TMI Tax Updates - e-Newsletter
March 10, 2023
Case Laws in this Newsletter:
Articles
By: DEVKUMAR KOTHARI
Summary: The article discusses the inefficiencies and resource wastage caused by unnecessary litigation and the deployment of large teams of advocates by government entities. It highlights a specific case involving the Central Board of Indirect Taxes and Customs (CBIC) and the Central Board of Direct Taxes (CBDT), focusing on the push for e-filing of appeals in Indian courts. Despite the Supreme Court's directives, delays and procedural issues persist, leading to unnecessary legal battles. The article critiques the excessive involvement of senior advocates and the strain on judicial resources, advocating for more efficient legal processes to prevent brain drain and resource wastage.
By: Vivek Jalan
Summary: Dealers in precious metals and stones must streamline inventory valuation and records to avoid implications under the undisclosed income scheme. The 2023 Budget introduced amendments to Section 142(2A) of the Income Tax Act, allowing Assessing Officers to request inventory valuations by cost accountants. Effective April 1, 2023, these amendments aim to prevent the taxation of unrecorded stock as undisclosed income under Section 115BBE. The amendment to Section 142(3) ensures dealers have a chance to be heard regarding any material gathered during inquiries. Consequently, dealers must maintain accurate records to avoid adverse tax implications.
By: Amit Jalan
Summary: The Global Minimum Tax (GMT) initiative represents a significant shift in international taxation, with implementation of Pillar 2 set for January 2024. This tax reform aims to ensure multinational enterprises pay a minimum 15% tax rate on profits in each jurisdiction. The OECD's Inclusive Framework has released guidance on the GloBE Model Rules, particularly addressing asset transfers during the Pre-GloBE Period. Article 9.1.3 restricts tax-free or low-tax asset transactions before the Transition Year to prevent entities from exploiting increased asset values to reduce taxable income. This guidance applies to various transactions, including intra-group transfers and accounting principle changes.
By: Dr. Sanjiv Agarwal
Summary: The article discusses recent developments in India's Goods and Services Tax (GST) system. The Union Budget 2023 aims to sustain economic growth and address inflation. The Central Board of Indirect Taxes and Customs (CBIC) has issued notifications to implement GST rate changes from March 1, 2023, including tax reductions on pencil sharpeners and exemptions for certain educational services. The GST Network (GSTN) has introduced new portal functionalities for taxpayers, including geo-coding and e-invoice portals. February 2023 saw a 12% increase in GST revenue compared to the previous year, with a total collection of Rs. 1,49,577 crore.
By: Bimal jain
Summary: The Authority for Advance Rulings in Karnataka ruled that works contract services provided to Indian Railways are subject to different GST rates. Services for constructing rail under-bridges and tunnels are taxed at 18%, while those involving predominantly earthwork are taxed at 12% if they constitute more than 75% of the contract value. When these services are provided by a sub-contractor, the GST remains at 12%. Additionally, the supply of ballast to the railways is taxed at 5%. These rulings are based on specific notifications under the Central Goods and Services Tax Act, 2017.
News
Summary: The Economic Cooperation and Trade Agreement (ECTA) between India and Australia is seen as a transformative deal to enhance trade and investment. During the India-Australia CEO Forum in Mumbai, leaders from both nations emphasized the potential to significantly increase bilateral trade. The Australian Prime Minister highlighted the strong turnout of investors and expressed optimism about the partnership. Indian and Australian industries are encouraged to reset trade goals. A four-year MoU between the Confederation of Indian Industry and the Business Council of Australia was signed to strengthen business ties. The forum included CEOs from various sectors, discussing ways to boost economic relations between the two countries.
Summary: The Deputy Governor of the Reserve Bank of India addressed the role of self-regulatory organizations (SROs) in financial markets at the FEDAI conference. He highlighted India's economic growth, emphasizing its historical GDP position and current status as a fast-growing economy. The speech outlined the evolution of India's foreign exchange regulations from stringent controls to a more liberalized framework, enhancing market efficiency and integration. The Deputy Governor stressed the importance of SROs in maintaining market integrity and customer protection, while also acknowledging challenges such as conflicts of interest. He called for fair pricing for smaller customers and encouraged innovation in financial products and services.
Notifications
GST - States
1.
