Amended Rule 8D for computation of disallowance u/s 14A

CBDT notifies amended Rule 8D for computation of disallowance u/s 14A, clarifies that amount of disallowance as computed under Rule 8D shall not exceed total expenditure claimed by the assessee; Deletes sub-clause (ii) in Rule 8D(2) which dealt with computation of expenditure towards interest (not directly attributable to any particular income/ receipt) as per the prescribed formula; Increases the rate to be applied on annual average value of investments from 0.5% to 1%; Amended Rule shall come into force on the date of its publication in the Official Gazette: CBDT

No Service tax Audit by Department

In the Delhi High Court Mega Cabs Pvt. Ltd. filed writ petition (C) No. 5192/2015 [[Mega Cab v UOI and Anr.] challenging the validity of Rule 5A(2) of the Service Tax Rules as substituted by Notification No. 23/2014-ST, dated 05.12.2014, clause (k) of sub-section (2) of section 94 of the Finance Act, 1994 as inserted w.e.f. 06.08.2014 by the Finance Act, 2014 and also the Circular No. 181/7/2014-ST dated 10.12.2014 directing departmental officers to conduct audit of the service tax assessees as provided in the departmental instructions. In the matter, Delhi High Court has entertain the said writ petition and by order dated 22.05.2015 please to issue Notice to the Union of India, Ministry of Finance, and also to the Service Tax (Audit) Department, Delhi. 

Yesterday, (03.06.2016), the Delhi High Court delivered a landmark Judgment [Mega Cab v UOI and Anr. in WP(C) 5192/2015] - no more audit of assessee records by the Central Excise and Service Tax Department and strike down Rule 5A(2) of Service Tax Rules as ultra vires to the Finance Act, 1994.

The Court also held that "verification" in clause (k) of sub-section (2) of section 94 of the Finance Act, 1994 cannot be constructed as  "audit" which is specialized function otherwise clause (k) suffered from the vice of excessive delegation of legislative power by the Parliament.

The Court also strike down the Circular No. 181/7/2014-ST (F. No. 137/46/2014-ST), dated 10-12-2014 regarding Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates as well as circular dated Circular No. 995/2/2015-CX (F. No. 206/03/2014-CX.6),dated 27-2-2015 regarding Central Excise and Service Tax Audit norms to be followed by the Audit Commissionerates.

The High Court further held that Audit Manual – 2015 issued by the Department also has no statutory force by observing that earlier Audit Manual 2011 was also declared without any statutory backing Travelite (India) v UOI 2014 (35) S.T.R. 653 (Del.). The Government has not down anything to remove the defect pointed out in Travelite (India) judgment.

The Court also quashed impugned letter C. No. I-26(494)ST/AMR-48B/Mega Cabs/C-IV/gr-1/2013/383 dated 30.04.2015 issued by service tax Department to Mega Cab regarding audit.

It is a general practice of Service Tax Department to conduct audit of service tax assessee for last five years by deputing their own officers of the rank of inspector and Superintendents. Service Tax Department also seeks voluminous details and seeks information in self-specified format/annexures of about 32 pages, which are not prescribed under the law. Service Tax Department without assigning any reasons and routinely conducts audit even when it is not prescribed under the law and not conducting special audit.

It may be noted that earlier Rule 5A(2) was struck down as ultra vires by  the Hon'ble Delhi High Court in the matter of Travelite (India) v UOI 2014 (35) S.T.R. 653 (Del.), after that amendment was made by the Finance Act, 2014 by inserting clause (k) of sub-section (2) of section 94 and on the basis of that sub-rule (2) to Rule 5A has been again enacted. Whereas in Circular No. 181/7/2014-ST dated 10.12.2014, stand has been taken by the Government that Travelite (India)  judgment can be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act.

The High Court has given detailed judgment considering various judgments. Now this judgment made is clear that the officers of the Department has no power to conduct audit at all. Similarly, the CAG officers also have no power to conduct audit of the assesse records.

Cost inflation index for F.Y.2016-17 will be 1125

Cost inflation index for F.Y.2016-17 will be 1125.

Notification No. 42/2016 dt 2 June 2016

IDRS

Analysis of Indirect Tax Dispute Resolution Scheme, 2016 (IDRS)

 Indirect Tax Dispute Resolution Scheme, 2016 (IDRS) has been introduced by Finance Act, 2016, vide Chapter XI.  The salient features of the scheme are as follows:

1.         Applicability:

 It shall be applicable to the declarations made up to the 31st day of December, 2016.

