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Saturday, March 9, 2013

Procedural Compliance :- Budget 2013

*    Defective Return :- Section 139(9)
 Present Law
Proposed Changes (w.e.f. 01.06.2013)
·  Where the AO considers that the Return of Income (ROI) furnished by the assessee is defective,
·  he may intimate the defect to the assessee
·  and give him an opportunity to rectify the defect
·  Within a period of fifteen days.
New Sub clause (aa) inserted:
·  ROI will also be treated as defective
·  If taxes due i.e. Advance Tax & self assessment tax
·  has not been paid
·  on or before the date of filing of return.
**This defect is non-curable.
Comment:
1. As per existing section 139(9), if the ROI has been found to be defective, then as per the direction of the AO, assessee can rectified the defect within a period of 15 days and after such rectification, the return can be treated as valid return. However, as per proposed amendment, ROI without payment of ‘taxes due as per return’ shall be treated as defective.

2. The proposed amendment seems to be too harsh for the reason that merely because of non payment of returned taxes, ROI of the assessee will be treated as defective ‘which cannot be rectified’, except by filing a fresh ROI.
       Suppose an assessee is claiming the deduction u/s 80-IA and filing the ROI on 30th Sept i.e. on the last day without paying due taxes. As per proposed amendment the ROI filed by the assessee will be treated as defective and other provisions of the act will apply as if the no ROI has been filed by the assessee.     
       Assessee, after paying the taxes, is filing the ROI once again on 30th October. Now the assessee will not be eligible for deduction u/s 80-IA, because as per section 80AC, for claiming deduction u/s 80-IA, the ROI should be filed on or before the due date i.e. on or before 30th Sept. 

2. The proposed amendment is seems to be a tax collection measure at the earliest point of time. From the taxpayers point of view, the said provision is seems to be quite harsh as merely non payment of returned tax liability will lead to a conclusion that assessee had not filed the tax return.   

Extract of Memorandum:
 It has been noticed that a large number of assessees are filing their returns of income without payment of self-assessment tax.
     It is, therefore, proposed to amend the aforesaid Explanation so as to provide that the return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing of the return. .”





*      Special Audit: - Section 142[2A]:
Present Law
Proposed Changes (w.e.f. 01.06.2013)
·  If at any stage of the proceeding, the AO having regard to the
·  nature and complexity of the accounts
·  of the assessee and
·  the interests of the revenue,
·  is of the opinion that it is necessary so to do,
·  he may, with the approval of the Chief Commissioner or Commissioner,
·  Direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.


· If at any stage of the proceeding, the AO having regard to the
o   nature and complexity of the accounts or 
o   volume of the accounts, or
o   doubts about the correctness of the accounts, or
o   multiplicity of transactions in the accounts or
o   specialized nature of business activity,
·  of the assessee and
·  the interests of the revenue, is of the opinion that it is necessary so to do,
·  he may, with the approval of the Chief Commissioner or Commissioner,
·  Direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.
Comment:
1. AO, with the previous approval of CIT or CCIT, can direct the assessee to get his accounts audited, if he feels necessary by taking into consideration one of the various factors as above.
2. Following case decisions seems to have been overruled by the proposition of this amendment:
a) Peerless General Finance (236 ITR 671) Kolkata, wherein HC held an opinion has to be formed having regard to the nature and complexity of the accounts of the assessee and the interests of the Revenue and both the factors are necessary ingredients for exercise of power. In the absence of the same direction u/s 142(2A) is void.  
b) Heera lal (106 TTJ 114) Jaipur, wherein ITAT had held that as there is no evidence in the assessment record that the AO had considered the nature and complexity of the accounts and hence proceedings u/s 142(2A) is invalid.
c) Rajendra Singh (117 TTJ 885) Mumbai, wherein ITAT held that there was no application of mind at all by AO to form an opinion that having regard to the nature and complexity of accounts and the interests of Revenue, and accordingly direction of special audit is invalid.

