No penalty under section 76 was leviable if Service Tax was paid belatedly with interest prior to issue of show cause notice

PROFESSIONAL COURIERS V. COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX (Bangalore - CESTAT)

If service tax has been paid belatedly, with interest prior to issuance of show-cause notice, no proceedings can be initiated by the department for levy of penalty under section 76.

The assessee had failed to pay part of the service tax for the quarter ending December 2009 by the due date. However, it had paid the same alongwith the interest on 29-03-2010. The Department issued a show-cause notice for leving penalty under Section 76. On adjudication, penalty was confirmed.

The Tribunal deleted the penalty with following observations:

The High Court in CCE &ST v. Adecco Flexione Workforce Solutions Ltd. [2012] (Kar.) has held that after the payment of service tax and interest, the said information was to be furnished to the authorities, then the authorities won’t serve any notice under sub-sec. (1) of section 73 in respect of the amount so paid. Therefore, authorities have no authority to initiate proceedings for recovery of penalty under section 76. Further the Explanation added to section 73(3) of the Finance Act 1994 by the Parliament vide the Finance Act 2010 consolidates the assessee’s case. Thus, the impugned penalty order was to be set aside. 

Now, rectify your PAN and I-T challans online

The income tax department has eased its lengthy process by enabling online correction of PAN and Challan via TRACES website

Income Tax (I-T) Department’s has eased the process of correction or modifications in PAN and challan. The TDS reconciliation analysis and correction enabling system (TRACES) has eased the lengthy process and becomes more user-friendly and hassle free with few easy steps in correcting errors by enabling online correction of PAN and challan.
The good news is now tax payers do not need to go through a long procedure of filing ‘revised return’ just to change or rectify the PAN details. Tax payers, after logging into their account on TRACES website,can directly file online correction for PAN and challan errors.

The process of correcting PAN and challan errors is described well in E-Tutorials which made it easier. It is also safe and secure as it requires digital signature mandatorily before correcting any errors. Tax payers can register their digital signature in ‘profile’ after registration. TRACES also enables online registration of digital signature.

TRACES can also enable refund of Challan and online verification of Tax deduction at source (TDS) certificate.

TRACES has been set up by TDS centralised processing cell of the income-tax department. Income tax department’s initiative of TRACES is a web-based application which provides an interface to all stakeholders associated with TDS administration. It provides online correction of TDS returns, viewing of challan status, downloading of various conso files, justification report and Form 16 /16A, as well as viewing of annual tax credit statements (Form 26AS).

Retention money isn’t an income of contractor if it has got no rights on it till satisfactory completion of work

DIT (International taxation) v. Ballast Nedam International (Gujarat)

If assessee was awarded a contract in terms of which certain amount was withheld by contractee towards retention money for satisfactory execution of contract, such retention money won’t represent assessee's accrued income

In the instant case the assessee had entered into contracts with the companies for onshore construction and erection activities. In terms of the contracts, amounts at the rate of 10% on the onshore activities and at the rate of 15% on the construction and erection activities were to be withheld by companies towards retention money. The Assessing Officer while framing the assessment held that retention money relating to the satisfactory execution of the contract to be treated as assessee’s accrued income. The assessee, however, contended that it had no right on such retention money till completion of the work and, therefore, the same would have to be recognized only on satisfaction of the terms of the contract. On appeal, the CIT(A) and the Tribunal held in favour of assessee.

The High Court held as under:

• For the purpose of ascertaining whether income had, in fact, accrued, one has to also see whether there is a real income. No matter by adopting any method the assessee maintains his accounts, be it the cash system or be it the mercantile system. However, in both cases unless there is real income, there cannot be any income tax;
• In the instant case also, there was no real income as no debt had been created in favour of the assessee by virtue of the contract and the assessee did not get any right to receive the retention money during the previous year. Thus, it couldn’t be said that income in respect of the such retention money had accrued to the assessee during the previous year;
• A similar question had arisen in case of CIT. v. Simplex Concrete Piles (India) Pvt. Ltd. 179 ITR 8, (Cal.) in which it was held that when there was a clause with regard to retention money, the assessee would get no right to claim any part of the retention money till satisfactory execution of the contract and, therefore, if there was no immediate right to receive the retention money, it couldn’t be said to have accrued to the assessee;
• In the instant case, so far as retention money was concerned, the assessee had no right to receive the same and, therefore, it couldn’t be said that retention money had accrued to the assessee.

