New Direct tax code is cleared:Exemption limits hiked, will have to pay less tax under DTC

The cabinet has cleared new Direct tax code which is proposed to be implemented from 01-04-2011 onwards. The new Direct Tax code proposes to raise the basic exemption limit for individual tax payers from Rs 1.6 lakh to Rs 2 lakh. So there will be no tax on incomes below Rs 2 lakh. The exemption for senior citizens has been raised to Rs 2.5 lakh, up from 2.4 lakh at present.

Direct Tax Code incorporates all three direct tax act; IT Act of 1961, Wealth Tax of 1957, Dividend Distribution Tax of 1997.The Bill also seeks to remove surcharge and cess on corporate tax, providing relief to business houses. According to the new direct tax code corporate tax rate will be 30 per cent including all taxes, down from the existing 33 per cent.

Income between Rs 2-5 lakh is likely to attract a rate of 10 per cent, 20 per cent for Rs 5 -10 lakh bracket and 30 per cent above Rs 10 lakh.

At present, income between Rs 1.60 lakh and Rs 5 lakh attracts 10 per cent tax, while the rate is 20 per cent for the Rs 5-8 lakh bracket and 30 per cent for above Rs 8 lakh.

The Bill, approved by Cabinet, also seeks to impose minimum alternate tax (MAT) at 20 per cent of the book profit, compared to 18 per cent at present.

As of now, it is proposed to provide the EEE (Exempt-Exempt-Exempt) method of taxation for Government Provident Fund (GPF), Public Provident Fund (PPF) and Recognised Provident Funds (RPF) ...", the revised DTC released by the Finance Ministry said.

Read more at: http://www.ndtv.com/article/business/new-direct-tax-code-pay-less-in-taxes-from-april-2011-47396?cp

The first DTC draft had proposed to tax all savings schemes including provident funds at the time of withdrawal bringing them under the EET (Exempt-Exempt-Tax) mode.

Under the EEE mode, the tax exemption is enjoyed at all the three stages - investment, accumulation and withdrawal.

The earlier DTC draft had proposed to reduce the corporate tax to 25 per cent from the present 30 per cent. The revised proposal has also made it clear that tax incentives on housing loans will continue. Payment on interest on housing loans up to Rs. 1.5 lakh will continue. The earlier draft was silent on housing loans.

Note: The Information shared above is based upon the news available from various sources

Development of IT infrastructure must before implementation of GST

Goods and Service tax (GST) is the most talked about topic in the field of indirect taxation today in India. Everybody is keenly waiting for the proposed GST draft which will replace the existing system of VAT in India. The central government wants the GST to be implemented in India by 1st April, 2011. Although there are and will be been many hurdles which are to be crossed before GST is implemented in India.

With the advent of GST the whole picture of indirect taxation in India will change. GST will help bringing to an end tax cascading i.e. tax on tax. But before GST is implemented all over the nation, the IT infrastructure connecting all the states must be developed.

For the successful administration of GST the inter connectivity through the IT infrastructure among centre and all states is must.  In the current VAT regime no credit of CST is available against the output tax or CST payable on sales of the dealers, whereas the credit of   GST paid on interstate purchase of goods by the buyer of such goods will be allowed to be set off against the GST payable by him when selling such goods, in the dual system of GST.

For allowing the credit of such GST paid on interstate purchases, there must be inter-connectivity among states and centre for proper verification of the GST claim of the buyer paid on interstate purchases by him. This can be explained with the help of following example:

Suppose buyer “A” who is a registered dealer in Punjab purchases goods from Delhi and pays GST to the seller in Delhi. Now he will be eligible to get the credit of GST paid by him at Delhi on his purchases.

But how the department in Punjab will be able to verify the GST claim of “A” paid by him in Delhi? The authorities will be able to verify the GST claim of “A” only if they can have access to the information about the return filed by the seller in Delhi. Such information can be possible only if there is exchange of information between authorities at Delhi and at Punjab which is possible through IT infrastructure only.

The e-filing of VAT returns have been started in almost all the states before the implementation of GST, which is a step forward towards preparations for the introduction of the GST regime. Now the next step is to connect the IT infrastructure of all the states with each other for the proper administration of GST and this should be done before the implementation of the GST.

Scrutiny assessment under the Income Tax Act 1961

The Scrutiny Assessments under Income Tax Act 1961 are made u/s 143(3). For many years now many of the returns of the assesses are accepted as they are being filed by the assesses and intimation is sent u/s 143(1) and only fewer cases are selected for scrutiny assessment based upon some predetermined criterias. Therefore every assessee desires that his return should be accepted as it is filed u/s 143(1) and not subjected to scrutiny. Some important points relating to the Assessment and scrutiny Assessment are discussed herein below:
When a case is selected for scrutiny: Where a return has been filed u/s 139 or in response to a notice u/s 142(1), the case can be selected for scrutiny Assessment if the assessing officer considers it necessary or expedient to ensure that:
- the assessee has not understated the income or has not computed excessive loss, or
-has not underpaid the tax in any manner.

