Seized material must have some nexus to additions sought to be made by AO and must be relevant for forming belief regarding escaped income: HC

THE ISSUE BEFORE THE COURT IS - Whether the seized material must have some nexus or relevance to the additions sought to be made and must be relevant for the belief formed regarding income having escaped assessment. YES is the verdict.  

Mandatory return-filing before due-date to claim tax-holiday not 'discriminatory'; Upholds Constitutional validity

Delhi HC dismisses assessee’s (100% EOU) writ for AY 2007-08, upholds constitutional validity of Sec. 80A(5) as well as fourth proviso to Sec. 10B(1) (the sections mandate filing of return of income within prescribed due-date u/s 139(1) in order to claim tax holiday u/s. 10A/10B); Assessee submitted that the provisions discriminate between two sets of assessees – one, who file return u/s. 139(1) but claim the deduction subsequently by way of revised return u/s. 139(5), and another set of taxpayers, who could not file return within due date but claim the deduction in the original return filed belatedly u/s. 139(4) and therefore violative of Article 14 of the Constitution; HC observes that the provisions did not curtail any vested rights of taxpayer but it only imposed an obligation to claim deductions in a timely manner and in the return so filed; HC also refers to SC ruling in Nallamilli Ramli Reddi to hold that Article 14 permits reasonable classification if it is based on intelligible differentia and it has reasonable connection with the object sought to be achieved; Noting that the objective behind insertion of the two provisions was to defeat multiple claims of deductions and to ensure better tax compliance, HC rules that “it is open to legislate and prescribe different conditions in respect of those who claim benefits, just as the substantive provisions which stipulate the conditions (kind of accounts to be maintained, eligibility criteria, etc.).”; Also relies on SC rulings in Kedarnath Jute Manufacturing Co. Ltd. and Sanjay Kumar Jain to uphold the validity of fourth proviso, being merely a qualifying proviso, which seeks to limit the general provision in Sec. 10B(1) with a further stipulation or condition:HC 

Few Points on ICDS

(a)  ICDS will decide the turnover  required to be computed for Presumptive taxation

(b)  The CBDT issued a FAQ on March 23, 2017 and details of same available  at following link.

  https://taxofindia.wordpress.com/2017/04/05/update-on-icds/

(c)  ICDS applicable only to Income from business/profession and Income from other sources

(d)  The concept of prudence is no more applicable and hence no expected loss being applicable

(e)  Unlike accounting standard which uses word “shall’, the ICDS uses the word “should” only.

(f)   For 9 ICDS, there are transitional provisions.

(g)  In case there is no Tax audit, then the disclosure of ICDS required to  be made at computation.

(h)  For computation of service work in progress, there are  following  method

Ø  Physical measurement

Ø  Estimated Cost

(i)    Act & rules both  will prevail over ICDS but the supreme court judgement are debatable.

(j)    For construction contract, the transitional provision is that  for existing old pprojects, they can continue with their old method till their completion.

(k)  Provide for interest income in case the customer contract mention the same and in case same is debatable, then  provide for bad debt u/s 36(1)(vi).

(l)    Capitalise all interest expenses even the duration of creation  of asset is less than 12 months.

(m) Provision of expenses must be reasonable

(n)  Recognition of contingent asset.

(o)  Section 115A -  Tax on special case -  ICDS applicable

(p)  Any change is accounting policy is retrospective and any change in accounting estimate is prospective.

(q)  ICDS not applicable to assesse who follow cash system. Also  not applicable to Individual/ HUF who not subject to tax audit.

(r)   No completed contracted method  (CCM) now exist, only PCM ( Percentage Completion Method).

FAQ on ICDS

01.   ICDS is not for purpose of maintainace of books of accounts but for the purpose of taxable income. 

02.   ICDS will over and above all earlier judicial precedents. 

03.   ICDS  applicable to all taxpayer who require to pay tax under  Business Income and Income from other source.

04.   Income tax act will prevail over ICDS in case of any conflict.

05.   ICDS not applicable in the case of MAT but applicable in the case of AMT.

06.   MTM loss now cannot be allowed as expenditure.

07.   Retention money  recognition now cannot be deferred on receipt basis.

08.   ICDS also applicable to real estate companies as applicable to other construction companies.

09.   Interest and Royalty now require to  book under accrual basis.

10.   Expenditure on P&M before commencement of production will be capitalised.

11.   Taxation of government grant include subsidy in any form.  – if relate to capital item then reduce the cost, otherwise P&L.

