THE FINANCE BILL 2022 DIRECT TAX RULINGS IMPACTED
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THE FINANCE BILL 2022
DIRECT TAX RULINGS IMPACTED
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www.library.taxsutra.comTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
Finance Bill, 2022 has proposed over 80 amendments to the
existing Income-tax Act. The Bill proposes some amendments,
which could have the effect of overruling quite a few Court and
Tribunal rulings.
Taxsutra Editorial Team has compiled a list of rulings that are
likely to be impacted if the amendments take effect as
proposed.
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
1. Revisionary Powers on TPO’s OVERRULED
Order [Section 263]
JCB India [TS-26-ITAT-2022(DEL)-TP]
It is proposed to amend the
Delhi ITAT rejected revisionary jurisdiction over TPO’s order as
provisions of section 263 of the
well as consequent assessment order passed in conformity with
Act so as to provide that the
TPO’s order. TPO passed an order and made an adjustment to
Principal Chief Commissioner or
the ALP of the royalty paid to the AE on one specific model and
the Chief Commissioner or the
AO passed the final assessment order in conformity with TPO’s
Principal Commissioner or
order. ITAT also held that due to restriction imposed under
Commissioner who is assigned
section 263(1), learned PCIT had no administrative power to
the jurisdiction of transfer pricing
revise the order passed by the TPO.
may call for and examine the
record of any proceeding under Tata Communications Limited [TS-361-ITAT-2013(Mum)-TP]
this Act, and if he considers that
Mumbai ITAT set aside the order of CIT observing that CIT did
any order passed by the TPO,
not have jurisdiction to revise TPO’s order passed u/s 92CA and
working under his jurisdiction, to
TPO’s order was binding on the AO. The TPO passed an order
be erroneous in so far as it is
proposing TP adjustment and AO passed an assessment order
prejudicial to the interests of
in conformity with the ALP determined by the TPO. CIT
revenue, he may pass an order
invoked 263 since TPO proposed adjustment on certain
directing revision of the order of
transactions in AY 2007-08 and similar adjustment was required
TPO. Consequential changes are
to be made in AY 2005-06 and 2006-07 also.
also be made in the provisions of
section 153 of the Act. Essar Steel Ltd [TS-698-ITAT-2012(Mum)-TP]
These amendments will take Mumbai ITAT held that CIT could not revise TPO’s order u/s
effect from 1st of April, 2022 263 as TPO functioned separately under DIT. ITAT further
observed that there was no clarity in provisions as to authority
who can revise TPO’s order. Noted that DIT should have
initiated revision proceedings instead of forwarding proposal toTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
CIT. Terming the assessment order not erroneous or prejudicial
to interest of Revenue, ITAT held it in conformity with TPO’s
order.
CONFIRMED
Agro Tech Foods Ltd [TS-681-ITAT-2020(HYD)-TP]
Hyderabad ITAT upheld CIT's revisionary jurisdiction u/s. 263
in setting aside TPO's order and directing TPO to recompute the
ALP. ITAT explained that TP order is a part of assessment order,
amenable to jurisdiction of CIT u/s. 263 and observed that any
order passed by the AO could be revised by the CIT and the
order of the TPO u/s 92CA was based on the reference of the
AO and therefore, it was also part of the assessment record and
could be revised by the CIT u/s 263.
2. Clarification on Deductibility of OVERRULED
Interest
M.M. Aqua Technologies Ltd [TS-645-SC-2021]
[Section 43B]
SC distinguished ruling in Gujarat Cypromet and allowed
Section 43B of the Act provides for assessee's appeals over disallowance of interest u/s 43B on it’s
certain deductions to be allowed conversion into a new loan under an agreement between the
only on actual payment. lender and borrower. Held that in the facts of the present case,
Explanation 3C, 3CA and 3D to Explanation 3C that was meant to plug a loophole could not be
Section 43B provide that any brought to the aid of Revenue based on well-established canons
interest referred to in these clauses of interpretation, which came to the rescue of the Assessee. SC
which has been converted into a held that Section 43B was not misused by not actually paying
loan or borrowing or advance shall interest but by converting interest into a fresh loan and
not be deemed to have been thus, bona fide transactions of actual payments were not meant
actually paid. to be affected, any ambiguity in the language of Explanation 3C
was to be resolved in favour of the assessee.
