CA and CS HUB: 2015

Five ways to make an employee a risk taker

Tips

9:07 am
0 Comments

Five ways to make an employee a risk taker

Tips

9:06 am
0 Comments

I-T department releases list of 18 defaulters owing Rs1,150 crore

CBDT

I-T department releases list of 18 defaulters owing Rs1,150 crore

Stepping up its “name and shame” campaign, the income-tax (I-T) department on Wednesday made public a third list of 18 tax defaulters, including gold and diamond traders, whose dues totalled around Rs.1,150 crore.

The I-T department’s public notice containing the names of the 18 defaulters who have either gone untraceable or have inadequate assets to pay is the third such list this year, after names of 49 defaulters with a tax liability of over Rs.2,000 crore were earlier released.

The list has been compiled by the I-T department and issued by the finance ministry in newspapers carrying names of the defaulting individuals or entities, their last known addresses, permanent account numbers, amount of arrears, last known source of income and the assessment years for which they have not paid taxes.

A whopping Rs.779.04 crore default of income and corporate taxes has been reflected in the name of Mumbai-based Uday M. Acharya (late) and his legal heirs Amul Acharya and Bhavana Acharya.

A number of defaulters whose names have been put in the public domain on Wednesday, under the “naming and shaming” policy adopted by the taxman early this year, have their last source of income shown from the trade of jewellery, diamonds and gold.

“The total tax default by these 18 defaulters under the personal income tax and corporate tax category is Rs.1,152.52 crore. This is the third list put in public domain by the I-T department,” a senior official with direct knowledge of the matter said.

The I-T department, in the notice, has asked these “defaulters” to pay their arrears “immediately” and at the same time asked the public to inform it if they have any knowledge of these people.

Others figuring in the latest list include Ahmedabad-based Jag Heet Exporters Pvt. Ltd (Rs.18.45 crore), Jashubhai Jewellers (Rs.32.13 crore), Kalyan Jewels Pvt. Ltd (Rs.16.77 crore), Liverpool Retail India Ltd (Rs.32.16 crore), Dharnendra Overseas Ltd (Rs.19.87 crore) and Praful M. Akhani (Rs.29.11 crore).

Hyderabad-based Nexxoft Infotel Ltd owes Rs.68.21 crore in default while Bhopal-based Great Metals Products Pvt. Ltd owes Rs.13.01 to the I-T department in arrears and as unpaid taxes, the notice said.

The public notice mentions that a number of these assesses are either “not traceable” or have “inadequate or no assets for recovery.” The department has also mentioned, against the name of each defaulter, the regional I-T authority to whom any information can be given by the public about them.

The period of assessment of these defaulters range from 1989-90 to 2013-14. “The entries in the list are specific to the tax arrear and assessment year mentioned. The tax defaulter’s address, business, shareholding and management may have changed,” the notice said. PTI

Source : Livemint

7:29 am
0 Comments

Scrutiny notice must seek specific details from taxpayers: CBDT

CBDT

Scrutiny notice must seek specific details from taxpayers: CBDT

In order to bring down instances of harassment of taxpayers, the Central Board of Direct Taxes (CBDT) has asked its field offices to make sure the assessment notice contain details of specific information or documents to be furnished by the assessee.

Issuing the instruction, the CBDT said that while issuing the first notice, the assessment officers (AOs) do not convey to taxpayers the specific compliance requirement such as production of accounts and furnishing of documents.

“In cases selected for scrutiny, it should be the endeavour of the AO that the initial notice be issued... along with the questionnaire containing details of specific document, information and evidence that are required to be furnished by the taxpayer in connection with scrutiny assessment proceeding in their respective cases,” the CBDT said in a statement.

It said that since taxpayers are required to comply with the statutory notice issued by the AO, they remain “clueless” about the information required to be submitted. “... and their appearance before the AO does not serve any fruitful purpose except recording of their presence. This causes undue hardships to taxpayers and unnecessary wastage of their time,” the CBDT said.

“Since CASS (computer assisted scrutiny selection) cycles are proposed to be run well in advance now, sufficient time shall be available with the AO to go through the returns of income which have been selected for scrutiny and identify the issues which require examination,” it said.

On this specific instruction, Nangia and Co. managing partner Rakesh Nangia said, “This shall deter AOs from asking roving and general questions, causing unnecessary fear in the minds of innocent taxpayers.”

With the objective of providing better taxpayer services, improving ease of doing business and reducing the burden of compliance on the taxpayer, the CBDT has taken a number of decisions in the recent past. “With a non-adversarial approach on minds of our policymakers, it is time to bid adieu to unnecessary troubles and harassment of taxpayers,” Nangia added. PTI
Source : Livemint

7:28 am
0 Comments

CBDT Makes Electronic filing of first appeal before CIT(Appeals) Mandatory

CBDT

7:26 am
0 Comments

GST- Proposed Input tax credit methodology

GST

GST- Proposed Input tax credit methodology

CMA Ramesh Krishnan

Goods & Service tax (GST), the mile stone tax reform since independence of India is on its way to implementation journey and proposed GST bill is under discussion everywhere. This is very crucial stage to understand the various methodologies proposed in the GST bill.

As we all aware that GST is the value added tax, we can take input tax credits as like present VAT credits in various taxes/levies by the Central & State Governments. Proposed GST given the provision of manner of taking input credit and utilization thereof.

The present scenario of adjusting tax payable under state VAT can be adjusted with state tax input & Central VAT payable with central VAT input (CENVAT), the same scenario will be followed in GST also addition to that the dealer can take the input on the interstate transactions also.

GST refers the Goods & Service tax and it going to comprise the various VAT acts presently in force at state and central levels. Hence the proposed GST has the different kind of taxes whish as follows:

CGST – Central Goods & Service tax which levied by Centre
SGST – State Goods & Service tax which levied by State
IGST – Integrated Goods & Service tax .This is tax which will be attracting on inter-state supply of goods & services. This will be levied and collected by the Central Government. This would be CGST plus SGST
Inputs tax credit methodology: Input credit on CGST can be adjusted against would be available for payment of CGST and the input credit on SGST would be available for the payment of SGST, the cross utilization between CGST & SGST can be adjusted only for the inter-state transactions only.

The IGST which levied on the interstate supply of goods & service, the interstate seller will pay IGST after availing of the credit of IGST, SGST & CGST on their purchases.

The input credit allowed full only in the case of goods/services used for the purpose of business, if the use is for partly business and partly for other purpose, then the credit will be restricted to the extent of business purpose.

In case the goods or services used for the purpose of effecting taxable supplies and partly effecting non taxable (exempted supplies) and zero rated supplies then the amount of credit will be restricted only to the extent of taxable supplies & zero rated supplies

Example: Input tax available on purchases Rs. 100 and out tax goods supplies going to affect Rs.50 taxable goods, Rs,30 Exempted goods and Rs.20 zero rated supplies then the credit will be available for the out tax goods Rs. 80 (50+30) .

In simple words, this is existing provision such as input not available when manufacturing, supply exempted goods.

Manner of utilization:

IGST- The input tax available in IGST will be utilized first to make the payment of IGST and if anything remains shall be utilized next to CGST, and finally still remaining balance can be utilized to SGST

CGST- The input tax available in CGST will be utilized first to make the payment of CGST and if anything remains shall be utilized next to IGST. CGST input cannot be utilized against SGST

SGST- The input tax available in SGST will be utilized first to make the payment of SGST and if anything remains shall be utilized next to IGST. SGST input cannot be utilized against CGST

Where the input tax exceeds for the same period in any of IGST ,CGST, SGST may be carried forward to subsequent period and adjusted with output tax as the same manner and order as above.

Table :- GST Input utilization mechanism

Any unutilized credit available at the end of tax period at any category of input may be refunded as per act.

GST restrict the input tax credit and not available for the following

A. motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) Transportation of passengers,

(ii) Transportation of goods,

(iii) Imparting training on motor driving skills;

B. High speed diesel oil, motor spirit, aviation turbine fuel, petroleum crude oil, aviation gasoline,

C. goods or services provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee.

D. Goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

E. Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

F. Goods and/or services on which tax has been paid under section 8 of the Act (Compound levy)

G. Goods and/or services used for private or personal consumption, to the extent they are so consumed.

CMA Ramesh Krishnan

7:25 am
0 Comments

Applicability Of Indian Accounting Standards

IND AS

Applicability Of Indian Accounting Standards

Deepak Basist

MCA notifies Roadmap for applicability of Indian Accounting Standards

1. Any company may comply with the Indian Accounting Standards (hereinafter referred to as the “IndAS”) for financial statements for accounting periods beginning on or after 1stApril, 2015, with the comparatives for the periods ending on 31st March, 2015, or thereafter

Please note that, if you once adopted then you cannot turning back, the company can’t prepare the financial statements in accordance with Accounting Standards specified in Annexure to Companies (Accounting Standards) Rules, 2006 again. It will have to comply with IndAS only.

