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Direct Tax Vista Your weekly Direct Tax recap Edn. 7 – 24th May 2022 By Vivek Jalan Partner, Tax Connect Advisory Services LLP |
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To issue Section 148 notices, the observations of the Investigation Wing should not be treated as conclusions without the AO independently verifying the same
As reported in Direct Tax Vista Edn 06, Litigations u/s 148 would keep continuing on the concept of ‘change of opinion’. The Supreme Court has 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. Now, incase of UMA STRIPS LTD. Vs DCIT [2022-VIL-610-ITAT-DEL], it was held that simply stating and doubting that the assessee is involved in obtaining accommodation entries without providing proof, reason, information to backup the claim cannot be considered as a valid reason to issue notice u/s 148 of the I.T. Act. The observations of the Investigation Wing should not be treated as conclusions without the AO independently verifying the same, in the absence of which the Hon’ble Court held that the reopening of assessment was bad in law.
Condition that is ‘sine qua non’ to entitlement of benefits cannot be assumed and cannot be ‘read into’
‘Reading into’ a provision is to assume it to have a meaning which it does not, so that the intent of the Statue is not diluted. Many a times the course is taken by the Courts. However, where there is the question of a Condition that is ‘sine qua non’ (essential) to entitlement of benefits for the assessee, a provision cannot be ‘read into’.
Article 13(4) of the India Mauritius Double Taxation Avoidance Agreement provides protection to the assessee in respect of the long term capital gains arising from transfer of shares. AO held that the assessee is a wholly owned subsidiary of Blackstone FP Capital (Mauritius) VA Ltd Cayman Islands and the entire scheme of purchase and sale of shares was designed for the benefit of the entities in Cayman Islands and that it was a fit case to lift the corporate veil. The Assessing Officer proceeded on the basis that since beneficial owner of the capital gains in question is an entity based outside Mauritius, the assessee is not entitled to the treaty protection in respect of capital gains in question. It was held by The ITAT Mumbai in the case of BLACKSTONE FP CAPITAL PARTNERS MAURITIUS V LTD Vs DEPUTY COMMISSIONER OF INCOME TAX [2022-VIL-599-ITAT-MUM] that the concept of beneficial ownership being a sine qua non to entitlement to treaty, in the absence of specific provision to that effect, cannot be inferred or assumed and the benefits cannot be denied. The Court drew a comparison with Article 11(4) which provides that treaty protection can be availed when interest income is “derived and beneficially owned" by a person resident of the contracting state. Such rider is not available in Article 13.
Can an admission of Assessable Value in Customs which is higher than Invoice Value of Imports, lead to Addition under Income Tax?
Now-a-days, all Revenue Departments i.e. Customs, GST and Income Tax are exchanging information. Even Income Tax Act, CGST Act and The Customs Act have been cross linked, such that an illegal transaction under one Act would have consequences under the other Act. The question is whether a difference found on account of imports purchase between Invoice Value and Assessable Value of Imports by the Customs Authority, can be treated as purchases made out of the books. It has been held in the case of THE ASST. COMMISSIONER OF INCOME TAX Vs SHRI SHIVPRAKASH S CHANDAK [2022-VIL-598-ITAT-MUM] that unless that is reconciled it cannot be said that assessee has purchased goods out of books of account. However the assessee also cannot say that he is not in a position to reconcile the difference. Hence, the assessee has to reconcile the purchases with the invoices value stated by customs authority from the books of account of the assessee. Thereafter a decision on whether to add any amount to the sales or not should be taken.
Assessment Proceeding u/s. 153A subsequent to search, is deemed to always to have been included in the ‘assessment records’
The revenue cannot blow hot and cold at the same time. It is always the plea of the revenue that subsequent events/development also need to be taken into consideration while the PCIT exercised his jurisdiction u/s. 263 of the Act. By applying the same standard, PCIT should always look into the subsequent enquiries pursuant to a search, conducted by the AO u/s. 153A of the Act and examine as to whether there was enquiry conducted by the AO in respect of the nature and source of the share capital and premium collected by the assessee. It was decided in the case of TECHNO TRACOM PVT. LTD. Vs ASSISTANT COMMISSIONER OF INCOME TAX [2022-VIL-597-ITAT-KOL], that PCIT ignored to look into the subsequent action carried out by the AO which is an ‘omission’ on his part which is erroneous because as per the definition given for records u/s 263 of the Act, even the subsequent assessment proceeding u/s. 153A is deemed to always to have been included in the assessment records, which at the time of examination by him u/s 263 of the Act, he was duty bound to examine.
Circular regarding use of functionality under section 206AB and 206CCA: Deductors/ Collectors to not ask deductee/collectee evidence of furnishing ROI
The CBDT issued a circular No 10/2022 dated 17th May 2022 regarding the use of functionality under sections 206AB and 206CCA. It highlighted that this functionality has been developed to ease compliance for tax deductors/collectors. Asking the deductee/collectee to file evidence of furnishing of their return defeat the purpose of this taxpayer friendly measure. All tax deductors/collectors are requested to make note of this circular for compliance.
