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rchgiri

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First topic message reminder :

Please find the following links of ICAI which are helpful for the students who are appearing for CS Executive/Professional December 2016 Examinations.

(A) [You must be registered and logged in to see this link.]

for CA Direct Tax Laws Supplementary Study Materials as amended by Finance Act 2015 [Relevant for May 2016 and November 2016 examinations]

(B) [You must be registered and logged in to see this link.] & [You must be registered and logged in to see this link.]

for CA Indirect Tax Laws Supplementary Study Materials as amended by Finance Act 2015 [Relevant for May 2016 and November 2016 examinations]

&

(C) [You must be registered and logged in to see this link.]

for Select Cases of Direct Tax Laws & Indirect Tax Laws [Relevant for CA May 2016 and CA November 2016 examinations]

published by The Institute of Chartered Accountants of India.

Have a happy Exam Preparation.



Last edited by rchgiri on Sun 3 Jul 2016 - 22:25; edited 16 times in total (Reason for editing : As amened as per Finance Act 2015)


rchgiri

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Please find the link

(A) [You must be registered and logged in to see this link.]

for CA Direct Tax Laws Supplementary Study Paper as amended by Finance Act 2014 [Relevant for May 2015 and November 2015 examinations]

(B) [You must be registered and logged in to see this link.]

for Select Case Laws of Direct Tax [Relevant for May 2015 and November 2015 examinations]


(C) [You must be registered and logged in to see this link.]

for CA Indirect Tax Laws Supplementary Study Paper as amended by Finance Act 2014 [Relevant for May 2015 and November 2015 examinations]

&

(D) [You must be registered and logged in to see this link.]

for Select Case Laws of Indirect Tax [Relevant for CA May 2015 and CA November 2015 examinations]

published by The Institute of Chartered Accountants of India.

The same "Direct & Indirect Taxes and Select Cases" are equally helpful for the students who are appearing for CS Executive/Professional June 2015 & Dec 2015 Examinations.

52 Recent Direct Tax Cases on Fri 3 Apr 2015 - 7:42

rchgiri

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(i) CIT Vs. S. M. Construction, I.T.A. No. 412 of 2013, Date of Pronouncement: 03.03.2015, Bombay High Court

Whether imposition of penalty u/s 271(1)(c) is justified, in case there was complete disclosure of facts and the claim made, though the same was not found acceptable in law?

Held: No


(ii) M/s. Yash Society Vs. UOI & ors., Writ Petition No. 2565/2010, Date of Pronouncement: 12.03.2015, Bombay High Court

Whether denial of exemption u/s 10(23C) is justified where institution is utilising its huge surplus from charitable activities for capital expenses not attributable to philanthropic purpose?

Held_Yes

(iii) CIT Vs. Nishi Mehra & Others, I.T.A. No. 120-125 of 2000, Date of Pronouncement: 19.02.2015, High Court of Delhi

Whether addition can be made by the AO merely based upon the District Valuation Officer’s report in the absence of any material pointing to under valuation.

Held: No

(iv) IVF Advisor Pvt. Ltd. Vs. ACIT, I.T.A. No. 4798/Mum/2012, Date of Decision: 13.02.2015, ITAT - Mumbai

Whether loss from foreign currency futures will be regarded as speculation loss under clause (d) of proviso to section 43(5) of Income Tax Act, 1956?

Held: No

(v) M/s Daga Global Chemicals Pvt. Ltd. Vs Asst. Commissioner Income Tax, I.T.A. No. 5592/MUM/2012, Date of Pronouncement: 01.01.2015, ITAT - Mumbai

Whether disallowance u/s 14A r.w. Rule 8D can exceed the exempt income claimed.

Held: No

(vi) Commissioner of Income Tax Vs Bougainvillea Multiplex Entertainment Centre Pvt. Ltd. I.T.A. No. 586/2013, Date of Pronouncement: 30.01.2015, High Court of Delhi

Whether the entertainment tax subsidy granted to the assessee engaged in the business of running of multiplex cinema halls and shopping malls is a capital receipt?

Held: Yes by CIT (A) & ITAT. On Appeal by Revenue, Dismissed by Delhi HC

rchgiri

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Please find

Supplement for Tax Laws and Practice, relevant for December 2015 Examination

from the following link.

[You must be registered and logged in to see this link.]

Please also find the following links for your help (Relevant for CS June 2015).

[You must be registered and logged in to see this link.]


[You must be registered and logged in to see this link.]

Wish you all the best for next CS Exam.



Last edited by rchgiri on Fri 24 Jul 2015 - 14:45; edited 1 time in total

rchgiri

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Please find

Supplement for Advanced Tax Laws and Practice, relevant for December 2015 Examination

from the following link.

[You must be registered and logged in to see this link.]

Wish you all the best for next CS Exam.

rchgiri

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MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION No. 89/2015
New Delhi, Date- 2nd December, 2015

Income-tax

G.S.R. 923(E).—In exercise of the powers conferred by section 282 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (18thAmendment) Rules, 2015.
(2) They shall come into force on the date of publication in the Official Gazette.


2. In the Income-tax Rules, 1962, after rule 126, following rule shall be inserted, namely:-

“Service of notice, summons, requisition, order and other communication.

127. (1) For the purposes of sub-section (1) of section 282, the addresses (including the address for electronic mail or electronic mail message) to which a notice or summons or requisition or order or any other communication under the Act (hereafter in this rule referred to as “communication”) may be delivered or transmitted shall be as per sub-rule (2).

(2) The addresses referred to in sub-rule (1) shall be-

(a) for communications delivered or transmitted in the manner provided in clause (a) or clause (b) of subsection (1) of section 282-
(i) the address available in the PAN database of the addressee; or
(ii) the address available in the income-tax return to which the communication relates; or
(iii) the address available in the last income-tax return furnished by the addressee; or
(iv) in the case of addressee being a company, address of registered office as available on the website of Ministry of Corporate Affairs:

Provided that the communication shall not be delivered or transmitted to the address mentioned in item (i) to (iv) where the addressee furnishes in writing any other address for the purposes of communication to the income-tax authority or any person authorised by such authority issuing the
communication;



(b) for communications delivered or transmitted electronically-
(i) email address available in the income-tax return furnished by the addressee to which the communication relates; or
(ii) the email address available in the last income-tax return furnished by the addressee; or
(iii) in the case of addressee being a company, email address of the company as available on the website of Ministry of Corporate Affairs; or
(iv)any email address made available by the addressee to the income-tax authority or any person authorised by such income-tax authority.

(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall specify the procedure, formats and standards for ensuring secure transmission of electronic communication and shall also be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to such communication.”

[Notification No. 89/2015/ F. No. 133/79/2015-TPL]

EKTA JAIN, Dy. Secy.


Note.—The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended by Income-tax (17thAmendment) Rules, 2015 vide notification S. O. No. 2877(E) dated 20th October, 2015.

Source: [You must be registered and logged in to see this link.]

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F.No.312/109/2015-0T
Government of India
Ministry of Finance
Central Board of Direct Taxes (CBDT)

New Delhi, Dated: 2nd December, 2015

To,
All Principal Chief Commissioners of Income Tax.


Sir/ Madam,

Sub: Expeditious issue of refunds below Rs.50,000/- in Non-CASS cases for AYs 2013-14 and 2014-15.

I am directed to say that as on 01.11.2015, there were 2.07 lakh returns involving refund claims of Rs.659 crore for AY 2013-14 and 12.90 lakh returns involving Rs.4,837 crore for AY 2014-15 still pending for processing and issue of refunds. These returns have not been selected for scrutiny under CASS.

2. While reviewing the pendency of refunds, the Revenue Secretary has directed that refunds in respect of cases not selected under CASS and involving refund of less than Rs.50,000/- for the assessment years 2013-14 and 2014-15 may be issued as early as possible. Most of the returns for AY 2013-14 have now been pushed by CPC-Bengaluru to AST. Similarly, some of the returns of AY 2014-15 may also have been pushed by CPC to the assessing officer.

