<h2>Introduction to Disclosure of Foreign Income and Assets in Income Tax Returns:</h2>
In today's globalized world, individuals and businesses often have financial interests and assets located outside their home country. It is important to understand the legal obligations surrounding the disclosure of foreign assets, as failure to comply can have severe consequences. This article explores the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (in short Black Money Act, 2015), and highlights the significance of disclosing foreign assets for transparency and accountability.
<h2>The Importance of Disclosing Foreign Assets:</h2>
The Finance Act of 2012 made it mandatory to disclose foreign assets in income tax returns. This requirement aims to promote transparency and prevent tax evasion. Non-disclosure of foreign assets can lead to prosecution as upheld by various High Courts. Disclosing foreign assets is not only a legal obligation but also crucial for ensuring transparency and accountability in financial matters. By complying with the disclosure requirements, individuals and entities can avoid penalties and legal implications.
<h2>Section 139 of Income tax Act-Foundation step to make Disclosure:</h2>
The proviso to Section 139 of the Income Tax Act imposes an important disclosure mandate on residents who hold assets or have financial interests outside India. Even if their total income is below the threshold of Rs. 2,50,000 (for individuals), residents must furnish a return before the due date if they meet any of the following conditions:
<ul>
<li>Holding assets or financial interests abroad: If a resident holds any asset, including financial interests in any entity, located outside India, or has signing authority in any account located abroad, they are required to disclose these details by filing a return within the specified timeline.</li>
<li>Beneficiary of foreign assets: The disclosure obligation also applies to individuals who are beneficiaries of assets located outside India, including financial interests in entities abroad. It is important for beneficiaries to fulfill their disclosure obligations to maintain compliance with the law.</li>
</ul>
<h2>Scope of Foreign Income and Assets:</h2>
The scope of foreign assets encompasses a wide range of assets held outside the jurisdiction of India. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the term "undisclosed asset located outside India" is defined to include various types of assets. Here is an overview of the scope of foreign assets:
<ul>
<li>Income from a foreign source: Any income generated from a source located outside India that has not been disclosed in the income tax return falls within the scope of foreign assets.</li>
<li>Unreported income: If an individual is required to furnish an income tax return under Section 139 of the Income-tax Act, but fails to do so within the specified time frame (as per Explanation 2 to sub-section (1), sub-section (4), or sub-section (5) of Section 139), the income from a foreign source that remains unreported is considered a foreign asset.</li>
<li>Value of undisclosed assets: The scope of foreign assets also includes the value of assets located outside India that have not been disclosed. This includes movable assets (such as bank accounts, investments, and valuable possessions), immovable assets (such as properties and real estate), intangible assets (such as intellectual property rights and patents), and any other asset held abroad and even a signing authority is also included.</li>
</ul>
It is important to note that the scope of foreign assets is comprehensive and encompasses a wide range of holdings and income streams situated outside India. Compliance with the disclosure requirements is crucial to avoid penalties and legal implications under the Black Money Act.
<h2>Understanding the Consequences of Non-Disclosure:</h2>
Non-disclosure of foreign assets can have severe consequences. The Black Money Act of 2015 addresses undisclosed foreign income and assets. Section 4(1) of the Act defines the scope of undisclosed foreign income and assets, including unreported income, unfiled returns, and the value of undisclosed assets located outside India.
To avoid penalties and lethal consequences, it is important to note that while fully explained foreign assets acquired from tax-paid income are not considered undisclosed foreign assets, their non-disclosure in previous income tax returns can result in a penalty of Rs. 10 lakhs under Section 43 of the Act.
<h2>Concluding Remark on Disclosure of Foreign Income and Assets:</h2>
The disclosure of foreign assets is a significant legal obligation that individuals and entities must fulfill to maintain transparency and compliance with the law. Non-disclosure can lead to severe consequences under the Black Money Act, including penalties and tax implications. By understanding the provisions of the Act and the scope of undisclosed foreign income and assets, individuals can take the necessary steps to comply with the disclosure requirements.
<h2>Contact us:</h2>
If you have any question or need assistance regarding the disclosure of foreign assets, compliance with tax regulations, or any other related matter, our team of experts is here to help. Feel free to <a href="https://harchandani.in/contact">contact us.</a>
Note: This article is for informational purposes only and should not be considered as legal or financial advice.

The Importance of Disclosing Foreign Assets in Income Tax Returns: A Comprehensive Guide

The Importance of Disclosing Foreign Assets in Income Tax Returns ITR

<h2>Search on 23 Registered Unrecognized Political Parties (RUPP)</h2>
The search u/s 132 of the Act was conducted upon various Registered Unrecognized Political Parties (RUPP) during the month of September 2022 at Ahmedabad and various other locations. In this search, a total of 23 Registered Unrecognized Political Parties (RUPP) were detected and it was alleged that those parties were involved in providing bogus donation entries.
The raids were conducted on the recommendation of the Election Commission, which recently struck off 87 entities from its list of RUPP after they were found non-existent during physical verification.
<h2>Documents Seized form Registered Unrecognized Political Parties (RUPP)</h2>
During the course of search action, large number of incriminating documents related to bogus donation receipts, diaries containing details of commission charged, loose papers containing vital information and WhatsApp chats in the mobile phones of the office bearers of the RUPPs and their key handlers confirming the allegations, were found. Documentary and digital evidences collected during the course of search action, were confronted with the key persons of the group and subsequently seized.
Further, during the course of pre as well as post search it has been established that these RUPPs were involved in the activity of providing accommodation entry by way of bogus donation. Thereafter, on the basis of bank account statements of these RUPPs, beneficiaries/donors who had availed deduction for the bogus donation made to these RUPPs have been identified.
<h2>Reassessment Proceedings on the Beneficiaries / Donors</h2>
Based on such information, the Income Tax Department is set to issue a notices under section 148A of Act will initiate the reassessment proceedings on the beneficiaries.
Section 147 of the Income Tax Act empower the Income Tax Authorities to assess or reassess the income which escaped assessment.
<h2>Section 147 of the Income Tax Act:</h2>
If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year). 
Explanation.&mdash;For the purposes of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.]
&nbsp;
<h2>Section 148A of the Income Tax Act:</h2>
[Conducting inquiry, providing opportunity before issue of notice under section 148.
148A. The Assessing Officer shall, before issuing any notice under section 148,&mdash;
(a)&nbsp; conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b)&nbsp; provide an opportunity of being heard to the assessee, 1[***] by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c)&nbsp; consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d)&nbsp; decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where,&mdash;
(a)&nbsp; a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b)&nbsp; the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(c)&nbsp; the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, 2[relate to, the assessee; or
(d)&nbsp; the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.]
Explanation.&mdash;For the purposes of this section, specified authority means the specified authority referred to in section 151.]
<h2>Whether Notices u/s 148A can be issued to the Donors of the Political Parties?</h2>
Section 147 read with section 148 to 153 empower the assessing officer to initiate the reassessment proceedings to assess or reassess the income which is escaped assessment. The entire reassessment scheme was revamped in the year 2021 and various litigations were surrounded post enactment of new reassessment scheme. So, depending on the circumstances of each case, objections can be raised before the Income Tax Department for challenging the reassessment proceedings.
<h2>Consequences of the Reassessment?</h2>
Consequent to reassessment proceedings, the Donation u/s 80GGC may be disallowed and charged to the tax at applicable tax rate or applicable slab. The applicable interest u/s 234B, 234C will also be charged and the interest received (if any) u/s 244A will also be recovered from the Assessee.
<h2>Defense and arguments to contest alleged bogus donation case</h2>
Since the AO may propose to initiate the reassessment proceedings. In response thereto, the assessee, apart from factual grounds, may also raise legal grounds to defend his case. As submitted above, the new regime of reassessment is not free from litigation. The assessee may raise the grounds challenging the reassessment proceedings as well as the assessee may also argue based on cash trail, validity of the notice u/s 148, incriminating material recovered from the political parties, statement recorded, cross examination of the witnesses etc. Apart from these, the assessee may raise further grounds to defend his case.
<h2>Whether Penalty will be imposed on Donations made to Registered Unrecognized Political Parties (RUPP)</h2>
Section 270A empowers the assessing officer to impose a penalty on under reporting of income and mis-reporting of income. The rate of penalty in the case of under reporting is imposed at 50% of the tax and the rate of penalty in the case of mis-reporting of the income is 200% of the tax.

