Ahmedabad Chartered Accountant Journal January, 2024 613 Volume : 47 Part : 10 January, 2024 E-mail : [email protected] Website : www.caa-ahm.org Ahmedabad Chartered Accountant Journal In this Issue Contents Author's Name Page No. - caaahmedabad Journal Committee Shah Rajni Mangaldas Kataria Ashok Chhugamal Shah Karan Dhirenbhai Sheth Prakash Bharatkumar Chairman Convener E. C. Representative Past President Members Shah Rutvij Pankajkumar Desai Maulik Sharadbhai Choksi Nirav Rameshbhai Shah Jignesh Jaswantlal Shah Monish Suketu Shah Rushabh Mayank - Ethical aspects and Lord Shri Ram CA. Mayur H. Modha 615 Editorial CA. Rajni M. Shah 616 From the President CA. Shivang Chokshi 617 Articles Corporate Social Responsibility - An Overview CA. Riddhi Sheth 618 Direct Taxes From the Courts CA. Jayesh Sharedalal 623 Tribunal News CA. Yogesh G. Shah & 629 CA. Aparna Parelkar Unreported Judgements CA. Sanjay R. Shah 635 Judicial Analysis Advocate Tushar Hemani 639 Controversies CA. Kaushik D. Shah 646 FEMA & International Taxation FEMA & International Taxation CA. Dhinal A. Shah & 649 CA. Hardik Khatri FEMA Updates CA. Dr. Savan R. Godiawala 652 Indirect Taxes GST and VAT Judgments and Updates CA. Bihari B. Shah & 653 CA. Vishrut R. Shah Advance Ruling under GST CA. Monish S. Shah 655 Corporate Law & Others Corporate Law Update CA. Naveen Mandovara 659 GujRERA Corner CA. Manan Doshi 662 Capital Markets CA. Karan P. Vora 664 From Published Accounts CA. Pamil H. Shah 669 From the Government CA. Ashwin H. Shah & 672 CA. Kunal A. Shah IT Corner CA. Darshil Surana 673 Association News CA. Mayur H. Modha & 677 CA. Prakash B. Nandola ACAJ Crossword Contest 680
614 Ahmedabad Chartered Accountant Journal January, 2024 Attention Members / Subscribers / Authors / Contributors 1. Journals are carefully posted. If not received, you are requested to write to the Association's Office within one month. A copy of the Journal would be sent, if extra copies are available. 2. You are requested to intimate change of address to the Association's Office. 3. Subscription for the financial year 2023-24 is ` 1500/-, single copy ` 150/- (if available). 4. Please mention your membership number in all your correspondence. 5. While sending Articles for this Journal, please confirm that the same are not published / not even meant for publishing elsewhere. No correspondence will be made in respect of Articles not accepted for publication, nor will they be sent back. 6. The opinions, views, statements, results published in this Journal are of the respective authors / contributors and Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does it necessarily concur with the authors / contributors. 7. Life Membership/Annual Membership and Other Fees F. Y. 2023-24 Amount in ` Basic GST Total 1. Admission Fees 500 90 590 2. Annual Membership Fees a. If Paid Prior to june 30 of each financial year : i. In case of membership (of ICAI) for a period of less than or equal to five years 600 - 600 ii. In case of membership of (ICAI) for a period more than five years, 750 - 750 b. If paid after june 30 of each financial year : i. In case of membership (of ICAI) for a period of less than or equal to five years, 720 - 720 ii. In case of membership of (ICAI) for a period of more than five years 900 - 900 3. Life Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 4000 720 4720 ii. In case of membership of (ICAI) for a period more than five years 7500 1350 8850 4. Brain Trust Membership Fees a. Individual Membership Fees i. In case of membership (of ICAI) for a period of less than or equal to five years 800 144 944 ii. In case of membership of (ICAI) for a period more than five years 1200 216 1416 b. Flexi Firm/Corporate Membership Fees*** 2400 432 2832 *** Registered Firm/Corporate can nominate any two participants from their firm for each Brain Trust Meeting. Additional Representatives can be nominated @1200/- plus GST per participant subject to maximum of 20 participant per firm Published By CA. Rajni M. Shah, on behalf of Chartered Accountants Association, Ahmedabad, 2nd Floor, Darshak, 14/A, Swastik Society, Opp. Shrey Hospital, Navrangpura, Ahmedabad - 380 009 Phone : +91 79 40392596 While every effort has been made to ensure accuracy of information contained in this Journal, the Publisher is not responsible for any error that may have arisen. Professional Awards The best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted by experts in the profession. Articles and reading literatures are invited from members as well as from other professional colleagues. Printed : Pratiksha Printer, Ahmedabad Mobile : 98252 62512 E-mail : [email protected]
Ahmedabad Chartered Accountant Journal January, 2024 615 Ú¢}¢S² ™çÚ¼æ Ÿ¢éy±¢ {¢Ú²ï²éx¢éü‡¢¢x¢ÁÝ¢ J |¢ç±c²ç¼ ¼Î¢m±ï¼y„±ü Ú¢}¢}¢² …x¢¼: JJ Ram is known as “Maryada Purushotam” because in his time the dignity of moral codes is established. Lord Shri Ram was an ideal man, son, brother and husband as well as an ideal and skilful ruler. The example of Rama Rajya is cited even today because of the good governance that prevailed during his rule. Lord Shri Rama had amazing perseverance and patience. At the behest of Kaikeyi, Rama suffered 14 years of exile, did penance to build a bridge over the ocean. Even though he was a king, he lived like a monk. Even after the abduction of mother Sita by Ravana, he worked patiently and waited for the right time. The pinnacle of such tolerance is found in Lord Rama. Even today everyone should adopt this quality of Lord Rama. Lord Rama was filled with a deep sense of mercy. He had a kind nature towards every living being from animals to birds. Lord Rama took everyone under his protection because of this quality. Lord Rama showed compassion to Sugriva, Hanumanji, Kevat, Nishadraj, Jambavant and Vibhishan. Although a king, he gave these people the right to lead from time to time. Apart from being a king, Lord Rama was also an efficient administrator. He believed in taking everyone along. Ethical aspects and Lord Shri Ram CA. Mayur H. Modha [email protected] It was because of Lord Rama’s superior leadership ability that the stone bridge was built to reach Lanka. By uniting the common people, Lord Rama created such a power that even a mighty ruler like Ravana had to be defeated. Lord Rama taught people the power of organization. Lord Rama is also known for his good friendship. Whoever he befriended; he cherished his relationship. Despite being a great king, Ramji befriended people of every caste and every class. Be it Kevat or Sugriva, Nishadraj or Vibhishana, Lord Rama faced many hardships for all his friends and showed his true friendship. Lord Rama’s life was one of ethics and ideals, if one were to observe closely Lord Rama’s character, it gives us number of lessons in ethics i.e. family is important, be careful of temptations, follow the instructions-don’t alter plans arbitrarily, respect your enemy. In our professional life it gives us lessons in ethics, integrity and righteous behaviour as ultimately good wins over evil. ❉ ❉ ❉
616 Ahmedabad Chartered Accountant Journal January, 2024 Confusion About Compliances By the time this journal would be in your hands, it is that most of you would have encountered the above captioned question from your clients as their response to the newly inserted provisions concerning the MSME related payments in the Income-tax Act. The new amendment, as you all must be aware, requires every person to make regular payments to Micro and Small Suppliers in order to avoid disallowance of the expenditure claimed. This in a way would help to regularize the business cycles and also improve the working capital management of small vendors. Though the intention behind the amendment is noteworthy, a sudden implementation would disturb many businesses which have a traditional credit periods ranging from 60-120 days especially textile markets. Further tax payers are also required to provide for interest equivalent to three times the RBI reference rate in case payment to MSE suppliers are not made in time which is further not allowable as expense to the taxpayers while computing the total income thereby resulting in a double whammy. It is also quite interesting that while if the taxpayer makes purchase in the month of April for which payment is made before 31st March of next year, such purchases are allowed as deduction whereas if purchase is made in the month of February for which payment is made after 31st March then such purchase is not allowed as deduction despite the delay being less compared to the earlier transaction. The FinMin should therefore extend the benefit of proviso to section 43B to clause (h) which allows deduction of expenditure provided payment is made before the due date of filing the return of income as is available to other fellow clauses. Not only Section 43B but there are several other provisions of the Act which needs to be looked into by the Tax man to make life easy for the tax payers. For instance, the limit provided under section 40A(3) may not seem logical in case of transaction / dealings with vendors in remote areas where it is not business prudence to work on credit terms and where banking sector has not yet developed completely. Even the introduction of TDS / TCS provisions like Section 194R, 194Q and 206Chave added salt to the wounds of the business community and which has in turn made lives difficult for practitioners at large. To add further, TCS on foreign remittances have burdened the residents with additional financial cost who intend to send money across the world. While the intention of the Finmin is above question in the above scenario, it is the heavy cost burdened upon genuine transactions which is questionable. Off late several amendments and new requirements have been issued under several laws which enhance the reporting requirements of the tax payers and thereby burdening small business with unnecessary (or necessary?) compliances which has now started to get on nerves of the business community which has in effect percolated to the professionals at large. However, it is still believed that we as professionals only have a role to comply with the regulations and if at all the same is getting difficult for the businesses, it is upon the Chambers of Commerce and trade and business associations to represent their views before the Finance Ministry. The Ministry needs to balance between the required compliance and over compliance so that ease of doing business is maintained in a time when India is a favorite spot for investments and expansion by business community at large. ❉ ❉ ❉ CA. Rajni M. Shah Editorial [email protected]
Ahmedabad Chartered Accountant Journal January, 2024 617 Respected Members The first month of 2024 is already complete and yet again time flies faster than expected. I hope that any resolutions taken by you in this New Year are continued. The year at CAA started off with a seminar held at Darshak office on January 6 with the topic ‘Transaction Structuring in M&A’ by CA Malay Deliwala. The program was held by Professional Development Committee Chairman CA Karan Shah. The small crowd which attended the program made it a round table event. Everyone had a very elated discussion with the faculty and the program went past 45 minutes its actual time! January saw the much awaited program of the year – The Residential Refresher Course. The 54th RRC as you all know was held at Nepal and it was the first time that we had this RRC jointly with ICAI Ahmedabad Branch (WIRC) under the able leadership of Chairperson CA (Dr.) Anjali Choksi. Planning the RRC and its execution was meticulously done under Chairmanship of CA Atul Shah and Convener CA Nirav Choksi. I heartily thank them for all the detailed arrangements undertaken with the travel company. My compliments to our Past President CA Sarju Mehta who assisted us in procurement of the snacks of Das Pendawala which we provided to members for the trip. It was also the first time that we had interaction with The Chartered Accountant Institute of another country. The President of Institute of Chartered Accountants of Nepal (ICAN) along with office bearers graciously accepted our invitation and inaugurated the conference wherein we had meaningful discussions with Past President CA Sunil Talati (ICAI) and CA Sujan Kumar Kafle – President ICAN about business prospects and economic scenario of Nepal as well as India. We were also invited to ICAN Head Office in Kathmandu where we were felicitated and their setup which is a mirror image of ICAI was overwhelming. All the 65 members had a gala time enjoying the Land of Himalayas, and the travel arrangements by Mihir Shah of Travel Sukha and Hotel Hyatt Regency were outstanding. We had undertaken the 3rd Brain Trust Meeting on January 20 on the topic “Navigating Taxation for NRI” taken by CA Pradip Modi and there was a lot of discussion on basic as well as advanced issues. The faculty had given detailed knowledge on the law and dissected all the posers in detail. January has also seen a lot of events happening in the country in form of Ram Mandir Inauguration on January 23rd and the country celebrating its 75th Republic day on January 26th. The interim budget also promises a lot of infrastructure development being tangible as well as intangible in form of social development for women, youth, farmer and the poor. The Central Government is marching towards making India a developed country by the year 2047 and is taking major steps for long term development by giving many subsidies and impetus through Performance Linked Incentives. Our fraternity will be getting a lot of opportunities and we will be working as a conduit between the business and the government. The service industry is also looking at large opportunities as Government has widened the ambit of financial services undertaken at the International Financial Service Centre. These plethora of services including book keeping, accounting, taxation and financial crime services including services rendered in relation to anti money laundering services can be registered in IFSC. This gives a huge opportunity for us to work as back office to many small, medium and large corporations around the world and even give them consultancy services in field of financial crimes and taxation. It is nothing less than the festival of Makarsakranti celebrated this month wherein the sky is the limit and we can fly our professional kite as high as we can. The ICAI has also introduced certificate courses on the subject Overseas Outsourcing Service and I congratulate President CA Aniket Talati for such a visionary step taken in this field. I also take this opportunity to congratulate ICAI for the inaugural of the ICAI Bhawan which will be state of the art Centre for education. Various educational as well as non-educational events are planned at CAA in the upcoming time and I wish all members to participate in large numbers and make the most of the knowledge sharing and professional networking. ❉ ❉ ❉ From the President From the President From the President CA. Shivang Chokshi [email protected]
618 Ahmedabad Chartered Accountant Journal January, 2024 In simple words, the term ‘Corporate Social Responsibility’ (CSR) can be defined as a Company’s sense of responsibility towards the community and environment in which it operates. The provisions of CSR were first time brought in the Companies Act, 2013 and are covered under Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules as amended from time to time. This has made India the only country which has regulated and mandated CSR for some selected categories of companies registered under the Act. In this article, I have tried to analyze the provisions of corporate social responsibility (CSR) as per the Companies Act, 2013 as amended in 2020. ❖ Definition of CSR: As per Rule 2(d), Corporate Social Responsibility (CSR) means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in the rules, but shall not include the following, namely: - (i) Activities undertaken in pursuance of the normal course of business of the company. Provided that any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021- 22, 2022-23 subject to the conditions that- (a) Such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in item(ix) of Schedule VII to the Act; Corporate Social Responsibility - An Overview CA. Riddhi Sheth [email protected] (b) Details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report (ii) Activities undertaken outside India except training of National or International level Indian sportspersons; (iii) Contribution of any amount directly or indirectly to any political party under section 182 of the Act; (iv) Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019); (v) Sponsorship for deriving marketing benefits for own products and services; (vi) Activities carried out for fulfillment of any other statutory obligations under any law in force in India. ❖ Applicability- 135(1): As per Section 135(1), CSR is applicable to every company if it fulfills any one of the conditions given below: (i) Net worth of Rs 500 crore or more, or (ii) Turnover of Rs 1000 crore or more, or (iii) Net Profit of Rs 5 crore or more during the immediately preceding financial year. Every company including its holding or subsidiary, and a foreign company defined under clause (42) of Section 2 of the Act having its branch office or project office in India, which fulfills the above criteria shall comply with the provisions of Section 135. However, if a company ceases to meet the above criteria for 3 consecutive financial years then it is
Ahmedabad Chartered Accountant Journal January, 2024 619 not required to constitute a CSR Committee and comply with other CSR provisions till such time it meets the above specified criteria. ❖ Net Profit: Net Profit means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following namely: (a) Any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise, and (b) Any dividend received from other companies in India, which are complying with the provisions of section 135. The net profit for the purpose of determining the spending on CSR activities is to be computed as per the provisions of Section 198.Profit before tax is used for computation of net profit as per Section 135 of the Act. In case of foreign company net profit to be taken as per the profit and loss account prepared in terms of clause (a) of sub section (1) of section 381 read with section 198 of the Act. ❖ CSR Committee and its functions: Every company to whom the provisions of CSR are applicable, shall constitute a CSR Committee of the Board as under- (i) Consisting of 3 or more directors out of which at least 1 director shall be an independent director. Where a company is not required to appoint an independent director under subsection (4) of section 149, it shall have in its CSR Committee 2 or more directors. (ii) Consisting of 2 directors in case of private company having only 2 directors on its Board. (iii) Consisting of at least 2 persons in case of foreign company of which 1 person shall be its authorized person resident in India and another person nominated by the foreign company. The CSR Committee shall perform the following functions: (a) Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII. (b) Recommend the amount of expenditure to be incurred on the activities. (c) Monitor the CSR Policy of the company from time to time. (d) Formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which as per Rule 5(2), shall include the following: (i) The list of CSR projects or programmes that are approved to be undertaken; (ii) The manner of execution of such projects or programmes; (iii) The modalities of utilisation of funds and implementation schedules for the projects or programmes; (iv) Monitoring and reporting mechanism for the projects or programmes; and (v) Details of need and impact assessment, if any, for the projects undertaken by the company. As per sub-section (9), where the amount to be spent by a company on CSR activities does not exceed Rs 50 lakhs, then the company shall not be required to form a CSR Committee and all the functions of the CSR Committee shall be discharged by the Board of Directors of such company. But, if a company has any amount in Unspent CSR Account, then it shall constitute a CSR Committee and comply with the provisions of Section 135. ❖ Responsibility of Board of Directors: As per Section 135(4), the Board of every company to whom the provisions of CSR are applicable shall: (a) After taking into consideration the recommendations made by the CSR Committee, approve the CSR policy for the company and disclose contents of such Corporate Social Responsibility - An Overview
