Budget 2017 proposals in tax relating to assessments, search and seizure
and TDS
-
Sahil
Garud [Chartered Accountant]
The Union budget 2017 raised a lot of eyebrows especially with the Modi Government breaking its promises about not bringing any retrospective amendments and by proposing changes which do not facilitate the creation of a tax-payer friendly environment. The Finance Bill 2017 saw certain amendments where the powers of the Taxmen were increased, some even with corresponding decrease in their accountability, which might cause hardship to taxpayers.
SEARCH, SEZURE AND SURVEY
Around 1100 searches have been conducted by the department
in the demonetization phase which may be in the assessment stage in near future.
In order to curb the practice of certain assessee’s who simply challenge the
“reasons ” behind initiation of search proceedings before CIT(A) or ITAT and
succeed in making the search proceedings invalid, an amendment has been
retrospectively proposed by the government. In a landmark ruling in case of DGIT
(Investigation) v. Spacewood Furnishers (P.) Ltd., SC had ruled that
the reasons shall not be communicated to the persons against whom the warrant
is issued at that stage; it’s only at the stage of commencement of assessment
proceedings after the completion of search and seizure, if any, the requisite
material may have to be disclosed to the assessee.
Owing to ambiguities from certain other
judicial pronouncements in this regard and to maintain the confidentiality and
sensitivity of the proceedings under section 132 and 132A an amendment has been
proposed wherein the Department would not be liable to disclose the ‘reasons’
of search to ‘any person’, ‘any authority’ or ‘ITAT’. The expression ‘any
authority’ logically should not be said to include High Courts since High
Courts are specifically empowered by Article 226 of the Constitution. In case
of Shri Parma Ram Bhakar Vs The DCIT, Jodhpur it was held by ITAT that
that authorization to conduct search based on reason u/s 132(1) did not exist,
so search was held to be invalid. Consequently, assessment order based on
invalid search was quashed. Also, in case of CIT Vs Chitra Devi Sons,
the Rajasthan High Court upheld the decision of Tribunal to quash the
Assessment Order on the ground that the Revenue could not produce document to
show the reasons for existence of conditions u/s 132 to the ITAT. Thus, after
such an amendment these decisions could be said to be overruled. A remote
possibility of undue harassment of taxpayers cannot be overruled due to
unaccountable increase in powers of Assessing Officers, and after such an
amendment, taxpayers would be bound to travel to high court where they seek to
challenge the jurisdiction of search proceedings.
Power to attach property and its
valuation:
Under the existing provision of the
act, right of provisional attachment of property is available u/s 281B. This
power can only be exercised when proceeding is pending for assessment of income
or for assessment/reassessment of any income which has escaped assessment.
Explanation to sub-section 1 of section
281B, which has been omitted by the Finance Act 2016, included search cases in
its ambit. The mentioned explanation implied that the
expression ‘proceedings’ as mentioned in the section
includes ‘proceedings’ as defined in section 132, which also included
the proceedings completed on or before the date of search or which may be
commenced after the date of search. This understanding had been further
affirmed by the Delhi HC in the case of Nimitya Properties Ltd vs. CIT. The
Delhi HC had observed that though proceedings stood abated because of the
search, proceedings for that assessment year will have to be commenced u/s
153A or 153C of the Act. Such proceedings which are to be necessarily
commenced as a result of search, are to be treated as proceedings under
this Act. Since by virtue of Explanation to Section 281B of
the Act, these are to be treated as the proceedings within the meaning of
sub-Section (1) of Section 281B of the Act, order for attachment u/s 281B
could be rightly passed even if no assessment proceedings were pending on date
of search. However, omission of the Explanation to sub-section 1 of section
281B by the Finance Act 2016 resulted in the Revenue losing the power to
provisionally attach property of assessees' in search cases w.e.f.
01/06/2016.
W.e.f.
