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Taxing time ahead for companies
November, 04th 2006

The new year may not ring in pleasant tunes for corporate tax payers. Reason: Bunching of the last date for filing returns (November 30) and passing time-barred assessment orders (December 31) will leave enough room for hastily passed orders.

Tax officials fear that chartered accountants (CAs), who are struggling with the new norm of electronic filing of tax returns and audit work, would not be in a position to attend to queries raised by the department before the assessment order is passed.

"In such cases, every tax official will make additional tax demand, even in cases where demands will not be able to stand the test of the first appellate authority," officials said. Already, CAs are harried because the e-filing is full of problems, mainly due to software limitations.

Obviously, one can expect high pitch tax demands from the department's side, leaving firms to defend their cases before the appellate authorities.

Tax professionals point out one more cascading effect of the bunching of the two crucial dates. As per the new scrutiny norms, every case where any addition or deletion of Rs 5 lakh and above is made will be picked up for scrutiny by the department.

With such confusion and extreme shortage of officers, one can expect more litigation in the future. "This is the first time that such a short deadline is given to officers for passing assessment orders. And unfortunately, it is happening at a time when there is a shortage of officers," said Rajesh Menon, convener, joint council for action of the income tax department.

In the 2006-07 budget, the finance ministry has bought forward the time limit for completing assessment orders. In most cases, where assessment orders were required to be passed by March 31, these will now have to be completed by December 31.

As per current rules, one month's notice is given to a taxpayer for paying up the tax demand raised in an assessment order. In addition to the time barred assessments, the last date for filing returns for 2005-06 was postponed from October 31 to November 30 after CAs conveyed the problems with the income tax department's software.

Assessment orders are passed in hardly 4-5% of cases but these pertain to the creme de la creme of tax payers (including the search and seizure cases).

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