Signature on bill is not matching – whether bogus expenses.

 Signature on bill is not matching – whether bogus expenses.  Compliances
Mar 192021
 

For the computation of capital gain under Section 48 of the Income-tax Act, 1961

Expenses claim to have spent on construction and/or renovation of property Rs 1,70,000/-

In support of its claim, the assessee filed a bill of the said amount issued by one ‘S’

However, it was found to be bogus and the signature stated therein was not of ‘S’

Now the question arises:

Whether genuineness of any claim is not proven merely on the production of some paper but only when same is substantiated?

Whether since there was nothing on record to suggest that sum in question was paid by the assessee so as to claim the cost of improvement of property sold is sufficient ground to disallow the said expenses?

Detail facts

The assessee sold his share of house property. While computing capital gains, the assessee claimed to have spent a sum of Rs. 1,70,000 on account of construction/renovation of property sold. In support of its claim, the assessee filed a bill of the said amount issued by one ‘S’. The Assessing Officer while verifying the bill in respect of alleged renovation found that same was bogus. The Assessing Officer, accordingly, disallowed the said amount. The Commissioner (Appeals), however, allowed the claim of the assessee.

Analysis of facts

Liability to prove that expanses claimed to be genuine:

  • The onus was upon the assessee to prove that particular deduction was admissible.
  • It also depends on him to lead evidence in that regard.

Issue No 1 -> The amount was stated to be spent on some civil nature and in the parking area. However, details of such renovation work were not filed.

Issue No 2 -> The bill issued by ‘S’ was found to be bogus. The signature stated therein was not of ‘S’.

Issue No 3 -> The amount stated in the bill was also not paid to date.

Thus, there was nothing on record to suggest that the sum of Rs. 1,70,000 was paid by the assessee so as to claim the cost of improvement of property sold.

It is wrong to say that once the voucher for expenditure was produced, the expenses should have allowed the same. The allowability of the expenditure do not depend upon the mere production of voucher but such voucher should also be authentic and genuine and not merely a piece of paper.

The genuineness of any claim is not proven merely on the production of some paper but only when the same is to be substantiated. The creditworthiness of the claim having not been established rather the ungenuineness nature of the claim having been proved by the Assessing Officer, he was justified in disallowing Rs. 1,70,000 as cost of improvement of the property.

One more revealing fact was that when the expenditure was incurred for the whole of the property, the assessee had claimed the entire expenses as its own expenses, whereas the assessee was only having one-fourth share of the same. This also proved in the approach of the assessee in claiming bogus expenses and, consequently, reduced his tax liability.

Conclusion

Merely because the signature in an invoice is not matching does not amount to the expenditure to be bogus. Whether expenses claim are genuine or is a matter of fact and entire transaction cycle (need of expenses, quotation, billing, receiving, payment and benefits from the expenses), justification of claim and approach of the assessee in making such claim shall be looked after before disallowing the expenses.

Conditions for claiming interest on loan taken for construction of house property.

 Conditions for claiming interest on loan taken for construction of house property.  Compliances
Mar 172021
 

The assessee claimed deduction under section 24 on account of interest on the loan which was taken for acquiring/constructing house property – However, details for the same, for example:

✔Amount of loan taken,

✔Date of loan,

✔Rate of interest,

✔Confirmation from creditors, etc., were not filed in support of the claim

Assessing Officer disallowed deduction holding that assessee had not produced material to suggest that amount which was borrowed was utilized for the acquisition of house property

Analysis of section 24

Deductions from income from house property.

24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—

(a) a sum equal to thirty percent of the annual value;

(b) where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction 58[or, as the case may be, the aggregate of the amount of deduction] shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction 58[or, as the case may be, the aggregate of the amounts of deduction] under this clause shall not exceed two lakh rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as a deduction under any other provision of this Act, shall be deducted under this clause in equal installments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:

59[Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.]

 

Analysis of fact

The deduction of Rs. 94,500 is claimed on account of interest on loans. The assessee submitted details of interest payable to the persons who happened to be relatives of the assessee. However, the details regarding the amount of loan taken, date of the loan, rate of interest, confirmation from creditors, etc. was not filed. The assessee was therefore asked to furnish the necessary evidence in this regard. The show-cause notice was also issued as to why the amount be not disallowed in the absence of any proof for the same and nexus regarding utilization of borrowed funds for the acquisition of the property. The assessee filed the income computation statement of Smt. Kamlesh Kumari and Mrs. Neeraja Ghura to whom interest have been paid.

