Weekly Round-up on Tax and Corporate Laws | 06th to 11th June 2022

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from 06th to 11th June 2022, namely:

(a) Provisions of Section 40A(3) do not apply if the assessee has made a cash payment for the purchase of stock-in-trade: ITAT;

(b) DRT has no power under any other law to restrain any person from travelling abroad: Bombay HC;

(c) Key highlights of the RBI’s statement on developmental and regulatory policies;

(d) Dept. has the power to take possession of assessee’s assets which were never disclosed to tax authority: HC;

(e) Karnataka GST dept. introduces a new module to revoke cancelled GSTIN beyond 90 days;

(f) Penalty through rectification order can’t be levied without providing an opportunity of being heard: HC; and

(g) Format for the financial statements to be prepared by the non-corporate entities.

1. Provisions of Sec. 40A(3) do not apply if the assessee has made a cash payment for the purchase of stock-in-trade: ITAT

In an interesting ruling, the Pune Tribunal has ruled that the Assessing Officer cannot invoke the provisions of Section 40A(3) if an expenditure incurred in cash forms part of the closing stock.

Facts

The assessee was engaged in the business of land dealing and development. During the year, it purchased certain lands/plots and made cash payments exceeding the threshold limit prescribed under Section 40A(3). During assessment proceedings, the Assessing Officer (AO) made disallowance under Section 40A(3), which was further confirmed by the CIT(A).

Aggrieved-assessee filed the instant appeal before the Tribunal.

Before the Tribunal, the assessee contended that all the lands were appearing under the closing stock of the company, and no deduction was claimed in respect of purchases for which cash payments were made.

He contended that the provisions of Section 40A(3) aren’t attracted towards expenses/purchases when no deduction is claimed. The cash payments were genuine, and the provisions of Section 40A(3) are not attracted to the genuine cash payments, which were identified and acknowledged by the payee. Further, the said cash payments were made in view of the business exigency to finalise the deal and avoid the competitors from snatching the deal.

Ruling

The Tribunal held that it is settled law, as rightly pointed out by the assessee, when there is no deduction, no disallowance would follow. In the instant case, the fact remains that the sellers from whom the assessee purchased lands identified the transaction and also acknowledged the cash payments. It shows that the transaction was genuine.

Therefore, there was merit in the contention of the assessee that the expenditure incurred in cash formed part of the closing stock for which no deduction had been claimed while computing the income under the business head, the question of disallowance under Section 40A(3) does not arise.

Read the Ruling

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2. DRT has no power under any other law to restrain any person from travelling abroad: Bombay HC

In the instant case, the petitioner filed a writ petition challenging the order of the Debt Recovery Tribunal (DRT), which refused to grant permission to the petitioner to travel abroad to attend the marriage of his sister-in-law.

The petitioner was a personal guarantor of a private limited company (Respondent No. 2) engaged in electricity and power generation. To establish the Power Plant, a consortium of banks financed the project.

Proceedings under the IBC were pending in relation to Respondent No. 2 before the NCLT, and it was under a liquidation order passed by the NCLT.

The original application was filed before the DRT Nagpur for the recovery of the amount against the petitioner and other directors of Respondent No. 2. In the original application, Respondent No. 1 (Bank) sought interim relief restraining the petitioner from travelling abroad and impounding the passport of the petitioner.

Accordingly, the DRT passed an order restraining the petitioner from travelling abroad.

Question before the Court

The first important question raised before the Court was regarding the interpretation of Article 21 of the Constitution of India as to whether the expression “personal liberty” occurring in the said Article includes the right to travel abroad?

The second important question was whether the refusal to grant permission to travel abroad results in the infringement of Article 21 of the Constitution of India?

The Bombay High Court held

In the absence of a specific provision conferred on the DRT by statute, the DRT has no power to restrain a citizen from travelling abroad, particularly when the right to foreign travel has been recognised as a facet of Article 21 of the Constitution of India.

Article 21 of the Constitution of India provides that no person shall be deprived of his life or personal liberty except according to procedure established by law. The expression “personal liberty” includes a right of a citizen to travel abroad and return to the home country without any impediment, direct or indirect.

The provisions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, as they stand, do not even impliedly confer such powers on the Debt Recovery Tribunal to restrain a person from travelling abroad. As a result, the order of DRT restraining the petitioner from travelling abroad is quashed and set aside, and the writ petitioner is allowed to travel abroad subject to furnishing an undertaking to the Court.

Read the Ruling

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3. Key highlights of RBI’s statement on developmental and regulatory policies

RBI vide Press Release 2022-2023/334, dated 08-06-2022, has issued a statement describing various developmental and regulatory policy measures relating to regulation and supervision, financial markets, and payment and settlement systems. The key highlights of the RBI’s statement are as under:

(a) Hike in existing limits on individual housing loans by cooperative banks;
(b) Proposal to permit Urban Cooperative Banks (UCBs) to offer ‘Door-Step’ banking services;
(c) Proposal to hike limit for recurring payments on cards from Rs. 5,000 to Rs. 15,000;
(d) Proposal to allow linking of credit cards to UPI and to start with, Rupay credit cards will be enabled with this facility;
(e) Review of Payments Infrastructure Development Fund Scheme to further simplify the subsidy claim process.

