COMPULSORY TAX AUDIT EFILING

SHOCKING: REASON FOR COMPULSORY TAX AUDIT EFILING

In the year 2011-12, ICAI along with CBDT did a thorough check of tax audit reports and observed that a number of tax audits reports were filed by the assessee by quoting Fake Membership details of the Chartered Accountants. Some of the points observed were:

a) 696 membership numbers (1385 tax audits conducted) quoted by the assessees in e-returns do not subsist at all.
b) 420 membership numbers belong to deceased members.

Further it was pointed out that

1. Approx. 9,500 Members conducted tax audits in excess of specified limit of 45
2.Approx. 2,700 Members with NO COP as on 21.01.2012 conducted Tax Audits.
3. Approx. 736 Members holding Part time COP conducted Tax Audits.

To avoid such irregularities, CBDT has made tax audit report efiling mandatory. The membership details of the auditor would now be checked electronically and any error could be easily pointed out

All you need to know about LBT

The draconian LBT: Local Body Tax explained

LBT is a draconian Act, especially with key words like ‘goods’, ‘dealer’, ‘business’ loosely defined in the legislation, giving enough scope for the administrators to stretch their imagination to fanciful limits to the common man’s harassment and dismay

LBT stands for Local Body Tax, which has been introduced in most of the municipalities and corporations in Maharashtra,  in lieu of Octroi or Cess. It is a levy under entry 52 in the State list of Schedule VII of the Constitution of India, on the entry of goods into a city limits for the purpose of consumption, use or sale therein. Thus, the recent agitations against LBT, a levy, which is constitutionally valid, have given rise to questions as to the root cause of the agitations. 

Local body tax is a levy that traders will have to pay the local municipal corporation for importing goods into the state.

LBT is an account-based cess collection for every raw material used or imported into the city’s limits by all businesses, traders and manufacturers. Once implemented, LBT will replace traditional octroi collections.

At present, octroi is paid by traders every time goods enter the city. This charge is applicable in certain states and varies from state to state.

All shopkeepers, who sell goods over a certain amount, will have to pay LBT. It will range from 0% to 7% and will be computed based on a trader’s turnover

Octroi is a levy which was prevalent in Roman times. It was extensively used as a tax tool in Europe till World War II. Now, it is almost extinct except in Ethiopia and Maharashstra (a true reflection of comparable development of the economy or the situations of drought). Other states in India have done away with this levy and they share a portion of the Value Added Tax (VAT) or Sales Tax (ST) with the local bodies.

Another reason which goes against LBT is the exorbitant compounding fees. The Bombay Provincial Municipal Corporations Act, 1949,  the Act that gives right to levy LBT, as such does not have a penalty-limit prescribed for any violations relating to LBT, though there is an elaborate Annexure prescribing the variouspenalties. That shows that penaltycannot be levied legally.

However, the Rule 48  framed under this Act, quantifies the penalty that can be levied in different cases. Thus, the said Rule is ultra vires the Act. 

Further, the compounding fees, is payable, only if the dealer is convicted. However, the administration is collecting the compounding fee as tax at the time of assessment itself making it a dubious source of revenue for the Government. 

Another point against LBT is the cascading effect of teh Tax. Unlike excise or service tax or VAT, there is no concept of set-off or input credit. In other words, every time the goods cross the city limits they will be liable for LBT and levy of LBT may exceed the value of goods itself. A simple reading of the Act would necessarily warrant a LBT when goods are imported from one city to another (as the goods are purchased from another registereddealer under the Act), the corporations interpret that the LBT is leviable in such cases as each city corporation is a different entity despite the fact that the legislation empowering the levy is same. This shows that legislators have not applied their mind while framing the law; else they have done so with full knowledge that it will fill the Governments and their own coffers through corruption.

Another reason against LBT is that there is no time-limit that is specified for completing the assessment of the firms. In such situations, the dealers may be kept in suspense as to their liability to maintain books and records. Further, the appeal process is against the principles of natural justice for the simple reason that in case you decide against the order of the LBT officer or commissioner, you are required to deposit the entire tax demanded before filing the appeal. 

Stringent book-keeping: A bane to traders
As per LBT rules, it will be the responsibility of traders to maintain records and pay tax.
The rule book empowers municipal officials to check any trader’s books of accounts and impose a fine up to five times the disputed amount.

some case law

Interest paid on subsequent loan taken for repayment of original loan taken for purchasing the house property is
deductible under section 24. [Source: ACIT v Sunil Kumar Agarwal[2011] 8 ITR (Trib) 304 (Lucknow)]

269SS not applies to transfer between two accounts by Journal Entry
Section 269SS is attracted when the loan or deposit taken or accepted otherwise than by account payee cheque or account payee bank draft and in the Explanation (iii) below Sec.269SS, it is mentioned that loan or deposits means "loan or deposit of money" and transfer between two accounts by way of journal entry does not imply receipt of loan or deposit in money terms. When there is no violation of Section 269SS there is no question of levy of penalty of u/s.271D. The penalty of Rs.24, 74,700/- (sic.) is thus directed to be deleted.
ITAT "D" BENCH, AHMEDABAD 
Income-tax Officer Vs. Shri Mineshkumar Shantilal Patel

Depreciation On Goodwill Disallowed

2013 (5) TMI 224 - ITAT MUMBAI
M/s. Bhilad Textile Industries Pvt. Ltd. Versus The Dy. Commissioner of Income-tax

Depreciation on goodwill disallowed - Held that:- This issue is no more res integra in view of the judgment of CIT v. Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] wherein excess consideration paid by assessee over the value of net asset acquired was considered as goodwill on which depreciation was claimed. In favour of assessee. 