3. In view of the above, it is requested that the assessing officers in your Region may kindly be advised to expeditiously process and determine refunds in non-CASS cases having claim of refund of less than Rs.50,000/- and issue the same as early as possible.

This issues with the approval Member (Revenue), CBDT.

Yours faithfully


(Salil Mishra)
Additional Commissioner (OSD) (OT&WT)

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Case Law Citation

Principal Commissioner of Income Tax Vs. M/s G.K. Properties Private Limited (Andhra Pradesh High Court), I.T.T.A. No. 42 of 2015, Date of Decision-17.06.2015

The case of the appellant-Department, in brief, is that the assessee had purchased agricultural lands with a clear intention to trade in buying and selling of agricultural lands, construction of residential and commercial complexes, leasing and trading in shares and securities and also leasing agricultural land. In the process of completing assessment under Section 143(3) of the Income Tax Act,, the exemption claimed with respect to the capital gains of sale of agricultural lands was negatived by the Assessing Officer and the same came to be confirmed even after the stage of Tribunal. In other words, the sum and substance of the learned Standing Counsels argument is that the intention on the part of the assessee to trade in agricultural lands by way of an adventure is established and stands uncontroverted and confirmed. Inasmuch as the assessee made a false claim and claimed exemption from taxation, the penalty proceedings are a natural corollary and the Tribunal ought not to have interfered with the orders of the Assessing Officer as well as the Commissioner confirming the penalties.

Having considered the arguments of the learned counsel and having perused the material on record, though the word perversity has been used in the question of law raised, there is no question of perversity in the point which is raised before us. It is one thing for someone to say that the order is perverse and it is another thing that a particular finding of fact is perverse, thereby establishing the aspect of perversity. Whichever order which may ultimately be set aside by the appellate forum or the higher authority, basing on certain well settled legal principles, merely because the same was erroneous, need not be perverse or cannot be called as perverse.

In the facts of the present case, the Tribunal had recorded a finding in the penalty proceedings that the assessee had purchased agricultural lands and for a good number of years had offered income as agricultural income on account of the assessee earning income on leasing of the agricultural lands. Tribunal found, as a matter of fact, that the land is outside Municipal limits i.e., beyond eight kilometres of Municipality. This finding is not challenged. The Tribunal also considered the judgment of this Court in Raghotham Reddy v. ITO , wherein this Court had held that the sale of agricultural lands would not attract income tax and exempt from tax. In other words, the claim made by the assessee cannot be said to be bona fide with the intention to evade the tax. Merely because the claim made by the assessee has not been accepted ipso facto, the said claim cannot be said to be a deliberate act of furnishing inaccurate particulars and it also cannot be said that the information furnished by the assessee is inaccurate inviting penalty. This issue of the matter is well settled by the judgment of the Supreme Court in CIT v. Reliance Petro Products , wherein the apex Court held as under:

We have already seen the meaning of the word particulars in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add hear that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under s. 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.

In fact, the Tribunal had also taken into consideration of the law laid down by the Punjab & Haryana High Court in Sidhartha Enterprises , wherein it was held as under:

The judgment of the Supreme Court in Union of India vs. Dharamendra Textile Processors & Ors. (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under s. 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding have been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse.


In the facts of the present case and in the light of the guidance as provided by the Supreme Court in the case of Reliance Petro (2 supra), merely because the assessee made a claim which is not acceptable ipso facto cannot be said to have made a wrong claim by furnishing inaccurate particulars attracting penalty under Section 271(1)(c) of the Income Tax Act, for the relevant assessment year.

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Case Law Citation- Commissioner of Income Tax Vs. Shri Varanasi Khanta Rao, Prop.Sri Sai Srinivasa Modern Rice Mill (Andhra Pradesh High Court), I.T.T.A.No.36 of 2004, Date of Decision- 31-03-2015

The phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. Commissioner of Income tax [(1968) 67 ITR 84 (SC)] and in Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal. [(1973) 88 ITR 323 : (1973) 3 SCC 482 : 1973 SCC (Tax) 318].

In the instant case, a perusal of the order of the Assessing Officer would show that the return of income filed by the assessee was accepted and the tax was finalized. From the order of the Assessing Officer, one cannot deduce whether the errors pointed out by the Commissioner of Income Tax were considered by the Assessing Officer or not. The Commissioner of Income Tax, not only pointed out the errors, but also had shown the effect of the same on the revenue. It is not known how the Tribunal has come to the conclusion that the errors have no effect on the revenue. The Tribunal ought not to have taken into consideration the explanation submitted by the assessee before the Commissioner for coming to the conclusion that the errors pointed out by the Commissioner have no effect on the revenue. Ultimately, it is for the Assessing Officer, at the time of de novo enquiry, to consider whether the explanation offered by the assessee to the points raised by the Commissioner is proper or not. When once the Commissioner has got power to point out the errors which had the effect on the revenue, the Tribunal cannot sit as an appellate authority on the order of the Commissioner passed under Section 263 of the Act. If the power exists in the Commissioner and is exercised by him after satisfying himself on the facts of the case, it is not for the Tribunal to re-appreciate the said satisfaction of the Commissioner. It is only when the Commissioner does not exercise the power properly in satisfying the twin test contemplated under Section 263 of the Act, the order of the Commissioner can be held to be perverse, but not by re- appreciating the order of the Commissioner. A prima facie perusal of the order of the Commissioner shows that the Commissioner was satisfied that there were errors which had effect on the interests of the revenue and it needed a further probe by the Assessing Officer.

In the facts and circumstances of the case, we are satisfied that the order passed by the Commissioner is proper and validly exercised as per the powers conferred on him under Section 263 of the Act and we, accordingly, set aside the order of the Tribunal. Hence, we hold the substantial question of law in favour of the Revenue and against the assessee.


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Case Law Citation- Sri Damodarlal Badruka Vs. The Income Tax Officer (Andhra Pradesh High Court), I.T.T.A.No.299 OF 2003 , Date of Decision- 17-03-2015

It is not in dispute that after setting aside the assessment made under Section 143 (1) of the Act, by the Commissioner in exercise of his powers under Section 263 of the Act, the Assessing Officer made fresh assessment under Section 143 (3) of the Act. The Assessing Officer had, accordingly, issued a notice under sub-section (2) of Section 143 of the Act to the assessee. Further, it is not in dispute that while issuing the notice, previous approval of the Inspecting Assistant Commissioner was not sought. Therefore, the question raised is, whether the assessment under Section 143 (3) of the Act, would vitiate for want of previous approval of the Inspecting Assistant Commissioner.

Sub-section (2) of Section 143 of the Act provides for issue of notice by the Assessing Officer, requiring the assessee, on the date to be therein specified, either to attend at the Assessing Officers office or to produce or to cause to be there produced any evidence on which the assessee may rely in support of the return. The first proviso to sub-section (2) provides that, in a case where an assessment has been made under sub-section (1), the notice under this sub-section, except where such notice is in pursuance of an application of the assessee under clause (a), shall not be issued by the Assessing Officer unless the previous approval of the Deputy Commissioner has been obtained to the issue of such notice. Thus, this provision would show that where the Assessing Officer has made the assessment under sub-section (1) of Section 143, he has power to make assessment under Section 143 (3) and for that, the issue of notice under sub-section (2) is a pre-condition. Opening words of the first proviso to sub-section (2) are in a case where the assessment has been made under sub-section (1). A bare reading of this expression would show that where the Assessing Officer has made assessment under sub-section (1) and he chooses to make reassessment under sub-section (3), he has no powers to issue notice, unless the previous approval of the Inspecting Assistant Commissioner is obtained. The words Inspecting Assistant Commissioner in the first proviso were substituted by Deputy Commissioner by Act 4 of 1988, Section 2, w.e.f. 01.04.1988. The question is, where the assessment made under sub-section (1) of Section 143 of the Act is set aside by the revisional authority under Section 263 of the Act, whether the previous approval contemplated by sub-section (2) of Section 143 of the Act is necessary. In our opinion this question must be answered in the negative, since the original order under Section 143(1), having been quashed and set aside, it ceases to operate.

