Your Income Tax Account Online so difficulties Offline

Your Income Tax Account Online so difficulties Offline 

CA Umesh Sharma

Arjuna (Fictional Character): Krishna, nowadays income tax department is sending email named Online Taxpayer Service to all taxpayer, what is it?

Krishna (Fictional Character): Arjuna, all are living in “Information Technology age”, it has become part of everyone’s life, people can live without water for hours but it seems to be difficult to live without Whats app, Facebook etc. Therefore income tax department started providing online service to its taxpayers. This facility helps taxpayer to view income related all the information, details and facility of online compliance. Taxpayer can use this from any corner of the world from mobile or laptop. To encourage people to make use of this facility income tax department is sending emails to taxpayers.

 Arjuna: Krishna, how can taxpayer view this account? Also what all information can be seen in this account?

 Krishna: Arjuna, taxpayer needs to login on income tax department’s website i.e. www.incometaxindiaefiling.gov.in and then he will be able to view any required information and other online services. The important services provided can be enumerated as:-

1. History of e-filed returns-  By this facility One can view the details of return filed from year 2007-08 along with Acknowledgment number and Status thereof i.e. whether the return has been processed or uploaded, and the date of its uploading, etc.
2. Status of Income Tax Demand and Refund:  In this, after the return has been processed the details of a) Refund given b) Refund not given c) Demand determined d) No Demand /Refund will be shown. Also the reason for refund claimed but not given will be provided.
3. Details of Outstanding Demand: In this if taxpayer has not paid the outstanding demand then details of the same is seen. Further if demand is not acceptable then taxpayer can give online reply to the same.
4. View Form 26 AS: It is  one of the most important form. Every taxpayer before filing his return should check this form.  From this form one can get details regarding TDS deducted, TCS, Advance Tax, Self Assessment Tax paid etc.
5. Request for Reissue of Order: The Income Tax Department processes the returns filed and thereafter issues an order. Taxpayer can request for re-issuing the order. The Order contains information about returns filed and amount as calculated by the Income Tax Department.
6. Request for Refund: If the taxpayer has not received refund given by the Income Tax Department due to any reason, using this facility he can request for refund.
7. Rectification: If the taxpayer wants to rectify the return processed by the Income Tax Department then he can make online rectification. But it is to be noted that rectification can be made only for specific reasons.
8. Submit Grievances: Taxpayer can register his grievances relating to return processing, rectification, refund etc.
9. FAQ: Using this facility, anyone can get answers to his questions relating to filing of return and all of the above mentioned facilities in detail.
10. For any queries relating to Online Tax Payer Service, one may contact Toll free number – 1800-4250-0025 for E-filing related questions and 1800-425-2229 for CPC related questions.

Arjuna: Krishna, how taxpayers should use this Facility?

Krishna: Every taxpayer should check his account with Income tax department. In this account he should check his previous and current year’s status, and thereafter take appropriate decision. Also one should note that the income tax department’s website is updated continuously, therefore one should recheck status on timely basis. Similarly tax payer should ensure that their E-mail id and phone number registered with the department is correct and if not, they should get it corrected as the department contacts the taxpayer using the details provided to them.

Arjuna: Krishna, What one should learn from this?

Krishna: Arjuna, Income tax department has given many services in this online account for taxpayers. Taxpayer should use them. Due to this taxpayer will not have to go to the department again and again. For communication with the taxpayer income tax department has started this facility. Generally all taxpayers take help of tax consultant for filing returns and further issues. However, now taxpayer can do all this on his own through this online account.

Audit Under Banking Environment

Audit Under Banking Environment

Banking sector: The IT saga in Indian banking commenced from the mid-eighties of the twentieth century when the RESERVE BANK took itself the task of promoting automation in banking to improve customer service, book keeping, MIS and productivity.

This role played by the reserve bank had continued for years….

Introduction of MICR based cheques processing- a first for the region during the years 1986-1988.

