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Case Laws Income Tax
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Ownership for unexplained articles must reflect real ownership rights, not mere carrier possession, to trigger tax implications.
Section 69A applies only where the assessee can properly be regarded as the owner of the item and the item is an other valuable article; a carrier or bailee lacks ownership rights unless wrongful retention or misappropriation confers exclusive control akin to ownership, and an article qualifies as "valuable" by per unit marketability and premium price rather than aggregate value of ordinary low cost goods such as bitumen.
Case Laws Income Tax
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Tax deduction denial for pharmaceutical freebies: expenses excluded under Explanation 1 to Section 37(1) as prohibited by law.
Whether expenditures by pharmaceutical companies for distribution of incentives to medical practitioners are allowable under Section 37(1) depends on Explanation 1 to Section 37(1), which disallows deductions for purposes that are an offence or are prohibited by law; because medical ethics regulations prohibit doctors from accepting such freebies and attach punishments, donors' provision of those incentives is treated as participation in proscribed conduct and such expenses are not allowable as business deductions.
Case Laws Income Tax
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Belated employees' contribution: deduction disallowed when not deposited by prescribed statutory due date; employer contribution treated differently.
Non-deposit of employees' contribution within the due date prescribed under the respective provident/insurance statute results in disallowance of the employer's deduction, whereas employer contributions are subject to a separate payment-based rule that defers deduction until actual payment. The statutory scheme preserves distinct treatment: employee contributions must be credited by the statutory due date to qualify as deduction, while employer contributions may be allowed on a payment basis when actually paid.
Case Laws Income Tax
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Reopening assessments beyond four years barred where full and true disclosure eliminates omission to disclose material facts.
Reopening an assessment beyond four years is permissible only if there was an omission to disclose material facts; where the assessee had fully and truly disclosed loan and interest details and the assessing officer merely sought a different view on deduction versus capitalization using the same material, the condition precedent for reopening under the proviso is not met and the notice to reopen cannot be sustained.
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Abuse of revenue authority: improper recoveries and refund adjustments contrary to statutory stay and intimation safeguards.
The note addresses revenue practice of effectuating recoveries and adjusting taxpayer refunds without complying with statutory safeguards, characterising such conduct as an abuse of authority and a breach of constitutional taxation limits under Article 265. It emphasises that filing an appeal precludes an assessee from being treated as an 'assessee in default' for recovery purposes under the statutory stay framework, and that automatic adjustment of refunds against demands without prior intimation and opportunity of hearing conflicts with the statutory process for refund adjustment and recovery.
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Advance Ruling System can reduce tax litigation and provide binding certainty for taxpayers, urging reform and institutional strengthening.
Recommend comprehensive reform of the Advance Ruling regime to reduce tax litigation by improving AAR capacity and timeliness, lowering the high resident eligibility threshold, and creating an institutional council modeled on Swedish and New Zealand systems so advance rulings become a practicable, binding, and transparent mechanism to provide tax certainty and narrow further challenges.
Case Laws Income Tax
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Reopening of assessment: Section 148 notices held in abeyance pending Supreme Court decision on Section 80P deduction entitlement.
Reopening of assessment under Section 147 and notices under Section 148 to cooperative societies were stayed and kept in abeyance pending disposal of Special Leave Petitions concerning entitlement to deduction under Section 80P(2)(a)(i) read with Section 80P(4). The High Court ordered that if the Supreme Court allows the SLPs the notices will revive and reassessment may proceed, and if the Supreme Court rules for the assessees the impugned notices will be set aside.
Case Laws Income Tax
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Substance over form requires assessing officers to inquire beyond certified statutory forms before reopening assessments.
Non-disclosure must be sufficiently material to show that, but for it, income would have escaped assessment; Assessing Officers must not rely mechanically on CA-certified statutory forms and must make independent enquiries, applying the substance over form principle when determining commencement of commercial production or eligibility for tax concessions.
Act Rules Income Tax
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Eligibility for SUGAM ITR-4: resident individuals, HUFs and resident firms with presumptive business income may use the simplified return.
