IT Return filing and Assessment Procedures : Intimation, Scrutiny, Survey, Search and Seizure, CIT ( Appeals) vs DRP

IT Return Filing

If a return is not filed within the due date, it can be filed before the end of assessment year. This is applicable upto 2017-18. If it is not filed even upto end of assessment year, the below possiblities can be considered.

March 31, 2018 was the deadline to file income tax returns (ITR) for the financial year 2015-16 and 2016-17. In case you haven't filed your ITR for FYs 2015-16 and 2016-17, you cannot file a belated return anymore.

If you have not filed your returns for these two FYs, read on to find out what you can do now:

·         File a Condonation of delay request for specific cases:
The income tax department can allow taxpayers to file returns post the deadline for specific cases. "The Central Board of Direct Taxes (CBDT) has issued a circular in this regard where if the taxpayer has tax refund pending or wish to carry forward his losses and missed the deadline of filing of tax returns, then he can file an application to the Income tax commissioner or the prescribed authority," explains Abhishek Soni, CEO, tax2win.in, a tax-filing firm.

These are the parameters based on which applications can be accepted or rejected by the income tax department:
a) The claim is correct and genuine
b) Case is based on genuine hardship on merits
c) Income is not assessable in the hands of any other person under the Income Tax Act
d) The refund has arisen as result of excess tax deducted or tax collected at source, advance tax or self-assessment tax.

The time limit to file such application is six years from the end of the assessment year for filing the return. (Assessment year is the year immediately following the financial year). Therefore, for such taxpayers who have missed the deadline of March 31, 2018, can file such application by 31 March 2023 (for FY 2015-16) and 31 March 2024 (for FY 2016-17) . In case of belated tax refund, no interest will be paid by the department to you.

The application will have to be disposed by the department within six months from the end of the month in which the application is received as far as possible.

·         If taxes are also payable by you
If you have not paid taxes for FYs 2015-16 and 2016-17, then experts advice that one should at least pay all your taxes and interest along with it as applicable under section 234A, 234B or 234C, even if they cannot file the ITR post March 31, 2018.

·         If all taxes are paid but return not filed
If the taxes you are supposed to pay have been cleared but if you have not filed your ITR before March 31, 2018, then you do not have the option to file their ITR now or to apply for condonation of delay. However, the department can issue a notice under section 271F for levying of penalty on non-filing of ITR. The maximum penalty in such a case is Rs 5,000. No penalty will be levied if there is a genuine reason for such non-compliance and if the income tax officer is satisfied with the reasons, adds Soni.

·         Actions that tax department might take against you
For non-filing of return, the department can take various actions against you. This includes issuing a notice or in the worst case scenario, you might get prosecuted and get a maximum jail term of seven years.

Naveen Wadhwa, DGM, Taxmann.com says "If TDS has been deducted from your income and you have not filed your ITR, then department can issue you a notice under 142 (1) (i) for non-filing of returns. A penalty may also be levied by the assessing officer of Rs 5,000 for non-filing of income tax returns."
Every taxpayer is required to file ITR if his/her total income exceeds the basic exemption limit. The department can issue you a notice under section 148 for income escaping the assessment for non-filing of ITR. You will be required to respond to that notice on the income tax e-filing website as well as file your ITR to comply with the notice issued by the tax officer.

Penalties under such case will be levied for under-reporting of incomes. For FY 2015-16, a penalty of 100-300 percent of the tax payable amount will be levied as per the discretion of the assessing officer. For FY 2016-17, a penalty of 50 percent of the tax payable amount will be charged, adds Wadhwa.

Soni says, "If a person has at least paid his taxes along with interest even if he/she cannot file the ITR after March 31, 2018 then in such a case, chances are he/she might not be liable to pay penalty for under-reporting of income."

Return filing after due date

How to file the income tax returns for earlier years

How to file the income tax returns for earlier years?

Despite so many advertisement & vast awareness created by the social media, there are still lot many tax payers who have failed to file the income tax return for the FY 2016-17 or FY 2015-16.  The last date for filing the same was over on 31st March 2018

There are lot many queries by the taxpayer enquiring about the procedure for filing the return in such cases now. Though the taxpayers are ready to pay the tax with interest & even fine thereon, still the income tax portal is not accepting the returns. Lot many queries were received seeking solutions in such cases.

The reasons for seeking delayed filing are numerous such as,

Bank demanding ITR for earlier years Ignorance on the part of the taxpayers Non receipt of acknowledgment (ITR V) by CPC within allotted time frame and the rectification time frame has expired.Genuine circumstances of the taxpayers which deserves consideration.The taxpayers were short of liquidity & fund and so couldn't file the return without payment and many more similar reasons.There was no tax liability on the taxpayer due to TDS done & they didn't file the return assuming that no tax demand means 'no filing requirements'.