BANKING SECTOR DEVELOPMENTS (COMPUTERISATION OF BANKS):

Computerisation of branches of banks- in the late eighties with the introduction of ledger posting machines (LPMs), advanced ledger posting machines (ALPMs) which have paved the way for installation of Core banking develpoments……

The computerised environment provides advantages over manual system in terms of arithmetic accuracy and uniform processing of transactions. But at the same time it poses certain challenges before the Auditor in terms of audit risk due to peculiar nature and characteristics of Computerised Information System (CIS) environment, where potential for fraud is much more and can be more easily hidden in the digital data. The overall objective and scope of an audit does not change in a CIS environment, nevertheless, the use of a computer changes the processing, storage, retrieval and communication of financial information and may affect the accounting and internal control systems employed by the bank.

There has been a phenomenal growth in the number of banks who have computerised most of the businesses of their branches.

New entrants in the banking business have augmented the competition. The customer is now well aware of the choices and products available to them. All this has necessitated access to information and state of the art technologies to serve the customer efficiently and effectively.

In this ever-changing banking environment, members who are involved in auditing of banks require to equip themselves with the IT knowledge to meet new challenges and adopt a different approach and methodology for bank audit under computerised environment.

Auditors need to test the accuracy of output by some test cases, and once it is established, their focus should be shifted to the areas, which have become vulnerable because of the computerized environment.

♠ Massive computerisation is taking place in all the banks. The approach and methodology to be followed in audit of any computerised branch needs to be understood correctly in the light of the fast-paced technological changes taking place. Information Technology makes it imperative that internal controls and systems get integrated in IT and are not apparent as a manual system.

The computerised branches may be divided into two categories:

In the first category come the branches where partial computerisation has taken place. These branches are called ALPMs or PCs or PBA.

The second category of computerised branches includes those branches that are fully computerised. These are called TBA (Total Branch Automation) branches. These branches work under LAN (Local Area Network) environment connected with a server in the branch.

The totally computerised branch may further be classified into two types:

Standalone Computerised Branch:

These bank branches are not connected online with other banks or the head office. The transactions take place in the server at the branch level and at the end of the day it is consolidated and sent to Regional/Head office for further consolidation.

Total Computerization with Central Database:

These bank branches are connected online with other branches or the central database. In the Core Banking Solutions (CBS), banks maintain a central database and all transactions that take place in various branches are updated in the central server online. People also can transact business from any of the branches of the bank.

AAS 29:

After the AAS 29 on Auditing in a Computerised Information Systems (CIS) environment became operative for all audits related to accounting periods beginning on or after 1st April 2003, the responsibility of the bank branch auditor has increased manifold. As per AAS 29, the overall objective and scope of an audit does not change in a CIS environment, however, the use of a computer changes the processing, storage, retrieval and communication of financial information and may affect the accounting and internal control systems employed by the entity. Therefore, an auditor needs to check the various controls implemented throughout the system and their existence. A CIS Environment may affect:

• The procedures followed by the auditor in obtaining a sufficient understanding of the accounting and internal control systems.
• The auditor’s evaluation of inherent risk and control risk through which the auditor assesses the audit risk.
• The auditor’s design and performance of tests of control and substantive procedures appropriate to meet audit objective.
• Auditors need to be satisfied about existence adequate security control in the Computer System as also about implementation of these controls by the bank.

Understanding of the CIS Environment

Before the auditors commences the audit, it is imperative that he has a thorough understanding of the CIS environment prevalent, each application software used at all points of time during the year as well as interfaces established between several sub systems of the bank. Without a proper understanding of the functioning of each item of software, the auditor would not be in a position to gear up for an effective audit of banks operating in a computerised environment. Accordingly, the auditor needs to carry out the following tasks: –

• Obtain sufficient understanding of the CIS environment prevalent in the bank, the interfaces established between various sub systems, flow of data, validations, functionality of each item of software etc.
• Obtain sufficient understanding of the effect of CIS environment on internal control systems Flow of authorised, correct and complete data to the processing centre.
• Processing, analysis and reporting undertaken with the use of computer.
• The impact of computer based systems on the audit trail that could otherwise be expected to exist in an entirely manual system.
• Determine the effect of CIS environment on the assessment of overall audit risk and of risk at the account balance and class of transaction level.
• Design and perform appropriate tests of control and substantive procedures

Nature of Risks and Internal Control Prevalent:

Lack of Transaction Trails:

Some CIS are designed so that a comprehensive transaction trail that is normally useful for audit may exist only for a short period of time or only in computer readable form. Several accounting entries passed and its impact on general ledger are system generated, based upon logic in built in the computer programs. Accordingly, errors in the programming logic may not be detected by merely manual procedures.

