DT Compact May 23 by BB Sir

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05 INCOME COMPUTATION &
DISCLOSURE STANDARDS (ICDS)
# Section 145(1) Method of Accounting

For PGBP & IFOS For IFHP, Salary & CG
Taxable as per specific

Cash or Mercantile provisions under the Act
All the assessee following mercantile system

(except Ind/HUF NOT liable for audit u/s 44AB)
are required to follow ICDS notified u/s 145(2)
# Section 145(2) Income Computation and disclosure standards (ICDS)

CG has been empowered to notify ICDS. CG has notified 10 ICDS applicable from AY
17-18
ICDS I : Accounting Policies
ICDS II : Valuation of Inventories
ICDS III : Construction Contracts
ICDS IV : Revenue Recognition
ICDS V : Tangible Fixed Assets
ICDS VI : The Effects of Changes in Foreign Exchange Rates
ICDS VII : Government Grants
ICDS VIII : Securities
ICDS IX : Borrowing Costs
ICDS X : Provisions, Contingent Liabilities and Contingent Assets
# CBDT Clarification on ICDS

» Applicability : ICDS are applicable for computation of income chargeable under the
head “PGBP” and “IFOS” and not for the purpose of maintenance of books of accounts.
» Position in case of conflict with the Income-tax Act, 1961: In the case of conflict
between the provisions of the Act and ICDS, the provisions of the Act shall prevail.
» Position in case of conflict with the Income-tax Rules : In the case of conflict between
the IT Rules and ICDS, the provisions of the Rules shall prevail.
» Presumptive Taxation : Provisions of ICDS shall also apply to the persons computing
CA Bhanwar Borana 167 Compact V-1

INCOME COMPUTATION &

DISCLOSURE STANDARDS (ICDS) Chapter 5
income under the relevant presumptive taxation scheme like 44AD,44ADA,44AE,44BB

etc. For example for computing presumptive income of a partnership firm u/s 44AD of
the Act, the provisions of ICDS on Construction Contract or Revenue recognition shall
apply for determining the receipts or turnover, as the case may be.
» AS v/s Ind-AS : ICDS shall apply for computation of taxable income under the head
“PGBP” or “IFOS” under the Income Tax Act. This is irrespective of the accounting
standards adopted by companies i .e. either AS or Ind-AS.
» MAT & AMT: MAT u/s 115JB of the Act is computed on 'book profit' that is net profit
as shown in P&L a/c prepared under the Companies Act subject to certain adjustments.
Since, ICDS are applicable for computation of income under the normal provisions of
the Act, the provisions of ICDS shall not apply for computation of MAT.
AMT u/s 115JC of the Act is computed on adjusted total income which is derived by
making adjustments to total income computed as per the regular provisions of the Act.
Hence, the provision s of ICDS shall apply for computation of AMT.
» The general provisions of ICDS shall also apply to Banks, NBFC, Insurance, Power
Sector etc. unless there are sector specific provisions contained in the ICDS or the Act.
For example, ICDS VIII contains specific provisions for banks & certain financial
institutions & Schedule I of the Act contains specific provisions for Insurance business.
» Income Taxable on Gross Basis: the provision of ICDS shall also apply for computation
incomes on gross basis for arriving at the amount chargeable to tax like Royalty, Interest,
FTS u/s 115A taxable on gross basis for NR.
» Disclosure : Net effect on the income due to application of ICDS is to be disclosed in
the Return of income. The disclosures required under ICDS shall he made in the tax
audit report in Form 3CD. however, there shall not be any separate disclosure
requirements for persons who are not liable to tax audit.
ICDS-I: Accounting policies

This ICDS deals with the significant accounting policies.
The ICDS recognises the fundamental accounting assumptions of Going Concern,
Consistency and Accrual but does not recognises the concept of “prudence” &
“Materiality”. E.g. expected loss under construction contract not to be recognised
(ICDS-III) means it should be recognised on actual basis.
Compact V-1 168 CA Bhanwar Borana

Chapter 5 DISCLOSURE STANDARDS (ICDS)
Treatment & presentation of transactions shall be based on substance over legal form.
MTM loss or an expected loss is not to be recognized unless recognition of such loss is
in accordance with the provisions of any other ICDS.
A change in Accounting Policy can be made if there is a "Reasonable Cause".
# Disclosure requirements
● All significant accounting policies adopted by a person shall be disclosed.
● Any change in an accounting policy which has a material effect shall be disclosed.
● If any of the fundamental accounting assumptions is not followed, the fact shall be
disclosed.

Companies shall be required to maintain books of account & prepare financial
statements as per requirements of Companies Act, 2013. The accounting policies
mentioned in ICDS-I being fundamental in nature shall be applicable only for computing
income under the heads "PGBP" or "IFOS”.
Principles of Marked to Market (MTM) loss or an expected loss of ICDS-I shall apply
mutatis mutandis to MTM gains or an expected profit.
Under the Act, 'reasonable cause' is an existing concept and has evolved well over a
period of time conferring desired flexibility to the tax payer in deserving cases.
ICDS-II : Valuation of Inventories

# Scope :
ICDS II shall be applied for valuation of inventories, except:
a) WIP arising under construction contract (ICDS-III) or dealt with by any other ICDS.
b) Shares, debentures and other financial instruments held as SIT (ICDS-VIII on
securities).
c) Producers' inventories of livestock, agriculture and forest products, mineral oils,
ores and gases to the extent that they are measured at NRV.
d) Machinery spares used only in tangible fixed asset (ICDS-V on tangible fixed assets).
# "Inventories" are assets:

» held for sale in the ordinary course of business;


● in the process of production for such sale;

● in the form of materials or supplies to be consumed in the production process or in
the rendering of services.
# Treatment:
● Inventories shall be valued at cost, or net realisable value, whichever is lower.
● In case of dissolution of firm, AOP or BOI, whether business is continued or not,
the inventories shall be valued at NRV on that date.
● NRV = estimated selling price in ordinary course of business (-) estimated cost of
completion and estimated cost necessary to make the sale.
● Cost of inventories shall be assigned by using the First-in First-out (FIFO) or
weighted average cost formula or Standard Cost Method.
● Retail Method can be used in retail trade when it's impracticable to use other methods.
» Cost of Inventories shall include :

a. Purchase purchase price + duties and taxes, freight inwards and other exp
cost directly related to purchase - Trade discounts, rebates, etc
b. Service labour and other costs of personnel directly engaged in providing the
cost service.
c. Conversion Costs directly related to the units of production including allocated
cost of fixed overhead incurred in converting RM into FG.
inventories In case of joint product: cost shall be allocated between products on a
rational & consistent basis.
In case of by-product, scrap or waste: its NRV shall be deducted from
cost of main product.
d. Other cost Interest & Borrowing Cost if permitted under ICDS IX: Borrowing Cost.
all other costs which is incurred to bring the inventories to their present
location and condition.
» Cost of inventories shall exclude:
a. Abnormal amounts of wasted materials, labour, or other production costs .
b. Storage costs, unless those costs are necessary in the production process prior to a
further production stage.

c. Administrative overheads that do not bring inventories to its present location & condition.
d. Selling costs.
# Valuation of RM
Raw material and other supplies used in production shall be valued at Cost only & not
NRV. However, if there is decline in its price and estimated cost of finished goods
would be less than NRV, then material shall be value at NRV (which shall be replacement
cost).
# Disclosure:
The accounting policies adopted in measuring inventories along with the total carrying
amount of inventories and its classification.
# Sec 145A : Method of Accounting in certain cases (Added by FA-18 w.e.f. AY 2017-18)
For the purpose of determining income under PGBP
Inventory Valuationat
a. Normally lower of actual cost or NRV
b. Security not listed on RSE or security at actual cost initially recognized
listed but not quoted on RSE with
regularity time to time
c. Security listed and quoted on RSE at lower of actual cost or NRV
with regularity time to time
d. Security held a scheduled bank or PFI as per ICDS after considering RBI Guidelines.
● The comparison of actual cost or NRV of securities shall be made category-wise.
(Example given with ICDS-VIII)
● Value of purchase & sale of goods or service and value of inventory shall include amount
of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the
assessee to bring the goods or services to the place of its location and condition as on
the date of valuation.
● For the purpose of this section, any tax, duty, cess or fee (by whatever name called)
under by law for the time being in-force, shall include all such payment notwithstanding
any right arising as a consequence to such payment.


ICDS-III : Construction Contract

ICDS-III deals with the determination of income earned from construction contracts.
● Contract revenue & contract costs associated with a construction contract are recognised
on Percentage of Completion Method.
● Where outcome of the contract cannot be estimated reliably during the early stages
of contract, contract revenue can be recognised only to the extent cost incurred. Early
stage of contract shall not extend beyond 25% of the stage of completion.
● ICDS III requires disclosure like the amount of contract revenue recognized as
revenue in the period, the methods used to determine the stage of completion of
contracts in progress etc.
● Escalation in price in a contract or export incentives shall be deemed to be income of
PY in which reasonable certainty of realisation is achieved. [Sec 145B]

» Retention, money shall be recognised as revenue subject to reasonable certainty of its
ultimate collection condition. Any contingency on collection shall not be recognised.
» At present, there is no specific ICDS notified for real estate developers, BOT
projects & Leases. Therefore, relevant provisions of the Act & ICDS shall apply to
these transactions.
ICDS -IV Revenue recognition

ICDS IV deals with the basis for recognition of revenue arising during the ordinary
activities of a person from
» sale of goods,
» rendering of services,
» use of entity's resources by other persons yielding interest, royalty or dividends.
# Recognition of revenue:
Sale of goods Significant risk & rewards of ownership are transferred & there
is reasonable certainty of its ultimate collection.
Revenue from service Percentage Completion Method/ Straight Line Method/ Project
transactions Completion Method [Refer Sec 43CB of PGBP].

Interest Accrue on time basis.

Interest on refund of Recognized in the PY in which such interest was received.
any tax, duty or cess
Royalties Accrue as per the term of relevant agreement unless there is
some other systematic and rational basis.
Dividend Recognized as per the provisions of the Act (Sec 8)
Disclosure : the amount of revenue from service transactions recognized during the PY,
the method used to determine the stage of completion of service transactions in
progress, information relating to service transactions in progress at the end of the
previous year etc.

» As a principle, interest accrues on time basis & royalty accrues on the basis
contractual terms. Hence, the same shall be recognised even if there is no reasonable
certainty of subsequent collection. Non-recovery in either cases can be claimed as
deduction later in view of amendment to sec 36(1)(vii)[Bad debts]
» If the taxpayer sells a security on the 30/04/17. The interest payment dates are
December and June. The actual date of receipt of interest is on the 30/06/17 but the
interest on accrual basis has been accounted as income on the 31/03/17. Whether the
taxpayer shall he permitted to claim deduction of such interest i.e., offered to tax but
not received while computing the capital gain?
Answer : Yes, the amount already taxed as interest income on accrual basis shall be
taken into account for computation of income arising from such sale.
December 31/03/17 31/04/17 June

Int ₹ 1000 int ₹ 500 accrued for sale Int ₹1000
received 3 months int taxed FVOC 12,000 received
but not received. (-) COA (10,000)
2,000
(-) Int taxed on
accrual basis (500)
CG 1,500


ICDS-V: Tangible Fixed Assets

This ICDS deals with the treatment of tangible fixed assets,
» Tangible fixed asset is an asset being land, building, machinery, plant or furniture held
for being used for the purpose of producing or providing goods or services and not held
for sale in normal course of business.
» Identification of Tangible fixed assets
● Machine spares are charged to revenue as and when consumed.
● If machine spares are used only in connection with the tangible fixed asset and
their use is expected to be irregular, then machine spares will be capitalized.
● Stand-by and servicing equipment are to be capitalized.
» Components of Actual Cost ₹
Purchase price xxx
+ duties and taxes except those subsequently recoverable xxx
+ any directly attributable expenditure on making the asset ready for its xxx
intended use
- Any trade discount and rebates (xxx)
» Administration and other general overhead expenses that do not relate to a specific
tangible fixed asset, are to be excluded from cost of such asset.
» Expenses which are specifically attributable to construction of a project or to the
acquisition of a tangible fixed asset or bringing it to its working condition, shall be included
as a part of the cost of the project or as a part of the cost of the tangible fixed asset.
» The expenditure incurred on start-up and commissioning of the project, including the
expenditure incurred on test runs and experimental production, shall be capitalised. The
expenditure incurred after the plant has begun commercial production (production
intended for sale or captive consumption) shall be treated as revenue expenditure. Expense
incurred after the conduct of test runs & experimental production but before
commencement of commercial production shall also be treated as capital expenditure.
» Where a tangible fixed asset is acquired in exchange for another asset or shares or
securities, then the fair value of fixed asset so acquired will be its actual cost.
» ICDS V requires disclosure like description of asset or block of assets, rate of

depreciation, actual cost or written down value, as the case may be additions or
deductions during the year with dates, depreciation allowable & written down value at
the end of the year.
ICDS-VI: Effect of Change in Foreign Exchange Rates

This ICDS deals with:
- treatment of transactions in foreign currencies;
- translating the financial statements of foreign operations.
- treatment of forward contracts involving foreign currencies.
# Foreign currencies transactions

» Initial Recognition
A foreign currency transaction shall be recorded by applying
- Actual rate at transaction date or
- A weekly or monthly average rate that approximates the actual rate for all the
transaction occurred during that period. However, if exchange rate fluctuates
significantly then the actual rate shall be used.
» Conversion in Reporting Currency (MTM): at the last day of each PY

Item Exchange rate
● Foreign currency Monetary item Closing rate
● Foreign currency Non-monetary item Rate at Transaction date
● Foreign currency Non-monetary item being Rate at Date of valuation
inventory which is valued @ NRV
» Recognition of Exchange Difference:

Items On Conversion (last day) - MTM On Settlement
Monetary item Gain-taxable Gain-taxable
Loss-allowed Loss-allowed
Non-monetary item Gain- Not taxable Gain-taxable
Loss- Not allowed Loss-allowed


» Note : exchange difference on payment of forex loan taken for acquisition of asset – shall
be adjusted to cost or WDV of asset as per Sec 43A.
# Foreign operations:
Financial statement of foreign operation shall be translated using the same principle as in
case of foreign currency transaction.
# Forward Exchange Contracts:

Forward contracts into for: Premium/ Discount Exchange differences shall be
-Speculation, recognised only at the time of settlement
-Trading
- Hedging foreign currency risk
of firm commitment or highly
probable forecast transaction
Other Forward contracts -Premium/ Discount shall be amortised over life of
contract.
- Exchange difference(MTM) at the end of PY shall be
recognised as income or expense in every year.
- On Renewal or cancellation, profit or gain shall be
recognised in that PY.
Premium or discount = difference of exchange rate at the inception of contract and
forward rate specified in the contract.
ICDS VII Government grants

# Scope:
This ICDS deals with the treatment of govt grants. It recognizes that the govt
grants are also called as subsidies, cash incentives, duty drawbacks etc.
This ICDS does not deal with Govt assistance (other than in the form of Govt grants)
and Govt participation in the ownership of the enterprise.

# Recognition of Govt Grant:

Govt should not be recognised until there is reasonable assurance that:
a) the person shall comply with the conditions attached to it and
b) the grant shall be received.
» Recognition of grant shall not be postponed beyond the actual date of receipt. As per
section 145B Govt grant taxable on the basis of actual receipts or due whichever is earlier.
# Treatment of Govt grant :

Govt grant Treatment
1. If grant is directly related to acquisition It shall be reduced from actual cost
of any depreciable asset
2. If grant is not directly related to Proportionate grant shall be reduced from
acquisition of any depreciable asset. cost or WDV of asset as follows:
cost of asset required
cost/wdv - grant x
E.g. Govt grant of ₹ 30 lac received for a cost of asset in respect
of which grant received
project costing ₹ 100 lac. Asset acquired
in PY is ₹ 10 lac (
thus, cost of asset = 10 - 30 x
10
100
)
= 7 lac
3. If grant is directly related to acquisition Recognise as income over the same period
of non-depreciable asset. over which the cost of meeting such
obligations is charged to income.
4. Grants receivable as compensation for Recognise as income of the period in which
expenses or losses incurred in a PFY or it is receivable.
for the purpose of giving immediate
financial support to the person with no
further related costs
5. Other Govt Grants Recognise as income over the periods
necessary to match them with the related
costs which they are intended to
compensate.
6. Grant in form if non-monetary assets Recognise at acquisition cost.
given at a concessional rate


Treatment on Refund of grant:

Govt grant Treatment
If grant related to Amt refundable by the assessee shall be added to actual cost or
depreciable asset WDV.
Depreciation shall be provided on revised Actual cost or WDV
prospectively.
Otherwise If unamortised First, Refundable amt shall be applied
(Grant specified in deferred credit is against unamortised deferred credit.
point no. 3, 4 & 5 remained then, any amt of refund remained
above) unadjusted shall be charged to P&L.
If there is no deferred Refundable amt to be charged to P&L.
credit
# Disclosure : Nature & extent of Government grants recognized during the previous year
as income, nature & extent of Government grants not recognized during the previous
year as income & reasons thereof etc.
ICDS-VIII: Securities
This ICDS deals with securities in two parts.
# Part A : securities held as stock-in-trade.
Scope : This part of ICDS deals securities held as SIT. But does not deals with:-
● Recognition of Interest & dividend on securities covered by ICDS-IV on revenue
recognition.
● Securities held by insurer
● Securities held by MF, Venture capital funds and banks & PFI covered in part B
# Initial recognition:
» Initially, securities are recognized at actual cost of acquisition (purchase price +
acquisition charges like brokerage, fees, tax, duty or cess).
» If any security acquired in exchange for other security or another asset, the actual
cost shall be the fair value of the security so acquired.
» In case of interest-bearing securities (like 10% debenture), if any interest is accrued
before acquisition and is included in purchase price, on receipt of such interest, it shall

be allocated into pre-acq & post-acq interest. The pre-acq interest shall be reduced
from actual cost.
# Subsequent measurement:
» Subsequently, at the end of each PY, securities have to be valued at actual cost or
NRV at the end of that PY, whichever is lower.
» Such comparison of actual cost and NRV has to be done “category-wise” and not
“individual security wise”. The categories can be equity share, preference shares, debt
securities etc.
Security Category Cost NRV Security-wise Category-wise
A Share 100 75 75 (ICDS)
B Share 120 150 120
Total 220 225 195 220
C Debenture 150 160 150
D Debenture 105 90 90
Total 255 250 240 250
Grand Total 475 475 435 470
» If securities is not listed on a RSE or securities is listed but not quoted regularly, it
shall be value at actual cost initially recognised.
» Where actual cost initially recognised cannot be ascertained by reference to specific
identification for subsequent measurement of securities, "First in First Out" method
or "Weighted Average Cost" formula can be used.
# Part B: Securities held by a scheduled bank or PFI:

The securities shall be classified, recognised and measured in accordance with the
extant guidelines issued by the RBI in this regard. Any claim for deduction in excess
of the said guidelines will not be taken into account. To this extent, the provisions of
ICDS VI on the effect of changes in foreign exchange rates relating to forward exchange
contracts would not apply.


ICDS IX: Borrowing Costs

# Scope:
» This ICDS deals with the treatment of borrowing costs and other costs which are
incurred in relation to borrowing of funds.
» Borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset, shall be capitalized as part of cost of that asset.
» Other borrowing costs shall be recognised in accordance with the provisions of the Act.
# Qualifying asset means

a. land, building, plant and machinery, furniture being tangible asset
b. Patents, know-how, licenses, trademarks, copyrights, any other business or commercial
rights being intangible asset.
c. Inventories that require a period of 12 months or more to bring them into a saleable
condition.
# Capitalization of Borrowing Costs:
Type of Amt eligible for capitalisation Commencement Cessation of
borrowing of capitalisation capitalisation
Specific Actual borrowing cost incurred Date of First put to use
borrowing cost during the PY borrowing (in case of
General General Avg. cost of Date of inventory, when
borrowing cost Borrowing Qualifying asset utilisation of all activities
X
cost Avg. cost of Total borrowed funds necessary for
asset its intended sale
are completed)
Notes for the purpose of general borrowing cost:
(i) A qualifying asset shall be such asset that necessarily require a period of 12
months or more for its acquisition, construction or production.
(ii) Avg. cost of Qualifying asset shall be computed as follow:
If qualifying asset remain throughout the (Opening+ Closing Balance sheet value) ÷ 2
PY
If qualifying asset does not appear on first Closing Balance sheet value ÷ 2
day of the PY

If qualifying asset does not appear on last (Opening Balance sheet value + Value on the
day of the PY date of put to use or completion) ÷ 2
(iii) The avg. cost of qualifying asset and total asset shall not include cost of asset to
the extent it is funded out of specific borrowings.
# Disclosure:
i. the accounting policy adopted for borrowing costs.
ii. the amount of borrowing costs capitalized during the year.

» The definition of borrowing cost is an inclusive definition. Bill discounting charges and
other similar charges are covered as borrowing cost.
» The capitalization of general barrowing cost under ICDS-IX shall be done on asset-
by-asset basis.
» Where a portion of borrowing cost are disallowed u/s. 14A, 43B, 40(a)(I), 40(a)(ia),
40A(2), etc., these shall be excluded even for the purpose of capitalization under
ICDS-IX
# AS-16 vs ICDS IX
1. Income earned on Temporary investment of borrowed funds pending their expenditure
on qualifying asset to be deducted from borrowing cost incurred as per AS-16.
However, ICDS IX does not permit such reduction from borrowing cost.
2. Suspension of capitalisation of borrowing cost:
Paragraph 17 of AS 16 permits suspension of capitalisation of borrowing cost during
the extended period in which active development is interrupted. ICDS IX does not
permit suspension of capitalisation of borrowing cost in such cases.
Above deviations between AS 16 and ICDS IX would result in increase in taxable income.