Before coming to each and every specific issues pointed out above, let us discuss some remedy granted by CBDT circular No. 9/2015 dated 09/06/2015 which provide some relief in two exclusive cases. The prominent feature of the circular are:

Condonation power for filing income tax return even beyond 1 or 2 years is conferred to some authorities if there is (a) Refund due to the taxpayers or (b) there is a Claim for Carry Forward of Losses.
Power to condone the delay is as under:
a] Up to Rs. 10 Lakhs in any one Assessment Year: Principal Commissioner / Commissioner of Income Tax (Pr.CIT/CIT)
b] More than Rs. 10 Lakhs but not more than Rs. 50 Lakhs in any one Assessment Year: Principal Chief Commissioner / Chief Commissioner of Income Tax (Pr. CCIT/CCIT)
c] More than Rs. 50 Lakhs: CBDTNo Condonation for claim of refund or loss can be entertained beyond six years. From the end of the assessment year for which application or claim is made.The limit of six years is uniform for all authorities considering the application or claim. However, in case where refundclaim has arisen consequent to a Court Order, the period for which any such proceedings were pending before any Court of Law shall be ignored while calculating the period of six years, provided such Condonation application is filed within six months from the end of the month in which such Court Order was issued or the end of financial year, whichever is later.Application for Condonation should be disposed of within in six months from the end of the month in which the application is received by the competent authority as far possible.Authorities have been empowered to direct the jurisdictional Tax Officer to make necessary inquiry or scrutiny. Acceptance or rejection of above application would be after considering following:
a) The claim is correct and genuine;
b) There is a case of genuine hardship on merits;
c) Income is not assessable in the hands of any other person under the Income-tax Act;
d) The refund has arisen as a result of excess tax deducted or tax collected at source, advance tax or self-assessment tax.

As a result of above circular, the belated filing can be condoned by the appropriate authorities in case there is a refund or loss. The circular doesn't conferred absolute condonation power to anyone except for two situations enumerated above.

Other situations & solutions:

Bank demands the ITR for the past 2-3 years for granting the bank loan as it is relied by them in support of income proof. In most of the cases, taxpayers were filing ITR voluntarily even if the return is below the taxable limit. Since belated return filing is not permissible now under the present provision of law, an alternate in the form of affidavit or CA certificate would be the probablealternate easy options in the hands of the taxpayers. This option is possible only if there is no income exceeding the basic exemption limit.Now, income tax return can be filed even if the tax is not paid till the date of filing the income tax return. In such case, the tax liability is shown as "Payable" in the ITR and the income tax portal is accepting the return with tax amount as "Payable".  However, this option can be used by the taxpayer only for the subsequent years return where the taxpayers are short of funds even at the last date of return filing.Before rejecting the return on the ground of (a) Non receipt of acknowledgment by CPC or (b) non rectification of defects in the ITR forms. Sufficient opportunity is given to the taxpayer for taking the remedial measures. Taxpayer needs to keep track of the returns.  So as to ensure that the return is not invalidated for any such reasons. However, this precaution is only for subsequent years returns.In all other cases where (a) the tax liability was there but the return could not be filed for reason whatsoever or (b) returns are filed but are invalidated for the reasons mentioned above, there appears to be no legal remedy in the hands of the taxpayers as such. Only one informal solution could be making an application to the Assessing Officer incorporating the details of facts of non fling, reasons thereof, income details with a request to issue notice u/s 142(1) or u/s 148. If the AO is convinced and issues the notices. Income tax portal can accept the return after giving the references of the said notice. It may be noted that section 142(1) & 148 are the prerogative of the department and not the rights in the hands of the Assessee. Return filed under above sections will be scrutinized and may go through the assessment proceeding after filing.

There are lot many genuine problems that are faced by the taxpayers on all the issues mentioned above. It would be more appropriate if the CBDT broadens the scope of circular No. 9/2015 and empower the Assessing Officer to condone the delay in filing the returns in appropriate cases.

Tax on Undisclosed source of Income

Undisclosed income is the income which the assessee has not shown in his Income Tax Return and thereby not paid income tax on it. The primary objective of the Income tax department is to detect such undisclosed income and bring the same under the tax net.
If the Assessing Officer detects cash credits, unexplained investments, unexplained expenditure etc., the source for which is not satisfactorily explained by the assessee to him, there are various provisions in the Income Tax Act which empowers the assessing officer to charge tax on such amount.
1. Cash Credits [Section 68]– Where any sum is found credited in the books of the assessee and the assessee offers no explanation about the nature and source or the explanation offered is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged as income of the assessee of that previous year.
2. Unexplained Investments [Section 69]– Where the assessee has made investments which are not recorded in the books of account and the assessee offers no explanation about the nature and the source of investments or the explanation offered is not satisfactory, the value of the investments shall be taxed as income of the assessee for such financial year.
3. Unexplained money etc. [Section 69A] – Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and the same is not recorded in the books of account and the assessee offers no explanation about the nature and source of acquisition of such money, bullion etc. or the explanation offered is not satisfactory, the money and the value of bullion etc. may be deemed to be the income of the assessee for such financial year. Ownership is important and mere possession is not enough.
4. Amount of investments etc., not fully disclosed in the books of account [Section 69B]– Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article and the Assessing Officer finds that the amount spent on making such investments or in acquiring such articles exceeds the amount recorded in the books of account maintained by the assessee and he offers no explanation for the difference or the explanation offered is unsatisfactory, such excess may be deemed to be the income of the assessee for such financial year.
5. Unexplained expenditure [Section 69C]– Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or the explanation is unsatisfactory the Assessing Officer can treat such unexplained expenditure as the income of the assessee for such financial year. Such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as deduction under any head of income.
6. Amount borrowed or repaid on hundi [Section 69D]– Where any amount is borrowed on a hundi or any amount due thereon is repaid other than through an account-payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying for the previous year in which the amount was borrowed or repaid, as the case may be. However, where any amount borrowed on a hundi has been deemed to be the income of any person, he will not be again liable to be assessed in respect of such amount on repayment of such amount. The amount repaid shall include interest paid on the amount borrowed
Unexplained money, investments etc. to attract tax @60% [Section 115BBE]
1. Unexplained money, investment, expenditure, etc. deemed as income under section 68 or section 69 or section 69A or section 69B or section 69C or section 69D would be taxed at the rate of 60% plus surcharge @25% of tax. Thus, the effective rate of tax (including surcharge@25% of tax and cess@3% of tax and surcharge) is 77.25%.
2. No basic exemption or allowance or expenditure shall be allowed to the assessee under any provision of the Income-tax Act, 1961 in computing such deemed income.
3. Further, no set off of any loss shall be allowable against income brought to tax under sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.