Income Tax Department will issue a Notice Under Section 148A to the Donors of the Registered Unrecognized Political Parties (RUPP)

IT notice us 148A to bogus political donation to 23 political parties

<h2>Abstract: </h2>
In this article, the author has attempted to analyze the provisions of the new scheme of reassessment in the light of judgement of CIT vs. Jet Airways (I) Limited (2011) 331 ITR 236 (Bom.) and other judgement (which infact were relevant for the old regime of the reassessment) in which it was concluded that once additions have not been sustained/made on the issues forming part of notice issued under section 148 of the Income Tax Act, 1961, no further addition can be made to the issues found subsequently in the course of proceedings under section 147 of the Income Tax Act, 1961. Now, it is important to analyze that whether the ratio / interpretation laid down in those judgements still are relevant in the new regime of reassessment as introduced by the Finance Act, 2021.
<h2>Introduction of Old and New Reassessment Proceedings: </h2>
The erstwhile provision of the section 147 provides that &ldquo;If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section&hellip;&rdquo;
Various High Courts and Tribunal had concluded that the AO has reason to believe, that any income chargeable to tax has escaped assessment, for any assessment year, and it was found, that the section puts no bar on the powers of the AO, to put to tax, any other income, chargeable to tax, which has escaped assessment, and which subsequently comes to his notice, in the course of the proceedings, but then, the prefixing words "and also", which succeeded "any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income". This expression was found to be making clear, that existence of the income, for which the AO formed belief, to have escaped assessment, is a precondition, for including any other income chargeable to tax, escaping assessment, and coming to the notice of the AO subsequently, in the course of the proceedings. Thus, unless and until such income, as giving rise to form belief, for escaping assessment, continues to exist, and constitutes a subject-matter of assessment, under s.147 "no other income" coming to the notice of the AO, during the course of the proceedings, can be roped in.
Indeed, the above interpretation was valid for the old regime. However, it is relevant to analyze the new regime in context of such ratio. Does the ratio laid down by various High Courts is still hold good in context of new regime? In the reading of the Author, the answer is yes, in fact, in the reading of the author, the ratio of said judgements has been deeply incorporated in the new regime. So, let&rsquo;s analyze the provisions of the new regime of reassessment.
<h2>Provision of Section 147 of New Regime:</h2>
The section 147 of the Act provides as under:
Income escaping assessment.
<ol start="147">
<li> If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).</li>
</ol>
Explanation.&mdash;For the purposes of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.]
The main provision of the section 147 provides that the Assessing Officer may, &ldquo;subject to the provisions of sections 148 to 153&rdquo;, assess or reassess &ldquo;such income&rdquo;. Here it is relevant submit that the reassessment under new regime is subject to the provisions of the Section 148 to 153 and the phrase &ldquo;such income&rdquo; means the income which has escaped assessment and for which the proceedings u/s 148A has been / was initiated.
Now, let&rsquo;s analyze the explanation to section 147 which provides that Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.
The main provision provides that Assessing Officer may, &ldquo;subject to the provisions of sections 148 to 153&rdquo; assess or reassess &ldquo;such income&rdquo; and explanation to said section provides that the AO may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of section 148A have not been complied with.
So, the explanation to section 147 only carve out / relaxed the requirement of the section 148A proceedings and the said explanation have not carve out / relaxed the requirement of other applicable range of the sections as contained in the main provision of the section 147. Therefore, in the reading of the author, 
<ul>
<li>the AO can assess or reassess &ldquo;other issue&rdquo; and for making assessment of such other issue. For making such assessment or reassessment of the &ldquo;other issue&rdquo; the AO has not to comply with the provisions of the section 148A (i.e. Conducting inquiry, providing opportunity before issue of notice under section 148).</li>
<li>However, for making assessment of such &ldquo;other issue&rdquo;, the AO has to comply with the other range of the provisions i.e. 148 to 153 (except 148A) as mandated by the main section (i.e. Sec 147).</li>
</ul>
Hence, for making an assessment of the other issue, the AO must have to issue a notice u/s 148 and must have to fulfil the requirements of the other provisions of the range of sections as mandated by the main section (i.e. Sec 147).
&ldquo;The legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under Section 148.&rdquo; This observation was made by the Hon&rsquo;ble Delhi High Court in the case of Ranbaxy Laboratories Limited vs CIT (ITA No. 148/2008). The said observation is apparently fit in the new regime as well when we read main provision of the section 147 along with explanation thereto.
In the context of the above discussion, it is also relevant here to analyze the contents of the section 148 notice. The same are reproduced as under:
<table>
<tbody>
<tr>
<td width="623">
<h2 style="text-align: center;">Notice under section 148 of the Income-tax Act,1961</h2>
&nbsp;
Sir/Madam/ M/s.
&nbsp;
&middot; I have the following information in your case or in the case of the person in respect of which you are assessable under the Income tax Act, 1961(here in after referred to as "the Act") for Assessment Year &hellip;&hellip;&hellip;.
&nbsp;
&middot; information flagged by the risk management strategy formulated in this regard suggesting that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. Order under sub-section (d) of section 148A of the Act has been passed in such case vide DIN &hellip;&hellip;&hellip;&hellip;&hellip;.. dated &hellip;&hellip;&hellip;&hellip;&hellip;. and annexed herewith for reference,
&nbsp;
2. I, therefore, propose to assess or reassess such income or recompute the loss or the depreciation allowance or any other, allowance or deduction for the Assessment Year &hellip;&hellip;.. and I, hereby, require you to furnish, within 30 days from service of this notice, a return in the prescribed form of the Assessment Year &hellip;&hellip;&hellip;.
&nbsp;
3. This notice is being issued after obtaining the prior approval of the &hellip;&hellip;&hellip;&hellip;&hellip;. accorded on date &hellip;&hellip;&hellip;&hellip;&hellip;&hellip; vide Reference No. &hellip;&hellip;&hellip;&hellip;&hellip;&hellip;&hellip;&hellip;
</td>
</tr>
</tbody>
</table>
&nbsp;
It is apparently clear from the reading of the notice u/s 148 that the law makers, empower the AO to assess or reassess the specific issue involved in the assessment. The reading of the main provisions of the section 147 read with explanation thereto and read with the content of the notice u/s 148, make it clear that the AO is empowered only to assess or reassess &ldquo;issue&rdquo; which forming part of the 148A proceedings, forming part of 148 notice and such &ldquo;issue&rdquo; fulfilled the requirements of the other applicable sections. i.e. Section 148 to 153. Therefore, the AO is not impowered to assess or reassess other issues which comes to his notice subsequently in the course of the proceedings u/s 147 without fulfilling the requirements of the section 148 to 153 (except section 148A).
Above reading by the author is also rational as the legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under Section 147 regarding assessment or reassessment of escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the original issue.
Around decade back, the concept of the limited scrutiny was introduced in the regular assessment proceedings, in which the AO was empowered to examine only the issues identified by the CASS (however, with approval of the higher authorities, the AO is empowered to examine the other issues as well). This attempt of the Board / CBDT can be analyzed in way to reduce litigation and to do not empower the AO to keep on making roving inquiry and to give blanket powers of the assessment to the AO.
<h2>Conclusion:</h2>
Therefore, in view of the author, the following conclusion can be drawn from the reading of the above article:
<ol>
<li>The AO is empowered to assess / reassesses &ldquo;other issue&rdquo; (i.e. the issue which not form part of the 148A proceedings and 148 notice). However, for making assessment / reassessment of such &ldquo;other issue&rdquo; the AO has to comply with the provisions of the section 148 to 153 (except section 148A).</li>
</ol>
&nbsp;
<ol start="2">
<li>The assessment proceedings u/s 147 of the Act are issue specific and hence, for every new issue (which comes to his notice subsequently in the course of the proceedings under this section) must fulfill the requirements of the section 148 to 153 (except section 148A).</li>
</ol>
&nbsp;
<ol start="3">
<li>The Judgement of the Bombay High Court in the case of CIT vs. Jet Airways (I) Limited (2011) 331 ITR 236 (Bom.) and Hon&rsquo;ble Delhi High Court in the case of Ranbaxy Laboratories Limited vs CIT (ITA No. 148/2008), which are relevant for the old regime, can be said to have deeply incorporated in the new regime of reassessment as well.</li>
</ol>
&nbsp;
<h2>About Author:</h2>
The author, Manish Harchandani (founder of Harchandani &amp; Associates, Chartered Accountants) is practicing Chartered Accountant and engage in the practice of Direct Tax, International Taxation, Transfer Pricing, FEMA and FCRA related advisory, litigation &amp; compliance matters. He can be reached at <a href="mailto:info@harchandani.in">info@harchandani.in</a>, <a href="https://harchandani.in/">https://harchandani.in/</a> and <a href="http://www.linkedin.com/in/mnharchandani">www.linkedin.com/in/mnharchandani</a>
&nbsp;
<h2>Disclaimer:</h2>
The contents of this publication are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this publication, the existence of mistakes and omissions herein is not ruled out. Neither the author nor the publisher or its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this publication nor for any actions taken in reliance thereon.
This artical was originally publised on Taxmann (Ref: [2023] 148 taxmann.com 170 (Article))

New Scheme of Reassessment - Whether AO is empowered make an assessment of “other issue” as well?

assessment under section 147 and 148 income tax act

There are merits and demerits of both the old tax regime and new regimes, it becomes dificult for the taxpayers to pick the best suited tax regime. Whether to opt new tax regime or old tax regime, the said decision shall be based on quantom of allowable deductions such HRA, Deductions u/s 80C, Interest Dedution of Housing Loan, Deductions u/s 80TTA and 80TTB etc.
The following table exhibit a break even point of the amount of total deductions at which, the taxes under both regime would be equal. This table would be useful for the FY 2023-24 only.
So, if your actual deductions are More than Break Even Point of deduction, then you must opt for old tax regime as it would be lead to decrease in tax liability. 
And if, your actual deductions are Less than Break Even Point of deduction, then you must opt for new tax regime as it would be lead to decrease in tax liability.
Table for Analysis
For the Financial Year 2023-24
<img src="https://res.cloudinary.com/netd/image/upload/v1675430514/post-img/vjvgkiscbbconk1gx97e.jpg" alt="Tax under old tax and new tax regim" width="800" height="1131" />

How to choose beneficial tax regime. Whether to opt for old old tax regime or for new tax regime.

