Under the current GST Law, remuneration given to a Director (by whatever
name given) is a taxable service chargeable under Reverse Charge Mechanism
(‘RCM’) for levy of GST1.
On the other hand, an employee performing his functions under the
contract of employment is not a taxable service exigible to GST2.
The dispute arises when a director is an employee of the company and
receiving salary and remuneration as a director. There were contradictory views
taken by varied appellate forums3.
The CBIC has tried to put the dispute to rest vide Circular No. 140/10/2020 dated 10th June, 2020.
The summary of the Circular can be tabulated as under:
Sr. No.
Remuneration paid
to
Employee of the
Company?
Applicability of
GST
Applicability of
TDS under IT Act
1
Non-Employee Director
(typically Independent Directors)
No
Yes
194J
2.
Employee Director
(Typically WTD, MD etc)
Yes
No – On Salary Component
192 – On Salary Component
(Treated as any employee of the
company deriving salary, PF, gratuity etc)
3.
Employee Director
(Typically WTD, MD etc)
Yes
Yes – On Non Salary Component
(Typically Directors sitting fees)
194J – On Non Salary Component
Comments:
A Whole Time Director (WTD) or Managing Director (MD) who is an employee of a company performs dual roles within the Company.
Contract of Employment – Employer-Employee relationship exists and thus no GST is chargeable on the salary component of the Director. These directors perform day to day affairs of the company and actually run the company on a daily basis. This remuneration is treated as salary in the books of the company and income tax u/s 192 is deducted at source.
Contract of Service – All other remuneration other than salary derived in performance of his duty as Director i.e Director Sitting fees. This remuneration is not treated as salary and income tax u/s 194J is deducted at source.
On the other hand, a director by whatever name called who is not an employee of the company will derive entire remuneration as a contract of service chargeable to GST under RCM. Payment made for their participation are not in terms of employer-employee relationship and also not treated as “Salaries” in books of accounts. Further, TDS has to be deducted u/s 194J of the Act
1Notification
No. 13/2017 – Central Tax (Rate) dt 28.06.17, Sr. No. 6 of the Table annexed
2Sch III of CGST Act
3M/s.
Alcon Consulting Engineers (India) Pvt. Ltd. [AR No. KAR ADRG
83/2019] (Karnataka AAR) and M/s
Clay Craft India Private Limited [RAJ/AAR/2019‐20/33] (Rajasthan
AAR) holds a view that all payments to
director are liable to RCM as director is not an employee of the company
M/s. Anil Kumar Agarwal [AR No. KAR ADRG 30/2020] (Karnataka
AAR)hold a view
that payments made to directors as employee of the company is outside scope of
GST being covered by Schedule III of CGST Act, 2017
In the case of zero-rated supply of goods or services or
both without payment of tax under bond or letter of undertaking in accordance
with the provisions of sub-section (3) of section 16 of the Integrated Goods
and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be
granted as per the following formula –
Refund Amount = (Turnover of zero-rated supply of goods +
Turnover of zero-rated supply
of services) x Net ITC ÷Adjusted Total Turnover
Where,-
(A) “Refund amount” means the maximum refund that
is admissible;
(B) “Net ITC” means input tax credit availed on
inputs and input services during the relevant period;
(C) “Turnover of zero-rated supply of goods” means
the value of zero-rated supply of goods made during the relevant period without
payment of tax under bond or letter of undertaking;
(D) “Turnover of zero-rated supply of services”
means the value of zero-rated supply of services made without payment of tax
under bond or letter of undertaking, calculated in the following manner,
namely:-
Zero-rated supply of services is the aggregate of the
payments received during the relevant period for zero-rated supply of services
and zero-rated supply of services where supply has been completed for which
payment had been received in advance in any period prior to the relevant period
reduced by advances received for zero-rated supply of services for which the
supply of
services have not been completed during the relevant period;
(E) “Adjusted Total turnover” means the turnover
in a State or a Union territory, as defined under sub-section (112) of section
2, excluding the value of exempt supplies other than zero-rated supplies,
during the relevant period;
(F) “Relevant period” means the period for which the claim
has been filed.
Now let us discuss the loophole while making an online application for Refund of Input Tax Credit on Zero-rated supply without payment of GST.
In Statement 3A the portal is asking two figures:
Turnover of Zero Rated supply
(Export turnover)
Adjusted total turnover
Now as discussed above adjusted total turnover means the
turnover in a State or a Union territory, as defined under sub-section (112) of
section 2, excluding the value of exempt supplies other than zero-rated
supplies, during the relevant period”
The importance of Adjusted total turnover is to work out the Refund amount.
Refund
amount
is defined in rules means the maximum refund that is admissible.
It means the refund amount is the maximum amount that can be claimed as a refund for a relevant period.
Formula for refund amount:
Refund Amount = (Turnover of zero-rated supply of goods +
Turnover of zero-rated supply
of services) x Net ITC ÷Adjusted Total Turnover
Here comes the involvement of Net ITC.
“Net ITC” means input tax credit availed on inputs
and input services during the relevant period;
It means ITC availed during the relevant period. ITC availed means ITC available as per table 4C of GSTR 3B.
