The Finance Act, 2020 has substantially expanded the provisions related to tax collected at source (TCS). Sub-section 1(G) and 1(H) was added to section 206C for collection of tax on overseas tour travel package, remittance of Forex under LRS and sale of goods in excess of Rs. 50 lakh. Now, the CBDT has amended Rule 31AA and annexure to Form 27EQ to incorporate necessary changes related to new TCS provisions. The amended Rule shall come into force with effect from the 1st October 2020.
CBDT amends Rule 12CB with respect to statement to be filed under section 115UB(7), notifies amended Form 64C and 64D;
As per the amended rules, the statement in form 64D, consisting of details of income paid/ credited by investment fund, shall be furnished electronically (generated & downloaded from the web portal) to the Pr.CIT or CIT, within whose jurisdiction the Principal office of the investment fund is situated “by 15th day of June of the financial year following the previous year during which the income is paid or credited,” (as against the due date of 30th Nov earlier);
Amended Form 64C requires additional information w.r.t details of deemed loss as on 31st March, 2019 in terms of newly inserted sub-section (2A) of section 115UB, also requires bifurcation of LTCG/STCG income as per the chargeable rates u/s 112A/111A as the case may be; Further, amended Form 64D now seeks PAN/Aadhar details of Directors/ Trustees/ Partners of the Investment fund, also inserts table seeking break-up of total income of Investment Fund.
The CBDT has provided relief to senior citizens from levy of interest under section 234A. A resident senior citizen who does not have any income from business or profession is not required to pay advance tax and he can pay the entire tax by way of self-assessment tax. For computing the limit of Rs. 1 lakh (as specified in earlier notification No. 35/2020), the self-assessment tax paid by a senior citizen on or before 31-07-2020 shall be deemed to be the advance tax. Thus, same shall be reduced while computing the tax liability of Rs. 1 lakh.
Prime Minister (PM) Narendra Modi launches ‘Transparent Taxation’ platform encompassing Faceless assessments, Faceless appeals (w.e.f. September 25th) & Taxpayers’ Charter;
Highlighting the maxim of ‘Minimum Government, Maximum Governance’, PM expresses that the approach of this initiative is to move away from power centric towards people centric administration and focus on “Honouring the Honest”
PM explains that faceless assessments/ appeals will have technology driven interface (e.g. In case of scrutiny assessments, there will be random selection of cases and selection will not be limited to jurisdictional AO)
CBDT notifies amendments in E-assessment Scheme, 2019 to implement faceless assessments; ‘Best judgment’ assessments u/s. 144 are now covered under the Faceless assessment scheme, notifies consequential changes in the procedure for assessment; Further, the amended scheme empowers Pr.CCIT/Principal Director General, in charge of the NeAC, to refer the case to jurisdictional AO, at any stage of the assessment, with prior Board approval.
Further, where a request for personal hearing is made by the assessee or his authorised representative in respect of modifications proposed in the draft assessment order, the Chief Commissioner or Director General in charge of Regional e-assessment Centre’s (ReAC), may approve the request if he is of the opinion that the request is covered under the circumstances as may be notified by the Pr.CCIT/Pr.DG.
CBDT issued MAP guidance for the benefit of taxpayers, tax practitioners, tax authorities and CAs of India and of treaty partners, presented in following four parts:
Part A: Introduction and Basic
Part B:Access or Denial of Access to MAP
Part C:Technical Issues
Part D: Implementation of MAP outcomes
MAP is an alternate tax dispute resolution mechanism for taxpayers to resolve disputes that result or will result in taxation or double taxation, not in accordance with DTAAs.
CBDT inserts new Rule 114AAB which specifies that a non-resident is not compulsorily required to obtain Permanent Account Number, if
i.The non-resident does not earn any income in India, other than income from investment in Category I or Category II Alternative Investment Funds [AIF] located in an IFSC in India, and
ii.TDS on such income is deducted by the Specified Fund, and
iii.The Non-Resident furnishes declaration
Further, the new Rule 114AAB requires the specified fund to furnish quarterly statement in respect of such non-resident in the newly notified Form 49BA.
CBDT directs that all assessment orders shall be passed by the National e-assessment centre (NeAC) through faceless assessment scheme, 2019; Provides 2 exceptions:
• Assessment orders in cases assigned to Central charges and
• Assessment orders in cases assigned to International Tax charges;
Specifies that assessment orders not in conformity with above shall be treated as ‘non-est’
This order shall come into effect from 13th August 2020.
