Category: Income Tax

Amendment in Section 9 of Income Tax Act, 1961- THE TAXATION LAWS (AMENDMENT) ACT, 2021 -13 Aug 2021 II Final law to end retro tax II

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 THE TAXATION LAWS (AMENDMENT) ACT, 2021

MINISTRY OF LAW AND JUSTICE

(Legislative Department)

New Delhi, the 13th August, 2021/ Sravana 22, 1943 (Saka)

The following Act of Parliament received the assent of the President on the 13th August, 2021, and is hereby published for general information:—

THE TAXATION LAWS (AMENDMENT) ACT, 2021
NO. 34 OF 2021

43 of 1961.

[13th August, 2021.]

An Act further to amend the Income-tax Act, 1961 and the Finance Act, 2012.

BE it enacted by Parliament in the Seventy-second Year of the Republic of India as follows:—

CHAPTER I
PRELIMINARY

1. Short title.

This Act may be called the Taxation Laws (Amendment) Act, 2021.

Income deemed to accrue or arise in India.

9.(1) The following incomes shall be deemed to accrue or arise in India :— (i)all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

…………………………………………………………………………

Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:

In section 9 of the Income-tax Act, 1961, in sub-section (1), in clause (i), in Explanation 5, after the third proviso, the following provisos shall be inserted, namely:—

“Provided also that nothing contained in this Explanation shall apply to—

(i) an assessment or reassessment to be made under section 143, section 144, section 147 or section 153A or section 153C; or

(ii) an order to be passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or

(iii) an order to be passed deeming a person to be an assessee in default under sub-section (1) of section 201,

in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May , 2012:

Provided also that where—

(i) an assessment or reassessment has been made under section 143, section 144, section 147 or section 153A or section 153C; or

(ii) an order has been passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or

(iii) an order has been passed deeming a person to be an assessee in default under sub-section (1) of section 201; or

(iv) an order has been passed imposing a penalty under Chapter XXI or under section 221,

in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012 and the person in whose case such assessment or reassessment or order has been passed or made, as the case may be, fulfils the specified conditions, then, such assessment or reassessment or order, to the extent it relates to the said income, shall be deemed never to have been passed or made, as the case may be:

Provided also that where any amount becomes refundable to the person referred to in fifth proviso as a consequence of him fulfilling the specified conditions, then, such amount shall be refunded to him, but no interest under section 244A shall be paid on that amount.

Explanation.—For the purposes of fifth and sixth provisos, the specified conditions shall be as provided hereunder:—

(i) where the said person has filed any appeal before an appellate forum or any writ petition before the High Court or the Supreme Court against any order in respect of said income, he shall either withdraw or submit an undertaking to withdraw such appeal or writ petition, in such form and manner as may be prescribed;

(ii) where the said person has initiated any proceeding for arbitration, conciliation or mediation, or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, he shall either withdraw or shall submit an undertaking to withdraw the claim, if any, in such proceedings or notice, in such form and manner as may be prescribed;

(iii) the said person shall furnish an undertaking, in such form and manner as may be prescribed, waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the said income which may otherwise be available to him under any law for the time being in force, in equity, under any statute or under any agreement entered into by India with any country or territory outside India, whether for protection of investment or otherwise; and

(iv) such other conditions as may be prescribed.”.

CHAPTER III

AMENDMENT TO THE FINANCE ACT, 2012

3. Amendment of section 119.

In the Finance Act, 2012, in section 119, the following provisos shall be inserted, namely:—

“Provided that this section shall cease to apply to the person who fulfils the following conditions, namely:—

(i) where such person has filed any appeal before an appellate forum or a writ petition before the High Court or the Supreme Court against any order in respect of said income, he shall, either withdraw or submit an undertaking to withdraw such appeal or writ petition, in such form and manner as may be prescribed;

