Miscellaneous – Page 55 – Business So Simple

SFT Reporting: Form 61A is not required for Nil transactions

Posted on 25th May 2017 by Business So Simple in Miscellaneous

SFT Reporting – Changes in utilities today (25 May 2017)

For ‘SFT Preliminary Response’, the option ‘No’ has today been replaced by ‘Nil Transactions’.

Now generation of ITDREIN and filing of Form 61A required only if there is a reportable transaction with option ‘Yes’.

For NIL transactions, Preliminary Response is required.

GST: FAQs Series 18 (GST: Payment of Taxes)

Posted on 25th May 2017 by Business So Simple in Miscellaneous

GST Payment of Taxes

Q 1. What are the Payments to be made in GST regime?

Ans. In the GST regime, for any intra-state supply, taxes to be paid are the Central GST (CGST), going into the account of the Central Government) and the State/UT GST (SGST, going into the account of the concerned State Government).

For any inter-state supply, tax to be paid is Integrated GST (IGST) which will have components of both CGST and SGST.

In addition, certain categories of registered persons will be required to pay to the government account Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). In addition, wherever applicable, Interest, Penalty, Fees and any other payment will also be required to be made.

Q 2. Who is liable to pay GST?

Ans. In general, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism. Further, in some notified cases of intra-state supply of services, the liability to pay GST may be cast on e-commerce operators through which such services are supplied. Also Government Departments making payments to vendors above a specified limit [2.5 lakh under one contract as per S.51(1)(d)] are required to deduct tax (TDS) and E-commerce operators are required to collect tax (TCS) on the net value [i.e. aggregate value of taxable supplies of goods and/or services but excluding such value of services on which the operator is made liable to pay GST under Section 9(5) of the CGST Act, 2017] of supplies made through them and deposit it with the Government.

Q 3. When does liability to pay GST arises?

Ans. Liability to pay arises at the time of supply of Goods as explained in Section 12 and at the time of supply of services as explained in Section 13.

The time is generally the earliest of one of the three events, namely receiving payment, issuance of invoice or completion of supply. Different situations envisaged and different tax points have been explained in the aforesaid sections.

Q 4. What are the main features of GST payment process?

Ans. The payment processes under GST Act(s) have the following features:

•Electronically generated challan from GSTN Common Portal in all modes of payment and no use of manually prepared challan;

•Facilitation for the tax payer by providing hassle free, anytime, anywhere mode of payment of tax;

• Convenience of making payment online;

• Logical tax collection data in electronic format;

• Faster remittance of tax revenue to the Government Account;

• Paperless transactions;

• Speedy Accounting and reporting;

• Electronic reconciliation of all receipts;

• Simplified procedure for banks

• Warehousing of Digital Challan.

Q 5. How can payment be done?

Ans. Payment can be done by the following methods:

(i) Through debit of Credit Ledger of the tax payer maintained on the Common Portal – ONLY Tax can be paid. Interest, Penalty and Fees cannot be paid by debit in the credit ledger. Tax payers shall be allowed to take credit of taxes paid on inputs (input tax credit) and utilize the same for payment of output tax. However, no input tax credit on account of CGST shall be utilized towards payment of SGST and vice versa. The credit of IGST would be permitted to be utilized for payment of IGST, CGST and SGST in that order.

(ii) In cash by debit in the Cash Ledger of the tax payer maintained on the Common Portal. Money can be deposited in the Cash Ledger by different modes, namely, E-Payment (Internet Banking, Credit Card, Debit Card); Real Time Gross Settlement (RTGS)/ National Electronic Fund Transfer (NEFT); Over the Counter Payment in branches of Banks Authorized to accept deposit of GST.

Q 6. When is payment of taxes to be made by the Supplier?

Ans. Payment of taxes by the normal tax payer is to be done on monthly basis by the 20th of the succeeding month. Cash payments will be first deposited in the Cash Ledger and the tax payer shall debit the ledger while making payment in the monthly returns and shall reflect the relevant debit entry number in his return. As mentioned earlier, payment can also be debited from the Credit Ledger. Payment of taxes for the month of March shall be paid by the 20th of April. Composition tax payers will need to pay tax on quarterly basis.

Q 7. Whether time limit for payment of tax can be extended or paid in monthly installments?

Ans. No, this is not permitted in case of self-assessed liability. In other cases, competent authority has been empowered to extend the time period or allow payment in instalments. (Section 80 of the CGST/SGST Act).

Q 8. What happens if the taxable person files the return but does not make payment of tax?

Ans. In such cases, the return is not considered as a valid return. Section 2(117) defines a valid return to mean a return furnished under sub-section (1) of section 39 on which self-assessed tax has been paid in full. It is only the valid return that would be used for allowing input tax credit (ITC) to the recipient. In other words, unless the supplier has paid the entire self-assessed tax and filed his return and the recipient has filed his return, the ITC of the recipient would not be confirmed.

Q 9. Which date is considered as date of deposit of the tax dues – Date of presentation of cheque or Date of payment or Date of credit of amount in the account of government?

Ans. It is the date of credit to the Government account.

Q 10. What are E-Ledgers?

Ans. Electronic Ledgers or E-Ledgers are statements of cash and input tax credit in respect of each registered taxpayer. In addition, each taxpayer shall also have an electronic tax liability register. Once a taxpayer is registered on Common Portal (GSTN), two e-ledgers (Cash &Input Tax Credit ledger) and an electronic tax liability register will be automatically opened and displayed on his dash board at all times.

Refer extract of Section 49 (Payment of tax, interest, penalty and other amounts) of CGST Act, 2017 on following link:

http://gstindia1.blogspot.in/p/extract-of-section-49-central-goods-and.html

Disclaimer:

This FAQ on GST compiled by NACEN and vetted by the Source Trainers is based on the CGST/SGST/UTGST/IGSTAct(s). This FAQ is for training and academic purposes only.

The information in this blogger is reproduced from FAQ on GST publised by CBEC updated on 31 March 2017 and is not intended to be treated as legal ad vice or opinion. For greater details, you are requested to refer to the respective CGST/SGST/UTGST/IGST Acts.

The FAQs refer to CGST and SGST Acts as CGST/SGST as CGST Act and SGST Act are identical in most of the provisions. CGST Act has been introduced in the Parliament. The SGST Acts will be passed by respective state legislatures. A few provisions may be specific to state and may not be in CGST Act.

Tax Planning Series 2.1 : Capital Gain (Exemption u/s 54: Profit on sale of residential house)

Posted on 25th May 2017 by Business So Simple in Miscellaneous

Exemption u/s 54 of Income tax Act, 1961 in respect of capital gains arising on sale of a residential house

1. Profit on sale of property used for residence [Section 54]

Section 54 provides for exemption in respect of capital gains arising on sale of a residential house. The exemption under section 54 can be claimed if the following conditions are satisfied :

♦		The assessee is an individual or a HUF. Since a firm cannot use a building for its residence the exemption in section 54 is not available to it. [K.I. Viswambharan & Bros. v. CIT[1973] 91 ITR 588 (Ker.) (FB)].
♦		The asset is a residential house property (building or lands appurtenant thereto) (one residential house in India with effect from 1-4-2015). The basic requirement of section 54 is that the capital gain should arise from the transfer of buildings or lands, the income of which is chargeable under the head ‘Income from house property’. If land alone is sold, the provisions of section 54 will have no application, inasmuch as the income from the land is not chargeable under the head ‘Income from house property’. [CIT v. Zaibunnisa Begum [1985] 151 ITR 320 (AP)].
♦		The income from the house is chargeable under the head ‘Income from house property’ (even if the house is self-occupied and its annual value is taken as nil), the exemption can be claimed if the income or notional income, if charged to tax would be chargeable under this head – (Circular No. 538, dated 13-7-1989).
♦		The transferred asset is a long-term capital asset (held by the assessee for more than 36 months/24 months w.e.f. 01 April 2017).
♦		The assessee has within a period of 1 year before or 2 years after the date of transfer purchased, or has within a period of 3 years after that date constructed a residential house. In Mrs. Prema P. Shah v. ITO [2006] 100 ITD 60 (Mum. – Trib.) it was held that for the purpose of availing exemption under section 54, the residential house need not be in India. The new residential house could be in foreign country as well (Finance (No. 2) Act, 2014 has amended section 54(1) so as to provide that the exemption is available, if the investment is made in purchase or construction of one residential house situated in India).
♦		The capital gain not utilised in purchase or construction of the new asset before furnishing the return of income is deposited in the Capital Gains Account Scheme in a bank before the due date for furnishing the return of income and proof of such deposit is furnished along with the return of income.

Under the present law the benefit under section 54 is not available to a co-operative society or firm – [South Kanara Central Co-operative Wholesale Stores v. CIT[1978] 114 ITR 298 (Kar.); K.I. Viswambharan & Bros. v. CIT [1973] 91 ITR 588 (Ker.)(FB) and CIT v. K. Gangiah Chetty & Sons [1995] 214 ITR 548 (Mad.). Neither the firm nor its partners are entitled to exemption under section 54 in respect of capital gain arising from sale of its building by the firm. [K.I. Viswambharan & Bros. v. CIT [1973] 91 ITR 588 (Ker.)(FB)]. A trust is also not entitled to exemption under section 54. [Rajneesh Foundation v. ITO [1983] 4 ITD 409 (Bom. – Trib.)]

However, where the relevant conditions are satisfied, the exemption under section 54 can be claimed by legal heirs also – [Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 (AP) and C.V. Ramanathan v. CIT [1980] 125 ITR 191 (Mad.)].

2.Quantum of deduction under section 54

The following points may be noted:

♦		Where the amount of capital gain is equal to or less than the cost of the new residential house, the entire capital gain is free from tax.
♦		Where the amount of the capital gain exceeds the cost of the new residential house, only the excess of the capital gain over the cost of the new asset is chargeable to tax under the head ‘Capital gains’. [The assessee can avoid paying tax on this excess capital gains if he invests in specified bonds under section 54EC.]
♦		Where the capital gain is not used by the assessee in the purchase/construction of the new house before the due date for furnishing the return of income under section 139(1), he must, if he wishes to claim the exemption under section 54, deposit the unutilised amount in an account under the Capital Gains Accounts Scheme in any specified bank/institution by that date and utilise it in accordance with such notified scheme.