ICDS X : Provisions, Contingent Liabilities and Contingent Assets

ICDS deals with provisions, contingent liabilities and contingent assets, except those
resulting from - financial instruments, executory contracts and contract with
policyholder arising in insurance business or covered by another ICDS.
Provisions Contingent asset & contingent liability
Recognition There exists a present obligation as a Contingent asset and contingent
result of a past event & it is liability shall not be recognised
reasonably certain than an outflow of However, contingent assets are
economic resources will be required to assessed continually and when it
settle the obligation. becomes reasonably certain that the
Criteria for recognition of provision in inflow of economic benefit will arise,
AS-29 is “probable” which is replaced the asset & related income are
by “reasonable certainty” under ICDS. recognized in the PY in which the
change occurs.
Measurement The amt of provision shall be the best The amt of asset & related income
estimate of expenditure required to shall be the best estimate of value of
settle the present obligation at the economic benefit arising at the end of
end of PY. PY.
The amt of provision shall not be The amt of asset & related income
discounted to its present value. shall not be discounted to its present
If any expenditure required to settle value.
the provision is expected to be
reimbursed by a third party, it will be
recognized only when it is reasonably
certain that the reimbursement amt
will be received. The amt of
reimbursement shall not exceed the
amt of provision.
Review at the If it is reasonably certain that an If it is reasonably certain that an
end of each outflow of economic resources will not inflow of economic benefits will not
PY be required to settle the provision then arise then such asset and related
such provision should be reversed. income should be reversed

» A provision shall be used only for expenditures for which it was originally made.
» Disclosure : ICDS X requires disclosures in respect of each class of provision, asset &
related income recognized.
» CBDT clarified that provisioning for employee benefit which are otherwise covered by
AS 15 shall continue to he governed by specific provisions of the Act and are not dealt
with by ICDS-X.
Summary :
Provisions for Bad debt for banks etc. Allowed u/s 36(1)(viia)
Provision for gratuity Disallowed u/s 40A(7)
Other provisions Allowed- only if there is reasonable certainty
as per ICDS X
Contingent liability Disallowed under ICDS X
Contingent asset Recognised only if it becomes reasonably certain
as per ICDS X

06 TAXATION IN CASE OF
AMALGAMATION & DEMERGER
# Sec. 2(1B): Definition of amalgamation

Merger of one or more companies with another company or the merger of two or more
companies to form one company, in such a manner that -
(¡) All the asset & liabilities of amalgamating company becomes the asset & liabilities
of amalgamated company.
(ii) Shareholders holding minimum 75% in value of shares in amalgamating company
become shareholder of amalgamated company.
# Taxation of shareholder
a) As per Sec. 47, there will be no transfer & hence no capital gain when shareholder
allotted shares of amalgamated Company in exchange of share of amalgamating Co.
b) COA of the shares in the Amalgamated Company = COA of the shares in the
Amalgamating Company [Sec. 49(2)]
c) POH = Period for which shares held in Amalgamating Company + period in
Amalgamated Company
# Taxation of Amalgamating company

As per Sec. 47, there will be no capital gain on transfer of capital asset by
amalgamating Company to amalgamated company.
# Taxation of Amalgamated Company

a) As per Sec. 49 (1) COA of asset becomes property of amalgamated Company = COA of
amalgamating Company [cost of previous owner]
b) POH of asset=Period of Amalgamating Company as well as Amalgamated Company
Note: PGBP losses & unabsorbed depreciation of amalgamating Company can be

carried forward & set off by amalgamated Company [ refer set off & c/f topic]

TAXATION IN CASE OF
AMALGAMATION & DEMERGER Chapter 6
# Meaning of Demerger
Demerged Company Titan Ltd. Undertaking II
Titan watch Tanishq jewellery
Undertaking 1 Tanishq Ltd Resulting Company
Sec. 2(19AA): Demerger means transfer by demerged Co. of its one or more
undertaking to any resulting Company, all the following conditions are fulfilled:
¡) All the assets & liabilities of undertaking II (tanishq) transferred by demerged
Company become the asset & liabilities of resulting Company (tanishq ltd)
ii) All assets & liabilities should be transferred at Book value [Revaluation is to be ignored]
iii) The resulting Company (tanishq ltd.) issues, its shares to the shareholder of demerged
Company (titan ltd.) on proportionate basis except when the resulting company itself
is a share holder of the demerged Company.
iv) The shareholders holding minimum 75% value of shares in the demerged Company
becomes the shareholder of resulting Company.
v) Transfer of undertaking on a going concern basis.
# Provided that condition (ii) [Transfer at book value] not applicable where resulting
company records the value of the property and the liabilities at a value different
from the value appearing in the books of account of the demerged company,
immediately before the demerger, in compliance to the Indian Accounting Standards
specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015
# Taxation of shareholder
a) Sec. 47 : there will be no capital gain in hands of shareholders of demerged Company
When they receive share of resulting Company.
b) POH of shares of resulting company : Period for which shares were held in demerged
Co. shall also be considered Sec. 2(42A)

TAXATION IN CASE OF
Chapter 6 AMALGAMATION & DEMERGER
c) Sec. 49(2C) COA of shares of Resulting Company
= COA of shares held Net Book value of assets transferred in demerger

X
in demerged Company **Net worth of demerged Company before demerger
**Net worth = Paid up share capital + General reserve
d) Sec. 49(2D):COA of shares in the Demerged Company

COA of originals shares in demerged Company xxxxx
(-) COA of shares in resulting Company (point c) (xxxx)
xxxxx
# Taxation of Resulting Co.

COA of Asset received in Demerger = COA to Demerged Company
# Taxation of Demerged Co.

As per
per Sec.
Sec.47
47there
therewill
willbebe
nono
capital
capital
gain
gain
when
when
asset
asset
transferred
transferred
by Demerged
by Demerged
Company to
to Resulting
ResultingCompany.
Company.
Note : PGBP losses & unabsorbed depreciation related to transferred undertaking

can be carried forward & set off by resulting Company [ Refer setoff & C/F topic]

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TAX ON ACCRETED
INCOME OF
CERTAIN TRUST OR
INSTITUTION [EXIT TAX]
Topic - 15
TAX ON ACCRETED INCOME OF
CERTAIN TRUST OR INSTITUTION
[EXIT TAX]
CA Bhanwar Borana
15 TAX ON ACCRETED INCOME OF CERTAIN
TRUST OR INSTITUTION [EXIT TAX]
# Sec 115TD : Tax on Accreted Income

The “Accreted income” of trust / Institution registered / approved u/s 12AA
/12AB/ 10(23C) shall be taxable @ MMR if: i.e. 34.944% (30%+12%+4%)
a) Conversion of trust / Institution into a form not eligible for Registration u/s
12AA/12AB/10(23C). [Note 2].
b) Merger into an entity not having similar objects and registered u/s 12AA/12AB/10(23C)
c) Non - distribution of assets on dissolution to any other trust / Institution registered
u/s 12AA/12AB/10(23C) within 12 months from end of the month in which dissolution
takes place.
Notes: 1. The exit tax shall be in addition to income taxable in hands of entity.
2. Deemed conversion into non- eligible form in following cases:
(¡) Registration granted u/s 12AA/12AB /10(23C) has been cancelled.
(ii) It has adopted or undertaken modification of its objects which do not conform to
the conditions of registration and:
a) It has not applied for fresh registration u/s 12AA / 12AB / 10(23C)in that P.Y. or
b) It has applied for fresh registration u/s 12AA/12AB /10(23C) but application has been
rejected.
3. "Accreted Income" shall be computed on "specified date”.
# Meaning of Accreted Income ₹

Aggregate FMV of total Asset xxx
(-) Total liability of trust (xxx)
Accreted Income xxx
» Following assets & liabilities in respect of that assets shall not be considered in accreted
income.
a) Assets acquired out of agriculture income.
b) Assets acquired by trust/instalation from the date of creation of trust to the date
from which registration approval become effective u/s 12 AA / 12AB / 10(23C).
[Where the benefit u/s 11 & 12 have been allowed to the trust or institution in
respect of any P.Y. or years beginning prior to the date from which the registration
u/s 12AA/12AB/10(23C) became effective, then, the registration shall be deemed to
have become effective from the first day of the earliest P.Y.]

TAX ON ACCRETED INCOME OF CERTAIN Chapter 15
c) Asset transfer on dissolution to other trust / Institution registered u/s

12AA /12AB / 10(23C) within 12 months from end of the month in which dissolution
takes place.
4. Meaning of “Specified date" i.e. date of valuation of assets & liability.
In case of
Conversion of Merger with any Failure to transfer

Trust/Institution into other non-charitable asset on dissolution
non - eligible form trust/institution within 12 months
Date of merger Date of Dissolution
Registration Modification of
granted cancelled objects
Date of order Date of adoption or

cancelling registration modification of any objects
u/s 12 AA / 12AB / 10(23C)
5. When the tax on the accreted income is levied on the FMV & if subsequent transfer
of such asset, the cost of acquisition shall be the FMV of such asset.
# Sec 115 TD(4): Exit tax shall payable even if no income tax is payable by the Trust /
Institution.

Chapter 15 TAX ON ACCRETED INCOME OF CERTAIN
# Sec 115TD (5): Period within which exit tax has to be paid to central Govt. Tax has to
be paid to the Central Govt within 14 days from
Cases 14 days from

A Conversion of trust / institution into non
Eligible form 14 Days from the date on which :
(¡) Registration granted u/s 12 AA/12AB a) the period for filling appeal to ITAT
/ 10 (23C) has been cancelled. against the order cancelling the
registration expires & No appeal has
been filed by trust/institution .
OR
b) the order in any appeal confirming
the cancellation of regn is recd. by trust
/institution.
(ii) It has adopted or undertaken
modification of its objects which
do not conform to the condition
of registration :
a) Not applied for fresh registration 14 days from end of P.Y.
b) Applied for fresh regn but rejected. 14 days from the date on which
a) the period for filling appeal to ITAT
against the order rejecting the
application expires & no appeal filed
by trust / institution
OR
b) the order in any appeal confirming
the rejection the application is recd.
by trust / institution

b) Merger with any other Non- 14 days from the date of merger.
Charitable Institutions.
c) Failure to transfer asset to trust/ 14 days from the date on which period
institution registered u/s 12AA/12AB of 12 months (at the end of the month
/ 10(23C) within period of 12 months in which dissolution took place)
from end of the months in which expires.
dissolution took place.
# Sec 115TE: Interest for non-payment of tax within 14 days.

Interest @ 1% p.m. or part of the month from the 15 th day till date on which the tax is
actually paid.
# Sec 115TF : Trust / Institution is deemed to be assessee in default.

If tax not paid then principal officer / trustee / trust / institution shall be treated as
assessee deemed to be default.
In case of transfer of assets upon dissolution of the trust to recipient, which is not a
charitable trust, the recipient of asset shall also be treated as assessee in default.
However, recipient's liability shall be limited to the extent to which the asset received
by him is capable of meeting the liability.
# Calculation of FMV of Assets [ Rule 17CB ]

» Part: A - Assets:
For the purpose of section 115TD, the aggregate FMV of the total assets of the trust
or institution, shall be the aggregate of the FMV of all the assets in the balance sheet
as reduced by—
( i) any amount of TDS/TCS or as advance tax payment as reduced by the amount of

income-tax claimed as refund under the Act, and
(ii) any amount shown as asset including the unamortised amount of deferred expenditure
which does not represent the value of any asset.

Chapter 15 TAX ON ACCRETED INCOME OF CERTAIN
FMV of Assets
1. Quoted Shares and securities : Average of Lowest & Highest price on valuation date on
a recognize stock exchange
Note : If No trading of such shares and security on valuation date then average of
lowest &Highest price of immediately preceding the valuation date when such shares
and security traded in recognize stock exchange.
2. Unquoted Equity shares : A+B-L PV

x
PE
Notes:
A = Book Value of All Assets (other than Covered in B) exclude TDS, Advance Tax in
excess of income tax refund claimed & deferred expenditure shown in the Asset side
B = FMV of bullion, jewellery, precious stone, artistic work, shares, securities and
immovable property as determined in the manner provided in this rule
L = book value of liabilities, but not including the following amounts, namely :—
( i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity
shares;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is
negative, other than those set apart towards depreciation
(iv) any amount representing provision for taxation, other than amount of income-tax
paid, if any, less the amount of income-tax claimed as refund, if any, to the extent
of the excess over the tax payable.
(v) any amount representing provisions made for unascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends
payable in respect of cumulative preference shares;
PE = total amount of paid up equity share capital as shown in the balance sheet
PV = the paid up value of such equity shares
3. Unquoted Shares or Security (other than equity shares) :

FMV/NRV on Valuation Date on the basis of valuation report of merchant banker or an
accountant.

4. Immovable Property:
(i) SDV on Valuation date xxx
(ii) FMV/NRV on Valuation Date xxx
Whichever is higher
5. A business undertaking : (A+B-L)
6. Any other assets : FMV/NRV on Valuation Date
Part: B – Liabilities
Total liability of the trust or institution shall be the book value of liabilities in the
balance sheet on the specified date but not including the following amounts, namely :—
(i) capital fund or accumulated funds or corpus, by whatever name called;

(ii) reserves or surpluses or excess of income over expenditure, by whatever name
called;
(iii) any amount representing contingent liability
(iv) any amount representing provisions made for meeting liabilities, other than
ascertained liabilities
(v) any amount representing provision for taxation, other than amount of TDS/TCS or
as advance tax payment as reduced by the amount of income-tax claimed as refund
under the Act, to the extent of the excess over the income-tax payable.

24 DEDUCTION U/S VI-A
1. Deduction under chapter VI-A is restricted to Gross Total income & deduction cannot
be carry forward.
2. Deduction under chapter VI-A is Not Allowed against LTCG, LTCG u/s 112A, STCG u/s
111A & special rates of tax income.
Part : A Payment Related Deductions

# Sec 80C : Specified investments
a. Eligible Assessee : Individual & HUF
b. Amount of deduction : D1,50,000 [Maximum Limit]
c. Eligible Investments :
¡. Life Insurance Premium
(For : Self, Spouse, Children - In case of Individual)
(For: Any member of HUF - In case of HUF)
# If policy issued before 01/04/2012

¡) Premium paid xx
ii) 20% of Policy value (sum assured) xx
# If policy issued on or after 01/04/2012

¡) Premium paid xx
ii) 10% of policy value xx
# If policy issued on or after 01/04/2013 for person with disability (u/s 8OU) or
person suffering from specified disease (u/s 80 DDB).
¡) Premium paid xx
ii) 15% of policy value xx
ii. Amount deposited in Public Provident Fund (PPF)

(For : Self, Spouse, Children - In case of Individual)
(For: Any member of HUF - In case of HUF)

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DEDUCTION U/S VI-A Chapter 24
iii. Employee's contribution to Statutory provident fund, Recognised Provident fund or

Approved Superannuation Fund (SPF, RPF & ASF).
iv. Amount invested in NSC as well as interest accrued on NSC.
v. Repayment of Loan taken from banks or financial institution for purchase or
construction of House.
vi. Fixed Deposit in a scheduled Bank or Post office for 5 years or more.
vii. Tuition fees paid for education of children.
[Max 2 children for full time education in India]
viii. Deposit in Notified bonds of NABARD.
ix. Deposit in Senior citizen Saving Scheme.
X. Contribution towards Unit Linked Insurance Plan (ULIP).
xi. Notified units of Mutual Funds or UTI.
xii. Notified Pension scheme of UTI or MF.
xiii. Deposit in Sukanya samridhi scheme A/c.[for any girl child of individual or girl child
for whom such individual is a legal guardian].
xiv Stamp duty, registration fee for acquisition of house property.
xv. By employee of CG as a contribution to a specified account of the pension scheme
referred to in section 80CCD for a fix period of Three years or more (NPS Tier 2).
xvi. Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008.
Note:
If in any PY, an assessee:
» Terminates his LIP or has not paid premium after 2 years,
» Terminates ULIP or has not paid any premium for atleast 5 years,
» Transfers House before 5 years from the end of FY in which possession is obtained,
» Amount withdraw from FD or Senior Citizen Saving Scheme before 5 years,
then all deductions allowed earlier will be deemed to be income in the year of violation
/withdrawal.
# Sec 80CCC: Contribution to Pension Fund of LIC or other Insurance company.

a. Eligible Assessee : Individual
b. Amount of Deduction Maximum D 1,50,000
Compact V-1 Compact V-1 263 CA Bhanwar Borana

Chapter 24 DEDUCTION U/S VI-A
# Section 80CCD : Contribution to Pension scheme of Central Govt. / New Pension

Scheme / Atal Pension Yojna
b. Amount of deduction - sec 80CCD(1)
Salaried Employee Other Individuals
(1) Employees Contribution xx (ii) Assessee's contribution xx

(1) 10% of salary xx (ii) 20% of GTI xx
# Sec 80CCD(1B) : Additional deduction up to D50,000 shall be allowed other

than contributions covered u/s 80CCD (1)
Example: Assessee's contribution - D140,000 towards NPS & GTI is D5,50,000, in this
case, assessee can claim D1,10,000 (20% of GTI) u/s 80CCD (1) & remaining ₹30,000 u/s
80CCD (1B) or He can first claim u/s 80CCD(1B) of D50,000 & remaining ₹90000 u/s 80
CCD (1).
# Section 80CCD(2): Employer's contribution to NPS for the benefit of Employee.

Employer's contribution is first taxable under the head salary in hands of Employee &
then he gets deduction u/s 80CCD(2)
(¡) Employer's Contribution xx
(¡¡) 10% / 14% of Salary xx
* 14 % where such contribution made by C.G or S.G.
Notes:
1. For the purpose of Sec 80CCD(1) & (2), Salary means = Basic salary +DA (In terms)
2. As per sec 10(12A) any payment received by Assessee on closure of his account is
exempt to the extent of 60% (40% is taxable) of total amount payable to him at the
time of closure . In case of employee or Non-employee, any amount received from
NPS by the nominee legal heir on death of an assessee is Fully Exempt.
3. The subscribers from recognised Provident Funds and Super-annuation Funds would
be able to transfer their corpus from these funds to National Pension System (NPS)
without any tax implication.

4. In case of partial withdrawal from NPS by an employee, payment shall be exempt upto 25%
of contributions made by him (Fully taxable for non-salaried employee) [Sec 10(12B)].
# Sec 80CCE : Aggregate deduction u/s 80C + 80CCC + 80CCD(1) is restricted to Maximum
D1,50,000.
# Sec 80D : Deduction in respect of Medical Insurance Premium, Central Govt. Health
Scheme, Preventive Health checkup & Medical Treatment.
b. For whom :
Individual - Self, spouse, Parents & dependent children.
HUF - Any member of HUF.
c. Mode of Payment
Any mode other than Cash, but payment of preventive health checkup can be made in Cash.
d. Amount of Deduction : Individual HUF
Self, spouse, Parents Members
Dependent
Children
A. i) Medical insurance Premium yes yes yes
ii) CG Health scheme yes x x
iii) Preventive Health check up yes yes x
General deduction ¡+¡¡+¡¡¡ Max D25,000 Max D25,000 Max D25,000
+
Additional deduction (when
medical insurance policy taken on
the Life of senior Citizen)
Age 60 or more Max D25,000 Max D25,000 Max D25,000
B. Medical Expenditure of
Senior citizen
(Age 60 or more) & Mediclaim
premium not paid for Such person. Max D50,000 Max D50,000 Max D50,000
Maximum Deduction (A+B) Max D50,000 Max D50,000 Max D50,000
Notes : Aggregate payment for preventive health checkup of self, spouse, dependent
children & parents cannot exceed D5000/-

# Where the medical insurance premium is paid in lumpsum for more than 1 year,
deduction for each year shall be : Lumpsum premium
PY's in which Insurance in force
Example : Mr. BB paid health insurance premium to star health of ₹60,000 for 5 years
on 01/11/22. Policy tenure is 5 years i.e. from 01/11/22 till 31/10/27. Calculate
deduction to be allowed in PY 22-23.
In this case deduction allowed in 6 PY's i.e., from PY 22-23 till PY 27-28, so deduction
for PY 22-23 is 60,000/6 years = ₹10,000.
# Section 80DD: Deduction in respect of Medical treatment & Maintenance of Handicapped

dependent relative
a. Eligible Assessee ; Resident Individual & HUF
b. Amount of deduction:
(i) Normal disability = D 75,000 Flat
(ii) Severe disability = D 1,25,000 deduction
Notes :
1. Assessee should incur expenses on medical treatment or deposit any amount for
maintenance of such handicapped dependent relative.
2. Relative Individual – spouse, brother, sister, children, mother, father.
HUF - Any member of HUF
3. Under this section deduction will be reversed if dependent handicapped relative received
annuity before the death of assessee or before attaining age of 60 years of assessee.
# Section 80DDB : Deduction in respect of Medical treatment of specified Disease
a. Eligible Assessee : Resident Individual / HUF
b. Amount of deduction : ₹
(¡) Actual Expenses on treatment xxx
(¡¡) Maximum * D 40,000/ 1,00,000 xxx
(whichever is lower) xxx
Less: Insurance claim (xxx)
Amount of deduction xxx
* Normal case - ₹ 40,000
Senior citizen patient - ₹ 1,00,000

c. Notes: Assessee should incur expenditure on the treatment of specified diseases

for: Individual : Self, dependent relative (spouse, children, parents, brother, sister)
HUF: Any dependent member.
# Section 80U: Deduction for handicapped Assessee

a. Eligible Assessee : Resident Individual
b. Amount of deduction :
Normal disability : D 75,000 Flat
Severe disability : D 1,25,000 deduction
# Section 80E : Deduction in respect of Interest on loan for higher education in India
th
or abroad [any course after XII ].
b. Amount of Deduction:
Interest amount for a period of 8 consecutive years starting from the year in which
assessee starts paying interest.
Note : Deduction is allowed if loan taken for the education of self, spouse, children,
and any student from whom assessee is a legal guardian.
# Section 80EE :Deduction in respect of interest on housing loan

b. Amount of dedn : Max D50,000
c. Condition :
i. Loan should be taken from bank or financial institution for acquisition of
residential property.
ii. Purchase price of house upto D50 Lakh.
iii. Loan should be sanctioned between 1/4/2016 to 31/3/2017.
iv. Loan amount up to D35 lakh.
V. Assessee does not own any residential house on the date of sanction of loan.
vi. First deduction should be claimed u/s 24(b) of house property (up to D2,00,000)
& remaining int deduction u/s 80EE.

# Section 80EEA : Deduction in respect of interest on housing loan

a. Eligible Assessee : Individual (other than covered in 80EE)
b. Amount of Deduction : Max. D1,50,000
c. Conditions:
i. Loan should be taken from banks or financial institutions for acquisition of
residential house property.
ii. Stamp Duty Value of house property should be upto D45 lakhs.
iii. Loan should be sanctioned between 1/4/2019 to 31/3/2022.
iv. Assessee does not own any residential house property on the date of sanction of loan.
v. Where a deduction under this section is allowed for any interest, deduction shall not
be allowed in respect of such interest under any other provision of this Act for the
same or any other assessment year.
vi. First deduction should be claimed u/s 24(b) of house property and remaining interest
deduction u/s 80EEA.
# Section 80EEB : Deduction in respect of interest on Electric Vehicle loan

b. Amount of Deduction : Max. D 1,50,000
c. Conditions:
i. Loan should be taken from banks or financial institutions including NBFC for
purchase of electric vehicle.
ii. Loan should be sanctioned between 1/4/2019 to 31/3/2023.
iii. Where a deduction under this section is allowed for any interest, deduction shall not
be allowed in respect of such interest under any other provision of this Act for the
same or any other assessment year.
“Electric vehicle” means a vehicle which is powered exclusively by an electric motor

whose traction energy is supplied exclusively by traction battery installed in the vehicle
and has such electric regenerative braking system, which during braking provides for
the conversion of vehicle kinetic energy into electrical energy.