(ii) where such person has initiated any proceeding for arbitration, conciliation or mediation, or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, he shall either withdraw or submit an undertaking to withdraw the claim, if any, in such proceedings or notice, in such form and manner as may be prescribed;

(iii) such person shall furnish an undertaking, in such form and manner as may be prescribed, waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the said income which may otherwise be available to him under any law for the time being in force, in equity, under any statute or under any agreement entered into by India with any country or territory outside India, whether for protection of investment or otherwise; and

(iv) such other conditions as may be prescribed:

Provided further that if any amount becomes refundable under the Income-tax Act, 1961 to the person referred to in first proviso as a consequence of him fulfilling said conditions, such amount shall be refunded to him, but no interest under Section 244A of the Income-tax Act, 1961 shall be paid on that amount.”.

Refer YouTube link

New Rule 12AA, 51B in Income Tax Law (CBDT Notification No. 93/2021- Income Tax dated 18th August, 2021)

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CBDT Notification No. 93/2021- Income Tax dated 18th August, 2021

New Rule

Rule 12AA. Prescribed person for the purposes of clause (c) and clause (cd) of section 140

Rule 51B. Appearance by Authorised Representative in certain cases.

Refer YouTube video link:

Refer extract of notification:

MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
New Delhi

Notification No. 93/2021- Income Tax | Dated: 18th August, 2021

G.S.R. 578(E).—In exercise of the powers conferred by clause (c) and clause (cd) of section 140 and clause (viii) of sub-section (2) of section 288 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend Income-tax Rules, 1962, namely:-

  1. Short title. – These rules may be called the Income-tax (24th Amendment) Rules, 2021.
  2. In the Income-tax Rules, 1962 (hereinafter referred to as principal rules), after rule 12A, the following rule shall be inserted, namely:–
    “12AA. Prescribed person for the purposes of clause (c) and clause (cd) of section 140.- For the purpose of clause (c) or clause (cd), as the case may be, of section 140, any other person shall be the person, appointed by the Adjudicating Authority for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and the rules and regulations made thereunder.
    Explanation.–– For the purposes of this rule, “Adjudicating Authority” shall have the same meaning as assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).”.
  3. In the principal rules, after rule 51A, the following rule shall be inserted, namely:–
    “51B. Appearance by Authorised Representative in certain cases.- For the purposes of clause (viii) of sub-section (2) of section 288, any other person, in respect of a company or a limited liability partnership, as the case may be, shall be the person appointed by the Adjudicating Authority for discharging the duties and functions of an interim resolution professional, a resolution professional, or a liquidator, as the case may be, under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) and the rules and regulations made thereunder.

Explanation.–– For the purposes of this rule “Adjudicating Authority” shall have the same meaning as assigned to it in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016).”.
[Notification No. 93/2021/F.No. 370142/34/2021-TPL(Part III)]
SHEFALI SINGH, Under Secy., Tax Policy and Legislation

Income Tax Department conducts searches in NCR

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Posted Date:- Aug 17, 2021

The Income Tax Department conducted searches on 16.08.2021 on a company engaged in trading of telecom equipment and installation and servicing of these items for various telecom players in India. Searches were conducted at 5 premises, including the corporate office, residence of foreign director, residence of company secretary, accounts person and the cash handler of a foreign subsidiary company in India.

The search revealed that the purchases of the assessee company were entirely from its holding company. Examination of import bills vis-à-vis sale bills show that there is huge gross profit (approximately 30%) on trading of these items, however, the company has been booking huge losses over the years. It is thus evident that losses are being booked by the company through bogus expenses in respect of services provided by it. Few such recipients have been identified in whose case, substantial expenses have been booked over the years. These entities have been found to be non-existent at their addresses. Moreover, the said entities also do not file their Income Tax Returns(ITRs). More such dubious entities are being examined. It is expected that bogus expenses would run into hundreds of crores over the years.

