Income Tax: Budget 2022-23 [Important Proposals] - By Adv. Pankaj Bajpai

No more set off of undisclosed income/loss in search cases; FM inserts Section 79A

Assessees usually claim set off of losses or unabsorbed depreciation, against undisclosed income corresponding to difference in stock, undervaluation of stock, unaccounted cash payment etc. which is detected during the course of search or survey proceedings.

Currently there is no provision in the Act to disallow such set-off and no distinction is made between undisclosed income which was detected owing to search & seizure or survey or requisition proceedings.

Allowing the adjustment of undisclosed income detected as a result of search or requisition or survey against the loss or unabsorbed depreciation is resulting in short levy of tax.

Therefore, the government proposes that a provision of non-adjustment of loss or unabsorbed depreciation against undisclosed income detected as a result of search or requisition or survey would help in ensuring that proper tax is paid on income detected due to a search or survey and also result in increased deterrence against tax evasion.

Hence, the Finance Minister proposed to insert a new section 79A in the Act to provide that notwithstanding anything contained in the Act, where consequent to a search initiated u/s 132 or a requisition made u/s 132A or a survey conducted u/s 133A, other than under sub-section (2A) of section 133A, the total income of any previous year of an assessee includes any undisclosed income, no set-off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32 shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year.

This amendment will take effect from April 01, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.

Section 132B amended to include reassessment/ re-computation of seized/ requisitioned assets

The Government proposes to amend existing Section 132B(1)(i) of Income tax Act and hence directed that same shall apply to completion of assessment or reassessment or re-computation. Similarly, Section 132B(4) which provides the computation of simple interest that the Central Government shall pay on the amount of money seized u/s 132 or requisitioned u/s 132A, is also proposed to amended to make it applicable to completion of assessment or reassessment or re-computation.

?FM proposes to tax ‘Income from transfer of virtual digital asset’ @ 30%

?The Government has proposed to introduce a new scheme to provide for taxation of virtual digital assets, tax on gift of virtual digital assets and TDS on payment for transfer of virtual digital asset to a resident, through Union Budget 2022.

Accordingly, the FM proposes to introduce Section 115BBH which provides for charge of tax on income of transfer of any virtual digital asset at the rate of 30%, and thus clarified that no deduction for any expenditure or allowance or set off of any loss shall be allowed while computing income from transfer of such asset, except deduction for cost of acquisition.

In addition, the FM also clarified that neither set off of any loss arising from transfer of virtual digital asset shall be allowed against any income nor such loss shall be allowed to be carried forward to subsequent assessment years. These provisions are applicable from April 01, 2023 and will apply from AY 2023-24 onwards.

Moreover, the FM proposes to insert clause (47A) u/s 2 to define “virtual digital asset” " to mean: (a) any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme and can be transferred, stored or traded electronically; (b) a non-fungible token or any other token of similar nature by whatever name called; (c) any other digital asset as may be notified by the Central Government in the Official Gazette in this behalf. This amendment shall apply with effect from April 01, 2022.

Further, the FM proposed to provide that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein. In order to provide for taxing the gifting of virtual digital assets, the FM proposes to modify Section 56(2)(x) to state that the expression “property” shall include virtual digital asset w.e.f?April 1, 2023.

Also, the FM proposes to insert Section 194S to provide for TDS on payment for transfer of virtual digital asset to a resident @ 1% w.e.f July 01, 2022.?

Revisionary jurisdiction u/s 263 to include TPO’s order within its ambit

Existing Section 263 of the Income tax Act provides for revision of an order which is erroneous in so far as it is prejudicial to the interests of revenue, and such order u/s 263 can be passed within two years from the end of the financial year in which the order sought to be revised was passed.

As per provisions of section 92CA, if the Assessing Officer considers it necessary or expedient, he may, with the approval of the Principal Commissioner or Commissioner refer the computation of arm’s length price/ specified domestic transaction entered into by an assessee, to the Transfer Pricing Officer (TPO), who passes an order and send it to the Assessing Officer for final income determination.

However, there is ambiguity as to who has the power u/s 263 to revise the order of the TPO passed u/s 92CA. Therefore, the FM proposes to amend the provisions of section 263 of the Income tax Act so as to provide that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO.

Consequential changes are also be made in the provisions of section 153 of the Act inter alia to provide two months’ time to the Assessing Officer to give effect to the order of TPO consequent to the directions in the revision order.?

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