Instructions dated 31-5-2012 of ETC to conduct surveys

Adding to the misries of dealers in Punab, ETC has issued following direction on 31-05-2012 to its subordinates :

-          Surveys be got conducted

-          Scrutiny and assessment of all the returns

-          Authenticate all the bill books of dealers

-          Especially terrorise the dealers dealing in goods fetching rate of 12.5%

-          Visit the shops on regular basis

-          Note down numbers of running bills

-          Check customers for issue of invoice by dealers

-          All the dealers to be visited  in next two months.

Representation on E-Trip System in Punjab

The spate of recent pronouncements issued by the Excise and Taxation Commissioner has led to chaos and fury amongst the business community of the Punjab. All the constructive suggestions and recommendations are being brushed aside and have taken a seat aback and directions which will mar the already ailing trade and industry are being shot one after another. ETC’s efforts for increasing Vat revenue are targeted at making the dealers’ life more and more miserable instead of doing internal cleaning and wiping off corrupt officer and practices off the scene.

                                    The recent pronouncements of ETC of implementing E-TRIP system w.ef. 10-08-2012 has sent the shock waves amongst trading community. It says information regarding intra state movement of goods (with in Punjab) shall be furnished by persons making sales of Rs. 3 lakhs or above in a single transaction except in case of iron and steel where this threshold shall be Rs. 2 lakhs.

Order of Tribunal can not be revised if Case Law not quoted during Submissions

The counsel of assessee pleaded in service tax case before CESTAT that decision of Punjab & Haryana High Court on case of CCE v. First Flight Courier Ltd. [STA No. 48 of 2010, dated 28-1-2011] that penalty u/s 76 can not be imposed where penalty levied under s.78 even before amendemend in 2008 be considered . Further he argued that same judge passed similar order just 15 days before rendering judgement in assessee's own case.

Analysis of Service Tax Proposals in Finance Act 2012

New Charging Section 66B

•         There shall be Levied a tax (here in after referred service tax) @12%

•         on value of all services

•         other than those specified in negative list

•         provided or agreed to be provided in taxable territory

•         by one person to another

•         and collected in such manner as may be prescribed.

Analysis of Service-65B(44)

•         -any activity (not defined)

•         - for consideration (not defined)

•         - carried out by a person for another

•         - and includes a declared service (s.66E)(9 services) (out of this 4 services are similar to deemed sales under Art 366(29A) of Constitution)

Non Applicability of Service Tax in State of Jammu and Kashmir

-         Article 370 of Constitution restricts the Central Government to make laws for J&K, that is why service tax is not applicable to J&K

-         A person having place of business in J&K providing services out side J&K shall be charged to service tax. However if such person is not having any office or establishment outside J&K, collection of tax shall pose problem. But an opinion prevails that although charging of service tax in J&K is restricted but not the collection. Still it is a moot point

-         On the other hand a person in other parts of country providing service in J&K shall not be liable to service tax

-   A letter  of the Director General of Service Tax (F. No . V/DGST/03/GEN/INS/01/2004, dated 17-8-2004) referring the Central Board of Excise  and Customs (CBEC) Circular No. 56/5/2003, dated 25-4-2003 clarifies that,  "Service Tax is a destination based consumption tax and the principle of consumption of services would determine the liability of Service Tax."

According to the above letter of the DGST, the insurance services rendered to the clients having assets outside the state of Jammu and Kashmir, by M/s. New India Assurance Company Ltd., Jammu would be liable to Service Tax. However, services provided to the clients having assets in state of Jammu and Kashmir, by your Jammu Branch are not liable to Service Tax.

Principles of Best Judgement assessment

The Hon'ble Supreme Court has categorically laid down in the case of State of Orissa v. Maharaja Shri B.P. Singh Deo, 76 ITR 690 (SC), that the mere fact that the material placed by the assessee before the Assessing Officer is unreliable, does not empower the Officer to make an arbitrary order. The power to make the best judgment assessment is not arbitrary one. The Assessing Officer in making a best judgment assessment does not possess absolute arbitrary authority to assess the income at any figure as he likes. Although he is not bound by strict judicial principles, he should be guided by the Rules of Justice, equity and good conscience. The Assessing Officer must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. There is nothing in section 144 for holding an assessment made by an officer u/s. 144 without conducting a local enquiry and without recording the details and results of that enquiry cannot have been made to the best of his judgment within the meaning of that section. The best judgment is to be based on a fair and proper estimate of assessee's income and the inference to be drawn from the available material should be properly inferable inference. The assessment is to be based on material to the extent to which the materials are discovered. This clearly supposes the Assessing Officer should make an intelligent well-grounded estimate. Such estimate must be based on adequate and relevant material. What is irrelevant material depends on the facts and circumstances of the case 

Case Laws on 269SS favoring assessee

In following cases 269SS not applied having regards to facts and circumstances of the case
i)ITO vs Rajendera Trading Co.48ITD210 Chd SMC
ii)Muthoot M. George Bankers 46 ITD 10 Cochin
iii)Jay Builders 111 Taxmann 211(Mum Tri)
iv)Shree Nath Builders 111 Taxmann 142
v)Mrs Rupali R. Desai 88 ITD76 (Mum)

