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Heightened Onus on Assessee to Prove Genuineness of Share Subscription Money Routed Through Web of Entities

The Hon’ble Mumbai Tribunal in the case of Leena Power Tech Engineers Pvt Ltd[1] has held that the onus (i.e. burden) is on the assessee to prove the ‘bonafides’ or ‘genuineness’ of the share application money credited in the books of accounts. The Tribunal further remarked that it would be superficial approach to examine assessee’s claim only on the basis of documents filed and overlook the unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities.  

Considering the fact that the monies were routed through complex web of entities, which failed to inspire any confidence about the genuineness of the investing company and made it looks like a shell company, the Tribunal upheld the additions made by the Assessing Officer (AO) in the hands of the assessee with respect to the receipt of share application money.

 

Facts – Leena Power Tech Engineer’s Pvt. Ltd.:

In the instant case, the assessee had received share application monies from Rohan Vyapar Private Limited (RVPL) and Manbhawan Commercial Pvt Ltd (MCPL). The equity shares were issued at 900% premium on the face value of Rs 10 each i.e. Rs 90 per share. The assessee had issued 3,78,290 equity shares to RVPL and accordingly received an amount aggregating to Rs 3,78,29,600. Similarly, the assessee had received an amount aggregating to Rs 4,35,00,000 from MCPL.

The case of the assessee was reopened by the Assessing Officer (‘AO’) on the basis of certain information received from the investigation wing which mentioned that the assessee has received share application money from RVPL which was subjected to routing through several layers and ultimately has its source in of huge cash deposits in one of the branches of ICICI Bank.

The transaction flow has been elaborated below for ease of reference.



Assessee’s Contentions: Relevant documentary evidence produced

The Assessee’s contentions have been summarized below:

The assessee contended that it had submitted all the relevant documentary evidence such as details of the subscribers to the share capital, share premium, bank statement, justification of share premium (computed on a scientific basis), share valuation by cash flow method, and ledger confirmation from the subscribers. The assessee further submitted that the Revenue had also issued a notice under section 133(6) of the Income-tax Act, 1961 (Act) which was duly replied along with the details of the transaction with the assessee, ledger account, return of income, audited balance sheet, etc. and accordingly it was contended that the assessee had discharged its initial onus cast upon it and now it is for the revenue authorities to prove otherwise.

It was further contended that the proviso to section 68[2] of the Act inserted with effect from 1 April 2013 cannot have retrospective operation. In this regard, reliance was placed on the ruling of Hon’ble jurisdictional High Court in the case of Gagandeep Infrastructure Pvt Ltd[3].

The Assessee further contended that the companies from which the assessee had received the share subscriptions were companies with proper net-worth and these companies were properly assessed to tax and have not been declared as shell companies by the Government or any official body and just because five levels below these companies, there are cash deposits in some bank accounts, the receipts cannot be rejected as lacking bonafide.

Accordingly, it was contended that the entries in the books of accounts of the companies subscribing to the shares cannot be brought to tax in the hands of the assessee.

Revenue’s Contentions: Assessee has failed to prove ‘Bonafides’

The primary contention of the Revenue was that the assessee has failed to prove the ‘bonafides’ of the share application money. Further, the Revenue further contended that the surrounding circumstance of the transaction clearly demonstrates that the transaction is not bonafide and the assessee is a beneficiary of a sophisticated money-laundering racket wherein the money is routed through multiple layering of accounts to the accounts of entities subscribing to the share capital of the assessee.

The Revenue further contended that it was the responsibility of the assessee to show the genuineness of the share application money received and merely producing PAN, income-tax returns, and financial statements of the subscriber do not prove that the transaction is bonafide. It was pointed out that there were hardly any overnight balances in the bank accounts of the companies subscribing to the shares of the assessee company, and all this indicates that these companies are merely conduit companies.

Issue Before the Tribunal:

The question which arose before the Tribunal was whether the learned Commissioner of Income-tax (Appeals) was justified in deleting the addition of Rs 8,13,29,600 as unexplained credit under section 68 of the Act in the hands of the assessee.

