Self reporting of Tax Bases & Acknowledgment [Section 148 & 154]
1. Similar to the concept of filing return of income, taxpayers have been required to file ‘Return of Tax Bases’ (‘RTB’)
2. The RTBs have to be filed on or before:
• 30th June – If the person is not a company and does not derive income from business
• 31st August – In all other cases
3. The RTB form that would be prescribed would require persons to give the following information:
• Income exempt from tax
• Assets of the prescribed nature and value
• Bank account and credit card held
• Expenditure exceeding prescribed limits
• Such other outgoings as may be prescribed
4. A return can be revised within 21 months from the end of the financial year or before completion of assessment, whichever is earlier.
5. On receipt of any RTB, the Department or any other authorized person shall issue an electronic acknowledgment for receipt of return.
6. To enforce compliance from taxpayers who do not voluntarily file tax returns, the government has introduced the concept of issuance of notices to stop-filers and non filers.
7. The Code has introduced the scheme for taxation of unincorporated bodies, that is, partnership firm, association of persons etc.
8. The power of rectification in an order of any mistake apparent from the record have been curtailed to two years.
9. Whether the spirit of the DTC and provisions of section 148 require mandatory filing of return in India of persons whose income is not taxable in India on account of availing beneficial provisions, such as the Tax Treaty need to be examined.
Selection of RTB for scrutiny assessment [Section 156]
10. The RTB filed would be selected for scrutiny in accordance with the risk management strategy framed by the CBDT. Such risk management strategy shall not be revealed to any person.
11. The Department shall communicate with the taxpayer in writing within 4 months from the end of the financial year in which return was filed, regarding selection of case for scrutiny.
12. The department shall not send any notice of demand under section 168, if the return is processed after the expiry of twelve months from the end of the month in which the return was filed.
13. Basis of selection of return kept anonymous. It seeks to indicate that the government seeks to keep its source of information (such foreign banks, local and federal governments etc) guarded so as to enable future flow of information. Exchange of information under tax treaties could assume greater significance in future scrutiny assessments.
Assessment by the Assessing Officer [Section 162]
14. The AO shall by an order in writing make a scrutiny assessment of the tax bases after taking into account various information and reports.
15. Based on the scrutiny assessment, AO shall determine tax payable or refundable.
16. Where the variation or adjustment equal to or more than 25 Lakh Rupees, the AO shall pass a draft order • On receipt of the draft order shall within 30 days file his acceptance to the variations or file objection with the DRP or the AO.
17. The AO shall pass the assessment order, within 1 month from the end of the month in which acceptance is received or the thirty 30 day period to file objection expires.
18. Where the taxpayer had preferred to approach the DRP, the AO shall pass an order in accordance with the directions of the DRP.
19. Any order of assessment has to be passed within 21 months from the end of the month in which the RTB has been filed.
20. An order of the AO, pursuant to the directions of the DRP is appeallable only before the Appellate Tribunal.
21. Extension of the benefit of approaching the DRP in all cases where the adjustment is not less than INR 2.5 million should be a welcome step. The benefits of this scheme would depend on the timeline within which orders would be passed by the DRP and their effectiveness.
Direction for assessment by Dispute Resolution Panel [Section 165]
In this modern world, mediation and the Alternative Dispute Resolution System are the key words to avoid protracted litigation. With a view to align itself with the best international ADR practices, the government has introduced the concept of the Dispute Resolution Panel in the Finance Bill 2009. Taking a step further in this direction, the government has incorporated the DRP as a part of the Code and also extended its application to domestic assessments.
22. For its review, the DRP may call for documentation relating to the draft order under section 162 and make further enquiries • DRP shall pass an order directing the AO to complete the scrutiny assessment.
23. DRP shall confirm, reduce or enhance the variations; but shall not set aside any proposed variation or issue any direction for further enquiry and passing the assessment order.
24. No direction shall be issued after nine months from the end of the month in which the draft order was forwarded to the taxpayer.
25. No direction shall be passed, without giving an opportunity of being heard where such directions are prejudicial to the interests of the taxpayer.
26. The DRP also has the authority to enhance the adjustment, which means taxpayers would be wary of approaching the DRP, whose order is not directly appeallable.
Re-opening of assessment [Section 166]
27. The AO shall, for reasons to be recorded in writing, reopen a case for re-assessment, if he has reason to believe that any tax base liable to tax has escaped assessment for the relevant financial year.
28. The tax base shall be deemed to have escaped assessment in interalia the following cases, where:
• The tax base has been understated or under-assessed;
• The tax bases have been assessed at too low a rate;
• Tax base has been made subject to the relief to which the taxpayer is not entitled under this code;
• Excessive loss or depreciation allowance or any other allowance has been computed;
• Claimed excessive losses, deduction, allowance or relief, in the return
• Computation has not been made in accordance with any order, direction, instruction or circular issued by the CBDT.
• Comptroller & Auditor General has raised objections
• Material has been obtained in pursuance to a search & seizure or requisition in the hands of/ from the taxpayer or any other person.
29. Notice can be issued for seven financial years:
• Preceding the financial year in which search & seizure has been carried out; or
• From the end of the financial year in any other case.
30. An order for re-opening shall be passed within 21 months from the end of the financial year in which search/ seizure or requisition takes place or information is made available.
31. Provisions relating to re-opening of assessments seem to have been rationalized. However, re-opening of cases due to non-compliance with circulars, directions and instructions of the CBDT seem draconian in nature.
Appeal to the National Tax Tribunal and Supreme Court [Section 192 & 193]
32. An appeal lies to the NTT against the order of the Appellate Tribunal
33. There is no appeal to the jurisdictional High Court
34. The powers & functions of the NTT shall be as set out in the National Tax Tribunal Act, 2005
35. An appeal lies to the SC against the order of the NTT only on obtaining a certificate of fitness by the NTT.
36. Tax shall be payable notwithstanding that an appeal has been preferred to the NTT/ SC.
37. There is no time limit set for the NTT/ SC to pass an order. Hence, the collection of taxes on filing the appeal before the NTT/ SC seems to be unfair to the taxpayer and against the spirit of the code. However, it seems that the right of the tax payer to seek a stay from the NTT or SC depending on the facts of each case has not been vitiated.
38. Situations where there could be difference of opinion between the Appellant and the NTT have not been specifically addressed in the DTC.
Time limit for the Authority for Advance Ruling to pass an order [Section 252]
39. The AAR shall pronounce its ruling within 6 months of receipt of application.
40. Other provisions relating to obtaining advance rulings remain largely unchanged.
41. This is definitely a welcome step, as it provides certainty to the tax payer in a time-bound manner.