Loan through book Entry. 269SS/T not to apply if backed by lender and acceptance letter of receiver
- Sunflower BUilders Private Limited 61 ITD 227

Retrospective Amendmend

nThe retrospectivity and prospectivity of the statute has been considered by Hon'ble Supreme Court in number of recent judgments, vide., (2008) 1 SCC 188 (Jaswant Talkies. Vs. Commercial Taxes Officer, Bhilwara); JT 2009 (9) SC 306 (High Court of Delhi Vs. A.K. Mahajan and others); JT 2009 (9) SC 386 (M/s Shakti Tube Ltd. Vs. State of Bihar); 2910 (2) SCC 422 (Union of India and another. Vs. Kartick Chandra Mondal and another), held that in case, statute expressly itself not made it operative retrospectively, it shall operate prospectively.

Vodafone Case

-Hutch Group formed and invested in India in HEL (Hutchison Essar Ltd.) in 1992 and thus invested in telecomm sector in India.
-On 12-01-1998, Hutch Group Co. HTIL (Hutchison Telecommunication International Ltd.) formed CGP -Investments Ltd. In Cayman Islands and acquired 100% shares in CGP Investments Ltd.
-HTIL was also incorporated in Cayman Islands.

Analysis of Direct Tax Under Union Budget 2012

                             FINANCE BILL 2012

                   DIRECT TAX PROVISIONS

Tax Rates for AY 2012-13 i.e. AY 2013-14

Individual/HUF/AOP,BOI, Artificial Juridical Person

Up to 200000	NIL
2000001 to 500000	10%
50000o1 to 1000000	20%
Above 1000000	30%

Exemption limit for senior citizen (age of sixty years or more but less than eighty years) Rs. 250000

Exemption limit for senior citizen (age of sixty years or more but less than eighty years) Rs. 500000

Rates of taxes for companies, firms, co operative societies, local authorities to continue

Analysis of Residence status for Individual under DTC (Standing Commitee Report)

  Clause 4 (1) of the Code deals with  residency of Individuals.

4(1) An individual shall be resident in India in any financial year, if he is in

India—

(a) for a period, or periods, amounting in all to one hundred and eighty-two days or more in that year; or

(b) for a period, or periods, amounting in all to—

(i) sixty days or more in that year; and

(ii)  three  hundred  and  sixty-five  days  or  more  within  the  four  years immediately preceding that year.

(2) The provisions of clause (b) of sub-section (1) shall not apply in respect of an individual who is—

(a) a citizen of India and who leaves India in that year as a member of the crew of an Indian ship; or

(b) a citizen of India and who leaves India in that year for the purposes of employment outside India.

Where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3)

[2012] 19 taxmann.com 105 (Karnataka) HIGH COURT OF KARNATAKA Sanu Family Trust DECEMBER 7, 2011Section 40A(3) of the Income-tax Act, 1961

 - Business disallowance - Cash payment exceeding prescribed limits - Assessment year 1996-97 - Whether where assessee was putting up construction not for self occupation, but for business of selling a portion of building and leasing over premises it could not be absolved of its obligation under section 40A(3) and, therefore cash payments made by assessee in excess of Rs. 20,000 could not be allowed - Held, yes [In favour of revenue] 

Section 40(a)(ia) cannot be invoked in respect of reimbursement which are not routed through profit and loss account to be claimed as deduction

[2012] 19 taxmann.com 109 (Kolkata - Trib.) IN THE ITAT KOLKATA BENCH 'A'Sharma Kajaria & Co.FEBRUARY 17, 2012

Section 40(a)(ia), read with section 194J, of the Income-tax Act, 1961 - Business disallowance - Interest, etc., payable to resident without deduction of tax at source - Assessment year 2006-07 - Whether question of disallowance under section 40(a)(ia) can only arise when something is claimed as a deduction in computation of business income - Held, yes - Whether reimbursements simplicitor, being profit neutral, are not routed through profit and loss account to be claimed as deduction and, therefore, no disallowance under section 40(a)(ia) can be made in respect of reimbursements - Held, yes - Assessee was a firm of solicitors and advocates - During assessment proceedings, Assessing Officer noted that assessee had made payments to various lawyers for their professional services, but had not deducted tax at source under section 194J from same - He, therefore, disallowed such payments under section 40(a)(ia) - Assessee contended that amounts paid to lawyers were reimbursed by assessee's clients and when deduction was not claimed in respect of those amounts, there could not be any occasion to invoke section 40(a)(ia) - Commissioner (Appeals), however, upheld disallowance made by Assessing Officer - Whether without there being any categorical finding to effect that payments to outside lawyers were claimed as deductions in computation of profits, disallowance under section 40(a)(ia) in respect of such payments could be sustained - Held, no [In favour of assessee] 

Assessee has not credited interest in its books of account and such interest has not been paid in relevant year, and assessee claiming deduction in computation if income on merchantile basis, mandate of section 194A cannot be attracted to further invoke disallowance under section 40(a)(ia

Held by ITAT MUMBAI BENCH inPranik Shipping & Services Ltd. on 25-01-2012, [2012] 19 taxmann.com 107 (Mumbai - Trib.