Income Tax Assessment order ( after scrutiny)









                                                            Survey Search and Seizure

TDS survey




Block Assessment / Reassessment in search and seizure cases ( called as income tax raid cases)

 Under the Income-tax Act, there are four major assessments as given below:

·         Assessment under section 143(1), i.e., Summary assessment without calling the assessee.
·         Assessment under section 143(3), i.e., Scrutiny assessment.
·         Assessment under section 144, i.e., Best judgment assessment.
·         Assessment under section 147, i.e., Income escaping assessment

Undisclosed Income : Apart from the above, there is another type of assessment which happens after Search is conducted. The modus operandi in search cases has changed many times

History of assessment of Undisclosed Income(Post Search)
 Phase 1 - Upto 30th June, 1995 (Normal Reassessment)
ü  No special provisions for reassessment.
ü  Undisclosed income taxed under general provisions.
ü  Provisions of sections 143 & 147 were mainly used.
ü  Reopening of completed assessments possible.
ü  Regular rates of taxation & interest on undisclosed income.
ü  Penalty & prosecution for concealment possible.
ü  Conditional immunity under expln. 5 to section 271(1)(c ) was available.

Phase II - From 1st July, 1995 to 31st May, 2003 (Block Assessment)
ü  FA 1995 inserted Chapter XIV-B for asst. of undisclosed income(UDI)
ü  Popularly known as Block Assessment.
ü  Only UDI detected in the course of search, assessable in Block asst.
ü  Block period comprised of 6 asst. years preceding the PY of search & included the period upto the date of search.
ü  UDI charged to tax at 60%.
ü  Surcharge leviable at the rates prescribed in the Finance Act  for the relevant year
ü  Block asst. was in addition to  & independent of regular asst. Disclosed income taxed in regular asst. & UDI in Block asst.
ü  Special provisions for asst. of third party's UDI.
ü  No interest u/s 234A, 234B & 234C.
ü  No penalty for concealment of income (upto 31-12-96).
ü  Order appealable – directly to ITAT initially, subsequently like any other asst. order, to CIT (Appeals)

Phase III - From 1st June, 2003 onwards  (Special Reassessment)
ü  Finance Act, 2003 has introduced sections 153A, 153B and 153C w.e.f.   1-6-2003, which has replaced  Chapter XIV-B.
ü  No more block period, undisclosed income and block assessment.
ü  Under the present  scheme total income of an assessee will be determined year wise and not  restricted to undisclosed income alone.
ü  Tax payable at the regular rates as applicable to respective years on total income – Expln.(ii) to s. 153A.
ü  The returns are required to be filed after search in respect of six asst. years immediately preceding the year of search – 153A(a)








SEARCH & SEAZURE  PROCESS UNDER INCOME TAX ACT

         OVERVIEW OF PROCESS
*      Investigation & Inquiry
*      Formation of Reasonable Belief
*      Authorisation by Competent Authority
*      Actual Operation
*      Seizure of Books, Documents, Valuables, Cash Etc
*      Recording of Statement & Disclosure
*      Appraisal Report
*      Issuance of Notice
*      Payment of Tax & Filing of Returns in response to Notice
*      Assessment of Returns filed
*      Release of Items Seized  

          WHEN & WHY SEARCH IS CONDUCTED
          When any summons or notice issued by IT Dept  is not responded  
          When Summons is issue dfor production of books of accounts, however no response is received from the asseessee.
          When Competent Authority forms belief that a person is having unaccounted income inform of cash, bulion, jewellery, etc on the basis of information inn his possession   
          CBDT Guideline on Search & Seizure
                - Searches not to be conducted casually
              - Min Expected Disclosure of Rs 100.00 Lacs
             - Professionals of high repute not to be searched
          Authorisation for Search 
    - Director of Investigation (DI)
    - Deputy Director of Investigation (DDI)
    - Assistant Director of Investigation
   

