Paper 7 Direct Tax Laws How to prepare for November 2017 Examination and Recent amendments

Transcription

1 The Institute of Chartered Accountants of India Online Mentoring on Cloud Campus Organised by BoS, ICAI Paper 7 Direct Tax Laws How to prepare for November 2017 Examination and Recent amendments CA. Priya Subramanian & CA. Aparna Chauhan Date: August 27, 2017

2 Disclaimer Statement 1 This lecture has been delivered by faculty members to supplement the Study Material, Practice Manual and other content 2 3 The views expressed in this lecture are of the Faculty Member. The content of this video lecture has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its committees 2

3 Students Learning Management System (LMS) Students are advised to refer to e-lectures available on the Students LMS for this and other topics Free Access Register with your Student Registration Number and Start learning immediately ICAI, Aug-17 3

4 Important Notes The e-lectures, PPT, Podcasts and Video lectures on ICAI Cloud Campus aim to supplement the Study Material, Practice Manual and Supplementary Study Material The lecture recordings are made according to the syllabus and laws existing/ applicable as on the date of recording. Due to changes in law, there is likely to be some time gap between these changes and the recording of updated lectures. Hence, students are advised to refer to the Study Material including Supplementary Study Material, if any, and other relevant legislation for latest provisions/ amendments required for forthcoming examination. ICAI, Aug-17 4

5 Whether there is any change in syllabus of Paper 7 Direct Tax Laws in November, 2017 examination vis-à-vis May, 2017 examination? What is the applicable Finance Act for November, 2017 Examination? ICAI,

6 Query: What is the Assessment Year Applicable for November 2017 Examination? Income-tax Act, 1961 as amended by the Finance Act, The relevant assessment year is A.Y Significant Notifications/Circulars issued upto 30 th April, 2017 are relevant. ICAI, Aug-17 6

7 What are the BoS publications relevant for November, 2017 Examination? ICAI,

8 Query: What are the BoS publications relevant for November 2017 Examination? Study Material November, 2015 edition Supplementary Study Paper 2016 Practice Manual - December 2016 Edition Select Cases in Direct and Indirect Tax Laws 2016 September 2016 Revision Test Paper (RTP) for November 2017 Examination ICAI, Aug-17 8

9 Query: Where to study the Latest Amendments Relevant for November 2017 Examination? Supplementary Study Paper 2016 Amendments made by the Finance Act, 2016 Significant notifications/circulars issued between and Revision Test Paper (RTP) for November 2017 Examination Statutory Update containing significant notifications/ circulars issued between and ICAI, Aug-17 9

10 Where Do We Study the Latest Amendments and Case Laws Relevant for November, 2017 Exam? Judicial Update (Latest case laws) Select Cases in Direct and Indirect Tax Laws [September 2016 Edition] Judicial Update webhosted at BOS Knowledge Portal 10

11 What should be the approach for effective self-study and attaining conceptual clarity in this paper? When should one start doing Practice Manual? Should Practice Manual be taken up at the end after completing all the chapters? ICAI,

12 How to Self-study Effectively and Attain Conceptual Clarity? Read each chapter of the Study Material thoroughly for conceptual clarity. Prepare short summaries of each chapter After reading a topic of the Study Material thoroughly, work out questions from the corresponding chapter of the Practice Manual. ICAI, Aug-17 12

13 How to Self-study Effectively and Attain Conceptual Clarity? Thereafter, compare your answers with the answers given. Repeat this process for each topic - Read the Study Material, work out questions from the Practice Manual and compare your answers to identify your mistakes. So, after first round of study, you have understood the concept, summary of each chapter is ready with you and you have worked out questions in the Practice Manual ICAI, Aug-17 13

14 How to Self-study Effectively and Attain Conceptual Clarity? The entire syllabus needs to be revised twice before the commencement of Examination The time taken will be lesser in each consecutive revision During your first revision, work out the Practice Manual once again ICAI,

15 How to self-assess the preparation? ICAI,

16 How to self-assess the preparation? Solve past year question papers with the help of Suggested Answers as well as Mock Test Papers hosted on the Institute s website within the time span of three hours to self-assess your preparedness for the examination. Further, solve the questions in the Revision Test Paper to self-assess your preparation for the examination. ICAI, Aug-17 16

17 How to improve performance in the examination? How to get good marks? ICAI,

18 Query: How to Score Good Marks in this Paper? Answer the questions with due emphasis on the provisions of law In case of computational problems, supplement your computation with working notes/explanatory notes. Support your treatment with the provisions of law and/or case laws. Relate and apply ratio of court rulings in case law based questions Mentioning section numbers will add value to your answer State your assumptions/views clearly Write all the parts of the same question one after the other in continuation. ICAI, Aug-17 18

19 What is the Ideal Manner of Answering a Case Law Based Question? First of all, it is important to identify the issue raised in the question. Then, you may briefly discuss the related provision of law. Thereafter, if you remember the name of the case, mention that the issue has been dealt with in the said case. 19

20 What is the Ideal Manner of Answering a Case Law Based Question? You may then highlight the decision of the case, by bringing out the rationale of the Court s decision. Apply the rationale of the Court s decision to the case on hand and give a conclusion as to whether the contention of the assessee or Assessing Officer, as the case may be, is correct or not. 20

21 Basic Concepts 21

22 Rates of Tax Rates of Tax Individual/HUF/AOP/BO I and every artificial juridical person Basic Exemption limit and rate of tax remain the same Firms/ LLP 30% of the total income Domestic Companies Where the total turnover or gross receipt in the previous year does not exceed Rs. 5 crore 29% of the total Income In case of other domestic companies 30% of the total income Foreign Companies 40% of total income 22

