Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Question 1.
Fearless General Finance & Investment Limited, a residuary non-banking company, accepts public deposits, issues deposit certificate and repays the same after some period of time along with interest, under different schemes run by it. Following transactions were noted from their books of account:
(i) Mr. A, an individual, has deposited ₹ 15,000 on 1st May, 2016 for 48 months by bearer cheque and another ₹ 15,000 on 30th June, 2019 in cash to purchase a new certificate of 48 months tenure.

(ii) Mr, A has applied for premature withdrawal against both the certificates and the company has paid him ₹ 16,500, by a bearer cheque, against principal and interest on 23rd March, 2020, due against his first certificate (purchased in 2016) and ₹ 15,500 in cash on 25th March, 2020, against the second certificate.

Discuss the violation of income tax provision, if any,” and consequential penalty for each transaction. Will it make any difference if the certificates were held jointly with Mrs. A, wife of Mr. A, while repaying back in cash or bearer cheque? [CA Final Nov. 2010] [7Marks]
Answer:
(i) There is no violation of section 269SS at the time of acceptance of the first deposit of ₹ 15,000 on 1.5.2016, since it is not in excess of the threshold limit of ₹ 20,000. However, violation under section 269SS is attracted at the time of acceptance of the second deposit in cash on 30th June, 2019, since as on that date, there is already an outstanding deposit of ₹ 15,000 and another cash deposit of 115,000 would take the aggregate to ₹ 30,000, which exceeds the threshold limit of ₹ 20,000. Therefore, penalty under section 27ID of a sum equal to the amount of deposit taken from Mr. A is attracted for failure to comply with the provisions of section 269SS.

(ii) In this case, there is a violation of section 269T at the time of first repayment by bearer cheque on 23rd March, 2020, since on that date, the aggregate amount of deposits held by Mr. A with the non-banking company (together with interest payable on such deposits) is more than ₹ 20,000. Therefore, penalty u/s 27IE equal to the amount of deposit so repaid will be attracted for failure to comply with the provisions
of section 269T.

However, the second repayment of ₹ 15,500 on 25th March, 2020 in cash cannot be considered as a violation of section 269T, since neither the amount of deposit with interest thereon nor the aggregate amount of deposits held by Mr. A on that date together with interest exceeds the threshold limit of ₹ 20,000.

The provisions of section 269T will be attracted even if the certificate is being held by Mr. A in joint name with his wife.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Question 2.
Mr. Prajapathi intends to sell a piece of urban residential plot held for 48 months, to Mr. Vasan, for a consideration of ₹ 2 crores, in February, 2021. This asset had been held as investment by Mr. Prajapathi. Both parties are willing to enter into a written agreement in this regard. Initial payment will be ₹ 40 lakhs. The buyer is given 12 months time for completing the sale, at Which point of time, balance amount has to be paid. – Following two options are considered:

(i) Payment of ₹ 10 lakhs by account payee cheque on the date of the agreement and ₹ 30 lakhs by cash, the samg day, and
(ii) Payment of ₹ 10 lakhs by account payee cheque on the date of the agreement and ₹ 30 lakhs by ECS through a bank within seven days.

An increase of 30% in stamp duty is anticipated with effect from 1st April, 2021. The parties seek your advice to plan suitably for reduction of capital gains. Advise them suitably as to what payment mode is to be adopted.
Should the agreement in question be registered? [CA Final May 2017] [4 Marks]
Answer:
As per Sec. 50C, in case of transfer of a capital asset being land or building or both, where the actual consideration is less than the value adopted or assessed by the stamp valuation authority, the stamp value so adopted or assessed shall be taken as the full value of consideration for computing capital gains.

However, where the stamp duty value does not exceed 105% of the actual consideration, the actual consideration so received shall be taken as the full value of consideration.

Where the date of the agreement fixing the amount of consideration and the date of registration are not the same, the stamp duty value may be taken as on the date of agreement provided that the consideration or part thereof has been received by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of the agreement.

There is no specific requirement under the Act that the agreement should be registered.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Advice for reduction of capital gains tax liability
In both the options, part payment of ₹ 10 lakhs is made by account payee cheque on the date of the agreement. Therefore, in both the options, the stamp duty value on the date of agreement can be taken as the full value of consideration.

Mr. Prajapathi, thus, need not bear the burden of paying capital gains tax on increased stamp duty applicable from 1st April, 2021, if he exercises either of the options for making the initial payment of ₹ 40 lakhs.

Advice for mode of payment
In Option (i), however, the balance initial payment of ₹ 30 lakhs is proposed to be paid by way of cash. This would be in contravention of the provisions of section 269SS, which requires any sum of money receivable, whether as advance or otherwise, in relation to transfer of immovable property, to be paid by way of account payee cheque/bank draft or by way of electronic clearing system through a bank account, if the same exceeds the threshold of ₹ 20,000. Penalty equivalent to the sum so received in contravention of the provisions of section 269SS would be imposable u/s 27ID.

