Recent Important Judgements On Disallowance u/s 14A And Rule 8D

 

Dear Subscriber,

 

Recent Important Judgements On Disallowance u/s 14A And Rule 8D

Section 14A and Rule 8D, which disallow expenditure incurred in respect of tax-free income, have been a major bone of contention between the taxpayers and the income-tax department. There are a number of conflicting judgements on the issue. The author has carefully analyzed all the recent important judgements on the issue, identified their core ratio, and provided valuable guidance on the present state of the law.

 

A pdf copy of the article is available for download. 

 

 Regards,

 

Editor,

 

itatonline.org

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Latest: 

DIT (E) vs. Ahmedabad Management Association (Gujarat High Court)

Proviso to s. 2(15) which denies exemption to a charitable institution carrying on commercial activities does not apply to institutions carrying out relief to the poor, education or medical relief but applies only to those carrying out "advancement of any other object of general public utility"

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 Dear Subscriber,

Monthly (March 2014) + Consolidated (Jan to March 2014) Digest Of Imp Case Laws

The monthly digest of important case laws for the month of March 2014 and the consolidated digest for the period from January to March 2014 are available for download. 

In addition, the consolidated digest for the period from January 2013 to November 2013 as well as the consolidated digest for the period from January 2012 to December 2012 are also available for download. 


Highlights of the Digests:


- Arranged section-wise


- Contains only the Most Important judgements from several journals such as BCAJ, CTR, DTR, ITD, ITR, ITR (Trib), Income Tax Review, SOT, Taxman, Taxation, TLR, TTJ, BCAJ, ACAJ, www.itatonline.org


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Editor, 

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Latest:  

Smita Conductors Ltd vs. DCIT (ITAT Mumbai)

S. 50/ 112: Though gains on depreciable assets held for more than 3 years have to be treated as STCG u/s 50, the gains have to be taxed at the rate applicable to a LTCG

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ITAT Explains Law On Penalty For S. 269SS/ 269T Contravention

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

Lodha Builders Pvt Ltd vs. ACIT (ITAT Mumbai)

Though accepting/ repaying loans/ advances via journal entries contravenes s. 269SS & 269T, penalty cannot be levied if the transactions are bona fide & genuine. The time limit for penalty u/s 271D & 271E is governed by s. 275(1)(c) & not 275(1)(a)

The AO passed an assessment order dated 5.12.2011 in which he took the view that the act of the assessee of accepting and repaying loans and advances by way of journal entries was in contravention of s. 269SS & 269T of the Act as the said transactions were "not by way of account-payee cheque or demand draft". The Addl CIT thereafter passed a penalty order dated 28.9.2012 by which he levied penalty u/s 271D and 271E for contravention of s. 269SS & 269T. Before the Tribunal the assessee argued (i) that the said penalty order was beyond the limitation period set out in s. 271(1)(c) and (ii) that the passing of journal entries did not attract the prohibition in s. 269SS & 269T. HELD by the Tribunal allowing the appeal:

(i) The time limit in s. 275(1)(a) covers those cases where the penalty proceedings are in respect of a default related to principal assessment for a particular assessment year and the penalty proceedings are required to be initiated in the course of that proceedings only. The time limit in s. 275(1)(c) applies to case where the penalty proceedings are independent and not directly linked to the assessment proceedings. The time limit for penalty u/s 271D/ 271E for contravention of S. 269SS & 269T falls under s. 275(1)(c) (Hissaria Bros 291 ITR 244 (Raj), Jitendra Singh Rathore 352 ITR 327 (Raj), Worldwide Township Projects (Del) & Dipak Kantilal Takvani 39 TM.com 53 (Raj) (TM) followed);

(ii) The acceptance and repayment of loans vide journal entries attracts s. 269SS & 269T as held in Triumph International 345 ITR 370 (Bom). However, in that case penalty u/s 271E was deleted on the basis that there was "reasonable cause" u/s 273B as the transactions were bona fide and genuine and did not involve unaccounted money. On facts, there is no finding by the AO that the transactions constitute unaccounted money or that they are not bona fide or not genuine. The assessee's explanation for the journal entries, viz that they are alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies/MIS purpose, consolidation of family member debts, correction of errors, etc are commercial in nature and not non-business. Also, what is the point in issuing hundreds of account payee cheques / account payee bank drafts between sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? Journal entries should enjoy equal immunity on par with account payee cheques or bank drafts provided the transactions are for business purposes and do not involve unaccounted money and are genuine. In fact, such journal entries shall save large number of cheque books for the banks. There is consequently reasonable cause to delete the penalty.

