Refund couldn’t be denied just because scrutiny notice was served; HC quashed CBDT’s instruction

 

May 17, 2016[2016] 69 taxmann.com 226 (Delhi)

IT : By device of issuing an instruction in purported exercise of its power under section 119, CBDT cannot proceed to interpret or instruct income tax department to prevent issue of refund; Instruction No.1 of 2015 dated 13-1-2015 issued by the CBDT cannot be relied upon to deny refunds to assessees in whose cases notices might have been issued under section 143(2)

FACTS

• The assessee by way of instant petition has challenged Instruction No. 1 issued by CBDT and the consequential letter issued by Deputy Commissioner of Income-tax denying refund of assessee under section 143(1) for three assessment years

HELD

1.		It is the impugned instruction which is being relied upon by the Department to deny refund, where notice has been issued under section 143(2).
2.		The real effect of the instruction is to curtail the discretion of the AO by 'preventing' him from processing the return, where notice has been issued to the assessee under section 143(2). If the legislative intent was that the return would not be processed at all once a notice is issued under section 143 (2), then the legislature ought to have used express language and not the expression 'shall not be necessary'. By the device of issuing an instruction in purported exercise of its power under section 119, the CBDT cannot proceed to interpret or instruct the income tax department to prevent the issue of refund. In the event that a notice is issued to the assessee under section 143 (2), it will be a matter the discretion of the concerned AO whether he should process the return.
3.		Consequently, the Instruction No.1 of 2015 dated 13-1-2015 issued by the CBDT is unsustainable in law and is quashed. The said instruction cannot be relied upon to deny refunds to the assessees in whose cases notices might have been issued under section 143(2).

■■■

[2016] 69 taxmann.com 226 (Delhi)

HIGH COURT OF DELHI

Tata Teleservices Ltd.

v.

Central Board of Direct Taxes

Updates:

1. On Thursday, CBDT directed the income- tax department to “ expeditiously” issue refunds worth Rs. 5,000 for past three assessment years to provide immediate relief to taxpayers.
2. No TDS on payment for simple marketing services of introducing foreign institutional investors by foreign subsidiary companies.[Batlivala & Karani Securities (India) Pvt. Ltd. Vs. DCIT (ITAT Kolkata)].
3. Imposition of penalty on account of a discrepancy in the ‘batch numbers’ and ‘date of manufacture’ is unjustified.[M/s Hindustan Coca Cola Beverage Pvt Ltd vs The Commissioner, Commercial Taxes].
4. MCA21 will remain temporarily unavailable from 9:00 PM (16 July) to 9:00 AM (17 July). Stakeholder are advised to plan accordingly.
5. In exercise of the powers conferred by sub-sections (1) and(2) of section 469 and section 148 of the Companies Act, 2013, the Central Government further amends the Companies (cost records and audit) Rules, 2014, namely:-Companies (Cost Records and Audit) Amendment Rule 2016

7 reasons you can get an Income Tax Notice

 

You have paid all your taxes. You have filed your income tax returns diligently. Even then you get an income tax notice?! Before you cry foul, let us look at the reasons that you might have got one –

Reasons you can get an Income Tax Notice

1.     Incorrect details in the Income Tax Return –

You should fill your income tax return document carefully entering correct details such as name, address and PAN number. If there is any mistake in any of these details, you will be served a notice.

 

2.    Mismatch in Actual Income and Declared Income –

If there is a difference in the actual income you have earned and the income declared at the time of filing the returns, you can get a tax notice. You might not have done it on purpose. Since all financial transactions can be tracked and recorded, it is easy for the income tax officials to spot discrepancies. (must share any interest you have earned even if TDS was deducted, capital gains even if that’s small number, tax-free or dividend income)

 

3.    You have only paid the tax but not filed your returns –

Are you sure you filed your returns? Paying taxes and filing returns are two different things. If you have only paid the tax but not filed the returns, the tax department might send you a notice. Even if your taxes are nil after availing the deductions, you need to file your returns if your income is greater than Rs. 2,50,000. If you are a senior citizen, the limit is Rs. 3,00,000 and it is Rs. 5,00,000 for super senior citizens. You have to file tax returns even for your company which has made losses during that financial year. Some people just file the return online. That is not the end of the process. You have to submit the ITRV within 120 days of uploading the returns. Some people file the returns after the due date. Delays may lead to penalties. In such cases, you can get a notice from the IT department.

