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CA Umesh Sharma

Arjuna (Fictional Character): Krishna, After demonetization of currency, the government has sent notices to tax payers. It is said that there are certain rights given to Income Tax officers to verify the answers of notices and to conduct the further inspection. what are they?

Krishna (Fictional Character):  Arjuna, several malpractices has been occured during demonetization period. CBDT have sent online notices from 1st February 2017 to the person whose amount of cash deposited is not matching with their Income tax profile. Government have sent notices to 18 lakh people from which only approx. 9 Lakh people have responded and given answers. For the further procedure, government has introduced a internal circular dated 21st February 2017. Cases meeting the low-risk criteria will be closed centrally. Cases which are not closed automatically will be pushed in batches to the AO for verification. Even letters are sent to the person who have not responded to the online notices.  The information of how to answer this notices was given in the Clash of Clans Part-1. Now the Clash of Clans Part-2 tells it’s time of income tax officers to take verify and take action.

Arjuna: Krishna, How the inspection procedures will be conducted by Income tax Department?

Krishna:  Arjuna, Income tax Department will carefully examine information given by the tax payers. This is not a scrutiny or intensive inspection. There is no need of going to Income Tax Department. The information is to be given on online portal. The assessing officer have two options if he satisfied with the answers given then it will be Acceptable otherwise it will be marked as Not Acceptable. If the assessing officer’s remark is Not Acceptable then information related undisclosed income and comment thereon is to be given on the portal. The assessing can demand for extra information from the tax payers if needed. It is reiterated that no independent enquiry or third party verifications are required to be made by the assessing officer. The Income tax officer will not give any warning to the tax payers. The Not Accepted cases will go to Directorate of System for further inquiry. The cases will be rejected if the information is not provided which are demanded by the assessing officer. This online enquiry is to be finished as soon as possible because the tax payers can take part in “Pradhan Mantri Garib Kalyan Yojna“.

Arjuna: Krishna, The tax payers were asked 7 questions while giving answer on the online portal. How the assessing officer will take decision on these question.

Krishna: Arjuna, The assessing officer has given two option to Acceptable or Not Acceptable. For taking decision, the following things will be considered by Assessing Officer.

1. Cash out of earlier income and savings- In case of an individual is not having any business income, no further verification is required to be made if total cash deposit is up to Rs. 2.5 Lakhs. If the deposited amount is more than Rs. 2.5 Lakhs than the assessing officer will verify the answer given by the tax payer, withdrawals from bank, Income tax return of previous year, source of income etc. If the tax payer is having business income and the deposited cash is less than the cash appearing on 31st March 2016 than no further verification will be done. If assessing officer thinks that the tax payer have revised their previous year returns and increased their Cash in hand than further enquiry will be done. If the tax payer is having business income and the deposited cash is more than the cash appearing on 31st March 2016 thananswer given by the tax payer, source of income, income tax return of previous year, etc. will be checked. If the tax payer had taken part in IDS scheme and deposited cash than no further inquiry will be done.

2. Cash out of receipts exempt from tax – If the tax payer had chosen this option and there is no related information in the income tax return of the previous year then the Assessing Officer will demand information. For example if there is agricultural income than information of land holding and its proof is to be given.

3. Cash withdrawn out of bank account – The Assessing Officer can ask for passbook or bank statement from that information like name of the account holder, dates and amount will be checked from the answers given by the tax payers whether it is right or wrong.

4. Cash received from identifiable persons (with PAN) – The persons who have given PAN information and if it is not tallied with the PAN holder database then Assessing Officer can ask for additional information. In case of a gift, it may be seen whether the same is taxable in the hands of the recipient or not.

5. Cash received from identifiable persons (without PAN) – The Assessing Officer will verify income tax return of previous year, nature of business and last year’s information of the tax payer. If necessary, the AO can ask for any additional information.

6. Cash received from un-identifiable persons – If the tax payer had chosen this option than the cash sales is tallied with the return of previous year. The AO may seek relevant information e.g. monthly sales summary (with breakup of cash sales and credit sales), relevant stock register entries, bank statement etc. Even a Policy is lgiven to identify cases of back-dating of cash sales or fictitious sales like there is Abnormal jump in the cash sales during the period Nov to Dec 2016 as compared to earlier history, Non-availability of stock or attempts to inflate stock by introducing fictitious purchases, depositing cash during  last days of demonetization etc.

7. Cash disclosed under Pradhan Mantri Garib Kalyan Yojna Whether the cash was actually disclosed under the scheme will be verified.

Arjuna: Krishna, What will happen to the tax payer who had not given any answer to these online notices?

Krishna: Arjuna, in case no information was given by the tax payer even after receiving letter from the income tax officer than the information of income tax return of previous year, TDS, AIR notice, CIB, will be collected and survey can be done.

Arjuna: What taxpayers should learn from this?

Krishna: Arjuna, the government is trying to catch the tax evaders. The government has given the right to verify these cases to the assessing officer. Government is trying to make it simple and clear by using online system. But it should not lead to any misuse. The tax payer should give answer as soon as possible if not given earlier. The tax evaders and the person who behaved like they are trying to avoid the tax, be ready to face the further action. It is the start of Cash War 2. Let’s wait and watch how much tax is collected from this.

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Author Bio

1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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July 2024