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Published by caaahmedabad, 2019-05-28 05:04:16

ACA Journal Nov 2018

ACA Journal Nov 2018


Chartered Accountants Association, Ahmedabad

November 2018

Ahmedabad Chartered Accountants Journal

E-mail : [email protected] Website : - caaahmedabad

Volume : 42 Part : 8 November, 2018


To Begin with

- The Art of Forgiveness....................................................... CA. Ashok Kataria ......................451

Editorial - Election Allurements..........................................................CA. Ashok Kataria........................452

From the President............................................................................ CA. Chintan Doshi........................453


Breaking the Confidentiality Code..................................................... Adv. Nakul J. Sharedalal.............454
System overriding the Statute.............................................................CA. Kiran Tahelani......................457

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................458

From the Courts.................................................................................. CA. C.R. Sharedalal &
CA. Jayesh Sharedalal............... 460

Tribunal News.....................................................................................CA. Yogesh G. Shah &
CA. Aparna Parelkar.................. 464

Unreported Judgements...................................................................... CA. Sanjay R. Shah.................... 470
Controversies.......................................................................................CA. Kaushik D. Shah....................472

Judicial Analysis...................................................................................Adv. Tushar Hemani....................474

FEMA & International Taxation

Indian Tax Administration’s guidance on appropriate use of CA. Dhinal A. Shah &

Country-by-Country reports...............................................................CA. Sagar Shah.......................... 487

FEMA Updates....................................................................................CA. Savan Godiawala...................490

Indirect Taxes

GST - Advance Rulings....................................................................... CA. Arjun Akruwala
CA. Jay Dalwadi &
CA. Manan Shah...........................493

GST & VAT Judgments and Updates................................................... CA. Bihari B. Shah.......................498

Corporate Law & Others

Corporate Law Update....................................................................... CA. Naveen Mandovara...............501

Allied Laws Corner..............................................................................Adv. Ankit Talsania.......................509

From Published Accounts .................................................................CA. Pamil H. Shah..................... 513

From the Government ......................................................................CA. Ashwin H. Shah &
CA. Kunal A. Shah........................517

Association News.............................................................................. CA. Maulik S. Desai &
CA. Shivang R. Chokshi ............ 519

ACAJ Crossword Contest......................................................................................................................520

Ahmedabad Chartered Accountants Journal November, 2018 449

The Art of Forgiveness CA. Ashok Kataria
[email protected]

In our world we blame someone or the other for being the cause of our sorrow. The outcome is, it leads
to anger or dislike for the individual. The response to anger is what is called revenge. This feeling of
revenge leads to other emotions as well. Jealousy is also a form of anger or non-forgiveness. The other
forms of ager are pride and greed. Once we are caught in this web of these negative emotions, we are
bound to make our life miserable.

If we are able to imbibe the value of forgiveness, we come out of all the negativities and instantly become
peaceful and tranquil. At the same time, if we are non-forgiving we end up hurting ourselves. When we
are angry or jealous we can neither eat nor sleep properly. So whom are we causing the damage, only to
ourselves! Interestingly, the person towards whom our anger is directed may not be even aware or get

The first step towards forgiveness is to understand the negativities that are created by non-forgiveness
and to become aware of the futility and irrationality of nursing grudges. We need to understand the law
of karma and know that non-forgiveness is against God and then sincerely decide to forgive. Merely
understanding the need to forgive is not enough. It is important to take decision to forgive. Forgiveness
is not an action or emotion but a state of being. It is a state where no longer remains that sense of revenge.
When the mother disciplines her child there is no anger, hatred or revenge. She does it for child’s benefit.
Sometimes she punishes her child but it is not with the intention of inflicting pain.

It is easier to forgive people who are emotionally and physically at a distance but we find it difficult to
forgive our near and dear ones. Often we are very vehement and declare our intentions of non forgiveness.
It is almost like taking a vow of revenge. Some people not only vow revenge but keep thinking and
speaking about it. This keeps the memory of the hurt or pain alive.

We are prone to non-acceptance at various levels which is really the flipside of non-forgiveness. Some
are not able to accept our bodies, thoughts, samsara, or the family in which we are born. We may not
have forgotten some of the incidents in our lives which caused us regret and pain. Often we try to fight
the world and do not accept it as it is. Acceptance signifies understanding of the entire situation as it is.
Action based on understanding is acceptance. Acceptance does not mean submissiveness or tolerance.
Once Budha was abused by someone and he responded by stating quiet. One of the disciples was
horrified and asked Buddha’s permission to retaliate. Buddha was unperturbed and said you can only
give back something you have taken.

We need to think important issues in our life that need to be forgiven. Sometimes while waking carelessly
we are hurt by a chair, do we carry anger against it? If we do not like the shape of the chair, we are at
liberty not to use it. Sometimes there is a lot of resistance to forgiveness. At all costs we want to hang
onto past incidents. Hence, there is need to understand the stupidity and futility of non-forgiveness.
Knowing the harm it causes, there is a need to forgive and move on. Forgive and forget is the way of the

Source : The Art of Forgiveness
Swami Nikhilananda

Ahmedabad Chartered Accountants Journal November, 2018 451

Editorial [email protected]

Election Allurements

The election results in five states of the country are out and declared. The congress party has been able to
seize power in three important states from the Bharatiya Janta Party (BJP) in the Hindi heartland of the
country. The state of Madhya Pradesh and Chhattisgarh went into the kitty of the Congress Party after
fifteen years of anti-incumbency along with Rajasthan that has a trend of changing the government every
five years. The other two states are Telengana, retained by TRS and Mizoram that went to MNF.

With these election results the important and worrisome aspect is the manner in which the political parties
are alluring the voters and kind of promises that are being made in the run-up to these elections. The
major political announcement before every election has now become the waiver of farmers’ loan. When
these announcements are made and even after the elections results when these promises are fulfilled,
whether the political class of the country is aware of the impact it is having on the economy of the
country? After the recent elections, including some held in near past, it is surprising to note that the total
farm loan waiver has been to the extent of 172146 crores. The states that have announced this waiver are
Chhattisgarh, Madhya Pradesh, Karnataka, Rajasthan, Punjab, Maharashtra and Uttar Pradesh.

If this is not enough, the president of the Congress Party has said that nationwide farm loan will be
announced if they are voted to power in the 2019 Union Elections. It is truly a shocking and a disturbing
promise to make on two counts. One, it is a direct way of passing the monetary gains in lieu of votes and
second, the impact it will have on the economy of the country. When in seven states of the country, the
amount is up to the tune of more than 170000 crores, what will be the sum if entire nation is included. The
economics of these schemes is more frightening. The amount that a government can spend from the taxes
collected in the welfare schemes and also on the infrastructural development will now be utilised to infuse
money in the banking system so that these loans are waived off. The hard earned money of the tax payers
which is expected to be used for the nation building is utilised to waive loans of individuals. The idea is
not to doubt the unhealthy financial condition of the farmers all across the country but waiver of the loan
may not be a good solution. What kind of a citizen are we creating for the future that remains dependent
and at the mercy of the government after the funds are borrowed? The day won’t be far when after these
waiver schemes we will bring in the system where no borrower will repay the amount to banks once he
has tasted the poisonous sweetness of waiver.

At this juncture the only hope and prayer is the political parties should work on empowering the farmers
and citizens of the country so that each and every person is financially strong to repay his own debts and
also contribute to the nation building which otherwise will see a major hindrance in the growth of the
country if these loan waiver schemes become the part and parcel of every state or union elections.

CA. Ashok Kataria

452 Ahmedabad Chartered Accountants Journal November, 2018

From the


CA. Chintan Doshi
[email protected]

Dear Members,

Christmas Greetings and best wishes for upcoming New Year 2019!

The elections of the Apex Body of Chartered Accountants, ICAI along with regional councils are over and
results shall be declared soon. I congratulate all the members who came out and voted for the future of our
profession and my best wishes to all the contesting candidates. The result of the state assembly elections
in five states is out. There has been a complete change of government in four of the five states. The result
is the indicator of “Nothing is permanent”. Therefore one should involve himself and be occupied with
work to such an extent that no external change is able to affect us.

Today, we all are very much busy in our life. Either in the business or job, after the working hours, we are
getting engrossed with mobile phones, specifically the social media. No doubt, the technology is helping
us to communicate at distant places without any major cost but at the same time, we should have a check
whether we are giving enough time to our family and friend. It often happens that in a get together of
friends or family, we are occupied in electronic gadgets and lost in the virtual world, absolutely unaware
of the real world around us. How many of us are forwarding messages without verifying its correctness
resulting in an unwanted situation? Isn’t it an alarming situation, especially for the professional community
of ours? We need to be extra careful in handling social media!

At the Association

A friendly cricket match was played between President XI and Secretary XI on 24th November 2018. 26
members participated in the game showing their cricketing skills. It was an interesting match with a nail
biting finish where President XI won by just one run. Sports committee has shortlisted the team 17 players
who would be preparing for upcoming match each against Income Tax Bar Association, Ahmedabad,
Rajkot and Vadodara Branch of WIRC of ICAI.

3rd Brain trust cum workshop was held on 4th December 2018 on the topic of GST Audit (GSTR 9 and 9C).
Trustee CA. Nitesh Jain deliberated in depth upon all the posers with active participation of all the members
in group discussion.

15th December 2018 was celebrated as foundation day of our Association. CAAA was established on 15th
December and the journey has been of 67 glorious years so far. We may say the Association is as old as the
constitution of India and yet so modern, dynamic and relevant. It is the devotion and contribution of all
the past presidents and all the members that the CAAA has reached at these heights. As a part of celebration,
cake cutting ceremony was held along with two shows of a comedy drama “United States of Pada ni
Pole”, written and directed by Saumya Joshi. Both the shows had a full house with members and their

- You might have read many books. You might have studied all the Shastras in their entirety. You might
have mastered the most difficult subjects. You will naturally feel proud of your profound knowledge of all
the branches of learning. But, all your immense erudition will be useless if you do not bring your palms
together to worship Paramatma. Your learning will be of no use if you have no devotion.
Happy Learning.

CA. Chintan M. Doshi

Ahmedabad Chartered Accountants Journal November, 2018 453

Breaking the Advocate Nakul J. Sharedalal
Confidentiality Code [email protected]

During a person’s lifetime, there are secrets which kept in a safe. There are only a small amount of
the person doesn’t want anyone to know. Some of employees who are aware of the recipe and they
these secrets are information, which if leaked can are bound by confidential agreement.
be detrimental to that person but can be of immense
use to the third party/ies whom it is leaked to. Similar From the above stated examples a few essentials of
is the case with any Trade or Business. Since the trade secrets can be short listed as:
inception of any trade or business and throughout
its lifetime, there is generation and accumulation of The Spring Board Doctrine
valuable information which have immense The inception of this doctrine goes back in time
importance for running the said trade or business, and to the English Courts. The Courts, while
which is not readily available to the public and any
disclosure of this confidential information may be
injurious to the trade or business. These confidential
information of an entity are known as Trade Secrets.

What kind of information comes under Trade

A Trade Secret is any information that is used in an
trade or business and is kept confidential. This
information is generally known to the persons who
are involved in that particular trade or business. The
terms ‘Secret’ and ‘Confidential’ indicates that this
information should not be accessible or
ascertainable to the competitors or any other third
party. The Trade Secrets include formulas,
manufacturing methods, device, compilation,
program, know-how, recipes, methods, pattern,
sketch, process, technique, plan, instruments,
design, commercial method, practice or any other
technical information.

Some of examples of trade secrets ironically have
become renowned, they are surrounded by
mystique. One of them being the Coca-Cola flavor
mix recipe. The company decided to brand the
recipe as trade secret and not patent, as it would
have lead to disclosure of ingredients. The second
example being that of KFC, where Colonel Sanders
wrote down the recipe which is still protected and

454 Ahmedabad Chartered Accountants Journal November, 2018

inventing this doctrine, were attempting to restrain Breaking the Confidentiality Code
a person from using the confidential, undisclosed
or special information, which might have been plaintiff, then it would be like allowing the
obtained in confidence, in such a way which may defendant to use that concept and to reap the fruit
be detrimental to the person creating the of the labor of the plaintiff, which cannot be
confidential, undisclosed or special information. The permitted.
doctrine was made with an aim to make sure that
the person breaking the duty of confidence does Further in the case of Zee Telefilms Ltd. And Film
not benefit from such breach, i.e. the person having And vs Sundial Communications Pvt. Ltd.1
obtained the information does not use as a spring wherein the confidential information was shared by
board for his own benefit and for any activity which the plaintiff to the defendant, without entering into
can be detrimental to the creator of the confidential a non-disclosure agreement. The defendant then
communication. came up with a similar concept. The Hon’ble
Bombay High Court opined that the works of both,
the plaintiff and the defendant had striking
similarities and to accept that the similarities are
coincidence is impossible. If the ‘confidential
information’ of the plaintiff is allowed to be used
then the business and goodwill of the plaintiff will

In India there is no exclusive statue for protection It can be seen that even in the absence of any Non-
of Trade Secrets and Confidential Information. Over Disclosure Agreement, the confidential information
the years the secrets and the information have been can be stopped from being used by any other party.
protected by way of contract under the Non- There have been cases, where a person has come
disclosure and Confidentiality Clauses. There exists in possession of a confidential information, and has
no prohibition on such disclosures but a mere used the information to march ahead of its
contractual obligation. The Indian Courts however, competitors, take a short cut or to compete with the
have taken pains to elaborately discuss on the person from whom the information is achieved.2 In
subject matter and thus arrive at a sound decision, such cases there will then be application of the
but due to the non-availability of any concrete law Spring Board Doctrine. In cases of Employer-
the courts are restricted to providing civil remedies. Employee relationship there usually are terms of
confidentiality imposed on the employee. But in
The Indian courts have time and again come across cases where there are no express clauses in relation
this doctrine. In the case of Mr. Anil Gupta And to confidentiality this does not mean that there is
Anr. vs Mr. Kunal Dasgupta And Ors.on 3 June, no duty of confidence upon the employee.3
2002, The Hon’ble Delhi High Court was of the
opinion that the plaintiff has applied his brain,
which has resulted in a concept. If the defendants
are allowed to use this concept, conceived by the

Ahmedabad Chartered Accountants Journal November, 2018 455

Breaking the Confidentiality Code 1 2003 (3) MhLj 695

In a recent case M/S Inphase Power 2 Michael Heath Nathan Johnson vs Subhash Chandra
Teachnologies vs M/S Abb India Lt. on 14 And Ors; 60 (1995) DLT 757
September, 2016, conclusion, on the basis of the
Spring Board Doctrine,was drawn by the Hon’ble 3 Abhik Guha Roy, Protection of Intellectual Property
Karnataka High Court that any ex-servant or ex- in form of Trade Secrets, Journal of Intellectual
employee may be injuncted from using the Property Rights, Vol. 11, May 2006, pp 192-200
information in his possession and acting in a
manner which can be detrimental to the interest of 41 In the course of ensuring effective protection against
the plaintiff. A company which invests its time, unfair competition as provided in Article 10 bis of the
money and manpower in research and development Paris Convention (1967), Members shall protect
deserves protection against infringement and undisclosed information in accordance with paragraph
passing off.The judiciary has from time to time 2 and data submitted to governments or governmental
adopted and applied the ‘Spring Board Doctrine’, agencies in accordance with paragraph 3.
to prevent the misuse of the confidential and
undisclosed information and further to prevent the 2. Natural and legal persons shall have the possibility of
persons in possession of this information, whether preventing information lawfully within their control
directly or indirectly, to use it as a ‘spring board’ from being disclosed to, acquired by, or used by others
and gain illegal and undue advantage from it. without their consent in a manner contrary to honest
Though, the judiciary’s hands are tied with respect commercial practice so long as such information:
to providing remedies, since at present the trade
secrets are governed by contracts therefore, the (a) is secret in the sense that it is not, as a body or in
judiciary is unable to provide any criminal remedies the precise configuration and assembly of its
to the affected parties. components, generally known among or readily
accessible to persons within the circles that
CONCLUSION normally deal with the kind of information in
With the implementation of policies like the ‘Make
in India’, the importance of the Intellectual Property (b) has commercial value because it is secret; and
is bound to increase. Trade Secrets in India is that
branch of Intellectual Property which has not been (c) has been subject to reasonable steps under the
dealt with. Long ago in the in the year 1995, in the circumstances, by the person lawfully in control
TRIPS Agreement came in to existence wherein it of the information, to keep it secret.
was provided under the Article 1(2) that Intellectual
Property shall include protection of undisclosed 3 Members, when requiring, as a condition of approving
information. Further under Article 394 of the TRIPS the marketing of pharmaceutical or of agricultural
Agreement deals with the protection of undisclosed chemical products which utilize new chemical entities,
information which should have been ratified with the submission of undisclosed test or other data, the
the laws of India. Better late than never, with the origination of which involves a considerable effort,
implementation of the National IPR Policy having shall protect such data against unfair commercial use.
seven objectives, one of them being ‘effective legal In addition, Members shall protect such data against
and legislative framework for protection of IPRs’ disclosure, except where necessary to protect the
under which protection of trade secrets was public, or unless steps are taken to ensure that the data
identified. There is now a need, with the growing are protected against unfair commercial use.
businesses and trade, to have a codified law for the
protection of the undisclosed and confidential Quote :
information and in addition provide criminal
remedies for their infringement. “I often tell the industry, that the core aspect of
any business is its Intellectual Property. Protect
it today for rich dividends later”


456 Ahmedabad Chartered Accountants Journal November, 2018

System Overriding CA. Kiran Tahelani
the Statute [email protected]

Our PM, Narendra Modi once said that he wants person engaged in making supply,by way of or as
to see “Digital India” which can be seen from the part of any service or in any other manner
advancement of technology, today’s India is whatsoever, of goods, being food or any other
enjoying. This is an Era of E-Commerce. The E- article for human consumption or any drink (other
commerce websites and their respective mobile than alcoholic liquor for human consumption),shall
applications like Zomato, Swiggy, Uber-Eats etc. be eligible to opt for composition scheme. It is to
have become a very important part of our lives, as be noted that the aggregate value of turnover in the
they are giving home delivery from our favourite preceding financial year should be less than
restaurant andthat too at discounted rates. The Rs.1Crorein order to opt for composition scheme.
emerging technologies are changing the face of
“Restaurant Industry” and due to which restaurants Now the Second question comes in mind,
right from Hawkers, Roadside vendors to top-notch whether the restaurant service provider who
restaurants are adopting technology and they are has opted for the composition scheme can
“supplying”their services through various websites operate through E-commerce?
and respective mobile apps like Zomato, Swiggy,
Uber-Eats, Food Panda Etc. Further, why anybody As per Section 10(2)(d), a registered person who is
would not register himself to these e-commerce engaged in supply of goods through an E-
operators, when the sale through “e-commerce” is commerce operator shall not be eligible for opting
twice the sales through “dine-in”. composition Scheme.