12.   Revenue Recognition – Service -  percentage completion method.

Forex rules regarding valuation of foreign branch transactions

FAQ ON MAT COMPUTATION UNDER IND AS.

(A) MAT Computation in the first year of adoption of Ind AS The Phase I companies are adopting Ind AS during the current financial year ending 31 March 2017 with comparative year 31 March 2016 and transition date of 1 April 2015. For accounting purposes on account of first time adoption of Ind AS, transition adjustments are recorded in opening equity as at 1 April 2015. However, for MAT purposes, the transition adjustments as of 31 March 2016 shall be considered for computation of MAT liability for the previous year 2016-17 (assessment year 2017-18) and thereafter. The transition adjustments will be included in the book profit for the purpose of computation of MAT liability as follows:

Imp Verdicts On S. 271(1)(c) And S. 14A/ Rule 8D

Wadhwa Estate & Developers India Pvt. Ltd vs. ACIT (ITAT Mumbai)

S. 271(1)(c): Penalty cannot be levied if the omission to offer income, and the wrong claim of deduction, was by oversight and the auditors did not point it out. Also, the failure of the AO to specify the limb under which penalty u/s 271(1)(c) is imposed is a fatal error
Undisputedly, in the return of income assessee has failed to offer interest on fixed deposit amounting to ` 5,92,186 and loss claimed on account of fixed asset written–off amounting to Rs 1,82,242. It is also a fact on record that in the course of assessment proceedings, the assessee accepted the taxability of these items of income and offered them to tax. The assessee has explained that non–disclosure of aforesaid two items of income is due to oversight and due to the fact that neither in the tax audit nor in the statutory audit such omission was pointed out. We find merit in the aforesaid explanation of the assessee

Sections 50C /56(2)(vii)(b) can be invoked in cases of differences in rates charged by builder/developer from their customers in respect of similar flats

ISSUE IS - Whether Sections 50C / 56(2)(vii)(b) can be invoked in cases of difference in the rates charged by a builder company from its customers in respect of similar flats. NO is the verdict.

Facts of the case:

Claiming set-off of losses suffered during amalgamation is no valid reason to deny depreciation to amalgamating company on brand value acquired: ITAT

THE ISSUE IS - Whether mere claiming set off of loss suffered during amalgamation, cannot be a reason to disallow the depreciation claimed by amalgamating company upon acquisition of brand value of such amalgamated company. YES is the answer.  

Book on BEPS

The most latest book on  Base Erosion and Profit Shifting (BEPS)  now published and you can place your order at taxbymanish@yahoo.com  to book your E copy.  The contents of the books is given below.


Index

SN	Description	Page No.
1	Important Summary	3-4
2	Introduction	5-7
3	BEPS Action 1 : Addressing the tax challenges of the digital economy	8-11
4	BEPS Action Plan 2: Neutralizing the effects of hybrid mismatch arrangements	12-15
5	BEPS Action Plan 3: Designing effective controlled foreign company rules	16-18
6	BEPS Action Plan 4: Limiting base erosion arising from interest deductions	19-20
7	BEPS Action 5: Countering harmful tax practice more effectively	21-22
8	BEPS Action Plan 6: Preventing inappropriate treaty benefit grants	23-25
9	Action Plan 7 : Preventing the Artificial Avoidance of Permanent Establishment Status	26-27
10	BEPS Action Plan 8: Transfer pricing of intangibles	28-30
11	BEPS Action 9: Risk and Capital	31-33
12	BEPS action plan 10: Other high-risk transactions	34-35
13	Action Plan 11 -- Measuring and Monitoring BEPS	36-38
14	BEPS Action Plan Action 12: Disclosing Aggressive Tax Planning Arrangements	39-40
15	BEPS Action Plan 13: Transfer pricing documentation and country-by-country reporting	41-43
16	BEPS action plan 14: Making dispute resolution mechanisms more effective	44-46
17	BEPS 15-point action plan: Developing a multilateral instrument to modify bilateral tax treaties	47-49
18	Introduction of BEPS into Indian domestic law	50-56
19	The Practical Impact of Country by Country Reporting.	57-69
20	A model template for the Country- by-Country Report	70-71
21	Master & Local File	72-75

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POEM APPLICABLE ON COMPANIES TURNOVER MORE THAN 50 CRORE.

