TRIBUNAL DECISIONS

M/s Nortel Networks India Pvt. Ltd. Vs DCIT (ITAT Delhi)
Penalty U/s 271(1)(c) cannot be levied if more than one legal view is possible:
(Appeal No.: ITA No. 1510/Del/2016, Date of Order : 07/08/2019, Assessment Year: 2005-06)
Courts : All ITAT (6300) ITAT Delhi (1441)

The assessee has offered Explanation as why the transaction of loss of security was claimed as business loss. This Explanation has not found to be false by the Assessing Officer (AO). Further, the assessee substantiated the Explanation by way of filing relevant documents in relation to the transaction.

The Hon. Tribunal opined that the assessee has disclosed all the facts material to the computation of the income in the assessment proceedings. It is not the requirement of the law that all the facts material to the computation of income have to be disclosed in the Return of Income only as there are no relevant columns in the return of income form for disclosing all the facts of the case.

During the assessment proceedings, the Assessing Officer asked queries in respect of the claim of loss of security deposit claim and the assessee submitted all the detailed information in respect of the transaction and no facts have been found to be wrong by the AO. The issue involved is only of the interpretation of the transaction of loss of security. According to the assessee, it was in the nature of revenue expenditure whereas according to the AO, it is capital loss, not allowable against the business profit. The issue raised was where similar advances forfeited have been held to be revenue expenditure.

There is no doubt that there were two opinions, whether the advances written off could be considered as revenue expenditure or capital expenditure.

Hon’ble High Court of Punjab and Haryana in the case of Commissioner of Income Tax versus Amtek Auto Limited (supra) has held that “merely because assessee claimed expenditure as revenue, which was held as capital by the Assessing Officer, penalty for concealment could not be imposed where assessee discloses nature of transaction”.

In the case of CIT vs. Electrolux Kelvantro Ltd. (supra), Hon’ble Delhi High Court held that where the issue involved is debatable and not free from doubt, no penalty can be levied.

In view of the foregoing discussion and respectfully following the decisions of the Hon’ble High Court, The Hon. Tribunal took a view and accordingly held that Explanation 1 of 271(1) is not attracted in the case of the assessee for levy of penalty U/s 271(1)(c) of the Act.

Hon’ble NCLAT opens a backdoor entry route for defaulting promoters:

Facts:

The National Company Law Tribunal, an adjudicating authority under the Insolvency and Bankruptcy Code (IBC), had earlier on May 8, 2019 ordered liquidation of the company after it raised concerns over the manner in which one of the financial creditors, Andhra Bank, had approached it for one-time settlement and withdrawal of the IBC proceedings against the company, whose promoters are absconding from the country.

The promoters of the group - Nitin Sandesara, Chairman and Managing Director and Chetan Sandesara, Joint Managing Director - are being investigated by various law enforcement agencies such as the Enforcement Directorate and CBI. The promoters of the group have been accused of money laundering and bank frauds involving Rs 8,100 crore approx.

The NCLAT had earlier stayed the NCLT order for liquidation of the company. Sterling Biotech owed over Rs 9,000 crore approx. to various creditors. Hon’ble NCLT in its liquidation order had raised concerns over how financial creditors agreed for a one-time settlement without verifying the source of fund from which the promoters promised to pay them. It had also said that if the one-time settlement proposal is accepted, the promoters would get the company back by paying Rs 3,110 out of around Rs 9,000 crore dues, a hair cut of 64 per cent

Existing provision under IBC:

The Insolvency and Bankruptcy Code (IBC), despite several pinches to the law over the last three years that it has been in operation, continues to generate undesirable surprises, thanks to new ways of interpreting legislative intent while interpreting the Code.

When the government found that defaulting promoters can re-enter the same company they ran into the ground by bidding at the bankruptcy courts, it inserted clause 29A to prevent just this.

This clause disallows promoters from bidding for a company at the National Company Law Tribunal (NCLT) unless they have cleared their dues in full.

