CBDT highlights 7 red flags to identify post-demonetisation cash deposit cover-ups

CBDT's internal note to the Senior Revenue officers highlights taxpayers trying to build an explanation for cash deposits in their bank accounts post demonetisation by manipulating books-of-accounts and by filing revised/belated income­ tax returns;  CBDT states that based upon risk-assessment criteria, many of such cases have been selected for scrutiny and lists down seven instances which might indicate that assessee had filed revised or belated return merely as a cover-up to explain the cash deposits in bank accounts; CBDT lists down strategies for the assessing officers to be kept in consideration during verification and framing of assessments; CBDT also adds that "manipulations made fictitiously merely to build an explanation for cash deposits in bank account(s), the revised return itself becomes questionable and therefore, the transactions disclosed in it which are over and above the original return are liable to be taxed under anti-abuse provisions of the Act" : Sources  

HC : No interest on delayed payment of Oil Cess absent substantive statutory provision

HC rules out leviability of interest on delayed payment of Cess on Crude Oil, absent substantive provision obliging assessee to do so under Oil Industry (Development) Act 1974; Rejects Revenue’s stand that interest was applicable in terms of Section 15(4) of said Act, which adopts the provisions of Central Excise Act and rules thereunder in relation to levy and collection of excise duties; Confirming CESTAT’s view, HC refers to SC ruling in India Carbon Ltd wherein it was held that interest on tax due could be charged only when the taxing statute made a substantive provision to pay interest for delayed payment of tax and not otherwise  : Gauhati HC

Income Tax Appellate Tribunal reaffirms availability of tax credit of State taxes paid in USA

An individual, qualifying as ordinary tax resident in India under the Income-tax Act, 1961 (the Act), is eligible to claim credit in India on taxes paid in foreign country with respect to doubly taxed income. As per India-USA Double Taxation Avoidance Agreement (India-US tax treaty), federal income taxes paid are allowed as tax credits in India. In this regard, in an earlier ruling in the case of Tata Sons Ltd, the Mumbai bench of Income Tax Appellate Tribunal (the Tribunal) had held that credit of State taxes paid in USA shall also be available in India.

The Ahmedabad bench of the Tribunal in a recent ruling in the case of Dr. Rajiv Modi has reaffirmed that a taxpayer is entitled to claim credit of State taxes paid in USA against Indian Income tax liability under the provisions of the Act irrespective of the fact that the case pertained to a country which had tax treaty with India

SC : Dismisses Revenue's appeal; Advance excise duty deposit in PLA deductible u/s. 43B

SC dismisses Revenue’s appeal and upholds Delhi & Calcutta HC rulings, rules that assessee is entitled to claim deduction u/s. 43B in respect of the excise duty paid in advance in the Personal Ledger Account (‘PLA’) for AYs 1993-1994, 1996-1997, 1997-1998 and 1998-1999;  Rejects Revenue’s stand that since actual payment of excise duty is at the stage of removal of goods, amount of advance deposit in PLA does not represent actual payment of duty so as to entitle for Sec. 43B deduction; SC refers to Central Excise rules, notes that the deposit of Central Excise Duty in the PLA is a statutory requirement,  further notes that upon deposit in the PLA, the amount stands credited to the Revenue with assessee having no domain over the amount(s) deposited;  Having regard to the object behind the enactment of Section 43B, SC rules that “it would be consistent to hold that the legislative intent would be achieved by giving benefit of deduction to an assessee upon advance deposit of central excise duty notwithstanding the fact that adjustments from such deposit are made on subsequent clearances/removal effected from time to time.”; Concludes that the advance deposit of central excise duty constitutes actual payment of duty within the meaning of Sec 43B and, therefore, the assessee is entitled to the benefit of deduction; Moreover, SC takes note of consistent practice followed by assessee (of claiming deduction u/s. 43B in respect of balance in PLA at the end of accounting year and reversing it in succeeding year) which was accepted by Revenue in earlier years, further takes note of Delhi HC and P&H HC rulings in Maruti Suzuki India Ltd., Happy Forgings Ltd. and Raj and San Deeps Ltd. rendered in favour of assessee, which attained finality and no contrary view of any other HC was brought on record; However, SC clarifies that “The Revenue cannot be shut out from the present proceedings merely because of its acceptance of the practice of accounting adopted by the assessee or its acceptance of the decision of the two High Courts in question.”:SC 

