Only 16% of initial GST Returns filed for July-Dec matched with Final Returns

After the due date of filing GST for this year, it has found that only 16 percent of the summary sales returns under the Goods and Service Tax matching with the final returns consequently, the revenue department has started to analyze the causes for this mismatch with a view to check any possible tax evasion.

According to the GST returns data, said that 34 percent businesses have paid Rs.34400 crore less tax during the month December while filing initial summary returns. As per the GSTR-1 data, the tax liability of these businesses has amounted to Rs. 8.50 lakh crore whereas they have paid Rs 8.16 lakh crore only to the exchequer while filing their GSTR-3B.

The Goods and Services Tax (GST) was launched by the Government on 1st July 2017.

The revenue department has analyzed that the initial returns filed by these businesses and percentage of taxes paid them have matched with their final returns and tax liability and found that they paid a total taxes of Rs 22,014 crore.

The revenue department also added that there was excess tax payment made by several businesses registered under GST between July-December. The department also analyzed the return data filed around 51.96 lakh businesses as per the new tax regime rolled out from July onwards.

Deemed Rent from Unsold Flats not Taxable as they are Stock-in-Trade of Assessee-Builder: ITAT [Read Order]

In the case between M/s. Runwal Constructions vs. Assistant Commissioner of Income Tax, Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently ruled that the Assessing Officer cannot take notional annual letting value in respect of unsold flats for the purpose of determining house property income as the same are stock-in-trade of Assessee’s Business.

In the recent case the Assessee Company engaged in the business of builders and developers has duly filed its return of income for the assessment year and the assessment was completed under section 143(3) of the Income Tax Act 1961.

While completing the assessment proceedings the Assessing Officer (AO) has computed the annual letting value in respect of unsold flat by considering the same under the head income from house property.

Before the AO counsel for the Assessee advocate Rishabh Shah submitted that the Assessee engaged in the business of builder, developer and construction and the property they purchased is stock in trade and the income from sale of such developed property into flats is assessable as business income. Therefore the unsold flats which are in the stock in trade cannot be brought to tax under the head income from house property simply because the flats remain unsold at the end of the year.

However the AO refused to accept the contention of the Assessee and accordingly computed the notional annual letting value on the unsold flats and the same brought to tax under section 23 of the Income Tax Act 1961 under the head income from house property.

On appeal, the CIT(A) sustained the action of the AO in bringing to tax the notional annual letting value under the head ‘income from house property’ in respect of the unsold flats. Aggrieved by the order of the authority the Assessee approached the Tribunal on further appeal.

While observing the facts and perusing the available materials on record, the Tribunal bench comprising of Judicial Member C.N. Prasad and Accountant Member A.L. Saini objected the action of the AO and observed that “the Assessee has treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head ‘income from business”.

The division bench further held that “the unsold flats which are stock in trade when they were sold and they are assessable under the head income from business when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect to those unsold flats under the head income from house property”. Thus the bench directed the AO to delete the addition made under section 23 of the Act while allowing the appeal filed by the Assessee.

Net Income from Derivative Trading in commodity should be assessed as Business Income of Speculation Business: ITAT [Read Order]

In Kunal G. Kataria and Assistant Commissioner of Income Tax v. ACIT, the Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that the net income from derivative trading in commodity should be assessed as business income of speculation business.

Assessee in the present case is an individual engaged in the business of trading in commodity derivatives on various exchanges like NSE, BSE, MCX, ICEX etc. the assessee filed his return of income for the relevant assessment year and declared total income of Rs. 78,32,439 which is derived from profit & loss from various exchanges and claimed exemption on speculation loss at Rs. 4,48,73,079.

During the assessment period, the Assessing Officer (AO) divided the earnings into two such as recognized stock exchanges and non-recognized stock exchanges by applying the provisions of section 43(5)(d) of the Income Tax Act 1961. The AO disallowed the claim of the Assessee on speculation loss at Rs.4,48,73,079 by considering the same as regular business income from recognized stock exchanges as specified in section 43(5)(d) of the Act.

On appeal, the CIT(A) upheld the order of the AO and confirmed the disallowance made by him. Thereafter, the Assessee approached the Tribunal against the order passed by the authority.

After considering the facts and circumstances of the present issue, the Tribunal bench consists of Judicial Member Mahavir Singh and Accountant Member Rajesh Kumar objected the findings of the lower authorities and observed that “the Assessee is exclusively carrying on business of derivative trading on various exchanges and the transaction entered into derivative on various exchanges is his business activity whether considered as speculative or non-speculative transaction as per section 43(5) of the Act, the derivative transactions are not speculative transaction, in view of the fact that the derivative transaction is not supported or backed by deliverable commodity”.

The division bench further observed that “the Assessee is not claiming any special deduction under section 43(5)(d) of the Act for treating the profit as business profit. The nature of activity is carried throughout the year by the Assessee is one and only to trade in derivatives on various exchanges and earned profit or income which includes loss”. By holding such facts the bench opinioned that the Assessee in the present case is eligible to set off the loss against the profit and accordingly allowed the claim of the Assessee on speculation loss at Rs. 4,48,73,079 while concluding the issue.

Excess Expenditure can’t be allowed since Interest bearing Loans were Utilized to Advances Interest Free Loans: ITAT [Read Order]

In a recent decision in Nitin Kumar Ganeriwala vs. Income Tax Officer, Mumbai bench of Income Tax Appellate Tribunal (ITAT) recently held that excess expenditure cannot be allowed since interest-bearing loans were utilized to advances interest-free loans.

