(1) Preamble to the article:
In order to bring harmony and uniformity between taxpayers and Income tax department for the true and correct determination of tax dues payable by assessees and to bring reduction in certain degree to prolonged litigation and lengthy procedural matters pendency before various judicial authorities and bringing consensus ad idem between assessee and department and eliminating the hardship & deprivation faced by assessee. Hon’ble Finance Minister Smt. Nirmala Sitharaman hereby laid down and proposed before the respectable Parliament “THE FINANCE BILL, 2022” underneath appended to clause 38 & clause 39 which will govern this provision by formation of amendment in Section 139 of Income Tax Act, 1961, and insertion of new Section 140B under the ambit of Income Tax Act, 1961, which will provide an additional machinery to file an updated return within 24 months from the end of relevant assessment year. This move by Central Government allows taxpayers to correct anomalies in their respective Income Tax Returns which happened due to inadvertent and inappropriate reported of financial material on record with Income Tax Department.
(2) Consequential amendment in Section 139 of I.T.ACT, 1961 and it related impact:
By virtue of clause 38 of Finance Bill, 2022, it has been proposed that sub-section (8A) will be inserted. This sub-section structured based on The Mischief rule or Heydon’s rule of Interpretation, it cured mischief or defect as currently assessee does not have any machinery available to file updated return that was self-assessed and furnished earlier under sub section (1)/ (4) or (5) of Section 139 of Income Tax Act,1961, after conclusion of assessment year. This sub-section states that whether any person (Trust, AOP/BOI, Company etc.) furnished return of Income or not for relevant assessment year, person may furnish an updated return of Income within period of 24 months from end of relevant assessment year. Bare text of the section enumerated below: –
In section 139 of the Income-tax Act,–– (i) after sub-section (8), the following sub-section shall be inserted, namely:–– “(8A) Any person, whether or not he has furnished a return under sub-section (1) or sub-section (4) or sub-section (5), for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under this Act, for the previous year relevant to such assessment year, in the prescribed form, verified in such manner and setting forth such particulars as may be prescribed, at any time within twenty-four months from the end of the relevant assessment year
It is subject to some Provisos enumerated below: –
(a) is a return of a loss; or
(b) has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1) or sub-section (4) or sub-section (5); or
(c) results in refund or increases the refund due on the basis of return furnished under sub-section (1) or sub-section (4) or sub-section (5), of such person under this Act for the relevant assessment year:
It is noted that above aforesaid proviso disentitled the persons and limited the scope to those persons were based on material apparent on return, it’s evident that it’s reported as loss in return or which may initiate in curtailment of tax liability or may result in refund or surge in refund. Due diligence shall be done by assessee whether if return result in these circumstances, he shall proceed to file the respective Income Tax Return as per applicable statutory deadlines.
Provided further that a person shall not be eligible to furnish an updated return under this sub-section, where–– (a) a search has been initiated under section 132 or books of account or other documents or any assets are requisitioned under section 132A in the case of such person; or
(b) a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case such person; or
(c) a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person; or
(d) a notice has been issued to the effect that any books of account or documents, seized or requisitioned under section 132 or section 132A in the case of any other person, pertain or pertains to, or any other information contained therein, relate to, such person, for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and two assessment years preceding such assessment year:
Further, second proviso appended to Section 139(8A) aforesaid restricted the class or class of persons to file updated return for whom search operations was initiated u/s 132 or books of accounts and other documents has been requisitioned u/s 132A; or
Survey proceedings initiated earlier by Income Tax Authorities u/s 133A; or
Where a notice has been issued to seize money, bullion, jewellery or other valuable article or requisitioned u/s 132 or 132A in case it’s belongs to any other person; or
Where a notice has been issued to seize books of accounts or documents seized or requisitioned u/s 132 or u/s 132A in case it’s belongs to other person, pertain, or pertains other information for such person where search initiated, or survey conducted, or requisition made during the relevant assessment year and previous 2 assessment year under consideration.
Provided also that no updated return shall be furnished by any person for the relevant assessment year, where–– 53 (a) an updated return has been furnished by him under this sub-section for the relevant assessment year; or (b) any proceeding for assessment or reassessment or recomputation or revision of income under this Act is pending or has been completed for the relevant assessment year in his case; or (c) the Assessing Officer has information in respect of such person for the relevant assessment year in his possession under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 or the Prohibition of Benami Property Transactions Act, 1988 or the Prevention of Money Laundering Act 2002 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and the same has been communicated to him, prior to the date of furnishing of return under this sub-section; or (d) information for the relevant assessment year has been received under an agreement referred to in section 90 or section 90A in respect of such person and the same has been communicated to him, prior to the date of furnishing of return under this sub-section; or (e) any prosecution proceedings under the Chapter XXII have been initiated for the relevant assessment year in respect of such person, prior to the date of furnishing of return under this sub-section; or (f) he is such person or belongs to such class of persons, as may be notified by the Board in this regard.”; 13 of 1976. 45 of 1988. 15 of 2003. 22 of 2015. (ii) in sub-section (9), in the Explanation, after clause (c), the following clause shall be inserted, namely:–– “(ca) the return is accompanied by the proof of payment of tax as required under section 140B, if the return of income is a return furnished under sub-section (8A);”
Furthermore, third proviso appended to Section 139(8A) restricts the persons to file updated return as cited in Finance Bill, where: –
a) Updated return already furnished for the relevant assessment year; or
b) Where any proceedings for assessment, reassessment of income or revision or re-computation of income, pending or completed, by assessing officer; or
c) Where assessing officer collated information for any violation/contravention of the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 or Prohibition of Benami Property Transaction Act, 2002 or Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015; or
d) Where information has been received under agreement referred to u/s 90 or 90A; or
e) Where any prosecution proceedings under Chapter XXII have been initiated for assessment year prior to furnishing return of income.
