January 2017 newsletter

of 13 Newsletter – January 2017 © Utsav Shah & Associates
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Newsletter – January 2017
Utsav Shah & Associates
Chartered Accountants
Tax | Assurance | Transactions | Advisory | Outsourcing

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Contents
Income Tax
International Tax
Transfer Pricing
Indirect taxes
Allied Laws
Accounting and Finance
Compliance schedule

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► Less tax for small traders on digital transaction
In a bid to promote less cash economy, the government amended section 44AD of Income
tax Act, 1961. Now, small traders and businesses with a turnover of up to Rs 2 crore will
pay less tax if they accept payments through banking and digital means.
Under the existing provisions, in case of certain assesses (an individual, HUF or a
partnership firm other than LLP) carrying on any business having a turnover of Rs 2 crore
or less, the profit is deemed to be 8 per cent of the total turnover for taxation.
It has been decided to reduce the existing rate of deemed profit of 8 per cent under section
44AD of the Act to 6 per cent in respect of the amount of total turnover or gross receipts
received through banking channel/digital means for the financial year 2016-17,"the Central
Board of Direct Taxes (CBDT) said in a communication
► CBDT issues circular, seeks to clarify indirect transfers related ambiguities
CBDT has issued clarification and answered 19 questions on indirect transfer provisions
contained in section 9(1)(i) of the Income-tax Act, 1961.
► CBDT clarifies on cash-sales reporting; Rs 2 lakhs threshold applicable for 'each'
transaction
Rule 114E(2) requires persons liable for tax-audit u/s 44AB to furnish a statement in
respect of transaction relating to receipt of cash payment exceeding Rs. 2 lakh for sale of
goods or services.CBDT has recently clarified that Rs. 2 lakh threshold under the said Rule
for reporting of cash transactions relating to sale of goods/services shall apply on ‘individual
transaction’ basis, and not on ‘aggregation’ basis.
► CBDT identifies 67.54 lakh potential non-filers for FY 2014-15
CBDT has identified 67.54 lakh potential non-filers for FY 2014-15 who have carried out
high value transactions but have not filed tax returns. The CBDT Press Release states that
“While the Government urges all tax payers to disclose their true income and pay taxes
accordingly, the Department would continue to pursue the non-filers vigorously till all the
high potential non-filers are covered.”
► CBDT issues 8 FAQs on the Direct Tax Dispute Resolution Scheme, 2016 (‘Scheme’)
CBDT clarifies that assessee would be eligible to opt for the Scheme in case where an
addition has been made before a retrospective amendment to the IT Act (which is
subsequently validated by the amendment), if the dispute is pending as on February 29,
2016. However, CBDT adds that the assessee cannot contest the constitutional validity of
the retrospective amendment before HC/ SC once he avails the Scheme. Specifies that the
question of withdrawal of appeal by Department owing to opting of the Scheme by the
assessee in some other year(s) on a similar issue does not arise as the Scheme does not
envisage withdrawal of any appeal/ proceeding by the Department. It states that the term
‘dispute pending as on 29.02.2016’ refers to the tax determined under the IT Act or the
Wealth-tax Act which has been disputed by the assessee and thus specified tax determined
by the Department after the cut-off date will not be covered under the Scheme. Given that
Income Tax