Regards,

 

Editor,

 

itatonline.org

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Latest:

CIT vs. WorldWide Township Projects Ltd (Delhi High Court)

Bar in S. 269SS/ 269T does not apply to loans/ advances accepted/ repaid via journal entries. Limitation period for s. 271D penalty is as per s, 275(1)(c) & not 275(1)(a)

Recent IT Amendments with respect to Income Tax Returns

Dear Sir/Madam,

 

 

Kindly note the major changes in Income Tax Returns this year are as under:

1. All taxpayers filing E-Returns will have to compulsorily update correct mobile number and E- Mail ID's. Otherwise there will be login issues before uploading of return on income tax Depts Website.

2. Now onwards Income Tax Refund will be issued directly in the bank account of the taxpayer through ECS only, cheques are discontinued. Therefore at most care should be taken while mentioning Bank Account Number and IFSC Code in the income tax returns.

3. From this year while claiming TDS in Income Tax return facility has been given to carry forward the TDS of previous year and brought forward TDS to next year. Due to this reconciliation of TDS claimed on Income and total available TDS as per Form 26 can be made. Tax payers which follow cash system of accounting will be benefited, like Doctors, Advocates, CAs and other professionals.

4. As per newly inserted Section 87A if annual income of the taxpayer is up to Rs. 5,00,000/- then Tax relief of maximum of Rs. 2,000/- is given. For claiming this relief separate space has been inserted in the return.

5. As per newly inserted Section 80EE if taxpayer has purchased house up to Rs. 40 Lakh and taken housing loan of Rs. 25 Lakh then taxpayer can claim deduction of interest up to Rs. 1 Lakh. For claiming this deduction separate space has been inserted in the return.

6. If income of the taxpayer is more than Rs. 1 crore then surcharge of 10% is applicable. For this separate space has been inserted in the return.

7. All salaries taxpayers will now have to give now separate details of LTA (Leave Travel Allowance) and HRA (House Rent Allowance) and other allowances separately. This will help Govt. to track proper claim of such deductions, recent HRA and LTA fallacious claimed by some MPs and Govt. taxpayers may have forced for such changes.

8. From this year the details of short and long term capital gain will have to be given in three parts viz.

a) sale of plot / flat

b) sale of STT paid shares and mutual funds

c) sale of other assets.

Further in case of sale of land or building Stamp Duty Value will have to be mentioned. Further if taxpayer is availing exemption under capital gains then value of newly purchased asset, date of acquisition of the asset and if invested in capital gain account then its details will have to be mentioned.

9. Corporate or LLP assessee will have to mention Corporate Identification Number or LLP Identification Number. Further Director or Designated Partner Identification Number will have to be mentioned. This will help in cross check of information with other legal departments by income tax dept or visa a versa.

10. If assessee carrying on business is taking deduction of bad debts of more than Rs. 1 Lakh of single person, then his PAN will have to be mentioned.

11. As per newly inserted section 43 CA if, taxpayer have sold other than capital assets below stamp duty value (eg. builders / developers) then the difference between the two will be considered as deemed income of the assessee and tax will have to be paid on it. For this separate space has been inserted in the return.

12. If there is more than one owner of the house then, while mentioning details in the schedule of Income from House Property the percentage of co ownership will have to be given.

13. From this year e-filing of wealth tax return is compulsory and in this return the details of all wealth whether taxable or not, will have to be given in depth.

CBDT allows usage of one mobile number and email-id for 10 user accounts in e-filing portal

 

July 4, 2014

UPDATE AND VALIDATE TAXPAYER EMAIL ID AND MOBILE NUMBER FOR THEIR E-FILING ACCOUNT

PRESS RELEASE, DATED 4-7-2014

A valid Email ID and Mobile Number has to be registered/updated on the e-filing website of the Income Tax Department so that direct communication with taxpayer can be possible. For details, taxpayers can logon to: https://incometaxindiaefiling.gov.in/eFiling/Portal/StaticPDF/Update_Contact_Details.pdf)

The Department will send separate One Time Passwords (OTP) also referred as PIN on the mobile and email provided by the taxpayer. The OTPs have to be entered by the taxpayer after logging into their e-filing account to authenticate the same. The OTPs will remain valid for 24 hours within which the taxpayer has to complete the process. For 'Foreign/ NRI' taxpayers, the OTP validation of the email ID would be sufficient.

