Surat Branch E-Newsletter October 2022

SURAT BRANCH OF WIRC OF ICAI

ICAI Bhawan, B/h. VR Mall, Dumas Road, Rundh Magdalla, Surat - 395007.
Ph.: (0261) 3506372/ 73 / 74 / 75, Mob. : +91 98105 82383
E-mail : [email protected] Web Site : www.surat-icai.org

E - Newsletter SURAT BRANCH October 2022

Office Bearers Vice Chairperson : Secretary : Treasurer :
CA. Dushyant Vithlani
Chairperson : CA. Arun Narang CA. Ashwin Bhauwala
CA. Nikesh Kothari 93270 79369 99797 64643 93762 72725

93760 36646

Committee Members : Ex. Officio Member

CA. Shailesh Lakhankiya CA. Manthan Chawat CA. Preetesh Shah CA. Ishwar Jivani
97251 90123 99049 54005 90670 03989 96248 67495

CA. Chimpu Lapsiwala CA. Joni Jain INDEX 01 From Chairman’s Desk 01
90042 88880 99092 74436 02 From Editorial Desk 02

Newsletter Committee : 03 CLAIM OF DEPRECIATION FOR INSTITUTIONS 03
REGISTERED UNDER SECTION 12AB
Chairperson : vis-à-vis NEWLY INSTERTED EXPLANATION
CA Shailesh Lakhankiya AFTER SUB-SECTION (7) OF SECTION 11:

Members : 04 Non-Applicability of ICDS III to Real Estate 05

CA. Rajiv Shah CA. Atit Shah CA. Mihir Modi Developers:

CA. Ronak Parekh CA. Jinendra Mehta CA. Kajal Deora 05 web 3.O an evolution of web technologies 07
CA. Kalpesh Lakhani CA. Kanchan Agarwal CA. Sweta Panelia
CA. Viral Shah CA. Rahul Agarwal 06 Pitfall of Intimation under Income-tax Act, 1961 11

07 Due Date for the Month of October 2022 18

08 Library & Reading Room Facility at Branch 21

09 Upcoming Sessions for the Month of October 24

SURAT BRANCH OF WIRC OF ICAI

From Chairman’s Desk:

Dear Professional Colleagues,

Greetings and the warmest wishes for the month full of festivals, joy and celebration.

I am always happy and delighted to publish e-newsletter every month for the knowledge and benefit of
members and students of Surat Branch of WIRC of ICAI. I believe this initiative helps members and
students in knowledge sharing, fellowship development and information sharing.

Members , in this new era so many experts survey on accountancy states that accountants role is likely or
very likely to change due to technology. So kindly keep yourself updated with the new tools of
technology to grab the upcoming challenges with the spirit of “Learn, unlearn and relearn” in tune with
time and be capable in converting all challenges into opportunities. The 21st World Congress of
Accountants 2022 would be an apt platform for ideas exchange and usher interactive dialogue amongst
the global and local accounting fraternity and other stakeholders and is likely to see huge participation
from PAN India and entire Globe. So I request all the members to join WCOA event, who have not
registered in WCOA conference to be held in November -2022 at Jio centre, Mumbai.

This month begin with the ideal way of living life on the notions of Mahatma Gandhi who always taught
us to be self-reliant, Truthful and nonviolence. Goddess Durga who empowers us with her Nine Swaroop
of Name, Fame, Health, wealth, Happiness, humanity, education, Bhakti and Shakti. I pray Goddess
Durga for well-being of all the members, students of ICAI. Wishing you all Happy Navratri, Happy
Dussehra, Happy Diwali and Prosperous New Year,2022.

“Success is the sum of small efforts repeated day in and day out.” So, Light tomorrow with today.
“The Best way to predict the future is to create it”
Thanking you,

Best wishes and regards
Kindly reach out to us on official Branch:-
k [email protected]
# +91 95105 82383
Best wishes and regards
CA. Nikesh Kothari
Chairperson

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From Editorial Desk:

“People will hate you, rate you, break you but how you stand is what makes you”