620 Ahmedabad Chartered Accountant Journal January, 2024 policy in its report and also place in on company’s website. (b) Ensure that the activities included in the CSR policy of the company are undertaken by the company. (c) Ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years. In addition to above mentioned points, as per Rule 4(5), it is the responsibility of the Board to satisfy itself that the CSR funds disbursed to various implementing agencies and on various projects are being utilised for the given purpose. Accordingly, the Chief Financial Officer or the person responsible for financial management shall certify utilization of the funds. ❖ CSR Spending: As per sub-section (5) of Section 135, Companies need to spend 2% of average net profit of previous 3 financial years on CSR activity. Where a company has not completed a period of 3 years since incorporation, the average shall be computed of profit of all financial years since incorporation. Forspending the amount earmarked for CSR activities, company shall give preference to the local area and areas around it where it operates. ❖ CSR Expenditure: The Board shall ensure that the administrative expenses shall not exceed 5% of total CSR expenditure of the company for the financial year. Administrative expenses are the expenses incurred by the company for the general management and administration of CSR functions excluding the expenses directly incurred for the designing, implementation, monitoring and evaluation of a particular CSR project. So, the expenses incurred by implementing agencies on the management of CSR activities shall not amount to administrative overheads and cannot be claimed by the company. Any Surplus arising out of the CSR Activity shall not be a part of the business profit. Such surplus shall be ploughed back into the same project or transferred to the unspent CSR Account or to a Fund specified in Schedule VII within a period of 6 months of expiry of the financial year. The companies, which spend an amount in excess of the requirement of 2%, will be allowed to set off such excess amount out of their obligation in the succeeding 3 financial years subject to the conditions that: (a) The excess amount available for setoff shall not include the surplus arising out of the CSR activities. (b) The Board of the company shall pass a resolution to that effect. The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by – (a) A Section 8 Company or a Registered Public Trust or Registered Society having charitable objects and CSR Registration Number or (b) Beneficiaries of the said CSR Project or (c) A public Authority. In case of unspent CSR Funds Deposit in Transfer to Unspent CSR Government Funds bank account specified under within 30 days and Schedule VII if unspent within (Within a period 3 years of 6 months from expiry of financial year) Corporate Social Responsibility - An Overview
Ahmedabad Chartered Accountant Journal January, 2024 621 As per Rule 2(1)(i), Ongoing project is defined as: (i) a multi-year project, stretching over more than one financial year; (ii) having a timeline not exceeding three years excluding the year of commencement; (iii) includes such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the Board based on reasonable justification. ❖ Modes of incurring CSR expenditure: CSR expenditure can be incurred in the following modes: (i) ‘Activities route’, which is a direct mode wherein a company undertakes the CSR projects or programmes as per Schedule VII of the Act, either by itself or by engaging implementing agencies as prescribed in Companies (CSR Policy) Rules, 2014. (ii) ‘Contribution to funds route’, which allows the contributions to various funds as specified in Schedule VII of the Act. (iii) Contribution to incubators and R&D projects, as specified in item (ix)(a) and contribution to institutes/organisations, engaged in research and development activity, as specified under item (ix)(b) of Schedule VII of the Act. ❖ CSR Implementation: As per Rule 4(1), the Board shall ensure that the CSR activities are undertaken by the company itself or through- (a) A section 8 company or a registered trust or a registered society registered under section 12A and 80 G of the Income Tax Act, established by the company either singly or along with any other company. (b) A section 8 company or a registered trust or a registered society, established by the Central or State Government. (c) Any entity established under an Act of Parliament or a State legislature. (d) A section 8 company or a registered trust or a registered society, other than hose specified in clauses (a) to (c) above, having an established track record of 3 years in undertaking similar activities. ❖ CSR Reporting: (i) The Board’s Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable. (ii) In case of a foreign company, the balance sheet filed under clause (b) of sub section (1) of section 381 of the Act, shall contain an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable. Annexure I is the format given for the annual report on CSR activities to be included in the Board’s Report for companies whose financial year commenced prior to 1st April, 2020 and Annexure II is for the financial year commenced on or after 1st April, 2020. As per Rule 9, the Board of Directors of the company shall mandatorily disclose the following on their website, if any, for public access: (i) Composition of the CSR Committee (ii) CSR Policy and (iii) Projects approved by the Board. ❖ Penalty provisions in case of Non-Compliance: As per Section 135(7) of the Companies Act, if a company defaults in complying with the provisions of sub-section (5) or sub-section (6), then the company shall be liable to a penalty of the lower of the following amount: (a) Twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent CSR Bank Account, or (b) Rs 1 Crore Corporate Social Responsibility - An Overview
622 Ahmedabad Chartered Accountant Journal January, 2024 Moreover, every officer of the company who is in default shall be liable to a penalty of the lower of the following amount: (a) 1/10th of the amount required to be transferred by the company to such Fund or bank account, or (b) Rs 2 lakhs. In case of non-compliance with any other provisions of the section 135, provisions of section 134(8) or general penalty under section 450 of the Act will be applicable. Further, in case of nonpayment of penalty within the stipulated period, the provisions of section 454(8) will be applicable. ❖ Impact Assessment: As per rule 8(3), following class of companies is required to conduct impact assessment: (i) Company with average CSR obligation of Rs 10 crore or more in immediate 3 preceding financial years and (ii) Companies that have CSR projects with outlays of minimum Rs. 1 crore and which have been completed not less than 1 year before undertaking impact assessment. Impact assessment shall be carried out projectwise only in cases where both the above conditions are fulfilled. In other cases, it can be taken up by the company on a voluntary basis. A Company undertaking the impact assessment may book the expenditure towards CSR for that financial year, which shall not exceed 2% of the total CSR expenditure for that financial year or Rs 50 lakhs whichever is higher. The cost of Impact assessment is not covered in administration expenses and will be in addition to the administration expenses. Also, the Impact Assessment Report is required to be placed before the Board and also attached to the CSR Report. ❖ Form CSR-1: Every entity who intends to undertake any CSR activity, shall register itself with the Central Government by filing the e-form CSR-1 with the ROC w.e.f. 1st April 2021.On filing of CSR -1, one ‘Unique CSR Registration Number’ shall be generated by the system automatically. Such form shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice. ❖ Form CSR-2: CSR-2 is a form prescribed to furnish a report on CSR to the Ministry of Corporate Affairs. Every company covered under Section 135 of the Companies Act shall furnish a report on CSR in eForm CSR-2 to the Registrar for the preceding financial year (2020-21) and onwards. The form is to be filed in addition to Form AOC-4 for filing the company’s financial statement with the Registrar of Companies. For the financial year 2022-23, Form CSR-2 shall be filed separately on or before 31st March 2024 after filing Form no. AOC-4 or Form no. AOC-4-NBFC or Form no. AOC-4 XBRL. ❖ Disclosure in Financial Statement: Every company to whom provisions of Section 135 is applicable, the following shall be disclosed in the financial statement with regards to CSR activities: - Amount Amount of Shortfall at Total of Reason Nature of Details of Details of required expenditure the end previous for CSR related movements to be spent incurred of the year year shortfall activities party in the by the shortfall transactions provision company during the during the year year, Corporate Social Responsibility - An Overview Continued to page 634
Ahmedabad Chartered Accountant Journal January, 2024 623 Provisional attachment u/s 281B during the course of assessment proceedings: FCS Manufacturing (India) Pvt. Ltd. (2023) 456 ITR 89 (Guj) Issue: How should the powers u/s 281B exercised? Head Notes: The powers under section 281B of the Income tax Act, 1961 are drastic powers permitting the Assessing Officer to attach any property of an assessee even before completion of the assessment or reassessment. These powers are thus in the nature of attachment before judgment and should be exercised in appropriate cases for proper reasons and cannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order. Penny Stocks: Dismissal of special leave petition in Supreme Court: Pr. CIT v/s. Smt. Renu Aggarwal (2023) 456 ITR 249 (SC) Issue: Whether addition could be sustained on facts pertaining to unselected person? Head Notes: Where the High Court dismissed the Department’s appeal saying that no question of law arose from the order of the Tribunal affirming the order of the Commissioner (Appeals) allowing relief to the assessee, and the findings of the Commissioner (Appeals) to the effect that there was no adverse comment from the stock exchange or the company whose shares were involved in these transactions, that the Assessing Officer quoted the facts pertaining to completely unrelated persons whose statements were recorded and on the basis of unfounded presumptions, that the name of the assessee was neither quoted by any of such persons nor was any material relating to the assessee found at any place where investigation was done by the Investigation Wing, on a petition for special leave to appeal to the supreme Court: The Supreme Court dismissed the petition. Provision of estimated loss in contract business: Flsmidth Pvt. Ltd. v/s. DCIT (2023) 456 ITR 300 (Mad) Issue: When is the provision for estimated loss in contract business deductible as per Accounting Standard 7? Head Notes: In case of a contract according to paragraph 35 of the accounting standard 7, only when it is probable that the total contract costs, i.e. the expense will exceed the total contract revenue that the expected loss can be recognized as an expense immediately. Held, dismissing the appeal, that despite being specifically asked to do so, the assessee had not explained how the total contract costs would exceed the total contract revenue either before the lower authority or before the first appellate authority or before the Tribunal. A reading of the order passed by the Appellate Commissioner also indicated that the assessee had not demonstrated its case despite a specific opportunity being given. Barring reference to Accounting Standard 7 for recognition of estimated loss at Rs. 1,14,45,495/- three was no explanation on the facts by the assessee. The Tribunal was right in not allowing provision for estimated loss on contracts as a business expenditure under section 37 of the Act. CA. Jayesh C. Sharedalal [email protected] 91 From the Courts 92 93
624 Ahmedabad Chartered Accountant Journal January, 2024 Peculiar facts:Deduction u/s 80IB (10) : Pr. CIT v/s. Vardhan Builders (2023) 456 ITR 310 (Bom) Issue: Whether the approved plans and the building completion certificate issued by the competent authority is the primary evidence to claim deduction u/ s 80IB(10)? What would happen if during Survey proceedings, it is found that in some cases two flats were found to have been merged or occupied by the same person? Held: @ page 312: “5. In this survey report, which formed the basis for the Assessing Officer to deny the benefit of 100% deduction on the profits derived from such a residential project, the Assessing Officer relied upon and highlighted the following facts:- i. That there were only three flats on each floors in ‘A’ Wing of the project as against five flats shown in the BMC approved plans. ii. That each flats measure built up area of 1572.95 sq.f.t, 1391.98 sq.ft. and 1083.64 sq.ft. per floor. iii. That there were only three electric meters per floor for three flats constructed on each of the floors. iv. That there were only three main doors on each floor. v. That the copy of advertisements given in national dailies also indicated that the same were for 2/3/5 bedroom hall kitchens and pent houses for this project. vi. That there were only three flats per floor was endorsed by the report from independent architects Shri. Shirish R. Hindia and Shri. Ketan Vakharia who had surveyed the building. 6. Against the order passed by the Assessing Officer, an appeal was preferred by the respondent-assessee where each of the grounds which formed the basis of the order of the From the Courts Assessing Officer to deny the benefit of Section 80IB(10) of the Act was dealt with. It would be worthwhile to reproduce the conclusion drawn by the CIT (Appeals) in the penultimate paragraph of his order, which are as under:- “It is seen that the AO has denied deduction u/ s.80IB(10) on the basis of the evidence found as on the date of survey on 1.12.2011, whereas the appellant is claiming deduction on the basis of the approved plans of BMC, occupancy certificate issued by BMC, possession letters and agreements for sale of flats entered into with the individual buyers. I have already held that the evidence on record does not indicate that the appellant had combined two or more flats. On an overall appreciation of the records and documents, it is seen that: a. As per the approved plans of BMC all the flats in ‘A’ wing of the building are having built up area of less than 1000 sq.ft.; b. The plan layout prepared by the architects and approved by BMC show that the area of each of the individual flats is having a built up area of less than 1000 sq.ft. The area measurement given by the appellant in their written submissions, is as per the actual area of each flat on completion of the building construction and the same is also certified by the Engineers of the Mumbai Municipal Corporation. c. As per the approved plans each of the individual flats are self contained units having separate drawing room, dining room, kitchen, bed rooms and toilets; d. The BMC Authorities have issued an occupancy certificate for the building thereby certifying that the construction and development of the building is as per approved plans; e. The individual flats have been separately sold to various buyers as per the registered agreements for sale executed with the buyers; f. The Stamp Duty Registration Authorities have registered the agreements as individual flats 94
Ahmedabad Chartered Accountant Journal January, 2024 625 and have assessed the stamp duty for each of the individual flats; g. As per the possession certificate issued to the buyers of flats, the buyers have been given possession separately for each of the individual flats; h. As per the electric lines layout for the building, each of the flats has independent electrical wiring connection to the meter room; i. Separate water connection, plumbing and sewage disposal lines have been provided for each of the individual flats separately; j. As per the certificate of the electric contractor, separate electrical connection has been provided for each of the individual flats; k. As per the society records, maintenance charges is paid separately by each flat and society is raising bills on each flat separately; l. The appellant has neither got its plans amended in respect of any of the flats and they stand as separate units as per the approved plan, Occupation Certificate and as of today, in the records of the BMC; m. Some of the flat owners have been issued notice u/s.488 of Bombay Municipal Corporation Act in the year 2011 for unauthorized alterations/additions in the flats.” 7. Being aggrieved by the order passed by the CIT (Appeals), an appeal was preferred by the Revenue before the Income Tax Tribunal. The Tribunal vide its order dated 28.10.2015, dismissed the said appeal and upheld the view expressed by the CIT (Appeals). The Tribunal held that the project was completed as early as on 28.03.2008 and on the basis thereof, a completion certificate was issued by the competent authority and that completion certificate can only be issued if the construction was in accordance with the sanctioned plans dated 15.04.2022[@@]. The Tribunal also proceeded to hold that there was no allegation by the survey team during the earlier survey conducted in the year 2006 that the assessee was not raising the construction as per the approved plan. It was also held that if there was any modification effected to a residential unit completed and in regard to which a completion certificate had been issued by the competent authority, the assessee could not be held responsible.” @ page 316: “In the present case, however, the revenue has failed to establish that fact. Not only this even the completion certificate could not have been issued by the competent authority, as rightly held by the Tribunal, if there was any violation of the approved plans by the municipal authorities.” [@@]: date reproduced as printed in ITR. Disallowance of interest paid on account of interest free advances given to directors and a subsidiary company. Beekons Industries Ltd v/s. CIT (2023) 456 ITR 431 (P & H) Issue: Whether interest payment claimed as a deduction u/s 36(1) (iii) can be proportionately disallowed when interest free advances are given to: (a) Directors, their relatives and sister concerns, and (b) Assessee’s subsidiary? Held: Head Notes: For the assessment year 2006-07, the Assessing Officer considered the advances given to the assessee’s directors, relatives of directors and the sister concerns as diversion of funds by the assessee and disallowed the interest expenditure under section 36(1)(iii) of the Income Tax Act, 1961 on pro rata basis and initiated penalty proceeding under section 271(1)(c) for furnishing inaccurate particulars. The Commissioner (Appeals) on the facts held that the Assessing Officer did not establish that the assessee had raised interest bearing loan and diverted them to those parties without charging interest and deleted the disallowance. The Tribunal held that the interest attributable to the sum diverted by the assessee for the personal benefit of the director’s relatives was to be disallowed and upheld the order of the Assessing Officer. In respect of the From the Courts 95