Now let us understand the loophole with the help of the following example:
Say refund claim to be applied for the month of April 2019
ITC availed as per GSTR 3B for the month: 5,00,000/-
ITC utilizes for payment of GST: 50,000/-
ITC carried forward in Credit ledger: 4,50,000/-
As per formulae given for Refund amount the maximum
admissible refund in above case would be:
5,00,000/- (Net ITC) x 1,00,00,000/- (Export turnover) /
1,10,00,000/- (Adjusted total turnover)
Which comes to Rs.4,54,545/-. (Subject to maximum of ITC carried forward in credit ledger for relevant period i.e. Rs.4,50,000/- in the present case).
Now when we are making an application on the portal the portal applies the above formulae to the carried forward ITC i.e. to Rs.4,50,000/- and not to Rs.5,00,000/-.
Accordingly as per portal the refund amount will come to
(4,50,000/- x 1,00,00,000/- / 1,10,00,000/-): Rs.4,09,090/-
So because of the above loophole on the portal, the taxpayer is losing its eligible refund which is not a correct position.
To cope up with the above loophole on the portal it is advisable to enter Export turnover and Adjusted total turnover as the same figure. This will lead to litigation but it is better to fight than to give away the legitimate right of refund.
In view of the judgment of the apex court, dated 22.09.2017, in case of another dealer, Addl. Commissioner issued revision notice on 06.11.17 u/s 75 of the GVAT Act.
On 16.03.2018, the high court set aside the revision notice being beyond the period of limitation period.
By virtue of the VAT Amendment Act, 2018, Section 84A came to be added in the VAT Act to be operative retrospectively w.e.f 01.04.2006, inter alia, providing for the exclusion of the period commencing from the date of the decision of high court dated 18.01.2013 rendered against the revenue up to the date of the decision of the Supreme Court i.e., 22.09.2017 being in favor of the revenue and thereby removing the basis of the judgment dated 16.03.2018.
B. Points of challenge
On the basis of above Addl. Commissioner issued another revision notice dated 01.09.2018 which is challenged on following grounds;
Section 84A of the GVAT Act is ultra vires and beyond the legislative competence of the State under Entry 54 of List II of the seventh schedule to the Constitution of India.
Section 84A of the GVAT Act is manifestly arbitrary and violative of the Articles 14 and 19(1)(g) of the Constitution of India.
Section 84A of the GVAT Act is not a validating Act.
C. Reasoning
After insertion of Article 246A (to enact a law relating to GST) of the constitution, the scope of Entry 54 has been drastically curtailed to six specific products only and State Legislature does not have the competence to enact any law under Entry 54 except the law concerning only the six specific products. Therefore, the power to amend any law with respect to levy of tax on the sale or purchase of goods such as the “Gujarat VAT Act” could be said to have been abolished with the aforesaid amendment in the Entry 54 in List II in Schedule VII of the Constitution of India.
If at the time of the amendment, the Legislature does not have the competence, then the law cannot be enacted on the ground that the same is concerning the period when the Legislature had the necessary competence.
Section 84A of the VAT Act is not saved under Article 246A of the Constitution. Article 246A of the Constitution was inserted by the 101st Constitution Amendment Act with the prime object of subsuming multiple indirect taxes and to confirm concurrent power upon the Parliament and State Legislature to impose “Goods & Services Tax’ in accordance with the recommendations of the Goods & Services Tax Council constituted under Article 279A of the Constitution.
Section 84A has been inserted in the Gujarat Value Added Tax Act, 2003 with retrospective effect. However, it does not provide for any validation of various acts of the revenue authorities namely the assessment, re-assessment, collection, etc. Accordingly, the said Act cannot be treated as a “validating Act”.
Section 64 of the VAT Act requires the dealer to preserve books of accounts only for a period of six years from the end of the relevant accounting year. The proviso thereto requires further preservation of books of accounts only to the extent a matter is pending in appeal or revision. However, the impugned provision exposes the dealer to assessment/reassessment/ revision for an indefinite period which is excessive and disproportionate. In fact, the retrospective operation of the provision w.e.f 1st April, 2006 allows reopening of assessments of years in respect of which a dealer was not required to preserve the books of accounts and, therefore, the retrospective operation is all the more onerous and manifestly arbitrary. (Shayara Bano vs. Union of India – 9 SCC 1)
If an unlimited time period is available to the Revenue for assessment/reassessment/revision in any case based on a decision rendered in the case of any other dealer the same would lead to an irreparable situation and, in such circumstances, it renders Section 84A manifestly arbitrary and unreasonable.
D. Conclusion
Accordingly, the amendment was held to be beyond legislative competence, manifestly arbitrary, and not being a validating act and was struck down.
“Question: Hey! What is your Tax History?
Are you compliant and paying Income tax properly??
Tax Payers (before): I do pay taxes regularly, but I
need to check with my accountant whether there are any defaults with the tax
department!
Tax Payers (now): Wait, I will provide my Form 26AS, it has all the information! You can check this. I am honest!”
1. Introduction
As the mandate of existing Form 26AS was required to be extended beyond information about taxes deducted and paid, the government has introduced new section 285BB vide Finance Act, 2020 replacing the existing section 203AA of the Income Tax Act, 1961 (“the Act”) which will now allow the income tax authority to produce additional information which is necessary and to the extent is in the interests of Revenue in Form 26AS.
