Mazars Tax Update | Edition 21.20

Direct Tax News

One-time relaxation to taxpayers for verifications of returns for the AY 2015-16 to AY 2019-20

The Central Board of Direct Taxes (CBDT) noticed that a large number of electronically filed ITRs still remain pending with the IT Department for want of receipt of a valid ITR-V (Verification) form at Centralised Processing Centre (CPC), Bengaluru from the taxpayers. Non-filing of ITR-V within time can lead to returns being declared as 'invalid'.

In order to provide relief to filers, the CBDT issued circular dated 13/07/2020 and granted one-time relaxation to IT Return’s filed online for which verification was pending due to non-filing of ITRV form for the Assessment years 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20.
Now, the taxpayers can verify said ITRs on or before 30/09/2020 either through EVC mode or by sending duly signed hard copy to CPC Bangalore. However, proceeding if any, started against taxpayers for non filing of ITR, the benefit of relaxation cannot be availed.  All such verified ITRs shall be processed on or before 31/12/2020.

TDS on cash withdrawals above Rs. 20 Lakhs

The CBDT observed that a huge amount of cash is being withdrawn by the persons who have never filed ITRs. To regulate and check such transactions, TDS u/s 194N was introduced through Finance Bill, 2019.
As per the said section, the payer will have to deduct TDS at the rate of: 

CBDT amended Form 26AS – to include major financial transactions

The Form 26AS earlier used to provide limited information related to TDS and TCS, taxes paid etc. Further, the income tax department used to get the details of high value transaction which included cash deposit and withdrawal from saving bank accounts, sale and purchase of immovable property, time deposits, credit card payments, purchase of shares, debentures, foreign currency, mutual funds, buy back of shares, cash payment for goods and services as per the Income-Tax.

Now the amended form 26AS will include fields such as type of transaction, name of financial transaction filer, date of transaction, single or joint party transaction, number of parties, amount, mode of payment and remarks etc.
This will help in reducing the litigations as genuine taxpayers will not miss filing any transaction in their ITRs. Besides, it will help in finding the defaulters who does not disclose the complete details on in the ITR.

Judicial Pronouncements

Certificate Under Section 65B(4) Evidence Act is a Condition Precedent to the Admissibility of Electronic Evidence: Supreme Court

The Hon’ble Supreme Court vide its judgement dated 14 July 2020 in the case of Arjun Pandit Rao Khokhar Vs Kailash Kushan Rao Gorantyal & Ors held that Certificate Under Section 65B(4) Evidence Act is a Condition Precedent to the Admissibility of Electronic Evidence.

The bench also clarified that the required certificate under Section 65B(4) is unnecessary if the original document itself is produced.
The bench maintained that if a person can step in the witness box with the original device, such as a laptop or a phone, there is no pre-requisite of a certificate under Section 65B(4) of the Act. About such evidence being stored in a network or in a severe that cannot be produced in a court, the bench said that the certificate will be required in those cases.

Burden of proving Foreign taxpayer has a PE in India to levy Income Tax is on the Dept

The Income Tax Appellate Tribunal (ITAT), Delhi vide its order dated 06 July /2020 in the case of DDIT, Circle 2(2) Vs M/s Yum! Restaurants (Asia) Pte. Ltd. (company incorporated in Singapore), held that burden of proving that foreign taxpayer has a Permanent Establishment in India is on the Revenue.
 
The taxpayer, M/s. Yum! Restaurants (Asia) Pte. Ltd. is a company incorporated in Singapore, which is engaged in the business of franchising KFC, Pizza Hut, and Taco Bell brands for a number of territories in the Asia Pacific region (including India).
For the operation of restaurant outlets, the taxpayer entered into Technology License Agreement (TLA) for the license of “Technology” and “System” with Yum! Restaurants (India) Private Limited (YRIPL). YRIPL had appointed various franchisees for operating of KFC and Pizza Hut. YRIPL also operated the company-owned KFC restaurants in India. The taxpayer used to get royalty from the Indian stores. Which was duly offered to tax in India as per DTAA.
The taxpayer has seconded some employee in YRIPL whose salary used to be reimbursed by YRIPL to the taxpayer. As per the Assessing Officer the said reimbursement of salary is taxable in hands of the taxpayer treating it as Fee for Technical Services. The CIT(A) after going through the clauses of the Deputation Agreement concluded that he was not the employee of the taxpayer and hence there was no right/lien over his employment and hence, there was no service PE. The Hon’ble ITAT relying on the order of the CIT(A) and the judicial pronouncements, dismissed the appeal of the revenue.

Provisions of Deemed Valid Notice not applicable to Legal Representatives: Delhi HC quashes Notice issued to Dead Person

The Delhi High Court, while quashing the notice issued to the dead person under Section 148 of the Income Tax Act, 1961, held that the provisions of section 292BB of the Income Tax Act, 1961 prescribing the conditions for assuming a notice as valid is applicable on the taxpayer only and not to legal representatives. Information was received that taxpayer had cash deposits of Rs. 10,00,000 in his bank account, time deposits of Rs. 11,05,586 and receipts of Rs. 25,414 as per Form 26AS.
Based on the reasons to believe, case of the taxpayer was selected for scrutiny under Section 147 and 148 of the IT Act 1961. However, taxpayer had already deceased on 21 December 2018 and survived by two sons and two daughters.
The Notice dated March 21, 2019, under Section 148 of the Act 1961 for was issued, i.e. on the last date of limitation, in the name of deceased taxpayer. The division bench of Justices Manmohan and Sajeev Narula held that the issuance of a notice under Section 148 of the Act is the foundation for the reopening of an assessment. Consequently, the sine qua non for acquiring jurisdiction to reopen an assessment is that such notice should be issued in the name of the correct person.
This requirement of issuing notice to a correct person and not to a dead person is not merely a procedural requirement but is a condition precedent to the impugned notice being valid in law. “As in the present case the proceedings were not initiated or pending against the taxpayer when he was alive and after his death, the legal representative did not step into the shoes of the deceased taxpayer, Section 198 of the IT Act, 1961, does not apply in the present case,” the bench noted.
“The impugned notice dated 31st March 2019 and all consequential orders/proceedings passed/initiated thereto including orders dated 21st November 2019 and 27th December 2019 is quashed,” the bench said.

ITAT Ahmedabad held that only profit portion can be added as income in case of cash deposits from the unknown business

M/s. Vijay H. Lilawala, Surat Vs. ITO- ITA 2044/AHD/2016

Where the taxpayer explains that the cash deposits in bank represents business of taxpayers, however, no details of such business are furnished by the taxpayers, the entire transaction appearing the bank account cannot be added instead only the profit embedded therein is to be added. Here in the case, the profits declared by the taxpayer were more than the peak credit in bank and therefore addition made was deleted. [Referred case: CIT vs. Pradeep Shantilal Patel (42 taxmann.com 2)]