16-08-2018 BACKGROUND Amended vide 8 th Amendment Rules 2018 - - PDF document

16-08-2018 1

Presented by CA Kusai Goawala 18th August 2018 For Aurangabad Branch of WIRC Organised by Direct Tax Committee of ICAI

BACKGROUND

 Amended vide 8th Amendment Rules 2018  Effective from 20th August 2018  To incorporate recent amendments to Act  To remove certain anomalies in the Form  Stringent Reporting Requirements  Almost entire Computation of Income to be certified True

and Correct

 Auditors Dilemma - Subjective areas also to be reported  Responsibility of Tax Auditor – Risk and Rewards

CA Kusai Goawala

Clause 4 : Indirect Taxes

 In addition to other indirect taxes like Sales tax, VAT, Excise

Duty, Service tax

 During AY2018-19, earlier indirect taxes were also applicable  GST to be included in the list of Indirect Taxes applicable to

the assessee

 GST registration number to be provided

CA Kusai Goawala

Clause 19 : Amounts admissible – Section 32AD

 Law – Section 32AD  Investment in New plant and machinery in notified backward

areas in certain states

 Following states covered :

• Andhra Pradesh
• Bihar
• Telangana
• West Bengal

CA Kusai Goawala

16-08-2018 2

 Investment after 1.4.2015 but before 1.4.2020  15% of cost of new asset allowed as deduction  Condition – cannot sell within 5 years from date of

acquisition except under mergers and acquisitions.

CA Kusai Goawala

Clause 19 – Amount admissible – Section 32AD

To report under Tax Audit

 Amount Debited to Profit and Loss

(all costs incurred on acquisition of new asset are not debited to Profit & Loss A/c except depreciation)

 Amount admissible  Whether all conditions fulfilled

CA Kusai Goawala

Clause 24-Deemed profits u/s 32AD

 If the new asset in respect of which deduction u/s 32AD

claimed

 Sold within 5 years, deduction allowed will be deemed

income

  Cross check of later non compliances leading to income

CA Kusai Goawala

Clause 26 – Section 43B

 Clause (g) added  Any sum payable to Indian Railways for the use of Railway

Assets

 Scope of Section 43B expanded.  Payments to railways for use of Railway assets like lease

rentals, etc allowable on payment basis

 The scope of 43B initially started with Statutory payments

expanded to contractual payments

CA Kusai Goawala

16-08-2018 3

Clause 29A – Forfeiture of advance received

 Whether any amount is to be included as income chargeable

under the head “Income from Other Sources” as referred to in clause (ix) of Section 56(2)

 The clause refers to income on forfeiture of advance in

course of negotiations for transfer of asset.

• Amount forfeited and
• Negotiations do not result in transfer
• The above conditions to be complied for the forfeiture to

be added as income.

CA Kusai Goawala

 This clause was inserted in AY 2015-16 – however, has been

brought in tax audit report now.

 Earlier the forfeited amount was deducted from cost of

asset.

 Tax was deferred now preponed  If applicable, report:

• Nature of Income
• Amount

CA Kusai Goawala

Clause 29B – Section 56(2)(x) – Tax on Deemed Gift

 Sections 56(2)(vii) and (viia) substituted.  Scope of earlier section expanded considerably  All entities covered – earlier AOP, BOI were not covered  Earlier some entities were covered for some of the assets  Widely held companies and shares of widely held companies

were not covered

 If applicable, report:

• Nature of Income
• Amount

CA Kusai Goawala

Understanding Law – Section 56(2)(x)

 Any amount by any person from any person – All entities

covered as recipient or givers a) Amount of money in excess of Rs.50000 in aggregate – without adequate consideration- Gift taxable b) Immoveable property

• Without consideration
• With inadequate consideration
• Difference greater than 50000
• 5% difference between Stamp Duty Value and

Market Value permitted.

• If above 5% entire difference taxable

CA Kusai Goawala

16-08-2018 4

c)

Moveable Property

• Property Defined
• Shares and Securities
• Jewellery
• Archaeological Collection
• Drawings
• Paintings
• Sculptures
• Work of Art
• Bullion
• Without Consideration
• With Inadequate Consideration
• Difference greater than 50000

CA Kusai Goawala

Exemptions

Any sum of money/property received – 1. From any relatives 2. On the occasion of marriage of an individual 3. Under a will or by way of inheritance 4. Contemplation of death of the payer or donor 5. From any Local Authority 6. From any fund or foundation or university or educational institution or a hospital or medical institution or any trust or institution referred to in clause (23C) of section10.

CA Kusai Goawala

7)

From or by any trust or institution u/s 12A or 12AA

8)

By any fund or foundation or university or educational institution or a hospital or medical institution referred to in sub clause(iv)/(v)/(vi)/(via) of clause (23C) of section 10

9)

By way of transaction not regarded as transfer under clause(i)/(iv)/(v)/(vi)/(via)/(viaa)/(vib)/(vic)/(vica)/(vicb)/(vid)/( vii) of section 47.

