Insight of Few Sections Relevant for Handling Income Tax Assessments - C.A. Mehul Thakker
SECTION 2(14)
SECTION 2(14) CAPITAL ASSET [W.E.F A.Y.2014-15] Modification in parameters defining scope of land falling outside the ambit of Agricultural land and consequently, within the definition of Capital Asset (a) Section 2(14) defines capital asset which excludes agricultural land in India. (b) However, following land is not excluded from the definition of capital asset. (1) Land situated in any area which is comprised within the jurisdiction of a municipality or cantonment board having a population of not less than 10,000. (2) Land situated in any area within the distance measured aerially as per table given below
SECTION 2(14) CONT Population of municipality / cantonment board More than 10,000 but not exceeding 1 lakh More than 1 lakh but not exceeding 10 lakh More than 10 lakhs Distance measured aerially 2 kilometers 6 kilometers 8 kilometers (c) For the above purpose, population means the population according to the last preceding census of which the relevant figures have been published before the date of valuation.
SECTION 43(5)
SECTION 43(5) TRADING IN COMMODITY DERIVATIVES NOT A SPECULATIVE TRANSACTION [W.E.F A.Y.2014-15] Meaning : Speculative transaction means a transaction involving a contract for purchase and sale of commodities, including stocks and shares, which is periodically or ultimately settled other than by actual delivery or transfer of commodities or scrips [Section 43(5)]. Exceptions: [Proviso to Section 43(5)] Following transactions are not regarded as speculative transactions (a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him;
SECTION 43(5) CONT (b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; (c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; (d) an eligible transaction in respect of trading in derivatives referred to in clause [(ac)] of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognised stock exchange; (e) an eligible transaction in respect of trading in commodity derivatives carried out in a recognised association.
SECTION 43(5) CONT Explanation 2. For the purposes of clause (e), the expressions (i) "commodity derivative" shall have the meaning as assigned to it in Chapter VII of the Finance Act, 2013; (ii) "eligible transaction" means any transaction, (A) carried out electronically on screen-based systems through member or an intermediary, registered under the bye-laws, rules and regulations of the recognised association for trading in commodity derivative in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or directions issued under that Act on a recognised association; and
3. Ace Derivatives and Commodity Exchange Ltd., Ahmedabad. SECTION 43(5) CONT (B) which is supported by a time stamped contract note issued by such member or intermediary to every client indicating in the contract note, the unique client identity number allotted under the Act, rules, regulations or byelaws referred to in sub-clause (A), unique trade number and permanent account number allotted under this Act; (iii) "recognised association" means a recognised association as referred to in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) and which fulfils such conditions as may be prescribed7a and is notified by the Central Government for this purpose; Recognised Association for this purpose are: 1. National Commodity and Derivatives Exchange Ltd., Mumbai 2. Universal Commodity Exchange Ltd., Mumbai
SECTION 43CA, 50C, 56(2)(vii) AND 49(4)
SECTION 43CA - W.E.F. A.Y.2014-15 Stamp duty value of land and building to be taken as the full value of consideration in respect of transfer, even if the same are held by the transferor as stock-in-trade (a) The provisions of section 50C require adoption of stamp duty value of land or building or both, which are held as a capital asset, if the same are transferred for a consideration which is less than the value adopted, assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer. (b) However, such provisions were not applicable in case of transfer of immovable property, held by the transferor as stock-in-trade. (c) Therefore, as an anti-avoidance measure, new section 43CA has been inserted with effect from A.y.2014-15.
SECTION 43CA CONT If Actual Consideration < Stamp Duty Valuation Where the taxpayer accepts the stamp duty valuation under Stamp Act Where the taxpayer does not accept the stamp duty valuation under Stamp Act Taxpayer also agrees for Income tax purpose Taxpyaer does not agree for Income Tax Purpose Taxpayer will prefer appeal to higher authority under Stamp Act FVC = Value determined by such higher Authority FVC= Stamp Duty Valuation Then Income Tax Officer shall refer matter to Valuation Officer(VO) VO determines Value > Stamp Duty Valuation FVC=Stamp Duty Valuation VO determines Value < Stamp Duty Valuation FVC= Value determined by VO
SECTION 43CA - CONT NOTE: As per sub-section (3) and (4) of Section 43CA, if there is a time gap between date of agreement and date of registration, the stamp duty value may be taken as on the date of agreement instead of the date of registration. However, for the same, at least a part of the consideration has been paid by any mode other than cash on or before the date of agreement.
