No section 14A disallowance if no exempt income earned; CBDT circular can’t override express provision

The issue before the High Court was as under:

Whether the disallowance of the expenditure will be made even where the investment had not resulted in any exempt income during the AY?

High Court held in favour of assessee as under:

• Section 14A does not clarify whether the disallowance of the expenditure would apply even where no exempt income is earned.
• The words "in relation to income which does not form part of the total income under the Act for such previous year" in the Rule 8D(1) indicate a correlation between the exempt income earned in the AY and the expenditure incurred to earn it. In other words, the expenditure as claimed by the Assessee had to be in relation to the income earned in 'such previous year'.
• This implies that if there was no exempt income earned in the relevant AY, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A, read with Rule 8D could not arise.
• CBDT's Circular No. 5/2014 dated 11-02-2014 does not refer to Rule 8D(1) at all but only refers to the word "includible" occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concluded that it was not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered.
• For all of the aforementioned reasons, the CBDT Circular (Supra) couldn’t override the express provisions of Section 14A, read with Rule 8D. Therefore, if no exempt income was earned, there could be no disallowance of expenditure in terms of section 14A, read with Rule 8D. [2017] 84 taxmann.com 186 (Delhi)

Search and seizure -- Search on holding company and assessee name not mentioned in warrant--Notice under section 153A issued to assessee

Dorf Ketal Chemicals LLC v. Dy. CIT

Search and seizure--Assessment under section 153A-- Search on holding company and assessee name not mentioned in warrant--Notice under section 153A issued to assessee

Facts:

Assessee-company was a 100 per cent subsidiary of Indian Company D and had its control and management in India. A search and seizure action under section 132(1) was carried out at the business premises of D and also on the residential premises of the directors of the said company. A notice under section 153A was issued to the assessee and thereafter the assessment was completed under section 143(3) read with section 153A. Assessee contended that there was no initiation of search under the provisions of section 132 as the name of the assessee was not mentioned in the warrant of authorization and, therefore, the issue of notice under section 153A and the consequent assessment framed were void ab initio.

Held:

For the purpose of assumption and exercise of powers under section 153A in case of a person, the initiation of search in terms of section 132 or 132A on the said persons was mandatory and, therefore, whether there was no initiation of search as contemplated under section 132, the fundamental conditions for issuance of notice under section 153A was not fulfilled. Thus, the person in respect of whom the search was initiated under section 132 was the same persons against whom the notice is to be issued under section 153A. In view of this legal position, since no search had been initiated under section 132 in the case of assessee, therefore, notice issued under section 153A was without jurisdiction and the consequent assessment so framed under section 143(3) read with section 153A was also void ab initio.

Direct Tax Collections for Financial Year 2017-18 show Growth of 14.4% upto November, 2017

The provisional figures of Direct Tax collections up to November, 2017 show that net collections are at Rs. 4.8 lakh crore which is 14.4% higher than the net collections for the corresponding period of last year. 

The Net Direct Tax collections represent 49% of the total Budget Estimates of Direct Taxes for the Financial Year. 2017-18 (Rs. 9.8 lakh crore). Gross collections (before adjusting for refunds) have increased by 10.7% to Rs.5.82 lakh crore during April-November, 2017. Refunds amounting to Rs. 1.02 lakh crore have been issued during April, 2017 to November, 2017.

CBDT extends date till 31.3.18 for linking of Aadhaar with PAN

Under the provisions of recently introduced section 139AA of the Income-tax Act, 1961 (the Act), with effect from 01.07.2017, all taxpayers having Aadhaar Number or Enrolment Number are required to link the same with Permanent Account Number (PAN). In view of the difficulties faced by some of the taxpayers in the process, the date for linking of Aadhaar with PAN was initially extended till 31st August, 2017 which was further extended upto 31st December, 2017.

It has come to notice that some of the taxpayers have not yet completed the linking of PAN with Aadhaar. Therefore, to facilitate the process of linking, it has been decided to further extend the time for linking of Aadhaar with PAN till 31.03.2018.

Income Tax Department suspends an officer for harassing the taxpayer

A complaint was received making serious allegations against Shri D. K. Meena, Deputy Commissioner of Income Tax, posted at Surendranagar in Gujarat Regioan for harassing a taxpayer in a scrutiny case with malafide intention. The officer was alleged to have demanded illegal gratification through the taxpayer’s Chartered Accountant for favourably completing the assessment. The audio recordings of conversations were also received which, inter alia, mention the bribe amount being demanded by the officers of the Department for settling the case.

In order to verify the veracity of the allegations, case records were requisitioned immediately by the Vigilance Directorate of CBDT. On examination of the case records, serious lapses and irregularities were found which led credence to the allegations made against the officer. The matter is under investigation.

The Department has zero tolerance to such malpractices and corruption. Pending investigation, the officer has since been placed under suspension.

Exporters advised to file Table 6A and GSTR 3B for processing of IGST Refund and for Refund of the unutilized Input Tax Credit

The Government of India is seized of the issue of Exporters complaining about delay in grant of refunds pertaining to Integrated Goods and Services Tax (IGST) paid on goods exported out of India and similarly Input Tax credit (ITC) on exports. Media reports with incorrect estimations of refund amounts held-up for the period July to October 2017 have been noticed. It is clarified that the quantum of IGST refund claims as filed through Shipping Bills during the period July to October 2017, is approximately Rs. 6,500 crore and the quantum of refund of unutilized credit on inputs or input services, as per the RFD 01A applications filed on GSTN portal, is to the tune of Rs. 30 crore.