The assessee in the present case is an individual duly filed his return of income for the relevant assessment year and declared his total income as nil and claimed exemption on account of interest expenditure on advances.

During the assessment proceedings, the Assessing Officer (AO) observed during the assessment year the Assessee has obtained the loan from LIC at the rate of 9 percent of interest and the Assessee advanced the same to various parties interest rate ranging from 12% to 15% and few loans were granted without any interest. The AO further found that the Assessee earned interest income of Rs.12 lakhs as against the interest expenditure at Rs.16.02 lakhs. Subsequently, the AO disallowed the claim of the Assessee against interest expenditure amounting to Rs.4.02 lakhs under section 57(iii) of the Income Tax Act 1961 and recomputed the total income and declared a total income at Rs. 55,31,970 as against the nil return filed by the Assessee,

On appeal CIT(A) uphold the order of the AO and confirmed the disallowance made by him. Aggrieved by the order passed by the authority, Assessee approached the Tribunal on further appeal.

The Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member Manoj Kumar Aggarwal observed that “disallowance of interest expenditure under section 57(iii) of the Act is concerned, the same was justified since the interest-bearing loans were utilized to advances interest fee loans and therefore, the excess expenditure could not be allowed to the Assessee in the present case”.

While dismissing the appeal filed by the Assessee, the Division Bench held that “excess expenditure cannot be allowed, since interest-bearing loans were utilized to advance interest-free loans”.

HUF can’t be treated as a ‘Donor’ of Gift for the purpose of S. 56(2)(vii): ITAT [Read Order]

The Ahmedabad bench of ITAT in the case of Gyanchand M. Bardia versus Income Tax Officer wherein ruled that HUF does not come under the specified category of a relative under section 56(2) (vii) of the Income Tax Act in relation with the taxability of gift.

In the instant case, the Assessee-Karta received a gift amounting Rs.1,02,00,000/- from HUF. The HUF consists of the assessee, his wife, and son. During the proceedings, the assessee maintained that the gift was without consideration covered u/s. 56(2)(vii) of the Act as inserted by the Finance Act, 2009. However, the Assessing Officer made the impugned addition where CIT (A) confirmed the action of AO by stating that appellant did not produce any gift deed and the reliance made on the case laws by them was not justifiable.

When this matter carried to the tribunal, Mr.Shah, advocate for Assessee contended that other two HUF members i.e. assessee/Karta’s wife and son are already covered in “relative” definition clauses ‘A’ and ‘E’ of the Explanation (e) and also cited various case decisions.

The bench observed that the issue revolving in the year of 2012-13 and the legislature substituted clause (e) to Explanation in Section 56(2)(vii) defining the term of “relative” to be applicable in case of an individual assessee as well as HUF; with retrospective effect from 01.10.2009.

The Tribunal bench pressed the relevance of circular no. 1/2011 r.w. explanatory circular for Finance Act, 2009, makes it clear in latter’s clause no.24.2 that Section 56(ii) is an anti-abuse provision.

The Tribunal noted that “We apply necessary implication principle to conclude in these facts that the legislative intent is very clear that a HUF is not to be taken as a donor in case of an individual recipient. Learned counsel’s reliance on Surjit Lal Chhabda (supra) is therefore not acceptable in this peculiar legislative backdrop of facts and circumstances. Learned co-ordinate bench (supra) seem to have followed “Bholadia” case law which is no more applicable in view of subsequent legislative developments vide Finance Act, 2012 w.e.f. 01.10.2009 (supra). We thus do not treat the same as finding precedents as per (1993) 202 ITR 222 (AP) CIT vs. B. R. Constructions (FB). The assessee’s former plea of having received a valid gift from his HUF is therefore declined”.

Accordingly, the bench held that no merit in the instant alternative plea as well since a gift sum which is not allowable under the relevant specific clause cannot be accepted to be an exempt income u/s.10(2) of the Act.

ITAT deletes Addition since Assessee appropriated and Utilized the Amount of Capital Gain before the Due Date of Filing of Return of Income [Read Order]

In the case of Arun Kumar Jain vs. Income Tax Officer, Delhi bench of Income Tax Appellate Tribunal has deleted the addition made by the Assessing Officer during the assessment period since the Assessee appropriated and utilized the amount of Capital Gain before the due date of filing of the return of income.

The assessee in the present case is an individual Mr.Arun Kumar Jain has filed his return of income for the assessment year and declared a total income at Rs.1,56,420. The Assessee has sold his flat for a consideration of Rs.98,50,000. Further, he purchased a residential flat in the joint name of the Assessee and his wife for a total consideration of Rs.80 lakhs and all the payments were made from his bank account.

During the course of assessment proceedings, the Assessing Officer (AO) has noticed that on the basis of documentary evidence submitted by assessee showing the long-term capital gain of Rs.62,93,349. The AO was of the opinion that as per section 54(2) of the Income Tax Act 1961 the amount of capital gain, which is not utilized by him for the purchase of new asset before the date of furnishing the income tax returns under section 139 of the Act. Further he observed that the Assessee has not deposited the unutilized amount in capital gain account before filing the returns, therefore benefit of capital gain to the tune of unutilized amount and not deposited in capital gain account will not be given to the assessee and it will be charged to tax under section 45 of the Income Tax Act and accordingly he made addition of Rs.12,93,349 under the head long-term capital gains.

On appeal, the CIT(A) also confirmed the addition made by the AO. Thereafter the Assessee carried the matter before the Tribunal by appeal and counsel for the Assessee advocate  K. Sampath submitted that the assessee utilized the amount of the capital gain before the due date of filing of the return of income. Therefore, the addition should be deleted.

