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Non-payment of TDS by mumbai companies: Showcause notices to over 300 firms
February, 27th 2017

The Income Tax (I-T) department in Mumbai has issued prosecution show-cause notices to over 300 private and public firms for non-payment of tax deducted at source (TDS) for fiscal 2016 and 2017. The I-T department has also launched prosecution against at least 20 such companies and their directors in Mumbai courts, sources familiar with the development told The Indian Express.

According to court filings of the tax authority, in most of the cases, the companies have defaulted on payment of TDS to the government despite collecting it from the employees. In other cases, the tax agency has filed a prosecution complaint against firms and their directors for delay in filing of TDS.

Some of the prominent firms, which are facing prosecution proceedings in court include Allied Media Network Ltd, a subsidiary of media firm Percept Limited (Rs 5.11 crore), Mirah Group firm Citrus Check Inns Ltd (Rs 20.04 crore), Sovika Aviation Services Pvt Ltd (Rs 3.81 crore) and Temple Rose Real Estate Pvt Ltd (Rs 120 crore).

Under the TDS norms, money deducted as income tax has to be paid to the central government within seven days from the end of the month in which the deduction is made or before the prescribed dates.
Failure to adhere to the provisions and violation of TDS rules attract a penalty and jail term of up to 7 years under Section 276 B of the Income Tax Act, 1961. Apart from this, the tax department can prosecute the key management personnel of the company for failure to deposit the TDS.

“It is true that the Income Tax department has launched prosecution against our client and their key management personnel for delay in payment of TDS. The entire amount of TDS required to be paid has already been paid long back (well before prosecution was launched) with interest and no part of the TDS for the last three years remains payable. The delay was essentially because of liquidity issues faced by the company and initial losses incurred in the new business,” said Pannkaj Ghadiali, managing partner of P C Ghadiali and Co LLP, the chartered accountancy firm advising Sovika Aviation Services, in an email response.

“These proceedings have been launched despite CBDT instructions dated May 28, 1980 where it has been emphasised that prosecution should not be launched where the amount in default has been deposited,” said Ghadiali.

Emails and phone calls to Allied Media Network, Citrus Check Inns and Temple Rose Real Estate did not elicit any response.

Apart from the prosecution proceedings, the tax department has also attached the bank accounts of some of the firms that have defaulted on TDS payments.

For instance, in case of Citrus Check Inns, the tax agency has attached a little over 100 bank accounts of the firm for non-payment of TDS of Rs 20 crore for fiscal 2016.

In 2015, market regulator SEBI had barred Citrus Check Inns and its directors from raising fresh capital from public after it found that the company had collected over Rs 700 crore from small investors through illegal collective investment schemes.

In January 2017, the Economic Offences Wing of the Mumbai police had registered an FIR against Temple Rose Real Estate and its directors for allegedly raising about Rs 400 crore from over 3000 investors through ponzi schemes.

So far the IT department has collected Rs 2.85 lakh crore till January 31 from TDS, a jump of 14.79 per cent over the corresponding period of last fiscal. The overall TDS collection target for fiscal 2017 is set at Rs 3.50 lakh crore.

The overall direct tax collection for the current fiscal, that ends on March 31 is over Rs 8.47 lakh crore, of which TDS collections constitute a major chunk.

With the current financial year inching towards closure, Central Board of Direct Taxes (CBDT) has directed the tax authority to step up survey operations to check non-deduction of TDS by firms and employers, especially in cases where such payments have dropped by more than 15 per cent as compared to last time.

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