NCLAT conclusion:

Last month the National Company Law Appellate Tribunal (NCLAT) showed promoters a new way of getting back their companies by holding that the insolvency law only disallows them from bidding for their own company without clearing dues.

It does not stop them from offering one-time settlements to banks and taking the company out of the insolvency process altogether. This is how Sterling Biotech was ordered to be given back to its promoters, the Sandesaras, with the proviso that they should clear all their dues.

When the matter ended at the appellate tribunal (NCLAT), the order went in favour of the promoters, thus allowing them to neatly regain control of a company in which they were not allowed back under section 29A.

Key takeaway:

It is possible to argue that the NCLAT has not done anything more than ensuring that the creditors got what they were willing to settle for, but in the process, they have opened up one more boulevard for promoters to use backdoor methods to burrow their way back into the company they ran aground.

For more details on updates, visit www.wirc-icai.org

LANDMARK JUDGEMENT - HON’BLE HIGH COURT, MUMBAI

In the matter of M/S. Samruddhi Developers V/s. Kiran Vasant Verekar and others.

Second Appeal No. 27914/2018 and Civil application No. 1313/2018 pronounced on 17th September, 2019.

Facts of the case :-

Various allottees have filed complaints before authority with claim of relief u/s 18 of the Act for interest on delayed possession.

Authority has dismissed the complaint of allottees without granting any relief u/s 18 of the Act.

Allottee then preferred Appeal before Maharashtra Real Estate Tribunal seeking interest u/s 18 of the Act, for delay in possession.

Tribunal allowed the Appeal of the allottees and directed Developer to pay interest from 1st January, 2018 till handing over possession.

Aggrieved by Tribunal order, Developer preferred Appeal before Hon’ble High Court, Mumbai.

Originally society granted Development Rights to M/s Rebuilt Developers on 13th December 12 , 2007.

M/s Rebuilt Developers assigned Development Rights to new developers, M/s Samruddhi Developers with consent of society on 9th November , 2015

The various allottee who had executed Agreement for sale with M/s Rebuilt Developers then claimed interest for delayed possession from New developer , which is subject matter of current dispute.

Appellant i.e. New Developer M/s Samruddhi Developer raised the following arguments before Hon’ble High Court, Mumbai :-

a) There is no privity of contract between allottee and Appellant.
b) Appellant was appointed as new developer to complete remaining construction work which was left undone by the old developer.
c) None of the allottees were parties to Deed of Assignment dated 9/11/15.
d) It was clearly mentioned in the Deed of Assignment that appellant will not commence construction work for 8th Floor until commencement certificate is procured by Appellant.
e) The consideration paid by various allottee was not received by Appellant but by the old developer.
f) Society Terminated Development Agreement of Appellant on 1st February , 2019 which was after the order of RERA Tribunal.
g) Appellant cannot now complete the construction as society has terminated Development Agreement on 1st February , 2019.
h) Original Developer has not obtained consent from allottee while executing Deed of Assignment and hence the said Deed of Assignment is not enforceable by the allottees against Appellant.
i) Appellant is not liable to pay any interest to any of the allottees.
j) Since the Development Agreement is terminated on 1/2/19, Appellant cannot do any thing for construction work and therefore can not be made liable to pay any liability to any of the allottees.
k) Appellant contended that Hon’ble Tribunal has failed to consider various arguments and explanations of appellant while disposing off the Appeal by the Tribunal.

Decision :-

It is the responsibility of new developer to take over all the rights and obligation of old developer as mentioned in the Deed of Assignment.

Even though appellant has not received consideration from allottees or had no premity of contract with allottee, still appellant is liable to all the allottees in terms of section 15 of the Act.

Appellant cannot be saddled with the obligation towards allottees merely for the reason that there is termination of Development Agreement by the society.

There is no substantial question of law arises in this appeal filed by appellant and thus no interference is warranted with the order passed by RERA Tribunal.

These Appeals are totally devoid of merit and hereby dismissed.

