TIOL-DDT 2472
11.11.2014
Tuesday

OUR CobWeb commented on October 30 2014 - The Germans had shared information about 12 Trusts having bank accounts in LGT Bank in Liechtenstein. There were 26 names of individuals. Nothing incriminating was found against eight of them. The investigation was completed and assessment orders were passed in 18 cases and prosecution was launched against 17 as one account holder had expired. In other words, some recovery of taxes was made in these cases.

A day after we commented thus, the Mumbai Bench of the ITAT delivered a landmark judgement pertaining to three of the 18 cases mentioned above.

All the three cases are identical and the assessees are related. The typical case of one of them is like this:

The assessee filed return of income u/s 139(1) of the Act on 1st August 2002 showing total income of Rs.1,97,650/-. Subsequently, information was received that the assessee is a beneficiary of Ambrunova Trust, having an account in Liechtenstein Bank. The information contained summary of bank statement as on 31/12/2001 of the Trust in which there was a balance of USD 24,06,604.90/-. The assessee did not disclose this information in the original return and so notice u/s 148 of the Income Tax Act was issued on 26/03/2009. The assessee requested the revenue to treat the return already filed as having being filed in response to the notice issued and served u/s 148 of the Act. The assessee was also supplied with a copy of reasons recorded for reopening of assessment including English translation of the documents. The assessee denied of any knowledge of Trust by further claiming that he has not received any money.

The AO found that the address/nationality, country of domicile was the same as of the assessee as mentioned in India in the return. However, the assessee did not provide any document in support of his statement that he is not connected with this Trust. The AO added Rs.2,34,64,398 being 25% of his share out of Rs.11,73,31,988/-(i.e. USD 24,06,604.90/- converted at 48.75). The assessment was reopened by the AO on the information received from LGT Bank regarding Ambrunova Trust in which the name of the assessee was appearing as a beneficiary. Before the AO, it was contended by the assessee that the documents so received by the Department regarding the Trust (LGT Bank) are unauthenticated and unverified and thus reopening is incorrect.

The ITAT noted that the said documents were received officially by the Government pursuant to an investigation made by permanent subcommittee on investigation of United States Senate. The distribution to the beneficiaries as well as profits earned are not subject to any further tax and, further, the supreme authority is vested in the settler and is transferable. It can be concluded that the Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with "HOST trust reg." in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealment of illicit funds. It also provided option to undertake automatic exchange of information. It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust. Still the fact remains that they are the sole beneficiaries of the trust. Thus totality of facts clearly indicate that the deposit made in the bank account of the trust represents unaccounted income of the assessee, as the same was not disclosed by the these assessees in their respective returns in India.

Consequently, Tribunal held that the addition was rightly made by the Assessing Officer and confirmed by the CIT(A) - in respect of all the three assessees.

This judgement is a big boost to the Revenue and will put off at least temporarily sceptics who believe that black money stashed abroad is gone for good. This is only a small drop in the huge ocean of Black Money though.

Of course this by no means is the end of the story - the parties must be getting ready to appeal to the High Court.

Please see 2014-TII-156-ITAT-MUM-INTL.

Tax Haven Bank Secrecy Tricks

PREPARED by the U.S. Senate Permanent Subcommittee on Investigations, July 2008 and quoted in the above mentioned judgement.

Cadre Review Confusion

A Chartered Accountant from Chennai writes in:

The new reorganisation of the IT department has left all the Chennai IT offices in a shambles. There are certain promotee IT officers who have been just provided a table and a chair with no cabins, no computer systems nor any office assistants. Most of them are yet to receive the files transferred to them. And what more, there is a further reorganisation, which is happening on the 15th.

The plight of the assessees and their representatives is best left unsaid. Even earlier, whenever there is a change in incumbent they had to go through the process of explaining the whole case to the new officer. Now it just got worse.

The assessments to be completed by March 2015 are all being held up for a variety of reasons.

The new instructions are not useful to the assessing officers either. They have been asked to cover the matters based on which cases have been selected for scrutiny alone. And if the additions sought to be made are more than Rs 10 lakhs alone they are entitled to make such additions and that too after obtaining the consent of the CIT. So there cannot be any minor additions.

These instructions, changes could have waited till the end of the year and after the entire administration is geared up. Doing all this in the middle of the assessment stage is really affecting the morale of the personnel as well the assessees.

We talk so much about ease of business but that seems to be nowhere in sight.

In the CBEC, thousands of promoted Superintendents and Assistant Commissioners are looking for places to park themselves in. And the assessees have no idea as to where the new offices and who the new officers are. Mercifully, Revenue will come in spite of this army of officers.

CESTAT Wants Members - Both Technical and Judicial

GOVERNMENT has called for applications for the Posts of Technical and Judicial Members of the CESTAT.

A candidate for judicial Member should be at least 45 years old and should have been a Judicial Officer for at least ten years or a Member of the Indian Legal Service, Grade-I for at least three years or an advocate for at least ten years. Retirement age for Members is 62 years.