23 New option Rate of Tax for Domestic Company (Section 115BA) 25 % of Total Income Setup and registered on or after 1 st March, 2016 the company is not engaged in any business other than the business of manufacture or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it; and the company while computing its total income has not claimed any benefit under section 10AA, additional depreciation under section 32(1)(iia), investment allowance under section 32AC or section 32AD, deduction under section 33AB and section 33ABA, weighted deduction for scientific research or social science and statistical research under section 35(1)(ii)/(iia)/(iii), 35(2AA), 35(2AB), deduction under section 35AC in respect of expenditure on eligible projects and schemes, investment linked tax deduction under section 35AD, weighted deduction under section 35CCC and 35CCD in respect of expenditure incurred by a company on notified agricultural extension project and notified skill development project; further, while computing its total income, it has not claimed benefit of deduction under Chapter VI-A under the heading Deductions in respect of certain incomes other than the provisions of section 80JJAA 23

24 Surcharge Individual/HUF/AO P/BOI/Artificial juridical person Total income exceeds Rs. 1 of Income-tax Co-operative societies/local Authorities/Firms/LLPs Total income exceeds Rs. 1 of Income-tax Domestic company Total income is > Rs. 1 crore but Rs. 10 of income-tax Total income is > Rs % of Income-tax Foreign Company Total income is > Rs. 1 crore but Rs. 10 of income-tax Total income is > Rs. 10 5% of Income-tax 24

25 Increase in Rebate under section 87A from Rs. 2,000 to Rs. 5,000 Rebate under section 87A Rs. 2,000 (upto A.Y ) Rs. 5,000 (from A.Y ) 25

26 Determination of residential status of companies based on POEM ICAI, Aug-17 26

27 Income which do not form part of total Income 27

28 Exemption under section 10(34) not to apply to dividend chargeable to tax in accordance with section 115BBDA Section 115BBDA has been inserted to provide that any income by way of aggregate dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of 10%. Simultaneously, a proviso has been inserted in section 10(34) to provide that the exemption available thereunder in respect of dividend received by a shareholder from a domestic company would not apply to income by way of dividend chargeable to tax under section 115BBDA. 28

29 Example A Ltd., a domestic company, declared dividend of Rs. 170 lakh for the year F.Y and distributed the same on Mr. X, holding 10% shares in A Ltd., receives dividend of Rs. 17 lakh in July, Mr. Y, holding 5% shares in A Ltd., receives dividend of Rs lakh. Discuss the tax implications in the hands of A Ltd., Mr.X and Mr.Y, assuming that Mr.X and Mr.Y have not received dividend from any other domestic company during the year. 29

30 Solution (i) The dividend of Rs. 170 lakh declared and distributed in the P.Y is subject to dividend distribution tax under section 115-O in the hands of A Ltd. First of all, the dividend received has to be grossed up by applying the rate of 15%. The gross dividend is Rs. 200 lakh [Rs. 170 lakh 100/85]. Dividend distribution is Rs lakh. (ii) In the hands of Mr. X, dividend received upto Rs. 10 lakh would be exempt under section 10(34). Rs. 7 lakh, being dividend received in excess of Rs. 10 lakh, would be taxable@10% as per section 115BBDA. Such dividend would not be exempt under section 10(34). Therefore, tax payable by Mr. X on dividend of Rs. 7 lakh under section 115BBDA would be Rs. 72,100 [i.e., 10% of Rs. 7 lakh + cess@3%]. (iii) In the hands of Mr. Y, the entire dividend of Rs lakh received would be exempt under section 10(34), since only dividend received in excess of Rs. 10 lakh would be taxable under section 115BBDA. 30

31 Payment from NPS Trust to an employee on closure of his account or on his opting out of the pension scheme exempt to the extent of 40% of such payment [Section 10(12A)] New clause (12A) has been inserted in section 10 to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax. 31

32 Superannuation Fund Any payment from an approved superannuation fund made by way of transfer to the account of an employee under a notified pension scheme referred to in section 80CCD is exempt under section 10(13). The amount of any contribution upto Rs.1.50 lakh to an approved superannuation fund by the employer in respect of an employee would be an exempt perquisite. If the contribution exceeds Rs.1.50 lakh in respect of any employee, the excess would become a taxable perquisite in his hands. 32

33 Income from House Property 33

34 Extension of period for completion of construction from 3 years to 5 years, for claiming higher deduction of upto Rs. 2 lakh in respect of interest on capital borrowed for construction of self-occupied house property Time period for completion of construction (from the end of the financial year in which capital was borrowed) 5 years (from A.Y ) 3 years (upto A.Y ) 34

35 Example For claiming higher deduction of upto Rs.2 lakh in A.Y in respect of interest on capital borrowed on for construction of self-occupied house property, the last date, on or before which construction has to be completed, is- 35

36 Special provision for arrears of rent and unrealized rent received subsequently [New Section 25A] New section 25A(2) provides a deduction of 30% of arrears of rent or unrealised rent realised subsequently by the assessee. New Section 25A Arrears of Rent / Unrealised Rent (i) (ii) (iii) Taxable in the year of receipt/realisation Deduction@30% of rent received/realised Taxable even if assessee is not the owner of the property in the financial year of receipt/realisation. 36

37 Example Mr. Anand sold his residential house property in March, In June, 2016, he recovered rent of Rs. 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2010 to March He could not realise two months rent of Rs. 20,000 from him and to that extent his actual rent was reduced while computing income from house property for A.Y Further, he had let out his property from April, 2012 to February, 2016 to Mr. Satish. In April, 2014, he had increased the rent from Rs. 12,000 to Rs. 15,000 per month and the same was a subject matter of dispute. In September, 2016, the matter was finally settled and Mr. Anand received Rs. 69,000 as arrears of rent for the period April 2014 to February, Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year? 37

38 Solution Since the unrealised rent was recovered in the P.Y , the same would be taxable in the A.Y under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that year. Further, the arrears of rent was also received in the P.Y , and hence the same would be taxable in the A.Y under section 25A, even though Mr. Anand was not the owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while computing income from house property of Mr. Anand for A.Y Computation of income from house property of Mr. Anand for A.Y Particulars (i) Unrealised rent recovered 10,000 (ii) Arrears of rent received 69,000 Rs. 79,000 Less: Deduction@30% 23,700 Income from house property 55,300 38

