Information contained in declaration under the Income Declaration Scheme is confidential & shall not be shared with any authority, reiterates CBDT

The Income Declaration Scheme, 2016 (the Scheme) provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets. The Scheme is open for declarations up to 30.9.2016.

As regards, concerns regarding confidentiality of the information filed under the Scheme, it is reiterated that information contained in a valid declaration is confidential and shall not be shared. In respect of declarations filed with the Commissioner of Income-tax, Centralised Processing Centre, Bengaluru [CIT (CPC)], the declaration shall not be shared even with the jurisdictional Principal Commissioner / Commissioner and payments made under the Scheme shall not be visible to the jurisdictional officers. Form-2 and Form-4 required to be issued in such cases shall be system generated by the CPC.

Similarly, the declaration filed with jurisdictional Principal Commissioner/Commissioner shall not be shared with any authority within or outside the department including the jurisdictional Assessing Officer. Further, the payments under the Scheme shall neither be reflected in 26AS statement nor can be viewed by the Assessing Officer in the Online Tax Accounting System (OLTAS) of the Department in the interest of confidentiality.

CBDT clarifies unconfirmed reports speculating on the taxpayers’ response to the currently on-going Income Disclosure Scheme 2016 [Read Instructions]

Certain sections of the press have been speculating on the taxpayers’ response to the currently on-going Income Declaration Scheme (IDS) 2016 over the last couple of days. The Central Board of Direct Taxes (CBDT) would like to clarify that these are not based on any statements issued by the Department

The Department has since the commencement of the scheme, set to rest, various concerns of the taxpayers through public meetings and through the issue of FAQs over the last 3-1/2 months. The benefits of the scheme have also been publicised through print and electronic media, in both national and regional languages. The scheme has generated a good interest and the response of the taxpayers has been steadily growing. The last few days remaining for filing of declarations are expected to give good results.

The CBDT has so far refrained from issuing any statement regarding number of declarations received, amounts declared or taxes paid under the Scheme in order to ensure complete confidentiality. The confidential handling of declarations made under the Scheme is of utmost importance to the Income Tax Department and the CBDT is aware of its responsibility towards fulfilling this crucial role.

A formal and confirmed press release on the above aspects will be issued from the CBDT after the Scheme closes on 30th September, 2016.

Read the full text of the instructions below.

Expenditure in respect of issue of Additional Share Capital is Capital in nature, Bombay HC disallows expenditure [Read Judgment]

Expenditure in respect of issue of Additional Share Capital is Capital in nature, says Bombay High Court.

The division bench of the Bombay High Court in a recent decision, disallowed the expenditure incurred by the assessee-company in respect of issue of additional share capital by observing that the said amount constitutes “capital expenditure.” Earlier, the Income Tax Appellate Tribunal has disallowed the same.

The Court further allowed deduction of the amount of interest received by the assessee company on deposit of share application money.

The grievance of the assessee-Company was that their claim for deduction in respect of expenditure for issue of additional share capital was disallowed by the Assessing Officer by holding that the said expenditure was capital in nature. The assessee maintained that the said expense was incurred with the object of increasing their profitability, in view of conditional licence granted to it. Alternatively, it was submitted that in any event, a sum of Rs.4.88 lakhs being the interest earned on the amounts received on issue of shares and deposited in the bank, subject to the allotment of shares, should be excluded while computing the total income.

The Commissioner of Income Tax (Appeals) allowed the expenditure on appeal preferred by the assessee by observing that the issue of shares for diluting the foreign share holding was issued as per the Government of India’s directions and failure to do so would have resulted in stopping its expansion / diversification programme affecting its business.

The above order was successfully appealed by the Revenue before the Income Tax Appellate Tribunal. The Tribunal, relying upon the decision of the Kerala High Court in Commissioner of Income Tax v/s. Common Wealth Trust Ltd. 167 ITR 365, held that the said amount cannot be allowed as revenue expenditure. In the above referred decision of the Kerala High Court, it was held that the expenditure incurred for changing the capital structure of the company was capital in nature and not revenue.

Being aggrieved, the assessee approached the High Court challenging the order of the ITAT. Before the High Court, the assessee contended that the assessee contended that the issue of share capital was primarily for doing business and increasing its profits. The change in capital structure was incidental and therefore, the expenditure is in the nature of revenue.

The division bench comprising of Justice M S Sanklecha and Justice S C Gupte, while analyzing the facts of the case arrived at a conclusion that the case of the assessee is squarely covered by the decision of the supreme Court in Commissioner of Income Tax v/s Kodak India, in which it was held that where the main object is to improve the profitability of the business and increase in capital is incidental, as in this case, the expenditure incurred is to be allowed as revenue expenditure. Following the decision, the court concurred with the order of the ITAT that the expenditure incurred by the assessee-Company in connection with the issue of share capital with a dominant objective to dilute its foreign shareholding under Government directive to enable it to carry on business in India was in the nature of capital expenditure.

The Court further verified the order of ITAT disallowing the amount of interest received by the assessee company on deposit of share application money on ground that it cannot be adjusted against the expenditure incurred in connection with the issue of such shares. It was submitted on behalf of the assessee that the interest was earned on receipt of share application money deposited in a specified account as required under Section 73(3) of the Companies Act, 1956 till such time as the allotment of shares is made. Therefore, this earning of interest is a part of an integrated transaction, namely, issue and allotment of shares.It was further submitted that that any income earned on the amount of share application money has to necessarily be adjusted against the share issue expenses and not separately taxed.The Court set aside the order of the ITAT in the light of various judicial pronouncements, held in favour of the assessee.

