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Direct Tax Vista Your weekly Direct Tax recap Edn. 6 – 17th May 2022 By Vivek Jalan Partner, Tax Connect Advisory Services LLP |
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CBDT Take Note: Cases cannot be transferred to Central jurisdiction before providing opportunity of hearing as well as recording of reasons for the transfer
As per The Instruction above, the cases can be transferred to Central Jurisdiction. Can this be done without giving an opportunity of hearing to the taxpayer? The maxim 'expressio unius est exclusion alterious' (express mention of one thing excludes others) has been called a valuable servant but a dangerous master. The exclusio is often the result of inadvertence or accident, and the maxim ought not to be applied, when its application, having regard to the subject-matter to which it is to be applied, leads to inconsistency or injustice.
Section 127 of the Act, prescribes two pre-requisite conditions for exercising power of transfer of a case from one AO to another AO in the circumstances given, namely, opportunity of hearing to the assessee and recording of reasons for the transfer. Hence cases can be transferred from one jurisdiction to another only after a hearing. It was held in the case of M/s NAGINDAS KASTURCHAND AND BROS. Vs PRINCIPAL COMMISSIONER OF INCOME TAX [2022-VIL-117-GUJ-DT] that The Revenue cannot argue that Section 127 excludes an opportunity of hearing when transfer is on account of the administrative exigency or convenience.
Whether this judgement would nullify the concerned sections of the instruction on “Compulsory Scrutiny” is to be seen going forward.
2. As Tax Authorities prepare for Compulsory Scrutinies during FY 22-23, Taxpayers should tighten their seat belts
The CBDT is preparing the next set of Compulsory Scrutinies during FY 22-23 – at the Jurisdictional level, at the Faceless Assessments Level and at the Central Charge Level. For Implementation, it has issued Instruction No. F.No.225/ 81/2022/ITA-II Dated: 11th May, 2022, specifying the procedures and parameters. There are 9 Parameters for Selection of Assessees for Complete Scrutiny and for each parameter the procedures are laid down as under–
1. Cases pertaining to survey u/s 133A of the Income-tax Act, 1961 (Act): Cases, where Books of accounts, documents, etc. were not impounded; Returned income (excluding any disclosure of hitherto undisclosed income made during the Survey) is not less than returned income of preceding assessment year; and where Assessee has not retracted shall not be selected for compulsory scrutiny.
Prior administrative approval of Pr. CIT/Pr.DIT/CIT/DIT shall be taken and such cases shall be transferred to Central Charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)
2. Cases pertaining to Search and Seizure: Prior administrative approval of Pr. CIT/Pr.DIT/CIT/DIT shall be taken and such cases shall be transferred to Central Charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)
3. Cases in which notices u/s 142(1) of the Act, calling for return, have been issued & no returns have been furnished: The AO shall upload the underlying documents, on the basis of which notice u/s 142(1) was issued, on ITBA. NaFAC shall conduct the scrutiny.
4. Cases in which notices u/s 148 of the Act have been issued: Cases, where notices u/s 148 of the Act have been issued pursuant to search & seizure / survey actions conducted on or after the 1st day of April, 2021: Prior administrative approval of Pr. CIT/Pr.DIT/CIT/DIT shall be taken and such cases shall be transferred to Central Charges u/s 127 of the Act within 15 days of service of notice u/s 143(2)
Cases not covered above : The AO shall upload the underlying documents, on the basis of which notice u/s 142(1) was issued, on ITBA. NaFAC shall conduct the scrutiny.
5. Cases related to registration/ approval under various sections of the Act, such as 12A, 35(1)(ii)/ (iia)/ (iii), 10(23C), etc.: Cases where registrations have not been granted or have been cancelled / withdrawn shall be scrutinized compulsorily. However incase withdrawls have been reversed then cases shall not be selected for compulsory scrutiny
NaFAC shall conduct the scrutiny.
6. Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact and/or law and fact: For Metro / non-metro Cities incase the amount of the issue in dispute is Rs.25/ Rs.10 Lakhs respectively and where the matter is adjudicated in favour of revenue, such cases shall be under complete scrutiny.
NaFAC shall conduct the scrutiny.
7. Cases related to specific information regarding tax-evasion: The AO shall upload the underlying documents for specific information. NaFAC shall conduct the scrutiny.