The Finance Bill, 2022 proposes to
amend Explanation 3C, Explanation CONFIRMED
3CA and Explanation 3D of by
clarifying that conversion of Gujarat Cypromet Ltd [TS-85-SC-2019]
interest payable under clause (d),
SC reversed Gujarat HC order and ruled in favour of Revenue,
clause (da), and clause (e) of
upheld AO's disallowance u/s. 43B for conversion of unpaid
Section 43B, into debenture or any
interest into loan. Noted that the interest liability which accrued
other instrument by which liability
during subject AY was not actually paid back by the assessee
to pay is deferred to a future date,THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
shall also not be deemed to have rather was sought to be adjusted in the further loan. Observed
been actually paid. that the statutory Explanation 3C was squarely applicable to
present case. SC remarked that, “It appears that the attention of
the High Court was not invited to Explanation 3C, we are, thus,
This amendment will take effect of the view that the AO has rightly disallowed the deduction as
from April 1, 2023 and will claimed by the assessee.”
accordingly apply in relation to Pennar Profiles Limited [TS-219-HC-2015]
the assessment year 2023-24 and
subsequent assessment years. HC reversed ITAT order, held interest liability converted into
loan was not interest payment, thus subject to Sec 43B
disallowance.
3. Business Reorganization Modified CONFIRMED
Return of Income
Dalmia Power Limited & Anr [TS-785-SC-2019]
[Section 170A]
SC ruled in favour of assessee companies and restored HC
The Finance Bill, 2022 proposes Single Judge order allowing revised return filed beyond Sec.
to insert Section 170A to enable 139(5) timeline, pursuant to NCLT approved amalgamation
the entities going through scheme. Sets aside HC division bench order. Directs Revenue to
business reorganization, for filing consider the revised return filed by assessees and complete the
of modified returns for the period assessment after taking into account the Schemes of
between the date of effectivity of Arrangement and Amalgamation as sanctioned by the NCLT.
the order and the date of issuance
Deep Industries Limited [TS-1056-HC-2021(GUJ)]
of final order of the competent
authority. Gujarat HC allowed Assessee's writ petition, held revised return
The proposed Section 170A has filed physically pursuant to NCLT approved scheme of
arrangement beyond the time-limit stipulated u/s 139(5) shall
an over-riding effect on Section
be considered for conducting assessment. HC observed that
139 and provides that in case of a
NCLT passed the order for sanction of scheme of arrangement
business reorganisation, where
for demerger on a date later than the date within which the
prior to the HC / ITAT / or
revised return could be filed and held that as the delay was
Adjudicating Authority’s order,
not caused due to omission or wrong statement, the provision
any return of income has been
of Section 139(5) were not applicable and the revised return
furnished by the successor under
the provisions of Section 139 for even though filed physically and not electronically, as required,
shall be considered. HC quashed the assessment order passed
any assessment year relevant to
and orders a fresh assessment after considering the revised
the previous year to which such
return and if needed, permit the Assessee to file the return
order applies, a modified return in
the prescribed form and manner electronically in a week's time. HC remarked that the AssesseeTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
can be furnished by the successor could have been saved from this ordeal, if it was permitted to
within six months from end of the revise the return in an electronic mode after NCLT passed its
month in which the order order approving the scheme of arrangement.
(competent authority such as
Padma Logistics & Khanij Pvt. Ltd. [TS-248-ITAT-2020(Kol)]
NCLT in case of
merger/demerger) was issued. Kolkata ITAT held assessee was eligible to claim set-off of
The amendment will take effect brought forward losses transferred from a division of the
demerged company in the revised return of income u/s. 139(5),
from April 1, 2022. noted that all the conditions stated in sec 72A(4) r/w sec
2(19AA) had been fulfilled. Assessee revised its original return
Taxsutra Note: The amendment
pursuant to High Court's sanction of demerger showing nil
uses the term “successor” – income by claiming set off of losses u/s. 72A(4) of the division
however, basis a reading of the of the demerged company, which was denied by the AO on
various grounds. ITAT discarded AO's reasoning that assessee's
memorandum, the intention
revised return was invalid as it was filed after issue of intimation
seems to be to cover all cases of u/s. 143(1) accepting the returned income in the original return.
business reorganization (such as Observed that it was impossible for the assessee to file a revised
return before issue of Sec.143(1) intimation, as the High Court
demerger) – hence, in the absence
sanctioned the demerger subsequent to which assessee was
of clarity, we have for the time qualified to claim the set off of losses. Further rejected AO's
being listed all rulings that may be reasoning that assessee did not file a loss return u/s. 139(3),
impacted assuming that demerger noted that at the time of filing of original return, the losses of
the demerged division did not belong to assessee and hence, it
is also covered by the scenario. was not having any loss to be carried forward.