Read the full text of the Judgment below.

Sponsoring Overseas Tour to doctors by Pharmaceutical Company is unethical & illegal, ITAT Mumbai disallows expenditure [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal recently confirmed disallowance of expenditure incurred by the Pharmaceutical company on account sponsoring overseas tour to doctors. Earlier, both the lower authorities were disallowed the claim of the assessee by holding that the same does not amount to business expenditure and thus, do not fall within the ambit of section 37 of the Income Tax Act, 1961.The Tribunal confirmed the impugned orders and observed that the said activity is illegal and unethical and thus expenditure cannot be allowed.

The assessee-company is engaged in the business of manufacturing of drugs and pharmaceutical. The issue involved in the case was that the Assessing Officer has disallowed the expenditure incurred by the assessee on account of sponsoring the Doctors overseas Tour. The assessee claimed that the said expenditure is revenue in nature and therefore, is allowable as expenditure under section 37 of the Act. The assessee contended that they used to organize used various seminars and group visits at various places in order to create certain amount of relationship with the Doctors, who are the real persons create the market for their products. However, the Assessing Officer disallowed the claim on ground that the assessee failed to substantiate that the expenditure was incurred by them wholly and exclusively for the purpose of business.

Though the assessee has approached the Commissioner of Income Tax (Appeals) on first appeal, the authority has confirmed the impugned order. Being aggrieved, the assessee preferred a second appeal before the Appellate Tribunal.

The Tribunal found that the CBDT Circular dated 01-08-2012 bars allowing deductions in respect of payments made in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002.It was observed that “payments made for overseas trip to keep private doctors and their spouses in good humour to get favours in return from Doctors by way of referral of patient to the pharmaceutical products dealt with by the assessee to generate more and more business and profits for the assessee company is unethical , opposed to public policy being prohibited by law and should be discouraged. The payment for overseas visit of Doctors and their spouses for entertainment by the assessee in lieu of expectation of getting patient referrals from doctors for assessee’s pharmaceutical products to generate more and more business and profits for assessee by any stretch of imagination cannot be accepted to be legal or as per public policy. Undoubtedly, it is not a fair practice and has to be termed as against the public policy.”

While confirming the order of the CIT(A), the Tribunal observed that “in our considered view, principles of Res judicata is not applicable to income tax proceedings although we are fully agreeable that principles of consistency is to be maintained ( Hon’ble Supreme Court decision in Radha Soami Satsang v. CIT (1992) 193 ITR 321 (SC)) but in the instant assessment year , we have observed that these overseas trips for Doctors and their spouses were organized by the assessee whereby no details of the contents of seminar, if any conducted by the assessee overseas has been brought on record and also even the spouses accompanied the Doctors to the overseas trip which included cruise visit to island, gala dinners, cocktail, gala entertainment etc. rather than being directed towards seminar for product information dissemination or directed towards knowledge enhancement or knowledge sharing oriented as no details of seminar and its course content is brought on record rather the trip is directed towards leisure and entertainment of Doctors and their spouses which in our view appears to be clearly a distinguishable feature in this year enabling us to take a divergent view and the expenses incurred by the assessee cannot be allowed as business expenditure u/s 37 of the Act as it is clearly hit by explanation to Section 37 of the Act being against public policy as unethical prohibited by law. Even otherwise, these expenses cannot be considered to be incurred wholly and exclusive for the purpose of the business as the same were incurred to create good relations with the doctors in lieu of expected favours from doctors for recommending to patients the pharmaceutical products dealt within by the company to generate more and more business and profits for the assessee-company. For claiming the expenses u/s 37 of the Act which is a residuary section, it is essential that the expenses are not covered under clauses of Section 30 to 36 of the Act of 1961 and are incurred wholly and exclusive for the purposes of business and it is not sufficient that it has some connection with the business of the assessee. No details of the seminars conducted abroad are brought on record as also spouses of the Doctors also travelled overseas along with Doctors and the expenses of the spouse on air ticket as well stay abroad are charged as an business expenditure u/s 37 of the Act which cannot be called as being incurred wholly and exclusively for the purposes of business of the assessee.”

In another appeal filed by the Revenue, the order of the Commissioner of Income Tax (Appeals)was challenged on ground that the CIT (A) erred in deleting the disallowance of samples distributed to the physicians. The assessee maintained that the samples are given free of cost to doctors in order to obtain information regarding efficacy of the medicine and thereby for the purposes of advertisement, publicity and sales promotion.It was further submitted that that goods purchased for distribution to Doctors as samples are manufactured as

“Physician samples not for sale” and the same is also marked in suppliers invoices as “Physician Samples” only.However, the AO disallowed as sum of 25% of the total expenditure of Rs.1,26,75,000/- incurred by the assessee under the above head. On appeal, the CIT(A)accepted the contentions raised by the assessee.

The Tribunal found that if the free samples of pharmaceutical products are distributed to physicians / doctors at the initial stage of introduction to test the efficacy of the products , the same are incurred wholly and exclusively for the purposes of the business of the assessee. On the other hand, if the free samples of pharmaceutical products are distributed to doctors/physicians after the products are introduced in the market and its uses are established, giving of free samples will be a measure of sales promotion which will be hit by regulation 6.4.1 of The Indian Medical Council (Professional conduct,Etiquette and Ethics) Regulations, 2002.

In connection with this, the Tribunal referred the decision of the Apex Court in Eskayef Pharmaceuticals (India) Limited v. CIT.While invalidating the said order, the Tribunal opted to remand the matter to the AO with a direction to reconsider the matter afresh by following the principles of natural justice.

Read the full text of the order below.