01/04/2017, by making an amendment in Sec. 132, the Finance Bill 2017 has
sought to further reintroduce and expand the powers of the Revenue by proposing
to allow Revenue to provisionally attach any property of an assessee, with the
prior approval of Principal Director General or Director General or Principal
Director or Director, during the course of a search or seizure or within a
period of sixty days from the date on which the last of the authorisations for
search was executed, i.e. even before issuing notice under section 153A. This
proposed amendment by the Finance Bill 2017 affirms, clarifies and expands
the view expressed by Delhi HC in Nimitya Properties. It is
important to note that as the Explanation to sub-section 1 of Sec.
281B was omitted w.e.f. 01/06/2016, and the proposed amendment by the Finance
Bill 2017 is set to come into force w.e.f. 01/04/2017, it could be inferred
that for searches conducted between 01/06/2016 and 01.04.2017, no power of
provisional attachment was available with the Revenue.
Further, in order to enable correct
estimation undisclosed income held in the form of investment or property by the
assessee, the authorized officer has been empowered to make a reference to a
Valuation Officer. A doubt which arises here is how during the course of a
search or seizure can one know the liability burden on taxpayer so as to take
the harsh step of attachment of property of the taxpayer? Practically, such
power may be misused to further pressurize the taxpayers in during the search
and seizure phase.
Section 133
Power to call for information:
As per the existing provisions, the power
in respect of an inquiry, in a case where no proceedings are pending, cannot be
exercised by any income-tax authority below the rank of the Director or
Commissioner or without the prior approval of these authorities. However,
considering the requirement of the work profile of the authorities working in
the Investigation Directorate and the plethora of data that the investigation
wing of the department expects to receive post demonetization, the said power
is proposed to be granted even to Joint Director, the Deputy Director and the
Assistant Director.
Section 133A
Power of Survey:
The existing provisions of section 133A
empower an income-tax authority to enter any place, at which a business or
profession is carried on, or at which any books of account etc relating to the
business or profession are kept. W.e.f. 01.04.2017, the scope of this power is
widened in way that a survey can also be carried on at premises an activity for
charitable purpose is carried on.
A
doubt which arises here is since the power to make such surveys has been
prospectively introduced w.e.f. 01.04.2017, whether surveys conducted on
charitable trusts whose consequential assessments must be under process now,
are valid?
ASSESSMENTS
AO’s Power to withhold refund:
In the case of Tata Tele services
vs. CBDT, the Delhi High Court quashed CBDT Instruction No. 1/2015 dated 13
January, 2015 vide which the AOs used to decline processing of return and
granting of consequential refund to assessees. The Court stated that in the
garb of its power under section 119 of the Act, the CBDT could not proceed to
interpret the law or instruct the Income-tax Department to not issue refund.
While overruling the above decision and
with a view to further boost the recovery or tax collection, a new section 241A
is proposed to be inserted vide which the AO is empowered to withhold the
refund of a return processed u/s 143(1) till completion of assessment, if he is
of the opinion that granting of such refund may adversely affect the recovery
of revenue. However, the AO has to record his reasons for doing so and take previous
approval of the Principal Commissioner or Commissioner.
Section 153 Time
limit for completion of assessment, reassessment and recomputation:
The Government has, in last 3-4 years, carried
out massive computerization and has tried to make most of processes
system-driven, without much of manual interference. In order to further add-up
to the efficiency of system and functioning of the Department, the Finance Bill
proposes to reduce the time limit for making assessment u/s 143 and s. 144 from
existing period of 21 months from the end of that assessment year to 18 months
for assessments in relation to AY 18-19. The time limit is proposed to be
further reduced to a period of 12 months for AY 19-20 onwards. Similarly, to
bring uniformity, for notices served u/s 148 on or after 01/04/2019, the time
limit for completion of assessment shall be 12 months from the end of the
financial year in which notice under section 148 is served. These amendments
will take effect from 1st April, 2017.
Similarly, the time limits of making fresh
assessment in pursuance of an order passed or received in the financial year
2019-20 and onwards under sections 254 or 263 or 264, are also changed. In case
of an order u/s 250, 254, 260,262, 263 or 264 which requires to be verified by
giving an opportunity of making submissions to the assessee, the time limit shall
12 months from the end of the financial year in which order u/s 254 is received
or order u/s 263 or 264 is passed by the authority referred therein.
