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Dy. Commissioner of Income Tax Circle-1 (1) , Panaji Versus M/s. Sesa Goa Ltd. and M/s. Sesa Sterlite Ltd. (formerly known as M/s. Sesa Goa Ltd.) Versus Addl. Commissioner of Income Tax, Range-1, Panaji

Disallowance u/s 14A - Held that:- As it is noticed that the calculation made by the AO shows that the AO has considered all the investments which is not permissible whereas the Assessee has not provided a proper computation of the disallowance u/s 14A and the ld. CIT(A) has also not considered the calculation provided under Rule 8D, the issue of disallowance u/s 14A is restored to the file of the AO for re-adjudication in line with the decision of the co-ordinate bench of this Tribunal in the c .....

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ions of Sec. 37, but has not decided the issue in respect of disallowance by invoking the provisions of Sec. 40(a)(ia) of the Act on account of non-deduction of TDS. A perusal of the order of the ld. CIT(A) shows that for the A.Y 2006-07 the AO has held that there was no necessity for engaging commission agents and accordingly, the commission payment was not held to be allowable as business expenditure u/s 37 of the Act. It is noticed that the ld. CIT(A) has deleted this disallowance following t .....

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TAT PANAJI ] wherein held non-resident buyer got compensation towards demurrage incurred through operation which are confined to purchase of goods, i.e. in relation to ship which it had arrange for taking delivery of goods from assessee/seller from India - Income cannot be deemed to accrue or arise in India in hands of foreign buyer and therefore it cannot be taxable in India and not liable to tax deduction at source - No disallowance can be made u/s 40(a)(ia) – Decided in favor of Assessee.

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red by decision of Hon'ble Supreme Court in assessee's own case reported in [2004 (11) TMI 14 - SUPREME Court] – Allowed additional depreciation – Decided in favor of Assessee.

Deduction u/s 10B - Held that:- As it has been admitted that the appeal for the A.Y 2009-10 is under adjudication before the ld. CIT(A) and that fresh evidences have been found in the course of the survey conducted after the order of the Tribunal which has been followed by the ld. CIT(A), we are of the view th .....

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non-business expenditure. Consequently, we are of the view that the issue of disallowance of interest as non-business expenditure is liable to be restored to the file of the ld. CIT(A) for re-adjudication after granting the Assessee necessary enhancement notice and granting the Assessee adequate opportunity to substantiate its case - ITA NO. 92/PNJ/2015, ITA NO. 100/PNJ/2015 - Dated:- 10-9-2015 - SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER For the Appellant : Dr. .....

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Anita Sumanth, Advocate, Shri Benicio Menezes, AGM (Taxation) and Shri V. Santhi Kumar, CA represented on behalf of the Assessee. 2. In its appeal, the Revenue has raised the following grounds : 1) The order of the learned CIT(A) is opposed to law and facts of the case. 2) The Ld.CIT(A) erred in deleting the additions of ₹ 1,48,72,062/- made u/s.14A of the Income-tax Act in accordance with Rule 8D of Income Tax Rules as provided by the decision given by the Mumbai Special Bench of ITAT in .....

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to export agents taxable in India in view of sec.5(2)(b) r.w.s. 9(1(i)-Fact that the agent is to render service abroad and the commission is to be remitted to it abroad are wholly irrelevant for the purpose of determining the situs of income since income is from a source in India. Further CBDT withdrew circular No. dated- on this issue. 4) The Ld CIT(A) has erred in deleting the additions of ₹ 34,85,71,032/- made u/s.40a(ia) r.w.s. sec. 195(1) towards payment of demurrages paid to non-res .....

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red in granting of deduction under section 10B by not following the binding decision of the Supreme Court in the case of Chowgule & Co. Pvt. Ltd. Vs. Union of India 1981 AIR 1014 where in it was clearly held that though the processing of iron ore undergoes changes in physical and chemical composition still it does not amount to manufacture. This decision was followed by the ITAT Panaji Bench in the case of Chowgule & Co Ltd Vs.s ACIT (ITA No.162/PNJ/2006) for rejecting the benefit of 10B .....

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in holding that the processing plant (EOU) in itself was manufacturing iron ore erroneously presuming that the processing plant was blending iron ore and that the processed ore was a distinct commodity than the input of ROM ignoring the decision of the Apex Court in the case of Chowgule & Co. Pvt. Ltd. Vs. Union of India 1981 AIR 1014 and Bombay High Court in the assessee‟s own case (2004) (ITR 266 ITR 126) where it has been held that mining is an integral process of various activitie .....

