Direct Tax Vista Your weekly Direct Tax recap Edn. 14 – 12th July 2022 By Vivek Jalan, Partner, Tax Connect Advisory Services LLP

 

 

Prosecution u/s 276C In Income Tax for Non-filing of Income Tax returns: No relief from High Court

Taxpayers across the Country are now witnessing a new era where economic offenses are no more taken with an attitude of “Letting things be”. Tax Professionals should also change accordingly and ensure that tax compliances are in order. We have heard many cases under GST and Customs where prosecution proceedings have been initiated for suspected evasion of tax/duty. Now the Income Tax Authorities have also got into the Act by invoking Section 276C of The Income Tax Act. Even when an assessee failed to file its Return in time and to pay the tax due before the due date of filing the return of income, prosecution u/s 276 CC and 276C (1) of the Income Tax Act was launched. The absence of assessee in India or the communication gap between herself and her representative was not accepted as a ground to quash the prosecution.

 

Section 278E gives a presumption to lay prosecution in case of non-filing of Return within the time limit and suppression of income in the Return filed, is with malafide intention to evade Tax. Hence, the Court held that it cannot by exercising its power under Section 482 of Cr.P.C., quash the proceedings presuming the contrary.

 

Rules of procedure are handmaid of Justice

Multiple glitches are faced on the Income Tax Portal these days due to which tax returns cannot be filed by the taxpayers and then they have to pay penalties or their substantive claims are denied. While we talk of penalties for non-compliance for the assessees, it is time that the revenue officers or IT service providers are also brought to task; or atleast the assessees should be relieved for procedural glitches.

 

It has been categorically held by the Hon'ble Supreme Court, that courts should not go strictly by the rulebook to deny justice to the deserving litigant as it would lead to miscarriage of justice. It has been reiterated by the Hon'ble Supreme Court that all the rules of procedure are handmaid of Justice. The language employed by the draftsman of procedural law may be liberal or stringent, but the fact remains that the object of prescribing procedure is to advance the cause of Justice. Similarly where the assessee failed to submit its appeal electronically but filed it physically, it was accepted and all the issues were remitted to the file of the ld. CIT(Appeals) for adjudication on merit, in the case of DEERGOLD VINCOM PVT. LTD. Vs INCOME TAX OFFICER [2022-VIL-852-ITAT-KOL]

 

TDS on Maintenance Charges for Property is under Sec 194C and not 194I

Every Organisation has offices in a complex, either on rent or on ownership. Organisations can also have guest houses/ Flats. For these properties it is common to pay maintenance charges to associations which undertake a host of activities in return like paying common electricity charges, common cleaning services, lift maintenance, security of premises, etc. By no stretch of imagination can these be considered as ‘rent’. However certain field officers do consider it so, especially when rent is also paid separately for the same property. Incase the assess can place the copies of the agreements from where it can be clearly gathered that CAM charges have been paid to different parties by executing agreements which do not form part of rent payment, it would be agreed that the payment towards CAM charges are in the nature of contractual payment which are made for availing services/ facilities and not for the use of any premises/ equipment, therefore, same would be subject to deduction of tax at source u/s 194C of the Act and not u/s 194I of the Act.

The same was held by The ITAT in the cases of Connaught Plaza Restaurants P. Ltd. and Kapoor Watch Company Pvt. Ltd.. Following the same a similar decision was pronounced in the case of NIJHAWAN TRAVEL SERVICE PVT. LTD. Vs ACIT [2022-VIL-826-ITAT-DEL]

 

Provision for Obsolescence of Inventory allowed as a deduction

It is now settled that that the amount debited to profit and loss account in accordance with applicable accounting standard issued by ICAI should be allowed for the purpose of the Act as per the principles laid down by The Hon’ble Apex Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd. Hence, the provisions for diminution in value of stock was allowable as deduction where the assessee has adopted scientific method for valuation. The Hon’ble Apex Court in the case of Rotork Control India Pvt. Ltd. Vs. CIT (180 Taxman 422) has held the same. The contrary contentions of the JAO was struck down in the case of CRYSTAL CORP PROTECTION LTD Vs ACIT [2022-VIL-846-ITAT-DEL].

 

Creating Global Challenges to Opportunities: Asian Clearing Union (ACU) Mechanism - Indo-Sri Lanka trade

After Covid-19, it was The Russia-Ukraine Crisis and now Sri Lanka it is. The global scenario is dynamic and so India has to also act accordingly to not only sustain, but also convert challenges to opportunities. The RBI has issued a notification on Asian Clearing Union (ACU) Mechanism regarding Indo-Sri Lanka trade. Export / import transactions between ACU member countries are to be routed through the ACU mechanism. RBI has decided that all eligible current account transactions including trade transactions with Sri Lanka may be settled in any permitted currency outside the ACU mechanism until further notice. The approval is alongside a government-guaranteed $1 billion term loan from SBI to the Sri Lankan government for purchasing essential goods from India.

