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Business

Advisor
(Fortnightly inputs for professionals and executives)
Volume XXIII Part 2 April 25, 2018

Volume XXIII Part 2 April 25, 2018 1 Business Advisor


Contents
Articles
Allowability of bad debt claim u/s 36(1)(vii) of the I.T. Act, 1961 -
T. N. Pandey
Regulated sale of liquor by Government corporations is not a service -
Dr Sanjiv Agarwal
Courts on GST (Part VIII) - Dr Sanjiv Agarwal
Decisions digest [Volume No. 401 ITR] - V. K. Subramani
Press briefings, meetings
Lecture by Roberto Trotta in PSTC
Vodafone launch of Supernet 4G in Chennai
RBA Revenue Bar Association Budget 2017 analysis
AHPI press briefing on Global Conclave
IIA India National Conference on Internal Audit inaugural
TCC Tamil Chamber of Commerce Budget 2017 analysis
Richard F. Chambers, President & CEO, IIA addresses media
Care Earth media workshop on water
FICCI Live session on Union Budget 2017
IGCC ARM Annual Regional Meet 2017
IITM Yalamanchili launch of Avatar self-service terminals
The KS Narayanan Oration 2017
(Cover page photos: At events.)

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Volume XXIII Part 2 April 25, 2018 2 Business Advisor


Allowability of bad debt claim u/s
36(1)(vii) of the I.T. Act, 1961
T. N. Pandey

When does a debt become bad?

The word ‗bad debt‘ is generally used in the context of


‗accrual‘ or ‗mercantile‘ system of accounting, where an
entry is made in the account books as soon as a sale or
other commercial activity (say moneylending) is
concluded although the money component in the
transaction may not materialise immediately and may be
received at a later date or not received in full or at all.

When the accounts are finalised at the close of the year, the profit arising
consequent to accounting of deal on ‗due‘ basis is included in the profit
worked out on accrual basis of accounting.

If, later, the sum due is not realised, it becomes a loss and the profit
accounted for needs to be reversed to that extent to arrive at the actual
profit of the undertaking. Such non-realised amounts are termed as ‗bad
debts‘ in accountancy parlance.

[2] A sum of money due to an assessee, being incidental to the business or


profession carried on by an assessee if considered unrealisable or
unrealised becomes a bad debt and causes loss to a person, reducing the
profit. In the case of an assessee involved in the business of lending money
to others on payment of interest, when the sum lent becomes unrealisable,
the loss to the person arises and it is also a category of bad debt. Such
unrealisable debts, reducing the profits and gains, can be claimed as
deductible loss for computing profit, liable to income tax under the
provisions of the Income Tax Act, 1961 (Act).

When the accounts are finalised at the close of the year, the
profit arising consequent to accounting of deal on ‗due‘ basis
is included in the profit worked out on accrual basis of
accounting.

Volume XXIII Part 2 April 25, 2018 3 Business Advisor


[3] Income Tax Act provisions relating to deduction of bad debts

Income-tax is a tax on what is left after allowance of expenses provided for


in the Act or by commercial practices. It is not a tax on ‗gross‘ receipts
under different heads of income. Each section, i.e., section 15 (relating to
salaries), section 22 (concerning income from house property), section 28
(income from business or profession), section 45 (income from capital gains)
and section 56 (income from other sources), provides for deduction of
expenses stated therein. S.29 specifically provides that the income from
profits and gains referred to in s.28 shall be computed in accordance with
the provisions contained in sections 30 to 43D. S.36 in these sections titled
‗other deductions‘ provides for deduction of bad debts.

Section 36 of the Act titled ‗other deductions‘ vide sub-section (1) provides
that the deductions provided for in the following clauses shall be allowed in
respect of the matters dealt with therein in computing the income referred
to in section 28:

xxx xxx xxx

[vii] Subject to the provisions of sub-section (2), the amount of any bad debt
or part thereof, which is written-off as irrecoverable in the accounts of the
assessee for the previous year.

[3.1] The proviso and explanation to the sub-clause (vii) (supra) provide
that:-

[a] The amount of deduction shall be limited to the amount by which such
debt or part thereof exceeds the credit balance in the provision for bad and
doubtful debts made in the account books [proviso].

[b] The bad debt written off in accounts shall not include any provision for
bad and doubtful debts made in the accounts (Expl. I).