To ensure better compliance and transparency. Ministry of Finance has expanded the Scope of Reporting Transactions to include:
• Payment of educational fees/donation above Rs. 1 lakh p.a.
• Electricity consumption above Rs. 1 lakh p.a.
• Payment to hotels above Rs 20,000.
• Domestic business class air travel/ foreign travel
• Purchase of Jewellery, white goods, painting, marble etc, above Rs. 1 lakh p.a.
• Deposits/Credits in current account above Rs 50 lakhs
• Deposits/Credits in Non-current account above Rs 25 lakhs
• Payment of Property tax above Rs 20,000 p.a.
• Life insurance premium above Rs 50,000.
• Health insurance premium above Rs 20,000.
• Share transaction / Demat account/Bank lockers.
CBDT specifies eligibility conditions for ‘Pension Funds’ [PF] to qualify for infrastructure investment income exemption u/s. 10(23FE), notifies new Rule 2DB; New Rule 2DB specifies 6-fold conditions for Pension Funds,
• It is regulated under the law of a foreign country,
• It is responsible for administering or investing the assets for meeting the statutory obligations and defined contributions of one or more funds or plans established for providing retirement, social security, employment, or any similar compensation to the participants or beneficiaries of such funds or plans,
• The earnings and assets of the pension fund are used only for meeting statutory obligations,
• It does not undertake any commercial activity whether within or outside India,
• It shall intimate the details in respect of each investment made by it in India on quarterly basis in newly notifies Form No. 10BBB,
• It shall file return of income within the specified due-date and furnish along with certificate in newly notified Form No. 10BBC;
Further inserts new Rule 2DC laying down guidelines for notification of Pension Funds u/s. 10(23FE), requires Pension Funds to make an application in newly notified Form 10BBA.
• CBDT has released utility for ITR Form 5 on 25th August 2020 applicable to AOP, LLPs, etc. With this now ITR Form No. 1,2,3,4 & 5 are available for e-filing of Income Tax Returns for AY 2020-21.
• CBDT issues refunds of over ₹ 95,853 crores to more than 25.55 lakh taxpayers between 1st April 2020 to 25th August 2020. Income tax refunds of ₹ 29,361 crore have been issued in 23,91,517 cases & corporate tax refunds of ₹ 66,493 crore have been issued in 1,63,272 cases
“Faceless Assessment is a Tax Assessment System designed for the 21st century”
• A National e-Assessment Centre (NeAC) and a network of Regional e-Assessment Centers will be set up to implement the Faceless Assessment Scheme of the Income Tax Department, launched nation-wide by Prime Minister Shri Narendra Modi on 13 August 2020
• The regional assessment network would comprise assessment units, verification units, technical units and review units
• Earlier, there was no discretion in selection of cases. They were selected manually. But now, NeAC has automated random allocation of cases. While notices used to be issued both manually and, on the system, issue of notices will now be done through a central mechanism (by NeAC) in electronic mode
• Wide discretion and subjective assessment are being replaced by team-based assessment and a system wherein draft order is issued in one city, review is done in another city and finalization is done in yet another city
• The Hon’ble Prime Minister of India, Shri Narendra Modi announced the extension of the scheme to the entire department on 13 August 2020. The scheme is also being extended to the first appellate authority i.e. Commissioner of Income Tax (Appeals) from 25 September 2020
CBDT vide circular no.16 of 2020, directs banks to immediately refund the charges collected, if any, on transactions carried out using electronic modes prescribed u/s.269SU on or after 1st January 2020 and states that-
• Representations have been received that some banks are imposing & collecting charges on transactions carried out through UPI
• Such practice on part of banks is a breach of Section 10A of the PSS Act (Payment and Settlements Act) as well as section 269SU of the IT Act.
• Such breaches attract penal provisions under section 271DB of the IT Act as well as section 26 of the PSS Act.”
• Further advises banks to not to impose charges on any future transactions carried through the prescribed modes.
It is held that AO cannot change the method of valuation for valuing the market value of shares by merely relying on the actual results in subsequent years and arbitrarily coming to the conclusion that the projections were not achieved.
