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GST Notification..

🔷 # *TAXATION UPDATES* #🔷
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*_PMO asks Income-Tax department to crack down on black money in banks_*

*Crack down on all black money* deposited in banks during the demonetisation period. This according to a high ranking government official is the *clear mandate given* to the income tax department by the Prime Minister's Office, and this *instruction* was *issued* within days of the RBI revealing that 99% of the demonetised Rs 500 and Rs 1000 currency bills had returned to the banking system. *Prime Minister* Narendra Modi asked the tax department to *prioritise* the *unearthing of black money* in a speech he made to the Finance Ministry's Revenue Department, CBDT and CBEC in a closed door event on Sep 1 and 2. The income tax department according to sources will now *train* its *guns on "suspicious"* and *"unusual deposits"* made post the announcement of demonetisation on Nov 8, 2016. It will *match such deposits* with previous income tax *returns* to *establish unusual activity* and also question the source of funds.

*Deposits* in the *Jan Dhan accounts* that had *peaked to Rs 64,564 cr* during demonetisation are also likely to be *under the scanner* On the other hand, when it comes to the recently rolled-out *GST* the tax department has been *advised* by the Prime Minister's Office to *not pull up* those who have *become GST compliant* despite never having filed an IT return. The government *wants to go easy* on those trying to be GST compliant, atleast for the current financial year, even if they have *not filed* their *income tax returns* the official told. However, the *tax department* will *not spare* all those *individuals* and *companies* tat have *failed to register with the GST Network* The *message is loud and clear* Do not go after those that are trying to be tax compliant even if for the first time. Instead, *focus* on those that are *refusing* to be *GST compiant* said an official.
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*_GST Council may lower tax rates if high collections continue, says official_*

The all powerful GST Council may *consider lowering tax* on items of common consumption of the high trajectory of *collections continues* over the *next few months* an official said. The *first-month collection* under the new Goods and Services Tax (GST) regime has been *encouraging* and if the *rising trend continues* until December, it would make a *case for reduction of the tax rate* he said. The *tax reduction* could be either on items of common consumption or a *cut in headline rate* which will *benefit consumers* said the official who did not wish to be identified. The *GST Council* headed by Finance Minister Arun Jaitley could *look at the aspect* once the *clear trend is available* the official said, adding that it would be evident from the November tax collection.
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_Oriental Insurance Co Ltd vs. DCIT_

S. 115JB: As *Insurance companies* are required to *prepare accounts* as per the *Insurance Act* and *not as per Schedule VI* to the Companies Act, s. 115JB does not apply. Insurance companies are *not taxed on commercial profits* but on profits as computed under the Insurance Act. Accordingly, *income earned on sale/redemption of investments* is *not chargeable to tax*
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_Pr CIT vs. Bikram Singh_

S. 68: The *use of deceptive loan entries* to *bring unaccounted money* into banking *channels plagues* the *legitimate economy* of our country. The mere fact that the *identity of the lenders* is *established & payments* are made by *cheques* does *not mean they are genuine* If the lenders do *not have the financial strength* to lend such huge sums and if there is *no explanation* as to their relationship with the assessee, *no collateral security* and *no agreement* the transactions have to be *treated as bogus unexplained credits*
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_Mahyco Seeds Ltd vs. Dy.CIT_

*_ITAT_*

*Deduction allowable* u/s 43B for *stamp-duty paid on demerger*
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_Kitara capital Private Limited vs. ITO_

*_ITAT_*

*No TDS u/s 194J* on *payment* for *subscription of e-magazine/journal* by assessee engaged in *carrying out* research for private equity investments as the same is *neither royalty nor FTS*
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_ST Microelectronics Pvt. Ltd., Vs. ACIT_

*_ITAT_*

In case of *remand of quantum addition* to AO, penalty u/s. 271(1)(c) should also be *remanded*
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OCHOA Laboratories Ltd. vs. DCIT