# Section 80G: Donations

a. Eligible Assessee : All Assessee
b. Eligible Donations :
Part A : Unlimited Category
1. Jawanarlal Nehru Memorial fund
2. Indira Gandhi Memorial Trust
3. Rajiv Gandhi Foundation 50%
4. P.M. Drought Relief fund Unlimited
5. National Defense fund
6. P.M. National Relief fund & P.M. Care fund
7. P.M. Armenia Earthquake Relief fund
8. C.M. Relief fund & Lieutenant Governor Relief fund
9. Zilla Saksharta Samiti
10. National sports fund 100%
11. National children fund Unlimited
12. National cultural fund
13. Swachh Bharat Kosh
14. Clean Ganga Fund
15. The National Fund for control of Drug abuse
16. Fund for Army, etc
Part B: Limited Category Code : FOHTC Mobile
1. Donation to Government or Local Authority or approved
Institution for promoting Family (F) Planning.
2. Donations by company to Indian Olympics (0) 100%
Association or any other institution for Limited
development of infrastructure for sports in India,
3. Donation to Housing (H) development authority
4. Donation for renovation or repair of temple (T), gurudwara, mosque or
church, etc. 50% limited
5. Donation to any public Charitable (C) Trust
6. Donation for promoting minority (MOBILE)
community in India,

# Under limited category, there is limit of Eligible donation,

F xxx
O xxx
H,T xxx
C xxx
Mobile xxx
Total Donation xxx
10% of ATI* xxx
Eligible Donation xxx
*ATI - Adjusted Total income ₹
GTI (exclude Income Taxable at special Rate) xxx
(-) All deductions (except 80G) (xx)
ATI xxx
Note : Deduction under this section is not allowed if donation made in cash is more
than D 2000.
Example: D
F, O 25,000
HTC Mobile 40,000
Total Donation 65,000
10% of ATI (4,50,000) 45,000
45,000
F.O. (100%) (50%) BAL (HTC MOB)

25,000 x 100% = D 25000 20,000 x 50% = D 10,000
Notes :
1. If doner made donation to any Trust/Institution then deduction shall be allowed only
if such trust/institution is registered u/s 80G(5). Time limit and procedure of
registration is similar to whatever we have discussed in trust topic u/s 12A and 12AB.
2. Doner shall be entitled to deduction u/s 80G only if;
(i) the donee Trust/institution prepares a statement in Form No.10BD and
submitted to PDGIT(System) upto 31st May of next FY, and

(ii) the donee Trust/institution furnishes a certificate to the donor in Form No.
10BE upto 31st May of next FY. (Applicable w.e.f. 01/04/21)
3. Donations paid in kind are not eligible for deduction u/s 80G.
4. Deduction under this section not allowed if it is made in cash of more than ₹ 2,000.
5. Employees make donations to the PM National Relief Fund, the CM Relief Fund or the
LG Relief Fund through their respective employers, EE's shall be eligible for
deduction u/s 80G even certificate issued in the name of ER. ER will issue certificate
to EE's about such donation.
# Section 80GG : Rent paid of House Property (HRA not recd)

a. Eligible Assessee: Individual
b. Amount of deduction;
(¡) D 5000 p.m.
(ii) 25 % of Adj. GTI
(iii) Rent Paid -10% of Adj. GTI
Note : The assessee or his spouse or minor child or HUF should not own any house at the
place of his duty. Adjusted GTI = GTI - All deductions u/c VIA (Except u/s 80GG)
# Section 80GGA : Deduction in respect of Donation for scientific research or rural

development
a. Eligible Assessee: All assessees (except assessees having income under the head PGBP.)
b. Amount of deduction : 100% of donation.
c. If donation amount is more than D2,000 then should be made other than Cash.
# Section 80GGB; Donation to Political Parties or Electoral Trust

a. Eligible Assessee: Indian company
b. Amount of deduction : 100% of donation.
# Section 80GGC: Donation to Political Parties or Electoral Trust

a. Eligible Assessee: Any person (other than Indian co.)
b. Amount of deduction : 100% of donation
Note : No deduction us 8OGGB/80GGC, if donation made in CASH.
Income Based Deductions

General points regarding Income Based Deductions
1. Income based deductions relate to earning income from specified activity/
specified place.
2. Profits shall be computed as if the eligible business is the only source of income of
assessee.
3. Income shall be computed after giving effect to provisions of clubbing, set-off and
carry forward.
4. Only those profits which are "derived from" eligible business can be claimed as a
deduction:
» Revenue subsidy (transport, power, interest subsidies etc.) from Govt. towards
reimbursement of cost of production/manufacture or sale of manufactured goods
or Interest on delay collection of sale proceeds- Treated as profit derived and
eligible for deduction.
» Sale of import entitlement, duty drawback, Interest on Fixed deposits with Bank,
Insurance claim – Not treated as profit derived so not eligible for deduction.
5. Where deduction is claimed and allowed u/s 10AA/35AD, no deduction shall be allowed
at anytime under Chapter VIA Part- C in any A.Y.
6. Deduction u/s. 10AA/ chapter VIA Part-C shall NOT be allowed, if NOT claimed in
return. Also, deduction shall be allowed, only if the return is filed upto the due date of
filing of return.
7. Where, during assessment, Assessing Officer makes addition u/s. 40(a), 40A(3), 43B
etc, in respect of eligible business. If such addition is made, same would increase the
"eligible profit" and thus, an eligible assessee would get deduction u/c, VIA-Part C on
same. [Circular No. 37/ 2016 dated 02.11.2016].
8. Income based deduction u/c VI-A Part-C means deduction covered u/s 80-IA to 80RRB.
Deduction u/s 80JJAA practically allowed on expenditure but it is included in income
based deduction Part-C in law so AMT also apply if assessee claimed deduction u/s
80JJAA.
9. Deduction u/s 80TTA and 80TTB covered u/c VI-A Part-CA i.e. other income based
deduction so AMT not apply in case of such deductions.

# Section 80JJAA : Deduction in respect of Employment of new employees

a. Eligible Assessee: Any Assessee engaged in Business & to whom Sec 44AB applies
[i.e. T/O > ₹ 1 cr/10 cr].
b. Amount of deduction : 30% Additional employee cost (deduction allowed for 3 consecutive
years.)
c. Additional employee cost : Total emolument paid or payable to Additional employees
employed during the P.Y.
1. In case of existing business, Additional employee cost shall be NIL, if
# There is no increase in the Total number of employees.
# Emoluments paid otherwise than by A/c payee cheque / draft / NEFT / RTGS or any
other electric mode as may be prescribed. (means paid in CASH).
Example : Suppose total employee as on 31/3/22 were 100 and during P.Y. 2022-23, 15
employees left the job & 15 new employees joined, then there will be no deduction under
this Section, suppose in above example 20 new employees joined then deduction will be
allowed on emolument paid to 5 employees,
2. In case of New Business - Additional employee cost shall be emoluments paid / payable
to employees employed during that P.Y.
d. Additional employees do not include-
- employee whose emoluments > D 25,000 p.m.
- employee employed for less than 240 days in P.y. (in case of manufacture of apparel
or footwear or leather products then 150 days)
- employee does not participate in RPF.
- employee for whom the entire contribution is paid by Government under Employees'
Pension scheme notified in accordance with the provision of the Employees Provident
funds & Miscellaneous Provision Act, 1952.
Note–1 If an employee is employed during the previous year for less than 240 days or 150 days,
as the case may be, but is employed for a period of 240 days or 150 days, as the case may
be, in the immediately succeeding year, he shall be deemed to have been employed in the
succeeding year. Accordingly, the employer would be entitled to deduction of 30% of
additional employee cost of such employees in the succeeding year.
Note–2 Deduction under this section allowed only if BOA is audited of assessee and audit report
should be submit upto date given u/s 44AB.

# Section 80QQB: Royalty from Books of literacy, artistic, scientific nature

a. Eligible Assessee: Resident individual
b. Amount of deduction: ₹
(i) Eligible Royalty received xx
(ii) D 300000 xx
(whichever is lower)
Eligible Royalty lump sum royalty - Amt recd as Royalty
Not lump sum - up to 15% of the value of Books sold.
# Section 80 RRB : Royalty from Patents
a. Eligible Assessee: Resident individual
b. Amount of deduction: ₹
(¡) Royalty received xx
(ii) Max D 300,000 xx
whichever is lower
c. Notes: If Royalty is earned outside India, then deduction is allowed only if such
royalty amount is brought in India in convertible foreign exchange within 6 months
from the end of the P.Y. or time allowed by RBI [For see 80QQB & 80RRB].
# Section 80TTA: Interest on Savings Account.

b. Amount of deduction : ₹
(i) Interest amount xx
(ii) D10,000 xx
whichever is lower
c. Savings account with Banking Company, Co-op Banks or Post office.
Note : Deduction under this section would, however, not be available to a resident
senior citizen eligible for deduction under section 80TTB
# Section 80TTB: Deduction in respect of interest on deposits in case of Senior

Citizens
a. Eligible Assessee : Resident Senior Citizen whose GTI includes interest on Deposit
with Bank, Co op Bank or post office

b. Amount of Deduction ₹
(i) Interest Amount xx
(ii) D50,000 xx
whichever is lower
Note for 80TTA & 80TTB : Where interest income is derived from any saving
account or deposit held by, or on behalf of, a firm, an AOP or a BOI, the partner
of the firm or member of AOP/BOI would not be allowed deduction in respect of
such income while computing their total income
# Section 80JJA: Income from Collecting and Processing Bio-degradable Waste

a. Eligible Assessee: All Assessee
b. Eligible income: - Profit or gains derived from the business of collecting and processing or
treating of bio-degradable waste for any of the following activity:
i. Generating power;
ii. Producing bio-fertilizers, bio-pesticides, or other biological agents;
iii. Producing bio-gas;
iv. Making pallets or briquettes for fuel;
V. Organic manure.
c. Quantum of Deduction: 100% of income for 5 consecutive A.Y. starting from the year in
which business is commenced.
# Section 80LA: Offshore Banking Unit (OBU)/ International Financial Services Centre
(IFSC)
a. Eligible Assessee:
i. Scheduled bank or Foreign bank having an OBU in SEZ or
ii. Unit of IFSC
"OBU” means a branch of a bank located in a SEZ and which has obtained required
permission under the Banking Regulation Act.
b. Eligible income: Any income:

i. From any OBU in a SEZ,

ii. From any unit of IFSC

iii. From the transfer of an aircraft, or ship which was leased by a unit of IFSC & such unit
has commenced operation upto 31/03/24.
iv. From Banking business with
- undertaking located in a SEZ or
- any undertaking which develops, develops and operates or operates and maintains a
SEZ;
c. Quantum of deduction :
Part -A for scheduled bank or foreign bank having OBU in SEZ
i. 100% of such income for first 5 A.Y. (beginning with year when permission under SEBI
Act/ Banking Regulation Act.
ii. 50 % of such income for the next 5 A.Y.
Part: B – For Unit of IFSC

100% of such income for any 10 consecutive A.Y.'s at the option of the assessee, out of
15 years, beginning with the year in which the permission under SEBI Act/ Banking
Regulation Act/ IFSC Authority Act, 2019.
d. Additional conditions: -
i. Certificate of CA in Form no. 10CCF shall be filed with return of income.
ii. Copy of the permission u/s 23 (1) of the Banking Regulation Act or IFSC Authority Act,
2019. in case of OBU shall be filed with return of income.
# Sec 80IAC : Deductions for New Start ups

a. Eligible assessee: company or LLP engaged in a business carried out by an eligible start-
up engaged in Innovation, development or improvement of products or processes or
services or a scalable business model with a high potential of employment generation or
wealth creation
Company / LLP should be incorporated during 1/4/16 to 31/3/2023 & T/O should be
upto ₹100 cr. in P.Y. for which deduction is claimed.
Assessee should hold certificate of eligible business from IMBC (Inter - Ministerial
board of certification).

b. Amt of deduction : 100% of profit derived by startup for any three consecutive A.Y.'s
out of 10 years beginning from the year is which start up is incorporated.
c. Conditions:
i. It should not be formed by split up or reconstruction of existing business.
ii. P & M should be New.
exception : - 20% can be second hand.
- Imported second hand P&M is treated as New only.
d. Accounts should be audited by CA.
# Sec 80IBA: Developing and building housing projects

a. Eligible assessee: All Assessee
b. Amount of Deduction : 100% of Profit of housing project or Rental housing project.
c. Conditions: Project shall be: -
(a) Approved by competent authority after 01.06.2016 upto 31.03.2022.
(b) Project shall be completed within 5 years from the date of approval.
(c) Carpet Area of shops and other commercial establishments is not more than 3% of
aggregate Carpet Area.
d. Conditions relating to size of plot of land, residential units etc.
Location of Project Plot size of Project Carpet area of each % of floor area ratio
unit to be utilised by the
project
Chennai, Delhi, Min. 1000 sq. mtr. Max. 30 sq. mtr. Min. 90%
Kolkata or Mumbai
Other Place Min. 2000 sq. mtr. Max. 60 sq. mtr. Min. 80%
(e) where a residential unit in the housing project is allotted to an individual, no other
residential units shall be allotted to that individual/ his spouse/ minor children.
(f) Assessee maintains separate books of account in respect of this project.
(g) Project shall not be executed as a mere works contractor.
(h) If project is not completed in specified period, the deduction claimed in earlier years will
be deemed to be income of year in which time limit expires.

Additional Conditions if housing project approved on or after 01/09/2019.

a. SDV of residential unit should not me more than ₹ 45 lakhs.
b. Conditions relating to size of plot of land, residential units etc.
Location of Project Plot size of Carpet area of % of floor area
Project each unit ratio to be utilised
by the project
Bengaluru, Chennai, Delhi NCR Min. 1000 sq. mtr. Max. 60 sq. mtr. Min. 90%
(include Noida, Ghaziabad,
Gurugram, Faridabad),
Hyderabad, Kolkata or Mumbai
(include metropolitan region)
Other Place Min. 2000 sq. mtr. Max. 90 sq. mtr. Min. 80%
From 01/04/22, in this section “Rental house project” also included, it means a project
which is notified by the CG on or before the 31/03/22 and fulfils such conditions as may
be specified in the said notification.
# Sec 80PA: Deduction for Producer Companies

a) Eligible assessee: Farm producer companies (FPC) engaged in the business of;
» Marketing of agricultural produce grown by its members,
» Purchase of agricultural implements, seeds, livestock or other articles for agriculture
or supplying to its members,
» Processing of agricultural produce of its members.
b) Amount of deduction: 100% of Profit.
c) Conditions:
» Total Turnover of FPC shall be less than ₹ 100 crores in any PY.
» Deduction available only from AY19-20 to AY24-25.
# Deduction u/s 80M : Inter corporate dividend Already covered under dividend topic

Table for deductions u/s 80-IA to 80-IE

Section Eligible Business Commencement Period of Ded % of Ded.
80-IA a. Develop, Operate, 01/04/95 to 01/04/17 For Infra facility 100%
maintain infrastructure of road, bridge,
facility. rail system,
b. Industrial Park 01/04/97 to 31/03/11 highway project,
c. Power Undertaking water supply
» Gen. & dist. 01/04/93 to 31/03/17 project : 10
» Transm. or dist. 01/04/93 to 31/03/17 consecutive AY's
» Renovation & 01/04/04 to 31/03/17 out of first 20
modernisation of AY's.
existing network Others: 10
d. Reconstruction, revival Co. formed before consecutive AY's
of power generating 30/11/05 & begins gen., out of first 15
plant by Indian Co. transm., dist. of power AY's.
before 31/03/11.
80-IAB Development of SEZ SEZ notified from 10 consecutive 100%

1/4/05 to 31/3/17. AY's out of first
15 AY's.
80-IB a. Industrial undertaking 01/04/93 to 31/03/12 10 consecutive 100%
in J&K AY's (12 years in
case of Co. Op.
society)
b. Commercial production Mineral oil - 01/04/97 7 consecutive 100%
of mineral oil/ natural to 31/03/17 AY's.
gas Natural Gas- 01/04/09
to 31/03/17
c. Process, Preserve, packing Meat or meat products 10 consecutive 100%
of fruits, vegetables, or poultry or marine or AY's.[100% first /25%
meat, poultry, marine dairy products – on or 5 AY's, 25% for
dairy or handle, storage, after 01/4/09 balance (30% in
transport of food grains. Other on or after 1/4/01. case of Company)]

80-IC Manufacturing undertaking 01/04/03 to 31/03/12 10 consecutive 100%

in Himachal Pradesh & AY's. [100% first /25%
Uttaranchal 5 AY's, 25% for
balance (30%-
Company)]
80-IE Manufacturing Undertaking 01/04/07 to 31/03/17 10 consecutive 100%
in North Eastern States AY's.
Chetak Enterprises Pvt. Ltd. [2020](SC)

Firm entered into an agreement with the SG for construction of road and collection of
toll tax (in agreement it's mentioned that after conversion of firm into company
agreement will be change in name of company). The construction of road was completed
by firm on 27/03/2000 & and the same was inaugurated on 01/04/2000. The firm was
converted into a Pvt. Ltd. company on 28/03/2000. Intimation was given to the P.W.D. of
SG, they cancelled the registration of the firm and granted a fresh registration code to
the company. AO declined the claim of deduction u/s 80-IA on the ground that infra
business is carried on by Firm & not company. As 80-IA(4) required that business should
be carried on by Indian Company.
SC noted that company's MOA states that its main object was to acquire as a going
concern, and continue the business carried on by the firm. The assessee qualified for the
deduction u/s 80-IA being an enterprise carrying on the stated business and owned by a
company registered in India on the basis of the agreement executed with the SG to
which the company has succeeded in law after conversion of the firm into a company.
Container Corporation of India Limited [2018](SC)

Inland Container Depot shall be treated as infrastructure facility, for profits derived
therefrom to be eligible for deduction u/s 80-IA, considering the nature of work such as
custom clearance carried out at inland container depots, it can be considered as an inland
port within the meaning of sec 80-IA(4).

Swarnagiri Wire Insulations Pvt. Ltd. (2012) (Kar.)

Assessee can set-off Losses of eligible unit against profits of non-eligible units. However,
once set-off is done, deduction to such extent should not be claimed in the subsequent
years.
Example: X Ltd., having two units, Unit A and Unit B. If Unit A engaged in eligible business
has a profit of ₹100 lacs in A.Y.2021-22, before claiming depreciation of ₹120 lacs and Unit
B engaged in non-eligible business has a profit of ₹70 lacs, then, as per the above decision,
the loss of ₹20 lacs (representing balance depreciation not set-off) pertaining to Unit A
can be set-off against profit of ₹70 lacs of Unit B. Therefore, the net profit of ₹ 50 lacs
would be taxable in the A.Y.21-22. If in the next year, i.e. A.Y. 22-23, the net profits of
Unit A and Unit B are ₹200 lacs and ₹ 80 lacs, respectively, then the eligible deduction u/s
80-IA for that year would be ₹180 lacs (i.e., ₹200 lacs minus ₹20 lacs, being loss
(representing balance depreciation) set-off in the A.Y.21-22 against other income).
Meghalaya Steels Ltd (2016)(SC)
Transport subsidy, interest subsidy and power subsidy from Govt. were revenue receipts
which were reimbursed to the assessee for elements of cost relating to manufacture or
sale of their products.
Therefore, there is a direct nexus between profits of the business, and reimbursement of
such subsidies. The subsidies were only in order to reimburse, wholly or partially, costs
actually incurred by the assessee in the manufacturing and selling of its products.
Accordingly, these subsidies qualify for deduction u/s 80-IB.
Orchev Pharma P. Ltd. (2013)(SC)

Duty Drawback/DEPB receipts cannot be said to be profits derived from the business of
industrial undertaking for the purpose of computation of deduction u/s 80-IB.
Nestor Pharmaceuticals Ltd. / Sidwal Refrigerations Ind Ltd. (2010)(Delhi)

With mere trial production, the manufacture for the purpose of marketing the goods had
not started which starts only with commercial production, namely, when the final product to
the satisfaction of the manufacturer has been brought into existence and is fit for
marketing.
Further the 5 year period has to be reckoned from FY in which commercial production
commenced.

Praveen Soni (2011) (Delhi)

Sec 80-IB nowhere stipulated a condition that the claim for deduction under this sec. had
to be made from the first year of qualification of deduction failing which the claim will not
be allowed in the remaining years of eligibility. It means suppose assessee failed to claim
deduction for initial 2 years then for remaining 8 years he can claim this deduction.
Reliance Energy Ltd. (2022)(SC)
Does profit-linked deduction u/s VI-A have to be restricted to income computed under the
head PGBP ?
The issue arises in a case where loss from non-eligible business is being set-off against
profits from eligible business, which results in income under the head “PGBP” being lower
than the profits from eligible business. In such a case, deduction u/s VI-A in respect of
profits from eligible business would not be restricted to income computed under the head
“PGBP”. The same would however be restricted to GTI as per the requirement in section
80A(2).
For example, let us take the case of XYZ Ltd., an Indian
company, for P.Y.2022-23. The following are the particulars relating to the said company –
(i) Profits from eligible business -₹90 lakhs,
(ii) Loss from non-eligible business -₹20 lakhs (which is set-off against profits from
eligible business)
(iii) Income under the head “PGBP” – ₹70 lakhs [₹90 lakhs – ₹20 lakhs]
(iv) Gross total income – ₹85 lakhs
In this case, assuming deduction u/s 80-IA is the only deduction U/C VI-A for XYZ Ltd.,
the same would not be restricted to ₹70 lakhs (being the income under the head “PGBP”).
However, the same would be restricted to ₹85 lakhs, being the gross total income as per
the requirement in section 80A(2).
If, in the above example, the GTI was ₹95 lakhs (instead of ₹85 lakhs), then, the entire
profits of ₹90 lakhs from eligible business would be allowed as deduction u/s 80-IA.
This is the crux of the above Supreme Court ruling.

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26 APPEAL & REVISION
" Appeal” means lodging a complaint, it can be lodged only with higher authority.
# Appellate Hierarchy
a) CIT(A) within 30 days
b) ITAT within 60 days
c) HC within 120 days (only question of law)
d) SC within 90 days
# Appeal to CIT(A) [Sec 246A to 251)

1. Can be filed only by Assessee (First appeal) within 30 days from the date of receipt
of demand notice (in case of assessment/penalty) or date of receipt order/intimation
(in any other case). However, delay can be condoned by CIT(A).
2. It can be filed in prescribed form i.e. Form No. 35 along with the Statement of
facts, Grounds of appeal, copy of order / intimation of A.O., filing fees. This entire
set called as Memorandum of appeal.
3. The CIT(A) shall give the judgment (pass order) within 1 year from the end of the
year in which appeal is filed, if possible [ Advisory time limit].
4. Following orders that can be appealed against CIT(A):
a. Order passed by A.O. u/s 143(3), 144, 147, 153A.(Assessment Order)
b. Intimation u/s 143(1) or 200A or 206CB.
c. Rectification order u/s 154.
d. Any order of AO u/s 92CD, 155, 163, 170, 171, 201, 206C(6A), 237,239A, 221,
271A, 271AAB, 272AA, 272BB, 271B, 271C, 271CA, 271D, 271E, 272A, 272AA,
275(1A), Penalty u/c XXI.
5. An appeal with CIT(A) will be entertained only if –
» Assessee has paid the tax on the amount of income returned by him.
» If no ROI is filed, then assessee should have paid the tax, which is equal to the
amount of advance tax payable by him. (However, on an application made by
assessee, CIT(A) may exempt the assessee from the payment of this amount and
admit his appeal without payment of tax.)
# Appeal To ITAT [ Sec 252 to 255]

1. A case at ITAT level appeal shall be heard by “Bench" ( Panel of Judges ) Normally

APPEAL & REVISION Chapter 26
heard by 2 members bench (Division bench), one judicial member & other Accountant
member. However, if total income of assessee is up to D50 lacs then appeal can be heard
by single member. Decision at ITAT level shall be taken according to the opinion of the
majority. However, if the members differ on any point, and the members are equally
divided on that point, then such point shall be referred to the president of ITAT who
shall then refer the case to be heard by another member and then decision shall be
taken according to the opinion of the majority.
2. Appeal to ITAT has to be filed within 60 days from the date of receipt of a copy of order
sought to be appealed against.
3. It shall be filed in prescribed from i.e. form No. 36 along with the statement of facts,
ground of appeal, copy of order, filing fees, everything in Triplicate.
4. ITAT shall give Judgment within 4 years from the end of the year in which appeal was
received by it, if possible.
5. Following order can be appealed against ITAT:
a. Order of CIT(A).
b. Order of A.0. passed on the basis of direction of DRP u/s 144C.
c. Revision order u/s 263.
d. Order of A.O. Passed with approval of CIT/PCIT u/s 144BA.
e. Any other order of CIT / CCIT / DIT / DGIT / PCFI/ PCCIT/PDIT / PDGIT.
6. Stay of demand:
While filing appeal to ITAT, the assessee can apply for stay of demand. ITAT may
after considering the merits of application can grant stay of demand for 180 days if
other sum payable under the provisions of the Act or furnishes security of equal amount.
If ITAT fails to give judgment within 180 days & delay is not attributed to the assessee
then ITAT can extend stay period but maximum period (original + extended) should not
be more than 365 days.
Pepsi Foods Ltd (2021) (SC)

The SC observed that the ITAT, wherever possible, has to hear and decide appeals within a
period of 4 years from the end of the FY in which such appeal is filed. It is only when a stay is
granted by the ITAT, the appeal is required to be disposed of within 365 days. So far as the
disposal of an appeal by the ITAT is concerned, this is a directory provision.
However, the condition of automatic vacation of stay on expiry of the period becomes
mandatory so far as the assessee is concerned.

