Direct Tax Alert

Loss from one Virtual Digital Asset (VDA) cannot be set off against income from another VDA.

In our February month’s tax alert we mentioned the new scheme of taxation on virtual digital assets and also brought up the issue regarding the set-off of loss from one VDA with income of another VDA.

Relevant extracts of the February tax alert:

“Whether the loss from the transfer of virtual digital assets can be set off from the income earned from the transfer from virtual digital assets? Pertinent to note that, there is no corresponding amendment in the provision relating to set off and carry forward of the losses.”

To make this clear, the Finance Bill (Lok Sabha) has omitted the word “other” from clause (b) of sub-section (2) of section 115BBH.

Thus, in simple words, any loss arising from the transfer of VDA would be a dead loss. It will not be allowed to be adjusted even against income arising from the transfer of another VDA (whether of the same category or not).

• Return of loss filed under section 139(3) can also be updated

The Finance Bill (Lok Sabha) has inserted the fourth proviso to section 139(8A) to provide that where a person has furnished a return of loss under section 139(3), he shall also be allowed to furnish an updated return. However, such an updated return should be a return of income.

In other words, the updated return should not be a return of loss and it should be a return of income only.

Further, no simultaneous amendments have been made in provisions of penalty under the Act. For the just and reasonable cause immunity from penalty should have been provided in case of updated return as that could have supported the proposition of suo-moto filing of updated return.

• Restriction on the filing of updated return in case of search, survey or requisition

Situations under which an updated return cannot be filed have been listed in the first, second and third provisos to section 139(8A).

The Finance Bill (Lok Sabha) substitutes the words “two assessment years” with “any assessment year” in the second proviso.

A person falling under the second proviso to section 139(8A) i.e., cases of search, survey and requisition shall not be able to file the updated return for the previous year in which action (i.e., search, survey, or requisition) is made and for any preceding previous year.

CBDT extends the date of passing order u/s 26(3) of The Benami Act if the limitation period falls between 20-03-2020 to 30-06-2021 till 30-09-2022.  

Important Judicial Precedents

1. Revision powers u/s 263 cannot be invoked merely because AO did not give specific reasons for accepting the assessee’s detailed submissions.
2. Mere non-mention of reasons for accepting the assessee’s detailed submissions does not make the assessment order erroneous and prejudicial to the interest of revenue.
3. Where the specific issue raised in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the Assessing Officer, PCIT cannot invoke powers of revision u/s 263 merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263. Mere non-mentioning of these reasons does not render the assessment order “erroneous and prejudicial to the interest of the revenue”. As long as the action of the Assessing Officer cannot be said to be lacking bonafide, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make merely detailed inquiries or because he did not write specific reasons of accepting the explanation. Reliance Payment Solutions Ltd. V. Principal Commissioner of Income-tax-8 [2022] 136 taxmann.com 277.

• Where HC’s appellate jurisdiction is based on the substantial question of law, HC cannot interfere with facts sans any perversity

The findings of the Court below are not perverse & give rise to no substantial question of law, where the Court below took into consideration all the facts and circumstances cumulatively and found that the sale deed dated 26-6-1930 is not a Benami transaction and such finding was arrived at after taking into consideration all the six circumstances which was given as a guide by the Hon’ble Supreme Court and after properly analysing the oral and documentary evidence.

[J.Thulasirama Reddy V. B.Shanmugam [2022] 136 taxmann.com 332 (Madras)]

• The powers of ITAT under Section 254(2) of the Act are only to rectify/correct any mistake apparent from the record. If the order passed by the ITAT was erroneous on merits, the remedy available to the Assessee was to prefer an appeal before the High Court. Therefore, as such, the order passed by the ITAT recalling its earlier order is beyond the scope and ambit of the powers of the Appellate Tribunal conferred under Section 254 (2) of the Act. [2021] 133 taxmann.com 41 (SC) Supreme Court of India-Commissioner of Income-tax (IT-4), Mumbai v. Reliance Telecom Ltd.