The Hindu Business Line : Comply or pay

It is said in jest that while drafting any new law in India, the penal provisions are done first because this would give an idea to the Revenue as to what the taxpayer ought to comply with.

The need for a penal section is clear — to instil a sense of fear in the minds of the taxpayer not to cross the line too far. Penal provisos could be monetary or disciplinary. With a refreshing Direct Taxes Code, it would be interesting to see w hat penal provisions are in store.

Penal provisions

A glance through the provisions reveals a change of stance. The Code does not specify each and every type of offence and the related penalties. It introduces a new concept called under-reporting one’s tax base and specifies the maximum penalty to be twice the tax under-reported.

A person shall be deemed to have wilfully under-reported his tax base if no return of tax base has been filed by the due date, the tax base disclosed in the return filed is less than the assessed tax base or the tax base reassessed is greater than the tax base assessed immediately before the reassessment.

The amount of tax base under-reported shall be the aggregate of the addition, or disallowance, made by the Assessing Officer, Commissioner or Commissioner (Appeals).

However, to ensure that trigger-happy officers do not use the provisions at will, exemptions have been provided if the taxpayer is able to convince the officer with documentary evidence, maintains correct accounts of the transaction, self-estimates the disallowance and includes it in the return and prima-facie adjustments.

It can be argued that if these conditions are met, there is a very slim possibility of a disallowance which is the basis for the levy of a penalty. The Code mentions that the penalties for other defaults have also been rationalised, and no income-tax authority shall have the power to waive the penalty imposed and a timeframe of one year is provided to the officer to levy the penalty.

The Joint Commissioner or the Additional Commissioner need to approve penalties in excess of Rs 1 lakh and Rs 5 lakh if they are levied by the Income-Tax Officer or Deputy Commissioner, respectively.

If the penal provisions do not suffice, prosecution proceedings are the answer. . It has been clarified that levy of penalty and prosecution are independent of each other and it shall be no defence to a prosecution that an order of assessment or penalty has not been made, or has been barred by limitation, or has been set aside by a higher authority or a court, or for any other reason.

Attempt at simplification

Like all else in the Code, an attempt has been made to simplify the penal proceedings. The focus on levying penalty on additions made could give rise to frictions as revenue mobilisation could take precedence over logic.

It appears that not much has changed with respect to offences for administrative lapses, such a late filing of a return, non-payment of advance tax, etc. If taken in the right perspective, the Code provides an opportunity for the Revenue and the taxpayer to start trusting each other.

(The author is a Hyderabad-based chartered accountant.)