2. Old and New Provisions
Particulars
Old 26AS
New 26AS (“AIS”)
Name of Form
Annual Tax Statement
Annual Information Statement (“AIS”)
Applicable Provisions
Section 203AA r.w. Rule 31 AB
Section 285BB r.w. Rule 114-I
Time Limit to issue Form 26AS
It shall be issued upto 31st July of the relevant Assessment Year (A.Y.).`
It shall be issued within 3 months from the end of the month in which the information is received by himBut, no time limit w.r.t. information under Rule 114-I(2), i.e. information received from (i.)officer any other laws, (ii)foreign govt under information exchange agreement or (iii) any other person.
Annural Information Report (AIR)/ Specified Financial Transactions (SFT)
AIR
SFT*
Information received from the foreign government (under the Exchange of Information treaty)
No
Yes
Information received from officers under other law (GST Department, CBI, SFIO, SEBI, etc.)
No
Yes
Information received from any other person (Tax Evasion Petition)
No
Yes
*SFT will contain details regarding various transactions exceeding various thresholds relating to purchase/sale of- goods, shares-securities and immovable property; rendering of services, works contract, cash deposits and withdrawals with banks, cash receipt in respect of sale of goods, etc. undertaken by the taxpayer during the year as reported u/s 285BA with whom such transaction is entered into.
4.Where will the AIS be available?
The AIS can be accessed from the e-filing portal of the taxpayer.
5. Comments:
Income Tax Report of Taxpayer
Based on the above, the notified new Form 26AS will bring out a complete chart about the assessee in terms of its compliance under Direct tax. It will now become Income Tax Compliance Record of Tax Payer similar to what CIBIL Score analysis for checking Financial Status or like Birth Chart of a Person.
Higher compliance by assessees:
The tax payer knowing that the Income Tax Department is aware of the transactions undertaken by him during the year would be driven to be more compliant and driven to correctly report them in their returns. This will not only ensure compliance but also potentially reduce assessment selection, leading to a reduction in litigation.
Assessee and tax professional can gauze in advance the likelihood of scrutiny selection:
As the information would be regularly updated within 3 months of receipt of the information, the assessee would be more aware and gauze whether his case is likely to be selected in scrutiny.
Erroneous
reporting can be corrected during the year itself:
In case
of erroneous reporting, the assessee would be known within 3 months and
in a position to reach out to the reporting entity to revise their SFT.
Impact on void transfers u/s 281:
Some transfers/charge of assets (such as land, building, FDs, shares, plant & machinery, sale of the business (merger or secondary sale of securities), etc.) may be treated void u/s 281 of the IT Act if it is made during the pendency (or completion) of any proceeding of the seller under the Act but before the issue of demand notice by the Tax Recovery Officer to him.
An exception to this rule is if the transfer is made for adequate consideration and without notice of pendency or without notice of tax demand. With the express inclusion of such details of pending & completed proceedings as well as demand status in the AIS, the purchaser would not be able to claim ignorance of proceeding and (or) demand of seller and request him to obtain prior permission from tax department before such transfer/charge.
Tool for due-diligence:
The AIS will serve as a good tool to analyze the pending tax demand and undertake due diligence of taxpayers by banks while processing loan applications, other stakeholders such as creditors, suppliers before providing credit, by due diligence professions during mergers and acquisitions.
Note: This article is just for information and personal view of the author.
In view of the situation arising due to COVID-19 pandemic and extended lock down period in the country, Ministry of Corporate Affairs has extended PERIOD/DAYS OF EXTENSION FOR NAMES RESERVED AND RE-SUBMISSION OF FORMS.
Sr. No
Issue description
Period/Days of Extension
1
Names reserved for 20 days for new company incorporation. SPICe+ Part B needs to be filed within 20 days of name reservation.
Names expiring any day between 15th March 2020 to 31st May would be extended by 20 days beyond 31st May 2020.
2
Names reserved for 60 days for change of name of company. INC-24 needs to be filed within 60 days of name reservation.
Names expiring any day between 15th March 2020 to 31st May would be extended by 60 days beyond 31st May 2020.
3
Extension of RSUB validity for companies.
SRNs where last date of Resubmission (RSUB) falls between 15th March 2020 to 31st May 2020, additional 15 days beyond 31st May 2020 would be allowed. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.
Note: Forms will not get marked to (Not to be taken on Record)’NTBR’ due to non- resubmission during this extended period as detailed above.
It also includes IEPF Non-STP eForms ( IEPF- 3, IEPF-5 and IEPF-7)
4
Names reserved for 90 days for new LLP incorporation/change of name. FiLLiP/Form 5 needs to be filed within 90 days of name reservation.
Names expiring any day between 15th March 2020 to 31st May would be extended by 20 days beyond 31st May 2020.
5
RSUB validity extension for LLPs.
SRNs where last date of resubmission (RSUB) falls between 15th March 2020 to 31st May 2020, additional 15 days would be allowed from 31st May 2020 for resubmission. However, for SRNs already marked under NTBR, extension would be provided on case to case basis.
Note: Forms will not get marked to (Not to be taken on Record)’NTBR’ due to non- resubmission during this extended period as detailed above.
6
Extension for marking IEPF-5 SRNs to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’
SRNs where last date of filing eVerification Report (for both Normal as well as Re- submission filing) falls between 15th March 2020 to 31st May 2020, would be allowed to file the form till 30th Sep 2020. However, for SRNs already marked under ‘Pending for Rejection u/r 7(3)’ and ‘Pending for Rejection u/r 7(7)’, extension would be provided on case to case basis.