39 Profits and Gains From Business or Profession 39

40 Non-compete fee received/receivable for not carrying on a profession chargeable under the head Profits and gains of business or profession [Section 28(va)] Clause (va) of section 28 has been amended to bring the non-compete fee received/receivable (which are recurring in nature) in relation to not carrying out any profession, within the scope of profits and gains of business or profession. Further, the proviso to section 28(va) has been amended to clarify that receipts for transfer of right to carry on any profession, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. Section 55 has also been amended to provide that, for the purposes of sections 48 and 49, the cost of acquisition and cost of improvement in relation to a capital asset, being right to carry on any profession, shall also be taken as Nil. 40

41 Assessees engaged in the business of transmission of power eligible for additional depreciation [Section 32(1)(iia)] Upto A.Y From A.Y Manufacture or production of an article or thing Manufacture or production of an article or thing Generation or generation and distribution of power Generation, transmission or distribution of power 41

42 Deduction under section 32AC to be available in the year of installation in respect of actual cost of new plant and machinery acquired in the P.Y and P.Y , if the actual cost of such new plant and machinery acquired in the relevant previous year exceeds Rs. 25 crores, even if the new plant and machinery has not been installed in the relevant previous year but has been installed on or before section 32AC(1A) has been amended to provide that acquisition of the plant and machinery, the actual cost of which exceeds Rs. 25 crore, has to be made in the relevant previous year. However, installation may be made by in order to avail the benefit of deduction of 15%. Where the installation of the new asset is in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new asset is installed, provided the installation is on or before

43 Company Example Actual cost of new plant and machinery (Rs. ) Previous year of acquisition Previous Year of installation Assessment Year in which deduction u/s 32AC can be claimed Deduction u/s 32AC (Rs. ) B Ltd. 40 crores P.Y P.Y A.Y crores C Ltd. 50 crores P.Y P.Y A.Y crores D Ltd. 60 crores P.Y P.Y

44 NBFCs eligible for claim of deduction for provision for bad and doubtful debts [Section 36(1)(viia)] Non-Banking Financial Companies (NBFCs) are also engaged in financial lending to different sectors of society, sub-clause (d) has been inserted in section 36(1)(viia) to provide deduction on account of provision for bad and doubtful debts of an amount not exceeding 5% of total income (before making any deduction under section 36(1)(viia) and Chapter VI-A) in the case of NBFCs also. 44

45 Sum payable to Indian Railways for use of railway assets allowable as deduction in the year in which the liability to pay such sum is incurred, only if payment is made on or before the due date of filing of return [Section 43B] In order to encourage timely payment of dues to Railways for use of the Railway assets, clause (g) has been inserted in section 43B to expand its scope to include any sum payable by the assessee to the Indian Railways for use of Railway assets, within its ambit. 45

46 Increase in threshold limit of gross receipts/turnover under section 44AD of a business to be eligible for opting the presumptive taxation scheme Increase in threshold limit of eligible business from Rs.1 crore to Rs. 2 crore Salary, interest, remuneration paid to partner as per section 40(b) not deductible Advance tax to be paid on or before 15th March of the financial year In case of non-offering of income as per section 44AD for five continuous years, eligible assessee cannot opt for section 44AD for the next five AYs after the assessment year of first non-option 46

47 Example: Let us consider the following particulars relating to a resident individual, Mr. A, being an eligible assessee whose gross receipts do not exceed Rs. 2 crore in any of the assessment years between A.Y to A.Y Particulars A.Y A.Y A.Y Gross receipts (Rs. ) 1,80,00,000 1,90,00,000 2,00,00,000 Income offered for taxation (Rs. ) 14,40,000 15,20,000 10,00,000 % of gross receipts 8% 8% 5% Offered income as per presumptive taxation scheme u/s 44AD Yes Yes No 47

48 In the above case, Mr. A, an eligible assessee, opts for presumptive taxation under section 44AD for A.Y and A.Y and offers income of Rs lakh and Rs lakh on gross receipts of Rs crore and Rs crore, respectively. However, for A.Y , he offers income of only Rs. 10 lakh on turnover of Rs. 2 crore, which amounts to 5% of his gross receipts. He maintains books of account under section 44AA and gets the same audited under section 44AB. Since he has not offered income in accordance with the provisions of section 44AD(1) for five consecutive assessment years, after A.Y , he will not be eligible to claim the benefit of section 44AD for next five assessment years succeeding A.Y i.e., from A.Y to

49 Note Section 44AB makes it obligatory for every person carrying on business to get his accounts of any previous year audited if his total sales, turnover or gross receipts exceed Rs. 1 crore. However, if an eligible person opts for presumptive taxation scheme as per section 44AD(1), he shall not be required to get his accounts audited if the total turnover or gross receipts of the relevant previous year does not exceed Rs. 2 crore. The CBDT, has vide its Press Release dated 20 th June, 2016, clarified that the higher threshold for non-audit of accounts has been given only to assessees opting for presumptive taxation scheme under section 44AD. 49

50 Presumptive Taxation Scheme for assessees engaged in eligible profession [Section 44ADA] New section 44ADA has been inserted in the Income-tax Act, 1961 providing a presumptive taxation scheme for estimating the income of an assessee: who is engaged in any profession referred to in section 44AA(1) such as legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette; and whose total gross receipts does not exceed fifty lakh rupees in a previous year, at a sum equal to 50% of the total gross receipts, or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee. 50

51 Meaning of Eligible Assessee: Eligible Assessees Resident assessee engaged in notified profession u/s 44AA(1) Total gross receipts Rs. 50 lakhs 51

52 Income computation and disclosure standards (ICDS) [Notification No. 3079(E) dated ] The Central Government has, in exercise of the powers conferred under section 145(2), notified ten income computation and disclosure standards (ICDSs) to be followed by all assessees (other than individuals and HUFs who are not required to get their accounts of the previous year audited in accordance with section 44AB), following the mercantile system of accounting, for the purposes of computation of income chargeable to income-tax under the head Profit and gains of business or profession or Income from other sources. All the notified ICDSs are applicable for computation of income chargeable under the head Profits and gains of business or profession or Income from other sources and not for the purpose of maintenance of books of accounts. In the case of conflict between the provisions of the Income tax Act, 1961 and the notified ICDSs, the provisions of the Act shall prevail to that extent. ICAI, Aug-17 52

