Questions & Answers

Nut Crackers

14th National Tax Convention — 2007 at New Delhi Questions on Income-tax

Q.1 A company filed its return of income for A.Y. 2006-07 late in March 2007 whereas the due date for filing the return was 31st October 2006 as specified u/s 139(1) of the Income-tax Act, 1961. The advance tax paid in three installments was also short. However the balance tax due was paid in full on 10th May, 2006.

1. Whether the company is entitled to the credit of the tax so paid in May, 2006 while determining the amount of interest payable u/s 234A for late filing of the return?

2. Whether or not the mandatory interest u/s 234A is at all chargeable in a case where the anticipated tax liability has already been paid in full before the due date but the return is furnished after the due date?

Ans. The Supreme Court in Shashikant Laxman Kale vs. Union of India (1990) 185 ITR 104 (SC) held that interest cannot be charged, when no tax is outstanding. In Vikrant Tyres Ltd. vs. First ITO (2001) 247 ITR 821 (SC) the Apex court once again confirmed the view that no interest could be levied, where the taxpayer has promptly satisfied every demand made by the Revenue. The Company has already paid the amount before filing of the return. The Delhi High Court in Dr. Prannoy Roy & Anr. vs. CIT (2002) 254 ITR 755 (Del) held that Interest u/s 234A is payable in a case where tax has not been deposited prior to due date of filing of return, and not where tax has been paid but return has been filed belatedly. The Mumbai Tribunal in case of Nitin Murli Raheja vs. ACIT (2007) 105 ITD 414 (Mum) – Underlying object of section 234A being to compensate the State Exchequer for delay in payment of self-assessment tax, self-assessment tax already paid is advance tax and has to be excluded for purposes of working out interest u/s 234A. In case of Mrs. Sheela Jaisingh vs. ACIT (2007) 13 SOT 617 (Mum) that once the advance tax is paid, whether on due date or belated, the payment so made has to be treated as advance tax paid. Sec. 234A is not intended to be a penal measure for delay in the submission of return of income. It is the delay in the realization of self-assessment tax occasioned by the delay in the submission of return of income, which is compensated by levy of interest u/s 234A. The Chennai Tribunal in Roshanlal Kapoor vs. ACIT (2007) 108 TTJ 740 (Chennai) held that , where self assessment tax paid in December, 1997 though return was filed in August, 1999, Interest u/s 234A is to be charged only up to the date of payment of tax and not up to the date of filing the return.

Conclusion :

Considering the ratio laid down by the above decisions, the company is entitled to the credit of the tax paid in May, 2006 while determining the amount of interest payable u/s. 234A for late filing of the return.

Q.2. The Lokayukt u/s 13(1)(c) of the Prevention of Corruption Act, 1988 conducted a search at the residential premises of the assessee. Subsequently, the books of account, documents and assets found and seized by the Lokayukt authorities were requisitioned by the CIT as per the authorization issued by him u/s 132A of the Income-tax Act, 1961. In pursuance of the aforesaid requisition, the Assessing Officer issued notice u/s 153C calling for returns of income in respect of 6 assessment years and finalized the assessments. The assessee challenged the validity of requisition u/s 132A issued by the CIT.
Whether the validity of a requisition u/s 132A in pursuance of an authorization issued under that section can be challenged in an appeal u/s. 254 before the ITAT?

Ans. The Commissioner of Income Tax had requisitioned the books, documents, assets as per authorization 132A. Pursuant to the requisition the Assessing Oficer issued notice u/s 153C calling for returns of income in respect of 6 assessment years and finalized the assessments. The assessee intends to challenge the validity of the requisition u/s 132A before Appellate Tribunal. The Madhya Pradesh High Court in case of Gaya Prasad Pathak vs. ACIT (2007) 290 ITR 128 (MP) has held that validity of requisition u/s 132A cannot be decided by the Tribunal in an appeal u/s 253.

The question of validity can be challenged by filing a writ petition before the High court. Various High courts have struck down the requisition u/s 132A on different grounds. Some are as under :

CIT vs. Balbir Singh (1993) 203 ITR 650 (P & H) – Cash deposited with Treasury officer under orders of court continued to be in the custody of Court and could not have been requisitioned by ITO u/s 132A as ‘officer’ or ‘authority’ u/s 132A do not include Court.