Note: Status of IEPF-5 SRN will not change to ‘Pending for Rejection u/r 7(3)’ and ‘Pending for rejection u/r 7(7)’ till 30th Sep’20.
Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.
All
LLPs registered under Limited Liability Act, 2008 have to annually
file two forms Form 11 and Form 8.
Annual Return: Form 11 is to be
submitted within 60 days of closure of the financial year i.e 30th May 2018.
(Financial year closes on 31st March.)
Form 11 is due on 30th May , 2020.
Statement of Account and Solvency:
Form 8 is to be submitted within 30 days from the expiry of six months from the
closure of the financial year i.e 30th October 2018.
What is Form 11 and How to file it?
Form 11 is an Annual return that is to be
filled by all LLPs irrespective of turnover during the year. Even when an LLP
does not carry out any operations or business during the financial year, Form
11 needs to be filed.
Apart from Basic information about Name,
Address of LLP, details of Partners/ Designated Partners, other details that
need to be declared are :
Total contribution by/to partners of the LLP
Details of notices received towards Penalties imposed /
compounding offenses committed during the financial year
It must be e-filed on the MCA portal. The
e-form has to be downloaded and filled in an offline mode. The pre-fill option
is available to minimize your efforts and the Pre-scrutiny button is present to
validate the data filled in. This is done before you submit the form online.
What are the prerequisites?
LLPIN (Limited Liability Partnership Identification number) allotted to the LLP is needed to pre-fill the basic data.
Total obligation of contribution of partners of the LLP
Total contribution received by all partners of the LLP
Get DSC of your Designated Partner ready!
What are the Documents to be submitted along with Form 11?
Details of LLP and/ or company in which partners/designated partners (DP) are directors/ partners (It is mandatory to attach these details in case any partner/ DP is a partner in any LLP and/or director in any other company)
Any other information can be provided as an optional attachment to the e-Form.
Signing of LLP Form 11
The LLP Form 11 must be digital signed with the digital signature of one of the Designated Partners of the LLP. In case total obligation of contribution of partners of the LLP exceeds Rs. 50 lakhs or turnover of LLP exceeds Rs. 5 crores, then LLP Form 11 needs to be certified by a Company Secretary in whole time practice.
In case total obligation of contribution of
partners of the LLP does not exceed Rs. 50 lakhs and turnover of LLP does
not exceed Rs. 5 crores, then LLP Form 11 must be certified by
the designated partner of the LLP.
What are the consequences of late filing Form 11?
Late Fees: Penalty of Rs. 100 per day is chargeable till
the date of filing. As there is no cap on the penalty, the amount
would increase over time. Hence, it is important to file the on time to avoid
heavy penalty.
Aspects to note
Points to be noted regarding closing of
Financial Year in respect of filling of forms before due date is mentioned as
below
LLP’s registered upto 30th September of any
year : have to mandatorily
close their financial year as on immediate 31st March
LLP’s registered between the period starting
from the 1st October to 31st March of that year, have an option either to close financial year
as on immediate 31st March or
next year 31st March .
Steps to be followed to fill Form 11
STEP 1:- Download the form with instruction kit from mca.gov.in.
STEP 2:- Find out your LLPIN
LLPIN (LLP Identification Number) can be obtained from
mca.gov.in,under MCA services. Write your LLP name and all LLP registered to
MCA containing words you have provided, will be displayed. Choose your LLP and
get the LLPIN corresponding to it.
STEP 3:-Pre-fill the Details of LLP form-11
Fill Year for which
this form relates and Start date of financial year for which annual return is being filed for the Year 2015 it
must be 01.04.2014 and after that mention your Limited Liability Partnership
identification number (LLPIN) and then click on Pre-Fill button.All details
upto Point no. 8 will be displayed automatically.
Total monetary value
of obligation of contribution (Capital Contribution) as on above date will be
automatically appearing and it will be as per Form 11 – Annual Return as filed
by you.
STEP 4: Mentioned
Amount
After using Pre-Filing
Button now Come to point no. 8 (d) that is Total contribution received by
all partners of the LLP (in Rs.) in that dialogue box mention the amount of
Contribution received by All partners say for example Rs. 50,000/-, then
mentioned the same.
In Point No. 9 do not mentioned any thing
STEP 5 : Details of
individual(s) as partners
Now Come to Point
Number 10 that is Details of individual(s) as partners
In that point Designation will automatically captured along with
Designated Partner Identification number (DPIN)/ Income tax permanent
accountnumber (Income-tax PAN)/ Passport number.
STEP 6 : Details of
individual(s) as partners
So now just click on Pre-Fill button all the details of partner will
automatically captured.
STEP 7 : Details of
individual(s) as partners
The above mentioned Contribution received and accounted for (in Rs.) dialogue box, this is the amount which is required to be filled by you. Practice caution while filling out Individual contribution amount of all the partners as it should ultimately add up to Total Contribution mentioned in point 8 of Form 11. Same process shall be required to be done for all Partners.
STEP 8 : Details of bodies corporate as partners
In Point no. 11 the details of bodies corporate as partners required to
be mentioned. If an partner is a body corporate, Corporate identity number (CIN)
or Foreign company registration number (FCRN) or Limited liability partnership identification
number (LLPIN) or Foreign limited
liability partnership identification number (FLLPIN) or any other identification number DPIN, and click on
pre-file button all the details of partner will be auto captured.
