NELLORE BRANCH OF SIRC OF ICAI News …...NELLORE BRANCH OF SIRC OF ICAI News Letter@June 2015...

NELLORE BRANCH OF SIRC OF ICAI News Letter@June 2015

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INCOME –TAX

CASE LAWS

Capital gains - Computation - Section 50C - Valuation by DVO - Sale of land - Stamp duty assigning higher value to the land - Matter should be referred to DVO -

Sunil Kumar Agarwal vs.CIT; 372 ITR 83 (Cal):

The assessee sold piece of land for Rs. 10,00,000/-. The stamp duty value of the same was Rs. 35,00,000/-. The Assessing Officer adopted the stamp duty value u/s. 50C of the Income-tax Act, 1961 and computed the capital gain on that basis. The Tribunal upheld the same.

On appeal by the assessee, the Calcutta High Court reversed the decision of the Tribunal and held as under:

“i) T he case of the assessee was that the price offered by the buyer was the highest prevailing price in the market. If this were his case then it is difficult to accept the proposition that the assessee had accepted that the price fixed for stamp duty was the fair market value of the property. No such inference could be made as against the assessee because he had nothing to do in the matter.

ii) Stamp duty was payable by the purchaser. It was for the purchaser to either accept it or dispute it. The assessee could not have done anything. In the case of this nature the Assessing Officer should, in fairness, have given an option to the assessee to have the valuation made by the DVO contemplated u/s. 50C.”

Queens Educational Society vs. CIT (Supreme Court)

S. 10(23C)(v) & (vi): Mere surplus does not mean institution is existing for making profit. The predominant object test must be applied. The AO must verify the activities of the institution from year to year

The 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act



CIT vs. Riyaz A. Sheikh (Bombay High Court)

Amount received by partner on his retirement is not chargeable to tax as capital gains

The assessee, a partner in a firm, received Rs. 66 lakhs over and above his capital contribution on his retirement from the firm. The assessee claimed that the said sum was a capital receipt not chargeable to tax. However, the AO held that the retirement had resulted in a relinquishment of his pre-existing rights in the partnership firm and, therefore, the same was in the nature of capital gain on transfer of goodwill and liable to tax under s. 45 read with s. 2(47)(i) & (ii) of the Act. The CIT(A) and Tribunal (order not available but operative portion is reproduced in Rajnish M Bhandari, attached) reversed the AO on the ground that when a partner retires from the firm and receives his share of an amount calculated on the value of the net partnership assets including goodwill of the firm, there is no transfer of interest of the partner in the goodwill, and no part of the amount received is assessable as capital gain u/s 45 of the Act. It was also held that the decision of the Bombay High Court in Tribhuvandas G Patil 115 ITR 95 followed in N A Mody 162 ITR 420 has been reversed by the Supreme Court in Tribhuvandas G Patel 236 ITR 515 (SC) and that this legal position had been noted in Prashant S Joshi 324 ITR 154 (Bom). On appeal by the department to the High Court HELD dismissing the appeal:

The Tribunal has correctly referred to the fact that N.A. Mody 162 ITR 420 (Bom) followed Tribhuvandas G. Patel 115 ITR 95 and that the same has been reversed by the Apex Court in Tribhuvandas G. Patel 263 ITR 515. This Court in Prashant S. Joshi 324 ITR 154 (Bom) has also referred to the decision of Tribuvandas G. Patel rendered by this Court and its reversal by the Apex Court. Moreover, the decision of this Court in Prashant S. Joshi placed reliance upon the decision of the Supreme Court in CIT v/s. R. Lingamallu Rajkumar 247 ITR 801 wherein it has been held that amounts received on retirement by a partner is not subject to capital gains tax

Note: For the impact of s. 45(4) on retirement of partner/ dissolution of firm see the Full Bench decision in CIT vs. M/s Dynamic Enterprises (Kar)

Business expenditure - Bogus purchases - A. Y. 2001-02 - No rejection of books of account - Substantial amount of sales to Government Department - Confirmation letters filed by suppliers, copies of invoices of purchases as well as copies of bank statements indicating purchases were made - Non-appearance of suppliers before authorities is not a ground to hold purchases bogus - No addition could be made -

CIT vs. Nikunj Eximp Enterprises Pvt. Ltd.; 372 ITR 619 (Bom):

For the A. Y. 2001-02, the assessee declared a total income of Rs. 42.08 lakh. The Assessing Officer disallowed an expenditure of Rs. 1.33 crore on account of purchases from seven parties on the ground that they were not genuine. The Tribunal found that the assessee had filed the letters of confirmation of suppliers, copies of bank statements showing entries of payment through account payee cheques to the suppliers, copies of invoices for purchases and stock statement, i.e. stock reconciliation statement and no fault was found with regard to it.

