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Act Rules Income Tax
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Special tax deduction for North-Eastern undertakings grants full profit exemption for a fixed consecutive period.
A 100% deduction of profits and gains is available to undertakings in specified North-Eastern States for ten consecutive tax years starting from an "initial tax year", contingent on commencement or substantial expansion within a discrete qualifying window, formation and newness-of-plant conditions, exclusions for specified goods and activities, a defined test for "substantial expansion", and exclusivity preventing concurrent Chapter deductions; cross-referenced provisions determine treatment of re-established entities and aggregate duration limits.
Act Rules Income Tax
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Deduction for research donations: tax relief for approved gifts subject to verification and specified exclusions.
Deduction is allowed for donations to approved research associations or educational institutions for scientific or social science/statistical research, contingent on recipient approval and information furnished by the payee to the prescribed income tax authority and subject to the Board's risk based verification; deductions are excluded where the donor has business/profession income or where contributions in cash exceed the prescribed threshold, and deduction is not to be denied solely because recipient approval is later withdrawn.
Act Rules Income Tax
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Pension contribution deduction: employer and individual pension contributions receive tax relief, with caps and deeming rules affecting receipt.
Section 124 allows deductions for employer contributions to Central Government notified pension schemes subject to employer type percentage ceilings and for individual deposits into such schemes subject to an overall statutory cap; parent or guardian deposits for minors are aggregated with the individual cap. The provision defines salary for this purpose to include dearness allowance where employment terms so provide, disallows duplicate deduction where relief was claimed under the related provision, and deems amounts received on closure, opt out, or as annuity taxable in the year of receipt, with limited exceptions for nominee/parent/guardian receipts on death.
Act Rules Income Tax
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Loss carry-forward restrictions: beneficial ownership and voting-power continuity determine entitlement to set off historic losses.
The section restricts carry forward and set off of losses on change in firm constitution, succession other than by inheritance, and change in shareholding of non-public companies unless continuity of beneficial ownership of shares carrying not less than fifty-one percent of voting power is maintained or specified exceptions (death, gift to relative, certain amalgamations/demergers, insolvency resolution plans with opportunity to be heard, tribunal-approved restructuring, relocation, and a start-up carve-out) apply.
Act Rules Income Tax
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Carry-forward of predecessor losses: successor bank may set off losses as if reorganisation had not occurred, subject to continuity conditions.
Section 118 permits successor or resulting co operative banks to carry forward and set off predecessor accumulated losses and unabsorbed depreciation on amalgamation or demerger "as if the business reorganisation had not taken place," subject to the Act's set-off and depreciation rules. Demergers transfer directly attributable losses to the resulting undertaking and require pro rata apportionment of non direct losses by asset distribution. Qualification depends on continuity of banking activity and specified fixed asset holding thresholds, deemed tax year splitting, prescribed/notified conditions, and denial of set offs as taxable income upon non compliance.
Act Rules Income Tax
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Ring-fencing of race-horse losses restricts set-off to stake-money income and allows limited carry forward period.
Losses from owning and maintaining race horses are ring-fenced and may be set off only against income from the same specified activity (stake money). Unabsorbed losses may be carried forward for set-off solely against future stake-money income in years when the assessee carries on the specified activity, subject to a limited carry-forward period after which unabsorbed amounts expire. Definitions narrow the scope of eligible income and losses.
Act Rules Income Tax
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Set-off restriction for specified business losses limits use to profits of other specified business activities only.
Losses computed in respect of a specified business carried on by the assessee in a tax year may be set off only against profits and gains of other specified business activities for that year; any portion not so set off is an unabsorbed loss that may be carried forward and set off only against profits and gains of specified businesses in subsequent years.
Act Rules Income Tax
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Speculation loss ring fencing: losses only offset against speculation profits with limited carry forward and priority in set off.
Losses from speculation business may be set off only against speculation business profits; any unabsorbed speculation business loss is carried forward and set off only against future speculation business profits, subject to a statutory temporal limitation and applied before certain other carried forward allowances. A deeming rule treats companies buying and selling shares of other companies as carrying on speculation business to that extent, subject to carve outs where specified income heads or principal business activities prevail.
Act Rules Income Tax
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Carry forward of unabsorbed business loss limited to set off only against business profits, with a temporal carry forward limit.
Unabsorbed business loss (loss under Profits and gains of business or profession excluding speculation loss not absorbed under inter head set off) shall be carried forward and may be set off only against business or profession profits in subsequent years; any amount not so set off is carried forward iteratively, subject to a limit of not more than eight succeeding tax years, and such unabsorbed loss is to be given effect before allowing set off of specified carried forward allowances.
Act Rules Income Tax
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Carry forward of capital losses: limited temporal carry forward with distinct set off rules for long term and short term losses.