*_ITAT_*

*Providing free air travel, stay* and *food in hotels, local car conveyance* etc. for *prescribing medicines* of the assessee (a pharma company) is akin to *giving commission* and certainly in contravention of the public policy. *Disallowance of 50% of sales promotion expenses justified*
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_Arunkumar J. Muchhala vs. CIT_

S. 68: Argument that the assessee did *not maintain "books of account"* and so s. 68 will *not apply* is *not acceptable* It is incumbent on every assessee doing *business to maintain proper books of account* It may be in any form. If the assessee has not done so, he *cannot be allowed* to *take advantage* of his own wrong. *Burden lies on the assessee* to show from where he has received the amount and what is its nature.
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_CIT vs. Sinhgad Technical Education Society_

S. 153A/ 153C: The *seized incriminating material* have to pertain to the AY in question and have co-relation, document-wise, with the AY. This *requirement u/s 153C* is *essential* and becomes a jurisdictional fact. It is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in S. 153A. Kamleshbhai Dharamshibhai Patel 31 TM.com 50 (Guj) approved. SSP Aviation 20 TM.com 214 (Del) distinguished.

How will GST help India and common man?

To understand this, let us first understand what is Input Tax Credit. It is the credit an individual receives for the tax paid on the inputs used in manufacturing the product. So, if there is a 10% tax that the individual must submit to the government, he can subtract the amount he has paid in taxes at the time of purchase and submit the balance amount to the government.

Let us understand this with a hypothetical numerical example.

Say a shirt manufacturer pays Rs. 100 to buy raw materials. If the rate of taxes is set at 10%, and there is no profit or loss involved, then he has to pay Rs. 10 as tax. So, the final cost of the shirt now becomes Rs (100+10=) 110.

At the next stage, the wholesaler buys the shirt from the manufacturer at Rs. 110, and adds labels to it. When he is adding labels, he is adding value. Therefore, his cost increases by say Rs. 40. On top of this, he has to pay a 10% tax, and the final cost therefore becomes Rs. (110+40=) 150 + 10% tax = Rs. 165.

Now, the retailer pays Rs. 165 to buy the shirt from the wholesaler because the tax liability had passed on to him. He has to package the shirt, and when he does that, he is adding value again. This time, let’s say his value add is Rs. 30. Now when he sells the shirt, he adds this value (plus the VAT he has to pay the government) to the final cost. So, the cost of the shirt becomes Rs. 214.5 Let us see a breakup for this:

Cost = Rs. 165 + Value add = Rs. 30 + 10% tax = Rs. 195 + Rs. 19.5 = Rs. 214.5

So, the customer pays Rs. 214.5 for a shirt the cost price of which was basically only Rs. 170 (Rs 110 + Rs. 40 + Rs. 30). Along the way the tax liability was passed on at every stage of transaction and the final liability comes to rest with the customer. This is called the Cascading Effect of Taxes where a tax is paid on tax and the value of the item keeps increasing every time this happens.

Action	Cost	10% Tax	Total
Buys Raw Material @ 100	100	10	110
Manufactures @ 40	150	15	165
Adds value @ 30	195	19.5	214.5
Total	170	44.5	214.5

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in acquiring input. What happens in this case is, the individual who has paid a tax already can claim credit for this tax when he submits his taxes.

In our example, when the wholesaler buys from the manufacturer, he pays a 10% tax on his cost price because the liability has been passed on to him. Then he adds value of Rs. 40 on his cost price of Rs. 100 and this brings up his cost to Rs. 140. Now he has to pay 10% of this price to the government as tax. But he has already paid one tax to the manufacturer. So, this time what he does is, instead of paying Rs (10% of 140=) 14 to the government as tax, he subtracts the amount he has paid already. So, he deducts the Rs. 10 he paid on his purchase from his new liability of Rs. 14, and pays only Rs. 4 to the government. So, the Rs. 10 becomes his input credit.

