Thursday 28 November 2013

How to get 10 Hours of CPE Credit of unstructured learning for 2011, 2012 & 2013



As you all are aware, the ICAI’s Continuing Professional Education (CPE) policy requires members to comply with the CPE Hour Requirements. Which includes Structured and Unstructured learning.


Also Read- CPE credit Hours requirements for Calender Year 2011 to 2013 for CAs

In the above context, this is to bring to your attention that even reading of certain specified articles in CA Journal shall be held eligible to gain CPE hours of unstructured learning.

One can claim the CPE hours by filing a Self Declaration Form with the ICAI after the end of every calendar year.Current Block for Compliance of CPE Hour is from 01.01.20111 to 31.12.2013. Members who have not filed self deceleration for Calender Year 2011 & 2012 can also file the same now.

Completing CPE hours on time also become important as recently ICAI has imposed penal consequences for non compliance with CPE Hour Requirements which can be checked on link given below :-

Penal provisions for non compliance with CPE Hours requirements for ICAI members

We have attached below a illustrative format to Claim CPE Credit of 10 Hours P.A. of Unstructured learning for the calender Year Ending on, 31.12.2011, 31.12.2012 & 31.12.2013.

Report on Trend and Progress of Banking in India – 2012-13



The Reserve Bank of India today released the statutory Report on Trend and Progress of Banking in India 2012-13. This Report presents the performance and salient policy measures relating to the banking sector during 2012-13. The Report also provides an analysis of the co-operative banks and non-banking financial institutions.

The key messages of the Report are set out below:

Perspectives on the Indian BankingSector


The weakening domestic macroeconomic conditions combined with the continuing subdued global growth posed challenges to the banking sector during 2012-13. However, the comfortable capital base continues to lend resilience to the Indian banking sector (para 1.1, page 1).


The regulatory and supervisory policy responses during the year pertained to initiatives for implementing risk-based supervision, enhanced oversight of financial conglomerates and steps towards improved co-ordination among regulators, besides positioning banks to meet the needs of inclusive growth (para 1.11-1.17, pages 4-6).


Initiatives were undertaken to expand the banking system, increase competition, further strengthen the payments and settlement mechanism and fortification of capital (para 1.18-1.21, pages 6-7).


At the present juncture, the key issues related to the Indian banking sector include:


effective reduction in NPAs and improvements in the loan recovery process;


need to achieve sustainable financial inclusion through suitable business and delivery models;


need to stimulate and foster competition in the banking sector and liberalise licensing policies; and


need for decisive changes in the present banking structure to enable it to grow in size, resources, efficiency and inclusivity (para 1.25-1.28, pages 8-9; para 1.33-1.34, page 10).

Global Banking Developments
Globally, the banks continued their efforts to repair their balance sheets and improve their capital ratios, albeit at an uneven pace across countries (para 2.3, page 12; para 2.12, page 16).
The growth in global credit was multi-paced. The return on assets (RoA) improved for banks in the US and some emerging market and developing economies (EMDEs), but declined in European countries (para 2.4, para 2.6-2.7, page 12).
Financial conditions in the global banking system improved following monetary easing measures by central banks in advanced economies (para 2.8, page 12).
The global regulatory reforms initiated in 2009 to strengthen the financial sector and to support sustainable economic growth by reducing future risks progressed in many areas such as Basel III framework, systemically important financial institutions (SIFI) and financial market infrastructures (para 2.28-2.35; pages 26-27).

Policy Environment


Many initiatives were undertaken in the sphere of regulatory and supervisory policies during the year. These include issuing guidelines for new bank licences, rationalising branch authorisation policy and revision in policy regarding restructuring of advances by banks/financial institutions. Also, policy framework was released for setting up of wholly owned subsidiaries by foreign banks in India (para 3.24-3.29, pages 34-36; para 3.40-41, pages 38-39).


Measures were also introduced for rationalisation of bank lending against gold and bank finance for purchase of gold. Discussion papers on banking structure and dynamic provisioningframework were released and risk-based supervisory approach for banks was adopted (para 3.30-3.31, para 3.33-3.34, pages 36-37; para 3.48, page 41).


Significant headway was made in improving credit delivery channels, credit flow towards productive sectors and financial inclusion by revising priority sector loan limits and refocusing on credit growth to micro and small enterprises. Further, bank licence was issued to Bharatiya Mahila Bank Ltd. to address gender related aspects of empowerment (para 3.10, para 3.12-3.13, pages 31-32; para 3.18-3.20, page 33).

Operations and Performance of Commercial Banks


Against the backdrop of a slowdown in the domestic economy and tepid global recovery, the growth of the Indian banking sector slowed down for the second consecutive year in 2012-13 (para 4.3, page 55).


Both balance sheet and off-balance sheet operations of Indian banks slowed down in 2012-13. There was a slowdown in credit growth to all productive sectors though retail credit remained buoyant (para 4.3, page 55).


The lower credit off-take, despite the softening of interest rates, affected the profits of SCBs with all major indicators of profitability, viz., return on assets (RoA) and return on equity (RoE) showing a decline during the year. New private sector banks and foreign banks, however, could improve their RoA with the help of reduced operational costs (para 4.13-4.14, pages 60-61).


The ratio of NPAs increased further during 2012-13. There was a rise in the slippage ratio as well as the ratio of restructured advances to gross advances (para 4.19-4.22, pages 65-67).


The increased stress in asset quality during the year was primarily on account of non-priority sectors. There was a rise in the NPA ratios for the industrial and infrastructural sectors (para 4.25, page 68).


The capital adequacy positions of SCBs remained above the stipulated norm at the aggregate and bank group-levels (para 4.17-4.18, page 65).


With the completion of three years of financial inclusion plans, there were signs of considerable progress in terms of expanding the outreach of banking through both branch and non-branch means. While banking outlets were provided in almost all identified unbanked villages with a population of more than 2,000, the process of bringing in unbanked villages with a population of less than 2,000 was in progress during the year (para 4.59, page 83).

Developments in Co-operative Banking


Urban Co-operative Banks (UCBs) registered a stable growth in assets during 2012-13 but there was some moderation in profitability. The asset quality of these institutions witnessed sustained improvement (para 5.13, page 95; para 5.17, page 99).