Reasons for getting an Income Tax notice

The Income Tax Department has launched a drive to ensure greater tax compliance. In recent months, thousands of taxpayers have been served notices after discrepancies were noted in their tax returns or their TDS details.

This sudden rise in the number of tax notices is not because people have stopped paying tax or filing their returns. It's just that the tax authorities now have an integrated database on taxpayers and can track almost all financial transactions of a person.

The 10-digit alphanumeric PAN, which has been made mandatory for most money transactions, allows the tax department to peek into your financial life.

The PAN not only tells the tax department how much you have earned, but also how you have been spending and investing that money. Besides, the Central Board of Direct Taxes has a computer-aided scrutiny system (CASS), which flags any discrepancy in the tax return filed. Here are some common reasons for the taxpayers getting notices.

Not mentioning PAN or quoting incorrect PAN

The PAN is now mandatory for high value transactions. If you do not submit it while making an investment or taking up a job, your income will be subjected to a higher tax deduction (TDS) of 20 per cent, instead of 10 per cent.

If the PAN is incorrect, you could even be slapped with a penalty of up to Rs 10,000. The bigger problem of an incorrect PAN is that the TDS will not be credited to your account. This often results in an additional tax demand. What's more, the tax refund can be credited to another account if you submit the wrong PAN.

Not checking Form 26AS before filing

The Form 26AS has details of the tax paid by an individual during a financial year. You can easily access your Form 26AS online. Some banks also provide this facility to their Net banking customers. Before you file your return, check whether your Form 26AS has correctly credited the tax deducted on your behalf.

If your bank, bond issuer or employer has deducted TDS, make sure it is mentioned in your Form 26AS. Also, check whether all the investments with TDS have been duly mentioned in the tax return. Any mismatch will lead to a notice from the department.

Mismatch in income and expenses & investments

Financial services firms, registration authorities and merchant establishments are supposed to report certain high-value transactions to the CBDT. The CASS matches this information with the returns filed by the taxpayer and promptly issue a notice if there is a mismatch.

The Income Tax Department gets all information about high-value financial transactions on the basis of the PAN that you submit to your bank, share broker, mutual fund house and registrar of properties. If the income you have declared is not matching your investments and spending, you can get a tax notice.

Not filing returns if income is above Rs 2 lakhs

If your gross taxable income before deduction under any section is above Rs 2 lakhs, it is mandatory for you to file your return. If you don't file it, you can be slapped with a penalty of up to 300 per cent of the outstanding tax. Even if there is no tax liability, the return has to be filed if the income before deductions (tax savings, education loan, home loan, etc) is above the basic tax exemption.

Not filing return by the due date

You can file your income tax return till the end of the assessment year if there is no tax due. For example, the tax return for 2012-13 can be filed till 31 March 2014 without incurring any interest or penalty if all the taxes have been paid. However, if some tax remains unpaid, filing your return after the deadline could lead to a penalty of Rs 5,000. Also, you are not allowed to carry forward your losses if you file after the due date, nor can you revise the tax return.

Not declaring the previous employer's income

This is a common problem and was easily missed by the tax authorities in the past. However, now that the tax database has been integrated, don't think you can ignore your income from a previous job. If your employer deducted TDS on your income, the details would be in your Form 26AS, and the CASS will immediately flag this discrepancy. You can be levied a penalty of up to 300 per cent of the tax evaded.

Avoiding TDS by misusing Forms 15G and 15H

If the interest income on bank deposits exceeds Rs 10,000 a year, the bank deducts TDS. You can avoid TDS by submitting Form 15G or 15H if you are not liable to tax. However, if you are trying to avoid TDS, you can get a notice from the tax department. Submitting a wrong declaration can invite a penalty of Rs 10,000. Splitting the deposits in different banks or bank branches to avoid TDS will not help as the PAN is the same.

Not declaring interest on bank deposits and post office savings

The interest earned on bonds, fixed deposits, recurring deposits and savings accounts is taxable and should be mentioned in your tax return. Up to Rs 10,000 earned on your savings bank account is allowed as a deduction, but it still needs to be included in your total income for the year. Likewise, the PPF interest income is tax-free, but should be included in the exempt income.

The following deductions are available on bank interest: interest on savings account is exempt up to Rs 10,000 for the assessment year 2013-14 & 2014-15. The interest from post office savings is exempt up to Rs 3,500, or Rs 7,000 for joint accounts.