SC stays Bhushan Steel judgment on capital vs. revenue nature of sales tax subsidy

SC stays operation of Delhi HC judgment in Bhushan Steels and Strips Ltd on taxation of sales tax subsidy as revenue receipt absent capital utilization condition, issues notices for hearing of assessee's SLP; HC had held that amount received by assessee (running a manufacturing unit in a specified backward area) for AY 1995-96 by way of exemption of sales tax payments under the UP state subsidy scheme was a taxable trading receipt; HC had rejected assessee’s stand that since the quantitative limit of subsidy was linked to capital expenditure, the subsidy was capital in nature as it meant replenishing the capital expenditure; HC had clarified that the quantitative limit indicated therein was only a reference point, further HC had observed that assessee had the flexibility of using the amounts retained for any purpose, not necessarily capital

Three Imp Verdicts On Core Issues

CIT vs. Modipon Limited (Supreme Court)

S. 43B: Advance deposit of central excise duty in the Personal Ledger Account (PLA) constitutes actual payment of duty within the meaning of s. 43B and the assessee is entitled to the benefit of deduction of the said amount
The purpose of introduction of Section 43B of the Central Excise Act was to plug a loophole in the statute which permitted deductions on an accrual basis without the requisite obligation to deposit the tax with the State. Resultantly, on the basis of mere book entries an assessee was entitled to claim deduction without actually paying the tax to the State. Having regard to the object behind the enactment of Section 43B and the preceding discussions, it would be consistent to hold that the legislative intent would be achieved by giving benefit of deduction to an assessee upon advance deposit of central excise duty notwithstanding the fact that adjustments from such deposit are made on subsequent 14 clearances/removal effected from time to time

Paradigm Geophysical Pty Ltd vs. DCIT (Delhi High Court)

S. 264 Revision: Powers and duties of the CIT while dealing with a revision application filed by an assessee explained
Commissioner cannot refuse to entertain a revision petition filed by the assessee under Section 264 of the Act if it is maintainable on the ground that a similar issue has arisen for consideration in another year and is pending adjudication in appeal or another forum. Negative stipulations are clearly not attracted. When a statutory right is conferred on an assessee, the same imposes an obligation on the authority. New and extraneous conditions, not mandated and stipulated, expressly or by implication, cannot be imposed to deny recourse to a remedy and right of the assessee to have his claim examined on merits

M/s Sainath Enterprises vs. ACIT (ITAT Mumbai) (Third Member)

Withdrawal of appeal: The Petitioner/ Plaintiff is the ‘dominus litis’ and it is open to him to pursue or abandon his case. Withdrawal cannot be denied except when the person making the prayer has obtained some advantage/ benefit which he seeks to retain

Withdrawal of appeal: The Petitioner/ Plaintiff is the ‘dominus litis’ and it is open to him to pursue or abandon his case. Withdrawal cannot be denied except when the person making the prayer has obtained some advantage/ benefit which he seeks to retain

Transfer / sale of warehoused goods exigible to IGST; Customs duty payable at ex-bonding

CBEC clarifies that transfer / sale of warehoused goods by importer to any other person falls within definition of “supply” as per Section 7 of CGST Act, taxable in terms of Section 9 of CGST Act r/w Section 20 of IGST Act; Since any supply of imported goods which takes place before they cross customs frontier of India shall be treated as an ‘inter-state’ supply u/s 7(2) of IGST Act, such transaction of sale / transfer will be subject to IGST; Value of such supply shall be determined in terms of Section 15 of CGST Act r/w Section 20 of IGST Act and rules thereunder; However, so long as such goods remain deposited in warehouse the customs duty to be collected shall be deferred; It is only when such goods are ex-bonded u/s 68 of Customs Act that same shall be collected at the value as had been determined u/s 14 of Customs Act in addition to IGST leviable on transfer / sale : CBEC Circular 

HC : Judges split over non-discrimination benefit, requirement to examine PE-status for TDS u/s 195