SECTION 43CA - CONT Now let s compare section 43CA and 50C Particulars Section Applicable Whether option to adopt stamp duty value on date of agreement is available? Land and/or Building held as Business Asset (stock-in-trade) 43CA [See Chart above] YES Land and/or Building held as Capital Asset. 50C [See Chart above] NO However, such option is available w.e.f A.Y.2017-18
SECTION 56(2)(vii) W.E.F. A.Y. 2014-15 Where an individual or a Hindu undivided family receives, in any previous year, from any person or persons (b) any immovable property, (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration: Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:
SECTION 56(2)(vii) CONT Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property; Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections:
SECTION 56(2)(vii) CONT PRACTICAL 1 Dhruv purchased flat from ABC Build Con Pvt. Ltd., details of which are as under: 1. Date of entering into agreement :-1.7.2013. 2. Agreed consideration : Rs. 100 lakhs 3. Down payment of Rs. 15 lakhs was paid by cheque on the date of agreement. 4. Stamp duty value of flat on the date of agreement was Rs. 120 lakhs. 5. Registration of sale deed in respect of flat took place on 1.1.2016. 6. Stamp Duty value on the date of registration of sale deed was Rs. 150 lakhs. Discuss tax implications in the hands Dhruv.
SECTION 56(2)(vii) CONT SOLUTION Taxable Amount under the head Income from Other Sources Taxable Amount=Stamp Duty Value Less Actual Consideration = Rs.120 lakhs Rs.100 lakhs = Rs. 20 lakhs Further, Dhruv shall deduct TDS under section 194 IA at 1 % of consideration (Reader must note that 1% is not of stamp duty value, it is of consideration). Therefore, Dhruv shall deduct TDS of Rs. 1,00,000/- while making payment to Rahul.
SECTION 49(4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax under clause (vii) or clause (viia) of subsection (2) of section 56, the cost of acquisition of such property shall be deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia). Considering the above, if Dhruv subsequently sell the property, then he is entitled to adopt Rs. 120 Lacs as Cost of acquisition.
SECTION 78
SECTION 78 CARRY FORWARD AND SET OFF OF LOSS IN THE CASE OF CHANGE IN THE CONSTITUTION OF FIRM Section 78 provides that where there is a change in the constitution of the firm on account of death/retirement, the firm shall not be entitled to set off and carry forward of so much of the loss as is attributable to such partner. This provision covers when a partner goes out of the firm (i.e., the case of retirement or death).
SECTION 78 CONT Section 78 is not applicable in case of followings: 1. Change in profit sharing ratio 2. Admission of a partner 3. Carry forward of unabsorbed depreciation.
SECTION 80GGB AND 80GGC
SECTION 80GGB AND 80GGC [W.E.F A.Y. 2014-15] Cash donations to political parties and electoral trusts not to qualify for deduction (i) As per section 80GGB, deduction is allowable in respect of contributions given by an Indian company to any political party or an electoral trust. (ii) Likewise, under section 80GGC, deduction is allowable in respect of contributions made by any person, except local authority and every artificial juridical person wholly or partly funded by the Government, to any political party or electoral trust. (iii) A proviso has been inserted in both these sections that no deduction shall be allowed in respect of any sum contributed by way of cash.
SECTION 142(2A)
SECTION 142(2A) w.e.f. 1 st June, 2013 Scope of reasons for directing special audit of accounts expanded Old Provision Under section 142(2A), if at any stage of the proceeding, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit. New Provision Section 142(2A) now provides that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.
SECTION 92BA
SECTION 92BA [W.E.F A.Y. 2013-14]-TRANSFER PRICING REGULATIONS TO APPLY TO SPECIFIED DOMESTIC TRANSACTIONS Section 92BA has been inserted with effect from the assessment year 2013-14. It provides the meaning of specified domestic transaction with reference to which the income is to be computed under section 92, having regard to arm s length price. The following transactions are covered within the meaning of specified domestic transactions if the aggregate of these transactions entered into by the assesse in a previous year exceeds Rs.5 crore.
SECTION 92BA [W.E.F A.Y. 2013-14]-CONT (a) any expenditure in respect of which payment has been made or is to be made to a person referred to in section 40A(2)(b); (b) any transaction referred to in section 80A; (c) (d) (e) (f) any transfer of goods or services referred to in section 80-IA(8); any business transacted between the assessee and other person as referred to in section 80-IA(10); any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions section 80-IA(8)/(10) are applicable; or any other transaction as may be prescribed,
SECTION 133C & EXPLANATION 2 TO SECTION 147
SECTION 133C AND DEEMING FICTION FOR REASSESSMENT U/S 147 Section 133C was inserted by Finance Act, 2014 with effect from 1st October, 2014:- The prescribed income-tax authority, may for the purposes of verification of information in its possession relating to any person, issue a notice to such person requiring him, on or before a date to be specified therein, to furnish information or documents verified in the manner specified therein, which may be useful for, or relevant to, any inquiry or proceeding under this Act.
