New Direct tax code is cleared:Exemption limits hiked, will have to pay less tax under DTC

The cabinet has cleared new Direct tax code which is proposed to be implemented from 01-04-2011 onwards. The new Direct Tax code proposes to raise the basic exemption limit for individual tax payers from Rs 1.6 lakh to Rs 2 lakh. So there will be no tax on incomes below Rs 2 lakh. The exemption for senior citizens has been raised to Rs 2.5 lakh, up from 2.4 lakh at present.

Direct Tax Code incorporates all three direct tax act; IT Act of 1961, Wealth Tax of 1957, Dividend Distribution Tax of 1997.The Bill also seeks to remove surcharge and cess on corporate tax, providing relief to business houses. According to the new direct tax code corporate tax rate will be 30 per cent including all taxes, down from the existing 33 per cent.

Income between Rs 2-5 lakh is likely to attract a rate of 10 per cent, 20 per cent for Rs 5 -10 lakh bracket and 30 per cent above Rs 10 lakh.

At present, income between Rs 1.60 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh.

The Bill, approved by Cabinet, also seeks to impose minimum alternate tax (MAT) at 20 per cent of the book profit, compared to 18 per cent at present.

As of now, it is proposed to provide the EEE (Exempt-Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) ...", the revised DTC released by the Finance Ministry said.

Read more at: http://www.ndtv.com/article/business/new-direct-tax-code-pay-less-in-taxes-from-april-2011-47396?cp

The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode.

Under the EEE mode, the tax exemption is enjoyed at all the three stages - investment, accumulation and withdrawal.

The earlier DTC draft had proposed to reduce the corporate tax to 25 per cent from the present 30 per cent. The revised proposal has also made it clear that tax incentives on housing loans will continue. Payment on interest on housing loans up to Rs. 1.5 lakh will continue. The earlier draft was silent on housing loans.

Note: The Information shared above is based upon the news available from various sources

Development of IT infrastructure must before implementation of GST

Goods and Service tax (GST) is the most talked about topic in the field of indirect taxation today in India. Everybody is keenly waiting for the proposed GST draft which will replace the existing system of VAT in India. The central government wants the GST to be implemented in India by 1st April, 2011. Although there are and will be been many hurdles which are to be crossed before GST is implemented in India.

With the advent of GST the whole picture of indirect taxation in India will change. GST will help bringing to an end tax cascading i.e. tax on tax. But before GST is implemented all over the nation, the IT infrastructure connecting all the states must be developed.

For the successful administration of GST the inter connectivity through the IT infrastructure among centre and all states is must.  In the current VAT regime no credit of CST is available against the output tax or CST payable on sales of the dealers, whereas the credit of   GST paid on interstate purchase of goods by the buyer of such goods will be allowed to be set off against the GST payable by him when selling such goods, in the dual system of GST.

For allowing the credit of such GST paid on interstate purchases, there must be inter-connectivity among states and centre for proper verification of the GST claim of the buyer paid on interstate purchases by him. This can be explained with the help of following example:

Suppose buyer “A” who is a registered dealer in Punjab purchases goods from Delhi and pays GST to the seller in Delhi. Now he will be eligible to get the credit of GST paid by him at Delhi on his purchases.

But how the department in Punjab will be able to verify the GST claim of “A” paid by him in Delhi? The authorities will be able to verify the GST claim of “A” only if they can have access to the information about the return filed by the seller in Delhi. Such information can be possible only if there is exchange of information between authorities at Delhi and at Punjab which is possible through IT infrastructure only.

The e-filing of VAT returns have been started in almost all the states before the implementation of GST, which is a step forward towards preparations for the introduction of the GST regime. Now the next step is to connect the IT infrastructure of all the states with each other for the proper administration of GST and this should be done before the implementation of the GST.

Scrutiny assessment under the Income Tax Act 1961

The Scrutiny Assessments under Income Tax Act 1961 are made u/s 143(3). For many years now many of the returns of the assesses are accepted as they are being filed by the assesses and intimation is sent u/s 143(1) and only fewer cases are selected for scrutiny assessment based upon some predetermined criterias. Therefore every assessee desires that his return should be accepted as it is filed u/s 143(1) and not subjected to scrutiny. Some important points relating to the Assessment and scrutiny Assessment are discussed herein below:
When a case is selected for scrutiny: Where a return has been filed u/s 139 or in response to a notice u/s 142(1), the case can be selected for scrutiny Assessment if the assessing officer considers it necessary or expedient to ensure that:
- the assessee has not understated the income or has not computed excessive loss, or
-has not underpaid the tax in any manner.

Usually the amount of turnover, rate of gross profit, total income, quantum of loans taken, investments during the year etc are considered for selecting a case for scrutiny. However the selection is done on the basis of the instructions of the CBDT issued every year wherein some predetermined criteria’s are decided on the basis of which a case is selected for scrutiny Assessment.

The Honourable Supreme Court in (1999) 237 ITR 889 and (2004) ITR 272 has held that the assessing officer is bound by the instructions of the CBDT. The Delhi High Court giving reference of the above decision of the S.C.  has held in (2008) 169 Taxmann 4 / (2007) 295 ITR 256 that the A.O. cannot make Assessment of  any case in scrutiny outside the guidelines issued by the CBDT for selection of cases for scrutiny and if such Assessment is made then it will be illegal.

Time limit for issuing of Notice u/s 143(2): As per section 143(2) as amended by the finance act 2008 with effect from 01-04-2008 the notice under section 143(2) must be served upon the assessee within 6 months from the end of relevant Assessment year. Earlier the notice was required to be served within 12 months from the end of the month in which the return was furnished.

The notice u/s 143(2) must be received by the assessee now up to 30^th September for the preceding Assessment year. If the notice u/s 143(2) is received within the prescribed time then no Assessment can be framed u/s 143(3).

Where the assessee affirms by way of an affidavit that notice u/s 143(2) was not received by him within the prescribed time, the onus lies with the department to conclusively prove that the notice was served upon the assessee within the prescribed time. Failure to do so shall lead to set aside of the Assessment as it was held in CIT v Lunar Diamonds Ltd.[2006] 281 ITR 1(Del.).

Section 292BB: A section 292BB has been added w.e.f.  01-04-2008 which provides that if the assessee has cooperated in the Assessment or re-assessment proceedings then it will be treated that the notice u/s 143(2) has been duly served upon the assessee and the assessee will not be able to object to the late or irregular service of notice.

The proviso to section 292BB makes it further clear that if the assessee has before the Assessment or re-assessment proceedings objected to the no service or late or irregular service of notice u/s 143(2) then section 292BB shall be not applicable.

Therefore if an assessee does not receive the notice or receives the notice u/s 143(2) after the 30^th September and he cooperates in the Assessment proceedings and doesn’t object to the non receiving or late or irregular receiving of the notice then the Assessment proceedings and the assessment order shall be considered as valid and will not be quashed in the appeal.

What to do when notice U/s 143(2) is received: When a case is selected for scrutiny Assessment the A.O usually ask for the following

-Books of Accounts

-Bank Statements

-Confirmation certificates of Loans if any

-Name and Addresses of Sundry Creditors, Debtors

-The account statements of Sundry Creditors and Debtors for verification of transactions

In case the A.O. finds any discrepancy the assessee may be asked to explain the same.

Mere filling of confirmatory letters and producing the loan creditors do not discharge the onus that lies on the assessee. The assessee has to prove the disputed transaction prima facie appearing in his books of accounts. The assessee needs to prove the following things:

-Proof of Identity of creditor

-Credibility or capacity of a loan creditor to pay or advance the money

- the genuineness of the transaction

If the assessee prima facie proves a transaction then the onus shifts on the department to rebut the same. The A.O can only ask for the evidence of the cash credit or the loans which have been taken or given in the relevant previous year and not about those appearing from preceding years.