The revisional power, as per the provisions Section 263 is supervisory in nature and not like that of an appellate authority. For exercising this power, the only condition is that the order of the Assessing Officer should be erroneous insofar as it is prejudicial to the interests of the revenue. The provisions contained in this Section would also show that the Commissioner can call for and examine the order of any proceeding under the Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment. Thus, he has options, viz., to pass such order as the circumstances of the case justify or an order enhancing the assessment or modifying the assessment or canceling the assessment and in the event of canceling the assessment, he has power to issue a direction for fresh assessment. In the present case, the Commissioner cancelled the assessment and directed fresh assessment.

It is well settled that once an assessment is re-opened by virtue of the order passed by CIT under Section 263 of the Act, the initial order of assessment ceases to be operative. The effect of re-opening of assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made of re-assessment. Thus, in the present case, in our opinion, after the previous assessment, which was set aside by the CIT in exercise of his power under Section 263 of the Act, the whole proceedings started afresh.

Moreover, in the present case, the assessment under Section 143 (1) of the Act was set aside by the Commissioner, the higher authority, in exercise of his powers under Section 263 of the Act, and therefore, it ceased to operate or in other words the Assessing Officer had to pass order under Section 143 (3) as if there was no assessment under Section 143 (1). In view thereof, it was open to the Assessing Officer to make assessment under sub-section (3) of Section 143 without seeking prior approval as contemplated by sub-section (2) thereof. In other words, this is not a case where the Assessing Officer chose to make reassessment under Section 143 (3) of the Act of his own. This being so, in our opinion, it was not necessary to seek previous approval of the Inspecting Assistant Commissioner before issuing notice under sub-section (2) of Section 143. The question framed, therefore, is answered in favour of the Revenue and against the assessee.

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CBDT notifies emails as new communication mode with taxpayers

December, 07th 2015

The Central Board of Direct Taxes has notified use of emails as the new mode of communication between the taxman and taxpayers, as part of the government's e-initiative to reduce human interface and complaints of harassment and corruption in conducting tax related jobs.

The amendment in the Income Tax Act was also required as the I-T department has recently launched a 'pilot project' of sending email queries, notices and summons to taxpayers while processing cases of scrutiny.

According to notification 89 issued by the Central Board of Direct Taxes (CBDT), the apex policy-making body of the tax department, an amendment has been made in the Section 282 of the I-T Act (Service of notice) allowing for inclusion of taxpayers or tax paying entities' email as the new mode of official communication along with the existing modes like courier, postage or departmental dispatch.

Henceforth, the taxman can now send official communication to "email address available in the income-tax return furnished by the addressee to which the communication relates or the email address available in the last income-tax return furnished by the addressee or in the case of addressee being a company, email address of the company as available on the website of Ministry of Corporate Affairs".

Also, any email address made available by the addressee to the income-tax authority or any person authorised by such income-tax authority," the CBDT notification issued in this regard earlier this week said.

The department, in order to reduce the taxpayers' visit to the IT office, had launched the 'pilot' project and the first set of e-communications have been decided to be mailed to 100 chosen people each in Delhi, Mumbai, Bengaluru, Ahmedabad and Chennai regions.

The CBDT had recently asked the department to "initiate the concept of using email for corresponding with taxpayers and sending through emails the questionnaire, notice etc at the time of scrutiny proceedings and getting responses from them."

This would eliminate the necessity of visiting the Income Tax offices by the taxpayers, particularly in smaller cases, involving limited issues and where taxpayer is able to provide details required by the Assessing Officer (AO) without necessitating his physical presence," the order said.

Former CBDT Chairperson Anita Kapur, in a recent interview to PTI, had said that the "first-of-it's kind initiative" was aimed at making life easy for taxpayers.

"We have been thinking how can we make life easier for taxpayers especially for those who are in the middle and the slightly higher tax bracket.

So, now we are thinking of allowing that when a notice is issued in an assessment or scrutiny case, the taxpayer can send the department an e-response," she had said.

The former CBDT boss had also said the purpose of introducing the system was to reduce the interface between the taxpayer and the AO.

The taxpayer can send documents over email, scan them, upload them and it's over. It (email-based scrutiny session) should be over and should not go beyond that.

"This is the way we are trying to address the issues of compliance and limiting the interface between the taxman and the taxpayer. This will be a sea change in our tax administration," Kapur said.

Tax experts say the initiative will also ensure privacy of a taxpayers' communication with his AO and the tax department.

The CBDT chief had said she was aware of instances where the taxpayers complained that the AO raised numerous queries upon meeting the assesses despite their earlier order sheets having mention of only a few queries.

The department will now soon "specify the procedure, formats and standards for ensuring secure transmission of electronic communication."

61 Income-tax (18th Amendment) Rules, 2015 on Tue 8 Dec 2015 - 23:06

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MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION NO. 89/2015

New Delhi, the 2nd December, 2015

Income-tax

G.S.R. 923(E).-In exercise of the powers conferred by section 282 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend theIncome-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (18th Amendment) Rules, 2015.

(2) They shall come into force on the date of publication in the Official Gazette.

2. In the Income-tax Rules, 1962, after rule 126, following rule shall be inserted, namely:-

“Service of notice, summons, requisition, order and other communication.

127. (1) For the purposes of sub-section (1) of section 282, the addresses (including the address for electronic mail or electronic mail message) to which a notice or summons or requisition or order or any other communication under the Act (hereafter in this rule referred to as “communication”) may be delivered or transmitted shall be as per sub-rule (2).

(2) The addresses referred to in sub-rule (1) shall be-

(a) for communications delivered or transmitted in the manner provided in clause (a) or clause (b) of subsection(1) of section 282-

(i) the address available in the PAN database of the addressee; or

(ii) the address available in the income-tax return to which the communication relates; or

(iii) the address available in the last income-tax return furnished by the addressee; or

(iv) in the case of addressee being a company, address of registered office as available on the website of Ministry of Corporate Affairs:

Provided that the communication shall not be delivered or transmitted to the address mentioned in item (i) to (iv) where the addressee furnishes in writing any other address for the purposes of communication to the income-tax authority or any person authorised by such authority issuing the communication;

(b) for communications delivered or transmitted electronically-

(i) email address available in the income-tax return furnished by the addressee to which the communication relates; or

(ii) the email address available in the last income-tax return furnished by the addressee; or

(iii) in the case of addressee being a company, email address of the company as available on the website of Ministry of Corporate Affairs; or

(iv)any email address made available by the addressee to the income-tax authority or any person authorised by such income-tax authority.

(3) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall specify the procedure, formats and standards for ensuring secure transmission of electronic communication and shall also be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to such communication.”

F. No. 133/79/2015-TPL]

EKTA JAIN, Dy. Secy.

Note.-The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii)

62 Direct Taxes Case Laws on Mon 28 Dec 2015 - 23:24

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1. Hero Cycles (P) Ltd. Vs. CIT, C.A. No. 514 of 2008, Date of Judgement: 05.11.2015, Supreme Court of India

Interest paid on borrowed sums further advanced to subsidiary company for purpose of facilitating the subsidiary in meeting out its working capital requirement is allowable as business expenditure u/s 36(1)(iii) of Income Tax Act, 1961.

Held_Yes

The AO disallowed the interest paid on borrowed amount utilized for giving advance to its subsidiary company stating that that money borrowed was not used for business purposes. Whereas the assessee contented that the amount was advanced in compliance of the stipulations laid down by the financial institutions to which undertaking was given by the assessee for the purpose of providing additional margin to the subsidiary company to meet the working capital for meeting any cash loses.

Hon’ble Supreme Court applied the view taken by Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. 2002 (254) ITR 377 wherein the High Court had held that “once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case”.

Held that_the advance to subsidiary company became imperative as business expediency in view of the undertaking given to the financial institutions by the assessee. Appeal of assessee is allowed.

