Critical Issues In Tax Audit under Income Tax Act, 1961

Critical Issues In Tax Audit under Income Tax Act, 1961 Pendse & Associates Chartered Accountants

BAR COUNCIL OF INDIA RULES : RULES ON AN ADVOCATE’S DUTY TOWARDS THE CLIENT 5. Uphold interest of the client : • It shall be the duty of an advocate fearlessly to uphold the interests of his client by all fair and honourable means. An advocate shall do so without regard to any unpleasant consequences to himself or any other. He shall defend a person accused of a crime regardless of his personal opinion as to the guilt of the accused. An advocate should always remember that his loyalty is to the law, which requires that no man should be punished without adequate evidence.

Representation on Extension of last date of filing of Income Tax Returns in Audit cases & Tax Audit Reports :

Standard on Auditing (SA) SA 700 (REVISED) Forming an Opinion and Reporting on Financial Statement.

Assessees Responsibility for the Financial Statements and Statement of Particulars in Form 3CD : 1. The assessee is responsible for the preparation and fair presentation of the financial statements in accordance with the aforesaid Accounting Standards issued by the Institute of Chartered Accountants of India, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 2. In preparing the financial statements, management is responsible for assessing the entity's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. • 3. Those charged with governance are responsible for overseeing the entities financial reporting process. • 4. The assessee is responsible for the preparation of the statement of particulars required to be furnished under section 44AB of the Income- tax Act, 1961 annexed herewith in Form No.3CD read with Rule with Rule 6G(1)(b) of Income Tax Rules, 1962 that give true and correct particulars as per the provisions of the Income-tax Act, 1961 read with Rules, Notifications, circulars etc that are to be included in the Statement.

Tax Auditors Responsibility: • 1. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements • 2. We are also responsible for verifying the statement of particulars required to be furnished under section 44AB of the Income-tax Act, 1961 Act, annexed herewith in Form No. 3CD read with Rule 6G (1) (b) of Income tax Rules, 1962. We have conducted our verification of the statement in accordance with the Guidance Note on Tax Audit under section 44AB of the Income-tax Act, 1961, issued by the Institute of Chartered Accountants of India.

FEW POSERS : • No requirement in any indirect tax law for registration how to report registration number ? • A builder converts its land held as stock in trade into capital asset whether reporting is required ? • Tax Audit Report u/s 44AB is signed on 30.09.2018 whether it is within time since since the words used in the section are ‘before the specified date’ and not ‘on or before the specifed date.’ • Stamp duty value on the date Conversion of inventory into capital asset is treated as FMV as per Rule 11UAB ? How far it is justified when the Act specifically defines the word FMV in sec. 2(22B) ?? • Whether a contingent liability debited to P&L A/c is required to be reported in 3CD ? • Proviso to Sec.50C restricts application of sec.50C if the consideration for transfer does not exceed 105% of consideration w.e.f. 01.04.2019 ? Whether it applies to previous assessment years ? • Can S.44AD apply simultaneously with Sec.44ADA ?

FEW POSERS : • Whether receipt of alimony has to be reported in 3CD ? • Whether sec.56(2)(x) applies to money received for consenting to divorce ? • Whether sec. 44AD applies to Director (not film related) receiving remuneration from a company, if TDS is made u/s 194J ? • Whether sec. 44ADA applies to an assessee being a TV Actor ? If he happens to be a Film Artist whether sec. 44ADA still applies to an assessee ? • Whether sec.44AB applies to mutual association like clubs etc. ? • If a person received a sum of 5,000 US Dollars in cash from Mr.Trump whether there is any violation of sec. 269ST.

8. Indicate the relevant clause of section 44AB under which the audit has been conducted • Sec.44AB(a) : TS/TO/GR in Business > 1Crore • Sec.44AB(b) : GR in Profession > 50 Lacs • Sec.44AB(c) : If PGBP (business) under section 44AE, 44BB etc < deemed income (8% or 6% of TS/TO/GR). • Sec.44AB(d) : If PGBP (profession) under section 44ADA < deemed income (50% of GR) & income exceeds maximum amount not chargeable to tax. • Sec.44AB(e) : If provisions of Sec.44AD(4) are applicable & income exceeds maximum amount which is not chargeable to income tax. • * Sec.44AB not applicable if TS/TO/GR is <= 2Crores and profit is declared in accordance with section 44AD(1).

