JALGAON DIST.

TAX PRACTITIONERS` ASSOCIATION

e NEWS LETTER
e mail: presidentjdtpa@gmail.com, keswanisu@gmail.com

YEAR 2013-14 SEPTEMBER 2013 No. 5

EDITOR: FROM EDITOR
SURESH KESWANI
Monthly Study Circle Meeting held on 06/09/2013
Sub: E filing of Tax Audit Speaker: CA Kalpesh Patil.

EDITORIAL BOARD:

M.R. SHIRUDE
SAHEBRAO PATIL
N.S. DOSHI
MAGAN PATIL
R.B. CHOPDA
SHIRISH SISODIA
DINAR DAPTARI
R.D. JAIN

From left Shri Sahebrao Patil, Secretary- JDTPA, CA Kalpesh Patil, Speaker and
Adv. M.R. Shirude, President-JDTPA.

Please give your valuable suggestions to improve our e news letter.

Articles, Law updates and other matter on taxation is welcome. Please e mail the
matter in word format to keswanisu@gmail.com Please update your e mail i.d. with
Shri Sahebrao Patil. SAVE PAPER - SAVE TREES hence e Newsletter
Thanks and regard …………… -Suresh Keswani, Editor

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 1

 IN THIS ISSUE

Sr. No. PARTICULARS BY

1 Gist of Judgments under Income Tax CA N.S. DOSHI
Act
2 Recent Amendments under Income Tax TP SURESH U. KESWANI
Act
3 Penalty U/s 272A(2)(k)- Recent havoc CA VINAY V. KAWDIYA
created by Department
4 Sales Tax Updates TP R. B. CHOPDA

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 2

SECTION A INCOME TAX
GIST OF JUDGEMENTS

BY: CA N.S. DOSHI

1. Disallowance u/s. 14A - Rule 8D _

Rule 8D- Assessment year 2008-09 - Whether, where Assessing Officer was not
satisfied with correctness of claim made by assessee that no expenditure was
incurred in relation to such income which did not form part of total income, he
could invoke section 14A only after recording satisfaction on that issue with
regard to accounts of assessee - Held, yes - Whether disallowance under section
14A read with rule 8D (2) (iii) can be computed only by taking into consideration
average value of investment appearing in balance sheet asx on first and last day of
previous year from which income not falling within total income has been earned
- Held, yes - Whether, where Assessing Officer had taken into consideration
entire investment made by assessee during relevant year for calculation of
disallowance under rule 8D, matter was to be restored for recompilation. Held yes

See: REI Agro Ltd., Dy CIT

144, ITD 141 (Kol.)

2. Business Income

2.1 Insurance premium on Car - Expenditure on account of first insurance

premium paid at the time of purchase of vehicles used for purposes of
business is capital expenditure.

See: Hero MotoCorp. Ltd., Vs. addl. CIT

(2013) 91, DTR, 1 (Del. C).

2.2 Business income - Benefit or perquisite under sec. 28 (iv) - Liability

shown in the books - Amount including interest accrued thereon,
outstanding as payable in the books could not be brought to tax under Sec.
28 (iv) - Fact that the assessee continued to disclose the impugned amount
as a liability in the balance sheet itself amounts to acknowledgement of the
debt and as such there is no remission of liability.
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 See: Hero MotoCorp. Ltd., Vs. Addl. CIT,
(2013) 91, DTR, 1 (Del. C).
2.3 Profits chargeable to tax under Sec. 41 (1) - Rebate allowed to assessee
vis-à-vis losses not set off under Sec. 72 (1) - If the assessee claims
deduction of certain expenditure and ultimately there is a loss, and such
loss cannot be set off under Sec.72. Sec. 41 (1) cannot be invoked in
respect of remission or cessation of liability relating to such expenditure.
See: The Mula Pravara Eloectric Co-operative Society Ltd., Vs. Dy CIT
(2013) 91, DTR, 434 (Pune “B”).
2.4 EPF and ESI contribution - Assessment year 2008-09. Whether, EPF and
ESI contribution collected and remaining payable at year end, but paid
before due date of filing return, is allowable - Held - Yes.
See: Gobindpada Bhanja Chowdhury V. ITO
58, SOT, 135 (Cuttak) (URO)
2.5 Employee’s contribution to provident fund - Assessment year 2006-07 -
Whether where employee’s contribution to provident fund was paid before
due dae of filing of return of income, same could not be disallowed under
section 43B - Held yes.
See: Patni Telecom Solutions Pvt. Ltd., V. ITO
58, SOT, 146 (Hyd.) (URO)

2.6 Capital or revenue expenditure - Expenses towards designing and lay out,
temporary partition and construction for making leased business premises
functional - Revenue expenditure - Income tax Act, 1961.
See: CIT V. Armour Consultants Pvt. Ltd.,
355, ITR, 418 (Mad.)