53 ICDS I II III IV V VI VII VIII IX X Title Accounting Policies Valuation of Inventories Construction Contracts Revenue Recognition Tangible Fixed Assets The Effects of changes in foreign exchange rates Government Grants Securities Borrowing Costs Provisions, Contingent Liabilities and Contingent Assets ICAI, Aug-17 53

54 Significant Deviations impacting Computation of Taxable Income 1. ICDS I: Accounting Policies Non-consideration of the concepts of Prudence and Materiality Examples of non-consideration of prudence in the ICDSs: (i) The requirement in ICDS VII on Government Grants that recognition of a Government grant shall not be postponed beyond the date of actual receipt, even if conditions attached to the grant are not fulfilled. (ii) Absence of requirement of reasonable certainty of ultimate collection for recognition of revenue from service transactions and use of resources by others yielding interest, royalties and dividends in ICDS IV on Revenue Recognition. (iii) Non-recognition of expected losses on construction contracts and contract costs, recovery of which is not probable, as an expense immediately, in ICDS III on Construction Contracts. ICAI, Aug-17 54

55 ICDS II: Valuation of Inventories Valuation of inventory on the date of dissolution of a firm, where the business is continued by a partner(s) In case of dissolution of a partnership firm or association of persons or body of individuals, Paragraph 24 of ICDS II on Valuation of Inventories requires the inventory on the date of dissolution to be valued at the net realisable value, notwithstanding whether business is discontinued or not. This requirement in ICDS II is in deviation from the Supreme Court ruling in Shakti Trading Co. vs. CIT (2001) 250 ITR 871, where it was held that if the firm is dissolved due to death of a partner and the surviving partners reconstitute the firm and continue the business as before, the firm is entitled to adopt cost or market price, whichever is lower. ICAI, Aug-17 55

56 ICDS III : Construction Contracts Point in time of recognition of expected loss on construction contracts AS 7 vis-à-vis ICDS III: AS 7 permits recognition of expected loss on construction contract as well as contract costs, recovery of which is not probable, as an expense immediately. It also permits recognition of expected loss immediately as an expense, when it is probable that total contract costs will exceed total contract revenue. The absence of specific requirement in ICDS III to recognize such expected losses on construction contracts immediately as expense represents a significant deviation from AS 7 as well as judicial rulings permitting immediate recognition of such losses as long as the same are in accordance with the accounting standard or justified by the principle of prudence or by the nature and circumstances of the contract. # ICAI, Aug-17 56

57 ICDS III : Construction Contracts Treatment of penalties arising from delays caused by the contractor in completion of the contract AS 7 vis-à-vis ICDS III: Paragraph 11 of AS 7 permits decrease in contract revenue as a result of penalties arising from delays caused by the contractor in the completion of the contract. However, ICDS III does not permit such reduction in contract revenue. ICAI, Aug-17 57

58 ICDS III : Construction Contracts Point in time of recognition of retention money AS 7 vis-à-vis ICDS III: ICDS III requires retention money to be treated as part of contract revenue and recognized on percentage of completion method. As per paragraph 10 of ICDS III, Contract Revenue shall comprise of the initial amount of revenue agreed in the contract, including retentions. However, as per paragraph 10 of AS 7, contract revenue should comprise the initial amount of revenue agreed in the contract. # Deviation from judicial precedents: In CIT v. Associated Cables (P) Ltd. (2006) 286 ITR 596 (Bom.) and CIT v. Ignifluid Boilers (I) Ltd. (2006) 283 ITR 295 (Mad), it was held that the payment of retention money in the case of contract is dependent on satisfactory completion of contract work. The right to receive the retention money accrues only after the obligations under the contract are fulfilled and, therefore, it would not amount to income of the assessee in the year in which the amount is retained. ## ICAI, Aug-17 58

59 ICDS VII: Government Grants The Supreme Court in, CIT v Ponni Sugar Mills (2008) 306 ITR 392, observed that it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. If the object of the subsidy scheme was to enable the assessee to run the business more profitably, then, the receipt was on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand an existing unit, then, the receipt of the subsidy was on capital account. ICAI, Aug-17 59

60 ICDS VII: Government Grants ICDS VII deals with the treatment of government grants. Except in case of government grant relating to a depreciable fixed asset and the subsidy or grant by the Central Govt. for the corpus of the trust/institution established by the Central or State Govt., which has to be reduced from written down value or actual cost, all other grants have to be recognized as upfront income or as income over the periods necessary to match them with the related costs which they are intended to compensate. ICAI, Aug-17 60

61 ICDS VII: Government Grants Further, in line with the requirement in ICDS VII, sub-clause (xviii) has been included in the definition of income under section 2(24). Accordingly, assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement, by whatever name called, by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee is included in the definition of income. ICAI, Aug-17 61

62 ICDS VII: Government Grants Recognition of Government Grants AS 12 provides that Government Grants should not be recognized until there is a reasonable assurance that the enterprise will comply with the conditions attached to them and the grants will be received. Paragraph 4(1) of ICDS VII also provides that Government Grants should not be recognized until there is a reasonable assurance that the enterprise will comply with the conditions attached to them and the grants will be received. This requirement is in line with AS 12. However, Paragraph 4(2) of ICDS VII goes on to provide that recognition of government grant shall not be postponed beyond the date of actual receipt. Therefore, as per ICDS VII, initial recognition of government grants cannot be postponed beyond the date of actual receipt even in a case where all the recognition conditions in accordance with AS 12 are not met. ICAI, Aug-17 62

63 ICDS IX : Borrowing Cost ICDS IX deals with the treatment of borrowing costs. It requires borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset to be capitalized as part of the cost of that asset. ICAI, Aug-17 63