Chapter 26 APPEAL & REVISION
The SC also pointed out that the said proviso would result in the automatic vacation of a stay upon
the expiry of 365 days, even if the ITAT could not take up the appeal in time for no fault of the
assessee. Further, vacation of stay in favour of the Depart. would ensue even if the Depart. is
itself responsible for the delay in hearing the appeal. In this sense, the proviso is manifestly
arbitrary being a provision which is capricious, irrational and disproportionate so far as the
assessee is concerned.
Accordingly, the SC held that the third proviso to section 254(2A) has to be read without the
word “even” and the word “not” after the words “delay in disposing of the appeal”. Thus, any order
of stay shall stand vacated after the expiry of the period or periods mentioned in the section,
only if the delay in disposing of the appeal is attributable to the assessee.
7. Where any party filed an appeal before the ITAT, the other party is allowed to file
cross objections. This cross objections shall be filed in Form 36A within 30 days of
receipt of notice from ITAT that the first mentioned party has filed an appeal. No fees
applicable for filing cross objections.
8. The CG may make and notify scheme for the purpose of Faceless Appeal at ITAT level till
st
31 March, 2024.
# Difference between Power of CIT (A) & ITAT CIT (A) ITAT
1. Power to enhance the Assessment yes No
2. Power to reduce / confirm the Assessment yes yes
3. Power to cancelled the assessment Yes Yes
4. Power to set aside and refer back to A.O.
for fresh assessment No yes
5. Power to condone delay yes yes
6. Power to make inquiries yes yes
7. Power to rectification of mistake yes-sec.154 yes-sec.254
8. Power to review No No
9. Power to admit additional grounds of appeal yes yes
10. Power to admit additional evidence yes (Note 1) yes (Note 2)
11. Power to grant stay yes yes
12. Power to Award cost (in case of frivolous Appeal) No yes
13. Power to Reject appeal. yes yes
# Sec 154:
CIT(A) is covered under income tax Authority, it can rectify its order u/s 154
(refer sec 154).

# Sec 254: Rectification of Mistake by ITAT

ITAT can rectify its order if there is mistake apparent on record within 6 months from
the end of the month which original order was passed. It can be rectified on own motion or
on an application made by Assessee or A.O.
Note: 1. CIT (A) can admit additional evidence in following cases:
a. Assessee produced evidence but A.O rejected.
b. A.O. completed the assessment without giving opportunity to produce such
evidence.
c. Where A.O. demanded such evidence but assessee cannot/could not produce such
evidence for sufficient cause.
d. Where A.O. didn't demand such evidence & evidence was relevant but assessee
could not produce for sufficient cause.
Note: 2. ITAT can admit additional evidence furnished by the appellant assessee, which were
not furnished by him earlier:
a. In a case, where ITAT is satisfied that the Income Tax Authorities have decided the
case, without giving sufficient opportunity to the assessee to produce relevant
evidence; or
b. In a case, where ITAT requires production of additional evidences / documents on its
own to enable it to pass its order.
# Appeal Filing Fees

S.No. Particular CIT(A) D ITAT D
1. Assessed Income is upto D 1,00,000 250 500
2. Assessed income more than D 1,00,000 upto D2,00,000 500 1500
3. Assessed income more than D2,00,000 1,000 1% of Assessed
income
(Max 10,000)
4. In any other case 250 500
5. Appeal filed by department to ITAT - No Fees
6. Filing of Memorandum of Cross objections to ITAT - No Fees
7. Application of stay of demand to ITAT - 500

Constitution of ITAT
President » Sitting or retired judge of HC who completed service for at
least 7 years;
» One of the Vise Presidents of ITAT.
Vise President » One or more members of the ITAT to be the Vice-President
or Vice- Presidents.
Judicial Member » District judge and Add. district judge for at least 10 years;
» Member of the Indian Legal Service and has held a post of
Add. Secretary or any equivalent or higher post for 2 years;
» Advocate for 25 years.
Accountant » CA in practice for atleast 25 years;
Member » IRS officer, Group A and must have held the post of PCIT or
any equivalent or higher post for at least 2 years and has
performed judicial, quasi-judicial or adjudicating function for
3 years.
# Appeal to H.C. [section 260A & 260B]
1. Appeals to H.C. can be filed within 120 days only if there is Question of Law.
2. Appeal form, fees & procedure governed by Code of Civil Procedure, 1908.
3. HC have power to review its order (S.C. case law)
# Appeal to S.C. [section 261 & 262]

1. Appeal against HC order 2. Within 90 days.
3. SC have power to review its order. 4. Form, fees & procedure - Code
of Civil Procedure, 1908.
# Sec 263: Revision of orders prejudicial to the interest of revenue

1. Under this section, CIT / PCIT / CCIT/ PCCIT can call for and examine the "Records” of
any proceeding in which order has been passed by an A.O. /TPO which is :
- Erroneous
- Prejudicial to the interest of Revenue.
then CIT / PCIT / CCIT/ PCCIT can pass any revisional order under this section, as he
deems fit.

2. CIT / PCIT / CCIT/ PCCIT can enhance, modify or cancel the assessment & direct for
fresh assessment or order modifying the order u/s 92CA or an order cancelling the order
u/s 92CA and directing a fresh order u/s 92CA.
3. An opportunity of being heard must be given to assessee before any such revisional order.
4. The time limit to pass any such order by CIT / PCIT / CCIT/ PCCIT is 2 years from the end
of the financial year in which original order of A.O. / TPO was passed.
5. Order passed uls 263 can be appeared against at ITAT level.
6. CIT / PCIT / CCIT/ PCCIT cannot revise matter involving appeal, means matters which are
decided or considered in any appeal cannot be revised (Partial merger).
However, CIT / PCIT / CCIT/ PCCIT can revise other matters of same order.
7. The term "Record" means everything which available on record at the time of examination
of the file by CIT / PCIT / CCIT/ PCCIT & not only those things which were available on
record at the time of passing of the order by A.O./TPO.
Example : A Report of a valuation officer, which was not available earlier at the time of
passing of the order of A.O. but is now available at time of examination of the file by
CIT / PCIT / CCIT/ PCCIT.
8. Order passed by A.O./TPO shall be deemed to erroneous in so far as it prejudicial to the
interest of the revenue, if in the opinion of the CIT / PCIT / CCIT/ PCCIT.
(i) Order passed without making inquiries or verification which should have been made.
(ii) The order is passed allowing any relief without inquiring into the claim.
(iii) The order has not been made in accordance with any order direction or instruction
issued by the CBDT u/s 119.
(iv) The Order has not been passed in accordance with any decision which is Prejudicial to
the assesse, rendered by the jurisdictional HC or sc in the case of the assesse or any
other person.
# Sec 264 : Revision of other order.

1. CIT / PCIT / CCIT/ PCCIT may either on his own motion or on an application made by
assessee, call & examine the records of any proceeding, in which an order other than
referred u/s 263 has been passed by A.O. & CIT / PCIT / CCIT/ PCCIT may pass such
revisional order u/s 264 as he deems fit.

2. The CIT / PCIT / CCIT/ PCCIT can revise the order on his own motion within 1 year from
date of passing of the order by A.O.
3. If assessee applies for revision, then he can make an application within 1 year from the
date of receiving a copy of order by Assessee.
4. If assessee has asked for revision the CIT / PCIT/ CCIT/ PCCIT. has to pass an order
within one year from the end of F.Y. in which application was made by assessee
5. Order which is prejudicial to the interest of assessee cannot be passed under this section.
6. Appeal cannot be filed against order u/s 264.
7. Assessee can apply for revision u/s 264 only if:-
-Time limit to file CIT appeal has been expired [ 30 days]
OR
- Assessee waived his right of appeal in writing.
Assessee can either prefer an appeal or can apply to CIT / PCIT / CCIT/ PCCIT for
revision u/s 264. Both the remedies cannot be available simultaneously, even if they
pertains to different matters. [Total merger].
# Points To Remember
1. If the order of A.O. has subject matter of appeal then such order can be revised u/s 263
but cannot be revised u/s 264.
2. Revisional order u/s 263 can be appealed to ITAT but order u/s 264 cannot be appeal.
# Sec 264A: Faceless Revision of Orders

The CG may make and notify scheme for the purpose of Faceless Revision of orders u/s
263 & 264.
# Sec 264B: Faceless Effect of Orders

The CG may make and notify scheme for the purpose of Faceless effect or orders passed
u/s 250, 254, 260, 262, 263, 264.
# Other Concepts
# Sec 158A : Special provisions for avoiding repetitive appeals
In case of an assessee, for an earlier assessment year, if appeal is pending before:

(i) High court (H.C.) (OR)

(ii) supreme court (SC)
on a particular matter & for an identical point.
In the case of same assessee, but for subsequent year, if the same matter is pending
before :
(i) Any IT Authority (A.O.) (OR)
(ii) CIT (A) (OR)
(iii) ITAT
then assessee, rather than filing the appeal once again he can furnish a declaration in form
No. 8 to A.O. / CIT (A) / ITAT, requesting them that if they agree to apply decision of HC /
SC in current case than the Assessee shall not appeal.
The A.O. / CIT (A) /ITAT may admit or reject the application of Assessee.
# Sec 158AB: Procedure where an identical question of law is pending before HC or SC

In case of assessee or any other person, if question of law for any AY is pending before
jurisdictional HC or SC (first case) against the order of ITAT or HC which was in the
favour of assessee/other person (order was against dept.) and in case of assessee on same
question of law is decided by CIT(A) or ITAT (second case) in the favour of assessee, then
instead of filing appeal to ITAT/HC (by dept.), the collegium may decide and inform the
CIT/PCIT not to file any appeal, at this stage, to the ITAT or HC.
CIT/PCIT shall, on receipt of a communication from the collegium, direct the AO to make
an application to ITAT or HC in form 8A within 120 days from the date of receipt of
CIT(A) or ITAT order, stating that an appeal on the question of law arising in second case
may be filed when the decision of first case becomes final.
CIT/PCIT shall direct the AO to make an application only if an acceptance is received from
the assessee to the effect that the question of law in the first case is identical and in case
no such acceptance is received, the PCIT or CIT shall file appeal to ITAT/HC.
When the question of law decided by HC/SC (in first case), in the favour of dept. then,
CIT/PCIT may direct the AO to appeal to the ITAT/HC. Appeal to ITAT should be file

within 60 days and HC within 120 days from the date on which order of HC/SC is received
by CIT/PCIT.
“Collegium" means a collegium comprising of two or more CCIT or PCIT or CIT, as may be
specified by the CBDT.
# Sec 268A: Special provision for appeal by Dept

i. This section empowers CBDT to fix monetary limit to regulate appeal by Dept.,in order to
avoid litigation in small cases.
ii. As per current notification, the dept can file appeal only in the Tax effect is more than
following amount: [w.e.f 08/08/2019]
For appeal to ITAT more than 50,00,000
For appeal to HC more than 100,00,000
For appeal to SC more than 2,00,00,000
ii. If Dept. has not filed appeal on a particular issue in case of a particular assessee in a
particular year.
Then it shall not stop the dept from filing appeal on the same issue.
a) in case of same Assessee in another year.
b) in case of another assessee in any year.
iv. The assessee cannot contend that the dept has agreed on a particular issue by not filing
appeal on such issue.
Genpact India Pvt. Ltd. [2019](SC)

Assessee company bought back shares but not paid taxes u/s 115QA. AO passed order u/s
143(3) and charged tax @20% u/s 115QA. Assessee directly filed writ to HC.
SC held that any dispute on the determination of Buy back tax u/s 115QA would fall within
the ambit of "an order against which, the assessee denies his liability to be assessed under
this Act”. Hence, an appeal u/s 246A to CIT(A) against such order passed would also be
maintainable. The company cannot directly file writ.
Pruthvi Brokers & Shareholders (2012) (Bom.)

Assessee can make an additional/new claim before an appellate authority, which was not
claimed by the assessee in the return of income, otherwise than by way of filing a revised
return of income.

Earnest Exports Ltd. (2010) (Bom.)/ Lachman Dass Bhatia Hingwala (P) Ltd. (2011) (Delhi)
ITAT does not have the power to review or re-appreciate the correctness of its earlier
decision u/s 254(2). It only has the power to rectify an apparent mistake. While exercising
the power of rectification u/s 254(2), ITAT can recall its order in entirety if it is satisfied
that prejudice has resulted to the party which is attributable to the ITAT's mistake, error
or omission and the error committed is apparent.
Ritha Sabapathy [2019] (Mad)

The ITAT cannot dismiss an appeal, without deciding the case on its merits, solely on the
ground that the assessee had not appeared on the appointed date of hearing. ITAT should
not shirk its responsibility to decide a case on its merits. Cryptic orders, not touching the
merits of the case, would not give rise to any substantial question of law for consideration by
the High Court under section 260A.
Meghalaya Steels Ltd. (2015) (SC)

High Court bring a court of record has inherent power to review its own order. There is
nothing in Income Tax Act or Constitution of India precluding it from doing the same. So HC
has an inherent power under the Income tax Act, 1961 to review an earlier order passed on
merits.
Sunil Vasudeva & Others v. Sundar Gupta & Others [2019] (SC)
High Court can review its own order, where the grounds
for review were:
(i) discovery of new and important matter or evidence which, after the exercise of due
diligence, was not within knowledge of the petitioner or could not be produced by him;
(ii) mistake or error apparent on the face of the record;
(iii) any other sufficient reason.
A review will, however, not be maintainable in the following cases:
(i) repetition of old and overruled argument;
(ii) minor mistakes of inconsequential import.
A. A. Estate Pvt. Ltd. [2019] (SC)

While deciding an appeal. High Court cannot hear and decide on the case based on the
questions urged by the appellant. The Court is obligated to formulate the substantial
question of law and decide on the case only based on these questions formulated by itself .

Spinacom India (P.) Ltd. [2018] (SC)

Delay in filing an appeal to High Court on the grounds that appellant was seeking an alternate
remedy u/s 254 for rectification of mistakes apparent from record in ITAT order is not
acceptable and shall not be condoned. Appellant should have filed the appeal to HC
mentioning in the memorandum of appeal stating that an application for rectification has
been filed before ITAT which is pending as on date.
Fortaleza Developers (2015)(Bom)

When the order of the CIT(A) is complete and the appeal is pending before the ITAT, the
CIT/PCIT is precluded from invoking sec. 263 for revision of the very same matter decided
by the CIT(A). Accordingly, the High Court held that the order passed by the AO got merged
with the order of the CIT(A). The very same issue cannot be revised by invoking revisionary
jurisdiction u/s 263.

30 DISPUTE RESOLUTION COMMITTEE
( ADDED BY FA-21 W.E.F. 01/04/21 )
# Sec 245MA(1) : Constitution of Dispute Resolution Committee (DRC)

The Central Government shall constitute one or more DRC. The DRC shall resolve disputes
of such persons or class of persons which shall be specified by the Board. The assessee
would have an option to opt for or not opt for the dispute resolution through the DRC.
The dispute should arise from any variation in the specified order for an assessment
year.
# Sec 245MA(2): Power of DRC

The DRC, subject to such conditions as may be prescribed, shall have the following
powers in case of a person whose dispute is resolved:
» to reduce or waive any penalty imposable under the Act; or
» grant immunity from prosecution for any offence punishable under the Act.
# Sec 245MA(2A): Effect of DRC order by AO

Upon receipt of the order of the DRC under this section, the AO shall,—
(a) in a case where the specified order is a draft of the proposed order of assessment
144C(1), pass an order of assessment, reassessment or recomputation; or
(b) in any other case, modify the order of assessment, reassessment or recomputation,
in conformity with the directions contained in the order of the DRC within one month
from the end of the month in which such order is received.
# Specified orders means orders satisfied followings conditions:

» the order including draft order as specified by the CBDT,
» the aggregate amount of variations proposed or made in the said order is upto
₹ 10 lakhs,
» the order is not based on
● search initiated u/s 132 or survey u/s 133A; or
● requisition u/s 132A in the case of assessee or any other person; or
● information received under an DTAA referred to in section 90/90A;
» where return has been filed by the assessee for the AY relevant to such order,
the total income as per such return upto ₹ 50 lakhs.

DISPUTE RESOLUTION COMMITTEE
Chapter 30
( ADDED BY FA-21 W.E.F. 01/04/21 )
# Orders specified by CBDT

“Specified order”, in relation to a dispute u/s 245MA, means:––
(a) a draft order with variation as referred u/s 144C(1);
(b) an intimation u/s 143(1)/200A/206CB;
(c) an order of assessment/reassessment, except an order passed as per directions of
the DRP;
(d) a rectification order u/s 154 having the effect of enhancing the assessment or
reducing the loss; or
(e) an order made u/s 201/206C(6A) deeming a person as an assessee-in-default [the
variation in the specified order relating to default in TDS/TCS would refer to the amount .
on which tax has not been deducted or collected]
# Following persons NOT eligible for resolution
1. In respect of whom an order of detention has been made under Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
2. In respect of whom prosecution has been instituted and has been convicted of any
offence punishable under any of the following Acts:
» Indian Penal Code, 1860
» Unlawful Activities (Prevention) Act, 1967
» Narcotic Drugs and Psychotropic Substances Act, 1985
» Prohibition of Benami Transactions Act, 1988
» Prevention of Money Laundering Act, 2002
» Prevention of Corruption Act, 1988
3. In respect of whom prosecution has been initiated by an IT authority for any offence
punishable under the provisions of the Act or the Indian Penal Code or for the purpose
of enforcement of any civil liability under any law for the time being in force or such
person has been convicted of any such offence consequent to the prosecution initiated
by an IT authority; or
4. Who is notified under section 3 of the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992; or
5. Proceedings under the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 have been initiated for the AY for which resolution of
dispute is sought.

Chapter 30 DISPUTE RESOLUTION COMMITTEE

( ADDED BY FA-21 W.E.F. 01/04/21 )
# Dispute Resolution Committee and E-Dispute Resolution Scheme, 2022 Constitution of DRC
(1) Constitution - CG would constitute a DRC for every region of PCCIT for dispute resolution.
(2) Composition - Each DRC would consist of 3 members, as under:-
(a) 2 members would be retired officers from the IRS(Income-tax), who have held the post of
CIT or any equivalent or higher post for 5 years or more; and
(b) 1 serving officer not below the rank of CIT/PCIT.
(3) Time period - The members would be appointed by the CG for a period of 3 years.
(4) Fee to be paid to member - The CG may fix a sum to be paid as fee to a member, who is
retired officer, on a per case basis, along with a sitting fee, so decided by the CBDT.
(5) Decision of DRC - The decision of the DRC shall be by majority.
(6) Removal of member - The CG may remove any member from the DRC after recording reasons
in writing and after giving an opportunity of being heard.
# Application for resolution of dispute before the DRC
Specified person has to make an application for resolution of dispute before the DRC in form
34BC with fee of ₹1,000.
Time limit for filing application - Such application has to be filed –
Case Time limit
ii In cases where CIT(A) has already been Within such time from the date of constitution
filed and is pending before the CIT (A) of the DRC, as may be specified by the Board
iii in any other case Within one month from the date of receipt of
specified order
# Screening of application by DRC

(i) Examination of application - The DRC has to examine the application. Upon such examination,
where the DRC considers that the application should be rejected, it has to serve a notice calling
upon the assessee to show cause as to why his application should not be rejected, specifying a date
and time for filing a response.
(ii) Provision of opportunity of being heard - The assessee can request for an opportunity of being
heard. DRC has to provide him an opportunity of being heard through video telephony or video
conferencing facility.
(iii) Furnishing response to SCN within the specified date -The assessee has to furnish a response
to the SCN within the specified date and time or such extended time as may be allowed,
to the DRC;

Chapter 30
( ADDED BY FA-21 W.E.F. 01/04/21 )
(iv) Rejection of application by DRC - The DRC may, after considering the response furnished by
the assessee, reject the application or allow the application. Where no response is furnished by
the assessee, the DRC may reject the application [In such a case, the assesee may file an appeal
to the CIT (A). The period taken by the DRC in deciding on the admission has to be excluded
from the period available to file such appeal].
(v) Communication of decision of DRC to assessee - The decision of the DRC that the application
for dispute resolution should be allowed or rejected, has to be communicated to the assessee on
his registered e-mail;
(vi) Submission of proof of withdrawal of appeal/application before DRP - Within 30 days of receipt
of the communication that the application is admitted, the assessee is required to submit a
proof of withdrawal of CIT(A) or withdrawal of application before the Dispute Resolution panel,
if any, to the DRC or convey that there is no aforesaid proceeding pending in his case. If the
assessee fails to do so, the DRC may reject the application.
# Procedure to be followed by the DRC

(i) Calling for records for further examination - Upon admission of the application, the DRC may
call for records from the IT authority and further examine, as it may deem fit, with respect to
the issues covered in the application;
(ii) Seeking report from Assessing Officer - The DRC may seek a report from the AO on the issues
covered in the application or on any other issue arising during the course of proceedings;
(iii) Calling for further information - The DRC may before disposing off the application, call for further
information from the assessee or any other person by sending an email to his registered email;
(iv) Submission of response within specified time - The assessee has to electronically submit its
response to the DRC, within the time specified or such time as may be extended by the DRC;
(v) Decision of DRC - After considering the material available on record, including any further
information or evidence received from the assessee, IT authority or any other person, the DRC
may decide —
(a) to make modifications to the variations in specified order, which are not prejudicial to the
interest of the assessee, and decide for waiver of penalty and immunity from prosecution,
and pass an order of resolution, accordingly; or
(b) to not make modifications to the variations in the specified order. However, the DRC may
decide to waive penalty and grant immunity from prosecution, and pass an order of

Chapter 30 DISPUTE RESOLUTION COMMITTEE

( ADDED BY FA-21 W.E.F. 01/04/21 )
resolution accordingly. Such an order will be treated as an order not prejudicial to the
interest of the assessee; or
(c) to not make any modification to the specified order, and pass an order disposing off
the application. Such an order will be treated as an order 'not prejudicial to the
interest of the assessee',
within 6 months from the end of the month in which application for dispute resolution is
admitted by the DRC.
(vi) Serving copy of order to AO and assessee - The DRC has to serve a copy of the order of
resolution or order disposing off the application, as the case may be, upon the assessee and
also the AO for giving effect to the same, if so required;
(vii) No appeal or reference will lie against the modified order - Where the specified order is an
order of the eligible assessee u/s 144C(1), the assessee will not be eligible to file any
reference to the DRP or an appeal to the CIT(A) against the modified order.
(viii) Serving copy of modified order to assessee – The AO has to serve a copy of the modified
order along with notice of demand upon the assessee specifying a date for making payment
of demand. No appeal or revision would lie against the modified order.
(ix) Assessee to furnish proof of payment of demand -The assessee has to furnish proof of
payment of the said demand to the DRC and also to the AO.
(x) Grant of immunity from prosecution and waiver of penalty – The DRC shall, on receipt of
confirmation of payment of demand, by an order in writing, grant immunity from prosecution
and waiver of penalty if applicable.
# Termination of dispute resolution proceedings

The DRC may, at any stage of the dispute resolution proceedings, if considered necessary,
for reasons to be recorded in writing and after giving an opportunity of being heard to the
assessee, decide to terminate the dispute resolution proceedings if, -
(i) the assessee fails to cooperate during the course of dispute resolution proceedings; or
(ii) the assessee fails to respond to, or submit any information in response to, a notice
issued \to him; or
(iii) the DRC is satisfied that the assessee has concealed any particular material to the
proceedings or had given false evidence.
(iv) the assessee fails to pay the demand as required in notice of demand.

Chapter 30
( ADDED BY FA-21 W.E.F. 01/04/21 )
Where the dispute resolution proceedings are terminated, the DRC has to intimate the IT
authority for taking necessary action as per the provisions of the Act.
Power to reduce or waive penalty or immunity from prosecution or both under the IT Act, 1961
Conditions for grant of waiver of penalty or immunity from prosecution - The DRC, upon
receipt of confirmation from the assessee of payment of demand, should grant to the person who
made the application for dispute resolution, waiver of penalty imposable or immunity from
prosecution or both, in respect of the order which is the subject matter of resolution, if it is
satisfied that such person has,
(a) paid the tax due on the returned income in full if available; and
(b) co-operated with the DRC in the proceedings before it.
Reasons to be recorded in writing - The DRC would grant such waiver of penalty or immunity
from prosecution or both, subject to such conditions as it may think fit to impose for the reasons to
be recorded in writing.
No immunity if prosecution proceedings were initiated before application - No immunity would,
however, be granted by the DRC in a case where the proceedings for the prosecution for an
offence have been initiated before the date of receipt of the application for dispute resolution
from the assessee fulfilling the specified conditions.
Withdrawal of immunity - An immunity granted to a person would stand withdrawn, if such
person fails to comply with any of the conditions subject to which the immunity was granted. On
such withdrawal, the provisions of the Income-tax Act, 1961 would apply as if such immunity or
waiver had never been granted.

