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Googlies Bowled in Finance Bill 2021- No Balls or Not? Third Umpire Please Intervene!!
This article penned by our Founder Director Sh. Mayank Mohanka, FCA has been published in taxmann.com with the citation (2021) 124 taxmann.com 127 (Article). Knowledge is meant for sharing so this article is being shared here for the benefit of our Readers.
"Drawing an analogy from Indian Cricket Team’s spectacular comeback in the Test Series in Australia, our hon’ble FM Smt Nirmala Sitharaman in her budget presentation on 1.2.2021 before the Parliament has hoped for the same revival and comeback of our economy.
The fine print of the Finance Bill 2021, besides hitting some ‘Sixers’, has also bowled out some deadly ‘Googlies’. However, it appears that in delivering such ‘Googlies’, the ‘Bowler’ read the CBDT, may have crossed the bowling crease which somehow has been overlooked by the ‘Field Umpire’, read the Finance Ministry.
Now its up to the ‘Third Umpire’ read the President, to declare these ‘Googlies’ as ‘No Ball’ or not.
In this Taxalogue, I am trying to highlight some of these ‘Googlies’ which should be declared ‘No Balls’ by the Third Umpire, as under:
(i) Extension of Provisional Attachment u/s 281B to Pending Penalty Proceedings u/s 271AAD: The proposed amendment in section 281B relating to provisional attachment of property so as to enable its revocation by the AO even in cases of pending proceedings for imposition of penalty u/s 271AAD concerning fake invoices, is draconian and is amenable to be misused, and is definitely resulting in crossing the line of natural justice, fair-play and equity.
(ii) Subsuming of Block-Assessment Legislative Provisions in Income-Escaping Assessments & making ‘Flagged Information as per Risk Management Strategy’ sufficient to revoke section 147: The subsuming of the block assessments legislative provisions u/s 153A/153C in the newly substituted section 148 and the reduction in time-limit for reopening concluded assessments from 6 years to 3 years, seem to be fair propositions but the blanket presumption or the deeming fiction of possession of information by the AO in all search cases u/s 132 or requisitions u/s 132A, so as to enable him to revoke his jurisdiction u/s 148 is clearly undermining and disregarding the two decades, legal precedents in the form of binding judgements of the Hon’ble Supreme Court & the High Courts which have mustered the test and vigour of time and law.
Similarly, the consideration of any ‘flagged information based on risk management strategy’ as an ‘information’ so as to warrant assumption of jurisdiction u/s 147/148 in all cases also tantamount to giving unbridled and unfettered powers to the assessing authorities, faceless or otherwise, to use the sacrosanct window of 147/148 to reopen the already concluded assessments. In view of these provisions the so-called opportunity of being heard to the taxpayer u/s 148A before issuing notice u/s 148 appears merely to be an eye-wash. Further the existing mandatory condition of failure to disclose fully and truly all the material facts for the purpose of assessments by the assessee so as to reopen concluded assessments beyond 4 years have also been done away with.
(iii) Overturning of Supreme Court Judgements: The Finance Bill 2021 has overturned some of the well-established and settled legal propositions which have mustered the test and vigour of time and stamp of the hon’ble Supreme Court.
a. No Depreciation on Goodwill: Nullifying the SC judgement in Smiff Securities Ltd (2012) 348 ITR 302, the Finance Bill 2021 has proposed to amend section 2(11) to provide that block of assets shall not include goodwill of a business or profession and section 32(1)(ii) to provide that goodwill of a business or profession shall not be considered as a depreciable asset. The Explanatory Memorandum justifies this amendment stating that goodwill only appreciates and doesn’t depreciates in value.
b. Excess application of income by Charitable Trusts not allowed to be carried forward and adjusted against income of subsequent year: The landmark judgement of hon’ble Supreme Court in the case of CIT(E) vs Subros Educational Society (2018) 303 CTR 1 /166 DTR 257 (SC) holding that any excess expenditure incurred by the charitable trust in earlier assessment year could be allowed to be set off against income of subsequent years, has been overturned by the Finance Bill 2021 by inserting a new Explanation after 20th proviso to section 10(23C) as under:
“Explanation 2.–For the purposes of this clause, it is clarified that the calculation of income required to be applied or accumulated during the previous year shall be made without any set off or deduction or allowance of any excess application of any of the year preceding to the previous year;”
c. Non- allowability of Employees’ Contribution to specified Employees’ Welfare Funds like PF, ESI & Superannuation, as Deduction, if deposited after the due dates in the respective governing Acts, though deposited within the due date of filing ITR u/w 139(1).