Delhi HC judges differ on the interplay between Sec 40(a)(i) expense disallowance for Sec. 195 TDS default on payment by assessee (Mitsubishi India, ‘MI’) to group companies (based in Japan, US, Singapore, Thailand) including Mitsubishi Corporation, Japan (‘MC’)  and the application of 'non-discrimination' clause under respective DTAAs for AY 2006-07,  places the matter before Acting Chief Justice for appropriate orders; Justice Prathiba M. Singh overturns ITAT order, holds that co-ordinate bench decision in Herbalife (rendered in context of AY 2001-02) was not applicable to present case as the scheme of the Act has undergone a substantial change subsequently; Rejects assessee’s argument that the discrimination, qua payments made to residents and non-residents, continued until  April 1, 2015 when Sec. 40(a)(ia) was amended, remarks that this argument “ignores the retrospective nature of the amendment made to Sec. 195 by insertion of Explanation 2.”; Holds that SC's GE India Technology ruling is not applicable as it relates to AY prior to insertion of Explanation 2 to Sec.195, opines that "Addition of the said explanation, in the present case, changes the nature of the payment inasmuch as it takes away the need to establish existence of a PE or a business connection in India."; With respect to assessee’s stand that payments were in the nature of purchases from group companies (and TDS on goods purchases does not apply to an Indian resident) , Justice Singh opines that “even if the payment is for purchase of goods it does not exempt the payer from making deduction of tax at source”; Justice Singh clarifies that "Section 195 and Section 40 operate in different spaces - the former at the stage of payment by the payer to the payee, and the latter at the stage of assessment of the payer. Insofar as the payer is concerned, there may be interlinking of the two however, insofar as the payee is concerned.. Section 40 is not triggered qua it at this stage"; Further opines that a resident company per se cannot  invoke the discrimination provisions of the DTAA, unless raised by non-resident payees; Justice Singh clarifies that a resident company is fully bound by the provisions of the Act, and for the said purpose the existence of a PE of the payee is not essential, “What is required to be seen is as to whether the sum is chargeable under the provisions of the Act and for the said purpose even a ‘business connection’ is sufficient as per Explanation 2 to Section 9 of the Act.”; However, Justice S. Muralidhar dissents and rules in favour of assessee, approves ITAT view that Herbalife decision squarely applied to present case as the element of discrimination continued in relevant AY; Comparing two sub-clauses i.e. (i) and (ia) of Sec. 40(a), as they stood during AY 2006-07, Justice Muralidhar notes that the expression ‘or other sum chargeable under the Act’ occurring in sub-clause (i) was missing in sub-clause (ia), highlights the distinction as regards the consequence of disallowance for non-deduction of TDS on payment to non-resident for purchases, continued, which was ultimately done away with only by the amendment of sub-clause (ia) w.e.f. April 1, 2015; Extensively cites SC rulings in GE India Technology , Transmission Corporation, opines that “Explanation 2 to Section 195 (1) will not compel deduction of TDS where the payer is reasonably certain that the sum paid for purchases is not chargeable to tax.”; Justice Muralidhar further clarifies that Explanation 2 does not dispense with the fulfilment of the pre-condition that the sum in respect of which TDS is to be deducted has to be shown to be chargeable to tax.:HC 

Milling of paddy by rice millers liable to 5% GST: FinMin clarification

Ministry of Finance clarifies that custom milling of paddy by Rice millers for Civil Supplies Corporation is liable to GST and not exempted under Notification No. 12/2017 - Central Tax (Rate), dated June 28, 2017 (Sr. no. 55) and corresponding notifications issued under IGST/UTGST Acts; Explains that, milling of paddy is not an intermediate production process in relation to cultivation of plants, but a process carried out after cultivation is over and paddy harvested; Milling of paddy into rice changes its essential characteristics, further, such process is not usually carried out by cultivators but by rice millers; Accordingly, such process of milling of paddy into rice cannot be considered as intermediate production process in relation to cultivation of plants for food, fibre or agricultural produce envisaged under the Notification; Moreover, such activity shall be liable to GST at rate of 5% pursuant to reduction in rate on services by way of job work in relation to all food and food products falling under Chapter 1 to 22: Finance Ministry Circular 

SC issues notice to assessee against CESTAT order holding water supply as 'sale'