With regard to rural co-operatives, State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) showed improvement in profitability and asset quality in 2011-12. The Primary Agricultural Credit Societies (PACS) incurred losses outpacing the profitability of StCBs and DCCBs during 2011-12 resulting in losses for the short-term co-operative credit structure(para 5.25, page 104; para 5.28-5.29, pages 105-106; para 5.34-5.35, pages 107-108).


The long-term rural co-operative credit institutions continued to witness losses and also exhibited weak asset quality in 2011-12 (para 5.45-5.46, page 113; para 5.49-5.50, page 115).

Non-Banking Financial Institutions


Financial performance of Financial Institutions (FIs) improved during 2012-13 in terms of both operating and net profits (para 6.9, page 121).


During 2012-13, net profits of Non-Banking Financial Companies – Deposit taking (NBFCs-D) and Systemically Important Non-Deposit taking NBFCs (NBFCs-ND-SI) showed only marginal improvement (para 6.30, page 130; para 6.41, page 135).


Profits of Standalone Primary Dealers showed a significant expansion (para 6.50, page 138).


Overall asset quality of a large part of the NBFI sector deteriorated during the year, partly reflecting economic slowdown (para 6.52, page 140).


With regard to capital adequacy, the entire NBFI sector was comfortably placed (para 6.52, page 140).

Sangeeta Das
Director

Press Release: 2013-2014/1036

Penalty for Offences by Officers of Company Under Finance Act



Position prior to Finance Act, 2013 (Prior to 10.05.2013)

None of the provisionsprovided for personal penalty on partners / proprietor of the firm. However, section 77 talks of any person but such expression ‘any person’ does not imply more than one person or ‘firm as well as partner’ for the same offence. If it is meant to be such, it may result in double penalty or even more.

In certain cases, Department sought to impose personal penalty on the partners u/s 77 of the Finance Act, 1994 (as amended) which has not been specifically provided in the statutoryprovisions. The SCN levied penalty u/s 77 on the firm and separate penalty on partners u/s 77 is over and above the penalties proposed to be levied u/s 76, 77 and 78.

Judicial Pronouncements

In such cases, the assessee should rely on the following judicial pronouncements to defend levy of personal penalty –

In B. C. Sharma v. Commissioner of Central Excise, Jaipur (2000) 122 ELT 158 (Cestat), where firm was imposed a penalty of ? 2 lakhs, it was held that when penalty has been imposed on the partnership firm, a separate penalty cannot be merited on the partner.

In Kamal deep Marketing Pvt. Ltd. v. Commissioner of Central Excise, Indore (2004) 165 ELT 206 (Cestat, Delhi), where it was held that personal penalty on partners / proprietor in addition to that on the firm was not Imposable.

In Harish Dye. & Ptg. Works v. Commissioner of Central Excise & Customs, Surat-1 (2001) 138 ELT 772 (Cestat, Mumbai), it was held that partnership firm assessee being a partnership firm is not different from its partners and that separate penalty cannot imposed on the partner.

In Commissioner of Central Excise, Mumbai v. Metal Press India (2009) 246 ELT 303 (Cestat, Mumbai), it was held that partnership firm and its partners cannot be penalized simultaneously.

In Vinod Kumar Gupta v. CCE (2013) 287 ELT 54 (Punjab & Haryana), it was held that proprietorship firm or proprietor or partner could not be treated as two different legal entities, hence second penalty on proprietor or partner would amount to imposition of penalty twice over, which could not be sustained in the eye of law.[Case relied upon Tarak Nath Sen v. UOI- AIR 1975 Calcutta 337].

In Ashish Kumar Agarwal v. CCE, Ahmedabad (2012) 284 ELT 529 (Cestat, Ahmedabad), in absence of any duty liability on main company ,it was held that provisions of Section 112 and 117 of Customs Act, 1962 for imposition of penalties on directors was not invocable. However, in Shri Krishna Urja Projects v. CCE (Meerut-I) (2013) 288 ELT 257 (Cestat, Delhi), it was held that personal penalty can be imposed on director who is actively involved in company’s day to day activities.

In CCE & C, BBSRI v. Pentagon Steel Pvt. Ltd. (2013) 288 ELT 271 (Cestat, Calcutta), it was held that no penalty is imposable on the managing director in absence of any evidence of his direct or indirect involvement.

Thus, personal penalty cannot be levied on partners / proprietors in case of service tax defaults.


Position w.e.f. 10.05.2013

Finance Act, 2013 has inserted a new section 78A to provide for penalty for offences by director etc of a company w.e.f. 10.05.2013.

Section 78A reads as under –

“78A. Where a company has committed any of the following contraventions, namely:—

a) evasion of service tax; or

b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or

c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under theprovisions of this Chapter; or

d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.”.

Section 78 A has been inserted so as to impose penalty, which may extend up to one lakh rupees, on director, manager, secretary or other officer of the company for knowingly involved in the contraventions specified therein.

Salient features of Penalty under section 78A

— To impose penalty for contraventions / violations by Company

— Penalty may extend up to Rs. one lakh per official

— Penalty on any director, manager, secretary or officer of Company

— Incharge / responsible to Company for conduct of business of Company

— If knowingly involved in specified contraventions

— Penalty may be levied on more than one person for single contravention / offences


Specified Contraventions

— Evasion of Service Tax

— Issuance of bill / Invoice / challan without provision of service in violation of rules.

— Availment and utilization of credit of taxes /duties without actual receipt of services /goods either fully or partially.

— Failure to pay amount collected as service tax to the credit of Central Government beyond 6 months of the due date

Who is Punishable

Any person who is
director
manager
secretary
other officer

and who at the time of contravention was in charge of / was responsible to company
for conduct of business, and
was knowingly concerned with such contravention.

Thus, section 78A provides for imposition of penalty on director, manager secretary, or other officer of the company, who is in any manner knowingly concerned with specified contraventions.

Monday 18 November 2013

Receiving Service from Clients may disqualifies you to Continue as an Auditor

MANY CA FIRMS INCLUDING BIG FIRMS MAY LOOSE AUDIT OF UTILITY SERVICE PROVIDERS & OTHER COMPANIES: BY CA NITESH MORE


Many CA firms including big Firms maylose audit of Companies providing utility service providers & other companies due to the certain new impractical disqualifications inserted in the new Companies Act. Sec 141(3) of the Companies Act, 2013 states that the following persons shall not be eligible for appointment as an auditor of a company, namely:

Ø a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;


COMMENTS: The expression “business relationship” has not been defined. CA Firms receives utility services such as electricity, telephones etc from their clients at their head office, branches and homes. They also receive services relating to hotels, insurance, hospitals, banking etc.