The Assessing Officer held that deduction under section 24(1)(vi) can be allowed provided, the interest is payable on the amount borrowed and which is utilized for acquiring/constructing/repairing the property, the income from which is assessable under section 23 of the Act. Since the assessee has not produced material to suggest that the amount which was borrowed, was utilized for acquisition/constructing of property, the deduction under section 24(1)(vi) is not allowable.

 

Conclusion

✔The assessee failed to file any document, which would suggest that the amount borrowed in earlier years was utilized for purchase/acquisition of property, income from which was offered under section 23.

✔He also failed to file any document that such an amount was allowed as a deduction in earlier years.

✔No nexus was established between the borrower of loans and the utilization of the same for the purpose of acquiring/constructing the house property.

Thus, deduction under section 24(1)(vi) was not allowable.

Deduction of house property tax if not paid by assessee.

 Deduction of house property tax if not paid by assessee.  Compliances
Mar 152021
 

Computation of Annual value – The assessment year 2001-02 –

Total House property tax Rs 3,50,000/-
Tax paid by the assessee Rs 3,00,000/-
Tax paid by the purchaser Rs 50,000/-

Whether Deduction of house tax paid Rs 50,000/- is allowable to assessee?

 

Analysis of facts:

The assessee who owned certain property sold the same to one ‘S’. While computing the income under the head ‘Income from house property, the assessee claimed deduction of Rs. 3.5 lakhs on account of property tax. Out of Rs. 3.5 lakhs, Rs. 3 lakhs was paid by the assessee and Rs. 50,000 was paid by ‘S’ who purchased that property. The Assessing Officer disallowed Rs. 50,000 on the ground that same was not paid by the owner of the house.

Under the head ‘Income from house property,’ the assessee claimed payment of Rs. 3,50,000 as a deduction on account of property tax against rent from the property being ½ portion of 35-B, Pusa Road, New Delhi. The assessee declared a rental income of Rs. 4,84,500. The amount of Rs. 3 lakhs was found paid by the assessee and hence allowed as such. However, another sum of Rs. 50,000 was paid by Smt. Sunita Oberoi/Shri Sunil Oberoi have purchased this property. These amounts were not paid by the assessee but by the aforesaid two purchasers. It was contended by the assessee that since the property was agreed to be sold by the assessee and till the date of sale the liability of property tax rests with the assessee, the amount was claimed as expenses against property income. The Assessing Officer held that such contention is not borne out from records. The amount is not paid by the assessee and hence not allowable under section 23 of the Act. Ld. Commissioner of Income-tax (Appeals) held that property tax is payable to the seller till the date of sale and since the claim relates to the period which is agreed up to the date of sale is allowable as such.

 

Law relating to deduction of property tax under income tax act:

While computing annual value under section 23, the tax levied by local authorities in respect of the property is to be deducted. However, the same is deductible, provided the same is paid by the owner thereof. The relevant portion of the law is reproduced below:

Section 23(1) …..

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Thus, principles arise relating to deduction of property taxes in computing “Income under the head house property” is summarized below:

  1. Deduction of such taxes is allowed from “Gross Annual value” to calculate “Net Annual Value”.
  2. Taxes relating to the local authority or municipal taxes shall be inclusive services taxes and/or GST etc also
  3. These taxes must be borne by the assessee
  4. Taxes must be paid by the assessee during the previous year irrespective of the previous year in which liability to pay such taxes arises.

Conversely, municipal taxes levied by the local authority but not paid by the assessee during the previous year, are not deductible.

Further, if the property is situated in a foreign country, municipal taxes levied by the foreign local authority are deductible if such taxes are paid by the owner.

However, the amount paid by the owner assessee to a municipality for regularization of unauthorized construction is not deductible.

Moreover, in case house property tax is paid by some other person other than assessee and evidence on record suggests that the assessee has reimbursed the said amount to the person paying the same. In such case also, municipal taxes shall be deductible to the assessee in the previous year in which the assessee reimbursed the said taxes irrespective of the fact that such taxes paid by other people to authorities later on.

In nutshell, an amount of municipal tax is deductible on a payment basis and not on a due or accrual basis. Hence, it should be ensured that municipal taxes are actually paid during the previous year if the assessee wants to claim a deduction of the same in the assessment year.

Since the owner of the property had not paid the property tax. There was no material on record to suggest that the assessee had subsequently paid the amount to the buyer of the property. Accordingly, the Assessing Officer was justified in disallowing the sum in question. The Commissioner was, therefore, in error in deleting the disallowance. The disallowance was restored.

How to Handle Discrepancy in Salary income Declared and Salary as per salary certificate.