4/2023-State Tax (Rate) - dated
7-3-2023
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Himachal Pradesh SGST
Amendment in Notification No. 2/2017-State Tax (Rate), dated the 30th June, 2017
Summary: The Government of Himachal Pradesh has issued Notification No. 4/2023-State Tax (Rate) under the Himachal Pradesh Goods and Services Tax Act, 2017, amending Notification No. 2/2017-State Tax (Rate) from June 30, 2017. The amendment, effective from March 1, 2023, adds a new entry in the schedule under S. No. 94, specifically including "Rab, other than pre-packaged and labeled" as a taxable item. This change is made in public interest following the Council's recommendations.
2.
3/2023-State Tax (Rate) - dated
7-3-2023
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Himachal Pradesh SGST
Amendment Notification No. 1/2017-State Tax (Rate), dated the 30th June, 2017
Summary: The Government of Himachal Pradesh issued Notification No. 3/2023-State Tax (Rate), amending the previous Notification No. 1/2017-State Tax (Rate) under the Himachal Pradesh Goods and Services Tax Act, 2017. The amendments include changes in tax rates: Schedule I now lists jaggery, khandsari sugar, and rab as taxable at 2.5%, Schedule II adds pencil sharpeners at 6%, and Schedule III specifies that items other than pencil sharpeners are taxed at 9%. These amendments are effective from March 1, 2023, as authorized by the Governor on the Council's recommendations.
3.
2/2023-State Tax (Rate) - dated
7-3-2023
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Himachal Pradesh SGST
Amendment in Notification No. 13/2017-State Tax (Rate), dated the 30th June, 2017
Summary: The Government of Himachal Pradesh has issued Notification No. 2/2023-State Tax (Rate), amending Notification No. 13/2017-State Tax (Rate) dated June 30, 2017. Under the Himachal Pradesh Goods and Services Tax Act, 2017, the amendment modifies the Explanation in clause (h) by replacing "and State Legislatures" with ", State Legislatures, Courts and Tribunals." This change is effective from March 1, 2023, as authorized by the Governor of Himachal Pradesh on the recommendation of the Council.
4.
1/2023-State Tax (Rate) - dated
7-3-2023
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Himachal Pradesh SGST
Amendment in Notification No. 12/2017-State Tax (Rate), dated the 30th June, 2017
Summary: The Government of Himachal Pradesh has issued Notification No. 1/2023-State Tax (Rate) amending Notification No. 12/2017-State Tax (Rate) dated June 30, 2017. This amendment, effective from March 1, 2023, clarifies that any authority, board, or body established by the Central or State Government, including the National Testing Agency, conducting entrance examinations for educational institutions, will be considered as an educational institution solely for the purpose of providing services related to entrance examinations. The amendment is made under the Himachal Pradesh Goods and Services Tax Act, 2017, following recommendations from the Council.
Money Laundering
5.
S.O. 1074(E) - dated
7-3-2023
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PMLA
Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023
Summary: The Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023, issued by the Ministry of Finance, amends the 2005 rules under the Prevention of Money-laundering Act, 2002. Key changes include defining terms such as "group," "non-profit organization," and "politically exposed persons." The amendments require groups to implement group-wide policies, adjust thresholds for certain transactions, and mandate the registration of non-profit organizations on the DARPAN Portal of NITI Aayog. These rules also specify the maintenance of registration records for five years post-relationship termination and require updates to submitted documents within 30 days.
6.
S.O. 1072(E) - dated
7-3-2023
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PMLA
Reporting entity - Person carrying on a designated business or profession - certain activities when carried out for or on behalf of another natural or legal person
Summary: The Central Government, under the Prevention of Money-laundering Act, 2002, has issued a notification defining certain activities related to virtual digital assets as designated business activities when conducted on behalf of others. These activities include exchanges between virtual digital assets and fiat currencies, transfers of virtual digital assets, safekeeping or administration of these assets, and participation in financial services related to their sale. The term "virtual digital asset" is defined as per the Income-tax Act, 1961. The Director of the Financial Intelligence Unit, India, is designated as the regulator for these activities.
Circulars / Instructions / Orders
SEBI
1.
SEBI/HO/CFD/PoD-2/P/CIR/2023/35 - dated
8-3-2023
Operational Guidance - Amendment to Securities and Exchange Board of India (Buy-back of Securities) Regulations, 2018 (“Buy-back Regulations”)
Summary: The Securities and Exchange Board of India (SEBI) has amended the Buy-back of Securities Regulations, 2018, effective March 9, 2023. The amendments impose restrictions on buy-backs through stock exchanges, limiting purchases to 25% of the average daily trading volume over the prior ten days and restricting bid placements during specific trading hours. The purchase order price must remain within +/-1% of the last traded price. Companies and brokers must comply, with stock exchanges monitoring adherence and imposing penalties for non-compliance. Escrow accounts must meet margin requirements, and merchant bankers must ensure adequate funds post-haircut. The circular is issued under SEBI's regulatory powers.
