Direct Tax Vista

Your weekly Direct Tax recap

Edn. 1 – 12th April 2022

By Vivek Jalan

Partner, Tax Connect Advisory Services LLP

E-Dispute Resolution Scheme

A one of its kind Scheme of Dispute Resolution for Small Taxpayers has been issued by The CBDT vide NOTIFICATION S.O. 1642(E) dated 05.04.2022. The dispute resolution under this Scheme shall be made by the Dispute Resolution Committee on applications made for dispute resolution under Chapter XIX-AA of the Act in respect of dispute arising from any variation in the specified order, i.e. an Order u/s 144C(1), 143(1), 200A(1), 206C(1), 154, 201, 206C(6A) or an order of assessment or reassessment – not based on search, requisition, survey, information u/s 90/90A. Taxpayers having total returned income up to Rs.50 lakh having income tax disputes not exceeding Rs.10 lakh will be able to avail the scheme. The entire communication will be in electronic mode.

The assessee who fulfills the specified conditions may, in respect of any specified order, file an application electronically in Form No. 34BC to the Dispute Resolution Committee designated within one month from the date of receipt of specified order or within such time from the date of constitution of the Dispute Resolution Committee. The Dispute Resolution Committee shall examine the application with respect to the specified conditions and criteria for specified order. Upon such examination the Dispute Resolution Committee, where it considers that the application for dispute resolution should be rejected, shall serve a notice calling upon the assessee to show cause as to why his application should not be rejected, specifying a date and time for filing a response.

Once the application is admitted, the committee may call for records from the income-tax authority and further examine, as it may deem fit, with respect to the issues covered in the application.

The Dispute Resolution Committee may before disposing off the application, call for further information from the assessee or any other person by sending an email to his registered email address.

The Dispute Resolution Committee may, after considering the material available on record, including any further information or evidence received from the assessee, income-tax authority or any other person, may decide within six months from the end of the month in which application for dispute resolution is admitted by the Dispute Resolution Committee. However, the Order shall not be pre-judicial to the interest of the assessee.

Small Taxpayers, who fall within the said criteria may take advantage of the Scheme as there shall not be any activity prejudicial to their interest. Hence it is a win-win situation for them.

Relaxation of provisions of TCS under section 206C(1G) of the Income-tax Act, 1961 in respect of non-resident individuals visiting India

CBDT vide Notification No. 20 of 2022 dated 30.03.2022, has laid down that A domestic tour operator is not required to collect tax on sale of overseas tour package to non-resident individuals visiting India. The TCS so collected was becoming a cost to such NRIs.

The Saga of Section 148 notices post 1st April 2022 continues

The Revenue keeps on issuing Notices u/s 148 and the same keep on getting quashed by the Courts in India even after amendments made u/s 148 to this effect. It has become a cat and mouse game between the assessee and the revenue officers and finally it is to be seen as to whether the CBDT finds a way out to settle the humungous litigation which the taxpayers have been made to go through. In yet another judgement on Section 148 in the case of TATA COMMUNICATIONS TRANSFORMATION SERVICES LIMITED Vs ASSISTANT COMMISSIONER OF INCOME TAX, 2022-VIL-90-BOM-DT, it was held that many High Courts have considered an identical view and all other Courts have held that the notices, as issued by respondents under Section 148 of the Act post 1st April 2021, are bad in law - when the Act specifies that something is to be done in a particular manner, then, that thing must be done in that specified manner alone, and any other method/(s) of performance cannot be upheld. Hence, notices issued under Section 148 of the Act after 1st April, 2021 must comply with the amended provisions of law and cannot be sustained on the basis of the erstwhile provision. The Court held that a plain reading of the impugned Explanations in Notification Nos.20 of 2021 and 38 of 2021 shows that it purports to “clarify” that the unamended provisions of Sections 147 to 151 of the Act will apply for the purposes of issue of notices under Section 148 of the Act, which is clearly ultra vires Relaxation Act – therefore, the reopening notices issued after 1st April, 2021 are unsustainable and bad in law even if one was to apply the Explanations to the Notification Nos.20 of 2021 and 38 of 2021.

The purpose of Section 3(1) of Relaxation Act is not to postpone the applicability of amended provisions of a Specified Act. Though Relaxation Act was in existence when the Finance Act, 2021 was passed, the Parliament has specifically enacted the new provisions of Section 147 to 151 of the Act and made them applicable with effect from 1st April, 2021, when there is no ambiguity on the applicability of the provision, there is no question of resorting to purpose test. The explanations to the Notification No.20 of 2021 dated 31st March 2021 and Notification No.38 of 2021 dated 27th April 2021 were declared ultra vires and are, therefore, bad in law and null and void.