SC issues notice to assessee in appeal filed by Revenue against CESTAT's order wherein it was held that supply of water to Chattisgarh State Industrial Development Corporation (CSIDC) is a sale of water, not taxable as ‘Business Support service” (BSS) u/s 65(105)(zzzq) of Finance Act, 1994; CESTAT noted that, assessee entered into agreement to own, develop, operate and maintain water supply, for which it was paid as per agreed tariff for supply of water and such rights were granted for 20 years after project construction without involvement of any third party; Noting that CSIDC has been consumer of water for payment of taxes on water supply to concerned State Department, CESTAT stated that whole scope of agreement is for supply of water; CESTAT remarked further that, supply of water by CSIDC to various industrial units is inconsequent as far as assessee is concerned, and giving a colour of service to pure sale of water is not legally tenable; Moreover, CESTAT observed that plain reading of statutory definition of BSS indicates that same is for outsourcing service and do not deal with any sale or purchase of items without reference to third party  

ITAT : Manufacturing pan-masala with excessive carcinogenic substance "prohibited by law"; Disallows expenses u/s 37

Ahmedabad ITAT invokes Explanation 1 to Sec. 37(1), disallows cost of production of goods incurred by assessee (manufacturer of pan masala) which were found to containing magnesium carbonate, a known carcinogenic substance, in excess of permissible limits; ITAT notes that  in terms of a court order under the Prevention of Food Adulteration Act, the goods had to be destroyed, thus holds that expenditure for making this product was something "prohibited by law"; Observes that "Pan masala is a controversial product and, even when it is manufactured within the permissible legal norms, it is considered to be responsible for oral cancer and other severe ill effects on health. In the present case, the assessee has gone even further against the public interests", thus holds expenditure on manufacturing such products whether deliberately or inadvertently, cannot be allowed as deduction; Rejects assessee’s contention that no penalty, etc. was imposed on it, observes that "... as long as the expenditure is incurred for a purpose which is prohibited by law, it is immaterial whether the said act of the assessee constitutes an offence or not"; Further remarks that "What is even more disturbing is the indifferent attitude to the assessee to the possible damage their products could have caused, and, without any remorse or regret in his conduct, claim business deduction of expenses incurred ...":ITAT

CBDT: Issues draft notification u/s. 115JG (1) relating conversion of foreign banks’ Indian branch into

CBDT issues draft notification u/s. 115JG(1) specifying the conditions to be fulfilled upon conversion of Indian Branch of foreign bank into Indian subsidiary company  and also specifying modifications, exceptions, in applicability of certain provisions of the Act to such conversion;  Draft notification proposes following conditions, viz. (a) all the assets and liabilities of the Indian branch immediately before conversion become the assets and liabilities of the Indian subsidiary Company, (b) the foreign company (engaged in banking business in India through branch)  or its nominees hold the whole of the share capital of the subsidiary company and (c) the foreign company does not receive any consideration or benefit, other than by way of allotment of shares in the Indian subsidiary company;  With respect to unabsorbed depreciation, draft notification proposes that the aggregate depreciation deduction allowable to the Indian branch and the Indian subsidiary company shall not exceed the deduction calculated at the prescribed rates as if the conversion had not taken place, and such deduction to  be apportioned between the Indian branch and the Indian subsidiary company in the ratio of the number of days for which the assets were used by them; Further, it proposes that the tax credit of the Indian branch shall be deemed to be the tax credit of the Indian subsidiary company for the purpose of the previous year in which conversion was effected and the provisions of Sec. 115JAA shall apply accordingly; Invites stakeholders comments/suggestions on the draft notification by November 30th 

CBEC notifies changes in rate of various items, exempts admission to protected monuments

Pursuant to GST Council’s 23rd meeting at Guwahati, CBEC issues notification for change in rates of various goods; Also, issues notification in respect of rate of tax applicable to restaurants (including those located in hotel premises);  Notifies 5% IGST/GST rate in respect of Scientific and technical instruments, apparatus, accessories, parts, live animals computer software, CD-ROM, recorded magnetic tapes, prototypes, supplied to public funded research institution, specified Universities, research institutions, Departments and laboratories of the Government and Cancer Institute; Extends exemption to services by way of admission to a protected monument so declared under the Ancient Monuments and Archaeological Sites and Remains Act 1958; These changes shall come into force w.e.f. November 15, 2017: CBEC Notifications 