Dear Member of Surat Branch
I wish you and your family Happy Diwali and A Prosperous New Year in Advance. It's my heartfelt wishes that the
New Year brings more and more prosperity to your life.
During Diwali, everything looks beautiful and lit up under the charisma of lights and diyas. This festival is about
hope, victory, winning hearts, mending relationships, spreading happiness and celebrating life. Let's enjoy the
festive season with our loved ones.
September month were busy in finalizing the audits and were working hard to fulfil our prime duty as an auditor,
During whole month we all have worked extensively and for long office hours to complete our audit assignments,
our commitments towards our client, this attitude displayed by us reflects our dedication, discipline, and
commitments for the work during the audit season which is a festival of learning for us.
Once again hereby I remind you that India is organising World Congress of Accountants (WCOA) in this 18th to 21st
November 2022 first time in the history of this event, in this event 52 countries and 262 cities are participate so it is
golden opportunity for all of us to have global practice and future trends with emerging avenues for the profession,
build our network with peers across the Globe, know how the accounting & finance professionals are changing the
world for the better, Grow your practice with valuable learnings from the stalwarts of the profession and many
more so, I urge to everyone to take participate on it and take the benefit of it and make yourself as global leader.
This Newsletter includes insights on Pitfall of Intimation under Income Tax Act, 1961, web 3.O an evolution of web
technologies, Claim of Depreciation for Institutions registered under section 12AB vis-à-vis Newly Inserted
explanation after sub-section 7 of section 11, Non-Applicability of ICDS III to real estate developers, Important due
dates for the month of October 2022, Upcoming CPE Programme by Surat Branch.
Let's learn together, grow together, shine together and succeed together and take a pledge to make Surat branch
reach newer heights in alignment with our theme of this year “United WE CAN”.
I would like to take this opportunity to sincerely thank all the contributors for sending the updates and sparing
their precious time for the cause of the profession. In order to make the newsletter more resourceful, we need your
support by way of contribution of updates, useful suggestions, etc. I extend my sincere gratitude to the Editorial
team for their hard work to publish this newsletter in time. I urge all the Members of Surat Branch who are willing to
contribute for E-newsletter, kindly share your insights on topics of your choice with us on [email protected].
Happy Learning!!

Stay safe and enjoy the ensuing festival and holidays.

CA Shailesh Lakhankiya
Chairperson
Editorial Committee

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CA Shreyas Batra

CLAIM OF DEPRECIATION FOR INSTITUTIONS REGISTERED UNDER SECTION 12AB
vis-à-vis NEWLY INSTERTED EXPLANATION AFTER SUB-SECTION (7) OF SECTION 11:

The Finance Act, 2022 inserted following Explanation after sub-section (7) of Section 11:
“Explanation. —For the purposes of this section, any sum payable by any trust or institution shall be
considered as application of income in the previous year in which such sum is actually paid by it (irrespective
of the previous year in which the liability to pay such sum was incurred by the trust or institution according to
the method of accounting regularly employed by it):
Provided that where during any previous year, any sum has been claimed to have been applied by the trust or
institution, such sum shall not be allowed as application in any subsequent previous year. “
This explanation explicitly provides that any sum payable by the trust shall be considered as application in the
previous year in which such sum is actually paid. Thus, the application shall be allowed only on payment basis.
This explanation raises question as to whether depreciation, which is a non-cash expenditure, will be allowed
to a trust or NGO after the advent of the above stated explanation.
To understand whether the same is claimable or not, we must pay attention to the following points:

1. The Department Circular No. 5-P (LXX-6) of 1968, dated June 19,1968, states that the income
of a trust or an NGO should be computed on the basis of normally accepted commercial
principles. It implies that establishment expenses should be deducted in order to determine
the net income available for application.

2. The Karnataka High Court in the case of Principal Commissioner of Income-Tax (Exemptions) v.
Shushrutha Educational Trust [I.T.A. No. 862 of 2017, dated 21-08-2018], held that the income
of the trust is required to be computed under section 11 on commercial principles after
providing for allowance for normal depreciation and deduction thereof from gross income of
the trust.

3. In CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1993] 70 Taxmann 228/[1992] 198
ITR 598 (Guj.), the court held that the amount of depreciation debited to the accounts of the
charitable institution had to be deducted to arrive at the income available for application to
charitable and religious purposes

It has been repeatedly emphasized by the courts that the income available for “Application” is to be computed
after providing allowance for depreciation. It can be safely interpreted from the above that courts have a view
that depreciation is a charge against income / establishment expense. Hence, the income which is subject to
application and which is to be determined keeping in mind the new explanation inserted after Section 11 (7) ,
is computed after allowing for depreciation.
Example for better clarity:
Total Income of the Trust = Rs. 10,00,000