When he pays Rs. 4 to the government, he can pass on its liability to the retailer. So, the retailer pays Rs. (140+14=) 154 to him to buy the shirt. At the next stage, the retailer adds value of Rs. 30 to his cost price and has to pay a 10% tax on it to the government. When he adds value, his price becomes Rs. 170. Now, if he had to pay 10% tax on it, he would pass on the liability to the customer. But he already has input credit because he has paid Rs.14 to the wholesaler as the latter’s tax. So, now he reduces Rs. 14 from his tax liability of Rs. (10% of 170=) 17 and has to pay only Rs. 3 to the government. And therefore, he can now sell the shirt for Rs. (140+30+17) 187 to the customer.

Action	Cost	10% Tax	Actual Liability	Total
Buys Raw Material	100	10	10	110
Manufactures @ 40	140	14	4	154
Adds Value @ 30	170	17	3	187
Total	170		17	187

In the end, every time an individual was able to claim input tax credit, the sale price for him reduced and the cost price for the person buying his product reduced because of a lower tax liability. The final value of the shirt also therefore reduced from Rs. 214.5 to Rs. 187, thus reducing the tax burden on the final customer.

So essentially, Goods & Services Tax is going to have a two-pronged benefit. One, it will reduce the cascading effect of taxes, and second, by allowing input tax credit, it will reduce the burden of taxes and, hopefully, prices. 

What is a GST Return?

In a GST return the tax payer will give details of-

• Purchases
• Sales
• Output GST (on sales)
• Input tax credit (GST paid on purchases)

GST Return

What is a Return?

A return is a document containing details of income which a taxpayer is required to file with the tax administrative authorities. This is used by tax authorities to calculate tax liability.

Enrolment schedule for your State

Enrolment schedule for your State

Quick Enrolment Summary under GST on GST Common Portal (www.gst.gov.iin)

• State VAT department will provide provisional ID and password as per schedule.
• Open www.gst.gov.in
• Access The GST Common portal using provisional ID and password and create permanent username and password
• Login by using permanent username and password
• Fill the enrolment application form
• Verify the detail
• Sign with DSP or e-sign
• Submit the emrolment application and necessary attachment
• Done

Step by Step Filing the Enrolment Application

Step 1: Open www.gst.gov.in login by provisional ID and password given by State VAT department. (You can contact your state VAT department for provisional ID and password after schedule given to that state). Check schedule for enrolment state wise here.
Step 2: Create your own username and password after login provisional ID and password. Now, it will become your permanent user ID and password for further logins.

Step 3 (Optional) : The dealers can provide their authorized representative email ID and phone number, if any.

Step 4: After entering your email and phone number, the system will send you an OTP. The OTP will valid only up to 10 minutes. So, you must enter OTP within 10 minutes. Otherwise you have to regenerate OTP.

In case if you have not received OTP in your email check Spam folder also. Make ensure once again that your email ID and phone number entered is correct. If it is correct then again click on Resend OTP.

Step 5: Enter the OTP that you received in your email ID in the column of Email OTP and Enter the OTP received on your mobile number in the column of Mobile OTP.

Step 6: Fill all the required information in application which is denoted as Red Asterisk (*)

Step 7: After filing each page, you have to click on save given below of the page.

Step 8: After competing the enrollment form, you have to e-sign it.

Step 9: After submitting and e-signing application form, the system will general Application Reference Number (ARN).

After submitting the application and approval of application, the Provisional Registration Certificate will be available on the appointed date. The final registration certificate will be issued within 6 months of verification of documents by state official after the appointed date.

How to Do e-signature on GST Common Portal while Doing Enrolment?

E-signature is mandatory for all taxpayer who are submitting enrolment application. There are two options available to do e-signature as follow:

• DSC
• E-sign

DSC: DSC is mandatory for Companies, Foreign Companies, Limited Liability Partnership (LLP) and Foreign Limited Liability Partnership (FLLPs). DSC is option for other taxpayers. DSC must registed with GST common portal to e-sign on enrolment form. To register DSC, you have to click on Register DSC.

E-sign: E-sign is must for other taxapers who does not come under DSC option. E-sign is an online electronic signature service that permits an Aadhaar Card holder to digitally sign a document. The following steps helps to understand how to e-sign a document under GST common portal.