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2. CIT Vs. Shri Kapil Kumar Agarwal, I.T.A. No. 12 of 2015, Date of Decision: 04.11.2015, High Court of P & H
Whether to avail benefit of Section 54F of the Income Tax Act, 1961, is it required to utilize the sale proceeds of the original capital asset only for purchase of the new asset.

Held_No

The AO denied the benefits of Section 54F for the reason that assessee not entirely sourced the amount invested in new assets from capital gain receipts and investment was made after taking loan from his employer. Assessee contented that due to non-availability of sales consideration at the time of investment he made investment out of loan amount.

Hon’ble High Court followed the decision of the Kerala High Court in the case of ITO vs K.C. Gopalan (1999) 107 Taxman 591 (Ker.) wherein it was held that no provision is made by the statute that the assessee should utilize the amount which he obtained by way of sale consideration for the purpose of meeting the cost of new asset. Further, it was held that the law permits utilization of capital gain within the specified time, the assessee may use such funds for other purposes and may find resources from other source for investment in time. Appeal is dismissed.

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63 Direct Taxes Case Laws on Mon 28 Dec 2015 - 23:29

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1. Kulbhushan Khosla Vs. CIT, I.T.A. No. 33/2004, Date of Pronouncement: 14.12.2015, Delhi High Court

Whether reopening u/s 147 of the Act of an assessment is permissible merely on the basis of office note of predecessor AO in which a reference was made to Foreign Tax Department (FTD), in absence of any adverse material received.

Held_No

In brief, the AO had made detailed enquiry regarding gifts received by assessee from foreign donors and completed assessment u/s 143(3) of the Act. Later on, successor AO reopened the case u/s 147 merely on the basis that alleged transaction needs verification. The assessee had challenged reopening of the assessment inter alia on the ground that no adverse material or new information was received from the FTD up to the time of the reopening of assessment. The Hon’ble ITAT has held that a mistake committed by one AO cannot bind the successor AO, who if he feels that an item of income had escaped assessment, then he bound to act with reference to a provision of law and not allow the proceedings to lapse only because the report of the FTD as in the present case is not receive and uphold order of the CIT(A) & the AO.

The Hon’ble High Court has held that a detailed enquiry was conducted during original assessment proceedings, in the absence of any adverse material, the reopening of the assessment was at best due to change of opinion of the AO that some income had escaped assessment. This was impermissible u/s 147 of the Act.

Case followed: CIT v. Multiplex Trading & Industrial Co. Ltd. (ITA 356/2013, Delhi) and Oriental Insurance Company v. CIT (ITA 174/2013, Delhi).

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2. ITO (E) Vs. Bhansali Trust, I.T.A. No. 5948/Mum/2012, Date of Order: 31.08.2015, ITAT - Mumbai
Non-intimation of addition in the object clause of Trust, subsequent to the grant of registration u/s 12A of the Act, is a valid ground to deny the exemption u/s 11 of the Act.
Held_No
The AO denied the exemption claimed u/s 11 & 12 of the Act for reason that objects of the trust had been amended after the grant of registration u/s 12A of the Act. Whereas, the assessee contented that even amendments in the objects remain charitable and do not cause any detriment to the original objects as mentioned in the original Trust Deed and only their scope has been enlarged. Moreover, the exemption u/s 11 was not denied by the AO during the scrutiny assessment for earlier years.

Hon’ble ITAT held that there is no change in the tone and tenor of the objects pursued by the assessee in a real sense. On analysis of the changes in objects of the Trust deed, we find that the amendment only seek to provide enabling powers to the Trust to accomplish its original objects which are in the fields of educational purpose, medical purpose, relief of poverty and objects of general public utility not involving carrying on any activity for profit. Thus, the appeal of the Revenue is dismissed.

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64 Direct Taxes Case Laws on Mon 28 Dec 2015 - 23:36

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1. Pr. Commissioner of Income Tax Vs. JKD Capital & Finlease Ltd., I.T.A. No. 780/2015, Date of Order: 13.10.2015, High Court of Delhi

Whether limitation u/s 275 are applicable to imposition of penalty u/s 271E of the Income Tax Act, 1961

Held Yes

AO recommended the initiation of penalty proceedings the AO appeared to be conscious of the fact that he did not have the power to issue notice as far as the penalty proceedings under Section 271-E was concerned. He, therefore, referred the matter concerning penalty proceedings under Section 271-E to the Additional CIT. For some reason, the Additional CIT did not issue a show cause notice to the Assessee under Section 271-E (1) till 20th March 2012, whereas corresponding assement order was passed on 28th December 2007. There is no explanation whatsoever for the delay of nearly five years after the assessment order in the Additional CIT issuing notice under Section 271-E of the Act. The Additional CIT ought to have been conscious of the limitation under Section 275 (1) (c), i.e., that no order of penalty could have been passed under Section 271-E after the expiry of the financial year in which the quantum proceedings were completed or beyond six months after the month in which they were initiated, whichever was later. In a case where the proceedings stood initiated with the order passed by the AO, by delaying the issuance of the notice under Section 271-E beyond 30th June 2008, the Additional CIT defeated the very object of Section 275 (1) (c).

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2. Commissioner of Income Tax Vs. M/s. Indo Arab Air Services, I.T.A. No. 292/2015, Date of Order: 20.10.2015, High Court of Delhi

Whether the AO was correct in initiating reassessment proceedings u/s 148 of the Income Tax Act, without correlating the information received from Enforcement Directorate with the returns filed for period under consideration.

Held No.

The AO set out the information received from the ED, he failed to examine if that information provided the vital link to form the 'reason to believe' that income of the Assessee had escaped assessment for the AY in question. While the AO has referred to the fact that the ED gave information regarding cash deposits being found in the books of the Assessee, the AO did not state that he examined the returns filed by the Assessee for the said AY and detected that the said cash deposits were not reflected in the returns. In fact, the AO contradicted himself in the reasons recorded by him by noticing the information of the ED to the above effect and then stating that on perusal of the records for the AY in question it was noticed that the Assessee “had not disclosed these transactions in its books of accounts.” Further the AO refers to the ED’s information that Mr. Chetan Gupta, partner of the Assessee, failed to explain the sources of the cash deposits as shown in the books of accounts. However, that by itself could not have led the AO to even prima facie conclude that income of the Assessee had escaped assessment.
The explanation or the lack of it of the entries in the books of accounts may have certain relevance as far as ED is concerned but that by itself does not provide the vital link for concluding that for the purposes of the Act any part of cash deposits constituted income that had escaped assessment. There is a long distance to travel between a suspicion that income had escaped assessment and forming reasons to believe that income had escaped assessment. While the law does not require the AO to form a definite opinion by conducting any detailed investigation regarding the escapement of income from assessment, it certainly does require him to form a prima facie opinion based on tangible material which provides the nexus or the link to having reason to believe that income has escaped assessment.

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Direct Taxes Segment:

1. Amendment to section 68 by insertion of proviso vide Finance Act, 2012 which casts onus on closely held company to explain source of share capital is clarificatory and, hence, applicable with retrospective effect.

2. Where assessee-institute having received loan from group companies, converted same into corpus donation, since lender companies were not doing any business and thus were not in a position to give huge amount of loan, addition made by Assessing Officer regarding loan amount as well as penalty order passed on basis of same was to be upheld.

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65 Direct Taxes Case Laws on Wed 30 Dec 2015 - 16:24

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1. PR. CIT Vs. Bharti Overseas Pvt. Ltd., I.T.A. No. 802/2015, Date of Order: 17.12.2015, Delhi High Court

For purpose of disallowance u/s 14A of the Income Tax Act, 1961 r.w. Rule 8D(2)(ii), the amount of interest not attributable to the earning of any particular item of income, i.e., ‘common interest expenses’ would have to exclude both expenditures, i.e., interest attributable to tax exempt income as well as that attributable to taxable income.

Hon’ble High Court held that the object behind Section 14A is to disallow only such expense which is relatable to tax exempt income. Where the entire interest expenditure was incurred for earning either taxable income or exempt income, there was no interest amount which was not directly attributable to either the tax exempt or taxable income. Thus, in such case, no portion of interest really survives for allocation under Rule 8D (2)(ii).