626 Ahmedabad Chartered Accountant Journal January, 2024 loans to the assessee’s subsidiary the Tribunal held that the amount was given for the joint expediency and upheld the deletion of the disallowance by the Commissioner (Appeals), On appeals: Held, allowing the appeals, that the order passed by the Tribunal affirming the disallowance of the interest expenditure made by the Assessing Officer was set aside and the order passed by the Commissioner (Appeals) was restored. The Assessing Officer was directed to recompute the disallowance in accordance with the judgments in Hero Cycles P. Ltd v/s. CIT [2015] 379 ITR 347 (SC) and Pr. CIT v/s. Holy Faith International (P) Ltd. [2018] 407 ITR 445 (P & H). Deduction of (a) amount paid for services relating to higher efficiency (b) Foreign travelling expense of accompanying wife of director on a business tour: Rockman Cycles Industries Ltd v/s. CIT (Appeals) (2023) 456 ITR 443 (P & H) Issue: Whether the amount paid for services for developing a growth strategy and profit improvement programme can be disallowed? Whether foreign travel expenses of accompanying wife of a director is allowable? Held: Head Notes: The Supreme Court pointed out that the income tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, the Supreme Court proceeded, the reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. The assessee company was engaged in the business of manufacturing cycles. For the assessment year 1996- 97, the assessee claimed deduction on account of travelling expenditure incurred on the director’s wife accompanying her husband on business tours claiming that this expenditure had been incurred for From the Courts promoting better business understanding and as a matter of reciprocity in international business. The expenditure was disallowed by the Assessing Officer, and this was confirmed by the Tribunal. The assessee claimed deduction of the amount paid to M under an agreement for assistance in developing a growth strategy and profit improvement programme for the company. M had also to render services which included market survey, etc. for the purpose of improvement of efficiency. The Assessing Officer disallowed the expenditure, and this was confirmed by the Tribunal. On appeal to the High Court. Held, (i) that the agreement dated November 10, 1995 with M would fall under section 37 of the Income Tax Act, 1961, as the services rendered related to the rearrangement of manufacturing and sale activities. The amount paid to M was deductible. (ii) That the expense on foreign travel of the wives of directors of the assessee company was deductible. Accrual of Capital Gain income in the year of transfer and not in the year of license: Chhaganlal Mulji Dholu v/s. Joint CIT (2023) 456 ITR 465 (Guj) Issue: When a licence is given under a development agreement for the purpose of developing the land into flats and sell them, does it result in “Transfer” as envisaged u/s 2(47)(v)? Held: Head Notes: The basic conception is that there must have been an acquired right to receive income to make it chargeable to tax. Income may accrue to an assessee without actual receipt and if the assessee has acquired the right to receive the income, it can be said to have accrued to him. Under section 45 of the Income Tax, 1961, “capital gains” shall be deemed to be the income of the previous year in which the transfer took place. The object of section 2(47) (vi) is to bring within the tax net a de facto transfer of any immovable property. The expression “enabling the enjoyment of” takes colour from the earlier expression “Transferring”, so that it is 96 97
Ahmedabad Chartered Accountant Journal January, 2024 627 clear that any enjoyment as a purported owner thereof. The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact. Where a licence is given under a development agreement for the purpose of developing the land into flats and to sell them, it does not amount in the eyes of law, to “transfer” under section 2(47)((v). The condition to be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under section 147, is that the must have reason to believe that the income of the assessee has escaped assessment. Without proper material relied on, the “reason to believe” would become arbitrary and bad in law. Held, that though the allegation was that the cash payment was made and it escaped tax, it was pursuant to a development agreement. There was no tangible material on record to show even prima facie that the assessee had received cash for sale of the property. The sale deed was executed during the financial year 2015-16, which was relevant to the assessment year 2016-17. The transfer could not be said to have taken place for the purpose of charging income under capital gains during the assessment 2015-16. The tax would be leviable in the corresponding assessment year, that is 2016-17. The execution of the development agreement did not give rise to transfer within the meaning of section 2(47)(v) of the Act in the year 2014- 15. Therefore, the opinion formed by the Assessing Officer that he had reason to believe about escapement of income in the assessment year 2015- 16 was misconceived and without foundation of facts and without foundation in law. The notice of reassessment was not valid. Penalty u/s 271(1)(c) in case of a debatable issue: CIT v/s. S.Kumar Tyre Manufacturing Co. Ltd. (2023) 456 ITR 637 (MP) Issue: Whether mere making of a claim which is not sustainable will attract penalty u/s 271(1)(c)? Held: Head Notes : In order to attract the provisions of section 271(1)(c) of the Income Tax Act, 1961, satisfaction has to be recorded that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of such income. Held, Dismissing the appeal, that the Tribunal found that there was no deliberate attempt to conceal the particulars of income or furnishing any inaccurate particulars thereof. The assessee had disclosed the source of an amount and claimed it as a capital receipt. The source of receipt of the amount was correctly disclosed. It might be on the basis of the opinion given by the tax consultant or chartered accountant, that it was shown as a capital receipt in the return. However, that was a debatable issue. Therefore, a reference was made to the High Court. The Tribunal was correct in deleting the penalty under section 271(1)(c). Amount of expenditure recoverable from subsidiary deductible as “business loss”. Mahindra and Mahindra Ltd (2023) 456 ITR 723 (Bom) Issue: Whether amount lent to a subsidiary including interest thereon and advances for purchase of machinery given in the course of business dealings can be claimed as a deduction on write off of such amounts? Held: “In the case at hand also the expenditure incurred were wholly incurred for the purpose of commercial expediency because MMC was group company of the appellant and appellant was, as could be seen from the orders passed by the Board for Industrial and financial Reconstruction, keen in the preservation of MMC and to keep it as a going concern. The nexus between the appellant and MMC is also not disputed. The Assessing Officer failed to appreciate the claim in From the Courts 98 99
628 Ahmedabad Chartered Accountant Journal January, 2024 the proper perspective. The appellant participated in the rehabilitation scheme of MMC and lent rehabilitation assistance by paying amounts to MMC as well as by converting its existing inter corporate deposits with MMC into rehabilitation assistance. The appellant also provided a guarantee of Rs. 200 lakhs to Industrial Development Bank of India for the rehabilitation assistance disbursed by Industrial Development Bank of India to MMC. If there was no commercial expediency, there was no reason for the appellant to incur these amounts or participate in the rehabilitation scheme of MMC. The appellant was also the managing agents of MMC and MMC was also a Mahindra Group Company. It is certainly not necessary for the name of Mahindra and Mahindra to be used in the name of MMC to prove it was a group company. These expenditure/ debts should be treated as having been incurred for the purpose of business and directly relatable to the business of the assessee and thus eligible for deduction as business expenditure/loss in the assessee’s return of business income. The expenditure incurred by appellant or the debts that were recoverable from MMC, in our view,therefore, would certainly be deductible expenditure under section 28 of the Act.” With holding of Refund by Assessing Officer: OYO Hotels And Homes Pvt. Ltd. v/s. DCIT (2023) 456 ITR 743 (Del) Issue: How should the powers given u/s 241A be exercised by the assessing Officer? Held: Head Notes: A plain reading of section 241A of the Income Tax Act, 1961, envisages that the power to withhold a refund may be exercised by the Assessing Officer subject to these conditions: (i) the reasons for withholding a refund are to be in writing : (ii) the assessing Officer must record, how the grant of the refund is, in his opinion, likely to adversely affect the interests of the Revenue; and the approval of the appropriate authority is to be taken prior to issue of such order. It is well settled that a refund cannot simply be withheld if the assessee is selected for scrutiny assessment or where a notice has been issued under sub section (2) of section 143 of the Act. Held, that in the order withholding refund the reasons as set forth in the communication to May 30, 2022 were bereft of any details and only reproduced the wording of section 241A. There were no worthwhile reasons recorded in writing. The reasons for withholding the refund were simply that the case was selected for scrutiny with a large number of “issue” to be examined. However, no details of any issue which required examination had been set forth. There was then a passing mention of the fact that “it is also referred to transfer pricing”, however, what had been referred, was absent. No, other details were given either. The assessee was a taxpayer for the last several years and the creditworthiness of the assessee was also not in dispute, merely because a notice had been issued under section 143(2) of the Act, was not sufficient ground to withhold the refund. The Principal Commissioner has also mechanically accorded permission to withhold the refund till the date of finalization of assessment without any application of mind in the matter. The order withholding refund was not valid. ❉ ❉ ❉ 100 From the Courts
Ahmedabad Chartered Accountant Journal January, 2024 629 Adroit Structural Engineers (P.) Ltd. v. ADIT 158Taxmann.com 134 (Ahd) Assessment Year:2020-21, Order dated:20th December 2023 Basic Facts The assessee, engaged in the business of construction of factory and buildings, warehouses etc. on contract basis, filed return of income which was processed under Section 143(1) in which the CPC disallowed the credit of TDS on the ground that the TDS credit was not reflecting in Form 26AS. The assessee filed appeal against the aforesaid intimation before CIT(A) and submitted that TDS amount of Rs. 14,38,505/- claimed by the assessee could not be disallowed simply on the ground that TDS credit was not reflecting in Form No. 26AS. The assessee’s submissions were that reason why the TDS amount was not reflecting in Form 26AS was that the payer deducted TDS in A.Y. 2019- 20 as per their accounting policy, but the assessee did not claim TDS in A.Y. 2019-20 since services were rendered and invoices were raised by the assessee only in A.Y. 2020-21. However, CIT(A) dismissed the appeal of the assessee. On appeal to Tribunal ISSUE: Whether as per section 199, TDS credit ought to be granted in the year in which income is offered to tax? Held: The Tribunal noted that in the case of Bhura Mal Raj Mal v. CIT 220 ITR 636 (Rajasthan), the High Court held that the credit for tax deducted at source should not be denied on the ground that the assessment year of the payer in which the deduction is made is different from that of the recipient. In the case of Ignitive Digitech (P.) Ltd. 154 taxmann.com 664 (Mumbai - Trib.), the ITAT held that in terms of Rule 37BA(3)(i) benefit of credit of TDS is to be given in assessment year for which corresponding income is assessable; therefore, where income, on which TDS was deducted was patently assessable in year under consideration, benefit of credit of TDS should also be allowed in same year i.e. year under consideration. Similar view is taken in the case of Mahesh Software Systems (P.) Ltd. 154 taxmann.com 664 (Mumbai - Trib.), Anup Rajendra Tapadia 147 taxmann.com 167 (Pune -Trib.) In view of the facts noted and the judicial precedents on the subject, the tribunal was of the considered view that in case the assessee has not claimed double deduction of credit of TDS, then the assessee is entitled to claim deduction of TDS in the year in which the corresponding income has been offered to tax by the assessee and the assessee has raised invoices on the payer. In the instant case, the assessee’s contention is that both the services as well as invoices have been raised on the payer in the impugned assessment year i.e., A.Y. 2020-21 and further, the assessee has not claimed deduction of TDS in any prior assessment year as well. Accordingly, in the interest of justice, the matter was restored to the file of AO with a view to verify whether the assessee has claimed TDS of the aforesaid amount in any other assessment year and accordingly, relief may be granted to the assessee as per law. Lex Sportel Vision (P.) Ltd v.ITO 158 Taxmann.com 129 (Del) Assessment Year: 2018-19,Order dated: 26thDecember 2023 Basic Facts The assessee is engaged in the business of broadcasting or sub-licensing right to broadcast, sport events e.g., golf, cricket, soccer etc. on live and non55 CA. Yogesh G. Shah [email protected] CA. Aparna Parelkar [email protected] Tribunal News 56
630 Ahmedabad Chartered Accountant Journal January, 2024 live basis. The assessee company filed return of income on 30.11.2018 declaring total income of Rs. Nil. During the Financial Year 2017-18, the assessee had entered into agreements with various nonresidents for acquisition of two types of rights : (a) Right to broadcast live sports events (“Live Rights”) and (b) Right to use audio-visual recording of the sport events for subsequent telecasting, cutting small clips for advertisements, making highlights of the event etc. (“NonLive Rights”). The agreements and invoices pertaining to acquisition of “Live Rights” and “Non-Live Rights” from the aforesaid entities clearly bifurcate the total consideration between consideration for “Live Rights” and consideration for “Non-Live Rights”. The assessee has deducted tax at source u/s 195 of the Income Tax Act, 1961 on the payment remitted in lieu of acquisition of “Non-Live Rights” considering the same to be “Royalty” u/s 9(1)(vi) of the Act chargeable to tax in the hands of the non-resident overseas rights holder in India. The assessee has not deducted any tax at source u/s 195 on the payment made for “Live Rights”. The CIT(A) passed the order u/s 201 of the Act by observing that the payment for “Live Rights” is chargeable to tax as “Royalty” in the hands of the nonresident overseas rights holder warranting with holding of tax u/s 195 of the Act. On appeal to Tribunal. Issue: Whether the payment made to non-residents for acquiring broadcasting rights of live events is taxable as “royalty” under section 9(1)(vi) read with Double Taxation Avoidance Agreements (“DTAAs”) and hence warrants withholding of tax under section 195 ? Held: After detailed examination of the following judgments namely, i. CIT v. Delhi Race Club [2014] 51 taxmann.com 550/ [2015] 273 CTR 503/228 Taxman 185 (Hon’ble Delhi HC) ii. Fox Network Group Singapore Pvt. Ltd. v. ACIT (IT) [2020] 121 taxmann.com 330 (ITAT Delhi) iii. Cricket Australia v. ACIT (IT) (ITA No. 1179/Delhi/ 2022) (ITAT Delhi) Tribunal News iv. ESS (formerly known as ESPN Star Sports) v. ACIT (ITA No. 7903/DEL/2018) (ITAT Delhi) v. ESPN Star Sports v. Global Broadcast News Ltd. 2008 (38) PTC 477 (ITA T Delhi) vi. ADIT (IT) v. Neo Sports Broadcast Pvt. Ltd. [2011] 15 taxmann.com 175/ [2011] 133 ITD 468 (ITAT Mumbai) vii. DDIT(IT) v. Nimbus Communications Ltd (2013) 20 ITR(T) 754 (ITAT Mumbai), The Tribunal held that broadcasting “Live events” does not amount to a work in which copyright subsists, meaning thereby right to broadcast live events i.e., “Live Rights”, is not “copyright” and therefore any payment made thereto can’t be said to be chargeable to tax as royalty under section 9(1)(vi). Further the courts have held that when the agreements clearly bifurcate the consideration paid towards Live and “Non-Live Rights”, the Department can’t deem the payment made for “Live Rights” to have been made for a bouquet of rights. The other issue examined during the hearing was, whether the payments were made for the use of “process” or not? The Tribunal found that the payments in dispute are made to overseas rights holder. The said payments are neither made to any satellite operators nor for use of any satellite. Thus, the payments in dispute are not made for use of any “process” as defined u/s 9(1)(vi) of the Act and can’t be charged to tax as “Royalty” in the hands of the overseas rights holders. Accordingly, Tribunal held that the AO while passing the order u/s 201 of the Act has erred in law by treating the remittances to have been made for use of a “Process”. In the result, the appeal of the assessee was allowed. Shangar v. DCIT 158 Taxmann.com 113 (Ahd) Assessment Year:2014-15, Order dated: 20th December 2023 Basic Facts The assessee was engaged in the business of trading of fabrics and carpets. During the course of assessment, the assessee had sold office premises for a consideration of Rs. 1,30,00,000/- on 16.12.2013 and claimed deduction under Section 54EC at Rs. 57
Ahmedabad Chartered Accountant Journal January, 2024 631 1,00,00,000/- on account of investment in REC Bonds. The assessee submitted that according to the then applicable provisions of Section 54EC, capital gains if invested within a period of six months shall not be chargeable to tax, provided the investment during any Financial Year shall not exceed Rs. 50 lakhs. However, the AO was of the view that an amendment was brought w.e.f. 01.04.2015, which is clarificatory in nature and which states that deduction under Section 54EC would not be allowed beyond maximum limit of Rs. 50 lakhs. Accordingly, the AO made an addition of Rs. 50 lakhs on account of excess claim of deduction under Section 54EC. In appeal, CIT(A) further enhanced the income of the assessee by holding that the assessee was not eligible for deduction even for the sum of Rs. 50 lakhs which were invested in REC Bonds on 31.03.2014, for the reason that to be eligible for deduction under Section 54EC, the capital asset must be a long-term capital asset, but the assessee sold a depreciable asset, being office premises, therefore, in view of Section 50, profit arising on sale of depreciable asset would be a short term capital Asset. On appeal to Tribunal Issue Whether CIT(A) was right in disallowing exemption u/s 54EC on the ground the asset so was depreciable assets to which section 50 was applicable ? Whether assessee was entitled to exemption u/s 54EC beyond maximum limit of 50 lacs Held The tribunal based on the Gujarat High Court decision in case of Aditya Medisales Ltd. 38 taxmann.com 244 (Gujarat) and Ahmedabad Tribunal in the case of DCIT M/s. Liva Healthcare Ltd. in ITA No.62/Ahd/2016 held that since capital gains arose out of long term capital asset and same was invested in specified assets, exemption under Section 54EC could not bedenied on account of the fact that deeming fiction of short term capital gainwas created. Regarding exemption for the second investment, the Tribunal held that for the impugned A.Y. 2014-15, as it stood at the relevant time if the assessee made investment in REC Bonds for Rs. 50 lakhs each, the assessee would be eligible for deduction under Section 54EC of the Act, provided both the investments were made within a period of six months as prescribed under 54EC of the Act. In the present case, the assessee had sold the asset under consideration on 16.12.2013, whereas the second investment in REC Bond was made on 30.06.2014.is hence eligible for deduction under Section 54EC of the Act. Accordingly, the appellant’s appeal was allowed. Springer Verlag GmbH, (Formerly known as Sppringer Verlage GmbH & Co. KG) VDCIT TS-06-ITAT-2024 (Del) Assessment Year 1999- 00 to 2002-03, Order dated 4th January 2024 Basic Facts: Assessee, a German company, is engaged in publishing scientific, technical, medical books and journals. With the RBI approval its open Liaison Office (LO) in India solely for liaising activity or to act as a communication channel between the Head Office and clients in India. For AY 1999-2000 to 2001-02, the Assessee did not file any return of income in India. Assessee was subject to a survey in 2002 in which loose papers and compact discs were impounded and statements were recorded. Accordingly, based on the information gathered, the Assessee was subjected to reassessment. Subsequently, Assessee furnished Nil return of income under Section 148 contending that income from sale of books and journal, being business income is not taxable in India in the absence of PE in India and the LO cannot be treated as PE since it had not carried on any commercial activity. Revenue held that the LO carried activities which are more than mere preparatory and auxiliary activities, thus, held it to be PE and attributed 15% of the total sales as income of the LO. CIT(A) granted partial relief to the Assessee only with respect to attribution. Issue: Whether the LO constituted the PE of the Assessee and whether the reopening of assessment was as per law ? Tribunal News 58