Customs
2.
07/2022 - dated
7-3-2023
Boarding functions – Improving transparency using boarding Jacket fitted with Body Worn Camera (BWC) having video/audio recording facility by Boarding Officer
Summary: The circular issued by the Ministry of Finance, Department of Revenue, outlines the implementation of boarding jackets equipped with Body Worn Cameras (BWC) for Customs Boarding Officers. This initiative, initially piloted in Nhava Sheva and Ahmedabad Customs Zones, aims to enhance transparency, accountability, and professionalism during vessel boarding procedures. The BWCs will provide video and audio recordings of interactions, ensuring evidence in case of offenses and protecting officers from frivolous complaints. The circular mandates the activation of BWCs during boarding, secure data storage, and regular feedback collection from stakeholders, with full implementation across sea customs functions by April 15, 2023.
3.
Instruction No. 09/2023 - dated
7-3-2023
Rectifiable labelling information for imported food consignments
Summary: The circular outlines procedures for rectifying labeling information on imported food consignments in India. It permits rectification of non-compliant labels at customs-bound warehouses before inspection, using non-detachable stickers or methods. The Food Safety and Standards Authority of India (FSSAI) mandates that rectifications must be verified by an Authorized Officer. If labels are compliant, consignments proceed to sampling and testing. The circular also addresses the import of clove stems, allowing testing against safety standards until specific standards are notified. Officers are instructed to ensure compliance and facilitate trade while maintaining food safety.
Highlights / Catch Notes
GST
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Petitioner's GST Registration Cancellation Revoked; No Outstanding Amount Found in January 2021 Order.
Case-Laws - HC : Cancellation of GST registration of petitioner - The fact that the respondents have not found that any amount is due from the petitioner, is evident from the cancellation order dated 18.01.2021, which reflects that the amount recoverable from the petitioner is nil - the petitioner had shown sufficient grounds for revocation of his cancellation - HC
Income Tax
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Unexplained Delay in Penalty u/s 271C Raises Validity Concerns Due to Limitation Period Lapse.
Case-Laws - HC : Penalty imposed u/s 271C - Bar of limitation for imposing penalties - Period for commencement of limitation prescribed in terms of the second limb of clause (c) of sub-section (1) of Section 275 of the Act would commence either from 2013 or 2014, there is a period of unexplained substantial delay, as the SCN, concededly, was issued only on 09.11.2017. - HC
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Court Dismisses Claim of Prejudice in Faceless Income Tax Inquiry; "Technically Not Feasible" Argument Rejected u/s 142B(1)(a.
Case-Laws - HC : Faceless inquiry or Valuation - having replied with necessary documents has participated in the enquiry under the faceless interface and hence, it cannot now turn back and say that it is prejudiced by such a procedure. The term technically not feasible in Section 142B(1)(a) of the Act would only mean that when it is not technologically feasible to invoke such provisions between the Department and the assessee. The technical advancement had reached new heights. Hence, the contentions petitioner that it is not having the technological feasibility, deserves no consideration. - HC
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Dispute Over Solid Waste Disposal Expenses: Contingent or Accrued Liability? Compliance with Section 145 of Income Tax Act Confirmed.
Case-Laws - AT : Addition on account of provision for Solid Waste Dispsal Expenses - contingent liability or accrued liability - The accounting method followed by the assessee was in consonance with the prescribed Accounting Standard and policy in accordance with the Prudence norms. That it complied accordingly with section 145 of the Act requiring income to be computed in accordance with notified accounting standards. DR was unable to controvert the same. - AT
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Section 172: Shipping Business in UAE Benefits from India-UAE DTAA; Residency Based on Registration, Not Nationality.
Case-Laws - AT : Applicability of provision u/s 172 for shipping business of non-resident - benefit as per DTAA between India & UAE - Merely Partner’s/Director’s nationality will not suffice the company’s residency when the company is registered and operational in a particular country in the present case is in UAE Dubai and has obtained the business licence from the said resident company is the resident of UAE. - AT
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CIT's Revision u/s 263: PCIT Overlooks Partnership Deed Facts on Partner Remuneration Limits Per Section 40(b).