How to choose beneficial tax regime old old tax regime new tax regime

CBDT on 29-March-2022, issued Notification prescribed the fees/penalty to be levied in a case person who has been allotted PAN as of July 1, 2017, and who failed to link the same with AADHAAR on or before 31-March-2022.
The fees of Rs. 500 if PAN-Aadhaar is linked by June 30, 2022, and Rs. 1000 in any other case.
[Notification No.17/2022/F. No. 370142/14/2022-TPL]&nbsp;

Penalty for failure to link PAN and AADHAAR by 31-March-2022

Penalty for PAN and AADHAAR non linking, PAN AADHAAR Linking

On 29th March 2022, the Hon'ble Bombay High Court also qushes the reassessment proceedings initiated under the old regime after the 01/04/2021.
The court announced the decision in the favour of assessee and disposed over 1000 writ petitions by following the rulings of Delhi High Court and Allahabad High Court.
On 30th September 2021, the Hon'ble Allahabad High pronounced its decision and held that "the Ordinance, the Enabling Act and Sections 2 to 88 of the Finance Act 2021, as enforced w.e.f. 01.04.2021, are not conflicted. Insofar as the Explanation appended to Clause A(a), A(b), and the impugned Notifications dated 31.03.2021 and 27.04.2021 (respectively) are concerned, we declare that the said Explanations must be read, as applicable to reassessment proceedings as may have been in existence on 31.03.2021 i.e. before the substitution of Sections 147, 148, 148A, 149, 151 &amp; 151A of the Act. Consequently, the reassessment notices in all the writ petitions are quashed. It is left open to the respective assessing authorities to initiate reassessment proceedings in accordance with the provisions of the Act as amended by Finance Act, 2021, after making all compliances, as required by law."
Thereafter, on 15th December 2021, the Hon'ble Delhi High Court pronounce its decision and quashes the notices issued after the 01/04/2021 under the new regime. The Court held that "Executive/Respondents/Revenue cannot use the administrative power to issue Notifications under Section 3(1) of the Relaxation Act, 2020 to undermine the expression of Parliamentary supremacy in the form of an Act of Parliament, namely, the Finance Act, 2021. This Court is also of the opinion that the Executive/Respondents/Revenue cannot frustrate the purpose of substituted statutory provisions, like Sections 147 to 151 of Income Tax Act, 1961 in the present instance, by emptying it of content or impeding or postponing their effectual operation."&nbsp;
However, the High Court of Chhattisgarh in Palak Khatuja vs. Union of India and Ors., W.P.(T) No. 149 of 2021 upholding the legality and validity of similarly issued reassessment notices. In the said judgment, the Chhattisgarh High Court has held, &ldquo;&hellip;.legislative delegation which is exercised by the Central Government by notification to uphold the mechanism as prevailed prior to March, 2021 is not in conflict with any Act and notification by executive i.e. Ministry of Finance would be the part of legislative function.&rdquo;
In this background, the Hon'ble Bombay High Court also quashes reassessment notices issued under the old reassessment regime on or after 01/04/2021 and decides the controversy in favour of the Assessees.

Bombay High Court also quash 148 notices issued after 01 April 2021 under old regime

bombay high cour on 148, old vs new 148 case, reassessment 

Important Case Laws on Section 36(1)(iii) of the Income Tax Act

Section 36(1)(iii), interest deduction in Income Tax Act, income tax

This article explains how Speculative Business is Distinct Business, What is speculative transaction, What shall not deemed to be speculative transactions, What is Eligible Transaction for security derivative, Recognised stock exchange for Section 43(5), Recognised association for Section 43(5), What are the Eligible Transaction for Commodity derivative, Do Single transaction constitute speculative business, Treatment of Losses in Speculation business and other related Income Tax Provisions.
Article further explains Which one of these are Speculative Transaction- F&amp;O in Shares, F&amp;O in Commodities, Intraday Trading, Normal Trading in Shares / Delivery Base, Forward Contract in Currency, Arbitrage trading and Dabba Trading.
<table width="587">
<tbody>
<tr>
<td width="141">
Speculative Business is Distinct Business
</td>
<td width="460">
Explanation 2 to Section 28 of the Income-tax Act, 1961 (&ldquo;Act&rdquo;) provides &ndash; Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as &ldquo;speculation business&rdquo;) shall be deemed to be distinct and separate from any other business.
</td>
</tr>
<tr>
<td width="141">
Why Distinct Business?
</td>
<td width="460">
Explanation 2 to section 28 specifically provides that where an assessee carries on speculative business, that business of the assessee must be deemed as distinct and separate from any other business. This becomes necessary because section 73 provides that losses in speculation business unlike other business, cannot be set-off against the profits of any business other than a speculation business. Likewise, a loss in speculation business carried forward to a subsequent year can be set-off only against the profit and gains of any speculative business in the subsequent year. Profits and losses resulting from speculative transaction must, therefore, be treated as separate and distinct from other profits and gains of business and profession.
</td>
</tr>
<tr>
<td width="141">
What is&nbsp;speculative transaction
</td>
<td width="460">
&ldquo;speculative transaction&rdquo; means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Section 43(5)
</td>
</tr>
<tr>
<td width="141">
What shall not deemed to be speculative transactions
</td>
<td width="460">
As per&nbsp;Section 43(5):
&nbsp;
a. a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him
b. a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations
c. a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member
d. an&nbsp;eligible transaction&nbsp;in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) &ndash; [Security Derivative Transaction] carried out in a&nbsp;recognised stock exchange
e. an&nbsp;eligible transaction&nbsp;in respect of trading in commodity derivatives carried out in a&nbsp;recognised association, which is chargeable to commodities transaction tax under Chapter VII of the Finance Act, 2013 (17 of 2013)
</td>
</tr>
<tr>
<td width="141">
What is Eligible Transaction for security derivative
</td>
<td width="460">
&ldquo;eligible transaction&rdquo; means any transaction &ndash;
&nbsp;
a. Carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) and the rules, regulations or bye-laws made or directions issued under those Acts or by banks or mutual funds on a recognised stock exchange;&nbsp;and
b. which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number allotted under any Act referred to in sub-clause (A) and permanent account number allotted under this Act;
</td>
</tr>
<tr>
<td width="141">
Recognised stock exchange
</td>
<td width="460">
&ndash; NSE
&ndash; BSE
</td>
</tr>
<tr>
<td width="141">
What is Eligible Transaction for Commodity derivative
</td>
<td width="460">
&ldquo;eligible transaction&rdquo; means any transaction,&mdash;
&nbsp;a. carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association; and
b. which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or bye-laws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act;
</td>
</tr>
<tr>
<td width="141">
Recognised association
</td>
<td width="460">
&ndash; MCX Stock Exchange Ltd.
&ndash; United Stock Exchange of India Limited
</td>
</tr>
<tr>
<td width="141">
A single transaction cannot constitute speculative business
</td>
<td width="460">
The explanation 2 to Section 28 provides for the speculation business as separate and distinct business while Section 43(5) defines what is speculative transaction. From the reading of these two sections it is quite clear that unless the speculative transactions constitute business, the provisions of Section 73 cannot apply. Thus, unless the loss pertains to speculative business the provisions of section 73 cannot be applied. The use of the plural Speculative &lsquo;transactions&rsquo; in explanation 2 to Section 28 clearly shows that in order to constitute speculative business within the terms of the explanation, a single transaction would not be sufficient, unless there is a systematic or organised course of activity or conduct on the part of the assessee, a single transaction cannot constitute business. Further where a transaction is settled, otherwise than by actual delivery, the transaction would be a speculative transaction. But merely because it is a speculative transaction it will not by itself render it a speculative business for which there should be more than one speculative transactions carried out by the assessee as per explanation 2 to Section 28 of the Income Tax Act, 1961.
&nbsp;
Moreover, High court of Bombay in the case of Commissioner of Income tax vs. Kamani Tubes Ltd. 207 itr 0298, (1994) 75 Taxman 0055 followed the Supreme Court ruling in the case of Commissioner of Income tax vs. Shantilal P. Ltd. (1983) 144 itr 0057 and held that;
&ldquo;It is abundantly clear that failure to accept the goods in terms of the contract on the stipulated date amounts to a breach of contract and in such a case, the other party is entitled to receive compensation for loss or damage caused by such breach. In the case of a contract for the sale of goods, the measure of damages upon a breach by the buyer is the difference between the contract price and the market price at the date of the breach. Such payment cannot be termed as &ldquo;payment made on periodical or ultimate settlement of the contract for purchase and sale of the commodity otherwise than by actual delivery or transfer of the commodity&rdquo; contemplated by s. 43(5) of IT Act. That would happen only in cases falling under s. 63 of the Contract Act. This is a case of breach of contract and the payments made by the assessee are by way of damages caused thereby. It clearly falls in illustration (c) of s. 73. It is not a case of performance of the contract within the meaning of s. 63 of Contract Act. The payment by the assessee, therefore, cannot be termed as a &ldquo;speculative transaction&rdquo; within the meaning of s. 43(5). Even if in a given case, a particular transaction is held to be a speculative transaction within the meaning of s. 43(5) such a finding would not resolve the controversy regarding the applicability of Expln. 2 to s. 28 and s. 73 without a further finding that the assessee carried on business in such speculative transactions. It is only where the speculative transactions carried on by an assessee are of such a nature as to constitute business that Expln. 2 to s. 28 gets attracted and such business, which is referred to as &ldquo;speculative business&rdquo;, is deemed to be distinct and separate from other business and s. 73 becomes applicable to the set off and carry forward of loss from such business. There is a perceptible difference between &ldquo;speculative transaction&rdquo; and &ldquo;speculation business&rdquo;. An isolated transaction of settlement of a contract otherwise than by actual delivery of the goods might amount to &ldquo;speculative transaction&rdquo; within the meaning of s. 43(5) but in the absence of something more to show that the nature of the transactions was such as to constitute a business, it cannot be termed as &ldquo;speculation business&rdquo; which has been treated as distinct and separate from other business.
</td>
</tr>
<tr>
<td width="141">
Treatment of Losses in Speculation business
&nbsp;
Section 73 of the Act
</td>
<td width="460">
(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.
&nbsp;
(2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and&mdash;
(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.
(3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub-section (2) of section 72 shall apply in relation to speculation business as they apply in relation to any other business.
(4) No loss shall be carried forward under this section for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.
Explanation.&mdash;Where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads &ldquo;Interest on securities&rdquo;, &ldquo;<a href="https://taxguru.in/income-tax/faqs-income-house-property.html">Income from house property</a>&ldquo;, &ldquo;Capital gains&rdquo; and &ldquo;Income from other sources&rdquo;, or a company the principal business of which is the business of trading in shares or banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.
</td>
</tr>
<tr>
<td width="141">
Conclusions;
</td>
<td width="460">
&nbsp;
</td>
</tr>
<tr>
<td width="141">
F&amp;O in Shares
</td>
<td width="460">
Not a speculative business if transaction of F&amp;O is eligible transaction, as discussed above and carried out in Recognised Stock Exchange
</td>
</tr>
<tr>
<td width="141">
F&amp;O in Commodities
</td>
<td width="460">
Not a speculative business if transaction of F&amp;O is eligible transaction, as discussed above and carried out in Recognised Association
</td>
</tr>
<tr>
<td width="141">
Intraday Trading
</td>
<td width="460">
As there is no delivery of shares, it will be always treated as speculative business irrespective of fact whether carried on recognised stock exchange or off market
</td>
</tr>
<tr>
<td width="141">
Normal Trading in Shares / Delivery Base
</td>
<td width="460">
Normal Business, either taxed under the head of Capital Gain or PGBP depends upon intention of holding and nature of business
</td>
</tr>
<tr>
<td width="141">
Forward Contract in Currency
</td>
<td width="460">
Not a speculative transaction If contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him
</td>
</tr>
<tr>
<td width="141">
Arbitrage trading
</td>
<td width="460">
Arbitrage trading involves simultaneously buying and selling the same asset across two different markets, profiting from the price difference. Hence, technically delivery is taken, therefore it is normal business and not a speculative transaction
</td>
</tr>
<tr>
<td width="141">
Dabba Trading
</td>
<td width="460">
Speculative transaction &ndash; However this kind of business is illegal and prohibited by SEBI
</td>
</tr>
</tbody>
</table>
[Article Originally published on Taxguru: https://taxguru.in/income-tax/speculative-business-speculative-transactions.html]