64 ICDS IX : Borrowing Cost AS 16 vis-à-vis ICDS IX: As per AS 16, qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. # ICDS IX, however, does not provide any minimum period for treating an asset as a qualifying asset (except in the case of inventories)##. However, for the purpose of computing the general borrowing costs to be capitalised, a qualifying asset would be such asset that necessarily require a period of 12 months or more for its acquisition, construction or production. ICAI, Aug-17 64

65 Treatment of income earned from temporary investment of borrowed funds AS 16 vis-à-vis ICDS IX Paragraph 11 of AS 16 permits income earned on temporary investment of borrowed funds pending their expenditure on the qualifying asset to be deducted from borrowing costs incurred. ICDS IX however, does not permit such reduction from borrowing costs. Suspension of capitalization of borrowing costs AS 16 vis-à-vis ICDS IX AS 16 permits suspension of capitalization of borrowing costs during extended periods in which active development is interrupted. ICDS IX does not permit suspension of capitalization of borrowing costs in such cases. ICAI, Aug-17 65

66 ICDS X: Provisions, Contingent Liabilities & Contingent Assets Condition for recognition of Provision AS 29 vis-à-vis ICDS X: AS 29 requires recognition of a provision when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation ICDS X requires recognition of a provision only when it is reasonably certain that an outflow of resources embodying economic benefits will be required to settle the obligation. ICAI, Aug-17 66

67 ICDS X : Provisions, Contingent Liabilities & Contingent Assets Condition for recognition of Contingent Asset AS 29 vis-à-vis ICDS X: Both AS 29 and ICDS X provide that a contingent asset should not be recognized. Further, both AS 29 and ICDS X require contingent assets to be assessed continually. Thereafter, recognition of contingent assets and related income is required in AS 29, if inflow of economic benefits is virtually certain ; ICDS X, if inflow of economic benefits is reasonably certain. ICAI, Aug-17 67

68 Write-off of bad debts years. Amount of debt taken into account in computing the income of the assessee on the basis of notified ICDSs to be allowed as deduction in the previous year in which such debt or part thereof becomes irrecoverable Under section 36(1)(vii), deduction is allowed in respect of the amount of any bad debt or part thereof which is written off as irrecoverable. Therefore, write off in the books of account is an essential condition. Due to early recognition of income under tax laws, it is possible that in certain cases, income-tax is paid on income which may not be realized in future. In such cases, there would also be no possibility of claiming bad debts since the income would not have been recognized in the books of account as per the Accounting Standards and consequently, cannot be written off as bad debts in books of account. ICAI, Aug-17 68

69 ICAI, Aug-17 69

70 Capital Gains 70

71 Period of holding of unlisted shares to qualify as a longterm capital asset to be reduced from more than 36 months to more than 24 months [Section 2(42A)] Third proviso has been inserted in section 2(42A) with effect from A.Y to provide that a share of a company (not being a share listed in a recognized stock exchange in India) would be treated as a short-term capital asset if it was held by an assessee for not more than 24 months immediately preceding the date of its transfer. Thus, the period of holding of unlisted shares for being treated as a long-term capital asset has been reduced from more than 36 months to more than 24 months from A.Y

72 Stamp duty value on the date of agreement may be adopted as full value of consideration of immovable property, being land or building or both, if whole or part of the consideration has been received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property [Section 50C] Adoption of stamp duty value on the date of transfer as full value of consideration under section 50C Adoption of stamp duty value on the date of agreement as full value of consideration under section 43CA 72

73 Amendment in section 50C to ensure parity in tax treatment vis-a-vis section 43CA Section 43CA Section 50C Transfer of an asset, being land or building or both, held as stock-intrade Transfer of capital asset, being land or building or both. Stamp duty value on the date of agreement may be adopted as consideration Stamp duty value on the date of agreement may be adopted as consideration Whole or part of consideration should be received by any mode other than cash on or before the date of agreement Whole or part of consideration should be received by A/c payee cheque/bank draft or ECS through a bank A/c on or before the date of agreement 73

74 Exemption of long-term capital gains on investment in notified units of specified fund Investment of LTCG in units of specified fund Units should not be transferred for a period of 3 years Conditions Investment within 6 months after the date of transfer Maximum investment is Rs. 50 lakhs 74

75 Long-term capital gains on shares of private companies to be subject to concessional rate of in the hands of non-corporate non-residents and foreign companies [Section 112(1)(c)] Since some courts have opined that shares of a private company are not "securities", section 112(1)(c) has been amended to provide that longterm capital gains arising to a non-corporate nonresident or a foreign company from the transfer of a capital asset, being shares of a company not being a company in which the public are substantially interested, shall also be chargeable to tax at the concessional rate of 10%, without indexation benefit, in the hands of non-corporate non-residents and foreign companies. 75

76 Set-off and Carry Forward & Set-off of Losses 76

77 Filing of return of loss on or before the due date under section 139(1) mandatory for carry forward of loss from specified business under section 73A [Section 80] Section 80 has been amended so as to provide that the loss determined as per section 73A shall not be allowed to be carried forward and set off if such loss has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3). Correspondingly, section 139(3) requiring filing of return of loss mandatorily within the time allowed under section 139(1) for claiming carry forward of losses under sections 72(1), 73(2), 74(1) and 74A(3) has been amended to include reference to section 73A(2). 77

78 Deductions from Gross Total Income 78

79 Additional deduction for interest on loan borrowed for acquisition of self-occupied house property by an individual [Section 80EE] Value of house Rs. 50 lakhs The assessee should not own any residential house on the date of sanction of loan Conditions Loan should be sanctioned during the P.Y Loan sanctioned Rs. 35 lakhs 79

80 Example Mr. A purchased a residential house property for self-occupation at a cost of Rs. 45 lakh on , in respect of which he took a housing loan of Rs.35 lakh from Bank of India@11% p.a. on the same date. Compute the eligible deduction in respect of interest on housing loan for A.Y under the provisions of the Income-tax Act, 1961, assuming that the entire loan was outstanding as on and he does not own any other house property. 80