[c] For the purposes of the proviso to clause (vii) of this sub-section and
clause (v) of sub-section (2), the account referred to therein shall be only one
account in respect of provision for bad and doubtful debts under clause
(viia) and such account shall relate to all types of advances, including
advances made by rural branches.

[4] Conditions for allowability of bad debts as deduction (from the AY 1989-
90)

These could be summed up thus:-

Volume XXIII Part 2 April 25, 2018 4 Business Advisor


[i] The amount claimed as bad debt must have been taken into account in
computation of taxable income;

[ii] It should have been written off in the books of account by the assessee
as bad debt;

[iii] It must be of a revenue nature as distinguished from capital.

[4.1] If the aforesaid conditions are satisfied, the amount becoming bad
debt, can be claimed as deduction for income tax assessment by an
assessee.

[5] Madras High Court‘s decision regarding allowance of bad debt as


deduction

This issue came in for the consideration of the Madras HC in the case of
CIT, Chennai v. Shriram Transport Finance Co. Ltd. – AY 2006-07 – (2017)
246 Taxman 89 (Madras).

[a] Facts

The case related to an NBFC, which maintained two sets of accounts, one
set in accordance with the provisions of the Companies Act and the
mandate of the RBI as applicable to an NBFC. In parallel, it maintained
books in accordance with the provisions of the Act for the purpose of
computation of income thereunder. The assessee, in finalising its corporate
accounts, made a provision in respect of debts advanced by it that were not
realisable. For the purpose of income-tax, the bad debts were written-off in
the profit and loss account and claimed as a deduction in the computation
of income in terms of section 36(1)(vii) of the Act. The claim was disallowed
by the AO but allowed by the CIT (Appeals) and the Tribunal, against which
the I.T. Dept. filed appeal to the HC.

[b] Issue for the HC‘s consideration

The issue for the HC‘s consideration was whether the claim for bad debts by

The case related to an NBFC, which maintained two sets of


accounts, one set in accordance with the provisions of the
Companies Act and the mandate of the RBI as applicable to
an NBFC.

Volume XXIII Part 2 April 25, 2018 5 Business Advisor


the assessee is allowable as a deduction in the regular computation of its
income in terms of section 36(1)(vii) of the Act in view of the fact that in one
set of accounts for income-tax purposes, the assessee wrote of the amount
as bad debt and in another set of accounts for the Companies Act purposes,
it treated the same amount as ‗provision‘ in respect of debts advanced by it,
which it considered as unrealisable.

[c] HC‘s order

The HC has upheld the Tribunal‘s order holding that the maintenance of
two separate sets of accounts, one for purposes of the Companies Act and
the other for income-tax, is perfectly in order and there is no embargo
against the same. The books maintained for the purposes of the Companies
Act, duly approved by the Board of directors and placed before the
shareholders at the annual general body meeting of the company, contain,
inter-alia, profit and loss account for the relevant previous year prepared in
accordance with the provisions of Parts-II-III of Schedule VI to the
Companies Act, 1956, will form the basis of an assessment in terms of
Chapter XII-B, Special Provisions relating to certain companies, that provide
for an assessment of minimum alternate tax (MAT). The I.T. Act requires for
the assessee to follow a parallelly consistent method of accounting in
accordance with section 145 thereof. The books maintained for the purposes
of the I.T. Act shall comply with the provisions of section 145 and shall form
the basis for an assessment thereunder. The error in the order of
assessment is the juxtaposition of the two books by the AO. The creation of
a provision for bad debts in the corporate accounts thus does not, in any
way, impact the claim of bad debt u/s 36(1)(vii) of the Act in the regular
computation of income.
[ci] HC‘s displeasure
The HC expressed displeasure on the I.T. Dept.‘s departure from the similar
past practices followed by the assessee and accepted by the I.T. Dept. from
the year 1994 onwards up to the AY 2005-06. It felt that departure from the
accepted position in the past should have been supported by some reasons
and objection should not have been taken in an arbitrary manner. The HC‘s
observations in this context are worth reproduction in this write-up:
―As would be apparent from the orders of the Tribunal dated 16.12.2010
and 21.4.2006, the assessee has been consistent in the methodology
followed both in respect of maintenance of books as well as the treatment of
bad debts. The SC in the case of CIT v. Excel Industries Ltd. (2013) 358 ITR
295/219 Taxman 379/38 taxmann.com 100, reiterates the proposition that
an issue consistently decided in the assessee‘s favour for several years