All about speculation business income and income tax on speculation business

speculation income, tax on intraday, tax on speculation business

The legislature changed the entire law on penalty by shifting the defaults of &lsquo;concealment or furnishing inaccurate particulars of income&rsquo; u/s 271(1)(c) of the Income tax Act, 1961 (Act)&nbsp; to new defaults of &lsquo;Underreporting or Misreporting of the Income&rsquo; u/s 270A of the Act for the assessment year beginning on or after 01/04/2017 i.e. for the AY 2017-18 &amp; Onwards.
&nbsp;
Recently, the scrutiny assessments for the AY 2017-18 has been completed and based on that the Author has focused on the practical issues related to the implementation of these new provisions. Further, the Author has also focused on the practical issues related to the provisions of the immunity u/s 270AA of the Act. In the article, the author has not dwelled into the detailed discussion of the provisions of the Section 270A of the Act.
<h2>1. Whether it is mandatory on part of the AO to state that under which limb the penalty for the misreporting of income has been initiated?</h2>
Section 270A (8) is non obstante provision which provides that where under-reported income is in consequence of any misreporting thereof by any person, then the penalty shall be equal to 200% of the amount of tax payable on under-reported. Section 270A(9) provides the list of cases of misreporting of the income, which are;
(a) misrepresentation or suppression of facts;
(b) failure to record investments in the books of account;
(c) claim of expenditure not substantiated by any evidence;
(d) recording of any false entry in the books of account;
(e) failure to record any receipt in books of account having a bearing on total income; and
(f) failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.
The above list is exclusive one and if the case of the assessee is not falling in the above-stated cases, then the AO cannot impose the penalty on account of misreporting of the income.
In many assessment orders passed recently, it has been observed that the AO has not stated that under which limb the penalty in consequence of any misreporting of income has been initiated. As a part of principal of natural justice, it is mandatory on part of the AO to state that under such limb, the penalty in consequence of any misreporting of income has been initiated. Therefore, if the AO has not specified that under which limb the penalty in consequence of any misreporting of income has been initiated, then the assessee must raise this ground during the course of penalty proceedings as well as during the course of appellant proceedings and going ahead, we&rsquo;ll find many judgments of various forum on this count.
<h2>2. Whether the assessee can file an application for immunity application before the AO u/s 270AA(1) of the Act and simultaneously, can he also file the appeal?</h2>
Before going ahead, let me draw one hypothetical case of which order was passed u/s 143(3) by making various additions;
<table width="613">
<tbody>
<tr>
<td width="85">
Sr. No.
</td>
<td width="274">
Addition on account of
</td>
<td width="92">
Amount
</td>
<td width="150">
Penalty Imposed on account of
</td>
</tr>
<tr>
<td width="85">
1
</td>
<td width="274">
Disallowance of expenses u/s 14A of the Act
</td>
<td width="92">
XX
</td>
<td width="150">
Under Reporting of Income
</td>
</tr>
<tr>
<td width="85">
2
</td>
<td width="274">
Unaccounted Sales
</td>
<td width="92">
XX
</td>
<td width="150">
Misreporting of Income
</td>
</tr>
</tbody>
</table>
Section 270AA(1) provides that the An assessee may make an application to the AO to grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, if he fulfils the following conditions, namely
(a) the tax and interest payable as per the order of assessment or reassessment under sub-section (3) of section 143 or section 147, as the case may be, has been paid within the period specified in such notice of demand; and
(b) no appeal&nbsp;against&nbsp;the order&nbsp;referred to in clause (a) has been filed
Further, Section 270AA(3) provides that the AO&nbsp;shall,&nbsp;subject to fulfilment of the conditions specified above and after the expiry of the period of filing the appeal as specified in 249(2)(b), grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC,&nbsp;where the proceedings for penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.
Therefore, in case&nbsp;if the penalty has been initiated on account of Under Reporting of Income, then the AO, upon fulfilment of above both conditions,&nbsp;shall grant an immunity from the penalty as well as from the prosecution.
Now, considering the above scenario, whether the assessee can simultaneously file an;
(a) application for granting an immunity u/s 270AA against the first addition i.e. addition made on account Disallowance of expenses u/s 14A of the Act? and
(b) appeal against the second addition i.e. Unaccounted Sales?
The second condition of the 270AA is clear &ndash; it provides that the &ldquo;no appeal&nbsp;against the order referred&nbsp;to in clause (a) has been filed&rdquo;. Therefore, the precondition for making an application u/s 270AA(1) provides that the assessee has&nbsp;not disputed the order as whole&nbsp;and has paid all taxes as per assessment order. The similar language is also found in the section 264 of the Act and it is settled position of law that the said section affirms full merger.
However, intention of the legislatures behind the introduction of new regime of the penalty is to create less litigation environment. This fact is apparent from the Budget Speech of the Hon&rsquo;ble Finance Minister and the relevant extract thereof is reproduced hereunder;
<ol start="166">
<li> Levy of heavy penalty for concealment of income has over the years resulted in large number of disputes despite a number of decisions of the Apex court on interpretation of statutory provisions and principles guiding imposition of penalty. At present the Income-tax Officer has discretion to levy penalty at the rate of 100% to 300% of tax sought to be evaded. I propose to modify the entire scheme of penalty by providing different categories of misdemeanor with graded penalty and thereby substantially reducing the discretionary power of the tax officers. The penalty rates will now be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts. Remission of penalty is also proposed in certain circumstances where taxes are paid and appeal is not filed.</li>
</ol>
In view of the above, even though the wordings of the preconditions to make an application for immunity are clear &ndash; which affirm full merger of the assessment order, however, we&rsquo;ll find various litigation on that issue. Hope, the department may also clear its position by issuing suitable circular in this regard.
<h2>3. Whether the late filing of the application for granting an immunity is permisible?</h2>
It might be possible that the assessee had paid full demand within time specified in the demand notice or the tax has been adjusted against the refund due and the assessee is also not wanting to agitate the matter before the appellant authorities but the assessee, forget to file the application for immunity u/s 270AA(1) of the Act in Form 68 within the time specified therein.
The section 270AA(2) specifically provides that the application referred to in sub-section (1)&nbsp;shall be made within one month from the end of the month in which the order referred to in clause (a) of sub-section (1) has been received&nbsp;and shall be made in such form and verified in such manner as may be prescribed. The legislature has used word shall, therefore, as per the provisions, the application must be filed within the specified time.
However, looking to the intention behind the introduction this new penalty regime, as discussed supra, we&rsquo;ll find numerous of case laws on this issue in future. Further, department might issue circular to clarify its position on this matter.
<h2>4. Whether the application for granting an immunity from the penalty and prosecution u/s 270AA of the Act in form 68 can filed in case if the penalty has been initiated on account of misreporting of the income?</h2>
In nutshell, the answer is yes and the same is explained as under;
<table width="613">
<tbody>
<tr>
<td width="301">
Provision
</td>
<td width="301">
Analysis
</td>
</tr>
<tr>
<td width="301">
Section 270AA(1) provides that &ldquo;An assessee may make an application to the Assessing Officer to grant immunity from&nbsp;imposition of penalty under section 270A&nbsp;and initiation of proceedings under section 276C or section 276CC, if he fulfils the following condition&hellip;&rdquo;
</td>
<td width="301">
Section 270AA(1) entitle the assessee to file an application before the AO to grant immunity from&nbsp;the imposition of penalty under section 270A.&nbsp;Consequently, this section provides that the application for immunity can be filed irrespective of fact that whether the penalty has been initiated on account of under-reporting of income or misreporting of income.
</td>
</tr>
<tr>
<td width="301">
Section 270AA(3) provides that The&nbsp;Assessing Officer shall, subject to fulfilment of the conditions specified in sub-section (1) and after the expiry of the period of filing the appeal as specified in clause (b) of sub-section (2) of section 249, grant immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, where the proceedings for&nbsp;penalty under section 270A has not been initiated under the circumstances referred to in sub-section (9) of the said section 270A.
</td>
<td width="301">
This provision snatches away the discretionary power of the AO and mandate that if the penalty has been initiated on account of under-reporting of income and the preconditions to make an immunity application has been fulfilled, it is mandatory on the part of the AO to grant an immunity.
However, the hidden language of this provisions is that in case, if the penalty has been initiated on account of under-reporting of income in consequence of misreporting, then the AO may his own discretion, grant an immunity.
</td>
</tr>
<tr>
<td width="301">
Section 270AA(4) provides that the Assessing Officer shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order accepting or rejecting such application:
</td>
<td width="301">
This provision provides that the Order accepting or rejecting the application of the assessee shall be passed by the AO within the period of one month from the end of the month in which the application is received.
Therefore, the combined reading of subsection 1 and subsection 4 provides that that assessee can make an application under section 270AA for requesting to granting an immunity from penalty Initiated in consequence of misreporting of income. However, in such cases, the AO may his own discretion either may accept or reject the application.
</td>
</tr>
</tbody>
</table>
<h2>5. Whether the assessee can file an application u/s 273A of the Act before the Pr. CIT if the application of the assessee has been rejected by the AO u/s 270AA?</h2>
The answer is Yes. The assessee can still put an application before the Pr. CIT u/s 273A of the Act to reduce or waive penalty, etc. even if his application to grant immunity u/s 270AA(1) has been rejected by the AO. In fact, section 273A also contains the reference of section 270A.
<h2>6.&nbsp; In the case of misreporting of income, whether the AO have the powers to reduce penalty percentage under Section 270AA?</h2>
The answer is No. Section 270AA clearly provides that The AO shall, within a period of one month from the end of the month in which the application under sub-section (1) is received, pass an order
<ul>
<li>accepting or</li>
<li>rejecting such application</li>
</ul>
Entire section 270AA of the Act does not empower the AO to reduce the penalty in the case of misreporting of the Income. Therefore, the AO shall either accept an application or reject an application.
Conclusion
We, the taxpayers and tax professionals, must welcome this less litigation step of our Legislatures. Every new law requires time to get mature for smooth implementation and till that, it is our duty to draw the interpretation of these new provisions in accordance with their intention and purpose behind the introduction.