Books of account of the assessee had not been rejected. The Tribunal deleted the disallowance holding that the purchases were not bogus.



On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Tribunal had deleted the additions made on account of bogus purchases not only on the basis of stock statement, i.e. reconciliation statement but also in view of other facts. The Tribunal recorded that the books of account of the assessee had not been rejected. Similarly, the sales had not been doubted and it was an admitted position that a substantial amount of sales had been made to the Government Department.

ii) Further, there were confirmation letters filed by the suppliers, copies of invoices of purchases as well as copies of bank statements all of which would indicate that the purchases were in fact made.

iii) Merely because the suppliers had not appeared before the Assessing Officer or the Commissioner (Appeals), one could not conclude the purchases were not made by the assessee. The order of the Tribunal was well reasoned order taking into account all the facts before concluding that the purchases of Rs. 1.33 crore were not bogus. No fault could be found with the order of the Tribunal.”

ARTICLE

Cash Payment > 20,000 for immoveable property can ‘not be made wef 01.06.2015

Existing Section 269SS provides that, subject to specified exceptions, a person shall not take or accept any loan or deposit from any other person otherwise than by the prescribed banking channels that is by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account so that the aggregate of loan or deposit from one person together with aggregate of existing loans and deposits from such person is R20,000/- or more. In simplified terms, cash loan or deposit from same person of R20,000/- or more is not allowable for the purpose of Section 269SS.

Contravention of the above provision attracts penalty under the provisions contained in Section 271D, which provides that the person shall be liable to pay by way of penalty a sum equal to amount taken or accepted in contravention of Section 269SS. The above provisions are not applicable inter alia in a case when the accepter of the loan or depositor as well as the person giving the loan or deposit have agricultural income and neither has any income chargeable to income tax.

NEW PROPOSAL

Now by the Finance Bill, 2015, it is proposed to expand this provision by adding the sums received in relation to transfer of immovable property whether as advance or otherwise and whether or not ultimately the contemplated transfer takes place or not. Read on to know more...

MEANING OF IMMOVABLE PROPERTY

The term used in the proposed amendment is “immovable property”, which has not been defined for the purpose of the Income-tax Act. The meaning assigned to the term “immovable property” in Section 269UA(d) is restricted for the purpose of Chapert XX-C only while the provisions of Section 269SS and 269T are contained in Chapter XXB.

Whether recourse is taken to the said Section 269UA(d) or the to the General Clauses Act, 1897, Transfer of Property Act, 1882 or to the Registration Act, 1908, in any case, the term immovable property would certainly include land, building and may include rights in land or building.



EFFECT OF NEW PROVISIONS

It is pertinent to recollect and co-ordinate here that the Finance Act, 2013 introduced a provision in Section 43CA whereby for the limited purpose of date of stamp valuation, the agreement for transfer of land or building or both not held as capital asset involving only cash consideration is disregarded till the agreement is registered that is to say that when the consideration is paid only in cash instead of date of agreement, the date of registration thereof is taken for stamp valuation.

The implication of the proposed amendment would be that a transaction in immovable property otherwise than by prescribed banking channel will attract harsh penalty under Section 271D to the transferor of immovable property being the recipient of money.

Section 269SS is being substituted by a newly drafted section 269SS. After enactment, the proposed new Section would become operative w.e.f. 01-06-2015.

On the same lines, Section 269T is being amended to provide that no repayment of any advance received in relation to a transfer of immovable property would be made except by the said prescribed banking channels, if such advance together with other specified sums in the section in aggregate on the date of payment is R 20,000/- or more.

Whether the transfer takes place or not is irrelevant. The specified sum being repaid might have been received by cheque or cash or any other mode is not relevant here as for the purpose of Section 269T the mode of repayment is only the relevant subject. Contravention of this provision would invite penal provisions of Section 271E making the person making such repayment liable to pay, a sum equal to advance so repaid. This amendment will also take effect from 01-06-2015.

