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16.06.2015 - Voice of CA presents - Updates
Tuesday, June 16, 2015


I. Headlines Today:    

  1. CBDT had passed transfer posting orders in the grade of CIT/DIT  (Click for detail)
  2. Companies to see different method of computing taxes from current FY  (Click for detail)
  3. Income tax relief for property firms  (Click for detail)
  4. States to submit views on GST to parliamentary panel today  (Click for detail)
  5. Top 5 myths around filing e-returns that might cost you heavily  (Click for detail)
  6. India’s banking norms more ‘ rigorous’ than Basel framework: Panel  (Click for detail)
  7. RBI Cir.: Exchange-Traded Interest Rate Futures - Announced in sixth Bi-Monthly Monetary Policy Statement, 2014-15, to introduce cash settled Interest Rate Futures (IRF) on 5-7 year and 13-15 year Government of India Securities  (Click for detail)
  8. New insider norms: Sebi to clear air on Esops soon  (Click for detail)


II.  Direct Taxes Case Laws:

1.   Mukesh Kumar Vs. ITO, I.T.A. No. 2358/Del/2012, Date of Order: 12.06.2015, ITAT - Delhi

Whether the act of framing assessment by the AO on the basis of notice issued u/s 148 by other officer who had no valid jurisdiction over the assessee is valid.


A notice u/s 148 was issued by ITO-1 and the assessee filed copy of return already filed u/s 139 of the Act. Subsequently, ITO-1 noticed that the jurisdiction over the assessee is vested with other ITO-2 and file was transferred to ITO-2. The ITO-2 had proceeded to frame assessment without issuing fresh notice u/s 148.

Hon’ble ITAT has held that notice issued u/s 148 of the Act is bad in law as ITO-1 had no valid jurisdiction over the assessee either territorial u/s 124 or by transferring the case under the provisions of section 127 of the Act. The issue of valid jurisdiction is a condition precedent to the validity of any assessment u/s 147 of the Act. In the present case the assessment made pursuant to notice issued without jurisdiction is bad in law. Further, reliance is placed on Y. Narayana Chetty Vs. ITO, 35 ITR 388, 392 (SC); CIT Vs. Maharaja Pratap singh Bahadur, 41 ITR 421 (SC); and CIT Vs. Robert, 48 ITR 177 (SC). Thus, appeal is allowed.

(Please click here for judgment)


2.  Madhusudan Buildcon Pvt. Ltd., Vs. ACIT, I.T.A. No. 508/Del/2014, Date of order: 15.06.2015, ITAT - Delhi

Whether provision u/s 40A(3) can be invoked even if the expenditure was not claimed by the assessee?

Held: No

Brief Fact:

The assessee company is engaged in real estate business. During the the year 2005-06, it entered into a joint venture with M/s Newera Sanitarware Pvt. Ltd. & M/s Yah Softech Pvt. Ltd., for purchasing a plot of land. The assessee’s share in the plot is 25%. The three companies made an initial advance of Rs.35 lac including payment made in cash of Rs.4 lac. The assessee paid Rs. 1 lakh in cash being 25% share in such cash payment and the same was recorded by the assessee in its books of accounts and showed in balance sheet as “Loans and Advances”. The AO invoked the provisions of section 40A(3) and made an addition of 20% of amount paid by the assessee in cash. The ld. CIT(A) upheld the addition.


In order to make any disallowance under section 40A(3), it is a precondition that the assessee must have claimed deduction, directly or indirectly, for which payment is made in cash exceeding the specified limit. If the assessee has not claimed any deduction, directly or indirectly, even if the payment is made in cash, the provisions of the computation of income under the head ‘Profits and gains of business or profession’ shall not apply to that extent. This amount has been directly taken to the balance sheet and has been shown as advance under the head ‘Loans and advances.’ Under such circumstances, when there is no claim for deduction of Rs.1lac, the provisions of section 40A(3) cannot be attracted for making any disallowance for a sum as this payment is not towards any ‘expenditure incurred’ during the year and has not been claimed as deduction by the assessee. Thus, the addition is deleted.

(Please click here for judgment)  

III.  Indirect Taxes Case Law:

1.   Mr. Charanjeet Singh Khanuja & Others Vs. CST, Indore/Lucknow/Jaipur/Ludhiana, Service Tax Appeal Nos. 138,139/2009, Date of Decision: 09.06.2015, CESTAT – New Delhi

•     Whether goods purchased by distributor at discounted price and sold to various interested parties are liable to service tax under ‘Business Auxiliary Service’? – Held: No

•     Whether commission earned on certain quantum of purchase is liable to service tax? – Held: No

•      Whether commission received by distributor from Amway based on the volume of the sale made by the second level Distributors appointed by Distributors i.e. the Distributor’s  sales group is liable to service tax – Held: Yes

In the relevant case, the appellants were distributions of Amway products. The distributors were earning monthly income in three ways – (a) by directly selling the Amway products purchased from Amway and the difference between his purchase price (DAP) and the sale price is his profit margin; (b)commission received from Amway depending upon the volume of purchases  of  Amway products made by the Distributor  during the month for sale or for personal consumption; and (c) monthly commission received from Amway based on the volume of the sale made by the second level Distributors appointed by Distributors i.e. the Distributor s  sales group.

The department alleged that the activity undertaken by distributor is covered by the definition of “Business Auxiliary Service” as given in Section 65(105)(zzb) read with Section 65 (19) of the Finance Act, 1994, as according to the Department, the activities of these Distributors of Amway are covered by Clause (i) of Section 65(19) – “promotion or marketing or sale of goods produced or provided by or belonging to the client”.

The Hon’ble CESTAT held that the in the case of purchase and sale on discounted price no service tax is leviable as this do not falls within the ambit on ‘Business Auxiliary Service’. Similarly, for incentive or commission received by a Distributor from Amway for buying certain quantum of goods from Amway during a month cannot be treated as the consideration received for promotion or marketing or sale of the goods produced by or provided by or belonging to the client, as the same is in the nature of volume discount and is not exigible to service tax. However, commission earned by distributor for his activity of identifying other persons, who can be roped in for sale of the Amway products/marketing of the Amway products the commission received by the Distributor from Amway, which is linked to the performance of his sales group (group of the second level of distributors appointed on being sponsored by the Distributor) would have to be treated as consideration for Business Auxiliary Service of sales promotion provided to Amway and is liable to service tax.

(Please click here for judgment)


IV.  Company Law & Other Matters:

1.   Mohan Mahavirprasad Shah Vs. M/s Indian Silk Mfg. Co. Pvt. Ltd., C.P. No. 22 of 2014, Date of Judgment: 31.03.2015, Company Law Board - Mumbai Bench

An act of oppression by respondent-co in case of depriving shareholder of his shares with mala fide motive amounted to grave of oppression.

(Please click here for judgment)  


V.  Reported Cases:

Direct Taxes Segment:

1.   No additions can be made merely on the basis of difference in the invoice value and market value computed by the customs authorities for the purpose of payment of custom duty in the absence of any adverse material.  
(Please click here for detail)


 Golden Rules:

  "Well wishers are like walls of home,
sometimes they hold you,
sometimes you lean on them &
sometimes it's just enough to know they are around you."


  Thanks & Regards


Voice of CA

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