Mumbai Tribunal’s Ruling:

The Mumbai Tribunal observed and held as under:

At the outset, the Tribunal observed that there cannot be any dispute on the fundamental legal position that the onus is on the assessee to prove ‘bonafides’ or ‘genuineness’ of the share application money credited in the books of accounts and to prove the nature and source on the money to the satisfaction of the assessing officer.

The Tribunal placed reliance on the cases of Youth Construction Pvt Ltd[4], United Commercial and Industrial Co (P.) Ltd[5] & Precision Finance (P.) Ltd[6] and noted the kind of explanations which assessee is expected to provide:

  1. proof regarding the identity of the share applicants;
  2. their creditworthiness to purchase the shares; and
  3. genuineness of the transaction as a whole.

The Tribunal remarked that the onus of the assessee of explaining nature and source of credit does not get discharged merely by filing confirmatory letters, or demonstrating that the transactions are done through the banking channels, or even by filing the income tax assessment particulars.

The Tribunal further went on to add that, being a final fact-finding authority, it cannot be superficial in its assessment of the genuineness of a transaction and this call has to be taken not only in the light of the face value of the documents presented before the Tribunal but also in the light of all the surrounding circumstances, the preponderance of human probabilities and ground realities. The Tribunal placed reliance on the case of Durga Prasad More[7] wherein it was held that “If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not real. There may be a difference in subjective perception on such issues, on the same set of facts, but that cannot be a reason enough for the fact-finding authorities to avoid taking subjective calls on these aspects and remain confined to the findings on the basis of irrefutable evidence.”

The Tribunal further analyzed the financial statements of RVPL and observed that RVPL has earned only an interest income of Rs 1.13 lakhs and has not carried out any substantial activity during the relevant period. Further, the Tribunal found it difficult to believe that company handling investments in excess of Rs 10 crores and making such aggressive investments as buying shares for Rs 3.78 crores, at a huge premium of nine times the face value of shares, in the private limited and wholly unconnected companies, without any management control, will operate in such a modest manner. This defies logic and such transactions do not take place in the real-life world. The Tribunal also examined the bank account of RVPL and noted that there are series of transactions that do not inspire any confidence about the genuineness of the investing company but make it looks like a shell company acting as a conduit.

The Tribunal also observed that the entities involved in the transaction only provide different layers to the transaction and de facto hide the true investor. The assessee was also unaware of the actual beneficial investor in his company.

Additionally, the Tribunal examined, in detail, the valuation carried out by the assessee on the basis of Discounted Cash Flow (DCF) method and rejected the same thereby holding that the share premium at which the shares are issued is wholly unrealistic.   

A similar analysis was also carried out by the Tribunal with respect to another investor ‘MCPL’.

In light of the above facts and circumstances, the Tribunal rejected the assessee’s contention and held that the transactions under consideration are not ‘bonafide’ and accordingly restored the additions made by the AO.

Our Observation:

The order of the Mumbai Tribunal has, indeed, widened the scope of ‘onus’ placed on the assessee to prove the genuineness of a particular transaction. Such ‘onus’ will not be deemed to be discharged by merely filing the documents before the tax authorities, but the assessee would have to go one step further to justify the rationale of such transactions in order to prove that the transaction has not been entered as a colorable device to defraud the Revenue. The judgment further emphasizes taking a holistic view of the matter based on the surrounding circumstances rather than just relying upon the documentary evidence. Having said this, one has to keep in mind that documentary evidence will always be the primary source of substantiation of a particular transaction.

Going forward, it would be interesting to see the repercussions of this judgment and whether the other Tribunal and lower tax authorities would adopt a similar path and undertake a holistic view of the matter in order to differentiate between the apparent and the real.’

References

[1] [TS-883-ITAT-2021(Mum)]

[2] It provides that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory.

 

[3] (2017) 80 taxmann.com 172 (Bom)

[4] [(2013) 357 ITR 197 (Del)]

[5] [1991] 187 ITR 596 (Cal)]

[6] [1994] 208 ITR 465 (Cal)]

[7] 1971) 82 ITR 540 (SC)

 

 

Image Credits: Photo by Nataliya Vaitkevich from Pexels

The order of the Mumbai Tribunal has, indeed, widened the scope of ‘onus’ placed on the assessee to prove the genuineness of a particular transaction. Such ‘onus’ will not be deemed to be discharged by merely filing the documents before the tax authorities, but the assessee would have to go one step further to justify the rationale of such transactions in order to prove that the transaction has not been entered as a colorable device to defraud the Revenue.