 2.         Who can Apply:

Any person whose appeal is pending before Commissioner (Appeals) can opt for this scheme except the following cases, when:

(a)     the impugned order is in respect of search and seizure proceeding; or

(b)     prosecution for any offence punishable under the Act has been instituted before the 1st day of June, 2016; or

(c)     the impugned order is in respect  of narcotic drugs or other prohibited goods; or

(d)     impugned order is in respect of any offence punishable under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the Prevention of Corruption  Act, 1988; or

(e)     any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.

3.         Process of Declaration and getting relieving order:

A person has to follow the following process to benefit from the scheme:

Declare

(1)         Any person opts for the scheme shall apply in Form 1 (in duplicate) in respect of the amount payable under the Scheme on or before 31st December 2016.

Acknowledgement of declaration

(2)         The designated authority shall acknowledge the declaration in Form 2 within seven days of the receipt of declaration.

(3)         Copy of the declaration (Form 1) and the acknowledgement issued by the designated authority (Form 2) shall be furnished within fifteen days of the receipt of acknowledgement by the declarant to the concerned Commissioner (Appeals) before whom the appeal in respect of which the declaration has been made is pending.  No form been prescribed and thus, the filing can be done under a simple letter.

(4)         On the receipt of the declaration and acknowledgement, Commissioner (Appeals) shall not proceed with the appeal in respect of which the declaration has been made for a period of sixty days from the date of receipt of information (Form 1 and Form 2).

Pay Taxes

(5)         The declarant shall pay tax due alongwith the interest thereon at the rate as provided in the Act and penalty equivalent to twenty-five per cent. of the penalty imposed in the impugned order, within fifteen days of the receipt of Form 2.

Intimate about payment

(6)         Declarant should intimate the designated authority in Form 3 within seven days of making such payment giving the details of payment made along with the proof thereof.

Order of discharge

(7)         The designated authority shall, within fifteen days of receipt of the information about the deposit made as submitted in Form 3, issue the order of discharge of dues in respect of the declaration made in Form 4.

Intimate Commissioner (Appeals)

(8)         The declarant shall intimate the concerned Commissioner (Appeals) along with the copy of the order of discharge of dues issued by the designated authority before the expiry of the period of sixty days from his first intimation to Commissioner (Appeals). Since no form has been prescribed, such intimation made be made in form of simple letter.

(9)         On the receipt of the information along with the copy of the order of discharge of dues issued by the designated authority, Commissioner (Appeals) shall remove the appeal from the list of pending appeals with him and intimate the declarant within seven days of the receipt of information.

4.         Immunity from other proceedings under Act.

Upon the passing of an order in Form 4, the appeal pending before the Commissioner (Appeals) shall stand disposed of and the declarant shall get immunity from all proceedings under the Act, in respect of the indirect tax dispute for which the declaration has been made under this Scheme.  Thereafter, no matter relating to the impugned order shall be reopened thereafter in any proceedings under the Act before any authority or court.

5.         Consequences of order made under scheme.

Any amount paid in pursuance of a declaration shall not be refunded.   Also, order of relief in Form 4 shall not be deemed to be an order on merits and has no binding effect in future before any authorities.

6.         Frequently asked Questions

Q1.      Do I have to make seeprate declarations for each appeal or can I file one declaration against all pending appeals.

You have to file separate declarations for every appeal.

Q2.      I have three appeals pending before Commissioner (Appels).  I want to make declaration only for one while the other two I want to contest.  Can I do so?

Yes. Since the declaration is separate for each appeal, when made for one of the appeals would not have any impact on any other pending appeal.

Q3.      Can I opt for the scheme for part of demand against which appeal has been filed i.e. out of three issued pending in an appeal, can I opt for one issue under this scheme and contest the balance two issues?

No. Since the declaration is single for each appeal, there is no provision of opting for part of demand pending in a single appeal.

Q4.      Who can sign the declaration?

The declaration shall be verified in the manner indicated therein and shall be signed by the person making such declaration or by any person competent to act on his behalf.

Q5.      Can I pay demand under this scheme from Cenvat credit?

There is no restriction in such payment as per the scheme provided.  However, interest and penalty cannot be paid by Cenvat credit.  However, as per intimation Form 3, there is no column for such adjustment and thus, the intent of the drafters might be payment in cash only.

Q6.      Will an order of relief in Form 4 shall mean that I have got the order in appeal in my favour?

The scheme is only a dispute resolution scheme and in no manner provides any order on merit.  It simply relieves an assessee from a pending appeal and all proceedings, but such order cannot be used in merit in any future matter of same or some other assessee.