Volume XXIII Part 2 April 25, 2018 6 Business Advisor


should not be disturbed unless there are very convincing reasons for doing
so.‖
It is also relevant to refer to the findings of the Privy Council in the case of
Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) as extracted
below:-
―…parties are not permitted to begin fresh litigation because of new views
they may entertain of the law of the case, or new versions, which they
present as to what should be a proper apprehension by the court of the legal
result either of the construction of the documents or the weight of certain
circumstances. If this were permitted, litigation would have no end, except
when legal ingenuity is exhausted. It is a principle of law that this cannot be
permitted and there is abundant authority reiterating that principle.
Thirdly, the same principle, namely, that of setting to rest rights of litigants,
applies to the case where a point, fundamental to the decision, taken or
assumed by the plaintiff and traversable by the defendant, has not been
traversed. In that case also a defendant is bound by the judgment, although
it may be true enough that subsequent light or ingenuity might suggest
some traverse, which had not been taken.‖
All the more in a case such as this, when the Dept. has accepted the
assesee‘s stand for over a decade. In the present case, there are no reasons,
much less convincing reasons in this regard.
[6] Concluding comments
It is sad to find that on one hand, the I.T. Dept. expresses concern on
growing litigation concerning income-tax cases and on the other proliferates
litigation by filing appeals in cases, where the assessee‘s practices
consistently followed have been accepted and suddenly a decision is taken
to differ from the past without mentioning any grounds by sending e-mail
instructions. The HC has rightly adversely commented on such a way of
functioning of the I.T. Dept. This way of working not only brings I.T. Dept. to
disrepute, but increases work at all levels without benefit to anyone.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes.)

It is sad to find that on one hand, the I.T. Dept. expresses


concern on growing litigation concerning income-tax cases
and on the other proliferates litigation by filing appeals…

Volume XXIII Part 2 April 25, 2018 7 Business Advisor


Regulated sale of liquor by Government
corporations is not a service
Dr Sanjiv Agarwal

The manufacture, distribution and sale of alcoholic


beverages is highly regulated by State Governments
under the Constitution of India. The distribution of
alcoholic liquor meant for human consumption is
regulated by the State Governments in most of the
States. The states regulate the liquor trade through
Corporations setup by them to regulate licences,
trading, pricing etc. and manufacturers have to supply
the stock of liquor through these State public sector
corporations, subject to liquor policy and state excise
offices. However, in very few states like Gujarat and Bihar, there is a policy
of prohibition.

These Corporations control liquor sales in the respective state and have
special privilege under the State Excise Act, i.e., exclusive rights to
wholesale foreign made foreign liquor (FMEL), Indian made foreign liquor
(IMFL) and beer in the State. The operations are governed by liquor sourcing
policy. The modus operandi is like this - manufacturer/ supplier places an
offer to supply liquor, based on the demand prevailing in the respective
locations. Thereafter, an order for supply (OFS) is issued to the
manufacturer/ supplier. Goods invoiced and supplied against OFS are
stored in depots of the Corporation. However, risk reward of such stocks
vest in the supplier, though Corporation gets such stocks insured at its own
cost. Manufacturer/ suppliers undertake the responsibility for creating
demand for the goods supplied to the Corporation. Payment for the stocks
supplied by the manufacturer/ suppliers is made only after such stocks are
sold. Stocks remaining unsold after a specified period are subject to levy of
inactive stock penalty charges or margin on drain out/ return to distilleries
at rates specified in the Liquor Sourcing Policy (LSP). This income is
recognised in the books of accounts of Corporation.

The illustrative list of income heads, apart from trading margin (sales) are
generally in the following form –

 Inactive stock penalties

 Transfer out order (TOO) fee

Volume XXIII Part 2 April 25, 2018 8 Business Advisor


 OFS extension/ cancellation fee

 Scarp sales

 Demurrage

 Handling charges

 Liquidity damage from suppliers etc.

Based on the excise policy or liquor sourcing policy, the beverages


Corporation may have a system of open market pricing or fixed margin (i.e.,
gap between purchase and selling price of products) keeping into account
the costs and profit margins. Even where the goods are sold on fixed trading
margin as a percentage, it cannot be termed as a commission, simply
because substance over form would prevail and that also accounting and
nature of transaction are important to determine taxability.

