ITAT : Penalty for Trust’s belated return filing, mandatory pre-2012; 'Reasonable cause’ defense inapplicable

Bangalore ITAT upholds penalty levy u/s 272A(2)(e) on assessee-Trust for AY 2009-10, for filing of return of income u/s 139(4A) with the delay of 541 days; Rejects assessee’s stand that penalty should be deleted as the failure to file return was under the bonafide belief and advice received from former deceased Accounts-in-charge Manager of assessee Trust; ITAT remarks that for subject AY, levy of penalty was mandatory even if reasonable cause was established, observes that Parliament had inserted reference of Sec. 272A in the provisions of Sec. 273-B only vide Finance Act, 2012 w.e.f. April 1, 2012; States that “The Act does not confer any discretion on the AO not to levy penalty in case reasonable cause is shown to exist”; Relies on SC ruling for Aditanar Educational Institution to hold that the assessee claiming exemption u/s 11 should mandatorily file return of income as per Sec. 139(4A).:ITAT 

Key takeaways of ICAI Technical Guidance on amended Tax Audit Report

ICAI’s implementation guide on Tax Audit Report covers amendment to Tax Audit Report (Form 3CD) which are effective from August 20, 2018 and thus, does not discuss GAAR and GST reporting (under clause 44); Clarifying on reporting relating to secondary adjustments, Guidance states that in cases where amount of imputed interest income on the excess money not repatriated to India relates to more than one year, “Prima-facie, it appears that reporting of such interest is not required to be reported under clause 30A(b)(v) since Clause 30A requires reporting only in relation to primary adjustment made during the relevant previous year”; However, ICAI Guidance also stresses that “it may be advisable for the taxpayer to furnish and tax auditor to verify and report the information pertaining to such primary adjustments in respect of interest income which is chargeable u/s. 92CE(2)” as the return filing utility may synchronize the parameters of imputed interest u/s 92CE(2) as offered in the return of income with the parameters stated in the Tax Audit Report; With respect to reporting of interest limitation u/s 94B, ICAI Guidance clarifies that “The computation of “excess interest” as per section 94B(2) should be within the boundaries of interest referred to in s.94B(1), which is NR AE interest”; Regarding disclosure of CbCR information, the Guidance clarifies that “the tax auditor is not required to comment upon correctness or completeness of the report filed under section 286(2)”; Further, apart from highlighting the widened scope of reporting requirements in respect to TDS/TCS returns, the Guidance clarifies on applicability of Sec. 269ST reporting (for cash transactions exceeding Rs. 2 lakh threshold) to Govt. companies and to capital and revenue payment / receipts;  Regarding reporting of deemed dividend u/s. 2(22)(e), the Guidance suggests that the tax auditor may arrive at the accumulated profits by appropriating the profit for the year on time basis, where he may not have access to the records of a closely held company making payment during relevant financial year. 

IMP CASE LAWS

Prabhat Agarwal vs. DCIT (Delhi High Court)

S. 147/ 148: The revenue played a subterfuge in trying to cover up its omission and in ante dating the record. The court hereby directs the Chief Commissioner to cause an inquiry to be conducted as to the involvement of the officials or employee in the manipulation of the record, and take strict disciplinary action, according to the concerned rules and regulations. This inquiry should be in regard to the conduct of the concerned AO posted at the time, who issued the notice under Section 147/148 as well as the officers who filed the affidavits in these proceedings 

ITAT : No TDS on 'scientific services' of Non-resident individuals; Article 14 to prevail over Article 12

Delhi ITAT holds that payment made by assessee company to individuals (resident of Germany and Switzerland)  for AY 2008-09 and 2009-10 cannot be taxed as 'fees for technical services' under Article 12 of India Germany and India Switzerland DTAA, TDS u/s 195 inapplicable; Perusing the evidence in the form of copies of trials conducted by NR, email exchanges and working protocol, ITAT holds that services rendered were 'independent scientific services' falling under Article 14 - 'independent personal services', but same cannot be brought to tax in India absent a fixed base in India or non-resident recipients staying in India for 120 days or more; Rejects Revenue's contention that services would fall under Article 12, holds that Article 14 being a more specific provision applicable to professional services provided by individuals, it would prevail over general provisions under Article 12 which applies to all types of taxpayers; Also rejects Revenue's reliance on earlier year ruling in assessee's own case where applicability of Article 14 was rejected as assessee failed to prove that services were independent scientific services, notes that in the year under consideration, assessee had provided enough evidence to prove the nature of services provided by non-resident individuals:ITAT