STEP 9 : Summary of designated partner(s)/partner(s) as on 31st March of the period for which annual return is being filed.
The details in point 12 are pre-filled.
STEP 10 : Particulars of penalties imposed on the LLP as well as Partners :
In point no. 13 (i) if any penalty is imposed on LLP and in point no. 13
(ii) if any penalty is imposed on partners then it should be required to be mentioned
otherwise keep it as blank.
STEP 11: Particulars of compounding offences :
Fill in the details of Compounding offences, if any.
STEP 12: Whether turnover of the LLP exceeds 5 crores :
Tick box Yes/No to provide if your turnover exceeds 5 crores or not. This
is one of the criteria to determine if your LLP Annual Return would require a
DSC of a Company Secretary or not.
Now attach the details of company(s)/ LLP(s) in which partner/
designated partner is a director/ partner, as the case may be,in the required format as an attachment.
STEP 13 : Verification :
After making necessary attachment now comes to the verification in that
case make click on button saying “To the best of my knowledge and belief, the
information given in this form and its attachment is correct and complete”
Attach the Digital Signature of
Designated Partner along with their DPIN.
STEP 14 : Certification
After making verification to the certification, click on button saying “I
certify that Annual Return contains true and correct information”
Attach the Digital Signature of
Designated Partner along with their DPIN.
STEP 17 : Company Secretary Certification:
If:
Turnover of the LLP exceeds Rs. 5 crores or;
Partner’s Total Contribution exceeds Rs. 50 lacs
Then in either of the cases the LLP would be required to get their Form
11 Digitally signed by a Company Secretary.
STEP 18:- Pre-scrutiny
Use Check Form utility
to see if any more information is required for form completion. On no error
message, including the digital signature of person who is verifying the
furnished details. Perform Pre-scrutiny. If everything is correct, a pop
up-window saying “No Pre-scrutiny errors have found” will be displayed.
Author’s Note: No additional fees shall be charged for late filing during a moratorium periodfrom 1st April to 30th September 2020, in respect of any document, return,statement etc., required to be filed in the MCA-21 Registry, irrespective of itsdue date, which will not only reduce the compliance burden, including financialburden of companies/ LLPs at large, but also enable long-standing non-compliantcompanies/ LLPs to make a ‘fresh start‘.
Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article.
Issue
relating to: Rule 27 of ITAT Rules, 1963 – Sec. 253(4)
FACTS OF THE CASE:
During first appeal, CIT(A) had rejected jurisdictional legal grounds raised by the assessee. However, ultimately the matter was decided in favour of the Assessee based on merits. Department filed appeal before ITAT but no cross objection was filed by the assessee. However, during the course of hearing, Assessee raised the said jurisdictional legal grounds [which were rejected by CIT(A)] by resorting to Rule 27 of the ITAT Rules, 1963. Only oral application was made in this respect.
ITAT held that Rule 27 cannot be resorted without making proper application for it.
[Rule 27: The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.]
QUESTION BEFORE THE HON’BLE HIGH COURT:
What is the scope of Rule 27 of the ITAT Rules, 1963?
FINDINGS AND DECISION OF THE HON’BLE TRIBUNAL:
Hon’ble High Court held that:
a) Rule 27 does not mandate an application to be made in writing, hence oral application cannot be refused.
b) The word ‘thereon’ used in section 254 (1) implies that the tribunal has to confine itself to the ‘subject matter’ of appeal only. However, the ‘subject matter’ is comprehended so as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal.
c) Rule 27 cannot to be applied narrowly. Assessee cannot be precluded to challenge that part of CIT(A) which is against him. It cannot be said that by resorting to such grounds, the scope of ‘subject matter of appeal’ was being violated.
d) In case an assessee having succeeded before CIT (Appeals) but opts not to file cross objection even when an appeal has been preferred by the department, from that it cannot be inferred that the assessee has accepted that part of the order which was against him.
e) When order of the CIT(A) is at large before the Tribunal, and as the assessee had taken the jurisdictional legal ground before CIT(A), the respondent (here assessee) would be entitled to defend the order of the CIT(A) on all grounds including on those held against him. He can rely upon Rule 27 and advance his arguments, even though it had not filed cross objections against the findings which were against him.
Accordingly the matter was remanded back to ITAT for fresh adjudication.
Disclaimer: This article doesn’t constitute professional advice. The author does not represent that the said information is correct and complete in all regards. The views contained in this article are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. Readers of this article are advised to take professional advice before taking any course of action or decision. The author does not assume any responsibility or liability in respect of the information contained in this article or for any decision/ course of action readers may take based on information contained in this article
Microfinance is a specific business category of services, which includes microcredit. Micro-credit is a loan service to poor clients. Micro-credit is one of the microfinance aspects and the two sometimes get mixed. The microfinance revolution in India is as a strong instrument for soothe deprivation. Microfinance is financial resources for low-income clients include retailers and the self-employed employees, who historically neglect banking connections and related facilities.
More importantly, it’s a trend that object is “a society where the poor and the near-poor are alike households provide as much direct exposure as possible to a suitable selection of high-quality financial facilities, not just loans but also investments, taxes, and transfers of money. The ones promoting microfinance typically speaking think such exposure would benefit disadvantaged citizens who can come out of deprivation. The complex growth of the microfinance market was not only encouraged by market forces but also by national conscious actions
Governments, Non-Governmental Organizations (NGOs), and those donors who see microfinance as a successful poverty eradication method. The powerful push behind this huge and increasing support for microfinance indicated that national economic and social impacts are significant and it needs to be examined closely.