Usually the amount of turnover, rate of gross profit, total income, quantum of loans taken, investments during the year etc are considered for selecting a case for scrutiny. However the selection is done on the basis of the instructions of the CBDT issued every year wherein some predetermined criteria’s are decided on the basis of which a case is selected for scrutiny Assessment.

The Honourable Supreme Court in (1999) 237 ITR 889 and (2004) ITR 272 has held that the assessing officer is bound by the instructions of the CBDT. The Delhi High Court giving reference of the above decision of the S.C.  has held in (2008) 169 Taxmann 4 / (2007) 295 ITR 256 that the A.O. cannot make Assessment of  any case in scrutiny outside the guidelines issued by the CBDT for selection of cases for scrutiny and if such Assessment is made then it will be illegal.

Time limit for issuing of Notice u/s 143(2): As per section 143(2) as amended by the finance act 2008 with effect from 01-04-2008 the notice under section 143(2) must be served upon the assessee within 6 months from the end of relevant Assessment year. Earlier the notice was required to be served within 12 months from the end of the month in which the return was furnished.

The notice u/s 143(2) must be received by the assessee now up to 30^th September for the preceding Assessment year. If the notice u/s 143(2) is received within the prescribed time then no Assessment can be framed u/s 143(3).

Where the assessee affirms by way of an affidavit that notice u/s 143(2) was not received by him within the prescribed time, the onus lies with the department to conclusively prove that the notice was served upon the assessee within the prescribed time. Failure to do so shall lead to set aside of the Assessment as it was held in CIT v Lunar Diamonds Ltd.[2006] 281 ITR 1(Del.).

Section 292BB: A section 292BB has been added w.e.f.  01-04-2008 which provides that if the assessee has cooperated in the Assessment or re-assessment proceedings then it will be treated that the notice u/s 143(2) has been duly served upon the assessee and the assessee will not be able to object to the late or irregular service of notice.

The proviso to section 292BB makes it further clear that if the assessee has before the Assessment or re-assessment proceedings objected to the no service or late or irregular service of notice u/s 143(2) then section 292BB shall be not applicable.

Therefore if an assessee does not receive the notice or receives the notice u/s 143(2) after the 30^th September and he cooperates in the Assessment proceedings and doesn’t object to the non receiving or late or irregular receiving of the notice then the Assessment proceedings and the assessment order shall be considered as valid and will not be quashed in the appeal.

What to do when notice U/s 143(2) is received: When a case is selected for scrutiny Assessment the A.O usually ask for the following

-Books of Accounts

-Bank Statements

-Confirmation certificates of Loans if any

-Name and Addresses of Sundry Creditors, Debtors

-The account statements of Sundry Creditors and Debtors for verification of transactions

In case the A.O. finds any discrepancy the assessee may be asked to explain the same.

Mere filling of confirmatory letters and producing the loan creditors do not discharge the onus that lies on the assessee. The assessee has to prove the disputed transaction prima facie appearing in his books of accounts. The assessee needs to prove the following things:

-Proof of Identity of creditor

-Credibility or capacity of a loan creditor to pay or advance the money

- the genuineness of the transaction

If the assessee prima facie proves a transaction then the onus shifts on the department to rebut the same. The A.O can only ask for the evidence of the cash credit or the loans which have been taken or given in the relevant previous year and not about those appearing from preceding years.

The opportunity of being heard must be provided to the assessee: The assessee must be provide a fair opportunity of being heard during the Assessment proceedings as it is a basic rule of Natural Justice. If the A.O makes any addition on the basis of evidence procured from other sources about which the assessee is not aware then the assessee must be given fair opportunity to rebut or cross examine such evidence.

In CIT vs Eastern Commercial Enterprises 210 ITR 103(CAL) it has been held that an addition made without allowing opportunity of cross examination to the assessee, cannot be sustained.

Cases where amount deposited with the firm by the partners are not proved: If the partners in a firm have deposited some money with the firm and the same is not proved as income of the firm by the A.O then such amount cannot be treated as income of the Firm but it will be treated as the income of the partners as held in (2001) 126 Taxman 533/252 ITR 344 P& H HC.

Amounts Received as gifts: Where receiving of any gift by the assessee is in question in the Assessment proceedings then affidavit of the donor or the gift deed along with the PAN No of the donor, the source of the gift and the relationship of the donee with the donor should be produced to prove such gift.