The opportunity of being heard must be provided to the assessee: The assessee must be provide a fair opportunity of being heard during the Assessment proceedings as it is a basic rule of Natural Justice. If the A.O makes any addition on the basis of evidence procured from other sources about which the assessee is not aware then the assessee must be given fair opportunity to rebut or cross examine such evidence.

In CIT vs Eastern Commercial Enterprises 210 ITR 103(CAL) it has been held that an addition made without allowing opportunity of cross examination to the assessee, cannot be sustained.

Cases where amount deposited with the firm by the partners are not proved: If the partners in a firm have deposited some money with the firm and the same is not proved as income of the firm by the A.O then such amount cannot be treated as income of the Firm but it will be treated as the income of the partners as held in (2001) 126 Taxman 533/252 ITR 344 P& H HC.

Amounts Received as gifts: Where receiving of any gift by the assessee is in question in the Assessment proceedings then affidavit of the donor or the gift deed along with the PAN No of the donor, the source of the gift and the relationship of the donee with the donor should be produced to prove such gift.

Additions cannot be made merely on suspicion: Any addition to the income of the assessee cannot be made only on the base of suspicion. If the assessee has proved the transaction in question then merely on the suspicion the addition cannot be made.

For Example if the assessee has sufficiently proved a deposit transaction from a person then the A.O cannot make addition merely on the ground that the assessee already had enough money on the day of deposit and there was no need for such deposit.

Request for summons to the non- cooperating loan creditor or depositors :Sometimes it happens that the depositors or loan creditors do not cooperate with the assessee in the Assessment proceedings then in such cases the assessee should request  the A.O in writing to issue summons u/s 131 to such persons along with their books of accounts or bank statement or any other relevant documents.

Where a Deposit or loan transaction is not proved: Sometimes due to non availability of proof regarding a deposit or loan transaction the assessee has to agree for surrendering such amount as his income. In my view while surrendering such transactions as income, the assessee should get it written in his statement that he is making surrender for mental peace and on the condition of non-levying of penalty. In my view in such case the penalty will not be imposed u/s 271(1)(c).

Additions on the base of inadequate withdrawals: The assessing officer usually during the Assessment proceedings ask the information from the assessee about his household expenses including the number of family members, the children, the school in which they are studying, the expense on their studies, electricity bills, telephone bills, house rents if any, the salary given to any employee or the car scooter etc owned by them.

After considering all the above things the A.O estimates the household expenses of the assessee and after matching the same with the withdrawals shown, the assessing officer tends to make additions to the income of the assessee if the withdrawals are found to be inadequate.

The assessee should tell the A.O in detail about his household expenses and if any other family member of the assessee has also contributed towards the household expenses, the fact should be brought to the notice of the A.O.

Sometimes it is seen that the assesses show their withdrawals for household expenses collectively at the end of the year in which case the assessee has to face many difficulties during the Assessment proceedings. The withdrawals for household expenses should be shown in every month.

Inadequate withdrawals of partner shown in the books of accounts of firm: Addition to the income of a firm cannot be made merely on the ground that the withdrawals for household expenses made by the partner from the firm is inadequate or very less. It’s not the firm’s responsibility to explain or prove that how the partners have managed their household expenses as it was held in (1997) 90 Taxman 330(magazine) Jaipur Tribunal.

Additions on the basis of inadequate expenses shown on the house or shop: Generally additions are made during the Assessment proceedings on the basis of the less expenditure shown in building a house or shop of the assessee. If the A.O is not satisfied by the expenditure shown on building house or shop by the assessee and also from the valuation of Registered valuer then the A.O refers the valuation to the valuer of the Department and if the valuer of the department declares the value more, then the additions is made by the A.O on the basis of such valuation and proceedings u/s 271(1)(c) are also initiated.

It has been held in many cases that the A.O cannot refer the valuation to the department’s valuer without showing any mistake in the valuation of the registered valuer or the bills and records maintained by the assessee. Although it is not necessary for the assessee to keep the record of all the expenses incurred on building his house or shop. But at the appellate level the bills and records maintained by the assessee are given very much importance. Therefore it is advisable to keep such records.

Assessments under Punjab Vat Act 2005

Assessment under the Punjab VAT Act 2005 is made u/s 29. The assessment under Punjab VAT Act is made after the filing of the VAT 20 i.e. annual return except in the case of Provisional Assessment. The assessment of Tax under section 29 of Punjab VAT Act 2005 can be done by two ways which can be discussed as follows:

Assessment on the basis of return filed by the dealer: Assessment  may  be  framed  on  the  basis  of  the  return or  returns  filed  by  the  taxable  persons u/s 29(1) . Where  the  return  is filed under  Sec.26 the  assessing  officer  under  Rule  43   scrutinizes  the  same and proceed to make assessment  under  Sec. 29(1) of the Act. Section 29(1) of Punjab VAT Act 2005 runs as under:

Where a return has been filed under sub section (1) or sub-section (2) of section 26 or in response to a notice under sub section (6) of section 26, if any tax or interest is found due on the basis of such return, after adjustment of any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the person specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under sub-section (11) and all the provisions of this Act shall apply accordingly :

Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be an intimation under this sub-section in case, either no sum is payable by the person or no refund is due to him:

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of financial year in which the return is filed.

Thus the assessment u/s 29(1) can be by and large called as assessment on the basis of self assessment of tax done by the dealer in the returns filed.

Scrutiny of returns Rule 43 is relevant to section 29(1) of Punjab VAT Act which provides for the procedure for scrutiny of every return filed u/s 26 for the purpose of section 29(1).

If on scrutiny of return it is found that a less tax has been paid than actually payable as per return, the notice is served upon the assessee to rectify the same and to pay the tax due along with interest u/s 32 and produce the treasury receipts before the designated officer within the time specified in the notice. If the assessee deposit the tax due and furnish the treasury receipts before designated officer complying with the notice under rule43(1) then the scrutiny of return is closed.

However an assessee can object to the notice issued under rule 43(1) in writing by stating the reasons for such objection and the designated officer if satisfied with the reasons, can decide accordingly or if not satisfied then the matter is referred for audit u/s 28 of Punjab VAT Act.

Assessment on the basis of Information received: The  Commissioner  or  the  Designated  officer  has been  vested  with  a  power  to  frame  assessment  on  his  own  motion  or  on  the  basis  of  information  received  by  him  to  the  best  of  his  judgment .Section 29(2) provides that  Notwithstanding  anything  contained  in  sub-section (1),  the  Commissioner  or  the  designated  officer,  as  the  case  may  be, ,may  on  his own  motion  or  non  the  basis  of  information  received  by  him,  order  or  make  an  assessment of  the  tax  payable  by  a  person  to  the  best  of  his  judgment  and determine  the tax  payable   by  him,  where-

a person fails to file a return under section 26 ; or

there are definite reasons to believe that a return filed by a person is not correct and complete; or

there are reasonable grounds to believe that a person is liable to pay tax, but has failed to pay the amount due; or

a person has availed input tax credit for which he is not eligible; or
provisional assessment is framed.

Section 29(3) further empowers commissioner either on his own motion or on the basis of information received by him, to direct the designated officer by an order in writing to make assessment of the tax payable by any person or any class of persons for such period as he may specify in his order.