After considering the above narrated facts and circumstances of the case the Tribunal bench comprising of Judicial Member Bhavnesh Saini observed that while perusing the available materials on records it is clear that the Assessee has filed his returns on 26th July 2015 and there may be some terms of payment of consideration to the vendor and the availability of the funds with the assessee. Even the payment of Rs.50 lakhs was made in two instalments. Therefore, it may not be a good reason to reject the explanation of assessee because assessee made further payment even after July 2014 as per the sale deed.

The division bench further observed that while considering the totality of the facts and circumstances, it is clear that assessee had made payment of Rs.25 lakhs to the vendor on 30th July 2014 and if the cheque is encashed immediately thereafter on 1st August 2014, there is nothing wrong in the explanation of assessee. Therefore it can be concluded that assessee appropriated and utilized the amount of capital gain before the due date of filing of the return of income and accordingly the bench deleted the addition made by the AO on account of long-term capital gain.

Delhi HC confirms Penalty since Assessee not Disclosed the Source of Income [Read Judgment]

In a recent ruling, Commissioner of Income Tax vs. Ritu Singal, the Delhi High Court has confirmed the penalty since the Assessee has not disclosed the source of Income.

The assessee in the instant case Ritu Singal has filed her return of income for the relevant assessment year. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Assessee had reported undisclosed income earned during the financial year to the extent of Rs.20 crores and material records regarding the undisclosed income were also found during the course of search proceedings.

The AO further observed that provisions of section 271AAA of the Income Tax Act 1961 were applicable in respect to the undisclosed income found during the course of search and declared by the assessee in her return of income for the assessment year. Therefore he imposed initiated the penalty proceedings while completing the assessment under Section 271AAA during assessment proceedings on the ground that assessee had not specified the manner in which the undisclosed income was earned and failed to substantiate it.

On appeal, the CIT(A) granted relief to the Assessee by deleting the penalty imposed by the AO and the Tribunal was also upheld the order of the authority. Thereafter, the Revenue carried the matter before the Court by the appeal against the order passed by the lower authorities.

Before the Court counsel for the Assessee submitted that that Section 271AAA of the Income Tax Act is phrased identically to Explanation 5 (2) to Section 271 of the Act and he further argued that all other parties searched by the revenue, the explanation is given was accepted. In the present case, the revenue was not justified in singling out the assessee and imposing the penalty, but the tribunal was justified in the circumstances of the case, given that the assessee had made the appropriate disclosures.

After considering rival submissions and analyzing the above narrated facts and circumstances, the division bench comprising of Justice S.Ravindra Bhat and Justice A.K.Chawla observed that it is an admitted fact that the AO has found certain documents regarding the undisclosed income during the search and the same was escaped from tax and it can be considered as concealment of income from the returns filed by the Assessee.

The Court further observed that the income which was ultimately brought to tax pursuant to the disclosure made, which was voluntary on the part of the assessee is stating the obvious. The assessee merely stated that the sums advanced were undisclosed income. However, she did not specify how she derived that income and what head it fell in (rent, capital gain, professional or business income out of money lending, the source of the money etc). Unless such facts are mentioned with some specificity, it cannot be said that the assessee has fulfilled the requirement that she, in her statement under Section 132 (4) substantiates the manner in which the undisclosed income was derived. It reveals that the Assessee has failed to disclose the source of undisclosed income and the lower authorities were deleted the penalty by mistake.

Subsequently, the Court confirmed the penalty imposed by the AO while allowing the appeal filed by the Revenue.

No Disallowance u/s 14A when Shares held as Stock-in-Trade: ITAT [Read Order]

While hearing the case of M/s Safe Enterprises, Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) recently ruled that the Shares are held as stock-in-trade do not attract disallowance under section 14A of Income Tax Act 1961.

The assessee in the instant case engaged in the business of purchase and sale of shares. The Assessee debited expenses amounting to Rs. 44,00,677 on account of income earned from shares which are generated from shares in its returns and also claimed exemption on the same.

During the assessment period, the Assessing Officer (AO) disallowed the claim of the Assessee on expenses incurred on account of dividend income earned from shares under section 14A of the Act read with Rule 8D(2)(iii) by holding that the expenses debited to Profit & Loss account does not have any direct nexus with the earning of exempted income.

On appeal, the CIT(A) granted partial relief to the Assessee by restricting the disallowance to Rs.2,05,975. Aggrieved by the order of the first appellate authority, the Assessee approached the Tribunal on the second appeal.

Before the Tribunal bench, the counsel for the Assessee Advocate M.M. Golvala submitted that the expenses incurred by the Assessee have a direct nexus with the earning of dividend income which was actually generated from shares held as stock-in-trade. Further, he submitted that no disallowance is warranted, in case shares were held as stock-in-trade with the support of the order of Bombay High Court in a similar issue.

After considering the rival submissions of both the parties, the Tribunal bench comprising of Judicial Member Mahavir Singh and Accountant Member N.K.Pradhan observed that “disallowance cannot be made under section 14A of the Act where the shares are held as stock-in-trade. Therefore the bench directed the AO to exclude stock-in-trade by way of shares and then compute the disallowance under Rule 8D(2)(iii).”

107 Companies and 7 LLPs under SFIO Scanner in PNB Fraud Case

The Government has ordered investigation into the affairs of 107 companies and 7 LLPs under the provisions of Section 212(1)(c) of the Companies Act, 2013 and Section 43(3)(c)(i) of Limited Liability Partnership Act, 2008 on 17.02.2018 belonging to Mr Nirav Modi (Firestar Diamond group) and Mr Mehul Chinubhai Choksi (Gitanjali Group) to be carried out by the Serious Fraud Investigation Office (SFIO) connected with Punjab National Bank Fraud wherein all matters in their entirety will be examined.