• Click on E-sign button.
• Enter Aadhaar Card number.
• The system will send you an OTP to email address and mobile number which is registered with AAdhar card.
• Enter the OTP, the system will verify OTP. The e-signing process is completed.

Note:

You can not change your prefilled information which is auto populated by VAT department.

Documents to Upload on GST Common Portal

Documents Required to Enrol under GST

The following documents are required to enroll/ register under GST. If you have missed any one of the following documents, the enrollment is not possible. So make ensure you have all the following document ready before opening the website www.gst.gov.in.

• Provisional ID received from State/Central Authorities
• Password Received from State/Central Authorities
• Valid Email Address
• Valid Mobile Number
• Bank Account Number
• Bank IFSC

Enrolment Overview Under GST

• All the existing taxpayer must enroll under GST by submitting the required information under GST enrollment Application Form.
• All existing taxpayers here means who are already registered under Central Excise, Service Tax, State Sales Tax or VAT, Entry Tax, Luxury Tax, Entertainment Tax should enroll under GST Act.
• All existing taxpayers should enroll only through online mode via GST Common Portal i.e. www.gst.gov.in. No offline mode is available to enroll.
• The enrolment is totally free. No government fees and other charges will be levied while registering under GST common portal.
• The VAT registered dealer enrollment starts from October 2016 and for service tax dealer it will start on later date.
• The enrollment is same for Central and State GST. No separate registration is required for enrollment.
• The format of provisional ID is as given in the following picture 

What is GST Common Portal?

GST Common Portal is a official website (www.gst.gov.in) design and developed by GSTN to provide online facility for the dealers. The taxpayers can use GST Common Portal to enroll under GST Act, filing GST Returns, paying due taxes under GST, check status and communication with officials.

Pension Funds

Pension Funds – Section 80CCC: This section – Sec 80CCC – stipulates that an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds upto Rs. 1.50 Lakh can be claimed as deduction u/s 80CCC. However, as mentioned earlier, the total deduction u/s 80C and 80CCC can not exceed Rs. 1.50 Lakh. - See more at: http://taxguru.in/income-tax/all-about-deduction-under-section-80c-and-tax-planning.html#sthash.YBHRZZlY.dpuf

Penalty on Cash deposit of Rs.500/1000 note in Bank Account in India

The ban of Rs.500/1000 note in India is creating havoc in the Indian markets. Everybody is either rushing towards banks or towards jeweler market to safeguard the black money.

In this article, we will discuss how government will levy penalty or tax on the cash deposit in bank account of the public. We will also discuss the possibilities of action that government may take depending upon the size of the money deposited.

Everybody is living with the fear that government will slap 200% penalty for sure. However, this is not the case. Government works under a system and make laws for everything. Everybody works under the ambit of law even the government. So if they have to slap any sort of penalty, they levy it under income tax act, 1961 by following a proper procedure. Hence, let us understand the type of depositors and the chances of penalty imposition upon them.

#Point 1 – Cash Deposited Up to 2.5 lakh: The first category of person is those who have deposited cash up to 2.5 lakh. This category doesn’t have to worry about. As, finance minister in his speech has also said that we will not going to disturb or ask any question on deposit up to 2.5 lakh.

Hence, if have money up to 2.5 lakh, then go ahead and deposit the same without any fear.

#Point 2 – Cash Deposited Up to 10 Lakh: Most of the middle class are covered under this point. They save their hard earned money and secure it in their lockers. They have saved this money over the years. It is all legitimate money which they have earned and saved by working hard over the years like someone has saved it for daughter marriage or someone may have saved it purchase a small house.

Though the government will be keeping an eye on this category as well, however there are little chances that government will interfere in this category. Nowadays the value of 10 lakh is no more considered as superior.

The current practice

Also, people may deposit this sum breaking into smaller sum of 2.5 lakh and may deposit it in the name of family members which is also a lot of people may already be doing.

