Tuesday, December 29, 2009

Applicability of year end rate for conversion of business income earned in foreign currency

This article summarizes ruling of the Delhi Income Tax Appellate Tribunal (ITAT) in the case of DCIT v Dolphin Drilling Pte. Ltd. (Taxpayer) [2009-TIOL-754- 1TAT-DEL]. The ITAT held that the conversion of business income earned in foreign currency into INR, in accordance with Rule 115 (Rule) of the Indian Tax Law (ITL), is to be made by adopting the conversion rate prevailing at the end of the tax year. It also held that the Taxpayer, a company incorporated in Singapore and engaged in the business of hiring out drill-ship in India, is entitled to claim depreciation on the value of the drill-ship.

Background and facts of the case

  • As per the Rule, taxpayers earning income in foreign currency are required to convert such income into INR using the telegraphic transfer (TT) buying rate as on the specified date. The specified date is different for different sources of income. In respect of income chargeable under the head 'house property', 'business and profession' and 'income from other sources', the specified date is the last day of the relevant tax year.
  • The Taxpayer, a company incorporated in Singapore, hired out its drill-ship to its sister concern in connection with the execution of the latter's contract with an Indian entity. The income from hiring out was earned in USD by the Taxpayer.
  • The Taxpayer declared the hiring income as business income. In its computation, the Taxpayer claimed deduction for depreciation on the cost of drill-ship which was incurred in USD. For earning the hiring income, the Taxpayer also incurred certain expenses in foreign currencies other than USD.
  • Relying on the Rule, the Taxpayer converted revenue and expenses by adopting the conversion rate prevailing at the end of the tax year.
  • In support of its claim for depreciation, the Taxpayer furnished the invoices, the auditor's certificate certifying the actual cost, the certificate of registration and the valuation report from renowned valuers.
  • The Tax Authority held that the method for conversion adopted by the Taxpayer was incorrect. The Tax Authority contended that the Taxpayer's business income should be computed by first converting the business transactions in other currencies into USD by applying the rate on the date of such transaction. Thereafter, the net result in terms of USD should be converted to INR by adopting the rate prevailing at the end of the tax year.
  • The Tax Authority also denied the claim of depreciation by contending that the Taxpayer had failed to substantiate the ownership of the drill-ship, as also the actual cost incurred for acquiring the drill-ship.
  • The Tax Authority rejected the Taxpayer's books of account for the above reasons and computed the income on a presumptive basis, with reference to its gross receipts.
  • The first appellate authority accepted the Taxpayer's contentions and approved the method adopted for conversion of income in terms of the Rule. It also held that the Taxpayer was entitled to depreciation on the drill-ship as it had adequately substantiated the proof of ownership and the actual cost.
  • Aggrieved by the decision of the first appellate authority, the Tax Authority further appealed to the ITAT.

Contentions of the Tax Authority

  • The Taxpayer maintains its books of account in USD and also receives revenue in USD. It should, therefore, first convert all its business transactions in other currencies into USD by adopting the rate prevailing on the date of the transaction and then convert the net result in USD into INR by adopting the rate prevailing at the end of the tax year. The method adopted by the Taxpayer of directly converting all business transactions into INR at the year-end rate is not in accordance with the accounting principles.
  • The Taxpayer had failed to substantiate the ownership of the drill-ship, as also the actual cost incurred for acquiring the drill-ship.
  • For the above reasons, the Tax Authority was justified in rejecting the Taxpayer's books of accounts and computing the income on a presumptive basis, with reference to its gross receipts.

Contentions of the Taxpayer

  • The Taxpayer had correctly computed its income earned in foreign currency, by applying the Rule. The conversion of revenue and expenses directly into INR by adopting year­end rate is consistent with the method prescribed by the Rule.
  • As regards the claim for depreciation on the cost of the drill-ship, the documents submitted in support of proof of ownership by way of the invoice, the auditor's certificate, the certificate of registration and the valuation reports, adequately substantiate the Taxpayer's ownership over the drill-ship and the actual cost incurred by the Taxpayer.
  • The Taxpayer had allotted shares of the value of USD 270 m (of face value USD 1 each) to its sister concern as the consideration for the purchase of the drill-ship which was made at an arms' length price. The same had been evidenced by way of a Chartered Accountant's report (in Form 3CEB) submitted to the Tax Authority, under the transfer pricing provisions of the ITL.

Ruling of the ITAT

The ITAT held that the Taxpayer had correctly converted income earned in foreign currency by applying the Rule. It also allowed the claim for depreciation on drill-ship for the following reasons:

  • Since the Taxpayer is in the business of hiring out drill-ship, the hiring income has to be assessed either under the head 'profits and gains of business or profession' or 'income from other sources'.
  • It is a settled position that the Rule provides for conversion of income earned in foreign currency by adopting the rate prevailing on the specified date. The Rule does not require the taxpayer to convert the income first into USD or any other currency and subsequently into INR.
  • Income under the head 'profits and gains from business or profession' is the culmination of the day-to-day business transactions. The requirement under the Rule, to convert the income at the end of the year, effectively implies that the day-to-day transactions are to be converted at the year­end rate.
  • As regards the admissibility of the depreciation on the drill-ship, the ITAT took into account the diverse evidence of ownership of the drill-ship furnished by the Taxpayer, including the purchase agreement, the registration certificate, the customs clearance record etc. Considering this evidence, the ITAT confirmed that the Taxpayer had adequately substantiated both its ownership over the drill-ship as well as the actual cost incurred and held that the Taxpayer was entitled to depreciation on the drill-ship.

Comments :-This ruling provides guidance on the application of Rule 115 that the conversion of income earned in various foreign currencies into USD, prior to its conversion into INR, is not required. The requirement under the Rule is only to convert 'income from profits and gains from business' i.e. the net result at the year-end rate. The ruling also emphasizes the need for adequate documentation for establishing ownership and the actual cost of an asset in order to claim depreciation thereon.



--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Saturday, December 26, 2009

Procedure for representation before BIFR and AAIFR

In supersession to all circulars and instructions of the Central Board of Direct Taxes (CBDT) issued on the above subject, the CBDT prescribes the following procedure to be followed before the Board for Industrial and Financial reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) in respect of granting Income tax reliefs/concessions to be given to sick companies for its rehabilitation under the Sick Industrial Companies (SICA) Act, 1985.

1. The Director General Income Tax (Administration) , [DGIT (Admn.)] will be the Nodal agency for co-ordination between the BIFR and the CBDT and between the AAIFR and the CBDT.

2. It will be the responsibility of DGIT (Admn) to represent the CBDT before BIFR and AAIFR in every case in which Income Tax reliefs is sought under the Draft Rehabilitation Scheme or in the Sanctioned Scheme circulated by BIFR/AAIFR.

3. The DGIT (Admn) will consider each case of Income Tax reliefs/concessions under the Direct Tax Laws on merits of each individual case for the purpose of consent as contemplated in Section 19 (2) of the SICA, 1985. In cases where the company and the assessing officer have quantified the Income tax reliefs the DGIT (Admn) will communicate the consent or denial of consent to BIFR at the time of hearing itself after obtaining the approval of CBDT. Where the information from the company and the assessing officer is incomplete, the DGIT (Admn.) will obtain the necessary information from the concerned parties and put up the file for the consideration of CBDT and subsequently intimate the BIFR.