CBDT issues circular clarifying that provisions of Sec 6(3)(ii) relating to place of effective management (POEM) won't apply to companies having turnover or gross receipts less than Rs 50 crores during financial year; CBDT now issues a clarificatory circular since the Press Release issued in January 2017 referred to Rs 50 crores limit, however the same was not expressly mentioned in the POEM circular 

ITAT: Investment vs. stock-in-trade distinction irrelevant for Sec 14A application; Disallows expenditure on strategic investments

Chennai ITAT upholds Sec 14A disallowance for AYs 2011-12 & 2012-13 in respect of strategic investments made by assessee-company in subsidiary / associate companies for business purposes;  ITAT clarifies that the holding of asset/property under reference either as an investment or as stock-in-trade becomes inconsequential or irrelevant for Sec 14A application,  what is relevant is not the object for which the investment was made, but the nature of income – tax-exempt or otherwise, that arises from the investment;  Remarks that “Now, it stands to reason that if ‘investments’ forming part of the assessee’s stock-in-trade does not preclude application of sec. 14A, investments made for business, i.e., assuming so, would surely not.”; Further rejects assessee’s stand that no expenditure was incurred for making strategic investments, remarks that “the very fact that the assessee claims it as having business implications, makes such a review imperative, entailing cost.”, upholds disallowance of indirect expenditure as per Rule 8D(iii) ; Relies on Special Bench ruling in Daga Capital Management P. Ltd., Mumbai ITAT ruling in DH Securities (P.) Ltd., Bombay HC ruling Godrej & Boyce Mfg. Co. Ltd. and Calcutta HC ruling in Dhanuka & Sons, differs from co-ordinate bench ruling in EIH Associated Hotels Ltd.  in as much as the same was without reference to the language of the provision and the aforesaid decisions:ITAT 

HC : Upholds penalty u/s 112 for goods mis-declaration, however, deletes simultaneous penalty u/s 114A

HC sets aside CESTAT's order pertaining to deletion of penalty on assessee for mis-declaration of goods, upholds penalty u/s 112 of the Customs Act, 1962 (Act), while setting aside penalty u/s 114A; Agreeing with CESTAT, sets aside interest demand since show cause notice (SCN) does not mention about Section 28 of Customs Act, and also does not mention as to what provisions of law the interest was sought to be recovered although order confirms interest u/s Section 28AB Act; Further states that, even if it is considered that demand arises out of finalization of provisional assessment u/s 18, it is settled by judicial pronouncements that no interest is recoverable on finalization of provisional assessments made prior to July 13, 2007; Opines that, penalty u/s 114A is not leviable since SCN did not mention anything about Section 28 and wording of Section 114A makes it expressly clear that penalty under said Section is attracted when liability to pay duty or interest is determined u/s 28; However, distinguishing case of Care Foundation and Amrit Foods from present case, states in present case, SCN invokes both Section 114A and 112, and given that, both penal provisions are invoked, question of deleting penalty could not have arisen : Delhi HC

ITAT : Self-generated patent transfer triggers taxable capital gains; Rejects taxpayer's unascertainable cost plea