632 Ahmedabad Chartered Accountant Journal January, 2024 Held: ITAT noted that HO has earned a substantial amount of income from sale/subscription of its books/journals in India. Further the information in impounded documents and the statement of the workers which reveal the extent of involvement of LO in the business activity of the HO. Thus, opined that at the time of forming the belief regarding escapement of income, there was tangible material available with the Revenue which proves that there was a direct nexus/live link between the material available on record and the formation of belief for reopening the assessments. Further, Tribunal found that the LO not only procures orders, but also works out the cost components and margin of the books to be reprinted in EPZ and sends for acceptance of the HO which in most of the cases is accepted by the HO. Noted an internal report in which the achievement of the LO in increasing the sale of products of the Assessee has been appreciated. Rejected Assessee submission that there is no allegation by the RBI that the LO was engaged in commercial activities since what is required to examine was the constitution of PE as per DTAA. Observed that the activities of the LO with regard to printing of books at EPZ is of much wider magnitude than mere preparatory and auxiliary character. the price and margin is fixed by the LO in respect of specific titles to be published/reprinted at the EPZ and majority of cases, almost 90 to 95%, such prices/margins are accepted by the HO; Regarding attribution, observe that LO had no role to play in sale of journals and books printed abroad as these are direct transactions between the Assessee and subscribers/buyers in India, thus, attribution of income to LO should only be with reference to the books printed at EPZ and sold to distributors/ customers; Opines the profit rate at which the Indian subsidiary was remunerated can be taken as a yardstick to determine the quantum of profit attributable to PE; Considers 11% profit attribution observing subsidiary is remunerated with a markup of 11% of the gross receipts while rendering similar nature of services as rendered by the LO. ACIT v. Shri Nishant Kanodia TS-11-ITAT2024 (Mum) Order dated 8th January 2024, Assessment Year 2013-14 Basic Facts : Assessee-Individual, was served with notice under Section 153A pursuant to search and seizure procedure under Section 132/133A on in the case of Matix (Nishant Kanodia) Group and centralization of Assessee’s case. Assessee in the return of income filed in response to Section 153A notice, claimed his residential status to be non-resident and accordingly did not offer his global income to tax in India. Assessee submitted that as he stayed in India only for 176 days in the AY 2013-14, and left India for the purpose of employment in Mauritius, his residential status shall be determined as non-resident as the period of 60 days under section 6(1)(c) shall be substituted with 182 days as per Section 6(1) Explanation1(a). Revenue rejected Assessee’s application on the ground that, as per the work permit issued by the Government of Mauritius, the Assessee went to Mauritius on an occupation permit to stay and work in Mauritius as an investor with First land Holdings Ltd. and not as an employee. Accordingly, Revenue determined Assessee’s residential status to be ‘resident’, thereby made addition towards Assessee’s global income of Rs.28.14 Lacs. CIT(A) deleted the said addition and held that the Assessee was away from India for the purpose of employment outside India and is accordingly entitled to take the benefit of Explanation 1(a) to Section 6(1). Aggrieved, Revenue preferred the present appeal. Issue: Whether benefit of Explanation 1(a) to Section 6(1) of the Act would be available to assessee who held occupation permit to stay & work in Mauritius as an investor ? Held: ITAT observed that there is no dispute that the Assessee was in India for a period of 365 days in the four years preceding the relevant year. Considers the summary of the number of days of stay in India along with a copy of the relevant pages of his passport furnished Tribunal News 59
Ahmedabad Chartered Accountant Journal January, 2024 633 by the Assessee and concurred with the Assessee that he stayed in India only for a period of 176 days during the relevant AY. Took note of the appointment letter issued by First land Holdings Ltd., Mauritius, whereby the Assessee was appointed as Strategist – Global Investment and was offered a salary of USD 100,000 per month along with various other benefits, perquisites, allowances, etc. Noted Revenue’s argument that the Assessee was holding 100% shareholding in First land Holdings Ltd., Mauritius, from which the Assessee received alleged salary, thus, the Assessee has considerable control over affairs of the said company and the copy of the appointment letter and salary slips provided by the Assessee are selfserving documents in view of the fact that the Assessee had no permit for employment in Mauritius. Relied on Hyderabad ITAT ruling in K. Sambasiva Rao 42 Taxmann.com 115 (Hyd), Delhi ITAT ruling in Jyotinder Singh Randhawa 46 Taxmann.com 10and Col. Joginder Singh 45 Taxmann.com 567, and Kerala HC judgment in Abdul Razak, 337 ITR 350 (Ker) wherein it was held that no technical meaning can be assigned to the word ‘employment’ used in Explanation 1(a) to Section 6(1),thus going abroad for the purpose of employment also means going abroad to take up self– employment like business or profession. Further observed that the Kerala HC further held that the term ‘employment’ should not mean going outside India for purposes such as tourists, medical treatment, studies, or the like. Thus, opined that if the taxpayer has left India for the purpose of business or profession the same has been considered to be for the purpose of employment outside India under Section 6(1) Explanation 1(a). Upheld the CIT(A) order and held that the Assessee has rightly claimed to be a ‘nonresident’ during the year. Thus, dismissed Revenue’s appeal. Rubamim Limited V DCIT TS-732-ITAT-2023 (Ahd)-TP Order dated 14th June 2023, Assessment Year 2006-07 & 2007-08 Basic Facts : Aassessee is engaged in the business of manufacturing of wide range of Cobalt, Nickel and Copper. The assessee is acquiring raw material of Cobalt from Democratic Republic of Congo (DRC). For the purpose of seamless supply of raw material, it has set up wholly owned subsidiary first in UAE Sharjah namely Rubamin FZE (here after RFZE) and indirect subsidiary in DRC i.e., subsidiary company of RFZC namely Rubamin SPRL and Rubaco SPRL. The assessee has provided interest free loans & Advances to its AE RFZE for Rs. 14,08,51,672/- which was treated as international transaction by the TPO in the original assessment proceeding under section 143(3) r.w.s. section 92C of the Act and accordingly worked the arm length of interest at Rs. 28,33,393/- only. The issue reached to this Tribunal in ITA No. 664 & 665/Ahd/2012. The Hon’ble bench vide order dated 17th February 2017 set aside the issue to file of the AO/TPO for denovo adjudication. The assessee in the set aside proceeding submitted that the loan transaction is in the nature of commercial expediency i.e., to help the operation of subsidiary so that the subsidiary would be able to make proper and assured supply of raw materials. Due to the impugned loan & advances, it has made arrangement of supply of raw material at lower price which is more beneficial than interest. The interest free loans & advances to AE, were made after specific approval from RBI. Therefore, no arm length price adjustment should be made applicable on the transaction of loans &advances to its AE. The assessee further submitted that the cost of loan transaction and the interest cost in such transaction/ purchases has already been inbuilt. Accordingly, the interest cost cannot be benchmarked independently, rather it should be aggregated with the purchases and other transactions carried out with the AE as the transactions are interlinked. According as per assessee in such a situation the TNMM method can be adopted for the purpose of benchmarking to work out the ALP. Thus, no adjustment is required to be made. The assessee further contended that CUP method could not be applicable since adequate comparable are required are not available in the market for this kind of transactions. Since bank operates under different circumstance the bank rate cannot be taken as comparable. However, the AO/TPO rejected the contention of the assessee and worked the arm length of interest at Rs. 28,33,393/- on the ground that TNMM Tribunal News 60
634 Ahmedabad Chartered Accountant Journal January, 2024 method was not applicable since the assesse was not in the business of giving loan and interest cannot be considered to be considered as part of operating income. The CIT(A) upheld TPO/AO order. Issue: Whether CIT(A) was right in upholding interest adjustment on the interest free loan given to the AE. Held: ITAT observes that assessee had carried out different transactions with AE, but all were interlinked, and thus the same should be seen in aggregate for computing ALP; Relies on OECD TP Guidelines and Delhi HC judgment in Ericsson Mobile Communications India (P.) Ltd; and holds that the transaction for advancing the interest-free loans to the associated enterprises has to be seen in the context of the benefit received by it from such associated enterprises. As such the Tribunal News transaction of interest free loans/ advances viz a viz the benefit received by the assessee are intrinsically linked which has to be evaluated after aggregating both the transactions. The transaction of interest free advances cannot be viewed without considering the benefit derived by the assessee from the associated enterprises. On analyzing the notional interest added by the TPO under the transfer pricing adjustment with the benefit derived by the assessee, the interest cost appears to be negligible. The amount of interest cost stands at Rs. 28,33,393/- whereas the amount of gross import of material and export generated by the assessee is far more than the interest expenses after converting in India rupees. Thus, concludes that no TP-adjustment is required to be made. ❉ ❉ ❉ Continued from page 622 Article : Corporate Social Responsibility - An Overview ❖ Auditors Responsibility under CARO: CARO (Companies Auditor’s Report Order,2020) requires auditors to provide specific information in their audit report about the company’s financial statements and other significant details. As per clause xx of CARO, an auditor is required to comment whether in respect of other than ongoing project the unspent amount is transferred to the fund specified under Schedule VII of the Companies Act within a period of 6 months from the expiry of the financial year and in respect of ongoing project, any amount remaining unspent has been transferred to special account in compliance with the provision of sub section (6) of section 135 of the Act. ❖ CSR Expense under Income Tax Act: As per Explanation 2 of Section 37 of the Income Tax Act, any expenditure incurred on CSR activities as per Section 135 of the Companies Act, are not be deemed to have been incurred for business or profession and no deductions are allowed for such expenditure. ❖ Summing up: As per the data available from government records (csr.gov.in) during FY 2021-22, 18623 companies spent Rs. 25932.79 Crores on 42440 CSR projects. This has created positive social impact and sustainable development. CSR activities benefits the Company and the society by enhancing reputation and fostering long term growth. The Companies Act contains the provisions for compliance, disclosure and reporting by the management, CFO and auditors. Hence, all those responsible for this have to be mindful of compliances. ❉ ❉ ❉
Ahmedabad Chartered Accountant Journal January, 2024 635 In this issue, we are giving gist of an order passed by ‘A’ Bench of I.T.A.T., Ahmedabad in the case of MSK Project (India) JV Ltd. vs. ACIT in ITA No.498/Ahd/2019 for the Asst. Year 2005-06, in respect of an appeal, which was filed before the Tribunal late by 2359 days. The decision covers both the issues i.e. condonation of delay in filing the appeal as well as the merits of the issue involved. However, since the first issue about the condonation of delay is important, we are confining ourselves to the facts of the case and the judicial decision in respect of the condonation of delay before the Tribunal. The Tribunal has condoned the delay of 2359 days on the ground that the Appellant was pursuing alternative remedy and had a bona fide belief that he will be having successful outcome in such remedy which, however, did not turn out to be favourable to him and so he decided to file appeal before the Tribunal after a gap of 2359 days, which was condoned by the Tribunal. We hope the readers would find the decision useful. Annexure In the Income Tax Appellate Tribunal “A” Bench, Ahmedabad Mrs. Annapurna Gupta, Accountant Member and Shri T. R. Senthil Kumar, Judicial Member ITA No.498/Ahd/2019 Assessment Year: 2005-06 MSK Project (India) JV Ltd. Vs. ACIT, Circle – 4, Vadodara. Baroda. (Appellant) (Respondent) Assessee by : Shri S.N. Soparkar, Sr. Advocate & Shri Parin Shah, AR Revenue by : Ms. Saumya Pandey Jain, Sr. DR Date of hearing : 17.01.2024 Date of pronouncement : 31.01.2024 GIST Only Facts of the Case: 1. Initially, the assessee had filed return of income declaring total income of Rs.(-)48,82,805/- (Loss). The assessment was finalized under Section 143(3) of the Act vide order dated 28.12.2007, accepting the returned income. Subsequently, the ld. Commissioner of Income-tax (ld. CIT in short) on examining the case records noted error in the assessment order which was prejudicial to the interest of the revenue. He noted that the assessee had not accounted for the amount receivable by it from the Government of Rajasthan of Rs.990 lakhs as per the Arbitral Tribunal Award in respect of loss of toll collection in connection with construction of Bharatpur bye pass road. Accordingly, a show-cause notice was issued to the assessee u/s 263 of the Act and the order passed by the ld. CIT on 25.02.2010 directing the Assessing Officer to pass a fresh assessment order taxing the award on accrual basis in accordance with the Mercantile System of Accounting. Thereafter, the order giving effect to the order of the ld. CIT passed u/s 263 of the Act was passed by the Assessing Officer on 26.02.2010, i.e. the very next day, adding the amount of arbitral award of Rs.990 lakhs to the income of the assessee. Against this order giving effect to the order of the ld. CIT, the assessee filed an appeal on 12.03.2012 before the ld. CIT(A) who dismissed the assessee’s appeal holding it non-maintainable since the order passed by the Assessing Officer was CA. Sanjay R. Shah [email protected] Unreported Judgements
636 Ahmedabad Chartered Accountant Journal January, 2024 simply to give effect to the findings of the ld. CIT and, as per the ld. CIT(A), no appeal lay against such appeal effect order passed by the Assessing Officer. Aggrieved by this order of the ld. CIT(A) dated 09.08.2012, the present appeal has been filed before Tribunal after a delay of 2359 days on 26.03.2019. 2. The Appellant adduced following reasons in its application for condonation of delay in filing appeal. (1) The appellant MSK Project (India) JV Limited now merged with Madhav Infra Projects Ltd filed return of income for A Y 2005/06 declaring loss of Rs. 48, 82, 805/- that was accepted & assessed u/s 143(3) of the Act. (2) Subsequently in order u/s 263 passed on 25.02.2010 ld. CIT holding order to be erroneous & prejudicial to the interest of revenue directed AO to pass fresh order to include claim receivable of Rs.9,90,00,052/- by the appellant company from Rajasthan Government as taxable income on mercantile basis. (3) That AO in order giving effect to the order u/s 263 of the Act made addition of Rs.9,90,00,052/- being the amount of Arbitral Tribunal Award and raised demand of Rs.2,10,58,532/- payable by the appellant. (4) That the award of Arbitral Tribunal was set aside by Hon’ble Supreme Court & only an amount of Rs. 26.34 lakhs along with interest was confirmed to be payable to the appellant company. (5) Although amount of Rs. 26.34 lakhs has been confirmed to be payable by Rajasthan Government by the Supreme Court to the appellant, till date no payment is received by the appellant. The recovery suit is already filed in the district court at Jaipur. As such the matter is yet judicial. (6) That meanwhile appeal against order giving effect to order u/s 263 of the Act was dismissed by ld. CIT (A) - III, Baroda vide order dated 09.08.2012. (7) That the appellant filed application u/s 155(16) of the Act on 28/11/2018 before Dy. Commissioner of Income Tax, Central Circle - 1, Vadodara to amend the order giving effect to order u/s 263 of the Act under the developments occurred as stated under Para 4 & 5 after receiving the order u/s 263. (8) That the appellant while in pursuance of proceedings before Arbitral Tribunal, Rajasthan High Court as well Supreme Court filed application u/s.155 (16) of the Act & was under bona fide belief that amendment will be made, appeal before the Hon’ble ITAT, Ahmedabad remained to be filed within 60 days from receipt of appellate order. (9) That the communication rejecting application u/s.155 (16) of the Act was received on 16.03.2019, the appellant has immediately approached Advocate to prepare appeal challenging order of ld. CIT (A) dismissing the appeal. Hence appeal could not be filed within 60 days of receipt of the CIT (A) order. 3. The Counsel for the assessee argued for condonation of delay on the following four grounds: (i) there was a reasonable cause for the delay; (ii) there was no gross negligence on the part of the assessee; (iii) there was no lack of bona fides of the assessee and (iv) the condonation of delay was sought on the ground of advancement of substantial justice. 4. The contention of the ld. Counsel for the assessee with respect to the above was that the Unreported Judgements