4.   Sudden changes in income or investment levels or high-value transactions –

If there is a sudden significant drop in income or a sudden sharp increase in income levels, the tax department will be on high alert. If you have purchased real estate property or assets of very high value or there are many high value transactions in your bank account, the income tax department can get curious and send you a notice. High value transactions can include cash deposits greater than Rs. 10,00,000 in a year or credit card purchases worth greater than Rs. 20,00,000 per year etc. If you make too many investments in your spouse’s name or child’s name, the income earned will be considered as your income and it should be included while assessing total income to be taxed. If this income is missing from your returns, you may get a notice.

 

5.    Discrepancies in TDS –

TDS can be deposited by the employer, bank where you have fixed deposits, bond issuer whose bonds you have invested in. If there is some mistakes in the TDS deducted and the income and interest that you have earned, you are likely to get a notice from the tax department. Sometimes the income in previous employment is not considered in the returns. If TDS is reflected in your Form 26AS, it can come to the notice of the department and they can question the same.

6.   Unpaid tax on interest income –

Unknowingly, you might have excluded certain interest income that you have received but since the interest is credited to your bank account or reinvested in your assets, it is easy for the department to trace it back to you and you can get a notice for non-payment on tax.

7.    Investigation Purpose –

The Income Tax department is always looking at widening the tax net and want to make sure all people earning income are assessed. They also want to ensure strict compliance. Therefore, they can send notices to random people. (If you were resident Indian in the last year & became NRI in Current financial year – chances of getting notice is very high)

What Next

If you get an income tax notice, you need not panic. You should find the reason for the notice and take the appropriate step to satisfy the notice. You can either submit the necessary documentation or refile the returns after making the necessary corrections. If you have been asked to be present in front of a tax official while filing returns, you should do so or authorise a tax expert to handle the case. He/She should have a valid power of attorney. If you think the notice is erroneous, you should respond appropriately with the necessary proof. It is important to respond to notices else the penalty and interest keep increasing.

 

Incorrect filing of returns is an offence. You can be charged penalties or even face imprisonment. Ignoring income tax notices takes time, money and effort in the long run. Therefore you should ensure that you file your returns correctly and respond to income tax notices if any, in the right manner.

 

 

INSTITUTE FOR CORPORATE ACHIEVERS: Updates:-

INSTITUTE FOR CORPORATE ACHIEVERS: Updates:-: DVAT Amendment Bill 2016 passed by Delhi Assembly on 13.06.2016 got LG's approval & has been notified as an Act by Law Departmen...

Updates:-

1. DVAT Amendment Bill 2016 passed by Delhi Assembly on 13.06.2016 got LG's approval & has been notified as an Act by Law Department of GNCT. However date of its effectiveness is yet to be notified by Finance Department of GNCT. Copy available In Bar Office. TEAM STBA.
2. Scope of assessment  u/s 153A in absence of incriminating material. [ Pr.Cit vs. Saumya Construction Pvt Ltd. (Gujarat High Court)].
3. Tribunal cannot deal with merits of case in order passed in miscellaneous application. [ Safari Mercantile Private Limited vs. ITAT (Bombay HC)].
4. Property purchase agreement merely creates a right to seek specific performance. [ Bindiya H. Malkani vs. CIT (Bombay High Court)].
5. Reassessment when related question was examined but not the pointed question. [Pr. CIT vs. Gujarat Flurochemicals Ltd. (Gujarat HC)].