For the purpose of computing the exemption under section 54 the amount utilised in the purchase/construction of the new asset together with the amount deposited in the Capital Gains Accounts Scheme will be deemed to be the cost of the new asset. In other words, the exemption under section 54 will be the lower of —

♦		the amount of the capital gains, and
♦		the amount utilised in the purchase/construction of the new residential house plus the amount deposited under the Capital Gains Accounts Scheme by the due date for furnishing the return of income under section 139(1).

In CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274 (Gau.) the assessee sold his share in residential property for Rs. 40 lakhs and the indexed cost of acquisition of the property was Rs. 10.27 lakhs. The assessee entered into an agreement for purchase of flat for total consideration of Rs. 30 lakhs. The Assessing Officer rejected exemption under section 54 on the reasoning that the assessee had taken only sublease of property and the sublease does not amount to purchase of property. Also, the assessee did not deposit the unappropriated amount in the capital gain deposit scheme within the time of furnishing the return prescribed in section 139(1) of the Act. The court held that the assessee had to deposit before furnishing the return under section 139 and it would not mean the ‘due date’ under section 139(1). With respect this decision requires reconsideration. When the condition for unappropriated amount is to be deposited in the capital gain account before the due date mentioned in section 139(1), the utilization even after that date could not be a proper compliance of statutory condition.

3.Illustration

1. Dinesh acquired a residential flat in 2001-02 for Rs. 5,00,000. On 10-12-2007 he sold the flat for Rs. 25,00,000. On 22-3-2008, he acquired a new residential house for Rs. 12,00,000.

The exemption under section 54 will be worked out as under :

	Rs.
Full value of consideration – sale proceeds	25,00,000
Less: Indexed cost of acquisition : 5,00,000 × 551/426	6,46,700
	18,53,300
Less: Exemption under section 54 – in respect of new residential house.	12,00,000
Taxable long-term capital gain	6,53,300

Since the investment in new house exceeds the amount of the capital gains the entire capital gains is eligible for exemption under section 54.

2. Tarun inherited a house from his father who had purchased it in 1962 for Rs. 15,000. The market value of the house on 1-4-1981 was Rs. 2,50,000. Tarun sold the house on 11-11-2007 for a sum of Rs. 27,00,000. He intends to construct another house within 3 years (i.e., by 10-11-2010). The estimated cost of construction is Rs. 9,00,000. By 31-3-2008, he spent Rs. 1,00,000 on the construction. On 15-6-2008 he deposits Rs. 8,00,000 in a bank under the Capital Gains Accounts Scheme. Compute capital gains.

	Rs.
Full value of consideration – sale proceeds	27,00,000
Less: Indexed cost of acquisition : 2,50,000 × 551/100	13,77,500
	13,22,500
Less: Exemption under section 54 (Rs. 1,00,000 spent on construction and Rs. 8,00,000 deposited in CGS account)	9,00,000
Taxable long term capital gain	4,22,500

3. Ashok provides following data regarding his transaction for sale of one of his two residential houses for assessment year 2008-09. :

	Rs.
House purchased in March 1982	1,50,000
Sold in November 2007	17,80,000
Purchased another house in September 2007	7,50,000

Compute the amount of capital gain to be included in the total income for assessment year 2008-09.

	Rs.
Full value of consideration – sale proceeds	17,80,000
Less: Indexed cost of acquisition : 1,50,000 × 551/100	8,26,500
Capital gains	9,53,500
Less: Deduction under section 54 : Acquisition of another residential house within one year before the date of transfer of residential house	7,50,000
Taxable long term capital gain	2,03,500

4. Narain is the owner of two residential houses. One house is let on rent and the other is self occupied. The self-occupied house was constructed by him in the year 1971 at a cost of Rs. 75,000. The fair market value of this house on 1-4-1981 was Rs. 90,000. In the year relevant to assessment year 2008-09, he sold the self-occupied house for Rs. 8,50,000. But within six months of this sale, he purchased for his residence, a new house costing Rs. 3,00,000. What is the amount of taxable capital gain? Would it make any difference if the cost of the new house is Rs. 3,25,000 ?

	Case I	Case II
	Rs.	Rs.
Full value of consideration – sale proceeds	8,50,000	8,50,000
Less: Indexed cost of acquisition : 90,000 × 551/100	4,95,900	4,95,900
Capital gains	3,54,100	3,54,100
Less: Exemption under section 54 in respect of new residential house	3,00,000	3,25,000
Taxable long term capital gain	54,100	29,100

5. Jayant sold his residential house in January 2008 resulting in long-term capital gain of Rs. 4.70 lakhs. Out of the sale proceeds he purchased a site for Rs. 4.00 lakhs in February 2008. He proposes to commence construction of a residential house after about six months.

In case Jayant deposits the balance of Rs. 70,000 before the due date for furnishing the return of income in a scheduled bank under Capital Gains Accounts Scheme, will he be entitled to exemption under section 54(2) ? Would the amount invested on purchase of site be taken as part utilisation for construction of a new asset or is it necessary for Jayant to invest the entire capital gain of Rs. 4.70 lakhs for construction excluding cost of site ?

If Jayant deposits Rs. 70,000 in capital gain account, then he is eligible for the full exemption. As regards acquisition of land and its eligibility for deduction under section 54 the CBDT Circular No. 667, dated 18-10-1993 provides the answer. It is the aggregate cost of land and building that should be considered for determining the quantum of exemption under section 54/54F provided the acquisition of the plot and the construction of the house are completed within the period specified in these sections. Therefore, Jayant should complete construction of the house on the site within the specified period of three years and he will be eligible for the exemption contained in section 54 of the Act.

6. Bimal purchased a residential flat on 1-4-1999 for Rs. 10,50,000. On 5-5-2007 it was sold for Rs. 45,00,000. He deposited Rs. 16,00,000 in an account under the CGA Scheme on 30-6-2007. He utilised Rs. 14,50,000 out of the amount deposited under the CGA Scheme in the construction which was completed on 12-9-2009. Compute the capital gains.

	Rs.
Full value of consideration – sale proceeds	45,00,000
Less: Indexed cost of acquisition : 10,50,000 × 551/389	14,87,300
Capital gains	30,12,700
Less: Exemption under section 54 in respect of amount deposited in CGS account.	16,00,000
Taxable long term capital gain	14,12,700

Note : Since the assessee has utilized only Rs. 14,50,000 out of the CGS account for the construction of new residential house within the period of 3 years the balance of unutilized portion of deposit as the income of the previous year in which the time period of 3 years expires. Rs. 1.50 lakhs will be the income under the head long term capital gains for the previous year 2010-11 (assessment year 2011-12).

7. Rao acquired a vacant site for Rs. 2,00,000 in April, 1978 and constructed a residential building for Rs. 5,00,000 during the year 1990-91. The fair market value of the site as on 1-4-1981 is Rs. 3,00,000. The building was transferred by Rao to Chetan for Rs. 75,00,000 in October 2007. Rao deposited Rs. 10,00,000 in NHAI capital gain bond and acquired a residential building in January 2008 for Rs. 20,00,000. Discuss the issues involved in the transfer and reinvestment.

	Rs.	Rs.
Full value of consideration		75,00,000
Less : Indexed cost of acquisition
Land Rs. 3,00,000 × 551/100	16,53,000
Building Rs. 5,00,000 × 551/182	15,13,800
		31,66,800
Long term capital gain		43,33,200
Less : Exemption u/s. 54 in respect of new residential house		20,00,000
		23,33,200
Less : Exemption u/s. 54EC in respect of NHAI bonds		10,00,000
Taxable long term capital gain		13,33,200

Issues involved:

(1)		Since the subject matter of transfer is land and building, provisions of section 50C is applicable. If the stamp valuation authority has adopted the asset value more than the apparent consideration then such value is to be adopted unless the assessee disputes the valuation before the State stamp valuation authority. Alternatively, the assessee (vendor) may dispute the valuation before the Assessing Officer in which case it would be referred to Valuation Officer.
(2)		The subject matter of transfer consists of land and building. It would be advisable to specify in the sale deed the sale consideration towards land and building separately. For stamp duty purpose, the value of land may be increased nearer to State stamp valuation and the building value is determined normally by deducting depreciation towards wear and tear of the asset.
(3)		Bifurcation of sale consideration towards land and building would reduce the difference in valuation as adopted by the State stamp valuation authority and the assessee as the subject matter of dispute would be more on land than on building value.

4. Amendments to section 54 by Finance (No. 2) Act, 2014 (applicable w.e.f. assessment year 2015-16)

Section 54 relates to profit on sale of property used for residence. The existing provisions contained in sub-section (1) of section 54 provide that where capital gain arises from the transfer of a long-term capital asset, being a residential house, and the assessee within a period of one year before or two years after the date of transfer purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is exempted.

There was a dispute whether the house in which reinvestment should be within India in order to avail the exemption. In Leena J.Shah v. Asstt. CIT [2006] 6 SOT 721 (Ahd. – Trib.) it was held that for availing of exemption under section 54 the property acquired/constructed must be within India in Vinay Mishra v. Asstt. CIT [2013] 30 taxmann.com 341/141 ITD 301 (Bang. – Trib.) contrary view was taken that a residential property acquired outside India is also eligible for exemption under section 54.

Courts have interpreted provisions to hold that exemption is available even if investment is made in more than one house. In CIT v. D. Ananda Basappa [2009] 180 Taxman 4 (Kar.), it was held that exemption under section 54 is available when two flats are purchased and combined to make them one residential unit. Section 13 of the General Clauses Act was referred to which states that whenever the singular is used for a word, it is permissible to include the plural. The expression ‘a residential house’ should be understood in a sense that the building should be of residential nature and ‘a’ should not be understood to indicate a singular number – CIT v. Smt. K.G. Rukminiamma [2010] 8 taxmann.com 121/[2011] 196 Taxman 87 (Kar.). Four residential flats constituted ‘a residential house’ for the purpose of section 54 of the Act – Dr. Smt. P.K. Vasanthi Rangarajan v. CIT [2012] 23 taxmann.com 299/209 Taxman 628 (Mad.). The fact that residential house consists of several independent units cannot be permitted to act as an impediment to allowance of deduction under section 54/54F of the Income-tax Act – CIT v. Gita Duggal [2013] 30 taxmann.com 230/214 Taxman 51 (Delhi). Purchase of 2 flats adjacent to one another having a common meeting point would fulfil the requirement of exemption provisions of section 54 of the Income-tax Act – CIT v. Syed Ali Adil [2013] 33 taxmann.com 212/215 Taxman 283 (AP).

