RNM ALERT ISSUE NO.75 Thinking of the Bottom Line – Think of Us APRIL, 2015
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RNM ALERT ISSUE NO.75 Thinking of the Bottom Line – Think of Us APRIL, 2015 www.rnm.in Dear Readers, The summers are upon us and soon most of you would be ready to pack your bags for cooler climes. India is reeling under a severe heat wave. The economy is in the meantime fairing better with the Q4 (January- March 2015) numbers for GDP at 7.50% and the financial year 2014-15 annual GDP at 7.30% which is higher than the previous year number of 6.90% pointing to a soft recovery. Team RNM is overall pleased with the performance of the new Modi Government during this past one year. Achieving the target for roll out of the Goods and Services Tax (GST) by April 1, 2016 will be the toughest test of the Government. The forthcoming RBI policy review on June 2, 2015 where it is expected that an interest rate cut would be announced would act as a further stimulus to propel the economy forward, if announced. On the Indirect Tax front, the notification for the increase in Service Tax rate from 12.36% to 14% with effect from June 1, 2015 was released, in line with the Budget 2015 proposals which became law thru the Finance Act, 2015 on May 14, 2015. Recently, a leading case decided in the Hon’ble High Court of Punjab & Haryana in CHD Developers Limited, Karnal Versus The State of Haryana and others dealt with a few substantial questions on levy of Value Added Tax (VAT) on Land Value and also on whether developers are work contractors. With the recent decision of the constitutional bench of the Supreme Court of India, the National Company Law Tribunal and the National Company Law Appellate Tribunal should soon become operational. Team RNM feels that this would enhance the “ease of doing business” in India. I hope the readers enjoyed reading the Research Report on Restaurant Services market in India which was published by Team RNM recently and the earlier RNM Special Corporate Alert which dealt with the amendments in the Companies Act, 2013. Regards, CA U.N. Marwah For and behalf of the RNM Alert Editorial Board All Rights of Circulation restricted Page 2 of 17 Issue No. 75: April, 2015 CONTENTS Direct Tax - Case Laws - Income exempt from Tax 4 - Expenses in relation to exempt income 4 - Profits or Gains of Business or Profession 4 - Capital Gains Exemption 4 - Cash Credits 5 - Unexplained Expenditure 5 - Deductions 5 - Transfer Pricing 5 - Assessment Proceedings 5 - Tax Deducted at Source 6 - Penalties 6 - Appeal - Notification - Transport Allowance Exemption Limit Enhanced 6 Indirect Tax Service Tax - Case Laws - Condonation of delay couldn't be denied merely because assessee was not pursuing matter seriously 7 - Delay in filing appeal due to misplacement of records on shifting of branch office was condonable 7 - Effluent couldn't be regarded as goods; its transportation through pipeline 7 - Marketing and support services provided to foreign cos in relation to their Indian sales is ‘export of service’ 7 - Mentioning wrong notification number wouldn’t lead to rejection of refund claim without hearing assesse 7 - Rent-a-cab and travel agent’s services used for transportation of employees/customer are eligible for input credit 7-8 - Revenue must grant opportunity to rectify defects in supporting docs before disallowing Cenvat credit 8 - Separately registered units engaged in integrated manufacturing deemed as ‘single factory’ for Cenvat credit 8 - Short delay in filing appeal by revenue due to administrative reasons can be condoned 8 - Writ can’t be filed against order dismissing appeal due to expiry of limitation period 8 Issue No. 75: April, 2015 Page 3 of 17 Company Law Updates - Circular - Remuneration to managerial person under Schedule XIII of the Companies Act, 1956 – Clarification with regard to payment for period 9 - Clarifications under sub-section (7) of section 186 of the Companies Act, 2013 9 RBI Updates - Circular - Foreign Direct Investment (FDI) – Reporting under FDI Scheme on the e-Biz platform 9-10 - Foreign Direct Investment (FDI) in India – Review of FDI policy –Sector Specific conditions- Insurance sector 10 Corporate Finance - Latest News - Private Equity 11-12 - Mergers & Acquisition 12-13 - Venture Capital 14-17 DIRECT TAX DIRECT TAX Issue No. 75: April, 2015 Page 4 of 17 DIRECT TAX Case Laws Income Exempt from Tax Sec 10(10C) - An employee opting for voluntary retirement, amount received shall be entitled to exemption under Section 10(10C) of the Act, up to the limit of 5 lacs and for the amount beyond 5 lacs shall be entitled to the relief under Section 89 of the Act. [CIT V. Natvarlal K Sharma 2015 (5) TMI 9 - GUJARAT HIGH COURT] Sec 10 & 11- In computing the income of