4. It is the responsibility of DGIT (Admn) to obtain the approval of CBDT in every case in which Income tax relief/concessions is sought and to communicate the approval of CBDT to BIFR and the concerned assessing officer. The decision thus communicated by the DGIT (Admn.) on behalf of the CBDT is binding on all assessing officers. 

5. The assessing officer should give the Income Tax reliefs to sick companies only after obtaining the approval as mentioned above. In cases where BIFR/AAIFR is taking a different view from that of the CBDT, it will be the responsibility of DGIT (Admn) to file appeal before the appellate authority (AAIFR) or before the Delhi High Court as the case may be. It is also hereby clarified that in cases where the sick companies file appeals against the order of BIFR/AAIFR in any of the High Court other than Delhi High Court, it will be the responsibility of concerned Chief Commissioner of Income Tax (Administration) to defend the case in the respective High Court.

This Circular may be brought to the notice of all officers working in your region for strict compliance.

This Circular should also be brought to the notice of the officers responsible for conducting internal audit and adherence to these should be checked by the auditing parties.



--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Wednesday, December 23, 2009

HC (MUM): Writ, If refund is legitimately due to assessee, mere delay should not defeat claim for refund

HIGH COURT OF BOMBAY

Sitaldas K. Motwani

v.

DGIT (Int'l Taxation)

Writ Petition No. 1749 of 2009

December 15, 2009

RELEVANT EXTRACTS:

**       **          **          **          **          **          **          **          **          **          **          **

15.          The phrase "genuine  hardship" used in Section119(2)(b) should have been construed liberally even when the petitioner has complied with all the conditions mentioned in Circular  dated 12 the October,1993. The Legislature  has conferred the power to condone  delay to enable the authorities to do substantive  justice  to the  parties  by disposing of  the matters  on  merit.  The  expression "genuine " has  received  a  liberal meaning  in  view  of  the  law laid  down  by  the  Apex  Court  referred to  hereinabove  and  while  considering this  aspect, the  authorities  are expected  to  bare  in  mind  that ordinarily  the applicant, applying  for condonation  of  delay  does  not  stand  to  benefit  by lodging  its  claim late.  Refusing  to  condone  delay  can  result  in  a  meritorious matter being  thrown  out  at  the  very  threshold  and  cause  of  justice  being defeated.  As against  this, when  delay  is  condoned  the  highest that can happen is that a cause would be decided on merits after hearing  the parties.  When substantial justice and technical considerations  are  pitted against each other,  cause  of  substantial  justice  deserves  to  be preferred  for  the  other side  cannot  claim  to  have  vested  right  in  injustice  being done  because  of  a non ­deliberate  delay.   There  is  no  presumption  that delay is occasioned  deliberately, or  on account  of  culpable  negligence, or  on  account  of  malafides.  A  litigant  does  not  stand  to  benefit  by  resorting  to  delay.  In  fact  he  runs  a  serious  risk.  The  approach  of  the  authorities  should  be  justice  oriented  so  as  to  advance  cause  of  

justice.  If  refund  is  legitimately  due  to  the  applicant, mere  delay should  not  defeat  the  claim  for  refund.

16.          Whether  the  refund  claim  is  correct  and  genuine, the  authority must satisfy itself that the applicant has a prima facie  correct  and genuine  claim, does  not  mean  that  the  authority  should  examine  the  merits  of the refund  claim  closely  and  come  to  a  conclusion  that  the  applicant's claim is bound  to succeed. This  would  amount  to  prejudging  the  case  on  merits.  All  that  the  authority  has  to  see  is  that  on  the  face  of  it  the  person  applying  for refund  after  condonation  of  delay  has  a  case  which  needs  consideration  and which  is  not  bound  to  fail  by  virtue  of  some  apparent  defect.  At this stage, the authority  is  not  expected  to  go  deep  into  the  niceties  of  law.  While determining  whether  refund  claim  is  correct  and  genuine, the  relevant consideration  is  whether  on  the  evidence  led, it was possible to arrive at the conclusion in  question  and  not  whether  that  was  the  only  conclusion  which could  be  arrived  at  on  that  evidence.   

17.Having  said  so, turning  to  the  facts  of  the  matter  giving  rise  to   the present petition, we are satisfied that respondent No.1  did  not consider the prayer  for condonation of delay in its  proper  perspective.  As such, it needs consideration  afresh.

18.     In  the  result, we set  aside  the  impugned  order  and  remit  the matter  back  to  the  respondent  No.1  for  consideration  afresh, with  the direction to decide the  question  of hardship as well  as  that  of correctness and  genuineness  of  the  refund  claim   in  the  light  of  the observations made hereinabove.  All other rival contentions on merits are kept open. Rule is  made  absolute  in  terms  of  this  order  with  no  order  as to

--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Fwd: [aaykarbhavan] FinMin:~ Trade Receivables Engine for E-DISCOUNTING launched~



---------- Forwarded message ----------
From: srinivasan rm <badrinivas10@yahoo.com>
Date: Wed, Dec 23, 2009 at 11:53
Subject: [aaykarbhavan] FinMin:~ Trade Receivables Engine for E-DISCOUNTING launched~
To: lck ca lucknow <lucknowca_reinvented@yahoogroups.com>, meerat <icai_circ_meerut_ca@yahoogroups.com>
Cc: aaykar bhavan <aaykarbhavan@yahoogroups.com>, thane cas <ThaneCas@yahoogroups.com>, mbsirc google gr <mbsirc@googlegroups.com>






Press Information Bureau
Government of India

Tuesday, December 22, 2009
  Ministry of Finance  
 
TRADE RECEIVABLES ENGINE FOR E-DISCOUNTING LAUNCHED

 
  19:19 IST  
 
  Finance Secretary, Shri Ashok Chawla today launched an e-platform 'NTREES', an acronym for Trade Receivables Engine for E-discounting. Promoted by SIDBI & NSE, NTREES will facilitate discounting of MSME bills on their supplies to large purchaser companies.

Reiterating the importance of the historic event, Shri Chawla discussed the journey of MSMEs that have been recognized as the true engines of growth not just in India but all over the world. In India, their contribution to manufacturing and exports is significant, apart from providing gainful means of employment opportunities to large number of people.

Over the years, MSME needs have gradually expanded with credit being one of the critical requirements which is provided to them by banks, as well as, specialised financial institutions, such as the SIDBI.

NTREES provides a qualitative approach to addressing their needs and he expressed his hope that this will take off and become an optimum framework and institutional mechanism. In the next phase, as more and more banks adopt this platform, the platform could also emerge as a price discovery mechanism.

Congratulating SIDBI and NSE on this path breaking endeavour, Shri Chalwa extended his best wishes towards the success of NTREES.

The launching occasion at Vigyan Bhawan, New Delhi witnessed the presence of bankers, corporates, MSMEs, industry associations, bureaucrats, international experts and the press and electronic media.

Shri Ravi Narain, MD and CEO of NSE stated that major challenges facing the MSMEs today are meeting their capital requirements at reasonable cost. NTREES is a unique and exciting platform to address these challenges for MSMEs. Shri Narain expressed his acknowledgement towards SIDBI's partnership for this unique platform and hoped that NTREES – which has received encouraging response, becomes an industry-wide platform and goes a long way in its mission.

Shri R M Malla, CMD, SIDBI, informed that the Bank's Bill Discounting mechanism called Receivable Finance Scheme, has grown in popularity over the years to reach out to more than 17,000 MSME suppliers related with about 250 large corporates. NTREES replaces the paper-based physical mechanism with e-trading which will make discounting of bills transactions cost-effective, expeditious, and more transparent.