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Depreciation = Rs. 50,000
Hence income subject to application = Rs. 10,00,000-Rs. 50,000 = Rs.9,50,000
The requirements of Application on payment basis will be applicable on Rs.9,50,000 rather than Rs. 10,00,000
because depreciation has to be deducted before calculating income available for “Application”
Conclusion
Depreciation is different from application of income as the same has to be deducted before determining
the income available for application to a trust or NGO. Depreciation not being an “Application of Income” is
not affected by insertion of the said Explanation and hence fully claimable by the Trusts or NGOs.
# 8734950346
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CA Yash Rasesh Kapadia

Non-Applicability of ICDS III to Real Estate Developers:

In this article we will discuss the non-applicability of ICDS III to Real Estate Developers and the Real Estate
Developers are not required to follow the Percentage Completion Method.
Relevant portion of ICDS III is reproduced as below:
ICDS III – Construction Contracts applies the determination of income of a contractors only arising from
construction contracts.
As per ICDS III, 'Construction Contract' means a contract specifically negotiated for the construction of an
asset or a combination of an assets that are closely interrelated or interdependent in terms of their design,
technology and function or their ultimate purpose or use and includes:

1. Contract for the rendering of services which are directly related to the construction of the
asset, for example those for the services of project managers and architects;

2. Contract for destruction or restoration of assets, and the restoration of the environment
following the demolition of an assets.

So, the plain reading of the above definition clearly suggests that the construction undertaken by Real Estate
Developers does not satisfy the above definition as the contract is not negotiated only for the construction of
asset rather the Real Estate Developer is a person who constructs the asset as per his own schemes and
designs and contracts with the buyer to sell the assets. The transaction between the residential flat purchaser
and Real Estate developer is not one of mere construction of an asset or simple sale of goods but rather it is a
combined contract for not only construction of the flat as also entire building with common amenities but
also for transfer of legal title in the flat.
Prior to the ICDS III, AS – 7 – Construction Contracts was in force and it was also not applied to the Real Estate
Developers. To clarify this more, the Expert Committee on ICDS (ICDS Committee) was constituted by the
CBDT and the committee had in fact recommended that a separate ICDS should be notified for revenue
recognition by Real Estate Developers. Pursuant to that, on 11thMay 2017, the CBDT has released draft ICDS
on real estate transactions for public consultation. The draft ICDS on real estate transactions is largely based
on ICAI's Guidance Note on Accounting for Real Estate Transactions. Hence, from the above recommendation
of the Expert Committee and on the basis of draft ICDS on real estate transactions as released by the CBDT, the
very clear intention of CBDT as well as ICAI is that the Real Estate Developers are not covered by the ICDS III.
The CBDT has also clarified in the FAQ issued on 23rd March, 2017 vide Circular No 10/2017 (Reply to
Question No. 12) that this ICDS is not applicable to Real Estate Developers. The Q:12 is as follows:
Q:12: Since there is no specific scope exclusion for real estate developers and Build – Operate – Transfer (BOT)
projects from ICDS IV on Revenue Recognition, please clarify whether ICDS III and ICDS IV should be applied by
real estate developers and BOT operators. Also, whether ICDS applicable for lease.
A:12: At present there is no specific ICDS notified for real estate developers, BOT projects and leases.

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Therefore, relevant provisions of the Act and ICDS shall apply to these transactions as may be applicable. The
CBDT has tacitly accepted that ICDS III not applicable to Real Estate Developers.
Guidance Note on ICDS issued by ICAI also states that the ICDS III is not applicable to real estate developers.
Hence, from all these instances, it is very clear that the ICDS III is not applicable to real estate developers and
applies only to the contractors.
Now if we look into the applicability of percentage completion method, the Accounting Standard – 9 and
guidance note on real estate transactions are relevant. For determination of the accrual of the income and the
sale, the Accounting Standard – 9 read with Guidance Note for Real Estate Transactions is relevant. The
Accounting Standard – 9 in respect of sale of goods in the real estate projects is explained in guidance note for
Real Estate Transactions which was revised in 2017 by ICAI.
Section 5 of the Income Tax Act, 1961 states that the income is taxable in the year in which the same accrues to
the taxpayer. Income is said to be 'accrue' when taxpayer has legal right to receive the income and accordingly,
payer acknowledges a debt in favour of the taxpayer and hence there is no question of applicability of
percentage completion method. Reliance can be placed on the judgment of Apex Court in the case of (CIT vs.
Excel Industries Ltd (2013) 358 ITR 295 (SC). As the provisions of section 5 prevail over ICDS, contract revenue
can be recognized on satisfaction of the test of accrual and not merely on the basis of reasonable certainty of
collection of contract revenue. This view is also supported by the ICAI's Guidance Note.
AS-7 relating to construction contracts is not applicable to Developers/Builders so there is no question of
recognizing the income on the percentage completion method. In support of the contention, the decision of
ITAT Mumbai Bench decision in case of Awadhesh Builders v/s. ITO [37 SOT 122] is relevant in which the ITAT
held that in case of real estate developer, profit is earned only when the space constructed is sold. In case, due
to some reasons, the project is terminated or is abandoned, the builder has to refund the advances received
from the buyers and in that case, there cannot be any profit because the flats/shops could not be sold as the
construction remained incomplete. In that case, it will be only be a case of investment by the builder, profit on
which will arise only on sale of flats.
Thus, from the above discussion we can conclude that the ICDS III – 'Construction Contracts' is only applicable
to the person who is Contractor and not applicable to the Real Estate Developers.