To overcome the above judicial decisions on allowing exemption for investment in multiple houses and also to resolve controversy as regards whether the investment should be in a house in India, the Finance (No. 2) Act, 2014 has amended section 54(1) so as to provide that the exemption is available, if the investment is made in purchase or construction of one residential house situated in India. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent years.

The Explanatory Memorandum explains the amendments as under:

Capital gains exemption in case of investment in a residential house property

The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India.

These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years. [Clauses 22 & 24]

5. Acquisition – Purchase or construction

In P.K. Datta v. ITO [2006] 100 TTJ (Pune – Trib.) 133 the assessee sold his residential property and the sale consideration was Rs. 3.75 lakhs and the capital gain thereon was Rs. 3.34 lakhs. The assessee entered into an agreement with a developer for construction of a row house and claimed exemption under section 54. The assessee paid Rs. 2.50 lakhs to the developer before the due date for filing the return prescribed in section 139(1). The assessee did not deposit any money in the capital gain account scheme. The new residential house possession was taken in February 1993. The Assessing Officer held that the transaction of the sale was made on 26th June, 1990 and the possession of new house was obtained in February 1993 and the transaction in the nature of purchase/acquisition was beyond 2 years after the date of sale of old residential house and hence not eligible for exemption under section 54. The Tribunal held the agreement with the builder/developer is in the nature of acquisition and the transfer of new house was given only in February 1993 and the agreement is not an agreement for construction but is an agreement for construction by the builder and sale of one row house to the assessee. However, it held legal formalities alone is not to be considered for exemption under section 54 but the test of domain and control over the property should be applied. It held that the assessee paid substantial part of the cost of new house within 2 years hence is entitled to exemption under section 54.

The Central Board of Direct Taxes has issued Circular No. 471, dated 15-10-1986, has clarified that for the purpose of capital gains tax, the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above and that cases of allotment of flats under the self-financing scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains.

Section 54 only says that within two years, the assessee should have constructed the house but that does not mean that the construction of the house should necessarily be completed within two years. What it means is that the construction of the house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, construction takes years and years. Therefore, confining to two years’ period for construction and handing over possession thereof is impossible and unworkable under section 54. If substantial investment is made in the construction of the house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54 [Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP)].

Refer extract of Section 54 on link https://incometaxindia1.blogspot.in/p/profit-on-sale-of-property-used-for.html

Ashtavakra Gita : Repose in the Self

Posted on 25th May 2017 by Business So Simple in Miscellaneous

Janaka said:

19.1

With the tongs of Truth
I have plucked the thorn of thinking
from the innermost cave
of my heart.

19.2

Where is meditation, pleasure,
prosperity or discrimination?
Where is duality?
Where even is Unity?
I abide in the glory of Self.

19.3

Where is past and future,
or even present?
Where is space, or even eternity?
I abide in the glory of Self.

19.4

Where is Self?
Where is not-Self?
Where is good and evil, confusion and clarity?
I abide in the glory of Self.

19.5

Where is sleeping, dreaming, waking,
or even the fourth state?
Where is fear?
I abide in the glory of Self.

Series continue…

Tax Planning Series 6: Residential status and tax incidence

Posted on 24th May 2017 by Business So Simple in Miscellaneous

Residential status and tax incidence

The scope of taxable income of an assessee is determined by his residential status. This status will have to be determined in accordance with the provisions contained in section 6 of the Act, for each and every previous year separately.

An individual’s residential status can be of three kinds, namely,

(a) resident and ordinarily resident;
(b) resident but not ordinarily resident; and
(c) non-resident.

Rule of residence in brief

Resident and ordinarily resident	Resident but not ordinarily resident	Non-resident
Must satisfy at least one of the basic conditions and the two additional conditions [i.e., one of (a) or (b) and both of (i) and (ii)]	Must satisfy at least one of the basic conditions and one or none of the additional conditions [i.e., one of (a) or (b) and one or none of (i) or (ii)]	Should not satisfy any of the basic conditions.

BASIC CONDITIONS AT A GLANCE

In the case of an Indian citizen who leaves India during the previous year for the purpose of employment or who leaves India as a member of the crew of an Indian ship

In the case of an Indian citizen or a person of Indian origin (who is abroad) who comes to India on a visit during the previous year

In the case of an individual [other than that mentioned in columns (1) and (2)]

(1)

(2)

(3)

Presence for at least 182 days in India during the previous year

Not functional

Presence in India for at least 60 days during the previous year and 365 days during 4 years immediately preceding the previous year.

ADDITIONAL CONDITIONS AT A GLANCE

i.		Resident in India in at least 2 out of 10 years immediately preceding the previous year [i.e., he must satisfy at least one of the basic conditions, in 2 out of 10 immediately preceding the previous years].
ii.		Presence in India for at least 730 days during 7 years immediately preceding the previous year.

Note : It has been held that the term ‘for the purpose of employment’ includes self-employment like own business or profession taken up abroad – CIT v. O. Abdul Razak [2011] 198 Taxman 1/10 taxmann.com 4 (Ker.).

With effect from the assessment year 2015-16 in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed by the Central Board of Direct Taxes.

Rule 126(1) provides that for the purposes of clause (1) of section 6, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period computed in accordance with sub-rule (2) of rule 126.

Sub-rule (2) of rule 126 provides that the period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.

Explanation to rule 126 provides that “eligible voyage” shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where—

(i)		for the voyage having originated from any port in India, has as its destination any port outside India; and
(ii)		for the voyage having originated from any port outside India, has as its destination any port in India.

Tax incidence

		WHETHER TAX INCIDENCE ARISES IN THE CASE OF
		Resident and ordinarily resident	Resident but not ordinarily resident	Non-resident
(1)		(2)	(3)	(4)
♦	Income received in India, whether accrued in India or outside India	Yes	Yes	Yes
♦	Income deemed to be received in India, whether accrued in India or outside India	Yes	Yes	Yes
♦	Income accruing or arising in India, whether received in India or outside India	Yes	Yes	Yes
♦	Income deemed to accrue or arise in India, whether received in India or outside India	Yes	Yes	Yes
♦	Income received and accrued outside India from a business con-trolled in or a profession set up in India	Yes	Yes	No
♦	Income received and accrued outside India from a business con-trolled from outside India or a profession set up outside India	Yes	No	No
♦	Income earned and received outside India but later on remitted to India, whether tax incidence arises at the time of remittance.	No	No	No

Tax Planning in respect of Residential Status by Individual

Individuals who are visiting India on a business trip or in some other connection should not stay in India for more than 181 days in the year and no more than 364 days in preceding four years to enjoy non-resident status.
If individual is in India for more than 364 days during the preceding four years then he should avoid staying in India for more than 59 days in a year. If he wants to stay more than 59 days then he may come in such manner that no more than 59 days come in a year. He may come after 2nd feb and leave before 29 may. so that no more than 59 days period is covered in both years.
Similarly Indian citizen or person of Indian origin should plan their trip such that no more than 181 days will fall in one year.
A non resident should not receive any income directly in India even if the business is controlled directly from India. He should first receive income outside India and then remit it to India, by such way no tax is leviable on such income.
Similarly a non ordinarily resident should receive his income outside India which is earned outside India and from a business controlled outside India.

Ashtavakra Gita : Peace

Posted on 24th May 2017 by Business So Simple in Miscellaneous

Ashtavakra Said:

18.91

He who is without desire excels,
be he beggar or king.
He no longer sees good or bad.

18.92

What is lust or restraint,
or the desire for Truth
to the yogi who has reached life’s goal,
and who embodies virtue and sincerity?

18.93

The inner experience of one
who is free of desire and suffering,
who is content and reposes in Self–
how can it be described,
and of whom?

18.94

The wise one’s state never varies.
Sleeping soundly, he is not asleep.
Lying in reverie, he is not dreaming.
Eyes open, he is not wakeful.

18.95

The man of Knowledge seems to think,
but has no thoughts.
He seems to have sense perceptions,
but does not experience.
He seems to have intelligence,
but is empty-minded.
He appears to be a person,
but is not.

18.96

The man of Knowledge
is neither happy nor miserable,
neither detached nor attached,
neither liberated nor seeking liberation.
He is neither this nor that.

18.97

Even while distracted the blessed one is still.
In meditation, he does not meditate.
In ignorance, he remains clear.
Though learned, he knows nothing.

18.98

The liberated one,
who abides unconditionally in Self,
who is free of the concept of action and duty,
who is always and everywhere the same,
is desireless.
He does not worry
about what he did or did not do.

18.99

The wise one is neither pleased by praise,
nor annoyed by blame.
He neither rejoices in life
nor fears death.

18.100

One of tranquil mind
seeks neither crowds nor wilderness.
He is the same wherever he goes.

GST: FAQs Series 17 (Valuation in GST)

Posted on 23rd May 2017 by Business So Simple in Miscellaneous

Valuation in GST

Q 1. What is the value of taxable supply to be adopted for the levy of GST?

Ans. The value of taxable supply of goods and services shall ordinarily be ‘the transaction value’ which is the price paid or payable, when the parties are not related and price is the sole consideration. Section 15 of the CGST/SGST Act further elaborates various inclusions and exclusions from the

ambit of transaction value. For example, the transaction value shall not include refundable deposit, discount allowed subject to certain conditions before or at the time of supply.

Q 2. What is transaction value?

Ans. Transaction value refers to the price actually paid or payable for the supply of goods and or services where the supplier and the recipient are not related and price is the sole consideration for the supply. It includes any amount which the supplier is liable to pay but which has been incurred by the recipient of the supply.

Q 3. Are there separate valuation provisions for CGST, SGST and IGST and for Goods and Services?

Ans. No, section 15 is common for all three taxes and also common for goods and services.

Q 4. Is contract price not sufficient to determine valuation of supply?

Ans. Contract price is more specifically referred to as ‘transaction value’ and that is the basis for computing tax.However, when the price is influenced by factors like relationship of parties or where certain transactions are deemed to be supply, which do not have a price, the value has to be determined in accordance with the GST Valuation Rules.

Q 5. Is reference to GST Valuation Rules required in all cases?

Ans. No. Reference to GST Valuation Rules is required only in cases where value cannot be determined under subsection (1) of Section 15.

Q 6. Can the transaction value declared under section 15(1) be accepted?

Ans. Yes, it can be accepted after examining for inclusions in section 15(2). Furthermore, the transaction value can be accepted even where the supplier and recipient are related, provided the relationship has not influenced the price.

Q 7. Whether post-supply discounts or incentives are to be included in the transaction value?