Beverage Corporations effectively purchase liquor stocks of different brands


from suppliers and sell them to licensee for onward retail sale/
consumption. While the Corporation treats this transaction as a pure
trading activity (buying and selling of goods), the revenue department has
been considering the activities of Corporation as business auxiliary services
and treating their entire income under different heads as well as trading
margin (gap between selling price and purchase price) as commission on
sale and taxing them under erstwhile business auxiliary services as defined
in section 65(19) and section 65(105) (zzb) of the Finance Act, 1994.

Scope of business auxiliary services

Prior to 1st July, 2012 when negative list approach was introduced in service

Volume XXIII Part 2 April 25, 2018 9 Business Advisor


tax regime, business auxiliary services were defined in section 65(19) of the
Finance Act, 1994 which was frequently amended from time to time. The
scope of business auxiliary services which was last on statute book is as
follows:

―Business auxiliary service‖ means any service in relation to:

(i) promotion or marketing or sale of goods produced or provided by or


belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

Explanation: For the removal of doubts, it is hereby declared that for the
purposes of this sub-clause, ―inputs‖ means all goods or services intended
for use by the client;

(v) production or processing of goods for, or on behalf of, the client;

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses


(i) to (vi), such as billing, issue or collection or recovery of cheques,
payments, maintenance of accounts and remittance, inventory
management, evaluation or development of prospective customer or vendor,
public relation services, management or supervision,

and includes services as a commission agent, but does not include any
activity that amounts to manufacture of excisable goods.

In the above definition, ‗commission agent‘ meant any person who acts on
behalf of another person and causes sale or purchase of goods, or provision
or receipt of services, for a consideration, and includes any person who,
while acting on behalf of another person—

(i) deals with goods or services or documents of title to such goods or


services; or

(ii) collects payment of sale price of such goods or services; or

(iii) guarantees for collection or payment for such goods or services; or

(iv) undertakes any activities relating to such sale or purchase of such


goods or services.

Volume XXIII Part 2 April 25, 2018 10 Business Advisor


Judicial view

In one of the recent judicial pronouncements of Rajasthan High Court in the


case of Rajasthan State Beverages Corporation v. CCE Jaipur-I reported in
(2018) 11 GSTL 157 (Rajasthan), this issue came up for judicial scrutiny as
to whether the corporation was acting as a canalising agency for liquor
entrusted by the State Government with business of purchase of IMFL and
beer from various manufacturers and suppliers, distribution thereof to its
various depots and further onward sale to various licensees for retail
consumer sale with a view to regulate supply of liquor through conferring
the exclusive privilege of purchase and sale in the wholesale thereof upon
the appellant. As a consequence of the monopoly assumed by the State
Government in this area and conferment of the privilege on the appellant, it
is mandatory for all manufacturers/ distilleries/ suppliers to sell liquor in
the State only through the canalising agency. The appellant was not
registered as a service tax provider, had not filed returns of service tax nor
had remitted service tax.

While the revenue sought to tax these transactions as business auxiliary


services u/s 65(19) read with section 65(105) (zzh) of the Finance Act, 1994,
the Corporation contended that it was a pure trading transaction and was
not subject to levy of service tax.

Revenue assumed that the appellant had provided the taxable business
auxiliary service (BAS) to manufacturers of liquor/ distilleries and issued
the show cause notice dated 11-7-2008, in substance alleging that the
appellant had provided the taxable BAS and had willfully suppressed
information regarding liability to service tax by failing to file returns,
disclosing the income received and failing to remit service tax, with an
intent to evade payment of service tax. The show cause notice proposed
assessment and levy of service tax, interest and penalties. The show cause
notice proposals were confirmed by the adjudication order, after a due
process of considering the appellant‘s response, analysis of the material on
record and hearing the appellant.

The court tested the taxability in given facts of the case on two grounds,
viz., (a) whether the transaction of purchase and sale of liquor falls within
the ambit of business auxiliary services, and (b) whether, if even if it is held
to be service, it is a service of the kind mentioned in various clauses of
section 65(19) which defines business auxiliary services. The court relied
upon and followed the decision in following two cases:

Volume XXIII Part 2 April 25, 2018 11 Business Advisor


(i) Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax —
DBITA No. 205 of 2005, decided on 11-7-2017 by Rajasthan High Court.

