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November 2016

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India Budget Series

RATIONALISATION OF THE PROVISIONS RELATING TO APPELLATE TRIBUNAL

In view of rationalisation of provisions relating to Appellate Tribunal, following amendments are proposed:-

-To omit the reference of “Senior Vice President” under existing clause (b) of sub-section (3), sub-section (4A) and sub-section (5) of Section 252

-To omit Section 253 (2A) and Section 253 (3A) in relation to filing of appeal by Assessing Officer for order passed by Dispute Resolution Panel. Consequential amendments shall be made in Section 253 (3A) and Section 253 (4).

The above amendments will take effect from 1st day of June, 2016.

Further, where Department is already in appeal against the directions of Dispute Resolution Panel under sub-section (2A) of the Section 253 (before the amendment of the Finance Act, 2016), no fee shall be payable. This amendment will take effect retrospectively from 1st July, 2012

The below amendments will take effect from 1st day of June, 2016.

Currently, the Appellate Tribunal can rectify any mistake apparent from the record in its order within 4 years from the date of order.

However, it is proposed to amend the time limit to 6 months from the end of the month in which order was passed

The monetary limit of total income, as computed by Assessing Officer, for a single member bench to dispose of any case pertaining to assessee, has been increased from Rs. 15 lakhs to Rs. 50 lakhs.

India Budget Series

RATIONALISATION OF PENALTY PROVISIONS

Penalty for concealment of income is leviable under Section 271 (1) (c). In order to provide more certainty and objectivity, it is proposed that Section 271 shall not apply in relation to any assessment for the assessment year commencing on or after the 1st day of April, 2017 and subsequent assessment years and penalty for concealment of income shall be levied under the newly inserted Section 270A with effect from 1st April, 2017.

The new Section 270A provides for levy of penalty in cases of under reporting and misreporting of income instead of concealment of income. The power to levy penalty under Section 270A vests with the Assessing Officer, Commissioner (Appeals) or the Principal Commissioner or Commissioner.

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The following table provides the calculation of amount of under reported income under different scenarios:-

Particulars

Category

Calculation of Amount of under reported income

Where return is furnished and assessment is made for the first time All assesses Difference between the assessed income and the income determined under Summary Assessment
Where no return is furnished earlier and it is furnished for the first time Company, Firm or Local Authority Assessed Income
Where no return is furnished earlier and it is furnished for the first time Person other than Company, Firm or Local Authority Difference between the assessed income and the maximum amount not chargeable to tax
Where income is not assessed for the first time Any person Difference between the income assessed or determined in such order and the income assessed or determined in the order immediately preceding such order
Deemed total income as per Section 115JB or Section 115JC Any person (I-II) + (III-IV) (Note)
Assessment or reassessment has the effect of reducing loss declared in the return or converting loss into income Any person Difference between the loss claimed and the income or loss, assessed or reassessed
Source of any receipt, deposit or investment is linked to earlier year Any person As per Explanation 2 to Section 271 (1)

Note

I – Total Income assessed as per general provisions

II – Total Income that would have been chargeable considering the total income assessed as per general provisions as reduced by under reported income

III – Total Income assessed as per the provisions contained in Section 115JB or Section 115JC, as the case may be

IV – Total Income that would have been chargeable considering the total income assessed as per provisions contained in Section 115JB or 115JC as reduced by under reported income

However, where the amount of under reported income on any issue is considered both under the provisions contained in Section 115JB or Section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item IV.

It is further proposed that the under-reported income under this Section shall not include the following cases:

– Where the assessee offers an explanation and the income-tax authority is satisfied that the explanation is bonafide and all the material facts have been disclosed

– Where such under-reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot be properly derived therefrom

– Where the assessee has, on its own, estimated a lower amount of addition or disallowance on the issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance

– Where the assessee had maintained information and documents as prescribed under Section 92D, declared the relevant international transaction and disclosed all the material facts relating to the transaction

– Where the undisclosed income is on account of a search operation and penalty is leviable thereon.

Following further amendments have been proposed:-

– In case of company, firm or local authority, the tax payable on under reported income shall be calculated as if the under-reported income is the total income, however, in any other case, the tax payable shall be thirty per cent of the under-reported income

– Addition or disallowance of an amount shall not form the basis for imposition of penalty, if such addition or disallowance has formed the basis of imposition of penalty in the case of the person for the same or any other assessment year.

– Consequential amendments shall be made in Sections 119, 253, 271A, 271AA, 271AAB, 273A and 279 to provide reference to newly inserted Section 270A.

The above amendments are proposed to remove the existing ambiguity for levy of penalty on concealment of income and provide required certainty. Removing the discretionary powers of the Assessing Officers would certainly reduce corruption and red-tapism. However, the definition of understatement and misstatement might lead to frivolous litigation.