Three Imp Verdicts On Taxation Of Royalties + TDS, S. 254(2) MA Time Limit And S. 271(1)(c) Penalty

Google India Private Ltd vs. ACIT (ITAT Bangalore)

Royalty u/s 9(1)(vi) & Article 12: The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google's patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc of the customer so as to maximize the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as "royalty" and the assessee ought to have deducted TDS thereon u/s 195   

Govt. notifies extension of dates for various declarations, including filing & revision of TRAN-1

Govt. notifies extension of period for submission and revision of Form GST TRAN-1 under Rule 117 and 120A of CGST Rules respectively, till November 30; Also notifies extension of time limit for submission of registration application in Form GSTR-26 till December 31, while time limit for intimation in Form GST CMP-03 of details of stock held before opting for composition levy has been extended till November 30; Declaration in Form GST ITC-04 in respect of goods dispatched to job-worker or received from job-worker or sent from one job-worker to another, during quarter July to September 2017, can be filed by November 30; Further, time limit for making declaration of entitlement to Input Tax Credit u/s 18(1) of CGST Act in Form GST ITC-01 has been extended till November 30; Notifies CGST (Eleventh Amendment) Rules 2017 amending inter alia Rule 24(4) to allow submission of application in Form GST REG-29 for cancellation of registration by December 31, while information relating to exports shall be furnished after return in Form GSTR-3B has been filed where date for Form GSTR-1 has been extended under Rules 96 & 96A : CBEC Notifications & Orders 

Video on GST Issues.

https://youtu.be/2Hh1eT3B4tM

When assessee discharges onus to prove that there was good and sufficient reason for failure to deposit TDS deducted, it does not warrant penalty u/s 221: HC

 THE issue before the Bench is - Whether when the assessee discharges the onus to prove that there was good and sufficient reason for failure to deposit TDS deducted, it does not warrant penalty u/s 221. YES is the answer.  

I-T Any investment made after furnishing of return, but before extended date available u/s 139(4), would not receive beneficial construction in view of express provision of section 54(2): ITAT

THE ISSUE BEFORE THE TRIBUNAL IS - Whether capital gain employed towards purchase of new asset before the actual date of furnishing return of income either u/s 139(1) or u/s 139(4), will be deemed to be sufficient compliance of section 54(2). YES is the answer.   

HC : Burnt coal residue from paper manufacture taxable as "Coal", not "residuary" article

Burnt coal residue from paper manufacturing process classifiable as “coal including coke in all its form….”, taxable at 4% under U.P. VAT Act as it retains its combustible properties; HC finds that during AYs 1999-2000, 2000-01 & 2001-02, said product was taxed at 4% but pursuant to HC decisions in Modi Spinning & Weaving Mills and British India Corporation Limited, same came to treated as “unclassified” residual article taxable at 10% from AY 2002-03 onwards; Observes that in case of Modi Spinning & Weaving Mills, the issue pertained to taxability of “coal cinder” whereas British India Corporation case dealt with taxability of “coal ash”, thus these cases cannot be understood or applied without bearing in mind the particular commodities under consideration therein; Noting that Revenue had not submitted any evidence to establish that residual commodity had lost all its combustible properties, HC remarks that “In issues of classification, the Department cannot be permitted to vacillate unless there be new material and evidence which may justify or warrant a change in stance”; Referring to Division Bench decision in District Cooperative Development Federation Ltd. which held that “coal dust” would classify as “coal” as both have same combustible properties and similar usage, HC rules in favour of assessee  : Allahabad HC

HC : Writ Court cannot review order passed in revision; Matter appealable to SC

HC refuses to exercise extraordinary writ jurisdiction under Article 226 of Constitution against its revision order passed u/s 11 of U.P. Sales Tax Act, 1948; Notes assessee’s grievance that demand for purchase tax was raised on foodgrains procured for sale to Food Corporation of India after the HC had finally decided its revision petition; Holds that order passed by the Court cannot be annulled or reviewed by invoking Article 226 inasmuch as the issue in question had been dealt, considered and decided against assessee; However, referring to SC decisions in Major General Shri Kant Sharma & Anr. and Mafatlal Industries Ltd. HC states that assessee can assail the revision order before SC  : Allahabad HC