Penalty under section 270A immunity u/s 270AA of Income Tax Act - Practical Issues

270A penalty, immunity u/s 270AA, income tax penalty waiver

On 15th November, 2021 the Government extended the due date of linking of UAN with AADHAAR to 01-Dec-2021.
The relevant cirulcar is as under:
<a title="UAN Circular" href="https://1drv.ms/b/s!ApU2N0J4rEzogcUSP3QSGfX6PFZS5A?e=SUMCii" target="_blank" rel="noopener">UAN Circular</a>

Due date for seeding of AADHAAR with UAN extended

PAN AADHAAR UAN linking, PAN Linking

The Hon&rsquo;ble Supreme Court dismiss the petition filed by an NRI, whose stay in India was involuntary extended on account of Covid-induced lockdown and suspension of international air travel, challenging the Circular issued by the CBDT, alleging that it had placed him in the pernicious position of losing his &lsquo;non-resident status&rsquo; for the purpose of Income Tax Act, 1961.
The Court stated that there was a transport bubble system created for such passengers, which the petitioner could have availed. The Court Further noted that:
<blockquote>
&ldquo;We won&rsquo;t entertain such petition unless and until you show us that you are completely powerless and confined to the shores of this country, then only we will consider the matter from the stand point of Article 32 but if this is the situation, the transport bubble was created from July 1 onwards and yet you chose not to avail, that is the matter to go into individual cases,&rdquo;
</blockquote>
Author Remarks
It is noteworthy to state here that the CBDT on 3rd March 2021 has issued a circular (No. 2/2021) wherein the board has explained the legal position with respect to residential status considering the provisions of the Income Tax Act as well the provisions of the DTAAs.
The Board has firm view that there should be no case of double non taxation. However, if there is any case of double taxation, then the board will entertain the applications of such Individual. The Form / Application for that purpose has been prescribed in the Circular itself.

Supreme Court dismisses the petition challenging CBDT Circular by the NRI who stuck in India due to Covid-19

Supreme Court Case, NRI Taxation, Non Resident Taxation, NRI Status

Mumbai ITAT held that an assessee shall be entitled to claim deduction of any interest payable on capital borrowed by him for acquiring, constructing, repairing, renewing or reconstructing a property for claiming deduction of interest under section 24(b) and there is neither any precondition nor any eligibility criteria prescribed that assessee should have taken possession of property so purchased or acquired by him.
Section 24 provides as under:
<blockquote>
24. Income chargeable under the head &ldquo;Income from house property&rdquo; shall be computed after making the following deductions, namely: - (a). ..................................................................................................................... (b). Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
</blockquote>
Considering the above provision, the Tribunal held that
<blockquote>
Although, as per the plain literal interpretation of Sec. 24(b) of the Act there is no bar on an assessee to claim deduction of interest payable on a loan taken for purchasing a residential property, though, the possession of the same might not have been vested with him, however, even otherwise the logic given by the CIT(A) for declining the aforesaid claim of deduction of the assessee clearly militates against the mandate of Sec. 22 to 24 of the Act. Accordingly, as in the case before us the assessee had admittedly paid interest of Rs. 2,69,842.12 on the capital that was borrowed by him for acquiring the property in question, which was duly evidenced on the basis of the certificate that was filed in the course of the assessment proceedings, therefore, we are unable to concur with the lower authorities who had declined his aforesaid claim for deduction of interest under Sec. 24(b) of the Act. We, thus, not finding favor with the view taken by the CIT(A) therein set-aside his order and direct the A.O to allow the assessee‟s claim for deduction of Rs. 2 lac under Sec. 24(b) of the Act.
</blockquote>
Citation: ITA No.4831/MUM/2019

Possession is not precondition to claim interest deduction under section 24(b)

interest on housing loan, interest deduction on home loan, tax saving 

On 6th September 2021, CBDT has notified another exclusion to case where Assessment Order not to be passed under faceless assessment regime.
The Board has notified that Assessment Orders in cases where pendency couldn&rsquo;t be created on ITBA because of technical reasons or cases not having a PAN shall not be passed by the National Faceless Assessment Centre under section 144B.
Earlier, the CBDT vide instructions dated 13th August 2020 has excluded following cases from the Faceless assessment:
<ol style="list-style-type: lower-roman;">
<li>Assessment orders in cases assigned to Central Charges. </li>
<li>Assessment orders in cases assigned to International Tax Charges.</li>
<li>(New Category) Assessment Orders in cases where pendency could not be created on ITBA because of technical reasons or cases not having a PAN, as the case may be.&nbsp;</li>
</ol>
&nbsp;
Ref: CBDT office order no. F No. 187/3/2020-ITA-I dated 6th Sep. 2021.

List of cases to be excluded from the Faceless Assessment

faceless assessment, income tax, e assessment, faceless appeals

Hon'ble Madhrai Bench of the Madras High Court set aside the assessment order passed u/s 153A of the Income Tax Act, 1961. The issue, inter-alia, include non compliance of mandatory requirements of Section 65B of Indian Evidence Act, 1872 in respect of electronic records.
 
The counsel of petitioner contend that, when the entire assessment has been framed only on the basis of the so-called electronic record which are said to be copies of Excel Sheet, Excel work note book etc., non compliance of Section 65B of the Indian Evidence Act renders the document inadmissible in the eye of law as held by the Supreme Court in the judgment reported in Anvar P. V. vs. P.K.Basheer and others reported in (2014) 10 SCC 473.
 
Following the above judgement, the HC directed as under:
 
<blockquote class="wp-block-quote">
c)the respondent should strictly comply with Section 65-B of the Indian Evidence Act if the respondent wants to use the electronic document by way of secondary evidence;
</blockquote>
 
Citation:
 
W.P(MD)Nos.11261, 11271, 11272, 11273 and 11765 of 2021 BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

HC set aside assessment framed on the basis of electronic record in violation of requirements of Section 65B of Indian Evidence Act, 1872

65B of evidence act, income tax search, electronic evidence, 65B

Government has decided to provide income-tax exemption to ex-gratia payment received by family members of a person- - From the employer of such person (or) - From other person on the death of the person on account of COVID-19 during FY 2019-20 and subsequent years. Exemption is as under: &bull; Received from Employer - No limit &bull; Received from any other person - Rs. 10 Lakhs (in aggregate from all persons)
 
Author's Note: The death of the person should be on account of COVID-19. So, all the treatment related papers, hospital bills, medicine prescriptions etc. should be preserved in order prove cause of death. However, this depends upon what provisions are to be proposed in the Act.
 
Necessary legislative amendments for the above decisions shall be proposed in due course of time.
 
Source: PIB dated 25-06-2021

Government announces tax exemption for expenditure on COVID-19 treatment and ex-gratia received on death due to COVID-19.

COVID19 relief in income tax, tax exemption for COVID-19 expenditure, 

Due to technical issues, several valid returns (upto assessment year 2017-18) were not processed within the time limit stipulated under section 143(1) of the Income tax Act, 1961. This led to denial of legitimated income tax refund of the taxpayers.
 
Therefore, To mitigate genuine hardship being faced by the taxpayers on this issue, the CBDT, by virtue of its powers under section 119 of the Act, relaxed the time-frame u/s 143(1) and directs that all validly filed returns upto AY 2017-18 with refund claims which could not be processed u/s 143(1) can be processed now with the prior approval of Principal CCIT / CCIT Concerned. The intimation to such processing can be sent to assessee concern by 30th September 2021.
 
