Direct Tax Vista Your weekly Direct Tax recap Edn. 16 – 26th July 2022 By Vivek Jalan, Partner, Tax Connect Advisory Services LLP

 

 

1. Is ITR filing date extension possible at the fag end?

The Income Tax Department has appealed to the taxpayers to file their returns soon. In a tweet made a day ago, the department said that only 6 days are left for the deadline to end, while so far only more than 3 crore people have filed their returns. Last year, 5.89 crore people filed income tax returns. Revenue Secretary has recently announced that ITR deadline for Non-Audit Cases, i.e. 31st July 2022 shall not be extended.

 

However ITR filing still is not seamless and there are various glitches like - Bank account validation is taking excessive time, profile of the taxpayer is not updated instantly at the time of creating of a new login, navigation to the Traces website to view form 26AS is not taking place smoothly, TDS credits for Q4 are getting auto-populated only partially and hence, figures have to be punched manually and finally, ITRs for different financial years are not being downloaded in PDF format, Filed ITR receipts are not being downloaded, ITR is not being filed for the financial year 2021, i.e. the assessment year 2021-22, Old Outstanding Demand is also not showing, Refund requests are not being made; People are having one more problem related to PAN cards as the website is showing many PAN numbers as invalid, but these same PAN numbers are doing well on the old website.

 

Several users have taken to social media and complained that the e-filing website is not working properly for them. Information related to shares and mutual funds in the AIS seems to have a mismatch as per actuals.

 

Seeing all these issues, it does seem possible that the deadline may be relaxed, albeit for a few days at the fag end. Yet, taxpayers are advised to file their returns well within time.

 

2. ITR Filing: Some important issues to remember

The following are the important issues and changes one needs to take into account before filing this ITR –

 

1.   Capital Gains - Taxpayers are now required to give year-wise details of the cost of improvement (if any) incurred on the land/building transferred during the relevant year. These details are required to be given year-wise if the assessee has incurred the cost of improvement in different financial years. This would be a tedious job in this AY. Proper Documentation needs to be collated before disclosing.

 

2.   Capital Gains - Similarly, It will be mandatory to furnish the date of purchase and date of sale of land or building if the income arising from the transfer is taxable under the head of ‘Capital Gains’. This additional disclosure would help the tax authorities to verify the eligibility of the assessee and the allowability of exemption under Section 54, 54EC and 54F of the Income-tax Act, 1961 (‘the Act’). Further the computation of LTCG/STCG would be apparent from the return itself

 

3.   Capital Gains - In the previous ITR forms, the assessee was required to disclose only the indexed cost of acquisition of property transferred. The new ITR Forms require the assessee to mention both the ‘cost of acquisition’ and the ‘indexed cost of acquisition’. This would help the Tax Officer to determine any issue in calculation of Indexed CoA

 

4.   Partnership Firms - The Finance Act 2021 had made a major amendment to taxation for partnership firms. It made the partnership firm liable to pay tax on the business income or the capital gains arising from the transfer of assets to the partner on dissolution or reconstitution of the firm. The computation of income from such distribution shall be made as per Section 9B and Section 45(4). Section 48(iii) allows an additional deduction for the capital gains charged to tax under section 45(4), which is attributable to the capital asset remaining with the firm. The CBDT has inserted Rule 8AB to prescribe the manner in which such attributable amount is to be computed. The new ITR 5 has amended Schedule CG (Capital Gains) to disclose the deduction allowable under Section 48(iii) in respect of the capital gains charged to tax under section 45(4), which is attributable to the capital asset remaining with the firm. Implication - This will help Firms to take the necessary Deductions when they sell the balance assets of the firm

 

5.   Matching & Correcting the Annual Information Statement (AIS) - Individual taxpayers must ensure that the income details in their income tax return (ITR) form matches with that in the AIS. If there is a mismatch, then the income tax department may send you an income tax notice. For Eg – Interest from a closed bank account reflected in AIS and not reported in the ITR. If there is a variation between the TDS/TCS/tax payment details as displayed in Form26AS on TRACES portal and the TDS/TCS/ tax payment details as displayed in AIS on Compliance Portal, the taxpayers can rely on the information displayed on TRACES portal for the purpose of filing of tax return and other tax compliance.
There are also certain Errors in the AIS like Error in duplication of certain entries such as capital gains, interest income etc.; Incorrect amount reflected in the AIS. For instance, deposit in Mutual fund shows an enhanced amount in AIS as opposed to the actual amount; Information not belonging to the taxpayer gets reflected in his AIS; In case of details such as Sale of Property with Joint ownership, the AIS reflects the total share instead of actual share of the individual taxpayer; Information pertaining to a different financial year is reflected in the current AIS.