Additions cannot be made merely on suspicion: Any addition to the income of the assessee cannot be made only on the base of suspicion. If the assessee has proved the transaction in question then merely on the suspicion the addition cannot be made.

For Example if the assessee has sufficiently proved a deposit transaction from a person then the A.O cannot make addition merely on the ground that the assessee already had enough money on the day of deposit and there was no need for such deposit.

Request for summons to the non- cooperating loan creditor or depositors :Sometimes it happens that the depositors or loan creditors do not cooperate with the assessee in the Assessment proceedings then in such cases the assessee should request  the A.O in writing to issue summons u/s 131 to such persons along with their books of accounts or bank statement or any other relevant documents.

Where a Deposit or loan transaction is not proved: Sometimes due to non availability of proof regarding a deposit or loan transaction the assessee has to agree for surrendering such amount as his income. In my view while surrendering such transactions as income, the assessee should get it written in his statement that he is making surrender for mental peace and on the condition of non-levying of penalty. In my view in such case the penalty will not be imposed u/s 271(1)(c).

Additions on the base of inadequate withdrawals: The assessing officer usually during the Assessment proceedings ask the information from the assessee about his household expenses including the number of family members, the children, the school in which they are studying, the expense on their studies, electricity bills, telephone bills, house rents if any, the salary given to any employee or the car scooter etc owned by them.

After considering all the above things the A.O estimates the household expenses of the assessee and after matching the same with the withdrawals shown, the assessing officer tends to make additions to the income of the assessee if the withdrawals are found to be inadequate.

The assessee should tell the A.O in detail about his household expenses and if any other family member of the assessee has also contributed towards the household expenses, the fact should be brought to the notice of the A.O.

Sometimes it is seen that the assesses show their withdrawals for household expenses collectively at the end of the year in which case the assessee has to face many difficulties during the Assessment proceedings. The withdrawals for household expenses should be shown in every month.

Inadequate withdrawals of partner shown in the books of accounts of firm: Addition to the income of a firm cannot be made merely on the ground that the withdrawals for household expenses made by the partner from the firm is inadequate or very less. It’s not the firm’s responsibility to explain or prove that how the partners have managed their household expenses as it was held in (1997) 90 Taxman 330(magazine) Jaipur Tribunal.

Additions on the basis of inadequate expenses shown on the house or shop: Generally additions are made during the Assessment proceedings on the basis of the less expenditure shown in building a house or shop of the assessee. If the A.O is not satisfied by the expenditure shown on building house or shop by the assessee and also from the valuation of Registered valuer then the A.O refers the valuation to the valuer of the Department and if the valuer of the department declares the value more, then the additions is made by the A.O on the basis of such valuation and proceedings u/s 271(1)(c) are also initiated.

It has been held in many cases that the A.O cannot refer the valuation to the department’s valuer without showing any mistake in the valuation of the registered valuer or the bills and records maintained by the assessee. Although it is not necessary for the assessee to keep the record of all the expenses incurred on building his house or shop. But at the appellate level the bills and records maintained by the assessee are given very much importance. Therefore it is advisable to keep such records.

Assessments under Punjab Vat Act 2005

Assessment under the Punjab VAT Act 2005 is made u/s 29. The assessment under Punjab VAT Act is made after the filing of the VAT 20 i.e. annual return except in the case of Provisional Assessment. The assessment of Tax under section 29 of Punjab VAT Act 2005 can be done by two ways which can be discussed as follows:

Assessment on the basis of return filed by the dealer: Assessment  may  be  framed  on  the  basis  of  the  return or  returns  filed  by  the  taxable  persons u/s 29(1) . Where  the  return  is filed under  Sec.26 the  assessing  officer  under  Rule  43   scrutinizes  the  same and proceed to make assessment  under  Sec. 29(1) of the Act. Section 29(1) of Punjab VAT Act 2005 runs as under:

Where a return has been filed under sub section (1) or sub-section (2) of section 26 or in response to a notice under sub section (6) of section 26, if any tax or interest is found due on the basis of such return, after adjustment of any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the person specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under sub-section (11) and all the provisions of this Act shall apply accordingly :

Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be an intimation under this sub-section in case, either no sum is payable by the person or no refund is due to him:

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of financial year in which the return is filed.

Thus the assessment u/s 29(1) can be by and large called as assessment on the basis of self assessment of tax done by the dealer in the returns filed.

Scrutiny of returns Rule 43 is relevant to section 29(1) of Punjab VAT Act which provides for the procedure for scrutiny of every return filed u/s 26 for the purpose of section 29(1).

If on scrutiny of return it is found that a less tax has been paid than actually payable as per return, the notice is served upon the assessee to rectify the same and to pay the tax due along with interest u/s 32 and produce the treasury receipts before the designated officer within the time specified in the notice. If the assessee deposit the tax due and furnish the treasury receipts before designated officer complying with the notice under rule43(1) then the scrutiny of return is closed.