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rocessing plant the EOU unit. 10) The Ld CIT(A) has erred in applying the definition of manufacture‟ given in SEZ Act 2005 which is applicable for the purpose of only section 10AA if the IT Act which imposes various conditions for the utilization of profits. 11) The Ld CIT(A) has erred in not following the decision of the ITAT Panaji Bench (coordinate bench) in the case of Chowgule & Co Ltd Vs.s ACIT (ITA No.162/PNJ/2006) where it has been held that the processing of iron ore without e .....

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sion of the ITAT in the assessee‟s case for A.Y. 2009-10 on the issue of section 10B as the power of the CIT(A) is coterminous with the power of the Assessing Officer. 13) The CIT(A) erred and ignored provision of section 80A(6) in directing the A.O. to adopt 62 FE grade ore received by the Amona EOU Unit from Chitradurga unit 3,45,742MT at the rate of ₹ 230 per MT(Rs.192 taken by the assessee pIus 20% increase) whereas the assessee company itself valued 56 grade FE transferred to Am .....

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which is absurd. 14) The Ld CIT(A) has erred and ignored provision of section 80A(6) in directing the A.O. to value the ore transferred to Codli EOU unit of Goa by the non EOU unit of 19,13,376MT @ the rate of ₹ 300 per MT for 55 to 56 grade FE where as for the same grade FE the CIT(A) adopted ₹ 558 per MT in the case of Amona unit of Goa without giving any reasons. For the same grade of ore there cannot be two different market rates. 15) The Ld CIT(A) has erred and ignored provisio .....

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e ore itself is valued at the rate of ₹ 558 per MT as per CIT(A) decision. The higher grade ore cannot be valued less than the lower grade ore which is absurd. 16) For these and other grounds that may be adduced at the time of hearing the order of the learned CIT(A) may be set aside and order of Assessing Officer restored. 17) The appellant craves, leave to add, amend or alter any of the grounds of the appeal either before or at the time of hearing. 18) Whether the CIT(A) is right is not f .....

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he CIT(A) is right in ignoring the detailed remand report submitted before him by the AO which contains the suppression of material facts by the assessee and also decisions of the Supreme Court which are followed by the Co-ordinate Bench viz. ITAT, Panaji Bench in the case of M/s. Chowgule & Co. Ltd., for the A.Y. 2002-03 in ITA No.184/PNJ/2006 dated 12.07.2007 and of M/s. V.S. Dempo & Co. Pvt. Ltd., for the A.Y. 2005-06 in ITA no. 44/PNJ/2009 dated 13.04.2011 while disposing the appeal .....

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working capital of the business, directly attributable to the taxable receipts; and hence the said amount could not have been considered by him as expenditure attributable to the exempt income. 1.2 The Learned CIT(A) erred in presuming the interest of ₹ 3.50 Crores, paid on cash credit account may have direct nexus to the investment made, since the cash credit account is a common hotch pot from which payments of all kinds are made as per the requirements of the assessee. The CIT(A) ought .....

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garding funding of the investment with borrowed funds. 2.1 The Learned CIT(A) erred in disallowing ₹ 6 crores of interest expenditure on Foreign Currency Convertible Bonds (FCCB), as non-business expenditure. The CIT(A) ought to have appreciated that the whole of the aforesaid loan was borrowed for the purpose of the business (and in fact a part of the said funds were already utilized by the Appellant in its business operations, and only a part of the said funds, which could not be immedia .....

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in relation to interest income fully offered to tax, while there is no legal provision to disallow the same or limiting the same to the extent of income offered to tax. 3.1 The Learned CTT(A) erred in determining the input costs of the iron-ores used in the three EOU Plants by adding purported mark-ups of ₹ 61,67,97,321/- to the total of the input costs of the said ores adopted by the Appellant, there by effectively disallowing the Appellant‟s claim for deduction u/s.10-B of the Act .....

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ning business during and year and thereby arbitrarily rejecting the cost of crude ore considered by the Appellant. 3.3 The learned CIT(A) also erred in arbitrarily rejecting the contentions made by the Appellant in its demonstration & working out the effect of provisions laid out in section 10(7) r.w. 80-IA(8) and thus establishing that effectively the cost of crude ore transferred from its own mines is comparable to the test of market value. 3.4. Even if assuming the approach adopted by the .....