Ahmedabad Chartered Accountant Journal January, 2024 637 award of the Arbitral Tribunal was contested by the Rajasthan Government and had not attained finality with the matter travelling to the Hon’ble High Court who had reduced the quantum of the award and thereafter travelling upto Hon’ble Supreme Court who had ultimately restored the determination of the award back to the Arbitral Tribunal. That the assessee had contended before the ld. CIT in proceedings u/s.263 of the Act that since the award had not attained finality and was in challenge, therefore the same was not offered to tax; and going ahead with this belief, the assessee had made an application to the Assessing Officer to reduce the quantum of addition in accordance with the provisions of Section 155(16) of the Act after the final award was made by the Arbitral Tribunal in 2015 against which the assessee had sought execution of the award from the Sessions Court and ultimately in 2017 the District Court had dismissed u/s 34. It was contended that only when this application was rejected by the AO in March 2019 and the assessee had exhausted the remedy available to it as per its understanding of the fact situation and the law applicable to it, that the assessee pursued the alternate remedy of appeal against the order passed by the ld. CIT(A) in appeal in the appeal effect order passed by the AO and hence the delay of 2359 days. 5. The other contentions of the learned Counsel for the assessee were following: (i) There was no gross negligence on the part of the assessee since the assessee maintained that the said receipt was taxable only when the award attained finality and the assessee had correctly followed the course provided in law of filing application to the AO u/s 155(16) of the Act. (ii) The Appellant had adequately demonstrated its bona fide and so could not be charged with being completely negligent or gross inaction in filing the appeal before the Tribunal. (iii) The Appellant was waiting for the ultimate outcome of the arbitral award and had moved to the AO after the same. (iv) Even on the merits of the case as per the findings of the learned CIT in his order u/s.263, the arbitral award was taxable in Asst. Year 2004-05 and not in the impugned Asst. Year 2005-06. (v) If the delay in filing the appeal is not condoned, it would cause grave injustice to the assessee who would be required to pay tax merely for being negligent when admittedly the award or income added by the AO was not taxable in this year. 6. The Counsel of the Appellant also relied on the following decisions: (i) Ramlal v. Rewa Coalfields Ltd. [AIR 1962 SC 361 : (1962) 2 SCR 762] (ii) Shakuntala Devi Jain v. Kuntal Kumari [AIR 1969 SC 575 : (1969) 1 SCR 1006] (iii) Concord of India Insurance Co. Ltd. v. Nirmala Devi [(1979) 4 SCC 365 : 1979 SCC (Cri) 996 : (1979) 3 SCR 694] (iv) Mata Din v. A. Narayanan [(1969) 2 SCC 770 : (1970) 2 SCR 90] (v) Collector (LA) v. Katiji [(1987) 2 SCC 107 : 1989 SCC (Tax) 172] 7. On the other hand, the learned D.R. vehemently objected to the condonation of delay stating that, there was no merit in the contention advanced in support of the condonation of delay. The Tribunal, after considering the rival contentions, held as under: Held: 13. We have heard the arguments of both the parties at length and have gone through the facts of the case as pointed out to us from the orders passed by various Revenue authorities leading to the Unreported Judgements
638 Ahmedabad Chartered Accountant Journal January, 2024 present appeal before us. Considering the facts of the case as pointed to us by both the parties, we find it a fit case for condoning the delay of 2359 days in filing of the present appeal before us. The explanation of the assessee for the delay that it was pursuing an alternative remedy in law as per its bona fide belief appears to ring true to us. Undoubtedly, the ld. CIT in his order passed u/s 263 of the Act had found the amount of arbitral award granted to the assessee of Rs.990 lakhs as taxable on the grant of award. The assessee had pleaded before him that since the award had been contested by the Government of Rajasthan, therefore, until it attained finality the assessee had no right to receive the same. Therefore, it had not offered to tax and also believed the same to be taxable only on the award attaining finality. Harbouring this belief, the facts reveal that the assessee went to the AO in 2018 seeking rectification in terms of provisions of Section 155(16) of the Act when the award finally attained finality in FY 201718 on 17.08.2017. It was only when this application of the assessee u/s 155(16) was dismissed by the AO that the assessee finding itself remediless filed the present appeal before us. Besides, the assessee has filed copy of final award by the Arbitral Tribunal granting award of Rs.990 lakhs pointing out that the said order was passed on 01.12.2003. As per the Ld. CIT’s finding in the order passed u/s 263 of the Act, the same was taxable in the year of award and therefore the addition pertained to AY 2004- 05 while the present assessment year before us is AY 2005-06. We agree with the Ld. Counsel for the assessee that if the delay is not condoned, it may result in gross injustice to the assessee by making an allegedly grossly unjustified addition in the hands of the assessee in the impugned year. 14. We find that even if considering that the course adopted by the assessee on the matter of taxability of award of arbitration was an incorrect course in law, waiting for the final award and then filing an application seeking rectification by the AO u/s 155(16) of the Act, but surely the assessee was proactively pursuing this issue. The assessee, we find, has not been negligent and is neither lacking bona fides for explaining the huge delay before us. Therefore, finding sufficient and reasonable cause for delay, we consider it fit to condone the delay of 2459 days in filing the present appeal before us and entertain the appeal of the assessee.” 8. The Tribunal also relied upon the decisions of Hon’ble Supreme Court in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353 and N. Balakrishnan Vs. M. Krishnamurthy and held that the Hon’ble Courts are unanimous in their approach to propound that whenever the reasons are assigned by the applicant for explaining the delay, then such reasons are to be construed with a justice oriented approach, and in view of the findings reproduced earlier that the assessee had adduced sufficient bona fide cause for the delay, and was neither lax nor negligent in pursuing its case, the delay in filing the present appeal was condoned. ❉ ❉ ❉ Unreported Judgements
Ahmedabad Chartered Accountant Journal January, 2024 639 Orders / Notices / Communications without Document Identification Number (DIN) are invalid, illegal and non-est: Part-2. M/s. Sutherland Global Services Inc. vs ACIT (IT(TP)A No.27/CHNY/2023) 20. We have heard both the parties, perused materials on record and gone through the orders of the authorities below. We have alsocarefully considered the circular issued by the CBDT vide Circular No.19/2019 dated 14.08.2019 along with certain judicial precedents which have dealt the issue. The core issue arises for our consideration from this batch of appeals is validity of order passed by the income-tax authorities without generating computer-based ‘Document Identification Number’ and quoted in the body of the order as required by Circular No.19/2019 dated 14.08.2019. To resolve the issue, it is necessary to read the circular issued by the CBDT in true letter and spirit. The CBDT has through Circular No.19/2019 made it compulsory that on and from 01.10.2019, a DIN has to be duly allotted and quoted in the body of all communication. The significance of generation of Document Identification Number has been explained in paragraph-1 of said circular, as per which, in light of various instances of communication being issued without a proper audit trial and also in order to move towards total computerization of its work, the CBDT introduced the concept of mandatory quoting of DIN on all communications issued by income-tax authority to the assessee or to any other person. Para 2 of said circular states that no communication shall be issuedby income-tax authority relating to assessment, appeals, orders, statutory or 29 Advocate Tushar Hemani [email protected] otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc., to the assessee or any other person on or after 1stday of October, 2019 unless a computer generated DIN has beenallotted and is duly quoted in the body of such communication. The consequences of nongenerating computer based DIN number andalso exception under which a manual communication may be issuedis also provided in para 3 of said circular. As per para 3 of said circular, in exceptional circumstances as mentioned therein, communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner / Director General of income-tax. Further, whenever any such manual communication has been issued, itwould be necessarily required to specify reason for issuing such communication without DIN along with the date of obtaining written approval from the competent authority in a particular format which shall be mentioned in the body of communication itself. Para 4 explains the consequences of communications issued which is not in conformity with para 2 and 3 and as per said para 4 of circular, any communication which is not in conformity with para 2 & 3 above, shall be treated as invalid and shall be deemed to have never been issued. The circular goes on to explain in para 5, the process of regularization of manual communication issued without a valid DIN. Therefore, from the circular issued by the CBDT, it is undoubtedly clear that on and from 01.10.2019, any communication issued without a valid DIN and quoted in the body of the order is invalid and shall be deemed to have never been issued. Judicial Analysis
640 Ahmedabad Chartered Accountant Journal January, 2024 21. It is an undisputed fact that circulars issued by the CBDT are binding in nature for all income-tax authorities and this fact has been time and again emphasized by the Hon’ble Supreme Court inthe case of UCO Bank vs. CIT, reported in 237 ITR 889 and K.P. Varghese vs. ITO, reported in 131 ITR 597. Further, the significance and background of issuing Circular No.19/2019 dated 14.08.2019 also needs to be understand. As explained by the CBDT itself, withthe launch of various egovernance initiatives, Income-tax Department is moving toward total computerization of its work andthis has led to a significant improvement in delivery of services and has also brought greater transparency in the functioning of the tax administration. However, it has been brought to the notice of the CBDT that there have been some instances in which the notice, order, summons, etc., were found to have been issued manually without maintaining a proper audit trial of such communication. Inorder to prevent such instances and to maintain proper audit trail of all communication, the Board in exercise of power u/s.119 of the Act, had decided that no communication shall be issued by any incometax authority to the assessee or any other person on orafter the 1st day of October, 2019 unless a computer-generated Document Identical Number has been allotted and is duly quoted inthe body of such communication. Further, introduction of DIN system in tax administration was pursuant to the directions of the Hon’ble Prime Minister of India which is evident from press release dated 01.10.2019 issued by the Ministry of Finance. Further, the FAQ issued by the Income-tax Department on authentication ofnotice, inter-alia, provides that in a case where the ITD notice / order does not bear a DIN, said notice/order received by the taxpayer shall be treated as invalid and non-est in law or deemed to be as if it has never been issued. This fact is further strengthened by the press release dated 14.08.2019 issued by the Ministry of Finance which categorically states that every communication from the Income-tax Department must contain a DIN. Therefore, if you understand Judicial Analysis the background and significance of issuing a circular mandating generating DIN in all communications from certain date, one has to go by the letter and spirit of circular issued by the CBDT without any second thought. This fact is also further strengthened by the decision of Hon’ble Supreme Court in the case of Pradeep Goyal vs. Union of India reported in [2022] 141 taxmann.com64(SC), where the Hon’ble Supreme Court has issued suggestion to the Government, for the necessity of implementing the system for electronic generation of Document Identification Number in all communications sent by the tax authorities. Therefore, we are ofthe considered view that going by the law on the issue of mandatory nature of circular issued by the CBDT and its significance, there isno doubt of whatsoever with regard to present circular issued by the CBDT dated 14.08.2019 on generation of computer-based DIN andquoting such DIN in the body of the order. 22. In the present batch of appeals, there is no dispute with regard to fact that none of the communications issued by the income-tax authority is having computer-generated DIN number and quoted in the body of the order. Although, the Revenue claims that in all communications issued by the Department, a valid DIN has been generated and communicated to the assessee either onthe same day or next day, but fact remains that in the body of the order DIN in quoted. The ld. ASG has filed a chart explaining the manner in which DIN has been generated in each and every communication issued by the income-tax authority in all these cases and explained that a communication has been sent to the assessee intimating generation of DIN for the impugned orders. Therefore, he submitted that the Department has complied with the mandatory conditions of Circular No.19/2019. We have gone through the chart submitted by the ld.ASG and we find that, in all these cases DIN hasbeen separately generated either on the same day or next day orafter few days and communicated to the assessee by way of
Ahmedabad Chartered Accountant Journal January, 2024 641 separate intimation which is also having a valid DIN number. But fact remains that, whether this satisfies the requirement of Circular No.19/2019 or not has to be seen. To answer this question, it is crucial to ascertain the exact requirement of the circular, because if you go by the wording of circular, especially para 3, it is very clearthat in exceptional circumstances as specified therein, the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner / Director General of Income-tax. The communication issued under aforesaid circumstances shall state the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the competent authority for issue of manual communication in a specified format in the body of said communication. Therefore, to comply with the provisions of circular, every income-tax authority is required to satisfy the twin conditions i.e., a) allot DIN and b) quote such DIN inthe body of the communication. If DIN is not generated and quotedin the body of the communication, then reasons for non-generating and quoting DIN should be specified in a particular format in the communication itself. In all these cases, computer-generated DIN has not been quoted in the body of the order. Although in fewcases, a handwritten DIN is quoted in the body of the order, but itwas explained by the counsels of the assessee’s that if you authenticate the document by using said DIN number, the incometax database shows an error ‘no record found for the given document number’. Although, the Department has contended that ina case where DIN has been separately generated and/or communicated, it would be sufficient compliance of the impugned circular, in our considered view, the requirement of impugned circular is to allot and quote DIN in the body of the communication but not generation and communication of DIN by separate intimation. Therefore, we are of the considered view that the Department has not complied with the conditions of Circular No.19/ 2019. We, further are of the opinion that when a statute describes or requires a thing to be done in a particular manner, it should be done in that manner or not at all. 23. At this stage, it is relevant to consider various decisions on this issue. The Hon’ble Delhi High Court in the case of CIT vs. Brandix Mauritius Holdings Ltd., supra, has considered an identical issue inlight of circular issued by the CBDT and held that whenever communications are issued in the circumstances alluded to in paragraph 3(i) to 3(v) without a DIN, they require to be backed by the approval of the competent authority. The manual communication is required to furnish the reference number and the date when the approval was granted by the concerned officer. The formatted endorsement which is required to be engrossed on such amanual communication should be in a specified format provided in para 3 of said circular itself. The Hon’ble Calcutta High Court in the case of PCIT vs. Tata Medical Centre Trust, reported in 154taxmann.com 600 held that DIN was generated separately and communicated to the assessee along with the order passed u/s.263 of the Act, is not a sufficient compliance of requirement of the circular. The ITAT, Delhi Benches in the case of Abhimanyu Chaturvedi vs. DCIT in ITA No.2486/Del/2022, also held that generation of DIN subsequent to passing the assessment order and communication thereafter by a separate intimation letter is of no consequence and that the requirements of the circular are not satisfied. A similar view has been expressed by various Benches of this Tribunal and held that the requirement of circular is to generatea computer-based Document Identification Number and duly quotein the body of such communication. The ITAT, Delhi Benches in the case of Toyota Micromatic Machinery Pvt. Ltd., vs. DCIT, in ITA No.849/DEL/2022 held that simultaneous issue of DIN is an in significant exercise, in the absence of mentioning DIN number onthe body of the order/directions. Similar view has been taken by ITAT, Delhi Benches in the case of Harish Gupta vs. DCIT in ITANo.1229/DEL/2023, where it has been held that absence of a DIN on the body of the assessment order rendered it invalid. If that Judicial Analysis