Whenever the term ‘supply’ comes, the term ‘GST’ Here the term ‘supply of goods’ has been used in
comes in mind. Till 30.09.2018 restaurants were section 10(2)(d) and not the term ‘supply of service’.
doing their businesshassle-free. From 01.10.2018, However, as per Clause b Paragraph 6 in Schedule
vide Notification No. 51/2018 Central Tax dated II of the CGST Act 2017, the supply of goods, being
13.09.2018, the Section 52 of the CGST Act 2017, food or any other article for human consumption
was made applicable to E-commerce operators and or any drink (other than alcoholic liquor for human
hence every e-commerce operator became liable to consumption), shall be treated as Supply of
deduct Tax Collection at Source (TCS) @ 1% on service. Thus, though in the eyes of common man
every person who is registered with them. However the restaurant is providing goods (food) but as far
this has brought much confusion in the ‘Restaurant as GST Law is concerned supply of food by
Industry’especially for those who have opted for restaurant, etc. is supply of service. On combine
composition scheme. The same can be explained reading of Section 10(1)(b) and Section
as below. (10)(2)(d), it can be derived that the restaurant
service provider can opt for the composition
The confusion begins with the question as to scheme and can operate through e-commerce
whether the Restaurants/Café/Food Trucks can platform.
opt for composition scheme?
Further Section 52(TCS) of the CGST Act, 2017
According to Section 10(1)(b) read with Clause b does not bar deduction of TCS in case of service
of Para 6 of Schedule II of the CGST Act 2017,a
contd. on page no. 459

Ahmedabad Chartered Accountants Journal November, 2018 457

Glimpses of Advocate Samir N. Divatia
[email protected]
Supreme Court
Rulings (i) In interpreting a taxing statute, equitable
consideration are entirely out of place. A taxing
29 Taxation: Concession / Exemption / statute cannot be interpreted on any
Incentive / Rebate / Subsidy / Exemption presumption or assumption.A taxing statute has
Notification. to be interpreted in the light of what is clearly
expressed; it cannot imply anything which is
Where there is ambiguity in an exemption not expressed; it cannot import provisions in
notification or exemption clause, the benefit of such the statute so as to supply any deficiency.
ambiguity cannot be extended to the assessee by
applying the principle that the obscure and/or (ii) Before taxing any person, it must be shown
ambiguity or doubtful fiscal statute must receive a that he falls within the ambit of the charging
construction favoring the assessee. Both the section by clear words used in the section; and
situations are different and while considering an
exemption notification, the distinction cannot be (iii) If the words of the charging provisions are
ignored. There are three components of a taxing ambiguous and open to two interpretations, the
statute, namely, subject of the tax; person liable to benefit of interpretation of charging provisions
pay tax; and the rate at which the tax is to be levied. is given to the assessee and there is nothing
If there is any ambiguity in understanding any of unjust in a taxpayer escaping if the letter of the
the components, no tax can be levied till the law fails to catch him on account of the
ambiguity or defect is removed by the legislature. legislature’s failure to express itself clearly.
Thus, in case of ambiguity in charging provisions,
the benefit must necessarily go in favour of assessee, Interpretation of Statutes- General Clause Act-
but the same is not true for an exemption notification Relevance of Statutory provision.
or exemption clause wherein the benefit of
ambiguity must be strictly interpreted in favour of While interpreting a statutory law, if any doubt arises
the Revenue/State. Furthermore, the burden of as to the meaning to be assigned to a word or a
proving applicability of exemption would be on the phrase or a clause used in an enactment and such
assessee to show that his case comes squarely within word, phrase or clause is not specifically defined,
the parameters of the exemption notification or it sis legitimate and indeed mandatory to fall back
exemption clause. on the General Clauses Act. However, when there
is repugnancy or conflict as to the subject or context
Liberal and strict construction of exemption between the General Clauses Act and a statutory
provisions are to be invoked at different stages of provision which falls for interpretation, the court
interpreting it. The question whether assessee falls must necessarily refer to the provision of the statute.
in the notification or in the exemption clause, has
to be strictly construed and when once the ambiguity In applying rule of plain meaning any hardship and
or doubt is resolved by interpreting the applicability convenience cannot be the basis to alter the meaning
of exemption clause strictly, the court may construe to the language employed by the legislation. This
the notification by giving full play bestowing wider is especially so in fiscal statutes and penal statutes.
and liberal construction. Nevertheless, if the plain language results in

458 Ahmedabad Chartered Accountants Journal November, 2018

absurdity, the court is entitled to determine the Glimpses of Supreme Court Rulings
meaning of the word in the context in which it is
used keeping in view the legislative purpose. Not 30 Interpretation of Statutes – Literal or
only that, if the plain construction leads to anomaly strict construction
and absurdity, the court having regard to the hardship
and consequences that flow from such a provision In construing fiscal statutes and in determining the
can even explain the true intention of the liability of a subject to tax one must have regards to
legislation. the strict letter of the law and not merely to the spirit
of the statute or the substance of the law. If the
Strict construction of a statute is that which refuses revenue satisfies the court that the case falls strictly
to expand the law by implications or equitable within the provision of the law, the subject can be
considerations, but confines its operation to cases taxed. If, on the other hand, the case is not covered
which are clearly within the letter of the statute, as within the four corners of the provisions of the taxing
well as within its sprit or reason, not so as to defeat statute, no tax can be imposed by inference or by
the manifest purpose of the legislature, but so as to analogy or by trying to probe into the intentions of
resolve all reasonable doubts against the the legislature and by considering what was the
applicability of the statute to the particular case. substance of the matter.
Strict interpretation is an equivocal expression, for
it means either literal or narrow. When a provision There has to be strict interpretation of taxing statutes
is ambiguous, one of its meaning may be wider than and the fact that one class of legal entities are given
other, and the strict sense is not necessarily the strict some benefit which is specifically stated in the act
sense. does not mean that the legal entities not referred to
the act would also get the same benefit.
Commissioner of Custom (Import) Mumbai Vs.
Dilipkumar& Co. and Others. (2018) 9 SCC 1 New Okhla Industrial Development Authority
Vs. Chief Commissioner of Income Tax. (2018)

9 SCC 351


contd. from page 457 Article : System Overriding the Statute

provider who has opted composition scheme. It also themselves in normal scheme to continue business
does not restrict that the service provider cannotopt with them. Legally it is not tenable, just because
for composition scheme. the GST portalis not allowing the E-commerce
operator to deduct the TCS amount from
Hence Section 10(2)(d) read with Section 52 of composition service provider; all the restaurants that
the CGST Act 2017, does not restrict the service are registered under composition scheme are forced
provider who has opted composition scheme to to shift to normal scheme.
operate through e-commerce platform. Point to ponder: Only time will tell whether the
However,e-commerce industry is facing some Restaurants/cafe/Food Trucks etc., will be able
technical and legal issues as they are not able to to continue operating with e-commerce
deduct TCS of the service provider who is registered operators or will theybe forced opt out from
under composition scheme reason being the GST composition scheme because of system
Portal is not allowing them to deduct the TCS of a overriding the statute.
person who is registered under composition scheme.
Because of these legal and technical problems the
E-commerce operators like Zomato, Swiggy, Uber-
Eats etc. are sending e-mails to the respective clients
to opt out from composition scheme and register

Ahmedabad Chartered Accountants Journal November, 2018 459

From the

CA. C. R. Sharedalal CA. Jayesh C. Sharedalal

[email protected] [email protected]

Reopening : Notice after four years : should deal with each objection and give proper
reasons for the conclusion. No attempt should be
71 Requirement made to add to the reasons for reopening of the
Sabh Infrastructure Ltd. v/s. Asst. CIT assessment beyond what has already been
(2017) 398 ITR 198 (Delhi) disclosed. While communicating the reasons for
reopening the assessment, the copy of the form used
Issue: by the Assessing Officer for obtaining the approval
of the superior officer, which would contain the
What are the requirements to be followed by comment or endorsement of the superior Officer
Department in reopening assessment beyond four with his name, designation and date, should be
years? provided to the assessee.

Held: Sec. 80I-B : Manufacture of Goods :

The reasons recorded to believe that income has 72 Computer Software
escaped assessment under section 147 of the Income CIT v/s. Shoghi Communication Ltd
Tax Act, 1961 have to be self explanatory. The (2018) 398 ITR 683 (HP)
reasons cannot be thereafter supported by any
extraneous material. The order disposing of the Issue:
objections cannot act as a substitute for the reasons
to believe nor can any counter affidavit filed before Whether computed software is sale of goods to
the court in writ proceedings under article 226 of satisfy the condition u/s 80IB?
the Constitution. There have to be reasons to believe
and not merely reasons to suspect that income has Held:
escaped assessment. A mere conjecture and surmise
is not sufficient. Clause (iv) of sub-section (2) of section 80-IB
provides that deduction under section 80-IB of the
The reasons to believe ought to spell out all the Income Tax Act, 1961 is allowable to an industrial
reasons and grounds available with the Assessing undertaking if it manufactures or produces articles
Officer for reopening the assessment, especially in or things and employs 10 or more workers in a
those cases where the first proviso to section 147 is manufacturing process carried on with the aid of
attracted. They ought to also paraphrase any power or employs 20 or more workers in the
investigation report which may form the basis for manufacturing process carried on without the aid
the reasons and any enquiry conducted by the of power.
Assessing Officer thereon and if so, the conclusions
thereof. Where the reasons make a reference to It is clear from the law laid down by the Supreme
another document, whether as a letter or a report, Court in Tata Consultancy Services v/s. State of
such document or relevant portions of such report Andhra Pradesh (2004) 271 ITR 401 (SC) that
should be enclosed along with the reasons. The software, both canned and uncanned, comes under
exercise of considering the assessee’s objections to the category of goods. Circular No. 81/2/2005-ST,
the reopening of assessment is a quasi judicial dated October -7, 2005 taking note of the
function. The order disposing of the objections judgement passed by the Supreme Court in Tata
Consultancy Services case, has clarified that “all

460 Ahmedabad Chartered Accountants Journal November, 2018

the tests required to satisfy the definition of goods From the Courts
are possible in the case of software and in computer
software the intellectual property has been of a notice under section 142(1) of the Act, which
incorporated on media for the purposes of transfer as noted hereinbefore, is in a standard pro forma….
and software and the media cannot be split up.
Therefore, sale of computer software falls within The proposal to reopen an assessment under section
the scope of sale of goods. The instructions/ 147 of the Act is to be based on reasons to be
clarifications, if any, have specifically been issued recorded by the Assessing Officer. Such reasons
with regard to levy of service tax under section have to be communicated to the assessee. However,
65(64) of the Finance Act, 1994, but in the merely because the assessee participates in the
clarification /instructions “software” has been proceedings pursuant to such notice under section
specifically referred or termed to be as “goods”. 148 of the Act, it does not obviate the mandatory
Once the Central Board has considered the requirement of the Assessing Officer having to issue
“software” as “Goods”, while levying service tax, to the assessee a notice under section 143(2) of the
the Income Tax Department cannot be allowed to Act before finalizing the order of the reassessment”.
state that “goods” defined under service tax are
different from the meaning construed for purposes Charitable Trust : Allowance of
of the Income Tax Act. The Central Excise Tariff Depreciation when cost of asset is
Act defines the “software” and states that any allowed in full : Amendment is
representation of instructions, data, sound or image
including source code and object code recorded in 74 prospective.
a machine readable form and capable of being DIT v/s. Medical Trust or Seventh Day
manipulated providing interactivity to a user by Adventists
means of an automatic data processing machine. (2017) 398 ITR 721 (Mad)

Notice u/s 143(2) is mandatory in Issue:

73 assessment u/s 147 /148 also Amendment in respect of non allowance of
Pr. CIT v/s. Paramount Biotech depreciation when full cost of asset is allowed by
Industries Ltd. Finance Act No. 2, 2014 is retrospective?
(2017) 398 ITR 702 (Delhi)
Sub Section (6) inserted by the Finance (No. 2)
Is the assessment valid for want of issuance of Act, 2014, with effect from April 1, 2015, states
notice u/s 143(2) in reassessment case also? that the income to be determined for the purposes
of application or accumulation shall not include a
Held: deduction or allowance by way of depreciation or
otherwise in respect of any asset, the acquisition of
The wording of section 143(2)(ii) of the Act, which which has been claimed as an application of an
is applicable in the present case, requires the income under the provisions of section 11 in the
Assessing Officer to be satisfied on examining the same of any other previous year. Circular No.1 of
return filed that prima facie the assessee has 2015, dated January 21, 2015 (2015) 371 ITR (St.
‘understated the income’ or has ‘computed 22), contains explanatory notes to the provisions
excessive loss’ or has ‘underpaid the tax in any of the Finance (No.2) Act, 2014. Para 7.6 of the
manner’. The Assessing Officer has the discretion Circular states that the amendment would apply to
to issue a notice under section 143(2) if he considers the assessment year 2015-16 and subsequent
it ‘necessary or expedient’ to do so. This exercise assessment years. The amendment does not purport
by the Assessing Officer under section 143(2) of to be clarificatory. On the other hand the
the Act is qualitatively different from the issuance Explanatory Memorandum makes it applicable
only with effect from the assessment year 2015-16
and application of the amendment retrospectively
would certainly lead to a great deal of hardship to

Ahmedabad Chartered Accountants Journal November, 2018 461

From the Courts

the assessee. Hence, the provisions of section 11(6) “Charitable purpose” contained in section 2(15).
of the Act inserted with effect from April 1, 2015 Hence, such entities will not be eligible for
shall operate prospectively with respect to exemption under section 11 or under section
assessment year 2015-16 onwards. 10(23C) of the Act if they carry on commercial
activities. Whether such an entity is carrying on an
Applicability of newly inserted proviso activity in the nature of trade, commerce or business
is a question of fact which will be decided based
75 to Sec. 2(15) on the nature, scope, extent and frequency of the
CIT v/s. Shri Magunta Redgrave Reddy activity.
Charitable Trust
(2017) 398 ITR 663 (Mad) Sec. 179 : Director’s liability to pay

Issue : 76 company’s demand
Susan Chacko Perumal v/s. Asst. CIT
Whether newly inserted proviso to Sec. 2(15) will (2017) 399 ITR 74 (Guj)
apply to the trust carrying activity i.e. Relief of the
poor, educational, medical relief? Issue:

Held : How the liability of a director would arise u/s 179
for company’s pending demand?
The newly inserted proviso to section 2(15) will
not apply in respect of the first three limbs of section Held:
2(15), i.e. relief of the poor, education or medical
relief. Consequently, where the purpose of a trust There was no notice on record issued to any of the
or institution is relief of the poor, education or directors why an order under sub-section (1) of
medical relief, it will constitute “charitable purpose” section 179 should not be passed for whatever
even if it incidentally involves the carrying on of reasons that may be available at the command of
commercial activities. “Relief of the poor” the income tax authority. The notices were all issued
encompasses a wide range of objects for the welfare to the company. None of these notices contained
of the economically and socially disadvantaged or even a reference to any recoveries being made
needy. It will, therefore, include within its ambit personally from the directors for the failure of the
purposes such a relief to the destitute, orphans or company to discharge its tax dues. The statute did
the handicapped, disadvantaged women or children, not, in any manner, provide for a deeming fiction,
small and marginal farmers, indigent artisans. a natural and inevitable consequence or an
Entities who have these objects will continue to be irrefutable presumption. A direction of a company
eligible for exemption even if they incidentally carry could discharge his responsibility of establishing
on a commercial activity, subject, however, to the necessary facts only when he was put to notice that
conditions stipulated under section 11(4A) or the the authority proposes to pass order under section
seventh proviso to section 10(23C) are that (a) the 179(1) of the Act. The orders were to be set aside
business should be incidental to the attainment of and the consequential attachments would not
the objectives of the entity, and (b) separate books survive.
of account should be maintained in respect of such
business. Similarly, entities whose object is Sec. 12AA : Delegation of power by CIT
“education” or “medical relief” would also continue
to be eligible for exemption as charitable institutions 77 not permissible
even if they incidentally carry on a commercial CIT(E) v/s. Ameliorating India
activity subject to the conditions mentioned above. (2017) 399 ITR 196 (P & H)
The newly inserted proviso to section 2(15) will
apply only to entities whose purpose is Issue :
“advancement of any other object of general public
utility”, i.e. the fourth limb of the definition of Whether CIT can delegate power to any other
officer in the matter of Registration of Trust u/s

462 Ahmedabad Chartered Accountants Journal November, 2018

Held : From the Courts

The order sheet filed on record clearly showed that not to have transferred the matter to the Transfer
none of the proceedings had been conducted by Pricing Officer. The Assessing Officer has acted in
the Commissioner (Exemptions). The last order breach of the principles of natural justice and
sheet dated September 2, 2015 clearly showed that subsequently the ultimate reference to the Dispute
the entire proceedings had been conducted by the Resolution Panel was not valid.
Deputy Director (Systems) for the Commissioner
(Exemptions) and nothing had been done in the Deduction u/s 80IB : Meaning of
matter by the Commissioner (Exemption) himself.
At the end of the order sheet there was the initial of 79 Manufacture in respect of Gold
the Commissioner (Exemptions). The order was not Ornaments : Sec. 2(29BA).
valid. Pr. CIT v/s. Lakesh Handa
(2017) 399 ITR 305 (J & K)
International Transactions : Reference
to Transfer Pricing Officer : Issue:

78 Opportunity to Assessee. What is the meaning of the word “Manufacture” in
PCM Strescon Overseas Ventures Ltd. respect of Gold Ornaments for the purpose of Sec.
v/s. Dy. CIT 80IB?
(2017) 399 ITR 302 (Cal)
The word “Manufacture” has been defined in
Whether an opportunity to the Assessee is a must section 2(29BA) of the Income Tax Act, 1961.
before reference to Transfer Pricing Officer? Under clause (a) of Section 2(29BA), Manufacture
would mean a change in a non living physical object
Held: or thing, which results in transactions of an object
or article or thing into a new and distinct object or
Section 92CA of the Income TaxAct, 1961, provides article or thing having a different name, character
for making a reference to the Transfer Pricing Officer. and use. When 24 carat gold is converted into 22
The section as it stands requires theAssessing Officer carat gold ornaments the purity of gold is reduced
to take a decision on a jurisdictional fact. That by by mixing other metals like silver and copper, which
itself implies that theAssessing Officer while taking are necessary to give strength and durability to
a decision on such jurisdictional fact ought to afford ornamental gold. The manufacturing processes also
a reasonable opportunity of hearing to the assessee involve various steps whereby standard gold,
and thereafter pass a speaking order. By circular dated copper, silver and other ingredients are processed
March 10, 2016 the Assessing Officer is required to through various mechanical processes with the aid
record his satisfaction that there is an income or a of power as well as manual labour and skill. The
potential of an income arising or being affected on processes for of converting 24 carat standard gold
determination of the arm’s length pricing of an into 22 carat gold ornaments would amount to
international transaction or specified domestic manufacture. Gold in the raw form cannot be
transaction. The circular goes on to say that the classified as jewellery or as an ornament. One of
Assessing Officer must provide an opportunity of the main distinctive features being that raw gold or
hearing to the assessee before recording his standard gold does not have the ability and character
satisfaction or otherwise. He should also pass a of being wearable whereas jewellery/ornaments are
speaking order so as to comply with the principles made for that specific purpose. Therefore, the end
of natural justice. product of the process employed by the assessee is
of a different and distinct commodity, commercially
Held Accordingly, that the Assessing Officer not known as such in the market having a different name
having afforded any opportunity of hearing to the character and use.
assessee on the jurisdictional issue raised, it ought
contd. on page no. 469

Ahmedabad Chartered Accountants Journal November, 2018 463


CA. Yogesh G. Shah CA. Aparna Parelkar
[email protected] [email protected]

Koninkligke Philips Electronics N.V. vs. earlier years that the amount in question was in the
nature of royalty payments Also, the DRP noted
43 DCIT (Intl Tax) 99 23 that nothing new has happened nor has any fresh
(Kolkata) fact been brought on record except for the ruling of
Assessment Year 2008-09 to 2010-11 the AAR in the case of ABB Ltd in support of the
Order dated: 25thOctober, 2018 claim. Aggrieved, the assessee preferred an appeal
before the ITAT.
Basic Facts

The assessee is a foreign company incorporated in Issue
Netherlands not having a Permanent Establishment
(PE) in India. Being a parent company, it entered Whether the amount received towards R&D
into Research & Development Cooperation activities was in the nature of royalty ?
Agreement(RDCA) with Philips (Electronics) India
Limited (PEIL), the subsidiary company. In the Held
original return the income received under the
agreement was offered to tax. Thereafter it filed The Hon’ble ITAT held that the agreement provides
revised return of income in which the income was various types of information and results arising and
not offered to tax. Before the AO, the assessee emanating from various research, programs and
submitted that it conducts R&D activities for the laboratories, and the same does not result in the
purposes of continuously innovating and assessee imparting any of its industrial, commercial
introducing newer range of products in the global or scientific experience. Hence, the payments under
market. Further as per the agreement, the entire costs RDCA cannot be classified as Royalty as defined
of the basic R&D are shared between the Philips under Article 12(4) of the India- Netherlands DTAA
entities based on an allocation key and are allowed and the same is not taxable under Article 12. Further,
a royalty-free unlimited access to the research the ITAT held that the assessee does not transfer
results. In lieu of such R&D activities, the assessee right to use. By way of research and development,
was remunerated by PEIL. Further, no personnel PEIL is entitled to enjoy certain services, such as
of assessee was required to visit India for rendering product developments, maintenance of product
any work and the fee received was used to reduce quality, uniform handling, packing, storage and
the overall costs of the basic R&D with no marketing methods, therefore these services by itself
consideration being received for transferring or did not result in any use of or right to use and there
conferring such rights and benefits and hence, are is no transfer of copy right therefore, there cannot
in the nature of reimbursement. Hence, the be any occasion to hold it as royalty. Therefore, the
payments were not taxable in India as per Article ITAT held that it is simply in the nature of
12 of the India-Netherland Tax Treaty as the reimbursement of expenses incurred by assessee on
agreement was a cost sharing agreement. On appeal, behalf of the PEIL and it is not an income for the
the DRP held that the assessee’s case stands assessee. Hence, the payment received by the
weakened in the form of its own admission in the assessee-company are in the nature of

464 Ahmedabad Chartered Accountants Journal November, 2018

ITO vs. Smt. Nita Narendra Mulani 96 Tribunal News

44 204/172 ITD 169 (Mum) provided under Section 49 of the Act where the
Assessment Year 2011-12 Order dated: assessee is deemed to have incurred the cost of
25thJuly, 2018 acquisition. Therefore, if the object of the legislature
is to tax the gains arising on transfer of a capital
Basic Facts acquired under a gift or will by including the period
for which the said asset was held by the previous
The assessee filed its return of income after which owner in determining the period for which the said
the assessment was completed under section 143(3) asset was held by the assessee, then that object
whereby the AO made addition of Long Term cannot be defeated by excluding the period for
Capital Gain (LTCG) on account of income earned which the said asset was held by the previous owner
on sale of share in land at Mumbai.On appeal, the while determining the indexed cost of acquisition
CIT(A) deleted the entire addition holding that the of that asset to the assessee. In other words, in the
assessee be allowed benefit of indexed cost of absence of any indication in clause (iii) of the
acquisition with reference to the year in which the Explanation to Section 48 of the Act that the words
previous owner first held the asset. Aggrieved, the ‘asset was held by the assessee’ has to be construed
revenue preferred an appeal before the ITAT. differently, the said words should be construed in
accordance with the object of the statute, that is, in
Issue the manner set out in Explanation 1(i)(b) to section
2(42A) of the Act.
Whether indexed cost of acquisition on capital
gains arising on transfer of a capital asset Accordingly, the issue was decided in favour of
acquired under a gift/will has to be computed the assessee.
as per section 49(1)(ii) and not from the year in
which assessee became owner of asset ? Ocean Agro (India) Ltd vs. DCIT 96

Held 45 406/172 ITD 169
The Hon’ble ITAT dismissed revenue’s appeal by Assessment Year 2013-14 Order dated:
placing reliance upon the decision of Bombay High 13August 2018
Court in the case of CIT vs. Manjula J. Shah [16 42] wherein it was clearly stated that Basic Facts
for computing capital gains arising on transfer of a
capital asset acquired by assessee under a gift or TheAO noticed that the assessee debited an amount,
will, indexed cost of acquisition has to be computed which according to the AO was in the nature of
from the year in which previous owner first held penalty for an offence. The AO by issuing a show
asset and not year in which assessee became owner cause notice proposed disallowance of the same,
of asset. In case of Manjula J Shah, the High court and accordingly sought for explanation from the
had held that in construing the words ‘asset was assessee. The assessee submitted that the payment
held by the assessee’ in clause (iii) of Explanation in question was towards compounding fees levied
to Section 48 of the Act, the object with which the by the Legal Metrology department, which was
said words are used in the statute needs to be seen. compensatory in nature and not penal as alleged
If the Explanation 1(i)(b) to Section 2(42A) is read by the AO. It was submitted that expenditure could
together with Section 48 and 49 of the Act, it not be allowed under Explanation to section 37 only
becomes absolutely clear that the object of the statute when it was incurred for an offence or the act
is not merely to tax the capital gains arising on prohibited by the law. The payment of
transfer of a capital asset acquired by an assessee compounding fees, which was neither an offence
by incurring the cost of acquisition, but also to tax nor prohibited by the law, could not be disallowed.
the gains arising on transfer of a capital asset inter The AO did not accept this submission of the
alia acquired by an assessee under a gift or will as assessee and held that since legal expenses claimed

Ahmedabad Chartered Accountants Journal November, 2018 465

Tribunal News

by the assessee has an element of breach of law, DCIT v. Esaote India (NS) Ltd.96
therefore, the same was penalty and not allowable
under section 37. The assessee appealed before the 46 624/172 ITD 299 (Ahd)
First Appellate Authority who concurred with the Assessment Year 2012-13 Order dated:
finding of the AO and confirmed addition. 31 July 2018
Aggrieved, the assessee preferred an appeal before
the Hon’ble ITAT. Basic Facts

Issue The assessee-company had claimed interest
expenses, which were paid to NBFCs. However,
Where, payment made by assessee on direction the assessee failed to deduct the TDS on the
of Inspector of Legal Metrology as payment of interest made to such companies under
compensation/damages to avoid any future section 194A. Therefore, the AO disallowed same
litigation and, thus, settle the issue, was allowable under section 40(a)(ia). Before the CIT(A) the
as business expenditure? assessee had filed the details of the companies to
whom the interest was paid and submitted that it
Held had obtained requisite certificates from the parties
in Form No. 26A showing that the receipts from
Explanation 1 appended to section 37(1) prohibits the assessee was included in their respective books
allowance of any expenditure, if it was incurred of account and these parties had paid the taxes.
for illegal activities or towards infringement of law. Therefore, the assessee should not be treated as
The revenue authorities construed the payment assessee in default under section 201(1).
made by the assessee to Inspector of Legal Accordingly, no disallowance on account of non-
Metrology Department as incurred towards deduction of TDS could be made. The assessee
violation of law, which is penal in nature. The further submitted in respect of interest paid to the
Hon’ble ITAT noted that the impugned expenditure party mentioned at Serial No. 5 that it had filed a
incurred by the assessee is more in the nature of certificate u/s. 195(3) to the assessee for not
compensatory and necessitated by commercial deducting the TDS and therefore, no TDS was
expediency. In the normal incidences of business, deducted on the payment of interest to that party.
certain damages are to be paid by an assessee and The CIT(A) after considering the submission of the
the expenses so incurred is an allowable deduction assessee deleted the addition made by the AO.
in the ordinary course of the business. Further, the Hence, the revenue appealed before the Hon’ble
letter of Inspector of Legal Metrology, states that ITAT.
the assessee to make the payment to avoid any
future litigation. The Hon’ble ITAT held that the Issue
assessee had settled the issue by paying the sum as
compensation for the interest of its business, which i. Whether second proviso to section 40(a)(ia)
cannot be treated as incurred for infraction of any has retrospective effect from 1-4-2005?
law and therefore, to be disallowed and thus the
action of theAO in disallowing the impugned claim ii. Whether, therefore, where recipient/
was not proper, as there was no finding recorded to deductee had already paid tax on impugned
demonstrate that the expense incurred by the amount of interest under section 194A
assessee was penal in nature and that assessee had received from assessee by filing return of
committed any contravention of law. Thus, the income, such interest payment could not be
appeal was allowed in the favor of assessee and disallowed in assessee’s hands under section
the disallowance was deleted. 40(a)(ia)?


The assessee inter-alia submitted that there is an
amendment by the Finance Act, 2012, which
provides that no disallowance needs to be made if

466 Ahmedabad Chartered Accountants Journal November, 2018

the recipient has included the payment, made by Tribunal News
the assessee in its receipts and has paid the taxes
thereon. There is an amendment in the 1st proviso international transactions entered into by the
to Section 201, wherein, if any payee has paid the assessee. The TPO compared the gross margin
taxes by offering/disclosing the said receipt in its earned on exports at 23.32 per cent as against gross
return of income, then the payer (the assessee profit of 50.65 per cent earned by the domestic
herein) should not be treated as assessee-in-default. consumer product division and, accordingly, made
The similar amendment was also brought under the certain transfer pricing adjustment.
provisions of section 40(a)(ia). The said proviso
though inserted by the FinanceAct, 2012 with effect The DRP also confirmed the adjustment and the
from 1-4-2013 has been held to be retrospective in assessee on appeal before the Tribunal.
operation. Hence, the Hon’ble ITAT held that the
claim of the assessee for the interest expenses cannot Issue
be denied due to non-deduction of TDS under
section 194A read with section 40(a)(ia). About the Where assessee sold herbal pharmaceutical
interest payment to the party mentioned at Serial products manufactures by it in Indian market
No.5, the Hon’ble ITAT noted that the party had as well as to AEs located abroad, in view of fact
given a certificate under section 195(3) to the that functions performed, assets employed and
assessee for the deduction of TDS at NIL rate and risks undertaken in both segments were not
therefore, the Hon’ble ITAT held that there was no same, CPM could not be considered as most
liability for the deduction of TDS on the payment appropriate method for determining ALP in
of interest to that party. Accordingly, the finding of respect of international transactions entered
the CIT(A) was upheld and the AO was directed to into with AE
delete the same.
Himalaya Drug Company Vs. Deputy
The TPO has taken AE sales comprising of both
47 Commissioner of Income Tax [2018] 96 pharma and personal care products and compared 335 the same with the personal care products of the
Assessment Year: 2011-12 Order Dated: domestic segment. Since the products compared are
4th July 2018 different, consequently the gross profits are also
different. Further, the number of differences and
Basic Facts adjustments to be carried out for comparison
purposes are large in number and therefore where
The assessee firm was engaged in the business of differences are many, CPM cannot be considered
manufacture and sale of herbal pharmaceutical as MAM. Consequently, TNMM is the MAM in
products and consumer/personal care products. The the peculiar facts and circumstances of the case on
manufactured products were sold in India (domestic hand. The TPO held that the assessee acted as a
sales) and were also exported toAEs/related entities contract manufacturer in respect of products
outside India. exported to AEs since the products are sold to AEs
at cost plus 15% and the assessee does not
In TP Study, TNMM was considered as most undertake any other functions. In this respect the
appropriate method for ALP determination and the Tribunal referred to the OECD guidelines in respect
international transactions of exports with its AE of contract manufacturing, as per this guidelines in
were claimed to be carried out at ALP as the net contract manufacturing the producer is working as
margin earned in domestic segment was at 11.30% per the terms & conditions and under control of the
as compared to 15.80% earned from exports to AE. principle. The Tribunal observed that in the
appellant’s case, the products involved are standard
In transfer pricing proceedings, the TPO selected goods manufactured by the assessee and selling
Cost Plus Method (CPM) for determining ALP of them in the ordinary course of its business, both in
the domestic and overseas markets. The assessee

Ahmedabad Chartered Accountants Journal November, 2018 467

Tribunal News Issue

does not depend on the technology of the AEs for Whether profit-making can be detrimental as
manufacture of products; whose specifications long as a society pursues a charitable purpose?
whether technical or otherwise are decided by the
assessee itself. The TPO has accepted that the Whether charitable purpose necessarily has to
assessee has its own range of products and the AEs be targeted to serve the poor?
only choose from the standard products which are
manufactured by the assessee for the Indian Market. Held
The TPO’s understanding of a contract
manufacturer will make every manufacturer of As noted by the Tribunal the main object of the
goods in India who would not only make domestic trust was “to establish any institution or adopt means
sales but also effect sales to an overseas distributor for imparting, promotion of education particularly
as a contract manufacturer. for the poor or weaker section as a whole”.