4. OVERRULED
Clarification on allowability of Cess
& Surcharge as expenditure Sesa Goa Limited [TS-163-HC-2020(BOM)]
( [Section 40(a)(ii)]
Bombay HC held that Education Cess and Higher and
The Finance Bill, 2022 proposes to Secondary Education Cess was allowable as a deduction.
amend Section 40(a) by inserting Rejected Revenue’s stance and clarified that reference to any
Explanation 3 to clarify that for the 'cess' was made by the legislature in Sec. 40(a)(ii). Referring to
purpose of this sub-clause, the term the Income Tax Bill 1961 as introduced in the Parliament, HC
‘tax’ shall include and shall always noted that 'cess' was in fact included in Sec.40(a)(ii), however
deemed to have included any the same was omitted [while enacting the Act] pursuant to
surcharge or cess, by whatever recommendation made by Select Committee. Remarked that
name called, on such tax. since the deletion of expression cess” from the Income Tax Bill,
1961, was deliberate, there was no question of reintroducingTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
Taxpayers claimed deduction of this expression in Section 40(a)(ii) and that too, under the guise
cess and surcharge on the grounds of interpretation of taxing statute.
that ‘cess’ was not specifically
Chambal Fertilisers And Chemicals Ltd. [TS-489-HC-2018(RAJ)]
covered under Section 40(a)(ii) and
therefore, an allowable Rajasthan HC held that education cess could not be disallowed
expenditure. under the provisions of section 40(a)(ii). Relied on the CBDT
Circular No. F. NO. 91/58/66-ITJ(19) Dt. 18th May, 1967
The amendment is made where the word ‘cess’ had been deleted from the said section
retrospective to make clear the and noted that only taxes paid were to be disallowed for AY
position irrespective of the CBDT 1962-63 and onwards.
Circular No. 91/58/66-ITJ(19) dt.
May 18, 1967 Sicpa India Private Ltd [TS-154-ITAT-2020(DEL)]
This amendment is effective Delhi ITAT deleted disallowance u/s 40(a)(ii) w.r.t deduction
retrospectively from April 1, 2005 claimed on account of education cess on income-tax, dividend
and will accordingly apply in distribution tax and fringe benefit tax. Opined, perusing the
relation to the assessment year CBDT circular dated 19.05.1967, that ITO disallowing the cess
2005-06 and subsequent paid by the assessee was not correct and the Select Committee
assessment years had decided to omit the word 'cess' from the clause and its
effect was that only taxes paid were to be disallowed in the
assessment for the year 1962-63 and onwards. Held that
education cess was not a disallowable expenditure u/s 40(a)(ii)
having been expressly excluded therefrom.
Philips India Limited [TS-326-ITAT-2020(Kol)]
Kolkata ITAT held that Education Cess and Higher and
Secondary Education Cess on income tax was allowable as a
deduction. Clarified that no reference to any 'cess' was made by
the legislature in Sec.40(a)(ii) and thus, deduction for the same
was allowable.
CONFIRMED
Kanoria Chemicals & Industries Ltd [TS-1129-ITAT-2021(Kol)]
Kolkata ITAT held that education cess was not deductible u/s
40(a)(ii) as education cess was additional surcharge as per the
Finance Acts. ITAT took note of the provisions of Finance Act
of 2004 and 2011 as per which the education cess was an
additional surcharge levied on the income-tax. ITAT held thatTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
the issue was squarely covered by SC ruling in K.
Srinivasan where surcharge and additional surcharge were held
to be a part of the income-tax. ITAT observed that the SC ruling
and the provisions of Finance Act, 2004 and the relevant
provisions of Section 2(11) and (12) of the subsequent Finance
Acts were not brought to the knowledge of the two HCs
(Rajasthan and Bombay in Chambal Fertilizers and Sesa Goa
respectively) and thus, decided the issue in favour of the
Revenue.