# 98251 70724
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CA. RATILAL R. KATHIRIYA (Reetesh)

web 3.O an evolution of web technologies

What is Web ?
Generally speaking web means the World Wide Web, a subset of the Internet consisting of the data
and information that can be accessed by a Web. The Internet is the network of networks and the
network allows to exchange of data between two or more devices. The Web is a way to access
information through the Internet. Web is not same as internet.

What is web 3.O?
This Web 3.0 by using Semantic Web and Natural Language Processing technology, to machines will be
able to look over and explore information similarly to humans' kind. Web 3.O is evolution of web
based internet services technologies. This Web 3.O is generally run by AI(Artificial Intelligent) and
P2P (Peer to Peer) Networks. The main difference between web 2.0 and web 3.0 is that web 3.O is
more emphasis on latest technologies like ML(Machine Learning) and Artificial intelligence (AI) to
form a lot of customized content and improving its performance to every users.
what is semantic web? semantic web means latest development of the World Wide Web, in which
globally database is represent they can easily be processed and read by machines. Google uses many
technologies that can be considered Semantic Web Technologies such as such as Schema, Google Rich
snippets, Google Knowledge Graph, Free base etc..
What is natural language processing? Natural language processing (NLP) is a branch of artificial
intelligence within computer science that focuses on helping computers to understand the way that
humans write and speak.
Journey of web was start from Web 1.O, Web 2.O and Web 3.O. These generations are as below
mention

Web 1.O
Web 1.O was started on early 90's. it was just like one way communication of a web in which
information in the early stages was in read only formats. In this web 1.O we were able to search, view
and download the information. There are few interaction and content creation. Its create with static
web pages and use basic HTMP (HyperText Markup Language) and FTP (file transfer protocol)
Examples: wiki pedia, MP3, personal basic websites, Banner advertising, web forms etc..

Web 2.O
This 2.O was started on around 2004 and which called advance version on web 1.O and Web 2.O
refers to worldwide websites which highlight user-generated content, usability, and interoperability
for end users. In that changing trends, Information flows between the site owner and site users using
evaluation and online commenting. Web 2.0 are websites and applications which make use of user-
generated content for end-users. These web 2.O that allow the user to go beyond just receiving

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information through the web. This also called immersive, social reach user experience.
Some Examples includes Social media platforms like YouTube, Intsagram, Facebook, linked inn and
Twitter etc
Web 3.O
Web 3.0 is an advancement version of the internet is driven by intelligence and interactions between
people, This is possible with the help of AI algorithms technique that improve extent the quality of
results. With the application of AI, the accessibility of information and data becomes a much better
and easier. which interacting with virtual assistants to real-time conversations on social media.
In this new era of internet has been changed, and this evolution has swiftly convey to AI, ML and Big
data and further is yet to come.. Web 3.0 will play an even more significant role in virtual accessible
experiences in the years ahead.
Some Examples of Web 3. O are Audius, steemit, Atlas work, Brave, status, ysign, safe share, storj,
ocean etc..