The investigation is in progress.

This was stated by P.P. Chaudhary, Minister of State for Corporate and Law & Justice in Lok Sabha today.

Punjab & Haryana HC deletes Addition since Transfer of Land to Assessee was to Facilitate Conversion of Agricultural Land to Non-Agricultural Land as per the State Laws [Read Judgment]

In the Case, Commissioner of Income Tax vs Ram Kumar Duhan, Punjab and Haryana High Court has deleted the addition made by the Assessing Officer (AO) since the transfer of land to Assessee was to facilitate the conversion of agricultural land to non-agricultural land as per the state laws.

The Assessee is an individual and being a farmer has filed his return of income for the relevant assessment year declared his income from salary. During the assessment proceedings, the Assessing Officer (AO) noticed that the Assessee had purchased a land situated in Maharashtra and the sales deed was in the name of the Assessee and accordingly the Assessee was asked to show the source of income invested in the property.

In response counsel for the Assessee advocate Inderpreet Singh submitted that a company was incorporated during the year 2006 with three promoter directors and one of them being Mr Niwas Thakur. The Assessee joined the Company during the year 2007. The Company purchased certain lands in the name of Niwas Thakur. During the year the Company wanted to convert the agricultural land to non-agricultural land as it was engaged in the business of developing and residential township.

As per the laws in the state of Maharashtra, the transfer of land in the name of a Company was only possible, if the land was in the name of at least of its two Directors who had farmer status. Only for this purpose some of the land in the name of Niwas Thakur was transferred in the name of Assessee without any consideration. But the AO refused to accept the contents of the Assessee and he made an addition of Rs. 1,13,02,800 to the income of the Assessee on account of investment made to purchase land from the undisclosed source of income.

On appeal, CIT(A) and Income Tax Appellate Tribunal (ITAT)  granted relief to the Assessee by deleting the addition made by the AO. Aggrieved by the order of the lower authorities the Revenue approached the Court on further appeal.

After considering the facts and circumstances of the issue, High Court Chief Justice S.J.Vazifdar and Judge Avneesh Jhingan observed that “that transfer of land in favour of the Assessee was to facilitate the conversion of agricultural land to non-agricultural land as per the state laws. The land though in the name of the Assessee was shown in the balance sheet of the company and the Memorandum of Association entered between the company and its Directors was that property will be in name of Directors but it will remain the property of the Company. Even the AO in its remand report admitted that the sale proceeds were received by the Company and the assessment of the company was framed under Section 143 (3) of the Act”.

The Court also observed that “question raised by the Revenue in the appeal is a question of fact and not a question of law, much less a substantial question of law. Under the jurisdiction of Section 260-A of the Income Tax Act cannot re-appreciate the evidence, especially when no perversity is established”.

Therefore the Court upheld the order passed by the lower authorities and dismissed the appeal filed by the Revenue.

No Excise Duty on Scrap Materials as they are not emerging due to a Manufacturing Process: CESTAT [Read Order]

The Delhi bench of the CESTAT last day held that the excise duty is not payable on scrap materials as they are not incidental to a process of manufacture.

In the instant case, the Assessee is engaged in the manufacture of sweetened/ non-sweetened aerated water liable Central Excise duty. During the process of manufacture, certain scrap materials scrap PVC shell, scrap sugar juice, scrap aluminum, scrap broken glass clear, scrap broken glass green, pet bottles, petroleum coke ash and various assorted waste products etc emerged.

The department took a view that these scraps are subject to excise duty and initiated proceedings against the assessee. On appeal, the first appellate authority confirmed the assessment order.

On appeal, the Tribunal noted that the department’s proceedings did not even identify the goods with any tariff heading to charge Excise duty.

“During such manufacture, these variously assorted scraps arise which in any case cannot be considered as products arising out of a manufacturing process. The view of various judicial pronouncement on this issue has been consistent and clear. Such scrap materials arising as incidental products and even if they were sold for a consideration cannot be considered as excisable products.”

The bench further noticed the decision of the Supreme Court in Union of India vs. Ahmedabad Electricity Co. Ltd wherein it was held that only on the fact that the goods were marketed, excise duty cannot be automatically imposed.

Allowing the second appeal filed by the assessee, the bench observed that “the various goods on which the Revenue seeks to collect Excise duty are all, admittedly, products incidentally arising during the manufacture of finished goods on which in any case, the appellant is discharging the duty. These scrap material are not emerging due to a process of manufacture. Hence, they do not qualify to be taxed for excise levy.”

ICAI enumerates Initiatives taken by the Insolvency Professionals’ Institute

The Indian Institute of Insolvency Professionals of ICAI (IIIPI) is a Section 8 company established by the Institute of Chartered Accountants of India (ICAI). As an Insolvency Professional Agency (IPA) it is required to enroll, monitor and facilitate the professional development of its members in terms of the Insolvency and Bankruptcy Code (2016). IIIPI completed the first year of its existence around the end of 2017.

IIIPI has captured the pole position with a share of over 60% of all Insolvency Professionals (IPs) in the country. IIIPI has now engaged itself in expanding its developmental activities with the following initiatives:

I. Knowledge Partnership with the Institute of Chartered Accountants of England and Wales (ICAEW)

The Institute of Chartered Accountants of England and Wales (ICAEW) is the largest regulator of Insolvency Professionals in the UK. With over 30 years of extensive experience, they promote, develop and support more than 1.47 lakh members worldwide.