SECTION 133C CONT Explanation 2 to Section 147 For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
SECTION 133C CONT (c) where an assessment has been made, but (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; {effective from 1st June, 2016} (d) where a person is found to have any asset (including financial interest in any entity)
SECTION 142A
SECTION 142A EXPANSION OF SCOPE OF SECTION 142A AND PROVISION OF TIME LIMIT FOR SUBMISSION OF REPORT BY THE VALUATION OFFICER TO THE ASSESSING OFFICER-W.E.F. 01.10.2014- Provisions applicable upto 30 th September, 2014. Assessing officer can refer to the valuation officer, the estimation of valuation of any investment: - Where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or (with effect from 1st July, 2010) fair market value of any property referred to in section 56(2) is required for the purposes of making any assessment or re-assessment, the assessing officer may require the valuation officer to make an estimate of the same and report to the assessing officer. Valuation officer has the same powers as given under Wealth-Tax Act
SECTION 142A CONT. Provisions applicable From 1 st October, 2014. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a reference to a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit a copy of report to him. (2) The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. (3) The Valuation Officer, on a reference made, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers that he has under section 38A of the Wealth-tax Act, 1957 (27 of 1957). (4) The Valuation Officer shall, estimate the value of the asset, property or investment after taking into account such evidence as the assessee may produce and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee.
SECTION 142A CONT. (5) The Valuation Officer may estimate the value of the asset, property or investment to the best of his judgment, if the assessee does not cooperate or comply with his directions. (6) The Valuation Officer shall send a copy of the report of the estimate made, to the Assessing Officer and the assessee, within a period of six months from the end of the month in which a reference is made. (7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment. Explanation. In this section, "Valuation Officer" has the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957.
SECTION 149 and 151
SECTION 149 : Time limit for reopening assessment w.e.f. 1 st June, 2015 Notes [Section 151]:- 1. No notice can be issued by an A.O. who is below the rank of Joint Commissioner unless he is satisfied that on the reason recorded by A.O. that it is a fit case for issue of such notice. 2. Notice can be issued only if the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the A. O. that it is a fit case for issue of notice. Up to 4 years from the end of the relevant assessment year Assessment can be re-opened whatever is the amount of income escaped [Note 1] Beyond 4 years but up to 6 years form the end of the relevant assessment year If the escaped income is Rs. 1,00,000 or more for that year [Note 2]
SECTION 263
SECTION 263 EXPLANATION 2 TO SECTION 263 INSERTED WITH EFFECT FROM 01.06.2015 For the purposes of section 263, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, (a) the order is passed without making inquiries or verification which should have been made; (b)the order is passed allowing any relief without inquiring into the claim; (c)the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d)the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
SECTION 263 CONT PRACTICAL 1 During the course of scrutiny proceedings, the assessee placed reliance on the decision of Rajasthan High Court for deductibility of certain expenditure under section 37(1). The Assessing Officer, Ahmedabad, while passing an assessment order under section 143(3) allowed the deduction under section 37(1) relying on the said decision. On 10-08-2015, the Commissioner of Income Tax assumed revision jurisdiction under section 263 in respect of such order on the ground that on similar facts, there was a decision of Madras High Court denying deduction under section 37(1). The Commissioner of Income tax is of the opinion that the order of Assessing officer under section 143(3) is deemed to be erroneous and prejudicial to the interest of revenue. Examine the validity of jurisdiction assumed by Commissioner of Income Tax under section 263.
SECTION 263 CONT SOLUTION 1 On minute reading of the explanation 2 to Section 263 - clause (d), the order of assessing officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if the same has not been passed in accordance with any decision which is prejudicial to the assessee rendered by the jurisdictional High Court in case of the assessee or any other person. In present case study, the jurisdictional High Court shall be Gujarat High Court while the Commissioner of Income Tax relied on the decision of Madras High Court. Therefore, the opinion of the Commissioner that order passed by Assessing Officer, Ahmedabad is deemed to be erroneous and prejudicial to the interest of revenue is not tenable.
SECTION 263 CONT Further, Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT held that recourse cannot be had to section 263(1) unless the Commissioner is satisfied with the twin conditions, namely, - the order of the Assessing Officer sought to be revised is erroneous; and - it is prejudicial to the interests of the revenue. If one of the conditions is absent if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue then jurisdiction under section 263 fails. Therefore, every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue.
SECTION 263 CONT PRACTICAL 2 Does your answer differ, if there was a decision of Gujarat High Court instead of Madras High Court, denying deduction under section 37(1)? SOLUTION 2 If there was a decision of Gujarat High Court instead of Madras High Court, denying deduction under section 37(1), then the order of Assessing Officer falls within the explanation 2 to section 263- clause (d) and therefore, such order shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. Hence, Commissioner of Income Tax is justified in assuming jurisdiction under section 263 of the Act.