Every form of Tax planning cannot be viewed with disfavour unless the Genuineness of the Transaction is demolished: ITAT Mumbai [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal recently opined that the officers cannot disapprove every form of tax planning unless the genuineness of the transaction is not proved. The Tribunal was considering an appeal filed by the assessee against the order of assessment as per which the exemption claim made by her under section 54F of the Income Tax Act, 1961 was disallowed for the reason that the new property was acquired within a period of one year before the transfer of the asset. The Tribunal opined that such transfers are squarely covered under section 54F of the Income Tax Act, 1961.

The factual settings of the case are that, the assessee, an individual, claimed exemption under section 54F of the Income Tax Act while filing returns for the relevant assessment year. The assessee claimed that, the amount received in respect of sale of shares has been invested in purchasing a new house property, and therefore, she is eligible for exemption under section 54F of the Income Tax Act, 1961. However, the Assessing Officer has disallowed the same on the following grounds. Firstly, the assessee was not in the ownership of the shares sold at the time of purchasing the property.The said shares were gifted to the assessee by her father and brother. It was found that the assessee purchased the residential property jointly with her husband even prior to the above gift. Secondly, a larger portion of the contribution made by the assessee to purchase the said property was made out of loans raised from her family members. According to the officer, it was only a device to save tax liability. Further, the sale proceeds of the shares were used to repay the loans taken from the family members.

The assessee failed to secure relief from the Commissioner of Income Tax (Appeals) and therefore, preferred a second appeal before the Income Tax Appellate Tribunal.

The tribunal, while accepting the contentions of the assessee has observed that the Assessing Officer misdirected himself in doubting the bonafides of the assessee’s claim for exemption. The Tribunal pointed out that “Notably, the shares which were received as gift by the assessee from her brother and father has not been sold/transferred within the family but the same have been sold to non related buyers. Therefore, there is nothing to suggest any infirmity or dubiousness in the sale of such shares and the earning of capital gains thereon. No doubt the capital gains have accrued subsequent to the purchase of the residential property but section 54F of the Income Tax Act, 1961 Act itself prescribes a window whereby exemption is available even where the new property was acquired within a period of one year before the transfer of the asset, which has generated capital gains. Therefore, without establishing any subterfuge on the part of the assessee based on any credible evidence or material, the mere fact that the gift of shares to the assessee and subsequent sale has resulted into saving of capital gain tax would not make the claim of exemption under section 54F of the Income Tax Act, 1961 as a colourable device. We are in agreement with the plea of the assessee that every form of tax planning cannot be viewed with disfavour unless the genuineness of the transaction is demolished. In the present case, the fact that the capital gains have arisen on transfer of shares effected to third party and also considering the fact that the gift of shares to the assessee by her father and brother has not been rejected by the Assessing Officer as an invalid gift, we, do not find any justifiable reason for doubting the bonafides of the exemption claimed under section 54F of the Income Tax Act.”

Read the full text of the order below.

No penalty shall be levied in case of quantum appeals in which the disputed tax does not exceed Rs.10 lakh: CBDT [Read Circular]

CBDT issues clarifications on Direct Tax Dispute Resolution scheme, 2016.

The Central Board of Direct Taxes releases clarifications on Direct Tax dispute Resolution Scheme, 2016. Recently, the Board has notified the said scheme with an aim to provide the tax payers who are under litigation, an opportunity to settle the dispute in accordance with the provisions of the Scheme.Following this, the Board has issued the present circular in order to clarify the provisions of the scheme.

As per the circular, in case of appeals pending before the CIT(A) as on 29.02.2016 and the CIT(A) has already disposed the same before filing declaration, then the a declaration cannot be filed under the scheme. It was further said that the CIT(A) shall not dispose a pending appeal if the assessee has filed a declaration under the Scheme or has intimated the CIT(Appeals) his intention to file declaration under the Scheme.

The Circular provides that no penalty shall be levied on in case of quantum appeals in which the disputed tax does not exceed Rs.10 lakh. In such cases, the assessee is liable to pay the disputed ax and interest only. Further, in cases where the disputed tax exceeds 10 lakh, 25% of penalty is leviable along with tax and interest. The circular further clarifies that “Section 205(b) of the Act provides immunity from imposition or waiver of penalty under the Income-tax Act or the Wealth-tax Act in respect of tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty referred to in section 202(I) of the Act. Hence, in both the situations (i.e. whether disputed tax in quantum appeal exceeds Rs.10 lakh or not), where a valid declaration under the Scheme is made in respect of quantum appeal, the appeal against penalty levied under section 271(1)(c) of the Income-tax Act, relating to the quantum appeal pending before the Commissioner (Appeals) shall be deemed to be withdrawn and the penalty or the balance amount of penalty, as the case may be, shall be deemed to be waived.”

As per the circular, an assessee is not eligible to file declaration in a case where notice of enhancement has been received by the declarant before the date of commencement of the Scheme.Similarly, the benefit is not available in cases where assessment or reassessment on which survey conducted under section 133A of the Income-tax Act.

It further clarifies that, in case of an appeal relating to penalty under section 271(1)(c), the amount payable under the Scheme is 25% of the penalty amount and also the tax and interest payable on the total income finally determined. For this purpose the total income finally determined shall be the total income as determined after giving effect to the last appellate order passed on or before the date of filing declaration under the Scheme. Any variation to the total income as a result of any appellate order passed subsequent to the date of declaration shall be ignored for the purposes of computing the amount of penalty payable under the Scheme.

The circular makes it clear that the scheme only provides for a dispute resolution mechanism in respect of cases for which declaration has been made. Further, it does not decide any judicial issue.