Q7.      Till when should I pay interest under the scheme?

Interest is to be computed and paid upto the date when tax is paid by the assessee under the scheme.

Q8.      I have already deposited 7.5% as stay requirement against such appeal.  Can I take the amount in computing my discharge or should I apply for refund of such amount?

Amount deposited in pending proceedings in the view of the author should be considered as payment under the present scheme.

Q9.      I have deposited tax and interest but failed to pay penalty within 15 days.  Can I still get immunity under the scheme?

No, if the penalty is not paid within he specified time, no relief under the scheme shall be given to the declarant.

Q9.      My declcaration has been rejected for non payment.  Can I adjust the amount paid towards demand upheld by Commissioner (Appeals)?

Yes, any deposit under the scheme when rejected should be considered for demand upheld by Commissioner (Appeal).

 (Courtesy: Gaurav Gupta)

Income Tax Provisions Applicable from 1st June 2016

Income Tax Provisions Applicable from 1^st June 2016

(i)         Amendment relating to Advance Tax (The change is effective from financial year 2016-17 onwards)

The schedule for payment of Advance Tax by an Individual and other non-corporate assessee has been amended w.e.f.  1^st June 2016 as under:

Due Date of Installment	Amount Payable
On or before 15th June	15% of Advance Tax
On or before 15th September	45% of Advance Tax
On or before 15th December	75% of Advance Tax
On or before 15th March	100% of Advance Tax

Earlier, there was no requirement of paying advance tax in respect of assessees’ who opted for non maintenance of books of accounts and declared profit @8% of gross receipts subject to a maximum of Rs. 1 crore which limit has been enhanced to Rs. 2 crores w.e.f. financial year 2016-17.

In case of such assesses’ (whose businesses are eligible for applying tax @8% on gross receipt) under section 44AD of the Act are also now required to pay 100% of the tax due on such income before 15^th March, from financial year 2016-17 onwards.

(ii)           Amendments relating to TDS and TCS

(a)          Increase in threshold limit of deduction of tax at source on various payments mentioned in the relevant sections of the Act

Section	Threshold Limit upto 31st May 2016 (Rs.)	Threshold Limit from 1st June 2016 (Rs.)
192A Payment of accumulated balance due to an employee by the trustees of the Employees Provident Fund Scheme , 1952	30,000	50,000
194BB Winnings from Horse Race	5,000	10,000
194C Payments to Contractors	Aggregate annual limit of  75000	Aggregate annual limit of  100000
194LA Payment of Compensation on acquisition of certain Immovable Property	2,00,000	2,50,000
194D Insurance commission	20,000	15000
194G Commission on sale of lottery tickets	1,000	15000
194H Commission or brokerage	5,000	15000

(b)  Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act :-

Section	TDS Rates  up to 31st May 2016 TDS (%)	TDS  Rate w.e.f.  1st June 2016 (%)
194DA Payment in respect of Life Insurance Policy	2%	1%
194EE Payments in respect of NSS Deposits	20%	10%
194D Insurance commission	10%	5%
194G Commission on sale of lottery tickets	10%	5%
194H Commission or brokerage	10%	5%

(c)          Regarding : TCS on sale of Vehicles; Goods or services  :-

The following modifications have been made in the scheme of tax collection at source given under section 206C (with effect from 1^st June , 2016) –

Sub-section (1F) has been inserted.

This sub-section provides that every person (being a seller who receives any amount as consideration for sale of motor vehicle of value exceeding Rs. 10,00,000 shall collect the tax at the rate of 1 per cent of sale consideration .

This will be applicable whether payment is made by the purchaser in cash or by the issue of a cheque or draft or by any other mode.

Under the existing provisions of sub-section (1D) , seller of bullion (exceeding Rs. 2 lakhs) or jewellery (exceeding Rs. 5 lakhs)  is required to collect tax at source, if the consideration (or any part of it) is received in cash. In such case, tax was required to be collected at the rate of 1 per cent of sale consideration.

New provision

The requirement of collection of tax at source @ 1% from the buyer of goods or services exceeding Rs. 2 lacs has become effective from 1^st June, 2016 in case the transaction of purchase of goods or provision of services exceeds Rs. 2 lacs in part or fully is received in cash in case of a single invoice

To illustrate in case a purchase of Rs. 2,50,000/- is made through a single invoice and the buyer pays Rs. 1,50,000/- by cheque and Rs. 1 lac in cash the provision would be attracted and the seller would have to collect 1% of Rs. 2,50,000/-. 