642 Ahmedabad Chartered Accountant Journal January, 2024 condition is not satisfied, then subsequent generation of DIN eitheron same day or next day or communicated to assessee by way of separate communication does not satisfy the requirement ofcircular. Therefore, we are of the considered view that any communication issued by the income-tax authority without a valid computer-generated DIN and is duly quoted in the body of such communication is treated as invalid and shall be deemed to havenever been issued. In this batch of appeals, there is no dispute with regard to fact that in all orders issued by the AO/DRP, there is novalid computergenerated DIN has been allotted and is duly quotedin the body of the order and thus, in our considered view, the requirement of para 3 of Circular No.19/2019 is not satisfied and consequently, the orders issued by the AO/DRP are invalid, non-est and shall be deemed to have never been issued. 24. Insofar as the arguments of ld.ASG on handwritten DIN in thebody of the orders, although the ld. ASG argued that quoting wrong DIN number in the body of the order is only a human error for which the entire proceedings cannot be treated as void and ab-initio, butwe find that what is required as per Circular No.19/2019 is generation of computer-based Document Identification Number and quoting in the body of the order. In our considered view, such requirement is not satisfied and consequent generation of DIN number, subsequently and handwritten in the body of the order whether the DIN number of impugned order or the communication does not satisfy the conditions and accordingly, the arguments of the ld. ASG is rejected. 25. Coming back to the case law relied upon by the Revenue. The revenue relied upon the decision of Hon’ble High Court of Madras in the case of Texmo Precision Castings UK Ltd., vs. CIT, reported in 288 Taxman 251. We find that said decision has not dealt the issuein light of paragraph 3 & 4 of Circular No.19/2019 and has directly dealt with paragraph 5 of the impugned circular, which deals with regularization of orders which are issued without quoting DIN thereon, due to exceptional circumstances mentioned in paragraph 3 of said circular. In our considered view, the Hon’ble Madras High Court did not consider paragraph 3 & 4, which is very crucial where it has specified the exceptional circumstances under which a manual communication can be issued but subject to certain conditions. Inthe facts of present case, no exceptional circumstances as described in para 3 of the impugned circular are mentioned in the directions issued by the DRP/AO. Therefore, in our considered view, the ratiolaid by the Hon’ble Madras High Court is not applicable to the factsof the present case. The Hon’ble Madras High Court has merely considered para 5 & 7 of the impugned circular, whereas in all other cases, the issue has been thoroughly examined in light of para 2 & 4 of said circular which is very important to understand the issuance of manual communication without a valid DIN and circumstances under which such communications can be issued with certain conditions. Anyway, subsequent decision of Hon’ble High Court of Madras in the case of Ericsson India P. Ltd., vs. DCIT in Writ Petition No.14776/2020 and WMP No.18358/2020 dealing with similar circular issued under the indirect tax laws, has clearly held that non-generation/non-allotment of DIN is fatal to the communication itself, which invalidates the communication issued by the authority. Since,the subsequent decision of Jurisdictional High Court has considered the issue and held that any communication issued without a valid computergenerated DIN and is duly quoted in the body of the order is invalid and shall be deemed to have never been issued, in our considered view, subsequent decision of Jurisdictional High Court needs to be followed and accordingly, the decision in the case of Texmo Precision Castings UK Ltd., is considered to be not applicable to the facts of the present case and ignored. The Revenue has alsorelied upon the decision of Hon’ble High Court of Jharkhand in the case of Prakash Lal Khandenwal vs. CIT, supra and Hon’ble High Court of Allahabad in the case of Judicial Analysis
Ahmedabad Chartered Accountant Journal January, 2024 643 Chandra Bhan vs. Union of India. We find that the issue before the Hon’ble High Court of Jharkhand isnotice issued without a valid DIN for which the assessee has responded during the course of assessment proceedings. Similarly, the facts of case before the Hon’ble High Court of Allahabad are different and are not applicable to the facts of this case. Therefore, we reject the case laws relied upon by the Revenue. 26. In the present case, there is no dispute with regard to fact that mandatory requirement of generating a computer-based DIN has not been allotted and is duly quoted in the body of the order issued by the AO/DRP. Subsequent generation of DIN either on the same day or next day and intimated to the assessee or other person byway of separate communication does not satisfy the conditions ofpara 3 & 4 of said circular. Therefore, we are of the considered viewthat any communication issued by the income-tax authority, in the present case, the AO/ DRP without a valid computer-generated DIN and is duly quoted in the body of the order is invalid, non-est and shall be deemed to have never been issued. 27. Having said so, let us come back to various averment made by the Revenue on the issue. First and fore most argument taken by the Revenue is that directions issued by the DRP is an internal communication and non-generation of DIN and is duly quoted in thebody of said order would not invalidate the assessment order passed by the AO. In our considered view, the argument of Revenue that DRP direction is an internal communication is wholly erroneous and devoid of merits. Further, as per section 144C(15) of the Act, directions issued by the DRP is not an internal communication, because said communication is served on the assessee to enable the assessee to file rectification if any, as per the provisions of the Act. Section 144C(5) of the Act, inter-alia, provides that the DRP shall, in a case where any objection is received by the eligible assessee, issue such directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment. On the basis of above sub-section, it has been contended by the Department that the purpose of the DRP direction is only for the guidance of the AO. In our considered view, said understanding of law is incorrect because sub-section (5) of section 144 indicates oneof the purposes of the DRP direction, but it does not indicate that such directions are internal communication. In this regard, it is relevant to consider the provisions of section 144C(14) of the Act, which empowers CBDT to make rules for the purposes of efficient functioning of the DRP. The CBDT has framed rules called theIncome-tax (Dispute Resolution Panel) Rules, 2009. Rule 11 of the Income-tax (Dispute Resolution Panel) Rules, 2009 provides that the DRP shall, after the directions are issued, communicate the same to the eligible assessee and to the AO. Further, Rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009 provides thatafter the issue of directions of the DRP, if any mistake or error is apparent in such direction, the DRP may, suomotu, or on an application from the eligible assessee or the AO, rectify such mistake or error and also direct the AO to modify the assessment order accordingly. On a conjoint reading of section 144C(5) of the Act with Rule 11 & 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, it is crystal clear that the directions issued by the DRPto the AO are not merely ‘internal communication’ but is an order/ communication which is issued to the eligible assessee. Assuming for a moment, the directions issued by the DRP are internal document within the Income-tax Department, the impugned circular would still be applicable and DIN must be allotted and quoted on the body of the directions as held by the Hon’ble Bombay High Court in the case of Ashok Commercial Enterprises vs. ACIT, reported in 154 taxmann.com 144, wherein the Hon’ble Bombay High Court held that the circular issued by the CBDT is applicable even to a satisfaction note prepared by the AO for invoking the provisions of section 153C of the Act. In this regard, it is relevant to consider the decision of ITAT, Pune Benches in the case of B.V.G. India Ltd., vs. DCIT in IT(SS)A Nos.11 to 16/PUN/2023, where it Judicial Analysis
644 Ahmedabad Chartered Accountant Journal January, 2024 has been held that approval granted by the Addl.CIT u/s.153D of the Act, cannot be said to be an internal document and hence, the requirement of DIN has to be complied with in respect of such approval. Therefore, we are of the considered view that the arguments of ld. DR that DRP communication is an internal communication is devoid of merit and thus, rejected. 28. The Department has taken another argument in light of provisions of section 116 of the Act. The revenue claimed that DRP is not an income-tax authority defined under the Act and circular issued by the CBDT is not applicable to DRP proceedings. We do notfind any merit in the arguments of the Revenue that DRP is not anincome-tax authority. Section 144C(15) of the Act defines ‘Dispute Resolution Panel’ to mean a collegium comprising of three Principal Commissioners or Commissioner of Income-tax constituted by the CBDT and thus, DRP is a collegium of three Commissioners, all of which are income-tax authorities as per section 116 of the Act. The term ‘collegium’ has not been defined under the Act and consequently, it should be understood by a dictionary meaning. Black’s Law Dictionary has defined the term ‘collegium’, which means ‘an association of at least three people having the right to assemble and enact rules concerning membership, organization and the rights and duties of members’. Webster’s Unabridged Dictionary defines, ‘collegium’ means ‘a group of ruling officials each with equal rank and power, especially that formerly administered a Soviet commissariat’. From the dictionary meaning of ‘collegium’, it is clearthat Dispute Resolution Panel is merely an association/group ofthree Principal Commissioner or Commissioner of Income-tax, all of which are defined as income-tax authority u/s.116 of the Act.Therefore, in our considered view, the argument of the Revenue that DRP is not an income-tax authority does not hold water. Further, section 116 of the Act, merely prescribes ‘class’ of the income-tax authority and does not provide exhaustive list of income-tax authority. There are various income-tax authorities functioning under the Act, such as High Pitch Assessment Committee, Interim Board for Settlement, Panel for General Antiavoidance Rules, Transfer Pricing Officer, etc, which are not listedu/s.116 of the Act. Nevertheless, they are income-tax authorities for the purpose of administering the provisions of the Act. These authorities discharge their duties in terms of respective CBDT circular issued u/s.119 of the Act. Therefore, we are of the considered view that DRP is an income-tax authority for the purpose of administering the provisions of the Act and consequently, the DRP would be bound to follow the circular issued by the CBDT. Further, the fact that DRP is an ‘income-tax authority’ for the purpose of administering the provisions of the Act is corroborated from section 117 & 119 of the Act. Section 117 of the Act, inter alia, provides that the Central Government may appoint such ‘persons; as it thinks fit to be income-tax authorities. Similarly, section 118 ofthe Act, provides that CBDT may direct that any incometaxauthority or authorities specified in the notification shall be subordinate to such other income-tax authority or authorities specified in such notification. In exercise of the powers conferredu/s.118 of the Act, the CBDT through notification have directed the Commissioner of Income-tax being members of Dispute Resolution Panel to be the sub-ordinate of another income-tax authority namely Chief Commissioner of Income-tax (International Taxation), Bangalore. Therefore, we are of the considered view that from the above it is clear that DRP is an income-tax authority and consequently, the panel would be bound to follow the circular issued by the CBDT. Assuming for a moment, the DRP is not an income-tax authority, still it is bound to follow the circular issued by the CBDTu/s.119 of the Act for the simple reason that instructions and directions issued by the CBDT are required to be observed and followed by every income-tax authority and all other persons employed in the execution of this Act. In our considered view, DRP would certainly fall within the purview of ‘all other persons employed Judicial Analysis
Ahmedabad Chartered Accountant Journal January, 2024 645 in the execution of this Act’ as envisaged u/s.119 of the Act and consequently, the impugned circular would also be required to be followed by the DRP. 29. The next argument taken by the Revenue is that circular issued by the CBDT does not apply to the orders communicated electronically. In our considered view, no such exception has been made out nor is any rationale available to make such distinction. Further, any order communicated through e-mail cannot become electronically communicated order automatically. In this regard, it is necessary to refer instruction issued by the Directorate of Income-tax (Systems) for the guidance/appraisal of all the field officers regarding the new functionality of auto generation of DIN for the order passed in ITD-AST. The new functionality inter-alia ensured that whenever the orders are passed on the ITD/AST application, the corresponding DIN for such orders was generated automatically on the ITD/AST application screen. However, in cases where orders have been passed manually and not through ITD application, similar instructions have been issued by the Directorate of Income-tax (Systems) vide its instruction No.Sytem/ITBA/ Instruction/Common Function/180/2019-20 dated 25.10.2019 and by virtue of the aforesaid instruction, a new functionality was developed for automatic generation of DIN in cases where the orders were issued manually outside the ITBA system. From the above, it is clear that the field officers of the Income-tax Department were equipped to allot and quote DIN on the body ofany communication issued to the assessee’s irrespective of whether the impugned order was generated online on the AST/ITD applications or manually. This fact is further strengthened by the fact that the ld. counsel for the assessee Shri M.P. Lohia appearingfor the assessee, M/s. Lakshmi Machine Works, has filed few sample copies of order passed by the DRP, Mumbai which contains a barcoded computer generated DIN allotted and is duly quoted in thebody of the order. From the above it is undoubtedly clear that the systems provide for generation of computer based DIN. Therefore, we are of the considered view that there is no merit in the argument of the Revenue that there is no integration between ITBA portal and DRP module and because of this, DRP is unable to generate DIN numbers when the order was passed. Accordingly, we reject the argument of the Revenue. 30. The Revenue had also taken another argument that DRP order cannot be challenged before ITAT and consequently non-generation/quoting of DIN in the body of the order does not in anyway invalidate such order. In this regard, we find that the proposition canvassed by the ld.DR is correct to the extent that the DRP order cannot be challenged before ITAT. But, what is challenged before ITAT is final assessment order, which is passed inpursuant to the directions of the DRP. If there is no valid DRP direction, the assessment order passed by the AO becomes time barred once the order of DRP has been held to be nonest. The AO gets extended time u/s.144C(13) of the Act, for passing final assessment order pursuant to the direction of the DRP. But for want of DIN, there is no valid DRP order, the extended time limit u/s.144C(13) of the Act for passing the final assessment order under the first proviso to section 153(2) of the Act, would not be applicable and consequently, the final assessment order passed by the AO is barred by limitation. Thus, in our considered view the argument of the revenue that DRP order is not appealable is incorrect and devoid of merit. 31. The Revenue had also taken one more argument that present appeal filed before the Tribunal is not maintainable, because when the assessee argued that order of the DRP is non-est, the final assessment order cannot be said to be the one passed pursuant tothe direction of the DRP. We do not find any merit in the arguments of the Revenue for the simple reason that, it is a well settled principle of law that an illegal order would be in operation till it is vacated or set aside by the competent court in appeal. Such anillegal Judicial Analysis Continued to page 648
646 Ahmedabad Chartered Accountant Journal January, 2024 CA. Kaushik D. Shah [email protected]. Issue Whether assessee is entitled to claim deduction of excise duty paid in advance against goods awaiting clearance ? Proposition It is to be noted section 43B was inserted in the Incometax Act, with effect from April 1, 1984. The relevant portion of the provision reads as under : “43B. Certain deductions to be only on actual payment Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) any sum payable by the assessee by way of tax, duty cess or fee, by whatever name called, under any law for the time being in force, or . . . shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.” Thus, controversy arises in respect of the excise duty paid in advance by the assessee. The procedure envisaged for payment of excise duty envisages such duty to be deposited in advance with the treasury before the goods are removed from the factory premises. The duty, thus, already stands deposited in the accounts of the assessee maintained with the treasury and the amount, thus, stands paid to the State. Since the advance deposit of central excise duty constitutes actual payment of duty within the meaning of Section 43B of the Central Excise Act and, therefore, the assessee should be entitled to the benefit of deduction of the said amount paid in advance as business expenditure. View against the proposition - The interpretation given by several Courts revolves around the use of the words ‘any sum payable’. The interpretation given to these words is that the amount payable in a particular year should also be statutorily payable under the relevant statute in the same year. Also since there was no liability incurred by the assessee for payment of the excise duty and the said payment was made only as an advance payment to be adjusted in the subsequent year when the actual liability to pay the excise duty would become due and as such, hence deduction should not be allowed. - Further, though levy of excise is on manufacture of excisable goods, actual payment of duty is at the stage of removal. The advance duty paid in the Personal Ledger Account (“PLA”) is adjusted/ debited from time to time, against clearances/ removal made by the assessee. Unless such clearances/removal are made and excise duty is debited from the advance deposit there is no actual payment of duty so as to entitle an assessee to the benefit of deduction under Section 43B of the Income Tax Act which contemplates deduction only against actual payment as distinguished from accrual of liability. - Furthermore, the said amount in deposit is akin to a loan and under the provisions of Central Excise Rules, part or whole of the said amount can be refunded to the assessee. It is further submitted that under Rule 21 of the Central Excise Rules, 1944, at any time before removal, the Commissioner or the other authorities prescribed therein may remit duty in respect of manufactured goods lost or Controversies
