Section 271AAD, which was inserted by the Finance Act 2020 to levy penalty for ‘existence of any false entry’ or ‘omitting any entry’ has given rise to a controversy as to whether it applies to the assessment year 2020-21 or later. There is also debate on the precise meaning of the term “false entry”. CA. Pankaj Agrwal has considered both aspects and expressed his opinion in a clear manner

The Finance Act 2020 has inserted a new section 271AAD and has created flutter in professional circles for several reasons. I have the privilege of going through the views of eminent professional through their write up and presentation in webinars.  I ponder on the subject and wish to complement with my views.

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Advocate Sukhsagar Syal has explained the law relating to the grant of income-tax refunds in the context of the statutory provisions and the circulars issued by the CBDT. He has referred to all the important judgements on the subject including the latest judgement of the Supreme Court in Vodafone Idea Ltd vs. ACIT. He has opined that the legislature should stipulate a time limit for grant of refund to avoid unnecessary hardship to taxpayers

Under the directive of the Ministry of Finance, the Central Board of Direct Taxes (‘the Board’) announced (1) that in order to provide relief to small businesses and individuals, it had issued refunds worth Rs. 5,204 crores in the current fiscal year and that it intends to issue further refunds of Rs. 7,760 crores shortly. While the influx of any capital into the system in the current times is welcome, yet, it begs the question, whether this move really is an act of benevolence or is the Income-tax Department (‘the Department’) duty bound to pay back to the taxpayer, what rightfully belongs to him?

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In Yum! Restaurants (Marketing) Pvt Lrd vs. CIT, the Supreme Court has laid down important principles of law concerning the taxation of mutual associations. CAs Satyajeet Goel and Himanshu Aggarwal have conducted a detailed study of the judgement. They have systematically analyzed the judgement and identified all the core principles of law emanating from it

1. Doctrine of Mutuality

The doctrine of mutuality stems from basic principle that “a person cannot make profit from himself”. The foundation of this doctrine is well recognized and logical in a sense that element of commerciality is missing in transaction undertaken with oneself. For that reason, it is deemed in law that if the identity of the seller and the buyer is marked by one, then a profit motive cannot be attached to such a venture. Thus, for the lack of a profit motive, the excess of income over the expenditure or the “surplus” remaining in the hands of such a venture cannot be regarded as “income” taxable under the Act.  What is taxable under the Act is “income” or “profits” or “gains” as they accrue to a person in his dealings with other party or parties that do not share the same identity with the assessee. The vital elements of doctrine of mutuality has been reaffirmed and reiterated by Apex court in the landmark judgment in the case of Bangalore Club v. Commissioner of Income Tax & Anr (2013) 5 SCC 509.

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CAs Naresh Kumar Kabra and Ankit Modi have provided valuable guidance on how businesses will have to adapt to survive the disruption caused by Covid-19. The authors have given pointers on how the cash crisis can be met through orthodox methods of cost cutting. They have also provided practical insights as to ‘What Comes After’ the lockdown and how to prepare for it. A pdf copy of the article is available for download

Overview

The Indian economy has declared its 6 years’ lowest real GDP in the third quarter of 2019-20, and the outbreak of COVID-19 has posed enormous challenges. The situation forced the government to impose 40 days (initially 21 daysand then extended by further 19 days) nation-wide restrictions and a complete lockdown to curtail the lethal impact of the outbreak. It has led the economic activities of the nation to a standstill and could impact both the demand & supply side of the economy.The lower reliance on intermediate imports, can possibly insulate the businesses from the global supply chain disruption.However, the deteriorating economy have forced the businessmen to think about their survival.