These amendments will take effect from 1st day of April, 2017 and will, accordingly apply in relation to assessment year 2017-2018 and subsequent years.

India Budget Series

AMENDMENT OF SECTION 271AAB

As per the existing provisions, where search has been initiated, the general clause of penalty ranges from 30% to 90% of the undisclosed income.

It is proposed to amend the rate of penalty to 60% of such undisclosed income.

These amendments will take effect from the 1st day of April, 2017.

India Budget Series

AMENDMENT OF SECTION 272A

It is proposed to amend Section 272A(1) to further levy penalty of Rs. 10,000 for each default or failure to comply with a notice issued under sub-section (1) of Section 142 or sub-section (2) of Section 143 or failure to comply with a direction issued under sub-section (2A) of Section 142, wherein the authority to levy the penalty shall vest with income tax authority issuing such notice or direction.

Consequential amendment shall be made to Section 288 to include the above mentioned amendment.

These amendments will take effect from the 1st day of April, 2017 and will, accordingly, apply in relation to the assessment year 2017 -2018 and subsequent years.

India Budget Series

PROVISION FOR BANK GUARANTEE UNDER SECTION 281B

As per the existing provisions of the Act, the Assessing Officer may provisionally attach any property of the assessee during the pendency of assessment or reassessment proceedings, for a period of 6 months with the prior approval of the specified income- tax authorities, if he is of the opinion that it is necessary to do so for the purpose of protecting the interests of the revenue. Further, the attachment is extendable to a maximum period of 2 years or 60 days after the date of assessment order, whichever is later.

It is proposed that the provisional attachment of property could be substituted by a bank guarantee subject to fulfilment of certain conditions. In this regard, the following propositions to be considered:-

– The Assessing Officer shall revoke provisional attachment of property in case assessee furnishes a bank guarantee from a scheduled bank for an amount not less than the fair market value of such provisionally attached property or for an amount which is sufficient to protect the interests of the revenue

– The Assessing Officer may make reference to Valuation Officer to determine the fair market value of property, who is required to submit a report of valuation to Assessing Officer within 30 days from the date of receipt of such reference

– The Assessing Officer shall pass an order revoking the attachment of property within 15 days of receipt of guarantee from the assessee, however, if a reference is made to a Valuation Officer, within 45 days of receipt of such guarantee

– The Assessing Officer may invoke the bank guarantee to recover the demand amount specified in notice served to assessee if the assessee fails to pay such amount within the period specified in the notice

– Where an assessee fails to renew the bank guarantee or fails to furnish a new guarantee from a scheduled bank for an equal amount, 15 days before the expiry of such guarantee, the Assessing Officer may in the interests of the revenue, invoke the bank guarantee. The amount realised by invoking the bank guarantee shall be utilised against the existing demand which is payable and the balance amount, if any, be deposited in the Personal Deposit Account of the Principal Commissioner or Commissioner in the specified branch

– If the Assessing officer is satisfied that the bank guarantee is not required anymore to protect the interests of the revenue, he shall release that guarantee forthwith.

These amendments will take effect from 1stday of June, 2016.

India Budget Series

ASSUMPTION OF JURISDICTION OF ASSESSING OFFICER

As per existing provisions of Section 124 (3), person shall be entitled to call in question the jurisdiction of an Assessing Officer in a case where notices are issued under Section 153A or Section 153C which relate to assessment in cases where a search and seizure action has been taken or cases connected to such cases. Further, there have been instances wherein the jurisdiction of an Assessing Officer in such cases has been called into question at the appellate stages.

Thus, it is proposed to provide that cases where search is initiated under Section 132 or books of accounts, other documents or any assets are requisitioned under Section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of Section 153A or sub-section (2) of Section 153C or after the completion of the assessment, whichever is earlier.

This amendment will take effect from the 1st day of June, 2016.

India Budget Series

LEGISLATIVE FRAMEWORK TO ENABLE AND EXPAND THE SCOPE OF ELECTRONIC PROCESSING OF INFORMATION

In order to enable and expand the scope of electronic processing of information, following proposals shall be considered:

-Adequate legislative backing for processing of information and documents so obtained shall be provided to Assessing Officer.

-Assessing Officer shall reopen the case under Section 147 on the basis of the information received or documents obtained pursuant to Section 133C.

-Further, the scope of adjustments at the time of processing of returns under Section 143 (1) has been expanded. It is proposed that adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A. However, before making any such adjustments, intimation shall be given to the assessee to reply as to why no adjustments shall be made. However, if no response is received within thirty days of issue of such intimation, the processing shall be carried out incorporating the adjustments.

The above amendment has expanded the scope of adjustment and also fixed a certain time-frame for response which is welcomed.