Section 29(4) provides that the assessment u/s 29(2) and 29(3) may be made within three years after the date when the annual statement was filed or due to be filed, whichever is later. However the period of limitation u/s 29(4) can be enhanced by the commissioner under proviso to section 29(4) for assessment of a taxable person or a registered person, if circumstances so warrant by an order in writing after three years, but not later than six years from the date, when annual return was filed or due to be filed by such person, whichever is later.

Notice for assessment is must: For making assessment u/s 29 a prior notice must be served upon the assessee stating therein the grounds for proposed assessment and the time place and manner for filing objections if any. The notice must also provide the period for which assessment is to be made and provide a time of not less than 10 days for production of books documents etc as specified in the notice.
The purpose of issuing a notice and providing time in the notice of at least 10 days is to provide a reasonable opportunity of being heard to the assessee.

Reasonable opportunity of being heard must be provided: The assessee after being served with a proper notice for assessment must be provided with fair and reasonable opportunity of being heard before making the assessment.

The designated officer, after considering the objections and documentary evidence, if any, filed by the person, shall pass an order of assessment in writing, determining the tax liability of such a person. The assessment order must be a speaking one i.e. it must state the reasons for assessment [Rule 48(2)]. The certified copy of order along with tax demand notice shall be provided to the assessee free of cost [Rule 48(3)].

Amendment in assessment: The designated officer may, with the prior permission of the Commissioner, within a period of three years from the date of the assessment order, amend an assessment, made under sub-section (2) or sub-section (3), if he discovers under–assessment of tax, payable by a person for the reason that,-
such a person has committed fraud or willful neglect; or
such a person has misrepresented facts; or
a part of the turnover has escaped assessment:
Amendment in any assessment shall not be made without affording an opportunity of being heard to the affected person.

Procedure for amendment in assessment : Rule 49 provides that before making an amendment in assessment  a notice shall be issued by the designated officer, to the person, clearly stating the grounds for the proposed amendment, the date, time and place ,fixed for such amended assessment. After hearing , the person  concerned  and making such enquiry, as the designated officer may consider necessary, he  may proceed to amend the orders as he deems fit
subject, to the following conditions, namely :-

No amendment, which has the effect of enhancing the amount of tax, shall be made by the designated officer, unless he has given notice to the person concerned of its intention to do so and has allowed him a reasonable opportunity of being heard.
Where such amendment has the effect of enhancing the amount of the tax or penalty, the designated officer, shall serve on the person a Tax Demand Notice in Form VAT – 56 as required under sub-section (11) of section 29 and thereupon, the provisions of the Act and these rules shall apply, as if such notice had been served in the first instance.
Where any amendment made under sub-section (7) of section 29 has the effect of reducing the tax or penalty, the designated officer shall order refund of the amount, which may be due to the person and the procedure for refund laid down in rule 52 shall apply.
Rectification in the assessment order: Sub Section 8 of section 29 provides that the designated officer may, within a period of one year from the date of the assessment order, rectify an assessment, made under sub-section (2) or sub-section (3), if he discovers that there is a mistake apparent from record:

Provided that no order rectifying such assessment shall be made without affording an opportunity of being heard to the affected person.

Provisional Assessment: Under section 30 of Punjab VAT act the designated officer has been given power to make provisional assessment of any person where fraud or willful neglect has been committed with a view to evade or avoid the payment of tax or due tax has not been paid or a return has not been filed, after recording the reasons in writing for provisional assessment. Provisional assessment u/s 30 is independent and separate to the assessment proceedings u/s 29 since section 30 starts with the words “Notwithstanding anything contained in section 29”.

Although the word provisional assessment has not been defined anywhere under the act. But the word provisional means the thing which is not final and can be made for any period, subject to the condition that the tax liability of such a person shall be assessed finally after he files return in the prescribed manner. The Provisional assessment can be made in the following cases only:-

1. Fraud – Where  fraud  has  been  committed  with  a  view  to  evade or  avoid  the  payment  of  tax,  the  designated  officer  may,  for  the  reasons  to  be   recorded in writing, make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability  of  such  a  person  shall  be  assessed  finally  after  he  files  his  return  in the  under  the  provisions  of  sec. 26 [section 30(1)].

2. Willful  neglect – When there is willful  neglect  with  a  view  to  evade  or  avoid  the  payment  of  tax,  the  designated  officer  may,  for  the  reasons  to  be  recorded  in  writing,  make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability  of  such  a  person shall  be assessed  finally after  he  files  his  return  in  the  under  the  provisions  of  section 26 [section 30(1)].

3. Due  tax  has  not  been  paid -  Non  payment  of  due  tax  is  the  another  reason  for  making  the  provisional  assessment . The  designated  officer  may,  for  the  reasons  to be  recorded  in writing,  make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided that  tax  liability  of  such  a  person  shall  be  assessed  finally after  he  files  his  return  in  the  under  the  provisions  of  sec 26 [section 30(1)].

4. Non  filling  of  return – Where  a  return  has  not  been filed  by  or  on  behalf of  a person,  the designated  officer  may, for  the  reasons  to  be  recorded  in  writing,  make  provisional  assessment  for any  period  to  determine  the tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability of  such a  person  shall  be  assessed  finally  after  he  files  his  return in t he  under  the provisions  of  section  26 [section 30(1)].

Time Limit for Provisional assessment: The Provisional assessment shall be made within a period of six months from the date of detection[section 30(2)]. The commissioner may  for reasons to be recorded in writing, extend the said period by another six months in a particular case referred to him by the designated officer.[Section 30(3)].
Procedure for Provisional assessment like issuing of notice, reasonable opportunity of being heard etc is similar as is in the regular assessment and must be followed before making assessment.

C forms can be submitted even at appellate Stage

Under section 8(1) of the Central Sales Tax Act 1956 an Interstate sale to a registered dealer can be made at the concessional rate of Central sales tax i.e. @2% existing at this time. But for claiming concessional rate of CST the seller needs to produce a declaration in the prescribed form duly filed and signed by the registered dealer in a prescribed form obtained from a prescribed authority.

The prescribed form for claiming concessional rate of CST u/s 8(1) is C form which is obtained by the purchaser from the sales tax authorities in his state and is given to the seller for the goods purchased at concessional rate. C form obtained from the purchaser needs to be furnished by the seller to the prescribedauthority within 3 months from the end of the period to which the form relates as per rule 12(7) of the CST(R&T) Rules 1957. But the Prescribedauthority may allow furnishing of C form after the said period if satisfied that the person concerned was prevented by sufficient cause from furnishing the C form within the said time.

The dealers in Punjab usually are asked to deposit the C forms along with their annual statement the last date for filling of which is 20th November every year or sometimes the date for submission of C forms is extended to 31st march or some other date. But sometimes the selling dealers are not able to file the C forms due to reason of non availability of C forms with the purchasing dealers or for some other reason. In such cases the C forms can be submitted even after the filling of annualstatement or even at the appellate stage.

It has been held by the honorable Punjab & Haryana High court in R.S cotton Mills vs State of Punjab ) decided on 24-09-2008 relying upon the decision in Prestolite India Ltd vs The State of Haryana & others (1988) 70 STC 198 to the effect that C or D forms could be filled even after the filling of the return or at the appellate stage and same could be taken cognizance of.

Hence the C forms can be submitted even after the filling of annual statement i.e. at the time of assessment or afterwards and the same can be taken cognizance of since no loss is caused to the revenue by not filling the C forms along with annualstatement.

Author: Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

Cell No 9815243335

Provisions of section 269SS and 269T of Income Tax Act

Finance is the important part and need of every business. The own capital of a person may not be always sufficient to meet the needs of finance of the business. Therefore the Loans and deposits become necessary and important to meet the financial needs of the business. But while taking loans and accepting deposits one also has to keep in mind the restrictions imposed under the Income Tax Act on the mode of taking such loans and deposits.