(ii) Union of India v. Chhattisgarh Estate Beverages Corporation (2015) 37


STR 972 (Chhattisgarh).

In Union of India v. Chhattisgarh Estate Beverages Corporation (2015) 37 STR


972 (Chhattisgarh), the High Court held that the Corporation being engaged
in purchase and sale of liquor could not be considered as a clearing and
forwarding agent for the State Government and therefore no service tax was
payable. The court while deciding that no service tax was payable observed
as follows:

―9. It is not disputed that if the Corporation was engaged in sale and
purchase of liquor for the State, then no service tax was payable.

10. The Tribunal has recorded a finding of fact that the Corporation was
engaged in purchase and sale of liquor and could not be considered as
clearing and forwarding agent for the State Government. It is finding of fact.
No illegality in the finding has been pointed out.‖

Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT-III Jaipur decided by the
Rajasthan High Court on 11.07.2017 (DB ITA No. 205 of 2005) also covered
the similar controversy.

Based on these facts, legal provisions and precedents, the High Court has
decided in favour of beverage Corporation and against the revenue.

It is pertinent to note that this type of business model is prevalent in most


of the states in India and as such, this clarity on business of liquor trade
will pave a way to settle the issue and the ongoing litigation in most of the
States. However, in GST, liquor trading is outside the ambit of GST but
services in relation to alcoholic beverages shall be liable to levy of GST.

(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur.)

Hindustan Coca Cola Beverages Pvt. Ltd. v. CIT-III Jaipur


decided by the Rajasthan High Court on 11.07.2017 (DB ITA
No. 205 of 2005) also covered the similar controversy.

Volume XXIII Part 2 April 25, 2018 12 Business Advisor


Courts on GST (Part VIII)
Dr Sanjiv Agarwal

Goods and Services Tax (GST), introduced from July 1,


2017, is almost ten months old now but has resulted
in operational and implementation disruptions
affecting all stakeholders. GST law, as drafted and
legislated, is not free from the interpretational hassles.

GST Council has, however, been making regular


changes to fix the anomalies and hardship faced by
taxpayers. There were no legislative changes in the
Union Budget 2018.

Taxpayers have already started challenging various provisions of GST laws


and rules framed thereunder with more than 100 writs being filed in
different courts. High Courts and the Supreme Court have taken a liberal
stand so far in view of the fact that law is new and is yet evolving.

However, the CBIC may move to the Supreme Court where the verdict is
against the Government. This has been indicated in Circular No. 39 dated
03.04.2018 wherein it is has been hinted in relation to resolution of struck
TRAN-1 and filing of GSTR-3B that the Government has not accepted
blanket opportunity to file TRAN-1 but only in cases where technical
glitches crept in. It has advised the departmental officers that courts may be
suitably informed and if needed review or appeal may be filed.

Here are a few more judicial pronouncements for information and guidance
of various stakeholders. It is expected that the litigation is bound to go up
as time passes by.

 In Nirmal Constructions v State of Madhya Pradesh (2017) 7 G.S.T.L.


3(M.P.) ; (2017) 12 TMI 514 (M.P.), where State Government cancelled
tender proceedings which were initiated prior to introduction of GST, in
view of change in tax environment on introduction of GST, it was held
that since the person who had tendered was eligible for Input Tax Credit
(ITC) on GST paid on goods/ services, there was nothing wrong in
decision to exclude amount of GST in tender value.

Volume XXIII Part 2 April 25, 2018 13 Business Advisor


 In Coimbatore Road Contractors Welfare Association v. State of Tamil Nadu
(2017) 7 GSTL 4 (Madras); [2018] 91 taxmann.com 318 (Madras); (2017) 12
TMI 515(Madras), where the petitioner made several representations to
the effect that works contract for which agreement were executed prior to
implementation of GST Act, 2017 (i.e., w.e.f. 01.07.2017) 2 per cent VAT
alone should be applicable. The Court directed the Commissioner of
Commercial Taxes to consider the petitioner‘s representations, such
direction was given in view of the fact that petitioner ‗s representation was
still pending when writ was filed and pass orders on merits and in
accordance with law.