5. Amendment & Clarifications on Mylan Laboratories Limited [TS-691-ITAT-2019(HYD)]
Allowability of Expenditure
ITAT Hyderabad dealt with the question of allowability of the
[Explanation 3(i) to Section 37(1)]
claim of litigation costs of Rs.141.50 Cr. u/s 37(1) where the
Finance Bill, 2022 proposed to assessee claimed it as business expenditure while the Revenue
amend Section 37 by insertion of treated it as payment of penalty for infringement/violation of
Explanation 3 to clarify that the EU Treaty in law, hence not eligible for deduction. The assessee
expression “expenditure incurred had claimed it to be disgorgement/compensatory, whereas the
by an assessee for any purpose Revenue had pleaded that it was only by coincidence that the
which is an offence, or which is penalty levied by EU was also exactly the same amount which
prohibited by law” under was received by the assessee from its foreign business co-
Explanation 1 to Section 37. As developer. Revenue argued that it is not disgorgement because
per clause (i) to Explanation 3, the the assessee received the sum from the foreign business co-
aforementioned expression shall developer, the payment by the assessee is to European
include an expenditure for any Commission. ITAT agreed with the Revenue that it cannot be
purpose which is an offence treated as disgorgement or compensatory in nature. ITAT also
under, or which is prohibited by, noted that assessee’s contention that such amount was paid on
any law for the time being in force, account of commercial expediency and was business loss which
in India or outside India was not examined by the Revenue, and set aside the order to
allow it as business loss if the income was offered to tax earlier.
This amendment is proposed to
come into effect retrospectively Taxsutra Note: In the wake of the proposed amendment, the
from April 1, 2022 and will observation of ITAT gains more significance in the cases where
accordingly apply in relation to the it is established that an expenditure is incurred for any purpose
AY 2022-23 and subsequent AYs. which is an offence or an act prohibited by law outside India.THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
Amendment & Clarifications on CONFIRMED
Allowability of
Kap Scan and Diagnostic Centre Pvt Ltd [TS-5878-HC-
Expenditure [Explanation 3(ii) to
2010(PUNJAB & HARYANA)-O]
Section 37(1)]
Punjab & Haryana HC overruled ITAT order allowing deduction
Finance Bill, 2022 proposed to
for commission paid by the Assessee (a diagnostic centre) to
amend Section 37 by insertion of
Explanation 3 to clarify that the private doctors for referring patients for diagnosis. HC referred
to CBDT Circular No.772 of 1998 explaining that assessee
expression “expenditure incurred
would not be entitled to deduction of payment made in
by an assessee for any purpose
contravention of law or opposed to public policy or of unlawful
which is an offence, or which is
nature. HC relied on MCI guidelines whereby a doctor was
prohibited by law” under
prohibited from taking commission for referring patients for
Explanation 1 to Section 37. As per
medical treatment and opined that when receiving commission
clause (ii) to Explanation 3, the
was illegal, giving commission was also illegal and accordingly,
aforementioned expression shall
include and shall be deemed to disallowed commission payments made by Diagnostic Centre to
private doctors in lieu of radiological referral cases.
have always included the
expenditure incurred by an Liva Healthcare Limited [TS-499-ITAT-2016(Mum)]
assessee to provide any benefit or
perquisite, in whatever form, to a Mumbai ITAT denied deduction u/s 37 for expenses
person, whether or not carrying on incurred towards doctors' foreign tours. Rejected Assessee's
a business or exercising a stand that such sponsored travel programs helped in
profession, and acceptance of such strengthening relations with doctors, which in turn helped in
benefit or perquisite by such person generating more and more business for assessee-company.
is in violation of any law or rule or Noted that spouses of doctors were also accompanied to
regulation or guideline, as the case overseas trips and the arrangements included cruise travel to
may be, for the time being in force, island, gala dinners, cocktails, entertainment etc. and
governing the conduct of such hence overseas trips were merely to entertain doctors
person. abroad and lure doctors to solicit business for the assessee by
unethical , illegal and prohibited means and hence should be
The Memorandum Explaining the discouraged.
Finance Bill, 2022 referred to
Mumbai ITAT ruling in Macleods Ochoa Laboratories Ltd. [TS-366-ITAT-2017(DEL)]
Pharmaceuticals Ltd. [TS-963-
Delhi ITAT disallowed 50% of sales promotion expenses
ITAT-2021(Mum)] where after
as assessee (a pharma company) could not establish
extensively discussing the law on
the allowability of it’s claim. Noted that out of total sales
the subject, ITAT recommended the
promotion expenses, more than 50% was incurred
constitution of a larger bench to
on Dermacon conference” at Hyderabad, which included
consider the issue of deduction on
expenditure on the sponsoring of doctors such as hotel stay,THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
freebies to medical professionals Air/railway travel, car expenses for doctors who attended
u/s 37 and opined that co-ordinate the conference for which assesse filed no documentary
bench’s decision in PHL Pharma evidence in support of its claim for sponsoring of doctors and to
[TS-12-ITAT-2017(Mum)] did not explain how the expenses incurred on the family members of
reflect correct legal position and the doctors were incurred wholly and exclusive for the purpose
large number of other co-ordinate of business. Held that providing free air travel, stay and food in
bench decisions either following hotels, local car conveyance etc. for prescribing medicines of
said decision or the line of the assessee was akin to giving commission and certainly in
reasoning in the decision of PHL contravention of the public policy.