81 Solution Interest deduction for A.Y Particulars Rs. (i) Deduction allowable while computing income under the head Income from house property Deduction under section 24(b) Rs. 3,20,833 [Rs. 35,00,000 11% 10/12] Restricted to 2,00,000 (ii) Deduction under Chapter VIA from Gross Total Income Deduction under section 80EE Rs. 1,20,833 (Rs. 3,20,833 Rs. 2,00,000) Restricted to 50,000 81

82 Monetary limit for maximum deduction under section 80GG increased Maximum limit of deduction u/s 80GG Rs. 2,000 p.m. (upto A.Y ) Rs. 5,000 p.m. (from A.Y ) 82

83 Example Mr. Ganesh, a businessman, whose total income (before allowing deduction under section 80GG) for A.Y is Rs. 4,60,000, paid house rent at Rs. 12,000 p.m. in respect of residential accommodation occupied by him at Mumbai. Compute the deduction allowable to him under section 80GG for A.Y

84 Solution The deduction under section 80GG will be computed as follows: (i) Actual rent paid less 10% of total income Rs. 1,44,000 minus 10% of Rs. 4,60,000 = Rs. 98,000 (A) (ii) 25% of total income (25% of Rs. 4,60,000) = Rs. 1,15,000 (B) (iii) Amount calculated at Rs. 5,000 p.m.= Rs. 60,000 (C) Deduction allowable (least of A, B and C) = Rs. 60,000 84

85 Tax incentives for new start-ups [Section 80-IAC] In order to provide an incentive to start-ups and aid their growth in the early phase of their business, new section 80-IAC has been inserted. Accordingly, a deduction of 100% of the profits and gains derived by an eligible start-up from an eligible business is allowed for any three consecutive assessment years out of five years beginning from the year in which the eligible start up is incorporated. 85

86 Meaning of eligible start-up: Company or LLP engaged in eligible business Incorporated during the period Total turnover Rs.25 crores in any P.Y. from P.Y to P.Y Holds a certificate of eligible business from the notified IMBC 86

87 Meaning of eligible business : Innovation, Development, Deployment, commercialization of new products, processes or services driven by technology or intellectual property 87

88 Deductions in respect of profits and gains from housing projects [New Section 80-IBA] the project is approved by the competent authority between 1st June, 2016 and 31st March, 2019; the project is completed within a period of three years from the date of approval by the competent authority: Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, an amount equal to 100% of the profits and gains derived from such business is allowable as deduction under new section 80-IBA, subject to fulfilment of certain conditions. 88

89 Deduction in respect of employment of new employees [New Section 80JJAA] In order to extend this employment generation incentive to all sectors, section 80JJAA has been substituted. Accordingly, where the gross total income of an assessee to whom section 44AB applies, includes any profits and gains derived from business, a deduction of an amount equal to 30% of additional employee cost incurred in the course of such business in the previous year, would be allowed for three assessment years including the assessment year relevant to the previous year in which such employment is provided. 89

90 Conditions to be fulfilled: The deduction would be allowed only subject to fulfilment of the following conditions: The business should not be formed by splitting up, or the reconstruction, of an existing business The business is not acquired by the assessee by way of transfer from any other person or as a result of any business reorganisation The report of the accountant, giving the prescribed particulars, has to be furnished along with ROI 90

91 Example Mr. A has commenced the operations of manufacture of computers on He employed 350 new employees during the P.Y , the details of whom are as follows - No. of employees Date of employment Regular/ Casual Total monthly emoluments per employee (Rs.) (i) Regular 24,000 (ii) Casual 17,000 (iii) Regular 26,000 (iv) Regular 24,000 91

92 Example (Cont.) Compute the deduction, if any, available to Mr. A for A.Y , if the profits and gains derived from manufacture of computers that year is Rs. 75 lakhs and his total turnover is 2.16 crores. 92

93 Solution Mr. A is eligible for deduction under section 80JJAA since he is subject to tax audit under section 44AB for A.Y , as his total turnover exceeds Rs. 1 crore and he has employed additional employees during the P.Y Additional employee cost = Rs. 24, [See Working Note below] = Rs. 2,16,00,000 Deduction under section 80JJAA = 30% of Rs. 2,16,00,000 = Rs. 64,80,

94 Solution (Cont.) Number of additional employees Particulars No. of workmen Total number of employees employed during the year 350 Less: Casual employees employed on who do not participate in recognized provident fund Regular employees employed on , since their total monthly emoluments exceed Rs. 25, Regular employees employed on since they have been employed for less than 240 days in a year. _100 _275 Number of additional employees 75 94

95 Assessment of Various Entities ICAI, Aug-17 95

96 What is a Business Trust? Trust registered as : - Real Estate Investment Trusts (REITs) under SEBI (REIT) Regulations, Infrastructure Investment Trusts (InvITs) under SEBI (Invit) Regulations, 2014 The units of REITs and Invits are required to be listed on a recognised stock exchange in accordance with SEBI regulations ICAI, Aug-17 96

97 ICAI, Aug-17 97

98 Tax treatment of rental income arising to REIT from real estate property directly held by it Section Particulars Tax treatment 10(23FCA) (Effective from A.Y ) Rental income of REIT from directly owned real estate asset Any income of a business trust, being a REIT, by way of renting or leasing or letting out any real estate asset owned directly by such business trust Exempt in the hands of REIT 115UA(3) (Effective from A.Y ) Distributed income received by unit holder The distributed income or any part thereof, received by a unit holder from the REIT, which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such REIT Deemed income of unit holder 194LBA (Effective ) from Distribution by REIT to unit holders of rental income from real estate assets directly owned by it TDS@10% in case of distribution to a resident unit holder. TDS at rates in force in case of distribution to a non-resident unit holder. 194-I (Effective ) from Rental income received or credited to a REIT Where the income by way of rent is credited or paid to a business trust, being a REIT, in respect of any real estate asset, owned directly by such business trust. Tax is not deductible at source ICAI, Aug-17 98

