Taxman should move towards limited scrutiny*
_Cross-verification of information should be the norm, but detailed scrutiny of income tax returns should be an exception_
Many persons have been surprised to receive notices from the tax department, asking them to file their income tax returns (ITRs) for an earlier year, giving details of certain transactions. Many taxpayers who have filed their tax returns have also received such notices, asking for confirmation of such transactions. These notices have become extremely common in the past one year.
Notices, to trace potential tax evaders, have become possible due to various initiatives taken by the income tax department. Earlier, the main source of such information was tax deduction at source (TDS) required on payments of certain incomes, where the TDS returns reflected the Permanent Account Numbers (PANs) of the persons to whom such payments were made. These payments were then aggregated under the PAN of the person to whom payments were made.
The widening of the scope of information required to be filed through Annual Information Returns (in existence since 2004) from 2016 onwards, has brought about this sea change. A wide variety of transactions are now required to be reported by the counter-party. These include various types of investments of value of ₹10 lakh or more, new fixed deposits with banks, post office or finance companies, or subscription to an issue of debentures, bonds or shares of a company or units of a mutual fund. Buyback of its shares by a company of value exceeding ₹10 lakh also has to be reported. The reportable transactions also include purchase or sale of immovable property of value exceeding ₹30 lakh, and purchase of foreign exchange of ₹10 lakh or more.
Besides the above, certain cash transactions also have to be reported—cash deposits in bank accounts or purchase of bank drafts in cash above certain limits; purchase of goods or services of more than ₹2 lakh in cash (if the seller is liable to tax audit). Insurance companies would, therefore, report receipt of insurance premiums, hotels would report receipt of bills, car or white goods dealers would report sale of cars or white goods, if the payment is made by the customer in cash exceeding the limit.
The tax department would also now have access to the goods and services tax (GST) database, which reflects the sales transactions of entities liable to GST. This would also make the matching process easier for the tax authorities. However, this is being done in a limited way, and without understanding the nuances of accounting for sales by different types of businesses. The turnover for GST purposes is not necessarily the turnover as per the accounts. There are various items, such as reimbursements, which may form part of turnover for GST purposes, but would not be classified as turnover in the accounts.
Consolidating all this information based on the PAN helps the tax department create a profile of the taxpayer, which can then be compared with the income declared in the tax return, to flag off potential tax evasion. This is certainly a significant deterrent to tax evasion, and to cash transactions.
But is it enough? The biggest problem faced by the tax department in getting complete information is the existence of the large parallel cash economy. If both the entities in a transaction execute it in cash, and do not reflect it in their records, such transactions will not be captured by this system.
For example, if a caterer, decorator or a construction contractor takes certain amount in cash from a customer by under-invoicing his services, and does not report it as his income, it will obviously not reflect in the Annual Information Returns either. Therefore, both the customer as well as the service provider will continue to remain outside the tax net, so far as this additional payment is concerned. Therefore, other methods would have to be adopted to tackle such collusive tax evasion.
A practical difficulty in compliance arises for many taxpayers in cases of investments or purchase or sale of property made in joint names. In most cases, the name of the joint holder is added only for convenience. Notices for the same investment or purchase or sale are received both by the first holder as well as the joint holder, requiring compliance by both the holders for the same transaction, though for tax purposes, the investment, purchase or sale may be by only one of them.
Internationally, such collection and cross-verification of information is the norm, with detailed scrutiny of tax returns by tax officers being the rare exception. In India, we still have a large number of returns being scrutinised in detail, though a concept of limited scrutiny has also been introduced, where the object is only to cross-verify select information. Hopefully, we will see an increased move towards limited scrutiny, or notices for confirmation of information, rather than detailed or complete scrutiny, which consumes substantial time and effort of both the taxpayer and the tax department.
We, of course, still have a long way to go in checking black money. There are still large parts of the informal economy that continue to operate in cash. The tax department needs to focus in that direction, in ensuring that all businesses are run in a tax-compliant manner.