Uniform Processing Transactions:

Computers handle uniformly transactions with the same processing instructions. But, It may also happen that the programming instructions may not take care of all business intricacies and situation.

Lack of Segregation:

Many control procedures that would ordinarily be performed by different individuals in manual systems may become concentrated in a CIS environment. Thus, an individual, who has access to computer programs, processing or data may be in a position to perform incompatible functions.

Dependence of Other Controls Over Computer Processing:

Computer processing may produce reports and outputs that are used as a base for audit. The effectiveness of audit shall depend to a considerable extent on the accuracy, correctness and completeness of the reports generated by the computer system.

 It is quite likely that some of the reports generated by the computer system are wrong either due to faulty logic, inaccurate functionality or even by manual intervention by the bank staff before handing over this report to the auditor. It is quite possible that reports on computer are downloaded to excel where certain values are altered before being handed over to the auditors.

Potential for the Use of Computer for AUDIT:

Assisted Audit Techniques:

• While evaluating the reliability of accounting and internal control systems, the auditor would consider whether these systems are inter alia:
• Ensure that authorised, correct and complete data are made available for processing.Provide for timely detection and correction of errors.
• Ensure that in case of interruption in the working of the CIS environment due to power, mechanical or processing failures, the system restarts without distorting the completion of the entries and records.
• Ensure the accuracy and completeness of output.
• Provide adequate data security against fire and other calamities, wrong processing, frauds etc.
• Prevent unauthorised amendments to the programs.
• Provide for a safe custody of source code of application software and data files. Auditor should make enquiries and satisfy himself whether:

a. Adequate procedures exist to ensure that data is transmitted correctly.

b. Cross-verification of records, reconciliation statements and control systems between primary and subsidiary ledgers do exist and are operative. There should be no assumed accuracy of computerised records.

♠ The auditor should also document the audit plan, the nature, timing and extent of audit procedures performed and the conclusions drawn from the evidence obtained. All audit evidence which is in electronic form should be properly and safely stored and are to be retrieved in its entirety as and when required.

Advantages:

• The computerised environment provides advantages over manual system in terms of arithmetic accuracy and uniform processing of transactions.
• That reduces the audit risk as there is no need to maintain and verify balancing ledgers and no need to verify postings if there is a fool proof computer system.
• Further, the system calculates interest automatically and chances of error are limited.
• The clerical errors ordinarily associated with manual processing are virtually eliminated.
• Many of the functions earlier carried out under manual system get automated and get eliminated under computer system.
• Many of the operations get redundant due to computerisation.

Challenges

• The use of technology in banks also poses certain challenges before the auditor. A single person now performs many control procedures that were performed by different persons in manual system.
• Thus, it compromises some times, the basic principle of segregation of duties and allows performance of incompatible functions.
• The lack of transaction trail and audit evidence is the biggest challenge for auditors.
• Proper documentation is also a challenge, which auditors need to cope up with in the computerised environment.
• Some of the audit evidence may be in the electronic form, some of them are not capable of being retrieved again as they are generated once only.

“As required by the AAS 29, “The auditor should satisfy himself that such evidence is adequately and safely stored and is retrievable in its entirety as and when required

CONCLUSION:

Hereby, concluding my presentation with a statement that under CIS envt. Bank Audits has become very efficient and more reliable but on the other side it increases several types of risks. So. It must be carried out with more diligence, care and after careful study of the risk factors involved.