ISSUES:

1) A question will arise, “Can they continue as auditor of those Companies after receiving any such service?

2) A CA cannot engage himself in any other business. Then, why such IMPRACTICAL disqualification has been brought in the statute?

3) What the Govt. intends to achieve by bringing such disqualifications even without any monetary limit?



SUGGESTIONS:

1. It is suggested that the expression “business relationship” should be defined.

2. Utility services should be excluded from the definition of business connection.

3. A monetary ceiling should be provided for “business connection”.

Saturday 16 November 2013

How to check e-TDS Challan Status Query ?


TDSCPC.GOV.IN has also provided a facility to check the Challan Status Query vide which it can be checked that has there any challan not claimed by deductor in the particular Financial Year or not. This function is helpful to resolve the default notice issued by Income Tax Department.

In case any deductor receive demand notice from income tax department, first of all he may check this function for unclaimed challan. If unclaimed challan is available it means that either complete challans have not been entered in etds return or wrong data of challans have been entered in TDS return.

There are three types of inquiries available which can be seen in below picture :

1. All.
2. Claimed.
3. Unclaimed.




Period can be entered in specified format i.e. 01-Apr-2013 etc. or dates can be entered only with in financial year.

Provisions on Books of Accounts under New Companies Act



Section 128 of the Companies Act, 2013 provides for Maintenance of books of accounts under the new Companies Act.

The erstwhile corresponding section 209 on “Books of accounts to be kept by company” of Companies Act, 1956 dealt with the books of accounts required to be maintained to give a true and fair view of the state of affairs of the company or branch office and to explain its transactions and also specify the place of keeping and period for which such books to be kept by the company. The responsibility for maintenance books of accounts was also fixed by this provision.

The significant changes introduces in this section are as follows:

a) books of accounts may also be kept in electronic form

b) a director of the Company can inspect the books of accounts of the subsidiary, only with the authority of the Board of Directors.

Maintenance of Books of Accounts

Maintenance of books of accounts would mean records maintained by the company to record the specified financial transaction. It has been specifically provided that -

1. Every company shall keep proper books of accounts. This clause specifies the main features of proper books of accounts as under –

(i) The company must keep the books of accounts with respect to items specified in clauses (i) to (iv) of sub-section 2(13) which defines “books of accounts”.

(ii) The books of accounts must show that all money received and expended , sales and purchasesof goods and the assets and liabilities of the company.

(iii) The books of accounts must be kept on accrual basis and according to the double entry system of accounting.

(iv) The books of accounts must give a true and fair view of the state of the affairs of the company or its branches.

2. What is required to be prepared and kept are books of accounts, other relevant books and papersand financial statements. Books of accounts are defined in clause 2(13) , ‘books and papers’ in clause 2(12) and ‘ financial statement’ in Clause 2(40). Both are required to be prepared and kept.

3. Books of accounts, books and papers and financial statements should explain the transactions effected at company’s registered office and any branch(es).

4. Records, books, papers and financial statements must relate to any specific financial year only.

5. A company engaged in production, processing, manufacturing or mining activity, is also required to maintain particulars relating to utilization of material, labour or other items of cost as the Central Government may prescribe for such class of companies.(Section 148)

6. The branches of the company, if any, in India or outside India shall also keep the books of accounts in the same manner as specified in sub-section (1), for the transaction effected at the branch office. Further the branch offices are required to send the proper summarized return made up-to-date to the company at its registered office or the other places as decided by the board.

7. Books of accounts of the company shall be kept at the registered office of the company.

8. In case of Books of accounts being maintained at any other place other than registered office in India, as may be decided by resolution of Board of Directors, company shall be required to intimate full address of such place to Registrar of Companies within 7 days.

9. The maintenance of books of accounts and other books and papers in electronic mode is permitted and is optional. (Second Proviso to Clause 128(1)).

The person responsible to take all reasonable steps to secure compliance by the company with the requirement of maintenance of books of accounts etc. shall be: (sub-section 6)

i) Managing Director,

ii) Whole-Time Director, in charge of finance

iii) Chief Financial Officer

iv) Any other person of a company charged by the Board with duty of complying with provisions of section 128.

Penal Provision

In case the aforementioned persons referred to in sub-section (6) (i.e. Managing Director, Whole Time Director, Chief Financial Officer etc.) fail to take reasonable steps to secure compliance of this section and thus, contravene such provisions, they shall in respect of each offence, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees or both.

Provisions Related to Dividend Under Companies Act, 2013

Tabular comparison of provisions of section 205 of the Companies Act, 1956 (“1956 Act”) and section 123 of Companies Act, 2013 (“2013 Act”)
S No
Issue
1956 Act
2013 Act
1.Dividend from reserves to be only from free reservesNo such provision.Third proviso to section 123(1) of the 2013 Act provides that no dividend shall be declared or paid by a company from its reserves other than free reserves.
2.Declaration of dividend in case of inadequacy or absence of profitsCompanies (Declaration of Dividend out of Reserves) Rules, 1975 –Rule 2:



In the event of inadequacy or absence of profits in any year, dividend may be declared by a company for that year out of the accumulated profits earned by it in previous years and transferred by it to the reserves, subject to the conditions that-

(i) the rate of the dividend declared shall not exceed the average of the rates at which dividend was declared by it in the five years immediately preceding that year or ten per cent of its paid-up capital, whichever is less;



(ii) the total account to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one-tenth of the sum of its paid up capital and free reserves and the amount so drawn shall first be utilised to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared ; and



(iii) the balance of reserves after such drawl shall not fall below fifteen per cent of its paid-up share capital
Rule 8.1 – A company may declare dividend out of the accumulated profits earned by it in previous years and transferred by it to the reserves, in the event of inadequacy or absence of profits in any year, subject to the fulfillment of the following conditions :



(1) The rate of dividenddeclared shall not exceed the average of the rates at which dividend wasdeclared by it inthe three years immediately preceding that year;



(2) The total amount to be drawn from such accumulated profits shall not exceed an amount equal to one-tenth of the sum of its paid-up share capital and free reserves;



(3) The amount so drawn shall first be utilized to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared;



(4) The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital.
3.Transfer to reserveSection 205 (2a) of the 1956 Act prescribes that before any dividend is declared or paid, certain percentage of profits as may be prescribed by the Central Government, but not exceeding 10% will have to be transferred to the reserves of the Company. The company may, however, voluntarily create more than the prescribed percentage and transfer to the reserves of the Company.