Section 56 allows the assessee to adopt one of the methods of their choice. It is beyond the jurisdiction of the AO to insist upon a particularly one method, especially when the act allows to choose one of the two methods.
Mumbai ITAT grants extension of stay of demand to assessee-company till 31st Aug 2020, cites Bombay HC order for “extension of interim orders” owing to Covid-induced lockdown and held that the stay which had expired during the lockdown period need to be automatically extended till 31/08/2020.
ITAT rejects negative working capital adjustment for assessee (engaged in software designing, programming, development, testing and related services) for AY 2010-11; Follows coordinate bench ruling in IZMO Ltd which in turn relied on FNF India Pvt. Ltd wherein it was held that there is no need for making any negative working capital adjustment when assessee does not carry any working capital risk;
Accordingly, ITAT holds that “action of the revenue authorities in making negative working capital adjustment and thereby increasing the average arithmetic profit margin of comparable companies is not sustainable in the facts and circumstances of the present case”.
Assessee transferred some portion of its land to its holding company resulting in profit on sale of asset and same was not offered to tax under the head Capital gains by referring to section 47(v) on the ground that assessee was a 100% subsidiary of its holding company. Assessee filed return of income declaring nil income which was processed under section 143(1). Assessing Officer (AO) proceeded with the regular assessment.
The assessment was reopened by issuing a notice under section 148 on the ground that AO found that 25 shares of assessee-company were held by the nominees of holding company. Therefore, AO held that assessee was not eligible for exemption of capital gains as per section 47(v). CIT(A) upheld the order passed by AO.
On further appeal, ITAT held that the holding company had 80 lakhs shares out of which 79,99,995 shares were held by the holding company in its own name and the 25 shares were held by six individuals who had been nominated by the holding company. A public limited company should have a minimum of 7 shareholders. Those 6 individuals who were nominated by holding company had no individual right as a shareholder and there holding was for and on behalf of the holding company.
Therefore, ITAT held that the whole of the share capital of the subsidiary company was held by the holding company. On further appeal, the Madras HC upheld the order of ITAT.
ITAT Ruling:
• Mumbai ITAT quashes Assessment Order passed by AO on Siemens Ltd. (assessee, amalgamated company) without serving any notice u/s 143(2).
• Pursuant to the orders of Bombay HC, the assessee had informed the AO regarding its amalgamation order. However, the AO issued the notice to the assessee instead of the amalgamating company.
• The draft assessment & final Assessment Order were passed in the name of amalgamated company i.e. assessee but PAN in both the orders was that of amalgamating company.
• ITAT holds that the issuance of notice u/s 143(2) to the amalgamating company i.e. non-existent company cannot be treated as a notice issued to amalgamated company and cannot be validated within the realm of procedural irregularity u/s 292B.
• ITAT holds such Assessment Order as void-ab-initio & thus quashes Assessment Order passed by the AO
Bangalore ITAT allows interest expenditure towards inventory to be claimable as an expense despite no income being offered from sale of such inventory.
Facts of the case:
• The Assessee engaged in real estate trade, claims deduction for interest expenditure u/s 36(1)(iii) of the Act. This interest was towards purchase of land.
• AO disallowed such expenses as it were to be added to cost of inventory as per AS-2 r/w AS-16.
• As per AS 2 on “Valuation of Inventories”, the cost incurred towards purchase of inventory should be added to the “Cost of Inventory”.
ITAT Decision:
• Bangalore ITAT relies on Delhi ITAT decision of DLF Limited stating, “it is well settled judicial precedent that when the provisions of the Act are in contradiction of Accounting Standards (AS) and the provisions of Act will apply and not the provisions of AS”.
• Further it was held that purchase of land, in the scenario would account as inventory and not as purchase of capital asset. Thus, the proviso to Section 36(1)(iii) would also not apply.
• The ITAT thus allowed such interest deduction to realtor u/s 36(1)(iii).
• Mumbai ITAT allows ‘depreciation’ on goodwill arising on merger of Safety product division of vendor company into assessee company where difference between book value of assets & shares issues was debited as ‘Goodwill’.
• AO’s contended that goodwill has arisen from loss making division and being self generated, shall not be entitled for depreciation.
• ITAT holds that whether the unit is loss making has nothing to do with existence of Goodwill. Goodwill can arise pertaining to different factors.
