1. IMPLEMENTATION OF IND-AS AND THEIR IMPACT ON TAXABLE INCOME
IND-AS (Indian version of IFRS) accounting standards are being implemented with effect from previous year commencing on 1st April, 2015 based on fair value, permitting recognition of unrealised income and anticipated unrealised losses and various other implications on book profit, turnover as well as income levels.
These provisions may substantially change assets, liabilities, turnover, provisions, income recognition, notional gains and notional losses impacting book profit as well as income figures. It is therefore proposed that till such time the taxation department as well as assessee are able to understand the real impact on taxable income and book profit, the present status quo need to be maintained. Implementation without deeper study of the impact may give rise to avoidable litigation.
2. TAX DEDUCTION AT SOURCE-SIMPLIFICATION
This is another very important area, where procedural provisions impact a substantial number of assessees. There is scope for improvement in the system to take care of the following situations often encountered by the tax payers:
a. Any errors made while depositing the TDS should be allowed to be rectified by Deductor.
b. Tax Deductor to inform the Deductee about deduction by SMS or email.
c. Merger or demerger or restructuring: The TDS to be transferred to resulting company in terms of Scheme approved by High Court. Form 26AS, OLTAS, ITD data to amend on electronic amendment application by centralized software system.
d. TDS return filing and rectification software to be directly accessed by assessee, similar to Income Tax Return. No need for TIN centers.
e. TDS returns are processed quarterly. Any extra TDS paid by mistake should be permitted to be requested electronically for refund. Request should be processed electronically in a time bound manner.
f. Rectification of TDS returns to be permitted without any restriction, to facilitate Deductee to get credit. No prosecution should be launched where tax being deposited late is so done alongwith interest and where the same has been paid voluntarily within 12 months from the date of deduction.
g. The deductor should include full details of deductee including name and address as well as details of payment in the TDS return in respect of any deductee who has not submitted PAN details and consequently where tax was deducted © 20%. Where deductor is not able to rectify the TDS return, the deductee should be permitted to obtain PAN at any time and take credit for TDS, if he files his income tax return and an electronic application is made for rectification of TDS.
h. While data is being punched in the return of TDS, software should be competent to have an electronic pop up of name of the Deductee as soon as any PAN number is punched in the TDS return. This will reduce chances of mistakes.
i. Electronic request with proof of payment of tax or 26AS credit to be processed within 15 days. Solutions/queries can be emailed and processed with no human interface. In case there is no response, the help desk shall render assistance in this regard.
j. Where there are small tax demands (less than rupees five thousand in each case) which are outstanding for more than 5 year old and the department is not able to trace the proper records, the Government may consider writing off the demand. This will eliminate the outstanding arrears in about 1.5 crore cases. In other cases also where sufficient record is not available with the department there should be a mechanism for writing off of the demands.
k. In case where the income or amount is credited or paid in the month of March, instead of the current time limit of 30 days until 30th April, it has been proposed that an enhanced time limit of 45 days, until 15th May be allowed for payment of tax deducted, for better compliance. It is further recommended that in such cases if the tax, along with interest is paid by 30th June of the relevant assessment year, no penalty proceedings should be initiated. This will help correction of mistakes of assessee found during audit or finalization of accounts.
l. In all cases of non payment of tax deducted at source to the government for a period of 12 months from deduction, prosecution should be initiated to protect deductee’s interest, unless the full TDS amount along with interest is paid by the deductor before the initiation of prosecution. Penalty proceedings are in any case required to be initiated in such cases.
3. TRANSPARENCY IN TAX ADMINISTRATION – E- GOVERNANCE
The Committee agreed in principle that the Government should aim to complete most of the taxation processes electronically so as to eliminate human interface. E-Governance may be considered for implementation in the following fields also:
a. Filing of Income tax returns
b. Rectification of mistakes
c. Appeal
d. Refund
e. Transfer of Jurisdiction
f. Assessment including scrutiny assessment
g. Processing of Returns, TDS Returns, request/applications under various sections and rectifications
h. Appeals
The Committee also agreed in principle that all communications to and from tax department should be undertaken electronically. There should be a system for monitoring online submission of replies to queries and it should be under the guidance of senior officers.
The Committee also recommends that electronic technology is needed to be put in place for:
a. Selection of cases for scrutiny
b. Issue of notices for scrutiny assessments
c. Preparation of questionnaire for scrutiny assessments
d. Submission of reply by the assesses
e. Seeking of additional information/clarification by the Assessing Officer
f. Response on additional information and supporting details
g. Issue of show cause notice in respect of proposed additions/ disallowance by the Assessing Officer
h. Final submission and issue of assessment orders
4. SYSTEM ISSUES
The IT software needs to be strengthened to ensure that the following issues are resolved:
a. Tax Deducted at Source reflected in 26AS not reflected in OLTAS
b. TDS reflected in 26AS and OLTAS are not reflected in Income Tax Department System (ITD).
c. Even self-assessment tax and advance tax challans, are at times, not reflected in ITD and OLTAS for many years.
5. ISSUE OF PAN TO NON RESIDENTS
Currently, the Government of India is accepting self attested documents for several purposes and does not insist on getting the same attested by prescribed authorities.
However, non-residents are facing practical difficulties on account of the current requirement of getting the documents attested by consular authorities. In many cases the Indian Embassies may be located far away from their place of residence. To remove this difficulty it is recommended that documents for issuance of PAN may be allowed to be self attested or notarized.
6. ADJUSTMENT OF REFUNDS
It is settled by several judicial pronouncements that where any demand outstanding against the assessee relates to a point, which stands squarely covered by a decision in favour of the assessee, such demand cannot be adjusted against any refund due to the assessee. Courts have logically explained in this regard that the assessee in such a case would have been undisputedly entitled to stay on recovery of such demand and merely because the Department is in possession of the assessee’s funds due to him as his legitimate refund, the same cannot be adjusted against such a demand.
The revenue cannot defend such erroneous adjustments merely on the ground that the system does not provide for any such mechanism. Suitable system shall be required to be put in place to provide remedy keeping in mind that the assessee’s money is being adjusted without the authority of law.
7. INSTRUCTIONS TO ENSURE FAIRNESS IN THE APPLICATION OF SECTION 14A
(A) The Committee recommends that suitable instructions may be administratively issued by the CBDT to the Assessing Officers that they should adequately record their satisfaction or otherwise in the assessment order while invoking the section.
(B) The Committee is aware that in some cases disallowance of interest is made on the ground that the borrowings are made in relation to exempt income even where the assessee on the basis of the books of account and other records is able to demonstrate that the borrowings were not used to make investments earning tax-free income. This situation can be taken care of by the CBDT by issuing suitable instructions to the Assessing Officers.
8. AMENDMENT OF RETURN FORM TO PROVIDE COLUMN FOR MAKING DISCLOSURES
The existing return forms do not have any column enabling the assessee to disclose his view point regarding certain claims for deductions, exemption, etc. Non disclosure of bona fide views may result in imposition of penalty. The committee has received suggestions that adequate space should be provided in the return form to enable the assessee to submit his view point and justification of his claim. It is there recommended that the return forms be suitably amended. This will also be necessary to meet the requirement of declaration of the bona fide view of the assessee in order to avoid penalty as recommended by the Committee in the proposed section 273B(2).
The recommendation are very positive and beneficial for both assessee and the department to reduce the complexity and burden of litigation and also cost. The Government and department should take early action to regulate them through issuing timely circulars and notification.