Why web 3.0 ?
These web 3.O technologies are primarily characterized by these view

DECENTRALIZATION:-
Currently web are controlled by tech the giants like Facebook, Google , Microsoft and amazon they are
running applications, store and control user data on their own central server. Even users not get
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complete benefits from it. Further that sold private data to third party for its monetary benefits. Rather
than storing data in centralized databases, in the web 3.O , all user data are stored in secure and
decentralized data storage system at user end. Whereas blockchain technology is best example of web
3.O. This blockchain technology gives more emphasis on 3S i.e data Security, Safety and Speed.
Moreover these are distributable peer to peer ledger system that promotes transparency and data
integrity.
GOVERNACE:
Vital concept web 3.O is that they are decentralized . it means they are not governed or controlled by a
single institution like a government or central bank, but instead these are divided between lots of
computers system, networks and nodes.
Web 3.O is run on DAOs (Decentralized Autonomous Organization). This DAO is a system developed to
distribute decision-making, management, and entity ownership. There are not any central authority
exist to run networks, but its work and run on different distributed networks. There is DAO which
intends to give authorization to its members for an attempt to act in the best interest of the
organization. As earlier said this is AI based driven dynamic governance model, so it has capability
more than humans.
PRIVACY:-
Furthermore, Web 3.0 enhances privacy and User data security and identity protection are also
emphasized in Web 3.0. Web 3.0 uses advanced authorization techniques including distributed ledger
technology and encryption to protect user identity and data. User may create his own privacy to who
can view, edit or delete of data on distributed networks.
What are the features of web 3.O ?
Artificial Intelligent, semantic web , Natural Languages Processing, connectivity, 3D graphics, Ubiquity ,
decentralization, trustless and permissionless and much more..

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What are opportunities in Web 3.O ?
Meta-verse
Virtual Reality
Virtual digital assets (VDA)
Non fungible token (NFT)
Blockchain Application
Internet of Things (IOT)
Smart Contracts
Behavioral Advertising
Decentralized Application

What are the drawback of Web 3.O?
Issue of Determination of data control and processing.
Computer advancement is needed and which are expensive.
Issue of Ascertaining the location and jurisdiction of decentralized data.
Privacy policy must be needed.
This can be more addictive and complex
Capabilities issue of current web system and browser
Issue of Cyber-crime.

# 9825015282
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Jayraj P Dhakan
(F.C.A, LL.B)

Pitfall of Intimation under Income-tax Act, 1961

1. Introduction

1.1. Income tax act works on self-assessment of income and less than 0.5% returns are selected for

detailed verification. It inter alia provides remedies for assessment and collection of taxes.

Assessment machinery can be summarized as;

Section Purpose Prerequisite

143(1) Intimation Prima facie adjustment

143(2) Scrutiny Understated income or overstated loss

147 Reassessment Information which suggests that income
chargeable has escaped

154 Rectification Mistake apparent from record

263 Revision Order is erroneous and prejudicial to
interest of revenue.

2. Section at glance

2.1. Though not expressly provided, the machinery stated above are mutually exclusive. Provision
of S.143(1) is in force since 1999, thereafter, same is reincarnated by Finance Act, 2008. CBDT
circular 1/2009 dated 27.09.2009 aptly couches the intention of S.143(1) in following terms;

28.1. Generally, tax administrations across countries adopt a two stage procedure of assessment as
part of risk management strategy. In the first stage, all tax returns are processed to correct
arithmetical mistakes, internal inconsistency, tax calculation and verification of tax payment.
At this stage, no verification of the income is undertaken. In the second stage, a certain
percentage of the tax returns are selected for scrutiny/audit on the basis of the probability of
detecting tax evasion. At this stage, the tax administration is concerned with the verification of
the income.

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28.2 In India, the scheme of summary assessment being in force since the 1st day of June, 1999
does not contain any provision allowing for prima facie adjustment. The scope of the present
scheme is limited only to checking as to whether taxes have been correctly paid on the income
returned. Under the existing provisions of sub-section (1) of section 143, there is no provision
for correcting arithmetical mistakes or internal inconsistencies. This leads to avoidable
revenue loss. With an objective to reduce such revenue loss, sub-section (1) of section 143 of
the Incometax Act has been amended to provide that the total income of an assessee shall be
computed under sub-section (1) of section 143 after making the following adjustments to the
total income in the return