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*👉🏻Govt opens 10 joint-secretary level posts for private sector professionals*
(Govt has opened up joint secretary positions in at least 10 ministries and departments to skilled professionals, including from the private sector. 10 "outstanding individuals" who are willing to contribute towards nation building)
👇🏻 👇🏻 👇🏻
https://goo.gl/odfjN1
*👉🏻ICAI Valuation Standard effective for Valuation Reports issued on or after 1st July*
(ICAI issues Valuation Standards as a benchmark for Valuation Practices applicable for Chartered Accountants. These Valuation Standards are effective for the valuation reports issued on or after 1st July, 2018)
👇🏻 👇🏻 👇🏻
https://goo.gl/epijDh
*👉🏻GST refund to foreign tourists at airports on the cards*
(Initially, only purchases made by tourists from big retailers would be eligible for GST refunds at the airports when the tourist is leaving the country)
👇🏻 👇🏻 👇🏻
https://goo.gl/wbPJvp
*👉🏻Appointment of Internal Auditors for The Indian Institute of Corporate Affairs*
(ICA invites Expression of Interest (EOI) from CA firms for appointment as Internal Auditors for the Financial Year 2018-19. Last date of submission of application is 17/06/2018.)
👇🏻 👇🏻 👇🏻
https://goo.gl/N4JxuK
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Relief to Priyanka Chopra: ITAT deletes Income Tax Additions* [Read Order]
Read more at: http://www.taxscan.in/relief-priyanka-chopra-itat-income-tax/24447/
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ICAI offers Incubation Centres to CA Start-Ups*
Read more at: http://www.taxscan.in/icai-incubation-centres-ca-start-ups/24456/
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*Activity of Preparation of Dossier Amount to Manufacture u/s 10B: ITAT allows Deduction* [Read Order]
Read more at: http://www.taxscan.in/activity-preparation-dossier-manufacture-itat-allows-deduction/24439/
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*Expenditure of Premium of Redemption of Foreign Currency Convertible Bonds is Revenue in Nature: ITAT* [Read Order]
Read more at: http://www.taxscan.in/expenditure-premium-redemption-foreign-currency-convertible-bonds-revenue-nature-itat/24451/
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GST refund to foreign tourists at airports on the cards
Countries like Australia, Germany, France, Singapore, Japan, Malaysia, United Kingdom and Switzerland offer VAT or GST refund to international tourists subject to certain conditions.
Foreign tourists may soon get to claim GST refunds at airports at the time of exit as the revenue department is working on a mechanism to refund taxes paid by them on local purchases.
Initially, only purchases made by tourists from big retailers would be eligible for Goods and Services Tax (GST) refunds at the airports when the tourist is leaving the country, an official said.
In several countries VAT or GST are refunded to the tourists for purchases made beyond a prescribed threshold.
The department is working out a mechanism which will ensure refund of GST to foreign tourists and for that the field offices have to be sensitised, the official said.
"It has to be ensured that refunds are not claimed on the basis of fake invoices. The refund mechanism could start on the basis of invoices issued by big retailers," the official told PTI.
A provision for GST refund to tourists have been made in the GST law, but it is yet to be operational.
The law has defined the term 'tourist' as a person not normally resident in India, who enters India for a stay of not more than six months for legitimate non-immigrant purposes.
AMRG & Associates Partner Rajat Mohan said tourist refund claims are a great inbound tourism marketing technique with a low cost to the exchequer.
"Internationally, countries like Singapore and Australia have an online robust system connecting multiple refund agencies and retailers on a single platform, offering tourists a seamless and hassle-free experience while verifying, processing and disbursing the tax refunds. Matching such state-of-the-art systems could be a technological nightmare for Indian counterparts," Mohan said.
Countries like Australia, Germany, France, Singapore, Japan, Malaysia, United Kingdom and Switzerlandoffer VAT or GST refund to international tourists subject to certain conditions. These countries also have a threshold of the minimum amount spent for availing these tax refund advantage.
In Australia, to avail the tax benefit the minimum spend should be 300 Australian dollars (around Rs 15,000). Also, the goods have to be purchased from a single business with same Australian business number.