Ans. Yes. where the post-supply discount is established as per the agreement which is known at or before the time of supply and where such discount specifically linked to the relevant invoice and the recipient has reversed input tax credit attributable to such discount, the discount is allowed as admissible deduction under Section 15 of the model GST law.

Q 8. Whether pre-supply discounts allowed before or at the time of supply are includible in the transaction value?

Ans. No, provided it is allowed in the course of normal trade practice and has been duly recorded in the invoice.

Q 9. When are the provisions of the Valuation Rules applicable?

Ans. Valuation Rules are applicable when (i) consideration either wholly or in part not in money terms; (ii) parties are related or supply by any specified category of supplier; and (iii) transaction value declared is not reliable.

Q 10. What are the inclusions specified in Section 15(2) which could be added to Transaction Value?

Ans. The inclusions specified in Section 15 (2) which could be added to transaction value are as follows:

a) Any taxes, duties, cesses, fees and charges levied under any statute, other than the SGST/CGST Act and the Goods and Services Tax (Compensation to the States for Loss of Revenue) Act, 2016, if charged separately by the supplier to the recipient;

b) Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services;

c) Incidental expenses, such as commission and packing, charged by the supplier to the recipient of a

supply, including any amount charged for anything done by the supplier in respect of the supply of goods and/or services at the time of, or before delivery of the goods or as the case may be supply of the services;

d) Interest or late fee or penalty for delayed payment of any consideration for any supply; and

e) Subsidies directly linked to the price excluding subsidies provided by the Central and State Government.

Disclaimer:

This FAQ on GST compiled by NACEN and vetted by the Source Trainers is based on the CGST/SGST/UTGST/IGSTAct(s). This FAQ is for training and academic purposes only.

Tax Planning Series 5: Tax Free Income (Updated by Finance Act, 2016)

