Issue No. 264 / July 21^st, 2022

Dear Professionals, 

We are glad to present to you the 263^rd edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena! 

Journals Current Status

     

Expert Column 

The Supreme Court’s balancing act in the reassessment controversy has garnered mixed reactions and invocation of Article 142 to render ‘complete justice’ has resulted in saving the reassessment notices issued under the erstwhile regime. 

 

Mr. Prakash Sinha (Partner, Prakash Sachin & Co., Chartered Accountants) in this article analyses the SC ruling and brings out the key takeaways. He is of the view that the ruling is a watershed moment in the tax jurisprudence as he briefly discusses some of the landmark rulings in the context of Article 142. However, the author then opines that the judgment is likely to confuse the minds of both the Assessees and the Revenue as he refers to the letter addressed to CBDT by Association of Income Tax Gazetted Officers for seeking clarification as a mere tip of an iceberg.

 

The author underscores various issues of debate, including whether treating the 148 notices post Apr 1, 2021 as the notice issued 148A(b) would save the reassessment for AY 2013-14 and AY 2014-15, providing information to assessees within the time frame of 30 days etc. He analyses the pending reassessment matters and classifies them into five categories, and asserts that all the cases need to be separately analyzed by the Revenue in terms of the amended provisions and the limitation applicable and then only proceed towards 148A(d). He also highlights the challenge involved from the perspective of ITBA Portal in cases where Section 148 notices were issued and finds the need for some modifications in the Portal to overcome the technical issues.

Click here to read the analytical article, “SC Ruling on Reassessment – A Beginning of Another Controversy?"

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Key Takeaways from Handpicked Rulings 

1) ITAT: Municipal tax challan sufficient evidence for claiming deduction for construction cost - ITAT allows Assessee’s appeal, sets aside order denying indexed cost of construction for failure to produce evidence while computing long term capital gains; For the AY 2013-14, Assessee-Individual offered long term capital gains of Rs.3.53 lakhs from sale of land, after demolishing the building on the said land; During the reassessment proceedings, Revenue denied deduction for indexed cost of construction since the Assessee could not furnish any evidence for construction and also disallowed deduction for cost of demolition of building from scrap sale proceeds and accordingly recomputed capital gains at Rs.78.90 lakhs which was confirmed by CIT(A); ITAT observes that Assessee constructed the building in the year 1994-95 and filed details of municipal taxes paid from the year 2003-04 to 2011-12, thus opines that “there is no dispute that the assessee had constructed the building and paid the municipal taxes thereon. The payments of municipal taxes support the existence of the building in the said site..”; Notes that Revenue denied deduction for cost of construction merely because the Assessee could not furnish evidences, states that ………………..Click here to read and download ITAT Order

2) ITAT: Share transfer taxable in India where Assessee's residential status not in dispute - ITAT dismisses Assessee’s appeal, holds capital gains on sale of shares of a Dubai-based company as taxable in India since it was established that Assessee was a resident for the year under consideration; Rejects Assessee's reliance on SC ruling in P.V.A.L. Kulandagan Chettiar since it was a case of dual residency where the Assessee in the present case was found to be tax-resident of India only; Asesseee-Individual was subjected to assessment whereby Revenue made an addition of Rs.2.48 Cr. as long term capital gains which was confirmed by the CIT(A), against which Assessee preferred the instant appeal; ITAT finds Assessee was employed in Muscat for 20 years during which he made investment of 1,62,000 Dirhams in the shares of a company incorporated in Dubai and was one of the promoters of the company; Also notes that the Assessee transferred the shares……….. Click here to read and download ITAT Order

3) ITAT: Interest paid on delayed payment of TDS under Sec. 201(1A) compensatory in nature, thus allowable - ITAT allows Assessee’s appeal, holds interest paid on delayed payment of TDS under section 201(1A) is compensatory in nature and allowable as deduction; Assessee-Company made a fresh claim for deduction of interest paid on late payment of TDS, during the assessment proceedings for AY 2015-16 which was disallowed by the Revenue on the ground that interest paid under section 201(1A) is penal in nature; On appeal, CIT(A) allowed the fresh claim made by the assessee; however, disallowed the claim for deduction on merits by relying upon the decision in Ferro Alloys Corporation Ltd; ITAT relying upon the coordinate bench ruling in STUP Consultants P. Ltd. observes that TDS deducted on behalf of the third party and the interest charged on failure to remit the same within the stipulated due date is only compensatory in nature and allowable as deduction; ITAT also distinguishes the decision of Ferro Alloys Corporation Ltd. relied on by the CIT(A) while denying the claim of assessee on merits and observes that ………………Click here to read and download ITAT Order

4) ITAT: Uphold CIT(A)’s rejecting books as incorrect where Assessee followed hybrid method accounting - ITAT dismisses assessee’s appeal, upholds CIT(A)’s order rejecting Assessee’s books of accounts and estimating profit @ 8% of the gross receipts in terms of Section 44AD; Assessee-Individual was subjected to assessment for A.Y. 2015-16, whereby Revenue made addition of Rs. 2,54,71,701/- being the difference of income as per Form 26AS and income shown by the Assessee on the ground that the same was not offered to tax even though it was accrued to the Assessee, and despite Assessee following mercantile basis of accounting; On appeal, CIT(A) observed that the Assessee booked certain income on cash basis while in some instances on mercantile basis and Income Tax Act did not permit hybrid system of accounting and thus rejected the books of accounts maintained by the Assessee holding them to be incorrect/incomplete; CIT(A) also worked out the income by applying 8% net profit of gross receipts…………….Click here to read and download ITAT Order

5) HC: Quashes assessment order as time barred; Extension of timelines due to Covid inapplicable to Sec.144C - HC allows Assessee’s writ, sets aside assessment order passed under Section 143(3) read with Section 144C(1) is barred by limitation and thus liable to be quashed; For AY 2018-19, Revenue passed draft assessment order under Section 143(3) read with Section 144C on Apr 19, 2021; However, Assessee-Company (tax resident of the Netherlands), vide letter dt. May 17, 2021, informed that it would pursue normal appellate channel instead of filing objections before the DRP and accordingly requested Revenue to pass the final assessment order; The final assessment order was passed by Revenue on Sep 29, 2021; HC observes that as per Section 144C, Assessee has two options when the assessee receives draft assessment order which is prejudicial to the interest of such Assessee: (i) file acceptance to variations proposed or (ii) file objections before DRP, within 30 days from receipt of draft assessment order, notes that where the Revenue receives acceptance of variance or does not receive objections within 30 days, the final order shall be passed on the basis of the draft order; Observes that in the present case, Assessee’s communication informing Revenue to pass the final order was received by the Revenue on May 17, 2021 and accordingly, the time limit prescribed under Section 144C(4) (one month from the end of the month in which acceptance is received or the period of filing of objections under Section 144C(2) expires) would expire on Jun 30, 2021; Rejects Revenue’s contention that Assessee’s communication dt. May 15, was not uploaded on ITBA platform and should be ignored, remarks that even if the contention is accepted, “still, draft order having been received by petitioner on 19.4.2021, thirty day period provided under ……………….Click here to read and download HC judgment

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