Finance Act 2022 has brought about the bellowing changes in the above-mentioned provisions, i.e., section 206AB and section 206CCA of the Act with effect from April 01, 2022:
(i) The provision' of higher TDS under section 206AB is not applicable on tax to be deducted under sections 194-IA, 194-IB, and 194M. ‘This is in addition to the already existing provision of its non-applicability on tax to be deducted under sections 192, 192A, 194B, 194BB, 194LB, and 194N.
(ii) The definite of specified person has been amended in both section 206AB and section 206CCA, now “specified 'person” means a person who satisfies both the following conditions:
(a) He has not furnished be the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted/collected. The previous year to be counted is required to be the one whose return filing date under sub-section (I) of section 139 has expired.
(b) Aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in that previous year.
(iii) Further, it has been provided that provisions of section 206AB will not apply in case of deduction of tax on the transfer of virtual digital asset (VDA) under section 194S of the Act to a person being an individual or Hindu undivided family, whose sales, gross receipts or turnover from the business carried in by him or profession exercised by him does not exceed one crore rupees in case of business or fifty lakh rupees in case of the profession, during the financial year immediately preceding the financial year in which such VDA is transferred or if such person does not have any income under the head “Profit and gains of business or profession”.
Thus, it can be seen that now a person can become a specified person for default in one year instead of the earlier provision of default in two years. Accordingly, the logic of the functionality has been amended. The process for the current financial year is as under:
1. The deductor/collector shall check the status of the deductee at the beginning of each year.
2. The deductee who is marked as ‘filer’ shall remain a filer for the whole financial year even after the expiry of the due date of furnishing the return of income for the latest assessment year.
3. The status of the deductees who are marked as non-filers are subject to change and the deductor may recheck their status in the subsequent deduction.
4. In the case of a non-resident who does not have any PE in India is outside the purview of the provisions of section 206AB and section 206CCA. However, the online utility does not distinguish between a non-resident who has a PE or does not have a PE in India, hence, deductors needs to carry out the due diligence manually in respect of non-residents having PE in India and deduct the tax accordingly.
5. Deductor/collectors are not required to collect any evidence from the deductee for applying the provisions of section 206AB/206CCA. Compliance as per the information provided by the online tool is sufficient.
6. Section 206AB shall not apply to TDS under section 194S-TDS on transfer of VDA.
RBI Clarifies regarding MSME regarding extension of validity of EM and UAM
The Government of India, vide Gazette Notification S.O. 2134(E) dated May 06, 2022, has notified amendments in sub paragraph (3) paragraph (7) of the notification of Government of India, Ministry of Micro, Small and Medium Enterprises number S.O. 2119 (E), dated June 26, 2020, published in the Gazette of India. In view of the amendment, it is clarified that The existing Entrepreneurs Memorandum (EM) Part II and Udyog Aadhaar Memorandum (UAM) of the MSMEs obtained till June 30, 2020 shall remain valid till June 30, 2022 for classification as MSMEs and The validity of documents obtained in terms of O.M. No.12 (4)/ 2017-SME dated March 8, 2017 (RBI Circular FIDD.MSME & NFS.BC.No.10/06.02.31/2017-18 dated July 13, 2017), for classification of MSMEs upto June 30, 2020, has been extended upto June 30, 2022.
RBI approves India, Sri Lanka trade settlement in rupee outside ACU
The RBI has approved trade transactions between India and Sri Lanka to be settled in Indian rupee outside the Asian Clearing Mechanism. The approval is alongside a government-guaranteed $1 billion term loan from State Bank of India (SBI) to the Sri Lankan government for purchasing essential goods from India. India, On March 17, announced a term-loan facility for Sri Lanka as a part of its financial assistance to help the country to deal with its worst financial crisis in modern times.
RBI notifies on reporting of reverse repos on the bank’s balance sheet
The RBI has notified regarding reporting of reverse repos with Reserve Bank on the bank’s balance sheet specified in Part A of Annexure II of the Reserve Bank of India (Financial Statements - Presentation and Disclosures) Directions, 2021. The main objective to do so is to bring more clarity on the presentation of reverse repo on the balance sheet.
RBI has decided the following:
(a) All type of reverse repos with the Reserve Bank including those under Liquidity Adjustment Facility shall be presented under sub-item (ii) ‘In Other Accounts’ of item (II) ‘Balances with Reserve Bank of India’ under Schedule 6 ‘Cash and balances with Reserve Bank of India’.
(b) Reverse repos with banks and other institutions having original tenors up to and inclusive of 14 days shall be classified under item (ii) ‘Money at call and short notice’ under Schedule 7 ‘Balances with banks and money at call and short notice’.
(c) Reverse repos with banks and other institutions having original tenors more than 14 days shall be classified under Schedule 9 – ‘Advances’ under the following heads:
i. A.(ii) ‘Cash credits, overdrafts and loans repayable on demand’
ii. B.(i) ‘Secured by tangible assets’
iii. C.(I).(iii) Banks (iv) ‘Others’ (as the case may be)
(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)