Further, government also understands this fact and they will not interfere with this needy money of the middle class.

#Point 3 – Cash Deposited Up to 50 Lakh: Anything over and above 10 Lakh will catch the eye of the taxman. If your returned income does not match with the amount you deposit, then you might be in trouble.

E.g. suppose, you regularly file the ITR with 5 lakh income. Now suddenly you deposit the sum of 40 Lakh in your account which cannot be justified with a small income. Hence, department may treat this income as unexplained credits and may tax the income at 30% with 200% penalty under section 270A.

This point is very important; hence we must understand this point well.

– Cash credit: Once you deposit the sum into the bank account and under scrutiny proceedings, you were unable to justify the sum, then IT department will deemed that deposit as unexplained credit or cash credit under section 68 of Income tax act, 1961.

– Section 115BBE: This section is one of the harsh sections of the income tax act. Once it is proved that the cash deposit is cash credit under section 68, and then it shall levy the tax rate of flat 30% without even providing the basic exemption limit.

E.g. if you have cash credit of Rs.40 lakh, then 12 Lakh will be the tax amount.

– Penalty under section 270A: Once it is proved that you are a mischief, then penalty provision under income tax act would automatically comes into picture. The AO shall use the section 270A, to levy the penalty of 200%.

However, the penalty of 200% under section 270A can only be levied if any of the conditions is fulfilled:

a) Misrepresentation or suppression of facts.

b) Failure to record investments in the books of account.

c) Claim of expenditure not substantiated by any evidence.

d) Recording of any false entry in the books of account.

e) Failure to record any receipt in books of account having a bearing on total income;

f) Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply. (ignore, applicable in case of international transaction).

Hence, the above three sections will play a big role under IT department scrutiny.

Important Point

“The most important point of this whole process starts from non justification. Hence, if you can justify the deposits and has already paid the full taxes, then no penalty can be imposed upon you.”

#Point 4 – Cash Deposited more than 50 Lakh: Anything over and above 50 Lakh will require a strong justification otherwise there will be very less chances that penalty can be saved. However, if you plan well, justify your income and the deposits thereof, and then you don’t need to worry.

Demonetisations of Rs. 500 & 100 Notes– Consequence & Duties

Demonetisations of the Higher Denomination Notes by Government of India – synopsis, consequence and duties

Introduced on the evening of 8th November 2016, the Government announced the decision to scrap the Rs. 500/- and Rs. 1,000/- notes with the aim of combating Corruption, black Money and cross border terrorism via counterfeiting. Prime Minister Narendra Modi was quoted to be saying that the above mentioned notes will only be “worth the paper they are printed on,”

Further, the Reserve Bank of India as approved and cleared a proposal for a new Rs. 500/- and Rs. 2,000/- currency notes abandoning Rs. 1,000/- currency notes for the time being.

On a broad basis, it should be noted that all other transaction, such as those done via cheque, DD, payment via credit or debit cards does not have any restrictions and will thus not be affected.

The Government has issued a timeline within which they aim to remove the old Rs. 500/- and Rs. 1000/- notes from circulation, of which the important parts are as follows.