3. Method of Accounting

Percentage of completion method - Assessment years 2008-09 and 2009-10.

Whether it is not mandatory for all real estate developers to follow percentage of
completion method as prescribed by Institute of Chartered Accountants of India
under AS 7; it is option of assessee to follow either completed contract method or
percentage completion method - held yes - Whether, therefore, where assessee, a
real estate developer, maintained its accounts on mercantile basis by regularly
applying project completion method, there was no justification in rejection of its
accounts by application of provisions of section 145 (3) and changing method
from project completion to percentage completion method by Assessing Officer -
Held, yes.

See: Krish Infrastructure Pvt. Ltd., V. Asst. CIT

58, SOT, 127 (Jaipur) (URO).

4. Assessment

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 4.1 Assessing Officer - Powers - Reassessment - Effect of explanation 3 to
section 147 - Assessing Officer not making additions with respect to
ground on basis of which notice issued - Cannot in a fresh assessment
make additions on other issues which did not form part of reasons
recorded.
See: CIT V. Mohmed Juned Dadani,
355, ITR, 172 (Guj.)

4.2 Best Judgment Assessment - Addition : Where books of account had not
been rejected, addition of amounts shown in audited account was not
sustainable.
See: CIT V. Shakti Industries
(2013) 36, Taxmann.com16/ 217 Taxman 77 (Gujrat)
5. Co.Op. Society
Section 80P of the Income tax Act, 1961 - Deductions - Income of cooperative
societies (Banking Societies) - An assessee banking society is not eligible for
deduction under section 80P (2) (a) (i) on interest on income-tax refund -
(Assessment year 2003-04) (in favour of Revenue).
See: Kollam District Co-opetative Bank ltd., V. Dy. CIT,
(2013) 36, Taxmann.com 91 (Cochin - Trib.)
6. Interest u/s. 234A
Return - Delay in filing return - Interest under section 234A - part of tax paid
before return was due - Interest could not be levied on such part payment.
See: Bharatbhai B. Shah V. ITO,
355, ITR, 373, (Guj.)

7. Penalty u/s. 271 (1) (c)

Section 271 (1) (c), read with section 132, of the Income tax Act, 1961 - Penalty -
For concealment of income (Surrender of Income) - Where assessee offered
amount in question as additional income to buy peace and to avoid prolonged
litigation, addition made on basis of such offer of assessee did not call for levy of
penalty under section 271 (1) (c) (Assessment year 2005-06) (in favour of
Assessee)
See: Marathon Nextgen Reality & Textiles Ltd., V. Dy. CIT,
(2013) 36, Taxmann.com 3 (Mumbai - Trib.)
8. Recovery

Recovery - Stay - Pendency of appeal - Assessee’s assessed income being more

than twice the returned income, recovery of outstanding demand is stayed tll the
disposal of the pending appeals.

See: J. R. Tantia Charitable Trust Vs. Asst. CIT

(2013) 91, DTR, 463 (Jd.).

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 5

 RECENT AMENDMENTS

BY: SURESH U. KESWANI

1) Extention of due date of furnishing Report of Audit Electronically:-

Order under Section 119 of the Income-tax Act, 1961 Dt. 26/09/2013:- CBDT in
exercise of power under section 119(2)(a) of the Income-tax Act, 1961 read with section
139 and rule 12, has decided to relax the requirement of furnishing the Report of Audit
electronically as prescribed under the proviso to sub-rule (2) of Rule 12 of the IT Rules
for the Assessment Year 2013-14 as under-

a) The assessees, who are presently finding it difficult to upload the prescribed
Report of Audit (as referred to above) in the system electronically may also
furnish the same manually before the jurisdictional Assessing Officer within the
prescribed due date.

b) The said Report of Audit should however be furnished electronically on or before

31.10.2013.
(F.No. 225/117/2013/ITA.II Dt. 26/09/2013

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3] ARTICLE: …

PENALTY U/S 272A(2)(k)- Recent havoc created by Department

BY: CA VINAY V. KAWDIYA

A) Background:

It has been reliably learnt that dept. have levied penalty u/s 272A(2)(k) [ i.e. penalty for
delay in furnishing the quarterly TDS statements] in hundreds of cases in recent past under
Nasik range. To make the situation worse, approximately 500+ appeals have been admitted by
CIT (A)-I & II, Nasik on the subject matter, only in the month of April 13!!!