2. The following companies shall comply with the IndAS for the accounting periods beginning on or after 1st April, 2016, with the comparatives for the periods ending on 31st March, 2016, or thereafter, namely:-

a. companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of rupees five hundred crore or more;

b. companies other than those covered by sub- rule (a) of rule 2 and having net worth of rupees five hundred crore or more;

c. holding, subsidiary, joint venture or associate companies of companies covered under sub-rule (a) of rule (2) and sub-rule (b) of rule (2).

3. The following companies shall comply with the Indian Accounting Standards (IndAS) for the accounting periods beginning on or after 1st April, 2017, with the comparatives for the periods ending on 31st March, 2017, or thereafter, namely:-

a. companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees five hundred crore;

b. companies other than those covered in sub- rule (a) of rule (2) and sub-rule (a) (3), that is, unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore.

c. holding, subsidiary, joint venture or associate companies of companies covered under sub-rule (a) of rule (3) and sub-rule (b) of rule (3).

For the purposes of calculation of net worth of companies under rule (2) and rule (3), the following principles shall apply, namely:-

The net worth shall be calculated in accordance with the stand-alone financial statements of the company as on 31st March, 2014 or the first audited financial statements for accounting period which ends after that date

Net Worth

Paid Up Share Capital + All reserves created out of Profits + Security Premium – Accumulated Losses – Deferred Expenditure – Misc. Expenses Not written off.

(However, It doesn’t include Reserves created out of

Revaluation of Assets,
Write Back of Depreciation, and
Amalgamation)
Non-applicability:

The following rules are not applicable on the following companies-

Insurance Companies
Banking Companies
Non Banking Finance Companies
For the rest of companies, no official announcement has been made so far, however, Any company can voluntarily adopt the Ind(AS) as a good corporate practice

For better clarification please refer below table:

Relevant Accounting Financial Year Ind AS 2015 Accounting Standard 2006 · Financial statements for accounting periods beginning on or after 1 st April, 2015.
Any Company Any Company · Financial Statement for the accounting periods beginning on or after 1st April, 2016. (a) Companies whose equity or debt securities are listed/ in the process of listing on any stock exchange (other than SME Exchange) in India/abroad and having net worth of rupees five hundred crore or more;
Or;

(b) Companies having net worth of rupees five hundred crore or more.

Or;

Other than those companies which are Specified in same row of column (2). · Financial Statement for the accounting periods beginning on or after 1st April, 2017. a) Companies whose equity or debt securities are listed/are in the process of listing on any stock exchange (other than SME Exchange) in India/abroad and having net worth of less than rupees five hundred crore.
Or;

(b) Unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore.

Or;

Other than those companies which are Specified in same row of column (2).

(Author can be reached at deepakbasist03@gmail.com)

7:24 am
0 Comments

CBI Register disproportionate assets case against Director (Investigation), Settlement Commission, Chennai

Others

7:23 am
0 Comments

Exemption u/s 10A available on undisclosed income surrendered during survey proceeding u/s 133A

ITAT judgments

Exemption u/s 10A available on undisclosed income surrendered during survey proceeding u/s 133A

Case Law Citation

M/s Bridal Jewellery Mfg. Co.Vs. ITO (ITAT Delhi),ITA No. 4954/Del/2011, Date of decision: 18-12-2015

Brief about the case

The assessee was a partnership firm manufacturing & exporting gold jewellery. Being located in Noida Special Economic Zone (NSEZ) it claimed exemption of income under section 10A of the Act. The assessee was selected for scrutiny wherein the AO verified and allowed the claim of the assessee for exemption u/s 10A. During the year under consideration a survey u/s 133A of the Act was carried out and physical stock of gold 12kg and some loose leaflets of papers were found which did not reconcile with the books.

The assessee surrendered Rs.11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The AO made the addition of Rs.1,31,00,000/- on account of suppression of 12kg stock manufacturing charges and other discrepancies.

The issue went to CIT (A) which further affirmed AO’s order.

Thereafter, the assessee appealed to ITAT (Delhi) which partly allowed the appeal considering the fact that The gold recovered by the assessee from the wastage was in its regular course of business of manufacturing and export of gold jewellery and there was no local sale therefore it was eligible for exemption u/s 10A.

Facts of the case:

The assessee was a partnership firm engaged in manufacturing & Export of Gold Jewellery, located in Noida Special Economic Zone (NSEZ) and was claiming its income exempt u/s 10A of the Act.
The assessee filed the return of income declaring Nil income on 29.10.2007 after claiming the exemption u/s 10A of the Act.
The said return was processed u/s 143(1) of the Act on 13.03.2009 and later on selected for scrutiny.
The claim of the assessee for exemption u/s 10A of the Act was verified by the AO and found the same in order.
During the year under consideration a survey u/s 133A of the Act was carried out on 03.08.2006 and physical stock of gold was taken. On verification from the books of accounts, a difference of 12kg of gold was found. Some loose papers were also found which did not tally with the entries of books of accounts.
Thereafter the assessee surrendered a sum of Rs.1,31,00,000/- on account of various discrepancies.
The AO made the addition of Rs.1,31,00,000/- which was earlier surrendered by the assessee during the course of survey on account of suppression of stock manufacturing charges and other discrepancies.
The aggrieved assessee went in appeal to CIT(A).
The assessee submitted before CIT (A) that:
The surrender was made under coercion and illegal.
the customs has also accepted the fact that jewellery manufacturing units recover gold from wastage as this is a precious item. Further held that 1.6- 1.7% is the wastage and recovery of 25%-35% is feasible.
the entire jewellery manufactured was exported outside India to various concerns and 12kg gold which was recovered out of wastage was entered in the books of accounts after the survey and that the jewellery made from the same was also exported. Therefore, the AO having accepted the fact that the income generated from export of jewellery is exempt under section 10A, there was no need on part of the assessee to have gold outside the books of accounts.
The ld.CIT(A) did not accept the assessee’s claim of genuine possession of gold stock and Accordingly, the addition of Rs.1,31,00,000/- made by the AO.
The assessee further went in appeal to the ITAT which pronounced that the assessee entered sales in the books of accounts and claimed the exemption u/s 10A of the Act. Therefore, the addition made by the AO was not justified when the assessee had already shown the sales of the impugned amount in the books of accounts, and as such the addition made by the AO and sustained by the ld. CIT(A) for a sum of Rs.1,20,00,000/- was not justified.
It was also stated that the income of Rs.11 lakhs disclosed by the assessee was in the regular course of export business; therefore, the exemption u/s 10A of the Act was allowable on the said income also.
The assessee surrendered Rs.11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. Hence the appeal is partly allowed.
Contention of the Revenue

The accumulated gold amounting to Rs.120 lakhs on account of manufacturing process has never been shown in the stock books nor have any accounts been filed during the course of assessment proceedings.
The assessee itself accepted the discrepancies of Rs.11 lakhs on account of incomplete/defective books; therefore, merely incorporating these entries later in books of accounts would not negate surrender of the additional income of Rs.11 lakhs.
There is no evidence or even any sign of any pressure or coercion apart from automatic mental pressure, which is normal during any such survey, especially when huge discrepancies are detected.
Contention of the Assessee