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, the same stands condoned and the appeal disposed off on merits. 5. In regard to ground no. 2 of the Revenue s appeal which is on the issue of disallowance u/s 14A of the Act, it was submitted by the ld. DR that in the course of the assessment, the AO had in page 14 of his order disallowed an amount of ₹ 54,15,54,962/- by invoking the provisions u/s 14A r.w.r. 8D. It was the submission that the Assessee of its own had already disallowed administrative expenditure of ₹ 23,55,556/- bu .....

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olding that the interest expenditure incurred by the Assessee for the specific purpose cannot be taken into consideration for making the disallowance u/s 14A of the Act. It was the submission that there is no such provision in the provisions of Sec. 14A or Rule 8D. It was the submission that the order of the ld. CIT(A) was liable to be reversed. 6. In reply, the ld. AR submitted that the ground raised by the Revenue is misconceived insofar as the Revenue has challenged the deletion by the ld. CI .....

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n the case of the Assessee. The ld. AR drew our attention to page 2342 of the paper book, which is the copy of the order of the co-ordinate bench of this Tribunal in the case of the Assessee in ITA Nos. 72 & 85/PNJ/2012 dt. 8.3.2013, and submitted that in para 18, page 31 of the said order the Tribunal had for the immediately preceding year i.e. A.Y 2009-10 deleted the disallowance made u/s 14A r.w.r 8D. It was the submission that on identical grounds, the disallowance confirmed by the ld. C .....

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l that in the Assessee s appeal, the Assessee has only challenged the confirmation of the disallowance of ₹ 1,48,72,062/-. It was also informed to the ld. AR that the Assessee itself has disallowed an amount of ₹ 23,55,556/- under the head Administrative expenditure in respect of the disallowance u/s 14A and now could not take a stand that the Assessee had not incurred any expenditure in respect of earning the exempt income. It was also brought to the attention of the ld. AR that und .....

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011 and 1423/Kol/2011 dt. 19.6.2013. It was then agreed by both the sides that the issue of disallowance u/s 14A could be restored to the file of the AO for re-adjudication. 7. We have considered the rival submissions. As it is noticed that the calculation made by the AO shows that the AO has considered all the investments which is not permissible whereas the Assessee has not provided a proper computation of the disallowance u/s 14A and the ld. CIT(A) has also not considered the calculation prov .....

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e, it was brought to the attention of the ld. AR that the computation of deduction u/s 14A was liable to be made in line with the decision of the co-ordinate bench of this Tribunal in the case of REI Agro Ltd., Kolkata in ITA Nos. 1331/Kol/2011 and 1423/Kol/2011 dt. 19.6.2013 wherein the co-ordinate bench of this Tribunal has held as follows : 7. Now coming to the merits of the issue. A perusal of the provision of section 14A(1) clearly shows the wordings, "in relation to the income which d .....

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estment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) deals with the amount of expenditure directly relating to the income which does not form part of the total income. .....

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(2)(ii). In the assessee's case here the interest has been paid by the assessee on the loans taken from the banks for its business purpose. There is no allegation from the banks nor the AO that the loan funds have been diverted for making the investment in shares or for non-business purposes. Further rule 8D(2)(ii) clearly is worded in the negative with the words "not directly attributable". Thus for bringing any interest expenditure, claimed by the assessee, under the ambit of rul .....

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assessee's case, admittedly, the assessee has substantial capital. The increase in the capital itself is to an extent of ₹ 4 crores and in respect of reserves and surplus, the increase is ₹ 112 crores. The loans taken during the year admittedly are for the letters of credit and the assessee is bound to provide the bank stock statement and other details to show the utilization of the loans. No bank would permit the loan given for one purpose to be used for making any investment in .....

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the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of ₹ 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the par .....

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;average of the value of investment" is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of the ld. CIT(A) on the issue stand confirmed and consequently the appeal filed by the Revenue stands dismissed. C .....

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and unadmitted. 9. In respect of ground no. 3 of the Revenue s appeal, it was submitted by the ld. DR that the issue was against the action of the ld. CIT(A) in deleting the addition made by the AO u/s 40(a)(ia) of the Act towards payment of commission to foreign agents where TDS had not been deducted. It was the submission that the AO in pages 15 to 21 of his order had disallowed the payment of commission to various agents who were non-residents. It was the submission that the ld. CIT(A) in pag .....

