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Rationalisation Measures- DIRECT TAXES

H - Bills - Memorandum Explaining the Provisions in The Finance Bill, 2016 - FINANCE BILL, 2016 - H - H. Rationalisation Measures Rationalization of tax deduction at source provisions relating to payments by Category-I and Category-II Alternate Investment Funds to its investors. The Finance Act, 2015 had inserted a special taxation regime in respect of Category-I and II Alternative Investment Funds (investment fund) registered with SEBI. The special taxation regime is intended to ensure tax pass .....

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wer rate or no deduction is available in respect of sections enumerated therein, if the Assessing Officer is satisfied that total income of the recipient justifies issue of such certificate, section 194LBB is currently not included in this provision. It has been represented that the existing TDS regime has created certain difficulties. The non-resident investor is not able to claim benefit of lower or NIL rate of taxation which is available to him under the relevant Double Taxation Avoidance Agr .....

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ion of "rates in force" so as to include section 194LBB in it. These amendments will take effect from 1st June, 2016. [Clause 3, 81 & 83] New Taxation Regime for securitisation trust and its investors Under the existing provisions of Chapter-XII-EA of the Act consisting of sections 115TA, 115TB and 115TC, special taxation regime in respect of income of the securitisation trusts and the investors of such trusts has been provided. The regime provides that income distributed by the se .....

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cement of Security Interest Act, 2002 (SARFAESI Act) and their activities are regulated by the Reserve Bank of India (RBI). It has been represented that the existing regime providing for final levy in the form of distribution tax is tax inefficient for the investors specially the banks and financial institutions. Disallowance of expenditure in respect of income received from securitisation trust increases the effective rate of taxation. Further, the non-resident and resident investors are unable .....

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securitisation trust shall be taxable in the hands of investor in the same manner and to the same extent as it would have happened had investor made investment directly in the underlying assets and not through the trust; (iv) Tax deduction at source shall be effected by the securitisation trust at the rate of 25% in case of payment to resident investors which are individual or HUF and @ 30% in case of others. In case of payments to non-resident investors, the deduction shall be at rates in force .....

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for country-by-country reporting of income, earnings, taxes paid and certain measure of economic activity. India has been one of the active members of BEPS initiative and part of international consensus. It is recommended in the BEPS report that the countries should adopt a standardised approach to transfer pricing documentation. A three-tiered structure has been mandated consisting of:- (i) a master file containing standardised information relevant for all multinational enterprises (MNE) group .....

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ount of revenue, profit before income tax and income tax paid and accrued. It also requires MNEs to report their total employment, capital, accumulated earnings and tangible assets in each tax jurisdiction. Finally, it requires MNEs to identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of the business activities each entity engages in. The Country-by-Country (CbC) report has to be submitted by parent entity of an international group .....

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o the tax authority of the country in which it operates. In order to implement the international consensus, it is proposed to provide a specific reporting regime in respect of CbC reporting and also the master file. It is proposed to include essential elements in the Act while remaining aspects can be detailed in rules. The elements relating to CbC reporting requirement and matters related to it proposed to be included through amendment of the Act are:- (i) the reporting provision shall apply in .....

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l be furnished to the prescribed authority on or before the prescribed date; (v) the report shall be furnished in prescribed manner and in the prescribed form and would contain aggregate information in respect of revenue, profit & loss before Income-tax, amount of Income-tax paid and accrued, details of capital, accumulated earnings, number of employees, tangible assets other than cash or cash equivalent in respect of each country or territory along with details of each constituent's res .....

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esignated an alternate entity for filing its report with the tax jurisdiction in which the alternate entity is resident, then the entities of such group operating in India would not be obliged to furnish report if the report can be obtained under the agreement of exchange of such reports by Indian tax authorities; (ix) The prescribed authority may call for such document and information from the entity furnishing the report for the purpose of verifying the accuracy as it may specify in notice. Th .....