10) From an Individual by a trust created solely for benefit of

relative

CA Kusai Goawala

Transfers not considered

 Total or partial partition of a HUF  Gift or will or an irrevocable trust  A company to its subsidiary  A subsidiary to its holding  Amalgamation  Demerger  Business reorganization  Agricultural land in India, etc.

CA Kusai Goawala

16-08-2018 5

RELATIVES

In relation to an individual, means the-

• Husband
• Wife
• Brother or Sister of an individual/spouse
• Brother or Sister of either parents
• Any lineal ascendant or descendant of individual/spouse
• Spouse of relatives mentioned above

Poser- Alimony received on a monthly basis from ex-husband by a person as per Divorce Decree- taxable?

CA Kusai Goawala

Clause 30A – International Transaction – Associated Enterprises

 Whether any primary adjustment made under 92CE(1) ?  If

Yes

 Whether excess amount repatriated to India within time

limit (90days)

 If no – whether imputed interest – Amount as per rule10CB

a) Denominated in Indian currency- lending rate of SBI as

• n 1st day of april of PY + 325 basis points.

b) Denominated in foreign currency – 6 months LIBOR as

• n 30th september of PY + 300 basis points.

CA Kusai Goawala

Law relating to Section 92CE(1): -Transfer Pricing

 The assessee who undertakes International Transaction with

Associated Enterprises.

 If it makes primary adjustment in the transfer price –

following options. a) Suomoto by the Assessee b) By AO and accepted by the assessee c) Determined by an Advanced Pricing Agreement – Section 92CC d) Board makes Advance Price Agreement – Arms length Price

CA Kusai Goawala

e)

As per Scheme – 92CC The above is binding on Department as well as Assessee – for five years Unless law changes or facts changes

e)

Safe Harbour Rules – 92CB (determination of arm’s length price u/s 92C or 92CA Apply Rule 10TD –Various percentages of income and conditions in respect of various types of income)

e)

Result of resolution of an assessment by mutual agreement procedure under DTAA.

CA Kusai Goawala

16-08-2018 6

Clause 30B – Expenditure by way of Interest or any similar nature

 Associated Enterprises to Non Resident Enterprise 

By way of Interest or any similar nature paid by Assessee (Not applicable to Banking Company)

 Exceeding 30% of EBIDTA  Excess to be disallowed and carried for 8 Assessment Years.

CA Kusai Goawala

 If applicable, report:

a) Expenditure of Interest b) EBIDTA c) Interest > 30% of EBIDTA d) Interest expense brought forward from earlier years e) Interest expense carried forward to subsequent years.

CA Kusai Goawala

Clause 30C – GAAR – Impermissible Transactions – Section 96

 If applicable, report:

• Nature
• Amount of the tax benefit aggregate to all the parties in

the transaction

CA Kusai Goawala

Law on GAAR – Section 95 to 98

 Section 95 – An arrangement may be declared as

impermissible (section 96) and consequences (section 98) in relation to tax arising may be determined.

 Section 96 – Impermissible Transactions

a) Create rights obligations – not ordinarily created – arms length b) Directly/Indirectly misuse or abuse of any provisions of the Act c) Lacks Commercial Substance (section 97) d) Which are not ordinarily employed for the bonafide purposes.

CA Kusai Goawala

16-08-2018 7

 Section 97 – Lacks commercial substance

a) Inconsistent with/differs substantially with steps b) Involves round tripping/disguises value/location/source or

• wnership

c) Location of an asset/place of residence/transaction – with substantial commercial substance. d) No significant business risk or impact on cash flow except tax benefits.

CA Kusai Goawala

 Section 98 – Consequences

a) Disregarding ,combining or recharacterising any step b) Treating arrangement as non existing c) Disregarding any accommodating party d) Deeming persons as one person e) Reallocating receipt or expenditure f) Treating place of residence g) Looking through h) Equity may be treated as debt i) Capital items may be considered as revenue

CA Kusai Goawala

Exemptions

• The transactions having tax benefit up to 3 crore not

covered.

• Transactions with FII not covered.

CA Kusai Goawala

Clause 31 – Section 269ST

 Receipts/Payments of Rs.2 lakh or more.  From a person :

a) In a day b) In a single transaction c) Transactions relating to one event d) Any amounts received by an assessee or paid by an assessee to any person.

CA Kusai Goawala

16-08-2018 8

 Exemptions:

• Government payment/receipts
• Bank payments/receipts
• Covered under 269SS.

CA Kusai Goawala

Reporting under Tax Audit

 Name, address, PAN, Nature of transaction, Amount, date  (ba) – Receipts in cash  (bb) – Receipts in bearer or order cheque/draft.  (bc) – Payments in cash  (bd) – Payments in bearer or order cheque/draft.

CA Kusai Goawala

Clause 31(c),(d) & (e)-Typographical errors

 Following are the amendments:

a) Clause 31(c)(v): in case the repayment was made by cheque or bank draft, whether the same was taken or accepted “repaid” by an account payee cheque or an account payee bank draft. b) Clause 31(d)(ii): amount of “repayment of” loan or deposit or any specified advance received otherwise than by a cheque or bank draft or use of electronic clearing system through a bank account during the previous year.