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45th GST Council Meeting: Sectoral Highlights

The 45th GST Council meeting held in Lucknow on 17th September 2021 saw quite a few revisions in GST rates, clarifications, extensions of timelines for concessional rates as well as extension of exemption. Apart from that the council recommended other trade facilitation measures and conducted pertinent discussion on anomalies in revenue stream arising out of earlier rounds of rate rationalisation and inclusion of petrol and diesels within the ambit of GST. Following is a sectoral analysis of changes recommended by the GST Council:  

Changes in the GST rates and clarifications  issued in the 45th GST Council Meeting:

 

A. Pharmaceutical Sector

Extension of existing concessional rates 

GST exemption on Amphotericin B and Tocilizumab has been extended from September 30, 2021, to December 31, 2021. 

 

Reduced rate of GST @5% available to COVID-19 medicines including Remdesivir, Heparin, 2-Deoxy-D-Glucosemade and monoclonal antibodies like Casirivimab and Imdevimab has been extended from September 30, 2021, to December 31, 2021 

 

Reduction in GST rates from 12% to 5%, till December 31,2021 
  • Pembrolizumab, sold under the brand name Keytruda used as an antibody in cancer immunotherapy to treat lung, stomach, head, and neck cancer. 
  • Itolizumab, an antibody used for patients with COVID-19. 
  • Posaconazole an antifungal agent. 
  • Infliximab used in treatment of arthritis. 
  • Favipiravir, Bamlanivimab & Etesevima used for COVID-19 treatment. 
GST Rate reduced to Nil 
Import of Infliximab, Zolgensma and Viltepso used in treating arthritis and Spinal-Muscular Atrophy, are exempted from Basic Customs Duty but attracts Integrated Goods and Services Tax [IGST] @12%. The GST Council has recommended reducing the IGST rate to Nil 
Clarification 
All laboratory reagents, falling under heading 3822, to attract GST @12%. 

B. Mid-Day Meal Services  

Reduction in GST rates  

To reduce the cost of serving food in Anganwadi under the Integrated Child Development Services Scheme and Mid-Day Meals Schemes, the GST Council has recommended reduction in GST on Fortified Rice Kernels classifiable under HSN 19049090, from 18% to 5%.  

C. Skill Training  

Reduction in GST rates  

Notification No.12/2017-Central Tax (Rate) dated June 28, 2017, provides for Nil rate of GST on skill training if 100% funded by the Government. The GST Council has recommended to extend this exemption to skill training for which the Government bears 75% or more of the expenditure.  

 

 

D. Oil and Gas Sector  

GST on Petrol & Diesel  

In response to the direction of the Kerala High Court, based on a writ petition to decide levy of GST on petrol and diesel, the member states of the GST Council have unanimously rejected the proposal and opted not to include petroleum products under the GST regime at this stage. 

 

Reduction in GST rates  

GST on biodiesel supplied to oil marketing companies (OMCs) for blending with diesel reduced from 12% to 5%. 

 

Trade Facilitation Measure 

The Director-General of Hydrocarbons (DGH) is empowered to issue an Essentiality Certificate to Exploration & Production (E&P) operators to undertake E&P operations in India. Based on the said certificate, E&P operators avail exemption from customs duty on goods imported for E&P operations. The said certificate is applied online. Under the Goods and Service Tax Regime, stock transfers are taxable. However, stock transfers by E&P operators stand exempted provided operators have NOC from the DGH. Operators apply for NOC through filing a physical application. To ease trade operations in the E&P sector, the GST Council recommends waiving the NOC requirement making the essentiality certificate an eligible document to undertake stock transfers without payment of tax. 

 

 

E. Metal & Mining Sector  

Increase in GST  

GST on ores and concentrates of metals classified under Chapter 26 of the Customs Tariff Act, 1975 under tariff heading 2601, i.e., iron, under tariff heading 2608, i.e., zinc, under tariff heading 2603, i.e., copper, under tariff heading 2606, i.e., aluminium, increased from 5% to 18%. 