The assesses are further advised to pay tax to the Government on or before the due date as specified in the Scheme in order to avail the relief under the Scheme.The circular also provides that the assessee will be entitled to get refund in case of excess amount paid under the scheme. However, they will not be entitled to interest on such refund.

Read the full text of the clarification below.

Direct Tax collection rises 15.03%, Indirect Tax collection up 27.5% in April-August

The figures for Direct Tax Collections up to August, 2016 show that net revenue collections are at Rs. 1.89 lakh crore which is 15.03% more than the net collections for the corresponding period last year. Till August 2016,22.30% of the Budget Estimates of direct taxes for Financial Year 2016-17 has been achieved.

As regards the growth rates for Corporate Income Tax (CIT) and Personal Income Tax (PIT), in terms of gross revenue collections, the growth rate under CIT is 11.55% while that under PIT (including STT etc.) is 24.06%.However, after adjusting for refunds, the net growth in CIT collections is (-)1.89% while that in PIT collections is 31.76%. Refunds amounting to Rs. 77,080 crore have been issued during April-August, 2016, which is22.18% higher than the refunds issued during the corresponding period last year.

The figures for indirect tax collections (Central Excise, Service Tax and Customs) upto August 2016 show that net revenue collections are at Rs 3.36 lakh crore which is 27.5% more than the net collections for the corresponding period last year. Till August 2016, 43.2% of the Budget Estimates of indirect taxes for Financial Year 2016-17 has been achieved.

As regards Central Excise, net tax collections stood at Rs.1.53 lakh crore during April-August, 2016 as compared to Rs.1.03 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 48.8%.

Net Tax collections on account of Service Tax during April-August, 2016 stood at Rs.92,696 crore as compared to Rs. 75,219 crore during the corresponding period in the previous Financial Year, thereby registering a growth of 23.2%.

Net Tax collections on account of Customs during April-August 2016 stood at Rs. 90,448 crores as compared to Rs. 85,557 crore during the same period in the previous Financial Year, thereby registering a growth of 5.7%.

Cabinet approves creation of GST Council and its Secretariat [Read Notification]

First Meeting of the GST Council to be held on 22nd and 23rd September, 2016 in national Capital. 

The Constitution (One Hundred and Twenty-second Amendment) Bill, 2016, for introduction of Goods and Services Tax (GST) in the country was accorded assent by the President on 8th September, 2016, and the same has been notified as the Constitution (One Hundred and First Amendment) Act, 2016. As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A. The notification for bringing into force Article 279A with effect from 12th September, 2016 was issued on 10th September, 2016.

As per Article 279A of the amended Constitution, the GST Council will be a joint forum of the Centre and the States. This Council shall consist of the following members namely: –

  1. a) Union Finance Minister… Chairperson
  2. b) The Union Minister of State, in-charge of Revenue of finance… Member
  3. c) The Minister In-charge of finance or taxation or any other Minister nominated by each State Government… Members

As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws, principles that govern Place of Supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc.

The Union Cabinet in its meeting held on 12th September, 2016 approved setting-up of GST Council and setting-up of its Secretariat. The Cabinet inter alia took decisions for the following:

(a) Creation of the GST Council as per Article 279A of the amended Constitution;

(b) Creation of the GST Council Secretariat, with its office at New Delhi;

(c) Appointment of the Secretary (Revenue) as the Ex-officio Secretary to the GST Council;

(d) Inclusion of the Chairperson, Central Board of Excise and Customs (CBEC), as a permanent invitee (non-voting) to all proceedings of the GST Council;

(e) Create one post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India), and four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India).

The Cabinet also decided to provide for adequate funds for meeting the recurring and non recurring expenses of the GST Council Secretariat, the entire cost for which shall be borne by the Central Government. The GST Council Secretariat shall be manned by officers taken on deputation from both the Central and State Governments.

The Finance Minister Shri Arun Jaitley has also decided to call the First Meeting of the GST Council on 22nd and 23rd September 2016 in New Delhi. It is a matter of satisfaction for the Government that the steps required in the direction of implementation of GST are being taken ahead of the schedule so far.

Read the full text of the notification below.

Income from Share Transaction is ‘Capital Gain’ though Assesses’ primary business is Share Trading: ITAT Kolkata [Read Order]

Recently, the Income Tax Appellate Tribunal, Kolkata has held that the income from transaction of shares has to be categorized under the head ‘capital gain’ under the provisions of the Income Tax Act, 1961, despite the fact that the assesse is primarily engaged in the business of share trading. The Tribunal while relying upon the earlier order of the ITAT, has opined that the assessment order, as per which the said income is considered as “business income” is liable to be set aside.

The assesse-company, in the instant case is primarily engaged in the business of share trading. While filing income tax returns for the relevant AY, the assesse claimed that the income from sale of share transaction is liable to be treated as “capital gains.”However, the Assessing Officer completed the assessment by treating the said income under the head “business income” since the activities of the assesse for sale-purchase of share very frequently in a systematic manner and in volume.Further, it was observed that the object cause of the company also provides in dealing with shares.

On appeal, the Commissioner of Income Tax (Appeals), relying upon the decision of the ITAT favoring the assesse in the same issue for an earlier assessment year, held that the said income is “capital gains.”Being aggrieved, the Revenue preferred an appeal before the Appellate Tribunal.

The Tribunal noticed that, in the earlier decision, the Tribunal concluded that the income from share transaction must be considered as income from “capital gains”on the basis of the admitted fact that the shares were held by the assessee as investment and were being sold on having held for two years.