POINTS TO PONDER :-

Whether Society becomes Developer Promoter upon termination of Development Agreement?

Whether Society can terminate Development Agreement without taking consent of 2/3 rd of allottees and consent of RERA Authority as required and mandated by Section 15 of the Act ? Because it results in transfer of rights in the project and Society being land Owner is Promoter under the Act.

Once the Termination of Development Agreement is effective , how outgoing Developer be made liable for delay in possession from the date of Termination?

GR No. Stamp-2017/2453/Pra.Kra.410/M-1 Dated: 20/09/2019: The sub-Registrar of Assurances have been directed to register agreement for sale of Apartments having RERA registration or apartments which are exempted from RERA registration.

GR: Misc-2019/Case No10/Du Va Pu 1 Dated: 13/09/2019: Government has passed a resolution to grant Concessions and incentive FSI, interest subsidy of 4% pa, one window clearance etc to cooperative housing societies to promote self redevelopment of CHS in Maharashtra.

Madras HC in WP 27100 of 2019 and WMP No. 26479 of 2019 has granted an interim stay for levy of GST on the amount upto Rs.7,500/- per member per month and to charge GST on the amount in excess of Rs.7500/- per month per member in the case of Residential welfare Association or the society.

GR: 07/09/2019 issued by Cooperative Department has postponed the election to all the Cooperative housing Societies upto 250 members till 31st December, 2019 as the Rules for conducting such elections are yet to be notified.

HC Mumbai: Second Appeal(ST) No. 27914 of 2018 with Civil Application 1313 of 2018 in the case of M/s. Samruddhi Developers Vs.Kiran Vasant Verekar, it has been held that the new developer shall be liable to discharge all the obligations and liabilities towards allottees created by the earlier developer irrespective of the fact whether, the new developer was a party to such transaction or not as per section 15 of RERA.

The Maharashtra Goods and Services Tax Act,2017

Circulars

The Commissioner of Goods and Services Tax, Maharashtra State, has issued Circulars as below:-

i) Circular 46T of 2019 dated 23.8.2019 by which guidelines for crosschecking of Input Tax credit are given.
ii) Circular 47T of 2019 dated 26.8.2019 by which submission of correct return under GST is clarified.
iii) Circular 48T of 2019 dated 18.9.2019 by which the clarifications about reimbursement of SGST applicable on tickets of Mission Mangal movie are given.

CBIC vide Notification No. 38/2019 - CT dated 31th August, 2019

has waived the requirement of filing of Form ITC-04 (Return by registered manufacturer, showing details of input or capital goods dispatched or received from Job worker) for period July, 2017 to March, 2019.

The registered person shall furnish details of all challans in respect of goods dispatched to a job worker during the period July, 2017 to March, 2019 but not received back processed goods from said job worker or not supplied from the place of business of the job worker to ultimate customer till the 31st March, 2019, in serial number 4 of FORM ITC-04 for the quarter April-June, 2019.

CBIC vide Notification No. 39/2019 - CT dated 31th August, 2019

 appoints 1st day of September, 2019 as date on which provision of section 103 (1A) (i.e. Advance ruling Pronounced by national Appellate Authority ) shall come into force.

CBIC vide Notification No. 40/2019 - CT dated 31th August, 2019

extended due date till 20th September, 2019 for furnishing GSTR 7 (Return by registered person required to deduct TDS) for month of July, 2019 for registered person having principal place of business in following district

CBIC vide Notification No. 41/2019 - CT dated 31th August, 2019

 waives the late fees for furnishing Form GSTR 1 & Form GSTR 6 for month of July, 2019 provided the return is filed on or before 20th September, 2019 by registered person having principal place of business in following district.

CBIC vide Notification No. 4/2019 – Central Excise (NT) dated 21th August, 2019

appoints 1st September, 2019 as date on which the SABKA VISHWAS (LEGACY DISPUTE RESOLUTION) Scheme, 2019 shall come into force.