In case of Singapore, the norms are more relaxed and the minimum purchase amount fixed is SGD 100 (around Rs 5,000), while for Japan and Switzerland the threshold has been fixed at 5,401 yen (around Rs 3,000) and 300 Swiss francs (around Rs 20,000), respectively.
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AAR, Gujarat :
Renting of space for warehousing classifiable as ‘Rental or leasing services’. (Rishi Shipping – March 20, 2018)
The applicant, a cargo handling company, provides service of warehouse/space on rent to their customers, where customers store imported agricultural commodities, the applicant only rent the storage premises. There is difference between 'storage or warehousing' service and 'renting of storage premises' service. The 'storage and warehousing service' provider normally make arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, makes security arrangements and provide insurance cover etc. In a case where a person only rents the storage premises, he does not provide any service such as loading/unloading, stacking, security etc. Mere renting of space cannot be said to be in the nature of service provided for storage or warehousing of goods.
[6/12, 8:43 AM] +91 99106 91575: GST evasion: Indian traders have found this ingenious tactic to dodge e-way bill system
The traders are now using horse-carts or manual carts to transport goods across states, as the e-way bill is applicable only for motorised vehicles.
By: FE Online
June 11, 2018 4:21 PM
Goods being transported by horse-cart.
Following the rollout of e-way bill for transfer of goods, Indian traders have found a new a unique way to evade GST. The traders are now using horse-carts or manual carts to transport goods across states, as the e-way bill is applicable only for motorised vehicles. Under the latest rules, an e-way bill is not required if goods are transported by a non-motorised carriage such as horse-carts. Notably, while the e-way bill is optional only for goods less than Rs 50,000 in value, traders use non-motorised conveyance to transport goods beyond the exemption limit.
“What can one say,” Nilesh Shah quipped on Twitter, after attaching an image of traders transporting goods using a horse-cart. “No E-way Bill is required for movement of goods in non-motorised conveyance and also for certain class of goods like fruits, vegetables, fish and water,” GSTN, the company handling the technology backbone for GST said in a recent statement.
E-way bill is an online generated document required by the person in charge of the transportation for the movement of goods. Under the Goods and Services Tax (GST), e-Way Bill has replaced a number of road permits, statutory forms, transit pass requirements and delivery challans, which can be generated online through its official website or mobile App.
In case of Punjab, many dealers were reportedly transporting construction materials and furniture (sofa sets) on horse-carts in Ludhiana, after the introduction of the intra-state e-way bill system from June 1. Even before the current regime came into effect, traders in Punjab were engaging in bogus billing.
The e-way bill requires online pre-registration of goods before transportation under the new GST regime. Under the e-way mechanism, all goods worth over Rs 50,000 will have to be pre-registered online before they are moved for sale beyond 10 km. The e-way bill mechanism has been introduced in the GST regime to plug tax evasion loopholes. However, with Indian traders finding unique ways to defeat the system, the government’s job is only going to get more difficult.
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15-06-18 (Friday) is LAST DAY for Payment of Advance Income Tax: All Assessees (15%) except 44AD cases. Challan No.ITNS-280.
LATE FEE ON DELAY IN FILING INCOME TAX RETURN FOR THE YEAR ENDED 31ST MARCH, 2018 (Asst.Yr: 2018-19) under sec. 234F: If ITR filed during 01/08/2018 – 31/12/2018 : Rs. 5000 and If total income does not exceed Rs.5 Lakhs then Rs. 1000.
Late fee for Return filed during 01/01/2019 – 31/03/2019 : Late Fee Rs. 10000. If total income does not exceed Rs. 5 Lakhs then this Late Fee will be restricted to Rs. 1000.
GST on applicable rates to be charged on labour & spares in case of car service where same shown separately. Circular 47/21/2018-GST of 8.6.18.
GST applicable on additional interest in case of default in installment payment & late payment charges on credit card dues. CBIC FAQs (Jun 2018).
The recent amendment to the bankruptcy law — that requires shareholder approval before a company files for insolvency and also mandates that the administrator convince the tribunal that the resolution plan is effectively implementable — will benefit small stakeholders but delay resolution.
Indian Valuation Standards as issued by the Institute of Chartered Accountants of India effective for the valuation reports issued on or after 1st July, 2018.