The CIT(A) has erred in law and on facts in not allowing the deduction u/s 10A on the amount ofRs.1,20,00,000/- on account of excess stock found during survey which was accumulated on account of normal loss of manufacturing process.
The customs have also accepted the fact that jewellery manufacturing units recover gold from wastage as this is a precious item. Further held that 1.6-1.7% is the wastage and recovery of 25%-35% is feasible.
The CIT(A) has erred in law and on facts, in upholding the addition of Rs.11,00,000/- which is made without any incriminating document found during survey and without pointing any defect in the books of account.
The surrender letter was never voluntary and was made under coercion and pressure.
In the present case, it is an admitted fact that the assessee was engaged in the manufacturing of jewellery, during the process of manufacturing on behalf of the customers, the gold wastage in the range of 1.65 to 1.85% was recovered from the gold of the customers, the said wastage was due to dust, impurities etc. and out of the said wastage the assessee was allowing 1% wastage to its worker. In this manner, the assessee was saving gold to the extent of 0.6% to 0.85% and recovered gold accumulated to the extent of 12kg. The gold recovered by the assessee from the wastage was in its regular course of business of manufacturing and export of gold jewellery and there was no local sale.In the present case, the deduction u/s 10A of the Act has not been denied by the AO. Therefore, the addition of Rs.1,20,00,000/- made by the AO and sustained by the ld. CIT(A) was justified but the assessee is entitled for deduction u/s 10A of the Act on the said addition because the said income was directly related to the export business of the assessee. As regards to the another addition of Rs.11 lakhs is concerned, the said amount was disclosed by the assessee itself to cover up the various discrepancies found during the course of survey but that discloser was also related to the regular business of the assessee and it was not from the sources other than thebusiness. On the said income of Rs.11 lakhs disclosed by the assessee, the exemption u/s 10A of the Act was available. The decision of the Hon’ble Madras High Court in the case of CIT Vs S. Khader Khan Son (2008) 300 ITR 157 is of no help to the assessee.
In view of the above we uphold the addition made by the AO and sustained by the ld. CIT(A), however, the AO is directed to allow the deduction u/s 10A of the Act.
Therefore, the appeal of the assessee is partly allowed.
Direct Link to download full text of the above Judgment/ Order from official website:

http://itatonline.org/archives/wp-content/uploads/Bridal-Jewellery-10A-Undisclosed-Income.pdf

CA Geeti Grover

7:22 am
0 Comments

Only Investments in respect of which income is exempt to be considered in working of disallowance U/s. 14A

ITAT judgments

Only Investments in respect of which income is exempt to be considered in working of disallowance U/s. 14A

Case Law Citation: Sesa Resources Ltd. vs. ACIT (ITAT Panaji Bench), IT Appeal No. -252 & 267 of 2015,

AY 2009-10, Date of Pronouncement – 20.08.2015

Brief of the case :

The ITAT bench of Panaji in the case of Sesa Resources Limited held that the disallowance under Sec 14A read with rule 8D can be made only in respect of investments which are earning income exempt from tax and not the total investments.
Thus, in the present case AO made a factual error by taking the figure of total investments while working out disallowance as per formula prescribed in Rule 8D.
Facts of the case:

The assessee had taken loans and also made some investments during the previous year. It filed its return of income reporting disallowance of Rs. 2,05,410/- u/s 14A read with Rule 8D.AO recomputed the disallowance and made disallowance u/s 14A of Rs. 2.41 crores in respect of interest and an additional 0.5% of the investments amounting to Rs. 89 lacs.
The CIT(A) confirmed an addition of 86 lacs u/s 14A , aggrieved assessee is in appeal against CIT(A)’s order.
Contention of Assessee:

The learned counsel for the assessee relied on the decision of co-ordinate bench of ITAT Kolkata in the case of REI Agro Limited and contended that the AO made a factual error in working out disallowance u/s 14A as per formula prescribed in Rule 8D. AO erred in taking all investments instead of taking only investments which are earning incomes not forming part of total income.
Issue before ITAT :

Whether CIT(A) erred in upholding the disallowance u/s 14A considering all investments while working out disallowance as per Rule 8D?
As per the provisions of Sec 14A any expenditure incurred in relation to earning an income which is exempt from tax is to be disallowed. Further, the interest expenses which are not directly attributable to earning any income are required to be proportionately disallowed by applying formula as prescribed in Rule 8D.
The formula prescribed require value of average investments from which exempt income is earned to be put in numerator. However, AO has considered the total investments including those which are not earning any exempt income.
Thus, it is not the total investment rather average investment which have earned income exempt from tax(i.e. not forming part of total income) to be considered while working out disallowance as per formula prescribed under Rule 8D.
Tribunal also placed reliance on the decision of co-ordinate bench of ITAT Kolkata in the case of REI Agro Ltd. , who gave the similar reasoning on identical facts. Accordingly, the matter was remitted back to file of AO to work out disallowance by correcting the factual error committed.
Issue – 2 Disallowance of commission paid to foreign agents u/s 40(a)(ia)-

Assessee paid commission to foreign agents without deducting any tax at source. AO disallowed the same applying the provisions of Sec 195(1) read with Sec 40(a)(ia) and as per the AO the same was even otherwise not allowable as it was not incurred for the purpose of assessee’s business. However, the said disallowance was deleted by CIT(A).
In appeal before tribunal , it observed that the provisions of Sec 195 have been amended retrospectively by Finance Act,2012 by way of insertion of Explanation II which provides that liability to deduct and pay such deducted tax at source would be of any person liable to pay sums chargeable to tax in India irrespective of the residential status of the person making payment and would extend even to cover up the cases when the person not having a residence or place of business in India or any other presence in India.
It is therefore, the assessee was liable to deduct tax at source in view of the aforesaid explanation II to Sec 195 and failure of the assessee to do so , AO was right in disallowing the said sum u/s 40(a)(ia).
In result the appeal of revenue was allowed on this ground. Taxguru

7:22 am
0 Comments

Inputs / Capital goods used in R&D and Quality Control Laboratory for input testing, final product samples eligible for Cenvat credit

high court judgments

Inputs / Capital goods used in R&D and Quality Control Laboratory for input testing, final product samples eligible for Cenvat credit

CA Bimal Jain

Inputs and Capital goods used in R&D and Quality Control Laboratory for purpose of testing of inputs, samples of final products, etc., are eligible for Cenvat credit
Sabic Innovative Plastics (P.) Ltd. Vs. Commissioner of Central Excise & Service Tax, Vadodara-I [2015(63) taxmann.com 318 (Ahmedabad – CESTAT)]

Facts:

Subic Innovative Plastics (P.) Ltd. (the Appellant) had taken Cenvat credit on inputs and capital goods used in Research and Development (R&D) and Quality Control Laboratory situated in the factory premises. Further, the said Laboratory was meant for testing inputs & the samples and on approval of the samples, orders were received from the customers. The Department denied the Cenvat credit on ground that the inputs and the capital goods used in the Laboratory cannot be said to be used in or in relation to manufacture of finished goods.

Held:

The Hon’ble CESTAT, Ahmedabad relied upon the following cases:

USV Ltd. Vs. CCE [2006 (195) ELT 158 (Tri. – Mum.)];
Tata Engg. & Locomotive Co. Ltd. Vs. CCE [2010 (256) ELT 56 (Bom.)];
Sudarshan Chemicals Inds. Ltd. Vs. CCE [2010 (262) ELT 974 (Tri. – Mum.)].
and held that as per Rule 2(a) of the Credit Rules, only requirement in relation to capital goods is that they must be used within factory of the manufacture of final goods and there is no requirement as to use for manufacture. In the instant case, the Appellant is using the laboratory for carrying out test as per the specifications and requirements of the customers, to match the specifications as per global norms and also for developing new products for the customers, etc. Thus, such activity in R&D and Quality Control Laboratory is essential for manufacture of the finished goods and has to be held in relation to the manufacture of the excisable goods and therefore, eligible for Cenvat credit as per Rule 3 read with Rule 2(a) and Rule 2(k) of the Credit Rules.

(Author can be reached at Email: bimaljain@hotmail.com)

CA Bimal Jain

7:21 am
0 Comments

Excise dues payable by old Company cannot be recovered from assessee when assessee purchased only assets of old Company

high court judgments

7:20 am
0 Comments

Delhi VAT: Clarification on Registration of e-commerce Dealers

DVAT

7:18 am
0 Comments

Tax free bonds outperform equities, strong performance to continue

Investment Tips

7:24 am
0 Comments

What the New KYC Norms Mean for Your Mutual Fund Investment

Mutual Funds

What the New KYC Norms Mean for Your Mutual Fund Investment

All mutual fund investors, whether new or existing, will have to provide additional Know Your Customer (KYC) details to their fund houses.
Here is a 10-point cheat-sheet

1) In September this year, Association of Mutual Funds of India came out with a circular directing the mutual fund companies to collect additional information from new investors from November 1, 2015 to comply with norms of the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS). The mutual fund body advised fund houses to make the additional KYC information mandatory for investors from January 1, 2016.

2) FATCA is an inter-governmental agreement signed between the US government and 50 countries including India where financial institutions dealing with US residents (green card holders or citizens) have to disclose the details of the income of their clients. This will help the US government to curb tax evasion.

3) CRS is a similar reporting standard developed by G20 and the Organisation for Economic Cooperation Development (OECD) to tackle the problem of offshore tax evasion and stashing of unaccounted money abroad.

4) The additional KYC detail a mutual fund investor has to provide under FATCA, and CRS include gross annual income, net worth, occupation, source of wealth and country of birth.

5) If the investor is tax resident in any country other than India, then the additional information required include tax identification number and country of tax residency.