          HOW SEARCH IS CONDUCTED
          Issuance of Search Warrants Specifying Person and Places to be searched
          Time of Commencement and Continuance of Search 
          Manner of Search
          Closing of search operation
          RIGHTS & DUTIES OF THE PERSON SEARCHED
          Rights
-          Right to check identity of each of the  member of search party
-          Right to have authorised representative
-          Right to have witnesses
-          Right to search every person of serch party when they leave the place
-          To call doctor for the ill person
-          To send  kids to  school after verification of their school bags
-          Female to be searched by female only
-          To have inventory of items found and seized
-          To use phones
-          To have copy of sttements recorded
-          To have copy of books and documents seized  
                   
          Duties
-          To allow search party of enter  in premises without creating  obstacles
-          To sign search warrant
-          To give explanation when asked
-          Restrict entry of  any unauthorised persons
-          Move any items without permission of search party    
-          To Co Operate search party
          PRECAUTIONARY MEASURES WHICH HELPS  DURING  SEARCH
          To keep cash book upto date and have idea of average cash balance in every account / file
          To keep stock book up to date and keep on tallying the same with physical stock at reasonable intervals
          Not to keep un necessary rough notes, chits containg any financial data
          To have idea of assets which are on record
          To record almost all household items, major expenses, personal expenses on books of accounts of business and to make payment through cheque for major items of expenses and investment
          To Cooperate and help the search party
          To  have knowledge of firm names, partnership, director ship held, companies operated and their businesses, their bank accounts – More particularly in case of females    
            Not to keep any Alchoholic Drugs in Home without permit
          To take expenses of marriage and functions on books
          Not to carry on business in the proprietary concern of female, old aged persons unless they are able to justify running of business
          Not to have undue entries on books
          Not to keep unnecessary files on computers  containing various calculations and datas
          No disclosure if data is  More Than 6 Year old
          To have bills for modification in jewellery

         
SEIZURES
          Items which can not be seized
          Items Which can be Seized
          Inventory of item Seized
          Deemed Seizure
          Utilisation of Seized Items 
          Release of Seized Items 

 ITEMS WHICH CAN NOT BE SEIZED
          Immovable assets
          Stock held in business
          Items disclosed  in Income Tax and Wealth tax Returns
          Items appearing in books of accounts
          Cash for which explanation can be given
          Jewellery mentioned in wealth tax return
          Gold up to 500 Gm per married woman, 250Gm per unmarried woman and 100Gm per male member of the family 
          Jewelley as per the status of the family if so appear to investigating officer


 ITEMS WHICH CAN BE SEIZED
          Unaccounted cash, jewellery, gold, bullion, lockers, promissory notes, cheques, drafts
          Books of accounts, chits, diaries etc   
          Computer Hard Disks and other data storage devises
          Documents of property, title deeds etc


 POST SEARCH PROCEDURES
          Revocation of Prohibitory Order
          Completion of statements recorded
          Further explanations of the documents seized 
          Appraisal report
          Issuance of Notice
          Assesment


   RECORDING OF STATEMENT AND DISCLOSURE
          Statement recorded on the date of search
          Financial Years for which disclosure can be taken
          Disclosure of Income
          Items and Documents Seized and Disclosure
          Items having bearing on the Disclosure
        Unaccounted assets
        Unaccounted Business Expenses – Wages / Purchases etc
        Unaccounted Personal expenses
        Production data and unaccounted sales
        Disclosure by third party
        Incidence of interest and penalty
        Proposed Purchase  of fixed asset having higher depreciation  

          ISSUANCE OF NOTICE, TAX PAYMENT & FILING OF RETURNS
          New scheme for assessment of Search Cases
          Time limit for issuance of Notice
          Time limit for filing of tax return
          Applicable Taxes , Interest and Penalty
          Manner of filing tax returns
  ASSESSMENT OF RETURNS FILED
          Assessment procedures
          Status of pending assessments
          Areas which can be covered by the Assessing Officer
          Tax Interest & Penalty 

Is intimation u/s 143(1) an assessment order

The issue is settled to rest by the decision of Supreme Court in the case of ACIT vs Rajesh Javeri Stock Brokers (P) Ltd. 291 ITR 500 in which it was held that intimation although deem to the notice of demand U/s.156 can not taken as assessment order.
The decision :
It is to be noted that the expressions “intimation” and “assessment order” have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes “the computation of income”, sometimes “the determination of the amount of tax payable” and sometimes “the whole procedure laid down in the Act for imposing liability upon the tax payer”. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the department work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J.) in Apogee International Limited v. Union of India [1996] 220 ITR 248 (Delhi). It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any “assessment” is done by them ? The reply is an emphatic “no”. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision.


scrutiny of income-tax returns

NO NORMAL SCRUTINY FOR SENIOR CITIZENS AND GROSS TOTAL INCOME LESS THAN Rs.10.00 LAKHS

No.402/92/2006-MC (07 of 2011)
Government of India / Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi dated the 14th March 2011
PRESS RELEASE