During the search, incriminating evidence has been detected in Whatsapp chats of the CEO, CFO and other key persons indicating illegal payments to telecom companies. Whatsapp chats also reveal payment of commission to a person based in Australia for purchase of shares of a telecom company in India. These transactions are being examined further. Evidence in the form of electronic data and physical papers, found during the course of the search shows that unaccounted money, running into several crores every year, has been brought back into the books in the form of bogus scrap sales, etc. Incriminating documents found from the electronic data of key persons, including the foreign CFO, show that the employees of the company were engaged in illegal currency exchange from Rupee to RMB. They were also found to be engaged in large scale illegal trade of medicines from India to China.

Examination of books of the assessee company shows large discrepancies. It has been found that the company has failed to deduct TDS on provisions made by them for expenses. During F.Y.s 2014-15 and 2015-16 the company failed to deduct TDS on such provisions amounting to more than Rs. 120 crore. The company has claimed expenses of more than Rs. 100 crore on account of provisions created by it for doubtful debts in F.Y. 2017-18. Similarly, expenses of hundreds of crores have been claimed over the years on account of provision for doubtful debts and provision for doubtful loans and advances. Admissibility of such expenses is being examined.

Further, the Assessee company has also declared only 2 bank accounts in its Income Tax Returns (ITRs) despite having around 12 operative bank accounts. Accountability of transactions in other bank accounts is being examined.

Issue of tax liability of hundreds of crores has been identified so far. Unaccounted cash of more than Rs. 62 lakh has been found at the premises. 3 lockers have also been found during the course of the search, which have been placed under restraint. Search operation is still continuing.

*Ministryof Finance Press Release dated 17th Aug 2021

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Rs 99,756 crore disputed tax amount settled under Vivad Se Vishwas scheme

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The scheme ‘Vivad Se Vishwas’ is a voluntary scheme for resolving pending direct tax disputes amicably with the taxpayers and no targets were fixed by the Government under the  Scheme. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in Lok Sabha today.

Giving more details, the Minister tabled data of cases settled and amount under the said scheme is as per table given below: –

Current Status declarations filed under Vivad Se Vishwas Scheme

Count of Form-1 Filed

(cases settled) (A)

Number of Disputes Addressed (B)

Disputed Tax Amount Settled (as per Declaration filed) (Rs. Crores) (C)

Payments against Disputed Tax (Rs.

Crores) (D)

1,32,353

1,46,701

99,756

53,684

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Highlights of Taxation Laws (Amendment) Bill 2021 (To end retro tax on Indirect transfer)

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Highlights of Taxation Laws (Amendment) Bill 2021 (To end retro tax on Indirect transfer)

The objective of Taxation Laws (Amendment) Bill 2021 is to make the indirect transfer provision apply prospectively i.e from May 2012. Consequently, all existing and future retrospective tax demands are sought to be nullified on this matter. Taxpayers who were impacted will need to withdraw proceedings in court or arbitration forums. Any amounts collected will be paid back in full by the tax authorities (without interest).

This is a bold move that addresses the concerns of many foreign investors. It also puts to an end many of the past arbitration cases pending which have created great embarrassment for India in international circles.

Refer YouTube Link

CBDT extends due dates for electronic filing of various Forms under the Income-tax Act, 1961

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On consideration of difficulties reported by the taxpayers and other stakeholders in electronic filing of certain Forms under the provisions of the Income-tax Act,1961 read with Income-tax Rules,1962 (Rules), Central Board of Direct Taxes (CBDT) has decided to further extend the due dates for electronic filing of such Forms vide Circular No.15/2021 dated 03.08.2021. The details are as under:

  1. The Quarterly statement in Form No. 15CC to be furnished by authorized dealer in respect of remittances made for the quarter ending on 30th June, 2021, required to be furnished on or before 15th July, 2021 under Rule 37BB of the Rules, as extended to 31st July, 2021 vide Circular No.12 of 2021 dated 25.06.2021, may be filed on or before 31st August, 2021;
  2. The Equalization Levy Statement in Form No.1 for the Financial Year 2020- 21, which was required to be filed on or before 30th June, 2021, as extended to 31st July, 2021 vide Circular No.12 of 2021 dated 25.06.2021, may be filed on or before 31st August, 2021;
  3. The Statement of Income paid or credited by an investment fund to its unit holder in Form No. 64D for the Previous Year 2020-21, required to be furnished on or before 15th June, 2021 under Rule 12CB of the Rules, as extended to 15th July, 2021 vide Circular No.12 of 2021 dated 25.06.2021, may be furnished on or before 15th September, 2021;
  4. The Statement of Income paid or credited by an investment fund to its unit holder in Form No. 64C for the Previous Year 2020-21, required to be furnished on or before 30th June, 2021 under Rule 12CB of the Rules, as extended to 31st July, 2021 vide Circular No.12 of 2021 dated 25.06.2021, may be furnished on or before 30th September, 2021.

Further, considering the non-availability of the utility for e-filing of certain Forms, the CBDT has decided to extend the due dates for electronic filing of such Forms as under:

  1. Intimation to be made by a Pension Fund in respect of each investment made by it in India in Form No. 10BBB for the quarter ending on 30th June,2021, required to be furnished on or before 31st July,2021 under Rule 2DB of the Rules, may be furnished on or before 30th September, 2021;
  2. Intimation to be made by Sovereign Wealth Fund in respect of investments made by it in India in Form II SWF for the quarter ending on 30th June, 2021, required to be furnished on or before 31st July, 2021 as per Circular No.15 of 2020 dated 22.07.2020, may be furnished on or before 30th September, 2021.

            CBDT Circular No. 15/2021 in F.No.225/49/2021/ITA-II dated 03.08.2021issued today, is available on www.incometaxindia.gov.in. It is also clarified vide the said Circular that the above forms, e-filed, after the expiry of time limits provided as per Circular No.12 of 2021 dated 25.06.2021 or as per the relevant provisions, till date of issuance of said Circular, will stand regularised accordingly.

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Income Tax Department conducts searches in Kanpur

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The Income Tax Department carried out a search action on 29.07.2021 on a large group based in Kanpur and Delhi. The group is in the business of manufacturing Pan Masala and in real estate. A total of 31 premises were searched spread across Kanpur, Noida, Ghaziabad, Delhi and Kolkata.

The group has been earning huge amounts through unaccounted sale of Pan Masala and through unaccounted real estate business. This unaccounted income was laundered back into the concerns through a vast link of shell companies. Digital and paper evidence found during search revealed a nation-wide network of such paper companies created by the group. The Directors of these companies are persons of no financial means. While some of these persons are not even filing income tax returns, some others who file returns do so of extremely meagre amounts. Field investigations further revealed that these paper companies did not exist at the addresses mentioned and never conducted any business.

However, surprisingly these companies advanced so called loans and advances to the real estate group amounting to Rs 226 crore in just three years. A network of 115 such shell companies has been found. Forensic analysis of the digital data is in progress. The main ‘directors’ also admitted that they were only ‘dummy directors’ and signed on the dotted lines as and when required in return for commission for their ‘services’.

During the search, the income tax teams also discovered secret hideouts where troves of documents containing details of unaccounted money and their process of laundering have been unearthed. Analysis of such documents and evidence is also underway. The complete modus operandi has been uncovered by the team including the role of ‘cash handlers’ and their details.

The modus-operandi is similar with respect to the business of Pan Masala. They too have laundered back their unaccounted income through an extensive network of such shell companies. Unaccounted loans and premia received from such paper companies exceeding Rs. 110 crore in three years, have been detected. The group ploughed back their unaccounted money through such shell companies by showing bogus advances against property sale, bogus loans and share premia.