CA Kusai Goawala

c)

Clause 31(e)(ii): amount of “repayment of” loan or deposit or any specified advance received by a cheque or a bank draft which is not an account payee cheque or account payee bank draft during the previous year.

CA Kusai Goawala

16-08-2018 9

Clause 34(b) – Anomaly rectified

 Earlier – If all returns filed within time limit – whether all

data covered in TDS return covered not required.

 This is rectified.  Even if return filed within time details of all reportable

entries in TDS returns to be verified and discrepancies to be reported.

 In depth TDS audit.  Responsibility of the Auditor

CA Kusai Goawala

36A – Deemed Dividend – Section 2(22)(e)

 Amount received.  Date  Law.

• Loan or advance given to a shareholder (holding 10% or

more shares) by a Closely held Company.

• To the extent the Company has reserves.

CA Kusai Goawala



Indirect method :

• Loan or advance given by the Company to another company – where shareholder

holds 10% or more in the Company and 20% or more in another company.

• Once loan or advance given – Section applies even repaid immediately.
• How to ascertain amount received by another company from a company – in Indirect

Method – no bank receipt in the hands of assessee. Example



Company A gives loan to Company B – Company C holds 10% in Company A and 20% in Company B.



Deemed dividend in the hands of Company C – How to ascertain by Auditors of C

CA Kusai Goawala

Clause 42 – Statement of Specified Financial Transactions – Compliance reporting

 ID No.  Type of Transaction  Due dates  Actual dates  Whether all information reported as required to be reported.  Forms 61, 61A and 61B.  Law

• Specified Financial

Transactions.

• All persons required to report if they have undertaken SFT.

CA Kusai Goawala

16-08-2018 10

SPECIFIED FINANCIAL TRANSACTIONS

 For Banking Company

a) Payment in cash of an amount aggregating 10 lakh rupees or more per annum

• for purchase of bank drafts/banker’s cheque/pay
• rders
• For purchase of pre-paid instruments issued by RBI

b) Cash deposits/withdrawal aggregating to 50 lakh rupees

• r more per annum

CA Kusai Goawala

c)

Deposit in cash of an amount aggregating 10 lakh rupees

• r more per annum

d)

One or more time deposits of a person aggregating 10 lakh rupees or more per annum

e)

Payments of an amount aggregating to:  1 lakh rupees or more per annum in cash,  10 lakh rupees or more per annum by any other mode, against bill raised in respect of credit cards issued

CA Kusai Goawala

 Cash deposits from 9/11/2016 to 30/12/2016 aggregating to

a) 12.5 lakh in one or more current A/c b) 2.5 lakh in one or more A/c



Cash deposits from 1/4/2016 to 9/11/2016

CA Kusai Goawala

 For Post Master General referred u/s 2(j) of the IPO Act,1898

a) One or more time deposits of a person aggregating 10 lakh rupees or more b) Deposit in cash of an amount aggregating 10 lakh rupees or more

 Cash deposits from 9/11/2016 to 30/12/2016 aggregating to

a) 12.5 lakh in one or more current A/c b) 2.5 lakh in one or more A/c



Cash deposits from 1/4/2016 to 9/11/2016

CA Kusai Goawala

16-08-2018 11

 For NBFC

a) One or more time deposits of a person aggregating 10 lakh rupees or more

 Others

a) Sales in cash of an amount aggregating more than 2 lakh rupees – (also refer Section 269ST for penalty) b) Receipt from any person aggregating to 10 lakh for acquiring bonds & debentures c) Receipt from any person aggregating to 10 lakh for acquiring shares.

CA Kusai Goawala

Clause 43 – Assessee or parent entity or Alternate Reporting Entity – Reporting Compliances Required to furnish the Report

Constituent entity ( Resident in India)

• Conditions for applicability-

a) Constituent international group b) Parent is Non-Resident

• If applicable, report in prescribed form & time.
• What to report?

a) Whether it is an alternate reporting entity or international group, or b) Details of parent entity or alternate entity & country in which entity is registered

CA Kusai Goawala

 Parent or Alternate Entity to report  When to report?

a) Within 12 months from end of said report accounting year.



Which form- 3CEAC/ 3CEAD/ 3CEAE

CA Kusai Goawala



What to disclose? a) Amount of revenue b) PBIT c) Income Tax paid d) Income Tax amount e) Share Capital f) Accumulated earnings g) Number of employees h) Tangible assets( except cash & cash equivalent)(in each of the country) i) Nature of business activity j) Where each of constituent is incorporated/ organized/ established/ resident

CA Kusai Goawala

16-08-2018 12

Clause 44 – GST information

 GST Deem Audit  Detailed break up of all expenditure incurred in following

heads

 To Registered Dealers

a) Exempted Categories b) Composition dealers c) Others

 To Unregistered Dealers  Total amount  Annual Return under GST due in January whereas Tax Audit

due in September

 Details to be compiled from the returns filed

CA Kusai Goawala

Any Questions ?

CA KUSAI GOAWALA

Thank You

CA Kusai Goawala kusai@gkdj.in 9823140520

CA KUSAI GOAWALA