CBIC vide Notification No. 5/2019 – Central Excise (NT) dated 21th August, 2019

notifies rules & form for Sabka Vishwas (Legacy Dispute resolution scheme), 2019.

MCA (www.mca.gov.in)

MCA notification No.GSR 636(E) Dated 5th September 2019 – National Financial Reporting Authority (Amendment) Rules, 2019

MCA has amended the NFRA Rules 2018 to provide that every auditor referred to in Rule 3 should file form NFRA-2 with the authority by 30th November every year. For a complete text of this notification, please refer the link:

http://www.mca.gov.in/Ministry/pdf/NFRA_05092019.pdf

Principal Commissioner of Income Tax vs. Tudor India Private Limited [2019-TII-92-HC-AMC-TP]

The Assessee is engaged in the business of manufacturing and marketing of storage batteries for different applications. As it has entered into various international transactions, its case was referred to the Transfer Pricing Officer (‘TPO’). During the TP assessment proceedings, the TPO accepted all international transactions of the Assessee to be at arm’s length, except (a) payment of Management fees; and (b) payment of insurance expenses to its Associated Enterprises (‘AEs’). The TPO in his order observed that (a) Management services provided by the AE were in the nature of supervisory activities undertaken on behalf of parent entity (i.e. shareholding activities) rather than the services for the benefit of the Assessee; and (b) there was duplication of insurance payment and the Assessee has not been able to substantiate the need for such payment. Accordingly, the TPO determined the arm’s length price for the above discussed transactions as “NIL”. The Dispute Resolution Panel (‘DRP’) upheld the action of the TPO.

The ITAT after considering voluminous documentary evidences on record observed as under:

(a)

Management Fees:

• A core management support services under cost contribution arrangement are outside the limited scope of shareholder services;
• Whether the Assessee “needs” the services or derives “benefits” from the services is not relevant for the Transfer Pricing analysis. The same should be best left to the commercial wisdom of the Assessee;
• What would be relevant is whether the Assessee has received the services and the cost allocation adopted is fair and reasonable;
• In the instant case, the e-mail correspondences and other details on record demonstrated rendition of services. Further, the allocation being on approximate time basis can be considered as reasonable for allocation of costs.
• In the view of the above, the ITAT deleted adjustment in relation to payment of management fees.

(b)

Insurance expenses:

• The ITAT observed that the Assessee has submitted sample copies of insurance and also detailed allocation working which is on a reasonable allocation key (i.e. turnover basis).
• Further, there was no duplication of insurance payment as the types of insurance for which payment was made to the AE and third party were different.
• Accordingly, the ITAT deleted adjustment in relation to payment of insurance expenses.

Revenue department filed an appeal before the Hon’ble High Court. The Hon’ble High Court in its detailed order upholding the observations of the ITAT, pronounced the following principles:

• The commercial viability (i.e. the need and the benefits) of cost allocation is not the domain of Transfer Pricing Analysis, when receipt of services has been demonstrated with documentary evidences.
• No substantial question of law arises as the findings of fact recorded by the ITAT in its order cannot be termed as perverse or contrary to the evidence on record. The Hon’ble Court extensively relies on Hon’ble Karnataka High Court decision in case of Softbrands India P. Ltd., reported in (2018) 406 ITR 513 in this regard.

Principal Commissioner of Income Tax vs. M/s Visteon Engineering Center India Private Limited [2019-TII-94-HC-MUM-TP]

The Hon’ble High Court in the said ruling dismissing Revenue Department’s appeal upheld the following principles:

• The Transfer Pricing adjustment has to be restricted to international transactions with AEs and cannot be made at entity level / on all transactions;
• The ITAT records the fact that certain companies are functionally not comparable to the Assessee. As the said finding of fact by ITAT is not shown to be perverse in any manner and therefore cannot give rise to any substantial question of law.