Forensic analysis of evidence is in progress. So far 34 bogus bank accounts of shell companies have been found. Deductions claimed under Income-tax Act, 1961 with respect to treatment of biodegradable waste are under detailed scrutiny. It has also been discovered that through some of these paper companies based in Kolkata, bogus sale and purchase of manure has been shown, amounting to Rs. 80 crore so that cash can be deposited into bank accounts.

During the search, cash of more than Rs. 52 lakh was found along with more than 7 kg gold. Preliminary figures indicate unaccounted transactions exceeding Rs. 400 crore.

Further investigations are in progress.

Ministry of Finance Press Release dated 30 July 2021

Income Tax Department conducts searches in Jharkhand

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Income Tax Department carried out a search operation on 28.07.2021 on a prominent group in Jharkhand dealing in building construction and real estate. The search began on 28.07.2021 in Ranchi and Kolkata. More than 20 premises were covered. 

During the search, it was found that the group was not maintaining regular books of account. In view thereof, the audit certificates and statements submitted to the Income Tax Department are under investigation for genuineness. As per details found during the search operation, it was seen that the group has been undertaking huge outside-the-books transactions in the building construction business and a large portion of sale proceeds is received in cash which remains unaccounted. Part of the cash generated has been brought into the business through bogus share capital and unsecured loans from shell companies. Investigations have revealed that at least 8 shell companies were involved. Relatives and persons of no means were appointed as directors of these ‘companies’ which existed only on paper. These ‘directors’ have admitted that they were only ‘dummy directors’ and would sign wherever the group told them to do so. Transactions of unsecured loan and bogus share capital to the tune of Rs. 25 crore have been detected. Shell companies investing money in the group have been found to be non-existent in Kolkata. Incriminating documents about front companies having employees as directors that received share capital and unsecured loan from shell companies have been seized.

The group has purchased a very large tract of land measuring 1458 acres on the outskirts of Ranchi and is developing the same by constructing and selling residential apartments. It was seen that the land has been registered at a consideration of one-tenth of the value for stamp duty purposes. Brokers have been paid fee in cash running into crores. Other expenses with regard to the purchase of land also are in crores. The sellers of the land have also been searched and they have admitted that more than 25% of land included in the registered document is forest land, not owned by them and for which they have received no consideration. Evidence gathered during the search established that the group had fraudulently got more than 300 acres of forest land registered in its name.

Unexplained cash of Rs. 50 lakh has been seized and three lockers have been found and placed under restraint.  Preliminary evidence found suggests evasion of tax of more than Rs. 50 crore.

Post search investigations are going on and tax evasion figures may go up substantially.

Ministry of Finance Press release dated 29 July 2021

Direct tax collection doubled for first quarter of current fiscal

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Direct tax collection for the first quarter of the current fiscal has doubled. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in Rajya Sabha today.

The Minister stated that the net direct tax collection in the 1st quarter of FY 2021-2022 is Rs. 2,46,519.82 crore as against Rs. 1,17,783.87 crore during the same period of previous FY 2020-21.

Giving reasons for increase in the tax collections, the Minister stated that it includes revival of economic activities and positive sentiments among taxpayers during this current financial year leading to increased income estimates and higher advance tax payments in the first quarter of the FY 2021-22 as compared to the corresponding period of FY 2020-21.

To the question of direct tax collections in the second quarter of the current  fiscal, the Minister stated that the collection of taxes during second quarter cannot be ascertained for the present as the second quarter has just started

On details of indirect tax collections of the first two quarters of the current  fiscal, the Minister stated that the second quarter of the current fiscal has just started, however the details of Net Indirect Tax (GST and Non-GST) revenue collection in the 1st quarter of FY 2021- 2022 is Rs. 3,11,398 crore.

