Who is required to file income tax returns? A person in the meaning of the Income Tax Act includes an individual, a Hindu Undivided Family, a company, a firm, an association of persons or a body of individuals, a local authority and an artificial judicial person. Each year in the Budget, income exempt from taxation is prescribed, which may be different for different categories of persons. Due dates of filing income tax returns are notified for different classes of persons. Non-filing of returns by the due date attracts penal interest on payable tax and also penalty, while failure to furnish returns of income leading to willful attempt to evade tax may also attract prosecution in extreme cases. The returns can be filed in the prescribed form for each class of persons electronically. The only exception is in the case of individuals or HUFs having income less than Rs. 5 lakh per annum, who have the option to file paper returns.
The facility for electronic filing of returns is a recent phenomenon which is very helpful to taxpayers and which guarantees speedy receipt of refunds. The unfortunate part is that our tax base is very narrow—which is roughly four percent of our population. In the preceding financial year only 5,34,000 persons filed income tax returns.
What happens after the income tax returns are filed? The returns are processed u/s 143 (1) of the Income Tax Act electronically, by the Central Processing Centre at Bengaluru for all returns filed electronically, and in field offices where paper returns are filed.
Tax payers are intimated about the tax demand if any, after processing. Wherever there is refund, the same is directly credited to the bank account of the taxpayer specified in the returns as per the instructions issued, and completed within four months.
Taxpayers sometimes have the grievance that refund receivable as per the returns of income filed, do not come in due time. But in most cases, this is due to mistakes on the part of the taxpayers. They commit mistakes in specifying their PAN correctly, or by giving their bank account particulars wrongly. Sometimes the mistake could be due to a mismatch between the claims of tax paid, particularly in the case of tax deduction at source and tax paid recovered. Taxpayers are advised to check form N 26 A 5 before filing returns of income so as to avoid mistakes.
Taxpayers are sometimes worried that after filing their returns, their case may be selected for scrutiny. Cases are selected for scrutiny in roughly two percent or the cases and hence taxpayers need not worry. Scrutiny notice u/s 143 (2) of the Income-Tax Act can be issued only up to six months after the financial year in which returns are filed. Taxpayers can comply with the notice for scrutiny by sending their authorised representative, or by giving a written submission in response to the queries raised. The government has recently announced a pilot project where queries and responses can be given by email and where physical attendance may not be necessary.
The intention of the department is to reduce the interface between the taxpayers and tax officers to eradicate the fear of harassment. The order passed by a tax officer after scrutiny is a speaking order in writing, which is called an ‘assessment order’. Penalty proceedings under relevant provisions may be initiated and noted in the assessment order. However, penalty can be levied only by a separate order after giving an opportunity to the taxpayer to respond. The assessment order encloses a demand notice specifying the amount of tax to be paid.
The Income Tax Act provides for a full judicial system of appeal. Taxpayers may not accept the assessment order and the same can be contested in appeal before the Commissioner of Income Tax (Appeal). The order passed in this appeal can be contested both by the department and the assessee before the Income Tax Appellate Tribunal (ITAT) which comes under the Ministry of Law and is a judicial body independent of the income tax department. The ITAT is the final body on issues of facts. However, if there is any question of law, then both the assessee and the department can go to the High Court and Supreme Court against the decision of ITAT.
There is a provision in the Income Tax Act to reopen the completed assessment passed after scrutiny or even the intimation received after processing the returns. However, the reopening cannot be done arbitrarily and on the whims of the tax officer. It can be done only after it is recorded in writing that some income chargeable to tax has escaped assessment. Taxpayers will have the right to demand the reasons recorded to reopen his assessment and challenge them. The tax officer can proceed further only after meeting the objection of the taxpayer. The reopening can normally be done up to four years after the completion of the assessment, but it can extend up to six years, if the income escaping assessment is more than Rs. 1 lakh.
The tax officer making the assessment has a unique position. He is both prosecutor and judge. He has the powers of a quasi-judicial authority and at the same time he is required to gather evidence against the assessee to be relied upon while passing the assessment order. For gathering evidence he can issue summons to relevant witnesses or carry out survey action at the office or business premises of the assessee.
However, the most serious action for gathering evidence as stipulated in the Income Tax Act is the search action. A search action is conducted by a special wing of the department named the Directorate of Investigation. Evidence collected by it is forwarded to the assessing officer for passing the assessment order.
A search action is conducted based on information of tax evasion of significant magnitude. The information is either collected by the officers in the investigation wing or given by informants who are given rewards. Rewards normally are 10 percent of the tax collected due to the search action based on the information given. The search action can take place against any person or any entity whether they are taxpayers or not. The place of search can be any number of places where hidden assets or incriminating documents or books of accounts are suspected to be kept. The place of search can even extend to motor cars, bank lockers, aircraft or even ships. However, for transparency and fairness of the proceedings, the search action is carried out before two independent witnesses.
The unfortunate part is that our tax base is very narrow—which is roughly four percent of our population. In the preceding financial year only 5,34,000 persons filed income tax returns
After the conclusion of the proceedings a panchnama is drawn which notes the details of the search proceedings and the same is signed by the witnesses, together with the officers conducting the search and the person who has been searched. The search party can make seizure of apparently unaccounted assets like cash, jewellery and other valuables together with the seizure of incriminating documents or books of accounts found, if any. Statements on oath of the persons present in the course of search may also be recorded.
The purpose of all the proceedings under the Income Tax Act like gathering evidence and passing the assessment order is to collect taxes which have not been paid voluntarily.
The modes of voluntary payment of tax are advance-tax, self-assessment tax and tax deducted at source (TDS).
The intention of advance tax is to pay tax when you earn. This is paid during the financial year in installments before the stipulated dates under the provision. From financial year 2016-17, advance tax has to be paid in four installments, on or before 15th June, 15th September, 15th December and 15th March.
The Income Tax Act provides for coercive measures for collection of unpaid tax which has not been stayed. Coercive measures include the attachment of bank accounts, and properties both moveable and immoveable. Even debtors or tax defaulters can be asked to pay the tax department to the extent of their debt and they will be legally bound to comply with the order. The properties attached can be auctioned for recovery of tax paid. And, last but not the least, the tax defaulter can be sent to jail if he does not cooperate. It is not denied that while payment of tax out of your hard-earned income is a real pain, the process of collection of tax is a thankless job. But there are good reasons also for filing income tax returns and paying your tax. We all know the altruistic reason, that our tax goes towards building our nation. Whether it is developmental work or social welfare work, the country will need resources and our tax paid go into such resources. In addition, a taxpayer gets an identity and his PAN card is a credible identification certificate.
“Taxation is the price which civilised communities pay for the opportunity of remaining civilised,” said Albert Hart. Does anybody of us like to be uncivilised? I believe the answer is a big NO.
Then, do not think twice and pay tax. File your income tax returns in due time. Please do not wait for an unknown person to come and knock on your door. A good, peaceful sleep is much better than tension caused by greed.
By S K JHA