M/s Moog Controls India Private Limited vs. The Asst. Commissioner of Income Tax [2019-TII-399-ITAT-Bang-TP]

The Assessee is a company engaged in the business of design and manufacture of servo control and precision components for its AEs which are used in aviation industry, space industry and industrial controls divisions, etc. The Assessee had incurred losses in the manufacturing segment mainly due to under-utilization of capacity. Thus, post computing the capacity utilization adjustment, the Assessee concluded its margin in manufacturing segment were at arm’s length.

During the TP assessment proceedings, the TPO rejected the Assessee’s claim of capacity utilization and also rejected one of the comparable company selected in the TP study on the ground that it was a government company. The DRP upheld the action of the TPO. The Assesse filed an appeal before the ITAT.

The ITAT after considering the facts and arguments put forth observed as under:

• The adjustment for under-utilization of capacity can be granted provided the under-utilization of capacity vis-à-vis comparable companies is established with evidence. Further, with regard to computational aspects, the ITAT appreciated Assessee’s argument that the capacity utilization of main product only should be considered or at best, the weighted mean of the products should be considered.
• With regard to rejection of government company as comparable, the ITAT relying on Hon’ble Madras High Court decision in case of “Same Deutz Fahr India (P) Ltd. [(2018) 405 ITR 345 (Mad)], held that a government company cannot be rejected as a comparable if it passes the all filters adopted (quantitative as well as qualitative).

M/s Tega Industries Ltd. vs. Assistant Commissioner of Income Tax (ITA No. 404/Kol/2017 and ITA No. 2527/Kol/2017)

The ITAT relying on coordinate bench ruling in case of M/s. Manaksia Limited 2018-TII-544-ITAT-KOL-TP held that while the explanation to Section 92B of the Income-tax Act, 1961 (‘the Act’) inserted vide Finance Act 2012 w.e.f. 1 April 2002 is clarificatory in nature, it does not inherently covers the issuance of corporate guarantee within the ambit of definition of ‘international transaction’ under Section 92B of the Act. The ITAT appreciated the principles laid down in M/s. Manaksia Limited (supra) wherein the ITAT observed as under:

“In our opinion, the condition precedent of a transaction having a bearing on profits, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, sale, or lease of tangible or intangible property or provision of services, or lending or borrowing money or any such transaction. This understanding of ours gets further clarified by way of insertion of Explanation in section 92B(1)by the Finance Act 2012 with retrospective effect from 01.04.2002 vide clause (a) to (d). We find that in the said explanation, clause (e) alone has been carved out as an exception wherein, the transaction thereon has been specifically mandated to be an international transaction where a transaction of business restructuring or reorganization, entered into by an enterprise with an AE irrespective of the fact that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of transaction or at any future date. 12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it will be outside the ambit of international transaction under section 92B(1) of the Act.

The Ld. CIT, DR’s reliance in the case of Everest Kanto Cylinder Ltd. (supra) would not come to the rescue of Revenue because in that case, the parent company charged a fee of 0.5% on the AE for rendering this service. On this factual aspect, the Tribunal as well as the Hon’ble High Court held that it is an international transaction. Since in the case in hand, the assessee has not charged a penny from the AE, so the facts of the case are different and case law is distinguishable and, therefore, the Hon’ble High Court’s order cannot come to the rescue of the Revenue.”

Other Update

As per third proviso to Section 92C(2) of the Act read with proviso to sub-rule (7) of Rule 10CA of the Income-tax Rules, 1962 (‘the Rules’), if the variation at arm’s length price determined and price at which the international transaction or SDT has actually been undertaken does not exceed such percentage as may be notified (not exceeding 3 percent) by the Central Government in the Official Gazette, the price at which the international transaction or SDT has actually been undertaken shall be deemed to be the arm’s length price.

In this regard, the CBDT had prescribed tolerance limit not exceeding one percent of the value of international transaction in respect of wholesale trading and three percent of the value of international transaction in all other cases vide Notification No. 64/2019, dated 13 September 2019 for Assessment Year 2019-20.

