Analysis of Union Budget 2017 provisions of Income Tax Service Tax Excise Duty Custom Duty with Budget Highlights Commentary Speech, Notification, News & Articles.
The budget 2017 made history of sorts. The shortest budget speech by any finance minister considering the fact that both the Railway and finance budgets were consolidated into one during the presentation. The budget on a plain reading was a very welcome budget and had something for everyone. Yes, something for everyone, which someone does not want too!
Among all the clauses in the finance bill two stands out striking, this is actually detrimental to the economy, tax payer and the intermediary between the tax payer and the tax authorities ie the tax representatives. They are 1. Restriction on the Loss On House Property and 2. Penalty For Furnishing Incorrect Information In Reports Or Certificates.
1. RESTRICTION ON THE LOSS ON HOUSE PROPERTY
Loss from house property is sought to be restricted to Rs.2 lakhs to be set of under other heads of incomes in a year. The reason given by the FM is that since the loss from self-occupied property is restricted to Rs.2 lakhs, so would the loss from house property on rental income too. But the amendment when construed, would give an impression that any assessee is restricted to take only Rs.2 lakhs as loss from house property, and no more even if the assessee has multiple houses, one being a self-occupied property. This is the interpretation which the income tax officer would definitely take, which would bring about crores of additions to many assessees.
Rs.2 lakhs as loss is a very small considering the loans available to assessees and the cost of housing in many parts of the country. This is definitely not in tune to the intentions of the Government to promote houses. On one hand the government is seeking to promote housing and giving sops to construction houses, and on the other hand twisting the arm of the end investor by limiting the deduction on the interest paid on the purchase. This would give a negative impact to the investor to invest in an additional house, or wait till the present loan is completed to get a new loan and acquired the next house.
Historically, culturally and conservatively, investment in house properties is resorted to by the middle class citizens of India as a safe investment and utilizing the tax rebate attached thereto inform of interest deductions u/s.24 of the Act.
The FM has however recommended that the carry forward of the excess of the loss on account of this restriction of 2 lakhs can be carried forward for 8 years. This is no less than applying pain balm to a terminal cancer patient. At any rates, the assessee would definitely losses huge losses from House property o this account. With loans running to 25 years, the interest for the initial years, which increases the threshold limit are bound to be lost in the 8 year limitation period.
Further, the assessee needs to keep a tab of the interest carry forward for so many years and the ease of filing the return is totally lost with the additional details of such carry forward being a part in every return.
Another alternative would have been better the increase in deduction on the loss from self-occupied house property to a suitable level so that more assessees are encouraged to acquire houses. The lease the government could do is to retain the position as it is now and not amend it to the detrimental to the assessees and the middle class. Thus this is the first amendment in the finance bill 2017 which needs to be dropped.
PENALTY FOR FURNISHING INCORRECT INFORMATION IN REPORTS OR CERTIFICATES
The second is the introduction of a new section 271J where in it is proposed that in the course of any proceedings, if the AO or the Commissioner Appeals finds that an accountant or a merchant banker or a registered valuer has furnished an incorrect information in any report of certificate issued under any provision of the act, the officer may ley a penalty of Rs.10,000. This is a totally unwarranted amendment in the act, which can be used in the most prejudicial way by the department and the officers.
A report or a certificate may be wrong for many reasons. There may be intentional and unintentional errors which may be there. All said and done, such erroneous reports are few and far in between. Action needs to be taken on a chronic wrong report/certificate. But such an amendment is not the answer because it would do more harm than addressing the issue effectively.
An ITO or a CIT Appeals is not the appropriate person to sit on judgment on this. The fact that the report is wrong may be evident, but these authorities should not have the right to punish the assessee or the Professional in a blanket way. Furthermore, the plaintiff or the respondent cannot sit on judgment and if done so the decision would be one sided and partial only.
The second threat is the internal audit in the Income Tax department. The audit party may further throw up such instances and insist the penalty be levied, thereby adding fuel to fire.
‘Wrong ‘ is not defined in the Act. It may be a spelling mistake, totaling error, typographical error any other inadvertent error. The section can be interpreted in any manner by the authority and the penalty levied on the assessee. Further the error may be an error of the professional and the assessee has no part in it. Even in such cases the penalty is on the assessee. This will lead to a lot of confusion and ill will amongst the assessees, representatives/professionals and the department, which can be totally avoided.
It is not that there is no redressal mechanism so far for this? No, there is. The existing mechanism of escalating the same to the commissioner, and the commissioner if found the error in the part of the CA or the Merchant banker can complain to the ICAI or SEBI as the case may be is always available. It is also fair that the appropriate bodies go into the matter to ascertain whether the report/certificate is wrong or not or there is any willful and negligence in the part of the professional. The existing mechanism is doing its job fully well and all checks and balances are in place. The erring professional is being punished by the respective bodies and the erring assessee gets his due from the department. This new section is like deviating a passenger train from the tracks in order to save a lone person in the track who is running towards it !
It is unfortunate that the Income tax act seeks to judge all professionals and Merchant bankers that too from the level of an Income Tax Officers. To say a second year ITO judging a senior chartered accountant whose experience is twice the age of the ITO is rather far-fetched. Further with the backlog of cases at the CIT Appeals level, it is unfair to impose this additional duty on them. Furthermore, this provision could be easily misused and many a honest and good assessee / professional would be hit in the cross fire.
The ICAI must take this with the CBDT in full force, objecting to the amendment. A detailed write-up in this regard by the institute and the Merchant Bankers Association would definitely make the government look to their side of the view too. This Government is in a mood to address the genuine concerns of the stake holders, and a proper representation would make them understand the repercussions.
There are quite a few amendments which need to be looked into again by the government, but in my opinion, these two amendments to the finance bill 2017 are totally unwarranted and needs to be removed by the Government at the Bill stage itself. It would do a lot the increase the confidence of the tax paying public and the professionals alike and will do a lot of good to the “ease of doing business” too.
The author is an practicing Advocate in Chennai and can be reached at firstname.lastname@example.org