6) An investor can update the information both online and offline. If an investor has invested in more than one mutual fund, he/she has the option to update the information online by visiting the respective website of the fund house.

7) Or the investor can download the form and submit it on the point-of-services or nearest office of the mutual fund house.

8) To avoid updating the KYC information with multiple fund houses, investor can simply update it with the registrars. Both the mutual fund registrars, CAMS and Karvy which record the transaction of the mutual fund investors, have sent emails to investors providing link to update the additional information online.

9) Investors can also submit the duly signed form at the nearest Karvy or CAMS office after downloading it from the registrar's website.

10) If mutual fund investor is serviced by a single registrar, then they don't have to have to update the information with both the registrars. But in case they want to start a new investment in a mutual fund which is using services of the other registrar, then they have to update the information with both registrars.

Source : NDTV

12:02 am
0 Comments

Income tax department conducts searches on pulses traders, others

Income Tax

11:59 pm
0 Comments

Sebi penalizes Amtek Auto for non-redressal of investor complaints

SEBI

11:58 pm
0 Comments

I-T officials search NCDEX office

Income Tax

11:56 pm
0 Comments

Frequently asked questions on Central Excise/Service Tax Audit

Customs

Frequently asked questions on Central Excise/Service Tax Audit

AUDIT: FREQUENTLY ASKED QUESTIONS

[For general information – not statutory provisions]

Question 1: What is Central Excise/Service Tax Audit?

Ans: Audit is a verification of financial accounts and other records particularly records relating to production, clearance of goods or provision of service by the assessees to ascertain that duties of Central Excise / Service Tax are correctly paid.

Question 2: Who Conducts the Audit?

Ans: The Central Excise officers posted in Commissionerate of Audit conducts Audit which include Assistant / Deputy Commissioner, Joint / Additional Commissioner or Joint Director (Cost).

Question 3: When I file returns periodically to the department, what is the need of conducting audit?

Ans: The returns filed with the department are based on self assessment. The correctness of the payment and application of statute are verified during the periodical Audits conducted by the department.

Question 4: What is the selection criteria?

Ans: In terms of revised selection methodology prescribed vide Circular No. 995/2/2015-CX dated 27th Feb, 2015, which has come into effect from 01st July, 2015, an annual schedule for audit would be drawn based on the risk evaluation method prescribed by the Directorate General of Audit. The risk assessment function will be jointly handled by National Risk Managers (NRM) situated in the Directorate of Audit and Local Risk Managers (LRM) heading the Risk Management Section of Audit Commissionerates. The Audit Commissionerates could also select few units at random or based on risk perception in each category of large, medium and small tax payers.

Note: Annual Schedule of Hyderabad Audit Commissionerate is placed on website. Question 5: What is the duration of the Audit?

Ans: It depends upon the quantum of the record to be scrutinized and period covered for audit. In any case it may spread from two days to ten days.

Question 6: Will it be a surprise audit?

Ans: No. A minimum of 15 days prior notice is served on the assessees regarding proposed audit.

Question 7: If I am registered for both Central Excise and Service Tax, whether two separate audits are conducted?

Ans: Simultaneous Audit for Central Excise, Service Tax and OSPCA would be conducted.

Question 8: If factory is registered in one Commissionerate, Service Tax registration is in another Commissionerate, where registered office is located, what is the criterion for selection of audit?

Ans: If both the registrations i.e., Central Excise and Service Tax are in Hyderabad zone, simultaneous audit would be conducted by Audit Commissionerate.

Question 9: If an assessee is having multi location manufacturing units, who conducts audit?

Ans: Normally audit for Hyderabad Zone registered units is conducted by Hyderabad Audit Commissionerate. Multi locational units’ audit in a few cases would be taken up under the Co-ordination of Audit Directorate.

Question 10: Under what authority department conducts audit?

Ans: The statutory provisions relevant for audit is clause (x) of Section 37(2) and Rule 22 of the Central Excise Rules, 2002 for conducting Central Excise Audit and Rule rule 5A (2) of the Service Tax Rules, 1994 for Service Tax audit.

Question 11: Do I need to produce all my business records/documents?

Ans: Since there are no prescribed Central Excise records, records maintained by the assessees are requested for scrutiny. These may include, financial statements, invoices, ledgers, bank statements, cenvat credit documents, accounting policies etc., apart from statutory returns.

Question 12: How much time is given for production of records?

Ans: As an intimation of 15 days is given in advance, all records should be furnished to the audit team on or before their visit to the unit for audit.

Question 13: If records/accounts are maintained on a system using accounting packages like SAP/Tally/Focus etc., what is the procedure for conducting audit?

Ans: In such cases, normally Computer Aided Audit Programme is conducted. You are requested to produce the soft copy of the records and also the records maintained in physical form.

Question 14: Can I ask for postponement of audit due to prior business engagements?

Ans: Yes. In genuine cases on production of proper evidence, the competent authority may consider the request for postponement. Since the audit programme is drafted months in advance, postponements are not encouraged.

Question 15: Will I get to know the objections raised during audit?

Ans: Yes. The auditors discuss each and every objection they are going to raise and issue a spot memo. If assessees voluntarily rectify the error and corrects the same by payment of duty, interest and penalty etc., the para would be settled in MMCM.

Question 16: Can I get a copy of Final audit report?

Ans: Yes.

Question 17: How long does it take to receive Final Audit Report?

Ans: Normally within 15 days from the date of approval of audit report in Monthly Monitoring Committee meeting.

Question 18: Do I have opportunity to contest of the audit objection after receipt of Final Audit Report?

Ans: Yes, you may like to send your detailed reply to the concerned ADC/JC of the circle.

Question 19: What is the next cource of action if the Department do not agree with my reply?

Ans: A Show Cause notice is issued by the Audit Commissionerate answerable to respective competent authority in executive Commissionerate. The assessees written reply and submissions made in personal hearing will be considered and the case will be adjudicated.

Question 20: In case of grievance regarding the method of audit or behaviour of auditors, whom should I contact?

Ans: You may contact the concerned circle Additional Commissioner. The assessees are also provided along with final audit report, a feed-back form regarding quality of audit and suggestions for improvement of audit.

Question 21: Can I get guidance from the auditors regarding record keeping and application of law?

Ans: Yes. The auditors are professionally trained to guide, educate and encourage tax compliance.

Source- taxguru

11:55 pm
0 Comments

Section 14A disallowance only for Expenses not directly relatable to exempt or taxable Income

ITAT judgments

Section 14A disallowance only for Expenses not directly relatable to exempt or taxable Income

Case Law Citation

Pr. CIT Vs. Bharti Overseas Pvt. Ltd. (Delhi High Court), ITA No. 802/2015,Date of decision: 17-12-2015

Brief about the case

The assessee company was engaged in the promotion of international telecom business and insurance business and filed its original return of income on declaring loss of Rs.16,07,22,655. The income was revised on16thDecember 2009, at a loss of Rs. 13,93,37,943. Consequent to the return having been picked for scrutiny, the AO observed the Assessee had shown dividend income of Rs.89, 02,540 out of which Rs. 68, 44,790 was claimed as exempt under section 10(34) of the Act. The Assessee was asked to show cause why a disallowance under Section 14A of the Act read with Rule 8D should not be made for the expenditure incurred in relation to income not forming part of the total income.

The Assessee claimed that it had incurred 10% of the exempt income as expenditure but the AO did not accept his claim. Thereby the disallowance of Rs. 2,79,02,402 was added to the taxable income of the Assessee. The Assessee then appealed to the CIT(A). It was contended by the Assessee that Rule 8D would apply only if the AO,having regard to the accounts of the Assessee of a previous year, was not satisfied with the correctness of the claim of expenditure made by the Assessee. According to the Assessee there was no such recording of satisfaction to justify the invoking of Rule 8D.

The CIT(A) reduced the disallowance and therefore the Revenue went in appeal before the ITAT.The ITAT was of the view that since there was no common interest in the present case allocation under Rule 8D(2)(ii) does not apply.

The object behind Section 14A (1) is to disallow only such expense which is relatable to tax exempt income and not expenditure in relation to any taxable income. This object behind Section 14A has to be kept in view while examining Rule 8D (2) (ii). In any event a rule can neither go beyond or restrict the scope of the statutory provision to which it relates.

The Delhi High Court held that Variable ‘A’ prescribed in the formula in Rule 8D(2)(ii) (to make disallowance in case of common interest expenditure) would exclude both interest attributable to tax exempt income as well as taxable income.

Therefore the Court is unable to agree with the Revenue that in adopting the above interpretation the ITAT has on its own read down Rule 8D (2) (ii) of the Rules and therefore travelled beyond the scope of its jurisdiction and powers.