For more details, please refer <a href="https://1drv.ms/b/s!ApU2N0J4rEzogasG7_CzrAudHsAr1A?e=ubplo0" target="_blank" rel="noreferrer noopener">CBDT circular dated 5th July 2021.</a>

CBDT extended time for processing income tax refunds for the AY 2017-18 and earlier years

procession of return, ITR intimation u/s 143(1), income tax demand 

Merely suspecting on borrowing capacity cannot be ground for addition u/s 68

section 68 addition, addition based on suspicious, income tax survey 

Mumbai ITAT in its very short judgement but made very important observations and held that section 195, is a vicarious liability and its survival entirely depends on survival of the primary tax liability of income, embedded in the related payments, in the hands of the recipient. Once that primary liability stands quashed, as in this case, the very foundation of tax withholding demands under section 195 ceases to hold good in law.
 
In this case the counsel of the assessee pointed out that the very taxability of payments, in respect of which impugned tax withholding demands are raised, have been negated in the hands of the recipient, i.e. Braitrim UK Ltd., by a coordinate bench. A copy of the related order dated 21st August 2019 (in Braitrim UK Ltd. vs. DCIT; ITA Nos. 1750 to 1753/Mum/2015).
 
The full judgment is reproduced as under:
 
Judgment / Order
 
Pramod Kumar, Vice President And Ravish Sood, Member (J)
 
For the Appellant : Vasanti Patel
 
For the Respondents : S.S. Iyangar
 
ORDER
 
Pramod Kumar, Vice President
 
1. By way of these appeals, the assessee appellant has challenged corrections of consolidated order dated 30th January 2014 in the matter of tax withholding demands under section 201 r.w.s. 195 of the Income Tax Act 1961, for the assessment years 2005-06 to 2012-13
 
2. When these appeals came up for hearing, learned counsel for the assessee pointed out that the very taxability of payments, in respect of which impugned tax withholding demands are raised, have been negated in the hands of the recipient, i.e. Braitrim UK Ltd., by a coordinate bench. A copy of the related order dated 21st August 2019 (in Braitrim UK Ltd. vs. DCIT; ITA Nos. 1750 to 1753/Mum/2015) was also placed before us. In this order, the coordinate bench has, inter alia, observed as follows:-
 
13. We have carefully considered the rival submissions and perused the material on record. We find that the assessee is required to give a rebate/discount to the retailers based on the volume/units of sales to garment suppliers achieved by the Braitrim group. Subsequently, the proportionate share of rebate/discount is recovered by the assessee from its group companies, including BIPL, based on the relative sales of those group companies to the respective retailers. The assessee has, accordingly entered into a reimbursement agreement with BIPL, whereby BIPL has acknowledged its obligation to reimburse its proportionate share of the discount/rebate to the assessee based on sale volumes/units achieved by it. As per the Cost Reimbursement Agreement (CRA), such reimbursements are depicted as 'Administration charges' by BIPL in its books of account.
 
14. We find it relevant to refer to the following clauses of the Cost Reimbursement Agreement (CRA) in order to appreciate the nature and characterisation of the amount of reimbursements:-
 
i) that the title to the agreement is described as 'Cost Reimbursement Agreement';
 
ii) that the preamble to the agreement mentions the fact of payment of administration charges by the Assessee to the customer companies in respect of goods supplied by worldwide entities of Braitrim group including BIPL and the purpose of the agreement is to recover such charges by the assessee from BIPL;
 
iii) that Article 3 requires BIPL to compensate the assessee towards the proportionate administration charges in respect of goods supplied to the customer companies/suppliers;
 
iv) that Article 4 prescribes the method of computation of the proportionate share of the administration charges to be borne by BIPL determined as proportion of its sale to customer companies to the total worldwide sales of the Braitrim group; and,
 
v) that Article 5 stipulates that the payments made under the agreement represent reimbursement of administration charges borne by the assessee.
 
15. Therefore, so far as the understanding of the parties to the CRA is concerned, the same has been understood to be in the nature of reimbursement of the rebate/discount passed on by the assessee to the retailers. Factually speaking, it has also been established that there is no mark-up retained by the assessee while recovering from BIPL the rebate/discount given to the retailers. It is also clear that BIPL has also made sales to other independent parties for which no discount/rebate or administrative charges are payable to the assessee company. The aforesaid undisputed features of the arrangement clearly bring out that the transaction in question cannot be construed to be 'royalty' as understood by the income-tax authorities. This becomes even more pertinent once the nature of such payments by BIPL to the assessee has been admitted as such in the assessment of BIPL for assessment year 2007-08
 
16. Pertinently, the assessee stated that the transaction for reimbursement of administrative charges by BIPL to the assessee was subject to transfer pricing proceedings during the assessment year 2007-08, wherein the TPO questioned the commercial expediency of the transaction of payment for administration charges and determined the arm's length price as 'Nil', which was effectuated accordingly by Assessing Officer in the draft assessment order.
 
17. Before the DRP, BIPL raised objections against the draft assessment order, which was based on the order of the Transfer Pricing Officer. The DRP held as under:-
 
"The DRP has carefully considered the order of the TPO, submissions of the taxpayer and objections of the taxpayer. The main issue here is that the assessee has paid to its AEs an amount of ₹ 1,87,30,339 slating that these charges are paid as administration charges. However, as accepted by the taxpayer, these expenses are nothing but reimbursement of expenses incurred by the AE for the discounts to be passed on to the retailers by Braitrim UK. After considering the arguments of the assessee it can be inferred that Braitrim UK negotiates globally with various garment retailers to use the hangers manufactured by Braitrim group companies all over the world. As part of these arrangements/agreements Braitrim UK agreed to pass on the discount at the rate 1% of sale of hangers by Braitrim group of companies to the retailers. As rightly stated by the assessee because of this arrangement the taxpayer is getting business without much effort on advertisement and marketing as evidenced by no expenses on marketing or advertisement debited in the profit and loss account for the FY 2006-07. The Braitrim group companies supply the hangers to the garment manufacturers, which in turn supply to the ultimate retailers in the form of pre-hanged clothes. The assessee also supplied hangers to garment manufacturers within and outside India. Based on the sale of these hangers by the assessee Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retailers through garment manufacturers. Before the DRP, the taxpayer also produced invoices raised by third party retailers against Braitrim UK to show that the said discount @ 1% on sale of hangers by the Indian entity was passed on to the retailers.....In view of the above discussion, we are satisfied that the discount given by the AE, Braitrim UK to the retailers is helping the tax payer to get the business without much marketing effort, for which the taxpayer is reimbursing the AE at the rate of 1% of sale of hangers in India, which was ultimately passed on to the retailers by the AE."
 
However, the DRP revised the arm's length price as computed by the TPO on account of the timing difference between the recognition of administration charges/rebate in the books of account of BIPL, vis-&agrave;-vis the amount recognized by the assessee in its accounts; and, accordingly, the assessment was finalised. When BIPL filed appeal before the Tribunal, the Tribunal, while accepting the payments to be reimbursements, restored the issue to the file of the DRP for examination of the reconciliation of invoices raised by the assessee and the invoices recorded by BIPL. The TPO, in response to the remand report called for by the DRP, as directed by this Tribunal, had accepted the contentions of BIPL and found the same to be in order.
 
18. From the aforesaid, it follows that for the assessment year 2007-08 there is a concurrent acceptance of the claim of BIPL that the payments are in the nature of reimbursement by all the authorities, viz. the TPO, the DRP and the Tribunal. Therefore, in the face of such concurrent acceptance of the nature of payment as being a mere reimbursement, it is untenable for the Revenue to contend in the captioned cases that the nature of the amount is otherwise. Therefore, what follows is that the expenses have been incurred by the assessee on behalf of BIPL and the same were merely reimbursed to the assessee. Ostensibly, the contractual responsibility of the rebates to be paid to retailers lies with the assessee. However, since the sales are made by BIPL, the commercial prudence postulates that BIPL bears the ultimate responsibility of such rebates in respect of India sales, and thus the payment of such reimbursements. Admittedly, the liability is definite and crystallised in the books of BIPL, and it merely represents normal discount. Thus, we are inclined to uphold the grievance of the assessee that the payments qualify as a pure reimbursement of expenses and accordingly, not taxable in India. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any mark-up and the assessee has furnished sufficient evidence to demonstrate the incurrence of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. The action of the Assessing Officer, as the learned counsel rightly contends, is on pure surmises and conjectures.
 
19. Here, we would also like to refer to the judgment in the case of AP Moller (supra). Facts of that case were that the assessee was a foreign company engaged in shipping business and was a tax resident of Denmark; that it had agents working for it, who booked cargo and acted as clearing agents for the assessee; and, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata basis. According to the assessee, it was merely a system of cost sharing and the payments received by the assessee from its agents in India were in the nature of reimbursement of expenses. The Assessing Officer, however, did not accept this contention and held that the amount paid by these three agents to the assessee were FTS rendered by the assessee and held them taxable in India under Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark and brought them to tax at 20% u/s. 115A of the Act. The CIT(A) dismissed the assessee's appeal, but the Tribunal allowed its further appeal. The Hon'ble High Court dismissed the Department's appeal holding that the Tribunal had rightly observed that the Maersknet-communication-system was an automated software based communication system which did not require the assessee to render any technical services; that it was merely a cost sharing arrangement between the assessee and its agents to efficiently conduct its shipping business; and, that it was part of the shipping business and could not be captured under any other provisions except under the DTAA. The Hon'ble Supreme Court, dismissing the appeal held as under:-
 
"....... the facts that the assessee had its information technology system, that the assessee had appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation, etc., through these agents, that for the sake of convenience of all these agents, a centralised system was maintained to avoid unnecessary cost, that the system comprised booking and communication software, hardware and a data communications network and was, thus, an integral part of the international shipping business of the assessee and ran on a combination of mainframe and non-mainframe servers located in Denmark, that the expenditure incurred for running this business was shared by all the agents and that the systems enabled the agents to co-ordinate cargos and ports of call for its fleet were findings of fact. Once these were accepted, by no stretch of imagination, could the payments made by the agents be treated as fees for technical services. The payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and it was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, and the business could not be conducted without it, it could not be treated as any technical services provided to the agents."
 