Not essential that Income is offered for tax and TDS credit are taken in the same year

In yet another judgement of the same nature, it was held in M/s KEMA INDIA PRIVATE LIMITED Vs ITO, 2022-VIL-407-ITAT-DEL that the nexus between TDS and the corresponding income element is only notional. Income corresponding to the TDS claim made by the assessee has already been offered to tax in earlier year, hence, the assessee cannot be denied the credit of TDS made on such income - where the assessee has claimed to have offered the revenues for tax in previous years, the Ld. CIT(A) has directed AO to verify the same. Assessee is entitled to its credit by way of refund, in spite of not offering any income for tax, arising from P & L Account - CIT(A) erred in making the credit dependent on offering of taxable income only.

However, it is advised that as far as possible, matching of income and TDS in the same year be done.

Twin conditions mandatory to be satisfied for invoking Section 263

The law w.r.t. invocation of Section 263 is now very well settled. In order to invoke revision jurisdiction u/s 263 of the Act, the PCIT is duty bound to bring on record that the order passed by the AO is erroneous and it should be prejudicial to the interest of the revenue. While bringing on record that the order passed by the AO is erroneous, it is necessary to determine that the AO should have had atleast a reason to investigate in a situation which was inadvertently missed out. However, this fact is generally not considered by the PCITs while passing Orders and the same get dismissed at the ITAT Level. In a similar case in M/s LONG LIFE REALTORS LLP Vs PR. COMMISSIONER OF INCOME TAX, 2022-VIL-430-ITAT-MUM, it was held that where the AO was under the bonafide belief and had no occasion to even suspect that the recognition granted to the Donee Trust u/s 35(1)(ii) had been withdrawn or the same was not existing perpetually, no error could be attributed in the order passed by the AO. Hence the order passed u/s 263 of the Act was quashed.

Disallowance of expenses without recording any adverse material is not sustainable

Adhoc Disallowance of expenses cannot be made on assumptions, conjectures and surmises, where unverifiable bills/vouchers, where the assessee has given all the vouchers and the relevant details of these expenses. The same was decided in the case of SUMAN JYOTI KHAITAN Vs ACIT, 2022-VIL-428-ITAT-DEL, in lines of Thakur Vaidyanath Aiyar & Co. vs. ACIT (ITA No. 6986/Del/2017 Assessment year 2013-14). It is thus important for assesses during assessments to keep a copy of the documents submitted to the officer during assessments.

EPFO issued a circular dated 06th Apr 2022 which clarifies about the calculation and deduction of tax on taxable interest which is relating to contribution in provident fund pursuant to CBDT Notification No. 95 of 2021-Income Tax

This circular is applicable to all EPF subscribers with effect from 01.04.2022 for FY 2022-23. As per the circular, the effective date for TDS in case of final claim settlement shall be 01.04.2022 or final settlement/ transfer, whichever is later, and in all other case, TDS shall be deducted on the date of credit of interest.

TDS will be applicable in case of PF final settlement, transfer claims, on transfer from Exempted establishments to EPFO and vice versa, on transfer from one Trust on another and past accumulations transfer, at the time of annual accounts processing, on back period accounting after accounts for year 2021-22 are processed.

The TDS will also be applicable in death cases as in the case of a live member; It will be applicable to all EPF members including members of Exempted Establishments/Exempted Trusts; It will also be applicable in case of International Workers.

Taxable contribution part will be subject to a separate accounting of interest and maintenance as the closing balance of the part (i.e., taxable portion) will earn interest next year and will be subject to TDS.

Before Equalization Levy, there should be no TDS on payments to foreigners with no PE in India

In the case of Addl. CIT Vs Lenskart Solution (P) Ltd. (ITAT Delhi), It was claimed by the Assessee that as the Assessee had made the payment to Facebook Ireland Inc. (FII), which did not have any permanent establishment (PE) in India and, therefore, the payments made to it for advertisement services were not chargeable to tax in India in view of the Article 7 of DTAA between India and Ireland. In support of its contention the Assessee also relied upon various judgments including in the case of Yahoo India Pvt. Ltd. Vs. DCIT, wherein it is clearly held that in the absence of any permanent establishment (‘PE’) of the deductor, the deductee is not liable to deduct the tax at source from the payments made for online advertisement services.

Important to note here is that the equalization 6% of the gross amount accruing to foreign e-commerce companies from India, infact came into effect from 1.6.2016 only and prior to that the online advertisement were not subjected to deduction of tax at source.

The terms of the amalgamation and the facts of each case and not the Corporate death of an entity upon amalgamation, would determine the validity of an assessment order

The Finance Act 2022 inserted a sub-section (2A) to section 170, to provide that the assessment or other proceedings pending or completed on the predecessor in the event of a business reorganization (like amalgamation), shall be deemed to have been made on the successor.

Before this it was held in many decisions of courts that upon sanction of amalgamation scheme, the amalgamated company stood dissolved without winding up, in terms of section 394 of the Companies Act, 1956 and it cannot be regarded as a ‘person’ in terms of Section 2(31) of the Act. Hence, any proceedings on it shall be considered invalid from the effective date of the Order.

Now, in a landmark judgement in the case of PCIT Vs Mahagun Realtors (P) Ltd. - 2022-VIL-09-SC-DT, it is held that per se invalidation of an assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.