 How to Handle Discrepancy in Salary income Declared and Salary as per salary certificate.  Compliances
Mar 112021
 
Particulars of Income Amount

(As per income tax return)

 Amount

(As per salary certificate and/or 26AS)
Assessee declared salary income Rs. 1,80,000/- Rs 2,40,000/-
Balance

(Explained as Reimbursement of conveyance expenses)

 Rs 60,000/-  
Total Rs 2,40,000/- Rs 2,40,000/-

 

FACTS

The assessee declared salary from a company of a sum of Rs. 1,80,000. In the salary certificate issued by the company, a sum of Rs. 2,40,000 was stated to be paid to the assessee as remuneration. When the assessee was asked to explain the discrepancy, he submitted that the balance sum was towards reimbursement of conveyance expenses. The Assessing Officer concluded that when the expenses of running and maintenance of cars were borne by the company, as admitted by the assessee, there was no question of reimbursement of conveyance expenses. Accordingly, said amount was brought to tax. The Commissioner (Appeals) set aside addition and allowed a deduction of conveyance expenses under section 37(1).

Analysis of facts:

It may sometimes happen that salary income declared in form 16 (salary certificate) and actual income computed and declared as per income tax return may vary as salary income in form 16 is based on an estimation of income and investment for the last months of the financial year and actual investment may differ. Also, maybe, at the time of computing salary income in form 16 some actual investments by the assessee are disallowed by the employer as he has no evidence and no sanctity of evidence at that time but by the time of computing income in ITR assessee may recover all the evidence.

Under the head salary incomes following expenses are allowed as a miscellaneous expense under section 10(14):

(14) (i) any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily, and exclusively incurred in the performance of the duties of an office or employment of profit, as may be prescribed, to the extent to which such expenses are actually incurred for that purpose ;

(ii) any such allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at the place where he ordinarily resides, or to compensate him for the increased cost of living, as may be prescribed and to the extent as may be prescribed :

Provided that nothing in sub-clause (ii) shall apply to any allowance in the nature of personal allowance granted to the assessee to remunerate or compensate him for performing duties of a special nature relating to his office or employment unless such allowance is related to the place of his posting or residence ;

Examples for such allowances and benefits are listed below:

  1. Traveling allowances
  2. Transfer allowances
  3. Conveyance allowances
  4. Daily allowances – for absence from the normal place of business
  5. Helper allowance
  6. Research allowances
  7. Uniform allowances

All the above allowances are normally covered by one term in salary slip/payslip by Special Allowance. It is not open to the department to call for the details of expenses actually incurred by the assessee unless the allowances are disproportionately high compared to the salary received by the assessee or unreasonable with reference to the nature of the duties performed by the assessee.

How to handle such a situation:

  1. If the amount was paid in the form of conveyance allowance etc., the same would firstly form part of taxable income and only that amount which can be exempted under section 10(14 )(i), can be allowed as deduction.
  2. For claiming such deduction under section 10(14), the onus lies upon the assessee to prove that such expenses were incurred only in the course of employment.
  3. Also, the patterns of withdrawal from the bank account should show that the conveyance expenses were incurred by the assessee.
  4. If the amount not allowed under section 16 or above section 10(14) the amount would not be allowed under section 37(1), as a deduction under section 37(1) can be granted only when the income is chargeable under section 28 means business income.
  5. Such allowance should not unreasonable and/or disproportionate. Normally 10% happens to normal variance.
  6. In computing incomes under the head ‘Salaries’, only those deductions as narrated under section 16 can be allowed.
  7. There should not be two salary certificates and there is so second salary certificate should arise from a mistake of fact which should be very clear and visible. In the instant case, discussed above, the salary certificate originally filed, showed that the sum of Rs. 60,000 was paid in the form of salary only and not by way of reimbursement of conveyance expenses. As was rightly contended by the revenue the subsequent certificate was a self-explanatory document and was not borne out from the record that the amount of Rs. 60,000 was paid in the form of reimbursement of conveyance expenses.

 

 

Code On Wages Draft Rules Karnataka 2021

 Code On Wages Draft Rules Karnataka 2021  Compliances
Mar 102021
 

The draft of the Code on Wages Karnataka Rules, 2021 which The government of Karnataka proposes to make in the exercise of the powers conferred by section 67 of the Code on Wages, 2019 (Central Act No. 29 of 2019) is hereby published as required by sub-section (1) of said section, for the information of all the persons likely to be affected thereby and notice is hereby given that the said draft will be taken into consideration after thirty days from the date of its publication in the Official Gazette.

