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Direct Tax Vista Your weekly Direct Tax recap Edn. 27 – 11th October 2022 By Vivek Jalan, Partner, Tax Connect Advisory Services LLP |
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1. Unpaid Electricity Charges not subject to Sec 43B
In A.V. Fernandez v/s. State of Kerala, [1957-VIL-03-SC] His Lordship Bhagwati J. has stated that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.
Unpaid electricity charges, hence cannot be termed as ‘fees’ and cannot be subject to disallowance u/s 43B as the Section does not specifically mention about the electricity charges. The Revenue cannot interpret the provisions of Section 43B of the Act in its favour, since the provisions of Section do not incorporate the electricity charges. Electricity charges are in the nature of statutory liability and the Revenue has to allow them as deduction irrespective of whether or not the same has been paid and notwithstanding that the assessee has disputed any liability to pay any part of such charges. The same was held in the case of CIT-III, HYD VERSUS VBC FERRO ALLOYS LIMITED, HYDERABAD [2022-VIL-226-TEL-DT]
2. Assets received for testing purpose is a benefit u/s 28(iv)
Income u/s 28(iv) has been widely discussed especially after the implementation of TDS u/s 194R. the word ‘benefit/perquisite’ u/s 28(iv) has not been defined and the scope of these two words are endless to say the least.
Now in the case of M/s HEWLETT-PACKARD (INDIA) SOFTWARE OPERATION PVT. LTD. Vs JCIT [2022-VIL-1238-ITAT-BLR] it has been held that assets imported free of cost are used in the testing services provided by the assessee to its AE thereby deriving the benefit of rendering billable services to the AE comes under the purview of Section 28(iv). Many other such cases would come up going forward until and unless the words ‘benefit’ and ‘perquisite’ are not defined. Further these would have implications under GST too as the valuation of the outward supply may be impacted in these cases.
Trade & Industry may have to pull up their socks to gear up for the next big round of litigation after Sec 147 cases.
3. Online Filing for TCS exemption in Form 27C
A set of FAQ relating to the filing of Form 27C has been released by The CBDT. This form is filed to aid in claiming exemption of TCS. Form 27C can be used by sellers and buyers for goods as specified by the Income Tax Act and can be utilised by the buyer of goods only if the goods that are being purchased are intended for production, manufacturing or processing of further goods, articles or things. In case the goods are being purchased for the sake of trading, Form 27C cannot be used for the sake of tax exemption.
The Buyer is required to manually fill Part-I of form 27C and submit it to the seller. The Seller is required to file Form 27C – Part- II on E-filing portal. The seller shall scan and upload part I of the form, received from buyers as attachments under “Part II - Details of seller, Attachments and Verification” of the online form and proceed for filing Form 27C.
There are various forms of money - currency notes, coins, bank A/c balance, etc. Now the RBI has released a concept note on Central Bank Digital Currency (CBDC) which will be a sovereign currency issued by RBI and will be a fungible legal tender for which holders need not have a bank account. The CBDC would be classified into two types — general purpose or retail (CBDC-R) and wholesale (CBDC-W). Retail CBDC can be used by all including the private sector, non-financial consumers, and businesses. Wholesale CBDC is designed for restricted access to select financial institutions. CBDC would also improve cross-border transactions. CBDC could provide the public with a risk-free virtual currency that will provide them with legitimate benefits without the risks of dealing in private virtual currencies.
5. What is Incriminating evidence during search
Every document seized in search cannot be termed as incriminating. A document seized partakes the nature of incriminating material relevant for making assessment u/s 153A only when it is established that the transaction is undisclosed or unexplained and the income earned out of such transaction has escaped the scope of taxation while it should have been assessed to tax had it been disclosed in the right manner. Incriminating material may be tangible like assets, documents, entry in books of accounts, etc, as well as intangible like data in a disc.
Unsigned and undated loose papers containing bifurcation of the consideration payable for the flat purchased by the assessee in cash and cheque are in the nature of dumb documents having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. The onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. A statement recorded u/s 132(4) also has evidentiary value but cannot justify the additions in the absence of corroborative material. The statement also cannot, on a standalone basis, constitute ‘incriminating material’ so as to empower the AO to frame a block assessment u/s 153A. [PCIT v. Anand Kumar Jain (HUF)[2021] 432 ITR 384 (Delhi HC)]
Hence, the appeal of the assessee was allowed in the case of SHRI NISCHAL SETHI Vs INCOME TAX OFFICER [2022-VIL-1249-ITAT-DEL], where the only basis for making addition under Section 69 of the Act were the loose sheets seized during another assessee’s search operations, especially when assessee furnished evidences to show a contrary fact.
Law regarding allowability of provisions is settled by Hon’ble Supreme Court in the case of Bharat Earth Movers vs CIT, 245 ITR 428 (SC). If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.
Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business.
A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the provision, would not have the effect of converting that liability into a contingent liability.
An assessee computing its taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. The same was re-confirmed in the case of DCIT Vs THE ORISSA STATE CO-OP. MILK PRODUCERS FEDERATION LTD. [2022-VIL-1251-ITAT-CTK].
(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)