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Time limits for claiming benefits
June, 17th 2006


17th June, 2006

Time limits for claiming benefits

Enforcing compliance is a major problem for the Income-Tax Department. Only about 3 per cent of the population files I-T returns. And the regular filers take their own time to comply with the law.

Penalty cannot be resorted to in each and every case. Mandatory interest is no doubt a deterrent. If advance tax and TDS together take care of legitimate tax dues, delay in the filing of the return may not mean much either way.

To ensure that corporate houses comply with the due date for filing of income, the Finance Act, 2006 has introduced a deterrence by way of the newly introduced Section 80AC. This is a major amendment and takes effect from April 1, 2006. This means that even for this year, that is, assessment year (AY) 2006-07, such returns claiming tax benefits will have to be filed before October 31, 2006. Returns filed after this date for the AY 2006-07 will not be considered for conferring tax benefits indicated above.

Several issues will have to be considered in this regard.

Court rulings

The Supreme Court had ruled that if on the basis of material placed on record, the assessee is entitled to claim any deduction but forgets to make its claim in the return or in the course of assessment proceedings, then he is entitled to make the claim by moving application under Section 154 for rectification since the failure to grant deduction or exemption would amount to mistake apparent from record (Anchor Pressings (P) Ltd vs CIT (1986 161 ITR 159 SC).

No provision is made for condoning the delay in filing of returns. Denial of tax benefits is made mandatory. If you want the incentive deduction, file the return within the due date; otherwise you will not be entitled to the tax benefits. A similar time schedule was prescribed under Sections 80-IA and 80-IB.

Sub-clause (7) of Section 80-IA requires an audit report to be furnished along with the return of income. While the filing of the audit report is mandatory, courts have held that such report may be filed even with a revised return and not necessarily with the first return.

The Madras High Court ruled that the requirement about filing of the audit report along with the return of income is not mandatory. If the audit report is available to the income-tax officer before the completion of the assessment, the assessee will be entitled to claim deduction (CIT vs A. N. Arunachalam 75 Taxman 529). The Bombay and Calcutta High Courts have followed this view.

There is another important aspect to be considered. The amended section is made non-appealable. There can be numerous situations which prevent an assessee from filing the return of income within the due date.

The amended Section does not provide for such contingencies. In this respect, it is similar to the old Chapter XX C relating to the purchase of under-valued property by the Appropriate Authority. No appeal was provided for against such orders. Courts ruled that writ petitions can be entertained in such cases. Again, provisions for mandatory interest are made non-appealable from 1989 onwards.

The Central Board of Direct Taxes came out with instructions to the field officers to waive or reduce interest in certain cases depending on the circumstances. It is necessary that the hardship arising out of the new Section 80-AC should be mitigated by proper instructions from the CBDT.

T. C. A. Ramanujam

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