Mazars Tax Update | Edition 37.20

DIRECT TAX NEWS

CBDT enhanced tolerance limit from 10% to 20% for residential property of up to Rs. 2 Crore sold or purchased below stamp duty value

​The Finance Minister announced new stimulus measures under Aatma Nirbhar Bharat Package 3.0 on 12th November 2020 wherein certain relief measures are given for real-estate developers and home buyers to boost the Indian economy amid the ongoing COVID-19 pandemic.

Section 43CA of the Income-tax Act provides for deeming the stamp duty value (circle rate) as sale consideration for the transfer of real estate inventory in case the circle rate exceeded the declared consideration. Similarly, stamp duty value is deemed as purchase consideration in case of the buyer under section 56(2)(x) of the Act. Presently, these deeming provisions trigger only where the difference between the sale/purchase consideration and the circle rate is more than 10%.

In order to boost demand in the real-estate sector, to enable the real-estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and for giving benefit to the home buyers, the  finance ministry announced tax relief for developers and home buyers for houses up to Rs 2 Crore. It is announced that the tolerable difference between circle rate and agreement value in real estate income tax is being increased from 10 per cent to 20 per cent from November 12, 2020, till June 30, 2021, for primary sale of residential units up to Rs 2 Crore. This relief is expected to provide an incentive to the middle-class home buyers.

UDIN given by Chartered Accountants will be validated by the I-T Department

Income-tax e-filing portal had already factored mandatory quoting of UDIN with effect from April 27, 2020, for documents certified/attested in compliance with the Income ​​Tax Act,1961 by Chartered Accountants.
 
​The I-T Department will validate the unique document identification number (UDIN) of Chartered Accountants with the Institute of Chartered Accountants of India (ICAI) when they upload tax audit reports, to curb fake certifications by non-CAs misrepresenting themselves as Chartered Accountants. The Finance Ministry said that, in line with the ongoing initiatives of the I-T Department for integrating with other government agencies and bodies, income-tax e-filing portal has completed its integration with the ICAI portal for validation of UDIN generated by the Chartered Accountants from the ICAI portal for documents certified/attested by them.

JUDICIAL PRONOUNCEMENTS

Delhi High Court held that sale made from opening stock is not an unexplained income

PCIT vs. Akshit Kumar - ITA 348/2019 & CM APPL. 15854/2019, CM APPL. 15852/2019, CM APPL. 15853/2019 dated 17 November 2020

​The Assessee, Akshit Kumar filed his income tax return declaring his income from salary, business and profession and other sources. The declared income included an amount of Rs. 3,19,580 under the head income from business and trading of textiles.
 
​The assessing officer contended that the assessee had shown an opening stock of Rs.30 crores which would require considerable storage space. The I-T Department concluded that the premises from where the assessee conducted his business had been abandoned several years ago and the assessee had neither shown any building in its fixed asset schedule nor any rent expense in his P/L Account. If the assessee was indeed selling goods from the opening stock available with it, then where was this stock stored.
 
The Court held that firstly, the stock was available with the assessee in his books of account and trading in such stock in the earlier years and the sale of balance left out stock in subsequent years has been accepted or has not been disputed by the assessing officer.
 
The Court further held that once neither any item in the trading account nor gross profit has been rejected, then cherry-picking one part of the credit side of the trading account, that is, sales cannot be discarded completely so as to hold that it is unexplained money.

Supreme Court directs Madras High Court to decide over question of Constitutional Validity of Section 40(a)(iib) of Income Tax Act

Tamil Nadu State Marketing Corporation Ltd vs Union of India and others Civil appeal no 3821 of 2020 dated 25 November 2020, arising from SLP (civil) no 10613 of 2020
 
Section40(a)(iib) states that any amount paid by way of royalty, licence fee etc. levied on or appropriated exclusively from State Government undertaking, by the State Government, shall not be deductible from business income.
 
​A writ petition was filed by Tamil Nadu State Marketing Corporation Ltd. before the Madras High Court challenging the validity of Section 40(a)(iib) of the Income Tax Act, 1961. The petitioner pleaded that Section 40(a)(iib) is discriminatory and violative of Article 14 of the Constitution of India as there are many Central Government undertakings which are excluded from this section and are enjoying exemption.
​The Supreme Court observed that the High Court ought to have decided the issue with respect to the challenge to the vires of Section 40(a)(iib) of the Income Tax Act on merits irrespective of the fact whether the matter was sub-judice before the Income Tax Authority. The Supreme Court clarified that once the show cause notice was issued by the assessing officer calling upon the assessee to show cause why the VAT expenditure is not allowable as a deduction in accordance with Section 40(a)(iib) of the Income Tax Act, while computing the income of the appellant, it can be said that the cause of action has arisen for the appellant to challenge the vires of Section 40(a)(iib) of the Income Tax Act and the appellant may not have to wait till the assessment proceedings before the Income Tax Authority are finalized.
 
The Supreme Court said that the High Court has failed to exercise the powers vested in it under Article 226 of the Constitution of India by not deciding the writ petition on merits and not deciding the challenge to the vires of Section 40(a)(iib) of the Income TaxAct on merits. The supreme court directed the High Court to preside over the question of Constitutional Validity of Section 40(a)(iib) of the Income Tax Act.

Delhi High Court orders clubbing of complaints regarding swiss bank account

Paraminder Singh Kalra vs CIT - W.P.(CRL) 3486/2018 & Crl.M.A. 47373/2018 dated 24 November 2020

​The Delhi High Court ordered the clubbing of allegations of having an account in HSBC Bank Zurich, Switzerland with the mala fide intention to evade tax and hide money transactions.
 
​Brief facts of the case are that the petitioner, Parminder Singh Kalra is facing three separate trials in all the three complaints before the same Magistrate for allegedly not declaring the fact of having a foreign account to the I-T Department, though the material, evidence, witnesses, and documents relied upon by the department are same in all the three complaints.
 
​The court observed that the three complaints in fact are a part of the same transaction. The first complaint has been filed on the assumption that the petitioner is holding an undisclosed foreign account and two subsequent complaints are nothing but to arrive at a figure to meet the ingredients of the first offence. “In these circumstances, it will be in the interest of justice to have a common trial for all the three complaints,” the court said.