While deleting the Transfer pricing adjustment the The Tribunal referred to various decision of the
tribunal also referred to the decision in case of Supreme Court & High court which have settled
Essilor Mfg. India (P) Ltd. V Dy CIT 67 the law, explaining that on an overall view of the 377 (Bang). matter the object should not be to make profit i.e.
profit making should not be the predominant object,
Lord Shiva Educational Welfare Society as where the charitable purposes gets submerged
by the profit motive, the latter masquerading under
48 vs. CIT (Exemp.) 97 501 the guise of the former. As long as it is not so, so
(Chandigarh) that the activity carried on does not have profit-
Assessment Year 2017-18 Order dated: making as its predominant object, it is not excluded.
10thSept, 2018 But the tribunal found that the decisions were
rendered in the context of the charitable purpose
Basic Facts being ‘the advancement of any other object of
general public utility’ qualified by the defining
The assessee society by pursuing the object of provision of law itself by a bar with reference to
imparting and promotion of education was engaged profit or in the context of section 10(23C)(iiiad)/
in running a school.For the AY 2015-16, the (vi), specifically providing for educational
assessee claimed and was allowed exemption u/s. institution, income from which gets exempt there
10(23C)(iiiad) vide order u/s. 143(3).Although under, to be ‘existing solely for education and not
carrying out an activity for a ‘charitable purpose’, for profit’, so that the Apex Court found it useful to
CIT(E) denied registration under section 12AA of refer to the elucidation of and the connotation of
the Act on the various grounds viz. that the activity the preposition ‘for’ per its earlier decisions. For
was conducted under a franchise agreement with a the other objects constituting a charitable purpose,
commercial/corporate entity viz. Zee Learn, the the genuineness of the purpose gets tested by the
franchisee was secured by paying a one-time non- obligation created to spend the income exclusively
refundable deposit along with the stipulation of or essentially on charity, i.e. its charitable objects.
remitting 10% of the total collection each year as The Tribunal upheld the assessee’s stand that profit
royalty. Also, under the agreement, the fee structure making, or running the school on business or
and other major decisions were to be taken by the commercial principles, would not exclude it from
franchisor. Further, the school was situated on a being regarded as existing for charitable purpose.
leasehold land, accordingly assets of the society did According to the tribunal even regarding it as a
not become its property and the school ran on a business; education being a service that has become
well established business model for the public at increasingly competitive and professional over time,
large. Aggrieved, the assessee preferred an appeal which rather gets borne out by the fact of the same
before the Tribunal.

468 Ahmedabad Chartered Accountants Journal November, 2018

being provided through franchisee units, paying a Tribunal News
franchise fee and royalty, so that it may not be Tribunal set aside the matter to the file of the CIT
incorrect to regard it as so, would not though bar to enable the asssessee to demonstrate that its
the profits and gains from it as being regarded as activities are being undertaken towards and in
income liable for exemption us/11(1)(a) where the satisfaction of its stated objects/s.
‘business’ is incidental to or subserves the charitable
purposes (refer s.11(4A). hhh

Considering the objects of the assessee and the
actual activities carried out by the assessee of
running the school through Franchisee model, the

contd. from page 463 From the Courts

Derived v/s. Attributable to ambit of section 80IAB. Wherever, the expression
“derived” is used, as against “attributable to”, the
80 Cyber Pearl Information Technology width and the amplitude is narrower. Therefore,
Park P. Ltd. v/s. ITO courts have held consistently that in order to come
(2017) 399 ITR 310 (Mad) to a conclusion as to whether such profits or gains,
i.e. Income, would be amendable to deduction, the
Issue : effective source of such income is to be looked at.
Once it is found that the income is derived from a
What is the meaning of “derived” against the word secondary source which is not the effective source,
“attributable to” for interpretation? it falls outside the purview of such provisions which
provide for deductions with purpose of giving fillip
Held : to the designated activity, which is the business of
developing a special economic zone.
As would be evident, upon a bare perusal of section
80IAB of the Income tax Act, 1961, an assessee is hhh
entitled to a deduction of the specified amount from
any profits and gains, which are derived by an
undertaking or an enterprise from any business of
developing a special economic zone. The term
“derived”, therefore, is critical in appreciating the
kind of deduction, which would fall within the

Ahmedabad Chartered Accountants Journal November, 2018 469


In this issue we are giving gist of An interesting CA. Sanjay R. Shah
decision of Hon’ble Ahmedabad Tribunal in the case [email protected]
of Greenland Infracon P. Ltd. in the which the
Hon’ble Tribunal decided in favour of the assessee disallowance made u/s 14A by the learned
an issue as to whether when suo moto disallowance A.O. at Rs.1.67 crores as against suo moto
was made in its return of income u/s 14A and later disallowance of Rs.98.03 Lakhs made by the
on it was realized that there is no exempt income, assessee himself was deleted by the CIT(A).
can the assessee request CIT(A) to delete the The assessee company had made investments
disallowance so made suo moto on the ground that in securities yielding tax free income. However,
it was wrongly offered for tax and that too without during the year under consideration it did not
filing revised return. receive any tax free income.Yet in its return of
income it had suo moto disallowed a sum of
We hope the readers would find the same useful. Rs.98.03 Lakhs as against the non-existent tax
——————————————————— free income. The A.O. reworked the
disallowance at Rs.1,67,32,314/- and after
In the Income Tax Appellate Tribunal reducing suo moto disallowance of
“C” Bench, Ahmedabad Rs.98,03,322/- made an additional
disallowance u/s 14A for Rs.69,28,992/-.
Before Shri Pradip Kumar Kedia,
Accountant Member 2. In the appeal before CIT(A), the assessee
contended that since the assessee did not have
& Shri Mahavir Prasad, Judicial Member any tax free income during the year, no
disallowance should be made u/s 14A
ITA Nos. 2039 & 2040/Ahd/2016 following several decisions which are in
favour of the assessee. The assessee also
Assessment Years : 2012-13 & 2013-14 contended that the suo moto disallowance
made by him u/s 14A also like-wise should
The Deputy Vs Greenland Infracon P. L. be cancelled as it is against the decided cases
Commissioner Ardor House, and was wrongly offered to tax in its return of
of Income Tax Mondel Business Park income.
Circle-2(1)(1) Thaltej, Ahmedabad
Ahmedabad PAN : AADCG5313Q 3. CIT(A) upheld the contentions of the assessee
and deleted the entire disallowance u/s 14A,
(Appellant) (Respondent) the department came in appeal before Hon’ble
Appellant by Shri S.K. Dev, Sr. D.R. Tribunal, wherein it contended that at least the
Respondent by Shri Ankit M. Talsania, A.R. disallowance made by the assessee suo moto
at Rs.98,03,322/- should have been confirmed
Date of Hearing 24/10/2018 by the CIT(A) as the assessee himself in the
Date of Pronouncement 14/11/2018 return had offered the same for tax and had not
withdrawn such disallowance by filing revised
Gist Only return.

Facts :

1. This was an appeal filed by the department
against the order of the CIT(A) wherein the

470 Ahmedabad Chartered Accountants Journal November, 2018

Held : Unreported Judgements

1. The Hon’ble Tribunal on the disallowance of required to ensure that only legitimate tax
expense u/s 14A relying on the Hon’ble Gujarat dues are collected. This is the view which
High Court decision in the case of Corrtech flows from innumerable judgments
Energy (P) Ltd. 45 116 and including CIT vs. Shelly Products (2003)
also other decisions held that when there is no 261 ITR 367 (SC), S.R. Koshti vs. CIT
tax free income earned during the year, no such (2005) 276 ITR 165 (Guj.), Ester Industries
disallowance u/s 14A could be made. vs. CIT (2009) 185 TAXMAN 266 (Delhi)
and CIT vs. Pruthvi Brokers &
2. As regards the second question of whether Shareholders (P) Ltd. [2012] 349 ITR 336
CIT(A) was justified in deleting disallowance (Bom.). The essence of these decisions are
u/s 14A suo moto made by the assessee in its that mere admission on the part of the
return of income, the Hon’ble Tribunal assessee with respect to an addition/
observed as under : disallowance in its original return or in
revised would not ipso facto bar an
“8. We shall now turn to the second issue assessee from claiming an expense or
raised on behalf of the Revenue regarding disputing an addition if it is otherwise
propriety of the action of the CIT(A) in permissible under law. It is thus well settled
granting relief on the disallowance (suo that if a particular income is not taxable
moto made by the assessee) beyond the under the Act, it cannot be taxed on the
return of income and in the absence of any basis of estoppel or any other equitable
formal revised return. The CIT(A) has doctrine. The Revenue authorities cannot
discussed this aspect in very great detail enforce untenable actions of the assessee
in para 2.5 to 2.28 of its order. We are not against it which led to declaration of
inclined to reiterate the findings of the income of higher amount incorrectly. It is
CIT(A). However, we fully endorse the thus open to assessee to show that it was
observations of the CIT(A) which over assessed in correctly owing to its own
essentially holds that the mistake or mistake.
inadvertence on the part of the assessee
whereby an income not taxable has been 10. So viewed, we do not see any potency in
wrongly offered fo tax, will not operate as the argument laid on behalf ofthe Revenue
any kind of estoppel against the assessee that the CIT(A) allegedly committed error
and regardless of whether the revised in granting total relief in the matter of
return was filed or not. Once the assessee disallowance under s. 14A of the Act. In
is in a position to show that it has been our considered view, the action of the
over assessed under the provisions of the CIT(A) in granting relief under s. 14A of
Act even on account of assessee’s own the Act on account of suo moto
mistake or otherwise, the Revenue is under disallowance by the assessee and thereby
duty to assess correct income. granting relief higher than claimed in the
return of income cannot be faulted in law.
9. It is trite that the authorities under the Act
are under sacrosanct obligation to act in 11. In the result, appeal of the Revenue is
accordance with law. Tax can be collected dismissed.”
only as provided under the Act. If an
assessee, under a mistake, mis-conception Similar was the case with Assessment Year 2013-
or not being properly instructed, is over 14 and on the same reasoning the appeal of the
assessed, the authorities under the Act are department for that year was also dismissed.


Ahmedabad Chartered Accountants Journal November, 2018 471


Issue: CA. Kaushik D. Shah
[email protected].
Whether there will be any disallowance in case
the assessee borrows fund at a higher rate while Proposition:
lending the same at lower rate?
Once the genuineness of interest paid is accepted
The bare reading of Section 36(1)(iii) is as follows: with regards to section 36(1)(iii), reasonableness
of interest is not a matter to beconsidered, it cannot
“36(1) The deductions provided for in the following be reduced by the Department. The interest received
clauses shall be allowed in respect of the matters from the sister concern cannot be questioned on
dealt with therein, in computing the income referred the fact that it is at lower rate as compared to the
to in Section 28 – market rate, if the same is for business purpose and
not with an intention of diverging the funds in the
( i ) and ( ii ) hands of the assessee who is taxed at lower slab
(iii) the amount of the interest paid in respect of
capital borrowed for the purposes of the business Facts of the Matter:
or profession
Assessee has borrowed monies from different
The expression “for the purpose of business” occurs lenders at different rates ranging from 11 - 15 %
in Section 36(1)(iii) and also in Section 37(1). A while he has lent monies to their sister concern at
similar expression with different wording also 10 %. The A.O. is of the opinion that the interest
occurs in Section 57(iii) which reads as “for the expenditure can only be allowed to the extent of
purpose of making or earning income”. 10 % u/s 36(1)(iii) as the borrowed monies are not
fully utilized for business purpose.
Allowability u/s. 36(1)(iii)
Views in favour of proposition:
1. It must be interest on capital (moneys)
borrowed. Once the loan is used for the purpose of business,
it is irrelevant to consider the object with which the
2. The borrowing must be for the purpose of loan is obtained.
India Cements Ltd. V/s CIT (1966) 60 ITR 52,53
3. The borrowed amount may be utilized even (SC). Though the way the borrowed money used
for procuring capita asset related to the business. is not material, yet it is needless to say that such
user must be in relation to the business only. That
In the context section 36(1)(iii),interest is restricted is, it is not only that the capital should be borrowed
to that on money borrowed and not on debt for the purpose of business. In fact, whether money
incurred. borrowed is for business purposes or not can only
be ascertained by examining the use to which it is

472 Ahmedabad Chartered Accountants Journal November, 2018

Referring to the provisions of section 36(1)(iii) it Controversies
has been contended that the money has been
borrowed, the borrowing has been for the purpose lending at lower rate provided that the lending is
of business and interest has been credited to the done for the business purpose only.
account of the lender. It has been contended that
the action of Assessing Officer judging the The Hon’ble Supreme Court judgment in the case
reasonableness of the interest payment and making of S. A. Builders Ltd. v. CIT (Appeals) [2007] 288
the disallowance is absolutely without jurisdiction ITR 1 (SC), in which the concept of ”commercial
and not in accordance with law. expediency” was used. Thus, where the funds of
the business a diverted for interest free loans/loans
It has been contended that the banks generally urged at lower rates, the main criteria for permissibility of
interest at the rate of 18% from the debtors, which interest on those funds are based on whether it was
ultimately works out to 21% has been contended for commercial expediency or not. The phrase
that all these lenders are unsecured and interest is “commercial expediency” has following important
credited in their accounts only at the end of the year. traits as established by case laws cited supra:
It has been contended that Tribunal has held
repayment of interest at the rate of 15% to be - Such purpose as is expected by the assessee to
reasonable in its decision rendered in ITA No. 265/ advance its business interest.
JP/69 in the case of M/s DhanrajSohanlal.It has
been contended that the ld. CIT(A) has rightly - May include measures taken for preservation,
deleted disallowance. protection or advancement of its business
Views against the proposition:
- To be distinguished from the personal interest
The interest paid by assessee to this group of lenders of its directors or partners, as the case may be.
was definitely at exorbitant rates and it was merely
diversion of taxable income of the assessee in the - There has to be a nexus between the advancing
hands of persons having non-taxable income, and of funds and business interest of the assessee.
that the payment of high rate was not for fully Some business objective should be sought to
business purpose, but merely for personal benefits have been achieved by extending such interest
of the lenders, it was with these observations that free advances when the assesseefirm/company
the Assessing Officer restricted the allowing of itself is borrowing funds for running its
payment of interest up to 10%. business.

It has been contended that the assessee cannot get The Hon’ble Supreme Court has also delved into
deduction on higher rate of interest and such claim the case where there would be mixed fund at the
may be in fact of collusive transaction. It has also disposal of the assessee. It further clarifies that under
been contended that if the lenders were claiming Section 36(1)(iii) the ultimate use of the fund is
higher rate of interest then the assessee could have important. It may not be relevant as to whether
withdrawn his funds from the sister concern and the advances have been extended out of
paid the same to the lenders. the borrowed funds or out of mixed funds which
include borrowed funds.
In order to sum up the whole discussion it can be
rightly concluded that there can be no disallowance
in case the assessee is borrowing at higher rate while

Ahmedabad Chartered Accountants Journal November, 2018 473

Judicial Advocate Tushar Hemani
Analysis [email protected]

Recent Decisions of ITAT Benches on the issue information and such information cannot
of ‘Penny Stock’ be foundation for assessment.

