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Direct Taxes Code: changes in procedural law
November, 02nd 2009

An improvement as regards assessment procedure in the Code is the need for a draft assessment order to be served before any variation to returned income.

The Direct Taxes Code, 2009, makes a distinction between a stop filer, who was once an assessee but has not filed return, and a non-filer who has taxable income but has not filed return. Both are treated alike for default. Time limit for filing return for non-business is proposed to be advanced to June 30, while for others it will be August 31.

Time limit for revised or belated return will also be curtailed to 21 months from the end of the financial year. If the fiscal yea r as in most countries is calendar year, this time limit would be convenient, besides ensuring advance tax on correct income instead of being on estimate.

Where no voluntary return is filed, the assessing officer can issue notice requiring return within 21 months from the end of the financial year as against the present limit of 12 months. The return will be acknowledged by electronic mode. There would be automatic processing of return to correct arithmetical errors and incorrect claims inferable from the return, apart from the determination of tax, interest or eligible refund after giving credit for pre-paid taxes.

The notice for scrutiny will be issued only in select cases chosen by criteria framed by the Board in line with risk management strategy with such criteria not being revealed to any person. The need for tax audit report where the gross income exceeds Rs. 10 lakh or turnover exceeds Rs. 40 lakh will continue. The limits are inconsistent with the limit of Rs. 1 crore recognised both for gross receipts and turnover for presumptive taxation.

Commissioner has been recognised for approval of application of Rule 12 to ignore impermissible avoidance agreement covered by Sec. 112 listed under the title General Anti-Avoidance Rule (GAAR) and to issue appropriate instruction thereon after a show cause notice.

One material change is that the right to require pre-assessment interference from the Joint Commissioner under the present Sec. 144A will be available under the Code only for the assessing officer and not the assessee under Sec. 164 of the Code. But where he issues direction, it can be done only after hearing the assessee.

An improvement as regards assessment procedure in the Code is the need for a draft assessment order to be served before any variation to returned income. Where the proposed addition exceeds Rs. 25 lakh, it will go to Disputes Resolution Panel, if there is any objection to the addition by the assessee. Opportunity will be given by this Panel which will consist of three commissioners. There is a direct appeal to the Tribunal against the order of the Panel.

Reopening of the assessment would be on the same basis under the present law with additional power to act on any objection or observation by the Comptroller and Auditor General of India or where the assessment is not in accordance with Board Circular or any order or direction or instruction or Circular issued by any superior officer.

Time for rectification is proposed to be curtailed to two years from four years. Rectification will be possible on the basis of the decision of the Supreme Court or jurisdictional High Court or on the basis of a retrospective amendment or to accord with finding or direction in any order passed on to the assessee for any other financial year or an order in appeal, reference or revision or in any other proceedings under any other law. Jurisdiction for rectification will get widened.

Penalties and prosecutions

The law, at present, for penalties and prosecutions do not have any significant changes except for re-drafting of the provisions. Penalty for transactions by modes other than account payee cheque or draft by acceptance or repayment of loan or advance, is dropped, replaced by treating such receipt or payment as concealed income.

Penalty for concealment under Explanation to Sec. 271(1), which was a complete code, the interpretation of which is a matter of settled law, is now sought to be replaced by a set of rules. The corresponding provision for under-reporting of tax base under Sec. 224 of the Code, parallel to Sec. 271(1)(c) is, therefore, bound to create more problems of interpretation.

Occasion has not been taken to simplify either the penalty or prosecution proceedings providing for different penalties or fines/ imprisonment for different defaults, which could be more easily grouped. Prosecution provisions will continue to be as onerous as before, but with compounding option continuing to be available.

Grievance redressal

There is no specific provision to deal with the grievances of the taxpayer but these are available in the present law under rectification, appeal and revisional powers. These provisions under the existing law are proposed to be curtailed by the Code.

Curb on assessing officers powers: The assessment power stands restricted in view of the fact that the Joint Commissioner can suo motu call for a file and issue such directions as he thinks fit for the guidance of the assessing officer. The Joint Commissioner may also seek directions of the Commissioner. Though it is provided that an opportunity will be given, if Commissioner or Joint Commissioners issue any adverse instruction, there is no provision by which the assessee is made aware of the fact that the matter has gone to the Joint Commissioner or Commissioner. As it now happens in practice, the assessee may not even be aware of internal communications so that such a remedy can remain only on paper.

Power to seek assistance of Joint Commissioners removed: The Joint Commissioner has power to entertain the pre-assessment application from an assessee for interference against any proposed action of the assessing officer under the present law in Sec. 144A. Now the corresponding Sec. 164 would limit such interference only at the instance of the assessing officer himself and not at the instance of the assessee by omitting reference to the assessee.

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