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ay applies for default beyond date of service of penalty order; (xii) If the entity has provided any inaccurate information in the report and,- (a) the entity knows of the inaccuracy at the time of furnishing the report but does not inform the prescribed authority; or (b) the entity discovers the inaccuracy after the report is furnished and fails to inform the prescribed authority and furnish correct report within a period of fifteen days of such discovery; or (c) the entity furnishes inaccurate .....

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able cause defence against levy of penalty shall be available to the entity. As indicated above, the CbC reporting requirement for a reporting year does not apply unless the consolidated revenues of the preceding year of the group, based on consolidated financial statement, exceeds a threshold to be prescribed. The current international consensus is for a threshold of € 750 million equivalent in local currency. This threshold in Indian currency would be equivalent to ₹ 5395 crores (at .....

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rnment or a State Government or any authority or body or agency in cash or kind to the assessee other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43 of the Income-tax Act. As a result grant or cash assistance or subsidy etc. provided by the Central Government for budgetary support of a trust or any other entity formed specifically for operation .....

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of method of accounting followed by a person. With a view to ensure the prompt payment of dues to Railways for use of the Railway assets, it is proposed to amend section 43B so as to expand its scope to include payments made to Indian Railways for use of Railway assets within its ambit. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. [Clause 23] Clarification regarding set off losses against deeme .....

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e allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. [Clause 51] Taxation of Non-compete fees and exclusivity rights in case of Profession The existing provision of clause (va) of section 28 of the Act includes within the scope of "profit and gains of business or profess .....

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e, 'cost of acquisition' and 'cost of improvement' are defined under section 55. However, non-compete fee received/receivable in relation to carrying out of profession are not covered under these provisions. It is proposed to amend clause (va) of section 28 of the Act to bring the non-compete fee received/receivable( which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 of the Act i.e. the charging section of profits and gai .....

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arising from transfer of securities, whether listed or unlisted. The expression "securities" for the purpose of the said provision has the same meaning as in clause (h) of section 2 of the Securities Contracts (Regulations) Act, 1956 (32 of 1956)('SCRA'). A view has been taken by the courts that shares of a private company are not "securities". With a view to clarify the position so far as taxability is concerned, it is proposed to amend the provisions of clause (c) .....

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ction 130, shall not be carried forward and set-off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) or section 74 or sub-section 74A. In accordance with the scheme of the Act, this loss is to be allowed if the return is filed within the specified time i.e. by the due date of filing of the return of the income as provided in section 80 for other losses determined under the Act. Accordingly, it is proposed to amend section 80 so as to prov .....

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ctrum i.e. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 of the Act or whether it is in the nature of a 'license to operate telecommunication business' and eligible for deduction under section 35ABB of the Act. In order to provide clarity and avoid any future litigation and controversy, it is proposed to insert a new section 35ABA in the Act to provide for tax treatment of spectrum fee. The section seeks to provide,- (i) .....

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ating company sells or transfer the spectrum to an amalgamatedcompany, being an Indian company, then the provisions of this section will apply to amalgamated company as they would have applied to amalgamating company if later has not transferred the spectrum. These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. [Clause 16] Rationalization of tax deduction at Source (TDS) provisions Under the scheme of .....

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ual limit of 1,00,000 194LA Payment of Compensation on acquisition of certain Immovable Property Insurance commission 2,00,000 2,50,000 194D Commission on sale of lottery tickets 20,000 15,000 194G Commission or brokerage 1,000 15,000 194H Commission or brokerage 5,000 15,000 Table-4 : Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act: Present Section Heads Existing Rate of TDS (%) Proposed Rate of TDS (%) 194DA Payment in respect o .....

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her threshold for deduction tax under this section, there may be cases where the tax payable on recipient's total income, including rental payments , will be nil. The existing provisions of section 197A of the Income-tax Act, inter alia provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self- declaration in prescribed Form.No. 15G/15H declaring that the tax on his estimated total income of the relevant previous yea .....