20 Shri Umedmal Vs. ITO Non Corporate 10. Admittedly, the assessee has claimed to
Ward in ITA No. 1342/Chennai/2018 – have purchased 15000 shares from M/s.
Dt. 08/11/2018 BPL @ Rs.20/- per share totalling into Rs.
3,00,000/-. The assessee claims to have
5. I have considered the rival submissions. A paid cash for the purchase of these shares.
perusal of assessee’s case shows that it is similar The primary question would be as to where
to the facts in the case of Shri Heerachand the purchase was done? If the purchase has
Kanunga referred to supra. Consequently as been done in Kolkata, how was the cash
we have already held in the case of Shri transferred? When did the assessee
Heerachand Kanunga referred to supra, as received the share certificates and the share
follows:- transfer forms? How did the assessee
overcome the provisions of Sec.40A(3)?
“9. A perusal of the facts in the present case Was there adequate cash availability in the
admittedly given room for suspicion. books of the assessee on 24.04.2008? Did
However, assessments are not to be done the assessee travelled to Kolkata? How was
on the basis of mere suspicion. It has to be the transaction done? Who applied for the
supported by facts and the facts are demating of the shares? When were they
unfortunately not forthcoming in the demated? When were the shares transferred
Assessment Order, in the order of the to the demat account of the assessee? To
Ld.CIT(A) nor from the side of the whom were the shares sold during the
assessee. The main foundation of the Assessment Years 2010-11 & 2011-12?
assessment in the present case is the When were the cheques received by the
statement of one Shri Ashok Kumar Kayan assessee? From whom did the assessee
who has admitted to have provided bogus received the cheques? Was there any cash
Long Term Capital Gains to his clients. The deposit immediately prior to the issuing of
said Shri Ashok Kumar Kayan also the cheque from the bank account of the
allegedly seems to have provided the purchaser of the shares of the assessee? 11.
assessee’s name and PAN as one of the A perusal of the Assessment Order at Para
beneficiaries. However, this statement No.7.1 shows that in the Written
given by Shri Ashok Kumar Kayan cannot Submissions, the assessee states that he has
be the foundation for the purpose of purchased 15000 shares of M/s. BPL from
assessment in so far as Shri Ashok Kumar M/s. ABPL, Kolkata. However, in Para
Kayan has not been provided to the No.8.3, it is mentioned that the assessee in
assessee for cross-examination. In the good faith has purchased the shares of
absence of opportunity of cross- M/s. BPL from a sub-broker in his friends
examination, the statement remains mere

474 Ahmedabad Chartered Accountants Journal November, 2018

Judicial Analysis

circle. What is the true nature of the 12. The statement recorded by the Revenue
transaction? From whom did the assessee from Shri Ashok Kumar Kayan cannot be
actually purchase the shares? Did the used as an evidence against the assessee
assessee take possession of the shares in in so far as the statement has not been given
its physical form? In Para No.8.1 of the to the assessee nor has Shri Ashok Kumar
Assessment Order, it is mentioned that the Kayan been provided to the assessee for
assessee is an investor and has been cross-examination. However, the assessee
regularly trading in shares. If this is so, does shall prove the transaction of the Long
the demat account show such transactions Term Capital Gains in respect of which the
being done by the assessee or is this the assessee has claimed the exemption u/
only one of transaction. Thus, clearly the s.10(38) by providing all such evidences
facts required for adjudicating the appeals as required by the AO to substantiate the
are not forthcoming. There is no evidence claim as also by producing the persons
whatsoever to show that the assessee has through whom the assessee has undertaken
held the shares for more than 12 months. the transaction of the purchase and sale of
This is because assuming that the demat the shares which would include the sub-
has been done and the shares of M/s.BPL broker, friend and the broker through
has come into the assessee’s demat account whom the transaction has been done,
and has immediately flown out. Then the before the AO for examination”
factum of the possession of the shares for
more than 12 months have to be proved respectfully following the above decision of the
by the assessee. This is also not Co-ordinate Bench of this Tribunal, the issue
forthcoming. In reply to a specific query, is restored to the file of ld. Assessing Officer
as the date of the demat of shares, it was for re-adjudication on identical directions as
submitted by the Ld. AR that the demat given in the case of ShriHeerachandKanunga
was done on various dates. Then the referred to supra.
question rises as to why there is so much
of difference in the dates of demating when Smt. Simi Verma Vs. ITO in ITA No.
15000 shares have been purchased
together on 24.04.2008. No details in 21 3387/Del/2018 (ITAT - Delhi) – 06/11/
respect of M/s. BPL company is known, 2018
what is the product of the company which
had lead to the share value of the company 7. I have carefully perused the orders of the
to go up from Rs. 20/- to Rs. 352/- in a authorities below and relevant documentary
period of two years. This would clearly be evidences brought on record. Purchase and sale
a case where the share value of the of shares are documented and exhibited at pages
company was hitting the circuit breaker of 1 to 8 of the paper book. Sale of shares are
the stock exchange on a daily basis and carried out in BSE at the prices prevailing in
obviously it would have drawn attention. the market which are duly supported by contract
This being so, as the facts are not coming notes issued by the broker. The entire
out of the Assessment Order nor the order transactions have been discarded by the
of the Ld.CIT(A) nor from the side of the Revenue authorities because the BSE has
assessee, we are of the view that the issues suspended trading in shares of Turbotech
in this appeal must be restored to the file Engineering Pvt Ltd in January 2015. The
of the AO for re-adjudication after granting undisputed fact is that the assessee had sold
the assessee adequate opportunity to the shares in the month of July and September
substantiate its case and we do so. 2013, therefore, any action taken in 2015 would
not affect the transactions done in 2013.

Ahmedabad Chartered Accountants Journal November, 2018 475

Judicial Analysis 4. Hon’ble Rajasthan high court in case of
PoojaAggarwal DBIT Appeal No. 385/
Moreover, neither the SEBI nor the BSE has 2011 dated 11.09.2017
nullified the transactions done in 2013 in the
scrip of Turbotech Engineering Pvt Ltd. Merely 5. The Income TaxAppellate Tribunal, Bench
because some market players were doing Mumbai (Special Bench) ITA No.5996/
clandestine activities in some scrips in the stock Mum/1993 (Assessment Year: 1984-85)
market would not make genuine transactions
bogus. Merely because in the report of 7. The Income Tax Appellate Tribunal “C”
investigation wing, Kolkata name of Turbotech Bench : Kolkata [Before Hon’ble
Engineering Pvt Ltd is mentioned would not ShriJ.Sudhakar Reddy, AM & Hon’ble
make genuine transaction bogus. There is no Shri S.S. Viswanethra Ravi, JM ] I.T.A
direct evidence to demonstrate that the assessee No. 2281/Kol/2017 Assessment Year :
was one of the direct beneficiaries of the 2014-15 NavneetAgarwal, Legal Heir of
accommodation entries provided by the Late KiranAgarwal [PAN: ADGPA 9851
company. Considering the facts of the case in N ] (Appellant) Date of Pronouncement :
totality in the light of supporting documentary 20.07.2018
evidences, I do not find any merit in the
impugned additions. I, accordingly, direct the 8. In the Income Tax Appellate Tribunal “D”
Assessing Officer to allow claim of long term Bench : Kolkata I.T.A. No. 604/Kol/2018
capital gain exemption u/s 10(38) of the Act Assessment Year: 2014-15
and delete the additions made u/s 69C of the
Act.” 9. In the Income Tax Appellate Tribunal
Delhi Bench “SMC” New Delhi I.T.As.
22 Shri Arun Kumar Vs. ACIT in ITA No. No.2128/Del/2018 Assessment Years:
457/Del/2018 (ITAT – Delhi) – Dt. 05/11/ 2015-16 M/s. AmitRastogi HUF Date of
2018 pronouncement: 24.10.2018

“7. I have heard both the parties and perused the 11. The Hon’ble Delhi Bench of the Tribunal
records, especially the written submissions filed in the case of ITO vsJatin Investment Pvt.
by the Assessee’s counsel along with the Ltd. In ITA No.4325 & 4326/Del/2009
various orders of the Hon’ble High Court and order dated 27.05.2015
the Tribunal. For the sake of convenience, the
relevant paragraphs of the findings of the 10. The “A” bench of the Kolkata Tribunal in
Hon’ble High Courts as well as Tribunal on the case of ITO vs. ShaleenKhemani in
the issue in dispute are reproduced as under:- I.T.A. No. 1945/Kol/2014 dated
18.10.2017 at para 9.1. to 9.4 held as
1. The Hon’ble Punjab and Haryana High follows:
Court in the case of PREM PAL
GANDHI dated 18.01.2018 (401 ITR 12. The Hon’ble Delhi High Court in the case
253). of Principal C.I.T. vs Jatin Investment Pvt.
Ltd. [2017 ] TMI 342 (Delhi)
2. In similar case, the Hon’ble Calcutta High
Court in the case of Principal CIT vs 13. Hon’ble Jurisdictional High Court in the
Rungta Properties in ITA No.105 of 2016 case cited as CIT Vs Vishal Holding and
dated 08 May, 2017 Capital Pvt. Ltd. vide order dated 9th
August, 2010 upheld the order dated
3. The Hon’ble Calcutta High Court in the 30.07.2009 of the ITAT in I.T.A. No.
case of M/s. Alipine Investments in ITA 1788/Del/2007
No.620 of 2008 dated 26th August, 2008.
13. Hon’ble Jurisdictional High Court in the
case cited as CIT Vs Vishal Holding and

476 Ahmedabad Chartered Accountants Journal November, 2018

Capital Pvt. Ltd. vide order dated 9th Judicial Analysis
August, 2018
Stock Exchange “M. Prasad & Co. Ltd.” The
8. In view of aforesaid judgments/orders passed assessee had purchased 25000 shares of M/s.
by the Hon’ble High Courts as well as the NFGL on 13.06.2012 at a cost price of
Tribunal, I have no hesitation to hold that neither Rs.128.25 per share and remitted Security
AO nor CIT-A has been able to controvert Transaction Tax (STT) of Rs.4007.81 and at a
assessee’s copious evidences filed in present total cost price of Rs.32,16,000/- (see contract
case which clearly supports the case of assessee note placed at page 6 of paper book). Thus,
qua LTCG claimed as exempt u/s 10(38) of we find that the AO erred in finding that the
the Act on sale of shares of M/s KappacPharma assessee had made the purchase not through
Limited and so issue framed by me above needs Stock Exchange but it was an off market
to be answered in favor of appellant /assessee. transaction. We find that the assessee had
So addition made on a/c of LTCG /s 68 read purchased through registered broker M/s. M.
with section 115BEE is deleted. So grounds Prasad & Co. who was registered stock broker
relating to addition u/s 68 are allowed.” of the Bombay Stock Exchange and on
13.06.2012 assessee purchased 25000 shares
Smt. MadhuKilla, Kolkata Vs. ACIT in at Rs.28.25 per share on which STT was paid
and the total transaction of Rs.32,21,213.10 was
23 ITA No. 834/Kol/2018 (Kolkata) – Dt. 02/ paid through account payee cheque to the
11/2018 registered broker and the shares were deposited
in the demat account (D. P. Stock HLDG Corp
15. We have heard both the parties and perused of India Ltd.)
the records. It was brought to our notice by the
Ld. AR in the assessment order at para 3.13 16. The sale of M/s. NFGL shares took place
the AO has stated in sub-para ‘c’ that “the through the same registered stock broker of
assessee purchased shares at Rs.865.97 per Bombay Stock Exchange from 05.08.2013 to
share ……”. It was pointed out by the Ld. AR 30.12.2013 for sale price ranging from Rs.820/
that the assessee has purchased share of M/s. - to Rs.921/- per scrip (see contract note placed
NFLG for Rs.128.25 per share which is from pages 7 – 17 of paper book). We note
reflected in page 6 of the paper book which is from perusal of pages 18-19 of paper book,
the contract note. According to Ld. AR this is which reveals that the payment for purchase of
nothing but cut paste of some other case and shares were made through Axis Bank of
has nothing to do with the assessee’s case and assessee and payment has been made on
it exposes non-application of mind of the AO. 14.06.2012 vide cheque no. 138919 for an
We find that the AO has stated that the assessee amount of Rs.32,21,213.10 to the recognized
has purchased the share at Rs.865 per share stock broker of Bombay Stock Exchange M.
whereas the assessee had purchased the shares Prasad & Co. We also note from perusal of
at Rs.128.25, therefore, we note that the AO pages 20-23 of paper book which is the extract
erred in making the erroneous finding of the of pass book of assessee in Punjab National
purchase value of the shares. We note that in Bank wherein we note that assessee had
this case the assessee was investing in different received sale consideration through bank
shares of the companies (30 different shares of transaction and we verified the contract note
companies) as evident from perusal of page 5 of sale placed at pages 7 to 17 and tallied the
of paper book and the purchase and sale of entries of sale consideration received by the
shares in M/s. NFGL is one among the 30 odd assessee in her bank account and find it to be
shares the assessee dealt with as an investment correct. We on perusal of page 24, which is the
through a registered stock broker of Bombay transaction cum holding statement of Stock
Holding Corporation of India Ltd. find that the

Ahmedabad Chartered Accountants Journal November, 2018 477

Judicial Analysis

share of M/s. NFGL was held in De-mat assessee, and without doing so, the AO has
account. We note from a perusal of page 26, simply concluded on the basis of the
which is the transaction statement of Demat presumption and assumption and circumstantial
account shows that M/s. NFGL’s shares of evidence and on preponderance of probabilities
Rs.25,000/- by inter depositing transfer on has debunked the entire evidence submitted
15.06.2012. A perusal of page 30 of paper before the AO to saddle the entire sale
book, which is the transactional statement of consideration and to allege commission given
Demat account corroborate the sale of scrips @ 5% which comes to Rs.10,82,460/- against
of M/s. NFGL (from 07.08.2013 – the assessee Thus we note that the assessee had
30.10.2013).A perusal of pages 34-36 of paper furnished all primary evidences in the form of
book, which is the ledger of assessee in the bills, contract notes, de Mat statements and
books of share broker (01.04.2014 to bank accounts to prove the genuineness of the
31.03.2014) corroborates the sale transaction transaction relating to purchase and sale of
of scrips of M/s. NFGL. shares resulting in LTCG. By adducing these
evidences, the assessee had discharged the onus
17. The assessee had sold the shares on 05.08.2013 on her to prove the genuineness of the
5000 shares at the value of Rs.820/- per share transaction which yielded her LTCG. Once the
and paid STT and received a consideration of assessee had discharged her onus, then the onus
Rs.40,82,079/- which the assessee received by shifted to the shoulders of AO then the AO has
account payee cheque which is reflected in to examine the veracity of the documents
page 21 of the paper book received on produced by the assessee and if it is found to
24.08.2013. Likewise, the other sale be correct and valid then in all fairness the AO
transactions are reflected from pages 8 to 17 of should accept the claim of LTCG. In case if
the paper book for different rates from Rs. 845/ the AO on verification finds that the documents
- per share, Rs.865/- per share, Rs.920/- per produced by the assessee is false or fabricated,
share, Rs.921/- per share etc. and the assessee then the AO should bring his adverse findings
has received the said consideration through to the notice of the assessee and confront her
account payee cheque. It was pointed out by with the adverse material/findings. Then again
the Ld. AR that when a show cause notice was the onus will shift to the assessee to prove the
given by the AO on 09.12.2016 wherein the genuineness of the transaction. Here, in the
assessee was asked to explain why the sale present case is concerned, the AO after going
consideration of Rs.2,16,49,202/- shall not be through the documents, failed to return a
added back u/s. 68 of the Act as well as finding that documents produced by assessee
Rs.10,82,460/- being 5% of the said sum be to substantiate the yield of LTCG was false or
added u/s. 69C of the Act, the assessee fabricated. The facts of the case as discussed,
promptly replied to it. The AO acknowledges and the evidence adduced by the assessee,
that the assessee had replied vide letter dated support that the transaction made by the
22.12.2016 which the AO has stated to have assessee through registered stock broker
been placed on record. However, it was brought through Bombay Stock Exchange, after
to our notice that the AO has not made any remitting STT and all payments were transacted
adverse finding in respect to the submissions through bank and the shares were held in De
made by the assessee in justifying the LTCG mat account, has to be accepted in the absence
claim. It was brought to our notice that no of any other material to suggest an adverse
attempt has been made by the AO to issue view. The AO/Ld. CIT(A) erred in rejecting
summons u/s. 131 or 133(6) of the Act to any legally admissible evidence and wrongly took
of the parties involved in all these transactions adverse view against the claim of assessee
to record any adverse inference against the based on surmises, suspicion and conjecture.

