions of Sec 153A(1) remove the fetters imposed on the AO to comply with the strict procedure before assuming jurisdiction u/s 147; Whether the time-limit presicribed by Sec 149 for issue of notice u/s 148 does not apply in such proceedings; Whether even sanction mandated by Sec 151 is not required to be taken; Whether the mere fact that the document in the form of undertaking seized during search, was not signed, can absolve the assessee from the duty of satisfactorily explaining the possession of the documents, during the course of proceedings u/s 153A and Whether the finding of facts arrived at by the Tribunal are binding on High Courts. And the verdict favours Revenue.
Facts of the case

Australia Transfer Pricing Legislation Approved

The Australian Senate has passed legislation on the application of transfer pricing rules, designed to ensure that multinational companies pay their ‘fair share’ of tax. The Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012 was put forward before the house of Representatives in June 2012.
The bill confirms that the transfer pricing rules contained in Australia’s tax treaties, and incorporated into domestic law, provide assessment authority in treaty cases. Announcing the Bill’s passage, Assistant Treasurer David Bradbury explained that “profit-shifting can pose a serious threat to Australia’s revenue base. Transfer pricing rules are intended to prevent multinational companies from avoiding paying their fair share of tax by shifting their profits offshore”.
In 2009, related party cross-border trade was valued at approximately AUD 270bn (USD280bn). This represented roughly 50% of Australia’s cross border trade flows.
“Robust transfer pricing rules make sure that Australia’s revenues are protected and large multinational companies pay their fair share of tax,” Bradbury stressed.
The changes apply to income years commencing on or after July 1, 2004. This was the first income year following parliament’s last statement detailing its understanding that the law operated in this way.
The Australian Transfer Pricing Amended Bill can be downloaded from the following link -;fileType=application%2Fpdf

Law on non-taxing pre-construction interest good law despite s. 36(1)(iii) Proviso

NTPC SAIL Power Company Ltd vs. CIT (Delhi High Court)

The assessee was in the process of expansion of its business by setting up new units for generation of power. It borrowed funds for the project and incurred interest expenditure which was capitalized. A part of the funds were invested in temporary deposits and in deposits by way of margin or giving advances etc. for the purpose of expansion. Such deposits earned interest of Rs.331.58 lakhs. The assessee claimed, relying on Bokaro Steel 236 ITR 315 (SC) that the interest earned had to be reduced from the interest paid on the borrowings and was not assessable as “income”. The CIT(A) accepted the claim but the Tribunal rejected it on the ground that Bokaro Steel 236 ITR 315 (SC) and the other judgements on the point were not good law in view of the Proviso to s. 36(1)(iii) inserted w.e.f. 1.4.2004. On appeal by the assessee to the High Court, HELD reversing the Tribunal:

Tuesday, 21 August 2012

New Amendment to see Refund Status for Assessment Year 2013-14

To see Refund of Income Tax Status for Assessment Year 2013-14 has been amended by Income Tax Department Which is as under:

Refund Banker : The 'Refund Banker Scheme,' which commenced from 24th Jan 2007, is now operational for taxpayers assessed all over India (except at Large Taxpayer Units) and for returns processed at CPC (Centralized Processing Centre) of the Income Tax Department at Bangalore.

In the 'Refund Banker Scheme' the refunds generated on processing of Income tax Returns by the Assessing officers/ CPC-Bangalore are transmitted to State Bank of India, CMP branch, Mumbai (Refund Banker) on the next day of processing for further distribution to taxpayers.

Refunds are being sent in following two modes:

Cash Flow Statement.

Cash flows statement is an important report that both management and external readers want to have a look to determine the true state of a business entity’s cash flows—which can’t be found

S Tax on Director remunation - FAQ

The CBEC has issued Notification No. 45/2012-ST dated 7-8-2012, amending the Notification No. 30/2012-ST dated 20-6-2012 and expanded the scope of reverse charge mechanism. With effect from 7-8-2012, services provided by the director to the company will be covered under the reverse charge mechanism. We have summarized frequently asked question(s) in this regard for easy understanding:

FASB simplifies impairment testing of indefinite-lived intangible assets

The guidance for testing the impairment of intangible assets such as indefinite-lived trademarks, licenses and distribution rights has been simplified by FASB.
FASB on Friday issued Accounting Standards Update (ASU) no. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.
The standard applies to testing the decline in realizable value of indefinite-lived intangibles other than goodwill, and applies to all public, private, and not-for-profit organizations.
The ASU allows an organization the option of first assessing qualitative factors to determine if a quantitative impairment test of the indefinite-lived intangible asset is necessary. If the qualitative assessment reveals that it’s “more likely than not” that the asset is impaired, a calculation of the asset’s fair value is required.
Otherwise, no quantitative calculation is necessary.
“The board expects that the revised guidance will reduce the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low,” FASB Chairman Leslie Seidman said in a statement.
FASB’s previous guidance required an organization to compare the fair value of an indefinite-lived intangible asset with its carrying amount at least annually to test for impairment. If the asset’s carrying amount exceeded its fair value, the difference was recognized as an impairment loss.
The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after Sept. 15, 2012. Early adoption is permitted.
A podcast and a “FASB in Focus” issue devoted to the amendments are available on FASB’s website.

In fresh assessment passed pursuant to remand by ITAT, assessee cannot be worse off than what he was in the original assessment order

Kellogg India Pvt. Ltd vs. ACIT (ITAT Mumbai)

The AO passed a s. 143(3) assessment order in which he disallowance 50% of the expenditure on an ad-hoc basis. This was reduced to 25% by the CIT (A). On further appeal by the assessee, the Tribunal set aside the matter to the AO to examine the issue afresh. In the second round of appeal, the AO disallowed 100% of the expenditure on the ground that the assessee had already claimed the same expense under some other head and that there was a claim for double deduction. This was upheld by the CIT(A). Before the Tribunal, the assessee argued that once a matter has been set aside by the Tribunal, the assessee cannot be put into a worse situation than what it was at the time of original assessment. HELD by the Tribunal

Mere filing of Return of Income disbars an advance ruling application

Netapp BV vs. The AAR (Delhi High Court)

For AY 2009-10, the assessee filed a return on income u/s 139(1) on 31.3.2010. On 17.06.2010, it filed an application before the AAR seeking a ruling in respect of the transactions that had been entered into in that year. The AAR rejected the application on the ground that as the assessee had filed a ROI, the questions raised in the application were “already pending” before an income-tax authority and so the application was not maintainable under the proviso to s. 245R(2). The assessee filed a Writ petition contending that (a) the mere filing of a ROI did not mean that all possible questions were “pending” if the AO had not raised the issue and (b) as the AAR had in the past admitted applications even though ROIs were filed, it could not change its stand. HELD dismissing the Petition:

Monday, 20 August 2012

Sales incentives, future product returns and product warranties

Sales incentives, future product returns and product warranties are classified as current liabilities. Unlike accounts payable where both payee and amount are known, three of them are not; payee is unknown and amount is estimated—therefore, they are accounted differently. So, what is the journal entry for each of them? You may ask. That is the topic I am going to discuss through this post.
What commonly known for current liabilities, in general, are obligations that due on demand or will be due on demand within one year—or the operating cycle (if it is longer.)



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Sunday, 19 August 2012

How to adjust losses while Filing of Income Tax Return?

The Income Tax Act allows the Taxpayers under certain Conditions to set off loss against Income hereby reducing the net tax liability. If such loss can not be fully set off, the remaining balance can even be carried forward for set off in the future years. It is necessary for every taxpayers to properly understand and take advantage of the facilities in this regard.

Inter Source Adjustment:
There are five heads of income under which any taxpayer can earn income.
1. Salary
2. House Property
3. Income From Business or Profession
4. Capital Gains and
5. Income from Other sources.

80g Requirement for FCRA

Section 80 G registration:
Section 80G of the Income Tax Act enables an Income Tax Payee to claim deduction for donation made by them to certain organisation. This deduction is subject to certain conditions.
The amount of deduction depends on-
a). To whom the donation has been made.
b). The amount of donation. They are exempted from 100% to 50% of the amount of donation.
All institutions are eligible for registration provided they fulfill the following conditions:-
  • The Institutions should not spend any income or assets for any purpose other than a charitable purpose.
  • The Institution should not be for the benefit of any particular religion, community, or caste.
  • The Institution should maintain regular accounts.
  • The Institution should be registered under the Societies Registration Act or any other similar welfare Act.
  • Their expenses on religious activity should not exceed 5% of total income.
  • They should submit their income tax return regularly.
To get your society registered U/s 80G, You have to apply in form no. 10G.
  • Form No. 10G requires the following important information:-
  • Name and Address of the Institution.
  • Name and Address of the office bearers.
  • Income tax Particulars.
  • Amount of surplus and mode of their investments.
This application should be accomplished with the following documents:-
  • Copy of the registration granted U/s 12A or copy of notification issued U/s 10(23) or 12(23C) if any.
  • A note on the activities of the institution for the last three years.
  • Copy of the audited accounts for the Past three years.
  • Memorandum and Rules & Regulations.
  • Copy of the registration Certificate of the society