3. A larger accountability is now cast on the CIT or CCIT to check the basis on which the permission of special audit had been sought.
Extract of Memorandum:  
“   The expression “nature and complexity of the accounts” has been interpreted in a very restrictive manner by various courts. It is, therefore, proposed to amend the aforesaid sub-section so as to provide that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.”
*    Application of seized assets u/s 132B:
Existing Act
Proposed  changes (w.e.f. 01.06.2013) 
·      Seized assets may be adjusted against
·      any existing liability
·      under the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act and
·      the amount of liability determined on completion of assessments pursuant to search,
·      including penalty levied or interest payable and
·      in respect of which such person is in default or deemed to be in default..
Explanation inserted:
Existing liability does not include advance tax payable.

Comment:
1. Following case decisions are likely to be overruled by this amendment:
a) Jyotindra B Mody (ITA/3741/2010) Bombay, wherein Hon’ble HC had held that seized cash can be adjusted against advance Tax liability when assessee had made specific request to treat the seized cash as advance tax.
b) Kesr Kiman Karyalaya (278 ITR 596) Delhi: HC in this held when offer for adjustment of seized cash was made by the assessees before the advance tax liability became due then the same could be adjusted against advance tax liability.
c) Vishwanath Khanna (335 ITR 548) Delhi: HC had held that Department would not be justified in levying interest under ss. 234B and 234C, as the amount of advance tax payable by the petitioner assessee for relevant assessment years could be adjusted from the amount lying with the Department in the petitioner’s own account consequent to search and seizure operation.
d) Ram S Sarda 13 ITR 457 (Rajkot), wherein ITAT held that cash seized at the time of search should be treated as Advance Tax and accordingly should be adjusted accordingly.

2. Cash seized during the course of search proceedings will not be adjusted against the advance tax liability. It means the assessee has to make an extra effort to make arrangements for payment of Advance Taxes.

 Extract of Memorandum:
Various courts have taken a view that the term “existing liability” includes advance tax liability of the assessee, which is not in consonance with the intention of the legislature. The legislative intent behind this provision is to ensure the recovery of outstanding tax/interest/penalty and also to provide for recovery of taxes/interest/penalty, which may arise subsequent to the assessment pursuant to search.

*    Online filing of wealth tax return: Section 14A / Section 14B
Present Law
New Section (w.e.f.01-06-2013)
Section 14 of Wealth Tax
·  Every assessee, whose net wealth exceeds INR 30 Lakh,
·  is required to file wealth tax return (in paper form) 
·  along with relevant supporting documents.
Section 14A / Section 14B
Eligible assessee may file a return of net wealth in electronic mode (e-filing) similar to Income tax returns.
CBDT will prescribe the relevant rules accordingly.
Comment:
1. Paper returns will become history soon as proposed amendment will enable the assessee to file their wealth return online. Hope assessee will prefer the same.
2. For governments point of view now they can get the data in a systematic manner and administrative burden will be reduced to a certain extent as the online return is supposed to be processed in centralised processing centre.

Extract of Memorandum:
“ Sections 139C and 139D of the Income-tax Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assessees. In order to facilitate electronic filing of annexure-less return of net wealth, it is proposed to insert new sections 14A and 14B in the Wealth-tax Act on similar lines.”

*      “Taxes Due” Re- Defined:- Section 179 
Existing Act
Proposed  changes (w.e.f. 01.06.2013)   
·         Where the “Tax Due”
·         from a private company cannot be recovered from such company,
·         then the director/s
·         shall be jointly and severally liable for
·         payment of such tax
·         Unless they proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on their part.
“Tax Due” includes penalty, interest or any other sum payable under the Act.


