Union Budget 2022-23 Highlights
- Updated Income Tax Return: Sub-section (8A) has proposed to be inserted into section 139 to provide an additional 2 years to a taxpayer to update his return. Updated returns can be filed irrespective of the fact whether the taxpayer has earlier filed the original, revised or belated return in respect of the relevant assessment year.
However, an updated return cannot be filed if it is a return of a loss or has the effect of decreasing the tax liability or increasing the refund. Further, an updated return cannot be filed in search and seizure cases and other specified circumstances.
Provision intended to cover situations where income has not been disclosed earlier and can now be disclosed through updated return. Whether income disclosed in updated return shall be treated as concealed income or in that case assesse may be required to substantiate the inadvertent non-reporting of income in an earlier return. Hence it would be imperative to clarify whether the penalty will be invoked in case of an updated return.
Further in case ‘return of loss’ whether it covers the current year loss or it can include brought forward losses as well.
- Tax on Virtual Digital Assets: A new scheme has been proposed for the taxation of virtual digital assets with effect from Assessment Year 2023-24. All gains arising from the transfer of digital assets on or after 01-04-22 shall be governed by this scheme. Virtual Digital Assets cover crypto-currencies, NFTs, and any other digital asset notified by the Central Govt. The Govt. has the power to exclude any digital asset from the definition of a virtual digital asset.
A new Section 115BBH has been proposed to be inserted. It provides that the income from the transfer of any virtual digital asset shall be taxed at the rate of 30%. However, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance or set-off of any loss shall be allowed to the assessee.
Further, no set-off of any loss arising from the transfer of virtual digital assets shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.
A new Section 194S has been proposed to be inserted. It provides for deduction of tax at the rate of 1% from payment to a resident person on transfer of virtual digital assets.
The meaning of ‘property’ for Section 56(2)(x) shall now include virtual digital assets. Thus, where such assets are received without consideration or inadequate consideration, they shall be taxable in the hands of the recipient if it exceeds Rs. 50,000.
Whether the loss from the transfer virtual digital asset can be set off from the income earned from the transfer from a virtual digital asset? Pertinent to note that, there is no corresponding amendment in the provision relating to set off and carry forward of the losses.
- Unexplained or Undisclosed Income:
- The person giving loan or borrowing is required to explain the source of income
The nature and source of any sum, whether in the form of a loan, borrowing or any other liability, shall be treated as explained only if the source of funds is explained in the hands of the creditor. However, this onus would not apply if the creditor is a well-regulated entity, i.e., it is a Venture Capital Fund, a Venture Capital Company registered with SEBI.
This amendment might be a bit harsh, where funding is obtained from private corporate finance and where ECB is obtained by the subsidiary from any overseas group entity.
- No set-off of loss against undisclosed income was discovered during the search
No set-off of any loss or unabsorbed depreciation shall be allowed against undisclosed income discovered consequent to a search initiated under section 132, a requisition made under section 132A, or a survey conducted under section 133A.
This amendment put a rest on the open litigation on the issue.
- Section 14A disallowance: Section 14A is proposed to be amended to clarify that disallowance shall be made for any expenditure incurred about an exempt income even if no exempt income has accrued or arisen or has been received during the said previous year.
Though made applicable from 1.04.2022, however as per explanation, seems to have a retrospective effect.
Important Judicial Precedents
- The Bangalore ITAT allows Assessee’s appeal, holds rural agricultural land conditionally converted for non-agricultural use to be outside the ambit of Section 2(14) where the land continued to be an agricultural land in the revenue record, thus, holds capital gain on sale of such land to be not taxable. [TS-136-ITAT-2022(Bang)]
- Bombay HC allows writ petition challenging reassessment notice and order rejecting objections, holds that reasons framed on basis of ongoing assessment proceedings for another A.Y collapse when proceedings attained finality with ITAT ruling in Assessee’s favour. TS-92-HC-2022(BOM)
- Bombay HC sets aside reassessment notice and order rejecting objections, where reassessment notice was issued beyond a period of six years found to be based on change of opinion; TS-94-HC-2022(BOM)
- Mumbai ITAT dismisses Assessee’s appeal, upholds addition to book profits of the amount offered under normal tax provisions and reflected in Form 26AS; ITAT Opines that “once the error was committed by the assessee in preparation of Profit and loss statement by not adding the entire amount shown in 26AS as income of the assessee either on account of omission, inadvertent error or by way of fraud which was otherwise required to be included in the statement of the profit and loss account, then it cannot be said that the said amount which was wrongly or deliberately or otherwise left to be included in the book of accounts, cannot be added to the book profit for section 115JB”; [TS-135-ITAT-2022(Mum)]
- Bombay HC rules in favour of Larsen & Toubro Ltd. holds that payment made to non-resident vendors for hire of barges and tugs for transportation of equipment from Assessee’s yard to the offshore site as assessable u/s 44BB and not taxable as royalty u/s 9(1)(vi); Finds substance in Assessee’s submission that the expression ‘in connection with’ in Section 44BB is of significance since it expands the horizon of the services or facilities, provided by a non-resident, which falls within the ambit of the said provision, provided they have a connection with the exploration, extraction or production of mineral oils; [TS-124-HC-2022(BOM)]