153A -
Assessment in case of search or requisition:
As per existing provisions of Sec.
153A, where search has been conducted u/s 132 or books of accounts are
requisitioned u/s 132A, the AO shall issue notice to assessee requiring him to
furnish returns of six immediately preceding AYs and the AO shall make
assessment of such 6 AYs preceding the assessment year relevant to previous
year in which the search is conducted or requisition is made.
Apparently, the Modi Government has
stood-up to what it claims, in a positive or a negative manner. The Government
gave number of chances to the citizens of India to disclose their undisclosed
income and assets without any enquiry or search, seizure etc. The Government
even announced the Income Declaration Scheme (IDS) or the PMGKY Scheme to
facilitate its motive. However, allegedly there seems to be large no. of cases
where people though possessing undisclosed assets did not to come forward
voluntarily. This may be one of the factors behind the changing the fundamental
aspect of limiting the backward enquiry period of six assessment years to a
period beyond than six.
The Finance bill proposes to make an
amendment in such a way that where the AO is in possession of books of accounts
or other documents or evidence which reveal that income in form of an ‘asset’
has escaped assessment and such amount exceeds or is likely to exceed 50 lakh
rupees, then he can issue a notice of assessment u/s 153A for a period beyond 6
years but not exceeding 10 years. In other words, the power to assess u/s 153A
has been increased beyond 6 years but upto 10 years subject to escapement of
income equal to or exceeding 50 lakhs rupees in aggregate for the period of 6
to 10 years. Further, the expression ‘asset’ has been defined by way of an inclusive
definition.
This amendment is prospectively
applicable w.e.f. 01.04.2017. Thus, for searches which are made after
01.04.2017, i.e. say in FY 17-18 the AO has the power to go back till AY 08-09
where he has evidence in his possession which reveals that income, in form of
an asset, has escaped assessment amounting to Rs. 50 lakh or more, between the
aggregate period of AY 11-12 to AY 08-09.
In case of
searches made after 01.04.2017, a genuine difficulty and hardship may arise
where pursuant to provisions of Rule 6F of Income Tax Rules, an assessee
has destroyed or not maintained his books of accounts beyond a period of 6
years from the end of a relevant assessment year, and a scenario of search
arises where the AO seeks to go beyond such a period of 6 years. Thus,
practically though there is no corresponding amendment in rule 6F, the
taxpayers may be advised to maintain books of accounts for a period of 10 AYs
from the end of relevant AY.
For exercise of such a power to go
beyond a period of 6 years upto 10 years, three conditions must be fulfilled
viz. (i) AO must be in possession of books of accounts, or other documents or
evidence, (ii) Income alleged to have escaped assessment must be in form of
asset, and (iii) such escapement must amount to Rs. 50 lakh or more in any of
the assessment years between 6 to 10 assessment years or in aggregate for 6 to
10 assessment years. It is pertinent to note here that the amendment
regarding no liability of Revenue to disclose reasons of search before any
person, any authority or ITAT, is in relation to initiation of search
proceedings u/s 132 only. Thus, the AO should be made liable to disclose his
reasons of re-opening a case pertaining to more than 6 AYs backward, alongwith
material evidence in his possession which led him to believe that there has
been such escapement of Rs. 50 lakh rupees or more beyond a period of 6 AYs
upto 10 AYs.
Further, the Finance Bill 2017 has
proposed to omit Sec. 197(c) of Finance Act 2016 to avoid genuine hardships to
the assessees. The existing provisions of Sec 197(c) of the Finance Act, 2016
had a deeming fiction of considering escaped income of any past year to be the
escaped income of year in which notice of assessment was issued by the AO, if
no declaration was made regarding it in the IDS.
