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

DAILY TAX ALERT.

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TAXNOTICES

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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.

India Taxes- Due Date Alert for the month February 2017

No		Due Date	Related to	Compliance to be made
1		05.2.2017	Service Tax	Payment of Service Tax for the Month of January 2017
2		07.2.2017	TDS/TCS (Income Tax)	·        Deposit TDS for payments of Salary, Interest, Commission or Brokerage, Rent, Professional fee, payment to Contractors, etc. during the month of January 2017. ·        Deposit TDS from Salaries  deducted during the month of January 2017 •   Deposit TCS for collections made under section 206C including sale of scrap during the month of January 2017, if any •    Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of January 2017, if any
3		20.2.2017	VAT	Payment of VAT & filing of monthly return for the month of January 2017
4		20.2.2017	STPI	Filing of Softex Form for the month ended January 2017

Whether additions can be made on account of investment merely on basis of statement of original owners, in absence of evidences to show transfer of sale consideration - NO: HC

THE ISSUE IS - Whether an addition can be made on account of investment in property, merely on basis of statement of the original owners, when there is no evidence to show transfer of any sale consideration. NO is the verdict.  

How to Reduce E TDS Demand

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HAPPY REPUBLIC DAY

Sachin Tendulkar wins capital gains case; ITAT rules merely because he availed services of Portfolio Manager, gains from share transactions do not become business income

THE issue before the Bench is - Whether the mere fact that assessee has availed services of a Portfolio Manager, is sufficient to consider gains arising out of transactions entered into by him as business income. NO is the answer.

Facts of the case

The assessee, an Individual, had shown in his return long term capital gains and loss on sale of shares. Further, short term capital gains and short term capital loss were also shown in the return filed. The AO noted that assessee had been disclosing capital gain from sale of shares every year in past and that purchase/sale of shares and units of mutual funds was managed by Portfolio Managers. It had also noted that assessee had engaged the services of Portfolio Managers to carry out the transactions of sale-purchase of shares for which huge amount of PMS charges were paid. According to AO, it was not an ordinary thing for a normal investor. Thus, AO issued show cause notice to assessee asking him to explain as to why profits on sale of shares/ unit should not be treated as 'business income’ as against the

SC : Loose paper-sheets "irrelevant, inadmissible" evidence; Rejects investigation plea in Sahara/Birla case

SC dismisses petition filed by Shanti Bhushan & Prashant Bhushan, seeking constitution of Special Investigation Team, directing investigation of the allegedly incriminating material seized in CBI/tax department raids conducted on Birla & Sahara group of companies; Mr. Bhushan argued that during the raids, e-mails and excel sheets were found that showed payment of cash to several important 'public' figures; Apex Court cites ratio in V.C. Shukla/Jain Hawala diaries case, wherein the court held that entires in loose papers/sheets are irrelevant and not admissible under Sec. 34 of Evidence Act and only where entries are in books of accounts/regularly kept, those are admissible; Further cites V.C. Shukla ratio to drive home the point that entires in books of account alone shall not constitute sufficient evidence to implicate a person since the same is only "corroborative" evidence; SC observes that the judiciary ought to be cautious while ordering investigation against any important constitutional functionary/officers in the absence of "prima facie reliable/legally cognizable material" which are not supported by 'other circumstances'; Holds that "..... In case we do so, the investigation can be ordered as against any person whosoever high in integrity on the basis of irrelevant or inadmissible entry falsely made, by any unscrupulous person or business house that too not kept in regular books of accounts but on random papers at any given point of time."; As for Sahara raids, SC refers to Settlement Commission order dated November 11, 2016 wherein the Commission recorded a finding that transactions noted in the documents were not genuine and did not attach any evidentiary value to the pen drive, hard disk, computer loose papers, computer printouts; SC concludes " ... it would not be legally justified, safe, just and proper to direct investigation, keeping in view principles laid down in the cases of Bhajan Lal and V.C. Shukla.":SC 

CBEC proposes Master Circular on SCN, Adjudication & Recovery; Invites comments by Feb 15

CBEC proposes Master Circular on Show Cause Notice, Adjudication and Recovery, consolidating 85 Circulars of Central Excise; Said Master Circular intends to compile relevant legal and statutory provisions on the subject, and seeks comments / suggestions by February 15; Draft Master Circular is divided into 4 parts wherein Part I deals with Show Cause Notice related issues, Part II deals with issues related to Adjudication proceedings, Part III deals with closure of proceedings and recovery of duty, while Part IV deals with miscellaneous issues (such as service of decisions, orders, summons, de novo adjudication, and refund of pre-deposit); Master Circular lays down inter alia structure of Show Cause Notice – (a) introduction of the case, (b) legal frame work, (c) factual statement & appreciation of evidences, (d) discussion, facts and legal framework, (e) discussion on limitation, (f) calculation of duty and other amounts due, (g) statement of charges, and (h) authority to adjudicate, and reiterates that once the amount is paid, no coercive action shall be taken for recovery of balance amount during pendency of appeal proceedings before appellate authorities; Circular also states that refund of pre-deposit need not be subjected to process of duty refund u/s 11B of Central Excise Act, and same shall be paid with interest irrespective of whether the appellate order is proposed to be challenged by Dept. or not; Lists down the 82 Circulars which shall stand rescinded and 3 Circulars that would remain operative : CBEC 