Hitachi High Technologies Singapore Pte Ltd [Delhi ITAT]

Case Facts and Summary

Hitachi High Technologies [“assessee”-company incorporated in Singapore] had established a Liaison Office (‘LO’) in India for rendering preparatory and auxiliary services, including market research and liaison activities and further in 2007, the assessee established a Branch Office in India.

In the first round of litigation before ITAT, the matter was remanded back and in the present second round of litigation, ITAT Delhi ruled that the LO constitutes a PE in India.

ITAT rejected assessee’s stand that activities carried by LO in India were preparatory or auxiliary in nature and hence fell under the exclusionary clause of Article 5(7)(e) of the India-Singapore DTAA. However, the ITAT set aside PE profit attribution computation adopted by the AO and accepted assessee’s stand that “the operating margins resulting from attribution made by the Revenue are in the range of 163% to 2357%, which is not only excessive but absurd”.

It directed the AO to re-compute the attribution of profit to LO-PE by applying TNMM as most appropriate method. ITAT observed that the activities carried by LO in India were in respect of ‘advertisement and marketing, sales promotion, market research and administration’ and ruled that “activities of the LO are core activities for a trading business” carried on by the assessee company. ITAT Observed that “in India-Singapore DTAA, preparatory or auxiliary character, as used in para 7 of Article 5 of India-Singapore DTAA is ejusdem generis to the other terms used therein which means that “similar activities which have preparatory or auxiliary character has to be read as business solely used for the purpose of advertising, for the supply of information, for scientific research or for similar activities”. The assessee had further contented that no violation was found by the RBI with the activities of the LO. With respect to this the ITAT clarified that “Whether the assessee violated the conditions of RBI or FEMA is not relevant in determining the LO as a PE under the I.T. Act”

Review of Foreign Direct Investment (FDI) Policy on various sectors

Press Release dated August 28, 2019 issued by the Government of India; and Press Note No. 4 (2019 Series) vide DPIIT File No.: 5/3/2019-FDI Policy, dated September 18, 2019 issued by Department for Promotion of Industry and Internal Trade (DPIIT)

The Union Cabinet chaired by Prime Minister Shri Narendra Modi has on August 28, 2019 approved the proposal for review of FDI in Various Sectors. Consequently DPIIT has issued Press Note 4 (2019 Series) dated September 18, 2019 to give effect to the decision of Union Cabinet. Major changes in FDI Policy are as under:

Please refer aforesaid Press Release at https://pib.gov.in/indexd.aspx and Press Note at https://dipp.gov.in/policies-rules-and-acts/press-notes-fdi-circular

Return of Income – Section 139(1C) of the Income Tax Act – Exemption from furnishing of Return of Income u/s. 139(1) for Assessment Year. 2019 – 20. [265 Taxman (St.) 1]

The Central Government vide notification no. S.O.2672(E) (No.55/2019 [F.No.225/79/2019-ITA II] Dated 26-07-2019 hereby exempts the following class of persons, subject to the conditions specified, from the requirement of furnishing of return of Income u/s 139(1) of the Income Tax Act from assessment year 2019-20 onwards.

1. Class of Persons

(i) a non-resident, not being a company; or

(ii) a foreign company, who have any income chargeable under the said Act during a previous-year from any investment in an investment fund set up in an International Financial Services Centre (IFSC) located in India.

Explanation:- For the purpose of this paragraph.-

(a) “investment fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).

2. Conditions

In case of class of persons referred to in para 1,-

(i) any income-tax due on Income of the said class of persons has been deducted at source and remitted to the Central Government by the investment fund at the tax-rate in force as per provisions of section 194LBB of the said Act; and

(ii) there is no other income during the previous year for which the said class of persons, is otherwise liable to file the tax-return.

3. The exemption from the requirement of furnishing a return of income shall not be available to the said class of persons where a notice under sub-section (1) of section 142 or section 148 or section 153A or section 153C of the said Act has been issued for filing a return of Income for the assessment year specified therein.
4. This notification came into force from the date of its publication in the Official Gazette.