INTERPLAY ON SECTION 44AB, 44AD, 44ADA & 44AE

ANOMALIES IN ANALYSIS OF SEC. 44AE Memorandum explaining finance bill 2018 reads as under … • The current presumptive income scheme is applicable uniformly to all classes of goods carriages irrespective of their tonnage capacity. The only condition which needs to be fulfilled is that the assessee should not have owned more than 10 goods carriages at any time during the previous year. Accordingly, the transporters who owns (less than 10) large capacity/ size goods carriages are also availing the benefit of section 44AE. It is necessary to mention here that the legislative intent of introducing this provision was to give benefit to small transporters in order to reduce their compliance burden. Even though the profit margins of large capacity goods carriages are higher than small capacity goods carriages, the tax consequences are similar which is against the principle of tax equity. • In view of the above, it is proposed to amend the section 44AE of the Act to provide that, in the case of heavy goods vehicle (more than 12MT gross vehicle weight), the income would deemed to be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, per month or part of a month for each goods vehicle or the amount claimed to be actually earned by the assessee, whichever is higher. The vehicles other than heavy goods vehicle will continue to be taxed as per the existing rates

ANOMALIES IN ANALYSIS OF SEC. 44AE • (14) "goods carriage" means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods; • (15) "gross vehicle weight' means in respect of any vehicle the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle; • (16) "heavy goods vehicle" means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms; • (48) "unladen weight" means the weight of a vehicle or trailer including all equipment ordinarily used with the vehicle or trailer when working, but excluding the weight of a driver or attendant; and where alternative parts or bodies are used the unladen weight of the vehicle means the weight of the vehicle with the heaviest such alternative part or body; • (49) "weight" means the total weight transmitted for the time being by the wheels of a vehicle to the surface on which the vehicle rests.

ANOMALIES IN ANALYSIS OF SEC. 44AE Under Income Tax Act : “expression “heavy goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms. The expression ‘unladen weight’ is misssing ?? 44AE(2)(i) : For the purpose of sub-section (1), the profits and gains from each goods carriage – (i) being a heavy goods vehicle, shall be an amount equal to 1000 rupees per ton of gross vehicle weight or unladen weight as the case may be, for every month ...... The phrase “as the case may be” meaning in clause sec. 2(i) which reads .... IS IT A CASE OF CASUS OMISSUS ??? Clarification issued by CBDT dt. 14.08.2019 permitting unladen weight for tractor or road-roller. How for Legal ? Carrying Capacity may be the correct yardstick ? (Intention of Legislature)

10. (a) Nature of business or profession (if more than one business or profession is carried on during the previous year, nature of every business or profession).(b) If there is any change in the nature of business or profession, the particulars of such change. • To decide whether it is business or profession (Nursing homes/Pathology Lab Collection Centres, IT Centres) • Nature of every business or profession be mentioned. • If any Change in nature, particulars of each change be reported. • - Amalgamation Merger, • - Permanent discontinuance, • - Temporary Suspension, • - Implications while defending penalty matters. Kindly co-relate with the relevant clause of section 44AB under which the audit has been conducted

12. Whether the profit and loss account includes any profits and gains assessable on presumptive basis, if yes, indicate the amount and the relevant section (44AD, 44AE, 44AF, 44B, 44BB, 44BBA, 44BBB, Chapter XII-G, First Schedule or any other relevant section.) • In the P&L account there is no profit assessable on presumptive basis, there is no requirement to report under this clause. • Possibile Situations ?? • Common Books for presumptive & non presumptive business income – Apportionment of Expenses. • Separate Books for presumptive & non presumptive business income – No Difficulty in Apportionment of Expenses. • Separate Books for non presumptive business income – and no books of accounts for presumptive business income – Net Income from presumptive business credited to P&L Account – Qualification in 3CB.