Shri Malla mentioned that NTREES is a part of SIDBI's financing and developmental support to MSMEs. While mentioning various diverse activities of SIDBI, he said that with GOI support, SIDBI has set up Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for encouraging collateral free lending to MSEs.

BSC/Samir/AS
 
 

 
courtesy:FinMin
regards
ca srinivasan rm
karaikudi



__._,_.___


receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.

To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.com




Your email settings: Individual Email|Traditional
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe

__,_._,___



--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Friday, December 18, 2009

INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 21-12-2009 Volume 319 : Part 4 HIGH COURT JUDGMENTS Block assessment : No discrepancy or omission found in accounts warranting their rejection : Addition on basis of discrepancy in stocks worked out on

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 21-12-2009

Volume 319 : Part 4

 

 

HIGH COURT JUDGMENTS


àBlock assessment : No discrepancy or omission found in accounts warranting their rejection : Addition on basis of discrepancy in stocks worked out on estimate basis not permissible : CIT v. Utkal Alloys Ltd. (Orissa) p. 339


àAdvance tax on salary paid by non-resident : Grossing up of tax liability u/s 195A not justified : CIT v. Tadashi Murakami (Delhi) p. 347

 

à Search in residence-cum-clinic of doctor : Documents disclosing receipt of illegal money by sharing fee of doctors and x-ray clinics : Additions justified : Dr. Mrs. Shanti Roy v. Chief CIT (Patna) p. 350

àAssessee conceding before Tribunal that minimum penalty be imposed : Penalty imposed justified : Dr. Mrs. Shanti Roy v. Chief CIT (Patna) p. 350

àDelivery of assets by assessee to lessee before September 30, 1996 o-->previous year : Assessee entitled to full depreciation : CIT v. UTI Bank Ltd. (Guj) p. 357

àAppeal to Appellate Tribunal : Mere upholding of finding of Commissioner (Appeals) is not sufficient : K. D. Wires P. Ltd. v. Union of India (MP) p. 359

àTrust deed empowering trust to start educational agencies for earning income to achieve aims and objects of trust : Surplus transferred to trust and utilised in purchase of land and construction of building : Valid trust : CIT v. Brihdaranyak Mandal (Trust) (All) p. 363

àHigh Court has no power to condone delay in filing appeal : CIT v. Williamson Tea (Assam) Ltd. (Gauhati) p. 368

àAssessee filing appeal before Tribunal and requesting deferment of penalty proceedings cannot plead that levy of penalty barred by limitation : Dewan Engineering Works v. CIT (P & H) p. 375

àConsultancy fees not deductible u/s 37 : Emmpac Holdings P. Ltd. v. CIT (Delhi) p. 379

àMaximum amount of penalty u/s 272A(2) not to exceed amount of tax deductible : CIT v. Jain Colonizers P. Ltd. (All) p. 383

àAssessment order of subsequent year could form basis for reassessment : Tilak Raj Bedi v. Joint CIT (P & H) p. 385

àHigh Court has no power to review substantively : CIT v. West Coast Paper Mills Ltd. (Bom) p. 390

àInvestment not confirmed by some applicants : Not undisclosed income of assessee : Asst. CIT v. Venkateshwar Ispat P. Ltd. (Chhattisgarh) p. 393

àGoods purchased but not entered in stock register : Explanation that son of assessee looking after assessee's business was out of station in connection with treatment of his mother : Commissioner (Appeals) and Tribunal accepting explanation : Finding of fact : CIT v. Satyanaryan Agrawal (Chhattisgarh) p. 396

àCBDT the prescribed authority to grant approval u/s 10(23C)(vi) for AYs 1999-2000 and 2000-01 : Cancellation of approval by Director General not valid : Maharashtra Academy of Engineering and Educational Research v. Director General of Income-tax (Investigation) (Bom) p. 399

àFirm claiming that out of borrowings from firm, partner acquiring land in his personal name but for business of firm : Firm given opportunity to prove its case : CIT v. Anugraha Builders (Ker) p. 407

àFailure to deduct tax at source : AO to reconsider matter in the light of SC decision : Children's Education Society v. Deputy CIT (TDS) p. 409

àLoans and interest thereon not includible in total income of assessee where there is a finding by Tribunal that loans were genuine and in the form account payee cheques : CIT v. Smt. Sushila Devi Khadaria (Bom) p. 413

àInterest on capital borrowed for investment in shares deductible u/s 57(iii) : CIT v. Smt. Sushila Devi Khadaria (Bom) p. 413

àExpenditure related to exempted income not deductible : Pradeep Kar v. Asst. CIT (Karn) p. 416

àForeign technician : Status as non-resident for years before entry into India : Exemption available for forty-eight months : CIT v. J. G. Lovoie (Karn) p. 419

àTrust not entitled to exemption where Tribunal finding managing trustee personally utilised income of trust : CIT v. Sir M. Visveswaraya Educational Trust (Kar) p. 425

àAppeals pending from assessment of public sector company which had large resources : Rejection of application for stay of recovery proceedings without giving reasons not valid : Tamil Nadu State Transport Corporation (Kumbakonam) Ltd. v. Chief CIT (Mad) p. 430

àNo finding that company had accumulated profits : Loan to shareholder not assessable as deemed dividend : CIT v. Nitin Shantilal Parikh (Guj) p. 437

àSubsidy received to encourage hotel industry in State not liable to tax : CIT v. Udupi Builders P. Ltd. (Karn) p. 440

àTransfer of right to exhibit films outside India : Assessee entitled to deduction u/s 80HHC : CIT v R. K Exports (Mad) p. 442

àOriginal assessment granting exemption : Notice after four years to withdraw exemption not valid : Nikhil K. Kotak v. Mahesh Kumar (Guj) p. 445

APPELLATE TRIBUNAL ORDERS


àRemuneration from foreign enterprise : Only on receipts brought into India in foreign exchange : Vikram Tannan v. ITO (Mumbai) p. 407

àCredit for tax deducted at source in foreign country allowable to extent of tax paid in foreign country but restricted to tax payable in India : Vikram Tannan v. ITO (Mumbai) p. 407

àRecovery of tax : Interest to be reckoned from date of original assessment order : Deputy CIT v. A. S. Krishna and Co. Ltd. (Visakhapatnam) p. 414

àAssets and income of trust used for poverty alleviation and benefit of socio-economically weaker sections : Assessee entitled to exemption : Asst. Director of Income-tax (Exemption) v. Bharatha Swamukti Samsthe (Bangalore) p. 422

àFinding that rural and urban poor women benefiting from trust's funding activities : Assessee entitled to registration : Asst. Director of Income-tax (Exemption) v. Bharatha Swamukti Samsthe (Bangalore) p. 422

àNo material to show that assessee received amount in cash as a deposit or loan : No violation of s 269SS : Hamarashehar Co. P. Ltd. v. Addl. CIT (Hyderabad) p. 437

STATUTES


àC. B. D. T. Circulars :

Remittances to non-residents under section 195 of the Income-tax Act, 1961-Remittances of consular receipts-Clarification reg. : Circular No. 9 of 2009, dated 30th November, 2009
p. 65

àNotifications :

Notifications under section 35AC(1) Expln., clause (b) : Eligible projects or schemes
p. 66

Notifications under section 35(1)(ii) : Scientific research association/Institution notified by the Central Government for the purpose of section 35(1)(ii)
p. 74

 



--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Thursday, December 17, 2009

HC GUJ: Undisclosed sources , inflated purchase price , in favor of revenue.