Substantial Micro Finance features and Principles:
Microfinance is used as an appropriate tool for the financing of small-scale/technical operations in rural areas requirements regardless of the following property.
(a) Revolving
loans to small-scale business activities chosen for the weak.
(b) Inspiring
vulnerable people to develop self-confidence in me might do it.
(c) Will
compensate interest received on itself.
(d) Creating
incentives to grow for oneself jobs of underserved men.
(e) For the
highest utility and the lowest cost per operation recipient.
Microfinance role in reducing poverty:
Microfinance concerns the provision of financial services for the soft people that aren’t treated conventional, structured financial entities-the topic is extending limitations on the delivery of financial services. These financial resources include the availability of delivery networks and groundbreaking methodologies. The financial services needs which enable people to both take advantage of opportunities and better management of their resources.
Microfinance may be an efficient one tool for alleviating poverty amongst many. Yet it does caution should be used-despite recent claims, the microfinance-to-poverty alleviation method it’s not straightforward, for poverty is a complex phenomenon and other conditions under which the weak consider themselves public must cope with that.
National Agricultural Bank For Rural Development (Nabard), Small Industries Development Bank Of India (Sidbi), Housing Development Finance Corporation (Hdfc), Commercial Banks, Regional Rural Banks, The Credit Cooperative Societies, etc., are some of the mainstream financial institutions involved in extending microfinance.
Insolvency and Bankruptcy Code 2016 is the law relating to insolvency and bankruptcy in India. This code was enacted with a view to consolidate and amend the law relating to insolvency and to remove the problem of overlapping legal framework in various laws. It provides the single window resolution of the insolvency and provides that NCLT (National Company Law Tribunal) will be adjudicating authority in case of insolvency of corporate persons and Debt Recovery Tribunal in case of other. This law also barred the jurisdiction of civil courts and other authorities in the insolvency process and section 231 of the code provides that no injunction will be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code.
Petition for insolvency can be filed by the following:
Financial
creditor u/s. 7 of the code.
Operational
creditor u/s. 8 and 9 of the code.
Coronate
debtor himself u/s. 10 of the code.
The Financial creditor is defined as u/s. 5(7) of the code as “person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.
Further Section 5(8) defines the
meaning of Financial debt.
Original code as passed in parliament does not contain any provision of initiation of insolvency proceedings by an allottee under a Real Estate project. However, clause (f) of section 5(8) of the code, which includes the meaning of financial debt provides that “any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing” will be treated as financial debt.
Now the question arises that whether the amount paid by the allottee in the Real Estate Project can be treated as financial debt by invoking the provision of section 5(8)(f) because advance paid by allottee have a commercial effect of borrowing and such advance is paid for acquisition of property in future.
The said question was answered by the National Company Law Tribunal in the case of Nikhil Mehta and Sons (HUF) vs AMR Infrastructure Ltd. [ Company Appeal (AT)(Insolvency) no. 7 of 2017], wherein it was held that amounts raised by developers under assured return schemes had the “Commercial effect of borrowings” which became clear from the developer’s annual return in which the amount raised was shown as “commitment charges” under the head “financial cost”. As a result, such an allottee was held to be “Financial Creditors” within the meaning of section 5(7) of the code.
A Similar view was expressed by the Insolvency Law Committee in its report submitted in March 2018. The committee in its recommendation at para 3 of the report state that “it has been recommended that home buyers should be treated as financial creditors owing to the unique nature of financing in real estate projects and the treatment of home buyers by the Honourable Supreme Court in ongoing cases. Notably, classification as financial creditors would enable home buyers to participate equitably in the insolvency resolution process under the Code”.
The recommendation made by Insolvency Law committee was accepted by Central Government and thereafter an explanation to 5(8)(f) was inserted vide Insolvency and Bankruptcy Code (Amendment) Ordinance 2018, which is read as under
“’Explanation.—For
the purposes of this sub-clause,—
any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and
the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016;
Thereafter a large number of writ petitions that have been filed in the Supreme Court challenging the constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016, in pursuance of the report of Insolvency Law Committee. The amendments so made deem allottee of real estate projects to be “financial creditors” so that they can initiate insolvency proceedings under section 7 of the code, against the real estate developer. In addition, being financial creditors, they are entitled to be represented in the Committee of Creditors by authorized representatives.
Thereafter Honorable Supreme
Court in case of Pioneer Urban Land and
Infrastructure Ltd and Anr. vs Union of India & Ors. [Writ Petition no.
43 of 2019] made the following observations:
The explanation added to Section 5(8)(f) of the Code by the Amendment Act does not, in fact, enlarge the scope of the original Section as home buyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove [Para 85, page 183]
We, therefore, hold that allottees/home buyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen [ Para86, page 183]
Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law [para (iii) of conclusion, page 184]
Therefore Supreme Court upheld
the constitutional validity of the amendment made in section 5(8)(f) stating that
said amendment is only clarificatory in nature.