Give the following particulars of the capital asset converted into stock-in-trade:—(a) Description of capital asset; (b) Date of acquisition;(c) Cost of acquisition; (d) Amount at which the asset is converted into stock-in-trade. • (a) Description (Land, Bldg, Shares etc) • (b) Date (Refer Original Documents) • (c) Cost (Refer Original Documents/Bills etc) • In case of exchange where cost is not ascertainable ? • In case of self generated assets ? • In case where acquisition is before 01.04.2001 whose value is available but the assessee has option to adopt FMV on 01.04.2001 ? • The question whether the conversion is genuine can arise only the year of conversion and not in the next year. • For reporting FMV can a valuation report from a approved valuer be taken or Stamp duty value be adopted ? • In cases of transfers between parent and subsidiary which are exempted under 47(iv) & (v), they will be treated as transfer u/s 47A if within 8 years capital asset is converted into SIT or parent ceases to hold entire share capital ? * • *Capital gains would be chargeable immediately unlike sec.45(2). • Is conversion of stock in trade into capital asset to be reported? (28(via))

16. Amounts not credited to the p & loss account, being, - (a) the items falling within the scope of section 28; (b) .........;(c) .........; (d) any other item of income; (e) capital receipt, if any. . • a. A CA availed a tour to switzerland/singapore or a rent free accomodation against services rendered to a company ? [sec.28(iv)] • d. Waiver of loan/interest on capital account • e. Receipts on account of Alimony/LIC/Subsidies. • e. Compensation/damage received for settlement of personal dispute or withdrawing a criminal case. e. Damages received from builder for delay

16. Amounts not credited to the p & loss account, being, - (a) the items falling within the scope of section 28; • Case Study on Sec.28(ii)(e) : any person by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business. (also refer 56(2)(xi) for employment compensation) • Famous Actress received damages for loss of reputation (sexual harrasement) from Cola Cola employee of 1.45 Cr. Out of which 50 Lacs for out of business and 95 Lacs as damages. • In sec.28 harassment damages is not income - (income shows some regularitiy and harrassment damages are not regular) • Damages cannot be revenue receipts as fruits of a tree are revenue receipts, while tree is capital asset. Here also the damages were not of recurring nature and, hence, not revenue receipts. • Compensation for loss of source of income is a capital receipt. • Sec. 28(ii)(e) applies to Business and not Profession.

17. Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish : (a) Details of property(b) Consideration received or accrued(c) Value adopted or assessed or assessable • Whether consideration received or accrues for flats under construction ? • Whether transfer by an assessee of an asset (other than a capital asset), being land or building or both includes part of land or building ? (Under construction flats) • Whether Land or building may also include any rights therein (Leasehold/Tenancy/TDR/Development Rights). • What is the meaning of transfer for the purpose of 43CA. • Where the transaction in not forming part of audited accounts.

17. Where any land or building or both is transferred during the previous year for a consideration less than value adopted or assessed or assessable by any authority of a State Government referred to in section 43CA or 50C, please furnish : (a) Details of property(b) Consideration received or accrued(c) Value adopted or assessed or assessable • Transfer reflected in 26AS but not recorded in books. • Sale through unregistered documents like JDA’s. • Reference to Valuation Officer– can each flat be valued. • If SDV has been challenged in an appeal/revision ? • In case of agreement is entered into on before 43CA came into force with advance in cash what will be the situation ? • If the advance is received by NEFT on 20.09.2019 and the agreement is executed on 01.09.2019 ? Implications ? • Sec.43CA(4) uses the word on or before the date of agreement for transfer of asset.

21. (b) Amounts inadmissible under section 40(a):-(ii) as payment referred to in sub-clause (ia) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139. • Sec.40(a)(ia): The amendment to s. 40(a)(ia) by the Finance Act, 2010 w.e.f 01.04.2010 to provide that all TDS made during the previous year can be deposited with the Government by the due date of filing the return of income should be interpreted liberally and equitably and applied retrospectively from the date when s. 40(a)(ia) was inserted i.e., with effect from the AY 2005-2006 so that an assessee should not suffer unintended and deleterious consequences beyond what the object and purpose of the provision mandates. The amendment is curative in nature and should be given retrospective operation as if the amended provision existed even at the time of its insertion • CIT vs Calcutta Export Company (24.04.2018)