Stating about Vivad-se-Vishwas Scheme, the Minister said the Government has resolved significant number of pending direct tax disputes amicably with the taxpayers under Vivad-se-Vishwas Scheme, 2020. This was the primary objective of the Scheme as provided in the short title therein ‘An Act to provide for resolution of tax and for matters connected therewith or incidental thereto’. The declarations received under the Scheme cover around 28.73% of pending tax disputes. Additional tax revenue received is an additional positive outcome.

On the recovery of economy, the Minister stated that the increased tax collection (Direct & Indirect) as reported in the first quarter of the current financial year as compared to the same period previous financial year shows that the economy is on the recovery path. Higher tax collection would enable Government in increasing public expenditure which would have a positive impact on GDP, the Minister stated.

Ministry of Finance dated 27 July 2021

Systemic measures by Government under Black Money Act yields results; detects undisclosed income of several crores

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In the recent years, the Government has taken a number of measures to bring back the black money stashed abroad ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’. This was stated in a written reply by Union Minister of State for Finance Shri Pankaj Chaudhary to a question in Lok Sabha today.

The Minister stated that as a result of systematic actions by the Government, the following results have been achieved as on 31.05.2021:

  • As on 31.05.2021, assessment orders under section 10(3)/10(4) of the Black Money Act, 2015 have been passed in 166 cases, wherein demand of Rs. 8,216 crore has been raised.
  • Undisclosed income of Rs. 8,465 crore (approx.) has been brought to tax and penalty of Rs. 1,294 crore has been levied in HSBC cases.
  • Undisclosed income of Rs. 11,010 crore (approx.) has been detected in ICIJ (International Consortium of Investigative Journalists) cases.
  • In the Panama Papers Leaks cases, undisclosed credits of Rs. 20,078 crore (approx.) have been detected.
  • In the Paradise Papers Leaks cases, undisclosed credits of Rs. 246 crore (approx.) have been detected.

The Minister stated that Income Tax Department takes appropriate action under relevant laws against the tax evaders. Such action under direct tax laws includes searches, surveys, enquiries, assessment of income, levy of tax, interest, penalties, etc. and filing of prosecution complaints in criminal courts, wherever applicable.

Giving details of the number of people arrested/chargesheeted, the Minister tabled details of prosecution complaints filed during last 5 years by the Income Tax Department under Income Tax Act, 1961 are as under:

F.Y.

Prosecution complaints filed in court

Cases compounded

Conviction order passed

2016-17

1252

1208

16

2017-18

4527

1621

75

2018-19

3512

2235

105

2019-20

1226

1410

49

2020-21*

173

537

16

*Figures are provisional

Further, more than 107 prosecution complaints have been filed under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the Minister stated.

Giving more details of the steps taken by the Government to bring back black money from outside the country to India, the Minister stated that the following number of measures have been taken:

  1. Enactment of ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ which has come into force w.e.f. 01.07.2015 to specifically and more effectively deal with the issue of black money stashed away abroad. Apart from prescribing more stringent penal consequences, this law has included the offence of willful attempt to evade tax etc. in relation to undisclosed foreign income/assets as a Scheduled Offence under the Prevention of Money- laundering Act, 2002 (PMLA).
  2. Constitution of the Special Investigation Team (SIT) on Black Money under Chairmanship and Vice-Chairmanship of two former Judges of Hon’ble Supreme Court,
  3. Proactively engaging with foreign governments with a view to facilitate and enhance the exchange of information under Double Taxation Avoidance Agreements (DTAAs)/Tax Information Exchange Agreements (TIEAs)/Multilateral Conventions.
  4. India has been a leading force in the efforts to forge a multi-lateral regime for proactive sharing of financial information known as Automatic Exchange of Information which will greatly assist the global efforts to combat tax evasion. The Automatic Exchange of Information based on Common Reporting Standard has commenced from 2017 enabling India to receive financial account information of Indian residents in other countries.
  5. India has entered into information sharing agreement with the USA under the Foreign Account Tax Compliance Act of USA.

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Ministry of Finance Press Release dated 26 July 2021