UPDATES

MCA:

The Ministry of Corporate Affairs has amended the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. These rules may be called the Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016. In rule 3, the words “Chief Executive Officer (CEO), Company Secretary (CS) and Chief Financial Officer (CFO)" omitted. Accordingly, Form MR-1 not required to be filed for CEO, CS and CFO. The limit prescribed for disclosure of employees in respect of remuneration under the Rule 5(2)(i) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules is increased from sixty lakh rupee to one crore and two lakh rupees and limit prescribed under the Rule 5(2)(ii) of the said rules is increased from five lakh rupees per month to eight lakh and fifty thousand rupees per month.

MCA:

The Ministry of Corporate Affairs has modified the e-Forms CHG-1, CHG-4, DPT-3 and MR-2. The new version of e-Forms CHG-1 (Application for registration of creation, modification of charge (other than those related to debentures)), CHG-4 (Particulars for satisfaction of charge thereof), DPT-3(Return of deposits) and MR-2 (Form of application to the Central Government for approval of appointment or reappointment and remuneration or increase in remuneration or waiver for excess or over payment to managing director or whole time director or manager and commission or remuneration to directors) available w.e.f. 2^nd July, 2016. Only new version of e-forms will be acceptable and stakeholders are requested to plan accordingly.

Rotation of Auditors

[2016] 132 CLA (Mag.) 61
T V Narayanaswamy^*

In this article, the author analyses sub-section (2) of section 139 of the Companies Act, 2013 read with rule 6 of the Companies (Audit and Auditors) Rules, 2014 dealing with rotation of auditors in listed companies and manner of rotation of auditors by companies on expiry of their terms.

Introduction

1. Sub-section (2) of section 139 of the Companies Act, 2013 (the Act) has introduced a novel concept for the rotation of auditors in listed companies and in such class or classes of companies as may be prescribed. In exercise of the powers conferred on the Central Government, the Central Government in the Ministry of Corporate Affairs has prescribed in rule 5 of the Companies (Audit and Auditors) Rules, 2014 (Audit Rules) that this concept of rotation of auditors would also apply to the following classes of companies excluding one person companies and small companies :
   • All unlisted public companies having paid-up share capital of Rs.10 crore or more
   • All private limited companies having paid-up share capital of Rs.20 crore or more
   • All public and private limited companies having a paid-up share capital of less than the threshold limit set out above but having public borrowings from financial institutions, banks or public deposits of Rs. 50 crore or more.

It should be noted that the limit of Rs.50 crore on public borrowings would apply to the aggregate borrowing from financial institutions, banks and public deposits and not to borrowings of Rs.50 crore prescribed, individually from each of the categories listed.

Concept of rotation of auditors in listed companies

2. Sub-section (2) of section 139 of the Act reads as under :
   2. No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint –
      • an individual as auditor for more than one term of five consecutive years; and
      • an audit firm as auditor for more than two terms of five consecutive years:
      Provided that –
      1. an individual auditor who has completed his term under clause (a ) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;
      2. an audit firm which has completed its term under clause (b ), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
      Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years:
      Provided also that every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act:
      Provided also that, nothing contained in this sub-section shall prejudice the right of the company to remove an auditor or the right of the auditor to resign from such office of the company.”

Sub-section (3) of section 139 confers an option on companies to prescribe a shorter period for rotation of auditors and to appoint more than one auditor for conduct of audit of accounts.

Sub-section (4) of section 139 confers on the Central Government to prescribe by rules the manner in which the companies shall rotate their auditors. It should be noted that under this sub-section (4) the Central Government has been conferred the power to prescribe the manner in which the companies shall rotate their auditors and not to give retrospective effect to the requirement of rotation of auditors spelt out in sub-section (2) of section 139.