STT applicable on delivery-based derivative settlements, CBDT to inform HC

CBDT issues note to Income tax Department Mumbai, directs Dept. to file affidavit before Bombay HC that STT shall be applicable to delivery based derivative transactions; CBDT takes a view that transaction of derivative contract being settled by physical delivery of shares is not any different from transaction in equity shares where contract is settled by actual delivery or transfer of shares ;  Therefore, CBDT instructs Dept. to clarify to HC that the rates of STT as applicable to delivery based equity transactions shall also be applicable to such derivative transaction; States that legal mandate of STT is  wide enough to cover these transactions

CBDT further extends return filing due date to September 15th for assessees in Kerala

CBDT further extends return filing due date to September 15th for all assessees in the State of Kerala due to severe floods. 

CBDT: Mandates ‘E-Proceeding’ for ‘all’ assessments during 2018-19, carves-out 7 exceptions

CBDT mandates conducting assessments electronically through the ‘E-Proceedings’ facility in all cases requiring framing of assessment u/s. 143(3) during the year 2018-19; However, carves-out 7 exceptions, where ‘E-Proceeding’ shall not be mandatory; Also lists down 4 situations where personal hearing/ attendance may take place, despite assessment proceedings being carried out through the ‘E-Proceedi

ITAT : Grants vacancy allowance; Saif Ali Khan's ‘construction defect’ plea not spurious

Mumbai ITAT grants vacancy allowance u/s 23(1)(c)  to Saif Ali Khan Pataudi (‘assessee’)  in respect of his Bandra flats that could not be let out during AY 2012-13;  Notes that assessee had offered Rs.11.83 lakh  as taxable rent, however, Revenue had substituted a sum of Rs. 50 lakh as reasonable rent for the property, accepts assessee’s plea that due to inherent defects/unauthorised construction, the flat could not be let out; Holds that assessee’s plea “cannot be said to be spurious, vexatious, mere bluster or frivolous.”, furthermore, noting that assessee had to incur Rs. 50 lakhs in order to make necessary alterations to remove defects, ITAT remarks that “This oxygenates the assessee's claim that the premises required alteration in order to properly let out.” ; Referring to Sec. 23(1)(c), ITAT opines that “in case the property or part thereof was vacant during the period, the proportion deduction should be allowed from the sum on which the property might reasonably be let out from year to year.”; In light of aforesaid facts, ITAT holds that assessee deserves vacancy allowance, relies on co-ordinate bench ruling in Premsudha Exports (P) Ltd.:ITAT 

HC : Education Cess not 'tax'; Sec.40(a)(ii) disallowance not attracted

Rajasthan HC reverses ITAT’s order, holds that education cess cannot be disallowed under the provisions of Sec. 40(a)(ii); Relies on CBDT Circular No. F. NO. 91/58/66-ITJ(19) dated May 18th , 1967 which clarifies that since the word ‘cess’ had been omitted from Sec. 40(a)(ii), only taxes paid are to be disallowed for AY 1962-63 and onwards; Relies on SC ruling in the case of Jaipuria Samla Amalgamated Collieries Ltd. wherein while ruling on disallowance under Sec 10(4) erstwhile Income-tax Act, 1922, SC had held that 'road cess' and 'public work cess' could not be treated as tax:HC 

Due date of returns notified for July 18 - March 19

This is to update you that government has notified the due dates of filing of GSTR 1 and GSTR 3B returns for the tax periods July 2018 to March 2019.   

Compensation received by assessee to discontinue commodity trading business, where business along with clientele is transferred to newly-floated company with common promoters, is be taxed u/s 28(va): ITAT

THE ISSUE BEFORE THE BENCH IS - Whether when to clear the way for acquisition of shares by a foreign bank, in compliance with various regulators such as SEBI and RBI, assessee had to transfer its commodity trading business along with its clientele to a new floated company with common promoters, can it be said that profit making apparatus of the assessee is impaired. AND THE VERDICT IS NO.    

Singular payment received for exercise of voting right is to be treated as capital receipt where it is not-recurring in nature: HC

THE ISSUE AT HAND IS - Whether receipt of a singular payment which is not recurring in nature & which is received for exercise of any rights arising from substantial control over another company, is to be treated as capital receipt. YES IS THE ANSWER.   