Facts of the case:

The assessee company was engaged in the promotion of international telecom business and insurance business and filed its original return of income on declaring loss of Rs.16,07,22,655.
the return having been picked for scrutiny, the AO observed the Assessee had shown dividend income of Rs.89, 02,540 out of which Rs. 68, 44,790 was claimed as exempt under section 10(34) of the Act. The Assessee was asked to show cause why a disallowance under Section 14A of the Act read with Rule 8D should not be made for the expenditure incurred in relation to income not forming part of the total income.
The Assessee claimed that it had incurred 10% of the exempt income as expenditure but the AO did not accept his claim.
The CIT (A) observed that during appeal proceedings, it was found that “actually the amount of interest attributable to the earning of dividend income should have been taken at proportion of Rs. 83 lacs for the purpose of applying Rule 8D and not Rs. 5,52,83,131 as adopted by the AO”. The disallowance was therefore re-worked at Rs.37,11,031. After adjusting the sum offered by the Assessee, the disallowance was restricted to Rs.30, 26,552.
The Revenue went in appeal before the ITAT. The ITAT referring to the deciusion of Kolkatta Bench of ITAT in ACIT v. Champion Commercial Co. Ltd., (2012) 139 ITD 108, which in turn referred to the decision of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd (supra) and held that for the purposes of Rule 8D (2) (ii), the amount of interest not attributable to the earning of any particular item of income, i.e., ‘common interest expenses’ that was required to be allocated would have to exclude both expenditures, i.e., interest attributable to tax exempt income as well as that attributable to taxable income. The ITAT, therefore, was of the view that since there was no common interest in the present case allocation under Rule 8D(2)(ii) does not apply. Hence ITAT upheld the decision of CIT(A).
The object behind Section 14A (1) is to disallow only such expense which is relatable to tax exempt income and not expenditure in relation to any taxable income. This object behind Section 14A has to be kept in view while examining Rule 8D (2) (ii). In any event a rule can neither go beyond or restrict the scope of the statutory provision to which it relates.
Rule 8D (2) states that the expenditure in relation to income which is exempt shall be the aggregate of (i) the expenditure attributable to tax exempt income, (ii) and where there is common expenditure which cannot be attributed to either tax exempt income or taxable income then a sum arrived at by applying the formula set out thereunder. What the formula does is basically to “allocate” some part of the common expenditure for disallowance by the proportion that average value of the investment from which the tax exempt income is earned bears to the average of the total assets. It acknowledges that funds are fungible and therefore it would otherwise be difficult to allocate the sum constituting borrowed funds used for making tax-free investments. Given that Rule 8D(2)(ii) is concerned with only ‘common interest expenditure’ i.e. expenditure which cannot be attributable to earning either tax exempt income or taxable income, it is indeed incongruous that variable A in the formula will not also exclude interest relatable to taxable income.
There the ITAT said that by not excluding expenditure directly relatable to taxable income, Rule 8D(2)(ii) ends up allocating “expenditure by way of interest, which is not directly attributable to any particular income or receipt, plus interest which is directly attributable to taxable income.” This is contrary to the intention behind Rule 8D(2)(ii) read with Section 14A of (1) and (2) of the Act.
What the ITAT has done in the present case instead is to follow its earlier decision in ACIT v. Champion Commercial ltd. [2012] 26 taxmann.com 342 (Kol.) which in turn followed the decision of the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. (supra). The ITAT did not on its own read down rule 8D (2) (ii). Rather, it went by the stand taken by the Revenue before the Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. (supra) in countering the challenge to the constitutional validity of Rule 8 D (2). The stand of the Revenue was that variable A in the formula in Rule 8D (2) (ii) would exclude both interest attributable tax exempt income as well as taxable income.
In the case in hand, in the computation of income submitted by the Assessee, the total interest debited to the profit and loss account was Rs.5,52,83,131. There was an entry regarding interest on loans given to two entities. After accounting for the other interest expenditure, the Assessee computed the total interest expenditure which was allowable as Rs.83,90,178. In the computation drawn up by the Assessee, the entire interest expenditure was incurred for earning either taxable income or exempt income. There was no interest amount which was not directly attributable to either the tax exempt or taxable income. The ITAT, therefore, correctly observed in the present case “no portion of interest really survives for allocation under Rule 8D (2) (ii)”. However, as rightly pointed out by the ITAT, since the Assessee did not challenge the order of the CIT (A) to the extent it restricted the disallowance,that part of the order of the CIT (A) remained.
Therefore the Court is unable to agree with the Revenue that in adopting the above interpretation the ITAT has on its own read down Rule 8D (2) (ii) of the Rules and therefore travelled beyond the scope of its jurisdiction and powers.
Contention of the Revenue

The ITAT was incorrect in affirming the order of the CIT(A) which had confined the disallowance under Section 14A of the Act to Rs. 30,26,552 for the AY in question
The ITAT cannot read down ule 8D(2)(ii) of the Income Tax Rules 1962 as its beyond its jurisdiction.
Contention of the Assessee

The assessee submitted that on a collective reading of Section 14A of the Act and Rule 8D of the Rules, it is plain that if the variable ‘A’ under Rule 8D(2)(ii) is interpreted to include interest expense directly relatable to earning taxable income, then in effect it would result in disallowance of a certain portion of otherwise permissible deduction under the Act. This would be contrary to the very purpose and object of Section 14A of the Act.
The question sought to be urged before this Court is whether the ITAT was correct in affirming the order of the Commissioner of Income Tax (A) [‘CIT(A)’] which had confined the disallowance under Section 14A of the Act to Rs. 30,26,552 for the AY in question?
In this regard the High Court held that As far as Rule 8D (2) (i) is concerned, the AO has necessarily to record that he is not satisfied with the correctness of the claim of the expenditure made by the Assessee in relation to the income which does not form part of the total income . That this requirement is mandatory is now well settled in view of the decision of this Court in Maxopp Investment (supra). For Rule 8 D (2) (ii) to apply there has to be some expenditure by way of interest “which is not directly attributable to any particular income or receipt.” If there is no such expenditure, as has been found factually by the ITAT in the present case, then the question of applying the formula thereunder will not arise.
The incidental issue that is sought to be raised is whether the ITAT could read down Rule 8D (2)(ii) of the Income Tax Rules 1962 (‘Rules’), and whether that was beyond the jurisdiction of the ITAT? In response to this question the High Court held that the ITAT did not go beyond its scope by reading down the Rules.
Hence appeal is dismissed.

CA Geeti Grover

11:53 pm
0 Comments

Migration from one phase to another would not result in transfer of license awarded in Phase I

ITAT judgments

Migration from one phase to another would not result in transfer of license awarded in Phase I

Case Law Citation: Digital Radio (Delhi) Broadcasting Ltd. vs. ACIT , IT Appeal No.-1316/2011, AY 2006-07, Date of Pronouncement – 24.11.2015

Brief of the case:

The ITAT Delhi in the case of Digital Radio Broadcasting Ltd. held that the migration from one phase to another phase cannot be considered as transfer of license awarded under phase I particularly when the license agreement restrict any type of transfer or assignment of license or rights thereunder.
Such migration is rater a modification in terms and conditions of license awarded under Phase I and thus,, allowable as deduction for the modified period of license awarded under Phase II as per Sec 35ABB(1).
Facts of the case:

The assessee company are engaged in the business of FM radio broadcasting under a license awarded from the Ministry of Information and Broadcasting, Government of India for operation of FM radio station in different cities.
In an auction held in March, 2000 it was awarded a license for radio broadcasting for a period of 10 years against a license fee Rs. 7.12 crores and subsequently there is an escalation clause of 15 % every year during the term of license. Such licenses were made operational from 29.04.2003. As the F M radio industry was suffering from high amount of fixed license fees, Government of India came out with a new policy document dated 13.7.2005 for expansion of F M radio Broadcasting services through private agencies known as Phase – II. Existing broadcasters in metro cities were not entitled to participate in these fresh bids but they were three options as under:
i) Migrate to Phase – II policy regime with fresh term of 10 years provided they had operationalized their FM channels and paid off all license fees dues of Phase –I license up to the cut-off date of 1st April 2005 and were not in default of any other license conditions till the date of migration to phase – II.

ii) Continue to remain under Phase – I policy regime

iii) Surrender their FM channel under Phase -I license in order to exit.