charitable institutions exempt u/s 11, income exempt u/s 10 has to be excluded. The requirement in sec 11 with regard to application of income for charitable purposes does not apply to income exempt u/s 10. [DIT (E) vs. M/s. Jasubhai Foundation (Bombay High Court)INCOME TAX APPEAL NO. 1310 OF 2013] Expenses in relation to exempt income Sec 14A & Rule 8D- In computing the “average value of investment”, only the investments yielding non-taxable income have to be considered and not all investments. [ACB India Ltd vs. ACIT (Delhi High Court)ITA 615/2014] Profits or Gains of Business or Profession Sec 28(va) - Consideration for Non- compete and non solicitation is now taxable under section 28(va). [ArunToshniwal& Others v. DCIT 2015 (4) TMI 516 - BOMBAY HIGH COURT] Sec 28 - Where in terms of memorandum of association, main object of assessee-company was to acquire properties and earn income by letting out same, said income was to be brought to tax as business income and not as income from house property. [Chennai Properties & Investments Ltd. v. CIT, [2015] 56 taxmann.com 456 (SC)] Capital Gains Exemption Sec 54F - Gift of house to spouse cannot be disregarded for the purpose of assessee's eligibility for deduction u/s 54F [Smt. Maya A. Ajwani v. ITO-7(2)(4), Mumbai [2015] 56 taxmann.com 255 (Mumbai - Trib.)] Sec 54/54F - If due to ignorance a wrong section has been mentioned by the assessee, it is the duty of the Assessing Officer to advise the assessee about the correct claim and also to assess the tax legitimately. [Shri Paramjeet Singh Chhabra V. ITO 1(2), 2015 (4) TMI 939 - ITAT INDORE] Issue No. 75: April, 2015 Page 5 of 17 Cash Credits Sec 68- Only credits received during the year can be assessed as unexplained cash credits. Credits of earlier years, even if unexplained, cannot be assessed. [Rita Stephen Pinto vs. ITO (ITAT Mumbai)ITA No. 1219/Mum/2013] Sec 68 - Even if the issued share capital is bogus, no addition can be made in assessee's hands if identity of shareholder is established. Assessee is not required to show source of shareholder's funds. [ITO vs. NeelkanthFinbuild Ltd (ITAT Delhi)ITA No. 2821/Del/2009] Unexplained ExpenditureSec Sec 69C - Fact that suppliers names appear in the list of hawala dealers of the sales-tax dept and that assessee is unable to produce them does not mean that the purchases are bogus if the payment is through banking channels & GP ratio becomes abnormally high. [ACIT vs. RamilaPravin Shah (ITAT Mumbai) /I.T.A. No.5246/Mum/2013] Deductions Sec 80HHC- It is a pre-requisite that there must be profits from the export business. If the exports business has suffered a loss, deduction cannot be allowed from domestic business. [Jeyar Consultant & Investment Pvt. Ltd vs. CIT (Supreme Court)CIVIL APPEAL NO. 8912 OF 2003] Transfer Pricing Sec 92CA - The mere fact that an entity makes high/extremely high profits/losses does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP. In such circumstances, an enquiry under Rule 10B(3) ought to be carried out, to determine as to whether the material differences between the assessee and the said entity can be eliminated. Unless such differences cannot be eliminated, the entity should be included as a comparable. [Chryscapital Investment Advisors (India) (P.)Ltd. v. DCIT [2015] 56 taxmann.com 417 (Delhi)] Assessment Proceedings Sec 142A -Solely on the basis of the DVO's report only, No addition can be made with respect to difference between the cost of construction determined by the DVO and shown by the assessee. [PCIT V. J. UPENDRA CONSTRUCTION PVT. LTD 2015 (4) TMI 832 - GUJARAT HIGH COURT] Sec 143(3)/147- If the Revenue has not made any enquires to find out whether the AIR information was correct or not, then the additions is made solely on the basis of AIR information are not sustainable in the eyes of law. And if the assessee denies that it is in receipt of income from a particular source, then it is for the AO to prove that the assessee has received income as the assessee cannot prove the negative. [Kroner Investments Limited v. DCIT (ITAT Mumbai)ITA No.5125/M/2013] Issue No. 75: April, 2015 Page 6 of 17 Sec 153C/143(3) - Notice served to amalgamating company and order passed in the name of amalgamating company after amalgamation is not valid. [M/s. Mevron Projects Pvt. Ltd. (Amalgamated with Windchimes Constructions Pvt. Ltd.) V. ACIT, New Delhi 2015 (4) TMI 917 - ITAT DELHI] Tax Deducted at Source Sec 195 -Once tax was deducted at the first stage when the amount of income was credited to the account of payee, which was done by converting foreign currency into TT buying rate on that particular date, then the assessee could not be called upon to deduct tax at source on the additional liability arising due to foreign exchange fluctuation.