Such provisions regulating the mode of accepting or taking loans or deposits and mode of repayment of certain loans and deposits are contained under section 269SS and 269T of theIncome Tax Act 1961.

Section 269SS: Section 269SS provides that any loan or deposit shall not be taken or accepted from any other person otherwise than by an account payee cheque or account payee bank draft if,

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid and the amount or the aggregate amount remaining unpaid ; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more :

Thus it is clear that no person can accept any loan or deposit of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs 20000 will also apply to a case even if on the date of taking or accepting suchloan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr X has a credit balance of a loan of Rs 19000 from Mr Y. Now in this case Mr X cannot take loan in excess of Rs 999 more from Mr Y except with an account payee cheque or account payee bank Draft.

Exemptions from section 269SS: The Following persons are exempted from the purview of section 269SS:

a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

Consequences of contravention of section 269SS:

Section 271D of Income Tax Act 1961 provides that if a loan or deposit is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit may be levied by the Joint commissioner.

Section 269T : Section 269T of Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if

(1) The amount of the loan or deposit together with interest is Rs 20000 or more, or
(2) The aggregate amount of loans or deposits held by such person, either in his own name or jointly with other person on the date of such repayment together with interest, is Rs 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

Exemptions from Section 269T: The Following persons are exempted from the purview of section 269T:

a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956
(e) other notified insititutions

Consequenses of contravention of section 269T: Section 271E of Income Tax Act 1961 provides that if a loan or deposit is repaid in contravention of the provisions of section 269T then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner.

No Penalty to be levied u/s 271D or 271E if there is reasonable cause : As per Section 273B of Income Tax Act no penalty shall be levied if the failure to comply with the provisions of section 269SS or 269T is due to some reasonable cause. Now the question arises what can be a reasonable cause to justify the violation of the provisions of section 269SS and 269T. Some of the reasonable causes based upon judicial decisions are provided as follows:

Repayment or receipt of amount to partners: If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000, then Provisions of section 269SS or 269T shall not be attracted as the introduction ofcapital or withdrawl from firm cannot be called as loans or deposits.

Amount paid by firm to partners or vice versa- is payment to self and doesnot partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts( CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

Deposit assessed as income, No penality can be imposed u/s 271D in such case: It was held by Jodhpur tribunal in Bajrang Textiles v. Additional CIT [2009] 122 (JD.) 190 that where the A.O having treated the impugned amount of deposit as income, he is precluded from treating the same amount as deposit or loan for the purpose of section 269SS and levy penalty u/s 271D. The penalty ought to be cancelled.

Acceptance or repayment through Journal entry donot attract section 269SS or 269T: Acceptence or repayment through Journal Entry would not come within the ambit of the words ‘loans or deposits’-section 269SS applies only where money passes from one person to another by way of ‘loan or deposit’[CIT v. Noida Toll Bridge Co. Ltd. 262 ITR 260 (Del.)]

A genuine transaction made in an emergency, doesnot attract penalty u/s 271D: held in Mrs Rupali R. Desai v. ACIT 88 ITD 76 (Mum.). In ITO v. Shree Mahaveer Industries 82 TTJ 549 (Jd.) it was held that cash paid to meet medical treatment expenditure in emergency, does not attract penalty u/s 271D.

In ITO v. Prabhulal Sahu [2006] 99 TTJ (Jd.) 177 it was held that Assessee was not aware of provisions of section 269SS or 269T. His councel did not apprise him about the provisions. No penalty u/s 271D shall be attracted.

Where Depositors residing in rural areas are not having access to banking facility and are ignorant of relevant provisions of law, it would constitute bonafide reasons for payment in cash. (ACIT v. Vinman Finance & Leasing Ltd. [2008] 306 ITR (AT) 377 (Visakha.)

Loan given by relatives on Sunday for safe custody and for use in business. No contravention of section 269SS takes place- ITO v. T.R. Rangarajan [2005] 279 ITR 587 (Mad.)

Cash Transaction made on Sunday. No penalty could be imposed in such a case.- ITO v. Narsing Ram Ashok Kumar[1993] 47 ITD 38(Pat)

Transfer of money exceeding Rs. 20000 by way of bank voucher instead of a/c payee cheque or draft doesnot attract penalty u/s 271D as the transaction are through banking channels only held in Asst. CIT v. Jag Vijay Auto Finance (p) Ltd.[2000] 68 TTJ (Jp) 44

Loan in cash under compelling circumstances have been held to be reasonable cause: Industrial Enterprises v. DCIT [2000] 68 TTJ (Hyd) 373

Where the Lenders did not have any bank account which compelled the assessee to accept the loan in cash. This has been considered as reasonable cause in Balaji Traders v. DCIT [2001] 73 TTJ (Pune) 246

Although the provisions of section 269SS and 269T have been enacted with a view to prevent the increase in black money and to stop the tax evasion. Still the amount of Rs 20000 is very small in the present scenario considering the rate of inflation resulting in decrease in value of money and the rise in prices of various goods, which in turn also has enhanced the working capital needs of every businessman.Therefore the limits u/s 269SS and 269T also need to be raised similar to the increase in the audit limit u/s 44AB which has been done to benefit the small assessees in the current budget by theFinance minister.

Author: Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

Cell No 9815243335

SECTION 51 OF PUNJAB VAT ACT 2005

Under section 51 of PVAT Act 2005 information collection centers have been established by the Punjab Government at various places with a view to prevent and check the evasion and avoidance of tax under PVAT Act. Section 51(1) of PVAT Act authorizes the state government to establish such information collection centre or check posts by notification.

DOCUMENTS TO BE CARRIED WITH GOODS VEHICLE: According to sub section 2 of section 51 the owner or person in-charge of a goods vehicle needs to carry with him the following documents:

1)a goods vehicle record,

2) goods receipt,

3) a trip sheet or a log-book,

4) sale invoice or bill or cash memo or a delivery challan containing particulars about goods where such goods are meant for business purpose. Such documents need to be produced at the information collection centre or check post to the officer in-charge of such centre or post checking the vehicle.

GOODS NOT MEANT FOR BUSINESS PURPOSE: The words mentioned in sub section 2 is that goods meant for business purpose. Thus section 51 has applicability only on those goods which are meant for business purpose and not on goods carried on in any vehicle purely for personal use of a person and are not meant for business purposes.

 

Section 51(11) also provides that No person or any individual including a carrier of goods or agent of a transport company or booking agency, acting on behalf of a taxable person or a registered person, shall take delivery of, or transport from any station, airport or any other place, whether of similar nature or otherwise, any consignment of goods, other than personal luggage or goods for personal consumption, the sale or purchase of which, is taxable under this Act, except in accordance with such conditions, as may be prescribed, with a view to ensure that there is no avoidance orevasion of the tax imposed by or under this Act.

 

Thus the above underlined word used in sub section 11 or section 51 also makes it clear that the provisions of section 51 are not applicable to the personal luggage or goods for personal consumption.

 

Section 51(4) provides that The owner or person In-charge of a goods vehicle entering the limits or leaving the limits of the State, shall stop at the nearest check post orinformation collection centre, as the case may be, and shall furnish in triplicate a declaration mentioned in sub-section (2) along with the documents in respect of the goods carried in such vehicle before the officer In-charge of the check post orinformation collection centre. The officer In-charge shall return a copy of the declaration duly verified by him to the owner or person In-charge of the goods vehicle to enable him to produce the same at the time of subsequent checking, if any:

 

Thus it is clear that the carrier of a goods vehicle entering or leaving limits lf state of Punjab must stop at the nearest check post or ICC for production of documents anddeclaration mentioned in section 51(2).