These amendments will take effect from the 1st day of June, 2016.

India Budget Series

IMMUNITY FROM PENALTY AND PROSECUTION IN CERTAIN CASES

As per new Section 270AA, It is proposed that an assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty under Section 270A and initiation of proceedings under Section 276C only if he pays the tax and interest payable as per the order of assessment or reassessment within the specified period and does not prefer an appeal against such assessment order.

The assessee can make such application within 1 month from the end of the month in which the order of assessment or reassessment is received in the form and manner, as may be prescribed.

It is proposed that the Assessing Officer shall, on fulfillment of the above conditions and after the expiry of period of filing appeal as specified in sub-section (2) of Section 249, grant immunity from initiation of penalty and proceeding under Section 276C if the penalty proceedings under Section 270A has not been initiated on account of misrepresentation or suppression of facts, failure to record investments in the books of account, claim of expenditure not substantiated by any evidence, recording of any false entry in the books of account, failure to record any receipt in books of account having a bearing on total income or failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction.

It is proposed that the Assessing Officer shall pass an order accepting or rejecting such application within a period of 1 month from the end of the month in which such application is received, after giving an opportunity of being heard. The order passed by the Assessing Officer under the said Section shall be final.

It is proposed that no appeal under Section 246A or an application for revision under Section 264 shall be admissible against the order of assessment under Section 143 (3) or reassessment under Section 147, in a case where an order under Section 270AA has been made accepting the application.

It is further proposed that in case where the assessee makes an application under Section 270AA seeking immunity from penalty and prosecution, then, the period beginning from the date on which such application is made to the date on which the order rejecting the application is served on the assessee, shall be excluded for calculation of the 30 days which is required to file an appeal before the Commissioner (Appeals) from the receipt of the notice of demand relating to an assessment order.

These amendments will take effect from the 1st day of April, 2017 and will, accordingly, apply in relation to the assessment year 2017 -2018 and subsequent years.

India Budget Series

PROVIDING TIME LIMIT FOR DISPOSING APPLICATIONS MADE BY ASSESSEE UNDER SECTION 273A, 273AA OR 220(2A)

Section 220 (2A) provides for reduction or waiver of interest amount by various authorities. Section 273A provides for reduction or waiver of penalty amount, stay or compounding of recovery proceedings of penalty amount, by Principal Commissioner or Commissioner. Also, Section 273AA provides for grant of immunity from penalty by Principal Commissioner or Commissioner under certain circumstances.

All the above mentioned grants are available on an application made by an assessee.

Under the above existing provisions, no time limit has been provided regarding the passing of orders by the authorities and further, an opportunity of being heard is not provided to the assessee in case of rejection of application

It is proposed to amend Section 220, Section 273A and Section 273AA to provide that an order accepting or rejecting the application of assessee, by the prescribed authorities, shall be passed within 12 months from the end of the month in which the application is received. Further, it is proposed that no order rejecting the application shall be passed without giving an opportunity of being heard.

It shall be noted that in respect of applications pending as on 01.06.2016, the order under relevant sections shall be passed on or before 31.05.2017.

The amendment is proposed to reflect the transparency in tax system.

The above amendments shall take effect from 01.06.2016

India Budget Series

PROVIDING LEGAL FRAMEWORK FOR AUTOMATION OF VARIOUS PROCESSES AND PAPERLESS ASSESSMENT

In order to enhance efficiency and reduce the compliance burden, the following proposals are made:-

It is proposed to amend sub-section (1) of Section 282A so as to provide that no mandatory signature of the authority in manuscript shall be required to issue notice or other document and the same shall be issued either in paper form duly signed or communicated in electronic form in accordance with procedures as may be prescribed

It is further proposed to amend Section 143 (2) to provide that notice shall be issued by the prescribed authority, either to attend the office of the authority or produce any evidences before the authority on which the assessee may rely in support of the return. However, no notice shall be issued after the expiry of 6 months from the end of financial year in which return is furnished

It is proposed to amend Section 2 by inserting new clause 23C to define the word “hearing” to include communication of data and documents through electronic mode

It is proposed to expand the scope of adjustments that can be made under Section 143(1), which are as follows:-

– Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed is furnished beyond the due date specified under sub-section (1) of Section 139;

– Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return

– Disallowance of deduction claimed under Sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or Section 80-IE, if the return is furnished beyond the due date specified under Section 139(1).

– Addition of income appearing in Form 26AS or Form 16A or Form 16 but not included in computing the total income in the return.

However, the above adjustments shall be made only after intimating assessee and on intimations, response, if any, given by assessee shall be considered while making the adjustments, only if it is received within 30 days of intimation.

These amendments will take effect from the 1st day of June, 2016

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