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isallowance was to an extent of ₹ 5,07,06,761/- and the ld. CIT(A) had deleted the disallowance, whereas the Revenue has only challenged the deletion to an extent of ₹ 1,56,68,389/-. It was the further submission that the ld. CIT(A) had followed the decision of the co-ordinate bench of this Tribunal in the Assessee s own case being ITA Nos. 72 & 85/PNJ/2012 dt. 8.3.2013. It was the submission that the order of the ld. CIT(A) was liable to be upheld. At this point it was pointed t .....

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ate bench of this Tribunal has held the issue against the Assessee as follows : 8. We have considered the submissions. A perusal of the assessment order in the Assessee‟s case shows that the AO has disallowed the commission paid to the foreign agents on two grounds; one on account of non-deduction of TDS and second that the expenditure has not been paid for the purposes of the business of the Assessee. A perusal of the decision of the co-ordinate bench of this Tribunal in the case of Sesa .....

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eld that the expenditure has been incurred by the Assessee for the purpose of the business of the Assessee itself. However, in respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act for non-deduction of the TDS u/s 195(1) of the Act, it is noticed that the provisions of Sec. 195 has been amended by the introduction of Explanation-II to the said section by the Finance Act, 2012 with retrospective .....

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I to Sec. 195 of the Act, as the Assessee has not deducted TDS u/s 195, the disallowance made by the AO by invoking the provisions of Sec. 40(a)(ia) of the Act would have to be restored and we do so. In the result, ground no. 4 of the Revenue‟s appeal stands allowed. It was then submitted by the ld. AR that Explanation - 2 was introduced for the purpose of addressing the question of chargeability when an entity did not have a presence in India. It was the submission that in a situation whe .....

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an amount chargeable to tax in India the provisions of Sec. 195 itself cannot be invoked. It was further submitted by the ld. AR that the AO has not disallowed the commission to the non-resident by applying the provisions of Sec. 40(a)(ia) but it was in terms of Sec. 37, as not wholly and exclusively for the purpose of the business. At this point, the statement of facts filed by the Assessee before the ld. CIT(A) was verified and it showed that the Assessee has in the statement of facts in the .....

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n respect of disallowance by invoking the provisions of Sec. 40(a)(ia) of the Act on account of non-deduction of TDS. 11. We have considered the rival submissions. A perusal of the order of the ld. CIT(A) at page 33 shows that for the A.Y 2006-07 the AO has held that there was no necessity for engaging commission agents and accordingly, the commission payment was not held to be allowable as business expenditure u/s 37 of the Act. It is noticed that the ld. CIT(A) has deleted this disallowance fo .....

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itted by the ld. DR that the issue was against the action of the ld. CIT(A) in deleting the disallowance made u/s 40(a)(ia) r.w.s. 195(1) towards payment of demurrage paid to non-resident buyers of iron ore. It was fairly agreed by both the sides that the issue was now squarely covered by the decision of the co-ordinate bench of this Tribunal in the Assessee s own case in ITA No. 72 & 85/PNJ/2012 dt. 8.3.2013 wherein at para 31 to 33.1 at pages 54 to 57 the issue has been held in favour of t .....

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herein at para 46 to 46.2 at pages 167 to 170 the co-ordinate bench of this Tribunal following the decision of the Hon'ble Supreme Court in the Assessee s own case reported in 271 ITR 331 has allowed the claim of additional depreciation. In the circumstances, ground no. 5 of the Revenue s appeal stands dismissed. 14. In respect of ground nos. 6 to 12 of the Revenue s appeal which is against the action of the ld. CIT(A) in granting deduction u/s 10B of the Act and ground nos. 13 to 16 which i .....

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It was the submission that the order of the ld. CIT(A) was liable to be reversed. 15. In reply, the ld. AR submitted that the appeal for the A.Y 2009-10 was pending before the ld. CIT(A) and the hearing for the same was also concluded though the order has not been received. It was the submission that the said fresh evidences as produced by the AO, which was found in the course of the survey on the Assessee, were also produced before the ld. CIT(A). It was the submission that this issue could be .....

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lation to the claim of deduction u/s 10B is liable to be restored to the file of the ld. CIT(A) for re-adjudication after granting the Assessee adequate opportunity of being heard, and we do so. In the result, ground nos. 6 to 16 of the Revenue s appeal stand partly allowed for statistical purposes. 17. Ground no. 17 is general in nature. In respect of ground nos. 18 & 19 it was submitted by the ld. DR that the issue was against the action of the ld. CIT(A) in not following the decision of t .....

