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07.09.2015 - Voice of CA presents - Updates
Monday, September 7, 2015
I.  An Important Information:

1.  Members will recall that in the order dated 20th August, 2014, passed by certain Bench of the ITAT, in relation to a matter wherein the tax advice given by a member of the Institute had been dealt with, contained general remarks against the ICAI.  The matter was suitably taken up by the ICAI, by way of a miscellaneous application to the effect that some of the above remarks resulted in a mistake apparent from record and hence needed rectification under Section 254 (2) of the Income-Tax Act.

Members would be happy to note that as a result of the above application, the said Hon’ble Bench has, vide its order dated 4th September, 2015, in exercise of its inherent powers, has modified the relevant paragraph of its earlier order dated 20th August, 2014.  A copy of the said orders 20th August, 2014 and dated 4th September, 2015 are attached.  The modified paragraph vis-à-vis earlier order is also attached in track change mode for ready reference.

The Voice of CA salutes the ITAT for the positivity with which the aforesaid application has been dealt with.

(Please click here for Order – August 2014)


II. Headlines Today:    

  1. CBDT Guidelines: Guidelines for compounding of offences in relation to undisclosed foreign bank accounts/assets under Income Tax Act and Wealth tax Act  (Click for detail)
  2. CBEC to expedite adjudication of high value cases  (Click for detail)
  3. Filling a lacuna in export dues write off  (Click for detail)
  4. High Frequency Trades may Hit Speed breaker-SEBI  (Click for detail)


III.  Series of Synopsis on SA:

1.  In continuation of our mail of September 2, 2015 [Click for 02.09.2015 - Updates ], with which Synopsis on SA 240, among others, was sent, attached now – 7th in the captioned Series - is the Synopsis on SA 250 Consideration of Laws and Regulations in an Audit of Financial Statements.


IV.  Direct Taxes Case Laws:

1.  CIT Vs. Ansal Land Mark Township (P) Ltd., I.T.A. No. 160/2015, Date of Order: 26.08.2015, High Court of Delhi

Whether the second proviso to Section 40 (a) (ia) of the Act is declaratory and curative in nature and should be given retrospective effect from 1st April 2005.

Held Yes

The second proviso to Section 40(a) (ia) was inserted by the Finance Act 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-Section (1) of Section 201 of the Act, then, in such event, “it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso”. The first proviso to Section 201 (1) of the Act was inserted with effect from 1st July 2012. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner.

This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwal v. ACIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.

(Please click here for judgment)


2.  CIT Vs. Kabul Chawla, I.T.A. No. 707/2014, Date of Order: 28.08.2015, High Court of Delhi

Whether the additions made to the income of the Respondent Assessee for the said AYs under Section 2(22)(e) of the Income Tax Act, 1961 („Act‟) were not sustainable because no incriminating material concerning such additions were found during the course of search and further no assessments for such years were pending on the date of search?

Held Yes

On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained, the legal position that emerges is as under:

i.     Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii.   Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii.   The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv.   Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”
In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi.  Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii.  Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.

(Please click here for judgment)


V.  Reported Cases:

Direct Taxes Segment:

1.   A contract need not be in writing as even an oral contract is good enough to invoke provisions of section 194C.
2. Assessee not liable to deduct tax under section 194-I on payment made to joint venture partner for using its premises and infrastructure for joint venture business.  
(Please click here for detail)


 Golden Rules:

  "You never know which footstep will bring a good twist in life.
So keep on walking.
Happiness comes when it is most unexpected


  Thanks & Regards


Voice of CA

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