Case-Laws - AT : Revision u/s 263 by CIT - remuneration to the partners - limit prescribed as per the Partnership Deed - Limit prescribed u/s 40(b) - in view of the supplementary partnership deed, partners shall be entitled to draw salary or remuneration as per the limit laid down u/s 40(b) of the Act and the ld. PCIT failed to advert the facts placed before him by the assessee. - AT
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Income Tax Commissioner Revises AO's Error on Rental Income Classification u/s 263; Business vs. House Property Income.
Case-Laws - AT : Revision u/s 263 by CIT - It is thus clear that the claim of the assessee for rental income from commercial complex and tower shown as business income instead of house property was allowed by AO without making necessary enquiry which was called for in the facts and circumstances of the case and there was an error in the order passed by the assessing officer u/s 143(3) - AT
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Tax authorities' Section 68 addition for unexplained loans overturned; relied on third-party statement without confronting assessee.
Case-Laws - AT : Addition u/s 68 - Loans unexplained - the tax authorities are not justified in placing reliance on the statement given by the director in a third party proceeding without confronting the same with the assessee. On the contrary, the fact remains that both the above said companies have duly responded to the AO during the course of current assessment proceedings by furnishing replies to the notices issued u/s 133(6) of the Act and the summons issued u/s 131 - Additions deleted - AT
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Testing Services Under India-Finland DTAA Deemed Taxable in India Due to Service Utilization in Indian Territory.
Case-Laws - AT : Income taxable in India - taxability of testing services as FTS - India-Finland DTAA - the payment in question is not for the process but was for the results of testing which is used in India. The argument of the Ld. D/R that these services were availed in India and hence are taxable in India has to be upheld. - AT
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PCIT's Decision u/s 263 Questioned for Lack of Proper Judgment in Income Tax Assessment Order Review.
Case-Laws - AT : Revision u/s 263 by CIT - PCIT has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s. 263 - AT
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NRI Cash Deposit Issue: No RBI or FEMA Permission Needed for Canceled Land Sale Agreement, No Actual Purchase Made.
Case-Laws - AT : Cash deposited by the assessee jointly with his father - So far as regards the AO's observation that NRIs cannot purchase agricultural land in India without RBI permission and as per FEMA, whereas no RBI permission was taken for purchase of land in the present case, it has been stated that since no land was purchased and only agreement to sell was entered into, which agreement was cancelled later on, no RBI or FEMA permission was applicable or required and, therefore, permission was not applied for. - AT
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Final assessment order without draft u/s 144C is unlawful; subsequent proceedings deemed invalid.
Case-Laws - AT : Assessment u/s 144C - Non passing of draft assessment order - a final assessment order without passing of the draft assessment order, being not in accordance with law, is liable to be quashed and further that the subsequent proceedings after passing of the final assessment order would also be vitiated and would not have any sanctity of the law. - AT
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Penalty u/s 271AAB Not Justified: Disallowance u/s 14A Isn't Undisclosed Income Post Search Operation.
Case-Laws - AT : Penalty u/s 271AAB(1) - disallowance u/s 14A - search and seizure - the disallowance of expenditure u/s 14A doesn’t represent any income of the specified previous year by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false - there is no legal basis for sustaining the charge of undisclosed income found during the course of search and accordingly, there is no justifiable and legal basis for levy of penalty u/s 271AAB - AT
Customs
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Penalty u/s 114 Upheld for Attempted Export of Prohibited Red Sanders Without License; Goods Confiscated u/s 113.
Case-Laws - AT : Levy of penalty u/s 114 - attempt to export of red sanders whose export is prohibited unless one has a licence - There was a gross negligence on the part of the appellant and appellant’s act of filing the benami shipping bill and processing it and consequently bringing the consignment into the customs area had resulted in rendering the goods liable for confiscation u/s 113 - penalty imposed u/s 114 is justified and calls for no interference - AT
Service Tax
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High Court Waives Pre-Deposit Requirement, Eases Appeal Process During CIRP Under Insolvency Code.
Case-Laws - HC : Framing of an assessment during pendency of CIRP - Pendency of CIRP confers no impediment in framing the assessment. But no recovery proceedings can be initiated for recovery of the liability assessed. - The petitioner is, essentially handicapped on account of requirement of making a pre-deposit for availing the statutory remedy of an appeal - Waiver from pre-deposit granted - HC
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Leased Circuit Service Tax Applicable Only if Provider is 'Telegraph Authority' Under Relevant Act.
Case-Laws - AT : Classification of services - Leased Circuit Service - it is not enough that the service provider provides lease services but it should also be a ‘Telegraph Authority’ as defined in the Act. Unless both the conditions are cumulative satisfied, service tax levy is not attracted. - AT
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