However an assessee can object to the notice issued under rule 43(1) in writing by stating the reasons for such objection and the designated officer if satisfied with the reasons, can decide accordingly or if not satisfied then the matter is referred for audit u/s 28 of Punjab VAT Act.

Assessment on the basis of Information received: The  Commissioner  or  the  Designated  officer  has been  vested  with  a  power  to  frame  assessment  on  his  own  motion  or  on  the  basis  of  information  received  by  him  to  the  best  of  his  judgment .Section 29(2) provides that  Notwithstanding  anything  contained  in  sub-section (1),  the  Commissioner  or  the  designated  officer,  as  the  case  may  be, ,may  on  his own  motion  or  non  the  basis  of  information  received  by  him,  order  or  make  an  assessment of  the  tax  payable  by  a  person  to  the  best  of  his  judgment  and determine  the tax  payable   by  him,  where-

a person fails to file a return under section 26 ; or

there are definite reasons to believe that a return filed by a person is not correct and complete; or

there are reasonable grounds to believe that a person is liable to pay tax, but has failed to pay the amount due; or

a person has availed input tax credit for which he is not eligible; or
provisional assessment is framed.

Section 29(3) further empowers commissioner either on his own motion or on the basis of information received by him, to direct the designated officer by an order in writing to make assessment of the tax payable by any person or any class of persons for such period as he may specify in his order.

Section 29(4) provides that the assessment u/s 29(2) and 29(3) may be made within three years after the date when the annual statement was filed or due to be filed, whichever is later. However the period of limitation u/s 29(4) can be enhanced by the commissioner under proviso to section 29(4) for assessment of a taxable person or a registered person, if circumstances so warrant by an order in writing after three years, but not later than six years from the date, when annual return was filed or due to be filed by such person, whichever is later.

Notice for assessment is must: For making assessment u/s 29 a prior notice must be served upon the assessee stating therein the grounds for proposed assessment and the time place and manner for filing objections if any. The notice must also provide the period for which assessment is to be made and provide a time of not less than 10 days for production of books documents etc as specified in the notice.
The purpose of issuing a notice and providing time in the notice of at least 10 days is to provide a reasonable opportunity of being heard to the assessee.

Reasonable opportunity of being heard must be provided: The assessee after being served with a proper notice for assessment must be provided with fair and reasonable opportunity of being heard before making the assessment.

The designated officer, after considering the objections and documentary evidence, if any, filed by the person, shall pass an order of assessment in writing, determining the tax liability of such a person. The assessment order must be a speaking one i.e. it must state the reasons for assessment [Rule 48(2)]. The certified copy of order along with tax demand notice shall be provided to the assessee free of cost [Rule 48(3)].

Amendment in assessment: The designated officer may, with the prior permission of the Commissioner, within a period of three years from the date of the assessment order, amend an assessment, made under sub-section (2) or sub-section (3), if he discovers under–assessment of tax, payable by a person for the reason that,-
such a person has committed fraud or willful neglect; or
such a person has misrepresented facts; or
a part of the turnover has escaped assessment:
Amendment in any assessment shall not be made without affording an opportunity of being heard to the affected person.

Procedure for amendment in assessment : Rule 49 provides that before making an amendment in assessment  a notice shall be issued by the designated officer, to the person, clearly stating the grounds for the proposed amendment, the date, time and place ,fixed for such amended assessment. After hearing , the person  concerned  and making such enquiry, as the designated officer may consider necessary, he  may proceed to amend the orders as he deems fit
subject, to the following conditions, namely :-

No amendment, which has the effect of enhancing the amount of tax, shall be made by the designated officer, unless he has given notice to the person concerned of its intention to do so and has allowed him a reasonable opportunity of being heard.
Where such amendment has the effect of enhancing the amount of the tax or penalty, the designated officer, shall serve on the person a Tax Demand Notice in Form VAT – 56 as required under sub-section (11) of section 29 and thereupon, the provisions of the Act and these rules shall apply, as if such notice had been served in the first instance.
Where any amendment made under sub-section (7) of section 29 has the effect of reducing the tax or penalty, the designated officer shall order refund of the amount, which may be due to the person and the procedure for refund laid down in rule 52 shall apply.
Rectification in the assessment order: Sub Section 8 of section 29 provides that the designated officer may, within a period of one year from the date of the assessment order, rectify an assessment, made under sub-section (2) or sub-section (3), if he discovers that there is a mistake apparent from record:

Provided that no order rectifying such assessment shall be made without affording an opportunity of being heard to the affected person.