Earnings Management Practices Accountant Should Aware Of

Earnings management, in simple words, could be defined as an attempt—usually by the management—to influence reported earnings by using:

  • specific accounting methods (or changing methods); or
  • recognizing one-time non-recurring items; or
  • deferring or accelerating expense; or
  • deferring or accelerating revenue transactions; or
  • using other methods designed to influence short-term earnings; or
  • combinations of them.
Earnings management is not a new topic in the accounting discussions. It is worth refreshing, however, to make sure we (accountants) always aware of and prevent it from happening, at the first place.
Moreover, non-accountants are often under the impression of believing that, there is only a GAAP point, a single quantity that represents the one, true earnings number. Managers must be aware that because of this attitude the public can be very unforgiving of companies that are found to have “innocently” managed earnings.
The truth is that a manager has flexibility, in within the accounting standard (the US-GAAP), to report one earnings number from among many possibilities based on different methods and assumptions that accountants often use. This is famously known as “the GAAP Oval”.
The key thing to remember (and we should always remember) is that the forces encouraging managers and accountants to manage earnings are real, and if one is not aware of those forces it is easy to gradually slip from small and legitimate activities to outright fraud.

Reasons behind Earning Management Attempts

Earning report is everyone’s of interest. An earning figure could make shareholders happy or unhappy. So powerful that it could bring a group of manager fat bonuses or pink slip, let the company’s CEO stays or leaves the board for good. These are reasons, among the other, why earning—by theory and facts—tend to be “managed.”
Since as early as Enron’s issue, the public have been demanding greater assurance about the truthfulness of earning report. FASB has actually responded the expectation. On its conceptual framework, FASB refers to what is called “earning quality’—that not only about truthfulness, but also relevance and predictive value of information presented in financial statements—as one of its major objective.
However, it would probably be better to admit that, accounting standard (any of them) is not perfect; the use of estimates and assumptions. Using the concepts of accrual accounting and the accounting standards that have been issued, accountants add information value by using estimates and assumptions—considered as “professional judgment”—to convert the raw cash flow data into accrual data. These, on the other side, inevitably create some rooms to the company’s management to “work around” (read: manage) the reported earning numbers.
But they don’t play such activities for fun. They, either (a) are innocent; or (b) have serious reasons (motivations) of why they might manage the reported earning numbers. While most aren’t accounting savvy and fall into the first possibility, some (if not many) of them are and fall into the later.
Four famous motivations behind earnings management issues are:
1. Meeting internal earning demand – Big corporations demand managers to achieve certain earning level before providing bonuses and benefits. There is nothing wrong with demanding earning target nor the incentive, though, but as with any performance review system, it is inevitable that managers being evaluated will have a tendency to forget the economic factors underlying the measurement and instead focus on the measured number itself. I mean, who does not like bonuses?
2. Meeting external expectations – External stakeholders have an interest in the financial performance of a company, too. E.g. vendors want a company to do well so that it can survive for the long run and make good on its warranty obligations. Vendors want assurance that they will receive payment. For these stakeholders, a negative earning report is surely bad news. One shouldn’t be surprised that in some companies when the initial computations reveal that a company will report a net loss, the company’s accountants are asked to go back to the accrual judgments and estimates to see if just a few more dollars of earnings can be squeezed in order to get earnings to be positive.
3. Income Smoothing – The term of “income smoothing”, in this particular topic, referred to a practice (usually by the management team) to carefully timing the recognition of revenues and expenses to even out the amount of reported earnings from one year to the next—therefore they end up with steady earning growth report, instead of volatile. A steady earning growth gives investors and creditors sense of stability, reliability. It’s very well known that through aggressive accounting assumptions, the management can strategically defer or accelerate the recognition of some revenues as well as expenses, and smooth the reported earnings. Many cases (in the past) shown bad managements didn’t let such chance gone without utilizing that. By making a company appear to be less volatile, income smoothing can make it easier for a company to obtain a loan on favorable terms and to attract investors.
4. Window Dressing for an IPO (or a Loan) – For companies entering phases where it is critical that reported earnings look good, accounting assumptions can be stretched—sometimes to the breaking point. Such phases include just before making a large loan application or just before the initial public offering (IPO) of stock. Many studies have demonstrated the tendency of managers in U.S. companies to boost their reported earnings using accounting assumptions in the period before an IPO.
With all of the incentives to manage earnings, it isn’t surprising that managers occasionally do use the flexibility inherent in accrual accounting to actually manage earnings. And the more accounting training one has, the easier it is to see ways in which accounting judgments and estimates can be used to “enhance” the reported numbers.