99 Dividend distributed by SPV to business trust exempt from levy of DDT [Section 115-O] Related amendment in sections: 10(23FC), 10(23FD), 115UA& 194LBA Dividend distributed by SPV to the business trust would be exempt from levy of DDT. Such dividend received by the business trust and its investor shall not be taxable in the hands of business trust or the unit holders; Exemption from levy of DDT would be applicable only in cases where the business trust either holds 100% of the share capital of the SPV or holds all of the share capital other than that which is required to be held by any other entity as part of any direction of any Government or specific requirement of any law to this effect or which is held by Government or Government bodies; However, this exemption would not be applicable in respect of any amount declared, distributed or paid at any time by the domestic company out of its accumulated profits or current profits upto the date of acquisition by the business trust of the specified holding [as per (a) above] in the SPV. 99

100 Impact on MAT computation To be excluded from book profit for levy of MAT Notional gains/loss on transfer of shares of SPV to a business trust in exchange of units allotted by the business trust & Notional gains/loss on change in carrying amount of such units Gains/Loss on transfer of units of business trust, which have been allotted in exchange of shares of SPV ICAI, Aug

101 Impact on MAT Further, the amount of loss/gain on transfer of units of the business trust (which were allotted in exchange of shares of SPV) has to be deducted /added to compute book profit for levy of MAT. The amount of loss/gain has to be determined taking into consideration In a case where the shares are carried at cost The cost of the shares exchanged with the units of business trust In a case where the shares are carried at a value other than the cost through P&L A/c The carrying amount of shares at the time of exchange ICAI, Aug

102 Year. Value of shares held in SPV Value of units of BT Notional gains credited to P&L A/c Gains on transfer of units credited to P & L A/c MAT Adjustment F.Y lakhs F.Y lakhs 20 lakhs - F.Y lakhs 10 lakhs - F.Y lakhs 40 lakhs - 40 lakhs F.Y lakhs 30 lakhs - 30 lakhs F.Y lakhs (Sale Price) 10 lakhs - 10 lakhs +80 lakhs ICAI, Aug

103 Non-applicability of MAT in respect of certain foreign companies [Section 115JB] (i) (ii) Existence of DTAA with the country of residence of the foreign company The foreign company is a resident of a country or a specified territory with which India has a DTAA under section 90(1) or the Central Government has adopted any agreement between specified associations for double taxation relief under section 90A(1) The foreign company is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) above Additional condition to be satisfied for non-applicability of MAT It should not have a permanent establishment in India in accordance with the provisions of such Agreement It is not required to seek registration under any law for the time being in force relating to companies. 103

104 Tax incentives to International Financial Services Centres [Sections 10(38), 111A, 115JB & 115-O] Exemption from levy of STT Provisions of Chapter VII of the Finance (No.2) Act, 2004 providing for levy of STT, not to apply to taxable securities transactions entered into by any person on a recognised stock exchange located in IFSC where the consideration for such transaction is paid or payable in foreign currency, thereby exempting such transactions from STT with effect from 1 st June, Exemption from levy of CTT The provisions of Chapter VII of the Finance Act, 2013 providing for levy of CTT, not to apply to taxable commodities transactions entered into by any person on a recognised association located in unit of IFSC where the consideration for such transaction is paid or payable in foreign currency, thereby exempting such transaction from CTT with effect from 1 st June, ICAI, Aug

105 Tax incentives to International Financial Services Centres [Sections 10(38), 111A, 115JB & 115-O] Exemption of LTCG even if STT not paid: Second proviso has been inserted in section 10(38) to exempt tax on long-term capital gains in respect of income arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre even when securities transaction tax is not paid in respect of such transaction. Levy of STCG@15% even if STT is not paid Second proviso has been inserted in section 111A(1) to provide that short term capital gains arising from transaction undertaken in foreign currency on a recognised stock exchange located in an International Financial Services Centre would be taxable at a concessional rate of 15% even when securities transaction tax is not paid in respect of such transaction. 105

106 Tax incentives to International Financial Services Centres [Sections 10(38), 111A, 115JB & 115-O] Concessional rate of Sub-section (7) has been inserted in section 115JB to provide that in case of a company, being a unit located in International Financial Services Centre and deriving its income solely in convertible foreign exchange, the minimum alternate tax shall be chargeable at the rate of 9% instead of 18.5%. Exemption from levy of DDT: Sub-section (8) has been inserted in section 115-O to provide that no tax on distributed profits shall be chargeable in respect of the total income of a company being a unit located in International Financial Services Centre, deriving income solely in convertible foreign exchange, for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after 1st April, 2017 out of its current income, either in the hands of the company or the person receiving such dividend. 106

107 New Taxation Regime for Securitisation Trusts [Section 115TCA] Exemption of income of securitisation trust from the activity of securitisation The income of securitisation trust from the activity of securitisation shall continue to be exempt under section 10(23DA). No exemption under section 10(35A) to investor: However, exemption in respect of income of investor from securitisation trust under section 10(35A) would not be available in respect of distributed income received by them on or after Thereafter (i.e., on or after ), any income received from securitisation trust would be taxable in the hands of investors. Taxability of income from securitisation trust in the hands of the investor [Section 115TCA(1)]: New section 115TCA(1) provides that the income accruing or arising to, or received by, a person, being an investor from the securitisation trust, out of investments made in the securitisation trust, shall be taxable in the hands of investor in the same manner and to the same extent as if the investor had made investment directly in the underlying assets and not through the trust 107

108 Meaning of Specified Service : Equalisation levy [Chapter VIII of the Finance Act, 2016] In order to address these challenges, Chapter VIII of the Finance Act, 2016, titled "Equalisation Levy", provides for an equalisation levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment in India, from a resident in India who carries out business or profession, or from a nonresident having permanent establishment in India. Further, in order to reduce burden of small players in the digital domain, it is also provided that no such levy shall be made if the aggregate amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a permanent establishment in India does not exceed Rs. 1 lakh in any previous year. (1) Online advertisement; (2) Any provision for digital advertising space or any other facility or service for the purpose of online advertisement; 108

109 Tax on Accreted Income of certain Trusts/Institutions ICAI, Aug

110 6 Assessment Procedure 110

111 Rationalisation of provisions relating to filing of return of income [Section 139] Mandatory filing of return if total income before giving effect to exemption u/s 10(38) in respect of long-term capital gains exceed basic exemption limit Reduction of time limit for filing belated return: Belated return can be revised: Return not deemed to be defective if self-assessment tax is not paid before furnishing the return 111