Posted on 23rd May 2017 by Business So Simple in Miscellaneous

LIST OF TAX-FREE INCOMES

*Section*	*Nature of exemption*	*Who are entitled*	*Relevant Rule*
*(1)*	(2)	(3)	(4)
10(1)	Agricultural income	Any assessee	7, 7A, 7B, 8
10(2)	Amount received out of family income, or in case of impartible estate, amount received out of income of family estate	Individual as member of HUF
10(2A)	Partner’s share in total income of firm	Partner of a firm
10(4)(i)	Interest on securities or bonds notified before 1-6-2002 by the Central Government including premium on redemption of such bonds	Non-resident
10(4)(ii)	Interest received on Non-resident (External) Account	Person resident outside India (as defined in FEMA) and person who has been permitted to maintain said account by RBI
10(4B)	Interest on notified savings certificates issued before 1-6-2002 by the Central Government and subscribed to in convertible foreign exchange	Individual (Indian citizen or person of Indian origin, who is a non-resident)
10(5)	Leave travel concession or assistance (subject to prescribed conditions and limited to amount actually spent)	Individual – Salaried employee	2B
10(6)(ii)	Remuneration received by specified diplomats and their staff	Individual (non-citizen of India)
10(6)(vi)	Remuneration received as employee of foreign enterprise for services rendered during stay in India (subject to certain conditions)	Individual – Salaried employee (non-citizen of India)
*10(6)(viii)*	Remuneration received for services rendered in connection with employment on a foreign ship (subject to certain limits)	Individual – Salaried employee (non-resident, non-citizen of India)
10(6)(xi)	Remuneration received as employee of foreign Government in connection with his training in Government offices/statutory undertakings, etc.	Individual – Salaried employee (foreign citizen)
10(6A)	Tax paid by Government or Indian concern on royalty/fees for technical services from Government or Indian concern under agreement made before 1-6-2002 which either relates to a matter included in the industrial policy of the Government and is in accordance with that policy or is approved by Central Government	Foreign company
10(6B)	Tax paid by Government or Indian concern under terms of agreement entered into before 1-6-2002 by Central Government with Government of foreign State or international organisation on income derived from Government or Indian concern, other than income by way of salary, royalty or fees for technical services	Non-resident (other than company) or foreign company
*10(6BB)*	Tax paid by Indian company, engaged in the business of operation of aircraft, who has acquired an aircraft or its engine on lease, under an approved (by Central Government) agreement entered into between 31-3-1997 and 1-4-1999, or after 31-3-2007, on lease rental/income	Government of foreign State or foreign enterprise
10(6C)	Income by way of royalty or fees for technical services rendered in India or abroad in projects connected with security of India pursuant to agreement with Central Government	Notified foreign company
10(7)	Foreign allowances or perquisites paid or allowed by Government to its employees posted abroad	Individual – Salaried employee (Indian citizen)
10(8)	Foreign income and remuneration received from foreign Government for services rendered in connection with any co-operative technical assistance programmes and projects in accordance with agreement entered into by Central Government and foreign Government (subject to certain conditions)	Individual
10(8A)	Foreign income and remuneration received by consultant (agreement relating to his engagement must be approved) out of funds made available to an international organisation (agency) under a technical assistance grant agreement between that agency and the Government of a foreign State	Non-Indian citizen/Indian citizen who is not ordinarily resident in India/non-resident, engaged by the agency for rendering technical services in India
10(8B)	Foreign income and remuneration received by an employee of the consultant referred to in section 10(8A)	Non-Indian citizen/Indian citizen who is not ordinarily resident in India (contract of service must be approved by the prescribed authority before commencement of service)
10(9)	Income of any member of family of any individual [referred to in section 10(8), 10(8A) or 10(8B)] which accrues or arises outside India and is not deemed to accrue or arise in India and which is subject to tax in that foreign country	Individual
10(10)(i)	Death-cum-retirement gratuity received by Government servants	Individual – Salaried employee
10(10)(ii)	Gratuity received under the Payment of Gratuity Act, 1972 (maximum Rs. 10,00,000)	Individual – Salaried employee
*10(10)(iii)*	Any other gratuity received by employee/legal heirs on retirement, termination of services, death, etc., limited to half month’s salary for each year of completed service (subject to certain conditions) [maximum limit Rs. 10,00,000]	Individual – Salaried employee
*10(10A)*	Payment in commutation of pension received from Government/Private employer (subject to certain limits)/LIC Fund u/s 10(23AAB)	Individual – Salaried employee
*10(10AA)*	Amounts by way of encashment of unutilised earned leave on retirement limited to 10 months’ salary (subject to certain conditions) [maximum limit Rs. 3,00,000 (in case of retirement after 1-4-1998)]	Individual – Salaried employee
*10(10B)*	Retrenchment compensation [maxi-mum limit is Rs. 5,00,000]	Individual – Workman
*10(10BB)*	Payments made under Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 and any scheme framed thereunder (subject to certain conditions)	Any assessee
*10(10BC)*	Compensation on account of any disaster received/receivable from Government/local authority (subject to certain conditions)	Individual or his legal heir
*10(10C)*	Payment received or receivable (not exceeding Rs. 5,00,000) on voluntary retirement in accordance with scheme framed in accordance with prescribed guidelines	Individual – Employee of a public sector company, any other company, an authori-ty established under a Central, State or Provincial Act, a local authority, co-operative societies, universities, IITs, any State Government, Central Government, notified institution having importance throughout India or in any State or States, or notified institutes of management	2BA
*10(10CC)*	Tax paid by employer on perquisite (not provided for by way of monetary payment) given to employees	Individual – Salaried employee
*10(10D)*	Any sum received under a life insurance policy including bonus on such policy but excluding sums received u/s 80DDA(3) and under a Keyman insurance policy	Any assessee
10(11)	Payment from public provident fund/statutory provident fund	Individual/Hindu undivided family
*10(11A)*	Any payment from an account opened in accordance with the Sukanya Samriddhi Account Rules, 2014/2016	Any assessee
10(12)	Accumulated balance payable to employee participating in recognised provident fund (subject to certain conditions)	Individual – Salaried employee
10(13)	Payment from approved superannuation fund in specified circumstances and subject to certain limits	Individual
*10(13A)*	House rent allowance (subject to certain limits)	Individual – Salaried employee	2A
10(14)	Prescribed allowances or benefits	Individual – Salaried employee	2BB
10(15)(i)	Interest, premium on redemption, or other payment on notified securities, bonds, certificates, and deposits, etc. (subject to notified conditions and limits)	All assessees
*10(15)(iib)*	Interest on notified Capital Investment Bonds notified prior to 1-6-2002	Individual/HUF
*10(15)(iic)*	Interest on notified Relief Bonds	Individual/HUF
*10(15)(iid)*	Interest on notified bonds (notified prior to 1-6-2002) purchased in foreign exchange (subject to certain conditions)	Individual – NRI/nominee or survivor of NRI/individual to whom bonds have been gifted by NRI
*10(15)(iii)*	Interest on securities	Issue Department of Central Bank of Ceylon
*10(15)(iiia)*	Interest on deposits made with sche-duled bank with approval of RBI	Bank incorporated abroad
*10(15)(iiib)*	Interest payable to Nordic Investment Bank	Nordic Investment Bank
*10(15)(iiic)*	Interest payable to the European Investment Bank on loan granted by it in pursuance of framework-agreement dated 25-11-1993 for financial corporation between Central Government and that bank	European Investment Bank
10(15)(iv)(a)	Interest received from Government or from local authority on moneys lent to it before 1-6-2001 or debts owed by it before 1-6-2001, from sources outside India	All assessees who have lent money, etc., from sources outside India
10(15)(iv)(b)	Interest received from industrial undertaking in India on moneys lent to it under a loan agreement entered into before 1-6-2001	Approved foreign financial institution
10(15)(iv)(c)	Interest at approved rate received from Indian industrial undertaking on moneys lent or debt incurred before 1-6-2001 in a foreign country in respect of purchase outside India of raw materials, components or capital plant and machinery, subject to certain limits and conditions	All assessees who have lent such money, or in favour of whom such debt has been incurred
10(15)(iv)(d)	Interest received at approved rate from specified financial institutions in India on moneys lent from sources outside India before 1-6-2001	All assessees who have lent such moneys
10(15)(iv)(e)	Interest received at approved rate from other Indian financial institutions or banks on moneys lent for specified purposes from sources outside India before 1-6-2001 under approved loan agreement	All assessees who have lent such moneys
10(15)(iv)(f)	Interest received at approved rate from Indian industrial undertaking on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2001	All assessees who have lent such moneys
10(15)(iv)(fa)	Interest payable by scheduled bank, on deposits in foreign currency when acceptance of such deposits by bank is approved by RBI	Non-resident or individual/HUF who is not ordinarily resident in India
10(15)(iv)(g)	Interest received at approved rate, from Indian public companies eligible for deduction under section 36(1)(viii) and formed with main object of providing long-term housing finance, on moneys lent in foreign currency from sources outside India under loan agreement approved before 1-6-2003	All assessees who have lent such moneys
10(15)(iv)(h)	Interest received from any public sector company in respect of notified bonds or debentures and subject to certain conditions	All assessees
10(15)(iv)(i)	Interest received from Government on deposits in notified scheme out of moneys due on account of retirement	Individual – Em-ployee of Central Government/State Government/Public sector company
10(15)(v)	Interest on securities held in Reserve Bank’s SGL A/c No. SL/DH-048 and Deposits made after 31-3-1994 for bene-fit of victims of Bhopal Gas Leak Disaster held in such account with RBI or with notified public sector bank	Welfare Commissioner, Bhopal Gas Victims, Bhopal
10(15)(vi)	Interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by Central Government	All assessees
*10(15)(vii)*	Interest on notified bonds issued by a local authority/State Pooled Finance Entity	All assessees
*10(15)(viii)*	Interest on deposit made on or after 1-4-2005 in an Offshore Banking Unit referred to in section 2(u) of the Special Economic Zones Act, 2005	Non-resident or person who is not ordinarily resident
*10(15A)*	Any payment made by an Indian company, engaged in business of operation of aircraft, to acquire an aircraft or an aircraft engine on lease from the Government of a foreign State or a foreign enterprise (person who is non-resident) under approved agreement entered into on or after 1-4-1999 but before 1-4-2007. However, payment made for providing spares, facilities or services in connection with operation of leased aircraft is excluded	Foreign State/Enterprise
10(16)	Educational scholarship	Individual
10(17)(i)	Daily allowance	Individual – Member of Parliament/State Legislature/Committee thereof
10(17)(ii)	Any allowance received by MP under Members of Parliament (Constituency Allowance) Rules, 1986	Member of Parliament
*10(17)(iii)*	Any constituency allowance received	Individual – Member of State Legislature
*10(17A)(i)*	Amount received in pursuance of award (whether in cash or kind) instituted in public interest by Central/State Government or approved award instituted by other body	Any assessee
*10(17A)(ii)*	Reward (whether in cash or kind) received from Central/State Government for approved purposes in public interest	Any assessee
10(18)	Pension received by an individual who has won specified/notified gallantry awards and family pension received by any family member of such individual	Individual – Central/State Government employee or his family member
10(19)	Family pension received by the widow, children or nominated heirs of a member of the armed forces (including para military forces) where death of such member has occurred in the course of operational duties (subject to prescribed conditions and circumstances)	Individual (widow, children or nominated heirs of member of armed forces)	2BBA
*10(19A)*	Notional annual value of any one palace occupied by former ruler	Individual
10(20)	Specified incomes of a local authority	Local authority
10(21)	Income of approved research associations subject to certain conditions	Research Association
*10(22B)*	Income of notified news agency set up in India solely for collection and distribution of news (subject to certain conditions)	News agencies
*10(23A)*	Income of approved professional bodies other than income from house property, income received for rendering specific services and income by way of interest or dividends (subject to certain conditions)	Professional associations
*10(23AA)*	Income received on behalf of regimental fund or non-public fund established by armed forces	Regimental fund or non-public fund
*10(23AAA)*	Income of approved fund established for notified purposes for welfare of member employees or their dependents (subject to certain conditions)	Approved fund	16C
*10(23AAB)*	Income of fund set up by LIC or any other insurer under an approved pension Scheme (subject to certain conditions)	Fund set up by LIC or any other insurer
*10(23B)*	Income of institution existing solely for development of khadi or village industries (subject to certain conditions)	Public charitable trust/registered society
*10(23BB)*	Income of authority established for development of khadi or village industries	Authority established under State or Provincial Act
*10(23BBA)*	Income of a body or authority esta-blished for administration of public religious or charitable trusts or endowments, etc.	Body/Authority established, constituted or appointed under Central, State or Provincial Act
*10(23BBB)*	Income of EEC from interest, dividends or capital gains from investment of funds under specified scheme	European Economic Community
*10(23BBC)*	Income of SAARC Fund for Regional Projects set up by Colombo Declaration issued on 21-12-1991	SAARC Fund for Regional Projects
*10(23BBD)*	Any income of the Secretariat of the Asian Organisation of the Supreme Audit Institutions registered as ASOSAI – Secretariat under the Societies Registration Act, 1860 for a period of 10 assessment years relevant to assessment years beginning on 1-4-2001	Secretariat of the Asian Organisation of the Supreme Audit Institutions registered as ASOSAI – Secretariat
*10(23BBE)*	Income of Insurance Regulatory and Development Authority (IRDA)	IRDA
*10(23BBF)*	Income of North-Eastern Development Finance Corporation Limited (subject to certain limits)	North-Eastern Development Finance Corporation Limited
*10(23BBG)*	Income of Central Electricity Regulatory Commission	Central Electricity Regulatory Commission
*10(23BBH)*	Income of Prasar Bharati (Broadcasting Corporation of India)	Prasar Bharati (Broadcasting Corporation of India)
*10(23C)(i) to (iiiaaa)*	Income received by any person on behalf of specified Prime Minister’s Funds or National Foundation for Communal Harmony or the Swachh Bharat Kosh or the Clean Ganga Fund set up by the Central Government	Any person concerned
*10(23C)(iiiab)*	Income of any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government	University/other educational institution	2BBB
*10(23C)(iiiac)*	Income of any hospital or other medi-cal treatment institution existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government	Hospital/Nursing Home, etc.	2BBB
*10(23C)(iiiad)*	Income of any university or other edu-cational institution existing solely for educational purposes and not for purposes of profit, if the aggregate annual receipts do not exceed one crore rupees	University/other educational institution	2BC
*10(23C)(iiiae)*	Income of any hospital or other medi-cal treatment institution existing solely for philanthropic purposes and not for purposes of profit, if the aggregate annual receipts do not exceed one crore rupees	Hospital/Nursing Home, etc.	2BC
*10(23C)(iv)/(v)*	Income received by any approved charitable fund or institution and approved public religious/charitable trust or institution (subject to certain conditions)	Charitable/Religioustrusts and institutions	16CC
*10(23C)(vi)*	Income of any university or other educational institution existing solely for educational purposes and not for purposes of profit, other than those mentioned in section 10(23C)(iiiab) and 10(23C)(iiiad) and which is approved by the prescribed authority (subject to certain conditions)	University/other educational institution	2CA/16CC
*10(23C)(via)*	Income of any hospital or other medi-cal treatment institution existing solely for philanthropic purposes and not for purposes of profit, other than those mentioned in section 10(23C)(iiiac) and 10(23C)(iiiae) and which is approved by the prescribed authority (subject to certain conditions)	Hospital/Nursing Home, etc.	2CA/16CC
*10(23D)*	Income of Mutual Fund registered under SEBI Act, 1992 and notified Mutual Fund set up by public sector bank or public financial institution or authorised by RBI, subject to notified conditions and provisions of Chapter XIIE	Mutual Fund registered under SEBI Act, 1992, and Notified Mutual Fund set up by public sector bank or financial institution or authorised by RBI
*10(23DA)*	Income of a securitization trust from the activity of securitization	Securitization Trust
*10(23EA)*	Income, by way of contributions received from recognised stock exchanges and members thereof, of notified Investor Protection Fund set up by recognized stock exchanges in India either jointly or separately (subject to certain conditions)	Investor Protection Fund
*10(23EB)*	Income of Credit Guarantee Fund Trust for Small Industries created by Government of India and SIDBI	Credit Guarantee Trust Fund
*10(23EC)*	Contributions received from commodity exchanges and members thereof (subject to certain conditions)	Notified Investor Protection Funds set up by Commodity Exchanges in India
*10(23ED)*	Income by way of contributions received from a depository of a notified Investor Protection Fund (subject to certain conditions)	Notified Investor Protection Fund
*10(23EE)*	Specified income of notified Core Settlement Guarantee Fund set up by a recognised clearing corporation (subject to certain conditions)	Notified Core Settlement Guarantee Fund
*10(23F)*	Dividends or long-term capital gains of approved venture capital fund/venture capital company from investments made before 1-4-1999 by way of equity shares in a venture capital undertaking (subject to certain conditions)	Approved venturecapital fund/venture capital company	2D
*10(23FA)*	Any income by way of dividends (other than dividends referred to in section 115-O), or long-term capital gains of approved venture capital funds and venture capital companies from investments made by way of equity shares in a venture capital undertaking (subject to certain conditions) (exemption is not available in respect of investments made after 31-3-2000)	Approved venture capital funds/venture capital companies	2DA
*10(23FB)*	Income of a venture capital company or venture capital fund from investment in a venture capital undertaking (with effect from assessment year 2016-17, not applicable to venture capital company or venture capital fund, being an investment fund specified in Explanation 1(a) to section 115UB)	Venture capital company/fund
*10(23FBA)*	Any income of an investment fund other than income chargeable under the head “Profits and Gains of business or profession”	Investment Fund
*10(23FBB)*	Any income referred to in section 115UB, accruing or arising to or received by, a unit holder of an investment fund, being that proportion of income which is in the same nature as income chargeable under the head “Profits and Gains of business or profession”	Unit holder of an inve-stment fund
*10(23FC)*	Any income of a business trust by way of interest received or receivable from a special purpose vehicle (i.e. Indian company in which the business trust holds controlling interest and any specified percentage of shareholding or interest)	Business Trust
*10(23FCA)*	Any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust.	Business trust, being a real estate investment trust
*10(23FD)*	Any distributed income, referred to in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in clause (23FC)or clause (23FCA)	Unit holder
10(24)	Income of trade union under the heads ‘Income from house property’ and ‘Income from other sources’	Registered trade union/associations of registered trade unions
10(25)	Interest on securities and capital gains on sale of securities held by provident fund to which Provident Funds Act, 1925 applies/income received by trus-tees on behalf of recognised provident fund, approved superannuation fund, approved gratuity fund and deposit-linked insurance fund in certain cases	Retirement benefit funds
*10(25A)*	Income of ESI Fund set up under ESI Act, 1948	Employees’ State Insurance Fund
10(26)	Specified income of member of specified Scheduled Tribes residing in specified areas	Individual (member of specified Scheduled Tribe)
*10(26AAA)*	Income from any source in the State of Sikkim or income by way of dividend or interest on securities (subject to certain conditions)	Sikkimese individual (other than Sikkimese woman who, after 31-3-2008, marries non-Sikkimese)
*10(26AAB)*	Any income of agricultural produce market committee/board constituted under any law for time being in force for purpose of regulating marketing of agricultural produce	Agricultural produce market committee/board
*10(26B)*	Income of Central/State Corporation or Government financed body, institution or association established for pro-moting interests of members of Sche-duled Castes, Scheduled Tribes and/or Backward Classes	Government corporation/body, institution or association wholly financed by Government
*10(26BB)*	Income of corporation established by Government for promoting interests of members of minority community	Government corporation
*10(26BBB)*	Income of corporation established by Central, State or Provincial Act for welfare and economic upliftment of Indian Ex-servicemen who are citizens of India	Government corporation
10(27)	Income of certain co-operative societies formed for promoting the interests of Scheduled Castes/Scheduled Tribes members	Co-operative societies
*10(29A)*	Income accruing or arising to the Coffee Board, the Rubber Board, the Tea Board, the Tobacco Board, the Marine Products Export Development Authority, the Agricultural and Processed Food Products Export Development Authority, the Spices Board and the Coir Board.	Respective Boards and Authorities
10(30)	Subsidy received from or through Tea Board under notified scheme for re-plantation/replacement of tea bushes, etc. (subject to certain conditions)	All assessees (engaged in business of growing/manufacturing tea in India)
10(31)	Subsidy received from or through concerned Board under notified scheme for replantation/replacement of rubber/coffee/cardamom plants, etc. (subject to certain specified conditions)	All assessees (engaged in business of growing/manufacturing rubber/coffee, etc., in India)
10(32)	Income of minor child clubbed u/s 64(1A) to the extent of Rs. 1,500 per child	Any individual
10(33)	Any income arising from the transfer of a capital asset (long-term/short-term) being a unit of US 64 [referred to in Schedule I of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002] and where the transfer of such assets takes place on or after 1-4-2002	All assessees
10(34)	Income by way of dividends referred to in section 115-O	All assessees
*10(34A)*	Income arising to a shareholder on account of buy back of shares (not being listed on a stock exchange) by a company referred to in section 115QA	Any assessee being a shareholder
10(35)	Income received in respect of (a) units of a mutual fund specified under section 10(23D), (b) units from the Administrator of the specified undertaking as defined in UTI (Transfer of Undertaking & Repeal) Act, 2002, or (c) units from the specified company as defined in above UTI Repeal Act, 2002 (however, income arising from transfer of units of the Administrator of specified undertaking or of specified company/mutual fund, is not exempt)	All assessees
*10(35A)*	Income by way of distributed income referred to in section 115TA received before 1-6-2016 from a securitization trust by any investor of the trust	Any person being an investor of the trust
10(36)	Income arising from transfer of a long-term capital asset being an eligible equity share in a listed company purchased on or after 1-3-2003 but before 1-3-2004 and held for a period of 12 months or more	All assessees
10(37)	Any income chargeable under the head ‘capital gains’ arising from transfer of agricultural land situate in an urban area mentioned in section 2(14)(iii)(a)/(b) where transfer is by way of compulsory acquisition or consideration for transfer is determined/approved by Central Government/RBI and income has arisen from compensation or consideration for such transfer received by such assessee on or after 1-4-2004 (subject to certain conditions)	Individual/HUF
10(38)	Any income arising from the transfer of a long-term capital asset, being an equity share in a company or unit of an equity oriented fund or a unit of a business trust where the transaction of sale is entered on or after the date on which Chapter VII [Securities Transaction Tax] of the Finance (No. 2) Act, 2004 comes into force (1-10-2004) and such transaction is chargeable to securities transaction tax under that Chapter	All assessees
10(39)	Specified income arising from any notified international sporting event held in India (subject to certain conditions)	Notified persons
10(40)	Income of subsidiary company by way of grant or otherwise received from an Indian holding company engaged in business of generation or transmission or distribution of power if receipt of such income is for settlement of dues in connection with reconstruction or revival of existing business of power generation (subject to certain conditions)	Company
10(41)	Income arising from transfer of capital asset of undertaking engaged in business of generation or transmission or distribution of power where such transfer is effected on or before 31-3-2006 to Indian company notified under section 80-IA(4)(v)(a)	Any assessee
10(42)	Specified income arising to a body or authority which (a) has been established/constituted/appointed under a treaty or agreement entered into by Central Government with two or more countries or a convention signed by Central Government, (b) is established/constituted/appointed not for the purposes of profit, (c) is notified by the Central Government for purposes of this clause	Body or authority
10(43)	Amount received as loan, either in lump sum or in instalments, in transaction of reverse mortgage referred to in section 47(xvi)	Any individual
10(44)	Any income of New Pension System Trust established on 27-2-2008 under Indian Trusts Act, 1882	Any person for or on behalf of New Pension System Trust
10(45)	Any notified allowance or perquisite paid to the Chairman/retired Chairman or any other member/retired member of the UPSC	Individual
10(46)	Any specified income arising to any notified body/authority/Board/Trust/Commission (by whatever name called) which has been established or constituted under an Act or has been constituted by the Government with the object of regulating or administering any activity for the benefit of the general public and is not engaged in any commercial activity	Body/authority/Board/Trust/Commission (by whatever name called)
10(47)	Any income of a notified infrastructure debt fund set up in accordance with prescribed guidelines	Infrastructure debt fund	2F
10(48)	Any income received in India in Indian currency by a foreign company on account of sale of crude oil or any other goods or rendering of services as may be notified by the Central Government, to any person in India under an approved and notified agreement or arrangement (subject to certain conditions)	Foreign company
*10(48A)*	Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India (subject to certain conditions)	Foreign company
10(49)	Income of the National Financial Holdings Company Limited (being a company set up by the Central Government) of any previous year relevant to any assessment year commencing on or before 1-4-2014.	National Financial Holdings Company Limited
10(50)	Any income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016, come into force and chargeable to equalisation levy under that Chapter.	Any assessee
10A	Profits of undertakings situated in free trade zones, electronic hardware technology parks or software technology park or any special economic zone from export of articles or things or computer software (subject to certain conditions and clarifications)	All assessees	16D, 16DD
10AA	100% of profits from export of articles/things/services for 5 consecutive assessment years beginning with assessment year relevant to previous year in which the unit begins to manufacture or produce article or things or provide services and 50% of profits for next 5 assessment years and up to 50% of profits for next 5 assessment years as is debited to P&L account and credited to ‘Special Economic Zone Re-investment Reserve Account’ (subject to certain conditions)	Entrepreneur referred to in section 2(j) of Special Economic Zones Act, 2005 who begins to manufacture/produce article/thing or provide any service on or after 1-4-2006 [but before 1-4-2021]
10B	Profits derived by a 100 per cent export-oriented undertaking (subject to certain specified conditions)	All assessees	16E
10BA	Profits of an undertaking from export of hand made articles of artisc value which requires the use of wood as the main raw material (subject to certain conditions)	All assessees	16F
11	Income from property held for charitable or religious purposes (subject to certain conditions)	Charitable/religious trust/institution	17, 17C
13A	Specified income of political parties	Registered political parties
13B	Voluntary contributions received by Electoral Trust (subject to certain conditions)	Electoral trust	17CA