Not responding to intimation/notice from the tax department

Don't ignore the messages and notices from the income tax department. If you do not respond, the interest and penalty keeps on increasing in case of any pending tax liability and the Income Tax Department will take a final decision that may not be beneficial for you.

Capitalism

Economic system characterized by the following: private property ownership exists; individuals and companies are allowed to compete for their own economic gain; and free market forces determine the prices of goods and services. Such a system is based on the premise of separating the state and business activities. Capitalists believe that markets are efficient and should thus function without interference, and the role of the state is to regulate and protect.

High Court presumes existence of culpable mind in not filing return within time; confirms prosecution

ACIT V. NILOFAR CURRIMBHOY (Delhi)

Where assessee had not filed return of income timely, it could be prosecuted under section 276CC on presumption that there existed a culpable mental state as onus to prove that delay was not willful was on assessee and not on department

In the instant case, the assessee had filed the return of income on 1-5-1995 for assessment year 1994-95. The revenue's case was that inspite of several notices issued to assessee, she had filed the return of income beyond the statutory period. Therefore, delay in filing return was willful and deliberate and, thus, she was liable to be prosecuted and punished under section 276CC. However, the trial Court and the Sessions Court discharged the assessee. The revenue then filed the petition seeking reversal of orders of both the Courts.

The High Court held as under:

• It was not in dispute that the assessee had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the revenue had required her to do so. The assessee had not even responded to the communications sent by the revenue requiring her to file return of income or to show the proof of filing. So, the offence under Section 276CC stood committed by that time and for that offence, the department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court; 
• It was for the respondent to establish during the trial that her failure to file return was not willful. The Courts went wrong in going into the question as to whether the explanation offered by the assessee before the filing of the complaint in Court was rightly rejected or not; 
• Once the complaint stood filed, the trial Court was only required to examine whether cognizance was to be taken or not and if it was decided to take cognizance, thereafter, trail Court was required to examine whether in the pre-charge evidence the complainant had been able to show that the assessee had not filed her return for the relevant assessment year within the prescribed period, which fact in the present case was not even disputed by the assessee; 
• So, after raising the presumption under section 278E, the trial Court should have framed the charge against the assessee leaving it to her to show thereafter that there was no willful default on her part. Just because the assessee had applied for the compounding of the offence before the filing of the complaint against her in Court, and the same had not been decided before the filing of the complaint, it could not be said that the complaint was not maintainable; 
• The trial Court was not required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority for compounding, she would have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department; 
• The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trail Court and, therefore, its order also couldn’t be sustained. This petition, accordingly, was allowed. The impugned orders of the trial Court and the revisional Court were set aside. 

High Court denies quashing settlement order; SetCom could verify true and full disclosure made by assessee till its final order

CIT V. INCOME TAX SETTLEMENT COMMISSION (Delhi)

SetCom to decide whether the assessee had made full and true disclosure and indicated the manner in which income was derived, till it passed its final order under section 245D(4)

The instant writ petition was filed by the Revenue against the orders of Commission (SetCom) declining to declare settlement applications of assessees as invalid. Revenue, aggrieved by the orders of commission, was of the view that settlement applications ought to have been held invalid as these applications failed to satisfy the prerequisites of full and true disclosure and the manner in which the undisclosed income had been derived.

The High Court declined to interference with the orders of SetCom and made following observations:

• The foundation for settlement was an application from the assessee in which he was required to make a full and true disclosure but such requirement hadn’t to be examined at the threshold stage of proceeding initiated before the Commission;
• There might be cases where it was possible for the Commission to record a finding that the disclosure made in the application was full and true. At the same time, there could also be situations in which the Commission might not be able to record a finding with certainty at the stage of admission. In such a situation it would be permissible for the Commission to keep the question open, to be examined at a later stage or at the stage of disposal of the application;
• The Commission might, at any stage till it passed a final order under Section 245D(4), examine the issues and if there was sufficient material on record, determine the question of full and true disclosure and the manner in which the undisclosed income was derived and, depending on such a decision, the applications might be thrown out or they might be proceeded with further;
• The proceedings were pending before the Settlement Commission and the final order was yet to be passed by the Commission under Section 245D(4). All the conclusions drawn by the Settlement Commission in the instant case, were only prima facie conclusions and didn’t foreclose the issues raised by the Revenue in the present proceedings.
• Thus, the impugned issue was left open for Commission's decision till it passed its final order under section 245D(4). Writ petition were, accordingly, to be dismissed.