 

Once it is known that AIS has errors then it needs to be corrected as well. If the errors are not corrected in the AIS, then the individual may receive an income tax notice from the tax department. However, if the assessee taxpayer has sufficient documentation for the financial transaction mentioned in the AIS, he/she can rely on the same and accordingly provide feedback for correction in the AIS

 

3. No arbitrary adjusted u/s 245 without prior intimation

Most of the taxpayers suffer from adjustments made u/s 245, sometimes even without intimation. The purpose of giving prior intimation under section 245 of the Act, 1961 is to enable a party to point out factual errors or some further developments for example that there was a stay of the demand, or that there was a Supreme Court’s decision covering the demand, which is the subject matter of a pending appeal which would not warrant an adjustment of the refund against the pending demand.

 

Where a party raises such issues in response to the intimation, the officer of the Revenue exercising powers under section 245 of the Act, 1961 must record reasons why the objection was not sustainable and also communicate it to the said party and that this would ensure that the power of adjustment under section 245 of the Act is not exercised arbitrarily. Section 245 of Income Tax Act, 1961 envisages that when a refund is found to be due to any person under any of the provisions of the Act, the Revenue can set off/adjust the amount to be refunded or any part of that amount, against the sum which remains payable under the Act, 1961 by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section. The same was held in the case of Greatship (India) Limited Vs ACIT (Bombay High Court) [2022-VIL-169-BOM-DT]. The Same Court in the case of Suresh B. Jain held that giving of prior intimation under section 245 of the Act was mandatory.

 

4. When the language of a statute is unambiguous and admits of only one meaning, no question of construction of a statute then arises:

The Apex Court judgment in Nelson Motis V/s. Union of India And Another had held that when the language of a statute is unambiguous and admits of only one meaning, no question of construction of a statute then arises. The said principle of Interpretation of Statues was cited by The Bombay High Court in the case of PCIT Vs Kumar Builders Consortium (Bombay High Court), while allowing Pro-Rata Deduction u/s 80IB(10) on eligible residential units. Section 80IB(10) of The Income Tax Act used the following words in clause ‘c’ - “(c) the residential unit has a maximum built-up area of one thousand square feet where such residential unit is situated within the city of Delhi or Mumbai or within twenty five kilometers from the municipal limits of these cities and one thousand and five hundred square feet at any other place”

 

A plain reading of section 80IB(10) does not support the interpretation that even if a single flat in a housing project is found to exceed the permissible maximum built-up area of 1500 sq.ft., the assessee would lose its right to claim the benefit of deduction in respect of the entire housing project under Section 80IB(10). Had the legislature in its wisdom, in clause ‘c’ used the words “each residential unit has a maximum built-up area ….”, then it would clearly indicate that the intention was to ensure that each and every residential unit in such a housing project confirms inter alia to the size prescribed with a view to make an assessee eligible for claiming the deduction.

 

The High Court held that it is clear that clause ‘c’ only qualifies an eligible residential unit and no more and further that if there is such a residential unit, which confirms to the requirement as to size in a housing project, all other conditions being fulfilled, the benefit of deduction cannot be denied in regard to a such residential unit. Section 80IB(10), nowhere even remotely aims to deny the benefit of deduction in regard to a residential unit, which otherwise confirms the requirement of size at the cost of an ineligible residential unit with a built-up area of more than 1500 sq.ft.

 

5. Only profit element (and not entire Cash Sales) of undisclosed turnover should be added to Income

Yet another judgement on whether profit in the undisclosed turnover ought to be assessed as income. The Hon’ble ITAT Ahmedabad held that there is force in the pleadings of the assessee in treating cash deposits in the bank account as unexplained income of the assessee and the correct method is applying peak calculation method to compute the profit from the unaccounted cash sales made by the assessee. The account entries that indicated that cash deposits were being made and the same were withdrawn by issuing cheques to various parties. The assessee also gave peak calculation of the paper book filed by the assessee. The submission of the assessee that entire cash deposits in the bank account cannot be added as income of the assessee was accepted. HIMANSHU L. SHETHIA (HUF) Vs ITO [2022-VIL-922-ITAT-AHM]

 

Even under Service Tax/GST the question still remains that while the Department adds undisclosed/estimated sales, should corresponding CENVAT/ITC be also allowed. Possibly the courts need to ponder further in this respect.

 

6. No TP adjustment on account of AMP expenses towards brand building and business promotion

In case convention expenses and other expenses are incurred by the assessee for distribution of the products of its AE in the normal course of its business, they are to be regarded as in the nature of selling expenses and not expenses incurred for brand building of its AE. Therefore, the same cannot be held as AMP expenses. The same was held in the case of INDIA MEDTRONIC PRIVATE LIMITED Vs ASSISTANT COMMISSIONER OF INCOME TAX [2022-VIL-928-ITAT-MUM]

 

(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 Lead - Indirect Tax Core Group of CII- ER 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)