Streamlining procedure for scrutiny of income-tax returns


Scrutiny of income tax returns is an important mechanism for ensuring taxpayer compliance and to counter tax-evasion. However, it has evoked some concern from small taxpayers and senior citizens about prolonged enquiries. Concerns have also been raised about selection of the same cases in scrutiny year after year.
Appreciating the concern of these taxpayers and with a view to mitigate their hardships, Central Board of Direct Taxes has reviewed its scrutiny selection procedure. In order to redress the grievance, it has been decided that during the financial year 2011-12, cases of senior citizens and small taxpayers, filing income-tax returns in ITR-1 and ITR-2 will be subjected to scrutiny only where the Income Tax department is in possession of credible information.
Senior citizens for this purpose would be individual taxpayers who are 60 years of age or more. Small taxpayers would be individual and HUF taxpayers whose gross total income, before availing deductions under Chapter VIA, does not exceed Rupees ten lakh.



Remedies to Assesse aggreived by Order of AO


RECTIFICATION OF MISTAKE UNDER SECTION 154

Introduction
Sometimes there may be a mistake in any order passed by the Assessing Officer. In such
a situation, mistake which is apparent from the record can be rectified under section 154.
The provisions relating to rectification of mistake under section 154 are discussed in this
part.

Order which can be rectified under section 154
With a view to rectifying any mistake apparent from the record, an income-tax authority
may, -
a) Amend any order passed under any provisions of the Income-tax Act.
b) Amend any intimation or deemed intimation sent under section 143(1).
c) Amend any intimation sent under section 200A(1)(*) [section 200A deals with
processing of statements of tax deducted at source i.e. TDS return].

(*) Under section 200A, a TDS statement is processed after making correction of any
arithmetical error in the statement or after correcting an incorrect claim, apparent from
any information in the statement

If due to rectification of mistake, the tax liability of the taxpayer is enhanced or refund is
reduced, the taxpayer shall be given an opportunity of being heard.

Rectification of order which is subject to appeal or revision
If an order is the subject-matter of any appeal or revision, any matter which is decided in
such an appeal or revision cannot be rectified by the Assessing Officer. In other words, if
an order is subject matter of any appeal, then the Assessing Officer can rectify only those
matters which are not decided in such appeal.

Initiation of rectification by whom
The income-tax authority can rectify the mistake on its own motion.
The taxpayer can intimate the mistake to the income-tax authority by making an
application to rectify the mistake.
If the order is passed by the Commissioner (Appeals), then the Commissioner (Appeals)
can rectify mistake which has been brought to notice by the Assessing Officer or by the
taxpayer.

Time-limit for rectification
No order of rectification can be passed after the expiry of 4 years from the end of the
financial year in which order sought to be rectified was passed. The period of 4 years is
from the date of order sought to be rectified and not 4 years from original order. Hence, if
an order is revised, set aside, etc., then the period of 4 years will be counted from the date
of such fresh order and not from the date of original order.
In case an application for rectification is made by the taxpayer, the authority shall amend
the order or refuse to allow the claim within 6 months from the end of the month in which
the application is received by the authority.
The procedure to be followed for making an application of rectification
Before making any rectification application the taxpayer should keep following points in
mind.
· The taxpayer should carefully study the order against which he wants to file the
application for rectification.
· Many times the taxpayer may feel that there is any mistake in the order passed by
the Income-tax Department but actually the taxpayer’s calculations could be
incorrect and the CPC might have corrected these mistakes, e.g., the taxpayer may
have computed incorrect interest in return of income and in the intimation the
interest mighthave been computed correctly.
· Hence, to avoid application of rectification in above discussed cases the taxpayer
should study the order and should confirm the existence of mistake in the
intimation, if any.
· If he observes any mistake in the order then only he should proceed for making an
application for rectification under section 154.
· Further, he should confirm that the mistake is one which is apparent from the
records and it is not a mistake which requires debate, elaboration, investigation,
etc.The taxpayer can file an online application for rectification of mistake. Before
making an online application for rectification the taxpayer should refer to the
rectification procedure prescribed at https://incometaxindiaefiling.gov.in/
· For rectification of intimation under Section 200A(1) online correction statement
is to be filed; the procedure thereof is given at  http://contents.tdscpc.gov.in/en/filing-correction-etutorial.html
· An amendment or rectification which has the effect of enhancing the assessment
or reducing a refund or otherwise increasing the liability of the taxpayer (or
deductor) shall not be made unless the authority concerned has given notice to the
taxpayer or the deductor of its intention to do so and allowed the taxpayer (or the
deductor) a reasonable opportunity of being heard.



Stay on income tax demand


1. An application must be moved within 30 days of the service of the order to remain compliant with section 221.

2.The application should be in complete detail with the following:

(1) returned income 

(2) assessed income 

(3) the disputed additions 

(4) how your case is covered by the judgments 

(5) and how payment will jeopardize the business due to financial constraints etc.

3.The AO's generally pass a short order rejecting the stay application which is unjustified, and then move on to the Addl. CIT and then CIT. In case not accepted you can take it up with CIT(A) who has the powers to grant stay as an appellate authority.