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CIT(A) had blindly followed the decision of the co-ordinate bench of this Tribunal in the Assessee s own case when fresh facts were available and were placed before the ld. CIT(A). 18. In reply, the ld. AR submitted that there was no Remand report and what was placed before the ld. CIT(A) was only a letter alongwith certain evidences. It was further submission that the decision relied upon by the Revenue in the case of M/s. Dempo & Co. Pvt. Ltd. was in a penalty proceedings and had no relat .....

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In respect of the Assessee s appeal, as mentioned earlier, ground nos. 1 to 1.3 being the issue of disallowance u/s 14A, has been restored to the file of the AO for re-adjudication. 21. In respect of ground nos. 2.1 and 2.2 of the Assessee s appeal, it was submitted by the ld. AR that the issue was against the action of ld. CIT(A) in disallowing ₹ 6 crores of interest expenditure in respect of foreign currency convertible bonds as non-business expenditure. The ld. AR drew our attention to .....

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ssee had utilised only ₹ 21,26,74,593/- and the balance amount had been kept in fixed deposits as per the RBI guidelines. It was the submission that this deposit had earned an interest of ₹ 39.36 crores whereas on the total loan the Assessee had paid interest of ₹ 45.36 crores. It was the submission that the different amount of ₹ 6 crores was treated by the ld. CIT(A) as non-business expenditure. It was the submission by the ld. AR that the ld. CIT(A) has not issued any e .....

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e rival submissions. A perusal of the order of the ld. CIT(A) shows that the ld. CIT(A) has not issued any enhancement notice to the Assessee in respect of the disallowance of ₹ 6 crores as mentioned in para 4.5 of his order. However, it is also noticed that the issue of deduction u/s 14A has been restored to the file of the AO for re-computation and it is in this computation that the ld. CIT(A) has disallowed the amount of ₹ 6 crores towards non-business expenditure. Consequently, w .....

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Highlight: It is open to the Settlement Commission to use best judgment in arrival of the figure. Nonetheless it has to explain the manner in which the best judgment figure has been arrived at by the Settlement Commission - HC

Highlight: Deemed dividend u/s 2(22)(e) - advances given to societies - in the absence of legal right of the assessee in the said society the amount advanced cannot be treated as deemed income.

Highlight: When electrical installations are treated as plant and machinery the depreciation has to be allowed @ 25% as per provisions contained u/s 32

TMI Note: Capital Gain - transfer of right in the land or transfer of land itself - addition u/s 50C - Harassment to the honest tax payers

Highlight: Option to avail composition scheme under GST by electronically filing an intimation in FORM GST CMP-02 and FORM GST ITC-03 upto 30-9-2017 - See Rule 3(3A)

TMI Note: Does ICDS apply for the purposes of computing exemption u/s 11 to 13.

Highlight: Voluntary Reporting of Estimated Current Income and Advance Tax Liability - CBDT issues draft notification

TMI Note: Certain ICDS provisions are inconsistent with judicial precedents. Whether these judicial precedents would prevail over ICDS.

Highlight: Provisions of ICDS shall prevail w.e.f. AY 2017-18 to the transactional issues dealt therein over earlier judicial pronouncements.

News: Voluntary Reporting of Estimated Current Income and Advance Tax Liability

TMI Note: In case of conflict between ICDS and other specific provisions of the Income-tax rules, 1962 governing taxation of income like rules 9A, 9B etc. of the Rules, which provisions shall prevail.

TMI Note: Does ICDS apply to computation of Minimum Alternate Tax (MAT) u/s 115JB of the Act or Alternate Minimum Tax (AMT) u/s 115JC of the Act.

TMI Note: Where a term has not been defined under ICDS, nor under the Act, but has different interpretations given to it by the courts in tax cases, and in ICAI Accounting Standards, which interpretation would prevail while interpreting ICDS.

TMI Note: Whether the provisions of ICDS apply to a non-resident who claims the benefit of a double taxation avoidance agreement (DTAA).

TMI Note: In case any of the ICDS provisions is contrary to a circular or press release issued by the CBDT, which would prevail over the other.

TMI Note: ICDS-I requires disclosure of significant accounting policies and other ICDS requires specific disclosures. Where is the taxpayer required to make such disclosures specified in ICDS.

Notification: Income Computation and Disclosure Standards (ICDS) - New ICDS to be effective from AY 2017-18

News: RBI Reference Rate for US $

Highlight: GST - Detention of goods under transport - discrepancy in documents - the statutory provisions provide a mechanism for adjudication following detention of goods including for the provisional release thereof pending adjudication - HC



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