Mazars Tax Update | Edition 34.20

DIRECT TAX NEWS

Tax professionals urge for extension of the deadline for tax audit and I-T return for Assessment Year 2020-21

The Covid-19 pandemic has caused practical difficulties for the delay in filing I-T returns by taxpayers and tax professionals this year. Earlier, the Finance Ministry extended the due date for filing of I-T returns for all taxpayers to 30th November 2020 and submission of the Tax audit report and transfer pricing report to 30th October 2020.
The tax professionals have made a representation to Finance Minister Dr. Nirmala Sitaraman to extend the due date for filing of I-T returns for all the taxpayers for A.Y. 2020-21 to 31st March 2021, filing the tax audit report and transfer pricing report to 28th February 2021.

President of PHDCCI suggested lowering the maximum IT rate to around 25% from the current rate of 30% plus surcharges.

Mr. Sanjay Agarwal, the newly appointed president of PHD Chamber of Commerce and Industry (PHDCCI’s), suggested that the next Fiscal Budget should lower the maximum income tax rate to around 25 percent from the current 30 percent ​increased by surcharge.
He further said that “In the current scenario, there is a need to increase the disposable income of people by reforming the direct tax structure. The maximum personal income tax rate should be around 25 percent to increase personal disposable income. This will boost demand in the economy”.

JUDICIAL PRONOUNCEMENTS

ITAT Delhi held that stamp duty value of subleased properties cannot be treated as sale consideration under Section 50C of the Income Tax Act

Noida Cyber Park Pvt. Ltd. vs ITO - ITA NO. 165/DEL/2020 dated 12/10/2020

The assessee acquired a plot of land on lease from NOIDA authority and subleased 6 properties constructed on this plot of land for an aggregate sale consideration of Rs. 159.20 Crores, through a tripartite agreement between the assessee, buyers, and NOIDA. The stamp duty value of said properties was Rs. 399.97 Crores.

The assessee appointed a Government Approved Valuer who valued the properties at Rs. 151.86 Crores whereas the Department’s Valuation Officer (DVO) valued the properties at Rs. 193.56 Crores.
Section 50C of the Income Tax Act states that where the stamp duty value of a capital assets  being ‘land or building or both’, is less than the value adopted by the Stamp Valuation Authority for the purposes of payment of stamp duty, then the value so adopted by the Stamp Valuation Authority be deemed to be the full value of the consideration received or accruing as a result of the transfer for the purposes of computing Capital Gains in the hands of the seller u/s 48 of the Act.
The ITAT Delhi, relying upon various judgements, held that provisions of Section 50C(1) are not applicable on leasehold right and struck down the disputed additions of Rs. 240 Crores.

ITAT Bangalore held that advance received for procurement of land and outstanding in the books cannot be taxable under section 56(2)(ix) of the Income-tax Act

Shri Ravi Shankar Shetty vs. ACIT - ITA No.28 /Bang/2020 dated 08/09/2020
The Assessee was in the real estate business. The assessee filed his ITR showing income of Rs. 25,74,540/- under the heads of income from business and profession, capital gains and other sources. The ITR was selected for scrutiny and it was found that assessee received Rs. 21.89 Crores as advance against procuring land and same was outstanding in the books of account.
Section 56(2)(ix) of the Income-tax Act states that the sum of money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset shall be chargeable as income from other sources if (a) such sum is forfeited and, (b)  the negotiations do not result in the transfer of such capital asset.
The I-T department alleged that the advance received was not repaid for almost 7 years and should be treated as income under section 56(2)(ix) as neither these advances were repaid nor any legal action was taken by the lenders against the assessee.
The Tribunal observed that the usage cannot change the character of the source of funds and it will remain as received towards procurement of land which is stock in trade to the assessee. The Tribunal stated that the assessee neither received money against the transfer of capital asset nor it was a forfeiture. There was no negotiation with lenders for the transfer of capital assets, and the amount received was also confirmed to be given by the lenders. Considering the above, the Tribunal held that usage of the funds cannot be a reason to invoke section 56(2)(ix) of the IT Act, 1961.