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CA Nidhi Surana has explained the entire law relating to the levy of penalty on undisclosed income unearthed during search proceedings as contained in sections 271AAA and 271AAB of the Income-tax Act, 1961. She has also pin-pointed the numerous controversies that have arisen under these provisions. She has also referred to all the important judgements on the subject and explained their nuances

1. Introduction:

Concept of penalty in Ancient Times:

Indian lawmaker Manu in Manusmriti said that in case the King fails to punish  the offender, the powerful will persecute the weaker. Manu further says that it is only the fear of punishment that keeps a man within four corners of law and compels him to obey the law. Some slokas from Manusmriti (English translation by Maitreyee Deshpande) are reproduced hereunder:-

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CA Sanjay Mody has raised the interesting question whether section 194N of the Income-tax Act 1961, which provides for deduction of tax at source in respect of cash withdrawal from banks etc, is Constitutionally valid. He has put forward the convincing argument that as a transaction of withdrawal of money by a person from his own bank account cannot give rise to income chargeable to tax, the question of subjecting such a transaction to TDS cannot arise. He has made good his contention by relying on several judgements

In this write-up, an attempt has been made to find out whether the provisions contained in section 194N of the Income-tax Act, 1961 (the Act) providing for deduction of tax at source in respect of cash withdrawal from banks etc. is permissible under the Constitution and valid within the scheme of the Act or not.

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Advocates Nishant Thakkar, Hiten Chande and Jasmin Amalsadvala have made out a compelling case as to why the Equalisation Levy is constitutionally invalid. The learned authors have explained with the aid of practical examples that the levy has extra-territorial operation and fails the Nexus test and the Object test. They have also argued that the Equalisation levy is nothing but an alternate form to computing and collecting Income-tax and that the provisions of a DTAA must be available for application and due benefit

1. Introduction:

a. Equalisation Levy was introduced by the Finance Act of 2016 in the form of Chapter VIII therein.

b. The Levy has been introduced based on the recommendations of the Report of the Committee on Taxation of E-Commerce – February 2016.

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CA Vinay V. Kawdia has explained in a systematic manner the TDS provisions as applicable to Co-operative societies/Banks (as a payer/payee of interest other than interest on securities) after considering the related amendments by Finance Act 2020. He has cited the relevant judgements to support his propositions

Introduction:

Section 194A of the Income-tax Act, 1961 ["The Act"] mandates that any person other than an individual or a HUF responsible for paying any income by way of interest other than interest on securities at the time of payment/credit of such income to the account of the payee, has to deduct income-tax thereon at the rates in force. Sub-section (3) of the said section provides for circumstances in which the provisions of sub-section (1) shall not apply. Clause (i) to clause (xi) of section 194A(3) list the circumstances under which payment/credit of interest shall not be liable to TDS as required u/s 194A(1).

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Advocate Shashi Ashok Bekal has complimented the CBDT for its proactiveness in clarifying the doubts of taxpayers. However, he has pointed out that certain important doubts have still not been clarified. He has requested the CBDT to take a liberal view regarding these issues and issue a speedy clarification. He has assured that a timely clarification would not only help tax payers and the taxman but will also play a role with respect to achieving the desired results for the administration

The Vivad se Vishwas (VSV) Scheme was announced by Union Finance Minister Nirmala Sitharaman during her budget speech on February 1, 2020. This has been introduced as a way to reduce the pendency of litigation under the Income tax Act, 1961 (Act) with a golden shake hand. Pursuant to that, the administration has come up with amendments and clarifications to ensure smooth implementation of the Scheme. An ordinance was issued extending the last date for beneficial payment, when the lockdown on account of the global pandemic seemed to threaten the success of the Scheme.

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Advocate Narayan Jain, LL.M, has explained in detail the provisions of section 271AAD of the Income-tax Act, 1961, which provides for the imposition of penalty. He has also dealt with the corresponding provisions in the GST Act. He has cautioned taxpayers to cross-check all entries with the vendors and customers as any negligence or mistake can expose them to imposition of heavy penalties under the Income tax as well as under GST

1. Introduction:

The Finance Act, 2020 has introduced new penalty provision under section 271AAD to curb malpractices of issuing fake invoice. Section 271AAD shall apply with effect from 1st April, 2020.

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