Technical Members are selected from serving or retired officers of CBEC of the rank of Commissioner and above. The last date for receipt of applications is 31 st December 2014.

Members get a Pay scale of Rs. 75,500 - 80,000 - the gross salary would be around Rs. 2 lakh. Technical Members, on retirement from the Tribunal will get pension according to their eligibility on retiring from the CBEC.

Not a very attractive job except for the additional two years they get in the Tribunal. Not many capable officers will join the Tribunal unless some better incentives are given.

Vacancy Circular for Member (T), Member (J)

Restrictions on Foreign Travel of Babus

GOVERNMENT has reiterated its instructions on restrictions of foreign travel by officers:

(i) Proposals for participation in conferences/ seminars/conventions/ workshops/ study tours/presentation of papers abroad at Government cost will not be entertained except those that are fully funded by sponsoring/inviting organizations which may be considered keeping in mind the public interest and Government business at home.

(ii) No officer should undertake more than four (4) official visits abroad in a calendar year. For visits exceeding four by an officer, detailed justification would need to be furnished and such visit would be allowed only in exceptional cases depending on functional need.

(iii) The size of the delegation and the duration of visit shall be kept to the absolute minimum. The Administrative Secretary shall make sure that in every case officers of appropriate functional level dealing with the subject are sponsored/ deputed instead of those at higher levels. Visits at the level of Secretaries should be planned only if their presence is essential and officers of or the level of Additional Secretary/Joint Secretary cannot substitute them for the purpose of enunciating Government policies/standpoint.

(iv) Foreign travel of Government officers at the cost of PSUs/PSEs is discouraged, unless the journey is undertaken specifically in connection with the affairs of the PSU/PSE. Specific reasons for charging the expenditure to the PSU/PSE on account of foreign travel must be spelt out in the proposal. Wherever expenditure on the visit of Government officers is borne by PSU/PSE, the entitlements of the officers shall remain same as his entitlements under Government Rules/regulations/norms/instructions.

MoF, Department of Expenditure OFFICE MEMORANDUM in No. 7(1)/E.Coord/2014, Dated: November 10, 2014.

Jurisprudentiol-Wednesday's cases

Service Tax

Applicant is not banking company and service tax is payable only on issuance of bank guarantee by bank - Commission received upon issuing guarantees to various corporate entities is prima facie not liable to ST: CESTAT

THE applicant is issuing guarantees to various corporate entities and for which they are charging commission.

The Revenue wants the applicant to pay Service tax on this commission received under the category ‘ Banking and other Financial Services ' .

The appellant makes the primary submission that they are a Non-Banking Financial Institution issuing corporate guarantees to various corporate entities to secure their advance and for issuing such guarantees they are getting certain commissions from the corporate entities. It is the contention of the applicant that they are not providing any service under banking and other financial service as defined under Section 65 (12) of the Finance Act, 1994 as only guarantees issued by a bank is liable to service tax.

Income Tax

Whether provisions of Section 14A are attracted when investment is made by assessee in foreign subsidiary and dividend received on such investment is not tax free as per Section 10 - YES: ITAT

THE assessee had claimed certain amount as exempt income under section 10 but no disallowance was made under section 14A in the computation of income. During the assessment proceedings the Assessing Officer asked the assessee to give the working of disallowance under section 14A read with rule 8D. The assessee submitted written submissions and contended that in respect of tax exempt dividend income no borrowed fund was utilized for investing and further no expenditure was incurred in relation to the exempt income. However, without prejudice to the contentions the assessee, gave the working of disallowance under section 14A read with rule 8D. The Assessing Officer did not accept the contention of the assessee as no expenditure was incurred for earning the tax free income and made disallowance under section 14A by applying rule 8D.

The issue before the Bench is - Whether provisions of Section 14A are attracted when investment is made by assessee in foreign subsidiary and dividend received on such investment is not tax free as per Section 10. And the answer goes against the assessee.

Central Excise

Inputs written off as obsolete - Rule 3(5B) of the CCR, 2004 does not have retrospective effect - Reversal of credit not called for - Revenue appeal dismissed: CESTAT

ON scrutiny of the respondent's trial balance sheet for the year 2003-04, it was found that as on 31.3.2004, there were certain obsolete inputs, WIP worth Rs.1,22,20,110/- against which provision of Rs.73,33,865/- was made in the accounts by reducing the value.

The jurisdictional R/S, in November, 2007 enquired with the assessee the status of the said goods. Pursuant thereto, the assessee reversed CENVAT credit of Rs.23.90 lakhs. Not convinced with this reversal on the ground that the assessee had not submitted one-to-one co-relation of the inputs, a SCN was issued demanding duty of Rs.19.94 lakhs by invoking the extended period of limitation.

Whereas the adjudicating authority confirmed the demand, the Commissioner (A) set aside the same on the ground of limitation.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in