478 Ahmedabad Chartered Accountants Journal November, 2018

This action ofAO/Ld. CIT(A) is akin to convert Judicial Analysis
“Proof into no proof.” We note that AO while
describing the modus operandi adopted by report. We note that neither any investigation
unscrupulous elements in the financial markets were carried out against the assessee, nor
has made a vague statement that some against the brokers to whom the assessee dealt
accommodation entry provider has admitted with or the companies in which the assessee
that M/s. NFGL also indulged in wrong dealt with the purchase and sale of shares in
practices, however, we sought the Ld. DR’s question were done by the AO. The transaction
help to throw some light on this specific in question and the fact that the shares in
allegation made by the AO. However, other question were quoted and transaction happened
than the bald statement, nothing adverse could on the floor of the stock exchange in public
be found against the shares of M/s. NFGL. view which action has not been interdicted by
the securities watchdog SEBI. In such a
Even if for argument sake if there was such an scenario, to paint the entire share transaction
adverse admission made by an accommodation of M/s. NFGL which yielded high capital gain
provider against M/s. NFGL, then the AO in as bogus is not correct without materials to
all fairness had to confront the assessee with support such an adverse finding. We note in
the adverse material and given an opportunity the light of the aforesaid relevant evidences,
to the assessee to meet it and the assessee should the action of the AO and CIT(A) was not
have been given an opportunity to explain it; justified in rejecting the claim of the assessee
and in case the assessee desires, she should have on the basis of theory of surrounding
been allowed to cross examine the circumstances and human conduct and
accommodation provider or else the adverse preponderance of probability against the
material cannot be acted upon to draw adverse assessee. For that we rely on the decision of
inference against the assessee as held by the the Special Bench of Mumbai Tribunal in the
Hon’ble Apex Court in Andaman Timber case of GTC Industries Ltd. Vs ACIT (supra)
Industries Vs. Commissioner of Central Excise for this proposition. The various facets of the
62 3. It should be kept in mind contention of the ld. AR(supra), to rope in the
that assessee cannot be kept in dark as to the assessee and for drawing adverse inferences,
material against her and it has to be given to which remain unproved based on the evidence
the assessee if AO proposes to use it against available on record are not reiterated for the
the assessee and these are the basic natural sake of brevity.
justice principles the AO has to keep in mind
while framing an assessment. Though AO/Ld. 18. At the cost of repetitions, we find that the
CIT(A) have been swayed by the report of transactions of the sale of shares by the assessee
SEBI/Investigation Wing of the department, was duly supported by relevant evidences
both the authorities could not point out what including contract notes, demat statement, bank
was the role of the assessee in any wrong doing account reflecting the transactions, stock
which is prohibited by law. We note that neither brokers have confirmed the transactions, the
the purported adverse reports relied on by the stock exchange have confirmed the
AO has been brought on record nor is there transactions, the shares have been sold on the
any reference to any finding of such report online platform of the stock exchange and each
which directly accuses the assessee in any trade of sale of shares were having unique trade
wrongful actions. The AO has merely carved number and trade time. It is not the case of the
out certain features/modus-operandi of AO that the shares which were sold on the date
companies indulging in practices not mentioned in the contract note were not the
sanctioned by law and as mentioned in such traded price on that particular date. The AO
doubted the transactions due to the high rise in
the stock price and for that the assessee cannot

Ahmedabad Chartered Accountants Journal November, 2018 479

Judicial Analysis

be blamed unless there was any material/ term capital gain. These evidences were
evidence to prove that the assessee or any one neither found by the AO nor by the ld. CIT(A)
on his behalf has rigged or manipulated the to be false or fictitious or bogus. The facts of
stock price. It should be noted that the stock the case and the evidence in support of the
exchange of SEBI are the statutory authority evidence clearly support the claim of the
appointed by the Government of India to assessee that the transactions of the assessee
ensure that there is no stock rigging or were genuine and the authorities below was
manipulation. The AO has not brought any not justified in rejecting the claim of the
evidence on record to show that these agencies assessee that income from LTCG is exempted
have alleged any stock manipulation against u/s 10(38) of the Act. For coming to such a
the assessee or the brokers or the companies in conclusion we rely on the decision of the
question. In absence of any relevant evidences Hon’ble Calcutta High Court in the case of
it cannot be said that merely because the stock M/s. Alipine Investments in ITA No.620 of
price moved sharply, the assessee was to be 2008 dated 26th August, 2008 wherein the
blamed for bogus transactions. It is pertinent to High Court held as follows :
note that the assessee has purchased the stocks
through registered brokers and thereafter the 20. We note that the ld. AR cited plethora of the
assessee has sold the shares through the case laws to bolster his claim which are not
registered share/stock brokers with Calcutta being repeated again since it has already been
Stock Exchange, and both have confirmed the incorporated in the submissions of the ld. AR
transactions and have issued valid contract notes (supra) and have been duly considered by us
as per law; and the Hon’’ble Calcutta High to arrive at our conclusion. The ld. DR could
Court in the case of Principal CIT vsRungta not bring to our notice any case laws to support
Properties in ITA 18 ITA No. 834/Kol/2018 the impugned decision of the ld. CIT(A)/AO.
MadhuKilla. AY 2014-15 No.105 of 2016 In the aforesaid facts and circumstances of the
case, we hold that the ld. CIT(A) was not
19. In the light of the documents furnished i.e. (i justified in upholding the addition of sale
to v & i to iii) in Para 3(supra) we find that proceeds of the shares as undisclosed income
there is absolutely no adverse material to of the assessee u/s 68 of the Act. We note that
implicate the assessee to have entered into any though the department was aware that the
illegal actions/ modus-operand prohibited by assessee had purchased the 25000 shares of M/
law as alleged by the AO against the assessee, s. NFGL in AY 2013-14, for Rs.32,21,269/-
which in our considered opinion has no legs has not reduced the same from the total sale
to stand and therefore has to fall. We take note consideration of Rs.2.16 cr. It is elementary that
that the ld. DR could not controvert the facts income can be computed only after defraying
supported with material evidences which are the cost. So the action of AO to add the entire
on record and could only rely on the orders of sale consideration of Rs.2.16 cr. itself is arbitrary
the AO/CIT(A). We note that in the absence exercise of power and cannot be sustained.
of material/evidence the allegations that the Therefore, the action of the Ld. CIT(A) in
assessee/brokers got involved in price rigging/ confirming the addition of entire sale
manipulation of shares must therefore also consideration of M/s. NFGL is perverse and is
fail. At the cost of repetition, we note that the directed to be deleted. Consequently, the
assessee had furnished all relevant evidence addition of 5% as commission to the tune of
in the form of bills, contract notes, demat Rs.10,82,460/- cannot be also sustained and
statement and bank account to prove the ordered to be deleted. The assessee’s appeal
genuineness of the transactions relevant to the succeeds.
purchase and sale of shares resulting in long

480 Ahmedabad Chartered Accountants Journal November, 2018

Rukmani Devi Manupuriya Vs. DCIT Judicial Analysis

24 in ITA No. 1724/Kol/2017 (ITAT – whether to buy particular scrip and the
Kolkata) – Dt. 24/10/2018 department cannot step into the shoes of the
assessee in this regard and participate in the
7.3. We find that the assessee had sold these 200000 business and investment decisions of the
shares of KAFL, through the share broker (M/ assessee. Reliance in this regard is placed on
s Eureka Stock & Share Broking Services Ltd the decision of Hon’ble Apex Court in the case
– NSDL) who is registered with SEBI and of CIT vsDhanrajgirji Raja Narasingirji
member of Bombay Stock Exchange, on reported in 91 ITR 544 (SC). The next
various dates in AsstYear 2014-15 and the said argument of the ld DR that the contract notes
sale is evidenced by the following documents and demat statements are only evidences to
:- a) Contract Notes issued by the registered prove that the transactions happened and got
share broker containing the number of shares recorded in the stock exchange and that it does
sold, price at which it was sold, STT collected, not give credence to the transaction per se. In
brokerage collected, service tax collected, trade this regard, we find that the transactions of
time, date of sale, settlement number, net purchase and sale of shares happen in the
amount payable to seller through the stock secondary market based on the prevailing
exchange ( enclosed in pages 40 to 49 of Paper market prices through the registered stock
Book) ; b) Bank Statements of the assessee for brokers in the concerned stock exchange. This
the period 1.8.2013 to 28.1.2014 maintained is how the transactions happen across the
with Axis Bank wherein the sale proceeds of world. For these events, the documents are
sale of shares on different dates were credited furnished by the stock brokers in the form of
(enclosed in page 50 of Paper Book) c) Demat contract notes , delivery instructions submitted
Statement of the assessee in respect of various by the parties for effecting the sale through the
scrips including the scrip of KAFL containing recognized stock exchange and transactions of
the number of shares held in each scrip after movement of shares from one person to another
each sale (enclosed in Pages 51 to 52 of Paper are recorded in the respective demat statements
Book) issued by the concerned Depository Participant.
These documents cannot be disbelieved as not
7.4. With regard to the arguments of the ld DR that giving any credence to the share transactions
at the time of purchase of shares of CPAL by as they had happened in the open market. In
the assessee, the shares of KAFL were very any case, it is for the revenue to bring out any
much available in the stock market and the other extraneous material to prove that these
assessee could have very well bought the shares documents are fabricated with the connivance
of KAFL from the open market. He need not of assessee, registered stock broker and
have resorted to purchasing the shares of CPAL recognized stock exchange. It cannot be
and later on get it merged with KAFL. In this brushed aside that these transactions in the open
regard, we find from the materials available on market had duly suffered STT which is also
record, that the assessee was not the director or reflected in the contract notes issued by the
promoter of either M/s CPAL or KAFL prior stock broker and the revenue had already been
and post merger. Assessee was only a enriched by the STT component. Hence, it
shareholder in CPAL and pursuant to the would not be proper for the ld DR to state that
merger of that company with KAFL, the these documents cannot be relied upon.
assessee was allotted shares in KAFL, which
cannot be faulted with by the revenue by mere 7.5. We find that the Hon’ble Punjab & Haryana
surmise and conjecture and without bringing High Court (non-jurisdictional high court) in
any evidence on record to the contrary. the case of PCIT (Central), Ludhiana vsPrem
Moreover, it is for the assessee to choose Pal Gandhi in ITA No. 95 of 2017 dated

Ahmedabad Chartered Accountants Journal November, 2018 481

Judicial Analysis

18.1.2018 had in similar circumstances held to delete the addition made u/s 68 of the Act in
the issue in favour of the assessee. We find respect of LTCG on sale of shares of KAFL.
that the ld DR also placed reliance on the Accordingly, the grounds raised by the assessee
decision of Hon’ble Bombay High Court in are allowed.”
the case of Sanjay Bimalchand Jain L/H
Shantidevi Bimalchand Jain vs PCIT, Nagpur 25 Biswanath Agarwal Vs. ITO in ITA no.
& Another in ITA No. 18 / 2017 dated 2280/Kol/2017 (ITAT – Kolkata) – Dt. 16/
10.4.2017 which is also a non-jurisdictional 10/2018
High Court decision. In these circumstances,
the Hon’ble Apex Court in the case of 7. We have heard the rival submissions and
Vegetable Products had held that when there perused the materials available on record
are conflicting views on an issue for and including the paper book of the assessee as well
against the assessee by the different non- as the ld DR. The only issue to be decided is
jurisdictional high courts, the construction whether the LTCG on sale of shares of
which favours the assessee should be Cressanda Solutions Ltd earned through sale
followed. Accordingly, the decision of in recognized stock exchange and subjected to
Hon’ble Punjab & Haryana High Court supra payment of STT through a registered share
would have to be followed in the instant case broker , could be treated as genuine or not. We
before us. find that the assessee was allotted the shares of
M/s Smart Champs IT & Infra Ltd pursuant to
7.6. We also find that the entire issue with regard to application made by the assessee in that regard
sale of shares of KAFL had been the subject together with the cheque payment of Rs
matter of adjudication by this tribunal in the 5,00,000/. The assessee was allotted 50000
case of Manish Kumar Baid& Others vs ACIT shares by the said company directly on
in ITA Nos. 1236-1237/Kol/2017 dated 3.12.2011 ( relevant to Asst Year 2012-13) at
18.8.2017. face value of Rs 10 each. The purchases of
shares were duly reflected in the books of
7.7. Moreover, we also find from pages 114 to 129 accounts of the assessee along with other
of the paper book that SEBI vide its order transactions. We find that the assessee had made
dated 21.9.2017 had revoked the restraint order total investments to the tune of Rs 8,49,80,332/
banning 244 entities and persons from trading - including the investments made in the shares
and dealing in securities by giving a categorical of Cressenda Solutions Ltd (merged entity) as
finding that they had no role in the under:
manipulation of the scrip of Kailash Auto
Finance Ltd. We find that the ld AO had grossly xxx…
relied on the interim order passed by SEBI on
29.3.2016 to address the issue before us. In the 7.1. We find that the assessee had dematted the
said interim order of SEBI, restraint orders were shares of Smart Champs IT & Infra Ltd on
issued. Now in the final order dated 21.9.2017, 11.2.2012 with M/s Eureka Stock & Share
such restraint orders and other bans had been Broking Services Ltd (Depository Participant
revoked by SEBI itself. Hence, the primary – DP in short). Pursuant to the merger of Smart
reliance placed on a document by the ld AO Champs IT & Infra Ltd with Cressanda
while framing the assessment goes against the Solutions Ltd, the assessee got 50000 shares
revenue now. in Cressanda Solutions Ltd and the same were
dematted with the same DP on 7.3.2013.
7.8. In view of the aforesaid observations and
respectfully following the judicial precedents 7.2. We find that the assessee had sold these 50000
relied upon hereinabove, we direct the ld AO shares of Cressanda Solutions Ltd, through the
share broker (M/s SKP Stock Broking Pvt Ltd)
who is registered with SEBI and member of

482 Ahmedabad Chartered Accountants Journal November, 2018

Bombay Stock Exchange, on various dates in Judicial Analysis
Asst Year 2014-15 and the said sale is
evidenced by the following documents :- shares of Cressanda Solutions Ltd were very
much available in the stock market and the
a) Contract Notes issued by the registered assessee could have very well bought the shares
share broker containing the number of of Cressanda Solutions Ltd from the open
shares sold, price at which it was sold, STT market. He need not have resorted to
collected, brokerage collected, service tax purchasing the shares of Smartchamps and later
collected, trade time, date of sale, on get it merged with Cressanda Solutions Ltd.
settlement number, net amount payable to In this regard, we find from the materials
seller through the stock exchange (enclosed available on record, that the assessee was not
in pages 51 to 60 of Paper Book); the director or promoter of either M/s
Smartchamps IT & Infra Ltd or Cressanda
b) Delivery Instructions given by the assessee Solutions Ltd prior to the merger. Assessee was
to the Depository Participant (DP) together only a shareholder in Smartchamps and
with the broker’s confirmation of sale of pursuant to the merger of that company with
shares by the assessee (enclosed in pages Cressanda, the assessee was allotted shares in
61 to 71 of Paper Book) ; Cressanda Solutions Ltd, which cannot be
faulted with by the revenue by mere surmise
c) Ledger Account of the assesee as and conjecture and without bringing any
appearing in the books of broker for the evidence on record. Moreover, it is for the
period 1.4.2013 to 31.3.2014 evidencing assessee to choose whether to buy a particular
the sale of shares made and the payments scrip and the department cannot step into the
made to the assessee by account payee shoes of the assessee in this regard and
cheques on various dates during the year participate in the business and investment
(enclosed in pages 72 to 76 of Paper decisions of the assessee. Reliance in this regard
Book); is placed on the decision of Hon’ble Apex
Court in the case of CIT vsDhanrajgirji Raja
d) Bank Statements of the assessee for the Narasingirji reported in 91 ITR 544 (SC). The
period 1.4.2013 to 30.6.2013 maintained next argument of the ld DR that the contract
with Citi Bank wherein the sale proceeds notes and demat statements are only evidences
of sale of shares on different dates were to prove that the transactions happened and got
credited (enclosed in pages 77 to 82 of recorded in the stock exchange and that it does
Paper Book) not give credence to the transaction per se. In
this regard, we find that the transactions of
e) Form No. 10DB issued by the Broker in purchase and sale of shares happen in the
support of charging of STT from the secondary market based on the prevailing
assessee in respect of sale of shares made market prices through the registered stock
through the recognized stock exchange brokers in the concerned stock exchange. This
(enclosed in page 83 of Paper Book). is how the transactions happen across the
world. For these events, the documents are
f) Demat Statement of the assessee in respect furnished by the stock brokers in the form of
of various scrips including the scrip of contract notes , delivery instructions submitted
Cressanda Solutions Ltd containing the by the parties for effecting the sale through the
number of shares held in each scrip after recognized stock exchange and transactions of
each sale (enclosed in Pages 84 to 87 of movement of shares from one person to another
Paper Book). are recorded in the respective demat statements
issued by the concerned Depository Participant.
7.3. With regard to the arguments of the ld DR that These documents cannot be disbelieved as not
at the time of purchase of shares of Smart
Champs IT & Infra Ltd by the assessee, the