4. In case the assessment has been framed at more than twice the income you take cover of the Delhi HC orders in the Valvoline and Soul which have confirmed the CBDT Circular that no recovery shall be made in such cases till the disposal of the 1st appeal. This can also be mentioned in the stay application. Some other judgments may also helpful these are given below:

1.     Instruction no. 1914 of 1993 dt. 02.12.1993
2.     Circular No. 589 - Imp
3.     220 CTR 211 (Del) - Soul – V Important. Also discusses Valvoline
4.     Valvoline
5.     216 CTR 139 – Subhash Chander
6.     258 ITR 291 – JCT Ltd.
7.     222 CTR 521 Taneja
8.     256 ITR 698 – Bongaigaon
9.     RPG Mumbai
10. NO RECOVERY till 154 Application not disposed off – 191 ITR 179
11. Order of the AO should be speaking order – B R Balakrishnan 119 Taxman 974 Bom
12. Maruti Udyog Ltd.

5. Also it is suggested:

(1) move an application for early fixation of appeal with copy to CCIT and CIT 

(2) keep your bank balance low and keep an alternate bank account ready and operational 

(3) keep bank manager in good humor  as (a) he should inform you of attachment and permit you to withdraw the available amounts before attachment (b) In case of OD limits he can write back to the AO that attachment is not possible as the limits have been granted to conduct business and not payment of taxes – this will give you a couple of days to make adjustments.

6.If possible apply for a rectification for as long as the rectification application is pending no recovery can be made (see 191 ITR 179)

7. I also bring to your notice the following directions of the CBDT:

CBDT Inst. 987. Prevention of unrealistic over-assessments

     1.   Reference is invited to the Board's Instruction No.376 [F.No.277/2/70-IT(J)], dated the 1st February , 1972 and the earlier instruction cited therein.

    2.    Instances continue to come to the notice of the board about unrealistic over-assessments made by assessing officer under various direct tax Acts. This causes unnecessary hardship to the assessees and tarnishes the image of the Department; there is avoidable litigation and recovery problems arise in respect of the consequential insupportable and exaggerated tax demands.

3.The board would like therefore to impress once again upon the commissioners that they should advise the assessing officers in their charge to eschew unjustified over-assessments. The assessments have to be made in the reasonable and fair manner after considering all the relevant circumstances of the case. Even where an assessment has to be made ex parte, the information available should be reasonably weighed and a proper estimate made in the exercise of best judgments in the circumstances. There should be no tendency to frame assessments even in such cases mechanically on past basis, if there is evidence to the contrary e.g., the business of the concern has become defunct or is in clearly adverse circumstance.

4. If unjustified over-assessments are avoided, this will inter alia curtail the feature of exaggerated demands which unnecessarily inflate our arrears figures.

These instructions may be brought to the notice of all officers in the charge and very careful watch kept over their compliances. The erring officials should be properly advised and where necessary pulled up.[ F.No.246/27/73-A & PAC, dated the 27th July, 1973 from C.B.D.T].

.
*CA Amresh Vashisht*
Meerut
9837515432



                                Transfer Pricing - CIT (A) or DRP

Introduction
Tax litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the taxpayers and administrative cost for the Government. It is one of the road blocks in the growth of the economy as this affects the investment climate in the country.
The Government acknowledged that the existing litigation process was time consuming and needed restructuring. Therefore, with objective of speedy disposal of disputes, Dispute Resolution Panel (DRP) mechanism was introduced by Finance Act, 2009 as an alternative to first appellate authority i.e. Commissioner of Income Tax (Appeals) {CIT (A)}.

Revised litigation process post introduction of DRP
Post introduction of DRP, the taxpayer, being a foreign company or facing TP adjustment (eligible taxpayer), has an option to opt for either CIT (A) route or the DRP mechanism.
If DRP is opted: the assessing officer (AO) has to pass the draft assessment order. Within 30 days of receipt of the draft order, the eligible taxpayer may file objections before DRP. DRP issues directions to AO within 9 months from the end of the month in which the draft order is forwarded to the taxpayer. Subsequently, final order is issued by the AO within 1 month.
If CIT (A) is opted: An appeal is to be filed within 30 days of receipt of final assessment order. No time limit is prescribed for disposal of the appeal. However, CIT(A) may dispose of the appeal within 1 year from the end of the financial year in which appeal was filed.
An appeal against the final assessment order (pursuant to DRP directions)/CIT(A)’s order may be filed before the Income Tax Appellate Tribunal (ITAT) within 60 days of the date of communication of the impugned order. ITAT is the final fact finding authority and further appeal before the High Court (HC) and subsequent appeal before the Supreme Court (SC) against HC can only be filed on a question of law.
With the introduction of the alternative DRP mechanism, the taxpayer is at a crossroads in relation to the future course of action i.e. either to opt for the DRP route or go for the conventional CIT(A) path. The decision is dependent on various factors. Some are discussed below:
·         Time limit for disposal of appeal
The Income Tax Act, 1961 (“the Act”) mandates the DRP to pass its directions within 9 months from the end of the month in which AO's draft order is received. On the other hand, no time limit is laid down in case of CIT(A). However, based on the practical experience an appeal is generally disposed of within 2-4 years.
·         Abeyance of demand
Under the CIT(A) route, there is no provision of automatic stay of demand and taxpayer is required pay the demand before appeal.