Any objection or suggestion, which may be received by the State Government from any person with respect to the said draft before the expiry of the period specified above will be considered by the State Government. Objections and suggestions may be addressed to the Additional Chief Secretary to Government, Department of Labour, Room No 414, Fourth Floor, Vikasa Soudha, Bengaluru.
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Whether annual letting value as computed by municipal corporation can be ignored by AO?

 Whether annual letting value as computed by municipal corporation can be ignored by AO?  Compliances
Mar 092021
 

Facts in essence:
For the assessment year under consideration, the assessee filed his return of income on 27th September 2011, declaring a total income of Rs. 75,73,399 wherein an amount of Rs. 18,455, under the head “Income From House Property” is included and has shown rent received of Rs. 30,000.
Details of the property let out and rent received as furnished by the assessee: Vide letter dated 12th December 2013, the assessee furnished the details and submitted that he along with his father and brother is a co-owner of the flat. It was submitted that a part of the flat was given on rent to a partnership firm, wherein, his father is a partner. Thus, he and his brother both receive the rent of Rs 30,000/- each.
Also, the annual value of the said property has been fixed by the Municipal Authority at Rs. 79,380. Thus, ALV determined by the Municipal Authority could be adopted for determining the income.

Analysis of facts:
When the assessee had furnished a valuation from the Municipal Authorities determining the ALV at Rs. 79,380, the same could not have been rejected without valid and cogent reasoning. Thus, in the absence of any inquiry by the department as to actual market rent of the assessee property, rejecting the Municipal valuation and referring ALV of some other property (which are commercial property let out to the bank and other commercial establishments) or some other estimated rent is un-justice to the assessee.

What is annual letting value:
Reasonable expected rent is deemed to be the sum for which the property might reasonably be expected to be let out from year to year for which the following factors are taken into consideration:
✓   Location of the property
✓   Annual rentable value of the property fixed by municipalities
✓   Rents of the properties in the neighborhood
✓   The rent which the property is likely to fetch having regard to demand and supply
✓   Cost of construction of the property
✓   Nature and history of the property

The fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality. Fair rent is based on some scientific basis and is not the estimated rent or an arbitrary rental value. Also, for collecting municipal taxes, local authorities make a periodical survey of all buildings in their locality in their jurisdiction. Such valuation may be taken as a piece of strong evidence representing the earning capacity of a building. However, it can’t be considered to be conclusive evidence in all cases.

Moreover, in metro cities, municipal authorities determine net rateable value after deducting 10 percent of the gross rateable value, on account of repairs and an allowance for service taxes. The net municipal valuation thus arrived at, requires a fair adjustment for determining reasonable expected rent for income tax purposes. However, such valuation can’t be rejected without valid and cogent reasoning.

Conclusion:
When the assessee had furnished a valuation from the Municipal Authorities determining the ALV at Rs. 79,380, the same could not have been rejected without valid and cogent reasoning. In view of the
aforesaid, AO has to accept the assessee’s claim that the ALV of the property has to be determined at Rs. 79,380, as per the valuation of Municipal Authorities and thereafter assessee’s share shall be determined for addition under the head income from house property.

THE HARYANA STATE EMPLOYMENT OF LOCAL CANDIDATES ACT, 2020

 THE HARYANA STATE EMPLOYMENT OF LOCAL CANDIDATES ACT, 2020  Compliances
Mar 042021
 

The following Act of the Legislature of the State of Haryana received the assent of the Governor of Haryana on the 26th February 2021 and is hereby published for general information