 

Clarification 

It is clarified that services by way of grant of mineral exploration and mining rights attract GST rate of 18% w.e.f. 01.07.2017. 

 

 

F. Infrastructure and Construction Sector 

Increase in GST 
  • GST on supply of bricks increased from 5% to 12%.  
  • Composition scheme has been extended to brick kilns with effect from April 01, 2022. The dealers opting for the composition scheme will pay GST@6% on supply of bricks. Dealers not opting for composition scheme will have to pay GST @12% with input tax credit facility. 

 

GST has been increased from 12% to 18% on – 

  • Railway or tramway locomotives, rolling stock and parts thereof 
  • Railway or tramway track fixtures and fittings and parts thereof  

 

 

G. Renewable Energy Sector 

Increase in GST rates  

GST rate increased from 5% to 12% on specified renewable energy devices and parts classified under Chapter 84, 85 or 94 of the Customs Tariff Act, 1975. 

 

Clarification 

GST on setting up of a renewable energy system clarified. On December 31, 2018, the Government, through a Notification (27/2018), amended the law providing that if renewable energy devices were supplied along with a supply of other goods and taxable services towards setting up, then 70% of the gross consideration is to be deemed as ‘value of supply of goods’ attracting GST of 5% and the remaining 30 % shall be ‘value of services’ attracting GST @18%. GST Council clarifies that on specified Renewable Energy Projects, GST can be paid in terms of 70:30 ratio respectively for goods and services from July 01, 2017 to December 31, 2018 following the manner prescribed for the period on or after January 01, 2019. 

 

 

H. Food Sector 

 

Levy of GST  

Purchase of Mentha Oil [Peppermint Oil] from unregistered suppliers to attract GST @12% under reverse charge mechanism. 

 

Food Aggregators like Swiggy and Zomato, providing restaurant services, to collect GST @5% [w.e.f. January 01, 2022]. 

 

Clarification 

GST Council clarifies that Brewers’ Spent Grain (BSG), Dried Distillers’ Grains with Soluble (DDGS) and other such residues, are to be classified under heading 2303, which reads for “Residues of starch manufacture and similar residues, beet-pulp, bagasse and other waste of sugar manufacture, brewing or distilling dregs and waste, whether or not in the form of pellets” and shall attract GST @5%. 

 

It is clarified that scented sweet supari and flavoured and coated illachi fall under heading 2106, which reads for “food preparations not elsewhere specified or included (other than a roasted gram), sweetmeats, batters including idli/dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, khakhra, chutney powder, diabetic foods” and attract GST @ 18%.  

 

Under the current tax structure, aerated drinks are classified under sub-heading 220210 attracting GST @28% plus a compensation cess of 12% and non-aerated drinks (including fruit juice-based drinks) are classified under sub-heading 22029920, attracting GST of 12% and sub-heading 22029100 [Other non-alcoholic beverages (other than tender coconut water and caffeinated beverages)] attracting GST @18%. GST Council clarified that “Carbonated Fruit Beverages of Fruit Drink” and “Carbonated Beverages with Fruit Juice” to attracts GST@ 28% with Cess of 12%. 

 

Tamarind seeds fall under heading 1209 of the Customs Tariff Act, 1975, which reads for “Seeds, fruit and spores, of a kind used for sowing” will attract Nil rate of GST, irrespective of its use.  

 

GST Council clarified that cloud kitchens/central kitchens are covered under ‘restaurant service’ and attract GST @5%, without input tax credit. 

 

Supply of Ice creams by Ice Cream parlour to attract GST @18%.  

 

Alcoholic liquor for human consumption is not classifiable as food and food products. 

 

 

I. Entertainment Sector  

Increase in GST  

GST Council recommends increasing GST on licensing services/ right to broadcast and show original films, sound recordings, and radio and television programmes from 12% to 18%.  