The assessee opted for migration to Phase – II and paid one time entry fee and accordingly got a new grant of permission n agreement executed with the ministry of Information and broadcasting.
Assessee claimed deduction of balance license fee (remaining unallowed till AY 2005-06)of Rs. 12.65 crores in AY 2006-07 considering the migration to Phase –II as transfer in the nature of relinquishment of license awarded under Phase-II. AO disputed such claim in one shot and disallowed the same considering it as capital loss which is not covered by Sec 35ABB(2).
CIT(A) on appeal held that the assessee cannot claim the unallowed fee in one shot because the migration was not transfer within the meaning of Sec 35ABB rather migration of license of assessee from Phase-I to phase –II of the licensing policy for F M radios, remaining unallowed expenditure u/s 35ABB becomes part and parcel of the licensing fee payable for phase- II and same shall be added to the license fee of phase – II, hence he granted deduction of Rs 1,26,58,244/- being 1/10th of Rs 12,65,82,440/-.
Aggrieved by the order of CIT(A) both assessee and revenue preferred an appeal before ITAT.
Contention of the Assessee:

It was submitted that migration of license from Phase – I regime to Phase – II license regime is to be considered as transfer of license and therefore, assessee is entitled to claim deduction of unallowed balance license fee u/s 35ABB(2) because license was a capital asset and the migration had resulted into relinquishment of its rights capital asset and by virtue of Sec 2(47) the said relinquishment was transfer of capital asset.
Even otherwise, in dictionary meaning of ‘migration’ and ‘transfer’ are synonyms. Hence, from this angle also, migration of license from Phase – I regime to Phase – II license regime is to be considered as transfer of license and therefore, the Assessee‘s case is covered under sub-section (2) of section 35ABB.
Even further, if assessee had opted to surrender its Phase – I license instead of migrating to Phase – II license, then the remaining unallowed license fee expenditure relating to Phase – I license would have been allowed to the assessee during the year under consideration in accordance with section 35ABB (1) of I.T. Act even if the ‘Assessee had made a bid for and obtained a new Phase -II license for the same city. By opting for and migrating from Phase – I to Phase – II license, the case of the assessee is not different from the above mentioned situation and therefore, the entire remaining unallowed license fee expenditure pertaining to Phase – I license deserves to be allowed during the year under consideration itself and not over the next 10 years period which is applicable to the new Phase – II license.
Contention of the Revenue:

It was submitted by the learned counsel for the revenue that license is a statutory permission to operate FM broadcasting and cannot be termed as capital asset within the meaning of Sec 2(14).
It was also submitted that definition of transfer as given in Sec 2(47) could not be imported in Sec 35ABB(2). Further, for a transfer to take place there has to be two person i.e. one transferor and another transferee and in this case transferee is absent and hence it cannot be called transfer u/s 2 (47) .
Thus, such claim was not allowable as the same capital loss without transfer of license within the meaning of Sec 35ABB(2).
The tribunal observed that license is a capital asset in view of the decision of Honorable Delhi high court in CIT V Bharti Hexacom Limited ITA no 1336 of 2010.
As per Sec 35ABB (2) the assessee in case of transfer of telecom license can claim the excess of balance of license fee (remaining unamortized) over the sale proceeds provided :i) there is a transfer of license and there should be proceeds of the transfer.
The plea of the assessee that remaining unamortized fee of Rs. 12.65 crores paid under Phase-I is allowable accordance with Sec 35ABB(2) because the case of the assessee does not fall in Sec 35ABB(2) as the agreement of license entered into between assessee and Govt does not authorize assessee to transfer the license under this agreement. The following extract of the agreement makes it very clear “The License is non- transferable. The License shall not grant a sub- license or lease the channel /broadcast services in whole or in part.” As the assessee is prevented from transferring the license as well as the transfer of any right contained in the license there is no transfer of license by way of migration.
Further, on comparison of terms and conditions of the agreement under Phase I and Phase II , the tribunal did not observe any substantial difference except that License fee payments has changed from Fixed fee basis‘ to revenue sharing basis‘ and duration of payment. Hence, in the opinion of the tribunal there was no transfer of license made by assessee but it is same license for the same city with modified terms and conditions. Therefore, the claim of assessee for deduction in one shot of the whole sum of Rs 12,65,82,440/- paid under Phase-I of the license u/s 35ABB (2) was rejected.
The license fee paid by assessee during Phase I by virtue of which it has got right for automatic migration to PHASE –II is not capital loss incurred by the assessee but assessee is eligible for deduction of the same u/s 35ABB (1) over the remaining life of license modified by PHASE –II policies. The same has been held by CIT(A) and tribunal find no infirmity in the order of CIT(A).
The alternative plea of the assessee that depreciation could be allowed on the license fee as per Sec 32(i)(ii) is also not sustainable because as per Sec 35ABB(8) where a deduction for any previous year under Sec 35ABB(1) is claimed and allowed, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year.
Direct Link to download full text of the judgment:

http://goo.gl/3geHZs

CA Saurabh Chokhra

11:53 pm
0 Comments

Penalty u/s 271(1)(c) cannot be imposed where declaration of income is bonafide & no irregularities found by AO

ITAT judgments

Penalty u/s 271(1)(c) cannot be imposed where declaration of income is bonafide & no irregularities found by AO

Citation of the Case: Ami Estates Pvt. Ltd. vs. DCIT (ITAT Mumbai), Income tax (Appeal) nos. 7321 & 7300 of 2013 & others, Date of Judgment: 23/09/2015

Brief of the Case

ITAT Mumbai held In the case of Ami Estates Pvt. Ltd. vs. DCIT that the assessee has explained one to one nexus namely cash funds received from sale of Bangalore property, and its utilization for Pune property. The revised declaration of income so filed by the assessee was bonafide and voluntary and without detection of any irregularities found by the department. The return was revised with a view to co-operate the department and to buy peace and to avoid litigation. The disclosure was with a specific plea that no penalty proceedings be initiated u/s.271AAA or 271(1) (c). Considering the totality of facts and circumstances as discussed above, we do not find any merit in the penalty imposed u/s.271(1)(c).

Facts of the Case

The assessee company is engaged in the business of construction, development and leasing of properties residential as well as commercial. The assessee had filed original return of income on 28.10.2007 showing total income of Rs. Nil. The search & Survey Operations u/s.132 (1) and 133A was conducted in the cases of M/s. Pooja Exports and its group concerns. Notice u/s 153C dated 29.9.2010 was issued. In response to this notice, the assessee filed the return of income on 28.10.2010 declaring total income of Rs. Nil, Subsequently the assessee also filed revised return of income on 21.12.2011 declaring the total income at 2,59,75,000/- to buy peace and on condition of no penalty. An assessment order U/s 143(3) r.w.s. 153C was passed on 28.12.2011 determining the total income at Rs. 2,59,75,000/-. There were no changes in the returned income as revised by assessee.

The AO accepted the assessee’s Revised Computation without disturbing the same or adjusted any other addition to the same. The A.O. observed that the assessee has declared its income for the A.Y.2007-08 vide its revised return, the assessee has not able to substantiate the manner in which the income was derived and also failed to explain the sources of cash investment and application thereof. Thereafter penalty proceedings, u/s. 271(1) (c) were initiated separately by issuance of notice u/s. 274 r.w.s. 271. The assessee submitted that there was no need to offer the additional income of Rs.2.59 crores since the money applied in acquisition of Pune Properties was mainly out of the money received from the sale of shares of the group concern and that there cannot be double taxation on the same income once at a point of source and another at point of application. However in order to have peace with the revenue authority the amount was offered by assessee and accepted by the AO.

Contention of the Assessee

The ld counsel of the assessee submitted that assessee company had no earning during the years under consideration and for this purpose our attention was invited to pages 5 of the Paper Book which contains profit and loss account and balance sheet of the assessee company. Our attention was also invited to the statement of Sunil Kotharis dated 29-7-2009, which has been corrected in subsequent statement under Section 132(4) dated 25-9-2009. Our attention was invited to question No.9 and its reply of the statement dated 29-7-2009. It was submitted that question and answer No.3 in the statement dated 25-9-2009 clearly explained that major portion of cash relating to sale of shares was received from the financial years 2006-07 and 2007-08. As per ld. AR, even though the MOU for sale of shares was recorded on 15-6-2009, the transaction was initiated in prior years and payments made on account in prior years.

Our attention was also invited to page 37 of the paper book which contains details of cheque payment received in prior years. Ld. AR further contended that assessee group has not dishonoured the offers made in the statement under Section 132(4), explained in letter dated 17-11-2011. It was submitted that department should not tax both the income and also its application as the same would amount to double taxation. Our attention was also invited to submission dated 21-12-2011 placed at page 52 to 58 of the paper book, which give date wise and month wise nexus between cash received from sale of shares vis-à-vis investment in Pune properties. As per ld. AR the AO has not given any cogent reason nor controverted the nexus for funding of Pune properties.