21. (b) Amounts inadmissible under section 40(a):-(ii) as payment referred to in sub-clause (ia) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139. • S. 40(a)(ia): S. 194C read with s. 200 are mandatory provisions. The disallowance stipulated in s. 40(a)(ia) for failure to deduct TDS u/s 194C is one of the consequences for the default. Accordingly, though there is a difference between “paid” and “payable”, s. 40(a)(ia) covers not only those cases where the amount is payable but also when it is paid. The contrary interpretation that s. 40(a)(ia) applies only to cases where amounts are “payable” will result in defaulters going scot free. • Palam Gas Service vs CIT (03.05.2018) • Contention not argued before courts : ‘Paid’ includes the word ‘Payable’ ?

21. (b) Amounts inadmissible under section 40(a):-(ii) as payment referred to in sub-clause (ia) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139. • No s. 40(a)(ia) disallowance for failure to deduct TDS on payment if payee has offered amount to tax. Second Proviso to s. 40(a)(ia) inserted by Finance Act 2013 w.e.f. 1.4.2013 should be treated as curative and to have retrospective effect from 1.4.2005. • ITAT was praised for "thorough analysis" of the provision • CIT vsAnsal Land Mark Township (P) Ltd. (Delhi HC) (28.08.2015)

21. (b) Amounts inadmissible under section 40(a):-(ii) as payment referred to in sub-clause (ia) (A) Details of payment on which tax is not deducted: (B) Details of payment on which tax has been deducted but has not been paid on or before the due date specified in sub- section (1) of section 139. • S. 40(a)(ia): The obligation to deduct TDS is only with respect to "income". • Amounts paid as "reimbursement of expenses" do not have the character of income, there is no obligation to deduct TDS • The law thus obliges only amounts which fulfil the character of "income" to be subject to TDS in such cases • CIT v. Fortis Health Care Ltd., [2009] 181 Taxman 257

(d) Disallowance/deemed income under section 40A(3): (A) On the basis of the examination of books of account and other relevant documents/evidence, whether the expenditure covered under section 40A (3) read with rule 6DD were made by account payee cheque drawn on a bank or account payee bank draft. If not, please furnish the details : • What does expenditure mean ? All outgoings incl. advances • Railway Catering Contractor ? • Estimation of Income GP vs NP ? • Post Dated Cheques with cash payment ? • Deposit of Cash in the bank account of payee ? • Payment made by book entries ? • Gold exchanged for Jewellery : Entries in books of jeweller ? • Purchase of fixed assets in cash > Rs.10000/- ? Implications

(d) Disallowance/deemed income under section 40A(3): • Purchase of Agricultural Produce ? • Payment for Capital Expenditure ? • Payment > 10000 expenditure not claimed ? • Payments through agent ? • Plea from seller that he insisted on cash payment !! • Exceptions under Rule 6DD are not exhaustive. • (Smt. HarshilaChoradiavs ITO 2008 298 ITR 349 (Raj) • No Unilateral disallowance by AO u/s 40A(3)/(3A) • Allowance for expenditure made in AY 2017-18 and in AY 2018-2019 aggregate of payments made in a day exceed Rs.10,000/- (and Not 20000/- 40A(3A) limit) ?

(d) Disallowance/deemed income under section 40A(3): • Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft use of electronic clearing system through a bank account, exceeds ten thousand rupees, in such cases and under such circumstances as may be prescribed having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors : • The object of provisions of Section 40A is to curb flow of black money and not to put an impediment over the trade and business

28. Whether during the previous year the assessee has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same. (Applicable upto AY 2017-18) • Difficulty in computing FMV in case of third party company where details are not available ? • Which figure be reported in case of several shares ? • Can difference of 1&2 be reported or 3 be reduced. (Comparison of aggregate FMV is expected)