31 CASH LOAN / DEPOSIT / ADVANCES
# Section 269SS: Mode of taking / accepting loans or deposit or advance

Any person should take / accept
a. loan / deposit or
b. Advance in relation to immovable property.
only by Account payee cheque, D.D., online transfer through bank account or any other
electronic mode as may be prescribed, if the amount is D 20,000 or more.
Note : On the date of taking or accepting such loan or deposit or advance in relation to
immovable property, any loan or deposit or advance in relation to immovable property
taken or accepted earlier by such person and unpaid on such date shall also be
consider for D20,000 limits.
Exception : Above section is not applicable if loan/advance/deposit is taken from or by

(¡) Govt (ii) Banks, co-op Bank, Post Office, (iii) Govt. Company (iv) Person having only
Agriculture Income (v) Corp. established by Central, State, Provincial Act. (vi) Any
other as notified by CBDT.
Penalty u/s 271 D: If assessee fails to follow see 269SS, then penalty Shall be levied @
100% of such loan / Deposit / advance. It shall be imposed by J.C.
Example: 1. Raj accepted D12,000 as a loan and D13,000 as a deposit from Hari on
16/12/22 by way of bearer cheque –
Yes violation of Sec 269SS penalty u/s 271D shall be attract on ₹ 25,000.
Example: 2 Raj accepted loan from Hari as follow –
On 26/07/22 D12,000 by way of cash
On 10/12/22 D15,000 by way of bearer cheque
Yes, violation of Sec 269SS penalty u/s 271D shall be attract on ₹ 27,000.
On 26/07/22 D15,000 by way of account payee cheque
On 10/12/22 D15,000 by way of Cash
Yes, violation of Sec 269SS penalty u/s 271D shall be attract on ₹ 15,000.
On 26/07/22 D15,000 by Cash
On 10/12/22 D15,000 by account payee cheque
No violation of Sec 269SS penalty u/s 271D not applicable.

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CASH LOAN / DEPOSIT / ADVANCES Chapter 31
# Section 269ST : Mode of Undertaking Transactions

Any person should not receive an amount of D2,00,000 or more except by account payee
cheque or account payee bank draft or by use of electronic clearing system through a bank
account or any other electronic mode as may be prescribed,
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person.
Note - The CBDT clarified that in respect of receipt in the nature of repayment of loan
by Non-banking Finance Companies(NBFCs) or Housing Finance Companies (HFCs),
the receipt of one instalment of loan repayment in respect of a loan shall constitute
a 'single transaction' as specified in clause (b) of section 269ST and all the
instalments paid for a loan shall not be aggregated for the purposes of determining
applicability of the provisions section 269ST.
# Non-applicability of the above requirement in certain cases

(1) Any receipt by Government, any banking company, post office savings bank or co
operative bank
(2) Transactions of the nature referred to in section 269SS.
(3) Such other person notified by CG.
Notification No. 28 & 57/2017
(a) Cash withdrawal from Bank, Co. op Bank, Post office.
(b) Receipts by bank correspondent by Bank or Co. op. Bank.
(c) Receipts by ATM Operator.
(d) Receipt from an agent by an issuer of pre-paid payment instruments.
(e) Receipt by a credit cards company against bills raised in respect of one or more
credit cards.
(f) Receipt of Awards from Govt. exempt u/s 10(17A).
# Penalty u/s 271DA : If assessee fails to follow see 269ST, then penalty shall be levied
@ 100% of such receipt. It shall be imposed by J.C.
However, no penalty shall be levied if that person proves that there were good & sufficient
reasons for the contravention.

Chapter 31 CASH LOAN / DEPOSIT / ADVANCES
Example:
1. Mr Hari buys a gold chain worth ₹ 2 Lakh and pays the amount by cash to Mr Rahul
on a single day in 4 equal instalments of ₹ 50,000 each. As Mr Rahul accepted cash
worth ₹2 Lakh from a single person and in a single day, section 269ST is
applicable in this case. Mr Rahul has to pay a penalty of ₹ 2 Lakh.
2. Mr Kejriwal goes through a medical surgery and the hospital charges him a bill of
₹ 4 Lakh. Kejriwal clears the bill in 4 instalments of ₹ 1 Lakh each on four different
dates. Here, the cash receipts got by hospital are less than ₹ 2 Lakh
and have been received on different dates. Whether this transaction violates
section 269ST? – Yes. Hospital has to pay the penalty. Because, they received the
payments with respect to single bill / transaction. So, splitting of payments over
several days is prohibited
3. If a person has done work of different nature in a marriage of his customer, say,
given garden on rent for marriage reception, given tent house services, done
decoration and has issued three different bills of ₹ 1.50 lakhs each for each
separate service (total ₹ 4.50 lakhs), then he can receive only less than ₹ 2 lakhs from
his customer in cash etc. mode in respect of all the 3 bills / transactions. If entire
₹4.50 lakhs are taken in cash etc. then even though the limit of per transaction and
also limit per day per entity is not crossed, but since all the transactions are related
with the single occasion of a marriage, then the total limit of less than ₹ 2 Lacks
will be a consolidated limit for all the related transactions.
# Section 269T : Repayment of loan/ Deposit / advance.

Any person should repay :
a. loan or deposit (together with interest )
b. Advance in relation to immovable property,
only by Account payee cheque, D.D, online transfer through bank account or any other
electronic mode as may be prescribed, if the amount is D 20,000 or more.
Note: On the date of repayment of such loan or deposit or advance in relation to
immovable property, any loan or deposit or advance in relation to immovable property
outstanding on such date shall also be consider for D 20,000 limits.

Exception: above section not applicable if loan or deposit or advance in relation to
immovable property taken or accepted from: -
(¡) Govt. (ii) Bank, co operative bank, post office
(iii) Govt. company (iv) Corp. established by Central, State, Provincial Act
Penalty u/s 271 E : lf assessee fails to follow sec. 269T then penalty shall be levied @ 100%
of such loan/ deposit / advance repayment. It shall be imposed by J.C.
# Section 269SU: Acceptance of payment through prescribed electronic modes

Every person, carrying on business, shall provide facility for accepting payment
through prescribed electronic modes, in addition to the facility for other electronic
modes, of payment, if any, being provided by such person, if his total sales, turnover or
gross receipts, as the case may be, in business exceeds ₹ 50 crore rupees during the
immediately preceding previous year.
Penalty u/s 271DB : If assesse fails to follow section 269SU then he shall be liable to
pay, by way of penalty, a sum of D 5000, for every day during which such failure continues.
Prescribed Electronic Modes-Notification No. 105/2019
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI);and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR
Code)
# Sec 68: Cash Credit

Where any sum is found credited in the books of the assessee and assessee offers no
explanation about the nature and source or the explanation offered is not .
satisfactory in the opinion of the AO, the sum so credited may be treated as income of
the assessee of that PY.
However, where the sum so credited consists of loan or borrowing or any such amount,
by whatever name called, any explanation offered by the assessee shall not be deemed
to be satisfactory, if, the person in whose name such credit is recorded also offers no
explanation about the nature and source or explanation not satisfactory.

Further, any explanation offered by a closely held company in respect of any sum
credited as share application money, share capital, share premium or any such amount, by
whatever name called, in the accounts of such company shall be deemed to be not
satisfactory, if, the resident person, in whose name such credit is recorded in the books
of such company also not explains about the nature and the source of such sum or
explanation not satisfactory.
These additional conditions would not apply if the person, in whose name the sum is
recorded, is a Venture Capital Fund or Venture Capital Company registered with SEBI.
# Sec 69: Unexplained Investments

Where in the PY, the assessee has made investments which are not recorded in the BOA
and the assessee offers no explanation about the nature and the source of investments
or explanation not satisfactory in the opinion of the AO, the value of the investments are
taxed as deemed income of the assessee of that PY.
# Sec 69A: Unexplained money, asset etc.

Where in any PY, the assessee is found to be the owner of any money, bullion, jewellery or
other valuable article and the same is not recorded in the BOA and the assessee offers
no explanation about the nature and source of acquisition of such money, bullion etc. or
the explanation not satisfactory in the opinion of the AO, the money and the value of
bullion etc. may be deemed income of the assessee of that PY.
# Sec 69B: Amount of investments etc., not fully disclosed in the books of account
Where in any PY, the assessee has made investments or is found to be the owner of any
bullion, jewellery or other valuable article and the AO finds that the amount spent on
making such investments or in acquiring such articles exceeds the amount recorded in the
BOA by the assessee and he offers no explanation for the difference or the explanation
is unsatisfactory in the opinion of the AO, such excess may be deemed income of the
assessee of that PY.
Example: If the assessee is found to be the owner of say 300 gms of gold (market value of
which is ₹ 15 lakhs) during the PY ending 31.3.2023 but he has recorded to have spent ₹ 5
lakhs in acquiring it, the AO can add ₹ 10 lakhs (i.e,. the difference of the FMV of such

gold and ₹ 5 lakhs) as the income of the assessee, if the assessee offers no satisfactory
explanation thereof.
# Sec 69C: Unexplained expenditure

Where in any PY, an assessee has incurred any expenditure and he offers no explanation
about the source of such expenditure or the explanation is unsatisfactory in the opinion
of the AO, AO can treat such unexplained expenditure as the income for such PY. Such
unexplained expenditure which is deemed to be the income of the assessee shall not be
allowed as deduction under any head of income.
# Sec 69D: Amount borrowed or repaid on hundi

Where any amount is borrowed on a hundi or any amount due thereon is repaid other than
through an account-payee cheque drawn on a bank, the amount so borrowed or repaid
shall be deemed to be the income of the person borrowing or repaying for the PY in which
the amount was borrowed or repaid, as the case may be.
However, where any amount borrowed on a hundi has been deemed to be the income of any
person, he will not be again liable to be assessed in respect of such amount on repayment
of such amount. The amount repaid shall include interest paid on the amount borrowed.
Note : Income mentioned u/s 68 to 69D taxable @60% (+25% Surcharge+4% HEC i.e. 78%).

# Sec 69B : Amount of investments etc., not fully disclosed in the books of account
Where in any financial year the assessee has made investments or is found to be the
owner of any bullion, jewellery or other valuable article and the Assessing Officer
finds that the amount spent on making such investments or in acquiring such articles
exceeds the amount recorded in the books of account maintained by the assessee and
he offers no explanation for the difference or the explanation offered is
unsatisfactory, such excess may be deemed to be the income of the assessee for such
financial year.
Example: If the assessee is found to be the owner of say 300 gms of gold (market
value of which is ₹ 25,000) during the financial year ending 31.3.2018 but he has
recorded to have spent ₹ 15,000 in acquiring it, the Assessing Officer can add 10,000
(i.e. the difference of the market value of such gold and ₹ 15,000) as the income of the
assessee, if the assessee offers no satisfactory explanation there of.
# Sec 69C:Unexplained expenditure

Where in any financial year an assessee has incurred any expenditure and he offers no
explanation about the source of such expenditure or the explanation is unsatisfactory
the Assessing Officer can treat such unexplained expenditure as the income of the
assessee for such financial year. Such unexplained expenditure which is deemed to be
the income of the assessee shall not be allowed as deduction under any head of income.
# Sec 69D : Amount borrowed or repaid on hundi

Where any amount is borrowed on a hundi or any amount due thereon is repaid other
than through an account-payee cheque drawn on a bank, the amount so borrowed or
repaid shall be deemed to be the income of the person borrowing or repaying for the
previous year in which the amount was borrowed or repaid, as the case may be.
However, where any amount borrowed on a hundi has been deemed to be the income of
any person, he will not be again liable to be assessed in respect of such amount on
repayment of such amount. The amount repaid shall include interest paid on the
amount borrowed.


32 CLUBBING OF INCOME
# Section 64 (1A): Income of a minor child

Income of a minor child is taxable in hands of the parent whose income is more before
clubbing minor's income.
Exception:-
In the following 3 cases minor's income is taxable in the hands of minor only.
1. Income is due to manual work.
2. Income is due to skill & talent.
3. Minor child suffering from disability.
Notes :-
(¡) If minor child's income is clubbed in the hands of parent then exemption u/s 10 (32)
of ₹ 1500 p. a. per child is allowed to parent.
(ii) Once clubbing of minor's income is done with that of one parent, it will continue to be
clubbed with that parent only, in subsequent years. The Assessing Officer, may,
however, club the minor's income with that of the other parent, if, after giving the
other parent an opportunity to be heard, he is satisfied that it is necessary to do so.
(iii) Where the marriage of the parents does not subsist, the income of the minor will be
includible in the income of that parent who maintains the minor child in the relevant
previous year.
(iv) It may be noted that the clubbing provisions are attracted even in respect of income
of minor married daughter.
(v) Child in relation to an individual includes a step-child and an adopted child of that
individual.
# Section 64(1)(iv): Asset transferred to spouse

If any individual transfers any asset to his or her spouse without consideration or for
inadequate consideration then income from such asset is received by spouse but tax on
such income is paid by transferor (Assessee)
Note :-
1. The above provision is applicable only if relationship of husband & wife should exist at
the time of transfer of asset as well as at the time of generating the income.

CLUBBING OF INCOME Chapter 32
2. The above provision is not applicable if asset is transferred in connection with

agreement to live apart.
3. If a House property is transferred by an individual to his spouse or minor child ( Not
being a minor married daughter) for without / inadequate consideration then such
individual is treated as Deemed owner as per sec 27 & sec 64 shall not apply.
# Section 64(1)(vi) Asset transferred to son's wife

If any individual transfers any asset to his / her son's wife without consideration or
for inadequate consideration, then income from such asset is received by son's wife
but tax on such asset is paid by transferor.
Note:
The above provision is applicable only if the relationship of mother/ father - in law &
daughter - in - law exists at the time of transfer of asset as well as at the time of
generating the income.
# Section 64(1)(vii/viii) : Asset transferred to any person for the benefit of spouse /
son's wife. (indirect transfer)
If an individual transfers any asset to any person without consideration or for
inadequate consideration for the benefit of son's wife / spouse then income from such
asset is received by any other person (transferee) but tax on such income is paid by
transferor.
# Section 64(1)(ii): Income of spouse from a concern where assessee has substantial
interest
Income of spouse is taxable in hands of assessee if following conditions are satisfied.
1. Income should be in the nature of salary, commission, bonus (remuneration).
2. Such remuneration should be received from a concern where assessee has
substantial interest Concern
Substantial Remuneration
Interest Spouse
Assessee +
Relative (S.M.F.B.S.LA.LD)

Chapter 32 CLUBBING OF INCOME
Substantial interest
Company420 % or more share holding Firm/AOP/BOI420 % or more PSR

Exceptions:
If remuneration received by spouse due to technical & professional qualification &
such remuneration is attributed to such qualification then the above provision is not
applicable.
Note: Where both husband and wife have substantial interest in a concern and both are in
receipt of income by way of salary etc. from the said concern, such income will be
includible in the hands of that spouse, whose total income, excluding such income is
higher. Where any such income is once included in the total income of either spouse,
income arising in the succeeding year shall not be included in the total income of the
other spouse unless the AO is satisfied, after giving that spouse an opportunity of
being heard, that it is necessary to do so.
# Section 60 : Income transfer without transfer of asset

If an individual transfers any income without transfer of asset then such income is
taxable in the hands of transferor.
# Section 61 : Revocable transfer

In case of revocable transfer, income is received by transferee but tax is paid by
transferor.
Exception:
If transfer is revoked after the death of beneficiary or transferee then the above
provision is not applicable.
# Section 64 (2): Asset transfer to HUF

If any individual transfers any asset to his HUF without/for inadequate
consideration, then income from such asset is received by HUF but taxable in hands of
transferor (member)
After partition of HUF, Income from such asset recd, by spouse shall be clubbed in
hands of transferor.

CLUBBING OF INCOME Chapter 32
Notes:
1. Income includes loss, Therefore, if there is loss then also clubbing provisions are
applicable.
2. Where an asset transferred is converted into other form, income derived from such
converted asset shall be clubbed,
3. Natural love & affection may be a good consideration but its not adequate
consideration for the purpose of Sec 64.
4. If the asset transferred is sold by the transferee then capital gain is treated as
income & shall be clubbed.
5. If there are two transactions and they are inter-connected and part of same
transaction, it shall be considered to be a device for evasion of tax and therefore
clubbing provision shall apply. (Cross Gifts).
Example: Mr. X gifted 12 Lakhs to his brother's wife (Mrs. Y) & his brother (Mr. Y)
gifted D8 Lakhs to Mrs X (Mr. X's wife). Gifted amount deposited in Banks @ 9% on
1/8/2022.
(Mr. x) (Mr. y)
D48,000 D48,000
Clubbed D12 Lakhs Clubbed

D8 Lakhs
Mrs. x Mrs. Y
(Int D48000) (Int D72000)
Clubbing provisions will be applicable only to the extent of income on the matching
amount of cross gifts, in the above example, D8 Lakhs is matching amount.
6. Where any asset is transferred by individual to his spouse / son's wife & such amount
is invested in Business by transferee then proportionate profit of such business shall
be clubbed as per following formula :

Chapter 32 CLUBBING OF INCOME
Income from x Gifted by Assessee

business Capital of Business on first day
of P.Y. (Opening Capital)
# Clubbing shall be applicable only if gifted money is included in opening capital.

Example: - Capital as on 1.4.2021 = D 7,00,000
Gifted by husband 10.4.2021 = D 3,00,000
Total D 10,00,000
Profit for P.Y. 2021-2022 = D 4,00,000
Capital as on 1.4.2022 = D 1400,000
Profit for P. Y. 2022 - 2023 = D 6,30,000
Solution :-
For P.Y. 2021-22 clubbing shall not apply because the gifted amount is not included in
opening capital. Total D 400,000 taxable in hands of wife.
For P.Y. 2022-23 clubbing shall apply 6,30,000 3,00,000
X
14,00,000
= D1,35,000/-
Profit of D1,35,000 taxable in hands of husband & remaining profit D4,95,000
taxable in hands of wife.
7. All the clubbing provisions are not applicable to second generation income i.e.
income from accretion of transferred asset.
Mr. Borana Gifted Mrs. Borana (invested in FD)
₹10 lakhs
FD Interest = ₹ 1 lakh
@ 10%
clubbed with Mr. Borana
Next year-FD (10L + 1L) = D 11 lakhs
FD interest = D 110,000
in this case, int of ₹ 1 lakh clubbed in hands of Mr. Borana & ₹10000 taxable in hands of
Mrs. Borana.

SET OFF & CARRY
FORWARD OF
LOSSES
Topic - 33
SET OFF CARRY
FORWARD OF LOSSES
CA Bhanwar Borana
33 SET OFF CARRY
FORWARD OF LOSSES
# Section : 70 Intra head adjustment

It means loss from one source of income can be set off against income from another
source of income but in the same head of income.
Exceptions:
1. Speculative business loss can be set off against only speculative business income.
2. Specified business loss (sec 35AD) can be set off against specified business income.
3. Long term capital loss (LTCL) can be set off against long term capital gains.
4. Loss from owning & maintaining race horses can be set off against income from owning &
maintaining race horses.
# Section 71: Inter-head adjustment

It means loss under one head of income can be set off against income from another
head of income but in the same previous year*.
Exceptions :-
1. Speculative business loss can be set off against only speculative business income.
2. Specified business loss (sec 35AD) can be set off against specified business income.
3. Long term capital loss (LTCL) can be set off against long term capital gain.
4. Loss from owning & maintaining race horses can be set off against owning & maintaining
race horses income.
5. short term capital loss (STCL) can be set off only against STCG &LTCG .
6. Loss from Business cannot be set off against salary.
* For carry forward losses Inter-head adjustment Not Allowed
# Summary
(i) Income From Salary
Loss not possible
(ii) Income From House Property Loss from HP.

a) Intra head adjustment
b) Inter head adjustment (Max 2,00,000 from AY 2018-19)
c) clf

SET OFF CARRY Chapter 33

FORWARD OF LOSSES
(iii) PGBP
(i) Loss from speculative business
a) Set off against speculation business income
b) clf
(ii) Loss from specified business
a) Set off against specified business income
b) clf
(iii) Any other business loss
a) Intra head adjustment.
b) Inter head adjustment except salary.
c) clf
(iv) Capital Gain
(¡) STCL
a) Set off against STCG & LTCG
b) clf
(ii) LTCL
a) Set off against LTCG
b) clf
(v) IFOS
(¡) Loss from Owning & Maintaining race-horses
a) Set off against same income
b) clf
(ii) Other loss under IFOS
a) Intra - head adjustment
b) Inter - head adjustment
c) c/f Not Allowed
Notes :
1. The maximum loss from house property which can be set-off against income from any
other head is D2 lakhs.
2. It is to be remembered that once a particular loss is carried forward, it can be set off
only against the income from the same head in the forthcoming assessment years.

SET OFF CARRY
Chapter 33 FORWARD OF LOSSES
# Carry Forward & Set-off of Losses.

Section Losses to be Brought forward Time Limit Mandatory
carried forward losses set off against filling of return
on time
71B Loss from HP House Property income 8 years No
72 Normal business Business income 8 years Yes

Loss
73 Speculative Speculative business 4 years Yes

business loss income
73A Specified Specified business Unlimited Yes

business loss income
74 Short term STCG & LTCG 8 years Yes

capital loss
Long term LTCG 8 years Yes
capital loss
74A Loss from owning Income from owning 4 years Yes

& maintaining & maintaining
race horses race horse
32(2) Unabsorbed Any income other Unlimited No

depreciation than Salary
Notes:-
1. Whenever income is exempt then losses does not have any tax treatment means it
should be ignored.
2. Loss from any lottery, card games, races, etc are Not Eligible for set off &c/f.
& Losses cannot be set off against the income referred u/s 115BB i.e lottery income,
crossword puzzles, income in TV show, etc.