Income from Other Sources – Section 56(2) (viib) - CBDT simplifies the process of Assessment in respect of Start-Ups [265 Taxman (st.) 3]

The CBDT vide press release dated 10-08-2019 simplified the process of Assessment in case of start-up entities. The CBDT has decide the following where scrutiny assessment of start-up entities are pending

1. In case of Start-up Companies recognized by DPIIT which have filed Form No.2 and whose cases are under “limited scrutiny” on the single issue of applicability of section 56(2)(viib), the contention of the assessee will be summarily accepted.
2. In case of Start-up Companies recognized by DPIIT which have filed Form No.2 and whose cases have been selected under scrutiny to examine multiple issues including the issue of section 56(2)(viib), this issue will not be pursued during the assessment proceeding and inquiry on other issues will be carried out by the Assessing Officer only after obtaining approval of the supervisory authority.
3. In case of Start-up Companies recognized by the DPIIT, which have not filed Form No.2, but have been selected for scrutiny, the inquiry in such cases also will be carried out by the Assessing Officer only after obtaining approval of the supervisory authorities. In addition to the above, the Central Government has further decided to relax Para-6 of the DPIIT notification No.127(E) dated 19-2-2019 and make it clear that this notification will also be applicable to Start-up Companies where addition under section 56(2)(viib) has been made and the assessee has been recognized by DPIIT and subsequently filed Form No.2. The Circular to this effect in F.No.173/149/2019-ITA-1 of CBDT dated 8th August, 2019 has been placed on www.incometaxindia.gov.in.

Income from Other Sources-Section 56 of the Income Tax Act – Clarification with respect to valuation of shares of Start-up Companies involving application of section 56(2)(viib) [265 TAXMAN-(St.) 3]

The CBDT noticed that substantial additions are made by the AOs in “Start-up Companies” involving issue of valuation of shares u/s 56(2)(viib).

The Government Vide Notification No. G.S.R. 127(E), dated 19-2-2019 issued by the Department for Promotion of Industry and Internal Trade (henceforth referred to as “DPIIT”) and notification No.13/2019 F.No.370142/5/2018-TPL(Pt.) dated 5th March, 2019 Issued by the Central Board of Direct Taxes (henceforth referred to as “CBDT”), the Central Government has notified certain class of persons for which the provisions of section 56(2)(viib) will not apply. Para 6 of the notification issued by the DPIIT dated 19-2-2019 states that the notification is applicable only with regard to recognized “Start-up Companies” where no addition u/s 56(2)(viib) has been made in an assessment order before the date of issue of the notification. This has caused hardship to such companies.

The matter has been examined by the Board. To mitigate such hardships, the Central Government vide circular No.173/354/2019 dated 9-8-2018, has decide to relax the Para-6 of the above-referred notification issued by the DPIIT and make it clear that the notification will be applicable to those Start-up Companies also where addition u/s 56(2)(viib) has been made in an assessment order under the IT Act before 19th February, 2019 provided the assessee had subsequently submitted the declaration in Form–2 that it fulfills the conditions mentioned in Para-4 of the above-referred notification.

Return of Income – Section 139-Clarification in respect of filing –up of ITR Forms for the Assessment Year 2019 – 20 (265 Taxman-(St.)4)

The Income –tax return (ITR) Forms for the Assessment Year (AY) 2019 – 20 were notified vide notification bearing G.S.R. 279(E), dated the 1st day April, 2019. Subsequently, the instructions for filing ITR Forms were issued and the software utility for e-filing of all the ITR Forms were also released. After notification of the ITR Forms various queries have been raised by the stake-holder in respect of filing-up of the ITR Forms.

The CBDT Vide Circular NO.18/2019 (F.No.370142/1/2019-TPL (PT-1)], DATED 8-8-2019 issued be the clarification by way of FAQs. There are about 19 FAQs. Readers may refer to the above citation for the further details.

