TAXATION AND ACCOUNTING - Bombay Chartered Accountants

TAXATION AND ACCOUNTING

– FEW IMPORTANT DEVELOPMENTS

BOMBAY CHARTERED ACCOUNTANTS SOCIETY

Wednesday, 17th October, 2012

Walchand Hirachand Hall,

Indian Merchants Chamber, Mumbai

Pradip N. Kapasi

Chartered Accountant

1

Synopsis

Pradip N. Kapasi


2

Purchases(URD)

S. 14A disallowance

Depreciation

Interest

Forex Contracts

Explanation to s. 37

S. 40(a)(ia) & TDS

S. 41(1) & Deemed income

S. 43 B & Actual payments

Shares, Share Capital and premium

Revised GN for real estate Revenue recognition

Purchases (URD) - 1

3

Assumed Facts Purchase of material

Bill of Registered Dealer for second sale

Payment by cheque

Material consumed/sold

Possible Developments Statement of vendor to Sales Tax Department

Disowning of sales by vendor

Demand for payment of sales tax on Purchaser

Payment of sales tax by assessee purchaser

Inquiry by DGIT

Pradip N. Kapasi


Purchases (URD) - 2

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Income tax Department’s actions Claim for purchases disallowed

Copy of statement of vendor furnished/ not furnished

Cross examination of vendor facilitated/ not facilitated

Evidence in support of purchases

Admission by assessee / Not admitted To buy Peace of mind ∙ Capitalization of income

Penalty

Prosecution

DGIT Report followed by AO Reopening of assessment

Purchases (URD) - 3

5

Law Applicable Claim for allowance of expenditure u/s. 37 Question of fact Decision based on evidence Primary onus on assessee to explain and furnish details A.O. to observe natural justice

Furnish copies of material Produce his witness for examination

Onus shifts to AO on explanation by assessee Daya Chand Jain Vaidya, 98 ITR 280 (All.)

A.O. to form his own opinion by examining party and evidences

Relevance of s.69C and its Explanation

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Purchases (URD) - 4

Supporting Evidences Invoice

Transport Receipts

Stock Records

Confirmation,

Affidavit

I.T. Details of vendors

Payment Details

Bank Statement

Consumption records Sales Records

Excise records

Comparables – yield, GP Rate, etc.

Books of Accounts

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Purchases (URD) - 5

Copy of statement /material to be furnished C. Vasantlal and Co, 45 ITR 206 (SC)

Opportunity to cross examine M. Pirai Choodi, 334 ITR 262 (SC)

Issue of summons to vendors Brij Pal Sharma, 333 ITR 229 (P&H)

Summons returned unserved Hi Lux Automotive (P.) Ltd, 183 Taxman 260 (Del.)

Jewel Emporium, ITA No. 402 to 404/JP/2003

Rajesh P. Soni, 100 TTJ 892 (Ahd.)

Purchases (URD)- 6

8

Action of Sales Tax Department Permanand, 107 TTJ 395 (Jodh.)

Payments by cheques & confirmation & supportings produced Sutlej Cotton Mills Ltd, 96 Taxman 29 (Del.)(Mag.)

Kashmir Industry Palace , 99 Taxman 323 (Chd.)

Devanbabu Pvt. Ltd, 36 TTJ 664 (Ahd.)

Hindustan Times Ltd, 33 ITD 427 (Del.)

Parasmani Investment (P.) Ltd, 85 ITD 133 (Kol.) (TM )

A.O.’s duty when material produced Genesis Commet P. Ltd, 163 Taxman 482 (Del.)

AO to inquire with AO & Bank of vendor Hi Lux Automotive (P.) Ltd, 183 Taxman 260 (Del.)

Dataware Pvt Ltd, itatonline.org,(Cal.)(HC)

YFC Projects (P.) Ltd, 37 SOT 130 (Del.)(Trib.)

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Material produced – party not produced Genesis Commet P. Ltd, 163 Taxman 482 (Del.)

Sole reliance on third party’s statement not tenable Dr. R.L. Narang 174 Taxman 96 (Mag.)(Chd.)

Addition on basis of loose papers found N. Swamy, 241 ITR 363 (Mad.)

P.N. Kalyanasundaram, 294 ITR 49 (SC)

Stock records Free India Assurance Services Ltd, 132 ITD 60 (Mum.)

