HC : Holds PILCOM as agent of foreign Cricket Boards regarding 1996 World Cup receipts

Calcutta HC reverses ITAT order and rules in favour of Revenue for AY 1996-97, holds PILCOM as agent of Non-Resident Cricket Boards in relation to 1996 World Cup receipts; Pursuant to ICC choosing Pakistan, India and Sri Lanka to co-host the World Cup 1996, a joint management committee of these three countries (PILCOM)] was formed which paid guarantee money to cricket associations of various countries and other sums from bank account in London; While the AO had made an assessment of income u/s. 147 for all the cricket boards through PILCOM, ITAT had quashed the same and had held that PILCOM could not be held liable as agent u/s. 163 as the income had accrued in India and it could not be said to be deemed to have accrued in India; Referring to Sec. 5 (scope of total income), Sec. 9 (income deemed to accrue/ arise in India) and Sec. 163 (relating to non-resident agent), HC holds that ITAT completely misinterpreted the law, remarks that “It goes without saying that the representative assessee not only represents an income which has directly arisen or accrued in India but also that which has indirectly arisen or accrued in this country, through a business connection.”; Noting that the short title to Sec. 9 describes the income as deemed to accrue or arise in India, HC clarifies that “Use of this title does not absolve the representative assessee of the duty to account for any income which has directly or deemed to have arisen to the non-resident in this country.”  :HC 

No penalty on alleged ‘kickbacks’ under Volcker report; Sec. 263 revision upheld for hawala purchases

ITAT: No penalty on alleged ‘kickbacks’ under Volcker report; Highlights non-bindingness of UN resolution

Not a taxable capital receipt.

Bhojison Infrastructure Pvt. Ltd vs. ITO (ITAT Ahmedabad)

S. 2(14)/ 28(va): The "right to sue" which arises on breach of a development agreement is a "personal right" and not a "capital asset" which can be transferred. Consequently, the damages received for relinquishment of the "right to sue" is a non-taxable capital receipt (all judgements considered)

A development agreement was executed which enabled the assessee to utilize the land for construction and for sharing of profits. This right/advantage accrued to the assessee was sought to be taken away from the assessee by way of sale of land. The prospective purchaser as well as the defaulting party (owner) perceived threat of filing suit by developer and consequently paid damages/ compensation to shun the possible legal battle. The intrinsic point with respect to accrual of ‘right to sue’ has to be seen in the light of overriding circumstances as to how the parties have perceived the presence of looming legal battle from their point of view. I t is an admitted position that the defaulting party has made the assessee a confirming party in the sale by virtue of such development agreement and a compensation was paid to avoid litigation. This amply shows the existence of ‘right to sue’ in the perception of the defaulting party.

Imp Verdicts

PCIT vs. Radan Multimedia Ltd (Bombay High Court)

There is no discipline in the manner the Dept conducts matters. The Dept should not take legal matters casually and lightly. There should be a dedicated legal team in the department. Lack of preparation is affecting the performance of the advocates. They do not have full records & do not have the assistance of officials who can give instructions. The CsIT should devote more time to their work rather than attending some administrative meetings and thereafter boasting about revenue collection in Mumbai

If Appeals are filed routinely merely because the Revenue thinks that there are huge stakes involved, then, it is expected that the Revenue officials come fully prepared to Court, give instructions and before the matters are actually argued before us, they hold meeting and conference with the Revenue advocates. Very often, lack of preparation is affecting the performance of the advocates. One of the reasons why the advocates are not in a position to render complete assistance to the Court is because they themselves do not have full records. They do not have the assistance of the official, who can give them instructions. Arguing matter before a Court requires presence of mind. At times, one has to think on toes. More so, when the scales are not evenly balanced. The assessees and their counsel are fully equipped, but the Revenue does not have such degree of competence nor are they efficient enough

FAQs on Tax Audit under Section 44AB

Section 44AB of the Income-tax Act, 1961 contains the provisions for the tax audit of an entity. As per these provisions, tax audit shall be conducted by a Practicing Chartered Accountant who ensures that the taxpayers has maintained proper books of account and complied with the provisions of the Income-tax Act. Tax Audit conducted by a Chartered Accountant is reported to the Income-tax department in Form no. 3CD. The Form no. 3CD has been revised by the government on July 20, 2018. The new form 3CD is applicable with effect from August 20, 2018 and various new clauses have been inserted therein. In this article, we have attempted to resolve some Frequently Asked Questions (FAQs) about the tax audit.   

ITAT : Allows provision for ‘retrospective’ price reduction on set top boxes

Delhi ITAT grants deduction for provision in respect of price reduction on set top boxes for subject AY 2007-08, notes that price reduction was crystallized after March 31st of relevant year but before the finalization of financial statements; During relevant AY, assessee company had sold set top boxes to Tata Sky Ltd. at the price agreed as per the MOU dated January, 2006, however, owing to reduction in duties announced by Union Budget w.e.f. March 1, 2007, there was a retrospective reduction in the price as agreed between the parties vide letter dated August, 2007; Rejects Revenue’s stand that post facto adjustment to sales receipt cannot be accepted since price reduction was crystallized after the closure of the relevant year; ITAT observes that the provision for price reduction pertained to the set top boxes sold during relevant year, notes that though the exact price reduction happened post 31st March, 2007, it was in principle agreed before March 31st (i.e. at the time of Union budget); Further in view of AS-4 and mercantile system of accounting followed by assessee, ITAT holds that costs directly associated with the revenue recognized during the relevant period, irrespective of whether the money paid or not, have to be considered, lastly clarifies that if the deduction is not allowed in subject AY, the same has to be allowed in subsequent AY:ITAT 