FORWARD OF LOSSES
3. B/f losses from a business can be set off even if such business is Not continued.
4. Order for set off of losses.
a. Current year depreciation
b. B/f loses from Business or profession
C. Unabsorbed depreciation
5. If there is income under any head & eligible losses under any other head, such loss shall
be first set off against the income before set off & clf of losses(CBDT circular).
6. Set off of losses not permissible against unexplained income, investment, money etc,
chargeable uls 68 / 69 / 69A / 69B / 69C / 69D [Sec 115BBE].
7. Sec 79: Carry Forward and Set-Off of Losses in the case of certain companies
Where a change in shareholding has taken place during the PY in the case of a closely
held company, no loss incurred in any year prior to the PY shall be carried forward and
set off against the income of the PY, unless on the last day of the PY, the shares of the
company carrying not less than fifty-one per cent of the voting power were beneficially
held by persons who beneficially held shares of the company carrying not less than
fifty-one per cent of the voting power on the last day of the year or years in which the
loss was incurred.
Provided that even if the above condition is not satisfied in case of an eligible start up as
referred to in section 80-IAC, the loss incurred in any year prior to the PY shall be
allowed to be carried forward and set off against the income of the PY if all the
shareholders of such company who held shares carrying voting power on the last day of
the year or years in which the loss was incurred, continue to hold those shares on the
last day of such PY and such loss has been incurred during the period of seven years
beginning from the year in which such company is incorporated.
Following changes in shareholding shall not be considered as a change in shareholding for

the purpose of Section 79.
(i) Where the change takes place consequent upon the death of the shareholder.
(ii) Where the change takes place by way of gift of shares to any relative of the shareholder
making the gift.
(iii) Any changes in shareholding of an Indian company which is a subsidiary of a foreign

SET OFF CARRY
company as a result of amalgamation or demerger of the foreign company subject to the

condition that 51% of the shareholders of the amalgamating or demerged foreign company
continue to be the shareholders of the amalgamated or the resulting foreign company.”
(iv) Where a change in shareholding takes place in a previous year as a result to
a resolution plan approved under the Insolvency and Bankruptcy Code, 2016,
after affording a reasonable opportunity of being heard to the jurisdictional
Principal Commissioner or Commissioner
(v) To a company, and its subsidiary and the subsidiary of such subsidiary, where,
(i) the Tribunal, on an application moved by the CGu/s 241 of the Companies Act,
2013, has suspended the BOD's of such company and has appointed new
directors nominated by the CG, u/s 242 of the said Act; and
(ii) a change in shareholding of such company, and its subsidiary and the subsidiary
of such subsidiary, has taken place in a PY pursuant to a resolution plan approved
by the Tribunal under section 242 of the Companies Act, 2013 after affording a
reasonable opportunity of being heard to the jurisdictional Principal
Commissioner or Commissioner.
(vi) To a company to the extent that a change in the shareholding has taken place during the
PY due to relocation referred to in section 47(viiac)/(viiad).
(vii) To an erstwhile public sector company subject to the condition that the ultimate holding
company of such company, immediately after the completion of strategic disinvestment,
continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the
voting power of such company in aggregate.
If the condition specified in (vii) not complied with in any PY after the completion of
strategic disinvestment, the provisions of sec. 79 shall apply for such PY and subsequent
PY's.
Example-1
Loss Incurred by BB Pvt Ltd in PY 21-22 & earned income for PY 22-23
Equity Shareholding on 31/03/22 31/03/23
Mr A 34% 35%
Mr B 33% 33%
Mr C 33% -
Mr D - 32%

FORWARD OF LOSSES
Losses of PY 21-22 can be set against income of PY 22-23 because 51% or more equity
shares held by same persons on 31/03/22 and 31/03/23
Example-2
Loss Incurred by BB Pvt Ltd in PY 21-22 & earned income for PY 22-23
Equity Shareholding on 31/03/22 31/03/23
Mr A 34% 10%
Mr B 33% 10%
Mr C 33% 5%
Mr D - 75%
Losses of PY21-22 cannot be set against income of PY 22-23 because 51% or more equity
shares not held by same persons on 31/03/22 and 31/03/23. However, if BB Pvt ltd is
eligible start-up as per section 80-IAC then losses of PY 21-22 can be set off because all
the shareholders on 31/03/22 continue as shareholders on 31/03/23 (Assume loss
incurred in first 7 years of incorporation)
8. Sec 79A: No set off of losses consequent to search, requisition and survey.
Where consequent to a search u/s 132 or a requisition u/s 132A or a survey u/s 133A
(other than TDS/TCS survey), the total income of any PY of an assessee includes any
undisclosed income, setoff of any losses or unabsorbed depreciation not allowed against
such undisclosed income.
Explanation.—For the purposes of this section, the expression "undisclosed income"
means,—
(i) any income of the PY represented, either wholly or partly, by any money, bullion,
jewellery or other valuable article or thing or any entry in the BOA or other documents
or transactions found in the course of a search u/s 132 or a requisition u/s 132A or a
survey u/s 133A (other than TDS/TCS survey), which has—
(A) not been recorded on or before the date of search or requisition or survey, in the
BOA or other documents maintained in the normal course relating to such PY; or
(B) not been disclosed to the PCCIT or CCIT or PCIT or CIT before the date of search or
requisition or survey; or
(ii) any income of the PY represented, either wholly or partly, by any entry in respect of an
expense recorded in the BOA or other documents maintained in the normal course

SET OFF CARRY
relating to the PY which is found to be false and which would not have been found to be
so, had the search not been initiated or the survey not been conducted or the requisition
not been made.
9. In case of Amalgamation / Succession (sec 72 A).

Case Accumulated Can be Carried Time
Business Losses Forward By Limit
l. Amalgamation Amalgamating Co. Amalgamated Co. Fresh period of
sec 2(1B) 8 years
2. Demerger Sec Demerged co. Resulting co. Remaining period

2(19AA) of 8 years
3. Conversion of Firm/ Firm / proprietary Successor co. Fresh period of

proprietary into co. concern 8 years
Sec 47 (xiii)/(xiv)
4. Unlisted co. into LLP Unlisted co. LLP Fresh period of

Sec 47 (xiiib) 8 years
Note:-
1. Unabsorbed depreciation can be carried forward by Amalgamated Co. / Resulting Co. /
Successor Co./ LLP for unlimited period.
2. Only business losses (except speculative bus loss) can be c/f by successor.
# Section 72A: - Provision Relating to carry forward and set off of Accumulated
losses and unabsorbed Depreciation in Amalgamation, Demerger, etc.
Applicability: This section applies where there has been an amalgamation of –
(i) a company owning an industrial undertaking or a ship or a hotel with another
company; or
(ii) an amalgamation of a banking company with a specified bank;or
(iii) one or more public sector company or companies with one or more public sector
company or companies; or

FORWARD OF LOSSES
(iv) an erstwhile public sector co. (PSC) with one or more co. or co's., if the share
purchase agreement entered into under strategic disinvestment restricted
immediate amalgamation of the said PSC and the amalgamation is carried out
within 5 years from the end of the PY in which the restriction on amalgamation in the
share purchase agreement ends.
Notes:
1. The loss and UD of the A'ing co., in case of an amalgamation referred to in (iv), which
is deemed to be the loss or UD of the A'ed co., shall not be more than the loss and UD
of the PSC as on the date on which the PSC ceases to be a PSC as a result of strategic
disinvestment.
2. “Strategic disinvestment" means sale of shareholding by the CG or any SG in a PSC
which results in reduction of its shareholding to below 51% along with transfer of
control to the buyer
Example: Suppose shares of Air India Ltd. purchased by Talace Pvt Ltd. in PY 21-22
under share purchase agreement (SPA). As per SPA its mentioned that PSC cannot
amalgamate till 31/3/24. Amalgamation took place in PY 26-27. In this cases whatever
losses and UD of Air India Ltd as on 31/3/24 shall be treated as losses and UD of Talace
Pvt Ltd. for PY 26-27.
Conditions to be satisfied by Amalgamating. Co.:-

(1) The Amalgamating Co. should have been engaged in the business for 3 years or
more prior to the date of amalgamation.
Example:- A’tion takes place on 01.07.2021 then A’ting Co. should have started the
business on or before 01.07.2018.
(2) The A’ing Co. should hold atleast 75% of the Book value of fixed Assets which it
held two years prior to date of Amalgamation.
Conditions to be satisfied by Amalgamated Co. :-

(1) The A’ted Co. should continue the business of amalgamating Co. for the period of
5 years from the date of A’tion.
(2) The A’ted Co. should fulfil the prescribed conditions in case there is an A’tion of
industrial Undertaking.

SET OFF CARRY
The prescribed conditions are as follows :-

The A’ted Co. shall achieve the level of production of at least 50% of installed
capacity before the end of 4 years from the date of amalgamation and continue to
maintain said minimum level of production till the end of 5 years from the date of
A’tion. However, the central Govt on an application made by an A’ted Co. may relax
the condition of achieving the level of production or period during which same is to
be achieved or both in suitable cases having regard to the genuine efforts made
by A’ted Co. to attain the prescribed level of production and circumstances
preventing such efforts from achieving the same.
(3) The A’ted Co. holds continuously for a minimum period of 5 years from the date of
A’tion atleast 75% of BV of FA of amalgamating Co. acquired in scheme of A’tion.
If, all the above conditions are fulfilled then the accumulated losses and un-absorbed
depreciation shall be deemed to be of amalgamated Co. for the PY in which amalgamation
was effected i.e. such accumulated losses can be carried forward foranother 8 years.
# Section 72A :- Deemed Income

In case where any of the above conditions are not complied with, set off loss or
allowance of depreciation made in any PY in the hands of A’ted Co. shall be deemed to
be the income of the A’ted Co. chargeable to tax in the year in which such conditions
are not complied with.
For the purpose of this section, Accumulated losses means Such losses of
amalgamating Co. under the head PGBP (not being a speculation loss) which the A’ting
Co. would have been entitled to c/f and set off u/s 72 if A’tion had not taken place.
Demerger
Allowability of carry forward and set-off of accumulated loss and unabsorbed dep.
by resulting company in case of demerger: Where there has been a demerger of an
undertaking,
-The accumulated loss and the unabsorbed depreciation directly relatable to the
undertaking transferred by the demerged company to the resulting company shall
be allowed to be carried forward and set off in the hands of the resulting company.
-If the accumulated loss or unabsorbed depreciation is not directly relatable to

FORWARD OF LOSSES
The undertaking, the same will be apportioned between the demerged company andthe r
esulting company in the same proportion in which the value of the assets have
been transferred.
Conditions for availing benefit under this section: The Central Government is empowered
to notify such conditions as it considers necessary to ensure that the demerger or
amalgamation is for genuine business purpose.
Industrial undertaking meaning
It means any undertaking which is engaged in -
(¡) the manufacture or processing of goods;
(ii) the manufacture of computer software;
(iii) the business of generation or distribution of electricity or any other form of power;
(iv) providing telecommunication services, whether basic or cellular, including radio paging,
domestic satellite service, network of trunking, broad band network and internet services.
(v) mining;
(vi) the construction of ships, aircraft or rail systems
# Sec 72AA : C/F and set-off of accumulated loss and unabsorbed depreciation
allowance in scheme of amalgamation in certain cases
where there has been an amalgamation of—
(i) one or more banking company with any other banking institution under a scheme
sanctioned and brought into force by the CG; or
(ii) one or more corresponding new bank or banks with any other corresponding new bank
under a scheme brought into force by the Central Government u/s 9 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 or u/s 9 of the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 or both, as
the case may be; or
(iii) one or more Government company or companies with any other Government company
under a scheme sanctioned and brought into force by the CG u/s 16 of the General
Insurance Business (Nationalisation) Act, 1972,
the accumulated loss and the unabsorbed depreciation of such banking company or
companies or amalgamating corresponding new bank or banks or amalgamating

SET OFF CARRY
Government company or companies shall be deemed to be the loss or, as the case
may be, allowance for depreciation of such banking institution or amalgamate
10. Stock & Commodity market
1. Transactions in shares where delivery effected
-PGBP if shares held as Stock in trade
-Capital Gain if shares held as Capital Asset
2. Transactions in shares where delivery not effected i.e., Intraday
Always Speculative Business Income
3. Transactions in Derivative i.e. futures, options etc. & currency futures at recognised
stock exchange
Always Normal Business Income

35 TAXATION IN CASE
ESOPS
# Perquisite Taxable
As per section 17(2) ESOPs or sweat equity shares are taxable as perquisite in hands
of employee in the year in which shares allotted to employee.
Taxable Amount = FMV of shares on the date Minus Amount paid by Employee
on which option Exercised for ESOP's
Calculation of FMV as per Rule 3(8)

(i) In a case where, on the date of the exercising of the option, the share in the
company is listed on a recognized stock exchange, the FMV shall be the average
of the opening price and closing price of the share on that date on the said stock
exchange.
Provided that where, on the date of exercising of the option, the share is listed on
more than one recognized stock exchanges, the FMV shall be the avg. of opening price
and closing price of the share on the recognised stock exchange which records the
highest volume of trading in the share.
Provided further that where, on the date of exercising of the option, there is no
trading in the share on any recognized stock exchange, the fair market value shall be—
(a) the closing price of the share on any recognised stock exchange on a date
closest to the date of exercising of the option and immediately preceding such
date;or
(b) the closing price of the share on a recognised stock exchange, which records
the highest volume of trading in such share, if the closing price, as on the date
closest to the date of exercising of the option and immediately preceding such
date, is recorded on more than one recognized stock exchange.
(ii) In a case where, on the date of exercising of the option, the share in the company is
not listed on a recognised stock exchange, the FMV shall be such value of the share in
the company as determined by a merchant banker on the specified date.
# Sale of Shares by Employee

At the time of sale of shares capital gain applicable in hands of employee as follows

TAXATION IN CASE ESOPS Chapter 35
Computation of Capital Gain

Full Value of Consideration Sale Value
Less: Cost of Acquisition FMV of shares as per rule 3(8)
LTCG / STCG xxxx
In this case POH shall be consider from the date of Allotment of ESOPS till the date
of Transfer of shares by Employee.
# Taxability of ESOPS in case of Start-ups referred u/s 80-IAC
Amendment in section 192 : TDS on Salary (w.e.f. AY 21-22)

Eligible Start-up require to deduct TDS in case of ESOPS within 14 days from:
(i) after the expiry of 48 months from the end of the relevant AY; or
(ii) from the date of the sale of such specified security or sweat equity share by the
assessee; or
(iii) from the date of the assessee ceasing to be the employee of the start-up,
whichever is the earliest, on the basis of rates in force for the financial year in
which the said specified security or sweat equity share is allotted to employee.
Similar amendments also made in following sections:

191: Assessee paid tax directly (If TDS not deducted)
156: Demand Notice by Department
140A: Reduction of Tax paid u/s 191 for calculation of self-assessment tax
Example:1
Mr. Sudeep (age 34 years) is an employee of Gupme Foods Pvt. Ltd. (eligible start-up as
per section 80-IAC).
Salary income of Mr. Sudeep as follows for PY 22-23
Basic Salary D50,00,000
DA D5,00,000
Leave Travel Concession D3,00,000 (assume Fully Exempt)

Chapter 35 TAXATION IN CASE ESOPS
Company allotted 5,000 shares @10 per share as ESOPS to Mr. Sudeep in the month of
Dec. 22. FMV on the date on which option exercised is 6500 per share. Calculate TDS to
be deducted for AY 23-24 assume employee not opted section 115BAC.
Solutions:
Computation of Total Income & Tax Liability PY 22-23 AY 23-24
Particular Amount
Basic Salary 50,00,000
DA 5,00,000
LTC [Exempt u/s 10(5)] -
ESOP Perquisite [5000 x 6490(6500-10)] 3,24,50,000
Gross Salary 3,79,50,000
Less: Standard deduction u/s 16 50,000
Net Taxable Salary (Total Income) 3,79,00,000
Tax on Total Income
Upto 2,50,000 Nil
>2,50,000 upto 5,00,000 12,500
>5,00,000 upto 10,00,000 1,00,000
>10,00,000 upto 3,79,00,000 1,10,70,000
1,11,82,500
Add.: Surcharge @ 25% 27,95,625
1,39,78,125
Add.: Health & Education Cess 5,59,125
Net Tax Payable 1,45,37,250
Average Tax Rate for AY 23-24 (1,45,37,250/3,79,00,000) 38.357%
Tax to be deferred as per section 192(1C) [38.357% of 3,24,50,000] 1,24,46,800
Tax to be deducted as per section 192 in PY 22-23 (AY 23-24) 20,90,450
Example: 2
Suppose in above example Mr. Sudeep transfer 2,000 shares for 9,000 each on
20/07/2024. What will be tax treatment ?
Solution :

TAXATION IN CASE ESOPS Chapter 35
Computation of capital gain in hands of Sudeep PY 24-25 AY 25-26

Particular [POH : Dec. 22 to 19/07/24] Amount
Full Value of Consideration (2,000 x 9000) 1,80,00,000
Less: Cost of Acquisition (2,000 x 6500) 1,30,00,000
STCG 50,00,000
TDS on perquisite to be deducted by Gupme Foods Pvt Ltd upto 03/08/24 (20/07/24 +
14 days) as follows
1,24,46,800 x 2000 Shares/5000 Shares = 49,78,720
Note : Remaining amount (1,24,46,800-49,78,720) i.e. 74,68,080 (3000 shares)

deducted as TDS within 14 days from
(i) after the expiry of 48 months from the end of the relevant AY (i.e. 14.04.28); or
assessee; or
(iii) from the date of the assessee ceasing to be the employee of the start-up,whichever is
the earlier.
# BB's Comment : In simple words we can say that in case of ESOPS of eligible start-up
perquisite is Taxable in the year in which shares allotted to employee but Tax on such
perquisite shall be paid to government within 14 days of ;
(i) after the expiry of 48 months from the end of the relevant AY; or
assessee; or
(iii) from the date of the assessee ceasing to be the employee of the stafrt-up,whichever is
the earlier.

37 AGRICULTURE INCOME
- It is exempt u/s 10 (1)

- Meaning of agriculture income-
As per section 2(1A), Agriculture income means -
a) Rent from agriculture land (used for agriculture purpose).
b) Income from sale of agriculture produce. (Note 1)
c) Rent from house (use as dwelling house, store house).
d) Income from nursery.
Note 1 : Rule 7- Sale of agriculture produce
Sale in raw from Sale after process
Total agriculture Process is compulsory Process is optional

income for sale for sale
Total agriculture income

Agriculture income PGBP
FMV of Agri product further process xx Sale of final product xx

(-) cost of agri product xx (-) FMV of agriculture used (xx)
agriculture income xx (-) Further Propose cost (xx)
PGBP xx
# Special Rules for tea, coffee & Rubber
Rule Activity Agriculture Business
Income Inocme
Rule 8: Growing and Manufacturing of Tea. 60% 40%
Rule 7B: Income from growing & manufacturing
of Coffee
(a) Grown & cured 75% 25%
(b) Grown, cured, roasted, grounded 60% 40%
Rule 7A: Income from growing & manufacturing
of rubber 65% 35%

AGRICULTURE INCOME Chapter 37
Remember :- Higher % represents income from Agriculture

Notes :
1. Bifurcation should be done after claiming deduction u/s 33AB & other PGBP
deduction like depreciation etc.
2. If income of assessee partly from Business & partly from agriculture then,
depreciation has to be calculated on assumption that total income of assessee is
from business only. Depreciation calculated shall be deemed to be allowed to
assessee. (Total Depreciation shall be reduce from WDV of Block).
# Partial Integration in case of Agricultural Income

Agriculture income is exempt from tax but for computation of tax it shall be
considered if following conditions are satisfied
(i)
. . Assessee is Individual, HUF, AOP, BOI, AJP.
(ii) Agriculture income more than D 5,000.
(iii) Non-agriculture income more than Basic exemption.
Computation of Tax Liability ₹
Non-Agriculture Income (Total Income) A xxx
Agriculture Income B xxx
Total C xxx
Tax Payable on “C” D xxx
Aggregation of “B” and Basic Exemption E xxx
Tax payable on “E” F xxx
Net Tax payable “D-F” G xxx

38 TONNAGE TAXATION
If Indian co, (has place of effective management in india) engaged in business of

operating ships can compute its income on the basis of tonnage tax scheme if company
owning at least one qualifying ship. This scheme is optional.
# Sec 115VG : Computation of Tonnage Income.

Income = Daily tonnage X No. of days the ship is
income operated in P.Y.
# Daily Tonnage Income.
Qualifying ship having Daily Tonnage
net tonnage Income
upto 1,000 D 70 for each 100 tons
> 1000 upto 10000 D 700 + D 53 for each 100 tons
> 10000 upto 25000 D 5470 + D 42 for each 100 tons
> 25,000 D 11770 + D 29 for each 100 tons.
Notes :
1. Tonnage shall be rounded off to the nearest multiple of 100 tons.
2. Deductions, set-off any loss shall not be allowed against tonnage income.
3. Tonnage tax income shall not be liable to MAT.
4. Qualifying Ship: seagoing ship or vessel of 15 net tonnage or more but exclude (i)
a seagoing ship or vessel if the main purpose for which it is used is for the provision
of goods or services of a kind normally provided on land (ii) factory ships (iii) fishing
vessels (iv) harbour and river ferries (v) pleasure craft (vi) offshore installations
(vii) qualifying ship which is used as a fishing vessel for a period of more than
thirty days during a P.Y.
5. Exercising the above scheme is optional. Where an assessee opts for tonnage tax but
wishes to opt out of the same within 10 years from the date on which he exercised
option, he shall not be eligible to opt into tonnage tax for a period of 10 years from
date of opting out.
6. Company should not charter in more than 49% of net tonnage of qualifying ship
operated by it. If it crossed that limit then in that year this scheme not applicable.
7. Company shall maintain separate books of account and obtain a report from CA and
furnish it before the due date specified u/s 44AB.

TONNAGE TAXATION Chapter 37
8. Company shall credit to Tonnage Tax reserve a/c (TTRA) atleast 20% of the book
profits derived from core and eligible incidental activities every year which shall be
utilised only for acquiring a new ship before expiry of 8 years. (BP same as 115JB).
9. If any amount mis-utilised then proportionate income shall be taxable as per normal
provision of Act.
10. If there is any shortfall in the amount credited to the TTRA, then the following
amount taxable under the other provisions of the Act:
Taxable amount = Relevant shipping income X Shortfall in credit to reserves
Minimum reserve to be credited
11. Failure to create TTRA for 2 consecutive PY's will render tonnage scheme invalid from
rd
3 PY.
12. If ship transferred within 3 years from end of PY in which it acquired, it proportionate
amount shall deemed as income in year of transfer.
13. If amount not utilized within 8 years, it shall be deemed as Income of 9th year.
14. Income from incidental activities shall not be considered only up to 0.25% of Turnover
from core activities. Any excess, shall be taxable under normal provisions of the Act.

39 EXPENDITURE INCURRED IN
RELATION TO EXEMPT INCOME
# Sec 14A : For computing total income under the five heads of income, No deduction
shall be allowed in respect of expenditure incurred by assessee in relation to income
which do not form part of total income (exempt Income) under the Act.
# Manner of computation of disallowance: Rule 8D.
1. Where A.O, is satisfied with the correctness of the claim of expenditure - No action
is required.
2. Where A.O. is not satisfied with correctness of the claim - expenses attributed to
exempt income shall computed with Rule 8D of income tax rules.
Rule 8 D: Expenditure relating to exempt Income. D
a. Amount of expenses directly relating to exempt income xxx
b. Amount equal to 1% of this annual average of the monthly
average of the opening & closing balance of investment, income from
which is exempt. xxx
Total amount dis-allowable u/s 14 A xxxx
Note 1 : Provided that amount referred in (a) and (b) shall not be more than total
expenditure claimed by assessee.
Note 2 : Section 14A read along with Rule 8D provides for disallowance of expenditure
even where the taxpayer has not earned any exempt income in a particular PY.
Q. Mr. BB invested in securities & expenditure related to such investment is D2,00,000.

Out of above securities, income from some securities is exempt & from other
securities taxable. Expenditure directly attributed to exempt securities is
D 30,000.Investment Value in securities from which income is exempt: D 60,00,000
(Monthly Avg. of opening and closing & after that annual average)
Answer:
Expenditure related to Exempt Income: D
(i) Directly related to Exempt Income : 30,000
(ii) 1% of Exempt Income (60,00,000 x 1%) : 60,000
Disallowed Expenditure 90,000
Conclusion: So in this question D1,10,000 expenditure is allowed as deduction.

TAX PLANNING,
TAX AVOIDANCE,
TAX EVASION & GAAR
Topic - 40
TAX PLANNING,
TAX AVOIDANCE,
TAX EVASION & GAAR
CA Bhanwar Borana
40 TAX PLANNING, TAX AVOIDANCE,
TAX EVASION & GAAR
# Tax Planning: Tax planning means reducing tax liability by taking advantage of the
legitimate concessions and exemptions provided in the tax law. It involves the
process of arranging business operations in such a way that reduces tax liability.
Example: Investment in 80C, 80CCD or reinvestment u/s 54,54EC etc.
# Tax Avoidance: Tax avoidance means taking undue advantage of the loopholes,
lacunae or drafting mistakes for reducing tax liability and thus avoiding payment of
tax which is lawfully payable. Generally, it is done by twisting or interpreting the
provisions of law and avoiding payment of tax. Tax avoidance takes into account the
loopholes of law. Though it has a legal sanction, it means following the provisions of
law in letter but killing the spirit of the law. Example: Sale and leaseback of assets,
so that the depreciation is diverted but the asset remains with assessee.
# Tax Evasion: Tax evasion means avoiding tax by illegal means. Generally, it involves
suppression of facts, falsifying records, fraud or collusion. It is an attempt to
evade tax liability with the help of unfair means. Tax evasion is illegal and would
result in punishment by way of penalty, fines and sometimes prosecution. Record
bogus expenses.
# Tax Management: It means planning affairs in such a manner, so that the tax
obligation is managed properly. Example: Advance tax is paid properly to avoids
interest, Return filed on time so refund can be processed earlier.
General Anti-Avoidance Rules (GAAR)
1. Generally, tax avoidance is legally permissible, if it is within the four corners of
the Act, and is not a colorable device. However, many tax-planning/ avoidances are
prima-facie in conflict of the objectives of the Act or may be primarily designed to
reduce the tax liability.
2. The provisions of this Chapter shall apply in addition to, or in lieu of, any other basis
for determination of tax liability. Specific Anti-Avoidance Rules (SAAR) would be
applicable in respective cases. Some examples of SAAR are clubbing of income,
depreciation in case of some special cases, section 50C/ 43CA etc.