(3) Insertion of Section 140B under I.T.ACT, 1961 and it related impact:
By virtue of Clause 39 of Finance Bill 2022, it has been proposed that Section 140B will be inserted, by literal construction of this section it provides for levy of additional Income tax payable by assessee and return shall be accompanied by proof of payment of tax. This section takes into consideration the circumstances, where within the meaning of sub-section (1) of Section 140B no return of income has been filed under sub-section (1)/ (4) or (5) of section 139, or within the meaning of sub-section (2) of section 140B return of income has been filed under sub-section (1)/ (4) or (5) of section 139.
Statue provides that under sub-section (1) of section 140B of Income Tax Act, 1961, where no return of income has been filed under sub-section (1)/ (4) or (5) of section 139, assessee shall compute the tax payable after taking into account, –
(i) the amount of tax, if any, already paid as advance tax;
(ii) any tax deducted or collected at source;
(iii) any relief of tax claimed under section 89;
(iv) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;
(v) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and
(vi) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD
Further under this sub-section,
the assessee shall be liable to pay such tax together with interest and fee payable under any of the provisions of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, along with the payment of additional income-tax computed in accordance with sub-section (3), before furnishing the return and the return shall be accompanied by proof of payment of such tax, additional income-tax, interest and fee.
Statue further provides that under sub-section (2) of section 140B of Income Tax Act, 1961, where return of income has been filed under sub-section (1)/ (4) or (5) of section 139, assessee shall compute the tax payable after taking into account, –
(i) the amount of relief or tax referred to in subsection (1) of section 140A, the credit for which has been taken in the earlier return;
(ii) tax deducted or collected at source, in accordance with the provisions of Chapter XVII-B, on any income which is subject to such deduction or collection and which is taken into account in computing total income and which has not been included in the earlier return;
(iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India on such income which has not been included in the earlier return;
(iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section on such income which has not been included in the earlier return;
(v) any tax credit claimed, to be set off in accordance with the provisions of section 115JAA or section 115JD, which has not been claimed in the earlier return; and (b) as increased by the amount of refund, if any, issued in respect of such earlier return
Further under this sub-section,
the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any default or delay in payment of advance tax along with the payment of additional income-tax, as computed in accordance with sub-section (3), as reduced by the amount of interest paid under the provisions of this Act in the earlier return, before furnishing the return and the return shall be accompanied by proof of payment of such tax, additional income-tax, interest and fee.
Statue also provides under sub-section (3) of section 140B of Income Tax Act, 1961, the determination of quantum of additional income-tax payable at the time of furnishing of return of income, bare text enumerated below: –
(3) For the purposes of sub-sections (1) and (2), the additional income-tax payable at the time of furnishing the return under sub-section (8A) of section 139 shall be equal to,––
(i) twenty-five per cent. of aggregate of tax and interest payable, as determined in sub-section (1) or sub-section (2), as the case may be, if such return is furnished after expiry of the time available under sub-section (4) or sub-section (5) of section 139 and before completion of the period of twelve months from the end of the relevant assessment year; or
(ii) fifty per cent. of aggregate of tax and interest payable, as determined in sub-section (1) or sub-section (2), as the case may be, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty-four months from the end of the relevant assessment year.
Legislative intent by way of introduc92tion of this sub-section clearly articulate on additional quantum of tax payable by assessee, 25% to 50% has been scale up for different circumstances, legislative intent to levy 25% additional income tax of aggregate of tax and interest payable as determined under sub-section (1) or (2) where return furnished before completion of period of 12 months from end of relevant assessment year; or legislative intent to levy 50% additional income tax of aggregate of tax and interest payable as determined under sub-section (1) or (2) where return furnished after expiry of period of 12 months but before completion of 24 months from end of relevant assessment year.
(4) Conclusion:
In light of the aforesaid provisions, introduction of additional machinery will facilitate ease of compliance to the tax payers in a litigation free environment on the one hand and on the other hand resulted in additional revenue realization to Income Tax Department, it’s dilute evocative effect of litigation and show cause notice from Income Tax Department to some degree but this provision pro-revenue favored higher and not in consonance with well settled frame principles, as it not constitutes valid to levy tax on the tax as a additional component, the impugned provisions needs to be see in equity for both department and taxpayers.
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