Mere loan confirmation letters from lenders couldn’t prove sanctity of loan transaction

Posted on 23rd May 2017 by Business So Simple in Miscellaneous

Where assessee received unsecured loans, but could not produce lenders for verification and these lenders were found to be shell companies, said loan transactions could not be said to be genuine merely because assessee filed loan confirmations, copies of ledger account and other supporting evidences to justify transactions at fag end of assessment proceedings.

Refer extract of Judgement:

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[2017] 81 taxmann.com 308 (Ahmedabad – Trib.)

IN THE ITAT AHMEDABAD BENCH ‘SMC’

Pavankumar M Sanghvi

Income-tax Officer, Ward 3(1)(2), Vadodara

PRAMOD KUMAR, ACCOUNTANT MEMBER

IT APPEAL NO. 2447 OF (AHD.) 2016
[ASSESSMENT YEAR 2007-08]

MAY 17, 2017

Hitesh Shah for the Appellant. Kailash D. Ratnoo for the Respondent.

ORDER

1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 17.08.2016 passed by the learned CIT(A), in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act 1961, for the assessment year 2007-08.

2. Grievances raised by the assessee, which are interconnected and will be taken up together, are as follows:-

GROUND I:-

1.		On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeal) -2, VADODARA (‘hereinafter referred to as ‘the CIT(A)’) has erred in confirming an addition of Rs.20,00,000/- as unexplained cash credit u/s.68 for an unsecured loan taken from M/s. Natasha Enterprises and M/s. Moht International based on information received from DIT (Inv) in the case of Praveen Kumar Jain.
2.		The appellant being aggrieved, prays that the addition of Rs.20,00,000/- on account of unexplained cash credit u/s.68 being unwarranted, illegal, bad-in-law be deleted.

GROUND II :-

1.		On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeal)-2, VADODARA (‘hereinafter referred to as ‘the CIT(A)’) has erred in confirming an addition of Rs.3,66,041/- on account of interest paid on unsecured loans considered as unexplained cash credit u/s.68 taken from M/s. Natasha Enterprises and M./s. Mohit International based on information received from DIT (Inv) in the case of Praveen Kumar Jain.
2.		The appellant being aggrieved, prays that the addition made on account of Rs.3,66,041/- on account of interest paid on unsecured loans being considered as unexplained cash credit u/s.68 being unwarranted, illegal, bad-in-law be deleted.”

3. Briefly stated, the relevant material facts are as follows. The assessee before me is an individual, owning a proprietorship concern by the name of Ravi Steels, and he claims to have received unsecured loans of Rs 10 lakhs each from Natasha Enterprises on 11th August 2006 and from Mohit International on 27th April 2006. His assessment was initially completed under section 143(1) of the Act, but subsequently the Assessing Officer came to know, through reports received from the Directorate of Income Tax (Investigation), that Natsha Enterprises and Mohit International were a part of the group of shell entities, managed by one Praveen Kumar Jain (PKJ, in short), used as a vehicle for various financial manoeuvres. It was in this backdrop that the assessment was reopened. During the ensuring reassessment proceedings, the assessee was confronted with this information but he had nothing to say. He did, at the fag end of assessment proceedings, filed the loan confirmations, copies of ledger account and other supporting evidences to justify the transactions. The Assessing Officer, however, was not satisfied. He noted that the assessee had nothing to say on the specific questions put to him on genuineness of these transactions He was thus apparently of the view that mere filing of balance confirmation and details of existence of the creditors does not show that the transactions are genuine. It was in this backdrop that the Assessing Officer proceeded to make addition of Rs 20,00,000 as unexplained credits. The Assessing Officer also noted that the assessee had claimed deduction in respect of the interest payments, in respect of these alleged unsecured loans, aggregating to Rs 3,66,041, but since the loan transactions were treated as not genuine, the interest was also liable to be disallowed. He thus disallowed deduction in respect of the interest deduction as well. Aggrieved by the stand of the Assessing Officer, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before this Tribunal.