India: Dispute Resolution Panel Under The Income Tax Act, 1961

Last Updated: 7 January 2014
Article by Pradhumna Didwania

The Dispute Resolution Panel (DRP) under the Income Tax Act, 1961 [hereinafter referred to as "ITA"] is an Alternative Dispute Resolution (ADR) mechanism for resolving the disputes relating to Transfer Pricing in International Transactions. Section 144C [Reference to Dispute Resolution Panel] of the ITA governs the provisions relating to DRP and defines DRP as a collegium comprising of three Commissioners of Income-tax constituted by the Board [Central Board of Direct Taxes] for this purpose. Section 144C comes into picture when the Assessing Officer (AO) under the ITA proposes to make, any variation in the income or loss stated in the return filed by the assessee and such variation is prejudicial to the interest of the assessee and the AO forwards a draft of the proposed Assessment order to the assessee in order to invite his acceptance or objections to the same. Assessee under section 144C refers to a Foreign Company and any person in whose case AO proposes to make any variation in the income or loss stated in the return filed by such person, as a consequence of the order passed by the Transfer Pricing Officer under Sub Section (3) of Section 92CA of the ITA.
Section 144C was inserted in the ITA by the Finance Act, 2009 and came into effect from 1st October, 2009. In the Notes on Clauses to the Finance Bill, 2009 [Budget 2009-2010] the reason for insertion of Section 144C was given as under
"The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such view take very long time with the existing appellate structure.
With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism."
Prior to the formation of DRP the assessee had to approach the Commissioner of Income Tax Appeal CIT (A) against the Assessment Order if the assessee wanted to raise objections against the Assessment Order. However, after the formation of DRP the assessee has an additional option to approach DRP on the basis Draft Order issued by AO. The Draft Order can be acceptable or unacceptable to the Assessee. In case the variations made in the draft order are acceptable to the assessee he can file his acceptance to the Draft Order with the AO within thirty days of the receipt of the Draft Order. If no acceptance is filed within thirty Days the AO completes the assessment on the basis of the Draft Order and passes the assessment order, within one month from the end of the month, in which, the acceptance is received or the period of filing of objections expires.
In case the assessee wants to file the Objections against the variations made by the AO the assesse may file its objections with the DRP and AO.

The Procedure At DRP Is As Follows:

  • After receiving Objections the DRP goes through the Draft Order; objections filed by the assessee; evidence furnished by the assessee; report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; records relating to the draft order; evidence collected by, or caused to be collected by, it; and result of any enquiry made by, or caused to be made by, it and issue such directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment.
  • The DRP may confirm, reduce or enhance the variations proposed in the draft order, however, it shall not set aside any proposed variation or issue any direction for the guidance of the AO for further enquiry and passing of the assessment order.
  • If the members of the DRP differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.
  • The Directions for the guidance of AO will be given only after the assessee and the AO have been given an opportunity to present their case.
  • After receiving the Directions in the nature of guidance from DRP the AO shall, in conformity with the directions, complete the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.
  • The Directions given by DRP are binding on the AO, the Directions can be challenged by the assessee before the Income Tax Appellate Tribunal (ITAT).
  • The DRP has to complete the hearing and give its final Directions within a period of 9 months from the end of the month in which the draft order was forwarded to the assessee.
  • Presently there are 10 DRP in India having Jurisdiction over different States and Territories.
Recently, a Division Bench of Hon'ble Bombay High Court, while deciding the Writ Petition filed by Vodafone India Services Pvt. Ltd. vs Union of India and Others1 directed Vodafone India Services Pvt. Ltd (wholly owned subsidiary of Mauritian Entity Vodafone TeleServices (India) Holdings Ltd) to approach the Dispute Resolution Panel (DRP) to submit objections to the Income Tax Department's demand of INR 1,300 crore and made the following observation with regards to DRP.
"The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assesee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appealable is passed by the Assessing Officer. This also finds support from Section 144C(6) which enables the DRP to collect evidence or cause any enquiry to be made before giving directions to the Assessing Officer under Section 144C(5) . The DRP procedure can only be initiated by an assessee objecting to the draft assessment order. This would enable correction in the proposed order (draft assessment order) before a final assessment order is passed. Therefore, we are of the view that in the present facts this issue could be agitated before and rectified by the DRP."

Conclusion

The DRP is an Alternative Dispute Mechanism, set up with a view to minimize the tax disputes relating to Transfer Pricing in International Transactions. The process of inviting objections to the Draft Assessment Order gives an opportunity to the assessee to raise objections, if any, at an early date and helps in giving finality to the Assessment Order. The fixed time frame of 9 months to decide the Matter assures the assesse that the Matter will be decided in a fixed time and the binding nature of the Order of the DRP on the Aseesssing Officer provides a clear picture to the Assessee with regards to its Tax Liability. The recent ruling of the Hon'ble Bombay High Court also shows that the Court would wants the assessees to approach the DRP first to resolve their disputes with regards to the Tax Liability.