Thereafter initiation of insolvency by allottee has been again amended by Insolvency and Bankruptcy Code (Amendment) Act 2020, which provides the minimum threshold for filing of insolvency petition by allottees under section 7 of the code. It is to be noted that said threshold is not applicable to other Financial Creditors. The said amendment is read as under:
In section 7 of the principal
Act, in sub-section (1), before the Explanation, the following provisos shall
be inserted, namely:
“Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less”
This amendment has limited the scope of imitation of insolvency by home buyers. The said amendment was also applicable to all the petitions for insolvency pending before Adjudication Authority but has not been admitted. This Amendment Act provides a period of 30 days for modification of applications pending before the Adjudication Authority in compliance with the above amendment, failing which the application will be withdrawn.
Thereafter many homebuyers approached the Supreme Court pleading that Amendment made in section 7 of the code is unconstitutional. Home Buyers were more concerned about the condition of compliance with minimum threshold by the pending petitions before NCLT within 30 days. Homebuyers said that it is very difficult for them to meet the minimum threshold within 30 days.
Supreme Court in case of Manish
Kumar vs Union of India [Writ Petition no. 26/2020] held that “Status quo, as
of today, with respect to the pending applications, shall be maintained in the
meanwhile”. And therefore all the pending petitions before Adjudication
Authority has not been withdrawn.
Conclusion:
Homebuyers are Financial Creditors and can initiate the Corporate Insolvency Resolution Process in the manner provided in section 7 of the code in case of default by Builder. However, their right has always been the subject matter of litigation and amendment. Further, their right has also been restricted by the Insolvency and Bankruptcy Code (Amendment) Act 2020.
Before the introduction of S. 270A, Section 271(1)(c) of the Income Tax Act was in place being penalty on concealment of income and or furnishing inaccurate particulars of income. However this section always caused litigation between revenue and taxpayers due to the decision of quantum of penalty at the discretion of assessing officer. Now the said section is replaced by Section 270A inserted vide Finance Act 2016 with effect from AY 2017-18 for imposition of penalty for underreporting of income or for misreporting of income. Let’s discuss certain important aspects of both the sections.
Amount of penalty:
Section 271(1)(c) provides for the imposition of a penalty for furnishing inaccurate particulars of income or for concealing the particulars. The amount of penalty ranges from 100% to 300% of the tax sought to be evaded at the discretion of assessing officers.
Section 270A(7) provides that penalty shall be imposable @ 50% of the tax payable in case of underreporting of income and 200% in case of misreporting of income. Therefore the new provision brings certainty to the quantum of penalty by prescribing a fixed percentage of penalty. Further section 270A(9) provides the cases of misreporting of income. They are as follow.
misrepresentation or suppression of facts; failure to record investments in the books of account;
claim of expenditure not substantiated by any evidence;
recording of any false entry in the books of account;
failure to record any receipt in books of account having a bearing on total income; and
failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply
Therefore, if the under-reporting of income arises out of cases mention above penalty imposable shall be 200% of the tax payable on under-reported income.
What is Underreporting of Income?
Section
270A(2) provides the cases where a person is said to be underreported his
income. A person is said to be underreported his income when,
Normal Provisions
Section
270A(2)(a): Return of income is filed.
Amount of income assessed is
greater than the income assessed determined after processing of return of income
u/s. 143(1).
Section
270A(2)(b): No return of income is filed or ROI is filed for the first time in
response to notice u/s. 148.
The amount of income assessed is more than the maximum amount not chargeable to tax.
For example: Mr. X has not filed the return of income within the time allowed u/s. 139(1). Thereafter notice u/s. 148 was issued to Mr. X for making the reassessment u/s. 147. Mr.X has filed the return of income declaring the total income at Rs. 10 lakh. Assessment in case of Mr. X was finalized after accepting the return filed in response to notice u/s. 148 determining total income at Rs. 10 lakh. Even though no addition has been made by assessing officer in the assessment u/s. 147, then also Mr.X is said to be underreported his income because income determined to exceed the maximum amount not chargeable to tax and Mr. X has filed the return of income for the first time.
Note: A recent amendment has been made by the Finance Act(no.2) of 2019 in section 270A with retrospective effect from AY 2017-18. Accordingly the cases where the person the not filed their return of income even though their income was liable to be taxed but subsequently on receipt of notice u/s. 148 they made full disclosure of income are also treated as a case of underreporting of income.
Therefore in the example referred above Mr. X will not be liable to the penalty for underreporting of income as per the earlier position of law that is a prior amendment.
Section 270A(2)(c) Previous reassessment
or reassessment has been made.
Amount
of income assessed is more that amount of income determined in the immediately
preceding assessment or reassessment.
MAT Provisions.
Section 270A(2)(d): Return of Income is
filed
The amount of deemed total income assessed or reassessed as per the provisions of section 115JB or section 115JC, is greater than the deemed total income determined in the return processed u/s. 143(1)
Section 270A(2)(e): No return of income is filed or ROI is filed for the first time in response to notice u/s. 148.
The amount of deemed total income assessed as per the provisions of section 115JB or section 115jc is greater than the maximum amount not chargeable to tax.
Section 270A(2)(f) Previous reassessment
or reassessment has been made.
The amount of deemed total income reassessed as per the provisions of section 115JB or section 115JC, is greater than the deemed total income assessed or reassessed immediately before such reassessment.
In case of Loss:
Section 270A(2)(g) Income assessed or reassessed has the effect of reducing the loss or converting such loss into income
Amount of underreported income.
Section 270A(3) prescribes the calculation of the amount of underreported income.