 

If the goods are carried with an intent to evade the tax under PVAT Act or CST Act  the action can be taken u/s 51 of PVAT Act and penalty can be levied. Where the officer incharge of a check post or the ICC has reason to suspect that the goods under transport are not covered by genuine documents as mentioned u/s 51(2) and are being carried for the purpose of trade then such goods can be detained by such officer u/s 51(6)(a) after recording the reasons in writing for the same or where the documents relating to the goods are not submitted at the nearest check post or ICC in the state on entry into or exit of such goods from the state then such goods shall be detained by such officer.

 

Such goods can be released against surety bond to the satisfaction of the officer where the consigner or the consignee of goods is  registered under PVAT Act and against a bank guarantee or cash or bank draft where the consigner or consignee is not registered under the Act.

 

The officer detaining such goods records the statement of the consignor or consignee or his representative or driver or the person incharge of such goods and such person needs to prove the genuineness of the transaction within 72 hours before the detaining officer. After 72 hours the proceedings are submitted to the designated officer for conducting enquiry.

 

When penalty u/s 51 is leviable @ 30%: If on conducting enquiry the designated officer finds that in case where goods are detained u/s 51(6)(a) (i.e. goods detained when it is suspected that the goods are not covered by genuine documents) that there has been an attempt to evade tax the penalty @30% of the value of goods can be levied in addition to the tax evaded.

 

When penalty u/s 51 is leviable @ 50%: In case where the goods are detained u/s 51(6)(b) (i.e. when documents are not submitted at the check post or ICC) and it is found that there has been an attempt to evade tax, the penalty @50% of the value of the goods can be levied after recording reasons for the same.

 

If there is no attempt of evasion of tax is detected after enquiry the goods shall be released by the designated officer.

 

Summary Proceedings: The proceedings u/s 51 have been held has summary proceedings if the goods are covered by genuine documents and there is no attempt to evade tax then merely on technical grounds like incorrect mentioning of R.C number by clerical mistake or mistake in the name of the consignee penalty u/s 51(7) can not be imposed.

 

Intention to evade tax must be proved: Many a times I have seen that the penalty u/s 51 is levied merely on technical grounds like wrong mentioning of TIN no on the Invoice or the wrong mentioning of name of a dealer. These technical mistakes cannot lead to the conclusion that there is intention ofevasion of tax. The intention of evasion of tax must be proved before levying any penalty u/s 51.

 

No Penalty u/s 51 can be levied where no Punjab Tax is involved: Where the goods are imported from outside the state of Punjab, the penalty cannot be levied u/s 51 on the ground that the goods are shown as under valued in the invoice because where the goods imported are claimed to be undervalued by the officer in Punjab in such case there is taxevasion of CST in the state where from the goods are imported and not that of any under the PVAT Act 2005

 

The tax of Punjab will arise when such goods are sold at under valued price in Punjab.

 

Nature of transaction cannot be decided at the ICC barrier: Where the goods are covered by genuine documents and the goods are duly produced at the nearest ICC barrier then in such case by disputing the nature of transaction, the designated officer cannot levy penalty u/s 51.

 

For example where there is difference of opinion regarding the rate of tax then in such case the designated officer cannot levy penalty u/s 51 because it’s the matter to be decided by the assessing authority. At the most the officer u/s 51 can bring to the notice of the concerned assessing authority.

 

Similarly in the matters relating to branch transfers against F forms where no CST  is chargeable, no action for levying penalty should be taken by disputing the nature of transaction if the goods are covered by genuine documents. Whether the transaction is a genuine branch transfer against F forms or not is a matter to be decided by the assessing officer and not by the designated officer at the ICC Barrier or check post.

 

Machinery purchased for installation: In M/s Mahavir Spinning Mills Vs. State of Punjab [June 1998- STM-7(STT. Pb.)] it was held that where the machinery was purchased for installation in the factory and as such the goods were not meant for trade hence penalty order was quashed.

 

Goods Imported  as first Import by the person having TOT registration: Person having TOT registration under the PVAT Act cannot import any goods from outside the state of Punjab since he does not hold registration under CST Act 1956. Recently I confronted with a situation where a TOT dealer who wanted to convert his TOT registration into VAT registration and for that he made first Import from outside the state of Punjab so that his liability as a VAT dealer can be fixed from the date of first import. But the goods were detained at the ICC barrier when the goods were duly produced at the barrier along with all requisite documents, where the officer sought to levy penalty on the goods. But when explained about the true situation the goods were released.

 

There must be an intention of tax evasion proved so as to levy the penalty u/s 51 of PVAT Act 2005.

 

Conclusion: There are a lot of case laws on section 51 of PVAT Act 2005(under the PGST Act it was section 14B). The levying of penalty u/s 51 should depend upon the facts of each case. But the most important thing is that the intention to evade tax must be proved before levying penalty u/s 51 of PVAT Act

AUTHOR: Amit Bajaj Advocate
EMAIL: amitbajajadvocate@hotmail.com
M +919815243335

Understanding the provisions relating to Transfer Pricing under Income Tax Act 1961

With the advent of MNCs(Multi National Concerns) a trend has also been adopted by the MNCs to structure their investments and business strategy in such a way that profits are maximized in such jurisdictions where tax rates are low, which give rise to the emerging  problem of transfer pricing all over the world. Many countries have made laws to deal with the issue of transfer pricing. India has been a late enterant in making provisions under the Income Tax Act to tackle the issue of transfer pricing. Although there existed section 92 under Income tax Act 1961 but there were not relevant rules which could help tackle the issue of transfer pricing. Section 92A to 92F had been inserted to deal with transfer pricing by the Finance Act, 2001. Some views are expressed in this article as below explaining provisions under the Income Tax Act 1961 dealing with transfer pricing.

 

What is Transfer Pricing: Ussualy there is a tendancy among MNCs to adjust their international transactions in such a way that maximum profit arises in that country where the rate of tax is lowest and minimum profit arises in that country where the rate of tax is highest. This creates the problem of transfer pricing. Thus there may be chances that MNC  escape tax in those countries where the tax rate is more by adjusting their international transaction and declaring lesser profits in such country. This can be explained with an example:

 

 Suppose a subsidiary company, resident in country A (which has a tax rate of, say, 30%) manufactures goods and transfers them to its parent company in country B (which has a tax rate of 20%) for trading. In order to increase the overall profits of the group company, it will seek to supply the goods at prices which are lower than the market price. So, in effect, the subsidiary company in country A will have lower profits and hence, a lower tax incidence whereas the parent company in country B is affected in the opposite manner higher profits due to low costs, but lower taxes because of the tax rate.

 

Transfer pricing deals with the technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability. The law requires that goods and services should be sold to subsidiary companies at arm's length price -- the price at which goods are traded between unconnected companies.

 

 

In order to cover such tendencies of MNCs section 92A to 92F have been enacted  and section 271AA, 271BA and 271G have been incorporated and section 271 has been amended providing for penal provisions in this regard.

 

How the income from international transactions will be computed: As per section 92 any income from international transaction shall be computed as per arm’s length price. Any allowance of interest or expenses with respect to the above income shall also be computed having regard to arm’s length price.

 

Further where, in an international transaction, two or more associated enterprises enter into a mutual agreement for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided or apportioned to or as the case may be, contributed by, any such enterprises shall be determined having regard to the arm’s length price of such benefit, service or facility, as the case may be.

In simple words it means that not only the income from an international transaction is to be computed as per arm’s length price but also any expense or cost to be incurred in an international transaction in conection with a benefit or service or facility to be provided will be computed as per arm’s length price.