Manner of rotation of auditors on expiry of their term

The Central Government in exercise of this power has prescribed the manner in which the companies should rotate the auditors through rule 6 of the Audit Rules, 2014 the extract of which is reproduced below :

6. Manner of rotation of auditors by the companies on expiry of their term. –
   1. The Audit Committee shall recommend to the Board, the name of an individual auditor or of an audit firm who may replace the incumbent auditor on expiry of the term of such incumbent.
   2. Where a company is required to constitute an Audit Committee, the Board shall consider the recommendation of such committee, and in other cases, the Board shall itself consider the matter of rotation of auditors and make its recommendation for appointment of the next auditor by the members in annual general meeting.
   3. For the purpose of the rotation of auditors –
      1. in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be;
      2. the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
   Explanation. I - For the purposes of these rules the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
   Explanation. II - For the purpose of rotation of auditors,-
   • a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation;
   • if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.’

3.1 It may be observed from a close examination of sub-rule (3) of the aforesaid rule 6, highlighted for purposes of facility that for the purposes of rotation under sub-section (2) of section 139 the period for which the individual or firm has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be. Section 139 was put into force from 1st April, 2014. A period of three years has been allowed to companies, within which, to comply with the requirements of the appointment of auditors and their rotation. The auditors invariably are appointed at annual general meetings of companies. In view of this an auditor appointed in the annual general meeting held after 1st April, 2016 and the rotation requirement would apply to such an auditor appointed in the annual general meeting held after 1st April, 2016. If this appointment is done in the annual general meeting held after 1st April, 2017 then it would be noticed that the compliance would be established after the expiry of three years from the date of commencement of the Act resulting in default in compliance with the requirements of the Act. Thus, an auditor appointed at the Annual General Meeting held after 1st April 2016 can continue to be in office up to the date of the annual general meeting held in the year 2021. In the case of an Audit firm, the firm could continue to be in office till the annual general meeting held in the year 2026.

3.2 But sub-rule (3) of rule 6 curtails this tenure of appointment depending upon the period the auditor or the firm, as the case be, were in office. This curtailment would amount to giving effect to the requirement of rotation of auditors a retrospective operation. It might be argued that wherever such retrospective operation is not to be given, the Legislature has expressly provided so as in the case of appointment of independent directors where by an Explanation appended to sub-section (11) of section 149 it has been clarified that ‘for the purposes of sub-sections (10) and (11), any tenure of an independent director on the date of commencement of the Act shall not be counted as a term under those sub-sections. To this the counter is expressed in the Latin maxim ‘nova constitution futuris forman imponere debet nonpraeteritis’ (a new law ought to regulate what is to follow, not the past). Further in a number of cases the Supreme Court has held that “it is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation”.

3.3 Sub-section (2) of section 139 neither expressly nor by implication indicates that the requirements set out therein would have retrospective operation. It is only the rule highlighted above stipulates that this rotation will be retrospective in effect. A tail can never wag the head. A rule cannot override the provisions in the Act. Courts have held that rules should be consistent with the provisions of the Act and if a rule goes beyond what the Act contemplates, the rule must yield to the Act. The Companies Act, 2013 was put in the statute book in 2013 and bulk of its provisions including the one relating to rotation of auditors were put into effect from 1st April, 2014.

Conclusion

4. Third proviso to sub-section (2) of section 139 allows of companies to comply with its requirements for appointment of auditors within three years from the commencement of the Act, i.e., from 1st April, 2017. If this is the intention of the Legislature, it is not comprehendible as to how a portion of the requirement has to be given retrospective effect. It would have been ideal if an Explanation has been appended to sub-section (2) of section 139 similar to the Explanation to sub-section (11) of section 149. This lapse on the part of the draftsman cannot be construed that in regard to rotation of auditors, the Legislature had intended to give retrospective effect. In view of what has been stated, second proviso of sub-section (2) of section 139 should be given effect prospectively and not retrospectively. In this view of the matter the change in the office of an auditor or audit firm appointed in the annual general meeting held after 1st April, 2017 is mandatorily required to be made only in the annual general meeting held in the year 2022 or 2027, respectively, as the case may be, and not earlier. This, however, does not preclude an auditor or audit firm the right resigning before that period or a company removing an auditor or an audit firm before the expiry of the tenure of appointment.