Page 14 - Union Budget, 2022

Union Budget, 2022

Clarification on treatment of Cess and Surcharge
‘Cess’ and ‘Surcharge’ levied in addition to income tax are proposed to be disallowed as deduction in the
computation of gross income from “Profits or gains from business or profession”.

Retrospectively from AY 2005-06 and subsequent years

The proposed amendment attempts to ward off existing misinterpretations and make clear the intent of the
legislation by disallowing any tax paid over and above the basic income tax, by whatever name called.

Clarification in respect of disallowance u/s 14A in absence of any exempt income
• An Explanation to Sec 14A of the Act is proposed to be inserted to clarify that, disallowance of expenditure
incurred to earn exempt income shall be made even where exempt income has not arisen or accrued or
received during the year.
AY 2022-23 and subsequent AYs

• The proposed amendment would remove the ambiguity created due to divergent judicial precedents in which
the expenditure incurred to earn exempt income in the years in which such exempt income has not been

accrued or received has been allowed in few cases and disallowed in others.

Amendments related to successor entity subsequent to business reorganization
• It is proposed to be clarified that any proceedings pending or completed on the predecessor in the event
of business reorganization, shall be deemed to have been made on the successor.
• It is proposed to insert a new provision Sec 170A for entities that had undergone reorganisation to file a

modified return of income within 6 months from the issue of order by Judicial Forum.

AY 2023-24 and subsequent AYs

• The proposed amendment validates the proceedings initiated by the Income Tax Authorities on the
predecessor during the pendency of Judicial pronouncements for reorganisation. It overrules the

judgments held by various Judicial Forums which invalidated such proceedings conducted on the
predecessor.
• As reorganisation is a lengthy process, the hardship faced in revising the returns by successor entities in
accordance with the reorganisation is removed by filing modified return; however, the ambiguity still
persists in terms of the disclosure of statutory dues like ESIC, PF, TDS, etc. which were paid by the
predecessor entity pertaining to the successor entity.

Amendment in relation to reduced tax demand pursuant to specific orders
• A new provision Sec 156A is proposed to be inserted to allow the AO to give effect to the orders of
reduced tax demand issued by various Judicial Forums pursuant to reorganisation, by revising its erstwhile
demand order.

AY 2023-24 and subsequent AYs.

• The erstwhile provisions did not permit the AO to revise the demand in accordance with the orders of
various Judicial Forums pursuant to reorganisation, in the case of sick units or assesses under liquidation,

which lead to repeated tax demands being raised inspite of the judicial orders. The proposed provision
would address this anomaly in the Act.

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