Case1: Return of income is filed and there is no previous assessment
Income assessed
XX
Less: Income determined on processing of return u/s. 143(1)
(XX)
Amount of Underreported income
XX
Case 2: Return of income is not filed or filed for the first time in response to notice u/s. 148
Income assessed
XX
Less: Maximum Amount not chargeable to tax [Not applicable in case of Company, Firm, and local authority because their income is taxable at flat rates.
(xx)
Amount of underreported income
XX
Case 3: Previous Assessment has been made
Income assessed
XX
Income assessed in previous assessment
(XX)
Underreporting of income
XX
Determination of amount of
underreported income where MAT/AMT is applicable.
Amount of underreported income will be
calculated by using the following
formula:
(A — B)
+ (C — D)
where,
A = the total income assessed as per general provisions (Other than Section 115JC/115JB)
B = the total income
that would have been chargeable had the total income assessed as per the
general 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 11
D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 115JC been reduced by the amount of under-reported income:
It is to be noted that where the amount of under-reported income on any issue is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D.
Circumstance where penalty could not be levied.
Example 1: Let’s assume that assessment in the case of XYZ Pvt. Ltd. was finalized after making the addition of ₹1,00,000/- on account of low gross profit. Assessing officer has estimated gross profit @ 5% as against 4% as declared by the assessee. However the books maintained by the assessee are correct and to the satisfaction of assessing officers and are in conformity with provisions of the Act. Now the issue arises whether the penalty is leviable.
Earlier Regime: Section 271(1)(c).
Section 271(1)(c) does not provide any exceptional cases where the penalty could not be levied. However various Judicial and Appellate authorities in various rulings decided the cases where penalty u/s. 271(1)(c) could not be levied. They are:
CIT vs. Reliance Petroproducts (P) Ltd [322 ITR 0158] (SC): It was held by Honorable Supreme Court that where assessee makes any claim of expense in the return of income, however, the said claim was disallowed by assessing officer, the in such case penalty u/s. 271(1)(c) will not be attracted if no information furnished in the return of income is incorrect or inaccurate.
CIT vs Aero Traders Pvt. Ltd. [322 ITR 0316] (Delhi HC): It was held by Honorable Delhi High Court that estimated the rate of profit applied to the turnover of the assessee which in does not amount to concealment or furnishing inaccurate particulars.
Therefore no penalty u/s. 271(1)(c) can be levied in the example mentioned above after relying on the decision of Delhi High Court in the case of CIT vs Aero Traders Pvt. Ltd (Cited Supra)
New Regime: Section 270A
Section 270A(6) provides the cases which do not amount to underreporting of income. They are as follow:
(a) the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered;
(b) the
amount of under-reported income determined on the basis of an estimate, if the
accounts are correct and complete to the satisfaction of the Assessing Officer
or the Commissioner (Appeals) or the Commissioner or the Principal
Commissioner, as the case may be, but the method employed is such that the
income cannot properly be deduced therefrom;
(c) the
amount of under-reported income determined on the basis of an estimate, if the
assessee has, on his own, estimated a lower amount of addition or disallowance
on the same issue, has included such amount in the computation of his income
and has disclosed all the facts material to the addition or disallowance;
(d) the amount of under-reported income represented by any addition made in conformity with the arm’s length price determined by the Transfer Pricing Officer, where the assessee had maintained information and documents as prescribed u/s. 92D, declared the international transaction under Chapter X, and, disclosed all the material facts relating to the transaction; and
(e) the amount of undisclosed income referred to in section271AAB.
Therefore no penalty could be levied in the example mentioned above as per section 270A(6)(b).
Example2: Mr. Y, resident of Surat while filing his return of income has claimed the expense of certain items after relying on the decision of Jurisdictional High Court (Gujarat High Court). Case of Mr. Y was selected for scrutiny. In the Meantime decision of Gujarat High Court was reversed by Supreme Court on an appeal before the Supreme Court. Assessing officer while framing the assessment disallowed the said expense claimed by the assessee on the basis of the ruling of Gujarat High Court. Now the question arises that whether the penalty could be levied.
Alternative 2: Section 270A: Mr. Y has offered a valid explanation in respect of the claim and the explanation offered by his also bona fide. And therefore no penalty u/s. 270A can be imposed as per section 270A(6)(a).
Immunity From Imposition of Penalty (Section 270AA)
Section 270AA provides for the immunity against imposition of penalty u/s. 270A or initiation of prosecution proceedings u/s. 276C and 276CC on an application made by the assessee in this regard after payment of interest and tax as specified in the notice of demand, provided that no appeal is filed against the order of assessment or reassessment.
To Whom Application is to be made?
To assessing officer within one month from the end of the month in which the order u/s. 143(3) or 147 is received by the assessee.
Note: Where underreporting of income arises due to cases of misreporting, immunity u/s. 270AA will not be granted.
Conclusion
Section 270A aims to bring certainty in the law of penalties by removing the discretion of assessing officers in deciding the quantum of penalty. Further section 270AA provides the immunity from imposition of penalty. Thus it clearly seems that the Government of India is focusing on reducing the tax litigation and the introduction of these two sections was one of those steps which our government had taken. However, since these sections are effective from AY 2017-18, whose scrutiny assessment has just completed in the last year and many of those cases are pending in appeal before CIT(A), the result of the implementation of theses sections will appear only after the passage of some time.
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