Read the Press Release

4. Dept. has the power to take possession of assessee’s assets which were never disclosed to tax authority: HC

The Madhya Pradesh High Court has ruled that the Income-tax department has the power to take possession or control of an amount/asset which the assessee never disclosed to the Income-tax Authority.

Facts

A dacoity was committed by some persons at the house of the assessee. The accused persons were arrested, and a certain sum was recovered from their possession. The assessee filed an application under Section 457 of Cr. P.C. seeking interim custody of said sum. However, said applicable was rejected.

Later, he filed a petition under Section 482 of Cr P.C. before the High Court and submitted that since said sum belongs to him and dacoity had been committed from his residence, the amount should be handed over to him as interim custody till the pendency of the trial.
The Income-tax department had opposed the prayer of the assessee and contended that the disclosure of any assets ought to be disclosed before the dept. but have not been disclosed, comes under the purview of Section 132A(1)(c). Thus, the prayer of the assessee was to be dismissed.

Ruling

The High Court held that as per the provisions of Section 132A, the Income-tax Authority has the power to take the possession or control of such assets from any officer or authority under any other law for the time being in force, which has not been disclosed for purposes of Income-tax Act.

It was evident that the amount in question was seized from the possession of accused persons allegedly belonging to the assessee but never disclosed to the Income Tax Authority. Therefore, the department has the remedy available under section 132A(1)(c).
Further, it appeared that if the amount was not handed over to the Income-tax Department and was released to the assessee, then it could hamper the effective implementation of the relevant provision of the Income-tax Act.

Therefore, it was appropriate that the amount be deposited with the Income-tax authority, and proceedings before the competent authority of the Income Tax Department be concluded within the time stipulated as per the relevant provisions of the Income-tax Act.

Read the Ruling

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5. Karnataka GST dept. introduces a new module to revoke cancelled GSTIN beyond 90 days

In order to revoke the cancelled registration after 90 days, which was allowed by the concerned appellate authority or the High Court, there was no electronic module in place to revoke such cancelled registration.

Now, a new module has been developed and tested for the proper officers to revoke the cancelled GSTIN beyond 90 days which was allowed by the concerned appellate authority or the High Court. In this regard, the Karnataka GST department has issued Circular GST No. 01/2022-23 dated 02-06-2022.

Read the Circular

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6. The penalty through rectification order can’t be levied without providing an opportunity for being heard: HC

The High Court of Andhra Pradesh has held that the penalty imposed through a rectification order is an additional liability, and the order passed without providing an opportunity for a hearing is not sustainable.

Facts

The petitioner was directed to file GST returns, but it didn’t file the same. The department passed the best judgment assessment order on failure to file the returns. However, another para relating to the penalty was subsequently inserted in the assessment order by order of rectification. It filed a writ petition to quash the rectification order imposing a penalty.

High Court

The High Court observed that the penalty imposed in the rectification order was an additional liability as no penalty was imposed in the assessment order. However, the opportunity for a hearing was not provided while imposing the penalty. The impugned order, which was not a part of the demand in the assessment order, has substantially affected the petitioner. Therefore, such an order passed without providing an opportunity was not sustainable and liable to be set aside.

Read the Ruling

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7. Format for the financial statements to be prepared by the non-corporate entities

Financial Statements are the backbone for financial planning, analysis, benchmarking, and decision making. They provide information about the financial position and performance of an enterprise. Depending upon the structure of a particular entity, the format for the presentation of financial statements is decided. Like, the financial statements of the companies are prepared in accordance with Schedule III of the Companies Act, 2013. Entities other than companies mean non-corporate entities. For the applicability of Accounting Standards to non-company entities, the ICAI has prescribed the criteria for classifying non-company entities into four levels. All Business or Professional entities, other than Companies and Limited Liability Partnerships, are considered non-corporate entities.

Where the entities are governed by any particular statute, then the financial statement of that entity is prepared in accordance with the provisions specified in the relevant statute. Further, the provisions of that relevant statute also define the set of AS that may be applied to a particular entity.

For the preparation of financial statements of non-corporate entities, the Accounting Standard Board of ICAI has provided the recommendatory format for the presentation of financial statements. The same shall be provided in the manner below:

• • For the preparation of the Balance Sheet and Statement of Profit and Loss of a non-corporate entity, formats have been recommended.
  • Any disclosure requirements are not treated as a substitution of the disclosure requirements specified in the AS. Instead, they are used as an addition to Accounting Standards.
  • Information in addition to that presented in the Financial Statements may be presented in the notes to accounts and may provide where required (a) narrative descriptions or disaggregation of items recognised in those statements, and (b) information about items that do not qualify for recognition in those statements.
  • While preparing financials, every item of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes to accounts.
  • In non-corporate entities, expending upon the Total Income, the figures appearing in the Financial Statements may be rounded off.
  • The unit of measurement, once used, shall be uniformly used throughout the financial statements.
  • The comparatives figures of the previous financial period shall also be provided while preparing the financial statements.

Read the Story

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