Provisional Assessment: Under section 30 of Punjab VAT act the designated officer has been given power to make provisional assessment of any person where fraud or willful neglect has been committed with a view to evade or avoid the payment of tax or due tax has not been paid or a return has not been filed, after recording the reasons in writing for provisional assessment. Provisional assessment u/s 30 is independent and separate to the assessment proceedings u/s 29 since section 30 starts with the words “Notwithstanding anything contained in section 29”.

Although the word provisional assessment has not been defined anywhere under the act. But the word provisional means the thing which is not final and can be made for any period, subject to the condition that the tax liability of such a person shall be assessed finally after he files return in the prescribed manner. The Provisional assessment can be made in the following cases only:-

1. Fraud – Where  fraud  has  been  committed  with  a  view  to  evade or  avoid  the  payment  of  tax,  the  designated  officer  may,  for  the  reasons  to  be   recorded in writing, make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability  of  such  a  person  shall  be  assessed  finally  after  he  files  his  return  in the  under  the  provisions  of  sec. 26 [section 30(1)].

2. Willful  neglect – When there is willful  neglect  with  a  view  to  evade  or  avoid  the  payment  of  tax,  the  designated  officer  may,  for  the  reasons  to  be  recorded  in  writing,  make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability  of  such  a  person shall  be assessed  finally after  he  files  his  return  in  the  under  the  provisions  of  section 26 [section 30(1)].

3. Due  tax  has  not  been  paid -  Non  payment  of  due  tax  is  the  another  reason  for  making  the  provisional  assessment . The  designated  officer  may,  for  the  reasons  to be  recorded  in writing,  make  provisional  assessment  for  any  period  to  determine  the  tax  liability  so  evaded,  avoided  or  unpaid . Provided that  tax  liability  of  such  a  person  shall  be  assessed  finally after  he  files  his  return  in  the  under  the  provisions  of  sec 26 [section 30(1)].

4. Non  filling  of  return – Where  a  return  has  not  been filed  by  or  on  behalf of  a person,  the designated  officer  may, for  the  reasons  to  be  recorded  in  writing,  make  provisional  assessment  for any  period  to  determine  the tax  liability  so  evaded,  avoided  or  unpaid . Provided  that  tax  liability of  such a  person  shall  be  assessed  finally  after  he  files  his  return in t he  under  the provisions  of  section  26 [section 30(1)].

Time Limit for Provisional assessment: The Provisional assessment shall be made within a period of six months from the date of detection[section 30(2)]. The commissioner may  for reasons to be recorded in writing, extend the said period by another six months in a particular case referred to him by the designated officer.[Section 30(3)].
Procedure for Provisional assessment like issuing of notice, reasonable opportunity of being heard etc is similar as is in the regular assessment and must be followed before making assessment.

C forms can be submitted even at appellate Stage

Under section 8(1) of the Central Sales Tax Act 1956 an Interstate sale to a registered dealer can be made at the concessional rate of Central sales tax i.e. @2% existing at this time. But for claiming concessional rate of CST the seller needs to produce a declaration in the prescribed form duly filed and signed by the registered dealer in a prescribed form obtained from a prescribed authority.

The prescribed form for claiming concessional rate of CST u/s 8(1) is C form which is obtained by the purchaser from the sales tax authorities in his state and is given to the seller for the goods purchased at concessional rate. C form obtained from the purchaser needs to be furnished by the seller to the prescribedauthority within 3 months from the end of the period to which the form relates as per rule 12(7) of the CST(R&T) Rules 1957. But the Prescribedauthority may allow furnishing of C form after the said period if satisfied that the person concerned was prevented by sufficient cause from furnishing the C form within the said time.

The dealers in Punjab usually are asked to deposit the C forms along with their annual statement the last date for filling of which is 20th November every year or sometimes the date for submission of C forms is extended to 31st march or some other date. But sometimes the selling dealers are not able to file the C forms due to reason of non availability of C forms with the purchasing dealers or for some other reason. In such cases the C forms can be submitted even after the filling of annualstatement or even at the appellate stage.

It has been held by the honorable Punjab & Haryana High court in R.S cotton Mills vs State of Punjab ) decided on 24-09-2008 relying upon the decision in Prestolite India Ltd vs The State of Haryana & others (1988) 70 STC 198 to the effect that C or D forms could be filled even after the filling of the return or at the appellate stage and same could be taken cognizance of.

Hence the C forms can be submitted even after the filling of annual statement i.e. at the time of assessment or afterwards and the same can be taken cognizance of since no loss is caused to the revenue by not filling the C forms along with annualstatement.

Author: Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

Cell No 9815243335

Provisions of section 269SS and 269T of Income Tax Act

Finance is the important part and need of every business. The own capital of a person may not be always sufficient to meet the needs of finance of the business. Therefore the Loans and deposits become necessary and important to meet the financial needs of the business. But while taking loans and accepting deposits one also has to keep in mind the restrictions imposed under the Income Tax Act on the mode of taking such loans and deposits.