A statutory regime prescribes distinct set off rules for losses under the head Capital gains: short term capital losses may be set off against gains from any other capital asset, long term capital losses only against gains from other long term assets, and any residual loss after intra year set off qualifies for carry forward but only for a limited number of succeeding tax years; the Bill defined this residual as an unabsorbed capital loss, whereas the enacted provision omits that label but retains equivalent practical effect.
Act Rules Income Tax
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Carry-forward restriction of house property losses confines set-off to future house property income with a time-limited ceiling.
Residual losses computed under Income from house property that are not wholly absorbed by intra-year set-off qualify as unabsorbed loss from house property and may be carried forward, to be set off only against future house property income in subsequent years until the loss is absorbed or the statutory temporal limit expires; the clause defines the qualifying unabsorbed loss by reference to prior application of intra-year set-off rules.
Act Rules Income Tax
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Capital gains set-off rules restrict long-term losses to long-term gains while short-term losses offset any capital gains.
Section 108 separates general intra-head set-off (excluding capital gains) from specific capital gains rules: long-term capital losses are only set off against other long-term capital gains in the same year, while short-term capital losses may be set off against gains from any capital asset, with classification and computation governed by the capital gains framework.
Act Rules Income Tax
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Deeming rule for non-account-payee instruments treats amounts (including interest) as taxable income in the year of transaction.
Amounts (including interest) borrowed or repaid through a negotiable instrument, a hundi, or any mode specified by the Board shall be deemed to be the income of the borrower or repayer for the tax year of the transaction; transactions effected by an account payee cheque are excluded, and sub-section (2) prevents re-assessment of the same amount under that sub-section on repayment.
Act Rules Income Tax
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Unexplained expenditure deemed income, disallowing deduction when source is not satisfactorily explained by assessing officer.
Section 105 deems expenditure to be income when the assessee offers no explanation of its source or offers an explanation the Assessing Officer deems unsatisfactory; the deemed amount cannot be claimed as a deduction under the Act, the deeming may apply to part of an expenditure, and the provision contains no definitions, procedural safeguards, evidentiary standards, or appeal mechanisms.
Act Rules Income Tax
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Unexplained asset: acquisition expenditure governs deeming as income when taxpayers give no satisfactory explanation on source.
An unexplained asset found to belong to an assessee, or where the asset measure exceeds recorded books, may be deemed income for the year if the assessee offers no explanation or an explanation unsatisfactory to the Assessing Officer; the enacted text measures the asset by the amount expended in acquiring such asset and expressly includes virtual digital assets, while leaving valuation mechanics, evidential burdens, and procedural standards unspecified.
Act Rules Income Tax
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Unexplained investments deemed income when not recorded or inadequately explained to the assessing officer.
Section 103 deems the value of investments to be income in the tax year where an investment is not recorded in the assessee's books of account, if any, or where the Assessing Officer finds the amount exceeds recorded entries, and the assessee either offers no explanation or an explanation that is not satisfactory in the opinion of the Assessing Officer.
Act Rules Income Tax
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Unexplained credits: credited sums may be taxed if explanations are absent or unsatisfactory, shifting evidentiary burden to taxpayers and counterparties.
Section 102 allows sums found credited in an assessee's books to be charged as income where no explanation is given or the explanation is not satisfactory to the Assessing Officer. It places special deeming requirements on loans/borrowings and certain private company receipts, requiring the person in whose name the credit stands to provide a satisfactory explanation to the Assessing Officer, while excluding specified venture capital funds from those counterparty requirements.
Act Rules Income Tax
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Clubbing of family income risks expanding under revised spouse professional-income wording, increasing compliance and valuation complexities.
Section 99 requires inclusion in an individual's total income of amounts arising to a spouse, son's wife, minor child, or where property is converted into HUF property; it prescribes exclusions for certain minor child earnings, a proportionate apportionment formula for assets invested in business or partnership, deems income to include loss, preserves a temporal carve out for conversions on or before 31 December 1969, and identifies documentation and valuation consequences where Bill wording diverges on spouse professional income carve outs, third party benefit attribution and the denominator reference date for apportionment.
Act Rules Income Tax
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Deductions under Section 93 clarify allowable expenses and caps for income from other sources, with key exclusions.
Section 93 prescribes allowable deductions in computing income from other sources, including reasonable commissions for realising dividends and interest, cross-referenced expense allowances applied "so far as may be," capped deductions for family pension depending on tax computation method, revenue expenditures wholly and exclusively laid out, a single fixed-percentage deduction for a specified income class with no other deductions permitted, and sub-section rules denying deductions for a defined dividend class while limiting interest deductions for certain dividend or unit incomes.
Act Rules Income Tax
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Income from other sources determines taxability of miscellaneous receipts and prescribes valuation, thresholds, and exemptions.
Section 92 creates a residuary head, Income from other sources, taxing miscellaneous receipts not chargeable under other heads and listing illustrative categories (dividends, winnings, specified insurance proceeds, interest, hire income, forfeited advances, compensation interest, termination payments, business trust distributions). It prescribes valuation and computation methods, monetary thresholds for gratuitous receipts with enumerated exceptions (relatives, marriage, inheritance, specified non profits, non transfer transactions), and cross references to other statutory definitions and procedures affecting payment modes and valuation challenges.