2.2. Upshot of above is;

adjudication mechanism). Once adjustment is proposed and response is received from the
assessee, the human intervention starts since second proviso uses word “considered
(response)”.
2.3. The supreme court, though somewhat in different context [S.143(1D)] has beautifully
captured the scheme of S.143(1). In Vodafone Idea Limited vs ACIT - 424 ITR 664 observed
thus;
13. The nature of exercise of power under sub-section (1) as against that under sub-sections (2)
and (3) is thus completely different. In the former case, the matter is processed, only to check
whether any apparent inconsistencies are evident on the face of the return and connected
material which may call for any adjustment while in the latter case, the matter is scrutinized
after taking into account such evidence as the assessee may produce. The exercise in the latter
case is to ensure that there is no understating of income or overstating of loss or under-
payment of the tax in any manner. In other words, the veracity of the return is checked
threadbare rather than considering mere apparent inconsistencies from the return. Thus, the
nature of power under these two provisions, as found by this Court in (supra) continues to
bear the same distinction.
The power under sub-section (1) of Section 143 of the Act is summary in nature designed to
cause adjustments which are apparent from the return while that under sub-sections (2) and
(3) is to scrutinize the return and cause deeper probe to arrive at the correct determination of
the liability of the assessee.
2.4. The word “process” in section suggests that it is used to apply established/mechanical rules to

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return filed on self-assessment basis. It is defined to be to subject to or handle through an
established usually routine set of procedures (merriam webster dictionary). Its very nature
suggests it to be more of mechanical task and does not involve adjudication. It is converse of
adjudication principle. The preposition forthcoming is issue which require adjudication
cannot be part of process u/s 143(1).
Example – Loan/deposit accepted is genuine or not can never be subject matter of adjustment
u/s 143(1) because it require consideration, investigation, examination and evaluation of
evidence brought on record which is in realm of adjudication and cannot be gone into while
processing.
3. Section 154 vis-à-vis 143(1)
3.1. Sprit of rectification u/s 154 is also analogues to S.143(1). It is another version of section 154
where return filed is treated as order and mistake apparat from record is rectified. In authors
view, principles and safeguards evolved in S.154 jurisprudence can equally useful while
interpreting S.143(1).
4. Sub-clauses
4.1. Though section 143(1) falls under heading “assessment”, the assessment is in summary in
nature. S.143(1) permits following exhaustive adjustment;

Sub-clause When invoked
(i) Arithmetical error in return
(ii) Incorrect claim apparent from information in return

(elaborated in Explanation a)
(iii) Disallowance of loss if return filed beyond S.139(1) due date.
(iv) Disallowance of expenditure made in audit report
(v) Disallowance of deduction u/s 10AA or under chapter VI -C if

return filed beyond S.139(1) due date
(vi) Income appearing in form 26AS/16A not taken in return filed.

(Inserted by Finance Act 2016 and kept in abeyance thorough
Finance Act 2018)

4.2. Adjustment under sub-clause i, ii, iii is in line with intent of provision and these seems to be
well within processing power of S.143(1).

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5. Adjustment on basis of audit report
5.1. This is perhaps most controversial and highly used clauses in processing. Mumbai and Delhi
ITAT day in and day out knocking off adjustment u/s 36(1)(va) made on basis of qualification
made by tax auditor. On account of adverse decision of Gujarat high court in GSRTC, lot of
assessee suffered addition on account of late payment of provident fund.
5.2. The clause read thus;
disallowance of expenditure indicated in the audit report but not taken into account in
computing the total income in the return;
5.3. To invoke this sub-clause there must to be disallowance indicated by auditor in audit report.
Clause 20b of form 3CD reads;

5.4. What is sought in clause 20b is (factual)details of contribution and not disallowance u/s
36(1)(va). There is fine difference between “details” and “disallowance”. Hence, adjustment of
late payment of PF on basis of clause 20b is impermissible. Ahmedabad and Surat ITAT
repelling challenge to such adjustment u/s 143(1) has remanded matters to CIT(A) for decision
once civil appeal against GSRTC decided by apex court.

5.5. To project future one must know the history. Let's see how the provision of S.44AB read by
courts (Rajkot Engineering Association vs Union of India – 162 ITR 28 – Gujarat high court);
42. It was, therefore, submitted that if the auditor finds that the financial information
furnished to him is not according to the accept able accounting policy and principles or not
according to the relevant regulations and statutory requirements, he may refuse to give
unqualified opinion in which case an assessee would be exposed to grave consequences of not
only best judgment assessment but also to penalty. We can appreciate this apprehension
expressed on behalf of the assessee. However, in view of the clarification made by the Union
Government in the reply affidavit of Shri Kalyan Chand, Under Secretary in the Finance
Ministry to the Government of India, in paragraph 15 that opinions given by the chartered
accountants are not binding either on the assessees or on the assessing office, we do not think
that the assessees will be prejudiced by the qualified opinion given by the tax auditor in any
given case. It is no doubt true that the assessee concerned may be required to persuade the
ITO that there was no justification for qualified opinion or that there were valid and compelling
reasons for an assessee in his failure or omission to satisfy an auditor. We are sure that the

