Mazars Tax Update | Edition 35.20

DIRECT TAX NEWS

Government extended due date for payment of tax under Vivad Se Vishwas Scheme by three months to March 31, 2021

CBDT letter F. No. IT(A)/1/2020-TPL dated 28-October-2020

The Direct Tax Vivad se Vishwas Act was enacted on 17 March 2020, to settle direct tax disputes pending before various forums. The government on Tuesday extended for the third time the deadline for making payment under the scheme by three months to March 31, 2021. However, declarations are required to be filed by December 31, 2020. Earlier both, the declaration and the payment without additional amount under the scheme was required to be made by December 31. 

I-T Department seized Rs. 62 Crore from raids conducted on hawala operators

The investigation wing of the I-T  Department, as part of its multi-city tax evasion operation against hawala,  entry operators and individuals who prepare fake bills, conducted searches  at 42 premises in Delhi-NCR, Haryana, Punjab, Uttarakhand, and Goa and seized a sum of Rs. 62 Crores from a person identified as Mr. Sanjay Jain. The cash found was in Rs 2000 and Rs 500 denomination notes, stashed in wooden almirahs and furniture. The CBDT officials said that action was carried out against “a large network of individuals running the racket entry operation (hawala-like operation) and generation of huge cash through fake billing".
 
It was also stated that jewellery worth Rs 2.89 crore was found along with 17 bank lockers which are yet to be searched.

I-T Department conducts searches in Tamil Nadu over educational institutions fraud

The I-T Department carried out searches at 22 premises in Tamil Nadu's Coimbatore, Erode, Chennai, and Namakkal on 28^th October 2020 on a group engaged in the running of educational institutions and their associates, including a civil contractor. The search was carried on the basis of information that fees collected from students were not fully accounted for in the regular books of accounts. The search has led to the identification of unaccounted investments and on-money payments to the extent of around Rs 150 crore. Cash amounting to Rs. 5 crores have been seized and some lockers are yet to be searched.

JUDICIAL PRONOUNCEMENTS

Revision u/s 263 of I-T Act cannot be invoked on mere inadequacy of enquiry or insufficiency of material

CIT vs. Cyber Park Development & Constructions Ltd. ITA No 115 of 2012 dated 05-October 2020

The Karnataka High Court held that mere inadequacy of an enquiry or insufficiency of material on record cannot be a ground for invoking revisional powers under Section 263 of the Income Tax Act, 1961. Cyber Park Development & Construction Ltd. is a company engaged in the business of developing, operating, and maintaining infrastructure facilities for software and related sectors.

The issues raised by the revenue was that:

1. Whether the Tribunal was correct in holding that the assessee having furnished the details that the leasehold rights were intangible assets before the Assessing Officer, it should be deemed  to have been examined and relief granted in favour of the assessee by the Assessing Officer and the finding recorded by the Commissioner to the contrary was not correct?
2. Whether the Tribunal was correct in holding that the leasehold rights held by the assessee amounting to Rs 2,01,69,575/-was an intangible asset and depreciation could be claimed and interference u/s 263 of the Act was neither erroneous nor prejudicial to the interest of the revenue?

The Court upheld the order of the Tribunal wherein it was found that the AO on meticulous appreciation of evidence on record has allowed depreciation on intangible assets and mere inadequacy of an enquiry or insufficiency of material cannot be the ground to invoke the power under section 263 of the Act. The Court held that view taken by the Tribunal is in consonance with the well-settled legal principles.

I-T Officer not empowered to reject selection of share valuation methods adopted by Taxpayer

GSE Commerce Private Limited Vs. ACIT SP No 91/Bang/2020 dated 14th October 2020
The Income Tax Appellate Tribunal (“ITAT”/ “Tribunal”), Bangalore Bench held that the Assessing Officer (“AO”) is not empowered to reject the selection and valuation methods adopted by taxpayers. The assessee company, M/s. GSE Commerce Private Ltd. operates in the service sector. During the year under consideration, it has issued 3511 equity shares having a face value of Rs.10 each at a premium of Rs.5,682 per share to resident investors. The assessee furnished a valuation report issued by a Chartered Accountant in support of the share premium amount collected by it. The Chartered Accountant had valued the shares under the discounted cash flow method (DCF method). The AO was of the view that the shares of the company have been overvalued and accordingly asked the assessee to justify the valuation.  
 
The AO opined that the projections and estimates made by the management are not realistic and are arbitrary in nature. Thus, he determined the share valuation under the Net Asset Value/ Book Value method prescribed under rule 11UA of the Income Tax Rules, 1962 at Rs. 1,081.13 per share. Accordingly, the excess share premium collected by the assessee amounting to Rs. 1,61,88,765/- was added as income under section 56(2)(viib).
 
The two-member bench of B.R. Baskaran and Beena Pillai followed the decision of ITAT, Bangalore in VBHC Value Homes Pvt. Ltd. Vs. ITO, wherein it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. The Tribunal said that “the AO has proceeded to determine the value of shares in both the years by adopting different methods without scrutinizing the valuation report furnished by the assessee under DCF method.”

The ITAT revokes the penalty imposed by I-T department on Jamsetji Tata Trust

The Jamsetji Tata Trust filed an income tax appeal against the disallowance of exemption under section 11 of the IT Act. Brief facts of the case are that the trust had sold 1,00,00,000 shares of TCS for Rs. 537 Crore and reinvested the same by way of acquisition of 8% cumulative redeemable preference shares of Tata Sons Ltd. of the value of Rs. 545 Crores. The AO found that the sale proceeds of shares of TCS was reinvested in Tata Sons Ltd which is not a public sector company. The AO opined that the investment in the share of Tata Sons Ltd cannot be said to be an application of funds for a charitable purpose. Consequently, the AO initiated penalty proceedings.
 
The Tribunal noted that the penalty notice issued was defective because the assessing officer did not specify whether the penalty was imposed due to furnishing the inaccurate particulars of income or concealment of income. Further, the tribunal observed that the Trust has fully disclosed all facts and not furnished any inaccurate particular in its return of income.