Such kind of hasty and unfortunate attempt by dept, especially in respect of procedural &
technical breach of provisions of I.T Act could have been avoided so as to leave CIT (A) to
concentrate on the other deserving high revenue & quality matters!

We as professionals often witness such rigid & belated approach of dept. especially when the Act
or any provision thereof is on the verge of omission from the statute book. One of such recent
instances is sudden awakening of the department about applicability of Wealth Tax Act, 1957
amongst the large class of assessees’. Same was the story about the draconian Fringe Benefit Tax
in 2009-10.

Let’s come back on the subject matter. Surprisingly, the authority levying the penalty [Jt. CIT
(TDS)], passed stereotype orders in almost all cases, irrespective of peculiar facts and
circumstances of each case, I myself have gone through at least 10 of such orders in respect of
assessee’s from Jalgaon, Dhulia & Nasik. Majority of aggrieved parties are various Govt./semi
Govt. departments such as collector office, land acquisition authority, PWD, various state Govt.
scheme offices, schools, post offices etc.

Anyway, since the orders have been passed we have no other option but to find the way out &
save the aggrieved appellants in deserving matters.

B) Penalty u/s 272A(2)(k):

The bare provision reads as under (relevant extracts only):

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Penalty for failure to answer questions, sign statements, furnish information, returns or
statements, allow inspections, etc.
272A. (1) If any person…………..

(2) If any person fails—

(a)…
(b)….
.
.
.
(k) to deliver or cause to be delivered a copy of the statement within the time specified in sub-
section (3) of section 200 or the proviso to sub-section (3) of section 206C;]

he shall pay, by way of penalty, a sum [of one hundred rupees] for every day during which the
failure continues:

Provided that the amount of penalty for failures in relation to ……………. statements under sub-
section (3) of section 200 or the proviso to sub-section (3) of section 206C shall not exceed the
amount of tax deductible or collectible, as the case may be:
Provided further that no penalty shall be levied under this section for the failure referred to in
clause (k), if such failure relates to a statement referred to in sub-section (3) of section 200 or
the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered
for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day
of July, 2012.

Thus, the provisions u/s 272A(2) deals with levy of penalty for default of a continuing nature and
penalty of Rs. 100/- maybe levied for everyday during which the default continues.
Clause (k) of section 272A(2) deals with levy of penalty for delay in filing the TDS/TCS
statements (commonly known as Quarterly TDS returns) beyond statutory deadlines.

However, the first proviso to Sec. 272A places a ceiling on the penalty for failures in relation to
various compliances including statements to be filed under sub- section (3) of S. 200 and the
proviso to sub- section (3) of section 206C, and clarifies that, penalty shall not exceed the
amount of tax deductible or collectible, under these sections, as the case maybe.

Further, sub-section (3) of Sec. 272A provides that penalty under this section can only be levied
by a tax authority of the rank of Joint Commissioner/Joint Director of Income Tax or above.

Alert: In case of belated TDS/TCS statements filed on or after 01.07.12 [returns for Q-
1/F.Y. 12-13 & onwards] fees u/s 234E is payable @ 200 per day of default & penal
provisions u/s 272A(2)(k) shall not apply. Currently no one is authorized under the act to
reduce or waive the said fees.

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 8

 C) Time Limit for completing the penalty proceedings:

The time limit for the purpose of initiating and levy of penalty under the provisions of S. 272A,
is provided under S. 275(1)(c), i.e. no penalty can be levied after the expiry of the financial year
in which the proceeding, in the course of which action for imposition of penalty has been
initiated, are completed, or six months from the end of the month in which action for imposition
of penalty is initiated, whichever period expires later.

D) Recent Judicial Trends:

In the following para, I have tried to summarize the important judicial decisions on the subject
matter in favour of assessees’:

- Penalty under S. 272A cannot be levied in cases of failure and default where the same
occurred due to a bonafide act, [CIT vs. Schell International 278 ITR 630 (Bom)]

- IT : Where non-furnishing of PAN by payee caused delay in filing of e-TDS return,

penalty for such late filing not to be levied [2012] 21 taxmann.com 22 (Chandigarh -
Trib.) Collector Land Acquisition vs. Add. CIT (TDS), Range

- Honorable ITAT, Lucknow bench in the case of Branch Manager, Punjab National
Bank vs. Add. CIT (2011) 140 TTJ (Lucknow) 622, held that ‘There was only a
technical and venial breach of the provisions contained in rule 31A in belated furnishing
of quarterly statements of TDS for which no penalty under section 272A(2)(k) can be
levied as the assessee could not collect PAN from all the deductees.