28. Whether during the previous year the assessee (firm or company only) has received any property, being share of a company not being a company in which the public are substantially interested, without consideration or for inadequate consideration as referred to in section 56(2)(viia), if yes, please furnish the details of the same. (Applicable upto AY 2017-18) • If the property (shares) are received as stock-in-trade, can it be argued that it is not covered by sec 56(2)(x) when the receiver and giver are not relatives as per IT Act ? • Hon’bleJaipur Tribunal held that in ITO v. TrilokChandSain [2019] 101 taxmann.com 391 (Jaipur - Trib.), that agricultural lands fall under definition of an immovable property, hence, covered under ambit of section 56(2)(vii)(b), it is immaterial whether they fall under definition of capital asset or stock-in-trade. • The definition of property in 56(2)(vii)(d) refers only to capital assets therefore, receipt of stock in trade (non capital asset) is not taxable under 56(2)(viia) or 56(2)(x). • But it may be chargeable u/s 28(i) or (iv) as business income because of business nexus. Only a businessman can receive it as stock in trade.

29A. Whether any amount is to be included as income chargeable under the head ‘income from other sources’ as referred to in clause (ix) of sub-section (2) of section 56? (Yes/No) If yes, please furnish the specified details • AY 2015-16 - Any sum of money received as an advance or otherwise in the course of negotiations for the transfer of a capital asset if such sum is forfeited and the negotiations do not result in the transfer of such capital asset shall be considered as income. • Advance with regard to stock-in-trade is forfeited which has not been shown in P&L A/c whether reporting is at all required ? • What does forfeiture mean ? • Whether write backs to P&L are required to be reported ?

29. Whether during the previous year the assessee received any consideration for issue of shares which exceeds the fair market value of the shares as referred to in section 56(2)(viib), if yes, please furnish the details of the same. • The word accountant has been omitted from Rule 11U. Implications ? • However, the word accountant remains in cl. 11UA(1)(c)(c) relating to fmv of unquoted shares other equity shares. (to obtain report from MB or CA). • Choice of Valuation Methods NAV, DCF or Substantiation by any other method (expl to 56(2)(vii)(b) – Can AO compel the assessee to adopt any particular method ? • Case Study : A closely held company with 2 shareholders mother (M) and daughter (D). M infused 23.31 Crores for allotment of shares at premium of Rs.23096 with FV 10 per share. • Sec.56(2)(vii)(a) was introduced to curb generation and use of black money. • By lifting corporate veil it is clear that 56(2)(vii)(b) has no application because had M gifted money to D and D would have subscribed shares at face value 56(2)(vii)(b) as the D is the benefiary.

ISSUES RELEVANT TO SECTION 56(2)(x) • Whether a Loan Transaction is covered by 56(2)(x) ? No MumIT • (“repayment obligation of the assessee by-itself a consideration for granting of loan.)” • Taxability of Loan Waived after say 10 Years ? • Can provisions of section 56(2)(x) apply even if there is no actual receipt by the assessee during the year but only a waiver of loan (interest bearing) received in earlier year?

ISSUES RELEVANT TO SECTION 56(2)(x) • Q.1) Whether waiver of loan should be treated as receiving of cash in the hands of the assessee in the year when the loan gets waived? • Q.2) If the answer to Q1 is ‘yes’ i.e. if the waiver of loan is supposed to be treated a receipt of cash in the year when the loan gets waived, would the provisions of s.56(2)(x) be applicable? • Q.3) Whether in a case where a deduction would have been claimed of the interest amount u/s 36(1)(iii), would the entire amount of principal also get taxed? • Q4.) Whether waiver is taxable under section 28(iv) ? • ------------------- • YES, HELD BY HON’BLE SUPREME COURT • Since s.56(2)(x) does not mention ‘adequate consideration’ but clearly states ‘no consideration at all’, it could be safe to presume that the interest payment could serve as consideration in return of the waiver of loan. • If deduction claimed for interest the nature of waiver become revenue in nature hence could be taxed completely. • Not taxable as only the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is taxable

ISSUES RELEVANT TO SECTION 56(2)(x) • In case of adopted son or daughter, the relationship needs to be seen from the adoptive lineage or from the biological lineage ? • (Definition of Relative) • Valuation of Bullion is missing in Rule 11UA • Proviso to Section 56(2)(x) states that … • (vii) from any trust or any institution registered under section 12A or section 12AA. • Sonia Gandhi’s / Oscar Fernandes Case