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# *GST*: ITC of GST paid in relation with building, other civil structure or sanitary fittings are integral part of building or any other civil structure, is not available. However, ITC is available on office fixtures, furniture and A.C. plant – AAR, UK in Bahl Paper Mills Ltd. (2018 (6) TMI 431).
# *GST*: Determination of rate of tax for pharmaceutical Bulk drugs and Intermediates - The applicant is eligible to claim the benefit of lower rate of GST i.e. 5% - AAR, AP in Laurus Labs Ltd. (2018 (6) TMI 460).
# *GST*: Government clarifies GST applicability on financial services by issuing FAQ's.
# *RBI* has modified the ECB 2 Return for Monthly reporting of External Commercial Borrowings (ECBs).
# *SEBI* has made Amendments to Prevention of Money-laundering (Maintenance of Records) Rules, 2005 by making the Aadhaar and PAN mandatory for both new and existing accounts with the financial market intermediaries including securities market intermediaries.
# *IT*: Allowable expenditure u/s 37(1) - Settlement charges paid to SEBI - penalty paid for infraction of law - payment was made without admitting or denying the guilt - claim of expenditure allowed – DCIT Vs. Anil Dhirajlal Ambani (2018 (6) TMI 469 - ITAT Mumbai).
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GST: NAA’s Third Order dismisses Anti-profiteering Charges against Elevator Manufacturers* [Read Order]
Read more at: http://www.taxscan.in/gst-naas-anti-profiteering-elevator/24500/
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Bank Deposits need not be Separately Assessed, When Income was Estimated more than What Assessee has Disclosed: ITAT* [Read Order]
Read more at: http://www.taxscan.in/bank-deposits-separately-assessed-income-assessee-disclosed-itat/24481/
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Mutual Fund withdrawals invested in Villa and Bank eligible for S. 54F Deduction: ITAT* [Read Order]
Read more at: http://www.taxscan.in/mutual-fund-villa-bank-deduction-itat/24460/
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ICAI has issued number of Guidance Notes on Auditing to provide guidance to the members on generic and industry specific audit issues. For your ready reference, we are enclosing the list of Guidance Notes on Auditing at following link: https://www.icai.org/post.html?post_id=6612
ICAI has issued suite of Standards on Auditing (SAs) which need to be complied with by auditors in audits of financial statements. The text of all SAs is available on ICAI's website at following link: https://www.icai.org/new_post.html?post_id=450&c_id=141
Indian Valuation Standards as issued by the ICAI effective for the valuation reports issued on or after 1st July, 2018. https://resource.cdn.icai.org/50484clcgc100618.pdf
Digital Accounting and Assurance Board invites expression of interest from resource persons -Interested experts are requested to send their details at the link https://goo.gl/forms/OrYSlrxmL3bxGp4q1
NIRC: “Seminar on E-Way Bill and GST Audit” jointly with Several CPE Study Circles on Friday 15th June, 2018 at Kedar Nath Sahni Auditorium Dr. Shyama Prasad Mukherjee Civic Centre, Delhi
NIRC: “Seminar on Income Tax on Saturday 16th June, 2018” at Hotel Eros, Nehru Place, Delhi-110019 visit http://www.nirc-icai.org/
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Interest paid to Off-shore branch of ICICI Bank not subject to TDS if It is Lender of External Commercial Borrowing: ITAT* [Read Order]
Read more at: http://www.taxscan.in/interest-icici-bank-tds-external-commercial-borrowing-itat/24474/
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Scraps generated in normal course of Business must be treated as part of Business Income: ITAT* [Read Order]
Read more at: http://www.taxscan.in/scraps-business-income-itat/24486/
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*Assessee can’t claim Non-Chargeability of Interest since Cash was Seized after the Expiry of Previous Year: ITAT* [Read Order]
Read more at: http://www.taxscan.in/chargeability-interest-cash-seized-previous-year-itat/24489/
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LATE FEE ON DELAY IN FILING INCOME TAX RETURN FOR THE YEAR ENDED *31ST MARCH, 2018 (Asst.Yr: 2018-19)* under sec. 234F:
1. If Return filed during 01/04/2018 – 31/07/2018 : Late Fee *NIL*
2. If Return filed during 01/08/2018 – 31/12/2018 : Late fee Rs. *5000*
If total income does not exceed Rs.5 Lakhs then this Late fee will be restricted to Rs. *1000*
3. If Return filed during 01/01/2019 – 31/03/2019 : Late Fee Rs. *10000*
If total income does not exceed Rs.5 Lakhs then this Late Fee will be restricted to Rs. *1000* only.