IIIPI’s exclusive arrangement with ICAEW for knowledge partnership provides member IPs access to their online Insolvency and Restructuring Group (IRG) at heavily discounted rates. They are provided exposure to live and pre-recorded webinars, E-newsletters, Help sheets for Insolvency Professionals on specialized areas of insolvency practice, Access to online specialist insolvency community, concessional rates for ICAEW’s Annual Insolvency Conference, etc. Initial enrolments have commenced for IPs in India.

2. IIIPI-World Bank Group: Select Training Program for IPs

IIIPI and IFC from the World Bank Group (WBG) have commenced their training series for IPs in India. The 1st of such 3 days training programs in India for Insolvency Professionals was held in Mumbai in Jan, 2018. Other programs in the series will be conducted at different centers in coming months.

The training held under the aegis of the Insolvency and Bankruptcy Board of India (IBBI), was conducted by a faculty of global experts and domestic practitioners who shared their knowledge and experiences covering the Corporate Insolvency Resolution Process, supported by an incisive Case Study.

3. Roundtable to review the Insolvency and Bankruptcy Code

IIIPI conducted 3 Roundtables to review the Insolvency and Bankruptcy Code for submission of recommendations to the Insolvency Law Committee (ILC). The submissions were taken into consideration at the deliberations of ILC and are expected to contribute to the final report of the Committee.

4. Insolvency Professional Study Group

IIIPI successfully launched its interactive forum “Knowledge Quest”, where the keynote address was delivered by Mr. S Raghunathan, the ED of National e-Governance Services Ltd (NeSL), the country’s 1st Information Utility (IU).

A scheme for setting up “linked” Study Groups of IIIPI is under finalization, even as IIIPI continues to participate in various interactions of Study Groups of Insolvency Professionals to address issues and concerns.

5. New Initiatives

The following initiatives are planned in the near term:

The launch of “The Resolution Professional” – a quarterly Journal of IIIPI.

National Conference on Insolvency and Bankruptcy.

Establishment of “Knowledge SBU”.

Foundation course for newly enrolled IPs, etc.

Naveen N.D. Gupta, President, ICAI said “The Institute has great expectations from the company established by it for the development of Insolvency Practitioners and the new profession. With the strengthening of its resources and infrastructure, IIIPI is well set to play its role as the premier IPA.”

In a world where opportunities are in a state of constant flux, a career in insolvency practice offers significant potential for growth, even as Artificial Intelligence (AI) was emerging as a threat to the conventional professions service area.

Tax payable on handing over of Possession of Immovable Property: ITAT says Even a Part Performance is ‘Transfer’ for attracting Capital Gain [Read Order]

In the case of M/s Mangilall Estates (P) Ltd, Kolkata bench of Income Tax Appellate Tribunal (ITA), recently held that part performance of the agreement would be considered as transfer for attracting Capital Gain and the same is taxable in that financial year in which such transactions were entered into by the Assessee.

Assessee in the present case is a private limited company and engaged in business of letting out of immovable property. There was no income shown by the Assessee during the assessment year, but it claimed certain expenses to maintain the status of the company active.

During the course of assessment proceedings the Assessing Officer (AO) during the year the Assessee Company has transferred an immovable property which was valued for the purpose of stamp duty at Rs. 1,90,83,227  and the same was escaped from the income tax return of the Assessee.

In response the Assessee submitted that it has transferred the said property for Rs.1.90 lakhs in the year 1991 and it has also received an advance of Rs.19000 which was duly reflected in the books of the Assessee, but the sale deed was not executed in the name of transferee due to some problem related to the tittle of the property.

The AO further noted that in the meantime, the Assessee transferred the aforementioned property vides a sales deed but no tax was offered by the Assessee in the year under consideration. Consequently the AO called up on the Assessee for explaining the reason for not disclosing the capital gains on the transfer of the property. In response counsel for the Assessee advocate Subash Agarwal contended that the property was transferred in the financial year 1991-1992 and against such transfer an advance of Rs.19000 received by the Assessee. Thus as per the provisions of section 53A of the transfer of Property Act, the transfer has taken place in the financial year 1991-1992, therefore no income of capital gain on the transfer of such property was offered to tax.

However, the AO rejected the contention of the Assessee and observed that the property was transferred in the financial year 2011-12 corresponding to assessment year 2012-13, therefore capital gains on such transfer is liable to be taxed in the year under consideration. accordingly he treated the stamp value for the purpose of stamp duty of Rs.1,90,83,227 as sale consideration under section 50C of the Act and determine the capital gain income as Rs.1,89,1,170 and added the same in the total income of the Assessee.

After considering the rival submissions of both parties the Tribunal bench comprising of Judicial Member Aby. T. Varkey and Accountant Member Waseem Ahmed observed that “the property in the instant case has taken place in the financial year 1991-92 and it can be brought to tax in the assessment year 1992-93 only. The events which had taken place constituted transfer which includes any transaction which allows possession to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act 1882. Thus any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property amounts to transfer under section 2(27) of the Act”.

The division bench further observed that “therefore capital gains would be taxable in the year in which such transactions are entered into, even if the transfer of the immovable property is not effective or complete by way of registration under the general law.

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Assessee can’t be treated as ‘Manpower Supply Agency’ on Deputation of Employees to Subsidiary Company: CESTAT [Read Order]

The Delhi bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) in the case of M/s Punj Lloyd Ltd versus CST Delhi, has held that an Assessee can’t be treated as ‘ Manpower Supply Agency ’ on deputation of employees to subsidiary group company for the purpose of imposing service tax.