 

GST on services by way of printing and reproduction services of recorded media where content is supplied by the publisher (to bring it on parity with colour printing of images from film or digital media) classifiable under Service Accounting Code 9989, which reads for “Services by way of printing of all goods falling under Chapter 48 or 49 including newspapers, books (including Braille books), journals and periodicals], which attract CGST @6 % or @2.5% or Nil, where only content is supplied by the publisher and the physical inputs including paper used for printing belong to the printer” is increased from 12% to 18%.  

 

Clarification  

It is clarified that admission to amusement parks having rides etc. attracts GST @18% classifiable under Service Accounting Code 9996, which reads for “services by way of admission to amusement parks including theme parks, water parks, joy rides, merry-go-rounds, go-carting and ballet and not classifiable as services by way of admission to entertainment events or access to amusement facilities including casinos, race club, any sporting event such as Indian Premier League attracting GST @28%  

 

 

 

J. Mobility Sector  

 

Extension of existing concessional GST rates 

The 25th GST Council Meeting, held in New Delhi on January 18, 2018, proposed that the transportation of goods from India to outside India be exempted from GST until September 30, 2018. Accordingly, vide Notification No.2/2018 – Integrated Tax (Rate), dated January 25, 2018, the Central Government amended Notification No. 9/2017 – Integrated Tax (Rate), dated June 28, 2017, exempting services of transportation of goods by air and sea from India to outside India from IGST until September 30, 2018. This exemption was subsequently extended till September 2021.  

 

Now, the 45th GST Council meeting has decided to extend the above exemption up to September 09, 2022. 

 

GST on E-Commerce Operators  

Service by way of E-Commerce Operators i.e., Ola & Uber, are being made liable to pay tax on transport of passengers [w.e.f. January 01, 2022]. 

 

Reduction in GST  

The GST Council recommends that GST on services by way of grant of National Permit to goods carriages on payment of fee be redeuced from 18% to Nil. 

 

GST on Retro fitment kits for vehicles used by the physically disabled currently taxed @28% as normal vehicle as Tariff Item 87112019 reduced to 5%.  

 

Clarifications 

The GST Council recommends exempting overloading charges at toll plazas, being akin to toll. 

 

The GST Council clarified that the service of ‘giving on hire’ classifiable under Service Accounting Code 9966, which reads for, “Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (aa) to a local authority, an Electrically operated vehicle meant to carry more than twelve passengers; or Explanation.- For the purposes of this entry, “Electrically operated vehicle” means vehicle falling under Chapter 87 in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) which is run solely on electrical energy derived from an external source or from one or more electrical batteries fitted to such road vehicle. (b) to a goods transport agency, a means of transportation of goods. (c) motor vehicle for transport of students, faculty and staff, to a person providing services of transportation of students, faculty and staff to an educational institution providing services by way of pre-school education and education upto higher secondary school or equivalent” in addition to “Services by way of giving on hire – (a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or (aa) to a local authority, an electrically operated vehicle meant to carry more than twelve passengers” shall also include the supply of renting of vehicle by the State Transport Undertakings and Local Authorities and it would qualify for exemption from GST. 

 

 

Other trade facilitation measures taken up in the 45th GST Council Meeting:

 

Sending Goods for Job Work  

GST Law requires a registered manufacturer to file a declaration in Form GST ITC-04 on supplying goods for job work. It is filed once every quarter if the manufacturer sends inputs or capital goods on job work and receives it back or sends inputs or capital goods to another job worker. Requirement of filing FORM GST ITC-04 under Rule 45 (3) of the CGST Rules, 2017 has been relaxed to provide that taxpayer whose annual aggregate turnover in preceding financial year is above Rs.5 crores shall furnish ITC-04 once in six months whereas taxpayer with annual aggregate turnover of up to Rs.5 crores in preceding financial year to furnish ITC-04 annually. 

 

Transfer of cash ledge balance between distinct persons 

GST Council recommends allowing transfer of unutilized balance in CGST and IGST cash ledgers between entities having common PAN but registered in different states without going through the refund procedure. Presently, if a taxpayer has any cash balance unutilized due to TCS, TDS or excess deposit, they have to avail refund and cannot adjust such excess with GST liability arising in other states owing to ‘additional place of businesses’. The relaxation will ease the working capital requirements for the entities operating in multiple states. 