A brief summary of the dates, events and remarks are given below for a glance

Start Date	Particulars	End Date	Limits (Rs.)	Remarks
8-11-2016	Old Currency notes are no longer valid. Certain specified outlets still accept the old currency till the end date.	11-11-2016	–	will still be accepted in Petrol Pumps, government hospitals, Railway, airline, government bus ticket booking counters, Consumer co-operative stores run by state or central government, Milk booths authorized by state governments, Crematoriums and burial grounds till 11th November 2016.
9-11-2016	ATMs shut down and Banks closed to public.	10-11-2016	–	ATMs will not work and banks will not be accessible to public  to adjust to the changes made.
10-11-2016	Old Notes can be deposited in banks	30-12-2016	–	Valid Bank Account or Post Office saving account
10-11-2016	Old Notes can be exchanged for new ones.	24-11-2016	4,000/-  amount to be reviewed later	Original Identity Proof with a copy in the form of Aadhaar card, PAN Card, ration card, passport, driver license.  Exchange can be made in all branches of commercial banks/RRBS/UCBs/State Co-op banks or at any Head Post Office or Sub-Post Office and all Issue Offices of RBI
10-11-2016	Money can be withdrawn from ATMs.	18-11-2016	2,000/- per day	–
10-11-2016	Money can be withdrawn from Banks	–	10,000/- per day limited to 20,000/- per week	Weekly amount includes amount withdrawn from ATMs.
19-11-2016	Amount that can be withdrawn from ATMs is increased.	–	4,000/- per day	–
31-12-2016	Old Notes can be deposited in cases where depositing before 30-12-2016 was not possible.	31-3-2017	–	ID Proof, Pan & Declaration Form
Foreign Tourists		within 72 hours after the notification	foreign exchange equivalent to Rs. 5,000/-	provide proof of purchasing the old notes
Person not in India	authorize in writing enabling another person in India to deposit the notes	Same as for any Indian	Same as for any Indian	person so authorized has to come to the bank branch with the old notes along with the authorization letter and a valid identity proof
NRIs		Same as for any Indian	Same as for any Indian	deposit the old banknotes to their NRO account.

It seems that baring a very few individuals, almost all in this nation have welcomed the move of the Government.  It seems to have been a well thought out scheme with almost all modalities worked out in detail.

At the time of writing this article, the initial euphoria, shock, surprise, disbelief, fear, etc. have all died down and the citizens have accepted this for many reasons, a few of which are below.

a. This was to be done long before, to root out corruption.  The virus had impacted almost each citizen, right from the local rickshawala to bribe the police constable to the highest level of defense deals etc.

b. There is no other way to handle this menace other than by making the hoarded currencies invalid.

c. This would impact only the hoarders of currency and not the common man.

d. The timing was perfect, 8pm, on a US election eve.

e. There was initial panic and no more. The establishment had made adequate arrangements to handle this.  All banks were properly and sufficiently educated and had a fair amount of money to dispense

The social media also played an effective part in this campaign post announcement by the Honorable Prime Minister.  While tons of satire and comedy made way, many useful and educating tips were also circulated.

Like the Japanese earthquake situation, citizens began to act responsibly, which is generally unseen in Indian scenario in situations like this.  It seems that the general public in fact have realized that they need to withdraw/exchange only that much needed for the time being and wait till the situation eases to withdraw/exchange the balance.  This reflects a healthy understanding of the citizen and maturity in crisis handling.

It is heartening to see that the tales of sacrifice, valor etc. in this time of crisis.  One interesting anecdote is that of my barber.  When went for an haircut, after the cut, he offered me not to pay now saying that his service is not an emergency one, and one could keep the money for immediate purchase of essentials and pay him later.  I was overwhelmed with this and appreciated his social responsibility.  Definitely he has risen very high in my eyes and would always henceforth give him that respect that he deserved for being so empathetic.

Petrol pumps and general grocery shops have been generally open in accepting the OHD notes at least up to 11th November.

It is the duty of every professional and informed citizen to educate the less informed brothers and sisters in the vicinity to prevent any panic satiation.  One good way would be to offer help to the domestic maid, drivers, security watchmen, by educating them.  On other way would be to provide them with short term loans to tide over the situations.  Assist them to exchange the notes they have before 24th November.

Some unscrupulous elements are resorting to giving the legal tender money by taking around 20% commissions.  Ie, for every 500 rupee note, the person is paid only 400/-.  The uneducated and the gullible are being cheated mainly due to their ignorance and insecurity

The senior citizens and the physically challenged are equally insecured so much so that many are rushing to the banks to deposit their little OHD notes, thereby creating tension to themselves and also to the other public who have to withdraw money.  Let us try to educate them on the scheme and the time lines, else allow them to withdraw, as the separate lines for them are not feasible at this point in time.

