How to Tackle Penalty Notices in the Case of Transfer Pricing Adjustments

 A. Introduction: Section 270A of the Income Tax Act classifies variations in income into two categories: under-reporting and misreporting. Penalties for under-reported income are 50% of the tax payable, while for misreported income, they escalate to 200% of the tax base calculated on such income.

Tax Tribunal Special Bench upholds applicability of transfer pricing rules to transactions between foreign enterprise and its Indian permanent establishment

 This Tax Alert summarizes a recent decision of the Special Bench (SB) of the Ahmedabad Income-tax Appellate Tribunal (ITAT), in the case of TBEA Shenyang Transformer Group Company Limited  (Taxpayer or the Head Office or HO).

The question before the SB was whether transactions between a foreign enterprise and its Indian permanent establishment (PE) can be considered an international transaction for the purpose of section 92 of the Income-tax Act, 1961 (the Act) and accordingly subject to the transfer pricing (TP) provisions of the Act. The SB ruled that a PE is a separate enterprise distinct from the HO for the purpose of the Act as well as under Article 7 of the applicable Double Taxation Avoidance Agreement (DTAA). The SB thereafter concluded that transactions between a foreign enterprise and its PE in India can be considered an international transaction and be subject to transfer pricing provisions. The SB however left the questions on whether the HO and its Indian PE are Associated Enterprises (AE) as defined in section 92A(2) of the Act and whether the transactions of the PE could be deemed international transactions under section 92B(2) of the Act for the Division Bench of the ITAT to decide based on the facts and circumstances of the case and the provisions of applicable law.

India RBI MPC Review – December 6, 2024

 The Reserve Bank of India (RBI) announced its monetary policy review on December 6, 2024, leaving the repo rate unchanged at 6.5%. However, it implemented non-conventional measures, including a phased 50 basis points (bps) reduction in the Cash Reserve Ratio (CRR) to 4.0% from 4.5%. This move is expected to inject INR 1.1 trillion ($13 billion) into the banking system, addressing liquidity concerns.

Optimizing Tax Savings for Indian SMEs

 Small and Medium Enterprises (SMEs) are a cornerstone of India’s economy, driving employment and contributing to growth. However, they often operate with limited margins while navigating complex regulations. Effective tax planning can alleviate financial pressure, allowing SMEs to maximize savings through appropriate tax deductions and credits.

CBDT Clarifies Key Points on PAN 2.0 via FAQs

 The Central Board of Direct Taxes (CBDT) has issued a press release providing clarifications on the newly introduced PAN 2.0 system. Among the Frequently Asked Questions (FAQs) shared, two stand out for their importance: FAQ 3 and FAQ 7. These address concerns about the continued validity of existing PAN cards and the functionality of QR codes in PAN 2.0.

Taxability of Transfers Between HUF Members and the HUF

 The taxation of transactions within a Hindu Undivided Family (HUF) is governed by specific provisions under the Income Tax Act, 1961. This article examines the tax implications of transfers from HUF members to the HUF and vice versa, focusing on income derived, gifts, and the treatment of HUF partition.

TAX DUE DATE - DECEMBER 2024.

 

S No	Due Date	Related to	Compliance to be made
1	11.12.2024	GSTR – 1	Filing of GSTR – 1 for the month of November 2024
2	20.12.2024	GST	Payment of GST for the month of November, 2024 Filing of GSTR 3B for the month of November, 2024
3	07.12.2024	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 November 2024. · Deposit TDS from Salaries deducted during the month of November 2024 • Deposit TCS for collections made under section 206C including sale of scrap during the month of November 2024, if any • Deliver a copy of Form 15G/15H, if any to CCIT or CIT for declarations received in the month of November 2024, if any
4	15.12.2024	Income tax	Payment of Advance tax for the Corporate and Non Corporate assesses –Amount not less than 75% and 60% of advance tax respectively.
5	31.12.2024	GST	Filing of Annual Return -  GSTR 9 & 9C.

SC holds CENVAT credit is eligible on mobile towers and pre-fabricated buildings

 This Tax Alert summarizes a recent ruling of the Supreme Court (SC) ^[1] on availability of CENVAT Credit on mobile towers and pre-fabricated buildings (PFBs) owned by mobile service providers (MSPs) and passive infrastructure support service providers.

Earlier, Bombay High Court (HC) ^[2] disallowed credit on the above items on the premise that the items do not qualify as "capital goods" or "inputs". Subsequently, Delhi HC ^[3] rendered a divergent ruling and allowed credit on the same. The matter reached SC.

The key observations of the SC are:

Bombay HC upholds levy of GST on advances and allows ITC in the hands of recipient basis receipt voucher

 This Tax Alert summarizes a recent ruling of the Bombay High Court (HC)1 on admissibility of input tax credit (ITC) w.r.t GST on advance paid for procuring services.

The issue in the writ petition was regarding non-admissibility of ITC as per Section 16(2)(a) and (b) of the Central Goods and Services Tax Act, 2017 (CGST Act), on advances paid by consortium (petitioner) to its member entities against receipt voucher. Consequently, petitioner challenged the above provisions together with Sections 7, 9, 12 and 13 in the context of levy of tax on advances.