HC : ‘Swad’ candy manufactured using prescribed formulae, taxable as ayurvedic medicine, not confectionery

HC holds ‘Swad’ candy as an ayurvedic medicine and not confectionary, thereby taxable at 6% under Rajasthan Sales Tax Act; Rejects Revenue contention that since ‘Swad’ candy is freely available at shops other that medical stores, it cannot be said to be a medicine and hence, taxable at 10%; States that any drug for prevention of disease or disorder in human beings or animals, and manufactured exclusively in accordance with the formulae prescribed in authoritative books, can be said to fall within the definition of a “drug”; Applying common parlance test and taking note of the ingredients, HC states that ‘Swad’ cannot be said to be a toffee, as one takes the same in case of a stomach disorder or for digestion purposes; States that “merely because it is available in a tea stall or a betel shop or other various places where confectionery items are sold, does not change the character of an item”, while noting that no evidence or authoritative material has been put on record by Revenue so that it can be said to be a confectionery item and not a drug : Rajasthan HC

IMP ITAT Judgements

ACIT vs. Veer Gems (ITAT Ahmedabad)

S. 92A Transfer Pricing: Important law explained on meaning of expression "associated enterprise". The mere fact that an enterprise has de facto participation in the capital, management or control over the other enterprise does not make the two enterprises "associated enterprises" so as to subject their transactions to the rigors of transfer pricing law

HC : MODVAT credit reversible when final product cleared under purchaser's duty remission claim

HC directs reversal of input credit against clearance of aluminium castings under claim of duty remission by buyer for use in specific industrial process, in terms of Chapter X r/w Rule 57C of Central Excise Rules 1944; Notes Adjudicating Authority’s finding that assessee was reversing credit initially but resorted to jugglery subsequently, and since goods cleared under Chapter X procedure had not suffered any duty payment, MODVAT credit was reversible; Rejects assessee’s contention that choice of buyer to either claim MODVAT credit of duty paid or claim remission doesn’t make the goods exempt or chargeable to nil rate of duty; Relies on Kirloskar Oil Engines decision wherein it was held that MODVAT Credit in respect of inputs, which have been used in manufacture of final product that is fully exempted from whole of excise duty, is not available; States that since assessee had cleared goods without payment of duty, the case was covered by aforesaid decision, thus credit taken on aluminium ingots (inputs) was incorrect : Bombay HC

---

HC: Upholds deletion of unexplained income u/s 68 absent intensive investigation by AO

Delhi HC dismisses Revenue’s appeal for AY 2001-02, upholds deletion of sums brought to tax by the AO u/s 68; Notes that the assessee had furnished large amounts of materials (including PAN and ITR) before the AO to evidence the genuineness of identity/ transactions and creditworthiness of the share applicants/creditors, further notes that the AO had conducted the “perfunctory” inquiry by deputing an inspector to the premises; Thus accepts assessee’s plea that absence of these parties, after 7/8 years, ipso facto couldn’t have led the AO to conclude that the parties were fictitious or non-existent; Opines that the AO should have carried out a more intensive investigation into the records to actually discern the volume of trade/commerce of the parties and their inability, if any, to invest the amounts; Separately on noting that the approval granted by the CIT(A) was done “in a ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer” holds that the CIT did not in fact record satisfaction u/s 151 for reopening assessment u/s 147/148

CBEC prescribes registration & online tax payment procedure for non-taxable OIDAR service providers

CBEC prescribes procedure for registration & online payment of service tax in respect of online information & database access or retrieval services rendered by non-taxable territory assessees; Such assessees are required to fill and submit Form ST-1A, whereupon Registration Certificate in Form ST-2A shall be generated automatically; For payment purposes, taxpayer / assessee must have internet banking account in one of 7 prescribed foreign banks which include BNP Paribas, HSBC, Standard Chartered and Bank of America; Payment shall be routed through replica of EASIEST e-Payment portal, where assessee needs to select following Accounting Codes – 0153 for service tax on OIDAR, 0154 for interest and 1333 for penalties thereon, 1509 for payment of KKC, 1510 and 1512 for interest and penalties thereon respectively, and 1493 for SBC, 1494 for interest and 1496 for penalties thereon; Using the EASIEST web portal, assessee can view / download GAR-7 challan evidencing payment of service taxes : CBEC

CALENDAR 2017

https://taxofindia.wordpress.com/2016/12/30/calendar-2017/

Please click to download the 2017 calendar.

Whether annual value of every second property owned by individual, which remained vacant, would be assessable u/s 23 - YES: HC

THE ISSUE IS - Whether the annual value of every second property owned by an individual, which admittedly remained vacant throughout the year would be assessable u/s 23(1)(a). YES IS THE VERDICT.

Harmonised System Nomenclature 2017 for imports / exports effective from January 1, says CBEC

CBEC notifies implementation of changes from WCO Harmonized System Nomenclature 2012 version to 2017 version w.e.f. January 1, 2017; New version, as notified vide Sections 141 and 146 of Finance Act 2016, includes 233 sets of amendments, divided as follows - agricultural sector 85, chemical sector 45, wood sector 13, textile sector 15, base metal sector 6, machinery sector 25, transport sector 18, and other sectors 26; Directs importers, exporters and CHAs to ensure classification of goods in accordance with HSN 2017 while filing Customs declarations for goods to be imported / exported from January 1st; Customs RES software providers shall also equip their RES packages in line with new version for smooth implementation : CBEC