Pharma had not considered that
OVERRULED
said deduction was hit by
Regulations, 2002 of Indian Aristo Pharmaceuticals Pvt. Ltd. [TS-445-ITAT-2018(Mum)]
Medical Council Act, 1956.
Mumbai ITAT allowed deduction u/s 37 in respect of freebies
This amendment is proposed to given to doctors, rejected Revenue's stand that since payments
come into effect retrospectively were made in violation of MCI regulations, they were illegal and
from April 1, 2022 and will hence did not qualify for deduction in view of Explanation to
accordingly apply in relation to the Sec 37(1). ITAT observed that the MCI Regulation, 2002
AY 2022-23 and subsequent AYs. provided limitation/curb/prohibition only for medical
practitioners and not for pharmaceutical companies. Further,
remarked that The CBDT could not provide casus omissus to a
statute or notification or any regulation which had not been
expressly provided therein and since the same created a burden
or liability or imposed a new kind of imparity, could not be
reckoned retrospectively.
PHL Pharma P. Ltd. [TS-12-ITAT-2017(Mum)]
Mumbai ITAT allowed deduction u/s 37 in respect of freebies
given to doctors. Rejected Revenue's stand that since payments
were made in violation of MCI regulations, they were illegal and
hence did not qualify for deduction in view of Explanation to
Sec 37(1). ITAT observed that the MCI Regulation 2002
provided limitation/curb/prohibition only for medical
practitioners and not for pharmaceutical companies and could
not have any prohibitory effect and further held that such CBDT
circular which created a burden or liability or imposed a new
kind of imparity, could not be reckoned retrospectively.
Referred to the nature of expenses incurred and held them toTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
be in the nature of sales and business promotion, which had to
be allowed
UCB India Pvt. Ltd. [TS-5615-ITAT-2016(Mumbai)-O]
Mumbai ITAT held that Circular No.5 of 2012 providing for
disallowance of expenditure by pharma companies on gift
articles to doctors, was prospectively applicable, not applicable
to AY under consideration and deleted ad hoc disallowance of
gift articles to doctors as sales promotion expenses. Further,
held that when there was no dispute that the expenditure was
for purpose of business and the gifts display the logo of the
assessee company, Revenue’s assumption that a part of these
gifts might have not been used for the purpose of business, was
based on mere surmises and presumptions.
Pfizer Limited [TS-559-ITAT-2019(Mum)]
Mumbai ITAT allowed Sec. 37 deduction w.r.t Brand Reminder'
articles provided to Medical Practitioners, rejected Revenue's
stand that the expenses were unethical as per Indian Medical
Council (IMC) guidelines & regulations and hence not deductible
u/s 37 as specifically stated in CBDT Circular 05/2012 and held
that MCI guidelines were not applicable to pharma companies.
Rejected Revenue's contention that the expenses were against
public policy and noted that there was no written or oral
agreement which bound the Medical Practitioner to prescribe
only assessee's medicines. Further acknowledged assessee's
submission that articles given for brand reminder could not be
equated with the gift as the same was not given for the
exclusive benefit of the receiver and the doctors who receive it
derived little or no material benefit out of it, and noted that the
articles were of nominal value, not capable of influencing the
decision of such highly skilled medical practitioners. Held that
the expenses incurred were akin to advertisement and sales
promotion expenditure incurred in any other business and could
not be disallowed for reasons cited by the AO.
ICARUS Health Care P Ltd [TS-107-ITAT-2021(CHNY)]THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
Chennai ITAT allowed deduction u/s 37(1) in respect of
expenses incurred by way of gifts to doctors and remarked that
guidelines issued by MCI shall not be binding on the pharma
companies until and unless, the legislature passes any Bill and
were exclusively binding on the doctors only. Separately, ITAT
observed that Revenue failed to take note of the ledger account
submitted by the assessee to verify the credit card transaction
in relation to travel expenses claimed u/s 37(1) and directed AO
to verify the said facts.
