ITAT: Deletes TP-adjustment on business transfer to foreign-AE’s Indian-branch; Rule 10AB inapplicable to AY 2010-11

Chennai ITAT holds that consideration on transfer of software undertaking by assessee-company (a captive software developer) to Indian branch of its AE (ultimate holding company in Italy) is taxable as capital gains (as slump sale u/s 50B) and not as business income (i.e. non compete fees) for AY 2010-11; However, rejects assessee’s contention that consideration received on transfer of business undertaking with “stock-lock- barrel” to AE’s Indian branch represents compensation for loss of profit-making apparatus and thus amounts to a non taxable capital receipt; However, on noting that provisions of Rule 10AB (prescribing 6th method for determination of ALP) are effective from AY 2012-2013, accepts assessee’s plea that business transfers are not covered under Rule 10AB, directs deletion of upward TP adjustment in this respect; Also places reliance on Hyderbad ITAT ruling in IJM (India) Infrastructure Ltd. in which it was held that transaction with Indian PE of foreign AE was not subject to TP regulations as Indian PE is to be treated as resident; Also rules upon selection of comparables for assessee’s software development services to AE, excludes 4 comparables due to fuctional differences, remits 1 comparable to consider  IT consulting segment while directing inclusion of 2 comparables :ITAT

Whether mere transfer of shares from stock-in-trade to investment leads to any taxing event & makes assessee liable to pay tax on such income – NO: HC

THE issue before the Bench is – Whether mere transfer of shares from stock-in-trade to investment leads to any taxing event and that makes assessee liable to pay tax on such income. NO is the answer.

Facts of the case

The assessee, a limited company, filed the return declaring income. The return was taken in scrutiny by the Assessing Officer. The Assessing Officer framed assessment determining assessee’s income. Assessing officer issued impugned notice u/s 148 to reopen assessment. Assessing Officer held that the assessee was engaged in the business of trading in shares and securities apart from having other business activities and had purchased shares with borrowed funds and held them as stock-in-trade. The company would claim interest expenditure on the borrowed funds. This pattern continued till 31.3.2004. In the meanwhile, amendment was made in the Income Tax Act through which the sale of shares held as investment through recognized stock exchange would be free from tax with effect from assessment year 2005-2006. The assessee thereupon transferred the shares from stock-in-trade to investment which was done on 1.4.2004 as per old historical purchase cost. According to the Assessing Officer, any such change or transfer of shares had to be done on market price and not at cost price, since valuation of transferred stock-in-trade would have direct effect on the taxable income under the Income Tax Act. The profit arising on sales of share held as stock-in-trade is taxable as business income whereas profit earned on sales of shares held as investment is free from tax. Even the auditor in the auditor’s report had not mentioned the correct fact. It was noted that the market value of shares of M/s S held by the assessee on 1.4.2004 was Rs.397.66 crores (rounded off) but shown by the assessee at Rs.157.01 crores (rounded off). It was further alleged that for the assessment year 2005-2006, the assessee purposedly did not disallow interest component on such shares, since any such disallowance would have attracted the attention of the Assessing Officer during scrutiny assessment. He therefore, formed a belief that difference between cost of acquisition of shares of M/s S and market price which was Rs.9.16 crores and Rs.397.66 crores respectively would be the profit to the company which escaped assessment. Likewise, he noted that the assessee had acquired equity shares of Z at the cost of Rs.43.20 lacs which had a market value of Rs.97.68 lacs as on 1.4.2004 and the difference between the two i.e. Rs.54.48 lacs was the profit escaping assessment. Thus, Assessing officer was of the view that income had escaped assessment. Assessee’s objections were rejected by the Assessing Officer. Continue reading Whether mere transfer of shares from stock-in-trade to investment leads to any taxing event & makes assessee liable to pay tax on such income – NO: HC

HC : Special Audit not a ploy for extending assessment time-limit, upholds direction u/s 142(2A)

Bombay HC dismisses assessee’s writ, upholds special audit u/s 142(2A) in case of assessee (engaged in share trading) for AYs 2008-09 to 2014-15; HC observes that vide order u/s 142(2A) dated March 10, 2016, AO directed assessee to subject its accounts to special audit on the ground of complexity in accounts, rejects assessee’s submission that special audit was merely a ploy to extend time to complete assessment as assessment would otherwise become time-barred on March 31 2016; Holds that “there is nothing in the act which prohibits the AO from ordering/directing special audit after a particular date before the last date of framing an assessment.. a special audit can now be directed not only if accounts are complicated but also if there is doubt to the correctness of the account of the account or multiplicity of transactions or  volume of transactions or specialized nature of accounts….”; Sec 142(2A) gives power to the AO to direct special audit with prior approval of Chief Commissioner/ Commissioner, on the basis of complexity or volume of accounts, doubts about correctness of accounts etc., as all the conditions were complied, HC upholds special audit:HC

GST Draft Rules Snapshot (Registration, Payment & Invoice) – 28th Sep is Public Comment Deadline

Dear Professional Colleagues & Seniors,


CBEC has released the following Rules & Formats for Public Comments by Wednesday, 28th September, 2016. It is believed that the GST Council shall finalise the following rules by 30th September, 2016.