- Section 272A, read with section 273B, of the Income-tax Act, 1961 - Penalty - For failure
to answer questions, sign statements, etc. - Assessment year 2007-08 - Assessing Officer
imposed penalty under section 272A(2)(c) upon assessee for delay in filing of quarterly
TDS returns - Assessee contended that it was not aware of amended provisions about
filing of quarterly TDS returns which came into effect only during year under
consideration and, thus, it was under bona fide belief that returns had to be filed annually
which was one of causes for delay in filing of quarterly returns - Whether delay was
supported by reasonable cause and, therefore, penalty levied by Assessing Officer under
section 272A(2)(c) was to be cancelled - Held, yes [Royal Metal Printers (P.) Ltd vs.
Add. CIT(TDS) [2010] 37 SOT 139 (MUM.) (A.Y. 2007-08)]

- IT : Where requirement of filing Form No. 24Q was new one being first year of filing
such return and, moreover, tax had been duly deducted by assessee, penalty could not be

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 9

 levied under section 272A for delay in filing E-TDS returns [The Manager, Union Bank
of India vs. Add. CIT [2012] 26 taxmann.com 347 (Agra - Trib.)]

- The penalty was levied by the department in a mechanical manner. The assessee would
have filed the hard-copy of the quarterly statements but this is not accepted by the
department. The computer has to generate a number for acknowledging receipt of such
statements. The number is not generated till the computer tallies the PAN and the
information available on 26 AS. The late filing is caused by an administrative glitch. The
delay occurs because the assessee-deductors are dependent on information of TDS and its
deposit from the sub treasury of the Government and the filing of the e-return through the
designated service provider of the Income-tax Department. The assessee-deductors have
no technical competency to file the return by themselves without external aid. They are
also not competent to do so by themselves as per rule 37B and “Filing of Return of Tax
deducted at source” scheme 2003, which requires the submission of quarterly statement
through NSDL or other approved agencies which are third parties and not under the
control of the assessees. Penalty u/s 272(A)(2) cannot be levied in a routine manner. The
late filing of TDS return cannot be said to be intentional or willful. It is only a technical
or venial breach. [UCO Bank vs. Add. CIT (ITAT Cuttack) /[2013] 58 SOT 78]

- Apropos deletion of penalty for late filing of quarterly e-TDS returns, it has not been
disputed that assessee paid the due tax and interest thereon. Due to delayed TDS
payments, the e-returns got consequently delayed. The late filing of e-return assumes a
character of technical default and delay in filing such return without any loss of
revenue cannot be a held as a deliberate default looking at the facts and
circumstances and pleas raised by the assessee. CIT(A) has rightly considered it to be
a reasonable cause. Hon'ble Supreme Court in the case of Hindustan Steels Ltd. (supra)
has emphatically held that penalty should not be imposed merely because it is lawful
to do so and technical and venial breaches should not be visited with the penalties.
We uphold the order of CIT(A) on this issue. Apropos penalty for A.Y. 2009-10 also we
find no infirmity in the order of CIT(A) who has considered the reasons put forth by the
assessee i.e. incapacity and absence of the accountant and the director being not
aware of the intricacies. Consequently, we uphold the orders of CIT(A) deleting
penalties levied u/s 272A(2)(k) for A.Y. 2006/07 and u/s 271C for A.Y. 2009-10. [ITO,
Vs. Amcon Engineers (P) Ltd., ITA Nos. 2253 & 2254/Del/2011]

E) In case of failure on the part of assessee to prove the reasonable cause within the meaning
of section 273B, the rigor of penalty u/s 272A(2)(k) may be diluted to some extent in
case of delayed deduction of tax/non deduction of tax/delayed deposit of TDS in Govt.
A/c by arguing the case in following manner:

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 10

 - Penalty-s. 272A(2)(k) Delay in filing TDS return – Penalty for Delay leviable only from
date of payment of taxes – [Porwal creative Vision (P) Ltd. V. ACIT (2011) 139 TTJ 1
(mum)]