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2. Bridal Jewellery Mfg. Co. Vs. ITO, I.T.A. No. 4954/Del/2011, Date of Pronouncement: 18.12.2015, ITAT - Delhi

Whether exemption u/s 10A of the Income Tax Act, 1961 is available on undisclosed income surrendered during the survey proceeding u/s 133A of the Act?

Held_Yes

The assessee, located in Noida Special Economic Zone (NSEZ), is engaged in manufacturing & export of Gold Jewellery and claims exemption u/s 10A of the Act. A survey u/s 133A of the Act was carried out consequent to which income was surrendered on account of excess gold found and some loose papers. During the assessment proceedings, assessee submitted that excess gold found was on account of wastage recovery and that is erroneously omitted to be entered in books. Hence income generated from such sale is eligible for exemption u/s 10A of the Act. However the AO denied the exemption on said income.

Hon’ble ITAT held that where the said income was directly related to the export business of the assessee, the same is entitled for deduction u/s 10A of the Act on the additions.

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REproduced for the benefit of CSoC Members.

Credit of service tax paid on Transportation Charges
By CA Ashish Chaudhary

Background
Cenvat Credit is a beneficial scheme wherein the duty paid at earlier stage on inputs and input services is allowed to be set off against the liability on manufactured goods or output services provided. One of the major expenses incurred by manufacturer is transportation charges for inwards movement of input & capital goods and outward movement of finished goods.

Person liable to pay tax

Where the person liable to pay freight in relation to service provided by a goods transport agency (GTA)is any of the following:

i. any factory registered under or governed by the Factories Act, 1948;

ii. any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;

iii. any co-operative society established by or under any law;

iv. any dealer of excisable goods, registered under Central Excise Act;

v. any body corporate established, by or under any law; or

vi. any partnership firm whether registered or not under any law including association of persons;

then the service tax needs to be paid by person who pays or is liable to pay freight either himself or through his agent. Service tax needs to be paid on 30% of the freight charges i.e. effective rate of tax would be 14.5%*30%=4.35%. The concessional rate would be applicable where GTA has not availed credit on input, input service and capital goods.

Input service definition

The definition of input service as per section 2 (l) of Cenvat Credit Rules (CCR)–

means any service …

used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products

AND CLEARANCE OF FINAL PRODUCT upto the place of removal, and

INCLUDES services used ……inward transportation of inputs or capital goods and outward transportation upto the place of removal………………………

This definition indicates that the credit of outward freight is eligible when expense has been incurred upto place of removal.

Concept of Place of removal

As per Rule 2 (qa) of CCR, “place of removal” means.
i. a factory or any other place or premises of production or manufacture of the excisable goods;

ii. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;

iii. depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;

from where such goods are removed;

The definition of ‘sale’ under Central Excise Act would be relevant to arrive at place of removal of excisable goods. Under the Act, sales mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;

On a conjoint reading of the definitions of sale and place of removal, in case of a sale from a depot or any other premises (from where the possession of excisable goods is transferred for consideration by manufacturer, after their clearance from the factory), the determination of the ‘place of removal’ would be that location outside the factory.

Then it can be inferred that location of customers site where the possession of the goods is handed over for a payment after the clearance from factory and where such sale takes place is the place of removal.

Availment of credit of ST paid on freight outwards

Based on above definition, it is clear that the place of removal would depend upon the specific transaction in issue.Where the removal is pursuant to sales on FOR basis, with the risk in the goods manufactured being borne by the manufacturer till delivery to the customer at its premises and where the composite value of sales include the value of freight involved in delivery at the customer’s premises, the place of removal would not be at the factory gate, but the customer’s premises. In such scenario, credit on GTA service would be eligible.

On the other hand, in cases where sale is ex-factory, place of removal would be factory and credit of service tax on transportation charges would not be eligible.

Judicial Precedents

i. Gujarat Ambuja Cement Ltd. 2009-TIOL-110-HC-P&H-ST where assessee availed credit for duty paid on outward freight which was disallowed by revenue. It was held by High Court that assessee is eligible for Credit.

ii. New Allenberry Works Vs CCE CENVAT - 2014-TIOL-724-CESTAT-DELthe question was whether credit of service tax can be taken for the outward freight in respect of excisable goods delivered at the premises of buyer for period November, 2009 to March, 2010. Held that thewhere the place of delivery of the goods is the customer premises and the freight is borne by the manufacturer, the place of removal has to be held as the customer's factory gate.

iii. Also in Ultra Tech Cement Ltd. Vs. C.C.Ex. and ST, Rohtak [2014-TIOL-1934-CESTAT-DEL]has again held that Cenvat credit on outward transportation is allowed when the sales are made on FOR destination basis and place of removal would be customer’s premises.

In paper writers view, there was no restriction as per law as the word ‘includes’ in input services definition does not disentitle credit on outward GTA. Further as per PO terms in the case of manufacturer [supported by case laws], where the removal (sale completion) is ONLY at the customer’s premises therefore such credit on outwards GTA are eligible to be availed.

Credit in different situations:

1. Whether freight and outward insurance amount charged are includible in assessable value when the sale is ex-works? Whether credit is eligible?

Comment: If sale is ex-works then freight and outward insurance charges are not includible to arrive at the value of excisable goods and credit is not eligible.

2. Whether freight and outward insurance amount charged are includible in assessable value when the sale is Free On Road(FOR) basis?

Comment: In some cases price is FOR and the possession is given to buyer only at destination. The ownership of goods could be transferred to buyer only at buyer’s premises. Sale takes place when delivery is given at destination of customer place and hence destination is place of removal. Hence freight upto place of destination would be includible in assessable value of excisable goods and credit of service tax paid would be eligible.

3. In case of exports, which freight charges would be eligible for credit?

Comment: It has been clarified by department vide circular no. 999/6/2015-CX, dated 28-2-2015 that In the case of clearance of goods for export by manufacturer exporter, shipping bill is filed by the manufacturer exporter and goods are handed over to the shipping line. In such a situation, transfer of property can be said to have taken place at the port where the shipping bill is filed by the manufacturer exporter and place of removal would be this Port/ICD/CFS. Credit of freight charges upto port would be eligible. Alternatively, exporter may claim exemption from payment of service tax on transportation charges under Notification No. 31/2012-ST.

4. Where goods are sold by manufacturer to merchant exporter, whether credit would be admissible to manufacturer?

Comment: If the sale is ex-factory and goods are moved to port by manufacturer on request of merchant exporter, credit would not be admissible as place of removal has become factory. On the other hand, if goods are required to be delivered at the port by manufacturer, credit of transportation charges upto port would be eligible.

5. Credit of service tax paid on purchase of input and capital goods, whether eligible?

Comment:Yes, the definition of input service specifically includes inward transportation of input and capital goods. Hence, credit would be eligible.

6. Transportation charges incurred for the goods sent from factory to depot, whether credit available?

Comment: Where goods are sent to depot from where sale is made to ultimate customer, depot become place of removal and credit would be eligible. Similarly, transportation charges on goods sent to job worker for further processing would be eligible.

Conclusion

Above discussion indicates that credit is eligible for expense incurred upto place of removal. The place of removal needs to be decided on case to case basis depending upon the terms of the contract with customer and the place where risk and reward is transferred. For any queries, mail at [You must be registered and logged in to see this link.] or [You must be registered and logged in to see this link.]

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CIT & ACIT Vs. Karnataka Vikas Grameen Bank, I.T.A. No. 100014/2014 c/w ITA100013/2014, Date of Judgment: 14.12.2015, Karnataka High Court

Whether the addition can be made u/s 41(1) of the Income Tax Act, 1961 towards unclaimed ‘stale draft and pay orders’ in the hands of a Regional Rural Bank?

Held: No

The assessee is a Regional Rural Bank registered under the schedule of Reserve Bank of India (RBI). The assessee had ‘stale draft and pay orders’ for the reason that purchasers of DD/ Pay Orders had not claimed or encashed them. The AO considered the same as profits chargeable to tax u/s 41(1) of the Act.