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Reopening of assessment - Substance over Form - Failure to disclose material fact - Duty of the AO to make an enquiry to test the correctness of the disclosure made even if the statutory forms signed and certified by the Chartered Accountant

10 July, 2019

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2019 (7) TMI 415 - MADRAS HIGH COURT

2018 (10) TMI 442 - MADRAS HIGH COURT

Reopening of the assessment for the year 2010-2011. - Whether ingredients of Section 147 r.w.s 148 are satisfied?

Facts of the case

In the present case, deduction u/s 10B of Income Tax Act, 1961 was allowed to assessee (100% EOU) on the basis of Form No.56G. In the said Form in Column No.8 it is mentioned as 10th year of claim, but, in Column No.7, the date of commencement of manufacturing is mentioned as 28.03.2000. Thus the Assessing Officer stated that the year under consideration happens to be 11th year. The Assessing Officer also referred to the copy of the Form 56G for the assessment year 2001-2002. Accordingly the Assessing Officer informed the assessee that the assessee has exclusively extended its 10B holiday period to the 11th year and hence become ineligible for deduction under Section 10B.

Submission of the assessee

There was no opening stock as on 1.4.2000. The first invoice was raised only on 31.05.2000 to UNICEF, New Delhi. With regard to the date of commencement of manufacturing activity, the assessee stated that the firm came into existence on 20.03.2000, registered as an EOU on 29.03.2000 and has commenced manufacturing activity only after 01.04.2000.

With regard to the discrepancy pointed out by the Assessing Officer in the notice dated 25.01.2017, the assessee stated that the substance over Form is required to be taken into consideration and mere reporting of the date in the Form 56G does not give a conclusive picture as to the date of starting of manufacturing activity which is only in the month of April or which only in the assessment year 2001-02 which has been clearly claimed as the first year of exemption. Therefore, the assessee requested to drop all the assessment proceedings and reopen the assessment.

Single member bench [2018 (10) TMI 442 - MADRAS HIGH COURT], while entertaining the writ petition, has observed that:

Every non disclosure of material facts will not or cannot be a justifiable reason for reopening sustainable under judicial scrutiny.

On the other hand, such non disclosure of a material fact must be of such nature that, but for such non disclosure, the income, relatable to such material fact, would not have escaped assessment. In other words, it should lead to an irrebuttable conclusion that by the conduct of the assessee, either by providing wrong or incorrect particulars or by not providing the full and correct particulars, he should have made the Assessing Officer not to bring a particular income to tax, which is otherwise liable to be taxed. If this test is applied to the present case, I am of the view that the Revenue has to fail.

Revenue took the matter before the division bench of the High Court [2019 (7) TMI 415 - MADRAS HIGH COURT] wherein it was observed that:-

There can be no escape from this fact and the assessee should accept this mistake.................It may be true that the assessee can now take a stand that substance over form is to be considered but what is important is that the assessee at the first instance had a duty to give proper and correct details. We may say that the assessee failed in doing so. Be that as it may, what is required on the part of the Assessing Officer is not to go mechanically by the details disclosed by the assessee in the statutory form and or for that matter signed and certified by the Chartered Accountant. The Assessing Officer being cast with a statutory duty an enquiry is required to test the correctness of the disclosure made in such statutory forms. This is why the concept of substance over form was always preferred by Courts while dealing with such matters.

The second mistake which the assessee committed, which had invited the problem, was not mentioning the correct date of commencement of commercial production in its reply dated 02.02.2007 and this again was submitted through the very same Chartered Accountant. In the reply, there is a vague statement with regard to the commencement of manufacturing activity and what has been stated is that the assessee commenced manufacturing activity only after 01.04.2000. Thus, we are of the view that the assessee appears to have not been very seriously contesting the matter at the relevant point of time. Wisdom dawned upon the assessee only after the appellant passed the order dated 13.02.2017. It is thereafter the assessee through their Chartered Accountant gave the exact date of production/manufacture as 25.05.2000.

Keeping aside all these issues, we have examined the correctness of the order passed by the learned Single Bench and we note with approval the findings of the learned Single Bench in paragraphs 16 and 17 of the impugned order. The above finding rendered by the learned Single Bench is just and proper.

As pointed out by the learned Single Bench every non-disclosure of material facts will not or cannot be a justifiable reason for reopening an assessment. We reiterate that what was required to be considered is that, substance over form.

Therefore, we are of the considered view that the learned Single Bench was perfectly right in allowing the writ petition which had been done after thorough examination of the facts and the legal position. In our considered view the revenue has not made out any grounds to interfere with the order passed by the learned Single Bench.

 


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2019 (7) TMI 415 - MADRAS HIGH COURT

2018 (10) TMI 442 - MADRAS HIGH COURT

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Acts Income Tax