8. Where return has been furnished in response to notice u/s 142(1) of the Act and such notice u/s 142(1) of the Act was issued due to the information contained in NMS Cycle/SFT information/information received: Such return will not be taken up for compulsory scrutiny. Selection of such cases for scrutiny will be done through CASS cycle
9. Cases selected for compulsory scrutiny by the International Taxation and Central Circle charges: The said cases will be selected following the above prescribed parameters and procedure with prior administrative approval of Pr. CIT/Pr.DIT/CIT/DIT concerned. The cases which are selected for compulsory scrutiny by the International Taxation and Central Circle charges following the above prescribed parameters and procedure, shall, as earlier, continue to be handled by these charges.
As per the amendments brought by Finance Act 2021, the time limit for service of notice u/s 143(2) of the Act has been reduced to three months from end of the Financial Year in which the return is filed. Therefore, selection of cases and transfer of cases, wherein assessments have to be completed in faceless manner, to NaFAC shall be completed positively by 31.05.2022. In cases selected for compulsory scrutiny, service of notice u/s 143(2) of the Act shall be completed by 30.06.2022.
3. Increasing the Tax Net : New Rules 14BA and 14BB
As per Notification No. 53/2022/F. No. 370142/49/2020-TPL dated 10th May, 2022 new Rules 14BA and 14BB have been inserted. Under Rule 14BA following persons are supposed to apply for Permanent Account number
- whose cash deposit or deposits or cash withdrawal or withdrawals are aggregating to twenty lakh rupees or more in a financial year, in one or more account with a banking company or a co-operative bank to which the Banking Regulation Act or a Post Office and/or
- every person who opens a current account or cash credit account with a banking company or a co-operative bank to which the Banking Regulation Act, 1949 applies or a Post Office.
Under Rule 14BB Every person shall, at the time of entering into a transaction specified (i.e. whose cash deposit or deposits or cash withdrawal or withdrawals are aggregating to twenty lakh rupees or more in a financial year, in one or more account with a banking company or a co-operative bank to which the Banking Regulation Act or a Post Office or who opens a current account or cash credit account with a banking company or a cooperative bank to which the Banking Regulation Act, 1949 applies or a Post Office) quote his permanent account number or Aadhaar number, as the case may be, in documents pertaining to such transaction, and every person specified (i.e. banking company, a cooperative bank and Post Master General), who receives such document, shall ensure that the said number has been duly quoted and authenticated.
4. Small Delays of few days in investment in new asset as per Sec 54F should not result in onerous penalties
The field officers rely on strict interpretation of the law when deciding cases u/s 54F of investment in new assets for re-investment of amount on sale on an asset. However, the Courts have always accorded liberal interpretation and a small delay of few days have been condoned for eligibility purposes. The decision of the Apex Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd, being a fit precedent. Relying upon the judgement, The Hon’ble ITAT in the case of VIKRAM KALRA Vs ACIT [2022-VIL-579-ITAT-DEL] has also held that a small breach in the stipulated period of one year u/s 54F, between purchase and sale of assets would not justify imposition of onerous penalty u/s 271(1)(c).
5. Lending by Commercial Banks to NBFCs and Small Finance Banks (SFBs) to NBFC-MFIs, for the purpose of on-lending to priority sectors
RBI has permitted banks, including small finance banks, to continue providing credit facility to NBFCs for the purpose of on-lending to certain priority sectors. The facility of lending by commercial banks to NBFCs and lending by Small Finance Banks (SFBs) to NBFC-MFIs, for the purpose of on-lending to certain priority sectors, was available till March 31, 2022. The central bank has allowed small finance banks (SFB) to tag loans to microfinance institutions (MFIs) as PSL loans on an on-going basis as well.
Priority sector lending refers to mandatory lending by banks to economically weaker sections. Commercial banks have to lend at least 40%of their loan to PSL category while SFBs are required to extend 75% of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as PSL by the Reserve Bank. Failure to meet this lending will attract penal charges.
Out of the total 40% of their PSL target, banks will be allowed to fill 5% of their PSL target through this route, as per the RBI circular. SFBs, on the other hand, will be allowed to generate up to 10% of their PSL target through on-lending to MFIs.
6. Real Estate Preliminary Expenses/ Land Cost once accepted cannot be questioned in subsequent years
For Real Estate Projects which span over a period of few years, the principle laid down by The Gujarat High Court is that where assessee's claim for preliminary expenses had been allowed in earlier years, in absence of any change in circumstances, following principle of consistency, said claim was to be allowed in relevant year as well.