According to the Companies (Transfer of Profits to Reserves) Rules 1975, before declaration or payment of dividend, profits shall be compulsorily transferred to reserves at the following rates:-

Rate of proposed dividend
% of  current profits to be transferred to Reserves
<10%
Nil
10% – 12.5%
2.5%
12.5% – 15%
5%
15% – 20%
7.5%

A company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company. [First proviso to section 123(1)]Transfer of profits to reserves on declaration of dividend is no longer compulsory.
 4.Power of central government to permit declaration of dividend without providing depreciation. The proviso (c) of Section 205(1) of the Act empowers the Central Government to waive in any particular case, the requirement of providing for depreciation. No such provision.
5.Prohibition on declaration of dividend by a company which has defaulted in payment of depositsNo such provision.A company which fails to comply with the provisions of sections 73 (Prohibition on acceptance of deposits from public) and 74 (Repayment of deposits, etc., accepted before commencement of this Act) of the 2013 Act shall not, so long as such failure continues, declare any dividend on its equity shares. [Section 123(6)]
6.Set off of losses before declaration of dividendIf the company has incurred any loss in any previous financial year or years, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of subsection (2) of section 205 or against both. [Clause (b) to first proviso to section 205(1)].Rule 8.2 provides that no company shall declare dividend unless the loss or depreciation, whichever is less, in previous years is set off against the profit of the company for the year for which dividend is declared or paid.
7.Payment of dividend through electronic modeSection 205(3) stipulates that no dividend shall be payable except in cash. 
Section 205(5)(b) of the 1956 Act provides that the dividend payable in cash may be paid either by cheque or warrant.
Section 123(5) provides that no dividend shall be paid by a company in respect of any share there in except to the registered shareholder of such share or to his order or to his banker and shall not be payable except in cash. The second proviso to section 123(5) provides that any dividend payable in cash may be paid by cheque or warrant or in any electronic mode to the shareholder entitled to the payment of the dividend.



Payment of dividend through electronic mode to registered shareholder is expressly permitted. There was no corresponding provision in the 1956 Act.
8.Declaration of interim dividendSection 205(1a) of the 1956 Act provides that the Board of directors may declare interim dividend and the amount of dividend including interim dividend shall be deposited in a separate bank account within five days from the date of declaration of such dividend.Section 123(3) provides that the Board of Directors of a company may declare interim dividend during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is sought to be declared
The proviso to section 123(3) provides that in case the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

Wednesday 6 November 2013

Immunity From Penalty U/s. 271(1)(c) Available For Belated Returns



In our considered opinion, once the legislature has not specified the “due date” as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the “due date” and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.


INCOME TAX APPELLATE TRIBUNAL, “G” BENCH, MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER

AND SHRI AMIT SHUKLA, JUDICIAL MEMBER

ITA no. 7737/Mum./2011 – Assessment Year: 2008-09)

Income Tax Officer (Central)

v/s

Mr. Gope M. Rochlani


Date of Order – 24.05.2013


ORDER

PER AMIT SHUKLA, J.M.

The present appeal is preferred by the Revenue challenging the impugned order dated 30th August 2011, passed by the learned Commissioner (Appeals)-I, Mumbai, in relation to the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act”), for the assessment year 2008-09. Following grounds have been raised by the Revenue:-

In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in cancelling the penalty levied by the AO.
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the additional income declared during statement u/s.132(4), is on the basis of the assessee,s own working of the WIP.
In the facts and circumstances of the case and in law, the Ld CIT(A)-I, Thane erred in deleting the penalty on the ground that the assessee,s admission of additional income declared is on the basis of entries in the books of accounts, documents and transactions.
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that as per explanation 5A (ii)(b) to section 271 (1)(c), the assessee has deemed to have concealed the particulars of his income for the purposes of imposition of penalty u/s. 271(1)(c).
In the facts and circumstances of the case and in law, the Ld CIT(A)- I, Thane erred in deleting the penalty on the ground that the assessee did not file the return of income till the date of search which took place on 16- 10-2008, as the time for filing of return u/s.139(l) was 30-09- 2008. Due to which the additional income was detected otherwise the assessee would have concealed the additional income declared.
The Appellant prays that order of the CIT(A)-I, Thane on the grounds be set aside and that of the Assessing Officer be restored.”

2. Facts in brief:- The assessee is a 50% partner in the FIRM m/S. Madhav Constructions, which is carrying out the business of housing development and builders in Kalyan. A search and seizure action under section 132(1) and simultaneously survey action under section 133A was carried out at the residential premises of main person / partners and business premises of Madhav Group on 15th October 2008. During the course of search, statement on oath under section 132(4) was recorded on 17th October 2008 of Mr. Gopi M. Rochlani, one of the partners wherein he declared an additional income of 1,25,00,000. This amount was also offered in the return of income filed for the assessment year 2008-09 on 31st October 2008. This surrender was applicable to the assessee also wherein similar amount of 1,25,00,000 was offered for the assessment year 2008-09 and the return of income was filed on 31st October 2008, wherein the income of 1,31,19,140 was shown which included the additional income offered during the course of search / survey action. The relevant statement on oath which has been reproduced in the assessment order as well as in the penalty order, for the sake of ready reference, is reproduced herein below:-
“During the course of survey proceedings in our office premises, we were asked to provide tentative trading account and WIP as on the date of survey, but due to laborious and time consuming work this is not possible. On going through the physical break up of work —in-progress with the books I would like to add that the balance sheet of Madhav sankalp for financial year 2007-09(A. Y.2008-09) reveal as under:


SALE
88.54 crores
Less:- Estimated Profit 40%
35.42 crores
Estimated overall expenditure
53.12 crores
Work-in-progress @ 62%
32.94 crores
FY 2007-08-Expenditure.. 14 cr
FY2008-09-Expenditure.. 14cr
28.00 crores
Estimated difference in expenditure
4.94 crores
Say 5.00 crores


I would like to further add here that out of the estimated expenditure of Rs.5.0 crores, Rs.2,5 crores is for FY 2007-08 and Rs.2.5 crores is for FY 2008-09. this money has been in vested by both the F. Yrs, on which myself and my son Raja are ready to pay due taxes. We declare this additional income u/s. 132(4), over and above our regular income for F.Yrs. 2007-08 and 2008-09, @ Rs.1.25 crores each F.Yr under the head investment in Madhav construction (profit in land dealing).