  • This Act may be called the Haryana State Employment of Local Candidates Act, 2020
  • It extends to the whole of the State of Haryana
  • It shall come into force on such date, as the Government may, by notification in the Official Gazette, specify
  • This Act applies to all the Companies, Societies, Trusts, Limited Liability Partnership firms, Partnership Firm and any person employing ten or more persons and an entity, as may be notified by the Government, from time to time
  • It shall cease to have an effect on the expiry of ten years from the date of its commencement, except as respect to the things to be done or omitted to be done before such cesser, and upon such cesser section 6 of the General Clauses Act, 1897 (Central Act 10 of 1897), shall apply as if this Act had then been repealed by a Central or State Act, as the case may be.
  • Employer” means a Company registered under the Companies Act, 2013 (Central Act 18 of 2013) or a Society registered under the Haryana Registration and Regulation of Societies Act, 2012 (1 of 2012) or a Limited Liability Partnership Firm as defined under the Limited Liability Partnership Act, 2008 (Central Act 6 of 2009) or a Trust as defined under the Indian Trust Act, 1882 (Central Act 2 of 1882) or a Partnership Firm as defined under the Indian Partnership Act, 1932 (Central Act 9 of 1932) or any person employing ten or more persons on salary, wages or other remuneration for the purpose of manufacturing or providing any service or such entity, as may be notified by the Government from time to time, but shall not include the Central Government or the State Government or any organization owned by the Central Government or the State Government;
Compulsory registration
  • On and from the date of commencement of this Act, every employer shall register such employees receiving a gross monthly salary or wages not more than fifty thousand rupees or as notified by the Government, from time to time, on the designated portal, within three months of coming into force of this Act
  • Provided that no person shall be employed or engaged by any employer till the registration of all such employees is completed on the designated portal
Recruitment of local candidates.
  • After the commencement of this Act, every employer shall employ seventy-five percent of the local candidates with respect to such posts where the gross monthly salary or wages are not more than fifty thousand rupees or as notified by the Government, from time to time
  • Provided that the local candidates may be from any district of the State, but the employer may, at his option, restrict the employment of local candidates from any district to ten percent of the total number of local candidates
  • Provided further that no local candidate shall be eligible to avail of the benefits under this Act unless he registers himself on the designated portal
Exemption
(1) The employer may claim exemption from the requirement of section 4, where an adequate number of local candidates of the desired skill, qualification or proficiency is not available by applying to the Designated Officer in such form and manner, as may be prescribed.
 (2) The Designated Officer shall, after such inquiry, as he deems fit and after evaluating the attempt made by the employer to recruit local candidates of the desired skill, qualification, or proficiency, may either-
(i) accept the claim of the employer for exemption from the provisions of section 4; or
(ii) reject the claim of the employer for an exemption for reasons to be recorded in writing; or
(iii) direct the employer to train local candidates to achieve the desired skill, qualification, or proficiency.
 (3) Every order made by the Designated Officer under sub-section (2), shall be placed on the website of the Government.
Employer to furnish report
 
Every employer shall furnish a quarterly report, by such date, as may be notified by the government in the Official Gazette, of the local candidates, employed and appointed during that quarter on the designated portal in such form, as may be prescribed
Penalties
Section 3 (Compulsory registration)

If any employer contravenes the provisions of section 3 of this Act or of any rules made thereunder or of any order in writing given thereunder, he shall be guilty of an offense punishable with the penalty which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees and if the contravention is still continued after conviction, with a further penalty which may extend to five hundred rupees for each day till the time contravention is so continued.

Section 4 (Recruitment of local candidates)

if any employer contravenes provisions of section 4 or of any rules made thereunder or of any order in writing given thereunder, he shall be guilty of an offense punishable with the penalty which shall not be less than fifty thousand rupees but which may extend to two lakh rupees and if the contravention is still continued after conviction, with a further penalty which may extend to one thousand rupees for each day till the time contravention is so continued.

Section 5(Exemption)

If any employer disobeys any order in writing made by the Designated Officer under section 5, he shall be guilty of an offense punishable with the penalty which shall not be less than ten thousand rupees but which may extend to fifty thousand rupees and if the contravention is still continued after conviction, with a further the penalty which may extend to one hundred rupees for each day till the time contravention is so continued.

Notification:- THE HARYANA STATE EMPLOYMENT OF LOCAL CANDIDATES ACT, 2020

Karnataka Minimum Wages 2021-2022

 Karnataka Minimum Wages 2021-2022  Compliances
Mar 032021
 

Karnataka Govt has revised & Increase in Cost of Living Allowance (DA) payable in Scheduled Employment under Minimum Wage Notification for the period from 01/04/2021 to 31/03/2022

 

Industries/Category Notification
Shop & Establishment 👉 Karnataka MW 2021-2022-Shop & Establishment-compressed
Hotel & Restaurant 👉 Karnataka MW 2021-2022- Hotel-compressed
Security 👉 Karnataka MW 2021-2022 Security

 

SOURCES: PRAKASH CONSULTANCY SERVICES

Karnataka Shops And Commercial Establishments (Second Amendment) Act, 2020

 Karnataka Shops And Commercial Establishments (Second Amendment) Act, 2020  Compliances
Feb 242021
 

Karnataka Govt has made some changes in the leave rules vide notification no. 08 Of 2021 has amended the provision for annual leave with wage under Section 15(7) of Karnataka Shops and Commercial Establishments Act, 1961. As per the amendment, the total number of days of leave that may be carried forward towards a succeeding year is increased to forty-five days for all employees. Please refer to the notification for more details

Earlier the limit of carrying forward was 30days which has increase to 45days

Download Circular:-👉karnataka-shops-amendment-act-2020  

 

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