By following the same principle of consistency, it was held by The ITAT Ahmedabad in the case of M/s SAMARATH REALITIES Vs DCIT [2022-VIL-564-ITAT-AHM], that the Department cannot reject the methodology of cost allocation in the third year of the project when the same methodology has already been accepted for the past years.
As expected, The CBDT has issued Instruction No. 01/2022 for the AOs to implement the judgement of The Supreme Court of India in the case of Ashish Agarwal [2022] 138 taxmann.com 64 (SC). The Analysis of the judgement was done in Direct Tax Vista Edn 5 dated 10th May 2022. The ruling of the Supreme Court read with the time extension provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) will allow extended reassessment notices to travel back in time to their original date when such notices were to be issued and then new section 149 is to be applied at that point.
The board has clarified that the judgment applies to all cases where extended reassessment notices have been issued irrespective of the fact whether such notices have been challenged or not. The Instruction has specified that the extended reassessment notices are to be dealt with as under:
(i) AY 2013-14, AY 2014-15 and AY 2015-16: Fresh notice under section 148 of the Act can be issued in these cases, with the approval of the specified authority, only if the case falls under clause (b) of sub-section (1) of section 149 as amended by the Finance Act, 2021 and reproduced in paragraph 6.1 above. Specified authority under section 151 of the new law in this case shall be the authority prescribed under clause (ii) of that section.
(ii) AY 16-17, AY 17-18: Fresh notice under section 148 can be issued in these cases, with the approval of the specified authority, under clause (a) of sub-section (1) of new section 149 of the Act, since they are within the period of three years from the end of the relevant assessment year. Specified authority under section 151 of the new law in this case shall be the authority prescribed under clause (i) of that section.
Notices cannot be issued in a case for AY 2013-14, AY 2014-15, and AY 2015-16 if the income escaping assessment amount is less than Rs. 50 lakh. Thus, the board shall issue a separate instruction prescribing the procedure to dispose of notices issued under old provisions under these cases.
Procedure to be followed by AOs to comply with the Supreme Court judgment:
The board has specified the AO is required to follow the following procedure to comply with the order of the Hon’ble Supreme Court:
a) AO shall provide the information and material relied upon by him for the issuance of extended reassessment notices by 02-06-2022. The assessee has two weeks to reply as to why a notice under section 148 of the Act should not be issued.
b) If the assessee makes a request seeking more time to file a reply to the show-cause notice, then such a request shall be considered by AO on merit.
c) After receiving the reply, AO shall decide based on material available on record including the reply of the assessee, whether or not it is a fit case to issue a notice under section 148.
d) If it is a fit case to issue a notice under section 148, AO shall serve on the assessee a notice under section 148 after obtaining the approval of the specified authority under section 151 of the new law.
e) If it is not a fit case to issue a notice under section 148 of the Act, the order passed under section 148A(d) to that effect shall be served on the assessee.
8. Section 148 : The Litigations still continue on the concept of ‘change of opinion’
For re-assessment cases, ‘reason to believe’ does not mean a mere change of opinion as the Assessing Officer has no power to review but he/she has the only power to re-assess. The Supreme Court in Commissioner of Income Tax, Delhi vs. Kelvinator of India Limited, (2010) 2 SCC 723 has held that the concept of ‘change of opinion’ is an inbuilt test to check abuse of power by the Assessing Officer. It has further held that after 01st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment.
It has been held in the case of PCIT Vs M/s CENTRAL COTTAGE INDUSTRIES CORPORATION OF INDIA LTD [2022-VIL-118-DEL-DT] that where increase in rent was within the knowledge of the AO when he had passed the original assessment order as well as the subsequent order under Section 154, re-opening notice on the ground of decline of Gross profit was actually a ‘change of opinion’.
(The author is a FCA, LL.M & LL.B and Partner at Tax Connect Advisory Services LLP. The views expressed are personal. The author is The Chairman Indirect Tax Core Group of CII and The Chairman of The Fiscal Affairs Committee of The Bengal Chamber of Commerce. He has Authored more than 15 books on varied aspects of Direct and Indirect Taxation. E-mail - vivek.jalan@taxconnect.co.in)