• Further, following the decision of Supreme Court in case of CIT vs Smifs Securities Ltd, ITAT held that goodwill arising on account of amalgamation would constitute intangible asset eligible for depreciation u/s 32 of the Act.
Delhi ITAT favors assessee in claiming depreciation on acquired Goodwill
Facts of the case:
• The assessee claims depreciation u/s 32(1)(ii) on ‘goodwill’ representing the workforce value, supplier contracts and other business rights obtained upon acquisition of business from IBM.
• AO held that depreciation is not allowable on goodwill and disallowed the same on the said grounds:
Assessee did not become the sole logistic provider to IBM;
Decline in business receipts post acquisition; and
The goodwill is not similar in nature to any of the preceding items stated in the Act and thus the residual clause is not applicable.
ITAT decision:
• The ITAT held that specified intangible assets viz., business claims, business information, business records, contracts, employees and know-how acquired by assessee thereunder were in nature of ‘business or commercial rights of similar nature’.
• ITAT passed order holding the assessee eligible for depreciation on such goodwill.
Bangalore ITAT provides relaxation in case of Joint holding of house properties with Spouse
Facts
• Assessee held a property and purchased subsequently 2 more house properties of which one jointly with his wife and one in his own name.
• Assessee and his wife both earned capital gains from sale of unlisted shares. Assessee’s wife claimed the exemption u/s 54F in the property purchased in joint name i.e. 2nd property of Assessee.
• Assessee claimed deduction u/s 54F for 3rd property against capital gains from sale of unlisted shares.
AO’s Contention-
• Assessing Officer disallowed the claim of exemption u/s 54F of the assessee on the ground of violation by holding 3 properties.
Conclusion by ITAT-
• ITAT held that mere inclusion of his or her relative’s name in the purchase deed is not a criteria to disallow such exemption as the inclusion of name would be because of some emotional issues.
• Further, in the current case as both the assessee and his wife had paid the consideration out of their own funds it was thereby concluded that they can claim the deduction u/s 54F.
• In the year 2016, Demonetization was introduced after which the Tax Department has been aggressive in taxation of all unexplained specified transactions, incomes and money.
• The provisions of the Income Tax Act which plugs the loophole of the evasion of taxes by charging Unexplained specified transactions includes:
• These specified transactions are taxable @ 83% (60% basic tax + 25% surcharge + 6% penalty + 4% health and education cess) leaving only a meagre sum in the hands of the defaulter.
• The tax authorities in India are keen to bring under the scanner all unaccounted and unexplained transactions and monies of the tax evaders and charge them with higher tax rates. They monitor the prospective tax evaders also by gauging the financial transactions collected from various informants.
• However, often genuine tax payers, to their misfortune are held up with the notices and scrutiny of the Income Tax Department and may end up facing hardships in proving the same. As the old adage goes ‘Prevention is better than cure’, one needs to honestly disclose all the assets / liabilities / incomes / expenditures while filing their Return of Incomes. Also, preserving the evidences for essential financial transactions at least for reasonable period of time can come to rescue in establishing the right facts.
• The Central Board of Direct Taxes (CBDT) top brass assured tax department officials that the faceless assessment regime would not lead to any large-scale movement of personnel and would be implemented without draining the existing resources at the department’s disposal, the finance ministry sources said.
• I-T department officials were given a detailed presentation in the online meeting on faceless assessment and taxpayers’ charter and their proposed implementation.
• In the online meeting of tax officials, it was discussed that the department would adopt a demand management strategy to identify and clean-up pending demands so that the correct demand could be made available to the taxpayers.
• DAC 6 is a mandatory compliance in limelight regarding with BEPS Action minimum standards.
• For an Indian MNC with operations in one or more of the 28 countries (including the UK) in the European Union (EU), DAC 6 compliance requirements apply.
• DAC6 consists of mandatory disclosure rules to report a qualifying cross border arrangement. This disclosure is made to a local tax authority in EU country in which it is domiciled.
• There is an obligation to report when there is certain arrangement that falls into compliance as per BEPS Action Plan. An arrangement can consist of a transaction, action, agreement, commitment, or a combination thereof. It also specifically covers any prospective arrangements ready to be implemented.
• The reportable information consists of:
• Parties affected by arrangement along with reporting taxpayer/intermediary
• Summary of Arrangement
• Date of implementation
• Value of Cross Border arrangement