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s not provide any relief where the seller has entered into an agreement to sell the property much before the actual date of transfer of the immovable property and the sale consideration is fixed in such agreement, whereas similar provision exists in section 43CA of the Act i.e. when an immovable property is sold as a stock-in-trade. It is proposed to amend the provisions of section 50C so as to provide that where the date of the agreement fixing the amount of consideration for the transfer of im .....

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shall not be regarded as transfer, if certain conditions are fulfilled, which, inter alia, include a condition that the company's gross receipts, turnover or total sales in any of the preceding three years did not exceed ₹ 60 lakh. It is proposed to amend the said section so as to provide that, for availing tax-neutral conversion, in addition to the existing conditions, the value of the total assets in the books of accounts of the company in any of the three previous years preceding th .....

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ation of Government Pension and superannuation fund is exempt from taxation. The monthly contribution, annual accrued income, advances/ withdrawals for specific purposes and final withdrawal from the Recognised Provident Funds (RPFs) on superannuation are also accorded EEE status i.e. Exempt, Exempt, Exempt. In order to bring greater parity in tax treatment of different types of pension plans, it is proposed to amend section 10 so as to provide that in respect of the contributions made on or aft .....

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Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in Section 80CCD, to the extent it does not exceed forty percent of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax. However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax. Under section 17, perquisite includes the amount of any contribution exceeding one lakh rupees to an appr .....

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ing all the pension plans under one umberalla, it is also proposed to amend:- (i) the said schedule so as to provide exemption to one-time portability from a recognised provident fund to National Pension System; (ii) clause (13) of section 10 so as to provide that any payment from an approved superannuation fund by way of transfer to the account of the employee under NPS referred to in section 80CCD and notified by the Central Government shall be exempt from tax. These amendments are proposed to .....

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on who has not furnished a return within the time allowed to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Sub-section (5) of the section 139 provides that if any person, having furnished the return under sub-section (1), or in pursua .....

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is exempt under clause (38) of section 10 and income of such person without giving effect to the said clause of section 10 exceeds the maximum amount which is not chargeable to tax, shall also be liable to file return of income for the previous year within the due date. It is also proposed to substitute sub-section (4) of the aforesaid section to provide that any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous y .....

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. These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years. [Clause 65] Processing under section 143(1) be mandated before assessment Under the existing provision of sub-section (1D) of section 143, processing of a return is not necessary where a notice has been issued to the assessee under sub-section (2) of the said section. It is proposed to amend sub-section (1D) of the aforesaid section to provide .....

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period, for completion of assessment under section 143 or section 144 be changed from existing two years to twenty-one months from the end of the assessment year in which the income was first assessable; (ii) the period for completion of assessment under section 147 be changed from existing one year to nine months from the end of the financial year in which the notice under section 148 was served; (iii) the period for completion of fresh assessment in pursuance of an order under section 254 or .....

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sessing Officer to give effect to such order within the aforesaid period, for reasons beyond his control, the Principal Commissioner or Commissioner on receipt of such reasons in writing from the Assessing Officer, if satisfied, may allow additional time of six months to give effect to the said order. However, in respect of cases pending as on 1st June 2016, the time limit for passing such order is proposed to be extended to 31.3.2017. It is also proposed that where the assessment, reassessment .....

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n the case of the firm is passed. However, for cases pending as on 1.6.2016, the time limit for taking requisite action is proposed to be 31.3.2017 or twelve months from the end of the end of the month in which order in case of firm is passed, whichever is later. It is also proposed to make consequential changes in time limit for completion of assessment or reassessment by the Assessing Officer in accordance with the extension of time limit provided to the Transfer Pricing Officer in certain cas .....

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xassessment years referred to in clause (b) of sub-section (1) of section 153A and in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A be changed from existing two years to twenty-one months from the end of the financial year in which the last of the authorisations for search under section 132 or for requisition under section 132A was executed. (ii) The limitation for completion of assessment in .....