Eli Lilly & Co (India) Pvt Ltd [TS-680-ITAT-2015(DEL)]
Delhi ITAT allowed deduction u/s 37(1) for expenditure
incurred on free samples given to doctors/medical practitioners,
took note of assessee’s contention that free samples were
distributed to doctors/medical practitioners in pursuance to
their specific requests, thus it could not be treated as ‘gifts’ so
as to trigger the hazards of CBDT circular.
Dupen Laboratories Pvt Ltd[TS-730-ITAT-2015(Mum)]
Mumbai ITAT allowed deduction u/s 37 for expenditure
incurred on distribution of free samples of medicines to
physicians and that the expenditure was solely incurred for
business purpose and the object of distributing free samples
was to inform physicians about curative value of medicines and
to create confidence amongst medical practitioners and the real
person who can create market for medicines were medical
practitioners
Solvay Pharma India Ltd [TS-21-ITAT-2018(Mum)]
Mumbai ITAT allowed deduction u/s 37 in respect of
advertisement and publicity expenses, rejected Revenue's stand
that expenditure was made in violation of Medical Council of
India's (MCI) regulations. ITAT held that CBDT circular could not
impose a burden on the assessee by enlarging the scope of a
different regulation issued under a different act. ITAT further
held that in absence of any express provision either under the
provisions of Income Tax Law or the MCI Regulations, CBDT
could not provide casus omissus to a statute or notification orTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
any regulation which was not expressly provided therein and no
offence of law was brought on record which prohibited the
pharmaceutical company not to incur any development or sales
promotion expenses, also observed that free sample of
medicine was only to prove the efficacy and to establish the
trust of the doctors on the quality of the drugs and it does not
amount to provision of 'freebies' to medical practitioners
Cipla Ltd. [TS-938-ITAT-2021(Mum)]
Mumbai ITAT allowed expenditure incurred on gifts, freebies
etc. given to medical professionals deductible, further held the
CBDT Circular No. 5/2012 to be prospective in application.
Pursuant to survey conducted on Assessee, Revenue found
Assessee had claimed expenditure incurred by way of gifts,
freebies, travel allowance monetary grants or advantage in kind
from pharmaceutical companies in contravention of MCI
guidelines and reassessment proceedings were initiated
Revenue had relied on the CBDT Circular contending the same
to be clarificatory in nature and disallowed said expense which
was confirmed by the CIT(A)
7. Bonus & Dividend Stripping OVERRULED
[Sub-Section (8) of Section 94, Adar Poonawalla [TS-240-ITAT-2017(PUN)]
Explanation to Section 94]
Pune ITAT allowed assessee's claim of set-off of short-term
The existing provisions pertaining capital loss (STCL) from sale of HCL technologies Ltd. (HCL)
to the prevention of tax evasion shares against long term capital gain (LTCG) from sale of City
through bonus stripping and Park Pvt. Ltd. (City Park). Noted that the transaction was
dividend stripping do not apply to genuine and not pre-planned to set-off against capital gains and
units of Infrastructure Investment clarified that scope of Bonus stripping u/s 94(8) is applicable
Trust (InvIT), Real Estate only to 'units' and not 'shares' of listed company.
Investment Trust (REIT) and
B G Mahesh [TS-7021-ITAT-2013(BANGALORE)-O],
Alternative Investment Funds
(AIFs). Further, the existing Bangalore ITAT upheld CIT(A)’s order wherein CIT(A) had
provisions of bonus stripping are observed that the provisions of section 94(8) were applicable
not applicable to securities. only to "units" which meant units of Mutual Funds only basis
Explanation in section 94(8) which clearly defined "securities" as
The Finance Bill, 2022 proposes
including "stocks and shares" and defined "units" to have the
to amend sub-section (8) ofTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
Section 94, to extend applicability same meaning as assigned in Explanation to section
of bonus stripping provisions to 115AB,wherein, "units" were defined as units of Mutual Funds
‘securities’. The amended only and therefore negated applicability of provisions of section
Explanation to Section 94 98(4) to securities, which included shares. Further, CIT(A)
redefines "units" to include units observing that in a similar provision introduced to curb dividend
of InvIT, REIT and AIFs. Thus, the stripping i.e. section 94(7) of the Act, both units and securities
Bill also proposes to extend the were included whereas "bonus stripping" was introduced vide
provisions of bonus stripping and Section 94(8) was made applicable to only units and hence it
dividend stripping provisions to was legislative intent to exclude the shares of companies from
aforementioned units. the ambit of the bonus stripping. Accordingly, ITAT concurred
with CIT(A)’s stand that “there is no legislative authority to deny
These amendments will take the loss intentionally created by the assessee; for what the law
effect from April 1, 2023 and will has not envisaged and has specifically excluded cannot be read
accordingly apply in relation to into the same by the Assessing Officer.”
the assessment year 2023-24 and
subsequent assessment years.