3. In the assessment order passed under section 143(3) r/w section 153A, the assessment order was completed on the same income of ~ 1,31,19,140 vide order dated 31st December 2010 on which return of income was filed. Thereafter, the Assessing Officer initiated the penalty proceedings under section 271(1)(c) and observed that, firstly, the income has been offered only as a consequence of search and seizure under section 132(1) and secondly, it was offered under the head “Income From Other Sources” for the assessment year 2008-09 in the return of income filed on 31st October 2009, whereas the original due date of the return of income was 30thSeptember 2008, which has expired before the date of search. Thus, he held that the assessee’s case is covered by Explanation 5A to section 271(1)(c).
4. The assessee, before the Assessing Officer, submitted that this additional income was offered voluntarily which was on estimate basis and and the same has been accepted in the assessment order as such, therefore, provisions of section 271(1)(c) is not applicable. The entire explanation of the assessee was rejected and finally, penalty was levied on the entire amount of 125 crores at 42,40,750.


5. Before the learned Commissioner (Appeals), the assessee made very detail submissions with regard to Explanation 5A to section 271(1)(c) and submitted that in view of clause (b) of Explanation 5A, penalty cannot be levied as the assessee filed return of income on the due date which can also be inferred as return of income filed under section 139(4). Further submissions were also made on merits as well as on the ground that no penalty can be levied on estimated income.6. The Learned Commissioner (Appeals), though did not accept the assessee’s explanation on Explanation 5A to section 271(1)(c), but deleted the penalty on the ground that the income which was offered was only on estimate basis, therefore, additional income offered by the assessee can neither be held to be concealed income or furnishing of inaccurate particulars of income. The relevant conclusion drawn by the learned Commissioner (Appeals) after detail discussion is reproduced herein below:-

“64. After considering the submissions of the A.R. and ratio laid down by various judicial authorities in the cases referred to above and particularly taking into consideration the findings of Hon,ble ITAT Rajkot Bench in the case of Shabbir Alluddin Latiwala V/s. Deputy Commissioner of Income Tax and Shri Gopichand Rupchand Rajani (Supra) I am inclined to agree with the assessee that lnspite assessee,s case not being covered by the immunity provided under explanation 5A to sec. 271(1)(c) I hold that even if the assessee is not in a position to establish conclusively that additional income was offered by him voluntarily but at the same time I find that A.0. has also not been able to identify the very foundation on the basis of which assessee had offered additional income. The A. 0. neither in the course of assessment proceedings nor in the penalty proceedings has been able to link declaration of additional income with any material found even In the course of search. Even the sale figure of Rs.88.54 Cr has been adopted purely on the basis. Profit is estimated at 40% to arrive at estimated expenditure. WIP up to date of survey Is estimated at 62%. I further find that the income has been offered only on estimate which Is clearly proved from the statement u/s. 132(4) where every figure has been mentioned on estimate to the extent of even rounding up of the figures and therefore in my considered view it can not be held that the additional income offered by the assessee was concealed income in respect of which Inaccurate particulars had been furnished. I accordingly hold that A.O. Is not justified in levying penalty u/s. 271(1)(c) of the IT Act 1961 in the assessee,s case. The penalty levied is accordingly cancelled.”
7. Before us, the learned Departmental Representative submitted that this is not a case of estimate made by the Assessing Officer in the regular assessment proceedings but it is a case of search and seizure, wherein the assessee has himself declared additional income in the statement recorded under section 132(4). Even if such surrender was based on estimate, then also it represents the undisclosed income which has been owned by the assessee. Thus, the penalty cannot be deleted on the pleading that penalty has been levied on estimate basis. In this case, Explanation 5A is clearly applicable. Under Explanation 5A to section 271(1)(c), in case of a search which has been conducted after 1st June 2007, if any undisclosed income has been found which has not been shown in the return of income either prior to the date of search or on the due date of filing of return of income, penalty has to be levied. This is evident from the plain language of Explanation 5A. Thus, the findings of the learned Commissioner (Appeals) for deleting the penalty purely on the ground that this was a case of estimate is wholly erroneous once he has come to a conclusion that the assessee is not getting the benefit of Explanation 5A.

8. Per contra, the learned Counsel submitted that the assessee offered the income for the assessment year 2008-09, for which the due date of filing the return of income under section 139(1) was 30th September 2009 and the due date of filing the return of income under section 139(4) was 31st March 2010. In the present case, the assessee has filed his return of income on 31st October 2009, which can be said to be filed under section 139(4). Clause (b) of Explanation 5A mentions the phrase “due date for filing the return of income”. This “due date” can also be treated as due date of return of income filed under section 139(4) also. In support of this contention, he relied upon the judgment of Hon’ble Punjab & Haryana High Court in CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20th March 2013 and the judgment of Gauahati High Court in CIT v/s Rajesh Kumar Jalan, [2006] 286 ITR 276 (Gau.). Relying on these case laws, he submitted that in these cases, the High Court, in the context of section 54(2) and 54F, wherein similar phrase has been used and in particular in section 54(2), the words mentioned is “time limit under section 139″, has been interpreted by the Hon’ble High Court to mean that the words “due date” means the return of income filed under section 139(1) or 139(4) because section 139(4) is the extended period only. If the requirements of the due date has been fulfilled within the time limit of section 139(4) then it meats the requirement of the law. He, thus, submitted that the assessee’s income disclosed at the time of search has already been shown on the due date for filing of the return of income and, therefore, penalty cannot be levied by invoking the provisions of Explanation 5A of section 271(1)(c). He further reiterated his submissions as made before the learned Commissioner (Appeals) with regard to the levy of penalty on estimated income.


9. We have carefully considered the rival contentions and perused the relevant findings of the Assessing Officer and the learned Commissioner (Appeals). In this case, a search and seizure action was taken place after 1st June 2007 i.e., on 16th October 2008. The assessee, during the course of statement recorded under section 132(4), has offered income of 1.25 crores as additional income for the previous year ending before the date of search i.e., year ending 31st March 2008 relevant to the assessment year 2008-09. The due date for filing of the return of income under section 139(1) for assessment year 2008-09 was 30th September 2009, whereas the assessee has filed the return of income on 31st October 2009 i.e., after one month from the date of filing of the return of income as provided in section 139(1). The due date for filing of the return of income under section 139(4) for the assessment year 2008-09 was 31st March 2010. Thus, the return of income filed by the assessee in this case was at best under section 139(4). The issue before us is whether the return of income filed under section 139(4) can be held to be the “due date” for filing the return of income for such previous year as mentioned in clause (b) of Explanation 5A to section 271(1)(c) and, if so, whether the penalty can be levied on the facts of the present case under the Explanation 5A. For better appreciation of the provisions of Explanation 5A, the same is reproduced herein below:-


[Explanation 5A. – Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of‑

(i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or

(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and, -

(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or

(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.”