ISSUES RELEVANT TO SECTION 56(2)(x) Is there any consideration involved when the unlisted bonus shares of a closely held company are received by company or firm ? CIT vsDalmia Investment Co Ltd. 52 ITR 567 SC Where the shares rank paripassu the result may be stated by saying that what the shareholder held as whole rupee coin is held by him after the issue of bonus share in two 50 p coins. Section 55(2)(aa) states that bonus shares are additional financial assets allotted to assessee without any payment. Thus bonus shares are without payment and not without consideration. That fully paid up bonus shares are merely a distribution of capitalised undivided profit and thus recipients are not donees of such shares.

ISSUES RELEVANT TO SECTION 56(2)(x) Whether allotment of right shares by a company will attract tax in the shareholders hands under 56(2)(viia) : Khoday Distilleries Ltd. Vs CIT (2009) 176 Taxmann 142 Allotment of right shares by the company involves no transfer and therefore is not a gift. The promisor or promisee relationship comes into existence on allotment of shares. Allotment means appropriation out of previously unappropriated capital of a company of a certain number of shares to a person and till such allotment the shares do not exist as such. It is only on allotment that the shares come into existence. Allotment is not transfer.

31(a) Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year :— • CHAPTER XX-B : REQUIREMENT AS TO MODE OF ACCEPTANCE, PAYMENT OR] REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX. • (iii) "loan or deposit” means loan or deposit of money; • (iv) "specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable pro-perty, whether or not the transfer takes place.]

31.(b) Particulars of each repayment of loan or deposit in an amount exceeding the limit specified in section 269T made during the previous year :— • (b) & (c) used to the expression either in his own name or jointly with any other person. • (c) the aggregate amount of the specified advances received by such person either in his own name or jointly with any other personon the date of such repayment together with the interest, if any, payable on such specified advances.] • (iv) "specified advance" means any sum of money in the nature of advance, by whatever name called, in relation to transfer of an immovable property, whether or not the transfer takes place.]

Issues in 269SS & 269T • Whether Director of a company not covered by 269SS ? object of introducing s. 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money • Transactions in Current Account ? • Share Applicable Money (SAM)? • Repeated acts of deposits & withdraw of SAM ? • SMA vsAuthorised Share Capital ? • Transfer by Book Entries ? • ITAT Pune Bench in the case of Sun Flower Builders Pvt. Ltd. Vs. DCIT it was held that acknowledgement of debt by passing journal entries in the books of accounts cannot be considered as acceptance of loan in violation of the provisions of section 269SS of the Act, consequently, no penalty can be levied u/s 271D of the Act. • Delhi High Court in Noida Toll Bridge 262 ITR 260 • Cessation of loan resulting into income ? • Any Other Person in 269SS ? Whether includes closely related persons

Issues in 269SS & 269T • Liability paid by lender directly and acknowledgement of debt by journal entries ? • Specified Sum/Advance • Sale Consideration received at the time of date of registration of property ? (Whether advance) • Agreement – advance received by cheque and balance in cash at the time of registry ? (advance or otherwise) in 269SS. • Conversion through Journal Entries ? CIT vsNoida Toll Bridge 184 CTR 266 Del. • Existing Trade Payable adjusted against sale of property ? (What receivable means) • Clause 31(d) & (e) require reporting of loans/ deposits/ specified advance repaid in amount exceeding limit specifed in 269T which were received otherwise than by chq/dd/ecs or other than a/c payee cheque / dd.

Section 269ST Mode of undertaking transactions. 269ST. No person shall receive an amount of two lakh rupees or more— (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, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

Section 269ST Provided that the provisions of this section shall not apply to— (i) any receipt by— (a) Government; (b) any banking company, post office savings bank or co-operative bank; (ii) transactions of the nature referred to in section 269SS; (iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify. Explanation.—For the purposes of this section,— (a) "banking company" shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS; (b) "co-operative bank" shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS.]