TAX PLANNING, TAX AVOIDANCE,
Chapter 40
TAX EVASION & GAAR
3. The provisions of GAAR override the provisions of Double Taxation Avoidance

Agreement (DTAA).
4. GAAR would apply in respect of tax benefit in aggregate by all enterprises out of
an arrange in an AY exceeds D3 crores.
5. GAAR not applicable in case of ;-
» FII who has invested in securities in India with prior permission of competent
authority and has not taken any benefit under DTAA, or
» Investment made by Non-resident in off-shore derivative instruments of FII.
# Section 95: Applicability of GAAR

GAAR provides that an arrangement entered into by an assessee may be declared
to be an impermissible avoidance arrangement and the consequence in relation to
tax arising there from may be determined subject to the provisions of this Chapter
GAAR provisions are applicable from AY 2018-19
The section starts with a non-obstante clause which means, if there is a conflict
with provisions in other sections, then this section shall prevail over other
conflicting provisions.
Example : 1
Facts: M/s India Chem Ltd. is a Indian Company. It sets up a unit in a SEZ in F.Y.
18-19 for manufacturing of chemicals. It claims 100% deduction of profits earned
from that unit in F.Y. 21-22 and subsequent years as per section 10AA of the Act.
Is GAAR applicable in such a case?
Interpretation: There is an arrangement of setting up of a unit in SEZ which
results in a tax benefit. However, this is a case of tax mitigation where the tax
payer is taking advantage of a fiscal incentive offered to him by complying with the
conditions imposed and economic consequences of the provisions in the legislation
e.g., setting up the business unit in SEZ area. Hence, the Revenue would not invoke
GAAR as regards this arrangement.

Chapter 40 TAX EVASION & GAAR
Example : 1A
Facts: In the above example 1, let us presume M/s India Chem Ltd. has another
unit for manufacturing chemicals in a non-SEZ area. It then diverts its production
from such manufacturing unit and shows the same as manufactured in the tax
exempt SEZ unit, while doing only the process of packaging there. Is GAAR
applicable in such a case?
Interpretation: This is a case of misrepresentation of facts by showing production
of non-SEZ unit as production of SEZ unit. Hence, this is an arrangement of tax
evasion and not tax avoidance.
Tax evasion, being unlawful, can be dealt with directly by establishing correct facts.
GAAR provisions will not be invoked in such a case.
Example : 1B
Facts: In the above example 1A, let us presume that M/s India Chem Ltd. does not
show production of non-SEZ unit as a production of SEZ unit but transfers the
product of non-SEZ unit at a price lower than the fair market value and does only
some insignificant activity in SEZ unit. Thus, it is able to show higher profits in
SEZ unit than in non-SEZ unit, and consequently claims higher deduction in
computation of income. Can GAAR be invoked to deny the tax benefit?
Interpretation: As there is no misrepresentation of facts or false submissions, it is

not a case of tax evasion. The company has tried to take advantage of tax provisions by
diverting profits from non-SEZ unit to SEZ unit. This is not the intention of the SEZ
legislation. However, such tax avoidance is specifically dealt with through transfer
pricing regulations that deny tax benefits. Hence, the Revenue need not invoke GAAR
in such a case, though GAAR and SAAR can co-exist as per clarification given in the
CBDT Circular.

Chapter 40
TAX EVASION & GAAR
Example : 1C
Facts: In the above example 1B, let us presume, that both units in SEZ area (say A)
and non-SEZ area (say B) work independently. M/s India Chem Ltd. started taking
new export orders from existing as well as new clients for unit A and gradually, the
export from unit B declined. There has not been any shifting of equipment from
unit B to unit A. The company offered lower profits from unit B in computation of
income. Can GAAR be invoked on the ground that there has been shifting or
reconstruction of business from unit B to unit A for the main purpose of obtaining
tax benefit?
Interpretation: The issue of tax avoidance through shifting/reconstruction of

existing business from one unit to another has been specifically dealt with in
section 10AA of the Act. Hence, the Revenue need not invoke GAAR in such a case,
though GAAR and SAAR can co-exist as per clarification given in the CBDT Circular.
# Section 96: Impermissible Avoidance Agreement

IAA means an arrangement which satisfies two conditions: -
(a) Main purpose/ one of the main purpose of which is to obtain a tax benefit;and
(b) It:
¡) Creates rights/ obligations which are not ordinarily created between persons
dealing at arm's length or
ii) Results (directly or indirectly) in misuse or abuse of provisions of this Act or
iii) Entered/ carried in a manner, which are not ordinarily employed for bonafide
purposes or
iv) Lacks commercial substance or
v) Deemed to lack commercial substance.

U/s. 97(1), a transaction shall be deemed to lack commercial substance if: -

Sr.No. Nature Of Transaction Example
a Substance of the transaction A transaction has been stated to be a sale and
differs significantly from its lease transaction, but in substance it is only a
Form (Form vs Substance) make and believe story.
b The only purpose of selection A Capital asset is said to be sold outside India,
of such Location of asset/ by one resident to another resident. The
transaction/place of purpose of such travel was only to do the
residence of any party is to transaction outside India.A transaction
obtain tax benefit and there between A Ltd. of Netherlands and B Ltd. of
is no substantial commercial Hongkong is executed through a conduit C Ltd.
purpose for selecting such in a Tax Heaven.
Location of asset/transaction
/ place of residence of any
party.
c Arrangement does not X Ltd. Located in tax holiday area taken a P&M
significantly affect business on rent of D4 Crores from sister concern and
risk/ net cash outflows of any given it on rent to another sister concern for
party to the arrangement but rent of D10 Crores.
only attributes tax benefits
d Transaction involves:
(¡) Round Tripping, which includes (a) A group company in profit, obtains loan
any arrangement in which, from market and gives loan to sister
through series of concern, interest free; and claims it to be
transactions:- for business purposes.
(a) funds are transferred (b) A company (X Ltd.) purchases shares of
among parties group company, from another group
(b) such transactions have no company at a high value and sells it to
substantial commercial another group company at low value. This
purpose other than results in a loss to X Ltd. This transaction
obtaining tax benefit. can be vice-versa.

Chapter 40
TAX EVASION & GAAR
It is irrelevant that: - (c) A group company in profit, obtains loan

A. funds involved in round trip from market. Uses the loan for business,
financing can be traced to and gives loan to sister concern out of own
any funds transferred/ funds. (direct nexus not relevant)
received (direct nexus not (d) A Ltd. obtains loan from market. Keeps
relevant) it for 6 month and transfers funds to sister
B. time or sequence in which concern. (time/sequence/not relevant)
funds are transferred/ (e) A Ltd. gives loan to sister concern.
received. Thereafter, after 3 months obtains loan
C. Manner/ Mode in which from market. (time/sequence not relevant)
funds are transferred/
received.
(¡¡) An accommodating party i.e. a A Ltd. sells shares to subsidiary company at

party, the main reason for a lower value and books a loss ( A Ltd.
whose participation is to obtain wanted a loss). Subsidiary company
(directly or indirectly) a tax transfers the shares at a higher value in
benefit. the market and books a profit (Subsidiary
It is irrelevant that the wanted a profit). Here Subsidiary is the
accommodating party is AP or accommodating party.
not.
(¡¡¡) Elements have the effect of Mr. X has a house. He gifts the house to wife
offsetting or cancelling each of Mr. Y. Mr. Y gifts the house to minor child
other. of Mr. X. This is done to avoid clubbing
provisions.
(¡v) A transaction conducted A share capital is invested in India by a

through one or more persons company in Mauritius, the source of
and disguises the value/ investment in Indian company is not disclosed.
location/ source/ ownership/
control of funds

Further, it has been provided that following shall be irrelevant for deciding whether a
transaction lacks commercial substance or not: -
1. Period/time for which arrangement exists.
2. Fact of payment of taxes, directly or indirectly, under the arrangement.
3. Fact that an exit route (including transfer of any activity/ business/ operations) is
provided by the arrangement.
While treating a transaction as IAA: -
(a) An equity may be treated as debt or vice-versa
(b) Capital receipt may be treated as revenue receipt or vice-versa.
(c) Expenditure/ deduction/ relief/ rebate may be recharacterised.
Example -2
Facts: Y Tech Ltd. is a company resident of country C1. It enters into an agreement
with Z Energy Ltd., an Indian company for setting up a power plant in India. It is a
composite contract for an agreed price of US$ 100 million. The payment has been
split in the following parts as per separate agreements
(¡) US$ 10 million for design of power plant outside India (payment for which is taxable
at 10% on gross basis)
(ii) US$ 70 million for offshore supplies of equipment etc (not taxable as no role is played
by any PE in India. These are not subject to import duty)
(iii) US$ 20 million for local supplies and installation charges (taxable on net income basis)
It is found that the fair market value of offshore design is about USD 30 million;
therefore, it is under invoiced. On the other hand, offshore supplies were over
invoiced. The arrangement resulted in significant tax benefit to the taxpayer. Can
GAAR be invoked in such a case?
Interpretation: The allocation of price to different parts of the contract has been
decided in such a manner as to reduce tax liability of the foreign company in India.
Both conditions for declaring an arrangement as impermissible are satisfied.
(1) The main purpose of this arrangement is to obtain tax benefit; and
(2) the transactions are not at arm's length. Consequently, GAAR may be invoked and
prices would be reallocated. However, determination of arm's length price should be
based on transfer pricing regulations under the Act.
Chapter 40
TAX EVASION & GAAR
Interpretation: The allocation of price to different parts of the contract has been
decided in such a manner as to reduce tax liability of the foreign company in India.
Both conditions for declaring an arrangement as impermissible are satisfied.
(1) The main purpose of this arrangement is to obtain tax benefit; and
(2) the transactions are not at arm's length. Consequently, GAAR may be invoked and
prices would be reallocated. However, determination of arm's length price should be
based on transfer pricing regulations under the Act, if enterprises are AE’s.
Example -3
Facts:
A LTD
Country F4 K LTD L LTD
India 9.95% 9.95%
Ind Co.
Under the provisions of a tax treaty between India and country F4, any capital
gains arising from the sale of shares of Indco, an Indian company would be taxable
only in F4 if the transferor is a resident of F4 except where the transferor holds
more than 10% interest in the capital stock of Indco. A company, A Ltd., being
resident in F4, makes an investment in Indco through two wholly owned subsidiaries
(K Ltd. and L Ltd.) located in F4. Each subsidiary holds 9.95% shareholding in the
Indian Company, the total adding to 19.9% of equity of Indco. The subsidiaries sell
the shares of Indco and claim exemption as each is holding less than 10% equity
shares in the Indian company. Can GAAR be invoked to deny treaty benefit ?

Interpretation:
The above arrangement of splitting the investment through two subsidiaries
appears to be with the intention of obtaining tax benefit under the treaty.Further,
there appears to be no commercial substance in creating two subsidiaries
as they do not change the economic condition of investor A Ltd. in any manner
(i.e.on business risks or cash flow), and reveals a tainted element of abuse of tax
laws. Hence, the arrangement can be treated as an impermissible avoidance
arrangement by invoking GAAR. Consequently, treaty benefit would be denied by
ignoring K and L, the two subsidiaries, or by treating K and L as one and the same
company for tax computation purposes.
Example - 4
Facts:
Sub. Co.
NTJ Debt.
India Ind Co. X Ltd
Indco incorporates a Subco in a NTJ (Low Tax Jurisdiction) with equity of US

$100. Subco gives a loan of US $ 100 to another Indian company (X Ltd.) at the
rate of 10% p.a. X Ltd. claims deduction of interest payable to Subco from the
profit of business. There is no other activity in Subco. Can GAAR be invoked in
such a case?
Interpretation:
The arrangement appears to be to avoid payment of tax on interest income by Indco in
case loan is directly provided by Indco to X Ltd. The arrangement involves round
tripping of funds even though the funds emanating from Indco are not traced back to
Indco in this case. Hence, the arrangement may be deemed to lack commercial
substance. Consequently, in the case of Indco, Subco may be disregarded and the
interest income may be taxed in the hands of Indco.

Chapter 40
TAX EVASION & GAAR
Example - 5
Facts: Country F1
LTJ
Y Ltd. 100% A Ltd

Country C1 Debt 49%
India Z Ltd. X Ltd

51%
(¡) Y Ltd. is a company incorporated in country C1. It is a non-resident in India.

(ii) Z Ltd. is a company resident in India.
(iii) A Ltd. is a company incorporated in country F1 and it is a 100% subsidiary of Y Ltd.
(iv) A Ltd. and Z Ltd. form a joint venture company X Ltd. in India after the date of
commencement of GAAR provisions. There is no other activity in A Ltd.
(v) The India-F1 tax treaty provides for non-taxation of capital gains in the source
country and country F1 charges no capital gains tax in its domestic law.
(vi) A Ltd. is also designated as a permitted transferee of Y Ltd. Permitted transferee
means that though shares are held by A Ltd, all rights of voting, management,
right to sell etc., are vested in Y Ltd.
(vii) As per the joint venture agreement, 49% of X Ltd's equity is allotted to A Ltd.
and 51% is allotted to Z Ltd.
(viii) Thereafter, the shares of X Ltd. held by A Ltd. are sold to C Ltd., a company
connected to the Z Ltd. group.
As per the tax treaty with country F1, capital gains arising to A Ltd. are not taxable in
India. As per the India – Country C1 tax treaty, capital gains are chargeable to tax in
the source country. Can GAAR be invoked to deny the treaty benefit?
Interpretation:
The arrangement of routing investment through country F1 results in a tax
benefit. Since there is no business purpose in incorporating company A Ltd. in
country F1 which is a LTJ, it can be said that the main purpose of the arrangement

is to obtain a tax benefit. The alternate course available in this case is direct
investment in X Ltd. joint venture by Y Ltd. The tax benefit would be the
difference in tax liabilities between the two available courses. The next question
is, does the arrangement have any tainted element? It is evident that there is no
commercial substance in incorporating A Ltd. as it does not have any effect on the
business risk of Y Ltd. or cash flow of Y Ltd. As the twin conditions of main
purpose being tax benefit and existence of a tainted element are satisfied, GAAR
may be invoked.
Additionally, as all rights of shareholders of X Ltd. are being exercised by Y Ltd
instead of A Ltd, it again shows that A Ltd lacks commercial substance.
Hence, it is possible to invoke GAAR, in this case.
Impact of GAAR
1. U/s. 95, it is stated that any arrangement may be declared as IAA. Thus, the
initial burden is on the AO to treat the transaction as an IAA.
2. U/s. 98, it is stated that if any arrangement is declared to be IAA, then the
consequences shall be determined in such manner as is deemed appropriate, in the
circumstances of the case. The circumstances of case may results in denial of any
tax benefit or benefit under DTAA. The impact of treating a transaction as IAA
may result into following illustrative situations: -
(a) disregarding, combining or re-characterising any step in, or a part or whole
of, the IAA;
(b) treating the IAA as if it had not been entered into or carried out;
(c) disregarding any accommodating party or treating any accommodating party
and any other party as one and the same person [treating accommodating
party as benami];
(d) deeming persons who are connected persons in relation to each other to be
one and the same person for the purposes of determining tax treatment of
any amount; [holding concerns as benami]
(e) reallocating amongst the parties to the arrangement—
(i) any accrual, or receipt, of a capital or revenue nature; or
(ii) any expenditure, deduction, relief or rebate;

Chapter 40
TAX EVASION & GAAR
(f) Treating—
(i) the place of residence of any party to the arrangement; or
(ii) the situs of an asset or of a transaction, at a place other than the place
of residence, location of the asset or location ofthe transaction as provided
under the arrangement; or
(g) considering or looking through any arrangement by disregarding any
corporate structure. [lifting of corporate veil/ disregarding the alter-ego]
Important Definitions
1. Arrangement: -
a. Means whole/ part/ step in of any transaction/ operation/ scheme/
agreement/ understanding
b. Covers transactions, whether enforceable or not. Includes alienation of property.
2. Associated person
Type of Assessee Associated Person (AP)
Individual Relative (same as u/s. 56(2)(x)
HUF Member or relative of member
Company Director or relative of director
Firm/ AOP/ BOI Partner or relative of partners/ members
Other Persons (¡) Any individual or his relative has substantial
interest in business of assessee.
(ii) Any concern or its Director/ Partner/ Member
etc or their relatives have substantial interest
in business of assessee.
1. Further following concerns shall also be AP: -

(a) Who has a substantial interest in the business of assessee. Also Director/
Partner/ Member etc. of such concern shall be AP. (Group Concern)
(b) Whose Director/ Partner/ Member etc. have substantial interest in business of
assessee. (Concern under Common Management)

2. “Substantial interest” means: -

(a) If concern is company: - Individual alone or with his/her relatives, at anytime
during P.Y., beneficially own equity shares carrying not less than 20% voting rights.
(b) In any other case: - Individual alone or with his/her relatives, at anytime during
P.Y., atleast 20% of the profits of such concern.
3. “Tax benefit” means: -
(a) Reduction/ avoidance/ deferral of tax under domestic law/ DTAA
(b) Increase in refund under domestic law/ DTAA
(c) Reduction in total income/ increase in loss.
4. “Party” also covers Permanent Establishment (PE).
# Section 144BA: Power to treat a transaction as IAA - Procedural Provisions

PC/C : Principal Commissioner/Commissioner
AP : Approving Panel
IAA : Impermissible Avoidance Agreement
AO : Assessing Officer

Chapter 40
TAX EVASION & GAAR
A.O. to make reference to PC/C at any stage of Asst./Reassessment

proceedings, on the basis of material & evidence available to declare
an arrangement as IAA and determine its consequence
The PC/C to issue notice to assessee for submitting

objections and providing an opportunity of being heard
within a period not exceeding 60 days
If assessee does not furnish If assessee objects to the

objection to the notice within proposed action
prescribed time
PC/C to issue such directions If PC/C is not satisfied If PC/C is satisfied with
as he deems fit for declaring with the explanation of the the explanation of the
the arrangement to be an IAA assesse assessee
PC/C to make reference PC/C to communicate the same

to the AP for declaring to the AO by order in writing
arrangement as IAA with a copy to the assessee
AP to give an opportunity of being heard to the assessee
For further inquiry, direct the Call for and examine such Require the assessee to
PC/C to make such inquiry and records relating to the furnish such docs and
furnish report matter as it deems fit evidence as it may direct
AP to issue directions for declaration as an IAA and specifying the PYs in respect Directions
of which it is so declared within 6 months from the end of the month of receipt of binding on
reference
the assessee,
PC/C and
No appeal AO to complete the proceedings in accordance with such subordinate
shall lie directions and provisions of Chapter X-A IT authorities
against such
Directions
Prior approval of the PC/C required for passing assessment
order, if any tax consequences have been determined in the
order as per the provisions of Chapter X-A

42 PENALTIES & PROSECUTION
Section Nature of Defaults Quantum of Penalty Who can Remark

impose penalty
221(1) Failure to pay the Maximum: Amount of AO This is in
whole or part of the tax in arrears addition
self-assessment tax, to interest
demand of tax, TDS, u/s 220
TCS
270A Mis-reporting/ Under- Under-reporting- 50% AO, CIT, CIT(A) Discussed
reporting of income of tax on under- later
reported income
Misreporting - 200%
of tax on mis-
reported income
271A Failure to keep, D 25,000 AO, CIT(A)
maintain or retain
books of accounts as
required by section
44AA.
271AA (a) Failure to keep 2% of the value of AO, CIT(A)
and maintain such transaction
information and
documents as
required u/s 92D
(both for internati-
onal transaction or
specified domestic
transaction; or
(b) fails to report
such transaction
which he is required
to do so; or
(C) maintains or

PENALTIES & PROSECUTION Chapter 42
furnishes an incorrect
information/ document
271AAB Undisclosed income 30/60% of AO OR Note-1
found in search undisclosed income CIT(A)
271AAC Unaccounted income 10% of tax on AO (a) Penalty shall
u/s 68-69D unaccounted income OR not be levied if
u/s 115BBE CIT(A) such income
offered in return.
(b) No penalty on
unaccounted
income shall be
levied u/s 270A.
271AAD False entry or an omis 100% of amount of AO Note - 2
-sion of any entry such False entry or
which is relevant for omitted entry
computation of total
income of such person,
to evade tax liability
271AAE Any Trust referred 100% of Amount AO
u/s 11 or Institution applied in case of
u/s 10(23C) gives any 1st Time violation,
benefit to related 200% of Amount
person u/s 13(1) applied in case of
(Benefit to trustee, subsequent
founder etc.) violation
271B Failure to get 0.50% of sales, AO If books are
accounts audited turnover or gross NOT maintained
upto due date u/s receipts (subject penalty u/s 271A
44AB to maximum shall be levied &
D 1.50 lacs) NOT u/s 271B
271BA Failure to furnish a D 1,00,000 AO
report of CA u/s 92E

Chapter 42 PENALTIES & PROSECUTION
271D Any loan or deposit or Amount of the loan JCIT

specified advance is /deposit so taken
taken/accepted in or accepted
contravention of
section 269SS
271DA Any transaction of sum equal to JCIT
D 2 lacs or more in amount received
contravention of
section 269ST.
271E Any loan or deposit or Amount of loan or JCIT
specified advance is deposit so repaid
repaid in contravention
of section 269T
271FA Failure to furnish SFT D 500/- per day till AO However, on failure
or Reportable Accounts period of notice to file the same
within the prescribed after expiry of
time notice, penalty
would be D1000
per day of notice.
271FAA Inaccurate information D50,000 Prescribed Penalty will be levied
in SFT or I.T. only if the prescribed
Reportable Accounts Authority conditions are
fulfilled. Please
refer Chapter
"MISC Provision.”
271G Failure to furnish 2% of the value
any information or of international
u/s 92D transaction
271GA Failure to furnish 2% of Transaction
information or Value
document u/s 285A,by
Indian Concern -where

transaction has effect

of directly or indirectly
transferring the right
of management or
control in relation to
Indian Concern
Failure to furnish D5,00,000
information or
document u/s 285A,
by Indian Concern -
other cases
271GB Failure to furnish D5,000/- per day Prescribed Refer Transfer
report or furnishing upto one month authority Pricing Topic
inaccurate report in D 15,000/- per day
respect of entity of the reafter
International Group
271J Furnishing of D10,000/- per A.O.
incorrect information failure CIT(A)
in any report or
certificate by CA/
Merchant Banker/
Registered Valuer
Notes: 1 Penalty in case of Search (Section 271AAB)
A. Rate 30%
(a) assessee during search admits the undisclosed income; and
(b) specifies the manner in which such income was earned; and
(c) pays tax+ interest on undisclosed income; and
(d) furnishes the return of income declaring undisclosed income, before the due
date u/s. 139(1)/ period specified u/s. 148 notice.
B. Rate of 60% - in other cases
Note : 2
AO/CIT(A) may direct that any other person, who causes the person in any manner to make a

false entry or omits or causes to omit any entry, shall also pay by way of penalty of
100% of sum of such false or omitted entry.
Explanation:
"false entry" includes use or intention to use—
(a) forged or falsified documents such as a false invoice or, in general, a false piece of
documentary evidence; or
(b) invoice in respect of supply or receipt of goods or services or both issued by the person
or any other person without actual supply or receipt of such goods or services or both; or
(c) invoice in respect of supply or receipt of goods or services or both to or from a person
who does not exist.
# Sec 270A : Penalty for Under reporting / Mis-reporting of income

Who can initiate penalty :- a) AO - For addition made in assessment
b) CIT (A) - For enhancement in appeal
c) CIT - For Addition made in revision u/s 263
Part-A : First time Assessment
Return Not Filed or return filed first time u/s 148 Return Filed
Assessed Income › Basic Exemption Assessed income › Income Determine

u/s 143(1)
URI = a) Company (Firm) Assessed URI = Income Income
Local Authority Income Assessed Determine
b) Other Cases = Assessed Income u/s 143(1)
Basic exemption
Tax on URI Tax on URI
Tax on [ URI + Basic exemption] Tax on URI + Income determined xxx
(if applicable) u/s 143(1)
-Tax on income determine
u/s 143(1) (xxx)
xxxx

Part-B : Reassessment
Income re-assessment Income assessed or reassessed just

before such reassessment
URI = Reassessed income - Income assessed or reassessed earlier
Tax on URI
Tax On [ URI + Income Assessed in last order ] xxxx
-Tax on Income Assessed in last Order (xxxx)

xxxx
Part : C : Losses Claimed Reduced or Converted in to income
URI = a) Loss Claimed - Losses assessed or reassessed

b) Loss Claimed - Income assessed or reassessed
Tax on URI : Tax on URI as if it were the total income of the Assessee.