Income Tax - 2009 TMI - 35060 - GUJARAT HIGH COURT - SANJAY OILCAKE INDUSTRIES Versus COMMISSIONER OF INCOME-TAX
Assessment � Undisclosed sources � inflated purchase price � held that - the apparent sellers who had issued sale bills were not traceable. That goods were received from the parties other than the persons who had issued bills for such goods. Though the purchases are shown to have been made by making payment thereof by Account Payee Cheques, the cheques have been deposited in Bank Accounts ostensibly in the name of the apparent sellers, thereafter entire amounts have been withdrawn by bearer cheques and there is no trace or identity of the person withdrawing the amount from the bank Accounts - In the aforesaid set of facts and circumstances of the case, the impugned order of the Tribunal is an order which is made in accordance with law and does not require any interference � decided in favor of revenue.

--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Wednesday, December 16, 2009

101 ways to reduce the STRESS

1. Get up 15 minutes earlier 2. Prepare for the morning the night before 3. Avoid tight fitting clothes 4. Avoid relying on chemical aids 5. Set appointments ahead6. Don't rely on your memory ... Write it down 7. Practice preventive maintenance 8. Make duplicate keys 9. Say "no" more often 10.Set priorities in your life 11. Avoid negative people 12. Use time wisely 13. Simplify meal times 14. Always make copies of important papers 15. Anticipate your needs 16.. Repair anything that doesn't work properly 17. Ask for help with the jobs you dislike 18. Break large tasks into bite size portions 19. Look at problems as challenges 20. Look at challenges differently 21. Unclutter your life 22. Smile 23. Be prepared for rain 24. Tickle a baby 25. Pet a friendly dog/cat 26. Don't know all the answers 27. Look for a silver lining 28. Say something nice to someone 29. Teach a kid to fly a kite 30. Walk in the rain 31. Schedule play time into every day 32. Take a bubble bath 33. Be aware of the decisions you make 34. Believe in yourself 35. Stop saying negative things to yourself 36. Visualize yourself winning 37. Develop your sense of humor 38. Stop thinking tomorrow will be a better today 39. Have goals for yourself 40. Dance a jig 41. Say "hello" to a stranger 42. Ask a friend for a hug 43. Look up at the stars 44. Practice breathing slowly 45. Learn to whistle a tune 46. Read a poem 47. Listen to a symphony 48. Watch a ballet 49. Read a story curled up in bed 50. Do a brand new thing 51. Stop a bad habit 52. Buy yourself a flower 53. Take time to small the flowers 54. Find support from others 55. Ask someone to be your "vent-partner" 56. Do it today 57. Work at being cheerful and optimistic 58. Put safety first 59. Do everything in moderation 60. Pay attention to your appearance 61. Strive for Excellence NOT perfection 62. Stretch your limits a little each day 63. Look at a work of art 64. Hum a jingle 65. Maintain your weight 66. Plant a tree 67. Feed the birds 68. Practice grace under pressure 69. Stand up and stretch 70. Always have a plan "B" 71. Learn a new doodle 72. Memorize a joke 73. Be responsible for your feelings 74. Learn to meet your own needs 75. Become a better listener 76. Know your limitations and let others know them, too 77. Tell someone to have a good day in Latin 78. Throw a paper airplane 79. Exercise every day 80. Learn the words to a new song 81. Get to work early 82. Clean out one closet 83. Play patty cake with a toddler 84. Go on a picnic 85. Take a different route to work 86. Leave work early (with permission) 87. Put air freshener in your car 88.. Watch a movie and eat popcorn 89. Write a note to a far away friend 90. Go to a ball game and scream 91. Cook a meal and eat it by candlelight 92. Recognize the importance of unconditional love 93. Remember that stress is an attitude 94. Keep a journal 95. Practice a monster smile 96. Remember you always have options 97. Have a support network of people, places and things 98. Quit trying to fix other people 99. Get enough sleep 100.Talk less and listen more 101.Freely praise other people 

--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."

Scrutiny related issues.

1.1 The scrutiny of returns had been a regular measure to check tax evasion since long. The collection of information for the purpose of making enquiries in the course of such scrutiny assessments is as much important as the assessment proceedings itself. There are various provisions in the Income-tax Act, 1961 for the purpose of collecting information directly from the assessees as also from the others for the purposes of making such enquiries at various stages of assessment proceedings. The findings of such enquiries are utilized for the purposes of completing the assessment proceedings in the case of a particular assessee.

1.2 In recent years, the manner of collecting information for the purpose of making an enquiry prior to the commencement as also during the assessment proceedings has undergone a paradigm shift. Now the legislature is empowering the Department with various provisions so as to enable it to collect information, which are neither specific to a particular assessee nor have any direct link to a particular income at the initial stage. In the past, the Courts have taken unanimous views that there must be an application of mind to theinformation collected and its relevance in assessment of income of an assessee.

1.3 Recently, for the purposes of widening the tax base and utilization of relevant information for the proper assessment of income, a new provision of section 285BA has been inserted by the Finance Act, 2003 w.e.f. 1-4-2004, which was later on substituted by the Finance (No.2) Act, 2004 w.e.f. 1-4-2005. Theseprovisions regarding furnishing of various categories of information in respect of specified financial transactions have been referred to as "Annual Information Return" commonly known as AIR. The application of information collected from the huge pool of information, in case of a particular assessee, has been a daunting task, and has thrown open various issues and practical problems, which are the subject matter of discussion in the present paper.

Scrutiny Assessment

2. In common parlance, the 'scrutiny assessment' refers to an assessment made under section 143(3) of the I.T. Act, 1961. Though theprovisions of CHAPTER XIV: PROCEDURE OF ASSESSMENT, from sections 139 to 158, are not subject matter of discussion in this paper, it is pertinent to discuss some of the provisions relating to scrutiny assessments, enquiries before assessment, and collection of information for this purpose. These provisions relating to assessment are contained more specifically in various clauses and sub-sections of sections 143 and 144 and with reference to reassessment in section 148 read with section 147 of the I.T. Act, 1961. The salient features of theseprovisions are being discussed, in brief, as under:-

(1) Section 143: Assessment

This section consists of five sub-sections and lays the procedure for initiation and completion of assessment proceedings. The provisions are being summarised as under: -

(a) Sub-sections (1), (1A), (1B), (1C)

While sub-section (1) of section 143 refers to the processing of returns furnished under section 139 or in response to notice under section 142(1) and the manner thereof sub-sections (1A), (1B) and (1C) provides for making of scheme for thepurposes of sub-section (1), i.e. processing, by the Board and the formalities in this respect.

(b) Sub-section (2)

Sub-section (2) provides for the issue of notice under certain circumstances, in cases, where the return has been furnished under section 139 or in response to a notice under sub-section (1) of section 142. Clause (i) of sub-section (2) related to 'limited scrutiny' and provides that the Assessing Officer shall serve on the assessee a notice, where he has reason to believe that any claim of loss, exemption, deduction and allowance or relief made in the return is inadmissible, and requires the assessee to produce the relevant evidences or particulars specified therein. This provision has since been discontinued and no such notice can be served on the assessee since 1st day of June, 2003.