Shree Janki Solvent Extraction Ltd. vs. DDIT (1996) 221 ITR 30 (All) For a valid requisition u/s 132A, satisfaction has to be recorded in respect of any apprehension or belief that in case any summons is issued or might be issued, the books or documents may not be produced.

Abdul Khader vs. Sub-Inspector of Police (1999) 240 ITR 489 (Ker) Sec. 132A does not empower the CIT to require the Court to deliver the assets lying in its custody; Gold directed to be returned to the Magistrate who will consider the petitioner’s application for release of gold.

Conclusion

Hence validity of requisition u/s 132A cannot be decided by the Appellate Tribunal. The appropriate legal remedy is to approach the High Court by way of a writ under Article 226 of the Constitution of India.

Q.3. Section 277A provides punishment by way of rigorous imprisonment for a term of not less than 3 months and with fine of a person for falsification of books of account or document etc to enable any other person to evade any tax penalty or interest chargeable or imposable under the Income-tax Act. For establishing the charge, it is not necessary to prove that the other person has actually evaded any tax, penalty or interest.

Whether a Chartered Accountant who prepares the return of a client for income tax purposes and recommends certain adjustment entries to be made in the account books be prosecuted u/s 277A, if during the assessment proceedings fraud is detected by the AO? If so, what are the legal defenses, if any available to him?

Ans. Abetment means Active complicity. Abetment is a separate and distinct offence. A person abets the doing of a thing when (1) he instigates any person to do that thing; or (2) engages with one or more other persons in any conspiracy for the doing of that thing ; or (3) intentionally aids, by act or illegal omission, the doing of that thing. These things are essential to complete the abetment as a crime. The abetment may be by instigation, conspiracy or intentional aid. [Goura Venkata Reddy vs. State of Andhra Pradesh [2004] 13 ILD 715 (SC)]. Abetment involves active complicity on the part of the abettor at a point of time prior to the actual commission of the offence. It is an essence of the crime of abetment that the abettor should substantially assist the principal culprit towards the commission of the offence. In US vs. Johnson (319 US 503) where the attempted tax evasion by the main defendant was based on alleged concealment of his interest in, and income from, gambling clubs, his co-defendants were held guilty because they consciously were the parties to the concealment by pretending to be proprietors even if they did not actually share in the making of the false returns.

The mere concurrence, the kind of passive concurrence, is not abetment. Abetment may take place in one of the three ways : instigation, conspiracy, or, intentional aid (see Malan vs. State of Bombay AIR 1980 Bom. 393)

In case of Navarathna & Co. vs. State by Income Tax Officer (1987) 168 ITR 788 (Mad) it was held as under,

There is no allegation in the complaint, that these documents had actually been placed before the petitioner, at the time when he prepared the returns for the first accused. It could not be even stated that the petitioner had knowledge that these additional documents existed. The auditor could prepare returns only on the materials placed before him by his client. There is no presumption that all materials available with the client are being placed before the auditor. Merely, preparing returns on the basis of the accounts placed before him and having the same typed in his letter-head and delivering it to the client for signature, will not make him liable, even if the returns are subsequently found to be false, on the basis of some new material gathered by the Department. The petitioner could not, therefore, be prosecuted.

In case of ITO vs. J. Chitra & Anr. (2001) 247 ITR 497 (Mad) it was held that, in the absence of any evidence that the false particulars in the application for income-tax clearance certificate were filled up by the accused, an income – tax practitioner, or with his consent, he cannot be charged with offence under section 278; statement of the applicant (co-accused) that she handed over blank form with her signature to the accused cannot be treated as substantial evidence against the accused nor can it form the basis of conviction.

As far as the defenses with the Chartered Accountant who is being prosecuted, the Chartered Accountant can always claim that he had recommended the adjustment entries which are based on sound legal and accounting principles.

Conclusion

From the above it can be concluded that in case it is proved beyond doubt that the Chartered Accountant who prepares the return of a client for income tax purposes has recommended certain adjustment entries to be made in the account books and thus actively abetted the crime then he can be prosecuted.