 

Issue of Tax Invoice 

In cases where an e-invoice is generated by the registered person under Rule 48(4) of the CGST Rules, 2017 [manner of issuance of tax invoice], it is proposed to waive off the requirement of carrying the physical copy of the tax invoice. 

 

Other clarifications  issued in the 45th GST Council Meeting:                                             

 

Clarification regarding debit note to avail Input Tax Credit   

Sub-section 4 of Section 16 provides that a registered person shall not be entitled to take the input tax credit in respect of any invoice or debit note for the supply of goods or services or both after the due date of furnishing of the return under Section 39 of the CGST Act following the end of the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier. It is clarified that, w.e.f. January 01, 2021, the date of issuance of debit note (and not the date of underlying invoice) shall determine the relevant financial year for the purpose of Section 16(4) of the CGST Act, 2017.  

 

Interpretation of the term “merely establishment of a distinct person”  

 

The GST Council has clarified that a person incorporated in India under the Companies Act, 2013, and a person incorporated under the laws of any other country shall be treated as separate legal entities and supplies of services between the two will not be barred by Section 2(6)(v) of the IGST Act, 2017, and will be considered as ‘export’. 

 

Streamlining of GST compliance processes 

  • Aadhaar authentication to be made mandatory for filing refund claim and application for revocation of cancellation of registration.
  • A registered person shall not be allowed to furnish FORM GSTR-1 in case of non-filing of FORM GSTR-3B for the preceding month and late fee for delayed filing of FORM GSTR-1 to be auto-populated and be collected in FORM GSTR-3B for the succeeding month. This will be effective from 1st January 2022.

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Image by <a href=”https://pixabay.com/users/photomix-company-1546875/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=5610295″>Photo Mix</a> from <a href=”https://pixabay.com/?utm_source=link-attribution&amp;utm_medium=referral&amp;utm_campaign=image&amp;utm_content=5610295″>Pixabay</a>

The 45th GST Council meeting held in Lucknow on 17th September 2021 saw quite a few revisions in GST rates, clarifications, extensions of timelines for concessional rates as well as extension of exemption. Apart from that the agenda included other trade facilitation measures, pertinent discussion on anomalies in revenue stream arising out of earlier rounds of rate rationalisation and inclusion of petrol and diesels within the ambit of GST.

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Income Tax Due Date Extension: Return of income and Various Audit Reports

In view of the difficulties faced by the taxpayers and other stakeholders in e-filing of Return of Income (‘ROI’) and various audit reports for the Assessment Year (AY) 2021-22, the Central Board of Direct Taxes (‘CBDT’), vide Circular No. 17/ 2021 dated 9 September 2021, has notified the income tax due date extension for filing of return and various audit reports. The same have been summarized as under:

Income tax due date extension and relaxation for filing of return and various audit reports under the Income-tax Act, 1961:

Sr No

Compliance (AY 2021-22)

Original Due Date

Existing Due Date[1]

Extended Due Date[2]

1

ROI due date for taxpayers (such as individuals, firms, etc. not liable to audit)

31 July 2021

30 September 2021

31 December 2022

2

Furnishing of various audit reports (such as tax audit report u/s 44AB of the Act)

30 September 2021

31 October 2021

15 January 2022

3

Furnishing of transfer pricing report with respect to international / specified domestic transactions under section 92E of the Act

31 October 2021

30 November 2021

31 January 2022

4

ROI due date for taxpayers who are required to get their accounts audited under the Act or any other law for the time being in force (excluding taxpayers covered under Sr. No. 5 below)

31 October 2021

30 November 2021

15 February 2022

5

ROI due date for taxpayers who are required to furnish transfer pricing report under section 92E of the Act

30 November 2021

31 December 2021

28 February 2022

6

Belated / Revised ROI

31 December 2021

31 January 2022

31 March 2022

 

 

Clarification on interest calculation following the Income Tax due date extension:  

It is pertinent to note that, although, the due date for furnishing the ROI have been extended, however, the extended due date shall not be applicable for the purpose of computing interest under section 234A of the Act in a scenario where the payment of self-assessment tax exceeds INR 1,00,000.  