Comment:
1. Earlier in case of non payment of Income tax by the company, same can be recovered from the directors. However recovery of interest and penalty from the directors had been litigated. Definition of Tax due is proposed to be amended to include interest and penalty and according the same can be recovered from the directors.
2. Following case decisions are likely to be overruled by the proposed amendment:
a) Dinesh T tailor (326 ITR 85) Bombay, wherein Hon’ble HC held that taxes for the purpose of section 179 does not include penalty.
b) H Ebrahim (332 ITR 122) Karnataka: High Court had held that as per section 179 director of the company is liable to pay tax component only and not the penalty & interest.
c) Sanjay Ghai (WP 5175/2012) Delhi: In this case, AO computed outstanding dues of the assessee company including tax, interest and penalty, to be payable by the lone director. HC held that assessee in this case cannot be made liable for anything more than the tax.      
Extract of Memorandum:  
Some courts have interpreted the phrase ‘tax due’ used in section 179 to hold that it does not include penalty, interest and other sum payable under the Act. In view of the above, it is proposed to clarify that for the purposes of this section, the expression “tax due” includes penalty, interest or any other sum payable under the Act. Amendments on the similar lines for clarifying the expression ‘tax due’ is proposed to be made to the provisions of section 167C
*      Extended time for completion of assessments:
Present Law
Proposed Changes 
Section 153 - Explanation 1 (iii)
·         The period commencing from the date on which
·         AO directs the assessee to get his accounts audited u/s 142 (2A) and
·         ending with the last date on which the assessee is required to furnish a report of such audit,
·         is excluded in computing the period of limitation for the purposes of assessment or reassessment.
Section 153 - Explanation 1 (viii)
·         The period commencing from the date on which
·         a reference for exchange of information is made
·         by an competent authority u/s 90 or 90A and
·         ending with the date on which the information so requested is received by the Commissioner or a period of one year, whichever is less,
·         in computing the period of limitation for the purposes of section 153.
Section 153 - Explanation 1 (iii) : Revised
·         The period ....
·         AO ...
·         ending ...., or  
·         where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Commissioner
·         is excluded ..

Section 153 - Explanation 1 (viii) : Revised
·         The period commencing from the date
·         on which a reference or first of the references for exchange of information is made
·         by an competent authority u/s 90 or 90A and.
·         and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less,
·         shall be excluded in computing the period of limitation for the purposes of section 153..
Comment:
1. AO will get additional time if the special Audit has been set aside by any court. Further AO will also get additional time for completion of assessment when any information has been sought from foreign authorities.

2. Supreme Court decision in case of Sahara India 300 ITR 403 is seems to be overruled by the proposed amendment. In this case Apex Court had given a direction not to challenge the time limit prescribed u/s 142(2A).

Extract of Memorandum:
“....Under the existing provisions of clause (iii) of Explanation 1 to section 153, the period commencing from the date on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending with the last date on which the assessee is required to furnish a report of such audit, is excluded in computing the period of limitation for the purposes of assessment or reassessment.
However, the existing provision does not provide for exclusion of time in case the direction of the Assessing Officer is set aside by the court.


*      Penalty for non-filing of Annual Information return :- Section 271FA
Present Law
Proposed Changes 
·         If a person who is required to furnish an annual information return (AIR), as per section 285BA, and
·         fails to furnish such return within the time limit, then
·         the income-tax authority may direct that
·         such person shall pay, a penalty of
·         INR 100 for every day during which the failure continues.
Provisio Inserted
·         In case person fails to furnish the return within the period specified in the notice,
·         he shall pay, by way of penalty,
·         INR 500 per day for every day during which the failure continues,
·         Beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

*      Definition of Capital Assets:- Section 2(14)
Existing Act
Proposed  New changes   
Capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include....
(iii) Agricultural land in India, not being land  situated
a)      in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or
b)        land situated in any area within such distance not exceeding eight kilometres from the local limits of any municipality or cantonment board, as notified by the Central Government having regard to the extent and scope of urbanization and other relevant factors, forms part of capital asset.

Section 2(14)(iii)(b) redefined:
Land situated in any area within the distance, measured aerially (shortest aerial distance),
(I)      not being more than 2 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10,000 but not exceeding 1 lakh; or
(II)    not being more than 6 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 1 lakh but not exceeding 10 lakh; or
(III)  not being more than 8 kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10 lakh, forms part of capital asset.


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