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the penalty order u/s 271C/ 271CA is not linked to the assessment proceedings, it states
that such orders are not covered under the Scheme and also adds that assessment
consequent to search under section 143(3) r.w.s. 153B is not covered under the Scheme.
CBDT also says that tax payments under the Scheme cannot be allowed to be made in
installments. Lastly it observes that clause (5) of section 203 provides that in a case where
the conditions specified therein are not fulfilled, it shall be presumed as if the declaration
was never made under the Scheme and thus “in case of rejection of declaration, the
proceedings pending against the assessee before issuance of certificate under section
204(1) shall stand revived.”
► CBDT Notifies challan ITNS-287 for tax-payment under IDS-2, allows use of old bank-notes
CBDT states that payments towards tax, penalty and surcharge under the Pradhan Mantri
Garib KalyanYojana (‘PMGKY’) should be made through challan ITNS- 287. Further it has
stated that upto30th
December 2016, the payment towards tax, surcharge, penalty and
deposits under the PMGKY can be made in old Bank Notes of Rs. 500 and Rs. 1,000
denominations.
► Hyosung Corporation (Supreme Court)
The Supreme Court has dismissed the Department’s SLP against the Delhi HC judgment in
the case of Hyosung Corporation & Anr. (a Korean Company) for AY 2010-11. The Delhi
HC had allowed assessee’s writ against AAR rejecting application on the ground that issues
were pending adjudication before the AO and section 143(2) notices were already issued.
On noting that the questions raised in AAR applications were not the subject matter of
notice issued under section 143(2) (issued in a standard pre-printed format) HC had
accepted assessee’s contention that mere issuance of notice u/s 143(2) would not make
the question raised in application before AAR as ‘pending’ before IT authorities. Further on
observing that section 142(1) notices were issued after filing of application before AAR, HC
had set aside the AAR order and restored the application for denovo consideration. The
Supreme Court accordingly held that “We do not find any legal and valid ground for
interference. The Special Leave Petitions are dismissed”
► Bharti Airtel Ltd and Anr(Del HC)
The Delhi HC has relied on the co-ordinate bench judgment in Vodafone Essar to allow
Bharti Airtel's writ petition and held that show cause notice must be issued within a
'reasonable' time even though no express time limitation is provided for in section 201. It
has quashed the show causenotices issued under section 201 in March 2011 & 2012 to
Airtel for TDS default on payment of interconnect usage charge to non-resident operators
relating to FYs 2001-02 to 2006-07, since the same was issued beyond 'reasonable' time,
i.e. 4 years. The HC has taken note of the Finance (No. 2) Act, 2009 amendment to section
200(3) prescribing time-limit for passing order under section 201 in relation to ‘resident’
deductees and has rejected the stand of the Department that if the Act does not specify a
time period for non-residents, then a reasonable time period cannot be read into the Act.
► Zydus Wellness Ltd. (Ahd ITAT)
Ahmedabad ITAT dismissed Department’s appeal for AY 2010-11 and allowed depreciation
on ‘goodwill’ claimed by the assessee company during the course of assessment
Recent Judgements

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proceedings vide a revised computation of income without filing revised return of income.
The ITAT has noted that pursuant to the scheme of arrangement approved by Gujarat HC
in AY 2008-09, assessee had acquired the consumer products division and other related
intangible assets of the such business which was accounted for as “goodwill” in its books of
accounts. Pursuant to the subsequent SC ruling in Smifs Securities Ltd., assessee claimed
depreciation on goodwill arising on amalgamation which was denied by the AO on the
ground that assessee did not file revised return of income to make a “rightful” claim. The
ITAT followed Bombay HC ruling in Pruthvi Brokers and Shareholders wherein it was held
that the AO is bound to entertain rightful claim of deduction made otherwise than by filing a
revised return of income.
► Travelport L.P. USA (Del HC)
Delhi HC has allowed Department’s appeal challenging ITAT order attributing 15% of
assessee’s (USA based limited partnership concern, engaged in online airline booking
services) income to India relying on co-ordinate bench ruling in Galileo International Inc.
ITAT had held that assessee's operations in India constituted a PE under Article 5 of India-
USA DTAA while attributing 15% income to Indian operations. Observing that Revenue's
challenge is to ITAT's "mechanical adherence" to attribution rate of 15% in Galileo ruling,
HC notes that "the AO had based his conclusions and determined the income based upon
figures furnished by the assessee, as is apparent from a plain reading of the order". Thus,
rules that the ITAT “ought not to have disturbed that order, without a finding” and
accordingly directed ITAT to render specific findings on the questions urged before it.
► The Saraswat Co-operative Bank Limited (Mum ITAT)
Mumbai ITAT denies relief from section 14A in respect of strategic investment made by
assessee (a cooperative bank) in its subsidiary company. It has observed that the statute
does not grant any exemption to strategic investments which are capable of yielding
exempt income for arriving at section 14A disallowance. Thus holds that any investment
including strategic investments in subsidiary company as well as in other securities which
are capable of yielding tax-free income (by way of dividend) shall be included for the
purpose of computing disallowance under section 14A. It has relied on Karnataka HC ruling
in United Breweries, Bombay HC rulings in Reliance Utilities and HDFC Bank Ltd. and
coordinate bench ruling in Uma Polymers Ltd.

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*
► OECD: Tally of bilateral relations for automatic exchange of information reaches 1,300
The count of bilateral relationships now stand at 1,300 with most of them been based on
the Multilateral Competent Authority Agreement on Automatic Exchange of Financial
Account Information (the CRS MCAA). 350 bilateral automatic exchange relationships are
now being established between over 50 jurisdictions committed to AEOI pursuant to the
CRS, starting in 2017. With respect to jurisdictions exchanging as of 2017, 1133 out of the
1459 possible bilateral exchange relationships are now established. OECD marks this a
crucial step towards “timely implementation of the OECD-developed international standard
for the automatic exchange of financial account information, the CRS, and reflects the
determination of jurisdictions around the world to deliver on their political commitment to
fight tax evasion.”
► CBDT signs off 2016 with 2 more unilateral APAs; Tally inches up to 117
CBDT signs two more unilateral APAs, bringing the score to 117. APAs signed pertain to
Information Technology and Automobile sectors, and cover international transactions
involving Software Development Services, IT enabled Services, Manufacturing and
Business Support Services. 53 APAs have been signed in current financial year including 4
bilateral APAs and 49 unilateral APAs.
► Government issues corrigendum, now retrospectively rescinds Cyprus blacklisting notification
Indian Government issues corrigendum and retrospectively rescinds Cyprus notification
under section 94A. The revised notification now inserts word "the", replacing the word
"this" in the last line of 14 December 2016 notification. The Government in the earlier
notification issued on 14 December 2016 stated that the 2013 notification treating Cyprus
as a notified jurisdiction is rescinded ".....except as respects things done or omitted to be
done before such rescission, with effect from the date of publication of this notification in
the Official Gazette".
International tax