20. Quite clearly, payments by way of reimbursement of expenses incurred on behalf of the payer cannot be construed as income chargeable to tax in the hands of the payee, a proposition which is approved by the Hon'ble Bombay High Court in the case of Siemens Aktiengesellschaft (supra). In view of the above discussion, we direct the Assessing Officer not to treat any part of reimbursement of expenses received by the assessee as income of the assessee. The assessee gets the relief accordingly on Ground No. 2 of the aforesaid appeal.
 
3. It is thus submitted that once the primary liability of the recipient has come to an end, vicarious liability of the payer cannot survive. We are urged to quash the impugned demands for this short reason alone.
 
4. Learned Departmental Representative does not dispute the facts stated by the learned counsel, but relies on the orders of the authorities below nevertheless.
 
5. The plea of the learned counsel is indeed well taken. A tax withholding liability, particularly under section 195, is a vicarious liability and its survival entirely depends on survival of the primary tax liability of income, embedded in the related payments, in the hands of the recipient. Once that primary liability stands quashed, as in this case, the very foundation of tax withholding demands under section 195 ceases to hold good in law. We, therefore, quash the impugned demands under section 201(1) r.w.s. 195 as well. The assessee gets the relief accordingly.
 
6. As we part with the matter, we make it clear that the present appeals are disposed of for short reasons discussed above. All other issues raised by the assessee have become infructuous, and are, therefore, dismissed as such.
 
7. In the result, all the appeals are allowed in the terms indicated above. Pronounced in the open court today on the 21st May, 2021.

Once the primary liability of the recipient has come to an end, vicarious liability of the payer cannot survive

section 195 tds, tax on non resident, tds on non resident NRI Taxation

<h2>Facts of the Case</h2>
 
The assessee company is engaged in the business of manufacturing machine tools, textile machines, air conditioning and refrigeration work, casting and job work for air conditioning and humidification, air control equipment and trading in engineering. The original return of income was filed by the assessee on 26/09/2013 and revised return was filed on 14/05/2014 declaring loss of Rs.4,65,01,710/- under the normal provisions of the Act and book profit of Rs.61,77,000/- u/s.115JB of the Act.
 
The assessee company owned a constructed building on a plot of land in the city of Coimbatore. The said land along with the super structure was acquired by the company vide sale deed dated 15.04.1967. During the Financial Year 2012-13 relevant to Asst Year 2013-14, the assessee company proposed to sell the said land along with its super structure and therefore entered into negotiations with various parties. During the negotiations, the company became aware of the fact that post acquisition of the land and the constructed building, the Development Control Regulations Rules (DCR) in the city of Coimbatore had undergone a change. Consequently, the company engaged the services of Dadbhawala Architects, Engineers and Valuers Pvt. Ltd., to examine the amendments in the DCR and furnish a report giving the fair market value of the land, the constructed building and the additional FSI, if any.
 
In the meanwhile, the negotiations for sale of the immovable property in Coimbatore, culminated in an understanding on 15.09.2012 when the prospective purchasers visited the premises of the company. A letter of understanding was executed on the said date by the purchasers. The purchasers agreed on a total consideration of Rs.11,14,00,000/-. Further, the said consideration based on discussions and negotiations was broken up as Rs.5,72,84,600/- for the land, Rs.64,90,400/- for the constructed building and Rs.4,76,25,000/- for the additional FSI. The valuers also submitted three reports giving the fair market value of the land constructed building and the additional FSI on 21.09.2012. As per the report submitted by the valuers, the company had obtained an additional benefit of 0.8 by way of additional FSI. The valuers arrived at a fair market value of Rs. 5,01,79,800/- in respect of additional FSI of 0.8 whereas, the company had arrived at a negotiated price with prospective purchasers‟ for the additional FSI of Rs.4,76,25,000/-.
 
While filing the return of income, the company excluded the sum of Rs.4,76,25,000/- received towards additional FSI from its total income computed under normal provisions of the Act, treating the same as a capital receipt. However, while computing its book profit u/s.115JB of the Act, the said sum of Rs.4,76,25,000/- was included in the book profit.
 
<h2>During the assessment proceeding</h2>
 
The AO observed that FSI attached to the land is neither separable from the said land nor could be treated independently;
 
The availability of increase in FSI is merely a value addition to the land provided by the Government; that any buyer, while purchasing the land will also take over the FSI and that the purchase price is determined by the benefits attached to the land 
 
He further observed that the assessee has neither maintained the land with it and transferred the FSI to a third party nor has transferred the land and FSI to different people.
 
He also observed that FSI is fastened to the land and is not separable there from, except in circumstances where only the FSI is permitted to be sold out by maintaining the title of land with the owner.
 
Accordingly, the AO brought the amount of Rs.4,76,25,000/- shown under the head "transfer of FSI" to tax under the head long term capital gain.
 
<h2>Before the CIT(A)</h2>
 
The ld. CIT(A) observed that assessee had sold the land, super structure situated in the said land and the FSI in lock, stock and barrel to only one purchaser for a total consideration of Rs.11,14,00,000/-. However, taking the help of the valuer, the same was broken into three parts and thereafter, sale consideration to the extent of Rs.4,76,25,000/- has been attributed on account of sale of additional FSI by the assessee.
 
The said additional FSI has not been sold separately as TDR and there has been no separate document for the same.
 
The inseparable FSI had been sold in one single deal by the assessee to the same party.
 
CIT(A) Distinguished the reliance placed on the decision of the Hon'ble Jurisdictional High Court in 370 ITR 325 supra by stating that in that case, the TDR was sold separately by the society after completion of construction as per the available FSI.
 
CIT(A) also observed that in that case, the land and building earlier in possession of the assessee continued to remain with it and even after the transfer of the right or additional FSI, the position did not undergo any change. Whereas, in the instant case, the land and building have been transferred together with additional FSI within a single deal to a single purchaser. 
 
With these observations, the ld. CIT(A) upheld the action of the ld. AO.
 
<h2>Before the ITAT</h2>
 
The Tribunal Observed that &ldquo;the bifurcation of the total sale consideration into land, building and additional FSI is not in dispute. What is in dispute before us is only whether the said sum of Rs.4,76,25,000/- received by the assessee on sale of additional FSI could be treated as a capital receipt and thereby making it nonexigible to tax both under normal provisions as well as in the computation of book profits u/s.115JB of the Act&rdquo;
 
In the instant case, we find that the Development Control Regulations in the city of Coimbatore had undergone a change which had admittedly conferred a benefit or by virtue of which the assessee got vested with additional benefit of 0.8 by way of additional FSI.
 
Hence, the issue now boils down to the fact that when there is no cost incurred by the assessee for obtaining any additional benefit of 0.8 by way of additional FSI, then, whether any sum received by the assessee pursuant to a sale of such additional FSI could be brought to tax under the head &ldquo;income from capital gains&rdquo;. We hold that assessee could not have pre-empted any change in the Development Control Regulation Rules in the city of Coimbatore at the time of purchase or before the sale.
 
Admittedly no cost was incurred by the assessee for getting such benefit by way of additional FSI. Hence, it could be safely concluded that the additional benefit derived by the assessee by way of getting vested with additional FSI on the land and building owned by the assessee is only a wind fall gain by operation of law, and which had not costed the assessee any money.
 
The tribunal followed the judgment of Jurisdictional High Court in the case of Commissioner of Income Tax vs. Kailash Jyoti No.2 CHS Ltd., in Income Tax Appeal No.1607 of 2013 and held that the sum received by the assessee in the sum of Rs.4,76,25,000/- on sale of additional FSI, is not exigible for long term capital gains.
 
The tribunal also held that the sum of Rs.4,76,25,000/- being a capital receipt from its inception, is to be excluded while computing book profits u/s.115JB of the Act and also on the ground that it does not form part of operational working results of the company by relying assessee&rsquo;s own case in ITA No.5428/Mum/2015 for A.Y.2011- 12.
 
<h2>Citation</h2>
 
ITA No.6228/Mum/2017, Dated 21/05/2021

Neither capital gain tax nor MAT on sum received towards Additional FSI

MAT, additional fsi, tax on capital gain additional fsi

<h2>Facts of the Case</h2>
 
The A.O. noticed that during the year under consideration, the assessee society had deposited a sum of Rs. 83,95,000/- in its bank account maintained with Axis bank Ltd., Sikar. The assessee society has not filed its return of income for the year under consideration. Notice U/s 148 of the Act was issued to the assessee.
 
In compliance of the notices issued, the assessee filed its return of income on 28/09/2017 declaring NIL income.
 
Assessing Officer completed the assessment after due consideration and examination of allthe issues specifically related to the corpus donation and he was satisfied with the evidences andsubmissions of the assessee as well as the manner in which it was shown in the accounts of theassessee. He mentioned his satisfaction in the office note attached with the assessment order, which isthe part of the assessment order. The copy of the certified copy of office note is attached herewith forready reference at Page No. 12 of Paper book. The relevant portion of the office note is reproducedhere under-
 
<blockquote class="wp-block-quote">
"(ii) Issue of Corpus donation has been examined carefully and satisfying with evidence produced by the assessee during the course of hearing, no adverse inference has beendrawn on this issue."
</blockquote>
 
<h2>Findings of the CIT(E)</h2>
 
The ld. CIT(E) in his order has observed that the assessee has no details of donors and whenever this detail is sought, it comes up with a story to avoid it.
 