Section 269ST • “Transaction” is not defined in Income Tax Act, 1961. • Meaning from dictionaries and business dictionaries. • Transaction means :- • -an exchange or transfer of goods, services, or funds. • -a communicative action or activity involving two parties or things that reciprocally affect or influence each other • -a dealing carried on between two or more persons • Generally: an agreement, a contract, any exchange, booking, reservation, transfer of cash or property that occurs between between two or more persons or parties is a transaction. • In relation to accounting: event that effects a change in the asset, liability or net worth is a transaction. two or more persons or parties is a transaction • In relation to banking: an activity that effects a bank account and performed by an account holder or it his request or instruction is a transaction. • In relation to commerce: exchange of goods or services between a buyer and seller, transfer of goods or services for consideration in money or otherwise, transfer or exchange of rights, transfer of title which may or may not accompany by transfer or possessing of the property etc

Understanding of 269ST (a) • 1. Receipt of sum of Rs.2 Lacs or more from a person in a day in aggregate. • Receipt by person from another person of 2.5 lacs in following situations :- • From a person in a day in one installment. • From a person in a day in 3 installments. • From one person in a day against 4 different bills each below 2 lacs but aggregating 2.5 lacs of different dates. • From 4 different persons in a day against 4 different invoices each below 2 lacs but aggregating 2.5 lacs.

Understanding of 269ST (b) • 2. Receipt of sum of Rs.2 Lacs or more in respect of a single transaction. • What does Single Transaction Mean ? • Eg. Sale Bill raised on Mr. X of Rs.3 Lacs: • Receipt of Rs.1,50,000/- in cash in two installments on two different dates. • Receipt of Rs.1,01,000/- by RTGS and balance Rs.1,99,000/- by cash in a day. • Receipt of Rs.1,01,000/- by RTGS and balance Rs.1,99,000/- by cash on some other day. • Receipt of Rs.1,50,000/- each in cash on two different dates against sale bill of Rs.3,00,000/- dated 29.03.2019.

Understanding of 269ST (c) • 3. Receipt of sum of Rs.2 Lacs or more in respect of a transactions relating to one event or occasion from a person. • ‘Event’ or ‘Occasion” – Are they synonymous ? • Example : • Receipt of Rs.3 lacs by Mr. X (a decorator and also catering contractor) from the bride on diffferent dates in cash if separate bills are prepared each below 2 lacs. • Receipt of Rs.3 lacs by Mr. X (a decorator and also catering contractor) from the father of bride, mother of bride and bride herself, consisting of Rs.1 lacs each in a single day in cash if separate bills are prepared. • Receipt of Rs.3 lacs by Mr. X (a decorator and also catering contractor) from the father of bride, mother of bride and bride herself, consisting of Rs.1 lacs each in a single day in cash if one consolidated bill is prepared. • Receipt of Rs.3 lacs by Mr. X (a decorator and also catering contractor) from the father of bride, mother of bride and bride herself, consisting of Rs.1 lacs each on different dates in cash if one consolidated bill is prepared.

Other Issues in 269ST • Receipt of Gifts in Cash of 2 lacs or more from father. • Receipt of Gifts in Cash of 2 lacs or more in cash from a non relative. (consequences 56 & 269ST) • Receipt of capital by firm from its partner of 2 lacs or more in cash. • Receipt of sale of agricultural produce of 2 lacs or more in cash. • Receipt from trade debtors of 2 lacs or more in cash. • Receipt of installments from customer to whom products have been sold under installment system. Whether all installments are one single transaction ? • Receipt of EMI’s by NBFC’s from customer exceedings 2 lacs in aggregate but each below, whether it is a single transaction ?

Other Issues in 269ST • Rs.5 Lacs Cash Received through Mothers WILL ??? • Salary paid to Manager for 12 months aggregating more than 2 Lacs whether a single transaction or one event or occasion ? • Debit cards, Credit cards, Rupay-card and e-wallets/ PayTM are widely used to make payments and these instruments leave an audit trail but are not covered under Electronic Clearing System of RBI. • For Cash withdrawals from Bank/PO/CB whether penalty leviable ? (Notification 28/2017 dt.5.4.17)

Critical Issues In Tax Audit under Income Tax Act, 1961