If rent receipts are inextricably linked with business of assessee, same cannot be treated as income from house property : ITAT

THE ISSUE IS - Whether when rent receipts are inextricably linked with the business of the assessee, same can not be treated as income from house property. YES IS THE VERDICT. 

HC : Allows IPR depreciation to trading co.despite not ‘put-to-use’ for manufacturing activities

Delhi HC dismisses Revenue’s appeal, allows depreciation on the intellectual property rights (IPR) acquired and purchased by assessee co. from Monsanto India Limited during AY 2010-11; HC notes that the IPRs purchased by assessee included trademarks, which were used for the purpose of its trading business, in advertising/sales promotion/marketing; Rejects Revenue’s stand that depreciation was not allowable as the capital asset in form of intellectual property rights was not put to use for manufacturing activities; HC remarks that “This cannot be a ground and reason to hold that the assessee had not ‘put to use’ the intellectual property rights assets in the year in question.”; HC clarifies that “Mere purchase of the products, from third party or the fact that assessee was not engaged in manufacturing activity, would not make any difference.”, moreover observes that Revenue did not dispute cost of acquisition, ownership and nature of IPRs acquired.:HC 

US IRS releases draft rules relating pass-through entities deduction including anti-avoidance rule

US IRS releases proposed tax regulations for new 20% income tax deduction for owners of businesses organized as pass-through entities (introduced through US Tax Code legislated in December 2017) for stakeholders comments within 45 days; The regulations will affect individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses; As a measure to prevent a tax loophole for wealthy Americans, the proposed regulations also contain an anti-avoidance rule to treat multiple trusts as a single trust in certain cases; For the purpose of claiming deduction, ‘qualified trade or business’ is proposed to exclude Specified service trade or business (‘SSTB’), which is any business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services 

Karnataka Karasamadhan Scheme 2018 | Tax settlement scheme

We wish to update you on the Karasamadhan Scheme which has been introduced vide order No. FD 38 CSL 2018 dated August 04, 2018 as “CST Karasamadhana Scheme 2018” by the Karnataka government. Following are the key takeaways from the scheme:    

Frequently Asked Questions: Sending ITR-V to CPC

1. Is it possible to send multiple ITR-V forms?
Yes, you can send multiple ITR-V forms. This is applicable for instances where the individual has switched employments and has more than one Form – 16.   

Canadian Tax Court upholds POEM for Dutch co. in Canada, applies central management & control test

Tax Court of Canada holds the Dutch co. (appellant) as tax resident of Canada as it was centrally managed and controlled from Canada through the Backxes (shareholders in appellant co. and immigrated to Canada), upholds capital gains taxability for disposition of a partnership interest in a dairy-farm operation located in Ontario ; Notes that in subject tax year 2009, the Backxes incorporated Dairy Farm co. in Canada and transferred their 51% interest in the Dairy-farm partnership to the company, rejects appellant’s contention that it was non-resident in Canada since it was incorporated in the Netherlands and its sole director (Ms. Van Gorp, a relative of the Backxes) was also from the Netherlands; Firstly, Court observes that the common law test for making the determination of residential status is the central management and control test, rules that cogent evidence is required to displace the well-established notion that de jure directors hold primary responsibility for the management and control of a company; Observes that in present case, despite no experience in farming, Ms. Van Gorp had accepted the title of director to assist the Backxes, further observes that she neither participated in the decision to invest in the Farm Partnership nor in the decision to dispose of the Farm Partnership in 2009 and merely implemented decision made by the Backxes in Canada; Accepts Revenue’s stand that although the Appellant was registered and incorporated in the Netherlands,it was the Backxes who assumed effective and independent control of the Appellant from Canada, and its sole director, Ms. Van Gorp, performed only administrative/clerical tasks in the Netherlands. 