Income Tax Case Laws : Technical points

Deduction claimed in 153A- return filed after search-but not in 139(1)- return originally filed- is allowable

IT : Deduction claimed under section 80-IB(10) in return filed under section 153A cannot be denied on ground that claim was not made earlier in return filed under section 139(1)
IT: Where assessee filed return of income in response to notice issued under section 153A, interest under section 234A was liable to be charged from date of expiry of notice period given in notice under section 153A to date of completing assessment under section 143(3)
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[201332 taxmann.com 133 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'A'
Assistant Commissioner of Income-tax, Central Circle -1(3), Chennai
v.
V.N. Devadoss*
DR. O.K. NARAYANAN, VICE-PRESIDENT
AND VIKAS AWASTHY, JUDICIAL MEMBER
IT APPEAL NOS. 1219 TO 1223 (MDS.) OF 2012
[ASSESSMENT YEARS 2008-09 TO 2010-11]
FEBRUARY  4, 2013 
I. Section 80-IB, read with sections 80AC, 132, 139 and 153A, of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings other than infrastructure development undertakings [Housing projects] - Assessment years 2008-09 to 2010-11 - Whether to avail benefit of deduction under section 80-IB(10) it is necessary that assessee must file return of income before due date prescribed under section 139(1) - Held, yes - Whether a return filed in pursuance of a notice issued under section 153A is as good as a return filed under section 139 and more particularly under section 139(1) - Held, yes - Whether deduction claimed under section 80-IB(10) in a return filed under section 153A can be denied on ground that claim was not made earlier in a return filed under section 139(1) - Held, no [Paras 26 to 42] [In favour of assessee]
II. Section 234A, read with sections 139, 143 and 153A, of the Income-tax Act, 1961 - Interest, chargeable as [Computation of period of interest] - Assessment years 2008-09 to 2010-11 - For relevant assessment years, assessee filed returns of income in response to notices issued under section 153A on 23-9-2011 - Assessing Officer levied interest under section 234A upon assessee - Commissioner (Appeals) directed Assessing Officer to charge interest under section 234A from date of expiry of notice period given in notices under section 153A to date of completing assessment under section 143(3) - Whether Commissioner (Appeals) was justified in his view - Held, yes [Para 45] [In favour of assessee]




Non-filing of audit report with ROI not fatal to s. 11 exemption


The assessee, a charitable trust, filed a return claiming exemption u/s 11 in respect inter alia of a receipt of Rs. 35.70 crores on sale of property. The audit report in Form 10B was not filed with the return. During the assessment proceedings, the assessee’s trustee gave a statement u/s 131 to the AO in which he stated that no audit report u/s 10B was obtained. Subsequently, the said statement was retracted on the ground that the trustee was not a tax expert and had no knowledge of the audit report. It was claimed that the audit report had been obtained but was omitted to be filed with the return. The audit report was thereafter filed during the assessment proceedings. The AO took the view that u/s 12A(1)(b) the requirement of the accounts being audited and the audit report being filed with the return was mandatory and the failure to do so dis-entitled the assessee to exemption u/s 11. The AO also rejected the retraction as an after-thought. However, the CIT (A) allowed the claim on the ground that the filing of the report during assessment proceedings was sufficient compliance with s. 12A(1)(b). On appeal by the department, HELD dismissing the appeal:
(i) Though s. 12A (1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report “furnished along with the return”, the same is not mandatory but is directory. The audit report in Form 10B affirms the statements contained in the balance sheet and income-expenditure statement and is intended to enable the AO to allow the exemption by relying on the audit report and without having to ask the assessee to furnish supporting documents in support of the claim. Such a procedural provision cannot be construed as mandatory because the defect can be cured at a subsequent stage. It is not the intention of the Legislature that the exemption u/s 11 should be denied merely because the audit report was not filed with the returnCIT vs. Hardeodas Agarwalla Trust 198 ITR 511 (Cal) followed;
(ii) On facts, as the trust had filed, with the return, the audit report required to be given under the Bombay Public Trust Act, the claim that the audit report in Form 10B had also been obtained but had been omitted to be filed with the return was acceptable. Also, the AO was not justified in rejecting the retraction of the trustee. The AO did not controvert the averments in the retraction affidavit nor did he cross-examine the trustee. Accordingly, the claim for s. 11 exemption was upheld.


RECEIVING INCOME TAX NOTICE


What is Notice of Demand under section 156?
If you had received a prior notice and the notice results  in an amount payable by you, either in the form of tax, interest, penalty or fine, then a notice u/s 156 will be issued for the outstanding tax amount.
How To Respond To Notice u/s 156
Upon receiving the demand notice for outstanding tax payable, the taxpayer must:
§  deposit the amount stated within 30 days.
§  in special cases, with the approval of the Joint Commissioner of Income Tax, you may have less than 30 days to respond.
Consequences of Not Responding to Notice u/s 156
If you fail to respond to the notice received u/s 156, then you will either have to pay:
§  Interest u/s 220 – rate of 1% per month from the expiry of 30 days till payment is received.
§  Penalty u/s 221 – the AO can impose a penalty, equal to the outstanding demand.