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► Golawala Diamonds (Mum ITAT)
The ITAT has dismissed Department’s appeal seeking exclusion of ‘M/s. Anshuni
Commercials Ltd.’ as comparable on ground of huge difference in turnover. Noting that
DRP has directed inclusion of this company rejecting TPO's conclusion that it was
functionally different, ITAT observes that the issue regarding functional dissimilarity is not
manifested in Department's ground of appeal and therefore the appeal is not maintainable
on this ground itself. Further referring to Bombay HC decision in Pentair Water India
wherein turnover was held to be relevant factor to consider comparability, ITAT notes that
Revenue’s stand in this case is opposite to what was being canvassed in the Pentair case.
Further, relies upon the ratio of the judgment in Nortel Networks wherein HC rejected
application of turnover filter in an inconsistent manner so as to exclude only one concern.
► Fritidsresor Tours & Travels India Pvt Ltd (Del HC)
Delhi HC rejected exclusion of ‘pass-through’ costs from PLI under Cost Plus Method
(‘CPM’) and holds that, “Since the ultimate outcome of the remand has resulted in no
addition, the examination of the issued urged would be an academic exercise”. Assessee
(engaged in the business of inbound tours and travels) claimed exclusion of expenses of
Rs. 13.93 crore incurred on hotel booking, transport, air fare, etc. as pass-through costs,
however, ITAT held that such costs were incurred by assessee in its capacity as principal
and not as an agent of foreign AE. Before HC, assessee relied on OECD Guidelines and
HC decision in Li & Fung India Pvt. Ltd. to argue that ITAT had applied wrong principle with
respect to the nature of expenses incurred and their inclusion, whereas Department
submitted that AO/TPO had finalized assessment pursuant to ITAT’s remand resulting in
non-adjustment. HC considered assessee’s argument and observed that, “left undisturbed,
the ITAT’s observations may constitute a barrier and work adversely against the assessee
in later years”. Consequently, HC clarifies that ITAT’s observations shall not be binding and
taken as conclusive for later years and that the TPO/AO shall consider the matter
independently.
Transfer Pricing

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► Maharashtra Settlement of Arrears in Dispute Rules, 2016
The Maharashtra Government issued Maharashtra Ordinance No. XXVII of 2016 dated
17 November 2016 by which the time limit of Settlement Scheme under Maharashtra
Settlement of Arrears in Disputes Act,* 2016 was extended till 30 November 2016. The
Government of Maharashtra by Notification dated 19 November 2016 made amendments in
above Rules so as to extend the date of payment, subject to certain conditions.
Circulars:
1. The Commissioner of Sales Tax has issued Circular bearing No. 36T of 2016 dated
21 November 2016 by which exemption is given from making payment of late fee under
section 20(6) of MVAT Act for filing of return.
2. The Commissioner of Sales Tax has issued Circular bearing No. 37T of 2016 dated
25 November 2016 by which clarification about the Computerised Desk Audit (CDA)
assessment for the period 2013-14 is given.
► Amendment in taxability of Online Information and Database Retrieval Services (OIDAR
services)
The Central Government has issued various notifications to amend certain key provisions
pertaining to OIDAR services provided by persons located outside India. Accordingly, with
effect from 1 December 2016, OIDAR services provided to non-assessee online recipient
i.e. Government/ local authority / Governmental authority or an individual in relation to any
purpose other than commerce, industry or any other business or profession, located in
taxable territory, then, in such a scenario, the service provider located outside India
providing such services would be required to obtain registration under Service tax laws;
discharge Service tax liability and undertake periodic compliances in India. In other cases
(such as where such services are provided to companies), the liability to discharge Service
tax would devolve on the service recipient under the reverse charge mechanism.
(Notification No.46/2016, Notification No. 47/2016, Notification No.48/2016 and Notification
No.49/2016- Service Tax dated November 9, 2016 and Circular No. 202/12/2016 – Service
Tax dated November 9, 2016)
Indirect taxes
MVAT
Service tax