LANGUAGE OF NEW PROPOSAL

Although amendments in both the Sections are made with the same intent and with reference to same subject manner, but it is observed that the new words being inserted in Section 269SS and 269T are not the same.

While 269SS introduces the key words “advance or otherwise” in relation to transfer

whereas Section 269T introduces the words “advance by whatever name called”.

Therefore, for the purpose of Section 269T, the specified sum is restricted to repayment of advance only as distinguished from the proposed amendment to Section 269SS whereby receipts whether as advance or otherwise are being prohibited. If the sum being repaid is not in the nature of advance then the provisions of Section 269T will not be attracted.

For example, a transaction in immovable property is executed and for some reasons the transaction is cancelled and money becomes repayable then whether the repayment is of the sum received earlier is of advance or not will be a question of fact and circumstances of the case.

PURPUSE OF NEW SECTION

The Explanatory Memorandum states that the amendments are proposed in order to curb generation of black money by way of dealings in cash in immovable property transactions. However, the writer submits that in reality the cash portion of the transaction is not accounted at all and therefore to that extent the proposed amendment will not have the desired effect. Further, under the existing provisions contained in Sections 50C and 43CA read with Section 56(2), the transactions in land or buildings or part thereof are taxed at stamp valuation or stated consideration, whichever is higher.



Therefore, in a transaction where the stated consideration is lower than the stamp valuation, the difference is already getting taxed and to an extent while Section 50C or Section 43CA invite taxation, the proposed provision attracts penalty.

WRITER'S VIEWS & CONCLUSION

The proposed amendments will certainly deter the transactions from being back dated by use of cash consideration. Hitherto, for the purchase of immovable property as an asset, any quantum of cash could be paid and repayment of advance for immovable property could be paid in cash without attracting any penal provisions under the income tax law. Now, for cash consideration or repayment in cash the penal provisions will get attracted. At the same time, cash consideration or repayment per se will not affect the validity of the transactions or will not affect the date of the transfer under the property laws concerning transfer or will not affect even the date of transfer under the provisions of the income tax law more particularly with reference to provisions contained in clauses (v) and (vi) of sub Section (47) of Section 2 of the Act.

The exact effects as well as limitations of the proposed amendment read with existing provisions may be visualised as follows:

• I Harsh penal provisions for taking or accepting specified sum or for repayment thereof;

• ii. Transaction would continue to be valid under the laws concerning properties as well as under the contract law;

• iii. The transaction would continue to be valid under the income tax law;

• iv. The date of transfer will remain unaffected by the proposed amendment as well as by the existing provisions of Section 43CA;

• v. The taxation of income out of such cash transaction except for the limited purpose of date of stamp valuation as provided in Section 43CA would also continue to be as before.

CA TARUN [email protected]

CIRCULAR NO 08/2015, Dated: May 14, 2015Subj: Procedure for response to Arrear demand By Taxpayer And Verification and Correction Demand by AOs-regarding.The CBDT vide Instruction No. 4 of 2014 dated 7th April 2014, inter-alia, prescribed Standard Operating Procedure for Verification and Correction of Demand available or uploaded by AOs in CPC Demand Portal. Further a facility has been made available to taxpayers on the E-filing website (www.incometaxidiaefiling.gov.in) to provide online responses to such demands. The actions required to be performed by the taxpayer and the AO are being consolidated in this circular as under:2. Action To be performed by Taxpayers I. Login to e-Filing website with User ID. Password, Date of Birth/ Date of incorporation and

Capicha II. Go to E-file menu and click on "Response to Outstanding Tax Demand". III. Following details would be displayed. - Assessment Year - Section Code



- Demand Identification Number (DIN)

- Date on which demand is raised

- Outstanding demand amount

- Uploaded By

- Rectification Rights

- Response- Submit and View

IV. Taxpayer must click on "Submit" link under Response column for the respective AY in order to submit the response. tAxpayer has to select one of the options from the radio button.

- Demand is correct

- Demand is partially correct

- Disagree with demand

V. If taxpayer selects "Demand is correct", than pop up is displayed as "If you confirm" Demand is correct then you cannot 'Disagree with the demand'. Click on "Submit" A success message is displayed.

- If any refund is due, the outstanding demand along with interest will be adjusted against the refund due.

- In any other case taxpayer has to immediately pay the demand.

VI. If taxpayer selects "Demand is partially correct", then "Amount which is correct" and " Amount which is incorrect" has to entered.