Ahmedabad Chartered Accountants Journal November, 2018 483

Judicial Analysis DCIT Vs. Saurabh Mittal in ITA No. 16/

giving any credence to the share transactions 26 Jaipur/2018 (ITAT – Jaipur) – Dt. 29/
as they had happened in the open market. In 08/2018
any case, it is for the revenue to bring out any
other extraneous material to prove that these xxx…
documents are fabricated with the connivance
of assessee, registered stock broker and 6. We have heard the rival submissions as well
recognized stock exchange. It cannot be the relevant material on record. The assessee
brushed aside that these transactions in the open stated to have purchased three lacs shares of
market had duly suffered STT which is also Careful Projects Advisory Ltd. for a
reflected in the contract notes issued by the consideration of Rs. 3.00 lacs vide invoice dated
stock broker and the revenue had already been 12/3/2012. We find that M/s Sanskriti Vincom
enriched by the STT component. Hence it Pvt. Ltd. has issued the invoice dated 12/3/2012
would not be proper for the ld DR to state that for the purchase made by the assessee of three
these documents cannot be relied upon. lacs shares of Careful Projects Advisory Ltd..
The payments of the consideration of Rs. 3.00
7.4. We find that the Hon’ble Punjab & Haryana lacs was made by the assessee through his bank
High Court (non-jurisdictional high court) in account with ICICI bank and the statement of
the case of PCIT (Central), Ludhiana vsPrem bank account reflected said payment of Rs.
Pal Gandhi in ITA No. 95 of 2017 dated 3.00 lacs on n14/3/2012. Thus, the payment of
18.1.2018 had in similar circumstances held the consideration through bank account for
issue in favour of the assessee. We find that the purchase of shares is not in dispute as the same
ld DR also placed reliance on the decision of has been proved by the evidence which can be
Hon’ble Bombay High Court in the case of verified independently without even any scope
Sanjay Bimalchand Jain L/H Shantidevi of manipulation or control by the assessee.
Bimalchand Jain vs PCIT, Nagpur & Another Similarly, the purchase transaction of four lacs
in ITA No. 18 / 2017 dated 10.4.2017 which shares of M/s Panchshul Marketing Ltd. vide
is also a non-jurisdictional High Court decision. invoice dated 12/7/2012 issued by M/s
In these circumstances, the Hon’ble Apex Court SanskritiVincomPvt. Ltd. is also established to
in the case of Vegetable Products had held that the extent that the assessee made payment of
when there are conflicting views on an issue purchase consideration of Rs. 4.00 lacs through
for and against the assessee by the different non- his bank account with ICICI bank and the
jurisdictional high courts, the construction payment is duly reflected in the bank account
which favours the assessee should be followed. statement. Therefore, the payment of purchase
Accordingly, the decision of Hon’ble Punjab consideration has been established beyond any
& Haryana High Court supra would have to doubt. The only question which can be raised
be followed in the instant case before us. for this transaction of purchase of shares of these
two companies is the suppression of purchase
7.6. In view of the aforesaid observations and price so as to create an artificial capital gain of
respectfully following the judicial precedents maximum amount. However, the Assessing
relied upon hereinabove, we direct the ld AO Officer has not given any finding that the
to delete the addition made u/s 68 of the Act in purchase price was artificial suppressed by the
respect of sale consideration of sale of shares parties with intention to maximize the capital
and the corresponding addition towards gain through the modus operandi of bringing
commission income. Accordingly, the grounds the assessee unaccounted income in the shape
raised by the assessee are allowed in all the of long term capital gain exempt U/s 10(38) of
appeals herein before us. the Act. The Assessing Officer has given much
emphasis on the report of DDIT (inv.), Kolkata

484 Ahmedabad Chartered Accountants Journal November, 2018

and some statements were recorded during the Judicial Analysis
investigation proceedings by Kolkata wing
wherein three persons who were brokers listed company in the stock exchange,
namely Shri Anil Khemka, Shri Devesh therefore, the allotment of shares by the said
Upadhyay and Shri Pankaj Agarwal were company is verifiable transaction from an
examined by the DDIT (Inv.), Kolkata and in independent record. The assessee has also
their statements recorded U/s 131(1) and 133A produced DEMAT account showing the shares
of the Act, they admitted their indulgence in held in the dematerialized form and therefore,
providing accommodation entries of bogus the holding of the shares by the assessee after
capital gain in some of the scripts including the the dematerialization cannot be questioned from
scripts of M/s Kailash Auto Finance Ltd. any angle. During the financial year relevant
However, we find that in the entire report of to the assessment year under consideration, the
investigation Wing of which the relevant part assessee sold these shares through stock
is reproduced by the Assessing Officer as well exchange and from his DEMAT account. The
as the statements of these persons, there is no sale transaction of shares through stock
mention either of the assessee or M/s Sanskriti exchange is not in doubt and the shares were
Vincom Pvt. Ltd. through whom the assessee sold from the DEMAT account of the assessee
purchased these shares. Thus, even if three is also cannot be doubted. The sale price as on
persons are considered to have indulged in the the date of transaction is also the prevailing price
transaction of providing accommodation in the stock exchange. Hence it is not a case of
entries, it would not automatically lead to the the Assessing Officer that the assessee has
conclusion that each and every transaction in shown an inflated sale price which is not as
purchase and sale of shares of those companies per the prevailing market price of the shares of
are bogus transactions, which were between M/s Kailash Auto Finance Ltd.. It is pertinent
the some other parties not connected with those to note that the shares of M/s Kailash Auto
operators. Even otherwise in the case in hand, Finance Ltd. were issued to the assessee only
the assessee did not purchase the shares of M/ in lieu of the shares of erstwhile two companies
s Kailash Auto Finance Ltd. but the assessee M/s Careful Projects Advisory Ltd. and M/s
purchased the shares of Careful Projects Panchshul Marketing Ltd. and it is not a
Advisory Ltd. and M/s Panchshul Marketing transaction of acquiring the shares of M/s
Ltd.. These two companies were subsequently Kailash Auto Finance Ltd against the
amalgamated with M/s Kailash Auto Finance consideration. Thus, the allotment of shares by
Ltd. in pursuant to the scheme of amalgamation M/s Kailash Auto Finance Ltd. in pursuant to
approved by the Hon’ble Allahabad High Court the scheme of amalgamation established the fact
as well as the Hon’ble Bombay High Court that the assessee was already holding the equal
vide their respective decisions dated 09th & number of shares in the erstwhile companies
10th May, 2013. Consequently, the assessee namely M/s Careful ProjectsAdvisory Ltd. and
was allotted equal number of shares of the M/s Panchshul Marketing Ltd. Thus the holding
amalgamated entries of M/s Kailash Auto of shares by the assessee and allotment of
Finance Limited in lieu of the shares held by shares of M/s Kailash Auto Finance Ltd. are
the assessee in erstwhile two companies namely the material facts emerging from the records,
Careful Projects Advisory Ltd. and Panchshul which cannot be disputed. The allotment of
Marketing Ltd.. The allotment of these shares shares of M/s Kailash Auto Finance Ltd. itself
are duly reflected in the record through the is a proof of holding of shares by the assessee
correspondence of the allotment and the same in the erstwhile companies which got
company M/s Kailash Auto Finance Ltd. is a amalgamated into new entity. Hence, all these
facts go to prove beyond any doubt that the
assessee was holding the shares in question and

Ahmedabad Chartered Accountants Journal November, 2018 485

Judicial Analysis the Assessing Officer on the report of Investigation
Wing, Kolkata is not sufficient to establish the fact
the payment of consideration was duly made that the transaction is bogus. The finding of the
through banking channel, which is also not in Assessing Officer is based merely on the suspicion
dispute. The Assessing Officer has treated the and surmises without any tangible material to show
transaction as bogus only on the basis of the that the assessee has introduced his own
statements recorded by the Investigation Wing, unaccounted income in the share of long term capital
Kolkata, however, even if those statements are gain even otherwise the reliance of the statements
considered and taken into account, it cannot recorded by the Investigation Wing, Kolkata
lead to the conclusion or establish the fact that wherein without giving an opportunity of cross
the assessee was part of the said racket of examination is a complete violation of principles
providing accommodation entries of bogus of natural justice as held by the Hon’ble Supreme
capital gain. The ld. CIT(A) while considering Court in the case of CCE Vs Andaman Timber
all these facts, have decided the issue in para Industries (Supra). The Coordinate Bench has also
5.4 and 5.5 as under: followed the decision of the Hon’ble Jurisdictional
High Court in the case of CIT Vs. PoojaAgarwal
xxx… order dated 11/09/2017 wherein the Hon’ble High
Court has duly considered the fact that the Assessing
We further note that this Tribunal has also Officer has not brought any material on record to
considered the similar issue in the case of show that the assessee has paid over and above the
ShriPramod Jain Vs DCIT (supra) and ShriMeghraj purchase consideration as claimed and evident from
Singh ShekhawatVs DCIT (Supra). In the case of the bank account. Therefore, in absence of any
ShriMeghraj Singh ShekhawatVs DCIT (supra), evidence, it cannot be held that the assessee has
the Tribunal vide order dated 07/3/2018 has held introduced his own unaccounted money by way of
in para 5 and 6 as under:- bogus long term capital gain. Accordingly, in view
of above facts and circumstances, we do not find
Therefore, on analyzing of the facts as well as the any error or illegality in the order of the ld. CIT(A)
evidence produced by the assessee, we find that qua this issue. Hence, this ground of revenue’s
the Assessing Officer has not brought any material appeal is dismissed.
on record to controvert the fact duly established by
the supporting evidence of purchase bills, payment hhh
of consideration through bank, dematerialization of
shares in the DEMAT account, allotment of the
shares amalgamated new entity in lieu of the earlier
two companies of equal number of shares. Sale of
shares from the DEMAT account through stock
exchange and at the prevailing price as on the date
of sale and further payment of STT on the
transaction of sale has been duly established. In
absence of any contrary fact, the mere reliance by

486 Ahmedabad Chartered Accountants Journal November, 2018

Indian Tax Administration’s
guidance on appropriate use of
Country-by-Country reports

CA. Dhinal A. Shah CA. Sagar Shah
[email protected] [email protected]

1. Executive summary CbC report can be used only for high level TP-
risk assessment, the assessment of other BEPS-
The Indian Government, through Finance Act, related risks, and, where appropriate, for
2016, amended the Indian income tax law (ITL) economic and statistical analysis. The
to introduce provisions for additional transfer information cannot, under the minimum
pricing (TP) documentation, consisting of: (i) standard, be used as a substitute for a detailed
a master file containing standardized TP analysis of individual transactions and
information relevant for all members of a prices based on a complete functional analysis
multinational group; and (ii) a Country-by- and comparability analysis. The Guidance also
Country (CbC) report containing certain reiterates the OECD position that in case India
information relating to the global allocation of makes an adjustment to the income of any
the group’s income and taxes, together with taxpayer in contravention of these conditions,
indicators of the location of economic activity it requires India to promptly concede such
within the group (CbCR information). The adjustment in any competent authority (CA)
amendments were introduced to implement the proceedings. This does not imply, however,
recommendations contained in the Organisation that India would be prevented from using a
for Economic Co-operation and Development’s CbC report as a basis for making further
(OECD’s) Base Erosion and Profit Shifting inquiries into the TP arrangements within a
(BEPS) report on Action 13 (Transfer Pricing multinational enterprise (MNE) group or into
Documentation and Country-by-Country other tax matters in the course of a tax audit.
Reporting). Further, rules for implementation The Guidance also sets out confidentiality
were issued on 31 October 2017. The ability norms to be followed by the tax officials while
of a jurisdiction to obtain and use CbC reports using CbCR information. Further, as per the
is conditional upon it using CbCR information Guidance, a quarterly review process for
appropriately. Accordingly, India being appropriate use of a CbC report will be
committed to ensuring the appropriate use of undertaken by the Indian Tax Administration
CbC reports, on 27 June 2018, released through the Indian CA, which is set to start
Instruction No. 02/2018 (the Guidance) to from 1 January 2019 with a first deadline of 30
provide guidance on the appropriate use of April 2019 in respect of the first quarter.
CbC reports. The Guidance also addresses
concerns around confidentiality of CbCR This article provides an overview of the
information as well as outlines a process for Guidance with respect to the appropriate use
monitoring, control and review of appropriate of CbCR information.
2. Contents of the Guidance
The Guidance is largely based on the Action
13 report and the OECD guidance of Manner of exchange of CbC reports
September 2017 on appropriate use which
provides that the information contained in a As a BEPS Inclusive Framework member, India
signed, in May 2016, the Multilateral Competent

Ahmedabad Chartered Accountants Journal November, 2018 487

Indian Tax Administration’s guidance on appropriate use of Country-by-Country reports

AuthorityAgreement (MCAA) for the automatic of arm’s-length price based on a detailed
exchange of CbC reports. Further, India would functions, asset and risks analysis and
separately enter into bilateral competent authority comparability analysis; and
agreements (BCAA) for the automatic exchange
of CbC reports either based on the existing (ii) the information is used as the only source
bilateral tax treaties or the TIEAs where other to propose a TP adjustment.
jurisdictions have not signed/ratified the CbCR
MCAA. Based on the MCAA or the relevant - High level TP risk assessment
BCAAs, India will exchange CbC reports filed
by a parent entity of an MNE group or an ARE As per the Guidance, the CRAU shall
resident in India for financial years starting from first evaluate the CbC reports (both
1 April 2016 and will also receive CbC reports filed and received) which could
of nonresident MNE groups who have provide some perspectives on the
constituent entities in India. potential risks arising from the TP
arrangements between the Indian
Access to the CbC reports constituent entity and its affiliates. This
may require further examination which
The Guidance states that all the CbC reports could be planned through selection of
filed in India as well as received by India from that particular constituent entity for
other jurisdictions would primarily be accessed audit in respect of the relevant financial
by the Indian CA and the Director General of year. During the course of the audit,
Risk Assessment (DGRA). Further, once the the TPO shall make further inquiries
case of a constituent entity is selected for audit, using the CbCR information including
the jurisdictional Transfer Pricing Officer (TPO) any other data source which are made
will have access to the CbCR information of available to him during the course of
that constituent entity. However, the TPO ought audit. Further, there is no restriction on
to follow the standard operating procedure in the TPO’s scope that these inquiries
this regard, which would be formulated by the should only be limited to the potential
Centralized Risk Assessment Unit (CRAU) risks identified by the CRAU. In line
i.e., part of DGRA. with theAction 13 report, the Guidance
clarifies that the information contained
Appropriate use of the CbC reports in CbC report shall not be used as the
only source to propose TP
As per the Guidance, the information obtained adjustments. The TP adjustments shall
by TPOs through the CbC reports shall be used be made as per the provisions of ITL
appropriately for broadly three purposes in line and rules thereto.
with the Action 13 report as follows: (i) high
level TP risk assessment; (ii) assessment of other - Assessment of other BEPS-related
BEPS-related risks; and (iii) economic and risks
statistical analysis. Further, it is provided that
the CbCR information may be used for In line with the Action 13 report, the
planning a tax audit; and as the basis for making Guidance states that the CbC reports
further inquiries into the MNE group’s TP may be used to identify indicators of
arrangements and tax matters during the course possible tax risks which are unrelated
of an audit. to TP arrangements; which will lead
to examination of such risks through
However, the use of CbCR information shall further inquiries during audit so as to
be considered “inappropriate” if: arrive at a conclusion on potential
BEPS issues. However, the
(i) such information is used as a substitute for information gathered from CbC
a detailed TP analysis and determination

488 Ahmedabad Chartered Accountants Journal November, 2018

Indian Tax Administration’s guidance on appropriate use of Country-by-Country reports

reports cannot be considered as Further, it is provided that the respective TPOs
“conclusive evidence” to arrive at the shall also report to the jurisdictional
decision that MNE group is engaged Commissioner any concerns raised by the
in other forms of BEPS. Taxpayers on breach of appropriate use and if
the Commissioner does not resolve the issue,
- Economic and statistical analysis the same should immediately be brought to the
notice of the Indian CA. In line with Action 13
As specified in Action 13, the CbCR standard, the Guidance reiterates that if any
information may be used for economic adjustments to the income of Taxpayer are based
and statistical analysis for the purpose on inappropriate use of CbC report information,
of better understanding of the use of the Indian CA is committed to promptly concede
CbC reports as well as to identify the such adjustment in any mutual agreement
features, benefits and risks of the CbC procedure proceedings.
reports and tax systems. Further, the
usage of information for such analysis Further, a quarterly review mechanism on
shall be consistent with the provisions appropriate use of the CbC reports would be
of the tax treaties. undertaken by the Indian Tax Administration
through the Indian CA. Such quarterly review
Confidentiality of the CbC reports reports from all concerned tax officials should
reach the Indian Tax Administration within 30
The Guidance recognizes the legal importance days from the end of each quarter. The first of
and necessity of maintaining confidentiality such quarterly review is scheduled for the
under tax treaties and also as an international quarter January-March 2019 and is due by 30
obligation since any breach could impact India’s April 2019.
ability to receive CbC reports from other
jurisdictions. Therefore, the Guidance provides 3. Implications
that all CbC reports, which are filed in India
and received from other jurisdictions, are The Guidance issued by the Indian Tax
subject to strict confidentiality norms under the Administration is largely in line with the
provisions of ITL and tax treaties respectively. guidance issued by the OECD on the matter.
The Guidance also makes it clear that all With India expressing its commitment to the
officers who are handling the CbCR appropriate use of CbC reports, the Guidance
information exchanged under the tax treaties, should now facilitate the exchange of CbC
must adhere to the confidentially chapter of reports with India through the CA Agreements.
“Manual on Exchange of Information” as The Guidance provides useful insights into
issued by the Government of India. The how the tax authorities would use CbC reports
Guidance also places greater onus on the senior for risk assessment purposes and what are the
officials within the Tax Administration to consequences of inappropriate use. With
sensitize the officers in their region on the ongoing and increasing activity around CbCR,
requirements of maintaining confidentiality. it is expected that the Guidance will not remain
a static tool, but will be updated periodically to
Monitoring, control and review ensure that tax authorities can benefit from their
experience. In this regard, taxpayers should
As per the Guidance, the use of CbCR continue to closely monitor as to how their CbC
information by the TPO during TP audits will report would be used by the tax authorities for
be monitored by the jurisdictional Commissioner risk assessment and consider appropriate
and any breach of appropriate use may be remediation measures to mitigate risks
brought to the notice of the Indian CA through
proper channels. The Indian CA is committed hhh
to disclose such breaches of appropriate use to
the Coordinating Body Secretariat of the OECD.