Clause (ii) of sub-section (2) provides that Assessing Officer shall serve notice on the assessee either to attend his office or to produce or cause to be produced any evidence on which the assessee may rely in support of the return, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the taxes in any manner. The Proviso to clause (ii) further provides that no notice shall be served after the expiry of six months from the end of thefinancial year, in which return has been furnished. It may be noted that impetus of this limitation provision is on the 'service' of notice and 'issue' of notice has no relevance.

(c) Sub-section (3)

Sub-section (3) provides for making of assessment and determination of total income and the tax liability after hearing the relevant evidences and other particulars. While clause (i) provides for making theassessment in the case of 'limited scrutiny', clause (ii) provides for passing an order in writing, making assessment of total income and determining the sum payable by the assessee. The first proviso of this clause provides that in the case specified association or institution, which are required to furnish return of income under sub-section (4C) of section 139, no order making anassessment shall be made by the Assessing Officer without giving effect to provisions of section 10 unless the Assessing Officer has intimated the Central Government or the prescribed authority about any contravention made and the approval so granted have been withdrawn or rescinded. The second proviso further provides for giving reasonable opportunity to show-cause against the proposed withdrawal of notification or approval in case the Assessing Officer is satisfied that the activities of such institution are not in accordance with any of the conditions subject to which such approval has been granted.

(d) Sub-section (4)

Sub-section (4) provides for the credit of prepaid taxes or the sum payable by the assessee in accordance with the regular assessment made under sub-section (3) of section 143 or section 144 of the I.T. Act, 1961.

(2) Section 144: Best Judgment Assessment

This provision deals with the situation where the assessee fails to furnish returns under section 139 or fails to comply with the notice and direction issued under sub-section (1) or (2A) of section 142, or fails to comply with the notice under sub-section (2) of section 143 and provides that under these circumstances, the Assessing Officer shall make assessment of the total income to the best of his judgment after taking into account the material, which he has gathered. It further provides for giving an opportunity of being heard for the assessee before making the assessment to the best of his judgment. The first proviso again provides for giving such opportunity and manner of such opportunity.

(3) Section 148: Issue of notice where income has escaped assessment

This section provides that the Assessing Officer shall serve on an assessee a notice before making the assessment, reassessment, or recomputation under section 147, where he has reason to believe that the income has escaped assessment. This further provides that the Assessing Officer shall, before issuing any notice under this section, record his reason for doing so.

Enquiry before assessment

3. The provisions regarding enquiry before assessment have been enshrined in sections 142 and 142A, which are summarised as under: -

(1) Section 142: Enquiry before assessment

This section consists of four sub-sections dealing with the enquiries to be made before assessment and various sub-sections are discussed as under:–

(a) Sub-section (1)

Sub-section (1) provides that for the purpose of making an assessment under this Act, the Assessing Officer may serve on any person, who has made a return, or in whose case, the time allowed for filing of return under sub-section (1) of section 139 has expired, a notice requiring him.

(i) where such person has not made a return within the time allowed under section 139(1) or before the end of the relevant assessment year to furnish a return in the prescribed form and verified in the prescribed manner, or

(ii) to produce or cause to be produced such account or documents as the Assessing Officer may require or

(iii) to furnish in writing and verified in prescribed manner, the information in such form and on such point or matters as the Assessing Officer may require including a statement of assets and liabilities.

The opening sentence of this provision, "for the purpose of making an assessment under this Act," makes it clear that there must be an assessment proceeding pending before the Assessing Officer. Further the enquiry has to be made specifically from the assessee as is evident from the word "any person who has made the return". These conditions are the essence of these provisions. The proviso of sub-section (1) further provides that the total wealth statement shall be obtained only after the previous approval of the Joint Commissioner and that the Assessing Officer shall not require for the production of the books of account relating to a period of more that three years prior to the relevant previous year.

(b) Sub-section (2)

Sub-section (2) empowers the Assessing Officer to "make such enquiries as he considers necessary" for the purpose of obtaining full information in respect of income or loss of any person. Thus, while the Assessing Officer has been empowered to make any enquiry as he considers necessary from any person, the exercise of powers are assessee-specific and are for the purpose of assessment.

(c) Sub-section (2A)

Sub-section (2A) empowers the Assessing Officer to direct the assessee to get accounts audited and furnish a report of such audit in prescribed form, if he is of the opinion that it is necessary to do so looking to the nature and complexity of the accounts. This power, however, has to be exercised with the prior approval of the Chief Commissioner or Commissioner and the assessee should be given reasonable opportunity of being heard before issuing such direction. The opening word "if at any stage of the proceedings before him" ensures that there should be a pendency of proceedings before the Assessing Officer and the word "having regard to the nature and complexity of the account of the assessee" ensures that these provisions are also assessee- specific.

(d) Sub-sections (2B), (2C) and (2D)

Sub-sections (2B), (2C) and (2D) provides that powers under sub-section (2A) can be exercised irrespective of the fact that accounts of the assessee have been audited under any other law, the report has to be furnished within specified time and that the expenses in this respect shall be determined by the Chief Commissioner or Commissioner and shall be paid by the assessee.

(e) Sub-section (3)

Sub-section (3) only gives statutory recognition to the well-established principle of natural justice, whether or not specifically provided in the Statute. This principle was enunciated by the Hon'ble Supreme Court in Dhakeshwary Cotton Mills Ltd. vs. ITO (1954) 26 ITR 775 under the provisions of 1922 Act, wherein there were no such specific provisions. This provision specifically provides that except where the assessment has been made under section 144, the assessee shall be given an opportunity of being heard in respect of any information or material gathered on the basis of enquiry under sub-section (2) or (2A) and is proposed to utilise for the purpose of assessment.

In the context of the orders made under section 144, there are specific provisions for similar opportunity of hearing as inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1988. Even before this amendment, Hon'ble Kerala High Court has held that this principle is fully applicable in the case where the assessment is to be made under section 144. The Head note of Hon'ble Kerala High Court in case of T.C.N. Menon vs. ITO reported in (1974) 96 ITR 148 is reproduced as under:-

"The question was whether, before making a best judgment assessment under section 144 of the Income-tax Act, 1961, it was not necessary that the assessee should be given under sub-section (3) of section 142 an opportunity of being heard in respect of any material gathered on the basis of any enquiry under sub-section (2) and proposed to be utilized for the purpose of the assessment, as contended for by the revenue.

Held that what section 144 requires the Income Tax Officer to do in the case of a defaulting assessee is to make an assessment of his total income to the best of his judgment, after taking into account all relevant material which the Income tax Officer has gathered. An assessment to the best of judgment is a quasi judicial process and it has to be based on the materials gathered. Any quasi judicial process requires an opportunity for being heard before decision. The decision can be arrived at best, or as correctly as possible, only if the assessee is given an opportunity to say why, on the materials gathered by the Income tax Officer, the income should not be assessed in the manner proposed to be done by him There is no express denial of this well-established common law right in section 142(3) of the Act. Section 142(3) deals with a stage before the Income tax Officer comes to a tentative decision or proposal to determine the total income at a certain amount on the basis of the materials gathered by him. The assessee is entitled to show cause why, on the materials gathered by the Income Tax Officer, his total income should be assessed in the manner proposed by the Income-tax Officer. Section 69 of the Act also supports this view. A best judgment assessment without such an opportunity being given is invalid."