Section 153B –
Time limit for completion of assessment in case of search or requisition:
For completion of search assessment,
the existing time limit of 21 months from the end of financial year in search
was conducted, has been revised to 18 months in case where such search is
conducted on or after 01.04.2018. Further, for searches conducted on or after
01.04.2019, the time limit for completion of assessment has been revised to 12
months. Further, period of limitation for making the assessment or reassessment
in case of other person referred to in section 153C is also consequentially
revised. In cases where a reference u/s 92CA is made by the AO during the
course of his assessment proceedings u/s 153A, the above time limits of Sec.
153B and Sec. 153C shall be further extended by 12 months.
TDS PROVISIONS
With a view to increase the database of
persons coming under tax net and to collect more taxes timely by way of
deduction of tax at source, government has introduced new provisions relating
to TDS and has amended certain existing provisions. In order to boost the
economy by way of introduction of foreign capital, the concessional rate of TDS
u/s 194LC of the Act has been extended till 01.07.2020. Similarly, in order to
enhance the investment of FIIs and QFIs in government securities and rupee
denominated bonds the concessional rate of TDS has been extended till
01.07.2020.
206CC
Requirement to furnish PAN by Collectee:
In order to strengthen the PAN
mechanism and in order to increase the database of persons for tax purposes, a
new section 206CC has been introduced vide which any person responsible for paying
any amount on tax is collectible at source shall furnish his PAN to the person
responsible for collecting such tax. In case no PAN is furnished, tax shall be
collected at the twice the rate mentioned in the relevant provisions of TCS or
at the rate of 5%, whichever is higher.
New Section
194IB:
Currently, there is no provision to
deduct tax on rent by individuals and HUFs which not liable to audit u/s 44AB.
A new section 194IB is proposed to be inserted w.e.f. 01.06.2017 wherein a
person [though he is not liable to audit] who is liable to pay rent to an
Indian resident for use of any land or building or both exceeding Rs. 50,000/-,
for a month or part of a month, shall deduct TDS at rate of 5%. The necessity
of obtaining a TAN has been done away with and that TDS is to be done only once
in a previous year per tenancy.
In a scenario where the deductee does not
furnish his PAN to the deductor or the PAN furnished by him is invalid, the TDS
which has to be done at a higher rate [20%] shall be restricted to amount of
rent payable for the last month of the previous year or the last month of
tenancy.
Due to introduction
of this section, the tax authorities should be able to track whether all the
receivers of rent are paying their due income tax and filing returns as per
law. Additionally due to exchange of information between income tax and service
tax departments, the service tax department should also be able to track
whether the person receiving the rent is registered under service tax and is
duly complying with service tax liabilities.
Section 194-IC:
A new section 194IC has been introduced
w.e.f. 01.04.2017 which provides that TDS @ 10% shall be made in case of
payment of consideration by [not being consideration in kind] pursuant to a
joint development agreement [JDA] by the developer to the land owner. This
section specifically starts with a non-obstante clause w.r.t. Sec. 194-IA
thereby meaning that TDS on consideration relating to JDA shall be governed by
194-IC only and not by 194-IA.
It
is pertinent to note here that the event of TDS occurs at the time of payment
of monetary consideration though the taxation of capital gains u/s 45(5A) is
deferred till the receipt of certificate of completion. Thus there will a mismatch
in Form 26AS in each case related to a JDA wherein TDS on monetary portion of
consideration would appear in one assessment year and the same consideration is
taxable under capital gains in some future year.
Further, as per
section 198, all sums deducted in accordance with provisions of chapter of TDS
are deemed to be income received. A query which arises here is that, if TDS on
monetary part is included as income of a previous year as per Sec. 198, and if
as per Sec. 45(5A) stamp duty value as increased by gross consideration
received in cash is to be treated as ‘full value of consideration’, will there
be a double taxation to the extent of amount of TDS which already included as
income? [Note: Section 48 where the term ‘full value of consideration’ is used,
is applicable in context of all sub-sections of Sec. 45]
The Budget 2017
has increased the scope and power of Taxmen and has in some cases even reduced
their accountability towards taxpayers. The provisions regarding TDS and TCS
seek to widen the tax-net and to bring more and more people under the tax
database. The gradual reduction in time-limits for completion of assessments is
a positive step resulting in overall period of cases being reaching finality.