It is further clarified that, in case of a resident senior citizen not having any income chargeable to tax under the head business or profession, the tax paid till the original due date of filing of ROI shall be treated as an advance tax and accordingly no interest shall be chargeable on such amount.

 

Reason for the Income Tax due date extension:

The CBDT has launched the new income tax e-filing portal on 7 June 2021. However, since its launch, the taxpayers are facing various technical glitches in filing of various forms, certificates, and reports on this portal. In view of the difficulties faced, the ‘Finance Minister’ has given a deadline of 15 September 2021 to Infosys to resolve all the technical glitches such that taxpayers and professionals can work seamlessly on the portal. However, even if the technical glitches are resolved within the said date, it would leave a very short period for the taxpayers/professionals to file the return of income and audit reports on the portal.

Thus, the CBDT acknowledged the hardship caused to the various taxpayers and other stakeholders and accordingly extended the various dues dates with respect to filing of return of income and various audit reports under the Act. This, indeed, is a welcome move and provides much needed relief to the taxpayers.

Prior to this, the CBDT had issued Circular No. 16/ 2021, dated 29 August 2021, and extended the due dates w.r.t various other direct tax compliances.  

 

References:

[1] Circular No. 9/2021 dated 20 May 2021

[2] Circular No 17/2021 dated 9 September 2021 and press release dated 9 September 2021

Image Credits:

Photo by freestocks on Unsplash

The CBDT acknowledged the hardship caused to the various taxpayers and other stakeholders and accordingly extended the various dues dates with respect to filing of return of income and various audit reports under the Act. This, indeed, is a welcome move and provides much needed relief to the taxpayers.

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Extensions Granted for e-Filing of Various Tax Forms

In view of the difficulties faced by the taxpayers and other stakeholders in electronic filing of various forms, resulting in hardship and difficulty vis-à-vis complying with various due dates under the Income tax Act, 1961 (‘the Act’), the Central Board of Direct Taxes (‘CBDT’), vide Circular No. 16/ 2021, dated 29 August 2021, has extended the due dates w.r.t various direct tax compliances. The same have been summarized as under:

Relaxation and extension of time limits for electronic filing of various forms under the Income-tax Act, 1961

Sr NoCompliance ParticularsOriginal Due DateExtended Due Date[1]
1

Application for registration or intimation or approval under Sections 10(23C), 12A, 35(1)(ii)/(iia)/(iii) or 80G of the Act in Form No. 10A

30 June 202131 March 2022
2

Application for registration or approval under Sections 10(23C), 12A or 80G of the Act in Form No. 10AB

28 February 202231 March 2022
3

Equalization Levy Statement in Form 1 for Financial Year 2020-21

30 June 202131 December 2021
4

Quarterly Statement in Form 15CC to be furnished by Authorized Dealer in respect of foreign remittances made for the quarter ended 30th June 2021

15 July 202130 November 2021
5

Quarterly Statement in Form 15CC to be furnished by Authorized Dealer in respect of foreign remittances made for quarter ending on 30th September 2021

15 October 202131 December 2021
6

Uploading declaration received from recipients in Form No 15G / 15H for quarter ended 30th June 2021

15 July 202130 November 2021
7

Uploading declaration received from recipients in Form No 15G / 15H for quarter ending on 30th September 2021

15 October 202131 December 2021
8

Intimation by Sovereign Wealth Fund in respect of investments made by it in India in Form II SWF for the quarter ended 30th June 2021

31 July 2021

30 November 2021

9

Intimation by Sovereign Wealth Fund in respect of investments made by it in India in Form II SWF for the quarter ending on 30th September 2021

31 October 202131 December 2021
10

Intimation by a Pension Fund in respect of investment made by it in India in Form No. 10BBB for the quarter ended 30th June 2021

31 July 2021

30 November 2021

11

Intimation by a Pension Fund in respect of investment made by it in India in Form No. 10BBB for the quarter ending on 30th September 2021

31 October 202131 December 2021
12

Intimation, in Form 3CEAC, by a constituent entity (resident in India) of an international group, the parent entity of which is not resident in India

30 November 202131 December 2021
13

Reporting in Form 3CEAD by a parent entity or an alternate reporting entity or any other constituent entity, resident in India

30 November 202131 December 2021
14

Intimation on behalf of an international group under proviso to section 286(4) in Form No. 3CEAE

30 November 202131 December 2021

Further, considering the difficulties being faced in issuing and amending Form No 3, which is a prerequisite for making payment by the declarant under Vivad se Vishwas Act, 2020 (‘VSV Act’), the CBDT, vide Notification No. 94/2021[2] dated 31 August 2021, has also extended the last date of payment (without any additional amount) under VsV Act from 31 August 2021 to 30 September 2021.