Earnings Management Could Come In Some Different Flavors

Not all earnings management schemes are created in the same “flavor”. It can range from savvy timing of transactions to outright fraud.
In most companies, earnings management does not extend beyond the savvy transaction timing. However, because of the importance (and economic significance) of the catastrophic reporting failures that are sometimes associated with companies that engage in more elaborate earnings management, I am going to discuss the entire flavors. Read on…
Earnings management can come in five different flavors. Here they are:
1. Careful timing of transactions – It is referred to as “strategic matching”. As it is noted on the above income smoothing motivation, through awareness of the benefits of consistently meeting earnings targets or of reporting a stable income stream, a company can make extra efforts to ensure that certain key transactions are completed quickly, or delayed, in order for them to be recognized in the most advantageous quarter.
2. Changing accounting methods or estimates with full disclosure – Companies frequently change accounting estimates regarding bad debts, return on pension funds, depreciation lives, and so forth. Although such changes are a routine part of adjusting accounting estimates to reflect the most current information available, they can be used to manage the amount of reported earnings. Because the impact of such changes is fully disclosed, any earnings management motivation could be detected by financial statement users willing to do a little detective work.
3. Changing accounting methods or estimates WITHOUT adequate disclosure – In contrast to the accounting changes referred to in the preceding paragraph, other accounting changes are sometimes made without full disclosure. For example, a company change the estimated interest rate used in recording sales-type leases without describing the change in the notes to the financial statements. While one might debate whether the new estimated interest rate was more appropriate, what is certain is that failing to disclose the impact of the change resulted in financial statement users being misled.
4. Fraudulent reporting – A more polite label for this practice, maybe, “Non-GAAP Accounting” although it can also be the result of inadvertent errors. We, accountants, very well know that some of the Enron’s accounting practices (though certainly not all) were established for the express purpose of hiding information from financial statement users. In so doing, Enron violated the spirit of the accounting standards. In some cases, Enron also violated the letter of the standards by using some accounting practices that were not allowed under GAAP. This is obviously fraudulent reporting.
5. Fictitious Transactions – A practice one or a management team takes to inflate earnings number by, either: (a) making and recording transactions that actually never existed; or (b) hiding existed transaction (e.g. returned merchandises). This is an example of outright fraud, which is the deceptive concealment of transactions (like the sales returns) or the creation of fictitious transactions.
In an instant way, the five activities above shows that large scale of accounting fraud could start small, legitimate and really reflect nothing more than the strategic timing of transactions to smooth reported results. In the face of operating results that fall short of targets, a company might make some cosmetic changes in accounting estimates in order to meet earnings expectations, but would fully disclose these changes to avoid deceiving serious financial statement users.
However, if operating results are far short of expectations, an increasingly desperate management might cross the line into deceptive accounting by making accounting changes that are not disclosed or by violating the US-GAAP (or IFRS) completely.
Finally, when the gap between expected results and actual results is so great that it cannot be closed by any accounting assumption, a manager who is still fixated on making the target number must resort to out-and-out fraud by inventing transactions and customers.

Is It Wrong for Managers to Try to Use Accounting Flexibility to Report Earning?

Whether a manager actually does manage earnings, and whether he or she crosses the line and violates the accounting standard (US-GAAP or IFRS) to do so, is partially a function of the fear (and risk) of getting caught and of the general ethical culture of the company. But it is also a function of the personal ethics of the manager, and the manager’s ability to recognize that fraudulent and deceptive financial reporting is part of a serial that starts with innocent window dressing but can end with full-scale fraud.
Boards of directors and financial statement preparers should also be aware that, as a group, managers are notoriously overoptimistic about the future business prospects of their companies. Therefore, a company policy of having a consistently conservative approach to accounting is a good counterbalance to the tendency.