8. Disallowance under Section 14A OVERRULED
on Non-Accrual of Exempt
CHETTINAD LOGISTICS (P) LTD [TS-5361-SC-2018-O]
Income [Section 14A]
The Finance Bill, 2022 proposes SC dismissed SLP filed against Madras HC ruling [TS-5269-HC-
2017(MADRAS)-O] which had upheld non-applicability of
to amend Section 14A(1) to
Section 14A to facts where exempt income was not earned
include a non-obstante clause in
during the year. Accordingly, it was observed that since no
respect of other provisions of
the Income-tax Act and provide exempt income was earned in relevant AY by assessee, invoking
of provisions of Section 14A was not correct. Therefore, SC
that no deduction shall be
dismissed the SLP against the Madras HC order.
allowed in relation to exempt
income, notwithstanding OIL INDUSTRY DEVELOPMENT BOARD [TS-5058-SC-2019-
anything to the contrary in the O]
Act.
SC dismissed the SLP filed against the Delhi HC ruling [TS-
7416-HC-2018(DELHI)-O] which had upheld the order of Delhi
ITAT wherein disallowance u/s 14A was held not to be
applicable in the absence of exempt income.
GVK Project and Technical Services Ltd [TS-5137-SC-2019-
O]
SC dismissed the SLP filed against the Delhi HC order which
had upheld the ITAT order, wherein, applicability of SectionTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
14A disallowance was answered in negation by the ITAT,
absent exempt income earned by the assessee during the AY.
Cheminvest Limited [TS-504-HC-2015(DEL)]
Delhi HC reversed ITAT's special bench ruling, held no Sec 14A
disallowance in respect of interest expenditure attributable for
making strategic investments, absent earning of exempt income
therefrom. Observed that assessee made strategic investment
in shares of Max India limited out of the borrowed funds, but
did not earn any dividend income in the subject AY. Ruled that
since no exempt income was earned, there could not be any
disallowance u/s 14A.
McDonald's India Pvt. Ltd [TS-680-HC-2018(DEL)]
Delhi HC held that disallowance u/s. 14A could not be invoked
in absence of any exempt income earned by assessee. Observed
that the earlier rulings required reconsideration while referring
to rulings where the AO had himself restricted the disallowance
u/s. 14A to the amount of exempt income.
Holcim India (P) Ltd [TS-640-HC-2014(DEL)-O]
Delhi HC quashed disallowance of entire expenditure of an
investment company and held Sec 14A invocation was not
justified. It observed that assessee made investment by
purchasing substantial number of shares, thereby securing right
to management, however, rejected Sec 14A invocation as there
could be possibility of sale of shares by private placement etc.
resulting in taxable income.
Lakhani Marketing Incl [TS-5342-HC-2014(PUNJAB AND
HARYANA)-O]
Punjab & Haryana HC held that CIT(A) as well as the Tribunal
were right in allowing deduction of interest liability out of other
income and the claim of the revenue to disallow the same under
section 14A of the Act was not justified since there was no
receipt of exempted income for the concerned assessment
years (dividend from shares), Section 14A of the Act could notTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
be invoked. The Revenue contended that the assessee had
invested in shares of M/s Lakhani Marketing Incl. which had
yielded dividend income and was not forming part of total
income by virtue of Section 10(33) of the Act and hence interest
liability claimed for deduction from the income was
impermissible. The assessee stated that there was no dividend
income and in such a situation, provisions of Section 14A of the
Act had no applicability.
9. Validity of Proceedings Against OVERRULED
Predecessor Company [Section
Maruti Suzuki India Limited [TS-707-SC-2019-TP]
170(2A)]
SC dismissed Revenue’s appeal challenging HC-order quashing
The period of time involved in
assessment framed in the name of non-existent amalgamating
concluding a business
company (Suzuki Powertrain India). SC noted that AO was
reorganization is a long-drawn
informed about company’s closure pursuant to amalgamation,
process and is not time-bound,
still notice was issued u/s 143(2) in the name of erstwhile entity.
and often the reorganization is
Further, called the notice a substantive illegality and not a
from a preceding date. The
procedural violation of the nature adverted to in Section 292B.