Draft Registration Rules (Registration – 17 Rules)


Draft Registration Formats (Forms GST REG 1 to 26 – 26 Forms)


Draft Payment Rules (Payment of Tax – 4 Rules)


Draft Payment Formats (Forms GST PMT 1 to 6 (includes 2A) – 7 Forms)


Draft Invoice Rules (Tax Invoice, Credit & Debit Notes – 5 Rules)


Draft Invoice Formats (Form GST INV-1 – 1 Form)


HC : Reduces bond / BG for STBs provisional release; No verdict on license fees dutiability

Bombay HC grants partial respite to importer-assessees by modifying provisional release order for seized set-top boxes (STBs), thereby reducing the amount of bond & bank guarantee (BG) to be furnished in respect thereof; Notes that investigation was initiated by DRI on the allegation that assessees had indulged in mis-declaration of value of imported set-top boxes by not including value of licensee fee paid / payable separately to overseas third party in respect of Conditional Access System (CAS) software therein; Also, assessees had sought to claim exemption from SAD though none of the goods were meant for retail sale; Since investigations are still in progress, HC refuses to express any opinion on merits, but observes that it is only on the conclusion of investigation that authorities can issue show cause notice and demand amounts styled as customs duty on license fee; Notes that assessees have been relying on payment of service tax in respect of intellectual property service and hence, DRI should not have proceeded on prima facie assumption that there is definite evasion, observes “It is their duty to bring such cases of alleged evasion to the notice of the customs, which they have after the outcome of the investigation, whenever they are concluded. It is thereafter for the Commissioner of the Customs and all authorities under the Customs Act to take appropriate steps and measures”  : Bombay HC

Central Govt. releases Draft GST Rules & Formats on Invoice, Payment & Registration

Central Govt. releases draft rules on payment, invoice & registration alongwith draft formats under GST regime, inviting comments by September 28 and making corresponding changes in Model law; Draft Goods & Services Tax – Invoice Rules set out the particulars of tax invoice, manner of issuing invoices (viz. in triplicate for goods & duplicate for services), details to be mentioned in Bill of Supply, Supplementary Tax Invoice and Credit / Debit Notes as well as particulars of tax invoice to be issued by Input Service Distributor, banking / financial institution including NBFC, GTA and passenger transportation service provider; Draft Goods & Services Tax – Registration Rules set out the procedure for application, verification and issuance of registration certificate in Form GST REG-06; Draft Registration Rules further provide for separate registrations for multiple business verticals within a State, grant of registration to persons required to deduct / collect tax at source and to non-resident taxable persons; These Rules also state that existing registered persons who have PAN, shall be granted registration on provisional basis and certificate of registration in Form GST REG-21 incorporating the GSTIN therein, shall be made available on Common Portal, while registered person who is not liable to be registered under the Act may at his option, file electronically an application for cancellation of registration granted provisionally; Draft Goods & Services Tax – Payment Rules prescribe the procedure for maintenance of Electronic Tax Liability Register, Electronic Credit Ledger & Electronic Cash Ledger for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount; A unique identification number shall be generated at the Common Portal for each debit / credit to electronic cash / credit ledger, and such number relating to discharge of any liability shall be indicated in corresponding entry in electronic tax liability register : GST Draft Rules on Payment, Invoice & Registration

ITAT: Allows depreciation on ‘discarded assets’ despite not used for business in current-year

Delhi ITAT allows depreciation on ‘discarded assets’ which formed part of block, but were not used for the purpose of business during AY 2010-11, relies upon jurisdictional HC ruling in Yamaha Motor India Pvt. Ltd.; ITAT notes that discarded assets viz. furniture & fixtures, office equipment and computer items were used by assessee for its data processing business which was stopped in July 2008, observes that use of asset  in earlier financial years also relevant in context of expression “used for the purpose of business”; Moreover, ITAT notes that the assets in the present case comprised of general items such as furniture & fixtures, office equipments which were “ready for use”, holds that “such passive user is also entitled for depreciation”;Separately, ITAT deletes Sec 14A disallowance absent recording of satisfaction by AO for disregarding the suo-moto disallowance offered by assessee (representing 89% of total expenditure), relies on jurisdictional HC rulings in Maxopp Investment Ltd. and rejects Revenue’s reliance on SB ruling in Chemnivest which was reversed by jurisdictional HC; ITAT also allows write off of security deposits / advances while computing business income u/s 28, holds that AO cannot step into shoes of businessman and impose a condition that assessee should have done a follow up for recovery before writing off :ITAT

