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Archita Bhattacharjee
| Updated: 29 May, 2020 | Category: Income Tax

ITAT: On Excused Absence, Plea U/s 12AA & Reflex Disallowance: Income Tax – May, 2020

Income tax

Reliefs have not been declined merely on support of technicalities or payment that has been discharged in cash in the governing conditions, which may vary from case to case. In addition to light of the probable reasonability, the conditions attributable to such payment have been considered on resting the honest faith for taxpayers in the tax administration of the country. In this blog, you will get the entire up-to-date scenario depicting few technicalities involved under Charitable Institutions and its administrations upon Income Tax Departments Latest by May 25, 2020.

Absence before CIT: An immune for Senior Citizen and Computer Ignorant Assessee

Absence before CIT: An immune for Senior Citizen and Computer Ignorant Assessee

Held

On the ground of notices for appearances before CIT sent through e-mail, being a senior citizen and computer ignorant, the assessee could not act consequently. Therefore, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) has recently invalidated an ex-parte order delivered by the CIT (A). 

Facts

Karta is the proprietor of ‘M/s. Chunnu Fashions’ and the assessee is a Hindu Undivided Family. Moreover, without disposing of the case on its merits, the assessee was aggrieved by an ex-order passed by the first appellate authority for need of appearance before CIT. Afterward; the assessee has opposed the notice which was received over e-mail. He says that he cannot receive the same as he considers himself as a senior citizen as well as a computer literate.

Interpretation

After due discussions, deliberations, arguments, and evidence, the Tribunal demonstrated the fact that CIT(A) has sent three announcements/notices to the assessee through e-mail. However, the appeal of the assessee was dismissed for non-prosecution, which has not complied with and thereafter.

Apart from the genuine order of the Tribunal, they have also observed that;

  • The assessment order has never been enclosed on the right persons in the total proceedings.
  • It should have made in the name some other name, but has been delivered in the name of M/s. Chunnu Fashions’.
  • Mr. BM Sarin, Karta of the HUF, is more than 70 years old and has fastened up his business. 
  • There is a genuine cause for not appearing before the CIT(A), as the notices were directed through emails but the assessee being a senior citizen could not express in the direction of those emails. 
  • Moreover, it is likewise distressing that the assessment orders have been conveyed on a ‘non-existent party’ i.e. ‘M/s. Chunnu Fashions’ does not even exist (Business was locked down due to heavy loss, 5 yrs. Ago). This fact also earns its desires to be looked into that the assessment orders and the appellate orders, that must have been in the name of BM Sarin HUF.”

Rejecting Registration to Educational Institution, with no Confirmations on doubtful notions: A Blunder

Rejecting Registration to Educational Institution

Held

  • Delhi bench of the Income Tax Appellate Tribunal (ITAT) has overruled the judgment/order of the Commissioner of Income Tax (Exemptions).
  • It says that Assessing Officer cannot discard the plea for registration under section 12AA of the Income Tax Act, 1961. Moreover, it was based on mere doubt that the cash from undisclosed sources is being introduced in the society in the form of school fees. Rendering to the Tribunal’s note, such suspicion with no substantial confirmation can’t be a reason to deny registration.

Facts

  • Educational society is running a school, which was recognized under the Department of Education, Government of Haryana. On grounds of doubt/suspicion that cash from undisclosed sources is being introduced in the society in the kind of school fees, the CIT (E) rejected the registration under section 12AA of the Act.

Contentions

  • The school was being operated from premises that comprised of one hall and eight rooms situated in a street/Gali, observed by the Ld. In addition, it has also been observed surprisingly that the receipts of income was around Rs. 1 crore – produced from such small premises, which was incredibly unbelievable to accept.
  • Moreover, it has been additionally contended by the assessee before the Tribunal, regarding the genuineness of the activities of the school. The Ld. CIT (E) has doubted that the activities of the assessee were not genuine and running a business and school side by side.