Other provisions for collecting information

4. There are various provisions under the Act, which empowers the Assessing Officer to collect information for the purpose of this Act even prior to insertion of section 285BA regarding 'Annual Information Return'. These powers are enshrined in section 131, 132, 133, 133A, 133B, 134 and 135. A careful study of each provision and the judicial pronouncements pertaining thereto clearly reveals that the information gathered or the findings arrived at by the exercise of the powers envisaged in these provisions can be relevant for the purpose of assessment only when the two conditions are prima facie satisfied. The first condition is regarding 'pendency of assessment proceedings' and the second is that 'it is in respect of a particular assessee' or in other words it is 'assessee specific'. These provisions vis-à-vis the aforesaid two conditions are summarized as under:-

Sl. No.

Sections

Authorities & powers given in the provisions

Whether assessee specific

Pendency of Proceeding required or not

Relevancy for purpose of Act/ assessment

1

131(1)

The Assessing Officer and the Appellate  Authorities have powers of –
(a) Discovery and inspection
(b) Enforcing attendance,
(c) Compelling production of books of
account and other documents
(d) Issuing commissions

Yes

Required

Yes

2

131(1A)

The DG, DI, Jt. DI, ADI, Dy. DI & Authorized Officer referred in section 132(1) before taking any action u/s. 132

Yes

Not Required

Yes

3

132

The DG, DI, CCIT, CIT, Jt. DIT, Jt. CIT & the other authorised officer for search & seizure

Yes

Not Required

Yes

4

132A

The DG, DI, CCIT, CIT, & the other requisitioning officer for requisition of books of account etc.

Yes

Not Required

Yes

5

133(1)
to (5)

Assessing Officer & Appellate Authorities to call for information

Yes

Required

Yes

6

133(6) by higher authorities

DG, CCIT, DIT, CIT, Assessing Officer & Appellate Authorities to call for information

No

Not Required

Yes

7

133(6) by lower authorities

Assessing Officer & Appellate Authorities to call for information

Yes

Required

Yes

8

133A

Income Tax authority to enter premises & survey

Yes

Not Required

Yes

9

133B

Income Tax authority to collect certain information

Yes

Not Required

Yes

10

134

Assessing Officer & Appellate Authorities or any person authorised to inspect register of companies

No

Not Required

No

11

135

DG, DIT, CCIT, CIT, Jt. CIT has power to enquiry

No

Not Required

No

It is evident from the perusal of above provisions that for the purposes of scrutiny assessment, the two conditions relating to the pendency of assessment proceedings and the information to be assessee-specific were part of Statute even before the insertion of new provisions relating to Annual Information Return in the form of Section 285BA.

Annual Information Return (AIR)

5.1 The provisions as discussed hereinabove, which empowered the Assessing Officer to make enquiry and gather information for making the assessment or reassessment, were found insufficient by the Department. It learnt from experience to use the non-assessee-specific information in the case of an assessee and new set of provisions were introduced in the form of quoting of Permanent Account Number (PAN) being made compulsory. Sub-sections (5), (5A), (5B), (5C) and (5D) of section 139A read with Rule 114B provides for compulsory quoting of PAN in various documents and categories of transactions. But these provisions were again found insufficient and impractical for the purposes of matching the information with respect to a particular assessee.

5.2 The Task Force on Direct Taxes headed by Dr. Vijay L. Kelkar in its report under 'Chapter 10: Summary and Recommendations,' has recommended as under:-

"Collection of Information:

10.5 In view of the extant method of collection of information and constraints in digitizing the volume of information received by the tax administration, the Task Force recommends:

(i) The Income-tax Act should be amended to provide for submission of "annual information return" by third parties in respect of various transactions as may be prescribed. For this purpose, a proper format of the returns also needs to be prescribed. Consequently, the flow of information will be continuous and the discretionary power with the CIB to collect information will be eliminated.

(ii) Such annual return of information (including returns relating to tax deducted at source) should be mandatorily required to be submitted on electronic format.

(iii) Many of the Departments involved in transactions specified in rule 114B do not have any mechanism for obtaining the PAN of the concerned persons. It is, therefore, necessary that the proforma used by them for their departmental purposes, e.g. the application form for transfer of motor licence, should have the necessary column requiring the applicant to disclose his Permanent Account Number (PAN).

(iv) The Department should set up a structure for Electronic Data Interchange (EDI) with some of the major Departments and organizations involved in the transactions specified in rule 114B, such as, banks, stock exchanges, telephone companies, regional transport authority, etc. (Paragraph 3.17)"

5.3 Accordingly, provisions regarding furnishing of Annual Information Return (AIR) were inserted by the Finance Act, 2003 w.e.f., 1-4-2004 as Section 285BA. This is unique provision for collection of information and differs from the earlier ones, firstly for no role for the departmental officers and secondly that the information is not specific to an assessee. When section 285BA was inserted for the first time, it was applicable with respect to any 'assessee', only who enters into any financial transaction as may be prescribed, with any other person. Thus this section was applicable to an assessee only.

5.4 The Finance (No. 2) Act, 2004, w.e.f. 1-4-2005 completely substituted this provision with an altogether new section consisting of sub-sections (1) to (5). This made it mandatory for any person, being –

(a) an assessee; or

(b) the prescribed person in an office of government; or

(c) a local authority or other public body or association; or

(d) the Registrar or sub-Registrar as per Registration Act; or

(e) the registering authority under Motor Vehicles Act; or

(f) the Post Master General; or

(g) the Collector under Land Acquisition Act; or

(h) the Recognized Stock Exchange; or

(i) an officer of Reserve Bank of India; or

(j) a Depository under the Depository Act, 1996,

who is responsible for registering, or maintaining books of account or other document containing records or any specified financial transaction, under any law for the time being in force, to furnish Annual Information Return. Thus under the new provision apart from an assessee the other prescribed persons were also made responsible for furnishing the Annual Information Return (AIR).

5.5 The relevant rules were also made in the form of rule 114E and the return is to be filed in Form No. 61A. As per sub-rule (2) every person mentioned in Column 2 of table below in respect of all transactions of the nature and value specified in the corresponding entry in Column 3, which are registered or recorded by him during a financial year shall furnish the AIR –

Sl.No.

Class of person

Nature and value of transaction

(1)

(2)

(3)

1.

A Banking company to which the Banking Regulation Act, 1949 applies.

Cash deposits aggregating to ten lakh rupees or more in a year in any savings account of a person maintained in that bank.

2.

A banking company to which the Banking Regulation Act, 1949 applies or any other company or institution issuing credit card.

Payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to two lakh rupees or more in the year.

3.

A trustee or the manager of the Mutual Fund as may be duly authorised by the trustee in this
behalf.

Receipt from any person of an amount of two lakh rupees or more for acquiring units of that Fund.

4.

A company or institution issuing bonds or debentures.

Receipt from any person of an amount of five lakh rupees or more for acquiring bonds or debentures issued by the company or institution.

5.

A company issuing shares through a public or rights issue.

Receipt from any person of an amount of one lakh rupees or more for acquiring shares issued by the company.

6.

Registrar or Sub-Registrar under the Registration Act, 1908.

Purchase or sale by any person of immovable property valued at thirty lakh rupees or more.

7.

An officer of Reserve Bank of India duly authorized by the Reserve Bank of India in this behalf.

Receipt from any person of an amount or amounts aggregating to five lakh rupees or more in a year for bonds issued by the Reserve Bank of India.