"........................... the assessee did not credit such interest in the books of account under any account. Rather the deduction has been claimed on the basis of mercantile system of accounting straightway in the computation of income, without routing it through books of account, which has been held by us to be allowable in an earlier para. In view of the fact that the assessee has not credited the amount of such interest in its books of account and further such interest has not been paid in this year, the mandate of section 194A cannot be attracted. Rather this provision comes into play only when either the amount is credited in the books of account or interest is paid, whichever is earlier. Once there is no liability to deduct tax at source u/s 194A, the provisions of section 40(a)(ia) cannot be attracted.

14. Probably this loophole was not contemplated by the Legislature while enacting the relevant provisions, which has been exploited by the assessee as a measure of tax planning. We cannot remedy the situation. In this year the deduction has to be allowed. It will be open to the Assessing Officer to consider the later development of actual payment or non-payment of interest to M/s Sahara India Financial Corporation Limited and deal with it as per law in such later years. This ground is allowed.

15. In the result, the appeal is allowed.

As an interim relief, retired members of Tribunals are permitted to practice before Benches where they had not remained posted and held Courts temporarily or on regular basis

[2012] 19 taxmann.com 118 (Allahabad)

HIGH COURT OF ALLAHABAD

Dinesh Chandra Agarwal

v.

Union of India*

JANUARY 19, 2012

Rule 13E of the Income-tax Appellate Tribunal Members (Recruitment and Conditions of Service) Rules, 1963 - Ban on practise - Rule 13E notified on 3-6-2009 imposed a ban on practise by retired members before Tribunal - Petitioner, a retired member of Tribunal, filed writ petition to quash aforesaid rule 13E on ground that same is ultra vires to provisions of section 288 of Income-tax Act, 1961 as well as to provisions of section 30 of Advocates Act, 1961 - Whether rule 13E appears to be offensive in two respects; namely, that retired members have been completely barred from practice before Tribunal, and secondly, that aforesaid rule 13E has been interpreted to apply retrospectively in judgment rendered in case of Concept Creations v. Addl. CIT [2009] 120 ITD 19 (Delhi) (SB) by Tribunal, Delhi, beyond its pale of competence as it has jurisdiction to decide only matters relating to tax appeals as contained in Income-tax Act vide sections 253 and 254 thereof - Held, yes - Whether till next date of hearing, operation of impugned rule 13E as well as judgment in case of Concept Creations (supra) shall remain stayed insofar as they impose a complete ban on practice by retired members before Tribunal - Held, yes - Whether, thus, it would be open for retired members to practise before Benches of Tribunal where they had not remained posted and held courts temporarily or on regular basis - Held, yes [In favour of petitioner]

Depreciation on regularisation fee of hospital building held deductible

Dr. K. Senthilnathan FEBRUARY 15, 2012 [2012] 19 taxmann.com 135 (Chennai - Trib.) (TM)

Regularization fees paid by assessee to CDMA under Tamil Nadu Town and Country Planning Act for condoning violations during construction of hospital building has a direct nexus to construction of hospital building; therefore, only account to which regularization fees paid could be booked is construction account of hospital building; amount of regularization fee paid by assessee cannot be excluded in computing eligible depreciation allowance 

New principles / concepts introduced in the Code

Tax rates mentioned in Schedule to the Code

Under the Code, all rates of taxes are proposed to be prescribed in the First to the  Fourth Schedule to the Code itself. This obviates the need for an annual Finance Bill if, there is no proposal to change the tax rates.  The changes in  the  rates,  if  any,  will  be  done  through  appropriate  amendments  to  the Schedule brought before Parliament in the form of  an Amendment Bill.    Other amendments to the Code will also be through amendment bills.

DTC- CASE FOR REMOVING EXEMPTIONS AND DEDUCTIONS

Huge amount of revenue is lost to the exchequer by way of tax  exemptions  and  deductions,  which  aggregated  to  more  than  Rs.1,50,000  crores. The  Department  have  submitted  that  the  revenue foregone  in  respect of  corporate  income  tax during  the  year  2009-10 increased to Rs. 79,554 crores, while the same for personal income tax was  Rs.  40,929  crores.         Revenue  foregone  on  account  of  direct  tax incentives / deduction given to export promotion schemes etc. amounted to a whopping Rs. 30,000 crores and more during this period.  Facts are so  evident  that  it  requires  no  over-stating  that  tax  concessions  and exemptions  provided  in  general  have  been  huge  and   phenomenal, amounting to more than half of the total direct tax collections in 2009-10. If the aggregate exemptions in both direct and indirect taxes is taken into account, it works out to a massive Rs. 5,02,299 crore (2009-10), which is almost 80% of the total revenue collections.  Such exemptions have been increasing, leaving an adverse impact upon revenue buoyancy.