10. On a plain reading of the aforesaid Explanation, it is apparent that following conditions are essential for levy of penalty under section 271(1)(c):-

(i) this Explanation is applicable to an assessee in whose case search has been initiated under section 132 on/or after 1st June 2007;

further,


(ii) during the course of search, the assessee should be found to be the owner of -

(a) any money, bullion, jewellery, for other valuable article or thing to which and the assessee claims to have acquired such assets by utilizing his income for any previous year; or

(b) any income which is based on any entry in any books of account or other documents or transactions and claims that these represents income for any previous year which is ended before the date of search; and further,

(iii) if such asset or income which represents the income of any previous year, firstly, has not been shown in the return of income which has been furnished before the date of search i.e., such income has not been declared therein and secondly, the due date for filing the return of income had expired i.e., the assessee has not shown this income in the return of income filed on or before the due date;

(iv) then on such income declared by him in the return of income furnished on or after the date of search, he is liable for penalty under section 271(1)(c) and he is deemed to have concealed the particulars of his income or furnish inaccurate particulars of income.

11. There are two saving clause in the aforesaid Explanation wherein penalty cannot be held to be leviable under section 271(1)(c), firstly, the assessee had shown such asset as mentioned in clause (i) or income as mentioned in clause (ii) in the return of income furnished before the date of search and, secondly, such asset and the income has been shown in the return of income filed on the due date. Thus, if any assessee falls under these saving clauses, Explanation 5A cannot be invoked.

12. For the purpose of the instant case, we have to see whether or not the assessee has shown the income in the return of income filed on the “due date”. Provisions of section 139(1) provides for various types of assesses to file return of income before the due date and such due date has been provided in the Explanation 2, which varies from year-to-year. Whereas, provisions of section 139(4) provides for extension of period of “due date” in the circumstances mentioned therein and it enlarges the time limit provided in section 139(1). The operating line of sub-section 4 of section 139 provides that “any person who has not furnished the return within the time aIIowed” ~ here the time allowed means under section 139(1), then in such a case, the time limit has been extended. Wherever the legislature has specified the “due date” or has specified the date for any compliance, the same has been categorically specified in the Act. For e.g., under section 44AB where the assessee is required to get his accounts audited before the specified date and furnish by that date, the specified date has been specifically mentioned as the date provided in section 139(1). Similarly, in section 43B also, the “due date” has been specifically provided as the date mentioned in sub-section (1) of section 139. In the aforesaid Explanation 5A, the legislature has not specified the due date as provided in section 139(1) but has merely envisaged the words “due date”. This “due date” can be very well inferred as due date of the filing of return of income filed under section 139, which includes section 139(4). Where the legislature has provided the consequences of filing of the return of income under section 139(4), then the same has also been specifically provided. For e.g., section 139(3), provides that for the purpose of carry forward losses under sections 72 to 74A, the return of income should be filed within the time limit provided under section 139(1), otherwise losses cannot be set-off. In absence of such a restriction, the limitation of time of “due date” cannot be strictly reckoned with section 139(1). Thus, the meaning of the words “due date”, sans any limitation or restriction as given in clause (b) of Explanation 5A, cannot be read as “due date” as provided in section 139(1). The words “due date” therefore, can also mean date of filing of the return of income under section 139(4).


13. This proposition has been explained by the various High Courts also wherein in the context of sections 54F and 54(2), it has been interpreted that the due date of section 139 can be inferred as due date under section 139(4) also. This proposition has been elaborated in the following decisions:-

i) CIT v/s Rajesh Kumar Jalan, (20061 286 ITR 276 (Gau.). wherein it has been observed and held as under:-

‘From a plain reading of sub-s. (2) of s. 54, it is clear that only s. 139 is mentioned in s. 54(2) in the context that the unutiised portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the income-tax under s. 139. Sec. 139 cannot be meant only as s. 139(1) but it means all sub-sections of s. 139. Under sub-s. (4) of s. 139, any person who has not furnished a return within the time allowed to him under sub-s. (1) of s. 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Such being the situation, it is the case of the assessee that the assessee could fulfill he requirement under s. 54 for exemption of the capital gain from being charged to income-tax on the sale of property used for residence upto 30th March, 1998, inasmuch as the return of income-tax for the asst. yr. 1996-97 could be furnished before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier under sub-s. (4) of s. 139. In the facts and circumstances of the case, the assessee was entitled to claim benefit under s. 54 on the entire amount received by him on account of sale of his house property.

ii) CIT v/s M/s. Jagriti Aggarwal, (20111 339 ITR 610 (P&H), wherein it has been observed and held as under:-

’6. Sec. 54 of the Act contemplates that the capital gain arises from the transfer of a long-term capital asset, but if the assessee within a period of one year before or two years after the date on which the transfer took place purchases residential house, then instead of the capital gain, the income would be charged in terms of provisions of sub-s. (1) of s. 54. As per sub-s. (2), if the amount of capital gains is not appropriated by the assessee towards the purchase of new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under s. 139, the amount shall be deposited by him before furnishing such return not later than due date applicable in the case of assessee for furnishing the return of income under sub-s. (1) of s. 139 in an account in any such bank or institution as may be specified. Relevant sub-s. (2) of S. 54 of the Act reads as under:-

Xxx xxx xxx

7. The question which arises is; whether the return filed by the assessee before the expiry of the year ending with the assessment year is valid under s. 139(4) of the Act?

8. Learned counsel for the Revenue has argued that the assessee wasrequired to file return under sub-s. (1) of s. 139 of the Act in terms of sub-s. (2) of s. 54 of the Act. It is contended that sub-s. (4) is not applicable in respect of the assessee so as to avoid payment of long-term capital gain.