4. Learned counsel for the assessee begins by pointing out that the unsecured loans have been treated as unexplained cash credit only on the basis of the information received, by the AO, from the Investigation Wing. It is pointed out that this information pertains to some investigations, and search and seizure operation, carried out in the case of PKJ on 1st October 2013, and is based on a statement of this person recorded by the investigation wing. However, what the Assessing Officer has overlooked is that PKJ himself had retracted his statement and, in any case, the assessee was never confronted with this statement. It is submitted that the assessee cannot be put to any disadvantage on the basis of a confessional statement recorded by a third party- particularly when the assessee did not even have the opportunity to peruse such a statement. Learned counsel further points out that the assessee was duly entitled to an opportunity to cross examine PKJ but the Assessing Officer did not provide the assessee any such opportunity. On these facts, according to the learned counsel, the impugned additions are contrary to the well settled principles of natural justice which are well entrenched in the tax jurisprudence. In any event, according to the learned counsel, PKJ has subsequently retracted, on 15th May 2014, his confessional statement, as evident from the retraction affidavit dated 15th May 2014 – a copy of which was also filed before me. Learned counsel then submits that nothing prevented the Assessing Officer from using his powers under section 133(6) and examining the matter further by enforcing attendance of the lenders, but, rather than doing what the Assessing Officer ought to have done, he is simply swayed by unverified inputs received from the investigation wing. Learned counsel then invites my attention to the affidavits filed by the proprietors of Natasha Enterprises and Mohit International which confirm that the loans were actually advanced by these persons on 12% interest, that the loans have since been repaid and that the interest earned on these loans has been duly offered to tax. Under these circumstances, there cannot be any lawful reasons to reject bonafides of these loan transactions. It is then submitted that the loan transactions were by cheques, which is duly evidenced from the bank statements of the lenders as filed by the assessee, copies of loan confirmations and statements of accounts were duly filed by the assessee, the accounts of the lenders were duly audited under section 44AB, and that the initial onus of demonstrating the bonafides of loan transactions was duly discharged by the assessee. Learned counsel then referred to Hon’ble Supreme Court’s judgment in the case of Kishanchand Chelaram v. CIT [(1980) 125 ITTR 713 (SC)] in support of the proposition that the income tax authorities could not rely upon any statement which has not been confronted to the assessee and in respect of which the assessee has not been given opportunity to cross examine. Learned counsel for the assessee also referred to certain discrepancies pointed out by the CIT(A) and made an effort to demonstrate that these discrepancies are factually incorrect. A reference was then made to Hon’ble Bombay High Court’s judgment in the case of H R Mehta v. ACIT (ITA No. 58 of 2001; unreported judgment dated 30th June 2016) in support of the proposition that when the assessee was not given an opportunity to cross examine the person, who has deposed against the assessee, such a material could not be put against the assessee, and merely because a lender is not available at the same address several years after the loan transaction has taken place, it cannot be inferred that the transaction is not genuine. As regards the disallowance of deduction for interest, learned counsel submits that since the related loans, in the light of the arguments so advanced, cannot be said to be bogus, the interest deductions are also required to be allowed in accordance with the law. On the strength of these submissions, learned counsel urges me to delete the impugned addition of Rs 20,00,000 and impugned disallowance of Rs 3,66,041. I am thus urged to set aside findings of the authorities below on these points. Learned Departmental Representative, on the other hand, submits that it is inconceivable that some rank outsiders give unsecured loans, aggregating to Rs 20,00,000, to the assessee, and yet the assessee is not even able to produce the same or give sufficient information about the nature of relationship with him. The documents filed by the assessee are self serving documents and a mere statement on affidavit cannot be accepted irrespective of the ground realities. It is submitted that in each loan transaction, three elements are required to be examined- existence of lender, genuineness of transaction and credit worthiness of the lender. In the present case, all that the assessee has proved is existence of the person as the transactions have taken place through banking channels. Just because a person existed, it does not mean that all the transactions with him are genuine and the person had means to advance the loans in question. It is also pointed out that the lenders are believed to be shell entities and this fact was duly brought to the notice of the assessee but the assessee did not have anything to say on this point. On one hand, according to the learned Departmental Representative, PKJ is so closely in touch with the assessee that the assessee is able to obtain and file the retraction affidavit made by PKJ, and, on the other hand, the assessee feigns ignorance about the statement made by PKJ before the income tax authorities. It is then pointed out that at no stage in the assessment proceedings, the assessee asked for the statement of PKJ or expressed the desire to cross examine PKJ. Even the fact of the alleged lenders being in the business of giving accommodation entries was duly put to the assessee during the assessment proceedings, by way of note sheet entries, and the assessee had nothing to say on this point during the assessment proceedings. In any case, irrespective of the statement of Praveen Kumar Jain, the onus is on the assessee to demonstrate that the loan transactions are genuine, in the normal course of business, and bonafide. This onus has not been discharged by the assessee. It is also submitted that the alleged lenders are shell entities, and, in the case of shell entities, it is not the completion of paper work but genuineness of transactions which is crucial. My attention is then drawn to the apparent inconsistencies in the version put by the assessee. I am urged to disregard the make believe documents filed by the assessee and uphold the findings of the authorities below. In his brief rejoinder, learned counsel reiterated his submissions and submits that the legal contentions advanced by him remain uncontroverted. He also submits that the Departmental Representative, or for that purpose, this Tribunal cannot go beyond the case made out by the Assessing Officer and raise the issues which have not been raised by the Assessing Officer. Lack of genuineness is not, according to the learned counsel, case of the Assessing Officer. The short point of the authorities below is that the loan entries are alleged accommodation entries but then there is nothing to evidence this fact. It is for the person who makes the allegations to prove that the allegations are correct. The Assessing Officer, therefore, must demonstrate that the loan transactions in question are not genuine transactions, and when he cannot do so, the related additions can only be deleted. Learned counsel once again urges me to vacate the findings of the authorities below, and delete the impugned additions and disallowances.

5. I have noted that the assessee did not raise any issue against validity of reopening proceedings at any stage- assessment, first appeal as also second appeal. When the assessee was told about the alleged lenders being shell entities, he did not have anything to say either. The assessee did not ask for the cross examination of PKJ in the assessment proceedings nor did he raise that issue, as evident from a copy of the grounds of appeal before the CIT(A)- as filed before me, at the first appellate stage. Yet, his plea before me is that since he was not afforded any opportunity to cross examine PKJ, the impugned additions should be deleted. I donot think such a plea can be entertained at this stage, particularly in the light of peculiar facts of this case. I have noted that the assessee feigns ignorance about the statement of PKJ, as recorded by the income tax authorities, but he files a copy of the retraction affidavit dated 15th May 2014. There is an inherent contradiction in this approach. As a matter of fact, even in the first appellate proceedings, the assessee did not ask for the cross examination of PKJ as evident from the limited argument of the assessee, noted at page 5 of the CIT(A)’s order, to the effect that “it is submitted that Pravin Kumar Jain has also retracted his statement on oath under section 131 dated 15.5.2014 and has confirmed that the above transactions with the said parties are genuine (copy enclosed herewith for your records)”. There is not even a whisper about incorrectness of the original statement of PKJ but all that the assessee states is that this statement in subsequently retracted. It is also interesting to note that, as has been observed in the assessment order at page 2, the income tax authorities had, during the search operations on PKJ group, also recorded a statement of Nilesh Parmar, proprietor of Mohit International and the person who looked after the accounting and all other matters of Natasha Enterprises, but neither the assessee disputes nor raises any issues about it. There is no suggestion about retraction of this statement either. The assessee has filed an affidavit dated 27th February 2017 of Nilesh Parmar, claiming bonafides of assessee s transactions with Mohit International, but neither there is any issue about cross examining him nor any mention of retraction, if any, of his confessional statement. The assessee has so much of an access to these lenders that he is able to produce their bank accounts, their year end financial statements and even all the audit reports, but he is unaware of the statement these lenders made to the income tax authorities and yet he is not in a position to produce the parties or even know their current whereabouts. These contradictions are unexplainable. It was clearly put to the assessee that, as per information gathered by the income tax authorities as a result of search and seizure operations on PKJ group, it is clear that (i) PKJ is a director in some of the entities but he de facto controls a large number of shell entities through various dummy directors and proprietors; (ii) all such PKJ group concerns, while include Natasha Enterprises and Mohit International, are not carrying on any genuine business nor do they have any physical stock of goods that they are dealing in; (iii) all these PKJ group entities have no employees, except common accountants; and (iv) all these PKJ group entities are engaged in the activities of providing accommodation entries. When assessee is confronted with this information, he maintains a stoic silence, and simply gives the documentation in support of the fact of transactions. What he overlooks is that the existence of documentation in support of these transactions was not even disputed by the revenue authorities, and that the real issue, in the backdrop of these inputs, is on the genuineness of the transactions. There was not even an attempt to deal with that aspect of the matter, or state even one word against what the Assessing Officer had to tell the assessee on this front. In these circumstances, it cannot be open to the assessee to contend that the additions should be deleted simply on the ground that the assessee was not given an opportunity to cross examine PKJ. When the assessee is confronted with all the facts at the assessment stage, he has nothing to say. He maintains his stoic silence even at the first appellate stage. However, when he comes before me in the second appeal, his grievance is about violation of principles of natural justice at the assessment and the first appellate stage. There are clear inconsistencies and contradictions in the approach of the assessee.

6. Be that as it may what is even more important is that while the reassessment has indeed been resorted to on the basis of the inputs from the investigation wing, with which the assessee is not aggrieved anyway, in my considered view, the impugned additions are not made on the basis of these inputs simplictor.