Mumbai ITAT rules that consideration received by assessee-company (engaged in research development, manufacturing, licensing of bio-pharmaceuticals products)  on assignment of indigenously developed patent of a medicine shall be taxable as ‘capital gains’ and shall be subject to  applicability of Sec. 55(2) (which states that cost of acquisition for self-generated goodwill, right to manufacture etc. shall be taken at ‘nil’) for AY 2008-09; Assessee had argued that the amount was a non-taxable capital receipt, as no cost was incurred for developing the patent and further even if cost was incurred, it was not ascertainable, moreover transfer of know–how/patent was not covered by Sec. 55(2);  ITAT notes that for developing a patent of medicine, assessee has to carry out research analysis and experimentation, further notes that medical patents require clinical tests and administering drugs to the patients, hence the claim that no cost was incurred is not acceptable; ITAT holds that assessee’s case falls under the ambit of ‘right to manufacture/produce/process any article or thing’ as envisaged u/s 55(2)(a), distinguishes assessee’s reliance on ITAT ruling in Kwality Biscuit (P.) Ltd. as it dealt with trade-mark and brand name, similarly distinguishes assessee’s reliance on Bombay HC ruling in Fernhill Laboratories and Industrial Establishment on facts:ITAT 

SC : Admits SLP against HC order including TDS as part of 'tax-paid' for refund

SC admits Revenue’s appeal against HC order directing Revenue to grant refund of 50% of total tax deposited (actual tax plus TDS) by assessee as per Clause 4.2.15 of Madhya Pradesh Udhyog Nivesh Samvardhan Sahayata Yojna, 2004 (Scheme of 2004); HC had rejected Revenue’s contention that, input tax is not deposited by purchaser at time of issuance of TDS certificate but at time of sale of such goods, therefore benefit of Clause 4.2.15 is not available; HC remarked that, Section 26A which provides for TDS have been brought in statute w.e.f. December 24, 2007 and since then, a liberty has been granted to purchaser to deduct TDS from sellers; Therefore, stating that, deeming provisions of deposit of tax has been introduced, as per Section 26-A (3) as well as Rule 45A (9), and considering same, benefit has been granted earlier to assessee as well as similarly situated manufacturers; Thus, HC allowed writ petition holding it to be a case of hostile discrimination : SC

ITAT: Third Member allows 'additional depreciation' on windmill; Sec 32(1)(iia) amendment of 2012 applicable retrospectively

Pune ITAT third member  rules that  process of generation of electricity through windmill amounts  to ‘manufacture or production of article or thing’ as contemplated u/s 32(1)(iia),   allows assessee’s ‘additional depreciation ’ claim on windmills  for  AYs 2011-12 & 2012-13; During relevant AYs, apart from claiming accelerated depreciation @ 80% u/s. 32(1)(i) (available to power generation companies), assessee  also claimed additional depreciation  @ 20% u/s. 32(1)(iia), accepts assessee’s  stand that conversion of wind energy into electric energy by windmill amounts to ‘manufacture ’ as contemplated u/s 32 (1)(iia),  relies on Madras HC ruling in Atlas Export Enterprises;  Third member dissents with Accountant member view that in light of ‘substantive’ amendment made by Finance Act 2012 to extend & include activity of ‘generation of power’ under the ambit of Sec 32(1)(iia) with effect from  April 1, 2013, benefit of initial depreciation/ additional depreciation could not be extended to windmills acquired prior to AY 2013-14;  Third member agrees with Judicial member view that amendment brought to Sec.  32(1)(iia) was clarificatory and not ‘substantive’ in nature, accordingly was retrospective in application:ITAT 

Amounts paid as part of lease premium towards acquisition of leasehold rights, were not 'rents' warranting obligation u/s 194-I

 THE ISSUE IS - Whether amounts paid as part of lease premium in terms of the time-schedules to the Lease Deeds executed between a builder and an industrial township, can be subjected to TDS being capital payments. No is the verdict.

Whether manufacturer can be denied additional depreciation on machineries acquired by it, merely because they are installed at later date - NO: HC

THE ISSUE IS - Whether an assessee manufacturer can be denied additional depreciation u/s 32(1)(iia) on machineries acquired by it, merely because they were installed belatedly and that too on account of replacement of damaged parts. NO is the verdict.

Penalty on receiving cash more than 3 Lakh - even from Bank.

The FM introduced the new section 269ST where it was held that "no person shall receive an amount of Rs 3 lakh or more by way of cash in aggregate from a person in a day; in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person".

However, the restrictions will not apply to the government, any banking company, post office savings bank or co-operative bank.

It means that any person cant withdraw more than 3 lakh from a same bank in a day. 

The important words of the section are

(a) A Person receiving

(b) A person giving

(c) 3 Lakh

(d) in a day.