labels: economy - general, governance, union budget 2006
Procedural compliancesnews
03 March 2006

Chartered accountants B K Vatsaraj and Mayur Kishnadwala explain the changes regarding compliance in the procedural sections

No incentive deduction if return of income not filed on time:
Various incentive deductions are available to assessees carrying on business in certain activities / sectors, more particularly u/s 10B, 80IA, 80IAB, 80IB and 80IC. Presently, these deductions are available even if the assessee files the return belatedly.

It is now provided, u/s 10B and 80AC, that effective A Y 2006-07, the assessee's claiming any of the above specified deductions will be allowed on such deduction only if the return is filed within the time limit laid down u/s 139(1) i.e. 31st July or 31st October, as the case may be.

This indeed is a very harsh amendment as, even if the return is filed late by a day, the above deductions would not be allowed, which might entail huge tax liability on such assessee.

Time limit for completing assessments:
Generally, the assessments become time barred on 31st March u/s 153. There are also provisions regarding the time limit for completing assessments in search cases. In such cases, when the assessment is completed when it is just getting time barred, the demand raised on assessment could not be collected in the same financial year. In order to enable the Government to collect the taxes in the same financial year, the time barring limit for completing the assessments have been reduced by three months.

Time limit for issuing notices for scrutiny assessment:
For non filing of return of income on time u/s 139, the A.O. could issue a notice to the assessee u/s 142 directing him to file the return. This notice could be issued even before the end of the relevant assessment year. It has now been provided, effective A.Y. 2006-07 that such notice can be issued only after the end of the relevant assessment year.

A notice, u/s 143(2), for selecting a case in scrutiny has to be issued within twelve months of the filing of the return of income. It was argued by the assessees that this time limit was also applicable to scrutiny assessments pursuant to notice issued u/s 148 i.e. on reassessments also. It has now been clarified retrospectively that a notice issued u/s 143(2), pursuant to reopening of assessment u/s 148, would be valid as long as it is issued before the time limit of completing the reassessment proceedings.

Application for exemption:
Presently, on an application made, the incomes of universities, educational institutions, hospitals etc. are exempt u/s 10(23C). However, there is no time limit for making such application. Effective 1.6.2006, it is provided that the application has to be made during the financial year for which the exemption is sought.

Interest on TDS / TCS:
Interest is payable for delayed / non payment of TDS / TCS u/s 201(1A) and 206C (7) respectively. However, there was no provision to make it payable on self assessment basis and hence the interest could be collected only on assessment. Effective 1.6.2006, this lacuna has been plugged.

Similarly, if the TDS payable was not paid, the deductor could be deemed to be an assessee in default and tax collected from him. There was no such provision in cases of TCS. This lacuna has now been plugged, effective A.Y.2007-08, by inserting section 206C (6A).

Quarterly TDS / TCS returns:
Earlier, the annual return (AR) of TDS / TCS was required to be filed u/s 206 and 206C. Penalties were leviable for late / non filing of AR. Also PAN / TAN had to be mentioned therein.

In the budget of 2005, a system of filing quarterly returns (QR) of TDS / TCS was introduced, thereby making the filing of AR redundant. It has therefore been now been logically provided that no AR needs to be filed for the financial years ending 31.3.2006 and onwards. The provisions of levy of penalty and quoting of PAN / TAN, which were hitherto applicable to AR, have been now made applicable to QR.

The important provisions of the budget have been analysed above. While most of the amendments are more or less of routine nature, one draconian provision is regarding denial of incentive deductions if return of income is not filed on time, which has been discussed above. 

The authors are partners of Mumbai-based chartered accountants firm Vatsraj & Co.

also see : Direct tax proposals on expected lines
Changes affecting corporates and business entities

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