7. In my considered view, so far as the legal foundation of the impugned additions is concerned, it consists of assessee’s inability to satisfy the Assessing Officer about all the three essential ingredients of a credit entry in the books of accounts- existence of the lender, ability of the lender to advance funds in question, and, above all, genuineness of the transaction. There is no dispute about the basic legal position about section 68 which provides that where any sum is found credited in the books of accounts of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as income of the assessee of that previous year. The expression ‘nature and source’ appearing in section 68 has to be understood as a requirement of identification of source and its genuineness. It is also a settled legal positon that the onus of the assessee, of explaining nature and source of credit, does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels or even by filing the income tax assessment particulars. In the case of CIT v. United Commercial and Industrial Co Pvt Ltd [(1991) 187 ITR 596 (Cal)], Hon’ble Calcutta High Court has held that “it was necessary for the assessee to prove prima facie the identity of creditors, the capacity of such creditors and lastly the genuineness of transactions”. Similarly, in the case of CIT v. Precision Finance Pvt Ltd [(1994) 208 ITR 465 (Cal)], it was observed that “it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of transactions”. There is thus no escape from proving genuineness of a transaction. As regards learned counsel’s contention that nothing can be added to the objections specifically taken by the Assessing Officer, I am unable to approve this plea for the simple reason that as long as subject matter of the disallowance or addition is the same, there is no bar on examination of any related aspect by the Tribunal, as has been specifically held by a full bench of Hon’ble Bombay High Court in the case of Ahmedabad Electricity Co Ltd v. CIT [(1993) 199 ITR 351 (Bom FB)] and reiterated by a Special Bench of this Tribunal in the case of Tata Communications Ltd v. JCIT [(2009) 121 ITD SB 384 (Mum)]. That is, of course, besides the fact that there is no attempt, direct or indirect, to enlarge the subject matter of appeal. The legal plea of the learned counsel proceeds on clearly fallacious assumptions.

8. As I proceed to deal with genuineness aspect, it is important to bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-à-vis the ground realities. The facts of the case cannot be considered in isolation with the ground realties. It will, therefore, be useful to understand as to how the shell entities, which the loan creditors are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading, manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond what is legally permissible. These entities have every semblance of a genuine business- its legal ownership by persons in existence, statutory documentation as necessary for a legitimate business and a documentation trail as a legitimate transaction would normally follow. The only thing which sets it apart from a genuine business entity is lack of genuineness in its actual operations. The operations carried out by these entities, are only to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These shell entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities.

9. I have noted that the assessee has received an amount of Rs 10,00,000 from Natasha Enterprises on 12th August 2006, and, as a plain look at the Canara Bank statement of the lender, which is placed at pages 40 onwards of the paper book, would show, there is a credit of Rs 10,00,000 just before this cheque is paid. The bank balance before these two transactions, and after these two transactions, was only Rs 13,717. Quite interestingly, again on 14th August 2006 in the same bank account, there are debit and credit transactions of around Rs 15 lakhs each and the balance as on the end of that date is Rs 8,737. On 18th and 19th August 2006, again there are quite a few transactions aggregating to Rs 10 lakhs on debit as also credit side, and yet again closing balance is Rs 7,578. On 22nd August 2006, there are transactions of debits and credits of around R 32.50 lakhs each, and the closing balance at the end of the day is again Rs 7,578. As can be seen from this statement, on 29th August 2006, there are debit and credit transactions of Rs 15 lakhs each and once again the closing balance of the day is Rs 7,578. This kind of the state of bank account does not inspire any faith in the proposition that the entity in question is a genuine business concern. A look at the financial statements filed by the assessee does not lead to this conclusion either. The lender has shown a turnover of Rs 122.92 crores but there is no closing stock, and a profit of almost 0.09% on the turnover leading to a tax payment of Rs 1,96,138. The lender makes purchases of Rs 123.04 crores in such diversified areas as cut and polished diamonds (Rs 73.15 crores), plywood and aluminium (Rs 11.72 crore), rough diamonds (Rs 4.36 crores), software (Rs 25.01 crores) and other items (Rs 8.79 crores), and sells these products too but all that the lender has spent on salaries is Rs 2,26,000, on office expenses is Rs 8,560, on office rent is Rs 27,600 and on printing and stationery is Rs 8,560. All this is simply not representative of what a genuine business would typically be. As regards Mohit International also, the story is no different. The bank statement, which is placed at pages 75 onwards, has the same theme of high transactions during the day and a consistently minimal balance at the end of the working day. On 28th April 2006, i.e. the day the assessee is given Rs 10,00,000, there are credit entries of almost similar amounts, and he balance after these transactions is a small amount of Rs 13,020. Similar is the pattern of transactions on all the days in respect of which this statement is placed before me. On 23rd March 2007, for example, the opening balance is Rs 1,36,611 and there are huge debits and credit entries on 23rd and 24th March, aggregating to almost Rs 4 crores on debit as also credit, and the closing balance at the end of 24th March is Rs 85,991. On a turnover of Rs 127.87 crores, the profit is less than 0.09% resulting in tax outgo of Rs 2,96,218. To effect this scale of operations, the lender incurs no travelling or telephone expense, and entire expenses of the business, except on brokerage and assortment of diamonds, are less than Rs 5 lakhs in the year. Interestingly, in today’s world where an average human being, much less a business organization, can live without telephones, this business entity has prospered without a rupee spent of telephones. The level of turnover and the expenditure incurred on achieving such high turnover do not match at all. The numbers do not add up and the details filed in respect of these lenders donot convince me that the lenders are routine businesses. Given this background the assessee s inability to produce the related persons or even give their current whereabouts makes the story of genuine transactions even more unbelievable. It is also important to bear in mind the fact that lending for an interest @12% p.a. without any security is not something which people do for rank outsiders. There has to be some close association to get such a kind of unsecured credit at such low rates. When I consider this situation, coupled with the fact that (i) the assessee has not been able to produce these lenders for verification and reasonably explain the complete circumstances in which these lenders, who were not even routinely engaged in the business of giving loans and advances, gave him unsecured loans on 12% p.a interest- which essentially is possible in situations of close relationships and trust; and (ii) the assessee has maintained stoic silence on being told about these lenders being alleged to be shell entities, I am not inclined to believe that these are genuine business transactions. As I do so, I am reminded of Hon’ble Supreme Court’s observation, in the case of CIT v. Durga Prasad More [(1971) 82 ITR 540 (SC)], to the effect that “Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities”. Similarly, in a later decision in the case of Sumati Dayal v. CIT [(1995) 214 ITR 801 (SC)], Hon’ble Supreme Court rejected the theory that it is for alleger to prove that the apparent and not real, and observed that, This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. ………………………………………………..Similarly the observation ……………………………………………….. that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available ………………………………………………..In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant’s claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably”. I will be superficial in my approach in case I donot examine the claim of the assessee on the basis of documents and affidavits filed by the assessee and overlook clear the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon’ble Supreme Court has observed, in the case of Durga Prasad More (supra), ………………………………………………..it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents”. As a final fact finding authority, this Tribunal cannot be superficial in its assessment of genuineness of a transaction, and this call is to be taken not only in the light of the face value of the documents sighted before the Tribunal but also in the light of all the surrounding circumstances, preponderance of human probabilities and ground realties. Genuineness is a matter of perception but essentially a call on genuineness of a transaction is to be taken in the light of well settled legal principles. There may be difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact finding authorities to avoid taking subjective calls on these aspects, and remain confined to the findings on the basis of irrefutable evidences. Hon’ble Supreme Court has, in the case of Durga Prasad More (supra), observed that “human minds may differ as to the reliability of a piece of evidence but in that sphere the decision of the final fact finding authority is made conclusive by law”. This faith in the Tribunal by Hon’ble Courts above makes the job of the Tribunal even more onerous and demanding and, in my considered view, it does require the Tribunal to take a holistic view of the matter, in the light of surrounding circumstances, preponderance of probabilities and ground realities, rather than being swayed by the not so convincing, but apparently in order, documents and examining them, in a pedantic manner, with the blinkers on. I may also add that the phenomenon of shell entities being subjected to deep scrutiny by tax and enforcement officials is rather recent, and that, till recently, little was known, outside the underbelly of financial world, about modus operendi of shell entities. There were, therefore, not many questions raised about genuineness of transactions in respect of shell entities. That is not the case any longer. Just because these issues were not raised in the past does not mean that these issues cannot be raised now as well, and, to that extent, the earlier judicial precedents cannot have blanket application in the current situation as well. As Hon’ble Supreme Court has observed in the case in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976 SC 1455 “It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark”. Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. As the things stand now, genuineness of transactions is to be examined in the light of the prevailing ground realities, and that is precisely what I have done. In my considered view, and for the detailed analysis set out earlier in this order, the alleged loan transactions of the assessee cannot be held to be genuine on the peculiar facts and circumstances of this case. As the genuineness of transactions stands rejected, it is not really necessary to deal with other aspects of the matter.

10. In the light of the above discussions, as also bearing in mind entirety of the case, I uphold the action of the authorities below in bringing the impugned alleged loan transactions of Rs 20 lakhs to tax, and, as a corollary thereto, in declining deduction in respect of interest of Rs 3,66,041 on these alleged borrowings

11. In the result, the appeal is dismissed.

Ashtavakra Gita : Peace

Posted on 23rd May 2017 by Business So Simple in Miscellaneous

Ashtavakra Said:

18.81

The sage neither yearns for fulfillment
nor frets over non-attainment.
His mind is cool
and brimming with sweetness.

18.82

Detached from desire,
the sage neither praises peace
nor blames the wicked.
Equally content
in happiness and misery,
he would not change a thing.

18.83

The sage neither rejects the world
nor desires Self.
He is free of joy and sorrow.
He does not live
and cannot die.

18.84

The wise one lives without hope.
He has no attachment to his children, wife or anyone.
Pleasure means nothing to him.
His life is glorious.

18.85

The sage wanders about as he pleases
and lives on whatever may come.
Contentment ever dwells in his heart.
And when the sun sets,
he rests where he is.

18.86

Rooted in Being,
no thought of being born or reborn,
the great soul is indifferent
to the death or birth of his body.

18.87

The wise one stands alone,
caring for nothing,
bereft of possessions.
He goes where he will,
unhindered by opposites,
his doubts rent asunder.
He is truly blessed.

18.88

The wise one has no sense of “mine.”
To him earth, stone and gold are the same.
The knots of his heart have unraveled.
He knows neither ignorance nor sorrow.
He is excellent in every way.

18.89

The liberated soul
has no desire in his heart.
He is content and indifferent.
He has no equal.

18.90

Only one free of desire
knows nothing of knowing,
says nothing needs saying,
sees nothing to see.

Series continue….