In the above decision Hon’ble Tribunal held that, as regards the default of nonpayment of the tax
to the Central Government in time or for non-deducting the tax at source, there are other
provisions for ensuring compliance. In case the assessee fails to deduct the tax at source or after
deducting, fails to pay the same to the Central Government, the assessee is deemed to be in
default under section 201(1) and is liable for penalty. The assessee is also liable to pay interest
for the period of default till the payment of tax under section 201(1A). Therefore, the period
for levying the penalty under section 272A(2)(k) has to be counted from the date of
payment of tax.
Penalty under section 272A(2)(k ) could be levied only from the date of payment of tax, as the
statement under section 200(3) was required to be filed only after payment of tax to the Central
Government. Section 200(3) clearly provides that after paying the tax deducted at source to the
credit of the Central Government within the prescribed time, the assessee shall prepare a
statement as prescribed and submit to the authority concerned within the prescribed time-limit.
The assessee, therefore, can file the TDS return only after paying the tax to the Central
Government. Therefore, the penalty under section 272A(2)(k ) for the delay in submission
of TDS return has to be levied upon the assessee only from the date of payment of tax by
assessee to the Central Government.

CONTRARY VIEW:

Penalty under s. 272A —Failure to submit TDS return—Penalty under s. 272A for failure to
submit TDS return is imposable even though the assessee has not deducted tax at source
under s. 194C—The two legal obligations cast upon the assessee under ss. 194C and 206 are
separate and independent—Nowhere under the law or the rules is it provided that the statement
under s. 206 should be filed only when tax at source has been deducted— Further, assessee being
obliged to deduct tax at source under s. 194C from payment to sub-contractor, it was not
competent not to deduct the tax at source on the basis of the request of the sub-contractor without
obtaining the exemption certificate from the AO for purpose. [ACME Construction Co. vs.
DCIT (1999) 68 ITD 1 (PAT)]

While deciding as above, Hon’ble ITAT observed that, nowhere in the law or rule it is mentioned
that the statement under s. 206 should be filed only when tax at source had been deducted.

To conclude, on the subject matter, one can use the ratio laid down by various judicial
decisions to support his case. However, case laws should be quoted carefully having regard
to the facts and circumstances of each case & utmost care should be taken so that the
appellate authority should not be able to distinguish the same on facts.

JDTPA e-NEWS LETTER (SEPTEMBER 2013) 11

 SECTION B M VAT/ CST
SALES TAX UPDATES

Compiled BY: SHRI R.B. CHOPDA

After going through observations from audits conducted for the F.Y. 2008-09 by the
functional officers, they have given feedback of practical problems of the dealers regarding
mismatches and un-matches of annual figures of sales and purchases in Annexure J2 and J1.

Findings for mismatches and un-matches by the functional officers:

1. The year-end transactions of sellers are accounted for by buyers in subsequent years.
2. The big LTU dealers are not able to consolidate their Depot-wise sales while filling their
Annexure J1
3. In some cases the sellers have not captured TINs of buyers being it was not the statutory
requirement for them and they could not upload their correct J1 with buyers’ TINs.
4. Sometime goods returned are shown in Annexure J1 by the buyers without reducing ITC
clime in annexure J2 whereas sellers reduce sales in their Annexure J1

Considering the above practical problems, some relaxations have been given in cases of those
dealers who have filled full Annexure J1.

Full Annexure J1 means where tax collection in Annexure J1 is equal to or more than tax
collection shown in the part I of form e-704. However it is necessary to verify the correctness of
ITC claimed by the annexure J2 filers who have shown their purchases from incomplete filers of
annexure J1.

Procedure for cross checks of transactions of the sellers framed for the F.Y. 2009-10 and 2010-
11:

a) EIU shall select incomplete J1 filers, which are generating huge mismatches and un-
matches.
b) The cross check branches/LTU shall be given this data by the EIU.

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 c) The Cross check branches/LTU shall compare such ITC claims of buyers with actual
sales shown in the Sales registers of Sellers. Also they will verify the returns to compare
the Sales as per Sales Register.
d) If any claim of ITC in Annexure J2 of the buyer is not found in Sales Registers and if the
seller accepts sales suppression then such seller shall have to pay the tax on such sales
suppression by filling revised return.
e) In case of denial of sales by the seller where ITC is claimed by buyer the cross
check/LTU officer shall send such information in the prescribed form to the EIU for
initiating IBA of buyers for disallowance of ITC.
f) In respect of the F.Y. 2009-10, such information shall be sent to EIU latest by 30-11-
2013 and for the F.Y.2010-11 by 31-01-2014 so that the IBA officers shall get enough
time to initiate IBA of such buyers.
This is welcome administrative relief to the dealers facing the genuine practical problems.

MVAT Cir No. 9A of 2013 dt. 01-10-2013.

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