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section (1) of section 211, the advance tax payment schedule for a company is fifteen per cent, forty-five per cent, seventy-five per cent and hundred per cent of tax payable on the current income to be paid by 15th June, 15th September, 15th December and 15th March respectively. For other assessees, the advance tax payment schedule is thirty per cent, sixty per cent and hundred per cent of tax payable on current income to be paid by 15th September, 15th December and 15th March respectively. Bas .....

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d in section 211. It is also proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head "Profits and gains of business or profession" for the first time, subject to fulfillment of conditions specified therein. These amendments will take effect from 1st day of June, 2016. [Clause 87 & 89] Payment of interest on refund Section 244A inter alia provides that an assessee is entitled to interest on refund arising out of excess pa .....

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ovide that where a refund arises out of appeal effect being delayed beyond the time prescribed under sub-section (5) of section 153, the assessee shall be entitled to receive, in addition to the interest payable under sub-section (1) of section 244A, an additional interest on such refund amount calculated at the rate of three per cent per annum, for the period beginning from the date following the date of expiry of the time allowed under sub-section (5) of section 153 to the date on which the re .....

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Panel (DRP) under sub-section (5) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against such order . Further, sub-section (3A) of section 253 provides that every appeal under sub-section (2A) shall be filed within sixty days of the date on which the order sought to be appealed against is passed by the Assessing Officer in pursuance of the directions of th .....

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rtainty to the order of ITAT, it is proposed to amend sub-section (2) of section 254 to provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within six months from the end of the month in which the order was passed. The existing provision of sub-section (3) of section 255, inter alia, provides that a single member bench may dispose of any case which pertains to an assessee whose total income as computed by the Assessing Officer does not ex .....

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be levied under the newly inserted section 270A with effect from 1stApril, 2017. The new section 270A provides for levy of penalty in cases of under reporting and misreporting of income. Sub-section (1) of the proposed new section 270A seeks to provide that the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner may levy penalty if a person has under reported his income. It is proposed that a person shall be considered to have under reported his income if,- (a .....

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lated in different scenarios as discussed herein. In a case where return is furnished and assessment is made for the first time the amount of under reported income in case of all persons shall be the difference between the assessed income and the income determined under section 143(1)(a). In a case where no return has been furnished and the return is furnished for the first time, the amount of under-reported income is proposed to be: (i) for a company, firm or local authority, the assessed incom .....

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al provisions been reduced by the amount of under reported income; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section115JB or section 115JC been reduced by the amount of under reported income. However, where the amount of under reported income on any issue is considered both under the provisions contained in section 115JB or s .....

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income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot properly be deducted therefrom; (iii) where the assessee has, on his own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance; (iv) where the assessee had maintained information and documents as prescribed un .....

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saction or deemed international transaction under Chapter X. It is also proposed that in case of company, firm or local authority, the tax payable on under reported income shall be calculated as if the under-reported income is the total income. In any other case the tax payable shall be thirty per cent of the under-reported income. It is also proposed that no addition or disallowance of an amount shall form the basis for imposition of penalty, if such addition or disallowance has formed the basi .....

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r-reported Income (150-110) = 40 (180-150) = 30 Tax Payable on under-reported Income 30 % of 40 = 12 30 % of 30 = 9 Penalty Leviable* 50 % of 12 = 6 50 % of 9 = 4.5 * Considering under-reported income is not on account of misreporting Example 2. Case is of an individual below 60 years of age and no return of income has been furnished: (Figures in Rs) Total Income assessed under section 143(3) 10,00,000 Under-reported Income 10,00,000-2,50,000* =7,50,000 Tax Payable on under-reported Income 30 % .....

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, 93, 96, 98, 99, 100, 101, 104 & 107 ] Amendment of section 271AAB Existing provision of clause (c) of sub-section (1) of section 271AAB provides that in a case not covered under the provisions of clauses (a) and (b) of the said sub-section of section 271 AAB, a penalty of a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year shall be levied in case where search has been initiated under section .....