Therefore, if Option (i) is exercised, even though the capital gains tax liability of Mr. Prajapathi would not be affected, the provisions of section 269SS would be violated and penalty of ₹ 30 lakhs would be attracted u/s 271D.

Accordingly, Option (ii) should be exercised to get the benefit of adoption of stamp duty value on the date of agreement and avoid contravention of the provisions of section 269SS and the consequent penalty u/s 271D.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Question 3.
Kumar Bros, the assessee, is a partnership firm. During the course of assessment proceeding, the A.O. noticed that huge amount of cash was accepted by the firm from its partners during the relevant year corresponding to the AY. 202 1-22. The A.O. was of the view that interest was given to partners on amounts advanced, which conclusively proved that the transaction are between different persons whereby the firm has accepted loans in cash from the partners and thereby Initiated penalty proceeding u/s 271D In view of violation of Sec. 269SS.
Is the action of A.O. tenable in law? [CA Final May 201 7] [4 Marks]
Answer:
Issue involved: The issue under consideration is that whether loans or deposits received by the firm from its partners in violation of Sec. 269SS will attract penalty u/s 271D.

Provisions applicable: Section 269SS prohibits any person from taking any loan or deposit exceeding prescribed limit, otherwise than by way of account payee cheque or bank draft or use of electronic clearing system through bank account. In case of contravention of Sec. 269SS, penalty equal to the amount of loan or deposit is liable u/s 27ID.

However, as per Sec. 273B, no such penalty would be leviable if the assessee proves that there is reasonable cause for such failure.

Analysis: The facts of the case are similar to the facts in CIT v. Muthoot Financiers (2015), where the Delhi High Court observed two possible views. One view is that the partnership firm, not being a juristic person, the inter se transaction between the firm and partners will not be governed by the provisions of Sec. 269SS. A contrary view is that the partners of the firm are distinct as civil entities while the firm as such is a separate and distinct unit for the purpose ‘of assessment.

Conclusion: The Delhi High Court, considering the two different legal interpretations on a relationship between the firm and the partners being a debatable one, held that there was reasonable, cause for not invoking Sec. 27ID. Hence, by applying the rationale of Delhi High Court ruling to the case on hand, the action of the A.O., in levying penalty u/s 27ID is not tenable in law.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Question 4.
The regular assessment of Ms. Swati for the A.Y. 2016-17 was completed u/s 143(3) on 16-07-2018. On 18-01-2020 she received a notice
issued u/s 148 for Income escaping assessment for the same A.Y. 20 16-17. Further on 25.03.2020, during the pendency of such proceeding for income escaped assessment, the A.O. attaches the house property of Ms. Swati.

Now, aggrieved Swati seeks your opinion (being a Chartered Accountant) as to:
(i) The circumstances under which the A.O. can make provisional attachment of property of the assessee?
(ii) The period of time for which such attachment can take place?
(iii) Can such attachment be revoked by the A.O. and if yes, how?
Discuss the relevant provisions of law to satisfy the aggrieved assessee Ms. Swati? [CA Final May 2018 (New Syllabus)] [5 Marks]
Answer:
(i) As per Sec. 28IB, where during the pendency of any proceeding for the assessment of any income or for the assessment or reassessment of any income which has escaped assessment, the A.O. is of the opinion that, for the purpose of protecting the interest of the Revenue, it is necessary to do so, he may, by an order in writing, attach provisionally any property belonging to the assessee.

However, before passing an order, the A.O. is required to take prior permission of the Principal CCIT or CCIT or Principal CIT or CIT.

(ii) Every provisional attachment would cease to be effective after the expiry of 6 months from the date on which order for the attachment is passed by the A.O.

Provided that the PCCIT or CCIT or PCIT or CIT is entitled, for the reasons to be recorded in writing, to extend the validity of the period during which the” order for attachment would be operative by such I further period or periods as he deems fit. But, in no case the total period of provisional attachment of the property shall exceed 2 years or 60 days after the date of order of assessment or reassessment, whichever is later.

Provided also that the period during which the proceedings for assessment or reassessment are stayed by an order or injunction of any court shall be excluded from the period specified in the first provison.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

(iii) Where the assessee furnishes a guarantee from a scheduled bank for an amount not less than the FMV of the property provisionally attached, the A.O. shall, by an order in writing, revoke such attachment.

In case the guarantee from a scheduled bank is lower than the FMV of the property, the A.O. may accept such guarantee and revoke attachment provided he is satisfied that such guarantee is sufficient to protect the interests of the revenue.

Question 5.
During the pendency of reassessment proceedings, the A.O. has provisionally attached the property of the assessee, Mr. Malhothra in accordance with powers vested u/s 281B on 21st December, 2020. The FMV in lieu of provisional attachment of property and approached the A.O. to revoke the attachment. A.O. refused such proposal. Answer the following issues in the context of relevant provisions of the Act:

(i) Whether A.O. can refuse to accept bank guarantee, if not, is it mandatory on his part to pass revocation order for the provisional attachment of property?
(ii) Specify circumstances under which the A.O. is empowered to invoke the bank guarantee. [CA Final Nov. 2018 (Old Syllabus)] [4 Marks]
Answer:
(i) Since. Mr. Malhothra proposes to furnish a bank guarantee from a scheduled bank for an amount equal to the fair value of the property, the A.O. has to revoke provisional attachment of property.