The issue before the Tribunal was regarding the service tax liability of the appellant-Company with reference to tax liability on manpower services provided to group company of the appellant.

Proceedings were initiated against the appellant by issuing show cause notice and the appellant contested for the same, therein original authority raised the demand and confirmed the penalty under section 78 and 77 of the Finance Act, 1994.

Before the Tribunal, the Assessee contended that they are engaged in the infrastructural construction activities so that they shared their employees with a wholly owned subsidiary company.

The counsel for Assessee also submitted that the expenditure on such deputation of employees was reimbursed by the subsidiary company. Assessee pressed the decision of Tribunal in M/s Paramount Communication Ltd and Volkswagen India Pvt Ltd where it has been held that sending staff to Group Company and getting reimbursement of expenditure cannot be taxed as manpower supply services.

Accepting the contentions of the assessee, the Technical Member Satish Chandra, President B. Ravichandran, observed that the service tax liability on appellant on this issue cannot be sustained.

The bench further relied on the decision in Airbus Group India Pvt Ltd wherein it was held that deputing employees to group company cannot be considered as the supply of manpower.

Govt. Undertakings / Companies are not Suitable Comparables for Benchmarking International Transaction: ITAT [Read Order]

In AT & T Communication Services India Pvt Ltd v. Assistant Commissioner of Income Tax (ACIT), the Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently held that the Government undertakings or companies are not the suitable comparables for benchmarking the International Transaction.

Assessee Company in the present case is a wholly owned subsidiary of AT&T Communications Services International Inc. USA, engaged in the provision of support services to overseas AT&T group companies and customer support services, telecommunications network planning and management services to customers in India. During the assessment year, the Assessee entered into international transactions with its associated Enterprises (AE). For benchmarking these transactions its Transfer Pricing (TP) study applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM).

During the assessment proceedings, the Transfer Pricing Officer (TPO) considered international transactions entered into by the Assessee with its Associated Enterprises in support of the provisions of services under network outsourcing support services at arm’s length and international transaction as being reimbursement of AE at arm’s length and accordingly he made Arm’s Length Price (ALP) adjustment to the remaining two transactions along with interest on receivables.

Assessee carried the matter before the Tribunal on appeal. The counsel for the Assessee submitted before the Tribunal that grievance is to the extent of excluding Government owned undertaking from the final set of comparables for benchmarking the international transactions.

After considering the facts and circumstances of the present issue, the Tribunal bench comprising of Judicial Member Kuldip Singh and Accountant Member R.K.Panda observed that “Government undertakings/companies are not the suitable comparables for benchmarking the international transaction. Therefore the AO was directed to verify all the Government undertakings or companies from the final set of comparables which are taking preferential treatment from Government in getting contract etc. and are not driven by profit motive alone impacting the profit margin and to exclude the same and then benchmark the international transactions in support with Network Support Services”.

Govt yet to Recover Tax Arrears of 3579.5 Cr from Service Providers

The Government of India has yet to recover Tax Arrears of Rs. 3579 crores from Service Providers. The Government is aware of instances where taxes are collected by many service providers, hoteliers, traders etc. from the customers but are not deposited in the Government’s account.

Based on specific intelligence collected, detailed investigations are carried out and the due tax amount is either recovered or quasi-judicial proceedings are initiated. The details of such losses are as below:

In order to encourage compliant behaviour under GST, the Government has undertaken a massive awareness and educational campaign by regularly issuing advertisements in the media (Print/Voice/Visual) to educate the taxpayers about GST laws and procedures. Further, CBEC has conducted various workshops and town hall meetings to educate the taxpayers in this regard. In addition to this, social media (Twitter) has also been extensively used for disseminating information regarding GST laws, rules and tax rates.

The GST Council has constituted a Committee on invoices under the chairmanship of CEO, GSTN to examine the feasibility of generating invoices on the GST portal and to suggest an incentive scheme to encourage the taxpayers to upload their tax paid invoices online.

This was stated by Shiv Pratap Shukla, Minister of State for Finance in a written reply to a question in Lok Sabha today.

Govt enumerates Recommendations by GST Council to change GST Rates and Policy

Based on the various representations received from the trade and industry, the GST Council has recommended a number of measures pertaining to change in Goods and Services tax rate and policy including the GST rates on eateries and small traders. Some of these decisions which have been implemented by the issuance of the requisite notifications and circulars are detailed below:

Rationalization of GST Policy measures:

Increase in the aggregate annual turnover threshold for eligibility under the composition scheme from Rs. 75 lakh to Rs. one crore for 27 States (including Jammu & Kashmir and Uttarakhand).

Increase in the aggregate annual turnover threshold for eligibility under the Composition scheme from Rs. 50 lakh to Rs. 75 lakh for the Special Category States (as specified in sub-clause (g) of clause (4) of article 279A of the Constitution) other than Jammu & Kashmir and Uttarakhand.

Taxpayers having the annual turnover of up to Rs.1.5 crore in the previous year provided with an option to file quarterly Returns.

Registered persons making the supply of goods to make payment of tax on the issuance of the invoice and not at the time when advances are received.

Suspension of the application of reverse charge mechanism under Section 9(4) of the CGST/SGST Acts, 2017 and Section 5(4) of the IGST Act, 2017 till 31 March 2018 for all categories of registered persons.

Uniform rate of tax @1% under Composition scheme for manufacturers and traders. The turnover of taxable goods to be considered for eligibility for the Composition scheme for traders.