However, provisions of sub-section (1D) will not be applicable in the following 2 cases –

(a)    No tax shall be collected at source on any amount on which tax has been deducted by the payer as applicable.

(b)    Provision of sub-section (1D) will not apply in relation to sale of any goods (other than bullion or jewellery) or service to such classes of buyer who fulfill such conditions, as may be prescribed (As yet no condition has been prescribed).

(iii)             Expenses incurred by the assessee towards specified services to be covered under section 40(a)(ib) [W.e.f. 1-6-2016]

A new levy @ 6% (referred to as Equalization  levy) has been made applicable to payment of online advertisements, provision for digital advertising space or any other facility or service for the purpose of online advertisements or any other notified services to a non-resident (who does not have a Permanent Establishment (PE) in India) provided to:

(a)         a resident in India  or

(b)         a non-resident having a Permanent Establishment (PE) in India

Equalization levy is to be deducted by the payer from the amount paid/ payable to the non-resident service provider.

Any consideration paid or payable (to non-resident for a specified service on which equalization levy is applicable) will be disallowed from June 1, 2016 (i.e. this assessment year 2017-18) in the following cases –

(a)   Equalization levy is deductible but such levy has not been deducted.

(b)  Equalization levy is deductible (and it is so deducted) but it is not deposited [on or before the due date of submission of return of income under section 139(1).

If, however, equalization levy is deducted / deposited in a subsequent year, the aforesaid consideration shall be allowed as a deduction in computing the income of the previous year in which such levy has been paid.

(iv)      Enabling of Filing of Form 15G/15H for rental payments [Section 197A]  [1-6- 2016

At present form 15G can be filled up by a resident assessee requesting for non-deduction of tax at source from certain payments made to him if his income is below the tax exemption limit, similarly, form 15H can be submitted by senior citizen ( above 60 years of age and very senior citizen above 80 years of age). The scope of income that can be included in the above forms is as under:

(i)              Amount received from withdrawal from Employees Provident Fund Scheme

(ii)            Dividend Income

(iii)          Interest other than Interest on Securities

(iv)          Sum received from Life Insurance Policy

(v)            Sum received from National Savings Scheme

(vi)           Rental income has also been allowed to be included in the declarations.

(v)        Relief to a non-resident for furnishing PAN [Section 206AA]

Section 206AA, inter alia, provides that any person (who is entitled to receive any sum on which tax is deductible at source) shall furnish his PAN to the deductor, failing which tax shall be deducted at the rate mentioned in the relevant provision or at the rate of 20 per cent, whichever is higher.

Amendment - Which effect from June 1, 2016, sub-section (7) of the said section has been substituted to provide that above provisions shall not apply to a non-resident / foreign company (who does not have PAN) subject to such condition as may be prescribed (as yet not prescribed).

(vi)      Amendment to section 133C

Section 133C empowers the prescribed income-tax authority to issue notice calling for information and documents for the purpose of verification of information in its possession. This section has been amended (with effect from June 1, 2016) to further provide that the information and documents so obtained by the prescribed income-tax authority may be scrutinized and the outcome of such scrutiny may be made available to the Assessing Officer for further necessary action, if any.

Other amendments not covered in detail effective from 1^st June 2016 which would be communicated in a separate mail which are being mentioned here under for the sake of information and are as under:-

(vii)        Income Declaration Scheme 2016 - This scheme will be effective from 1 June 2016 (already notified)

In case you have any income to declare you may discuss the same with us . The tax involved is 45% of the amount proposed to be declared and the eligibility for declaration is subject to certain specified conditions.

(viii)      The Direct Tax Dispute Resolution Scheme, 2016

In case you have any appeal proceedings pending before the Commissioner of Income Tax (Appeals) and the issue involved is not entirely in your favour you may decide to opt for said scheme. 

Delhi High Court strike down new Rule 5A(2) of Service Tax Rules

Contributing for ease of doing business. Today, (03.06.2016), the Delhi High Court delivered a landmark Judgment [Mega Cab v UOI and Anr. in WP(C) 5192/2015] - no more audit of assesse records by the Central Excise and Service Tax Department as well as CAG and strike down new Rule 5A(2) of Service Tax Rules as ultra vires to the Finance Act, 1994.

CBDT extends time-limit for filing of TDS challan-cum-statement in Form 26QB

CBDT amends Rule 31A(4A), extends time-limit for filing of TDS challan-cum-statement in Form 26QB from 7 days to 30 days from the end of the month in which tax is deducted; Form 26QB is required to be furnished electronically by deductors in respect of tax deducted u/s  194-IA on consideration for transfer of immovable property