Direct Tax Alert – March 2024

• CBDT issues clarification on time limit to verify Income-tax Returns

The CBDT vide Notification No. 2 of 2024 dated 31.03.2024; has clarified that if income-tax return and e-verification/ITR V are submitted within 30 days of uploading, the upload date is considered as the filing date. If submitted after 30 days, the submission date becomes the filing date, with the consequence of late filing being applicable. This notification will come into effect from 01.04.2024.

• Clarification regarding applicability of new tax regime and old tax regime

The CBDT on 31.03.2024 via Press Release clarifies that new tax regime is the default tax regime; tax payers can choose the tax regime that they think is beneficial to them. The option for opting out from the new tax regime is available till filing of return for the AY 2024-25. There is no new change which is coming in from 01.04.2024.

Important Judicial Precedents

• SC dismissed SLP against ruling that AO can’t issue notice in name of a non-existing amalgamating Co.

[2024] 161 taxmann.com 41 (SC) Income Tax Officer, Ward-1 vs. Abhishek Caplease (P.) Ltd.

SLP dismissed against order of High Court that where department issued notice under section 148 in name of a non-existent entity, which had ceased to exist pursuant to scheme of amalgamation and arrangement and factum of its amalgamation was very much within knowledge of revenue, notice issued under section 148 was unsustainable in law and deserved to be set aside.

• Undisclosed income from regular business activities surrendered during search is taxable at normal rate: HC

[2024] 161 taxmann.com 44 (MP-HC) PCIT Vs. Krishna Kumar Verma

Assessee during search and seizure action surrendered undisclosed income on account of excess stock and excess cash which was not entered in regular books of account – Assessing Officer was of view that undisclosed income falls within ambit of section 69A and, therefore, is liable to be taxed at special rate within meaning of section 115BBE – On appeal, Commissioner (Appeals) allowed appeal of assessee and held that undisclosed income so surrendered was derived from regular business activities, therefore, it was liable to be taxed at normal rate instead of under provisions stated under section 115BBE – On second appeal, Tribunal dismissed appeal of revenue – Whether there being no perversity in findings of Tribunal and Tribunal having dealt with all grounds raised by assessee in order impugned and having passed a well reasoned and speaking order taking into consideration all material available on record, interference with concurrent findings of Commissioner(Appeals) as well as Tribunal therewith was not warranted – Held, yes [Para 18][In favour of assessee]

• AO can’t issue notice on old email ID of assessee if new email ID is duly updated on e-filing portal: HC

[2024] 160 taxmann.com 125 (Allahabad-HC) _Grs Hotel (P.) Ltd. vs. UOI

Where Assessing Officer issued a notice under section 148A(b) and passed an order under section 148(d) to assessee-company on secondary email address and not registered e-mail address, impugned notice and consequential order were liable to be quashed and set-aside.

• No denial of DTAA benefits to Mauritius Co. if it was beneficial owner of capital gain prior to 01-04-2017: ITAT

[2024] 160 taxmann.com 632 (Delhi – Trib.) Norwest Venture Partners X-Mauritius vs. DCIT, Circle IT

Where assessee, a Mauritius based company had made investment in shares of Indian companies and claimed exemption under article 13(4) of India-Mauritius DTAA and Assessing Officer denied said exemption on ground that assessee was a shell/conduit company, since shares on sale of which assessee derived capital gain were acquired prior to 1-4-2017, assessee being holder of TRC was beneficial owner of capital gain and, hence, was entitled to benefits under article 13(4) of DTAA.

• Income from software maintenance is not taxable if original software sale was held as not taxable: ITAT

[2024] 159 taxmann.com 1478 (Bangalore – Trib.) DCIT (International Taxation) vs. Mathworks Inc.*

Where assessee, a US based company, received consideration for sale of software licences to its distributor in India who in turn sold same to end-users, since assessee only permitted end-users to use a copyrighted article and there was no sale of copyright per se in said article, payment received by assessee from said distributor on sale of software to end-users could not be termed as ‘royalty’ under relevant DTAA

Where assessee, a US based company, received consideration towards maintenance services in relation to sale of software licences in India, since said maintenance services were inextricably linked to supply of software licence and when supply of software itself was not taxable as ‘royalty’, amount received by assessee on account of said maintenance services could not be termed as ‘fees for included services’

• Whether no addition of income can be made on estimate basis without rejecting books of account – YES : HC

[2024-TIOL-412-HC-DEL-IT] PCIT (CENTRAL)-1 Vs. M/s FORUM SALES PVT LTD

The ITAT has made a categorical finding that despite the fact that the AO was provided with the requisite bills, vouchers and addresses of the transacting parties, it did not make any effort to confirm the veracity of the alleged bogus or inflated bills. Also, the decisions relied upon by the Revenue do not essentially support its case as the facts of cases are strikingly different from the case at hand and therefore, the same are distinguishable. ……. The action of the AO in making an addition of Rs.1,00,000/- on the protective basis, which already stood explained, deserved to be deleted. The ITAT further held that the substantive addition has already been made in the hands of Mr. Moin Akhtar Qureshi, which has been mentioned by the AO himself and therefore, there is no infirmity in deletion of the said addition by the CIT (A). Admittedly, the addition of income are on estimate basis has been done without rejecting the books of account. In view of the same, find that no substantial question of law arises in the present appeals. No merit in the case of the Revenue and have no reason to interfere with the view taken by the ITAT. Therefore, the appeals stand dismissed.

• CSR exp. is liable to be disallowed even if it is voluntarily incurred without any statutory obligation: ITAT

[2024] 161 taxmann.com 118 (Chennai – Trib.) _City Union Bank Ltd. vs. Assistant Commissioner of Income-tax, Circle-1

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. In our considered view, when an expenditure is incurred out of profit of an assessee, it partakes the nature of appropriation of profit, but not expenditure incurred wholly and exclusively for the purpose of business of the assessee. Further, Explanation (2) to section 37 of the Act, put a restriction on deductibility of expenditure of any kind referred to u/s. 135 of the Companies Act, 2013 i.e., corporate social responsibilities expenses, w.e.f. assessment year 2015-16. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the assessee is not entitled for deduction towards CSR expenses and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the assessee.