Supply of exempted services by Composition taxpayer will be allowed and the same will not be taken into account while computing the aggregate turnover.

Amount of late fee payable for delayed filing of return in Form GSTR-3B by a taxpayer whose tax liability for the month was ‘Nil’ reduced to Rs.20/- per day (Rs.10/- per day each under CGST & SGST Acts) subject to maximum Rs.5000/-under each Act from October 2017.

The amount of late fee payable for delayed filing of return in Form GSTR-3B by other taxpayers reduced to Rs. 50/- per day (Rs. 25/- per day each under CGST & SGST Acts) subject to maximum Rs.5000/- under each Act from October 2017.

The filing of returns by the taxpayers has been simplified by continuing the GSTR-3B return up to March 2018. The filing of FORM GSTR-2 and GSTR-3 has been kept in abeyance till further notice.

Rationalization of GST Rates of Goods and Services:

The GST rates on goods and services were fitted into 5 slabs i.e. Nil, 5%, 12%, 18% and 28%, largely based on the pre- GST cumulative indirect tax incidence both of Central and State taxes, including the embedded taxes, which are subsumed in GST, so as to ensure revenue neutrality. These rates were recommended by the GST Council in its 14th and 15th meeting held on 18.05.2017 and 03.06.2017 respectively.

Subsequent to notification of these rates a number of representations were received from the trade and industry regarding GST rates on goods and services. Based on these representations the GST Council reviewed the rates on goods and services in its subsequent meetings including GST rates on eateries which has been reduced from 18% with ITC to 5% without ITC, including a restaurant located in the premises of a hotel having unit of accommodation with declared tariff below Rs. 7500/-.

The changes in the GST rate structure and policy have been recommended by the GST Council keeping in view the representations received from trade and industry and the interests of consumers and the same are expected to benefit the overall economy and consumers.

The revenue loss on account of the rationalization/reduction in GST rates, at the same levels of economic activity, is roughly expected to be of the order of Rs. 29,000 Crore in a full year. This is expected to be offset by increased economic activity, the amalgamation of GST rates, easing of procedural complications and less litigation, leading to greater revenue collection.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in a written reply to a question in Lok Sabha today.

GST Export Refund: Finance Ministry denies Figures published in Medias

The Ministry of Finance, today said that the unverified estimates of pending GST export refund published in the print media or put forward by various trade bodies are highly speculative and mostly inaccurate.

“It is a fact that while a number of exporters have not been able to get the export refunds so far others have been granted refunds. In order to overcome the causes of the delay in sanctioning of refunds, Government has taken various steps, which includes amendments in the rules, changes in the business procedures of common portal and customs automated system to address the systemic issues. Many of the errors plaguing the claims for refunds are on account of inadequate familiarisation of the exporters with the GST laws and data entry errors in the various GSTRs / forms,” a statement released by the Ministry of Finance said.

The Government has carried out outreach programmes by issuing guidance circulars, advisories, FAQs, advertisements etc and also provided an alternative procedure involving manual interface where the errors could not be corrected online. The efforts are beginning to show positive results.

 So far more than Rs 10,000 Crore has already been sanctioned by CBEC and States. A standard operating procedure applicable to both Central and State GST has been put in place by virtue of various Circulars and clarifications issued with regard to processing of ITC refund.

GST Council, in its last meeting on 10th March 2018, has directed all States tax authorities to proactively clear refund claims. Exporting community is requested to take benefit of this fortnight and wholeheartedly come forward to get their errors rectified to enable sanction of refunds.

CBEC has taken an initiative to observe a special drive refund sanction fortnight from 15th to 29th March 2018 on an all India scale for which additional staff and infrastructure has been mobilised. Special refund cells manned by experienced staff is being put in place throughout the country.

Government wants to assure the exporting community that it is keen to see that all their eligible refund claims are considered and sanctioned at the earliest.

Madras HC dismisses Petition challenging Use of Acronym ‘ ICAI ’ by Institute of Cost Accountants of India [Read Judgment]

The Madras High Court recently dismissed a petition seeking to forbear the Institute of Cost Accountants of India from using the acronym, ICAI for professional opportunities earmarked for them. Currently, the Institute of Chartered Accountants of India is using the acronym.

Justice Ravichandrabaabu dismissed a petition filed by a Chartered Accountant wherein it was alleged that Cost Accountants’ Institute is knowingly using the name of ICAI from 2012 in every press meet and other events. He contended that this makes confusion among the students, general public, and the other stakeholders.

The petitioner further alleged that the Institute of Cost Accountants had usurped the goodwill of the Institute of Chartered Accountants of India built over 70 years, and without any legal sanction, started representing itself using the acronym ‘ICAI’.

During the course of hearing, the Institute of Cost Accountants of India submitted that it is entitled to use the very same acronym “ICAI” till its name is changed as the Institute of Cost and Management of Accountants of India by the Central Government, for which, their proposal sent already is pending before the Central Government.

The Court noted the fact that the dispute is only between the first and third respondents in using the acronym ‘ICAI’ and the petitioner is only a member of the Institute of Chartered Accountants of India.

The Court held that If the Institute of Cost Accountants of India continues to use the acronym “ICAI” and if the Institute of Chartered Accountants of India is aggrieved against such usage in view of the registration of such trademark by them, certainly, it is for the third respondent (ICAI) to initiate appropriate legal action before the appropriate forum by filing appropriate application under the Trademarks Act. “Certainly the third respondent’s (ICAI) support to the petitioner in this procedure cannot be equated with such appropriate proceedings under the Trademarks Act. Under such circumstances, certainly, the present writ petition cannot be maintained that too, at the instance of the petitioner, who is only a member of the third respondent more particularly, when the third respondent has not chosen to challenge such alleged infringement before the competent Court of law so far.”