Following the above decision, the Tribunal dismissed the appeal by observing that no interference is needed to the above decision.

Read the full text of the order below.

Madras HC disallows depreciation on Computerised counting machine under the head ‘Computer & Computer peripherals’ [Read Judgment]

In a recent decision, the Madras High Court held that depreciation is not allowable to items such as Scanner, Computerised counting machine, CTP machines etc. under the head “computer and computer peripherals” for the reason that the said machines do not fall under the definition of the term computer and its peripherals. The division bench of the Court, while upholding the order impugned, opined that depreciation under this head is allowableonly to computer and its peripherals which expressly excludes other machineries.

The appellant-assessee, in the instant case, is firm engaged in the business of newspaper. While filing return for the relevant assessment year, the assessee claimed excess depreciation in respect of “control panel board and transformer”treating them to be electricalequipments, classified under the head “B”. Secondly, assessee claimed deduction in respect of depreciation computers and computer peripherals by treating certain items such as cannon lide, scanner, computerized counting &stacking machines, transportation charges, CTP machine, scanner, sisco router, modem, computerized counting & stacking (F/C), CTP machine (clearing charges), CTP machine(erection) etc as “computers.” However, the assessing Officer disallowed the above depreciation claims and passed an order.

The order was sustained by both the Commissioner of Income Tax (Appeals) and the Appellate Tribunal on appeal filed by the assessee on ground that the above claims do not covered by the Act.The appellate authorities took a stand that “control panel board and Transformers are more or lessitems either falling in the category of “Instrumentation and monitoring systems” as stated in the depreciation schedule in New Appendix-IIII-(8)(ix)B of Income Tax Rules or “Electrical equipment” as stated in the New Appendix-IIII-( 8)(ix)E under the head Electrical Equipments taking into account of the principles of ejusdem generis”.Further, it was held that “only computer peripherals can be considered as computers for the purpose of claiming depreciation at the rate prescribed in New Appendix-III(5) of the Income Tax Rules”.Being aggrieved, the assessee approached the High Court on further appeal.

The division bench comprising of Justices S Manikumar and D Krishna Kumar upheld the orders of the CIT(A) and ITAT by observing that “the machineries, for which, depreciation to the extent, sought for, do not fall under the definition, “computer, including computer software”. Fact that the machineries do not fall under the abovesaid category, cannot be termed as perverse.”

Read the full text of the Judgment below.

CIT cannot exercise its revision powers when the AO allowed the claim of the assessee after proper examination: ITAT Kolkata [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal, in a recent decision held that the Commissioner of Income Tax (CIT) cannot exercise its revision powers under section 263 of the Income Tax Act, 1961 when the assessing officer has passed the order after conducting a thorough examination. The Tribunal,applied the ratio in Gabriel India Limited in which the Supreme Court has expressed a similar view.

In the instant case, the Revenue has approached the Appellate Tribunal challenging the order of the Commissioner of Income Tax, who set aside the order passed by the Assessing officer by exercising its power to revisionon ground that the officer has passed the impugned order without application of mind. In the impugned order, the assessees’ claim for exemption in respect of dividend income was allowed by the officer.

It was contended on behalf of the assessee that issue relating to the disallowance under section 14A read with Rule 8D thus was examined by the Assessing Officer during the course of assessment proceedings and this position is accepted even by the ld. CIT in his impugned order passed under section 263 of the Income Tax Act. The Revenue further relied upon the decision of the Apex Court in Gabriel India Limited, in which it was held that ITO’s conclusion cannot be termed as erroneous simply because Commissioner does not agree with his conclusion and the substitution of the judgment of the Commissioner for that of the ITO is not permissible under section 263 of the Act.

The Tribunal, while invalidating the order impugned passed by the CIT, observed that “If the facts of the present case are considered in the light of the ratio laid down by the Hon’ble Supreme Court in the case of Gabriel India Limited (supra), we are of the view that the order of the Assessing Officer passed under section 143(3) by accepting the claim of the assessee on the issue of disallowance under section 14A read with Rule 8D could not be held to be erroneous and the ld. CIT was not justified in setting aside the same by exercising the powers conferred upon him under section 263. In that view of the matter, we set aside the impugned order passed by the ld. CIT under section 263 and restore that of the Assessing Officer passed under section 143(3).”

Read the full text of the order below.

‘Repairs & Maintenance’ expenditure are revenue in nature: ITAT Mumbai [Read Order]

Recently, the Mumbai bench of the Income Tax Appellate Tribunal held that the repair and maintenance expenditure are deductible under the provisions of the Income Tax Act, 1961 since they are revenue in nature.

Briefly explaining the facts of the case, the assessee engaged in the business of exporting sugar mill machineries, spares and other captive inputs in sugar industry. The assessees claim of deduction in respect of repairs and maintenance expenses were disallowed by the Assessing Officer on ground that the same amount to capital expenditure. The assessee challenged the impugned order claiming that such expenditures are revenue in nature. However, the Commissioner of Income Tax (Appeals)on appeal filed by the assessee, sustained the impugned order. Being aggrieved, the assessee approached the Appellate Tribunal on second appeal.

The Tribunal found that the assessee has taken the premise on leave and license basis and the assessee have undertaken the substantial renovation work in that premises. The amount claimed by the assessee as revenue expenditure was a part of the expenditure incurred by them in respect of renovation work. The reason for claiming deduction was that the expenses on items which cannot be removed from the premises were incurred, as the amount was incurred on floor marble and itsfixing, POP, civil work, flooring, false ceiling, plastering and painting etc.