The responsible persons will furnish the AIR to Commissioner of Income, (Central Information Branch) and it should be furnished in electronic media in prescribed Form Nos. 61A, which is in two parts, Part-A, containing the particulars and verification and Part -B, containing details of transactions.

5.6 The returns for Assessment Years 2007-08 and 2008-09 in Form No. ITR-1, ITR-2, ITR-3 and ITR-4 provided for furnishing of details of transactions made during the financial year under Schedule AIR under various codes given as under: -

Sl.No.

Code

Nature of transactions

1.

001

Cash deposits aggregating to ten lakh rupees or more in a year in any savings account by you maintained in a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applied (including any bank or banking institution referred to in section 51 of that Act)

2.

002

Payment made by you against bills raised in respect of a credit card aggregating to two lakh rupees or more in a year.

3.

003

Payment made by you of an amount of two lakh rupees or more for purchase of units of Mutual fund.

4.

004

Payment made by you of an amount of five lakh rupees or more for acquiring bonds or debentures issued by a company or institution.

5.

005

Payment made by you of an amount of one lakh rupees or more for acquiring shares issued by a company.

6.

006

Purchase by you of any immovable property valued at thirty lakh rupees or more.

7.

007

Sale by you of any immovable property valued at thirty lakh rupees or more.

8.

008

Payment made by you of an amount of five lakh rupees or more in a year for investment in bonds issued by Reserve Bank of India.

Guidelines for Scrutiny and AIR

6.1 The information from AIR is being made the basis for the scrutiny of cases since its advent. The Action Plan for year 2008-09, which laid down the selection criteria for scrutiny of cases, has provided selection of cases for scrutiny at "NON-NETWORK stations" and "NETWORK stations", separately. As per the Action Plan, the following categories of cases shall be selected for scrutiny at "NON-NETWORK stations": -

ITR – 1

ITR – 2, ITR – 3, ITR – 4

(1) Cash deposits in Savings Bank Account of
assessee in relevant Financial Year as per AIR Information (code 001) exceed Rs. 10 lakhs

(1) Cash deposits in Savings Bank Account of assessee in relevant financial year as per AIR Information (code 001) exceed Rs. 10 lakhs

(2) Sale consideration of property sold by the assessee in relevant Financial Year as per AIR Information (code 007) exceed Rs. 30 lakhs

(2) Sale consideration of property sold by the assessee in relevant Financial Year as per AIR Information (code 007) exceed Rs. 30 lakhs.and this information is not disclosed in Schedule AIR of assessee's Return.

(3) Investment in property by the assessee during the relevant Financial Year as per AIR information (code 006) exceed Rs. 30 lakhs and also exceeds 8 times of his "Gross Total Income + Exempt Income – Total Tax Paid"

(3) Investment in property by the assessee during the relevant Financial Year as per AIR information (code 006) exceed Rs. 30 lakhs and this information is not disclosed in Schedule AIR of assessee's Return.

It is quite clear from the above criteria laid for selection of cases for scrutiny; it has been linked to certain information given in AIR and as disclosed by assessee in his return also in this respect. The criteria for selection of cases do not appear uniform and equitable. For example, while in the cases of cash deposits exceeding Rs. 10 lakhs (code 001) in Savings Account all returns, whether in ITR – 1 or ITR – 2, ITR – 3 and ITR – 4, shall be selected for scrutiny, there are different parameters for AIR information in codes 006 and 007 for ITR – 1 and others. As is evident from the above chart, in case of ITR – 1, all the cases where sale consideration of property exceeds Rs. 30 lakhs will be selected for scrutiny on the basis of information given in the return itself, in cases of ITR -2, 3 and 4, it will be selected only when this information is not disclosed in Schedule AIR of return. Similarly for 'Code 006', regarding investment in property exceeding Rs. 30 lakhs, there are different criteria for ITR – 1 on one hand and ITR – 2, 3 and 4 on the other. By implication, at "NETWORK station" the cases will be selected on the same criteria automatically.

6.2 The Central Board of Direct Taxes has issued various guidelines for the scrutiny of cases on the basis of AIR information from time to time to ensure smooth working of new system. One important guideline in this respect was issued by the Board in its Press Release dated 26-10-2006 reported in [2006] 157 Taxman 1(ST), which for the ready reference is being reproduced as under:-

"PRESS RELEASE DATED 26-10-2006

Section 285BA of the Income-tax Act, 1961 –
Annual Information Returns – CBDT Guidelines to deal with grievances arising out of cases
selected for scrutiny based on Annual Information Returns

The Central Board of Direct Taxes have laid down the following guidelines for dealing with grievances arising out of cases selected for scrutiny on the basis of information contained in Annual Information Returns (AIR):-

1. All cases selected for scrutiny on the basis of information contained in AIR during a month will be displayed by the 15th of the following month.

2. Queries made on the basis of information contained in AIR will be specific and to the point.

3. It shall be mentioned in the scrutiny notice that written reply along with supporting documentary evidence will be sufficient compliance to the scrutiny notice.

4. It shall be affixed on the scrutiny notice that "Personal attendance not essential".

5. If the information and supporting evidence received in response to the scrutiny notice is sufficient, personal attendance of the taxpayer shall not be insisted upon.

6. Chief Commissioners and Commissioners shall fix a reasonable period every day to hear grievances of such taxpayers, if any, without prior appointment and display the same publicly.

7. Chief Commissioners and Commissioners may also hold open house meetings in this regard.

8. Drop Boxes shall be provided for such taxpayers who wish to file their grievance in writing.

9. Steps shall be taken to redress such written grievances expeditiously."

6.3 There are various other guidelines and instructions that have been issued by the Board and for the ready reference a few are mentioned as under:-

(1) Circular No. 07/2003 dated 5-9-2003 – Explanatory Notes on Clauses as reported in [2003] 260 ITR (ST) 128 at 179

(2) Circular No. 05/2005 dated 15-7-2005 – Explanatory Notes on Clauses as reported in [2005] 273 ITR (ST) 139

(3) Circular No. 07/2005 dated 24-8-2005 – as reported in [2005] 277 ITR (ST) 17

(4) Order F No. 153/230/2005 – TPL dated 30-9-2005 for non-levy of penalty u/s. 271 FA on delayed furnishing of AIR

(5) Frequently Asked Questions on AIR given along with Information Booklet for AIR Filers

Various issues involved

7. The new channel of collecting information in the form of Annual Information Return as provided in section 285BA of the I. T. Act, 1961, have thrown open various issues as to its relevance, legal implications and practical problems while co-relating or matching the information with a particular assessee in assessment proceeding. These issues, which are only indicative and not exhaustive, are summarized as under: -