Ahmedabad Chartered Accountant Journal January, 2024 647 damaged or otherwise unfit for consumption or marketing. The amount of advance deposit, therefore, does not represent actual payment of duty so as to entitle an assessee to the benefit of deduction under Section 43B. - Section 43B has a non-obstante clause, under scoring that the deduction of specified sums hinges on their being “otherwise allowable under this Act.” This provision underscores that payments of taxes and duties cannot be considered as business expenditure solely based on payment; they must also conform to being “otherwise allowable” under the Income Tax Act, 1961. Despite the shift to Section 43B, the fundamental principle of accruing liabilities remains intact. While deductions are now contingent on actual payment, it is imperative that the corresponding liability was incurred by the assessee. Section 43B does not negate the principle of accrual but adds the condition that deductions are permissible only upon the actual payment of the amount. View in favour of the proposition - It is the practice followed by the assessee in claiming deduction for the balance amount in the PLA at the end of each accounting year and adding back the same as part of the taxable income in the immediately succeeding accounting year really makes the dispute between the parties academic as the revenue implication, in any event, is nil. - Deposit of Central Excise Duty in the PLA is a statutory requirement. The Central Excise Rules, 1944, specify a distinct procedure for payment of excise duty leviable on manufactured goods Under Section 3 of the Central Excise Act, the event for levy of excise duty is the manufacture of goods though the duty is to be paid at the stage of removal of the goods. Further as per provisions of Rule 173G of the Central Excise Rules, 1944, the advance deposit of central excise duty in a current account is a mandatory requirement from which adjustments are made, from time to time, against clearances effected. Though, sub-rule (1) (A) contemplates refund from the current account, such refund can be granted only on reasons being recorded by the concerned authority i.e., the Commissioner on the application filed by the assessee. Refund is not a matter of right. The amount deposited in the PLA is irretrievably lost to the assessee as the deposit once made is adjusted against the duty payable on removal and the balance is kept in the account for future clearances/removal. Payment of central excise duty takes place at the time of deposit in the PLA, though the deposit is on the basis of an approximation and the precise amount of duty qua the goods removed is ascertained at the stage of removal/clearances. The said facts would not make the deposit anything less than actual payment of duty. - Further the very same issue had been decided in favour of the assessee by two High Courts i.e. Delhi High Court in C.I.T. vs. Maruti Suzuki India Ltd. and Punjab & Haryana High Court in C.I.T. vs. Happy Forgings Ltd. and C.I.T. vs. Raj and San Deeps Ltd. - Reliance can also be placed on the decision of the Calcutta High Court reported as Paharpur Cooling Towers Ltd. v.CIT[2012] 208 Taxman 198 (Cal) (Mag.)/21 taxmann.com 307 (Cal.) in that case, held that there was no intention of the legislature to deprive an Assessee of the benefit of deduction of tax, duty actually paid by him during the previous year, even though in advance, according to the method of accounting followed by him. It was also argued that if the revenue’s contentions were to be accepted, the assessee would not also get the benefit of payment of tax, since it was actually paid in the previous period. In support, also the ruling of the Allahabad High Court in CITv. C.L. Gupta & Sons [2003] 259 ITR 513/126 Taxman 500 be relied. - Hence, the object of the legislature is to give the benefit of deduction of tax, duty, etc. only on payment of such amount liability of which the assessee had incurred and not otherwise. Thus, even if the tax or duty is payable in the next year in view of the system of accounting followed by the assessee, if the liability was ascertained in the previous year and the tax was also paid in the said Controversies
648 Ahmedabad Chartered Accountant Journal January, 2024 previous year, there is no scope of depriving the assessee of such benefit. Summation In case of CIT v. Modipon Ltd., Supreme Court Of India has also relied on the view taken by Delhi High Court that the purpose of introduction of Section 43B of the Central Excise Act was to plug a loophole in the statute which permitted deductions on an accrual basis without the requisite obligation to deposit the tax with the State. Resultantly, on the basis of mere book entries an assessee was entitled to claim deduction without actually paying the tax to the State. Having regard to the object behind the enactment of Section 43B and Continued from page 645 Judicial Analysis order can be corrected in appeal, but so long as it is not setaside in appeal, it remains an order having its own statutory force. This principle is supported by the decision of Hon’ble High Court of Andhra Pradesh in the case of Bhikajee Dadabhai & Co., vs. CIT, reported in [1958] 33 ITR 760. Further, the Hon’ble supreme courthas upheld the legal position canvassed by the Hon’ble High Courtof Andhra Pradesh in the case of Bhikajee Dadabhai & Co., vs. CIT, reported in [1961] 42 ITR 123(SC). Therefore, we are of the considered view that impugned orders passed by the AO/DRP would be in operation having its own statutory force till it is vacated or setaside in appeal. Thus, we reject the arguments of the Revenue. 32. In this view of matter and considering facts and circumstances of these cases and also by following ratios of various decision cited herein above, we are of the considered view that orders passed bythe DRP/AO without a valid computergenerated Document Identification Number has been allotted and duly quoted in the body of such order is invalid, non-est and shall be deemed to have never been issued. However, the preceding discussions, it would be consistent to hold that the legislative intent would be achieved by giving benefit of deduction to an assessee upon advance deposit of central excise duty notwithstanding the fact that adjustments from such deposit are made on subsequent clearances/ removal effected from time to time. I humbly conclude that the advance payment of excise duty should be eligible for the deduction, considering it as a valid and justifiable business expenditure. ❉ ❉ ❉ as per section 144C(13) of the Act, the AO has to pass the final assessment order in conformity with the directions issued by the DRP within one month from the end of the month in which such direction is received. In all these cases, the DRP directions are held as invalid and deemed to have never beenissued, being in violation of Circular No.19/2019. Once the DRP directions are deemed to have never been issued, the ld.AO couldnot have passed the final assessment orders u/s.144C of the Act, in pursuance to such non-est directions. Thus, final assessment orders passed u/s.144C(13) r.w.s. 143(3) of the Act in pursuant to invalid, non-est DRP directions is bad in law, void ab-initio and accordingly liable to be quashed. Accordingly, we quash the final assessment orders passed by the AO for all these assessment years and in all assessee’s cases. Accordingly, we allow the additional ground of appeal filed by the assessee’s. ❉ ❉ ❉ Controversies
Ahmedabad Chartered Accountant Journal January, 2024 649 Taxability of capital gains in respect of contingent consideration – An unsettled position 1. Background : - “Contingent consideration” or an “Earn-Out consideration” is a form of consideration where acquirer apart from paying fixed / agreed consideration also agrees to pay an additional consideration to the sellers if certain event occur / certain conditions are fulfilled in future. - In today’s convoluted acquisitions scenario, contingent consideration / earn-out has become more prevalent. There are multiple deals wherein the consideration payable to counter party is kept contingent upon achievement of various conditions by the target company (such as achieving prescribed turnover thresholds, EBITDA thresholds, EBIT, KPIs relating to operational productivity etc.). - Contingent considerations can be structured for variety of period (such as months or years) and they may include one or many milestone.One element that’s consistent in almost all contingency linked payment is capping the maximum payment to protect the buyer from unlimited liability. - Taxability of such contingent consideration / earnout consideration and year of trigger of taxation charge in respect of contingent consideration / earn-out consideration has been a matter of litigation before various courts and tribunals. - In the light of this background, we have summarized possible thoughts on taxability and year of taxation of contingent consideration. Hope you find this article interesting. 2. Illustrative fact pattern : - Mr. X holds a 20% stake in A Ltd.; - Mr. X is contemplating to transfer 20% stake held in A Ltd. to ABC Ltd. for an arm’s length commercial consideration; - The consideration is structured in below manner: o Rs. 100 upfront at the time of transfer of shares; and o An additional amount of Rs. 20 to be received in Year 20XX provided A Ltd. achieves EBITDA of Rs. XXX in year 20XX. - The limited issue which is subject matter of discussion in the present article is regarding taxability of such contingent consideration and timing of taxation of such contingent consideration as per the provisions of Incometax Act, 1961 (the Act). 3. Discussion : - Sub-section (1) of section 45 of the Income-tax Act, 1961 (the Act) provides that any profits or gains arising from the transfer of a capital asset in the previous year; o shall be chargeable to income-tax under the head “Capital gains”; and o shall be deemed to be the income of the previous year in which the transfer took place. - Accordingly, the fiction of section 45(1) deems the income chargeable to tax under the head “Capital gains” to be income of the previous year in which the transfer took place viz. the vesting of title takes place. Therefore, such capital gains income is assessed in the assessment year FEMA & International Taxation CA. Dhinal A. Shah [email protected] CA. Hardik Khatri [email protected]
650 Ahmedabad Chartered Accountant Journal January, 2024 corresponding to the previous year in which transfer takes place. Practically, no transfer can be said to be affected until all formalities for vesting of the title in the transferee are completed. - Considering the above provisions, dilemma arises in a scenario where the consideration includes contingent portion, which is receivable, say, after a year or two, subject to fulfillment / achievement of specified conditions. Entire amount of sales consideration (including the contingent consideration is taxable in the year of transfer : - In the illustrative fact pattern mentioned above, the tax department would like to tax the entire amount of consideration received and receivable (i.e., including the amount of contingent contingent) by the taxpayer in the year of transfer itself. In this regard, the tax department may rely on the judgment of Hon’ble Delhi High Court in the case of Ajay Guliya (IT Appeal No. 423 of 2012) which upheld the view of Hon’ble Authority of Advance Ruling and held that entire of capital gains would be chargeable in the year of transfer even though certain portion of the consideration was contingent and receivable in succeeding years upon fulfilment of certain conditions. - In the case of Ajay Guliya (supra), the sale consideration under the share purchase agreement for the transfer of shares of the Indian company comprised of two components : (1) fixed amount of $ 23,00,000 payable in lump sum (referred to as the closing payment) and (2) certain payments payable by prescribed dates (referred to as “contingent payments”). Such contingent payments were not to be paid unless aggregate Earnings Before Interest, Tax, Depreciation Allowance (EBITDA) of the business for the applicable period equaled or exceeded the contingent cumulative threshold EBITDA. Further, if the aggregate EBITDA exceeds the applicable cumulative threshold EBITDA, the payment was to be determined in the manner indicated in the share purchase agreement. - Considering the above facts, Hon’ble Delhi High Court held that there was no material on the record or in the agreement which suggested that even if the entire consideration or part is not paid the title to the shares will revert to the seller. The controlling expression of ‘transfer’ was conclusive as to the true nature of the transaction. The fact that the assessee adopted a mechanism in the agreement that the transferee would defer the payments would not in any manner detract from the chargeability when the shares were sold. Consequently, entire amount of capital gains was held to be taxable in the year of transfer itself (irrespective of its actual accrual). In nutshell, it was held that merely because the agreement provides for payment of the balance of consideration upon the happening of certain events, it cannot be said that the income has not accrued in the year of transfer. - A view similar to Delhi High Court has been taken by Hon’ble Madras High Court in the case of Caborandum Universal Ltd. (T.C. Appeal No.1112 of 2010) and Hon’ble Chennai Tribunal in the case of T.A. Taylor (P.) Ltd. (IT Appeal No. 622 of 2017). In both the cases, entire sales consideration (including the contingent portion) was kept in the escrow account which was to be released upon fulfilment of prescribed conditions. The amount of contingent consideration is taxable in the year of receipt : - The taxpayer may like to adopt a position that contingent consideration is not accrued till the prescribed conditions are fulfilled and consequently, such contingent consideration would be taxable in the year of actual accrual / receipt (instead of year of transfer). - In this regard, the judgment of Hon’ble Bombay High Court in the case of Hemal Raju Shete (IT Appeal No. 2348 of 2013) supports the view of taxpayer. Hon’ble Bombay High Court harped on the real income theory and considered the judgment of Hon’ble Supreme Court in the case of Morvi Industries Ltd. (82 ITR 835), E.D. FEMA & International Taxation
Ahmedabad Chartered Accountant Journal January, 2024 651 Sassoon & Co. Ltd. (26 ITR 27), Shoorji Vallabhdas & Co. (46 ITR 144) and K.P. Varghese v. ITO (131 ITR 597). - Relying on the judgment of Bombay High Court in the case of Hemal Raju Shethe (supra) following argument can be made taxpayer to support their contention: o Only when the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on it being ascertained. The basic conception is that he must have acquired a right to receive the income [E.D. Sassoon & Co. Ltd. (supra)]; o The moment the income accrues, the taxpayer gets vested right to claim that amount, even though not immediately [Morvi Industries Ltd. (supra)]; o Tax can be levied on the income. If there is no accrual of income, tax cannot be levied [Shoorji Vallabhdas & Co. (supra)]; o Capital gain provisions are to be read along with computation provision and the starting point of the computation provision (i.e., section 48) is the full value of the consideration received or accruing. o Considering that the contingent consideration is neither received / accrued, the same cannot be brought to tax in the year of transfer. It is only when such consideration is accrued / received that the computation provisions will come into effect. - A similar view has been taken by Hon’ble Bombay High Court in the case of Dinesh Vazirani (Writ Petition No. 2475 of 2015) and Mumbai Tribunal in the case of Universal Medicare (P.) Ltd. (IT Appeal No. 4418 / Mum / 2016). - As an extreme and outlier view, taxpayer may also wish to argue that on combined reading of section 45(1) and section 48, one could comprehend that capital gains chargeable to tax in the previous year when transfer takes place and is required to be computed as per provisions of section 48 of the Act. In the year of accrual / receipt of contingent consideration, no tax charge is triggered under section 45 of the Act. Accordingly, section 48 cannot be applied independently without trigger of charging provision and hence, entire amount of contingent consideration may not be taxable. - Another view which merits attention is that section 45 deems that profit and gains from transfer of capital assets is taxable in the year of transfer. Accordingly, a possible view may arise that, while contingent consideration does not accrue in the year of transfer, the moment contingent consideration is received its taxability relates back to the year of transfer. However, presently, there is no mechanism to revise the return of income beyond prescribed time limits. Also, interest consequences may arise, if the said view is adopted. 4. Conclusion : - The above discussion highlights the contentious nature of the issue. Considering that judiciaries are divided in their views, the taxpayer would need to take an calculated and well-informed decision considering the possibility of high rise litigation. Hope you found this article interesting. This article is for information purpose only and not a conclusive appraisal of all advancements in the legislation. This article is written with a view to incite the thoughts of a reader who could have different views of interpretation. Disparity in views, would only result in better understanding of the underlying principles of law and lead to a healthy debate or discussion. While judicious upkeep has been ensured, reliance should not be placed on the contents of this article without obtaining fact specific consultation from the advisors. ❉ ❉ ❉ FEMA & International Taxation
652 Ahmedabad Chartered Accountant Journal January, 2024 International Trade Settlement in Indian Rupees (INR) – Opening of additional Current Account for exports proceeds The Reserve Bank of India issued the following directions with respect to A.P. (DIR Series) Circular No.10 dated July 11, 2022, in terms of which an additional arrangement has been put in place for invoicing, payment, and settlement of exports/imports in INR through Special Rupee Vostro Accounts of the correspondent bank/s of the partner trading country maintained with AD Category-I banks in India. Further, RBI drew the attention of AD Category-I banks to Para 4.1 of circular DOR.CRE.REC.23/21.08.008/ 2022-23 dated April 19, 2022 on Opening of Current Accounts and CC/OD Accounts by Banks. In terms of this provision and in order to provide greater operational flexibility to the exporters, AD Category-I banks maintaining Special Rupee Vostro Account as per the provisions of the Reserve Bank circular dated July 11, 2022 referred above are permitted to open an additional special current account for its exporter constituent exclusively for settlement of their export transactions. Source:RBI/2023-2024/86FED Circular No.08, dated November 17, 2023 For full text refer:https://www.rbi.org.in/scripts/ BS_CircularIndexDisplay.aspx?Id=12568 CIMS Project implementation - Discontinuation of submission in legacy XBRL RBI issued the following directions with respect to A.P. (DIR Series) Circular No. 103 dated April 03, 2012 and of A.P. (DIR Series) Circular No. 30 dated September 15, 2014 in terms of which, AD Category-I banks were required to submit the following statements on XBRL site – i. Statement on half yearly basis (end March/end September) showing the quantity and value of gold imported by the nominated banks/ agencies/ EOUs/ SEZs in Gem & Jewellery sector, mode of payment-wise, ii. Statement on monthly basis showing the quantity and value of gold imports by the nominated agencies (other than the nominated banks)/ EOUs/ SEZs in Gem & Jewellery sector during the month under report as well as the cumulative position as at the end of the said month beginning from the 1st month of the Financial Year. It has now been decided to discontinue submission of the return through the XBRL system and shift to Centralised Information Management System (CIMS), Bank’s new data warehouse for data collection, with effect from December 26, 2023. AD Category-I banks have already been on boarded on CIMS portal and are currently undertaking parallel submission of the return on both XBRL site as well as CIMS portal. The returns have been named ‘Import of gold by EOUs, units in SEZ/EPZ and nominated agencies(M)’, ‘‘Import of gold by EOUs, units in SEZ/EPZ and nominated agencies(HY)’ and has been assigned return codes- ‘R132’ & ‘R133’ respectively on CIMS portal. Accordingly, AD Category-I banks shall upload the two statements as mentioned at para 1 (i) and (ii) on CIMS portal (URL: https://sankalan.rbi.org.in) with effect from December 26, 2023. In case no data is to be furnished, AD Category-I banks shall upload a ‘NIL’ report. The directions contained in this circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law. Source:RBI/2023-24/94A.P. (DIR Series) Circular No.12, dated December 22, 2023 For full text refer:https://www.rbi.org.in/scripts/ BS_CircularIndexDisplay.aspx?Id=12576 ❉ ❉ ❉ CA. Dr. Savan R. Godiawala [email protected] 15 FEMA Updates 16