*Better Get your ITR filed by 31/07/2018*
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*Deduction allowable on Purchase of Old Gold from Customers against Purchase of New Ornaments: ITAT* [Read Order]
Read more at: http://www.taxscan.in/deduction-allowable-purchase-old-gold-customers-purchase-new-ornaments-itat/24512/
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Pulse grains & cereals are agricultural produce if no further processing is done; no GST chargeable: AAR
[2018] 94 taxmann.com 159 (AAR-GUJARAT)
GST: Pulses (de-husked or split), jaggery, processed dry fruits such as processed cashew nuts, raisin, apricot, fig, date, tamarind, shelled groundnuts / groundnut seeds and copra are not agriculture produce as defined under notification no 11/2017-Central Tax (Rate) dated 28.6.2017; Cereal on which any processing is done as is not usually done by a cultivator or producer, will fall outside definition of agriculture produce
GST: Processed spices including processed turmeric and processed ginger are not agriculture produce as defined under notification no 11/2017-Central Tax (Rate) dated 28.6.2017
GST: Whole pulse grains such as whole gram, rajmaetc and cereals, groundnuts with shell, turmeric and ginger on which no further processing is done or such processing is done as is usually done by cultivator or producer which does not alter its essential characteristics but it makes it marketable for primary market, falls under definition of agriculture produce as defined under notification no 11/2017-Central Tax (Rate) dated 28.6.2017
• Applicant has referred to notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, which inter-alia provides rate of tax as NIL for 'support services to agriculture, forestry, fishing, animal husbandry', and submitted that in their opinion, 'Agricultural Produce' includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetables fibers such as cotton, flax, jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee and tea but does not include manufactured products such as sugar, edible oils, processed food and processed tobacco, and intra-state support services to agricultural produce by way of loading, unloading, packing, storage or warehousing of agriculture produce is chargeable at NIL rate.
• Pulses (de-husked or split), jaggery, processed dry fruits such as processed cashew nuts, raisin, apricot, fig, date, tamarind, shelled groundnuts / groundnut seeds, and copra are not agriculture produce as defined under Notification No. 11/2017-Central Tax (Rate). 'Cereal' on which any processing is done as is not usually done by a cultivator or producer will fall outside the definition of agriculture produce.
• Processed spices including processed turmeric and processed ginger, are not agriculture produce as defined under Notification No. 11/2017-Central Tax (Rate). However, groundnuts with shell, turmeric and ginger on which no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but make it marketable for primary market would fall within the definition of agriculture produce.
• Whole pulse grains such as whole gram, rajma etc. and 'cereal ' on which no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market, fall under the definition of agriculture produce as defined under Notification No. 11/2017-Central Tax (Rate).
[2018] 94 taxmann.com 159 (AAR-GUJARAT)
AUTHORITY FOR ADVANCE RULINGS, GUJARAT
Guru Cold Storage (P.) Ltd.
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ITAT deletes Additions against McDonald’s* [Read Order]
Read more at: http://www.taxscan.in/itat-deletes-additions-mcdonalds/24516/
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IBBI prescribes Norms for Fee and other Expenses incurred for Corporate Insolvency Resolution Process* [Read Circular]
Read more at: http://www.taxscan.in/ibbi-fee-expenses-corporate-insolvency-resolution-process/24524/
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Govt plans to offer GST Refund to Foreign Tourists at Airports*
Read more at: http://www.taxscan.in/gst-refund-foreign-tourists-airports/24522/
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Govt extends Special Refund Fortnight till 16th June*
Read more at: http://www.taxscan.in/cbic-special-refund-fortnight-16th-june/24534/