VII. If tapayer selects 'amount which is incorrect' then he should mandatorily fill one or more reasons for stating so as listed below:

- Demand has been already Paid -

. Demand paid and Challan has CIN (Challan Identification Number)

. Demand paid and Challan has no CIN

- Demand has already been reduced by rectification/revision

- Demand has already been reduced by Appellate Order but appear effect has to be given by Department

- Appeal has been filed and

. Stay petition has been filed with

. Stay has been granted by

. Instalment has been granted by

- Rectification / Revised Return has been filed at CPC

- Rectification has been filed with Assessing Officer

- Others



VIII. Based on the reasons selected, the taxpayer need to provide additional information as per the table given below.

BSR Code

Date of payment

Serial Number of challan

Amount

Remarks (any comments of taxpayer can be included)

Reason Selected Additional Detail Required

Demand paid and Challan has CIN

Demand paid and Challan has no CIN Date of payment Amount Remarks (any comments of taxpayer can be included) Upload copy of Challan

Date of Order Demand of AO who has rectified or revisedUpload Rectification / Giving appeal effect order passed by AO

Demand already reduced by rectification / Revision

Demand already reduced by Appellate Order but appeal effect to be given

Date of Order

Appellate Order passed by (details of CIT (A) etc)

Reference Number of Order

Appeal has been filed: Stay petition has been filed

Date of filing of appeal

Appeal Pending with (details of CIT (A) etc)

Stay petition filed with (details of office etc)

Appeal has been filed: Stay has been granted

Date of filling of appeal

Appeal Pending with

Stay granted by

Upload copy of Stay Order

Appeal has been filed Instalment has been granted

Date of filing of appeal

Appeal Pending with (details of CIT (A) etc)

Instalment granted by (details or office etc)

Upload copy of stay/instalment order

Rectification / Revised Return filed at CPC

Filing Type

e-Filed Acknowledgement No


Upload Challan Copy

Upload TDS Certificate

Upload Letter requesting rectification copy

Upload Indemnity Bond



Rectification filed with AO Date of application


Other Reasons Others (any comments of taxpayer can be included)

IX. If taxpayer selects "Disagree with the Demand" then taxpayer must furnish the details of disagreement along with reasons Details / Reasons are same as provided under "Demand is partially correct".

X. After the taxpayer submits the response the success screen would be displayed along with the Transaction ID.

XI. The taxpayers can click on 'View' link under Response column to view the response submitted. The following details are displayed:

. Serial Number

. Transaction ID

. Date of Response

. Response Type

(Note 1: Where the taxpayer has not registered on the Income Tax Department's e-filing website - www.incometaxindiaefiling.gov.in. he may do so to get details of outstanding demand and also to submit any response.

Note 2: Wherever the taxpayer finds it difficult to access income tAx Department Website, he or she may make necessary application to the Assessing Officer along with above referred details as applicable in this case.

Note 3: In case of individual taxpayers if CIN is not available or payment is made prior to the period of introduction of CIN, the taxpayer may submit the documents as referred in para 4.1 or 4.2)

3. Action on the Part of the Department

The Assessing Officer or CPC Bangalore after verification should reduce/remove/confirm the demand in appropriate cases as per procedure outlined in para 4 below and in accordance with earlier instructions issued by CBDT. However, following cases are to be verified on priority:

a) Taxpayer has furnished information in response to notice u/s 245 of the Act; or

b) Taxpayer has requested for reduction/removal of demand; or

c) Information regarding demand reduction/removal is available in Department Records; or

d) Details are already available in the system, such as additional TDS credits reported by Deductor in case of earlier TDS mismatch.

4. Handling Different Scenarios during Verification and Confirmation of Demand;

The Assessing Officer (AO) should handle different scenarios during verification and confirmation of demand in following manner:

4.1 Demand or tax has been paid:



(a) If the taxpayer's reply or Departmental records show that demand or tax has already been paid and challan (Challan identification number (CIN)) is available on the system.