Accommodation purchases Free India Assurance Services Ltd, 132 ITD 60 (Mum.)

Purchases (URD) - 7

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S.40A(3) and Accommodation purchase Free India Assurance Services Ltd, 147 TTJ 423 (Mum.)

Rajmal Lakhichand, 74 TTJ 429 (Pune)

Western India Bakers (P.) Ltd, 87 ITD 607 (Mum.)

Books of account not rejected Girnar Construction Co., 261 ITR 463 (Raj.)

Corresponding sales

Unpaid Purchases Mathura Das Ashok Kumar , 101 TTJ 810 (All.)

Comparable yield & Rate of G/P

Presumptive /Presumed/Estimated income Banwari Lal Banshidhar, 229 ITR 229 (All.)

Purchases (URD) - 8

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Purchases (URD) - 9

Due weightage to credibility of parties

Peak theory

Vijay Proteins Ltd, 58 ITD 428 (Ahd.) Re-opening

Vendor/STax Dept/DGIT/ED/Survey/Search/Audit objection SFIL Broking Ltd, 325 ITR 285 (Del.)

Ranee Singh, 125 TTJ 816 (Del.)

Paramjit Kaur, 311 ITR 38(P&H)

S.14A and Rule 8D - 1 12

Direct interest to be excluded in computation u/r. 8D(2)(ii) Champion Commercial Co. Ltd, (Kol.), itatonline.org

DTAA and disallowance State Bank of Mauritius, 25 taxmann.com 555 (Mum.)

Chapter VI-A deduction and disallowance Kribhco Ltd, 75 DTR 265 (Delhi)

Possibility of taxable capital gains Avshesh Mercnaitle (P.) Ltd, 44-A BCAJ 697

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S.14A and Rule 8D - 2

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Stock in trade CCI Ltd, 206 Taxman 563 (Karn.)

Esquire Private Ltd, itatonline.org, (Mum) (Trib.)

American Express Bank Ltd, itatonline.org (Mum)(Trib.)

Presumed income/estimated income Varun Shipping Co. Ltd, 134 ITD 339 (Mum.)

Depreciation Vishnu Anant Mahajan, 137 ITD 189 (Ahd.)(SB)

Fund Management Fees Noble Enclave & Towers (P.) Ltd, 50 SOT 5 (Kol.)

Not applicable for MAT Spray Engineering Devices Ltd, 53 SOT 70 (Chd.)

Pradip N. Kapasi


S.14A and Rule 8D - 3

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Share in profits of firm in a relevant year Delite Enterprises , itatonline.org (Bom.)

Ceiling on Disallowance Gillete Group India (P.) Ltd, 16 ITR (Trib.) 57 (Delhi)

JNJ Holdings Pvt. Ltd, BCAJ Aug. 2012, Pg. 36 (Mum.)

Claim – No expenditure incurred and A.O.’s satisfaction Justice Sam P Bharucha, itatonline.org (Mum.-ITAT)

Auchtel Products Ltd., 52 SOT 39 (Mum.) (URO)

Pawan Kumar Parmeshwarlal , itatonline.org (Mum.- ITAT)

Ad-hoc disallowance BNP Paribas SA, 137 ITD 322 (Mum.)

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Depreciation - 1 15

Goodwill, Business Information, Contracts, Franchise

Smifs Securities Ltd, 24 taxmann.com 222 (SC)

Areva T &D India Ltd, 345 ITR 421 (Delhi)

Weizmann Forex Ltd, 51 SOT 525 (Mum.)

Non compete fees

Serum Institute of India Ltd, 147 TTJ 594 (Pune)

GE Plastics India Ltd (Ahd.), itatonline.org

BSE rights on demutualization Sino Securities (P.) Ltd, 134 ITD 321 (Mum.)

Sunidhi Consultancy Services Ltd, 50 SOT 223 (Mum.)

Website an intangible asset Makemytrip (India) (P.) Ltd, 51 SOT 19 (Delhi)

Pradip N. Kapasi


Depreciation - 2

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Lease

Operating & Finance Lease IndusInd Bank Ltd, 135 ITD 165 (Mum.)(SB)

Lessee’s claim Mather & Platt (I.) Ltd, 25 taxmann.com 505 (Bom.)