HC : Grants interest on delayed refund; Finmin & CBEC to expedite refund processing

Bombay HC grants interest on delayed customs duty refund to importer-assessee u/s 27A of Customs Act; Notes that refund application was initially rejected by Revenue for want of Essentiality Certificate from Directorate of Hydrocarbons at behest of ONGC, required for purpose of claiming exemption under Notification No. 21/2002-Cus on import of spares & consumables for offshore drilling operations; According to HC, on conjoint reading of Sections 27 & 27A alongwith SC ruling in Ranbaxy Laboratories Ltd, it was clear that if refund was not granted within 3 months from date of receipt of application, then interest would be payable from date immediately after expiry of said period, from date of receipt of application till the date of refund; Hence, rejects Revenue’s stand that Refunding Authority had sanctioned the refund within stipulated period once assessee had submitted all essential documents with respect thereto, states that Essentiality Certificate cannot be the base for rejection of refund application; Calling upon Secretary, Ministry of Finance and CBEC Chairman to take necessary action, remarks, “It is only they who would possibly realise that the object and purpose is to take expeditious action on refund applications so that revenue loss is avoided in payment of statutory interest. The intent is to discourage the tendency of not taking prompt action on these applications, thereby defeating all policies aimed at creating a business friendly atmosphere. They must also realise that litigation in Court on this score results in precious time and money being wasted.”  : Bombay HC

Intimation about the Quarterly TDS/TCS due dates

Dear Deductor/Collector,


It’s time to file the quarterly TDS/TCS statement. The quick steps are as follows:


Due Date:


Periodicity Due date for TDS statements (all Deductors) Due date for TCS statements
Quarter II (July to September) 31st October of the Financial Year 15th October of the Financial Year






To submit the statement:


  You need to know about Quick links
TIN Facilitation Centers (TIN-FCs) nearest to your location
New versions of e-TDS/TCS Return Preparation Utility (RPU) and File Validation Utilities (FVUs)













These RPU and FVUs are freely downloadable utilities and can be used for preparation of   e-TDS/TCS statement(s) pertains to Financial Year 2007-08 onwards.


Different software When and why to use it
RPU Version 1.7 (Java based) This is used for preparing and validating e-TDS/TCS Statement(s) as it contains inbuilt FVUs
FVU Version 5.2 Used for validating TDS/TCS Statement(s). Applicable for quarterly e-TDS/TCS Statement(s) pertaining to FY 2010-11 onwards.
FVU Version 2.148 Used for validating TDS/TCS Statement(s). Applicable for quarterly e-TDS/TCS Statement(s) from FY 2007-08 upto FY 2009-10.











Please refer attached PDF, to know about the Key features of new version of RPU and FVUs.


In case of any query with regards to the feature or to submit the statement please call us at 020-27218080.

OECD: Multilateral-Instrument inching towards finishing line; Beneficial Ownership on G20-Ministers October ‘menu’

OECD’s Tax Talks third session provides update on negotiation of Multilateral Instrument (MLI) for tax-treaty related BEPS measures, outcomes from G20 Ministerial Tax Policy Symposium as well as tax policy reforms; Pascal Saint Amans (Director of the Centre for Tax Policy and Administration) highlights that negotiations on MLI (BEPS Action 15) are on the eve of being concluded with agreement being achieved on main text of the MLI in mid-September, further updates that fine tuning of MLI will be completed by November 2016 and signing ceremony is likely to take place in first half of 2017; Overall structure of MLI will include provisions implementing each of the BEPS tax treaty-related measures, optional provision on mandatory binding MAP arbitration, flexible approach [with opt-ins, alternatives, opt-outs (except for minimum standards)] and notifications to ensure clarity about interaction with existing treaty provisions; Jesse Eggert (Senior Adviser on BEPS Project) adds that “After MLI text is formally adopted, we’ll have a better idea of when it will be published”; Pascal Saint Amans also stresses on the importance of tax policy favouring inclusive growth by citing it as a “key new pillar of OECD G20 work” and highlights that focus of tax reforms has made a shift from post-crisis fiscal consolidation to growth; On automatic exchange of information (AEOI), Pascal Saint Amans states that OECD will shortly publicize on what AEOI-committed countries have done in terms of nominating each other for information exchange and sets the stage for the next G20 finance ministers’ dinner (scheduled in October 2016) by candidly mentioning that Beneficial Ownership will be “on the menu”