The hon’ble High Court held that section 41(1) of the Act can be invoked when an allowance or deduction is sought to be made in respect of loss, expenditure or trading liability is incurred by the assessee. In the present case, the amount was with assessee because of the fact that the payee or the holders of drafts/ pay orders had not encashed them and the same was liable to be discharged as and when a claim is lodged by the holder/ payee of a draft/ pay order. The provision is clear and unambiguous and it would be incongruous to construe that the amount involved as either a loss, expenditure or trading liability incurred by the assessee. The reliance was placed on CIT vs T.V. Sundaram Iyenagar & Sons Limited (1996) 222 ITR 344 (SC) wherein it was held that amount remaining un-claimed by various trading parties for a long time and written back to the P&L a/c, is of capital nature thereby not attracting the provisions of Section 41(1).

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Safina Hotels Pvt. Ltd. Vs. CIT & DCIT, I.T.A. No. 240/2010, Date of Judgment: 25.01.2016, Karnataka High Court

Whether penalty can be levied u/s 271(1)(c) of the Income Tax Act, 1961 where notice was issued u/s 271(1)(b) of the Act?

Held: No

The assessee was engaged in the business of hotel industry. The assessee had claimed loss on sale of investment under ‘financial charges’. The AO disallowed the amount contending the same as capital in nature and initiated separate penalty proceedings u/s 271(1)(c) of the Act for willful concealment of the income and for furnishing inaccurate particulars of such income. However, the notice issued u/s 274 r.w.s 271, corresponded to Section 271(1)(b) of the Act, and the order of AO was passed u/s 271(1)(c) of the Act.

The hon’ble High Court held that the AO had no jurisdiction to pass the penalty order u/s 271(1)(c ) of the Act without issuing a proper notice as required under law and when the particulars are disclosed in the return of income. The hon’ble Court placed reliance on Judgement of ‘Manjunath Cotton and Ginnings (2013) 359 ITR 565’ (Kar). Also held that, direction to initiate penalty proceedings in assessment order, as required u/s 271(1B) of the Act should be clear and unambiguous.

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Please find the below links for understanding of Section 41 of the Income Tax Act, 1961 >A complete analysis

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Sec. 41 deals with a situation where:

1. A loss, expenditure or trading liability has been incurred in the course of business or profession;

2. Allowance or deduction has been made in respect of such loss, expenditure or trading liability in the course of assessment; and

3. A benefit is subsequently obtained in respect of such loss, expenditure or trading liability by way of remission or cessation
thereof


In such a situation, the value of the benefit accruing to the assessee is deemed to be profits and gains of business or profession.

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Please find the following links of ICAI which are helpful for the students who are appearing for CS Executive/Professional June 2016 & Dec 2016 Examinations.

(A) [You must be registered and logged in to see this link.]

for CA Direct Tax Laws Supplementary Study Materials as amended by Finance Act 2015 [Relevant for May 2016 and November 2016 examinations]

(B) [You must be registered and logged in to see this link.] & [You must be registered and logged in to see this link.]

for CA Indirect Tax Laws Supplementary Study Materials as amended by Finance Act 2015 [Relevant for May 2016 and November 2016 examinations]

&

(C) [You must be registered and logged in to see this link.]

for Select Cases of Direct Tax Laws & Indirect Tax Laws [Relevant for CA May 2016 and CA November 2016 examinations]

published by The Institute of Chartered Accountants of India.

Have a happy Exam Preparation.


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ICSI Guidance for June 2016 Examination on

Tax Laws and Practice &

Tax Laws and Practice:

Supplements for Tax Laws and Practice - relevant for June, 2016 Examination (For students having 2014 edition of study material)

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Updates for Advanced Tax Laws and Practice – Old Syllabus - relevant for June, 2016 Examination (For students having 2015 edition of study material)

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Spplements for Advanced Tax Laws and Practice – New Syllabus - relevant for June, 2016 Examination (For students having 2014 edition of study material)

Link: [You must be registered and logged in to see this link.]

Supplements for Advanced Tax Laws and Practice – Old Syllabus - relevant for June, 2016 Examination (For students having 2014 edition of study material

Link: [You must be registered and logged in to see this link.]

Updates for Advanced Tax Laws and Practice – New Syllabus - relevant for June, 2016 Examination (For students having 2015 edition of study material)

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Updates for Tax Laws and Practice relevant for June, 2016 Examination (For students having 2015 edition of study material)

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Changes in the Finance Bill 2016 as passed by the Lok Sabha


On May 5, 2016, the Lok Sabha passed the Finance Bill. The Bill which was presented originally in the Lok Sabha on February 29, 2016 has not been passed in its original shape. Various changes have been made in the Bill. New amendments have been proposed. Some earlier proposed amendments have been removed, so on and so forth. A snippet of all changes made in the Finance Bill, 2016 as passed by the Lok Sabha viz-a-viz the Finance Bill, 2016 presented originally in the Lok Sabha are presented hereunder.

1. Unlisted shares held for 24 months or less would be treated as short-term capital asset

As per section 2(42A) of the Income-tax Act, any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer is treated as short-term capital asset.

The aforesaid period of 36 months is treated as 12 months in case of shares held in a company. However, an amendment was made by Finance Act (No. 2) Act, 2014 to provide that the said period of 12 months won't be applicable in respect of shares not listed in recognized stock exchange. Hence, with effect from 01.04.2015, unlisted share is treated as short-term capital asset if it is held for not more than 36 months immediately preceding the date of its transfer.

The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that the period of 36 months would be substituted with period of 24 months in case of unlisted shares. In other words, unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer.

2. When employer's annual contribution is deemed as income received by employee

The Finance Bill, 2016 proposed an amendment to the Fourth Schedule of the Income-tax Act to provide that lower of the following shall be deemed as income of the employee:

(i)

Annual contribution made by employer in excess of 12% of salary to the recognized provident fund account of the employees; or
(ii)

Rs. 1,50,000
The Finance Bill, 2016 as passed by the Lok Sabha provides that any contribution by employer in excess of 12% of salary to the recognized provident fund account of the employees shall be deemed as income of employee. The ceiling limit of Rs. 1.50 lacs has been removed from the approved Finance Bill.

3. TCS collection at the time of receipt only in specific cases

The Finance Bill, 2016 proposed that every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees. Such tax was proposed to be collected from the buyer under section 206C at the time of debiting the amount receivable or at the time of receipt, whichever happened earlier.

The Finance Bill, 2016 as passed by the Lok Sabha provides that tax shall be collected under Section 206C only at the time of receipt of consideration.

4. Section 270A - Computation of tax on underreported income

Under the existing provisions, penalty on account of concealment of income or on furnishing of inaccurate particulars of income is levied under Section 271(1)(c). In order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, new Section 270A has been proposed to be inserted. It provides for levy of penalty in cases of underreporting and misreporting of income.

It is proposed that rate of penalty shall be 50% of tax in case of under reporting of income and 200% of tax in case of misreporting of income. Following amendments to Section 270A have been approved by the Lok Sabha:

(i)

What constitutes under-reporting of income: The Finance Bill, 2016 proposed six instances where a person shall be deemed to have underreported his income. However, the Finance Bill, 2016 as passed by the Lok Sabha has included one more instance of underreporting of income. A person shall also be deemed to have underreported his income where the amount of total income reassessed as per Section 115JB or Section 115JC (MAT or AMT) provisions is greater than the deemed total income assessed or reassessed under provisions of the MAT or the AMT immediately before such reassessment.
(ii)

Tax payable on underreporting of income: The existing clause of the Finance Bill, 2016, proposed a flat tax rate of 30% in respect of underreported income in case of Individuals, HUF, AOP, BOI, Artificial Juridical person. The Finance Bill, 2016 as passed by the Lok Sabha provides that the tax payable in respect of the underreported income shall be as under:

(a)

Return not furnished: Where return of income has not been furnished and the income has been assessed for the first time, the tax shall be calculated on underreported income as increased by maximum amount not chargeable to tax.
(b)

In case of loss: Where the total income assessed or re-assessed is a loss, the tax shall be calculated on underreported income as if it was the total income.
(c)

In any other case: Tax on underreported income as increased by income assessed or re-assessed originally less tax on income assessed or re-assessed originally.
5. Under reporting of income shall be punishable as willful attempt to evade tax

The Finance Bill, 2016 proposed insertion of a new Section 270A to levy penalty in case of under reporting and misreporting of income by assessee. However, there was no corresponding provision to invoke prosecution in this case.