Validation of email and mobile numbers has been introduced to facilitate taxpayers as in many cases incorrect emails and mobile numbers have been provided and taxpayers did not receive important communication from the Department. Further, it has been observed that in many cases taxpayers are not able to reset their password since the new temporary password from the Department may be sent to their registered email which may be different from the taxpayer's personal email, e.g. email of their intermediary.

This is a one-time process to validate the mobile number and email ID. However, whenever the taxpayer changes the Mobile Number or email ID in their Profile, the process will be repeated to ensure that the particulars provided are correct. Further, this validation will ensure that Department can send an OTP for resetting the password used for Login in case the taxpayer has forgotten the password.

One mobile number or email ID can be used for a maximum of 10 user accounts as the Primary Contact- Mobile Number and Email ID in e-Filing. This is to ensure that family members and related business concerns (not exceeding 10 separate users) not having personal email or mobile can be covered under a common email or mobile, but in general taxpayers should have their own unique email ID and Mobile registered with the Department.

The taxpayer can enter any other person's email or mobile number in addition, as a Secondary Contact (without any restriction on the number of user accounts linked as a Secondary Contact). Using "Profile Settings → My Profile" the taxpayer can select to include the Secondary Contact to also receive emails, alerts etc.

It is advised that the emails and SMS from the Income tax Department may be included in the 'safe list' or 'white list' to prevent the communications from the Department from being blocked or rejected or sent to Spam folder. Taxpayers are also advised not to share their user-id and password of their e-filing account with others to prevent un-authorized access. Taxpayers can reset their password using the 'Forgot Password?' link while logging in to their e-filing account and by providing the necessary details.

The Department requests the cooperation of all taxpayers for completing this validation process at the earliest for a smooth and convenient return filing process.

 

Thanks & Regards,     

CA AMRESH VASHISHT, FCA, LLB, DISA (ICAI)

Member,ICAI- Regional Research Committee 2013-14
Member,ICAI- Committee For DIRECT TAXES 2011-12

1 1 5, Chappel Street, Meerut Cantt, UP, INDIA.

 Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2.

 http://in.groups.yahoo.com/group/ICAI_CIRC_MEERUT_CA

No Section 269SS/ 269T Contravention For Loans/ Advances By Journal Entries

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

 

CIT vs. WorldWide Township Projects Ltd (Delhi High Court)

Bar in S. 269SS/ 269T does not apply to loans/ advances accepted/ repaid via journal entries. Limitation period for s. 271D penalty is as per s, 275(1)(c) & not 275(1)(a)

PACL India Ltd purchased lands on behalf of assessee from several land owners. PACL made payments through demand drafts to the said land owners. The assessee showed the land in its books and the amount as being due to PACL. The AO passed an assessment order dated 30.12.2009 in which he held that the transaction amounted to a loan from PACL to the assessee which contravened s. 269SS/ 269T as it was not be 'account payee' cheque. A penalty order u/s 271D dated 10.03.2012 was passed for the said contravention. The said penalty was deleted on the ground that the penalty order was barred by limitation and also that s. 269SS did not apply to journal entries. On appeal by the department to the High Court HELD dismissing the appeal:

(i) Penalty u/s 269SS is independent of the assessment. The action inviting imposition of penalty is granting of loans above the prescribed limit otherwise than through banking channels and as such infringement of s. 269SS is not related to the income that may be assessed or finally adjudicated. Accordingly, the time limit in s. 275(1)(a) would not be applicable. The time limit in s. 275(1)(c) is applicable (Hissaria Bros 291 ITR 244 (Raj) followed);

(ii) On merits, no offence u/s 269SS is made out. S. 269SS applies to a transaction where a deposit or a loan is accepted by an assessee, otherwise than by an account payee cheque or an account payee draft. The section is restricted to transactions involving acceptance of money and not intended to affect cases where a debt or a liability arises on account of book entries. The object of the section is to prevent transactions in currency. This is also clearly explicit from clause (iii) of the explanation to s. 269SS which defines loan or deposit to mean "loan or deposit of money". The liability recorded in the books of accounts by way of journal entries, i.e. crediting the account of a party to whom monies are payable or debiting the account of a party from whom monies are receivable in the books of accounts, is clearly outside the ambit of s. 269SS because passing such entries does not involve acceptance of any loan or deposit of money (Noida Toll Bridge Co Ltd 262 ITR 260 (Del) followed).