The ld. CIT(E) further observed that in the order sheet, the A.O. has noted that corpus donations have been examined, he has not made any of requisite inquiries regarding identity and address of the claimed donors, particularly when all these donations were received in cash, therefore, the ld. CIT(A) has held that the order passed by the A.O. is deemed to be erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Explanation 2(a) r.w. Section 263 of the Act.
 
Against the order of the ld. CIT(E), the assessee is in further appeal before the ITAT..
 
<h2>Grounds of the Assessee</h2>
 
<blockquote class="wp-block-quote">
the order of CIT(E) is illegal and against the law because the Ld. Assessing officer has examined and considered the matter involved in this order. 
the donation so received was received for a specific purpose and use, hence it was Corpus Donation. The corpus donation cannot be treated as part of Income and Expenditure account.
the order of the CIT(E) is otherwise unjustified because the assessee submitted the sufficient and proper explanation during the course of assessment proceedings and accepted by the Ld. Assessing officer
</blockquote>
 
<h2>ITAT held</h2>
 
The tribunal held that assessment order under consideration does not fall in any of the limb mentioned in the explanation 2 of the Section 263(2) of the Act, therefore the assessment is proper and cannot be said as erroneous and prejudicial to the interest of the revenue.
 
The assessee replied the queries raised by the assessing officer during the course of assessment _proceedings. After examination of the records and submissions found him satisfied and complete the assessment. Therefore, it could not be said the assessing officer has not examined the issue raised in the show cause notice under consideration. It is also reveals from the certified copies of the order sheet that the issue which is limited issue related to the cash deposited into bank, in spite of that he went beyond mandate and examined the entire issues, which is also without getting permission of the Commissioner. Hence it cannot be said that the assessment was without any enquiry or investigation.
 
The issue was already examined, discussed and considered by the then Assessing officer and issue of show cause notice by the CIT(E) on the very same issue is amounts to change of opinion
 
The ld AR of the assessee apart from the other grounds as discussed by us in detail, has also submitted before us that the notice issued by the ld. CIT(E) was on the basis of proposal of subsequent ITO, therefore, this act does not provide such powers to the ITO U/s 263 of the Act. The ld AR also submitted that as per provisions of Section 263 of the Act, the Pr.CIT/CIT may call for and examine the proceedings under this Act if he considers that any order passed therein by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue but in the present case, the proposal was sent by the subsequent A.O. to the CIT(E) on the basis of which a show cause notice was issued which is against the provisions of the Act. However, on this proposition, our view is not in favour of the ld AR as we convinced with the arguments of the ld. CIT-DR who had submitted that there is no prohibition U/s 263 of the Act for the Commissioner to act on the basis of proposal by the A.O. if other conditions under the said Section are satisfied. In this regard, the ld. CIT-DR has relied on the decision in the case of Apollo Tyres Ltd. Vs ACIT (1998) 65 ITD 263 (Delhi) and Stewarts and Lloyds of India Ltd. Vs CIT (2016) 67 taxmann.com 41, therefore, we reject this contention raised by the assessee.
 
<h2>Conclusion</h2>
 
The Tribunal allowed the appeal of the assessee and quash the revisionary proceedings u/s 263 initiated by issuing impugned show cause notice.
 
<h2>Citation</h2>
 
Swami Keshwanand Sikshan Sansthan Versus C.I.T. (Exemption) , Jaipur (Rajasthan) ITA No. 273/JP/2020 (Assessment Year: 2010-11) Dated 18 January 2021

No revision u/s 263 on Change of Opinion even though proposal was sent by the subsequent AO to the CIT

Hon'ble Madras HC in its recent decision upheld the findings of Tribunal and observe that the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income.
 
The AO found that the assessee had invested in SBI Magnum Insta Cash Fund to the tune of Rs.7.25 Crores and secured loans, which were outstanding as on 31.3.2011. The Assessing Officer also found that the assessee incurred finance cost, out of which, a sum of Rs. 12.93 Crores was towards interest on term loan and working capital facilities, that the assessee company made investments in mutual funds, out of which, there was a POSSIBILITY OF EARNING DIVIDEND INCOME. Accordingly, a notice was issued to show cause as to why the disallowance should not be made under Section 14A of the Act.
 
The assessee sent a reply stating that they had not incurred any expenditure for making such investment and that in the absence of any expenditure incurred, the question of disallowance did not arise. However, AO rejected the stand taken by the assessee and made disallowance u/s 14A.
 
The assessee preferred an appeal before the CIT(A) who allowed the appeal by order dated 16.6.2016. The CIT(A) accepted the stand taken by the assessee that the investments were in growth funds and not dividend funds and therefore, did not constitute tax free income. In this regard, the CIT(A) referred to the decision of the Delhi High Court in the case of Cheminvest Ltd. Vs. CIT [reported in (2015) 378 ITR 33] as well as the decision of the Chennai Tribunal in the case of ACIT Vs. M.Baskaran [ITA.No.1717/Mds/2013 dated 31.7.2014] and accordingly set aside the finding rendered by the Assessing Officer. The Tribunal took note of the decision of this Court in the case of Redington India Ltd. Vs. CIT [reported in (2017) 77 Taxmann.com 257] and dismissed the appeal filed by the Revenue.
 
The Hon'ble Madras HC held that "we find that the Tribunal rightly understood the scope of the transaction done by the assessee. The consistent case of the assessee was that they invested a sum of Rs.7.25 crores in SBI Magnum Insta Cash Fund, that the amount was invested on 30.3.2011, that they had not incurred any expenditure in making such investment and that at the year end, the assessee did not earn tax free income from such investments. In terms of Section 14A of the Act, the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income."
 
Hon'ble HC also observed that "to apply the provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how SubSection (1) of Section 14A of the Act would stand attracted. In the absence of any such finding, the disallowance made was not justifiable. In fact, the Assessing Officer straightaway proceeded to the second limb of Section 14(2) of the Act, which is impermissible. The Tribunal rightly took note of the decision in the case of Redington India Ltd., wherein it was held that the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 cannot be made applicable in vacuum i.e in the absence of exempt income. Therefore, we find that the Tribunal was right in deciding the issue against the Revenue and in favour of the assessee."
 
Citation: Tax Case Appeal No.26 of 2018, Madras HC.

Investment in Growth Fund does not attract 14A disallowance

Mutual fund taxation, growth fund, 14A deduction, income tax

Get the insight of important judicial precedent on Section 36(1)(iii) by clicking on the following link-
 
<h2><a href="https://public.tableau.com/shared/BMY3C6KS7?:display_count=y&amp;:origin=viz_share_link&amp;:showVizHome=no" target="_blank" rel="noreferrer noopener">Tableau Public (Link)</a></h2>
 
Just hover over the chart area, you will get the citation and head note of the case law.
 
Author, Manish Harchandani, CA

Insight of important judicial precedent on Section 36(1)(iii).

judgments on section 36(1)(iii) interest deduction, tax benefit 

A formal Memorandum of Understanding (MoU) was signed today between the CBDT) and the SEBI for data exchange. This will facilitate the sharing of data and information between SEBI and CBDT on an automatic and regular basis. The information will also be shared on request and&nbsp;suo moto&nbsp;basis for the purpose of carrying out their functions under various laws. The formal press release is as under:
https://www.sebi.gov.in/media/press-releases/jul-2020/sebi-signs-mou-with-cbdt_47030.html

CBDT and SEBI sign MoU for data sharing

CBDT Income tax MoU with SEBI, data sharing MoU

Hon'ble Kolkata ITAT allowed the appeal of the assessee and directed the AO to re-compute the disallowance under Rule 8D(2)(iii) by taking into consideration only the value of investment in shares which actually fetched exempt dividend income to the assessee during the year under consideration.
 
The learned counsel for the assessee had contended that the disallowance u/s 14A read with rule 8D is required to be worked out by taking into consideration only the value of investment in shares which actually fetched the exempt dividend income to the assessee and not the value of entire investment as done by the AO. This contention of the learned counsel for the assessee was duly supported by the decision of Hon'ble Kolkata High Court in the case of REI Agro Ltd. GA No. 3022 of 2013 (ITAT No. 161 of 2013).
 
Citation: ITA No. 2061/Kol/2019
 
Author, Manish Harchandani, CA
 
Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Harchandani &amp; Associates does not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

Disallowance u/s 14A r.w. rule 8D to be made by taking into consideration only the value of investment in shares which actually fetched exempt income and not the all investments

14A disallowance, Rule 8D, investment in shares 14A disallowance

Delhi ITAT delete the addition made on account of agency commission paid to Foreign Party (Non Resident) - relied on assessee's own case, wherein it was held that
 
<blockquote class="wp-block-quote">
"the assessee-firm&nbsp; made&nbsp; payments&nbsp; of commission&nbsp; to&nbsp; those&nbsp; agents,&nbsp; since&nbsp; those agents had&nbsp; their&nbsp; offices&nbsp; situated&nbsp; abroad&nbsp; and, moreover, services&nbsp; were&nbsp; also&nbsp; rendered&nbsp; by them&nbsp; outside&nbsp; India, assessee&nbsp; was&nbsp; not required&nbsp; to&nbsp; deduct&nbsp; tax&nbsp; at&nbsp; source while making&nbsp; payments&nbsp; in&nbsp; question.&rdquo;
</blockquote>
 
Citation: ITA.No.5959/Del./2017
 
Author,
 
Manish Harchandani, CA
 
https://harchandani.in/

Articles on Income Tax