9. On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of Karnataka High Court in Fathima Bal vs. ITO (2009) 32 DTR (Kar) 243 where in somewhat similar circumstances, it has been held that time-limit for deposit under scheme or utilisation can be made before the due date for filing of return under s. 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of Gauhati High Court in CIT vs. Rajesh Kumar Jalan (2006) 206. CTR (Gau) 361 (2006) 286 ITR 274 (Gau).



10. Having heard learned counsel for the parties, we are of the opinion that sub-s. (4) of s. 139 of the Act is, in fact, a proviso to sub-s. (1) of s. 139 of the Act. Sec. 139 of the Act fixes the different dates for filing the returns for different assessee. In the case of assessee as the respondent, it is 31st day of July of the assessment year in terms of cI. (c) of the Expln. 2 to sub-s. (1) of s. 139 of the Act, whereas sub-s. (4) of s. 139 provides for extension in period of due date in certain circumstances. It reads as under: -11. A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub-s (1) i.e., before 31st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year.”

iii) CIT v/s Jagtar Singh Chawla, passed in Income Tax Appeal no.71 of 2012, vide judgment dated 20th March 2013 wherein it has been observed and held as under:-

‘The provisions of Section 54F(4) of the Act are pari-materia with Section 54(2) of the Act. Section 54 deals with the profit on sale of a residential house, whereas Section 54F deals with the transfer of any long term capital assets not being a residential house.

A Division Bench of the Gauhati High Court in a case reported as Commissioner of Income Tax v. Rajesh Kumar Jalan (2006) 286 ITR 274, held that only Section 139 of the Act is mentioned in Section 54(2) of the Act in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income Tax under Section 139 of the Act and that it would include extended period to file return in terms of Sub Section 4 of Section 139 of the Act. It was held as under:-

‘From a plain reading of sub-section (2) of Section 54 of the Income-tax Act, 1961, it is clear that only section 139 of the Income-tax Act, 1961, is mentioned in section 54(2) in the context that the unutilized portion of the capital gain on the sale of property used for residence should be deposited before the date of furnishing the return of the Income-tax under section 139 of the Income-tax Act. Section 139 of the Incometax Act, 1961, cannot be meant only section 139(1), but it means all sub-sections of section 139 of the Income-tax Act, 1961. Under sub­section (4) of section 139 of the Income-tax Act any person who has not furnished a return within the time allowed to him under sub-section (1) of Section 142 may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year whichever is earlier.”


The said judgment was relied upon by a Division Bench of the Karnataka High Court in Fathima Bai v. ITO, ITA No.435 of 2004 Decided on 17th October 2008, wherein it was held to the following effect:-

“11. The extended due date under section 139(4) would be 31.3.1990. The assessee did not file the return within the extended due date, but filed the return on 27.2 .2000. However, the assessee had utilized the entire capital gains by purchase of a house property within the stipulated period of section 54(2) i.e., before the extended due date for return under section 139. The assessee technically may have defaulted in not filing the return under section 139(4). But, however, utilized the capital gains for purchase of property before the extended due date under section 139(4). The contention of the revenue that the deposit in the scheme should have been made before the initial due date and not the extended due date is an untenable contention.”

A Division Bench of this Court in which one of us (Hemant Gupta, J.) was a member, had an occasion to consider the provisions of Section 54(2) of the Act, wherein it has been held that subsection (4) of Section 139 of the Act is in fact a proviso to Section 139(1) of the Act. Therefore, since the assessee has invested the sale proceeds in a residential house within the extended period of limitation, the capital gain is not payable. The judgments in Rajesh Kumar Jalan,s case and Fathima Bai,s case (supra) were referred to. It has been held as under:-

“Having heard learned counsel for the parties, we are of the opinion that sub­section (4) of Section 139 of the Act is, in act, a proviso to sub-section (1) of Section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assesses. In the case of assessee as the respondent, it is 31st day of July, of the Assessment Year in terms of clause (c) of the Explanation 2 to sub-section 1 of Section 139 of the Act, whereas sub-section (4) of Section 139 provides for extension in period of due date in certain circumstances.”

From the propositions laid down by the aforesaid decisions, it is absolutely clear that provisions of section 139(4) is actually the extension of the due date of section 139(1) and, therefore, the due date for filing of the return of income can also be reckoned with the date mentioned in section 139(4).

14. In our considered opinion, once the legislature has not specified the “due date” as provided in section 139(1) in Explanation 5A, then by implication, it has to be taken as the date extended under section 139(4). In view of the above, we hold that the assessee gets the benefit / immunity under clause (b) of Explanation to section 271(1)(c) because the assessee has filed its return of income within the “due date” and, therefore, the penalty levied by the Assessing Officer cannot be sustained on this ground. Even though we are not affirming the findings and the conclusions of the learned Commissioner (Appeals), however, as per the discussion made above, penalty is deleted in view of the interpretation of Explanation 5A to section 271(1)(c). Consequently, the ground raised by the Revenue is treated as dismissed.

15. In the result, Revenue’s appeal is treated as dismissed.

Order pronounced in the open Court on 24th May 2013

No TAN Only PAN for TDS on Purchase of Immovable Property w.e.f. 01 Jun. 2013.


Any person purchasing immovable property (other than rural agricultural land) of Rs. 50 Lac or more is required to deduct Tax @ 1% from the payment made to seller.

Deduct TDS


Deduct Tax @ 1% from the payment made to the seller.
Collect the PAN of the seller and verify the same with the origional PAN Card.

Online filing of statement at www.tin-nsdl.com.
It is mandatory to furnish the PAN of the seller as well as the purchaser while providingthe information regarding the sale transaction in the online form (Form No. 26QB)
Please ansure that there is no error in quoting the PAN or other details in filing online Frm 26QB.
Depositing the tax deducted
Deposit the tax deducted through e-payment only, either at the time of filing of Form 26QB or subsequent to it. e-Payment can be made using electronic payment facility at any aforesaid bank, including self not banking facility.
In case, the payment of tax deducted is make subsequent to the file of Form 26QB, pay tax online electroic payment facility at any aforesaid bank within 7 days after online filing of statement at www.tin-nsdl.com
It' there is a delay beyoind 7 days in payment of tax, statement filed online whould be treated as "Invialid". In that case, Form 26QB, will need to tbe filing again.
Issue of TDS Certificate
Download TDS Certificate from TRACES (www.traces.gov.in).
Buyer of immovable property can download Form 16B after registering on TRACES as Tax Payer.
Responsibility of the Seller of the Immovable Property.
Provide your PAN to the Purchaser for furing information regarding TDS to the Income Tax Department.
Verify deposit of Taxes deducted by the Purchaser in your Form 26AS Annual Tax Statement.
TAN no required
TAN of the deductor is not required for the payment and importing of the TAX deducted under this section and PAN alloted to the deductor shall be used for payment and importing the TDS made under this section.