The Tribunal further noticed that the Bombay High Court, in the case RPG Enterprises Limited v. DCIT, has recently allowed deduction on account of “repairs and maintenance.”

Referring to the above precedent, the Tribunal observed that “In our considered view, the ratio of decision of Hon’ble Bombay High Court in RPG Enterprises Limited(supra) is directly applicable in the instant case , and by undertaking of this substantial repairs , it could not be said that no enduring benefit has resulted to the assessee as the said major and substantial renovation work has led to improvements in its trading operations which would bring enduring benefit to the assessee for long period of time and hence is capital in nature. The assessee would be entitled and qualified for availing depreciation in view of the Explanation 1 to Section 32 of the Act despite the fact that the assessee is not the owner of the said premises wherein in the assessee has taken the said premises on leave and license basis. The assessee would be entitled for treatment of expenses such as breaking old plaster, carting away, plastering, POP etc. as revenue expenses which are in nature of current repairs in view of provisions of Section 30 of the Act.”

Read the full text of the order below.

CBDT extends due date for filing Income Tax returns by tax payers whose accounts are required to be audited to Oct 17th 2016 [Read Order]

In an order issued today, the Central Board of Direct Taxes(CBDT) has extended the last date for filing of Income tax returns by taxpayers whose accounts are required to be audited under Income Tax Act has been extended to 17th October 2016.

The last date for making declaration under the Income Declaration Scheme 2016 is 30th September, 2016 which coincides with the last date of filing Income Tax returns by the taxpayers whose accounts are audited and who are required to furnish the returns of income for Assessment year 2016-17 by 30th September, 2016 as per the provisions of Section 139(1) of the Income Tax Act, 1961.

“In order to remove the inconvenience and to facilitate ease of compliance, the Central Board of Direct Taxes, in exercise of powers conferred under section of the Income Tax Act, 1961, hereby extends the ‘due date’ for furnishing such returns of Income from 30th September, 2016 to 17th October, 2016, in case of tax payers throughout India, who are liable to furnish their Income Tax return by the said ‘due-date’”, the CBDT said in the order.

Read the full text of the order below.

Income Declaration Scheme: RBI issues instructions to banks to allow payment of Tax under the Scheme in Cash [Read Circular]

The Income Declaration Scheme, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets. The Scheme has come into effect from 1.6.2016 and is open for declarations upto 30.9.2016.

In respect of the issue of deposit of cash declared under the Scheme, the Central Board of Direct Taxes (CBDT) vide Circular No.29 of 2016 dated 18.8.2016 clarified that Reserve Bank of India (RBI) has been requested to issue instructions to banks to allow payment of tax under the Scheme in cash and to allow deposit of cash over the counter.

The RBI has vide its circular dated 08.09.2016 instructed the banks to invariably accept cash deposits from all the declarants under the Scheme and to accept cash deposits, irrespective of amount, over the counters, for making payment under the Scheme through challan ITNS-286.

Read the full text of the circular of RBI can be read below.

President Pranab Mukherjee okays The Taxation Laws (Amendment) Act 2016

The full text of the Bill can be read below.

Search u/s 132(1) of the Income Tax Act cannot be carried out on family members of person against whom warrant is issued: Rajasthan HC [Read Judgment]

In a recent decision, the Rajasthan High Court held that a search under section 132(1) of the Income Tax Act, 1961 cannot be carried out against the family members of the person against whom the search warrant is issued.

The division bench comprising of Justice Ajay Rastogi and Justice J K Ranka further clarified that section 132(1) is meant for “specific persons” and the extending the search to the family members would amount to curtailment of the fundamental rights of such members who are separate assessable legal entities under the Act.

Search under section 132(1) was carried out in the residence of the Mr. O.P. Goyal and his sons, Anant Goyal and Sumant Goyal. Certain material were found during the search and therefore, the Department initiated assessment proceedings against the assessee. During the course of assessment, it was revealed that the the present assessees happen to be the wife and daughter of Anant Goyal. It was contended on behalf of the assessee that the notice issued against the assessees are not sustainable for the reason that the provisions of Section 158-BC of the Act are inapplicable as there was no warrant of authorization against the present assessee under Section 132(1). However, the Assessing Officer observed that the warrant states O.P. Goyal,

Anant Goyal and family members and since the assessees are members of the family (wife and daughter), they are automatically covered by the authorisation and thus the AO was well justified in proceeding ahead in issuing the notice and to proceed ahead for assessment.Accordingly, assessment orders were passed against the assessees.

On appeal, the Commissioner of Income Tax (Appeals) concluded the matter in favour of the assessees and set aside the impugned order on ground that held that since the search warrant itself did not indicate names of the assessees specifically, the AO was precluded from proceeding ahead with the assessment of the assessees under Section 158-BC. Though the Revenue has challenged the decision of CIT(A) before the Tribunal, couldn’t secure any relief.Therefore, the matter was brought before the High Court.

The Court found that section 132(1) read with sections 158-BC and 158-BD, authorises to carry out search and seizure operation where the Revenue comes into possession of information that an assessee may be evading tax or has reason to suspect that a person has money, bullion and jewellery and other valuable articles or things, books of account etc. which does not depict true income, then a search is necessitated or got conducted.

The Court in this regard, opined that “Search and seizure are drastic provisions and does not confer unbridled power to the Revenue Officer. The Revenue must have in consequence of information reason to believe that statutory conditions for the exercise of power to order search exist. The Competent Authority, namely the Commissioner or the Director of Inspection, is supposed to record reason for the belief. Search and seizure under Section 132 of the Act, have a serious invasion upon the right, privacy and freedom of tax payer, it presupposes that powers have to be exercised strictly in accordance with law and in fulfillment of the object & purport of the Act.”