112 Scope of permissible adjustments while processing a return under section 143(1)(a) expanded Disallowance of loss claimed, if return is filed beyond due date u/s 139(1) Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return Disallowance of deduction u/s 10AA, 80-IA, 80-IAB, 80-IB, 80- IC, 80-ID or 80-IE, if return is filed beyond due date u/s 139(1) addition of income appearing in Form 26AS or Form 16A/16 which has not been included in computing the total income in the return 112

113 Mandatory processing of return of income before issuance of assessment order [Section 143(1D)] Section 143(1D) has now been substituted to provide that the processing of a return is not necessary before the expiry of the one year from the end of the financial year in which the return is made, where notice has been issued to the assessee under section 143(2). However, the return has to be processed before the issuance of an order under section 143(3). 113

114 Time limits for completion of assessment, reassessment and recomputation [Section 153] Section Proceeding New Time limit for completion of assessment or reassessment 153(1) Order of assessment u/s 143 or months from the end of the assessment year in which the income was first assessable 153(2) Order of assessment, reassessment or recomputation u/s (3) Fresh assessment u/s 143/144/147 where the original assessment has been set aside, cancelled and referred back to the Assessing Officer by an order u/s 254/263/264 9 months from the end of the financial year in which the notice u/s 148 was served 9 months from the end of the financial year in which the said order u/s 254 is received by the PCC/CC/PC/CIT or the order u/s 263 or u/s 264 is passed by the PC/CIT Principal Chief Commissioner (PCC) / Chief Commissioner (CC) / Principal Commissioner (PC) / Commissioner of Income-tax (CIT). 114

115 Time limits for completion of assessment, reassessment and recomputation [Section 153] Section Proceeding New Time limit for completion of assessment or reassessment 153(4) Where a reference is made to the TPO u/s 92CA(1) during the course of proceeding for assessment or reassessment: An additional time period of 12 months is available for completion of assessment/reassessment in such cases: Completion of assessment u/s 143 or u/s 144. Completion of assessment/ reassessment/re-computation u/s 147 Completion of fresh assessment in pursuance of an order u/s 254 (received by the PCC or CC/PC or CIT) or an order passed by the PC or CIT u/s 263 or u/s months from the end of the assessment year in which the income was first assessable 21 months from the end of the financial year in which notice u/s 148 is served 21 months from the end of the financial year in which such order u/s 254 is received by the PCC or CC/PC or CIT or such order u/s 263 or 264 is passed by the PC or CIT, as the case may be 115

116 Appeals & Revision 116

117 Reduction in time limit for rectification of mistake apparent from the record by the Appellate Tribunal [Section 254(2)] For bringing in certainty to the order of Appellate Tribunal, section 254(2) has been amended to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed 117

118 Raising the total income limit of the cases that may be decided by single member bench of Appellate Tribunal [Section 255(3)] The limit for a single member bench was revised last year from Rs. 5 lakh to Rs. 15 lakh In order to further expedite the process of dispute resolution at the appellate tribunal level, section 255(3) has been amended to provide that a bench comprising of a single member may dispose of a case where the total income as computed by the Assessing Officer in the said case does not exceed Rs. 50 lakh 118

119 Penalties 119

120 Penalty leviable for under-reporting of income and mis-reporting of income [New section 270A] Section 270A(1) empowers the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner to direct levy of penalty, during the course of proceedings under the Income-tax Act, 1961, if a person has under reported his income. Such penalty shall be imposed by an order in writing by such authority 120

121 Cases of under-reporting of income [Section 270A(2)]: Is greater than Case (A) (B) (1) Return of income has been filed (2) No return of income has been filed Income assessed Income assessed Income determined in the return processed under section 143(1)(a); Basic exemption limit (3) Reassessment Income reassessed Income assessed or reassessed immediately before such reassessment (4) Return of income has been filed and assessment/ reassessment is made on the basis of MAT/AMT provisions The amount of deemed total income assessed or reassessed as per the provisions of section 115JB or 115JC The deemed total income determined in the return processed u/s 143(1)(a) 121

122 Case (A) (B) (5) No return of income is filed and assessment/ reassessment is made on the basis of MAT/AMT provisions (6) Reassessment as per the provisions of sections 115JB or 115JC the amount of deemed total income assessed as per the provisions of section 115JB or 115JC The amount of deemed total income reassessed as per the provisions of sections 115JB or 115JC The basic exemption limit, in case of an assessee being an individual, HUF, AOP, BOI, in respect of whom the provisions of AMT are applicable The deemed total income assessed or reassessed immediately before such reassessment Further, a person would be considered to have under-reported his income if the income assessed or reassessed has the effect of reducing the loss or converting such loss into income 122

123 Quantum of penalty leviable Section Case Penalty (1) 270A(7) Under reporting of income 50% of tax payable on underreported income (2) 270A(8) Where under reporting of income results from misreporting of income by any person 200% of tax payable on such under-reported income 123

124 Immunity from imposition of penalty and prosecution [New section 270AA] An assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under section 270A and initiation of proceedings under section 276C or section 276CC, if he pays the tax and interest payable as per the order of assessment under section 143(3) or reassessment under section 147, within the period specified in such notice of demand; and does not prefer an appeal against such assessment/reassessment order 124

125 Time limit for making application [Section 270AA(2)] The assessee can make such application in the prescribed form and verified in the prescribed manner within one month from the end of the month in which the order of assessment or reassessment is received Time limit for passing order accepting or rejecting application for immunity from penalty and prosecution [Section 270AA(4)] The Assessing Officer shall pass an order accepting or rejecting the application for immunity from penalty under section 270A or prosecution under section 276C or section 276CC within a period of one month from the end of the month in which such application is received. However, in the interest of natural justice, no order rejecting the application shall be passed by the Assessing Officer unless the assessee has been given an opportunity of being heard 125

126 Deduction, Collection & Recovery of Tax 126