Ahmedabad Chartered Accountants Journal November, 2018 489


CA. Savan Godiawala
[email protected]

External Commercial Borrowings (ECB) Policy provision but raised prior to the date of this
– Review of Minimum Average Maturity and circular will not be required to mandatorily roll-
Hedging Provisions over their existing hedges.

The Reserve Bank of India made amendments to Ref.: A.P.(DIR Series) Circular No.11
the FEMA Direction with reference to paragraphs datedNovember 6, 2018
2.4.1, 2.4.2 and 2.5 of Master Direction No.5 dated
January 1, 2016 on “External Commercial For full text refer:
Borrowings, Trade Credit, Borrowing and Lending FS_Notification.aspx?Id=11408&fn=5&Mode=0
in Foreign Currency by Authorised Dealers and
Persons other than Authorised Dealers”, as External Commercial Borrowings (ECB) Policy
amended from time to time, in terms of which – Review of Hedging Provision
certain eligible borrowers raising foreign currency
denominated ECBs under Track I, having a This is with reference to paragraphs 2.4.2 and 2.5
minimum average maturity requirement of 5 years, of Master Direction No.5 dated January 1, 2016
are mandatorily required to hedge their ECB on “External Commercial Borrowings, Trade
exposure fully. Credit, Borrowing and Lending in Foreign
Currency by Authorised Dealers and Persons other
The extant provisions have been reviewed and it than Authorised Dealers”, as amended from time
has been decided, in consultation with the to time and A. P. (DIR Series) Circular No. 11 dated
Government of India, to amend the following November 06, 2018, in terms of which certain
provisions of the ECB framework: eligible borrowers raising foreign currency
denominated ECBs under Track I, having an
i. Minimum average maturity: Reduce the average maturity between 3 and 5 years, are
minimum average maturity requirement for mandatorily required to hedge their ECB exposure
ECBs in the infrastructure space raised by fully.
eligible borrowers under paragraph 2.4.2 (vi)
of the aforesaid Master Direction from 5 years, On a further review of the extant provisions, it has
as stipulated under paragraph 2.4.1(iv), to 3 been decided, in consultation with the Government
years; and of India, to reduce the mandatory hedge coverage
from 100 per cent to 70 per cent for ECBs raised
ii. Hedging requirements: Reduce the average under Track I of the ECB framework by eligible
maturity requirement from extant 10 years to 5 borrowers given at paragraph 2.4.2 (vi) of the
years for exemption from mandatory hedging aforesaid Master Direction for a maturity period
provision applicable to ECBs raised by above between 3 and 5 years. Further, it is also clarified
referred eligible borrowers. Accordingly, the that ECBs falling within the aforesaid scope but
ECBs with minimum average maturity period raised prior to the date of this circular will be
of 3 to 5 years in the infrastructure space will required to mandatorily roll-over their existing
have to meet 100% mandatory hedging hedge(s) only to the extent of 70 per cent of
requirement. Further, it is also clarified that outstanding ECB exposure.
ECBs falling under the aforesaid revised

490 Ahmedabad Chartered Accountants Journal November, 2018

Ref.: A.P. (DIR Series) Circular No.15 dated FEMA Updates
November 26, 2018
Paragraphs 2.4.1, 2.4.2, and 2.5 of Master
For full text refer: Directions (updated as on November 22, 2018),
FS_Notification.aspx?Id=11418&fn=5&Mode=0 mentioned in the circulars above, are reproduced
below for ease of reference:

2.4.1 Minimum Average Maturity Period:
The minimum average maturities for the three tracks are set out as under:

Track I Track II Track III

i. 81 year for ECB up to USD 50 million or its 10 years irrespective Same as under Track
equivalent for companies in manufacturing
sector only. of the amount. I.

ii. 3 years for ECB upto USD 50 million or its equivalent.

iii. 5 years for ECB beyond USD 50 million or its

iv. 93 years for eligible borrowers under para,
irrespective of the amount of borrowing.

v. 105 years for Foreign Currency Convertible Bonds
(FCCBs)/ Foreign Currency Exchangeable Bonds
(FCEBs) irrespective of the amount of borrowing.
The call and put option, if any, for FCCBs shall not
be exercisable prior to 5 years.

2.4.2 Eligible Borrowers: The list of entities eligible to raise ECB under the three tracks is set out in
the following table.

i. Companies in manufacturing and i. All entities listed under i. All entities listed under
software development sectors. Track II.
Track I.
ii. Shipping and airlines companies. ii. All Non-Banking Financial
iii. Small Industries Development ii. 13Real Estate Invest- Companies (NBFCs) 14
coming under the
Bank of India (SIDBI). ment Trusts (REITs) regulatory purview of the
iv. Units in Special Economic Zones Reserve Bank.
and Infrastructure In-
(SEZs). iii. NBFCs-Micro Finance
v. Export Import Bank of India vestment Trusts Institutions (NBFCs-
MFIs), Not for Profit
(Exim Bank) (only under the (INVITs) coming under companies registered
approval route). under the Companies Act,
vi. 11Companies in infrastructure the regulatory frame- 1956/2013, Societies,
sector, Non-Banking Financial trusts and cooperatives
Companies -Infrastructure work of the Securities (registered under the
Finance Companies (NBFC- Societies Registration Act,
IFCs), NBFCs-Asset Finance and Exchange Board of 1860, Indian Trust Act,
Companies (NBFC-AFCs), 1882 and State-level
Holding Companies and Core India (SEBI). Cooperative Acts/Multi-
Investment Companies (CICs). 12 level Cooperative Act/
Also, Housing Finance State-level mutually aided
Companies, regulated by the
National Housing Bank, Port

Ahmedabad Chartered Accountants Journal November, 2018 491

FEMA Updates

Trusts constituted under the Major Cooperative Acts
Port Trusts Act, 1963 or Indian
Ports Act, 1908. respectively), Non-

Government Organisations

(NGOs) which are engaged

in micro finance activities1.

iv. Companies engaged in

miscellaneous services viz.

research and development

(R&D), training (other than

educational institutes),

companies supporting

infrastructure, companies

providing logistics services.

15 Also, companies

engaged in maintenance,

repair and overhaul and

freight forwarding.

v. Developers of Special

Economic Zones (SEZs)/

National Manufacturing

and Investment Zones


Notes: 1. Entities engaged in micro-finance activities to be eligible to raise ECB: (i) should have a satisfactory
borrowing relationship for at least three years with an AD Category I bank in India, and (ii) should have a
certificate of due diligence on ‘fit and proper’ status from the AD Category I bank.

2.5 Hedging Requirements:26Borrowers eligible time of each such exposure (i.e. the day liability is
in terms of paragraph above shall have a created in the books of the borrower).
board approved risk management policy and shall
keep their ECB exposure hedged 100 per cent at ii. Tenor and rollover: A minimum tenor of one year
all times 27in case the average maturity is less than of financial hedge would be required with periodic
5 years. Further, the designated AD Category-I rollover duly ensuring that the exposure on account
bank shall verify that 100 per cent hedging of ECB is not unhedged at any point during the
requirement is complied with during the currency currency of ECB.
of ECB and report the position to RBI through ECB
2 returns. Also, the entities raising ECB under the iii. Natural Hedge: Natural hedge, in lieu of
provisions of tracks I and II are required to follow financial hedge, will be considered only to the extent
the guidelines for hedging issued, if any, by the of offsetting projected cash flows / revenues in
concerned sectoral or prudential regulator in respect matching currency, net of all other projected
of foreign currency exposure. outflows. For this purpose, an ECB may be
considered naturally hedged if the offsetting
282.5.1 Operational aspects on hedging: exposure has the maturity/cash flow within the same
Wherever hedging has been mandated by the RBI, accounting year. Any other arrangements/
the following should be ensured: structures, where revenues are indexed to foreign
currency will not be considered as natural hedge.
i. Coverage: The ECB borrower will be required
to cover principal as well as coupon through For notes and full text of master direction, refer:
financial hedges. The financial hedge for all h t t p s : / / w w w. r b i . o rg . i n / S c r i p t s /
exposures on account of ECB should start from the BS_ViewMasDirections.aspx?id=10204#C6


492 Ahmedabad Chartered Accountants Journal November, 2018


CA. Arjun Akruwala CA. Jay Dalwadi CA. Manan shah

[email protected] [email protected] [email protected]

List of AAR

Sl Party Name AAR Chapter Case History

1 KPH Dream AAR/GST/ Taxability/ Query :

Cricket Pvt. PB/02 Dated ITC eligibility 1. Whether free tickets given as ‘Complimentary

Ltd. 20.08.2018 – Tickets’ falls within the definition of supply under

Punjab CGST Act, 2017 and thus, whether the applicant

is required to pay GST on such free tickets?

2. Whether the applicant is eligible to claim Input Tax
Credit in respect of complimentary tickets?


The activity of the applicant of providing
complementary tickets free of charge to some persons
would be considered supply of service as per provisions
of both Section 7(1)(a) and 7(1)(d) and would therefore
be leviable to tax. Since all tickets supplied by the
applicant including complementary tickets would be
taxable, the applicant would clearly be eligible for claim
of Input Tax Credit.

2. Ashoke Kr 18/WBAAR/ Taxability/ Query :

Basu, 2018-19 ITC eligibility 1. Whether supply of question papers printed for

propietor of Dated educational institutions is classifiable as service?

Manali 28.09.18 – 2. Whether GST is payable on such supply, and, if

Enterprise West Bengal so, at what rate?

3. Whether input tax credit is admissible on such


Ruling :

1. Service of printing Question Papers for Educational
Institutions [as defined under clause 2(y) read with
Explanation (iv) to Notification No. 12/2017-CT
(Rate) dated 28/06/2017] for specific examination
is classifiable under SAC 9992.

2. Service to such Educational Institutions relating to
conduct of examination, as described in 66(b)(iv)

Ahmedabad Chartered Accountants Journal November, 2018 493

GST-Advance Rulings

3. Sapthagiri GUJ/GAAR/ Supply of Notification No.12/2017-CT(Rate) dated 28/06/
Hospitality R/2018/14 to SEZ 2017, includes supply of the service of printing
Pvt Ltd Dated question papers, and is exempt under the GST Act
30.07.18 -
Gujarat 3. Being an exempt supply, the Applicant cannot
claim credit of the GST paid on the inputs used for
4. Pemier No.- Case Valuation provisioning the service of printing question papers
provided to the Boards / Educational Institutions
Vigilance & No. 23 of relating to conduct of examination.

Security 2018, Order Query :
1. The hotel being located in non-processing zone of
Pvt. Ltd. No. 20/WBA
Dahez Special Economic Zone whether liable to
AR/2018-19 pay GST on all the services provided by it to the
clients located in SEZ which inter-alia included
Dt. 02.11.18– supply of services by way of providing
accommodation services, supplying food and
West Bengal beverages and supplying services ancillary to
providing accommodation services?
2. Under extreme circumstances, if the hotel is
required to provide accommodation services to a
visitor other than a visitor located in SEZ, whether
GST is required to be paid?

Ruling :

1. The supplies made by M/s. Sapthagiri Hospitality
Private Limited, a SEZ Co-developer, from their
hotel located in non-processing zone of Dahez
Special Economic Zone to the clients located in
Special Economic Zone for authorized operations
will be treated as zero rated supplies under the
provisions of Section 16(1) of Integrated Goods
and Service Tax Act, 2017 read with Section 2(m)
of SEZ Act, 2005.

2. The applicant is liable to pay GST on the services
from their hotel located in non-processing zone of
Dahez Special Economic Zone to the clients
located outside the territory of Special Economic
Zone under the provisions of Section 5(1) of
Integrated Goods and Service Tax Act, 2017.

Query :
The Applicant stated to be, a provider of security
services to the Bank, seeks a Ruling on chargeability
of GST on the Toll Taxes reimbursed by its clients or
the ability to claim it as a deduction under Rule 33
from the value of supply, being expenditure incurred
as a pure agent under the CGST/WBGST Acts, 2017

494 Ahmedabad Chartered Accountants Journal November, 2018

GST-Advance Rulings

Ruling :

Toll charges paid are not to be excluded from the value
of supply under Rule 33. GST shall, therefore, be
payable at the applicable rate on the entire value of the
supply, including toll charges paid. The Applicant is
not acting as a ‘pure agent’ of the Bank while paying
toll charges, which are the cost of the service provided
to the Banks so that his vehicles can access roads/
bridges to provide security services to the recipient.

5 National GST-ARA- Exemption Query :
Security 58/2018-19/ Whether the Exemption Notification No.12/2017-
Services B-132 Dt. Central Tax (Rate) dated 28/06/2017 (Entry No. 3 of
24.10.2018 – the Notfn.) is applicable to the applicant for the Pure
6. Kundan Maharashtra services i.e. Security Services rendered to Pimpri
Misthan Chinchwad Municipal Corporation (PCMC) in relation
Bhandar to functions entrusted to Municipality under Article
243W of the Constitution thereby exempting the
applicant service provider from the whole of GST?

Reply :

Yes, Exemption is applicable. As PCMC is Municipal
Corporation and applicant is providing security services
(pure services) are in relation to functions entrusted to
Municipalities under Article 243W of the Constitution.

No.- AAR Classification Query :

Ruling No. 1. Whether supply of pure food items such as

09/2018-19 sweetmeats, namkeens, cold drink and other edible

in Application items from sweetshop which also runs a restaurant

No.08/18-19 is a transaction of supply of goods or a supply of

Dt. 22.10.18 - service?

Uttarakhand 2. What is the nature and rate of tax applicable to the

following items supplied from ground floor of a

sweetshop in which restaurant is also located on

the first floor and whether the applicant is entitled

to claim benefit of input tax credit with respect to

the same:

- Sweetmeats, namkeens, Dhokla etc commonly
known as snacks, cold drinks, ice creams and
other edible items;

- Ready to eat (partially or fully pre-cooked/
packed) items supplied from live counters such
as jalebi, chola bhatura and other edible items;

- Takeaway order of sweetmeats or namkeens by
a person sitting in the restaurant of a sweetshop

Ahmedabad Chartered Accountants Journal November, 2018 495

GST-Advance Rulings

when such products are not consumed within
the premises of the applicant but are takeaway.

Reply :

1. The supply shall be treated as supply of service
and sweet shop shall be treated as extension of

2. The rate of GST on aforesaid activity will be 5%
as on date, on the condition that credit of input tax
charged on goods and services used in supplying
the said service has not been taken;

3. All the items including takeaway items from the
said premises shall attract GST of 5% as on date
subject to the condition of non availment of credit
of input tax charged on goods and services used in
supplying the said service.

7. Kims AAR No. Exemption Query :
Medicines, consumables and implants used in the
Healthcare KER/17/ course of providing health care services to the patients
admitted for diagnosis - composite supply - Whether
Management 2018 Dt. the medicines, consumables and implants used in the
course of providing health care services to in-patients
Ltd. 20.10.2018- for diagnosis or treatment would be considered as
“Composite Supply” and eligible for exemption under
Kerala the category ‘health care services’?

Ruling :

The supply of medicines, consumables and implants
used in the course of providing health care services to
in-patients for diagnosis or treatment are naturally
bundled and are provided in conjunction with each
other, would be considered as “Composite Supply” and
eligible for exemption under the category ‘health care

8. SST GST-ARA- Classification Query :

Sustainable 68/2018-19/ Services to NMC (Nagpur Municipal Corporation) by

Transport B-129 Dt. providing the Busses along with Driver, Fuel &

Solution 15.10.2018 - Maintenance for use of General Public at Large - under

India P. L. Maharashtra which Chapter Heading / Service Code the activity is

required to be classified?

Reply :

The activity undertaken by the applicant in the subject
case is supply of services and will be classified under
Sl. No 10(ii), Heading 9966 of the Notification No

496 Ahmedabad Chartered Accountants Journal November, 2018

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