 

Section 92 also provides that its provisions shall not apply where it has effect of reducing the income chargeable to tax or increasing the loss, as the case may be, computed on the basis of enteries made in the books of account in respect of the previous year in which the international transaction was entered into.

 

Now the question arises about the meaning of some of the concepts as mentioned above like International transactions, associated enterprises and arm’s length. These can be discussed as follows:

 

What is an International Transaction: To apply the provisions related to transfer pricing as contained u/s 92, 92A to 92F there must be an international transaction.

 

As per section 92B an international transaction means a transaction between two or more associated enterprises, either or both of whom are non-resident and such transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of services, or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of such associated enterprises.

 

International transaction shall also include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any of such associated enterprises.

 

Further section 92B provides that, where a transaction entered into by an enterprise with a person other than an associated enterprises and there exist a prior agreement in relation to the relevant transaction between such other person and associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprises then such transaction shall also be treated as an international transaction.

 

What is associated Enterprises: To apply the provisions relating to transfer pricing there must also be associated enterprises. Which enterprises can be termed as associated enterprises can be known u/s 92B. As per section 92B(i) the associated enterprises in relation to another enterprise is:

 

(a)    which participates, directly or indirectly, or though one or more intermediateries, in the management or control or capital of other enterprise; or

(b)   in respect of which, one or more persons who participate directly or indirectly or through one or more intermediateres, in its management or control or capital, are the same persons who participate, directly or indirectly or through one or more intermediataries, in the management or control or capital of the other enterprise.

 

Two enterprises shall be deemed to be associated enterprises if, at any time during the previous year,-

 

(a)    One enterprise holds, directly or indirectly, shares carrying not less than 26 per-cent of the voting power in the other enterprise; or

(b)   Any person or enterprise holds, directly or indirectly, shares carrying not less than 26 per-cent of the voting power in each of such enterprises; or

(c)    A loan advanced by one enterprise to the other enterprise constitutes not less than 26 percent of the book value of the total assets of other enterprise; or

(d)   One enterprise guarantees not less than 10 per-cent of the total borrowings of the other enterprise; or

(e)    More than half of the board of directors or members of the governing board, or one or more of the executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise;

(f)     More than half of the board of directors or members of the governing board, or one or more of the executive directors or executive members of the governing board of each of the two enterprises  are appointed by the same person or persons; or

(g)    The manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trademarks, licences, frenchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise is the owner or in respect of which the other enterprise has executive rights; or

(h)    90 per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise; or

(i)      the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise; or

(j)     where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual; or

(k)   where one enterprise is controlled by a Hindu undivided family, the other enterprise is also controlled by a member of such HUF or by a relative of a member of such HUF or jointly by such member and his relative; or

(l)      where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than 10 percent interest in such firm, association of person or body of individual.

(m)   There exists between the two enterprises, any relationship of mutual interest, as may be prescribed.

 

What is arm’s length price: As stated above the income from an international transaction is computed as per arm’s length price. Arm’s length price has been defined in section 92F(ii) as a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.

 

The arm’s length principle suggests that the associated enterprises should be treated as independent enterprises and international transaction is considered at the market price.

 

As per section 92C the arm’s length price in relation to an international transaction shall be determined by any of the prescribed methods discussed as below:

Comparable Uncontrolled Prices method (CUP): Under this method, price charged in an uncontrolled transaction between comparable entities is identified and compared with the tested entity price (after making due adjustments in relation to terms and conditions and risk involved) to determine the ALP.
Cost Plus Method (CPM): Here, the total cost of production incurred by the enterprise in question in transferring goods and services to Associated Enterprises (AEs) is calculated and the total gross profit mark up used by comparable entities in similar transactions with independent enterprises is determined. The total gross mark-up arrived at is adjusted to take into account functional and other differences and is added to the costs calculated to determine ALP.
Resale Price Method (RPM): Under this method the price at which property or services in question are resold or provided to an unrelated enterprise is identified. Such resale price is reduced by the normal gross profit accruing to an enterprise in a comparable incontrolled transaction.
Profit Split Method (PSM): PSM is used when AEs transactions are so integrated that it becomes impossible to conduct a TP analysis on a transactional basis. First, the combined net profit incurring to related enterprises from a transaction is determined. Then, the combined net profit is allocated between related enterprises with reference to market returns achieved by independent entities in similar transactions. The relative contribution of related parties is then evaluated on the basis of assets employed, functions performed or to be performed and risk assumed.
Transactional Net Margin Method (TNMM): TNMM is normally adopted in cases of transfer of semi-finished goods, distribution of finished products (where resale price method (RPM) cannot be adequately applied) and transactions involving the provision of services. TNMM compares the net profit margin relative to an appropriate base (sales, assets or costs incurred) of the tested party with net profit margin of the independent enterprises in similar transactions after making adjustments

Any other method as may be prescribed by the Board

 

The most appropriate method of all the above methods should be applied in determining arm’s length price depending upon various factors like nature of transaction availability of information etc.

 

 

Where more than one price is determined by the most appropriate method, the arm’s length price shall be taken to be the airthmatical mean of such prices.

 

Actual price at which international transaction has been undertaken shall be accepted where the variation with the arm’s length price doesnot exceed 5 percent.

 

Section 92CB provides that w.r.ef asst. year 2009-10 Income tax authorities will accept the transfer price declared by the assessee provided they are in accordance with the Safe Harbour Rules to be notified by CBDT. safe Harbour means circumstances in which the income tax authorities shall accept the transfer price declared by the assessee.

 

When the assessing officer can determine arm’s length price: As per section 92C(3)

Where during the course of any proceeding for the assessment of income, the Assessing Officer is, on the basis of material or information or document in his possession, of the opinion that—

          (a)  the price charged or paid in an international transaction has not been determined in accordance with the prescribed manner; or

          (b)  any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or

           (c)  the information or data used in computation of the arm’s length price is not reliable or correct; or

          (d)  the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D,

the Assessing Officer may proceed to determine the arm’s length price in relation to the said international transaction on the basis of the information or material available.

Procedure to be followed by the assessing officer while determining arm’s length price: Proviso to section 92C(3) provides that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm’s length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer.

The Finance Act 2002 has inserted a new section 92CA according to which in case of international transaction, the A.O may refer the matter to Transfer Pricing officer, if he considers it necessary or expedient to do so, with the prior approval of commissioner, for the purpose of computing arm’s length price.

The following procedure will be followed by TPO while determining ALP:

 

(1) Where a reference is made to the TPO, the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm’s length price in relation to the international transaction in question.

(2) On the date specified in the notice , or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on any specified points and after taking into account all relevant materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm’s length price in relation to the international transaction and send a copy of his order to the Assessing Officer and to the assessee.

(3) On receipt of the order under from TPO, the Assessing Officer shall proceed to compute the total income of the assessee  in conformity with the arm’s length price as so determined by the Transfer Pricing Officer.

The obligations of an assessee having international transactions: The obligation of an assessee having international transaction are as follows:

(1)   The income from the international transaction should be computed as per arm’s length price

(2)   Every person who has entered into an international transaction shall keep and maintain such information and document in respect thereof and for such period, as may be prescribed by the board and produce before the A.O or commissioner (Appeals) as and when required in the cource of proceedings under Income Tax Act within a period of 30 days from the date of receipt of notice.

(3)   The assessee entering into an international transaction is also required to firnish an audit report in the form 3CEB by a chartered accountant by 31^st of October of relevant A.Y where the assessee is a company and by 31^st day of july in other cases.