On the flip side, it has been criticized that the new rules make difficulties for people who keep their cash at home rather than in a bank account and for people with large rupee cash reserves who reside abroad.

However, the Government has given assurances that if legitimate reasons are provided, then there will be few, if no difficulties.

In conclusion, there might be some discomfort or inconvenience here and there for the general public.  When a change of this magnitude is underway, such discomforts are inevitable.  These are definitely not as much as our soldiers face at Siachen Glacier, the Thar Desert or the other border posts guarding our country.  It is time we also take part as citizens in this war against corruption and terrorism and do our bit also for the nation.

200% penalty on unaccounted cash deposited in Bank Account

200% penalty cannot be imposed if tax is paid on unaccounted cash in current year

Hon’ble Prime Minister, Sh. Narendra Modi on November 8, 2016 made one of his boldest move by launching an aggressive assault on black money through demonetisation of existing Rs. 500 and Rs. 1,000 currency notes. Being seen as a surgical attack on black money, fake currency and corruption, the Hon’ble Prime Minister informed his fellow countrymen that the existing Rs. 500 and Rs. 1,000 notes could be deposited in their bank accounts till December 30, 2016.

Following the news, there has been a rush in public towards deposit of existing Rs. 500 and Rs. 1,000 currency notes in their bank accounts. However, Income Tax Department through a series of press releases has warned regarding levy of penalty at 200% of the tax amount in case where amount of deposit is not in line with the income returned.

In this article, the possibility for levy of penalty under section 270A of the Income Tax Act, 1961 (‘Act’) has been analysed in case where a person has deposited his unaccounted cash in his bank account and paid due tax thereon in the return of income for AY 2017-18.

The Finance Act 2016 in order to rationalize and bring objectivity, certainty and clarity in the penalty provisions, replaced the existing section 271 of the Act and inserted a new section 270A of the Act for levy of penalty in cases of under reporting and misreporting of income.

Sub-section (1) of the new section 270A of the Act provides that the Assessing Officer, CIT (Appeals) or the Commissioner may direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income. Thus, trigger point for applicability of penalty under section 270A of the Act is under-reporting of income.

Thus, in order to discuss applicability of penalty in cases where tax has been paid, it is important to first analyse what constitutes under-reporting of income.

Under-Reporting of Income

Sub-section 2 of section 270A of the Act provides that a person shall be considered to have under-reported his income, if, inter alia, the income assessed is greater than the income determined in the return processed under 143(1)(a) of the Act.

Thus, there shall be under-reporting of income only in cases where income assessed during the course of assessment proceedings would be greater than income determined in the return processed under section 143(1)(a) of the Act. Since, the income determined in the return processed under section 143(1)(a) of the Act in normal circumstances would be same as the income returned by a person, the penalty under section 270A of the Act could be levied only when income assessed would be greater than income returned by the person. This position is further clarified by sub-section 3 of section 270A of the Act which provides for manner to calculate the under-reported income.

Rates of Penalty

Sub-section 7 of section 270A of the Act provides that the rate of penalty shall be 50% of the tax payable on under-reported income.

Further, sub-section 8 of section 270A of the Act provides in a case where under-reported income is in consequence of any misreporting thereof by any person, penalty levied shall be 200% of the tax payable on such under-reported income.

Thus, even for levy of penalty at 200% of the tax payable, it is important that the there must be an under-reported income which must be in consequence of misreporting.

Levy of penalty where tax has been duly paid

As can be seen from above, for levy of penalty under section 270A of the Act, there must be under-reporting of income. Where there was no under-reporting of income, no penalty under section 270A (whether at 50% or 200%) could be levied.

Assume a person has unaccounted cash on which no tax was ever paid. Such a person deposits this unaccounted cash in his bank account in November 2016 and duly declares such additional income in his return of income for AY 2017-18. Tax at appropriate rate are paid in full on such income for AY 2017-18.