With regard to IGST paid on goods exported out of India, majority of refund claims for exports made in July, 2017, wherever due, have been sanctioned. Refund claims of IGST paid for exports made in August, September and October 2017 are being sanctioned seamlessly wherever returns have been accurately filed. The prerequisites for sanction of refund of IGST paid are filing of GSTR 3 B and table 6A of GSTR 1 on the GSTN portal and Shipping Bill(s) on Customs EDI System by the exporter. It is essential that exporters should ensure that there is no discrepancy in the information furnished in Table 6A of GSTR 1 and the Shipping Bill. It has been observed that certain common errors such as incorrect Shipping Bill number in GSTR1, mis-match of invoice number and IGST amount paid, wrong bank account etc. are being committed by exporters while filing their returns. These errors are the sole reason for delay in grant of refunds, or rejection thereof. While information has been made available to Exporters on the ICEGATE portal if they are registered, they may also contact jurisdictional Customs authorities to check the errors they have committed in furnishing information in GST returns and Shipping Bill, and rectify them at the earliest.

As the Customs System is designed to automatically grant refunds without involvement of any officer by matching information that is furnished on GSTN portal and Customs system, the onus is on the exporters to fill in all the details accurately. Exporters may,therefore, take due precaution to ensure that no errors creep in while filing Table 6A of GSTR 1 of August 2017 and onwards. The facility for filing GSTR 1 for August 2017 would also be ready by 4th December 2017. In case of wrong entries made in July, Table 9 of GSTR 1 of August month would allow amendments to GSTR 1 of July 2017.

As far as refund of the unutilized Input Tax Credit on inputs or input services used in making exports is concerned, exporters shall file an application in FORM GST RFD- 01A on the Common Portal where the amount claimed as refund shall get debited from the Electronic Credit Ledger of the exporter to the extent of the claim. Thereafter, a proof of debit (ARN- Acknowledgement Receipt Number) shall be generated on the GSTN portal, which is to be mentioned on the print-out of the FORM GST RFD-01A and to be submitted manually to the jurisdictional officer. The exporters may ensure that all the necessary documentary evidences are submitted along with the Form GST RFD 01A for timely sanction of refund.

Exporters are, therefore, advised to immediately file (a) Table 6A and GSTR 3B, if not already done, for processing of IGST refund (b) RFD 01A on GSTN portal for refund of the unutilized input tax credit on inputs or input services used in making exports and (c) GSTR 1 for August 2017 for amending details provided in July GSTR1 wherever required. The Government has taken various measures to alleviate the difficulty and is fully committed to provide speedy disbursal of refunds due to exporters.

GST for the month of October 2017 (received in upto 27th Nov 2017)

A sum of Rs 83,346 crores has been collected as Total Revenue Collection under GST for the month of October, received in November till 27th November 2017. 95.9lakh taxpayers have been registered under GST so far, of which 15.1 lakh are composition dealers who are required to file returns every quarter. 50.1 lakh returns have been filed for the month of October till 26th November 2017.

Revenue of States: The States have collected a total of Rs. 87,238 crores by way of SGST in the months of August, September, October and November 2017 (till 27th November). Further on all inter-state trade, a net amount is transferred from IGST account to the SGST account whenever IGST collected is used for payment of SGST. By way of settlement an amount of Rs. 31,821 crores has been released to the States for the months of August, September and October 2017. Rs.13,882 crores is being released by way of settlement to all the States for the month of November 2017. Further, as per Goods and Services (Compensation to States) Act 2017, the States revenues are fully protected against any shortfall in GST collections. A compensation amount of Rs. 10,806 crores has been released to all the States for the months of July and August 2017 and a compensation of Rs.13,695 crores for the months of September and October 2017 is being released. The States revenues have thus been fully protected taking base year revenue as 2015-16 and providing for a projected revenue growth rate of 14%.

Centre’s Revenue: The total CGST income in the months of August, September, October and November (till 27thNovember) has been Rs.58,556 crores. In addition to this, an amount of Rs.16,233 crores has been transferred from IGST account to CGST account by way of settlement of funds on account of inter-state supply of goods and services in the month of August, September and October, 2017. Further, Rs. 10,145 crores is being transferred to CGST account from IGST account for the month of November 2017 by way of settlement. The major reason for the gap in income of CGST and SGST has been that more CGST liability has been discharged using transition credit rather than by way of cash. Thus, taxpayers are using the balance credit available with them in the previous tax regime, which is the reason why there is an additional revenue gap in the Centre’s revenue.

The reason for downward trend of tax revenue under GST could be attributed to the following factors:

• Because of the first time requirement of paying IGST on transfer of goods from one state to another state even within the same company, there was an additional cash flow of IGST in the first 3 months. As and when the final transaction of these goods takes place, the credit for IGST is being utilized for payment of SGST and CGST and therefore, the inflow of new taxes is low;
• Since the overall incidence of taxes on most of the commodities have come down under GST, it would naturally have some implication on the revenues of the Government.
• The tax administration of GST is now based on self-declared Tax Return, in which the assesse decides on his own how much tax liability he has and claims input tax credit as per his own calculations. Since implementation of some of the main features of GST such as, matching of returns, e-way bill as well as reverse charge mechanism have been postponed the tax compliance may not be up to the mark.

Returns filed: The total number of GSTR 3B returns filed for the return period July, August, September and October 2017 till 26th November is 58.7 lakh, 58.9 lakh, 57.3 lakh and 50.1 lakh respectively.