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concerned tax authorities will not approach the matter in strictly technical manner so as to
make best judgment assessment and/or to levy penalty merely because there is a qualified
report of an auditor. The authorities will adopt a judicial approach and consider all attendant
circumstances including the fact that the noncorporate assessees were not required to
maintain their financial records in the manner in which the corporate assessees maintain as
required under the law in force for the time being and the authorities will also bear in mind
that non-corporate assesses should have reasonable time to adopt themselves to the changed
situation emerging from the insertion of the impugned provisions for the first time in the
statute book having far reaching repercussions. This contention, therefore, also stands
rejected.”

5.6. While defending challenge to constitutionality of S.44AB, union of india deposed before court
that opinion formed by auditor neither bind AO nor assessee even during scrutiny assessment.
This being position then making adjustment in summary assessment on basis of remark of
audit report is not only ex-facie illegal but put provision of S.44AB at peril.

6. Disposal of objection

6.1. In case CPC determines/identifies any issue for adjustment, as per first proviso, it is mandatory
provide opportunity of being heard to assessee and in this way element of human
interventions kicks in. This will make it a quasi-judicial function. Deprecating practice of
disposing objection in standard template Mumbai ITAT in Kalpesh Synthetics Pvt. Ltd. vs DCI
(195 ITD 142) held;

6………The very fact that an opportunity of the assessee being provided with an intimation of
'such adjustments' [as proposed under section 143(1)], in writing or by electronic mode, and
"the response received from the assessee, if any" to be "considered before making any
adjustment" makes the process of making adjustments under section 143(1), under the
present legal position, an interactive and cerebral process. When an assessee raises
objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to
dispose of such objections before proceeding further in the matter- one way or the other, and
such disposal of objections is a quasi judicial function. Clearly, the Assessing Officer CPC has
the discretion to go ahead with the proposed adjustment or to drop the same. The call that the
Assessing Officer CPC has to take on such objections has to be essentially a judicious call,
appropriate to facts and circumstances and in accordance with the law, and the Assessing
Officer CPC has to set out the reasons for the same. Whether there is a provision for further
hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing
Officer CPC has to dispose of the objections before proceeding further in the matter, this is
inherently a quasi judicial function that he is performing, and, in performing a quasi judicial
function, he has to set out his specific reasons for doing so. Disposal of objections cannot be
such an empty formality or meaningless ritual that he can do so without application of mind
and without setting out specific reasons for rejecting the same. Let us, in this light, set out the

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reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to
the effect that "As there has been no response/the response given is not acceptable, the
adjustment(s) as mentioned below are being made to the total income as per provisions of
section 143(1)(a)", and has not even struck off the portion inapplicable. To put a question to
ourselves, can such casually assigned reasons, which are purely on a standard template, can be
said to be sufficient justifications for a quasi judicial decision that the disposal of objections
inherently is? The answer must be emphatically in negative. It is important to bear in mind the
fact that intimation under section 143(1) is an appealable order, and when consideration of
objections raised by the assessee is an integral part of the process of finalizing the intimation
under section 143(1) unless the reasons for such rejection are known, a meaningful appellate
exercise can hardly be carried out. When the first appellate authority has no clue about the
reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the
assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is
difficult to understand on what basis the first appellate authority sits in judgment over
correctness or otherwise of such a rejection of submissions. Whether the statute specifically
provides for it or not, in our considered view, the need for disposal of objections by way of a
speaking order has to be read into it as the Assessing Officer CPC, while disposing of the
objections raised by the assessee, is performing a quasi judicial function, and the soul of a
quasi judicial decision making is in the reasoning for coming to the decision taken by the quasi
judicial officer.

6.2. To save provision from being declared unconstitutional, generally, constitutional court tinkers
with express language of act (called “reading down”). However, Mumbai ITAT in Kalpesh
Synthetics (Supra) had read down the S.143(1) by observing;

7…….While section 143(1)(a)(iv) does provide for a disallowance based purely on the
"indication" in the tax audit report, inasmuch as it permits "disallowance of expenditure
indicated in the audit report but not taken into account in computing the total income in the
return", and it is for the Hon'ble Constitutional Courts above to take a call on the vires of this
provision, we are nevertheless required to interpret this provision in a manner to give it a
sensible and workable interpretation. When the opinion expressed by the tax auditor is
contrary to the correct legal position, the tax audit report has to make way for the correct legal
position……..