Section 276C provides for rigorous imprisonment of minimum 3 months to 7 years in case an assessee has made willful attempt to evade tax.

The Finance Bill, 2016 as passed by the Lok Sabha amends Section 276C to provide that under reporting of income as per section 270A shall be punishable with rigorous imprisonment under section 276C.

6. Processing of returns before scrutiny assessment

The Finance Bill, 2016 proposed mandatory processing of returns under Section 143(1) even when the scrutiny assessment notice is issued to the assessee. This amendment was proposed so that the assessee need not to wait for the refunds, if any, due to him till the scrutiny assessment was completed.

The Finance Bill, 2016 had provided that return shall be processed before issuing assessment order under section 143(3). However, the finance bill as passed by the Lok Sabha provides that the processing of return is not necessary before the expiry of one year from the end of the financial year in which return is furnished, where a notice is issued for scrutiny assessment under Section 143(2).

7. Benefit of 25 percent tax rates on certain domestic companies

The Finance Bill, 2016 proposed insertion of new section 115BA to provide benefit of concessional tax rate of 25% to certain domestic companies engaged in the business of manufacturing or production of any article or thing, provided such company has been set-up and registered on or after March 1, 2016.

The Finance Bill, 2016 as passed by the Lok Sabha provides that benefit of concessional tax rate shall also be available to the companies engaged in research in relation to or distribution of article or thing manufactured or produced by it.

The Finance Bill, 2016 also proposed that to avail of the concessional rate of tax, domestic company shall exercise the option in the prescribed manner on or before due date of furnishing the return of income under section 139(1) for the relevant previous year.

It is also provided that once the option to avail of benefit of concessional tax rate has been exercised by the company for any previous year, it cannot subsequently withdraw the same or for any other previous year.

8. Cost of acquisition of asset declared under Income Declaration Scheme, 2016

The Finance Bill, 2016 proposed Income Declaration Scheme, 2016 to provide an opportunity to taxpayers to declare their undisclosed income and pay tax, surcharge and penalty in aggregate at 45% of such undisclosed income.

It is provided under the scheme that where the income chargeable to tax is declared in the form of investment in any asset, the fair market value of such asset as on the date of commencement of this scheme shall be deemed to be the undisclosed income.

The Finance Bill, 2016 as passed by the Lok Sabha provides that the cost of acquisition of such asset shall be deemed to be the fair market value taken into account for purposes of Income Declaration Scheme, 2016.

9. LLPs can be 'Eligible start-ups'

The Finance Bill, 2016 proposed a new section 80-IAC to provide 100 percent deduction for 3 consecutive assessment years to an 'eligible Start-up' engaged in an eligible business. Such deduction may, at the option of assessee, be claimed for any three consecutive AYs out of the five years beginning from the year in which eligible startup is incorporated. The 'eligible start-up' is proposed to be defined to mean a 'company' engaged in an eligible business.

The Finance Bill, 2016 as passed by the Lok Sabha extends the definition of 'eligible start-up' to include 'limited liability partnership' also. In other words, LLPs shall also be eligible to claim deductions under Section 80-IAC subject to fulfilment of other conditions.

10. Levy of additional tax on dividend

The Finance Bill, 2016 had proposed an additional tax of 10% if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs.

The Finance Bill, 2016 as passed by the Lok Sabha clarified that dividend whether paid or declared or distributed by one or more domestic companies, the aggregate of dividend shall be considered for the limit of Rs.10 lakhs but Tax shall be payable only on the amount of dividend exceeding Rs 10 lakhs.

11. Tax on income from patent developed and registered in India

The Finance Bill, 2016 proposed insertion of new section 115BBF to tax royalty income in respect of a patent developed and registered in India at the rate of 10%.

The Finance Bill, 2016 as passed by the Lok Sabha inserts two new sub-sections in Section 115BBF to provide as follows:

(a)

Assessee may exercise the option for taxation of income from patents in accordance with the provisions of section 115BBF, in prescribed manner on or before the due date of furnishing of return of income under section 139(1) of the relevant previous year.
(b)

If assessee opts for taxation of income from patents as per section 115BBF in any previous year and fails to offer tax on income from patents as per section 115BBF in any of the 5 succeeding assessment years then he shall not be eligible to claim benefit of said section for 5 assessment years subsequent to the assessment year in which such income has not been offered to tax as per section 115BBF.
The Finance Bill, 2016 also provided that for the purpose of section 115BBF, patent shall be developed and registered in India. The word 'developed' had been described in the Explanations to mean the expenditure incurred by the assessee for any invention in respect of which patent is granted under the Patents Act, 1970.

The Finance Bill, 2016 as passed by the Lok Sabha specifically provides that the meaning of "developed" shall mean at least 75 percent of the expenditure incurred in India by the eligible assessee for any invention in respect of which patent is granted under the Patents Act, 1970.

12. Transfer of shares through a recognized stock exchange located in IFSC

In order to mobilise growth of International Financial Services Centres (IFCS), the Finance Bill, 2016 proposed that no Securities Transaction Tax ('STT') and Commodities Transaction Tax ('CTT') shall be levied on transactions of securities carried out through recognized stock exchange located in IFSC where the consideration for such transaction is paid or payable in foreign currency.

Consequently, it was proposed to amend the section 10(38) of the Income-tax Act to provide that long-term capital gains arising from transfer of equity shares, equity oriented mutual fund or units of business trust shall be exempt from tax if the transaction is undertaken in foreign currency through a recognised stock exchange located in an IFSC, even if STT is not paid in respect of such transactions.

However, no such amendment was proposed to section 111A [short-term capital gain arising from transfer of listed securities].

Therefore, the Finance Bill, 2016 as passed by the Lok Sabha makes similar amendment to section 111A to provide that short-term capital gains arising from transfer of underlying securities shall be taxable at 15%, if the transaction is undertaken in foreign currency through a recognised stock exchange located in an IFSC, even if STT is not paid in respect of such transactions.

13. Amortization of spectrum fee

The Finance Bill, 2016 proposed to insert a new section 35ABA to provide that the spectrum fee paid for auction of airwaves shall be allowed to be deducted over the useful life of the spectrum.

The Finance Bill, 2016 as passed by the Lok Sabha also provides for consequences if specified conditions are not fulfilled. If subsequently there is a failure to comply with any of the conditions, the deduction shall be treated as wrongly allowed and the Assessing Officer may re-compute the total income of the assessee for the respective previous years. It is also provided that the provisions of Section 154 shall apply for four years from the end of the year in which the default is made.

14. Relief to specific Non-Residents from the tax deduction under section of 194LBB

The Finance Act, 2015 had inserted a special taxation regime in respect of Category I and II Alternative Investment Funds (investment fund) registered with the SEBI. Under this regime the income of the investment fund (not being in the nature of business income) is exempt in the hands of investment fund. However, income received by the investor from the investment fund (other than the income which is taxed at the level of investment fund) is taxable in their hands. Accordingly, Section 194LBB was inserted for deduction of tax in respect of payment made to such investors.

The existing provisions of section 194LBB provide that in respect of any income credited or paid by the investment fund to its investor (resident or non-resident), a tax deduction at source (TDS) shall be made by the investment fund at the rate of 10% of the income. This TDS regime had created certain difficulties that non-resident investors, whose income was not taxable as per the relevant DTAA, were not able to claim benefit of lower or nil rate of taxation. Even section 197 didn't provide for any facility to the deductee to approach the Assessing Officer for seeking certificate for TDS at a lower or nil rate in respect of deductions made under section 194LBB.