Disallowance u/s 14A as per Rule 8D - Held that:- As the assessment year involved is 2004-2005. As decided in Godrej & Boyce Ltd. Mfg. Co. v. DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] provisions of Rule 8D cannot be applied to any assessment year prior to 2008-2009 - matter sent back to the AO for working out of disallowance under this provision on reasonable basis. 

Disallowance of u/s 145A - difference between the Cenvat addition to opening and closing stock of raw material and packing material - Held that:- According to the prescription of section 145A the amount of tax, duty, cess etc. is liable to be included in the value of purchases, sales, opening and closing stock. It is not appropriate to include the closing CENVAT in the figure of closing stock without modifying the figures of purchases, sales and opening stock. See CIT Vs. Mahalaxmi Glass Works Pvt. Ltd. [2009 (4) TMI 182 - BOMBAY HIGH COURT] and CIT Vs. Mahavir Alluminium [2007 (11) TMI 41 - HIGH COURT, DELHI] - store the matter to the file of A.O. as the authorities have not properly adjusted other figures with the amount of tax, duty, cess etc

Q.5A (MAY-2013-IPCC-Taxation)(8 marks)

Q.5A (MAY-2013-IPCC-Taxation)(8 marks)

For Mr & Mrs A

Particulars	Mr.A	Mrs.A
Income From Salary (25000 x 12)	300000	-
Income From Other Sources (Clubbing)(10000 x 12) Income from Securities	120000 30000	- -
Income from house property	-	144000
Gross total income	450000	144000
Clubbing of Children’s Ø  Twin daughter (Individually Considered)  Less Exempt (upto Income) (Sec.10(32)) Ø  Son Less: - Exempt u/s 10(32) (upto Income)	2000 (2000) Nil 1200 (1200) Nil
Gross Total Income	450000	144000

Note:- It is Assumed that both twin child is getting an Income of Rs.2000 Individually hence a deduction of Rs.1500 each is allowed and hence the Income is exempt.

Q.4-A (MAY-2013-IPCC-Taxation)(8 marks)

Q.4-A (MAY-2013-IPCC-Taxation)(8 marks)

For Mr. Mohit

AY 2013-14

Particulars	Rs	Rs
Income From house Property H1 H2	80000 (38000)	42000
Income From PGBP Ø  Textile Profit Less:- Current Years Loss Less: - B/s loss (To That extent) Ø  Chemical Bad debts recovered Less: - B/f Loss (To the extent) Ø  Share in Partnership firm Less:- Exempt	100000 (40000) (60000) 35000 (35000) 16550 (16550)	Nil Nil Nil
Income from Capital Gain Long term Loss Short Term Gain	- 60000	60000
Gross Total Income		102000
Less:- Deduction u/s 80C	10000	10000
Total income		92000

Amount of Loss carried Forward

Particulars	Rs
Long term capital Loss	(35000)
Loss of Textile Business	(35000)
Loss of Chemical Business	(15000)

Q.2.A (MAY-2013-IPCC-Taxation)(8 marks)

Q.2.A (MAY-2013-IPCC-Taxation)(8 marks)

For Devesh & Siddhant

AY 2013-14

Particulars	Devesh	Siddhant
Residential Status	NR	ROR
Interest on American development Bond, 505 received In India	23000	18000
Dividend from Japanese Company Received In America	10000	15000
Profit from Sale of Shares of an Indian Co received In India	45000	75000
Profit From a Business in Mumbai But Managed from America	10000	-
Income From Business in Mumbai	32000	28000
Fess for technical Services rendered in America received in America the services utilised in India	150000	-
Interest on Saving Bank Account	4500	12000
Rent received in respect of House property	96000	55000
GrossTotal income	370500	203000
Less: - Deduction u/s 80C	-	25000
Total Income	370500	178000

IPCC May 2013 Todays paper Solved.... simply Romancing the Taxation

Q1 –A (10Marks)

For Mrs.Rani

AY.13-14

PGBP

Particulars	Rs.	Rs.
Fees	1000000
Less:- Honorarium (Taxable in Other Sources)	24000	976000
Less:- Depreciation Staff Salary Rent Medicine & Needles (105000-22000) Admin Exp	60000 240000 120000 83000 152000	(655000)
Total		321000

Other Sources

Particulars	Rs.	Rs.
Dividend Less:- Exempt	10500 (10500)	Nil
Winning From Lottery (Gross)		10000
Honorarium		24000
LIP Matured Less: Exempt U/s 10 (10D)	57860 (57860)	Nil
Total		34000

Computation of total Income

Particulars	Rs	Rs
PGBP (WN.1)	321000
Other Sources (WN.2)	34000	355000
Gross Total Income		355000
Less: Deduction U/s 80C LIP (50000 x 20%) (note) U/s 80G (100%)	10000 20000	(30000)
Total Income		325000

Computation of Tax Liability

Particulars	Rs	Rs
Normal Income (325000-10000)=315000	11500
Lottery (10000 x 30%)	3000	14500
Total Tax		14500
Add :- Education Cess @ 3%		435
Total Tax Liability		14935
TDS Paid (lottery)		3000
Tax Payable		11935

Notes:-

1.       It is assumed That LIP is Taken Before 1/4/2012.