 In Aphro Ecommerce Solutions (P.) Ltd. v. Union of India [2018] 91


taxmann.com 192 (Delhi); (2017) 9 TMI 750 (Delhi), the petitioner was a
web developer and IT software solution services provider in the
international and domestic market and prior to the implementation of the
Integrated Goods and Service Tax Act, 2017 (‗IGST Act‘), there was no
service tax on the export of services provided by the petitioner. However,
post the IGST Act, the export services provided by the petitioner are
covered under ‗zero rated supply‘ under section 16(1)(a) of the IGST Act, it
was held that in order to avail of the input tax credit, the petitioner, being
a new entrepreneur with an export turnover of less than Rs 1 crore per
annum, has to necessarily furnish a bond with a bank guarantee.

 In Rajeevan V.N. v. Central Tax Officer-1 Circle, Cochin [2018] 91


taxmann.com 195 (Kerala); (2018) 2 TMI 1717 (Kerala), where application

Volume XXIII Part 2 April 25, 2018 14 Business Advisor


preferred by petitioner for registration under the GST Act, 2017 had been
rejected on ground of certain discrepancies in documents submitted by
him along with application for registration, it was held that the same
ought to be considered by the authorities if fresh application with
requisite documents are filed by the petitioner.

 In Willowood Chemicals (P.) Ltd.v.Union of India [2018] 91 taxmann.com


296 (Allahabad) ; (2018) 3 TMI 1265 (Allahabad), the assessee filed writ
petition challenging second proviso to sub-section (1) of section 140 of
Gujarat GST Act, under which certain restrictions had been imposed on a
dealer for taking tax credit of taxes already paid under erstwhile Gujarat
VAT Act under the new GST regime; the court issued notice to Advocate
General as the vires of the State Act were under challenge. The statue
was also enacted retrospectively imposing unreasonable restriction.

 In Shunson CJ v. State Tax Officer [2018] 91 taxmann.com 411 (Kerala) ;


(2018) 4 TMI 580 (Kerala), where the assessee sought release of goods
detained under section 129 of CGST Act, 2017 as also Kerala SGST Act,
2017, dealing with detention, seizure and release of goods and
conveyance in transit, it was directed to Competent Authority to complete
adjudication within a week of communication of order provided under
section 129 of CGST Act, 2017 and further if assessee complied with Rule
140(1) of Kerala GST Act,2017, goods detained would be released to him
forthwith.

 In J.J. Fabrics v. Kerala Authority for Advance Ruling Kerala State Goods &
Service Tax [2018] 91 taxmann.com 402 (Kerala) ; (2018) 4 TMI 203
(Kerala), where no action on part of revenue had been taken to decide Ext.
P1 application preferred by assessee for advance ruling, therefore,
competent authority was directed to take a decision on said application
after affording an opportunity of hearing.

 In Shankar Mohan v. Intelligence Inspector, Ernkulam (2018) 10 GSTL


211(Kerala) ; (2018) 1 TMI 179 (Kerala), it was held that since the
petitioner complied with Rule 140(1) of Kerala GST Rules, 2017 and
section 129 of CGST Act, 2017, detained goods were to be released by
competent authority within a week from date of production of copy of the
judgment.

(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur.)


Volume XXIII Part 2 April 25, 2018 15 Business Advisor
Decisions digest [Volume No. 401 ITR]
V. K. Subramani

Interest on overdue deposits with banks: There is


difference between ascertained liability and contingent
liability. Interest on overdue deposits with banks is an
ascertained liability, which is deductible as business
expenditure (Oriental Bank of Commerce v Addtl CIT
(2018) 401 ITR 65 (Del)).

Direction under section 142(2A) without application


of mind: Where the assessee has given his objections for
the proposed direction for audit under section 142(2A),
the AO must consider those objections before giving the direction. Else, the
direction to buy time for completing the assessment is bad in law
(Karnataka Industrial Area Development Board v Asst CIT (Exemptions)
(2018) 401 ITR 74 (Kar)).

Admissibility of writ when alternative remedy is available: Notice under


section 148 was served on an educational institution which claimed total
tax exemption. The assessee contested the move and filed writ. The court
held that when the assessee had alternative remedy, the writ petition was
not maintainable (Annamalai University v ITO (2018) 401 ITR 80 (Mad)).

Addition under section 68 by giving undue importance to the


statement of director without appreciating the evidences adduced:
Where the assessee has given complete details of subscribers to the shares
with details of PAN, bank account through which the amounts were
received, the AO must verify them before taking a decision. Failure of the AO
to examine bank statements but making addition under section 68 would be
untenable (Pr CIT v Oriental International Co P Ltd (2018) 401 ITR 83 (Del)).

