Mazars Tax Update | Edition 24.20

Direct Tax News

The Supreme Court admits Income Tax Department’s appeal challenging Income Tax Settlement Commission’s powers to entertain cases related to black money in foreign countries held by NRI

The I-T Department moved the Apex Court against Gujarat High Court’s judgment in the case of BVI based firm Overseas Pearl belonging to UAE residents Vimal K Patel, Samir K Patel and Mehul K Patel. The Gujarat High Court held that the Settlement Commission has jurisdiction to settle the issues of foreign undisclosed money under the I-T Act and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
The Supreme Court admitted I-T Department’s plea that the Commission lacks jurisdiction over the matters where proceedings were initiated under the Black Money Act as Black Money Act is a special legislation and prevail over the I-T Act for the purpose of scrutinizing source of undisclosed-foreign income and assets.

Scrutiny of Income-tax returns declined to 0.25 percent due to faceless assessments in AY 2018-19

The Finance Ministry said “I-T Department is changing - from just enforcement to facilitating better taxpayer services. In continuation of the same, the number of cases selected for scrutiny has reduced drastically over the years.” The I-T Department has claimed that the percentage of cases out of returns filed selected for scrutiny has come down to as low to 0.25 per cent in AY 2018-19 from 0.55 per cent in the previous year. The percentage of income tax scrutiny cases was 0.71 per cent in AY 2015-16, 0.40 per cent in AY 2016-17. The faceless assessment scheme rolled out in October 2019 eliminates the physical interface between an assessing officer and an assessee.
 
Finance Minister said, "Through faceless assessment and faceless appeals subsequently, we are laying trust in the hands of the tax assessee through use of technology, we are laying trust in taxpayers who we see as nation-builders,"

I-T department raided Chinese entities for money laundering/ hawala transactions

The I-T Department, based on credible information that few Chinese individuals and their Indian associates were involved in money laundering and hawala transactions, conducted search operation at locations of few Chinese entities, their close connections, Indian professionals and couple of bank employees allegedly involved in money laundering and hawala transactions through series of shell entities. More than 40 bank accounts were created in India in such shell entities in which transactions of more than Rs 1,000 Crore was routed over the period at the behest of Chinese individuals

I-T Investigation wing and Central charges to resume sending notices to taxpayers electronically

F. No. 414/ 29 /2020 -IT (lnv. I), Central Board of Direct Taxes,11th August 2020

The I-T department, in its notification, allowed officers of Investigation wing and Central charge to resume issuing notices and summons, electronically as far as possible, under the Income Tax Act, 1961, Black Money Act, 2015, and Benami Act, 1988 which was earlier barred due to the Covid 19 pandemic.

Judicial Pronouncements

The Madras High Court allowed exemption u/s 54F for investment made in new house property till due date of belated return

CIT V/s Smt. Umayal Annamalai, 22^nd July, 2020. TC APPEAL NO. 456 OF 2017
 
The brief facts of the case are that the assessee sold an old asset on 14-02-2005 and invested Rs. 68 lakhs before due date of filing of belated return i.e. 31-03-2007 and took possession of the property within three years from the date of transfer of original asset. However, the sale proceeds were not deposited in Capital Gain Account Scheme before due date of filing return under section 139(1) i.e. 31-07-2005.
 
The issue under consideration was whether the taxpayer is entitled to exemption under section 54F where the return of income was filed after the due date and the amount was also not deposited in Capital Gain Account Scheme before the due date of filing return of income.
 
The Hon’ble Madras High Court held that the assessee has satisfied the condition specified under Section 54F(1) by purchasing and taking possession of residential property within three years from the date of transfer of original asset and is thus eligible for said exemption.

Mumbai Tribunal held that where the taxpayer chosen one method of valuation provided under Rule 11UA, the assessing officer has no power to change it

Karmic Labs Pvt. Ltd vs. ITO (ITAT Mumbai), ITA No.3955/Mum/2018
The brief facts of the case are that assessee valued share during A.Y. 2014-15 at premium based on the valuation as per discounted cash flow methods as provided in Rule 11UA. However, the assessing officer rejected the valuation adopted by the taxpayer stating that the same is based on some unrealistic results and assumptions and himself calculated the valuation of share as per provisions of Rule 11UA(2)(a).
 
The tribunal held that section 56 of the Income-tax Act allows the assessee to choose a prescribed method for ascertaining the market value of the shares transferred. If the assessee has chosen one method of valuation provided under Rule 11UA of I-T Rules (i.e. DCF method), the assessing officer has no power or jurisdiction to change that method to another method.