Section 268 A- Further enhancement of monetary limits for filing of appeals by the department before Income Tax Appellate Tribunal, High Courts and SLPs/Appeals before Supreme Court-Amendment to Circular No. 3 of 2018- Measures for reducing litigation. (265 TAXMAN (St.) 7)

The CBDT, in line with governments objective of reducing litigation, has been deciding monitoring limits for the revenue to file to Income Tax Appeals before tax Tribunals, High Courts and Special Leave petitions (SLPs) / appeals before Supreme Courts from time to time.

In 2018, the CBDT had issued Circular No.3/2018 providing for increased monetary limits, overriding the earlier limits set in this regard. With an aim to further manage litigation, the CBDT has now significantly enhanced the monetary thresholds for filing of Income Tax Appeals vide Circular No.17 of 2019, dated 8-8-2019.

The enhanced monetary limit is as follow :

Apart from enhancing the monetary limits, the Circular has also clarified that where an appeal is filed against consolidated order (Composite order for more than one Assessment Year), the monetary limits shall be tested individually for every tax year. Further where the consolidation is with respect to different tax payers, the limit shall be tested for each taxpayer, separately.

The aforesaid modification shall come in to the effect from date of issue of the circular.

Section 119 of the Income-Tax Act, 1961-Income-Tax Authorities – Instructions to Subordinate Authorities-Processing of returns with refund claims under section 143(1) beyond the prescribed time limits in non-scrutiny cases. [265 TAXMAN (St.) 9 ]

The several returns for various assessment year up to the assessment year 2017 – 18, which were otherwise filed validly u/s 139 or 142 of the Act could not be processed u/s 143 (1) of the Act due to certain technical issues or for other reasons not attributable to the assessee concerned. Consequently, Intimation regarding processing of such returns could not be sent within the period of one year from the end of the financial year in which such returns were filed as prescribed in the second proviso to the section 143 (1) of the Act. This has led to a situation where the taxpayers is unable to get his legitimate refund in accordance with the provision of the Act, although the delay is not attributable to him.

In order to resolve the grievances of such taxpayers, earlier, Board has issued instructions viz. Instruction No.18/2013, dated 18th December, 2013; Instruction/Order dated 25-10-2016; and Instruction No.5/2018, dated 21-8-2018 allowing processing of such validly filed time barred returns with refund claims, where the statutory time-frame for sending intimation under sun-section (1) of section 143 had lapsed. Vide the Instruction No.5/2018 dated 21-8-2018, time frame was given till 31-3-2019 to process all valid unprocessed returns with refund claims up to assessment year 2016-17, subject to other conditions specified therein.

The representation was made to be CBDT to enable the processing of such returns.

The CBDT by virtue of its power u/s 119, in order to mitigate genuine hardship being faced by taxpayers, hereby relaxes the time-frame prescribed in second proviso to sub-section (1) of section 143 and directs that all validity filed returns up to assessment year 2017-18 with refund claims, which could not be processed under sub-section (1) of section 143 of the Act and have become time-barred, subject to the exceptions mentioned in para below, can be processed now with prior administrative approval of Pr. CCIT/CCIT concerned and intimation of such processing under sub-section (1) of section 143 of the Act can be sent to the assessee concerned by 31-12-2019. All subsequent effects under the Act including issue of refund shall also follow as per the prescribed procedures. To ensure adequate safeguards, it has been decided that once administrative approval is accorded by the Pr. CCIT/CCIT, the Pr. CIT/CIT concerned would make a reference to the Pr. DGIT (Systems) to provide necessary enablement to the Assessing Officer on a case to case basis.

The relaxation accorded above shall not be applicable to the following returns :

(a) Returns filed for any assessment year prior to assessment year 2017 – 18, which were under scrutiny and were not processed in view of provisions of sub-section (1D) of section 143 of the Act;

(b) Returns remain unprocessed, where either demand is shown as payable in the return or is likely to arise after processing it;

(c) Returns remain unprocessed for any reason attributable to the assessee.