8. When the law enacted by the legislature has been construed in a particular manner by the
Hon'ble jurisdictional High Court, it cannot be open to anyone in the jurisdiction of that
Hon'ble High Court to read it in any other manner than as read by the Hon'ble jurisdictional
High Court. The views expressed by the tax auditor, in such a situation, cannot be reason
enough to disregard the binding views of the Hon'ble jurisdictional High Court. To that extent,
the provisions of section 143(1)(a)(iv) must be read down. What essentially follows is that the
adjustments under section 143(1)(a) in respect of "disallowance of expenditure indicated in

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the audit report but not taken into account in computing the total income in the return" is to
be read as, for example, subject to the rider "except in a situation in which the audit report has
taken a stand contrary to the law laid down by Hon'ble Courts above". That is where the quasi
judicial exercise of dealing with the objections of the assessee, against proposed adjustments
under section 143(1), assumes critical importance in the processing of returns….

7. Adjustment on basis of form 26AS/16A

7.1. So as to remove mismatch between return and information available (in form 26AS/16/16A)
with department, sub-clause vi inserted by finance act 2016. This runs contrary to intention of
legislature as manifest in para 2.1 and judicial pronouncement at para 2.3 of this paper.
Considering vice of it, later, through Finance Act 2018 (third proviso to S.143(1)), the same is
kept in abeyance citing it as rationalisation of prima facie adjustment. The effect of insertion of
third proviso is that such mismatch (in 26AS) would now be only dealt with by taking recourse
to assessment u/s 143(3). In authors view, third proviso being beneficial/benevolent to
assessee, the same must be read retrospectively even though same is worded to be
prospective.

7.2. A question may arise as to what are remedy available with AO to increase total income with
differential higher income as appearing form 26AS. We have come across cases where such
differential higher income is sought to be covered, by CPC, u/s 139(9) treating return to be
defective. However, the same is not backed by explanation appended to S.139(9) and only
option available with AO is to issue notice u/s 143(2)/142 of the act.

8. Concluding remark

8.1. With advent of AIS/SFT report being available to department, the scope and ambit of
processing is increased manifold. Section 143(1) contains checks and balances, however, the
CBDT has not inculcated same in CPC or these checks are introduced only for name sake. The
way in which objection (non-granting adjournment, limitation imposed while drafting reply,
non-granting benefit of favourable precedent, mechanical disposal objection) are treated is
something where there are more to do. Over the years supreme court has developed
preposition – that procedures are hand made of justice and technicalities should not come in
way of justice if otherwise claim is genuine, is concept alien to CPC.

# 94274 14154
k [email protected]

*****

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CA Shailesh Lakhankiya

Due Date for the Month of October 2022

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# 97251 90123
k [email protected]

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Library & Reading Room Facility at Branch

Dear Professional Colleague,

The Surat Branch of WIRC of ICAI with great pleasure announces the opening of Reading Room/Library at our Branch
Premises for our CA Students to enable them for studying in a Positive and Healthy environment and stay connected
to the Branch as well. The Reading Room/Library is fully Air Conditioned and provides a Hygienic and positive
environment to our Students of Surat City and will facilitate them in their learning journey.

Library Fees :

With Best wishes from : CA Shailesh Lakhankiya
Co - Chairman
CA Manthan Chawat
Chairman (Library & Reading Room Committee)

(Library & Reading Room Committee)

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01-04-2022 21-04-2022 11-05-2022 31-05-2022 10-06-2022 11-07-2022 02-08-2022 13-09-2022
LOA

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Upcoming Sessions for the Month of October

Date & Day Event Name Time CPE
Hours
October One Day Program on Peer Review Full Day
Box Cricket Full Day 6
14 - 15 - 16
October 2022

Vishal Madhavani Sameer Madhavani

# 98254 94919 # 98252 88968

ENTERPRISE

601, Valen na Business Hub,
B.s. Shell Petrol Pump,
L. P. Savani Road, Adajan, Surat.
Ph.: 0261-461 7161
k [email protected]

EXCLUSIVE CHANNEL PARTNER

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