  1. The information as per AIR is a huge pool of information, the span of which may be spread to the entire county. The information furnished by the person furnishing the AIR with his jurisdictional Commissioner of Income Tax (CIB) may not be easily matched with the information that will be furnished in return by an assessee in altogether different jurisdiction unless there is well-oiled mechanism for matching of this information through Information Network Technology; Electronic Data interchange (EDI) and PAN.
  2. The AIR is to be furnished by 31st August next following the Financial Year in which the specified transaction is registered or recorded. At this stage it is not clear as to how the said information in AIR would be utilized for purposes of assessment. The criteria for selection of scrutiny of cases for year 2008-09 as announced by CBDT is mostly with reference to the information given in Schedule AIR of the return of assessee so far as ITR – 1 is concerned and it is based on the AIR only for ITR – 2, ITR-3 and ITR-4 with respect to information in Codes '006' and '007' regarding investment and sale of property exceeding Rs. 30 lakhs, but how it will be matched with the information in return and at what stage of assessment proceeding is not clear.
  3. It is clear from the above discussion that the department will have AIR information from two sources, one from assessee and other from the persons specified in section 285BA read with Rule 114E. To make the information useful for assessment it is necessary to match, reconcile, and cross-check the information gathered from both these sources. This may not be an easy task as the person filing AIR is supposed to furnish the information only with respect to the own records whereas the assessee will have to furnish such information with respect to all the agencies. For example, if an assessee has maintained two Savings Bank accounts with two different banks and has deposited cash of Rs. 15 lakhs and Rs.12 lakhs in each account during the financial year, while the banks will report the deposits of 15 lakhs and Rs.12 lakhs each respectively in the AIR furnished by them, the assessee with furnish the figure of Rs. 27 lakhs in Schedule AIR of return. There is no mechanism in place to match these figures and the entire process of collecting information may be useless for the purposes of assessments as it may lead to roving or fishing enquiry.
  4. The information from these two different sources may not match eachother on account of difference in perceptions and interpretation of the provisions as well. For example the AIR provisions are applicable to the banking companies to which the Banking Regulation Act, 1949 applies. Accordingly, it may not apply to the banks in co-operative sector or to the unscheduled banks, and this difference in interpretation at both ends may lead to mismatch of data.
  5. Another situation may arise with respect to transactions with banks where core Banking facilities are available. For example, an assessee in Kolkata maintaining Bank account with ICICI Bank in Kolkata branch, sells goods to a party in Chennai. The said party deposits money in cash in Account of assessee in the Chennai branch of ICICI Bank. The amount though deposited in ICICI Chennai is ultimately credited in Account with Kolkata branch of ICICI. Whether this will be treated as cash deposit or a mere transfer entry by Kolkata Branch, is a debatable issue and different interpretations are possible. The possibility of mismatch cannot be ruled out in such Inter-city transactions.
  6. As per the existing scrutiny criterion the returns where the assessee has shown the cash deposit exceeding Rs.10 lakhs in any of his Savings Bank Account, the cases will be automatically selected for scrutiny, whether or not the same is reported in AIR information. This may lead to futile exercise as every deposit in Bank account may not be income assessable to tax. Moreover such criterion makes the AIR information irrelevant.
  7. This situation may be illustrated by another example where an assessee receives on his retirement the sum exceeding Rs. 25 lakhs on account of refund of his retirement benefits, P.F. and gratuity, etc. He relocates his bank account and deposits the entire sum of Rs. 25 lakhs during the financial year in cash after withdrawing the same from the old bank account. From this new bank account he makes investments in Mutual Funds, Shares, etc. All these transactions may though attract provisions of Sec. 285BA read with Rule 114E but may not result in any income chargeable to tax. The selection of such cases for scrutiny will be a futile exercise and wastage of resources.
  8. The selection of these cases for scrutiny merely on the basis of AIR may lead to a situation where though there may be spurt in scrutiny cases but that may not be productive for revenue. The very idea of selection of cases for scrutiny on the basis of certain payments and transaction without any well-oiled mechanism of matching the information from AIR and information furnished by assessee in return will be an arduous task for the department which is maintaining only limited or minimum scrutiny policy since last several years.
  9. The relevance of AIR information for assessment appears to be limited in the sense that in many cases the limitation has already expired and the Assessing Officer has to resort to the provisions of section 147/148 for making assessment on the basis of such information. It is matter of debate whether mere information of AIR, without proper and cogent material and the matching of same with the accounts of assessee, will be treated as income for the purpose of assessment. This situation is further aggravated from the fact that no documents are allowed to be furnished along with return and there is no scope in ITR-1, ITR-2, ITR-3 and ITR-4 , where provisions of section 44AA are not applicable, to furnish details of balance sheet or the statement of affairs. It has seen held in a catena of judicial pronouncements that the provisions of section 147/148 cannot be resorted to on the basis of suspicion and surmises, on the basis of information that is vague and to make mere roving or fishing enquiries. The initiation of reassessment proceeding merely on the basis of AIR information cannot withstand scrutiny of the court.

10.  The cases are being selected for scrutiny on the basis of AIR information from Assessment Year 2005-06 and it has been seen from experience that large number of cases that have been selected for scrutiny on the basis of AIR information are related mostly to the investment in share and Mutual funds and have resulted in a futile exercise. Though there are instructions from the Board that in such cases of scrutiny on the basis of AIR information, the assessment proceeding should be conducted in such a manner that there should be no harassment of assessee. These guidelines and instructions are being blatantly flouted by the authorities and the assessments are being made as normal scrutiny assessments. Though these instructions are binding on Income Tax Authorities but even the Appellate Authorities are not interfering in cases where the assessments are being made in violation of instructions. It has been held in various judicial pronouncements that these instructions by the board are binding on authorities, subordinate to it and this is the duty of the Court to uphold the sanctity of such instructions in the interest of transparency in administration and public policy. Some of these judicial pronouncements are being referred as under:-

– Navneet Lal Javeri vs. AAC [1965] 65 ITR 198 (SC)

– Varghese (KP) vs. ITO [1981] 131 ITR 597(SC)

– C.C.E vs. Dhirendra Chemical Industires [2002] 254 ITR 554 (SC)

Similar anomalies may be found in respect of other transactions also, which are not being mentioned for the sake of brevity.

Conclusion and Suggestions

8. In light of the discussions made hereinbefore, it appears that the scheme of scrutiny assessment vis-à-vis the AIR information needs substantial streamlining to avoid unproductive loss of man-hours, to avoid unwanted harassment of assessees and to improve the ratio of expenditure to tax collection. To make the AIR information relevant and pertinent for the purpose of scrutiny assessment, the Department may resort to the following amongst many other options:–

  1. The adherence with the instructions issued by the Board should be ensured in its entirety and the lower authorities must abide by the same in letter and spirit.
  2. Like in the search cases, the special provisions and procedures for assessment may be laid for the scrutiny assessment in relation to the AIR information to make it expedient and disposal of cases within shortest possible timeframe.
  3. The mechanism of enquiry through simple correspondence can be properly laid just to enquire and prima facie appraisal of the source of investment and the manner in which the transaction has been reflected in the return. If the assessee is able to show the disclosure of transaction by furnishing the relevant evidences, the proceeding should be closed without resorting to the normal assessment procedures.
  4. The scheme of 'limited scrutiny' may again be reintroduced in reference to the AIR information. It is ironical that the provision related to limited scrutiny was discontinued by the Finance Act, 2003 through which the provisions relating to the AIR were inserted in form of section 285BA in the I. T. Act, 1961.
  5. The proper sorting of information and its correlation with a particular assessee should be ensured so that the information could be utilized for making assessments in the proper manner. The timely action in this respect may avoid resorting to the provisions of section 147/148 so also the unnecessary litigation. While the correlation of the information with a particular assessee will take care of the information being assessee specific, the timely utilization of information in the course of assessment will take care of pendency of assessment proceeding thereby satisfying the two primary conditions of a legally valid assessment.

 



--
Me on net :
> >>>>>>>>>>>>>>>>>>>>>
http://rajkumaratthenet.blogspot.com/

Virus Warning: Although the I have taken reasonable precautions to ensure no viruses are present in his email, sender (I) cannot accept responsibility for any loss or damage arising from the use of this email or attachment."