Such provisions regulating the mode of accepting or taking loans or deposits and mode of repayment of certain loans and deposits are contained under section 269SS and 269T of theIncome Tax Act 1961.

Section 269SS: Section 269SS provides that any loan or deposit shall not be taken or accepted from any other person otherwise than by an account payee cheque or account payee bank draft if,

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid and the amount or the aggregate amount remaining unpaid ; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more :

Thus it is clear that no person can accept any loan or deposit of Rs 20000 or more otherwise than by way of an account payee cheque or an account payee draft. The limit of Rs 20000 will also apply to a case even if on the date of taking or accepting suchloan or deposit, any loan or deposit taken or accepted earlier by such person from such depositor is remaining unpaid and such unpaid amount along with the loan or deposit to be accepted, exceeds the aforesaid limit.

This can be explained with an example: If Mr X has a credit balance of a loan of Rs 19000 from Mr Y. Now in this case Mr X cannot take loan in excess of Rs 999 more from Mr Y except with an account payee cheque or account payee bank Draft.

Exemptions from section 269SS: The Following persons are exempted from the purview of section 269SS:

a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956
(e) other notified insititutions
(f) where the depositor and the acceptor are both having agricultural income and neither of them have any taxable income.

Consequences of contravention of section 269SS:

Section 271D of Income Tax Act 1961 provides that if a loan or deposit is accepted in contravention of the provisions of section 269SS then a penalty equivalent to the amount of such loan or deposit may be levied by the Joint commissioner.

Section 269T : Section 269T of Income Tax Act provides that any branch of a banking company or a cooperative society, firm or other person shall not repay any loan or deposit
otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person, who has made the loan or deposit, if

(1) The amount of the loan or deposit together with interest is Rs 20000 or more, or
(2) The aggregate amount of loans or deposits held by such person, either in his own name or jointly with other person on the date of such repayment together with interest, is Rs 20000 or more.

For example if X is having loan of Rs 30000 outstanding to Y. Then X cannot repay such loan in cash to Y.

Exemptions from Section 269T: The Following persons are exempted from the purview of section 269T:

a) Government ;
(b) any banking company, post office savings bank or co-operative bank ;
(c) any corporation established by a Central, State or Provincial Act ;
(d) any Government company as defined in section 617 of the Companies Act, 1956
(e) other notified insititutions

Consequenses of contravention of section 269T: Section 271E of Income Tax Act 1961 provides that if a loan or deposit is repaid in contravention of the provisions of section 269T then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Joint commissioner.

No Penalty to be levied u/s 271D or 271E if there is reasonable cause : As per Section 273B of Income Tax Act no penalty shall be levied if the failure to comply with the provisions of section 269SS or 269T is due to some reasonable cause. Now the question arises what can be a reasonable cause to justify the violation of the provisions of section 269SS and 269T. Some of the reasonable causes based upon judicial decisions are provided as follows:

Repayment or receipt of amount to partners: If a partner introduces capital in cash in the firm or withdraws the same to the tune of Rs 20000 or in excess of Rs 20000, then Provisions of section 269SS or 269T shall not be attracted as the introduction ofcapital or withdrawl from firm cannot be called as loans or deposits.

Amount paid by firm to partners or vice versa- is payment to self and doesnot partake the character of loan or deposits in general law. Provisions of section 269SS are not applicable to such facts( CIT v. Lokhpat Film Exchange (Cinema) [2008] 304 ITR 172 (Raj.)

Deposit assessed as income, No penality can be imposed u/s 271D in such case: It was held by Jodhpur tribunal in Bajrang Textiles v. Additional CIT [2009] 122 (JD.) 190 that where the A.O having treated the impugned amount of deposit as income, he is precluded from treating the same amount as deposit or loan for the purpose of section 269SS and levy penalty u/s 271D. The penalty ought to be cancelled.

Acceptance or repayment through Journal entry donot attract section 269SS or 269T: Acceptence or repayment through Journal Entry would not come within the ambit of the words ‘loans or deposits’-section 269SS applies only where money passes from one person to another by way of ‘loan or deposit’[CIT v. Noida Toll Bridge Co. Ltd. 262 ITR 260 (Del.)]

A genuine transaction made in an emergency, doesnot attract penalty u/s 271D: held in Mrs Rupali R. Desai v. ACIT 88 ITD 76 (Mum.). In ITO v. Shree Mahaveer Industries 82 TTJ 549 (Jd.) it was held that cash paid to meet medical treatment expenditure in emergency, does not attract penalty u/s 271D.

