S.24: Income from house property- Deductions –Interest- Interest paid on borrowing for acquiring house is deductible under section 24(b) and as cost of acquisition under section 48.

The assessee borrowed funds for purchasing a house. The interest paid on the said loan was claimed as a deduction u/s 24(b). When the house was sold, the interest paid on the said loan was treated as “cost of acquisition” and claimed as a deduction u/s 48 in computing the capital gains. The AO held that as the interest had been allowed as a deduction u/s 24(b), it could not allowed again in computing capital gains. The CIT(A) allowed the claim. On appeal by the department to the Tribunal, held  dismissing the appeal:
Deduction u/s 24(b) and computation of capital gains u/s 48 are altogether covered by different heads of income i.e., income from ‘house property’ and ‘capital gains’. Neither of them excludes the other. A deduction u/s 24(b) is claimed when the assessee computes income from ‘house property’, whereas, the cost of the same asset is taken into consideration when it is sold and capital gains are computed under section 48. There is no doubt that the interest in question is an expenditure in acquiring the asset. Since both provisions are altogether different, the assessee is entitled to include the interest at the time of computing capital gains u/s 48.(A. Y. 2007-08)ACIT v. C. Ramabrahmam (Chennai)(Trib.) www.itatonline.o

S. 10(38)/ 69: Fact that a small amount invested in "penny" stocks gave rise to huge capital gains in a short period does not mean that the transaction is "bogus" if the documentation and evidences cannot be faulted

CIT vs. Mukesh Ratilal Marolia (Bombay High Court)

S. 10(38)/ 69: Fact that a small amount invested in "penny" stocks gave rise to huge capital gains in a short period does not mean that the transaction is "bogus" if the documentation and evidences cannot be faulted

The explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of Rs. 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares

S. 147/ 148: The AO is duty bound to provide to the assessee the reasons recorded for reopening the assessment within a reasonable time. Failure to do so renders the reassessment order unsustainable in law

On the request of the Assessee, the AO is bound to furnish the reasons recorded for initiation of proceedings under section 147 of the Act within a reasonable period of time so that the assessee could file its objections thereto and the AO was to dispose of the same by passing a speaking order thereon, which the AO has not done. We also note that even as per the rules of natural justice, the assessee is entitled to know the reasons on the basis of which the AO has formed an opinion that income assessable to tax has escaped assessment. The furnishing of reasons to the assessee is to enable/facilitate it to present its defence and objections to the initiation of proceedings under section 147/148 of the Act. Therefore, we are of the considered opinion that there was no justifiable reasons for the AO to deprive the assessee of the recorded reasons by him for initiating proceedings under section 147/148 of the Act

No KKC if invoice is raised and services are rendered on or before June 1, 2016

No KKC if invoice is raised and services are rendered on or before June 1, 2016

Pursuing with an objective to finance and promote initiatives to improve agriculture and farmer welfare, the Government announced a new cess namely ‘Krishi Kalyan Cess’ (“KKC”), to be levied at 0.5% on the value of all taxable services w.e.f June 1, 2016. Hence, after levy of KKC, Service tax rate has increased from 14.5% to 15%, effective from June 1, 2016.

Further, Explanation 1 & 2 to Rule 5 of Point of Taxation Rules, 2011 (“the POTR”), inserted w.e.f March 1, 2016, provides that point of taxation in case of new levy on services shall be governed by Rule 5 of the POTR and new levy or tax shall be payable on all cases other than the following two specific situations specified in Rule 5, where new levy shall NOT be payable:

1.   Invoice issued and payment received against such invoice before such service becomes taxable;

2.   Payment received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time

Thus, as per the Rule 5 read with explanations, only in two situations (mentioned above), the KKC shall not be payable and in all others, KKC is to be paid.

With the Service tax rate (including Swachh Bharat Cess and KKC) of 15% becoming effective from June 1, 2016, a turmoil was being faced by the service providers in respect of on-going transactions for which completion of services have taken place before June 1, 2016 with or without raising of corresponding invoices, but payment for the same is not received till June 1, 2016.

The explanations added to Rule 5 of the POTR raised a fundamental question as to whether a service which has already been provided prior to introduction of new levy could be taxed on receiving payment subsequently, when in terms of Section 66B of the Finance Act, 1994, the chargeable event being rendering of services will always be the prime factor for determining leviability of any tax or cesses.