income tax proceedings and
It also went onto clarify that participation in the proceedings by
assessments are carried on and
the assessee in the circumstances could not operate as an
often completed qua the
estoppel against law.
predecessor entities only, during
the pendency of the court Dimension Apparels Pvt Ltd [TS-610-HC-2014(DEL)]
proceedings. Various Courts have
held such proceedings and Delhi HC invalidated the assessment as assessee was ‘non-
consequent assessments illegal as existent’ by virtue of amalgamation. Going by the lines of
the predecessor assessee ceases section 170(2), it held that assessment for period prior to
to exist in the midst of a perfectly 'succession' date must be made on successor (i.e 'amalgamated
valid and legal proceeding. company') when predecessor could not be found. Further held
that framing of assessment against non- existing company a
The Finance Bill, 2022 with a view jurisdictional defect, not procedural and not curable u/s 292B.
to clarify about the validity of
assessment proceedings with Spice Entertainment Ltd [TS-475-HC-2011(DEL)]
regard to concluding business
Delhi HC held that once it was found that assessment was
reorganization under the Income-
framed in the name of non-existing entity, it did not remain a
tax Act, proposes to insert
procedural irregularity of the nature which could be cured by
Section 170(2A) which provides
invoking the provisions of Section 292B of the Act. It further
that the assessment or other
held that it was obligatory upon the AO to substitute the
proceedings pending orTHE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
completed on the predecessor in successor in place of the amalgamating company while framing
the event of a business the assessment. AO completed the assessment in the name of
reorganization, shall be deemed the amalgamating company (Spice Corp Ltd) despite being
to have been made on the informed about its amalgamation with M/s MCorp Private
successor. Limited).
The amendment will take effect Accenture Solutions Private Limited [TS-09-ITAT-2022(Mum)-
from April 1, 2022. TP]
Mumbai ITAT allowed Assessee's appeal, quashed assessment
order passed in the name of non-existent entity for being
jurisdictionally defective. Observed that despite prior
information of amalgamation with the Revenue which
was recorded in the draft and final assessment order, the
assessment was made in the name of the merged entity whereas
the DRP passed directions in the name of successor
entity. Revenue passed the final order in the name of
the merged entity. Rejected Revenue’s contention that the
Assessee participated in the assessment proceedings.
CONFIRMED
Vedanta Limited [TS-608-HC-2021(MAD)]
Madras HC dismissed writ petition against reassessment, held
proceedings to be valid since the error of issuing the notice u/s
148 in the name of a non-existent entity was rectified by the
Revenue during the course of proceedings and PAN was not
incorrectly mentioned. Held that where the notice was
communicated to an unknown person, alien to the Assessee,
then Section 292B could not have helped the Revenue but
where the notice was intended to be issued to a person to
whom it was to be issued and such person acknowledged
the PAN and responded to correspondences then there was no
reason to disbelieve the Revenue that the name mentioned
wrongly was a mistake to be fit within the provisions of Section
292B.THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
S.No. PROPOSED AMENDMENT RULINGS IMPACTED
10. Faceless Assessments [Section CONFIRMED
144B]
Bharat Aluminium Company Ltd. [TS-19-HC-2022(DEL)]
Section 144B is proposed to be Delhi HC allowed the writ petition preferred by Bharat
overhauled by substitution of sub- Aluminium Company Limited, held that Assessee has a vested
sections (1) to (8). Sub-section (9) right to personal hearing in a faceless assessment proceedings,
that renders the faceless thus, the personal hearing shall be given if an Assessee asks for
assessment void if conducted in it which cannot depend upon the facts of each case. Expounded
contravention of the procedure that the word 'may' in Section 144B(7)(viii) should be read
contained in Section 144B is as 'must' or 'shall', thus, held that the requirement of giving a
proposed to be deleted from its reasonable opportunity of personal hearing is mandatory.
very inception. Section
144B(6)(viii) proposes that where
the request for personal hearing
has been received, the income-tax
authority of relevant unit ‘shall’
allow such hearing, through
National Faceless Assessment
Centre, which shall be conducted
exclusively through video
conferencing or video telephony,
including use of any
telecommunication application
software which supports video
conferencing or video telephony,
to the extent technologically
feasible, in accordance with the
procedure laid down by the Board
This substitution of sub-sections
(1) to (8) of Section 144B will take
effect from April 1, 2022 whereas
Section 144B(9) is deleted
retrospectively from April 1, 2021THE FINANCE BILL 2022 - DIRECT TAX RULINGS IMPACTED
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