“The right of privacy has been held to be fundamental rights of citizens being integral part of Art. 21 of the Constitution of India, and that citizen’s right of privacy is not likely to bedisturbed. The power of search and seizure under theprovisions of the Act should be exercised only when there is sufficient material in possession of the competent authority on the basis of which it can have reasons to believe that there had been assets which could not be disclosed for the purposes of assessment under the Act.”

The bench further observed that “Provision of Section 158-BC is attracted “where any search has been conducted under Section 132 in the case of any person”. In our view from these words it should statutorily mandate that search should have been carried out under Section 132(1) in the name of a person before invoking the provision of Section 158-BC. “Person” should normally mean name depicted in the warrant of authorisation, and the Authority authorising a search has to have information in his possession in respect of a person and such a person should be specifically named in the search warrant. Though “family” is not defined under the Income Tax Act but could not be stretched to cover all the family members, namely wife, daughter, children etc.”

The Court further analyzed the definition of the term “person” under section 2(31) and held that “All the family members are separate assessable legal entities under the Act and in a case where search warrant has been issued in the name of O.P. Goyal and family, in our view it cannot bestretched to cover all the family members, namely spouse and children. It has to be in the name of specific person to initiate proceedings.”

While confirming the orders of both the Tribunal and CIT(A), the division bench pointed out that “Since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with law and only for the purposes for which the law authorises it to be exercised. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the correctness of his action. Therefore, in our considered view a search under Section 132(1) has to be “person specific”. The Authority authorizing search has to have information in his possession in respect of a person and such a person should be specifically named in search warrant and since names of the assessees having not figured in the authorization of warrant as having been proved on the basis of Form 45 which has been reproduced by us in para 16 hereinbefore, the AO has exceeded its jurisdiction in issuing the notice under Section 158-BC and initiation of the proceedings being invalid, all subsequent action of A.O. including order of assessment is not sustainable in law”.

Read the full text of the Judgment below.

Corpus Fund received for meeting the hardships on redevelopment is ‘Capital Receipt’: ITAT Mumbai [Read Order]

A receipt ends up reducing the cost of acquisition of the asset should be treated as ‘Capital Receipt’ says Mumbai ITAT.

The Mumbai bench of the Income Tax Appellate Tribunal recently held that the corpus fund received by the assessee for meeting the hardships on redevelopment is to be treated as capital receipt for the reason that such receipt ends up reducing the cost of acquisition of the asset.

The assessee received an income of Rs.22 lacs as corpus fund and had rental income of Rs.8,55,800/-. The AO completed the assessment by categorizing these incomes as “income from other sources” for the reason that the assessee failed to explain the reason for non-disclosure of such income.

The assessee maintained that Rs.22 lacs received as corpus fund was received towards hardship caused to assessee on redevelopment and as such receipt was in the nature of capital receipt and therefore, is not taxable. Regarding the addition of Rs. Rs.8,55,800/-, it was contended that the assessee has made expenditure of Rs.6,80,000/- towards rent while development activity of the project was taken place. Therefore, the addition is not justifiable.

Regarding the the nature of corpus fund received, the Tribunal noticed that the Mumbai ITAT in the case Kushal K Bangia vs. ITO, has concluded the case in favour of the assessee.

Following the above decision, the Tribunal observed that “Nothing contrary was brought to my knowledge on behalf of Revenue. Facts being similar, so following same reasoning, I find that consideration for which the amount hasbeen paid by the developer are, therefore, not relevant indetermining the nature of receipt in the hands of theassessee. In view of these discussion, in my considered view,assessee could not be said to be of revenue nature, and,accordingly, the same is outside the ambit of income undersection 2(24) of the Act. The impugned receipt ends upreducing the cost of acquisition of the asset, i.e. flat, and,therefore, the same will be taken into account as such, as andwhen occasion arises for computing capital gains in respect ofthe said asset. Subject to these observations, the appeal ofassessee is allowed.”

Regarding the second addition, it was observed that “Next issue in this appeal is regarding addition of Rs.8,55,800/-. In fact, this amount was given by Developer for paying rent while development of the project was taking place. In fact, assessee submitted before me that he has made expenditure of Rs.6,80,000/- towards rent while development activity of the project was taken place. So, Assessing officer is directed to allow the claim of assessee to same extent because it is nothing but compensation receivedby assessee for paying rent. This cannot be said to be income of assessee. Assessing Officer is directed accordingly.”

Read the full text of the order below.

Investing in Multiple Flats will not deny the benefit of exemption from Long term Capital Gain Tax: Madras HC [Read Judgment]

The single bench of the Madras High Court, recently held that the benefit of exemption from Long term Capital Gain Tax under section 54F of the Income Tax Act, 1961 can be claimed by an assessee for investing in multiple flats.

Justice T S Sivagnanam also found that the legislative intention behind section 54F of the Income Tax is not limited to grant deduction in respect of a single property.

The grievance of the petitioners is that the assessee’s claim for deduction under section 54F of the Income Tax Act was disallowed on ground that he has invested the sale consideration of his property in multiple flats and further, the construction of which was not completed upto 70%. The Department also initiated re-assessment proceedings on the basis of this. The petitioners challenged the proceedings through a writ petition.

It was contended on behalf of the assessee that section 54F, being a beneficial provision, without taking note of the provision, as it stood at the relevant point of time, investment in residential property is allowable, even though spread over multiple flats.It was further submitted that delay in handing over of the property by the seller to the petitioner is not materially relevant for grant of exemption under Section 54F of the Income Tax Act.