However, it is further clarified that there is no change in the last date for payment of the amount (with additional amount), which remains as 31 October 2021.

References:

[1] Circular No 16/2021 dated 29 August 2021 and Press Release dated 29 August 2021

[2] Notification No. 94/2021F.No.IT(A)/01/2020-TPL (Part-I)-(Part- I) dated 31 August 2021 and Press Release dated 29 August 2021

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Photo by Nataliya Vaitkevich from Pexels

The CBDT, vide Notification No. 94/2021 dated 31 August 2021, has also extended the last date of payment (without any additional amount) under the Vivad se Vishwas Act from 31 August 2021 to 30 September 2021.

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Income Tax Relief for Developers and Residential Home Buyers To Boost Real Estate Sector

In a bid to provide an additional boost to the economy, as well as the home buyers, the Union Finance Minister – Nirmala Sitharaman, has announced a new stimulus package under Atma Nirbhar Bharat 3.0, on November 12, 2020.  As per the announcement, the acceptable difference between the ‘circle rate’ and the ‘agreement value’ for residential properties has been hiked from the existing 10% to 20%. The tax sop announced is expected to provide relief both to Developers as well as to Buyers, on the notional gains on which income tax is paid by them. The relief, which has been made effective from November 12, 2020, and will be applicable until June 30, 2021, is applicable only on the primary purchase of residential unit of value up to Rs. 2 crores.

What is Circle Rate?

 

Circle rate is the minimum rate per square foot for land or property fixed by the Government. State governments publish area-wise rates of properties, on a yearly basis, known as ‘Circle Rates’ or ‘Ready Reckoner’ rates or ‘Guideline Values’. Any difference between the Circle rate and the Agreement value beyond the acceptable rate [i.e. 10%, now increased to 20%], is taxed as “income from other sources” u/s. 56(2)(x) of the Income-tax Act 1961 (“the Act”). Accordingly, a Buyer of such property would be required to pay tax on the difference, at the applicable slab rates. Further, in the case of a Developer, under the provisions of section 43CA of the Act, the ‘sale consideration’ of such a property is deemed to be the Circle rate for the purposes of computing profits & gains.

 

 

How this will benefit?

Assume that a Buyer is buying a residential property from a Developer for a sum of Rs. 1 crore. The Circle rate value of the property is Rs. 1.2 crore. Prior to the relaxation, as the difference between the Circle rate value and Agreement value exceeded 10%, the Developer was required to consider Rs. 1.2 crore as his Sale consideration u/s. 43CA of the Act for the purpose of calculating his Profit & Gains from Business & Profession.

 

Similarly, since the difference between the Circle rate value and Agreement value exceeded 10%, the Buyer was required to show the difference between the Circle rate value and Sale consideration of Rs. 20 lacs (1.2 crore Less 1 crore) as deemed income under the head “Income from other sources” u/s. 56(2)(x) of the Act and pay tax on the same at the applicable rate.

 

The stimulus package announced provides relief by increasing the acceptable difference between the Circle rate and Agreement value from 10 % to 20 %, providing much-needed relief, both to the Buyer as well as to the Developer, during the current pandemic times.

 

The above tax sop is available only on purchase of new residential property from the Developer of value up to Rs. 2 crores and is not applicable on the resale of property. Also, the said benefit is not extended to the sale of commercial property. Nevertheless, the stimulus is expected to help Developers to clear unsold stock and generate liquidity for their other projects.

Image Credits: Nataliya Vaitkevich from Pexels

The stimulus package announced provides relief by increasing the acceptable difference between the Circle rate and Agreement value from 10 % to 20 %, providing much-needed relief, both to the Buyer as well as to the Developer, during the current pandemic times.

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