Dismissing the petition, the Court further said that “It is also claimed by both the petitioner and the third respondent that the usage of acronym “ICAI” by the first respondent causes confusion in the minds of the stakeholders as well as the public at large more particularly, the student community. When such being their claim, I wonder what prevents the third respondent from establishing their right in respect of such Trademark “ICAI” before the Court of Law by initiating appropriate proceedings. The fact remains, till this day no such proceedings are said to have been initiated, except the present one, that too, by the petitioner, who is not an aggrieved person.”

Act of AO in framing an assessment order without issuing Notice u/s 143(2) cannot be saved by invoking s. 292B: ITAT [Read Order]

While hearing the case between Income Tax Officer and Neeraj Goel, Delhi bench of Income Tax Appellate Tribunal ( ITAT ) recently ruled that the act of the Assessing Officer in framing an assessment order without issuing notice under section 143(2) of the Income Tax Act 1961 cannot be saved by invoking section 292B of the Act.

The assessee in the instant case is an individual duly filed his return of income for the relevant assessment year.

During the course of assessment proceedings, the Assessing Officer (AO) has noticed that certain incomes regarding investment and purchase of property and also made additions while completing the assessment, but without issuing notice under section 143(2) of the Act to the Assessee.

Thereafter, the Assessee approached the CIT(A) and compiled the action of the AO. After perusing the material facts the authority granted relief to the Assessee and allowed the appeal filed by him. The authority held that it is an admitted fact that the AO has not issued notice under section 143(2) of the Act before completing the assessment proceedings.

The Authority further held that The assumption of jurisdiction to frame an assessment or non-assumption of jurisdiction to’ frame an assessment goes to the root of the judicial act of framing an assessment order and in the event of non-assumption of jurisdiction under section 143(2) to frame an assessment the act of the assessing officer in framing an assessment order without issuing notice under section 143(2) cannot be saved under the provisions of section 292B of Income Tax  Act, 1961 or under section 292BB of Income Tax Act, 1961. The assessment order so framed will be void abinitio for want of assumption of jurisdiction as assessment cannot be framed based upon jurisdiction calling for the Return of income.

Aggrieved by the order of the authority, the Revenue carried the matter before the Tribunal by appeal.

After considering the above narrated facts and circumstances of the issue, the Tribunal bench comprising of Judicial Member H.S.Sidhu observed that “the assumption of jurisdiction to frame an assessment or non-assumption of jurisdiction to frame an assessment goes to the root of the judicial act of framing an assessment order and in the event of non-assumption of jurisdiction under section 143(2) of the Act to frame an assessment the act of the Assessing Officer in framing an assessment order without issuing notice under section 143(2) cannot be saved under the provisions of section 292B of Income Tax Act, 1961 or under section 292BB of Income Tax  Act, 1961”.

The division bench further held that the assessment order so framed will be void ab-initio for want of assumption of jurisdiction as assessment cannot be framed based upon jurisdiction calling for the Return of income and also upheld the order passed by the lower authority. Accordingly, the bench has dismissed the appeal of the Revenue while concluding the issue.

Cenvat Credit allowable on all Services used for providing Erection, Commissioning and Installation Service on Turnkey basis: CESTAT [Read Order]

In M/s KEC International Ltd v. CCE Bhopal, the Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal has held that cenvat credit can be availed on all the services used for providing erection, commissioning and installation service on turnkey basis.

The Assessee in the present case is engaged in the manufacture or clearance of Galvanized Transmission Line Tower and parts thereof, cables etc. along with providing output services of erection, commissioning and installation of transmission tower line projects on turnkey basis.

During the assessment period, the Assessing Officer (AO) noticed that the Assessee Company procuring tower and parts thereof from their manufacturing units and other items bought from the open market and providing services on so procured materials for erection, commissioning and installation of the transmission line. He was of the view that the Assessee engaged in the activity of trading and therefore, denied the benefit of cenvat credit to the Assessee.

He further noticed that the Assessee is engaged in providing services from bought out items to their customer, hence neither paying Central Excise duty nor service tax on such bought out items supplied directly at the site or from the manufacturing units. According to him, such trading activity neither comes under the provisions of Central Excise Act, 1944 nor as taxable services under Finance Act, 1994. Accordingly, a show cause notice has been issued by invoking the extended period of limitations.

Before the Tribunal, the counsel for the Assessee, Advocate Archit Agarwal submitted that the Assessee is engaged in turnkey project and has not engaged in any trading activity and it is an admitted fact that they were procuring the goods and using the same for providing the services of erection, commissioning and installation as turnkey project. In such circumstances, no proportionate Cenvat credit is required to be reversed on account of trading activity.

After considering the facts and circumstances of the case, Judicial Member Ashok Jindal observed that “the Assessee in the present case is engaged in the activity of erection, commissioning and installation of certain project items at the site and on turnkey basis. In order to provide such services the Assessee Company has procured certain items from their manufacturing unit or some bought out items used by providing that service, but it does not indicate that the Assessee is engaged in the activity of trading and it is a clear fact that the Assessee is only a service provider. In such circumstances, the show cause notice was not required to be issued to the Assessee”.

While allowing the appeal filed by the Assessee the Tribunal further held that the Assessee in the instant case, has correctly availed the Cenvat credit on all the services used for providing erection, commissioning and installation service on turnkey basis.