 Penal provisions: As per section 271AA if the required information and documents are not maintained, the A.O or CIT(A0 may impose a penalty of a sum equal to 2% of the value of such international transaction. Similar penalty is provided u/s 271G if the assessee fails to furnish the documents requisitioned by the A.O or CIT(a).

Section 271BA provides that if an assessee fails to furnish the report of Chatered accountant as required u/s 92E, the A.O may impose penalty of Rs 1 Lakh.

Explanation 7 to section 271(1)(c)  provides thatwhere in the case of an assessee who has entered into an international transaction defined in section 92B, any amount is added or disallowed in computing the total income under section 92C(4) then, the amount so added or disallowed shall, for the purpose of section 271(1)(c) , be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished.

However the explanation doesnot apply where the assessee proves to the satisfaction of the A.O or the CIT that the price charged or paid in such transaction has been determined in accordance with section 92C in good faith and with due diligence.

As per section 273B no penalty will be levied u/s 271AA, 271BA, 271G where it is proved that there was a reasonable cause for the failure.

Author: Amit Bajaj Advocate, Jalandhar
Email: amitbajajadvocate@hotmail.com
Webpage: http://amitbajajadvocate.blogspot.com
M +919815243335

FILING INCOME TAX RETURN AFTER DUE DATE

The due date for filing income tax return for  corporate aseessees and other aseessees who are  required to get their accounts audited under Income Tax Act 1961 or under any other law for the time being in force is 30^th September and for others it is 31^st July every year as have been prescribed u/s 139(1).

 

These due dates are also sometimes extended by the CBDT as this year has been done, extending the due date from 31^st July to 4^h August. For a layman sometimes it may create doubt if he fails to file his return of Income within due date, whether he can file his return of Income after the due date, especially when  he is under no obligation  to get his accounts audited under Income Tax Act or under any other law.

 

The answer to this question is Yes. Under section 139(4) a belated return can be filed before the expiry of one year from the end of relevant assessment year  or before the completion of assessment whichever is earlier.

 

 But, where the assessee has some capital loss or loss from business or profession to be carried forward he should file his return of income within the due date as prescribed u/s 139(1). As per section 139(3), no loss shall be allowed to be carried forward under the head Business or Profession or under the head Capital Gain unless the return is filed within the due date as mentioned in section 139(1).

 

Where return of income is filed after the due date, interest u/s 234A will be payable. But if there is already tax has been deducted from the income of the aseessee or advance tax has been paid by the assessee and there remains no tax to be paid after such T.D.S or advance tax then no interest is levied u/s 234A for filing the return after the due date.

 

It is to be noted that a penalty of Rs 5000 may be imposed u/s 271F if the return of income is not filed within the end of the relevant assessment year. For example, such penalty is imposable if return for asst. year 2010-11 is not filed by 31^st March 2011.

 

It should also be noted that where a belated return is filed u/s 139(4), no revised return u/s 139(5) can be filed as it was  held in Jagdish Chandra Sinha v. CIT 220 ITR 67 (SC)

 

Thus if your due date for filing return was 31^st July further enhaced to 4^th August this year and you miss to file it within due date you can still file it after the due date as stated above.

Capital gains under Income Tax Act 1961

Any Income derived from a Capital asset movable or immovable is taxable under the head Capital Gains under Income Tax Act 1961. The Capital Gains have been divided in two parts under Income Tax Act 1961. One is short term capital gain and other is long term capital gain.

1.Short Term Capital Gains : If any taxpayer has sold a Capital asset within 36 months and Shares or securities within 12 months of its purchase then the gain arising out of its sales after deducting therefrom the expenses of sale(Commission etc) and the cost of acquisition and improvement is treated as short term capital gain and is included in the income of the taxpayer.

The deduction u/s 80C to 80U can be taken from the income from short term capital gain apart from the short term capital gain u/s111A

Taxability of short term capital gains: Section 111A of the Income tax Act provides that those equity shares or equity oriented funds which have been sold in a stock exchange and securities transaction tax is chargeable on such transaction of sale then the short term capital gain arising from such transaction will be chargeable to tax @10% upto assessment year 2008-09 and 15% from assessment year 2009-10 onwards.

The short term capital gains other than those u/s 111A shall be added to the income of the assessee and no such benefit is available on short term capital gains arising in other cases and they will be taxed normally at slab rates applicable to the assessee.

If an assessee does the business of selling and purchasing shares he cannot take advantage of section 111A or section 10(38). In this case income will be treated as business income.

Capital gains in case of depreciable assets : According to section 50 of Income tax act if an assessee has sold a capital asset forming part of block of assets (building, machinery etc) on which the depreciation has been allowed under Income Tax Act, the income arising from such capital asset is treated as short term capital gain.

Where some assets are left in block of assets: If a part of such capital asset forming part of a block of asset has been sold and after deducting the net consideration received from sale of such asset from the written down value of the block of such asset the written down value comes to NIL then the gain arising shall be treated as short term capital gain and in such case where written down value has become NIL no depreciation shall be available on such block of asset even if some assets are physically left in the block of assets.

When no assets are left in block of assets: If the whole of the capital assets forming part of a block of assets have been sold during a year and the assessee has suffered a loss after deducting the net sale consideration from the written down value of the block of assets then such loss shall be treated as short term capital loss and no depreciation shall be allowed from such block of assets.

It was decided by Chandigarh tribunal in (2004) 3 S.O.T. 521/ 83 T.T.J. 1057 if the whole of capital assets in a block have been sold in a year and some gain arises after the sale such gain shall not be treated as short term capital gain if some new asset has been purchased within the same year in the same block of assets and the total value of new and old capital assets in the same block is more than the sale consideration of the assets sold, since the block of asset does not cease to exist in such case as is required u/s 50(2). This can be explained with an example as below:

Written down value of 5 Machinery
as on 01-04-2008 500000
5 machinery  sold on 01-05-2008 600000
New Machinery purchased on 01-06-2008 250000

now in above cases the difference between the w.d.v and sale value i.e Rs 100000 can not be treated as short term capital gain in the year 2008-09 since new machinery has been purchased in the same block of asset afterwards in the same year and the total of new and old machinery is more than the sale value of the machineries sold as a result the block of asset continue to exist.

Short term capital gain where land & building are sold together: Some times it happens that in a block of assets namely land & building, the whole of land & building is sold together. In such cases the capital gain on land and building should be calculated separately.

The Supreme Court has held in (1967) 65ITR 377 that depreciation is available on the value of building and not on the value of plot. Considering the above decision of Supreme Court, the Rajasthan High court in (1993)201 ITR 442 has held that Plot and building are different assets. If the assessee has purchased plot more than 3 years back and constructed building on it less than 3 years back then the gain arising on sale of plot shall be long term capital gain and the benefit of indexation shall be given on it whereas the gain arising on sale of building shall be short term capital gain and will be added to the income of the assessee. Therefore both should be calculated separately.

Where the plot has been purchased more than three years back and the building has been constructed on it less than 3 years back, it is advisable that in the sale deed the sale value of plot and building should be shown separately for more clarity and if the consolidated sale value of the Plot and building has been written in the sale deed then the valuation of plot and building should be done separately from a registered valuer.

Capital asset transferred by the partner to the partnership firm: As per section 45(3) of the Income Tax Act 1961 if any partner in a firm transfers his asset to the firm then the capital gain on such asset as arising to the partner shall be calculated by presuming the sale value of such asset as is shown in the books of accounts of the firm and not the market value of the asset.

whether such gain is treated as long term or short term will be decided as below:

a) If the depreciation has been claimed on the asset transferred to the firm then in view of section 50(2) the gain arising there from will be treated as short term capital gain.

b) If the partner has been the owner of the asset for more than 36 months and no depreciation has been claimed on it then the gain arising from such asset shall be treated as long term capital gain.