Note: In Triumph International 345 ITR 370 (Bom) it was held that s. 269SS/ 269T applies to journal entries though s. 271D penalty was deleted on the grounds of bona fides

 

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

Aravali Polymers LLP vs. JCIT (ITAT Kolkata)

S. 47(xiiib)/ 47A(4): Giving of interest-free loans to partners of the LLP does not contravene Proviso (c), though it contravenes Proviso (f), to s. 47(xiiib). Capital gains have to be computed on the book value of assets transferred & not on market value

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Section 47(xiiib)/ 47A(4): ITAT Explains Imp Law On Implications Of Conversion To LLP

 

Dear Subscriber,

 

The following important judgement is available for download at itatonline.org.

 

Aravali Polymers LLP vs. JCIT (ITAT Kolkata)

S. 47(xiiib)/ 47A(4): Giving of interest-free loans to partners of the LLP does not contravene Proviso (c), though it contravenes Proviso (f), to s. 47(xiiib). Capital gains have to be computed on the book value of assets transferred & not on market value

A private limited company namely Aravali Polymers Pvt. Ltd was converted into a Limited Liability Partnership (LLP) u/s 56 of the Companies Act and the assessee, Aravali Polymers LLP, came into existence. As per s. 58(4) of the Companies Act, the whole of the undertaking of the company stood transferred to and vested in the LLP and the company was deemed to be dissolved. One of the main assets in the company was shares of East India Hotels Ltd. The assessee also received Reserves and Surplus of Rs.3 crore of the company. The assessee gave an amount of Rs.50 crores as interest- free loan to the partners of the LLP in the same proportion as their shareholding in the company on the date of conversion. After the conversion of the company into the LLP, the said shares were sold. The resultant capital gains were offered to tax as long-term capital gains. The assessee claimed that the transfer of the assets by the company to the LLP was exempt u/s 47(xiiib). The AO held that by giving interest-free loans to the partners in the same proportion as their shareholding in the company on the date of conversion, the assessee had contravened proviso (c) & (f) to s. 47(xiiib) and that the exemption granted by s. 47(xiiib) was not available. He held that u/s 47A(4), the transfer of the said shares of EIH by the company to the LLP on conversion was assessable to tax on the basis of the market value of the shares on the date of conversion into the LLP. This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD.

(i) Proviso (c) to s. 47 (xiiib) bars the shareholders of the company from receiving any consideration or benefit in any form or manner other than by way of a share in the profit and capital contribution in the LLP. This means that both the company and the LLP must exist for the shareholders of the company to receive any consideration. As, in the present case, the company does not exist after conversion, the question of a violation of Proviso (c) to s. 47(xiiib) does not arise;

(ii) As regards proviso (f) to s. 47(xiiib), it bars payment either directly or indirectly to any partner out of the accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. Here, the loans given by the assessee to its partners has been paid out of the Reserves and Surplus of the erstwhile Company. This is a clear violation of proviso (f) to s. 47(xiiib). The result is that exemption in s. 47(xiiib) is not available;

(iii) However, the AO's action of invoking s. 47A(4) and of computing capital gains by adopting the market value of the shares on the date of conversion is not correct. S. 47A(4) applies to a case where the exemption u/s 47(xiiib) is available and the conditions laid down in the proviso are not complied with. However, as in the present case, the AY under appeal is the year on which the conversion took place and in that year itself, the conditions prescribed for the benefit of s. 47(xiiib) were not complied with and consequently the provisions of s. 47(xiiib) were not available to the assessee, s. 47A(4) is not attracted. Under s. 45, the market value of the asset transferred cannot be deemed to be the 'consideration'. As the shares were transferred at the book value, the capital gains have to be computed on the basis that the book value is the consideration received for the transfer by way of conversion.

 

Regards,

 

Editor,

 

itatonline.org

---------------------

Latest:

Monthly (March 2014) + Consolidated (Jan to March 2014) Digest Of Imp Case Laws