I. The AO should reduce the demand by posting the challan or passing rectification order u/s 154 on the system.

II. If the demand is prior to 01/04/2010, the demand has to be reduced directly on the CPC-FAS system.

b) If CIN is not available or payment is made prior to the period of introduction of CIN, the reduction can be made only in case of Individuals and HUFs provided outstanding demand does not exceed Rs.1,00,000 for that AY. The AO should follow the steps as under:

i. The reduction can be made after obtaining of the document showing evidence of payment in form of taxpayer counterfoil or bank certificate or any communication from Department in respect of payment or adjustment of refund. In case where taxpayer is a senior citizen and taxpayer is not able to obtain bank certificate as the place of payment of tax is different from the current place of taxpayer, the AO should obtain the certificate from the bank directly.

ii. In case the outstanding demand is more than Rs.25000/- for that AY irrespective of the quantum of demand being reduced under paragraph 4.1 (b) i. above, the AO should obtain an indemnity bond (in the format given in Annexure A) from the taxpayer.

iii. Additionally, in case the demand being reduced under paragraph 4.1 (b).i. above exceeds Rs.50,000/- for that AY for the assessee, besides obtaining the indemnity bond, approval of Range Head should be taken on file before removing/reducing the demand.

iv. If the payment relates to mismatch of advance tax or self assessment tax, order u/s 154 of the Act needs to be passed.

4.2 Demand due to TDS Mismatch:

(a) If the taxpayer's reply or Departmental records show that the demand is an account of TDS mismatch and TDS credits are available in the system, the AO should follow steps as under:

i. The AO should reduce the demand by passing rectification order u/s 154 on the system after taking into account the TDS credits available on the system.

ii. If the demand is prior to 01/04/2010, the demand has to be reduced directly on the CPC-FAS system after rectification u/s 154.

(b) If the credits are not available in 26AS: The reduction can be done only in the cases of Individuals and HUFs. Further, the amount of reduction should not exceed Rs.1,00,000 for that AY and AO should take following steps.

I AO should pass order u/s 154 manually after obtaining the TDS certificate from the assessee ont he basis of which claim has been made.

ii. In case, the outstanding demand is more than Rs.25,000 for that AY, irrespective of the quantum of demand being reduced, the AO should obtain an indemnity bond (in the format given in Annexure A)

iii) Additionally, in case the demand being reduced under paragraph 4.2. (b)i above, exceeds Rs.50,000/- for that AY for the assessee, besides obtaining the indemnity bond, approval of Range Head should be taken or file before removing/reducing the demand.



4.3 Demand already reduced or action is pending: (a) If the taxpayer's reply or Departmental records show that demand has already been reduced by way of an order (rectification order, appeal effect order etc.), the demand has to be reduced directly on the CPC-FAS system.

(b) In case where rectification or giving effect order to reduce demand is pending, the same should be completed and revised demand should be reflected.

(c) It is also clarified that after taking action as per para 4.1 of 4.2, if any refund becomes due to the taxpayer, the same may also be issued.

Enclosure: as above(F.No.225/151/2014/ITA.II)

(Rohit Garg)Deputy Secretary to the Government of India

nnexure AFormat for Indemnity Bond (to be typed on non-judicial Stamp Paper of Rs. 100):



INDEMNITY BOND

This Bond of indemnity is made this _______________________ (Date of Indemnity Bond) in favour of Government of India (Department of Finance) i.e. Income Tax Department by Mr./Mrs/Ms _____________________________________________ (Name of the Indemnifier) Son of / Daughter of/ Wife of __________________ on behalf of self or

M/s _________________________

PAN __________________________

Status ____________________________

WHEREAS This is to undertake:

1. That I had filed my Income Tax Return for the Assessment Year ________________

2. That TDS claimed in the return of Rs. __________________ belongs to me as per TDS certificates mentioned below

Name of Deductor, TAN of deductor, Date of TDS certificate, Amount

a. _________________________________

b. _________________________________

OR

That Challan(s) paid Rs. ____________________ belongs to me as given below:

Date of Payment, Bank through which payment made, Amount

a. __________________________________

b. __________________________________

3. That in case it is found that the TDS certificates / Challan does not belong to me then the executor of this bond indemnity the Government of india (Ministry of Finance) for the loss, claim and excess amount of refund, if any, in all respect.

The executor of this bond indemnifies the government of India (Ministry of Finance) and keep it indemnified against all costs, damages, charges and expenses, excess amount of refund, interest, reduction in demand and also against all sum/money. Whether for damages, costs, charges, expenses or otherwise.

In witness where of this bond is executed today this __________________ .

(Date) (..................)

NELLORE BRANCH OF SIRC OF ICAI News …...NELLORE BRANCH OF SIRC OF ICAI News Letter@June 2015...

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