Now, the Central Government vide Notification No. 35/2016-ST dated June 23, 2016, has exempted taxable services with respect to which the invoice for the service has been issued on or before May 31, 2016, from the whole of KKC leviable thereon, subject to condition that the provision of service has been completed on or before May 31, 2016.

Thus, no KKC shall be payable in cases where invoice is raised and provision of service has been completed on or before May 31, 2016.

Updates

Updates:

1. Annual filing forms for Companies Act, 1956 - 23AC, 23ACA, 23B, 20B, 21A are likely to be available on MCA21 portal by mid-August 2016.
2. Interest rate on PPF retains at 8.1% for quarter ending September, 2016, same as stayed in 1st Quarter of 2016-17.
3. Exchange rate notification with effect from 24th June, 2016 Notification No. 88/2016 – Customs (N.T.) Dated the 23rd June, 2016.
4. Government servants who can be considered for rewards. Circular No.29/2016 Dated: 23rd June, 2016.
5. Foreign exchange management (foreign currency accounts by a person resident in india) Regulation, 2015-Circular-Dated 23-6-2016

NEW BATCH FOR CS FOUNDATION/EXECUTIVE/PROFESSIONAL

Updates:-

Updates:-

1. No service tax on under construction flats if price includes land value via {Suresh Kumar Bansal vs UOI (Delhi High Court)}
2. Deferred consideration contingent on uncertain future event cannot be taxed before vesting of right to receive via {CIT vs. Mrs. Hemal Raju Shete (Bombay High Court)}
3. No service tax audit by service tax department or CAG via {Mega Cabs Pvt. Ltd. Vs. Union of India & Ors. (Delhi High Court)}
4. CBDT notifies cost inflation index for Financial Year 2016-17 via (Notification No. 42/2016-Income Tax dated 02/06/2016)
5. Section 14A disallowance cannot exceed total expense: CBDT Via (Notification No. 43/2016 dated 02/06/2016)

Updates

RBI

Reserve Bank of India (RBI) has issued Master Direction on Reserve Bank of India (Financial Services provided by Banks) Directions, 2016. As per the Direction, a Bank is not allowed to contribute more than 10% of its Paid up capital and reserves as per last audited balance sheet in factoring subsidiaries and factoring companies. Further it is not allowed to contribute more than 49% in the equity of a Debt funded NBFC. The master Direction does not allow a bank to undertake Mutual fund or Insurance business with risk participation except through a subsidiary set up for the same purpose. An AD Category I Scheduled Bank can become a trading or clearing member if its net worth is more than 500 crores and its NPA does not exceed 3%. The Master Direction came into force from 28^th May, 2016.

SEBI

Securities and Exchange Board of India (SEBI) has notified Disclosure of the Impact of Audit Qualifications by the Listed Entities. The circular requires a Listed Entity to disseminate the cumulative impact of all the audit qualifications in a separate format, while submitting the annual audited financial results to the stock exchanges to ensure that the investment decisions can be taken wisely by investors. This will ensure that the information is available to the investors, without delay, enabling them to take well informed investment decisions. It will further dispense with the existing requirement of filing Form A or Form B for audit report with unmodified or modified opinion respectively and requirement of making adjustment in the books of accounts of the subsequent year. The management of the Companies shall have the option to explain its vies on the audit qualifications. The Circular shall be applicable to all the Listed Companies submitting their Financial Year ended 31^st March, 2016.

Updates

1.No TDS for provident fund withdrawals of up to Rs 50,000 ( increased from Rs 30000/-) from today, June 1, 2016 as notified yesterday. 
2. Krishi Kalyan cess @ 0.5% on all taxable services with effect from Today, 01.06.16 resulting in effective rate of Service Tax @ 15% ie 14% service tax, 0.50 % swatchh Bharat cess and 0.50 % Krishi Kalyan cess.
3. Pay 45% Tax and declare undisclosed Income From 01.06.2016 to 30.09.2016.
4. TCS @ 1% will be applicable on purchase of car valued more than Rs 10 lacs and purchase of jewellary for more than Rs 5Lacs with effect from June 1,2016. The earlier limit of Rs 2 lacs on jewellery has been increased to Rs 5 lacs now.