HC : Calculates compounding fee @100% of 'tax' evaded, not on income addition

Gujarat HC rules that compounding fees should be levied @ 100% of ‘tax’ sought to be evaded and not @ 100% of ‘income addition’ with respect to prosecution initiated on assessee co. u/s 276C; Notes that para 12 of CBDT’s latest guidelines of December, 2014 on compounding of offences prescribes compounding fees for offense u/s 276C(1) at 100% of the ‘amount sought to be evaded’; Since this para does not contain any specification of ‘the amount sought to be evaded’, HC remarks that “we may fall back on the statutory provisions in relation to which, this compounding fee is prescribed.”; Notes that Sec. 276C links the severity of punishment on the amount sought to be evaded and thus, in turn has relation to the attempt at evasion of tax, penalty or interest; Accordingly, HC concludes that “when the CBDT circular refers to the amount sought to be evaded, it must be seen and understood in light of the provisions contained in section 276C(1) and in turn must be seen as amount sought to be evaded.…”:HC 

When validly revised return, filed pursuant to notice u/s 153A, is accepted, defects found in original return cannot be considered for purpose of penalty: ITAT

THE ISSUE IS - Whether when validly revised return of the assessee, filed pursuant to notice u/s 153A, is accepted by the AO and income is assessed, the defects of original return can still be considered for the purpose of penalty u/s 271(1)(c). NO IS THE ANSWER.

Facts of the case

THE assessee-company, filed the return for the relevant AY by declaring a loss of around Rs.1.13 cr. However, a search was conducted on the assessee and thereafter, the assessee again filed a return by declaring loss of around Rs 27.62 lakhs and thereafter, again revised the same declaring NIL income. Accordingly, the assessment was completed on the NIL income. However, the AO was of the opinion that the conduct of the assessee in initially declaring a huge loss, which was reduced substantially pursuant to the notice u/s 153A and subsequent revision declaring nil income amounts to concealment of income by filing inaccurate particulars. Therefore, He initiated proceedings u/s 271(1)(c) and imposed a penalty of around Rs.35.14 lakhs being the 100% of the tax sought to be evaded. On assessee's appeal, the CIT(A) upheld the decision.

On appeal, the Tribunal held that,

++ there is no dispute that pursuant to the notice issued u/s 153A, the assessee filed the return of income on 14.7.2014 which was revised on 24.2.2015 declaring nil income and the assessment was also completed on 24.3.2015 at nil income only. On the question of whether or not the assessee set up any business during the year and the loss claimed cannot be allowed, in the revised return the assessee withdrew such a claim and declared the income at nil. No doubt the question of whether or not the assessee set up any business during the year and whether no business could be turned out even after the business was set up is a disputed question of fact, and is a debatable issue. However, the AO felt that the claim of loss on the premise that the business was set up amounts to concealment of income by filing inaccurate particulars. From the assessment order it is not clear as to whether it was concealment of income or furnishing of inaccurate particulars;

++ as the facts indicate the entire dispute relates to the question whether the business is set up or not. Whether the assessee did any business or not is not relevant if the business is set up during the year under consideration. This is a debatable issue and was not finally decided by the AO because the assessee withdrew their claim by revising the return of income. As is held in the case of Neeraj Jindal and other cases relied upon by the assessee, the return of income filed pursuant to the notice u/s 153A takes the place of the return filed u/s 139(1) which was validly revised by the assessee even before any defect was pointed out by the AO. In such circumstances, in view of the decision in the case of CIT vs Reliance Petro Products P. Ltd., no penalty could be levied;

++ when the revised return is accepted and the income is assessed as per the revised income, there is no scope for penalty. In the case of Kirit Dahyabhai Patel vs ACIT, the High Court held that in view of specific provision of Section 153A, the return of income filed in response to notice u/s 153A is to be considered as return filed u/s 139, as the AO has made assessment on the said return and, therefore, the return has to be considered for the purpose of penalty u/s 271(1)(c) of the Act and the penalty is to be levied on the income assessed over and above the income returned u/s 153A, if any. Admittedly, in this matter both the returned income and the assessed income are nil. On this ground also, we cannot sustain the penalty order.

Income earned from operation and maintenance of SEZ is eligible for deduction u/s 80IAB: ITAT

THE ISSUE IS - Whether income earned from operation and maintenance of SEZ is eligible for deduction u/s 80IAB of Act. YES IS THE VERDICT.

Facts of the case

The assessee company, was developer of Special Economic Zone and had filed return for relevant AY, claiming deduction u/s 80IAB of Act, which included profit on business of operation and maintenance of (SEZ) amounting to Rs. 1,94,12,129/-. During assessment, the AO held that income derived from "operation and maintenance" activity of (SEZ) was not eligible for deduction u/s 80IAB of the Act. The AO accordingly denied deduction claimed amounting to Rs. 1,94,12,129/- attributable to operation and maintenance activities. On appeal, CIT(A) reverse the action of the AO. Aggrieved, the Revenue filed appeal before the Tribunal.

Tribunal held that,

++ the Co-ordinate bench of Tribunal in Revenue's appeal relevant assessment year 2010-11 has dismissed the appeal of the Revenue and thus allowed the deduction claimed on operation and maintenance activity. While doing so Coordinate bench in turn relied upon the decision of the Co-ordinate bench of Tribunal in assessee's own case relevant AY 2009-10. In parity with the view taken by the Co-ordinate bench in assessee's own case in the preceding assessment years, it was decided not to interfere with the order of the CIT(A). In the result, appeal of the Revenue is dismissed.