The key observations of the HC are:

How to Claim Foreign Tax Credit in Australia as a Company

Claiming a foreign tax credit (FTC) in Australia allows companies to offset foreign taxes paid on income earned overseas against their Australian tax liability for the same income. This system, regulated by the Australian Taxation Office (ATO), is designed to prevent double taxation and primarily applies to companies that are residents of Australia for tax purposes.

Here’s a practical breakdown of how Australian companies can claim FTCs:

Can GST Under RCM Not Charged and Paid from FY 2017-18 to October 2024 be Settled in FY 2024-25?

 In a recent and significant update to GST regulations, registered persons in India can now clear unpaid Reverse Charge Mechanism (RCM) liabilities incurred from July 2017 up to October 2024. This opportunity arises from amendments made to Section 31(3)(f) of the GST Act and new regulatory guidelines outlined in Notification No. 20/24, issued on October 8, 2024. According to these updates, registered entities are permitted to issue self-invoices for unpaid RCM liabilities retroactively and claim the related Input Tax Credit (ITC).

HC upholds levy of GST on royalty paid for mining rights basis SC nine-judge bench ruling

 This Tax Alert summarizes the recent Himachal Pradesh High Court (HC) ruling ^[1] regarding levy of Goods and Services Tax (GST) on royalty paid by the taxpayer for mining concession granted by the State.

Understanding Section 150 of the Finance (No. 2) Act, 2024: Implications for Taxpayers

Section 150 of the Finance (No. 2) Act, 2024, specifies that taxpayers will not receive refunds for taxes paid or input tax credits (ITC) reversed that would not have been required had Section 16(5) been in effect during the relevant time periods.

Kerala HC strikes down Rule 96(10) of CGST Rules since its inception

 This tax alert summarizes a recent ruling of the Kerala High Court (HC)  on the validity of Rule 96(10) of the Central Goods and Services Tax Rules, 2017 (CGST Rules).

CBIC mandates virtual hearing in all quasi-judicial and appeal proceedings

In an important update, Central Board of Indirect Taxes and Customs (‘CBIC’) has made virtual mode of hearing mandatory. The judicial cell of CBIC vide. Instruction F. No. 390/Misc/2019-JC dated November 5, 2024, has instructed that all hearings under current Indirect Tax laws, whether current or erstwhile, shall be conducted in virtual mode.

 

HC validates “Nil value” for import of services absence self-invoice in light of CBIC Circular

 This Tax Alert summarizes the recent Delhi High Court (HC) ruling disposing Writ Petitions in a batch matter on valuation of import of services relating to secondment of employees from overseas entity.

Tax Implications of Employee Gifts: Cash, Gift Cards, and Branded Products

 Companies often give gifts to their employees to boost morale, celebrate achievements, and promote a positive work environment. Such gifts are common during festivals like Diwali and Christmas, or for special occasions like work anniversaries, birthdays, or company milestones. However, the taxability of these gifts can vary significantly depending on the nature of the gift and the circumstances under which it is given.

The Rise of the Indian APA Programme

 In the evolving landscape of transfer pricing, India’s Advance Pricing Agreement (APA) programme has emerged as a beacon for multinational enterprises (MNEs) seeking tax certainty. Launched in 2012, the APA programme offers MNEs an opportunity to preemptively resolve transfer pricing disputes by establishing an agreed-upon transfer pricing methodology for a specified period.

Transfer Pricing Challenges in India
India's transfer pricing environment has historically been contentious, with prolonged litigation often arising from audit triggers like profit shifts, cost allocations, or royalty payments. Many cases take years to resolve in tax tribunals, adding to the uncertainty MNEs face. However, the APA programme provides a proactive solution, allowing MNEs to avoid retrospective disputes and secure tax stability.

Types of APAs
The APA regime in India includes three types:

1. Unilateral APAs - Between an Indian taxpayer and the Indian tax authority.
2. Bilateral APAs - Involving the Indian and a foreign tax authority, helping prevent double taxation.
3. Multilateral APAs - Covering multiple countries, providing the most comprehensive tax certainty.

Impact and Growth
The APA programme’s impact is notable, with over 1,800 applications filed since inception and a record 125 APAs signed in 2024 alone. As of March 2024, the programme has concluded 641 APAs, including 506 Unilateral and 135 Bilateral agreements, underscoring its growth and effectiveness. Key sectors benefiting from APAs include software, BPO, KPO, and engineering, highlighting the programme's alignment with India’s service-oriented economy.

Conclusion
India’s APA programme is a robust tool for MNEs to achieve tax certainty and minimize double taxation risks. The government’s commitment to APA expansion strengthens India’s position as an attractive destination for foreign investment, ensuring a fair and predictable tax landscape for cross-border transactions.

Prevention of Money Laundering Act (PMLA)

Some of the recent significant judgments of the Supreme Court pertaining to the Prevention of Money Laundering Act (PMLA) include:

Supreme Court Ruling on MFN Clause in Tax Treaties – A Compelling Case for Review

 Overview

The Supreme Court of India recently ruled on the applicability of the Most Favoured Nation (MFN) clause in tax treaties involving India, specifically in Assessing Officer vs. M/s Nestle SA and Others. The Court determined that an Indian government notification is a mandatory prerequisite for the MFN clause to be enforceable in India’s Double Tax Avoidance Agreements (DTAAs). This ruling restricts certain benefits within these treaties and conflicts with previously understood international principles of good faith in treaty enforcement.