No right of appeal provided under the statute against order passed u/s. 264 of Income Tax Ac t,1961

No right of appeal provided under the statute against order passed u/s. 264 of Income Tax Ac t,1961

Citation- Gausia Cold Storage Pvt. Ltd, Mumbai Vs. ACIT Circle 6(3) ,Mumbai. ITA No. 1895/Mum/2011 [Assessment Year: 2006-07] Date of pronouncement: 12.06.2015 Brief Facts Assessee preferred an appeal before the Tribunal against an order passed u/s 264 of the Income Tax Act 1961. The Tribunal passed an order on merits in this appeal overlooking the fact that there is no right of appeal provided under the statute against the order passed u/s. 264 of the Act. Court’s Order 1. There is no right of appeal provided under the statute against the order passed u/s. 264 of the Act. In fact a party to litigation can move to an appropriate forum only when the statute provides for such a right. 2. As can be noticed from section 253 of the Income-tax Act, 1961 an order passed by the Commissioner of Income Tax (‘CIT’) u/s. 264 of the Act is not appealable before the Appellate Tribunal. 3. However, this issue escaped the attention of the bench; while passing the order on 16.01.2015 the bench entertained the appeal and disposed of the issue/s on merits. 4. Since entertaining the appeal against the order passed u/s. 264 of the Act is a mistake apparent from record, in exercise of the powers vested in us u/s. 254(2) of the Act, the bench hereby recalls the order dated 16.01.2015; and the appeal filed by the assessee deserves to be dismissed as not admitted, since there is no statutory right to file an appeal against the order passed u/s. 264 of the Act. 

Income determined on estimate basis, penalty u/s 271(1)(c) cannot be imposed

Income determined on estimate basis, penalty u/s 271(1)(c) cannot be imposed

Citation: Rajiv Kumar Garg Vs. ITO Ward 2, Shamli. ITA No. 519/Del/2014 [Assessment Year: 2009-10] Date of pronouncement: 15.06.2015

Brief Facts:

1. The assessee is engaged in trading of cement. The A.O., during the course of assessment proceedings, valued the closing stock on the basis of last purchase bill, the differential of stock amount between assessee’s and A.O.’s calculation being Rs. 2,40,381/-. The assessee agreed for the aforementioned addition.

2. The A.O., in relation to the said addition, imposed penalty u/s 271(1)(c) of the Income Tax Act, 1961, amounting to Rs. 45,100/- @ 100% of tax sought to be evaded.

3. The Ld. CIT(A) upheld the penalty.

Assessee Contention:

No one appeared before the ITAT Bench for hearing on behalf of the assessee. Thus, the ITAT Bench disposed off the appeal ex parte qua the assessee.

Revenue Contention:

The penalty u/s 271(1)(c) has been imposed on the basis of difference in value of stock shown by assessee and as estimated by A.O. by applying the rate of last purchase bill. Further, the assessee also accepted the addition. Thus, the inaccurate particulars of income had been furnished by the assessee and the penalty so levied is justified.

Court’s Order:

1. There is nothing to show that the assessee has concealed his income or furnished inaccurate particulars of income. There can be several reasons for a different valuation. It is not necessary that all the cement bags are always of good quality. Some of the cement bags may have leaked, spoilt or fixed.

2. Mere fact that the addition has been accepted or is confirmed in quantum proceedings cannot be conclusive of penalty imposition.

3. The Hon’ble Calcutta High Court in case of Durga Kamal Rice Mills Vs. CIT (2004) 265 ITR 25 (Cal.) has held that quantum proceedings are different from penal proceedings. The Hon’ble Kerala High Court in CIT Vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.) has held that despite the addition being confirmed by Tribunal in quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts justify.

4. The addition has been made only on the basis of estimate made by the A.O. It is settled legal position that when income is estimated, then there can be no question of imposing penalty u/s 271(1)(c) of the Act.

5. The Hon’ble Delhi High Court in CIT Vs. Aero Traders Pvt. Ltd. (2010) 322 ITR 316 (Del.) has held that no penalty u/s 271(1)(c) can be imposed when income is determined on estimate basis. The similar view has been taken by:

a) Hon’ble Punjab and Haryana High Court in Harigopal Singh Vs. CIT (2002) 258 ITR 85 (P&H)

b) Hon’ble Gujarat High Court in CIT Vs. Subhash Trading Co. 221 ITR 110 (Guj.)