ITAT : Pre-2014 'direct' re-insurance payments to foreign re-insurer violates Insurance Act, disallows deduction

ITAT disallows deduction to Indian Insurance company (assessee) for reinsurance premium paid to non-resident citing non-deduction of TDS, also holds that pre-2014, any re-insurance arrangement involving a direct payment of reinsurance premium to a foreign insurer, is in violation of and contrary to Insurance Act, thus hit by Expl 1 to Sec 37(1); Tribunal gives primacy to opening words of Sec. 101A which read " Every insurer shall re-insure with Indian re-insurers such percentage of the sum assured on each policy...." ; As regards sub-section 7 of Sec 101A that allows an insurer to insure with an Indian insurer or "other insurer" , an amount over and above the percentage prescribed by Insurance regulator IRDA, ITAT firmly rejects the argument that the words "other insurer" could be interpreted to mean a foreign re-insurer; ITAT carefully peruses Sec. 2(9) of Insurance Act, that according to the Tribunal, emphasised two conditions, namely "i) The insurer or reinsurer shall be in India ii) such person shall have standing contract with underwriters who are members of the Society of Lloyd’s...."; ITAT rejects assessee's contention that provision of Sec 2(9) prior to amendment in 2014 was not applicable to assessee, highlights amendment in 2014, that changed the definition of an "Indian insurer" to include a " foreign company engaged in reinsurance business through a branch established in India" post which assessee started deducting TDS on reinsurance premium; ITAT, therefore, holds that "the profit of non-resident reinsurance company or the person in India who has standing contract with underwriters, who are members of the Lloyds, is taxable in India. Hence, the assessee has to necessarily deduct tax on the premium paid to non-resident re-insurance company for reinsurance."; Tribunal further goes on to hold that even otherwise if the assessee claims that there was no person in India, who has standing contract with underwriters who are members of the Lloyds and premium was paid directly to non-resident re-insurance company, then the transaction of the assessee violates the Insurance Act regulations; Overturns CIT(A) ruling restricting the disallowance to 15% of reinsurance premium, upholds AO's order disallowing the entire amount; Rejects reliance on Apex Court ruling in Vodafone International Holdings, refuses reliance on favourable rulings of Mumbai & Pune benches of the Tribunal since the provisions of Sec. 2(9) of Insurance Act were not brought to the notice of the respective benches; Separately, reverses CIT(A) order deleting disallowance u/s 14A, granting exemption to profit on sale of investment, but accepts assessee’s claim that provision of Sec 115JB are inapplicable to insurance companies:ITAT

Imp Verdicts On S. 271(1)(c) Penalty And Bogus Capital Gains From Penny Stocks

HPCL Mittal Energy Ltd vs. ACIT (ITAT Amritsar) (Third Member)

S. 271(1)(c)/ 292B: The AO cannot initiate penalty on the charge of 'concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of 'furnishing inaccurate particulars of income' (and vice versa). In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. Such error is not procedural but goes to the root of the matter and is not saved by s. 292B. The error renders the penalty order unsustainable in law 

When the AO is satisfied that it is a clear-cut case of concealment of particulars of income, he must specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. The AO cannot initiate penalty on the charge of `concealment of particulars of income’, but ultimately find the assessee guilty in the penalty order of `furnishing inaccurate particulars of income’. In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of `furnishing of inaccurate particulars of income’, he must again specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. After initiating penalty on the charge of `furnishing of inaccurate particulars of income’, he cannot impose penalty by finding the assessee guilty of `concealment of particulars of income’ 

Pramod Kumar Lodha vs. ITO (ITAT Jaipur)

S. 10(38) Bogus long-term gains from penny stocks: The transaction cannot be treated as bogus until and unless a finding is given that the shares were acquired by the assessee from the person other than the broker claimed by the assessee. The enquiry conducted by the Investigation Indore is not a conclusive finding of fact in view of the fact that the shares were duly materialized & held in the d-mat account. Merely supplying of statement to the assessee at the fag end of the assessment proceedings is not sufficient to meet the requirement of giving an opportunity to cross examine. The AO cannot proceed on suspicion without any material evidence to controvert or disprove the evidence produced by the assessee 

The decision of the AO holding the transaction as bogus and denying the claim of long term capital gain under section 10(38) of the Act is based on suspicion without any material evidence to controvert or disprove the evidence produced by the assessee. The enquiry conducted by the ITO Investigation Indore is not a conclusive finding of fact that the transaction of purchase of shares by the assessee is bogus particularly in view of admitted fact that these shares were held by the assessee and were duly materialized in the d-mat account. Therefore, until and unless a finding is given that the shares were acquired by the assessee from the person other than the broker claimed by the assessee, the mere suspicion how so ever strong may be, cannot be a basis of addition or disallowance of claim