Whether when assessee receives payments after TDS and such deduction is deposited in Treasury, assessee can still write off such sum as short receipt merely because it did not receive TDS Certificates from payers - NO: ITAT

THE questions before the Bench are - Whether expenditure incurred on issuance of shares is revenue in nature; Whether when the business of the assessee is continuing, merely writing off of the various security deposits made to Electricity Board, Telecom Department and Customs for issuance of import licence in the books is allowable - Whether when the assessee receives certain payments after deduction of tax at source and such deduction is deposited in the Treasury, the assessee can still write off such sum as short receipt merely because it did not receive TDS Certificates from payers. And the verdict goes against the assessee. 
Facts of the case


The assessee incurred expenses of Rs.2,89,898 on account of share issue expenses and claimed deduction for this sum in entirety. On being called upon to explain as to why such expenses should not be partly disallowed, the assessee submitted that in pursuance to the scheme of amalgamation of Gestetner India Limited (GIL) with Ricoh India Limited (RIL) as approved by the Bombay and Calcutta High Courts, one share in GIL was allotted six equity shares to RIL. The said expenditure of Rs.2.89 lakh was claimed to have been incurred on account of issuance of share certificates of RIL to the erstwhile shareholders of GIL. It was, therefore, claimed that the entire expenditure should be allowed as deduction u/s 37(1) of the Act. The Assessing Officer did not accept the assessee’s contention and held that only a sum of Rs.57,980 was deductible u/s 35DD. Resultantly the remaining amount of Rs.2,31,918 was disallowed to be amortized in subsequent four years. No relief was allowed in the first appeal.


Assessment Year 2007-2008


First ground of the appeal is against the confirmation of disallowance of Rs.1,29,855 written off in respect of security deposits not recoverable. The assessee claimed deduction for this amount. The Assessing Officer observed that this deduction was not permissible because the amount was given as deposit to Government towards electricity deposits etc. He, therefore, refused to allow deduction. The CIT(A) upheld the assessment order on this issue.


The third ground is against the confirmation of disallowance of Rs.13,19,872 in respect of tax deducted at source for which TDS certificates were not received from parties. The assessee claimed deduction for this sum on writing off the amount of TDS receivable by contending that it was not in a position to recover the TDS certificate from the parties, who deducted tax at source. It was claimed that this amount was nothing but short recovery of the revenue receipts from the payers. The A.O. refused this claim on the ground that it was nothing but payment of income tax which cannot be allowed as deduction. The CIT(A) approved the action of the A.O.


On appeal, the Tribunal held that,


++ after perusing the relevant material on record, we find that the assessee incurred the expenditure of Rs.2.89 lakh on issuance of shares. By no standard this expenditure can be considered as revenue. Since the Assessing Officer himself has allowed deduction u/s 35DD at the rate of 1/5th of the total expenses, we hold that no further relief can be allowed. This ground is, therefore, not allowed.


++ the second ground is against the confirmation of disallowance of Rs.1,11,918 on account of postal expenses incurred in relation issuance of shares. The assessee claimed expenditure of Rs.1,31,718 as deductible u/s 37(1). The Assessing Officer allowed deduction u/s 35DD at 1/5th of the expense and disallowed the remaining part. The learned CIT(A) confirmed the order on this issue.


++ we have heard the rival submissions. Such postal expenses were incurred in relation to the issue of shares, being the subject matter of ground no.1, which has been dismissed by us above. Following the same view, we approve the impugned order on this score;


Assessment Year 2007-2008


++ after considering the rival submissions and perusing the relevant material on record, we find that detail of such deposits written off is placed at page 78 of the paper book. Major amount is against deposits given to Electricity Board; to Collector of Custom against import clearance; to Indian Oil Corporation against gas cylinders; and to Posts & Telegraphs Department against telephone connections. Except for some minor amounts included in this sum, the larger chunk represents deposits given to the Government Departments / PSUs. On a specific query raised from the Bench, the AR conceded that the business of the assessee-company was continuing. We fail to understand the rationale in claiming deduction for security deposits given during the currency of business to various Government Departments. When the business is going on and the electricity and other facilities as provided against such security deposits are being used, how these Departments can refund the security deposit given at the time of installation of meters or availing the facility. The assessee has written off the said amount by claiming it to be irrecoverable, which in our considered opinion, is not acceptable. One cannot accept that the Government has failed to refund any sum legitimately becoming due to its citizens. When the amount has not become due for refund because of the continuation of business, how the assessee becomes entitled to its refund, is beyond our comprehension. Under such circumstances, we are of the considered opinion that the authorities below were justified in refusing deduction for such amount on a mere write off;


++ the econd ground is against the confirmation of disallowance of Rs.8,59,952 in respect of custom duty drawback not recoverable. Here also the facts are almost similar to the first ground. The assessee wrote off this sum due from Government being duty drawback. No material has been placed on record to show as to how the amount of duty draw back became irrecoverable from Government. Following the view taken hereinabove in respect of ground no.1, we approve the learned CIT(A)’s opinion on this ground as well. This ground is also not allowed;


++ we find that the claim of the assessee is that certain parties made payments to the assessee after deduction of tax at source, but failed to issue TDS certificates and hence the amount of TDS certificates not recovered should be allowed as deduction as business loss. We are not convinced with this submission because the parties, on deduction of tax at source, made the payment to the assessee for the remaining amount and duly deposited tax at source with the treasury. Once the assessee received the net amount and further the amount of TDS certificates also stood deposited in the Government exchequer, the position of the assessee vis-à-vis the parties stands neutralized as nothing remains due from them. In such a situation, there can be no question of incurring any business loss or treating the amount of TDS certificates not received as short receipts. Since this amount represents tax deducted at source by the parties on behalf of the assessee, the same is in the nature of TDS receivable. It is settled position that tax payment is not a charge against but application of income. That is why section 40(a)(ii) clearly provides that any sum paid on account of taxes on the profits or gains of any business or profession, is not deductible. In view of the foregoing reasons, we are of the considered opinion that the authorities below were justified in not allowing deduction for this amount. This ground fails.