6. It is apparent that the bedrock of instant penalty is the estimate of valuation of closing stock, the same cannot be sustained. The penalty is thus, ordered to be deleted.

‘Success fee’ payable by Indian company to foreign company for financial advisory services attract TDS

‘Success fee’ payable by Indian company to foreign company for financial advisory services attract TDS 

GVK Industries vs. Income Tax Officer (Supreme Court),Civil Appeal No. 7796 of 1997, Date of Judgment- 18.02.2015)

Brief Facts of the case:

The appellant company is incorporated under the Companies Act, 1956 for the purpose of setting up a 235 MW Gas based power project at Jegurupadu, Rajahmundry,Andhra Pradesh at an estimated cost of Rs.839 crores The main object of the appellant company is to generate and sell electricity.

It entered into an agreement with ABB – Projects & Trade Finance International Ltd., Zurich, Switzerland,( “Non-Resident Company/NRC”) to avail the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie up the required loan.

Those services included, inter alia, financial structure and security package to be offered to the lender, making an assessment of export credit agencies world-wide and obtaining commercial bank support on the most competitive terms, assisting the appellant loan negotiations and documentation with lenders and structuring, negotiating and closing the financing for the project in a coordinated and expeditious manner. For its services the NRC was to be paid, what is termed as, “success fee” at the rate of 0.75% of the total debt financing.

The NRC rendered professional services from Zurich by correspondence as to how to execute the documents for sanction of loan by the financial institutions within and outside the country. After successful rendering of services the NRC sent invoice to the appellant-company for payment of success fee amount i.e., US $.17, 15,476.16 (Rs.5.4 Crores).

After the receipt of the said invoice the appellant-company approached the concerned income tax officer, the first respondent herein, for issuing a ‘No Objection Certificate’ to remit the said sum duly pointing out that the following:

i) NRC had no place of business in India; that all the services rendered by it were from outside India; and that no part of success fee could be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the Income-tax Act, 1961 by the NRC.

ii) It was also stated as the NRC had no business connection, thus, Section 9(1)(i) is not attracted .

iii) NRC had rendered no technical services, thus, Section 9(1)(vii) is also no attracted.

The Assessing Officer scanning the application filed by the company refused to issue ‘No

Objection Certificate’. Being dissatisfied with the said order passed by the first respondent the appellant-company preferred a revision petition before the commissioner of Income-tax, Hyderabad, under Section 264 of the Act. who permitted the appellant-company to remit the said sum to the NRC by furnishing a bank guarantee for the amount of tax. The company took steps to comply with the said order but afterwards on October 25, 1995 the revisional authority revoked the earlier order and directed the company to deduct tax and pay the same to the credit of the Central Government as a condition precedent for issuance of the ‘No Objection Certificate’. Thus, the order passed by the Assessing Officer was affirmed and resultantly the revision petition was dismissed.

Aggrieved by the order of Revisional Authority (CIT) the company filed writ petition before the Hon’ble Andhra Pradesh High Court for issue of writ of certiorari for quashing of the orders passed by the Income-tax officer and that of by the revisional authority. High Court decided the matter against the assessee.

Finally, assessee challenged the decision of High Court before the Hon’ble Supreme Court.

Contention of the Assessee:

The assessee contended that the tax is not required to be deducted because the income cannot be deemed to accrue or arise in India because of following reasons:

i) NRC had no place of business in India and all the services rendered by it were from outside India; and that no part of success fee could be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the Income-tax Act, 1961 by the NRC.

ii) It was also stated as the NRC had no business connection, thus, Section 9(1)(i) is not attracted . It is why because the assessee company was always directly concerned with the making of application for financial assistance for the project and pursuing the same and NRC did not have any office or establishment in India at any relevant point of time , it operated from Zurich; and ,thus, there was no business connection between the company and the NRC;

iii) NRC had rendered no technical services, thus, Section 9(1) (vii) is also no attracted.