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► New liquidation rules under bankruptcy law
New Rules have been notified by Government by which companies can go through
liquidation under the Insolvency and Bankruptcy Code, 2016.
The regulations for the liquidation process are part of the rules being notified by the
Insolvency and Bankruptcy Board of India to implement the code and, in the process,
improve ease of doing business in India.
Allied Laws

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► Getting round the new standards
Extensively using carve-outs, which is creating subsidiaries and then going in for IPOs, and
exemptions have been hobbling the IFRS-compliant new Indian Accounting Standards (Ind-
AS), which kicked in from April 1, 2016. It helped that SEBI, the stock market regulator,
allowed reporting standalone financial results instead of consolidated results.
Around 1,000-odd companies with net worth of Rs 500 crore or above were covered in the
first phase of Ind-AS implementation. Comprising 40 accounting standards, this entailed
changes in the financial reporting framework. Revenue recognition, taxes and financial
instruments were seen as the key impact areas.
Tax experts point out the impact of MAT on companies reporting under Ind-AS is still an
open issue. There are also unresolved questions relating to distribution of dividend. This at
a time when a large batch of unlisted companies – with net worth of Rs 250 crore or more –
are set to join the transition bandwagon from April 1, 2017. Corporate India will have to
keep a more close watch on its financial numbers by end of current fiscal.
Source: Business Standard, New Delhi,26th
December 2016
► RBI extends loan repayment window to 90 days
In further relief to people hit by demonetisation, the Reserve Bank of India (RBI) gave
borrowers another 30 days over and above 60 days for repayment of housing, car, farm
and other loans worth up to Rs1 crore.
So, borrowers together get 90 days breather from getting the account classified under non-
performing asset (NPA) category. The above dispensation will apply to dues payable
between 1 November and 31 December 2016.
According to the RBI notification, running working capital accounts or crop loans with the
sanctioned limit of Rs1 crore or less would be eligible for this benefit. Besides, it said, “Term
loans for business purposes, secured or otherwise, the original sanctioned amount whereof
is Rs. 1 crore or less, on the books of any bank or any Non-Banking Financial Company
(NBFC), including NBFC (MFI). This shall include agriculture loans.”
The additional time of 90 days will only apply to defer the classification of an existing
standard asset as sub-standard and not for delaying the migration of an account across
sub-categories of NPA.
Dues payable after 1 January 2017 will be covered by the instructions for the respective
entities.
Source: Mint, New Delhi,29th
December 2016

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► An inspired EPFO to step up its equity investment
EPFO invested Rs6,577 crore in 2015-16 and will pump in over Rs13,000 crore in equities
in 2016-17 after the labour ministry-controlled retirement fund manager decided to double
its equity exposure from 5% of its incremental corpus to 10%.
In 2017-18, EPFO is expected to invest more than Rs13,000 crore in equities as it believes
that its active subscriber base will increase gradually, leading to more incremental deposits.
By the end of August 2016, when the labour ministry last reported its equity returns, its
equity investments had earned 13.24% returns.
Earlier this month, EPFO fixed 8.65% interest rate for its subscribers, down from 8.8% the
previous fiscal. Though the rate is the lowest in four years, it’s still better than many other
investments, including fixed deposits and public provident fund.
When asked about the possible opposition it may face for investing in potentially more
volatile indices, the first official said, “There are fund managers who take care of such
decision and they know the market better. You have to be practical about returns than
oppose a move emotionally. Once the final decision is taken, we shall explain to the central
board trustees of the EPFO.”
EPFO manages a corpus of over Rs8.5 trillion with some 40 million subscribers contributing
to the fund every month.
Source: Mint, New Delhi,28th
December2016

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s
Monthly Compliance for the month of January 2017
Sr. No Particulars Date
1. Service Tax Payment 05−Jan−2017 / 06−Jan−2017
2. Central Excise Payment 05−Jan−2017 / 06−Jan−2017
3. TDS / TCS Payment/Remittance 07−Jan−2017
4. Central Excise Monthly Return 10−Jan−2017
5. STPI Monthly Returns 10−Jan−2017
6. CST Payment 20−Jan−2017
7. VAT Monthly Payment (Form 100) 20−Jan−2017
8. PT Payment – Employees 20−Jan−2017
9. ESIC Payment 21−Jan−2017
10. PF Payment 25−Jan−2017
Quarterly Compliance for the month of January 2017
1. VAT Quarterly Returns – Q2 21 -Jan-17
2. TDS/TCS Returns 31−Jan−17
Annual Compliance for the month of January 2017
1. MVAT Audit Report 31−Jan−17
Compliance Schedule

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The information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended to address the
circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Before acting on
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