Lessor’s claim Tata Robins Fraser Ltd, 26 taxmann.com 15 (Jharkhand)

Use by lessee Sundaram Finance Ltd, 67 DTR 117 (Mad.)

Depreciation - 3

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Capital expenditure of a charitable entity

Vishwa Jagriti Mission, Sept. 2012 IT Review 83 (Delhi)

Passive use and discontinuity

Oswal Agro Mills Ltd, 341 ITR 467 (Delhi)

Effect of waiver of loan on WDV Expl.10 to s. 43(1)

Steel Authority of India Ltd, 206 Taxman 574 (Delhi)

Terminal Depreciation

Rajeshwari Foundations, 24 taxmann.com 118 (Chennai.)

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Depreciation - 4

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S.50 Gains/Losses Set-off of b/f business loss

Nandi Steels, 143 TTJ 521 (Bang.)(SB)

Lavish Apartment (P.) Ltd,23 taxmann.com 414 (Delhi)

Set-off against Business Income

Unabsorbed additional depreciation Use for less than 182 days

Claim for balance 50% in following year Cosmo Films Ltd, 24 taxmann.com 189 (Delhi)

Life of unabsorbed depreciation Amendment of 2001

Times Guaranty Ltd, 40 SOT 14 (Mum.)(SB)

General Motors India (P.) Ltd, 25 taxmann.com 364 (Guj.)

Interest

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Interest free loan to subsidiary

Tulip Star , 21 taxmann.com 97 (SC)

Interest component in OTS payment

Akay Organics Ltd, itatonline.org (Bom)

On borrowings for asset not put to use

Vardhman Polytex Ltd, 25 taxmann.com 281 (SC)

On convertible Debentures

UAG Builders (P.) Ltd, 25 taxmann.com 205 (Delhi)

Receipt of premium on Debentures

Rakesh Shantilal Mardia , itatonline.org (SC)

Date of accrual for Government Securities

Credit Suisse First Boston , 114 (5) BLR 2783 (Bom.)

Construction period and Proviso to s. 36(1)(iii)

NTPC Sail Power Co. Ltd, itatonline.org (Delhi)

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Exchange Fluctuation I

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Currency translations – year end

Maruti Udyog Ltd., 320 ITR 729 (SC)

Woodward Governor , 312 ITR 254 (SC)

Forex forward contracts

Open ended

Nature of loss

Speculation –s.43(5) & Explanation to s. 73

Shares, stocks, scrips, Commodities Munjal Showa, 99 TTJ 227 (Delhi)

ANZ Grindlays Bank, 88 ITD 53 (Delhi)

Hedging

Cir. No. 23D dt. 12.09.1960

Applicability of Explanation to S.73

Apollo Tyres Ltd. 255 ITR 273 (SC)

Cir. No. 3 of 2010 dt. 23.3.2010

Pradip N. Kapasi


Exchange Fluctuation -II

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In the course of business; Safeguard against fluctuation

Backed by actual transactions in trade

Trade necessity

Not a dealer in derivatives

Soorajmull Nagarmull, 129 ITR 169 (Cal)

Badridas Gauridu, 261 ITR 256 (Bom)

Bank of Baharain & Kuwait (Mum)(SB)

D. Kishore Kumar & Co., 2 SOT 769 (Mum)

Intergold (I) Ltd., 27 SOT 239 (Mum)

Amortised losses ICAI & NACAS

Nature of losses , Elecon Engineering, 322 ITR 20(SC) Swap cost , IFCI Ltd. , 66 DTR 490 (Delhi)

The Siam Comm. Bank Ltd. , 142 TTJ 235(Mum.)

Explanation to s.37(1) 22

Circular No. 5/2012 dt.01.08.2012 of CBDT 346 ITR 95 (St.)

Commission to doctors KAP Scan & Diagnostic Centre (P.) Ltd, 344 ITR 476 (P&H)

Pt. Vishwanath Sharma, 316 ITR 419 (All.)

Kickbacks J.K. Panthaki & Co, 344 ITR 329 (Karn.)

Rajrani Exports Pvt. Ltd, 52 SOT 168 (Kol.)

Ransom/Protection money Khemchand Motilal Jain Tobacco Products Ltd. 340 ITR 99 (MP)

Swaminathan , 198 Taxman 140 (Karn.) (Mag.)

Neelavathi, 322 ITR 643 (Karn.)

