Tax Administration, Procedural Law and Enforcement Strategy

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Tax Administration, Procedural Law and
Enforcement Strategy
Conference on Direct Taxes Code, 2009 ASSOCHAM,
Kolkata
Direct Taxes Code Bill, 2009Key Highlights
By Aseem Chawla Partner, Amarchand
Mangaldas aseem.chawla_at_amarchand.com
September 16, 2009
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Contents

• Background
• Tax Administration
• Procedural Law
• Return of Tax Bases
• Assessment Procedure
• Collection Recovery
• Enforcement Mechanism
• Penalties Prosecution
• Appeals Revision

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Background
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Background

• Substantial amendments to 1961 Act by various
  Finance Acts and amending statutes
• Concerns raised by taxpayers and tax
  administrators on the complex structure of tax
  laws
• Numerous amendments have rendered the Act
  incomprehensible to the average taxpayer
• Increased cost of compliance and administration
• Divergent views on numerous aspects has led to
  protracted controversies and litigation

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Background (Contd)
Wanchoo Direct Taxes Enquiry Committee Report,
1971
Raja Chelliah Committee Report, 1993
Kelkar task Force Reports, 2003-2004
Initiation of Direct Tax Code Draft, 2005
Direct Taxes Code Bill, 2009
Union Budget 2009-10
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Tax Administration
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Tax Administration
Tax Administration

• Organizational hierarchy
• Tax administration is the prerogative of Central
  Board of Direct Taxes (CBDT)
• CBDT authorized to formulate strategies,
  supervise and regulate functions of Income Tax
  Department
• Power to issue direction/instructions/orders/circu
  lars to be circumscribed so as to
• extend the date specified under the code for
  completion of any proceeding, taking any action
  etc
• relax any requirement for grant of any deduction
  or relief under DTC
• admit any application for exemption, deduction
  etc. after expiry of specified period
• exempt any income liable to be taxed

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Tax Administration (contd)

• Taxpayer Information System
• Rationale to collect information in an organized
  and non intrusive manner
• Power to issue summons, conduct surveys, searches
  and effect seizures, and to collect information
  through annual information returns rationalized
• Collection of information based on PAN
• Information will be available electronically
  through a national network
• OLTAS will continue to be a foundation of
  taxpayer information system

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Procedural Law
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Return of Tax Base

• Time Limit for filing tax base
• Non-Corporate non business assessee - June 30
• Other Assessee - August 31
• Revised return to be filed within 21 months from
  the end of financial year or completion of
  assessment which ever is earlier
• Introduced concept of Non Filers and Stop
  Filers
• Notice to Stop Filers even where no taxable
  income

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Assessment Procedure

• Detailed instructions for processing of returns
• Selection of cases on scrutiny on Risk Management
  Strategy framed by CBDT
• Discretion in selecting cases for scrutiny under
  Computer Assisted Selection for Scrutiny being
  done away with
• Best judgment assessment extended to failure to
  follow method of accounting and non-satisfaction
  about correctness of accounts
• Income Escaping Assessment
• Notice can be issued for seven years preceding
  the financial year
• Reassessment proceedings qua non reopened issues
• Check Balances no longer in place Change of
  Opinion and Full Disclosure concept

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Tax Administration
Assessment Procedure (Contd)

• Dispute Resolution mechanism extended to domestic
  assessments
• Within 30 days of receipt of draft order by AO,
  assessee shall either file his acceptance to AO
  or objections to either DRP or AO
• Where any objection is received DRP may make
  further enquiry
• DRP shall issue directions to enable AO to
  complete scrutiny assessment
• DRP may confirm, reduce or enhance the variations
  proposed in the draft order
• No direction shall be issued after 9 months from
  the end of the month in which draft order is
  forwarded to the eligible assessee
• Introduction of Advance Pricing Arrangements for
  Transfer Pricing

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Tax Administration
Collection Recovery

• Tax will be collected on pay-as-you earn basis
• TDS rates
• Third Schedule - payments made to residents
• Fourth Schedule - payments made to non resident
• Tax to be deducted on capital gains payments made
  to non-residents, including FIIs at the rate of
  30 (as against 10 for residents)
• AO shall have power to recover taxes which are
  due
• Tax Recovery Officer shall have power to make
  recovery after expiry of 1 year from FY in which
  notice of demand issued
• Recovery at final stage - by way of attachment
  and sale of movable and immovable property

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Enforcement Mechanism
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Tax Administration
Penalty and Prosecution

• Maximum amount of penalty - 2 times of tax
  payable in respect of tax base under reported
• Basic condition for levy of Penalty
• Willful under-reporting of tax base
• Explanation 1 - Safeguard liquidated
• Individuals, Cooperative Societies - penalty to
  be calculated at the maximum marginal rate of tax
• Penalty once imposed cannot be waived
• All offences punishable with both imprisonment
  and fine
• Provisions made for compounding of offences

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Tax Administration
Appeals Revision

• Aggrieved assessee to bring the contentious
  matters before Appropriate Authority for hearing
  and remedy

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Tax Administration
Appeals

• Once National Tax Tribunal is established it will
  exercise the powers of HC, except those under
  Article 226
• Powers and functions of NTT shall be set out in
  NTT Act, 2005
• Appeal to SC against order of NTT only on
  obtaining a certificate of fitness by NTT
• Tax shall be payable notwithstanding that an
  appeal has been preferred to NTT / SC

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Tax Administration
Revision

• Commissioner shall hold power to revise an order
  found to be erroneous and prejudicial to the
  interest of the Revenue
• Revision order shall not be an order cancelling
  the assessment and directing a fresh assessment
• An order passed by the income tax authority shall
  be deemed to be erroneous
• if it is passed without any verification or
  enquiry or allowing relief without probing into
  the claim of the taxpayer, or
• if it is not in accordance with instructions
  issued by the Board, or any decision of NTT, HC,
  SC, prejudicial to the assessee

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Precept

• The Income Tax Act, is like a railway ticket,
  good only for one journey in a time, sometimes
  not even for the whole journey
• N.A. Palkhivala

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