NRC only rendered advise in connection with payment of loan by it and hence,

it would not amount to technical or consultancy service within the meaning of Section 9(1)(vii)(b) of the Act.

Contention of the Revenue:

On behalf of the revenue a counter affidavit was filed contending, inter alia, that the NRC was very actively associated not only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as consultancy services ,thus, It was urged that it squarely falls within the ambit of Section 9(1)(vii)(b) of the Act.

It was further contended by Revenue, that there is a business connection between the NRC with the company in India and the voluminous correspondence between the two wings discloses the said connection. It was also contended that the company had contracted the NRC not only for the limited purpose of getting loan but also for the further participation in its business activity which could be envisaged from the correspondence made between the two and, therefore, the income will accrue or deemed to have accrued or arisen to the NRC in India within the provisions of the Sec 9(1) as the business connection has also established.

Thus, as per the Revenue the income in the hands of NRC is deemed to accrue or arise in India both as per Sec 9(1) and Sec 9(1) (vii)(b).

Decision of Hon’ble Supreme Court:

It is evident that fee which has been named as “success fee” by the assessee has been paid to the NRC. It is to be seen whether the payment made to the non-resident would be covered under the expression “fee for technical service” as contained in Explanation (2) to Section 9(1)(vii) of the Act. The said expression means any consideration, for rendering managerial, technical or consultancy services.

The agreement of the assessee company with the NRC make it very clear that the scope of services to provided shall cover the following :

(i) Develop comprehensive financial model to tie-up the rupee and foreign currency loan requirements of the project.

(ii) Assist expert credit agencies world-wide and obtain commercial bank support on the most competitive terms.

(iii) Assist the appellant company in loan negotiations and documentation with the lenders.

The nature of service referred by the NRC, would certainly come within the ambit and sweep of the term ‘consultancy service’ and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee would be taxable under the head ‘fee for technical service’.

Thus, the remittance would be income be chargeable to tax in the hands of NRC as income deemed to accrue or arise in India as per Sec 9(1)(vii).

Therefore, the appeal of assessee is not allowed and the case decided in the favour of Revenue.

Reporting of fraud u/s 143(12) of Companies Act

Reporting of fraud u/s 143(12) of Companies Act

Persons covered for reporting on fraud

Without causing harm to anything contained in this section, if an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.

The statutory auditors of the company are required to report under the same. Likewise, the cost accountant in practice, conducting cost audit under Section 148 of the Act; and to the company secretary in practice, conducting secretarial audit under Section 204 of the act are also required to report the same.

It needs to be noted that internal auditors covered under Section 138 are not specified as persons who are required to report under Section 143(12).

The provisions of this section shall also require reporting by a branch auditor appointed under Section 139 to the extent it relates to the concerned branch.

However, the provisions of Section 143(12) do not apply to other professionals who are rendering other services to the company.

For example, Section 143(12) does not apply to auditors appointed under other statutes for rendering other services such as tax auditor appointed for audit under Income-tax Act; Sales Tax or VAT auditors appointed for audit under the respective Sales Tax or VAT legislations.

Auditors’ Responsibility 

Section 143(12) requires an auditor to report on fraud if in the course of performance of his duties as an auditor, the auditor has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees.

The definition of fraud as per SA 240 and the explanation of fraud as per Section 447 of the 2013 Act are similar, except that under Section 447, fraud includes ‘acts with an intent to injure the interests of the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.’

However, an auditor may not be able to detect acts that have intent to injure the interests of the company or cause wrongful gain or wrongful loss, unless the financial effects of such acts are reflected in the books of account/financial statements of the company.

Example, if an employee is alleged to be carrying on business parallel to the company’s business and has been diverting customer orders to his company, the auditor may not be able to detect the same since such sales transactions are not recorded in the books of the company.

Therefore, the auditor shall consider the requirements of the SAs, insofar as it relates to the risk of fraud, including the definition of fraud as stated in SA 240, in planning and performing his audit procedures in an audit of financial statements to address the risk of material misstatement due to fraud.