Interpretation

  • Accommodating all the contentions of the assessee, the Tribunal held that it was not accurate on the part of the Ld. CIT for refusing the grant of registrationimmediately’.
  • In fact, Ld. CIT (Exemptions) was having doubts concerning the genuineness of the actions of the school, but he decides on to straightway refuse the grant of registration, instead of having the same proved.
  • Conditionally, if the Ld. CIT was consuming any sorts of doubts, he should have got it equally proved. For that reason, this is how the generality of the fair trial has been hampered and needs a relook and re-examination by the Ld. CIT (Exemptions).

Read our article:How to rectify ITR Filing online?

Current Status of Repudiation or disallowance U/s 40A (3)

Overview:-

  • Section 40A of the Income Tax Act, 1961 delivers provisions for disallowance/repudiation of expenses or payments not deductible in definite circumstances. It computes the whole of income under the head ‘Profit & Gains’ of Profession or Business. It was introduced by the Finance Act, 1968 with effect from April 1st, 1968.
  • Other than ‘cheque drawn’ on a ‘bank’ or account payee ‘bank draft’ or ‘electronic clearing’ system, it prohibits any payment – expenditure in terms of which payment or collections of payments ended to a person in a day, which is more than the limit of 10k.

Amendment:-

  • By means of the Finance Act, 2019[1] with effect from 01st April 2020, Section 40A (3) has further been corrected. It is to deliver another protection guard i.e. such other ‘electronic mode’ which may be agreed upon to avoid such repudiation in respect of any expenditure experienced by the assessee.

Case Law

M.K.Agrotech Private Limited vs. Additional Commissioner of Income Tax (2019) (Kar) 294/ (2019) 176 DTR 412 ITR 351

Recently, in this case, it was challenged with the relevant question:-

Issue: – “If payments have not been made by account payee bank drafts which were not crossed its limits, does disallowance under section 40A (3) view involve towards the same”?

Bullet Points:- Core beliefs evolved by the said order

  • Under Section 40A (3), disallowance is not instinctive just because expenses and payments have not been completed in the manner established by the terms of provisions.
  • In compliance with ‘Attar Singh Gurmukh Singh vs. Income Tax Officer’, the assessee will be in light of this declaration of the Hon’ble Supreme Court.
  • If the payments are not genuine/unaffected and bonafide, the payments will be prompted in the course of the business. They will be steeped out of the provisions rooted in section 40A (3), if it is in aggregation with the provisions of ‘Rule 6DD’.
  • Prospective disallowances will be identified under section 40A(3) by the assessing officers, if the assessee is allowed to lead evidence in such cases. For that reason, the issues can be tested on the footing of exceptional circumstances given under rule 6DD.
  • Cash Payments or expenses will attribute towards mitigating circumstances for avoiding any disallowance under section 40A(3), besides such as registered dealer invoices, freight charges, weighted slips of the supplier, stock register maintained by the assessee, bank confirmations, sales tax returns of the parties, etc.

Conclusion

These evaluations will always inspire our readers to examine the issue in-depth based on the stated case laws and Illustrations given above. Moreover, it has valuable contributions to the tax laws which are continuously changing and extending its scope. With this, we at Corpbiz have experienced legal specialists to help you manage all your income tax issues and Business investments. Our professional will ensure to mitigate all your interests on finances successfully as well as timely completion of your work.

Read our article:An overview on Tax Residency Certificate & Double Taxation Avoidance Agreement: How To Get It?

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Archita Bhattacharjee

Archita Bhattacharjee is working as Legal Analyst (Team Lead, Research & Development) at Corpbiz and has proving experience about 2 years as Corporate Legal Researcher in law firms as well as Rajya Sabha and authors in diverse publications. She has refined her skills by representing India in Paris, France and the University of Leiden over implications of International Humanitarian and Criminal Law being certified member of many Legal Centers.

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