As per ld. AR assessee has disclosed Rs.2.59 crores in revised return, even though the same was not its income, just to buy peace with department. He further contended that the assessee company has not admitted or capitalized its offer in its books of account in subsequent years, therefore, assessee should not be penalized u/s.271 (1) (c). With regard to the reliance placed by the AO on the statement recorded u/s.132(4) dated 29-7-2009, ld. AR relied on the decision of Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co., 91 ITR 18 (SC), wherein it was held that admission is an extremely important piece of evidence, it cannot be taken as conclusive. It is open to the assessee who made the admission to show that it was incorrect and the assessee should be given a proper opportunity. Reliance was also placed on the decision of Hon’ble Bombay High Court in the case of Nirmala L. Mehta, 269 ITR 1, wherein it was held that no taxation can be made on basis of a wrong admission. Any item which is not taxable under the law cannot be taxed because the same has been wrongly offered to tax by the assessee. Reliance was also placed on the decision of Hon’ble Supreme Court in the case of Cement Marketing Co. of India Pvt. Ltd., 124 ITR 15(SC), decision of Pune Bench of the Tribunal in the case of Jyotichand Bhalchand Saraf & Sons (P) Ltd., 139 ITD 10, Chennai Bench of the Tribunal in the case of RMP Infotech (P) Ltd. 25 taxmann.com 12 ITR (Trib) 581 and in the case of Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC).

In support of the proposition that since the assessee had made a complete disclosure in return of income and offered surrendered amount for purposes of tax, which was accepted and brought to tax, there could be no question of treating assessee as having concealed particulars of income or furnished inaccurate particulars of income, ld. AR relied on the various judicial pronouncements.

Contention of the Revenue

The ld counsel of the revenue submitted that revised return filed by the assessee was not voluntarily offered and that assessee has concealed income therefore, AO was justified in levying the penalty. Ld. DR further supported the orders of lower authorities.

Held by ITAT

We found that there was search at Pooja Export group on 28-7-2009, of which assessee is part, whose case is covered u/s.153C. While filing return of income in response to notice u/s.153A & after visualizing all the seized material seized from various premises in different entities. Assessee had worked out the amount of Rs.40.35 crores undisclosed income & filed return as under: – a) M/s Pooja Exports – 12.25 cr. b) Mr. Sunil Kothari – 14.80 cr. c) Mrs. Sneha Kothari-13.30 cr. The Return of income of Ami Estate & Cornetstene was filed NIL, because both entities were incorporated to acquire the property in the names of company at Pune. Other than that no activity has been carried out in the said companies. Hence, question of earning any accounted or unaccounted income does not arise. But it does not concern that the cash component was not there in acquisition of property at Pune. The said cash & cheque component were arranged & funded by Promoter of the company, in this case Mr. Suni & Mrs. Sneha Kothari.

As per statement recorded u/s.132, Sunil Kothari have clearly admitted that he had paid cash of Rs.14.57 crores for acquisition of the properties in Pune (Wakad and Hinjewadi) and the money has been paid out of unaccounted income generated on account of sale of shares of M/s Ami Builders Pvt. Ltd. and M/s S.K.Projects Pvt. Ltd. which is already offered and taxed in hands of Mr. Sunil Kothari and Mrs. Sneha Kothari being the promoter of the above referred companies. In this transaction Sunil Kothari has received an amount of Rs.14.63 crores received in cash which was applied for making cash payments for acquisition of the properties in Pune.

It is clear that money applied in acquisition of Pune properties was mainly out of money received from sale of shares of M/s Ami builders Pvt. Limited & S.K.Projects Private limited. No fault has been found by the AO or CIT (A) in the cashflow statement indicating one to one nexus between the cash funds received on sale of Bangalore property and utilization for purchase of Pune property. Since all these income had been offered for tax, there cannot be double taxation on the same Income one at a point of source and another at a point of application. Taxes have been paid on additional income out of sale of shares of M/s Ami builders Pvt. Limited & S.K.Projects Private limited therefore, again there cannot be tax on the same income at the time of acquisition of property at Pune. In view of the above facts we may appreciate that declaring additional income of Rs.40.35 Crore before lower authorities, covers each & every issue that has been pointed out during the search as well as post search proceedings. Assessee had paid taxes with a view to buy a peace & to avoid litigations. As a matter of record group companies and their promoters have been filing return of income since more than two decades & also paying taxes thereon.

It is also clear from statement so recorded by the department u/s. 132(4) that cash component was there for the purchase of property at Pune. The said cash and cheque component was arranged and funded by the promoters of the company, namely, Sunil and Sneha Kotharis. The source of cash was made available from the sale proceeds on shares of M/s Ami Builders Pvt. Ltd. and S.K. Projects Ltd. which was declared and offered for tax.

In view of the cash flow statement, the assessee has explained one to one nexus namely cash funds received from sale of Bangalore property, and its utilization for Pune property. The revised declaration of income so filed by the assessee was bonafide and voluntary and without detection of any irregularities found by the department. The return was revised with a view to co-operate the department and to buy peace and to avoid litigation. The disclosure was with a specific plea that no penalty proceedings be initiated u/s.271AAA or 271(1) (c). Considering the totality of facts and circumstances as discussed above, we do not find any merit in the penalty imposed u/s.271(1)(c) of the Act in respect of both the assessment years 2007-08 & 2008-09 under consideration.

Accordingly appeal of the assessee allowed.

Direct link to download the full text of the above judgment –

http://goo.gl/QVVaOA

CA Deepak Aggarwal

11:52 pm
0 Comments

Expenses on News/TV programs/Film rights not having enduring benefit allowed as revenue expenditure

ITAT judgments

Expenses on News/TV programs/Film rights not having enduring benefit allowed as revenue expenditure

Citation of the Case: Zee Media Corporation Limited vs. DCIT (ITAT Mumbai), Income tax (Appeal) no. 1590 of 2015, Date of Judgment: 12/08/2015

Brief of the Case

ITAT Mumbai held In the case of Zee Media Corporation Limited vs. DCIT that regarding the nature of the news items purchased, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd. [2014] 364 ITR 597 (Delhi), that the claims of the assessee relating to news / non-fictional items are allowable.

Regarding the nature of TV programs / Film rights, assessee amortised the inventories as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) without any sustainable reasoning. We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal in the case of M/s. Sun TV Networks Ltd in ITA Nos.1515 to 1520/Mds/2013 wherein the issue was decided in favour of the assessee and rejected the AO’s proposal to invoke the provisions of section 32(ii) in respect of the above programs/rights.

Facts of the Case

The assessee is engaged in the business of broadcasting and running of satellite television channel. Assessee also produces and sells programme softwares. Assessee filed the return of income originally on 29.10.2008 for the AY 2008-09 declaring the total income of Rs. 65,37,28,370/-. Subsequently, the said return of income was revised by declaring the total income of Rs. 65,75,90,650/-. Assessment was completed u/s 143(3) of the Act on 10.12.2010 and the assessed income was determined at Rs. 65,88,02,777/-. Against the said order of the AO, assessee went on appeal to the CIT (A). After considering the submissions of the assessee, CIT (A) allowed the appeal vide his order dated 14.9.2012. Aggrieved with the decision of the CIT (A), Revenue is in appeal be the Tribunal, and the same is pending for disposal. Subsequently, AO issued notice u/s 148 for allegation of debiting full amount of expenditure related to films rights acquired under operational expenses, while it is being intangible assets; only part of expenses is allowed. After considering the submissions of the assessee, AO proceeded to make addition of Rs. 74,28,80,760/-

Contention of the Assessee

Addition on account of disallowance of intangible assets ie News / TV Program / Film Rights

The ld counsel of the assessee supported the accounting method of the assessee in this regard and submitted that the „News items‟ do not have long life and they are not fit for repeated broadcasting and therefore, News and the non-fiction items have to be amortized in toto in the year of acquisition and use. Therefore, considering the same this part of the purchases of News items and non-fiction items are rightly debited to the P & L Account under the head „operational cost‟. The decision based on a scientific analysis and therefore, the decisions of the AO and the CIT (A) are required to be reversed on these claims relating to the News / non-fiction items. Ld AR relied on the judgment of the Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd [2014] 364 ITR 597 (Delhi).