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of section 143 or failure to comply with a direction issued under sub-section (2A) of section 142. It is further proposed to amend sub-section (3) of section 272A to provide that penalty in case of failure referred above shall be levied by the income tax authority issuing such notice or direction. It is also proposed to make consequential amendment to section 288 by insertion of a new clause (d) in sub- section (1) of section 272A in the Income-tax Act relating to penalty for failure to comply .....

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filment of certain conditions. Having considered this recommendation, it is proposed that the Assessing Officer shall revoke provisional attachment of property made under sub-section (1) of the aforesaid section in a case where the assessee furnishes a bank guarantee from a scheduled bank, for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue. In order to help the Assessing Officer to .....

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ls to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount fifteen days before the expiry of such guarantee, the Assessing Officer may in the interests of the revenue, invoke the bank guarantee. The amount realised by invoking the bank guarantee shall be adjusted against the existing demand which is payable and the balance amount, if any, be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the branch of R .....

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-president in the Tribunal, it is proposed to omit the reference of "Senior Vice-President". Sub-section (2A) of section 253 provides that the Principal Commissioner or Commissioner may, if he objects to any direction issued by the Dispute Resolution Panel (DRP) under sub-section (5) of section 144C in pursuance of which the Assessing Officer has passed an order completing the assessment or reassessment, direct the Assessing Officer to appeal to the Appellate Tribunal against such orde .....

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ction 253 (as it stood before the amendment of the Finance Act, 2016), no fee shall be payable. This amendment will take effect retrospectively from 1st July, 2012. The existing provisions sub-section (2) of the section 254 of the Act, provide that the Appellate Tribunal may rectify any mistake apparent from the record in its order at any time within four years from the date of the order. In order to bring certainty to the order of ITAT, it is proposed to amend sub-section (2) of section 254 to .....

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143, processing of a return is not necessary where a notice has been issued to the assessee under sub-section (2) of the said section. It is proposed to amend sub-section (1D) of the aforesaid section to provide that before making an assessment under sub-section (3) of section 143, a return shall be processed under sub-section (1) of section 143. The amendment will take effect from the 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent year .....

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endment will take effect from 1st day of June, 2016. [Clause 46] Assumption of jurisdiction of Assessing Officer The existing sub-section (3) of the section 124, inter-alia, provides that no person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where return is filed under section 139, after the expiry of one month from the date on which he was served with a notice issued under sub-section (1) of section 142 or sub-section (2) of section 143 or after the .....

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tion 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier. This amendment will take effect from the 1st day of June, 2016. [Clause 63] Legislative framework to enable and expand the scope of electronic processing of information The existing provisions of section 133C empower the prescribed income-tax authority to issue notice calling for information and documents for the purpose of verification of information in its possession. In order to exped .....

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der sub-section (1) of section 143. It is proposed that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, in the interest of natural justice, an intimation shall be given to the assessee either in writing or through electronic mode requiring him to respond to such adjustments. The response recei .....

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It is proposed that the Assessing Officer shall, on fulfilment of the above conditions and after the expiry of period of filing appeal as specified in sub-section (2) of section 249, grant immunity from initiation of penalty and proceeding under section 276C if the penalty proceedings under section 270A has not been initiated on account of the following, namely:- (a) misrepresentation or suppression of facts; (b) failure to record investments in the books of account; (c) claim of expenditure no .....

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eassessment referred to in clause (a) of sub-section (1), in a case where an order under section 270AA has been made accepting the application. Clause (b) of sub-section (2) of section 249 provides that an appeal before the Commissioner (Appeals) is to be made within thirty days of the receipt of the notice of demand relating to an assessment order. It is proposed to provide that in a case where the assessee makes an application under section 270AA of the Income-tax Act seeking immunity from pen .....

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