In the instant case, having regard to all these reasons, the Hon’ble Apex Court was of the opinion that in the facts of the case, the conduct of the assessee, commencing from the date the search took place, and before all forums, reflected that it consistently held itself out as the assessee. The approach and order of the AO was, in this court’s opinion, in consonance with the decision in Marshall Sons and Co. (India) Ltd. v. Income Tax Officer [1996 Supp (9) SCR 216], which had held that: “an assessment can always be made and is supposed to be made on the Transferee Company taking into account the income of both the Transferor and Transferee Company.”

Further The Finance Act 2022 inserted a new section 170A to the Income Tax Act to deal with an anomaly where it is seen that post such reorganization, the affairs of the successor entity go through a complete change with effect from the date from which such reorganization takes place. However, due to the indefinite timeline involved in issuing such orders, there is a gap between the effectivity of such order and the date on which such order is issued by the competent authority. This also affects the final accounts of such entities as they are unable to modify their already filed returns in accordance with the reorganization. Hence, in order to remove this anomaly, The Finance Act 2022 inserted a new section 170A to the Income Tax Act, to enable for the entities going through such business reorganization, for filing of modified returns for the period between the date of effectivity of the order and the date of issuance of final order of the competent authority.

The breach of Sections 269SS and 269T for receipt/repayment of cash attributable to business exigencies is a mere technical or venial breach

The status of an assessee and business exigencies has once more been helpful in determining the levy of penalty. Incase of an uneducated transport assessee, where he has shown the existence of reasonable cause in accepting/repayment of cash to meet the immediate business requirements was viewed as existence of mitigating circumstances to exonerate the assessee from the recourse of penalty under Sections 271D and 271E of the Act. Balwan Singh Vs ACIT (ITAT Delhi) - 2022-VIL-411-ITAT-DEL.

It was held that some of the case law of the Hon’ble High Courts and Co-ordinate Benches of Tribunal viz; DCIT vs. Rupen Dass, (2011) 7 ITR 55 (Kol) (Trib); CIT vs. Balaji Traders, (2008) 167 Taxman 27 (Mad); CIT vs. Laxmi Trust Co., (2008) 303 ITR 99 (Mad); DCIT vs. Vignesh Flat Housing, (2007) 105 ITD 359 (Chennai); Dillu Cine Enterprises vs. CIT, (2002) 80 ITD 484 (Hyd); Hindustan Steel Limited vs. State of Orissa, (1972) 83 ITR 26 (SC), Say in corus that the breach of Sections 269SS and 269T for receipt/repayment of cash attributable to business exigencies is a mere technical or venial breach.

Establishment of Digital Banking Units (DBUs) by RBI

In pursuance of announcements made in the Union Budget 2022-23, guidelines have been prepared for setting up of Digital Banking Units (DBUs) by commercial banks on the basis of recommendations of a Working Group formed by RBI which included representatives of banks and Indian Banks' Association (IBA).

Digital Banking Unit (DBU): A specialised fixed point business unit / hub housing certain minimum digital infrastructure for delivering digital banking products & services as well as servicing existing financial products & services digitally, in both self-service and assisted mode, to enable customers to have cost effective/convenient access and enhanced digital experience to/ of such products and services in an efficient, paperless, secured and connected environment with most services being available in self-service mode at any time, all year round.

Minimum Products and Services to be offered by DBUs are as follows –

1. Liability Products and services: (i) Account Opening (ii) Digital Kit for customers: Mobile Banking, Internet Banking, Debit Card, Credit card and mass transit system cards; (iii) Digital Kit for Merchants: UPI QR code, BHIM Aadhaar, POS, etc.

2. Asset Products and services: (i) Making applications for and onboarding of customer for identified retail, MSME or schematic loans. (ii) Identified Government sponsored schemes.

3. Digital Services: (i) Cash withdrawal and Cash Deposit only through ATM and Cash Deposit Machines respectively (ii) Passbook printing / Statement Generation; (iii) Internet Banking Kiosk (iv) transfer of funds (NEFT/IMPS support); (v) updation of KYC / other personal details, etc.; (iv) Lodging of grievance digitally and acknowledgement thereof and also tracking of resolution status; (v) Account Opening Kiosk; (vi) Kiosk with e-KYC/ Video KYC; (vii) Digital onboarding of customers for schemes such as Atal Pension Yojana (APY), etc.

Addition in respect of unsecured loan when there is a litigation with the Creditor

Many a times there are disputes with creditors and additions are made in absence of balance confirmations. In a relief in one such matter, BHASIN INFOTECH & INFRASTRUCTURE PVT. LTD. Vs ACIT, 2022-VIL-422-ITAT-DEL, where the assessee has filed certain documents that goes to demonstrate that there were ongoing litigation between the parties, therefore, looking to the facts of the case, it was held that the transaction needed further verification at the end of the AO. The order of CIT(A) was set aside and ground related to this transaction was allowed. This comes as a relief for many such cases.

(Views expressed are strictly personal)