Similarly, on the TV Programs and Film Rights, Ld Counsel for the assessee submitted that they were amortized as per the Notes 7 to the financial statements. This method of accounting has been consistently followed by the assessee and the same was accepted by the AO in earlier assessment years without any dispute. Considering the set principle of consistency, the conclusions drawn by the AO and the CIT (A) are also required to be reversed. Further, referring to the Accounting Standard (AS) 26, relating to the intangible assets, Ld Counsel for the assessee read out the definition given to the intangible assets at para 6.1 and submitted that the Film Rights and TV Programs are outside the said definition given to the „intangible assets‟. Further, Ld Counsel for the assessee also brought our attention to the para 63 of the said AS-26, and mentioned that the amortization is very much recognized in the accounts and therefore, the claim of the assessee should be allowed in full.

Contention of the Revenue

Addition on account of disallowance of intangible assets ie News / TV Program / Film Rights

The ld counsel of the revenue submitted that the definition to the intangible assets covers the TV Programs and Film Rights. Therefore, the provisions of AS-26 should apply in full. Further, bringing our attention to the definition „current assets‟, Ld DR submitted that the current asset is defined as an asset such as receivables, inventory, work in progress or cash i.e. constantly flowing in and out of the organization in the normal course of its business, such as cash is converted into goods and then back into the goods. In accounting, any asset being in use for lesser than one year, is considered a current asset.

Relying on the above definition, Ld DR for the Revenue submitted that News / non-fictional items, TV Programs, Film Rights did not constantly flow in and out for the assessee. In fact, assessee uses these TV Programs / Film Rights as bait for attracting the advertisements and Television Rating Point (TRP) rates. In that sense, the said rights do not constitute current assets. Therefore, these items constitute intangible assets, which are eligible for depreciation and therefore, the amortization adopted by the assessee should dismissed as done by the Revenue Authorities during the assessment as well as first appellate proceedings.

Held by ITAT

We find that the AO is aware of the nature of business of the assessee. Further, AO is aware of the contents of the inventory of the assessee (ie News / non-fictional items, TV Programs, Film etc) and their valuation too. Thus, the assessee’s disclosure of information in the Note No.7 relating to the consistently maintained method of valuation to the inventories of TV Programs and Film Rights together with the questions and answers raised by the Assessing Officer during the regular assessment, suggest that the AO is directly on the issue of „inventories‟ and their method of accounting. The contents of the said „Note No.7‟ is very clear as to how the TV Programs and Film Rights are amortized, and the AO is aware of these facts during the time of regular assessment. Therefore, AO raised the said questions with the view to make disallowance on account of amortization of the inventories, if any, and also to deny the deduction claimed by the assessee. Otherwise, we find no other reason for raising such question in the regular assessment.

Hence, the AO applied his mind to the issue raised in the reasons recorded by him before the re-assessment proceedings are initiated. Of course, the language used by the AO in the reasons recorded is in different, but, otherwise, the issue raised is identical to the one which was already examined by the AO in the regular assessment on which an opinion is formed. When the Q.No. 11 relating to the method of valuation of inventories is raised, it has to be only with the view to disturb the basis of valuation ie to spread over the various assessment years, the details of which are already provided in Note No.7 of the financial statements. The same is referred by the assessee in the reply to the said Q.No. 11. The said Note No.7 was already extracted and elaborated in para 8 of this order, which is self-contained and the programs are amortized (TV Programs) for three years from the year the program is telecasted whereas the Film Rights are amortized on a straight line basis over the license period or 60 months from the date whichever is short. When this information is already and particularly available to the AO in the regular assessment, attempting to re-examine this issue through the provisions of section 147 / 148 of the Act constitutes „change of opinion‟ and the same is not permitted in law.

Further, on the arguments relating to the existence of new or tangible material for the AO before initiating the re-assessment proceedings, we find from the reasons that it is not the case of Revenue that AO has any such tangible material on the incorrectness of the claim of amortization of the inventories of programs / films or the method of valuation thereof. In the preceding paragraphs, we have extracted ratios of various case laws in the form of the assessee on the requirement of tangible / new material. On these arguments of the Ld Counsel for the assessee also, the Revenue fails. The proceedings initiated by the AO are unsustainable in law. Accordingly, Ground no.1 raised by the assessee is allowed.

Addition on account of disallowance of intangible assets i.e. News / TV Program / Film Rights

The case of the assessee on the merits is that the assessee has a method of valuation of the news items/non fictional in nature, TV programs and the film rights. The details are given in the aforementioned „Note No 7‟ to the financial statements. According to the same, while the news items purchased are debited to the P and L account as they do not have the repeat telecast value, other items like the TV program and the film rights constitutes „current assets‟, which are amortised over the years and the period of such amortization is given in the said Note.

On the debits relating to the purchases of the News items

Regarding the nature of the news items purchased by the assessee and debited to the P and L account, we find it is in the common knowledge of every citizen that the news items do not have enduring benefit. Normally, the news items/non fictional items purchased by the assessee lose its value once they are telecast. Therefore, such items do not have repeat telecast value in terms of the revenue generation by way of advertisement from the sponsors. As such, it is a settled issue at the level of Hon‟ble Delhi High Court in the case of Television Eighteen India Ltd (supra) that the claims of the assessee relating to news / non-fictional items are allowable. Even otherwise, even if some income generated, that is not criterion for describing the items as „intangible assets‟ for the purpose of invoking the provisions of section 32(ii) of the Act.

We rely on the above referred Delhi High Court‟s Judgment in the case of Television Eighteen India Ltd (supra). Further, we find that the assessee has a declared method of accounting relating to accounting of these transactions. He has been consistently following the same without any change. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act, without any sustainable reasoning. Therefore, considering all the points mentioned above, we are of the firm opinion that the decision of the AO/CIT (A) is unsustainable legally. Hence, the assessee is entitled to claim the purchases of news items/non fictional items as an allowable expenditure.

On the debits relating to the purchases of the TV Programs/Film rights:

Assessee amortised the „inventories‟ as per the method of accounting consistently followed by him over the years. In fact, the Revenue has consistently allowed the claim in the past. This is for the first time, AO disturbed the claim of the assessee and invoked the provisions of section 32 (ii) of the Act without any sustainable reasoning. We have perused he judgment of Honble High Court of Delhi and the order of the Tribunal of Chennai Bench in the case of M/s Sun TV Networks Ltd (supra). We find similar issue of amortization of the TV Programs/Film rights came up before the Chennai Bench of the Tribunal wherein the issue was decided in favour of the assessee and rejected the AO‟s proposal to invoke the provisions of section 32(ii) of the Act in respect of the above programs/rights.

As such, the Ld DR‟s argument on the applicability of the AS-26 to the TV Programs and Film rights is not supported by any precedents and therefore, the arguments raised by the Revenue are not allowed. Thus, considering the covered nature of the issue as well as the consistent method of accounting followed by the assessee in this regard and also in the absence of any contrary material to support the arguments of the Revenue against the assessee‟s claim, we are of the opinion that the decision taken by the CIT (A) in the impugned order is required to be reversed.

Home

CA and CS HUB

Five ways to make an employee a risk taker

Five ways to make an employee a risk taker

I-T department releases list of 18 defaulters owing Rs1,150 crore

Scrutiny notice must seek specific details from taxpayers: CBDT

CBDT Makes Electronic filing of first appeal before CIT(Appeals) Mandatory

GST- Proposed Input tax credit methodology

Applicability Of Indian Accounting Standards

CBI Register disproportionate assets case against Director (Investigation), Settlement Commission, Chennai

Exemption u/s 10A available on undisclosed income surrendered during survey proceeding u/s 133A

Only Investments in respect of which income is exempt to be considered in working of disallowance U/s. 14A

Inputs / Capital goods used in R&D and Quality Control Laboratory for input testing, final product samples eligible for Cenvat credit

Excise dues payable by old Company cannot be recovered from assessee when assessee purchased only assets of old Company

Delhi VAT: Clarification on Registration of e-commerce Dealers

Tax free bonds outperform equities, strong performance to continue

What the New KYC Norms Mean for Your Mutual Fund Investment

Income tax department conducts searches on pulses traders, others

Sebi penalizes Amtek Auto for non-redressal of investor complaints

I-T officials search NCDEX office

Frequently asked questions on Central Excise/Service Tax Audit

Section 14A disallowance only for Expenses not directly relatable to exempt or taxable Income

Migration from one phase to another would not result in transfer of license awarded in Phase I

Penalty u/s 271(1)(c) cannot be imposed where declaration of income is bonafide & no irregularities found by AO

Expenses on News/TV programs/Film rights not having enduring benefit allowed as revenue expenditure

Search This Blog

Ads

Labels

recent posts

Popular Posts

Blog Archive

Followers

Total Pageviews

Contact Form

Home

Search This Blog

Ads

Labels

recent posts

Popular Posts

Blog Archive

Followers

Total Pageviews

Contact Form

Subscribe To