Protection money & hafta Pranav Construction Co, 96 Taxman 323 (Mum.)(Mag.)

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Explanation to s. 37(1) - 2

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Traffic Rules Kranti Road Transport , 50 SOT 15 (Vishakha)

Penalty to SE’s Prasad & Co, 341 ITR 480 (Delhi)

Regularisation fees by Developer

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S. 40(a) and TDS - 1

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Effect of Expl. 4 to s.9(1)(vi) by FA, 2012 on s.194J Sonata Information Technology, 25 taxmann.com 125 (Mum.)

Effect of retrospective amendment Channel Guide India Ltd, 25 taxmann.com 25 (Mum.)

Proviso for extension of time for payment; retrospective M/s.Virgin Creations, itatonline.org (Cal.)

Bharti Shipyard Ltd, 132 ITD 53 (Mum.)(SB)

Rajamahendri Shipping & Oil Field, 51 SOT 242 (Vishakha)(SB)

Paid’ and ‘Payable’ Merilyn Shipping & Transports , 146 TTJ 1 (SB) (Vishakha)

Claim for deduction only in Return of Income Pranik Shipping & Services Ltd, 135 ITD 233 (Mum.)

No deduction for want of TAN of payee Inderprasad Mathurlal, 43-A, BCAJ 709 (Jp.)

Pradip N. Kapasi


S. 40(a) and TDS - 2

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Nil TDS Certificate from payee

Underwater Services Co, 25 taxmann.com 216 (Mum.)

Receipt of Form 15G/15H Vipin P. Mehta, ITA No. 3317/M/2010 (Mum.)

Short deduction under different provision Chandabhoy & Jassobhoy, 49 SOT 448 (Mum.)

EGS Survey P.Ltd , ITax Review , Sept. 2012, 90(Mum.)

Premier Medical Supplies & Stores , 53 SOT 263 (Kol.)

Reimbursement of Expenses without TDS Minpro Industries Ltd, 65 DTR 113 (Jd.)

Sharma Kajaria & Co, 145 TTJ 1 (Kol.)

Court’s order – payment of interest Akber Abdul Ali , 146 TTJ 57 (Mum.)(UO)

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S. 40(a) and TDS - 3 26

Award- Accident claim Geeta Jethani, 25 taxmann.com 23 (NCDRC)

Commission payment on exempt income E.V. Mathai & Sons , 72 DTR 163 (Ker.)(HC)

Baba Farid Vidyak Society, 43-A BCAJ 34 (Asr.)

Credit Card company’s retention Vah Magna Retail Pvt. Ltd, July 2012 BCAJ 56 (Hyd.)

Discount and commission Ahmedabad Stamp Vendors Association (SC), itatonline.org

Non compliance for A.Y. 2007-08 not condoned DIGC Ltd, 14 ITR(Trib) 194 (Mum.)

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S. 41(1) – Deemed Income 27

Waiver of loan for capital asset Xylon Holdings Pvt. Ltd, itatonline.org (Bom.)

Solid Containers Ltd, 308 ITR 417 (Bom.)

Mahindra & Mahindra Ltd, 261 ITR 501 (Bom.)

Contingent deposits from customers Sundaram Finance Ltd, itatonline.org (SC)

One time payment of sales tax Deferral loan Sulzer India Ltd, 42 SOT 457(Mum.)(SB)

Depreciation allowed in past and s.41(1)

Pradip N. Kapasi


S.43B –Actual Payments

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Provision for leave encashment

Hindustan Latex, 209 Taxman 42 (Kerala)

Employee’s contribution and s. 43B

KPMG India (P.) Ltd, 17 ITR (Trib) 569 (Mum.)

Interest on unpaid purchase price

MTZ Poly Films Ltd, 43B BCAJ 654 (Mum.)

Effect on DTAA

State Bank of Mauritius, 25 taxmann.com 555 (Mum.)

Excise duty on finished goods held in stock in trade

Dynavision Ltd, itatonline.org (SC)

Pradip N. Kapasi


Receipt of shares by Firm & CHC- s.56(2)(viia) - 1

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Receipt of shares of a non s. 2(18) company

By ‘firm’ and ‘company’ recipients s. 2(18) company excluded

LLP included

With/out consideration > Rs. 50,000, whole

FMV as per Rules 11U & 11UA

By or From –Resident or not

Substantive not clarificatory

Shares Preference shares included – CD not included

Rights not included - Shares of subsidiaries

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Receipt of shares by CHC -2 30

Exclusion for transfers s. 47(via),(vic),(vicb),(vid),(vii) Amalgamation, demerger, co-op. bank succession

No exclusions Similar to s. 56(2)(vii) – Relative, etc.