The judgements of Hon’ble Supreme Court in the cases of CIT vs Alom Extrusions Ltd (2009) 185 Taxmann 416/319 ITR 306 (SC) & CIT vs Vinay Cement Ltd 213 CTR 268, have been nullified by inserting a retrospective Explanation 5 to section 43B to provide that the benefit of this section is not available to the employees’ contribution to specified employees’ welfare funds.
(iv) Extension of Faceless Adjudication mechanism to Last Fact Finding Appellate Authority: The Finance Bill 2021 has inserted a new subsection (7) in section 255, to enable the Central Government to notify a Scheme for Faceless Appeals before the final fact finding appellate authority i.e. the ITAT in line with and similar to the already implemented ‘Faceless Appeal Scheme, 2020’.
However, it needs to be appreciated that ITAT is the last fact-finding appellate authority as the High Court & Supreme Court admits substantial questions of law only and not of facts, so it is very essential and desirable that the proposed “Scheme for Faceless Proceedings before ITAT”, should be drafted carefully and meticulously and not simply copied from the existing Faceless Appeal Scheme, 2020, so as to enable complete adherence to the principles of natural justice and the rule of ‘audi alteram partem’ (hear the other side), i.e. grant of suitable opportunity of being heard to the appellant.
(iv) Reconstitution of AAR’s Board: The proposal to reconstitute the Board of Authority for Advance Rulings (AAR) with 2 members (not below the rank of Chief Commissioner) in place of the existing composition comprising of three much senior and independent Board Members with Chairman being the Judge of the Hon’ble Supreme Court, is amenable to be considered as an attempt to undermine the stature and independence of AAR.
(v). Restricted Relaxation to Senior Citizens aged 75 years and above having pension and interest income from filing ITRs. Accordingly, the provisions of section 139 mandating the return filing, won’t be applicable to specified senior citizens.
‘Specified senior citizen’ has been defined to mean an individual, resident in India, (i) who is of the age of 75 or more during the previous year; (ii) has pension income and interest income; (iii) has furnished a declaration in the prescribed format to the specified bank.
Finance Bill 2021 proposes to insert a new section 194P to require specified banks to compute total income of specified senior citizens and deduct tax at source thereon, after giving effect to deductions under Chapter VI-A and rebate, if any, allowable u/s 87A.
Googly: However, the interest income must be from the same pension paying bank only and that pension paying bank must also be notified by the Government, and for claiming refund, if any, ITR has to filed.
(vi) Other Googlies:
In addition to above, there are several other ‘googlies’ also being bowled by the Finance Bill 2021 which include:
a. deduction and payment of TDS @ 0.1% on purchase of goods exceeding Rs 50 lakhs in value if turnover in preceding year exceeds 10 crores;
b. provisions of higher TDS/TCS rate upto twice the applicable TDS rate in case of non-filers of ITRs in the preceding two assessment years if TDS/TCS is in excess of Rs 50,000 p.a.;
c. discontinuance of Income-tax Settlement Commission w.e.f. 1.2.2021,
d. expenditure incurred out of corpus funds donations and borrowings of charitable trusts and similar institutions not to be considered in the 85% application criteria;
e. capping the maximum limit of premium paid to Rs 2.5 lakhs p.a. from the existing 10% of the sum assured in ULIP u/s 10(10D);
f. inclusion of all transfers u/s 2(47) within the ambit of slump sale in section 50B and thereby nullifying the judgement of Hon’ble Bomaby High Court in the case of Bharat Bijlee ltd;
g. inclusion of liability under the law of any country in the ambit of the term ‘liable to tax’ used in many DTAA agreements,
h. cancellation of interest payable on refundable excess amount of tax, surcharge or penalty paid in Income Disclosure Scheme;
i) capping of exemption u/s 10(11)/(12) in respect of interest income on accumulated PF contribution by restricting the employees’ pf contribution amount to Rs. 2.5 lakhs p.a.
j) Substitution of section 45(4) and insertion of new section 45(4A) to tax the amount of capital asset, money or any other asset received by the partner in excess of the fair market value of the asset/capital balance lying at the time of dissolution or reconstitution (closing capital balance) of the firm, in the hands of the firm as capital gains, without the benefit of increased cost of acquisition i.e. the closing capital balance due to revaluation of assets or self-generated goodwill.
Concluding Remarks: For offering the TEA of Transparency, Efficiency and Accountability in true sense to the taxpayers, it has become essential for the ‘Third Umpire’ now, to intervene and give a good and fair decision confirming to the principles of fair-play, justice and equity. In other words, the Finance Ministry should reconsider the above discussed legislative amendments in the Finance Bill 2021, before the said Bill becomes an Act after receiving the Presidential Assent.
