- Assessments -Manual Selection of a Case -Certain Fallacies
Fallacy 1
A case is selected for scrutiny as per the guidelines issued by the Central Board of Direct Taxes during a financial year. As per Board’s instruction No 10/2013 dated 5.8.13 setting criteria for selection of case during FY 2013-14 all cases involving additions in an earlier assessment year in excess of Rs. 10 lacs on a substantial and recurring question of law or fact which is confirmed in appeal or is pending before an appellate authority shall be compulsorily scrutinized. Likewise it says that cases involving addition in an earlier assessment year on the issue of transfer pricing in excess of Rs. 10 Crores or more which is confirmed in appeal or is pending before an appellate authority be taken up for scrutiny. Above all even after 10 years of TP there remain a criterion to compulsorily scrutinize/refer a case to TPO where the value of international transactions exceeds Rs. 15 crores.
In fact there is an age old tradition to pick a case for scrutiny only because there is previous year litigation/addition. For instance if in year 1 there is an addition u/s 14A the AO would be bound to take up year 2 also in scrutiny. And ultimately it may so happen that even that addition may get quashed.
The effect of this scrutiny criterion is twin-fold. One, it multiplies litigation. Two, the assessee has to go through a long burden of resubmitting the same old details and information all of which is a sheer waste of time and efforts.
Suggestion: Any such criteria to select a case on prior litigation/addition has no rationale and must be immediately abandoned especially when other course of reopening u/s 147/148 is available under the law. Why then scrutinize an assessee again and again? Do with it and get rid of repeat litigation.
Secondly the Board should revoke the instruction for compulsory scrutiny/reference in a case only because the value of international transactions exceeds Rs. 15 crores as the department has now come of age and have learned the TP mechanism and processes and evolved a descent data base. Hence, it shall be better to revoke the instruction for compulsory scrutiny and instead leave that to the Assessing Officer to exercise his discretion in the matter of selection of case for compulsory scrutiny of ALP in very select cases. For instance when indicative margins etc. are widely in variance with safe harbour indicators.
Fallacy 2
CAS or Computer Aided Selection on random basis is a farce and must be abandoned and a case must be selected on the basis of tangible information or evidence available with the department which is sitting over a large database of information gathered from AIR, CIB, Search, Surveys etc. Random selection of case for scrutiny cannot be judged mechanically with the help of a machine on some mechanical score line or data line anymore. Selection of a case is an exercise of conscious judgment and that cannot be left to a computer.
Suggestion: With AIR information in the domain CAS based scrutiny selection be abandoned. In other words CAS be replaced with AIR.
Fallacy 3
The Board instruction mandate compulsory scrutiny in cases where value of international transaction as defined under section 92B of IT Act exceeds Rs. 15 crores.
Suggestion: Compulsory scrutiny must be done away with. Further this criterion is discriminating as there is no criterion that suggests compulsorily scrutiny viz a viz domestic transactions between related parties.
- TDS Exemption- Make s. 197 Procedure Assessee Friendly
Application for nil or lower deduction certificates are flooded in the months of April and May in each financial year. Form 13 is prescribed under the law in this regard. Bulk of the papers is however collected by the revenue from the assessee in addition to such form being comprising of the following:
- Audited financials for last three assessment years;
- Tax audit reports for last three financial years;
- Assessment orders for past assessment framed;
- Provisional tax computation;
- Projected Tax computation;
- Statements of tax deducted by the applicant in the past;
- Form 26AS statements;
- Above all an affidavit stating NIL liability outstanding against the applicant.
Even in some circles the assessee is expected to adduce reasons for NIL provisional tax liability. Even after such filing of papers at time standard letters are issued to AO /assessee seeking further details or information. This actually tends to delay the process more than anything else.
Until such time that is done one fair step that is desirable at the moment is to make the issue of certificate u/s 197 strict time bound. A period of 30 days flat be provided to round up all back and forth procedures of playing round robin among the TDS officer, Joint Commissioner and Commissioner. And in case if that does not complete in 30 days be it for holidays or other works the certificate should be issued at the end of the 30th day of filing of application. And above all in cases where the amounts involved are large the same should be disposed off in priority. On the other hand currently in such cases the files are sent to Commissioner for their approval which further delays the process. And more interestingly the statute does not so provide for any prior approval from the Commissioner. And more so by tender of each such file to Commissioner vitiate the sanctity of the provision which squarely rest both power and discretion to the TDS officer only.
Further all rejections for any deficiency or misstatement in the application must be communicated within time bound manner say 3 days of receipt of application and in case the same are not cleared by the applicant within next 3 days the application may be rejected.
Now we have Aaykar Seva Kendra (ASKs) in various locations. These provide a single window system for registration of all taxpayer applications. The application received for s. 197 first at ASK reaches the TDS officer perhaps after few days which could be in the region of 5-6 days. And interestingly the TDS officer record in its file the date of receipt as the date when it reaches it which is five days after filing by the assessee. This is pure flaw in the system as the TDS officer must record date of receipt as the date on which the application is received at ASK counter and the limitation period should start from such date only.
Not keeping the process of award of certificates u/s 197 in a time bound manner encourages impropriety and further advances corruption which must be avoided at any cost. Further by making the same time bound would bring efficiency in the system where people on either side could be employed for productive jobs rather than drawing check lists and handling loads of papers in their files. The entire activity of issue of certificate u/s 197 is turning a bizarre and it must be regulated immediately to prevent it from harming the image of our systems and procedures. Needless to say after this that there is an urgent need to plan issue of certificates online on Form 13 data without inviting any more papers from the assessee.
Further the Citizens Charter and declaration of the commitment to Excellence in Service to Taxpayers aim to dispose of application for no deduction of tax or deduction of tax at lower rate as early as possible but not later than 30 days of its receipt but more often this period is derailed. If that be the case then what is the benefit to the assessee of such charter and such declaration of failing to come up fair and just. And above all it does not say of automatic issue after 30 days. Interestingly in the new charter on service delivery on the Income Tax Department website it is provided that decision on application for no deduction or lower deduction will be made in one month from the end of the month in which application is received without citing any limitation such as the one in the old charter. It is a shame that instead of improving on our service delivery we strive to bring inefficiencies in the system.
Suggestion
Make Issue of Certificate Electronic and Strict Time Bound
It is thus important to bring electronic implementation and processing of Form 13 application on the basis of date submitted in such application by the assessee without calling for further documents/information to bring amount of fairness in the system of issue of s. 197 certificate of nil or lower deduction of tax at source. Hope that the CBDT will make note of this at once and do the necessary implementation immediately. S 197 procedure thus needs a reform on utmost basis for fair treatment to the assessee.
Gopal Nathani
FCA