Subsidy is taxable revenue receipt prospectively from 01.04.2016: The


assessee received VAT refund in accordance with the scheme of the State
Government. It was held that the subsidy related to assessment year 2009-
10 is not hit by the insertion of section 2 (24)(xviii) as the inserted clause
would apply prospectively w.e.f. 01.04.2016 (Pr CIT v Deepak Vegpro P Ltd
(2018) 401 ITR 89 (Raj)).

Reckoning time limit for investment under section 54EC: The assessee
entered into a development agreement and as per the terms of the
agreement, the possession of the property to be given after receipt of entire
consideration. Hence, even if the deed was executed the time limit of 6
Volume XXIII Part 2 April 25, 2018 16 Business Advisor
months for making investment must be reckoned from the date of giving the
possession to the developer (CIT v Dr Arvind S. Phake (2018) 401 ITR 96
(Bom)).

Grant of power of attorney vis-à-vis transfer of possession for the


purpose of capital gain: When the power of attorney is granted and as per
agreement the possession was given after receipt of amount, the ―transfer‖
for the purpose of capital gain would be the date of granting possession and
not the date of executing power of attorney (Dr Joao Souza Proenca (2018)
401 ITR 105(Bom)).

Transfer of shares of foreign company in foreign country with


subsidiary of transferor in India: A group of individuals having shares in
foreign company transferred those shares outside India. The foreign
company has subsidiary in India. The total value of assets of Indian
subsidiary was less than 6% of total value of assets of foreign company. As
the value was miniscule when the legal requirement is 50%, it was held that
the transfer of shares with underlying value of assets in India has no tax
implication in India (GEA Refrigeration Technologies GMBH (2018) 401 ITR
115 (AAR)).

Amendment granting capital gain exemption for residential house in


India under section 54 is prospectively applicable: The Finance (No.2)
Act, 2014 amended section 54 thereby restricting the benefit of exemption
for reinvestment in residential house to only those situated in India. This
amendment is prospectively applicable and would not apply to years prior to
the assessment year 2015-16 (Dipankar Mohan Ghosh (2018) 401 ITR 129
(AAR)).

Two agreements, viz. for supply of plant/ equipment and another for
supervision of installation: There are two separate agreements, viz. one for
supply of plant and equipment for which the customs duty was paid by the
Indian company and another agreement provides for supervision of
installation. Technicians of non-resident visited India for short duration and
were paid for services after deduction of tax at source. The supply of plant

When the power of attorney is granted and as per agreement


the possession was given after receipt of amount, the
―transfer‖ for the purpose of capital gain would be the date of
granting possession and not the date of executing power of
attorney.

Volume XXIII Part 2 April 25, 2018 17 Business Advisor


and equipment is not liable to tax in India as there were two separate
agreements (Michelin Tamil Nadu Tyres P Ltd (2018) 401 ITR 164 (AAR)).

Reassessment of income when the assessee has computed income


under section 44BB: The assessee engaged in the business of exploration
of mineral oils admitted income on presumptive basis under section 44BB of
the Act. Later it was subjected to reassessment based on tangible material
available on record. While doing the assessment, the AO ignored the
transactions with its associated enterprises. He overlooked whether Form
3CEB report was to be referred to the TPO. Hence, the reassessment was
held valid (Dolphin Drilling Ltd v Asst Director of IT (2018) 401 ITR 209
(Uttarakhand)).

Reassessment without disposing of objections of the assessee: For the


initiation of reassessment, the assessee gave his objections and the AO
without giving disposal to the objections passed the order, it is bad in law.
The decision of the Supreme Court in GKN Driveshafts (India) Ltd is binding
on all the authorities and deviation thereon is eligible for admission of writ
(Ms Jayanthi Natarajan v Asst CIT (2018) 401 ITR 215 (Mad)).

When CBDT rejects petition seeking condonation of delay under


section 119 the court could interfere: The assessee could not make
investment in section 54EC bonds within the prescribed time and applied
for condonation of delay. The CBDT rejected the petition on the ground that
the subscription of bond does not require physical presence of assessee
within India. The Court held that the power so vested must be used in a
judicious manner and it has power to interfere (Dr Sujatha Ramesh v CBDT
(2018) 401 ITR 242 (Kar)).