Eligibility to file Form SUGAM (ITR-4) is limited to resident individuals, resident HUFs (other than not ordinarily resident), and resident firms (excluding LLPs) deriving business or professional income computed under presumptive provisions of sections 44AD, 44ADA or 44AE. Explicit exclusions bar persons with foreign assets/signing authority/income, directorships, unlisted equity holdings in the previous year, income above the prescribed limit, more than one taxable house property, brought forward or carry forward losses, assessments where tax was deducted in another's hands, claims under double taxation provisions or deduction under section 91, certain agricultural income, and incomes taxable under specified special heads.
Act Rules Income Tax
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ITR form eligibility limited to resident individuals with salary, single house and non lottery other income; foreign interests excluded.
Form SAHAJ (ITR 1) is available only to resident individuals whose taxable income arises solely from salaries or family pension, income from a single house property without brought forward or current losses under that head, and other sources excluding lottery winnings and race horse income, provided they do not fall into disqualifying categories such as foreign assets, foreign income or signing authority, income requiring apportionment, directorships, unlisted equity shareholdings, tax assessed on income with TDS in another person's hands, claims for double taxation relief, specified deductive claims, agricultural income above a small threshold, or total income above the prescribed upper limit.
Manuals Income Tax
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Deduction for authors' royalty income available only to resident authors under income tax rules; non-residents are ineligible.
The deduction for authors' royalty income under section 80QQB is limited to individual taxpayers who are resident-either resident and ordinarily resident or resident but not ordinarily resident-and excludes non-resident authors, so non-residents cannot claim the royalty deduction.
Manuals Income Tax
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Tax deduction under 80GGA allows any donation amount for scientific research or rural development to be claimed.
Section 80GGA provides a tax deduction for sums donated for specified purposes of scientific research or rural development; there is no prescribed minimum donation threshold and any amount paid for the specified purpose is eligible for deduction.
Manuals Income Tax
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Deduction under 80GG: individuals paying rent must submit Form 12BA to claim a rent deduction.
An individual who pays rent for residential accommodation may claim deduction in respect of rent paid provided the claimant submits a written declaration in Form 12BA to the assessing officer asserting entitlement; the deduction is contingent on both actual rent payment and timely submission of the prescribed declaration.
Manuals Income Tax
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Deduction under section 80E not available if education loan is taken in a family member's name.
Deduction under section 80E for interest on higher education loans is available only where the assessee is the named borrower; loans taken in the name of a relative or other family member do not qualify for the deduction, because the borrower identity is the operative condition for entitlement.
Manuals Income Tax
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Disability deduction: dependent relief under one provision versus taxpayer's own deduction under the other provision.
Section 80DD provides a deduction for maintenance, including medical treatment, of a handicapped dependent claimed by the taxpayer, whereas Section 80U provides a deduction available to the taxpayer who is himself or herself a person with disability; the key distinction is whether the deduction is for a dependent or for the disabled taxpayer.
Manuals Income Tax
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Section 80DD deduction applies only for maintenance of a disabled dependent, not for the taxpayer's own disability.
Deduction under 80DD permits an income tax deduction for maintenance, including medical treatment, of a handicapped dependent who is a person with disability; the deduction is available for expenditure in respect of such a dependent and is not available to a taxpayer for his or her own disability-related expenses.
Manuals Income Tax
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Deduction under section 80D denied for cash payments; only preventive health checkup expenses may be paid in cash.
Deduction for medical insurance premia under deduction u/s 80D is not available where the expenditure is made in cash; payments must be by non-cash modes to qualify, except that expenditure on preventive health checkups may be incurred in cash and still qualify for the deduction.
Manuals Income Tax
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Medical insurance premium deduction allowed when an individual pays for spouse, self and dependents under section 80D.
An individual is entitled to claim a deduction for premiums paid for medical insurance covering the individual, the spouse, dependent children and parents under the medical insurance premium deduction framework; premiums paid by an individual for insurance on the health of those family members qualify for deduction.
Manuals Income Tax
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Tax benefit under 80CCG: guardian may claim deduction for investments made in a minor's name, subject to individual limits.
A guardian who makes investments in a minor's name may claim the deduction under 80CCG, subject to the overall deduction limit applicable to the guardian as an individual and compliance with the scheme's conditions.
Manuals Income Tax
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Non-resident individuals joining NPS: eligible to open accounts, but accounts close if citizenship changes under pension deduction rules.
Non resident individuals may join the National Pension System and make contributions eligible for pension contribution deduction under income tax provisions; however, an NPS account will be closed if the member's citizenship status subsequently changes, affecting continued participation and account maintenance.

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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