Now, his income determined in the return processed under section 143(1)(a) of the Act would include this unaccounted cash income [assuming there is no other cause for variation under section 143(1)(a) ]. When the case for AY 2017-18 would be picked up for scrutiny by income tax department, the Assessing Officer would not be able to make any addition on account ofthiscash deposited in bank account since the person would have already offered this income to tax in his return of income filed for AY 2017-18.

In such a scenario, the income assessed would not be greater than the income determined in the return processed under section 143(1)(a) of the Act (assuming there is no addition on any other account). Hence, in such cases, there would be no under-reported income. Thus, the basic condition for levying penalty under section 270A of the Act would not be triggered.

Reference is further drawn on Circular No. 25 of 2016 dated June 30, 2016 issued by CBDT while providing clarifications on the Income Declaration Scheme, 2016 (‘IDS’). In question no. 9 of the circular, the CBDT dealt with the question regarding the advantages of the IDS where past undisclosed income is disclosed as current income in the return of income to be filed for AY 2017-18 in place of declaration under IDS. The answer of CBDT, inter alia,provided for the following:-

“If anyone attempts to disclose past undisclosed income in the current year, he will have to explain the source of income and substantiate the manner of earning the said income. In case of disclosure under the Scheme, there is no need to explain the source of income.”

Thus, it may be noted that where income is disclosed in return of income for AY 2017-18, the person making such disclosure would have to explain the source of income and substantiate the manner of earning the said income.

However, even where such person fails to offer the source of such cash deposit, the Assessing Office may only declare such cash deposits to be an unexplained income under section 68 of the Act on which no slab benefit (in case of individual/HUF) or any deduction would be eligible as per section 115BBE of the Act.

However, the Assessing Officer would not be able to make any addition on account of such cash deposit as income in respect thereof would already have been offered to tax. Thus, in the absence of any under-reported income, penalty under section 270A of the Act would not be levied.

The aforementioned legal position is author’s personal view based on reasons set out hereinabove. It is pertinent to mention that litigation on levy of penalty cannot be ruled out specifically in light of the fact that the CBDT has explicitly warned against declaration of past income in current year in its clarificatory circulars on Income Declaration Scheme, 2016. Hence, before resorting to declare previously undeclared money in current year, a person is advised to independently verify the legal position with his tax advisors.

Article on Labour Law Compliance Audit

How to start with Labor Laws audit ?

1) First prepare list of basic labor laws which will be applicable.

2) Prepare few basic details on applicability of various section like requirement of canteen, creche, rest room, etc.

3) Prepare few basic details on appointment of welfare officer, safety officer, etc.

Various Points to be checked:

1) Factories act:

– Factory License, nature of business, validity of license and strength of manpower.

– Factory Layout cover each and every department of factory

– Annual returns and half year returns submitted on time with correct details

– All story statutory registers are maintained

– Appointment of Safety Officer, Welfare Officer, if applicable, and its qualification matching as per the act

– Canteen, Creche, rest room facilities are available

2) Contract Labor Act:

First check if this act is applicable to factory and to contractor. General rule say it is applicable for more than 20 contract workers. But it differs differs from state to state, like 10 in Gujarat, 5 in Delhi, 10 in WB.

– Principal Employer Registration, all contractor are listed on RC

– Contractor have valid License

– Contractor have submitted all dues like PF, ESIC, PT, and LWF on time.

3) PF, ESIC and PT

– Company have issued UAN, ESIC card to all employees

– All dues are deposited on time

4) Payment of Gratuity Act:

– Gratuity are paid to left employees who have completed 5 years

– Company have authorized one managerial personnel in organization to receive all notice, letter, communication, etc.

5) Payment of Bonus Act:
– Bonus are paid on time. Returns in Form D is submitted, register are maintained

6) Payment of Wages and Minimum Wages Act:

– All registers are maintained

– Payment of Wages are done on time.

– Wages are paid above minimum wages.

7) Industrial Standing Order:

– Standing orders are certified from Certifying officer

– All the provision of standing order are complied with.

8) Check minutes book of various committees and check if any important complaints raised, whether it is resolved.

9) Maternity Benefit Act: Compliance with provision are complied with