For stock-in-trade

For shares of foreign companies

For other exempted transfers

For deemed transfers

Adjustment in purchase cost

W.e.f. 01.06.2010

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Receipt of shares by CHC - 3 31

COA in hands of recipient – s.49(4) ‘Subjected to tax’ u/s 56(2)(vii) & (viia)

Value that is ‘taken into account’

COA in cases where FMV < Rs. 50,000

S. 49(4) and s. 49(1)

Period of holding and s. 2(42A)

Business receipts

Receipts on distribution

On credit by payer

Deductions admissible

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Receipt of ‘premium’ by CHC - s.56(2)(viib)

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Issue of shares by closely held company, A.Y. 2013-14

Receipt’ by a ‘CHC’ from a ‘resident’

Consideration for ‘issue’ of ‘shares’ Where exceeds face value

Tax on excess over FMV of shares -Rs.50,000

FMV as per prescribed method or satisfaction of A.O.

Exemption for issue by VCC, VCF and VCU

Non resident, R&NOR

Preference shares/ Bonus/Right entitle/Right/CD/ESOP/ESOS

Income of the company

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Share Capital and s.68- Amendments

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Law of cash credits up to A.Y. 2012-13

Provisions. Essentials. Case Laws. Normal Rate

Three Amendments of FA, 2012- w.e.f. A.Y. 2013-14

Expanding and extending onus for certain receipts

Share capital. Share premium. Like receipts

From resident

Closely held company –’CHC’

VCC & VCF excluded

Onus to explain sources of source of receipt

Payer to offer explanation- nature & source

Satisfaction of AO

On notice by AO to Payer

Relevance of satisfaction of Payer’s AO

Consequence

Income of CHC

Tax at 30% u/s 115BBE

Absence of discretion

Share Capital and s.68 - Issues

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Receipt of such amount by whatever name called Preference Shares. CD. Mergers.

Para IX. Rights. Sweat-Equity

Credit in share capital account

R& NOR, change of status

Conversion of loan into equity

Expenditure for issue of capital

Set-off of losses

Motivation of payer

Dual taxation

Year of taxation

Revised (2012) Guidance Note

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The CA Journal, March 2012, Pg 140

Effective date

Projects commencing on or after 1.4.12 or

Projects where revenue recognized for first time on or after 1.4.12

PCM (%) when to be applied [Para5.1(a) to (d)]

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More than 12 months/ accounting period

Features common to construction contracts

Individual units to different buyers with common amenities

Construction activity- significant part of project

Eligible contract = where 10% of Agreement value realized

PCM only when reliable outcome measurable [Para 5.2(a) to (d) & 5.3(a)]

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Estimate of project revenue

Probable economic benefits

Project cost

Stage of completion

Actual project cost incurred

Further conditions Critical approvals obtained

Environmental and other clearances Approval of plans, designs, etc Title to land and rights to development Change in land use

Cumulative condition for Revenue Recognition (RR) [Para 5.3(b) to (d)]

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Stage of completion 25% of estimated C&D cost incurred excl. land cost

Option to adopt suitable criteria Revenue not to exceed standard revenue

Stage of sales 25% of saleable project area sold under executed agreement

Stage of realization 10% of total of agreement value

Method to be adopted for GRR

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Step -1: Ascertain value of sale agreements executed

Step -2: Determine actual project cost incurred incl. land cost

Step-3: Estimate total project cost incurred incl. land cost

Step-4: Step 1 * Step 2/Step 3

Method to be adopted for cost of GRR

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Step -1: Determine area sold

Step -2: Determine total project area

Step- 3: Ascertain project cost incurred (incl. land cost) till date

Step -4: Step 1/ Step 2* Step 3

Method to be adopted for GP of the project GRR – cost of GRR

Method for WIP

Project cost incurred (incl. land cost) – proportionate cost of GRR

Pradip N. Kapasi

Chartered Accountant 41

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TAXATION AND ACCOUNTING - Bombay Chartered Accountants

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