In such situation, as per section 28 IB, the A.O. cannot refuse to accept bank guarantee, and has to mandatorily pass an order in writing revoking the provisional attachment of property.

(ii) Circumstances under which the A.O. can invoke the bank guarantee:

  • Where a notice of demand specifying a sum payable is served upon Mr. Malhothra, and he fails to pay such sum within the time specified in the notice of demand;
  • Where Mr. Malhothra fails to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount 15 days before the expiry of such guarantee.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Question 6.
Mr. B proposes to purchase for his business, certain raw materials from Mr. S. In view of the scarcity of the products, S insists on cash payments for the purchases, to which B agrees. On 27.3.2021, the purchases are effected through a cash invoice for ₹ 3,20,000.

In respect of the above transactions, will there be any detrimental effect in the hands of B and S under the provisions of the Income-tax Act, 1961? Explain briefly.

Will your answer be different, if the cash purchases are effected by the buyer B on two different dates for different raw materials for ₹ 1,80,000 and ₹ 1,40,000 respectively? [CA Final Nov. 2018 (.New Syllabus)] [5 Marks]
Answer:
As per section 40A(3), where the assessee incurs any expenditure for which payment or aggregate of payment made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system (ECS) though a bank account, exceeds 110,000, no deduction shall be allowed in respect of such expenditure.

As per Sec. 269ST, no person shall receive an amount of ₹ 2,00,000 Or more:
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transaction relating to one event or occasion from a person.

otherwise than by account payee cheque or an account payee bank draft or use of ECS through a bank account.

Further as per Sec. 27IDA, any person receiving any amount in contravention of Sec. 269ST, shall be liable for penalty which is equal to amount of such receipt.

Treatment in the hands of Mr. B:
Since, the cash payment made by Mr. B to Mr. S for purchase of raw ; material is in excess of ₹ 10,000, Mr. B shall not be allowed deduction of ₹ 3,20,000 as business expenditure u/s 40A(3). Answer will be same even ‘ if Mr. B paid amount of ₹ 1,80,000 and ₹ 1,40,000 in different dates, since it is in excess of ₹ 10,000.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

Treatment in the hands of Mr. S:
Since, Mr. S has received ₹ 3,20,000 (which is more than ₹ 2,00,000) from a person in a day otherwise than by an account payee cheque or an account payee bank draft or use of ECS through a bank account, provisions of , Sec. 27IDA shall be attracted and Mr. S shall be liable to pay a penalty of ₹ 3,20,000

Answer will be changed if Mr. S received ₹ 1,80,000 and ₹ 1,40,000 with tw different dates. In this case there is a no violation of provisions of Sec. 269ST.

Question 7.
Mr. A an agriculturist has made an agreement to sell his 10 acres of , agricultural land situated in a remote village at a price of 1 lakh per acre to Mr. B, for constructing a farmhouse. Mr. A has received an advance of 1 lakh by way of a crossed cheque. Later on, the agreement Was rescinded as Mr. B could not pay the balance amount within the stipulated time as per the agreement. Mr. A returned the advance by a crossed cheque, The assessing officer has proposed to levy a penalty u/s 271 D on, Mr. A. ; Examine the validity of the Assessing Officer’s action. [CA Final Nov. 2019 (Old Syllabus)] [4 Marks]
Answer:
As per section 269SS, no person shall take or accept from any other person any loan or deposit or specified sum otherwise than by an account payee cheque or account payee draft or use of ECS through a bank account or through such other mode as may be prescribed, if amount of such deposit or advance or loan is ₹ 20,000 or more.

As per section 269T, no person shall repay any loan or deposit made with it or any specified advance received by it, otherwise than by an account payee cheque or account payee bank draft or use of ECS through a bank account or through such other electronic mode as may be prescribed, if amount of the loan or deposit or specified advance together with interest payable thereon is ₹ 20,000 or more.

“Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

Miscellaneous Topics, STT/ CTT and IFSC – CA Final DT Question Bank

As per section 271D, the A.O. may impose a penalty equal to loan or deposit or specified sum so taken or accepted against the contravention of section 269SS. However, where the assessee has contravened Sec. 269SS and becomes liable u/s 27ID for penalty, he shall not be liable for penalty u/s 271E in respect of such amount on contravention of Sec. 269T.

In this case, Mr. A has received an advance of ₹ 1 lakh in respect of selling of 10 acres of agricultural land by way of a crossed cheque. Thereafter, where the agreement gets rescind, he returned such amount also by way of a crossed cheque. Therefore, he has contravened both Sec. 269SS and 269T, but he shall only be liable for a penalty u/s 27ID. Thus, the action of the A.O. is valid in law.

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