While analyzing the provision, the Court observed that “Section 54F deals with ‘Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house’. The common condition both under Section 54E to 54ED and 54F, is that the assessee must purchase or construct a residential house before or after the transfer of the asset, which yields capital gains. If the assessee had invested the money in the construction of the house within the time limit, the exemption cannot be denied on the ground that construction has not been completed. However, the onus is on the assessee to produce sufficient material to establish the claim for exemption. In the instant case, the petitioner claimed exemption by stating that they have purchased flats with the built up area of 8050 sq.ft., along with an extent of 1807 sq.ft of undivided share in land by a document, dated 29.10.2010. The reason for reopening the assessment is that the petitioner has invested an amount of Rs.2,62,50,000/-, into five flats and the construction of the flats were completed only upto 70% at the relevant point of time and therefore, the petitioner is eligible to claim exemption under Section 54F only for a residential property, apart from the fact that the only 70% of the construction has been completed.”

Regarding the question would be whether the petitioner can be denied exemption on the ground that he has invested in five flats and the effect of the construction having been only partially completed, it was observed that in a similar case in Smt. V.R.Karpagam the ITAT found that assessee was eligible for claiming exemption under Section 54F of the Act on the five flats received by her in lieu of the land she had parted with.

Following the various decisions including the above one, the Court found that “a residential house” used in Section 54, should not be taken to convey the meaning that it refers to a ‘single residential’ house and if that was the intention of the legislature, the framers of the statute would have used the word “one” instead of “a”. In fact, the facts of the case in Smt. V.R.Karpagam(supra), is more or less identical to that of the case on hand, which also pertained to a development of a property, originally owned by the assessee and the consideration was that the owner/assessee was to receive 43.75% of built up area after development, which translated into five flats.”

In the instant case, there is no doubt raised by the respondent with regard to the petitioner’s eligibility to claim exemption under Section 54F, but the dispute is as to whether the petitioner is entitled to claim such exemption for all the five flats or for only one flat.

In view of the above findings, the Court held that the petitioner is entitled to the benefit of exemption under Section 54F as claimed by him and the reasons for reopening the assessment for the relevant AY is unsustainable.

Read the full text of the Judgment below.

Income Tax Commissioner can allow a fresh claim for deduction without a revised return u/s 264 of the Income Tax Act: Kerala HC [Read Judgment]

In a recent ruling, the single bench of the Kerala High Court held that, while exercising the powers conferred under section 264 of the Income Tax Act, 1961, the Commissioner of Income Tax can consider a fresh claim for deduction even without a revised return.

A brief perusal of the facts would reveal that the assessee is a Government-company and a sick industrial unit proceeding for re-habilitation under a Scheme approved by the Board for Industrial and Financial Reconstruction (BIFR).The grievance of the assessee was that their claim for deduction towards provision for arrears of salary and wages payable to the officers and staff as per the Long Term Settlement was disallowed by the Assessing Authority. Against the said assessment order, the assessee preferred a Revision petition before the Commissioner of Income Tax, which was rejected on ground that a fresh claim for deduction can be allowed only by way of filing a revised return. Though the order was challenged before the CIT(A), no relief was granted. Being aggrieved, the assessee approached the High Court alleging that the Commissioner failed to exercise its jurisdiction.

The substantial question of law raised before the Court was that whethera claim for deduction for the above said payment is permissible, in the absence offiling a revised return?.

The assessee relied upon the decision of the division bench of the Kerala High Court, in Parekh Brothers v. Commissioner of Income Tax,in which it was held that while considering the scope and power of the Commissioner under Section 264 of the Act held that even though a mistake was committed by the assessee and it was detected by him after the order of assessment and the order of assessment is not erroneous, still it is open for the assessee to filea revision before the Commissioner under Section 264 of the Income Tax Act and claim appropriate relief.

Justice A M Shaffique while quoting the decision of the division bench of the Kerala High Court in the case, Parekh Brothers, the Court held that the Commissioner has jurisdiction to pass orders even if a revised return is not filed. Accordingly, the matter was disposed with an order directing the Commissioner to re-hear the matter afresh without a revise return.

Read the full text of the Judgment below.

ITAT Kolkata allows deduction on Securities held by Co-operative society which constitutes ‘stock-in-trade’ [Read Order]

In a recent order of Income Tax Appellate Tribunal Kolkata held that, securities held by banks running co-operative society constitute their stock-in-trade and consequently the notional loss claimed by the assessee-banks on valuation of such securities at the close of the year is allowable as deduction in computing the taxable profits.

The Burdwan Central Co-operative Bank Ltd, is a cooperative society engaged in the business of banking.

The Counsel for the assessee conteded that, the securities held by the assessee in the present case were admittedly in the category of “available for sale” and therefore even as per the CBDT instruction the claim of the assessee has to be allowed.

The Tribunal relied on a case of Kerala High Court CIT vs Nedungadi Bank Ltd, held that, it is now settled by a series of decisions that the securities held by the banks constitute their stock-in-trade or investment and consequently the loss claimed by the banks on the valuation of their securities should be allowed as a deduction in computing the taxable profits

The Tribunal also referred to CBDT Circular and has held that same view has been taken by the CBDT in Circular No. 599, dt. 24th April, 1991.

While the partly allowing the appeal, the tribunal also observed that, the securities held by the assessee-bank in all these cases are the stock-in-trade of the business of the assessee-banks and the notional loss suffered on account of the revaluation of the said securities at the close of the year is an allowable deduction in the computation of the profits of the appellant.

Read the full text of the order below.

President Pranab Mukherjee signs GST Constitution Amendment Bill.