Circular of CBDT will not apply where the decision on principle is


involved: When the addition in respect of unexplained investment is upheld
by the tribunal, there is no reason to withdraw the appeal relating to
penalty on the same amount (CIT v Smt Vasantha Anirudhan (2018) 401 ITR
279 (Ker)).

Reference to valuation officer without rejecting the books of the


assessee: The Assessing Officer cannot make reference to the valuation
officer without rejecting the books of account maintained by the assessee.
The court held that the apex court decision in Sargam Cinema v CIT (2018)
328 ITR 513 (SC), though a brief one, has laid down the law (CIT v
A.L.Homes (2018) 401 ITR 285 (Mad)).

Notice of reassessment issued on the deceased is nullity: When the


assessee has passed away, the reassessment based on the notice served on

Volume XXIII Part 2 April 25, 2018 18 Business Advisor


the deceased is not valid. When the legal heirs have objected before the
completion of reassessment proceedings, the provisions of section 292B will
not apply (Jaydeepkumar Dhirajlal Thakkar v ITO (2018) 401 ITR 302 (Guj)).

Expenses incurred for computerisation of share certificates to transfer


them to escrow account: Expenses incurred for computerisation of shares
for transfer through escrow account is ―expenditure incurred wholly and
exclusively in connection with transfer‖ and hence deductible expenses. In
this case, it was incurred in terms of the transfer agreement hence it was
identifiable to the shares, hence became deductible (Honda Motor Co Ltd
(2018) 401 ITR 382 (AAR)).
Shares in joint venture being long-term capital asset and indexation:
The assessee being a joint venture sold shares held in joint venture. The
shares were held for more than specified period and were long-term capital
gain. The assessee claimed no indexation benefit and hence the tax rate
applicable would be 10% (Honda Motor Co Ltd (2018) 401 ITR 382 (AAR)).
Tax on income of employees deputed outside India: The employees were
sent on assignment basis to the US and Germany. They received salary in
India while they were paid allowances to meet expenses in those countries.
The worldwide income was taxable in those countries, hence the employees
paid tax in the respective countries/ years. No income accrued to employees
in India during those years and hence no tax was payable. However, when
they returned to India, the Indian company can give credit for tax deducted
during their deputation outside India (Hewlett Packard India Software
Operation P Ltd (2018) 401 ITR 339 (AAR)).
Deduction under section 80-IC for job work manufacture: Special
deduction under section 80-IC will apply both for own manufacture and job
work manufacture. When the assessee undertook job work by providing
labour and factory space for manufacture of medicines, it is eligible for
deduction under section 80-IC (CIT v Aishwarya Health Care (2018) 401 ITR
398 (Patna)).
(V. K. Subramani is Chartered Accountant, Erode.)

The employees were sent on assignment basis to the US and


Germany. They received salary in India while they were paid
allowances to meet expenses in those countries…

Volume XXIII Part 2 April 25, 2018 19 Business Advisor


Press briefings, meetings - Playlists

Lecture by Roberto Trotta in PSTC

Vodafone launch of Supernet 4G in Chennai

Volume XXIII Part 2 April 25, 2018 20 Business Advisor


Press briefings, meetings - Playlists

RBA Revenue Bar Association Budget 2017 analysis

AHPI press briefing on Global Conclave

Volume XXIII Part 2 April 25, 2018 21 Business Advisor


Press briefings, meetings - Playlists

IIA India National Conference on Internal Audit inaugural

TCC Tamil Chamber of Commerce Budget 2017 analysis

Volume XXIII Part 2 April 25, 2018 22 Business Advisor


Press briefings, meetings - Playlists

Richard F. Chambers, President & CEO, IIA addresses media

Care Earth media workshop on water

Volume XXIII Part 2 April 25, 2018 23 Business Advisor


Press briefings, meetings - Playlists

FICCI Live session on Union Budget 2017

IGCC ARM Annual Regional Meet 2017

Volume XXIII Part 2 April 25, 2018 24 Business Advisor


Press briefings, meetings - Playlists

IITM Yalamanchili launch of Avatar self-service terminals

The KS Narayanan Oration 2017

Volume XXIII Part 2 April 25, 2018 25 Business Advisor


Published by: Shrinikethan, Chennai (Map)
Edited by: D. Murali
April 25, 2018

Volume XXIII Part 2 April 25, 2018 26 Business Advisor