In ITO v. Prabhulal Sahu [2006] 99 TTJ (Jd.) 177 it was held that Assessee was not aware of provisions of section 269SS or 269T. His councel did not apprise him about the provisions. No penalty u/s 271D shall be attracted.

Where Depositors residing in rural areas are not having access to banking facility and are ignorant of relevant provisions of law, it would constitute bonafide reasons for payment in cash. (ACIT v. Vinman Finance & Leasing Ltd. [2008] 306 ITR (AT) 377 (Visakha.)

Loan given by relatives on Sunday for safe custody and for use in business. No contravention of section 269SS takes place- ITO v. T.R. Rangarajan [2005] 279 ITR 587 (Mad.)

Cash Transaction made on Sunday. No penalty could be imposed in such a case.- ITO v. Narsing Ram Ashok Kumar[1993] 47 ITD 38(Pat)

Transfer of money exceeding Rs. 20000 by way of bank voucher instead of a/c payee cheque or draft doesnot attract penalty u/s 271D as the transaction are through banking channels only held in Asst. CIT v. Jag Vijay Auto Finance (p) Ltd.[2000] 68 TTJ (Jp) 44

Loan in cash under compelling circumstances have been held to be reasonable cause: Industrial Enterprises v. DCIT [2000] 68 TTJ (Hyd) 373

Where the Lenders did not have any bank account which compelled the assessee to accept the loan in cash. This has been considered as reasonable cause in Balaji Traders v. DCIT [2001] 73 TTJ (Pune) 246

Although the provisions of section 269SS and 269T have been enacted with a view to prevent the increase in black money and to stop the tax evasion. Still the amount of Rs 20000 is very small in the present scenario considering the rate of inflation resulting in decrease in value of money and the rise in prices of various goods, which in turn also has enhanced the working capital needs of every businessman.Therefore the limits u/s 269SS and 269T also need to be raised similar to the increase in the audit limit u/s 44AB which has been done to benefit the small assessees in the current budget by theFinance minister.

Author: Amit Bajaj Advocate

Email: amitbajajadvocate@hotmail.com

Cell No 9815243335

SECTION 51 OF PUNJAB VAT ACT 2005

Under section 51 of PVAT Act 2005 information collection centers have been established by the Punjab Government at various places with a view to prevent and check the evasion and avoidance of tax under PVAT Act. Section 51(1) of PVAT Act authorizes the state government to establish such information collection centre or check posts by notification.

DOCUMENTS TO BE CARRIED WITH GOODS VEHICLE: According to sub section 2 of section 51 the owner or person in-charge of a goods vehicle needs to carry with him the following documents:

1)a goods vehicle record,

2) goods receipt,

3) a trip sheet or a log-book,

4) sale invoice or bill or cash memo or a delivery challan containing particulars about goods where such goods are meant for business purpose. Such documents need to be produced at the information collection centre or check post to the officer in-charge of such centre or post checking the vehicle.

GOODS NOT MEANT FOR BUSINESS PURPOSE: The words mentioned in sub section 2 is that goods meant for business purpose. Thus section 51 has applicability only on those goods which are meant for business purpose and not on goods carried on in any vehicle purely for personal use of a person and are not meant for business purposes.

 

Section 51(11) also provides that No person or any individual including a carrier of goods or agent of a transport company or booking agency, acting on behalf of a taxable person or a registered person, shall take delivery of, or transport from any station, airport or any other place, whether of similar nature or otherwise, any consignment of goods, other than personal luggage or goods for personal consumption, the sale or purchase of which, is taxable under this Act, except in accordance with such conditions, as may be prescribed, with a view to ensure that there is no avoidance orevasion of the tax imposed by or under this Act.

 

Thus the above underlined word used in sub section 11 or section 51 also makes it clear that the provisions of section 51 are not applicable to the personal luggage or goods for personal consumption.

 

Section 51(4) provides that The owner or person In-charge of a goods vehicle entering the limits or leaving the limits of the State, shall stop at the nearest check post orinformation collection centre, as the case may be, and shall furnish in triplicate a declaration mentioned in sub-section (2) along with the documents in respect of the goods carried in such vehicle before the officer In-charge of the check post orinformation collection centre. The officer In-charge shall return a copy of the declaration duly verified by him to the owner or person In-charge of the goods vehicle to enable him to produce the same at the time of subsequent checking, if any:

 

Thus it is clear that the carrier of a goods vehicle entering or leaving limits lf state of Punjab must stop at the nearest check post or ICC for production of documents anddeclaration mentioned in section 51(2).

