Direct Tax Alerts- May 2022

Recent Updates

1. Central Govt. approves 8.10% interest rate on provident fund deposits for year 2021-2022 The Ministry of Labour and Employment, Government of India has conveyed the approval of the Central Government to credit interest @ 8.10% for the year 2021-22 to the account of each member of the EPF scheme. NOTIFICATION NO. INV-11/2/2021—INV/4670 dated 03.06.2022.

• CBDT notifies Faceless Penalty (Amendment) Scheme, 2022; omits Regional Faceless Penalty Centres NOTIFICATION NO. S.O. 2425 (E) [NO. 54/2022/F. NO. 370142/51/2020-TPL(PART III)], DATED 27-5-2022.

• CBDT revises procedures for imposing penalties under Faceless Penalty Scheme 2021 NOTIFICATION NO. S.O. 2426 (E) [NO. 55/2022/F. NO. 370142/51/2020-TPL(PART III)], DATED 27-5-2022.

Important Judicial Precedents

1. AO can’t adjust refund with demand if it is subject matter of appeal and stay of demand has been obtained: HC

[[2022] 138 taxmann.com 441 HC of KARNATAKA _ GMR Airports Ltd. Vs. Assistant Director of Income-tax]

Where refund adjustment was sought to be made against demand which was subject matter of appeal and had been stayed by virtue of assessee having deposited 20 per cent of tax demand and assessee had made out his objections to notice under section 245, action of revenue in adjusting refund as regards subject matter of intimation issued under section 245 was to be set aside and matter was to be remanded back for reconsideration of aspect relating to notice under section 245.

• Reassessment notice if issued on or after 1-4-2021 under unamended section 148, needs to be set aside;

[[2022] 138 taxmann.com 64 (SC) Union of India Vs. Ashish Agarwal]

Section 148A, read with section 148, of the Income-tax Act, 1961 and section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and Article 142 of the Constitution of India, 1950 –

Income escaping assessment – Conducting inquiry, providing opportunity before issue of notice (TLA, 2020) – Assessing Officer issued reassessment notices on or after 1-4-2021 under unamended section 148 by relying on Explanation in Notifications dated 31-3-2021 and 27-4-2021 which extended applicability of aforesaid provision as they stood on 31-3-2021 before commencement of Finance Act, 2021 beyond period of 31-3-2021 – Said reassessment notices were set aside by High Court on ground that reassessment notices issued on or after 1-4-2021 should be governed by substituted sections 147 to 151 which came into effect vide Finance Act, 2021 – Whether though view taken by High Court was correct, since revenue had made a bona fide mistake, instead of setting aside impugned reassessment notices, same should be deemed to have been issued under section 148A as substituted by Finance Act, 2021 and were to be treated as show cause notices in terms of section 148A(b) – Held, yes – Whether in exercise of its power under Article 142 of Constitution it was also to be held that this order would be applicable PAN INDIA on all judgments and orders passed by different High Courts where similar notices issued after 1-4-2021 under section 148 are set aside.

• CIT has no power to examine issue on merits while exercising revisional power under sec. 263: SC

[[2022] 138 taxmann.com 332 (SC) CIT, LTU  Vs. Nuclear Power Corporation of India Ltd.]

SLP dismissed against High Court ruling that Commissioner was not justified in revising order and directing Assessing Officer to add decommissioning levy, interest on decommissioning fund, interest on R & M fund and interest on R & D fund while computing book profit under section 115JB, particularly when in order passed by Commissioner, there was no mention as to under which category of Explanations (a) to (k) of section 115JB(2) these four items would fall.

• No additions u/s 56(2)(viib) if shares were issued to NR partner as per joint ventures agreement: ITAT

[2022] 139 taxmann.com 94 (Delhi – Trib.) __DCIT  Vs. Mais India Medical Devices (P.) Ltd.

Assessee company was incorporated on basis of joint venture agreement between a resident company and a non-resident company – Both joint venture partners agreed to contribute project cost in ratio of 60 per cent by non-resident and 40 per cent by resident – Assessee issued shares at Rs. 60 per share to non-resident shareholder while shares to resident company were issued at Rs. 40 per share – AO rejected valuation of shares in case of non-resident for reason that shares issued to resident company was at much below price than shares were allotted to non-resident company – AO also observed that there was loss in previous assessment years, therefore, value determined by DCF Method was not correct – Accordingly, he made addition in hands of assessee under section 56(2)(viib) – It was noted that AO had fallen in error in not considering objectively facts and circumstances of case as reflected in joint ventures agreement between resident and non-resident entity which showed that project costs of assessee was to be funded in ratio of non-resident entity paying 40 per cent of project cost and resident entity paying 60 per cent of project cost – Thus, in furtherance of these clauses of joint ventures agreement there was difference in share price as issued to resident company and to non-resident company – Difference in amount had occurred due to difference in shares of capital contribution to project cost – Whether, on facts, Assessing Officer was unjustified in rejecting valuation of shares in case of non-resident shareholders by assessee and to re-determine value of such shares.

• NLCT rejects ITD’s plea to deny sanction to amalgamation by invoking GAAR, as amalgamation was for purpose of business consolidation

[2022] 138 taxmann.com 570 (NCLT-Chd.)[19-05-2022] NCLT CHANDIGARH BENCH Panasonic India (P.) Ltd.

• Where the petitioner companies have clearly made out a case of operational synergy between the amalgamating companies and that the Scheme is for business consolidation and the tax arrangements are merely a consequential fall out of the implementation of the Scheme, the NCLT cannot deny sanction to the Scheme especially when Income-Tax Department has not pointed out any flaws in valuation report/share exchange ratio and the RoC/RD/CCI/OL have not objected to the Scheme.

• The treatment of carrying forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc. of companies are clearly spelt out under Section 72A of the Income Tax Act, 1961 read with Rule 9(C) of the Rules. Further conditions regarding carrying forward and set off losses in cases of certain companies are equally clearly spelt out in Section 79 of the Income Tax Act, 1961. These provisions are sufficient to protect the interest of revenue in any case of amalgamation or demerger etc. Even if a proposal of a Scheme of Amalgamation has been approved by the Adjudicating Authority, it is clarified that no provision of such a Scheme can override the existing provisions of the Income Tax Act.