Ahmedabad Chartered Accountant Journal January, 2024 653 [I] IMPORTANT CASE LAWS: [1] Issue: Appeal shouldn’t have been rejected since assessee had sufficiently explained reasons for delay in filing appeal: HC (Rajasthan): Case Laws: Marudhar Medical Store v. Assistant Commissioner [2023] 157 taxmann.com 369 (Rajasthan) Facts: The GST Registration of the Petitioner was cancelled and it filed appeal against cancellation of the GST registration. The Appellate Authority dismissed the appeal on the ground that the appeal filed by the petitioner was time-barred. It filed writ petition and contended that the appeal was dismissed by the Appellate Authority without considering the grounds of delay submitted by it. HELD: The Hon’ble High Court noted that the petitioner failed to file the appeal within limitation since he was out of station during that period. The reason was mentioned in the appeal but the Appellate Authority without considering the said ground had dismissed appeal filed treating it as time barred. Therefore the Court held that the petition deserved to be allowed as petitioner had sufficiently explained reasons for delay in filing the appeal. The Court also directed the petitioner to file against the cancellation of GST registration before the competent authority within ten days. [2] Issue: Ex-parte order passed without granting an opportunity of personal hearing to assessee to be set aside :HC (Bombay): Case Laws: Keuhne Nagel (P) Ltd. v. State of Maharashtra [2023] 157 taxmann.com 366 (Bombay). Facts: The petitioner was engaged in business of freight forwarding, clearance etc. An audit was conducted and GST Department issued a show cause notice along with summary order seeking to demand from petitioner tax along with interest and penalty. The petitioner filed its reply to said show cause notice but the GST Authority passed an ex-parte order raising demand of tax along with interest and penalty. It filed writ petition against the order. Held: The Hon’ble High Court noted that in reply to show cause notice, the petitioner had explicitly stated for personal hearing before any decision was taken by Adjudicating Authority. Thus, in absence of petitioner waiving its right of a personal hearing, the provisions of section 75(4) would be squarely applicable and accordingly, an obligation was cast on Adjudicating Authority to grant an opportunity of hearing to petitioner. Thus, the Court held that the impugned order passed without granting an opportunity of a personal hearing to petitioner was violative of principles of natural justice and same was to be set aside. [3] Issue: GST Registration should be cancelled from closure date of business due to sealing drive by Municipality :Delhi HC: Case Laws: R. K. Metal Industries v. Commissioner of GST [2023] 157 taxmann.com 401 (Delhi) Facts: In the present case, the business of assessee was closed in September, 2018 due to sealing CA. Vishrut R. Shah [email protected] CA. Bihari B. Shah [email protected] GST and VAT Judgments and Updates
654 Ahmedabad Chartered Accountant Journal January, 2024 GST and VAT - Judgements and Updates drive conducted by Municipal Corporation. A request for cancellation of GST registration was made by assessee but the system was showing an error message. Thereafter, the assessee’s GST registration was cancelled on ground that the assessee had not filed GST returns for a continuous period of six months with retrospective effect. It challenged the retrospective cancellation of registration and filed writ petition. Held: The Hon’ble High Court noted that the department cancelled the GST registration with retrospective effect which also covered a period during which assessee had filed GST returns and no reason was provided in the order of action. Therefore, the Court held that the petition was allowed and the assessee’s GST registration can’t be cancelled from retrospective effect from period later than September, 2018. [4] Issue: Maximum penalty of Rs. 10,000 shall be levied for delay in payment of tax amount; penalty u/s. 122 to be set aside: HC: Case Laws: Clear Secured Services (P) Ltd., v. Commissioner, State Tax GST [2023] 156 taxmann.com 645 (All.) Facts: In the present case, the petitioner received a notice alleging that it had not paid GST within prescribed time and was liable for payment of penalty approx. Rs. 28.00 Lakhs each in CGST and SGST in terms of section 122(1)(iii). The petitioner was not able to reply on account of COVID-19 and consequently, ex parte order was passed against petitioner imposing penalty indicated in the show cause notice. It filed appeal but the same was dismissed and thus, it filed writ petition against the demand. Held: The Hon’ble High Court noted that there was no material on record or even an allegation against the petitioner that amount was collected but not paid or evaded, but only allegation was that amount was not paid within time prescribed and was paid after a delay. In such case, the maximum punishment would be Rs. 10000 but the Appellate Authority had failed in following general disciplines relating to penalty, specifically provided under section 126(2). Therefore, the Court held that the said order imposing penalty was to be set aside and the petitioner was directed to pay Rs. 10,000/- as penalty. [5] Issue: HC quashed summons issued u/s. 70 since assessee had already made several appearances before department. Case Law: Rakesh Janghu v. Union of India [2023] 157 taxmann.com 12 (Punj. & Har). Facts: In the present case, the assessee received summons from the GST department. It was alleged that the assessee was providing services to two medical colleges but no GST was charged on services provided by assessee. The assessee filed writ petition against the summons and prayed to conclude enquiry proceedings before the department and according to his knowledge and belief he was exempted from the provisions of GST. Held: The Hon’ble High Court noted that the assessee was aggrieved by issuance of summons under section 70 and he had already deposited Rs. 5 crores with department. Further, the assessee agreed to provide all documents to department and assessee had also made required appearances. Therefore, the Court found that the purpose of summoning assessee for enquiry apparently stood satisfied. Thus the Court held that no useful purpose would be served to call the assessee in pursuance of the summons hereafter. The Court also gave liberty to department to proceed in accordance with law regarding issuance of show cause notice if so required. (Sources: Corporate Professionals Today) ❉ ❉ ❉
Ahmedabad Chartered Accountant Journal January, 2024 655 1. ITC available on installing of roof top solar system under section 17(5) of the CGST/GGST Act. Advance Ruling No. GUJ/GAAR/R/2024/01 dated 05.01.2024 in M/s. Unique Welding Products Pvt. Ltd. Brief Facts: 1. M/s. Unique Welding Products Pvt. Ltd. (Registered Person) is engaged in the business of manufacturing and sale of welding wires. 2. The applicant supplies its products & services after discharging GST 18%. The applicant has entered into an interconnection agreement with power distribution licensee (Madhya Gujarat Vij Company Ltd) for captive use of power generated by Roof Top Solar System and have recently installed a roof top solar system with a capacity of 440 KW (AC) on the factory roof for power generation. The applicant further states that the generated power is solely and captively used for manufacturing welding wires within the same premises. 3. The applicant further submits that their business of manufacturing and sale of welding wires from their manufacturing plant in Anand, constitutes ‘business’ as per section 2(17) of the CGST Act, 2017; that in terms of section 16(1), ibid, they are eligible for the benefit of ITC [input tax credit] on any supply of good or services which are used or intended to be used in the course of furtherance of business. 4. Further relying on sections 2(63), 2(59), 16 and 17 of the CGST Act, 2017, the applicant submits that they are eligible for ITC on the inputs, input services & capital goods used for erection, commissioning and installation of roof top solar power plant. Question: 1. Whether the applicant is eligible to take ITC as ‘inputs/capital goods’ or `input services’ on the purchased roof top solar system with installation & commissioning in terms of sections 16 & 17 of the CGST/GGST/IGST Act? 2. Whether the roof top solar system with installation and commissioning constitute plant and machinery of the applicant which are used in the business of manufacturing welding wires and hence not blockedinput tax credit under section 17(5) of the CGST/GGST/ IGST Act? Findings & Arguments: The relevant extract of Section 2 and Section 16 & 17 are described below: 1. Section 2(17) “Business” includes – (a) Any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) Any activity or transaction in connection with or incidental or ancillary to sub-clause (a); (c) Any activity or transaction in the nature of subclause (a), whether or not there is volume, frequency, continuity or regularity of such transaction; (d) Supply or acquisition of goods including capital goods and services in connection with commencement or closure of business; (e) Provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members; (f) Admission, for a consideration, of persons to any premises; CA. Monish S. Shah [email protected]
656 Ahmedabad Chartered Accountant Journal January, 2024 Advance Ruling under GST (g) Services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) Activities of a race club including by way of totalizator or a license to book maker or activities of a licensed book maker in such club; and (i) Any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities; 2. Section 2(59)”input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business; 3. Section 2(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business; 4. Section 2(63) “input tax credit” means the credit of input tax; 5. Section 16 Eligibility and Conditions for taking Input Tax Credit: (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, - (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; (aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37 (b) he has received the goods or services or both. Explanation. - For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services- (i) Where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise; (ii) Where the services are provided by the supplier to any person on the direction of and on account of such registered person; (ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted; (c) subject to the provisions of [ section 41], the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and (d) he has furnished the return under section 39: Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment: Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax
Ahmedabad Chartered Accountant Journal January, 2024 657 is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed : Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. 6. Section 17 Apportionment of credit and blocked credits: (1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business. (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zerorated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies. (3) The value of exempt supply under subsection (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Explanation- For the purposes of this subsection, the expression “value of exempt supply” shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule; (5) Notwithstanding anything contained in subsection (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely (c) Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation -For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property; (6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed. Explanation- For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. For ease of understanding it would be prudent to reproduce the relevant extracts from the letter dated 17.03.2023 of Additional Chief Engineer (RA&C), Madhya Gujarat Vij Advance Ruling under GST
658 Ahmedabad Chartered Accountant Journal January, 2024 Company Limited, Vadodara addressed ro Superintending Engineer, Circle Office, MGVCL, granting approval to the applicant, consumer No. 15453, for grid connectivity of Solar Roof Top Photo Voltaic systems as per the provisions of the Gujarat Solar Power Policy-2O21 “With reference to above subject it is to state that application of M/s. Unique Welding Products P Ltd for installation of 440.00 KW (AC) Solar Roof Top Photo Voltaic System has been registered by GEDA. Now regarding the connectivity with MGVCL network for injection of Solar Energy from 440.00 KW Solar Power Plant, consumer M/ s. Unique Welding Products P Ltd. bearing consumer no. 15453 has paid connectivity charges of Rs. 50000 and executed a connectivity agreement with MGVCL. The connectivity has been granted for a period of 25 years. Accordingly, the connectivity agreement has been executed for 25 years and it shall be in force for the period of 25 years only. The Solar Power Generator (SPG) shall consume electricity generated from the roof top solar PV system at the same premise and the energy set off shall be allowed between 7:00 to 18:00 hrs of the same day ie. The generated solar energy during the day shall be consumed by the consumer during 7:00 to 18:00 hrs of the same day. If consumer is not able to consume all the generated electricity in the same relevant provisions defined in the Gujarat Solar Policy 2021 shall be applicable to surplus energy. As is already mentioned, the applicant has submitted that they will be installing a Roof Solar Plant on its factory roof to generate electricity which will be solely and captively used for manufacture of welding wires within the same premise. It is therefore, clear that the roof solar plant, affixed on the roof of the building is not embedded to earth. Accordingly, it is not an immovable property but a plant and machinery, which is utilized to generate electricity which is further solely and captively used in the manufacture of welding wires. The applicant is engaged in the business of supply of welding wires on payment of GST at the applicable rates. The applicant has further stated that they have capitalized the roof solar plant in their books ofaccounts. The Roof Solar plant,as is evident is not permanently fastened to the building. Thus, it qualifies as a plant and machinery and is not an immovable property, hence, it is not coveredunder blocked credit as mentioned in 17(5)(d) of the CGST Act, 2017.Therefore,we hold that the applicant is eligible for input tax on roof solar plant. Ruling: 1. The applicant is eligible to avail ITC on roof top solar system with installation & commissioning under the CGST/GGST Act. 2. The roof top solar system with installation and commissioning constituteplant and machinery ofthe applicant and hence is not blocked ITC under section 17(5) of the CGST/GGST Act. Comment: 1. Based on this ruling, all entities who have installed or are planning to install roof top solar systems should reassess their classification from immovable property to Plant & Machinery if the solar system is not permanently fastened to a building. 2. All entities whose business with roof top solar system that qualify as ‘Plant & Machinery’ can claim ITC under CGST Act. For this, entity must ensure that their roof top solar systems are properly documented and capitalized in financial records to support ITC eligibility. This is a significant financial consideration for entities using solar energy solutions. 3. Entities planning future installations of roof top solar systems should structure their projects with this ruling in mind, ensuring that the systems can be classified as ‘Plant & Machinery’ for GST Purpose. ❉ ❉ ❉ Advance Ruling under GST
Ahmedabad Chartered Accountant Journal January, 2024 659 MCA UPDATES: 1) V2 User IDs on Registered Email IDs: The Ministry of Corporate Affairs (MCA) has informed its stakeholders vide issuing important update that post registration on the V3 portal, the user shall receive their V2 user ids on their registered email within 5 hours. [Update dated 26.12.2023] SEBI UPDATES: 2) Credit of units of AIFs in dematerialised form: Pursuant to SEBI Circular no. SEBI/HO/AFD/PoD1/CIR/2023/96 dated June 21, 2023, all schemes of Alternative Investment Funds (‘AIFs’) were mandated to dematerialise their units as per the following timeline: Particulars Schemes of AIFs with corpus e” Schemes of AIFs with INR 500 Crore corpus < INR 500 Crore Dematerialisation of all the units Latest by October 31, 2023 Latest by April 30, 2024 issued Issuance of units only in November 01, 2023 onwards May 01, 2024 onwards dematerialised form Now, the SEBI has clarified the followings with respect to issuance and credit of units of AIFs in demat form: Details Schemes with corpus e” INR Schemes with corpus < INR 500 500 crore as on Oct 31, 2023 crore as on Oct 31, 2023 and schemes launched after Oct 31, 2023 irrespective of corpus Investors who have provided Units issued after Oct 31, 2023, Units issued after Apr 30, 2024, their demat account detail shall be in demat form and shall be in demat form and credited only to investors demat credited only to investors demat accounts. accounts. Investors who have not provided For investors on-boarded prior to For investors on-boarded prior to their demat account details Nov 01, 2023, units shall be May 01, 2024, units shall be credited in Aggregate Escrow credited in Aggregate Escrow Demat Account temporarily, till Demat Account temporarily, till investors provide their demat investors provide their demat account details. account details. Completion of credit of demat units Latest by Jan 31, 2024 Latest by May 10, 2024 to: CA. Naveen Mandovara [email protected] Update
660 Ahmedabad Chartered Accountant Journal January, 2024 a) demat accounts of investors who have provided demat account details and b) Aggregate Escrow Demat Account, for those who have not provided demat account details Units of AIFs held in Aggregate Escrow Demat Account can be redeemed and proceeds shall be distributed to respective investors’ bank accounts with full audit trail of the same. For, detailed text, please refer: https://www.sebi.gov.in/legal/circulars/dec-2023/credit-of-units-of-aifs-in-dematerialised-form_79774.html [Circular No.: SEBI/HO/AFD/PoD1/CIR/2023/186 dated 11.12.2023] 3) Extension of timelines for providing ‘choice of nomination’ in eligible demat accounts and mutual fund folios: The SEBI has further extended the last date for submission of ‘choice of nomination’ for demat accounts and mutual fund folios respectively,from 31.12.2023 to 30.06.2024. [Circular No.: SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/193dated 27.12.2023] 4) FRAMEWORK ON SOCIAL STOCK EXCHANGE (“SSE”): The SEBI has approved the following modifications/ additionsto the CircularSEBI/HO/CFD/PoD-1/P/CIR/2022/ 120 dated September 19, 2022, pertaining to detailed framework on Social Stock Exchange: a) In Paragraph 1, sub-paragraph A, titled “Minimum requirement to be met by a Not-for-Profit Organization (NPO) for registration with SSE in terms of Regulation 292F of the ICDR Regulations”, the following requirement under the Board Parameter in the table given belowshall read as under: Broad Parameter Indicator Details Exemption under Registration Certificate under a. Registration Certificate under section Income-tax Act, 1961: section 12A/ 12AA/ 12AB/ 12A/ 12AA/ 12AB/ 10(23C)/10(46) to be 10(23C)/10(46) under valid for at least the next 12 months. Income-tax Act, 1961 b. Details regarding pending notices or scrutiny cases from all regulatory and statutory authority shall be disclosed at the time of making the application for the registration. c. Fines or penalties if imposed shall be disclosed as paid or appealed within 7 days. The Stock Exchanges shall have the right to refuse registration of those applicants, if the notices/ scrutiny cases are grave and debilitating enough to endanger the registration of the NPO under the Incometax Act, 1961 or other relevant laws. Corporate Law Update