Capital gain in case of Dissolution of a Firm: As per section 45(4) of the Income Tax Act where any partnership firm or AOP or BOI is dissolved and the Capital assets of the such firm or AOP or BOI are transferred by way of distribution of assets to the partners at the time of Dissolution in such case the gain arising from such transfer to the partners will be treated as capital gain and the firm will be liable for paying tax on it in the year of distribution of the assets.

For the purpose of section 48 the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.

2. Long Term Capital Gain: A Capital Asset held for more than 36 months and 12 months in case of shares or securities is a long term capital asset and the gain arising therefrom is a long term capital gain. Long term capital gains are arrived at after deducting from the net sale consideration of the long term capital asset the indexed cost of acquisition and the indexed cost of improvement
of the asset.

The Central govt notifies cost inflation index for every year. The indexed cost of acquisition is calculated by multiplying the actual cost of acquisition with C.I.I of the year in which the capital asset is sold and divided by C.I.I of the year of purchase of capital asset. Similarly the indexed cost of improvement can be calculated by using the C.I.I of the year in which the capital asset is improved. Where the capital asset was acquired before the year 1981 then the cost of acquisition shall be the fair market value or the actual cost of its acquisition which ever is higher. The Fair market value of a capital asset can be known by the valuation of the registered valuer.

The cost inflation index table as notified is here below:

Cost Inflation Index Notified by the GOVT
Financial Year	(CII)	Financial Year	(CII)
1981-82	100	1995-96	281
1982-83	109	1996-97	305
1983-84	116	1997-98	331
1984-85	125	1998-99	351
1985-86	133	1999-2000	389
1986-87	140	2000-2001	406
1987-88	150	2001-2002	426
1988-89	161	2002-2003	447
1989-90	172	2003-2004	463
1990-91	182	2004-2005	480
1991-92	199	2005-2006	497
1992-93	223	2006-2007	519
1993-94	244	2007-2008	551
1994-95	259	2008-2009	582
2009-10		632

If a capital asset has been subjected to depreciation then no indexation benefit is allowed on sale of such capital asset in view of section 50(2) as discussed above.

Capital gain from Plot and building should be separately calculated: As discussed above plot and building are separate assets and the capital gain on above should be calculated separately. If the plot is purchased more than 3 years back and building has been constructed within 3 years the capital gain on plot will be considered as long term and the capital gain on building will be treated as short term capital gain.

Taxation of Long term capital gains: The long term capital gains are taxed @ 20% after the benefit of indexation as discussed above. No deduction is allowed from the long term capital gains from section 80C to 80U. But in case of individual and HUF where the income is below the basic exempted limit the shortage in basic exemption limit is adjusted against the long term capital gains.

Section 112(1) provides that any capital gain arising from a long term capital asset being the listed securities which are sold outside the stock exchange the long term capital gain shall be calculated on such securities as below:

a) Tax arrived at @ 20% on such long term capital gain after indexation u/s 48 or
b) Tax arrived at @ 10 % on such long term capital gain without indexation
Whichever is less.

The long term capital gain on equity shares or units of equity oriented mutual fund which are sold in the stock exchange and on which securities transaction tax is paid, is exempt u/s 10(38).

Section 50C: Section 50C has been introduced with effect from 01-04-2003 and is a very important section while calculating capital gain on land & building. Section 50C provides that Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

It means that the capital gain will be calculated by considering the sale value of the capital asset as equal to the value adopted or assessed by the stamp valuation authority for that capital asset if the actual sale value is less than the value assessed by stamp valuation authority.

If the assessee claims that the value adopted by the stamp valuation authority exceeds the fair market value then the assessing officer may refer to the valuation officer for valuation of the fair market value of the asset. If the fair market value declared by the valuer is more than the value adopted or assessed or assessable by the stamp valuation authority, the value so adopted assessed or assessable by the stamp valuation authority will be taken as full value of consideration of the capital asset.

CBDT vide its circular No 8/2002 dt 27-08-2002 has declared that if the valuation officer has declared the fair market value of the capital asset less than the value adopted, assessed or assessable by the stamp valuation authority then the capital gain shall be calculated on the value so declared by the valuer.

After the adding of word assessable u/s 50C in 2009 now it has become clear that even those immovable properties in which no sale deed is entered into and which have been sold on a full and final agreement will be within the ambit of section 50C.

Exemptions from long term capital gain:

Section	Asset	Assessee	Holding Period of Original Assets	Whether Reinvestment Necessary —Time Limit	Other Conditions/ Incidents	Quantum
54	Residential House Property	Individual HUF	3 years	Yes — In Residential House, within 1 year before, or 2 years after the date of transfer (if purchased) or 3 years after the date of transfer (if constructed).**		The amount of gains, or the cost of new asset, whichever is lower
54B	Agricultural Land	Individual	Use for 2 years	Yes — In Agricultural Land, within 2 years after the date of transfer.	Must have been used by assessee or his parents for agricultural purposes See Notes 1, 2 and 10	As above
54D	Industrial Land or Building or any right therein	Any Assessee	Use for 2 years	Yes — In Industrial Land, Building, or any right therein within 3 years after the date of transfer.	Must have been compulsorily acquired	As above
54EC	Any Long-term Capital Asset (LTCA)	Any Assessee	Shares, Listed Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) :1 year Others : 3 years	Yes — Whole or any part of capital gain in bonds redeemable after 3 years and issued on or after 1-4-2006 by NHAI or REC and notified by the Govt. – within 6 months from the date of transfer.		The amount of gain or the cost of new asset whichever is lower subject to Rs. 50,00,000 per assessee during any financial year for investments made on or after 1-4-2007. Also investment in bonds notified before 1-4-2007 would be subject to conditions laid down in notification including limiting condi- tions (i.e., Rs. 50 lakhs per assessee)
54ED	LTCA being listed securities or units	— do —	Listed Securities or units of UTI/Mutual Fund covered u/s. 10(23D) : 1 year	Yes — Within six months from the date of transfer in acquiring eligible issue of capital	exemption is available only in respect of the assets transferred before 1-4-2006	— do —
54F	Any Capital Asset (not being a residential house)	Individual HUF	Shares, Listed, Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) : 1 year Others : 3 years	Yes — In Residential House, within 1 year before, or 2 years after the date of transfer (if purchased), or 3 years after the date of transfer (if constructed).**		If the cost of the specified asset is not less than Net Consideration of the original asset, the whole of the gains. If the cost of the specified asset is less than the Net Consider-ation, the proportionate amount of the gains.
54G	Industrial land or building or plant or machinery	Any Assessee	—	Yes— In similar assets and expenses on shifting of original asset, within 1 year before, or 3 years after the date of transfer.		The amount of gains, or the aggregate cost of new asset and shifting expenses, whichever is lower.
54GA	Industrial land or building or plant or machinery	Any Assessee	—	Yes — In similar assets and expenses on shifting of original assets to a Special Economic Zone – within 1 year before or 3 years after the date of transfer		The amount of gains, or the aggregate cost of new asset and shifting expenses, whichever is lower
115F	‘Foreign Exchange Asset’ (See Note	Non- Resident Indian	Shares, Listed Securities, Units of UTI/Mutual Fund covered u/s. 10(23D) : 1 year Others : 3 years	Yes— In ‘Specified Assets’ (See Note 9) or Specified Savings Certificates of Central Government, within 6 months after the date of transfer		Same as u/s. 54F above.

Author:

Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

M: 9815243335