 

If the goods are carried with an intent to evade the tax under PVAT Act or CST Act  the action can be taken u/s 51 of PVAT Act and penalty can be levied. Where the officer incharge of a check post or the ICC has reason to suspect that the goods under transport are not covered by genuine documents as mentioned u/s 51(2) and are being carried for the purpose of trade then such goods can be detained by such officer u/s 51(6)(a) after recording the reasons in writing for the same or where the documents relating to the goods are not submitted at the nearest check post or ICC in the state on entry into or exit of such goods from the state then such goods shall be detained by such officer.

 

Such goods can be released against surety bond to the satisfaction of the officer where the consigner or the consignee of goods is  registered under PVAT Act and against a bank guarantee or cash or bank draft where the consigner or consignee is not registered under the Act.

 

The officer detaining such goods records the statement of the consignor or consignee or his representative or driver or the person incharge of such goods and such person needs to prove the genuineness of the transaction within 72 hours before the detaining officer. After 72 hours the proceedings are submitted to the designated officer for conducting enquiry.

 

When penalty u/s 51 is leviable @ 30%: If on conducting enquiry the designated officer finds that in case where goods are detained u/s 51(6)(a) (i.e. goods detained when it is suspected that the goods are not covered by genuine documents) that there has been an attempt to evade tax the penalty @30% of the value of goods can be levied in addition to the tax evaded.

 

When penalty u/s 51 is leviable @ 50%: In case where the goods are detained u/s 51(6)(b) (i.e. when documents are not submitted at the check post or ICC) and it is found that there has been an attempt to evade tax, the penalty @50% of the value of the goods can be levied after recording reasons for the same.

 

If there is no attempt of evasion of tax is detected after enquiry the goods shall be released by the designated officer.

 

Summary Proceedings: The proceedings u/s 51 have been held has summary proceedings if the goods are covered by genuine documents and there is no attempt to evade tax then merely on technical grounds like incorrect mentioning of R.C number by clerical mistake or mistake in the name of the consignee penalty u/s 51(7) can not be imposed.

 

Intention to evade tax must be proved: Many a times I have seen that the penalty u/s 51 is levied merely on technical grounds like wrong mentioning of TIN no on the Invoice or the wrong mentioning of name of a dealer. These technical mistakes cannot lead to the conclusion that there is intention ofevasion of tax. The intention of evasion of tax must be proved before levying any penalty u/s 51.

 

No Penalty u/s 51 can be levied where no Punjab Tax is involved: Where the goods are imported from outside the state of Punjab, the penalty cannot be levied u/s 51 on the ground that the goods are shown as under valued in the invoice because where the goods imported are claimed to be undervalued by the officer in Punjab in such case there is taxevasion of CST in the state where from the goods are imported and not that of any under the PVAT Act 2005

 

The tax of Punjab will arise when such goods are sold at under valued price in Punjab.

 

Nature of transaction cannot be decided at the ICC barrier: Where the goods are covered by genuine documents and the goods are duly produced at the nearest ICC barrier then in such case by disputing the nature of transaction, the designated officer cannot levy penalty u/s 51.

 

For example where there is difference of opinion regarding the rate of tax then in such case the designated officer cannot levy penalty u/s 51 because it’s the matter to be decided by the assessing authority. At the most the officer u/s 51 can bring to the notice of the concerned assessing authority.

 

Similarly in the matters relating to branch transfers against F forms where no CST  is chargeable, no action for levying penalty should be taken by disputing the nature of transaction if the goods are covered by genuine documents. Whether the transaction is a genuine branch transfer against F forms or not is a matter to be decided by the assessing officer and not by the designated officer at the ICC Barrier or check post.

 

Machinery purchased for installation: In M/s Mahavir Spinning Mills Vs. State of Punjab [June 1998- STM-7(STT. Pb.)] it was held that where the machinery was purchased for installation in the factory and as such the goods were not meant for trade hence penalty order was quashed.

 

Goods Imported  as first Import by the person having TOT registration: Person having TOT registration under the PVAT Act cannot import any goods from outside the state of Punjab since he does not hold registration under CST Act 1956. Recently I confronted with a situation where a TOT dealer who wanted to convert his TOT registration into VAT registration and for that he made first Import from outside the state of Punjab so that his liability as a VAT dealer can be fixed from the date of first import. But the goods were detained at the ICC barrier when the goods were duly produced at the barrier along with all requisite documents, where the officer sought to levy penalty on the goods. But when explained about the true situation the goods were released.

 

There must be an intention of tax evasion proved so as to levy the penalty u/s 51 of PVAT Act 2005.

 

Conclusion: There are a lot of case laws on section 51 of PVAT Act 2005(under the PGST Act it was section 14B). The levying of penalty u/s 51 should depend upon the facts of each case. But the most important thing is that the intention to evade tax must be proved before levying penalty u/s 51 of PVAT Act

AUTHOR: Amit Bajaj Advocate
EMAIL: amitbajajadvocate@hotmail.com
M +919815243335