 

Asian Monetary Unit (AMU) is the common unit of account of ACU and is denominated as ‘ACU dollar’, ‘ACU euro’ and ‘ACU yen’, which is equivalent in value to one US dollar, one euro and one Japanese yen respectively. All instruments of payments under ACU have to be denominated in AMUs. Settlement of such instruments is made by Category-I banks through the ACU dollar accounts, ACU euro accounts and ACU yen accounts, which should be distinct from the other US dollar, euro and Japanese yen accounts respectively maintained for non-ACU transactions.

 

The RBI said in a circular that under the arrangement, financing of export of eligible goods and services from India would be allowed subject to their being eligible for export under the Foreign Trade Policy of the Government of India and whose purchase may be agreed to be financed by SBI under this agreement. Sri Lanka has defaulted on debt payment obligation for the first time in history as the grace period to repay $78 million of debt interest payment expired.

 

RBI provides relaxation for FPIs to invest in Debt in India

RBI on July 07, 2022 has issued a notification to provide certain relaxations on Investment by Foreign Portfolio Investors (FPI) in Debt. RBI has decided that investments by FPIs in government securities and corporate bonds made between July 08, 2022 and October 31, 2022 (both dates included) shall be exempted from the limit on short-term investments till maturity or sale of such investments and to allow FPIs to invest in commercial papers and non-convertible debentures with an original maturity of up to one year, during the period between July 08, 2022 and October 31, 2022 (both dates included). These investments shall be exempted from the limit on short-term investments till maturity or sale of such investments.

 

RBI designates two additional specified securities eligible for investment by NRs under ‘Fully Accessible Route’

RBI has decided to designate the two securities as well as all new issuances of Government securities of 7-year and 14-year tenors as ‘specified securities’ under the Fully Accessible Route (FAR). Earlier, RBI introduced the FAR in pursuance of the announcement made in the Union Budget 2020-21 that certain specified category of Central Government securities be opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well.

 

Non-monetary consideration is considered for trusts for purposes of Sec 13

Trustees render voluntary services to the trust and for the facilitation they are provided with benefits like accommodation, office space, chamber space, etc. The tax authorities ask a question as to whether the services provided are adequate consideration for the facilities availed. In one such case of SWASTHIYOG PRATISHTHAN Vs DCIT (EXEMPTIONS) CIRCLE [2022-VIL-842-ITAT-PNE] the CIT(A) estimated rental value of the operation rooms and the fair rental value of bungalows occupied by the trustees and denied the exemption only on that part of income in violation of the provisions of section 13(1)(c) of the Act and balance of income was held to be exempt u/s 11 of the Act. It was held that the residential premises are made available for the specified persons only with view to ensure to the availability of the specified persons for the patients around the clock cannot be said to be without adequate consideration, the provisions of section 13(1)(c) has no application to the facts of the present case.

 

Business Purpose of Motor Car/foreign travel Expenses of Directors

The expenses of Directors and Partners which are booked in the Organisation are always a matter of contention. Generally, expenses such as motor car rentals, mobile expenses, security expenses at the residential place, personal assistant expenses are under question. It is expected by the tax authorities that a record and business case justification is provided by the assessees as against these expenses. What is disputed is the quantum attributable to personal expenses. Hence it is advised that adequate records are maintained.

 

In one such case of DY. COMMISSIONER OF INCOME TAX Vs M/s S. KUMARS NATIONWIDE LTD [2022-VIL-844-ITAT-MUM], restricting the disallowance of motor car expenses, AO disallowed 50% of the motor car expenses paid to the Director only on the basis that the Director has spent considerable time abroad on account of foreign travel and therefore expenditure is not justifiable. Before the CIT(A) also, the assessee could not produce complete details with respect to motor car expenses. However, the CIT(A) directed the AO to restrict the disallowance to 10% for want of evidence. The Revenue however accepted that being Director some amount of motor car expenses would have been incurred wholly and exclusively for the purpose of business.

 

The ground of restricting the disallowance of overseas travelling expenses, the CIT(A) directed the AO to restrict the disallowance to 10% on the basis that only small percentage can be attributed to personal purpose.

 

It was held by The ITAT that there is no infirmity in the impugned order passed by the CIT(A) restricting the disallowance to 10% of the foreign travel and motor car expenses incurred.

 

(The author is a CA, 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)