Part-D Income Assessed or re assessed as per sec 115JB/115JC (MAT/AMT)
First Time Assessment Reassessment
Return Not Filed or return filed first time u/s 148

Return Filed
Deemed Total Income
(BP/ATI) Assessed as Basic Exemption
per sec 115JB/JC
Deemed Total Income Deemed Total

Assessed as per sec Income determine
115JB/115JC as per sec 143(1)
Deemed Total Income Deemed Total

reassessed as per sec Income assessed/
115JB/115JC reassessed earlier
URI = (A-B) + (C-D)
A) = Total income assessed / reassessed as per General Provision xxx
B) = Total Income Assessed / reassessed reduced by URI (xxx)
xxx
C) = Total Income Assessed / reassessed as per sec 115JB / 115JC xxx
D) = Total Income Assessed/reassessed as per 115JB/115JC reduced by URI (xxx)
xxx
Note : URI in B & D are the same, then URI Shall Not be Considered in “D”
# Intangible Adjustment :
In a case where the source of any receipt, deposit or investment appearing in the
current assessment year is claimed to be an amount added to income, as the case may
be, in the assessment of such person in any earlier assessment year and no penalty was
levied for such preceding year, under-reported income shall include such amount

as is sufficient to cover such receipt, deposit or investment. Such amount shall be

deemed to be the amount of income under-reported for the preceding year in the
following order:-
- The preceding year immediately before the year in which the receipt, deposit
or investment appears, being the first preceding year; and
- Where the amount added or deducted in the first preceding year is not
sufficient to cover the receipt, deposit or investment, the year immediately
preceding the first preceding year and so on.
AO found that unexplained deposit 15,00,000 in AY 19-20. Assessee explain that it is

made out of intangible adjustment made in past
A.Y Amount
17-18 Nil
16-17 5,00,000
15-16 7,00,000
14-15 Nil
13-14 12,00,000
In this case 15,00,000 is treated as concealment Income of respective years

AY 16-17 5,00,000
AY 15-16 7,00,000
AY 13-14 3,00,000
Penalty for concealment of income as per law relevant in above AY's shall be levied.
# Following would be cases involving Mis-reporting:

i. Misrepresentation or suppression of facts (Normal LTCG shown as LTCG u/s 112A)
ii. Failure to record investments in books of account (A.O. Discovered Investment)
iii. Claim of expenditure not substantiated by any evidence (Bogus Bills)
iv. Recording of any false entry in books of account (Bogus Expenditure)
v. Failure to record any receipt in books of account having a bearing on total income ; and
vi. Failure to report any international transaction or deemed international transaction or
specified Domestic Transaction under Chapter X.

A. Cases not included within the scope of under-reported income under section
270A [Section 270A(6)]:
Sr. No Case Condition
1. The amount of income in (a) AO / CIT / CIT(A) is satisfied that
respect of which assessee explanation is bona-fide; and
offers explanation (b) all material facts have been disclosed
to substantiate the explanation.
2. The amount of under If the accounts are correct and complete to
reported income is the satisfaction of the income-tax
determined on estimate authority but the method employed is
such that the income cannot properly be
deduced therefrom.
3. The amount of under (a) Assessee has, on his estimate, made
reported income is addition, disallowance of same on lower
determined on estimate side; and
(b) included such income in computation of
income; and
(c) disclosed all material facts relevant to
addition, disallowance
4. The amount of under (a) Assessee has maintained prescribed
reported income records u/s 92D
represented by an addition (b) declared international transaction
made in conformity with under Chapter X
ALP determined by TPO (c) disclosed all material facts relating to
the transaction
5. Amount of undisclosed Where penalty is leviable u/s 27 1AAB in
income on account of respect of such undisclosed income.
search
B. Quantum of penalty:
- under-reporting - 50% of tax on under-reported income
- misreporting - 200% of tax on under-reported income

C. PCIT/CIT has the power to reduce or waive penalty u/s 270A if he is satisfied that:
(i) Assessee has voluntarily made a full and true disclosure of all facts related to his income
in good faith even before detection of the same by the AO, and
(ii) Assesser has co-operated with dept on any enquiry, and
(iii) He has paid the applicable taxes along with interest in full.
Above relief is available to an assessee only once in his lifetime
D. Sec 270AA: Immunity from imposition of penalty & Prosecution on under-reported

income
Assessee may file an application to AO for grant of immunity of penalty u/s 270A &
prosecution if:
(i) He paid taxes along with applicable interest within time limit as per notice of demand, and
(ii) Does not file an appeal against the order of AO.
Notes :
1. No immunity shall be granted by the AO in case of mis-reporting of income.
2. Application has to be made within 1 month from end of the month in which order of AO
received.
3. AO has to pass an order accepting or rejecting application within 1 month from end of
month which application is received after providing assessee an opportunity of being
heard.
Sec Nature of default Rigorous +Fine

imprisonment
275A Contravention of Upto 2 years Fine
● order of deemed seizure under 2nd
proviso to sec 132(1)
● restrain order u/s 132(2)
275B Failure to provide necessary facility Upto 2 years Fine
to the Authorised officer to inspect
books of a/c u/s 132(1)(iib)

276 Removal, concealment, transfer or Upto 2 years Fine

delivery of property to thwart tax
recovery
276A Failure by liquidator of company to 6months to 2 years Fine
intimate his appointment to AO (or)
parts with assets without prior
intimation to IT authorities
276B/BB Failure to pay to CG, TDS,TCS 3 months to 7 years Fine
276C(1) Wilful attempt to evade tax, penalty, or Evasion/tax on URI > Fine
interest chargeable or imposable or 25 lac: 6 months to 7
under reports his income years (Otherwise:
3 months to 2 years)
276C(2) Wilful attempt to evade payment of tax, 3 months to 2 years Fine at the
penalty or interest discretion
of court
276CC Wilful failure to furnish ROI in DD u/s Tax Evasion > 25 lac : Fine
139(1), 142(1)(i), 148 6 months to 7 years
No prosecution if - Otherwise : 3 months
● ROI u/s 139(1) is furnished before
to 2 years
expiry of AY or a return is furnished by him
u/s 139(8A) within the time provided in
that section or
● Tax payable by a person (not being a Co.)
on total income determined on regular
assessment net of TDS, TCS, advance tax
self-assessment tax, paid before expiry of
AY is upto 10,000
276D Wilful failure to produce a/c and Upto 1 year Fine

documents u/s 142(1) or 142(2A)
277 False statement in verification Tax Evasion > 25 lac : Fine

6 months to 7 years
Otherwise : 3 months
to 2 years

277A Falsification of books of a/c or doc etc. 3 months to 2 years Fine

to induce or abet any person to evade
any tax, penalty or interest chargeable
or imposable under the Act.
It is not necessary to prove that the
other person has actually evaded any
tax, penalty or interest under the Act
for the purpose of establishing charge
under this sec.
278 Abetment of false return etc (relating Tax Evasion > 25 lac Fine
to any income chargeable to tax) : 6 months to 7years
Otherwise: 3 months
to 2 years
278A Second and subsequent offence u/s 6 months to 7 years Fine
276B, 276BB, 276C(1), 276CC, 277, for every
278 subsequent offence
280(1) Disclosure of particulars by public Upto 6 months Fine
servants in contravention of section
138(2).
No Prosecution without previous
sanction of CG u/s 280(2)
Muthoot Financiers (2015)(Del)

Is penalty under section 271D imposable for cash loans/deposits received from partners?
The HC observed that, in this case, there was no dispute as regards the money brought in by
the partners of the firm. The source of money was also not doubted. The transaction was
bona fide and not aimed to avoid any tax liability. The credit worthiness of the partners and
genuineness of the transactions coupled with relationship between the 'two persons' and two
different legal interpretations put forward, could constitute a reasonable cause in a given
case for not invoking sections 271D /271E.
The HC held that the issue being a debatable one, there was reasonable cause for not levying
penalty.

V. Sivakumar (2013)(Mad.)
Can loan, exceeding the specified limit, advanced by a partnership firm to the sole-
proprietorship concern of its partner be viewed as a violation of section 269SS to attract levy
of penalty?
HC held that there is no separate identity for the partnership firm and that the partner is
entitled to use the funds of the firm. In the present case, the assessee has acted bona fide
and that there was reasonable cause within the meaning of sec 273B.
Transaction cannot be said to be in violation of section 269SS and no penalty is attracted in
this case.
Triumph International Finance (I.) Ltd. (2012)(Bom.)
Where an assessee repays a loan merely by passing adjustment entries in its books of account,
then such repayment of loan by the assessee cannot be taken as a contravention of the
provisions of sec 269T to attract penalty u/s 271E if the transaction is bona fide in nature
being a normal business transaction and has not been made with a view to avoid tax.
Eurotech Maritime Academy Pvt. Ltd. [2019](Ker)

Can penalty under section 271C be levied for the non-remittance of the TDS to the credit of
the CG ?
Section 271C provides that if any person fails to
(a) deduct the whole or any part of the tax as required by or under the provisions of
Chapter XVII-B; or
(b) pay the whole or any part of the tax as required by or under -
(i) section 115-O(2)- DDT; or
(ii) the proviso to section 194B,
then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax
which such person failed to deduct or pay as aforesaid.
On a plain reading of this 271C, it appears that penalty is attracted only if a person fails to
deduct the TDS.
However, the Kerala HC, decided that penalty u/s 271C is also attracted for failure to remit
TDS. It has also opined that section 273B relief will not be applicable for such failure. This
may lead to an inference that both penalty u/s 271C and prosecution u/s 276B would be
attracted where there is a failure to remit TDS.
Bhavecha Machinery and Others (2010) (MP)

Prosecution proceedings u/s 276CC would not be attracted where the failure to furnish
return in time was not willful.

D. K. Shivakumar [2021] (Kar)
Can prosecution be launched in every case where unaccounted transactions (like unaccounted
loan) are unearthed during search, irrespective of whether there is a liability to pay tax,
penalty or interest under the Act in respect thereof ?
The gist of the offence under section 276C(1) is the wilful attempt to evade any tax, penalty
or interest chargeable or imposable on income. What is made punishable is “attempt to evade
tax, penalty or interest”.
There is no presumption under law that every unaccounted transaction (uncounted loan, in the
present case) would lead to imposition of tax, penalty or interest. Therefore, until and unless
it is determined that the unaccounted transactions unearthed during search were liable for
payment of tax, penalty or interest, no prosecution could be launched on the ground of
attempt to evade such tax, penalty or interest.

43 MISCELLANEOUS PROVISIONS
# Sec. 285BA : Statement of Financial Transaction (SFT) or Reportable Account

This statement is obtained to cross-verify the information in return of income / TDS
etc. Like details are collected from bank as to who deposited amount exceeding
D10 lakhs in cash in saving Bank Account.
(¡) Who is required to file Statement: - Certain specified persons are required
to file SFT
(ii) Due Date:- SFT or Reportable Accounts shall be filed upto 31st May of the
year immediately following the F.Y. in which the transaction is registered or
recorded.
# Consequences of Non-filing SFT or Reportable Accounts:

U/s. 271FA, the penalty is as under: -
(¡) on failure to furnish SFT or Reportable Accounts - penalty is D 500 per day, till the
period of notice.
(ii) However, on failure to file the same after expiry of notice, penalty would be
D 1000 per day after expiry of notice.
# Consequences of Filing incorrect information in SFT or Reportable Accounts: U/s,

271FAA, the penalty is D50,000 for furnishing inaccurate information by Prescribed
Reporting Financial institution, Penalty will be levied only if the prescribed IT
Authority is satisfied that: -
(a) The inaccuracy is due to failure to comply with the due diligence requirement
or is deliberate on the part of that person; or
(b) The person knows of the inaccuracy at the time of furnishing the SFT or
Reportable Accounts, but does NOT inform the prescribed I-T authority or
such other authority or agency; or
(c) The person discovers the inaccuracy after the SFT or Reportable Account is
furnished and fails to furnish correct information within section 285BA(6)
# Sec 281 : Certain Transfer to be Void

Where any tax, penalty, interest or fine more than ₹ 5,000 is payable by an assessee
and the assets which are charged or transferred by the assessee exceeds ₹ 10,000 in

MISCELLANEOUS PROVISIONS Chapter 43
value during the period [pendency of any proceedings under the Act till the service of
notice by TRO] shall be deemed to be void.
Exception : Charge or transfer shall not be treated as void if
1. If it is made on stock in trade of the business, or
2. It is made for adequate consideration & without notice of the proceedings being
pending or sum being due, or
3. With the prior approval of AO.
Manoj Kabra (2014) (All)

In order to declare a transfer as fraudulent u/s 281, an appropriate proceeding in
accordance with law was required to be taken u/s 53 of the Transfer of Property Act, 1882.
The AO is required to file a suit for declaration to the effect that the transaction of
transfer was void u/s 281 of the IT Act; but he himself cannot assume jurisdiction to
declare the sale deed as void.
# Sec 281B: Provisional attachment of Property

1. Where, during the pendency of any proceeding for the assessment of any income or for
the assessment or reassessment of any income which has escaped assessment or for
imposition of penalty u/s 271AAD where the amount or aggregate of amounts of penalty
likely to be imposed under the said section exceeds 2 crore rupees, AO, in order to
protect the interest of the revenue may provisionally attach any property of the
assessee after obtaining the prior approval of PCCIT/CCIT/PCIT/CIT or
PDGIT/DGIT/PDIT/DIT.
2. Such provisional attachment shall remain valid for a period of 6 months from the date of
order or such extended period as may be approved by the above higher authorities which
shall not exceed 2 years or 60 days after date of completion of assessment proceedings,
whichever is later.
3. The Assessee can alternatively furnish a bank guarantee to the AO & AO shall in such
cases, revoke the order for provisional attachment within 15 days of receiving
guarantee.

Chapter 43 MISCELLANEOUS PROVISIONS
# Sec 288: Authorised Representative

1. Any Assessee required to attend before any IT authority or ITAT can do so through an
authorised representative (AR)
2. Following persons are eligible to be AR of the Assessee:
» Employee of Assessee
» Officer of scheduled Bank in which assessee maintains a current a/c or has regular
dealings
» Legal Practitioner eligible to practice in Civil Courts
» Chartered Accountant (incl. CA Firm)
» Person who has passed accountancy exams recognised by CBDT (CS, CWA etc)
» Person who has acquired degree in Commerce or law from University approved by
CBDT
» Any other person as maybe prescribed.
# 285BB: Annual Information Statement (AIS)

The prescribed IT authority or the person authorised has to upload in the registered E-
filing account of the assessee, an annual information statement in the prescribed form
and manner and within the prescribed time along with the prescribed information in
possession of the said authority.
Accordingly, PDGIT (Systems) or DGIT (Systems) or any person authorised by him, to

upload in the registered account of the assessee an AIS in Form No. 26AS within 3
months from end of the month in which information received:-
Nature of information
» Information relating to TDS/TCS
» Information relating to SFT
» Information relating to payment of taxes
» Information relating to demand and refund
» Information relating to pending proceedings
» Information relating to completed proceedings

MISCELLANEOUS PROVISIONS Chapter 43
# Sec 285B: Submission of statements by producers of cinematograph films or persons

engaged in specified activity
Any person carrying on the production of a film or engaged in any specified activity, or
both, during the whole or any part of any FY shall, in respect of the period during which
such production or specified activity is carried on by him in such FY, furnish within 60
days from end PY, a statement in Form 52A to the DGIT/PDGIT (System) in the
electronic mode, containing particulars of all payments of over ₹50,000 in the aggregate
made by him or due from him to each such person as is engaged by him in such production
or specified activity.
Explanation- "Specified activity" means any event management, documentary
production, production of programmes for telecasting on television or over the top
platforms or any other similar platform, sports event management, other performing
arts or any other activity as may be notify.

44 SFT AND REPORTABLE ACCOUNT
Sl.No. Nature and value of transaction Class of person (reporting person)
1. (a) Payment made in cash for A banking company or a co

purchase of bank drafts or pay operative bank.
orders or banker's cheque of an
amount aggregating ten lakh
rupees or more in a financial year.
(b) Payments made in cash
aggregating to ten lakh rupees or
more during the financial year for
purchase of pre-paid instruments
issued by Reserve Bank of India
u/s. 18 of the Payment and
Settlement Systems Act, 2007
(51 of 2007).
(c) cash deposits or cash
withdrawals (including through
bearer's cheque) aggregating to
fifty lakh rupees or more in a
financial year, in or from one or
more current account of a person.
2. Cash deposits aggregating to ten A banking company or a Company.
lakh rupees or more in a financial operative bank,
year, in one or more accounts
(other than a current account and
time deposit) of a person,
3. One or more time deposits (¡) A banking company or a Company
(other than a time deposit made operative bank.
through renewal of another time (ii) Post Office
deposit) of a person aggregating to (iii) Nidhi
ten lakh rupees or more in a (iv) Non-banking financial company.
financial year of a person.

SFT AND REPORTABLE ACCOUNT Chapter 44
4. Payments made by any person of A banking company or a Co-

an amount aggregating to– Operative bank or any other
(i) one lakh rupees or more in company or institution issuing
cash; or credit card.
(ii) ten lakh rupees or more by
any other mode,
against bills raised in respect of
one or more credit cards issued to
that person, in a financial year.
5. Receipt from any person of an A company or institution issuing
amount aggregating ten lakh bonds or debentures.
rupees or more in a financial year
for acquiring bonds or debentures
issued by the company or
institution (other than the
amount received on account of
renewal of the bond or debenture
issued by that company).
6. Receipt from any person of an A company issuing shares.
amount aggregating ten lakh
rupees or more in a financial year
for acquiring shares (including
share application money) issued
by the company.
7. Buy back of shares from any A company listed on a recognized
person (other than the shares stock exchange purchasing its
bought in the open market) for own securities
an amount or value aggregating (Buy Back).
ten lakh rupees or more in a
financial year.
8. Receipt from any person of an A trustee of a Mutual Fund or

Chapter 44 SFT AND REPORTABLE ACCOUNT
amount aggregating ten lakh such other person managing the

rupees or more in a financial year affairs of the Mutual Fund as
for acquiring units of one or more may be duly authorized by the
schemes of a Mutual Fund (other trustee in this behalf.
than the amount received on
account of transfer from one
scheme to another scheme of
that Mutual Fund).
9. Receipt from any person for sale Authorized person as referred to
of foreign currency including any in clause (c) of section 2 of the
credit of such currency to foreign Foreign Exchange Management
exchange card or expense in such Act, 1999
currency through a debit or credit
card or through issue of travellers
cheque or draft or any other
instrument of an amount
aggregating to ten lakh rupees or
more during a financial year.
10. Purchase or sale by any person of Inspector-General appointed u/s.
immovable property for an 3 of the Registration Act, 1908 or
amount of thirty lakh rupees or Registrar or Sub-Registrar
more or valued by the stamp appointed u/s. 6 of that Act.
valuation authority referred to in
section 50C of the Act at thirty
lakh rupees or more.
11. Receipt of cash payment Any Person Subject to Audit u/s
exceeding two lakh rupees for 44AB
sale, by any person, of goods or
services of any nature (other
than those specified at Sl. No. 1 to
10 of this rule, if any.

SFT AND REPORTABLE ACCOUNT Chapter 44
The reporting person mentioned in column (3) of the Table under sub-rule (2) (other than
the persons at Sl.No.10 and Sl.No.11) shall, while aggregating the amounts for
determining the threshold amount for reporting in respect of any person as specified in
column (2) of the said Table,
(a) take into account all the accounts of the same nature as specified in column (2) of
the said Table maintained in respect of that person during the financial year:
(b) aggregate all the transactions of the same nature as specified in column (2) of the
said .Table recorded in respect of that person during the financial year;
(с) attribute the entire value of the transaction or the aggregated value of all the
transactions to all the persons, in a case where the account is maintained or
transaction is recorded in the name of more than one person;
(d) apply the threshold limit separately to deposits and withdrawals in respect of
transaction specified in item (c) under column (2), against Sl. No. 1 of the said Table.
Notification – 16/2021
For the purposes of pre-filling the ROI, a SFT u/s 285BA of the Act containing
information relating to capital gains on transfer of listed securities or units of Mutual
Funds, dividend income, and interest income shall be furnished by the persons in such
form, at such frequency, and in such manner, as may be specified by the PDGIT
(Systems) or the DGIT (Systems), as the case may be, with the approval of the Board,
namely:—
S. No. Nature of Transaction Reporting Person
1. Capital gains on (i) Recognised Stock Exchange;
transfer of listed (ii) depository as defined in the Depositories Act,
securities or units of 1996;
Mutual Funds (iii) Recognised Clearing Corporation;
(iv) Registrar to an issue and share transfer agent.
2. Dividend Income A Company
3. Interest income (i) A Bank or a co-op. bank
(ii) Post Master General
(iii) NBFC which holds a certificate of registration u/s
45-IA of the RBI Act, 1934, to hold or accept
deposit from public.

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# Section 145(1) Method of Accounting

Taxable as per specific

All the assessee following mercantile system

# Section 145(2) Income Computation and disclosure standards (ICDS)

# CBDT Clarification on ICDS

CA Bhanwar Borana 167 Compact V-1

INCOME COMPUTATION &

income under the relevant presumptive taxation scheme like 44AD,44ADA,44AE,44BB

ICDS-I: Accounting policies

Compact V-1 168 CA Bhanwar Borana

# CBDT Clarification on ICDS

ICDS-II : Valuation of Inventories

# "Inventories" are assets:

CA Bhanwar Borana 169 Compact V-1

INCOME COMPUTATION &

● in the process of production for such sale;

» Cost of Inventories shall include :

Compact V-1 170 CA Bhanwar Borana

CA Bhanwar Borana 171 Compact V-1

INCOME COMPUTATION &

ICDS-III : Construction Contract

# CBDT Clarification on ICDS

ICDS -IV Revenue recognition

Compact V-1 172 CA Bhanwar Borana

Interest Accrue on time basis.

# CBDT Clarification on ICDS

December 31/03/17 31/04/17 June

CA Bhanwar Borana 173 Compact V-1

INCOME COMPUTATION &

ICDS-V: Tangible Fixed Assets

Compact V-1 174 CA Bhanwar Borana

ICDS-VI: Effect of Change in Foreign Exchange Rates

# Foreign currencies transactions

» Conversion in Reporting Currency (MTM): at the last day of each PY

» Recognition of Exchange Difference:

CA Bhanwar Borana 175 Compact V-1

INCOME COMPUTATION &

# Forward Exchange Contracts:

ICDS VII Government grants

Compact V-1 176 CA Bhanwar Borana

# Recognition of Govt Grant:

# Treatment of Govt grant :

CA Bhanwar Borana 177 Compact V-1

INCOME COMPUTATION &

Treatment on Refund of grant:

Compact V-1 178 CA Bhanwar Borana

# Part B: Securities held by a scheduled bank or PFI:

CA Bhanwar Borana 179 Compact V-1

INCOME COMPUTATION &

ICDS IX: Borrowing Costs

# Qualifying asset means

Compact V-1 180 CA Bhanwar Borana

# CBDT Clarification on ICDS

CA Bhanwar Borana 181 Compact V-1

INCOME COMPUTATION &

ICDS X : Provisions, Contingent Liabilities and Contingent Assets

Compact V-1 182 CA Bhanwar Borana