The Finance Bill, 2016 proposes to amend the section 194LBB to provide that tax shall be deducted at the rate of 10% where payee is resident. Where the payee is non-resident or foreign company, tax shall be deducted at the rates in force.

The Finance Bill, 2016 as passed by the Lok Sabha inserts a proviso that where payee is a non-resident, no tax shall be deducted in respect of any income which is not chargeable to tax.

15. Withdrawal of amendments relating to retirement funds

I. Recognized Provident Fund

The Finance Bill, 2016 proposed to amend Fourth Schedule so as to provide that:

(a)

Contribution: Employer's contributions to the recognized provident fund account of the employees shall not be chargeable to tax to the extent of 12% of employee's salary or Rs.1,50,000, whichever is less.
(b)

Withdrawal of employee's contribution: Any withdrawal from the accumulated balance in the provident fund account, which is attributable to employee's contribution made on or after April 1, 2016, shall not be chargeable to tax up to 40 % of such accumulated balance.
The Finance Bill, 2016 as passed by the Lok Sabha withdraws such amendment to the Fourth Schedule and maintains the status-quo for the taxability of contribution to and withdrawal from the provident fund account.

II. Withdrawal from superannuation fund account

The Finance Bill, 2016 proposed that any payment in lieu of or in commutation of an annuity purchased out of contributions made on or after April 1, 2016, where it exceeds 40% of annuity, shall be chargeable to tax.

The Finance Bill, 2016 as passed by the Lok Sabha withdraws such an amendment.

16. Rate of MAT for unit located in IFSC

The Finance Bill, 2016 had proposed to reduce the MAT rate from existing 18.5% to 9% in case of unit located in International Financial Services Center ('IFSC')

In order to enjoy the lower MAT rate, following conditions were to be satisfied:



The taxpayer is a unit established in IFSC


The unit must be a new unit established on or after April 1, 2016


It should derive its income solely in convertible foreign exchange
All units that fulfill the above conditions shall have to compute MAT at 9% of book profit instead of normal rate of 18.5%.

The Finance Bill, 2016 as passed by the Lok Sabha withdraws the condition of establishment of new IFSC unit after April 1, 2016. Consequently, the benefit of reduced rate of MAT shall also be given to those units which have been set up before April 1, 2016.

17. Immunity from penalty and prosecution in certain cases

The Finance Bill, 2016 proposed to insert section 270AA to provide immunity to the assessee from penalties under section 270A and prosecution under section 276C if the assessee pays the tax and interest within the time prescribed by the notice, provided assessee does not file an appeal against the order.

The Finance Bill, 2016 as passed by the Lok Sabha also includes immunity from prosecution under Section 276CC in the new Section 270AA.

18. Tax on Accreted Income of Trusts

The Finance Bill, 2016 proposed to insert a new Chapter XII-EB, containing Section 115TD, 115TE and 115TF, under the Act to provide that 'accreted income' of a trust or institution registered under section 12AA shall be chargeable to tax at the maximum marginal rates in following circumstances:

(a)

If the trust or institution gets converted into any form which is not eligible under section 12AA;
(b)

If the trust or institution gets merged into any entity which is not eligible under section 12AA;
(c)

If the trust or institution, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA and section 10(23C) (iv), (v), (vi) & (via).
The difference between the fair market value of the assets and liabilities of the trust or institution would be treated as 'accreted income' and tax thereon shall be paid in addition to the income-tax chargeable in respect of the total income of such trust or institution.

The Finance Bill, 2016 as passed by the Lok Sabha makes certain changes in the proposed Section 115TD, as under:

A. Assets which don't form part of accreted income

A proviso is inserted in Section 115TD to provide that the value of the following assets shall not be taken into consideration while computing the 'accreted income':

(a)

Any asset acquired by a trust or institution out of its agricultural income.
(b)

Any asset acquired by the trust before getting registered under section 12AA provided that no exemption under section 11 or 12 is provided to trust or institution during that period.
B. Time-limit to pay tax on accreted income

As per section 115TD, a trust or an institution shall be deemed to have been converted into any form not eligible for registration under section 12AA in a previous year on occurrence of following events:

(a)

when registration granted to it under Section 12AA has been cancelled; or
(b)

It has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it:



has not applied for fresh registration under Section 12AA in the said previous year; or


has filed application for fresh registration under Section 12AA but the said application has been rejected.
It was proposed under Finance Bill, 2016 that the tax on accreted income shall be payable within 14 days from date of receipt of order cancelling registration or date of order rejecting application for fresh registration.

The Finance Bill, 2016 as passed by the Lok Sabha has proposed new time-limit for payment of tax on accreted income. It has been prescribed that tax on accreted income shall be paid within 14 days from:

(a)

the date on which the period for filing appeal before ITAT against the order cancelling the registration (or order rejecting the application) expires, if no appeal has been filed by the trust or the institution; or
(b)

the date on which the order in any appeal, confirming the cancellation of the registration (or application), is received by the trust or institution.
C. Validity of registration obtained under section 12A

The Finance Bill, 2016 as passed by the Lok Sabha has made a clarificatory amendment to provide that registration under section 12AA shall include any registration obtained under section 12A.

19. Section 80-IBA - Profit linked deduction on housing projects

The Finance Bill, 2016 proposed insertion of a new Section 80-IBA which provides for deductions from profit arising from the business of developing and building housing projects. Such deduction is available subject to fulfillment of certain conditions where project is located within cities of Chennai, Delhi, Kolkata or Mumbai or within acceptable distance from municipal limits. The Finance Bill, 2016 as passed by the Lok Sabha provides that the distance from municipal limits shall be measured aerially. Further, it is mentioned clearly that the 'built-up area' of the residential unit shall be relevant to check if the size of the residential unit is within threshold limit of 30 sq. meter or 60 sq. meter, as the case may be.

20. Limit on deduction in respect of expenditure on agricultural extension project

The Finance Bill, 2016 had proposed to limit the deduction allowed under section 35CCC from existing 150% to 100% w.e.f April 1, 2018 (Assessment year 2018-19).

The Finance Bill, 2016 as passed by the Lok Sabha defers the applicability of this provision from April 1, 2018 to April 1, 2021 (Assessment Year 2021-22).

rchgiri

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Question
There is a three-fold distribution of legislative powers as stipulated in Article 246 read with schedule VII of the Constitution of India. Comment.

Answer
The statement that “There is a three-fold distribution of legislative powers as stipulated in Article 246 read with schedule VII of the Constitution of India” is CORRECT.

List I of the Union list which comprises of 99 items or subjects over which the Parliament shall have the exclusive powers of legislation,

List II of the State list comprises of 61 items over which the State Legislature shall have the exclusive powers of legislation and

List III of the concurrent list comprises of 52 items over which the Parliament and the Legislatures of States shall have concurrent powers to make laws.

rchgiri

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Question
A Ltd. incurred an expenditure of Rs. 50 lakh on glow-sign boards displayed at dealer outlets. Examine with the help of a decided case law, whether the above expenditure is revenue or capital in nature.

Answer

The facts of the case are similar with that of the CIT v. Orient Ceramics and Industries Ltd. (2013) 358 ITR 49 where the Delhi High Court noted the following observations of the Punjab and Haryana High Court, in CIT v. Liberty Group Marketing Division (2009) 315 ITR 125, while holding that such expenditure was revenue in nature.

The expenditure incurred on the glow sign boards are revenue in nature as these were incurred with the object of facilitating the business operation and not with the object of acquiring an asset of enduring nature.

Thus, the expenditure incurred by A Ltd. on glow-sign boards are revenue in nature.

rchgiri

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Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

PRESS RELEASE

New Delhi, the 20th June, 2016

Sub: Threshold Limit of tax audit under section 44AB and section 44AD – clarification regarding

Section 44AB of the Income-tax Act (‘the Act’) makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed one crore rupees.

However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1) of the Act, he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed two crore rupees.

The higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD.



(Meenakshi J Goswami)

Commissioner of Income Tax

(Media and Technical Policy)

Official Spokesperson, CBDT.

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